Policies Towards Foreign Direct Investment 

Cambodia has a liberal foreign investment regime and actively courts FDI. The primary law governing investment is the 1994 Law on Investment. The government permits 100 percent foreign ownership of companies in most sectors. In a handful of sectors, such as cigarette manufacturing, movie production, rice milling, gemstone mining and processing, foreign investment is subject to local equity participation or prior authorization from authorities. While there is little or no official legal discrimination against foreign investors, some foreign businesses, however, report disadvantages vis-a-vis Cambodian or other foreign rivals that engage in acts of corruption or tax evasion or take advantage of Cambodia’s poor regulatory enforcement.

The Council for the Development of Cambodia’s (CDC) is the principal government agency responsible for providing incentives to stimulate investment. Investors are required to submit an investment proposal to either the CDC or the Provincial-Municipal Investment Sub-committee to obtain a Qualified Investment Project (QIP) status depending on capital level and location of the investment question. QIPs are then eligible for specific investment incentives.

The CDC also serves as the secretariat to Cambodia’s Government-Private Sector Forum (G-PSF), a public-private consultation mechanism that facilitates dialogue within and among 10 government/private sector Working Groups. The G-PSF acts as a platform for the private sector to identify issues and recommend solutions. More information about investment and investment incentives in Cambodia may be found at: www.cambodiainvestment.gov.kh .

Cambodia has created special economic zones (SEZs) to further facilitate foreign investment; as of February 2020, there are 23 SEZs in Cambodia. These zones provide companies with access to land, infrastructure, and services to facilitate the set-up and operation of businesses. Services provided include: utilities, tax services, customs clearance, and other administrative services designed to support import-export processes. Projects within the SEZs are also offered incentives such as tax holidays, zero rate VAT, and import duty exemptions for raw materials, machinery and equipment. The primary authority responsible for Cambodia’s SEZs is the Cambodia Special Economic Zone Board (CSEZB). The largest of its SEZs is located in Sihanoukville and hosts primarily Chinese companies.

Limits on Foreign Control and Right to Private Ownership and Establishment 

There are few limitations on foreign control and ownership of business enterprises in Cambodia. Foreign investors may own 100 percent of investment projects except in the sectors mentioned Section 1. According to Cambodia’s 2003 Amended Law on Investment and related sub-decrees, there are no limitations based on shareholder nationality or discrimination against foreign investors except in relation to investments in property or state-owned enterprises. Both the Law on Investment and the 2003 Amended Law state that the majority of interest in land must be held by one or more Cambodian citizens. Further, pursuant to the Law on Public Enterprise, the Cambodian government must directly or indirectly hold more than 51 percent of the capital or the right to vote in state-owned enterprises.

Another limitation concerns the employment of foreigners in Cambodia. A QIP allows employers to obtain visas and work permits for foreign citizens as skilled workers, but the  employer may be required to prove to the Ministry of Labor and Vocational Training that the skillset is not available in Cambodia. The Cambodian Bar has periodically taken actions to restrict or impede the work of foreign lawyers or foreign law firms in the country.

employer may be required to prove to the Ministry of Labor and Vocational Training that the skillset is not available in Cambodia. The Cambodian Bar has periodically taken actions to restrict or impede the work of foreign lawyers or foreign law firms in the country.

Other Investment Policy Reviews 

The OECD conducted an Investment Policy Review of Cambodia in 2018. The report may be found at this link .

The World Trade Organization (WTO) last reviewed Cambodia’s trade policies in 2017; the first had occurred in 2011. The report can be found at this link .

Business Facilitation 

All businesses are required to register with the Ministry of Commerce (MoC) and the General Department of Taxation (GDT). Registration with MOC is possible through an online business registration portal (link ) that allows all existing and new businesses to register. Depending on the types of business activity, new businesses may also be required to register with other relevant ministries. For example, travel agencies must also register with the Ministry of Tourism, and private universities must also register with the Ministry of Education, Youth and Sport. GDT also has an online portal for tax registration and other services, which can be located here .

The World Bank’s 2020 Ease of Doing Business Report ranks Cambodia 187 of 190 countries globally for the ease of starting a business. The report notes that it takes nine separate procedures and three months or more to complete all business, tax, and employment registration processes.

Outward Investment 

There are no restrictions on Cambodian citizens investing abroad. A number of Cambodian companies have invested in neighboring countries – notably, Thailand, Laos and Myanmar – in various sectors.

Transparency of the Regulatory System 

In general, Cambodia’s regulatory system, while improving, still lacks transparency. This lack of transparency is a result of the lack of legislation and limited capacity of key institutions, and is exacerbated by a weak court system. Investors often complain that the decisions of Cambodian regulatory agencies are inconsistent, arbitrary, or influenced by corruption. For example, in May 2016 in what was perceived as a populist move, the government set caps on retail fuel prices, with little consultation with petroleum companies. And, in April 2017, the National Bank of Cambodia introduced an interest rate cap on loans provided by the microfinance industry with no consultation with relevant stakeholders. In the past years, investors have expressed concern as well over draft legislation that has not been subject to stakeholder consultations.

Cambodian ministries and regulatory agencies are not legally obligated to publish the text of proposed regulations before their enactment. Draft regulations are only selectively available for public consultation with relevant non-governmental organizations (NGOs), private sector or other parties before their enactment. Approved or passed laws are available on websites of some

Ministries but are not always up to date. The Council of Jurists, the government body that reviews law and regulations, publishes a list of updated laws and regulations on its website.

International Regulatory Considerations 

As a member of the ASEAN since 1999, Cambodia is required to comply with certain rules and regulations with regard to free trade agreements with the 10 ASEAN member states. These include tariff-free importation of information and communication technology (ICT) equipment, harmonizing custom coding, harmonizing the medical device market, as well as compliance with tax regulations on multi-activity businesses, among others.

As a WTO member, Cambodia has both drafted and modified laws and regulations to comply with WTO rules. Relevant laws and regulations are notified to the WTO legal committee only after their adoption. A list of Cambodian legal updates in compliance with the WTO is described in the above section regarding Investment Policy Reviews.

Legal System and Judicial Independence 

Although the Cambodian Constitution calls for an independent judiciary, both local and foreign businesses report problems with inconsistent judicial rulings, corruption, and difficulty enforcing judgments. For these reasons, many commercial disputes are resolved through negotiations facilitated by the Ministry of Commerce, the Council for the Development of Cambodia, the Cambodian Chamber of Commerce, or other institutions. Foreign investors often build into their contacts clauses which dictate that investment disputes must be resolved in a third country, such as Singapore.

The Cambodian legal system is primarily based on French civil law. Under the 1993 Constitution, the King is the head of state and the elected Prime Minister is the head of government. Legislative power is vested in a bicameral parliament, while the judiciary makes up the third branch of government. Contractual enforcement is governed by Decree Number 38 D Referring to Contract and Other Liabilities. More information on this decree can be found at www.cambodiainvestment.gov.kh/decree-38-referring-to-contract-and-other-liabilities_881028-2.html.

Laws and Regulations on Foreign Direct Investment 

Cambodia’s 1994 Law on Investment created an investment licensing system to regulate the approval process for foreign direct investment and provide incentives to potential investors. In 2003, the government amended the law to simplify licensing and increase transparency (Amended Law on Investment). Sub-decree No. 111 (2005) lays out detailed procedures for registering a QIP, which is entitled to certain taxation incentives, with the CDC and provincial/municipal investment subcommittees.

Information about investment and investment incentives in Cambodia may be found on the CDC’s website.

Competition and Anti-Trust Laws 

A draft antitrust and competition law is near completion and may be finalized in 2020. Once enacted, it will be enforced by Cambodia’s Import-Export Inspection and Fraud Repression Directorate-General (CAMCONTROL).

Expropriation and Compensation 

Land rights are a contentious issue in Cambodia, complicated by the fact that most property holders do not have legal documentation of their ownership because of official policies and social upheaval during Khmer Rouge era in the 1970s. Numerous cases have been reported of influential individuals or groups acquiring land titles or concessions through political and/or financial connections and then using force to displace communities to make way for commercial enterprises.

In late 2009, the National Assembly approved the Law on Expropriation, which sets broad guidelines on land-taking procedures for public interest purposes. It defines public interest activities to include construction, rehabilitation, preservation, or expansion of infrastructure  projects, and development of buildings for national defense and civil security. These provisions include construction of border crossing posts, facilities for research and exploitation of natural resources, and oil pipeline and gas networks. Property can also be expropriated for natural disasters and emergencies, as determined by the government. Legal procedures regarding compensation and appeals are expected to be established in a forthcoming sub-decree, which is under internal discussion within the technical team of the Ministry of Economy and Finance.

projects, and development of buildings for national defense and civil security. These provisions include construction of border crossing posts, facilities for research and exploitation of natural resources, and oil pipeline and gas networks. Property can also be expropriated for natural disasters and emergencies, as determined by the government. Legal procedures regarding compensation and appeals are expected to be established in a forthcoming sub-decree, which is under internal discussion within the technical team of the Ministry of Economy and Finance.

The government has shown willingness to use tax issues for political purposes. For instance, in 2017, a U.S.-owned independent newspaper had its bank account frozen purportedly for failure to pay taxes. It is believed that, while the company may have had some tax liability, the action taken by Cambodia’s General Department of Taxation, notably an inflated tax assessment, was politically motivated and intended to halt operations. These actions took place at the same time the government took steps to reduce the role of press and independent media in the country as part of a wider anti-democratic crackdown.

Dispute Settlement 

ICSID Convention and New York Convention 

Cambodia has been a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) since 2005. Cambodia is also a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) since 1960.

Investor-State Dispute Settlement 

International arbitration is available for Cambodian commercial disputes. In March 2014, the Supreme Court of Cambodia upheld the decision of the Cambodian Court of Appeal, which had ruled in favor of the recognition and enforcement of an arbitral award issued by the Korean Commercial Arbitration Board of Seoul, South Korea. Cambodia became a member of the World Bank’s International Center for Settlement of Investment Disputes in January 2005. In 2009, the International Center approved a U.S. investor’s request for arbitration in a case against the Cambodian government, and in 2013, the tribunal rendered an award in favor of Cambodia.

International Commercial Arbitration and Foreign Courts 

Commercial disputes can also be resolved through the National Commercial Arbitration Center (NCAC), Cambodia’s first alternative dispute resolution mechanism, which was officially launched in March 2013. Arbitral awards issued by foreign arbitrations are admissible in the Cambodian court system. An example can be drawn from its recognition and enforcement of arbitral award issued by the Korean Commercial Arbitration Board in 2014.

Bankruptcy Regulations 

Cambodia’s 2007 Law on Insolvency was intended to provide collective, orderly, and fair satisfaction of creditor claims from debtor properties and, where appropriate, the rehabilitation of the debtor’s business. The Law on Insolvency applies to the assets of all business people and legal entities in Cambodia. The World Bank’s 2020 Doing Business Report ranks Cambodia 82 out of 190 in terms of the “ease of resolving insolvency.”

In 2012, Credit Bureau Cambodia (CBC) was established in an effort to create a more transparent credit market in the country. CBC’s main role is to provide credit scores to banks and financial institutions and to improve access to credit information.

Investment Incentives 

Cambodia’s Law on Investment and Amended Law on Investment offers varying types of investment incentives for projects that meet specified criteria. Investors seeking an incentive – for examples, incentives as part of a qualified investment project (QIP) – must submit an application to the CDC. Investors who wish to apply are required to pay an application fee of KHR 7 million (approximately $1,750), which covers securing necessary approvals, authorizations, licenses, or registrations from all relevant ministries and entities, including stamp duties. The CDC is required to seek approval from the Council of Ministers for investment proposals that involve capital of $50 million or more, politically sensitive issues, the exploration and exploitation of mineral or natural resources, or infrastructure concessions. The CDC is also required to seek approval from the Council of Ministers for investment proposals that will have a negative impact on the environment or the government’s long-term strategy.

QIPs are entitled to receive different incentives such as corporate tax holidays; special depreciation allowances; and import tax exemptions on production equipment, construction materials, and production inputs used to produce exports. Investment projects located in designated special promotion zones or export-processing zones are also entitled to the same incentives. Industry-specific investment incentives, such as three-year profit tax exemptions, may be available in the agriculture and agro-industry sectors. More information about the criteria and investment areas eligible for incentives can be found at the following link .

Foreign Trade Zones/Free Ports/Trade Facilitation 

To facilitate the country’s development, the Cambodian government has shown great interest in increasing exports via geographically defined special economic zones (SEZs). Cambodia is currently drafting a law on Special Economic Zones, which is now undergoing technical review within the CDC. There are currently 23 special SEZs, which are located in Phnom Penh, Koh Kong, Kandal, Kampot, Sihanoukville, and the borders of Thailand and Vietnam. The main investment sectors in these zones include garments, shoes, bicycles, food processing, auto parts, motorcycle assembly, and electrical equipment manufacturing.

Real Property 

Mortgages exist in Cambodia and Cambodian banks often require certificates of property ownership as collateral before approving loans. The mortgage recordation system, which is handled by private banks, is generally considered reliable.

Cambodia’s 2001 Land Law provides a framework for real property security and a system for recording titles and ownership. Land titles issued prior to the end of the Khmer Rouge regime (1975-79) are not recognized due to the severe dislocations that occurred during that time period. The government is making efforts to accelerate the issuance of land titles, but in practice, the titling system is cumbersome, expensive, and subject to corruption. The majority of property owners lack documentation proving ownership. Even where title records exist, recognition of legal titles to land has not been uniform, and there are reports of court cases in which judges have sought additional proof of ownership.

Foreigners are constitutionally forbidden to own land in Cambodia; however, the 2001 Land Law allows long and short-term leases to foreigners. Cambodia also allows foreign ownership in multi-story buildings, such as condominiums, from the second floor up. Cambodia was ranked 129 out of 190 economies for ease of registering property in the 2020 World Bank Doing Business Report.

Intellectual Property Rights 

Infringement of intellectual property rights (IPR) is prevalent in Cambodia. Counterfeit apparel, footwear, cigarettes, alcohol, pharmaceuticals, and consumer goods, and pirated software, music, and books are examples of IPR-infringing goods found in the country.

Though Cambodia is not a major center for the production or export of counterfeit or pirated materials, local businesses report that the problem is growing because of the lack of enforcement. To date, Cambodia has not been listed by the Office of the U.S. Trade Representative (USTR) in its annual Special 301 Report.

Cambodia has enacted several laws pursuant to its WTO commitments on intellectual property. Its key IP laws include the Law on Marks, Trade Names and Acts of Unfair Competition (2002), the Law on Copyrights and Related Rights (2003), the Law on Patents, Utility Models and Industrial Designs (2003), the Law on Management of Seed and Plant Breeder’s Rights (2008), the Law on Geographical Indications (2014), and the Law on Compulsory Licensing for Public Health (2018).

Cambodia has been a member of WIPO since 1995 and has acceded to a number of international IPR protocols, including the Paris Convention (1998), the Madrid Protocol (2015), the WIPO Patent Cooperation Treaty (2016), The Hague Agreement Concerning the International

Registration of Industrial Design (2017), and the Lisbon Agreement on Appellations of Origin and Geographical Indications (2018).

To combat the trade in counterfeit goods, the Cambodian Counter Counterfeit Committee (CCCC) was established in 2014 under the Ministry of Interior to investigate claims, seize illegal goods, and prosecute counterfeiters. The Economic Police, Customs, the Cambodia Import-Export Inspection and Fraud Repression Directorate General, and the Ministry of Commerce also have enforcement IPR enforcement responsibilities; however, the division of responsibility among each agency is not clearly defined. This causes confusion to rights owners and muddles the overall IPR environment. Though there has been an increase in the number of seizures of counterfeit goods in recent years, in general such actions are not taken unless a formal complaint is made.

In early 2020, the U.S. Patent and Trademark Office concluded an MOU with Cambodia on accelerated patent recognition, creating a simplified procedure for U.S. patents to be registered in Cambodia.

For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at this link .

Capital Markets and Portfolio Investment 

In a move designed to address the need for capital markets in Cambodia, the Cambodia Securities Exchange (CSX) was founded in 2011 and started trading in 2012. Though the CSX is one of the world’s smallest securities markets, it has taken steps to increase the number of listed companies, including attracting SMEs. It currently has five listed companies, including the Phnom Penh Water Supply Authority, Taiwanese garment manufacturer Grand Twins International, the Sihanoukville Autonomous Port, Phnom Penh SEZ Plc, and Sihanoukville Autonomous Port.

In September 2017, the National Bank of Cambodia (NBC) adopted a Prakas on Conditions for Banking and Financial Institutions to be listed on the Cambodia Securities Exchange. The Prakas sets additional requirements for banks and financial institutions that intend to issue securities to the public. This includes prior approval from the NBC and minimum equity of KHR 60 billion (approximately $15 million).

Cambodia’s bond market is at the beginning stages of development. The regulatory framework for corporate bonds was bolstered in 2017 through the publication of the Prakas on Public Offering of Debt Securities, the Prakas on Accreditation of Bondholders Representative, and the Prakas on Accreditation of Credit Rating Agency. The country’s first corporate bond was issued in 2018 by Hattha Kaksekar Limited. Four additional companies have since been added to the bond market: LOLC (Cambodia) Plc., Advanced Bank of Asia Limited, Phnom Penh Commercial Bank Plc, and RMA (Cambodia) Plc. RMA, which issued its bonds in early 2020, was the first non-bank financial institution to be listed. There is currently no sovereign bond market, but the government has stated its intention of making government securities available to investors by 2022.

Money and Banking System 

The National Bank of Cambodia (NBC) regulates the operations of banking systems in Cambodia. Foreign banks and branches are freely allowed to register and operate in the country. There are 44 commercial banks, 14 specialized banks (set up to finance specific turn-key projects such as real estate development), 74 licensed microfinance institutions, and seven licensed microfinance deposit taking institutions in Cambodia. NBC has also granted licenses to 12 financial leasing companies and one credit bureau company to improve transparency and credit risk management and encourage more lending to small-and medium-sized enterprise customers.

Prior to the COVID-19 pandemic, Cambodia’s banking sector experienced strong growth. The banking sector’s assets, including those of MFIs, rose 21.4 percent year-over-year in 2018 to 139.7 trillion riel ($34.9 billion), while credit grew 24.3 percent to 81.7 trillion riel ($20.4 billion). Loans and deposits grew 18.3 percent and 24.5 percent respectively, which resulted in a decrease of the loan-to-deposit ration from 114 percent to 110 percent. The ratio of non-performing loans remained steady at 2.4 percent in 2017.

The government does not use the regulation of capital markets to restrict foreign investment. Banks have been free to set their own interest rates since 1995, and increased competition between local institutions has led to a gradual lowering of interest rates from year to year. However, in April 2017, at the direction of Prime Minister Hun Sen, the NBC capped interest rates on loans offered by micro-finance institutions (MFIs) at 18 percent per annum. The move was designed to protect borrowers, many of whom are poor and uneducated, from excessive interest rates.

In March 2016, the NBC doubled the minimum capital reserve requirement for banks to $75 million for commercial banks and $15 million for specialized banks. Based on the new regulations, deposit-taking microfinance institutions now have a $30 million reserve requirement, while traditional microfinance institutions have a $1.5 million reserve requirement.

In March 2020, the National Bank of Cambodia (NBC) issued several regulations to ensure liquidity and promote lending amid the outbreak of COVID-19. They include: (1) delaying the implementation of Conservation Capital Buffer (CCB) for financial institutions; (2) reducing the minimum interest rate of Liquidity-Providing Collateralized Operations (LPCO); (3) reducing the interest rates of Negotiable Certificate of Deposit (NCD); (4) reducing the reserve requirement rate (RRR) from 8 percent (KHR) and 12.5 percent (USD) to 7 percent (KHR and USD) for 6 months starting from April, 2020; and (5) reducing the liquidity coverage ratio.

Financial technology (Fintech) in Cambodia is still at early stage of development. Available technologies include mobile payment, QR code, and e-wallet accounts for domestic and cross-border payments and transfers. In 2012, the NBC launched retail payments for cheques and credit remittances. A FAST payment system was introduced in 2016 to facilitate instant fund transfers. The Cambodian Shared Switch (CSS) system was launched in October 2017 to facilitate the access to network ATM and POS machines.

In February 2019, the Financial Action Task Force (FATF), an intergovernmental organization whose purpose is to develop policies to combat money laundering, cited Cambodia for being “deficient” with regard to its anti-money laundering and countering financing of terrorism (AML/CFT) controls and policies and included Cambodia on its “grey list.” The government has committed to working with FATF to address these deficiencies through a jointly-developed action plan, although progress to date appears minimal. Should Cambodia not address the deficiencies, it could risk landing on the FATF “black list,” something that could negatively impact the cost of capital as well as the banking sector’s ability to access the international capital markets.

Foreign Exchange and Remittances 

Foreign Exchange 

Though Cambodia has its own currency, the riel (denoted as KHR), U.S. dollars are widely in circulation in Cambodia and remain the primary currency for most large transactions. There are no restrictions on the conversion of capital for investors.

Cambodia’s 1997 Law on Foreign Exchange states that there shall be no restrictions on foreign exchange operations through authorized banks. Authorized banks are required, however, to report the amount of any transfer equaling or exceeding $100,000 to the NBC on a regular basis.

Loans and borrowings, including trade credits, are freely contracted between residents and nonresidents, provided that loan disbursements and repayments are made through an authorized intermediary. There are no restrictions on the establishment of foreign currency bank accounts in Cambodia for residents.

The exchange rate between the riel and U.S. dollar is governed by a managed float and has been stable at around one U.S. dollar to KHR 4,000 for the past several years. Daily fluctuations of the exchange rate are low, typically under three percent. In the past several years, the Cambodian government has taken steps to increase general usage of the riel but, as noted above, the country’s economy remains largely dollarized.

Remittance Policies 

Article 11 of the Cambodia’s 2003 Amended Law on Investment states that QIPs can freely remit abroad foreign currencies purchased through authorized banks for the discharge of financial obligations incurred in connection with investments. These financial obligations include: payment for imports and repayment of principal and interest on international loans; payment of royalties and management fees; remittance of profits; and, repatriation of invested capital in case of dissolution.

Sovereign Wealth Funds 

Cambodia does not have a sovereign wealth fund.

Cambodia currently has 15 state-owned enterprises (SOEs): Electricite du Cambodge, Sihanoukville Autonomous Port, Telecom Cambodia, Cambodia Shipping Agency, Cambodia Postal Services, Rural Development Bank, Green Trade Company, Printing House, Siem Reap Water Supply Authority, Construction and Public Work Lab, Phnom Penh Water Supply Authority, Phnom Penh Autonomous Port, Kampuchea Ry Insurance, Cambodia Life Insurance, and the Cambodia Securities Exchange.

In accordance with the Law on General Stature of Public Enterprises, there are two types of commercial SOEs in Cambodia – one that is 100 percent owned by the state, the other is a joint-venture in which a majority of capital is owned by the state and a minority is owned by private investors.

Each SOE is under the supervision of a line ministry or government institution and is overseen by a board of directors drawn from among senior government officials. Private enterprises are generally allowed to compete with state-owned enterprises under equal terms and conditions. SOEs are also subject to the same taxes and value-added tax rebate policies as private-sector enterprises. SOEs are covered under the law on public procurement, which was promulgated in January 2012, and their financial reports are audited by the appropriate line ministry, the Ministry of Economy and Finance, and the National Audit Authority.

Privatization Program 

There are no ongoing privatization programs, nor has the government announced any plans to privatize existing SOEs.

There is a small, but growing awareness of responsible business conduct (RBC) and corporate social responsibility (CSR) among businesses in Cambodia despite the fact that the government does not have explicit policies to promote them. RBC and CSR programs are mostly commonly found at larger and multinational companies in the country. U.S. companies, for example, have implemented a wide range of CSR activities to promote skills training, the environment, general health and well-being, and financial education. These programs have been warmly received by both the general public and the government.

A number of economic land concessions in Cambodia have led to high profile land rights cases. The Cambodian government has recognized the problem, but in general, has not effectively and fairly resolved land rights claims. The Cambodian government does not have a national contact point for Organization for Economic Cooperation and Development (OECD) multinational enterprises guidelines and does not participate in the Extractive Industries Transparency Initiative.

Corruption remains a significant issue in Cambodia for investors, and is a widespread practice. An increase in foreign investment from investors willing to engage in corrupt practices, combined with sometimes opaque official and unofficial investment processes, has served to facilitate an overall rise in corruption, already at high levels. In its Global Competitiveness Report 2019, the World Economic Forum ranked Cambodia 134th out of 141 countries for incidence of corruption. Transparency International’s 2019 Corruption Perception index ranked Cambodia 162 of 180 countries globally, the lowest ranking among ASEAN member states.

Those engaged in business have identified corruption, particularly within the judiciary, customs services, and tax authorities, as one of the greatest deterrents to investment in Cambodia. Foreign investors from countries that overlook or encourage bribery have significant advantages over foreign investors from countries that criminalize such activity.

Cambodia adopted an Anti-Corruption Law in 2010 to combat corruption by criminalizing bribery, abuse of office, extortion, facilitation payments, and accepting bribes in the form of  donations or promises. Under the law, all civil servants must also declare their financial assets to the government every two years. Cambodia’s Anti-Corruption Unit (ACU), established the same year, has investigative powers and a mandate to provide education and training to government institutions and the public on anti-corruption compliance. Since its formation, the ACU has launched a few high-profile prosecutions against public officials, including members of the police and judiciary, and has tackled the issue of ghost workers in the government, in which salaries are collected for non-existent employees.

donations or promises. Under the law, all civil servants must also declare their financial assets to the government every two years. Cambodia’s Anti-Corruption Unit (ACU), established the same year, has investigative powers and a mandate to provide education and training to government institutions and the public on anti-corruption compliance. Since its formation, the ACU has launched a few high-profile prosecutions against public officials, including members of the police and judiciary, and has tackled the issue of ghost workers in the government, in which salaries are collected for non-existent employees.

The ACU, in collaboration with the private sector, has also established guidelines encouraging companies to create internal codes of conduct prohibiting bribery and corrupt practices. Companies can sign a Memorandum of Understanding (MOU) with the ACU pledging to operate corruption-free and to cooperate on anti-corruption efforts. Since the program started in 2015, more than 80 private companies have signed a MOU with the ACU. In 2018, the ACU completed a first draft of a code of conduct for public officials, which has not yet been finalized.

Despite the passage of the Anti-Corruption Law and creation of the ACU, enforcement remains weak. Local and foreign businesses report that they must often make informal payments to expedite business transactions. Since 2013, Cambodia has published the official fees for public services, but the practice of paying additional fees remains common.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Cambodia ratified the UN Convention against Corruption in 2007 and endorsed the Action Plan of the Asian Development Bank / OECD Anti-Corruption Initiative for Asia and the Pacific in 2003. Cambodia is not a party to the OECD Convention on Combating Bribery.

Resources to Report Corruption 

Om Yentieng President, Anti-Corruption Unit
No. 54, Preah Norodom Blvd, Sangkat Phsar Thmey 3,
Khan Daun Penh, Phnom Penh
Telephone: +855-23-223-954
Email: info@acu.gov.kh

Transparency International Cambodia
#13 Street 554, Phnom Penh
Telephone: +855-23-214430
Email: info@ticambodia.org

Foreign companies have been the targets of violent protests in the past, such as the 2003 anti-Thai riots against the Embassy of Thailand and Thai-owned commercial establishments. More recently, there were reports that Vietnamese-owned establishments were looted during a January 2014 labor protest. Authorities have also used force, including truncheons, electric cattle prods, fire hoses, and even gunfire, to disperse protestors. Incidents of violence directed at businesses, however, are rare. The Embassy is unaware of any incidents of political violence directed at U.S. or other non-regional interests.

Nevertheless, political tensions remain. After relatively competitive communal elections in June 2017, where Cambodia’s opposition party won nearly 50 percent of available seats, the government took steps to strengthen its grip on power and eliminated meaningful political activity. In September 2017, the head of the country’s leading opposition party was arrested and charged with treason, and in November 2017, the same opposition party was banned. In July 2018, Prime Minister Hun Sen won a landslide victory, and his ruling party swept all 125 parliamentary seats, in a national election that was criticized by the United States as being neither free nor fair. The government has also taken steps to limit free speech and stifle independent media, including forcing independent news outlets and radio stations to cease operations. While there are few overt signs the country is growing less secure today, the possibility for insecurity exists going forward, particularly if a large percentage of the population remains disenfranchised.

The global COVID-19 pandemic has had significant impact on Cambodia’s labor sector, the full extent of which are not yet known. Cambodia’s garment and manufacturing sector, which is heavily reliant on global supply chains for inputs and on demand from the United States and Europe, is experiencing severe disruptions due to COVID-19. The government estimates that as of May 2020, 180,000 of Cambodia’s approximately 1 million factory workers have been furloughed. In addition, approximately 90,000 of Cambodia’s 1.3 million migrant workers returned from abroad (mostly from Thailand) due to COVID-19 related job losses.

Cambodia’s labor force includes about 10 million people. A small number of Vietnamese and Thai migrant workers are employed in Cambodia, and Chinese-run infrastructure and other businesses are importing an increasing number of Chinese laborers, who typically earn more than their Cambodian counterparts. Given the severe disruption to the Cambodian education system and loss of skilled Cambodians during the 1975-1979 Khmer Rouge period, there are few Cambodian workers with higher education or specialized skills. Around 55 percent of the population is under the age of 25, a fact reflected in Cambodia’s young workforce. The United Nations has estimated that around 300,000 new job seekers enter the labor market each year. The agricultural sector employees about 40 percent of the labor force. Some 37 percent of the non-agricultural workforce, or 2.2 million workers, are in the informal economy. The pandemic has caused mass suspensions and layoffs across all non-agricultural sectors.

Unresolved labor disputes are mediated first on the shop-room floor, after which they are brought to the Ministry of Labor and Vocational Training. If conciliation fails, then the cases may be brought to the Arbitration Council, an independent state body that interprets labor regulations in collective disputes, such as when multiple employees are dismissed. Since the 2016 Trade Union Law went into force, Arbitration Council cases have decreased from over 30 per month to fewer than five, although that number began to increase again in 2019 due to regulatory changes.

Cambodia’s 2016 Trade Union Law (TUL) erects barriers to freedom of association and the rights to organize and bargain freely. The ILO has stated publicly that the law could hinder Cambodia’s obligations to international labor conventions 87 and 98. To address those concerns, Cambodia passed an amended TUL in early 2020, but the amended law still does not go far enough to fully address ILO, U.S. government, labor NGO, and union concerns about the law’s curbs on freedom of association. In addition, Cambodia has only implemented and enforced a minimum wage in the export garment and footwear sectors.

In early 2020, the government also began consultations with businesses and unions on amending the Labor Law. Unions generally oppose the proposed amendments, seeing them as too pro-business. One proposed change, for example, would reduce extra pay for night shift work.

Through 2019, a number of Cambodian companies have received financing from the Overseas Private Investment Corporation (OPIC), including loans to financial institutions for the purposes of onward lending. OPIC’s successor agency, the Development Finance Corporation (DFC), is expected to carry these programs forward in Cambodia.

The Export-Import Bank of the United States (Ex-Im Bank) provides financing and insurance to local companies to help them purchase U.S. made products and services; repayment terms are generally up to seven years. In 2018, Ex-Im Bank facilitated the sale of a U.S.-made grain silo through a loan guarantee, its first commercial transaction in Cambodia. Cambodia is also a member of the Multilateral Investment Guarantee Agency of the World Bank, which offers political-risk insurance to foreign investors.

There has been a surge in FDI inflows to Cambodia in recent years. Though FDI goes primarily to infrastructure, including commercial and residential real estate projects, it has also recently favored investments in manufacturing and agro-processing. Cambodia reports its total stock of FDI reached $42 billion in 2019 in terms of fixed assets, up from $38.5 billion in 2018.

Investment into Cambodia is dominated by China, and the level of investment from China has surged especially the last five years. Cambodia reports that its stock of FDI from China reached $16.6 billion by the end of 2019. Other major sources of FDIs stock in Cambodia include South Korea ($4.7 billion), United Kingdom ($3.8 billion), Malaysia ($2.7 billion), and Japan ($2.4 billion), through 2019. In 2019 alone, Chinese investment in Cambodia reached $1.3 billion, followed by Hong Kong ($913 million), and the United Kingdom ($822 million).

* Source for Host Country Data: The Council for the Development of Cambodia (CDC) provides official government data on investment in Cambodia, but not all data is published online. See: www.cambodiainvestment.gov.kh/why-invest-in-cambodia/investment-enviroment/investment-trend.html 

Data retrieved from IMF’s Coordinated Direct Investment Survey database presents a much different picture of FDI into Cambodia as compared to that provided by the Cambodian government. For example, the Council for Development of Cambodia reports $38.5 billion stock FDI in term of fixed asset through year-end 2018, while the IMF reports only $23 billion.

Table 4: Sources of Portfolio Investment
Data not available.

David Ryan Sequeira, CFA
Economic Officer
U.S. Embassy Phnom Penh
No. 1, Street 96, Sangkat Wat Phnom, Phnom Penh, Cambodia
Phone: (855) 23-728-401
Email: CamInvestment@state.gov

Policies Towards Foreign Direct Investment

Georgia is open to foreign investment. Legislation establishes favorable conditions for foreign investment, but not preferential treatment for foreign investors. The Law on Promotion and Guarantee of Investment Activity protects foreign investors from subsequent legislation that alters the condition of their investments for a period of ten years. Investment promotion authority is vested in the Investment Division of Enterprise Georgia, a legal entity of public law under the Ministry of Economic and Sustainable Development. The Investment Division’s primary role is to attract, promote, and develop foreign direct investment in Georgia. For this purpose, it acts as the moderator between foreign investors and the Georgian government, ensures access to updated information, provides a means of communication with government bodies, and serves as a “one-stop-shop” to support investors throughout the investment process. (http://www.enterprisegeorgia.gov.ge/en/about ).

To enhance relations with investors, in 2015 Georgia’s then-Prime Minister created an Investors Council, an independent advisory body aimed at promoting dialogue among the private business community, international organizations, donors, and the Georgian government for the development of a favorable, non-discriminatory, transparent, and fair business and investment climate in Georgia (http://ics.ge ). The Business Ombudsman, who is a member of the Investors Council, is another tool for protecting investors’ rights in Georgia (http://businessombudsman.ge ).

Limits on Foreign Control and Right to Private Ownership and Establishment

Georgia does not have an established interagency process to screen foreign investment, but relevant ministries or agencies may have the right to review investments for national security concerns in certain circumstances, as outlined below. Foreign investors have participated in most major privatizations of state-owned property. Transparency of privatization has been an issue at times. No law or regulation authorizes private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control. Cross-shareholder or stable-shareholder arrangements are not used by private firms in Georgia. Georgian legislation does not protect private firms from takeovers. There are no regulations authorizing private firms to restrict foreign partners’ investment activity or limit foreign partners’ ability to gain control over domestic enterprises.

There are no specific licensing requirements for foreign investment other than those that apply to all companies. The government requires licenses for activities that affect public health, national security, and the financial sector: weapons and explosives production, narcotics, poisonous and pharmaceutical substances, exploration and exploitation of renewable or non-renewable substances, exploitation of natural resource deposits, establishment of casinos and gambling houses and the organization of games and lotteries, banking, insurance, securities trading, wireless communication services, and the establishment of radio and television channels. The law requires the state to retain a controlling interest in air traffic control, shipping traffic control, railroad control systems, defense and weapons industries, and nuclear energy. For investment projects requiring licenses or permits, the relevant government ministries and agencies have the right to review the project for national security concerns.  By law, the government has 30 days to make a decision on licenses, and if the licensing authority does not state a reasonable ground for rejection within that period, the government must approve the license or permit for issuance. Per Georgian law, it is illegal to undertake any type of economic activity in Abkhazia or South Ossetia if such activities require permits, licenses, or registration in accordance with Georgian legislation. Laws also ban mineral exploration, money transfers, and international transit via Abkhazia or South Ossetia. Only the state may issue currency, banknotes, and certificates for goods made from precious metals, import narcotics for medical purposes, and produce control systems for the energy sector.

Other Investment Policy Reviews

In January 2016, the World Trade Organization (WTO) concluded its second Trade Policy Review of Georgia. In this review, WTO members reiterated their approval of Georgia’s broadly open, transparent, and predictable trade and investment regimes. Members noted that, during the review period, Georgia undertook an impressive range of reform initiatives aimed at streamlining, liberalizing, and simplifying trade regulations and their implementation. The review lauded Georgia’s trade openness and its commitment to the multilateral system through its responsible contribution to the work of the WTO.

WTO members commended Georgia for ratifying the WTO’s Trade Facilitation Agreement and the related notification to the WTO of Category A, B and C commitments. Members also noted that Georgia was an observer to the Government Procurement Agreement and was assessing the prospects for joining the Agreement. Members welcomed the announcement that Georgia was considering joining the expanded Information Technology Agreement, which would constitute a significant step forward for attracting further investment. See more at: https://www.wto.org/english/tratop_e/tpr_e/tp428_crc_e.htm 

Business Facilitation

Registering a business in Georgia is relatively quick and streamlined, and Georgia ranks second in registering property among countries assessed in the World Bank’s 2020 Doing Business Report. Registration takes one day to complete through Georgia’s single window registration process. The National Agency of Public Registry (NAPR) (www.napr.gov.ge  – webpage is in Georgian only), located in Public Service Halls (PSH) under the Ministry of Justice of Georgia, carries out company registration. The web page of the PSH (http://www.psh.gov.ge/main/page/2/85 ) outlines procedures and requirements for business registration in English. For registration purposes, the law does not require a document verifying the amount or existence of charter capital. A company is not required to complete a separate tax registration as the initial registration includes both the revenue service and national business registration. The following information is required to register a business in Georgia: bio data for the founder and principal officers, articles of incorporation, and the company’s area of business activity. Other required documents depend on the type of entity to be established.

To register a business, the potential owner must first pay the registration fee, register the company with the Entrepreneurial Register, and obtain an identification number and certificate of state and tax registration. Registration fees are: GEL100 (around USD35) for regular registration, GEL200 (USD70) for expedited registration, plus GEL1 (bank fees). Second, the owner must open a bank account (free).

Georgia’s business facilitation mechanism provides for equitable treatment of women and men. There are a variety of state-run and donor-supported projects that aim to promote women entrepreneurs through specific training or other programs, including access to financing and business training.

Outward Investment

The Georgian government does not have any specific policy on promoting or restricting domestic investors from investing abroad and Georgia’s outward investment is insignificant.

Transparency of the Regulatory System

Georgia’s legal, regulatory, and accounting systems are transparent and consistent with international norms, and the Georgian government has committed to achieving even greater transparency and simplicity of regulations for these systems.

In Georgia, the lawmaking process involves Parliament (drafting and consideration) and the President (signing). Under Georgia’s constitution, the following subjects have the right to initiate legislation: the President, the government, members of Parliament, a committee, faction, the representative bodies of the Autonomous Republics of Abkhazia and Adjara, and groups of at least 30,000 voters.

A subject who does not have the right to launch a legislative initiative does, however, have the right to submit a “legislative proposal,” which should be a well-reasoned address to Parliament advocating for the adoption of a new law or of changes/amendments to existing legislation. According to Article 150 of the Law on Parliament, the following can submit a legislative proposal: citizens of Georgia, state bodies (except the establishments of the executive branch of government), the representative and executive bodies of local self-government, political and public unions registered in Georgia according to the established rule, and other legal entities.

There are no informal regulatory processes managed by nongovernmental organizations or private sector associations, except their entitlement for participating in the law-making process prescribed by the above law.

Publicly listed companies are required to prepare financial statements in accordance with IFRS – International Financial Reporting Standards.

Draft bills or regulations are available for public comment. NGOs, professional associations, and business chambers actively participate in public hearings on legislation.

The government publishes laws and regulations in Georgian in the official online legislative herald gazette, the Legislative Messenger, ‘Matsne’ (www.matsne.gov.ge ). Another online tool to research Georgian legislation is www.codex.ge , or the webpage of the Parliament of Georgia, www.parliament.ge .

General oversight of the executive branch is vested in the parliament. The new Constitution, which entered into force in December 2018, and subsequently adopted new Parliamentary Rules and Procedures aim to strengthen Parliament’s oversight role. Under its strengthened role, public officials are obliged to respond to Parliament’s questions and government institutions submit annual reports. However, local watchdog organizations continue to raise concern that one party controls all branches of government, undermining checks and balances. Independent agencies, such as the State Audit Office, the Ombudsman’s office, including the Business Ombudsman, and business associations also provide an oversight function. Georgia maintains an active civil society that frequently reports on government activities.

Information on Georgia’s state budget and debt obligations was widely and easily accessible to the general public, including online, and considered generally reliable. Georgia’s State Audit Service reviewed the government’s accounts and made its reports publicly available. The International Monetary Fund (IMF) reported in its Regional Economic Outlook  on the Middle East, North Africa, Afghanistan, and Pakistan, published in October 2019, that Georgia had successfully implemented fiscal reforms. The report states, “Fiscal transparency, measured by the Open Budget Index, has improved markedly. Tax revenues rose and the efficiency of revenue collection has been higher than among peers….The adoption of flexible fiscal rules helped foster fiscal discipline, limited the rise in public debt, and reduced volatility of government expenditure.”

Georgia has six types of taxes: corporate profit, value added, property, income, excise, and dividend. The tax on corporate profits is 15 percent. However, in January 2017, the government adopted a corporate profit tax scheme that exempts undistributed, reinvested, or retained corporate profits from income taxation. Georgia’s value added tax (VAT) rate is 18 percent, tax on personal income is 20 percent, and dividend income tax is five percent. There are no dividend or capital gains taxes for publicly traded equities (a free float in excess of 25 percent). Georgia imposes excise taxes on cigarettes, alcohol, fuel, and mobile telecommunication. Most goods, except for some agricultural products, have no import tariffs. For goods with tariffs, the rates are five or 12 percent, unless excluded by an FTA.

Detailed information on the types and rates of taxes applicable to businesses and individuals, as well as a payment calendar, is available on the webpage  of Georgia’s Revenue Service.

In 2019, the Georgian government introduced new regulations to simplify the tax regime and streamline processes for small businesses. The new legislation decreased turnover tax from five percent to one percent for small businesses and defined small business as those with less than GEL 500,000 (USD 185 thousand) annual turnover, a fivefold increase from the previous GEL 100,000 (USD 31 thousand) threshold. In addition, the new regulations allow small businesses to pay taxes by the end of month, instead of requiring advance payments. For medium and large businesses, the reform introduced an automatic system of VAT returns and activated a special system whereby entrepreneurs can pay VAT returns in five to seven business days by filling out an electronic application.

Enterprise Georgia, a state agency under the Ministry of Economic and Sustainable Development, operates the Business Service Center in Tbilisi, which provides domestic and foreign businesses with information on doing business in Georgia. The Business Service Center facilitates an online chat tool for interested individuals (http://www.enterprisegeorgia.gov.ge/en/SERVICE-CENTER ). Additionally, the Investor’s Council provides an opportunity for the private sector to discuss legislative reforms, economic development plans, and actions to spur economic growth with the government. Different commercial chambers, such as the American Chamber of Commerce (www.amcham.ge ), International Chamber of Commerce (www.icc.ge ), Business Association of Georgia (www.bag.ge ), Georgian Chamber of Commerce and Industry (www.gcci.ge ), and EU-Georgia Business Council (http://eugbc.net ) remain important tools for facilitating ongoing dialogue between domestic and foreign business communities and the government.

International accounting standards are binding for joint stock companies, banks, insurance companies, companies operating in the insurance field, limited liability companies, limited partnerships, joint liability companies, and cooperatives. Private companies are required to perform accounting and financial reporting in accordance with international accounting standards. Sole entrepreneurs, small businesses, and non-commercial legal entities perform accounting and financial reporting according to simplified interim standards approved by the Parliamentary Accounting Commission. Shortcomings in the use of international accounting standards persist, and qualified accounting personnel are in short supply.

The Law of Georgia on Free Trade and Competition provides for the establishment of an independent structure, the Competition Agency, to exercise effective state supervision over a free, fair, and competitive market environment. Nonetheless, certain companies have dominant positions in pharmaceutical, petroleum, and other sectors.

Public finances and debt obligations are transparent, and Georgia’s budget and information on debt obligations were widely and easily accessible to the public through government websites including the Ministry of Finance’s site (www.mof.gov.ge ). Georgia’s State Audit Office (www.sao.ge ) reviews the government’s accounts and makes its reports publicly available.

International Regulatory Considerations

Georgia’s Association Agreement of 2014 with the European Union introduced a preferential trade regime, the DCFTA, which increased market access between the EU and Georgia based on having better-aligned regulations. The agreement is designed to introduce gradually European standards in all spheres of Georgia’s economy and sectoral policy: infrastructure, energy, the environment, agriculture, tourism, technological development, employment and social policy, health protection, education, culture, civil society, and regional development. It also provides for the approximation of Georgian laws with nearly 300 separate European legislative acts.

The DCFTA should promote a gradual approximation with European standards for food safety, establish a transparent and stable business environment in Georgia, increase Georgia’s potential to attract investment, introduce innovative approaches and new technologies, stimulate economic growth, and support the country’s economic development.

Georgia has been a WTO member since 2000 and consistently meets requirements and obligations included in the Agreement on Trade Related Investment Measures (TRIM). Since WTO accession, Georgia has not introduced any Technical Barriers to Trade. In January 2016, Georgia ratified the WTO Trade Facilitation Agreement (TFA).

Legal System and Judicial Independence

Georgia’s legal system is based on civil law and the country has a three-tier court system. The first tier consists of 25 trial courts throughout the country that hear criminal, civil, and administrative cases. Two appellate courts, Tbilisi Appeal Court (East Georgia) and Kutaisi Appeal Court (West Georgia), represent the second tier. The Supreme Court of Georgia occupies the third, or the highest, instance and acts as the highest appellate court. In addition, there is a separate Constitutional Court for arbitrating constitutional disputes between branches of government and ruling on individual claims concerning human rights violations stemming from the Constitution.

Georgia does not have an integrated commercial code. There are a number of different laws and codes (Tax Code, Law on Entrepreneurs, and Law on Insolvency) that regulate commercial activity in Georgia. There are no specialized courts, such as a commercial court, to handle commercial disputes. The Ministry of Justice’s Public Service Halls provide property registration.

The independence of Georgia’s judiciary and political inference in the judicial system remain concerns. Freedom House’s 2018 Freedom in the World Report stated that “despite ongoing judicial reforms, executive and legislative interference in the courts remains a substantial problem, as does corruption and a lack of transparency and professionalism surrounding judicial proceedings.” In addition, delays in adjudicating cases and backlogs in Georgian courts remain problematic. International experts are providing Georgian officials with assistance aimed at improving judicial efficiency. The recommendations in the fourth wave of judicial reforms passed in 2019 included legislative changes, streamlining case management, increasing the number of matters resolved by non-judges, improved data exchanges, and implementing balanced caseload.

Regulations and enforcement actions are appealable and are adjudicated in the national court system.

Laws and Regulations on Foreign Direct Investment

The U.S.-Georgia Bilateral Investment Treaty (BIT) guarantees U.S. investors national treatment and most favored nation treatment. Exceptions to national treatment have been carved out for Georgia in certain sectors, such as maritime fisheries, air and maritime transport and related activities, ownership of broadcast, common carrier, or aeronautical radio stations, communications satellites, government-supported loans, guarantees, and insurance, and landing of submarine cables.

Georgia’s legal system is based on civil law. Legislation governing foreign investment includes the Constitution, the Civil Code, the Tax Code, and the Customs Code. Other relevant legislation includes the Law on Entrepreneurs, the Law on Promotion and Guarantee of Investment Activity, the Bankruptcy Law, the Law on Courts and General Jurisdiction, the Law on Limitation of Monopolistic Activity, the Accounting Law, and the Securities Market Law.

Ownership and privatization of property is governed by the following acts: the Civil Code, the Law on Ownership of Agricultural Land, the Law on Private Ownership of Non-Agricultural Land, the Law on Management of State-Owned Non-Agricultural Land, and the Law on Privatization of State Property. Property rights in extractive industries are governed by the Law on Concessions, the Law on Deposits, and the Law on Oil and Gas. Intellectual property rights are protected under the Civil Code and the Law on Patents and Trademarks. Financial sector legislation includes the Law on Commercial Banks, the Law on National Banks, and the Law on Insurance Activities.

There is no one-stop-shop website for investment that provides relevant laws in English.

Competition and Anti-Trust Laws

The Georgian Law “On Free Trade and Competition” of 2005 that governs competition is in line with the Georgian Constitution and international agreements.

The agency in charge of reviewing transactions for competition-related concerns is the Competition Agency, an independent legal entity of public law, subordinated to the Prime Minister of Georgia. The agency aims to promote market liberalization, free trade, and competition (www.competition.ge ). Georgia has also signed a number of international agreements containing competition provisions, including the EU-Georgia Association Agreement. The DCFTA within the AA goes further than most FTAs, with elimination of non-tariff barriers and regulatory alignment, as well as binding rules on investments and services.

Expropriation and Compensation

The Georgian Constitution protects property ownership rights, including ownership, acquisition, disposal, and inheritance of property. Foreign citizens living in Georgia possess rights and obligations equal to those of the citizens of Georgia, with the exception of certain property rights (see Section 5). The Constitution allows restriction or revocation of property rights only in cases of extreme public necessity, and then only as allowed by law.

The Law on Procedures for Forfeiture of Property for Public Needs establishes the rules for expropriation in Georgia. The law allows expropriation for certain enumerated public needs, establishes a mechanism for valuation and payment of compensation, and provides for court review of the valuation at the option of any party. The Georgian Law on Investment allows expropriation of foreign investments only with appropriate compensation. Amendments to the Law on Procedures for Forfeiture of Property for Public Needs allow payment of compensation with property of equal value as well as money. Compensation includes all expenses associated with the valuation and delivery of expropriated property. Compensation must be paid without delay and must include both the value of the expropriated property as well as the loss suffered by the foreign investor as a result of expropriation. The foreign investor has a right to review an expropriation in a Georgian court. In 2007, Parliament passed a law generally prohibiting the government from contesting the privatization of real estate sold by the government before August 2007. The law is not applicable, however, to certain enumerated properties.

The U.S.-Georgia BIT permits expropriation of covered investments only for a public purpose, in a non-discriminatory manner, upon payment of prompt, adequate and effective compensation, and in accordance with due process of law and general principles of fair treatment.

Expropriation disputes are not common in Georgia, although under the previous government (before 2012), reputable NGOs raised cases of illegal revocation of historic ownership rights in Svaneti, Anaklia, Gonio, and Black Sea-adjacent territories. Under the previous government there were cases of property transfers that lacked transparency and allegedly were implemented under coercion.

Dispute Settlement

ICSID Convention and New York Convention

Since 1992, Georgia has been a member of the International Centre for Settlement of Investment Disputes (ICSID Convention) and a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). As a result of these international obligations, Georgia is bound to accept international arbitration and recognize arbitral awards. The Ministry of Justice oversees the government’s interests in arbitrations between the state and private investors.

Investor-State Dispute Settlement

Georgia has signed bilateral investments treaties (BITs) with 32 countries  including the United States. Georgian investment law allows disputes between a foreign investor and a government body to be resolved in Georgian courts or at ICSID, unless a different method of dispute settlement is agreed upon between the parties. If the dispute cannot be heard at ICSID, the foreign investor can also submit the dispute to ad-hoc international arbitration under United Nations Commission for International Trade Law (UNCITRAL model law) rules. The right to use ICSID or UNCITRAL model law is provided for under the U.S.–Georgia BIT.

There were reports of lack of due process and respect for rule of law in a number of property rights cases. NGOs also reported several cases in which groups claimed the government improperly used taxes on property to pressure organizations.

Although the constitution and law provide for an independent judiciary, there remain indications of interference in judicial independence and impartiality. Judges are vulnerable to political pressure from within and outside of the judiciary.

Disputes over property rights at times have undermined confidence in the impartiality of the Georgian judicial system and rule of law, and by extension, Georgia’s investment climate. The government identified judicial reform as one of its top priorities, and Parliament has passed a series of reforms aimed at strengthening judicial independence. While reforms have improved the independence of the judiciary, politically sensitive cases are still vulnerable to political pressure. The High Council of Justice is currently dominated by a group of anti-reform judges. Civil society asserts this group applies pressure on judges in politically sensitive cases. The government recently adopted additional judicial reforms focused on improving judicial discipline rules and regulating the operations of the High School of Justice and High Council of Justice.

Over the past 10 years, there have been over a dozen investment disputes involving U.S. citizens. As of 2019, five of those disputes were still ongoing, while the rest were resolved through arbitral awards or out-of-court settlements.

Local courts recognize and enforce foreign arbitral awards issued against the government.

There is no substantial history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Georgia’s arbitration law went into force on January 1, 2010. Georgia has enacted legislation based on the UNCITRAL Model Law. Domestic private arbitration firms, such as the International Arbitration Center (www.giec.ge ), operate in dispute resolution between two private parties.

Bankruptcy Regulations

The Law of Georgia on Insolvency Proceedings regulates rehabilitation and bankruptcy. The law defines two types of creditors: secured and non-secured. Creditors can file a court claim for opening an insolvency proceeding, given certain conditions are satisfied (conditions vary, depending on the outstanding debt amount and the delayed days of repayment).

Creditor meetings are held in court and chaired by a judge. The creditor meeting can decide several issues, including the appointment of a supervisor of the bankruptcy or rehabilitation proceedings, and the appointment of a member of the facilitation council.

Secured creditors: Secured creditors must make unanimous decisions on approving a debtor’s new debts, the encumbrance of the debtor’s property, and suretyship. If there are no secured creditors, the creditor’s meeting is authorized to make the same decisions. The secured creditors, in a creditor’s meeting, may suspend enforcement of the material conditions of the agreement with the bankruptcy or rehabilitation supervisor or on the definition of the terms of the rehabilitation. After the debtor’s property is sold on auction, secured creditors have first priority for being repaid. All secured creditors must approve the rehabilitation plan and plan amendments. New equity investment in the debtor’s company is only possible if there are prior consents from all secured creditors and the rehabilitation supervisor.

Non-secured creditors: Non-secured creditors are satisfied only after all secured creditors are satisfied (unless otherwise agreed by all creditors unanimously). Non-secured creditors do not have voting rights for the rehabilitation plan approval.

The priority system shall not apply to creditors whose claim is secured by financial collateral.

Foreign creditors: The law provides additional time for foreign creditors to file claims. Creditors may file claims to the court and request to declare the agreements made by the insolvent debtor voidable and/or request reimbursement of damages, if such agreements inflicted damages to the creditor.

The Law of Georgia on Insolvency Proceedings only incurs criminal liabilities in cases where the debtor does not provide information about its obligations, assets, financial situation and activities, or ongoing disputes in which the debtor is involved; or provides such information with intentional delay, or provides falsified information.

The Debt Registry of the National Agency of the Public Register is Georgia’s credit monitoring authority.

According to the World Bank’s 2020 Doing Business Report , Georgia’s score of 40.5 in the category of Resolving Insolvency is above the regional average, and the Law of Georgia on Insolvency Proceedings entered into force in 2017 made insolvency proceedings more accessible for debtors and creditors, improved provisions on treatment of contracts during insolvency, and granted creditors greater participation in important decisions during the proceedings. According to the Law on Insolvency Proceedings, it should take no more than 225 days to complete liquidation proceedings. However, in practice, it often takes two years to complete the process because parties do not always comply with statutory deadlines.

Investment Incentives

The Georgian government has created several tools to support investment in the country’s economy. The JSC Partnership Fund is a state-owned investment fund, established in 2011. The fund owns the largest Georgian state-owned enterprises operating in the transportation, energy, and infrastructure sectors. The Fund’s main objective is to promote domestic and foreign investment in Georgia by providing co-financing (equity, mezzanine, etc.) in projects at their initial stage of development, with a focus on tourism, manufacturing, energy, and agriculture. (www.fund.ge )

In 2013, the government launched the Georgian Co-Investment Fund (GCF) to promote foreign and domestic investments. According to the government, the GCF is a six billion USD private investment fund with a mandate of providing investors with unique access, through a private equity structure, to opportunities in Georgia’s fastest growing industries and sectors. (www.gcfund.ge )

The government’s “Produce in Georgia” program is another tool for jointly financing foreign investment under which investors establish limited liability companies in Georgia. The program aims to develop and support entrepreneurship, encourage creation of new enterprises, and increase export potential and investment in the country. Coordinated by the Ministry of Economy and Sustainable Development through its Entrepreneurship Development Agency, National Agency of State Property, and Technology and Innovation Agency of Georgia, the project provides access to finance, access to real property, and technical assistant to entrepreneurs

For more information please visit: http://enterprisegeorgia.gov.ge/en/home 

The National Agency of State Property is in charge of the Physical Infrastructure Transfer Component, i.e., the free-of-charge transfer of government-owned real property to an entrepreneur under certain investment obligations.

Low labor costs contribute to the attractiveness of Georgia as a foreign investment destination. Georgia is also increasingly recognized as a regional transportation hub that links Asia and Europe. Georgia’s free trade regimes provide easy access for companies to export goods produced in Georgia to foreign markets. In some cases, foreign investors can benefit from these agreements by producing goods that target these markets.

In October 2018, Georgia’s Prime Minister introduced the concept of electronic residency, allowing citizens of 34 countries to register their companies electronically and open bank accounts in Georgia while not having a physical presence in the country.

Foreign Trade Zones/Free Ports/Trade Facilitation

In June 2007, the Parliament of Georgia adopted the Law on Free Industrial Zones, which defines the form and function of free industrial/economic zones. Financial operations in such zones may be performed in any currency. Foreign companies operating in free industrial zones are exempt from taxes on profit, property, and VAT. Currently, there are four free industrial zones (FIZ) in Georgia:

Poti Free Industrial Zone (FIZ): This is the first free industrial zone in the Caucasus region, established in 2008. UAE-based RAK Investment Authority (Rakia) initially developed the zone, but in 2017, CEFC China Energy Company Limited purchased 75 percent of shares, and the Georgian government holds the remaining 25 percent. Poti FIZ, a 300-hectare area, benefits from its close proximity to the Poti Sea Port. www.potifreezone.ge .

A 27-hectare plot in Kutaisi is home to the Egyptian company Fresh Electric, which constructed a kitchen appliances factory in 2009. The company has committed to building about one dozen textile, ceramics, and home appliances factories in the zone, and announced its intention to invest over USD two billion.

Chinese private corporation “Hualing Group,” based in Urumqi, China, developed another FIZ in Kutaisi in 2015. This FIZ is a 36-hectare area that houses businesses focused on sales of wood, furniture, stone, building materials, pharmaceuticals, auto spare parts, electric vehicles, and beverages: www.hualingfiz.ge .

The Tbilisi Free Zone (TFZ) in Tbilisi occupies 17 hectares divided into 28 plots. TFZ has access to the main cargo transportation highway, Tbilisi International Airport (30 km), and the Tbilisi city center (17 km). For more information, visit: https://www.tfz.ge/en/510/ .

Performance and Data Localization Requirements

Performance requirements are not a condition of establishing, maintaining, or expanding an investment, but the government has imposed requirements on a case-by-case basis in some privatizations of large state assets, such as commitments to maintain employment levels or to make additional investments within a specified period of time. Performance requirements such as the scope and time limit on licenses to extract natural resources or production sharing agreements have triggered complaints from some companies that transactions lacked transparency. The U.S.-Georgia BIT prohibits certain performance requirements.

Georgia’s Law on Promotion and Guarantees of Investment Activity prohibits setting the required minimum number of Georgian citizens to be elected or appointed in leading bodies of enterprises.

The government does not follow a forced localization policy though recent legislative changes have created difficulties in acquiring residence permits for foreign employees working for VAT exempt entities. The government is aware of this oversight and Parliament plans to address this issue summer 2020. Foreign investors have no obligation to use domestic content in goods or technology. In addition, there are no requirements for foreign IT providers to turn over source codes and/or provide access to surveillance.

Customer- and business-related data transfer is not restricted in Georgia, neither within nor outside the country, unless it concerns personal or national security matters, which are protected by the law.

The Data Exchange Agency (DEA), under the Ministry of Justice, coordinates e-governance development, data exchange infrastructure, unified governmental networks, informational and communication standards, and cybersecurity policy. The DEA requires any company managing critical data to implement a number of security protocols to protect that information (www.dea.gov.ge ).

Real Property

Georgia ranks high in the World Bank’s Doing Business 2020 report in general, but especially in the category of “registering property.” Processes to register property are streamlined, transparent, and take one day to process at Public Service Halls.

In June 2017, the Parliament adopted a legislative amendment that placed a moratorium on the sale of agricultural land to foreign citizens and stateless persons. Under the amendment, foreigners, legal entities registered abroad, and legal entities registered by foreigners in Georgia were not able to purchase agricultural land in Georgia. Furthermore, the new Constitution that came into force in December 2018 determined that agricultural land can only be owned by the state, self-governing entities, citizens of Georgia, or a group of Georgian citizens. The Constitution also states that exclusions may be specified in organic law, which requires votes from at least two-thirds of Parliament to pass. Parliament is considering a draft law that would provide an exception to the constitutional ban.

Mortgages and liens are registered through the public registry and information can be obtained from the webpage www.napr.gov.ge .

The government has taken multiple steps to regulate land titling, including facilitating simplified procedures, free registration campaigns, and mediation services. The National Public Registration Agency reported that from August 2016 through February 2019, 300 thousand hectares of land were registered under the land reform project, increasing the share of titled land to 45 percent. Unclear or unregistered titling bears the potential to hamper investment projects.

Property ownership cannot revert to other owners when legally purchased property stays unoccupied.

Intellectual Property Rights

Georgia acceded to the World Trade Organization (WTO) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in 2000. The Ministry of Economy and Sustainable Development is responsible for WTO compliance. Georgia is a member of the World Intellectual Property Organization (WIPO) and is party to the Berne Convention, the Paris Convention, the Patent Cooperation Treaty (PCT), the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. The legal framework for protection of intellectual property rights (IPR) in Georgia is approximated to international standards. Six laws regulate IPR in Georgia: the Law on Patents, the Law on Trademarks, the Law on Copyrights and Neighboring Rights, the Law on Appellation of Origin and Geographic Indication of Goods, the Law on Topographies of Integrated Circuits, and the Law on IP-Related Border Measures. Georgian law now provides protection for works of literature, art, science, and sound recordings for 50 years.

The National Intellectual Property Center of Georgia (Sakpatenti) provides legal protection for IPR in Georgia since it issues protective documents on invention, utility models, trademarks, design rights, geographical indications and appellation of origin, new animal breeds and plant varieties, and ensures the deposit of copyrighted works. The Revenue Service, which is part of the Ministry of Finance, is responsible for enforcing the IPR of holders listed in the Register of Intellectual Property Subject-Matters of the relevant service. The Revenue Service is also responsible for border control and can halt the import or export of items suspected of being counterfeit based on the register data. According to the Law, goods may be held for 10 working days, which may be extended by the Revenue Service for another 10 working days. The Law of Georgia on Border Measures Related to Intellectual Property allows for the destruction of counterfeit goods pending a court decision.

Infringement of IPR, including industrial property rights, copyrights, performers’ rights, rights of makers of databases, trademarks, or other illegal use of commercial indications can incur civil, criminal, and administrative penalties. Depending on the type and extent of the violation, penalties include fines, corrective labor, social work, or imprisonment.

Sakpatenti is an active and engaged partner of the United States in educating the public on IPR issues. Sakpatenti coordinates the government’s approach to the enforcement of IPR under the Interagency Coordination Council (Council) for IPR Enforcement. The Council is an efficient platform for government institutions to exchange their views on IPR enforcement issues. Georgia is improving its enforcement of IPR, but some problems persist, including the widespread use of unlicensed software and the availability of pirated video and audio recordings and other unlicensed content available online. The U.S. government Commercial Law Development Program continues to provide assistance to Sakpatenti and other government entities to build capacity to deal with IPR-related issues effectively.

With the aim of improving domestic legislation and harmonizing it with international standards, Sakpatenti has engaged in proposing amendments to existing legislation regulating IPR. For example, Sakpatenti continues work on the draft law “On Appellations of Origin and Geographical Indications of Goods” in the framework of an EU-funded Twinning Project on “Establishing Efficient Protection and Control System of Geographical Indications (GIs) in Georgia.” The proposed legislative amendments address the state-controlled mechanism for the registration of appellations of origin and geographical indications, , obligation to use registered appellations of origin or geographical indications, define legal mechanisms to protect appellations of origin and geographical indications against infringement, and procedural specification for conducting substantive examinations of applications for appellations of origin and geographical indications.

In 2019, the Investigation Service of the Ministry of Finance of Georgia initiated 12 cases based on of Article 196 of the Criminal Code of Georgia governing unlawful use of trademark (service marks) or other commercial designations, six of which were initiated ex officio. As a result of these actions, the Georgian government seized 36,907 items of counterfeit goods worth approximately USD 53,000. Also in 2019, the Customs Department of Georgia issued 140 suspension orders on various goods entering Georgia, allowing them to confirm the legitimacy of the goods. In 102 cases, the rights holder and the purchaser of the goods agreed to destroy the infringing items. In 10 cases, the rights holder filed a lawsuit in court, and in the remaining cases the Customs Department was unable to prove the goods were counterfeit and so released the goods. The total value of the destroyed goods was around USD 51,000.

Georgia is not included in USTR’s Special 301 Report or the Notorious Markets List.

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

Capital Markets and Portfolio Investment

The National Bank of Georgia regulates the securities market. All market participants submit their reports in line with international standards. All listed companies must make public filings, which are then uploaded to the National Bank’s website, allowing investors to evaluate a company’s financial standing. The Georgian securities market includes the following licensed participants: a Stock Exchange, a Central Securities Depository, nine brokerage companies, and six registrars.

The Georgian Stock Exchange (GSE) is the only organized securities market in Georgia. Designed and established with the help of USAID and operating under a legal framework drafted with the assistance of American experts, the GSE complies with global best practices in securities trading and offers an efficient investment facility to both local and foreign investors. The GSE’s automated trading system can accommodate thousands of securities that can be traded by brokers from workstations on the GSE floor or remotely from their offices: https://gse.ge/en/ 

No law or regulation authorizes private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation or control. Cross-shareholder or stable-shareholder arrangements are not used by private firms in Georgia. Georgian legislation does not protect private firms from takeovers. There are no regulations authorizing private firms to restrict the investment activity of foreign partners or to limit the ability of foreign partners to gain control over domestic enterprises.

The government and Central Bank (National Bank of Georgia) respect IMF Article VIII and do not impose any restrictions on payments and transfers in current international transactions.

Credit from commercial banks is available to foreign investors as well as domestic clients, although interest rates are high. Banks continue offering business, consumer, and mortgage loans.

The government adopted a new law in 2018 that introduced an accumulative pension scheme, which became effective on January 1, 2019. The pension scheme is mandatory for legally employed people under 40. For the self-employed and those above the age of 40, enrolment in the program is voluntary. The pension savings system applies to Georgian citizens, foreign citizens living in Georgia with permanent residency in the country, and stateless persons who are employed or self-employed and receive an income.

The government expects that that the new system will boost domestic capital market, as the pension funds will be invested within Georgia. The Pension Agency of Georgia made its first large scale investment in March 2020, when it invested 560 million GEL (around USD 200 million) in deposit certificates of high-rated Georgian commercial banks.

Money and Banking System

Banking is one of the fastest growing sectors in the Georgian economy. The banking sector is well-regulated and capitalized despite regional and global challenges faced in many neighboring countries. As of March 1, 2020, Georgia’s banking sector consists of 15 commercial banks, including 14 foreign-controlled banks, with 154 commercial bank branches and 830 service centers throughout the country. In January 2019, Georgian commercial banks held GEL 46.2 billion (around USD 15.5 billion) in total assets. As of early 2020, there were 17 insurance companies and 45 microfinance (MFI) organizations operating in Georgia. MFIs held GEL 500 million (USD155.5 million) in total assets as of January 1, 2020. Two Georgian banks are listed on the London Stock Exchange: TBC Bank (listed in 2014) and the Bank of Georgia (2006).

The National Bank of Georgia (NBG) is Georgia’s central bank, as defined by the Constitution. The rights and obligations of the NBG as the central bank, the principles of its activity, and the guarantee of its independence are defined in the Organic Law of Georgia on the National Bank of Georgia. The National Bank supervises the financial sector to facilitate the financial stability and transparency of the financial system, as well as to protect the rights of the sector’s consumers and investors. Through the Financial Monitoring Service of Georgia, a separate legal entity, the NBG undertakes measures against illicit income legalization and terrorism financing. In addition, the NBG is the government’s banker and fiscal agent. (www.nbg.gov.ge ).

The International Finance Corporation (IFC), the European Bank for Reconstruction and Development (EBRD), the U.S. International Development Finance Corporation (DFC), the Asian Development Bank (ABD), and other international development agencies have a variety of lending programs making credit available to large and small businesses in Georgia. Georgia’s two largest banks – TBC and Bank of Georgia – have correspondent banking relationships with the United States through Citibank, N.A.

Georgia does not restrict foreigners from establishing a bank account in Georgia.

Foreign Exchange and Remittances

Foreign Exchange

Georgian law guarantees the right of an investor to convert and repatriate income after payment of all required taxes. The investor is also entitled to convert and repatriate any compensation received for expropriated property. Georgia has accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement, effective as of December 20, 1996, to refrain from imposing restrictions on payments and transfers for current international transactions and from engaging in discriminatory currency arrangements or multiple currency practices without IMF approval. Parliament’s 2011 adoption of the Act of Economic Freedom further reinforced this provision.

Under the U.S.-Georgia BIT, the Georgian government guarantees that all money transfers relating to a covered investment by a U.S. investor can be made freely and without delay into and out of Georgia.

Foreign investors have the right to hold foreign currency accounts with authorized local banks. The sole legal tender in Georgia is the lari (GEL), which is traded on the Tbilisi Interbank Currency Exchange and in the foreign exchange bureau market.

The GEL’s official exchange rate is calculated based on transactions secured on the Interbank Foreign Exchange Market. Interbank trading with foreign currencies is organized via an international trading system (Bloomberg). Taking into consideration secured transactions, the weighted average exchange rate of the GEL against the USD is calculated and announced as the official exchange rate for the following day. The official exchange rate of the GEL against other foreign currencies is determined according to the rate on international markets or the issuer country’s domestic interbank currency market on the basis of cross-currency exchange rates. The cross-currency rates are acquired from the Reuters and Bloomberg information systems, and the corresponding webpages of central banks. The information is automatically received, calculated, and disseminated from these systems.

Georgia has a floating exchange rate. The National Bank of Georgia does not intend to peg the exchange rate and does not generally intervene in the foreign exchange market, except under certain circumstances when the GEL’s fluctuation has a high magnitude, such as during the COVID-19 pandemic.

Remittance Policies

There are no restrictions, limitations, or delays involved remittances from overseas. Several Georgian banks participate in the SWIFT and Western Union interbank communication networks. Businesses report that it takes a maximum of three days for money transferred abroad from Georgia to reach a beneficiary’s account, unless otherwise provided by a customer’s order. There is no indication that remittance policies will be altered in the future. Travelers must declare at the border currency and securities in their possession valued at more than GEL 30,000 (around USD10,000).

Sovereign Wealth Funds

Georgia does not have a Sovereign Wealth Fund.

After the fall of the Soviet Union, the Georgian government privatized most state-owned enterprises (SOEs). At the end of 2013, Georgian Railways, Georgian Oil and Gas Corporation (GOGC), Georgian State Electrosystem (GSE), Electricity System Commercial Operator (ESCO), and Enguri Hydropower plant were the major remaining SOEs. Of these companies, only Georgian Railways is a major market player. The energy-related companies largely implement the government’s energy policies and help manage the electricity market. There are also a number of Legal Entities of Public Law (LEPLs), independent bodies that carry out government functions, such as the Public Service Halls.

During 2012, Georgian Railways, GOGC, GSE, and ESCO’s assets were placed under the Partnership Fund, a state-run fund to facilitate foreign investment into new projects. In addition, the fund controls 25 percent of shares in the TELASI Electricity Distribution Company. The fund has stated its intention to sell those shares but has not yet done so. (www.fund.ge)

Despite state ownership, SOEs act under the general terms of the Entrepreneurial Law. Georgian Railway and GOGC have supervisory boards, while GSE and ESCO do not. The SOEs’ individual charters describe their procedures and policies. Georgia encourages its SOEs to adhere to the OECD’s Guidelines on Corporate Governance for SOEs.

The senior management of SOEs report to Supervisory Boards where they exist (GRW, GOGC); in other cases they report to the line ministries. Governmental officials can be on the supervisory board of the SOEs, and the Partnership Fund has five key governmental officials on its board. SOEs explicitly are not obligated to consult with government officials before making business decisions, but informal consultations take place depending on the scale and importance of the issue.

To ensure the transparency and accountability of state business decisions and operations, SOEs have regular outside audits and publish annual reports. SOEs with more than 50 percent state ownership are obliged to follow the State Procurement Law and make procurements via public tender. The Partnership Fund, GRW and GOGC are subject to valuation by international rating agencies. There is no legal requirement for SOEs to publish annual report or to submit their books for independent audit, but this is done in practiced. In addition, GRW and GOGC are Eurobond issuer companies and therefore are required to publish reports. SOEs are subject to the same domestic accounting standards and rules. These standards are comparable to international financial reporting standards. No SOEs exercise delegated governmental powers.

Privatization Program

Georgia’s government has privatized most large SOEs. Successful privatization projects include major assets in energy generation and distribution, telecommunications, water utilities, port facilities, and real estate sectors. A list of entities available to be privatized can be found on the following website: www.privatization.ge. However, the government does not maintain a comprehensive website listing all privatization offers. The ministries covering the relevant sector of the economy handles the privatization information. Foreign investors are welcome to participate in privatization programs. Further information is also available at a website maintained by the American Chamber of Commerce in Georgia at: www.amcham.ge .

In 2019, the government offered mining deposits for privatization in addition to other state-owned assets through the 100 Investment Offers for Business  initiative. Within the initiative, the government selected mineral resource deposits from various regions to sell at e-auctions . The mineral deposits include gold and copper-polymetallic, ore, bentonite clay, volcanic slag, peat, diatomite, tuff breccia, zeolite-containing tuff, basalt, marble, limestone, underground fresh water, and carbonated mineral water. Mining license prices vary and depend on the type of mineral resource and its price.

While the concept of Corporate Social Responsibility (CSR) is not highly developed in Georgia, it is growing. Most large companies engage in charity projects and public outreach as part of their marketing strategy. The American Chamber of Commerce in Georgia has a Corporate CSR committee that works with member companies on CSR issues. The Global Compact, a worldwide group of UN agencies, private businesses, and civil society groups promoting responsible corporate citizenship, is active in Georgia. The Eurasia Partnership Foundation launched a program on corporate social investment to promote greater private company engagement in addressing Georgia’s development needs.

The Georgian government undertook an OECD CSR policy review in 2016 based on the OECD Policy Framework for Investment. The report states that Georgia engages regularly with the OECD. Georgia participates in the OECD Eurasia Competitiveness Program, which works with countries in the region to unleash their economic and employment potential. Georgia participates in the OECD Anti-Corruption Network for Eastern Europe and Central Asia, which provides a regional forum for promotion of anti-corruption activities, exchange of information on best practices, and donor coordination. Georgia is a member of the Task Force for the Implementation of the Environmental Action Program (EAP Task Force), which aims to address the heavy environmental legacy of the Soviet development model. Additionally, the Support for Improvement in Governance and Management (SIGMA) program, a joint initiative of the EU and the OECD, has provided assistance to Georgia since 2008, to strengthen public governance systems and public administration capacities. Georgia participates in the OECD Committee on Fiscal Affairs’ Base Erosion and Profit Sharing (BEPS) Project.

Georgia is not a party to the Extractive Industries Transparency Initiative (EITI) and/or Voluntary Principles on Security and Human Rights despite extractive manganese, gold, and copper ore industries operating in Georgia. Among the local tools promoting CSR principles and policies in such industries are commercial chambers, the Public Defender’s office, the Business Ombudsman under the Prime Minister’s Office, sectoral trade unions, and Georgia’s Trade Union Confederation (GTUC).

Georgia has laws, regulations, and penalties to combat corruption. Georgia criminalizes bribery under Articles 332-342 of the Criminal Code. Senior public officials must file financial disclosure forms, which are available online, and Georgian legislation provides for the civil forfeiture of undocumented assets of public officials who are charged with corruption-related offenses. Penalties for accepting a bribe start at six years in prison and can extend to 15 years, depending on the circumstances. Penalties for giving a bribe can include a fine, a minimum prison sentence of two years, or both. In aggravated circumstances, when a bribe is given to commit an illegal act, the penalty is from four to seven years. Abuse of authority and exceeding authority by public servants are criminal acts under Articles 332 and 333 of the criminal code and carry a maximum penalty of eight years imprisonment. The definition of a public official includes foreign public officials and employees of international organizations and courts. White collar crimes, such as bribery, fall under the investigative jurisdiction of the Prosecutor’s Office.

Georgia is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Georgia has, however, ratified the UN Convention against Corruption. Georgia cooperates with the Group of States against Corruption (GRECO) and the OECD’s Anti-Corruption Network for Transition Economies (ACN).

Following its assessment of Georgia in June 2016, the OECD released a report in September 2016 that concluded Georgia had achieved remarkable progress in eliminating petty corruption in public administration and should now focus on combating high-level and complex corruption. The report commends Georgia’s mechanism for monitoring and evaluating the implementation of its Anti-Corruption Strategy and Action Plan, as well as the role given to civil society in this process. It also welcomes the adoption of a new Law on Civil Service and recommends that the remaining legislation to implement civil service reforms is adopted without delay. The report notes that the Civil Service Bureau and Human Resources units in state entities should be strengthened to ensure the implementation of the required reforms. The report highlights Georgia’s good track record in prosecuting corruption crimes and in using modern methods to confiscate criminal proceeds. It recommends that Georgia increase enforcement of corporate liability and the prosecution of foreign bribery to address the perception of corruption among local government officials. The full report is available at: http://www.oecd.org/corruption/anti-bribery/Georgia-Round-4-Monitoring-Report-ENG.pdf .

Since 2003, Georgia has significantly improved its ranking in Transparency International’s (TI) Corruption Perceptions Index (CPI) report.

Transparency International (TI) ranked Georgia 44th out of 180 countries in the 2019 edition  of its Corruption Perceptions Index (the same rank as Costa Rica, the Czech Republic, and Latvia).

While Georgia has been successful in fighting visible, low-level corruption, Georgia remains vulnerable to what Transparency International calls “elite” corruption: high-level officials exploiting legal loopholes for personal enrichment, status, or retribution. Although the evidence is mostly anecdotal, this form of corruption, or the perception of its existence, has the potential to erode public and investor confidence in Georgia’s institutions and the investment environment. Corruption remains a potential problem in public procurement processes, public administration practices, and the judicial system due to unclear laws and ethical standards.

Resources to Report Corruption

Government agencies responsible for combating corruption:

Anti-Corruption Agency at the State Security Service of Georgia
Address: 72, Vazha Pshavela Ave.
Tel: +995-32-241-20-28

Prosecutor’s Office of Georgia
Mr. Gocha Gochashvili,
Head of Division of Criminal Prosecution of Corruption CrimesAddress: 24, Gorgasali Street, Tbilisi
Tel: +995-32-240-52-52
Email: ggochashvili@pog.gov.ge

Ministry of Justice of Georgia
Secretariat of the Anti-Corruption Council
Address: 24, Gorgasali Street, Tbilisi
Tel: +995-32-240-58-04
Email: ACCouncil@justice.gov.ge

Business Ombudsman’s Office
Mr. Mikheil Daushvili, Ombudsman
Address: 7, Ingorokva street
Hotline: +995 32 2 282828
Email: ask@businessombudsman.ge

Non-governmental organization:
Ms. Eka Gigauri
Director
Transparency International
26, Rustaveli Ave, 0108, Tbilisi, Georgia
Telephone: +995-32-292-14-03
ekag@transparency.ge

The United States established diplomatic relations with Georgia in 1992, following Georgia’s independence from the Soviet Union in 1991. Since independence, Georgia has made impressive progress fighting corruption, developing modern state institutions, and enhancing global security. The United States is committed to helping Georgia deepen Euro-Atlantic ties and strengthen its democratic institutions.

In August 2008, tensions in the region of South Ossetia culminated in a brief war between Georgia and Russia. Russia invaded and occupied areas of undisputed Georgian territory. Russia continues to occupy these Georgian regions, and the central government in Tbilisi does not have effective control over these areas. The United States supports Georgia’s sovereignty and territorial integrity within its internationally recognized borders and does not recognize the Abkhazia and South Ossetia regions of Georgia as independent. While South Ossetia and Abkhazia – which Russian troops and border guards have long occupied without Georgia’s consent – have declared independence, only Russia, Nauru, Nicaragua, Syria, and Venezuela recognize them as independent states. Tensions still exist both inside the occupied territories and near the administrative boundary lines (ABL). A Russian military build-up along the South Ossetia ABL dramatically escalated tensions in August 2019. In addition, Russian “border” guards regularly patrol the ABLs and have increasingly detained people trying to cross the ABLs. A number of attacks, criminal incidents, and kidnappings have occurred in and around the ABLs as well. While none of the activity has been anti-American in nature, there is a high risk of travelers finding themselves in a wrong place/wrong time situation. In addition, unexploded ordnance from previous conflicts poses a danger near the ABL of South Ossetia. However, other parts of Georgia, including Tbilisi, are not directly affected.

Per Georgian law, it is illegal to undertake any type of economic activity in Abkhazia or South Ossetia if such activities require permits, licenses, or registration in accordance with Georgian legislation. Laws also ban mineral exploration, money transfers, and international transit via Abkhazia or South Ossetia.

Violent street protests are uncommon, but there were significant clashes in June 2019 when protesters attempted to enter Parliament. Hundreds were injured, including some who suffered severe eye injuries due to police use of rubber bullets. Generally, police have fulfilled their duty to maintain order even in cases of unannounced protests.

Georgia offers skilled and unskilled labor at attractive costs compared not only to Western European and American standards, but also to Eastern European standards. Skilled labor availability in the engineering field remains underdeveloped. The official unemployment rate was 11.6 percent in 2019, according to State Department of Statistics, but actual unemployment is considerably higher given significant underemployment in the working population, especially in rural regions where subsistence farmers are considered employed for statistical purposes and job creation has remained a particular challenge. Some investment agreements between the Georgian government and private parties have included mandates for the contracting of local labor for positions below the management or executive level.

Georgia’s Labor Code defines the minimum age for employment (16), standard work hours (40 per week), and annual leave (24 calendar days). The law allows for other wage and hour issues to be agreed between the employer and employee. The amendments to the Labor Code in July 2013 defined the grounds for termination and severance pay for an employee at the time of termination, including the payment term. An employer is obliged to give compensation of not less than one month’s salary to an employee within thirty (30) days. Additionally, an employer is obliged to give the dismissed employee a written description of the grounds for termination within seven days after an employee’s request. The Labor Code also prescribes rules for paying overtime labor (over 40 hours), which must be paid at an increased hourly rate.

The Labor Code specifies essential terms for labor contracts, including: the starting date and the duration of labor relations, working hours and holiday time, location of workplace, position and type of work, amount of salary and its payment, overtime work and its payment, the duration of paid and unpaid vacation and leave, and rules for granting leave. The code states that the duration of a business day for an underage person (ages 16 to 18) should not exceed 36 hours per week. Regulations prohibit interference in union activities and discrimination of an employee due to union membership. The Labor Code amendments mandate the government to reestablish a labor inspectorate to ensure adherence to labor safety standards. The labor inspection program under the Ministry of Labor, Health, and Social Affairs, employs 25 labor inspectors, although in 2019 the government increased the number of inspectors to 100 to deal with increasing demand, and the vacancies are still to be filled. In 2018, Parliament passed the Occupational Safety, and Health (OSH) Law, that gave the government power to make unannounced inspections in some circumstances in companies operating among “hard, harmful, hazardous, and increased danger” occupations. Subsequent amendments that entered into force in September 2019 allowed unannounced inspections across all sectors of the economy. Employees are entitled to up to 183 days (six months) of paid maternity leave, which can last up to 24 months when combined with unpaid leave. The state subsidizes leave taken for pregnancy, childbirth, childcare, and adoption of a newborn. An employer and employee may agree on additional compensation. The Labor Code permits non-competition clauses in contracts; this provision may remain in force even after the termination of employment.

Employees are entitled to up to 183 days (six months) of paid maternity leave, which can last up to 24 months when combined with unpaid leave. The state subsidizes leave taken for pregnancy, childbirth, childcare, and adoption of a newborn. An employer and employee may agree on additional compensation. The Labor Code permits non-competition clauses in contracts; this provision may remain in force even after the termination of employment.

The government adopted a new law in 2018 establishing an accumulative pension scheme, which came into effect as of January 1, 2019. The pension is mandatory for legally employed persons under 40, while for the self-employed and those above the age of 40 enrollment in the program is voluntary. Each employee, employer, and the government must each make a contribution of two percent of the employee’s gross income to an individual retirement account. As for the self-employed, they will make a deposit of four percent of their income, and the state will match another two per cent. Employees pay a flat 20 percent income tax. The state social security system provides a modest pension and maternity benefits. The minimum monthly pension is GEL 220 (USD 73). The average monthly salary across the economy in 2019 was GEL 1,217 (around USD 420). The minimum wage requirement for state sector employees is GEL115 (USD 40) per month. Legislation on the official minimum wage in the private sector has not changed since the early 1990s and stands at GEL 20 (USD 7) per month, but is not applied in practice and is not being used for reference.

The law generally provides for the right of most workers, including government employees, to form and join independent unions, to legally strike, and to bargain collectively. Employers are not obliged, however, to engage in collective bargaining, even if a trade union or a group of employees wishes to do so. While strikes are not limited in length, the law limits lockouts to 90 days. A court may determine the legality of a strike, and violators of strike rules can face up to two years in prison. Although the law prohibits employers from discriminating against union members or union-organizing activities in general terms, it does not explicitly require reinstatement of workers dismissed for union activity. Certain categories of workers related to “human life and health,” as defined by the government, were not allowed to strike. The International Labor Organization noted the government’s list of such services included some it did not believe constituted essential services directly related to human life and health. Workers generally exercised their right to strike in accordance with the law.

Georgia has ratified some ILO conventions, including the Forced Labor Convention of 1930, the Paid Holiday Convention of 1936, the Anti-Discrimination (Employment and Occupation) Convention of 1951, the Human Resources Development Convention of 1975, the Right to Organize and Collective Bargaining Convention of 1949, the Equal Remuneration Convention of 1951, the Abolition of Forced Labor Convention of 1957, the Employment Policy Convention of 1964, and the Minimum Age Convention of 1973.

Information on labor related issues is also available in the State Department’s annual reports: Human Right Report: http://georgia.usembassy.gov/officialreports/hrr.html. Child Labor Report: http://www.dol.gov/ilab/reports/child-labor/georgia.htm .

Since 1993, the Overseas Private Investment Corporation (OPIC), predecessor of the DFC, committed over USD 600 million in financing and political risk insurance for more than 60 projects in Georgia. DFC investment in Georgia has focused on the following sectors: credit for small and medium-sized enterprises, and projects in the infrastructure, franchising, education, manufacturing, tourism, agriculture, and health care sectors. Examples of 2019 of projects include a USD 50 million loan to finance the development, construction, and operation of a multifunctional general cargo, dry bulk, and container port terminal at Pace Terminal in Poti port, and a USD 15 million loan to Liberty Bank to upgrade Liberty Bank’s infrastructure, including the roll-out of approximately 500 ATMs, to help make formal financial services more accessible for SMEs and underbanked populations.

* Source for Host Country Data: GeoStat (Georgia National Statistics Department)

Source: IMF

The IMF data on Direct Investment are inconsistent with Georgia’s Statistic Agency’s published data for 2018. The IMF report does not include two countries listed in Georgia’s published data for 2018, the United States and China, in fourth and fifth place, respectively.

Table 4: Sources of Portfolio Investment
Data not available.

United States Embassy, Political/Economic Section
29 Georgian-American Friendship Avenue, Tbilisi
Mackenzie Rowe, Economic Unit Chief +995-32-2-27-7000
RoweML2@state.gov

Policies Towards Foreign Direct Investment

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

IDAL seeks to facilitate international and local partnerships through joint ventures, equity participation, acquisition, and other mechanisms.  Moreover, it provides business intelligence, market studies, and legal and administrative advice to potential investors.  In February 2018, IDAL established the Business Support Unit (BSU), which provides free legal, accounting, and financial advice to startups across sectors.  IDAL is mandated by law to attract, facilitate, and retain investment in Lebanon.  There are currently no formal mechanisms for investor dialogue, although IDAL plans to establish an Investor Advisory Committee, which was discussed with UNCTAD when IDAL launched its Investor Policy Review in 2017.  IDAL is involved in providing after-care services to local and foreign investors alike, and following Lebanon’s unfolding financial crisis and the spread of COVID-19, IDAL has held a series of roundtables and webinars with investors to identify their issues and work with relevant government agencies to solve them.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

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

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

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

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

Other Investment Policy Reviews

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

Business Facilitation

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

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

Outward Investment

Lebanon neither promotes nor incentivizes outward investment, nor does it restrict domestic investors from investing abroad.  However, informal ad hoc capital controls imposed by the Lebanese financial sector since October 2019 prevent most external transfers, deterring outward investment from Lebanon.

Lebanon has signed bilateral investment treaties with the following partners (in alphabetical order, as of May 2020):  Armenia, Austria, Azerbaijan, Bahrain, Belarus, Belgium/Luxemburg, Benin, Bulgaria, Canada, Chad, Chile, China, Cuba, Cyprus, Czech Republic, Egypt, Finland, France, Gabon, Germany, Greece, Guinea, Hungary, Iceland, Iran, Italy, Jordan, Korea (Republic of), Kuwait, Malaysia, Mauritania, Morocco, Netherlands, OPEC Fund, Pakistan, Qatar, Romania, Russia, Slovak Republic, Spain, Sudan, Sultanate of Oman, Sweden, Switzerland, Syria, Tunisia, Turkey, United Arab Emirates, Ukraine, United Kingdom, and Yemen.  For more information, please visit the Ministry of Finance’s website on: http://www.finance.gov.lb/en-us/Finance/IA/IPA/   

Lebanon is a member of the Pan-Arab Free Trade Area (PAFTA), which includes:  Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestinian territories, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, United Arab Emirates, and Yemen.   Lebanon has a free trade agreement with the European Union as well as the European Free Trade Association (EFTA), which includes Iceland, Liechtenstein, Norway, and Switzerland.  Lebanon launched free trade agreement negotiations with MERCOSUR countries in 2016, but negotiations are unlikely to continue in the short term.  The accession of Lebanon to the Agadir Free Trade Agreement (Egypt, Morocco, Jordan, and Tunisia) has been approved by member countries and awaits Lebanese Parliament’s ratification to enter into effect.

Lebanon does not have a bilateral taxation treaty with the United States.  It has bilateral taxation treaties with Algeria, Armenia, Bahrain, Belarus, Bulgaria, Cuba, Cyprus, Czech Republic, Egypt, France, Gabon, Iran, Italy, Jordan, Kuwait, Malaysia, Malta, Morocco, Pakistan, Poland, Qatar, Romania, Russia, Senegal, Sudan, Sultanate of Oman, Syria, Tunisia, Turkey, UAE, Ukraine, and Yemen.  For more information, please visit:  http://www.finance.gov.lb/en-us/Finance/IA/TC/Pages/default.aspx 

Lebanon formally requested an IMF program on May 1, and on April 30, the Lebanese Cabinet approved an economic reform plan that includes fiscal reform measures designed to help Lebanon achieve a budget surplus by 2024.  This includes some tax increases, including on corporate tax rates, interest income, high salaries, capital gains, and VAT for luxury goods only.  No new taxes have been implemented yet, however.

Transparency of the Regulatory System

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

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

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

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

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

Lebanon’s public finances are not transparent; budget documents did not present a full picture of Lebanon’s expenditures and revenue streams, and Lebanon has not published an end-of-year report.  Details regarding allocations to and earnings from state-owned enterprises were limited.  The information in the budget was not considered reliable or reasonably accurate and did not correspond to actual revenues and expenditures.  Lebanon’s supreme audit institution did not make its audit reports publicly available.  While Lebanon’s debt obligations are transparent, some analysts have questioned the Central Bank’s reported foreign currency position.  The Lebanese government hired three private auditors to audit its Central Bank as part of its economic reform plan, approved by the Cabinet on April 30.

International Regulatory Considerations

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

Legal System and Judicial Independence

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

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

Laws and Regulations on Foreign Direct Investment

A foreigner may establish a business under the same conditions as a Lebanese national but must register the business in the Commercial Registry.  Foreign investors who do not manage their business from Lebanon need not apply for a work permit.  However, foreign investors who own and manage their businesses within Lebanon must apply for an employer work permit and a residency permit.  Employer work permits stipulate that a foreign investor’s capital contribution cannot be less than USD 67,000.  The investor must also hire three Lebanese employees and register them in the National Social Security Fund (NSSF) within the first six months of employment.

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

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

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

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

Competition and Anti-Trust Laws

Lebanon has not enacted a law that governs competition.  Local courts review claims on competition-related issues under various laws.

Expropriation and Compensation

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

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

Investment Incentives

Lebanon’s Investment Law No. 360 encourages investment in information technology, telecom, media, tourism, industry, agriculture, and agro-industry.  The law divides the country into three investment zones, with different incentives in each zone.  These include facilitating permits for foreign labor and tax benefits, which range from a five-year, 50 percent reduction on income and dividend distribution taxes to a total exemption of these taxes for 10 years, starting from the date of operation (tied to the issuance of the first invoice).  Companies that list 40 percent of their shares on the Beirut Stock Exchange (BSE) are exempt from income tax for two years.  The law also introduces tailored incentives through package deals for large investment projects, regardless of the project’s location.  These may include tax exemptions for up to 10 years, reductions on construction and work permit fees, and a total exemption on land registration fees.  IDAL exempts joint-stock companies that benefit from package deal incentives from the obligation to have a majority of a board of directors be Lebanese nationals (Law No. 771, dated November 2006).  Investors who seek to benefit from work permit incentives under package deals must hire two Lebanese for every foreigner and register them with the NSSF.  IDAL is working on several amendments to Investment Law 360 that would expand incentives to sectors, including ICT.  The government does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.

Other laws and legislative decrees provide tax incentives and exemptions depending on the type of investment and its geographical location.  Industrial investments in rural areas benefit from tax exemptions of six or 10 years, depending on specific criteria (Law No. 27, dated July 19, 1980, Law No. 282, dated December 30, 1993, and Decree No. 127, dated September 16, 1983).  Exemptions are also available for investments in South Lebanon, Nabatiyeh, and the Bekaa Valley (Decree No. 3361, dated July, 2, 2000).  For example, new industrial establishments manufacturing new products benefit from a 10-year income tax exemption.  Factories currently based on the coast, which relocate to rural areas or areas in South Lebanon, Nabatiyeh, or the Bekaa Valley benefit from a six-year income tax exemption.  Parliament enacted a law in April 2014 to reduce income tax on industrial exports by 50 percent.  More information can be found on IDAL’s website at http://investinlebanon.gov.lb/en/doing_business/investment_incentives .

Domestic and foreign investors may benefit from Central Bank-subsidized loans covering housing, investment in productive sectors, energy efficiency and renewable energy, and financing projects.  The Central Bank continues, in cooperation with the European Investment Bank (EIB) (Euro 50 million) and AFD (Agence Francaise de Developpement, the French USAID counterpart) to subsidize loans for energy efficiency projects.  The Central Bank has made preparations to launch “The Oxygen Fund” to support the import of raw materials to Lebanese industries and has pledged USD 100 million to this fund; it has also committed an additional USD100 million as a bridge loan for industrialists to import raw materials until this fund becomes operational.  Analysts question whether such efforts, absent external assistance, will be enough.

The government grants customs exemptions to industrial warehouses for export purposes.  Companies located in the Beirut Port or the Tripoli Port Free Zone benefit from customs exemptions and are exempt from the value-added tax (VAT) for export purposes.  They are also not required to register their employees with the NSSF, if they provide equal or better benefits.

As part of its mandate, IDAL promotes and supports Lebanese exports, especially in the agriculture, agro-industry, and industry sectors, by providing assistance on export requirements and studies on potential new markets, supporting exporter participation in international fairs and exhibitions, as well as subsidizing export transportation costs.

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

Foreign Trade Zones/Free Ports/Trade Facilitation

Foreign-owned firms have the same investment opportunities as Lebanese firms.  Lebanon has one duty-free zone at Beirut-Rafik Hariri International Airport and two free trade zones, the Beirut Port and the Tripoli Port.  The WTO-compatible Customs Law issued by Decree No. 4461 fosters the development of free zones (Articles 242-261 cover free trade zones and Articles 262-266 cover duty free zones) and is available online at www.customs.gov.lb .  The government enacted Law No. 18, dated September 5, 2008, that established the Tripoli Special Economic Zone (TSEZ) to attract investment in trade, industry, services, storage, and other services, as well as to grant investors tax exemptions and offer other incentives such as relaxed allowances for foreign labor and unrestricted currency conversion.  On April 9, 2015, the Cabinet appointed a TSEZ Authority to regulate the zone, and according to the TSEZ Authority, efforts are underway with the International Finance Corporation to build and develop the zone.  The TSEZ Authority has completed an interim licensing regime to grant licenses for logistics activities, and is working with the IFC towards a full-fledge licensing regime, expected to be ready by the end of 2020 or early 2021.  The master plan for the industrial and logistics site next to Tripoli Port is completed and awaits Cabinet approval.

On March 29, 2018, the Cabinet approved expanding the geographical area of the TSEZ to include an additional 75,000 square meters of the Rachid Karami Fair in Tripoli and to establish a knowledge-innovation center.  The Authority has completed the architectural concept for the Rachid Karami zone for knowledge and innovation center and will start with the Master Plan this year.  The Authority expects the TSEZ will begin logistics activities in early 2021.

Performance and Data Localization Requirements

The government mandates local employment, and the Ministry of Labor publishes annually a list of jobs restricted to Lebanese nationals.  Foreign and local participation on the board of directors is contingent upon the firm’s structure as defined in Lebanese commercial law.  Foreign investors enjoy the same incentives as local investors.

Foreigners doing business in Lebanon through a company, factory, or office must hold work and residency permits.  There are no discriminatory or excessively onerous visa, residence, or work permit requirements.  Travelers who hold passports that contain visas or entry/exit stamps for Israel will likely be denied entry into Lebanon and may be subject to arrest or detention.  Even if travel documents contain no Israeli stamps or visas, persons who have previously traveled to Israel may still face arrest and/or detention if prior travel is disclosed.

Registration with a chamber of commerce is required to import and handle a limited number of products that are subject to control requirements for safety reasons.  Products with such special import requirements constitute less than one percent of total tradable goods.  Registration with a chamber of commerce is required to ensure that established facilities meet safety, handling, and storage requirements.

Lebanon does not follow any forced localization policy and does not require foreign IT providers to turn over source code or provide access to surveillance.  Lebanon’s Central Bank requires all banks to keep data backups in Lebanon, while service providers are required to do the same.

Real Property

The right to private ownership is respected in Lebanon.  The concept of a mortgage exists and secured interests in property, both movable and real, are recognized and enforced.  Such security interests must be recorded in the Commercial Registry and the Real Estate Registry.  The Real Estate Law governs acquisition and disposition of all property rights by Lebanese nationals, while Law No. 296, dated April 3, 2001, governs real estate acquisition by non-Lebanese.  Over ten percent of land, mostly in rural and remote areas, does not have clear title.  The government is undertaking efforts to identify property owners and register land titles.

Intellectual Property Rights

While Lebanon is not a WTO member, its intellectual property rights (IPR) legislation is generally compliant with Trade-Related Intellectual Property Rights (TRIPS) standards.  .  The Ministry of Energy and Trade’s (MoET) Intellectual Property Protection Office (IPPO) has led efforts to improve the IPR regime but suffers from limited financial and human resources, and insufficient political support.  Lebanon’s Internal Security Forces (ISF) and Customs play roles in enforcement.  While IPR awareness within the Lebanese judiciary has improved somewhat in recent years, gaps remain with regards to understanding the negative economic impact that IPR violations have on the economy.  The MoET’s new draft laws and amendments to existing laws aimed at improving the IPR environment, notably for industrial design, trademark, geographical indications, as well as amendments to the copyright law, await parliamentary approval.

Existing IPR laws cover copyright, patent, trademarks, and geographical elements.  Lebanon’s 1999 Copyright Law largely complies with WTO regulations and needs only minor amendments to become fully compatible.  Copyright registration in Lebanon is not mandatory, and copyright protection is granted without the need for registration.  The MoET launched an online registration service in January 2013 for copyrights and trademarks on https://portal.economy.gov.lb/ .  This service simplified the registration process and over 80 percent of registrations of trademarks and copyrights now take place online.  Due to the complexity of copyrights and patents, registration is still accepted in person at the MoET, and payment must also take place in person.  The switch  to an objection system for trademarks also remains stalled due to the need for parliamentary approval.  However, the MoET noted that it implements the objection system in practice.

Lebanon’s Parliament ratified the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty (WPPT) in February 2010.  Ratification documents have not yet been deposited with WIPO, however, since this would also require amendments to the Copyright Law.

A modern TRIPS-compatible Patent Law, approved in 2000, provides general protection for semiconductor chip layout designs and plant varieties.  Data protection and undisclosed information fall under Article 47 of the Patent Law, but current provisions for pharmaceutical registration are subject to interpretation.  Generic manufacturers in Lebanon are not prohibited from using original data (e.g., data published on the U.S. Food and Drug Administration website) to register competing products that are identical to original products.  Decree No. 571 on the conditions of registering, importing, marketing, and classifying pharmaceuticals, which should have improved the process of drug registration and reduced the number of copycat drugs being registered, still leaves some room for interpretation.  There are no current plans to amend the Patent Law.  On patent registrations, the Lebanese legal regime does not require examination for novelty, utility, and innovation.  Simple patent deposit is required at the MoET, where the application is examined only for conformity with general laws and ethics.

The Internal Security Force (ISF) Cybercrime and IP Unit under ISF’s Judicial Police directorate focuses its efforts on online counterfeiting and copyright violations, whereas the Money Laundering and Financial Crimes Unit investigates trademark violations associated with counterfeit physical goods.  Lebanese Customs also plays a direct role in IPR enforcement by seizing counterfeits and an indirect role as part of its efforts to combat smuggling.  The U.S. Trade Representative’s Special 301 annual review of intellectual property protection worldwide has retained Lebanon on its watch list since 2008.

The IPPO acts upon the requests of rights holders or in an ex officio capacity.  The ISF cannot act in an ex officio capacity and still requires a criminal complaint to be filed with the prosecutor’s office in order for it to take action.  The sale and distribution of pirated, counterfeit, and copycat products continued across Lebanon, in commercial establishments and through street vendors.  This included leather goods, apparel and luxury items, fast-moving consumer goods (FMCGs), software, optical media, and pharmaceuticals.

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

Capital Markets and Portfolio Investment

There are no restrictions on portfolio investment, and foreign investors may invest in Lebanese equities and fixed income certificates.  While legally Lebanon is a free market economy and does not restrict the movement of capital into or out of the country, Lebanon’s financial sector imposed ad hoc capital controls on financial outflows from Lebanon since October 2019 due to dollar illiquidity.  There are de facto restrictions on outbound payments and transfers for current international transactions, although these have yet to be codified into law.  Money transfer services such as Western Union and MoneyGram must now disburse inbound transfers in local currency.  The Banking Control Commission of Lebanon (BCCL) has a department which oversees and conducts on-site and off-site audits of money exchange institutions and electronic money transfer firms operating in Lebanon using a risk-based supervision approach.

Credit is allocated on market terms, and foreign investors may obtain credit facilities on the local market.  However, as Lebanon entered its economic crisis in  the fall of 2019 and defaulted on its dollar-denominated debt in March 2020, local and international credit is virtually nonexistent. The private sector may access overdrafts and discounted treasury bills in addition to a variety of credit instruments, such as housing, consumer, or personal loans, as well as corporate loans for SMEs.

Government legislation allows the listing of tradable stocks on the Beirut Stock Exchange (BSE).  By regulation, an investor should inform the BSE when her/his portfolio of shares in any listed company reaches ten percent and five percent in any listed bank.  For an investor to acquire more than five percent of shares of any listed bank requires prior approval from the Central Bank.  Currently, the BSE lists six commercial banks, four companies including Solidere — one of the largest publicly held companies in the region — and eight sovereign Eurobond issues (all in U.S. dollars).  However, the BSE suffers from a lack of liquidity and low trading volumes in the absence of significant institutional and foreign investors and had an annual trading volume of only 2.6 percent of market capitalization in 2019.  Weak market turnover discourages investors from committing funds to the market and discourages issuers from seeking listings on the BSE.

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

Money and Banking System

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

This illiquidity continued for rest of 2019 and the first quarter of 2020, during which most banks stopped providing any dollars to clients.  Banks are no longer serving their core functions:  making productive loans or allowing those with dollar deposits to withdraw them.  Clients cannot transfer money overseas, except in “emergency” cases, as determined by individual banks.  Lebanon has yet to adopt formal capital controls legislation, but most economic analysts believe such a law is necessary to preserve what limited foreign currency is left in the country and provide a level playing field to all Lebanese.  At the behest of the Central Bank, in April 2020, banks began providing Lebanese lira at rates double the official pegged rate to customers with dollar-denominated accounts.

Lebanon’s default on its dollar-denominated debt in March 2020 – Lebanese banks at the time held $12.7 billion in Lebanon’s dollar bonds – further eroded the balance sheets of Lebanese banks.  Analysts estimate that perhaps 30 percent of loans from Lebanese banks are non-performing.  This number is expected to rise in 2020.  Bankers report that correspondent banks overseas have stopped providing them with lines of credits – or only provide facilities with onerous conditions – further hampering bank efficacy in Lebanon.  On April 30, the Cabinet approved an economic rescue plan, which noted the Lebanese financial sector experienced losses of nearly USD 80 billion, meaning that it will be unable to repay all what it owes to Lebanese with dollar-denominated accounts.  The economic plan hints at a potential “haircut” on dollar deposits, in which wealthy account holders could lose some of their deposits to help recapitalize banks after shareholders “bail-in” (convert their deposits into bank shares) their financial institutions.

The Lebanese banking sector covers the entire country with 1,051 operating commercial and investment bank branches as of November 2019.  There are 4,757 residents per branch in Lebanon (assuming five million inhabitants), which compares favorably to regional and emerging markets.  According to World Bank Development indicators, there are 534 depositors with commercial banks per 1,000 adults, 215 borrowers from commercial banks per 1,000 adults, and 38 ATMs per 100,000 adults.  The total domestic assets of Lebanon’s five largest commercial banks reached approximately $115 billion as of the end of 2019 (about 51.4 percent of total banking assets), according to Central Bank data.

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

There are no restrictions in Lebanon on a foreigner or non-resident’s ability to open a bank account in local currency or foreign currencies, provided they abide by Lebanese compliance rules and regulations.  Banks claim they have stringent inquiry mechanisms to ensure compliance with international and domestic regulations and implement Lebanon’s anti-money laundering and counter-terror finance laws.  Banks inform customers of Know-Your-Customer requirements and ask them about the purpose of opening new accounts and about the sources of funds to be deposited.  Lebanese banks note they are compliant with the Foreign Account Tax Compliance Act (FATCA).  Lebanon adopted the OECD Common Reporting Standards since January 1, 2018.

Foreign Exchange and Remittances

Foreign Exchange

For the first time in Lebanon’s history, commercial banks in late 2019 introduced ad hoc capital controls on Lebanese depositors to stem the outflow of foreign currency.  Depending on a client’s individual bank and account size, he or she is subject to strict limits on foreign transfers for “emergency” purposes only, as defined by a client’s bank.  Clients with Lebanese lira (LBP) denominated accounts can only convert their lira to dollars outside of banks at licensed and unlicensed money exchange houses.

As of May 2020, Lebanon in practice had several different exchange rates.  Since 1997, the LBP has been pegged to the U.S. dollar at 1,507.5 LBP to USD.  However, as Lebanese continue to demand scarce dollars in the Lebanese financial system, the currency has depreciated on secondary markets.  The Central Bank only made dollars available to importers at the official rate for imports of fuel, wheat, and medicine.  For inbound electronic transfers, the Central Bank set the rate at 3,800 LBP/1 USD as of May 2020.  Licensed money exchange houses have sold dollars for as high as 4,400 LBP/1 USD, but as of May 2020, most had closed in response to a government crackdown on purported price gouging.  Unlicensed money exchange houses – the black market – continued to sell dollars in May 2020 at rates ranging from 4,000 to 4,500 LBP/1 USD.  Banks allowed clients to withdraw LBP from their dollar-denominated accounts at 3,000 LBP/1 USD.  Finally, banks offered another preferential exchange rate for those willing to bring new dollar banknotes to bank counters.  Different stores and shops offered varying exchange rate conversions at ad hoc rates as well.

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

Remittance Policies

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

Sovereign Wealth Funds

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

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

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

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

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

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

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

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

Privatization Program

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

Parliament passed a two-year law authorizing the Cabinet to issue Independent Power Producers (IPP) licenses to investors in April 2014.  It later amended the law to extend its application through April 2018.  On April 17, 2019, Parliament passed a new law extending the application of Law 288 through April 2021, granting the Tender Office authority to tender IPP projects.  The Ministry of Energy and Water launched tenders in March 2017 for solar power plants under the IPP law and has issued three wind power plants licenses under IPP.  It planned to issue tenders for two combined cycle gas turbine IPPs in September 2019, but those efforts stalled.  The government reportedly now aims to procure IPPs on a bilateral government-to-company negotiation process.

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

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

Lebanese firms are aware of corporate social responsibility (CSR) and responsible business conduct (RBC), including on environmental, social, and governance issues.  This is true for the banking sector as well as companies in industry, which are slowly creating sustainable supply chains or pursuing social initiatives to appeal to consumers.  The Lebanese Standards Institution (LIBNOR), part of the Ministry of Industry, strives to expand the use of the ISO 26000 standard on Social Responsibility (SR) in Lebanon, one of the eight pilot countries in the Middle East.  However, laws related to human and labor rights, consumer protection, and environment protections are unevenly enforced.

The Central Bank of Lebanon works with banks to direct their financial resources towards projects that improve society and the environment.  This includes issuing circulars to create favorable environmental and educational loans, encourage entrepreneurship through private equity investments, and facilitate improved governance through customer protection.  Lebanon’s economic crisis, however, has frozen project  and corporate lending.  In 2015, the banking sector started to implement Central Bank Circular No. 134, requiring banks to apply measures to ensure transparent and fair dealings with their customers, a reflection of the CSR principles of corporate governance and consumer protection.  The Central Bank also established the Institute for Finance and Governance (IFG).  Some Lebanese banks attempt to align their business plans and CSR policy with the UN Sustainable Development Goals.  Several banks issue their own annual CSR reports.

The government does not require or encourage private companies to establish internal codes of conduct.  However, several companies have adopted a Code of Ethics and corporate governance codes, including the business association ‘Rassemblement de Dirigeants et Chefs d’Entreprises Libanais’ (RDCL, or the Group of Lebanese Business Owners) Code of Business Ethics, and the Lebanese Code of Corporate Governance (CG), which is under the auspices of the Lebanese Transparency Association (LTA).  However, these codes are strictly voluntary and the government provides no incentives or enforcement for their adoption.

U.S. firms have identified corruption as an obstacle to FDI, including in government procurement, award of contracts, dispute resolution, customs, and taxation.  A key demand of the anti-government protest movement that led to resignation of the previous government in October 2019 was stricter anti-corruption measures.  Corruption is reportedly more pervasive in government contracts (primarily in procurement and public works), taxation, and real estate registration, than in private sector transactions.  Lebanese law provides criminal penalties for official corruption, but they are not implemented effectively.  For instance, Lebanon does not effectively enforce the Illicit Wealth Law.  The Illicit Wealth Law applies to all state employees, government and senior officials, and municipality members and extends to family members.  The law does not extend to political parties.  The legislation has articles to counter conflict-of interest in awarding contracts and government procurement, but they are not enforced.  The Access to Information Law is not effectively implemented.

In April 2020, Parliament approved several laws seen as key to anti-corruption efforts:  an anti-corruption law targeting public sector employee and creating a National Committee to Combat Corruption, and a law to lift immunity of (low-level) public service employees.  Implementations of these laws will be critical to their success.  In May 2020, the government approved its National Anti-Corruption Strategy, while Parliament approved a law allowing the committee and Lebanon’s Financial Intelligence Unit to lift bank secrecy for top government officials.  It also approved a law changing appointments of top civil servants to a merit-based system, but implementation for all of these changes remains key to determining how they will combat entrenched corruption.

Lebanon ratified the UN Anticorruption Convention in April 2009.  Lebanon is not a signatory to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

As for civil society, the Lebanese Transparency Association (LTA) is a key advocate for stronger anti-corruption enforcement.  The LTA also established the Lebanese Advocacy and Legal Advice Center (LALAC) to inform citizens of their rights and to encourage victims and witnesses to take action against cases of corruption.  LALAC operates a hotline for victims and witnesses to report cases of corruption and receive free legal advice and assistance with their case.  The program is currently funded by Transparency International (TI) and the German Foreign Office.  LTA also conducted several workshops targeting municipalities, public servants, investigative journalists, and civil society groups promoting access to information right in Lebanon.

Resources to Report Corruption

Lebanese Transparency Association
Sami El Solh Avenue, Kaloot Bldg, 9th Floor
Badaro, Beirut
P.O. Box 50-552, Lebanon
Tel/Fax: +961-1-388113/4/5
Cell: 70-035777
Email: info@transparency-lebanon.org

Sustained anti-government protests began on October 17, 2019, and  led to resignation of the previous government on October 29.  The protests continued for months, with demonstrators demanding an end to corruption, poor governance, and economic stagnation.  A new government, which drew support from Foreign Terrorist Organization (FTO) Hizballah, did not form until January 21, 2020.  Public demonstrations continued since October, albeit with lesser frequency.  Since October 2019, some protests have turned violent and targeted property, particularly banks and public institutions.

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

The U.S. government considers the potential threat to U.S. Embassy personnel assigned to Beirut sufficiently serious enough to require all official personnel to live and work under security restrictions.  These limitations occasionally prevent the movement of U.S. Embassy officials and the provision of consular services in certain areas of the country.  U.S. citizen visitors are encouraged to contact the Embassy’s Consular Section for the most recent safety and security information concerning travel to Lebanon.  On March 18, 2020, the Department of State required the ordered departure of non-emergency U.S. government employees and associated family members in Lebanon due to COVID-19-related concerns, including travel restrictions and quarantine procedures that affected commercial flights.  More information may be found at https://lb.usembassy.gov/u-s-citizen-services.

The 1946 Labor Law provides for written and oral contracts and specifies a maximum workweek of 48 hours (with several exceptions, notably agricultural and domestic workers, who are not covered under the Labor Law).  The legal minimum wage was raised in 2012 to 675,000 LBP (USD 450 per the official exchange rate, but closer to $155 per the market exchange rate as of May 2020) per month.  Lebanon is a member of the International Labor Organization (ILO) and signatory to all of its fundamental conventions except on the Freedom of Association and Protection of the Right to Organize. The Ministry of Labor issues an annual list of jobs restricted to only Lebanese.  Local unskilled labor is in short supply.  Arab (mainly Syrian, Egyptian, and Palestinian), Asian, and African laborers are hired to work in construction, agriculture, industry, and households.

The law provides for the right of private sector workers to form and join trade unions, strike, and bargain collectively, although the law places a number of restrictions on these rights.  It provides protection against anti-union discrimination but enforcement is weak and anecdotal evidence suggests anti-union discrimination was widespread.  Lebanon has a government-recognized General Labor Confederation (CGTL), whose membership is limited exclusively to Lebanese workers.  The CGTL’s activities are mainly limited to demanding cost-of-living increases and other social benefits for workers.  The general labor-management relationship remains difficult and the Labor Law is not always properly enforced.  Strikes and demonstrations are not uncommon, and are usually aimed at pressuring the government for better employment conditions.  The law requires businesses to adhere to safety standards, but enforcement is weak.

Lebanon’s labor force (defined locally as aged 15 and above) totals 2.4 million in 2019, including foreign residents but excluding the seasonal work force, according to the World Bank. The World Bank estimated Lebanon’s total population, including refugees, at 6.8 million as of 2018.  There are no official statistics on unemployment.  The Lebanese Finance Minister estimated the unemployment rate above 35 recently, and the World Bank estimated unemployment at 35 percent for youth under 35 years of age in 2019.  The last study on unemployment in Lebanon, conducted by Lebanon’s Central Administration of Statistics (CAS) in partnership with the International Labor Organization in 2018, revealed a general unemployment rate of 11.4 percent and 23.3 percent among younger workers before the economic crisis.  The Minister of Economy and Trade publicly noted that there was competition between Lebanese and Syrian labor for low- to high-skilled jobs and also at the level of micro to small enterprises.  There were widespread anecdotal reports of arbitrary dismissals of Lebanese who were then replaced by non-Lebanese, particularly Syrians, in various economic and productive sectors.  However, there were no official statistics to confirm or quantify the scale of such dismissals.

In 1981, Lebanon and the United States signed an Overseas Private Investment Corporation (OPIC) agreement, which become operational in 1996.  OPIC is currently active in Lebanon in insurance, financing, and investment.  To date, OPIC has provided more than USD 300 million in credit line guarantees for transactions in Lebanon.

The Lebanese government’s National Investments Guarantee Corporation (NIGC) continues to insure new investments against political risks, riots, losses due to non-convertibility of currencies, and transfer of profits.  Lebanon has been a member of the Multilateral Investment Guarantee Agency (MIGA), part of the World Bank, since 1994.

* Source for Host Country Data: The Lebanese Central Administration of Statistics (CAS).  The BDL is compiling FDI statistics without geographical breakdown. Accordingly, the inward/outward FDI positions from/to US are considered as partial figures and resulting from the Coordinated Direct Investment Survey (CDIS) addressed to banking, financial, and insurance sectors.  CDIS data of 2019 is not yet available

Source: BdL; IMF Coordinated Direct Investment Survey-CDIS, June 2019
N.B. BdL statistical data sources include International Transactions Reporting System (public and private sectors), Ministry of Finance Land Registry Directorate and CDIS.
CDIS data of 2019 is not yet available.

Source: BdL; IMF Coordinated Portfolio Investment Survey-CPIS, June 2019.
N.B. CPIS data of Dec-2019 is not yet available.

Neil Gundavda
Economic and Commercial Officer
U.S. Embassy Beirut
GundavdaN@state.gov

Policies Towards Foreign Direct Investment

One of the poorest countries in Europe, Moldova relies heavily on foreign trade and remittances from workers abroad for its economic growth. Under Moldovan law, foreign companies enjoy national treatment in most respects. In principle, the government views FDI as vital for sustainable economic growth and poverty reduction. In 2019, the government tried to attract more foreign investors, but a lack of qualified labor and the continued emigration of qualified, working-age Moldovans undermined those efforts. The COVID-19 crisis will disproportionally affect foreign investment as low-skilled diaspora return to Moldova – adding to unemployment numbers – and remittances are expected to sharply decline.

Moldova ratified its Association Agreement with the EU in 2016, with the intent of bringing closer political association and economic integration with the EU. The DCFTA, a component of the Association Agreement, provides for mutual elimination of customs duties on industrial and most agricultural products and for further liberalization of the services market. It also addresses other barriers to trade and reforms in economic governance, with the goal of strengthening transparency and competition and adopting EU product standards. Given its small economy, Moldova has relied on a liberalized trade and investment strategy to increase the export of its goods and services to the EU.

A member of the WTO since 2001, Moldova has signed bilateral and multilateral free trade agreements, including:

• Commonwealth of Independent States (CIS) Free Trade Agreement
• Central European Free Trade Agreement
• EU DCFTA
• Turkey

Since September 2013, Moldova has faced a Russian ban on its alcoholic beverage exports, which is significant given its substantial wine industry. After signing the Association Agreement and DCFTA in 2014, Russia imposed trade bans on Moldova’s exports of fruit, canned products, and fresh and processed meat as a means to impact Moldova’s economy and foreign policy. These Russian trade bans drove Moldova to expand to new export markets, and, despite the COVID-19 pandemic, the EU continues to be the country’s largest export destination, absorbing more than half of all Moldovan exports. Nonetheless, Moldova’s Socialist-led government has renewed efforts to expand trade with Russia. In 2020, Moldova also participated as an observer in the Eurasian Economic Union meeting.

In addition to priority sectors, the government has identified in its national development strategy “Moldova 2020” seven priority public sector areas for development and reform: education; access to financing; road infrastructure; business regulation; energy efficiency; justice system; and social insurance. The government has made a formal commitment to accelerate the country’s development by making the economy more capital-intensive, sustainable, and knowledge-based. Thus far the government has not fully completed its commitments under the Plan. In fall 2019, the government published an overall Action Plan for 2020-2021 and committed to implement outstanding AA/DCFTA requirements.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no formal limits on foreign control of property and land, with the significant exception that foreigners are expressly prohibited from owning agricultural or forest land, even via a locally-domiciled corporation or business. However, foreigners are permitted to buy all other forms of property in Moldova, including land plots under privatized enterprises and land designated for construction.

Moldova does not have a formal investment screening mechanism for inbound foreign investment but is working on putting in place a mechanism to screen for risks to national security. Under Moldovan law, foreign companies enjoy national treatment in most respects. The Law on Investment in Entrepreneurship prohibits discrimination against investments based on citizenship, domicile, residence, place of registration, place of activity, state of origin, or any other grounds. The law provides for equitable conditions for all investors and rules out discriminatory measures hindering management, operation, maintenance, utilization, acquisition, extension, or disposal of investments. Local companies and foreigners are to be treated equally with regard to licensing, approval, and procurement. Companies registered in questionable tax havens are technically prohibited from holding shares in commercial banks.

By statute, special forms of legal organizations and certain activities require a minimum of capital to be invested (e.g., MDL 20,000 (USD 1,125) for joint stock companies, MDL 15 million (USD 844,000) for insurance companies, and MDL 100 million (USD 5.6 million) for banks).

Moldovan law restricts the right to purchase agricultural and forest land to Moldovan citizens. Foreigners may become owners of such land only through inheritance and may only transfer the land to Moldovan citizens. In 2006, Parliament further restricted the right of sale and purchase of agricultural land to the state, Moldovan citizens, and legal entities without foreign capital. There are reportedly Moldovan-registered companies with foreign capital known to own agricultural land by means of loopholes in the previous law. The only straightforward option available to foreigners who wish to use agricultural land in Moldova is to lease the land.

Other Investment Policy Reviews

The latest Investment Policy Review of Moldova was conducted by the United Nations Conference on Trade and Development (UNCTAD) as part of a broader South-East Europe Review in 2017 and can be accessed at: https://unctad.org/en/PublicationsLibrary/diaepcb2017d6_en.pdf 

https://unctad.org/en/PublicationsLibrary/diaepcb2017d6_en.pdf 

Moldova underwent a trade policy review by the World Trade Organization (WTO) in October 2015: https://www.wto.org/english/tratop_e/tpr_e/tp423_e.htm 

Business Facilitation

Moldova has an investment promotion agency to assist prospective investors with information about business registration or industrial sectors, facilitate contact with relevant authorities, and organize study visits. The Investment Agency has an investment guide available on its website: invest.gov.md

The government has established a special council for promoting investment projects of national importance and to tackle red tape limiting larger investment, and has taken steps over the years to simplify and streamline the process of business registration and licensing, lower tax rates, strengthen tax administration, and increase transparency.

Business registration is overseen by the Public Services Agency, created in 2017 as a result of the merger of the State Registration Chamber, Licensing Chamber, Land Registry, Civil Records Service, and State Information Center Registry.

By law, registration should take three days for a standard procedure or four hours for an expedited procedure and is done in two stages. The first stage involves submission of an application and a set of documents, the range of which may vary depending on the legal form of the business (LLC, joint-stock company, sole proprietorship, etc.). At the second stage, the Agency issues a registration certificate and a unique identification number for the business, conferring full legal capacity to the entity. In 2010, the government introduced the “one-stop-shop” principle, under which businesses are relieved of the requirement to register separately with fiscal, statistical, social security, or health insurance authorities. There are currently no procedures for online business registration. Certain types of activity listed in the law on licensing require businesses to be first licensed by public authorities.

In 2006, the Moldovan Parliament ratified the 1961 Hague Convention on Abolishing the Requirement for Legalization for Foreign Public Documents. Acceptance of U.S. apostilles applied on official documents simplifies the legalization of official documents issued in the United States that are required in the process of business registration.

Outward Investment

Moldova does not have an official policy or mechanism for promoting or incentivizing outward investment.

Transparency of the Regulatory System

The Prime Minister chairs an Economic Council, which liaises with the Moldovan business community to discuss government proposals and gather ideas to improve Moldova’s economy, especially in response to the COVID-19 crisis. Laws and regulations are published in the official gazette called Monitorul Oficial, while a database of laws and regulations is available online at http://www.legis.md .

The Foreign Investors Association (FIA) was established in 2004 with the support of the OECD. FIA engages in a dialogue with the government on topics related to the investment climate and produces an annual publication of concerns and recommendations to improve the investment climate. In 2006, the American Chamber of Commerce (AmCham) registered in Moldova, presenting another voice for the business community. In 2011, a group of ten large EU investors founded the European Business Association (EBA). These are the three largest foreign business associations, and they regularly engage in policy discussions with the government.

All regulations and governmental decisions related to business activity have been published in a special business registry, “Register of Regulations on Business Activity,” to raise the awareness of businesspeople about their rights, increase the transparency of business regulations, and help fight corruption. The government has an approved list of business permits and authorizations. Government agencies and inspectors cannot issue any form of documents not included in the list.

The Moldovan government generally publishes significant laws in draft form for public comment. Draft laws are also available on-line, on the website of Moldovan Parliament. Business and trade associations provide other opportunities for comment. A significant exception to this norm is a mechanism that allows Parliament to also propose draft laws.. The working group of the State Commission for Regulation of Entrepreneurial Activity, which was established as a filter to eliminate excessive business regulations, meets to vet draft governmental regulations dealing with entrepreneurship. The working group’s meetings are open to interested businesses and the agenda is published online: https://mei.gov.md/ro/agenda .

Nevertheless, bureaucratic procedures are not always transparent, and red tape often makes processing registrations, ownership, and other procedures unnecessarily long, costly, and burdensome. Discretionary decisions by government officials provide room for abuse and corruption. While the government adopted laws to improve the business climate and reduce excessive state controls and regulation, effective implementation is insufficient.  This inconsistent application of laws and regulations undermines fair competition and adds uncertainty for less politically-connected businesses, particularly small- and medium-sized businesses as well as new entrants. Moldova committed to implementing International Financial Reporting Standards (IFRS) in 2008. Use of IFRS is required by law for all public interest entities (financial entities, investment funds, insurance companies, private pension funds, and publicly listed entities) and national accounting standards (which approximate IFRS in many ways) are used by other firms, although many use IFRS as well due to foreign ownership.

Moldova committed to implementing International Financial Reporting Standards (IFRS) in 2008. Use of IFRS is required by law for all public interest entities (financial entities, investment funds, insurance companies, private pension funds, and publicly listed entities) and national accounting standards (which approximate IFRS in many ways) are used by other firms, although many use IFRS as well due to foreign ownership.

Moldova has a “one stop window” which provides clear and uniform rules for the release of information and standardized documents for business registration.

A law simplifying the system of inspectorates and various inspection bodies was adopted in 2017 to increase efficiency and reduce regulatory burden. Through the reformation of inspection bodies, the government intends to reorganize the state inspection agencies for better planning and monitoring of inspectors’ activity. By reducing the number of inspection agencies and introducing risk-based criteria for inspections, the government seeks to improve the business climate by reducing the opportunity for inspections to be used for political purposes.

International Regulatory Considerations

The EU Association Agreement (AA), including a Deep Comprehensive Free Trade Area (DCFTA), has binding regulatory provisions committing Moldova to a reform agenda and to approximating domestic legislation to EU standards in a range of areas, including corporate law, labor, consumer protection, competition and market surveillance, general product safety, tax, energy, customs duties, public procurement, intellectual property rights, and others. Under the DCFTA, Moldova will gradually abolish duties and quotas in mutual trade in goods and services. It will also eliminate non-tariff barriers by adopting EU rules on health and safety standards, intellectual property rights, and other fields. The agreement contains a timeframe for implementation, with phase-ins up to ten years.

Moldova has been a member of the World Trade Organization (WTO) since 2001 and, as such, is a signatory to the General Agreement on Trade in Services (GATS), the Agreement on Trade Related Investment Measures (TRIMs) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). These agreements contain major investment-related commitments, such as opening to the establishment of foreign service providers, prohibiting local content, trade-balancing, and domestic sales requirements (TRIMs), and protection of intellectual property(TRIPS). No major WTO TRIMS inconsistencies have been reported.

As a WTO member, Moldova must notify draft technical regulations to the WTO Committee on Technical Barriers to Trade. In 2016, Moldova ratified the WTO Trade Facilitation Agreement and adopted a number of measures to conform to WTO requirements.

The government has undertaken incremental steps since 2017 on a draft Customs Code, which would merge existing separate laws on customs procedures and goods crossing national borders and approximate national customs rules to the EU Customs Code. In 2017, the government changed customs rules to align with the EU Authorized Economic Operator requirements and Approved Exporter conditions.

Thanks to negotiations linked to Moldova’s WTO accession, modern commercial legislation has been adopted in accordance with WTO rules. The main challenges to the business climate remain the lack of effective and equitable implementation of laws and regulations, and arbitrary, non-transparent decisions by government officials to give domestic producers an edge over foreign competitors in certain areas. For example, an environmental tax is applied on bottles and other packaging of imported goods, but not levied on bottles and packaging produced in Moldova. Additionally, the government may liberally cite public security or general social welfare as reasons to intervene in the economy in contravention of its declared respect for market principles. There are reports of problems with customs valuation of goods, specifically that the Customs Service has been applying the maximum possible values to imported goods, even if their actual purchase value was far lower. This has increased customs revenues but disadvantaged importers.

Legal System and Judicial Independence

Moldova has a civil law legal system with codified laws that govern different aspects of life, including business, trade, and economy. The country’s legal framework consists of its constitution, organic and ordinary laws passed by the Parliament, and administrative acts issued by the government and other public authorities. Although Moldovan courts are constitutionally independent, their structures have facilitated government and political interference; the courts suffer from inefficiency and low public trust.

The court system consists of lower courts (i.e., trial courts), four courts of appeal, the Supreme Court of Justice, and a separate Constitutional Court.

Moldova is preparing a new justice reform strategy in 2020 to build on its 2016 reform strategy Parliament passed amendments in 2016 “optimizing” the country’s court system as part of broader justice sector reforms intended to reduce the number of trial courts in Moldova from 40 to 15. Specialized courts such as the Commercial Circumscription Court and Military Court were eliminated. Five trial courts from Chisinau were conceptually merged into one — the Chisinau trial court – although in 2018 the “merged” Chisinau trial court was further reorganized to specialize across five districts (investigative and contravention; criminal; administrative; bankruptcy; and civil, which includes adjudication of commercial disputes). The government’s court optimization plan is scheduled to be fully implemented by 2027.

The 2016 reforms created two specialized quasi-independent prosecution offices. The Anticorruption Prosecution Office is responsible for investigating and prosecuting corruption, bribery and abuse of power by public officials, and money laundering. The Prosecution Office on Combating Organized Crime and Special Cases investigates and prosecutes organized, transnational and particular complex crimes, including tax evasion, smuggling, intellectual property offenses, trafficking in persons, and narcotics. In 2017-2019, the Moldovan Prosecution Service continued the implementation of reforms under a law on the prosecution service passed in 2016. The Prosecutor General’s Office (PGO) guided and led the drafting of new regulations for the specialized prosecution offices, regional, district and municipal offices.

Laws and Regulations on Foreign Direct Investment

In addition to its international agreements, Moldovan laws affecting FDI include the Civil Code, the Law on Property, the Law on Investment in Entrepreneurship, the Law on Entrepreneurship and Enterprises, the Law on Joint Stock Companies, the Law on Small Business Support, the Law on Financial Institutions, the Law on Franchising, the Tax Code, the Customs Code, the Law on Licensing Certain Activities, and the Law on Insolvency.

The current Law on Investment in Entrepreneurship came into effect in 2004. It was designed to be compatible with European standards in its definitions of types of local and foreign investment. It provides guarantees of investors’ rights, prohibitions against expropriation or similar actions, and for payment of damages if investors’ rights are violated. The law permits FDI in all sectors of the economy, while certain activities require a business license.

Competition and Anti-Trust Laws

In 2012, Parliament passed a law on competition in line with EU practice and legislation. The National Competition Agency was subsequently renamed the Competition Council. The Competition Council oversees compliance with competition and state-aid provisions and initiates examination of alleged violation of competition laws. The Competition Council may request cessation of action, prescribe behavioral or structural remedies, and apply fines.

Expropriation and Compensation

The government has had a history of depriving investors, both national and foreign, of their businesses in various forms. Many of them have sued the government at the European Court for Human Rights for violation of the right to fair trial and of the respect for property, or in international arbitral tribunals.

The Law on Investment in Entrepreneurship states that investments cannot be subject to expropriation or to measures with a similar effect. However, an investment may be expropriated if done for purposes of public utility, is not discriminatory, and just compensation is provided. If a public authority violates an investor’s rights, the investor is entitled to compensation equivalent to the actual damages at the time of occurrence, including any lost profits.

The government has given no indication of intent to discriminate against U.S. investments, companies or representatives by expropriation, or of intent to expropriate property owned by citizens of other countries. No particular sectors are at greater risk of expropriation or similar actions in Moldova.

Since 2001, the government has cancelled several privatizations, citing the failure of investors to meet investment schedules or irregularities committed during the privatization process. While the government agreed to repay investors in such disputes, investors have had to apply to the European Court of Human Rights (ECHR) to enforce compensation payments. The government has complied with the ECHR rulings in these instances.

Dispute Settlement

ICSID Convention and New York Convention

In 2011, Moldova ratified the Convention on the International Center for the Settlement of Investment Disputes (ICSID – Washington Convention). The country also ratified the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Domestic courts recognize and enforce foreign arbitral awards. Moldova is also a party to the Geneva European Convention on International Commercial Arbitration of April 21, 1961, and the Paris Agreement relating to the application of the European Convention on International Commercial Arbitration of December 17, 1962.

Investor-State Dispute Settlement

Moldova is signatory to a number of bilateral investment treaties (see chapter 3 above), including the U.S.-Moldovan Treaty Concerning the Encouragement and Reciprocal Protection of Investment, which includes access to international arbitration for investment disputes.

Local courts recognize and enforce foreign arbitral awards against the government. There are no known cases when the Moldovan government denied voluntary payment under an arbitral award rendered against it.

International Commercial Arbitration and Foreign Courts

Private parties may choose alternative dispute resolution mechanisms instead of going to courts. Moldovan law provides the options of mediation and arbitration. The arbitration legislation is modeled after UNCITRAL rules. There are a number of arbitration bodies available in Moldova, including the arbitration court of the Moldovan Chamber of Commerce and Industry. The American Chamber of Commerce in Moldova (AmCham Moldova) has established the Chisinau Court of International Commercial Arbitration (CACIC) under its auspices.

Recognition and enforcement of foreign judgments are regulated by a complex framework of documents, including the Code for Civil Procedures, international conventions and bilateral treaties. Therefore, depending on the nationality of the court, Moldovan courts may apply different legal norms in examining the enforcement of foreign judgments. However, as a rule, foreign judgments are enforceable in Moldova on the basis of reciprocity and subject to New York Convention obligations.

Moldova’s court system generally enjoys a low level of public trust and is perceived to be vulnerable to acts of corruption, while court processes lack transparency. The overall expectation in court hearings involving representatives of public authorities, including economic entities, is that final court rulings will be in favor of state representatives. While arbitration is often seen as a preferable option to the courts, the courts must still enforce the arbitral decision. Investors have at times been discouraged by the slow pace of court enforcement of arbitral awards and the judge’s perceived discretion over the arbitral decision.

Bankruptcy Regulations

In terms of resolving insolvency, the World Bank ranks Moldova 67th out of 190 economies in the 2020 Doing Business Index; it takes creditors on average 2.8 years to recover their credit. . This is below the regional average and trails EU members in Central and Eastern Europe. The country has changed its insolvency law to introduce expedited insolvency proceedings, including by granting priority to secured creditors, introducing new restructuring mechanisms, reducing opportunities for appeals, adding moratorium provisions, establishing strict statutory periods in the proceedings, and enhancing the role of insolvency administrators.

Investment Incentives

Investment incentives are applicable for all Moldovan-registered businesses, irrespective of the country of origin of the investment. Certain incentives apply only in specially-designated areas such as free economic zones and industrial parks. Until 2021, Moldovan legislation allows employees of IT companies to benefit from incentives on personal income tax and social security contributions. Also, a 2017 law on information technology parks established a single tax for residents of the digital IT parks, calculated as the maximum between 7 percent from sales and 30 percent from the national average forecasted salary multiplied by the number of employees. There is also a range of tax incentives applicable if businesses meet certain requirements. Among those incentives are the following: value-added tax (VAT) and customs exemptions on long-term assets included in share capital; deferment of VAT liabilities on imports of materials used in manufacturing export-bound products; lower VAT rates for the hospitality and restaurant businesses; and lower social contributions and VAT rates for agricultural businesses.

Foreign Trade Zones/Free Ports/Trade Facilitation

At present, seven free economic zones (FEZs), one international free port – Giurgiulesti – and one international free airport – Marculesti – are registered in Moldova. According to Moldovan law, these zones support job creation, attraction of foreign and domestic investments, and export-oriented production. The Law on Free Economic Zones regulates FEZ activity. Foreigners have the same investment opportunities as local entities. FEZ commercial entities enjoy the following advantages: 25 percent exemption from income tax; 50 percent exemption from tax on income from exports; for investments of more than USD 1 million, a three-year exemption from tax on income resulting from exports; and for investments of more than USD 5 million, a five-year exemption from tax on income from exports; zero value-added tax; exemption from excises; and a stand-still guarantee against any new changes in the law for 10 years. In addition, residents investing at least USD 200 million in the FEZ are afforded a stand-still guarantee regarding new regulatory changes for the entire period of operation in the FEZ, but such protection cannot extend beyond 20 years.

The government also passed a 2008 law creating ten industrial parks with the aim of attracting investments in industrial projects. Businesses operating in those parks do not receive any special tax treatment, but typically have access to ready-to-use production facilities, offices and lower office rents for 25 to 30 years. Typically, these are idle premises of former industrial State-owned enterprises.

Similar to the FEZs, the Giurgiulesti Free International Port, Moldova’s only port accessible to sea-going vessels, was established in 2005, to be sunsetted in 2030. Commercial residents of the port enjoy the following advantages: 25 percent exemption from income tax for the first 10 years following the first year when taxable income is reported; 50 percent exemption from tax on income for the remaining years; exemption from value-added tax and excises on imports and exports outside Moldova’s customs territory; zero valued-added tax on imports from Moldova; and a stand-still guarantee for commercial residents regarding any regulatory changes until February 17, 2030.

The Marculesti International Free Airport, a former military air base, was established in 2008 as a free enterprise zone for a 25-year period to develop cargo air transport. Airport management is also interested in turning Marculesti into a regional hub for low-cost passenger airlines.

Performance and Data Localization Requirements

All incentives are applied uniformly to domestic and foreign investors. The Law on Investment in Entrepreneurship, in effect since 2004, does not protect new investors from legislative changes.

No requirements exist for investors to purchase from local sources or to export a certain percentage of their output.

The Embassy is not aware of any reports of forced data localization or special requirements targeting foreign IT providers. However, companies maintaining servers with customer databases outside Moldova have to comply with cumbersome domestic procedures related to protection of personally identifiable information. The Ministry of Economy and Infrastructure is responsible for developing strategies and policies on electronic communication. The National Regulatory Agency for Electronic Communications and Information Technology (ANRCETI) is responsible for regulations and oversight. The National Center for Personal Data Protection (NCPDP) is the supervisory body for personal data processing.

No limitations exist on access to foreign exchange in relation to a company’s exports. There are no special requirements that nationals own shares of a company. Both joint ventures and wholly foreign-owned companies may be set up in Moldova.

In fact, while not an official policy, in sectors of the economy that require large investments, experienced management, and technical expertise such as energy or telecommunications, the government has shown preference for experienced foreign investors over local investors. In other sectors, foreign and local investors formally receive equal treatment.

Moldovan law allows investments in any area of the country, in any sector, provided that national security interests, anti-monopoly legislation, environmental protection, public health, and public order are respected.

Some performance requirements are connected to tax incentives, but are enforced equitably and described in the Tax Code and related governmental decisions and instructions. Foreign investors are required to disclose the same information as local investors. Moldova has no discriminatory visa, residence, or work-permit requirements inhibiting foreign investors’ mobility in Moldova. The government has set up a one-stop shop for foreigners applying for Moldovan residence and work permits in an effort to streamline a complicated procedure.

Moldova has a liberal commercial regime with more than 100 countries. According to the Tax Code, Moldovan exports are exempt from value added tax. Although there are no formal import price controls, there are reports that Moldovan Customs Service may make arbitrary price assessments on certain types of imported goods for revenue-enhancing purposes.

Real Property

Moldova’s laws protect all property rights. There is a national cadastral office, which registers all ownership titles in the real estate registry. However, the mortgage market is still underdeveloped. In addition, the judicial sector remains weak and does not always fully guarantee the property rights of citizens and foreign investors.

In the World Bank’s Doing Business Index Moldova ranks 22nd among 190 economies on the ease of registering property.

Intellectual Property Rights

Despite efforts to improve its intellectual property rights (IPR) regime and set up relevant executive structures in the government, Moldova does not fully enforce its IPR laws due to conflicts of interest, lack of resources, and a low level of awareness and training among law enforcement agencies. The concept of IPR is largely unrecognized by the population. The country has an agency for the protection of IPR, the State Agency on Intellectual Property (AGEPI), which continues working on improving the legal framework and adjusting it to EU norms, increasing public awareness, and building capacity in law enforcement. Under the AA/DCFTA, the government is working to bring Moldova’s practices in line with the EU.

Moldova is party to the majority of international treaties on IPR, including the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and 26 World Intellectual Property (WIPO) treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty (PCT), the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty.

Along with other public institutions, AGEPI works on fulfilling Moldova’s IPR obligations as provided by the 2017-2019 National Action Plan for the implementation of the Association Agreement. In 2018, Moldova adopted the third Action Plan on the implementation of the National Strategy on Intellectual Property through 2020.  While some progress is being reported, there are still many outstanding issues related to geographical Igdications (GIs) that need to be addressed.

In 2018, AGEPI was reorganized and consolidated . Efforts have been made to improve access to, and the quality of, IPR services.  AGEPI created a free and publicly available online IPR database, which can be found at www.db.agepi.md . AGEPI also recently launched an online application filing system, which accounts for over 45 percent of national IPR application filings. In 2019, AGEPI held its first basic IPR e-course on its IPR e-learning platform and continued integration into regional and international IT platforms, including e-PCT, which is an online portal for filing and managing PCT applications.

Moldova’s criminal code prohibits the unauthorized disclosure of trade secrets. A new law for the protection of pharmaceutical and medicinal product data came into force on January 1, 2020, the aim of which is to guarantee the confidentiality, non-disclosure, and non-reliance of data submitted during the course of obtaining regulatory and market approval of the products .

Moldovan authorities, including Customs, the Ministry of Interior, and the General Prosecutor’s Office track statistics for IPR violations annually, but such reports are not readily available online . To improve IPR enforcement, Moldovan authorities are developing an IPR Information System to track the exchange of IPR data between agencies, including AGEPI, Customs, Prosecution, Police, the Agency for Consumer Protection and Market Surveillance, and the Agency for Court Administration. The system is expected to become operational in 2020.

A report containing statistical and analytical data on IPR enforcement collected from all relevant stakeholders is released annually by the IPR Enforcement Observatory established by AGEPI. The 2019 Report is available in English and Romanian languages on the Observatory web-site: http://observatorpi.md/studii-rapoarte/raport-na%C8%9Bional/  .

Moldova is not listed in the U.S. Trade Representative (USTR) Special 301 Report, nor is it included on the Notorious Markets List.

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

Capital Markets and Portfolio Investment

Moldova’s securities market is underdeveloped. Official National Bank of Moldova (NBM) statistics include data on portfolio investments, yet there is a lack of open-source information fully reflect the trends and relevance of these investments. NBM data shows that most portfolio investments target banks, while the National Statistics Bureau does not differentiate between foreign direct investment and portfolio investments of less than 10 percent in a company.

Laws, governmental decisions, NBM regulations, and Stock Exchange regulations provide the framework for capital markets and portfolio investment in Moldova. The government began regulatory reform in this area in 2007 with a view to spurring the development of the weak non-banking financial market. Since 2008, two bodies in particular – the NBM and the National Commission for Financial Markets – have regulated financial and capital markets.

Foreign investors are not restricted from obtaining credit from local banks, the main source of business financing. However, access to credit continues to be difficult, especially for SMEs, in light of stringent lending practices; this has been exacerbated by the COVID-19 pandemic. Local commercial banks provide mostly short-term, high-interest loans and require large amounts of collateral, reflecting the country’s perceived high economic risk. Progress in lending activity suffered a sharp reversal in 2015 in the wake of the late-2014 banking crisis, triggered by a massive bank fraud, which severely weakened the banking system. Extreme monetary tightening by the NBM in the wake of significant currency flight connected to the resulting bank bailouts led to prohibitively high interest rates, which dipped below 9 percent in 2019.

Large investments can rarely be financed through a single bank and require a bank consortium. Recent years have seen growth in leasing and micro-financing, leading to calls for clear regulation of the non-bank financial sector. As a result, Parliament passed a new law on the non-bank financial sector, which entered into effect on October 1, 2018. Raiffeisen Leasing remains the only international leasing company which has opened a representative office in Moldova.

Even prior to the COVID-19 pandemic, the private sector’s access to credit instruments has been limited by the insufficiency of long-term funding, high interest rates, and unrealistic lending forecasts by banks. Financing through local private investment funds is virtually non-existent. A few U.S. investment funds have been active on the Moldovan market. The government adopted a 2018-2022 strategy for the development of the non-banking financial sector aimed at bolstering the capital markets combined with prudential supervision. A new Central Securities Depository was established under the supervision of the National Bank of Moldova to bring greater transparency and integrity to ownership and the recordkeeping associated with it.

Acting as an independent regulatory agency, the National Commission for Financial Markets (NCFM) supervises the securities market, insurance sector and non-bank financial institutions. A new capital markets law adopting EU regulations came into effect in 2013. It was designed to open up capital markets to foreign investors, strengthen NCFM’s powers of independent regulator, and set higher capital requirements on capital market participants.

Money and Banking System

In 2014, a crisis at three Moldovan banks (which resulted in their closure and the loss of USD 1.2 billion), two of them among the country’s largest, undermined confidence in the banking system. The role of a Moldovan bank in the “Russian Laundromat” case, estimated to have laundered from USD 20 to 80 billion, further underscored these challenges. The crisis shook Moldova’s banking system, causing some foreign correspondent banks to terminate ties with Moldovan banks and others to significantly tighten their lending.

In March 2020, Moldova successfully completed its first $178 million IMF program after implementing reforms to its financial and banking sectors. As a result of these reforms, the financial sector is better prepared to withstand the economic impact of the COVID-19 crisis. There is a high degree of capital and liquidity, and an overall reduction of non-performing loans to approximately 8 percent. Moldovan banks remain the main, albeit currently limited, source of business financing. The non-bank financial institutions however have been gaining sizable market share, especially in individual and SME lending, where banks have been encumbered by prudential banking rules. Bank assets account for about 44 percent of GDP. Banks are also the largest loan providers, with loans amounting to approximately USD 2.3 billion. The COVID-19 crisis slowed down bank lending in 2020.

Moldova currently has 11 commercial banks. The NBM regulates the commercial bank sector and reports to Parliament. Foreign bank subsidiaries must register in Moldova and operate under the local banking legislation. Although the integrity of true bank ownership records is questionable, foreign investors’ share in Moldovan banks’ capital is approximately 87 percent of total capital, and includes such major foreign investors as OTP Bank (Hungary), Erste Bank (Austria), Banca Transilvania (Romania) and Doverie Holding (Bulgaria).

As of December 31, 2019, total bank assets were MDL 90.6 billion (USD 5.16 billion) and 90 percent of total assets in the financial sector. Moldova’s three largest commercial banks account for more than 65 percent of the total bank assets, as follows: Moldova Agroindbank – MDL 25.8 billion (USD 1.47 billion); Moldindconbank – MDL 18.4 billion (USD 1.05 billion); and Victoriabank – MDL 14.7 billion (USD 834.0 million). To prevent another crisis, the NBM instituted special monitoring of these top three banks over concerns about the transparency of bank shareholders; this monitoring was lifted in April 2020.

After 2016, the Moldovan Parliament adopted legislation that would strengthen the independence of decision making at the NCFM and NBM – to help address systemic supervisory problems that had a negative effect on Moldova’s financial sector. To strengthen the system of tracking shares and shareholders, with USAID assistance, authorities put in place a law establishing the aforementioned Centralized Securities Depository. In addition, all bank shares must be sold and purchased on the Moldovan Stock Exchange. These measures have improved the transparency and reliability of the financial sector.

NBM’s Banking Law of 2018 and the Bank Recovery and Resolution Law from 2016 bring the financial sector closer to harmonization with EU standards, including through the application of stronger risk-based supervision to banks, increased enforcement powers and monetary penalties applied to banks, structures to address problem banks, and strengthening the NBM’s ability to conduct risk assessments. Also, NBM required banks to increase their credit loss provisioning and take urgent action to reinforce internal risk management as well as procedures on related-party financing. In addition, the NBM developed a methodology to better identify the related parties at banks.

Local authorities have not announced any intention to implement blockchain technologies in banking transactions. In 2017, the NBM warned domestic investors of the highly speculative nature of virtual currencies and their use as means of payment. Authorities in the breakaway region of Transnistria have passed a law encouraging the use of blockchain technologies for mining cryptocurrencies in specially created economic zones; however, this development is not expected to have any direct impact on Moldova’s financial sector.

Foreign Exchange and Remittances

Foreign Exchange

Moldova accepted Article VIII of the IMF Charter in 1995, which required liberalization of foreign exchange operations. There are no restrictions on the conversion or transfer of funds associated with foreign investment in Moldova. After the payment of taxes, foreign investors are permitted to repatriate residual funds. Residual fund transfers are not subject to any other duties or taxes and do not require special permissions. Moldova’s central bank uses a floating exchange rate regime and intervenes only to smooth sharp fluctuations.

Between late 2014 and early 2016, the national currency, the leu (plural lei), depreciated following challenges in the political environment, Russian bans on Moldovan food exports, and falling remittances from Russia, which impacted Moldova’s balance of payments. A massive banking fraud and a subsequent bailout program further undermined the leu, which depreciated by 36 percent. Since 2016, the National Bank has been pursuing a tight monetary policy that has contributed to a strengthening of the leu. In 2019, the national currency exchange rate fluctuated, but stabilized toward the end of the year.

Remittance Policies

No significant delays in the remittances of investment returns have been reported. Domestic commercial banks have accounts in leading multinational banks, and foreign investors enjoy the right to repatriate their earnings.

The Moldovan leu is the only accepted legal tender in the retail and service sectors in Moldova. Foreign exchange regulation of the NBM allows foreigners and residents to use foreign currencies in some current and capital transactions in the territory of Moldova. Generally, there are no difficulties associated with the exchange of foreign or local currency in Moldova.

Sovereign Wealth Funds

The embassy is not aware of any sovereign wealth funds run by the government of Moldova.

Since gaining independence in 1992, Moldova has privatized most State-owned enterprises (SOEs), and most sectors of the economy are almost entirely in private hands. However, the government still fully or partially controls some enterprises operating in a variety of economic sectors. The major SOEs are northern electricity grids, Chisinau heating companies, fixed-line telephone operator Moldtelecom, and the state railway company. The government keeps a registry of state-owned assets, which is available on the website on the Public Property Agency https://app.gov.md/ro/advanced-page-type/registrul-patrimoniului-public .

SOEs are governed by the law on stock companies and the law on state enterprises as well as a number of governmental decisions. SOEs have boards of directors usually comprised of representatives of the line ministry, the Ministry of Economy and Infrastructure, and the Ministry of Finance. As a rule, SOEs report to the respective ministries, with those registered as joint stock companies being required to make their financial reports public. Moldova does not incorporate references to the OECD Guidelines on Corporate Governance for SOEs in its normative acts.

Moldovan legislation does not formally discriminate between SOEs and private-run businesses. By law, governmental authorities must provide a level legal and economic playing field to all enterprises. However, SOEs are generally seen as better positioned to influence decision-makers than private sector competitors. In some cases, SOEs have allegedly used these advantages to prevent open competition in individual sectors.

The Law on Entrepreneurship and Enterprises has a list of activities restricted solely to SOEs, which includes, among others, human and animal medical research, manufacture of orders and medals, postal services (except express mail), sale and production of combat equipment and weapons, minting, and real estate registration.

Privatization Program

Moldova launched the first of several waves of privatization in 1994. In 2007, Parliament passed a new law governing management and privatization of SOEs. Two major privatizations in 2013 – of the then-largest bank, Banca de Economii, and the 49-year concession of the Chisinau Airport – subsequently proved highly controversial. Privatization efforts in 2014 and 2015 emphasized public-private partnerships as means for companies to gain access to SOEs in infrastructure-related projects. In 2018, the government held several rounds of privatization, selling its stake in 19 companies, including airline Air Moldova and gas interconnector Vestmoldtransgaz. In 2019, the government finished privatizing state tobacco company Tutun CTC, then announced a moratorium on all further privatizations, following controversies over past sales . The government plans to resume privatization efforts in 2020, including the state telephone company Moldtelecom, as well as state railway and northern power distribution companies RED Nord and FEE Nord.

To date, Moldova has conducted privatizations through open tenders organized at the stock exchange, open to interested investors. The government may also use open outcry auctions for some properties, so-called investment or commercial tenders to sell entire companies to buyers taking on investment commitments, or to the highest bidders or public-private partnerships for infrastructure related projects. The government publishes privatization announcements on the website of the Public Property Agency www.app.gov.md  and in the official journal Monitorul Oficial.

While Moldovan legislation deals with issues pertaining to environment, workers’ rights, social fairness or governance, there is little awareness of the concept of the due diligence approach to ensuring responsible business conduct. The country’s corporate culture and private sector are still at an early stage of development and still seeking to define the nature of interactions between private business, government authorities, broader stakeholders, and the public at large. There is no governmental policy to encourage enterprises to follow OECD or UN Guidelines in this area.

Foreign companies operating in Moldova are gradually introducing the concept of corporate social responsibility as an aspect of responsible business conduct. However, the Soviet-era notion of a paternalistic government responsible for maintaining the social welfare for all citizens remains quite widespread. AmCham Moldova has set a leading example, with its corporate members engaging in a forestation project, in the rehabilitation of medical facilities, and in Christmas collection projects for orphanages.

While Moldova has taken steps to adopt European and international standards to combat corruption and organized crime, corruption remains a major problem.

In 2012-13, the government enacted a series of anti-corruption amendments. This package included new legislation on “integrity testing” related to a disciplinary liability law for judges. It also extended confiscation and illicit enrichment statutes in the Moldovan Criminal Code as per the United Nations Convention against Corruption (UNCAC). The Constitutional Court subsequently restricted integrity testing (e.g., excluding random testing as “entrapment”), but enactment of these reforms substantially augmented Moldova’s corruption-fighting toolkit.

The National Anticorruption Center (NAC), created in 2012, focuses on investigating public corruption and bribery crimes, and is subordinated to the Parliament (the CCECC had been organized under the executive branch). Moldovan judges, who had previously enjoyed full immunity from corruption investigations, can now be prosecuted for crimes of corruption without prior permission from their self-governing body, although the Superior Council of Magistrates still must approve any search or arrest warrant against a judge.

The government has developed and enacted a series of laws designed to address legislative gaps such as the Law on Preventing and Combating Corruption, the Law on Conflict of Interests, and the Law on the Code of Conduct for Public Servants. The Criminal Code criminalizes two forms of public sector corruption: passive and active. These statutes apply only to corrupt acts and bribery committed by public officials. In 2016, Moldova continued the reform of the prosecution system through adoption of the Law on the Prosecution Service, and created two specialized prosecution agencies – the Anticorruption Prosecution Office (APO) and the Prosecution Office for Combating Organized Crime and Special Cases (PCCOCS). Beginning in 2015, specialized prosecution offices began to investigate and prosecute individuals allegedly involved in the “billion dollar” banking theft and a series of high-profile bribery, corruption, and tax evasion cases, though with only limited progress. These offices face multiple challenges, including lack of independent budgets, high workload, external interference, and serious questions about their independence, transparency and impartiality.

In 2018, APO and PCCOCS started recruitment for seconding investigators to their offices. According to the 2016 prosecution reform law, these investigators are responsible for supporting prosecutors to investigate complex corruption cases. However, even with a nearly-full complement of seconded investigators, APO still relies on NAC investigators to conduct many corruption-related investigations and prosecutions. Also in 2018, a new statutorily-created agency, the Criminal Assets Recovery Agency (CARA), began operating as a specialized unit within NAC. The selection and appointment of the agency’s leadership is coordinated through a competitive process by the NAC. The agency continues to grow and has demonstrated increased capacity to detect, track, seize and recover criminal proceeds throughout 2019.

In 2016, Parliament passed the Law on the National Integrity Authority (NIA) and the Law on Disclosure of Assets and Conflict of Interest by public officials. The NIA became operational in 2018. The director, deputy director, and all inspectors are hired in competitive processes, but the agency has not yet hired a full complement of inspectors. NIA continues to lack staff and sufficient resources to fulfill its mission. The issuance of “integrity certificates” to individuals with well-known ties to the billion dollar heist further degraded the organization’s reputation.

Moldova’s 2017-2020 National Integrity and Anticorruption Strategy was drafted and passed following public consultations, and is structured along the “integrity pillars” concept that aims to strengthen the integrity climate among civil servants at all levels. It includes a role for civil society organizations (CSOs) through alternative monitoring reports and promoting integrity standards in the private sector. The strategy addresses the complexity of corruption by employing sector-based experts to evaluate specific integrity problems encountered by different vulnerable sectors of public administration. Moldova is expected to begin developing a new strategy during 2020, led by NAC and the Ministry of Justice.

Moldovan law requires private companies to establish internal codes of conduct that prohibit corruption and corrupt behavior. Moldova’s Criminal Code also includes articles addressing private sector corruption, combatting economic crime, criminal responsibility of public officials, active and passive corruption, and trading of influence. This largely aligns Moldovan statutory law with international anti-bribery standards by criminalizing the acts of promising, offering, or giving a bribe to a public official. Anti-corruption laws also extend culpability to family members. A new illicit enrichment law was added in 2013, but its potential as an effective anti-corruption tool is severely constricted by the Constitutional Court’s interpretation of a constitutional provision creating a presumption in the law that assets possessed by a person were lawfully acquired. In 2017, the Anticorruption Prosecution Office started the only illicit enrichment case initiated in Moldova to date, against a prominent chief judge involved in the construction of private apartments. The criminal case remains unresolved, as the judge has resigned from the judiciary.

The country has laws regulating conflicts of interest in awarding contracts and the government procurement process; however these laws are not assessed as widely or effectively enforced. In 2016, Parliament added two new statutes to the Criminal Code criminalizing the misuse of international assistance funds. These provisions provide a statutory basis for prosecutors to investigate and prosecute misuse of international donor assistance by Moldovan public officials in public acquisitions, technical assistance programs, and grants

Despite the established anti-corruption framework, the number of anti-corruption prosecutions has not met international expectations (given corruption perceptions), and enforcement of existing legislation is widely deemed insufficient. In 2019, Moldova ranked 120 out of 180 (falling from 117 the prior year) among countries evaluated in the Transparency International Corruption Perceptions Index.

A Transparency International Global Corruption Barometer (GCB) survey published in 2017 showed that 84 percent of Moldovans thought the government was doing badly in fighting corruption. Globally, Moldova is among the top countries where people perceive public authorities to be most corrupt; almost 70 percent say people working in public sector institutions (the President’s office, Parliament, central government, tax inspection, police, the judiciary and local government) are assessed by those polled as highly corrupt. Almost 50 percent of Moldovans say they had to pay bribes over the past 12 months when coming in contact with public authorities. The latest GCB survey concluded that Moldova needs genuine and urgent measures to address corruption. Negative ratings of official efforts to curb corruption suggest that more must be done to reduce public sector graft and clean up institutions to act in the public interest.

The Freedom House Moldova “Nations in Transit Report” 2018 concluded the government has focused more on improving the legal framework than on implementing it. The report found anti-corruption initiatives did not contribute to tackling endemic corruption or the de-politicization of public institutions and regulatory agencies. Public competitions have been mostly non-transparent and based on controversial regulations or political loyalty to, or membership in, the ruling political group, rather than on the basis of merit. The investigation into the “billion-dollar” banking sector theft has yielded few results. Official data reported that by the end of 2018, only USD 100 million has been recovered, mainly from taxes, credits, and the sale of assets belonging to the three banks liquidated following the theft. The stolen assets have not been recovered, there remains no assurance that significant remaining funds will be recovered.

Freedom House’s most recent report, Democracy in Retreat: Freedom in the World 2019, found Moldova continues to be only “partially free,” earning 58/100 points for political rights/civil liberties, 3 points less than the prior year. The decline was due largely to perceptions of ongoing corruption. According to the 2020 Heritage Foundation’s Economic Freedom Index, Moldova’s economic freedom score was 62.0, making its economy 87th, just ahead of Belarus (88) and behind Samoa (86). Its overall score increased by 2.9 points, with improvements in government integrity and government spending. Regionally, Moldova is ranked 40 of 45 countries in Europe, and its overall score is well below the regional average and approximately equal to the world average. In the rule of law area, Heritage indicated property rights are undermined by a weak and corrupt judiciary.

Opinion surveys conducted by reputable pollsters like the International Republican Institute (IRI) consistently show over 95 percent of Moldovans see corruption as a big problem for the country. Moldovans name the top corrupt institutions as: 1) Parliament; 2) public servants, including the police; 3) the judiciary; 4) top government officials; 5) political parties and their leaders.

In 2007, Moldova ratified the United Nations Convention Against Corruption, subsequently adopting amendments to its domestic anti-corruption legislation. Moldova does not adhere to the Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery. However, Moldova is part of two regional anti-corruption initiatives: the Stability Pact Anti-Corruption Initiative for South East Europe (SPAI), and the Group of States against Corruption (GRECO) of the Council of Europe. Moldova cooperates closely with the OECD through SPAI and with GRECO, especially on country evaluations. In 1999, Moldova signed the Council of Europe’s Criminal Law Convention on Corruption and Civil Law Convention on Corruption. Moldova ratified both conventions in 2003. In 2020, Moldova joined OECD’s Istanbul Anti-Corruption Action Plan.

Resources to Report Corruption

Ruslan Flocea
Director
National Anti-Corruption Center
Bul. Stefan cel Mare si Sfant 168, Chisinau MD2004, Moldova
Tel. +373 22-257 257 (secretariat)/800-55555 (hotline)/22-257 333 (special line) secretariat@cna.md

Lilia Carasciuc
Executive Director
Transparency International Moldova
Strada 31August 1989 nr. 98, of.205, Chisinau MD2004, Moldova
Tel. +373-22 203-484(office)/800-10 000 (hotline)
office@transparency.md

Levels of street crime and other types of violent crime are equal or lower in Moldova than in neighboring countries and businesses typically only employ the most basic security procedures to safeguard their personnel.  Moldova has not had significant instances of transnational terrorism.  While there have been occasional instances of political violence in the past decade, these cases have typically been directed against Moldovan state institutions and have not generally impacted the international business community in Moldova.  There have been no significant instances of political violence in the last four years and all recent large demonstrations have been peaceful.

The Embassy has received no reports over the past ten years of politically-motivated damage to business projects or installations in Moldova. In 2015 and early 2016, there was public outcry over the political class’ failure to prevent (or even facilitate) massive bank fraud where nearly 15 percent of GDP disappeared from the country’s then-three largest banks. Round-the-clock anti-government protests culminated in January 2016 in clashes with riot police when protesters tried to prevent Parliament from voting in a new government. The clashes were limited and did not turn into full-blown violence or cause extensive damage that would affect businesses in any way, and the government remained in power.

After parliamentary elections in 2019, there was a standoff between the outgoing government and a new majority coalition of opposition parties. The new coalition peacefully assumed power after calls for calm and restraint by the international community.

Separatists control the Transnistria region of Moldova, located between the Nistru River and the eastern border with Ukraine. Although a brief armed conflict took place in 1991-1992, the sides signed a cease-fire in July 1992. Local authorities in Transnistria maintain a separate monetary unit, the Transnistrian ruble and a separate customs system. Despite the political separation, economic cooperation takes place in various sectors. The government has implemented measures requiring businesses in Transnistria to register with Moldovan authorities. The Organization for Security and Cooperation in Europe (OSCE), with Russia, and Ukraine acting as guarantors/mediators and the United States and EU as observers, supports negotiations between Moldova and the separatist region Transnistria (known as the “5+2” format). Throughout the years, progress has been inconsistent, with talks stalling in 2006 and formally resuming in late November 2011. Important achievements in the past few years include the resumption of rail freight traffic through Transnistria, the opening of a bridge across the Nistru river, Transnistrian-registered vehicles gaining access to international traffic, issuance of Moldovan apostilles on Transnistrian-issued higher education diplomas, and the operation of Latin Script schools in Transnistria.

For years, Moldova prided itself on its skilled labor force, including numerous workers with specialized and technical skills. However, many skilled workers have left Moldova for better paying jobs in other countries. This has led to shortages of skilled workers in Moldova. There are imbalances in the labor market arising from a general lack of workers with vocational training that employers need, on one hand, and lack of job opportunities for academically educated people, on the other. Labor shortages are reported in manufacturing, engineering, and IT. Low birth rates, emigration, and an aging population, coupled with a lack of immigration, represent a challenge to Moldova’s labor pool more generally. Around a fifth of the labor force is estimated to work abroad (around 800,000). According to World Bank population projections, if current emigration trends continue, Moldova will lose another 20 percent of its population by 2050.

Official unemployment was 5.1 percent in 2019, which is misleading given the low labor participation rate of 42.3 percent, owing to large numbers of Moldovans migrating abroad, which reduces the number of job seekers at home. Youth unemployment is more than double the national average at 10,4 percent. Employment in Moldova is largely based on agriculture, low productivity sectors, and crafts. Approximately 17 percent of the working population is employed in the informal economy; the non-agricultural workforce in the informal economy is 12 percent.

Moldova’s Constitution guarantees the right to establish or join a trade union. Trade unions have influence in the large and mostly State-owned enterprises and have historically negotiated for strong labor relations, minimum wage, and basic worker rights. Unions also have a say in negotiating collective labor agreements in various industries. Unions are less active and effective in small private companies. Moldova is a signatory to numerous conventions on the protection of workers’ rights. The country has moved toward adopting international standards in labor laws and regulations. In recent years, the government made changes to labor legislation in favor of employers and somewhat reducing unions’ input on issues related to hiring and firing personnel. Nevertheless, labor legislation is stringent in matters dealing with severance payments or leave, regulations that some foreign investors view as an impediment to labor flexibility and as putting a heavy burden on employers.

The government has drafted legislation to modernize the labor market, with a focus on skills development and vocational education training reform.

The Moldovan General Federation of Trade Unions has been a member of the ILO since 1992, and has been affiliated with the International Confederation of Free Unions (ICFU) since 1997. The Federation split into two separate unions in 2000, but merged in 2007, forming the National Trade Union Confederation (CNSM), which obtained membership in the International Trade Union Confederation in 2010.

In 1992, the Moldovan and U.S. governments signed an investment incentive agreement that exempts DFC’s predecessor, Overseas Private Investment Corporation (OPIC), from Moldovan taxes on loan interest and fees. OPIC became active in Moldova in September 1997. Since then, OPIC has provided a number of financial and insurance products, including political risk insurance, to U.S. businesses operating in Moldova in such fields as agribusiness, telecommunications, banking, consulting, transportation logistics, and finance.

The U.S. Export-Import Bank (EXIM) provides U.S. companies exporting to Moldova with short- and medium-term financing in the public and private sectors under its insurance, loan, and loan guarantee programs. In 2000, EXIM and Moldova signed a Framework Guarantee Agreement setting the terms for the Government of Moldova to issue sovereign guarantees to facilitate EXIM financing U.S. exports to Moldova. Also in 2000, EXIM and Moldova signed a Project Incentive Agreement that enabled EXIM to consider financing U.S. exports for creditworthy private sector projects in Moldova on a non-sovereign risk basis.

In 2002, EXIM signed a memorandum of cooperation with the Black Sea Trade and Development Bank. Under the memorandum, EXIM’s financing can be used to support exports of U.S. goods and services to any country located in the Black Sea region, including Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey, and Ukraine. The agreement enables the Black Sea Trade Development Bank to act as obligor or guarantor of specific transactions and provides for parallel financing arrangements.

Moldova is eligible for U.S. Trade and Development Agency (USTDA) funding for feasibility studies, orientation visits, specialized training grants, business workshops, and other forms of technical assistance with U.S. export potential.

Institutions such as the European Bank for Reconstruction and Development and the World Bank are active in Moldova in both the private and public sectors, offering various financial tools for both insurance and credit. Moldova is a member of the World Bank Group, including the Multilateral Investment Guarantee Agency (MIGA), which promotes foreign direct investment into developing countries by insuring investors against political risk, advising governments on attracting investment, sharing information through on-line investment information services, and mediating disputes between investors and governments. Moldova is also eligible for project and trade financing from the Black Sea Trade and Development Bank, and benefits from loans extended by the EU’s European Investment Bank and the Council of Europe Development Bank.

* National Bureau of Statistics and National Bank of Moldova are the primary source of the information. The FDI figure is preliminary.

Table 4: Sources of Portfolio Investment
Note: Moldova does not submit data for the IMF’s Coordinated Portfolio Investment Survey (CPIS). However, according to the National Bank of Moldova, the preliminary figure for total portfolio investment in 2019 amounted to USD 11.2 million. A breakdown by country for all portfolio investments is not available.

U.S. Embassy Chisinau, Moldova
Str. Alexei Mateevici 103,
Chisinau MD 2009, Moldova
Main switchboard +373 (22) 40 83 00
Fax: +373 (22) 23 30 74/40 84 10
chisinaucommerce@state.gov