Policies Towards Foreign Direct Investment

The Lao government officially welcomes both domestic and foreign investment as it seeks to keep growth rates high and graduate from Least Developed Country status by 2026.  The pace of foreign investment has increased over the last several years.  According to Lao government statistics, mining and hydropower account for 95.7 percent of Foreign Direct Investment (FDI), and agriculture accounted for only 2 percent of FDI in 2019.  China, Thailand, France, Vietnam, and Japan are the largest sources of foreign investment, with China accounting for a significant share of all FDI in Laos.  The government’s Investment Promotion Department encourages investment through its website www.investlaos.gov.la, and the government also attempts to improve the business environment by facilitating a constructive dialogue annually with the private sector and foreign business chambers through the Lao Business Forum, which is managed by the Lao National Chamber of Commerce and Industry LNCCI).

The 2009 Law on Investment Promotion was amended in November 2016, with 32 new articles introduced and 59 existing articles revised.  Notably, the new law, an English version of which can be found at www.investlaos.gov.la, clarifies investment incentives, transfers responsibility for SEZs from the Prime Minister’s office to the Ministry of Planning and Investment (MPI), and removes strict registered capital requirements for opening a business, deferring instead to the relevant ministry.  Foreigners may invest in any sector or business except in cases where the government deems the investment to be detrimental to national security, health, or national traditions, or that have a negative impact on the natural environment.  Specifically, Article 12 (value-added tax and duty incentives) was improved in 2019 as the government wants to provide a mechanism to facilitate investment towards activities that enable production and export.  Nevertheless, even in cases where full foreign ownership is permitted, many foreign companies seek a local partner.  Companies involved in large FDI projects, especially in mining and hydropower, often either find it advantageous or are required to give the government partial ownership.

Foreign investors are typically required to go through several procedural steps prior to commencing operations.  Many foreign business owners and potential investors claim the process is overly complex and regulations are erratically applied, particularly to foreigner investors.  Investors also express confusion about the roles of different ministries, as multiple ministries become involved in the approval process.  In the case of general investment licenses (as opposed to concessionary licenses, which are issued by MPI, foreign investors are required to obtain multiple permits, including an annual business registration from the Ministry of Industry and Commerce (MOIC), a tax registration from the Ministry of Finance, a business logo registration from the Ministry of Public Security, permits from each line ministry related to the investment (i.e., MOIC for manufacturing, and Ministry of Energy and Mines for power sector development), appropriate permits from local authorities, and an import-export license, if applicable.  Obtaining the necessary permits can be challenging and time consuming, especially in areas outside the capital.

There are several possible vehicles for foreign investment.  Foreign partners in a joint venture must contribute at least 30 percent of the company’s registered capital.  Wholly foreign-owned companies may be entirely new or a branch of an existing foreign enterprise.  Equity in medium and large-sized SOEs can be obtained through a joint venture with the Lao government.

Reliable statistics are difficult to obtain, yet with the slowdown of the world economy, there is no question that foreign investment has begun to fluctuate in comparison to previous years.  According to the United Nations Conference on Trade and Development (UNCTAD), FDI inflows to Laos decreased 58 percent from USD 1.3 billion in 2018 to USD 557 million in 2019. Laos received around USD 1.07 billion in FDI from China in 2019.  Total FDI in Laos has increased from USD 5.7 billion in 2016 to USD 10 billion in 2019.

Limits on Foreign Control and Right to Private Ownership and Establishment

As discussed above, despite the fact that foreigners may invest in most sectors or businesses (subject to previously noted exceptions), many foreign companies seek a local partner in order to navigate byzantine official and unofficial processes.  Companies involved in large FDI projects, especially in mining and hydropower, often either find it advantageous or are required to give the government partial ownership.

Other Investment Policy Reviews

The OECD released its most recent investment policy review of Laos on July 11, 2017.  More details can be found at http://www.oecd.org/daf/inv/investment-policy/oecd-investment-policy-reviews-lao-pdr-2017-9789264276055-en.htm

Business Facilitation

Laos does not have a central business registration website yet, but the Ministry of Industry and Commerce (MOIC) has improved its online enterprise registration site, http://www.erm.gov.la, to accelerate the registration process.  As discussed above, the average time to attain an Enterprise Registration Certificate for general business activities decreased from 174 to 17 days. Nonetheless, the timeline and process for controlled and concession activities (see  https://www.laotradeportal.gov.la/kcfinder/upload/files/Legal_1571216364.pdf for a list) could vary considerably, as it requires the engagement of different government agencies to issue an operating license.  As a result, many investors and even locals often hire consultancies or law firms to shepherd the labor-intensive registration process.

The Lao government has attempted to streamline business registration through the use of a one-stop shop model.  Registration for general business activities can be done at the Department of Enterprise Registration and Management offices, MOIC (see http://www.erm.gov.la for more details), while the service for activities requiring a government concession is through the MPI.  For investment in SEZs, one-stop registration is run through the MPI or in special one-stop service offices within the SEZs themselves (under the authority of the MPI).

To promote and facilitate domestic and foreign investment, the Prime Minister issued Order 02 and Order 03 in 2018 and 2019 respectively to reform the ease of doing business and improve services on investment and operational licenses. This includes the improvement of the One Stop Service system and conducting business implementation associated with transparency in a uniform and timely manner.  The government also encourages the participation of both domestic and foreign investors to develop infrastructure and public services delivery projects by issuing a public-private partnership (PPP) decree in 2020 aiming to boost economic growth.

So far, business owners give the one-stop shop concept mixed reviews.  Many acknowledge that it is an improvement, but describe it as an incomplete reform with several additional steps that must still be taken outside of the single stop. Businesses also complain that there are often different registration requirements at the central and provincial levels.

Outward Investment

The Lao government does not actively promote, incentivize, or restrict outward investment.

Transparency of the Regulatory System

Regulations in Laos can be vague and conflicting, a subject that the private sector raises regularly with the government, including through official fora such as the Lao Business Forum.  The 2013 Law on Making Legislation mandated that all laws be available online at the official gazette website, www.laoofficialgazette.gov.la.  Draft bills are also available for public comment through the official gazette website, although not all bills are posted for comment or in the official gazette, and the provinces seldom post their local legislation.  Though the situation continues to improve, the realities of doing business in Laos can fail to correspond with existing legislation and regulation.  Implementation and enforcement often do not strictly follow the letter of the law, and vague or contradictory clauses in laws and regulations provide for widely varying interpretations.  Regulations at the national and provincial levels can often diverge, overlap, or contradict one another.  Many local firms still complain about informal or gray competition from firms that offer lower costs by flaunting formal registration requirements and operating outside of government regulatory structures.

The nascent legal, regulatory, and accounting systems are not particularly conducive to a transparent, competitive business environment.  International accounting norms apply and major international firms are present in the market, though understanding and adherence to these norms is limited to a small section of the business community.  There are eleven companies listed on the Lao stock exchange.  Regulations dictate that companies listed on the exchange must be held to accounting standards, but the government’s capacity to enforce those standards is low.

The government now publicly releases the enacted budget, which includes the total amount of domestic and external debt obligations for the whole country.

International Regulatory Considerations

Laos is a member of the ASEAN Economic Community (AEC), and is seeking to implement all AEC-agreed standards domestically.  However, the local capacity to develop regulatory standards is weak, while enforcement of technical regulations is weaker still. On the positive side, the Lao government has been diligent at notifying draft technical regulations – such as its new law on standards – to the WTO committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Laos currently has a poorly developed legal sector.  The government adopted the Legal Sector Master Plan with an aim to become a rule of law state by 2020.  The plan is now completed, and significant accomplishments include strengthening the rule of law and advancement in the exercise of rights.  Nevertheless, the rule of law in Laos is still in its infancy.  To improve the legal system, the government will continue to work with many development partners on comprehensive legal sector reform.  From 1975 to 1991, Laos did not have a constitution, and government decrees issued by various ministries and officials only exacerbated the country’s poor legal framework.  While there have been dramatic improvements in the legal system over the last decade, there are relatively few lawyers, many judges lack formal training and experience, and laws often remain vague and subject to broad interpretation.

The existing system incorporates some major elements of the French civil law system, but it is also influenced by legal systems of the former Soviet Union and some of its neighbors in the region.  Court decisions are neither widely published nor do they necessarily affect future decisions.  Despite being bureaucratically independent of the government cabinet, the Lao judiciary is still subject to government and political interference.

Contract law in Laos is lacking in many areas important to trade and commerce.  The law provides for the sanctity of contracts, but in practice, contracts are subject to political interference and patronage.  Businesses report that contracts can be voided if they are found to be disadvantageous to one party, or if they conflict with state or public interests.  Foreign businessmen describe contracts in Laos as being “a framework for negotiation” rather than a binding agreement, and even when faced with a judgment, enforcement is weak and subject to the influence of corruption.  Although a commercial court system exists, most judges adjudicating commercial disputes have little training in commercial law.  Those considering doing business in Laos are strongly urged to contact a reputable law firm for additional advice on contracts.

One positive development from 2019 is that under the leadership of MOIC, Laos became the 92nd State Party to join the United Nations Convention on Contracts for the International Sale of Goods.

Laws and Regulations on Foreign Direct Investment

As discussed above, the 2009 Law on Investment promotion was amended in November 2016. The new law provides more transparency regarding regulations and procedures, and provides greater detail about what specific responsibilities fall under the Ministry of Planning and Investment.  The 2016 Law on Investment Promotion introduced uniform business registration requirements and tax incentives that apply equally to foreign and domestic investors.  As noted above, foreigners may invest in any sector or business except in cases where the government deems the investment to be detrimental to national security, health, or national traditions, or to have a negative impact on the natural environment.  Aside from these sectors, there are no statutory limits on foreign ownership or control of commercial enterprises.  For reasons discussed above, despite changes in the law, many companies continue to seek a local partner.

Most laws of interest to investors are featured on the Lao Trade Portal website, http://www.laotradeportal.gov.la, with many laws and regulations translated into English, or the Lao Official Gazette, http://laoofficialgazette.gov.la, or the official website of the Investment Promotion Department (MPI), www.investlaos.gov.la, or the newly created Lao Law App.

In sum, neither the government’s investment bureaucracy nor the commercial court system is well developed, although the former is improving and reforming.  Investors have experienced government practices that deviate significantly from publicly available law and regulation.  Some investors decry the courts’ limited ability to handle commercial disputes and vulnerability to corruption.  The Lao government has repeatedly underscored its commitment to increasing predictability in the investment environment, but in practice, with some exceptions in the creation and operation of SEZs, and investments by larger companies, foreign investors describe inconsistent application of law and regulation.

Competition and Antitrust Laws

There have been no updates since 2017.  A new competition law was approved in 2015 that applies to both foreign and domestic individuals and entities.  The law was drafted with the assistance of the German government and other donors.  The competition law was one of the Lao government’s policy efforts to implement the ASEAN Economic Community, or AEC, before 2016.  The law established two new government entities, the Business Competition Control (BCC) Commission and the BCC Secretariat.  The BCC Commission is the senior body and its membership is decided by the Prime Minister with the advice of the Minister of Industry and Commerce (MOIC).  According to the legislation, it should include senior officials from multiple ministries as well as business people, economists, and lawyers.  The BCC Commission can draft regulations, approve mergers, levy penalties, and provide overall guidance on government competition policy and regulation.  The BCC Secretariat, a lower-level institution equivalent to a MOIC department or division, can hear complaints, conduct investigations, and conduct research and reporting at the request of the Commission.

Expropriation and Compensation 

According to law, foreign assets and investments in Laos are protected against seizure, confiscation, or nationalization except when deemed necessary for a public purpose.  Public purpose can be broadly defined, however, and land grabs are feared by Lao nationals and expatriates alike.  In the event of a government expropriation, the Lao government is supposed to provide fair market compensation.  Nevertheless, a business relying on a specific parcel of land may lose its investment license if the land is in dispute.  Revocation of an investment license cannot be appealed to an independent body, and companies whose licenses are revoked must quickly liquidate their assets.  Small landholdings, land with unclear title, or land on which taxes have not been paid are at particular risk of expropriation.

Dispute Settlement

ICSID Convention and New York Convention 

The Decree on Establishment of Private Economic Dispute Resolution as specified under Article 4 of the Law on Economic Dispute Resolution No.51/NA, (2018) provides for private arbitration bodies in Lao PDR. However, the regulatory framework to enable the private sector to establish an alternative channel for business arbitration is still under development with assistance from international donors like USAID.

Laos is not a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention).  It is, however, a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement 

According to the Law on Investment Promotion, resolution of a dispute resolution should proceed through the following process: mediation, administrative dispute resolution, dispute resolution by the Committee for Economic Dispute Resolution, and finally, litigation.  However, due to the underdeveloped state of the Lao legal system, foreign investors are generally advised to seek arbitration outside of the country.  There are few publicly available records on international investment disputes.   According to the 2016 investment promotion law, Article 96 on Dispute Resolution by the Office for Economic Dispute Resolution in the Lao PDR or international organization to which Lao PDR is a party states: “When there is an investment-related dispute, either party thereto shall have the rights to request the Office for Economic Dispute Resolution for resolution within the Lao PDR or abroad as agreed by the parties of the dispute. The Lao PDR recognizes and enforces the award of foreign or international arbitration subject to certification by the people’s court of Lao PDR.”  However, in practice, the Embassy is not aware of this new article being successfully exercised by a foreign investor.

International Commercial Arbitration and Foreign Courts

Beyond those listed above, there are no formal Alternative Dispute Resolution mechanisms provided in Lao law but based on the amended Investment Promotion Law and the law on Investment resolution law dated June 22, 2018, both parties can decide if they would like to have the arbitration in Laos or abroad as mentioned in the contract.  There is no known history of Laos enforcing foreign commercial arbitral decisions.

Bankruptcy Regulations

The 1994 bankruptcy law permits either the business or creditor the right to petition the court for a bankruptcy judgment and allows businesses the right to request mediation.  The law also authorizes liquidation of assets based upon the request of a debtor or creditor.  However, there is no record of a foreign-owned enterprise, whether as debtor or as creditor, petitioning the courts for a bankruptcy judgment.  According to the World Bank’s Ease of Doing Business Report, Laos remainslast in global rankings for ease of resolving insolvency.

Capital Markets and Portfolio Investment

Laos does not have a well-developed capital market, although government policies increasingly support the formation of capital and free flow of financial resources.  The Lao Securities Exchange (LSX) began operations in 2011 with two stocks listed, both of them state-owned – the Banque Pour l’Commerce Exterieur (BCEL), and the power generation arm of the electrical utility, Electricite du Laos – Generation (EDL-Gen).  In 2012, the Lao government increased the proportion of shares that foreigners can hold on the LSX from 10 to 20 percent.  As of March 2021, there are eleven companies listed on the LSX: BCEL, EDL-Gen, Petroleum Trading Laos (fuel stations), Lao World (property development and management), Souvanny Home Center (home goods retail), Phousy Construction and Development (Construction and real estate development), Lao Cement (LCC), Mahathuen Leasing (leasing), Lao Agrotech (palm oil plantation and extraction factory), Vientiane Center (property development and management), and Lao ASEAN Leasing (LALCO) ( financing and leasing).  News and information about the LSX is available at http://www.lsx.com.la/.

Businesses report that they are often unable to exchange kip into foreign currencies through central or local banks.  Analysts suggest that concerns about dollar reserves may have led to temporary problems in the convertibility of the national currency.  Private banks allege that the Bank of Lao PDR withholds dollar reserves.  The Bank of Lao PDR alleges that the private banks already hold sizable reserves and have been reluctant to give foreign exchange to their customers in order to maintain unreasonably high reserves.  The tightness in the forex market led to a temporary 9.1 percent divergence between official and gray-market currency rates in December 2020, and since 2017 the Lao kip has depreciated against both the dollar and Thai baht.

Lao and foreign companies alike, and especially small- and medium-sized enterprises (SMEs), note the lack of long-term credit in the domestic market.  Loans repayable over more than five years are very rare, and the choice of credit instruments in the local market is limited.  The Credit Information Bureau, developed to help inject more credit into markets, still has very little information and has not yet succeeded in mitigating lender concerns about risk.

Money and Banking System

The banking system is under the supervision of the Bank of Lao PDR, the nation’s central bank, and includes more than 40 banks, most of them commercial.  Private foreign banks can establish branches in all provinces of Laos.  ATMs have become ubiquitous in urban centers.  Technical assistance to Laos’ financial sector has led to some reforms and significant improvements to Laos’ regulatory regime on anti-money laundering and countering the financing of terrorism, but overall capacity within the financial governance structure remains poor.

The banking system is dominated by large, government-owned banks.  The health of the banking sector is difficult to determine given the lack of reliable data, though banks are widely believed to be poorly regulated and there is broad concern about bad debts and non-performing loans that have yet to be fully reconciled by the state-run banks, in particular.  The IMF and others have encouraged the Bank of Lao PDR to facilitate recapitalization of the state-owned banks to improve the resilience of the sector.

While publicly available data is difficult to find, non-performing loans are widely believed to be a major concern in the financial sector, fueled in part by years of rapid growth in private lending.  The government’s fiscal difficulties in 2013 and 2014 led to non-payment on government infrastructure projects.  The construction companies implementing the projects in turn could not pay back loans for capital used in construction.  Many analysts believe the full effects of the government’s fiscal difficulties have not yet worked their way through the economy.  In recent years, Laos is projected to continue running a budget deficit of 7.6 percent, which coupled with rising public or publicly held debt estimated to reach 69 percent of GDP, add to concerns about Laos’ fiscal outlook.  In 2018 Laos passed a new law on Public Debt Management aimed at reducing the debt-to-GDP ratio in the coming years.

Foreign Exchange and Remittances

Foreign Exchange

There are no published, formal restrictions on foreign exchange conversion, though restrictions have previously been reported, and because the market for Lao kip is relatively small, the currency is rarely convertible outside the immediate region.  Laos persistently maintains low levels of foreign reserves, which are estimated to cover only 1.1 months’ worth of total imports.  The reserve buffer is expected to remain relatively low due to structurally weak export growth in the non-resource sector and debt service payments.  The decline in reserves was due to a drawdown of government deposits primarily for external debt service payments, some intervention in the foreign exchange market to manage the volatility of the currency (notwithstanding a more flexible currency), and financing the continuing current account deficit. The Bank of the Lao PDR (BOL) occasionally imposes daily limits on converting funds from Lao kip into U.S. dollars and Thai baht, or restricts the sectors able to convert Lao kip into dollars, sometimes leading to difficulties in obtaining foreign exchange in Laos.

In order to facilitate business transactions, foreign investors generally open commercial bank accounts in both local and foreign convertible currency at domestic and foreign banks in Laos.  The Enterprise Accounting Law places no limitations on foreign investors transferring after-tax profits, income from technology transfer, initial capital, interest, wages and salaries, or other remittances to the company’s home country or third countries provided that they request approval from the Lao government.  Foreign enterprises must report on their performance annually and submit annual financial statements to the Ministry of Planning and Investment (MPI).

According to a recent report from Laos’ National Institute for Economic Research (NIER), the increasing demand for USD and Thai baht for the import of capital equipment for projects and consumer goods,  coupled with growing demand for foreign currency to pay off foreign debts has resulted in a depreciation of the exchange rate in 2020.  The official nominal kip/U.S. dollar reference rate depreciated 6.23 percent  in 2020, while the kip/baht exchange rate depreciated  8.15 percent.

Remittance Policies

There have been no recent changes to remittance law or policy in Laos.  Formally, all remittances abroad, transfers into Laos, foreign loans, and payments not denominated in Lao kip must be approved by the BOL.  In practice, many remittances are understood to flow into Laos informally, and relatively easily, from a sizeable Lao workforce based in Thailand.  Remittance-related rules can be vague and official practice is reportedly inconsistent.

Sovereign Wealth Funds

There are no known sovereign wealth funds in Laos.

The Lao government maintains ownership stakes in key sectors of the economy such as telecommunications, energy, finance, airlines, and mining.  Where state interests conflict with private ownership, the state is in a position of advantage.

There is no centralized, publicly available list of Lao State-Owned Enterprises (SOEs).  The Lao government’s most recent figures report that there are approximately 152 SOEs in Lao PDR.  133 SOEs are 51 – 100 percent owned by the state, and the registered capital is more than  USD 26 billion.  At the end of 2017 the total assets of 60 SOEs managed by the State Property Management Department of the Ministry of Finance was more than USD13 billion (80.51 percent of GDP).  The net profit from SOEs was around USD156 million of which USD105 million was in government dividends.

The government has not specified a code or policy for its management of SOEs and has not adopted OECD guidelines for Corporate Governance of SOEs.  There is no single government body that oversees SOEs.  Several separate government entities exercise SOE ownership in different industries.  SOE senior management does not uniformly report to a line minister.  Comprehensive information on boards of directors or their independence is not publicly available.  While there is scant evidence one way or the other, private businesses generally assume that court decisions would favor an SOE over another party in an investment dispute.

Privatization Program 

There is no formal SOE privatization program, though Prime Minister Thongloun has openly discussed subjecting some SOEs to greater competition and possible privatization, and the government has over the past several years occasionally floated ideas for increasing private ownership in some SOEs through partial listings on the LSX, or through spinning off and privatizing parts of others.  In the near future, the new government might take concrete action regarding this matter in order to accelerate investment and improve SOE performance.

Laos is generally a peaceful and politically stable country.  In 2021, Laos once again had an orderly change of administration under its one-party system.  The risk of political violence directed at foreign enterprises or businesspersons is low.  There has been little-to-no political violence in the last decade, and Laos’ political stability is an attractive feature for foreign investors.

Table 3: Sources and Destination of FDI
Data not available.
Table 4
Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

The Latvian government actively encourages foreign direct investment (FDI) and works with investors to improve the country’s business climate. Latvia has a dedicated investment promotion agency – Latvian Investment and Development Agency – to provide a full scope of investment services to prospective investors: https://www.liaa.gov.lv/en  The Latvian government meets annually with the Foreign Investors Council in Latvia (FICIL), which represents large foreign companies and chambers of commerce, to improve the business environment and encourage foreign investment. The Prime Minister chairs the Coordination Council for Large and Strategically Important Investment Projects. In January 2021, FICIL published its Sentiment Index 2020 – a survey of current foreign investors’ assessments about the investment climate in Latvia. It is available at: https://www.ficil.lv/sentiment-index/  .

Limits on Foreign Control and Right to Private Ownership and Establishment

Latvian legislation, on the basis of national security concerns, requires governmental approval prior to transfers of significant ownership interests in the energy, telecommunications, and media sectors. The government is considering expanding this list of sectors. Detailed information is available here: https://investmentpolicy.unctad.org/country-navigator/118/latvia 

With these limited exceptions, physical and legal persons who are citizens of Latvia or of other EU countries may freely purchase real property. In general, physical and legal persons who are citizens of non-EU countries (third-country nationals) may also freely purchase developed real property. However, third-country nationals may not directly purchase certain types of agricultural, forest, and undeveloped land. Such persons may acquire ownership interest in such land through a company registered in the Register of Enterprises of the Republic of Latvia, provided that more than 50 percent of the company is owned by: (a) Latvian citizens and/or Latvian governmental entities; and/or (b) physical or legal persons from countries with which Latvia signed and ratified an international agreement on the promotion and protection of investments on or before December 31, 1996; or for agreements concluded after this date, so long as such agreements provide for reciprocal rights to land acquisition. The United States and Latvia have such an agreement (a bilateral investment treaty in force since 1996). In addition, foreign investors can lease land without restriction for up to 99 years. The Law on Land Privatization in Rural Areas allows EU citizens to purchase Latvia’s agricultural land and forests. Other restrictions apply (to both Latvian citizens and foreigners) regarding the acquisition of land in Latvia’s border areas, Baltic Sea and Gulf of Riga dune areas, and other protected areas.

In May 2017, the President of Latvia promulgated the amendments to the Law on Land Privatization in Rural Areas to simplify and clarify the process for local farmers to purchase land. The law, however, also prohibits foreigners who are not permanently residing in Latvia from purchasing agricultural land and required that any person wishing to purchase agricultural land must speak Latvian and be able to present plans for the future use of the land for agricultural purposes in Latvian.

The Latvian constitution guarantees the right to private ownership. Both domestic and foreign private entities have the right to establish and own business enterprises and engage in all forms of commercial activity, except those expressly prohibited by law.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) published an Economic Survey of Latvia in December 2020 ( http://www.oecd.org/economy/latvia-economic-snapshot/ ). Although there have been no trade policy reviews specifically involving Latvia, the WTO completed its latest review of the European Union in February 2020. ( https://www.wto.org/english/tratop_e/tpr_e/tp495_e.htm ). Additionally, in October 2017, the World Bank published a review of Latvia’s tax system ( http://documents.worldbank.org/curated/en/587291508511990249/Latvia-tax-review ). Previously, the World Bank carried out a similar review of Latvia’s port infrastructure in 2013 ( http://www.worldbank.org/en/news/press-release/2013/11/27/world-bank-reviews-competitiveness-of-latvian-ports ).

Business Facilitation

In 2020, Latvia ranked 19 out of 190 countries in the World Bank’s Ease of Doing Business Report. A new business can be registered in Latvia in one day. The Latvian Investment and Development Agency has prepared a guide on starting a business in Latvia: https://www.liaa.gov.lv/en/invest-latvia/business-guide/operating-environment 

The official website of the Latvian Commercial Register provides detailed information in English on business registration process in Latvia: https://www.ur.gov.lv/en/ . The World Bank’s Doing Business project has a detailed review of the business registration process in Latvia, which is available here: http://www.doingbusiness.org/data/exploreeconomies/latvia/#starting-a-business .

Latvia has implemented special legislation to encourage startup ventures through favorable tax treatment. For more information please see here: http://www.liaa.gov.lv/en/invest-latvia/start-up-ecosystem  and here: https://labsoflatvia.com/en/resources .

Using the European Commission definitions of micro, small, and medium enterprises (MSMEs), Latvia has established a special tax regime for microenterprises. Under the microenterprise tax, qualifying businesses (those employing up to five employees and with less than 25,000 euros in revenue) pay a single tax that covers social security contributions, personal income tax, and business risk tax for employees, and includes corporate income tax if the micro business taxpayer is a limited liability company. This special tax regime is available to foreign nationals. Changes introduced in 2021, including an increased microenterprise tax rate, now make the tax regime less attractive for most small companies. For additional details on the microenterprise tax, see: https://www.vid.gov.lv/en/node/57223 

Outward Investment

The Latvian government does not incentivize outward investment nor restrict Latvians from investing overseas.

Transparency of the Regulatory System

The Latvian government has amended its laws and regulatory procedures to bring Latvia’s legislation in compliance with the EU and WTO GPA requirements. Several legislative changes were aimed at increasing the transparency of the Latvian business environment and regulatory system. At the same time, the massive legislative changes carried out in a short period of time have led to some laws and regulations that could be subject to conflicting interpretations. The Latvian government has developed a good working relationship with the foreign business community (through FICIL) to streamline various bureaucratic procedures and to address legal and regulatory issues as they arise. Additional information on the regulatory system in Latvia is available here: http://rulemaking.worldbank.org/en/data/explorecountries/latvia 

The public finance and debt obligations process is transparent. Detailed information on the national budget process is available on the Latvian Ministry of Finance’s website: https://www.fm.gov.lv/en/s/budget/ .

International Regulatory Considerations

As an EU member, Latvia has incorporated European norms and standards into its regulatory system. As an EU member, Latvia is a signatory to the WTO Trade Facilitation Agreement. As a WTO member, Latvia has the duty to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

Latvia has a three-tier court system comprising district (city) courts, regional courts, and the Supreme Court. In addition, the Constitutional Court reviews the compatibility of decrees and acts of the President of the Republic, the government, and local authorities with the constitution and the law. Unless otherwise stipulated by law, district courts are the courts of first instance in all civil, criminal, and administrative cases. Regional courts have appellate jurisdiction over district court cases and original jurisdiction for certain cases specified in the Civil Code, such as cases on the protection of patent rights, trademarks, and geographic indicators, as well as cases on the insolvency and liquidation of credit institutions. The Supreme Court is the highest-level court in Latvia and – depending on the origin of the case – has either de novo review of both factual and legal findings or, in instances where it is the second appellate court reviewing a case, cassation review of only legal findings.

City and regional courts are administered by the Ministry of Justice ( www.tm.gov.lv ), while the Supreme Court and Constitutional Court are independent.

Many observers have voiced concerns about the length of civil cases in Latvia, and the nature and opacity of judicial rulings have led some investors to question the fairness and impartiality of some judges. These concerns are not specific to foreign or local investors, however, and the court system is generally viewed as applying the law equally to the interests of foreign and local investors. Although the Ministry of Justice has enacted reforms designed to reduce the backlog of cases in the lower courts, improvements in the judicial system are still needed to accelerate the adjudication of cases, to strengthen the enforcement of court decisions, and to upgrade professional standards. The newly established Economic Affairs Court began operating on March 31. This is an effort by the government to accelerate and improve adjudication of economic and financial-related cases.

Laws and Regulations on Foreign Direct Investment

Incoming foreign investment in Latvia is regulated by the Commercial Law. The Latvian Investment and Development Agency’s website is a helpful resource for navigating the rules and procedures governing foreign investment. ( http://www.liaa.gov.lv/en/invest-latvia/investor-business-guide/operating-environment  ).

Competition and Antitrust Laws

Competition-related concerns are supervised by the Competition Council. More information can be accessed at: http://www.kp.gov.lv/en 

Expropriation and Compensation

Cases of arbitrary expropriation of private property by the Government of Latvia are extremely rare. Expropriation of foreign investment is possible in a very limited number of cases specified in the Law on the Alienation of Immovable Property Necessary for Public Needs: ( https://likumi.lv/ta/en/en/id/220517-law-on-the-alienation-of-immovable-property-necessary-for-public-needs ) If the owner of the property claimed by the government deems the compensation inadequate, he or she may challenge the government’s decision in a Latvian court.

Dispute Settlement

ICSID Convention and New York Convention

Latvia has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1997 and a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1992. Judgments of foreign arbitral courts that are made in accordance with either can therefore be enforced in Latvia. The Civil Procedure Law stipulates that the judgments of foreign non-arbitral courts can be enforced in Latvia.

Investor-State Dispute Settlement

There have been no claims by U.S. investors under the Bilateral Investment Treaty against Latvia.

On December 22, 2017, the ICSID ruled that Latvia had violated its bilateral investment treaty with Lithuania and ordered Latvia to pay $1.9 million to a Lithuanian energy company in a dispute over the nationalization of a heating and hot water supply system. According to a local law firm, this is the first decision on the merits in an ICSID case against the Republic of Latvia. More information is available here: https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/478/uab-v-latvia 

International Commercial Arbitration and Foreign Courts

On January 1, 2015, the Law on Arbitration courts came into force to regulate the establishment and operation of local arbitration courts in Latvia. According to the information available in the register, there are 68 arbitration institutions registered in Latvia ( https://www.ur.gov.lv/lv/registre/organizaciju/skirejtiesas/skirejtiesu-saraksts/ ). In most commercial agreements, parties opt to refer their disputes to arbitration rather than to the Latvian courts.

The Civil Procedure Law contains a section on arbitration courts. This section was drafted on the basis of the United Nations Commission on International Trade Law (UNCITRAL) model, thus providing full compliance with international standards. The law also governs the enforcement of rulings of foreign non-arbitral courts and foreign arbitrations. The full text of the law in English can be found here: https://likumi.lv/ta/en/id/50500-civil-procedure-law 

Bankruptcy Regulations

There are two laws governing bankruptcy procedure: the Law on Insolvency and the Law on Credit Institutions (regulating bankruptcy procedures for banks and other financial sector companies).

According to the latest World Bank’s Doing Business Report Latvia ranked 55th out of 190 countries in terms of ease of resolving insolvency. More information is available here: http://www.doingbusiness.org/data/exploreeconomies/latvia#resolving-insolvency .

The business community has expressed concerns over inefficiency and allegations of corruption in Latvia’s insolvency administration system. To tackle the issue, the Latvian government has partnered with the European Bank for Reconstruction and Development and in September 2019 launched a project “Support for Debt Restructuring in Latvia.” More information is available here: https://www.ebrd.com/news/2019/support-for-debt-restructuring-in-latvia-project-launched.html 

Capital Markets and Portfolio Investment

Latvian government policies do not interfere with the free flow of financial resources or the allocation of credit. Local bank loans are available to foreign investors.

Money and Banking System

Latvia’s retail banking sector, which is composed primarily of Scandinavian retail banks, generally maintains a positive reputation. Latvian banks servicing non-resident clients, however, have come under increased scrutiny for inadequate compliance with anti-money laundering standards. In 2018, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) identified Latvia’s third-largest bank as a “foreign bank of primary money laundering concern” and issued a proposed rule prohibiting U.S. banks from doing business with or on behalf of the bank. The Latvian bank regulator has also levied fines against several non-resident banks for AML violations in recent years.

Latvia is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force (FATF)-style regional body. On August 23, 2018, MONEYVAL issued a report finding that Latvia’s AML regime was in substantial compliance with only one out of eleven assessment categories, was in moderate compliance with eight areas, but in low compliance with two areas. In late 2019 and early 2020, MONEYVAL and the FATF concluded that Latvia has developed and implemented strong enough reforms for combating financial crimes to avoid increased monitoring via the so-called “grey list.” While it will continue enhanced monitoring under MONEYVAL to continue strengthening the system, with this decision, Latvia became the first member state under the MONEYVAL review to successfully implement all 40 FATF recommendations. The most recent MONEYVAL report can be found at: https://rm.coe.int/anti-money-laundering-and-counter-terrorist-financing-measures-latvia-/16809988c1 

According to Latvian banking regulators, Latvia’s regulatory framework for commercial banking incorporates all principal requirements of EU directives, including a unified capital and financial markets regulator. Existing banking legislation includes provisions on accounting and financial statements (including adherence to international accounting), minimum initial capital requirements, capital adequacy requirements, large exposures, restrictions on insider lending, open foreign exchange positions, and loan-loss provisions. An Anti-Money Laundering Law and Deposit Guarantee Law have been adopted. An independent Financial Intelligence unit (FIU) operates under the supervision of the Ministry of Interior. Some of the banking regulations, such as capital adequacy and loan-loss provisions, reportedly exceed EU requirements.

According to the Finance Latvia Association, total assets of the country’s banks at the end of 2020 stood at 24.56 billion euros. More information is available at: https://www.financelatvia.eu/en/industry-data/ .

Securities markets are regulated by the Law on the Consolidated Capital Markets Regulator, the Law on the Financial Instrument Market, and several other laws and regulations.

The NASDAQ/OMX Riga Stock Exchange (RSE) ( www.nasdaqomxbaltic.com ) operates in Latvia, and the securities market is based on the continental European model. Latvia, Estonia, and Lithuania have agreed to create a pan-Baltic capital market by creating a single index classification for the entire Baltic region. Latvia is currently rated by various index providers as a frontier market due to its small size and limited liquidity. More information is available here: https://www.ebrd.com/news/2019/latvia-takes-next-step-toward-a-panbaltic-capital-market.html 

Foreign Exchange and Remittances

Foreign Exchange

The currency of Latvia is the euro. There are no restrictions on exchanging currencies or capital movement and foreign investors are allowed to extract their profits in any currency with no restraints. As of March 18, 2021, one euro is worth $1.1912. Details available here: https://www.ecb.europa.eu/stats/policy_and_exchange_rates/euro_reference_exchange_rates/html/eurofxref-graph-usd.en.html 

Remittance Policies

Latvian law provides for unrestricted repatriation of profits associated with an investment. Investors can freely convert local currency into foreign exchange at market rates, and have no difficulty obtaining foreign exchange from Latvian commercial banks for investment remittances. Exchange rates and other financial information can be obtained at the European Central Bank website: https://www.ecb.europa.eu/stats/exchange/eurofxref/html/index.en.html .

Sovereign Wealth Funds

Latvia does not have a sovereign wealth fund.

State-owned enterprises (SOEs) are active in the energy and mining, aerospace and defense, services, information and communication, automotive and ground transportation, and forestry sectors. Private enterprises may compete with public enterprises on the same terms and conditions with respect to access to markets, credit, and other business operations such as licenses and supplies.

The Latvian government has implemented the requirements of the EU’s Third Energy Package with respect to the electricity sector, including opening the electricity market to private power producers and allowing them to compete on an equal footing with Latvenergo, the state-owned power company. The country’s natural gas market has also been liberalized, creating competition among privately owned gas suppliers.

Latvia, as an EU member, is a party to the Government Procurement Agreement within the framework of the World Trade Organization, and SOEs are covered under the agreement.

In 2015, the OECD published a review of the corporate governance of Latvia’s SOE and found that Latvia’s SOE sector relative to the size of the national economy was larger than the OECD average. The full report is available here: http://www.oecd.org/daf/ca/oecd-review-corporate-governance-soe-latvia.htm .

Senior managers of major SOEs in Latvia report to independent boards of directors, which in turn report to line ministries. SOEs operate under the Law on Public Persons Enterprises and Capital Shares Governance. The law also establishes an entity that coordinates state enterprise ownership and requires annual aggregate reporting. Detailed information on Latvian SOEs is available here: http://www.valstskapitals.gov.lv/en/  .

For additional information please see here: http://www.oecd.org/latvia/corporate-governance-in-latvia-9789264268180-en.htm .

Privatization Program

The Law on Privatization of State and Municipal Property governs the privatization process in Latvia. State joint stock company “Possessor” ( https://www.possessor.gov.lv/ ) uses a case-by-case approach to determine the method of privatization for each state enterprise. The three allowable methods are: public offering, auction for selected bidders, and international tender. For some of the largest privatized companies, a percentage of shares may be sold publicly on the NASDAQ OMX Riga Stock Exchange. The government may maintain shares in companies deemed important to the state’s strategic interests. Privatization of small and medium-sized state enterprises is considered to be largely complete.

Latvian law designates six State Joint Stock Companies that cannot be privatized: Latvenergo (Energy and Mining), Latvijas Pasts (Postal Services), Riga International Airport, Latvijas Dzelzcels (Automotive and Ground Transportation), Latvijas Gaisa Satiksme (Aerospace and Defense), and Latvijas Valsts Mezi (Forestry). Other large companies in which the Latvian government holds a controlling interest include airBaltic (Travel), TET (Information and Communication), Latvian Mobile Telephone (Information and Communication), and Conexus Baltic Grid (Energy). Due to the pandemic, the government invested 250 million euros into airBaltic equity, thus increasing its stake in the airline to 96.14%. The airline plans to return the investment to the state, via an initial public offering, potentially in 2022-2023.

There have been no reports of political violence or politically motivated damage to foreign investors’ projects or installations. The likelihood of widespread civil disturbances is very low. While Latvia has experienced peaceful demonstrations related to internal political issues, there have been few incidents when these have devolved into crimes against property, such as breaking shop windows or damaging parked cars. U.S. citizens are cautioned to avoid any large public demonstrations since even peaceful demonstrations can turn confrontational. The Embassy provides periodic notices to U.S. citizens in Latvia, which can be found on the Embassy’s web site: https://lv.usembassy.gov/.

* Source for Host Country Data:

http://www.fm.gov.lv/en/s/macroeconomics/main_macroeconomic_indicators/ 
https://statdb.bank.lv 
https://www.macroeconomics.lv/ 

Policies Towards Foreign Direct Investment

Lebanon is open to Foreign Direct Investment (FDI).  The Investment Development Authority of Lebanon (IDAL) is the national authority responsible for promoting local and foreign investment in Lebanon covering eight priority sectors: industry, media, technology, telecommunications, tourism, agriculture, and agroindustry.  IDAL has the authority to award licenses and permits for new investment in specific sectors.  It also grants special incentives and tax exemptions for projects implemented by local and foreign investors based on an investment’s geographic location, sector, and number of jobs created (Investment Law No. 360).  IDAL publishes its investment incentives online by sector at http://investinlebanon.gov.lb/en/sectors_in_focus .

IDAL seeks to facilitate international and local partnerships through joint ventures, equity participation, acquisition, and other mechanisms.  Moreover, it provides business intelligence, market studies, and legal and administrative advice to potential investors.  In February 2018, IDAL established the Business Support Unit (BSU), which provides free legal, accounting, and financial advice to startups across sectors.  IDAL is mandated by law to attract, facilitate, and retain investment in Lebanon. IDAL has proposed draft decrees to facilitate investment, but these remain pending in the Prime Minister’s office. In 2020, IDAL set up a business matchmaking platform to connect Lebanese companies seeking capital with a network of local and foreign investors to help them grow and expand. IDAL is involved in providing after-care services to local and foreign investors alike.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign private entities may establish, acquire, and dispose of interests in business enterprises and may engage in all types of remunerative activities.  Lebanese law allows the establishment of joint-stock corporations, limited liability, and offshore and holding companies.

According to UNCTAD’s latest investment policy review of Lebanon, the country allows only Lebanese nationals to obtain licenses to manufacture and trade products related to defense and weapons (Legislative Decree 137 of 12 June 1959, Weapons and Ammunition Law).  Only Lebanese nationals can own political newspapers and broadcast media (Press Law of 14 September 1962, Broadcast Law 382 of 4 November 1994). A series of regulatory requirements also effectively restrict FDI in other instances: Two sectors, fixed-line telephony and energy transmission, are closed to domestic and foreign investors as they are currently operated by state-owned enterprises, which have a de facto monopoly.  Only Lebanese nationals are permitted to practice law.

Legislative Decree No. 35 (August 5, 1967), under the Lebanese Commercial Code, permits foreigners to own and manage 100 percent of limited liability companies (LLC or Société à Responsabilité Limitée – SARL), except if the company engages in certain commercial activities such as exclusive commercial representation.  In these cases, Lebanese citizens must hold a majority of capital, and the manager must be Lebanese (Legislative Decree No. 34 dated August 5, 1967).  An amendment introduced in 2019 allowed the formation of LLCs by only one person.

Legislative Decree No. 304 of the Commercial Code (December 24, 1942) governs joint-stock corporations (JCS or Société Anonyme Libanaise – SAL), and was amended by Law No. 126 on March 29, 2019.  Limitations related to foreign participation stipulate that: 1) one-third of the board of directors should be Lebanese (Article 144 amended); 2) board members can be either shareholders or non-shareholders (Article 147 amended); 3) one-third of capital shares should be held by Lebanese for companies that provide public utility services (Article 78); and 4) capital shares and management in cases of exclusive commercial representation are limited (Legislative Decree No. 34 dated August 5, 1967).  Banking, insurance, and cargo, which can only operate as JSCs, are required to have a Lebanese majority on the board, which makes them, in practice, restricted for FDI.

Holding and offshore companies are structured as joint-stock corporations and governed by Legislative Decree No. 45 (on holdings) and Legislative Decree No. 46 (on offshore companies), both dated June 24, 1983.  The law on offshore companies was amended by Law No. 85, dated October 18, 2018, whereby all board members may be non-Lebanese (Article 2, para 4) and the company may be formed by one person (Article 1 in the amendment of the Commercial Code).  A foreign non-resident chairman/general manager of a holding or an offshore company is exempt from the obligation of holding work and residency permits.  Law No. 772, dated November 2006, exempts holding companies from the obligation to have two Lebanese persons or legal entities on their board of directors. All offshore companies must register with the Beirut Commercial Registry.  The law does not permit offshore banking, trust, and insurance companies to operate in Lebanon.

There are size and quota limits that effectively curb foreign ownership of real estate as well. Law No. 296, dated April 3, 2001, amended the 1969 Law No. 11614 that governs acquisition of property by foreigners.  The 2001 law eased legal limits on foreign ownership of property to encourage investment in Lebanon, especially in industry and tourism, abolished discrimination for property ownership between Arab and non-Arab nationals and set real estate registration fees at approximately six percent for both Lebanese and foreign investors.  The law permits foreigners to acquire up to 3,000 square meters (around 32,000 square feet) of real estate without a permit but requires Cabinet approval for acquisitions exceeding this threshold.  The cumulative real estate acquisition by foreigners may not exceed three percent of total land in any district.  Cumulative real estate acquisition by foreigners in the Beirut region may not exceed ten percent of the total land area.  The law prohibits individuals not holding an internationally recognized nationality from acquiring property in Lebanon.  In practice, this restriction attempts to prevent Palestinian refugees who are long-term residents in Lebanon from owning property.

The Lebanese government does not review FDI transactions for national security considerations.

Other Investment Policy Reviews

Lebanon is not a member of either the Organization for Economic Cooperation and Development (OECD) or the World Trade Organization (WTO).  The United Nations Conference on Trade and Development (UNCTAD), in collaboration with IDAL, published a comprehensive Investment Policy Review for Lebanon in December 2018, which it officially launched in Beirut in March 2019.  The report provides a thorough assessment of Lebanon’s business environment, with concrete short-, medium-, and long-term recommendations to revitalize Lebanon’s investment climate.  These include creating an FDI promotion strategy and passing or amending legislation, rules, and regulations in the taxation, labor, competition, and governance regimes towards a more conducive business environment.  The full report is available at https://unctad.org/en/PublicationsLibrary/diaepcb2017d11_en.pdf

Business Facilitation

According to the World Bank’s Doing Business Report, Lebanon ranks 151 out of 190 countries in ease of starting a business.  Lebanon does not have a business registration website; rather, IDAL provides an information portal about doing businesses in Lebanon and outlines requirements at  http://investinlebanon.gov.lb/en/doing_business .

According to UNCTAD, company establishment is cumbersome and costly in Lebanon. It takes, on average, more than 15 days to establish an LLC with 15 employees or more in Beirut.  Companies must typically register with one of five trade registers (Beirut, Bekaa, Mount Lebanon, North and South), overseen by a magistrate, that operate in the country and are closest to the company’s location. LLCs and JSCs must also retain the services of a lawyer and one auditor on a yearly basis, pay registration fees at the Ministries of Finance and Justice, and register employees at the National Social Security Fund (NSSF).  Foreign companies seeking to establish branches in Lebanon must additionally register at the Ministry of Economy.  Online establishment is not available for companies wishing to incorporate in Lebanon, and information on establishment is scattered.  Foreign branches and representative offices can be partly registered online, but heavy administrative requirements remain. All foreign documents must be certified by the trade register in the company’s country of incorporation and legalized by the Lebanese embassy or consulate there and translated into Arabic.

Outward Investment

Lebanon neither promotes nor incentivizes outward investment, nor does it restrict domestic investors from investing abroad.  However, informal capital controls imposed by the Lebanese financial sector since October 2019 prevent nearly all external transfers, making outward investment from Lebanon all but impossible.

Transparency of the Regulatory System

Private firms should exercise caution when bidding on public projects.  Lebanese government agencies often sole-source contracts, undertaking direct contracting processes that operate according to differing standards and without a formal competitive solicitation.  Public institutions evade regulations that promote full and open competition by splitting contract requirements into smaller solicitations whose values do not exceed government agency procurement limits.  There is no unified procurement law.  A modern procurement law is currently under preparation and will require the Cabinet’s and Parliament’s ratification.  The Public Procurement Management Administration (PPMA), known as the “Tender Board,” technically has the authority to review terms of reference and evaluate bids for Lebanese government contracts. The Tender Board is generally transparent, but corruption often arises within the scope of the tenders and the ministries that issue them. The Central Inspection Board (CIB), an oversight body within the Office of the Prime Minister, oversees government administrative processes, and the Court of Audit has oversight over public expenditures. The Social Security Fund and the Council for Development and Reconstruction, public entities that manage large funding flows, remain outside the CIB jurisdiction.

Excessive regulation hampers procedures for business entry, operation, and exit.  However, the process does not discriminate against foreign investors.  International companies face an unpredictable and opaque operating environment and often encounter unanticipated obstacles or costs late in the process.

Trademark registration, economic and trade indicators, and market surveillance reports are available online at:  http://www.economy.gov.lb .  However, some procedures, including those related to branch offices or representative offices of foreign companies, or to protecting intellectual property rights, still require the right-holder to visit the ministry in person to finalize and pay required dues.

All legislation, government decrees, decisions, and official announcements are published in the Official Gazette.  The government does not publish proposed draft laws and regulations for public comment, but a parliamentary commission may invite private sector stakeholders to comment on legislation.  Telecom Law No. 431 requires the Telecommunication Regulatory Authority (TRA) to issue regulations in draft for public consultation to promote transparency and enable the general public to shape future regulations.  The TRA has not introduced new regulations since the term of its executive board expired in February 2012.  Publicly listed companies adhere to international accounting standards.  In general, legal, regulatory, and accounting systems for Lebanese businesses in the formal sector accord with international norms.

Lebanon passed the Access to Information Law in January 2017 to promote transparency in the public sector.  The law permits anyone, including foreigners, to request information from government agencies.  A Whistleblower Protection law also passed in October 2018.  While the Whistleblower law is in force, the establishment of a National Anti-Corruption Commission to oversee the law’s implementation was only approved by Parliament in April 2020 and has yet to be staffed. In January 2017, Lebanon announced its intent to join the Extractive Industries Transparency Initiatives (EITI), a global standard to promote transparency of the extractive sector, though Lebanon has not yet joined. In September 2018, Parliament adopted the Transparency in Oil and Gas Law to facilitate the EITI accession process.  To complete Lebanon’s candidacy, the Minister of Energy and Water announced that Lebanon would form a Multi-Stakeholder Group (MSG), with representatives from government, private firms operating in Lebanon, and civil society.  In March 2019, the Minister of Energy and Water invited civil society to choose independently its representative to the MSG, as per the EITI’s requirements. EITI membership will require annual data disclosures on licenses, contracts, beneficial ownership, payments, revenues, and production.

Lebanon’s public finances are not transparent; budget documents did not present a full picture of Lebanon’s expenditures and revenue streams, and Lebanon has not published an end-of-year report.  Details regarding allocations to and earnings from state-owned enterprises were limited.  The information in the budget was not considered reliable or reasonably accurate and did not correspond to actual revenues and expenditures.  Lebanon’s supreme audit institution did not make its audit reports publicly available.  While Lebanon’s debt obligations are transparent, some analysts have questioned the Central Bank’s reported foreign currency position. The Lebanese government hired three private auditors to audit its Central Bank in September 2020. The audits, including one forensic audit, have stalled.

International Regulatory Considerations

Lebanon is not part of any regional economic block.  It adopts a variety of standards based on the type of product and product destination.  Lebanon is not a member of the World Trade Organization (WTO), but has held observer status since 1999.  Lebanon does have a WTO/TBT (technical barriers to trade) Enquiry Point that handles enquiries from WTO Member States and other interested parties.

Legal System and Judicial Independence

Lebanon has a civil (roman and codified law) legal system inspired by the French civil procedure code (three degrees of jurisdictions: First Instance, Appeal, and Supreme Court).  Ownership of property is enforced by registering the deed in the Property Registry.  Lebanon has a written commercial law and contractual law.  Lebanon has commercial, civil, and penal courts, but no specialized courts to hear intellectual property (IP) claims.  Civil and/or penal courts adjudicate IP claims.  Lebanon has an administrative court, the State Council, which handles all disputes involving the state.  Lebanon has a labor court in seven out of its nine governorates to hear claims of unfair labor practices.

Local courts accept investment agreements subject to foreign jurisdictions, if they do not contravene Lebanese law.  Judgments of foreign courts are enforced subject to the Exequatur obtained.  Weak judicial capacity (i.e., shortage of judges, inadequate support structures, administrative delays) results in delays in the handling of cases.  The Lebanese Constitution guarantees the judicial system’s independence.  However, politicians and powerful lobbying groups often interfere in the court system.

Laws and Regulations on Foreign Direct Investment

A foreigner may establish a business under the same conditions as a Lebanese national and must register the business in the Commercial Registry.  Foreign investors who do not manage their business from Lebanon need not apply for a work permit.  However, foreign investors who own and manage their businesses within Lebanon must apply for an employer work permit and a residency permit.  Employer work permits stipulate that a foreign investor’s capital contribution must be at least 100 million LBP ($7,690 at the market exchange rate of 13,000 LBP/1 USD).  The investor must also hire three Lebanese employees and register them in the National Social Security Fund (NSSF) within the first six months of employment.

Companies established in Lebanon must abide by the Lebanese Commercial Code and are required to retain the services of a lawyer to serve as a corporate agent.  Local courts are responsible for enforcing contracts.  There are no sector-specific laws on acquisitions, mergers, or takeovers, except for bank mergers.

Lebanese law does not differentiate between local and foreign investors, except in land acquisition (see Real Property section).  Foreign investors can generally establish a Lebanese company, participate in a joint venture, or establish a local branch or subsidiary of their company without difficulty.  Specific requirements apply for holding and offshore companies, real estate, insurance, media (television and newspapers), and banking.

Lebanese law allows the establishment of joint-stock corporations, limited liability, offshore, and holding companies.  However, offshore and holding companies must be joint-stock corporations (Société Anonyme Libanaise – SAL).  The Lebanese Commercial Code governs these entities.

IDAL’s website ( http://investinlebanon.gov.lb/ ) provides investors information on investment legislation, regulations, and starting a business.  IDAL’s proposed changes to investment-related laws and regulations, including amending requirements for IT companies to benefit from IDAL incentives, are pending government approval.  IDAL has finalized a detailed ICT plan aimed at expanding facilities, developing incentives, and facilitating investments in the ICT sector; it awaits Cabinet’s approval.  IDAL intends to focus its investment promotion strategy on attracting high value-added innovative investments related to all of the sectors under its mandate.

Competition and Antitrust Laws

Lebanon has not enacted a law that governs competition, although the Ministry of Economy and Trade has prepared a draft law on this topic. Local courts review claims on competition-related issues under various laws.

Expropriation and Compensation

Land expropriation in Lebanon is relatively rare.  The Law on Expropriation (Law No. 58, dated May 29, 1991, Article 1) and Article 15 of the Constitution specify that expropriation must be for a public purpose and calls for fair and adequate compensation.  The government pays compensation at the time of expropriation, but the rate is often perceived as below fair market value.  The government does not discriminate against foreign investors, companies, or their representatives on expropriations.

The government established three real estate companies in the mid-1990s to encourage reconstruction and development in Greater Beirut following the Lebanese Civil War:  1) private corporation Solidere for the development and reconstruction of Beirut’s downtown commercial district, 2) private corporation Linord, for northern Beirut, and 3) public institution Elyssar for the southwest suburbs of Beirut.  Linord has been dormant for years, and Elyssar’s projects have stalled since 2007.  The government granted these three companies the authority to expropriate certain lands for development under the Law on Expropriation.  Landowners and squatters have challenged the land seizures in court.

Dispute Settlement

ICSID Convention and New York Convention

Lebanon is a member of the International Center for the Settlement of Investment Disputes (ICSID Convention).  Lebanon ratified the 1958 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) in 2007.  Lebanese law conforms to both conventions.

Investor-State Dispute Settlement

The government accepts international arbitration related to investment disputes.  In cases involving concessions or public projects, the government does not accept binding international arbitration unless the contract includes an arbitration clause that was obtained through prior approval by Cabinet decree.  However, there is an exception for investors from countries that have a signed and ratified investment protection agreement with Lebanon that provides for international arbitration in the case of disputes.  In the past, the government has faced challenges related to previously awarded contracts and resorted to international arbitration for resolution.  To post’s knowledge, there are no known new cases.  In 2010, the government settled a dispute with a Chinese contracting company working to expand the northern port of Tripoli.

International Commercial Arbitration and Foreign Courts

International arbitration is accepted as a means to settle investment disputes between private parties.  The Lebanese Centre for Arbitration was created in 1995 by local economic organizations, including the Lebanese chambers of commerce, industry, and agriculture.  The Centre resolves domestic and international conflicts related to trade and investment.  Its statutes are similar to those of the International Chamber of Commerce (ICC) in Paris, and its conciliation and arbitration rules are modeled on those of the Paris ICC.  Judgments of foreign courts are enforced subject to the exequatur obtained.

Bankruptcy Regulations

Lebanon does not have a Bankruptcy Law.  However, the Commercial Code (Book No. 5, Articles 459-668) and the Penal Code govern insolvency and bankruptcy. Workers may resort to the Labor Court and the National Social Security Fund to recover pay and benefits from local and foreign firms that go bankrupt.  The law criminalizes fraudulent bankruptcy.

Capital Markets and Portfolio Investment

There are no restrictions on portfolio investment, and foreign investors may invest in Lebanese equities and fixed income certificates.  While legally Lebanon is a free market economy and does not restrict the movement of capital into or out of the country, the country’s banks have imposed informal capital controls on dollar withdrawals and financial outflows from Lebanon since October 2019. There are de facto restrictions on outbound payments and transfers for current international transactions, but these have yet to be codified into law. Although in April 2020, the Central Bank of Lebanon required money transfer services such as Western Union and MoneyGram to disburse inbound transfers in local currency, the Central Bank later allowed them to disburse in U.S. dollars by August 2020, ostensibly to attract remittance inflows. The Banking Control Commission of Lebanon (BCCL) has a department which oversees and conducts on-site and off-site audits of money exchange institutions and electronic money transfer firms operating in Lebanon using a risk-based supervision approach.

Credit is allocated on market terms, and foreign investors may obtain credit facilities on the local market.  However, as Lebanon entered its economic crisis in the fall of 2019 and defaulted on its dollar-denominated debt in March 2020, local and international credit is virtually nonexistent. Banks have substantially reduced retail loans, such as housing, consumer, or personal loans, as well as have reduced heavily international limits of credit and debit cards, and maintains commercial loans mainly to agriculture, industrial and trade sectors for SMEs and large corporates.

Government legislation allows the listing of tradable stocks on the Beirut Stock Exchange (BSE).  By regulation, an investor should inform the BSE when her/his portfolio of shares in any listed company reaches ten percent and five percent in any listed bank.  For an investor to acquire more than five percent of shares of any listed bank requires prior approval from the Central Bank.  Currently, the BSE lists six commercial banks, four companies including Solidere – one of the largest publicly held companies in the region – and eight sovereign Eurobond issues (all in U.S. Dollars). However, the BSE suffers from a lack of liquidity and low trading volumes in the absence of significant institutional and foreign investors and had an annual trading volume of only 3.2 percent of market capitalization in 2020.  Weak market turnover discourages investors from committing funds to the market and discourages issuers from seeking listings on the BSE.

Traditional businesses owned by commercially powerful families dominate most sectors.  The government is trying to improve the transparency of such firms to help solidify an emerging capital market for company shares.  The Cabinet approved in September 2017 a decree to establish the Beirut Stock Exchange SAL (BSE SAL) as a joint-stock company that will replace the current BSE.  Initially, the Lebanese state will own the capital of BSE SAL and will privatize the company within one year.  The delay in the process triggered the CMA to issue in January 2019 a Request for Proposal (RFP) for an electronic trading platform that will allow trading in products not traded in the BSE, such as foreign currencies, commodities, and listed SMEs and start-ups. The CMA has granted the winning consortium of Bank Audi and the Athens Stock Exchange (ATHEX) a license to set up and operate an electronic trading platform (ETP). The consortium will contribute capital of $20 million to a special purpose vehicle (SPV) that will be created to operate the platform. The consortium has opened the door for banks and financial institutions to also contribute to the SPV’s capital. After ten years of operating the ETP, the consortium will have to list nearly 60 percent of the SPV shares on the ETP. More information can be found on: www.cma.gov.lb/.  Lebanon hosts the headquarters of the Arab Stock Exchanges.

Money and Banking System

Lebanon’s banks are insolvent. The government’s April 2020 economic plan estimated losses in Lebanon’s financial sector at $83 billion dollars; as of March 2021, many economists believe the number is closer to $100 billion in losses. Banks are no longer serving their core functions: making productive loans or allowing those with dollar deposits to withdraw them. Clients cannot transfer money overseas. Lebanon has yet to adopt formal capital controls legislation, but most economic analysts believe such a law is necessary to preserve what limited foreign currency is left in the country and provide a level playing field to all Lebanese. At the behest of the Central Bank, in April 2020, banks began providing Lebanese lira at rates higher than the official pegged rate to customers with dollar-denominated accounts, but less than 60 percent of the market value of USD banknotes.

Lebanon relied on dollar inflows from abroad to finance imports and public spending and to maintain the Lebanese lira-to-USD peg, in place since 1997. Those dollars were deposited in Lebanese banks, which in turn lent them to the state in the form of deposits at the Central Bank or Lebanese debt instruments. Nearly 70 percent of bank assets are tied to the sovereign in those two forms. In 2019, as dollar inflows dried up and banking sector assets were tied to long-term deposits at the Central Bank and illiquid debt instruments, banks had trouble meeting their dollar obligations to clients, planting the seeds of the current crisis.

Lebanon’s default on its dollar-denominated debt in March 2020 – Lebanese banks at the time held $12.7 billion in Lebanon’s dollar bonds – further eroded the balance sheets of Lebanese banks. Financial experts estimated that 40 percent of loans from Lebanese banks were non-performing in December 2020. Bankers reported that correspondent banks overseas have stopped providing them with lines of credits – or only provide facilities with onerous conditions – further hampering bank efficacy in Lebanon. Lebanon’s April 30, 2020 economic plan hinted at a potential “haircut” on dollar deposits, in which wealthy account holders could lose some of their deposits to help recapitalize banks after shareholders “bail-in” (convert their deposits into bank shares) their financial institutions. In May 2020, banks released their own economic plan suggesting they be given state assets to cover losses rather than a “bail-in” or “haircut,” leading to an impasse that persists today, with necessary financial sector restructuring on hold.

The Lebanese banking sector covers the entire country with 1,047 operating commercial and investment bank branches as of June 2020. According to World Bank Development indicators, there are 534 depositors with commercial banks per 1,000 adults, 215 borrowers from commercial banks per 1,000 adults, and 38 ATMs per 100,000 adults. The total domestic assets of Lebanon’s fifteen largest commercial banks reached approximately $165 billion as of the end of 2020 (about 86.6 percent of total banking assets), according to Central Bank data.

Lebanon’s Central Bank was established in 1963. Lebanon’s Central Bank imposes strict compliance with regulations on banks and financial institutions, and commercial banks, in turn, maintain strict compliance regimes.  However, the United States designated Jammal Trust Bank in August 2019 as a Specially Designated Global Terrorist for its role in financing Foreign Terrorist Organization Hizballah. Foreign banks and branches need the Central Bank’s approval to establish operations in Lebanon.  Moreover, any shareholder with more than five percent of a bank’s share capital must obtain prior approval from the Central Bank to acquire additional shares in that bank, and must inform the Central Bank when selling shares.  In addition, any shareholder needs to obtain prior approval from the Central Bank if he/she wants to become a board member.   The use of cryptocurrencies is prohibited in Lebanon by the Central Bank.  The Central Bank announced that it is developing a digital currency that it plans to issue for domestic use only.

There are no legal restrictions in Lebanon on a foreigner or non-resident’s ability to open a bank account in local or foreign currency, provided they abide by Lebanese compliance rules and regulations.  Currently, however, most banks are not taking on new clients or new accounts. Banks claim they have stringent inquiry mechanisms to ensure compliance with international and domestic regulations and implement Lebanon’s anti-money laundering and counter-terror finance laws.  Banks inform customers of Know-Your-Customer requirements and ask them about the purpose of opening new accounts and about the sources of funds to be deposited.  Lebanese banks note they are compliant with the Foreign Account Tax Compliance Act (FATCA).  Lebanon adopted the OECD Common Reporting Standards since January 1, 2018.

Foreign Exchange and Remittances

Foreign Exchange

Commercial banks in late 2019 introduced informal capital controls on Lebanese depositors to stem the outflow of foreign currency; these controls have persisted today, and banks have barred virtually all overseas transfers. Clients with Lebanese lira (LBP) denominated accounts can only convert their lira to dollars outside of banks at licensed and unlicensed money exchangers.

As of March 2021, Lebanon in practice had several different exchange rates. Since 1997, the LBP has been pegged to the U.S. dollar at 1,507.5 LBP/1 USD. However, as Lebanese continue to demand scarce dollars in the Lebanese financial system, the currency depreciated on the parallel market, the only source of U.S. dollar banknotes for most Lebanese. The Central Bank only made dollars available to importers at the official rate for imports of fuel, wheat, and medicine. It has also made dollars available at 3,900 LBP/1 USD for importers of “critical” food items. This 3,900 LBP/1 USD rate is also the “bank rate” – the rate at which banks convert U.S. dollar-denominated accounts to local currency when clients withdraw dollars. The prevailing market rate for U.S. dollar banknotes, however, reached 10,000 LBP/1 USD on March 2, 2021, and 15,000 LBP/1 USD two weeks later. As of April 12, the prevailing market rate was 13,000 LBP/1 USD. Different stores and shops offered varying exchange rate conversions at ad hoc rates as well.

The conversion of foreign currencies or precious metals is unfettered. Lebanon’s Central Bank posts a daily local currency-exchange rate on its website:   http://www.bdl.gov.lb/ . Lebanon has one of the most heavily dollarized economies in the world, and businesses commonly accept payment (and return change) in a combination of LBP and U.S. dollars, but given the scarcity of U.S. dollars, some businesses offered discounts or better prices for cash dollar payments.

Remittance Policies

While capital controls curtailed the ability of those holding dollar-denominated bank accounts in Lebanon to withdraw or transfer their currencies overseas, those in Lebanon with access to “fresh dollars” (i.e., new dollars from abroad or not from within the local financial system) were able to access, withdraw, and transfer overseas dollars. For the vast majority of Lebanese and businesses in Lebanon, remitting any money overseas, including investment returns, remained nearly impossible. Most economists believe capital controls must continue for the foreseeable future to prevent a bank run and preserve the limited foreign currency remaining in Lebanon, although they prefer formal and legal capital controls passed by Lebanon’s Parliament.

Sovereign Wealth Funds

Lebanon does not have a sovereign wealth fund. The government’s economic rescue plan, approved by the Cabinet on April 30, 2020, calls for the creation of a Public Asset Management Company that would include state assets and properties to help restore depositors’ funds and boost economic recovery. Lebanon’s Offshore Petroleum Resource Law states that proceeds generated from oil and gas exploration must be deposited in a Sovereign Wealth Fund.  Creating the fund requires a separate law, which the government has yet to adopt.  Lebanon currently receives no proceeds from natural resources that could flow into a sovereign wealth fund.

The Lebanese government maintains several state-owned monopolies. State-owned Ogero owns and operates all fixed line telecommunications in Lebanon, while the two mobile operators, Touch and Alfa, are also owned by the state. While they were previously managed by Kuwait’s Zain and Egypt’s Orascom Telecom, the Ministry of Telecommunications took over management of the two mobile operators in 2020. It has yet to announce tenders for new management contracts. Electricité du Liban (EdL) provides nation-wide electricity production and transmission, and four regional authorities provide water service.

La Régie des Tabacs et Tombacs conducts tobacco procurement, manufacturing, and sales, and Casino du Liban operates as a mixed public-private enterprise.  The Central Bank owns 99.23 percent of the air carrier Middle East Airlines, whose monopoly is scheduled to end in 2024.  Other major state-owned enterprises or public institutions include the Beirut, Tripoli, Sidon, and Tyre ports, the Rashid Karami International Fair (in northern Lebanon), the Sports City Center, and real estate development institution Elyssar.  The government also owns shares in Intra Investment Co., a mixed public-private investment company that owns 96.62 percent of Finance Bank, a Lebanese commercial bank.

There is no uniform definition of State-Owned Enterprises (SOEs), and each has separate internal by-laws.  Decree 4517 (dated 1972) establishes two types of public institutions, one administrative category that involves public enterprises such as the Lebanese University, and a second that holds commercial institutions such as EdL and La Régie.  The Ministry of Finance maintains an unpublished list of SOEs and public institutions.  SOEs and public institutions may purchase or supply goods or services from the private sector or foreign firms.  Their procurement process is governed by separate regulations but under the same terms and conditions as public procurement.  SOEs and public institutions benefit from certain tax exemptions.

The state electricity monopoly restricts production to EdL alone, but numerous private investors operate unregulated generators across the country and sell electricity to citizens at significantly higher rates during the country’s frequent power cuts.  EdL awarded several concessions to privately-owned companies for power distribution in specific regions, and these companies are interested in meeting customer demand.  Independent Power Producers (IPP) may provide municipalities with 10 MW of electricity without receiving a direct concession from EdL.  In April 2014, Parliament granted the Cabinet authority through 2018 to license private companies to generate electricity (Law 288).  On April 17, 2019, Parliament extended Law 288 and granted the Public Tender Office authority to oversee electricity contracts as part of the government’s electricity sector reform.  Law 462 of 2002 called for the corporatization and privatization of the electricity sector, and the creation of an electricity regulatory authority (ERA).  However, as implementation of the privatization law stalled, Law 288 delegated issuance of production permits and licenses for new electricity projects from ERA to the Lebanese government.  Since 2012, EdL has contracted three private companies to manage bill collection, maintenance, and power distribution.

Lebanon’s SOEs report to shareholders, whereas public institutions are subject to oversight by the concerned ministries as well as by the Ministry of Finance.  Public institutions require the approval of concerned ministries for major business decisions.  SOEs may independently prepare their budgets, which must be approved only by their board of directors.  The SOEs and public institutions are required by law to publish an annual report, submit their books for independent audits, and transmit their books to the Court of Audit.

The Lebanese government currently has no formal plans to privatize SOEs or public institutions. The April 30, 2020 economic reform plan did not specify any government privatization plans other than noting it would likely sell Casino du Liban. The plan also suggested the creation of a Public Asset Management Company (PAMC) to hold government assets, including government stakes in the “main state-owned enterprises and real estate.”  Profits from the PAMC would go to fund capital increases of the Central Bank, which would in turn allow it to repay its liabilities to the local financial sector. The plan did not specify which state-owned assets would go into the PAMC or which would be privatized. Some political leaders and economists have called for SOE privatization to be a larger part of the government’s reform efforts. The Governor of the Central Bank previously stated plans to list 25 percent of Middle East Airlines (which is 99.23 percent owned by the Central Bank) on the BSE, but this has not happened.

SOEs and public institutions have independent boards staffed primarily by politically affiliated individuals, appointed by the Cabinet for public institutions, and by shareholders for SOEs.  These boards always include a cabinet-appointed Government Commissioner who reports to the concerned ministries.  SOEs do not currently adhere to the Organization for Economic and Cooperative Development (OECD) Corporate Governance Guidelines.

Privatization Program

Lebanon enacted laws in 2002 for the privatization of the telecom sector (Law 431) and the electricity sector (Law 462). However, neither has been implemented.

Parliament passed a two-year law authorizing the Cabinet to issue Independent Power Producers (IPP) licenses to investors in April 2014.  It later amended the law to extend its application through April 2018. On April 17, 2019, Parliament passed a new law extending the application of Law 288 through April 2021, granting the Tender Office authority to tender IPP projects. The Ministry of Energy and Water launched tenders in March 2017 for solar power plants under the IPP law and has issued three wind power plants licenses under IPP. It planned to issue tenders for two combined cycle gas turbine IPPs in September 2019, but those efforts stalled. The government reportedly now aims to procure IPPs on a bilateral government-to-company negotiation process, although no country has offered to finance construction of IPPs given Lebanon’s default status and sovereign risk.

The High Council for Privatization and Partnerships (HCP) manages privatization and public-private sector partnership (PPP) projects. In accordance with the provisions of the Privatization Law 228 and the PPP Law 48, the HCP conducts competitive tendering processes for both privatization and PPP projects. The PPP law introduced a legal framework to attract local and international private investments in infrastructure projects. The PPP legislation is published on the HCP website http://hcp.gov.lb . The HCP has yet to fully manage or complete any privatization project.

The Capital Markets Law calls for the corporatization and subsequent privatization of the Beirut Stock Exchange (BSE) within a two-year period from the date that the Capital Markets Authority (CMA) is appointed. The Cabinet appointed the CMA in June 2012, and in September 2017 issued a decree to corporatize the BSE. The corporatization has yet to occur.

Sustained anti-government protests began on October 17, 2019 and led to resignation of the then-government on October 29, 2019. The protests continued for months, with demonstrators demanding an end to corruption, poor governance, and economic stagnation. A new government, which drew support from Foreign Terrorist Organization (FTO) Hizballah, did not form until January 21, 2020. This government resigned on August 10, 2020, in the wake of protests after an August 4, 2020 explosion at the Port of Beirut killed more than 200 people. Public demonstrations have continued since that time, albeit with less frequency. Some protests have turned violent and targeted property, particularly banks and public institutions. Lebanon’s declining economic situation has resulted in more than half of the population falling below the poverty line. Although Lebanon’s leaders have spoken about forming a technocratic reform-minded government, efforts to do so remained stalled as of March 2021.

Hizballah continued fighting in Syria on behalf of the Assad regime, while some Lebanese Sunnis reportedly lent support to the Syrian opposition. Lebanon continues to host more refugees per capita than any other country in the world. The refugee presence led to increased social tensions and competition for low-skilled jobs, use of strained infrastructure, and provision of public services.

The U.S. government considers the potential threat to U.S. Embassy personnel assigned to Beirut sufficiently serious to require all official personnel to live and work under security restrictions.  These limitations occasionally prevent the movement of U.S. Embassy officials and the provision of consular services in certain areas of the country.  U.S. citizen visitors are encouraged to contact the Embassy’s Consular Section for the most recent safety and security information concerning travel to Lebanon. More information may be found at https://lb.usembassy.gov/u-s-citizen-services. 11. Labor Policies and Practices

* Source for Host Country Data: GDP data is from the Lebanese Central Administration of Statistics (CAS) at the official, pegged exchange rate of 1,507.5 LBP/1 USD. Lebanon’s Central Bank compiled FDI statistics without geographical breakdown, thus the inward/outward FDI positions from/to the United States are “partial figures” derived from the Coordinated Direct Investment Survey (CDIS). The CDIS includes banking, financial, and insurance sectors.

Source: BdL; IMF Coordinated Direct Investment Survey-CDIS, December 2019

Source: BdL; IMF Coordinated Portfolio Investment Survey-CPIS, Jun 2020. Per BdL officials, CPIS data of Dec-2020 is not yet available.

Policies Towards Foreign Direct Investment

The Government of Lesotho (GOL) is generally open to FDI and successive governments have tried to attract FDI as a key component of national development. However, recent years have seen increasing critiques in Lesotho’s press and politics of foreign investors who repatriate their profits rather than reinvesting in Lesotho. This has resulted in a series of populist polices and policy proposals intended to protect opportunities for local investors and entrepreneurs, but which may inadvertently dampen Lesotho’s attractiveness as a destination for foreign investment. Lesotho follows World Trade Organization (WTO) laws and regulations, but the law makes some distinctions between local and foreign investors in some industries (see “Limits on Foreign Control and Right to Private Ownership and Establishment”).

Lesotho’s investment promotion agency, the Lesotho National Development Corporation (LNDC), is responsible for the initiation, facilitation, and promotion of Lesotho as an attractive investment destination.  LNDC also undertakes investment project appraisals, provides pre-investment and after-care services, risk management, trade and investment research, and strategic planning.  It also ensures investors’ compliance with the country’s legal frameworks.  Through LNDC, the government actively encourages investment in manufacturing and agriculture sectors. LNDC also implements the country’s industrial development policies.

LNDC provides the support services described above to foreign investors and regularly publishes information on investment opportunities and the services it offers to foreign investors.  Furthermore, LNCDC offers incentives such as long-term loans, tax incentives, factory space at discounted rental rates, assistance with work permits and licenses, and logistical support for relocation.  LNDC maintains an ongoing dialogue with foreign and domestic investors by attending annual trade and investment forums both locally and internationally. For more information on LNDC, please visit:  http://www.lndc.org.ls  . 

Limits on Foreign Control and Right to Private Ownership and Establishment

Lesotho is open to foreign investment and there are no economy-wide restrictions applied to foreign ownership and control. However, GOL has passed laws and regulations intended to limit foreign ownership to large scale businesses in complex sectors while reserving small scale businesses in designated sectors exclusively for the indigenous citizens of Lesotho (“Basotho”). The Trading Enterprises Regulations of 2011 (TER 2011) and the Business Licensing and Registration Regulations of 2020 (BLRR 2020) reserve certain businesses for Basotho and limit foreign investors to operating these businesses as minority shareholders with a maximum of 49 percent shareholding. The reserved 47 businesses include acting as an agent of a foreign firm, barber, butcher, snack-bar operator, domestic fuel dealer, dairy shop proprietor, general café or dealer, greengrocer, broker, mini supermarket (floor area < 250m2), and hair and beauty salon.  Most businesses affected by these regulations are micro or small enterprises, but some mid-sized foreign owned firms will be affected.

The Business Licensing and Registration Act 2019 (BLRA 2019) requires foreign investors to provide a capital of $123,152 or provide proof of investment of $123,152 during registration or renewal of their traders’ licenses or to have deposited $123,152 with a local institution. However, the Central Bank of Lesotho Act of 2000 stipulates a foreign investment minimum threshold of $250,000.  While pleased that the new law indicates a reduction in the minimum sum that they must invest, many foreign investors are concerned that this discrepancy was not clarified in the BLRA 2019 legislation.

BLRA 2019 requires foreign investors to renew their business identification card annually while locals are only required to renew their business identification cards after three years. Some foreign entrepreneurs operating in Lesotho have complained that the process of renewing their business identification cards annually is extremely onerous. BLRA 2019 also requires foreign investors to transfer technology and business expertise to local investors. Many foreign entrepreneurs operating in Lesotho complain that this requirement is poorly articulated and arbitrarily enforced.

The Mines and Minerals Act No.4 of 2005 restricts mineral permits for small-scale mining operations on less than 100m2 to local ownership.  Diamond mining, regardless of the size of the operation, is subject to the large-scale mines licensing regime, which has no restrictions on foreign ownership; however, GOL reserves the right to acquire at least 20-35 percent ownership in any large-scale mine.  By law, the Ministry of Trade and Industry is instructed to screen foreign investments in a routine, nondiscriminatory manner to ensure consistency with national interests.

Other Investment Policy Reviews

Lesotho’s investment policy was approved by Cabinet and became law in early 2016.  The policy was developed with assistance from the United Nations  Conference on Trade and Development (UNCTAD)   http://unctad.org/en/pages/PublicationArchive.aspx?publicationid=503  ) .  The government has not undertaken any third-party investment policy reviews in the past three years.

Business Facilitation

In 2016, the government launched a “One Stop Business Facilitation Centre” (OBFC), to make it easier to do business and facilitate FDI. OBFC places all services required for the issuance of licenses, permits, and imports and exports clearances under one roof.  The portal provides transparency and predictability to trade transactions and reduces the time and cost of trading across borders. The OBFC web site is  http://www.obfc.org.ls/business/default.php  . 

The process of company registration includes: a work permit application with the Ministry of Labor and Employment, a visa application and resident permit with the Ministry of Home Affairs, a trader’s license with the Ministry of Trade and Industry, tax clearance with Lesotho Revenue Authority, a police clearance with the Ministry of Police and Public Safety, and a medical clearance with the Ministry of Health.

In November 2020, the OBFC held a twin launch of e-Regulations and e-Licensing. The e-Regulations provides a clear step by step process to register a business. This also stipulates requirements, costs, time and contact details for registering a business. The e-Licensing allows foreign investors to apply online for obtaining a business license. This initiative has reduced instances of fraud and manipulation. It takes a maximum of 5 days to issue both industrial and traders licenses. For more information on e -licenses, please visit: www.Lesotho.elicenses.org  . For more information on e-regulations please visit: http://www.lesotho.eregulations.org  .

Outward Investment

Lesotho provides incentives to investors who export outside the country. Export manufacturers obtain a full rebate of customs duty paid on their inputs imported to produce for markets outside Southern African Customs Union (SACU). The government does not restrict domestic investors from investing abroad.

The government facilitates quality standard processes and export permits for outward investment.  For AGOA exports, the Ministry of Trade and Industry, LNDC, and Lesotho Revenue Authority provide support including on export requirements.  Other agencies such as the U.S. Agency for International Development Southern Africa Trade Hub provide capacity to the government for the implementation of AGOA.  The government has assigned Lesotho Standards Authority to assist investors who export to the Republic of South Africa (RSA).

Transparency of the Regulatory System

Regulatory enforcement is generally weak and has moderate impact by hindering competition and distorting business and investment practices.  The legal, regulatory, and accounting systems are transparent and consistent with international norms.  The accounting systems for companies are regulated by the Companies Act of 2011 and Financial Institutions of 2012.  International Financial Reporting System (IFRS) is the current financial system used by companies.  Rule-making and regulatory mechanisms exist at the local, national, and supra-national levels although the most relevant for foreign investors is the national level.  There are no informal regulatory processes managed by the private sector or non-governmental organizations.

There are no private sector or government efforts to restrict foreign participation in consortia or organizations that set industry standards.  Lesotho has a centralized online location where key regulatory actions are published.  However, the website is poorly maintained and rarely updated —    https://lesotholii.org/  .   The government printing office also publishes government gazettes which can be purchased by the public.

Businesses in Lesotho are regulated by the Companies Act of 2011. The issuance of traders’ licenses is governed by the Trading Enterprises Order of 1993, as amended in 1996, and the Trading Enterprises Regulations of 1999, as amended in 2011, as well as the Business Licensing and Registration Act of 2019.  Trading licenses are required for a wide range of services; some enterprises can require up to four licenses for one location.  Manufacturing licenses are covered by the Industrial Licensing Act of 1969 and the Pioneer Industries Encouragement Act of 1969.  For most manufacturing license applications, environmental certificates issued by the National Environmental Secretariat (NES) are sufficient.  Where manufacturing activities are assumed to have actual or potential environmental impacts, however, an Environmental Impact Assessment is required, which must be approved by the NES.  The introduction of the OBFC improved the industrial and trading license system.  The OBFC has also streamlined other bureaucratic procedures, including those for licenses and permits.

The GOL modernized the regulatory framework for utilities through the establishment of the independent Lesotho Communications Authority (LCA), which regulates the telecommunications sector, and the Lesotho Electricity and Water Authority (LEWA), which regulates the energy and water sectors.  The two authorities set the conditions for entry of new competitive operators.  The LEWA allows both the Lesotho Electricity Company and the Water and Sewerage Company to maintain monopolies in their respective sectors.

The Mines and Minerals Act of 2005, the Precious Stones Order (1970), and the

Mine Safety Act (1981) provide a regulatory framework for the mining industry.  The Commissioner of Mines in the Ministry of Mines, supported by the Mining Board, is authorized to issue mineral rights to both foreigners and local investors.  On approval, it takes about a month for both prospecting and mining licenses to be issued.

Under the Financial Institutions Act of 2012 the Central Bank of Lesotho (CBL) regulates financial services.

Tourism enterprises are required to secure licenses under the Accommodation, Catering and Tourism Enterprise Act of 1997.  The Act provides for a Tourism Licensing Board that issues and renews licenses for camp sites, hotels, lodges, restaurants, self-catering establishments, bed and breakfasts, youth hostels, resorts, motels, catering, and guest houses.  Applicants for any of the above licenses must apply to the Board three months before its next meeting.  Several government departments, specifically the Ministries of Health and Tourism, the police and, when the property is in Maseru, the Maseru City Council, must inspect properties and submit inspection reports to the Board on prescribed forms.  Licenses are granted for one year and can be renewed.

Parliamentary committees may, but are not required to, publish proposed laws and regulations in draft form for public comment.  Parliament may also hold public gatherings to explain the contents of the proposed laws, and these provide opportunities for comment on proposed laws and regulations.  The committees generally hold such consultations for laws that are perceived to be sensitive, such as: The Land Act, the Penal Code, and the Children’s Welfare and Protection Act.

Regulations are developed to enforce the law, to implement objectives of legal frameworks, and to ensure compliance.  The following steps are followed when regulations are developed:

The initiating ministry or agency writes a cabinet memo reflecting objectives and benefits of the regulations.  The cabinet memo is then widely circulated to relevant stakeholders to reflect how the regulations will impact them and to seek concurrence.  The initiating agency then makes a cabinet presentation to seek cabinet approval to draft the regulations.  The initiating agency drafts regulations and holds meetings with relevant stakeholders to obtain their input.  The initiating ministry or agency holds workshops with relevant stakeholders to validate regulations.  Draft regulations are submitted to the Attorney General for certification.  A Parliamentary presentation is held and updates to the draft are made.  A presentation to the Senate is held and updates of the regulations are made.  Parliament tables the regulations, and a provision of royal ascent is made by His Majesty King Letsie III.  The regulations are published, and the public is given a period of 14 days to review the regulations after which their comments are incorporated, and the regulations are finalized and gazetted.  The last step is to sensitize the public on the new regulations.

Information on debt obligations is publicly available, including online.  The government produces an Annual Public Debt Bulletin, which covers debt management operations, debt portfolio, debt service, and loan guarantees.  The government also publishes a Medium-Term Debt Strategy paper.  More information is available at:    www.finance.gov.ls/    .

International Regulatory Considerations

Lesotho is a member of the Southern African Development Community (SADC) and the Southern African Customs Union (SACU).  SACU strives to promote integration of Member States into the global economy through enhanced trade and investment. SADC aspires to deepen regional integration and sustainable development. Lesotho’s products enjoy duty free access to SADC countries, which has a total population of 277 million.  For more information about SADC, visit:  www.sadc.int  . 

In January 2021, the GoL ratified the African Continental Free Trade Area (AfCFTA) agreement. The main objective of the AfCTA is to create a single continental market for goods and services, with free movement of business persons and investments.  The agreement has been signed by 54 out 55 countries. To date, 35 countries have ratified the agreement. The agreement would provide a market access of over 1 billion people to Lesotho’s products with a combined Gross Domestic Product (GDP) estimated at $3.4 trillion.

Lesotho is a member of the World Trade Organization (WTO). Lesotho’s regulatory systems are independent and not intertwined with regional regulations.  In cases where there are gaps with national regulations, the country uses regional regulations to close them.  The government does not reference or incorporate U.S. or another country’s regulatory systems.  The government strives to provide notification of Technical Barriers to Trade (TBT).  More information is located at:  https://www.tfadatabase.org/members/lesotho  . 

Legal System and Judicial Independence

The legal system in Lesotho is based on Roman–Dutch Law and English Common Law, combined with precolonial Customary Law.  The judicial system is made up of the High Court, the Court of Appeal, subordinate courts, and the Judicial Service Commission (JSC).

There is no trial by jury, instead, judges make rulings alone. There are magistrates’ courts in each of the 10 districts, and more than 70 central and local courts. With U.S. support, a Commercial Court was established in 2010 to improve the country’s capacity in resolving commercial cases though backlogs continue to delay processing times.  Foreign investors have equal treatment before the courts in disputes with national parties or the government.  The SADC Protocol on Finance and Investment enables investors to refer a dispute with the State to international arbitration if domestic remedies have been exhausted.  Lesotho is a signatory of the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and also accepts ad hoc arbitration.  Lesotho is a member of the International Center for the Settlement of Investment Disputes, and the Arbitration International Investment Disputes Act of 1974 commits Lesotho to accept binding international arbitration of investment disputes.

Laws and Regulations on Foreign Direct Investment

Lesotho does not have any investment laws. The overarching FDI policy is the 2015 National Investment Policy of Lesotho, produced with the assistance of UNCTAD.  The Companies Act of 2011 and the Financial Institutions Act of 2012, are the principal laws that regulate incoming foreign investment through acquisitions, mergers, takeovers, purchases of securities and other financial contracts and greenfield investments.  The investment treaties also govern conduct toward the entry of foreign investment.  In 2020, there were no major cases relating to foreign investment and the 2020 judgments are available at:  https://lesotholii.org/courtnames/high-court/2020  . 

The OBFC hosts the Lesotho Trade Information Portal, a single online authoritative source of all laws, regulations, and procedures for importing and exporting.   The OBFC web site is:     http://www.obfc.org.ls/business/default.php  .  The OBFC portal provides information on company registration and export and import regulations as well as information and links to key laws and 23 ministries.

The government has produced but not yet passed a draft competition bill to improve the regulation of investments.  Its goal is to “provide the legal basis for undistorted competition and thus contribute to transparency and predictability in domestic markets.”  The are no agencies established to review transactions for competition-related concerns.  However, various government sectors deal with competition-related issues through use of available institutional guidelines and procedures. These include the Commercial Court, the Ministry of Trade and Industry and the Ministry of Small Business.  The government is also in the process of drafting a consumer protection bill.

Expropriation and Compensation

The constitution provides that the acquisition of private property by the state can only occur for specified public purposes. The processes that are followed during expropriation follow the Land Act of 2010. These include consultations between government/authority and claimant, consultation with the chief, demarcation and survey of the area, publishing a gazette for public notification and information and provision of compensation equal to fair market value of the property.  In cases of expropriation where claimants allege a lack of due process, the affected persons may appeal to the High Court as to whether the action is legal and compensation is adequate.  The constitution is silent on whether compensation may be paid abroad in the case of a non-resident; such an additional provision would usually be contained in a foreign investment law.  The government has no history of discriminating against U.S. or other foreign investments, companies, or representatives in expropriation.  The only local ownership law is the Trading Enterprises Act.

Dispute Settlement

ICSID Convention and New York Convention

Lesotho is a member of the ICSID Convention and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.  There is no specific domestic legislation providing for enforcement of awards under the ICSID Convention.

Investor-State Dispute Settlement

The government is a signatory to a treaty in which binding international arbitration of investment disputes is recognized.  Lesotho has no Bilateral Investment Treaty (BIT) with the United States.  The government has little history of investment disputes involving U.S. or other foreign investors or contractors in Lesotho.

Foreign investors have full and equal recourse to the Lesotho courts for commercial and labor disputes.  Courts are regarded as fair and impartial in cases involving foreign investors. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Lesotho readily accepts binding international arbitration of investment disputes.  Lesotho has entered into a number of bilateral investment agreements that provide for international arbitration.  However, Lesotho does not have a bilateral investment treaty with the United States.  The government stands ready to accept and enforce foreign arbitral awards and judgements if they meet the requirements of domestic law (there have been no such awards to date).

Bankruptcy Regulations

The Companies Act is the principal commercial and bankruptcy law in Lesotho. According to the law, creditors, equity shareholders, and holders of other financial contracts of a bankrupt company have a right to nominate a person to be a liquidator, however, if there are any disagreements, the person nominated by the creditors shall be the liquidator.  All claims against a bankrupt company shall be proved at a meeting of creditors and equity shareholders.  If the claim is rejected by the liquidator, the claimant may apply to the court by motion to set aside the rejection.  Creditors who will act as witnesses are entitled to witness fees. In a bankruptcy, workers are paid first, then creditors, equity shareholders and holders of other financial contracts are paid. Monetary judgments are usually made in the local currency.

Capital Markets and Portfolio Investment

Through the Central Bank of Lesotho (CBL), the GOL promotes the development of financial markets in Lesotho. Lesotho’s capital market is relatively underdeveloped, with no secondary market for capital market transactions.  The Maseru Securities Market launched in 2016 under the wing of the CBL will soon list the first company on its stock exchange. The trading of government bonds; corporate bonds and company shares is strictly electronic— there is no physical building.  For now, bond trading is operated by the Central Bank of Lesotho. For the 2020/21 fiscal year, the government financed a fiscal deficit of approximately USD 85.7 million through external borrowing.

The government accepted the obligations of IMF Article VIII in 1997 and continues to refrain from imposing restrictions on the making of payments and transfers for current international transactions.  Foreign participation in government securities is allowed as long as foreign investors can open accounts with local banks through which funds can be collected.  Lesotho is part of the Common Monetary Area (CMA). The current account has been fully liberalized for all inward and outward cross-border transactions.  However, some transactions still need approval from the Central Bank.  A Central Bank Report reflected that Private Sector credit from the banking sector declined by 0.7 percent in February 2020 while a decline of 0.2 percent was registered in January 2020.

Credit is allocated on market terms, and foreign investors are able to get credit on the local market.  Interest rates are quite high by global standards. LNDC does not provide credit to foreign investors but can acquire equity in foreign companies investing in strategic economic sectors.  The private sector has access to a limited number of credit instruments, such as credit cards, loans, overdrafts, checks, and letters of credit. In January 2016, Lesotho’s first credit bureau was launched and has been functional. In July 2020, the parliament passed the Secured Interest in Movable Property Act to allow movable property to be considered as collateral in requesting for credit from commercial banks.

Money and Banking System

Lesotho has a central bank and four commercial banks, including subsidiaries of

South African banks (subject to measures and regulations under the Institutions Act of 2012) and the government-owned Lesotho Post Bank. Commercial banks in Lesotho are well-capitalized, liquid, and compliant with international banking standards; however, interest rates are high by global standards.  Three South African banks account for almost 92.5 percent of the country’s banking assets, which totaled over M17.07 billion (USD 1.1 billion) by December 2019.  The share of bank nonperforming loans to total gross loans was approximately 3.3 percent in December 2019.  Foreigners are allowed to establish a bank account and may hold foreign currency accounts in local banks; however, they are required to provide a residence permit as a precondition for opening a bank account to comply with the “know your customer” requirements. The country lost one correspondent banking relationships in the past three years.  Currently there are no banking relationships in jeopardy.

Foreign Exchange and Remittances

Foreign Exchange

There are restrictions on converting or transferring funds associated with an investment into a freely usable currency and at a legal market-clearing rate.  Funds can only be converted into the world’s widely recognized currencies such as the U.S. dollar, British Pound, and the Euro. Incoming funds can be converted into the local currency if the investor does not have the Customer Foreign Currency (CFC) account. If the investor has a CFC account, such funds can remain foreign in that account without any obligation to convert to Maloti.

Remittance Policies

According to the CBL, there are no plans to change remittance policies.  The current average delay period for remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties, and management fees through normal legal channels is two days, provided the investor has submitted all the necessary documentation related to the remittance. There has never been a case of blockage of such transfers, and shortages of forex that could lead to blockage are unlikely given that the CBL maintains net international reserves at a target of 4.3 months of import cover.

Payments of royalties should seek approval from the Central Bank. Export proceeds should be repatriated into the country within the period of six months (180 days).

Sovereign Wealth Funds

There is no sovereign wealth fund or asset management bureau in Lesotho.

Lesotho privatized most state-owned enterprises (SOEs) following the adoption of the Privatization Act of 1995, including telecommunications, banks, and the government vehicle fleet.  The government did not privatize the electricity and water utility companies, which enjoy monopolies in their respective sectors.  In 2004, the government established the Lesotho Post Bank, which is mandated to provide Basotho greater access to financial services. The government has stakes in private companies in utilities and the telecommunications, mining, and manufacturing sectors.  There is a significant level of competition within these sectors—SOEs do not play a leading role.  There are no laws that seek to ensure a primary or leading role for SOEs in certain sectors/industries.  SOEs operate under the same tax law, value-added tax (VAT) rebate policies, regulatory, and policy environment as other private business, including foreign businesses.  Private enterprises compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations, such as licenses and supplies.  Private enterprises have the same access to financing as SOEs and on the same terms as SOEs, including access to finance from commercial banks and government credit guarantee schemes.

Privatization Program

There is no ongoing privatization program in Lesotho.

Since 2012, Lesotho has been governed through coalition governments which have not lasted beyond three years.  (Note: the constitution states that elections should be held every five years and the next elections are scheduled for September / October 2022.) The nation has been increasingly polarized, and the political environment is very unpredictable.

In August 2018, factory workers staged violent protests demanding a minimum wage increase.  Workers blocked roads with stones and other debris, set fires, and broke windows of local businesses.  Throughout 2020, informal economy workers staged recurring protests against COVID-19 lockdown measures.

* Source for Host Country Data: Central Bank of Lesotho

Table 3: Sources and Destination of FDI
Data not available.
Table 4
Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

Government officials describe Liberia as “open for business” and the government supports a Business Climate Working Group (BCWG) to improve the investment climate. A March 2019 BCWG-led forum resulted in an executive order which cancelled Import Permit Declaration requirements and extended residency visas and work permits from one to five years. These improvements have since been renewed. Charged with facilitating foreign investment in Liberia, the National Investment Commission (NIC) develops investment strategies, policies, and programs to attract foreign investment and negotiate investment contracts or concessions. The NIC, the BCWG and other private sector groups, such as the Liberia Chamber of Commerce (LCC), facilitate dialogues through formal business roundtables on investment climate issues. They also meet with investors and government officials to discuss and suggest solutions to critical policy issues.

However, some business leaders report difficulties in obtaining meetings with government representatives to discuss new policies perceived to damage the business climate. In 2020, the BCWG was not actively engaged except that it convened infrequent meetings to discuss and resolve critical regulatory issues affecting the business climate. A weak legal and regulatory framework, lack of transparency in contract award processes, and corruption continue to inhibit foreign direct investment. The 2010 Investment Act prohibits and restricts market access for foreign investors, including U.S. investors, in certain economic sectors or industries. See “Limits on Foreign Control and Right to Foreign Ownership and Establishment” below for more detail.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities may own and establish business enterprises in many sectors. The Liberian constitution restricts land ownership to citizens, but non-Liberians may hold long-term leases. See Real Property, below for further detail. Liberia does not maintain an investment screening mechanism for inbound foreign investment. Per the Investment Act (“The Act”) and Revenue Code, only Liberian citizens may operate businesses in the following sectors and industries:

1. Supply of sand
2. Block making
3. Peddling
4. Travel agencies
5. Retail sale of rice and cement
6. Ice making and sale of ice
7. Tire repair shops
8. Auto repair shops with an investment of less than USD 550,000
9. Shoe repair shops
10. Retail sale of timber and planks
11. Operation of gas stations
12. Video clubs
13. Operation of taxis
14. Importation or sale of second-hand or used clothing
15. Distribution in Liberia of locally manufactured products
16. Importation and sale of used cars (except authorized dealerships, which may deal in certified used vehicles of their make)

The Act also sets minimum capital investment thresholds for foreign investors in certain other business activities, industries, and enterprises. (See Section 16 of the Act: http://www.moci.gov.lr/doc/TheInvestmentActof2010(1).pdf .) For enterprises owned exclusively by non-Liberians, the Act requires no less than USD 500,000 in investment capital. For foreign investors partnering with Liberians, the Act requires no less than USD 300,000 in total capital investment and at least 25 percent aggregate Liberian ownership.

Other Investment Policy Reviews

The government appears not to have undergone a third-party investment policy review to date.

Business Facilitation

All businesses must register with and obtain authorization from the  Liberia Business Registry (LBR)  to conduct business or provide services in Liberia.  LBR services are available to local and foreign companies at its head office in Monrovia. See  http://lbr.gov.lr/ .

Most of Liberia’s commercial laws and regulations are not publicly available online. The NIC chairs an ad hoc cabinet-level Inter-Ministerial Concessions Committee (IMCC) that convenes often lengthy bidding and negotiation processes for long term investment contracts such as concessions.  The establishment of a concession requires ratification by the national legislature, approval by the President, and printing of handbills. The Liberia Revenue Authority (LRA) handles tax payment processes and administration. The National Social Security and Welfare Corporation (NASSCORP) handles related social security processes.

According to the World Bank, establishing a business requires five procedures and 18 days. Foreign companies must obtain investment approval from the NIC if they seek investment incentives. Foreign companies must use local counsel when establishing a subsidiary. If the subsidiary will engage in manufacturing and international trade, it must obtain a trade license from the LBR. For more information about investment laws, bilateral investment treaties, and other treaties with investment provisions, please see  https://investmentpolicy.unctad.org/country-navigator/121/liberia .

Outward Investment

The government neither promotes nor incentivizes outward investment but neither does it restrict Liberian citizens from investing abroad.

Transparency of the Regulatory System

Companies are required to adhere to the International Financial Reporting Standards (IFRS) consistent with international norms. In many instances, however, authorities do not consistently enforce or apply national laws and international standards. Further, no systemic oversight or enforcement mechanisms exist to ensure that government authorities follow administrative processes. Some government ministries and agencies often have overlapping responsibilities, resulting in inconsistent application of the laws. Although ministries and agencies usually publish finalized regulations, no prior public comment period is required.  No central clearinghouse exists to access proposed regulations. Government revenues and debts, while partially captured in national budgets, are not fully transparent.  Some budget documents are accessible online. For more information on regulatory transparency. See: https://rulemaking.worldbank.org/en/data/explorecountries/liberia .

International Regulatory Considerations

Liberia is a member of the Economic Community of West African States (ECOWAS)  regional economic block, as well as the Mano River Union (MRU) .  The Liberia Revenue Authority (LRA)  continues to standardize and harmonize the country’s customs and tariff systems to incorporate Liberia’s tax regime into the ECOWAS External Tariff. Liberia currently uses a goods and services tax (GST) system but is required under ECOWAS standards to adopt a value-added tax (VAT). The adoption of VAT is a topic of ongoing political discussions, but it has not yet occurred. Under its tax system modernization program, the LRA has undertaken new efficiency measures including adopting a Mobile Tax Payment option for citizens to pay taxes and fees via their mobile phones. The Government of Liberia has acceded to WTO terms and conditions including on technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures.

Legal System and Judicial Independence

Liberia’s legal system uses common and regulatory law as well as local customary law.  The common law-based court system operates in parallel with local customary law, which incorporates unwritten, indigenous practices, culture, and traditions. The 2001 Revised Rules and Regulation Governing the Hinterland of Liberia govern the traditional court system. See  https://www.documents.clientearth.org/library/download-info/regulation-2001-revised-rules-and-regulations-governing-the-hinterland-of-liberia/ . Adjudication of law under these two systems often results in conflicting decisions between Monrovia-based entities, local communities outside of Monrovia, and within individual communities.

The Commercial Court hears commercial and contractual issues, including debt disputes of USD 15,000 and above. A commission under the Ministry of Labor hears claims of unfair labor practices. In theory, the Commercial Court presides over all financial, contractual, and commercial disputes, serving as an additional avenue to expedite commercial and contractual cases. The Supreme Court is the final arbiter of all cases and it hears all appeals, which places a significant burden on its panel of five judges. The judicial branch remains officially independent of the executive, but there have been reports of executive branch interference in judicial matters. Cases can be subject to extensive delays and procedural and other errors, and investors report doubts of the fairness and reliability of judicial decisions. Regulations or enforcement actions are appealable, and appeals are adjudicated in the Supreme Court.

Laws and Regulations on Foreign Direct Investment

No major laws or judicial decisions pertaining to foreign direct investment have come out in the past year. The government does not maintain a “one-stop-shop” website for investment laws, rules, procedures, or reporting requirements.  The NIC provides sector-specific investment counseling and/or advisory services upon request. The LCC explains relevant information on the regulatory processes and procedures relating to exports, and assists importers in processing documents to comply with Liberian customs regulations.

Competition and Antitrust Laws

There were no significant competition cases during the review period. Liberia does not have anti-trust laws.

Expropriation and Compensation

The 2010 Investment Act protects and guarantees foreign enterprises against expropriation or nationalization. The act clearly specifies that the government shall not engage in any expropriation of an enterprise “unless the expropriation is in the national interest for a public purpose, is the least burdensome available means to satisfy that overriding public purpose and is made on a non-discriminatory basis in accordance with due process of law.”  Liberia is a signatory to the Multilateral Investment Guarantee Agency (MIGA) Convention.

Dispute Settlement

Liberia is a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) – also known as the Washington Convention – and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards – also known as the New York Arbitration Convention.  The Commercial Code provides for enforcement of awards under either convention. The Investment Act provides that “the courts of Liberia shall have jurisdiction over the resolution of business disputes, parties to an investment disputes may however specify any arbitration or other dispute resolution procedure upon which they may agree.” The Commercial Code is the specific domestic legislation that provides for the enforcement of awards under the 1958 New York Convention and/or under the ICSID Convention.

Investor-State Dispute Settlement

Liberia is a member of the ICSID Convention and a signatory to the Multilateral Investment Guarantee Agency (MIGA) Convention that guarantee the protection of foreign investment.  The Civil Procedure Law governs both domestic and international arbitrations, but there is not a stand-alone arbitration law.  Enforcing foreign or domestic arbitration awards may require several years, from filing an application with the court of first instance to obtaining a writ of execution, with provision for an appeal. Under the ICSID and the New York Arbitration Conventions, Liberian courts are bound to recognize and enforce foreign arbitral awards issued against the government. Liberia is also a signatory to the ECOWAS Treaty, which contains investor-state dispute settlement (ISDS) provisions. There have been no recent extrajudicial actions against foreign investors.

International Commercial Arbitration and Foreign Courts

The Investment Act provides for trade dispute settlement between two private parties through either the judicial system or alternative dispute resolution (ADR). Other codes, statutes, and legislative provisions, including the Liberian Civil Procedure Law, govern commercial arbitration and recognize arbitration as a means of resolution between private parties in commercial transactions, based on the model of the United Nations Commission on International Trade Law (UNCITRAL model law).

Investment contracts between private entities and the government frequently include arbitration clauses specifying dispute settlement outside of Liberia. Given the limited capacity of the judiciary, investors often prefer not to rely on domestic judicial processes.

Bankruptcy Regulations

Liberia does not have a bankruptcy law. The Commercial Court has limited experience protecting the rights of creditors, equity holders, and holders of other financial contracts.

Capital Markets and Portfolio Investment

The Liberian government welcomes foreign investment, although Liberia’s domestic capital market is not well developed. Private sector investors have limited credit and investment options. The government does not hold foreign portfolio investments abroad. Liberia offers no domestic capital market or portfolio investment option, such as a stock market, in the country. In 2019, the Central Bank of Liberia (CBL) began issuing CBL bills, but in 2020, the CBL reported a declining trend in the issuance of its bills, partly due to sluggish commercial activities occasioned by COVID-19 and low demand from the commercial banks. The CBL respects IMF Article VIII and does not implement restrictions on payments and transfers for current international transactions. Many foreign investors prefer to obtain credit from, and retain profits, in foreign banking institutions.

Money and Banking System

Nine commercial banks, branch outlets including payment windows/annexes, a development finance company, and a deposit taking microfinance institution provide banking services within Liberia.  Eight of the commercial banks are foreign banks. Numerous licensed foreign exchange bureaus, microfinance institutions, credit unions, rural community finance institutions, and village savings and loan associations (“susus”) also provide financial services.  Foreign banks or branches can establish operations in Liberia, subject to regulations set out by the Central Bank of Liberia (CBL).  There are no restrictions on foreigner’s ability to establish a bank account with any of the commercial banks.

The commercial banking system in Liberia is small, and although generally stable, chronic shortages of Liberian dollar currency in the past several years have undermined confidence in the banking sector. The CBL describes the banking industry as “generally safe, sound and viable” based on its published indicators of financial health. At the end of calendar year 2020, the capital adequacy ratio was approximately three times higher than the regulatory minimum, and the liquidity ratio was 2.5 times higher.

According to a 2019 report by the Central Bank of Liberia (CBL), a significant number of commercial bank assets were held in Liberian government bonds which cannot easily be converted into liquid assets (cash), due to cash availability issues. As of December 2020, the CBL reported L$6 billion (approx. USD 35 million) in outstanding treasury bills. Starting in 2018, commercial banks and businesses have reported considerable difficulty in accessing Liberian dollars.  In addition, since 2019, commercial banks, businesses, and private individuals have had difficulties accessing U.S. dollars. Beginning June 2020, it became increasing difficult for businesses and private individuals to access Liberian dollars through commercial banks due to continued shortage in currency in the banking system. Also in 2020, banks reported shortages in both Liberian and the U.S. dollars liquidity and attributed the shortage to hoarding of large amounts of currency by large businesses and individuals. In addition, some commercial bank representatives have expressed concern about the CBL’s capability to manage the banking sector effectively.

The CBL has engaged several short- and long-term measures, including printing of a small amount of Liberian dollar banknotes and promoting the usage of electronic payment platforms (mobile money, electronic fund transfers, etc.), in its attempt to restore public confidence in the banking system and mitigate the liquidity pressure in the economy. Liberia’s constitution requires that the legislature authorize the printing of currency, which the CBL officially proposed on February 4. The country awaits the Legislature’s authorization to print new banknotes followed by a procurement and printing process to partially relieve its currency issues.

Commercial banks face persistent challenges in profit generation and loan repayment. The issue of non-performing loans (NPLs) remains a major challenge in the banking sector and continues to negatively affect profitability.  Although NPLs are down from their peak in the summer of 2020, they remain more than double the CBL’s threshold.

The CBL reported a NPL ratio of 15% in December 2020, down from the previous high of over 20% earlier in the year. These are still more than double the CBL’s threshold.

Foreign banks or branches can establish operations in Liberia, subject to regulations set out by the CBL. There are no restrictions on foreigner’s ability to establish a bank account with any of the commercial banks, beyond standard know your customer rules.

Foreign Exchange and Remittances

Foreign Exchange

Foreign investors may convert, transfer, and repatriate funds associated with an investment (e.g., remittances of investment capital, earnings, loans, lease payments, and royalties).  Liberian law allows for the transfer of dividends and net profits after tax to investors’ home countries.

Liberia has a floating exchange rate system. Both the Liberian Dollar (LD) and U.S. Dollar (USD) are legal tender. Market supply and demand dictates the exchange rate. The CBL sets and displays official, indicative exchange rates (thresholds) on daily basis. It requires commercial banks and licensed money exchange bureaus to display their daily LD to USD market exchange rates which generally are close to CBL threshold rates.  In addition to commercial banks, licensed foreign exchange bureaus, petrol stations, supermarkets, and other stores provide exchange services. Many unregistered or unlicensed money exchangers exchange money throughout the country.

Remittance Policies

Liberia permits 100 percent repatriation of funds and does not have currency exchange restrictions. Remittances may be sent to Liberia through Western Union, MoneyGram, RIA Money Transfer, and wire transfer.

Sovereign Wealth Funds

The Government of Liberia does not maintain a Sovereign Wealth Fund (SWF) or similar entity.

The country has approximately 20 state-owned enterprises (SOEs) which are governed by boards of directors with oversight provided by sector ministries. The President of Liberia appoints members of the boards to govern wholly-government-owned and semi-autonomous state-owned enterprises (SOEs).  The Public Financial Management (PFM) Act SOE requirements, but few SOE statements are made public.

SOEs employ more than 10,000 people in sea and airport services, electricity supply, oil and gas, water and sewage, agriculture, forestry, maritime, petroleum importation and storage, and information and communication technology services. Not all SOEs are profitable. Some SOEs maintain their own websites. Liberia does not have a clearly defined corporate code for its SOEs. Reportedly, high level officials, including some who sit on SOE boards, influence those enterprises to conduct their business and revenue disbursements in ways not consistent with standard corporate governance.

Privatization Program

The Government of Liberia does not have a privatization program or policy.

President George Manneh Weah’s inauguration in January 2018 marked the first peaceful transfer of power from one democratically elected president to another since 1944. Increasing freedom of speech for Liberians as well as the relatively free media landscape in the country has led to vigorous pursuit of civil liberties, resulting in active, often acrimonious political debates and organized, non-violent demonstrations.  In 2019, the government signed into law the Kamara Abdullah Kamara Act of Press Freedom to strengthen its commitment to several legal instruments it previously signed, such as the Freedom of Information Act and the Table Mountain Declaration.  Numerous radio stations and newspapers distribute news throughout the country. The government has identified land disputes and high rates of youth and urban unemployment as potential threats to security, peace, and political stability.

The Government of Liberia has shouldered national security responsibility since the United Nations Mission in Liberia (UNMIL) officially withdrew from the country in March 2018.  Protests and demonstrations may occur with little warning. The United States and other international donors continue to assist in the education and training of the Armed Forces of Liberia and law enforcement agencies. Security is being maintained throughout the country by members of the Liberian National Police, Liberia Immigration Service and other state-owned security apparatus. However, the majority of the security personnel are based in and around the capital city region, largely due to funding gaps and the poor state of infrastructure in other areas.

* Source for Liberia Data: Central Bank of Liberia, Annual Report 2019 covering January 1 to December 31, 2019, Published January 27, 2020.

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

The Libyan government’s efforts to attract FDI, primarily through the PIB and NOC, are relatively recent. Until the 1990s, FDI was only permitted in the oil sector through sovereign contracts to which the state was a party. A number of foreign investment laws were passed in subsequent years to encourage and regulate FDI, culminating in “Law No. 9 of the year 1378 PD (2010) Regarding Investment Promotion” (known as the 2010 Investment Law). Though promulgated prior to Libya’s 2011 revolution, the law remains in effect. This new law lifted many FDI restrictions and provided a series of incentives to qualifying investments, such as tax and customs exemptions on equipment, a five-year income tax exemption, a tax exemption on reinvested profits and exemptions on production tax expert fees for goods produced for export markets. It also allowed for investors to transfer net profits overseas, defer losses to future years, import necessary goods, and hire foreign labor if local labor was unavailable. Foreign workers may acquire residency permits and entry reentry visas for five years and transfer earnings overseas.

The law regulates the establishment of foreign-owned companies and the setting up of branches in representative offices. Branches are allowed to be opened in a large number of sectors, including: construction for contracts over LYD 50 million; electricity works; oil exploration; drilling and installation projects; telecommunications construction and installation; industry; surveying and planning; installation and maintenance of medical machines and equipment; and hospital management. However, the investment law restricts full foreign ownership of investment projects to projects worth over LYD 5 million, except in the case of limited liability companies, and requires 30 percent of workers to be Libya nationals and to receive training. Foreign investors are prevented from owning land or property in Libya and are allowed only the temporary leasing of real estate. Investment in “strategic industries” – in particular, Libya’s upstream oil and gas sector, which is controlled by the NOC – requires a foreign entity to enter into a joint venture with a Libyan firm that will retain a majority stake in the enterprise. It is not clearly defined which industries other than upstream oil and gas may be considered strategic.

The most important investment promotion institution Libya is the PIB, established in 2009 to assume responsibility for the Libyan privatization program and oversee and regulate FDI activities. The PIB’s screening process for incoming FDI to Libya is not clearly defined; the bidding criteria and process for investment are not published or transparent, and it is therefore not clear whether foreign investors have faced discrimination. The PIB states that it reviews bids or proposals for general consistency with Libya’s national security, sovereignty, and economic interest. The Minister of Economy must give final approval to all FDI projects, at the recommendation of the PIB. There is no information available on the timeline of the approval process or any potential outcomes of the process other than an affirmative or negative decision by the PIB or Minister of Economy. The PIB maintains that it keeps all company information confidential. U.S. firms have repeatedly expressed frustration about the slow pace by which the Libyan government makes business-related decisions. Despite these complaints, some U.S. firms have successfully invested in Libya, particularly in the country’s oil and gas sector.

Limits on Foreign Control and Right to Private Ownership and Establishment

The ownership of real estate in Libya is restricted to Libyan nationals and wholly-owned Libyan companies. The 2010 Investment Law permits the ownership of real estate in Libya by locally established project vehicles of foreign investors. However, such ownership is limited to leasehold ownership only. Foreign investors are allowed lease property from public holdings and private Libyan citizens, according to Article 17 of the 2010 Investment Law. There is considerable ambiguity in both the public and private rental markets; many aspects of these arrangements are left to local officials.

Other Investment Policy Reviews

Libya has not undergone any recent investment policy reviews by the OECD, UNCTAD, WTO, or any other international body. An ongoing UN-facilitated audit of Libya’s banking sector may provide insights into the disposition of Libya’s assets in recent years.

Business Facilitation

Business registration procedures in Libya are lengthy and complex. The Ministry of Economy is the main institution for processing business registration requirements. The Libyan government does not maintain an online information portal on regulations for new business registration or online registration functionality for registering a new business. There are multiple corporate structures based on the type of business undertaken (e.g. limited liability, joint venture, branch office) and each has specific registration requirements. Some requirements apply to all businesses, including: obtaining a Commercial Register certificate, registering with the Chamber of Commerce and the tax and labor departments, and obtaining a working license. If a company will be importing items, a statistical code will be required. If the company will be obtaining letters of credit in Libya, a Central Bank code will be required. A specialized agent must complete these tasks on behalf of the registering company. For the simplest corporate structure (limited liability with no Central Bank code) the process can take two to three months if the registration agent is familiar with the procedures.

Outward Investment

Libya is a member of the Islamic Corporation for the Insurance of Investment and Export Credit, which provides investment and export credit insurance for entities in member states. FDI outflows in 2018 were USD 315 million, compared to USD 2.7 billion in 2010. The Libyan government does not formally promote or incentivize outward investment. Stress in the banking sector has reduced liquidity, and this has negatively affected the ability of Libyan citizens to acquire the hard currency to invest abroad.

Transparency of the Regulatory System

The Libyan regulatory system lacks transparency, and there is a general lack of clarity regarding the function and responsibilities of Libyan government institutions. Transparency International placed Libya 173 out of 180 countries (“1” indicates least corrupt) in its 2020 Corruption Perceptions Index, and Libya ranks 186 out of 190 on the World Bank’s ‘Ease of Doing Business’ Index. Libya’s bureaucracy is one of the most opaque and amorphous in the Middle East region; its legal and policy frameworks are similarly difficult to navigate. The issuance of licenses and permits is often delayed for significant periods for unspecified reasons, and the adjudication of these applications is most often done in a subjective and non-transparent fashion. This has created an environment ripe for graft and rent-seeking behavior.

Neither ministries nor regulatory agencies publish the text or summary of proposed regulations before their enactment. Accurate, current information about key commercial regulations is difficult to obtain. These factors serve as a deterrent to foreign investment.

International Regulatory Considerations

Libya is not a member of the WTO. The WTO received Libya’s application on June 10, 2004. The General Council established a Working Party on July 27, 2004, but no formal progress on Libya’s application has been made.

Legal System and Judicial Independence

The 2011 Constitutional Declaration currently functions as the interim constitution; a new constitutional framework for the nation is likely to emerge following December elections. It states Islam is the state religion and sharia is the principal source of legislation. The Libyan civil code begins with a preliminary title containing general dispositions regarding law, sources of law, application of the law, and general dispositions regarding the legal definition of persons as well as the classification of things and property. Thereafter, the code is divided into two parts and four books. The first part addresses obligations or personal rights and contains similarly named subdivisions: Book I (Obligations in General) and Book II (Specific Contracts).  The second part of both codes is entitled “Real Rights” and contains Books III (Principal Real Rights) and Book IV (Accessory Real Rights). In the absence of a legal provision, the Libyan civil code requires courts to adjudicate matters “in accordance with the principles of Islamic law.”  In the absence of an Islamic rule on a particular matter, the Libyan civil code requires courts to look to “prevailing custom,” and in the absence of any custom, “to the principles of natural law and the rules of equity.”

Article 89 of the Libyan Civil Code states that “a contract is created, subject to any special formalities that may be required by law for its conclusion, from the moment that two persons have exchanged concordant intentions.”  The Libyan court system consists of three levels: the courts of first instance; the courts of appeals; and the Supreme Court, which is the final appellate level. Libya’s justice system has remained weak throughout the post-revolutionary period, and enforcement of laws remains a challenge for the government.

Laws and Regulations on Foreign Direct Investment

Laws and regulations on investment and property ownership allow domestic and foreign entities to establish business enterprises and engage in remunerative activities. Investment law and commercial law differ in their foreign ownership restrictions for business enterprises. Article 7 of the 2010 Investment Law specifies, in general accordance with standard international practice, conditions a project must fulfill in part or in full in order to qualify as an investment rather than a commercial vehicle. Investment projects that meet the conditions set out in the 2010 Investment Law enjoy a number of benefits, such as relief from income taxes for a set number of years. Further, a foreign investor may wholly own the enterprise if the foreign investment exceeds LYD 5 million. This is reduced to LYD 2 million if a Libyan partner holds at least half of the investment. For investment projects that do not meet the conditions set out in the 2010 Investment Law, these benefits do not apply and Libya’s Commercial Code stipulates no more than 49 percent foreign ownership unless the enterprise is a branch of a foreign company, which the foreign company can then fully own.

Competition and Antitrust Laws

Chapter 11 of the Libyan Commercial Code deals with the issue of competition and prohibits market abuse. The Commercial Code provides for the establishment of a Competition Committee to be responsible for reviewing complaints and investigating them and, in cases where the law has been violated, referring the cases to public prosecution. There is not an active Competition Committee at the moment, and since these issues are regulated by law and considered violations, interested/damaged parties can pursue legal action directly.

Expropriation and Compensation

Article 23 of the 2010 Investment Law provides an express guarantee against the nationalization, expropriation, forcible seizure, confiscation, imposition of receivership, freeze or subjection of procedures of similar effect, except by virtue of a law or court ruling and fair and equitable indemnity, and provides such procedures be applied indiscriminately. Article 43 of executive regulation No. 449 of 2010 implementing the law reinforces those provisions. The Libyan government’s history of state expropriation of private property, including the assets of foreign companies, most prevalent during the 1980s, had already been in decline before the law’s passage. There have been no reports of nationalizations or expropriations under the current investment law.

Dispute Settlement

ICSID Convention and New York Convention

Libya is not a signatory to either the International Center for Settlement of Investment Disputes or the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the ‘New York Convention’) and has not taken steps to accede to either. In the case of commercial disputes, most foreign entities currently opt to try cases before the International Chamber of Commerce, whose judgments Libya has a history of respecting. Libya is a member of the 1983 Riyadh Convention on Judicial Cooperation, which facilitates recognition and enforcement of judgments and arbitral awards among the Arab member states.

Investor-State Dispute Settlement

Libya is not a signatory to a treaty or investment agreement in which binding international arbitration of investment disputes is recognized. Article 24 of the 2010 Investment Law mandates disputes initiated by a foreign investor or the state be settled by competent Libyan courts, unless there is an agreement between Libya and the state to which the investor is subject that includes provisions for alternative arbitration procedures.

International Commercial Arbitration and Foreign Courts

The Libyan Civil Code provides for the enforcement of foreign decisions or arbitral awards if they meet the following requirements: the decision must be issued from a competent authority, according to the laws of the country of origin of the decision; the parties must have been duly summoned to appear before the court that handed down the decision and must have been duly represented (the laws of the foreign country also apply in terms of summons to and presence before the court); the decision must not contradict decisions already issued by Libyan courts; and the decision must not include anything that conflicts with the principles of public order in Libya. Libya’s justice system remains weak, making enforcement of foreign judgments and arbitral awards through the Libyan courts challenging and lengthy.

Bankruptcy Regulations

Libya does not have a separate bankruptcy law, but bankruptcy issues are covered under articles 1012 and 1013 of the 2010 Commercial Code. According to this legislation, bankruptcy proceeds in two phases. The first is preventative reconciliation, during which the debtor attempts to rectify the financial situation of the business through an agreement with creditors under court supervision. The second phase commences in the event of the agreement’s failure, whereby the court intercedes to protect the rights of the creditors through liquidation. Libya is tied for last for ease of resolving insolvency in the World Bank’s ‘Ease of Doing Business’ index.

Capital Markets and Portfolio Investment

The Libyan government passed a law in 2007 to establish a stock market, primarily to support privatization of SMEs, but it is not well-capitalized, has few listings, and does not have a high volume of trading. Capital markets in Libya are underdeveloped, and the absence of a venture capital industry limits opportunities for SMEs with growth potential and innovative start-ups to access risk financing for their ventures.

Money and Banking System

Libya has been attempting to modernize its banking sector since before the revolution, including through a privatization program that has opened state-owned banks to private shareholders. The Central Bank of Libya (CBL) owns the Libyan Foreign Bank, which operates as an offshore bank, with responsibility for satisfying Libya’s international banking needs (apart from foreign investment). The banking system is governed by Law No. 1 of 2005, as amended by Law No. 46 of 2012 on Islamic banking. In accordance with that amendment, Law No. 1 of 2013 prohibits interest in all civil and commercial transactions. The banking modernization program has also been seeking, among other components, to establish electronic payment systems and expand private foreign exchange facilities.

The CBL is responsible for the receipt of all of Libya’s oil revenues, prints Libyan dinars, and controls the country’s foreign exchange reserves. After being effectively divided since 2014 between its eastern and western branches as a result of the civil conflict, the CBL is beginning the process of reunifying following the establishment of a unity government in March 2021. Both CBL branches are currently undergoing an audit by a respected international firm, which will help restore integrity, transparency and confidence in the Libyan financial system and create a foundation for the CBL’s reunification.

The CBL in Tripoli controls access to all foreign currency in Libya, and it provides Libyans access to hard currency by issuing letters of credit (LCs). Access to LCs in Libya has historically been an issue, but in January 2021 the CBL set a single, unified foreign exchange rate (described in the next section), which is expected to increase importers’ access to LCs.

The availability of financing on the local market is weak. Libyan banks can only offer limited financial products, loans are often made on the basis of personal connections (rather than business plans), and public bank managers lack clear incentives to expand their portfolios. Lack of financing acts as a brake on Libya’s development, hampering both the completion of existing projects and the start of new ones. This has been particularly damaging in the housing sector, where small-scale projects often languish for lack of steady funding streams. Libya tied for last on the ease of getting credit in the World Bank ‘Ease of Doing Business’ index.

Foreign Exchange and Remittances

Foreign Exchange

The 2010 Investment Law provides investors the right to open an account in a convertible currency in a Libyan commercial bank and to obtain local and foreign financing. The Libyan Banking Law (Law No. 1 of 2005) allows any Libyan person or entity to retain foreign exchange and conduct exchanges in that currency. Libyan commercial banks are allowed to open accounts in foreign exchange and conduct cash payments and transfers (including abroad) in foreign currency. Commercial banks operating in Libya may grant credit in foreign exchange and transact in foreign exchange among themselves.

The Central Bank set a single, unified official exchange rate of 4.48 LYD/USD in January 2021. Previously, the official rate was 1.4 LYD/USD for the purposes of government procurement, while private entities were charged roughly 3.7 LYD/USD by the Central Bank. There exists a significant black market for hard currency that for the past several years typically exchanged Libyan dinars for foreign exchange at a rate nearly double the official private rate, but the CBL’s setting of a single exchange rate has thus far significantly lowered the black market rate, which hovered around 5 LYD/USD as of March 21, 2021. Entities engaging in foreign exchange must be licensed by the Central Bank. Foreign exchange facilities are available at most large hotels and airports, and ATMs are becoming more widely available. The importation of currency must be declared at time of entry. The Central Bank’s Decree No. 1 of 2013 regulates foreign exchange, including by specifying authorities for the execution of foreign transfers, and by prescribing limits on the transfer of currency abroad for different public and private entities.

Most firms seeking to receive payment for services/products in Libya operate using letters of credit facilitated through foreign banks (often based in Europe). Foreign energy companies remitting large sums often make arrangements for direct transfers to accounts offshore. While the introduction of the foreign exchange fee in September 2018 greatly facilitated the Central Bank’s issuance of LCs, in response to the January 2020 oil shutdown the Central Bank has generally limited LCs to a minimum of $100,000 with a three-month limit to complete transactions.

Remittance Policies

The 2010 Investment Law allows for the remittance of net annual profits generated by an investment and of foreign invested capital in case of liquidation, expiration of the project period, or insurmountable impediments to the investment within the first six months. As noted, the Central Bank charges a foreign exchange fee of 163 percent on sales of Libyan dinars for hard currency.

Sovereign Wealth Funds

Libya maintains a sovereign wealth fund called the Libya Investment Authority (LIA). UN Security Council Resolution 1970 (2011) froze many of the LIA’s assets outside Libya. The freeze on the LIA’s assets is intended to preserve Libya’s assets through its post-revolutionary transition for the benefit of all Libyans. An evaluation of the LIA’s assets in 2012 put their value at USD 67 billion; a new assets valuation has just been completed by an international firm but the figure has yet to be publicly released. The international community and private consultancies continue to provide technical assistance to the LIA to help it improve its governance, including adherence to the Santiago Principles, a set of 24 widely accepted best practices for the operation of sovereign wealth funds. The LIA is also currently undergoing an audit by an international firm.

The PIB Is responsible for matters related to privatization of state-owned enterprises (SOEs). All enterprises in Libya were previously state-owned. Except for the upstream oil and gas sector, no state-owned enterprise is considered to be efficient. The state is deeply involved in utilities, oil and gas, agriculture, construction, real estate development and manufacturing, and the corporate economy.

Privatization Program

Libya has gone through three previous phases of privatization, the latest between 2003 and 2008 during which 360 SOEs ranging from small to large in various sectors were either fully or partially privatized or brought in private partners through public-private partnerships. However, restrictions to individual shares and foreign ownership – individual investors’ share of the capital was restricted to 15 percent and local ownership had to be 30 percent – limited interest in the privatization program. Accusations of fraud further discouraged investments. Nonetheless, the food industry, healthcare, construction materials, downstream oil and gas, and education sectors are now partially or fully privatized. Fragile governments and lack of security since 2011 have impeded implementation of further privatization programs.

There is a significant recent history of politically-motivated damage and seizure by force of economic infrastructure and installations, particularly in the oil and gas industry. Most recently, forces allied with Libyan National Army Commander Haftar forced the near-total shutdown of Libya’s energy sector in January 2020, which was eventually lifted in September 2020. The October 2020 ceasefire and the peaceful transfer of power in March 2021 to a unity government that has the support of both the outgoing GNA and the LNA has markedly reduced the civil disturbances that had been a daily occurrence. However, rival armed groups continue to jockey for control over the country’s political institutions and economic resources, which means that insecurity and instability remains a cause for concern.

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

Lithuania’s laws assure equal protection for both foreign and domestic investors. No special permit is required from government authorities to invest foreign capital in Lithuania. State institutions have no right to interfere with the legal possession of foreign investors’ property. In the event of justified expropriation, investors are entitled to compensation equivalent to the market value of the property expropriated. The law obligates state institutions and officials to keep commercial secrets confidential and requires compensation for any loss or damage caused by illegal disclosure. As a member of European Union, Lithuania is subject to WTO investment requirements. Invest Lithuania is the government’s principal institution dedicated to attracting foreign investment. It serves as a one-stop-shop to: provide information on business costs, labor, tax and legal considerations, and other business concerns; facilitate the set up and launch of a company; provide help in accessing government financial support; and advocate on behalf of investors for more business friendly laws. In addition to its offices in Vilnius and major Lithuanian cities, Invest Lithuania has representative offices in Germany and the United Kingdom. The government is also expanding its network of commercial representatives, with an attaché recently appointed to serve at the Consulate General in Los Angeles and new postings under consideration in Japan, South Korea, and Taiwan are under consideration. Every year the government holds a conference with foreign investors to discuss their concerns and ways to improve investment climate in Lithuania.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors have the right to repatriate profits, income, or dividends, in cash or otherwise, or to reinvest the same without any limitation, after paying taxes. The law establishes no limits on foreign ownership or control. Foreign investors have free access to all sectors of the economy with some limited exceptions:

The Law on Investment prohibits investment of foreign capital in sectors related to the security and defense of the State.

The Law on Investment also requires government permission and licensing for commercial activities that may pose risks to human life, health, or the environment, including the manufacturing of, or trade in, weapons.

As of May 2014, foreign citizens are allowed to buy agricultural or forest land.

The Law on Investment specifically permits the following forms of investment in Lithuania: establishment of an enterprise or acquisition of a part, or the whole, of the authorized capital of an operating enterprise registered in Lithuania;

• establishment of an enterprise or acquisition of a part, or the whole, of the authorized capital of an operating enterprise registered in Lithuania;
• acquisition of securities of any type;
• creation, acquisition, and increase in the value of long-term assets;
• lending of funds or other assets to business entities in which the investor owns a stake, allowing control or considerable influence over the company; and
• performance of concession or leasing agreements.

Foreign entities are allowed to establish branches or representative offices. There are no limits on foreign ownership or control. Foreign investors can contribute capital in the form of money, assets, or intellectual or industrial property rights. The State Property Bank screens the performance record and size of companies bidding on state or municipal property and has halted privatizations when it determined that the bidders were not suitable, i.e., for criminal or other reasons.

In 2018, the Lithuanian parliament passed a new edition of the law on the Protection of Objects Important to National Security. The law is aimed at enforcing additional safeguards to avoid threats related to investments into companies of strategic national importance, thus requiring a special government commission to screen investments in identified strategic sectors.

Other Investment Policy Reviews

http://www.oecd.org/countries/lithuania/economic-survey-lithuania.htm 

The process of company registration in Lithuania involves the following steps that can be accomplished online at http://www.registrucentras.lt/en/ :

1. Check and reserve the name of the company (limited liability company). It takes about one day and costs approximately $18.
2. Register at the Company Register, including registration with State Tax Inspectorate (the Lithuanian Revenue Authority) for corporate tax, VAT, and State Social Insurance Fund Board (SODRA). It takes one day and costs approximately $64.
3. Complete VAT registration. It takes three days to complete at no charge.

Outward Investment

The Lithuanian government neither incentivizes nor restricts outward investment.

Transparency of the Regulatory System

The regulatory system remains a challenge for some investors. Local business leaders report that bureaucratic procedures often are not user-friendly and that the interpretation of regulations is inconsistent and unclear. Businesses and private individuals complain of low-level corruption, including in the process of awarding government contracts and the granting of licenses and permits. Businesses also note that they would like to have more opportunity to consult with lawmakers regarding new legislation and that new legislation sometimes appears with little advance notice.

However, the government is making efforts to improve transparency using technology. For example, the parliament’s website contains all draft legislation, and public tenders must be published electronically in a central database. Ministries also post many, but not all, draft laws under consideration. All government procurement tenders are required to be posted on-line in a centralized database. In March 2014, Transparency International released a report recommending new laws aimed at protecting whistle-blowers, encouraging lobbying transparency, preventing and controlling conflicts of interest, and increasing transparency in political party funding. Some of the recommendations have already been addressed by introducing a whistleblower protection law and a new law on lobbying in 2017. The World Bank’s Doing Business Report ranked Lithuania 11th out of 190 in 2020. Lithuania scored especially high in the categories of Registering Property (4rd), Enforcing contracts (7th) Dealing with Construction Permits (10th) and Starting a Business (34st). It did less well in the categories of Resolving Insolvency (89th) and Getting Credit (48th).

International Regulatory Considerations

Since May 1, 2004, in accordance with its European Union membership, Lithuania has applied European Union trade policies, such as antidumping or anti-subsidy measures. The European Union import regime applies to Lithuania. The country is a member of the WTO and it notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

The Lithuanian legal system stems from the legal traditions of continental Europe and complies with the EU’s acquis communautaire. New laws enter into force upon promulgation by the President (or in some cases the Speaker of the parliament) and publication in the official gazette, Valstybes Zinios (State News). Several possibilities exist for commercial dispute resolution. Parties can settle disputes in local courts or in the increasingly popular independent, i.e., non-governmental, Commercial Court of Arbitration. Lithuania also recognizes arbitration judgments by foreign courts. Domestic courts generally operate independently of government influence. Lithuania’s EU membership has given foreign firms the additional right to appeal adverse court rulings to the European Court of Justice.

The Lithuanian court system consists of courts of general jurisdiction that deal with civil and criminal matters, and includes the Supreme Court, the Court of Appeals, District Courts, and local courts. In 1999, Lithuania established a system of administrative courts to adjudicate administrative cases, which generally involve disputes between government regulatory agencies and individuals or organizations. The administrative court system consists of the High

Administrative Court and District Administrative Courts.

The Constitutional Court of Lithuania is a separate, independent judicial body that determines whether laws and legal acts adopted by the parliament, president, and the government violate the Constitution.

Laws and Regulations on Foreign Direct Investment

Lithuanian law provides that foreign entities may establish branches or representative offices, and there are no limits on foreign ownership or control. A foreigner may hold a majority interest in a local company in Lithuania. However, there are some areas of the economy where investment is limited, such as in sectors related to national security and defense of the State, and licensing is necessary for activities related to human life and health, or which are deemed potentially risky. The national investment promotion agency Invest Lithuania provides a detailed overview of the relevant laws and regulations on foreign investment. http://www.investlithuania.com 

Competition and Antitrust Laws

There is a domestic Competition Council, which is responsible for the prevention of competition law violations. For more information: https://kt.gov.lt/en/ 

Expropriation and Compensation

Lithuanian law permits expropriation on the basis of public need, but requires compensation at fair market value in a convertible currency. The law requires payment of compensation within three months of the date of expropriation in the currency the foreign investor requests. The compensation must include interest calculated from the date of publication of the notice of expropriation until the payment of compensation. The recipient may transfer this compensation abroad without any restrictions. There have been no cases of expropriation of private property by the Lithuanian government since 1991. There is an ongoing process to restitute property expropriated during World War II and the Soviet occupation. While the Lithuanian government returned most of this property, including Jewish communal property, in 2011, private property restitution remains incomplete.

Dispute Settlement

ICSID Convention and New York Convention

Lithuania is a member state to the International Centre for the Settlement of Investment Disputes (ICSID) Convention. It is also a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Lithuania law recognizes and enforces arbitral body decisions

Investor-State Dispute Settlement

According to Lithuanian law, State owned enterprises (SOE) have no privileges in conducting business, competing for supply, and/or in implementing projects, enforcing contracts, and accessing finance. While Baltic Institute for Corporate Governance (BICG) reports suggest that there have been cases of SOE executives extracting benefits for their own personal gain by way of guided tenders, exercising favoritism when selecting providers of goods or services, or giving business to friends and family members, the Embassy has no records of complaints from either foreign or domestic companies regarding the outcome of dispute settlement cases with state companies.

International Commercial Arbitration and Foreign Courts

According to the Lithuanian Arbitration Court, the arbitration process should be completed within six months, but depending on the complexity of a dispute and with the agreement of both parties, this period can be extended. Also, before a process starts, the Arbitration Court has 30 days to decide if it will accept the dispute and three months to prepare all the needed materials for the arbitration process. Decisions of the Lithuanian Arbitration Court may be appealed to international institutions, such as the International Court of Arbitration.

Bankruptcy Regulations

Lithuania passed the current Enterprise Bankruptcy Law in 2001 This law applies to all enterprises, public establishments, commercial banks, and other credit institutions registered in Lithuania. The law provides a mechanism to override the provisions of other laws regulating enterprise activities, assuring protection of creditors’ rights, recovery of debts, and payment of taxes and other mandatory contributions to the State. This law establishes the following order of creditors’ claims: claims by creditors that are secured by a mortgage/pledge of debtor; claims related to employment; tax, social insurance, and state medical insurance claims; claims arising from loans guaranteed or issued on behalf of the Republic of Lithuania or its government; and other claims. Bankruptcy can be criminalized in cases of intentional bankruptcy. The Law on the Bankruptcy of Natural Persons was introduced in Lithuania in 2013. The World Bank’s Ease of Doing Business survey ranks Lithuania 89th in the category of “resolving insolvency”.

Capital Markets and Portfolio Investment

Government policies do not interfere with the free flow of financial resources or the allocation of credit. In 1994, Lithuania accepted the requirements of Article VIII of the Articles of Agreement of the International Monetary Fund to liberalize all current payments and to establish non-discriminatory currency agreements. Lithuania ensures the free movement of capital and does not plan to impose any restrictions. The government imposes no restrictions on credits related to commercial transactions or the provision of services, or on financial loans and credits. Non-residents may open accounts with commercial banks.

Money and Banking System

The banking system is stable, well-regulated, and conforms to EU standards. Currently there are 11 commercial banks holding a license from the Bank of Lithuania, six foreign bank branches, two foreign bank representative offices, the Central Credit Union of Lithuania and 65 credit unions. Two hundred-eighty EU banks provide cross-border services in Lithuania without a branch operating in the country, and three financial institutions controlled by EU licensed foreign banks provide services without a branch. Nearly all foreign banks are headquartered in Sweden, Norway, and Denmark. By the end of 2018 the total assets of major Lithuanian banks were $32.1 billion:

• Swedbank – 37.1% (swedbank.lt)
• SEB – 27.1% (seb.lt)
• Luminor 20.8% (luminor.lt)
• Siauliu Bankas – 7.9% (sb.lt)

Other smaller banks:

• Citadele (citadele.lt)
• Siaulius Bankas (sb.lt )
• Medicinos Bankas (medbank.lt)
• Finasta (http://finasta.com/lit/lt)
• Revolut (revolut.com )
• European Merchants Bank (europeanmerchantbank.com)
• Mano Bankas (mano.bank)

Effective January 1, 2015, all of the banks are controlled by the European Central Bank and the Bank of Lithuania. There is no restriction on portfolio investment. The right of ownership to shares acquired through automatically matched trades is transferred on the third working day following the conclusion of the transaction. The Vilnius Stock Exchange is part of the OMX group of exchanges and offers access to 80 percent of all securities trading in the Nordic and Baltic marketplace. OMX is owned by the U.S. firm NASDAQ and the Dubai Bourse. The supervisory service at the Bank of Lithuania oversees commercial banks and credit unions, securities market, and insurance companies. Lithuanian law does not regulate hostile takeovers.

Foreign Exchange and Remittances

Foreign Exchange

Lithuania has no restrictions on foreign exchange.

Remittance Policies

Lithuanian remittance policies allow free and unrestricted transfers.

Sovereign Wealth Funds

Lithuania does not maintain any Sovereign Wealth Funds.

At the beginning of 2019, the Lithuanian government was majority or full owner of 50 enterprises. Throughout 2017, the government consolidated many duplicative state-owned enterprises (SOEs) in response to OECD recommendations reducing the number of its companies from 130. The SOE sector is valued at approximately $5.8 billion and employs just over 42,000 people. The greatest number of SOEs by value are found in the electricity and gas sector (38%), followed by transportation (36%) and extractive industries including fishing, farming, and mining (21%). The transportation sector (which in Lithuania’s definition includes the postal service) accounts for over half of all SOE employment, followed by the electricity and gas sectors, which accounts for about one fifth. The largest SOE employers are Lithuanian Railways, Ignitis Group, and Lithuanian Post, which collectively employ over 23,000 people.

A list of SOEs is available at the Governance Coordination Center site: https://vkc.sipa.lt/apie-imones/vvi-sarasas/ 

In response to OECD recommendations issued during Lithuania’s accession process, the government passed several laws to reform SOE governance, addressing such issues as the hiring, firing, and oversight of top management, the introduction of independent board members to professionalize and depoliticize SOE boards and strengthen independent and pragmatic decision making, and a requirement for SOE CEOs to certify financial statements.

Privatization Program

The government has privatized most state enterprises and property, with foreign investors purchasing the majority of state assets privatized since 1990. These include companies in the banking and transportation sectors. Some foreign companies have complained about a lack of transparency or discrimination in certain privatization transactions. Major assets still under government control include the railway company (Lietuvos Gelezinkeliai), Lithuania’s three international airports (Vilnius, Kaunas, and Klaipeda), Lithuanian post (Lietuvos Pastas), as well as energy companies controlled by Ignitis Group holding company.

Since its independence in 1991, Lithuania has not witnessed any incidents involving politically motivated damage to projects and/or installations.

* Source for Host Country Data: Department of Statistics

Policies Towards Foreign Direct Investment

Luxembourg offers a public policy framework and political stability, which remain highly attractive for foreign investors, particularly for U.S. investors, given the focus on growth sectors and the historically strong bilateral relationship between the two countries. The government has increased its outreach toward companies looking to expand in Europe. Luxembourg is in the process of implementing the EU standards for the screening of foreign investment but missed the Fall 2020 implementation deadline.

In 2017, Luxembourg’s Deputy Prime Minister and Minister of the Economy and Foreign Trade, Etienne Schneider, unveiled a strategy to promote economic growth focusing on attracting FDI and supporting companies’ moving into other markets. The Luxembourg “Let’s Make It Happen” campaign, developed by the state Trade and Investment Board, focuses on five key objectives:

• Improving Luxembourg-based companies’ access to international markets
• Attracting FDI in a “targeted, service-oriented” way
• Strengthening the country’s international “economic-promotion network”
• Improving Luxembourg’s image as a “smart location” for high-performance business and industry
• Ensuring the coherence of economic promotion efforts

There is no overall economic or industrial strategy that has discriminatory effects on foreign investors, either at a market-access or post-establishment phase of investment. Luxembourg strives to attract and retain foreign investors with its unique model of “easy-access to decision-makers” and its known ability to “act swiftly.”

The Trade and Investment Board has taken the lead in investment promotion and includes representatives from the ministries of Economy, Higher Education and Research, Finance, Foreign and European Affairs, and State. Public-private trade associations such as FEDIL (Business Federation of Luxembourg, the main employers’ trade association), the Luxembourg Chamber of Commerce, and the Chamber of Skilled Trades and Crafts, as well as Luxinnovation, are also represented.

The Board is working in cooperation with Luxembourg embassies and trade and investment offices worldwide, as well as economic and commercial attachés, honorary consuls, and foreign trade advisers, to attract FDI and retain investors. In 2016, the Ministry of the Economy expanded the role of Luxinnovation to incorporate promotion of Luxembourg abroad and to attract FDI into the country. Luxinnovation is a public private partnership agency that carries out business intelligence to target relevant investors and regions and also provides a soft-landing service for investors as they arrive in Luxembourg. The Covid-19 pandemic has led investor outreach efforts to be carried out virtually, and travel restrictions have led investors to prefer virtual meetings before traveling to the country.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is a right for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity. There are no limits on foreign ownership/control or sector-specific restrictions.

General screening of foreign investment exists in line with that of domestic investment, with routine and non-discriminatory screening mechanisms. There are no major sectors/matters in Luxembourg in which foreign investors are denied national (domestic) treatment.

Other Investment Policy Reviews

The World Bank’s Doing Business 2019 Economy Profile provides additional detail on Luxembourg’s investment climate.

Luxembourg is included in Trade Policy Reviews (TPRs) of the EU/EC; see the TPR gateway for explanations and background.

Business Facilitation

In terms of the United Nations Conference on Trade and Development (UNCTAD) Global Action Menu for Investment Facilitation, Luxembourg’s business facilitation efforts are aligned with most of the recommended action points. Over the past decade, Luxembourg has been furthering accessibility and transparency in investment policies and regulations, as well as procedures relevant to investors. Luxembourg ranks 76th in the World Bank’s starting a business ranking, indicating it takes 16.5 days to set up a business in the country.

The Government has improved the efficiency of investment administrative procedures, notably in the context of the overall “Digitization” movement to offer a multitude of government services online or electronically. This has led to the time it takes to start a business being reduced by 2-3 months.

The Government provides a website in multiple languages, including English, that explains the business registration process: http://www.guichet.public.lu/en . A new business must register with the Registry of Commerce (Registre du Commerce: http://www.lbr.lu.) Foreign companies can use the site (after translating from the original French language), but it is best to consult with a local lawyer or fiduciary to complete the overall process. It is necessary to engage a notary to submit the company’s by-laws for registration.

In 2017, the Government reduced the required minimum capitalization of a new company from 12,500 euro to just 1 euro (symbolic), to encourage start-up creation. Between January 2017 and January 2018, over 680 such simplified limited liability companies (Société à responsabilité limitée simplifiée SARL-S) have registered. According to the Luxembourgish Chamber of Commerce, one client out of three has requested information on SARL-S.

After receiving a certificate from the Registry of Commerce, companies are required by law to register with and pay annual dues to the Luxembourg Chamber of Commerce, as well as the Social Security Administration, the Tax Administration (Administration des Contributions Directes) and the Value-Added-Tax Authority (TVA = taxe à la valeur ajoutée). The company will receive an official registration number reflecting the date of inception of the entity, and this number will be used in all business transactions and correspondence with administrative authorities.

The House of Entrepreneurship (HOA), opened in 2016 within the Luxembourg Chamber of Commerce, also provides guidance on the entire registration and creation process of a business. HOA receives over 10,000 enquiries per year by entrepreneurs interested in setting up a business in the country. The organization plays a key role during the COVID-19 pandemic, as it serves as a point of contact and information for businesses looking to apply for Government aid.

The Ministry of Economy continues to support networks and associations acting in favor of female entrepreneurship. The Law of December 15, 2016 incorporated the principle of equal salaries in the Grand Duchy’s legislation, which makes illegal any difference in the salaries paid to men and women carrying out the same task or work of equal value.

In general, the most promising instruments are outside the jurisdiction of the Ministry of Economy but are critical. For example, there has been an increase in the number of childcare centers close to business districts which helps dual career families.

Outward Investment

The same government services website listed above, http://www.guichet.public.lu/en , includes an “International Trade” tab which provides guidance on outward investment by Luxembourgish companies on various topics, including intra-EU trade and services; import, export, and transit; licensing; and transport. The Luxembourg Government promotes outward investment via the Trade and Investment Board, which functions as a promotion entity for both inward and outward investment.

The “Let’s Make It Happen” initiative, among its many missions, is working to facilitate access to international markets for Luxembourgish companies and to strengthen Luxembourg’s international economic promotion network. Luxembourg does not restrict domestic investors from investing abroad.

Luxembourg also has a public export credit agency, the Office du Ducroire to help companies engage in export and outward investment through funding and export insurance.

In 2019, the Office du Ducroire has insured over 500 million dollars of new transactions and has paid over 2 million dollars of financial support for exports.

Transparency of the Regulatory System

The Government of Luxembourg uses transparent policies and effective laws to foster competition and establish clear ground rules on a non-discriminatory basis. The legal system is quite welcoming with respect to FDI, and legal, regulatory, and accounting systems are transparent and consistent with international norms. With the exception of the mandatory membership in the Luxembourg Chamber of Commerce, there are no informal regulatory processes managed by non-governmental organizations or private sector associations. In addition to the Government, the Luxembourg Institute of Regulation, a public agency, proposes regulatory policies.

As confirmed by the World Bank report on Global Indicators of Regulatory Governance, the Luxembourg Government develops anticipated and publishes forward looking regulatory plans – a public list of anticipated regulatory changes and proposals intended to be adopted and implemented. These plans are available to the public, as the texts of proposed legislation are published before Parliamentary debate and voting. In addition, plans and proposed legislation is subject to review by the State Council and the Grand Duke.

Draft texts are published on a unified website where all proposed regulations are published and directly distributed to interested stakeholders. While the ministries do not have a legal obligation to publish the text of proposed regulations before their enactment, the entire text of the proposed draft law is published. ( www.legilux.lu )

In addition, the Government solicits comments on proposed laws and regulations from the public. The comments are received on the same website (www.legilux.lu), through public meetings, and through targeted outreach to stakeholders, such as business associations.

The law requires that the rulemaking body solicit comments on proposed regulations. The consultation period is typically three months, and the Government reports on the results of the consultation in the form of a consolidated response on the same website. The official journal Mémorial publishes the final text of laws, both online and in print.

Proposed legislation also includes a factsheet on the impact on public finances. The Luxembourg Government is transparent with its public finances and debt obligations through the annual budget procedure that requires Parliamentary approval. The Government also communicates on issuances of new State borrowing.

International Regulatory Considerations

Luxembourg is a member state of the EU and routinely transposes EU directives and regulations into domestic law. Luxembourg has been a World Trade Organization (WTO) member since 1995 and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Luxembourg ratified the TFA on October 5, 2015 and has an implementation rate of 100 percent.

Legal System and Judicial Independence

Luxembourg is a  parliamentary   representative democracy  headed by a  constitutional monarch . The Constitution of 1868 provides for a flexible separation of powers between the executive and the parliament, with the judiciary watching over proper application of laws.

The Grand Duchy has a written commercial/contractual law. Magistrates’ courts deal with cases of lesser importance in civil and commercial matters and under the urgent procedure in the field of law enforcement.

The  district courts , of which there are three, adjudicate civil and commercial matters for all cases not specifically attributed by law to any other court. The current judicial process is considered procedurally competent, fair, and reliable, albeit notably slow (The judicial sector observes all public-school holiday periods). Regulation and enforcement actions are appealable, and they are adjudicated in the national court system.

Laws and Regulations on Foreign Direct Investment

Luxembourg has assimilated the laws of neighboring countries according to the nature of the laws: German tax law, French civil law, and Belgian commercial law (written and consistently applied). As previously mentioned, the website for doing business is: www.guichet.public.lu, and the new one-stop-shop for setting up a business is the House of Entrepreneurship within the Luxembourg Chamber of Commerce (www.houseofentrepreneurship.lu).

Competition and Antitrust Laws

The Competition Inspectorate, a department within the Ministry of the Economy, oversees investigating competition cases.

Expropriation and Compensation

The laws governing expropriation of property are quite complex, and the process can be arduous and lengthy, depending on the property. The Ministry of the Interior, along with the Ministry of Justice, sets forth the specific regulations according to each type of case.

There have been no known expropriations in the recent past or policy shifts which would indicate such actions soon. There are no tendencies by the Luxembourg Government to discriminate against U.S. investments, companies, or representatives in expropriation.

Instances of indirect expropriation or governmental action tantamount to expropriation, such as confiscatory tax regimes, that might warrant special investigation, are non-existent.

Dispute Settlement

ICSID Convention and New York Convention

Luxembourg is a member state to the International Center for Settlement of Investment Disputes (ICSID Convention). Luxembourg is a signatory of the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Investment disputes involving U.S. or other foreign investors in Luxembourg are extremely uncommon. There are no known claims by or disputes with a U.S. person or foreign investors.

The Luxembourg Chamber of Commerce and the Mediation Center offer the services of domestic dispute settlement and, on an international level, with the International Chamber of Commerce. There have been no known investment disputes over the past few years involving U.S. or other foreign investors or contractors in Luxembourg.

Within the WTO, there are no known dispute settlement cases involving Luxembourg either as a complainant, respondent, or third-party entity.

International Commercial Arbitration and Foreign Courts

The Government accepts international arbitration of investment disputes between foreign investors and the state, and the courts recognize and enforce foreign arbitral awards. International arbitration is accepted as a means for settling investment disputes among private parties, and there is a domestic arbitration body within the host economy, the Centre de Médiation (Mediation Center). Luxembourg is a member state to the International Centre for Settlement of Investment Disputes (ICSID) Convention.

As investment disputes are practically non-existent, there is no information available concerning the duration of a resolution in the local courts.

Bankruptcy Regulations

Luxembourg has assimilated the laws of neighboring countries according to the nature of the laws: German tax law, French civil law, and Belgian commercial law (written and consistently applied). Judgments of foreign courts are accepted and enforced by the local courts, and Luxembourg does have a written and consistently applied bankruptcy law, which is based on European Union-wide legislation. Monetary settlements are usually made in local currency (euro). Bankruptcy is not criminalized.

Luxembourg ranks 34 in “Resolving Insolvency” in the World Bank’s 2019 Doing Business Report.

At the end of 2020, the Luxembourg banking sector comprised 128 credit institutions from 29 different countries. Under Luxembourg law, two types of licenses are possible for the credit institutions: the Universal Banking License, and the Mortgage Bonds Banking License.

The Ministry of Finance grants credit institutions operating out of the Grand Duchy an operating license. Since the entry into force of the Single Supervisory Mechanism on November 4, 2014, credit institutions are subjected to the control of the European Central Bank, either directly or indirectly through Luxembourg’s financial sector supervisory authority, the CSSF. The supervision by the ECB/CSSF extends equally to activities performed by these undertakings in another Member State of the EU, whether by means of the establishment of a branch or by free provision of services.

Capital Markets and Portfolio Investment

Luxembourg government policies, which reflect the European Union’s free movement of capital framework, facilitate the free flow of financial resources to support the product and factor markets. Credit is allocated on market terms, and foreign investors can get credit on the local market, thanks to the sophisticated and extremely developed international financial sector, depending on the banks’ individual lending policies.

Since the financial crisis and tighter regulation through EU central banking authority and stability mechanisms, banks had become more selective in their lending practices pre-COVID. The private sector has access to a variety of credit instruments, including those issued by the National Public Investment Agency (SNCI), and there is an effective regulatory system established to encourage and facilitate portfolio investment.

Luxembourg continues to be recognized as a model of fighting money-laundering activities within its banking system through the enactment of strict regulations and monitoring of fund sources. Indeed, the number of enforcements reflects the degree to which the government remains committed to fighting money-laundering. The country has its own stock market, a sub-set of which was rebranded in 2016 as a “green exchange” to promote securities (primarily bonds in Luxembourg) reflecting ecologically sound investments.

Money and Banking System

Luxembourg’s banking system is sound and strong, having been shored up following the global financial crisis by emergency investments by the Government of Luxembourg in BGL BNP Paribas (formerly Banque Generale du Luxembourg and then Fortis) and in Banque Internationale a Luxembourg (BIL), formerly Dexia, in 2008.

At the end of 2020, 128 credit institutions were operating, with total assets of EUR 851 billion during the first quarter of 2020 (USD 1,018 billion), and approximately 26,000 employees.

Luxembourg has a central bank, Banque Centrale de Luxembourg. Foreign banks can establish operations, subject to the same regulations as Luxembourgish banks.

Due to the U.S. FATCA law, local retail bank Raiffeisen bank still refuses U.S. citizens as clients. However, two banks have offered to serve U.S. citizen customers: BIL and the State Bank and Savings Bank (Banque et Caisse d’Epargne de l’Etat).

On February 21, 2018, the Luxembourg House of Financial Technology (LHoFT) signed a Memorandum of Understanding (MoU) with the European FinTech platform, B-Hive, based in Brussels, and the Dutch Blockchain Coalition, that will favor collaboration in the field of distributed ledger technology, otherwise known as blockchain. The MoU confirms mutual interest and defines the fields of collaboration, among other things, on how blockchain technology can benefit society and business in general or on how they can help define international and/or European standards for distributed ledger technology.

The Ministry of Finance is tracking developments very closely in the field of virtual currencies and has said it will adapt its legislation in accordance with the results of ongoing European and international studies. Luxembourg places virtual currencies under the legal regime of payment companies. The CSSF continues close supervision and oversight of virtual currencies.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on converting or transferring funds associated with an investment (including remittances of investment capital, earnings, loan repayments, lease payments) into a freely usable currency and at a legal market-clearing rate. Luxembourg was a proponent of the euro currency and adopted it immediately at inception in 1999 (as part of the “Eurozone” of EU member states adopting the euro to replace their former domestic currencies.) The European Central Bank is the authority in charge of the euro currency. Pre COVID, Luxembourg has taken steps to move toward a “cash-less” system and the COVID-19 pandemic further accelerated the move towards an increasingly “cash-less” economy.

Remittance Policies

There have not been any recent changes to remittance policies with respect to access to foreign exchange for investment remittances. There is no difficulty in obtaining foreign exchange, which has been freely traded since the 1960s, and the Luxembourg stock market trades in forty different currencies, so is truly international and expanding rapidly.

The average delay period currently in effect for remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties and management fees through normal, legal channels is approximately 24 hours. Investors can remit through a legal parallel market including one utilizing cash and convertible negotiable instruments (such as dollar-denominated host government bonds issued in lieu of immediate payments in dollars). There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs.

Sovereign Wealth Funds

Luxembourg created a sovereign wealth fund in 2014. The fund is under the auspices of the Ministry of Finance and operates with 234 million euros of assets. Until the fund reaches 250 million euros of assets, it operates a conservative investment policy, with a portfolio of 57% of bonds, 40% of stocks and 3% of liquidities. The sovereign wealth fund only invests outside of Luxembourg and is audited by an independent audit company.

The most prominent state-owned enterprise (SOE) in Luxembourg is POST (formerly P&T, postal and telecommunications), whose sole shareholder is the government of Luxembourg and whose board of directors is composed of civil servants. POST responded to the competition created by new players in the market (Orange, Proximus) by transforming itself from a passive utility company into a commercial enterprise, recruiting from the corporate sector, and improving consumer products and services. POST also publishes an annual report and communicates in a similar manner to a private company.

Another sector in which SOEs have been very active is the energy sector (electric and gas utilities), which is now liberalized as well. Anyone can become a provider or distributor (via networks) of electricity and gas. The former state electricity utility, Cegedel, was absorbed into a private company, Encevo, along with a nearby German utility and the former state gas utility, with an independent board of directors. Creos, the new distribution network for energy, is jointly held by the government and private shareholders.

Finally, an important market which appears to have barriers to entry is freight air transport, due to the dominance of the majority state-owned Cargolux. It is the largest consumer of U.S. production in Luxembourg in terms of value, owing to their all-Boeing fleet of 30 747-freighter aircraft (including 14 of the new-generation 747-8F, of which Cargolux was a launch customer). It received a capital increase from the Luxembourg government in return for a larger share ownership of the company.

China has invested in Cargolux, with a Chinese regional fund currently holding approximately one-third of the shares. Cargolux has aggressively expanded in China.

Private enterprises can compete with public enterprises in Luxembourg under the same terms and conditions in all respects. All markets are now open or have been liberalized via EU directives to encourage market competition over monopolistic entities. There is a national regulator (National Institute of Regulation), which sets forth regulations and standards for economic sectors, mostly derived from EU directives transposed into local law. While markets continue to open, the government has maintained a large enough stake in critical sectors such as energy, to ensure national security.

OECD Guidelines on Corporate Governance of SOEs

Luxembourg is an OECD member with established practices consistent with OECD guidelines as far as SOEs are concerned. There is no centralized ownership entity that exercises ownership rights for each of the SOEs.

In general, if the government has a share in an enterprise, they will receive board of directors’ seats on a comparable basis to other shareholders and in proportion to their share, with no formal management reporting directly to a line minister.

The court processes are transparent and non-discriminatory.

Privatization Program

Foreign investors can participate equally in ongoing privatization programs, and the bidding process is transparent with no barriers erected against foreign investors at the time of the initial investment or after the investment is made. Moreover, there are no laws or regulations specifically authorizing private firms to adopt articles of incorporation or association, which limit or prohibit foreign investment, participation, or control. There are no other practices by private firms to force local ownership or restrict foreign investment, participation in, or control of domestic enterprises. There has been no evidence to suggest that potential conflicts of interest exist. Government officials sitting on boards of directors do not appear to have impacted freedom of investment in the private sector.

Luxembourg has consistently ranked among the most politically stable and overall safest countries in the world. There have been no recent serious incidents involving politically motivated damage to projects or installations. The environment is not growing more politicized such that civil disturbances would be likely.

Of note: many of the demonstrations which do occur in Luxembourg are not aimed at the Grand Duchy, but rather at the EU offices located within Luxembourg (for example, the European Court of Justice and periodic European ministerial meetings). There are no known nascent insurrections, belligerent neighbors, or other politically motivated activities.

In response to the George Floyd murder in the United States, there was a protest of approximately 1,500 people outside the Embassy. It was peaceful and without incident. There have only been small and peaceful demonstrations during the COVID-19 pandemic, mainly from restaurant and bar owners protesting the closure of their business and the hardship it creates.

* Source for Host Country Data: Luxembourg Statistics office STATEC (www.statec.lu)

Policies Towards Foreign Direct Investment

The Joint Declaration of the Government of the People’s Republic of China and the Government of the Portuguese Republic on the question of Macau was signed in March 1987, which established the constitutional principle of “One Country, Two Systems.”.  The “One Country, Two Systems” principle guarantees that the rights related to autonomy, its capitalist system, its legal regime, and the liberal society enjoyed by Macau would remain unchanged until at least 2049.  Drafted based on the Joint Declaration, Macau’s Basic Law came into effect in December 1999 and laid out the basic principles of Macau’s governance under Chinese sovereignty.  The Basic Law also guaranteed that “One Country, Two Systems” would remain essentially unchanged in Macau until at least 2049.

The GOM maintains a transparent, non-discriminatory, and free market economy.  Macau has separate membership in the World Trade Organization (WTO) from that of mainland China.  According to the 2018 Index of Economic Freedom released by The Wall Street Journal and The Heritage Foundation, Macau ranked 34th among 180 worldwide economies and ranked the 9th in the Asia Pacific region.  However, Macau was excluded from the 2021 Index published in March 2021.  The Heritage Foundation explained the decision to exclude Macau by saying that developments over the past few years have demonstrated unambiguously that those policies offering economic freedom to Macau are ultimately controlled from Beijing.

There are no restrictions placed on foreign investment in Macau as there are no special rules governing foreign investment.  Both overseas and domestic firms register under, and are subject to, the same regulations on business, such as the Commercial Code (Decree 40/99/M).

Macau is heavily dependent on the gaming sector and tourism.  The GOM aims to diversify Macau’s economy by attracting foreign investment and is committed to maintaining an investor-friendly environment.  Corporate taxes are low, with a tax rate of 12 percent for companies whose net profits exceed MOP 300,000 (USD 37,500).  For net profits less than USD 37,500, the tax ranges from three percent to 12 percent.  The top personal tax rate is 12 percent.  The tax rate of casino concessionaries is 35 percent on gross gaming revenue, plus a four percent contribution for culture, infrastructure, tourism, and a social security fund.

Macau is attempting to position itself to be a regional center for incentive travel, conventions, and tourism.  In March 2019, the GOM extended for two years the gaming licenses of SJM (a locally owned company) and MGM China (a joint venture with investment from U.S.-owned MGM Resorts International that holds a sub-concession from SJM), that were set to expire in 2020.  The concessions of all six of Macau’s gambling concessionaires and sub-concessionaires are now set to expire in June 2022.  The GOM is currently drafting a bill to guide the gaming concession retendering process and plans to conduct public consultations on the bill in the second half of 2021.

The Macau Trade and Investment Promotion Institute (IPIM) is the GOM agency responsible for promoting trade and investment activities.  IPIM provides one-stop services, including notary service, for business registration, and it applies legal and administrative procedures to all local and foreign individuals or organizations interested in setting up a company in Macau.

Macau maintains an ongoing dialogue with investors through various business networks and platforms, such as the IPIM, the Macau Chamber of Commerce, American Chamber of Commerce  Macau, and the Macau Association of Banks.  Macau participates in the Forum for Economic and Trade Cooperation between China and Portuguese-speaking Countries, a liaison platform that strengthens economic and commercial cooperation among lusophone nations.  The Forum hosts a ministerial-level conference in Macau on a triennial basis to gather businesspeople from the participating countries, as well as government officials, and representatives from international trade organizations and trade promotion institutes, to enhance business ties.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign firms and individuals are free to establish companies, branches, and representative offices without discrimination or undue regulation in Macau.  There are no restrictions on the ownership of such establishments.  Company directors are not required to be citizens of, or resident in, Macau, except for the following three professional services which impose residency requirements:

Education:  An individual applying to establish a school must have a Certificate of Identity or have the right to reside in Macau.  The principal of a school must be a Macau resident.

Newspapers and magazines:  Applicants must first apply for business registration and register with the Government Information Bureau as an organization or an individual.  The publisher of a newspaper or magazine must be a Macau resident or have the right to reside in Macau.

Legal services:  Lawyers from foreign jurisdictions who seek to practice Macau law must first obtain residency in Macau.  Foreign lawyers must also pass an examination before they can register with the Lawyer’s Association, a self-regulatory body.  The examination is given in Chinese or Portuguese.  After passing the examination, foreign lawyers are required to serve an 18-month internship before they can practice law in Macau.

Other Investment Policy Reviews

Macau last conducted the WTO Trade Policy Review in December 2020.  See https://www.wto.org/english/tratop_e/tpr_e/s402_e.pdf.

Business Facilitation

Macau provides a favorable business and investment environment for enterprises and investors.  The IPIM helps foreign investors in registering a company and liaising with the involved agencies for entry into the Macau market.  The business registration process typically takes less than 10 working days.  Company registration procedures can be found here: http://www.ipim.gov.mo/en/services/one-stop-service/handle-company-registration-procedures/

Outward Investment

Macau does not promote or incentivize outward investment, nor does it restrict domestic investors from investing abroad.  In 2019, the latest available data, outward investment flows of Macau enterprises soared by 292.8 percent year-on-year to MOP 4.53 billion, attributable to an increase in loans granted abroad by Macau enterprises.  Hong Kong and mainland China remained the top two destinations.

Transparency of the Regulatory System

The GOM has transparent policies and laws that establish clear rules and do not unnecessarily impede investment.  The basic elements of a competition policy are set out in Macau’s Commercial Code.

The GOM will normally conduct a three-month public consultation when amending or making legislation, including investment laws, and will prepare a draft bill based on the results of the public consultation.  The lawmakers will discuss the draft bill before putting it to a final vote.  All of the processes are transparent and consistent with international norms.

Public comments received by the GOM are not made available online to the public.  The draft bills are made available at the Legislative Assembly’s website (http://www.al.gov.mo/zh/), while this website http://www.io.gov.mo/ links to the GOM’s Printing Bureau, which publishes laws, rules, and procedures.

Macau’s anti-corruption agency the Commission Against Corruption (known by its Portuguese acronym CCAC) carries out ombudsman functions to safeguard rights, freedoms, and legitimate interests of individuals and to ensure the impartiality and efficiency of public administration.

Macau’s law on the budgetary framework (Decree 15/2017) aims to reinforce monitoring of public finances and to enhance transparency in the preparation and execution of the fiscal budget.

Macau does not owe debt to any countries.  The public can retrieve up-to-date data on public finance from the Financial Services Bureau website https://www.dsf.gov.mo/financialReport/?lang=en at all times.

International Regulatory Considerations

Macau is a member of WTO and adopts international norms.  The GOM notified all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Macau, as a signatory to the Trade Facilitation Agreement (TFA), has achieved a 100 percent rate of implementation commitments.

Legal System and Judicial Independence

Under “one country, two systems”, Macau maintains Continental European law as the foundation of its legal system, which is based on the rule of law and the independence of the judiciary.  The current judicial process is procedurally competent, fair, and reliable.  Macau has a written commercial law and contract law.  The Commercial Code is a comprehensive source of commercial law, while the Civil Code serves as a fundamental source of contractual law.  Courts in Macau include the Court of Final Appeal, Intermediate Courts, and Primary Courts.  There is also an Administrative Court, which has jurisdiction over administrative and tax cases.  These provide an effective means for enforcing property and contractual rights.  At present, the Court of Final Appeal has three judges; the Intermediate Courts have nine judges; and the Primary Courts have 33 judges.  The Public Prosecutions Office has 38 prosecutors.

Macau passed a National Security Law in 2009 that prohibits and punishes crimes against national security, including treason, secession, sedition, subversion, theft of state secrets, and collusion with foreign political organizations.  Preparatory acts leading to any of these crimes may also constitute a criminal offence.

Macau’s courts still have jurisdiction over all local cases except those related to defense and foreign affairs.  The 2009 National Security Law did not affect this jurisdiction.

Laws and Regulations on Foreign Direct Investment

Macau’s legal system is based on the rule of law and the independence of the judiciary.  Foreign and domestic companies register under the same rules and are subject to the same set of commercial and bankruptcy laws (Decree 40/99/M).

Competition and Antitrust Laws

Macau has no agency that reviews transactions for competition-related concerns, nor does it have a competition law.  The Commercial Code (Law No. 16/2009) contains basic elements of a competition policy for commercial practices that can distort the proper functioning of markets.  In response to public outcries of price-fixing schemes in the Macau oil and food retail industries, in March 2019, the GOM commissioned Macau University of Science and Technology to conduct research on how to optimize market institutions to help foster healthy private sector competition.  The research results were released to the public in May 2020.  Based on this research, the GOM claimed that a legislative solution such as an anti-monopoly or anti-trust law would not necessarily bring about lower prices.  Rather, the GOM appointed the Macau Consumer Council to monitor the local market prices and determine when the need for new legislation on market competition is warranted.

Expropriation and Compensation

The U.S. Consulate General is not aware of any direct or indirect actions to expropriate.  Legal expropriations of private property may occur if it is in the public interest.  In such cases, the GOM will exchange the private property with an equivalent public property based on the fair market value and conditions of the former.  The exchange of property is in accordance with established principles of international law.  There is no remunerative compensation.

Dispute Settlement

ICSID Convention and New York Convention

Both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) apply to Macau.  The Law on International Commercial Arbitration (Decree 55/98/M) provides for enforcement of awards under the 1958 New York Convention.

Investor-State Dispute Settlement

The U.S. Consulate General is aware of one previous investment dispute involving U.S. or other foreign investors or contractors and the GOM.  In March 2010, a low-cost airline carrier was reportedly forced to cancel flight services because of a credit dispute with its fuel provider, triggering events which led to the airline’s de-licensing.  Macau courts declared the airline bankrupt in September 2010.  The airline’s major shareholder, a U.S. private investment company, filed a case in the Macau courts seeking a judgment as to whether a GOM administrative act led to the airline’s demise.  The Court of Second Instance held hearings in May and June 2012.  In November 2013, the Court of Second Instance rejected the appeal.  Private investment disputes are normally handled in the courts or via private negotiation.  Alternatively, disputes may be referred to the Hong Kong International Arbitration Center or the World Trade Center Macau Arbitration Center.  The Arrangement for Mutual Service of Judicial Documents in Civil and Commercial Cases between the Hong Kong Special Administrative Region and the Macau Special Administrative Region came into effect in August 2020,  significantly accelerating the service of such judicial documents between two regions.

International Commercial Arbitration and Foreign Courts

Macau has an arbitration law (Decree 55/98/M), which adopts the UN Commission on International Trade Law (UNCITRAL) model law for international commercial arbitration.  The GOM accepts international arbitration of investment disputes between itself and investors.  Local courts recognize and enforce foreign arbitral awards.  The GOM in May 2020 enacted the New Arbitration Law, which unifies the laws governing domestic and international arbitration in Macau.  This arbitration reform incorporated best international practices with effective dispute resolution techniques for investment disputes, including the introduction of emergency arbitrator mechanism, limitation on rights of appeal, procedure for courts assistance in taking of evidence, recognition and enforcement of interim measures, and publication of arbitral awards.

Macau established the World Trade Center Macau Arbitration Center in June 1998.  The objective of the Center is to promote the resolution of disputes through arbitration and conciliation, providing the disputing parties with alternative resolutions other than judicial litigation.

Foreign judgments in civil and commercial matters may be enforced in Macau.  The enforcement of foreign judgments is stipulated in Articles 1199 and 1200 of the Civil Procedure Code.  A foreign court decision will be recognized and enforced in Macau if it qualifies as a final decision supported by authentic documentation and that its enforcement will not breach Macau’s public policy.

Bankruptcy Regulations

Commercial and bankruptcy laws are written under the Macau Commercial Code, the Civil Procedure Code, and the Penal Code.  Bankruptcy proceedings can be invoked by an application from the bankrupt business, by petition of the creditor, or by the Public Prosecutor.  There are four methods used to prevent the occurrence of bankruptcy: the creditors meeting, the audit of the company’s assets, the amicable settlement, and the creditor agreement.  According to Articles 615-618 of the Civil Code and Article 351-353 of the Civil Procedure Code, a creditor who has a justified fear of losing the guarantee of his credits may request seizure of the assets of the debtor.  Bankruptcy offenses are subject to criminal liability.

There is no credit bureau or other credit monitoring authority serving Macau’s market.

Capital Markets and Portfolio Investment

Macau allows free flows of financial resources.  Foreign investors can obtain credit in the local financial market.  The GOM is stepping up its efforts to develop finance leasing businesses and exploring opportunities to establish a system for trade credit insurance to take a greater role in promoting cooperation between companies from Portuguese-speaking countries.

Since 2010, the People’s Bank of China (PBoC) has provided cross-border settlement of funds for Macau residents and institutions involved in transactions for RMB bonds issued in Hong Kong.  Macau residents and institutions can purchase or sell, through Macau RMB participating banks, RMB bonds issued in Hong Kong and Macau.  The Macau RMB Real Time Gross Settlements (RMB RTGS) System came into operation in March 2016 to provide real-time settlement services for RMB remittances and interbank transfer of RMB funds.  The RMB RTGS System is intended to improve risk management and clearing efficiency of RMB funds and foster Macau’s development into an RMB clearing platform for trade settlement between China and Portuguese-speaking countries.  In December 2019, the PBoC canceled an existing quota of RMB 20,000 (USD 3,057) exchanged in Macau for each individual transaction.

Macau has no stock market, but Macau companies can seek a listing in Hong Kong’s stock market.  Macau and Hong Kong financial regulatory authorities cooperate on issues of mutual concern.  Under the Macau Insurance Ordinance, the MMA authorizes and monitors insurance companies.  There are 12 life insurance companies and 13 non-life insurance companies in Macau.  For the first three quarters of 2020, total gross premium income from insurance services amounted to USD 6.0 billion.

In October 2018, the Legislative Assembly took steps to tackle cross-border tax evasion.  Offshore institutions in Macau and their tax benefits, including credit institutions, insurers, underwriters, and offshore trust management companies, were thoroughly abolished starting from January 1, 2021.  Decree 9/2012, in effect since October 2012, stipulates that banks must compensate depositors up to a maximum of MOP 500,000 (USD 62,500) in case of a bank failure.  To finance the deposit protection scheme, the GOM has injected MOP 150 million (USD 18.75 million) into the deposit protection fund in 2013, with banks paying an annual contribution of 0.05 percent of the amount of protected deposits held.  The deposit protection fund had MOP 486 million (USD 60.75 million) available by the end of 2018, according to the MMA.

Money and Banking System

The MMA functions as a de facto central bank.  It is responsible for maintaining the stability of Macau’s financial system and for managing its currency reserves and foreign assets.  At present, there are thirty-one financial institutions in Macau, including 12 local banks and 19 branches of banks incorporated outside Macau.  There is also a finance company with restrictive banking activities, two financial leasing companies and a non-bank credit institution dedicated to the issuance and management of electronic money stored value card services.  In addition, there are 11 moneychangers, two cash remittance companies, two financial intermediaries, six exchange counters, two payment service institutions, and two other financial institutions (one is a representative office).  The Bank of China (Macau) and Industrial and Commercial Bank of China (ICBC) are the two largest banks in Macau, with total assets of USD 79.8 billion and USD 33.9 billion, respectively.  Banks with capital originally from mainland China and Portugal had a combined market share of about 86 percent of total deposits in the banking system at the end of 2016.  In 2019, the total assets of the banking sector amounted to USD 252 billion.  Total deposits amounted to USD 83.8 billion by the end of 2019.  In the fourth quarter of 2020, banks in Macau maintained a capital adequacy ratio of 14.5 percent, well above the minimum eight percent recommended by the Bank for International Settlements.  Accounting systems in Macau are consistent with international norms.

The MMA prohibits the city’s financial institutions, banks, and payment services from providing services to businesses issuing virtual currencies or tokens.  In December 2020, the MMA said it  is communicating with the People’s Bank of China (PBoC) about the feasibility of issuing digital currency in Macau.

Foreign Exchange and Remittances

Foreign Exchange

Profits and other funds associated with an investment, including investment capital, earnings, loan repayments, lease payments, and capital gains, can be freely converted and remitted.  The domestic currency, the Macau Official Pataca (MOP), is pegged to the Hong Kong Dollar at 1.03 and indirectly to the U.S. Dollar at an exchange rate of approximately MOP 7.99 = USD 1.  The MMA is committed to exchange rate stability through maintenance of the peg to the Hong Kong Dollar.

Although Macau imposes no restrictions on capital flows or foreign exchange operations, exporters are required to convert 40 percent of foreign currency earnings into MOP.  This legal requirement does not apply to tourism services.

Remittance Policies

There are no recent changes to or plans to change investment remittance policies.  Macau does not restrict the remittance of profits and dividends derived from investment, nor does it require reporting on cross-border remittances.  Foreign investors can bring capital into Macau and remit it freely.

A Memorandum of Understanding on anti-money laundering (AML) actions between MMA and PBoC, increased information exchanges between the two parties, as well as cooperation on onsite inspections of casino operations.  Furthermore, Macau’s terrorist asset-freezing law, which is based on United Nations (UN) Security Council resolutions, requires travelers entering or leaving with cash or other negotiable monetary instruments valued at MOP 120,000 (USD 15,000) or more to sign a declaration form and submit it to the Macau Customs Service.

In December 2019, the PBoC increased a daily limit set on the amount of RMB-denominated funds sent by Macau residents to personal accounts held in mainland China from RMB 50,000 (USD 6,250) to RMB 80,000 (USD 10,000).

Sovereign Wealth Funds

The International Monetary Fund (IMF) suggested in July 2014 that the GOM invest its large fiscal reserves through a fund modeled on sovereign wealth funds to protect the city’s economy from economic downturns.  In November 2015, the GOM decided to establish such a fund, called the MSAR Investment and Development Fund (MIDF), through a substantial allocation from the city’s ample fiscal reserves.  However, the GOM in 2019 withdrew a draft bill that proposed the use of USD 7.7 billion to seed the MIDF over public concerns about the government’s supervisory capability.

Macau does not have state-owned enterprises (SOEs).  Several economic sectors – including cable television, telecommunications, electricity, and airport/port management, are run by private companies under concession contracts from the GOM.  The GOM holds a small percentage of shares (ranging from one to ten percent) in these government-affiliated enterprises.  The government set out in its Commercial Code the basic elements of a competition policy regarding commercial practices that can distort the proper functioning of markets.  Court cases related to anti-competitive behavior remain rare.

Privatization Program

The GOM has given no indication in recent years that it has plans for a privatization program.

Macau is politically stable.  The U.S. Consulate General is not aware of any incidents in recent years involving politically motivated damage to projects or installations.

Macau enacted its own National Security Law (NSL) in 2009.  While human rights groups raised concerns at the time that the NSL’s “vague and broad provisions” would erode freedom of association and expression in Macau, the passage of the Macau NSL was not as controversial as the one in Hong Kong, and no one has been charged under the Macau NSL since its enactment in 2009.

Macau continues to enforce restrictions of admission and travel controls due to COVID-19 related concerns, including compulsory COVID testing and self-quarantine upon arrival.  As of March 16, 2021, foreign nationals from areas outside mainland China, Hong Kong, and Taiwan are still prohibited from entering Macau, though exceptions are in place for some foreigners related to Macau residents, students, and essential workers, or for select business or academic reasons.  Foreign nationals entering from mainland China will need to have been physically present in mainland China for 21 consecutive days before entering Macau.  The Macau government did not provide a timeline for re-opening the borders for foreign nationals apart from those from mainland China, Hong Kong, and Taiwan.

Since January 2020, U.S. citizens living in Macau have been unable to obtain in-person consular services due to ongoing COVID-19 restrictions mandated by the Macau government.  Mail-in services can be an acceptable alternative in certain situations but cannot replace services that require a personal appearance before a consular officer such as the issuance of citizenship documents for children born in Macau and renewals of minor/first-time adult passports.

* Source for Host Country Data: Macau Statistics and Census Service

Policies Towards Foreign Direct Investment

The Rajoelina government’s PEM strategy has stressed the importance of attracting foreign direct investment (FDI) to achieve its ambitious economic growth goals. Since the Rajoelina administration took office in January 2019, the GOM has promoted Madagascar as an attractive investment destination by sending delegations across Africa, Europe, and Asia to make the case while also organizing trade shows in Madagascar.

The marketing push has not yet translated into actual policy and certain developments have called the GOM’s commitment to new FDI into question. Some cases in point include the following: the GOM’s failure to sign the Power Purchase Agreement its officials negotiated for Sahofika, a large hydroelectric project developed by Themis and backed by U.S. private equity firm Denham Capital and AfDB amongst others. The 200 MW USD 1 billion hydroelectric project is slated to bring electricity to 8 million new customers. The World Bank backed Volobé project appears stalled as well. Over 15 months ago, the GOM suspended work at Base Tulear, the Australian company Base Resources’ USD 560 million investment into ilmenite mining, leaving the entire project’s future uncertain. In 2021, the GOM overturned a decision by troubled national utility JIRAMA to implement the World Bank-recommended OPTIMA electricity tariff program to adjust pricing and stanch losses at JIRAMA. The World Bank continued to negotiate with the GOM but has warned that the GOM’s actions could jeopardize new funding of USD 75 million and a multi-annual program worth USD 400 million.

The GOM says it is actively seeking FDI and increased participation from the Malagasy private sector. However, the business community continues to express frustration about poor transportation infrastructure, expensive yet unreliable supply of electricity and water, endemic corruption and the uneven nature of the anti-corruption initiatives, and weak enforcement of rules and regulations as impediments to investment, foreign or domestic. In addition, the business community is concerned about the lack of transparency in awarding contracts, uncertainty about agreed terms for contracts and tenders, and centralized decision-making which has caused confusion and backtracking. The GOM drafted amendments to the mining code in late 2019 which included several provisions on ownership and taxes that worried investors and interest groups and forced a return to the drafting table. Mine operators, though, left the review committee for the legislation in late 2020, arguing that the decision-making process was unfair and some GOM proposals were not economically viable.

The existing investment law allows foreign ownership of businesses and does not discriminate against foreign-owned enterprises. There is no legal requirement that citizens own shares of foreign investment, nor any restriction on the mobility of foreign investors. The regime for visas, residence, and work permits is neither discriminatory nor excessively onerous. A new version of the law is pending clearances by senior decision makers and is expected to clarify access to land and address issues of corporate social responsibility and sustainability.

The Economic Development Board of Madagascar (EDBM), an investment promotion agency, has several objectives – to strengthen the competitiveness of the Malagasy private sector, to increase FDI, to develop and recommend business incentives for private investments in Madagascar, and to provide a one-stop shop to help investors set up or expand their business through tailored services by specialized advisors. EDBM’s move toward digitalization and paperless procedures, to enable the online creation of companies and the provision of online tools for startups & SMEs in search of investors’ support, are expected to simplify the business set up process further.

Limits on Foreign Control and Right to Private Ownership and Establishment

Broadly speaking, there are no general, economy-wide limits on foreign ownership or control. Any individual or legal entity, domestic or foreign, is free to invest and operate, in accordance with the laws and regulations.

Foreign and domestic private entities are free to establish and own their business enterprises and engage in all forms of remunerative activities. Except for the telecommunication sector, where foreign ownership is restricted to 66 percent, foreign investors can retain full ownership of their company and repatriate their earnings without restriction. Certain strategic sectors such as banking, insurance, mining, oil, and gas, medical, and pharmaceuticals have extra regulatory provisions which apply to all investors, foreign and domestic.

There is no official discrimination against foreign investors, who are treated on par with local investors, although foreign investors have reported delays in getting permits and problems finding their way through Madagascar’s convoluted bureaucracy.

Madagascar has no formalized investment screening mechanism for inbound foreign investment. Economic Development Board of Madagascar (EDBM) does conduct a review which is submitted to the licensing authority and final ratification of foreign investment must be completed by the President’s Office.

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization such as the OECD, WTO, or UNCTAD.

Business Facilitation

In 2006, Madagascar set up the Economic Development Board of Madagascar (EDBM), a one-stop shop for receiving, processing, and delivering the required administrative documents to speed up the approval of all investment projects. Its primary recommendation for a foreign company seeking to start a business in Madagascar is to consider collaborating with a local business. Many foreign companies seek local partners to ease their introduction to the market and make new contacts. Post recommends the retention of competent local counsel and/or a local representative.

EDBM is fine-tuning an online registration service to launch in the second quarter of 2021 which should shorten the registration timeline and provide more clarity on the rules for investment. Working in conjunction with the concerned public institutions and technical and financial partners, EDBM’s reforms will establish a paperless process for business creation (companies and sole proprietorships) while putting in place a unique identifier for each company. Through close collaboration with municipalities, the Ministry of Territory Development-Habitat-Public Works, and the national utility company JIRAMA, EDBM aims to modernize the issuance of building permits at the municipal level, starting in the capital city.

While Madagascar placed 161 out of 190 in the 2020 World Bank’s overall Doing Business rankings, it ranks 80 out of 190 (Scoring 88.5) for ease of starting a business in the same report. EDBM handles business registrations, which takes on average of eight days after receipt of complete documentation and is amongst the shortest in Sub-Saharan Africa (21.5 days for the SSA region). Companies will need to secure a physical local address with a signed lease before attempting to register. EDBM assists both local and foreign investors in registering and operating their businesses. At the EDBM one-stop shop, companies can obtain their business identification cards, tax registration confirmations, commercial registration numbers, and apply for visas, work permits or professional cards. They must also register for social security and health insurance. Companies in Madagascar are free to open and maintain bank accounts in foreign currency.

Outward Investment

The GOM does not offer incentives to promote outward investment. However, many wealthy entrepreneurs have diversified their investment base by investing in Europe, the United States, Mauritius, and the Middle East.

There are no restrictions on capital outflows from Madagascar to the rest of the world, but companies and individuals must fill out a form showing the reasons for the transfers. Domestic investors who invest abroad must comply with the foreign currency control mechanism enforced at the state and commercial bank level with close monitoring by the Finance Ministry.

Transparency of the Regulatory System

Bureaucratic delays and inefficiencies plague Madagascar’s legal and regulatory system. Non-transparent regulatory decisions have affected global investors, some of whom have alleged unfair competition or lack of transparency. High-level corruption and alleged collusion between business and political elites have been a recurring issue in Madagascar for decades. That said, auditing and financial information reporting systems are transparent and consistent with international norms, IAS and IFRS respectively. Although the regulations strive to establish clear rules, a lack of enforcement combined with shortage of resources and capacity hinder their efficacy. In addition, certain investment policies are not harmonized and, in some areas, can be contradictory. A policy harmonization process for Special Economic Zones is underway.

Madagascar has municipal, regional, national, and international laws; the most relevant for foreign businesses would be national and international laws.

Depending on the circumstances, regulations can be suggested, drafted, or amended by various actors such as the government or its institutions, business associations, academics, civil society organizations, and/or individual experts. Non-governmental organizations, industry associations and private organizations such as the American Chamber of Commerce, can also be influential voices in raising concerns about new legislation or regulations. For instance, the Chamber of Mines has had an important role in pushing back against the government’s proposed amendments to the mining code which would have discouraged further investment in the sector.

If the GOM decides to move ahead with a bill, it is transmitted to the National Assembly and then the Senate for study and voting. Once the bill passes in both Chambers, it goes to the High Constitutional Court (HCC) for constitutional verification. Finally, the President has the ultimate right to approve or veto a proposed law. The President also has the right to enact a proposed law by decree if Parliament does not pass the legislation, though it is still subject to constitutionality checks by the HCC. Laws are published by their insertion in the Official Gazette of the Republic or its broadcast on national radio or TV in case of emergency.

Scientific, data-driven assessments, and quantitative analysis are not yet common practice. Regulatory reviews usually take place when a non-governmental organization or interest group protests against a new or amended regulation. Though public comments are welcomed and recorded in a registry before consideration and processing, there is no set mechanism which makes them available to the public. There is also no formal mechanism in place to make draft bills or regulations available for public comment or consultation prior to their adoption. This applies to investment law and regulations. Informally, draft legislation and regulations do circulate, and institutional pushback can lead to changes as was the case with the revision of the mining code, where the circulation of draft bills led to protests from interest groups. As a result, the government withdrew the drafts for further consultation and review.

There is no centralized location for publication of draft regulatory actions. Once enacted, the full text of key regulatory actions is published on the Justice Ministry’s website through the link to the National Center of Legal and Legislative Information and Documentation (CNLEGIS). http://www.cnlegis.gov.mg/%20page_find_direct_mots/ .

Regulatory enforcement mechanisms are usually defined along with the enactment decree of each regulation. The enforcement process may be legally reviewed. Anyone can lodge a complaint with the administrative courts, which are responsible for judging failure to comply with administrative regulations. The Council of State is ultimately responsible for ensuring the legality of the GOM’s actions and oversight of lower courts. It also handles appeals for annulment of actions by local and regional authorities. The HCC verifies the conformity of laws with the Constitution of the Republic of Madagascar.

Since the last ICS report, while several regulatory changes including enforcement reforms have been announced, there have been no reforms relating to foreign investors. One of the changes is the appointment of the Integrity Safeguarding Committee (CSI), which has been tasked with the development of the national integrity system (NIS) to ensure the coordination, monitoring, and evaluation of the anti-corruption system; and elaborating and implementing the national good governance policy. In general, the reforms are intended to improve the economy, governance, land tenure, and the rule of law, although sometimes they make the administration more cumbersome and complex.

Accounting regulations appear transparent. The country has no stock market, and therefore, no publicly listed companies.

Budget proposals, enacted budgets, and audited end-of-year reports are publicly available. The timing of their release often hampers public debate; for instance, budget proposals are usually published just two weeks before they are voted on. The enacted budget is often not available until many weeks into the start of the fiscal year.

Income and expenditure are not truly representative of the governments revenues and expenses. Income calculations exclude fees and royalties from the mining sector, while expenditure does not break out the transfers and subsidies to state-owned enterprises such as national utility JIRAMA whose financial statements have not been disclosed since 2018.

The interim audit for the 2018-19 budget noted issues with fiscal transparency where the government changed beneficiaries and/or amounts allocated by the initial appropriation without further parliamentary approval. Government contracts are not fully transparent as to their funding arrangements. The 2019-20 budget had a set-aside under Sovereign Funds, amounting to 1.9 percent of the budget earmarked for discretionary use under special presidential projects. In 2020, the Government received around USD 840 million from various donors, including USD 337 million from the IMF as a Rapid Credit Facility, which was provided without preconditions. The GOM’s expenditure reports show 80 percent of the money disbursed thus far for COVID-19 went toward subsidies for JIRAMA, with only twenty percent going toward social assistance for the poor, public health investment, and mitigating economic fallout. In 2021, donors and the International Community have asked for more transparency regarding the use of all COVID-19 assistance due to the slow pace of government expenditure during the pandemic and delays in reporting how funds were actually spent.

Debt obligations are not fully transparent. For example, the rate of return and the subscribers of non-market treasury bills (called “special TB”) are not readily available to the public.

International Regulatory Considerations

Madagascar is a member country of the following economic blocks: Indian Ocean Commission (IOC), Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA), and the Continental African Free Trade Area (AfCFTA). The regional regulatory systems prevail over the national system in case of trade disputes amongst members.

As a former French colony, most of the norms and standards in force are of French origin, although other international norms are increasingly in use as the country’s trade relationships become more diversified.

Madagascar is a member of WTO and the GOM has committed to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

French civil law largely inspires Madagascar’s legal code, which contains protections of private property and rights.

The civil court system has its own independent jurisdiction, where civil and commercial cases are heard. The country’s written commercial law consists mainly of the code of commerce and annexed laws. Recent reforms of commercial regulations and procedures have halved processing times for commercial cases at the Trade Court. Major cities and regions do have their own competent courts, although some trials fall under the jurisdiction of the central courts.

Madagascar’s constitution provides for an independent judiciary. However, the executive branch has a history of interfering in judicial matters through the appointment of compliant judges. Bribery and corruption are also factors affecting the fairness of the judicial process.

Regulations or enforcement actions are appealable within the prescribed time and are adjudicated in the national court system established in the capital city Antananarivo.

Laws and Regulations on Foreign Direct Investment

The country’s investment law was promulgated in January 2008 and governs foreign direct investment as well. In addition to the freedom of investment and equality of treatment for foreign and national investors, Madagascar’s investment law includes articles on the protection of patent rights and protections against expropriation, freedom to transfer funds abroad without prior authorization, and a stability clause guaranteeing investor privileges from future legal or regulatory measures.

Major laws, regulations, and judicial decisions which have come out in the past years are:

• Law 2020-003 on organic farming
• Law 2020-003 on organic farming
• Law n˚2018-043 dated February 13, 2019 against money laundering and financing of terrorism acts
• Law n˚2018-043 dated February 13, 2019 against money laundering and financing of terrorism acts
• Law n˚2018-042 dated January 17, 2019 authorizing the ratification of the loan agreement to finance the integrated growth corridor project (PIC 2.2) between the government and the International Development Association (IDA)
• Law n˚2018-042 dated January 17, 2019 authorizing the ratification of the loan agreement to finance the integrated growth corridor project (PIC 2.2) between the government and the International Development Association (IDA) · Law n˚2018-039 dated January 7, 2019 authorizing the ratification of the statutes of the “Eastern and Western Africa Bank for Commerce and Development or Trade and Development Bank (TDB)”
• Law n˚2018-039 dated January 7, 2019 authorizing the ratification of the statutes of the “Eastern and Western Africa Bank for Commerce and Development or Trade and Development Bank (TDB)”

EDBM is Madagascar’s one-stop-shop for investment and its website www.edbm.mg provides summaries of relevant laws, rules, procedures, and reporting requirements for investors as well as links to the relevant laws. Comprehensive details are found on the Ministry of Justice website at cnlegis.gov.mg 

EDBM has links to relevant laws and reporting requirements for investors.

• Law n˚2007-036 on investment
• Law n˚2007-036 on investment
• Law n˚2007-037 on export processing zone
• Law n˚2007-037 on export processing zone
• Laws n˚2001-031 and n˚2005-022 on large mining investment
• Laws n˚2001-031 and n˚2005-022 on large mining investment
• Law n˚1996-108 on petroleum code
• Law n˚1996-108 on petroleum code
• Law n˚2003-036 on commercial company
• Law n˚2003-036 on commercial company

The following laws enacted in the last five years, also relate to foreign investment.

• Law n˚2015-039 on Public and Private Partnership (PPP)
• Law n˚2015-039 on Public and Private Partnership (PPP)
• Law n˚2017-047 on Madagascar’s Industrial Development which is reflecting the Industrial Policy (LDI)
• Law n˚2017-047 on Madagascar’s Industrial Development which is reflecting the Industrial Policy (LDI)
• Law n˚2017-023 on Madagascar’s Special Economic Zone (SEZ)
• Law n˚2017-023 on Madagascar’s Special Economic Zone (SEZ)
• Law n˚2017-020 on Madagascar’s Electricity Law
• Law n˚2017-020 on Madagascar’s Electricity Law

The e-commerce and digital activity law have been adopted but is still awaiting its enforcement decree

The Ministry of Commerce and Industry has the overall responsibility to ensure fair competition between businesses. The 2018 law on competition and anti-trust issues attempts to empower the independent Competition Council (CC) which rules on unfair competition cases; the CC has the power to assess proportionate penalties for abuses of dominant market position. However, the CC is largely unfunded.

Expropriation and Compensation

The investment law provides protection to foreign and local investors against nationalization, expropriation, and requisition, except for public interest cases as established by regulations. For infrastructure projects which require expropriation of private property, the GOM must issue an official proclamation that defines the public interest of the project and the owner of the private property must be paid the fair market value of the concerned property prior to its expropriation. The government may also legally expropriate property when a judicial ruling permits it in cases where there is proven money laundering, profiting from trafficking, acts of terrorism, or a failure to make tax or debt payments.

Recent expropriations have taken place as described above. For instance, a well-known businesswoman whose new four-star hotel located near Antananarivo international airport was expropriated after a court ruling against her for tax evasion was later convicted twice and sentenced to a total term of 17 years of hard labor and a fine of MGA 100 million (USD 28,571). Court procedures included evidence presented by the Directorate General of Taxes and the Directorate General of Customs.

There were cases where asset owners alleged a lack of due process. In the case noted above, the businesswoman claimed she was victimized due to political bias.

In recent road construction projects funded by international donors, the GOM has been asked to contribute toward compensation payments to landowners whose property was appropriated for the project.

Dispute Settlement

ICSID Convention and New York Convention

Madagascar is a member state to the International Centre for the Settlement of Investment Disputes (ICSID) and under the Investment Law, disputes between foreign investors and the administration can be resolved through arbitration proceedings administered by the ICSID.

In case a foreign investor initiates the proceeding, he/she can decide to file the dispute at the Madagascar Trade Court, which is the country’s competent jurisdiction in such matters. However, no specific domestic legislation provides for enforcement of awards under the New York Convention and/or under the ICSID Convention.

Investor-State Dispute Settlement

As a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention), Madagascar also accepts international arbitration as means of resolving investment disputes. Based on the obligation of the New York convention, domestic courts should recognize and be willing to enforce foreign arbitral awards. International arbitration is accepted as a way of settling commercial disputes between private parties. Madagascar has also been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1989.

Investment disputes involving foreign investors over the last 10 years include:

1) A Cypriot holding company affiliated with a U.S. energy company is the claimant in a business dispute with its partners, including a Malagasy business. The claimant has filed for arbitration in New York. The partnership sells electricity to state-owned energy company JIRAMA and in 2019 was in discussions with the GOM about the terms of its Power Purchase Agreement. The Claimant raised objections to the reopening of its contract, which had been signed by a previous government for a term of 20 years. JIRAMA made some payments on dues owed to the Claimant but the Claimant is now involved in an internal dispute with their local partner, which is subject to international arbitration.

2) In 2019, the Paris Commercial Court ordered Madagascar’s state-owned airline company Air Madagascar to pay USD 20 million to Air France in connection with the leasing of two A340s in 2011. The case is still pending in French courts.

3) In 2016, an international power producer (IPPs) supplying electricity to Antananarivo, complained of non-payment by the national utility JIRAMA, a state-owned enterprise. After weeks of negotiations combined with threats to withdraw by the IPP, the government agreed to pay the IPP using a different payment mechanism. The details of the agreement have not been made public.

4) In 2012, the government shut down the telecommunication operator “Life,” a Mauritius controlled company, without providing evidence of substantial wrongdoing. The company sought compensation and sued the Malagasy government at ICSID in August 2017 but there has been no resolution.

Madagascar does not have a history of extrajudicial action against foreign investors since the 1970s. However, enforcement by local courts of foreign arbitral awards against the government is uncommon. In the case of Air France, the GOM has not yet paid the fines ordered by the Paris Commercial Court. As far as Post is aware, none of Madagascar’s commercial courts have taken up this verdict.

International Commercial Arbitration and Foreign Courts

Two types of alternative dispute resolution (ADR) mechanisms are available in Madagascar, namely “arbitration” and “mediation.” Arbitration is a contractual jurisdictional mode of settlement of commercial disputes. The procedure involves submitting a dispute between two or more parties to the jurisdiction of an arbitral tribunal consisting of a sole arbitrator or three arbitrators.

Mediation is a structured process in which two or more parties to a dispute voluntarily attempt to reach an agreement on the resolution of their dispute with the assistance of a mediator, who is a neutral, impartial, and independent third party.

Both procedures are recognized by law. Arbitration results in an enforceable title in the form of an arbitral award, whereas mediation results in an agreement between the parties that does not constitute an enforceable title.

A privately managed entity named Center for Arbitration and Mediation of Madagascar (CAMM), created in 2001 and then restructured in 2012, promotes and oversees ADR mechanisms to resolve international and domestic commercial disputes and lessen reliance on an overburdened court system. The CAMM helps companies manage their conflicts, determine the best way to settle them quickly and durably, and helps ensure the security of their investments and the maintenance of business continuity. As a result, many private contracts now include arbitration provisions that allow the CAMM to mediate eventual disputes.

Since the 8th Economic Forum of the Indian Ocean Islands in 2012, CAMM has initiated a process with its counterparts in Reunion, Mauritius, and Comoros for the setting up of a cross-border dispute resolution platform in which co-mediation will play an important role. CAMM recognizes and enforces arbitral awards in that sub-region. However, only the commercial judgements of these foreign courts are recognized and enforceable under the CAMM.

CAMM only applies in disputes amongst private parties and so has no jurisdiction in disputes involving SOEs. In the latter case, it is tried in civil court. While the SOE does not always win, the judgement is not always enforced.

Bankruptcy Regulations

In 2020, Madagascar had an overall 161 out of 190 ranking in the World Bank’s Ease of Doing Business survey; it ranked 135 in the same survey for the “resolving insolvency” criteria. The bankruptcy law, which was last updated in 2014, lays out collective debt settlement procedures, which treat all parties equally in bankruptcy proceedings. Creditors have the right to initiate insolvency proceedings only when seeking liquidation of the debtor, but not when seeking reorganization. Bankruptcy is no longer a criminal offense but is punishable by fines and imprisonment depending on whether it is deemed simple, negligent, or fraudulent bankruptcy. The court system has reduced the associated prison sentences from those stipulated in the previous insolvency framework.

There are three procedures that apply when assessing the fate of a company in difficulty. The first – preventive settlement – is a reconciliation procedure designed to avoid the suspension of payments or the cessation of activity of a firm in difficulty which has not yet defaulted on payments. This procedure, which is non-contentious, requires the agreement of all parties and aims to reach an agreement on the settlement of debts and avoid individual lawsuits.

The two other procedures – receivership and liquidation of assets – are intended to remedy payment defaults and correspond to the current judicial settlement and bankruptcy procedures. Some of the provisions include the appointment of a receiver, who is a representative of the creditors, by the Commercial Court to supervise the debtor who continues to manage the business. While a compensation agreement is being negotiated, all claims are frozen; the compensation to creditors may be on unequal terms and sale of the business is subject to a transfer plan.

Capital Markets and Portfolio Investment

Madagascar has neither a stock market nor a competitive and transparent bond market. Foreigners living overseas and companies with headquarters outside Madagascar cannot participate in its bond markets. In addition to market–based bonds with less than 52-week maturity, in the last few years, the Government has introduced longer-term bonds (maximum three-year maturity) with a more attractive return. Portfolio investment opportunities are extremely limited. Foreign investment in government debt is still limited to Malagasy nationals and legal residents.

There are no restrictions on payments and transfers for international currency transactions per IMF Article VIII. The Central Bank and the Ministry of Finance require documents prior to any transfer of currency to foreign countries. There is no ceiling imposed on international transactions, but justification remains mandatory.

The private sector has access to a variety of credit instruments. Credit is provided at market terms and can be offered either in local or foreign currency. Credit obtained in local currency is often more expensive than foreign currency due to inflation and lack of competition.

The Central Bank does not impose direct caps on loans but instead uses indirect tools to limit credit, such as imposing reserve requirements on banks (11 percent of deposits in local currency and 24 percent on deposits in foreign currency). The Central Bank adopted this new policy of differentiation in 2020 to encourage conversion of foreign currency deposits into Ariary. Foreign investors can get credit on the local market if they have an officially registered company/subsidiary located in the country. In December 2020, the average interest rates on loans to customers was as high as 13. percent, between 9.14 percent for long term loans and 15.5 percent for short term loans. For deposits, the average return was 2.64%.

Money and Banking System

Madagascar’s banking penetration rate is very low. Only 12 percent of the population has a bank account, which includes accounts with microfinance institutions. Less than three percent of the population has access to commercial bank loans, and there are just 97.3 deposit accounts per 1000 adults.

There are only eleven commercial banks in Madagascar. As rates are high and competition low, banking activities are very profitable. Loans and credit to the private sector represent 53% of bank assets whereas loans (including TB) to the government represent 17%. Non-performing loans accounted for 5% of overall loans and credit in 2019.

Overall assets of all commercial banks were USD 3.69 billion or 25.4% of GDP as of December 2019.

Madagascar has a central bank system. Its main objectives are to ensure the stability of the local currency internally (acceptable inflation rate) and externally (acceptable fluctuation of the exchange rate). The Central Bank has no clear mandate to promote economic growth. There is no inter-bank lending system in place. As part of ongoing ECF negotiations with the IMF, the Central Bank is currently weighing a strategy that would target interest rates instead of the money supply in order to ensure tighter control of monetary policy.

As of November 2019, the Central Bank is no longer using a benchmark rate as a reference to its monetary policy tools. Instead, it has implemented two different rates. The first is the deposit rate of 0.9% that commercial banks may use while depositing their excess of liquidity; the second rate is the lending rate set at 5.30%. Banks will use this latter rate while borrowing money from the Central Bank for their normal operations or to honor their reserve requirements. By adopting this policy, the Central Bank is adopting a clear expansionary policy as the lending rate has come down from 9.50% to 5.30%. This policy is consistent with a lower inflation rate of 4.5% in 2020.

Only one of eleven operating commercial banks is local. The other ten are subsidiaries of French, Moroccan, Gabonese, and Mauritian banks and are subject to prudential measures imposed by the CSBF or Banking and Financial Supervision Committee. Madagascar has not lost any correspondent banking relationships in the past three years nor are any currently in jeopardy.

Foreigners having legal residency status in the country can establish a bank account in either local or major foreign currencies (USD and Euro).

Foreign Exchange and Remittances

Foreign Exchange

Foreign investors do not face restrictions or limitations in converting, transferring, or repatriating funds associated with an investment. However, the monetary authorities and the Ministry of Economy and Finance require traceability of capital inflows and outflows. Funds can be freely converted into major foreign currencies.

Madagascar adopted a managed floating exchange rate system in 1994. The exchange rate fluctuates but the Central Bank intervenes to prevent abrupt depreciation or appreciation of the Ariary. In general, the Central Bank of Madagascar keeps the value of the Ariary fluctuating in a two percent range. The Central Bank’s regular interventions to stabilize the currency during the COVID-19 pandemic and resulting decline in Malagasy exports has limited depreciation to 4.7% during 2020.

In 2020, Madagascar set up a national gold reserve because of the implementation of the MOU between the Ministry of Mines and Strategic Resources (MMRS) and the Central Bank of Madagascar (BFM). The GOM not only wants to use gold as a reserve asset of the Central Bank but to use repatriation of profits from gold exports to strengthen the national currency. However, in September 2020, the GOM suspended gold exports after exporters failed to repatriate their profits and has since decided gold should stay in country to increase the Central Bank’s reserves.

Remittance Policies

There are no recent changes or plans to change investment remittance policies. There are no restrictions on converting or transferring funds associated with foreign investment, including remittances of investment capital, earnings, loan repayments, and lease payments. Exporters have to repatriate their assets within 90 days for manufacturers of goods and 30 days for service providers. They are required to repatriate all of their turnover, with at least 70 percent of it going into the forex market within 30 days. However, when foreign currency reserves are dwindling, the Ministry of Economy and Finance can decide to sanction exporters who fail to repatriate their assets in a timely fashion. Among the sanctions that the Ministry can impose is the suspension of their access to the digital forex market platform.

Sovereign Wealth Funds

Madagascar does not have a Sovereign Wealth Fund that manages national savings for investment purposes. However, Madagascar’s Prime Minister said during his address at the National Assembly in December 2020 that the government was committed to the establishment of a sovereign wealth fund.

The government has shares in 55 public establishments of an industrial and commercial nature, with a majority stake in 27 enterprises; in 11 cases, the government owns over 95 percent of the entity. A list of operating state-owned enterprises can be found here . Detailed information about state-owned companies (SOEs) is not easy to come by but they operate in many key sectors such as aviation, public utility (running water and electricity), ports, hotels, insurance, finance, woodworking, mining, maintenance and construction of ships, and real estate. The government has minority shares in three major banks, the beverage industry, oil distribution, and mining activities. The two most well-known SOEs are JIRAMA (100 percent state-owned), the water and electricity utility, and Air Madagascar whose equity tie-up with France’s Air Austral has now ended. The GOM has spent substantial amounts subsidizing the operations of both of these entities. Improvement in the governance and a return to profitability of SOEs is a long-standing condition for assistance by multilateral donor institutions such as the World Bank and the IMF.

In theory, private enterprises are, on the whole, allowed to compete with SOEs under the same terms and conditions for market access, credit, and other business operations. The reality is somewhat different. State-owned enterprises dominate the sectors in which they operate. Any investor seeking to compete with an SOE in Madagascar should consider not only market-entry difficulties, but also its ability to compete for scarce resources and permits.

Privatization Program

The 2004 law on privatization prohibits the Government from owning more than 50 percent of a privatized company. The fledgling privatization program initiated before 2009 has given way to more government control as reflected by the GOM’s recent moves to increase what it calls “the production share of the government” in the mining sector.

In the past, foreign investors participated actively in these privatization programs. Almost all state-owned banks were purchased by foreign investors including foreign state-owned banks.

Currently, the GOM does not have a privatization program on its agenda.

*Madagascar is not listed in the IMF data on CDIS. The table above shows data from the Central Bank of Madagascar and Institut National de la Statistique de Madagascar (FY2015).

Source: Central Bank of Madagascar

Table 4: Sources of Portfolio Investment

Madagascar does not have a database on equity and debt securities. There is no stock market and corporates rarely offer their equity shares to the public. In addition, only companies and individuals with legal and permanent resident status can purchase Treasury bonds. Therefore, a breakdown per country on issued bonds is unavailable.

Policies Towards Foreign Direct Investment

Malawi is open to foreign and domestic investment and grants national treatment to all investors. Foreign investors may invest in almost any sector of the economy and may access government investment incentives. There are no restrictions on ownership, size of investment, source of funds, investment sector, or whether the products are destined for export or for domestic markets. Furthermore, an investor can disinvest 100%, make international payments, and cannot be forced into local partnerships. However, the Malawi Stock Exchange limits an individual foreign investor to 10% of any company’s initial public offering (IPO) and the stake of all foreign investors in an IPO is limited to 49% of total shares of the company.

The GOM prioritizes investment retention and maintains an ongoing dialogue with investors through the Malawi Investment and Trade Center (MITC), Ministry of Trade, Ministry of Industry, Public Private Partnership Commission, and other government agencies. The Malawi Confederation of Chambers of Commerce and Industry ( MCCCI ) represents all sectors of the economy and has been successful in lobbying the GOM on issues affecting the private sector. In recent years, the government has hosted Malawi Investment Forums to present a platform for marketing the country, fostering partnerships, and bringing in foreign direct investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

The GOM does not impose restrictions on the ownership or location of investments. It permits FDI in all sectors of the economy except for those sectors or activities that may pose a danger to health, the environment or national security. Restrictions are not imposed on fund source, destination, or final product. There is, however, a requirement for companies registered in Malawi to appoint at least two Malawian residents as directors.

There are some limitations on foreign ownership of land. Under the Land Act of 2016, neither Malawians nor foreigners can acquire freehold land. Foreigners can secure lease-hold land for terms up to 50 years, after which the lease may be renewed. In addition, foreigners can only secure private land when no citizen has made an equal offer for the same land.

During the privatization of government assets, Malawian nationals are offered preferential treatment including discounted share prices and subsidized credit. A 2017 amendment to the Public Procurement and Disposal of Assets (PPDA) Bill includes an indigenization clause that calls for “the prioritization of all bids submitted to give preference to sixty percent indigenous black Malawians.” In 2020, GOM gazetted the Micro Small and Medium Enterprises (MSMEs) Participation Order, which empowers government ministries, departments and agencies (MDAs) to allocate procurements below certain thresholds to MSMEs. GOM is also in the process of gazetting Indigenous Black Malawian (IBM) Preference regulations, which orders MDAs to offer 60% of national competitive bidding procurements to IBM ( PPDA Legal Instruments ).

There is no government policy to screen foreign direct investment but minimum investment capital for foreign investors is $50,000. Such investors must register with MITC  and RBM . Registration of borrowed invested funds allows investors to externalize profits to pay back loans contracted abroad and repatriate funds when disinvesting. MITC has revised the threshold for capital requirements but is waiting for gazetting to make the threshold official. The new thresholds will depend on the sector and will be revised upwards ( MITC Malawi ).

Other Investment Policy Reviews

WTO last performed a periodic Trade Policy Review of Malawi in April 2016. The full report can be accessed at WTO TPR  . OECD and UNCTAD have not conducted reviews for Malawi.

Business Facilitation

MITC  assists foreign and domestic investors of all sizes to navigate relevant regulations and procedures of starting a business. It operates a One Stop Center where representatives from the Registrar General , the Malawi Revenue Authority , the Department of Immigration , and Ministry of Lands, Housing and Urban Development  are available to help potential investors. MITC’s main website, the iGuides  and its online trade portal ( www.trade.mitc.mw ) ( http://www.malawitradeportal.gov.mw/ ) provide further information.

In addition to MITC’s One Stop Center, businesses can register online at Registrar General , although the process may take longer and the website is sometimes inaccessible. To operate in Malawi, a business must register with the Registrar General, the Malawi Revenue Authority and often the Ministry or regulatory body overseeing their sector of activity. For example, construction companies need to register with the National Construction Industry Council . Businesses are also supposed to obtain business licenses from the city assembly, register the workplace with Ministry of Labor, and allow health officials to carry out an inspection of the company premises ( HYPERLINK “https://mitc.mw/invest/index.php” https://mitc.mw/invest/index.php ).

Outward Investment

Domestic investors are not restricted to invest abroad except in the case of the Pension Act of 2010 and accompanying regulations which do not allow for the investment of pension funds or umbrella funds abroad.

Transparency of the Regulatory System

The GOM continues to undertake various reforms to ensure that tax, labor, environment, health, and safety laws do not distort or impede investment. The legal, regulatory, and accounting systems are partially transparent and consistent with international norms. Almost all proposed laws, regulations, and policies (including investment laws) are subject to public consultation before submission to the Cabinet, the Parliament, or the Ministry of Justice. However, sometimes the public notice of such consultations comes late, with the effect that only insiders engage. Parliamentary procedures call for debate on drafts in relevant committees before presenting the bill to the floor for a vote. Rules allow fast-tracking bills as well.

Relevant government Ministries, Departments, and Agencies (MDAs) develop technical regulations and forward them to Ministry of Justice for review and gazetting. All regulations are set at the national level with input from relevant stakeholders. Regulations and enforcement actions are legally reviewable in the national court system. The Ministry of Justice provides oversight or enforcement mechanisms to ensure MDAs follow administrative processes for developing and implementing regulations. If they feel procedures were not followed, private individuals and entities can raise the issue with the appropriate MDA, parliament, or bring a case against the government in court or seek redress through the Office of the Ombudsman. There are no specific regulatory guidelines for reviewing regulations or conducting impact assessments, including scientific or data-driven assessments. What’s more, there are no specific criteria for determining which proposed regulations are subject to an impact assessment nor is there a specialized government body tasked with reviewing and monitoring regulatory impact assessments conducted by other individual agencies or government bodies

The GOM uses a mix of fiscal, financial, and regulatory instruments to administer policy, and thus management and responsibility spreads across multiple ministries and agencies. Taxation policy is the jurisdiction of the Treasury Department in the Ministry of Finance. The Malawi Revenue Authority is the main implementing agency for tax policy. The Reserve Bank of Malawi administers the exchange rate of the Malawi Kwacha, as well as liberal exchange controls to allow free flow of capital and earnings — repatriation of dividends, profits, and royalties. Immigration department administers the Employment of Expatriates Policy, Temporary Employment Permits (TEPs), and business residence permit. The Ministry of Lands, Housing and Urban Development is responsible for land policy administration. The Malawi Bureau of Standards is responsible for metrology, standardization, and quality assurance. The Malawi Communications Regulatory Authority administers the communications act.

Certain professional associations have sectoral rule-making power that amounts to regulatory power. These professional bodies include the National Construction Industry Council, Malawi Law Society, Malawi Accountants Board, Medical Council of Malawi, and the Employers Consultative Association of Malawi. Some of these associations require the use of local labor, local contractors, or other means to achieve localization or skills transfer to Malawians. The rule-making process is not always transparent to firms that are new to the Malawi market.

Interested parties can purchase copies of recent laws from the government printing office or access them at the National Library and in the High Court libraries. An increasing number of laws are also available online at https://malawilii.org/  . The GOM has no central repository for technical regulations. Relevant MDAs manage regulations and publish the regulations in the Malawi Government Gazette after which they form part of the schedules to relevant acts. MDAs websites do not usually post these laws and regulations but do provide them upon request.

The GOM also implemented reforms aimed at improvements in workplace registration and the implementation of the warehouse receipt systems act of 2018, the commodity exchange guidelines, and the cannabis bill of 2020. In 2020, GOM gazetted Export Processing Zone (EPZ) regulations which, among others, make provision for 20% allowance for local sales by an export enterprise under EPZ. GOM also gazetted Control of Goods Act (COGA) regulations which outline steps to take when issuing export and import restrictions ensuring that the process is fair, transparent, and predictable. Immigration rolled out an electronic permit system in 2019/20 and plans to roll out e-passport system in 2021. There are several reforms  which the government seeks to implement through the MDAs. These reforms and regulations may improve the business environment. MDAs develop technical regulations and forward them to the Ministry of Justice for final review. The MDAs then present the regulations to Cabinet for final approval and gazetting. Thereafter, relevant government MDAs enforce regulations under their purview.

Transparency of public finances and debt obligations is mixed. Publicly available budget documents provide a full picture of Malawi’s proposed/estimated revenue, including natural resources revenues and off-budget donor support, and expenditures. However, the approved budget provides expenditure data at the level of ministry/budget vote, and not below, where the details necessary to gauge investment potential in given sectors should be visible. End of year financial statements detailing actual revenues and expenditures are presented alongside the budget proposal for the following financial year. The government also makes public general information about debt obligations in its financial statement and annual debt report. The documents are available at Ministry of Finance . The RBM also publishes public debt information in its quarterly economic reviews, published at RBM . In contrast to the visibility into government finances, contingent liabilities are generally unknown to the public, as the books of State-Owned Enterprises are usually not presented to the public in a transparent manner. The government shares additional debt information with the World Bank for debt sustainability analysis and with the IMF for evaluation of compliance with its Extended Credit Facility (ECF) and these analyses are made public through the IMF’s release of its ECF reviews.

International Regulatory Considerations

Malawi is a member of the COMESA Customs Union and the SADC Free Trade Area, governed by the SADC Protocol on Trade. The government develops all new regulations roughly in line with the regulatory policy provisions set out by COMESA and SADC, but national regulations rule if there is a conflict. As a member of both SADC and COMESA, Malawi is bound by their respective norms and standards. Malawi is also a member of Africa Continental Free Trade Area (AfCFTA). One can find details on the organizations’ respective websites:

• SADC:
• COMESA:
• AfCFTA:

Since 1995, there is no record of Malawi providing notification on draft technical regulations to the WTO Committee on Technical Barriers to Trade. The last time Malawi submitted a statement on implementation and administration of the WTO Agreement on Technical Barriers to Trade was in 2007. Malawi signed the WTO Trade Facilitation Agreement (TFA) on July 12, 2017. Malawi has made progress on implementing the TFA provisions through the launch of a trade information portal which one can access at https://www.malawitradeportal.gov.mw/ .

Legal System and Judicial Independence

Malawi’s legal system is based on English Common Law. The judiciary consists of local courts and a local appeals court in every district. The higher tiers consist of the Supreme Court of Appeal, the High Court, and the magistrates’ courts. Judges of the High Court are appointed by the President and posted to the five divisions of the high court: civil; commercial; criminal; family and probate; and revenue. The High Court has judicial authority over all civil and criminal cases. Magistrates’ courts are located throughout the country. The High Court hears appeals from the magistrates’ courts and the Supreme Court of Appeal in Blantyre hears appeals arising from the High Court. As of end 2020, there were 35 High Court judges and 11 Supreme Court judges. The Commercial Division of the High Court, presided over by a single judge, deals exclusively with disputes of a commercial or business nature while the Revenue Division deals with any revenue and tax related matter under written laws set out under the Malawi Revenue Authority Act. The Industrial Relations Court handles labor disputes and issues relating to employment. The Child Justice Court handles matters of justice affecting children but falls under the High Court. More information on the judicial system in Malawi can be found at Judiciary .

Laws and Regulations on Foreign Direct Investment

The legal system supports both local and foreign investment without bias. Key regulations that came out recently include The Trademarks Act of 2018, Control of Goods Act of 2018, The Corrupt Practice (Amendment) Act of 2019, The Reserve Bank Act of 2018, The Tobacco Industry Act of 2018, The Mines and Minerals Act of 2018 and the Cannabis Regulation Bill of 2020. The Malawi Investment and Trade Center (MITC) operates a One Stop Center and assists foreign investors to navigate relevant regulations and procedures. MITC  and the Malawi Confederation of Chambers of Commerce and Industry ( MCCCI ) have relevant information.

Competition and Antitrust Laws

The GOM established the Competition and Fair-Trading Commission ( CFTC ) in 2005. The CFTC safeguards competition by regulating and monitoring monopolies, protecting consumer welfare, and by ensuring fair market conditions. Since 2013, the institution has overseen over 26 applications for merger and acquisition and dismantled five cartels. CFTC decisions may be appealed, first to the Board and subsequently to the Commercial (High) Court. COMESA Competition Commission  is responsible for mergers and acquisitions across the COMESA block and the office is in Lilongwe. It promotes and encourages competition by preventing restrictive business practices and other restrictions that deter efficient operation of markets in COMESA.

Expropriation and Compensation

Section 44 of Malawi’s constitution permits expropriation of property only when done for public utility and with adequate notification and appropriate compensation. Even in such cases, there is always a right to appeal to a court of law. There are laws that protect both local and foreign investment. However, measures that carry expropriation effects are occasionally imposed, including export bans and implicit bans due to the government’s authority to require export licenses for any key commodities at any time for. These restrictions apply equally to foreign and domestic investors. There are no measures that deliberately deprive investors of substantial economic benefits from their investments.

Land acquisition is governed by the Land Acquisition Act of 2016. Accordingly, acquisition must be in the public interest and fair market value for the land must be paid. If the private landowner objects to the level of compensation, it may obtain an independent assessment of the land value. According to the Act, however, such cases may not be challenged in court; the Ministry of Lands, Housing, and Urban Development remains the final judge. In most cases, land is expropriated to give way to GOM development projects, such as construction of roads. Some landowners have refused to relocate due to disagreements; however, these cases are usually settled amicably and where necessary compensations are made. In such expropriations, claimants are well informed and fully engaged.

Dispute Settlement

ICSID Convention and New York Convention

Malawi has not ratified the New York Convention but has ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). As a member of the ICSID, Malawi accepts binding international arbitration of investment disputes between foreign investors and the GOM. The Investment Disputes (Enforcement of Awards) Act of 1966 makes provision for the enforcement in Malawi of awards of the Tribunal of the ICSID.

Investor-State Dispute Settlement

The government is not a signatory to a treaty or agreement recognizing binding international arbitration of investment disputes such as the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Malawi does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter within the United States. Since 1996, there have been no known major investment disputes involving U.S. companies, although taxation disputes do occur. The court system in Malawi accepts and enforces foreign court judgments registered in accordance with established legal procedure. There are reciprocal agreements among Commonwealth countries to enforce judgments without this registration obligation. There is no such agreement between Malawi and the United States, but judgments involving the two countries can still be enforced if the judgment is registered appropriately in Malawi. There have been no known extrajudicial actions taken against foreign investors in the recent past.

International Commercial Arbitration and Foreign Courts

With respect to litigation, cases commenced in the High Court of Malawi or a subordinate court must, where the defendant indicates an intention to defend, first go to mediation. The Assistant Registrar of the High Court maintains a list of mediators and experts. A mediator chosen by agreement of the parties conducts the mandatory mediation. If the matter is not settled during mediation, the action will proceed in the court in which it was commenced. Malawi does not have an arbitration body. There is no statutory requirement for parties who have contractually agreed to arbitration to go through mediation. Parties will only be required to go through mediation before proceeding to arbitration if their agreement stipulates it. As in the case of Investor-State Dispute Settlements, the court system in Malawi accepts and enforces foreign court judgments that are registered locally. Statistics and information on investment disputes involving SOEs are not readily available. Court processes do not favor or discriminate SOE’s and there is adequate transparency in the domestic courts.

Bankruptcy Regulations

The commercial courts govern all bankruptcies under the provision of the consolidated Insolvency Act of 2016. The Act encourages alternatives to bankruptcy such as receivership and reorganization and gives secured creditors priority over other creditors. Monetary judgments are usually made in the investor’s currency. Cross-border provisions of the Insolvency Act are modeled after UN Commission on International Trade Law models. Malawi moved from 141/190 in 2019 to 134/190 in 2020 on WB Doing Business’s ease of “resolving insolvency”.

Capital Markets and Portfolio Investment

The Malawi government recognizes the importance of foreign portfolio investment and has made efforts to provide a platform for such investment through the establishment of a Malawi Stock Exchange ( MSE ). The MSE hosts 16 listed companies (of which two listed in 2020) with a total market capitalization of $2,320.28 million as of end January 2021 up from $2,062.89 million in February 2020. The demand and supply of shares for existing listed companies is limited. The stock exchange is licensed under the Financial Services Act 2010 and operates under the Securities Act 2010 and the Companies Act 2013. Other regulations include the Capital Market Development Act 1990, and Capital Market Development Regulations 1992 as amended in 2013.

Foreign investors can buy and sell shares at the stock market without any restrictions. Trading in shares can either be direct or through any one of four established brokers. There is a secondary market in government securities, and both local and foreign investors have equal access to purchase these securities. Malawi respects obligations under IMF article VIII and, therefore, refrains from imposing restrictions on making payments and transfers for current international transactions or from engaging in discriminatory currency arrangements or multiple currency practices without IMF approval. Liquidity for stock market participation is not a major problem with a variety of credit instruments on hand. Credit is generally allocated on market terms. The cost of credit is high but may fall in the medium term subject to continued moderate inflation, near stable exchange rate and policy rate downward adjustments. Foreign investors may utilize domestic credit but proceeds from investments made using local resources are not remittable.

Money and Banking System

According to the Institute of Bankers in Malawi, only 25 percent of the adult population in Malawi use banking services. Access to credit remains one of the biggest challenges for businesses and particularly SMEs, mostly due to the cost of credit. For instance, the base-lending rate in March 2021 was 11.9 percent, lowest in over a decade. The potential for using mobile banking technology to increase financial access in Malawi is emerging and official RBM Reports  have provided evidence of increasing usage of electronic transactions.

Malawi has a generally sound banking sector, overseen and regulated by the central bank. In 2021, there were eight full-service commercial banks with over 150 branches across the country. The banking sector remained profitable and stable with adequate liquidity and capital positions throughout 2020. Prudential regulations have limited net foreign exchange exposure and non-performing loan rates continue to fall, though spreads continue to be high. The sector, however, is highly concentrated and heavily invested in domestic government debt, which is a possible systemic risk. The banking sector continues to perform though in 2019 some banks underwent rationalization processes where voluntary retirement and other initiatives reduced operational expenses. Total bank assets (eight banks) as of December 2020 were at MK2,242.2 billion roughly 46% of which fell under two largest banks: National Bank and Standard Bank.

The Reserve Bank of Malawi (RBM) is Malawi’s central bank, and it plays a critical role in ensuring efficiency, reliability, and integrity of the payment system in Malawi. It is also a supervisory authority over commercial banks and other financial institutions including insurance companies. There are no restrictions on foreign banks in Malawi. The Banking Act provides the regulations applicable to commercial banks and other financial institutions and provides a supervisory mandate to the Reserve Bank. As of December 2020, four of eight banks were foreign owned. The RBM maintains correspondent banking relationships with almost all central banks across the world and 14 major banks in Asia, Europe, Africa, and the United States. Major commercial banks in Malawi also maintain correspondent banking relationships with banks from Africa, Europe, Asia, and US. For local business, banks require that a foreigner possess a Temporary Employment Permit or business residency permit before opening a bank account.

Foreign Exchange and Remittances

Foreign Exchange

Government policy seeks to ensure the availability of foreign exchange for business transactions and remittances to attract investors and spur economic growth. Commercial banks may operate as forex dealers. Investors have access to forex with no legal limitation, both to pay for imports and to transfer financial payments abroad. Specifically, there are no licensing requirements to import forex and full repatriation of profits, dividends, investment capital, and interest and principal payments for international loans is permitted once the loan and/or investment is registered with the RBM. Malawian investors seeking foreign financing must seek permission from the RBM before acquiring an international loan. RBM Website  has several laws and regulations regarding foreign exchange transactions.

The Malawi Kwacha (K) is convertible into major world currencies such as the U.S. Dollar, British Pound, Euro, Japanese Yen, Chinese Yuan, and South African Rand, as well as key regional and trading partners’ currencies. Since May 7, 2012, the value of the local currency has floated freely against major world currencies though the RBM intervenes to avoid sharp depreciation or appreciation. Float aside, the MWK/USD rate remained remarkably stable since 2016 but has faced sustained depreciation since June 2020 losing over 5% by end December 2020. Foreign exchange is available throughout the year but RBM sets rules on the requirements to obtain forex from commercial banks and authorized dealers. Malawi’s official foreign exchange reserves, as of February 2021, are sufficient to cover 2.31 months of imports. Antidotally, since 2019 periodic forex scarcity has delayed some USD remittances.

Remittance Policies

Investment remittance policies in Malawi have not changed in the past year. There are no restrictions on remittance of foreign investment funds (including capital, profits, loan repayments, and lease repayments) if the capital and loans were obtained from foreign sources and registered with the RBM. The terms and conditions of international loans, management contracts, licensing and royalty arrangements, and similar transfers require initial RBM approval. The RBM grants approval according to prevailing international standards; subsequent remittances do not require further approval. All commercial banks are authorized by the RBM to approve remittances, and approvals are automatic if the applicant’s accounts have been audited and sufficient forex is available. There are no time limitations on remittances.

Sovereign Wealth Funds

Malawi does not have a Sovereign Wealth Fund or similar entity.

Malawi has 67 state-owned enterprises (SOEs) scattered across many industries/sectors. A list of these SOEs is available on request from the Office of the President and Cabinet (OPC), but the GOM does not usually publish the list in the media or online except when releasing comprehensive list of board members of SOEs. The GOM has been known to bail out commercially-run SOEs when they have incurred heavy losses. Despite the significant role SOEs play in the Malawi economy, finances are opaque and overall statistics are not readily available.

Private and public enterprises generally compete on the same terms and conditions for access to markets, credit, and other business opportunities, although in practice personal relationships can influence decisions heavily. There are exceptions for some public works assignments where public enterprises tend to be given special preference by government. SOEs in the agriculture, education, and health sectors spend more on research and development than local private sector players and they are doing so for the public good rather than for profit. Because local firms tend to be capital-constrained and highly skilled labor is scarce, there is not a strong tradition of private sector-led research and development in Malawi.

Malawi’s SOEs are not required to adhere to the OECD Guidelines on Corporate Governance of SOEs. Corporate governance for most SOEs follows the terms of the relevant Malawi law that established the entity. All SOEs report to a line ministry and to the Department of Statutory Corporations in the OPC but also have a Chairperson and Board of Directors. The president through the OPC appoints board of directors who usually range from politicians, religious & traditional leaders, and professionals. Boards also have senior GOM officials as ex-officio/non-voting members. The participation of members of the government as ex-officio/non-voting members, and of politicians as directors, creates a perceived and/or real conflict of interest.

Privatization Program

The government does not have any immediate plans for privatization, but in such cases all investors, irrespective of ethnic group or source of capital (foreign or local) may participate in privatization bids. However, the government may offer domestic investors a discount on shares. Privatization efforts currently focus on public-private partnerships and attracting strategic investors rather than outright privatization. These are handled by the Public Private Partnership Commission .

Malawi continues to enjoy a stable and democratic government. Since the end of one-party rule in 1994, it has organized seven peaceful presidential and 6 parliamentary elections. International observers have characterized past elections, with the exception of 2019, as generally “peaceful, free, transparent, and credible.” In 2020, Malawians voted for a new government in a court sanctioned presidential re-run ousting the then ruling party. Although divisions exist, Malawi has no significant tribal, religious, regional, ethnic, or racial tensions that could lead widespread violence. Incidents of labor unrest occasionally occur, but these are usually non-violent and despite instances of political uncertainty there are no nascent insurrections or other politically motivated activities of major concern to investors. Democratic processes in Malawi are well established, and destabilizing unrest is unlikely.

* Source for Host Country Data: RBM Malawi . Note that Malawi Government rebased GDP in 2020 which resulted into upward adjustment of GDP figures ( GDP Rebasing Malawi ) .

Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

Historically, the Malaysian government has welcomed FDI as an integral component of its economic development. Over the last decade, the gradual liberalization of the economy and influx of FDI has led to the creation of new jobs and businesses and fueled Malaysia’s export-oriented growth strategy. The Malaysian economy is highly dependent on trade. According to World Bank data, the value of Malaysia’s imports and exports of goods and services as a share of GDP held steady at roughly 130 percent in 2018, more than double the global average.

In October 2019, the government introduced measures in its 2020 budget designed to streamline and further incentivize foreign investment, with special emphasis on investments being redirected from China as a result of shifting global supply chains. The Malaysian government established the China Special Channel for the purpose of attracting these investments, an initiative being managed by InvestKL, an investment promotion agency under the Ministry of International Trade and Industry. The government also established the National Committee on Investment, an investment approval body jointly chaired by the Minister of Finance and the Minister of International Trade and Industry, to expedite the regulatory process with respect to approving new investments.

In its 2021 budget, the government proposed a slew of tax incentives which include extensions of existing relocation incentives for the manufacturing sector (including a 0 percent tax rate for new companies or a 100 percent investment tax allowance for five years) and extensions of existing tax incentives for certain industrial sectors. In light of the pandemic, manufacturers of pharmaceutical products, particularly those involved with COVID-19 vaccine supply chains, investing in Malaysia will be given income tax rates of zero percent to 10 percent for the first 10 years; with 10 percent rates for the subsequent 10 years.

Malaysia has various national, regional, and municipal investment promotion agencies, including the Malaysian Investment Development Authority (MIDA) and InvestKL. These agencies can assist with business strategy consultations, area familiarization, talent management programs, networking, and other post-investment services.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own business enterprises and engage in all forms of remunerative activity, with some exceptions. Although Malaysia has taken steps to liberalize policies concerning foreign investment, there continue to exist requirements for local equity participation within specific sectors. In 2009, Malaysia repealed Foreign Investment Committee (FIC) guidelines that limited transactions for acquisitions of interests, mergers, and takeovers of local companies by foreign parties. However, certain business sectors, including logistics, industrial training, and distributive trade, are required to limit foreign equity participation when applying for operating licenses, permits and approvals. Due to residual economic policies, this limitation most commonly manifests as a 70-30 equity split between foreign investors (maximum 70 percent) and Bumiputera (i.e., ethnic Malays and indigenous peoples) entities (minimum 30 percent).

Foreign investment in services, whether in sectors with no foreign equity caps or controlled sub-sectors, remain subject to review and approval by ministries and agencies with jurisdiction over the relevant sectors. A key function of this review and approval process is to determine whether proposed investments meet the government’s qualifications for the various incentives in place to promote economic development goals. The Ministerial Functions Act grants relevant ministries broad discretionary powers over the approval of investment projects. Investors in industries targeted by the Malaysian government can often negotiate favorable terms with the ministries or agencies responsible for regulating that industry. This can include assistance in navigating a complex web of regulations and policies, some of which can be waived on a case-by-case basis. Foreign investors in non-targeted industries tend to receive less government assistance in obtaining the necessary approvals from various regulatory bodies and therefore can face greater bureaucratic obstacles.

Finance

Malaysia’s 2011-2020 Financial Sector Blueprint has produced partial liberalization within the financial services sector; however, it does not contain specific market-opening commitments or timelines. For example, the services liberalization program that started in 2009 raised the limit of foreign ownership in insurance companies to 70 percent. However, Bank Negara Malaysia (BNM), Malaysia’s central bank, would allow a greater foreign ownership stake if the investment is determined to facilitate the consolidation of the industry. The latest Blueprint helped to codify this case-by-case approach. Under the Financial Services Act passed in late 2012, issuance of new licenses will be guided by prudential criteria and the “best interests of Malaysia,” which may include consideration of the financial strength, business record, experience, character and integrity of the prospective foreign investor, soundness and feasibility of the business plan for the institution in Malaysia, transparency and complexity of the group structure, and the extent of supervision of the foreign investor in its home country. In determining the “best interests of Malaysia,” BNM may consider the contribution of the investment in promoting new high value-added economic activities, addressing demand for financial services where there are gaps, enhancing trade and investment linkages, and providing high-skilled employment opportunities. BNM, however, has never defined criteria for the “best interests of Malaysia” test, and no firms have qualified.

While there has been no policy change in terms of the 70 percent foreign ownership cap for insurance companies, the government did agree to let one foreign owned insurer maintain a 100 percent equity stake after that firm made a contribution to a health insurance scheme aimed at providing health coverage to lower-income Malaysians.

BNM currently allows foreign banks to open four additional branches throughout Malaysia, subject to restrictions, which include designating where the branches can be set up (i.e., in market centers, semi-urban areas and non-urban areas). The policies do not allow foreign banks to set up new branches within 1.5 km of an existing local bank. BNM also has conditioned foreign banks’ ability to offer certain services on commitments to undertake certain back-office activities in Malaysia.

Information & Communication

In 2012, Malaysia authorized up to 100 percent foreign equity participation among application service providers, network service providers, and network facilities providers. An exception to this is national telecommunications firm Telekom Malaysia, which has an aggregate foreign share cap of 30 percent, or five percent for individual investors.

Manufacturing Industries

Malaysia permits up to 100 percent foreign equity participation for new manufacturing investments by licensed manufacturers. However, foreign companies can face difficulties obtaining a manufacturing license and often resort to incorporating a local subsidiary for this purpose.

Oil and Gas

Under the terms of the Petroleum Development Act of 1974, the upstream oil and gas industry is controlled by Petroleum Nasional Berhad (PETRONAS), a wholly state-owned company and the sole entity with legal title to Malaysian crude oil and gas deposits. Foreign participation tends to take the form of production sharing contracts (PSCs). PETRONAS regularly requires its PSC partners to work with Malaysian firms for many tenders. Non-Malaysian firms are permitted to participate in oil services in partnership with local firms and are restricted to a 49 percent equity stake if the foreign party is the principal shareholder. PETRONAS sets the terms of upstream projects with foreign participation on a case-by-case basis.

Other Investment Policy Reviews

Malaysia’s most recent Organization for Economic Cooperation and Development (OECD) investment review occurred in 2013. Although the review underscored the generally positive direction of economic reforms and efforts at liberalization, the recommendations emphasized the need for greater service sector liberalization, stronger intellectual property protections, enhanced guidance and support from Malaysia’s Investment Development Authority (MIDA), and continued corporate governance reforms.

Malaysia also conducted a WTO Trade Policy Review in February 2018, which incorporated a general overview of the country’s investment policies. The WTO’s review noted the Malaysian government’s action to institute incentives to encourage investment as well as a number of agencies to guide prospective investors. Beyond attracting investment, Malaysia had made measurable progress on reforms to facilitate increased commercial activity. Among the new trade and investment-related laws that entered into force during the review period were: the Companies Act, which introduced provisions to simplify the procedures to start a company, to reduce the cost of doing business, as well as to reform corporate insolvency mechanisms; the introduction of the goods and services tax (GST) to replace the sales tax; the Malaysian Aviation Commission Act, pursuant to which the Malaysian Aviation Commission was established; and various amendments to the Food Regulations. Since the WTO Trade Policy Review, however, the new government has already eliminated the GST, and has revived the Sales and Services Tax, which was implemented on September 1, 2018.

Business Facilitation

The principal law governing foreign investors’ entry and practice in the Malaysian economy is the Companies Act of 2016 (CA), which entered into force on January 31, 2017 and replaced the Companies Act of 1965. Incorporation requirements under the new CA have been further simplified and are the same for domestic and foreign sole proprietorships, partnerships, as well as privately held and publicly traded corporations. According to the World Bank’s Doing Business Report 2019, Malaysia streamlined the process of obtaining a building permit and made it faster to obtain construction permits; eliminated the site visit requirement for new commercial electricity connections, making getting electricity easier for businesses; implemented an online single window platform to carry out property searches and simplified the property transfer process; and introduced electronic forms and enhanced risk-based inspection system for cross-border trade and improved the infrastructure and port operation system at Port Klang, the largest port in Malaysia, thereby facilitating international trade; and made resolving insolvency easier by introducing the reorganization procedure. These changes led to a significant improvement of Malaysia’s ranking per the Doing Business Report, from 24 to 15 in one year.

In addition to registering with the Companies Commission of Malaysia, business entities must file: 1) Memorandum and Articles of Association (i.e., company charter); 2) a Declaration of Compliance (i.e., compliance with provisions of the Companies Act); and 3) a Statutory Declaration (i.e., no bankruptcies, no convictions). The registration and business establishment process takes two weeks to complete, on average. GST was repealed in May of 2018 and a new sales and services tax (SST) took effect on September 1, 2018.

Beyond these requirements, foreign investors must obtain licenses. Under the Industrial Coordination Act of 1975, an investor seeking to engage in manufacturing will need a license if the business claims capital of RM2.5 million (approximately USD 641,000) or employs at least 75 full-time staff. The Malaysian government’s guidelines for approving manufacturing investments, and by extension, manufacturing licenses, are generally based on capital-to-employee ratios. Projects below a threshold of RM55,000 (approximately USD 14,100) of capital per employee are deemed labor-intensive and will generally not qualify. Manufacturing investors seeking to expand or diversify their operations need to apply through MIDA.

Manufacturing investors whose companies have annual revenue below RM50 million (approximately USD 12.8 million) or with fewer than 200 full-time employees meet the definition of small and medium size enterprises (SMEs) and will generally be eligible for government SME incentives. Companies in the services or other sectors that have revenue below RM20 million (approximately USD 5.1 million) or fewer than 75 full-time employees also meet the SME definition.

Outward Investment

While the Malaysian government does not promote or incentivize outward investment, a number of government-linked companies, pension funds, and investment companies do have investments overseas. These companies include the sovereign wealth fund of the Government of Malaysia, Khazanah Nasional Berhad; KWAP, Malaysia’s largest public services pension fund; and the Employees’ Provident Fund of Malaysia. Government-owned oil and gas firm Petronas also has investments in several regions outside Asia.

Transparency of the Regulatory System

In July 2013, the Malaysian government accelerated its efforts to modernize the regulatory processes in the country by releasing the National Policy on Development and Implementation of Regulations (NPDIR), a roadmap to achieving Good Regulatory Practice (GRP). Under the NPDIR, the federal government formalized a comprehensive approach to improve the efficiency and transparency of the country’s regulatory framework. The benefits to the private sector thus far have included a streamlining of project approval requirements and fees (to the point that Malaysia ranked 2nd in the World Bank’s 2020 Doing Business report on ease of “dealing with construction permits”), a greater role in the lawmaking process, and improved standardization and transparency in all phases of regulatory proceedings. The main components of the policy are: 1) the requirement of a Regulatory Impact Assessment (RIA) (a cost-benefit analysis of all newly proposed regulations) with each new piece of regulation; and 2) the formalization of a public consultation process to take the views of stakeholders into account while formulating new legislation. Under the NPDIR, the government has committed to reviewing all new regulations every five years to determine which ones need to be adjusted or eliminated.

In furtherance of the NPDIR, the Malaysian government published four circulars in 2013 and 2014 to explain the methodology and implementation of their new strategy. These four documents laid out a clear framework toward increasing accountability, standardization, and transparency, as well as explaining enforcement and compliance mechanisms to be established. Throughout its various agencies, the government of Malaysia has taken steps to actualize these circulars. Ministries and agencies use their respective websites to publish the text and or summaries of proposed regulations prior to enactment, albeit with varying levels of consistency. Further, Malaysia’s procurement principles include adherence to open and fair competition, public accountability, transparency, and value for money.

Despite these efforts to foster inclusion, fairness, and transparency, considerable room for improvement exists. The Malaysian government’s 2018 Report on Modernization (sic) of Regulations emphasized the need to “Establish an accountability mechanism for the implementation of regulatory reviews by the government.” Many foreign investors echo this lack of accountability and criticize the opacity in the government decision-making process. One major area of concern for foreign investors remains government procurement policy, as non-Malaysian companies claim to have lost bids against Bumiputera-owned (ethnic Malay) companies despite offering better products at lower costs. Such results are due to the government’s preference policy to facilitate greater Bumiputera participation in the private sector. This preference policy is manifested through set-aside contracts for Bumiputera suppliers and contractors, and through the use of preferential price margins to increase the competitiveness of Bumiputera bidders.

Malaysia has a three-tiered system of legislation: federal-level (parliament), state-level, and local-level. Federal and state-level legislation derive their authority from the Malaysian Constitution, specifically Articles 73-79. Parliament has the exclusive power to make laws over matters including trade, commerce and industry, and financial matters. Parliament can delegate its authority to administrative agencies, states, and local bodies through Acts. States have the power to make laws concerning land, local government, and Islamic courts. Local legislative bodies derive their authority from Acts promulgated by parliament, most notably the Local Government Act of 1976. Local authorities can issue by-laws concerning local taxation and land use. For foreign investors, parliament is the most relevant legislating body, as it governs issues related to trade, and in instances of conflict, Article 75 of the Constitution states that federal laws will supersede state laws.

It is also important to note the role of the administrative state in the promulgation of new laws and regulations in Malaysia. Pursuant to the Interpretation Act of 1948 and 1967, “Any proclamation, rule, regulation, order, notification, bye-law, or other instrument made under any Act, Enactment, Ordinance or other lawful authority and having legislative effect.” Thus, the various ministries and agencies can be delegated lawmaking authority by an Act of a legislature with the legal right to make laws.

The Malaysian Accounting Standards Board (MASB) introduced the Malaysian Financial Reporting Standards (MFRS) framework, which came into effect on January 1, 2012. The MFRS framework is fully compliant with the International Financial Reporting Standards (IFRS) framework; this compliance serves to enhance the credibility and transparency of financial reporting in Malaysia.

The Malaysian Institute of Accountants’ (MIA) Auditing and Assurance Standards Board (AASB) reviews standards and technical pronouncements issued by the International Auditing and Assurance Standards Board (IAASB), which sets International Standards on Auditing (ISAs) that have been adopted in more than 110 jurisdictions.

In theory, pieces of legislation are to be made available for public comment through a multi-stage system of rulemaking. The Malaysia Productivity Corporation (MPC) published the Guideline on Public Consultation Procedures in 2014 (the “Guideline”), which clarifies the roles of government and stakeholders in the consultation process and provides the guiding principles for Malaysia’s public consultation approach. As in the case of foreign investment, the consultation procedures usually fall under the purview of the Malaysian Securities Commission (SC), the Bursa Malaysia (Malaysia’s stock exchange), or BNM. The SC, for example, keeps public consultation papers on its website, easily accessible by stakeholders. These papers generally contain the rationale for the proposed regulations, as well as potential impacts, and provide a list of questions for stakeholders to explain their views to regulators.

The public is also engaged in the public consultation process through the increased role of PEMUDAH (the Special Task Force to Facilitate Business), which was founded in 2007 to serve as a bridge between government, businesses, and civil society organizations. PEMUDAH promotes the understanding of regulatory requirements that impact economic activities, by addressing unfair treatment resulting from inconsistencies in enforcement and implementation. It also plays an advocacy role in various points in the regulatory implementation process; provides recommendations from the private sector to regulators before new regulations are implemented, and monitors enactment of existing pieces of regulation.

Despite the Guideline, and significant steps taken to reduce the regulatory burden on industry, obstacles remain. There are frequent inconsistencies between different ministries in their implementation of the public consultation procedures, as well as in their respective interpretations of how regulations are to be applied. Adding to the difficulty is the complicated relationship between state-level and federal-level legislation, which can overlap on a range of issues and lead to inefficiencies for investors.

The CLJ Law website publishes the full text of Malaysian bills and amendments from 2013 onward: https://www.cljlaw.com/?page=latestmybill&year=2020 . In 2019 Malaysia in association with the World Bank, created a website that contains all ongoing pieces of legislation and allows public comment thereon. The website, called the Uniform Public Consultation Portal (http://upc.mpc.gov.my/csp/sys/bi/%25cspapp.bi.index.cls?home=1 ), does not contain legislation that was completed or implemented before 2019, but is a positive move toward standardizing and emphasizing the public consultation process. The website is user-friendly and allows searching by due date, implementing agency, and phase of consultation.

Malaysia has a multi-faceted approach to ensuring governmental compliance with regulatory requirements. The most important enforcement mechanism is access to judicial review. The WEF 2019 Report lists Malaysia as the 12th ranked country in efficiency of the legal framework in challenging regulations. Through ease in accessing administrative and judicial courts, aggrieved parties in Malaysia are able to compel action by the regulator.

Besides the legal route, aggrieved parties can also seek recourse through the various agency-led enforcement mechanisms. The central bank has a dedicated “Complaints Unit,” which deals with consumer complaints against banking institutions. The Bank lists enforcement options as “a public or private reprimand; an order to comply; an administrative and civic penalty; restitution to customer; or prosecution. By contrast, the Inland Revenue Board of Malaysia (tax agency) has the Special Commissioners of Income Tax, to which taxpayers may file appeals concerning judgments and new regulations. The Malaysian Companies Commission (which regulates laws relating to companies registered in Malaysia) is also engaged in enforcement proceedings, as is the Malaysian Securities Commission. On matters of procurement, aggrieved bidders may complain to the Public Complaints Bureau, the Malaysian Anti-Corruption Commission, the Malaysian Competition Commission, or the National Audit Department.

International Regulatory Considerations

Malaysia is one of 10 Member States that constitute the Association of Southeast Asian Nations (ASEAN). On December 31, 2015, the ASEAN Economic Community formally came into existence. ASEAN’s economic policy leaders meet regularly to discuss promoting greater economic integration within the 10-country bloc. Although already robust, Member States have prioritized steps to facilitate a greater flow of goods, services, and capital. No regional regulatory system is in place. As a member of the WTO, Malaysia provides notification of all draft technical regulations to the Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

Malaysia’s legal system consists of written laws, such as the federal and state constitutions and laws passed by parliament and state legislatures, and unwritten laws derived from court cases and local customs. The Contract Law of 1950 still guides the enforcement of contracts and resolution of disputes. States generally control property laws for residences but through such programs as the Multimedia Super Corridor, Free Commercial Zones, and Free Industrial Zones, the federal government has substantial reach into a range of geographic areas as a means of encouraging foreign investment and facilitating ownership of commercial and industrial property.

Malaysia has taken measures to increase the efficacy of the courts to improve its reputation as an international business hub. Other than the usual criminal and civil branches of the legal system, there are dedicated courts for issues such as intellectual property (IP) and labor.

Certain foreign judgments are enforceable in Malaysia by virtue of the Reciprocal Enforcement of Judgments Act 1958 (REJA). However, before a foreign judgment can be enforceable, it must be registered. The registration of foreign judgments is only possible if the judgment was given by a Superior Court from a country listed in the First Schedule of the REJA: the United Kingdom, Hong Kong Special Administrative Region of the People’s Republic of China, Singapore, New Zealand, Republic of Sri Lanka, India, and Brunei. If the judgment is not from a country listed in the First Schedule to the REJA, the only method of enforcement at common law is by securing a Malaysian judgment. This involves suing on the judgment in the local Courts as an action in debt.

To register a foreign judgment under the REJA, the judgment creditor has to apply for the same within six years after the date of the foreign judgment. Any foreign judgment coming under the REJA shall be registered unless it has been wholly satisfied, or it could not be enforced by execution in the country of the original Court.

Post is not aware of instances in which political figures or government authorities have interfered in judiciary proceedings involving commercial matters.

Laws and Regulations on Foreign Direct Investment

The e Malaysia Investment Development Authority (MIDA). Under the purview of the Ministry of International Trade and Industry (MITI) has the task to attract foreign investment and serve as a focal point for legal and regulatory questions. Other regional bodies providing support to investors include: Invest Kuala Lumpur, Invest Penang, Invest Selangor, the Sabah Economic Development and Investment Authority (SEDIA), and the Sarawak Economic Development Corporation, among others.

Competition and Antitrust Laws

On April 21, 2010, the Parliament of Malaysia passed the Competition Commission Act 2010 and the Competition Act 2010 which took effect on January 1, 2012. The Competition Act prohibits cartels and abuses of a dominant market position but does not create any pre-transaction review of mergers or acquisitions. Violations are punishable by fines, as well as imprisonment for individual violations. Malaysia’s Competition Commission has responsibility for determining whether a company’s “conduct” constitutes an abuse of dominant market position or otherwise distorts or restricts competition. As a matter of law, the Competition Commission does not have separate standards for foreign and domestic companies. Commission membership consists of senior officials from the Ministry of International Trade and Industry (MITI), the Ministry of Domestic Trade, Cooperatives, and Consumerism (MDTCC), the Ministry of Finance, and, on a rotating basis, representatives from academia and the private sector.

In addition to the Competition Commission, the Acts established a Competition Appeals Tribunal (CAT) to hear all appeals of Commission decisions. In the largest case to date, the Commission imposed a fine of RM10 million on Malaysia Airlines and Air Asia in September 2013 for colluding to divide shares of the air transport services market. The airlines filed an appeal in March 2014. In February 2016, the CAT ruled in favor of the airlines in its first-ever decision and ordered the penalty to be set aside and refunded to both airlines.

Expropriation and Compensation

The Embassy is not aware of any cases of uncompensated expropriation of U.S.-held assets, or confiscatory tax collection practices, by the Malaysian government. The government’s stated policy is that all investors, both foreign and domestic, are entitled to fair compensation in the event that their private property is required for public purposes. Should the investor and the government disagree on the amount of compensation, the issue is then referred to the Malaysian judicial system.

Dispute Settlement

ICSID Convention and New York Convention

Malaysia signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) on October 22, 1965, coming into force on October 14, 1966. In addition, it is a contracting state of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards since November 5, 1985.

Malaysia adopted the following measures to make the two conventions effective in its territory:

The Convention on the Settlement of Investment Disputes Act, 1966 (Act of Parliament 14 of 1966); the Notification on entry into force of the Convention on the Settlement of Investment Disputes Act, 1966 (Notification No. 96 of March 10, 1966); and the Arbitration (Amendment) Act, 1980 (Act A 478 of 1980).

Although the domestic legal system is accessible to foreign investors, filing a case generally requires any non-Malaysian citizen to make a large deposit before pursuing a case in the Malaysian courts. Post is unaware of any U.S. investors’ recent complaints of political interference in any judicial proceedings.

Investor-State Dispute Settlement

Malaysia’s investment agreements contain provisions allowing for international arbitration of investment disputes. Malaysia does not have a Bilateral Investment Treaty with the United States.

Post has little data concerning the Malaysian government’s general handling of investment disputes. In 2004, a U.S. investor filed a case against the directors of the firm, who constituted the majority shareholders. The case involves allegations by the U.S. investor of embezzlement by the other directors, and its resolution is unknown.

The Malaysian government has been involved in three ICSID cases — in 1994, 1999, and 2005. The first case was settled out of court. The second, filed under the Malaysia-Belgo-Luxembourg Investment Guarantee Agreement (IGA), was concluded in 2000 in Malaysia’s favor. The 2005 case, filed under the Malaysia-UK Bilateral Investment Treaty, was concluded in 2007 in favor of the investor. However, the judgment against Malaysia was ultimately dismissed on jurisdictional grounds, namely that ICSID was not the appropriate forum to settle the dispute because the transaction in question was not deemed an investment since it did not materially contribute to Malaysia’s development. Nevertheless, Malaysian courts recognize arbitral awards issued against the government. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Malaysia’s Arbitration Act of 2005 applies to both international and domestic arbitration. Although its provisions largely reflect those of the UN Commission on International Trade Law (UNCITRAL) Model Law, there are some notable differences, including the requirement that parties in domestic arbitration must choose Malaysian law as the applicable law. Although an arbitration agreement may be concluded by email or fax, it must be in writing: Malaysia does not recognize oral agreements or conduct as constituting binding arbitration agreements.

Many firms choose to include mandatory arbitration clauses in their contracts. The government actively promotes use of the Kuala Lumpur Regional Center for Arbitration ( http://www.rcakl.org.my ), established under the auspices of the Asian-African Legal Consultative Committee to offer international arbitration, mediation, and conciliation for trade disputes. The KLRCA is the only recognized center for arbitration in Malaysia. Arbitration held in a foreign jurisdiction under the rules of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 or under the United Nations Commission on International trade Law Arbitration Rules 1976 and the Rules of the Regional Centre for Arbitration at Kuala Lumpur can be enforceable in Malaysia.

Bankruptcy Regulations

Malaysia’s Department of Insolvency (MDI) is the lead agency implementing the Insolvency Act of 1967, previously known as the Bankruptcy Act of 1967. On October 6, 2017, the Bankruptcy Bill 2016 came into force, changing the name of the previous Act, and amending certain terms and conditions. The most significant changes in the amendment include — (1) a social guarantor can no longer be made bankrupt; (2) there is now a stricter requirement for personal service for bankruptcy notice and petition; (3) introduction of the voluntary arrangement as an alternative to bankruptcy; (4) a higher bankruptcy threshold from RM30,000 to RM50,000; (5) introduction of the automatic discharge of bankruptcy; (6) no objection to four categories of bankruptcy for applying a discharge under section 33A (discharge of bankrupt by Certificate of Director General of Insolvency); (7) introduction of single bankruptcy order as a result of the abolishment of the current two-tier order system, i.e. receiving and adjudication orders; (8) creation of the Insolvency Assistance fund.

The distribution of proceeds from the liquidation of a bankrupt company’s assets generally adheres to the “priority matters and persons” identified by the Companies Act of 2016. After the bankruptcy process legal costs are covered, recipients of proceeds are: employees, secured creditors (i.e., creditors of real assets), unsecured creditors (i.e., creditors of financial instruments), and shareholders. Bankruptcy is not criminalized in Malaysia. The country ranks 40th on the World Bank Group’s Doing Business 2020 Rankings for Ease of Resolving Insolvency.

Capital Markets and Portfolio Investment

Foreigners may trade in securities and derivatives. Malaysia houses one of Asia’s largest corporate bond markets and is the largest sukuk (Islamic bond) market in East Asia. Both domestic and foreign companies regularly access capital in Malaysia’s bond market. Malaysia provides tax incentives for foreign companies issuing Islamic bonds and financial instruments in Malaysia.

Malaysia’s stock market (Bursa Malaysia) is open to foreign investment and foreign corporation issuing shares. However, foreign issuers remain subject to Bumiputera ownership requirements of 12.5 percent if the majority of their operations are in Malaysia. Listing requirements for foreign companies are similar to that of local companies, although foreign companies must also obtain approval of regulatory authorities of foreign jurisdiction where the company was incorporated and valuation of assets that are standards applied in Malaysia or International Valuation Standards and register with the Registrar of Companies under the Companies Act 1965 or 2016.

Malaysia has taken steps to promote good corporate governance by listed companies. Publicly listed companies must submit quarterly reports that include a balance sheet and income statement within two months of each financial quarter’s end and audited annual accounts for public scrutiny within four months of each year’s end. An individual may hold up to 25 corporate directorships. All public and private company directors are required to attend classes on corporate rules and regulations.

Legislation also regulates equity buybacks, mandates book entry of all securities transfers, and requires that all owners of securities accounts be identified. A Central Depository System (CDS) for stocks and bonds established in 1991 makes physical possession of certificates unnecessary. All shares traded on the Bursa Malaysia must be deposited in the CDS. Short selling of stocks is prohibited.

Money and Banking System

International investors generally regard Malaysia’s banking sector as dynamic and well regulated. Although privately owned banks are competitive with state-owned banks, the state-owned banks dominate the market. The five largest banks – Maybank, CIMB, Public Bank, RHB, and AmBank – account for an estimated 75 percent of banking sector loans. According to the World Bank, total banking sector lending for 2019 was 120.8 percent of GDP, and 1.5 percent of the Malaysian banking sector’s loans were non-performing for 2019.

Bank Negara prohibits hostile takeovers of banks, but the Securities Commission has established non-discriminatory rules and disclosure requirements for hostile takeovers of publicly traded companies.

Foreign Exchange and Remittances

Foreign Exchange

In December 2016, the central bank, began implementing new foreign exchange management requirements. Under the policy, exporters are required to convert 75 percent of their export earnings into Malaysian ringgit. The goal of this policy was to deepen the market for the currency, with the goal of reducing exchange rate volatility. The policy remains in place, with the Central Bank giving case-by-case exceptions. All domestic trade in goods and services must be transacted in ringgit only, with no optional settlement in foreign currency. The Central Bank has demonstrated little flexibility with respect to the ratio of earnings that exporters hold in ringgit. Post is unaware of any instances where the requirement for exporters to hold their earnings in ringgit has impeded their ability to remit profits to headquarters.

Remittance Policies

Malaysia imposes few investment remittances rules on resident companies. Incorporated and individual U.S. investors have not raised concerns about their ability to transfer dividend payments, loan payments, royalties or other fees to home offices or U.S.-based accounts. Tax advisory firms and consultancies have not flagged payments as a significant concern among U.S. or foreign investors in Malaysia. Foreign exchange administration policies place no foreign currency asset limits on firms that have no ringgit-denominated debt. Companies that fund their purchases of foreign exchange assets with either onshore or offshore foreign exchange holdings, whether or not such companies have ringgit-denominated debt, face no limits in making remittances. However, a company with ringgit-denominated debt will need approval from the Central Bank for conversions of RM50 million or more into foreign exchange assets in a calendar year.

The Treasury Department has not identified Malaysia as a currency manipulator.

Sovereign Wealth Funds

The Malaysian Government established government-linked investment companies (GLICs) as vehicles to harness revenue from commodity-based industries and promote growth in strategic development areas. Khazanah is the largest of the GLICs, and the company holds equity in a range of domestic firms as well as investments outside Malaysia. The other GLICs – Armed Forces Retirement Fund (LTAT), National Capital (PNB), Employees Provident Fund (EPF), Pilgrimage Fund (Tabung Haji), Public Employees Retirement Fund (KWAP) – execute similar investments but are structured as savings vehicles for Malaysians. Khazanah follows the Santiago Principles and participates in the International Forum on Sovereign Wealth Funds.

Khazanah was incorporated in 1993 under the Companies Act of 1965 as a public limited company with a charter to promote growth in strategic industries and national initiatives. As of December 31, 2020, Khazanah’s “realizable” assets stood at RM95.3 billion as compared to RM136 billion in 2019. Its profit from operations fell to RM2.9 billion in 2020 as compared to RM7.4 billion in 2019. Dividend income from investee companies rose to RM5.2 billion from RM3.8 billion According to its Annual Review 2020 presentation, Khazanah’s priorities, going forward, include further enhancing commercial returns, delivering impactful value through strategic investments, becoming a responsible organization through embedding ESG considerations across all investment activities, building a strong digital and technology foundation. https://www.khazanah.com.my/our-performance/khazanah-annual-review-2021/ 

State-owned enterprises which in Malaysia are called government-linked companies (GLCs), play a very significant role in the Malaysian economy. Such enterprises have been used to spearhead infrastructure and industrial projects. A 2017 analysis by the University of Malaya estimated that the government owns approximately 42 percent of the value of firms listed on the Bursa Malaysia through its seven Government-Linked Investment Corporations (GLICs), including a majority stake in a number of companies. Only a minority portion of stock is available for trading for some of the largest publicly listed local companies. Khazanah, often considered the government’s sovereign wealth fund, owns stakes in companies competing in many of the country’s major industries including aerospace, construction, energy, finance, information & communication, and marine technologies. The Prime Minister chairs Khazanah’s Board of Directors. PETRONAS, the state-owned oil and gas company, is Malaysia’s only Fortune Global 500 firm.

As part of its Government Linked Companies (GLC) Transformation Program, the Malaysian Government embarked on a two-pronged strategy to reduce its shares across a range of companies and to make those companies more competitive through improved corporate governance. The Transformation Program pushes for more independent and professionalized board membership, but the OECD noted in 2018 that in practice shareholder oversight is lax and government officials exert influence over corporate boards.

Among the notable divestments of recent years, Khazanah offloaded its stake in the national car company Proton to DRB-Hicom Bhd in 2012. In 2013, Khazanah divested its holdings in telecommunications services giant Time Engineering Bhd. Khazanah’s annual report for 2017 noted only that the fund had completed 12 divestments that produced a gain of RM 2.5 billion (USD 625 million). In 2018, Khazanah partially divested its shares in IHH Healthcare Berhad, saw two successful IPOs, and issued USUSD 321 million in exchangeable sukuk. However, significant losses at domestic companies including at Axiata, Telekom Malaysia, Tenaga Nasional, IHH Healthcare Berhad, CIMB Bank, and Malaysia Airports led to the pre-tax loss of USD 1.52 billion the company experienced in 2018. In April 2019, Khazanah sold 1.5 percent of its stake in Tenaga Nasional on Bursa Malaysia, after which Khazanah still owned 27.27 percent of the national electric company. In its annual review for 2020, Khazanah posted lower divestment gains of RM2.7 billion (USD675 million) compared to RM9.9 billion (USD2.25 billion) in 2019.

Reference: https://www.khazanah.com.my/news_press_releases/khazanah-annual-review-2021/ 

GLCs with publicly traded shares must produce audited financial statements every year. These SOEs must also submit filings related to changes in the organization’s management. The SOEs that do not offer publicly traded shares are required to submit annual reports to the Companies Commission. The requirement for publicly reporting the financial standing and scope of activities of SOEs has increased their transparency. It is also consistent with the OECD’s guideline for Transparency and Disclosure. Moreover, many SOEs prioritize operations that maximize their earnings.

The close relationships SOEs have with senior government officials, however, blur the line between strictly commercial activity pursued for its own sake and activity that has been directed to advance a policy interest. For example, Petroliam Nasional Berhad (PETRONAS) is both an SOE in the oil and gas sector and the regulator of the industry. Malaysia Airlines (MAS), in which the government previously held 70 percent but now holds 100 percent, required periodic infusions of resources from the government to maintain the large numbers of company’s staff and senior executives.

The Ministry of Finance holds significant minority stakes in five companies including a 50% stake in the financial guarantee insurer Danajamin Nasional Berhad. The government also holds a golden share in 32 companies from key industries such as aerospace, marine technology, energy industries and ports. The Ministry of Finance maintains a list of 70 companies directly controlled by the Minister of Finance Incorporated, known as MOF Inc, the largest Government Linked Investment Company (GLIC). The seven GLICs in Malaysia are also listed. However, a comprehensive list of the more than 200 GLCs that are controlled by these seven investment companies is not readily available. For more information, please visit: https://www.mof.gov.my/index.php/en/profile/divisions/government-investment-companies. Links to the sources of regulation and authorities can be found here:

• Attorney General’s Chamber: https://www.agc.gov.my/
• Companies Commission of Malaysia: https://www.ssm.com.my/Pages/Home.aspx
• Securities Commission Malaysia: https://www.sc.com.my/
• Ministry of Finance: https://www.mof.gov.my/ms/

With formal and informal ties between board members and government, Malaysian SOEs (GLCs) may have access to capital and financial protection from bankruptcy as well as reduced pressure to deliver profits to government shareholders. The legal framework establishing GLCs under Malaysian law specifically seeks economic opportunity for Bumiputera entrepreneurs. There is some empirical evidence, published by the Asian Development Bank, that SOEs crowd out private investment in Malaysia.

Malaysia participates in OECD corporate governance engagements and continues to work on full adherence to the OECD Guidelines on Corporate Governance for SOEs through its Government Linked Companies (GLC) Transformation Program. The National Resource Governance Institute’s Resource Governance Index rates Malaysia as weak on governance of its oil and gas sector; however, Malaysia also ranks as 27th among 89 rated countries, in the top third.

Privatization Program

In several key sectors, including transportation, agriculture, utilities, financial services, manufacturing, and construction, Government Linked Corporations (GLCs) continue to dominate the market. However, the Malaysian Government remains publicly committed to the continued, eventual privatization, though it has not set a timeline for the process and faces substantial political pressure to preserve the roles of the GLCs. The Malaysian Government established the Public-Private Partnership Unit (UKAS) in 2009 to provide guidance and administrative support to businesses interested in privatization projects as well as large-scale government procurement projects. UKAS, which used to be a part of the Office of the Prime Minister, is now under the Ministry of Finance. UKAS oversees transactions ranging from contracts and concessions to sales and transfers of ownership from the public sector to the private sector.

Foreign investors may participate in privatization programs, but foreign ownership is limited to 25 percent of the privatized entity’s equity. The National Development Policy confers preferential treatment to the Bumiputera, which are entitled to at least 30 percent of the privatized entity’s equity.

The privatization process is formally subject to public bidding. However, the lack of transparency has led to criticism that the government’s decisions tend to favor individuals and businesses with close ties to high-ranking officials.

There have been no significant incidents of political violence since the 1969 national elections. In April 2012, the Peaceful Assembly Act took effect, which outlaws street protests and places other significant restrictions on public assemblies. The May 9, 2018, national election led to the first transition of power between coalitions since independence, and it was peaceful. The Pakatan Harapan administration that came to office in that election collapsed on February 24, 2020 and was replaced by the Perikatan Nasional coalition led by current Prime Minister Muhyiddin Yassin. Periodically, Malaysian groups will organize modest protests against U.S. government policies, including over the Israeli-Palestinian conflict, usually involving demonstrations outside the U.S. embassy. To date, these have remained peaceful and localized, with a strong police presence. Likewise, several non-governmental organizations have organized mass rallies in major cities in peninsular and East Malaysia related to domestic policies that have been peaceful. It is illegal for foreigners to participate in political demonstrations of any kind.

Policies Towards Foreign Direct Investment

Maldives opened to foreign investment in the late 1980s and currently pursues an open policy for foreign investment, although the weak and, in some cases, arcane system of laws and regulations deter some investment.

Foreign investments in Maldives have primarily involved resort management, but also include telecommunications, accounting, banking, insurance, air transport, real estate, courier services, and some manufacturing.

The former administration began holding an annual investor forum in 2014 to showcase priority public and private sector investment projects, but the new government has not committed to hosting the annual forum.

Invest Maldives, an organization within the Ministry of Economic Development, is the government’s investment promotion arm.  Services provided by Invest Maldives include promoting Maldives as an investment destination, providing information to potential investors about the Maldives, guidance on investment approval and business registration, and facilitating the licensing of business.  As of March 2021, the Invest Maldives website was not functional.

Limits on Foreign Control and Right to Private Ownership and Establishment

Maldives allows foreign parties to register companies and partnerships but does not allow foreign parties to register cooperative societies or as a sole proprietor. Under a new Foreign Direct Investment policy established in February 2020, foreign investment is allowed in all major sectors of the economy apart from the following areas, which are restricted for locals only:

1. Forestry
2. Mining of sand
3. Other mining and quarrying
4. Manufacture of tobacco products
5. Manufacture of wood and of products of wood and cork except furniture
6. Manufacture of rubber and plastics products
7. Manufacture of handicrafts and souvenirs
8. Retail trade
9. Wholesale trade in sectors except construction materials
10. Land transport services and transport via pipelines
11. Postal and courier activities
12. Logistics activities (in transportation and storage)
13. Operating picnic islands
14. Food and beverage service activities (including café, restaurants, bakeries, and other eateries)
15. Programming and broadcasting activities
16. Legal activities (law firms etc.)
17. Photography and videography
18. Rental and leasing activities (including lease of heavy-duty machineries etc.)
19. Employment activities such as employment agencies and recruitment services
20. Travel agency, tour operator, reservation service and related activities
21. Services to building and landscape activities
22. Public administration and defense; compulsory social security
23. Clinics except physiotherapy clinics
24. Repair of computers and personal and household goods

The following sectors are open for foreign investment with a cap on equity ownership:

1. Manufacture of fish products (75 percent)
2. Manufacture of agricultural products (75 percent)
3. Printing and reproduction of recorded media (49 percent)
4. Manufacture of furniture (75 percent)
5. Repair and installation of machinery and equipment (75 percent)
6. Installation of equipment that forms an integral part of buildings or similar structures, such as installation of escalators and elevators (40 percent)
7. Construction of buildings (65 percent)
8. Civil engineering (65 percent)
9. Wholesale trade of construction materials (75 percent)
10. Franchising in international airports and approved locations (including products & services) (75 percent)
11. Sea transport services (including ownership of vessels) (49 percent)
12. Air transport services (including freight services) (75 percent)
13. Warehousing and support activities for transportation (75 percent)
14. Guest houses in approved locations (inclusive of all services) (49 percent)
15. Real estate activities (65 percent)
16. Accounting activities (75 percent)
17. Architecture and engineering activities; technical testing and analysis (75 percent)
18. Advertising (60 percent)
19. Other professional, scientific, and technical activities (75 percent)
20. Veterinary services (75 percent)
21. Security and investigation activities (75 percent)
22. Office administrative, office support and other business support activities (75 percent)
23. Universities and colleges (75 percent)
24. Private schools (75 percent)
25. Computer training institutions (75 percent)
26. Vocational and technical educational institutes (75 percent)
27. Sports and recreation education (75 percent)
28. Engineering schools (training and conduction of courses related to aircraft engineering) (75 percent)
29. Educational support activities (75 percent)
30. Residential care services (75 percent)
31. Social work activities without accommodation (75 percent)
32. Physiotherapy clinics (75 percent)
33. Creative, arts and entertainment activities (excluding live music bands and DJs) (75 percent)
34. Libraries, archives, museums, and other cultural activities (75 percent)
35. Sports activities and amusement and recreation activities (75 percent)
36. Water sports activities (49 percent)
37. Dive centers and dive schools (75 percent)

The following conditions are applied to foreign investments in the construction sector, as per the foreign contractor regulation:

• Construction companies valued below USD 5,000,000 are required to be at least 35 percent Maldivian owned.
• Construction companies valued above USD 5,000,000 may be 100 percent foreign owned.

There is little private ownership of land; most land is leased from the government, but Maldivians are permitted to hold title to land.  In August 2019, parliament repealed a July 2015 constitutional amendment that allowed foreigners to own land and islands in connection with major projects, provided they invested at least USD 1 billion and at least 70 percent of the land was reclaimed.  Currently, there are no property and real estate laws or mechanisms to allow foreign persons to hold title to land.

The Land Act allows foreigners to lease land on inhabited islands for up to a maximum of 50 years, but there is no formal process for registration of leasehold titles.  The Uninhabited Land Act allows foreigners to lease land on uninhabited islands for purposes other than tourism for a maximum of 21 years for investments amounting to less than USD 1 million and up to a maximum of 50 years for investments over USD 10 million.  A 2010 amendment to the Tourism Act allows investors to lease an island for 50 years in general.  A subsequent 2014 amendment allows the extension of resort leases up to 99 years for a payment of USD 5 million.  The changes aim to incentivize investors, make it easier to obtain financing from international institutions, and increase revenue for the government.  Leases can be renewed at the end of their terms, but the formula for assessing compensation value of a resort at the end of a lease has not been developed.  In 2016, Parliament approved additional amendments to the Tourism Act, whereby islands and lagoons can be leased for tourism development based on unsolicited proposals submitted to the Tourism Ministry (Law No: 13/2016).

The Ministry of Economic Development screens and reviews all foreign investment proposals.  The process includes standard due diligence efforts such as a local police screening of all investors, determining the financial standing of the proposed shareholders through a bank reference, and performing a background check on the investors involved.  According to the government, each case is reviewed based on its merits accounting for factors such as the number of existing investors in the sector and the potential for employment and technology transfer.  In practice, the investment review process is not as transparent as policy would indicate, with potential for corruption to influence the decision-making process.

The approval procedure for foreign investments is as follows:

1. Submit a completed Foreign Investment Application form to the Ministry of Economic Development, available at gov.mv.
2. Walk-in consultations are available for foreign investors who may wish to discuss their proposals prior to submitting an application.
3. Receive approval
4. The standard processing time is three working days; however, if relevant ministries must be consulted, the approval may take 10-14 days.
5. Register a business vehicle
6. Once approval is received, an investor must register as a company, partnership, or a company which has been incorporated in another jurisdiction.
7. Application forms for registering as a legal vehicle are available from the ministry’s website.
8. Sign the Foreign Investment Agreement with the Ministry of Economic Development.
9. This Agreement outlines the terms and conditions related to carrying out the specific business in Maldives. For tourism sector investments, a Foreign Investment Agreement is not required as the land lease signed with the Ministry of Tourism governs all matters relating to tourism businesses in Maldives.
10. Obtain licenses and permits.
11. Sectors which require operating licenses include fisheries and agriculture, banking and finance, health, tourism, transport, construction, and education.

Other Investment Policy Reviews

The most recent World Trade Organization trade policy review was conducted in March 2016: https://www.wto.org/english/tratop_e/tpr_e/tp432_e.htm . 

Business Facilitation

Maldives ranked 147 out of 190 on the World Bank’s Ease of Doing Business index in 2019, scoring especially low on getting electricity; registering property; trading across borders; protecting minority investors; getting credit; and resolving insolvency.  On average, it takes six steps and 12 days to start a business.

The Ministry of Economic Development manages the process for business incorporations, permits, licenses and registration of logos, trade markets, seals, and other processes.  The Ministry’s website details relevant policies and procedures: http://www.trade.gov.mv

The Ministry of Economic Development also maintains an online business portal at https://business.egov.mv/  to access the following services: Name Reservation; Business Name Registration; Sole Proprietorship registration submission; Company Registration Submission; SME Categorization; Issuance of Corporate Profile Sheet; Logo Registration; Seal Registration; Trade Mark Registration, Request for Certificate of Incumbency; Request for Letter of Good Standing; and a Request for re-issuance of registration certificate.  Foreign investment companies, including entities with any foreign shareholding, must receive foreign investment approval before they can register online.

As of March 2021, the government was drafting amendments to the Companies Act, Electronic Transactions Bill, and Mercantile Court Bill. A Bankruptcy Bill was submitted to Parliament in 2020 and is in the committee stage as of March 2021.  These bills could affect business facilitation. In June 2019, the government signed a USD 10 million project with the Asian Development Bank to develop a National Single Window project designed to establish a national single window system for international trade and reengineered trade processes, however the project is currently on hold due to contracting issues.

Outward Investment 

The government does not promote or incentivize outward investment but does not restrict domestic investors from investing abroad either.  According to UNCTAD’s 2019 World Investment Report, Maldives has not registered any outward investment since 2005.

Transparency of the Regulatory System

Maldives’ Parliament (the People’s Majlis) formulates legislation, while ministries and agencies, primarily the Ministry of Economic Development, develop regulations pertaining to investment.  The Ministry of Tourism develops regulations relevant to the tourism sector.  Certain business sectors require sector-level operating licenses from other ministries/agencies, including fisheries and agriculture, banking and finance, health, tourism, transport, construction, and education.

The Maldives Monetary Authority (MMA) regulates the financial sector and issues banking licenses.  The Capital Market Development Authority develops regulations for the capital market and pension industry and licenses securities market intermediaries.  The current Parliament, sworn in in April 2019, regularly makes draft bills and regulations available for public comment.

Since its inauguration in November 2018, the Solih administration has taken steps to improve fiscal transparency.  For example, beginning in December 2018, the Ministry of Finance (MoF) began issuing weekly updates on fiscal operations on its public website.  A limited write-up on total annual debt obligations for 2021 and projected annual debt obligations for 2022 and 2023 were included in a “budget book” published on the MoF website, along with the 2021 proposed budget.  It includes the total amount of debt, disaggregated into the totals of domestic and foreign debt; however, it does not include details of contingent or state-owned enterprise (SOE) debt. All contingent debt numbers are published on the MoF website, which includes Central Government debt as well as all SOE guaranteed debt (which are usually external borrowings).

Detailed information on SOE debt with sovereign loan guarantees and the total debt amount of individual SOEs is included in the MoF’s Quarterly Report on SOEs, which is published on the MoF’s website each quarter.

The MMA, which functions as Maldives’ Central Bank, includes information on domestic debt obligations on a monthly basis on their website: http://mma.gov.mv/#/research/statisticalPublications/mstat/Monthly percent20Statistics. 

The MoF published a mid-year “Fiscal and Debt Strategy Report” on their website in July 2020.  This report included details of the position of the debt portfolio at the end of 2019 and the estimated position by the end of 2020 19: https://www.finance.gov.mv/fiscal-and-debt-strategy-report

The website of the Attorney General’s Office (AGO) (www.mvlaw.gov.mv) publishes the full text of all existing laws and regulations, but most of the documents are in the Dhivehi language.  The AGO is establishing an English language database of laws and court judgements.

International Regulatory Considerations

Maldives is a member of the South Asian Association for Regional Cooperation (SAARC) and is a signatory of the South Asian Free Trade Area (SAFTA).

Trade and investment related legislation and regulation are influenced by common law principles from the United Kingdom and other western jurisdictions.  The judiciary has cited foreign case law from jurisdictions from the United Kingdom, the United States, and Australia when interpreting local trade-related statues.

Maldives is a member of the World Trade Organization (WTO) and has submitted some of the notifications under Technical Barriers to Trade.  However, the Ministry of Economic Development reports that technical assistance is required for Maldives to fully comply with WTO obligations.

Legal System and Judicial Independence

The sources of law in Maldives are its constitution, Islamic Sharia law, regulations, presidential decrees, international law, and English common law, with the latter being most influential in commercial matters.  The Maldives has a Contract Law (Law No. 4/91) that codifies English common law practices on contracts.  The Civil Court is specialized to hear commercial cases.  The Employment Tribunal is mandated to hear claims of unfair labor practices.  A bill proposing the establishment of a Mercantile Court has been pending in Parliament since 2013.  The Judicial Services Commission is responsible for nominating, dismissing, and examining the conduct of all judges.  The Attorney General acts as legal advisor to the government and represents the government in all courts except on criminal proceedings, which are represented by the Prosecutor General.

A Supreme Court was established for the first time in 2008 under the new Maldives Constitution. The Supreme Court is the highest judicial authority in Maldives.  In addition to the Supreme Court, there are six courts: the High Court; Civil Court; Criminal Court; Family Court; Juvenile Court; and a Drug Court.  There are approximately 200 magistrate courts, one in each inhabited island.  The Supreme Court and the High Court serve as courts of appeal.  There are no jury trials. In February 2020, President Solih stated his intent to submit a bill introducing a circuit court system in the Maldives.

Historically, the judicial process has been slow and, often, arbitrary.  In August 2010, the Judicial Services Commission reappointed—and confirmed for life—191 of the 200 existing judges.  Many of these judges held only a certificate in Sharia law, not a law degree.  The Maldivian judiciary is a semi-independent institution but has been subjected frequently to executive influence, particularly the Supreme Court.  The United Nations Office of the High Commissioner for Human Rights in 2015 stated the judicial system is perceived as politicized, inadequate, and subject to external influence.  An estimated 25 percent of judges also have criminal records.  The media, human rights organizations, and civil society had repeatedly criticized the Judicial Services Commission for appointing judges deemed unqualified.

This history has led President Solih’s administration to make judicial reform is a top priority.  In 2019, the Judicial Service Commission was overhauled; it has since removed the former Supreme Court bench and initiated investigations into ethics standards complaints against several judges from the High Court, Criminal Court, Civil Court, Family Court, and several island magistrates courts.  In August 2019, Parliament amended the Judicial Service Commission Act to return control of the Department of Judicial Administration (DJA), which is responsible for the management of courts, to the judicial watchdog Judicial Service Commission. This amendment was intended to overcome longstanding issues of the former Supreme Court using its direct supervision of the DJA to punish judges exhibiting judicial independence by transferring them to a lower court or another island as retribution.

Laws and Regulations on Foreign Direct Investment

Foreign parties can invest in Maldives through the Foreign Investment Law or the Special Economic Zones (SEZ) Act.  Details are available on the Ministry of Economic Development’s Doing Business in the Maldives Guide and in the tax guide:

• https://www.maldivesembassy.or.th/media/attachments/2019/08/23/doing-business-maldives-trade-min.pdf 
• https://www.mira.gov.mv/forms/m829-tax-guide-for-foreigners-doing-business-in-the-Maldive.pdf 

A new Foreign Direct Investment policy announced in February 2020 consolidated existing practices and introduced new guidelines, including two new routes to get government approval for foreign direct investments and new caps on equity ownership for investments in certain sectors. The policy is available on http://trade.gov.mv/dms/669/1581480884.pdf 

Foreign investment in Maldives is governed by Law No. 25/79, covering agreements between the government and investors.  The Business Registration Act (18/2014) requires foreign businesses to register as a company or partnership.  The Companies Act (10/96) governs the registration and regulatory and operational requirements for public and private companies.  The Partnership Act of 2011 governs the formation and regulation of partnerships.  Foreign investments are currently approved for an initial period of five years, with the option to renew.

Maldives introduced income taxes through an Income Tax Act in December 2019.  Taxation under the act was set to commence on January 1, 2020 but remuneration was to come within the purview of income effective April 1, 2020.  The Business Profit Tax regime imposed under the Business Profit Tax Act and the Remittance Tax regime imposed under the Remittance Tax Act was repealed with the commencement of Income Tax. Under the Act, tax rates remain unchanged for banks at 25 percent on profits, while taxes of 15 percent on profits that exceed USD 32,425 (MVR 500,000) would be levied on corporations, partnerships, and other business entities.

Competition and Antitrust Laws

In 2019, Maldives drafted a Competition and Fair Business Practices Act to ensure a fair market and equitable opportunities for all small and medium enterprises.  President Solih ratified the bill on August 31, 2020, and it was due to enter into force in the first part of 2021, however it is still not in force as of March 31, 2020.  On entry into force, the Ministry of Economic Development will be the principal agency responsible for implementing the Act, including hearing, reviewing, and acting on competition-related complaints.  There had been no competition-related cases submitted to Ministry of Economic Development as of March 2021.

Expropriation and Compensation

According to the Law on Foreign Investment (No. 25/79), the government may, with or without notice, suspend an investment when an investor indulges in an act detrimental to the security of the country or where temporary closure is necessary for national security.  If, after due investigation, it cannot be concluded within 60 days of the temporary closure that the foreign investor had indulged in an activity detrimental to the security of Maldives, the government will pay compensation.  Capital belonging to an investment that is closed for these reasons may be taken out of the country in a mutually agreed upon manner.

In December 2012, the Maldivian government took over operation of the Malé International Airport from GMR Infrastructure Limited, an Indian company, after the Maldivian government repudiated the 2012 contract.  In 2016, the Maldivian government paid GMR USD 271 million in damages as ordered by a Singaporean Arbitration Tribunal.

Dispute Settlement

ICSID Convention and New York Convention

Maldives is not a Party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States.  In September 2019, Maldives acceded to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, which came into force in Maldives in December 2019.

Investor-State Dispute Settlement

Maldives does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United States.  An Arbitration Act modeled on the United Nations Commission on International Trade Law (UNCITRAL) model law was passed in 2013 and provides for implementation of international arbitral awards.  However, the judgments of foreign courts cannot directly be enforced through the courts.  Judgments of foreign courts must be submitted to domestic courts, which then make a separate judgment.  In April 2019, President Solih established the Maldives International Arbitration Centre, a requirement under the 2013 Act.

In 2013, Maldives-based Sun Travels and Tours terminated a foreign corporation’s 20-year management agreement for a luxury resort.  The business took the case to the International Court of Arbitration in Singapore and was awarded USD 27 million in damages.  The Court dismissed a USD 16 million counterclaim by Sun Travel and Tours.  In 2015, the foreign corporation then filed the case in Maldives High Court to enforce the ruling of the arbitration center.  In 2016, Sun appealed the arbitration center’s decision in Maldives’ Civil Court, which ruled in Sun’s favor and ordered the foreign corporation to pay USD 16 million to Sun as compensation for violating the terms of their agreement to manage the resort. This ruling was overturned by the Maldivian High Court on July 7, 2020 and led to the Civil Court ordering freeze on bank accounts of Sun. There are no further updates on the cases as of March 2021.

International Commercial Arbitration and Foreign Courts

An Arbitration Act modeled on the United Nations Commission on International Trade Law (UNCITRAL) model law was passed in 2013 and provides for implementation of international arbitral awards.  However, the judgments of foreign courts cannot directly be enforced through the courts.  Judgments of foreign courts must be submitted as a fresh action and established as a judgment by the local courts that may then be enforced. In April 2019, President Solih established the Maldives International Arbitration Centre, a requirement under the 2013 Act. Dispute resolution for significant investments can take years, and it can be a challenge to collect payment for any damages from the government or from Maldivian companies.  The Maldivian judicial system is subject to significant political pressure.

Bankruptcy Regulations 

Maldives scores 33.3 out of 100 on resolving insolvency in the World Bank’s Ease of Doing Business Distance to Frontier index.  Maldives does not have a bankruptcy law, although corporate insolvencies are dealt with under the Companies Act.  Debtors and creditors may file for liquidation.  There is no priority assigned to creditors and there is very limited legal framework to protect creditors following commencement of insolvency.

Capital Markets and Portfolio Investment

Maldives Stock Exchange (MSE), first opened in 2002 as a small securities trading floor, was licensed as a private stock exchange in 2008.  The Securities Act of January 2006 created the Capital Market Development Authority (CMDA) to regulate the capital markets.  The MSE functions under the CMDA.  The only investment opportunities available to the public are shares in the Bank of Maldives, Islamic Bank of Maldives, five state-owned public companies, a foreign insurance company, a foreign telecommunications company, and a local shipping company.  The market capitalization of all listed companies listed was USD 857 million at the end of 2018.

Foreigners can invest in the capital market as both retail and institutional investors.  Capital market license holders from other jurisdictions can also seek licenses to carry out services in the Maldives capital market.  There are no restrictions on foreign investors obtaining credit from banks in Maldives nor are there restrictions on payments and transfers for current international transactions.

Money and Banking System 

The Maldives financial sector is dominated by the banking sector.  The banking sector consists of eight banks, of which three are locally incorporated, four are branches of foreign banks and one is a fully owned subsidiary of a foreign bank.  There are 52 branches of these banks throughout the country of which 33 are in the rural areas.  Additionally, at the end of 2017 there were 116 automatic teller machines (of which 51 were in rural areas) and 230 agent banking service providers.  Maldives has correspondent banking relationships with six banks.  Maldives has not announced intentions to allow the implementation of blockchain technologies (cryptocurrencies) in its banking system.  International money transfer services are offered by four remittance companies through global remittance networks.  Two telecommunications companies offer mobile payment services through mobile wallet accounts and this service does not require customers to hold bank accounts.

Non-bank financial institutions in the country consist of four insurance companies, a pension fund, and a finance leasing company, a specialized housing finance institution and money transfer businesses.  Maldives Real Time Gross Settlement System and Automated Clearing House system is housed in the MMA for interbank payments settlements for large value and small value batch processing transactions respectively.  There has been an increase in usage of electronic payments such as card payments and internet banking.  All financial institutions currently operate under the supervision of the MMA.

Foreign Exchange and Remittances

Foreign Exchange

Rules relating to the foreign exchange market are stipulated in the Monetary Regulation of the MMA.  Both residents and non-residents may freely trade and purchase currency in the foreign exchange market.  Residents do not need permission to maintain foreign currency accounts either at home or abroad and there is no distinction made between foreign national or non-resident accounts held with the banks operating in Maldives.  The exchange rate is maintained within a horizontal band, with the value of the Rufiyaa allowed to fluctuate against the U.S. dollar within a band of 20 percent on either side of a central parity of MVR12.85 per U.S. dollar.  In practice, however, the rufiyaa has been virtually fixed at the band’s weaker end of Rf 15.42 per dollar, according to the IMF.

Remittance Policies

Rules regarding foreign remittances are governed by the Regulation for Remittance Businesses under the Maldives Monetary Authority Act of 1981.  There are no restrictions on repatriation of profits or earnings from investments.  In 2016, the government imposed a three percent remittance tax on money transferred out of Maldives by foreigners employed in the Maldives.  However, Maldives Inland Revenue Authority (MIRA) repealed the remittance tax effective from January 1, 2020 to reduce “out-of-bank” money transactions that have become commonplace following implementation of the tax.

Sovereign Wealth Funds

In 2016, Maldives Finance Minister announced plans to establish a “Sovereign Development Fund (SDF)” that would support foreign currency obligations incurred to executive public sector development projects.  The government has not published any documents related to the SDF and does not have a published policy document regulating funding or a general approach to withdrawals with regard to SDF.  The MoF plans to issue a separate publication on SDF investments sometime within 2021.  This publication will include information on deposits into and withdrawals/investments from the SDF.  The MoF also reported it is in the process of drafting regulations detailing a general approach to deposits, withdrawals, and investments from the SDF.

Allocations to the SDF are included in the budget and published in the MoF’s weekly and monthly fiscal development reports published regularly on its website.  The Ministry reported two sources of funding for the SDF – revenue gathered through Airport Development Fees charged to all travelers entering and departing Maldives and ad hoc allocations made by the MoF at its discretion.  Expected ADF receipts are included in the Revenue Tables of the Budget.  Reports from the MoF show that the size of the SDF fund had amassed USD 206.5 million as of February 25, 2021.

The Maldives Privatization and Corporatization Board (PCB) monitors and evaluates all the majority and minority share holding companies of the government of Maldives.  PCB reported 32 SOEs in 2021, 22 of which are 100 percent state owned.  The government is a majority shareholder of Bank of Maldives, Maldives Transport and Contracting Company Plc, Malé Water and Sewerage Company Private Limited, State Trading Organization Plc, Addu International Airport Private Limited, and SME Development Finance Corporation Private Limited.  The government also holds minority shares in Maldives Tourism Development Corporation Plc, Dhivehi Raajjeyge Gulhun Plc (one of the two telecom providers), Housing Development Finance Corporation Plc, and Maldives Islamic Bank Plc. (https://www.finance.gov.mv/public-enterprises)

Maldivian SOEs do not strictly adhere to OECD Guidelines on Corporate Governance for SOEs.  When SOEs are involved in investment disputes, domestic courts tend to favor the government enterprise.  SOEs also follow different procurement regulations than government offices. As a result, SOEs have been a major contributor to fast rising Maldives’ public debt levels.

Privatization Program

A 2013 Privatization Act governs all privatization and corporatization efforts by the government.  The Privatization and Corporatization Board monitors and evaluates all the majority and minority share holding companies of the Government of Maldives https://www.finance.gov.mv/privatization-and-corporatization-board.  The Government of Maldives has announced plans for a privatization program in its 2021-23 budget, and the MoF is in the process of developing an action plan for the privatization strategy.  Further, an in-depth study will be undertaken for each SOE identified, and policy decisions to privatize will be based on these studies.

Maldives is a multi-party constitutional democracy, but the transition from long term autocracy to democracy has been challenging.  Maldives gained its independence from Britain in 1965.  For the first 40 years of independence, Maldives was run by President Ibrahim Nasir and then President Maumoon Abdul Gayoom, who was elected to six successive terms by single-party referenda.  August 2003 demonstrations forced Gayoom to begin a democratic reform process, leading to the legalization of political parties in 2005, a new constitution in August 2008, and the first multiparty presidential elections later that year, through which Mohamed Nasheed was elected president.

In February 2012 Nasheed resigned under disputed circumstances. President Abdulla Yameen’s tenure, beginning in 2013, was marked by corruption, systemic limitations on the independence of parliament and the judiciary, and restrictions on freedom of speech, press, and association.  Yameen’s tenure was also characterized by increased reliance on PRC-financing for large scale infrastructure projects, which were decided largely under non-transparent circumstances and procedures.  External debt rose rapidly during Yameen’s tenure.

In September 2018, Ibrahim Mohamed Solih of the Maldivian Democratic Party (MDP) won the campaign for president running on a platform of economic and political reforms and transparency.  The MDP also won a super majority (65 out of 87) seats in parliamentary elections in April 2019, the first single-party majority since the advent of multi-party democracy.  President Solih has pledged to restore democratic institutions and the freedom of the press, re-establish the justice system, and protect fundamental rights.

There is a global threat from terrorism to U.S. citizens and interests.  Attacks could be indiscriminate, including in places visited by foreigners and “soft targets” such as restaurants, hotels, recreational events, resorts, beaches, maritime facilities, and aircraft.  Concerns have significantly increased about a small number of violent Maldivian extremists who advocate for attacks against secular Maldivians and are involved with transnational terrorist groups.  For more information, travelers may consult the State Department’s Country Reports on Terrorism.

U.S. citizens traveling to Maldives should be aware of violent attacks and threats made against local media, political parties, and civil society.  In the past there have been killings and violent attacks against secular bloggers and activists.  For more information, travelers may consult the State Department’s 2019 Human Rights Report link: https://www.state.gov/reports/2019-country-reports-on-human-rights-practices/maldives/

Maldives has a history of political protests. Some of these protests have involved use of anti-Western rhetoric. There are no reports of unrest or demonstrations on the resort islands or at the main Velana International Airport.  Travelers should not engage in political activity in Maldives. Visitors should exercise caution, particularly at night, and should steer clear of demonstrations and spontaneous gatherings.  Those who encounter demonstrations or large crowds should avoid confrontation, remain calm, and depart the area quickly.  While traveling in Maldives, travelers should refer to news sources, check the U.S. Embassy Colombo website for possible security updates, and remain aware of their surroundings at all times.

U.S. Embassy employees are not resident in Maldives.  This will constrain the Embassy’s ability to provide services to U.S. citizens in an emergency.  Many tourist resorts are several hours’ distance from Malé by boat, necessitating lengthy response times by authorities in case of medical or criminal emergencies.

* Source for Host Country Data: Country Data: Maldives National Bureau of Statistics   

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

The Government of Mali encourages foreign investment. In general, the law treats foreign and domestic investment equally. In practice, U.S. investors report facing many of the same challenges as other foreign investors do, including allegedly unfair application of tax collection laws, difficulties clearing goods through customs, and requests for bribes. Corruption in the judiciary is common and foreign companies may find themselves at a disadvantage vis-à-vis Malian investors in enforcing contracts and competing for public procurement tenders.

The Malian government has instituted policies promoting direct investment and export-oriented businesses. Foreign investors go through the same screening process as domestic investors. Criteria for authorizing an investment under Mali’s 2012 investment code include the size of the proposed capital investment, the use of locally produced raw materials, and the level of job creation.

Mali’s Investment Promotion Agency (API-Mali) serves as a one-stop shop for prospective investors and serves both Malian and foreign enterprises of all sizes. API-Mali’s website ( https://apimali.gov.ml/ ) provides information on business registration, investment opportunities, tax incentives, and other topics relevant to prospective investors.

Mali maintains an office in charge of business climate reform (Cellule Technique des Réformes du Climat des Affaires or CTRCA). Since 2015, Mali has also had a committee for monitoring business environment reforms that includes both government and private sector members. Mali adopted a law governing public-private partnerships (PPPs) in 2016 and has a dedicated PPP unit charged with reviewing and facilitating implementation of PPP projects in a multitude of sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises with no restriction to forms of remunerative activities. There are some specific limits on ownership in the mining and media sector: Malian law requires that the owners and primary shareholders of media companies be Malian nationals. Foreign investors in the mining sector can own up to 90 percent of a mining company. The West African Economic and Monetary Union (WAEMU), of which Mali is a member, requires Malian and foreign companies to report if they will hold foreign currency reserves in their Malian business accounts and to receive approval from the Ministry of Economy and Finances and from the Central Bank for West African States (BCEAO).

Other Investment Policy Reviews

The World Trade Organization (WTO) reviewed the trade and investment policies of WAEMU members, including Mali, in 2018. The review can be accessed here .

Business Facilitation

Mali’s Investment Promotion Agency, API-Mali ( https://apimali.gov.ml/ ), serves as a one-stop shop to facilitate both foreign and local investment. In 2020, the World Bank’s Doing Business Report ranked Mali 124th out of 190 countries for ease of starting a business (a separate indicator that feeds into the overall ease of doing business ranking). The 2020 Doing Business Report estimates that it takes an average of 11 days and five separate administrative procedures to register a firm. There is no discrimination based on gender, age, or ethnicity in the process of business registration.

Foreign companies wishing to register in Mali may receive tax and customs benefits depending on the size of investment. Small and medium-sized enterprises (for which there is no common definition across government entities) are also eligible for some fiscal advantages.

Outward Investment

The transition government has no specific policy to promote outward investment.

Transparency of the Regulatory System

As reflected in agreements with the IMF and World Bank, Mali has adopted a generally transparent regulatory policy and laws to foster competition. Mali’s laws related to commerce, labor, and competition are designed to meet the requirements of fair competition, ease bureaucratic procedures, and facilitate the hiring and firing of employees. In practice, however, many international firms complain of lack of transparency in the regulatory system and challenges in enforcing regulatory requirements to the detriment of business prospects. There is no public comment period or other opportunity for citizens or businesses to comment upon proposed laws.

Mali is a member of UNCTAD’s international network of transparent investment procedures. Mali is also a member of the African Organization for the Harmonization of Business Law (OHADA) and implements the Accounting System of West African States (SYSCOA), which harmonizes business practices among several African countries consistent with international norms. There are no informal regulatory processes managed by nongovernmental organizations or associations.

Mali’s Public Procurement Regulatory Authority (Autorité de régulation des marchés publics or ARMDS) is tasked with ensuring transparency in public procurement projects and may receive complaints from businesses on public procurement-related issues. ARMDS publishes information about its decisions in disputes as well as key laws relating to public procurement on its website at http://www.armds.ml/ .

The Government of Mali regularly reviews regulations in order to adapt them to the current national context or to international standards or commitments. The new mining code and its implementing decree adopted respectively in 2019 and in 2020 will apply to future mining projects. Reforms to the investment code and the customs code are ongoing. The tax code and the tax procedures book (Livre de procédures fiscales) were substantially amended in September 2020, mainly to introduce a mandatory registration of all taxpayers, to operate changes in the VAT refund, to classify companies in terms of risks for the tax office, to digitalize tax return and payment. The tax office has also planned to obligate the use of e-services by June 2021 for online tax return and online tax check. More information is available on the tax office’s website here .

Mali makes public finance documents, including the budgets for all government ministries and offices, available on the Ministry of Economy of Finance’s website ( https://www.finances.gouv.ml/lois-des-finances ). Mali’s national budget provides details on the expenditures of government entities (including the presidency and prime minister’s office) and the revenues of tax collection authorities, including customs, the public debt directorate, the land administration directorate, and the treasury and public accounting directorate. The budget also includes information on public debt, as well as government subsidies to petroleum products and to the state-owned utility company (Energie du Mali or EDM). Mali also publishes a simplified version of the budget known as the citizen’s budget. Mali has multiple audit institutions tasked with monitoring public spending. The Malian supreme court’s accounts section is responsible for reviewing and approving the financial statements of all of Mali’s government departments. The Office of the Auditor General (Bureau du Verificateur General or BVG) is authorized to audit the accounts of all government entities as well as private companies or other entities that receive public funds. Its reports are made public and can be accessed at http://www.bvg-mali.org/ . Mali has other auditing institutions, including the Office to Fight against Illicit Enrichment (Office central de Lutte contre l’Enrichissement illicite or OCLEI), the General Comptroller of Public Services (Contrôle Général des Services Publics or CGSP), and the Support Unit for Administrative Auditing Bodies (Cellule d’Appui aux Structures de Contrôle de l’Administration or CASCA). Despite the existence of multiple audit institutions, management of public funds remains opaque and subject to corrupt practices, particularly in public procurements. In 2020, the Department of State determined that Mali did not meet the minimum requirements of fiscal transparency despite significant progress.

Mali has multiple audit institutions tasked with monitoring public spending. The Malian supreme court’s accounts section is responsible for reviewing and approving the financial statements of all of Mali’s government departments. The Office of the Auditor General (Bureau du Verificateur General or BVG) is authorized to audit the accounts of all government entities as well as private companies or other entities that receive public funds. Its reports are made public and can be accessed at http://www.bvg-mali.org/ . Mali has other auditing institutions, including the Office to Fight against Illicit Enrichment (Office central de Lutte contre l’Enrichissement illicite or OCLEI), the General Comptroller of Public Services (Contrôle Général des Services Publics or CGSP), and the Support Unit for Administrative Auditing Bodies (Cellule d’Appui aux Structures de Contrôle de l’Administration or CASCA). Despite the existence of multiple audit institutions, management of public funds remains opaque and subject to corrupt practices, particularly in public procurements. In 2020, the Department of State determined that Mali did not meet the minimum requirements of fiscal transparency despite significant progress.

International Regulatory Considerations

As a member of WAEMU and ECOWAS, Mali applies WAEMU and ECOWAS directives.

Mali is a member of the WTO. Mali has not notified the WTO of any measures concerning investments related to trade in goods that are inconsistent with the requirements of Trade Related Investment Measures. Information on other notifications from Mali to the WTO can be found at https://www.wto.org/english/thewto_e/countries_e/mali_e.htm  under the “Notifications from Mali” section.

Legal System and Judicial Independence

Mali’s legal system is based on French civil law. Mali uses its investment code, mining code, commerce code, labor code, and code on competition and price to govern disputes. Disputes occasionally arise between the government or state-owned enterprises and foreign companies. Some investors report that certain cases involve wrongdoing on the part of corrupt government officials.

Although Mali’s judicial system is independent, many companies have noted that it is subject to political influence. Numerous business complaints are awaiting an outcome in the courts. The Minister of Justice wields influence over the career paths of judges and prosecutors, which may compromise their independence. Corruption in the judicial system is common, leading to what foreign investors have characterized as flawed decisions.

An independent commercial court was established in 1991 with the encouragement of the U.S. government to expedite the handling of business litigation. Commercial courts, located in Bamako, Kayes, and Mopti, can hear intellectual property rights cases. In areas where there is no commercial court, the local courts of first instance have the jurisdiction to hear business disputes. Decisions made by the courts of first instance are appealable in the court of appeals and/or in the supreme court. Since its inception, the commercial court has handled cases involving foreign companies. The court is staffed by magistrates and is assisted by elected Malian Chamber of Commerce and Industry representatives. Teams composed of one magistrate and two Chamber of Commerce and Industry representatives conduct hearings. The magistrate’s role is to ensure that the court renders decisions in accordance with applicable commercial laws, including internationally recognized bankruptcy laws, and that court decisions are enforced under Malian law.

Laws and Regulations on Foreign Direct Investment

Mali’s investment code gives the same incentives to both domestic and foreign companies for licensing, procurement, tax and customs duty deferrals, export and import policies, and export zone status if the firm exports at least 80 percent of production. Incentives include exemptions from duties on imported equipment and machinery. Investors may also receive tax exemptions on the use of local raw materials. In addition, foreign companies can negotiate specific incentives on a case-by-case basis. Mali has reduced or eliminated many export taxes and import duties as part of ongoing economic reforms; however, export taxes remain for gold and cotton, Mali’s two primary exports. The government applies price controls to petroleum products and cotton, and occasionally to other commodities (such as rice) on a case-by-case basis.

In most cases, foreign investors may own 100 percent of any business they create, except in the mining and media sectors. Foreign investors may also purchase shares in parastatal companies. Foreign companies may also start joint-venture operations with Malian enterprises. The repatriation of capital and profit is guaranteed.

Despite having a generally favorable investment regime on paper, foreign investors have complained of facing challenges in practice, including limited access to financing, high levels of corruption, poor infrastructure (including inconsistent electricity access), a non-transparent judicial system, and the lack of an educated workforce.

The following websites provide additional information relating to investments in Mali:

Investment Promotion Agency: https://apimali.gov.ml/  and http://mali.eregulations.org/ 

Mali Trade Portal: https://tradeportal.ml/ 

National Council of Employers: http://www.cnpmali.org/index.php/lois-et-reglements/codes 

Niger River Authority (Officer du Niger): https://www.on-mali.org/on/ 

Chamber of Commerce and Industry: http://www.cci.ml 

Ministry of Economy and Finances: http://www.finances.gouv.ml 

Public Procurement Regulatory Authority: http://www.armds.ml/ 

Competition and Antitrust Laws

The Ministry of Commerce and Industry is responsible for reviewing free competition in the Malian marketplace. Mali’s national competition law (Law 2016-006 and Decree 2018-0332) and the WAEMU 2002 anti-trust rules are the primary judicial documents that govern competition in Mali. The competition law bans any agreements restricting competition or market access. It also bans control or fixation of prices through agreements. Abuses of dominance are prohibited. The commercial court (Tribunal of Commerce) and ARMDS are the primary judicial bodies that oversee competition-related concerns.

Mali’s Organization of Industrial Entrepreneurs (Organisation Patronal des Industriels or OPI) has criticized corruption and smuggling as significant hurdles to fair competition. Contacts report that Mali struggles to limit illegal imports of products such as sodas, juices, tobacco, medicines, and textiles (including fabrics). The General Directorate of Customs, the National Directorate for Commerce and Competition, and the Agency for the Sanitary Security of Foods occasionally intervene to address the import and commercialization of smuggled goods but have limited capacity to effectively address the problem.

Expropriation and Compensation

Expropriation of private property other than land for public purposes is rare. In January 2021, the Malian authorities launched an operation to demolish unlawful construction in the areas surrounding Bamako’s international airport. According to the transition government, illegal construction covering a total surface area of 7,192 hectares in the vicinity of the airport is slated to be destroyed.

Mali has not unfairly targeted U.S. firms for expropriation. Under Malian law, the expropriation process must be public and transparent and follow the principles of international law. Compensation based on market value is awarded by court decision.

The government may exercise eminent domain in various situations, including when undertaking large-scale public projects, in cases of bankrupt companies that had a government guarantee for their financing, or when a company has not complied with the requirements of an investment agreement with the government.

In cases of illegal expropriations, Malian law affords claimants due process in principle. However, given reported corruption in the land administration sector, impartial adjudication of court cases involving land disputes is rare.

Dispute Settlement

ICSID Convention and New York Convention

Mali is a member of the International Center for the Settlement of Investment Disputes (ICSID). Malian law (Decree No. 09/P-CMLN promulgating Order No. 77-63/CMLN of November 11, 1977 and Order No. 77-63/CMLN) authorizes implementation of the ICSID Convention. Mali is also a signatory of the Convention on the Recognition and Enforcement of Arbitral Awards (the New York Convention).

Investor-State Dispute Settlement

Investors engaged in disputes with the state are supposed to undertake amicable negotiations before engaging Mali’s Public Procurement Regulatory Authority (ARMDS) or the courts. Failure to reach an out-of-court agreement will lead to the case being transferred to the Court of First Instance, the commercial court, or international arbitration. The decisions of foreign courts are enforced so long as they are specified and recognized by Malian law.

Mali’s investment code allows a foreign company that has a signed agreement with the government to refer to international arbitration any case that the local courts are unable to resolve. Mali’s 2019 mining code specifies that if there is a disagreement between the Malian government and a mining company related to application of the mining code, the disagreement may be referred to Malian courts, regional courts, and international courts.

Investors have reported that the dispute resolution process is often unfair, cumbersome, and time-consuming. Dispute resolution can take multiple years and is reportedly often fraught with corruption, political influence, and demands for payments to facilitate the legal process.

International Commercial Arbitration and Foreign Courts

Mali is a member of the African Organization for the Harmonization of Business Law (OHADA) and has ratified the 1993 treaty creating the Common Court of Justice and Arbitration. OHADA has a provision allowing litigation between foreign companies and domestic companies or with the government to be tried in an appellate court outside of Mali.

Bankruptcy Regulations

Mali’s bankruptcy law is found in its commerce code, which does not criminalize bankruptcy. According to the World Bank’s 2020 Doing Business Report, resolving insolvency takes 3.6 years on average and costs 18 percent of the debtor’s estate. Generally, a bankrupt company will be sold piecemeal. The average recovery rate is 28.3 cents on the dollar.

Capital Markets and Portfolio Investment

Portfolio investment is not a current practice in Mali. In 1994, the government instituted a system of treasury bonds available for purchase by individuals or companies. The payment of dividends or the repurchase of bonds may be done through a compensation procedure offsetting corporate income taxes or other sums due to the government.

The WAEMU stock exchange program based in Abidjan has a branch in each WAEMU country, including Mali. One Malian company is quoted in the stock exchange. The planned privatization of Mali’s state-run electricity company (EDM), telecommunications entity (Societé des Telecommunications du Mali or SOTELMA), cotton ginning company (Compagnie Malienne pour le Développement du Textile or CMDT), and Bamako-Senou Airport offer prospects for some companies to be listed on the WAEMU stock exchange.

Money and Banking System

WAEMU statutes and the BCEAO govern the banking system and monetary policy in Mali. Commercial banks in Mali enjoy considerable liquidity. The majority of banks’ loanable funds, however, do not come from deposits, but rather from other liabilities, such as lines of credit from the BCEAO and North African and European banks. Despite having sufficient loanable funds, commercial banks in Mali tend to have highly conservative lending practices. Bank loans generally support short-term activities, such as letters of credit to support export-import activities and short-term lines of credit and bridge loans for established businesses. Small- and medium-sized businesses have reportedly had difficulty obtaining access to credit. The Guarantee Fund for Private Sector (le Fonds de Garantie du Secteur Privé or FGSP) is a partially state-owned financial institution which provides guarantees up to 50 percent of the loan that SMEs/SMIs and microfinance institutions could borrow from commercial banks. The FGSP also provides direct financing to the private sector. Mali recently increased the financial resources of the FGSP as a measure to support the private sector to face the economic impact of the COVID-19 pandemic. Mali also created a National Directorate of Small and Medium Enterprises (SMEs) in 2020 in part to address the challenges SMEs face in accessing financing.

In order to improve the business environment and soundness of the financial system, the BCEAO adopted a uniform law regarding credit reference bureaus. The Government of Mali aligned its legislation with this regional requirement by authorizing a credit reference bureau in Mali to collect and process information from financial institutions, public sources, water and electricity companies, and other entities to create credit records for clients. The credit rating system aims to increase the solvency of borrowers and improve access to credit.

Mali’s microfinance sector has grown rapidly. Despite this growth, microfinance institutions suffer from poor governance and management of resources and have not put in place all government regulations or regional best practices to ensure sufficient financial controls and transparency.

Money laundering and terrorist financing are concerns in Mali. Although Mali’s anti-money laundering law designates a number of reporting entities, companies have noted that very few comply with their legal obligations. While businesses are technically required to report cash transactions over approximately $10,000, most reportedly do not. Despite the operation of a number of al-Qaeda-linked terrorist and armed groups in northern and central Mali, the country’s financial intelligence unit, the National Financial Information Processing Unit (CENTIF), receives relatively few suspicious transaction reports concerning possible cases of terrorist financing. With the exception of casinos, designated non-financial businesses and professions are not subject to customer due diligence requirements.

Mali is a member of the Inter-Governmental Action Group Against Money Laundering in West Africa (GIABA), a Financial Action Task Force (FATF)-style regional body. Mali’s most recent mutual evaluation report completed November 2019 can be found at http://www.giaba.org/reports/mutual-evaluation/Mali.html .

Foreign Exchange and Remittances

Foreign Exchange

As one of the eight WAEMU countries, Mali uses the CFA franc—issued by the BCEAO—as its currency. The CFA franc is pegged to the euro and supported by the French treasury, which ensures a fixed rate of exchange. The Malian investment code allows the foreign transfer and conversion of funds associated with investments, including profits. Local currency exchanges are available at Malian banks.

There are no limits on the inflow or outflow of funds for repatriation of profits, debt service, capital, or capital gains. In the CFA franc zone, there is no limit on the export of capital provided that an exporter has adequate documentation to support a transaction and the exporter meets the domiciliation requirement. Most commercial banks have direct investments in western capital markets.

Article 12 of Mali’s 2012 investment code states that foreign investors may transfer abroad, without prior authorization, all payments relating to business operations in Mali (including net profits, interest, dividends, income, allowances, savings of expatriated salaried employees). Capital and financial transactions (such as buying and selling stocks, assets, and compensation from expropriation) are free to transfer abroad but are subject to declaration requirements to the Ministry of Economy and Finances. These transfers must be done through authorized intermediaries such as banks or financial institutions.

Remittance Policies

Mali does not have a specific policy for remittances. According to the World Bank, personal remittances from Mali’s diaspora represented around six percent of GDP in 2018.

Sovereign Wealth Funds

Mali does not have a sovereign wealth fund.

Mali has privatized or reduced government involvement in a number of state-owned enterprises (SOEs). However, there are still 45 state-owned or partially state-owned companies in Mali, including 12 mining companies, five banks, the national electricity company (EDM), a telecommunications entity (SOTELMA), a cotton ginning company (CMDT), a cigarette company (SONATAM), sugar companies (SUKALA and N-SUKALA), and the Bamako-Senou Airport. The government no longer has shares in two banks, BSIC-Mali, Coris Bank International-Mali, in which it had respectively 25 and 10 percent shares as of December 2017. The government reduced its shares in the Malian Development Bank (BDM) and Malian Solidarity Bank (BMS) while it maintained its share in the Banque Nationale de Developpement Agricole (BNDA) which increased its total capital stock by 21.5 percent in 2019 compared with 2018. More details on SOEs are available here .

Private and public enterprises compete under the same terms and conditions. No preferential treatment is given to SOEs, although they can be at a competitive disadvantage due to the limited flexibility they have in their management decision-making process. Malian law guarantees equal treatment for financing, land access, tax burden, tax rebate, and access to raw materials for private firms and SOEs.

The government is active in the agricultural sector. The parastatal Niger River Authority (Office du Niger) controls much of the irrigated rice fields and vegetable production in the Niger River inland delta, although some private operators have been granted plots of land to develop. The Office du Niger encourages both national and foreign private investment to develop the farmlands it manages. Under an MCC-funded irrigation project, Mali granted titles to small private farmers; an adjacent tranche developed with MCC was to have been open to large-scale private investment through a public tender process. However, all MCC projects were suspended as a result of the coup d’état of March 2012 and discontinued when the projects reached the end of their implementation deadline. The national cotton production company, CMDT, which is yet to be privatized, provides financing for fertilizers and inputs to cotton farmers, sets cotton prices, purchases cotton from producers, and exports cotton fiber via ports in neighboring countries.

The government also remains active in the banking sector. The state owns shares in five of the 14 banks in Mali: BDM (19.5 percent share), BIM (10.5 percent), BNDA (36.5 percent), BMS (13.8 percent), and BCS (3.3 percent). While the government no longer has a majority stake in BDM, it has significant influence over its management, including the privilege to appoint the head of the Board of Directors.

Senior government officials from different ministries make up the boards of SOEs. Major procurement decisions or equity raising decisions are referred to the Council of Ministers. Government powers remain in the hands of ministries or government agencies reporting to the ministries. No SOE has delegated powers from the government.

SOEs are required by law to publish an annual report. They hold a mandatory annual board of directors meeting to discuss financial statements prepared by a certified accountant and certified by an outside auditor in accordance with domestic standards (which are comparable to international financial reporting standards). Mali’s independent Auditor General conducts an annual review of public spending, which may result in the prosecution of cases of corruption. Audits of several state-owned mining companies have revealed significant irregularities.

Privatization Program

The government’s privatization program for state enterprises provides investment opportunities through a process of open international bidding. Foreign companies have responded successfully to calls for bids in several cases. The government publishes announcements for bids in the government-owned daily newspaper, L’Essor. The process is non-discriminatory in principle; however, there have been many allegations of corruption in public procurement.

The U.S. Department of State’s Fact Sheet on Mali is available at https://www.state.gov/u-s-relations-with-mali/. The current Travel Advisory for Mali is available at https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/mali-travel-advisory.html.

Throughout nearly three decades of multi-party democracy, Mali has consistently encouraged private enterprise and investment. However, the destabilizing effects of Mali’s 2012 coup d’état led to a deterioration of the economic situation and uncertainty in the investment climate. Mali continues to face significant political and security challenges amidst slow implementation of a peace agreement signed in 2015 that aims to resolve the ongoing conflict in northern Mali. A disparate group of politically-motivated armed groups, militias, bandits, and extremist groups continue to exert influence in wide swathes of Mali’s largely ungoverned northern areas as well as central Mali. Furthermore, terrorist groups have increased the frequency and range of their attacks—particularly against the base camps of the UN peacekeeping mission (MINUSMA) and the Malian Armed Forces in northern and central Mali—in an effort to destabilize the country. The situation in central Mali—namely in the Segou and Mopti regions—is increasingly unstable due to intercommunal conflict, localized political violence, and the incursion of extremist groups into the region. The 2020 coup d’état again plunged the country into political uncertainty and instability, further exacerbating existing challenges.

Terrorist groups with varying degrees of allegiance to al-Qaeda and ISIS operate in Mali, and often pursue local agendas complementary to these global extremist movements. Groups linked with al-Qaeda in the Islamic Maghreb (AQIM), which have merged under the banner of Jama’at Nusrat al-Islam wal-Muslimin (JNIM), continued to conduct terrorist attacks throughout 2020, primarily targeting international and Malian military forces. These groups have claimed responsibility for recent gun and improvised explosives attacks, kidnappings, and other violent actions in northern and central Mali.

In addition to MINUSMA’s peacekeeping presence, French troops are deployed in the country and conduct offensive counterterrorism operations in collaboration with Malian security forces that target extremist elements. However, their presence is not sufficient to counter every threat. Extremist groups have attacked UN peacekeepers’ northern base camps in Timbuktu, Gao, and Kidal. Attacks by violent extremist groups have moved beyond the traditional conflict zone in the North to central and southern Mali. The area along the border with Burkina Faso, and some remote parts of southern Mali, are increasingly under threat of attack.

While Malian forces, backed by MINUSMA and French forces, have taken steps to reassert control over most of the major cities, much of the North and Center remain unstable, with large swaths of the country outside state control. AQIM, long entrenched in northeastern Mali, remains a threat. AQIM has demonstrated a pattern of kidnapping hostages for ransom and launching operations against neighboring Algeria, Mauritania, Burkina Faso, and Niger. AQIM and its local affiliates have been involved in various terrorist attacks targeting Westerners in Mali, including at a restaurant in Bamako in March 2015; at a hotel frequented by foreigners in Sevare in August 2015; against the Radisson Blu Hotel in Bamako in November 2015; and against the Campement de Kangaba hotel in June 2017.

While previous extremist attacks have generally spared foreign companies, aside from hotels and restaurants, some attacks have targeted infrastructure projects involving foreign companies. In October 2017, extremists attacked a foreign company in charge of the construction of a road in Timbuktu and destroyed several vehicles. In March 2018, terrorists attacked and destroyed a USD 66 million dam construction project in Djenne. In addition, in April 2020, extremist groups carried out attacks in the southwestern region of Kayes, Mali’s gold-mining region.

U.S. citizens living or traveling in Mali are encouraged to enroll in the Smart Traveler Enrollment Program (STEP) at https://step.state.gov/step to receive security messages and make it easier to be located in an emergency.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Source for Host Country Data: BCEAO (rate: USD $1 = 542 FCFA)

Table 3: Sources and Destination of FDI

Table 4: Portfolio Investment 

Data not available.

Policies Towards Foreign Direct Investment

Malta seeks foreign direct investment (FDI) to increase its rate of economic growth. Malta provides incentives to attract investment in high-tech manufacturing (including plastics, precision engineering, electronic components, automotive components, and health technologies such as pharmaceuticals manufacturing and biotechnology), information and communications technology (ICT), research and development (R&D), aerospace and aviation maintenance, education and training, registration of ships and aircrafts, transshipment and related service industries, finance services, and digital technologies, including artificial intelligence technologies, blockchain, innovative technologies, and digital gaming.

Malta’s comparative advantages include membership in the EU, Eurozone, and Schengen Zone; proximity to European and North African markets; excellent telecommunications and transport connections; a fair and transparent business environment; a highly skilled, English-speaking labor force; and competitive wage rates (though the cost of living is high, labor costs are relatively low compared with other EU countries). Malta also offers financial, tax, and other investment incentives to attract FDI. Foreign investment plays an integral part in the Government of Malta’s policies to reduce the role of the state in the economy and increase private sector activity. It will also play a key role in building Malta’s economic recovery post-pandemic as the country is in the process of shaping an economic strategy based on tangible niche market opportunities that will help it recover in the new economic and health conditions.

Malta Enterprise, a government organization that promotes FDI in Malta, provides information to prospective investors, processes applications for government investment incentives, and serves as a liaison between investors and other government entities. The organization offers an attractive investment package for U.S. and other investors.

There are currently no legal prohibitions against FDI-oriented sales in Malta’s domestic market; however, the country is in the process of setting up an FDI screening mechanism in line EU regulation 2019/452 establishing a framework for the screening of foreign direct investments into the Union. The government seeks, as a top priority, companies operating in the following fields:

• High-end manufacturing (although virtually all manufacturing sectors are open to FDI);
• Information and communications technology, including electronic components, and digital gaming;
• Health technologies, medical equipment, pharmaceuticals, and emerging medical sectors (including medical cannabis);
• Back office and regional support operations;
• Digital technologies including blockchain, artificial intelligence, innovative technologies, e-sports, and fintech;
• Knowledge-based service, including aerospace and defense (aviation maintenance), education and training, and research and development;
• Logistics-based services, including marine technology, warehousing, and oil/gas services; and
• Film industry (Malta has one of the few sets in the world for water/boating scenes).

Limits on Foreign Control and Right to Private Ownership and Establishment

Private foreign investors are free to make equity arrangements as they wish, from joint ventures to full equity ownership.

The Government of Malta recognizes the right to private ownership in theory and in practice. Private entities are free to establish, acquire, and dispose of interests in business enterprises and engage in all forms of remunerative activity. Many U.S. firms sell their products or services in Malta through licensing, franchise, or similar arrangements. The government generally allows foreign companies to operate in merchandising areas, especially if they operate a licensing, franchising, or similar agreement through a local representative.

It is the government’s stated policy not to allow public enterprises to operate at the expense of private entities. Some sectors, such as electricity generation, are also open to private sector participation. The government provides private enterprises with the same opportunities as public enterprises for access to markets and other business operations.

Other Investment Policy Reviews

The Government of Malta has not undergone any third-party investment policy reviews through a multilateral organization in the last three years.

Business Facilitation

The Maltese Commercial Code provides for the establishment of several types of business entities according to the needs of an individual investor when setting up a company in Malta. The following are the available structures:

• Private limited liability companies;
• Public limited liability companies;
• General partnerships; and
• Limited partnerships.

Foreign companies can also open subsidiaries or branch offices in Malta.

When setting up a Maltese private company, the minimum share capital amount accepted is €1,165 ($1,300). The minimum for a public company is approximately €46,600 ($51,670), of which 25 percent must be deposited prior to registration. In case of private companies with an authorized share capital exceeding the minimum requirements, only 20 percent of the amount must be deposited.

The maximum number of shareholders for limited liabilities companies is 50 and minimum is two (although a single-member company may also be registered under the Companies Act).

The following are the main steps required to set up a company in Malta:

• Reserve a company name with the Maltese Business Registry;
• Draft the company’s memorandum and articles of association;
• Deposit the minimum share capital; and
• File the application with the Malta Business Registry.

The documents to be filed with the Malta Registrar of Companies are:

• The memorandum and articles of association;
• A confirmation of the company name reservation;
• The bank receipt confirming the share capital deposit; and
• Passport copies of the shareholders, directors, and company secretary.

The Malta Business Registry (MBR) is responsible for the registration of new commercial partnerships, the registration of documents related to commercial partnership, the issuing of certified documentation including certificates of good-standing amongst others, the reservation of company names, the collection of registration and other fees, the publication of notices, and the imposition and collection of penalties. The Registry also conducts investigations of companies and maintains the company and partnership register.

The Memorandum must be presented to the MBR, which offers an online system allowing users to register a company and submit commonly used forms (including a bank receipt as proof of payment of the initial share capital). All the statutory forms and notices are available on the website free of charge. The MBR may also request that due diligence on the directors, shareholders, and/or beneficial owners be provided before proceeding with the incorporation. Upon incorporation, companies must pay a registration fee payable to the MBR according to the amount of share capital held by the company.

Once all the requirements above are satisfied, the MBR will normally carry out incorporation of a company within two to three working days. Once incorporation is complete, the MBR will publish a Certificate of Incorporation that will also display the company registration number.

MBR website: https://mbr.mt/ 

The Government of Malta also offers a one-stop shop for businesses – Business First – that assists companies with all processing of services and information to establish a company. Business First brings more than 50 essential services from various government departments and entities under one roof. It assists all enterprises based in Malta, including micro enterprises, small and medium-sized enterprises (SMEs), larger companies, and foreign investors wishing to set up in the country.

Business First website: https://businessfirst.com.mt/ 

Outward Investment

TradeMalta, incorporated in 2014, is a public-private partnership between the government and the Chamber of Commerce to help Malta-based enterprises internationalize. TradeMalta is also the national organization tasked with marketing and coordinating both incoming and outgoing trade missions, promoting participation in international trade fairs, facilitating bilateral trade meetings, and researching new market opportunities. Although TradeMalta promotes outward investment and incentives for companies to seek international business, it does not provide financial incentives to set up FDI in other jurisdictions. This quasi-governmental organization is also tasked with maintaining business relationships with countries with whom Malta has a trading activity and dedicates its resources to identifying new markets, which are not considered as traditional trading partners. (For the past three years, it has targeted African countries for outgoing trade missions.)

The organization provides specialized training programs in international business development and marketing and administers incentive schemes and internationalization programs aimed at both novice and experienced exporters.

The government actively supports and promotes franchising, joint-ventures, and other forms of international business opportunities between Malta-based businesses and foreign companies.

Transparency of the Regulatory System

Malta has transparent and effective policies and regulations to foster competition. It has revised labor, safety, health, and other laws to conform to EU standards.

Stakeholder engagement is currently required for all subordinate regulations as part of the Regulatory Impact Assessment (RIA) process as well as for some primary laws in selected policy areas. Each online consultation is accompanied by a feedback report, summarizing the views of participants and providing feedback on the comments received. According to OECD 2019 report on Indicators of Regulatory Policy and Governance, the transparency of the Maltese regulatory framework could be further strengthened by making RIAs available for consultations with stakeholders by systematically engaging with stakeholders during the development of primary laws, specifically at an early stage, before a preferred regulatory decision has been identified.

International Regulatory Considerations

Malta’s regulatory system is derived from the acquis communautaire, the body of laws, rights, and obligations that are binding on all EU member states. Consequently, trade and investment relations with third countries are an EU responsibility under the Common Commercial Policy. However, with respect to investment, Malta does have some competence in certain investment areas. In particular, where the EU does not have or is not negotiating an investment protection agreement, Malta can hold or negotiate one unilaterally. Malta also maintains competence in the areas of transport and portfolio investment, as well as corporate taxation. Malta is currently working on taking the necessary steps to implement the EU-wide mechanism for cooperation on investment as required by the new EU framework for investment screening which entered into force on April 10, 2019. The Malta draft bill still needs to be considered and passed in parliament.

Malta became a WTO member on January 1, 1995. However, all draft technical regulations to the WTO Committee on Technical Barriers to Trade are now made at the EU level.

Malta ratified the Trade Facilitation Agreement on October 5, 2015 and is in full compliance with its implementation commitments.

Legal System and Judicial Independence

Malta’s Commercial Code regulates commercial activities and related legislation, such as the Banking Act, the Central Bank of Malta Act, and bankruptcy. In cases of bankruptcy, the court appoints a curator to liquidate the assets of the bankrupt company, organization, or individual, and distributes the proceeds among the creditors.

The Maltese judiciary is independent, and courts are divided into superior courts, presided over by judges, and inferior courts, presided over by magistrates. Inferior courts have jurisdiction over minor offenses of a criminal nature and small civil matters. The judiciary traditionally functions through the Criminal, Civil, and Constitutional courts. The First Hall of the Civil Court hears commercial cases. Malta has a Criminal Court of Appeal and a second Court of Appeal for all other matters. The Constitutional Court has jurisdiction to hear and determine questions and appeals on constitutional issues. There are also a number of administrative tribunals, such as the Industrial Tribunal, the Rent Regulation Board, the Sanction Monitoring Board, and the Board of Special Commissioners (for income tax purposes). Malta adopted the European Convention of Human Rights as part of its domestic law in 1987.

The Maltese judiciary has a long tradition of independence. Once appointed to the bench, judges and magistrates have fixed salaries that do not require annual approval. Judges cannot be dismissed, except by a two-thirds vote in the House of Representatives for proven misbehavior or the inability to exercise properly their function. The Maltese Constitution guarantees the separation of powers between the executive and the judiciary and a fair trial. In December 2018, the European Commission for Democracy through Law, known as the Venice Commission, issued an opinion on the constitutional arrangements, separation of powers, and independence of the judiciary and law enforcement bodies of Malta. The Commission recommended setting up an office of an independent Director of Public Prosecutions with security of tenure, being responsible for all public prosecutions, subject to judicial review. The opinion also recommended abolishing the possibility that judges can be dismissed by Parliament and suggested modifications to the system of the judicial appointments. Malta is currently in the process of implementing changes in accordance with the Venice Commission recommendation and has thus far has achieved successfully separated the previous dual roles of the Attorney General as both the public prosecutor and the state attorney.

Laws and Regulations on Foreign Direct Investment

Several laws govern foreign investment in Malta. The Income Tax Act of 1948 (as amended in 1994) establishes a single rate of taxation of 35 percent on income for limited liability companies in Malta. In certain qualifying cases, this rate can fall to five percent through a system of tax refunds on dividends paid. The Business Promotion Act authorizes the Government of Malta to allocate fiscal and other incentives to companies engaged in manufacturing (including software development), repair, or maintenance activities. The Malta Enterprise Act of 2003 enables Malta Enterprise to develop and administer incentives and other forms of support to liberalize and update legislation relevant to FDI. The Companies Act of 1995 regulates the creation of limited liability companies. The Companies Act also provides for the establishment of investment companies with variable share capital (SICAVS) and companies with share capital denominated in a foreign currency. The Malta Financial Services Authority Act of 1989 established the Malta Financial Services Authority (MFSA), which is responsible for the regulation of banking and investment services in Malta. The Investment Services Act of 1994 regulates investment services in the banking and insurance sectors. In 2018, Malta enacted three new acts related to blockchain. The Malta Digital Innovation Authority Act (MDIA) establishes the Authority that oversees and regulates innovative technologies, along with the Innovative Technology Arrangement and Services Act (ITAS) that regulates Innovative Technology Arrangements and Services, such as the software and coding used in digital ledger technology (DLT), smart contract, and related applications, together with the technical administration and review services. In 2018, the MFSA was entrusted with the Virtual Financial Assets Act (VFA) that regulates Initial Virtual Financial Assets Offerings and delineates their licensing requirements.

Competition and Anti-Trust Laws

Malta is a free-trade, open-economy country. The government does not approve or restrict any FDI, so long as it complies with EU and national regulations. Malta Enterprise reviews FDI before granting any incentives to a private entity or business. A due diligence process is carried out prior to approving greenfield investments. The MFSA undertakes the filings and regulatory screenings on financial investments.

The Office for Competition, currently housed within the Malta Competition and Consumer Affairs Authority (MCCAA), is the office tasked with protecting competition in Malta. The Maltese Competition Act is modelled on EU competition law. The latest amendments to the Competition Act in 2011 strengthened its deterrent effect by widening the decision-making powers of the Office for Competition and further aligned both the substantive and procedural rules with those existing under EU law.

In 2017, the Office for Competition reviewed plans for a merger between telecommunications companies Vodafone Malta and Melita. When the parties were unable to satisfy the MCCAA’s requirements, they terminated their plans to merge.

Expropriation and Compensation

The Government of Malta, in exceptional instances, expropriates private property for public purposes. In such cases, the government must take action in a non-discriminatory manner and in accordance with established principles of international law. Investors and lenders of expropriated property receive prompt, adequate, and effective compensation. In 1993, the government’s Property Division started accepting expropriation requests by public bodies only if the requests were accompanied by the compensation due to the landowners. In 2002, this practice was made law. As a result, the government may only expropriate private property if the presidential decree also includes a deposit for the compensation due. In recent years, the government has appropriated land mainly for the widening of roads; however, no particular sectors are at risk for expropriation or similar actions, and no laws force local ownership.

Dispute Settlement

ICSID Convention and New York Convention

Malta signed the Convention on the Settlement of Investment Disputes (ICSID) in 2002. Malta is also a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards (UNCITRAL).

Investor-State Dispute Settlement

There have been no significant investment disputes over the past few years involving U.S. or other foreign investors or contractors in Malta. In a limited number of cases, U.S. investors have identified difficulties in obtaining fair legal resolutions, especially in disputes with Maltese parties. Courts in Malta are slow in processing cases. Reforms to increase efficiency in the judicial system are part of an ongoing constitutional reform effort, including the recent progress Malta made on implementing the Venice Commission recommendations. In December 2019, the State Advocate Act came in effect, as part of the reform in the Maltese justiciary, which split the Attorney General’s (AG) dual government advisory and prosecutorial roles.

International Commercial Arbitration and Foreign Courts

Malta honors the enforcement of foreign court judgments and foreign arbitration awards. Bilateral investment treaties, which Malta has with several countries (see section 3, Bilateral Investment Agreements), provide for the acceptable methods of settling disputes connected with citizens of those countries.

Bankruptcy Regulations

The Companies Act and the Commercial Code Bankruptcy in Malta and the Set-off and Netting on Insolvency Act of 2003 regulate bankruptcy. The latter provides for the set-off and netting due to each party with respect to mutual credits, mutual debts, or other mutual dealings that are enforceable whether before or after bankruptcy or insolvency.

The Maltese insolvency law regime distinguishes between bankruptcies of a person and bankruptcies of a commercial partnership other than a company. When a company cannot pay its debts, it may initiate insolvency proceedings. In such a case, the court examines carefully whether the financial situation of the company justifies its insolvency or whether it could remain operational and continue to pay its debts.

Any officer of a company who, in the twelve months prior to the deemed date of dissolution, concealed assets or documents, disposed of assets, or otherwise acted in a fraudulent manner may be criminally liable. Separately, courts may find any such officers civilly liable for such acts and require them to pay back to the company any moneys due. The law also provides for proceedings in cases of wrongful trading by directors and fraudulent trading by any officer of the company.

The Malta Association of Credit Management, known as MACM, is a members-owned, not-for-profit organization, providing a central national organization for the promotion and protection of all credit interests pertaining to Maltese businesses. More information at: https://www.macm.org.mt/ .

Capital Markets and Portfolio Investment

Malta’s Stock Exchange was established in 1993. In 2002, the Financial Markets Act effectively replaced the Malta Stock Exchange Act of 1990 as the law regulating the operations and setup of the Malta Stock Exchange. This legislation divested the Malta Stock Exchange of its regulatory functions and transferred these functions to the Malta Financial Services Authority (MFSA). The Financial Markets Act also set up a Listing Authority, which is responsible for granting “Admissibility to Listing” to companies seeking to have their securities listed on the Exchange.

To date, the few companies publicly listed on the Malta Stock Exchange have not faced the threat of hostile takeovers. Malta has no laws or regulations authorizing firms to adopt articles of incorporation/association that would limit foreign investment, participation, or control. Legal, regulatory, and accounting systems are transparent and consistent with international norms; several U.S. auditing firms have local offices.

Money and Banking System

The Maltese banking system is considered sound. In recent years, local commercial banks expanded the scope of their lending portfolios. Capital is available from both public and private sources; both foreign and local companies can obtain capital from local lending facilities. Commercial banks and their subsidiaries can provide loans at commercial interest rates. It is possible for new investors to negotiate soft loans from the government covering up to 75 percent of the projected capital outlay.

No U.S. bank has a branch in Malta. BNF and HSBC Malta currently maintain direct correspondent banking relationships with U.S. banks. Some local banks act as correspondents of several U.S. banks via other EU banks, though such a relationship often results in higher transaction costs.

The majority of banks have stopped opening accounts for companies that do not operate in Malta, those that operate in the electronic gaming sector, and those operating in the cryptocurrency sector. The few banks that still offer these services have tightened their due diligence processes, resulting in long delays to open accounts.

Malta takes pride in being the first country to propose a legal framework for the creation of an Authority to regulate Blockchain, Artificial Intelligence, and Internet of Things (IOT) devices. In 2018, Government enacted three legislations that provide a regulatory framework on Distributed Ledger Technology, issuers of Initial Coin Offerings (ICOs), and related service providers dealing in virtual currencies, which currently fall outside the scope of a legislative and regulatory regime.

Foreign Exchange and Remittances

Foreign Exchange

As long as investors present the appropriate documents to the Central Bank of Malta, there are no limitations on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported raw materials. There are no significant delays in converting investment returns to foreign currency after presentation of the necessary documents. Maltese regulations and practices affecting remittances of investment capital and earnings have been streamlined, as several foreign exchange controls were relaxed to conform to EU directives. Malta joined the Eurozone in January 2008.

Remittance Policies

A company incorporated under the laws of Malta is considered ordinarily resident and domiciled in Malta. Companies which are ordinarily resident and domiciled in Malta are subject to tax on their worldwide income. A company not incorporated in Malta, but managed and controlled in Malta, is subject to tax on a remittance basis on its foreign-sourced income.

Companies subject to tax on a remittance basis are taxed on:

• Income and capital gains deemed to arise in Malta
• Income deemed arise outside Malta and remitted to Malta

Companies subject to the remittance basis are not taxed on:

• Income deemed to arise outside Malta which is not remitted to Malta
• Capital gains arising outside Malta

Companies which are not incorporated in Malta are considered to be resident in Malta when their management and control is shifted to Malta.

Malta does not allow the application of the remittance basis of taxation to individuals who are either (a) domiciled but not ordinarily resident or (b) ordinarily resident but not domiciled in Malta, whose spouse is both ordinarily resident and domiciled in Malta. In this regard, such individuals will now become taxable on their worldwide income and capital gains, irrespective of receipt/remittance of such income to Malta not domiciled in Malta.

Sovereign Wealth Funds

Malta has recently established the National Development and Social Fund (NDSF) to manage and administer receipts from the country’s Individual Investor Programme. Since inception through October 2019, it raised a total of €544 million ($593 million). The Sovereign Wealth Fund Institute ranked Malta’s NDSF the 71st world’s largest sovereign wealth fund. The fund receives 70 percent of its contributions from the country’s citizenship program. It has future charitable commitments of €56 million and, funds will also be funneled into the economy to help soften the economic crises brought about by the COVID-19 pandemic. The mission of the NDSF is to contribute towards, promote, and support major projects and initiatives of national importance and public interest. These initiatives and projects are intended to develop and improve the economy, public services, and the general well-being of present and future generations.

The Malta Investment Management Company Limited (MIMCOL) was established in 1988 to manage, restructure, and selectively divest the Government of Malta from state-owned enterprises (SOEs). MIMCOL also promotes private sector investment using cost-effective business practices across various SOEs. MIMCOL created strategies leading to the dissolution of SOEs with limited commercial prospects, as well as the profitable spin-off of non-core operations with commercial potential. MIMCOL’s focus then turned to SOEs deemed of strategic national value, but whose inefficient operations were reflective of a lack of competition. Eventually, MIMCOL prepared most SOEs for privatization and sold them off. Today, MIMCOL’s role has evolved into specialized assignments, such as strategic reviews of the management and operations of important parastatal companies and corporations operating in various sectors.MIMCOL’s sister company Malta Government Investments (MGI) holds a portfolio of 17 companies (excluding companies falling under the responsibility of other ministries and investments held directly by the government). This portfolio is not well defined. Most government investments are held by either the Board of Trustees within the Ministry for the Economy, Investment, and Small Business, or by Malta Government Investments Limited (MGI) as an agent for the Government of Malta.

Privatization Program

In recent years, the Maltese government has privatized a number of state-controlled firms, including the country’s largest bank, the postal service, shipyards, energy generation plants, and the wireless telecommunications industry. Although no plans exist to privatize Air Malta, the national airline, the Government of Malta was considering options for a strategic minority partner, though these plans are currently on hold. Ryanair also operates a subsidiary airline called Malta Air that incorporated its 61 Ryanair routes to and from Malta. The Ryanair fleet will register with the Malta Aviation Authority.

In 2015, the Government of Malta set up Projects Malta and Projects Plus Ltd to coordinate and facilitate public private partnerships between government ministries and the private sector. The government welcomes private investors, Maltese and non-Maltese, in privatization projects. It affords foreign investors equal treatment with domestic investors and sets few limitations on their operations. The government recently finalized its first international public-private partnership in the healthcare industry. Foreign investors can repatriate or reinvest profits without restriction and take disputes before the International Center for the Settlement of Investment Disputes (ICSID).

Malta is considered to have a safe political system and is secure relative to other countries in the region.

* Source for Host Country Data: Malta National Statistics Office

** Exchange rates: $1 = €0.893 (2019 figures); $1 = €0.848 (2018 figures)

Policies Towards Foreign Direct Investment

With the exception of its agricultural sector, foreign investment into Switzerland is generally not hampered by significant barriers, with no reported discrimination against foreign investors or foreign-owned investments.  Incidents of trade discrimination do exist, for example with regards to agricultural goods such as bovine genetics products.

A Swiss government-affiliated non-profit organization, Switzerland Global Enterprise (S-GE), has a nationwide mandate to attract foreign business to Switzerland on behalf of the Swiss Confederation.  S-GE promotes Switzerland as an economic hub and fosters exports, imports, and investments.  Some city and cantonal governments offer access to an ombudsman, who may address a wide variety of issues involving individuals and the government, but does not focus exclusively on investment issues.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic enterprises may freely establish, acquire, and dispose of interests in business enterprises in Switzerland.  Switzerland does not maintain an investment screening mechanism for inbound foreign investment; Parliament instructed the Federal Council to prepare one in March 2020.  This process is expected to take at least two years, and a mechanism may enter into force in 2023.  There are some investment restrictions in areas under state monopolies, including certain types of public transportation, postal services, alcohol and spirits, aerospace and defense, certain types of insurance and banking services, and the trade in salt.  Restrictions (in the form of domicile requirements) also exist in air and maritime transport, hydroelectric and nuclear power, operation of oil and gas pipelines, and the transportation of explosive materials.  Additionally, the following legal restrictions apply within Switzerland:

Corporate boards: A company registered in Switzerland must be represented by at least one person domiciled in Switzerland.  This can be either a member of the board of directors or a member of the executive board (article 718 para. 4 of the Code of Obligations).  Foreign-controlled companies often meet this requirement by nominating Swiss directors.  However, the manager of a company need not be a Swiss citizen, and company shares may be controlled by foreigners.  Further, since January 1, 2021, larger publicly listed companies headquartered in Switzerland must fill at least 30 percent of their board positions with women.  Companies have five years to meet this requirement, otherwise they will be required to state the reasons and outline planned remediation measures in their compensation report to shareholders.  The establishment of a commercial presence by persons or enterprises without legal status under Swiss law requires a cantonal establishment authorization.  These requirements do not generally pose a major hardship or impediment for U.S. investors.

Hostile takeovers:  Swiss corporate equity can be issued in the form of either registered shares (in the name of the holder) or bearer shares.  Provided the shares are not listed on a stock exchange, Swiss companies may, in their articles of incorporation, impose certain restrictions on the transfer of registered shares to prevent hostile takeovers by foreign or domestic companies (article 685a of the Code of Obligations).  Hostile takeovers can also be annulled by public companies under certain circumstances.  The company must cite in its statutes significant justification (relevant to the survival, conduct, and purpose of its business) to prevent or hinder a takeover by a foreign entity.  Furthermore, public corporations may limit the number of registered shares that can be held by any shareholder to a percentage of the issued registered stock.  Under the public takeover provisions of the 2015 Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading and its 2019 amendments, a formal notification is required when an investor purchases more than 3 percent of a Swiss company’s shares.  An “opt-out” clause is available for firms that do not want to be taken over by a hostile bidder, but such opt-outs must be approved by a super-majority of shareholders, and must take place well in advance of any takeover attempt.

Banking: Those wishing to establish banking operations in Switzerland must obtain prior approval from the Swiss Financial Market Supervisory Authority (FINMA), a largely independent agency administered under the Swiss Federal Department of Finance.  FINMA promotes confidence in financial markets and works to protect customers, creditors, and investors.  FINMA approval of bank operations is generally granted if the following conditions are met: reciprocity on the part of the foreign state; the foreign bank’s name must not give the impression that the bank is Swiss; the bank must adhere to Swiss monetary and credit policy; and a majority of the bank’s management must have their permanent residence in Switzerland.  Otherwise, foreign banks are subject to the same regulatory requirements as domestic banks.

Banks organized under Swiss law must inform FINMA before they open a branch, subsidiary, or representation abroad.  Foreign or domestic investors must inform FINMA before acquiring or disposing of a qualified majority of shares of a bank organized under Swiss law.  If exceptional temporary capital outflows threaten Swiss monetary policy, the Swiss National Bank, the country’s independent central bank, may require other institutions to seek approval before selling foreign bonds or other financial instruments.

Insurance: A federal ordinance requires the placement of all risks physically situated in Switzerland with companies located in the country.  Therefore, it is necessary for foreign insurers wishing to provide liability coverage in Switzerland to establish a subsidiary or branch in-country.

U.S. investors have not identified any specific restrictions that create market access challenges for foreign investors.

Other Investment Policy Reviews

The World Trade Organization’s (WTO) September 2017 Trade Policy Review of Switzerland and Liechtenstein includes investment information.  Other reports containing elements referring to the investment climate in Switzerland include the OECD Economic Survey of November 2019.

• Link to the WTO report:

https://www.wto.org/english/tratop_e/tpr_e/tp_rep_e.htm#bycountry

• Link to the OECD reports / papers: https://www.oecd-ilibrary.org/economics/oecd-economic-surveys-switzerland-2019_7e6fd372-en

Business Facilitation

The Swiss government-affiliated non-profit organization Switzerland Global Enterprise (SGE) has a mandate to attract foreign business to Switzerland on behalf of the Swiss Confederation.  SGE promotes Switzerland as an economic hub and fosters exports, imports, and investments.  Larger regional offices include the Greater Geneva-Berne Area (which covers large parts of Western Switzerland), the Greater Zurich Area, and the Basel Area.  Cantonal and regional Chambers of Commerce provide similar support.  Each canton has a business promotion office dedicated to helping facilitate real estate location, beneficial tax arrangements, and employee recruitment plans.  These regional and cantonal investment promotion agencies do not require a minimum investment or job-creation threshold in order to provide assistance.  However, these offices generally focus resources on attracting medium-sized or larger entities with the potential to create higher numbers of jobs in their region.

References:

• The Swiss government’s online portal (“easygov”) is Switzerland’s online registration website and includes links to the main local interlocutors for business related questions: https://www.easygov.swiss/easygov/#/
• Switzerland Global Enterprise connects companies with potential host regions: https://www.s-ge.com/en/investment-promotion
• Some of the larger promotion offices are:
• Greater Geneva-Bern Area: https://www.ggba-switzerland.ch/en/
• Greater Zurich Area: https://www.greaterzuricharea.com/enBasel Area: https://www.baselarea.swiss/

Switzerland has a dual system for granting work permits and allowing foreigners to create their own companies in Switzerland.  Employees who are citizens of the EU/EFTA area can benefit from the EU Free Movement of Persons Agreement.  Permits for people from countries outside the EU/EFTA area, such as U.S. citizens, are restricted to highly qualified personnel.  U.S. citizens who want to become self-employed in Switzerland must meet Swiss labor market requirements.  The criteria for admittance, which usually do not create unusual hindrances for U.S. persons, are contained in:

• The Federal Act on Foreign Nationals and Integration (unofficial English translation): https://www.admin.ch/opc/en/classified-compilation/20020232/index.html
• Decree on Admittance, Residence and Employment (VZAE) (available in German, French, Italian): https://www.admin.ch/opc/de/classified-compilation/20070993/index.html

Setting up a company in Switzerland requires registration at the relevant cantonal Commercial Registry.  The cost for registering a company can range considerably, from a few hundred Swiss francs in the case of sole proprietorships or joint partnerships, to higher registration costs for limited liability companies or corporations.  A list of Swiss federal fees generally applied for small and medium-sized companies is available at https://www.kmu.admin.ch/kmu/en/home/concrete-know-how/setting-up-sme/starting-business/trade-register%20/registration-costs.html.  However, additional cantonal fees can add significantly to total registration costs, and Public Notary fees may also be necessary, which can also vary considerably by canton.

Other steps/procedures for registration include:  1) placing paid-in capital in an escrow account with a bank; 2) drafting articles of association in the presence of a notary public; 3) filing a deed certifying the articles of association with the local commercial register to obtain a legal entity registration; 4) paying the stamp tax at a post office or bank after receiving an assessment by mail; 5) registering for VAT; and 6) enrolling employees in the social insurance system (federal and cantonal authorities).

The World Bank’s Doing Business Report 2020 ranks Switzerland 36^th in the ease of doing business among the 190 countries surveyed, and 81^st in the ease of starting a business, with a six-step registration process and 10 days required to set up a company.

Outward Investment

While Switzerland does not explicitly promote or incentivize outward investment, Switzerland’s export promotion agency Switzerland Global Enterprise facilitates overseas market entry for Swiss companies through its Swiss Business Hubs in several countries, including the
United States.  Switzerland does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

The Swiss government uses transparent policies and effective laws to foster a competitive investment climate.  Proposed laws and regulations are open for three-month public comment from interested parties, interest groups, cantons, and cities before being discussed within the bicameral parliament or promulgated by the appropriate regulatory authority.  Authorities take comments into account carefully, particularly since proposals may be subject to optional or automatic referenda that allow Swiss voters to reject or accept the proposals.  Only in rare instances – such as the case of the extension of a moratorium until 2025 on planting GMO crops – are regulations reviewed on the basis of political or customer preferences rather than solely on the basis of scientific analysis.

International Regulatory Considerations

Switzerland is not a member of the European Union.  However, Switzerland adopts many EU standards in line with a series of agreements with the EU.

The WTO concluded in 2017 that Switzerland has regularly notified its draft technical regulations, ordinances, and conformity assessment procedures to the WTO TBT Committee.  Switzerland has been a signatory to the Trade Facilitation Agreement (TFA) since 2015.

Legal System and Judicial Independence

Swiss civil law is codified in the Swiss Civil Code (which governs the status of individuals, family law, inheritance law, and property law) and in the Swiss Code of Obligations (which governs contracts, torts, commercial law, company law, law of checks and other payment instruments).  Switzerland’s civil legal system is divided into public and private law.  Public law governs the organization of the state, as well as the relationships between the state and private individuals or other entities, such as companies.  Constitutional law, administrative law, tax law, criminal law, criminal procedure, public international law, civil procedure, debt enforcement, and bankruptcy law are sub-divisions of public law.  Private law governs relationships among individuals or entities.  Intellectual property law (copyright, patents, trademarks, etc.) is an area of private law.  Labor is governed by both private and public law.

All cantons have a high court, which includes a specialized commercial court in four cantons (Zurich, Bern, St. Gallen and Aargau).  The organization of the judiciary differs by canton; smaller cantons have only one court, while larger cantons have multiple courts.  Cantonal high court decisions can be appealed to the Swiss Supreme Court.  The court system is independent, competent, and fair.

Switzerland is party to a number of bilateral and multilateral treaties governing the recognition and enforcement of foreign judgments.  The Lugano Convention, a multilateral treaty tying Switzerland to European legal conventions, entered into force in 2011 (replacing an older legal framework by the same name).  A set of bilateral treaties is also in place to handle judgments of specific foreign courts.  While no such agreement is in place between the United States and Switzerland, Switzerland operates under the New York Convention on Recognition and Enforcement of Foreign Arbitral Law, meaning local courts must enforce international arbitration awards under specific circumstances.

Laws and Regulations on Foreign Direct Investment

The major laws governing foreign investment in Switzerland are the Swiss Code of Obligations, the Lex Friedrich/Koller, Switzerland’s Securities Law, the Cartel Law and the Financial Market Infrastructure Act.  There is no specific screening of foreign investment beyond a normal anti-trust review.  Parliament instructed the Federal Council to prepare a foreign investment screening mechanism in March 2020, a process expected to take two years with the earliest date for entry into force in 2023.  There are few sectoral or geographic incentives or restrictions; exceptions are described below in the section on performance requirements and incentives.

There is no pronounced interference in the court system that should affect foreign investors.

Useful websites:

• The Swiss Code of Obligations, including an unofficial English translation: https://www.admin.ch/opc/en/classified-compilation/19110009/index.html
• Information on the acquisition of property in Switzerland by persons abroad: https://www.bj.admin.ch/dam/data/bj/wirtschaft/grundstueckerwerb/lex-e.pdf
• The Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (Unofficial English translation):  https://www.admin.ch/opc/en/classified-compilation/20141779/index.html
• The Federal Act on Cartels and other Restraints of Competition including an unofficial English translation: https://www.admin.ch/opc/en/classified-compilation/19950278/index.html
• Switzerland Global Enterprise provides a “handbook for investors” with the relevant laws: https://www.s-ge.com/en/publication/handbook-investors/handbook-investors

Competition and Antitrust Laws

The Swiss Competition Commission and the Swiss Takeover Board review competition-related concerns, and regularly decide on questions concerning mergers, market access, abuse of market position, and other matters affecting competitive advantage.  The Competition Commission is currently considering a case to determine whether MasterCard has the right to refuse co-badging of a National Cash Scheme of Swiss stock exchange operator SIX for cash withdrawals from ATMs, for example.  In May and June 2020, the Commission decided on cases involving state subsidies in the aviation sector due to the COVID-19 crisis.  Subsidies to airlines SWISS and Edelweiss were permitted, but a planned subsidy to SR Technics, an aircraft maintenance provider controlled by China’s HNA group, was disallowed as incompatible with the terms of a Swiss-EU aviation sector agreement.  In September 2020, the Competition Commission fined cable television operator UPC the equivalent of over USD 30 million for having unfairly restricted access by other cable operators to Swiss ice hockey games.  Among notable recent cases of the Takeover Board was the approval in August 2020 for the acquisition of Swiss mobile communications provider Sunrise by cable television operator UPC Switzerland.

The Swiss agricultural sector remains heavily protected, in part through direct subsidy payments comprising two-thirds of an average farm’s profits.  On average, Swiss agriculture has one of the lowest levels of productivity among OECD members.  A newly negotiated trade agreement between EFTA and Mercosur contains provisions which would open Swiss markets to new levels of agricultural imports.  The agreement is pending Parliamentary review and approval.

Expropriation and Compensation

There are no known cases of expropriation within Switzerland.

Dispute Settlement

ICSID Convention and New York Convention

Switzerland has been a member of the International Center for Settlement of Investment Disputes (ICSID) since June 1968, and a member of the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards since June 1965.  Switzerland’s Federal Act on Private International Law (Art. 194) sets a minimum standard for the implementation of international arbitration awards in Switzerland.

Investor-State Dispute Settlement

Based on Switzerland’s membership in the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, local courts are entitled to enforce international arbitration awards.  According to the United Nations Conference on Trade and Development (UNCTAD), Switzerland has never been a respondent party to an investment dispute in international arbitration.

International Commercial Arbitration and Foreign Courts

Swiss courts recognize and enforce foreign arbitral awards in the framework of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  Post has no knowledge of any investor disputes in Switzerland involving U.S. persons within the last 10 years.

As business associations organized at the cantonal level, the Chambers of Commerce and Industry, of Basel, Bern, Geneva, Lausanne, Lugano, Neuchâtel, and Zurich have established the Swiss Chambers’ Arbitration Institution.  This entity offers dispute resolution based on Swiss Rules of International Arbitration and Swiss Rules of Commercial Mediation.  According to the Swiss Chambers’ Arbitration Institution, 96 cases were submitted in 2019 (latest available data); 63 of these cases involved foreign parties.

Bankruptcy Regulations

Switzerland’s bankruptcy law, the Federal Act on Debt Enforcement and Bankruptcy of 11 April 1889 (in German, French and Italian), does not criminalize bankruptcy.  Under the bankruptcy law, the same rights and obligations apply to foreign and Swiss contract holders.  Swiss authorities provide information about Swiss residents and companies regarding debts registered with the debt collection register.

The World Bank’s 2020 “Doing Business” survey ranks Switzerland 49^th out of 190 countries in resolving insolvency.  The average time to close a business in Switzerland is three years (compared to 1.7 years average across the OECD), with an average of 46.7 cents on the dollar recovered by claimants from insolvent firms (compared to 70.2 cents OECD average).

The Swiss Federal Statute on Private International Law (PILS, Art. 166-175, in force since January 1, 1989) governs Swiss recognition of foreign insolvency proceedings, including bankruptcies, foreign composition, and arrangements.  Swiss law requires reciprocity for recognition of foreign insolvency.

Capital Markets and Portfolio Investment

The Swiss government’s attitude toward foreign portfolio investment and market structures is positive, resulting in high global rankings by many indices.

The SIX Swiss stock exchange based in Zurich is a significant international stock market  based on market capitalization.

Money and Banking System

Switzerland is home to a sophisticated banking system that provides a high degree of service to both foreign and domestic entities.  Switzerland also has an effective regulatory system that encourages and facilitates portfolio investment.  The Swiss Bankers Association, which has nearly 300 member financial institutions, estimated that Switzerland’s banking sector managed assets amounting to approximately USD 8 trillion in 2019, almost half of which come from abroad, making Switzerland the world market leader in cross-border wealth management.  The largest banks, UBS and Credit Suisse, have total assets of approximately USD 1 trillion and USD 800 million, respectively, while Raiffeisen Switzerland holds about USD 250 billion and Zurich Cantonal Bank holds roughly USD 170 billion.  Switzerland’s independent central bank is the Swiss National Bank (SNB).

U.S. citizens who are resident in Switzerland may face difficulties in opening bank accounts at smaller Swiss banks as a result of the administrative costs of complying with additional regulatory and administrative procedures required for the accounts of U.S. persons under accepted disclosure rules.  Several associations provide information about Swiss banks that offer services to U.S. clients.  For more information, see the following page at the U.S. Embassy Bern website: https://ch.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/living-in-ch/banking-resources/

The Swiss government created a blockchain task force in January 2018 to foster cooperation between the traditional banking sector and the nascent industry and to discuss potential legal and regulatory reforms to attract blockchain technologies while maintaining anti-money laundering controls.  In December 2018, the Swiss government endorsed a report on the legal framework for blockchain and distributed ledger technology (DLT) in the financial sector, with the goal of creating favorable conditions for Switzerland to evolve as a leading location for fintech and DLT companies.  In September 2020, Parliament approved a “blockchain act,” proposed by the Swiss government to adapt federal legislation to recent developments in DLT.  The act will be implemented in two phases.  Company law reforms came into force on February 1, 2021, and a second batch of legislation on financial market infrastructure upgrades will follow in summer 2021.  This opens the doors to a fully regulated cryptocurrency and digital securities industry in Switzerland.  There are now a wide range of companies in Switzerland that can create and list DLT-compatible digital securities.  A network of trading platforms is expected to be established in 2021 as well.

Foreign Exchange and Remittances

Foreign Exchange

In 2015 the Swiss National Bank (SNB) abandoned the Swiss franc’s euro peg (CHF 1.20 / EUR), starting a period of strengthening of the franc over time.  Perceived as a “safe haven” currency, the franc often strengthens during times of economic downturn or crisis.  As of March 2021, the franc traded at just over CHF 1.10 / EUR, and just over CHF 0.94 / USD.

Since 2015, the SNB has attempted to limit the excessive strengthening of the franc by instituting a negative interest rate for commercial bank deposits at the SNB, currently set at -0.75 percent, while continuing an expansionary monetary policy through intervention in the foreign currency market.

In December 2020, the U.S. Treasury Department released its semi-annual Foreign Exchange Policies report, concluding that Switzerland had manipulated its currency under the terms of the Omnibus Trade and Competitiveness Act of 1988 and the Trade Facilitation and Trade Enforcement Act of 2015.  The report found that Switzerland met all three criteria used to determine currency manipulation in the 12 months through June 2020: a goods trade surplus with the United States of over $20 billion, a current account surplus of over 2 percent of GDP, and one-sided currency interventions totaling at least 2 percent of GDP.  The report acknowledged the economic upheaval from COVID generated massive safehaven inflows to the Swiss franc, which dramatically increased the upward pressure on the franc.  The SNB assessed in December 2020 that the franc was “highly valued,” and said it would maintain its current monetary and foreign currency intervention policies as needed to stabilize the economy and prices.  The strength of the franc lowers effective prices of imports to Switzerland, but also harms Swiss competitiveness as an export-oriented economy.

Remittance Policies

There are currently no restrictions on converting, repatriating, or transferring funds associated with an investment (including remittances of capital, earnings, loan repayments, lease payments, royalties) into a freely usable currency at the legal market clearing rate.

Sovereign Wealth Funds

Switzerland does not have a sovereign wealth fund or an asset management bureau.

The Swiss Confederation is the largest or sole shareholder in Switzerland’s five state-owned enterprises (SOEs), active in the areas of ground transportation (SBB), information and communication (Swiss Post, Swisscom), defense (RUAG, which was divided into two companies in January 2020 – see below), and aviation / air traffic control (Skyguide).  These companies are typically responsible for “public function mandates,” but may also cover commercial activities (e.g., Swisscom in the area of telecommunications).

SOEs typically have commercial relationships with private industry.  Private sector competitors can compete with SOEs under the same terms and conditions with respect to access to markets, credit, and other business operations.  Additional publicly owned enterprises are controlled by the cantons in the areas of energy, water supply, and a number of subsectors.  SOEs and canton-owned companies may benefit from exclusive rights and privileges (some of which are listed in Table A 3.2 of the most recent WTO Trade Policy Review – https://www.wto.org/english/tratop_e/tpr_e/tp455_e.htm).

Switzerland is a party to the WTO Government Procurement Agreement (GPA).  Some areas are partly or fully exempted from the GPA, such as the management of drinking water, energy, transportation, telecommunications, and defense.  Private companies may encounter difficulties gaining business in these exempted sectors.

Privatization Program

In the aftermath of a 2016 cyberattack, the Federal Council reviewed Swiss defense and aerospace company RUAG’s structure in light of cybersecurity concerns for the Swiss military, and decided in June 2018 to split the company. RUAG was split into two holding companies as of January 1, 2020.  A smaller company, MRO Switzerland, remains state-owned and provides essential technology and systems support to the Swiss military.  A larger company, RUAG International, includes non-armaments aviation and aerospace businesses, and will be gradually fully privatized in the medium term, according to the Swiss government.

There is minimal risk from civil unrest in Switzerland.  Protests do occur in Switzerland, but authorities carefully monitor protest activities.  Urban areas regularly experience demonstrations, mostly on global trade and political issues, and some occasionally sparked by U.S. foreign policy.  Protests held during the annual World Economic Forum (WEF) occasionally draw participants from several countries in Europe.  Historically, demonstrations have been peaceful, with protestors registering for police permits.  Protestors have blocked traffic; spray-painted areas with graffiti, and on rare occasions, clashed with police.  Political extremist or anarchist groups sometimes instigate civil unrest.  Right-wing activists have targeted refugees/asylum seekers/foreigners, while left-wing activists (who historically have demonstrated a greater propensity toward violence) usually target organizations involved with globalization, alleged fascism, and alleged police repression.  Swiss police have at their disposal tear gas and water cannons, which are rarely used.

Average exchange rate for 2020: 1 USD = 0.939 CHF
Average exchange rate for 2019: 1 USD = 0.994 CHF
* Source: Federal Office of Statistics, Swiss National Bank
**Significant statistical discrepancies are due to methodological differences in measuring foreign direct investment.  Data most recent available.  Swiss data based on ultimate beneficial ownership.