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Brazil

Executive Summary

Brazil is the second largest economy in the Western Hemisphere behind the United States, and the eighth largest economy in the world, according to the World Bank.  The United Nations Conference on Trade and Development (UNCTAD) named Brazil the fourth largest destination for global Foreign Direct Investment (FDI) flows in 2017.  In recent years, Brazil received more than half of South America’s total incoming FDI, and the United States is a major foreign investor in Brazil. The Brazilian Central Bank (BCB) reported the United States had the largest single-country stock of FDI by final ownership, representing 22 percent of all FDI in Brazil (USD 118.7 billion) in 2017, the latest year with available data.  The Government of Brazil (GoB) prioritized attracting private investment in infrastructure during 2017 and 2018.

The current economic recovery, which started in the first quarter of 2017, ended the deepest and longest recession in Brazil’s modern history.  The country’s Gross Domestic Product (GDP) expanded by 1.1 percent in 2018, below most initial market analysts’ projections of 3 percent growth in 2018.  Analysts forecast a 2 percent growth rate for 2019. The unemployment rate reached 11.6 percent at the end of 2018. Brazil was the world’s fourth largest destination for FDI in 2017, with inflows of USD 62.7 billion, according to UNCTAD.  The nominal budget deficit stood at 7.1 percent of GDP (USD132.5 billion) in 2018 and is projected to end 2019 at around 6.5 percent of GDP (USD 148.5 billion). Brazil’s debt-to-GDP ratio reached 76.7 percent in 2018 with projections to reach 83 percent by the end of 2019.  The BCB has maintained its target for the benchmark Selic interest rate at 6.5 percent since March 2018 (from a high of 13.75 percent at the end of 2016).

President Bolsonaro took office on January 1, 2019, following the interim presidency by President Michel Temer, who had assumed office after the impeachment of former President Dilma Rousseff in August 2016.  Temer’s administration pursued corrective macroeconomic policies to stabilize the economy, such as a landmark federal spending cap in December 2016 and a package of labor market reforms in 2017. President Bolsonaro’s economic team pledged to continue pushing reforms needed to help control costs of Brazil’s pension system, and has made that issue its top economic priority.  Further reforms are also planned to simplify Brazil’s complex tax system. In addition to current economic difficulties, since 2014, Brazil’s anti-corruption oversight bodies have been investigating allegations of widespread corruption that have moved beyond state-owned energy firm Petrobras and a number of private construction companies to include companies in other economic sectors.  

Brazil’s official investment promotion strategy prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors.  Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are restrictions in the health, mass media, telecommunications, aerospace, rural property, maritime, and air transport sectors.  The Brazilian Congress is considering legislation to liberalize restrictions on foreign ownership of rural property and air carriers.

Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil.  Foreign investors also cite concerns over poor existing infrastructure, still relatively rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.  

 

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 105 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 109 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 64 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical-cost basis) 2017 $68,272 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $8,600 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Brazil was the world’s fourth largest destination for Foreign Direct Investment (FDI) in 2017, with inflows of USD 62.7 billion, according to UNCTAD.  The GoB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, and transportation infrastructure sectors – to introduce greater innovation into Brazil’s economy and to generate economic growth.  GoB investment incentives include tax exemptions and low-cost financing with no distinction made between domestic and foreign investors. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, insurance, and air transport sectors.  

The Brazilian Trade and Investment Promotion Agency (APEX) plays a leading role in attracting FDI to Brazil by working to identify business opportunities, promoting strategic events, and lending support to foreign investors willing to allocate resources to Brazil.  APEX is not a one-stop-shop for foreign investors, but the agency can assist in all steps of the investor’s decision-making process, to include identifying and contacting potential industry segments, sector and market analyses, and general guidelines on legal and fiscal issues.  Their services are free of charge. The website for APEX is: http://www.apexbrasil.com.br/en  .

Limits on Foreign Control and Right to Private Ownership and Establishment

A 1995 constitutional amendment (EC 6/1995) eliminated distinctions between foreign and local capital, ending favorable treatment (e.g. tax incentives, preference for winning bids) for companies using only local capital.  However, constitutional law restricts foreign investment in the healthcare (Law 13097/2015), mass media (Law 10610/2002), telecommunications (Law 12485/2011), aerospace (Law 7565/1986 a, Decree 6834/2009, updated by Law 12970/2014, Law 13133/2015, and Law 13319/2016), rural property (Law 5709/1971), maritime (Law 9432/1997, Decree 2256/1997), insurance (Law 11371/2006), and air transport sectors (Law 13319/2016).  

Screening of FDI

Foreigners investing in Brazil must electronically register their investment with the BCB within 30 days of the inflow of resources to Brazil.  In cases of investments involving royalties and technology transfer, investors must register with Brazil’s patent office, the National Institute of Industrial Property (INPI).  Investors must also have a local representative in Brazil. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM).  

To enter Brazil’s insurance and reinsurance market, U.S. companies must establish a subsidiary, enter into a joint venture, acquire a local firm, or enter into a partnership with a local company.  The BCB reviews banking license applications on a case-by-case basis. Foreign interests own or control 20 of the top 50 banks in Brazil. Santander is the only major wholly foreign-owned retail bank remaining in Brazil.  Brazil’s anti-trust authorities (CADE) approved Itau bank’s purchase of Citibank’s Brazilian retail banking operation in August 2017. In June 2016, CADE approved Bradesco bank’s purchase of HSBC’s Brazilian retail banking operation.  

Currently, foreign ownership of airlines is limited to 20 percent.  Congressman Carlos Cadoca (PCdoB-PE) presented a bill to Brazilian Congress in August of 2015 to allow for 100 percent foreign ownership of Brazilian airlines (PL 2724/2015).  The bill was approved by the lower house, and since March 2019, it is pending a Senate vote. In 2011, the United States and Brazil signed an Air Transport Agreement as a step towards an Open Skies relationship that would eliminate numerical limits on passenger and cargo flights between the two countries.  Brazil’s lower house approved the agreement in December 2017, and the Senate ratified it in March 2018. The Open Skies agreement has now entered into force.

In July 2015, under National Council on Private Insurance (CNSP) Resolution 325, the Brazilian government announced a significant relaxation of some restrictions on foreign insurers’ participation in the Brazilian market, and in December 2017, the government eliminated restrictions on risk transfer operations involving companies under the same financial group.  The new rules revoked the requirement to purchase a minimum percentage of reinsurance and eliminated a limitation or threshold for intra-group cession of reinsurance to companies headquartered abroad that are part of the same economic group. Rules on preferential offers to local reinsurers, which are set to decrease in increments from 40 percent in 2016 to 15 percent in 2020, remain unchanged.  Foreign reinsurance firms must have a representation office in Brazil to qualify as an admitted reinsurer. Insurance and reinsurance companies must maintain an active registration with Brazil’s insurance regulator, the Superintendence of Private Insurance (SUSEP) and maintaining a minimum solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch ratings of at least BBB-.

In September 2011, Law 12485/2011 removed a 49 percent limit on foreign ownership of cable TV companies, and allowed telecom companies to offer television packages with their service.  Content quotas require every channel to air at least three and a half hours per week of Brazilian programming during primetime. Additionally, one-third of all channels included in any TV package have to be Brazilian.  

The National Land Reform and Settlement Institute administers the purchase and lease of Brazilian agricultural land by foreigners.  Under the applicable rules, the area of agricultural land bought or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal district.  Additionally, no more than 10 percent of agricultural land in any given municipal district may be owned or leased by foreign nationals from the same country. The law also states that prior consent is needed for purchase of land in areas considered indispensable to national security and for land along the border.  The rules also make it necessary to obtain congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding. Draft Law 4059/2012, which would lift the limits on foreign ownership of agricultural land,

has been awaiting a vote in the Brazilian Congress since 2015.

Brazil is not a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but became an observer in October 2017.  By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable. Additionally, U.S. and other foreign firms may only bid to provide technical services when there are no qualified Brazilian firms.  U.S. companies need to enter into partnerships with local firms or have operations in Brazil in order to be eligible for “margins of preference” offered to domestic firms to participate in Brazil’s public sector procurement to help these firms win government tenders.  Foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts. Under trade bloc Mercosul’s Government Procurement Protocol, member nations Brazil, Argentina, Paraguay, and Uruguay are entitled to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers.  However, only Argentina has ratified the protocol, and per the Brazilian Ministry of Economy website, this protocol has been in revision since 2010, so it has not yet entered into force.

Other Investment Policy Reviews

The Organization for Economic Co-operation and Development’s (OECD) 2018 Brazil Economic Survey of Brazil highlights Brazil as a leading global economy.  However, it notes that high commodity prices and labor force growth will no longer be able to sustain Brazil’s economic growth without deep structural reforms.  While praising the Temer government for its reform plans, the OECD urged Brazil to pass all needed reforms to realize their full benefit. The OECD cautions about low investment rates in Brazil, and cites a World Economic Forum survey that ranks Brazil 116 out of 138 countries on infrastructure as an area in which Brazil must improve to maintain competitiveness.  

The OECD’s March 15, 2019 Enlarged Investment Committee Report BRAZIL: Position Under the OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations noted several areas in which Brazil needs to improve.  These observations include, but are not limited to: restrictions to FDI requiring investors to incorporate or acquire residency in order to invest; lack of generalized screening or approval mechanisms for new investments in Brazil; sectoral restrictions on foreign ownership in media, private security and surveillance, air transport, mining, telecommunication services; and, restrictions for non-residents to own Brazilian flag vessels.  The report did highlight several areas of improvement and the GoB’s pledge to ameliorate several ongoing irritants as well.

The IMF’s 2018 Country Report No. 18/253 on Brazil highlights that a mild recovery supported by accommodative monetary and fiscal policies is currently underway.  But the economy is underperforming relative to its potential, public debt is high and increasing, and, more importantly, medium-term growth prospects remain uninspiring, absent further reforms.  The IMF advises that against the backdrop of tightening global financial conditions, placing Brazil on a path of strong, balanced, and durable growth requires a committed pursuit of fiscal consolidation, ambitious structural reforms, and a strengthening of the financial sector architecture.  The WTO’s 2017 Trade Policy Review of Brazil notes the country’s open stance towards foreign investment, but also points to the many sector-specific limitations (see above). All three reports highlight the uncertainty regarding reform plans as the most significant political risk to the economy.  These reports are located at the following links:

http://www.oecd.org/brazil/economic-survey-brazil.htm  ,

https://www.oecd.org/daf/inv/investment-policy/Code-capital-movements-EN.pdf ,

https://www.imf.org/~/media/Files/Publications/CR/2017/cr17216.ashx  , and https://www.wto.org/english/tratop_e/tpr_e/tp458_e.htm  .

Business Facilitation

A company must register with the National Revenue Service (Receita) to obtain a business license and be placed on the National Registry of Legal Entities (CNPJ).  Brazil’s Export Promotion and Investment Agency (APEX) has a mandate to facilitate foreign investment. The agency’s services are available to all investors, foreign and domestic.  Foreign companies interested in investing in Brazil have access to many benefits and tax incentives granted by the Brazilian government at the municipal, state, and federal levels. Most incentives target specific sectors, amounts invested, and job generation.  Brazil’s business registration website can be found at http://receita.economia.gov.br/orientacao/tributaria/cadastros/cadastro-nacional-de-pessoas-juridicas-cnpj  .  

Outward Investment

Brazil does not restrict domestic investors from investing abroad, and APEX-Brasil supports Brazilian companies’ efforts to invest abroad under its “internationalization program”: http://www.apexbrasil.com.br/como-a-apex-brasil-pode-ajudar-na-internacionalizacao-de-sua-empresa  .  Apex-Brasil frequently highlights the United States as an excellent destination for outbound investment.  Apex-Brasil and SelectUSA (the U.S. government’s investment promotion office at the U.S. Department of Commerce) signed a memorandum of cooperation to promote bilateral investment in February 2014.

2. Bilateral Investment Agreements and Taxation Treaties

Brazil does not have a Bilateral Investment Treaty (BIT) with the United States.  In the 1990s, Brazil signed BITs with Belgium, Luxembourg, Chile, Cuba, Denmark, Finland, France, Germany, Italy, the Republic of Korea, the Netherlands, Portugal, Switzerland, the United Kingdom, and Venezuela.  The Brazilian Congress has not ratified any of these agreements. In 2002, the Executive branch withdrew the agreements from Congress after determining that treaty provisions on international Investor-State Dispute Settlement (ISDS) were unconstitutional.  

In 2015, Brazil developed a state-to-state Cooperation and Facilitation Investment Agreement (CFIA) which, unlike traditional BITs, does not provide for an ISDS mechanism.  CFIAs instead outline progressive steps for the settlement of “issue[s] of interest to an investor,” including: 1) an ombudsmen and a Joint Committee appointed by the two governments will act as mediators to amicably settle any dispute; 2) if amicable settlement fails, either of the two governments may bring the dispute to the attention of the Joint Committee; 3) if the dispute is not settled within the Joint Committee, the two governments may resort to interstate arbitration mechanisms.”  The GOB has signed several CFIAs since 2015 with: Mozambique (April 2015), Angola (May 2015), Mexico (May 2015), Malawi (October 2015), Colombia (October 2015), Peru (October 2015), Chile (November 2015), Iran (November 2016), Azerbaijan (December 2016), Armenia (November 2017), Ethiopia (April 2018), Suriname (May 2018), Guyana (December 2018), and the United Arab Emirates (March 2019). The following CFIAs are in force: Mexico, Angola, Armenia, Azerbaijan, and Peru. A few CFIAs have received Congressional ratification in Brazil and are pending ratification by the other country: Mozambique, Malawi, and Colombia (https://concordia.itamaraty.gov.br/ ).  Brazil also negotiated an intra-Mercosul protocol similar to the CFIA in April 2017, which was ratified on December 21, 2018.  (See sections on responsible business conduct and dispute settlement.)

Brazil does not have a double taxation treaty with the United States, but it does have such treaties with 34 other countries, including: Japan, France, Italy, the Netherlands, Canada, Spain, Portugal, and Argentina.  Brazil signed a Tax Information Exchange Agreement (TIEA) with the United States in March 2007, which entered into force on May 15, 2013. In September 2014, Brazil and the United States signed an intergovernmental agreement to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA).  This agreement went into effect in August 2015.

3. Legal Regime

Transparency of the Regulatory System

In the 2019 World Bank Doing Business report, Brazil ranked 109th out of 190 countries in terms of overall ease of doing business in 2018, an improvement of 16 positions compared to the 2018 report.  According to the World Bank, it takes approximately 20.5 days to start a business in Brazil. Brazil is seeking to streamline the process and decrease the amount to time it takes to open a small or medium enterprise (SME) to five days through its RedeSimples Program.  Similarly, the government has reduced regulatory compliance burdens for SMEs through the continued use of the SIMPLES program, which simplifies the collection of up to eight federal, state, and municipal-level taxes into one single payment.  

The 2019 World Bank study noted that the annual administrative burden for a medium-size business to comply with Brazilian tax codes is an average of 1,958 hours versus 160.7 hours in OECD high-income economies.  The total tax rate for a medium-sized business in Rio de Janeiro is 69 percent of profits, compared to the average of 40.1 percent in the OECD high-income economies. Business managers often complain of not being able to understand complex, and sometimes contradictory, tax regulations, despite their housing large local tax and accounting departments in their companies.  

Tax regulations, while burdensome and numerous, do not generally differentiate between foreign and domestic firms.  However, some investors complain that in certain instances the value-added tax collected by individual states (ICMS) favors locally-based companies that export their goods.  Exporters in many states report difficulty receiving their ICMS rebates when their goods are exported. Taxes on commercial and financial transactions are particularly burdensome, and businesses complain that these taxes hinder the international competitiveness of Brazilian-made products.  

Of Brazil’s ten federal regulatory agencies, the most prominent include:

  • ANVISA, the Brazilian counterpart to the U.S. Food and Drug Administration, which has regulatory authority over the production and marketing of food, drugs, and medical devices;
  • ANATEL, the country’s telecommunications agency, which handles telecommunications, and licensing and assigning of radio spectrum bandwidth;
  • ANP, the National Petroleum Agency, which regulates oil and gas contracts and oversees auctions for oil and natural gas exploration and production, including for offshore pre-salt oil and natural gas;
  • ANAC, Brazil’s civil aviation agency;
  • IBAMA, Brazil’s environmental licensing and enforcement agency; and
  • ANEEL, Brazil’s electric energy regulator that regulates Brazil’s power electricity sector and oversees auctions for electricity transmission, generation, and distribution contracts.

In addition to these federal regulatory agencies, Brazil has at least 27 state-level regulatory agencies and 17 municipal-level regulatory agencies.  

The Office of the Presidency’s Program for the Strengthening of Institutional Capacity for Management in Regulation (PRO-REG) has introduced a broad program for improving Brazil’s regulatory framework.  PRO-REG and the U.S. White House Office of Information and Regulatory Affairs (OIRA) are collaborating to exchange best practices in developing high quality regulations that mandate the least burdensome approach to address policy implementation.  

Regulatory agencies complete Regulatory Impact Analyses (RIAs) on a voluntary basis.  The Senate has approved a bill on Governance and Accountability for Federal Regulatory Agencies (PLS 52/2013 in the Senate, and PL 6621/2016 in the Chamber) that is pending Senate Transparency and Governance Committee approval after the Lower House proposed changes to the text in December 2018.  Among other provisions, the bill would make RIAs mandatory for regulations that affect “the general interest.” PRO-REG is drafting enabling legislation to implement this provision. While the legislation is pending, PRO-REG has been working with regulators to voluntarily make RIAs part of their internal procedures, with some success.  

The Chamber of Deputies, Federal Senate, and the Office of the Presidency maintain websites providing public access to both approved and proposed federal legislation.  Brazil is seeking to improve its public comment and stakeholder input process. In 2004, the GoB instituted a Transparency Portal, a website with data on funds transferred to and from the federal, state and city governments, as well as to and from foreign countries.  It also includes information on civil servant salaries.

In 2018, the Department of State found Brazil to have met its minimum fiscal transparency requirements in its annual Fiscal Transparency Report.  The Open Budget Index ranked Brazil on par with the United States in terms of budget transparency in its most recent (2017) index. The Brazilian government demonstrates adequate fiscal transparency in managing its federal accounts, although there is room for improvement in terms of completeness of federal budget documentation.  Brazil’s budget documents are publically available, widely accessible, and sufficiently detailed. They provide a relatively full picture of the GoB’s planned expenditures and revenue streams. The information in publicly available budget documents is considered credible and reasonably accurate.

International Regulatory Considerations

Brazil is a member of Mercosul – a South American trade bloc whose full members include Argentina, Paraguay, and Uruguay – and routinely implements Mercosul common regulations, but still adheres to Brazilian regulations.

Brazil is a member of the WTO, and the government regularly notifies draft technical regulations, such as agricultural potential barriers, to the WTO Committee on Technical Barriers to Trade (TBT).  

Legal System and Judicial Independence

Brazil has a civil legal system structured around courts at the state and federal level.  Investors can seek to enforce contracts through the court system or via mediation, although both processes can be lengthy.  The Brazilian Superior Court of Justice (STJ) must accept foreign contract enforcement judgments for the judgments to be considered valid in Brazil.  Among other considerations, the foreign judgement must not contradict any prior decisions by a Brazilian court in the same dispute. The Brazilian Civil Code, enacted in 2002, regulates commercial disputes, although commercial cases involving maritime law follow an older, largely superseded Commercial Code.  Federal judges hear most disputes in which one of the parties is the Brazilian State, and also rule on lawsuits between a foreign state or international organization and a municipality or a person residing in Brazil.

The judicial system is generally independent.  The Supreme Federal Court (STF), charged with constitutional cases, frequently rules on politically sensitive issues.  State court judges and federal level judges below the STF are career officials selected through a meritocratic examination process.  The judicial system is backlogged, however, and disputes or trials of any sort frequently require years to arrive at a final resolution, including all available appeals.  Regulations and enforcement actions can be litigated in the court system, which contains mechanisms for appeal depending upon the level at which the case is filed. The STF is the ultimate court of appeal on constitutional grounds; the STJ is the ultimate court of appeal for cases not involving constitutional issues.  

Laws and Regulations on Foreign Direct Investment

Foreigners investing in Brazil must electronically register their investment with the BCB within 30 days of the inflow of resources to Brazil.  Investors must register investments involving royalties and technology transfer with Brazil’s patent office, the National Institute of Industrial Property (INPI).  Investors must also have a local representative in Brazil. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM).  

Brazil does not offer a “one-stop-shop” for international investors.  There have been plans to do so for several years, but nothing has been officially created to facilitate foreign investment in Brazil.  The BCB website offers some useful information, but is not a catchall for those seeking guidance on necessary procedures and requirements.  The BCB’s website in English is: https://www.bcb.gov.br/en#!/home .

Competition and Anti-Trust Laws

The Administrative Council for Economic Defense (CADE), which falls under the purview of the Ministry of Justice, is responsible for enforcing competition laws, consumer protection, and carrying out regulatory reviews of mergers and acquisitions.  Law 12529 from 2011 established CADE in an effort to modernize Brazil’s antitrust review process and to combine the antitrust functions of the Ministry of Justice and the Ministry of Finance into CADE. The law brought Brazil in line with U.S. and European merger review practices and allows CADE to perform pre-merger reviews, in contrast to the prior legal regime that had the government review mergers after the fact.  In October 2012, CADE performed Brazil’s first pre-merger review.

In 2018, CADE conducted 74 formal investigations of cases that allegedly challenged the promotion of the free market.  It also approved 390 merger and/or acquisition requests and rejected an additional 14 requests.

Expropriation and Compensation

Article 5 of the Brazilian Constitution assures property rights of both Brazilians and foreigners that live in Brazil.  The Constitution does not address nationalization or expropriation. Decree-Law 3365 allows the government to exercise eminent domain under certain criteria that include, but are not limited to, national security, public transportation, safety, health, and urbanization projects.  In cases of eminent domain, the government compensates owners in cash.

There are no signs that the current federal government is contemplating expropriation actions in Brazil against foreign interests.  Brazilian courts have decided some claims regarding state-level land expropriations in U.S. citizens’ favor. However, as states have filed appeals to these decisions, the compensation process can be lengthy and have uncertain outcomes.  

Dispute Settlement

ICSID Convention and New York Convention

In 2002, Brazil ratified the 1958 Convention on the Recognition and Enforcement of Foreign Arbitration Awards.  Brazil is not a member of the World Bank’s International Center for the Settlement of Investment Disputes (ICSID).  Brazil joined the United Nations Commission on International Trade Law (UNCITRAL) in 2010, and its membership will expire in 2022.

Investor-State Dispute Settlement

Article 34 of the 1996 Brazilian Arbitration Act (Law 9307) defines a foreign arbitration judgment as any judgment rendered outside the national territory.  The law established that the Superior Court of Justice (STJ) must ratify foreign arbitration awards. Law 9307, updated by Law 13129/2015, also stipulates that a foreign arbitration award will be recognized or executed in Brazil in conformity with the international agreements ratified by the country and, in their absence, with domestic law.  A 2001 Brazilian Federal Supreme Court (STF) ruling established that the 1996 Brazilian Arbitration Act, permitting international arbitration subject to STJ Court ratification of arbitration decisions, does not violate the Federal Constitution’s provision that “the law shall not exclude any injury or threat to a right from the consideration of the Judicial Power.”

Contract disputes in Brazil can be lengthy and complex.  Brazil has both a federal and a state court system, and jurisprudence is based on civil code and contract law.  Federal judges hear most disputes in which one of the parties is the State, and rule on lawsuits between a foreign State or international organization and a municipality or a person residing in Brazil.  Five regional federal courts hear appeals of federal judges’ decisions. The 2019 World Bank Doing Business report found that on average it takes 12.5 procedures and 731 days to litigate a breach of contract.

International Commercial Arbitration and Foreign Courts

Brazil ratified the 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention) and the 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitration Awards (Montevideo Convention).  Law 9307/1996 provides advanced legislation on arbitration, and provides guidance on governing principles and rights of participating parties. Brazil developed a new Cooperation and Facilitation Investment Agreement (CFIA) model in 2015 (https://concordia.itamaraty.gov.br/ ), but it does not include ISDS mechanisms.  (See sections on bilateral investment agreements and responsible business conduct.)

Bankruptcy Regulations

Brazil’s commercial code governs most aspects of commercial association, while the civil code governs professional services corporations.  In 2005, bankruptcy legislation (Law 11101) went into effect creating a system modeled on Chapter 11 of the U.S. bankruptcy code. Critics of Law 11101 argue it grants equity holders too much power in the restructuring process to detriment of debtholders.  Brazil is drafting an update to the bankruptcy law aimed at increasing creditor rights, but it has not yet been presented in Congress. The World Bank’s 2019 Doing Business Report ranks Brazil 77th out of 190 countries for ease of “resolving insolvency.”

4. Industrial Policies

Investment Incentives

The GoB extends tax benefits for investments in less developed parts of the country, including the Northeast and the Amazon regions, with equal application to foreign and domestic investors.  These incentives were successful in attracting major foreign plants to areas like the Manaus Free Trade Zone in Amazonas State, but most foreign investment remains concentrated in the more industrialized southern states in Brazil.  

Individual states seek to attract private investment by offering tax benefits and infrastructure support to companies, negotiated on a case-by-case basis.  Competition among states to attract employment-generating investment leads some states to challenge such tax benefits as beggar-thy-neighbor fiscal competition.  

While local private sector banks are beginning to offer longer credit terms, the state-owned Brazilian National Development Bank (BNDES) is the traditional Brazilian source of long-term credit as well as export credits.  BNDES provides foreign- and domestically-owned companies operating in Brazil financing for the manufacturing and marketing of capital goods and primary infrastructure projects. BNDES provides much of its financing at subsidized interest rates.  As part of its package of fiscal tightening, in December 2014, the GoB announced its intention to scale back the expansionary activities of BNDES and ended direct Treasury support to the bank. Law 13483, from September 2017, created a new Long-Term Lending Rate (TLP) for BNDES, which will be phased-in to replace the prior subsidized loans starting on January 1, 2018.  After a five-year phase in period, the TLP will float with the market and reflect a premium over Brazil’s five-year bond yield (a rate that incorporates inflation). The GoB plans to reduce BNDES’s role further as it continues to promote the development of long-term private capital markets.

In January 2015, the GoB eliminated the industrial products tax (IPI) exemptions on vehicles, while keeping all other tax incentives provided by the October 2012 Inovar-Auto program.  Through Inovar-Auto, auto manufacturers were able to apply for tax credits based on their ability to meet certain criteria promoting research and development and local content. Following successful WTO challenges against the trade-restrictive impacts of some of its tax benefits, the government allowed Inovar-Auto program to expire on December 31, 2017.  Although the government has announced a new package of investment incentives for the auto sector, Rota 2030, it remains at the proposal stage, with no scheduled date for a vote or implementation.

On February 27, 2015, Decree 8415 reduced tax incentives for exports, known as the Special Regime for the Reinstatement of Taxes for Exporters, or Reintegra Program.  Decree 8415 reduced the previous three percent subsidy on the value of the exports to one percent for 2015, to 0.1 percent for 2016, and two percent for 2017 and 2018.

Brazil provides tax reductions and exemptions on many domestically-produced information and communication technology (ICT) and digital goods that qualify for status under the Basic Production Process (PPB).  The PPB is product-specific and stipulates which stages of the manufacturing process must be carried out in Brazil in order for an ICT product to be considered produced in Brazil. The major fiscal benefits of the National Broadband Plan (PNBL) and supporting implementation plan (REPNBL-Redes) have either expired or been revoked.  In 2017, Brazil held a public consultation on a National Connectivity Plan to replace the PNBL, but has not yet published a final version.

Under Law 12598/2013, Brazil offers tax incentives ranging from 13 percent to 18 percent to officially classified “Strategic Defense Firms” (must have Brazilian control of voting shares) as well as to “Defense Firms” (can be foreign-owned) that produce identified strategic defense goods.  The tax incentives for strategic firms can apply to their entire supply chain, including foreign suppliers. The law is currently undergoing a revision, expected to be complete in 2018.

Industrial Promotion

The InovAtiva Brasil and Startup Brasil programs support start-ups in the country.  The GoB also uses free trade zones to incentivize industrial production. A complete description of the scope and scale of Brazil’s investment promotion programs and regimes can be found at: http://www.apexbrasil.com.br/en/home  .  

Foreign Trade Zones/Free Ports/Trade Facilitation

The federal government grants tax benefits to certain free trade zones.  Most of these free trade zones aim to attract investment to the country’s relatively underdeveloped North and Northeast regions.  The most prominent of these is the Manaus Free Trade Zone, in Amazonas State, which has attracted significant foreign investment, including from U.S. companies.  Constitutional amendment 83/2014 came into force in August 2014 and extended the status of Manaus Free Trade Zone until the year 2073.

Performance and Data Localization Requirements

Government Procurement Preferences:  The GoB maintains a variety of localization barriers to trade in response to the weak competitiveness of its domestic tech industry.

  1. Tax incentives for locally sourced information and communication technology (ICT) goods and equipment (Basic Production Process (PPB), Law 8248/91, and Portaria 87/2013);
  2. Government procurement preferences for local ICT hardware and software (2014 Decrees 8184, 8185, 8186, 8194, and 2013 Decree 7903); and the CERTICS Decree (8186), which aims to certify that software programs are the result of development and technological innovation in Brazil.

Presidential Decree 8135/2013 (Decree 8135) regulated the use of IT services provided to the Federal government by privately and state-owned companies, including the provision that Federal IT communications be hosted by Federal IT agencies. In 2015, the Ministry of Planning developed regulations to implement Decree 8135, which included the requirement to disclose source code if requested.  On December 26, 2018, President Michel Temer approved and signed the Decree 9.637/2018, which revoked Decree 8.135/2013 and eliminated the source code disclosure requirements.

The Institutional Security Cabinet (GSI) mandated the localization of all government data stored on the cloud during a review of cloud computing services contracted by the Brazilian government in Ordinance No. 9 (previously NC 14), this was made official in March 2018.  While it does provide for the use of cloud computing for non-classified information, it imposes a data localization requirement on all use of cloud computing by the Brazil government.

Investors in certain sectors in Brazil must adhere to the country’s regulated prices, which fall into one of two groups: those regulated at the federal level by a federal company or agency, and those set by sub-national governments (states or municipalities).  Regulated prices managed at the federal level include telephone services, certain refined oil and gas products (such as bottled cooking gas), electricity, and healthcare plans. Regulated prices controlled by sub-national governments include water and sewage fees, vehicle registration fees, and most fees for public transportation, such as local bus and rail services.  As part of its fiscal adjustment strategy, Brazil sharply increased regulated prices in January 2015.

For firms employing three or more persons, Brazilian nationals must constitute at least two-thirds of all employees and receive at least two-thirds of total payroll, according to Brazilian Labor Law Articles 352 to 354.  This calculation excludes foreign specialists in fields where Brazilians are unavailable.

Decree 7174 from 2010, which regulates the procurement of information technology goods and services, requires federal agencies and parastatal entities to give preferential treatment to domestically produced computer products and goods or services with technology developed in Brazil based on a complicated price/technology matrix.  

Brazil’s Marco Civil, an Internet law that determines user rights and company responsibilities, states that data collected or processed in Brazil must respect Brazilian law, even if the data is subsequently stored outside the country.  Penalties for non-compliance could include fines of up to 10 percent of gross Brazilian revenues and/or suspension or prohibition of related operations. Under the law, Internet connection and application providers must retain access logs for specified periods or face sanctions.  While the Marco Civil does not require data to be stored in Brazil, any company investing in Brazil should closely track its provisions – as well provisions of other legislation and regulations, including a data privacy bill passed in August 2018 and cloud computing regulations.

5. Protection of Property Rights

Real Property

Brazil has a system in place for mortgage registration, but implementation is uneven and there is no standardized contract.  Foreign individuals or foreign-owned companies can purchase real property in Brazil. Foreign buyers frequently arrange alternative financing in their own countries, where rates may be more attractive.  Law 9514 from 1997 helped spur the mortgage industry by establishing a legal framework for a secondary market in mortgages and streamlining the foreclosure process, but the mortgage market in Brazil is still underdeveloped, and foreigners may have difficulty obtaining mortgage financing.  Large U.S. real estate firms, nonetheless, are expanding their portfolios in Brazil.

Intellectual Property Rights

The last year brought increased attention to IP in Brazil, but rights holders still face significant challenges.  Brazil’s National Institute of Industrial Property (INPI) streamlined procedures for review processes to increase examiner productivity for patent and trademark decisions.  Nevertheless, the wait period for a patent remains nine years and the market is flooded with counterfeits. Brazil’s IP enforcement regime is constrained by limited resources.  Brazil has remained on the “Watch List” of the U.S. Trade Representative’s Special 301 report since 2007. For more information, please see: https://ustr.gov/issue-areas/intellectual-property/Special-301 .

Brazil has no physical markets listed on USTR’s 2017 Review of Notorious Markets, though the report does acknowledge a file sharing site popular among Brazilians that is known for pirated digital media.  For more information, please see: https://ustr.gov/sites/default/files/files/Press/Reports/2017 percent20Notorious percent20Markets percent20List percent201.11.18.pdf .

For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization (WIPO)’s country profiles: http://www.wipo.int/directory/en 

6. Financial Sector

Capital Markets and Portfolio Investment

The Central Bank of Brazil (BCB) embarked in October 2016 on a sustained monetary easing cycle, lowering the Special Settlement and Custody System (Selic) baseline reference rate from a high of 14 percent in October 2016 to 6.5 percent in December 2018.  Inflation for 2018 was 3.67 percent, within the 1.5 percent plus/minus of the 4 percent target. In June 2018, the National Monetary Council (CMN) set the BCB’s inflation target to 4.25 percent in 2019, 4.5 percent in 2020, and 3.75 percent for 2021. Because of a heavy public debt burden and other structural factors, most analysts expect the “neutral policy rate will remain higher than target rates in Brazil’s emerging-market peers (around five percent) over the forecast period.  

After a boom in 2004-2012 that more than doubled the lending/GDP ratio (to 55 percent of GDP), the recession and higher interest rates significantly decreased lending.  In fact, the lending/GDP ratio remained below 55 percent at year-end 2017. Financial analysts contend that credit will pick up again in the medium term, owing to interest rate easing and economic recovery.  

The role of the state in credit markets grew steadily beginning in 2008, with public banks now accounting for over 55 percent of total loans to the private sector (up from 35 percent).  Directed lending (that is, to meet mandated sectoral targets) also rose and accounts for almost half of total lending. Brazil is paring back public bank lending and trying to expand a market for long-term private capital.  

While local private sector banks are beginning to offer longer credit terms, state-owned development bank BNDES is a traditional Brazilian source of long-term credit.  BNDES also offers export financing. Approvals of new financing by BNDES increased 27 percent year-over-year, with the infrastructure sector receiving the majority of new capital.

The Sao Paulo Stock Exchange (BOVESPA) is the sole stock market in Brazil, while trading of public securities takes place at the Rio de Janeiro market.  In 2008, the Brazilian Mercantile & Futures Exchange (BM&F) merged with the BOVESPA to form what is now the fourth largest exchange in the Western Hemisphere, after the NYSE, NASDAQ, and Canadian TSX Group exchanges.  As of April 2019, there were 430 companies traded on the BM&F/BOVESPA. The BOVESPA index increased 15.03 percent in valuation during 2018. Foreign investors, both institutions and individuals, can directly invest in equities, securities, and derivatives.  Foreign investors are limited to trading derivatives and stocks of publicly held companies on established markets.

Wholly owned subsidiaries of multinational accounting firms, including the major U.S. firms, are present in Brazil.  Auditors are personally liable for the accuracy of accounting statements prepared for banks.

Money and Banking System

The Brazilian financial sector is large and sophisticated.  Banks lend at market rates that remain relatively high compared to other emerging economies.  Reasons cited by industry observers include high taxation, repayment risk, and concern over inconsistent judicial enforcement of contracts, high mandatory reserve requirements, and administrative overhead, as well as persistently high real (net of inflation) interest rates.  According to BCB data collected from 2011 through the first quarter of 2019, the average rate offered by Brazilian banks was 9.22 percent, with an average monthly high of 11.34 percent in July 2016, and an average monthly rate of 7.7 percent for March 2019.

The financial sector is concentrated, with BCB data indicating that the four largest commercial banks (excluding brokerages) account for approximately 70 percent of the commercial banking sector assets, totaling USD 1.59 trillion as of Q1, 2019.  Three of the five largest banks (by assets) in the country – Banco do Brasil, Caixa Economica Federal, and BNDES – are partially or completely federally owned. Large private banking institutions focus their lending on Brazil’s largest firms, while small- and medium-sized banks primarily serve small- and medium-sized companies.  Citibank sold its consumer business to Itau Bank in 2016, but maintains its commercial banking interests in Brazil. It is currently the sole U.S. bank operating in the country.

In recent years, the BCB has strengthened bank audits, implemented more stringent internal control requirements, and tightened capital adequacy rules to reflect risk more accurately.  It also established loan classification and provisioning requirements. These measures apply to private and publicly owned banks alike. In April 2018, Moody’s upgraded a collection of 20 Brazilian banks and their affiliates to stable from negative.  The Brazilian Securities and Exchange Commission (CVM) independently regulates the stock exchanges, brokers, distributors, pension funds, mutual funds, and leasing companies with penalties against insider trading.

Foreigners may find it difficult to open an account with a Brazilian bank.  The individual must present a permanent or temporary resident visa, a national tax identification number issued by the Brazilian government (CPF), either a valid passport or identity card for foreigners (CIE), proof of domicile, and proof of income.  On average, this process from application to account opening lasts more than three months

Foreign Exchange and Remittances

Foreign Exchange

Brazil’s foreign exchange market remains small, despite recent growth.  The latest Triennial Survey by the Bank for International Settlements, conducted in December 2016, showed that the net daily turnover on Brazil’s market for OTC foreign exchange transactions (spot transactions, outright forwards, foreign-exchange swaps, currency swaps and currency options) was USD 19.7 billion, up from USD 17.2 billion in 2013.  This was equivalent to around 0.3 percent of the global market in both years.

Brazil’s banking system has adequate capitalization and has traditionally been highly profitable, reflecting high interest rates and fees.  Per an April 2018 Central Bank Financial Stability Report, all banks exceeded required solvency ratios, and stress testing demonstrated the banking system has adequate loss absorption capacity in all simulated scenarios.  Furthermore, the report noted 99.9 percent of banks already met Basel III requirements, and possess a projected Common Equity Tier 1 (CET1) capital ratio above the minimum 7 percent required at the beginning of 2019.

There are few restrictions on converting or transferring funds associated with a foreign investment in Brazil.  Foreign investors may freely convert Brazilian currency in the unified foreign exchange market where buy-sell rates are determined by market forces.  All foreign exchange transactions, including identifying data, must be reported to the BCB. Foreign exchange transactions on the current account are fully liberalized.

The BCB must approve all incoming foreign loans.  In most cases, loans are automatically approved unless loan costs are determined to be “incompatible with normal market conditions and practices.”  In such cases, the BCB may request additional information regarding the transaction. Loans obtained abroad do not require advance approval by the BCB, provided the Brazilian recipient is not a government entity.  Loans to government entities require prior approval from the Brazilian Senate as well as from the Economic Ministry’s Treasury Secretariat, and must be registered with the BCB.

Interest and amortization payments specified in a loan contract can be made without additional approval from the BCB.  Early payments can also be made without additional approvals, if the contract includes a provision for them. Otherwise, early payment requires notification to the BCB to ensure accurate records of Brazil’s stock of debt.

In March 2014, Brazil’s Federal Revenue Service consolidated the regulations on withholding taxes (IRRF) applicable to earnings and capital gains realized by individuals and legal entities resident or domiciled outside Brazil.  The regulation states that the cost of acquisition must be calculated in Brazilian currency (reais). Also, the definition of “technical services” was broadened to include administrative support and consulting services rendered by individuals (employees or not) or resulting from automated structures having clear technological content.

Upon registering investments with the BCB, foreign investors are able to remit dividends, capital (including capital gains), and, if applicable, royalties.  Investors must register remittances with the BCB. Dividends cannot exceed corporate profits. Investors may carry out remittance transactions at any bank by documenting the source of the transaction (evidence of profit or sale of assets) and showing payment of applicable taxes.

Remittance Policies

Under Law 13259/2016 passed in March 2016, capital gain remittances are subject to a 15 to 22.5 percent income withholding tax, with the exception of capital gains and interest payments on tax-exempt domestically issued Brazilian bonds.  The capital gains marginal tax rates are: 15 percent up to USD 1.5 million in gains; 17.5 percent for USD 1.5 million to USD 2.9 million in gains; 20 percent for USD 2.9 million to USD 8.9 million in gains; and 22.5 percent for more than USD 8.9 million in gains.

Repatriation of a foreign investor’s initial investment is also exempt from income tax under Law 4131/1962.  Lease payments are assessed a 15 percent withholding tax. Remittances related to technology transfers are not subject to the tax on credit, foreign exchange, and insurance, although they are subject to a 15 percent withholding tax and an extra 10 percent Contribution for Intervening in Economic Domain (CIDE) tax.

Sovereign Wealth Funds

Law 11887 established the Sovereign Fund of Brazil (FSB) in 2008.  It was a non-commodity fund with a mandate to support national companies in their export activities and to offset counter-cyclical development, promoting investment in projects of strategic interest to Brazil both domestically and abroad.  The GoB also had the authority to use money from this fund to help meet its fiscal targets when annual revenues were lower than expected, and to invest in state-owned companies. In May 2018, then-President Temer signed an executive order abolishing the fund.  The money in the fund was earmarked for repayment of foreign debt.

7. State-Owned Enterprises

The GoB maintains ownership interests in a variety of enterprises at both the federal and state levels.  Typically, boards responsible for state-owned enterprise (SOE) corporate governance are comprised of directors elected by the state or federal government with additional directors elected by any non-government shareholders.  Although Brazil, a non-OECD member, has participated in many OECD working groups, it does not follow the OECD Guidelines on Corporate Governance of SOEs. Brazilian SOEs are concentrated in the oil and gas, electricity generation and distribution, transportation, and banking sectors.  A number of these firms also see a portion of their shares publically traded on the Brazilian and other stock exchanges.

In the 1990s and early 2000s, the GoB privatized many state-owned enterprises across a broad spectrum of industries, including mining, steel, aeronautics, banking, and electricity generation and distribution.  While the GoB divested itself from many of its SOEs, it maintained partial control (at both the federal and state level) of some previously wholly state-owned enterprises. This control can include a “golden share” whereby the government can exercise veto power over proposed mergers or acquisitions.  

Notable examples of majority government owned and controlled firms include national oil and gas giant Petrobras and power conglomerate Eletrobras.  Both Petrobras and Eletrobras include non-government shareholders, are listed on both the Brazilian and NYSE stock exchanges, and are subject to the same accounting and audit regulations as all publicly-traded Brazilian companies.  Brazil previously restricted foreign investment in offshore oil and gas development through 2010 legislation that obligated Petrobras to serve as the sole operator and minimum 30 percent investor in any oil and gas exploration and production in Brazil’s prolific offshore pre-salt fields.  As a result of the GoB’s desire to increase foreign investment in Brazil’s hydrocarbon sector, in October 2016 the Brazilian Congress granted foreign companies the right to serve as sole operators in pre-salt exploration and production activities and eliminated Petrobras’ obligation to serve as a minority equity holder in pre-salt oil and gas operations.  Nevertheless, the 2016 law still gives Petrobras right-of-first refusal in developing pre-salt offshore fields before those areas are available for public auction.  Industry estimates project bonuses of USD 26.3 billion by opening the Brazilian oil and gas market to foreign investment.

Privatization Program

Given limited public investment funding, the GoB has focused on privatizing state–owned energy, airport, road, railway, and port assets through long-term (up to 30 year) infrastructure concession agreements.  Eletrobras successfully sold its six principal, highly-indebted power distributors. The SOE is currently working to begin a capitalization process to reduce the GoB’s share holdings in the company to less than 50 percent.  The process cannot move forward, however, until Congress passes a bill authorizing the reduction. In 2018, Petrobras faced criticism over its daily fuel adjustment policy and a major 12-day truckers strike hit Brazil and forced the resignation of Petrobras’ CEO Pedro Parente.  To end the strike, the GoB eliminated the collection of the CIDE tax over diesel and gave a USD 3 billion subsidy to diesel producers (mainly Petrobras) to reduce the prices to consumers (primarily truckers).

In 2016, Brazil launched its newest version of these efforts to promote privatization of primary infrastructure.  The Temer administration created the Investment Partnership Program (PPI) to expand and accelerate the concession of public works projects to private enterprise and the privatization of some state entities.  PPI covers federal concessions in road, rail, ports, airports, municipal water treatment, electricity transmission and distribution, and oil and gas exploration and production contracts. Between 2016 and 2018, PPI auctioned off 124 projects and collected USD 62.5 billion in investments.  The full list of PPI projects is located at: https://www.ppi.gov.br/schedule-of-projects 

While some subsidized financing through BNDES will be available, PPI emphasizes the use of private financing and debentures for projects.  All federal and state-level infrastructure concessions are open to foreign companies with no requirement to work with Brazilian partners. In 2017, Brazil launched the Agora é Avançar initiative for promoting investments in primary infrastructure, and this has supported several projects.  Details can be found at: www.avancar.gov.br .The latest information available about Avançar Parcerias is from September 30, 2018.  From over 7,000 projects, the program has completed 36.5 percent and 92.2 percent are in progress.

In 2008, the Ministry of Health initiated the use of Production Development Partnerships (PDPs) to reduce the increasing dependence of Brazil’s healthcare sector on international drug production and the need to control costs in the public healthcare system, services that are an entitlement enumerated in the constitution.  The healthcare sector accounts for 9 percent of GDP, 10 percent of skilled jobs, and more than 25 percent of research and development nationally. These agreements provide a framework for technology transfer and development of local production by leveraging the volume purchasing power of the Ministry of Health. In the current administration, there is increasing interest in PDPs as a cost saving measure.  U.S. companies have both competed for these procurements and at times raised concerns about the potential for PDPs to be used to subvert intellectual property protections under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

8. Responsible Business Conduct

Most state-owned and private sector corporations of any significant size in Brazil pursue corporate social responsibility (CSR) activities.  Brazil’s new CFIAs (see sections on bilateral investment agreements and dispute settlement) contain CSR provisions. Some corporations use CSR programs to meet local content requirements, particularly in information technology manufacturing.  Many corporations support local education, health and other programs in the communities where they have a presence. Brazilian consumers, especially the local residents where a corporation has or is planning a local presence, expect CSR activity.  Corporate officials frequently meet with community members prior to building a new facility to review the types of local services the corporation will commit to providing. Foreign and local enterprises in Brazil often advance United Nations Development Program (UNDP) Millennium Development Goals (MDGs) as part of their CSR activity, and will cite their local contributions to MDGs, such as universal primary education and environmental sustainability.  Brazilian prosecutors and civil society can be very proactive in bringing cases against companies for failure to implement the requirements of the environmental licenses for their investments and operations. National and international nongovernmental organizations monitor corporate activities for perceived threats to Brazil’s biodiversity and tropical forests and can mount strong campaigns against alleged misdeeds.

The U.S. diplomatic mission in Brazil supports U.S. business CSR activities through the +Unidos Group (Mais Unidos), a group of more than 100 U.S. companies established in Brazil.  Additional information on how the partnership supports public and private alliances in Brazil can be found at: www.maisunidos.org 

9. Corruption

Brazil has laws, regulations, and penalties to combat corruption, but their effectiveness is inconsistent.  Several bills to revise the country’s regulation of the lobbying/government relations industry have been pending before Congress for years.  Bribery is illegal, and a bribe by a local company to a foreign official can result in criminal penalties for individuals and administrative penalties for companies, including fines and potential disqualification from government contracts.  A company cannot deduct a bribe to a foreign official from its taxes. While federal government authorities generally investigate allegations of corruption, there are inconsistencies in the level of enforcement among individual states. Corruption is problematic in business dealings with some authorities, particularly at the municipal level.  U.S. companies operating in Brazil are subject to the U.S. Foreign Corrupt Practices Act (FCPA).

Brazil signed the UN Convention against Corruption in 2003, and ratified it in 2005.  Brazil is a signatory to the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on bribery.  It was one of the founders, along with the United States, of the intergovernmental Open Government Partnership, which seeks to help governments increase transparency.  

In 2018, Brazil ranked 105th out of 180 countries in Transparency International’s Corruption Perceptions Index.  The full report can be found at: https://www.transparency.org/cpi2018 

Since 2014, the federal criminal investigation known as Operação Lava Jato (Operation Car Wash) has uncovered a complex web of public sector corruption, contract fraud, money laundering, and tax evasion stemming from systematic overcharging for government contracts, particularly at parastatal oil company Petrobras.  The ongoing investigation led to the arrests of Petrobras executives, oil industry suppliers including executives from Brazil’s largest construction companies, money launderers, former politicians, and political party operatives. Many sitting Brazilian politicians are currently under investigation.  In July 2017, former Brazilian President Luiz Inacio Lula da Silva (Lula) was convicted of corruption and money laundering charges stemming from the Lava Jato investigation.  The Brazilian authorities jailed Lula in April 2018, and the courts sentenced him in February 2019 to begin serving an almost 13-year prison sentence.  In March 2019, authorities arrested former President Michel Temer on charges of corruption.

In December 2016, Brazilian construction conglomerate Odebrecht and its chemical manufacturing arm Braskem agreed to pay the largest FCPA penalty in U.S. history and plead guilty to charges filed in the United States, Brazil, and Switzerland that alleged the companies paid hundreds of millions of dollars in bribes to government officials around the world.  The U.S. Department of Justice case stemmed directly from theLava Jatoinvestigation and focused on violations of the anti-bribery provisions of the FCPA.  Details on the case can be found at: https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve 

In January 2018, Petrobras settled a class-action lawsuit with investors in U.S. federal court for USD 3 billion, which was one of the largest securities class action settlements in U.S. history.  The investors alleged that Petrobras officials accepted bribes and made decisions that had a negative impact on Petrobras’ share value. In September 2018, the U.S. Department of Justice announced that Petrobras would pay a fine of USD 853.2 million to settle charges that former executives and directors violated the FCPA through fraudulent accounting used to conceal bribe payments from investors and regulators.

In 2015, GoB prosecutors announced Operacão Zelotes (Operation Zealots), in which both domestic and foreign firms were alleged to have bribed tax officials to reduce their assessments.  The operation resulted in a complete closure and overhaul of Brazilian tax courts, including a reduction in the number of courts and judges as well as more subsequent rulings in favor of tax authorities.  

Resources to Report Corruption

Petalla Brandao Timo Rodrigues
International Relations Chief Advisor
Brazilian Federal Public Ministry
contatolavajato@mpf.mp.br

Transparencia Brasil
Bela Cintra, 409; Sao Paulo, Brasil
+55 (11) 3259-6986
http://www.transparencia.org.br/contato 

10. Political and Security Environment

Strikes and demonstrations occasionally occur in urban areas and may cause temporary disruption to public transportation.  Occasional port strikes continue to have an impact on commerce. Brazil has over 60,000 murders annually, with low rates of success in murder investigations and even lower conviction rates.  Brazil announced emergency measures in 2017 to counter a rise in violence in Rio de Janeiro state, and approximately 8,500 military personnel deployed to the state to assist state law enforcement.  In February, 2018, then-President Temer signed a federal intervention decree giving the federal government control of the state’s entire public security apparatus under the command of an Army general.  The federal intervention ended on December 31, 2018, with the withdrawal of the military. Shorter-term and less expansive deployments of the military in support of police forces also occurred in other states in 2017, including Rio Grande do Norte and Roraima.  The military also supported police forces in 11 states and nearly 500 cities for the 2018 general elections.

In 2016, millions peacefully demonstrated to call for and against then-President Dilma Rousseff’s impeachment and protest against corruption, which was one of the largest public protests in Brazil’s history.  Non-violent pro- and anti-government demonstrations have occurred regularly in recent years.

Although U.S. citizens are usually not targeted during such events, U.S. citizens traveling or residing in Brazil are advised to take common-sense precautions and avoid any large gatherings or any other event where crowds have congregated to demonstrate or protest.  For the latest U.S. State Department guidance on travel in Brazil, please consult www.travel.state.gov

11. Labor Policies and Practices

The Brazilian labor market is composed of approximately 124 million workers of whom 32.9 million (26.5 percent) work in the informal sector.  Brazil had an unemployment rate of 12 percent as of March 2019, although that percentage was nearly double (22.6 percent) for young workers ages 18-29.  Foreign workers made up less than one percent of the overall labor force, but the arrival of 160,000 economic migrants and refugees from Venezuela since 2016 has led to large local concentrations of foreign workers in the border state of Roraima and the city of Manaus.  Migrant workers from within Brazil play a significant role in the agricultural sector. There are no government policies requiring the hiring of Brazilian nationals.

Low-skilled employment dominates Brazil’s labor market.  During the country’s economic recession (2014-2016), eight low-skilled occupations – such as market attendants and janitors – accounted for half of the roughly 900,000 job openings added to the market.  The number of professionals working as biomedical and information analysts – however small – also increased, while that of bill collectors, cashier supervisors, and welders saw declines. Sectors such as information technology services stood out among those that generated job vacancies between 2011 and 2016.

Workers in the formal sector contribute to the Time of Service Guarantee Fund (FGTS) that equates to one month’s salary over the course of a year.  If a company terminates an employee, the employee can access the full amount of their FGTS contributions or 20 percent in the event they leave voluntarily.  Brazil’s labor code guarantees formal sector workers 30 days of annual leave and severance pay in the case of dismissal without cause. Unemployment insurance also exists for laid off workers equal to the country’s minimum salary (or more depending on previous income levels) for six months.  A labor law that went into effect in November 2017 modified 121 sections of the national labor code (CLT). The law introduced flexible working hours, eased restrictions on part-time work, relaxed how workers can divide their holidays and cut the statutory lunch hour to 30 minutes. The government does not waive labor laws to attract investment; they apply uniformly across the country.  

Collective bargaining is common, and there were 11,587 labor unions operating in Brazil in 2018.  Labor unions, especially in sectors such as metalworking and banking, are well organized in advocating for wages and working conditions, and account for approximately 19 percent of the official workforce according to the Brazilian Institute of Applied Economic Research (IPEA).  Unions in various sectors engage in collective bargaining negotiations, often across an entire industry when mandated by federal regulation. The November 2017 labor law ended mandatory union contributions, which has reduced union finances by as much as 90 percent according to the Inter-Union Department of Statistics and Socio-economic Studies (DIESSE).  DIESSE reported a significant decline in the number of collective bargaining agreements reached in 2018 (3,269) compared to 2017 (4,378).

Employer federations also play a significant role in both public policy and labor relations.  Each state has its own federation, which reports to the National Confederation of Industry (CNI), headquartered in Brasilia, and the National Confederation of Commerce (CNC), headquartered in Rio de Janeiro.  

Brazil has a dedicated system of labor courts that are charged with resolving routine cases involving unfair dismissal, working conditions, salary disputes, and other grievances.  Labor courts have the power to impose an agreement on employers and unions if negotiations break down and either side appeals to the court system. As a result, labor courts routinely are called upon to determine wages and working conditions in industries across the country.  The labor courts system has millions of pending legal cases on its docket, although the number of new filings has decreased since the November 2017 labor law went into effect. Nevertheless, pending legal challenges to the 2017 labor law have resulted in considerable legal uncertainty for both employers and employees.

Strikes occur periodically, particularly among public sector unions.  A strike organized by truckers unions protesting increased fuel prices paralyzed the Brazilian economy in May 2018, and led to billions of dollars in losses to the economy.

Brazil has ratified 97 International Labor Organization (ILO) conventions.  Furthermore, Brazil is party to the UN Convention on the Rights of the Child and major ILO conventions concerning the prohibition of child labor, forced labor, and discrimination.  For the past eight years (2010-2018), the Department of Labor, in its annual publication Findings on the Worst forms of Child Labor, has recognized Brazil for its significant advancement in efforts to eliminate the worst forms of child labor.  The Ministry of Labor (MTE), in 2018, inspected 231 properties, resulting in the rescue of 1,133 victims of forced labor. Additionally, MTE rescued 1,409 children working in violation of child labor laws.

On January 1, 2019, newly elected President Jair Bolsonaro extinguished MTE and divided its responsibilities between the Ministries of Economy, Justice and Social Development.  

12. OPIC and Other Investment Insurance Programs

Programs of the Overseas Private Investment Corporation (OPIC) are fully available.  Brazil has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1992.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($ USD) 2017 $2,053 trillion 2017 $2.056 trillion www.worldbank.org/en/country  
U.S. FDI in partner country ($M USD, stock positions)

BCB data, year-end.

2017 $95,100 2017 $68,300 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  

*U.S. is historical-cost basis

Host country’s FDI in the United States ($M USD, stock positions) 2017 $16,070 2017 ($2,030) BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  

*U.S. is historical-cost basis

Total inbound stock of FDI as % host GDP 2017 26.29% 2017 36.4% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx    

* IBGE and BCB data, year-end.


Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, billions)
Inward Direct Investment Outward Direct Investment
Total Inward 635.12 100% Total Outward 254.23 100%
Netherlands 158.42 24.9% Cayman Islands 72.58 28.5%
United States 109.61 17.3% British Virgin Islands 46.73 18.4%
Luxembourg 60.12 6.5% Bahamas 37.21 14.6%
Spain 57.98 9.1% Austria 32.14 12.6%
France 33.30 5.2% United States 14.92 5.9%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (billions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 40.13 100% All Countries 31.11 100% All Countries 9.02 100%
United States 13.84 34.5% United States 10.37 33.3% United States 3.47 38.5%
Bahamas 6.80 16.9% Bahamas 6.76 21.7% Spain 2.64 29.3%
Cayman Islands 4.25 10.6% Cayman Islands 3.93 12.6% Korea, South 0.50 5.5%
Spain 3.72 9.3% Switzerland 2.01 6.5% Switzerland 0.41 4.5%
Switzerland 2.42 6.0% Luxembourg 1.69 5.4% Denmark 0.38 4.2%

 

Ghana

Executive Summary

Ghana’s macroeconomic situation has improved over the last three years under its extended credit facility agreement with the International Monetary Fund (IMF), which concluded in April 2019.  The fiscal deficit has narrowed, inflation has come down, and GDP growth has rebounded, driven primarily by increases in oil production. Ghana’s economy is projected to grow 8.8 percent in 2019, according to the IMF, after expanding over 8 percent in 2017 and an estimated 5.6 percent in 2018.  However, the economy remains highly dependent on the export of primary commodities such as gold, cocoa, and oil/gas, and consequently is vulnerable to potential slowdowns in the global economy and commodity price shocks. The Government of Ghana is seeking to diversify and industrialize, in particular through agro-processing, mining, and manufacturing.  It has made attracting foreign direct investment (FDI) a priority to support its industrialization plans and overcome an annual infrastructure funding gap of at least USD 1.5 billion.

While the economy is doing relatively well, high government debt, low government revenue, and high energy costs remain challenges.  Ghana has a population of 30 million with six million potential taxpayers of which only two million are actually registered to pay taxes.  As Ghana seeks to move beyond dependence on foreign aid, it must develop a solid domestic revenue base. On the energy front, Ghana has enough installed power generating capacity to meet current demand, but it needs to make the cost of electricity more affordable through more effective management of its power distribution system and diversification of its energy matrix, including through renewable energy.  

Among the challenges hindering foreign direct investment are: a burdensome bureaucracy, costly and difficult financial services, under-developed infrastructure, ambiguous property laws, a costly power and water supply, the high costs of cross-border trade, a shifting policy environment, lack of transparency, and an unskilled labor force.  Enforcement of laws and policies is weak. Public procurements are opaque and there are often issues with delayed payments. In addition, there are troubling trends in investment policy over the last five years, with the passage of local content regulations in the petroleum sector and the power sector.

Despite these challenges, Ghana’s abundant raw materials (gold, cocoa, and oil/gas), security, and political stability make it stand out as one of the better locations for investment in sub-Saharan Africa.  The investment climate in Ghana is relatively welcoming to foreign investment. There is no discrimination against foreign-owned businesses. Investment laws protect investors against expropriation and nationalization and guarantee that investors can transfer profits out of the country.  Ghana enjoys a lower degree of corruption than that of some regional counterparts, although companies have reported a high level of corruption in foreign investments. Among the most promising sectors are agribusiness; food processing; textiles and apparel; downstream oil, gas, and minerals processing; and mining-related services subsectors.

The government has acknowledged the need to foster an enabling environment to attract FDI, and is taking steps to overhaul the regulatory system and improve the ease of doing business, maintain fiscal discipline, combat corruption, and promote better transparency and accountability.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 78 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 114 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 107 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2017 $1,698 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $1,880 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Government of Ghana has no overall economic or industrial strategy that discriminates against foreign-owned businesses.  The government has made increasing FDI a priority and acknowledged the importance of having an enabling environment for the private sector to thrive.  Officials are implementing some regulatory and other reforms to improve the ease of doing business and make investing in Ghana more attractive.

The 2013 GIPC Act requires the Ghana Investment Promotion Center (GIPC) to register, monitor and keep records of all business enterprises in Ghana.  Sector-specific laws further regulate investments in minerals and mining, oil and gas, industries within Free Zones, banking, non-banking financial institutions, insurance, fishing, securities, telecommunications, energy, and real estate.  Some sector-specific laws, such as in the oil and gas sector and the power sector, include specific local content requirements that could discourage international investment. Foreign investors are required to satisfy the provisions of the GIPC Act as well as the provisions of sector-specific laws.  GIPC leadership has pledged to work in closer collaboration with the private sector to address investor concerns but there have been no significant changes to the laws. More information on investing in Ghana can be obtained from GIPC’s website, www.gipcghana.com  .

Limits on Foreign Control and Right to Private Ownership and Establishment

Ghana is one of the more open economies to foreign equity ownership in Sub-Saharan Africa.  Most of its major sectors are fully open to foreign capital participation.

U.S. investors in Ghana are treated the same as any other foreign investor.  All foreign investment projects must register with the GIPC. Foreign investments are subject to the following minimum capital requirements: USD 200,000 for joint ventures with a Ghanaian partner that should have at least 10 percent of the equity; USD 500,000 for enterprises wholly-owned by a non-Ghanaian; and USD 1 million for trading companies (firms that buy or sell imported goods or services) wholly owned by non-Ghanaian entities.  The minimum capital requirement may be in cash or capital goods relevant to the investment. Trading companies are also required to employ at least 20 skilled Ghanaian nationals.

Ghana’s investment code excludes foreign investors from participating in eight economic sectors: petty trading, the operation of taxi and car rental services with fleets of fewer than 25 vehicles, lotteries (excluding soccer pools), the operation of beauty salons and barber shops, printing of recharge scratch cards for subscribers to telecommunications services, production of exercise books and stationery, retail of finished pharmaceutical products, and the production, supply, and retail of drinking water in sealed pouches.  Sectors where foreign investors are allowed limited market access include: telecommunications, banking, fishing, mining, petroleum, and real estate.

Real Estate

The 1992 Constitution recognized existing private and traditional titles to land.  Freehold acquisition of land is no longer permitted. There is an exception, however, for transfer of freehold title between family members for land held under the traditional system.  Foreigners are allowed to enter into long-term leases of up to 50 years and the lease may be bought, sold, or renewed for consecutive terms. Nationals are allowed to enter into 99-year leases.

Oil and Gas

The oil and gas sector is subject to a variety of state ownership and local content requirements.  The Petroleum (Exploration and Production) Act (2016, Act 919) mandates local participation. All entities seeking petroleum exploration licenses in Ghana must create a consortium in which the state-owned Ghana National Petroleum Corporation (GNPC) holds a minimum 15 percent carried interest.  The Petroleum Commission issues all licenses, but exploration licenses must be approved by Parliament. Further, local content regulations specify in-country sourcing requirements with respect to the full range of goods, services, hiring, and training associated with petroleum operations. The regulations also require mandatory local equity participation for all suppliers and contractors.  The Minister of Energy must approve all contracts, sub-contracts, and purchase orders above USD 100,000. Non-compliance with these regulations may result in a criminal penalty, including imprisonment for up to five years.

The Petroleum Commission applies registration fees and annual renewal fees on foreign oil and gas service providers, which, depending on a company’s annual revenues, range from USD 70,000 to USD 150,000, compared to fees of between USD 5,000 and USD 30,000 for local companies.

Mining

Per the Minerals and Mining Act, 2006 (Act 703), foreign investors are restricted from obtaining a small-scale mining license for mining operations less than or equal to an area of 25 acres (10 hectares).  Non-Ghanaians may only apply for industrial mineral rights if the proposed investment is USD 10 million or above. The Act mandates compulsory local participation, whereby the government acquires 10 percent equity in ventures at no cost.  In order to qualify for a license, a non-Ghanaian company must be registered in Ghana, either as a branch office or a subsidiary that is incorporated under the Ghana Companies Act or Incorporated Private Partnership Act.

The Minerals and Mining Act provides for a stability agreement, which protects the holder of a mining lease for a period of 15 years from future changes in law that may impose a financial burden on the license holder.  When an investment exceeds USD 500 million, lease holders can negotiate a development agreement that contains elements of a stability agreement and more favorable fiscal terms. Parliament passed a new Minerals and Mining (Amendment) Act (Act 900) in December 2015.  One significant provision of the new act requires the mining lease-holder to, “…pay royalty to the Republic at the rate and in the manner that may be prescribed.” The previous Act 703 capped the royalty rate at six percent. The Minerals Commission implements the law.  

Power Sector

In December 2017, Ghana introduced regulations requiring local content and local participation in the power sector. The Energy Commission (Local Content and Local Participation) (Electricity Supply Industry) Regulations, 2017 (L.I. 2354) specify minimum initial levels of local participation/ownership and ten year targets:

Electricity Supply Activity Initial Level of Local Participation Target Level in 10 Years
Wholesale Power Supply 15 51
Renewable Energy Sector 15 51
Electricity Distribution 30 51
Electricity Transmission 15 49
Electricity Sales Service 80 100
Electricity Brokerage Service 80 100

The regulations also specify minimum and target levels of local content in engineering and procurement, construction works, post construction works, services, management, operations and staff.  All persons engaged in or planning to engage in the supply of electricity are required to register with the ‘Electricity Supply Local Content and Local Participation Committee’ and satisfy the minimum local content and participation requirements within five years. Failure to comply with the requirements could result in a fine or imprisonment.

Insurance

The National Insurance Commission (NIC) imposes nationality requirements with respect to the board and senior management of locally-incorporated insurance and reinsurance companies.  At least two board members must be Ghanaians, and either the Chairman of the board or Chief Executive Officer (CEO) must be Ghanaian. In situations where the CEO is not Ghanaian, the NIC requires that the Chief Financial Officer be Ghanaian. Minimum initial capital investment in the insurance sector is 15 million Ghana cedis (approximately USD 3 million).

Telecommunications

Per the Electronic Communications Act of 2008, the National Communications Authority (NCA) regulates and manages the nation’s telecommunications and broadcast sectors.  For 800 MHz spectrum licenses for mobile telecommunications services, Ghana restricts foreign participation to a joint venture or consortium that includes a minimum of 25 percent Ghanaian ownership.  Applicants have two years to meet the requirement, and can list the 25 percent on the Ghana Stock Exchange. The first option to purchase stock is given to Ghanaians, but there are no restrictions on secondary trading.

There are no significant limits on foreign investment or differences in the treatment of foreign and national investors in other sectors of the economy.

Other Investment Policy Reviews

Ghana has not conducted an investment policy review (IPR) through the OECD recently. UNCTAD last conducted an IPR in 2003.

The WTO last conducted a Trade Policy Review (TPR) in May 2014.  The TPR concluded that the 2013 amendment to the investment law raised the minimum capital that foreigners must invest to levels above those specified in Ghana’s 1994 GATS horizontal commitments, and excluded new activities from foreign competition.  However, it was determined that overall this would have minimum impact on dissuading future foreign investment due to the size of the companies traditionally seeking to do business within the country. An executive summary of the findings can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp398_e.htm  

Business Facilitation

Although registering a business is a relatively easy procedure and can be done online through the Registrar General’s Department (RGD) at https://egovonline.gegov.gov.gh/RGDPortalWeb/portal/RGDHome/eghana.portal   , businesses have noted that the process involved in establishing a business is lengthy and complex, and requires compliance with regulations and procedures of at least four other government agencies, including GIPC, Ghana Revenue Authority (GRA), Ghana Immigration Service, and the Social Security and National Insurance Trust (SSNIT).

According to the World Bank’s Doing Business Report, it takes eight procedures and 14 days to establish a foreign-owned limited liability company (LLC) that wants to engage in international trade in Ghana.  This is longer than the regional average for Sub-Saharan Africa. Foreign investors must obtain a certificate of capital importation, which can take 14 days. The local authorized bank must confirm the import of capital with the Bank of Ghana, which will then confirm the transaction to GIPC for investment registration purposes.

Per the GIPC Act, all foreign companies are required to register with GIPC after incorporation with the RGD.  Registration can be completed online at http://www.gipcghana.com . While the registration process is designed to be completed within five business days, bureaucracy often delays this process.

The Ghanaian business environment is unique and guidance can be extremely helpful.  In some cases, a foreign investment may enjoy certain tax benefits under the law or additional incentives if the project is deemed critical to the country’s development.  Most companies or individuals considering investing in Ghana or trading with Ghanaian counterparts find it useful to consult with a local attorney or business facilitation company.  The Embassy maintains a list of local attorneys which is available through the U.S. Commercial Service in Ghana (www.export.gov/ghana). Specific information about setting up a business is available at the GIPC website: http://www.gipcghana.com/invest-in-ghana/doing-business-in-ghana.html .

Ghana Investment Promotion Centre
Post: P. O. Box M193, Accra-Ghana
Telephone: +233 (0) 302 665125, +233 (0)302 665126, +233 (0) 302 665127, +233 (0) 302 665128/ +233 (0) 302 665129
Telephone: +233 (0) 302 244318254/ 244318252
Email: info@gipcghana.com
Website: www.gipcghana.com  

Note that mining or oil/gas sector companies are required to obtain licensing/approval from the following relevant bodies:

Petroleum Commission Head Office
Plot No. 4A, George Bush Highway, Accra, Ghana
P.O. Box CT 228 Cantonments, Accra, Ghana
Telephone: +233 [0] 302 953392 | +233 [0] 302 953393
Website: http://www.petrocom.gov.gh/  

Minerals Commission
Minerals House, No. 12 Switchback Road, Cantonments, Accra
P.O. Box M 248
Telephone: +233 (0) 302 772 783 /+233 (0) 302 772 786 /+233 (0) 302 773 053
Website: http://www.mincom.gov.gh/  

Outward Investment

Ghana has no specific outward investment policy.  It has entered into bilateral treaties, however, with a number of countries to promote and protect foreign investment on a reciprocal basis.  A few Ghanaian companies have established operations in other West African countries.

2. Bilateral Investment Agreements and Taxation Treaties

Ghana has signed and ratified Bilateral Investment Treaties (BITs) with the following countries: China; Denmark; Germany; Malaysia; the Netherlands; Switzerland; and the United Kingdom. Ghana has concluded the BIT negotiation process with 26 countries in total, 19 of which are awaiting Parliament ratification.  The countries with concluded BITs that have not yet been internally ratified are: Barbados, Benin, Botswana, Bulgaria, Burkina Faso, Cote d’Ivoire, Cuba, Egypt, France, Guinea, Italy, Mauritania, Mauritius, Romania, Spain, Yugoslavia, Zambia, and Zimbabwe. Agreements with Pakistan, South Korea, North Korea, and Belgium are being discussed.

Ghana has signed and ratified tax treaties, commonly referred to as double taxation agreements, with the following countries:  Belgium, Denmark, France, Germany, Italy, South Africa, Switzerland, the Netherlands, Mauritius, and the United Kingdom. Signed double taxation agreements with the Czech Republic, Morocco, Singapore, Qatar, Malta, Seychelles, Barbados, and Ireland are yet to be ratified by Parliament.

Ghana has not yet signed the Foreign Account Tax Compliance Act (FATCA) intergovernmental agreement (IGA), but it has allowed banks or foreign financial institutions (FFIs) in Ghana to report information directly to the United States Internal Revenue Service.

The United States has signed several investment-related agreements with Ghana: the Trade and Investment Framework Agreement (TIFA), OPIC Investment Incentive Agreement, and the Open Skies Agreement.  In 2012, the United States and Ghana initiated exploratory BIT discussions but those stalled.

Ghana has continued to meet eligibility requirements to participate in the benefits afforded by the African Growth and Opportunity Act (AGOA) and also separately qualifies for the apparel benefits under AGOA.

3. Legal Regime

Transparency of the Regulatory System

The Government of Ghana’s policies on trade liberalization and investment promotion are guiding its efforts to create a clear and transparent regulatory system.

Ghana does not have a standardized consultation process but ministries and Parliament generally share the text or summary of proposed regulations and solicit comments directly from stakeholders or via public meetings and hearings.  All laws that are currently in effect are printed in the Ghana Gazette (equivalent of the U.S. Federal Register).

The Government of Ghana has established regulatory bodies such as the National Communications Authority, the National Petroleum Authority, the Petroleum Commission, the Energy Commission, and the Public Utilities Regulatory Commission to oversee activities in the telecommunications, downstream and upstream petroleum, electricity and natural gas, and water sectors.  The creation of these bodies was a positive step but the lack of resources and their subjectiveness to political influence challenge their ability to deliver the intended level of oversight.

The government launched a Business Regulatory Reform program in 2017, but implementation has been slow.  The program aims to improve the ease of doing business, review all rules and regulations to identify and reduce unnecessary costs and requirements, establish an e-registry of all laws, establish a centralized public consultation web portal, provide regulatory relief for entrepreneurs, and eventually implement a regulatory impact analysis system.

Ghana continues to improve on making information on debt obligations, including contingent and state-owned enterprise debt, publicly available.  Information on the overall debt stock (including domestic and external) is presented in the Annual Debt Management Report which is available on the Ministry of Finance website at https://www.mofep.gov.gh/sites/default/files/reports/economic/2018-Annual-Public-Debt-Report.pdf .  However, information on contingent liabilities from state-owned enterprises is not explicit and is scattered in various reports.

International Regulatory Considerations

Ghana has been a World Trade Organization (WTO) member since January 1995.  Ghana issues its own standards for many products under the auspices of the Ghana Standards Authority (GSA).  The GSA has promulgated more than 500 Ghanaian standards and adopted more than 2,000 international standards for certification purposes.  The Ghanaian Food and Drugs Authority is responsible for enforcing standards for food, drugs, cosmetics, and health items. Ghana notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Ghana’s legal system is based on British common law and local customary law. Investors should note that the acquisition of real property is governed by both statutory and customary law.  The judiciary comprises both the lower courts and the superior courts. The superior courts are the Supreme Court, the Court of Appeal, and the High Court and Regional Tribunals. Lawsuits are permitted and usually begin in the High Court. The High Court has jurisdiction in all matters, civil and criminal, other than those involving treason.  There is a history of government intervention in the court system, although somewhat less so in commercial matters. The courts have, when the circumstances require, entered judgments against the government. However, the courts have been slow in disposing of cases and at times face challenges in enforcing decisions, largely due to resource constraints and institutional inefficiencies.

Laws and Regulations on Foreign Direct Investment

The GIPC Act codified the government’s desire to present foreign investors with a transparent foreign investment regulatory regime.  GIPC regulates foreign investment in acquisitions, mergers, takeovers and new investments, as well as portfolio investment in stocks, bonds, and other securities traded on the Ghana Stock Exchange.  The GIPC Act also specifies areas of investment reserved for locals, and further delineates incentives and guarantees that relate to taxation, transfer of capital, profits and dividends, and guarantees against expropriation.

While Ghana does not currently have a “one-stop shop” for business registration, GIPC helps to facilitate the process and provides economic, commercial and investment information for companies and business people interested in starting a business or investing in Ghana.  GIPC provides assistance to enable investors to take advantage of relevant incentives. Registration can be completed online at www.gipcghana.com  .  

As detailed in the previous section on “Limits on Foreign Control and Right to Private Ownership and Establishment,” sector-specific laws regulate foreign participation/investment in telecommunications, banking, fishing, mining, petroleum, and real estate.  

Ghana regulates the transfer of technologies not freely available in Ghana.  According to the 1992 Technology Transfer Regulations, total management and technical fee levels higher than eight percent of net sales must be approved by GIPC.  The regulations do not allow agreements that impose obligations to procure personnel, inputs, and equipment from the transferor or specific source. The duration of related contracts cannot exceed ten years and cannot be renewed for more than five years.  Any provisions in the agreement inconsistent with Ghanaian regulations are unenforceable in Ghana.

Competition and Anti-Trust Laws

Ghana’s competition law, Protection Against Unfair Competition Act, 2,000 (Act 589), is still under review.

Expropriation and Compensation

The Constitution sets out some exceptions and a clear procedure for the payment of compensation in allowable cases of expropriation or nationalization.  Additionally, Ghana’s investment laws generally protect investors against expropriation and nationalization. The Government of Ghana may, however, expropriate property if it is required to protect national defense, public safety, public order, public morality, public health, town and country planning, or to ensure the development or utilization of property in a manner to promote public benefit.  In such cases, the GOG must provide prompt payment of fair and adequate compensation to the property owner. The Government of Ghana guarantees due process by allowing access to the high court by any person who has an interest or right over the property.

U.S. investors are generally not subject to differential or discriminatory treatment in Ghana, and there have been no government expropriations involving U.S. investments in recent times.  There have been no reported instances of indirect expropriation or any government action equivalent to expropriation during the past year.

Dispute Settlement

ICSID Convention and New York Convention

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

There is a caveat for investment disputes arising from within the energy sector: the Government of Ghana has expressed a preference for handling disputes under the ad hoc arbitration rules of the UN Commission on International Trade Law (UNCITRAL Model Law).

Investor-State Dispute Settlement

Ghana’s track record for sound governance and a relatively reliable legal system result in a dispute resolution process that benefits foreign investors, in comparison to other countries in the region.

Over the past ten years, there have been four disputes involving U.S. investors.  One of the cases was resolved through international arbitration. The other three are still pending resolution.

International Commercial Arbitration and Foreign Courts

The United States has signed three bilateral agreements on trade and investment with Ghana: a Trade and Investment Framework Agreement (TIFA), OPIC Investment Incentive Agreement, and the Open Skies Agreement.  These agreements contain provisions for investment as well as trade dispute mechanisms.

The Commercial Conciliation Center of the American Chamber of Commerce (Ghana) provides arbitration services on trade and investment issues for disputes regarding contracts with arbitration clauses.

There is interest in alternative dispute resolution, especially as it applies to commercial cases. Several lawyers provide arbitration and/or conciliation services.  Arbitration decisions are enforceable provided they are registered in the courts.

The Government of Ghana established fast track courts to expedite action in certain cases.  These fast track courts, which are automated divisions of the High Court, were intended to oversee cases which can be concluded within six months.  However, they have not succeeded in consistently disposing of cases within six months. In March 2005, the government established a commercial court with exclusive jurisdiction over all commercial matters.  This Court also handles disputes involving commercial arbitration and the enforcement of awards; intellectual property rights, including patents, copyrights and trademarks; commercial fraud; applications under the Companies Act; tax matters; and insurance and re-insurance cases.  A distinctive feature of the commercial court is the use of mediation or other alternative dispute resolution mechanisms, which are mandatory in the pre-trial settlement conference stage. Ghana also has a Financial and Economic Crimes Court. It is a specialized division of the High Court that handles high profile corruption and economic crime cases.

Enforcement of foreign judgments in Ghana is based on the doctrine of reciprocity.  On this basis, judgments from Brazil, France, Israel, Italy, Japan, Lebanon, Senegal, Spain, the United Arab Emirates, and the United Kingdom are enforceable. Judgments from American courts are not currently enforceable in Ghana.

The GIPC, Free Zones, Labor, and Minerals and Mining Laws outline dispute settlement procedures and provide for arbitration when disputes cannot be settled by other means.  They also provide for referral of disputes to arbitration in accordance with the rules of procedure of the United Nations Commission on International Trade Law (UNCITRAL), or within the framework of a bilateral agreement between Ghana and the investor’s country.  The 2010 Alternative Dispute Resolution Act (Act 798 of 2010) provides for the settlement of disputes by mediation and customary arbitration, in addition to regular arbitration processes.

Bankruptcy Regulations

Ghana does not have a bankruptcy statute.  The Companies Act of 1963, however, provides for official closure of a company when it is unable to pay its debts.  A new insolvency law is under debate in Parliament.

4. Industrial Policies

Investment Incentives

Investment incentives differ slightly depending upon the law under which an investor operates.  For example, while all investors operating under the Free Zone Act are entitled to a ten-year corporate tax holiday, investors operating under the GIPC law are not automatically entitled to a tax holiday.  Tax incentives vary depending upon the sector in which the investor is operating.

All investment-specific laws contain some incentives.  The GIPC law allows for import and tax exemptions for plant inputs, machinery and parts that are imported for the purpose of the investment. Chapters 82, 84, 85, and 89 of the Customs Harmonized Commodity and Tariff Code zero-rate these production items.  The Government of Ghana imposed a five percent import duty on some items that were previously zero-rated, to conform to the ECOWAS common external tariff.

The Ghanaian tax system is replete with tax concessions that considerably reduce the effective tax rate. The minimum incentives are specified in the GIPC law and are not applied in an ad hoc or arbitrary manner.  Once an investor has been registered under the GIPC law, the investor is entitled to the incentives provided by law. The government has discretion to grant an investor additional customs duty exemptions and tax incentives beyond the minimum stated in the law.  The GIPC website (http://www.gipcghana.com) provides a thorough description of available incentive programs. The law also guarantees an investor all the tax incentives provided for under Ghanaian law. For example, rental income from commercial and residential property is exempt from tax for the first five years after construction. Similarly, income from a company selling or leasing out premises is income tax exempt for the first five years of operation.  Rural banks and cattle ranching are exempt from income tax for ten years and pay 8 percent thereafter.

The corporate tax rate is 25 percent and this applies to all sectors except income from non-traditional exports (8 percent tax rate) and oil and gas exploration companies (35 percent tax rate). For some sectors there are temporary tax holidays.  These sectors include Free Zone enterprises and developers (0 percent for the first ten years and 15 percent thereafter); real estate development and rental (0 percent for the first five years and 25 percent thereafter); agro-processing companies (0 percent for the first five years, after which the tax rate ranges from 0 percent to 25 percent depending on the location of the company in Ghana), and waste processing companies (0 percent for seven years and 25 percent thereafter).  Tax rebates are also offered in the form of incentives based on location. A capital allowance in the form of accelerated depreciation is applicable in all sectors except banking, finance, commerce, insurance, mining, and petroleum. Under the new Income Tax law of 2015, all businesses can carry forward tax losses for at least three years.

Ghana has no discriminatory or excessively burdensome visa requirements.  A foreign investor who invests under the GIPC law is automatically entitled to a specific number of visas/work permits based on the size of the investment.  When an investment of USD 50,000, but not more than USD 250,000 or its equivalent is made in convertible currency or machinery and equipment, the enterprise can obtain a visa/work permit for one expatriate employee.  An investment of USD 250,000, but not more than USD 500,000, entitles the enterprise to two automatic visas/work permits. An investment of USD 500,000, but not more than USD 700,000, allows the enterprise to bring in three expatriate employees.  An investment of more than USD 700,000 allows an enterprise to bring in four expatriate employees. An enterprise may apply for extra visas or work permits, but the investor must justify why a foreigner must be employed rather than a Ghanaian. There are no restrictions on the issuance of work and residence permits to Free Zone investors and employees.  Overall, the process of issuing work permits is not very transparent.

Ghana has no import price controls.  It is pursuing a liberalized import regime policy within the framework of the World Trade Organization to accelerate industrial growth.  The Government of Ghana joined other ECOWAS countries by fully implementing the ECOWAS Common External Tariff (CET) in February 2016.

In some instances, Ghana has issued guarantees for foreign direct investment projects that it deems critical to the country’s development.  To make the operation of public-private partnerships (PPPs) effective, the government may support such projects with viability gap funding and guarantees.  A new PPP law is under debate in Parliament.

Foreign Trade Zones/Free Ports/Trade Facilitation

Free Trade Zones (called Free Zones in Ghana) were established in May 1996, with one near Tema Steelworks, Ltd., in the Greater Accra Region, and two other sites located at Mpintsin and Ashiem near Takoradi in the Western Region.  The seaports of Tema and Takoradi, as well as the Kotoka International Airport and all the lands related to these areas, are part of the Free Zone. The law also permits the establishment of single factory zones outside or within the areas mentioned above.  Under the law, a company qualifies to be a Free Zone company if it exports more than 70 percent of its products. Among the incentives for Free Zone companies are a ten-year corporate tax holiday and zero import duty.

To make it easier for Free Zone developers to acquire the various licenses and permits to operate, the Ghana Free Zones Authority (www.gfzb.com.gh) provides a “one-stop approval service” to assist in the completion of all formalities.  A lack of resources has limited the effectiveness of the Authority. Foreign employees of Free Zone businesses require work and residence permits.

Performance and Data Localization Requirements

In most sectors, Ghana does not have performance requirements for establishing, maintaining, and expanding a business.  Investors are not currently required to purchase from local sources or employ prescribed levels of local content, except in the upstream petroleum sector and the power sector, which are subject to substantial local content requirements.  Similar legislation is being drafted for the downstream petroleum sector and a National Local Content Policy is being debated by Cabinet that may extend to a broad array of sectors of the economy, but there is no clear timeline for its approval.

Generally, investors are not required to export a specified percentage of their output, except for Free Zone enterprises which, in accordance with the Free Zone Act, must export 70 percent of their products.  Government officials have intimated that local content requirements should be applied to sectors other than petroleum, but currently no local content regulations have been promulgated for other sectors.

As detailed earlier in this report, there are a few areas where the GOG does impose performance requirements including the mining, oil and gas, insurance, and telecommunications sectors.

Data Storage

The Government of Ghana does not follow a forced localization policy in which foreign investors must use domestic content in goods or technology.  In addition, there are no requirements for foreign IT providers to turn over source code and/or provide access to surveillance (backdoors into hardware and software or turn over keys for encryption).

5. Protection of Property Rights

Real Property

The legal system recognizes and enforces secured interest in property.  The process to get clear title over land is difficult, complicated, and lengthy.  It is important to conduct a thorough search at the Lands Commission to ascertain the identity of the true owner of any land being offered for sale.  Investors should be aware that land records can be incomplete or non-existent and, therefore, clear title may be impossible to establish.

Mortgages exist, although there are only a few thousand in existence due to a variety of factors including land ownership issues and scarcity of long-term finance.  Mortgages are regulated by the Home Mortgages Finance Act 770 (2008) which has enhanced the process of foreclosure. A mortgage must be registered under the Land Title Registration Law, a requirement that is mandatory for it to take effect.  Registration with the Land Title Registry is a reliable system of recording the transaction.

Intellectual Property Rights

The protection of intellectual property rights (IPR) is an evolving area of law in Ghana.  Progress has been made in recent years to afford protection under both local and international law.  Ghana is a party to the Universal Copyright Convention, the Berne Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Patent Cooperation Treaty (PTC), the Singapore Trademark Law Treaty (STLT), and the Madrid Protocol Concerning the International Registration of Marks.  Ghana is also a member of the World Intellectual Property Organization (WIPO), the English-speaking African Regional Intellectual Property Organization (ARIPO), and the World Trade Organization (WTO). In 2004, Ghana’s Parliament ratified the WIPO internet treaties, namely the WIPO Copyright Treaty and the WIPO Performance and Phonograms Treaty. Ghana also amended six IPR laws to comply with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), including: copyrights, trademarks, patents, layout-designs (topographies) of integrated circuits, geographical indications, and industrial designs.  Except for the copyright law, implementing regulations necessary for fully effective promulgation have not been passed.

The Government of Ghana launched a National Intellectual Property Policy and Strategy in January 2016, which aimed to strengthen the legal framework for protection, administration, and enforcement of IPR and promote innovation and awareness, although progress on implementation stalled.  Enforcement remains weak and piracy of intellectual property continues to take place. Although precise statistics are not available for many sectors, counterfeit computer software is regularly available at street markets and counterfeit pharmaceuticals have found their way into public hospitals.  Counterfeit products have also been discovered in such disparate sectors as industrial epoxy, cosmetics, drinking spirits, and household cleaning products. Based on cases where it has been possible to trace the origin of counterfeit goods, most have been found to have been produced outside the region, usually in Asia.  Holders of IPR have access to local courts for redress of grievances, although the few trademark, patent, and copyright infringement cases that have been filed in Ghana by American companies have reportedly moved through the legal system slowly.

Ghana is not included in the United States Trade Representative (USTR) Special 301 Report or the Notorious Markets List.

Resources for Rights Holders

Please contact the following at Mission Accra if you have further questions regarding IP issues:

Margo Siemer
Economic Section
No. 24 Fourth Circular Road, Cantonments, Accra, Ghana
233-030-274-1000
SiemerME@state.gov

A list of local lawyers can be found at: https://gh.usembassy.gov/u-s-citizen-services/attorneys/

American Chamber of Commerce Ghana
5TH Crescent Street, Asylum Down
P.O. Box CT2869, Cantonments-Accra, Ghana
Tel: 233 030 2247562/233 030 7011862
Fax: 233 030 2247562
Website: http://www.amchamghana.org/ 

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ 

6. Financial Sector

Capital Markets and Portfolio Investment

Private sector growth in Ghana is constrained by financing challenges.  Businesses continue to face difficulty raising capital on the local market.  While credit to the private sector has increased, levels have remained stagnant over the last decade and high government borrowing has driven up interest rates beyond 25 percent and crowded out private investment.

Capital markets and portfolio investment are gradually evolving.  The longest-term domestic bonds are 15 years, with Eurobonds ranging up to 31-year maturities.  Foreign investors are only permitted to participate in bond auctions with maturities of two years or longer.  In 2018, foreign investors held about 30 percent (valued at USD 5.7 billion) of the total outstanding domestic securities.  Authorities are working to expand the secondary market to improve liquidity.

The rapid accumulation of debt over the last decade has raised debt sustainability concerns.  Ghana received debt relief under the Heavily Indebted Poor Country (HIPC) initiative in 2004, and began issuing Eurobonds in 2007.  Following a rebasing of GDP in 2018, total public debt, roughly evenly split between external and domestic, stands at approximately 58 percent of GDP.  Following the government’s strategy of increasing demand for longer-dated bonds, short-term debt declined from a share of 22.4 percent in 2017 to 17.3 percent in 2018.

The Ghana Stock Exchange (GSE) has 42 listed companies, four government bonds and one corporate bond. Both foreign and local companies are allowed to list on the GSE.  The Securities and Exchange Commission regulates activities on the Exchange. There is an 8 percent tax on dividend income. Foreigners are permitted to trade stocks listed on the GSE without restriction.  There are no capital controls on the flow of retained earnings, capital gains, dividends or interest payments. The GSE composite index (GGSECI) has exhibited mixed performance.

Money and Banking System

Banks in Ghana are relatively small with the largest in the country, Ecobank Ghana Ltd., holding assets totaling about USD 1.3 billion.  The Central Bank increased the minimum capital requirement for commercial banks from 120 million Ghana cedis (USD 24 million) to 400 million (USD 80 million) effective December 2018, as part of a broader effort to strengthen the banking industry.  As a result of the reforms and subsequent closures and mergers of some banks, the number of commercial banks dropped from 36 to 23. Eight are domestically controlled and the remaining 15 are foreign-controlled. In total, there are nearly 1,500 branches distributed across the sixteen regions of the country.

Overall, the banking industry in Ghana is well-capitalized with a capital adequacy ratio of 21.7 percent as of February 2019, which is above the 10 percent prudential and statutory requirement.  As of February 2019, the non-performing loans ratio had decreased to 18.2 percent from 21.6 percent in February 2018. Lending in foreign currencies to unhedged borrowers poses a risk, and widely varying standards in loan classification and provisioning may be masking weaknesses in bank balance sheets.  The BoG is taking steps to address weaknesses in the non-bank deposit-taking institutions sector (e.g., microfinance, savings and loan, and rural banks) and has also issued new guidelines to strengthen corporate governance regulations in the banks.

Recent developments in the non-banking financial sector indicate increased diversification, including new rules and regulations governing the trading of Exchange Traded Funds.  Non-banking financial institutions such as leasing companies, building societies, and savings and loan associations have increased access to finance for underserved populations, as have rural and mobile banking.  Currently, Ghana has no “cross-shareholding” or “stable shareholder” arrangements used by private firms to restrict foreign investment through mergers and acquisitions.

Foreign Exchange and Remittances

Foreign Exchange

Ghana operates a free-floating exchange rate regime.  The Ghana cedi can be exchanged for dollars and major European currencies.  Investors may convert and transfer funds associated with investments provided there is documentation of how the funds were acquired.  Ghana’s investment laws guarantee that investors can transfer the following transactions in convertible currency out of Ghana: dividends or net profits attributable to an investment; loan service payments where a foreign loan has been obtained; fees and charges with respect to technology transfer agreements registered under the GIPC Act; and the remittance of proceeds from the sale or liquidation of an enterprise or any interest attributable to the investment.  Companies have not reported challenges or delays in remitting investment returns. For details, please consult the GIPC Act (http://www.gipcghana.com) and the Foreign Exchange Act guidelines (http://www.sec.org). Persons arriving in or departing from Ghana are permitted to carry up to USD 10,000.00 without declaration; any greater amount must be declared.

Ghana’s foreign exchange reserve needs are largely met through cocoa, gold and oil exports, government securities, foreign assistance, and private remittances.  

Remittance Policies

There is a single formal system for transferring currency out of the country through the banking system.  The Parliament passed the Foreign Exchange Act in November 2006. The Act provided the legal framework for the management of foreign exchange transactions in Ghana.  It fully liberalized capital account transactions, including allowing foreigners to buy certain securities in Ghana. It also removed the requirement for the Bank of Ghana (the central bank) to approve offshore loans.  Payments or transfer of foreign currency can only be made through banks or institutions licensed to do money transfers. There is no limit on capital transfers as long as the transferee can identify the source of capital.

Sovereign Wealth Funds

Ghana’s only sovereign wealth fund is the Ghana Petroleum Fund (GPF), which is funded by oil profits and flows to the Ghana Heritage Fund and Stabilization Fund.  The Petroleum Revenue Management Act (PRMA) (Act 815), passed in 2011, spells out how revenues from oil and gas should be spent and includes transparency provisions for reporting by government agencies, as well as an independent oversight group, the Public Interest and Accountability Committee (PIAC).  Section 48 of the PRMA requires the Fund to publish an audited annual report by the Ghana Audit Service. The Fund’s management meets the legal obligations. Management of the Ghana Petroleum Fund is a joint responsibility between the Ministry of Finance and the Bank of Ghana. The Minister develops the investment policy for the GPF, and is responsible for the overall management of GPF funds, consults regularly with the Investment Advisory Committee and Bank of Ghana Governor before making any decisions related to investment strategy or management of GPF funds.  The Minister is also in charge of establishing a management agreement with the Bank of Ghana for the oversight of the funds. The Bank of Ghana is responsible for the day-to-day operational management of the Petroleum Reserve Accounts (PRAs) under the terms of Operation Management Agreement.

For additional information regarding Ghana petroleum funds, please visit the 2018 Petroleum Annual Report at: https://www.mofep.gov.gh/sites/default/files/reports/petroleum/2018-Petroleum-Annual-Report.pdf 

7. State-Owned Enterprises

By the end of 2017, Ghana had 86 State-Owned Enterprises (SOEs), 45 of which are wholly-owned while 41 are partially owned.  Thirty-six (36) of the wholly-owned SOEs are commercial and operate more independently from government while nine are public corporations or institutions, some providing regulatory functions.  While the President appoints the CEO and full boards of most of the wholly-owned SOEs, they are under the supervision of line ministries. Most of the partially owned investments are in the financial, mining, and oil and gas sectors.  To improve the efficiency of SOEs and reduce fiscal risks they pose to the budget, in 2017 the government embarked on an exercise to tackle weak corporate governance in the SOEs as well as create a single entity institution to monitor all SOEs.  Legislation creating a single authority for managing state-owned assets in pending before Parliament.

Today only a handful of large SOEs remain, mainly in the transportation, power, and extractive sectors.  The largest SOEs are Ghana Ports and Harbor Authority (GPHA), Electricity Company of Ghana (ECG), Volta River Authority (VRA), Ghana Water Company Limited (GWCL), Tema Oil Refinery (TOR), Ghana Airport Company Limited (GACL), Ghana Cocoa Board (COCOBOD), Ghana National Gas Company Limited, and Ghana National Petroleum Corporation (GNPC). Many of these receive subsidies and assistance from the government.  In March 2019, a private sector concessionaire, Power Distribution Services (PDS) Limited, took over management of ECG, through a process of increasing private sector participation in ECG under Ghana’s second Millennium Challenge Corporation (MCC) compact, which entered into force in September 2016. The USD 498.2 million compact is designed to increase the commercial viability of the utility. PDS will manage and operate ECG on a concession agreement for a period of 20 years.

While the Government of Ghana does not actively promote adherence to the OECD Guidelines, corporate governance of SOEs is overseen by the State Enterprise Commission (SEC).  The SEC encourages SOEs to be managed like Limited Liability Companies so as to be profit-making. In addition, beginning in 2014, most state-owned enterprises were required to contract and service direct and government-guaranteed loans on their own balance sheet.  The government’s goal is stop adding these loans to “pure public” debt, paid by taxpayers directly through the budget.

Privatization Program

Ghana currently has no formal privatization program; however, the current government is prioritizing the creation of public-private partnerships (PPPs) to restructure and privatize non-performing state-owned enterprises.  Procuring PPPs is allowed under the National Policy on Public Private Partnerships in Ghana, which was adopted in June 2011. A PPP law is being drafted.

8. Responsible Business Conduct

There is no specific responsible business conduct (RBC) law in Ghana and the government has no action plan regarding OECD RBC guidelines.

Ghana has been a member of the Extractive Industries Transparency Initiative since 2010.  The government also enrolled in the Voluntary Principles on Security and Human Rights in 2014, making Ghana the only African country in the initiative to this day.

Corporate social responsibility (CSR) is a growing concern among Ghanaian companies.  The Ghana Club 100 is a ranking of the top performing companies, as determined by GIPC.  It is based on several criteria, including a 10 percent weight assigned to corporate social responsibility, including philanthropy.  Companies have noted that Ghanaian consumers are not generally interested in the CSR activities of private companies, with the exception of the extractive industries (whose CSR efforts seem to attract consumer, government and media attention).  In particular, there is a widespread expectation that extractive sector companies will involve themselves in substantial philanthropic activities in the communities in which they have operations.

9. Corruption

Corruption in Ghana is comparatively less prevalent than in other countries in the region, but remains a serious problem.  The government has a relatively strong anti-corruption legal framework in place, but enforcement of existing laws is rare and haphazard.  Corruption in government institutions is pervasive. The Government of Ghana has vowed to combat corruption and has taken some steps to promote better transparency and accountability.  These include establishing an Office of the Special Prosecutor to investigate and prosecute corruption cases, and passing a Right to Information Act (similar to the U.S. Freedom of Information Act) to increase transparency.

The most common commercial fraud scams are procurement offers tied to alleged Ghanaian government or, more frequently, ECOWAS programs. U.S. companies frequently report being contacted by an unknown Ghanaian firm claiming to be an authorized agent of an official government procurement agency.  Foreign firms that express an interest in being included in potential procurements are lured into paying a series of fees to have their companies registered or products qualified for sale in Ghana or the West Africa region. U.S. companies receiving offers from West Africa from unknown sources should use extreme caution and conduct significant due-diligence prior to pursuing these offers.  American firms can request background checks on companies with whom they wish to do business by using the United States Commercial Service’s International Company Profile (ICP). Requests for ICPs should be made through the nearest United States Export Assistance Center. For more information about the United States Commercial Service, visit www.export.gov/ghana .

Businesses have noted that bribery is most pervasive in the judicial system and across public services.  Companies report that bribes are often exchanged in return for favorable judicial decisions. Large corruption cases are prosecuted, but proceedings are lengthy and convictions are slow.  A 2015 exposé captured video of judges and other judicial officials extorting bribes from litigants to manipulate the justice system. Thirty-four judges were implicated, and 25 were dismissed following the revelations, though none have been criminally prosecuted.  

In 2016, the public procurement law was amended to address the shortcomings identified over a decade of implementation of the original law aimed at harmonizing the many public procurement guidelines used in the country and to bring public procurement into conformity with WTO standards.  Notwithstanding the procurement law, companies cannot expect complete transparency in locally funded contracts. There continue to be allegations of corruption in the tender process and the government has in the past set aside international tender awards in the name of national interest. Though the law on public financial management was overhauled in August 2016, with stiffer sanctions and penalties on breaches, its impact on corruption is yet to be recorded.  The Companies Act was also amended in 2016 to establish a register to collect and maintain a national database on beneficial owners in Ghana, but the register has yet to be established. 

The 1992 Constitution established the Commission for Human Rights and Administrative Justice (CHRAJ).  Among other things, the Commission is charged with investigating alleged and suspected corruption and the misappropriation of public funds by officials.  The Commission is also authorized to take appropriate steps, including providing reports to the Attorney General and the Auditor-General in response to such investigations.  The effectiveness of the Commission, however, is affected by a lack of resources, as it conducts few investigations leading to prosecutions. CHRAJ issued guidelines on conflict of interest to public sector workers in 2006, and issued a new Code of Conduct for Public Officers in Ghana with guidelines on conflicts of interest in 2009.  CHRAJ also developed a National Anti-Corruption Action Plan that was approved by the Parliament in July 2014, but many of its provisions have not been implemented due to lack of resources. In November 2015, then-President Mahama fired the CHRAJ Commissioner after she was investigated for misappropriating public funds.

In 1998, the Government of Ghana also established an anti-corruption institution, called the Serious Fraud Office (SFO), to investigate corrupt practices involving both private and public institutions.  SFO’s name was changed to Economic and Organized Crime Office (EOCO) in 2010 and its functions were expanded to include crimes such as money laundering and other organized crimes. EOCO is empowered to initiate prosecutions and to recover proceeds from criminal activities.  The government passed a “Whistle Blower” law in July 2006, intended to encourage Ghanaian citizens to volunteer information on corrupt practices to appropriate government agencies.

Like most other African countries, Ghana is not a signatory to the OECD Convention on Combating Bribery.

Resources to Report Corruption

Commission on Human Rights and Administrative Justice (CHRAJ)
Old Parliament House, High Street, Accra
Postal Address: Box AC 489, Accra
Phone: 0302- 662150/ 664267/ 664561/ 668839
Fax: 0302- 660020/ 668840/ 680396/ 673677
Email: info@chrajghana.com
Website: http://www.chrajghana.com/  

Economic and Organized Crime Office (EOCO)
Tel +233 30 266 9995
Tel +233 30 266 7485
Tel +233 30 266 4786
Website: http://mail.eoco.org.gh/aboutus.html  

10. Political and Security Environment

Ghana offers a relatively stable and predictable political environment for American investors. Ghana has a solid democratic tradition.  In December 2016, Ghana completed its seventh consecutive peaceful presidential and parliamentary elections. Opposition New Patriotic Party (NPP) candidate Nana Akufo-Addo defeated incumbent President and National Democratic Congress (NDC) candidate John Mahama by a margin of over one million votes.  Mahama conceded the election and power was transferred to the NPP peacefully. There were isolated cases of politically-motivated violence but no widespread civil disturbances.

11. Labor Policies and Practices

Ghana has a large pool of unskilled labor.  English is widely spoken, especially in urban areas. However, according to the United Nations, illiteracy remains high at 33 percent. Labor regulations and policies are generally favorable to business.  Although labor-management relationships are generally positive, there are occasional labor disagreements stemming from wage policies in Ghana’s inflationary environment. Many employers find it advantageous to maintain open lines of communication on wage calculations and incentive packages.  A revised Labor Act of 2003 (Act 651) unified and modified the old labor laws to bring them into conformity with the core principles of the International Labor Convention, to which Ghana is a signatory.

Under the Labor Act, the Chief Labor Officer both registers trade unions and approves applications by unions for a collective bargaining certificate.  A collective bargaining certificate entitles the union to negotiate on behalf of a class of workers. The Labor Act also created a National Labor Commission to resolve labor and industrial disputes, and a National Tripartite Committee to set the national daily minimum wage and provide policy guidance on employment and labor market issues.  The National Tripartite Committee includes representatives from government, employers’ organizations, and organized labor. The Labor Act sets the maximum hours of work at eight hours per day or 40 hours per week, but makes provision for overtime and rest periods. Task workers and domestic workers are excluded from the eight hours per day or 40 hours per week maximum.

The Labor Act prohibits the “unfair termination” of workers for specific reasons outlined in the law, including participation in union activities, pregnancy, or based on a protected class, such as by gender, race, color, ethnicity, origin, religion, creed, social, political or economic status, or disability.  The Labor Act also provides procedures companies are required to follow when laying off staff, including under certain situations providing severance pay, known locally as “redundancy pay.” Disputes over redundancy pay can be referred to the National Labor Commission. The Act’s provisions regarding fair and unfair termination of employment do not apply to some classes of contract, probationary, and casual workers.

There is no legal requirement for labor participation in management.  However, many businesses utilize joint consultative committees in which management and employees meet to discuss issues affecting business productivity and labor issues.

There are no statutory requirements for profit sharing, but fringe benefits in the form of year-end bonuses and retirement benefits are generally included in collective bargaining agreements. Child labor remains a problem.  Child labor is particularly severe in agriculture, including in cocoa, and in fishing. Fish (including tilapia) is included on the U.S. government’s Executive Order 13126 List of Goods Produced by Forced and Indentured Child Labor.  Additionally, cocoa, fish, gold, and tilapia are included on the U.S. government’s List of Goods Produced by Child Labor or Forced Labor. In general, worker protection provisions in the Labor Act, including health and safety provisions, are weakly enforced.  Post recommends consulting a local attorney for detailed advice regarding labor issues. The United States Embassy in Accra maintains a list of local attorneys, which is available through the U.S. Foreign Commercial Service (www.export.gov/ghana ).

12. OPIC and Other Investment Insurance Programs

Ghana has signed an agreement with the Overseas Private Investment Cooperation (OPIC). OPIC is active in Ghana, providing financing and insurance for a number of projects – particularly in the energy, housing, and health sectors.  The African Project Development Facility (APDF) and the African investment program of the International Finance Corporation are other sources of information.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $65,556 2017 $58,997 www.worldbank.org/en/country  
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2017 $1,698 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 $52 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP N/A N/A 2017 56% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  


Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward Amount 100% Total Outward Amount 100%
Ireland Amount 36% Country #1 Amount X%
France Amount 15% Country #2 Amount X%
Cayman Islands Amount 12% Country #3 Amount X%
Brit Virgin Islands Amount 11% Country #4 Amount X%
Belgium Amount 10% Country #5 Amount X%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Data not available.

New Zealand

Executive Summary

New Zealand has an international reputation for an open and transparent economy where businesses and investors can make commercial transactions with ease.  Major political parties are committed to an open trading regime and sound rule of law practices.  This is regularly reflected in high global rankings in the World Bank’s Ease of Doing Business report and Transparency International’s Perceptions of Corruption index.  In the aftermath of the global financial crisis, the government and the Reserve Bank made substantive legislative and regulatory changes to the financial system.  This included the establishment of the Financial Markets Authority, enacting comprehensive Anti-Money Laundering and Countering Financing of Terrorism legislation, and implementing macro-prudential policy to help identify and address systemic risk in the finance sector.  This year the Reserve Bank will continue its review proposing to increase banks’ capital requirements to add further resilience to the financial system.

Since the new Labour party-led government coalition took power in October 2017, there has been a modest shift in economic priorities to more social initiatives while continuing to acknowledge New Zealand’s dependence on trade.  The government has indicated a slight change in focus in trade agreement negotiations and has amended employment legislation passed by the previous government.  It has also passed a range of legislation that aligns New Zealand law with international norms such as the criminalization of cartel behavior.

The government has also passed legislation – and proposed further legislation – that tightens rules governing the ability of overseas persons to invest in New Zealand.  In December 2017, the government tightened regulations on rural land, and in October 2018 passed legislation to make the purchase of residential property by foreigners subject to overseas investment screening.  In April 2019, the government released a 122-page consultation document for the second phase of proposed changes to the overseas investment regime.  The second phase considers restricting foreign investment in New Zealand assets that have a “national interest,” introducing regulations for overseas companies that extract water in New Zealand and bottle for export, and considering other assets that should be subject to screening, particularly those that fall below the current NZD 100 million (USD 68 million) threshold.

The government introduced a bill requiring non-resident companies to charge New Zealand sales tax on low-value items they export to New Zealand, and considered the implementation of a digital services tax to target large multinational companies before the OECD releases expected guidelines.  The government categorically ruled out a capital gains tax, leaving New Zealand one of just several Organization for Economic Co-operation and Development (OECD) countries to not have one.

The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) agreement entered into force on December 30, 2018 for New Zealand, and instituted immediate tariff cuts on some key products, with subsequent cuts in early 2019.  It is the first free trade agreement New Zealand has secured with Japan, Canada, and Mexico.

Half of New Zealand’s foreign direct investment (FDI) comes from Australia, with the United States ranking second, constituting about seven percent.  Similarly, over half of New Zealand’s outward direct investment goes to Australia, with the United States ranked second at about 14 percent.  The 2019 Investment Climate Statement for New Zealand uses the exchange rate of NZD 1 = USD 0.68.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 2 of 175 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 1 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 22 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S.  FDI in partner country ($M USD, stock positions) 2017 $11,938 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $38,970 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Foreign investment in New Zealand is generally encouraged without discrimination.  New Zealand has an open and transparent economy, where businesses and investors can generally make commercial transactions with ease.  Successive governments accept that foreign investment is an important source of financing for New Zealand and a means to gain access to foreign technology, expertise, and global markets.  Some restrictions do apply in a few areas of critical interest including certain types of land, significant business assets, and fishing quotas. These restrictions are facilitated by a screening process conducted by the Overseas Investment Office (OIO), described in the next section.

New Zealand has a rapidly expanding network of bilateral investment treaties and free trade agreements that include investment components.  New Zealand also has a well-developed legal framework and regulatory system, and the judicial system is generally effective in enforcing property and contractual rights.  Investment disputes are rare, and there have been no major disputes in recent years involving U.S. companies.

The Labour Party-led government has embarked on a program of tighter screening of some forms of foreign investment.  It has also focused on different aspects of trade agreement negotiation compared with the previous government, such as an aversion to investor-state dispute settlement provisions, and moved to restrict the availability of permits for oil and gas exploration.  This will be discussed below in a later section.

Crown entity New Zealand Trade and Enterprise (NZTE) is New Zealand’s primary investment promotion agency.  In addition to its New Zealand central and regional presence, it has 40 international locations, including four offices in the United States.  Approximately half of the NZTE staff is based overseas. The NZTE offers to help investors develop their plans, access opportunities, and facilitate connections with New Zealand-based private sector advisors: https://www.nzte.govt.nz/investment-and-funding/how-we-help.  Once investors independently complete their negotiations, due diligence, and receive confirmation of their investment, the NZTE offers aftercare advice. The NZTE works to channel investment into regional areas of New Zealand to build capability and to promote opportunities outside of the country’s main cities. 

In recent years new visa categories were created for investors and for entrepreneurs, and measures introduced to allow foreign investors – under certain circumstances – to bid alongside New Zealand businesses for contestable government funding for research and innovation grants.  Most of the programs which are operated by NZTE, the Ministry of Business, Innovation, and Employment (MBIE), and Callaghan Innovation, provide support through skills and knowledge, or supporting innovative business ventures. Grants are available, but many are co-funded, requiring some investment by the business owner, and extra conditions apply to non-resident applicants.  For more see: https://www.business.govt.nz/how-to-grow/getting-government-grants/what-can-i-get-help-with/

The New Zealand-United States Council, established in 2001, is a non-partisan organization funded by business and the government.  It fosters a strong and mutually beneficial relationship between New Zealand and the United States through both government-to-government contacts, and business-to-business links.  The American Chamber of Commerce in Auckland provides a platform for New Zealand and U.S. businesses to network among themselves and with government agencies.

Limits on Foreign Control and Right to Private Ownership and Establishment

[Sectors:]

The New Zealand government does not discriminate against U.S. or other foreign investors in their rights to establish and own business enterprises.  It has placed separate limitations on foreign ownership of airline Air New Zealand and telecommunications provider Spark New Zealand (Spark).

Air New Zealand’s constitution requires that no person who is not a New Zealand national hold 10 percent or more of the voting rights without the consent of the Minister of Transport.  There must be between five and eight board directors, at least three of which must reside in New Zealand. In 2013 the government sold a partial stake in Air New Zealand reducing its equity interest from 73 percent to 53 percent.

Spark’s constitution requires at least half of its Board be New Zealand citizens, and at least one director must live in New Zealand.  It requires no person shall have a relevant interest in 10 percent or more of the voting shares without the consent of the Minister of Finance and the Spark Board, and no person who is not a New Zealand national can purchase a relevant interest in more than 49.9 percent of the total voting shares without approval from the Minister of Finance.  This telecommunications service obligation (TSO) – formerly known as the “Kiwishare obligation” – has been in operation since Spark’s privatization in 1990, and was motivated in part because of the vital emergency call service it provides. There are TSOs for charge-free local calling (provided by Spark and supported by Chorus), and for the services for deaf, hearing impaired, and speech impaired people (provided by Sprint International).

The establishment of telecommunications infrastructure provider Chorus resulted from a demerger of Spark in 2011.  Chorus owns most of the telephone infrastructure in New Zealand, and provides wholesale services to telecommunications retailers, including Spark.  The demerger freed Spark from the TSO, but obligated Chorus as a natural monopoly and infrastructure provider. To date the New Zealand government has granted approval to two private companies – in April 2012 and December 2017 – to exceed the 10 percent threshold, and increase their interest in Chorus up to 15 percent.

[National Security: TICSA]

New Zealand screens overseas investment mainly for economic reasons, but has legislation that outlines a framework to protect the national security of telecommunication networks.  The Telecommunications (Interception and Security) Act 2013 (TICSA) sets out the process for network operators to work with the Government Communications Security Bureau (GCSB) – in accordance with Section 7   – to prevent, sufficiently mitigate, or remove security risks arising from the design, build, or operation of public telecommunications networks; and interconnections to or between public telecommunications networks in New Zealand or with networks overseas.   In April 2019 the government signaled it would be considering a “national interest” restriction on foreign investment, when it issued a document for public consultation  .

[Economic Security: OIO]

New Zealand otherwise screens overseas investment to ensure quality investments are made that benefit New Zealand.  Failure to obtain consent before purchase can lead to significant financial penalties. The Overseas Investment Office (OIO) is responsible for screening foreign investment that falls within certain criteria specified in the Overseas Investment Act 2005. 

The OIO requires consent be obtained by overseas persons wishing to acquire or invest in significant business assets, sensitive land, farm land, or fishing quota, as defined below.

A “significant business asset” includes: acquiring 25 percent or more ownership or controlling interest in a New Zealand company with assets exceeding NZD 100 million (USD 68 million); establishing a business in New Zealand that will be operational more than 90 days per year and expected costs of establishing the business exceeds NZD 100 million; or acquiring business assets in New Zealand that exceed NZD 100 million. 

OIO consent is required for overseas investors to purchase “sensitive land” either directly or acquiring a controlling interest of 25 percent or more in a person who owns the land.  Non-residential sensitive land includes land that: is non-urban and exceeds five hectares (12.35 acres); is part of or adjoins the foreshore or seabed; exceeds 0.4 hectares (1 acre) and falls under of the Conservation Act of 1987 or it is land proposed for a reserve or public park; is subject to a Heritage Order, or is a historic or wahi tapu area (sacred Maori land); or is considered “special land” that is defined as including the foreshore, seabed, riverbed, or lakebed and must first be offered to the Crown.  If the Crown accepts the offer, the Crown can only acquire the part of the “sensitive land” that is “special land,” and can acquire it only if the overseas person completes the process for acquisition of the sensitive land.

The Waitangi Tribunal was established by the Treaty of Waitangi Act 1975 to hear Maori claims relating to the loss of land and resources as a result of historical breaches by the Crown of the Treaty of Waitangi signed in 1840.  Maori land claims may not be lodged relating to privately owned land and affect only land owned by the Crown. Some private land titles are noted with a memorial recording that the land, when Crown land, would be subject to a claim and therefore repurchased by the Crown for market value at some future time.  No land in New Zealand has to date been the subject of a repurchase decision.

Where a proposed acquisition involves “farm land” (land used principally for agricultural, horticultural, or pastoral purposes, or for the keeping of bees, poultry, or livestock), the OIO can only grant approval if the land is first advertised and offered on the open market in New Zealand to citizens and residents.  The Crown can waive this requirement in special circumstances at the discretion of the relevant Minister.

Commercial fishing in New Zealand is controlled by the Fisheries Act, which sets out a quota management system that prohibits commercial fishing of certain species without the ownership of a fishing quota which specifies the quantity of fish that may be taken.  OIO legislation together with the Fisheries Act, requires consent from the relevant Ministers in order for an overseas person to obtain an interest in a fishing quota, or an interest of 25 percent or more in a business that owns or controls a fishing quota.

For investments that require OIO screening, the investor must demonstrate in their application they meet the criteria for the “Investor Test” and the “Benefit to New Zealand test.” The former requires the investor to display the necessary business experience and acumen to manage the investment, demonstrate financial commitment to the investment, and be of “good character” meaning a person who would be eligible for a permit under New Zealand immigration law.

The “Benefit to New Zealand test” requires the OIO assess the investment against 21 factors, which are set out in the OIO Act and Regulations.  The OIO applies a counterfactual analysis to those benefit factors that are capable of having a counterfactual applied, the onus is upon the investor to consider the likely counterfactual if the overseas investment does not proceed.  Economic factors are given weighting, particularly if the investment will create new job opportunities, retain existing jobs, and lead to greater efficiency or productivity domestically.

For all four categories the threshold is higher for Australian investors.  Australian non-government investors are screened at NZD 530 million (USD 360 million) and Australian government investors at NZD 111 million (USD 75 million) for 2019, with both amounts reviewed each year in accordance with the 2013 Protocol on Investment to the New Zealand-Australia Closer Economic Relations Trade Agreement.  Separately, non-government investors from CPTPP countries face a screening threshold of NZD 200 million (USD 136 million).

The OIO Regulations set out the fee schedule for lodging new applications which can be costly, currently ranging between NZD 13,000 (USD 8,800) to NZD 54,000 (USD 36,700).  The Overseas Investment Act does not prescribe timeframes within which the OIO must make a decision on any consent applications, and current processing times regularly exceed six months.  In recent years some investors have abandoned their applications, and have been vocal in their frustration with costs and time frames involved in obtaining OIO consent.

The OIO monitors foreign investments after approval.  All consents are granted with reporting conditions, which are generally standard in nature.  Investors must report regularly on their compliance with the terms of the consent. Offenses include: defeating, evading, or circumventing the OIO Act; failure to comply with notices, requirements, or conditions; and making false or misleading statements or omissions.  If an offense has been committed under the Act, the High Court has the power to impose penalties, including monetary fines, ordering compliance, and ordering the disposal of the investor’s New Zealand holdings.

Other Investment Policy Reviews

New Zealand has not conducted an Investment Policy Review through the OECD or the United Nations Conference on Trade and Development (UNCTAD) in the past three years.  New Zealand’s last Trade Policy Review was in 2015 and the next will take place in 2021: https://www.wto.org/english/tratop_e/tpr_e/tp416_e.htm 

Business Facilitation

The New Zealand government has shown a strong commitment to continue efforts to streamline business facilitation.  According to the World Bank’s Ease of Doing Business 2019 report New Zealand is ranked first in “Starting a Business,” “Registering Property,” “Getting Credit,” and is ranked second for “Protecting Minority Investors.”

There are no restrictions on the movement of funds into or out of New Zealand, or on the repatriation of profits.  No additional performance measures are imposed on foreign-owned enterprises, other than those that require OIO approval.  Overseas investors must adhere to the normal legislative business framework for New Zealand-based companies, which includes the Commerce Act 1986, the Companies Act 1993, the Financial Markets Conduct Act 2013, the Financial Reporting Act 2013, and the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT).  The Contract and Commercial Law Act 2017 was passed to modernize and consolidate existing legislation underpinning contracts and commercial transactions. 

The tightening of anti-money laundering laws has impacted the cross-border movement of remittance orders from New Zealanders and migrant workers to the Pacific Islands.  Banks, non-bank institutions, and people in occupations that typically handle large amounts of cash, are required to collect additional information about their customers and report any suspicious transactions to the New Zealand Police.  If an entity is unable to comply with the AML/CFT in its dealings with a customer, it must not do business with that person. For banks this would mean not processing certain transactions, withdrawing the banking products and services it offers, and choosing not to have that person as a customer.  This has resulted in some banks charging higher fees for remittance services in order to reduce their exposure to risks, which has led to the forced closing of accounts held by some money transfer operators. Phase 1 sectors which include financial institutions, remitters, trust and company service providers, casinos, payment providers, and lenders have had to comply with the AML/CFT since 2013.  Under Phase 2 the AML/CFT was extended to lawyers, conveyancers from July 2018, accountants, and bookkeepers from October 2018, and realtors from January 2019.

In order to combat the increasing use of New Zealand shell companies for illegal activities, the Companies Amendment Act 2014 and the Limited Partnerships Amendment Act 2014 introduced new requirements for companies registering in New Zealand.  Companies must have at least one director that either lives in New Zealand, or lives in Australia and is a director of a company incorporated in Australia. New companies incorporated must provide the date and place of birth of all directors, and provide details of any ultimate holding company.  The Acts introduced offences for serious misconduct by directors that results in serious losses to the company or its creditors, and aligns the company reconstruction provisions in the Companies Act with the Takeovers Act 1993 and the Takeovers Code Approval Order 2000.

The Companies Office holds an overseas business-related register, and provides that information to persons in New Zealand who intend to deal with the company or to creditors in New Zealand.  The information provided includes where and when the company was incorporated, if there is any restriction on its ability to trade contained in its constitutional documents, names of the directors, its principal place of business in New Zealand, and where and on whom documents can be served in New Zealand.  For further information on how overseas companies can register in New Zealand: https://www.companiesoffice.govt.nz/companies/learn-about/starting-a-company/register-an-overseas-company-other 

The New Zealand Business Number (NZBN) Act 2016 allows the allocation of unique identifiers to eligible entities to enable them to conduct business more efficiently, interact more easily with the government, and to protect the entity’s security and confidentiality of information.  All companies registered in New Zealand have had NZBNs since 2013, and are also available to other types of businesses such as sole traders and partnerships.

Tax registration is recommended when the investor incorporates the company with the Companies Office, but is required if the company is registering as an employer and if it intends to register for New Zealand’s consumption tax, the Goods and Services Tax (GST), which is currently 15 percent.  Companies importing into New Zealand or exporting to other countries which have a turnover exceeding NZD 60,000 (USD 40,800) over a 12-month period, or expect to pass NZD 60,000 in the next 12 months, must register for GST. Non-resident businesses that conduct a taxable activity supplying goods or services in New Zealand and make taxable supplies in New Zealand, must register for GST:  https://www.ird.govt.nz/index/all-tasks. From 2014, non-resident businesses that do not make taxable supplies in New Zealand have been able to claim GST if they meet certain criteria  

To comply with GST registration, overseas companies need two pieces of evidence to prove their customer is a resident in New Zealand, such as their billing address or IP address, and a GST return must be filed every quarter even if the company does not make any sales.

In 2016 mandatory GST registration was extended to non-resident suppliers of “remote services” to New Zealand customers, if they meet the NZD 60,000 annual sales threshold.  In 2018, the government introduced legislation that if enacted, will require non-resident suppliers of low-value import goods to register for GST, if they meet the NZD 60,000 annual sales threshold.  Both are discussed in a later section.

Outward Investment

The New Zealand government does not place restrictions on domestic investors to invest abroad.

NZTE is the government’s international business development agency.  It promotes outward investment and provides resources and services for New Zealand businesses to prepare for export and advice on how to grow internationally.  The Ministry of Foreign Affairs and Trade (MFAT) and Customs New Zealand each operates business outreach programs that advise businesses on how to maximize the benefit from FTAs to improve the competitiveness of their goods offshore, and provides information on how to meet requirements such as rules of origin.

2. Bilateral Investment Agreements and Taxation Treaties

New Zealand currently has signed bilateral investment treaties (BITs) with four partners: Argentina (August 1999), Chile (July 1999), China (November 1988), and Hong Kong (July 1995), but only the BITs with China and Hong Kong have entered into force.  Besides these treaties, the country has concluded a number of economic agreements that also contain provisions on investment.

New Zealand has a Trade and Investment Framework Agreement with the United States that entered into force on October 2, 1992.  In July 2018 New Zealand and the United States resumed meetings under the Trade and Investment Framework Agreement (TIFA), which had been suspended after the United States entered negotiations for the Trans-Pacific Partnership (TPP) in 2008:  https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/july/united-states-and-new-zealand-meet.

New Zealand and Australia trade through a Closer Economic Relationship (CER), which is a free trade agreement eliminating all tariffs between the two countries.  However, the rules of origin under the CER do not permit products to enter Australia duty free from New Zealand unless the products are of at least 50 percent New Zealand origin.  Additionally, the last manufacturing process must be carried out in New Zealand. The enactment of the Free Trade Agreement (FTA) between Australia and the United States on January 1, 2005, removed any tariff disadvantage to U.S. firms that choose to re-export products from New Zealand to Australia.

New Zealand concluded a Closer Economic Partnership (CEP) agreement with Singapore that entered into force on January 1, 2001.  Negotiations to upgrade the agreement were concluded in November 2018. 

New Zealand concluded a CEP agreement with Thailand that entered into force on July 1, 2005.  The FTA contains a specific chapter on investment.

New Zealand has a Trade and Investment Framework Agreement with Mexico that entered into force on October 21, 1996.

New Zealand concluded an FTA with China that entered into force on October 1, 2008.  The FTA contains a specific chapter on investment. In November 2016, an agreement was reached to launch negotiations upgrade the agreement.  There have been six rounds of negotiations to date.

New Zealand and Malaysia signed an FTA that entered into force on August 1, 2010.  The FTA contains a specific chapter on investment.

New Zealand concluded a CEP with Hong Kong, which entered into force on January 1, 2011.

New Zealand has an agreement on Economic Cooperation with the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, which entered into force on December 1, 2013.  The agreement established rules between the two countries based on international best practice to facilitate investment flows and provide for the balanced protection of investment.

An FTA between New Zealand, Australia, and the Association of South East Asian Nations (ASEAN) entered into force January 1, 2010.  The FTA contains a specific chapter on investment.

New Zealand has an FTA with the Republic of Korea that entered into force December 20, 2015.  The FTA contains a specific chapter on investment.

New Zealand signed the Trans-Pacific Strategic Economic Partnership Agreement (the P4 Agreement) with Brunei, Chile, and Singapore that entered into force on May 28, 2006.

New Zealand concluded work on an FTA with the Gulf Cooperation Council (GCC) on October 31, 2009, but the agreement has not yet been signed.

New Zealand signed the Pacific Agreement on Closer Economic Relations Agreement (PACER Plus) with Australia, Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Nauru, Niue, Palau, Papua New Guinea, Republic of Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu on June 14, 2017.

New Zealand signed the Anti-Counterfeiting Trade Agreement (ACTA) on October 1, 2011.  The United States, Australia, Canada, the European Union, Japan, Korea, Morocco, Mexico, Singapore and Switzerland have also signed.  The ACTA requires ratification by six signatories and the New Zealand government’s consideration whether to ratify ACTA remains on hold.  New Zealand is also a party in negotiations for the Trade in Services Agreement (TiSA), and in January 2019 announced its intention to participate in negotiations to establish global e-commerce trade rules with other World Trade Organization (WTO) members. 

New Zealand reached agreement with the European Union (EU) to enter negotiations in October 2015.  Negotiations were launched in June 2018 and a second round was held in October. New Zealand has indicated progress on the FTA will continue without the United Kingdom after it leaves the European Union.

Negotiations continue for a bilateral FTA with India.  However negotiations for a Russia-Belarus-Kazakhstan FTA were suspended in May 2014.

In June 2017, New Zealand launched negotiations with the countries of the Pacific Alliance, including Chile, Colombia, Mexico, and Peru.  There have been six rounds of negotiations to date.

New Zealand joined the Regional Comprehensive Economic Partnership (RCEP), launched at the East Asia Summit in November 2012.  The RCEP covers 16 countries: the ten members of ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and the six countries with which ASEAN has existing FTAs – Australia, China, India, Japan, Korea, and New Zealand.  There have been 25 rounds of negotiations to date.

In 2018 New Zealand signed and ratified the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) which entered into force on December 30, 2018 after it was ratified by six countries.  The CPTPP covers 11 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

New Zealand has 40 bilateral income tax treaties and 19 information exchange agreements currently in force.  The Convention between the United States of America and New Zealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income signed in 1982 was replaced by a new treaty signed in December 2008, which came into force on November 12, 2010.  New Zealand (NZ) has an intergovernmental agreement with the United States for their Foreign Account Tax Compliance Act (FATCA), which entered into force on July 3, 2014.

In 2017, there were two rulings from the New Zealand Court of Appeal and the New Zealand High Court after cases were brought regarding the correct interpretation of New Zealand’s double tax agreements (DTAs).  A Court of Appeal decision (on the NZ-China DTA) ruled DTAs should be treated in the same manner as private contracts, rather than considering the international context and purposes of such treaties, in accordance with previous local and international rulings.  In another case that went to the Supreme Court and back, the High Court ruled against the Inland Revenue Department (IRD) Commissioner for issuing information product notices to a tax agent that were found to be “not necessary” as specified in the (NZ-Korea) DTA.

In April 2019 an update to the existing NZ-China DTA was signed.  The new agreement when in force updates the original 1986 agreement to provide clarity on the tax treatment of investment flows, include measures to prevent base erosion and profit shifting (BEPS), lower withholding taxes, and clarify methods to prevent double taxation:  http://taxpolicy.ird.govt.nz/tax-treaties/china.

In August 2018, an update to the NZ-Hong Kong DTA entered into force.  The amendment updates the original 2010 agreement to bring it in line with the majority of New Zealand’s other DTAs by enabling the automatic exchange of information (AEOI) between the two tax jurisdictions.  The AEOI initiative is an international response to combat off-shore tax evasion.

New Zealand is a party to the OECD’s Convention on Mutual Administrative Assistance in Tax Matters, and to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit-Shifting (MLI).  In August 2018 New Zealand completed its treaty examination process and ratified the MLI which allows New Zealand to adjust its existing DTAs with other participating countries rather than renegotiate each DTA individually from October 1, 2018. 

In June 2018, Parliament passed the Taxation (Neutralizing Base Erosion and Profit Shifting) Act, referred to as the “BEPS Tax Act.”  The Act is intended to address the ability of firms with presences in multiple countries from using (1) artificially high interest rates on loans from related parties to shift profits out of New Zealand (interest limitation rules); (2) artificial arrangements to avoid having a taxable presence in New Zealand; (3) transfer pricing payments to shift profits into their offshore group members that does not reflect the actual economic activities undertaken in New Zealand; and (4) hybrid and branch mismatches that exploit differences between countries’ tax rules to achieve an advantageous tax position.  The BEPS Tax Act also enhances the IRD’s ability to extract information from multinational firms held overseas to prevent firms from obstructing investigation through non-cooperation, and retains the discretion to fine firms for failing to comply with a request for information.

In February 2019, following consultation with the IRD, the government announced they will begin work to introduce a digital services tax and will issue a discussion document in May.  The government said the tax will be an interim measure while the OECD continues to work on an internationally agreed solution on how to include the digital economy within countries’ tax frameworks.  The value of cross-border digital services in New Zealand is estimated to be around NZD 2.7 billion (USD 1.8 billion). The tax would be between 2-3 percent on the revenue of multinational online companies’ generated from sales in New Zealand and could be enacted as early as 2020.

The Tax Working Group, which was an independent advisory body established by the government soon after it was elected in late 2017, released its final report in February 2019.  The group made 99 recommendations to overhaul New Zealand’s tax system, including the introduction of a capital gains tax on profits made from the sale of assets, excluding the family home and personal items such as cars, boats and art.  The Government ruled out implementing any of the recommendations before 2021 after the next general election in late 2020. In April 2019, the Labour party and previous party leaders campaigned on introducing a capital gains tax in general elections.  Historically, coalition partner New Zealand First has been opposed to such a tax.

In 2016 mandatory GST registration was extended to non-resident suppliers of cross-border remote services and digital downloads under the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Act.  It requires offshore suppliers to register and return GST if their taxable supplies to New Zealand exceed – or are expected to exceed – NZD 60,000 (USD 40,800) in a 12-month period. The IRD defines qualifying remote services including: e-books, movies and TV shows, online newspaper subscriptions, online supplies of games and software, webinars or distance learning courses, insurance services, gambling services, web design services, legal, accounting or consultancy services:  https://www.ird.govt.nz/index/all-tasks. Separate conditions apply to cross-border suppliers of telecommunication services.

In response to New Zealand retailers’ claims of a competitive disadvantage resulting from the high volume of low-value imported goods purchased online by New Zealand consumers, the government introduced a bill to Parliament in December 2018 that – if enacted – would require non-resident suppliers of low-value goods to register with IRD and collect GST at the point of sale.  Currently online purchases by New Zealand customers with a value of more than NZD 400 (USD 272) have GST and tariff duty collected at the border by Customs New Zealand. The bill would require non-resident suppliers of goods with sales to New Zealand customers that exceed or are expected to exceed NZD 60,000 in a 12-month period to charge GST on goods bought by a New Zealand customer that value NZD 1,000 (USD 680) or below, from October 1, 2019.  Customs New Zealand would retain the responsibility to collect GST on goods valued at more than NZD 1,000. The Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill will have its Select Committee report due June 11, 2019: https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_82431/taxation-annual-rates-for-2019-20-gst-offshore-supplier.

As mentioned in the previous section, GST registration requires the overseas company to: provide two pieces of evidence to prove the customer is a resident in New Zealand, such as their billing address or IP address, and file a GST return every quarter even if the company does not make any sales.

3. Legal Regime

Transparency of the Regulatory System

The New Zealand government policies and laws governing competition are transparent, non-discriminatory, and consistent with international norms.  New Zealand ranks high on the World Bank’s Global Indicators of Regulatory Governance, scoring 4.25 out of a possible 5, but is marked down in part for a lack of transparency in departments’ individual forward regulatory plans, and the development of the government’s annual legislative program (for primary laws), for which the Ministers responsible do not make public. 

While regulations are not in a centralized location in a form similar to the United States Federal Register, the New Zealand government requires the major regulatory departments to publish an annual regulatory stewardship strategy.

Draft bills and regulations including those relating to FTAs and investment law, are generally made available for public comment, through a public consultation process.  In a few instances there has been criticism of New Zealand governments choosing: following a “truncated” or shortened public consultation process or adding a substantive legislative change after public consultation through the process of adding a Supplementary Order Paper to the Bill. 

The Regulatory Quality Team within the New Zealand Treasury is responsible for the strategic coordination of the Government’s regulatory management system.  Treasury exercises stewardship over the regulatory management system to maintain and enhance the quality of government-initiated regulation. The Treasury’s responsibilities include the oversight of the performance of the regulatory management system as a whole and making recommendations on changes to government and Parliamentary systems and processes.  These functions complement the Treasury’s role as the government’s primary economic and fiscal advisor. New Zealand’s seven major regulatory departments are the Department of Internal Affairs, IRD, MBIE, Ministry for the Environment, Ministry of Justice, the Ministry for Primary Industries, and the Ministry of Transport. 

In recent years there has been a revision to the Regulatory Impact Assessment (RIA) requirements in order to help New Zealand’s regulatory framework keep up with global standards.  To improve transparency in the regulatory process, RIAs are published on the Treasury’s website at the time the relevant bill is introduced to Parliament or the regulation is gazetted, or at the time of Ministerial release.  A RIA provides a high-level summary of the problem being addressed, the options and their associated costs and benefits, the consultation undertaken, and the proposed arrangements for implementation and review.

MBIE is responsible for the stewardship of 16 regulatory systems covering about 140 statutes.  In 2018 the government introduced three omnibus bills that contain amendments to legislation administered by MBIE, including economic development, employment relations, and housing:  https://www.mbie.govt.nz/cross-government-functions/regulatory-stewardship/regulatory-systems-amendment-bills/. The government’s objective with this package of Regulatory Systems Amendment Bills is to ensure that they are effective, efficient, and accord with best regulatory practice by providing a process for making continuous improvements to regulatory systems that do not warrant standalone bills. 

The vast majority of standards are developed through Standards New Zealand, which is a business unit within MBIE, operating on a cost-recovery basis rather than a membership subscription service as previously.  The Standards and Accreditation Act 2015 set out the role and function of the Standards Approval Board which commenced from March 2016. The majority of standards in New Zealand are set in coordination with Australia.

The Resource Management Act 1991 (RMA) has drawn criticism from both foreign and domestic investors as a barrier to investment in New Zealand.  The RMA regulates access to natural and physical resources such as land and water. Critics contend that the resource management process mandated by the law is unpredictable, protracted, and subject to undue influence from competitors and lobby groups.  In some cases companies have been found to exploit the RMA’s objections submission process to stifle competition. Investors have raised concerns that the law is unequally applied between jurisdictions because of the lack of implementing guidelines. The Resource Management Amendment Act 2013 and the Resource Management (Simplifying and Streamlining) Amendment Act 2009 were passed to help address these concerns.

The Resource Legislation Amendment Act 2017 (RLAA) is considered the most comprehensive set of reforms to the RMA.  It contains almost 40 amendments and makes significant changes to five different Acts including the RMA, the Conservation Act 1986, Reserves Act 1977, Public Works Act 1981, and the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2013.  Broadly, the RLAA attempts to balance environmental management with the need to increase capacity for housing development. It also aims to align resource consent processes in a consistent manner among New Zealand’s 78 local councils, by providing a stronger national direction, a more responsive planning process, and improved consistency with other legislation.

The Public Works Act (PWA) 1981 enables the Crown to acquire land for public works by agreement or compulsory acquisition and prescribes landowner compensation.  New Zealand continues to face a significant demand for large-scale infrastructure works and the PWA is designed to ensure project delivery and enable infrastructure development.  Compulsory acquisition is exercised only after an acquiring authority has made all reasonable endeavors to negotiate in good faith the sale and purchase of the owner’s land, without reaching an agreement.  The land owner retains the right to have their objection heard by the Environment Court, but only in relation to the taking of the land, not to the amount of compensation payable. The RLAA amendment to the PWA aims to improve the efficiency and fairness of the compensation, land acquisition, and Environment Court objection provisions.

The Land Transfer Act came into force in November 2018.  It aims to simplify and modernize the law to make it more accessible and to improve certainty of property rights.  It empowers courts with limited discretion to restore a landowner’s registered title in cases of manifest injustice.

New Zealand enhanced its accountability and transparency by joining the Open Government Partnership in 2014.  Some of the 12 areas of commitment outlined in New Zealand’s third National Action Plan 2018-2020 include: make New Zealand’s secondary legislation readily accessible, public participation in policy development, and increase the visibility of government’s data stewardship:  http://ogp.org.nz/new-zealands-plan/third-national-action-plan-2018-2020/. In March 2018, New Zealand signed the Open Data Charter, which has been adopted by 69 governments. Statistics New Zealand is responsible for the management of the Government’s Open Government Information and Data Program:  https://www.data.govt.nz/open-data/open-government-data-programme/open-data-nz/. 

The Official Information Act 1982 (OIA) enables people to request official information held by Ministers and specified government agencies.  It contains rules on how such requests be handled and provides a right to complain to the Ombudsman in certain situations. The Office of the Ombudsman, the Ministry of Justice and, more recently, the State Services Commission provide guidance to help improve agencies’ performance on OIA practice and reporting on their compliance with the OIA.

The government is determining whether a full review of the OIA is needed by conducting a targeted engagement facilitated by the Ministry of Justice.  A public consultation process is open for a six week period in early 2019. This is in response to criticism of the government’s failure to be fully transparent on the performance of departments responding to OIA requests within the 20-working day deadline, with requests to the NZ Police (who receive about one-third of all OIA requests) being excluded from statistics reported by the State Services Commission (SSC).  In the last six months of 2018, NZ Police and the Earthquake Commission were responsible for more than half of all late OIA responses. The SSC also removes NZ Defense Force requests from the reporting statistics. In addition to timeliness, quality was found to be an issue in a media investigation that found of the 723 complaints to the Ombudsman during the same six months, only one fifth related to delays, more than half (51 per cent) of complaints related to requests being partially or fully refused:  https://www.stuff.co.nz/national/111181806/redacted–our-official-information-problems-and-how-to-fix-them.

The Government of New Zealand is generally transparent about its public finances and debt obligations.  The annual budget for the government and its departments publish assumptions, and implications of explicit and contingent liabilities on estimated government revenue and spending.

International Regulatory Considerations

In recent years the Government of New Zealand has introduced laws to enhance regulatory coordination with Australia as part of their Single Economic Market agenda agreed to in 2009.  In February 2017 the Patents (Trans-Tasman Patent Attorneys and Other Matters) Amendment Act took effect creating a single body to regulate patent attorneys in both countries. Other areas of regulatory coordination include insolvency law, financial reporting, food safety, competition policy, consumer policy and the 2013 Trans-Tasman Court Proceedings and Regulatory Enforcement Treaty, which allows the enforcement of civil judgements between both countries. 

New Zealand Medicines and Medical Devices Safety Authority (Medsafe), a business unit within the Ministry of Health, rules on applications for consent to distribute new and changed medicines and therapeutic products in New Zealand.  In their guidelines, Medsafe advises applicants that the technical data requirements applying in New Zealand are closely aligned with those currently applying in the European Union: https://medsafe.govt.nz/regulatory/current-guidelines.asp.  Medsafe also recognizes the technical guidelines published by the United States Food and Drug Administration (FDA). When guidelines issued by the International Conference on Harmonization, or the Committee for Proprietary Medicinal Products, or the FDA are formally adopted and come into force in the EU or the United States, then they are recognized by Medsafe.  While there is substantial harmonization between New Zealand and Australia for requirements showing evidence of the quality, safety and efficacy of medicines, there are Australian-specific requirements for some aspects of the quality control and stability data that are not relevant to New Zealand.

The Privacy Bill – if enacted – aims to bring New Zealand privacy law into line with international best practice, including the 2013 OECD Privacy Guidelines and the European General Data Protection Regulation (GDPR).

In 2016 the Financial Markets Authority issued two notices, the Disclosure Using Overseas Generally Accepted Accounting Principles (GAAP) Exemption and the Overseas Registered Banks and Licensed Insurers Exemption Notice, which ease compliance costs on overseas entities by allowing them under certain circumstances to use United States statutory accounting principles (overseas GAAP) rather than New Zealand GAAP, and the opportunity to use an overseas approved auditor rather than require a New Zealand qualified auditor.

In 2019, the government introduced the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill to Parliament to better align New Zealand’s financial markets law with new international regulations, to help strengthen the resilience of global financial markets.  If enacted, the bill will help financial institutions maintain access to offshore funding markets and help ensure institutions – that rely on derivatives to hedge against currency and other risks – can invest and raise funds efficiently.

New Zealand is a Party to WTO Agreement on Technical Barriers to Trade (TBT).  Standards New Zealand is responsible for operating the TBT Enquiry Point on behalf of MFAT.  From 2016, Standards New Zealand became a business unit within MBIE administered under the Standards and Accreditation Act 2015.  Standards New Zealand establishes techniques and processes built from requirements under the Act and from the International Organization for Standardization.

The Standards New Zealand TBT Enquiry Point operates as a service for producers and exporters to search for proposed TBT Notifications and associated documents such as draft or actual regulations or standards.  They also provide contact details for the Trade Negotiations Division of MFAT to respond to businesses concerned about proposed measures. https://www.standards.govt.nz/international-engagement/technical-barriers-to-trade/  

In 2017 the government established a website to provide a centralized point of contact for businesses to access information and support on non-tariff trade barriers (NTB).  The online portal allows exporters to report issues, seek government advice and assistance with NTBs and other export issues. Exporters can confidentially register a trade barrier, and the website serves to track and trace the assignment and resolution across agencies on their behalf.  It also provides the government with an accurate and timely report of NTBs and other trade issues encountered by exporters, and involves the participation of Customs, MFAT, MPI, MBIE, and NZTE. https://tradebarriers.govt.nz/  

New Zealand ratified the WTO Trade Facilitation Agreement (TFA) in September 2015 and entered into force in February 2017.  New Zealand was already largely in compliance with the TFA which is expected to benefit New Zealand agricultural exporters and importers of perishable items to enhanced procedures for border clearances.

Legal System and Judicial Independence

New Zealand’s legal system is derived from the English system and comes from a mix of common law and statute law.  The judicial system is independent of the executive branch and is generally open, transparent, and effective in enforcing property and contractual rights.  The highest appeals court is a domestic Supreme Court, which replaced the Privy Council in London and began hearing cases July 1, 2004. New Zealand courts can recognize and enforce a judgment of a foreign court if the foreign court is considered to have exercised proper jurisdiction over the defendant according to private international law rules.  New Zealand has well defined and consistently applied commercial and bankruptcy laws. Arbitration is a widely used dispute resolution mechanism and is governed by the Arbitration Act of 1996, Arbitration (Foreign Agreements and Awards) Act of 1982, and the Arbitration (International Investment Disputes) Act 1979.

In 2016, the omnibus Judicature Modernization Bill was passed to improve and consolidate older pieces of legislation governing the New Zealand court system.  The legislation enables the sharing of court information, the establishment of a new judicial panel to hear certain commercial cases, increases the monetary limit of the District Court’s civil jurisdiction, and improves accessibility to final written judgments by publishing them online.

In 2018, the government continued efforts to modernize and improve the efficiency of the courts and tribunals system, by passing the Court Matters Bill and the Tribunal Powers and Procedures Legislation Bill.  Legislation to modernize and consolidate laws underpinning contracts and commercial transactions came into effect on September 1, 2017. The Contract and Commercial Law Act 2017 consolidates and repeals 12 acts that date between 1908 and 2002.  The Private International Law (Choice of Law in Tort) Act, passed in December 2017, clarifies which jurisdiction’s law is applicable in actions of tort and abolishes certain common law rules, and establishes the general rule that the applicable law will be the law of the country in which the events constituting the tort in question occur.

Laws and Regulations on Foreign Direct Investment

Overseas investments in New Zealand assets are screened only if they are defined as sensitive within the Overseas Investment Act 2005, as mentioned in the previous section.  The OIO, a dedicated unit located within Land Information New Zealand (LINZ), administers the Act. The Overseas Investment Regulations 2005 set out the criteria for assessing applications, provide the framework for applicable fees, and whether the investment will benefit New Zealand.  Ministerial Directive Letters are issued by the Government to instruct the OIO on their general policy approach, their functions, powers, and duties as regulator. Letters have been issued in December 2010 and November 2017. Substantive changes, such as inclusion of another asset type within “sensitive land,” requires a legislative amendment to the Act. 

The government ministers for finance, land information, and primary industries (where applicable) are responsible for assessing OIO recommendations and can choose to override OIO recommendations on approved applications.  Ministers’ decisions on OIO applications can be appealed by the applicant in the New Zealand High Court. For more see: http://www.linz.govt.nz/regulatory/overseas-investment

In situations where New Zealand companies are acquiring capital injections from overseas investors that require OIO approval, they must meet certain criteria regarding disclosure to shareholders and fulfil other responsibilities under the Companies Act 1993.  Failure to do so can affect the overseas company’s application process with the OIO.

The OIO Act allows for instances when Ministers may confer a discretionary exemption from the requirement to seek OIO consent.  Section 61D is sufficiently broad to enable Ministers to exercise their exemption power for unexpected or unusual circumstances that may not otherwise be provided for:  http://legislation.govt.nz/act/public/2005/0082/latest/LMS112019.html . Overseas persons seeking an exemption must contact the OIO before submitting their application.

The LINZ website reports on enforcement actions they have taken against foreign investors, including the number of compliance letters issued, the number of warnings and their circumstances, referrals to professional conduct body in relation to an OIO breach, and disposal of investments:  https://www.linz.govt.nz/overseas-investment/enforcement/enforcement-action-taken .

The government has made several changes to regulations and legislation governing foreign investment over the past year, and has signaled further changes by issuing a discussion document for public consultation. 

In December 2017, the government introduced regulatory changes that place greater emphasis on the assessment of significant economic benefits to New Zealand.  For forestry investments, the OIO is required to place importance on investments that result in increased domestic processing of wood and advance government strategies.  For rural land, importance is placed on the generation of economic benefits which were previously seldom applied for lifestyle rural property purchases that previously relied on non-economic benefits to gain OIO approval.

In addition to placing emphasis on economic benefits, the government issued new rules that reduced the area threshold for foreign purchases of rural land so that approval is required for rural land of an area over five hectares, rather than the previous metric of farm land “more than ten times the average farm size,” which was about 7,146 hectares for sheep and beef farms, and 1,987 hectares for dairy farms.  Foreign investors can still purchase rural land less than five hectares but the government said it intends to introduce other measures to discourage “land bankers,” or investors holding onto land for speculative purposes. In its final report the Tax Working Group recommended a land tax to be levied by councils as a local tax. A feasibility report is expected in November 2019.

In the same Directive Letter from December 2017, the government issued new rules that overseas investors intending to reside in New Zealand, move within 12 months and become ordinarily resident within 24 months.

[OIO: Residential Property Land:]

As part of the government’s policy to improve housing affordability and reduce speculative behavior in the housing market, the Overseas Investment Amendment Act passed in August 2018 to bring residential land within the category of “sensitive land.” Residential land is defined as land that has a category of residential or lifestyle within the relevant district valuation roll; and includes a residential flat (apartment) in a building owned by a flat-owning company which could be on residential or non-residential land. 

From October 2018 the Overseas Investment Act generally requires persons who are not ordinarily resident in New Zealand to get OIO consent to purchase residential homes on residential land.  Australian and Singaporean citizens are exempt due to existing bilateral trade agreements. To avoid breaching the Act, contracts to purchase residential land must be conditional on getting consent under the Act – entering into an unconditional contract will breach the Act.  All purchasers of residential land (including New Zealanders) will need to complete a statement confirming whether the Act applies, and solicitors/conveyancers cannot lodge land transfer documents without that statement. The government introduced a standing consent for qualifying overseas purchasers who may be granted pre-approval in advance of finding a specific property to buy.  A standing consent cannot be used for land that is sensitive for another reason such as land that adjoins a reserve. 

Overseas persons wishing to purchase one home on residential land will need to fulfil a “commitment to reside test.”  Applicants must hold the appropriate non-temporary visa (those on student visas, work visas, or visitor visas cannot apply), have lived in New Zealand for the immediate preceding 12 months and intend to reside in the property being purchased.  If the applicant stops living in New Zealand they will have to sell the property: https://www.linz.govt.nz/overseas-investment/information-for-buying-or-building-one-home-live 

OIO applicants not intending to reside will generally need to show: (1) they will convert the land to another use such as a business and are able to demonstrate this would have wider benefits to New Zealand; or (2) they will be developing the land and adding to New Zealand’s housing supply.  Applicants seeking approval under the latter – the “increased housing test” – must intend to increase the number of dwellings on the property by one or more, and they cannot live in the dwelling/s once built (the “non-occupation condition”). If approved, applicants must also on-sell the dwelling/s, unless they are building 20 or more new residential dwellings and they intend to provide a shared equity, rent-to-buy, or rental arrangement (the “on-sale condition”).

The amended Act also imposes restrictions on overseas persons buying into new residential property developments.  Where pre-sales of the new residential dwellings are an essential aspect of the development funding, overseas purchasers may be able to rely on the “increased housing” test, although they will be subject to the on-sale and non-occupation conditions.  Otherwise, individual purchasers must apply for OIO consent and meet the “commitment to reside test,” or make their purchase conditional on receiving an “exemption certificate” held by an apartment developer. 

According to the OIO Regulations, developers can apply for an exemption certificate allowing them to sell 60 percent of the apartments “off the plan” to overseas buyers without those buyers requiring OIO consent:  http://legislation.govt.nz/regulation/public/2005/0220/latest/LMS109607.html . The overseas buyer would not have to fulfil the on-sale condition but will have to meet the non-occupation condition. A purchaser wishing to buy an apartment to which the exemption certificate does not apply, must apply for consent and if approved comply with the on-sale and non-occupation conditions according to Schedule 3 Section 4 (5) under the OIO Act:  http://legislation.govt.nz/act/public/2005/0082/latest/LMS111210.html  .

Ministers may exercise discretion to waive the on-sale condition if an overseas person is applying for consent to acquire an ownership interest in an entity that holds residential land in New Zealand, if the overseas person is acquiring less than a 50 percent ownership interest or if they are acquiring an indirect ownership interest (i.e.  through another entity). Exemptions can also apply for long-term accommodation facilities, hotel lease-back arrangements, retirement village developments, and for network utility companies needing to acquire residential land to provide essential services.

[OIO: Forestry]

The elected government in 2017 indicated that forestry would be a priority in boosting regional development, and introduced it as its own portfolio:  https://www.beehive.govt.nz/portfolio/labour-led-government-2017-2020/forestry . The government also included the Forest Land directive as mentioned in the previous page.

In March 2018, the government announced forestry cutting rights be brought into the OIO screening regime, similar to the screening of investments that exists for leasehold and freehold forestry land.  In the OIO Amendment Act passed in August 2018, forestry rights and residential land, were brought in under the asset class of sensitive land: http://legislation.govt.nz/act/public/2018/0025/latest/DLM7512906.html .  Overseas investors wanting to purchase up to 1,000 hectares of forestry rights per year or any forestry right of less than three years duration, do not generally require OIO approval. 

Overseas investors can apply for consent to buy or lease land that is in forestry, or land to be used for forestry, or to buy forestry rights.  In addition to meeting the “benefit to New Zealand test”, applicants have two other options if they wish to buy or lease land for forestry purposes (including converting farmland to forestry) or purchase forestry rights, the Special Forestry Test, and the Modified benefits test. 

The Special Forestry Test is the most streamlined test, and is used to buy forestry land and continue to operate it with existing arrangements remaining in place, such as public access, protection of habitat for indigenous plants and animals, and historic places, as well as log supply arrangements.  The investor would be required to replant after harvest, unless exempted, and use the land exclusively or nearly exclusively for forestry activities. The land can be used for accommodation only to support forestry activities.

The modified benefits test is suitable for investors who will use the land only for forestry activities, but cannot maintain existing arrangements relating to the land, such as public access.  The investor would need to pass the “benefit to New Zealand” test, replant after harvest, and use the land exclusively or nearly exclusively for forestry activities. 

[OIO Phase 2: Monopolies]

In April 2019 the government signaled it would be considering a “national interest” restriction on foreign investment, when it issued a document for public consultation:  https://treasury.govt.nz/publications/consultation/glance-overseas-investment-new-zealand . The rules would increase ministers’ ability to decline applications from foreign investors wanting to buy New Zealand assets, on the grounds of national security.  The government said they were mainly focusing the level of discretion on blocking the sale of large pieces of infrastructure that had “monopoly characteristics” and that were important to the functioning of the wider economy, on “national interest” grounds.  Public consultations will take place in 2019 and the government plans to pass any changes to the law it decides on in 2020. 

[OIO Phase 2: Water Bottling]

After campaigning in the general election on introducing a “water tax,” the government announced in April 2019 as part of its second phase of the overseas investment review whether more consideration be given to the regulations around planned water extraction or bottling on environmental, economic, and cultural wellbeing.  There has been concern about the extraction of water, particularly for water bottling for export, and the profit that overseas companies gain from a high-value resource without paying a charge. Water bottling is a small industry in New Zealand, accounting for less than 0.02 percent of total New Zealand water use in 2016. Currently, only a small proportion of water bottled is for export purposes, with the majority of consumption occurring within New Zealand.  The consultation document outlines two options to regulate water bottling for export.

[Non-OIO: Bright Line Test for Residential Investment:]

Outside of the OIO framework, the previous government passed the Taxation (Bright-line Test for Residential Land) Bill.  Under this Act, properties bought after October 1, 2015 will accrue tax on any gain earned if the house is bought and sold within two years, unless it is the owner’s main home.  The bill requires foreign purchasers to have both a New Zealand bank account and an IRD tax number, and will not be entitled to the “main home” exception. The purchaser will also need to submit other taxpayer identification number held in countries where they pay tax on income.  To assist the IRD in ensuring investors meet their tax obligations, legislation was passed in 2016 that empowered LINZ to collect additional information when residential property is bought and sold, and to pass this information to the IRD.

In March 2018, the new government passed legislation to extend the “bright-line test” from two to five years as a measure to further deter property speculation in the New Zealand housing market.

[Non-OIO: Oil and Gas Ban:]

In the Energy and Mining sector the government passed the Crown Minerals (Petroleum) Amendment Act in November 2018, to restrict the acreage available for new oil and gas exploration permits to the onshore Taranaki region only.  The policy is part of the government’s efforts to transition away from fossil fuels, and achieve their goal to have net zero emissions by 2050. The annual Oil and Gas Block Offers program has been operational since 2012 as a means to raise New Zealand’s profile among international investors in the allocation of petroleum exploration permits. 

There are currently about 20 offshore permits covering 38,000 square miles that will have the same rights and privileges as before the law came into force, and will continue operation until 2030.  If those permit holders are successful in their exploration, the companies could extract oil and gas from the areas beyond 2030. The ban does not cover the Taranaki area onland, where exploration licenses will still be available for the next three years.

The government estimates there is ten years’ worth of gas to be explored or mined under consented reserves, and also additional supplies from gas discovered in existing permits.  Analysis on the impact to the New Zealand economy has been primarily limited to the fiscal impact to the Government through taxes and royalties which is contained in the Regulatory Impact Statement (RIS) prepared in support of the law.  The RIS was conducted after the policy had already been announced in April 2018. 

Competition and Anti-Trust Laws

The Commerce Act of 1986 prohibits contracts, arrangements, or understandings that have the purpose, or effect, of substantially lessening competition in a market, unless authorized by the Commerce Commission, an independent Crown entity.  Before granting such authorization, the Commerce Commission must be satisfied that the public benefit would outweigh the reduction of competition. The Commerce Commission has legislative power to deny an application for a merger or takeover if it would result in the new company gaining a dominant position in the New Zealand market.  In addition, the Commerce Commission enforces a number of pieces of legislation that, through regulation, aim to provide the benefits of competition in markets with certain natural monopolies, such as the dairy, electricity, gas, airports, and telecommunications industries. In order to monitor the changing competitive landscapes in these industries, the Commerce Commission conducts independent studies, currently including fiber networks (https://comcom.govt.nz/regulated-industries/telecommunications/regulated-services/fibre-regulation/fibre-services-study ), mobile phones (https://comcom.govt.nz/regulated-industries/telecommunications/projects/mobile-market-study ), and retail petrol (https://comcom.govt.nz/about-us/our-role/competition-studies/market-study-into-retail-fuel )

In 2018 the government passed the Commerce Amendment Act to empower the Commerce Commission to undertake market (“competition”) studies where this is in the public interest in order to improve the agency’s enforcement actions without having to go to court.  The Government introduced a market studies power to align the Commerce Commission with competition authorities in similar jurisdictions.

Market studies may be initiated by the Minister of Commerce and Consumer Affairs, or by the Commerce Commission on its own initiative.  The Act allows settlements to be registered as enforceable undertakings so breaches can be quickly penalized by the courts, and saves the Commission from the expense and uncertainty of litigation.  The amendment also repeals the cease-and-desist regime in the 1986 Commerce Act, and strengthens the information disclosure regulations for airports.

In November 2018, Parliament amended the Telecommunications Act to regulate the new fiber networks being rolled out for the national ultrafast broadband initiative:  https://comcom.govt.nz/regulated-industries/telecommunications/regulated-services/fibre-regulation/implementation-of-the-new-regulatory-framework-for-telecommunications .  The Act introduced a utility-style regulatory regime, similar to what exists for energy networks and airports, and has set the Commerce Commission the task of also regulating fiber networks, which they will implement a framework for over the next three years. 

The Dairy Industry Restructuring Act of 2001 (DIR) authorized the amalgamation of New Zealand’s two largest dairy co-operatives to create Fonterra Co-operative Group Limited (Fonterra).  The DIR is designed to manage Fonterra’s dominant position in the dairy market, until sufficient competition has emerged. A review by the Commerce Commission in 2016 found competition was not yet sufficient to warrant the removal of the DIR provisions, but it made recommendations to create a pathway to deregulation.  One of the most contentious issues in the Act was the issue of open entry, which requires Fonterra to accept all milk from new suppliers. The co-operative claims this part of the legislation is no longer needed because the dairy industry had become highly competitive in recent years. The government is continuing its review of the DIR it embarked on in 2017 to determine if the Act still meets its objectives, if it has created unintended consequences, and if it is still needed in its current form:  https://www.mpi.govt.nz/law-and-policy/legal-overviews/primary-production/dairy-industry-restructuring-act/dairy-industry-restructuring-act-2001-review/ 

The Commerce Commission is also charged with monitoring competition in the telecommunications sector.  Under the 1997 WTO Basic Telecommunications Services Agreement, New Zealand has committed to the maintenance of an open, competitive environment in the telecommunications sector. 

Following a four-year government review of the Telecommunications Act of 2001, the Telecommunications (New Regulatory Framework) Amendment Bill passed in November 2018.  It establishes a regulatory framework for fiber fixed line access services; removes unnecessary copper fixed line access service regulation in areas where fiber is available; streamline regulatory processes; and provides more regulatory oversight of retail service quality.  The amendment requires the Commerce Commission to implement the new regulatory regime by January 2022. 

Chorus won government contracts to build 70 percent of New Zealand’s new ultra-fast broadband fiber-optic cable network and has received subsidies.  Chorus is listed on the NZX stock exchange and the Australian Stock Exchange. From 2020, Chorus and the local fiber companies are required under their open access deeds to offer an unbundled mass-market fiber service on commercial terms.

The telecommunications service obligations (TSO) regulatory framework established under the Telecommunications Act of 2001 enables certain telecommunications services to be available and affordable.  A TSO is established through an agreement under the Telecommunications Act between the Crown and a TSO provider. Currently there are two TSOs. Spark (supported by Chorus) is the TSO Provider for the local residential telephone service, which includes charge-free local calling.  Sprint International is the TSO Provider for the New Zealand relay service for deaf, hearing impaired and speech impaired people. Under the Telecommunications (New Regulatory Framework) Amendment Bill, the TSOs which apply to Chorus and Spark will cease to apply in areas which have fiber.  Consumers in these areas will have access to affordable fiber-based landline and broadband services.

Radio Spectrum Management (RSM) is a business unit within MBIE that is responsible for providing advice to the government on the allocation of radio frequencies to meet the demands of emerging technologies and services.  Spectrum is allocated in a manner that ensures radio spectrum provides the greatest economic and social benefit to New Zealand society. The allocation of spectrum is a core regulatory issue for the deployment of 5G in New Zealand.  The Commerce Commission is conducting a study during 2019 of the mobile network operators, and in part will look into whether the process for 5G spectrum allocation will impact the ability of new mobile network operators to enter the market.

In March 2019, the government announced it freed up space on the spectrum in order for a fourth mobile network operator to compete with the three existing ones.  In order to do so, the three existing operators lost parts of their spectrum, for which sources criticized the government, claiming they supported competition in principle but questioned the ability of the New Zealand market to cope with another operator:  https://www.stuff.co.nz/business/111304958/government-clears-path-for-new-entrant-to-take-on-spark-vodafone-and-2degrees . The Government claims it needs to keep some of that spectrum in reserve to retain flexibility and it might be used for new technologies or by the emergency services network.  The Government announced the first auction of 5G spectrum will be in early 2020, and ready for use by November 2022. The Government is also considering a cap on the amount of 5G spectrum given to a single operator to prevent monopolistic behavior, but also to set aside spectrum to deal with potential Treaty of Waitangi issues. 

The Commerce Commission has a regulatory role to promote competition within the electricity industry under the Commerce Act and the Fair Trading Act 1986.  As natural monopolies, the electricity transmission and distribution businesses are subject to specific additional regulations, regarding pricing, sales techniques, and ensuring sufficient competition in the industry.  The Commerce Commission is in the process of setting the default price-quality path that will apply to electricity distributors from 2020 to 2025. In its five-yearly review of the New Zealand energy market, the International Energy Agency made recommendations in 2017 for the structure, governance and regulation of the electricity distribution service sector, and for network regulation and retail market reforms to ensure efficient transmission pricing.  The New Zealand government has commissioned an independent Expert Advisory Panel to lead a review into electricity prices to investigate whether the electricity market is delivering a fair and equitable price to end-consumers. The review will also consider possible improvements to ensure the market and its governance structure will be appropriate in a changing technological environment. 

The New Zealand motor fuel market became more concentrated after Shell New Zealand sold its transport fuels distribution business in 2010, and Chevron sold its retail brands Caltex and Challenge to New Zealand fuel distributor Z-Energy in 2016.  The Commerce Commission approved Z-Energy’s application to acquire 100 percent of the shares in Chevron New Zealand on the condition it divest 19 of its retail sites and one truck stop in locations where it considered competition would be substantially reduced as a result of the merger.  Z-Energy holds almost half of the market share for fuel distribution in New Zealand. In December 2018 the Commerce Commission commenced a market study looking into the factors that may affect competition for the supply of retail petrol and diesel used for land transport throughout New Zealand.  The purpose of the study is to consider and evaluate whether competition in the retail fuel market is promoting outcomes that benefit New Zealand consumers over the long-term. A final report is due December 2019. 

In August 2017 the Commerce (Cartels and Other Matters) Amendment Act was passed to enable easier enforcement action against international cartels.  It created a new clearance regime allowing firms to test their proposed collaboration with the Commerce Commission and get greater legal certainty before they enter into the arrangements.  It expanded prohibited conduct to include price fixing, restricting output, and allocating markets, and expands competition oversight to the international liner shipping industry. It empowers the Commerce Commission to apply to the New Zealand High Court for a declaration to determine if the acquisition of a controlling interest in a New Zealand company by an overseas person will have an effect of “substantially lessening” competition in a market in New Zealand.

In April 2019, the government passed the Commerce (Criminalization of Cartels) Amendment Bill to criminalize cartel behavior – a provision was removed from the 2017 amendment part-way through its passage through the Parliament.  The amendment means that individuals convicted of engaging in cartel conduct – price fixing, restricting output, or allocating markets – will face fines of up to NZD 500,000 (USD 340,000) and/or up to seven years imprisonment. Business have been given two years to ensure compliance before the criminal sanctions enter into force.  While not a significant issue in New Zealand, the government believes criminalizing cartel behavior provides a certain and stable operating environment for businesses to compete, and aligns New Zealand with overseas jurisdictions that impose criminal sanctions for cartel conduct, enhancing the ability of the Commerce Commission to cooperate with its overseas counterparts in investigations of international cartels.

In January 2019, the Government announced proposed amendments to section 36 of the Commerce Act, which relates to the misuse of market power.  The government is seeking consultation on repealing sections of the Commerce Act that shield some intellectual property arrangements from competition law, in order to prevent dominant firms misusing market power by enforcing their patent rights in a way they would not do if it was in a more competitive market.  It also seeks to strengthen laws and enforcement powers against the misuse of market power by aligning it with Australia and other developed economies, particularly because New Zealand competition law currently does not prohibit dominant firms from engaging in conduct with an anti-competitive effect. Section 36 of the Act only prohibits conduct with certain anti-competitive purposes.

The Commerce Commission has international cooperation arrangements with Australia since 2013 and Canada since 2016, to allow the sharing of compulsorily acquired information, and provide investigative assistance.  The arrangements help effective enforcement of both competition and consumer law.

Expropriation and Compensation

Expropriation is generally not an issue in New Zealand, and there are no outstanding cases.  New Zealand ranks first in the World Bank’s 2017 Doing Business report for “registering property” and for “protecting minority investors.”

The government’s KiwiBuild program aims to build 100,000 affordable homes over ten years, with half being in Auckland.  The government has indicated it will use compulsory acquisition under the PWA if necessary, to achieve planned government housing development. 

The lack of precedent for due process in the treatment of residents affected by liquefaction of residential land caused by the Canterbury earthquake in 2011 resulted in drawn out court cases against the Government based largely on the compensation offered.  Several large areas of residential land in Christchurch were deemed “red zones,” meaning there had to be significant and extensive area wide land damage, the extent of the damage required an area-wide solution, engineering solutions would be uncertain, disruptive, not timely, and not cost-effective, and the health and well being of residents was at risk from remaining in the area for prolonged periods. 

In August 2015 the Government offered the 2007 value of all land and of insured homes, but did not offer to pay for uninsured homes, affecting about 100 homeowners.  More than 7,000 people accepted red-zone buy-out offers, about 135 did not, with some wanting to stay on in their homes. The Christchurch City council is legally required to provide services to the red zone, such as collecting sewage which it did initially did.  A group of 16 red-zone residents who had sold their uninsured properties ultimately won a case in 2017, when a Court of Appeal judgment ruled the Government made an “unlawful” decision to discriminate against uninsured homeowners. A previous offer made in 2012, for 50 per cent of the rateable value to owners of uninsured Christchurch red zone land was deemed unlawful in the Court of Appeal in 2013.  The government has demolished about 7,000 homes in the flat land red zone, or about 99 per cent of Crown owned properties: https://www.linz.govt.nz/crown-property/types-crown-property/christchurch-residential-red-zone.

Dispute Settlement

ICSID Convention and New York Convention

New Zealand is a party to both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Washington Convention), and to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Proceedings taken under the Washington Convention are administered under the Arbitration (International Investment Disputes) Act 1979.  Proceedings taken under the New York Convention are now administered under the Arbitration Act 1996.

Investor-State Dispute Settlement

Investment disputes are rare, and there have been no major disputes in recent years involving U.S. companies.  The mechanism for handling disputes is the judicial system, which is generally open, transparent and effective in enforcing property and contractual rights.

Investment disputes brought against other foreigners by the New Zealand government have been largely due to non-compliance of the investors’ obligations under the OIO Act or their failure to gain OIO approval before making their investment.

Most of New Zealand’s recently enacted FTAs contain Investor-State Dispute Settlement (ISDS) provisions, and to date no claims have been filed against New Zealand.  The current Government has signaled it will seek to remove ISDS from future FTAs, having secured exemptions with several CPTPP signatories in the form of side letters.  ISDS claims challenging New Zealand’s tobacco control measures – under the Smoke-free Environments (Tobacco Standardized Packaging) Amendment Act 2016 – cannot be made against New Zealand under CPTPP.

International Commercial Arbitration and Foreign Courts

Arbitrations taking place in New Zealand (including international arbitrations) are governed by the Arbitration Act 1996.  The Arbitration Act includes rules based on the United Nations Commission on International Trade Law (UNCITRAL) and its 2006 amendments.  Parties to an international arbitration can opt out of some of the rules, but the Arbitration Act provides the default position.

The Arbitration Act also gives effect to the New Zealand government’s obligations under the Protocol on Arbitration Clauses (1923), the Convention on the Execution of Foreign Arbitral Awards (1927), and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).  Obligations under the Washington Convention are administered under the Arbitration (International Investment Disputes) Act 1979 as mentioned previously.

The New Zealand Dispute Resolution Centre (NZDRC) is the leading independent, nationwide provider of private commercial, family and relationship dispute resolution services in New Zealand.  It also provides international dispute resolution services through its related entity, the New Zealand International Arbitration Centre (NZIAC). The NZDRC is willing to act as an appointing authority, as is the Arbitrators’ and Mediators’ Association of New Zealand (AMINZ).

Forms of dispute resolution available in New Zealand include formal negotiations, mediation, expert determination, court proceedings, arbitration, or a combination of these methods.  Arbitration methods include ‘ad hoc,’ which allows the parties to select their arbitrator and agree to a set of rules, or institutional arbitration, which is run according to procedures set by the institution.  Institutions recommended by the New Zealand government include the International Chamber of Commerce (ICC), the American Arbitration Association (AAA), and the London Court of International Arbitration (LCIA).

An amendment to the Arbitration Act 1996 in March 2017 provided for the appointment of an “appointed body” to exercise powers which were previously powers of the High Court.  It also provides for the High Court to exercise the powers in the event that the appointed body does not act, or there is a dispute about the process of the appointed body. Since then the Minister of Justice has appointed the AMINZ the default authority for all arbitrations sited in New Zealand in place of the High Court.  In 2017 AMINZ issued its own Arbitration Rules based on the latest editions of rules published in other Model Law jurisdictions, to be used in both domestic and international arbitrations, and consistent with the 1996 Act.

In May 2019 the Arbitration Amendment Bill was passed to bring New Zealand’s policy of preserving the confidentiality of trust deed clauses in line with foreign arbitration legislation and case law.  The amendment means arbitration clauses in trust deeds are given effect to extend the presumption of confidentiality in arbitration to the presumption of confidentiality in related court proceedings under the Act because often such cases arise from sensitive family disputes. 

Bankruptcy Regulations

Bankruptcy is addressed in the Insolvency Act 2006, the Receiverships Act 1993, and the Companies Act 1993.  The Insolvency (Cross-border) Act 2006 implements the Model Law on Cross-Border Insolvency adopted by the United Nations Commission on International Trade Law in 1997.  It also provides the framework for facilitating insolvency proceedings when a person is subject to insolvency administration (whether personal or corporate) in one country, but has assets or debts in another country; or when more than one insolvency administration has commenced in more than one country in relation to a person.  New Zealand bankrupts are subject to conditions on borrowing and international travel, and violations are considered offences and punishable by law. 

The registration system operated by the Companies Office within MBIE, is designed to enable New Zealand creditors to sue an overseas company in New Zealand, rather than forcing them to sue in the country’s home jurisdiction.  This avoids attendant costs, delays, possible language problems and uncertainty due to a different legal system. An overseas company’s assets in New Zealand can be liquidated for the benefit of creditors. All registered ‘large’ overseas companies are required to file financial statements under the Companies Act of 1993.  See: https://www.companiesoffice.govt.nz/companies/learn-about/overseas-companies/managing-an-overseas-company-in-new-zealand

The Insolvency and Trustee Service (the Official Assignee’s Office) is a business unit of MBIE.  The Official Assignee is appointed under the State Sector Act of 1988 to administer the Insolvency Act of 2006, the insolvency provisions of the Companies Act of1993 and the Criminal Proceeds (Recovery) Act of 2009.  The Official Assignee administers all bankruptcies, No Asset Procedures, Summary Installment Orders, and some liquidations. The Official Assignee administers bankruptcies and liquidations by collecting and selling assets to repay creditors.  It will ask the bankrupt or company directors for information to help them identify and deal with the assets. The money recovered is paid to creditors who have made a claim, and the order in which payments are made is set out in the relevant Acts.  Creditors can log in to the Insolvency and Trustee Service website to track the progress of the administration and how long it is likely to take. The time will depend on several things such as the type and number of assets the debtor has.

In the World Bank’s Doing Business 2019 Report New Zealand is ranked 31st in “resolving insolvency”.  Despite a high recovery rate (84.1 cents per dollar compared with 70.5 cents for the average across high-income OECD countries), New Zealand scores lower on the strength of its insolvency framework.  Specific weaknesses identified in the survey include the management of debtors’ assets, the reorganization proceedings, and particularly on the participation of creditors. The survey notes New Zealand’s insolvency framework does not require approval by the creditors for sale of substantial assets, nor does it provide creditors the right to request information from the insolvency representative.

In August 2018, the government revived the Insolvency Practitioners Bill by reopening public consultation and Select Committee review, after the bill stalled in 2013.  The government has made significant changes to the bill, aiming to introduce a coregulatory licensing framework, rather than a “negative licensing system” that would have empowered the Registrar of Companies to ban people from acting as a liquidator or receiver.  As the revised bill currently stands, insolvency practitioners would be required to be licensed by an accredited body under a new stand-alone Act. In addition, the bill requires that insolvency practitioners would have to provide information and assistance to an insolvency practitioner that replaces them; imposes obligations on insolvency practitioners to provide detailed reports on insolvency engagements; and empowers courts to compensate people suffering as a result of an insolvency practitioner’s failure to comply with any relevant laws and sanction insolvency practitioners who fail to comply with any relevant laws.

4. Industrial Policies

Investment Incentives

New Zealand has no specific economic incentive regime because of its free trade policy.  The New Zealand government, through its bodies such as Tourism New Zealand and NZTE, provides assistance in certain sectors such as tourism and the export of locally manufactured goods.  The government generally does not have a practice of jointly financing foreign direct investment projects.

In the Media and Entertainment sector, the New Zealand Film Commission administers a grant for international film and television productions on behalf of the Ministry for Culture and Heritage and MBIE.  Established in 2014, the New Zealand Screen Production Grant provides rebates for international productions of 20 percent on specified goods and services purchased in New Zealand. An additional five percent is available for productions that meet a significant economic benefit points test for New Zealand. 

Callaghan Innovation is a stand-alone Crown Entity established in February 2013.  It connects businesses with research organizations offering services, and the opportunity to apply for government funding and grants that support business innovation and capability building.  Callaghan Innovation requires businesses applying for any of their research and development grants to have at least one director who is resident in New Zealand and to have been incorporated in New Zealand, have a center of management in New Zealand, or have a head office in New Zealand.  For more information see: http://www.business.govt.nz/support-and-advice/grants-incentives   

Foreign Trade Zones/Free Ports/Trade Facilitation

New Zealand does not have any foreign trade zones or duty-free ports.

Performance and Data Localization Requirements

The government of New Zealand does not maintain any measures that are alleged to violate the Trade Related Investment Measures text in the WTO.  There are no government mandated requirements for company performance or local employment, and foreign investors that do not require OIO approval are treated equally with domestic investors.  As mentioned previously, some overseas investors that require OIO approval must comply with legal obligations governing OIO satisfying the benefit to New Zealand test through local employment, using domestic content in goods, or promising the introduction of a new technology to New Zealand.  Investors requiring OIO approval also must maintain “good character”, and reporting requirements. Investors are generally required to report annually to the OIO for up to five years from consent, but if benefits are expected to occur after that five-year period, monitoring will reflect the time span within which benefits will occur.  Failure to meet obligations under the investors’ consent can result in fines, court orders, or forced disposal of their investment. 

There have been several recent cases taken against OIO consent holders for failing to maintain the requirement of “good character.”  In 2017 a majority shareholder of a winery was ordered to divest his interest in the company by the OIO after he was sentenced to four years imprisonment for fraud in the United States.  In 2019 the New Zealand High Court imposed civil penalties on a director for breaching the good character conditions of his company’s consent when it bought a controlling interest (50.2 percent) in New Zealand’s largest agricultural services company in 2011:  https://www.linz.govt.nz/news/2019-03/agria-ordered-pay-220000-for-overseas-investment-breach. The breaches of the overseas investment good character conditions arise from an investigation by United States Securities and Exchange Commission (SEC) concerning alleged violations of United States securities law.  The director was found to have been involved in fraudulent accounting and share price manipulation in the United States. As part of the settlement reached with the OIO the director’s company agreed to divest its interest in the company below 50 percent (to 46.5 percent). A government-commissioned independent review in 2016 found the good character test to be robust after questions were asked whether it was being used consistently and accurately.  LINZ reports on enforcement actions taken since 2015 on its website: https://www.linz.govt.nz/overseas-investment/enforcement/enforcement-action-taken  

Businesses wanting to establish in New Zealand and seeking to relocate their employees to New Zealand will need to apply for and satisfy the conditions of the Employees of Relocating Business Resident Visa:  https://www.immigration.govt.nz/new-zealand-visas/apply-for-a-visa/about-visa/relocating-with-an-employer-resident-visa  .  These conditions include providing evidence the business is up and running, have the support of NZTE, and provide a letter from the business CEO.  Immigration New Zealand may grant temporary work visas to key employees to get the business established and resident visas once the business is operating.  Applicants must provide evidence the business is up and running, such as a certificate of incorporation, tax records, and documents showing a business site has been purchased or leased.  Immigration New Zealand also considers if the relocation benefits New Zealand, if the business is trading profitably (or has the potential to do so in the next 12 months), and contributing to economic growth by, for example introducing new technology, management or technical skills; enhancing existing technology, management or technical skills; introducing new products or services; enhancing existing products or services; creating new export markets; expanding existing export markets; creating at least one full-time job for a New Zealander.  Visa holders can bring family, and after meeting conditions of the visa may be eligible to live and work in New Zealand indefinitely.

New Zealand supports the ability to transfer data across borders, and to not force businesses to store their data within any particular jurisdiction.  While data localization and cloud computing is not specifically legislated for, all businesses must comply with the Privacy Act 1993 to protect customers’ “personal information.” However under certain circumstances approval is required from the Commissioner of Inland Revenue to store electronic business and tax records outside of New Zealand, and under Section 23   of the Tax Administration Act 1994.  Alternatively, tax payers can use an IRD authorized third party to store their information without having to seek individual approval.  It remains the taxpayer’s responsibility to meet their obligations to retain business records for the retention period (usually seven years) required under the Act.

From October 2018, the Customs and Excise Act – which replaces the 1996 Act – allows customers who are required to keep Customs-related records to apply to Customs New Zealand, to store their business records outside of New Zealand.  Under the 1996 Act it was an offence for businesses to not store physical records in New Zealand or their electronic records with a New Zealand-based cloud storage provider. Under the new legislation a business can apply for permission to keep their Customs-related business records outside New Zealand, including in a cloud storage facility that is not based in New Zealand.  Businesses denied permission must still be required to store business records in New Zealand, including with New Zealand-based cloud providers.

New Zealand is considering e-commerce issues in trade agreements, including upgrades of existing FTAs, and in January 2019 joined other WTO members to launch negotiations on E-Commerce.  In CPTPP these rules come with a “public policy safeguard”, which gives governments the discretion to control the movement and storage of data for legitimate public policy objectives, such as cybersecurity, and the protection of privacy and data.

In March 2018 the government introduced the Privacy Bill into Parliament to repeal and replace the Privacy Act 1993.  The bill aims to strengthen the protection of confidential and personal information and modernize privacy regulations.  It also aims to incorporate provisions included in the European General Data Protection Regulation (GDPR), however the select committee report on the bill released in March 2019 advised against strict alignment with the GDPR. 

In its current form, the Bill would apply to all actions by a New Zealand agency regardless of where that agency is located, and would apply to all personal information collected or held by a New Zealand agency regardless of where that information is collected or held, or where the relevant individual is located.

The bill extends the current law to apply to agencies located outside of New Zealand as long as that agency is “carrying on business in New Zealand.” It would apply to personal information collected in the course of such business, again regardless of where the agency is located and where the information is held.  Additionally, it will apply regardless of whether that agency charges monetary payment, or makes a profit from its business in New Zealand. The intent is to ensure that global businesses doing business in New Zealand, irrespective of where the individual or the agency is located, comply with the new Privacy Act.

A provision affecting cloud service providers places the onus of liability for privacy breaches on the customer, as long as the provider is not using or disclosing that customer’s information for its own purposes.

The bill includes a new information privacy principle has been added for the off-shoring of personal information similar to that in the GDPR.  Agencies wanting to disclose personal information to an overseas person will need to apply for an exemption if the individual authorizes but is expressly informed their information may not have comparable protection as the New Zealand Privacy act, the overseas person is conducting business in New Zealand and is therefore subject to the act or the overseas person is a participant in a prescribed binding scheme.

New Zealand does not have any requirements for foreign information technology (IT) providers to turn over source code or provide access to encryption.  There may be obligations on individuals to assist authorities under Section 130 of the Search and Surveillance Act 2012. An agency with search authority in terms of data held in a computer system or other data storage device may require a specified person to provide access information that is reasonable to allow the agency exercising the search power to access that data.  This could include a requirement that they decrypt information which is necessary to access a particular device. The search power cannot be used to require the specified person to give information intending to incriminate them. Failure to assist a person exercising a search power under section 130(1), without reasonable excuse, is a criminal offence punishable with imprisonment for up to three months.  A specified person is (1) a user of a computer system or other data storage device or an Internet site who has relevant knowledge of that system, device, or site; or (2) a person who provides an Internet service or maintains an Internet site and who holds access information. A user is (1) owns, leases, possesses, or controls the system, device, or site; or (2) is entitled, by reason of an account or other arrangement, to access data on an Internet site; or (3) is an employee of a specified person described previously.

The Act includes powers to search and notification requirements of search power in connection to a “remote access search” defined in the Act as a search of a thing such as an Internet data storage facility that does not have a physical address that a person can enter and search.

Such mandatory demands as mentioned are legal obligations that must be complied with, and are made under a search warrant.  The Privacy Act permits disclosure in such a case. The organization can only disclose the information requested and any excess information provided will be in breach of the Privacy Act unless it is able to be provided as part of a voluntary request.

If an organization is ordered a voluntary demand, then it is not required to provide the information, but it may do so if it believes (1) there is a serious threat to health and safety of the public, the individual concerned, or any other individual; or (2) the maintenance of law exception (to avoid prejudice to the maintenance of the law by any public sector agency, including the prevention, detection, investigation, prosecution, and punishment of offences).  Both of these exceptions are expected to exist under the Privacy Bill.

The Customs and Excise Act 2018 sets specific legal thresholds for Customs officers to search passengers’ electronic devices, and imposes a fine of NZD 5,000 (USD 3,400) if they refuse to hand over passwords, pins, or encryption keys to access the device.  The officer must have “reasonable cause to suspect,” that the passenger has been or is about to be involved in the commission of relevant offending.

There are many laws that establish rules to protect privacy or confidentiality in particular situations, such as the Tax Administration Act.  As such there is not a particular government agency that enforces all privacy law, however the Office of the Privacy Commissioner is empowered through the Privacy Act 1993 and has a wide ability to consider developments or actions that affect personal privacy.  Separately, New Zealand courts have developed a privacy tort allowing individuals to sue another for breach of privacy.

5. Protection of Property Rights

Real Property

New Zealand recognizes and enforces secured interest in property, both movable and real.  Most privately owned land in New Zealand is regulated by the Land Transfer Act 2017. These provisions set forth the issuance of land titles, the registration of interest in land against land titles, and guarantee of title by the State.  The Registrar-General of Land develops standards and sets an assurance program for the land rights registration system. New Zealand’s legal system protects and facilitates acquisition and disposition of all property rights.

The Land Transfer Act – which was enacted in November 2018 and repealed the Land Transfer Act 1952 – maintains the Torrens system of land title in which land ownership is transferred through registration of title instead of deeds, a system which has been in operation in New Zealand since the nineteenth century.  The new Act aims to improve the certainty of property rights, modernize, simplify and consolidate land transfer legislation. It empowers courts with limited discretion to restore a landowner’s registered title in rare cases, in the event of fraud or other illegality, where it is warranted to avoid a manifestly unjust result.  The Act includes new provisions to prevent mortgage fraud, to protect Maori freehold land, and to extend the Registrar-General’s powers to withhold personal information to protect personal safety.

As mentioned in Section 2, overseas persons wanting to purchase certain types of land must apply to the OIO for approval.

Land leasing by foreign or non-resident investors is governed by the OIO Act.  About eight percent of New Zealand land is owned by the Crown. The Land Act 1948 created pastoral leases which run for 33 years and can be continually renewed.  Rent is reviewed every 11 years, basing the rent on how much stock the land can carry for pastoral farming. The Crown Pastoral Land Act 1998 and its amendments contain provisions governing pastoral leases that apply to foreign and domestic lease holders.  Holders of pastoral leases have exclusive possession of the land, and the right to graze the land, but require permission to carry out other activities on their lease. 

Lessees can gain freehold title over part of the land under a voluntary process known as tenure review.  Under this process, areas of the lease can be restored to full Crown ownership, usually as conservation land managed by the Department of Conservation.  In February 2019 the government announced an end to tenure review because it has resulted in more intensive farming and subdivision on the 353,000 hectares of land which has been freeholded, affecting the landscape and biodiversity of the land.  With tenure review ending, the remaining Crown pastoral lease properties, currently 171 covering 1.2 million hectares of Crown pastoral land, will continue to be managed under the regulatory system for Crown pastoral lands. In April 2019 there had been 2,500 submissions for feedback to the government on the future management of the South Island high country. 

The types of land ownership in New Zealand are: Freehold title, Leasehold title, Unit title, Strata title, and cross-lease.  The majority of land in New Zealand is freehold. LINZ holds property title records that show a property’s proprietors, legal description and the rights and restrictions registered against the property title, such as a mortgage, easement or covenant.  A title plan is the plan deposited by LINZ when the title was created. Property titles do not contain information about the value of the property.

No land tax is payable, but the local government authorities are empowered to levy taxes, termed as “rates,” on all properties within their territorial boundaries.  Rates are assessed on either assessed annual rental value, land value or capital value. There is no stamp duty in New Zealand. 

In general, New Zealand requires GST be returned on all land sales and claimed on all land purchases unless the property is used solely for making “exempt supplies” (such as residential accommodation), or the GST is charged at 0 percent or “zero-rated.”  When land is transferred between GST-registered parties, the transaction must be zero-rated for GST, provided that the purchaser intends to use the land to make taxable supplies and the land is not intended to be used as a principal place of residence by the purchaser.  Where the transaction is zero-rated, no GST would be added to the sale price, no GST should be returned by the vendor, and no GST should be claimed by the purchaser. The purchaser may be required to account for GST if the property will be partly used for making exempt supplies. 

When commercial property is sold, GST may need to be added to the purchase price.  A purchaser who pays the tax may be entitled to a refund. A mortgagee sale is subject to GST if the mortgagor would be liable to pay GST on the sale.

While there is no comprehensive capital gains tax in New Zealand, profits made on the sale of any asset (including land) is assessable as income, where the IRD determines the asset is purchased as part of a dealing or investment business, or for the purpose of resale, or where there was an undertaking or scheme entered into for the purpose of making a profit.  Profits from the sale of land are taxable, where construction, development or subdivision is involved, and if a consent or zoning change has or will benefit the land, and if the land is sold within ten years. For residential land the requirement is five years.

Mortgages and liens are available in New Zealand.  There is no permanent government policy as such that discriminates lending to foreigners.  However the Reserve Bank of New Zealand (RBNZ) introduced a macro-prudential tool as a means to curb rising house prices.  In October 2013, the RBNZ introduced a series of temporary loan-to-valuation ratio restrictions on banks’ lending to (domestic and foreign) investors and owner-occupiers wanting to purchase residential housing. 

During 2018, the RBNZ started a process of easing these restrictions due to the new Government’s housing market policies.  From January 1, 2019, banks are limited to lending residential investors who have less than a 30 percent deposit, to be no more than 5 percent of their total new lending in that category; and no more than 20 percent of banks’ new lending to owner-occupiers who have a deposit of less than 20 percent. 

A registered memorandum of mortgage is the usual form used to create a lien on real estate to secure an indebtedness.  There is no mortgage recording or mortgage tax in New Zealand. However from October 22, 2018 all non-resident purchasers must complete a Residential Land Statement declaring they are eligible to buy residential property in New Zealand, before signing any sale and purchase agreement:  https://www.linz.govt.nz/overseas-investment/information-for-buying-or-building-one-home-live#statement. Failure to do so could incur significant penalties under the Overseas Investment Act. 

When a lien secured by real property is foreclosed, there is a statutory process that must be followed which overrides the mortgage form itself as well as legal costs relating to foreclosing a lien on real property.  There are no restrictions on foreign lenders securing their advances over real estate in New Zealand. Nevertheless, on any mortgagee sale, lenders need to comply with the requirements concerning foreign ownership of land if the buyer or the land falls within certain criteria.

There are some statutory controls imposed on the amount of interest which may be charged on a loan secured by real property (and private and government agencies that monitor and report on interest charges) that ensure that interest rates and costs are not excessive or illegal.  There are no laws that that restrict the ability to make a borrower or guarantor personally liable for indebtedness secured by real property.

Property legally purchased but unoccupied can generally not revert to other owners.  The Land Transfer Act 2017 repealed the Land Transfer Amendment Act 1963 which previously outlined the process for cases of “adverse possession” or “squatters’ rights.”  Section 155 of the Land Transfer Act 2017 allows a person to apply to the Registrar-General of Land for a record of title in that person’s name as owner of the freehold estate in land if: a record of title has already been created for the estate; the person has been in adverse possession of the land for a continuous period of at least 20 years and continues in adverse possession of the land; and the possession would have entitled the person to apply for a title to the freehold estate in the land if the land were not subject to the Act.  The section applies to diverse instances, such as the case where an entire section is being occupied by someone unconnected to the registered owner, or in the case of a “boundary adjustment” between two properties. Section 159 of the Act lists instances when applications may not be made, such as land owned by the Crown, Māori land, or land occupied by the applicant – where the applicant owns an adjoining property – because of a mistaken marking of a boundary.

Intellectual Property Rights

New Zealand has a generally strong record on intellectual property rights (IPR) protection and is an active participant in international efforts to strengthen IPR enforcement globally.  It is a party to nine World Intellectual Property Organization (WIPO) treaties and participates in the Trade Related Aspects of Intellectual Property Rights (TRIPS) Council. 

In March 2019, New Zealand entered into force the WIPO Copyright Treaty, the WIPO Performances and Phonograms Treaty, the Budapest Treaty and the Berne Convention.  It implemented the Madrid Treaty in December 2012, allowing New Zealand companies to file international trademarks through the Intellectual Property Office of New Zealand (IPONZ).  Since 2013, an online portal hosted on the IPONZ and IP Australia websites has allowed applicants to apply for patent protection simultaneously in Australia and New Zealand with a single examiner assessing both applications according to the respective countries’ laws.

New Zealand is a party to the multilateral ACTA, which is aimed at establishing a comprehensive international framework that will assist parties to the agreement in their efforts to effectively combat the infringement of intellectual property rights, in particular the proliferation of counterfeiting and piracy.

Changes to copyright regulations bestow copyright protection in New Zealand for nationals of countries which have recently joined the WTO, the Berne Convention for the Protection of Literary and Artistic Works, and the Universal Copyright Treaty from January 2017.  The change is reciprocal protecting New Zealand copyright owners in those countries.

There are about ten statutes that provide civil and criminal enforcement procedures for IPR owners in New Zealand.  The Copyright Act 1994 and the Trade Marks Act 2002 impose civil liability for activities that constitute copyright and trademark infringement.  Both Acts also contain criminal offences for the infringement of copyright works in the course of business and the counterfeiting of registered trademarks for trade purposes.  The Fair Trading Act 1986 imposes criminal liability for the forging of a trademark, falsely using a trademark or sign in a way that is likely to mislead or deceive, and trading in products bearing misleading and deceptive trade descriptions.

The government is reviewing the Copyright Act 1994 in light of significant technological changes since the last review in 2004.   . New Zealand had agreed to tougher IPR and copyright protections under the TPP agreement, but the CPTPP suspended some of the original TPP copyright obligations, such as increasing rights protection from 50 years to 70 years.  In November 2018, MBIE, which administers the Act, released a 135-page Issues Paper which summarizes the operation of the New Zealand copyright regime, its shortcomings, and the wide range of issues that need to be addressed. 

New Zealand has amended some legislation to comply with obligations under CPTPP.  Customs New Zealand has had its powers to act on its own initiative to temporarily detain imported or exported goods that it suspects infringe copyright or trademarks.  Previous policy to cover the infringing label or sticker, or simply removing the infringing part such as a logo will no longer be sufficient. Customs New Zealand now has authority to inspect and detain any goods in its control suspected of being pirated.  The New Zealand High Court has been empowered to award additional damages for trade mark infringement, and unless exceptional circumstances exist, the courts must order the destruction of counterfeit goods. This will be in addition to the existing availability of compensatory damages under the Trade Marks Act 2002. 

New Zealand will retain its existing copyright term for creative works – and minimum required under the Berne Convention – of the life of the author plus 50 years after their death for films, sound recordings, books, screenplays, music, lyrics and artistic works.  New Zealand will not be required to provide stronger protection for technological protection measures (TPMs) which act as “digital locks” to protect copyright work, nor provide stronger protection for rights management information; nor alter its internet service provider liability provisions for copyright infringement. 

The Copyright Tribunal hears disputes about copyright licensing agreements under the Act and applications about illegal uploading and downloading of copyrighted work.  The Copyright (Infringing File Sharing) Amendment Act 2011 put in place a three notice regime, issuing alleged infringers up to three warnings within a nine month period, before ruling that infringement has occurred.  The legislation enables copyright owners to seek the suspension of the internet account for up to six months through the District Court.

The CPTPP will require New Zealand to provide a 12-month grace period for patent applicants.  Under this requirement, inventors will not be deprived of their ability to be granted a patent in New Zealand if an inventor makes their invention public, provided the inventor files the patent application within 12 months of disclosure.  This is important for many New Zealand businesses who will now not lose the right to patent their invention through accidental disclosure. In addition, pharmaceutical patent holders (who have provided their details to Medsafe) will have to be informed of someone seeking to use their drug’s clinical trial data before marketing approval is granted. 

The Smoke-free Environments (Tobacco Standardized Packaging) Amendment Act passed in September 2016, and from June 2018, all tobacco packets will be the same standard dark brown/green background color as Australia.  New pictures and health warnings will be enlarged to cover at least 75 percent of the front of tobacco packs, and all tobacco company marketing imagery will be removed. The Smoke-free Environments Regulations 2017 standardize the appearance of tobacco manufacturers’ brand names. 

In November 2018, the Government announced plans to regulate vaping and smokeless tobacco products in New Zealand.  An amendment to the Smoke-free Environments Act 1990 is expected to be passed this year limit the areas people can use such products, and change the way they are displayed in retail stores, similar to other tobacco products.  The government has indicated a public consultation process will occur before an amendment is passed.

New Zealand meets the minimum requirements of the TRIPS Agreement, providing patent protection for 20 years from the date of filing.  The Patents Act 2013 brought New Zealand patent law into substantial conformity with Australian law. Consistent with Australian patent law, an ‘absolute novelty’ standard is introduced as well as a requirement that all applications be examined for “obviousness” and utility.  The Patents Act stops short of precluding from patentability all computer software and has a provision for patenting “embedded software.”

New Zealand currently provides data exclusivity of five years from the date of marketing approval for a new pharmaceutical under Section 23B of the Medicines Act 1981.  Data protection on pharmaceuticals applies from the date of marketing approval, regardless of whether it is granted before or after the expiration of the 20-year patent.  Under section 74 of the Agricultural Compounds and Veterinary Medicines Act 1997 data protection for non-innovative agricultural and veterinary products (products including reformulations and new uses), and from November 2016 data protection is available for ten years for innovative trade name products. 

From July 2017 New Zealand wine and spirit makers can register the geographical origins of their products under the Geographical Indications (Wine and Spirits) Registration Act 2006 .  The Act and its amendments are administered by IPONZ and aims to protect wine and spirit markers’ products, to allow the registration of New Zealand geographical indications overseas, and to enforce action for falsely claiming a product comes from a certain region.

.  The most commonly intercepted item by Customs New Zealand is fake toys, according to an Official Information Act request  .   Electronics were the second most commonly intercepted item, followed by clothing and accessories.  Most items originate from China, the United Kingdom, Vietnam, and Hong Kong.

New Zealand is not on the USTR’s Special 301 report list.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/details.jsp?country_code=NZ  

6. Financial Sector

Capital Markets and Portfolio Investment

New Zealand policies generally facilitate the free flow of financial resources to support the flow of resources in the product and factor markets.  Credit is generally allocated on market terms, and foreigners are able to obtain credit on the local market. The private sector has access to a limited variety of credit instruments.  New Zealand has a strong infrastructure of statutory law, policy, contracts, codes of conduct, corporate governance, and dispute resolution that support financial activity. The banking system, mostly dominated by foreign banks, is rapidly moving New Zealand into a “cashless” society.

New Zealand adheres to International Monetary Fund (IMF) Article VIII and does not place restrictions on payments and transfers for international transactions.

New Zealand has a range of other financial institutions, including a securities exchange, investment firms and trusts, insurance firms and other non-bank lenders.  Non-bank finance institutions experienced difficulties during the global financial crisis (GFC) due to risky lending practices, and the government of New Zealand subsequently introduced legal changes to bring them into the regulatory framework.  This included the introduction of the Non-bank Deposit Takers Act 2013 and associated regulations which impose requirements on exposure limits, minimum capital ratios, and governance. It requires non-bank institutions be licensed and have suitable directors and senior officers.  It also provides the RBNZ with powers to detect and intervene if a non-bank institution becomes distressed or fails.

The GFC also prompted New Zealand to introduce broad-based financial market law reform which included the establishment of the Financial Markets Authority (FMA) in 2014.  The Financial Markets Conduct Act (FMC) 2013 provided a new licensing regime to bring New Zealand financial market regulations in line with international standards. It expanded the role of the FMA as the primary regulator of fair dealing conduct in financial markets, provided enforcement for parts of the Financial Advisers Act 2008, and made the FMA one of the three supervisors for AML/CFT, alongside the RBNZ and the Department of Internal Affairs.  The FMA supervises approximately 800 reporting entities.

Legal, regulatory, and accounting systems are transparent.  Financial accounting standards are issued by the New Zealand Accounting Standards Board (NZASB), which is a committee of the External Reporting Board established under the Crown Entities Act 2004.  The NZASB has the delegated authority to develop, adopt and issue accounting standards for general purpose financial reporting in New Zealand. The NZASB’s accounting standards are based largely on international accounting standards, and generally accepted accounting principles.

Smaller companies (except issuers of securities and overseas companies) that meet proscribed criteria face less stringent reporting requirements.  Entities listed on the stock exchange are required to produce annual financial reports for shareholders. Stocks in a number of New Zealand listed firms are also traded in Australia and in the United States.  Small, publicly held companies not listed on the NZX may include in their constitution measures to restrict hostile takeovers by outside interests, domestic, or foreign. However, NZX rules generally prohibit such measures by its listed companies.

In 2017 the market capitalization of listed domestic companies in New Zealand was 46 percent of GDP, at USD 95 billion.  The small size of the market reflects in part the risk averse nature of New Zealand investors, preferring residential property and bank term deposits over equities or credit instruments for investment.  New Zealand’s stock of investment in residential property has exceeded NZD 1 trillion (USD 680 billion) since in 2016. Between December 2015 and December 2018, the value of residential property increased 28 percent to NZD 1.12 trillion (USD 762 billion).

Money and Banking System

The Reserve Bank (RBNZ) regulates banks in New Zealand in accordance with the Reserve Bank of New Zealand Act 1989.  The RBNZ is statutorily independent and is responsible for conducting monetary policy and maintaining a sound and efficient financial system.  The New Zealand banking system consists of 26 registered banks, and more than 90 percent of their combined assets are owned by foreign banks, mostly Australian.  There is no requirement in New Zealand for financial institutions to be registered to provide banking services, but an institution must be registered to call itself a bank.

In November 2017 the government announced it would undertake the first ever review of the RBNZ Act.  In December 2018 the government passed an amendment to the Act to broaden the legislated objective of monetary policy beyond price stability, to include supporting maximum sustainable employment.  It also requires that monetary policy be decided by a consensus of a Monetary Policy Committee, which must also publish records of its meetings. While policy decisions at the RBNZ have been made by the Governing Committee for several years before the amendment, the Act had laid individual accountability with the Governor, who could be removed from office for inadequate performance according to the goals set through the Policy Targets Agreement.

Applicants for bank registration must meet qualitative and quantitative criteria set out in the RBNZ Act.  Applicants who are incorporated overseas are required to have the approval of their home supervisor to conduct banking business in New Zealand, and the applicant must meet the ongoing prudential requirements imposed on it by the overseas supervisor.  Accordingly, the conditions of registration that apply to branch banks mainly focus on compliance with the overseas supervisor’s regulatory requirements.

The RBNZ introduced a Dual Registration Policy for Small Foreign Banks in December 2016.  Foreign-owned banks are permitted to apply for dual registration – operating both a branch and a locally incorporated subsidiary in New Zealand – provided both entities comply with relevant prudential requirements.  Locally incorporated subsidiaries are separate legal entities from the parent bank. They are required, among other things, to maintain minimum capital requirements in New Zealand and have their own board of directors, including independent directors.  In contrast, bank branches are essentially an extension of the parent bank with the ability to leverage the global bank balance sheet for larger lending transactions. Capital and governance requirements for branch banks are established by the home regulatory authority.  There are no local capital or governance requirements for registered bank branches in New Zealand.

New Zealand has no permanent deposit insurance scheme and the RBNZ has no requirement to guarantee the viability of a registered bank.  The RBNZ operates the Open Bank Resolution (OBR) which allows a distressed bank to be kept open for business, while placing the cost of a bank failure primarily on the bank’s shareholders and creditors, rather than on taxpayers.  While the scheme has been generally successful, in 2010 the government paid out NZD 1.6 billion (USD 1.1 billion) to cover investor losses when New Zealand’s largest locally owned finance company at the time, went into receivership.  There have since been bailouts of several insurance companies and other smaller finance companies.

New Zealand’s banking system relies on offshore wholesale funding markets as a result of low levels of domestic savings.  Banks are able to raise funds in international markets relatively easily at reasonable cost, but are vulnerable to global market volatility, geopolitics, and domestic economic conditions.  Domestically, banks face exposure due to the concentration of New Zealand exports in a small number of commodity-based sectors which can be subject to considerable price volatility. Residential mortgage and agricultural lending exposures have also presented risk.

The four largest banks (ASB, ANZ, BNZ and Westpac) control 88 percent of the retail and commercial banking market measured in terms of total banking assets.  With the addition of Kiwibank, that rises to 91 percent. Kiwibank launched in 2002 and is majority owned by NZ Post (53 percent), with the NZ Superannuation Fund (25 percent), and the Accident Compensation Corporation (22 percent).

The RBNZ report the total assets of registered banks to be about NZD 556 billion (USD 378 billion) as of March 2019.  They estimate the amount of non-performing loans to be about NZD 3.7 billion (USD 2.5 billion) for December 2018. Approximately 0.7 percent of bank loans are non-performing.

The four banks have capital generally above the regulatory requirements.  The initial findings from a RBNZ review of bank capital requirements released in March 2017 found New Zealand banks to be “in the pack” in terms of capital ratios relative to international peers.  There have since been subsequently four rounds of consultations revisiting capital requirements after the Australian Financial System Inquiry made recommendations that were subsequently accepted by the Australian Prudential Regulation Authority to improve the resilience of the Australian banks.  While this contributes to the ultimate soundness of the New Zealand subsidiaries, it does not directly strengthen their balance sheets.

In February 2019 the RBNZ proposed to almost double capital requirements for the four big banks.  The RBNZ proposed to require banks’ Tier 1 capital to be comprised solely of equity and to increase from the current minimum of 8.5 percent of total capital to 16 percent over five years.  It also wants Tier 1 capital to be pure equity, rather than hybrid-type securities that usually behave as debt but which can be converted into equity if required, and which are about a fifth of the cost of pure equity.  Since the GFC, the minimum tier 1 capital has already been raised from 4 percent of risk-weighted assets to 8.5 percent. 

All New Zealand’s banks have more tier 1 capital than the current minimum with the RBNZ estimating it averages about 12 percent.  The RBNZ expect with better capitalized banks, will improve the strength of the banking system and make bank failures less frequent.  The RBNZ admit higher capital requirements could make it more expensive for New Zealanders to borrow. A higher capital ratio could impact the RBNZ monetary policy rate and the New Zealand currency.

The RBNZ acknowledge the proposals take New Zealand to the higher end of international norms, but cite Basel Committee estimates that will put New Zealand in the third quartile.  The RBNZ has estimated the extra capital the big four Australian-owned banks will need to raise to meet its current proposals would be about NZD 20 billion (USD 13.6 billion).

Rating agency risk assessments of the large New Zealand banks is heavily influenced by expectations of support from the Australian parent banks.  While the implicit support of the parent banks is valuable, it can also present risk if they are placed on negative outlook. Ratings agency Standard & Poor’s (S&P) have said the current RBNZ proposals could place a burden on the Australian parents of New Zealand’s four major banks because the potential implications are material and complex due to cross-border regulatory issues.  Banks would also need to replace capital if they implement the additional proposal to exclude quasi-equity instruments, usually fixed interest securities that can be converted to equity if a bank gets into difficulties, from qualifying as tier 1 capital. S&P are skeptical that additional capital requirements would improve the banks’ credit ratings because they equalize their ratings on the New Zealand banks with the credit profiles of their respective parent groups, and the parent banks are highly likely to provide timely financial support for the New Zealand major banks, if needed.  Further the proposals are unlikely to affect the parent bank ratings but they will likely need to strengthen their consolidated group capital to meet RBNZ requirements. If ratings agencies do not raise their assessment, then the improved “safety” of New Zealand banks are unlikely to get access to cheaper credit as suggested.

Similarly, Fitch Ratings called the proposals radical and highly conservative relative to international peers.  But were in favor of banks’ increasing their resilience to potential threats to the stability of the financial system.

While the Zealand banking system has one of the lowest ratios of non-performing loans to gross lending in the OECD, macro prudential measures introduced in October 2013 have introduced loan-to-value ratio restrictions, defined as those with loans greater than 80 percent of value.  In the intervening years these tools have been tweaked by the RBNZ to reduce banks’ risk exposure during an escalation of house prices and debt, and several banks announced they would at least temporarily cease lending to foreigners for residential property purchases.

The penetration of New Zealand’s major banks has improved since the introduction of the voluntary superannuation scheme, KiwiSaver in 2007.  The increase in their market share is also a result of the appointment of three additional banks as default KiwiSaver providers in 2014. In 2018 there were over 2.8 million KiwiSaver members, and the amount invested in KiwiSaver schemes is estimated to be NZD 50 billion (USD 34 billion).

There are some restrictions on opening a bank account in New Zealand that include providing proof of income and needing to be a permanent New Zealand resident of 18 years old or above.  Access to money in the account will not be granted until the individual presents one form of photo ID and a proof of address in-person at a branch of the bank in New Zealand. Some banks will require a copy of the applicant’s visa.  If the applicant does not apply for an IRD number, the tax rate on income earned will default to the highest rate of 33 percent. New Zealand banks typically have a dedicated branch for migrants and businesses to set up banking arrangements.

Foreign Exchange and Remittances

Foreign Exchange

New Zealand has revoked all foreign exchange controls.  Accordingly, there are no such restrictions – beyond those that seek to prevent money laundering and financing of terrorism – on the transfer of capital, profits, dividends, royalties or interest into or from New Zealand.  Full remittance of profits and capital is permitted through normal banking channels and there is no difficulty in obtaining foreign exchange. However, withholding taxes can apply to certain payments out of New Zealand including dividends, interest, and royalties, and may apply to capital gains for non-residents and on the payment of profits to certain non-resident contractors.

New Zealand operates a free-floating currency.  As a small nation that relies heavily on trade and global financial and geopolitical conditions, the New Zealand currency experiences more fluctuation when compared with other developed high-income countries.

Remittance Policies

The Pacific Islands are the main destination of New Zealand remittances from residents and from temporary workers participating in the Recognized Seasonal Employer (RSE) scheme.  The RSE allows the horticulture and viticulture industries to recruit workers from nine Pacific Island nations for seasonal work when there are not enough New Zealand workers. The cap for workers has gradually increased over time from 5,000 when the RSE was established in 2007, to 12,850 in November 2018.  Other people who use remittance services include recently resettled refugees, and other migrant workers particularly in the hospitality and construction sectors. 

The tightening of anti-money laundering and combatting terrorism financing laws has made access to cross-border financial services difficult for some Pacific island countries.  Banks, non-bank institutions, and people in occupations that typically handle large amounts of cash, are required to collect additional information about their customers and report any suspicious transactions to the New Zealand Police.  From 2018 the law has been extended to lawyers, conveyancers, accountants, and bookkeepers, and from January 2019 it has been extended to realtors.

Financial institutions have had to comply with the AML/CFT Act since 2013 (Phase 1 sectors remitters, trust and company service providers, casinos, payment providers, lenders and other financial institutions).  If a bank is unable to comply with the Act in its dealings with a customer, it must not do business with that person. This would include not processing certain transactions, withdrawing the banking products and services it offers, and choosing not to have that person as a customer.  Since then New Zealand banks have been reducing their exposure to risks and charging higher fees for remittance services, which in some instances has led to the forced closing of accounts held by money transfer operators (MTOs). 

The New Zealand government is working with banks to improve the bankability of small MTOs, and to develop low cost products for seasonal migrant workers in the RSE.  New Zealand is also using its membership in global fora to encourage a coordinated approach to addressing high remittance costs, and is working with Pacific Island governments to find ways to lower costs in the receiving country, such as the adoption and use of an electronic payments systems infrastructure.

The New Zealand Treasury released a report in March 2017 to explore feasible policy options to address the issues in the New Zealand remittance market that would maintain access and reduce costs of remitting money from New Zealand to the Pacific.

In 2017, the Tongan Development Bank in partnership with the World Bank Group launched a remittance facility, the ‘Ave Pa’anga Pau voucher, for use between New Zealand and Tonga:  http://www.avepaanga.co.nz/. The voucher is purchased online in New Zealand and redeemed or remitted to a bank account in Tonga. The Tonga Development Bank receives the funds only via electronic payments in New Zealand before disbursing them in Tonga using the liquidity obtained by importers.

In 2018 the New Zealand and Australian governments hosted a series of roundtable meetings in Auckland, Sydney, and Tonga, with the Asian Development Bank and the International Monetary Fund that included officials from banks, MTOs, and regulators from Australia, New Zealand, and the Pacific, senior officials from international financial institutions, and training providers to discuss the issue and identify practical solutions to address the costs and risks of transferring remittances to Pacific countries and difficulties in undertaking cross-border transactions.

Sovereign Wealth Funds

The New Zealand Superannuation Fund was established in September 2003 under the New Zealand Superannuation and Retirement Income Act 2001.  The fund was designed to partially provide for the future cost of New Zealand Superannuation, which is a universal benefit paid by the New Zealand government to eligible residents over the age of 65 years irrespective or income or asset levels.

The Act also created the Guardians of New Zealand Superannuation, a Crown entity charged with managing and administering the fund.  It operates by investing initial government contributions (and the associated returns) in New Zealand and internationally, in order to grow the size of the fund over the long term.  Between 2003 and 2009, the government contributed NZD 14.9 billion (USD 10.1 billion) to the fund, after which it temporarily halted contributions during the GFC. In December 2017 the newly elected government resumed contributions, with the Fund receiving an estimated NZD 500 million (USD 340 million) payment in the year to June 2018.  Planned contributions will be NZD 1 billion (USD 680 million) in the year to June 2019, NZD 1.5 billion (USD 1 billion) to June 2020, and NZD 2.2 billion (USD 1.5 billion) to June 2021. 

The guardians have a stated commitment to responsible investment, including environmental, social and governance factors, which is closely aligned to the United Nations Principles for Responsible Investment.  It is a member of the International Forum of Sovereign Wealth Funds, and is signed up to the Santiago Principles.

In February 2019, the fund was valued at NZD 41.2 billion (USD 28 billion) of which 45.8 percent was in North America, 19.3 percent in Europe, 13.9 percent in New Zealand, 10.2 percent in Asia excluding Japan, 6.1 percent in Japan, and 2.7 percent in Australia.

Following an announcement in October 2016 the NZSF significantly reduced its exposure to both fossil fuel reserves and carbon emissions, divesting assets of value USD 690 million from 297 companies by August 2017.  The NZSF claims its global passive equity portfolio – about 40 per cent of the total fund – is “low-carbon.” However remaining investments include at least 29 airlines and over 300 companies within the oil and gas sector and the metals and mining sector.

In April 2019, the fund divested NZD 19 million (USD 13 million) from seven companies (including four U.S. companies), involved in the manufacture of civilian automatic and semi-automatic firearms, magazines or parts prohibited under recently enacted New Zealand law.  For several years the fund has explicitly excluded companies that are directly involved in the manufacture of cluster munitions, the manufacture or testing of nuclear explosive devices, the manufacture of anti-personnel mines, the manufacture of tobacco, recreational cannabis, and the processing of whale meat.  In 2013 the fund divested a group of five U.S. companies due to their involvement with nuclear weapons.

7. State-Owned Enterprises

The Commercial Operations group in the New Zealand Treasury is responsible for monitoring the Crown’s interests as a shareholder in, or owner of organizations that are required to operate as successful businesses, or that have mixed commercial and social objectives.  Each entity monitored by the Treasury has a primary legislation that defines its organizational framework, which include: State-Owned Enterprises (SOEs), Crown-Owned Entity Companies, Crown Research Institutions, Crown Financial Institutions, Other Crown Entity Companies, and Mixed Ownership Model Companies.

SOEs are subject to the State-Owned Enterprises Act 1986, are registered as companies, and are bound by the provisions of the Companies Act 1993.  The board of directors of each SOE reports to two ministers, the Minister of Finance and the relevant portfolio minister. A list of SOEs and information on the Crown’s financial interest in each SOE is made available in the financial statements of the government at the end of each fiscal year.  For a list of the SOEs see: http://www.treasury.govt.nz/statesector/commercial/portfolio/bytype/soes

In the 12 months to June 30, 2018 New Zealand State-Owned Enterprises held NZD 61.7 billion (USD 42 billion) assets, earned NZD 16.9 billion (USD 11.5 billion) in revenue and yielded an operating gain of NZD 861 million (USD 585 million).  Crown entities held NZD 150 billion (USD 102 billion) assets, earned NZD 40.5 billion (USD 27.5 billion) and yielded an operating loss of NZD 474 million (USD 322 million). Air New Zealand made the largest net gain for the financial year of NZD 628 million (USD 427 million).

Most of New Zealand’s SOEs are concentrated in the energy and transportation sectors.  Private enterprises are allowed to compete with public enterprises under the same terms and conditions with respect to markets, credit, and other business operations.  For example, Contact Energy, a publicly listed company, is allowed to sell energy in direct competition with Meridian Energy Limited, which is an SOE. Under SOE Continuous Disclosure Rules, SOEs are required to continuously report on any matter that may materially affect their commercial value.

New Zealand has a history of bailing out SOEs, including Air New Zealand, and the Bank of New Zealand.  In 2013 it loaned funds at a lower than market rate to coal producer Solid Energy which ultimately went into receivership.  As mentioned previously, the government also bailed out a private non-bank financial company in 2012 to prevent catastrophic losses to local investors.

Overseas investors can apply to the OIO for consent to invest in an SOE or purchase Crown land in cases of sensitive land and significant business interests.  When the government sold part of its ownership – not through the OIO – in Air New Zealand and three energy companies in 2014, overseas investors were able to purchase shares on the secondary market, after an initial offering to New Zealand investors.  LINZ manages over 2 million hectares of land on behalf of the Crown, and manages land and property behalf of other Crown agencies. The Crown land and property data is available through the LINZ Data Service and identifies state coal and railway reserves, pastoral leases, Crown-owned Canterbury red zone properties and other land managed by LINZ.

Privatization Program

In 2019 the Treasury established the Infrastructure Transaction Unit to improve the quality of infrastructure procurement and delivery in New Zealand.  In addition to supporting major infrastructure projects, the unit has been tasked to coordinate Treasury’s Public Private Partnership (PPP) Program. The PPP manages long term contracts for the delivery of a specific service, where the provision of that service requires the construction of a new asset, or the enhancement of an existing asset, that is financed from private sources on a non-recourse basis and where full legal ownership of the asset is retained by the Crown.

New Zealand governments have embarked on several privatization programs since the 1980s, as a means to reduce government debt, move non-strategic businesses to the private sector to improve efficiency, and raise economic growth.  More recent projects include the construction of state highways, schools, and prisons: https://treasury.govt.nz/information-and-services/nz-economy/infrastructure/nz-infrastructure-commission/infrastructure-transactions-unit/public-private-partnerships/projects .

In 2014, the government completed a program of asset sales to raise funds to reduce public debt.  It involved the partial sale of three energy companies and Air New Zealand, with the government retaining its majority share in each.  The bulk of the initial share float was made available to New Zealand share brokers and international institutions, and unsold shares were made available to foreign investors.  Foreign investors are free to purchase shares on the secondary market. 

After Spark was privatized in 1990, the government retained a Kiwishare obligation of at least 10 percent due in large part to its emergency services.  Since Chorus demerged from Spark, only the former has a restriction on foreign ownership as mentioned in the earlier section.

The Treasury runs a transparent PPP procurement process that includes developing a business case, an Expression of Interest (EOI) stage to short-list bidders to participate in the Request for Proposals Stage, followed by a negotiation during the preferred bidder stage:  https://treasury.govt.nz/information-and-services/nz-economy/infrastructure/nz-infrastructure-commission/infrastructure-transactions-unit/public-private-partnerships/guidance/procurement-process . The procuring entity is required to publish the invitation for EOI on the Government Electronic Tenders Service (https://www.gets.govt.nz/ExternalIndex.htm ) or appropriate equivalent. 

8. Responsible Business Conduct

The New Zealand government actively promotes corporate social responsibility (CSR), which is widely practiced throughout the country.  There are a number of New Zealand NGOs that are dedicated to facilitating and strengthening CSR, including the New Zealand Business Council for Sustainable Development, the Sustainable Business Network, and the American Chamber of Commerce in New Zealand. 

New Zealand is committed to both the OECD due diligence guidance for responsible supply chains of minerals from conflict-affected and high-risk areas, and the OECD Guidelines for Multinational Enterprises.  Multi-national businesses are the main focus, such as a New Zealand company that operates overseas, or a foreign-owned company operating in New Zealand. The guidance can also be applied to businesses with only domestic operations that form part of an international supply chain.  Individuals wishing to complain about the activity of a multi-national business that happened in another country, will need to contact the National Contact Points of that country. In New Zealand, MBIE is the NCP to carry out the government’s responsibilities under the guidelines.

To help businesses meet their responsibilities, MBIE has developed a short version of the guidelines to assess the social responsibility ‘health’ of enterprises, and for assessing the actions of governments adhering to the guidelines.  If further action is needed, MBIE provide resolution assistance, such as mediation, but do not adjudicate or duplicate other tribunals that assess compliance with New Zealand law. MBIE is assisted by a liaison group that meets once a year, with representatives from other government agencies, industry associations, and NGOs.

9. Corruption

U.S. firms have not identified corruption as an obstacle to investing in New Zealand.  New Zealand is renowned for its efforts to ensure a transparent, competitive, and corruption-free government procurement system.  Stiff penalties against bribery of government officials as well as those accepting bribes are strictly enforced. The Ministry of Justice provides guidance on its website for businesses to create their own anti-corruption policies, particularly improving understanding of the New Zealand laws on facilitation payments.

New Zealand consistently achieves top ratings in Transparency International’s Perceptions of Corruption Perception Index.  In 2018, Transparency International ranked New Zealand 2nd out of 180 countries and territories, scoring 87 out of 100. Transparency International noted that New Zealand is one of several top ranking countries that conduct “moderate and limited enforcement of foreign bribery.”  Their 2018 Exporting Corruption report recommended the removal of the facilitation payment exception for the bribery of foreign public officials, improve whistleblower protection, introduce requirements for auditors to disclose suspicions of foreign bribery, establish comprehensive mechanisms to ensure transparency of New Zealand trust companies, such as public registers that include information on beneficial ownership, fund and develop active investigation mechanisms, remove the requirement that the Attorney General consent to foreign bribery prosecutions, introduce a positive requirement for commercial organizations to prevent foreign bribery:  https://www.transparency.org.nz/new-zealand-needs-increase-efforts-fight-foreign-bribery/. Transparency International New Zealand have listed examples of corruption occurring in the country over the past decade: https://www.transparency.org.nz/newsletter/transparency-times-january-2019/.

New Zealand joined the WTO Government Procurement Agreement (GPA) in 2012, citing benefits for exporters, while noting that there would be little change for foreign companies bidding within New Zealand’s totally deregulated government procurement system.  New Zealand’s accession to the GPA, came into effect in August 2015. New Zealand supports multilateral efforts to increase transparency of government procurement regimes. New Zealand also engages with Pacific island countries in capacity building projects to bolster transparency and anti-corruption efforts.  CPTPP contains a chapter on Transparency and Anti-Corruption which affirms parties’ commitments to eliminate bribery and corruption in international trade and investment, and outlines measures parties can implement to combat corruption.

New Zealand Government Procurement and Property (NZGPP) delivers MBIE’s procurement and property functional leadership objectives including the management of the Government Electronic Tenders Service (GETS) platform.  The NZGPP sets out the Government Rules of Sourcing which must be followed by New Zealand government departments, the Police, the Defense Force, and most Crown entities. All other New Zealand government agencies are encouraged to follow the Rules.  A range of additional mechanisms are used to bind agencies to applying the rules, including the Whole of Government Direction under section 107 of the Crown Entities Act 2004. Information on the rules is available at the MBIE site under: www.procurement.govt.nz

Internationally, New Zealand has signed and ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.  In October 2006, the OECD examined New Zealand for compliance with the convention. New Zealand has also signed and ratified the UN Convention against Transnational Organized Crime.  In 2003, New Zealand signed the UN Convention against Corruption and ratified it in December 2015.

The legal framework for combating corruption in New Zealand consists of domestic and international legal and administrative methods.  Domestically, New Zealand’s criminal offences related to bribery are contained in the Crimes Act 1961 and the Secret Commissions Act 1910. 

The New Zealand government has a strong code of conduct, the Standards of Integrity and Conduct, which applies to all State Services employees and is rigorously enforced.  The Independent Police Conduct Authority considers complaints against New Zealand Police and the Office of the Judicial Conduct Commissioner was established in August 2005 to deal with complaints about the conduct of judges.  New Zealand’s Office of the Controller and Auditor-General and the Office of the Ombudsman take an active role in uncovering and exposing corrupt practices. The Protected Disclosures Act 2000 was enacted to protect public and private sector employees who engage in “whistleblowing.”

The Ministry of Justice is responsible for drafting and administering the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) legislation and regulations.  It also provides guidance online to companies and NGOs in how to combat corruption and bribery. The New Zealand Police Financial Intelligence Unit collates information required under AML/CFT legislation.

The first phase of the AML/CFT Act 2009 came into full effect in June 2013.  The AML/CFT Amendment Act 2015 strengthened the foreign bribery offence to respond to recommendations made by the OECD Working Group on Bribery, and increased penalties for bribery and corruption in the private sector to bring them into line with public sector bribery offences.

The second phase of the AML/CFT will be enacted in 2018 after the Anti-Money Laundering and Countering Financing of Terrorism Amendment Act 2017 was passed in August 2017.  It will extend the 2009 Act to cover lawyers, conveyancers, accountants, real estate agents, and sports and racing betting. Businesses that deal in certain high-value goods, such as motor vehicles, jewelry and art, will also have obligations when they accept or make large cash transactions.

Businesses will be allotted time to comply with the Act and compliance costs are estimated to be USD 554 million and USD 762 million over ten years.  The New Zealand Police Financial Intelligence Unit estimate that NZD 1.35 billion (USD 918 million) of domestic criminal proceeds is generated for laundering in New Zealand each year, driven in part by New Zealand’s reputation as a safe and non-corrupt country.

The second phase of the AML/CFT legislation was enacted earlier than planned following a review of New Zealand’s foreign trust regime in 2016.  Following the “Panama Papers” incident in April 2016, an independent inquiry found New Zealand’s tax treatment of foreign trusts to be appropriate, but recommended changes to the regime’s disclosure requirements, which were subsequently legislated to dispel concerns New Zealand was operating as a “tax haven”.  The Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 amended the Tax Administration Act 1994 for foreign trust registration and disclosure. The changes are intended to deter offshore parties from misusing New Zealand foreign trusts, and reaffirm New Zealand’s reputation as being free of corruption.

In August 2017 the government introduced the Trusts Bill to replace the Trustee Act 1956 and the Perpetuities Act 1964 to make trust law more accessible, clarify and simplify core trust principles and essential obligations for trustees, and preserve the flexibility of the common law to allow trust law to continue to evolve through the courts.  If passed, the Trusts Bill will be the first significant change to New Zealand’s trusts legislation, and will cover all trusts including family trusts and those for corporate structures. It is estimated that there are between 300,000 and 500,000 trusts in New Zealand.

In 2019 members of the Justice Select Committee requested a wider review of the issue of foreign interference through politicized social media campaigns, and from foreign donations to political candidates standing in New Zealand elections.  The inquiry resulted from a standardized review of the 2017 general election and 2016 local body elections. In April 2019, New Zealand intelligence agencies acknowledged political donations as a legally sanctioned form of participation in New Zealand politics, but raised concerns when aspects of a donation is obscured or is channeled in a way that prevents scrutiny of the origin of the donation, with the goal to covertly build and project influence.  The Committee is considering ways New Zealand can improve upon the transparency of the regulatory regimes governing New Zealand elections. The identity of political donors is currently only required for donations above NZD 30,000 (USD 20,400), and allows for donors seeking anonymity to need only split a large donation to fit below the declaration threshold.

Resources to Report Corruption

The Serious Fraud Office and the New Zealand Police investigate bribery and corruption matters.  Agencies such as the Office of the Controller and Auditor-General and the Office of the Ombudsmen act as watchdogs for public sector corruption.  These agencies independently report on and investigate state sector activities.

Serious Fraud Office
P.O.  Box 7124 – Wellesley Street
Auckland, 1141
New Zealand
www.sfo.govt.nz  

Transparency International New Zealand is the recognized New Zealand representative of Transparency International, the global civil society organization against corruption.

Transparency International New Zealand
P.O.  Box 5248 – Lambton Quay
Wellington, 6145
New Zealand
www.transparency.org.nz  

10. Political and Security Environment

New Zealand is a stable liberal democracy with almost no record of political violence. 

The New Zealand government raised its national security threat level for the first time from “low” to “high”, after the terrorist attack on two mosques in Christchurch on March 15, 2019.  One month later it lowered the risk to “medium” where a “terrorist attack, or violent criminal behavior, or violent protest activity is assessed as feasible and could well occur.”

11. Labor Policies and Practices

The New Zealand labor market is experiencing a tightening in labor market conditions with the unemployment rate at historically low levels as the country’s net migration rate has only just started to level off after a prolonged period of record population growth.  The rise in net migration is comprised of international students, professionals, and returning New Zealand citizens. Youth unemployment (age 15-19 years) remains high at around 19.8 percent, compared with the overall rate of 4.2 percent for March 2019. The unemployment rate for those aged 15-24 years is 12.3 percent.

New Zealand operates a Recognized Seasonal Employer Scheme that allows the horticulture and viticulture industry to recruit workers from the Pacific Islands for seasonal work to supplement the New Zealand workforce.  There have been prosecutions and convictions for the exploitation of migrant workers, with reports that the hospitality, agriculture, viticulture, and construction industries are most effected. New Zealand recruitment agencies that recruit workers from abroad must utilize a licensed immigration adviser. 

Immigration advice is regulated under the Immigration Advisers Licensing Act 2007.  The act also established the Immigration Advisers Authority (IAA), the Registrar of Immigration Advisers, and the Immigration Advisers Complaints and Disciplinary Tribunal.  The licensing regime aims to protect consumers and enhance New Zealand’s reputation as a destination for migrants. 

Some foreign migrant workers were reported to have been charged excessive recruitment fees, experienced unjustified salary deductions, nonpayment or underpayment of wages, excessively long working hours, and restrictions on their movement.  Reportedly, some had their passports confiscated and contracts altered.

New Zealand has consistently maintained an active and visible presence in the International Labour Organization (ILO), being a founding member in 1919, and its representatives have attended the annual International Labour Conferences since 1935.  The ILO and the government of New Zealand have collaborated on a number of initiatives, including the elimination of child labor in Fiji, employment creation in Indonesia, the improvement of labor laws in Cambodia, rural development assistance in Timor-Leste, and the RSE Scheme.

In November 2017 the government announced the number of labor inspectorates will increase from 60 to 110 over a three-year period.  Between 2014 and 2017, the number of labor inspectors rose from 41 to 60. By 2020, the government will have added another 50 inspectors, at a cost of about NZD 9 million (USD 6.1 million).  The government seeks to take a more proactive approach to enforcing employment law in New Zealand, because the migrant worker population has increased rapidly in recent years and the resources to protect those workers have not kept up with the increase.

Workers with skills on the immediate lists will find it easier to apply for temporary work visas and, in the case of long-term shortages, resident visas.  However MBIE operates under strict criteria in order for occupations to be listed. Immediate skill shortages exist mainly in the construction, trades, engineering, health, agriculture, and forestry industries.  For more see: https://www.immigration.govt.nz/about-us/policy-and-law/how-the-immigration-system-operates/skill-shortage-lists

The government provides funding for a range of apprentice programs, particularly in the construction trades.  The Building and Construction Industry Training Organization (BCITO) is the largest provider of construction trade apprenticeships in New Zealand.  The BCITO is appointed by the government to develop and implement industry qualifications for the building and construction sector. For more see: https://www.govt.nz/browse/education/training-and-apprenticeships/apprenticeships/

Labor laws are generally well enforced, and disputes are usually handled by the New Zealand Employment Relations Authority.  Its decisions may be appealed in an Employment Court. MBIE is responsible for enforcement of laws governing work conditions.  A number of employment statutes govern the workplace in New Zealand. The most important is the Employment Relations Act (ERA) 2000, which repealed the Employment Contracts Act 1991.  Other key legislation includes the Health and Safety at Work Act 2015, Holidays Act 2003, Minimum Wage Act 1983, the Equal Pay Act 1972, the Parental Leave and Employment Protection Act 1987, and Wages Protection Act 1983.

MBIE provides guidance for employers on minimum standards of employment mandated by law, guidelines to help promote the employment relationship, and optional guidelines that are useful in some roles or industries.  Agreements on severance and redundancy packages are usually negotiated in individual agreements. For more see: https://www.employment.govt.nz/

The ERA requires registered unions to file annual membership returns with the Companies Office.  The Council of Trade Unions estimate total union membership at 407,300 for the December 2018 quarter, representing about 18.8 percent of all employees in New Zealand.  

About 413,800 (19 per cent of all employees in New Zealand) were on a collective agreement, over 1.5 million (69 percent) were on an individual agreement, 118,300 (5.5 percent) had no agreement (which is illegal under local law), and a further 6 percent did not know what kind of employment agreement they had.  By industry, the Health Care, Education, and Public Administration sectors have the highest proportion of union members, followed by Transport, and Manufacturing. Over 2018, union membership grew by 20 percent in Public Administration and Safety, Education grew by 3 percent, Health Care and Social Assistance grew by 4 percent, while Manufacturing fell by 11 percent.

The law provides for the right of workers to form and join independent unions of their choice without previous authorization or excessive requirements, to bargain collectively, and to conduct legal strikes, with some restrictions.  Contractors cannot join unions, bargain collectively, or conduct strike action. Police have the right to organize and bargain collectively, but sworn police officers (excluding clerical and support staff) do not have the right to strike or take any form of industrial action. 

Industrial action by employees who work for providers of key services are subject to certain procedural requirements, such as mandatory notice of a period determined by the service.  New Zealand considers a broader range of key “essential services” than international standards, including: the production and supply of petroleum products; utilities, emergency workers; the manufacture of certain pharmaceuticals, workers in corrections and penal institutions; airports; dairy production; and animal slaughtering, processing, and related inspection services. 

The number of work stoppages has been on a downward trend according to data from MBIE and Statistics NZ.  In 2017 there were six stoppages involving approximately 421 employees totaling 370 person-days of work lost.  This compares to 60 work stoppages in 2005 involving 17,752 employees totaling 30,028 person-days of work lost.  Work stoppages include strikes initiated by unions and lockouts initiated by employers, compiled from the record of strike or lockout forms submitted to MBIE under section 98 of the Employment Relations Act 2000.  The data does not cover other forms of industrial action such as authorized stop-work meetings, strike notices, protest marches, and public rallies. 

Industrial action appears to have increased under the new government during 2018, with some estimates from media sources as high as 70,000 people striking during the year, including nurses, teachers, junior doctors, aged care and support workers, bus drivers, port workers, fast-food workers, retail workers, steel workers, and public servants.  A planned three-day strike in December 2018 by almost 1,000 members of the Air New Zealand engineers union following a pay dispute was canceled. The strike would have disrupted almost 42,000 customers booked to travel on domestic and international flights. In the year to March 2019, public sector and private sector wage inflation both were 2 percent, with Statistics New Zealand saying was the result of collective agreements continuing to push up annual wage inflation, such as the nurses’ collective agreement, which was signed in early August 2018.  Other collective agreements over 2018 included that for the New Zealand Police, and agreements for welfare and social workers. 

The Labour-led government campaigned on a promise to lift the minimum wage to NZD20 (USD 13.60) by April 2021.  From April 1, 2019 the minimum wage for adult employees who are 16 and over and are not new entrants or trainees is NZD 17.70 (USD 12.04) per hour.  The new entrants and training minimum wage is NZD 14.16 (USD 9.63) per hour. In recent years some local government agencies have raised minimum wages for their staff up from the government mandated rate to a “living wage” estimated to be NZD 21.15 (USD 14.38) in 2019.

In December 2018, the government passed the Employment Relations Amendment Bill which aimed to restore employment law when the Labour party last led government in 2008.  The amendments are wide ranging and employers have increased compliance obligations. This includes reinstating minimum standards for rest and meal breaks, allowing union representatives to enter a workplace for the purpose of the union’s business without the consent of the employer, and restricting the 90-day trial – which allowed any employer to dismiss an employee in their first 90-days without reason – to employers with less than 20 employees.  Employers with more than 19 employees can no longer use this trial period provision from May 2019.

The government also campaigned in 2017 on repealing the Employment Relations (Film Production Work) Amendment Bill 2010, which put limits on the ability of workers on film productions to collective bargaining.  Commonly referred to as the “Hobbit law,” the period during which the amendment took effect has seen several large-scale productions filmed in New Zealand. In 2017 New Zealand’s screen industry earned revenue of NZD 3.5 billion (USD 2.4 billion), which was an increase of 8 percent on 2016.  Production and post-production businesses earned revenue of NZD 1.9 billion (USD 1.3 billion), with NZD 792 million (USD 539 million) (42 percent) coming from overseas sources. The Film Industry Working Group established by the government in January 2018, reported back in October with recommendations that include keeping parts of the current law but also allowing contractors to bargain collectively at certain occupation levels. 

New Zealand underwent its most significant workplace health and safety reform leading to the Health and Safety at Work Act 2015 and the formation of the work health and safety regulator WorkSafe New Zealand.  MBIE is the primary policy agency for workplace health and safety.

In December 2017, the government amended the Parental Leave and Employment Protection Act 1987 to increase the duration of parental leave payments in two stages.  From July 1, 2018 parental leave would increase from 18 weeks to 22 weeks, and from July 1, 2020 a further increase to 26 weeks.

The New Zealand government has an adequate labor inspectorate system to identify and remediate labor violations and hold violators accountable.  The MBIE Labor Inspectorate investigates and prosecutes unfair labor practices, such as instances of forced or child labor, and the harassment or dismissal of union members.  Employers who breach employment standards law banned from recruiting further migrant workers. Employers who have incurred an employment standards-related penalty will be banned from recruiting migrant labor for a term ranging from six months to two years, depending on the severity of the case.  For more: https://www.employment.govt.nz/resolving-problems/steps-to-resolve/labour-inspectorate/

The Health and Safety at Work Act 2015 sets out the health and safety duties for work carried out by a New Zealand business.  The Act contains provisions that affect how duties apply where the work involves foreign vessels. These provisions take account of the international law principle that foreign vessels are subject to the law that applies in the flag state they are registered under.  Generally New Zealand law does not apply to the management of a foreign-flagged vessel, but does apply to a New Zealand business that does work on that vessel. Two exceptions when the law does apply, if the New Zealand business is operating a foreign-flagged vessel under a “demise charter” arrangement, or when the foreign flagged vessel is operating between New Zealand and a workplace in the New Zealand exclusive economic zone or on the continental shelf; and that workplace is carrying out an activity associated with mineral extraction (e.g.  a drilling platform or fixed ship) that is regulated under the Exclusive Economic Zone (Environmental Effects) Act 2012 or the Crown Minerals Act 1991.

The Fisheries (Foreign Charter Vessels and Other Matters) Bill 2014 has required all foreign charter fishing vessels to reflag to New Zealand and operate under New Zealand’s full legal jurisdiction since May 2016.  The legislation was part of a range of measures that followed a Ministerial inquiry in 2012 into questionable safety, labor and fishing practices on some foreign-owned vessels. Other measures the government introduced include: compulsory individual New Zealand bank accounts for crew members; observers on all foreign-owned fishing vessels; and independent audits of charter parties to ensure crew visa requirements – including wages – are being adhered to.

In March 2017, the New Zealand government’s ratification of the ILO’s Maritime Labor Convention (MLC) came into effect.  While New Zealand law is already largely consistent with the MLC, ratification gives the Government jurisdiction to inspect and verify working conditions of crews on foreign ships in New Zealand waters.  More than 99 per cent of New Zealand’s export goods by volume are transported on foreign ships. About 890 foreign commercial cargo and cruise ships visit New Zealand each year.

In December 2017, Parliament passed an amendment to the Maritime Transport Act 1994 to implement the intergovernmental International Oil Pollution Compensation’s Supplementary Fund Protocol, 2003.  Accession to the Fund gives New Zealand access to compensation in the event of a major marine oil spill from an oil tanker, and exercises New Zealand’s right to exclude the costs of wreck removal, cargo removal and remediating damage due to hazardous substances from liability limits.  Accession to the Protocol was prompted in part by New Zealand’s worst maritime environmental disaster in October 2011 when a Greek flagged cargo ship ran aground creating a 331 ton oil spill resulting in NZD 500 million (USD 340 million) in clean-up costs.

12. OPIC and Other Investment Insurance Programs

As an OECD member country and developed nation, New Zealand is not eligible for OPIC programs.  Although the New Zealand government does not provide OPIC-like services to encourage New Zealand investment in developing countries, New Zealand is a member of the Multilateral Investment Guarantee Agency (MIGA).  It also has an export insurance program administered under the New Zealand Export Credit Office (NZECO) within the New Zealand Treasury. Its purpose is to support the internationalization of New Zealand exporters through the provision of trade credit insurance and financial guarantees that cover a range of political and commercial risks associated with doing international business.  NZECO’s financial guarantees and insurance policies are fully backed by the New Zealand Government through the Minister of Finance. The maximum aggregate liability under the scheme is NZD 740 million (USD 503 million).

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $199,398 2017 $205,853 www.worldbank.org/en/country   
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S.  FDI in partner country ($M USD, stock positions) 2017 $5,569 2017 $11,938 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Host country’s FDI in the United States ($M USD, stock positions) 2017 $2,659 2017 $164 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP 2017 38.2% 2017 38.6% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx    

* Host country statistics differ from USG and international sources due to calculation methodologies, and timing of exchange rate conversions.  Almost a third of inbound foreign direct investment in New Zealand is in the financial and insurance services sector. Foreign direct investment data for 2017 was released in July 2018.   Statistics New Zealand data available at www.stats.govt.nz  


Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data (2017)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $76,028 100% Total Outward $17,159 100%
Australia $40,038 53% Australia $8,574 50%
United States $5,585 7% United States $2,435 14%
China, P.R.: Hong Kong $5,095 7% China, P.R.: Hong Kong $1,560 9%
Japan $3,938 5% Singapore $966 6%
United Kingdom $3,334 4% United Kingdom $951 6%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets (June 2018)
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $100,825 100% All Countries $68,040 100% All Countries $32,785 100%
Australia $26,594 26% United States $24,983 37% Australia $6,922 21%
Japan $4,567 5% Australia $19,672 29% Japan $1,719 5%
U.K. $4,354 4% U.K. $3,095 5% U.K. $1,258 4%
France $2,155 2% Japan $2,847 4% France $675 2%
Cayman Islands $1,240 1% France $1,480 2% Netherlands $500 2%

Sweden

Executive Summary

Sweden is generally considered a highly-favorable investment destination.  Sweden offers an extremely competitive, open economy with access to new products, technologies, skills, and innovations.  Sweden also has a well-educated labor force, outstanding communication infrastructure, and a stable political environment, which makes it a choice destination for U.S. and foreign companies.  Low levels of corporate tax, the absence of withholding tax on dividends, and a favorable holding company regime are additional incentives for doing business in Sweden.

Sweden’s attractiveness as an investment destination is tempered by a few structural, business challenges.  These include high personal and VAT tax regimes. In addition, the high cost of labor, rigid labor laws and regulations, a persistent housing shortage, and the general high cost of living in Sweden can present challenges to attracting, hiring, and maintaining talent for new firms entering Sweden.  Historically, the telecommunications, information technology, healthcare, energy, and public transport sectors have attracted the most foreign investment. However, manufacturing, wholesale, and retail trade have also recently attracted increased foreign funds.

Overall, investment conditions remain largely favorable.  Forbes Magazine ranked Sweden second in “The Best Countries for Business for 2019,” a ranking that takes into account factors such as property rights, innovation, taxes, technology, corruption, freedom, red tape, and investor protection.  In the World Economic Forum’s 2017-2018 Competitiveness Report Sweden was ranked twelfth out of 138 countries in overall competiveness and productivity.  Also in 2018, Transparency International ranked Sweden as one of the most corruption-free countries in the world –third out of 180.

In addition, Sweden is well equipped to embrace the Fourth Industrial Revolution, with a superior IT infrastructure.  Bloomberg’s 2019 Innovation Index ranked Sweden in seventh place among the most innovative nations on earth. Sweden is a global leader in adopting new technologies and setting new consumer trends.  U.S. and other exporters can take advantage of a test market full of demanding, highly sophisticated customers.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 3 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 12 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 3 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country (Millions USD, stock positions) 2018 $54,150 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $52,590 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

There are no laws or practices that discriminate or are alleged to discriminate against foreign investors, including and especially U.S. investors, by prohibiting, limiting or conditioning foreign investment in a sector of the economy [either at the pre-establishment (market access) or post-establishment phase of investment].  Until the mid-1980s, Sweden’s approach to direct investment from abroad was quite restrictive and governed by a complex system of laws and regulations. Sweden’s entry into the European Union (EU) in 1995 largely eliminated all restrictions. National security restrictions to investment remain in the defense and other sensitive sectors, as addressed in the next section “Limits on Foreign Control and Right to Private Ownership and Establishment.”

The Swedish Government recognizes the need to further improve the business climate for entrepreneurs, education, and the flow of research from lab to market.  Swedish authorities have implemented a number of reforms to improve the business regulatory environment and to attract more foreign investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are very few restrictions on where and how foreign enterprises can invest, and there are no equity caps, mandatory joint-venture requirements, or other measures designed to limit foreign ownership or market access.  However, Sweden does maintain some limitations in a select number of situations:

  • Accountancy:  Investment in the accountancy sector by non-EU-residents cannot exceed 25 percent.
  • Legal services:  Investment in a corporation or partnership carrying out the activities of an “advokat,” or lawyer, cannot be done by non-EU residents.
  • Air transport:  Foreign enterprises may be restricted from access to international air routes unless bilateral intergovernmental agreements provide otherwise.
  • Air transport:  Cabotage is reserved to national airlines.
  • Maritime transport:  Cabotage is reserved to vessels flying the national flag.
  • Defense:  Restrictions apply to foreign ownership of companies involved in the defense industry and other sensitive areas.

Swedish company law provides various ways a business can be organized.  The main difference between these forms is whether the founder must own capital and to what extent the founder is personally liable for the company’s debt.  The Swedish Act (1992:160) on Foreign Branches applies to foreign companies operating through a branch and also to people residing abroad who run a business in Sweden.  A branch must have a president who resides within the European Economic Area (EEA). All business enterprises in Sweden (including branches) are required to register at the Swedish Companies Registration Office, Bolagsverket.  An invention or trademark must be registered in Sweden in order to obtain legal protection. A bank from a non-EEA country needs special permission from the Financial Supervision Authority (Finansinspektionen) to establish a branch in Sweden.

Sweden does not maintain a national security screening mechanism for inbound foreign investment.  However, the government is currently considering how to implement the EU Commission’s recently approved investment screening framework, as well as tightening national investment policies.  Suggested regulations would not likely be in place until 2021 at the earliest. U.S. investors are treated equally relative to other foreign investors in terms of ownership and scrutiny of investments.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) published an economic snapshot for Sweden in March 2019:  https://www.oecd.org/economy/surveys/OECD-economic-survey-Sweden-2019-executive-summary-brochure.pdf 

Business Facilitation

Business Sweden’s Swedish Trade and Investment Council is the investment promotion agency tasked with facilitating business.  The services of the agency are available to all investors.

At http://www.verksamt.se , a collaboration of several Swedish government agencies have posted relevant guides and services pertaining to registering, starting, running, expanding and/or closing a business.  Sweden defines a micro enterprise as one with less than 10 employees, a small enterprise with less than 50 employees, and a medium enterprise with less than 250 employees.  All forms of business enterprise, except for sole traders, must register with the Swedish Companies Registration Office, Bolagsverket, before starting operations. Sole traders may apply for registration in order to be given exclusive rights to the name in the county where they will be operating. Online applications to register an enterprise can be made at http://www.bolagsverket.se/en .  The process of registering an enterprise can take a few days or up to a few weeks, depending on the complexity and form of the business enterprise.  All business enterprises, including sole traders, must also register with the Swedish Tax Agency, Skatteverket, before starting operations. Relevant information and guides can be found at http://www.skatteverket.se .  Depending on the nature of business, companies may also need to register with the Environmental Protection Agency, Naturvårdsverket, or, if real estate is involved, the county authorities.  Non EU/EEA citizens need a residence permit, obtained from the Swedish Board of Migration, Migrationsverket, in order to start up and/or run a business.

Outward Investment

The Government of Sweden has commissioned the Swedish Exports Credit Guarantee Board (EKN) to promote Swedish exports and the internationalization of Swedish companies.  EKN insures exporting companies and banks against non-payment in export transactions, thereby reducing risk and encouraging expanding operations. As part of its export strategy presented in 2015, the Swedish Government has also launched Team Sweden to promote Swedish exports and investment.  Team Sweden is tasked with making export market entry clear and simple for Swedish companies and consists of a common network for all public initiatives to support exports and internationalization.

The Government does not generally restrict domestic investors from investing abroad.  The only exceptions are related to matters of national security and national defense; the Inspectorate of Strategic Products (ISP) is tasked with control and compliance regarding the sale and exports of defense equipment and dual-use products. ISP is also the National Authority for the Chemical Weapons Convention and handles cases concerning targeted sanctions.

2. Bilateral Investment Agreements and Taxation Treaties

Sweden has concluded bilateral investment treaties (BITs) with the following countries:

Albania, Algeria, Argentina, Armenia, Belarus, Bulgaria, Chile, China, Cote d’Ivoire, Croatia, Czech Republic, Ecuador, Egypt, Estonia, Ethiopia, Georgia, Guatemala, Hong Kong, Hungary, India, Indonesia, Iran, Kazakhstan, Kuwait, Kyrgyzstan, Laos, Latvia, Lebanon, Lithuania, Macedonia, Madagascar, Malaysia, Malta, Mauritius, Mexico, Mongolia, Morocco, Mozambique, Nicaragua (signed but not in force), Nigeria, Oman, Pakistan, Panama, Peru, Philippines, Poland, Republic of Korea, Romania, Russian Federation, Saudi Arabia, Senegal, Serbia, Slovakia, South Africa, Sri Lanka, Tanzania, Thailand, Tunisia, Turkey, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, Vietnam, Yemen, and Zimbabwe (signed but not in force). Sweden does not have a BIT with the United States.  Since the Lisbon Treaty took effect in December 2009, the EU has managed investment negotiations with third countries on behalf of its member states. The EU is conducting the following ongoing negotiations:

  • MERCOSUR (Argentina, Brazil, Paraguay, Uruguay) – part of a new Association Agreement
  • Mexico – modernization of the existing Global Agreement
  • Chile – an update to the current Association Agreement
  • Australia and New Zealand – negotiations for Free Trade Agreements with both countries.

A full list of investment agreements for Sweden is available at the following link: http://investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu 

Sweden and the United States signed a bilateral taxation treaty in 1994, which was amended in 2005.  More information is available at https://www.irs.gov/businesses/international-businesses/sweden-tax-treaty-documents 

Sweden has concluded treaties of double taxation avoidance with the following countries:  Albania, Argentina, Australia, Austria, Bangladesh, Barbados, Belgium, Belarus, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Bulgaria, Canada, Chile, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Faeroe Islands, Finland, France, Gambia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Kenya, Korea, Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mauritius, Mexico, Montenegro, Namibia, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Switzerland, Taiwan, Tanzania, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United Kingdom, United States, Venezuela, Vietnam, Zambia, and Zimbabwe.   

3. Legal Regime

Transparency of the Regulatory System

As an EU member, Sweden has altered its legislation to comply with the EU’s competition rules.  The country has made extensive changes to its laws and regulations to harmonize with EU practices, all to avoid distortions in, or impediments to the efficient mobilization and allocation of investment.  EU institutions are publicly committed to transparent regulatory processes. The European Commission has the sole right of initiative for EU regulations and publishes extensive, descriptive information on many of its activities.  More information can be found at: http://ec.europa.eu/atwork/decision-making/index_en.htm ; http://ec.europa.eu/smart-regulation/index_en.htm .

There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.  Nongovernmental organizations and private sector associations may submit comments to government draft bills. The submitted comments are made public in the public consultation process.

Rule-making and regulatory authority on a national level exists formally in the legislative branch, the Riksdag.  As a member of the EU, a growing proportion of legislation and regulation stem from the EU. These laws apply in some case directly as national law, or are put before the Riksdag to be enacted as national law.  The executive branch, the Government of Sweden, and its various agencies draft laws and regulations that are put before the Riksdag and are adopted on a national level when they enter into force. Municipalities may draft regulations that are within their spheres of competence.  These regulations apply at the respective municipality only and may vary between municipalities.

Draft bills and regulations, which include investment laws, are made available for public comment through a public consultation process, along the lines of U.S. federal notice and comment procedures.  Current and newly adopted legislation can be found at the Swedish Parliament’s homepage and in the various government agencies dealing with the relevant regulation:http://www.riksdagen.se/sv/dokument-lagar/ .  Key regulatory actions are published at Lagrummet: https://lagrummet.se/ .  Lagrummet serves as the official site for information on Swedish legislation and provides information on legislation in the public domain, all statutes currently in force, and information on impending legislation.  “Post och Inrikes Tidningar” serves in certain aspects a similar role as the Federal Register in the U.S., through which public notifications are published. The proclamations of “Post och Inrikes Tidningar” can be found at the Swedish Companies Registration Office (Bolagsverket): https://poit.bolagsverket.se/poit/PublikPoitIn.do .

The judicial branch and various agencies are tasked with regulation oversight and/or regulation enforcement.  The Swedish Parliamentary Ombudsmen, known as the Justitieombuds-männen (JO), are tasked to make sure that public authority complies with the law and follows administrative processes.  They also investigate complaints from the general public.

Regulations are reviewed on the basis of scientific and/or data-driven assessments.  The principle of public access to official documents, offentlighetsprincipen, governs the availability of the results of studies that are conducted by government entities and furthermore to comments made by government entities.  The principle provides the Swedish public with the right to study public documents as specified in the Freedom of the Press Act.

The status of Sweden’s public finances is available at Statistics Sweden, Sweden official statistics agency: https://www.scb.se/en/finding-statistics/statistics-by-subject-area/public-finances/ .

The status of Sweden’s national debt is available at the Swedish National Debt Office: https://www.riksgalden.se/en/aboutsndo/Central-government-debt-and-finances/Debt_facts/ .

International Regulatory Considerations

As an EU-member, Sweden complies with EU legislation in shaping its national regulations.

If a national law, norm, or standard is found to be in conflict with EU-law, then the national law is altered to be in compliance with EU-law.  Sweden adheres to the practices of WTO and coordinates its actions in regards to WTO with other EU-member countries as the EU-countries have a common trade policy.

Legal System and Judicial Independence

Sweden’s legal system is based on the civil law tradition, common to Europe, and founded on classical Roman law, but has been further influenced by the German interpretation of this tradition.  Swedish legislation and Swedish agencies provide guidance on if regulations or enforcement actions are appealable and adjudicated in the national court system.  Swedish courts are independent and free of influence from other branches of government, including the executive. Sweden has a written commercial law and contractual law and there are specialized courts, such as commercial and civil courts.  The Swedish courts are divided into:

  • Courts of general jurisdiction (the District Courts, the Courts of Appeal, and the Supreme Court) which has jurisdiction with respect to civil and criminal cases;
  • Administrative courts (County Administrative Courts, Administrative Courts of Appeal, and the Supreme Administrative Court) with jurisdiction with respect to issues of public law, including taxation;
  • Specialist courts for disputes within certain legal areas such as labor law, environmental law and market regulation.

Sweden is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Law; foreign awards may be enforced in Sweden regardless of which foreign country the arbitral proceedings took place.  The main source of arbitration law in Sweden is the Swedish Arbitration Act, which contains both procedural and substantive regulations. Sweden is a party to the Lugano and the Brussels Conventions and by its membership of the EU; Sweden is also bound by the Brussels Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.  An arbitral award is considered final and is not subject to substantive review by Swedish courts. However, arbitral awards may be challenged for reasons set out in the Arbitration Act. An award may, for example, be set aside after a challenge because of procedural errors, which are likely to have had an effect on the outcome.

Laws and Regulations on Foreign Direct Investment

During the 1990s, Sweden undertook significant deregulation of its markets.  In a number of areas, including the electricity and telecommunication markets, Sweden has been on the leading edge of reform, resulting in more efficient sectors and lower prices.  Nevertheless, a number of practical impediments to direct investments remain. These include a fairly extensive, though non-discriminatory, system of permits and authorizations needed to engage in many activities and the dominance of a few very large players in certain sectors, such as construction and food wholesaling.  Foreign banks, insurance companies, brokerage firms, and cooperative mortgage institutions are permitted to establish branches in Sweden on equal terms with domestic firms, although a permit is required. Swedes and foreigners alike may acquire shares in any company listed on NASDAQ OMX.

Sweden’s taxation structure is straightforward and corporate tax levels are low.  In 2013, Sweden lowered its corporate tax from 26.3 percent to 22 percent in nominal terms.  The effective rate can be even lower as companies have the option of making deductible annual appropriations to a tax allocation reserve of up to 25 percent of their pretax profit for the year.  Companies can make pre-tax allocations to untaxed reserves, which are subject to tax only when utilized. Certain amounts of untaxed reserves may be used to cover losses. Due to tax exemptions on capital gains and dividends, as well as other competitive tax rules such as low effective corporate tax rates, deductible interest costs for tax purposes, no withholding tax on interest, no stamp duty or capital duties on share capital, and an extensive double tax treaty network, Sweden is among Europe’s most favorable jurisdictions for holding companies.  Unlisted shares are always tax-exempt, meaning there is no qualification time or minimum holding of votes or capital. Listed shares are exempt if the holding represents at least 10 percent of the voting rights (or is contingent on the holder’s business) and the shares are held for at least one year.

Personal income taxes are among the highest in the world.  Since public finances have improved due to extensive consolidation packages to reduce deficits, the government has been able to reduce the tax pressure as a percentage of GDP: currently it is below 50 percent, for the first time in decades.  One particular focus has been tax reductions to encourage employers to hire the long-term unemployed.

Dividends paid by foreign subsidiaries in Sweden to their parent company are not subject to Swedish taxation.  Dividends distributed to other foreign shareholders are subject to a 30 percent withholding tax under domestic law, unless dividends are exempt or taxed at a lower rate under a tax treaty.  Tax liability may also be eliminated under the EU Parent Subsidiary Directive. Profits of a Swedish branch of a foreign company may be remitted abroad without being subject to any other tax than the regular corporate income tax.  There is no exit taxation and no specific rules regarding taxation of stock options received before a move to Sweden. Instead, cases of double taxation are solved by applying tax treaties and cover not only moves within the EU but all countries, including the United States.

For detailed tax guidance, see the Swedish Tax Administration’s website. 

Competition and Anti-Trust Laws

As an EU member, Sweden has altered its legislation to comply with the EU’s competition rules.  The competition rules are contained in the Swedish Competition Act (2008:579), which entered into force in November 2008.  The fundamental antitrust provisions have been the same since 1993. The Swedish Competition Authority (SCA) is the main enforcement authority of the Swedish Competition Act.

Expropriation and Compensation

Private property is only expropriated for public purposes, in a non-discriminatory manner, with fair compensation, and in accordance with established principles of international law.

Dispute Settlement

ICSID Convention and New York Convention

Sweden is a member of the World Bank-based International Center for the Settlement of Investment Disputes (ICSID) and includes ICSID arbitration of investment disputes in many of its bilateral investment treaties (BITs).  Sweden is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Law.

The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) is one of the world’s leading centers for adjudicating investor-State dispute claims. https://sccinstitute.com/dispute-resolution/investment-disputes/   The SCC has administered arbitrations under the UNCITRAL Arbitration Rules for many years, usually acting as the Appointing Authority.  Parties to a dispute may adopt the Procedures by agreement before or after the dispute has arisen. The SCC maintains different versions of the Procedures depending on which version of the UNCITRAL Arbitration Rules applies to the arbitration agreement in question (1976 or 2010 versions).

Investor-State Dispute Settlement

There have been no publicly disclosed investment disputes in Sweden in recent memory.  There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Swedish arbitration law is advanced and in line with current best practice of international arbitration.  The main source of arbitration law in Sweden is the Swedish Arbitration Act, which contains both procedural and substantive regulations.

Sweden is a party to the Lugano and the Brussels Conventions and by its membership of the EU Sweden is bound by the Brussels Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.  An arbitral award is considered final and is not subject to substantive review by Swedish courts. However, arbitral awards may be challenged for reasons set out in the Arbitration Act. An award may, for example, be set aside after challenge because of procedural errors, which are likely to have had an effect on the outcome.

Bankruptcy Regulations

The Swedish legislation on bankruptcy is found in a number of laws that came into force in different periods of time and to serve different purposes.  The main laws on insolvency are the Bankruptcy Act (1987:672) and the Company Reorganization Act (1996:764), but the Preferential Rights of Creditors Act (1970:979), the Salary Guarantee Act (1992:497), and the Companies Act (1975:1385) are equally important.  In 2010, Sweden strengthened its secured transactions system through changes to the Rights of Priority Act that give secured creditors’ claims priority in cases of debtor default outside bankruptcy. According to data collected by the World Bank’s 2019 Doing Business Report, resolving insolvency takes two years on average and costs nine percent of the debtor’s estate, with the most likely outcome being that the company will be sold as a going concern.  The average recovery rate is 78 cents on the dollar. Globally, Sweden ranked 17 of 190 economies on the ease of resolving insolvency in the Doing Business 2019 report.

4. Industrial Policies

Investment Incentives

The Swedish government offers certain incentives to set up a business in targeted depressed areas.  Loans are available on favorable terms from the Swedish Agency for Economic and Regional Growth (Tillväxtverket) and from regional development funds.  A range of regional support programs, including location and employment grants, low rent industrial parks, and economic free zones are available. Regional development support is concentrated in the lightly populated northern two-thirds of the country.  In addition, EU grant and subsidy programs are generally available only for nationals and companies registered in the EU, usually on a national treatment basis. For more information, see Chapter 7 “Trade and Project Financing” in Country Commercial Guide for Sweden.  The Swedish government does not have a practice of issuing guarantees or jointly financing direct investment projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Sweden has foreign trade zones with bonded warehouses in the ports of Stockholm, Gothenburg, Malmö, and Jönköping.  Goods may be stored indefinitely in these zones without customs clearance, but they may not be consumed or sold on a retail basis.  Permission may be granted to use these goods as materials for industrial operations within a free trade zone. The same tax and labor laws apply to foreign trade zones as to other workplaces in Sweden.

Performance and Data Localization Requirements

As an EU Member State, Sweden adheres to the EU’s General Data Protection Directive (GDPR) (95/46/EC) which spells out strict rules concerning the processing of personal data.  Businesses must tell consumers that they are collecting data, what they intend to use it for, and to whom it will be disclosed. Data subjects must be given the opportunity to object to the processing of their personal details and to opt-out of having them used for direct marketing purposes.  This opt-out should be available at the time of collection and at any point thereafter. While the EU institutions are considering new legislation, the 1995 Directive remains in force.

The EU-U.S. Privacy Shield Frameworks were designed by the U.S. Department of Commerce and the European Commission to provide companies on both sides of the Atlantic with a mechanism to comply with data protection requirements when transferring personal data from the European Union to the United States in support of transatlantic commerce.  On July 12, 2016, the European Commission deemed the EU-U.S. Privacy Shield Framework adequate to enable data transfers under EU law. For further information and guidance on the Privacy Shield Framework, please see: https://www.commerce.gov/privacyshield .

The Swedish Data Protection Authority, Datainspektionen, works to prevent encroachment upon privacy through information and by issuing directives and codes of statutes.  Datainspektionen also handles complaints and carries out inspections. By examining government bills, the DPA ensures that new laws and ordinances protect personal data in an adequate manner.  Further guidance and information is available in English on their website at www.datainspektionen.se .

There are no measurements that prevent or unduly impede companies from freely transmitting customer or other business-related data outside Sweden’s territory.  Sweden imposes no performance requirements on presumptive foreign investors.

In general, there is no government policy that requires the hiring of nationals.  There are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees.  Sweden does not follow “forced localization,” the policy in which foreign investors must use domestic content in goods or technology and there are no requirements for foreign IT providers to turn over source code and/or provide access to encryption.

5. Protection of Property Rights

Real Property

Swedish law generally provides for adequate protection of real property.  Mortgages and liens exist and the recording system is reliable. Almost all land has clear title and unoccupied property ownership cannot revert to other owners.  Financial mechanisms are available in Sweden for securitization of properties for lending purposes and have been in use since the early 1990s. Nordic banks account for the vast majority of secured lending transactions.  The Swedish Financial Supervisory Authority, Finansinpektionen, can provide further information regarding the regulations involved with securitization of properties at https://www.fi.se/en/ .

Intellectual Property Rights

Swedish law generally provides adequate protection of all property rights, including intellectual property and real property.  As an EU member, Sweden adheres to a series of multilateral conventions on industrial, intellectual, and commercial property.

Patents:  Protection in all areas of technology last for 20 years.  Sweden is a party to the Patent Cooperation Treaty and the European Patent Convention of 1973; both entered into force in 1978.

Copyrights:  Sweden is a signatory to various multilateral conventions on the protection of copyrights, including the Berne Convention of 1971, the Rome Convention of 1961, and the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  Swedish copyright law protects computer programs and databases. More recently, Sweden gained notoriety as a safe haven for internet piracy, due to rapid internet connection speeds, a lag in implementing EU Directives, and weak enforcement efforts. In 2009, however, Sweden implemented the EU’s Intellectual Property Rights Enforcement Directive (IPRED) 2004/48/EC, and continued to step up its enforcement against internet piracy.  The last few years also saw the conviction of the operators behind the Pirate Bay.org, a notorious BitTorrent tracker for illegal file sharing, and an increase in legal file sharing. Legislative measures, combined with added resources on the enforcement side and the emergence of successful legal alternatives all contributed to a substantial increase for music and film distribution using legal means since 2010. Sweden has a Specialist Court for IPR-related cases, which will further increase efficiency by pooling specialist competence.  The IP Court, the so-called Patent and Market Court, started operations on September 1, 2016. Stream-ripping, the unauthorized converting of a file from a licensed streaming site into an unauthorized copy, is now a dominant method of music piracy, and is reportedly popular in Sweden.

Trademarks:  Sweden protects trademarks under a specific trademark act (1960:644) and is a signatory to the 1989 Madrid Protocol.

Trade secrets:  Sweden’s patent and copyright laws protect proprietary information unless said information is acquired by a government ministry or authority, in which case it may be made available to the public on demand.

Designs:  Sweden is a party to the Paris Convention and the Locarno Agreement. Designs are also protected by the Swedish Design Protection Act and the Council Regulation on Registered and Unregistered Designs.  Protection under the act lasts for renewable terms of one- or five-year periods with a maximum protection of 25 years.

Sweden is not listed in the United States Trade Representative (USTR) Special 301 Report.  For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en 

6. Financial Sector

Capital Markets and Portfolio Investment

Credit is allocated on market terms and is made available to foreign investors in a non-discriminatory fashion.  The private sector has access to a variety of credit instruments. Legal, regulatory, and accounting systems are transparent and consistent with international norms.  NASDAQ-OMX is a modern, open, and active forum for domestic and foreign portfolio investment. It is Sweden’s official stock exchange and operates under specific legislation.  Furthermore, the Swedish government is neutral toward portfolio investment and Sweden has a fully capable regulatory system that encourages and facilitates portfolio investments.

Money and Banking System

Several foreign banks, including Citibank, have established branch offices in Sweden, and several niche banks have started to compete in the retail bank market.  The three largest Swedish banks are Skandinaviska Enskilda Banken (SEB), Svenska Handelsbanken, and Swedbank. Nordea is the largest foreign bank and largest bank in Sweden, while Danske Bank is the second largest foreign bank and the fifth largest bank in Sweden.  A deposit insurance system was introduced in 1996, whereby individuals received protection of up to SEK 250,000 (USD 38,285) of their deposits in case of bank insolvency. On December 31, 2010, the maximum compensation was raised to the SEK equivalent of 100,000 euro.

The banks’ activities are supervised by the Swedish Financial Supervisory Authority, Finansinspektionen, http://www.fi.se, to ensure that standards are met.  Swedish banks’ financial statements meet international standards and are audited by internationally-recognized auditors only.  The Swedish Bankers’ Association, http://www.bankforeningen.se , represents banks and financial institutions in Sweden.  The association works closely with regulators and policy makers in Sweden and Europe.  Sweden is not part of the Eurozone; however, Swedish commercial banks offer euro-denominated accounts and payment services.

In 2014 Sweden signed the Foreign Account Tax Compliance Act (FATCA) agreement with the United States to counter tax evasion and fraud.  Financial institutions in Sweden are now obligated to submit information on American citizen account holders to the Swedish Tax Agency, which relays this to the U.S. Internal Revenue Service (IRS).  In 2015 the Swedish Parliament passed new laws and regulations associated with FATCA implemention:

  • a new law on the identification of reportable accounts with respect to FATCA;
  • changes to tax procedure act;
  • new legislation on the exchange of information with respect to the agreement; and
  • consequential amendments to the Income Tax Act and other laws.

For full text of Bill 2014/15:41, please see http://www.regeringen.se/contentassets/bd8cf7f897364944b35f5f30c099bc0c/genomforande-av-avtal-mellan-sveriges-regering-och-amerikas-forenta-staters-regering-for-att-forbattra-internationell-efterlevnad-av-skatteregler-och-for-att-genomfora-fatca-prop.-20141541> .

Foreign banks or branches offering financial services must have an authorization from the Swedish Financial Supervisory Authority, Finansinpektionen, to conduct operations.  As part of the authorization application process, FI reviews the firm’s capital situation, business plan, owners, and management.  Parts of the firm’s daily operations may also require authorization from FI. The applicable regulatory code can be found at http://www.fi.se/en/our-registers/search-fffs/2009/20093/ .

There are no reported losses of correspondent banking relationships in the past three years and there are no current correspondent banking relationships that are in jeopardy. Foreigners have the right to open an account in a bank in Sweden provided he/she can identify him/herself and the bank conducts an identity check.  The bank cannot require the person to have a Swedish personal identity number or an address in Sweden.

Foreign Exchange and Remittances

Foreign Exchange

Sweden adheres to a floating exchange rate regime and the national currency (Swedish Krona) rate fluctuates.

Remittance Policies

Sweden does not impose any restrictions on remittances of profits, proceeds from the liquidation of an investment, or royalty and license fee payments.  A subsidiary or branch may transfer fees to a parent company outside of Sweden for management services, research expenditures, etc. Funds associated with any form of investment can be freely converted into any world currency.  In general, yields on invested funds, such as dividends and interest receipts, may be freely transferred. A foreign-owned firm may also raise foreign currency loans both from its parent corporation and credit institutions abroad.  There are no recent changes or plans to change investment remittance policies. There are no time limitations on remittances.

Sovereign Wealth Funds

There is no sovereign wealth fund in Sweden.

7. State-Owned Enterprises

The Swedish state is Sweden’s largest corporate owner and employer.  Forty-seven companies are entirely or partially state-owned and have government representatives on their boards.  Approximately 135,000 people are employed by these companies, including associated companies. Specific sectors which feature State-Owned Enterprises (SOEs), include energy/power generation, forestry, mining, finance, telecom, postal services, gambling, and retail liquor sales.  These companies operate under the same laws as private companies, although the government appoints board members, reflecting government ownership. Like private companies, SOEs have appointed boards of directors, and the government is constitutionally prevented from direct involvement in the company’s operations.  Like private companies, SOEs publish their annual reports, which are subject to independent audit. Private enterprises compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations. Moreover, Sweden is party to the General Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).  Swedish SOEs adhere to the OECD Guidelines on Corporate Governance for SOEs.

Further information regarding the Swedish SOEs can be found here: http://www.regeringen.se/regeringens-politik/bolag-med-statligt-agande/ .

Privatization Program

The Swedish center-left Government, voted into office in September 2014, has the mandate to divest or liquidate its holdings in Bilprovningen (Swedish Motor-Vehicle Inspection Company), Bostadsgaranti, Lernia, Orio (formerly Saab Automobile Parts), SAS, and Svensk Exportkredit (SEK).  Although there are no indications that the current Government has immediate plans to execute this mandate, it nonetheless decided in 2016 to let Vattenfall divest its German lignite operations to the Czech energy group EPH and their funding partners PPF Investments. The sale was made to adapt Vattenfall’s portfolio and to complete the transition to a carbon neutral operation.  If the Government of Sweden decides to divest or liquidate holdings, it does so through a public bidding process.

8. Responsible Business Conduct

There is widespread awareness of responsible business conduct (RBC) among both producers and consumers in Sweden.  All businesses are expected to comply with local laws and regulations, and to observe the international norms and principles for human rights, labor protection, sustainable development, and anti-corruption.  Firms that pursue RBC are viewed favorably, often publicizing their adherence to generally accepted RBC principles such as those contained in OECD Guidelines for Multinational Enterprises. Volvo Trucks, for example, has collaborated with USAID in pursuing RBC efforts outside of Sweden.  The Swedish National Contact Point for the OECD Guidelines can be found at: https://www.regeringen.se/regeringens-politik/handel-och-investeringsframjande/nationella-kontaktpunkten/ .

Sweden effectively and fairly enforces domestic laws in relation to human rights, labor rights, consumer protection, environmental protections, and other laws/regulations intended to protect individuals from adverse business impacts.  Sweden has put in place corporate governance, accounting, and executive compensation standards to protect shareholders. Sweden is a member of the Extractive Industries Transparency Initiative (EITI). The former prime minister of Sweden, Fredrik Reinfeldt, is the current Chair of EITI.

9. Corruption

Investors have an extremely low likelihood of encountering corruption in Sweden.  While there have been cases of domestic corruption at the municipal level, most companies have high anti-corruption standards and an investor would not typically be put in the position of having to pay a bribe to conduct business.

There are cases of Swedish companies operating overseas that have been charged with bribing foreign officials; however, these cases are relatively rare.  Although Sweden has comprehensive laws against corruption, and ratified the 1997 OECD Anti-bribery Convention, in 2012, the OECD Anti-Bribery Working Group has given an unfavorable review of Swedish compliance with that Convention.  The group faulted Sweden for not having a single conviction of a Swedish company for bribery in the last eight years, for having unreasonably low fines, and for not re-framing their legal system so that a corporation could be charged with a crime.  Swedish officials object to the review, claiming that lack of convictions is no proof of prosecutorial indifference, but rather indicative of high standards of ethics in Swedish companies. Over the last four years, a high-profile case involving telecom giant Telia Company’s operations in Uzbekistan has received considerable public attention and cost the CEO and other senior officials their jobs.  Telia Company was in the process of divesting its operations in Uzbekistan following a probe by the U.S. Department of Justice pertaining to illegal payments. In September 2017, Telia Company reached an agreement to pay USD 965.8 million to settle U.S. and European criminal and civil charges that the company had paid bribes to win business in Uzbekistan.

Sweden does not have a specific agency devoted exclusively to anti-corruption but a number of agencies cooperate together.  A list of Sweden’s Public and Private Anti-Corruption Initiatives can be found at http://www.business-anti-corruption.com/country-profiles/europe-central-asia/sweden/initiatives.aspx .

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Sweden has signed and ratified the UN Anticorruption Convention (see list of signatories at http://www.unodc.org/unodc/en/treaties/CAC/signatories.html ).

Sweden is party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (see list of signatories and their implementation reports at http://www.oecd.org/daf/anti-bribery/countryreportsontheimplementationoftheoecdanti-briberyconvention.htm ).

Resources to Report Corruption

The National Corruption Group at the Swedish Police, Nationella Korruptionsgruppen, handles the investigation of corruption offences and is engaged in preventive efforts.  Corruption claims can be reported to the Group by calling +46 114 14.

Watchdog organization:

Transparency International Sweden
Telephone: + 46 (0)8 791 40 40
E-mail address: info@transparency-se.org
www.transparency-se.org/In-English.html 

10. Political and Security Environment

Sweden is politically stable and no changes are expected.

11. Labor Policies and Practices

Sweden’s labor force of 5.1 million is disciplined, well educated, and highly skilled.  Approximately 68 percent of the Swedish labor force is unionized, although membership is declining.  Swedish unions have helped to implement business restructuring to remain competitive, and strongly favor employee education and technical advancements.  Management labor cooperation is generally excellent and non-confrontational. The National Mediation Office, which mediates in labor disputes in Sweden, reported in its summary for 2018 that not a single working day was lost through strikes or lockouts in the course of central negotiations.

Foreign/migrant workers are covered by Swedish and EU labor laws.  Labor laws are not waived in order to attract or retain investment.  In general, there is no government policy that requires the hiring of nationals.

Sweden has a Co-determination at Work Act, which provides for labor representation on the boards of corporate directors once a company has reached more than 25 employees.  This law also requires management to negotiate with the appropriate union, or unions prior to implementing certain major changes in company activities. It calls for a company to furnish information on many aspects of its economic status to labor representatives.  Labor and management usually find this system works to their mutual benefit. The Co-determination at Work Act and Employment Protection Act sets the rules for the adjustment employment to respond to fluctuating market conditions. Severances and layoffs are based on seniority and are conducted in consultation with unions.  Unemployment insurance and other social safety net programs are available for workers laid off for economic reasons. Government-sponsored training programs to facilitate the transition for unemployed persons into areas reporting labor shortages are available, but their scope is targeted.

The cost of doing business in Sweden is generally comparable to most OECD countries, though some country-specific cost advantages are present.  Overall salary costs have become increasingly competitive due to relatively modest wage increases over the last decade and a favorable exchange rate.  This development is even more pronounced for highly qualified personnel and researchers.

There is no fixed minimum wage by legislation.  Instead, wages are set by collective bargaining by sector.  The traditionally low-wage differential has increased in recent years as a result of increased wage setting flexibility at the company level.  Still, Swedish unskilled employees are relatively well paid, while well-educated Swedish employees are low-paid compared to those in competitor countries.  The average increases in real wages in recent years have been high by historical standards, in large due to price stability. Even so, nominal wages in recent years have been slightly above those in competitor countries, about 3 percent annually.  Employers must pay social security fees of about 31.5 percent. The fee consists of statutory contributions for pensions, health insurance, and other social benefits.

Sweden has ratified most International Labor Organization (ILO) conventions dealing with worker’s rights, freedom of association, collective bargaining, and the major working conditions and occupational safety and health conventions.  More information on Sweden’s labor agreements and legislation in English can be found on the Swedish Trade Union Confederation’s website at http://www.lo.se/english/startpage .  There are no new labor related laws or regulations enacted during the last year, as well as any pending draft bills.

12. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation, OPIC, does not operate in Sweden.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $538,000 2017 $538,040 www.worldbank.org/en/country  
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $24,183 2017 $34,622 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Host country’s FDI in the United States ($M USD, stock positions) 2017 $59,338 2017 $54,150 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP 2017 9.9% 2017 10.3% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  


Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 353,493 100% Total Outward 376,688 100%
Netherlands 58,770 16.6% United States 54,753 15.8%
Luxembourg 50,354 14.2% Netherlands 37,667 10.0%
United Kingdom 49,360 13.9% Norway 28,194 7.5%
Germany 33,778 9.6% Finland 26,361 7.0%
Finland 31,442 8.9% Denmark 23,248 6.7%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 353,493 100% All Countries 299,823 100% All Countries 53,669 100%
Netherlands 58,770 16.6% United Kingdom 43,798 14.6% Netherlands 16,880 31.5%
Luxembourg 50,354 14.6% Netherlands 41,889 14.0% Luxembourg 9,628 18.0%
United Kingdom 49,360 14.0% Luxembourg 40,727 13.6% United Kingdom 5,562 10.4%
Germany 29,004 8.2% Germany 30,852 10.3% Norway 5,404 10.1%
Finland 27,849 7.9% Finland 30,155 10.1% United States 5,120 9.5%