Policies Towards Foreign Direct Investment

The Czech government actively seeks to attract foreign investment via policies that make the country a competitive destination for companies to locate, operate, and expand.  The Czech investment incentives legislation (amended Act No. 72/2000 Coll., effective as of September 6, 2019) creates incentive payments for high value-added investments that focus on R&D and create jobs for university graduates.  The law eliminates incentives for investments targeting low-skilled labor and establishes more favorable rules for technological investments in sectors such as aerospace, information and communication technology, life sciences, nanotechnology, and advanced segments of the automotive industry.  In addition, due to COVID-19, the government approved November 30, 2020 an amendment to this statute, which enables producers of personal protective equipment, medical devices, and pharmaceuticals to more easily obtain investment incentives.

CzechInvest, the government investment promotion agency that operates under the Ministry of Industry and Trade (MOIT), negotiates on behalf of the Czech government with foreign investors.  In addition, CzechInvest provides assistance during implementation of investment projects, consulting services for foreign investors entering the Czech market, support for suppliers, and assistance for the development of innovative start-up firms.  There are no laws or practices that discriminate against foreign investors.

The Czech Republic is a recipient of substantial FDI.  Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD171.3 billion at the end of 2019, compared to USD164 billion in 2018.

As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from EU partners.  In 2020, 83.5 percent of Czech exports went to fellow EU member states, with 32.6 percent to the Czech Republic’s largest trading partner, Germany, according to the Czech Statistical Office.  Since emerging from recession in 2013, the economy had enjoyed some of the highest GDP growth rates of the European Union until the COVID-19 outbreak. While GDP growth reached 2.4 percent in 2019, there was a 5.6 percent GDP decline in 2020.  The Ministry of Finance is forecasting 3.1 percent growth for 2021.

The Czech Republic has no plans to adopt the euro as it believes having its own currency and independent monetary policy is helpful to manage an economic crisis like the current one caused by the COVID-19 pandemic.

The slow pace of legislative and judicial reforms has posed obstacles to investment, competitiveness, and company restructuring.  The Czech government has harmonized its laws with EU legislation and the acquis communautaire.  This effort involved positive reforms of the judicial system, civil administration, financial markets regulation, protection and enforcement of intellectual property rights, and in many other areas important to investors.

While there have been many success stories involving American and other foreign investors, a handful have experienced problems, for example in the media industry.   Both foreign and domestic businesses voice concerns about corruption.

Long-term economic challenges include dealing with an aging population and diversifying the economy away from  manufacturing toward a more high-tech, services-based, knowledge economy.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign individuals or entities can operate a business under the same conditions as Czechs.  Foreign entities need to register their permanent branches with the Czech Commercial Register.  Some professionals, such as architects, physicians, lawyers, auditors, and tax advisors, must register for membership in the appropriate professional chamber.  In general, licensing and membership requirements apply equally to foreign and domestic professionals.

In response to the European Commission’s September 2017 investment screening directive, the Czech government drafted foreign investment screening legislation.  The law will come into effect on May 1, 2021 and gives the government the ability to review greenfield investments and acquisitions by non-EU foreign investors.  The law allows MOIT to screen FDI in virtually any sector of the Czech economy but specifies four high-risk sectors for which investment screening is mandatory: critical infrastructure, ICT systems used for critical infrastructure, military equipment, and sensitive dual use items.  Outside these critical sectors, non-EU investors are under no obligation to report acquisitions or greenfield investments, but MOIT can retroactively review investments at any point within five years according to security concerns that may arise.  Screening of acquisitions is triggered when a non-EU buyer attempts to make a purchase that would give it at least 10% of the voting rights of a Czech company.  However, screening is possible at an even lower threshold in cases where the foreign investor has additional means of exerting potentially malign control over a Czech company, such as through appointment of staff to key positions.  Furthermore, the law gives regulators considerable leeway to designate an investor as “non-EU” if the investor is “indirectly controlled” by non-EU business or individuals.

As of early 2012, U.S. and other non-EU nationals could purchase real estate, including agricultural land, in the Czech Republic without restrictions.  However, following the implementation of the investment screening law as of May 1, 2021, land purchases by non-EU investors may be screened if located near critical infrastructure, such as military installations.  Enterprises are permitted to engage in any legal activity with the previously noted limitations in sensitive sectors.  The right of foreign and domestic private entities to establish and own business enterprises is guaranteed by law.  Laws on auditing, accounting, and bankruptcy are in force, including the use of international accounting standards (IAS).

Other Investment Policy Reviews

The OECD last conducted an economic survey of the government in 2020.

Business Facilitation

Individuals must complete a number of bureaucratic requirements to set up a business or operate as a freelancer or contractor.  MOIT provides an electronic guide on obtaining a business license, presenting step-by-step assistance, including links to related legislation and statistical data, and specifying authorities with whom to work (such as business registration, tax administration, social security, and municipal authorities), available at: https://www.mpo.cz/en/business/licensed-trades/guide-to-licensed-trades/.  MOIT also has established regional information points to provide consulting services related to doing business in the Czech Republic and EU.  A list of contact points is available at:  https://www.businessinfo.cz/en/starting-a-business/starting-up-points-of-single-contact-psc/addresses-points-of-single-contact-psc/.

The average time required to start a business is 25 days according to the World Bank’s ‘Doing Business’ Index.  The Czech Republic’s Business Register is publicly accessible and provides details on business entities including legal addresses and major executives.  An application for an entry into the Business Register can be submitted in a hard copy, via a direct entry by a public notary, or electronically, subject to meeting online registration criteria requirements.  The Business Register is publicly available at:  https://or.justice.cz/ias/ui/rejstrik.  The Czech Republic’s Trade Register is an online information system that collects and provides information on entities facilitating small trade and craft-oriented business activities, as specifically determined by related legislation.  It is available online at:  http://www.rzp.cz/eng/index.html.

Outward Investment

The Czech government does not incentivize outward investment.  The volume of outward investment is lower than incoming FDI.  According to the latest data from the Czech National Bank, Czech outward investments amounted to USD 45.1 billion in 2019, compared to inward investments of USD 171.3 billion.  However, according to the Export Guarantee and Insurance Corporation (EGAP), Czech companies increasingly invest abroad to get closer to their customers, save on transport costs, and shorten delivery times. As part of EU sanctions, there is a total ban on EU investment in North Korea as of 2017.

Investment Incentives

The Czech Republic offers incentives to foreign and domestic firms alike that invest in the manufacturing sector, technology and R&D centers, and business support centers.  The amended Act No. 72/2000 Coll. came into force September 6, 2019 and shifted availability of incentive programs from all types of investments to only those requiring R&D and that create jobs for university graduates, as well as in specialized sectors such as aerospace, information and communication technology, life sciences, nanotechnology and advanced segments of the automotive industry.  Incentives are funded from the Czech Republic’s national budget as well as from EU Structural Funds.  The government provides investment incentives in the form of corporate income tax relief for 10 years, cash grants for job creation up to USD 8,000 per job, cash grants for training up to 50 percent of training costs, and cash grants for the purchase of fixed assets up to 20 percent of eligible costs.  In response to COVID-19, the government approved November 30, 2020, an amendment to this law, which enables producers of personal protective equipment and medical products to more easily obtain investment incentives, because the state considers these products strategic for the protection of citizens’ lives and health during the pandemic.  In addition, to prevent businesses from delaying investments due to high uncertainty caused by COVID-19, the latest amendment also lowers thresholds for obtaining investment incentives, primarily for small and medium-sized investors.  The latest amendment also makes it possible for companies affected by COVID-19 to apply for an extension of the period for fulfilment of the general terms and conditions of investment incentives.  In addition, in 2019, the Czech Republic significantly expanded film industry incentives provided through the state organization Czech Film Fund.  The new incentives cover up to 20% of eligible costs of foreign filmmakers.

The government does not have a common practice of issuing guarantees or jointly financing FDI projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Both Czech and EU laws permit foreign investors involved in joint ventures to take advantage of commercial or industrial customs-free zones into which goods may be imported and later exported without depositing customs duties.  Free trade zone treatment means duties need to be paid only in the event that the goods brought into the free trade zone are introduced into the local economy.  Since the Czech Republic became part of the single customs territory of the European Community and now offers various exemptions on customs tariffs, the original tariff-driven use of these free trade zones has declined.

Performance and Data Localization Requirements

The host government does not mandate local employment.  There are no government-imposed conditions on permission to invest.  The host government does not follow “forced localization.”

The visa process for non-EU foreign investors and their employees is time consuming and slow, but the requirements are the same for domestic, EU, and non-EU companies.

The Czech Republic abides by EU law governing data localization and performance.  The Czech Republic strongly supported creating the EU Regulation on free flow of non-personal data which came into effect in May 2019, stating that it would boost the competitive data economy and accelerate the development of artificial intelligence.

The July 16, 2020 ruling of the EU’s highest court in the Schrems II case, which invalidated the legal basis for the EU-U.S. Privacy Shield framework, has put a significant burden on companies transferring personal data from the Czech Republic to the United States.

The Lower house of the Czech Parliament passed the “Bill on Digitalization of Public Authorities (“Cloud Bill”) March 5, 2021, marking the latest step in the country’s efforts to move government data to the cloud.  The bill is now subject to approval by the Senate and signature by the President.  The Czech government proposed the legislation to enable government ministries to partner with global cloud service providers to migrate government data to the cloud.  The legislation seeks to operationalize a “Cloud Catalogue” of cloud service providers that are certified as secure and trustworthy partners for government data.  The draft legislation mandates that sensitive government data be stored in the EU but allows global cloud services providers (including U.S. companies) to transfer data overseas for routine maintenance purposes. The legislation also allows cloud service providers managing Czech government data to comply with the U.S. CLOUD Act, which gives U.S. law enforcement agencies the right to access personal data stored outside the United States.

Current law criminalizes both payment and receipt of bribes, regardless of the perpetrator’s nationality.  Prison sentences for bribery or abuse of power can be as high as 12 years for officials.  There have been several successful cases prosecuting corruption, though some experts have noted proceedings can be lengthy and subject to delays.  The National Center for Organized Crime (NCOZ) is primarily responsible for investigating high-level corruption cases, however some experts have raised concerns about cumbersome procedural requirements.  Anti-corruption laws authorize seizures of proceeds or instruments of crime and apply equally to Czech and foreign investors.

Czech law obliges legislators, members of the cabinet, and other selected public officials to declare their assets annually.  Summarized declarations are available online and complete declarations are available upon request from the Ministry of Justice, which can impose penalties of up to CZK50,000 (approximately USD2,280) for non-compliance.  The law also requires judges, prosecutors and directors of research institutions to disclose their assets, however their declarations are not publicly available for security reasons.

In addition to the financial disclosure law, the government regulates political parties financing, public procurements, and the register of public contracts.  The law on the register of public contracts requires all national, regional, and local authorities as well as private companies to make publicly available all newly concluded contracts (including subsidies and repayable financial assistance) valued at CZK50,000 (USD2,280) or more within 30 days; noncompliance renders contracts null and void.  Additionally, as of November 2019, major state-owned companies are required to publish all contracts, except in limited circumstances.  The Registry of Contracts has a website in Czech only at: https://smlouvy.gov.cz/.

Public procurement law requires every contracting authority to post winning contracts on its website within 15 working days of signing.  Subject to limited exceptions, the law mandates more than one bidder for all public procurements and requires bidders to disclose their ownership structure prior to bidding.  In addition to general conflict-of-interest law, the procurement law also addresses some conflict-of-interest issues related to government procurements.  The European Commission and the latest Council of Europe Group of States Against Corruption (GRECO) evaluation report identified areas where Czech conflict-of-interest legislation could be strengthened.  In response, the Czech Republic approved an amendment to the Czech conflict-of-interest law.  Other actions, such as strengthening rules regarding lobbying, implementing new rules to improve transparency in the work of parliamentary committees and subcommittees, and making changes to the selection and dismissal procedures for judicial officials are in the drafting or approval process with the date of final approval uncertain.

President Zeman signed the “Beneficial Ownership Bill” into law on January 22, 2021.  The law is a part of a transposition of an EU convention on anti-money laundering and counterterrorism financing and requires transparency regarding the real (or “beneficial”) ownership of companies seeking subsidies or public contracts.  The law bars anonymously owned companies from applying for public subsidies or tenders, although it does not empower officials to challenge discrepancies or irregularities in a company’s ownership structure, absent a court finding.

According to a law which came into force in January 2020, candidates filling supervisory board positions in state-owned companies must be selected in a clear, transparent process that prioritizes technical expertise and is reviewed by an advisory committee whose members are apolitical experts.  Separately, the government recommends companies maintain internal codes of conduct that, among other things, prohibit bribery of public officials.

The government ratified the OECD Anti-Bribery Convention in 2000 and the UN Convention against Corruption in 2014.  According to the 2017 OECD Phase 4 Evaluation Report, the Czech Republic should take steps to improve enforcement of its foreign bribery laws, enhance efforts to detect, investigate, and prosecute foreign bribes, increase protections for whistleblowers, and better implement the criminal liability of the legal entities law.

Several NGOs such as Frank Bold, Transparency International, and Anticorruption Endowment receive corruption reports online.  The reports most frequently involve minor offenses, such as attempts to bribe police officers or other public officials to receive benefits or avoid liability.  While there is not a specific law to protect NGOs involved in investigating corruption, NGO activities are protected under the Charter of Fundamental Rights and Freedom that protects civil society and free speech.

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

Conflict of Interest and Anti-Corruption Department
Anti-Corruption Unit
Ministry of Justice of the Czech Republic
Vyšehradská 16
12800 Prague 2
www.justice.cz
+420 221 997 595
korupce@msp.justice.cz

Contact at “watchdog” organizations:

Transparency International Czech Republic
Sokolovska 260/143
+420-224 240 895
posta@transparency.cz
www.transparency.cz

Frank Bold
Udolni 33, Brno
tel: +420 545 213 975
info@frankbold.org
www.frankbold.org

Anticorruption Endowment
Nadacni Fond Proti Korupci
Revoluční 8, building A, 5th floor, 110 00 Praha 1
+420 226 209 047
info@nfpk.cz
www.nfpk.cz

The risk of political violence in the Czech Republic is extremely low.  Two historic political changes – the Velvet Revolution, which ended the communist era in 1989, and the division of Czechoslovakia into the Czech Republic and Slovakia in 1993 – occurred without loss of life or significant violence.  The political institutions underpinning parliamentary democracy generally function smoothly.  Elections have resulted in orderly and peaceful changes of government.

A historically strong and well-developed machinery industry, one of the key drivers of Czech exports, requires a wide range of technically qualified staff, including the entire spectrum of professions from manual workers to engineers and designers.  The rapidly growing electronics and information technology sectors are also creating demand for highly skilled workers.  Despite the COVID-19 crisis, key economic growth and export-driven industries are facing the challenge of demand for highly skilled technical workers that exceeds supply.  Robotic automation and digitalization are also impacting many industries.

The wide availability in the Czech Republic of an educated, relatively low-wage labor force on the doorstep of Western Europe was a major attraction for foreign investors in the 1990s.  While the wage gap continues to narrow and the income convergence process reflects the Czech Republic’s economic growth in recent years, Czech wages still trail significantly those of neighbors like Germany and Austria.  In 2020, wage levels increased by an average of 4.4 percent, according to the Czech Statistical Office.  While the unemployment rate rose to 3.3 percent in 2020 due to COVID-19 according to the Ministry of Finance, it remained the lowest in the EU.  According to Eurostat, the Czech Republic’s unemployment rate was 3.2 percent in January 2021, compared to the EU-27 average of 7.3 percent.  However, unemployment rates vary significantly between regions.  In February 2021, the unemployment rate was the lowest in the Pardubice region (3.17 percent) and highest in the Karlovy Vary region (6.02 percent).

Unemployment insurance and other social safety net programs exist for workers laid off for economic reasons.  Labor laws differentiate between layoffs and firing.

Czech law guarantees Czech workers’ right to form and join independent unions of their choice without authorization or excessive requirements.  It permits them to conduct their activities without interference.  The right to freely associate covers both citizens and foreign workers.  The law also provides for collective bargaining.  It prohibits anti-union discrimination and does not recognize union activity as a valid reason for dismissal.  Workers in most occupations have the legal right to strike if mediation efforts fail, and they generally exercise this right.

Strikes can be restricted or prohibited in essential service sectors such as healthcare, electricity/water supply services, air traffic control, and the oil, natural gas, and nuclear energy sectors.  Members of the armed forces, prosecutors, and judges may not form trade unions or strike.  Only trade unions may legally represent workers, including non-members.  Labor dispute resolutions are carried out in civil court proceedings.  There were no strikes in the last year that posed an investment risk.

Policies Towards Foreign Direct Investment

Estonia is currently open for FDI and foreign investors are treated on an equal footing with local investors, though the government is developing a screening mechanism to adhere to the EU Foreign Investment Screening Regulation (https://eur-lex.europa.eu/eli/reg/2019/452/oj) that entered into force on April 10, 2019. This new regulation is applicable from October 11, 2020 and creates an information-sharing mechanism between Member States and allows Member States and the European Commission to comment on foreign investments foreseen in other Member States.

The Estonian Investment Agency (EIA), a part of Enterprise Estonia, is a government agency promoting foreign investments in Estonia and assisting international companies in finding business opportunities in Estonia. EIA offers comprehensive, one-stop investment consultancy services, free of charge. The agency’s goal is to increase awareness of business opportunities in Estonia and promote the image of Estonia as an attractive country for investments. More info: http://www.investinestonia.com/en/estonian-investment-agency/about-the-agency

Limits on Foreign Control and Right to Private Ownership and Establishment

Estonia’s government has not set limitations on foreign ownership. Licenses are required for foreign investors to enter the following sectors: mining, energy, gas and water supply, railroad and transport, waterways, ports, dams and other water-related structures and telecommunications and communication networks. The Estonian Financial Supervision Authority issues licenses for foreign interests seeking to invest in or establish a bank. Additionally, the Estonian Competition Authority reviews transactions for anti-competition concerns. Government review and licensing have proven to be routine and non-discriminatory.

As a member of the EU, the Government of Estonia (GOE) maintains liberal policies in order to attract investment and export-oriented companies. Creating favorable conditions for FDI and openness to foreign trade has been the foundation of Estonia’s economic strategy. Existing requirements are not intended to restrict foreign ownership but rather to regulate it and establish clear ownership responsibilities.

Other Investment Policy Reviews

Since becoming a member of the EU, Estonia is included in WTO Trade Policy Reviews (TPRs) of the EU/EC. The fourteenth review of the trade policies and practices of the European Union took place in February 2020. Full report available here: WTO | Trade policy review -European Union (formerly EC) 2020.

Business Facilitation

The World Bank’s Ease of Doing Business report ranks Estonia in 18^th place out of 190 countries on the ease of Starting a Business. Economic freedom, ease of doing business, per capita investments, low national debt, euro zone membership, and low corruption scores – all these factors play a role in fostering a good climate for business facilitation.

In Estonia there are two ways to register your business:

• Electronic registration via the e-Commercial Register’s Company registration portal (rik.ee) (takes between 5 minutes and 1 business day).
• Through a notary (takes 2-3 business days)

More info on registering the business entity and link to the Register: https://www.eesti.ee/en/doing-business/establishing-a-company/comparison-of-each-form-of-business/

On July 1, 2014, an amended Taxation Act establishing the employment register entered into force, requiring all natural and legal employers to register the persons employed by them with the Estonian Tax and Customs Board.  The company must register itself as a value-added taxpayer if the taxable turnover of the company, excluding imports of goods, exceeds EUR 40,000 as calculated from the beginning of the calendar year.

There are certain areas of activity (like construction, electrical works, fire safety, financial services, security services, etc.) in which business operation requires an additional registration in the Register of Economic Activities (MTR), but this can be done after registration of the company in the Commercial Register: https://mtr.mkm.ee/

Outward Investment

Estonia does not restrict domestic investors from investing abroad nor does it promote outward investment. Estonia companies have invested abroad about USD 10 billion, mostly into EU countries. The main sectors for outward investments are services, manufacturing, real estate and financial.

Investment Incentives

Estonia is open for FDI and foreign investors are treated on an equal footing with local investors with respect to incentives. There are no investment incentives or government guarantees available to foreign investors.

Foreign Trade Zones/Free Ports/Trade Facilitation

Estonia’s Customs Act permits the government to establish free trade zones. Goods in a free trade zone are considered to be outside the customs territory. Value-added tax, excise, import and export duties, as well as possible fees for customs services, do not have to be paid on goods brought into free trade zones for later re-export.

In Estonia, there are four free trade zones: Muuga port (near Tallinn), Sillamae port (northeast Estonia), Paldiski north port (northwest Estonia) and in Valga (southern Estonia). All free trade zones are open for FDI on the same terms as Estonian investments.

Performance and Data Localization Requirements

There are no specific performance requirements for foreign investments that differ from those required of domestic investments. The Estonian government does not mandate local employment or follow “forced localization” in which foreign investors must use domestic content in goods or technology.

Estonia continues to refine its immigration policies and practices. More info on work permits, visas, residence permits in Estonia: https://www.politsei.ee/en

U.S. citizens are exempt from the quota regulating the number of immigration and residence permits issued, as are citizens of the EU and Switzerland.

There are no requirements for foreign IT service providers to turn over source code and/or provide access to surveillance (e.g., backdoors into hardware and software or turning over keys for encryption) or to maintain a certain amount of data storage in Estonia. There is no general requirement to register data processing activities in Estonia. Registration is required only if the data processor handles sensitive personal data.

The EU General Data Protection Regulation (GDPR) entered into force on May 25, 2018, with the goal of harmonizing the already existing data protection laws across Europe. The Estonian Personal Data Protection Act came into force on January 15, 2019.  More info: https://e-estonia.com/how-to-be-compliant-gdpr-5-steps/

Restrictions on transfer of data offshore:

Information on data transfer is available at: https://www.riigiteataja.ee/en/eli/523012019001/consolide or by contacting:

Estonian Data Protection Inspectorate
39 Tatari Street, 10134
Tel: (+372) 627 4135
https://www.aki.ee/en

Estonia has laws, regulations, and penalties to combat corruption, and while corruption is not unknown, it has generally not been reported to pose a major problem for foreign investors. Both offering and taking bribes are criminal offenses which can bring imprisonment of up to five years. While “payments” that exceed the services rendered are not unknown, and “conflict of interest” is not a well-understood issue, surveys of American and other non-Estonian businesses have shown the issue of corruption is not a serious concern.

In 2020, Transparency International (TI) ranked Estonia 17th out of 180 countries on its Corruption Perceptions Index.

Anti-corruption policy and implementation are coordinated by the Ministry of Justice and the strategy is implemented by all ministries and local governments.  The Internal Security Service is effective in investigating corruption offences and criminal misconduct, leading to the conviction of several high-ranking state officials. Until recently corruption was most commonly associated with public sector activities. Recently the government-initiated efforts to educate private sector businesses about the risks of business-to-business corruption, for example within procurement activities.

Estonia cooperates in fighting corruption at the international level and is a member of GRECO (Group of States Against Corruption). Estonia is a party to both the Council of Europe (CoE) Criminal Law Convention on Corruption and the Civil Law Convention. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and accounting offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia.

More info on the corruption level in different sectors in Estonia can be found at: Estonia – Transparency.org

UN Anticorruption Convention, OECD Convention on Combatting Bribery

The UN Anticorruption Convention entered into force in Estonia in 2010. Estonia has been a full participant in the OECD Working Group on Bribery in International Business since 2004; the underlying Convention entered into force in Estonia in 2005. The Convention obligates Parties to criminalize bribery of foreign public officials in the conduct of international business.

The United States meets its international obligations under the OECD Anti-bribery Convention through the U.S. Foreign Corrupt Practices Act.

Resources to Report Corruption

Government agency contacts responsible for combating corruption:

+372 6123657 Central Criminal Police corruption hotline

Or e-mail: korruptsioonivihje@politsei.ee

Transparency International in Estonia: Estonia – Transparency.org

Civil unrest generally is not a problem in Estonia, and there have been no incidents of terrorism. Public gatherings and demonstrations may occur on occasion in response to political issues, but these have proceeded, with very few exceptions, without incidence of violence in the past.

Estonia has a small population – 1.31 million people. The average monthly Estonian salary at the end of 2020 was about USD 1,730. About 75 percent of the workforce is employed in the services sector. With an aging population and a negative birth rate, Estonia, like many other countries of Central and Eastern Europe, faces demographic challenges affecting its long-term supply of labor. Improving labor efficiency is a key focus for Estonia in the short-to-mid-term.  At the end of 2020, the unemployment rate was 7.4 percent, higher than usual due to the COVID-19 crisis.  More on the labor market: http://www.eestipank.ee/en/publications/series/labour-market-review

The Law of Obligations Act, the Individual Labor Dispute Resolution Act and the Occupational Health and Safety Act address employment and labor issues.  Labor laws may not be waived in order to attract or retain investment. Labor laws are generally strict, and the principle of employee protection is applied in which the worker is considered the economically weaker party. Upon termination of an employment contract due to a lay-off, an employer must pay an employee compensation in the amount of one month’s average wage. In addition, an insurance benefit shall be paid to an employee by the Estonian Unemployment Insurance Fund depending on the length of service. More info: https://www.oecd.org/els/emp/Estonia.pdf

Trade union membership remains low compared to most countries in the EU. Estonia has ratified all eight ILO Core Conventions.

Estonian labor regulations on labor abuses, health and safety standards, labor disputes etc. are effectively monitored by the Estonian Labor Inspectorate: http://www.ti.ee/en/

Policies Towards Foreign Direct Investment

The German government and industry actively encourage foreign investment. U.S. investment continues to account for a significant share of Germany’s FDI. The 1956 U.S.-Federal Republic of Germany Treaty of Friendship, Commerce and Navigation affords U.S. investors national treatment and provides for the free movement of capital between the United States and Germany. As an OECD member, Germany adheres to the OECD National Treatment Instrument and the OECD Codes of Liberalization of Capital Movements and of Invisible Operations.  The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for the Federal Ministry for Economic Affairs and Energy to review acquisitions of domestic companies by foreign buyers, to assess whether these transactions pose a risk to the public order or national security (for example, when the investment pertains to critical infrastructure).  For many decades, Germany has experienced significant inbound investment, which is widely recognized as a considerable contributor to Germany’s growth and prosperity. The investment-related challenges facing foreign companies are broadly the same as face domestic firms, e.g relatively high tax rates, stringent environmental regulations, and labor laws that complicate hiring and dismissals. Germany Trade and Invest (GTAI), the country’s economic development agency, provides extensive information for investors: https://www.gtai.de/gtai-en/invest

Limits on Foreign Control and Right to Private Ownership and Establishment

Under German law, a foreign-owned company registered in the Federal Republic of Germany as a GmbH (limited liability company) or an AG (joint stock company) is treated the same as a German-owned company. There are no special nationality requirements for directors or shareholders.

Companies which seek to open a branch office in Germany without establishing a new legal entity, (e.g., for the provision of employee placement services, such as providing temporary office support, domestic help, or executive search services), must register and have at least one representative located in Germany.

Germany maintains an elaborate mechanism to screen foreign investments based on national security grounds. The legislative basis for the mechanism (the Foreign Trade and Payments Act and Foreign Trade and Payments Ordinance) has been amended several times in recent years in an effort to tighten parameters of the screening as technological threats evolve, particularly to address growing interest by foreign investors in both Mittelstand (mid-sized) and blue chip German companies. Amendments to implement the 2019 EU Screening Regulation are already in force or have been drafted as of March 2021. One major change in the amendments allows for authorities to make “prospective impairment” of public order and security the new trigger for an investment review, in place of the former standard (which requires a de facto threat).

Other Investment Policy Reviews

The World Bank Group’s “Doing Business 2020” Index provides additional information on Germany’s investment climate. The American Chamber of Commerce in Germany also publishes results of an annual survey of U.S. investors in Germany (“AmCham Germany Transatlantic Business Barometer”, https://www.amcham.de/publications).

Business Facilitation

Before engaging in commercial activities, companies and business operators must register in public directories, the two most significant of which are the commercial register (Handelsregister) and the trade office register (Gewerberegister).

Applications for registration at the commercial register, which is available under  www.handelsregister.de , are electronically filed in publicly certified form through a notary.  The commercial register provides information about all relevant relationships between merchants and commercial companies, including names of partners and managing directors, capital stock, liability limitations, and insolvency proceedings.  Registration costs vary depending on the size of the company. According to the World Bank’s Doing Business Report 2020, the median duration to register a business in Germany is 8 days.

Germany Trade and Invest (GTAI), the country’s economic development agency, can assist in the registration processes ( https://www.gtai.de/gtai-en/invest/investment-guide/establishing-a-company/business-registration-65532 ) and advises investors, including micro-, small-, and medium-sized enterprises (MSMEs), on how to obtain incentives.

In the EU, MSMEs are defined as follows:

• Micro-enterprises:  less than 10 employees and less than €2 million annual turnover or less than €2 million in balance sheet total.
• Small enterprises:  less than 50 employees and less than €10 million annual turnover or less than €10 million in balance sheet total.
• Medium-sized enterprises:  less than 250 employees and less than €50 million annual turnover or less than €43 million in balance sheet total.

U.S.-based traders, who seek to sell in Germany, e.g., via commercial platforms, are required to register with one specific tax authority in Bonn, which can lead to significant delays due to capacity issues.

Outward Investment

Germany’s federal government provides guarantees for investments by Germany-based companies in developing and emerging economies and countries in transition in order to insure them against political risks. In order to receive guarantees, the investment must have adequate legal protection in the host country. The Federal Government does not insure against commercial risks. In 2020, the government issued investment guarantees amounting to €900 million for investment projects in 13 countries, with the majority of those in China and India.

Investment Incentives

Federal and state investment incentives – including investment grants, labor-related and R&D incentives, public loans, and public guarantees – are available to domestic and foreign investors alike. Different incentives can be combined. In general, foreign and German investors must meet the same criteria for eligibility.

Germany Trade & Invest (GTAI), Germany’s federal economic development agency, provides comprehensive information on incentives in English at: https://www.gtai.de/gtai-en/invest/investment-guide/incentive-programs .

Foreign Trade Zones/Free Ports/Trade Facilitation

There are currently two free ports in Germany operating under EU law: Bremerhaven and Cuxhaven. The duty-free zones within the ports also permit value-added processing and manufacturing for EU-external markets, albeit with certain requirements. All are open to both domestic and foreign entities. In recent years, falling tariffs and the progressive enlargement of the EU have eroded much of the utility and attractiveness of duty-free zones.

Performance and Data Localization Requirements

In general, there are no requirements for local sourcing, export percentage, or local or national ownership. In some cases, however, there may be performance requirements tied to an incentive, such as creation of jobs or maintaining a certain level of employment for a prescribed length of time.

U.S. companies can generally obtain the visas and work permits required to do business in Germany. U.S. citizens may apply for work and residential permits from within Germany. Germany Trade & Invest offers detailed information online at https://www.gtai.de/gtai-en/invest/investment-guide/coming-to-germany .

There are no general localization requirements for data storage in Germany. However, the invalidation of the Privacy Shield by the European Court of Justice in July 2020 has led to increased calls for data storage in Germany, e.g., with regard to U.S. cloud service providers used by digital health app developers. In recent years, German and European cloud providers have also sought to market the domestic location of their servers as a competitive advantage.

Among industrialized countries, Germany ranks 9th out of 180, according to Transparency International’s 2020 Corruption Perceptions Index. Some sectors including the automotive industry, construction sector, and public contracting, exert political influence and political party finance remains only partially transparent. Nevertheless, U.S. firms have not identified corruption as an impediment to investment in Germany. Germany is a signatory of the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery.

Over the last two decades, Germany has increased penalties for the bribery of German officials, corrupt practices between companies, and price-fixing by companies competing for public contracts. It has also strengthened anti-corruption provisions on financial support extended by the official export credit agency and has tightened the rules for public tenders. Government officials are forbidden from accepting gifts linked to their jobs. Most state governments and local authorities have contact points for whistle-blowing and provisions for rotating personnel in areas prone to corruption. There are serious penalties for bribing officials and price fixing by companies competing for public contracts.

According to the Federal Criminal Office, in 2019, 50 percent of all corruption cases were directed towards the public administration (down from 73 percent in 2018), 39 percent towards the business sector (up from 18 percent in 2018), 9 percent towards law enforcement and judicial authorities (up from 7 percent in 2018), and 2 percent to political officials (unchanged compared to 2018).

Parliamentarians are subject to financial disclosure laws that require them to publish earnings from outside employment. Disclosures are available to the public via the Bundestag website (next to the parliamentarians’ biographies) and in the Official Handbook of the Bundestag. Penalties for noncompliance can range from an administrative fine to as much as half of a parliamentarian’s annual salary. In early 2021, several parliamentarians stepped down due to inappropriate financial gains made through personal relationships to businesses involved in the procurement of face masks during the initial stages of the pandemic.

Donations by private persons or entities to political parties are legally permitted. However, if they exceed €50,000, they must be reported to the President of the Bundestag, who is required to immediately publish the name of the party, the amount of the donation, the name of the donor, the date of the donation, and the date the recipient reported the donation. Donations of €10,000 or more must be included in the party’s annual accountability report to the President of the Bundestag.

State prosecutors are generally responsible for investigating corruption cases, but not all state governments have prosecutors specializing in corruption. Germany has successfully prosecuted hundreds of domestic corruption cases over the years, including large scale cases against major companies.

Media reports in past years about bribery investigations against Siemens, Daimler, Deutsche Telekom, Deutsche Bank, and Ferrostaal have increased awareness of the problem of corruption. As a result, listed companies and multinationals have expanded compliance departments, tightened internal codes of conduct, and offered more training to employees.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Germany was a signatory to the UN Anti-Corruption Convention in 2003. The Bundestag ratified the Convention in November 2014.

Germany adheres to and actively enforces the OECD Anti-Bribery Convention which criminalizes bribery of foreign public officials by German citizens and firms. The necessary tax reform legislation ending the tax write-off for bribes in Germany and abroad became law in 1999.

Germany participates in the relevant EU anti-corruption measures and signed two EU conventions against corruption. However, while Germany ratified the Council of Europe Criminal Law Convention on Corruption in 2017, it has not yet ratified the Civil Law Convention on Corruption.

Resources to Report Corruption

There is no central government anti-corruption agency in Germany. Responsibilities in fighting corruption lies with the federal states.

Contact at “watchdog” organization:

Hartmut Bäumer, Chair
Transparency International Germany
Alte Schönhauser Str. 44, 10119 Berlin
+49 30 549 898 0
office@transparency.de 
https://www.transparency.de/en/ 

The Federal Criminal Office publishes an annual report on corruption: “Bundeslagebild Korruption” – the latest one covers 2019. https://www.bka.de/DE/AktuelleInformationen/StatistikenLagebilder/Lagebilder/Korruption/korruption_node.html;jsessionid=95B370E07C3C5702B4A4AAEE8EAC8B3F.live0601

https://www.bka.de/DE/AktuelleInformationen/StatistikenLagebilder/Lagebilder/Korruption/korruption_node.html;jsessionid=95B370E07C3C5702B4A4AAEE8EAC8B3F.live0601

Political acts of violence against either foreign or domestic business enterprises are extremely rare. Isolated cases of violence directed at certain minorities and asylum seekers have not targeted U.S. investments or investors.

The German labor force is generally highly skilled, well-educated, and productive. Before the economic downturn caused by COVID-19, employment in Germany had risen for the thirteenth consecutive year and reached an all-time high of 45.3 million in 2019, an increase of 402,000 (or 0.9 percent) from 2018—the highest level since German reunification in 1990. As a result of the COVID-19 pandemic, employment fell to 44.8 million in 2020.

Simultaneously, unemployment had fallen by more than half since 2005, and, in 2019, reached the lowest average annual value since German reunification. In 2019, around 2.34 million people were registered as unemployed, corresponding to an unemployment rate of 5.2 percent, according to Germany Federal Employment Agency calculations. Using internationally comparable data from the European Union’s statistical office Eurostat, Germany had an average annual unemployment rate of 3.2 percent in 2019, the second lowest rate in the European Union. For the pandemic year 2020, the Federal Employment Agency reports an average unemployment rate of 5.9% with an average 2.7 million unemployed in 2020. This is an increase of 429,000 over 2019. However, long-term effects on the labor market, and the economy as a whole, due to COVID-19 are not yet fully observable. All employees are by law covered by the federal unemployment insurance that compensates for the lack of income for up to 24 months. A government-funded temporary furlough program allows companies to decrease their workforce and labor costs with layoffs and has helped mitigate a negative labor market impact in the short term. The government made intense use of this program, which enrolled at peak times in 2020 more than six million employees. The government, through the national employment agency, has spent more than 22 billion euros on this program, which it considers the main tool to keep unemployment low during the COVID-19 economic crisis. The government extended the program for all companies already meeting its conditions by the end of 2020 to December 31, 2021.

Germany’s national youth unemployment rate was 5.8 percent in 2019, the lowest in the EU. The German vocational training system has gained international interest as a key contributor to Germany’s highly skilled workforce and its sustainably low youth unemployment rate. Germany’s so-called “dual vocational training,” a combination of theoretical courses taught at schools and practical application in the workplace, teaches and develops many of the skills employers need. Each year, there are more than 500,000 apprenticeship positions available in more than 340 recognized training professions, in all sectors of the economy and public administration. Approximately 50 percent of students choose to start an apprenticeship. The government is promoting apprenticeship opportunities, in partnership with industry, through the “National Pact to Promote Training and Young Skilled Workers.”

An element of growing concern for German business is the aging and shrinking of the population, which (absent large-scale immigration) will likely result in labor shortages. Official forecasts at the behest of the Federal Ministry of Labor and Social Affairs predict that the current working age population will shrink by almost 3 million between 2010 and 2030, resulting in an overall shortage of workforce and skilled labor. Labor bottlenecks already constrain activity in many industries, occupations, and regions. The government has begun to enhance its efforts to ensure an adequate labor supply by improving programs to integrate women, elderly, young people, and foreign nationals into the labor market. The government has also facilitated the immigration of qualified workers.

Labor Relations

Germans consider the cooperation between labor unions and employer associations to be a fundamental principle of their social market economy and believe this has contributed to the country’s resilience during the economic and financial crisis. Insofar as job security for members is a core objective for German labor unions, unions often show restraint in collective bargaining in weak economic times and often can negotiate higher wages in strong economic conditions. In an international comparison, Germany is in the lower midrange with regards to strike numbers and intensity. All workers have the right to strike, except for civil servants (including teachers and police) and staff in sensitive or essential positions, such as members of the armed forces.

Germany’s constitution, federal legislation, and government regulations contain provisions designed to protect the right of employees to form and join independent unions of their choice. The overwhelming majority of unionized workers are members of one of the eight largest unions — largely grouped by industry or service sector — which are affiliates of the German Trade Union Confederation (Deutscher Gewerkschaftsbund, DGB). Several smaller unions exist outside the DGB. Overall trade union membership has, however, been in decline over the last several years. In 2020, total DGB union membership amounted to less than 6 million. IG Metall is the largest German labor union with 2.2 million members, followed by the influential service sector union Ver.di (1.9 million members).

The constitution and enabling legislation protect the right to collective bargaining, and agreements are legally binding to the parties. In 2019, 52 percent of non-self-employed workers were covered by a collective wage agreement.

By law, workers can elect a works council in any private company employing at least five people. The rights of the works council include the right to be informed, to be consulted, and to participate in company decisions. Works councils often help labor and management to settle problems before they become disputes and disrupt work. In addition, “co-determination” laws give the workforce in medium-sized or large companies (corporations, limited liability companies, partnerships limited by shares, co-operatives, and mutual insurance companies) significant voting representation on the firms’ supervisory boards. This co-determination in the supervisory board extends to all company activities.

From 2010 to 2019, real wages grew by 1.2 percent on average. Generous collective bargaining wage increases in 2019 (+3.2 percent) and the increase of the federal Germany-wide statutory minimum wage to €9.35 (USD 10.15) on January 1, 2020, led to 2.6 percent nominal wage increase. Real wages grew by 1.2 percent in 2019. As a result of the COVID-19 pandemic, real wages fell in 2020 by 1% over the previous year (preliminary figures).

Labor costs increased by 3.4 percent in 2019. With an average labor cost of €35 (USD 41.20) per hour, Germany ranked seventh among the 27 EU-members states (EU average: €27.40/USD 32.26) in 2019.

Policies Towards Foreign Direct Investment

The Irish government actively promotes FDI, a strategy that has fueled economic growth since the mid-1990s. The principal goal of Ireland’s investment promotion has been employment creation, especially in technology-intensive and high-skill industries. More recently, the government has focused on Ireland’s international competitiveness by encouraging foreign-owned companies to enhance research and development (R&D) activities and to deliver higher-value goods and services.

U.S. companies in particular are attracted to Ireland as an exporting sales and support platform to the EU market of almost 500 million consumers and other global markets. Ireland is a successful FDI destination for many reasons, including a low corporate tax rate of 12.5 percent for all domestic and foreign firms; a well-educated, English-speaking workforce; the availability of a multilingual labor force; cooperative labor relations; political stability; and pro-business government policies and regulators. Ireland also benefits from a transparent judicial system; good transportation links; proximity to the United States and Europe, and the drawing power of existing companies operating successfully in Ireland (a so-called “clustering” effect).

The stock of American FDI in Ireland stood at USD 355 billion in 2019, more than the U.S. total for China, India, Russia, Brazil, and South Africa (the so-called BRICS countries) combined. There are approximately 900 U.S. subsidiaries currently in Ireland employing roughly 180,000 people and supporting work for another 128,000. This figure represents a significant proportion of the 2.31 million people employed in Ireland. U.S. firms operate primarily in the following sectors: chemicals, bio-pharmaceuticals and medical devices, computer hardware and software, internet and digital media; electronics, and financial services.

U.S. investment has been particularly important to the growth and modernization of Irish industry over the past thirty years, providing new technology, export capabilities, management and manufacturing best practices, and employment opportunities. Ireland has more recently become an important R&D center for U.S. firms in Europe, and a magnet for U.S. internet and digital media investment. Industry leaders like Google, Amazon, eBay, PayPal, Facebook, Twitter, LinkedIn, Electronic Arts and cybersecurity firms like Tenable, Forcepoint, AT&T Cybersecurity, McAfee use Ireland as the hub or important part of their respective European, and sometimes Middle Eastern, African, and/or Indian operations.

Factors that challenge Ireland’s ability to attract investment include relatively high labor and operating costs (such as for energy); sporadic skilled-labor shortages; the fall-out from the COVID-19 pandemic; and sometimes-deficient infrastructure (such as in transportation, energy and broadband quality). Ireland also suffers from housing and high-quality office space shortages; and absolute price levels that are among the highest in Europe. The American Chamber of Commerce in Ireland has called for greater attention to a “skills gap” in the supply of Irish graduates to the high technology sector. It also has asserted that relatively high personal income tax rates can make attracting talent from abroad difficult.

In 2013, Ireland became the first country in the Eurozone to exit a financial bailout program from the EU, European Central Bank, and International Monetary Fund (EU/ECB/IMF, or so-called Troika). Compliance with the terms of the Troika program came at a substantial economic cost with gross domestic product (GDP) stagnation and austerity measures, while dealing with high unemployment (which hit 15 percent). Strong economic progress followed through government-backed initiatives to attract investment and stimulate job creation and employment. This helped economic recovery and Ireland’s economy was the one of the fastest growing economies in the Eurozone area annually to 2019. As a result, unemployment levels fell dramatically and by the end of 2019 reached 4.7 percent. In addition, the Irish government has successfully returned to international sovereign debt markets and successful treasury bonds sales, at low interest rates, exemplify renewed international confidence in Ireland’s economic progress. Despite the prolonged difficulties caused by the COVID-19 pandemic, Ireland’s economic performance continued to be the best in the Eurozone in 2020 with an estimated three percent growth, achieved on the back of strong exports from the food, pharmaceutical and med-tech sectors.

Brexit and its Implications for Ireland

The UK’s exit from the EU (Brexit) on January 1, 2021, leaves Ireland as the only remaining English-speaking country in the bloc. The UK is now a non-EU member that shares a land border with Ireland. . The December 2020 agreement dictates the future trading relationship between the UK and the EU and will likely have an affect on Ireland’s economic performance. The agreement allows for tariff-free Ireland – Great Britain (England, Scotland and Wales) trade but comes with increased customs procedures. Existing Ireland – Northern Ireland trade continues unimpeded. While some disruption has been noticed in the supply chain of retail and agricultural sectors (due to their traditional use of the UK “land-bridge” to move products to and from the EU), Irish companies have generally been able to find alternate routes (i.e., using ferries from Ireland directly to continental Europe, though this has raised costs in some sectors.

With Brexit, Ireland has lost a close EU ally on policy matters, particularly free trade and business friendly open markets. Ireland continues to be heavily dependent on the UK as an export market and source especially for food products, and the full effect of Brexit may yet hit sectors such as food and agri-business with disruptions to supply chains and increased red-tape. Irish trade with its EU colleagues has already seen a dramatic switch to direct shipping rather than using Great Britain as a land-bridge for trucking products. A number of UK-based firms (including U.S. firms) have moved headquarters or opened subsidiary offices in Ireland to facilitate ease of business with other EU countries. The Irish Department of Finance and the Central Bank of Ireland (CBI) have estimated Brexit will cut Ireland’s economic growth modestly in the near term but such models are complicated with the ongoing COVID-19 pandemic.

Industrial Promotion

Six government departments and organizations have responsibility to promote investment into Ireland by foreign companies:

• The Industrial Development Authority of Ireland (IDA Ireland) has overall responsibility for promoting and facilitating FDI in all areas of the country. IDA Ireland is also responsible for attracting foreign financial and insurance firms to Dublin’s International Financial Services Center (IFSC). IDA Ireland maintains seven U.S. offices (in New York, NY; Boston, MA; Chicago, IL; Mountain View, CA; Irvine, CA; Atlanta, GA; and Austin, TX), as well as offices throughout Europe and Asia.
• Enterprise Ireland (EI) promotes joint ventures and strategic alliances between indigenous and foreign companies. The agency assists entrepreneurs establish in Ireland and also assists foreign firms that wish to establish food and drink manufacturing operations in Ireland. EI has six existing offices in the United States (Austin, TX; Boston, MA; Chicago, IL; New York, NY; San Francisco, CA; and Seattle, WA and has offices in Europe, South America, the Middle East, and Asia.
• Shannon Group (formerly the Shannon Free Airport Development Company) promotes FDI in the Shannon Free Zone (SFZ) and owns properties in the Shannon region as potential green-field investment sites. Since 2006, the responsibility for investment by Irish firms in the Shannon region has passed to Enterprise Ireland while IDA Ireland remains responsible for FDI in the region.
• Udaras na Gaeltachta (Udaras) has responsibility for economic development in those areas of Ireland where the predominant language is Irish, and works with IDA Ireland to promote overseas investment in these regions.
• Department of Foreign Affairs (DFA) has responsibility for economic messaging and supporting the country’s trade promotion agenda as well as diaspora engagement to attract investment.
• Department of Enterprise, Trade and Employment (DETE) supports the creation of jobs by promoting the development of a competitive business environment where enterprises can operate with high standards and grow in sustainable markets.

Limits on Foreign Control and Right to Private Ownership and Establishment

Irish law allows foreign corporations (registered under the Companies Act 2014 or previous legislation and known locally as a public limited company, or plc for short) to conduct business in Ireland. Any company incorporated abroad that establishes a branch in Ireland must file certain papers with the Companies Registration Office (CRO). A foreign corporation with a branch in Ireland has the same standing in Irish law for purposes of contracts, etc., as a domestic company incorporated in Ireland. Private businesses are not competitively disadvantaged to public enterprises with respect to access to markets, credit, and other business operations.

No barriers exist to participation by foreign entities in the purchase of state-owned Irish companies. Residents of Ireland may, however, be given priority in share allocations over all other investors. There are no recent example of this, but Irish residents received priority in share allocations in the 1998-sale of the state-owned telecommunications company Eircom. The government privatized the national airline Aer Lingus through a stock market flotation in 2005, but chose to retain about a one-quarter stake. At that time, U.S. investors purchased shares in the sale. The International Airlines Group (IAG) purchased the government’s remaining stake in the airline in 2015, and subsequently took an overall controlling interest which it continues to hold.

Citizens of countries other than Ireland and EU member states can acquire land for private residential or industrial purposes. In the past, all non-EU nationals needed written consent from the Department of Agriculture, Food and the Marine before acquiring an interest in land zoned for agricultural use but these limitations no longer exist. There are many equine stud farms and racing facilities owned by foreign nationals. No restrictions exist on the acquisition of urban land.

Ireland does not yet have formal investment screening legislation in place but is in the process of drafting the legislation which is expected to be enacted in 2021. (The bill was delayed due to the government’s efforts to respond to the COVID-19 pandemic.) As a member of the EU, Ireland is required to implement any common EU investment screening regulations or directives such as the EU Framework.

Other Investment Policy Reviews

The Economist Intelligence Unit and World Bank’s Doing Business 2020 provide current information on Ireland’s investment policies.

Business Facilitation

All firms must register with the Companies Registration Office (CRO online at www.cro.ie). The CRO, as well as registering companies, can also register a business/trading name, a non-Ireland based foreign company (external company), or a limited partnership. Any firm or company registered under the Companies Act 2014 becomes a body corporate as and from the date mentioned in its certificate of incorporation. The CRO website permits online data submission. Firms must submit a signed paper copy of this online application to the CRO, unless the applicant company has already registered with www.revenue.ie (the website of Ireland’s tax collecting authority, the Office of the Revenue Commissioners).

The Ireland pages in the following links gives the most up-to-date information:

https://www.doingbusiness.org/en/data/exploretopics/starting-a-business#close  and https://investmentpolicy.unctad.org/country-navigator/102/ireland 

Outward Investment

Enterprise Ireland assists Irish firms in developing partnerships with foreign firms mainly to develop and grow indigenous firms.

Investment Incentives

Three Irish organizations – IDA Ireland, EI, and Udaras – have regulatory authority for administering grant aid to investors for capital equipment, land, buildings, training, and R&D. Foreign and domestic business enterprises seeking grant aid from these organizations must submit detailed investment proposals. These proposals typically include information on fixed assets (capital), labor, and technology/R&D components, and establish targets using criteria such as sales, profitability, exports, and employment. The submitted information is business confidential, and each investment proposal is subject to an economic appraisal before support is offered or denied.

Ireland’s investment agencies and foreign investors jointly establish employment creation targets, which usually serve as the basis for performance requirements. The agencies only pay grant aid after the foreign investors have attained externally audited performance targets. Grant-aid agreements generally have a repayment term of five years after the date on which the last installment is paid. Parent companies of the investor generally must also guarantee repayment of the government grant if the grant-aided company closes before an agreed period of time elapses, normally ten years after the grant was paid. There are no requirements foreign investors must procure locally, or allow nationals to own shares.

The current EU Regional Aid Guidelines (RAGs), due to expire in 2020, were prolonged until the end of 2021. The RAGs govern the maximum grant-aid the Irish government can provide to firms/businesses which are graded based on their location. The differences in the various aid ceilings reflect the relative development status of business/infrastructure in regions outside the greater Dublin area.

Investors are generally free, subject to planning permission, to choose the location of their investment, however IDA Ireland has actively encouraged investment in regions outside Dublin since the 1990s. Investment regionalization became government policy in 2001. IDA Ireland set out its plan to secure 800 investments and generate 50,000 new jobs by 2025 in its Driving Recovery and Sustainable Growth 2021 – 2024 strategy. IDA Ireland’s goal is to locate over 50 percent of all new FDI investments outside the two main urban centers of Dublin and Cork, and has developed regional hubs to facilitate clusters of activity around the country. IDA Ireland has in the past supported construction of business parks in counties Galway and Louth, to encourage biotechnology sector activity in those counties.

There are no restrictions on participation by foreign firms in government-financed and/or -subsidized R&D programs on a national basis. In fact, the government strongly encourages and incentivizes (via a partial tax break) foreign companies to conduct R&D as part of its national strategy to build a more knowledge-intensive, innovation-based economy. Science Foundation Ireland (SFI), the state science agency, has been responsible for administering Ireland’s R&D funding since 2000. Under its current strategy, SFI is investing over USD 200 million annually in R&D activities. SFI targets leading researchers in Ireland and overseas to promote the development of biotechnology, information and communications technology; and energy. SFI has specific research centers of excellence – hubs that draw researchers from all of Ireland’s universities together for research on specific themes.

The U.S.-Ireland Research and Development Partnership (UIRDP), launched in 2006, is a unique initiative involving funding agencies across three jurisdictions: the United States, Ireland, and Northern Ireland (NI). Under the program, a ‘single-proposal, single-review’ mechanism is facilitated by the National Science Foundation and National Institutes of Health in the United States, which accept submissions from tri-jurisdictional (U.S., Ireland, and NI) teams for existing funding programs. All proposals submitted under the auspices of UIRDP must have significant research involvement from researchers in all three jurisdictions. In 2015, the UIRDP program topics expanded to include agricultural research; and in 2019 cybersecurity research was also incorporated as a topic.

A key aspect of government support is a tax credit on the cost of eligible research, development, and innovation (RDI) activity; and on buildings used for RDI activity. A tax credit of 25 percent is subject to certain conditions and is available for R&D activities carried out in a wide variety of science and technology areas such as software development, engineering, food and beverage production, medical devices, pharmaceuticals, financial services, agriculture and horticulture. A number of U.S. firms have already used these tax credits to build and operate R&D facilities.

The Irish government’s Knowledge Development Box (KDB), introduced in 2016, also offers a lower tax rate for certain R&D activities carried out in Ireland.

Foreign Trade Zones/Free Ports/Trade Facilitation

The government established Shannon duty-free Processing Zone under legislation in 1957. Firms operating in the area were at the time entitled to a number of taxation and duty-free benefits not available elsewhere in Ireland. Nowadays, all firms in Ireland are treated equally and the Shannon Free Zone (SFZ) as it is now called, continues to operate albeit without any additional tax benefits.

All firms operating in the SFZ area have the same investment opportunities and tax incentives as indigenous Irish companies. More than 150 companies operate within the 254-hectare business park. U.S. companies are located in SFZ include: Benex (Becton Dickinson), Connor-Winfield, Digital River, Enterasys Networks, Extrude Hone, GE Capital Aviation Services, GE Money, Sensing, Genworth Financial, Intel, Illinois Tool Works, Kwik-Lok, Lawrence Laboratories (Bristol Myers Squibb), Le Bas International, Magellan Aviation Services, Maidenform, Melcut Cutting Tools (SGS Carbide Tools), Mentor Graphics, Phoenix American Financial Services, RSA Security, Shannon Engine Support (CFM International), SPS International/Hi-Life Tools (Precision Castparts Corp), Sykes Enterprises, Symantec, Travelsavers Corp, Viking Pump, Western Well Tool, Xerox, and Zimmer Biomet.

The Shannon Group currently operates the SFZ, as well as Shannon Airport.

Performance and Data Localization Requirements

Visa, residence, and work permit procedures for foreign investors are non-discriminatory and, for U.S. citizens (as investors or employees), generally liberal. No restrictions exist on the numbers of, and duration of employment for, foreign managers brought in to supervise foreign investment projects, though all work permits must be renewed annually. There are no discriminatory export policies or import policies affecting foreign investors.

Data Storage

The government does force localization nor does it require foreign information technology providers to turn over source code and/or provide access to surveillance (e.g., backdoors into hardware and software, or encryption keys). There are no rules on maintaining minimum amounts of data storage in Ireland. Many U.S. firms already operate, and are planning for additional, data centers in Ireland

Corruption is not a serious problem for foreign investors in Ireland. The principal Irish legislation relating to anti-bribery and corruption is the Criminal Justice (Corruption Offences) Act of 2018. The Act consolidates all previous legislation for the prevention of corruption. The legislation makes it illegal for Irish public servants to accept bribes. The Ethics in Public Office Act, 1995, provides for the written annual disclosure of interests of people holding public office or employment.

The law on corruption in Ireland gives effect in domestic law to the OECD Anti-Bribery Convention and other conventions concerning criminal corruption and corruption involving officials of the European Union and officials of EU member states. Irish legislation ensures there are strong penalties in place with prison terms of up to ten years and an ‘unlimited’ fine, for those found guilty of offenses under the Act, including convictions of bribery of foreign public officials by Irish nationals and companies that takes place outside of Ireland.

Irish police (An Garda Siochana, or Garda) investigate all allegations of corruption. The Director of Public Prosecutions is responsible for preparing files for prosecution, on detection of sufficient evidence of criminal activity. The government has, in the past, convicted a small number of public officials for corruption and/or bribery. In 1996, Ireland established the Criminal Asset Bureau (CAB), an independent body responsible for seizing illegally acquired assets. CAB has the powers to focus on the illegally acquired assets of criminals involved in organized crime by identifying criminally acquired assets of persons, and taking the appropriate action to deny such people of these assets. Any CAB action is primarily taken through the application of the Proceeds of Crime Act, 1996 legislation. Ireland is a member of the Camden Asset Recovery Inter-Agency Network (CARIN).

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Ireland signed the UN Convention on Corruption in December 2003 and ratified it in 2011. Ireland is also a participating member of the OECD Working Group on Bribery.

Resources to Report Corruption

Government agency responsible for combating corruption:

Department of Justice and Equality, Crime and Security Directorate
94 St. Stephen’s Green
Dublin 2
Telephone: + 353 1 602-8202
E-mail: info@justice.ie 
Website: www.justice.ie 

Contact at Transparency International:

John Devitt
Chief Executive
Transparency International
Floor 2
69 Middle Abbey St
Dublin 2
Telephone: +353 1 554 3938
E-mail: Admin@transparency.ie 

There has been no significant spillover of violence from Northern Ireland since the ceasefires of 1994 and the signing and implementation of the Good Friday Agreement (GFA) in 1998. The cessation of violence in Northern Ireland led to increased business investment and confidence in Northern Ireland which also benefited Ireland. The GFA designated funding to develop cross-border cooperation on R&D collaboration, create energy and transportation infrastructure linkages, and for joint trade missions participation. No violence related to the situation in Northern Ireland has been specifically directed at U.S. citizens or firms located in Ireland.

Other Acts of Political Violence

There have been some incidents of criminal terrorism and gangland violence attributed to cross-border groups believed to be involved in the black market. There is considerable Garda and Police Service Northern Ireland (PSNI) cooperation to stem any illegal activity.

There have been no recent incidents involving politically motivated damage to foreign investment projects and/or installations in Ireland. There were some instances of damage to U.S. military assets transiting Shannon Airport in 2003 and later in 2011 by a small number of Irish citizens opposed to wars in Iraq and Afghanistan. In 2017, two anti-war activists defaced a U.S. aircraft with graffiti. The Garda arrested two peace protesters as they attempted to gain illegal access to Shannon airport runways in 2019. Other than these incidences of anti-military acts, there have been no acts against U.S. firms or private interests in Ireland.

Ireland’s population reached 4.98 million in April 2020 an increase of 55,900 on 2019 levels. Net migration in the year to April 2020 was 28,900 persons. The total number of persons employed at the end of 2019 was 2.36 million but this contracted to 2.31 by the end of 2020 following the onset of the COVID-19 pandemic. Employment opportunities continue to attract inward migrations particularly for employees with language skills. Ireland’s unemployment rate peaked at 15.1 percent in early 2012 following the 2008 collapse of Ireland’s construction industry. In the following years employment levels rebounded, the unemployment rate improved and by February 2020 had fallen to 5.0 percent (which for Ireland is considered near full-employment levels).

The onset of the COVID-19 pandemic brought with it three lockdowns of the economy (in April, October and December 2020) with maximum restrictions on movements and a sharp rise in the numbers receiving temporary government employment supports. Temporary government unemployment supports (pandemic unemployment payments) were put in place to keep employees linked to their employers to assist in a rapid return to operations following the lockdowns. The COVID-19 adjusted unemployment rate for Ireland stood at 24.8 percent (with an underlying unemployment rate of 5.8 percent) in February 2021. The Central Bank of Ireland forecasts Ireland’s unemployment rate will average of 9.3 percent in 2021 before declining to 7.8 percent in 2022 contingent on the full re-opening of the economy and a successful vaccination roll-out.

Average hourly labor costs in Ireland increased by 5.5 percent in 2020. During 2020, average industrial earnings increased by 5.4 percent to 964 euro (USD 1,101) per week. The government mandated minimum wage rate was increased by 0.10 euro to 10.20 euro ($12.50) per hour from January 2021, with lower rates set for younger and less experienced workers.

The government regulates the Irish labor force less than governments in most continental EU countries. The workforce has a high degree of flexibility, mobility, and education. There is relative gender balance in the workforce, with 1,245,200 males and 1,061,000 females employed in 2020. The gender balance reflects a societal change and government support that facilitated a surge in female employment from the mid-1980s. There are no restrictions on the hiring of non-national labor, and many firms, especially in the technology sector, hire young professionals with a diverse range of language and technology skills.

Ireland, since the mid-1990’s, is an attractive destination for foreign investment due to the availability of a young, highly educated workforce. The removal of tuition fees for third-level (university) education in 1995 resulted in a rapid increase of third-level qualified graduates. While tuition fees are paid by the government, students must still pay registration fees, currently capped at 3,000 euro ($ 3,675) per academic year. The availability of highly educated and qualified potential employees in Ireland is an attractive feature for employers looking to locate in the EU and has been a significant factor in attracting the already large number of multinational companies located in Ireland. Over 60 percent of new third-level students in Ireland undertake business, engineering, computer science, or science courses. The focus of government strategy has shifted to upgrading skills and increasing the number of workers in technology-intensive, high-value sectors to ensure the availability of an educated workforce.

The onset of the COVID-19 pandemic introduced mass teleworking to Ireland. The huge change in work practice came almost overnight and despite the immense change, workers and their employers seem to have adapted well. Key to Ireland’s teleworking success was the access to good broadband services. Adequate broadband is already available in most urban areas while the government’s national broadband plan to bring high speed broadband to all areas is still rolling out. It is likely that these plans may be accelerated to get earlier delivery of broadband services in more rural parts of the island.

The Irish system of industrial relations is voluntary. Employers and employees generally agree on pay levels and conditions of employment through collective bargaining. There are generally good industrial relationships and very few industrial disputes. There were just seven labor disputes in 2020 down from nine in 2019. (Note: Pandemic measure are likely to have affected the number of disputes in 2020. End note). A series of agreements between the government and public service labor unions in place since 2010 have in general reduced public service labor disputes.

Employers typically resist trade union demands for mandatory trade/labor union recognition in the workplace. While the Irish Constitution guarantees the right of citizens to form associations and unions, Irish law also affirms the right of employers to withhold union recognition and to deal with employees on an individual basis. One quarter of all workers are unionized but there is much higher participation by public sector workers in unions. The government estimates up to 80 percent of workers in foreign-owned firms do not belong to unions. This may reflect more attractive pay, benefits, and conditions by these employers compared with domestic firms. DBEI explicitly addressed the country’s collective bargaining rights through an amendment of existing legislation in the Industrial Relations (Amendment) Act 2015.

Policies Towards Foreign Direct Investment

Italy welcomes foreign direct investment (FDI).  As a European Union (EU) member state, Italy is bound by the EU’s treaties and laws.  Under EU treaties with the United States, as well as OECD commitments, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.

EU and Italian antitrust laws provide Italian authorities with the right to review mergers and acquisitions for market dominance.  In addition, the Italian government may block mergers and acquisitions involving foreign firms under its investment screening authority (known as “Golden Power”) if the proposed transactions raise national security concerns.  Enacted in 2012 and further implemented through decrees or follow-on legislation in 2015, 2017, 2019 and 2020, the Golden Power law allows the Government of Italy (GOI) to block foreign acquisition of companies operating in strategic sectors: defense/national security, energy, transportation, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology.  In March 2019, the GOI expanded the Golden Power authority to cover the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology.  Under the April 6, 2020 Liquidity Decree the Prime Minister’s Office issued, the government strengthened Italy’s investment screening authority to cover all sectors outlined in the EU’s March 2019 foreign direct investment screening directive.  The decree also extends (at least until June 30, 2021) Golden Power review to certain transactions by EU-based investors and gives the government new authorities to investigate non-notified transactions.

The Italian Trade Agency (ITA) is responsible for foreign investment attraction as well as promoting foreign trade and Italian exports.  According to the latest figures available from the ITA, foreign investors own significant shares of 12,768 Italian companies.  As of 2019, these companies had overall sales of €573.6 billion and employed 1,211,872 workers.  ITA operates under the coordination of the Italian Ministry of Economic Development and the Ministry of Foreign Affairs.  As of April 2021, ITA operates through a network of 79 offices in 65 countries.  ITA promotes foreign investment in Italy through Invest in Italy program: http://www.investinitaly.com/en/.  The Foreign Direct Investment Unit is the dedicated unit of ITA for facilitating the establishment and development of foreign companies in Italy.

While not directly responsible for investment attraction, SACE, Italy’s export credit agency, has additional responsibility for guaranteeing certain domestic investments.  Foreign investors – particularly in energy and infrastructure projects – may see SACE’s project guarantees and insurance as further incentive to invest in Italy.

Additionally, Invitalia is the national agency for inward investment and economic development operating under the Italian Ministry of Economy and Finance.  The agency focuses on strategic sectors for development and employment.  Invitalia finances projects both large and small, targeting entrepreneurs with concrete development plans, especially in innovative and high-value-added sectors.  For more information, see https://www.invitalia.it/eng.  The Ministry of Economic Development (https://www.mise.gov.it/index.php/en/) within its Directorate for Incentives to Businesses also has an office with some responsibilities relating to attraction of foreign investment.

Italy’s main business association (Confindustria) also helps companies in Italy:  https://www.confindustria.it/en.

Limits on Foreign Control and Right to Private Ownership and Establishment

Under EU treaties and OECD obligations, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.  EU and Italian antitrust laws provide national authorities with the right to review mergers and acquisitions over a certain financial threshold.  The Italian government may block mergers and acquisitions involving foreign firms to protect the national strategic interest or in retaliation if the government of the country where the foreign firm is from applies discriminatory measures against Italian firms.  Foreign investors in the defense and aircraft manufacturing sectors are more likely to encounter resistance from the many ministries involved in reviewing foreign acquisitions than are foreign investors in other sectors.

Italy maintains a formal national security screening process for inbound foreign investment in the sectors of defense/national security, transportation, energy, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology through its “Golden Power” legislation.  Italy expanded its Golden Power authority in March 2019 to include the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology.  On April 6, 2020 the GOI passed a Liquidity Decree in which the Prime Minister’s office made three main changes to its Golden Power authority to prevent the hostile takeover of Italian firms as they weather the financial impact of the COVID-19 crisis.  First, under the decree Golden Power authority now encompasses the financial sector (including insurance and credit) and all the sectors listed under the EU’s March 19, 2019 regulations establishing a framework for the screening of foreign direct investment.  The Italian government previously had adopted only some of the sectors in the EU regulations when it passed its National Cybersecurity Perimeter legislation in November 2019.  The EU regulations cover:  (1) critical infrastructure, physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate; (2) critical technologies and dual use items, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies, and nanotechnologies and biotechnologies; (3) supply of critical inputs, including food security, energy, and raw materials; (4) access to sensitive information; and (5) freedom of the media.

Second, until the end of the COVID-19 pandemic, EU-based investors must notify Italy’s investment screening authority if they seek to acquire, purchase significant shares in, or change the core activities of an Italian company in one of the covered sectors.  Previously EU-based investors had to notify the government only of transactions deemed strategic to national interests, such as in the defense sector.  Third, the government now has the power to investigate non-notified transactions and require that both public and private entities cooperate with the investigation.  In addition to being able to fine companies for non-notified transactions, the government can impose risk mitigation measures for non-notified transactions.  An interagency group led by the Prime Minister’s office reviews acquisition applications and makes recommendations for Council of Ministers’ decisions.

Other Investment Policy Reviews

The OECD published its Economic Survey for Italy in April 2019.  See https://www.oecd.org/economy/surveys/Italy-2019-OECD-economic-survey-overview.pdf.

Business Facilitation

Italy has a business registration website, available in Italian and English, administered through the Union of Italian Chambers of Commerce:  http://www.registroimprese.it.  The online business registration process is clear and complete, and available to foreign companies.  Before registering a company online, applicants must obtain a certified e-mail address and digital signature, a process that may take up to five days.  A notary is required to certify the documentation.  The precise steps required for the registration process depend on the type of business being registered.  The minimum capital requirement also varies by type of business. Generally, companies must obtain a value-added tax account number (partita IVA) from the Italian Revenue Agency; register with the social security agency (Istituto Nazionale della Previdenza Sociale– INPS); verify adequate capital and insurance coverage with the Italian workers’ compensation agency (Istituto Nazionale per L’Assicurazione contro gli Infortuni sul Lavoro – INAIL); and notify the regional office of the Ministry of Labor.  According to the World Bank Doing Business Index 2020, Italy’s ranking decreased from 67 to 98 out of 190 countries in terms of the ease of starting a business:  it takes seven procedures and 11 days to start a business in Italy.  Additional licenses may be required, depending on the type of business to be conducted.

Invitalia and the Italian Trade Agency’s Foreign Direct Investment Unit assist those wanting to set up a new business in Italy.  Many Italian localities also have one-stop shops to serve as a single point of contact for, and provide advice to, potential investors on applying for necessary licenses and authorizations at both the local and national level.  These services are available to all investors.

Outward Investment

Italy neither promotes, restricts, nor incentivizes outward investment, nor restricts domestic investors from investing abroad.

Investment Incentives

The GOI offers modest incentives to encourage private sector investment in targeted sectors and economically depressed regions, particularly in southern Italy.  The incentives are available to eligible foreign investors as well.  Incentives include grants, low-interest loans, and deductions and tax credits.  Some incentive programs have a cost cap, which may prevent otherwise eligible companies from receiving the incentive benefits once the cap is reached.  The GOI applies cost caps on a non-discriminatory basis, typically based on the order in which the applications were filed.  The government does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.

Italy provides an incentive for investments by SMEs in new machinery and capital equipment (“New Sabatini Law”), available to eligible companies regardless of nationality.  This investment incentive provides financing, subject to an annual cost cap.  Sector-specific investment incentives are also available in targeted sectors.  The government has renewed “New Sabatini Law” benefits, extending them through 2021.

In January 2018, the GOI also provided “super amortization” and “hyper amortization” (essentially generous tax deductions) on investments in special areas of the economy.  Of these the 2019 budget law renewed only “hyper amortization.”  The GOI reintroduced the “super amortization” by decree in December 2019 to stimulate investment.  Both the 2020 and 2021 budget laws replaced these measures with a tax credit on investment goods.

In the 2021 budget, the GOI renewed the broad “Industry 4.0” initiative launched by the previous government, which had expired in 2020.  The GOI allocated €23.8 billion in 2021-2023 for the private investment plan to transition to “Industry 4.0,” which aims to improve the Italian industrial sector’s competitiveness through a combination of policy measures, tax credits, and research and infrastructure funding.  Additionally, in the 2021 budget, the GOI allocated €2 billion for deferred tax assets to spur bank mergers and attract a potential buyer for state-owned Monte dei Paschi di Siena.

The Italian tax system generally does not discriminate between foreign and domestic investors, though the digital services tax implemented by Parliament in December 2019 and now accruing will have a significant impact on certain U.S. companies and affect some Italian media companies as well.  The corporate income tax (IRES) rate is 24 percent.  In addition, companies may be subject to a regional tax on productive activities (IRAP) at a 3.9 percent rate.  The World Bank estimates Italy’s total tax rate as a percent of commercial profits at 59.1 percent in 2019, higher than the OECD high-income average of 39.7 percent.

Foreign Trade Zones/Free Ports/Trade Facilitation

The main free trade zone (FTZ) in Italy is in Trieste, in the northeast of the country.  The goods brought into the zone may undergo transformation, free of any customs restraints.  There is an absolute exemption from duties on products coming from a third country and re-exported to a non-EU country.  There is draft legislation proposing creation of other FTZs in Genoa and Naples.  A free trade zone in Venice was operating previously, but the government is restructuring it.

Italy’s “for the South” law (Laws 91of 2017 and amended by Law 123 of 2017) allowed for the creation of eight Special Economic Zones (ZES – Zone Economica Speciale) managed by port authorities in Italy’s less-developed south (the regions of Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia) and on the islands of Sardinia and Sicily.  Investors will be able to access up to €50 million in tax breaks, hiring incentives, reduced bureaucracy, and reimbursement of the IRAP regional business tax, covered by national allotments of €250 million annually through 2022.  In April 2019, the GOI allocated €300 million to boost the ZESs’ infrastructure but the 2020 budget law cancelled those funds.  The 2021 budget law provided for a 50% reduction of income taxes for all business conducted in the ZES.

The ZES in the Region of Campania was the first to become operational.  The Naples ZES encompasses over 54 million square meters of land in the ports of Naples, Salerno, and Castellamare di Stabia, as well as industrial areas and transport hubs in 37 cities and towns in Campania.  Incentives are not automatic as investments must be approved by local government bodies in a procedure governed by the Port Authority of the Central Tyrrhenian Sea.  The Region of Campania forecasts that the ZES will create and/or save between 15,000 and 30,000 jobs.  In February 2021 Campania defined the requirements for companies to qualify for the fiscal and administrative benefits of the ZES: any business can access the benefits if at least 50% of the related investments are carried out within the borders of Campania’s ZES.

A ZES encompassing the port cities of Bari and Brindisi on the Adriatic finished its approval procedure in late 2019, followed by a ZES based around the transshipment port of Gioia Tauro in Calabria.  The zones of the remaining five regions are:  eastern Sicily (Augusta, Catania, and Siracusa); western Sicily (Palermo); Sardinia (Cagliari); ZES Ionica (Taranto in Puglia and the region of Basilicata); and a ZES to be shared between the ports in Abruzzo and Molise, which received local approval in 2020.

With the 2020 budget law, the GOI established that each ZES is to be chaired by a government commissioner.  Only two commissioners have been appointed to date: Rosanna Nisticò in Calabria (October 2020) and Gianpiero Marchesi in Taranto (December 2020).

In addition to the ZESs, Italian ports are focusing on Customs Free Zones, where port operators can conduct commercial activities and take advantage of significant customs incentives.  In mid-February 2021, the Port Authority of the Ionian Sea launched Taranto’s Customs Free Zone, an area of approximately 163 hectares.  In March 2021, the Port of Brindisi established a small 20- hectare Customs Free Zone.

Currently, goods of foreign origin may be brought into Italy without payment of taxes or duties, if the material is to be used in the production or assembly of a product that will be exported.  The free-trade zone law also allows a company of any nationality to employ workers of the same nationality under that country’s labor laws and social security systems.

Performance and Data Localization Requirements

Italy does not mandate local employment.  Non-EU nationals who would like to establish a business in Italy must have a valid residency permit or be nationals of a country with reciprocal arrangements, such as a bilateral investment agreement, as described at: https://www.esteri.it/mae/en/servizi/stranieri/.

Work permits and visas are readily available and do not inhibit the mobility of foreign investors.  As a member of the Schengen Area, Italy typically allows short-term visits (up to 90 days) without a visa.  The Italian Ministry of Foreign Affairs has specific information about visa requirements: http://vistoperitalia.esteri.it/home/en.

However, temporary COVID-19-related restrictions to travel are in place.  Effective January 26, 2021 all airline passengers to the United States ages two years and older must provide a negative COVID-19 viral test taken within three calendar days of travel.  The Department of State has issued a Level 3 Travel Advisory for Italy recommending that travelers avoid all nonessential travel to Italy.  In addition, the Centers for Disease Control has issued a Level 4 Travel Health Notice for Italy due to COVID-19 concerns and similarly recommends that travelers defer all nonessential travel to Italy.  Regions in Italy are divided in a color-coded system ranging from white (very low risk), yellow (low risk), orange (high risk) and red (very high risk) depending on transmission rates, availability of hospital and ICU beds, and other parameters.  Different restrictive measures apply to each zone.  Essential services such as food stores, pharmacies, newsstands, and tobacco shops remain open throughout Italy.  These restrictions are temporary and are routinely reviewed as the health situation improves.

As a member of the EU, Italy does not follow forced localization policies in which foreign investors must use domestic content in goods or technology.  Italy does not have enforcement procedures for investment performance requirements.  Italy does not require local data storage but companies transmitting customer or other business-related data within or outside of the EU must comply with relevant EU privacy regulations.

In 2020, the GOI exercised its Golden Power authority in several 5G-equipment procurement cases.  In some cases, the GOI authorized telecom operators to purchase equipment from certain foreign IT vendors if they could adhere to a set of “prescriptions.”  One of these prescriptions includes access to the foreign IT vendors’ source code.

Corruption and organized crime continue to be significant impediments to investment and economic growth in parts of Italy, despite efforts by successive governments to reduce risks.  Italian law provides criminal penalties for corruption by officials.  The government has usually implemented these laws effectively, but officials sometimes have engaged in corrupt practices with impunity.  While anti-corruption laws and trials garner headlines, they have been only somewhat effective in stopping corruption.  Since 2014, Italy has improved its overall rank and score in Transparency International’s Corruption Perceptions Index, reaching a rank of 52 in the 2020 Index.  Italy has made improvements in strengthening its institutions and public administration, but Transparency International assesses that the COVID 19 emergency has undermined the efficiency of Italy’s anti-corruption and transparency efforts.  The organization cited weaknesses in regulation and oversight procedures for the use of the over €200 billion in Next Generation EU funds Italy expects to receive to spur its economic recovery – funds to be allocated in digitalization, green transition, infrastructures, education/research and social inclusion.

In December 2018 Italy’s Parliament passed an anti-corruption bill that introduced new provisions to combat corruption in the public sector and regulate campaign finance.  The measures in the bill changed the statute of limitations for corruption-related crimes as well as other crimes and made it more difficult for people to “run out the clock” on their respective cases.  Italy’s anti-money laundering laws also apply to public officials, defined as people entrusted with important political functions, as well as their immediate family members.  (This includes officials ranging from the head of state to members of the executive bodies of state-owned companies.)  In 2019 the government passed an anti-corruption measure, called “spazza-corrotti,” giving the same treatment for political parties and related foundations, strengthening the penalties for corruption crimes against public administration, and providing more tools for investigations.

U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the anticorruption laws of both the foreign country and the United States to comply with them and, where appropriate, U.S. individuals and firms should seek the advice of legal counsel.

While the U.S. Embassy has not received specific complaints of corruption from U.S. companies operating in Italy in the past year, commercial and economic officers are familiar with high-profile cases that may affect U.S. companies.  The Embassy has received requests for assistance from companies facing a lack of transparency and complicated bureaucracy, particularly in the sphere of government procurement and specifically in the aerospace industry.  There have been no reports of government failure to protect NGOs that investigate corruption (e.g., Transparency International Italy).

Italy has signed and ratified the UN Anticorruption Convention and the OECD Convention on Combatting Bribery.

Resources to Report Corruption

Autorità Nazionale Anticorruzione (ANAC)
Via Marco Minghetti, 10 – 00187 Roma
Phone:  +39 06 367231
Fax:  +39 06 36723274
Email:  protocollo@pec.anticorruzione.it

Contact Info page:  http://www.anticorruzione.it/portal/public/classic/MenuServizio/Contatti

ANAC’s whistleblowing web page is:  http://www.anticorruzione.it/portal/public/classic/Servizi/ServiziOnline/SegnalazioneWhistleblowing

Transparency International Italia
P.le Carlo Maciachini 11
20159 Milano – Italy
T:  +39 02 40093560
F:  +39 02 406829
E:  info@transparency.it
General web site:  www.transparency.it
Corruption Specific:  https://www.transparency.it/alac/

Politically motivated violence is not a threat to foreign investments in Italy.  On rare occasion, extremist groups have made threats and deployed letter bombs, firebombs, and Molotov cocktails against Italian public buildings, private enterprises and individuals, and foreign diplomatic facilities.  Though many of these groups have hostile views of the United States, they have not targeted U.S. property or citizens in recent years.

Italy-specific travel information and advisories can be found at: www.travel.state.gov.

Unemployment continues to be a pressing issue in Italy, particularly among youth (ages 15-24).  Italy has one of the EU’s highest rates of youth unemployment at 29.7 percent (December 2020), while the overall unemployment rate was 9.0 percent in December 2020.  The unemployment rate has decreased since the pandemic, but the decrease significantly underestimates the pandemic’s impact on the economy and labor as the government has banned most layoffs and implemented a program to provide paid furloughs, which allow companies to reduce staff temporarily without adding them to the ranks of the unemployed.  Despite these measures, Italy lost 456,000 jobs in 2020, while Italy’s inactive population (neither working nor seeking work actively) rose 0.9 percent.  Job losses were concentrated among those employed under temporary contracts and in the services sector, disproportionately affecting young people and women.  As of December 2020, only 49% of females were employed, the second to lowest rate of all EU countries.  The ratio of long-term unemployment (unemployment lasting over 12 months) as a share of overall unemployment continues to be among the highest of major European economies.  Underemployment (employment that is not full-time or not commensurate with the employee’s skills and abilities) is also a serious issue.  These jobs are often concentrated in the service industry and other low-skilled professions.

Long-term unemployment is also elevated, leading to a permanent reduction in human capital and earnings potential.  Italy’s labor force participation rates are among the lowest in the EU, particularly among women, the young, and the elderly, and particularly in the South.  However, low labor force participation rates do not encompass labor in the large informal economy, which Italy’s statistics agency estimates as comprising at least 12 percent of Italian GDP.

The productivity of Italy’s labor force – one of the main weaknesses of the country’s economy – is also below the EU average.  Many Italian employers report an inability to find qualified candidates for highly skilled positions, demonstrating significant skills mismatches in the Italian labor market.  Many well-educated Italians find more attractive career opportunities outside of Italy, with large numbers of Italians taking advantage of EU freedom of movement to work in the United Kingdom (pre-Brexit), Germany, or other EU countries.  There is no reliable measure of Italians working overseas, as many expatriate workers do not report their whereabouts to the Italian government.  Skilled labor shortages are a particular problem in Italy’s industrialized North.

Companies may bring in a non-EU employee after the government-run employment office has certified that no qualified, unemployed Italian is available to fill the position.  However, the cumbersome and lengthy process acts as a deterrent to foreign firms seeking to comply with the law; language barriers also prevent outsiders from competing for Italian positions.  Work visas are subject to annual quotas, although intra-company transfers are exempt.

Indefinite employment contracts signed before March 2015 are governed by the 2012 labor regime, which allows firms to conduct layoffs and firings with lump sum payments.  Under the 2012 system, according to Article 18 of the workers’ statute of 1970, judges can order reinstatement of dismissed employees (with back pay) if they find the dismissal was a pretext for discriminatory or disciplinary dismissal.  In practice, dismissed employees reserved the right to challenge their dismissal indefinitely, often using the threat of protracted legal proceedings or an adverse court ruling to negotiate additional severance packages with employers.

Indefinite employment contracts signed after March 2015 are governed by the rules established under the 2015 Jobs Act, a package of labor market reforms that provides for employment contracts with protections increasing with job tenure.  During the first 36 months of employment, firms may dismiss employees for bona fide economic reasons.  Under the Jobs Act regime, dismissed employees must appeal their dismissal within 60 days and reinstatements are limited.

Regardless of the reason for termination of employment, a former employee is entitled to receive severance payments (TFR – trattamento di fine rapporto) equal to 7.4 percent of the employee’s annual gross compensation for each year worked.

Other Jobs Act measures enacted in 2015 include universal unemployment and maternity benefits, as well as a reduced number of official labor contract templates (from 42 to six).  The GOI’s unemployment insurance (NASPI) provides up to six months of coverage for laid-off workers.  The GOI also provides worker retraining and job placement assistance, but services vary by region and implementation of robust national active labor market policies remains in progress.

In 2018 the government introduced the so-called “Dignity Decree,” which rolled back some of the structural reforms to Italy’s labor market adopted as part of the 2015 Jobs Act.  For example, the Dignity Decree extended incentives to hire people under 35 years old, set limits on how often a short-term contract could be renewed – the government has suspended the limit during the pandemic – and made it more costly to fire workers.

Italy offers residents other social safety net protections.  In 2017 the government implemented an anti-poverty plan (Reddito di Inclusione, or “Inclusion Income”) aimed at providing some financial relief and training to homeless individuals and people with income below a certain threshold.  In the 2019 budget, a prior government introduced the Citizenship Income (Reddito di Cittadinanza), which replaced and broadened the Inclusion Income program of 2017.  The Citizenship Income program provides a basic income of €780 a month to eligible citizens and acts as an employment agency to a portion of those receiving the Citizenship Income.  The estimated annual cost of the program was approximately €6.5 billion, but the pandemic increased the number of potential beneficiaries.  The program provides benefits to around 1.3 million households (or 3.1 million individuals).

In 2019 the government implemented an early retirement scheme (Quota 100), which changed the pension law and permitted earlier retirement for eligible workers aged 62 years or older with at least 38 years of employment.  The benefit expires at the end of 2021.

While the Jobs Act included a statutory minimum wage, it has not yet been implemented.  With no national minimum wage, wages are set through sector-wide collective bargaining.  The government in 2016 established an agency for Job Training and Placement (ANPAL) to coordinate (with Italian regions) implementation of many labor policies.  ANPAL oversees implementation of the Assegno di Ricollocazione (a “relocation allowance”), an initiative to provide unemployment benefits to workers willing to move to different regions of the country), and a related special wage guarantee fund (Cassa Integrazione Straordinaria) that provides stipends for retraining.  The Citizenship Income program and ANPAL appear to have failed in their goal of helping eligible workers find jobs.  The Citizenship Income program, however, seems to have played a role in reducing poverty before the pandemic, and limiting its rise in 2020 during the economic crisis.  In March 2021 the Ministry of Labor set up a committee to examine how to reform the Citizenship Income program.  Historical regional labor market disparities remain unchanged, with the southern third of the country posting a significantly higher unemployment rate than northern and central Italy.  Despite these differences, internal migration within Italy remains modest, while industry-wide national collective bargaining agreements set equal wages across the entire country.

Italy is a member of the International Labor Organization (ILO).  Italy does not waive existing labor laws to attract or retain investments.  Terms and conditions of employment are periodically fixed by collective labor agreements in different professions.  Most Italian unions are grouped into four major national confederations: the General Italian Confederation of Labor (CGIL), the Italian Confederation of Workers’ Unions (CISL), the Italian Union of Labor (UIL), and the General Union of Labor (UGL).  The first three organizations are affiliated with the International Confederation of Free Trade Unions (ICFTU), while UGL has been associated with the World Confederation of Labor (WCL).  The confederations negotiate national-level collective bargaining agreements with employer associations, which are binding on all employers in a sector or industry irrespective of geographical location.

Collective bargaining is widespread in Italy, occurring at the national-level (primarily aimed at securing pay adjustments that take account of inflation/changes in the cost-of-living) and industry-level (to secure pay adjustments that reflect increased productivity and/or profitability).  Firm-level collective bargaining is limited.  The Italian Constitution provides that unions may reach collective agreements that are binding on all workers.  There are no official estimates of the percentage of the economy covered by collective bargaining agreements.  A 2019 estimate from The European Trade Union Institute said collective bargaining coverage was approximately 80 percent (for national-level bargaining), with less coverage for industry-level agreements and minimal coverage for company-level agreements.

Collective agreements may last up to three years, although recent practice is to renew collective agreements annually.  Collective bargaining establishes the minimum standards for employment, but employers retain the discretion to apply more favorable treatment to some employees covered by the agreement.

Labor disputes are handled through the civil court system, though they are subject to specific procedures.  Before entering the civil court system, parties must first attempt to resolve their disputes through conciliation (administered by the local office of the Ministry of Labor) and/or through specific union-agreed dispute resolution procedures.

In cases of proposed mass layoffs or facility closures, the Ministry of Economic Development may convene a tripartite negotiation (Ministry, company, and union representatives) to attempt to reach a mutually acceptable agreement to avoid the layoff or closure.  In recent years, U.S. companies have faced significant resistance from labor unions and politicians when attempting to right size operations.  Due to the pandemic, the government has banned most layoffs through June 2021.  (This date may be extended.)

There have been no recent strikes that posed investment risks.  The Italian Constitution recognizes an employee’s right to strike.  Strikes are permitted in practice, but are typically short-term (e.g., one working day) to draw attention to specific areas of concern.  In addition, workers (or former employees) commonly participate in demonstrations to show opposition to proposed job cuts or facility closings, but these demonstrations have not threatened investments.  In addition, occasional strikes by employees of local transportation providers may limit citizens’ mobility.

Policies Towards Foreign Direct Investment

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

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

Other Investment Policy Reviews

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

Business Facilitation

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

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

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

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

Outward Investment

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

Investment Incentives

Latvia does not offer tax incentives. The Cross-Sectoral Coordination Center of Latvia is the main agency in charge of National Development Planning. In accordance with the Law on the Development Planning System ( https://likumi.lv/doc.php?id=175748 ), national development planning documents are prepared for a long-term (up to 25 years), medium-term (up to seven years) and short-term (up to three years). More information available here: https://www.pkc.gov.lv/en/national-development-planning 

In addition, Latvia has identified the following sectors as having the highest potential for new investment: woodworking, metalworking and mechanical engineering, transport and storage, information technology (including global business services), green technology, health care, life sciences, and food processing. The information is disseminated to the general public and potential investors via the Latvian Investment and Development Agency’s official website ( http://liaa.gov.lv/invest-latvia/sectors-and-industries ), and through its representative offices ( http://liaa.gov.lv/contacts/representative-offices ).

Because the Latvian government extends national treatment to foreign investors, most investment incentives and requirements apply equally to local and foreign businesses. Latvia has three special economic zones and two free ports in which companies benefit from various tax rebates (real estate, dividend, and corporate income) and do not pay VAT. The full list of investment incentives is available here: https://www.liaa.gov.lv/en/invest-latvia/business-guide/business-incentives .

Latvia does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are five free trade areas in Latvia. Free ports have been established in Riga and Ventspils. Special economic zones (SEZ) have been created in Liepaja, a port city in western Latvia; Rezekne, a city in eastern Latvia; and an additional SEZ in Latgale, the poorest region in Latvia, which borders Russia and Belarus.

Somewhat different rules apply to each of the five zones. In general, the two free ports provide exemptions from indirect taxes, including customs duties, VAT, and excise tax. The SEZs offer additional incentives, such as an 80-100 percent reduction of corporate income taxes and real estate taxes. To qualify for tax relief and other benefits, companies must receive permits and sign agreements with the appropriate authorities: the Riga and the Ventspils Port Authorities, for the respective free ports; the Liepaja SEZ Administration; the Rezekne SEZ Administration; or the Latgale SEZ Administration. The SEZs are expected to be in place until 2035.

Performance and Data Localization Requirements

Except for specific requirements for investors acquiring former state enterprises through the privatization process, there are no performance requirements for a foreign investor to establish, maintain, or expand an investment in Latvia. In the privatization process, performance requirements for investors, both foreign and domestic, are determined on a case-by-case basis.

Under Latvian Immigration Law, foreign citizens can enter and reside in Latvia for temporary business activities for up to three months in a six-month period. For longer periods of time, foreigners are required to obtain residence and work permits. The Latvian Investment and Development Agency, together with the Office of Citizenship and Migration Affairs, has created a guide to help third-country nationals interested in working in Latvia obtain work permits: http://workinlatvia.liaa.gov.lv/ 

A third-country national may obtain a five-year temporary residence permit if he or she has made certain minimum equity investments in a Latvian company, certain subordinated investments in a Latvian credit institution, or purchased real estate for certain designated sums, subject to limitations in each case. More information is available here: https://www.liaa.gov.lv/en/invest-latvia/business-guide/operating-environment  .

Latvia’s Law on Personal Data Processing, implementing the EU’s General Data Protection Regulation, entered into force in July 2018. Full text of the Law available here: https://likumi.lv/ta/en/en/id/300099-personal-data-processing-law 

More information is available here: https://www.dvi.gov.lv/en/ 

Resources to Report Corruption

Latvian law enforcement institutions, foreign business representatives, and non-governmental organizations have identified corruption and the perception of corruption as persistent problems in Latvia. According to the 2020 Corruption Perception Index by Transparency International, Latvia ranks 42nd out of 180 countries (in order from the lowest perceived level of public sector corruption to the highest).

To strengthen its anti-corruption programs, the Latvian government has adopted several laws and regulations, including the Law on Money Laundering and the Law on Conflicts of Interest. The Conflicts of Interest Law imposes restrictions and requirements on public officials and their relatives. Several provisions of the law deal with the previously widespread practice of holding several positions simultaneously, often in both the public and private sector. The law includes a comprehensive list of state and municipal jobs that cannot be combined with additional employment. Moreover, the law expanded the scope of the term state official to include members of boards and councils of companies with state or municipal capital exceeding 50 percent. Latvia became a member of the OECD Anti-Bribery Convention in 2014. In line with OECD recommendations, the government is working to strengthen anti-corruption enforcement and improve the functioning of its independent agency, the Anti-Corruption Bureau (KNAB).

Under Latvian law, it is a crime to offer, accept, or facilitate a bribe. Although the law stipulates heavy penalties for bribery, a limited number of government officials have been prosecuted and convicted of corruption to date. The law also provides the possibility of withdrawing charges against a person giving a bribe in cases where the bribe has been extorted, or in cases where the person voluntarily reports these incidents and actively assists the investigation. In addition, the Latvian government has adopted a whistleblower law that requires all government agencies and large companies to establish protocols to accept whistleblower complaints and protect whistleblowers from reprisals.

KNAB is the institution with primary responsibility for combating corruption and carrying out operational activities in response to suspected or alleged corruption. The Prosecutor General’s Office also plays an important role in fighting corruption.

KNAB has also established a Public Consultative Council to help increase public participation in implementing its anti-corruption policies, increasing public awareness, and strengthening connections between the agency and the public. More information is available here: https://www.knab.gov.lv/en/knab/consultative/public/ .

There is a perceived lack of fairness and transparency in the public procurement process in Latvia. Several companies, including foreign companies, have complained that bidding requirements are sometimes written with the assistance of potential contractors or couched in terms that exclude all but preferred contractors.

A Cabinet of Ministers regulation provides for public access to government information, and the government generally provided citizens such access. There have been no reports the government has denied noncitizens or foreign media access to government information.

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

Corruption Prevention and Combating Bureau
Citadeles iela 1, Riga, LV 1010, Latvia
+371 67356161
knab@knab.gov.lv 

Contact at “watchdog” organization:

Delna (Latvian affiliate of Transparency International)
Citadeles iela 8, Riga, LV-1010
+371 67285585
ti@delna.lv 

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

The official rate of registered unemployment in January 2021, according to Eurostat, was 8.5 percent ( https://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics ). The Latvian State Employment Agency reported 8.2 percent unemployment at the end of February 2021. Unemployment is significantly higher in rural areas. A high percentage of the workforce has completed at least secondary or vocational education. Foreign managers praise the high degree of language skills, especially Russian and English, among Latvian workers. However, foreign managers have reported a shortage of mid- and senior-level managers with “Western” management skills.

Companies must keep wages above the legally specified minimum of 500 euros per month, as of January 2021. Union influence on the wage setting process is limited. Trade unions do not have significant influence on the labor market. Additional information on trade unions in Latvia is available here: http://www.worker-participation.eu/National-Industrial-Relations/Countries/Latvia .

One challenge employers have faced since Latvia joined the EU is that many skilled employees can find better employment opportunities in other EU countries. Unofficial statistics suggest that more than 240,000 people have moved from Latvia to other EU countries since May 1, 2004. Despite the fact that the macroeconomic situation has stabilized, skilled and unskilled workers continue to emigrate. The government is implementing a strategy to entice people who have left Latvia to return.

According to several reports, there is a significant shortage of workers in manufacturing, wholesale and retail, transport and storage, and ICT sectors. The largest share of registered unemployment is comprised of persons with only primary or secondary education who do not possess specialized skills. To address this problem, the Latvian government has approved a list of highly skilled professions that employers may use to recruit professionals abroad to work in Latvia: https://www.em.gov.lv/en/news/18513-the-government-supports-the-application-of-simplified-conditions-for-the-attraction-of-highly-qualified-foreign-professionals .

The Labor Law addresses discrimination issues, provides detailed provisions on the rights and obligations of employees’ representatives, and created the Conciliation Commission, a mechanism that can be used in the workplace to resolve labor disputes before going to arbitration. Victims of sexual harassment in the workplace can also submit a complaint to the Office of the Ombudsman and the State Labor Inspectorate.

Full-time employees in Latvia work 40 hours a week. Normally, there are five working days per week, but employers may schedule a sixth workday without offering premium pay. Employees are entitled to four calendar weeks of annual paid vacation per year. Employers are prohibited from entering into an employment contract with a foreign individual who does not have a valid work permit.

Latvia is a member of the International Labor Organization (ILO) and has ratified all eight ILO Core Conventions.