Policies Towards Foreign Direct Investment

Brazil was the world’s sixth-largest destination for Foreign Direct Investment (FDI) in 2019, with inflows of $72 billion, according to UNCTAD.  The GoB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, and transportation infrastructure sectors – to introduce greater innovation into Brazil’s economy and to generate economic growth. GoB investment incentives include tax exemptions and low-cost financing with no distinction made between domestic and foreign investors.  Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, and insurance sectors.

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

In 2019, the Ministry of Economy created the Ombudsman’s office to provide foreign investors with a single point of contact for concerns related to FDI.  The plan seeks to eventually streamline foreign investments in Brazil by providing investors, foreign and domestic, with a simpler process for the creation of new businesses and additional investments in current companies.  Currently, the Ombudsman’s office is not operating as a single window for services, but rather as an advisory resource for FDI.

Limits on Foreign Control and Right to Private Ownership and Establishment

A 1995 constitutional amendment (EC 6/1995) eliminated distinctions between foreign and local capital, ending favorable treatment (e.g. tax incentives, preference for winning bids) for companies using only local capital.  However, constitutional law restricts foreign investment in healthcare (Law 8080/1990, altered by 13097/2015), mass media (Law 10610/2002), telecommunications (Law 12485/2011), aerospace (Law 7565/1986 a, Decree 6834/2009, updated by Law 12970/2014, Law 13133/2015, and Law 13319/2016), rural property (Law 5709/1971), maritime (Law 9432/1997, Decree 2256/1997), and insurance (Law 11371/2006).

Screening of FDI

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

To enter Brazil’s insurance and reinsurance market, U.S. companies must establish a subsidiary, enter into a joint venture, acquire a local firm, or enter into a partnership with a local company.  The BCB reviews banking license applications on a case-by-case basis. Foreign interests own or control 20 of the top 50 banks in Brazil, but Santander is the only major wholly foreign-owned retail bank.

Since June 2019, foreign investors may own 100 percent of capital in Brazilian airline companies.

While 2015 and 2017 legislative and regulatory changes relaxed some restrictions on insurance and reinsurance, rules on preferential offers to local reinsurers remain unchanged.  Foreign reinsurance firms must have a representation office in Brazil to qualify as an admitted reinsurer.  Insurance and reinsurance companies must maintain an active registration with Brazil’s insurance regulator, the Superintendence of Private Insurance (SUSEP) and maintain a minimum solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch ratings of at least BBB-.

Foreign ownership of cable TV companies is allowed, and telecom companies may offer television packages with their service.  Content quotas require every channel to air at least three and a half hours per week of Brazilian programming during primetime.  Additionally, one-third of all channels included in any TV package must be Brazilian.

The National Land Reform and Settlement Institute administers the purchase and lease of Brazilian agricultural land by foreigners.  Under the applicable rules, the area of agricultural land bought or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal district.  Additionally, no more than 10 percent of agricultural land in any given municipal district may be owned or leased by foreign nationals from the same country.  The law also states that prior consent is needed for purchase of land in areas considered indispensable to national security and for land along the border.  The rules also make it necessary to obtain congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding.  In December 2020, the Senate approved a bill (PL 2963/2019; source:  https://www25.senado.leg.br/web/atividade/materias/-/materia/136853) to ease restrictions on foreign land ownership; however, the Chamber of Deputies has yet to consider the bill. Brazil is not yet a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but submitted its application for accession in May 2020.  In February 2021, Brazil formalized its initial offer to start negotiations.  The submission establishes a series of thresholds above which foreign sellers will be allowed to bid for procurements.  Such thresholds differ for different procuring entities and types of procurements.  The proposal also includes procurements by some states and municipalities (with restrictions) as well as state-owned enterprises, but it excludes certain sensitive categories, such as financial services, strategic health products, and specific information technologies.  Brazil’s submission still must be negotiated with GPA members.

By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable.  Additionally, U.S. and other foreign firms may only bid to provide technical services where there are no qualified Brazilian firms. U.S. companies need to enter into partnerships with local firms or have operations in Brazil in order to be eligible for “margins of preference” offered to domestic firms participating in Brazil’s public sector procurement to help these firms win government tenders.  Nevertheless, foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts and, since October 2020, foreign companies are allowed to participate in bids without the need for an in-country corporate presence (although establishing such a presence is mandatory if the bid is successful).  A revised Government Procurement Protocol of the trade bloc Mercosul (Mercosur in Spanish), signed in 2017, would entitle member nations Brazil, Argentina, Paraguay, and Uruguay to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers.  However, none of the bloc’s members have yet ratified it, so it has not entered into force.

Other Investment Policy Reviews

The Organization for Economic Co-operation and Development’s (OECD) December 2020 Economic Forecast Summary of Brazil summarized that, despite new COVID-19 infections and fatalities remaining high, the economy started to recover across a wide range of sectors by the end of 2020.  Since the publication, Brazil’s economy is faltering due to the continuing pandemic’s financial impact.  The strong fiscal and monetary policy response managed to prevent a sharper economic contraction, cushioning the impact on household incomes and poverty.  Nonetheless, fiscal vulnerabilities have been exacerbated by these necessary policy responses and public debt has risen.  Failure to continue structural reform progress could hold back investment and future growth.  As of March 2021, forecasts are for economic recovery in 2021 and high unemployment.  The OECD report recommended reallocating some expenditures and raising spending efficiency to improve social protections, and resuming the fiscal adjustments under way before the pandemic.  The report also recommended structural reforms to enhance domestic and external competition and improve the investment climate.

The IMF’s 2020 Country Report No. 20/311 on Brazil highlighted the severe impact of the pandemic in Brazil’s economic recovery but praised the government’s response, which averted a deeper economic downturn, stabilized financial markets, and cushioned income loss for the poorest.  The IMF assessed that the lingering effects of the crisis will restrain consumption while investment will be hampered by idle capacity and high uncertainty.  The IMF projected inflation to stay below target until 2023, given significant slack in the economy, but with the sharp increase in the primary fiscal deficit, gross public debt is expected to rise to 100 percent of GDP and remain high over the medium-term.  The IMF noted that Brazil’s record low interest rate (Selic) helped the government reduce borrowing costs, but the steepening of the local currency yield curve highlighted market concerns over fiscal risks.  The WTO’s 2017 Trade Policy Review of Brazil noted the country’s open stance towards foreign investment, but also pointed to the many sector-specific limitations (see above).  All three reports highlighted the uncertainty regarding reform plans as the most significant political risk to the economy. These reports are located at the following links:

• OECD Report: http://www.oecd.org/economy/brazil-economic-snapshot/
• IMF Report: https://www.imf.org/en/Publications/CR/Issues/2020/12/01/Brazil-2020-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-49927
• WTO Report: https://www.wto.org/english/tratop_e/tpr_e/tp458_e.htm

Business Facilitation

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

Overall, Brazil dropped in the World Bank’s Doing Business Report from 2019 to 2020; however, it improved in the following areas: registering property; starting a business; and resolving insolvency.  According to Doing Business, some Brazilian states (São Paulo and Rio de Janeiro) made starting a business easier by allowing expedited business registration and by decreasing the cost of the digital certificate.  On March 2021, the GoB enacted a Provisional Measure (MP) to simplify the opening of companies, the protection of minority investors, the facilitation of foreign trade in goods and services, and the streamlining of low-risk construction projects.  The Ministry of Economy expects the MP, together with previous actions by the government, to raise Brazil by 18 to 20 positions in the ranking.  Adopted in September 2019, the Economic Freedom Law 13.874 established the Economic Freedom Declaration of Rights and provided for free market guarantees.  The law includes several provisions to simplify regulations and establishes norms for the protection of free enterprise and free exercise of economic activity.

Through the digital transformation initiative in Brazil, foreign companies can open branches via the internet.  Since 2019, it has been easier for foreign businesspeople to request authorization from the Brazilian federal government.  After filling out the registration, creating an account, and sending the necessary documentation, they can make the request on the Brazilian government’s Portal through a legal representative.  The electronic documents will then be analyzed by the DREI (Brazilian National Department of Business Registration and Integration) team.  DREI will inform the applicant of any missing documentation via the portal and e-mail and give a 60-day period to meet the requirements.  The legal representative of the foreign company, or another third party who holds a power of attorney, may request registration through this link: https://acesso.gov.br/acesso/#/primeiro-acesso?clientDetails=eyJjbGllbnRVcmkiOiJodHRwczpcL1wvYWNlc3NvLmdvdi5iciIsImNsaWVudE5hbWUiOiJQb3J0YWwgZ292LmJyIiwiY2xpZW50VmVyaWZpZWRVc2VyIjp0cnVlfQ%3D%3D     

Regulation of foreign companies opening businesses in Brazil is governed by article 1,134 of the Brazilian Civil Code  and article 1 of DREI Normative Instruction 77/2020 .  English language general guidelines to open a foreign company in Brazil are not yet available, but the Portuguese version is available at the following link: https://www.gov.br/economia/pt-br/assuntos/drei/empresas-estrangeiras .

For foreign companies that will be a partner or shareholder of a Brazilian national company, the governing regulation is DREI Normative Instruction 81/2020 DREI Normative Instruction 81/2020.  The contact information of the DREI is drei@economia.gov.br and +55 (61) 2020-2302.

References:

• https://investmentpolicy.unctad.org/country-navigator provides investment measures, laws and treaties enacted by selected countries.
• http://www.doingbusiness.org/data/ provides indicators from economies on the ease of starting a limited liability company.
• GER.co provides links to business registration sites worldwide.

Outward Investment

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

Brazil incentivizes outward investment.  Apex-Brasil organizes several initiatives aimed at promoting Brazilian investments abroad.  The Agency´s efforts comprised trade missions, business round tables, support for the participation of Brazilian companies in major international trade fairs, arranging technical visits of foreign buyers and opinion makers to learn about the Brazilian productive structure, and other select activities designed to strengthen the country’s branding abroad.

The main sectors of Brazilian investments abroad are financial services and assets (totaling 50.5 percent); holdings (11.6 percent); and oil and gas extraction (10.9 percent).  Including all sectors, $416.6 billion was invested abroad in 2019.  The regions with the largest share of Brazilian outward investments are the Caribbean (47 percent) and Europe (37.7 percent), specifically the Netherlands and Luxembourg.

Regulation on investments abroad are contained in BCB Ordinance 3,689/2013  (foreign capital in Brazil and Brazilian capital abroad): https://www.bcb.gov.br/pre/normativos/busca/downloadNormativo.asp?arquivo=/Lists/Normativos/Attachments/48812/Circ_3689_v1_O.pdf

Sale of cross-border mutual funds are only allowed to certain categories of investors, not to the general public.  International financial services companies active in Brazil submitted to Brazilian regulators in late 2020 a proposal to allow opening these mutual funds to the general public, and hope this will be approved in mid 2021.

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

In 2015, Brazil developed a state-to-state Cooperation and Facilitation Investment Agreement (CFIA) which, unlike traditional BITs, does not provide for an ISDS mechanism.  CFIAs instead outline progressive steps for the settlement of “issue[s] of interest to an investor”:  1) an ombudsmen and a Joint Committee appointed by the two governments will act as mediators to amicably settle any dispute; 2) if amicable settlement fails, either of the two governments may bring the dispute to the attention of the Joint Committee; 3) if the dispute is not settled within the Joint Committee, the two governments may resort to interstate arbitration mechanisms.  The GOB has signed several CFIAs since 2015 with:  Mozambique (2015), Angola (2015), Mexico (2015), Malawi (2015), Colombia (2015), Peru (2015), Chile (2015), Iran (2016), Azerbaijan (2016), Armenia (2017), Ethiopia (2018), Suriname (2018), Guyana (2018), the United Arab Emirates (2019), Ecuador (2019), and India (2020). The following CFIAs are in force:  Mexico, Angola, Armenia, Azerbaijan, and Peru.  A few CFIAs have received Congressional ratification in Brazil and are pending ratification by the other country:  Mozambique, Malawi, and Colombia (https://concordia.itamaraty.gov.br/ ).  Brazil also negotiated an intra-Mercosul Cooperation and Investment Facilitation Protocol (PCFI) similar to the CFIA in April 2017, which was ratified on December 21, 2018.  (See sections on responsible business conduct and dispute settlement.)

Brazil has a Social Security Agreement with the United States.  The agreement and the administrative arrangement were both signed in Washington on June 30, 2015 and entered into force on October 1, 2018.  Brazil signed a Tax Information Exchange Agreement (TIEA) with the United States in March 2007, which entered into force on May 15, 2013.  In September 2014, Brazil and the United States signed an intergovernmental agreement to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA).  This agreement went into effect in August 2015.

In October 2020, Brazil signed a Protocol on Trade Rules and Transparency with the United States, which has three annexes aimed at expediting processes involving trade:  I) Customs Administration and Trade Facilitation; II) Good Regulatory Practices; and III) Anti-corruption.  The protocol and annexes provide a foundation for reducing border bureaucracy, improving regulatory processes and stakeholder contribution opportunities, and supporting integrity in public institutions.

Brazil does not have a double taxation treaty with the United States, but Brazil does maintain tax treaties to avoid double taxation with the following 33 countries:  Austria, Argentina, Belgium, Canada, Chile, China, Czech Republic, Denmark, Ecuador, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Mexico, the Netherlands, Norway, Peru, Philippines, Portugal, Russia, Slovak Republic, South Africa, South Korea, Spain, Sweden, Trinidad & Tobago, Turkey, Ukraine, and Venezuela.  Treaties with Singapore, Switzerland, United Arab Emirates, and Uruguay are pending ratification.

Brazilian industry representatives have for years suggested a bilateral taxation treaty between Brazil and the United States would incentivize U.S. FDI.  A document produced by Brazil’s National Industry Confederation (CNI) and Amcham Brazil is available on this topic in Portuguese:  https://www.portaldaindustria.com.br/publicacoes/2019/10/acordo-para-evitar-dupla-tributacao-entre-o-brasil-e-os-estados-unidos-caminhos-para-uma-possivel-convergencia/

Brazil currently has pending tax reform legislation in Congress which is considered a priority by the government.  The current texts propose simplifying tax collection by unifying various taxes, and would generally maintain the tax burden at its current level which is high relative to other countries in the region.

Transparency of the Regulatory System

In the 2020 World Bank Doing Business report, Brazil ranked 124th out of 190 countries in terms of overall ease of doing business in 2019, a decrease of 15 positions compared to the 2019 report.  According to the World Bank, it takes approximately 17 days to start a business in Brazil. Brazil is seeking to streamline the process and decrease the amount to time it takes to open a small or medium enterprise (SME) to five days through its RedeSimples Program.  Similarly, the government has reduced regulatory compliance burdens for SMEs through the continued use of the SIMPLES program, which simplifies the collection of up to eight federal, state, and municipal-level taxes into one single payment.

The 2020 World Bank study noted Brazil’s lowest score was in annual administrative burden for a medium-sized business to comply with Brazilian tax codes at an average of 1,501 hours, a significant improvement from 2019’s 1,958 hour average, but still much higher than the 160.7 hour average of OECD high-income economies.  The total tax rate for a medium-sized business is 65.1 percent of profits, compared to the average of 40.1 percent in OECD high-income economies.  Business managers often complain of not being able to understand complex — and sometimes contradictory — tax regulations, despite having large local tax and accounting departments in their companies.

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

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

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

In addition to these federal regulatory agencies, Brazil has dozens of state- and municipal-level regulatory agencies.

The United States and Brazil conduct regular discussions on customs and trade facilitation, good regulatory practices, standards and conformity assessment, digital issues, and intellectual property protection.  The 18^th plenary of the Commercial Dialogue took place in May 2020, and regular exchanges at the working level between U.S. Department of Commerce, Brazil’s Ministry of Economy, and other agencies and regulators occur throughout the year.

Regulatory agencies complete Regulatory Impact Analyses (RIAs) on a voluntary basis. The Senate approved a bill on Governance and Accountability (PLS 52/2013 in the Senate, and PL 6621/2016 in the Chamber) into Law 13,848 in June 2019.  Among other provisions, the law makes RIAs mandatory for regulations that affect “the general interest.”

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

In 2020, the Department of State found that Brazil had met its minimum fiscal transparency requirements in its annual Fiscal Transparency Report.  The International Budget Partnership’s Open Budget Index ranked Brazil slightly ahead of the United States in terms of budget transparency in its most recent (2019) index.  The Brazilian government demonstrates adequate fiscal transparency in managing its federal accounts, although there is room for improvement in terms of completeness of federal budget documentation.  Brazil’s budget documents are publicly available, widely accessible, and sufficiently detailed.  They provide a relatively full picture of the GoB’s planned expenditures and revenue streams.  The information in publicly available budget documents is considered credible and reasonably accurate.

International Regulatory Considerations

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

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

Legal System and Judicial Independence

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

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

Laws and Regulations on Foreign Direct Investment

Brazil is in the process of setting up a “one-stop shop” for international investors. According to its website:  “The Direct Investments Ombudsman (DIO) is a ‘single window’ for investors, provided by the Executive Secretariat of CAMEX.  It is responsible for receiving requests and inquiries about investments, to be answered jointly with the public agency responsible for the matter (at the Federal, State and Municipal levels) involved in each case (the Network of Focal Points).  This new structure allows for supporting the investor, by a single governmental body, in charge of responding to demands within a short time.”  Private investors have noted this is better than the prior structure, but does not yet provide all the services of a true “one-stop shop” to facilitate international investment.  The DIO’s website in English is: http://oid.economia.gov.br/en/menus/8

Competition and Antitrust Laws

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

In 2020, CADE conducted 471 total formal investigations, of which 76 related to cases that allegedly challenged the promotion of the free market.  It approved 423 merger and/or acquisition requests and did not reject any requests.

Expropriation and Compensation

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

Contract disputes in Brazil can be lengthy and complex.  Brazil has both a federal and a state court system, and jurisprudence is based on civil code and contract law.  Federal judges hear most disputes in which one of the parties is the State and rule on lawsuits between a foreign State or international organization and a municipality or a person residing in Brazil.  Five regional federal courts hear appeals of federal judges’ decisions.  The 2020 World Bank Doing Business report found that on average it took 801 days to litigate a breach of contract.

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

Brazil’s commercial code governs most aspects of commercial association, while the civil code governs professional services corporations.  In December 2020, Brazil approved a new bankruptcy law (Law 14,112), which largely models UNCITRAL Model Law on International Commercial Arbitration, and addresses criticisms that its previous bankruptcy legislation favored holders of equity over holders of debt.  The new law facilitates judicial and extrajudicial resolution between debtors and creditors, and accelerates reorganization and liquidation processes.  Both debtors and creditors are allowed to provide reorganization plans that would eliminate non-performing activities and sell-off assets, thus avoiding bankruptcy.  The new law also establishes a framework for cross-border insolvencies that recognizes legal proceedings outside of Brazil.  The World Bank’s 2020 Doing Business Report ranks Brazil 77th out of 190 countries for ease of “resolving insolvency.”

Investment Incentives

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

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

While local private sector banks are beginning to offer longer credit terms, the state-owned Brazilian National Development Bank (BNDES) is the traditional Brazilian source of long-term credit as well as export credits.  BNDES provides foreign- and domestically owned companies operating in Brazil financing for the manufacturing and marketing of capital goods and primary infrastructure projects.  BNDES provides much of its financing at subsidized interest rates. As part of its package of fiscal tightening, in December 2014, the GoB announced its intention to scale back the expansionary activities of BNDES and ended direct Treasury support to the bank.  Law 13483, from September 2017, created a new Long-Term Lending Rate (TLP) for BNDES. On January 1, 2018, BNDES began phasing in the TLP to replace the prior subsidized loan rates.  After a five-year phase in period, the TLP will float with the market and reflect a premium over Brazil’s five-year bond yield (which incorporates inflation).  Although the GoB plans to reduce BNDES’s role further as it continues to promote the development of long-term private capital markets, BNDES continues to play a large role, particularly in concession financing, such as Rio de Janeiro’s water and sanitation privatization projects, in which BNDES can finance up to 65 percent of direct investments.

In December 2018, Brazil approved a new auto sector incentive package – Rota 2030 – providing exemptions from Industrial Product Tax (IPI) for research and development (R&D) spending.  Rota 2030 replaced the Inovar-Auto program which was found to violate WTO rules.  Rota 2030 increases standards for energy efficiency, structural performance, and the availability of assistive technologies; provides exemptions for investments in R&D and manufacturing process automation; incentivizes the use of biofuels; and funds technical training and professional qualification in the mobility and logistics sectors.  To qualify for the tax incentives, businesses must meet conditions including demonstrating profit, minimum investments in R&D, and no outstanding tax liabilities.

Brazil’s Special Regime for the Reinstatement of Taxes for Exporters, or Reintegra Program, provides a tax subsidy of two percent of the value of goods exported.

Brazil provides tax reductions and exemptions on many domestically-produced information and communication technology (ICT) and digital goods that qualify for status under the Basic Production Process (Processo Produtivo Básico, or PPB).  The PPB is product-specific and stipulates which stages of the manufacturing process must be carried out in Brazil in order for an ICT product to be considered produced in Brazil.  Brazil’s Internet for All program, launched in 2018, aims to ensure broadband internet to all municipalities by offering tax incentives to operators in rural municipalities.

Law 12.598/2012 offers tax incentives to firms in the defense sector.  The law’s principal aspects are to:  1) establish special rules for the acquisition, contract, and development of defense products and systems; 2) establish incentives for the development of the strategic defense industry sector by creating the Special Tax Regime for the Defense Industry (RETID); and, 3) provide access to financing programs, projects, and actions related to Strategic Defense Products (PED).

A RETID beneficiary, known as a Strategic Defense Company (EED), is accredited by the Ministry of Defense.  An EED is a legal entity that produces or develops parts, tools, and components to be used in the production or development of defense assets. It can also be a legal entity that provides services used as inputs in the production or development of defense goods.  RETID benefits include sale price credit and tax rate reduction for the manufacturing supply chain, including taxes on imported components.  Additionally, RETID provides exemption from certain federal taxes on the purchase of materials for the manufacture of defense products, strategic defense products (PRODE / PED) and services provided by strategic defense companies (EED).

In April 2020, the Brazilian Defense and Security Industry Association (ABIMDE) requested the Minister of Defense to consider implementing improvements to Law 12.598 by allowing all its members to:  1) have access to special bidding terms (TLE) for defense and security materials; and, 2) automatically utilize their RETID status, rather than being required to individually apply to the Ministry of Defense for certification, as is currently the process.  However, as of April 2021, the law has not been changed.

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

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

1. Tax incentives for locally-sourced information and communication technology (ICT) goods and equipment (Basic Production Process (PPB), Law 8248/91 (amended by Law 13969/2019), and Portaria 87/2013); and
2. Government procurement preferences for local ICT hardware and software (2014 Decrees 8184, 8185, 8186, 8194, and 2013 Decree 7903); and the CERTICS Decree 8186, which aims to certify that software programs are the result of development and technological innovation in Brazil.

At the end of 2019, Brazil adopted a New Informatic Law, which revised the tax and incentives regime for the ICT sector.  The regime is aligned with the requirements of the World Trade Organization (WTO), following complaints from Japan and the European Union that numerous Brazilian tax programs favored domestic products in contravention of WTO rules.

The New Informatic Law provides for tax incentives to manufacturers of ICT goods that invest in research, development, and innovation (RD&I) in Brazil.  In order to receive the incentives, the companies must meet a minimum nationalization requirement for production, but the nationalization content is reduced commensurate with increasing investment in R&D.  At least 60% of the production process is required to take place in Brazil to ensure eligibility.

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

Investors in certain sectors in Brazil must adhere to the country’s regulated prices, which fall into one of two groups: those regulated at the federal level by a federal company or agency and those set by sub-national governments (states or municipalities).  Regulated prices managed at the federal level include telephone services, certain refined oil and gas products (such as bottled cooking gas), electricity, and healthcare plans.  Regulated prices controlled by sub-national governments include water and sewage fees, and most fees for public transportation, such as local bus and rail services.  For firms employing three or more persons, Brazilian nationals must constitute at least two-thirds of all employees and receive at least two-thirds of total payroll, according to Brazilian Labor Law Articles 352 to 354. This calculation excludes foreign specialists in fields where Brazilians are unavailable.  There is a draft bill in Congress (PL 2456/19) to remove the mandatory requirement for national employment; however, the bill would maintain preferential treatment for companies that continue to employ a majority of Brazilian nationals.

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

Brazil’s Marco Civil, an Internet law that determines user rights and company responsibilities, states that data collected or processed in Brazil must respect Brazilian law, even if the data is subsequently stored outside the country.  Penalties for non-compliance could include fines of up to 10 percent of gross Brazilian revenues and/or suspension or prohibition of related operations. Under the law, Internet connection and application providers must retain access logs for specified periods or face sanctions.  Brazil’s Lei Geral de Proteção de Dados Pessoais (LGPD) went into effect in August 2020.  The LGPD governs the processing of the personal data of subjects in Brazil by people or entities, regardless of the type of processing, the country where the data is located, or the headquarters of the entity processing the data.  It also established a National Data Protection Authority (ANPD) to administer the law’s provisions, responsible for oversight and sanctions (which will go into effect August 2021), which can total up to R$50 million (approximately $9 million) per infringement.

Real Property

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

Intellectual Property Rights

Intellectual property (IP) rights  holders in Brazil continue to face challenges.  Brazil has remained on the “Watch List” of the U.S. Trade Representative’s (USTR) Special 301 Report since 2007.  For more information, please see:  https://ustr.gov/sites/default/files/files/reports/2021/2021%20Special%20301%20Report%20(final).pdf.Brazil

Brazil has one physical market, located in Sao Paolo,  listed on USTR’s 2020 Review of Notorious Markets for Counterfeiting and Piracy.  The Rua 25 de Marco area  is reportedly a distribution center for counterfeit and pirated goods throughout Sao Paulo.  Enforcement actions in this region continue.  Authorities used these enforcement actions as a basis to take civil measures against some of the stores. For more information, please see: https://ustr.gov/sites/default/files/files/Press/Releases/2020%20Review%20of%20Notorious%20Markets%20for%20Counterfeiting%20and%20Piracy%20(final).pdf.

According to the National Forum Against Piracy, contraband, pirated, counterfeit, and stolen goods cost Brazil approximately $74 billion in 2019.  (http://www.fncp.org.br/forum/release/292 ) (Yearly average currency exchange rate: 1 USD = 3.946 R)

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

Capital Markets and Portfolio Investment

The Brazil Central Bank (BCB) embarked in October 2016 on a sustained monetary easing cycle, lowering the Special Settlement and Custody System (Selic) baseline reference rate from a high of 14 percent in October 2016 to a record-low 2 percent by the end of 2020.  The downward trend was reversed by an increase to 2.75 percent in March 2021.  As of March 2021, Brazil’s banking sector projects the Selic will reach 5 percent by the end of 2021.  Inflation for 2020 was 4.52 percent, within the target of 4 percent plus/minus 1.5 percent.  The National Monetary Council (CMN) set the BCB’s inflation target at 3.75 percent for 2021, at 3.5 percent for 2022 and at 3.25 percent at 2023.  Because of a heavy public debt burden and other structural factors, most analysts expect the “neutral” policy rate will remain higher than target rates in Brazil’s emerging-market peers (around five percent) over the forecast period.

In 2020, the ratio of public debt to GDP reached 89.3 percent according to BCB, a new record for the country, although below original projections.  Analysts project that the debt/GDP ratio will be at or above92 percent by the end of 2021.

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

While local private sector banks are beginning to offer longer credit terms, state-owned development bank BNDES is a traditional source of long-term credit in Brazil.  BNDES also offers export financing.  Approvals of new financing by BNDES increased 40 percent in 2020 from 2019, with the infrastructure sector receiving the majority of new capital.

The São Paulo Stock Exchange (BOVESPA) is the sole stock market in Brazil, while trading of public securities takes place at the Rio de Janeiro market.  In 2008, the Brazilian Mercantile & Futures Exchange (BM&F) merged with the BOVESPA to form B3, the fourth largest exchange in the Western Hemisphere, after the NYSE, NASDAQ, and Canadian TSX Group exchanges.  In 2020, there were 407 companies traded on the B3 exchange.  The BOVESPA index increased only 2.92 percent in valuation during 2020, due to the economic impact of the COVID-19 pandemic.  Foreign investors, both institutional and individuals, can directly invest in equities, securities, and derivatives; however, they are limited to trading those investments on established markets.

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

Money and Banking System

The Brazilian financial sector is large and sophisticated. Banks lend at market rates that remain relatively high compared to other emerging economies.  Reasons cited by industry observers include high taxation, repayment risk, concern over inconsistent judicial enforcement of contracts, high mandatory reserve requirements, and administrative overhead, as well as persistently high real (net of inflation) interest rates.  According to BCB data collected for final quarter of 2019, the average rate offered by Brazilian banks to non-financial corporations was 13.87 percent.

The banking sector in Brazil is highly concentrated with BCB data indicating that the five largest commercial banks (excluding brokerages) account for approximately 80 percent of the commercial banking sector assets, totaling $1.58 trillion as of the final quarter of 2019.  Three of the five largest banks (by assets) in the country – Banco do Brasil, Caixa Econômica Federal, and BNDES – are partially or completely federally owned.  Large private banking institutions focus their lending on Brazil’s largest firms, while small- and medium-sized banks primarily serve small- and medium-sized companies.  Citibank sold its consumer business to Itaú Bank in 2016, but maintains its commercial banking interests in Brazil.  It is currently the sole U.S. bank operating in the country.  Increasing competitiveness in the financial sector, including in the emerging fintech space, is a vital part of the Brazilian government’s strategy to improve access to and the affordability of financial services in Brazil.

On November 16, 2020, Brazil’s Central Bank implemented a twenty-four hour per day instant payment and money transfer system called PIX.  The PIX system is supposed to deconcentrate the banking sector, increase financial inclusion, stimulate competitiveness, and improve efficiency in the payments market.

In recent years, the BCB has strengthened bank audits, implemented more stringent internal control requirements, and tightened capital adequacy rules to reflect risk more accurately.  It also established loan classification and provisioning requirements. These measures apply to private and publicly owned banks alike.  In December 2020, Moody’s upgraded a collection of 28 Brazilian banks and their affiliates to stable from negative after the agency had lowered the outlook on the Brazilian system in April 2020 due to the economic unrest.  The Brazilian Securities and Exchange Commission (CVM) independently regulates the stock exchanges, brokers, distributors, pension funds, mutual funds, and leasing companies with penalties against insider trading.

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

Foreign Exchange and Remittances

Foreign Exchange

Brazil’s foreign exchange market remains small.  The latest Triennial Survey by the Bank for International Settlements, conducted in December 2019, showed that the net daily turnover on Brazil’s market for OTC foreign exchange transactions (spot transactions, outright forwards, foreign-exchange swaps, currency swaps, and currency options) was $18.8 billion, down from $19.7 billion in 2016.  This was equivalent to around 0.22 percent of the global market in 2019 versus 0.3 percent in 2016.

Brazil’s banking system has adequate capitalization and has traditionally been highly profitable, reflecting high interest rate spreads and fees.  Per an October 2020 Central Bank Financial Stability Report, despite the economic difficulties caused by the pandemic, all banks exceeded required solvency ratios, and stress testing demonstrated that the banking system has adequate loss-absorption capacity in all simulated scenarios.  Furthermore, the report noted 99.9 percent of banks already met Basel III requirements and possess a projected Common Equity Tier 1 (CET1) capital ratio above the minimum 7 percent required at the end of 2019.

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

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

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

Remittance Policies

Brazilian Federal Revenue Service regulates withholding taxes (IRRF) applicable to earnings and capital gains realized by individuals and legal entities resident or domiciled outside Brazil.  Upon registering investments with the BCB, foreign investors are able to remit dividends, capital (including capital gains), and, if applicable, royalties.  Investors must register remittances with the BCB.  Dividends cannot exceed corporate profits.  Investors may carry out remittance transactions at any bank by documenting the source of the transaction (evidence of profit or sale of assets) and showing payment of applicable taxes.

Under Law 13259/2016 passed in March 2016, capital gain remittances are subject to a 15 to 22.5 percent income withholding tax, with the exception of capital gains and interest payments on tax-exempt domestically issued Brazilian bonds.  The capital gains marginal tax rates are: 15 percent up to $874,500 in gains; 17.5 percent for $874,500 to $1,749,000 in gains; 20 percent for $1,749,000 to $5,247,000 in gains; and 22.5 percent for more than $5,247,000 in gains.  (Note:  exchange rate used was 5.717 reais per dollar, based on March 30, 2021 values.)

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

Sovereign Wealth Funds

Brazil had a sovereign fund from 2008 – 2018, when it was abolished, and the money was used to repay foreign debt.

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

Notable examples of majority government-owned and controlled firms include national oil and gas giant Petrobras and power conglomerate Eletrobras.  Both Petrobras and Eletrobras include non-government shareholders, are listed on both the Brazilian and American stock exchanges,  and are subject to the same accounting and audit regulations as all publicly traded Brazilian companies.

Privatization Program

Given limited public investment spending, the GoB has focused on privatizing state–owned energy, airport, road, railway, and port assets through long-term (up to 30 year) infrastructure concession agreements, although the pace of privatization efforts slowed in 2020 due to the COVID-19 pandemic.

In 2019, Petrobras sold its natural gas distribution pipeline network, started the divestment of eight oil refineries, sold its controlling stake in Brazil’s largest retail gas station chain, and is in the process of selling its shares in regional natural gas distributors.  While the pandemic resulted in a slowdown in the refinery divestments, momentum is increasing once again as of early 2021.  Since 2016, foreign companies have been allowed to conduct pre-salt exploration and production activities independently, and no longer must include Petrobras as a minority equity holder in pre-salt oil and gas operations.  Nevertheless, the 2016 law still gives Petrobras right –of first refusal in developing pre-salt offshore fields and obligates operators to share a percentage of production with the Brazilian state.  The GoB supports legislation currently in Congress to further liberalize the development of pre-salt fields by removing Petrobras’ right-of-first refusal as well as production sharing requirements.

In March 2021, Brazil approved legislation to reform Brazil’s natural gas markets, which aims to create competition by unbundling production, transportation, and distribution of natural gas, currently dominated by Petrobras and regional gas monopolies.  Creation of a truly competitive market, however, will still require lengthy state-level regulatory reform to liberalize intrastate gas distribution, in large part under state-owned distribution monopolies.

Eletrobras successfully sold its six principal, highly-indebted power distributors, and the GoB intends to privatize Eletrobras through issuance of new shares that would dilute the government’s majority stake and in early 2021 submitted a legislative proposal to Congress to advance this process.

In March 2021, the GoB included the state-owned postal service Correios in its National Divestment Plan (PND).  As in the case of Eletrobras, privatization will require further Congressional legislation.

In 2016, Brazil created the Investment Partnership Program (PPI) to accelerate the concession of public works projects to private enterprise and the privatization of some state entities.  PPI takes on priority federal concessions in road, rail, ports, airports, municipal water treatment, electricity transmission and distribution, and oil and gas exploration and production.  Since 2016, PPI has auctioned off 200 projects, collecting $35 billion in auction bonuses and securing private investment commitments of $179 billion, including 28 projects, $1.43 billion in auction bonuses, and commitments of $8.14 billion in 2020.  The full list of PPI projects is located at: https://www.ppi.gov.br/schedule-of-projects

While some subsidized financing through BNDES will be available, PPI emphasizes the use of private financing and debentures for projects.  All federal and state-level infrastructure concessions are open to foreign companies with no requirement to work with Brazilian partners.

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

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

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

Additional Resources

Department of State

• Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);
• Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-report/);
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;
• North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf).

Department of Labor

• Findings on the Worst forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings);
• List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods);
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;
• Comply Chain (https://www.dol.gov/ilab/complychain/).

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

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

In 2020, Brazil ranked 94th out of 180 countries in Transparency International’s Corruption Perceptions Index.  The full report can be found at:  https://www.transparency.org/en/cpi/2020/index/nzl

From 2014-2021, the complex federal criminal investigation known as Operação Lava Jato (Operation Carwash) investigated and prosecuted a complex web of public sector corruption, contract fraud, money laundering, and tax evasion stemming from systematic overcharging for government contracts, particularly at parastatal oil company Petrobras.  The investigation led to the arrests and convictions of Petrobras executives, oil industry suppliers, including executives from Brazil’s largest construction companies, money launderers, former politicians, and political party operators.  Appeals of convictions and sentences continue to work their way through the Brazilian court system.  On December 25, 2019, Brazilian President Jair Bolsonaro signed a packet of anti-crime legislation into law, which included several anti-corruption measures.  The new measures include regulation of immunity agreements – information provided by a subject in exchange for reduced sentence – which were widely used during Operation Carwash.  The legislation also strengthens Brazil’s whistle blower mechanisms, permitting anonymous information about crimes against the public administration and related offenses.  Operation Carwash was dissolved in February 2021.  In March 2021, the OECD established a working group to monitor anticorruption efforts in Brazil.

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

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

Resources to Report Corruption

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

Setor de Autarquias Sul (SAS), Quadra 01, Bloco A; Brasilia/DF

stpc.dpc@cgu.gov.br

https://www.gov.br/cgu/pt-br/anticorrupcao

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

Strikes and demonstrations occasionally occur in urban areas and may cause temporary disruption to public transportation.  Brazil has over 43,000 murders annually, with low rates of completion in murder investigations and conviction rates.

Non-violent pro- and anti-government demonstrations have occurred periodically in recent years.

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

The Brazilian labor market is composed of approximately 100.1 million workers, including employed (86.2 million) and unemployed (13.9 million).  Among employed workers, 34 million (39.5 percent) work in the informal sector.  Brazil had an unemployment rate of 13.9 percent in the last quarter of 2020, although that rate was more than double (28.9 percent) for workers ages 18-24.  Low-skilled employment dominates Brazil’s labor market.  The nearly 40 million workers in the informal sector do not receive the full benefits formal workers enjoy under Brazil’s labor and social welfare system.  Since 2012, women have on average been unemployed at a higher rate (3.15 percentage points higher) than their male counterparts.  In 2020, the difference reached 4.5 percentage points.  Foreign workers made up less than one percent of the overall labor force, but the arrival of more than 260,000 economic migrants and refugees from Venezuela since 2016 has led to large local concentrations of foreign workers in the border state of Roraima and the city of Manaus.  Since April 2018, the government of Brazil, through Operation Welcome’s voluntary interiorization strategy, has relocated more than 49,000 Venezuelans away from the northern border region to cities with more economic opportunity.  Migrant workers from within Brazil play a significant role in the agricultural sector.

Workers in the formal sector contribute to the Time of Service Guarantee Fund (FGTS) that equates to one month’s salary over the course of a year. If a company terminates an employee, the employee can access the full amount of their FGTS contributions or 20 percent in the event they leave voluntarily.  Brazil’s labor code guarantees formal sector workers 30 days of annual leave and severance pay in the case of dismissal without cause.  Unemployment insurance also exists for laid off workers equal to the country’s minimum salary (or more depending on previous income levels) for six months.  The government does not waive labor laws to attract investment; they apply uniformly cross the country.

In April 2020, Provisional Measure 396/2020 (later ratified as Law 14020/2020) authorized employers to reduce working hours and wages in an effort to preserve employment during the economic crisis caused by the pandemic.  The law will maintain its validity only during the state of calamity caused by the pandemic and the reduction requires the employee’s concurrence.

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

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

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

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

Brazil has ratified 97 International Labor Organization (ILO) conventions and is party to the UN Convention on the Rights of the Child and major ILO conventions concerning the prohibition of child labor, forced labor, and discrimination.  For the past eight years (2010-2018), the Department of Labor, in its annual publication Findings on the Worst forms of Child Labor, has recognized Brazil for its significant advancement in efforts to eliminate the worst forms of child labor.  On January 1, 2019, newly-elected President Jair Bolsonaro eliminated the Ministry of Labor and divided its responsibilities between the Ministries of Economy, Justice, and Social Development. The GoB, in 2020, inspected 266 properties, resulting in the rescue of 942 victims of forced labor.  Additionally, GoB officials removed 1,040 child workers from situations of child labor compared to 1,409 children in 2018.  Of these, 20 children were rescued from situations of slavery-like conditions, compared to 28 in 2018.

Programs of the U.S. International Development Finance Corporation (DFC) are available, although DFC reports that certain new authorities established by the BUILD Act of 2018, including equity investments, technical assistance, grants, and feasibility studies, may require a new bilateral Investment Incentive Agreement with the Government of Brazil.  DFC stated in 2019 its intent to invest in infrastructure and women entrepreneurship projects as its primary focus in Brazil.  Brazil has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1992.  In October 2020, DFC announced $ 984 million in investments in Brazil, mostly focused on small and medium enterprises.  In October and November 2020, the DFC held two substantive discussions on the Investment Incentive Agreement (IIA) with over a dozen Brazilian government (GOB) agencies led by the Ministry of External Relations and the Ministry of Economy.

* Source for Host Country Data: https://www.bcb.gov.br and https://www.ipea.gov.br/portal/

Economic Section
U.S. Embassy Brasilia
BrasiliaECON2@State.gov
+55-61-3312-7000

Policies Towards Foreign Direct Investment

The Government of Ghana has made increasing FDI a priority and acknowledges the importance of having an enabling environment for the private sector to thrive. Officials are implementing some regulatory and other reforms to improve the ease of doing business and make investing in Ghana more attractive.

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

Limits on Foreign Control and Right to Private Ownership and Establishment

Most of Ghana’s major sectors are fully open to foreign capital participation.

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

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

Real Estate

The 1992 Constitution recognized existing private and traditional titles to land. Given this mix of private and traditional land titles, land rights to any specific area of land can be opaque. Freehold acquisition of land is not permitted. There is an exception, however, for transfer of freehold title between family members for land held under the traditional system. Foreigners are allowed to enter into long-term leases of up to 50 years and the lease may be bought, sold, or renewed for consecutive terms. Ghanaian nationals are allowed to enter into 99-year leases. The Ghanaian government has been working since 2017 on developing a digital property address and land registration system to reduce land disputes and improve efficiency. (See “Protection of Property Rights” p. 14)

Oil and Gas

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

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

Mining

Per the Minerals and Mining Act, 2006 (Act 703), foreign investors are restricted from obtaining a small-scale mining license for mining operations less than or equal to an area of 25 acres (10 hectares). In 2019, the criminal penalty for non-compliance with these regulations was increased to a minimum prison sentence of 15 years and maximum of 25 years, from a maximum of five years, to discourage illegal small-scale mining. The Act mandates local participation, whereby the government acquires 10 percent equity in ventures at no cost in all mineral rights. In order to qualify for any mineral license, a non-Ghanaian company must be registered in Ghana, either as a branch office or a subsidiary that is incorporated under the Ghana Companies Act or Incorporated Private Partnership Act. Non-Ghanaians may apply for industrial mineral rights only if the proposed investment is USD 10 million or above.

The Minerals and Mining Act provides for a stability agreement, which protects the holder of a mining lease for a period of 15 years from future changes in law that may impose a financial burden on the license holder. When an investment exceeds USD 500 million, lease holders can negotiate a development agreement that contains elements of a stability agreement and more favorable fiscal terms. The Minerals and Mining (Amendment) Act (Act 900) of 2015 requires the mining lease-holder to, “…pay royalty to the Republic at the rate and in the manner that may be prescribed.” The previous Act 703 capped the royalty rate at six percent. The Minerals Commission implements the law. In December 2020, Ghana passed the Minerals and Mining (Local Content and Local Participation) Regulations, 2020 (L.I. 2431) to expand the specific provisions under the mining regulations that require mining entities to procure goods and services from local sources. The Minerals Commission publishes a Local Procurement List, which identifies items that must be sourced from Ghanaian-owned companies, whose directors must all be Ghanaians.

Power Sector

In December 2017, Ghana introduced regulations requiring local content and local participation in the power sector. The Energy Commission (Local Content and Local Participation) (Electricity Supply Industry) Regulations, 2017 (L.I. 2354) specify minimum initial levels of local participation/ownership and 10-year targets:

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

Insurance

The National Insurance Commission (NIC) imposes nationality requirements with respect to the board and senior management of locally incorporated insurance and reinsurance companies. At least two board members must be Ghanaians, and either the Chairman of the board or Chief Executive Officer (CEO) must be Ghanaian. In situations where the CEO is not Ghanaian, the NIC requires that the Chief Financial Officer be Ghanaian. Minimum initial capital investment in the insurance sector is 50 million Ghana cedis (approximately USD 9 million).

Telecommunications

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

Banking and Electronic Payment Service Providers

The Payment Systems and Services Act, 2019 (Act 987), establishes requirements for the licensing and authorization of electronic payment services. Act 987 ( https://www.bog.gov.gh/wp-content/uploads/2019/08/Payment-Systems-and-Services-Act-2019-Act-987-.pdf ) imposes limitations on foreign investment and establishes residency requirements for company senior officials or members of the board of directors. Specifically, Act 987 mandates electronic payment services companies to have at least 30 percent Ghanaian ownership (either from a Ghanaian corporate or individual shareholder) and requires at least two of its three board directors, including its chief executive officer, be resident in Ghana.

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

Other Investment Policy Reviews

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

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

Business Facilitation

Although registering a business is a relatively easy procedure and can be done online through the Registrar General’s Department (RGD) at https://egovonline.gegov.gov.gh/RGDPortalWeb/portal/RGDHome/eghana.portal  (this would be controlled by the new Office of the Registrar of Companies in 2021), businesses have noted that the process involved in establishing a business is lengthy and complex, and requires compliance with regulations and procedures of at least four other government agencies, including GIPC, Ghana Revenue Authority (GRA), Ghana Immigration Service, and the Social Security and National Insurance Trust (SSNIT).

According to the World Bank’s Doing Business Report 2020 , it takes eight procedures and 13 days to establish a foreign-owned limited liability company (LLC) to engage in international trade in Ghana. In 2019, Ghana passed a new Companies Act, 2019 (Act 992), which among other things created a new independent office called the Office of the Registrar of Companies, responsible for the registration and regulation of all businesses. The new office is expected to be in place in 2021, and would separate the registration process for companies from the Registrar General’s Department; the latter would continue to serve as the government’s registrar for non-business transactions such as marriages. The new law also simplifies some registration processes by scrapping the issuance of a certificate to commence business and the requirement for a company to state business objectives, which limited the activities in which a company could engage. The law also expands the role of the company secretary, which now requires educational qualifications with some background in company law practice and administration or having been trained under a company secretary for at least three years. Foreign investors must obtain a certificate of capital importation, which can take 14 days. The local authorized bank must confirm the import of capital with the Bank of Ghana, which confirms the transaction to GIPC for investment registration purposes.

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

The Ghanaian business environment is unique, and guidance can be extremely helpful. In some cases, a foreign investment may enjoy certain tax benefits under the law or additional incentives if the project is deemed critical to the country’s development. Most companies or individuals considering investing in Ghana or trading with Ghanaian counterparts find it useful to consult with a local attorney or business facilitation company. The United States Embassy in Accra maintains a list of local attorneys, which is available through the U.S. Foreign Commercial Service ( https://2016.export.gov/ghana/contactus/index.asp ) or U.S. Citizen Services (https://gh.usembassy.gov/u-s-citizen-services/attorneys/). Specific information about setting up a business is available at the GIPC website: http://www.gipcghana.com/invest-in-ghana/doing-business-in-ghana.html .

Ghana Investment Promotion Centre
Post: P. O. Box M193, Accra-Ghana
Note: Omit the (0) after the country code when dialing from abroad.
Telephone: +233 (0) 302 665 125, +233 (0) 302 665 126, +233 (0) 302 665 127, +233 (0) 302 665 128, +233 (0) 302 665 129, +233 (0) 244 318 254/ +233 (0) 244 318 252
Email: info@gipc.gov.gh
Website: www.gipcghana.com 

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

Petroleum Commission Head Office
Plot No. 4A, George Bush Highway, Accra, Ghana
P.O. Box CT 228 Cantonments, Accra, Ghana
Telephone: +233 (0) 302 953 392 | +233 (0) 302 953 393
Website: http://www.petrocom.gov.gh/ 

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

Outward Investment

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

Transparency of the Regulatory System

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

Ghana does not have a standardized consultation process, but ministries and Parliament generally share the text or summary of proposed regulations and solicit comments directly from stakeholders or via public meetings and hearings. All laws that are currently in effect are printed by the Ghana Publishing Company, while the notice of publication of the law, bills or regulations are made in the Ghana Gazette (equivalent of the U.S. Federal Register). The non-profit Ghana Legal Information Institute ( HYPERLINK “https://ghalii.org/gh/gazette/GHGaz” https://ghalii.org/gh/gazette/GHGaz) re-publishes hard copies of the Ghana Gazette. The Government of Ghana does not publish draft regulations online, and the Parliament only publishes some draft bills ( https://www.parliament.gh/docs?type=Bills&OT ), which inhibits transparency in the approval of laws and regulations.

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

The government launched a Business Regulatory Reform program in 2017, but implementation has been slow. The program aims to improve the ease of doing business, review all rules and regulations to identify and reduce unnecessary costs and requirements, establish an e-registry of all laws, establish a centralized public consultation web portal, provide regulatory relief for entrepreneurs, and eventually implement a regulatory impact analysis system. The government continues to work towards achieving these goals and in 2020 established the centralized public consultation web portal ( www.bcp.gov.gh ), the Ghana Business Regulatory Reforms platform. It is an interactive platform to allow policymakers to consult businesses and individuals in a transparent, inclusive, and timely manner on policy issues. Ghana adopted International Financial Reporting Standards in 2007 for all listed companies, government business enterprises, banks, insurance companies, security brokers, pension funds, and public utilities.

Ghana continues to improve on making information on debt obligations, including contingent and state-owned enterprise debt, publicly available. Information on the overall debt stock (including domestic and external) is presented in the Annual Debt Management Report, which is available on the Ministry of Finance website at https://www.mofep.gov.gh/investor-relations/annual-public-debt-report . However, information on contingent liabilities from state-owned enterprises is not explicit and is not consolidated in one report.

International Regulatory Considerations

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

Legal System and Judicial Independence

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

Laws and Regulations on Foreign Direct Investment

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

GIPC helps to facilitate the business registration process and provides economic, commercial, and investment information for companies and businesspeople interested in starting a business or investing in Ghana. GIPC provides assistance to enable investors to take advantage of relevant incentives. Registration can be completed online at www.gipcghana.com .

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

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

Competition and Anti-Trust Laws

Ghana is reportedly working on a new competition law to replace the existing legislation, the Protection Against Unfair Competition Act, 2000 (Act 589); however, the new bill is still under review.

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

International Commercial Arbitration and Foreign Courts

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

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

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

In March 2005, the government established a commercial court with exclusive jurisdiction over all commercial matters. This court also handles disputes involving commercial arbitration and the enforcement of awards; intellectual property rights, including patents, copyrights and trademarks; commercial fraud; applications under the Companies Act; tax matters; and insurance and re-insurance cases. A distinctive feature of the commercial court is the use of mediation or other alternative dispute resolution mechanisms, which are mandatory in the pre-trial settlement conference stage. Ghana also has a Financial and Economic Crimes Court, which is a specialized division of the High Court that handles high-profile corruption and economic crime cases.

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

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

Bankruptcy Regulations

Ghana does not have a bankruptcy statute. A new insolvency law, the Corporate Restructuring and Insolvency Act, 2020 (Act 1015), was passed to replace the Bodies Corporate (Official Liquidations) Act, 1963 (Act 180). The new law, unlike the previous one, provides for reorganization of a company before liquidation when it is unable to pay its debts, as well as cross-border insolvency rules. The new law does not have a U.S. Chapter 11-style bankruptcy provision, but allows for a process that puts the company under administration for restructuring. The new law complements the law for private liquidations under the Companies Act, 2019 (Act 992), but does not apply to businesses that are under specialized regulations such as banks and insurance companies.

Investment Incentives

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

All investment-specific laws contain some incentives. The GIPC law allows for import and tax exemptions for plant inputs, machinery, and parts imported for the purpose of the investment. Chapters 82, 84, 85, and 89 of the Customs Harmonized Commodity and Tariff Code zero-rate these production items. In 2015, the Government of Ghana imposed a new five percent import duty on some items that were previously zero-rated to conform to the new Economic Community of West African States (ECOWAS) common external tariff.

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

The corporate tax rate is 25 percent, and this applies to all sectors, except income from non-traditional exports (eight percent tax rate), companies principally engaged in the hotel industry (22 percent rate), and oil and gas exploration companies (35 percent tax rate). For some sectors there are temporary tax holidays. These sectors include Free Zone enterprises and developers (0 percent for the first ten years and 15 percent thereafter); real estate development and rental (0 percent for the first five years and 25 percent thereafter); agro-processing companies (0 percent for the first five years, after which the tax rate ranges from 0 percent to 25 percent depending on the location of the company in Ghana), and waste processing companies (0 percent for seven years and 25 percent thereafter). In December 2019, to attract investments under the Ghana Automotive Development Policy, corporate tax holidays among other import duty and value-added tax exemptions were granted to manufacturers or assemblers of semi-knocked-down vehicles (0 percent for three years) and complete-knocked down vehicles (0 percent for ten years). Tax rebates are also offered in the form of incentives based on location. A capital allowance in the form of accelerated depreciation is applicable in all sectors except banking, finance, commerce, insurance, mining, and petroleum. Under the Income Tax Act, 2015 (Act 896), all businesses can carry forward tax losses for at least three years.

Ghana has no discriminatory or excessively burdensome visa requirements. While ECOWAS nationals do not require a visa to enter Ghana, they need a work and residence permit to live and work in Ghana. The current fees for work and residence permit for ECOWAS nationals is USD 500 while that for non-ECOWAS nationals is USD 1,000. A foreign investor who invests under the GIPC Act is automatically entitled to a specific number of visas/work permits based on the size of the investment. When an investment of USD 50,000 but not more than USD 250,000 or its equivalent is made in convertible currency or machinery and equipment, the enterprise can obtain a visa/work permit for one expatriate employee. An investment of USD 250,000, but not more than USD 500,000, entitles the enterprise to two visas/work permits. An investment of USD 500,000, but not more than USD 700,000, allows the enterprise to bring in three expatriate employees. An investment of more than USD 700,000 allows an enterprise to bring in four expatriate employees. An enterprise may apply for extra visas or work permits, but the investor must justify why a foreigner must be employed rather than a Ghanaian. There are no restrictions on the issuance of work and residence permits to Free Zone investors and employees. Overall, the process of issuing work permits is not very transparent.

Foreign Trade Zones/Free Ports/Trade Facilitation

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

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

Performance and Data Localization Requirements

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

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

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

Data Storage and Access

The Government of Ghana does not follow a forced localization policy in which foreign investors must use domestic content in goods or technology. In addition, there are no requirements for foreign IT providers to turn over source code and/or provide access to surveillance (backdoors into hardware and software or turn over keys for encryption). Section 50 of the Payment Systems and Services Act, 2019 (Act 987), however, requires electronic payment systems service providers to allow the Bank of Ghana to inspect the “premises, equipment, computer hardware, software, any communication system, books of accounts, and any other document or electronic information which the Bank of Ghana may require in relation to the system.” During the coronavirus outbreak, to achieve its goal of contact tracing, the government issued Executive Instrument E.I. 63 that requires all telecommunication network operators to make available to the National Communications Authority (NCA) Common Platform mobile users location log and roaming files, caller or called numbers, Merchant Codes (of mobile money vendors), Mobile Station International Subscriber Directory Number Codes, International Mobile Equipment Identity Codes and site location. Executive Instrument 63 is being challenged in court.

Real Property

The legal system recognizes and enforces secured interest in property. The process to get clear title over land is difficult, complicated, and lengthy. It is important to conduct a thorough search at the Lands Commission to ascertain the identity of the true owner of any land being offered for sale. Investors should be aware that land records can be incomplete or non-existent and, therefore, clear title may be impossible to establish. Ghana passed a new land law, Land Act, 2020 (Act 1036), which revised, harmonized, and consolidated laws on land to ensure sustainable land administration and management. The new law makes it possible to transfer and create or register interests in land by electronic means to speed up conveyancing, supports decentralized land service delivery, and includes provisions relating to property rights of spouses by ensuring that spouses are deemed to be party to the interest in land that is jointly acquired during the marriage. These changes are expected to improve accessibility and secured tenure.

Mortgages exist, although there are only a few thousand due to factors such as land ownership issues and scarcity of long-term finance. Mortgages are regulated by the Home Mortgages Finance Act, 2008 (Act 770), which has enhanced the process of foreclosure. A mortgage must be registered under the Land Act, 2020 (Act 1036), a requirement that is mandatory for it to take effect. Registration with the Land Title Registry is a reliable system of recording the transaction.

Intellectual Property Rights

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

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

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

Resources for Rights Holders

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

Shona Carter
Economic Officer
U.S. Embassy, Economic Section
No. 24 Fourth Circular Road, Cantonments, Accra, Ghana
Tel: +233(0) 302 741 000 (Omit the (0) after the area code when dialing from abroad)
Email: AccraICS@state.gov

The United States Embassy in Accra maintains a list of local attorneys, which is available through the U.S. Foreign Commercial Service ( https://2016.export.gov/ghana/contactus/index.asp ) or U.S. Citizen Services (https://gh.usembassy.gov/u-s-citizen-services/attorneys/).

American Chamber of Commerce Ghana
5th Crescent Street, Asylum Down
P.O. Box CT2869, Cantonments-Accra, Ghana
Tel: +233 (0) 302 247 562/ +233 (0) 307 011 862 (Omit the (0) after the area code when dialing from abroad)
Email: info@amchamghana.org
Website: http://www.amchamghana.org/. 

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

Capital Markets and Portfolio Investment

Private sector growth in Ghana is constrained by financing challenges. Businesses continue to face difficulty raising capital on the local market. While credit to the private sector has increased in nominal terms, levels as percentage of GDP have remained stagnant over the last decade, and high government borrowing has driven interest rates above 21 percent and crowded out private investment.

Capital markets and portfolio investment are gradually evolving. The longest-term domestic bonds are 15 years, with Eurobonds ranging up to 41-year maturities. Foreign investors are permitted to participate in auctions of bonds only with maturities of two years or longer. In November 2020, foreign investors held about 17.9 percent (valued at USD 4.6 billion) of the total outstanding domestic securities. In 2015, the Ghana Stock Exchange (GSE) added the Ghana Fixed-Income Market (GFIM), a specialized platform for secondary trading in debt instruments to improve liquidity.

The rapid accumulation of debt over the last decade, and particularly the past three years, has raised debt sustainability concerns. Ghana received debt relief under the Heavily Indebted Poor Country (HIPC) initiative in 2004, and began issuing Eurobonds in 2007. In February 2020, Ghana sold sub-Saharan Africa’s longest-ever Eurobond as part of a $3 billion deal with a tenor of 41 years. In 2020, total public debt, roughly evenly split between external and domestic, stood at approximately 76 percent of GDP, partly as a result of the economic shock of COVID-19 as revenue declined and expenditures spiked.

The Ghana Stock Exchange (GSE) has 31 listed companies, four government bonds, and one corporate bond. Both foreign and local companies are allowed to list on the GSE. The Securities and Exchange Commission regulates activities on the Exchange. There is an eight percent tax on dividend income. Foreigners are permitted to trade stocks listed on the GSE without restriction. There are no capital controls on the flow of retained earnings, capital gains, dividends, or interest payments. The GSE composite index (GGSECI) has exhibited mixed performance.

Money and Banking System

Banks in Ghana are relatively small, with the largest in the country in terms of operating assets, Ecobank Ghana Ltd., holding assets of about USD 2.1 billion in 2019. The Central Bank increased the minimum capital requirement for commercial banks from 120 million Ghana cedis (USD 22 million) to 400 million (USD 70 million), effective December 2018, as part of a broader effort to strengthen the banking industry. As a result of the reforms and subsequent closures and mergers of some banks, the number of commercial banks dropped from 36 to 23. Eight are domestically controlled, and the remaining 15 are foreign controlled. In total, there are nearly 1,500 branches distributed across the sixteen regions of the country.

Overall, the banking industry in Ghana is well capitalized with a capital adequacy ratio of 19.8 percent as of December 2020, above the 11.5 percent prudential and statutory requirement. The non-performing loans ratio increased from 14.3 percent in December 2019 to 14.5 percent as of December 2020. Lending in foreign currencies to unhedged borrowers poses a risk, and widely varying standards in loan classification and provisioning may be masking weaknesses in bank balance sheets. The BoG has almost completed actions to address weaknesses in the non-bank deposit-taking institutions sector (e.g., microfinance, savings and loan, and rural banks) and has also issued new guidelines to strengthen corporate governance regulations in the banks.

Recent developments in the non-banking financial sector indicate increased diversification, including new rules and regulations governing the trading of Exchange Traded Funds. Non-banking financial institutions such as leasing companies, building societies, and village savings and loan associations have increased access to finance for underserved populations, as have rural and mobile banking. Currently, Ghana has no “cross-shareholding” or “stable shareholder” arrangements used by private firms to restrict foreign investment through mergers and acquisitions, although, as noted above, the Payments Systems and Services Act, 2019 (Act 987), does require a 30 percent Ghanaian company or Ghanaian holding by any electronic payments service provider, including banks or special deposit-taking institutions.

Foreign Exchange and Remittances

Foreign Exchange

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

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

Remittance Policies

There is a single formal system for transferring currency out of the country through the banking system. The Foreign Exchange Act, 2006 (Act 723) provides the legal framework for the management of foreign exchange transactions in Ghana. It fully liberalized capital account transactions, including allowing foreigners to buy certain securities in Ghana. It also removed the requirement for the Bank of Ghana (the central bank) to approve offshore loans. Payments or transfer of foreign currency can be made only through banks or institutions licensed to do money transfers. There is no limit on capital transfers as long as the transferee can identify the source of capital.

Sovereign Wealth Funds

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

For additional information regarding Ghana Petroleum Fund, please visit the 2019 Petroleum Annual Report at: https://www.mofep.gov.gh/publications/petroleum-reports .

Ghana has 86 State-Owned Enterprises (SOEs), 45 of which are wholly owned, while 41 are partially owned. Thirty-six of the wholly owned SOEs are commercial and operate more independently from government, while nine are public corporations or institutions, some providing regulatory functions. While the president appoints the CEO and full boards of most of the wholly owned SOEs, they are under the supervision of line ministries. Most of the partially owned investments are in the financial, mining, and oil and gas sectors. To improve the efficiency of SOEs and reduce fiscal risks they pose to the budget, in 2019 the government embarked on an exercise to tackle weak corporate governance in the SOEs as well as created the State Interests and Governance Authority (SIGA), a single institution, to monitor all SOEs, replacing both the State Enterprises Commission and the Divestiture Implementation Committee.

As of April 2021, only a handful of large SOEs remain, mainly in the transportation, power, and extractive sectors. The largest SOEs are Ghana Ports and Harbor Authority (GPHA), Electricity Company of Ghana (ECG), Volta River Authority (VRA), Ghana Water Company Limited (GWCL), Tema Oil Refinery (TOR), Ghana Airport Company Limited (GACL), Ghana Cocoa Board (COCOBOD), Ghana National Gas Company Limited, and Ghana National Petroleum Corporation (GNPC). Many of these receive subsidies and assistance from the government. The list of SOEs can be found at: https://siga.gov.gh/state-interest/ .

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

Privatization Program

Ghana has no formal privatization program. The government has announced its intention, however, to prioritize the creation of public-private partnerships (PPPs) to restructure and privatize non-performing SOEs, although progress to implement this goal has been slow. Procuring PPPs is allowed under the National Policy on Public Private Partnerships in Ghana, which was adopted in June 2011. A PPP law is being drafted.

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

Ghana has been a member of the Extractive Industries Transparency Initiative since 2010. The government also enrolled in the Voluntary Principles on Security and Human Rights in 2014.

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

Additional Resources

Department of State

• Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);
• Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-report/);
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;
• North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf).

Department of Labor

• Findings on the Worst forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings);
• List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods);
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;
• Comply Chain (https://www.dol.gov/ilab/complychain/).

Corruption in Ghana is comparatively less prevalent than in most other countries in the region, according to Transparency International’s Perception of Corruption Index, but remains a serious problem, scoring 45 on a scale of 100 and ranking 75 out of 180 countries in 2020. The government has a relatively strong anti-corruption legal framework in place, but enforcement of existing laws is rare and inconsistent. Corruption in government institutions is pervasive. The Government of Ghana has vowed to combat corruption and has taken some steps to promote better transparency and accountability. These include establishing an Office of the Special Prosecutor (OSP) in 2017 to investigate and prosecute corruption cases and passing a Right to Information Act, 2019 (Act 989) (similar to the U.S. Freedom of Information Act) to increase transparency. The OSP has been without a Special Prosecutor since late 2020 and has still not prosecuted a significant anti-corruption case. In addition, the Auditor-General was placed on accrued annual leave in mid-2020 and then removed from office in March 2021 after a controversy related to his date of birth and mandatory retirement age.

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

The Public Procurement (Amendment) Act, 2016 (Act 914) was passed to address the shortcomings identified over a decade of implementation of the original 2003 law aimed at harmonizing the many public procurement guidelines used in the country and to bring public procurement into conformity with WTO standards. Nevertheless, complete transparency is lacking in locally funded contracts. There continue to be allegations of corruption in the tender process, and the government has in the past set aside international tender awards in the name of alleged national interest. The Public Financial Management Act, 2016 (Act 921) provided for stiffer sanctions and penalties for breaches, but its effectiveness in stemming corruption has yet to be demonstrated. In 2016, Ghana amended the company registration law (which has been retained in the new Companies Act, 2019 (Act 992)) to include the disclosure of beneficial owners. In September 2020, Ghana deployed a Central Beneficial Ownership Register to collect and maintain a national database on beneficial owners for all companies operating in Ghana. The law requires each person who creates a company in Ghana to report the identities of the company’s beneficial owners on the Beneficial Ownership Declaration form at the Registrar-General’s Department (RGD). Existing companies are also required to provide this information by the end of June 2021. There are different types of thresholds for reporting beneficial owners, depending on the sector the company belongs to and the type of person the beneficial owner is. For the general threshold, a person who has direct or indirect interest of 10 percent or more in a company must be registered as a beneficial owner. A Politically Exposed Person (PEP) in Ghana who has any shares or any form of control over a company in any sector must be registered as a beneficial owner, while for a foreign PEP, shares must be five percent or more. For companies in the extractive industry, financial institutions, and businesses operating in sectors listed as high risk by the RGD, the threshold for reporting beneficial owners is five percent. Failure to comply with the requirements may attract a fine of up to 6,000 cedis (USD 1,050) or two years in prison, or both.

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

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

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

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

Resources to Report Corruption

Commission on Human Rights and Administrative Justice (CHRAJ)
Old Parliament House, High Street, Accra
Postal Address: Box AC 489, Accra
Omit the (0) after the area code when dialing from abroad: Phone: +233 (0) 242 211 534
Email: info@chraj.gov.gh
Website: http://www.chraj.gov.gh 

Economic and Organized Crime Office (EOCO)
Behind Old Parliament House, Accra
Omit the (0) after the area code when dialing from abroad:
Tel +233 (0) 302 665559, +233 (0) 302 634 363
Email: eoco@eoco.org.gh
Website: www.eoco.org.gh

Ghana offers a relatively stable and predictable political environment for American investors, and has a solid democratic tradition. In December 2020, Ghana completed its eighth consecutive peaceful presidential and parliamentary elections and transfer of power since 1992, with power transferred between the two main political parties three times during that period. On December 7, 2020 New Patriotic Party (NPP) candidate (and incumbent) Nana Akufo-Addo was re-elected over the National Democratic Congress (NDC) candidate, former President John Mahama. The NDC disputed the 2020 presidential election result. The Supreme Court heard the case and ruled that Akufo-Addo had, indeed, won the election. There were isolated cases of violence during the election but no widespread civil disturbances. The next general elections are scheduled for December 7, 2024.

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

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

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

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

There are no statutory requirements for profit sharing, but fringe benefits in the form of year-end bonuses and retirement benefits are generally included in collective bargaining agreements. Child labor remains a problem. Child labor is particularly severe in agriculture, including in cocoa and fishing. In general, worker protection provisions in the Labor Act, including health and safety provisions, are weakly enforced. Post recommends consulting a local attorney for detailed advice regarding labor issues. The U.S. Embassy in Accra maintains a list of local attorneys, which is available through the U.S. Foreign Commercial Service ( https://2016.export.gov/ghana/contactus/index.asp ) or U.S. Citizen Services (https://gh.usembassy.gov/u-s-citizen-services/attorneys/).

Table 4: Sources of Portfolio Investment
Data not available.

Shona Carter
Economic Officer
U.S. Embassy, Economic Section
No. 24 Fourth Circular Road, Cantonments, Accra, Ghana
Tel: +233 (0) 302 741 000 (Omit the (0) after the area code when dialing from abroad)
Email: AccraICS@state.gov 

Policies toward Foreign Direct Investment

Changes in India’s foreign investment rules are notified in two different ways: (1) Press Notes issued by the Department for Promotion of Industry and Internal Trade (DPIIT) for most sectors, and (2) legislative action for insurance, pension funds, and state-owned enterprises in the coal sector. FDI proposals in sensitive sectors, however, require the additional approval of the Home Ministry.

DPIIT, under the Ministry of Commerce and Industry, is India’s chief investment regulator and policy maker. It compiles all policies related to India’s FDI regime into a single document to make it easier for investors to understand, and this consolidated policy is updated every year. The updated policy can be accessed at: http://dipp.nic.in/foreign-direct–investment/foreign–direct–investment-policy.  DPIIT, through the Foreign Investment Implementation Authority (FIIA), plays an active role in resolving foreign investors’ project implementation problems and disseminates information about the Indian investment climate to promote investments. The Department establishes bilateral economic cooperation agreements in the region and encourages and facilitates foreign technology collaborations with Indian companies and DPIIT oftentimes consults with lead ministries and stakeholders. There however have been multiple incidents where relevant stakeholders reported being left out of consultations.

Limits on Foreign Control and Right to Private Ownership and Establishment

In most sectors, foreign and domestic private entities can establish and own businesses and engage in remunerative activities. Several sectors of the economy continue to retain equity limits for foreign capital as well as management and control restrictions, which deter investment. For example, the 2015 Insurance Act raised FDI caps from 26 percent to 49 percent, but also mandated that insurance companies retain “Indian management and control.” In the parliament’s 2021 budget session, the Indian government approved increasing the FDI caps in the insurance sector to 74 percent from 49 percent. However, the legislation retained the “Indian management and control” rider. In the August 2020 session of parliament, the government approved reforms that opened the agriculture sector to FDI, as well as allowed direct sales of products and contract farming, though implementation of these changes was temporarily suspended in the wake of widespread protests. In 2016, India allowed up to 100 percent FDI in domestic airlines; however, the issue of substantial ownership and effective control (SOEC) rules that mandate majority control by Indian nationals have not yet been clarified. A list of investment caps is accessible at: http://dipp.nic.in/foreign-direct–investment/foreign-direct–investment-policy .

Screening of FDI

All FDI must be reviewed under either an “Automatic Route” or “Government Route” process. The Automatic Route simply requires a foreign investor to notify the Reserve Bank of India of the investment and applies in most sectors. In contrast, investments requiring review under the Government Route must obtain the approval of the ministry with jurisdiction over the appropriate sector along with the concurrence of DPIIT. The government route includes sectors deemed as strategic including defense, telecommunications, media, pharmaceuticals, and insurance. In August 2019, the government announced a new package of liberalization measures and brought a number of sectors including coal mining and contract manufacturing under the automatic route.

FDI inflows were mostly directed towards the largest metropolitan areas – Delhi, Mumbai, Bangalore, Hyderabad, Chennai – and the state of Gujarat. The services sector garnered the largest percentage of FDI. Further FDI statistics are available at: http://dipp.nic.in/publications/fdi–statistics. 

Other Investment Policy Reviews

OECD’s Indian Economic Snapshot: http://www.oecd.org/economy/india-economic-snapshot/ 

WTO Trade Policy Review: https://www.wto.org/english/tratop_e/tpr_e/tp503_e.htm 

2015-2020 Government of India Foreign Trade Policy: http://dgft.gov.in/ForeignTradePolicy 

Business Facilitation

DPIIT is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view national priorities and socio- economic objectives. While individual lead ministries look after the production, distribution, development and planning aspects of specific industries allocated to them, DPIIT is responsible for overall industrial policy. It is also responsible for facilitating and increasing the FDI flows to the country.

Invest India  is the official investment promotion and facilitation agency of the Government of India, which is managed in partnership with DPIIT, state governments, and business chambers. Invest India specialists work with investors through their investment lifecycle to provide support with market entry strategies, industry analysis, partner search, and policy advocacy as required. Businesses can register online through the Ministry of Corporate Affairs website: http://www.mca.gov.in/ . After the registration, all new investments require industrial approvals and clearances from relevant authorities, including regulatory bodies and local governments. To fast-track the approval process, especially in the case of major projects, Prime Minister Modi started the Pro-Active Governance and Timely Implementation (PRAGATI initiative) – a digital, multi-modal platform to speed the government’s approval process. As of January 2020, a total of 275 project proposals worth around $173 billion across ten states were cleared through PRAGATI. Prime Minister Modi personally monitors the process to ensure compliance in meeting PRAGATI project deadlines. The government also launched an Inter-Ministerial Committee in late 2014, led by the DPIIT, to help track investment proposals that require inter-ministerial approvals. Business and government sources report this committee meets informally and on an ad hoc basis as they receive reports of stalled projects from business chambers and affected companies.

Outward Investment

The Ministry of Commerce’s India Brand Equity Foundation (IBEF) claimed in March 2020 that outbound investment from India had undergone a considerable change in recent years in terms of magnitude, geographical spread, and sectorial composition. Indian firms invest in foreign markets primarily through mergers and acquisition (M&A). According to a Care Ratings study, corporate India invested around $12.25 billion in overseas markets between April and December 2020. The investment was mostly into wholly owned subsidiaries of companies. In terms of country distribution, the dominant destinations were the Unites States ($2.36 billion), Singapore ($2.07 billion), Netherlands ($1.50 billion), British Virgin Islands ($1.37 billion), and Mauritius ($1.30 million).

India adopted a new model Bilateral Investment Treaty (BIT) in December 2015, following several adverse rulings in international arbitration proceedings. The new model BIT does not allow foreign investors to use investor-state dispute settlement methods, and instead requires foreign investors first to exhaust all local judicial and administrative remedies before entering international arbitration. The Indian government also served termination notices for existing BITs with 73 countries.

In September 2018, Belarus became the first country to execute a new BIT with India, based on the new model BIT, followed by the Taipei Cultural & Economic Centre (TECC) in December 2019, and Brazil in January 2020. India has also entered into a BIT negotiation with the Philippines and joint interpretative statements are under discussion with Iran, Switzerland, Morocco, Kuwait, Ukraine, UAE, San Marino, Hong Kong, Israel, Mauritius, and Oman.

Currently 14 BITs are in force. The Ministry of Finance said the revised model BIT will be used for the renegotiation of existing and any future BITs and will form the investment chapter in any Comprehensive Economic Cooperation Agreements (CECAs)/Comprehensive Economic Partnership Agreements (CEPAs)/Free Trade Agreements (FTAs).

The complete list of agreements can be found at: https://investmentpolicy.unctad.org/international-investment-agreements/countries/96/india 

Bilateral Taxation Treaties

India has a bilateral taxation treaty with the United States, available at: https://www.irs.gov/pub/irs–trty/india.pdf

https://www.irs.gov/pub/irs–trty/india.pdf

Transparency of the Regulatory System

Some government policies are written in a way that can be discriminatory to foreign investors or favor domestic industry. For example, approval in 2021 for higher FDI thresholds in the insurance sector came with a requirement of “Indian management and control.” On most occasions the rules are framed after thorough discussions by government authorities and require the approval of the cabinet and, in some cases, the Parliament as well. Policies pertaining to foreign investments are framed by DPIIT, and implementation is undertaken by lead federal ministries and sub-national counterparts. However, in some instances the rules have been framed without following any consultative process.

In 2017, India began assessing a six percent “equalization levy,” or withholding tax, on foreign online advertising platforms with the ostensible goal of “equalizing the playing field” between resident service suppliers and non-resident service suppliers. However, its provisions did not provide credit for taxes paid in other countries for services supplied in India. In February 2020, the FY 2020-21 budget included an expansion of the “equalization levy,” adding a two percent tax to the equalization levy on foreign e-commerce and digital services provider companies. Neither the original 2017 levy, nor the additional 2020 two percent tax applied to Indian firms. In February 2021, the FY 2021-22 budget included three amendments “clarifying” the 2020 equalization levy expansion that will significantly extend the scope and potential liability for U.S. digital and e-commerce firms. The changes to the levy announced in 2021 will be implemented retroactively from April 2020. The 2020 and 2021 changes were enacted without prior notification or an opportunity for public comment.

The Indian Accounting Standards were issued under the supervision and control of the Accounting Standards Board, a committee under the Institute of Chartered Accountants of India (ICAI), and has government, academic, and professional representatives. The Indian Accounting Standards are named and numbered in the same way as the corresponding International Financial Reporting Standards. The National Advisory Committee on Accounting Standards recommends these standards to the Ministry of Corporate Affairs, which all listed companies must then adopt. These can be accessed at: http://www.mca.gov.in/MinistryV2/Stand.html 

International Regulatory Considerations

India is a member of the South Asia Association for Regional Cooperation (SAARC), an eight- member regional block in South Asia. India’s regulatory systems are aligned with SAARC’s economic agreements, visa regimes, and investment rules. Dispute resolution in India has been through tribunals, which are quasi-judicial bodies. India has been a member of the WTO since 1995, and generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade; however, at times there are delays in publishing the notifications. The Governments of India and the United States cooperate in areas such as standards, trade facilitation, competition, and antidumping practices.

Legal System and Judicial Independence

India adopted its legal system from English law and the basic principles of the Common Law as applied in the UK are largely prevalent in India. However, foreign companies need to make adaptations for Indian Law and the Indian business culture when negotiating and drafting contracts in India to ensure adequate protection in case of breach of contract. The Indian judiciary provides for an integrated system of courts to administer both central and state laws. The judicial system includes the Supreme Court as the highest national court, as well as a High Court in each state or a group of states which covers a hierarchy of subordinate courts. Article 141 of the Constitution of India provides that a decision declared by the Supreme Court shall be binding on all courts within the territory of India. Apart from courts, tribunals are also vested with judicial or quasi-judicial powers by special statutes to decide controversies or disputes relating to specified areas.

Courts have maintained that the independence of the judiciary is a basic feature of the Constitution, which provides the judiciary institutional independence from the executive and legislative branches.

The government has a policy framework on FDI, which is updated every year and formally notified as the Consolidated FDI Policy ( http://dipp.nic.in/foreign-direct–investment/foreign-direct–investment-policy ). DPIIT makes policy pronouncements on FDI through Consolidated FDI Policy Circular/Press Notes/Press Releases which are notified by the Ministry of Finance as amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 under the Foreign Exchange Management Act, 1999 (42 of 1999) (FEMA). These notifications take effect from the date of issuance of the Press Notes/ Press Releases, unless specified otherwise therein. In case of any conflict, the relevant Notification under Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 will prevail. The payment of inward remittance and reporting requirements are stipulated under the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 issued by the Reserve Bank of India (RBI). The regulatory framework, over a period, thus, consists of FEMA and Rules/Regulations thereunder, Consolidated FDI Policy Circulars, Press Notes, Press Releases, and Clarifications.

The government has introduced a “Make in India” program. “Self-Reliant India” program, as well as investment policies designed to promote domestic manufacturing and attract foreign investment. “Digital India” aimed to open up new avenues for the growth of the information technology sector. The “Start-up India” program created incentives to enable start-ups to become commercially viable businesses and grow. The “Smart Cities” project was launched to open new avenues for industrial technological investment opportunities in select urban areas.

Competition and Anti-Trust Laws

The central government has been successful in establishing independent and effective regulators in telecommunications, banking, securities, insurance, and pensions. The Competition Commission of India (CCI), India’s antitrust body, reviews cases against cartelization and abuse of dominance as well as conducts capacity-building programs for bureaucrats and business officials. Currently, the Commission’s investigations wing is required to seek the approval of the local chief metropolitan magistrate for any search and seizure operations. The Securities and Exchange Bureau of India (SEBI) enforces corporate governance standards and is well-regarded by foreign institutional investors. The RBI, which regulates the Indian banking sector, is also held in high regard. Some Indian regulators, including SEBI and the RBI, engage with industry stakeholders through periods of public comment, but the practice is not consistent across the government.

Expropriation and Compensation

Tax experts confirm that India does not have domestic expropriation laws in place. Legislative authority does exist in the form of the retroactive taxation, a measure introduced in 2012 and that has been defended despite government assurances of not introducing new retroactive taxes. The Indian government has been divesting from state owned enterprises (SOEs) since 1991. In February 2021, the Finance Minister detailed an ambitious program to privatize roughly $24 billion in SOEs and public sector assets to both help finance the FY 2021-22 budget without increasing taxes and reducing the role of the government in the economy.

Dispute Settlement

India made resolving contract disputes and insolvency easier with the enactment and implementation of the Insolvency and Bankruptcy Code (IBC). Among the areas where India has improved the most in the World Bank’s Ease of Doing Business Ranking the past three years has been under the resolving insolvency metric. The World Bank Report noted that the 2016 law introduced the option of insolvency resolution for commercial entities as an alternative to liquidation or other mechanisms of debt enforcement, reshaping the way insolvent companies can restore their financial well-being or close down. The Code put in place effective tools for creditors to successfully negotiate and increased their ability to receive payments. As a result, the overall recovery rate for creditors jumped from 26.5 to 71.6 cents on the dollar and the time taken for resolving insolvency also was reduced significantly from 4.3 years to 1.6 years. With these changes, India became the highest performer in South Asia in this category and exceeded the average for OECD high-income economies

India enacted the Arbitration and Conciliation Act in 1996, based on the United Nations Commission on International Trade Law model, as an attempt to align its adjudication of commercial contract dispute resolution mechanisms with global standards. The government established the International Center for Alternative Dispute Resolution (ICADR) as an autonomous organization under the Ministry of Law and Justice to promote the settlement of domestic and international disputes through alternate dispute resolution. The World Bank has also funded ICADR to conduct training for mediators in commercial dispute settlement.

Judgments of foreign courts have been enforced under multilateral conventions, including the Geneva Convention. India is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). It is not unusual for Indian firms to file lawsuits in domestic courts in order to delay paying an arbitral award. Several cases are currently pending, the oldest of which dates to 1983, and the latest case is that of Amazon Vs. Future Retail, in which Amazon also received an interim award in its favour from the Singapore International Arbitration Centre. Future Retail refused to accept the findings and initiated litigation in Indian courts. India is not a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

The Permanent Court of Arbitration (PCA) at The Hague and the Indian Law Ministry agreed in 2007 to establish a regional PCA office in New Delhi, although it remains pending. The office would provide an arbitration forum to match the facilities offered at The Hague but at a lower cost.

In November 2009, the Department of Revenue’s Central Board of Direct Taxes established eight dispute resolution panels across the country to settle the transfer-pricing tax disputes of domestic and foreign companies. In 2016 the government also presented amendments to the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act to establish specialized commercial divisions within domestic courts to settle long-pending commercial disputes.

Investor-State Dispute Settlement

According to the United Nations Conference on Trade and Development, India has been a respondent state for 25 investment dispute settlement cases, of which 13 remain pending. Case details can be accessed at https://investmentpolicy.unctad.org/investment-dispute-settlement/country/96/india .

Though India is not a signatory to the ICSID Convention, current claims by foreign investors against India can be pursued through the ICSID Additional Facility Rules, the UN Commission on International Trade Law (UNCITRAL Model Law) rules, or via ad hoc proceedings.

International Commercial Arbitration and Foreign Courts

Alternate Dispute Resolution (ADR)

Since formal dispute resolution is expensive and time consuming, many businesses choose methods, including ADR, for resolving disputes. The most used ADRs are arbitration and mediation. India has enacted the Arbitration and Conciliation Act based on the UNCITRAL Model Laws of Arbitration. Experts agree that the ADR techniques are extra-judicial in character and emphasize that ADR cannot displace litigation. In cases that involve constitutional or criminal law, traditional litigation remains necessary.

Dispute Resolutions Pending

An increasing backlog of cases at all levels reflects the need for reform of the dispute resolution system, whose infrastructure is characterized by an inadequate number of courts, benches, and judges; inordinate delays in filling judicial vacancies; and a very low rate of 14 judges per one million people.

Bankruptcy Regulations

The introduction and implementation of the IBC in 2016 led to an overhaul of the previous framework on insolvency and paved the way for much-needed reforms. The IBC created a uniform and comprehensive creditor-driven insolvency resolution process that encompasses all companies, partnerships, and individuals (other than financial firms). According to the World Bank Doing Business Report, after the implementation of the IBC, the time taken to for resolving insolvency was reduced significantly from 4.3 years to 1.6 years. The law, however, does not provide for U.S. style Chapter 11 bankruptcy provisions.

In August 2016, the Indian Parliament passed amendments to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, and the Debt Recovery Tribunals Act. These amendments targeted helping banks and financial institutions recover loans more effectively, encouraging the establishment of more asset reconstruction companies (ARCs), and revamping debt recovery tribunals. Union Finance Minister Nirmala Sitharaman, while presenting the FY 2021-22 budget, proposed setting up an ARC, or “bad bank”, to address perennial non-performing assets (NPAs) in the public banking sector.

The regulatory environment in terms of foreign investment has been eased to make it investor friendly. The measures taken by the Government are directed to open new sectors for foreign direct investment, increase the sectoral limit of existing sectors, and simplifying other conditions of the FDI policy. The Indian government has issued guarantees to investments but only in cases of strategic industries.

Foreign Trade Zones/Free Ports/Trade Facilitation

The government established several foreign trade zone initiatives to encourage export-oriented production. These include Special Economic Zones (SEZs), Export Processing Zones (EPZs), Software Technology Parks (STPs), and Export Oriented Units (EOUs). EPZs are industrial parks with incentives for foreign investors in export-oriented businesses. STPs are special zones with similar incentives for software exports. EOUs are industrial companies, established anywhere in India, that export their entire production and are granted the following: duty-free import of intermediate goods, income tax holidays, exemption from excise tax on capital goods, components, and raw materials, and a waiver on sales taxes. According to the Ministry of Commerce and Industry, as of October 2020, 426 SEZ’s have been approved and 262 SEZs were operational. SEZs are treated as foreign territory — businesses operating within SEZs are not subject to customs regulations nor have FDI equity caps. They also receive exemptions from industrial licensing requirements and enjoy tax holidays and other tax breaks. In 2018, the Indian government announced guidelines for the establishment of the National Industrial and Manufacturing Zones (NIMZs), envisaged as integrated industrial townships to be managed by a special purpose vehicle and headed by a government official. So far, three NIMZs have been accorded final approval and 13 have been accorded in-principal approval. In addition, eight investment regions along the Delhi-Mumbai Industrial Corridor (DIMC) have also been established as NIMZs. These initiatives are governed by separate rules and granted different benefits, details of which can be found at: http://www.sezindia.nic.in,   https://www.stpi.in/   http://www.fisme.org.in/export_schemes/DOCS/B–

1/EXPORT%20ORIENTED%20UNIT%20SCHEME.pdf and http://www.makeinindia.com/home. 

The GOI’s revised Foreign Trade Policy, which will be effective for five years starting April 1, 2021, is expected to include a new regionally focused District Export Hubs initiative in addition to existing SEZs and NIMZs

Performance and Data Localization Requirements

Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India. State-owned “Public Sector Undertakings” and the government accord a 20 percent price preference to vendors utilizing more than 50 percent local content. However, PMA for government procurement limits access to the most cost effective and advanced ICT products available. In December 2014, PMA guidelines were revised and reflect the following updates:

1. Current guidelines emphasize that the promotion of domestic manufacturing is the objective of PMA, while the original premise focused on the linkages between equipment procurement and national security.

2. Current guidelines on PMA implementation are limited to hardware procurement only. Former guidelines were applicable to both products and services.

3. Current guidelines widen the pool of eligible PMA bidders, to include authorized distributors, sole selling agents, authorized dealers or authorized supply houses of the domestic manufacturers of electronic products, in addition to OEMs, provided they comply with the following terms:

a. The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.

b. The bidder shall furnish the affidavit of self-certification issued by the domestic manufacturer to the procuring agency declaring that the electronic product is domestically manufactured in terms of the domestic value addition prescribed.

c. It shall be the responsibility of the bidder to furnish other requisite documents required to be issued by the domestic manufacturer to the procuring agency as per the policy.

4. The current guidelines establish a ceiling on fees linked with the complaint procedure. There would be a complaint fee of INR 200,000 ($3,000) or one percent of the value of the Domestically Manufactured Electronic Product being procured, subject to a maximum of INR 500,000 ($7,500), whichever is higher.

In January 2017, the Ministry of Electronics & Information Technology (MeitY) issued a draft notification under the PMA policy, stating a preference for domestically manufactured servers in government procurement. A current list of PMA guidelines, notified products, and tendering templates can be found on MeitY’s website: http://meity.gov.in/esdm/pma. 

Research and Development

The Government of India allows for 100 percent FDI in research and development through the automatic route.

Data Storage & Localization

In April 2018, the RBI, announced, without prior stakeholder consultation, that all payment system providers must store their Indian transaction data only in India. The RBI mandate went into effect on October 15, 2018, despite repeated requests by industry and U.S. officials for a delay to allow for more consultations. In July 2019, the RBI, again without prior stakeholder consultation, retroactively expanded the scope of its 2018 data localization requirement to include banks, creating potential liabilities going back to late 2018. RBI policy overwhelmingly and disproportionately has affected U.S. banks and investors, who depend on the free flow of data to both achieve economies of scale and to protect customers by providing global real-time monitoring and analysis of fraud trends and cybersecurity. U.S. payments companies have been able to implement the mandate for the most part, though at great cost and potential damage to the long-term security of their Indian customer base, which will receive fewer services and no longer benefit from global fraud detection and anti-money-laundering/combatting the financing of terrorism (AML/CFT) protocols. Similarly, U.S. banks have been able to comply with RBI’s expanded mandate, though incurring significant compliance costs and increased risk of cybersecurity vulnerabilities.

In addition to the RBI data localization directive for payments companies and banks, the government formally introduced its draft Personal Data Protection Bill (PDPB) in December 2019 which has remained pending in Parliament. The PDPB would require “explicit consent” as a condition for the cross-border transfer of sensitive personal data, requiring users to fill out separate forms for each company that held their data. Additionally, Section 33 of the bill would require a copy of all “sensitive personal data” and “critical personal data” to be stored in India, potentially creating redundant local data storage. The localization of all “sensitive personal data” being processed in India could directly impact IT exports. In the current draft no clear criteria for the classification of “critical personal data” has been included. The PDPB also would grant wide authority for a newly created Data Protection Authority to define terms, develop regulations, or otherwise provide specifics on key aspects of the bill after it becomes a law. Reports on Non-Personal Data and the implementation of a New Information Technology Rule 2021 with Intermediary Guidelines and Digital Media Ethics Code added further uncertainty to how existing rules will interact with the PDPB and how non-personal data will be handled. 5.Protection of Property Rights

Real Property

In India, a registered sales deed does not confer title of land ownership and is merely a record of the sales transaction. It only confers presumptive ownership, which can still be disputed. The title is established through a chain of historical transfer documents that originate from the land’s original established owner. Accordingly, before purchasing land, buyers should examine all the documents that establish title from the original owner. Many owners, particularly in urban areas, do not have access to the necessary chain of documents. This increases uncertainty and risks in land transactions.

Several cities, including the metropolitan cities of Delhi, Kolkata, Mumbai, and Chennai, have grown according to a master plan registered with the central government’s Ministry of Urban Development. Property rights are generally well-enforced in such places, and district magistrates — normally senior local government officials — notify land and property registrations. Banks and financial institutions provide mortgages and liens against such registered property.

In other urban areas, and in areas where illegal settlements have been established, titling often remains unclear. As per the Department of Land Resources, in 2008 the government launched the National Land Records Modernization Program (NLRMP) to clarify land records and provide landholders with legal titles. The program requires the government to survey an area of approximately 2.16 million square miles, including over 430 million rural households, 55 million urban households, and 430 million land records. Initially scheduled for completion in 2016, the program is now scheduled to conclude in 2021.

Though land is a state government (sub-national) subject, “acquisition and requisitioning of property” is in the concurrent list and so both the Indian Parliament and state legislatures can make laws on this subject. Land acquisition in India is governed by the Land Acquisition Act (2013), which entered into force in 2014, and continues to be a complicated process due to the lack of an effective legal framework. Land sales require adequate compensation, resettlement of displaced citizens, and 70 percent approval from landowners. The displacement of poorer citizens is politically challenging for local governments.

Foreign and domestic private entities are permitted to establish and own businesses in trading companies, subsidiaries, joint ventures, branch offices, project offices, and liaison offices, subject to certain sector-specific restrictions. The government does not permit foreign investment in real estate, other than company property used to conduct business and for the development of most types of new commercial and residential properties. Foreign Institutional Investors (FIIs) can now invest in initial public offerings (IPOs) of companies engaged in real estate. They can also participate in pre-IPO placements undertaken by such real estate companies without regard to FDI stipulations.

Businesses that intend to build facilities on land they own are also required to take the following steps: register the land, seek land use permission if the industry is located outside an industrially zoned area, obtain environmental site approval, seek authorization for electricity and financing, and obtain appropriate approvals for construction plans from the respective state and municipal authorities. Promoters must also obtain industry-specific environmental approvals in compliance with the Water and Air Pollution Control Acts. Petrochemical complexes, petroleum refineries, thermal power plants, bulk drug makers, and manufacturers of fertilizers, dyes, and paper, among others, must obtain clearance from the Ministry of Environment and Forests.

In 2016, India introduced its first regulator in the real estate sector in the form of the Real Estate Act. The Real Estate Act, 2016 aims to protect the rights and interests of consumers and promote uniformity and standardization of business practices and transactions in the real estate sector. Details are available at: http://mohua.gov.in/cms/TheRealEstateAct2016.php 

The Foreign Exchange Management Regulations and the Foreign Exchange Management Act set forth the rules that allow foreign entities to own immoveable property in India and convert foreign currencies for the purposes of investing in India. These regulations can be found at: https://www.rbi.org.in/scripts/Fema.aspx . Foreign investors operating under the automatic route are allowed the same rights as an Indian citizen for the purchase of immovable property in India in connection with an approved business activity.

Traditional land use rights, including communal rights to forests, pastures, and agricultural land, are sanctioned according to various laws, depending on the land category and community residing on it. Relevant legislation includes the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act 2006, the Tribal Rights Act, and the Tribal Land Act.

Intellectual Property Rights

India remained on the Priority Watch List in the 2020 Special 301 Report due to concerns over weak intellectual property (IP) protection and enforcement.  The 2020 Review of Notorious Markets for Counterfeiting and Piracy includes physical and online marketplaces located in or connected to India.  The United States and India have continued to engage on a range of IP challenges facing U.S. companies in India with the intention of creating stronger IP protection and enforcement in India.

In the field of copyright, procedural hurdles, problematic policies, and effective enforcement remained concerns.  In February 2019, the Cinematograph (Amendment) Bill, which would criminalize illicit camcording of films, was tabled in Parliament and remains pending.  The expansive granting of licenses under Chapter VI of the Indian Copyright Act and overly broad exceptions for certain uses have raised concerns regarding the strength of copyright protection and complicated the market for music licensing.  In June 2020, the Copyright Board was merged with the Intellectual Property Appellate Board.  The lack of a functional copyright board had previously created uncertainty regarding how IP royalties were collected and distributed.

In 2019, the DPIIT proposed draft Copyright Amendment Rules that would broaden the scope of statutory licensing to encompass not only radio and television broadcasting but also online broadcasting, despite a high court ruling earlier in 2019 that held that statutory broadcast licensing does not include online broadcasts.  If implemented, the Amendment Rules would have severe implications for Internet content-related right holders.

In the area of patents, a number of factors negatively affect stakeholders’ perception of India’s overall IP regime, investment climate, and innovation goals.  The potential threat of compulsory licenses and patent revocations, and the narrow patentability criteria under the Indian Patent Act, burden companies across different sectors.  Patent applications continue to face expensive and time consuming pre- and post-grant oppositions and excessive reporting requirements.  In October 2020, India issued a revised “Statement of Working of Patents” (Form 27).  The United States is monitoring whether the revision addresses concerns previously raised by innovators over Form 27’s burdensome nature and required disclosure of sensitive business information.

While certain administrative decisions in past years have upheld patent rights, and specific tools and remedies do exist in India to support the rights of a patent holder, concerns remain over revocations and other challenges to patents, especially patents for agriculture biotechnology and pharmaceutical products. In particular, the United States continues to monitor India’s application of its compulsory licensing law. Moreover, the Indian Supreme Court’s 2013 decision that India’s Patent Law created a second tier of requirements for patenting certain technologies, such as pharmaceuticals, continues to be of concern as it may limit the patentability in India for an array of potentially beneficial innovations.

India currently lacks an effective system for protecting against unfair commercial use, as well as unauthorized disclosure, of undisclosed tests or other data generated to obtain marketing approval for pharmaceutical and agricultural products. The U.S. government and stakeholders have also raised concerns with respect to allegedly infringing pharmaceuticals being marketed without advance notice or opportunity for parties to resolve their IP disputes.

U.S. and Indian companies have expressed interest in eliminating gaps in India’s trade secrets regime, such as through the adoption of standalone trade secrets legislation. In 2016, India’s National Intellectual Property Rights Policy called for trade secrets to serve as an “important area of study for future policy development,” but India has not yet prioritized this work.

Developments Strengthening the Rights of IP Holders

In terms of progress in patent examination, India issued a revised Manual of Patent Office Practice and Procedure in November 2019 that requires patent examiners to look to the World Intellectual Property Organization’s Centralized Access to Search and Examination (CASE) system and Digital Access Service (DAS) to find prior art and other information filed by patent applicants in other jurisdictions.

Other developments over the past year strengthening the rights of IP holders include India’s continued efforts to reduce delays and backlogs of patent and trademark applications, the Cell for IPR Promotion and Management’s (CIPAM) promotion of IP awareness and commercialization throughout India, and ongoing efforts to improve IP enforcement, particularly at the state level. However, state-level IP enforcement remains uneven in India, with some states conducting enforcement activities and others falling short in this regard.

Capital Markets and Portfolio Investment

According to media reports, India climbed two notches in 2020 to take the eighth spot among the world’s top stock markets as equities crossed the $2.5 trillion market capitalization mark on December 28, 2020 for the first time. The previous high was in January 2018 when market capitalization reached $2.47 trillion. 2020 saw 15 initial public offer (IPO) issues raising over $3.8 billion (INR 266.11 billion), a 115.3 percent rise over $1.77 billion (INR 123.61 billion) raised in 2019 through 16 IPO issues.

The Securities and Exchange Board of India (SEBI) is considered one of the most progressive and well-run of India’s regulatory bodies.  It regulates India’s securities markets, including enforcement activities, and is India’s direct counterpart to the U.S. Securities and Exchange Commission (SEC).  SEBI oversees three national exchanges: the BSE Ltd. (formerly the Bombay Stock Exchange), the National Stock Exchange (NSE), and the Metropolitan Stock Exchange. SEBI also regulates the three national commodity exchanges: the Multi Commodity Exchange (MCX), the National Commodity & Derivatives Exchange Limited, and the National Multi-Commodity Exchange.

Foreign venture capital investors (FVCIs) must register with SEBI to invest in Indian firms. They can also set up domestic asset management companies to manage funds. All such investments are allowed under the automatic route, subject to SEBI and RBI regulations, and to FDI policy. FVCIs can invest in many sectors, including software, information technology, pharmaceuticals and drugs, biotechnology, nanotechnology, biofuels, agriculture, and infrastructure.

Companies incorporated outside India can raise capital in India’s capital markets through the issuance of Indian Depository Receipts (IDRs) based on SEBI guidelines. Standard Chartered Bank, a British bank which was the first and only foreign entity to list in India in June 2010, delisted from the domestic exchanges in June 2020. Experts attribute the lack of interest in IDR to initial entry barriers, lack of clarity on conversion of the IDR holding into overseas shares, lack of tax clarity, and the regulator’s failure to popularize the product.

External commercial borrowing (ECB), or direct lending to Indian entities by foreign institutions, is allowed if it conforms to parameters such as minimum maturity; permitted and non-permitted end-uses; maximum all-in-cost ceiling as prescribed by the RBI; funds are used for outward FDI or for domestic investment in industry, infrastructure, hotels, hospitals, software, self-help groups or microfinance activities, or to buy shares in the disinvestment of public sector entities. The rules are published by the RBI: https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=47736.

According to RBI data, external commercial borrowings (ECBs) by corporations reached $36.35 billion in 2020. This was the second highest inflow of offshore loans in a calendar year, following $50.51 billion raised in 2019. The monthly borrowing dropped to a multi-year low of $0.9 billion in April when the lockdown brought both economic and lending activities to a standstill. It then improved to $5.22 billion in September, driven by funds-raising by Reliance Industries. Non-banking financial companies (NBFC) also increased borrowing and corporations raised $1.6 billion through the issuance of rupee-denominated bonds.

The RBI has taken a number of steps in the past few years to bring the activities of the offshore Indian rupee market in Non-Deliverable Forwards (NDF) onshore, in order to deepen domestic markets, enhance downstream benefits, and generally obviate the need for an NDF market. FPIs with access to currency futures or the exchange-traded currency options market can hedge onshore currency risks in India and may directly trade in corporate bonds.

The RBI allowed banks to freely offer foreign exchange quotes to non-resident Indians at all times and said trading on rupee derivatives would be allowed and settled in foreign currencies in the International Financial Services Centers (IFSCs). In June 2020, the RBI allowed foreign branches of Indian banks and branches located in the IFSC to participate in the NDF. With the rupee trading volume in the offshore market higher than the onshore market, RBI felt the need to limit the impact of the NDF market and curb volatility in the movement of the rupee.

The International Financial Services Centre at Gujarat International Financial Tech-City (GIFT City) in Gujarat is being developed to compete with global financial hubs. The BSE was the first to start operations there, in January 2016. NSE domestic banks and foreign banks have started IFSC banking units in GIFT city. As part of its Budget 2020 proposal, the government proposed establishing an international bullion exchange at IFSC, which would lead to better price discovery of gold, create more jobs, and enhance India’s position in such markets.

Money and Banking System

The public sector remains predominant in the banking sector, with public sector banks (PSBs) accounting for about 66 percent of total banking sector assets. However, the share of public banks has fallen sharply in the last five years (from 74.2 percent in 2015 to 59.8 percent in 2020), primarily driven by stressed balance sheets and non-performing loans. Also, several new licenses were granted to private financial entities (two new universal bank licenses and 10 small finance bank licenses) in the past few years. The government announced plans in 2021 to privatize two PSBs. This follows Indian authorities consolidating 10 public sector banks into four in 2019, which reduced the total number of public sector banks from 18 to 12. Although most large PSBs are listed on exchanges, the government’s stakes in these banks often exceeds the 51 percent legal minimum. Aside from the large number of state-owned banks, directed lending and mandatory holdings of government paper are key facets of the banking sector. The RBI requires commercial banks and foreign banks with more than 20 branches to allocate 40 percent of their loans to priority sectors which include agriculture, small and medium enterprises, export-oriented companies, and social infrastructure. Additionally, all banks are required to invest 18 percent of their net demand and time liabilities in government securities.

PSBs continue to face two significant hurdles: capital constraints and poor asset quality. As of September 2020, gross non-performing loans represented 7.5 percent of total loans in the banking system, with the public sector banks having a larger share at 9.7 percent of their loan portfolio. The PSBs’ asset quality deterioration in recent years has been driven by their exposure to a broad range of industrial sectors including infrastructure, metals and mining, textiles, and aviation. The COVID-19 crisis further exacerbated the stress, with NPAs likely to rise as the forbearance period ends. The government announced its intention to set up an asset reconstruction company to take over legacy stressed assets from bank balance sheets. With IBC in place, banks were making progress in non-performing asset recognition and resolution. However, the IBC Code was suspended following the onset of COVID-19 through March 2021 to help businesses cope with the economic disruptions caused by the pandemic.

To address asset quality challenges faced by public sector banks, the government injected $32 billion into public sector banks in recent years. The capitalization largely aimed to address the capital inadequacy of public sector banks and marginally provide for growth capital. Following the recapitalization, public sector banks’ total capital adequacy ratio (CAR) improved to 13.5 percent in September 2020 from 12.9 in March 2020.

Women in the Financial Sector

Women’s lack of sufficient access to finance remained a major impediment to women’s entrepreneurship and participation in the workforce. According to experts, women are more likely than men to lack financial awareness, confidence to approach a financial institution, or possess adequate collateral, often leaving them vulnerable to poor terms of finance. Despite legal protections against discrimination, some banks reportedly remained unwelcoming towards women as customers. The International Finance Corporation (IFC) analysts described Indian women-led Micro, Small, and Medium Enterprises (MSME) as a large but untapped market that has a total finance requirement of $29 billion (72 percent for working capital). However, 70 percent of this demand remained unmet, creating a shortfall of $20 billion. The IFC argued that financial institutions should view this market as a compelling, profitable business segment, not corporate social responsibility or charitable activity.

The government-affiliated think tank NITI Aayog provides information on networking, mentorship, and financing to more than 18,000 members via its Women Entrepreneurship Platform (WEP). The WEP was launched in March 2018, following the 2017 Global Entrepreneurship Summit, that India hosted in partnership with the United States, focused on “Women First and Prosperity for All.” The GOI’s financial inclusion scheme Pradhan Mantri Jan Dhan Yojana (PMJDY) provides universal access to banking facilities with at least one basic banking account for every adult, financial literacy, access to credit, insurance, and pension. As of March 3, 2021, 233 million out of 420 million beneficiaries are women (55 percent.)  In 2015, the Modi government started the Micro Units Development and Refinance Agency Ltd. (MUDRA), which supports the development of micro-enterprises. The initiative encourages women’s participation and offers collateral-free loans of around $15,000 — 70 percent of the beneficiaries are women.

Foreign Exchange and Remittances

Foreign Exchange

The RBI, under the Liberalized Remittance Scheme, allows individuals to remit up to $250,000 per fiscal year (April-March) out of the country for permitted current account transactions (private visit, gift/donation, going abroad on employment, emigration, maintenance of close relatives abroad, business trip, medical treatment abroad, studies abroad) and certain capital account transactions (opening of foreign currency account abroad with a bank, purchase of property abroad, making investments abroad, setting up Wholly Owned Subsidiaries and Joint Ventures outside of India, extending loans). The Indian Rupee or INR is fully convertible only in current account transactions, as regulated under the Foreign Exchange Management Act regulations of 2000 ( https://www.rbi.org.in/Scripts/Fema.aspx ).

Foreign exchange withdrawal is prohibited for remittance of lottery winnings; income from racing, riding or any other hobby; purchase of lottery tickets, banned or proscribed magazines; football pools and sweepstakes; payment of commission on exports made towards equity investment in Joint Ventures or Wholly Owned Subsidiaries of Indian companies abroad; and remittance of interest income on funds held in a Non-Resident Special Rupee Scheme Account ( https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10193#sdi ). Furthermore, the following transactions require the approval of the Central Government: cultural tours; remittance of hiring charges for transponders for television channels under the Ministry of Information and Broadcasting, and Internet Service Providers under the Ministry of Communication and Information Technology; remittance of prize money and sponsorship of sports activity abroad if the amount involved exceeds $100,000; advertisement in foreign print media for purposes other than promotion of tourism, foreign investments and international bidding (over $10,000) by a state government and its public sector undertakings (PSUs); and multi-modal transport operators paying remittances to their agents abroad. RBI approval is required for acquiring foreign currency above certain limits for specific purposes including remittances for: maintenance of close relatives abroad; any consultancy services; funds exceeding 5 percent of investment brought into India or $100,000, whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses.

Capital account transactions are open to foreign investors, though subject to various clearances. Non-resident Indian investment in real estate, remittance of proceeds from the sale of assets, and remittance of proceeds from the sale of shares may be subject to approval by the RBI or FIPB.

FIIs may transfer funds from INR to foreign currency accounts and back at market exchange rates. They may also repatriate capital, capital gains, dividends, interest income, and compensation from the sale of rights offerings without RBI approval. The RBI also authorizes automatic approval to Indian industry for payments associated with foreign collaboration agreements, royalties, and lump sum fees for technology transfer, and payments for the use of trademarks and brand names. Royalties and lump sum payments are taxed at 10 percent.

The RBI has periodically released guidelines to all banks, financial institutions, NBFCs, and payment system providers regarding Know Your Customer (KYC) and reporting requirements under Foreign Account Tax Compliance Act (FATCA)/Common Reporting Standards (CRS). The government’s July 7, 2015 notification ( https://rbidocs.rbi.org.in/rdocs/content/pdfs/CKYCR2611215_AN.pdf ) amended the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, (Rules), for setting up of the Central KYC Records Registry (CKYCR)—a registry to receive, store, safeguard and retrieve the KYC records in digital form of clients.

Remittance Policies

Remittances are permitted on all investments and profits earned by foreign companies in India once taxes have been paid. Nonetheless, certain sectors are subject to special conditions, including construction, development projects, and defense, wherein the foreign investment is subject to a lock-in period. Profits and dividend remittances as current account transactions are permitted without RBI approval following payment of a dividend distribution tax.

Foreign banks may remit profits and surpluses to their headquarters, subject to compliance with the Banking Regulation Act, 1949. Banks are permitted to offer foreign currency-INR swaps without limits for the purpose of hedging customers’ foreign currency liabilities. They may also offer forward coverage to non-resident entities on FDI deployed since 1993.

Sovereign Wealth Funds

In 2016 the Indian government established the National Infrastructure Investment Fund (NIIF), touted as India’s first sovereign wealth fund to promote investments in the infrastructure sector. The government agreed to contribute $3 billion to the fund, while an additional $3 billion will be raised from the private sector primarily from sovereign wealth funds, multilateral agencies, endowment funds, pension funds, insurers, and foreign central banks. In December 2020, NIIF officially closed the Master Fund with $2.34 billion in commitments from other Sovereign Wealth Funds and global pension funds. The NIIF Master Fund is focused on investing in core infrastructure sectors including transportation, energy, and urban infrastructure.

The government owns or controls interests in key sectors with significant economic impact, including infrastructure, oil, gas, mining, and manufacturing. The Department of Public Enterprises ( http://dpe.gov.in ) controls and formulates all the policies pertaining to SOEs and is headed by a minister to whom the senior management reports. The Comptroller and Auditor General audits the SOEs. The government has taken several steps to improve the performance of SOEs, also called Central Public Sector Enterprises (CPSEs), including improvements to corporate governance. This was necessary as the government planned to disinvest its stake from these entities. All the CPSE’s are listed on stock exchanges as the government partially divested its equity from these entities.

According to the Public Enterprise Survey 2018-19, as of March 2019 there were 348 central public sector enterprises (CPSEs) with a total investment of $234 billion, of which 248 are operating CPSEs. The report puts the number of profit-making CPSEs at 178, while 70 CPSEs were incurring losses.

Foreign investments are allowed in CPSEs in all sectors. The Master List of CPSEs can be accessed at http://www.bsepsu.com/list-cpse.asp. While the CPSEs face the same tax burden as the private sector, on issues like procurement of land they receive streamlined licensing that private sector enterprises do not.

Privatization Program

Despite the financial upside to disinvestment in loss-making SOEs, the government has not generally privatized its assets as they have led to job losses in the past, and therefore engendered political risks. Instead, the government adopted a gradual disinvestment policy that dilutes government stakes in public enterprises without sacrificing control. Such disinvestment has been undertaken both as fiscal support and as a means of improving the efficiency of SOEs.

In the FY 2021-22 budget, however, Finance Minister Nirmala Sitharaman unveiled a new Disinvestment/Strategic Disinvestment Policy detailing the government’s intent to privatize most state-owned companies in a phased manner. A few sectors were categorized as strategic sectors where the government plans to maintain a minimal presence. The budget established a disinvestment target of $24 billion for FY2021-22 after disinvestments planned for the prior fiscal year were not completed, many of which the government claimed were negatively impacted by the COVID-19 pandemic.

Foreign institutional investors can participate in the disinvestment programs. The earlier limits for foreign investors were 24 percent of the paid-up capital of the Indian company and 10 percent for non-resident Indians and persons of Indian origin. In the case of public sector banks, the limit is 20 percent of the paid-up capital. For many SOEs there is no bidding process as the shares of the entities being disinvested are sold in the open market. Certain SOEs, however, such as Air India are subject to a structure bidding process.

Among Indian companies there is a general awareness of standards for responsible business conduct. The Ministry of Corporate Affairs (MCA) administers the Companies Act of 2013 and is responsible for regulating the corporate sector in accordance with the law. The MCA is also responsible for protecting the interests of consumers by ensuring competitive markets.

The Companies Act of 2013 also established the framework for India’s corporate social responsibility (CSR) laws. While the CSR obligations are mandated by law, non-government organizations (NGOs) in India also track CSR activities and provide recommendations in some cases for effective use of CSR funds. MCA released the National Guidelines on Responsible Business Conduct, 2018 (NGRBC) on March 13, 2019 to improve the 2011 National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business. The NGRBC aligned with the United Nations Guiding Principles on Business & Human Rights (UNGPs).

Per the Ministry of Corporate Affairs, corporations used all or most of their CSR money in 2020 to combat the COVID-19 pandemic, be it through contributions to the PM CARES Fund or other relief funds; distribution of food, masks, personal protective equipment (PPE) kits; or providing relief material to the needy. About $1 billion was spent during March-May 2020 that was classified as CSR. The tally of eligible companies that spent on CSR in FY 2019 and duly reported it rose to 1,276, compared with 1,246 the previous fiscal and their total CSR spend increased by around 14 percent year on year. Over two-thirds of these spent 2 percent or more of their net profits. (Note: The Companies Act, 2013 mandates that companies spend an average of 2 percent of their average net profit of the preceding three fiscal years. End Note).

India does not adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. There are provisions to promote responsible business conduct throughout the supply chain.

India is not a member of Extractive Industries Transparency Initiative (EITI) nor is it a member of Voluntary Principles on Security and Human Rights.

Additional Resources

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
• North Korea Sanctions & Enforcement Actions Advisory

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor.
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

India is a signatory to the United Nation’s Conventions Against Corruption and is a member of the G20 Working Group against corruption. India, with a score of 40, ranked 86 among 180 countries in Transparency International’s 2020 Corruption Perception Index.

Corruption is addressed by the following laws: The Companies Act, 2013; the Prevention of Money Laundering Act, 2002; the Prevention of Corruption Act, 1988; the Code of Criminal Procedures, 1973; the Indian Contract Act, 1872; and the Indian Penal Code of 1860. Anti- corruption laws amended since 2004 have granted additional powers to vigilance departments in government ministries at the central and state levels and elevated the Central Vigilance Commission (CVC) to be a statutory body. In addition, the Comptroller and Auditor General is charged with performing audits on public-private-partnership contracts in the infrastructure sector based on allegations of revenue loss to the exchequer.

Other statutes approved by parliament to tackle corruption include:

The Benami Transactions (Prohibition) Amendment Act of 2016

The Real Estate (Regulation and Development) Act, 2016, enacted in 2017

The Whistleblower Protection Act, 2011 was passed in 2014 but has yet to be operationalized

The Companies Act of 2013 established rules related to corruption in the private sector by mandating mechanisms for the protection of whistle blowers, industry codes of conduct, and the appointment of independent directors to company boards. However, the government has not established any monitoring mechanism, and it is unclear the extent to which these protections have been instituted. No legislation focuses particularly on the protection of NGOs working on corruption issues, though the Whistleblowers Protection Act of 2011 may afford some protection once implemented.

In 2013, Parliament enacted the Lokpal and Lokayuktas Act, which created a national anti- corruption ombudsman and required states to create state-level ombudsmen within one year of the law’s passage. A national ombudsman was finally appointed in March 2019.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

India is a signatory to the United Nations Conventions against Corruption and is a member of the G20 Working Group against Corruption. India is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The Indian chapter of Transparency International was closed in 2019.

Resources to Report Corruption at the Embassy

Matt Ingeneri

Economic Growth Unit Chief U.S. Embassy New Delhi Shantipath, Chanakyapuri New Delhi +91 11 2419 8000 ingeneripm@state.gov

India is a multiparty, federal, parliamentary democracy with a bicameral legislature.  The president, elected by an electoral college composed of the state assemblies and parliament, is the head of state, and the prime minister is the head of government.  National parliamentary elections are held every five years.  Under the constitution, the country’s 28 states and eight union territories have a high degree of autonomy and have primary responsibility for law and order.  Electors chose President Ram Nath Kovind in 2017 to serve a five-year term.  Following the May 2019 national elections, Prime Minister Modi’s Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) received a larger majority in the lower house of Parliament, or Lok Sabha, than it had won in the 2014 elections and returning Modi for a second term as prime minister.   Observers considered the parliamentary elections, which included more than 600 million voters, to be free and fair, although there were reports of isolated instances of violence.

The government’s first 100 days of its second term were marked by two controversial decisions.  The removal of special constitutional status from the state of Jammu and Kashmir (J&K) and the passage of the Citizenship Amendment Act (CAA).  Protests followed the enactment of the CAA but ended with the onset of COVID-19 in March 2020 and the imposition of a strict national lockdown.  The management of COVID-19 became the dominant issue in 2020 including the drop in economic activity and by December 2020, economic activity started to show signs of positive growth.  The BJP-led government has faced some criticism for its response to the recent surge in COVID-19 cases.

Travelers to India are invited to visit the U.S. Department of State travel advisory website at: https://travel.state.gov/content/passports/en/country/india.html for the latest information and travel resources.

Although there are more than 20 million unionized workers in India, unions still represent less than 5 percent of the total work force. Most of these unions are linked to political parties. Unions are typically strong in state-owned enterprises. A majority of the unionized work force can be found in the railroads, port and dock, banking, and insurance sectors. According to provisional figures form the Ministry of Labor and Employment (MOLE), over 1.74 million workdays were lost to strikes and lockouts during 2018. Labor unrest occurs throughout India, though the reasons and affected sectors vary widely. A majority of the labor problems are the result of workplace disagreements over pay, working conditions, and union representation.

In an effort to reduce the number of labor related statutes, the Indian parliament passed the Code on Wages in 2019. During 2020, the parliament passed the Industrial Relations Code; the Occupational Safety, Health and Working Conditions Code; and the Code on Social Security. Along with the 2019 Code on Wages, the four codes harmonize and simplify India’s 29 existing labor laws with the aim of improving the business environment for both industry and workers. The changes expanded the potential use of contract labor, raised the threshold for small and medium sized enterprise exemptions from 100 to 300 employees, and expanded minimum wage and social security coverage to informal sector workers in agriculture and the growing gig economy, and gave employers greater hiring and firing flexibility. Details of the laws approved by parliament can be accessed at https://labour.gov.in/labour-law-reforms .

In March 2017, the Maternity Benefits Act was amended to increase the paid maternity leave for women from 12 weeks to 26 weeks. The amendment also made it mandatory for all industrial establishments employing 50 or more workers to have a creche for babies to enable nursing mothers to feed the child up to 4 times in a day.

In August 2016, the Child Labor Act was amended establishing a minimum age of 14 years for work and 18 years as the minimum age for hazardous work. In December 2016, the government promulgated legislation enabling employers to pay worker salaries through checks or e-payment in addition to the prevailing practice of cash payment.

There are no reliable unemployment statistics for India due to the informal nature of most employment. During the COVID-19 pandemic experts claimed the unemployment rate spiraled as people in the informal sector lost their jobs. The Centre for Monitoring Indian Economy (CMIE) reported that the average unemployment in the April-June period of 2020 was around 24 percent. during a stringent national lockdown imposed in response to COVID-19. As the lockdown was eased, CMIE estimated the unemployment rate during the August-October period improved to around 7.9 percent.

The government has acknowledged a shortage of skilled labor in high-growth sectors of the economy, including information technology and manufacturing. In response, the government established a Ministry of Skill Development and embarked on a national program to increase skilled labor.

The United States and India signed an Investment Incentive Agreement in 1997. This agreement covered the Overseas Private Investment Corporation (OPIC) and its successor agency, the U.S. International Development Finance Corporation (DFC). The DFC is the U.S. Government’s development finance institution, launched in December 2019, to incorporate OPIC’s programs as well as the Direct Credit Authority of the U.S. Agency for International Development. Since 1974 the DFC (under its predecessor agency, OPIC) has provided support to over 200 projects in India in the form of loans, investment funds, and political risk insurance.

As of March 2021, DFC’s current outstanding portfolio in India comprised more than $2.5 billion across 50 projects. These commitments were concentrated in renewable energy, financial services (including microfinance), and impact investments that include agribusiness and healthcare.

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data

From Top Five Sources/To Top Five Destinations (US Dollars, Millions) 

Cumulative FDI April 2000 to December 2020      

(in USD million)

Source: Inward FDI DIPP, Ministry of Commerce and Industry

Outward investments from India (April – November 2020)

(in USD millions)

Matt Ingeneri
Economic Growth Unit Chief
U.S. Embassy New Delhi
Shantipath, Chanakyapuri New Delhi
+91 11 2419 8000
IngeneriPM@state. gov 

Policies Towards Foreign Direct Investment

Foreign investment in New Zealand is generally encouraged without discrimination. New Zealand has an open and transparent economy. Some restrictions do apply in a few areas of critical interest including certain types of land, significant business assets, and fishing quotas. These restrictions are facilitated by a screening process conducted by the Overseas Investment Office (OIO), described in the next section.

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

The Labour Party-led government elected in 2017 and re-elected in 2020 has continued its program of tighter screening of some forms of foreign investment and has moved to restrict the availability of permits for oil and gas exploration. It has also focused on different aspects of trade agreement negotiation compared with the previous government, such as an aversion to investor-state dispute settlement provisions.

The implementation of the CPTPP has eased the criteria for partner nations to seek approval for certain investments in New Zealand by increasing the monetary threshold when government approval is required. This has also been triggered by New Zealand’s ‘most favored nation’ obligation in their FTA with China once the upgrade to the 2008 agreement enters into force. A separate bilateral agreement with Australia allows for its threshold to be reviewed each year and is significantly higher before triggering the need for approval. Separate agreements with Australia and Singapore exempt their respective citizens from restrictions introduced in 2018 on the purchase of New Zealand residential property by non-residents. In this respect in the absence of a similar free-trade agreement with New Zealand, certain investments by United States citizens can be subject to higher scrutiny.

In 2019 the OIO approved 139 overseas investment applications, up from 94 the previous year. Net investment increased slightly from NZD 3.5 billion (USD 2.3 billion) to NZD 3.8 billion (USD 2.5 billion) while the total value of assets of approved applications more than doubled to NZD 2.3 billion (USD 1.5 billion) in 2018 to NZD 5.2 billion (USD 3.4 billion) in 2019. Over 22,000 hectares [86.7 square miles; 55,500 acres] of land was sold, leased, or granted forestry rights from 119 approvals. In 2018 there were fewer approvals (64) securing more land area of almost 50,000 hectares [193.1 square miles; 123,600 acres].

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

Under certain conditions, foreign investors can bid alongside New Zealand businesses for contestable government funding for research and development (R&D) grants. For more see: https://www.mbie.govt.nz/science-and-technology/science-and-innovation/international-opportunities/new-zealand-r-d/ . Most of the programs which are operated by NZTE, the Ministry of Business, Innovation, and Employment (MBIE), and Callaghan Innovation, provide financial assistance, and support through skills and knowledge, or supporting innovative business ventures in the early stages of operation. For more see: https://www.business.govt.nz/how-to-grow/getting-government-grants/what-can-i-get-help-with/ .

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

The establishment of telecommunications infrastructure provider Chorus resulted from a demerger of provider Spark New Zealand Limited (Spark) in 2011. In 2019, Spark amended its constitution removing the requirement that half of the Spark Board be New Zealand citizens and in accordance with NZX Listing Rules, requires at least two directors be ordinarily resident in New Zealand.

Chorus owns most of the telephone infrastructure in New Zealand, and provides wholesale services to telecommunications retailers, including Spark. The demerger freed Spark from its foreign ownership restrictions allowing it to compete with other retail providers which do not have such restrictions. The foreign ownership restrictions apply to Chorus as a natural monopoly and infrastructure provider.

Chorus’s constitution requires at least half of its Board be New Zealand citizens. It requires no single shareholder may own more than 10 percent of the shares and no person who is not a New Zealand national may own more than 49.9 percent of the shares without the approval of the Minister of Finance. To date, approval has been granted to two private entities to exceed the 10 percent threshold, increasing their interest in Chorus up to 15 percent.

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

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

A “significant business asset” includes: acquiring 25 percent or more ownership or controlling interest in a New Zealand company with assets exceeding NZD 100 million (USD 65 million); establishing a business in New Zealand that will be operational more than 90 days per year and expected costs of establishing the business exceeds NZD 100 million; or acquiring business assets in New Zealand that exceed NZD 100 million.

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

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

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

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

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

The screening thresholds are significantly higher for Australian investors and are reviewed each year in accordance with the 2013 Protocol on Investment to the New Zealand-Australia Closer Economic Relations Trade Agreement. In the 2020 calendar year Australian non-government investors are screened at NZD 536 million (USD 348 million) and Australian government investors at NZD 112 million (USD 73 million).

New Zealand and the People’s Republic of China (PRC) concluded negotiations on an upgrade to their FTA in November 2019. A side letter confirms higher screening thresholds applicable to investments from the PRC in New Zealand significant business assets, following the entry into force of CPTPP. Due to New Zealand’s “Most Favored Nation” obligations in the existing 2008 bilateral FTA, PRC non-government investments in New Zealand significant business assets are screened at NZD 200 million (USD 130 million), and PRC government investments in New Zealand significant business assets are screened at NZD100 million (USD 65 million).

New Zealand screens overseas investment mainly for economic reasons but has legislation that outlines a framework to protect the national security of telecommunication networks. The Telecommunications (Interception and Security) Act 2013 (TICSA) sets out the process for network operators to work with the Government Communications Security Bureau (GCSB) – in accordance with Section 7 – to prevent, sufficiently mitigate, or remove security risks arising from the design, build, or operation of public telecommunications networks; and interconnections to or between public telecommunications networks in New Zealand or with networks overseas.

In 2019 as part of the second phase of overseas investment reform, the Government consulted on and released details for the addition of a National Interest test that will be added to the screening process to protect New Zealand assets deemed sensitive and “high-risk.” This will be discussed in the next chapter.

Other Investment Policy Reviews

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

Business Facilitation

The New Zealand government has shown a strong commitment to continue efforts to streamline business facilitation. According to the World Bank’s Ease of Doing Business 2020 report New Zealand is ranked first in “Starting a Business,” and “Getting Credit,” and is ranked second for “Registering Property.”

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

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

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

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

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

Tax registration is recommended when the investor incorporates the company with the Companies Office, but is required if the company is registering as an employer and if it intends to register for New Zealand’s consumption tax, the Goods and Services Tax (GST), which is currently 15 percent. Companies importing into New Zealand or exporting to other countries which have a turnover exceeding NZD 60,000 (USD 39,000) over a 12-month period or expect to pass NZD 60,000 in the next 12 months, must register for GST. Non-resident businesses that conduct a taxable activity supplying goods or services in New Zealand and make taxable supplies in New Zealand, must register for GST: https://www.ird.govt.nz/gst/registering-for-gst . From 2014, non-resident businesses that do not make taxable supplies in New Zealand have been able to claim GST if they meet certain criteria.

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

In 2016 mandatory GST registration was extended to non-resident suppliers of “remote services” to New Zealand customers, if they meet the NZD 60,000 annual sales threshold. In 2019 legislation was enacted that requires non-resident suppliers of “low-value” import goods destined for New Zealand to register for GST, if they meet the NZD 60,000 annual sales threshold. Both are discussed in a later section.

Outward Investment

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

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

Transparency of the Regulatory System

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

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

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

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

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

MBIE is responsible for the stewardship of 16 regulatory systems covering about 140 statutes. In 2018 the government introduced three omnibus bills that contain amendments to legislation administered by MBIE, including economic development, employment relations, and housing: https://www.mbie.govt.nz/cross-government-functions/regulatory-stewardship/regulatory-systems-amendment-bills/. The government’s objective with this package of legislation is to ensure that they are effective, efficient, and accord with best regulatory practice by providing a process for making continuous improvements to regulatory systems that do not warrant standalone bills. In November 2019, the Regulatory Systems (Economic Development) Amendment Act 2019 passed and amended about 14 Acts including laws regarding business insolvency, takeovers, trademarks, and limited partnerships.

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

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

The Resource Legislation Amendment Act 2017 (RLAA) is considered the most comprehensive set of reforms to the RMA. It contains almost 40 amendments and makes significant changes to five different Acts including the RMA and the Public Works Act (PWA) 1981. Its aim is to balance environmental management with the need to increase capacity for housing development and to align resource consent processes in a consistent manner among New Zealand’s 78 local councils, by providing a stronger national direction, a more responsive planning process, and improved consistency with other legislation. Further amendments to the RMA are expected during 2020 to reduce regulatory barriers to reduce the time for significant infrastructure projects to gain approval.

The PWA enables the Crown to acquire land for public works by agreement or compulsory acquisition and prescribes landowner compensation. New Zealand continues to face a significant demand for large-scale infrastructure works and the PWA is designed to ensure project delivery and enable infrastructure development. In December 2019 a NZD 12 billion (USD 7.8 billion) upgrade fund was announced, amounting to 4 percent of New Zealand’s GDP. Further funding was added in the Government’s Budget delivered in May 2020. Compulsory acquisition of private land is exercised only after an acquiring authority has made all reasonable endeavors to negotiate in good faith the sale and purchase of the owner’s land, without reaching an agreement. The landowner retains the right to have their objection heard by the Environment Court, but only in relation to the taking of the land, not to the amount of compensation payable. The RLAA amendment to the PWA aims to improve the efficiency and fairness of the compensation, land acquisition, and Environment Court objection provisions.

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

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

International Regulatory Considerations

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

The Privacy Bill which if enacted will repeal the existing Privacy Act 1993 aims to bring New Zealand privacy law into line with international best practice, including the 2013 OECD Privacy Guidelines and the European General Data Protection Regulation (GDPR).

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

In August 2019, the government passed the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Act to better align New Zealand’s financial markets law with new international regulations, to help strengthen the resilience of global financial markets. The Act amended several pieces of legislation relating to financial market regulation to help financial institutions maintain access to offshore funding markets and help ensure institutions – that rely on derivatives to hedge against currency and other risks – can invest and raise funds efficiently.

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

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

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

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

Legal System and Judicial Independence

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

Legislation to modernize and consolidate laws underpinning contracts and commercial transactions came into effect in September 2017. The Contract and Commercial Law Act 2017 consolidates and repeals 12 acts that date between 1908 and 2002. The Private International Law (Choice of Law in Tort) Act, passed in December 2017, clarifies which jurisdiction’s law is applicable in actions of tort and abolishes certain common law rules, and establishes the general rule that the applicable law will be the law of the country in which the events constituting the tort in question occur.

Laws and Regulations on Foreign Direct Investment

Overseas investments in New Zealand assets are screened only if they are defined as sensitive according to the definitions within the Overseas Investment Act 2005, as mentioned in the previous section. The OIO, a dedicated unit located within Land Information New Zealand (LINZ), administers the Act. The Overseas Investment Regulations 2005 set out the criteria for assessing applications, provide the framework for applicable fees, and criteria to determine if the investment will benefit New Zealand. Ministerial Directive Letters are issued by the Government to instruct the OIO on their general policy approach, their functions, powers, and duties as regulator. Letters have been issued in December 2010 and November 2017. Substantive changes, such as inclusion of another asset type within “sensitive land,” requires a legislative amendment to the Act. New Zealand companies seeking capital injections from overseas investors that require OIO approval, must meet certain criteria regarding disclosure to shareholders and fulfil other responsibilities under the Companies Act 1993.

The government ministers for finance, land information, and primary industries (where applicable) are responsible for assessing OIO recommendations and can choose to override OIO recommendations on approved applications. Ministers’ decisions on OIO applications can be appealed by the applicant in the New Zealand High Court. Ministers have the power to confer a discretionary exemption from the requirement for a prospective investor to seek OIO consent under certain circumstances. For more see: http://www.linz.govt.nz/regulatory/overseas-investment 

The OIO Regulations set out the fee schedule for lodging new applications which can be costly and current processing times regularly exceed six months. In recent years, some foreign investors have abandoned their applications, due to the costs and time frames involved in obtaining OIO consent.

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

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

In February 2020 New Zealand reported its first conviction under the Overseas Investment Act. The offender was charged for obstructing an OIO investigation which was initiated because he had not obtained OIO consent for his property purchase and for later submitting a fraudulent application.

In 2017 the Government announced a reform of the Overseas Investment Act shortly after being elected and has already implemented Phase 1 reforms with strengthened requirements for screening foreign investment in residential houses, building residential housing developments, and farmland acreage. Screening for investments in forestry were eased slightly to help meet the Government’s One Billion Tree policy. Phase 2 began in 2019 when the Government consulted on and released details for the introduction of a National Interest test to the screening process to protect New Zealand assets deemed sensitive and “high-risk.”

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

New rules reduced the area threshold for foreign purchases of rural land so that OIO approval is required for rural land of an area over five hectares, rather than the previous metric of farm land “more than ten times the average farm size,” which was about 7,146 hectares for sheep and beef farms, and 1,987 hectares for dairy farms. Foreign investors can still purchase rural land less than five hectares, but the government said it intends to introduce other measures to discourage “land bankers,” or investors holding onto land for speculative purposes.

The government issued new rules regarding residency for overseas investors intending to reside in New Zealand, that they move within 12 months and become ordinarily resident within 24 months.

In 2018, the Overseas Investment Amendment Act passed in order to help address housing affordability and reduce speculative behavior in the housing market. The 2005 Act was amended to bring residential land within the category of “sensitive land.” Residential land is defined as land that has a category of residential or lifestyle within the relevant district valuation roll; and includes a residential flat (apartment) in a building owned by a flat-owning company which could be on residential or non-residential land.

Since October 2018, the Overseas Investment Act generally requires persons who are not ordinarily resident in New Zealand to get OIO consent to purchase residential homes on residential land. Australian and Singaporean citizens are exempt due to existing bilateral trade agreements. To avoid breaching the Act, contracts to purchase residential land must be conditional on getting consent under the Act – entering into an unconditional contract will breach the Act. All purchasers of residential land (including New Zealanders) will need to complete a statement confirming whether the Act applies, and solicitors/conveyancers cannot lodge land transfer documents without that statement.

Overseas persons wishing to purchase one home on residential land will need to fulfil a “Commitment to Reside Test.” Applicants must hold the appropriate non-temporary visa (those on student visas, work visas, or visitor visas cannot apply), have lived in New Zealand for the immediate preceding 12 months and intend to reside in the property being purchased. If the applicant stops living in New Zealand they will have to sell the property. OIO applicants not intending to reside will generally need to show: (1) they will convert the land to another use and demonstrate this would have wider benefits to New Zealand; or (2) they will be adding to New Zealand’s housing supply. Applicants seeking approval under the latter – the “Increased Housing Test” – must intend to increase the number of dwellings on the property by one or more, and they cannot live in the dwellings once built (the “non-occupation condition”). Applicants must then on-sell the dwellings, unless they are building 20 or more new residential dwellings and they intend to provide a shared equity, rent-to-buy, or rental arrangement (the “On-Sale Condition”).

The Amendment also imposes restrictions on overseas persons buying into new residential property developments. Where pre-sales of the new residential dwellings are an essential aspect of the development funding, overseas purchasers may be able to rely on the “Increased Housing” Test, although they will be subject to the on-sale and non-occupation conditions. Otherwise, individual purchasers must apply for OIO consent and meet the “commitment to reside test,” or make their purchase conditional on receiving an “exemption certificate” held by an apartment developer. According to the OIO Regulations, developers can apply for an exemption certificate allowing them to sell 60 percent of the apartments “off the plan” to overseas buyers without those buyers requiring OIO consent but whom would have to meet the non-occupation condition.

Ministers may exercise discretion to waive the on-sale condition if an overseas person is applying for consent to acquire an ownership interest in an entity that holds residential land in New Zealand; if they are acquiring less than a 50 percent ownership interest; or if they are acquiring an indirect ownership interest, (e.g. through another entity). Exemptions can also apply for long-term accommodation facilities, hotel lease-back arrangements, retirement village developments, and for network utility companies needing to acquire residential land to provide essential services. Over 2019 the OIO issued several warnings and fines to overseas buyers of residential property who had failed to apply for OIO consent.

The Labour-led government formed after 2017 elections (reelected in 2020) indicated that forestry would be a priority in boosting regional development. In March 2018, the government announced forestry cutting rights be brought into the OIO screening regime, similar to the requirements for investment in leasehold and freehold forestry land. In addition to residential land, the Overseas Investment Amendment Act 2018 classified “forestry rights” within the asset class of “sensitive land.”

Overseas investors wanting to purchase up to 1,000 hectares of forestry rights per year or any forestry right of less than three years duration, do not generally require OIO approval.

Overseas investors can apply for consent to buy or lease land that is in forestry, or land to be used for forestry, or to buy forestry rights. In addition to meeting the “Benefit to New Zealand Test,” applicants wishing to buy or lease land for forestry purposes, convert farmland to forestry land, or purchase forestry rights, must meet either the “Special Forestry Test,” or the “Modified Benefits Test.”

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

The Modified Benefits Test is suitable for investors who will use the land only for forestry activities, but who cannot maintain existing arrangements relating to the land, such as public access. The investor would need to pass the Benefit to New Zealand Test, replant after harvest, and use the land exclusively or nearly exclusively for forestry activities.

By 2020 the OIO issued several warnings and fines to overseas investors purchasing forestry rights for failing to comply with conditions or failing to apply for OIO approval.

[Phase 2 Reforms]

In April 2019, the government signaled it would be considering a “national interest” restriction on foreign investment, and issued a document for public consultation, later agreeing upon New Zealand’s most strategically important assets in November. The government aims to bring New Zealand to apply a National Interest Test to overseas investors wishing to purchase New Zealand high-risk, sensitive or monopoly assets such as ports and airports, telecommunications infrastructure, electricity and other critical infrastructure.

Current legislation does not consider National Security or Public Order investments under NZD 100 million (USD 65 million).

A “call in” power would apply to the sale of New Zealand’s most strategically important assets, such as firms developing military technology and direct suppliers to New Zealand defense and security agencies. This will apply to assets not currently screened under the Overseas Investment Act. The tests could also be used to control investments in significant media entities if they are likely to damage New Zealand security or democracy.

Phase 2 includes other measures to protect New Zealand’s interests announced in November 2019, such as equipping the OIO with enhanced enforcement powers and increasing the maximum penalties for non-compliance NZD 300,000 (USD 195,000) to NZD 10 million (USD 6.5 million) for corporates. The legislation will also include a requirement that overseas investors in farmland show substantial benefit to New Zealand, by adding something substantially new or creating additional value to the New Zealand economy. In recognition of complaints regarding cost and time to gain OIO consent, the government will set specific timeframes to give investors greater certainty and exempt a range of low risk transactions, such as some involving companies that are majority owned and controlled by New Zealanders.

There has been controversy and concern about water extraction investment by overseas investors in New Zealand, particularly water bottling to export, earning overseas companies profits from a high-value New Zealand resource without paying a charge. Under Phase 2 the Government will require overseas investors in water extraction take into consideration the environmental, economic, and cultural impact of their investment, and its effect on local water quality and the overall sustainability of a water bottling enterprise.

In February 2020, Treasury released all documents online, including the Cabinet Paper that recommended the Phase 2 reform.

[Phase 2 Reforms – Fast-Tracked Legislation]

The Government of New Zealand was quick to recognize the risks posed by a COVID-19 recession and fast-tracked implementation of Overseas Investment Act (OIA) Phase 2 reforms, which went into effect on June 16. These reforms grant the government increased oversight and approval authority for foreign investments, which may have fallen in value during the pandemic, to protect critical infrastructure such as telecoms, ports, airports, and dual use/military related sensitive technology, as well as media.

The changes bring forward the introduction of a national interest test to strategically important assets, and the temporary application of that test to any foreign investments, regardless of dollar value that result in more than a 25 percent ownership interest, or that increases an existing interest to or beyond 50 percent, 75 percent or 100 percent in a New Zealand business.

This includes purchases by “fundamentally New Zealand companies” and small changes in existing shareholdings. In addition, the Government will use regulations to extend existing exemptions and remove screening from two further classes of low risk lending and portfolio management transactions.

In addition, as of March 22, 2021, the “New Investor Test” is in force which includes Twelve character and capability factors including a review for convictions resulting in imprisonment, penalties for tax evasion, corporate fines, and civil pecuniary penalties. The test is satisfied when none of these factors are established or, if a factor is met, the decision-maker is satisfied that this does not make an investor unsuitable to own or control a sensitive New Zealand asset.

[Non-OIO Legislation Governing Foreign Investment]

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

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

In November 2018, the government passed the Crown Minerals (Petroleum) Amendment Act, to stop new exploration permits being granted offshore and onshore outside of the Taranaki province on the west coast of the North Island. The policy is part of the government’s efforts to transition away from fossil fuels and achieve their goal to have net zero emissions by 2050. The annual Oil and Gas Block Offers program has been operational since 2012 to raise New Zealand’s profile among international investors in the energy and mining sector and has been a significant source of government revenue.

There are currently about 20 offshore permits covering 38,000 square miles that will have the same rights and privileges as before the law came into force and will continue operation until 2030. If those permit holders are successful in their exploration, the companies could extract oil and gas from the areas beyond 2030.

Competition and Anti-Trust Laws

The Commerce Act 1986 prohibits contracts, arrangements, or understandings that have the purpose, or effect, of substantially lessening competition in a market, unless authorized by the Commerce Commission, an independent Crown entity. Before granting such authorization, the Commerce Commission must be satisfied that the public benefit would outweigh the reduction of competition. The Commerce Commission has legislative power to deny an application for a merger or takeover if it would result in the new company gaining a dominant position in the New Zealand market.

In addition, the Commerce Commission enforces certain pieces of legislation that, through regulation, aim to provide the benefits of competition in markets with certain natural monopolies, such as the dairy, electricity, gas, airports, and telecommunications industries. In order to monitor the changing competitive landscapes in these industries, the Commerce Commission conducts independent studies, currently including fiber networks (https://comcom.govt.nz/regulated-industries/telecommunications/regulated-services/fibre-regulation/fibre-services-study ), mobile phones (https://comcom.govt.nz/regulated-industries/telecommunications/projects/mobile-market-study ), and retail petrol (https://comcom.govt.nz/about-us/our-role/competition-studies/market-study-into-retail-fuel ).

The Commerce Amendment Act of 2018 empowers the Commerce Commission to undertake market (“competition”) studies where this is in the public interest in order to improve the agency’s enforcement actions without having to go to court. The Government introduced a market studies power to align the Commerce Commission with competition authorities in similar jurisdictions. The Act allows settlements to be registered as enforceable undertakings so breaches can be quickly penalized by the courts and saves the Commission from the expense and uncertainty of litigation. The amendment also strengthens the information disclosure regulations for airports.

The Dairy Industry Restructuring Act of 2001 (DIR) established dairy co-operative Fonterra Co-operative Group Limited (Fonterra). The DIR is designed to manage Fonterra’s dominant position in the domestic dairy market, until sufficient competition has emerged. A review by the Commerce Commission in 2016 found competition insufficient, but the findings from a subsequent review in 2018 resulted in the introduction of the DIR Amendment Bill (No 3) which passed its first reading in August 2019, and was advanced to the Select Committee stage for scrutiny on March 20, 2020.

This amendment, if passed, will ease the requirement that Fonterra accept all milk from new suppliers, allowing the cooperative the option to refuse milk if it does not meet environmental standards or if it comes from newly converted dairy farms. The bill would also limit Fonterra’s discretion in calculating the base milk price.

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

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

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

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

Radio Spectrum Management (RSM) is a business unit within MBIE that is responsible for providing advice to the government on the allocation of radio frequencies to meet the demands of emerging technologies and services. Spectrum is allocated in a manner intended to ensure that radio spectrum provides the greatest economic and social benefit to New Zealand society. The allocation of spectrum is a core regulatory issue for the deployment of 5G in New Zealand. The Commerce Commission completed a two-year study in September 2019 of mobile network operators (MNOs) in New Zealand in order to assess the process for 5G spectrum allocation and whether it will impact the ability of new mobile network operators to enter the market. It found no case to support regulatory intervention to promote a fourth national MNO to enter the market, but that the spectrum allocation process should not preclude new parties from obtaining spectrum.

In March 2019, the government announced it freed up space on the spectrum for a fourth mobile network operator to compete with the three existing ones. In order to do so, the three existing operators lost parts of their spectrum, for which sources criticized the government, claiming they supported competition in principle but questioned the ability of the New Zealand market to cope with another operator. The Government claims it needs to keep some of that spectrum in reserve to retain flexibility and it might be used for new technologies or by the emergency services network.

The Government’s first auction of 5G spectrum planned for 2020 – and ready for use by November 2022 – was cancelled in May 2020 due to the COVID-19 pandemic. The Government directly allocated spectrum to the three MNOs, with these rights expiring in October 2022 after which the scheme will switch to long-term rights that will be gained in a separate auction process. The government determined the allocations in such a way as to prevent a single operator to prevent monopolistic behavior, but it also to set aside spectrum to deal with potential Treaty of Waitangi issues. Vodafone announced in February 2021 Vodafone that they were the first telco in New Zealand to stage a widespread 5G fixed-wireless access 5G launch. New Zealand telecom 2degress announced on April 14, 2021 it has selected Ericsson as its partner for a 5G RAN (Radio Access Network) and Core nationwide network launch.

The Commerce Commission has a regulatory role to promote competition within the electricity industry under the Commerce Act 1986 and the Fair Trading Act 1986. As natural monopolies, the electricity transmission and distribution businesses are subject to specific additional regulations, regarding pricing, sales techniques, and ensuring sufficient competition in the industry. The Commerce Commission completed a project in March 2020 that set the default price-quality path to determine the price caps that will apply to the 17 electricity distributors in New Zealand from April 1, 2020 to March 31, 2025. Due to increased expenditure for distributors to accommodate new technology, the Commerce Commission also recommended new recoverable costs to incentivize ongoing innovation in the electricity sector.

The New Zealand motor fuel market became more concentrated after Shell New Zealand sold its transport fuels distribution business in 2010 and Chevron sold its retail brands Caltex and Challenge in 2016 to New Zealand fuel distributor Z-Energy. Z-Energy holds almost half of the market share in New Zealand. A two-year study by the Commerce Commission was completed in December 2019 that evaluated whether competition in the retail fuel market is promoting outcomes that benefit New Zealand consumers over the long-term. They found that the lack of an active wholesale market in New Zealand has weakened price competition in the retail market and that the major fuel companies’ joint infrastructure network and supply relationships gave them an advantage over other fuel importers. The wholesale supply relationships, including restrictive contract terms between the majors and resellers, limits the ability of resellers to switch supplier.

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

The Commerce (Criminalization of Cartels) Amendment Act was passed in April 2019 to align New Zealand law with other jurisdictions – particularly Australia – by criminalizing cartel behavior. Individuals convicted of engaging in cartel conduct – price fixing, restricting output, or allocating markets – will face fines of up to NZD 500,000 (USD 325,000) and/or up to seven years imprisonment. For companies, the fines can be up to NZD 10 million (USD 6.5 million), or higher based on turnover. Business have been given two years to ensure compliance before the criminal sanctions enter into force. While not a significant issue in New Zealand, the government believes criminalizing cartel behavior provides a certain and stable operating environment for businesses to compete, and aligns New Zealand with overseas jurisdictions that impose criminal sanctions for cartel conduct, enhancing the ability of the Commerce Commission to cooperate with its overseas counterparts in investigations of international cartels.

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

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

In May 2020, the Commerce Commission issued guidance easing restrictions on businesses to collaborate in order to ensure the provision of essential goods and services to New Zealand consumers during the COVID-19 pandemic.

Expropriation and Compensation

Expropriation is generally not an issue in New Zealand, and there are no outstanding cases. New Zealand ranks second in the World Bank’s 2020 Doing Business report for “registering property” and third for “protecting minority investors.”

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

The lack of precedent for due process in the treatment of residents affected by liquefaction of residential land caused by the Canterbury earthquake in 2011 resulted in prolonged court cases against the Government based largely on the amount of compensation offered to insured home and/or land owners and the lack of any compensation for uninsured owners. Several large areas of residential land in Christchurch were deemed Residential Red Zones (RRZ) meaning there had to be significant and extensive area wide land damage, the extent of the damage required an area-wide solution, engineering solutions would be uncertain, disruptive, not timely, and not cost-effective. One offer made by the government to uninsured Christchurch RRZ landowners for 50 percent of the rated value of their property was deemed unlawful in the Court of Appeal in 2013. A later offer was made by the government to uninsured residents, but only for the value of their land and not their house.

In 2018, the government opted to settle with a group of uninsured home and landowners, but some objected to the compensation because it was based on 2007/08 rating valuations. There were also reports some insurance companies paid out less to policy holders than the full value of some houses if they found based on the structural characteristics of the house that it was repairable, even though the repairs would be legally prohibited if in the RRZ.

LINZ currently manages Crown-owned land in the RRZ and can temporarily agree short-term leases of this land under the Greater Christchurch Regeneration Act 2016 but does not make offers to buy properties from RRZ residents. From June 2020 ownership and management of the land is progressively transitioning from the Crown back to the Christchurch City Council, according to the terms under an agreement made in September 2019 and to be legislated as an amendment to the 2016 Act. LINZ must review the interests of each of the 5,500 titles in the RRZ to check if anyone has rights to the land, such as an easement, a covenant, or a mortgage. For more see: https://www.linz.govt.nz/crown-property/types-crown-property/christchurch-residential-red-zone .

Dispute Settlement

ICSID Convention and New York Convention

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

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

Investor-State Dispute Settlement

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

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

International Commercial Arbitration and Foreign Courts

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

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

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

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

The Arbitration Amendment Act 2016 empowered the Minister of Justice to create an “appointed body” to exercise powers which were previously powers of the High Court. It also provides for the High Court to exercise the powers if the appointed body does not act, or there is a dispute about the process of the appointed body. The Minister of Justice has appointed the AMINZ the default authority for all arbitrations sited in New Zealand in place of the High Court. In 2017 AMINZ issued its own Arbitration Rules based on the latest editions of rules published in other Model Law jurisdictions, to be used in both domestic and international arbitrations, and consistent with the 1996 Act.

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

Bankruptcy Regulations

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

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

The Insolvency and Trustee Service (the Official Assignee’s Office) is a business unit of MBIE. The Official Assignee is appointed under the State Sector Act of 1988 to administer the Insolvency Act of 2006, the insolvency provisions of the Companies Act of 1993 and the Criminal Proceeds (Recovery) Act of 2009. The Official Assignee administers all bankruptcies, No Asset Procedures, Summary Installment Orders, and some liquidations by collecting and selling assets to repay creditors. The bankrupt or company directors will be asked for information to help identify and deal with the assets. The money recovered is paid to creditors who have made a claim, in order according to the relevant Acts. Creditors can log in to the Insolvency and Trustee Service website to track the progress of their claim and how long it is likely to take.

In the World Bank’s Doing Business 2020 Report New Zealand slipped in the rankings for “resolving insolvency” from 31st last year to 36th. Despite a high recovery rate (79.7 cents per dollar compared with 70.2 cents for the average across high-income OECD countries), New Zealand scores lower based on the strength of its insolvency framework. Specific weaknesses identified in the survey include the management of debtors’ assets, the reorganization proceedings, and the participation of creditors.

The government has recognized the need for more insolvency law reform beyond the 2006 Act which repealed the Insolvency Act 1967. The Regulatory Systems (Economic Development) Amendment Act which passed in November 2019 included amendments to the Insolvency Act that strengthened some regulations and assigned more powers to the Official Assignee. After the previous government established an Insolvency Working Group in 2015, MBIE published a proposed set of reforms in November 2019, based on the group’s recommendations from 2017. The current government plans to introduce an insolvency law reform bill in early 2020. The omnibus COVID-19 Response (Further Management Measures) Legislation Bill passed on May 15, 2020, included provisions to provide temporary relief for businesses facing insolvency, and exemptions for compliance, due to the COVID-19 pandemic.

Investment Incentives

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

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

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

The government does not have a state policy on issuing guarantees on foreign direct investment projects. It provides some opportunities and initiatives for overseas investors to apply for joint financing mainly if the projects involve R&D, science and innovation that will ultimately benefit the New Zealand economy.

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

The government of New Zealand does not maintain any measures that are alleged to violate the Trade Related Investment Measures text in the WTO. There are no government mandated requirements for company performance or local employment, and foreign investors that do not require OIO approval are treated equally with domestic investors. Overseas investors that require OIO approval must comply with legal obligations governing the OIO and the conditions of its approval including: satisfying the benefit to New Zealand test through local employment, using domestic content in goods, or promising the introduction of a new technology to New Zealand.

Investors requiring OIO approval also must maintain “good character” and meet reporting requirements. Investors are generally required to report annually to the OIO for up to five years from consent, but if benefits are expected to occur after that five-year period, monitoring will reflect the time span within which benefits will occur. Failure to meet obligations under the investors’ consent can result in fines, court orders, or forced disposal of their investment. A government-commissioned independent review in 2016 found the good character test to be robust after questions were asked whether it was being used consistently and accurately.

In 2019, the New Zealand High Court imposed civil penalties on a director for breaching the good character conditions of his company’s consent when it bought a controlling interest (50.2 percent) in New Zealand’s largest agricultural services company in 2011. The breach arose because the director was investigated by the United States Securities and Exchange Commission (SEC) and found to have violated United States securities law. As part of the settlement reached with the OIO, the director’s company agreed to divest its interest in the company below 50 percent (to 46.5 percent).

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

As part of the KIWI Act U.S. Public Law 115-226, enacted on August 1, 2018, accorded nationals of New Zealand to E-1 and E-2 status for treaty trader/treaty investor purposes if the Government of New Zealand provides similar nonimmigrant status to nationals of the United States. The State Department confirmed that New Zealand offers similar nonimmigrant status to U.S. nationals and E visas may be issued to nationals of New Zealand beginning on June 10, 2019. See https://travel.state.gov/content/travel/en/us-visas/visa-information-resources/fees/treaty.html#16

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

Under CPTPP, the New Zealand government has retained the ability to maintain and amend regulations related to data flows with CPTPP countries, but in such a way that does not create barriers to trade. These rules come with a “public policy safeguard”, which gives CPTPP governments the discretion to control the movement and storage of data for legitimate public policy objectives to ensure governments can respond to the changing technology in areas such as privacy, data protection, and cybersecurity.

As part of CPTPP, New Zealand has committed not to impose ‘localization requirements’ that would force businesses to build data storage centers or use local computing facilities in CPTPP markets. Another provision requires CPTPP countries not to impede companies delivering cloud computing and data storage services.

New Zealand is considering e-commerce issues in trade agreements beyond CPTPP, including upgrades of existing FTAs, and in January 2019 joined other WTO members to launch negotiations on E-Commerce.

The Digital Economy Partnership Agreement (DEPA), which came into effect on January 7, 2021 for Singapore, New Zealand, and Chile, includes a series of modules covering measures that affect the digital economy. Module 4 on Data Issues includes binding provisions on personal data protection and cross-border data flows that build on the CPTPP. In addition to the CPTPP obligations, DEPA encourages the adoption of data protection trust-marks for businesses to verify conformance with privacy standards. The agreement is an open plurilateral one that allows other countries to join the agreement as a whole, select specific modules to join, or replicate the modules in other trade agreements.

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

In March 2018, the government introduced the Privacy Bill to repeal and replace the Privacy Act 1993. The bill received Royal Assent to come into effect on June 30, 2020, and aims to strengthen the protection of confidential and personal information and modernize privacy regulations. It incorporate provisions included in the European General Data Protection Regulation (GDPR) but is not in strict alignment with the GDPR.

The provisions apply to all actions by a New Zealand agency regardless of where that agency is located, and apply to all personal information collected or held by a New Zealand agency regardless of where that information is collected or held, or where the relevant individual is located.

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

For most businesses, the most notable change in the new Act is the introduction of a requirement to report serious privacy breaches. Notifiable privacy breaches will require organizations to notify the Privacy Commissioner and any affected individuals if there is a breach that has caused serious harm or poses a risk of causing someone serious harm. In March 2020, an amendment to the bill was proposed to all the new legislation apply from November 1, 2020.

A provision affecting cloud service providers places the onus of liability for privacy breaches on the customer, as long as the provider is not using or disclosing that customer’s information for its own purposes. The Search and Surveillance Act 2012 includes powers to search and notification requirements of search power in connection to a “remote access search” defined in the Act as a search of a thing such as an Internet data storage facility that does not have a physical address that a person can enter and search. Such mandatory demands as mentioned are legal obligations that must be complied with and are made under a search warrant. The Privacy Act permits disclosure in such a case. The organization can only disclose the information requested and any excess information provided will be in breach of the Privacy Act unless it is able to be provided as part of a voluntary request.

New Zealand does not have any requirements for foreign information technology (IT) providers to turn over source code or provide access to encryption. There may be obligations on individuals to assist authorities under Section 130 of the Search and Surveillance Act 2012. An agency with search authority in terms of data held in a computer system or other data storage device may require a specified person to provide access information that is reasonable to allow the agency exercising the search power to access that data. This could include a requirement that they decrypt information which is necessary to access a particular device. The search power cannot be used to require the specified person to give information intending to incriminate them. Failure to assist a person exercising a search power under section 130(1), without reasonable excuse, is a criminal offence punishable with imprisonment for up to three months.

The Customs and Excise Act 2018 sets specific legal thresholds for Customs officers to search passengers’ electronic devices and imposes a fine of NZD 5,000 (USD 3,250) if they refuse to hand over passwords, pins, or encryption keys to access the device. The officer must have “reasonable cause to suspect,” that the passenger has been or is about to be involved in the commission of relevant offending.

There is not a particular government agency that enforces all privacy law, however the Office of the Privacy Commissioner is empowered through the Privacy Act 1993 and has a wide ability to consider developments or actions that affect personal privacy. Separately, New Zealand courts have developed a privacy tort allowing individuals to sue another for breach of privacy.

Real Property

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

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

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

Foreign and domestic lessees can gain freehold title over part of the land under a voluntary process known as tenure review. Under this process, specified land areas of the lease can be restored to full Crown ownership, usually to be managed by the Department of Conservation. However, in February 2019 the government announced an end to tenure review because it has resulted in more intensive farming and subdivision on the 353,000 hectares of freehold land which has been affecting the landscape and biodiversity of the land. With tenure review ending, the remaining Crown pastoral lease properties, currently 171 covering 1.2 million hectares of Crown pastoral land which is just under 5 percent of New Zealand’s land area, will continue to be managed under the regulatory system for Crown pastoral lands. In April 2019 there had been 2,500 submissions for feedback to the government on the future management of the South Island high country.

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

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

Mortgages and liens are available in New Zealand. There is no permanent government policy as such that discriminates lending to foreigners. However, the Reserve Bank of New Zealand (RBNZ) introduced a macro-prudential tool as a means to curb rising house prices. In October 2013, the RBNZ introduced temporary loan-to-valuation ratio restrictions on banks’ lending to (domestic and foreign) investors and owner-occupiers wanting to purchase residential housing. During 2018 and 2019 the RBNZ began easing these lending restrictions on banks.

In April 2020, the RBNZ announced a 12-month suspension of these restrictions on banks’ lending to investors and owner-occupiers to apply from May 1, in order to improve the equity positions of mortgage borrowers, so that fewer borrowers will have to sell their house or default on their mortgage as a result of the COVID-19 crisis.

A registered memorandum of mortgage is the usual form used to create a lien on real estate to secure an indebtedness. There is no mortgage recording or mortgage tax in New Zealand. However, since October 2018 all non-resident purchasers must complete a Residential Land Statement declaring they are eligible to buy residential property in New Zealand, before signing any sale and purchase agreement.

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

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

Intellectual Property Rights

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

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

The New Zealand Government announced its intention to join the Marrakesh Treaty in June 2017 and the Copyright (Marrakesh Treaty Implementation) Amendment Act entered into force January 4, 2020. It amends the Copyright Act 1994 and the Copyright (General Matters) Regulations 1995 to implement New Zealand’s obligations under the Marrakesh Treaty. The legislation is administered by MBIE.

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

The government is reviewing the Copyright Act 1994 in light of significant technological changes since the last review in 2004. New Zealand had agreed to tougher IPR and copyright protections under the TPP agreement, but the CPTPP suspended some of the original TPP copyright obligations, such as increasing rights protection from 50 years to 70 years; requiring stronger protection for technological protection measures (TPMs) which act as “digital locks” to protect copyright work; nor alter its internet service provider liability provisions for copyright infringement.

In November 2018, MBIE, which administers the Act, released a 135-page Issues Paper which summarizes the operation of the New Zealand copyright regime, its shortcomings, and the wide range of issues that need to be addressed. MBIE is reviewing the issues raised from the public consultation which closed in April 2019. For more see: https://www.mbie.govt.nz/business-and-employment/business/intellectual-property/copyright/review-of-the-copyright-act-1994/ 

New Zealand has amended some legislation to comply with obligations under CPTPP. Customs New Zealand has authority to temporarily detain imported or exported goods that it suspects infringe copyright or trademarks and to inspect and detain any goods in its control that are suspected of being pirated. The New Zealand High Court has been empowered to award additional damages for trademark infringement, and unless exceptional circumstances exist, the courts must order the destruction of counterfeit goods. This is in addition to the existing availability of compensatory damages under the Trade Marks Act 2002.

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

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

The Smoke-free Environments (Tobacco Standardized Packaging) Amendment Act 2016 and from June 2018, all tobacco packets are required to be the same standard dark brown/green background color as Australia from June 2018. It requires the removal of all tobacco company marketing imagery. The Smoke-free Environments Regulations 2017 standardize the appearance of tobacco manufacturers’ brand names.

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

In June 2019, MBIE released a discussion paper regarding a proposed Intellectual Property Laws Amendment Bill. The omnibus bill intends to make technical amendments to the Patents Act 2013, the Trade Marks Act 2002, the Designs Act 1953, and their associated regulations. The Bill is not intended to be a full policy review of these Acts, or to review the criteria for granting patents, or registering trademarks and designs. For more see: https://www.mbie.govt.nz/business-and-employment/business/intellectual-property/proposed-intellectual-property-laws-amendment-bill 

New Zealand currently provides data exclusivity of five years from the date of marketing approval for a new pharmaceutical under Section 23B of the Medicines Act 1981. Data protection on pharmaceuticals applies from the date of marketing approval, regardless of whether it is granted before or after the expiration of the 20-year patent.

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

In 2019, MFAT released a discussion paper on proposed changes to New Zealand’s regulatory framework for protecting GIs as part of New Zealand’s free trade agreement negotiations with the European Union (EU). The EU has proposed that New Zealand adopt a regulatory framework for protecting GIs that is similar to the existing EU framework. The discussion paper, jointly prepared by MFAT and MBIE, outlines the EU’s proposals for protecting GIs and seeks public submissions until March 27, 2020. IF the EU framework is accepted it would require significant changes to New Zealand’s existing laws protecting GIs. For more see: https://www.mfat.govt.nz/en/trade/free-trade-agreements/agreements-under-negotiation/eu-fta/geographical-indications/ 

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

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

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

Capital Markets and Portfolio Investment

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

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

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

The RBNZ is the prudential regulator and supervisor of all insurers carrying on insurance business in New Zealand and is responsible for administering the Insurance (Prudential Supervision) Act 2010. The RBNZ administers the Act to promote the maintenance of a sound and efficient insurance sector; and promoting public confidence in the insurance sector.

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

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

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

In December 2019, the government introduced the Financial Market Infrastructure Bill to establish a new regulatory regime for financial market infrastructures (FMI), and to provide certain FMIs with legal protections relating to settlement finality, netting, and the enforceability of their rules. The bill aims to maintain a sound and efficient financial system; avoid significant damage to the financial system resulting from problems with an FMI, an operator of an FMI, or a participant of an FMI; promote the confident and informed participation of businesses, investors, and consumers in the financial markets; and promote and facilitate the development of fair, efficient, and transparent financial markets. The bill if passed would be administered jointly by the RBNZ and the FMA. The bill passed its first reading in February 2020 and is with the select committee.

In 2018, the market capitalization of listed domestic companies in New Zealand was 42 percent of GDP, at USD 86 billion. The small size of the market reflects in part the risk averse nature of New Zealand investors, preferring residential property and bank term deposits over equities or credit instruments for investment. New Zealand’s stock of investment in residential property is valued at NZD 1.19 trillion (USD 774 billion).

Money and Banking System

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

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

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

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

In addition to registered banks, the RBNZ supervises and regulates insurance companies in accordance with the Insurance (Prudential Supervision) Act of 2010 and non-bank lending institutions. Non-bank deposit takers are regulated under the Non-bank Deposit Takers Act of 2013.

New Zealand has no permanent deposit insurance scheme and the RBNZ has no requirement to guarantee the viability of a registered bank. The RBNZ operates the Open Bank Resolution (OBR) which allows a distressed bank to be kept open for business, while placing the cost of a bank failure primarily on the bank’s shareholders and creditors, rather than on taxpayers. While the scheme has been generally successful, in 2010 the government paid out NZD 1.6 billion (USD 1 billion) to cover investor losses when New Zealand’s largest locally-owned finance company at the time, went into receivership. There have since been bailouts of several insurance companies and other small finance companies.

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

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

The RBNZ reports the total assets of registered banks to be about NZD 631 billion (USD 410 billion) as of March 2020. Assets of insurance companies’ assets were valued at NZD 81 billion (USD 53 billion) and NZD 14.4 billion (USD 9.4 billion) for non-bank lending institutions. The RBNZ estimates approximately 0.6 percent of bank loans are non-performing. Agriculture loans make up about 13 percent of bank lending and has seen higher rates of non-performing loans – particularly dairy farms – in 2019. The RBNZ expect non-performing to rise again having recovered only in the past few years from the Global Financial Crisis.

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

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

In December 2019, the RBNZ announced the minimum total capital ratio will increase from 10.5 percent currently to 18 percent for the four largest banks, and 16 percent for the smaller local banks. For the largest banks, at least 16 percent must consist of tier 1 capital, and within this at least 13.5 percent must be common equity. For the small banks, the requirements are 14 percent and 11.5 percent respectively. Debt instruments that can be converted to equity will no longer count towards regulatory capital. However, banks will able to make greater use of redeemable preference shares. Initially in order to give the banks time to accumulate capital through retained earnings the changes were to be phased in over a seven-year period starting from July 2020. The RBNZ has delayed the introduction until July 1, 2021 due to the COVID-19 pandemic.

The penetration of New Zealand’s major banks has improved since the introduction of the voluntary superannuation scheme, KiwiSaver in 2007. The increase in their market share is also a result of the appointment of three additional banks as default KiwiSaver providers in 2014. People who start a new job are automatically enrolled in KiwiSaver and must opt-out if they do not want to be a member. Contributions are made by the employee, the employer and if eligible from the government in the form of a tax credit. At the start of 2021 there were more than 3 million KiwiSaver members, and the amount invested in KiwiSaver schemes is estimated to be NZD 62 billion (USD 40.3 billion). While funds can only be withdrawn at the age of 65 with very few exceptions, members can shift their funds. Over the course of 2020 as markets dropped, KiwiSavers shifted NZD 1.5 billion (USD 975 million) from share-heavy funds to cash or conservative funds.

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

Foreign Exchange and Remittances

Foreign Exchange

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

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

Remittance Policies

The Pacific Islands are the main destination of New Zealand remittances from residents and from temporary workers participating in the Recognized Seasonal Employer (RSE) scheme. The RSE allows the horticulture and viticulture industries to recruit workers from nine Pacific Island nations for seasonal work when there are not enough New Zealand workers. Other people who use remittance services include recently resettled refugees, and other migrant workers particularly in the hospitality and construction sectors.

Anti-money laundering and combatting terrorism financing laws have made access to cross-border financial services difficult for some Pacific island countries. Banks, non-bank institutions, and people in occupations that typically handle large amounts of cash, are required to collect additional information about their customers and report any suspicious transactions to the New Zealand Police.

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

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

The New Zealand Treasury released a report in March 2017 to explore feasible policy options to address the issues in the New Zealand remittance market that would maintain access and reduce costs of remitting money from New Zealand to the Pacific. In 2018, the New Zealand and Australian governments hosted a series of roundtable meetings in Auckland, Sydney, and Tonga, with the Asian Development Bank and the International Monetary Fund that included officials from banks, MTOs, and regulators from Australia, New Zealand, and the Pacific, senior officials from international financial institutions, and training providers to discuss the issue and identify practical solutions to address the costs and risks of transferring remittances to Pacific countries and difficulties in undertaking cross-border transactions.

Barriers to remittances to Pacific nations remain a significant public policy issue during 2019, and work is underway led by MFAT and involving financial regulators in New Zealand and overseas, to address some of these barriers. A pilot of a Know Your Customer and Customer Due Diligence Utility is being planned for remittances between Samoa, Australia and New Zealand.

Sovereign Wealth Funds

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

The Act also created the Guardians of New Zealand Superannuation, a Crown entity charged with managing and administering the fund. It operates by investing government contributions and the associated returns in New Zealand and internationally, in order to grow the size of the fund over the long term. Between 2003 and 2009, the government contributed NZD 14.9 billion (USD 9.7 billion) to the fund, after which it temporarily halted contributions during the Global Financial Crisis. In December 2017, the newly elected government resumed contributions, with plans to resume contributions to the full amount according to the formula set out in the 2001 Act from 2022. The Fund received an estimated NZD 500 million (USD 325 million) payment in the year to June 2018, and a NZD 1 billion (USD 650 million) contribution in the year to June 2019.

Planned contributions for the year to June 2020 will be NZD 1.5 billion (USD 975 million) according to Budget 2020 announced in May. This increases to NZD 2.1 billion (USD 1.4 billion) in the year to June 2021 and NZD 2.4 billion (USD 1.6 billion) in the year to June 2022. The legislated formula suggests lower contributions be made due to the impact of COVID-19 on GDP forecasts. Between fiscal years 2019/20 and 2022/23, Budget 2020 transfers small amounts of the capital contributions to a new fund administered by the Guardians of New Zealand Superannuation, which will invest via the New Zealand Venture Investment Fund Limited (NZVIF). The government has not indicated it will suspend its contributions during the economic impact of the pandemic.

In June 2019, the fund was valued at NZD 43.1 billion (USD 28 billion) of which 48.8 percent was in North America, 17.3 percent in Europe, 12.9 percent in New Zealand, 10.9 percent in Asia excluding Japan, 6 percent in Japan, and 1.6 percent in Australia. During 2018/19 the fund earned a pre-tax return of 7 percent. In the first four months of 2020, the fund made losses of NZD 4.6 billion (USD 3 billion).

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

The fund operates its own environmental, social, and governance principles with a responsible investment framework. Companies that are directly involved in the following activities are excluded from the Fund: the manufacture of cluster munitions, testing of nuclear explosive devices, and anti-personnel mines; the manufacture of tobacco; the processing of whale meat; recreational cannabis; and the manufacture of civilian automatic and semi-automatic firearms, magazines or parts. As of December 2019, the fund does not make investments in 14 countries, mainly located in Africa and the Middle East.

Following the attack on two Christchurch mosques by a gunman using legally obtained guns on March 15, the fund divested NZD 19 million (USD 13 million) from seven companies (including four U.S. companies), involved in the manufacture of civilian automatic and semi-automatic firearms, magazines or parts that are prohibited under recently enacted New Zealand law. Due to the live-stream of the attack the NZSF announced on March 20, 2019 it had joined up with other New Zealand wealth funds as a shareholder of Facebook, Twitter, and YouTube owner Alphabet, to strengthen controls to prevent the live-streaming of objectionable content. The NZSF aims to achieve this from the collective action of New Zealand’s investor sector with a global coalition of shareholders as well as the pressure put on the companies by other stakeholder groups. The NZSF will undertake discussions with the companies concerned in confidence and will report on milestones achieved in future Annual Reports. For further information including a full list of participants see: https://www.nzsuperfund.nz/how-we-invest/ 

In recent years the NZSF has explicitly excluded companies that are directly involved in the manufacture of: cluster munitions, testing of nuclear explosive devices, anti-personnel mines, tobacco, recreational cannabis, and the processing of whale meat. In 2013, the fund divested a group of five U.S. companies due to their involvement with nuclear weapons. In 2007, the fund divested NZD 37.6 million (USD 24.4 million) in 20 tobacco companies.

In June 2017, the fund transitioned NZD 14 billion (USD 9 billion) passive global equity portfolio (constituting 40 percent of the fund) to low carbon, selling passive holdings in 297 companies worth NZD 950 million (USD 617 million). The aim of the Climate Change Investment Strategy is to reduce exposure to investments in carbon and fossil fuels. The guardians applied their carbon exclusion methodology again in June 2018 and June 2019.

The government manages two other wealth funds that also aim to reduce future liability and burden on New Zealanders. The Government Superannuation Fund (GSF) aims to meet the cost of 57,000 state sector employees who worked between 1948 to 1995 and are entitled to an additional fixed retirement income. The GSF was valued at NZD 4.5 billion (USD 2.9 billion) in June 2019. The Accident Compensation Corporation (ACC) covers all New Zealanders and visitors’ costs if they are injured in an accident under a no-fault scheme. In addition to ACC levies paid by workers and businesses, the ACC operates a fund to meet the future costs of injuries. As of June 2019, it was valued at NZD 44 billion (USD 29 billion), of which about 72 percent in New Zealand and 4 percent in Australia. Over 2018/19 the fund earned a return of 13.1 percent. ACC is one of the largest investors, owning about 2.6 percent of the market capitalization of the New Zealand share market, and directly owns 22 percent of Kiwibank.

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

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

In the 12 months to June 30, 2020 New Zealand State-Owned Enterprises had revenue of NZD 5.08 billion (USD 2.2 billion) and expenses of NZD 5.14 billion (USD 3.34 billion with an operating balance of NZD -27 million (USD -17.6 million). Entities saw operating losses of NZD 206 million (USD 134 million) from KiwiRail and fair value write down of NZD 1.1 billion (USD 715 million) in relation to the Air New Zealand aircraft fleet suffering from reduced service due to the pandemic.

Most of New Zealand’s SOEs are concentrated in the energy and transportation sectors. Private enterprises can compete with public enterprises under the same terms and conditions with respect to markets, credit, and other business operations. Under SOE Continuous Disclosure Rules, SOEs are required to continuously report on any matter that may materially affect their commercial value.

Privatization Program

New Zealand governments have embarked on several privatization programs since the 1980s, to reduce government debt, move non-strategic businesses to the private sector to improve efficiency, and raise economic growth.

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

New Zealand has been using the public private partnership (PPP) method of procurement and increasingly so where the public sector seeks to complete needed infrastructure assets faster than conventional methods of procuring and financing would achieve.

The New Zealand Treasury was previously responsible for the PPP program. It lists the other agencies that are involved in the planning, implementing, and advising on infrastructure, including MBIE (telecommunications and energy infrastructure), Department of Corrections, and the Ministry of Defence among others. https://treasury.govt.nz/information-and-services/nz-economy/infrastructure/other-government-agencies 

In 2019 the Infrastructure Transaction Unit was created within Treasury as an interim measure to provide support to agencies and local authorities in planning and delivering major infrastructure projects. This unit moved into the newly formed Crown entity the Infrastructure Commission (InfraCom) and provides the Major Projects function. The New Zealand Infrastructure Commission Act was passed in September 2019, to create Crown Entity InfraCom, and it will be responsible for delivering New Zealand’s Public Private Partnership (PPP) Program https://infracom.govt.nz/major-projects/public-private-partnerships/ 

The Infrastructure Commission will support government agencies, local authorities and others to procure and deliver major infrastructure projects, and it will be responsible for: developing PPP policy and processes; assisting agencies with PPP procurement; the Standard Form PPP Project Agreement; engaging with potential private sector participants; and monitoring the implementation of PPP projects. InfraCom is currently reviewing the Standard Form PPP Agreement. On its website InfraCom likens its establishment to those in Australia, the United Kingdom, Singapore, Hong Kong, and China’s National Development and Reform Commission https://infracom.govt.nz/strategy/international-context/ 

InfraCom will publish PPP guidance material and project information for businesses wanting to enter into a long term contract for the delivery of a service, where the provision of the service requires the construction of a new asset, or the enhancement of an existing asset, that is financed from external (private) sources on a non-recourse basis and where full legal ownership of the asset is retained by the Crown. The government is increasing its focus on PPP due to its significant NZD 15 billion (USD 9.8 billion) funding package announced in December 2019 and May 2020 which amounts to 5 percent of New Zealand’s GDP.

The government aims for its PPP procurement process to improve the delivery of service outcomes from major public infrastructure assets by: integrating asset and service design; incentivizing whole of life design and asset management; allocating risks to the parties who are best able to manage them; and only paying for services that meet pre-agreed performance standards.

In December 2019, the government introduced the Infrastructure Funding and Financing Bill, which was passed and was given royal assent on August 6, 2020. The provisions provides a funding and financing model to support the provision of infrastructure for housing and urban development that supports the functioning of urban land markets and reduces the impact of local authority financing and funding constraints. It makes several amendments to the Public Works Act 1981 and the Resource Management Act 1991. It also outlines the administration, obligations, and monitoring of Special Purpose Vehicles (SPVs) which are responsible for raising capital for a project, transferring the infrastructure to the relevant central or local government entity after completion, and its obligations to effectively and efficiently construct the infrastructure.

MBIE administers the procurement process. In October 2019 MBIE issued substantive changes to the New Zealand Government’s Procurement Rules. The MBIE Guide to Mastering Procurement explains the eight stages of the procurement lifecycle. It is available at: https://www.procurement.govt.nz/procurement/  . Contract opportunities must be listed on Government Electronic Tenders Service (GETS) at: https://www.gets.govt.nz/ExternalIndex.htm , publish a Notice of Procurement on GETS, and provide access to all relevant tender documents. The Notice of Procurement includes the request for a quote, a registration of interest, and requests for tender and for proposal. The New Zealand Government’s Procurement Rules contain a specific section on non-discrimination, which in part states “All suppliers must be given an equal opportunity to bid for contracts. Agencies must treat suppliers from another country no less favorably than New Zealand suppliers. Procurement decisions must be based on the best value for money, which isn’t always the cheapest price, over the whole-of-life of the goods, services or works. Suppliers must not be discriminated against because of: a. the country the goods, services or works come from [or] b. their degree of foreign ownership or foreign business affiliations.”

Where applicable foreign bidders who are ultimately successful, they may still be required to meet tax obligations and approval from the Overseas Investment Office. The New Zealand government has recently entered and completed infrastructure roading projects in partnership with companies from Australia, Japan, the United States, and China. New Zealand is one of several countries cooperating with China on infrastructure investment relating to their USD 2.5 trillion Belt and Road Initiative. Chinese banks with a presence in New Zealand use capital to invest in New Zealand infrastructure projects including infrastructure in the Christchurch rebuild and Wellington’s 17-mile Transmission Gully motorway.

The upgrade to the New Zealand-China FTA adds a Government Procurement chapter, which among other provisions, includes a built-in agreement to enter into market access negotiations with New Zealand once China completes its accession to the WTO Agreement on Government Procurement, or if it were to negotiate market access on government procurement with another country. This commitment puts New Zealand at the ‘front of the line’ if China were to open its government procurement market in the future.

Infrastructure New Zealand is an industry association founded in 2004, and addresses key strategic challenges including the reform of complex regulatory and environmental approval and the appropriate use of public and private sector debt to finance infrastructure investment opportunities. It is supported by a board of 12 members who are industry leaders in their professional fields.

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

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

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

Additional Resources

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
• North Korea Sanctions & Enforcement Actions Advisory

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor.
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

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

New Zealand consistently achieves top ratings in Transparency International’s Perceptions of Corruption Perception Index. In 2020 Transparency International ranked New Zealand 1st out of 180 countries and territories, scoring 88 out of 100. An area of concern noted by Transparency International is New Zealand being one of several top-ranking countries that conduct “moderate and limited enforcement of foreign bribery.”

Transparency International NZ has had concerns with the historical inconsistency in the level of public accessibility and Parliamentary oversight and application of secondary legislation which is law made under powers delegated by Parliament to 150 government agencies, entities, and local government. New Zealand has 550 Acts, which delegate power to make secondary legislation.

In December 2019 the government introduced the Secondary Legislation Bill to improve and support the law relating to the making of secondary legislation by applying and adjusting the framework of access to, and Parliamentary oversight of, secondary legislation provided for in the Legislation Act 2019. It is currently with at the select committee stage: https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_93428/secondary-legislation-bill 

New Zealand joined the WTO Government Procurement Agreement (GPA) in 2012, citing benefits for exporters, while noting that there would be little change for foreign companies bidding within New Zealand’s totally deregulated government procurement system. New Zealand’s accession to the GPA came into effect in August 2015. New Zealand supports multilateral efforts to increase transparency of government procurement regimes. New Zealand also engages with Pacific island countries in capacity building projects to bolster transparency and anti-corruption efforts.

New Zealand has regulations to counter conflict-of-interest in awarding contracts and government procurement. As mentioned in the previous section, MBIE operates a transparent procurement process using the Government Electronic Tenders Service (GETS) platform and their revised Procurement Rules which must be followed by New Zealand government departments, the Police, the Defense Force, and most Crown entities. All other New Zealand government agencies are encouraged to follow the Rules.

New Zealand has signed and ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and the UN Convention against Transnational Organized Crime. In 2003, New Zealand signed the UN Convention against Corruption and ratified it in 2015.

The legal framework for combating corruption in New Zealand consists of domestic and international legal and administrative methods. Domestically, New Zealand’s criminal offences related to bribery are contained in the Crimes Act 1961 and the Secret Commissions Act 1910. For the bribery offences under sections 99 to 106 of the Crimes Act, New Zealand authorities have jurisdiction where any act or omission takes place in New Zealand. If the acts or omissions alleged relate to Person of Position and occur outside New Zealand , proceedings may be brought against them under the Crimes Act if they are a New Zealand citizen, ordinarily resident in New Zealand, have been found in New Zealand and not been extradited, or are a body corporate incorporated under the law of New Zealand. Penalties include imprisonment up to 14 years and foreign bribery offences can incur fines up to the greater of NZD 5 million (USD 3.3 million) or three times the value of the commercial gain obtained.

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

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

The Anti-Money Laundering and Countering Financing of Terrorism Amendment Act 2017 extends the 2009 Act to cover lawyers, conveyancers, accountants, real estate agents, and sports and racing betting. Businesses that deal in certain high-value goods, such as motor vehicles, jewelry and art, will also have obligations when they accept or make large cash transactions.

Businesses had two years to comply with the Act and compliance costs are estimated to be USD 554 million and USD 762 million over ten years. The New Zealand Police Financial Intelligence Unit estimate that NZD 1.35 billion (USD 878 million) of domestic criminal proceeds is generated for laundering in New Zealand each year, driven in part by New Zealand’s reputation as a safe and non-corrupt country. The Department of Internal Affairs is working on a solution for businesses that are facing difficulty meeting their AML/CFT obligations during COVID-19.

Following the “Panama Papers” incident in April 2016, an independent inquiry found New Zealand’s tax treatment of foreign trusts to be appropriate but recommended changes to the regime’s disclosure requirements, which were subsequently legislated to dispel concerns New Zealand was operating as a “tax haven”. The Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act of 2017 changed foreign trust registration and disclosure to deter offshore parties from misusing New Zealand foreign trusts, and to reaffirm New Zealand’s reputation as being free of corruption.

In July 2019, the government passed the Trusts Act and repealed the Trustee Act of 1956 and the Perpetuities Act of 1964 to make trust law more accessible, clarify and simplify core trust principles and essential obligations for trustees. It also aims to preserve the flexibility of the common law to allow trust law to continue to evolve through the courts. It applies to all trusts including family trusts and those for corporate structures. New Zealand has one of the highest per capita number of trusts in the world due to favorable tax treatment and the absence of estate duty, gift duty, stamp duty, or capital gains tax. It is estimated that there are between 300,000 and 500,000 trusts in New Zealand.

After a standard review of the 2017 general election and 2016 local body elections, the Justice Select Committee conducted an inquiry in 2019 of the issue of foreign interference through politicized social media campaigns and from foreign donations to political candidates standing in New Zealand elections. New Zealand intelligence agencies acknowledged political donations as a legally sanctioned form of participation in New Zealand politics, but raised concerns when aspects of a donation is obscured or is channeled in a way that prevents scrutiny of the origin of the donation, when the goal is to covertly build and project influence.

In December 2019, the government passed the Electoral Amendment Act under urgency to ban donations from overseas persons to political parties and candidates over NZD 50 (USD 32.50) down from the previous NZD 1,500 (USD 975) maximum, to reduce the risk of foreign money influencing the election process. It also introduces a requirement for party secretaries “to take all reasonable steps to satisfy themselves that a donation over NZD 50 is not from an overseas person.”

The Act requires party secretaries to reside in New Zealand, and extending the existing offense of promoting anonymous advertisements relating to an election “so that it applies to all advertising mediums, including online advertising, in order to deter misleading anonymous online advertisements.”

Resources to Report Corruption

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

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

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

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

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

The New Zealand government raised its national security threat level for the first time from “low” to “high” after the terrorist attack on two mosques in Christchurch on March 15, 2019. One month later it lowered the risk to “medium” where a “terrorist attack, or violent criminal behavior, or violent protest activity is assessed as feasible and could well occur.” The incident led to wide-ranging gun law reform that restricts semi-automatic firearms and magazines with a capacity of more than ten rounds. An amnesty buy-back scheme of prohibited firearms administered by the NZ Police ran until December 20, 2019.

In 2019, the New Zealand labor market experienced a tightening in labor market conditions with the unemployment rate at historically low levels after a prolonged period of record population growth from record net migration. In the last quarter of 2019, the rate was 4 percent. The rise in net migration is comprised of international students, professionals, and returning New Zealand citizens. Youth unemployment has been a problem in New Zealand for at least a decade.

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

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

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

The government has taken a more proactive approach to enforcing employment law in New Zealand, because the migrant worker population has increased rapidly in recent years and the resources to protect those workers have not kept up with the increase. The government has been steadily increasing the number of labor inspectorates – situated within MBIE – to double the number in 2017.

Immigration NZ reports and updates three different lists of Essential Skills in Demand. If an occupation is on a shortage list a visa applicant is exempt from an individual labor market test, and the employer does not need to demonstrate that no suitable New Zealanders are available to fill or be trained for each individual position. The Long-Term Shortage List contains occupations experiencing a sustained shortage and offers visa holders a chance to apply for residency after two years. The Regional Skill Shortage List – which replaced the Immediate Skill Shortage List in 2019 – identifies the regions with occupations that have an immediate shortage of skilled workers by 15 regions. The Construction and Infrastructure Skill Shortage List contains immediate short-term skill shortages in the construction labor market that are designed to meet the industry’s labor requirements and is also split into 15 regions.

There is no stated government policy on the hiring of New Zealand nationals, however certain jobs within government agencies that handle sensitive information may have a citizenship requirement, minimum duration of residency, and require background checks.

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

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

The Employment Relations Amendment Act 2018 repeals some laws made under the previous government, such as restricting the mandatory 90-day no-fault trial period to businesses with 19 employees or fewer and mandating set rest and meal breaks for employees based on the number of hours worked. The amendment also empowers contractors with more rights and allows employees in specified ‘vulnerable industries’ to transfer their existing terms and conditions in their employment contract if their work is restructured. If requested, reinstatement back to their job must be the first course of action considered by the Employment Relations Authority for employees who have found to be unfairly dismissed.

After a three-year review and consultation, the government introduced the Screen Industry Workers Bill in February 2020. The previous government passed the Employment Relations (Film Production Work) Amendment Act 2010 – commonly referred to as the “Hobbit law” -which put limits on the ability of workers on film productions to collective bargaining. The new bill if passed aims to provide clarity about the employment status of people doing screen production work, introduce a duty of good faith and mandatory terms for contracting relationships in the industry, allow collective bargaining at the occupation and enterprise levels, and create processes for resolving disputes arising from contracting relations or collective bargaining.

New Zealand law provides for the right of workers to form and join independent unions of their choice without previous authorization or excessive requirements, to bargain collectively, and to conduct legal strikes, with some restrictions. Contractors cannot join unions, bargain collectively, or conduct strike action. Police have the right to organize and bargain collectively but sworn police officers do not have the right to strike or take any form of industrial action. In November 2019 MBIE sought feedback on a discussion document entitled “Better protections for contractors” to strengthen legal protections for contractors. They aim to ensure that contractors receive their minimum rights and entitlements, reduce the imbalance of bargaining power between firms and contractors who are vulnerable to poor outcomes, and ensure that system settings encourage inclusive economic growth and competition. Submissions closed in February 2020.

The ERA requires registered unions to file annual membership returns with the Companies Office. MBIE estimates total union membership at 399,800 for the September 2019 quarter, representing about 18.7 percent of all employees in New Zealand.

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

The number of work stoppages has been on a downward trend until the Labour-led government took office in 2017. The number of work stoppages has increased from 3 in 2016 (involving 430 employees causing 195 lost work days), to 143 in 2018 (involving 11,109 employees causing 192 lost work days and NZD 1.2 million (USD 780,000) in lost wages), to 159 in 2019 (involving 53,771 employees causing 142,670 lost work days and NZD 9.2 million (USD 6 million) in lost wages). In 2020 there were 112 work stoppages involving 595 employees causing 613 lost work days and NZD 120,00 (USD 78,000) in lost wages.

Work stoppages include strikes initiated by unions and lockouts initiated by employers, compiled from the record of strike or lockout forms submitted to MBIE under the Employment Relations Act 2000. The data does not cover other forms of industrial action such as authorized stop-work meetings, strike notices, protest marches, and public rallies which have also increased in recent years. Several strikes during the year involved employees of United States businesses or franchises particularly within the fast food industry. The New Zealand government does not get involved in individual work disputes unless the striking employees violate their legislated responsibilities.

The Labour-led government campaigned on a promise to lift the minimum wage to NZD20 (USD 13) by April 2021. From April 1, 2020 the minimum wage for adult employees who are 16 and over and are not new entrants or trainees is NZD 18.90 (USD12.29) per hour. The new entrants and training minimum wage is NZD 15.12 (USD 9.83) per hour. In recent years some local government agencies have raised minimum wages for their staff up from the government mandated rate to a “living wage” of nearly NZD 22.10 (USD 14.37) as of 2020. All businesses in New Zealand affected by COVID-19 have been eligible to receive from the government a wage subsidy from March, to pay their employees 80 percent of their salary to stem job losses.

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

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

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

The Maritime Transport Amendment Act 2017 implements New Zealand’s accession to the intergovernmental International Oil Pollution Compensation’s Supplementary Fund Protocol, 2003. The fund gives New Zealand access to compensation in the event of a major marine oil spill from an oil tanker, and exercises New Zealand’s right to exclude the costs of wreck removal, cargo removal and remediating damage due to hazardous substances from liability limits. Accession to the Protocol was prompted in part by New Zealand’s worst maritime environmental disaster in October 2011 when a Greek flagged cargo ship ran aground creating a 331 ton oil spill resulting in NZD 500 million (USD 300 million) in clean-up costs.

Please note that the following tables include FDI statistics from three different sources, and therefore will not be identical.  Table 2 uses BEA data when available, which measures the stock of FDI by the market value of the investment in the year the investment was made (often referred to as historical value).  This approach tends to undervalue the present value of FDI stock because it does not account for inflation.  BEA data is not available for all countries, particularly if only a few US firms have direct investments in a country.  In such cases, Table 2 uses other sources that typically measure FDI stock in current value (or, historical values adjusted for inflation).  Even when Table 2 uses BEA data, Table 3 uses the IMF’s Coordinated Direct Investment Survey (CDIS) to determine the top five sources of FDI in the country.  The CDIS measures FDI stock in current value, which means that if the U.S. is one of the top five sources of inward investment, U.S. FDI into the country will be listed in this table.  That value will come from the CDIS and therefore will not match the BEA data.

* Source for Host Country Data: Host country statistics differ from USG and international sources due to calculation methodologies, and timing of exchange rate conversions.  Almost a third of inbound foreign direct investment in New Zealand is in the financial and insurance services sector. Foreign direct investment data for March 2020 s released in September 2020.   Statistics New Zealand data available at www.stats.govt.nz

Economic Officer
U.S. Embassy Wellington
PO Box 1190
Wellington 6140
New Zealand
+64-4-462-6000

Policies Towards Foreign Direct Investment

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

The Swedish Government recognizes the need to further improve the business climate for entrepreneurs, education, and the flow of research from lab to market.  Swedish authorities have implemented a number of reforms to improve the business regulatory environment and to attract more foreign investment.  In addition, Sweden is implementing an EU investment screening regulation (EU Foreign Investment Screening Mechanism – adopted in March 2019), and plans to announce a national investment screening mechanism by the end of 2020 or early 2021.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

• Accountancy: Investment in the accountancy sector by non-EU-residents cannot exceed 25 percent.
• Legal services: Investment in a corporation or partnership carrying out the activities of an “advokat,” a lawyer, cannot be done by non-EU residents.
• Air transport: Foreign enterprises may be restricted from access to international air routes unless bilateral intergovernmental agreements provide otherwise.
• Air transport: Cabotage is reserved to national airlines.
• Maritime transport: Cabotage is reserved to vessels flying the national flag.
• Defense: Restrictions apply to foreign ownership of companies involved in the defense industry and other sensitive areas.
• On January 1, 2020, Sweden enacted new regulations giving Swedish armed forces and security services authority to deny or revoke operating licenses to mobile radio providers that threaten national security.

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

Other Investment Policy Reviews

Sweden has in the past three years not undergone an investment policy review by the World Trade Organization (WTO), or the United Nations Committee on Trade and Development (UNCTAD), or the Organization for Economic Cooperation and Development (OECD).

Business Facilitation

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

All forms of business enterprise, except for sole traders, have to be registered with the Swedish Companies Registration Office, Bolagsverket, before starting operations.  Sole traders may apply for registration in order to be given exclusive rights to the name in the county where they will be operating.  Online applications to register an enterprise can be made at https://www.bolagsverket.se/en and is open to foreign companies.  The process of registering an enterprise is clear and can take a few days or up to a few weeks, depending on the complexity and form of the business enterprise.  All business enterprises, including sole traders, need also to be registered with the Swedish Tax Agency, Skatteverket, before starting operations.  Relevant information and guides can be found at http://www.skatteverket.se.  Depending on the nature of business, companies may need to register with the Environmental Protection Agency, Naturvårdsverket, or, if real estate is involved, the county authorities.  Non-EU/EEA citizens need a residence permit, obtained from the Swedish Board of Migration, Migrationsverket, in order to start up and/or run a business.  A compilation of  Swedish government agencies  that work with registering, starting, running, expanding and/or closing a business can be found at http://www.verksamt.se.

Outward Investment

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

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

Sweden has concluded investment protection agreements with the following countries:

Albania, Algeria, Argentina, Armenia, Belarus, Bulgaria, Chile, China, Cote d’Ivoire, Croatia, Czech Republic, Ecuador, Egypt, Estonia, Ethiopia, Georgia, Guatemala, Hong Kong, Hungary, India, Indonesia, Iran, Kazakhstan, Kuwait, Kyrgyzstan, Laos, Latvia, Lebanon, Lithuania, Macedonia, Madagascar, Malaysia, Malta, Mauritius, Mexico, Mongolia, Morocco, Mozambique, Nicaragua (signed but not in force), Nigeria, Oman, Pakistan, Panama, Peru, Philippines, Poland, Republic of Korea, Romania, Russian Federation, Saudi Arabia, Senegal, Serbia, Slovakia, South Africa, Sri Lanka, Tanzania, Thailand, Tunisia, Turkey, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, Vietnam, Yemen, and Zimbabwe (signed but not in force). Sweden does not have a bilateral investment treaty with the United States.

Sweden is a member of the EU.  The EU manages trade relations with third countries in the form of trade agreements.  A list of concluded free trade agreements can be found here: http://www.consilium.europa.eu/en/policies/trade-policy/trade-agreements/

BITs with third countries are available at the following link: http://investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu

Sweden is a member of the European Union. On May 5, 2020 the European Union member states agreed to terminate all intra-EU BITs. The European Union has 56 Treaties with Investment Provisions (TIPs) in force. They are available at the following link: https://investmentpolicy.unctad.org/international-investment-agreements/groupings/28/eu-european-union-

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

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

Transparency of the Regulatory System

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

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

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

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

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

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

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

The status of Sweden’s national debt is available at the Swedish National Debt Office (Riksgälden): https://www.riksgalden.se/en/statistics/statistics-regarding-swedens-central-government-debt/.

International Regulatory Considerations

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

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

Legal System and Judicial Independence

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

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

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

Laws and Regulations on Foreign Direct Investment

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

Sweden’s taxation structure is straightforward and corporate tax levels are low.  In 2013, Sweden lowered its corporate tax from 26.3 percent to 22 percent in nominal terms and lowered it again to 21.4 percent in 2019.  The effective rate can be even lower as companies have the option of making deductible annual appropriations to a tax allocation reserve of up to 25 percent of their pretax profit for the year.  Companies can make pre-tax allocations to untaxed reserves, which are subject to tax only when utilized.  Certain amounts of untaxed reserves may be used to cover losses.  Due to tax exemptions on capital gains and dividends, as well as other competitive tax rules such as low effective corporate tax rates, deductible interest costs for tax purposes, no withholding tax on interest, no stamp duty or capital duties on share capital, and an extensive double tax treaty network, Sweden is among Europe’s most favorable jurisdictions for holding companies.  Unlisted shares are always tax-exempt, meaning there is no qualification time or minimum holding of votes or capital.  Listed shares are exempt if the holding represents at least 10 percent of the voting rights (or is contingent on the holder’s business) and the shares are held for at least one year. As part of a COVID-19 stimulus package, the government lowered the payroll tax for persons aged 19-23 from 31.42 percent to 19.73 percent.

Personal income taxes are among the highest in the world.  Since public finances have improved due to extensive consolidation packages to reduce deficits, the government has been able to reduce tax pressure as a percentage of GDP.  Though well below the national average in the EU area, public debt, as a share of GDP, rose to approximately 40 percent as a result of the enactment of several fiscal stimulus packages which aimed to boost the economy in the COVID-19 pandemic.  Significant tax increases in the near future remain unlikely.  One particular focus of the Swedish government has been tax reductions to encourage employers to hire the long-term unemployed.

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

For detailed tax guidance, see the Swedish Tax Administration’s website (in English): http://www.skatteverket.se/servicelankar/otherlanguages/inenglish.4.12815e4f14a62bc048f4edc.html

There is no primary or “one-stop-shop” website that provides relevant laws, rules, procedures, and reporting requirements for investors.  Business Sweden, Sweden’s official trade and investment organization, is the investment promotion agency tasked with developing business in Sweden.  The services of the agency are available to all investors.

Competition and Antitrust Laws

As an EU member, Sweden has altered its legislation to comply with the EU’s stringent rules on competition.  The competition law rules are contained in the Swedish Competition Act (2008:579), which entered into force in November 2008.  The fundamental antitrust provisions have been the same since 1993.  The Swedish Competition Authority (SCA) is the main enforcement authority of the Swedish Competition Act.  The agency adheres to transparent norms and procedures, which are made available on its homepage: https://www.konkurrensverket.se/en/omossmeny/about-us/uppgifter.  SCA decisions can be appealed to the administrative courts.  This can be done by submitting a written appeal to the Swedish Competition Authority within three weeks from the day the applicant received the SCA’s initial decision.

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

There have been no major disputes over investment in Sweden in recent years.  There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Swedish arbitration law is advanced and in line with current best practice of international arbitration.  The main source of arbitration law in Sweden is the Swedish Arbitration Act, which contains both procedural and substantive regulations. A revised version of the Swedish Arbitration Act (SAA) entered into force on March 1, 2019. The revised SAA intends to preserve Sweden’s position among Europe’s leading seats for international arbitration proceedings.

Sweden is a party to the Lugano and the Brussels Conventions and by its membership of the EU Sweden is bound by the Brussels Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.  An arbitral award is considered final and is not subject to substantive review by Swedish courts.  However, arbitral awards may be challenged for reasons set out in the Arbitration Act.  An award may, for example, be set aside after challenge because of procedural errors, which are likely to have influenced the outcome.  The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) has administered arbitrations under the UNCITRAL Arbitration Rules for many years, usually acting as the Appointing Authority.  Parties to a dispute may adopt the Procedures by agreement before or after the dispute has arisen.

The SCC maintains different versions of the Procedures depending on which version of the UNCITRAL Arbitration Rules applies to the arbitration agreement in question (1976 or 2010 versions).

Bankruptcy Regulations

The Swedish legislation on bankruptcy is found in a number of laws that came into force in different periods of time and to serve different purposes.  The main laws on insolvency are the Bankruptcy Act (1987:672) and the Company Reorganization Act (1996:764), but the Preferential Rights of Creditors Act (1970:979), the Salary Guarantee Act (1992:497), and the Companies Act (1975:1385) are equally important.  In 2010, Sweden strengthened its secured transactions system through changes to the Rights of Priority Act that give secured creditors’ claims priority in cases of debtor default outside bankruptcy.  According to data collected by the World Bank’s 2020 Doing Business Report, resolving insolvency takes two years on average and costs nine percent of the debtor’s estate, with the most likely outcome being that the company will be sold as a going concern.  The average recovery rate is 78 cents on the dollar.  Globally, Sweden ranked 17 of 190 economies on the ease of resolving insolvency in the Doing Business 2020 report.

Investment Incentives

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

As an EU Member State, Sweden adheres to the EU’s General Data Protection Directive (GDPR) (95/46/EC) which spells out strict rules concerning the processing of personal data.  Businesses must tell consumers that they are collecting data, what they intend to use it for, and to whom it will be disclosed.  Data subjects must be given the opportunity to object to the processing of their personal details and to opt-out of having them used for direct marketing purposes.  This opt-out should be available at the time of collection and at any point thereafter.  GDPR entered into force on May 18, 2018 – and it is a Regulation, i.e. directly applicable in member states.

The EU-U.S. Privacy Shield Frameworks were designed by the U.S. Government (Department of Commerce) and the European Commission to provide companies on both sides of the Atlantic with a mechanism to comply with data protection requirements when transferring personal data from the European Union to the United States in support of transatlantic commerce. The European Court of Justice (ECJ) in a July 16 ruling in the Schrems II case invalidated the legal basis for the U.S. Department of Commerce-managed EU-U.S. Privacy Shield framework (“Privacy Shield”) and imposed substantial burdens on parties using standard contractual clauses (SCCs).  Subsequent guidance from the European Data Protection Board (EDPB) threatens to impose additional obstacles to use of the SCCs to transfer personal data to the United States.  The United States continues to engage the European Commission to develop a new Privacy Shield mechanism and to ensure SCCs can be used for data transfers to the United States. For further information and guidance on the Privacy Shield Framework, please see: https://www.commerce.gov/privacyshield.

The Swedish Authority for Privacy Protection, Integritetsskyddsmyndigheteten, works to prevent encroachment upon privacy through information and by issuing directives and codes of statutes.  Integritetsskyddsmyndigheteten (IMY) also handles complaints and carries out inspections.  By examining government bills, IMY ensures that new laws and ordinances protect personal data in an adequate manner.  Further guidance and information is available in English on their website at https://www.imy.se/other-lang/in-english/. There are no measurements that prevent or unduly impede companies from freely transmitting customer or other business-related data outside Sweden’s territory.  Sweden imposes no performance requirements on presumptive foreign investors.

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

Various municipal-level agencies and business associations have targeted U.S. cloud service providers in Sweden.  These entities have claimed that any information processed by a U.S. cloud provider is subject to U.S. government scrutiny through the CLOUD Act, limiting customers’ privacy.  This perception has adversely impacted U.S. cloud service providers’ sales in Sweden and given local cloud service firms an uneven advantage in the market.  In addition, this perception has spurred a two-year, government project to examine the options for the development of a Swedish government cloud, effectively halting U.S. cloud service sales as customers await the investigation’s outcome.  However, due to the COVID-19 pandemic, the government’s exploration project has been delayed. The final project report is expected to be released on October 15, 2021.  The first part of the report was published on January 15, 2021.

Real Property

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

Intellectual Property Rights

As a member of the European Union, Sweden adheres to a series of multilateral conventions on industrial, intellectual, and commercial property.

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

Copyrights:  Sweden is a signatory to various multilateral conventions on the protection of copyrights, including the Berne Convention of 1971, the Rome Convention of 1961, and the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  Swedish copyright law protects computer programs and databases.  Between 2005-2008, Sweden gained notoriety as a safe haven for internet piracy due to rapid internet connection speeds, a lag in implementing EU Directives, and weak enforcement efforts.  In 2009, however, Sweden implemented the EU’s Intellectual Property Rights Enforcement Directive (IPRED) 2004/48/EC and increased its enforcement against internet piracy.  The last few years also saw the conviction of the operators behind the Pirate Bay.org, a notorious BitTorrent tracker for illegal file sharing, and an increase in legal file sharing.  Legislative measures combined with added resources for enforcement and the emergence of successful legal alternatives have all contributed to a substantial increase in music and film distribution by legal means since 2010.  In 2016, Sweden set up a Specialist Court for IPR-related cases, to further increase efficiency by pooling specialist competence. In 2020, severe copyright infringement was added to the criminal code, giving police and prosecutors additional enforcement tools, and increasing the maximum penalty for such crimes to six years imprisonment.

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

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

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

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

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

Capital Markets and Portfolio Investment

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

Money and Banking System

Several foreign banks, including Citibank, have established branch offices in Sweden, and several niche banks have started to compete in the retail bank market.  The three largest Swedish banks are Skandinaviska Enskilda Banken (SEB), Svenska Handelsbanken, and Swedbank.  Nordea is the largest foreign bank and largest bank in Sweden, while Danske Bank is the second largest foreign bank and the fifth largest bank in Sweden.  A deposit insurance system was introduced in 1996, whereby individuals received protection of up to SEK 250,000 (USD 29,250) of their deposits in case of bank insolvency.  On December 31, 2010, the maximum compensation was raised to the SEK equivalent of 100,000 euro.

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

On July 1, 2014, Sweden signed the Foreign Account Tax Compliance Act (FATCA) agreement with the U.S. Financial institutions in Sweden are now obligated to submit information in accordance with FATCA to the Swedish Tax Agency.  In February 2015, the Swedish Parliament decided on new laws and regulations needed to implement FATCA.  The Parliamentary decision means the government’s proposals in Bill 2014/15:41 were adopted, including for example, the introductions of:

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

The provisions entered into force on April 1, 2015.  For full text of Bill 2014/15:41, please see http://www.regeringen.se/contentassets/bd8cf7f897364944b35f5f30c099bc0c/genomforande-av-avtal-mellan-sveriges-regering-och-amerikas-forenta-staters-regering-for-att-forbattra-internationell-efterlevnad-av-skatteregler-och-for-att-genomfora-fatca-prop.-20141541.

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

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

Foreign Exchange and Remittances

Foreign Exchange

Sweden adheres to a floating exchange rate regime and the national currency rate fluctuates.

Remittance Policies

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

Sovereign Wealth Funds

Sweden does not maintain a sovereign wealth fund or similar entity.

The Swedish state is Sweden’s largest corporate owner and employer.  Forty-six companies are entirely or partially state-owned, of which two are listed on the Stockholm stock exchange, and have government representatives on their boards.  Approximately 129,000 people are employed by these companies, including associated companies.  Sectors, which feature State-Owned Enterprises (SOEs), include energy/power generation, forestry, mining, finance, telecom, postal services, gambling, and retail liquor sales.  These companies operate under the same laws as private companies, although the government appoints board members, reflecting government ownership.  Like private companies, SOEs have appointed boards of directors, and the government is constitutionally prevented from direct involvement in the company’s operations.  Like private companies, SOE’s publish their annual reports, which are subject to independent audit.  Private enterprises compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations.  Moreover, Sweden is party to the General Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).  Swedish SOEs adhere to the OECD Guidelines on Corporate Governance for SOEs. Further information regarding the Swedish SOEs can be found here: http://www.regeringen.se/regeringens-politik/bolag-med-statligt-agande/.

Privatization Program

The current Sweden’s Government, voted into office in September 2014 and returned to office after the most recent general elections in 2018, has a mandate to divest or liquidate its holdings in Bilprovningen (Swedish Motor-Vehicle Inspection Company), Bostadsgaranti, Lernia, Orio (formerly Saab Automobile Parts), SAS, and Svensk Exportkredit (SEK).  If the Government of Sweden decides to divest or liquidate holdings, then a public bidding process would be implemented.

There is widespread awareness of responsible business conduct (RBC) among both producers and consumers in Sweden.  All businesses are expected to comply with local laws and regulations, and to observe the international norms and principles for human rights, labor protection, sustainable development, and anti-corruption.  Firms that pursue RBC are viewed favorably, often publicizing their adherence to generally accepted RBC principles such as those contained in OECD Guidelines for Multinational Enterprises.  Volvo Trucks, for example, has collaborated with USAID in pursuing RBC efforts outside of Sweden.  The Swedish National Contact Point for the OECD Guidelines can be found at:  https://www.regeringen.se/regeringens-politik/handel-och-investeringsframjande/nationella-kontaktpunkten/.  The Government of Sweden has adopted a platform for sustainable business, the term it uses for efforts related to RBC/CSR:
https://www.government.se/49b750/contentassets/539615aa3b334f3cbedb80a2b56a22cb/sustainable-business—a-platform-for-swedish-action.

Sweden effectively and fairly enforces domestic laws in relation to human rights, labor rights, consumer protection, environmental protections, and other laws/regulations intended to protect individuals from adverse business impacts.  There are no alleged/reported human or labor rights concerns relating to RBC that foreign businesses should be aware of, as for example, alleged instances of forced and/or child labor in domestic supply chains, forced evictions of indigenous peoples, or arrests of and violence against environmental defenders.

Sweden has put in place corporate governance, accounting, and executive compensation standards to protect shareholders.  Sweden is a member of the Extractive Industries Transparency Initiative (EITI).

Sweden is one of seventeen states that have finalized The Montreux Document on Private Military and Security Companies. It is a supporter of and participant in International Code of Conduct for Private Security Service Providers’ Association (ICoCA).

Additional Resources 

Department of State

• Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);
• Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-report/);
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;
• North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf).

Department of Labor

• Findings on the Worst forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings);
• List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods);
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;
• Comply Chain (https://www.dol.gov/ilab/complychain/).

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

There are cases of Swedish companies operating overseas that have been charged with bribing foreign officials; however, these cases are relatively rare.  Although Sweden has comprehensive laws against corruption, and ratified the 1997 OECD Anti-bribery Convention, in June of 2012, the OECD Anti-Bribery Working Group has given an unfavorable review of Swedish compliance to the dictates of that Convention.  The group faulted Sweden for not having a single conviction of a Swedish company for bribery in the last eight years, for having unreasonably low fines, and for not re-framing their legal system so that a corporation could be charged with a crime.  Swedish officials object to the review, claiming that lack of convictions is not proof of prosecutorial indifference, but rather indicative of high standards of ethics in Swedish companies.  Over the last four years, two high-profile cases have involved Swedish companies. Telia Company’s operations in Uzbekistan received considerable public attention and cost the CEO and other senior officials their jobs.  Telia Company was in the process of divesting its operations in Uzbekistan following a probe by the U.S. Department of Justice (DOJ) pertaining to illegal payments.  In September 2017, Telia Company reached an agreement to pay $965.8 million to settle U.S. and European criminal and civil charges that the company had paid bribes to win business in Uzbekistan.  In December 2019, Ericsson reached an agreement with the Department of Justice to pay more than $1 billion to resolve a foreign corrupt practices case which involved bribing government officials, falsifying books and records, and failing to implement reasonable internal accounting controls.  The resolutions covered criminal conduct in Djibouti, China, Vietnam, Indonesia, and Kuwait. Ericsson also entered into a three-year Deferred Prosecution Agreement (DPA) with the DOJ. As part of this resolution, Ericsson agreed to engage an independent compliance monitor for three years. The monitor’s main responsibilities include reviewing Ericsson’s compliance with the terms of the settlement and evaluating Ericsson’s progress in implementing and operating its enhanced compliance program and accompanying controls as well as providing recommendations for improvements.

Sweden does not have a specific agency devoted exclusively to anti-corruption, but a number of agencies cooperate together.  A list of Sweden’s Public and Private Anti-Corruption Initiatives can be found at https://www.ganintegrity.com/portal/country-profiles/sweden.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

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

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

Resources to Report Corruption

The National Anti-Corruption Group at the Swedish Police, Nationella anti-korruptionsgruppen, handles the investigation of corruption offenses and is engaged in prevention efforts.  Corruption claims can be reported to the Group by calling +46 114 14.

Watchdog organization:

Transparency International Sweden
Telephone: + 46 (0)72 74 45 558
E-mail address: info@transparency.se
www.transparency.se

Sweden is politically stable and no changes are expected.

Sweden’s labor force of 5.5 million is disciplined, well educated, and highly skilled.  Approximately 68 percent of the Swedish labor force is unionized, although membership is declining.  Swedish unions have helped to implement business restructuring to remain competitive, and strongly favor employee education and technical advancements.  Management- labor cooperation is generally excellent and non-confrontational.  The National Mediation Office, which mediates labor disputes in Sweden, reported in its summary findings for 2020 that no working day was lost due to a strike in Sweden in 2020.

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

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

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

There is no fixed minimum wage by legislation.  Instead, wages are set by collective bargaining by sector.  The traditionally low-wage differential has increased in recent years as a result of increased wage setting flexibility at the company level.  Still, Swedish unskilled employees are relatively well paid, while well-educated Swedish employees are relatively less well paid compared to those in competitor countries.  The average increases in real wages in recent years have been high by historical standards, in large due to price stability.  Even so, nominal wages in recent years have been slightly above those in competitor countries, about 2 percent annually.  Employers must pay social security fees of about 31.5 percent.  The fee consists of statutory contributions for pensions, health insurance, and other social benefits.

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

Sweden is a member of the European Union (EU).  The EU impacts Sweden’s trade relationship with the United States in that the EU has a common trade policy for all member countries.

* Source for Host Country Data: Statistics Sweden (SCB).

Economic Unit
U.S. Embassy Stockholm
Dag Hammarskjölds Väg 31
115 89 Stockholm, Sweden
+46 (0)8 783 5309 
StockholmICS@state.gov

U.S. Commercial Service
U.S. Embassy Stockholm
Dag Hammarskjölds Väg 31
115 89 Stockholm, Sweden
www.export.gov/sweden
office.stockholm@trade.gov