Policies Toward Foreign Direct Investment

Under the Private Investment Law of 2005 (PIL), qualified domestic or foreign entities may invest in all sectors of the economy.

On July 29, 2016, Afghanistan was formally admitted to the WTO, which could bring about a number of benefits for Afghanistan, including improving prospects for foreign direct investment.

Article 16 of the PIL also states that approved domestic and foreign companies with similar objectives are subject to the same rights under Afghan law and the same protections against discriminatory governmental actions.

The Afghanistan Investment Support Agency (AISA) is an investment promotion agency that was merged into the Ministry of Commerce and Industries (MOCI) in October 2016. The transition period is ongoing so the AISA continues to play a semi-independent role.

Additionally, a restructuring plan is currently underway to create an investment promotion directorate with the MOCI. The MOCI has taken on the role of promoting business growth, investment, and trade.

The High Commission on Investment (HCI) is responsible for investment policy making. The HCI includes the Ministers of Agriculture, Economy, Finance, Foreign Affairs, Mines and Industries, the Governor of the Central Bank (Da Afghanistan Bank), and the Chief Executive Officer of AISA. The Minister of Commerce and Industries chairs the HCI. The High Economic Council (HEC), which is chaired by the President and includes both the HCI members and representatives from academia and the private sector, also plays a role in investment policy development.

The HEC, HCI, MOCI, Afghan Chamber of Commerce and Industries, and AISA are tasked with maintaining a dialogue and resolving business disputes with the government.

Limits on Foreign Control and Right to Private Ownership and Establishment

Under the PIL, foreign and domestic private entities have equal standing and may establish and own business enterprises, engage in all forms of remunerative activity, and freely acquire and dispose of interests in business enterprises.

While there is no requirement for foreigners to secure Afghan partners, the Afghan Constitution and the PIL prohibit foreign ownership of land. In practice most foreign firms find it necessary to work with an Afghan partner. Although foreign land ownership is not permitted, foreigners may lease land for up to 50 years.

Although the HCI has authority to limit the share of foreign investment in some industries, specific economic sectors, and specific companies, that authority has never been exercised. In practice, investments may be 100 percent foreign owned.

Article 5 of the PIL prohibits investment in nuclear energy and gambling establishments.

Investment in certain sectors, such as production and sales of weapons and explosives, non-banking financial activities, insurance, natural resources, and infrastructure (defined as power, water, sewage, waste-treatment, airports, telecommunications, and health and education facilities) is subject to special consideration by the HCI, in consultation with relevant government ministries. The HCI may choose to apply specific requirements for investments in restricted sectors. Direct investment exceeding $3,000,000 requires HCI approval of the investment application.

Other Investment Policy Reviews

There have been no third-party investment policy reviews by the OECD, WTO, or UNCTAD in the past three years.

Afghanistan’s last major investment policy review was the Afghanistan National Development Strategy (ANDS), which was developed with the assistance of the United Nations Development Program (UNDP) and covered the period 2008-2013. That strategy attempted to guide development investments in the focus areas of (1) agriculture and rural rehabilitation, (2) human capacity development, and (3) economic development and infrastructure, through high-priority programs chosen for contributions to job creation, broad geographic impact, and likelihood of attracting additional investment. As of March 2016, the Afghanistan Investment Support Agency (AISA) is urging the government to consider an updated strategy, potentially focusing on support to industry, electricity generation, taxation reform, industry supports, customs, technology, and the agricultural sector.

Currently a new investment law has been drafted by the MOCI and is awaiting review by the Council of Ministers.

Business Facilitation

Responsibility for business facilitation, previously under AISA, was recently moved to the MOCI. The HCI and HEC are responsible for investment and economic policy making.

Foreign or domestic companies investing in Afghanistan must obtain a corporate registration from the Afghanistan Central Business Registry (ACBR) and a Tax Identification Number issued by the Department of Revenue.

The websites for registration are:

• http://www.acbr.gov.af/registration.html ;
• http://ard.mof.gov.af/en/page/information/service-standards/issue-of-taxpayer-identification-number .

Companies operating in the security, telecommunications, agriculture, and health sectors require additional licenses from relevant ministries. Companies seeking licenses to provide consultancy, legal, or audit services must meet requirements for education or related experience for top officers.

To begin the process for initial issuance of licenses, renewals, and material changes to the license, foreign firms must first obtain an introduction letter from the Ministry of Foreign Affairs (MOFA) addressed to the MOCI. Obtaining this letter typically requires an application to the Afghan embassy located in the country where the company is incorporated or a letter of introduction from the embassy or commercial attaché in Kabul representing the country where the company is incorporated. Once this process is complete, the company will be introduced by MOFA to MOCI/AISA and may proceed to obtain a license.

These steps to register a business can take as little as two days to complete but may require more time and may require a local attorney’s help.

Ease of doing business reforms in 2016 led AISA to begin issuing licenses for three years, as opposed to one year, to attract investment. Obtaining a business license is relatively simple; however, applications for renewal are contingent upon certification from the Ministry of Finance (MOF) that all tax obligations have been met. Some companies have seen AISA license renewals delayed while the MOF audits their tax status, despite MOF assurances that an ongoing tax audit should not impede AISA license renewal.

Outward Investment

The government does not promote or incentivize outward investment. Due to the security situation, capital flight is a concern.

Private investors have the right to transfer capital and profits out of Afghanistan, including for off-shore loan debt service. There are no restrictions on converting, remitting, or transferring funds associated with investment, such as dividends, return on capital, interest and principal on private foreign debt, lease payments, or royalties and management fees, into a freely usable currency at a legal market-clearing rate. The PIL states that an investor may freely transfer investment dividends or proceeds from the sale of an approved enterprise abroad. The MOF has in some instances frozen the domestic bank accounts of companies over tax disputes, which has effectively served to prohibit transfers of capital.

Transparency of the Regulatory System

Afghanistan’s Law on Publication and Enforcement of Legislation requires publication in the Official Gazette of official declarations, laws, decrees, and other legislative documents. There is no legal requirement or practice for publication and comment for domestic laws, regulations, or other measures of application that will become legally enforceable. In general, the Afghan government shares draft legislation with interested parties for comment and some ministries publish draft legislation in national newspapers for comment by the public. Foreign firms in Afghanistan follow accounting procedures consistent with international norms. The government uses ministerial orders to enforce regulatory compliance. For example, ministries have in the past taken action to freeze accounts or limit travel for companies until they comply with regulations.

International Regulatory Considerations

Afghanistan became a WTO member in 2016. The government is working to build its capacity to meet the notification requirements of the WTO.

Legal System and Judicial Independence

The legal system of Afghanistan consists of Islamic, statutory, and customary (Shura) rules. The supreme law of the land is the Constitution. The judiciary system is composed of the Supreme Court, the Courts of Appeal, and the Primary Courts. There are trial and appellate courts that specialize in commercial disputes. Since 2002, NGOs have been working to strengthen the rule of law in Afghanistan by identifying peaceful means for dispute resolutions and developing partnerships between state and community actors in the hopes of improving access to justice. Despite these efforts, many legal disputes are still resolved outside the formal justice system by community-based tribal leaders. Contract law in Afghanistan is set out in the Afghanistan Commercial Code 1955 and the Afghanistan Civil Code 1977. Under these codes, parties are generally free to: a) enter into and perform a contract on any commercial subject matter provided that subject matter or performance is not contrary to law, public policy, or sharia; and b) agree to have the law of a foreign state govern their contract.

According to credible contacts, civil cases in the commercial court system can sometimes take more than 18 months for parties to obtain resolutions. Cases are frequently resolved more quickly through an informal system or, in some cases, pursuant to negotiations facilitated by formal justice system actors or private lawyers.

Because there is often limited access to the formal legal system in rural areas, local elders and shuras (consultative gatherings, usually of men selected by the community) are often the primary means of settling both criminal matters and civil disputes, and they are known to levy unsanctioned punishments. According to the 2017 Asia Foundation Survey of the Afghan People, shuras were used to resolve 43 percent of all disputes and represent the predominant form of dispute resolution employed by Afghans.

Investors should be aware that the Human Rights Report noted that arbitrary arrests occur in most provinces and that there have been a number of cases in which the Attorney General’s office, with the complicity of some police officials, imposed or threatened to impose criminal penalties on persons who may only be indirectly connected to a contractual dispute between a foreign company and an Afghan person or entity.

Laws and Regulations on Foreign Direct Investment

Under the PIL, investment is defined as currency and contributions in kind, including, without limitation, licenses, leases, machinery, equipment, and industrial and intellectual-property rights provided for the purpose of acquiring shares of stock or other ownership interests in a registered enterprise. The PIL permits investments in nearly all sectors except nuclear power, gambling, and production of narcotics and intoxicants. There are also limitations on the total value of service transactions or assets with respect to motion pictures, road transport (passenger and freight), and on the total number of people that can be employed in security companies.

Foreign investors have complained of irregularities in the court system, arbitration, and tax disputes. As a result of the various legal and regulatory challenges, companies operating in Afghanistan should seek local legal counsel to help navigate licensing and permitting requirements and conforming to tax regulations.

Competition and Anti-Trust Laws

Afghanistan does not have anti-trust laws. In 2010, the Afghan government enacted a law to protect sound competition in markets and prevent unfair competition.

Expropriation and Compensation

The PIL allows for expropriation of investments or assets by the government on a non-discriminatory basis for the purposes of public interest. The law stipulates that the government shall provide prompt, adequate, and effective compensation in conformity with the principles of international law. In cases of investment in a foreign currency, the law requires compensation to be made in that currency. The government may also confiscate private property to settle debts. According to the PIL, investors with an ownership share of more than 25 percent may challenge the expropriation. There have been no reports of government expropriation of foreign assets.

The Ministry of Finance may freeze assets to collect taxes.

Dispute Settlement

ICSID Convention and New York Convention

In 2005 Afghanistan became a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Under the New York Convention, Afghanistan has agreed to (a) recognize and enforce awards made in another contracted state, and (b) apply the convention to commercial disputes. Under the PIL and the Commercial Arbitration Law of 2007, (a) parties can agree to have foreign law govern their contract and agree to have their disputes resolved through arbitration or other mechanisms inside or outside of Afghanistan, and (b) Afghan courts must enforce any resulting award or agreement.

Afghanistan has been a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention) since 1966.

Investor-State Dispute Settlement

Afghanistan does not have a Bilateral Investment Treaty or Free Trade Agreement with the United States. There are several ongoing disputes between the government and investors, typically about tax assessments and license requirements.

International Commercial Arbitration and Foreign Courts

Since 2005, Afghan law has expressly recognized alternative dispute resolution provisions. In 2014, the Afghanistan Centre for Dispute Resolution (ACDR), whose decisions are non-binding, was established with support from USAID and the Department of Commerce Commercial Law Development Program (CLDP). The ACDR offers mediation, expert witness services, and award calculation services in a limited number of cases referred by the commercial courts and plans to expand its services to include arbitration.

Bankruptcy Regulations

Provisions in the Banking Law provide special procedures for bank insolvency. The Afghan government enacted a new insolvency law in 2017 (Law of Insolvency and Bankruptcy in Afghanistan of 2018) to provide a uniform and fair procedure for the payment of debts to creditors. The text of the law can be found at https://ahg.af/wp-content/uploads/2015/04/Draft-Insolvency-Law-English.pdf .

Capital Markets and Portfolio Investment

Afghanistan is in principle welcoming toward foreign portfolio investment, but financial institutions and markets are at an early stage of development. Afghanistan does not have a stock market. There are no limitations of foreign investors obtaining credit. The banking sector generally only provides short term loans.

Afghanistan joined the IMF on July 14, 1955. According to the 2017 IMF Country Report, Afghanistan imposes no restrictions on the making of payments and transfers for current interactional transactions and its exchange system is free of multiple currency practices. The 2017 Country Report for Afghanistan can be found here: https://www.imf.org/en/Publications/CR/Issues/2017/12/14/Islamic-Republic-of-Afghanistan-2017-Article-IV-Consultation-and-Second-Review-under-the-45473 .

Money and Banking System

Most Afghans remain outside the formal banking sector. Afghans continue to rely on an informal trust-based process referred to as Hawala to access finance and transfer money, due in part to religious acceptance, unfamiliarity with a formal banking system, and limited access to banks in rural areas. Three of the four major mobile network operators – Etisalat, AWCC, and Roshan – offer limited mobile money services. The Afghan government is developing a procedure for mobile money salary payments in the Ministry of Labor, but the program has not yet been launched.

Still, finance is Afghanistan’s second-largest service industry behind telecommunications and is potentially an important driver of private investment and economic growth. There are 15 commercial banks operating in Afghanistan, with total assets of approximately $4.48 billion. There are three state banks: Bank-e Millie Afghan (Afghan National Bank), Pashtany Bank, and New Kabul Bank (formerly the privately owned Kabul Bank). There are also branch offices of foreign banks, including Alfalah Bank (Pakistan), Habib Bank of Pakistan, and National Bank of Pakistan.

As of December 2017, the total assets of the banking sector was $4.6 million. Banking remains highly centralized, with a considerable majority of total loans made in Kabul. Bank lending is undermined by the legal and regulatory infrastructure that impedes the enforcement of property rights and development of collateral.

As of December 2017, the banking sector gross Non-Performing Loans (NPL) ratio was 12.18 percent, while the net ratio stands at 6.79%.

Formal credit to the private sector stands at less than 10 percent of GDP, significantly lower than other countries in the region. Afghanistan ranks 101 out of 189 economies for ease of obtaining credit in the World Bank’s Doing Business 2017 Report. Afghan entrepreneurs complain interest rates for commercial loans from local banks are high, averaging around 15.5 percent. In response to this situation, investment funds, leasing, micro-financing, and SME-financing companies have entered the market. USAID is working with the Afghan government and the banking sector to promote improved access to finance and the expansion of financial inclusion.

Afghanistan has lost many correspondent banking relationships in the past few years due to risk aversion and lack of profitability. The full extent of impact has yet to be quantified, but the unmeasured effects have been a loss in the ease of basic international transactions.

The Afghan central bank Da Afghanistan Bank (DAB) has made improvements in monitoring and supervising the banking sector, following the 2010 Kabul Bank crisis. President Ghani also took steps to hold those responsible accountable. The Afghan Government has a plan to recover assets from perpetrators of the large-scale bank fraud, though progress on its implementation remains slow.

Foreigners can open bank accounts with Afghanistan banks if they have valid visas, work permits, and in the case of a legal entity, a valid business license. Afghan banks do not open bank accounts for non-resident customers.

Foreign Exchange and Remittances

Foreign Exchange Policies

Private investors have the right to transfer capital and profits out of Afghanistan, including for off-shore loan debt service. There are no restrictions on converting, remitting, or transferring funds associated with investment, such as dividends, return on capital, interest and principal on private foreign debt, lease payments, or royalties and management fees, into a freely usable currency at a legal market clearing rate. The PIL states that an investor may freely transfer investment dividends or proceeds from the sale of an approved enterprise abroad.

Major transactions in Afghanistan, such as the sale of autos or property, are frequently conducted in dollars or in the currency of neighboring countries. Afghanistan does not maintain a dual-exchange-rate policy, currency controls, capital controls, or any other restrictions on the free flow of funds abroad. Afghanistan uses a managed floating exchange rate regime under which the exchange rate is determined by market forces. It is illegal to transport more than AFN 1,000,000 (approximately USD 17,200) or the foreign currency equivalent out of Afghanistan via land or air. Amounts over AFN 500,000 (approximately USD 8,600), but beneath AFN 1,000,000, must be declared. Enforcement is reported to be inconsistent.

Remittance Policies

Access to foreign exchange for investment is not restricted by any law or regulation. There are large, yet informal, foreign exchange markets in major cities and provinces where U.S. dollars, British pounds, and euros are readily available. Entities wishing to buy and sell foreign exchange in Afghanistan must register with the central bank, Da Afghanistan Bank, but thousands of Hawalas continue to practice their trade. Non-official money service providers often cite the lack of enforcement in the currency exchange sector, and the resulting competitive disadvantage to licensed exchangers, as a disincentive to becoming licensed.

Over the past three years, Afghanistan has made significant progress in improving Anti-Money Laundering/Combating the Financing of Terrorism and is no longer subject to Financial Action Task Force (FATF) monitoring. The FATF report can be found at http://www.fatf-gafi.org/countries/a-c/afghanistan/documents/fatf-compliance-june-2017.html .

Sovereign Wealth Funds

Afghanistan does not have a sovereign wealth fund.

Policies Towards Foreign Direct Investment

The government of Albania (GoA) understands that private sector development and increased levels of foreign investment are critical to increase opportunity and lower unemployment. Albania maintains a liberal foreign investment regime designed to help attract FDI. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies in all but a few sectors. Albanian legislation does not distinguish between domestic and foreign investments.

The 2010 amendments to the Law on Foreign Investment introduced criteria specifying when the state would grant special protection to foreign investors involved in property disputes, providing additional guarantees to investors for investments of more than 10 million euros. The 2017 amendments extended state protection for strategic investments, as defined under the 2015 Law on Strategic Investments, through December 2018.

The Albanian Investment Development Agency (AIDA) is in charge of promoting foreign investments in Albania. Potential U.S. investors in Albania should contact AIDA to learn more about the services AIDA offers to foreign investors (http://aida.gov.al/home ).

The Law on Strategic Investments stipulates that AIDA, as the Secretariat of the Strategic Investment Council, serves as a one-stop shop for foreign investors, from filing of the application form to granting the status of strategic investment/investor.

The deadline for application to receive the status of strategic investment/investor is December 2018. The legal framework regulating the strategic investments can be found at the Albanian Investment Development Agency page (http://aida.gov.al/pages/strategic-investments ).

Despite hospitable legislation, U.S. investors are challenged by rampant corruption and the perpetuation of informal business practices. Several major U.S. investors have left the country in recent years after contentious commercial disputes, including several that were brought before international arbitration.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic investors have equal rights of ownership of local companies, based on the principle of “national treatment.” According to the World Bank’s “Investing Across Borders”  indicator, just three out of 33 sectors may not be foreign owned.

• Domestic and International air passenger transport: foreign interest in airline companies is limited to 49 percent ownership by investors outside the Common European Aviation Zone, for both domestic and international air transportation;
• Television broadcasting: no entity, foreign or domestic, may own more than 40 percent of a television company.

Albania lacks an investment review mechanism for inbound foreign direct investment. Albanian law permits private ownership and establishment of enterprises and property. Foreign investors do not require additional permission or authorization beyond that required of domestic investors. Foreign individuals and companies may not purchase agricultural land, though land may be leased for up to 99 years. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property. Foreigners can acquire concession rights on natural resources and resources of the common interest, as defined by the Law on Concessions and Public Private Partnerships.

Foreign and domestic investors have numerous options available for organizing business operations in Albania. The 2008 ‘Law on Entrepreneurs and Commercial Companies,’ and ‘Law Establishing the National Registration Center’ (NRC) allow for the following legal types of business entities to be established through the NRC: Sole Entrepreneur; Unlimited Partnership; Limited Partnership; Limited Liability Company; Joint Stock Company; Branches and Representative Offices; and Joint Ventures.

Other Investment Policy Reviews

World Trade Organization (WTO) completed a Trade Policy Review of Albania in May 2016 (https://www.wto.org/english/tratop_e/tpr_e/tp437_e.htm ).

In November 2017, UNCTAD completed the first Investment Policy Review (IPR) of South-East European (SEE) countries, including Albania (http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1884 ).

Business Facilitation

According to the 2018 World Bank Doing Business Report, it takes an average of five procedures over five days to start a company in Albania. The National Business Center (NBC) serves as a one-stop shop for business registration. All required procedures and documents are published on-line (http://www.qkb.gov.al/information-on-procedure/business-registration/ ). The registration may be done in person, or online via the e-Albania portal . Many companies choose to complete the registration process in person, as the online portal requires an authentication process and electronic signature and is only available in the Albanian language. In 2016, the Business Licenses Center merged with the National Registration Center, to create the National Business Center (http://www.qkr.gov.al/home/ ), which now serves as a one-stop-shop for business registration and all licenses.

Outward Investment

Albania neither promotes nor incentivizes outward investment or restricts domestic investors from investing abroad.

Transparency of the Regulatory System

Albania’s regulatory system has improved in recent years, but challenges remain. Uneven enforcement of legislation, cumbersome bureaucracy, and a lack of transparency are all hindrances to the business community.

Albanian legislation includes rules on disclosure requirements, formation, maintenance, and alteration of capital, mergers and divisions, takeover bids, shareholders’ rights, as well as corporate governance principles. The Law on Accounting and Financial Statements includes reporting provisions related to international financial reporting standards for large companies, and national financial reporting standards for small and medium enterprises.

Other independent agencies and bodies, including the Energy Regulator (ERE), Telecom Regulator (AKEP), Natural Resources Bureau (AKBN), and other major institutions operate to ensure transparency in specific sectors.

State-owned oil company Albpetrol retains some regulatory authority over legacy oilfields and is a consistent source of reports of corruption, malign interpretation of regulations, and inefficiency in the hydrocarbons sector. Major foreign investors in this sector report difficulties in complying with often overlapping regulatory requirements, and inconsistent and often conflicting interpretations of Albanian legislation and regulations governing oil exploration and extraction.

International Regulatory Considerations

Albania acceded to the World Trade Organization in 2000, and the country notifies the WTO Committee on Technical Barriers to Trade of all draft technical regulations.

Legal System and Judicial Independence

The Albania legal system is based on the continental judicial system. The Albanian constitution provides for the separation of legislative, executive, and judicial branches, thereby supporting the independence of the judiciary. The Civil Procedure Code, enacted in 1996, governs civil procedure in Albania. The civil court system consists of district courts, appellate courts, and the Supreme Court. The district courts are organized in specialized sections according to the subject of the claim, including civil, family, and commercial disputes.

The administrative courts of first instance, the Administrative Court of Appeal, and the Administrative College of the High Court, now adjudicate administrative disputes. Administrative courts aim to adjudicate administrative cases quickly. The Constitutional Court reviews whether laws or subsidiary legislation comply with the Constitution, and in limited cases protects and enforces the constitutional rights of citizens and legal entities.

Parties may appeal the judgment of the first instance courts within 15 days, while appellate court judgments must be appealed to the Supreme Court within 30 days. A lawsuit against an administrative action is submitted to the administrative court within 45 days from notification and the law stipulates short procedural timeframes enabling faster adjudication of administrative disputes.

Albania does not have a specific commercial code, but defines commercial legislation through a series of relevant commercial laws including, the Foreign Investment Law, Commercial Companies Law, Bankruptcy Law, Environmental Law, Law on Corporate and Municipal Bonds, Transport Law, Maritime Code, Secured Transactions Law, Employment Law, Taxation Procedures Law, Banking Law, Insurance and Reinsurance Law, Concessions Law, Mining Law, Energy Law, Water Resources Law, Waste Management Law, Excise Law, Oil and Gas Law, Gambling Law, Telecommunications Law, Value Added Law, and Sports Law.

Corruption is endemic in the Albanian judicial system and U.S. investors are advised to include binding international arbitration clauses in agreements with Albanian counterparts. While the government has historically respected decisions by international arbitration courts, the GoA ignored a 2016 injunction from such a court in a high-profile investment dispute (a decision that was later reversed). Albania is a signatory to the New York Convention and foreign arbitration awards may be enforced in local courts.

Laws and Regulations on Foreign Direct Investment

The Law on Foreign Investments seeks to create a hospitable legal climate for foreign investors and stipulates the following:

1. No prior government authorization is needed for an initial investment;
2. Foreign investment may not be expropriated or nationalized directly or indirectly, except for designated special cases, in the interest of public use and as defined by law;
3. Foreign investors enjoy the right to expatriate all funds and contributions in kind from their investments;
4. Foreign investors receive most favored nation treatment according to international agreements and Albanian law.

There are limited exceptions to this liberal investment regime, most of which apply to the purchase of real estate. Agricultural land cannot be purchased by foreigners and foreign entities, but may be rented for up to 99 years. Investors can buy agricultural land if registered as a commercial entity in Albania. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property.

In an effort to boost investments in strategic sectors, the government approved a new law on strategic investments in May 2015. Under the new law, a “strategic investment” as deemed by the government benefits from either “assisted procedure” or “special procedure” assistance by the government to help navigate the permitting and regulatory process. To date, no major foreign investors have taken advantage of the law. Several projects proposed by domestic companies or consortiums of local and foreign partners have been designated as strategic investments, mostly in the tourism sector.

Major Laws Governing Foreign Investments:

• Law 55/2015, “On Strategic Investments”: Defines procedures and rules to be observed by government authorities when reviewing, approving and supporting strategic domestic and foreign investments in Albania;
• Law 9901/2008 “On Entrepreneurs and Commercial Companies”: Outlines general rules and regulations on the merger of commercial companies;
• Law 110/2012 “On Cross-Border Mergers”: Determines rules on mergers when one of the companies involved in the process is a foreign company;
• Law 9121/2003 “On Protection of Competition”: Stipulates provisions for the protection of competition, and the concentration of commercial companies;
• Law 10198/2009 “On Collective Investment Undertakings”: Regulates conditions and criteria for the establishment, constitution, and operation of collective investment undertakings and of management companies;
• Law 7764/1993 “On the Foreign Investments” amended by the Law 10316/2010.

Authorities responsible for mergers, change of control, and transfer of shares include, the Albanian Competition Authority (ACA; http://www.caa.gov.al/laws/list/category/1/page/1 ) which monitors the implementation of the competition law and approves mergers and acquisitions when required by the law; and, the Albanian Financial Supervisory Authority (FSA; http://www.amf.gov.al/ligje.asp ) which regulates and supervises the securities market and approves the transfer of shares and change of control of companies operating in this sector.

Investors in Albania are entitled to judicial protection of legal rights related to their investments. Foreign investors have the right to submit disputes to an Albanian court. In addition, parties to a dispute may agree to arbitration. Albania is a signatory to the New York Arbitration Convention and foreign arbitration awards are typically recognized by Albania, although the government refused to recognize an injunction from a foreign arbitration court in one high profile case, in 2016, calling into question the government’s commitment to arbitration (this refusal was later reversed). The Albanian Civil Procedure Code outlines provisions regarding domestic and international commercial arbitration. Many foreign investors complain that endemic judicial corruption and inefficient court procedures undermine judicial protection in Albania and seek international arbitration to resolve disputes.

Albania’s tax system does not distinguish between foreign and domestic investors. Informality in the economy (as high as 50 percent) presents challenges for tax administration.

Visa requirements to obtain residence or work permits are straightforward and do not pose an undue burden on potential investors. The only potential complication to obtaining a work permit is the requirement that a foreign employer maintain a certain number of local employees. The Law on Foreigners states that a foreign employer will be granted a work permit when the number of foreign employees does not exceed 10 percent of the total number of employees on the payroll over the 12 proceeding months.

The Law on Entrepreneurs and Commercial Companies sets guidelines on the activities of companies and the legal structure under which they may operate. The government adopted the law in 2008 to conform Albanian legislation to the European Union’s Acquis Communitaire. The most common type of organization for foreign investors is a limited liability company.

The Law on Concessions establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects. Concessions may be identified by central or local governments or through third party unsolicited proposals. In the case of unsolicited proposals, the proposing company is entitled to receive a bonus of up to 10 percent of total points based on the technical and financial proposal.

Competition and Anti-Trust Laws

The Albanian Competition Authority (http://www.caa.gov.al/?lng=en ) is the agency that reviews transactions for competition- related concerns. The Law on Protection of Competition governs incoming foreign investment whether through mergers, acquisitions, takeovers, or green field investments, irrespective of industry or sector. In the case of particular share transfers in insurance and banking industries, the Financial Supervisory Authority (http://amf.gov.al/ ) and/or the Bank of Albania (https://www.bankofalbania.org/ ) may require additional regulatory approvals. Transactions between parties outside Albania, including foreign-to-foreign transactions, are covered by the competition law, which explicitly states that the transactions apply to all activities, domestic or foreign, that directly or indirectly affect the Albanian market.

Expropriation and Compensation

The Albanian Constitution guarantees the right of private property. According to Article 41, expropriation or limitation in the exercise of a property right can occur only if it serves the public interest and with fair compensation. During the post-communist period, expropriation has been limited to land for public interest, mainly infrastructure projects such as roads, energy infrastructure, water works, airports, and other facilities. Compensation has generally been below market value and owners have complained that the compensation process is slow and unfair. Civil courts are responsible for resolving such complaints.

Change of government can also be of concern to foreign investors. Following the 2013 elections and peaceful transition of power, the new government revoked or attempted to renegotiate numerous concession agreements, licenses, and contracts signed by the previous government with both domestic and international investors. This practice has occurred in years past, as well.

There are many ongoing disputes regarding properties confiscated during the communist regime. Identifying ownership is a longstanding problem in Albania that makes restitution for expropriated properties difficult. The restitution and compensation process started in 1993, but has been slow and marred by corruption. Many U.S. citizens of Albanian origin have suffered from long-running restitution disputes. Court cases drag on for years without a final decision, forcing many to refer their case to the European Court of Human Rights in Strasbourg, France. To date, the Court has issued around 29 decisions in favor of Albanian citizens in civil cases involving protection of property with an assessed financial cost of approximately USD 50 million. Approximately 400 applications are pending for consideration. Even after settlement in Strasbourg, enforcement of decisions is slow.

The GoA has recently approved new property compensation legislation that aims to provide a solution to the pending claims for restitution and compensation. The legislation presents three methods of compensation for confiscation claims: restitution; compensation of property with similarly valued land in a different location; and cash settlement/financial compensation. The legislation sets a 10-year timeframe for the completion of the entire process.

The Albanian government has generally not engaged in expropriation actions against U.S. investments, companies, or representatives. There have been limited cases in which the government has revoked licenses, especially in the mining and energy sectors, based on contract violation claims.

Dispute Settlement

ICSID Convention and New York Convention

Under the Albanian Constitution, ratified international agreements prevail over domestic legislation. Albania is a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). It also is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Albania has ratified the 1927 Convention and the European Convention on Arbitration (Geneva Convention).

Investor-State Dispute Settlement

For an arbitration award to be locally recognized, the claimant must enforce the award before the Court of Appeals. The procedure to recognize a foreign arbitral award typically lasts around one month and either party may appeal the Court’s decision to the Supreme Court. The appeal must be filed within 30 days from the date of decision or notification of the other party (if absent).

The possibility of bringing an action before the local court to avoid arbitration proceedings is remote. According to explicit provisions in the Albanian Code of Civil Procedure, if a party brings actions before local courts despite the parties’ agreement to arbitrate, the court would, upon motion of the other party, dismiss the case without entertaining the merits of the case. The decision of the court to dismiss the case can be appealed to the Supreme Court, which has 30 days to consider the appeal.

An alternative to dispute settlement via the courts is private arbitration or mediation. Parties can engage in arbitration when they have agreed to such a provision in the original agreement, when there is a separate arbitration agreement, or by mutual agreement at any time when a dispute arises. Legislation distinguishes arbitration of international disputes from arbitration of domestic disputes in that the parties involved in an international dispute may agree to settle through either a domestic or foreign arbitration tribunal. Mediation is also applicable in resolving all civil, commercial, and family disputes and is regulated by the law “On Dispute Resolution through Mediation.” Arbitral awards are final and enforceable and can be appealed only in cases foreseen in the Code of Civil Procedure. Mediation is final and enforceable in the same way.

There are no consolidated institutions for dispute resolution through arbitration and arbiters are appointed ad hoc in compliance with the provisions of the Code of Civil Procedure. The law provides for the National Chamber of Mediators and Chambers of Mediators as institutions to perform mediation. Mediators are licensed and registered at the Mediators Register at the Ministry of Justice, which maintains a list of mediators from which the parties can choose.

The provisions for arbitration procedures and the recognition and enforcement of foreign awards are stipulated in the Albanian Code of Civil Procedure. Albania does not have a separate law on arbitration. Although the arbitration chapter of the Code of Civil procedure stipulates only the rules for domestic arbitration, the country is signatory to the 1958 New York Convention, and as such, recognizes the validity of written arbitration agreements and arbitral awards in a contracting state.

The Albanian Code of Civil Procedure requires the courts to reach a judgment within a reasonable amount of time, but does not provide for a specific deadline to decide on commercial disputes. Reaching a final judgment in a commercial litigation may take several years to exhaust all stages of the process.

The procedure for the recognition of a foreign arbitral award should take on average approximately one month; however, in certain cases this decision may be appealable. An appeal against a court decision that recognizes a foreign arbitral award does not automatically suspend the effects of the enforcement.

International Commercial Arbitration and Foreign Courts

Over the past ten years, there have been six investment disputes between the Albanian government and U.S. companies, four of which resulted in international arbitration. Despite a stated desire to attract and support foreign investors, U.S. investors in disputes with the Albanian government report a lack of productive dialogue with government officials, who frequently display a reluctance to settle the disputes before they are escalated to the level of international arbitration, or before the international community exerts pressure on the government to resolve the issue. U.S. investors in Albania are encouraged to include strong binding arbitration clauses in any agreements with Albanian counterparts.

Bankruptcy Regulations

Albania maintains adequate bankruptcy legislation, though actual bankruptcies are rare in practice. Corrupt and inefficient bankruptcy court proceedings make it difficult for companies to reorganize or discharge debts through bankruptcy. The new law on bankruptcy, approved in May 2017, aims to address loopholes in the insolvency regime, decrease unnecessary market exit procedures, reduce fraud, and ease collateral recovery procedures. The Bankruptcy Law governs the reorganization or liquidation of insolvent businesses. It sets out non-discriminatory and mandatory rules for the repayment of the obligations by a debtor in a bankruptcy procedure. The law establishes statutory time limits for insolvency procedures, professional qualifications for insolvency administrators, and an Agency of Insolvency Supervision to regulate the profession of insolvency administrators.

Debtors, creditors, or tax authorities can initiate a bankruptcy procedure. Debtors and creditors can file for either liquidation or reorganization. Tax authorities can request a bankruptcy procedure when the subject reports losses three years consecutively. Bankruptcy proceedings may also be invoked when the debtor is unable to pay the obligations at maturity date or will be unable to pay in the near future.

According to the provisions of the Bankruptcy Law, the initiation of bankruptcy proceedings would suspend the enforcement of claims by all creditors against the debtor subject to bankruptcy. Creditors of all categories should submit their claims to the bankruptcy administrator in order to be treated under the bankruptcy proceeding. The Bankruptcy Law provides specific treatment for different categories, including, secured creditors, unsecured creditors, and unsecured creditors of lower ranking (i.e. those whose claims would be paid after all the secured and unsecured creditors were satisfied). The claims of the secured creditors will be satisfied by the assets of the debtor, which secure such claims under security agreements. The claims of the unsecured creditors will be paid out of bankruptcy estate excluding the assets used for payment of the secured creditors, following the priority ranking described under the Albanian Civil Code.

Pursuant to the provisions of the Bankruptcy Law, the creditors have the right to establish a creditors committee and the creditors’ assembly. The creditors’ committee is appointed by the Commercial Section Courts, before the first meeting of the creditors’ assembly. The creditors’ committee represents the secured creditors, the unsecured creditors with larger claims, and creditors with small claims. The committee has the right: (a) to support and supervise the activities of the insolvency administrator; (b) to request and receive information about the insolvency proceedings; c) to inspect the books and records; and, d) to order an examination of the revenues and cash balances.

In the event that the creditors and administrator agree that reorganization is the company’s best option, the bankruptcy administrator prepares a reorganization plan and submits it to the court for authorizing implementation.

According to the insolvency procedures, only creditors whose rights are affected by the proposed reorganization plan enjoy the right of vote and the dissenting creditors in reorganization receive at least as much as what they would obtain in a liquidation. Creditors are divided into classes for the purposes of voting on the reorganization plan and each class votes separately and creditors of the same class are treated equally.

The insolvency framework allows for the continuation of contracts supplying essential goods and services to the debtor, the rejection by the debtor of overly burdensome contracts, the avoidance of preferential or undervalued transactions, and the possibility of the debtor obtaining credit after commencement of insolvency proceedings. No priority is assigned to post-commencement creditors.

The creditor has the right to object to decisions accepting or rejecting creditors’ claims, and should approve the sale of substantial assets of the debtor. The creditor does not have the right to request information from the insolvency representative and the law does not require approval by the creditor for the selection of appointment of insolvency representative.

According to the law on bankruptcy, foreign creditors have the same rights as domestic creditors with respect to the commencement of, and participation in, a bankruptcy proceeding. The claim is valued as of the date the insolvency proceeding is opened. Claims expressed in foreign currency are converted into Albanian currency according to the official exchange rate applicable to the place of payment at the time of the opening of the proceeding.

The Albanian Criminal Code provides for several criminal offences in bankruptcy such as: (i) the bankruptcy was provoked intentionally; (ii) concealment of bankruptcy status; (iii) concealment of assets after bankruptcy; and, (iv) failure to comply with the obligations arising under bankruptcy proceeding.

According to the World Bank’s 2018 Doing Business Report, Albania ranked 41 out of 190 countries in the insolvency index. A reference analysis of ‘resolving insolvency’ can be found here: http://www.doingbusiness.org/data/exploreeconomies/albania#resolving-insolvency .

The number of bankruptcy requests in Albania is growing; as of November 2016, 132 companies had navigated through bankruptcy based on the register of the Taxation Department.

Capital Markets and Portfolio Investment

In the absence of a stock market, the country’s banking sector remains the main channel for business financing. The sector is sound, profitable, and well capitalized, although the high rate of non-performing loans remains a concern. The Bank of Albania’s legal measures to address the problem have generated positive results. During 2017, non-performing loans continued to decrease, reaching 13.2 percent at the end of the year, an improvement over 2014, when the rate stood at 25 percent. Capital adequacy, at 16.6 percent, remains above Basel requirements and indicates sufficient assets, which totaled USD 13.25 billion in 2017, 2.7 percent higher than the previous year. The banking sector is fully private and includes 16 banks, most of which are subsidiaries of foreign banks. As of December 2017, the Turkish National Commercial Bank has further consolidated its position as the largest bank, with 27.8 percent of the market, followed by Austrian Raiffeisen Bank, which has a 17 percent market share. The share of Greek banks has fallen in recent years and stands at around 10 percent, due chiefly to the recent sale of the Albanian subsidiary of the National Bank of Greece to the American Bank of Investments (ABI), a domestic bank.

The government has adopted policies promoting the free flow of financial resources to promote foreign investment in Albania. The government and Central Bank refrain from restrictions on payments and transfers for international transactions. Despite Albania’s shallow FX market, banks enjoy sufficient liquidity to support sizeable positions. Furthermore, portfolio investments remain limited mostly to company shares, government bonds, and real estate.

The high rate of non-performing loans and the economic slowdown has forced commercial banks to tighten lending standards. After falling in 2015, the stock of loans increased by 2.5 percent year-on-year in 2016, but has remained flat since then. The credit market is competitive, but interest rates in domestic currency can be high, ranging from 5.8 percent to 8.3 percent. Most mortgage and commercial loans are denominated in euros, as rate differentials between local and foreign currency average 3.3 percent. Commercial banks have improved the quality and quantity of services they offer and the private sector has benefited from the expansion of these instruments.

The major state owned enterprises are Electric Distribution Operator (OSHEE), Transmission System Operator (OST), Electricity Generation Company (KESH), Oil and Gas Operator, Albpetrol, Albanian Post Office, and the Albanian Railway System. There is no published list of SOEs and no clear data on their assets, net income, or total number of employees.

Money and Banking System

Albania’s banking sector weathered the financial crisis better than many of its neighbors, due largely to a lack of exposure to international capital markets and lack of a domestic housing bubble. Market concentration remains high, as the five largest banks dominate the market with about 74 percent of total assets. The Bank of Albania has the flexibility to intervene in the currency market to protect exchange rates and official reserves, but not for more than 12 months. As part of its strategy to stimulate business activity, the Bank of Albania maintained a stable central bank interest rate at the historic low of 1.25 percent in 2017.

Foreigners are not required to prove residency status to establish a bank account aside from the normal know-your-client procedures. However, U.S. citizens are required to fill out a form allowing for the disclosure of their banking data to the IRS under the framework of the U.S. Foreign Account Tax Compliance Act.

Foreign Exchange and Remittances

Foreign Exchange Policies

The Central Bank of Albania (BOA) formulates, adopts, and implements foreign exchange policies and maintains a supervisory role in foreign exchange activities in accordance with the Law on the Bank of Albania No. 8269 and the Banking Law No. 9662. Foreign exchange is regulated by the 2009 Regulation on Foreign Exchange Activities no. 70 (FX Regulation).

The BOA maintains a free float exchange rate regime for its domestic currency, the lek (ALL). Foreign exchange is readily available at banks and exchange bureaus. However, when exchanging several million dollars or more, preliminary notification may be necessary, as the exchange market in Albania remains small. The domestic currency has generally been stable in recent years, experiencing just minor fluctuations. Nevertheless, it has appreciated by around 4.5 percent against the euro since the beginning of 2018. Albanian authorities do not engage in currency arbitrage, and do not view such as an efficient instrument to achieve competitive advantage. In early 2018, the Bank of Albania, in cooperation with the Ministry of Finance, launched a campaign that aims to reduce the domestic use of the euro and other foreign currencies for savings, loans, and high-value investments and expenditures. The campaign is part of a larger reform that aims to improve the effectiveness of domestic economic policies.

Remittance Policies

The Banking Law does not impose restrictions on the purchase, sale, holding, or transfer of monetary foreign exchange. However, the Law on the Bank of Albania authorizes the Bank to temporarily restrict the purchase, sale, holding, or transfer of foreign exchange to preserve the foreign exchange rate or official reserves. In practice, the Bank of Albania rarely employs such measures. The last episode was in 2009, when the Bank temporarily tightened supervision rules over liquidity transfers by domestic correspondent banks to foreign banks due to insufficient liquidity in international financial markets. It also asked banks to halt distribution of dividends and use dividends to increase shareholders’ capital, instead. The Bank lifted these restrictions in 2010.

The Law on Foreign Investment guarantees the right to transfer and repatriate funds associated with an investment in Albania into a freely usable currency at a market-clearing rate. Only licensed entities (banks) may conduct foreign exchange transfers and waiting periods depend on office procedures adopted by the banks. Both Albanian and foreign citizens entering or leaving the country must declare assets in excess of ALL 1,000,000 (USD 9,000) in hard currency and/or precious items. Failure to declare such assets is considered a criminal act, which is punishable by confiscation of the assets and imprisonment. Legal parallel markets are not in place in Albania, as the financial sector does not make use of convertible or negotiable instruments.

Although the Foreign Exchange Regulation provides that residents and non-residents may transfer capital within and into Albania without restriction, capital transfers out of Albania are subject to certain documentation requirements. Persons must submit a request indicating the reasons for the capital transfer, the amount of capital transferred outside the territory of Albania, and the address to which the capital will be transferred. Such persons must also submit a declaration on the source of the funds to be transferred. In January 2015, The FX Regulation was amended and the requirement to present the documentation showing the preliminary payment of taxes related to the transaction was removed.

Albania is not a major trading partner with the United States, but, in general, does not engage in currency manipulation tactics. Albania is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force-style regional body. The INCRS 2017 report for the first time ever categorizes Albania as a country of jurisdiction of primary concern with regard to money laundering.

Sovereign Wealth Funds

Albania does not have a sovereign wealth fund.

Policies Towards Foreign Direct Investment

The Algerian economy is both challenging and potentially highly rewarding. While the Algerian government publicly welcomes FDI, a difficult business climate, an inconsistent regulatory environment, and contradictory government policies complicate foreign investment. There are business opportunities in nearly every sector, including energy, power, water, healthcare, telecommunications, transportation, recycling, agribusiness, and consumer goods. Lower oil prices since mid-2014 have spurred the Algerian government to initiate reforms to drive economic diversification, but progress has been slow. The government has sought to reduce the country’s trade deficit through an openly-espoused policy of import substitution and import bans. A rebound of oil prices in the latter half of 2017 has also helped the government with its balance sheets. Companies that set up local manufacturing operations can receive permission to import materials to produce finished products the government would not approve for import. Certain regulations explicitly favor local firms at the expense of foreign competitors, most prominently in the pharmaceutical sector, where an outright import ban remains in place on more than 360 medicines and medical devices. The arbitrary nature of the government’s frequent changes to business regulations has added to the uncertainty of the market.

The National Agency of Investment Development (ANDI) is the primary Algerian government agency tasked with recruiting and retaining foreign investment. ANDI runs branches in each of Algeria’s 48 governorates (“wilayas”) which are tasked with facilitating business registration, tax payments, and other administrative procedures for both domestic and foreign investors. In practice, U.S. companies report that the agency is under-staffed and ineffective; its “one-stop shops” only operate out of physical offices, and there are no efforts to maintain dialogue with investors after they have initiated an investment. The agency’s effectiveness is undercut by its lack of decision-making authority, particularly for industrial projects, which is exercised by the Ministry of Industry and Mines, the Minister of Industry himself, and in many cases the Prime Minister.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity. However, the 51/49 rule requires majority Algerian ownership (at least 51 percent) in all projects involving foreign investments. This requirement was first adopted in 2006 for the hydrocarbons sector and was expanded across all sectors in the 2009 investments law. The rule was removed from the investments law in 2016, but it remains in force by virtue of its inclusion in the 2016 annual finance law. Algerian government officials have defended the law as necessary to prevent capital flight, protect Algerian businesses, and provide foreign businesses with local expertise. The government has argued the rule is not an impediment to attracting foreign investment and is needed to diversify investment in Algeria’s economy, foster private sector growth, create employment for nationals, transfer technology and know-how, and develop local training initiatives. Additionally, officials contend, and some foreign investors agree, that a range of tailored measures can mitigate the effect of the 51/49 rule and allows the minority foreign shareholder to exercise other means of control. Some foreign investors use multiple local partners in the same venture, effectively reducing ownership of each individual local partner to enable the foreign partner to own the largest share.

The 51/49 investment rule poses challenges for various types of investors. For example, the requirement hampers market access for foreign small and medium-sized enterprises (SMEs), as they often do not have the human resources or financial capital to navigate the complex requirements. Large companies can find creative ways to work within the law, sometimes with the cooperation of local authorities, because larger companies usually create more jobs and may have technology and equipment the government desires. SMEs usually do not receive this same consideration. There are also allegations that Algerian partners sometimes refuse to invest the required funds in the company’s business, require non-contract funds to get projects, and send unqualified workers to job sites. Manufacturers are also concerned about intellectual property rights (IPR), as foreign companies do not want to surrender control of their designs and patents. Several U.S. companies have reported they have internal policies that preclude them from investing overseas without maintaining a majority share, out of concerns for both IPR and financial control of the local venture, which correspondingly prevent them from establishing businesses in Algeria.

Since 2013, the Algerian government has not officially screened FDI. However, foreign investments are still subject to approvals from a host of ministries that cover the proposed project, most often the Ministries of Commerce, Energy, and Industry and Mines. U.S. companies have reported that certain high-profile industrial proposals, such as for automotive assembly, are subject to informal approval by the Prime Minister. In 2017, the government instituted an Investments Review Council, which the Prime Minister chairs, for the purpose of “following up” on investments; in practice, the establishment of the council means FDI proposals are subject to additional government scrutiny. Approval by the National Investments Council, also chaired by the Prime Minister, is necessary to obtain benefits and incentives for any project totaling more than 5 billion dinars (approximately $44 million).

Other Investment Policy Reviews

In the past three years, Algeria has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), or the United Nations Conference on Trade and Development (UNCTAD). The last such review was conducted by UNCTAD in 2003.

Business Facilitation

Algeria’s online information portal dedicated to business creation and registration (www.jecreemonentreprise.dz ) is clear and well-designed and allows quick navigation to the appropriate registration process for a firm. The website is in French and Arabic. The website lists a maximum of nine steps involving seven agencies and taking approximately three weeks to register a firm in Algeria. Only an individual seeking to create a business for self-employment can follow a relatively streamlined process of six steps. The website offers information on the process for registering with the social insurance authorities but lacks information on creating an official corporate seal or receiving a required court stamp, additional requirements for establishing a business in Algeria.

In the World Bank’s 2018 Doing Business report, Algeria’s ranking for starting a business remained low, at 145 (www.doingbusiness.org/data/exploreeconomies/algeria/#starting-a-business ), with rankings ranging from 1 to 190. The report lists a total of 12 procedures that cumulatively take an average of 20 days to complete to register a new business. Algeria improved on the indicators for gaining construction permits and access to electricity, but remained near the bottom of the rankings for property registration (162) and obtaining credit (175).

Outward Investment

Algeria does not currently have any mechanisms that promote or incentivize outward investment, though there are also no restrictions on domestic investors from investing overseas, provided they can access foreign currency for such investments. The exchange of Algerian dinars outside of Algerian territory is illegal, as is carrying abroad more than 3,000 dinars in cash (approximately $26; see section 7 for more details on currency exchange restrictions).

Transparency of the Regulatory System

All regulatory processes are managed by the national government. Accounting, legal, and regulatory procedures, as written, are considered consistent with international norms, although the decision-making process is opaque.

There is no specific mechanism for public comment on draft laws. Typically, government officials give testimony to the Parliament on draft legislation, which receive press coverage, and occasionally copies of bills are leaked to the media. However, full-text copies of draft laws are not made publicly accessible before enactment. All laws and some regulations are published in the Official Gazette (www.joradp.dz ) in Arabic and French, but the database has only limited online search features.

In some cases, authority over a matter may rest among multiple ministries, which imposes additional bureaucratic steps and the likelihood of either inaction or the issuance of conflicting regulations due to errors or unusual circumstances. The development of regulations occurs largely away from public view; internal discussions at or between ministries are not usually made public. In some instances, the only public interaction on regulations development is a press release from the official state press service at the conclusion of the process; in other cases, a press release is issued earlier. Regulatory enforcement mechanisms and agencies exist at some ministries, but they are usually understaffed and enforcement remains weak.

International Regulatory Considerations

Algeria is not a member of any regional economic bloc or of the WTO. The structure of Algerian regulations largely follows European—specifically French—standards.

Legal System and Judicial Independence

Algeria’s legal system is based on the French civil law tradition. The commercial law was established in 1975 and most recently updated in 2007 (www.joradp.dz/TRV/FCom.pdf ). The judiciary is nominally independent from the executive branch, but U.S. companies have reported allegations of political pressure exerted on the courts by the executive. Regulation enforcement actions are adjudicated in the national courts system and are appealable. Algeria has a system of administrative tribunals for adjudicating disputes with the government, distinct from the courts that handle civil disputes and criminal cases. Decisions made under treaties or conventions to which Algeria is a signatory are binding and enforceable under Algerian law.

Laws and Regulations on Foreign Direct Investment

The 51/49 rule in the 2016 annual finance law requires a majority Algerian partner for any foreign investment (see section 2), but otherwise there are few laws restricting foreign investment. In practice, the many regulatory and bureaucratic requirements for business operations provide officials many avenues to advance informally political or protectionist policies. The investments law enacted in 2016 charged ANDI with creating four new branches to assist with business establishment and the management of investment incentives. ANDI’s website (www.andi.dz/index.php/en/investir-en-algerie ) lists the relevant laws, rules, procedures, and reporting requirements for investors. However, much of the information lacks detail—particularly for the new incentives elaborated in the 2016 investments law—and refers prospective investors to ANDI’s physical “one-stop shops” located throughout the country.

Competition and Anti-Trust Laws

The National Competition Council (www.conseil-concurrence.dz/ ) is responsible for reviewing both domestic and foreign competition related concerns. Established in late 2013, it is housed under the Ministry of Commerce.

Expropriation and Compensation

The Algerian state can expropriate property under limited circumstances proscribed by law, with the state mandated to pay “just and equitable” compensation to the defendants for the property. Expropriation of property is extremely rare, with no cases within the last 10 years.

Dispute Settlement

ICSID Convention and New York Convention

Algeria is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) and the Convention on the International Center for the Settlement of Investment Disputes (ICSID Convention). The Algerian code of civil procedure allows both private and public-sector companies full recourse to international arbitration. Algeria permits the inclusion of international arbitration clauses in contracts.

Investor-State Dispute Settlement

Investment disputes sometimes occur, especially on major projects. These disputes can be settled informally through negotiations between the parties or via the domestic court system. For disputes with foreign investors, most cases are decided at international arbitration. The most common disputes in the last several years have involved state-owned oil and gas company Sonatrach and its foreign partners concerning the retroactive application since 2006 of a windfall profits tax on hydrocarbons production. Sonatrach won a case in October 2016 against Spanish oil company Repsol and two Korean firms. Sonatrach recently settled a dispute with French oil company Total.

The most recent investment dispute involving a U.S. company dates to 2012. The company, which had encountered bureaucratic blocks on the expatriation of dividends from a 2005 investment, did not resort to arbitration. The dispute was resolved in 2017, with the government permitting the company to expatriate the dividends.

International Commercial Arbitration and Foreign Courts

The Algerian Chamber of Commerce and Industry (CACI), the nationwide, state-supported chamber of commerce, has the authority to arbitrate investment disputes as an agent of the court. The bureaucratic nature of Algeria’s economic and legal system, as well as its opaque decision-making process, means that disputes can drag on for years before a resolution is reached. Businesses have reported cases in the court system are subject to political influence and generally tend to favor the government’s position.

Local courts recognize and have the authority to enforce foreign arbitral awards. Disputes between state-owned enterprises (SOEs) and foreign investors are rarely decided in domestic courts, since nearly all contracts between foreign and Algerian partners include clauses for international arbitration. The Ministry of Justice is in charge of enforcing arbitral awards against SOEs.

Bankruptcy Regulations

Algeria’s bankruptcy law generally follows international norms. While bankruptcy per se is not criminalized, management decisions (such as company spending, investment decisions, and even procedural mistakes) are subject to criminal penalties from fines to jail time, so decisions that lead to bankruptcy could be punishable under Algerian criminal law. However, bankruptcy cases rarely proceed to a full dissolution of assets. Public companies on the verge of bankruptcy are generally propped up by the Algerian government via cash infusions from the public banking system.

According to the World Bank’s Doing Business report, both debtors and creditors may file for both liquidation and reorganization. The report ranked Algeria 71st on its resolving insolvency indicator for 2018 (http://www.doingbusiness.org/data/exploreeconomies/algeria/#resolving-insolvency ).

Capital Markets and Portfolio Investment

The Algiers Stock Exchange has five stocks listed—each at no more than 35 percent equity—with a total market capitalization representing less than 0.1 percent of GDP. Daily trading volume on the exchange averages less than $2,000. Despite its small size, the market functions well and is adequately regulated by an independent oversight commission that enforces compliance requirements on listed companies and traders.

Officials aim to reach a capitalization of $7.8 billion in the next five years and enlist up to 50 new companies. However, attempts to list additional companies have been stymied both by a lack of public awareness and appetite for portfolio investment and by private and public companies’ unpreparedness to satisfy due diligence requirements that would attract investors. Proposed privatizations of state-owned companies have also been opposed by nationalist politics. Algerian society generally prefers material investment vehicles for savings, namely cash. Public banks, which dominate the banking sector (see below), are required to purchase government securities when offered, meaning they have little leftover liquidity to make other investments. Foreign portfolio investment is prohibited—the purchase of any investment product in Algeria, whether a government or corporate bond or equity stock, is limited to Algerian residents only.

Money and Banking System

The banking sector is roughly 85 percent public and 15 percent private as measured by value of assets held, and is regulated by an independent central bank. Estimated total assets in the sector in 2015 were roughly 9.2 trillion dinars ($83.6 billion) against 7.3 trillion dinars ($66 billion) in liabilities. The central bank had mandated a 12 percent minimum ratio for assets to liabilities until mid-2016, when in response to a drop in liquidity the bank lowered the threshold to eight percent. The decrease in liquidity was a result of all public banks buying government bonds in the first public bond issuance in more than 10 years; buying at least five percent of the offered bonds is required for banks to participate as primary dealers in the government securities market. The bond issuance essentially returned funds to the state that it had parked in funds at local banks during years of excess hydrocarbons profits.

Despite falling liquidity, the banks are still considered financially healthy, with only about five percent of assets considered non-performing, which is standard for emerging markets. The quality of service in public banks is generally considered low; generations of public banking executives and workers trained to operate in a statist economy lack familiarity with modern banking practices. Most transactions are still materialized (non-electronic). Many areas of the country suffer from a dearth of branches, leaving large amounts of the population without access to banking services. ATMs are not widespread, especially outside the major cities, and few accept foreign bank cards. Outside of major hotels with international clientele, hardly any retail establishments accept credit cards. Algerian banks do issue debit cards, but the system is distinct from any international payment system. In addition, approximately 4.6 trillion dinars ($40 billion), or one-third, of the money supply is estimated to circulate in the informal economy.

Foreigners can open foreign currency accounts without restriction, but proof of a work permit or residency is required to open an account in Algerian dinars. Foreign banks are permitted to establish operations in the country, but they must be legally distinct entities from their overseas home offices. Of the handful of foreign banks with a presence in Algeria, all are engaged exclusively in commercial banking; none offers retail banking services.

In 2015, the FATF removed Algeria from its Public Statement, and in 2016 it removed Algeria from the “gray list.” The FATF recognized Algeria’s significant progress and the improvement in its anti-money laundering/counter terrorist financing (AML/CFT) regime. The FATF also indicated Algeria has substantially addressed its action plan since strategic deficiencies were identified in 2011.

Foreign Exchange and Remittances

Foreign Exchange

There are few statutory restrictions on foreign investors converting, transferring, or repatriating funds, according to banking executives. Monies cannot be expatriated to pay royalties or to pay for services provided by resident foreign companies. The difficultly with conversions and transfers results more from the procedures of the transfers rather than the statutory limitations: the process is heavily bureaucratic and requires almost 30 different steps from start to finish. The slightest misstep at any stage can slow down or completely halt the process. In theory, it should take roughly one month to complete, but in reality, it often takes three to six months. Also, the Algerian government has been known to delay the process as leverage in commercial and financial disputes with foreign companies.

Expatriated funds can be converted to any world currency. The IMF classifies the exchange rate regime as an “other managed arrangement,” with the central bank pegging the value of the Algerian Dinar (DZD) to a “basket” composed of 64 percent of the value of the U.S. dollar and 36 percent of the value of the euro. The currency’s value is not controlled by any market mechanism and is set solely by the central bank. As the Central Bank has full control of the official exchange rate of the Dinar, any change in its value could be considered currency manipulation. When dollar-denominated hydrocarbons profits fell starting in mid-2014, the central bank allowed a slow depreciation of the dinar against the dollar over 24 months, culminating in about a 30 percent fall in its value before stabilizing around 110 dinars to $1 in late 2016. However, the dinar lost only about 10 percent of its value against the euro in the same time frame.

Remittance Policies

There have been no recent changes to remittance policies. There are no specific time limitations, although the bureaucracy involved in remittances can often slow the process to as long as six months. There is no legal parallel market by which investors can remit; however, there is a substantial black market currency exchange system in Algeria. Exchange rates for the dollar and euro are about 50 percent stronger on the black market than the official rates. With the more favorable informal rates, local sources report that most remittances occur via foreign currency hand-carried into the country. Under central bank regulations revised in September 2016, travelers to Algeria are permitted to enter the country with up to 1,000 euros or equivalent without declaring the funds to customs. However, any non-resident can only exchange dinars back to a foreign currency with proof of initial conversion from the foreign currency. The same regulations prohibit the transfer of more than 3,000 dinars ($26) outside Algeria.

Sovereign Wealth Funds

Algeria does not have a sovereign wealth fund.

Policies Towards Foreign Direct Investment

Andorra has established an open framework for foreign investments, allowing non-residents to create companies in the country, open businesses and invest in all kinds of assets.

The Foreign Investment Law came into force in July 2012, completely opening the economy to foreign investors. Since then, foreigners, whether resident or not, may own up to 100 percent of any Andorra-based company. The law also liberalizes restrictions on foreign professionals seeking to work in Andorra. Previously, a foreigner could only begin to practice in Andorra after twenty years of residency. Under the new regulations, any Andorran legal resident from a country that has a reciprocal standard can work in Andorra.

The Government of Andorra created the ACTUA program (www.actua.ad ) as Andorra’s economic development and promotion office in order to provide counseling services, to both Andorran companies looking to grow and foreign investors wanting to start new businesses in Andorra.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Andorran legal framework is also being adapted to international standards. The most relevant laws passed by Parliament to accompany the economic openness include the law of Companies (October 2007), the Law of Business Accounting (December 2007), and the Law of Foreign Investment (April 2008 and June 2012).

The OECD removed Andorra from its “tax haven list” in 2009 after the country signed the Paris Declaration, formally committing to fiscal information outlined by the agreement when requests . From 2011 to 2017, the Parliament also approved direct corporate, non-resident, capital gains, savings, and personal income taxes. These regulations aim at establishing a transparent, modern, and internationally comparable regulatory framework. At 10 percent, well below the European average, Andorra’s corporate tax is more competitive than rates in neighboring Spain or France.

Other Investment Policy Reviews

In the past three years neither the Government nor any international organization has conducted an investment policy review, be it the Organization for Economic Cooperation and Development (OECD); World Trade Organization (WTO); or, the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

Andorra created the Office of Andorran Development and Investment (ADI) to provide counseling services, through its “Invest in Andorra” (ACTUA) program, to Andorran companies and potential foreign investors. The ACTUA Program complements other reforms partnering private and public sectors to facilitate investment and diversification.

The ACTUA Program is based on three key pillars:

• Economic diversification through the development of clusters oriented towards the fields of innovation; health and wellness; education and sport.
• Attracting direct foreign investors and supporting national companies throughout their internationalization process.
• Supporting entrepreneurs: promoting collaboration between the public and private sectors and giving support to the development of new business initiatives.

Andorran regulations allow for two types of companies: Private Limited Liability Company (Societat de Responsabilitat Limitada – SL), which have a minimum capital requirement of 3,000 euros; and, Public Liability Company (Societat Anonima – SA) which is normally required for multiple shareholders and has a minimum capital requirement of 60,000 euros.

The business establishment procedures and for share acquisitions or transfers are quite similar to those of other countries, requiring the filling of a simple application form, with the additional unique condition of the presentation of any prior investment authorization received in the country. This same procedure is applicable for incorporation, establishment, extension, branching, or other form of business expansion. Once the company name is registered, the foreign investment is established, and the investor is required to deposit the share capital with an Andorran banking entity and proceed to public deed of incorporation before a Notary. The company registration before the Company Registry is automatic.

Outward Investment

The Government’s ACTUA program and the Andorran Chamber of Commerce (www.ccis.ad ) help companies search for business opportunities abroad.

Transparency of the Regulatory System

The Government set out transparent policies and laws, which have significantly liberalized all economic sectors in Andorra. New, foreign-owned businesses have to be approved by the government, and the process can take up to a month. The Government is committed to a transparent process. Andorra has begun to relax labor and immigration standards; previously, foreign professionals had to establish 20 years of residency before being eligible to own 100 percent of their business in Andorra. This restriction has been lifted for nationals coming from countries that have reciprocal standards for Andorran citizens.

Following approval of the new Accounting Law in 2007, individuals carrying out business or professional activities, trading companies, and legal persons or entities with a profit purpose must file financial statements with the administration.

International Regulatory Considerations

Although not a member of the European Union (EU), Andorra, as a member of the European Customs Union, is subject to all EU free trade regulations and arrangements with regard to industrial products. Concerning agriculture, the EU allows duty free importation of products originating in Andorra.

Andorra is negotiating a new association agreement with the European Union that will allow Andorrans to establish themselves in Europe and Andorran companies will be able to trade in the EU market.

Although the Government took some steps to become a member of the World Trade Organization (WTO) in 2003, the country is not yet a full member. Andorra currently holds observer status in the WTO.

Legal System and Judicial Independence

Andorra has a mixed legal system of civil and customary law with the influence of canon law. The judiciary is independent from the executive branch. The Supreme Court consists of a court president and eight judges, organized into civil, criminal, and administrative chambers; four magistrates make up the Constitutional Court. The Tribunal of Judges and the Tribunal of the Courts are lower courts. Regulations and enforcement actions can be appealed in the national court system.

Laws and Regulations on Foreign Direct Investment

The Law on Foreign Investment (10/2012) entered into force in 2012, opening the country’s economy by removing the sectorial restrictions stipulated in the prior legislation. In this way, Andorra has positioned itself on equal terms with neighboring economies, enabling it to become more competitive for new sectors and enterprises.

ACTUA is responsible for economic promotion and provides relevant laws, rules, procedures, and reporting requirements to investors.

Competition and Anti-Trust Laws

The Law on Effective Competence and Consumer Protection (13/2013) protects investors against unfair practices. The Ministry of Economy is responsible for administering anti-trust laws and reviews transactions for competition-related concerns (whether domestic or international in nature).

Expropriation and Compensation

The Law of Expropriation (1993) allows the Government to expropriate private property for public purposes in accordance with international norms, including appropriate compensation. We know of no incidents of expropriation involving the U.S. entities in Andorra.

Dispute Settlement

Andorran legislation establishes mechanisms to resolve disputes if they arise and its judicial system is transparent. The Constitution guarantees an independent judiciary branch, overseen by a High Council of Justice. The prosecution system allows for successive appeals to higher courts. The European Court of Justice is the ultimate arbiter of unsettled appeals.

Andorra became a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards in September 2015, requiring Andorran courts to enforce financial awards. Andorra is not a member of the International Center for the Settlement of Investment Disputes (ICSID).

Parties to a dispute can also resolve disputes contractually through international arbitration. Contractual disputes between U.S. individuals or companies and Andorran entities are rare, but when they arise are handled appropriately. There have been no reported cases of U.S. investment disputes.

Bankruptcy Regulations

Andorra’s Bankruptcy decree dates back to 1969. Other laws from 2008 and 2014 complement the initial text and further protect workers’ rights to fair salaries as well set up mechanisms to monitor the implementation of judicial resolutions. Additionally, Law 8/2015 outlines urgent measures allowing Government intervention of the banking sector in a crisis.

Capital Markets and Portfolio Investment

The Andorran financial sector is efficient and is currently the main pillar of the Andorran economy, representing 21 percent of the country’s GDP and over 5 percent of the workforce. Created in 1989, and redefined with more responsibilities in 2003, the Andorran National Institute of Finance (INAF; www.inaf.ad ) regulates all aspects of the integrated financial system and safeguards its stability. The INAF is a public entity with its own legal status, functionally independent from the Government. INAF has the power to carry out all necessary actions to ensure the correct development of its supervision and control functions, disciplinary and punitive powers, treasury and public debt management services, financial agency, international relations, advice, and studies.

The Andorran Financial Intelligence Unit (UIF) was created in 2000 as an independent organ dealing with the tasks of promoting and coordinating the prevention of money laundering and the financing of terrorism (www.uif.ad ).

The State Agency for the Resolution of Banking Institutions (AREB; www.areb.ad ) is a public-legal institution created by Law 8/2015 to take urgent measures to introduce mechanisms for the recovery and resolution of banking institutions.

Money and Banking System

Andorra adopted the use of the Euro in 2002 and in 2011 signed a new Monetary Agreement with the European Union (EU) making the Euro the official currency. Since July 1, 2013, Andorra has had the right to coin Euros. No exchange or capital controls exist.

The Andorra banking system is sound and considered the most important part of the financial sector. The Andorran banks offer a variety of services at market rates. The country also has a sizeable and growing market for portfolio investments.

The U.S. Internal Revenue Service certified all the Andorran banks as qualified intermediaries.

Founded in 1960, the Association of Andorran Banks (ABA; www.aba.ad ) represents all Andorran banks. Among its tasks are representing and defending interests of its members, watching over the development and competitiveness of Andorran banking at national and international levels, improving sector technical standards, co-operation with public administrations, and promoting professional training, particularly dealing with money laundering prevention. At present, all five Andorran banking groups are ABA members, totaling an estimated 46 billion Euros in combined assets for 2017.

Foreign Exchange and Remittances

Andorra adopted the Euro in 2002 and in 2011 signed a new Monetary Agreement with the EU making the Euro the official currency. Since 2013, Andorra has the right to coin Euros. There are no limits or restrictions on remittances provided that they correspond to a company’s official earning records.

Sovereign Wealth Funds

Andorra has no Sovereign Wealth Fund (SWF).

Policies Toward Foreign Direct Investment

Angola’s business environment remains one of the most difficult in the world. Investors must factor in pervasive corruption, an underdeveloped financial system, loss of U.S. corresponding banking relationships, abundant but unskilled labor, and extremely high operating costs. Surface transportation inside the country is slow and expensive, while bureaucracy and port inefficiencies complicate trade and raise costs.

The GRA actively seeks FDI, although it has traditionally set barriers to protect domestic businesses. The new 2018 private investment law, approved by Presidential decree 10/18 of 26 June 2018, removes obstacles that render the country’s business climate challenging and a deterrent to investors. The new investment law recognizes that prospective investors need a regulatory environment that guarantees contract enforcement and the repatriation of earnings. The biggest change within the new law is on how the government treats foreign investors versus domestic investors. The other more significant changes include:

• The scope: The new law applies to all national and foreign private investments, irrespective of the investment amounts.
• Eligibility for tax and customs benefits/incentives and other facilities: The new law does not subject investors to minimum investment thresholds. However, future regulations and/or amendments to the law may set limitations.
• Local content: Local content restrictions were eliminated (except for those originating from industry specific legal statutes, such as on oil & gas, mining, banking and financial services, aviation, and shipping).
• Transfer of profits and dividends: foreign investors remain entitled to repatriate dividends or profits distributed, the proceeds from liquidation of their investments (capital gains included), the amounts resultant from indemnities, royalties or other indirect investments associated with technology transfers; the right to repatriate depends on the full implementation of the investment and full compliance with tax obligations.
• Surtax on Capital Investment: tax levied on the portion of dividends exceeding the investor’s capital contributions in local SPVs (formerly ranging from 15 percent to 50 percent) was abolished.
• Priority Sectors: agriculture, food & agroindustry; health care units and related services; reforestation and industrial processing of forest resources, forestry; textile, clothing & footwear (TCF); lodging, tourism & leisure; civil construction & public works, telecoms & IT, airport and railway infrastructures; power production and supply; education, professional and educational training, scientific research and ID; water supply and waste collection and management.
• Indirect Investment: capital and finance investments in shares and debt securities was added to shareholders loans, supplementary capital contributions, proprietary technology, technical processes, industrial secrets and models, franchising, registered trademarks and other forms of access to their use; indirect investment remains capped at 50 percent of the overall investment amount.
• Shareholders loans: capped at 30 percent of the overall investment, reimbursable only after 3 years.
• Financing: foreign investors and companies majority owned by foreign investors are only eligible to take domestic financing upon full implementation of their investment projects.
• Financial Benefits: new concept which includes governmental financing programs (micro funding, privileged interest rates, public collaterals and risk capital) and administrative support (simplified and privileged access to business and operational licenses or assets of private domain of public entities).
• Reinvestment: special benefits awarded to reinvestment projects, in terms still to be regulated.
• Procedural regimes: investors are free to opt by one of the following regimes:
  • Prior-declaration Regime: applicable to investments not falling within the scope of priority sectors; investors may incorporate their local entities prior to the filing of investment proposals.
  • Special Regime: applicable to investments in priority sectors; SPVs incorporated under this regime are exempted from payment of taxes and fees (customs duties included) for a period of up to 5 years.
• Zones of Investment: Defines four territorial investment-developing zones for tax and customs incentives purposes.
• Tax and Customs Incentives: tax incentives vary depending on a number of criteria, including investment procedural regime followed, nature of the tax (conveyance tax, industrial tax, investment income tax or stamp duty) and investment zone; tax savings can amount to up to 85 percent (for stamp duty) and be granted up to 8 years.
• Fines: 1 percent of the investment amount (other ancillary penalties may also apply).
• Effective date and Implementation: the 2018 PIL entered into force on the date of its gazette, but its effective implementation depends on the enactment of future regulations, which are due soon.

Angola’s Regulatory Competition Agency submitted its first anti-trust law that was also approved on May 17. The new competition law aims to ensure and safeguard sound competition practices in the award and enforcement of contracts. In addition to changes to the investment legal framework, the government has created the Agency for Private Investment and Export Promotion (AIPEX), a single state-run agency with the goal of facilitating investment and export processes. The government abolished the visitor visa requirement for several countries in the region, and as of March 30, 2018, it began issuing tourism visas on arrival at the airport to citizens from 61 countries, including the United States, China, and the European Union. For other countries, a series of measures are in development to expedite the issuance of tourist and business visas, a historically difficult process that has been a major complaint from international companies, expatriate workers, and investors.

Under the new 2018 investment law, the compulsory 35 percent minimum local participation requirement set by the 2015 investment law, ceases to be a requirement and investors are free to decide their investment capital threshold, share capital structure and request incentives.

Investment in the petroleum, diamond, and financial sectors are governed by sector-specific legislation. Details on the petroleum investment guidelines are outlined in the Country Commercial Guide Best Prospect Summary of the Oil and Gas industry.

Angola’s foreign exchange laws require all companies operating in Angola to make payments through local (Angola-domiciled) banks using the Angolan currency (kwanza). The foreign exchange law aims to strengthen demand for the kwanza, and build the capacity of Angola’s underdeveloped financial sector. The law was implemented in two phases. First in 2012, oil companies were required to pay taxes owed to the Angolan Ministry of Finance through a local bank. Then in July 2013, the regulation expanded to all companies operating in Angola, requiring them to use local banks (and local currency) for all payments, including payments to suppliers and contractors domiciled abroad.

Foreign exchange availability in the market during 2017 averaged USD 1 billion per month, up from USD 890.5 million per month in 2016. Foreign exchange availability in 2017 met only 63 percent of demand. Foreign exchange availability has been on the upswing in early 2018, as the National Bank of Angola (BNA) sold approximately USD 1.8 billion from January to March, 2018 to commercial banks. Despite the increase compared to 2017 in available forex, Angolan companies report waits of 3-8 months to access foreign exchange for imports. The government prioritized the following areas for forex: 1) employment retention (raw materials and inputs, equipment, technician salaries, and oil sector operations); 2) inflationary control (food, consumer necessities, fuel); 3) health and education; and 4) priority government expenses for necessary operations.

When preparing and entering into contracts with Angolan entities, foreign investors generally ensure that contracts are not governed solely by Angolan laws. This measure is to avoid the accompanying government mandate that contracts be denominated and paid in kwanza, the local currency which has little commercial or practical use outside of Angola. Companies often find it advisable to seek appropriate legal advice prior to negotiating binding law, arbitration, and payment clauses, and to seek to ensure that contract payments are denominated in and made in U.S. dollars. Consequent to the drop in global oil prices, the mainstay of the Angolan economy, foreign companies with kwanza based contracts have found it extremely difficult to repatriate profits due to the Central Bank’s severe restrictions on forex.

The 2018 investment law seeks to reduce bureaucracies and eliminate arcane legal complexities of the Angolan business environment. The new law also seeks to give equal treatment to all companies tendering for government contracts for goods, services, and public works. Regardless of origin, all companies can benefit from the Angolan Government’s loan guarantees, generous terms, and subsidized interest rates of the Ministry of Economy’s Angola Invest USD 1.6 billion Angola Invest Program. However, in 2018, the Angola Invest Program suffered a 27 percent drop in allocation in the State Budget to support micro, small, and medium-sized enterprises.

FDI in Angola has steadily increased since the end of the civil war in 2002, but peaked in 2014 just before the oil led economic crisis. Angola’s Central Bank, the Banco Nacional de Angola (BNA) reported USD 16.5 billion of FDI in Angola in 2014, which declined to USD 14.4 billion in 2016, and further in 2017 to an estimated USD 8.5 billion. The latest figures indicate that U.S. Direct Investment in Angola rose to USD 804 million in 2016 from USD 239 million in 2015, according to the U.S. Department of Commerce’s Bureau of Economic Analysis (www.bea.gov/international/factsheet/factsheet.cfm ).

President Lourenco began a concerted effort to restore investor confidence by prioritizing anti-corruption and the fight against nepotism. He has dismissed a number of prominent Angolan figures from government ministries and state owned institutions, called for the re-structuring of state owned enterprises, and has dismantled a series of monopolies in the industrial and media space controlled by members of the former president’s family. He dismissed the former president’s daughter, Isabel dos Santos, as head of Sonangol, the state-owned oil company, and removed dos Santos’ son from his position as Chair of the USD 5 billion valued Sovereign Wealth Fund. Lourenco put new executive boards in place that are charged with developing plans to improve operations and accountability in State Owned Enterprises. These reforms have attracted considerable international attention.

Limits on Foreign Control and Right to Private Ownership and Establishment

With the new 2018 investment law, Angola’s limits on foreign equity participation  will substantially reduce, bringing it more in line with those of its sub-Saharan African neighbors. Foreign ownership will remain limited to 49 percent in the oil and gas sectors, 50 percent in insurance, and 10 percent in the banking sectors. The Angolan government eliminated the 35 percent local content requirement in foreign investments, and it offers incentives to companies investing in the domestic economy, while maintaining minimal FDI screening processes. There are several objectives that the GRA seeks to accomplish through its FDI screening process: 1) create jobs for Angolans or transfer expertise to Angolan companies as part of the “Angolanization” plan; 2) protect sensitive industries such as defense and finance; 3) prevent capital flight or any other behavior that could threaten the stability of the Angolan economy; and, 4) diversify the economy.

Other Investment Policy Reviews

Angola has been a member of the World Trade Organization (WTO) since 1996. There have been no investment policy reviews for Angola from either the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD) in the last four years. The World Trade Organization (WTO) performed a policy review of Angola in September 2015. Excerpts of the Trade Policy Review concluding remarks by the WTO Chairperson were as follows:

“Members noted that Angola had implemented a number of measures aimed at import substitution. Its applied tariff rates have been significantly increased and range from 2 percent to 50 percent, with a simple average of 10.9 percent (up from 7.4 percent in 2005). Members urged Angola to rectify the instances where applied tariff rates and other duties and charges exceed the corresponding bound levels. In lieu of import substitution, Members suggested that Angola reduce production costs through lower import tariffs on inputs and further trade facilitation measures with a view to enhancing competitiveness and promoting local production.”

Members welcomed Angola’s new mining code and sought information about opportunities for foreign operators. They sought clarifications about Angola’s agricultural policy, which deals with food security and aims for sustainability of its fisheries sector. Some participants inquired about Angola’s plans to broaden its General Agreements on Trade in Services (GATS) commitments beyond its three existing sectors. Members were also interested in the Government’s priorities regarding, inter alia, competition policy, Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) regimes, and state-trading and state-owned enterprises. Noting that Angola’s intellectual property regime had not been substantially updated since 1992, Members urged the country to implement the TRIPS Agreement and to broaden its participation in international conventions on intellectual property. The Government of Angola plans to introduce a new tariff schedule in 2018.

Business Facilitation

Angola made dealing with construction permits easier and less time-consuming by improving its system of permit applications, according to the World Bank. The World Bank Doing Business 2018 report ranked Angola 175 out of 182 countries and also recorded an improvement in Luanda’s electrical grid and overall access to electricity, and the government’s facilitation of border trade by improving infrastructure at the Port of Luanda. Launching a business typically requires 36 days, compared with a regional average of 27 days. In 2012, the government opened approximately twenty “Balcoes Unicos do Empreendedor” (Single “One stop” Shop for Entrepreneurs). In addition to the Balcoes Unicos process, new business owners must also complete processes at the Ministry of Commerce, the tax office, and a provincial court in the location where the business has its headquarters.

On March 13, 2018, the government replaced the Angolan Investment and Export Promotion Agency (APIEX) with a new agency, the Private Investment and Export Promotion Agency (AIPEX). The new agency will now serve as a one-stop shop to promote investments and exports and the international competitiveness of Angolan companies.

The government also amended the 2015 private investment law. The current 2018 investment law eliminates the obligation to establish a partnership with an Angolan entity with at least a 35 percent stake in the capital structure in order to implement projects in the electricity and water, tourism, transport and logistics, construction, media, telecommunications, and IT sectors. As for the mineral and petroleum sectors, a legal document approving the Legal and Tax Regime for the Development of Marginal Discoveries of Petroleum Resources is also in the approval process.

Presidential Decree 56/18, of February 20, 2018 exempts several regional countries from entry visas, and as of March 30, 2018, the government is granting visas upon arrival to 61 countries including the United States and European Union.

Under the new 2018 investment law, the government reserves approval of investments of up to USD 10 million by the Agency for Private investment and Exports (AIPEX). The process can be time consuming and difficult to navigate, thus it is strongly recommended to retain legal counsel to assist in the investment application process.

The following documents are required to launch an investment:

• Letter of Investment Proposal addressed to the Minister of Commerce (MINCO);
• A Power of Attorney or Delegation of Authority to represent the investment proposal (in case you are not principal);
• Presentation Template Model of the Project, Dully Completed;
• Copy of the legal documentation of the company (company status), commercial registry duly authenticated by the consular services of Angola at the country of company domicile in case of legal entities;
• Copy of the legal documentation of the natural persons (identity card/passport) and criminal record dully authenticated by the consular services of the republic of Angola at the country of residency in case of natural persons;
• Technical economic and financial feasibility study of the proposed investment project;
• Environmental Impact Study (When is it applicable in Angola); and,
• Presentation of Documents in Duplicate.

Angolan law provides equal access for women entrepreneurs and underrepresented minorities in the economy. However, in practice, the investment facilitation mechanisms do not provide added advantages to these groups. Programs to benefit female entrepreneurs and underrepresented groups such as startup projects, business capacity building and development, and financial assistance including micro credit, are mainly implemented by non-governmental organizations and international financial institutions such as the African Development Bank, the World Bank, and private sector companies.

The new state-run private investment agency AIPEX does not yet have a website.

Contact Information: Departamento de Promocao e Captacao do Investimento; Agencia de Investimento Privado e Promocao de Investimentos e Exportacoes de Angola (AIPEX). Rua Kwamme Nkrumah No.8, Maianga, Luanda, Angola Tel: (+244) 995 28 95 92| 222 33 12 52 Fax: (+244) 222 39 33 81

Outward Investment

The Angolan Government does not promote or incentivize outward investment nor does it restrict Angolans from investing abroad. Investors are free to invest in any foreign jurisdiction.

According to a credible local newspaper, Expansao, based on data from the Angolan central bank, Banco Nacional de Angola (BNA), outward investments by Angolans exceeded USD 1 billion in 2015, for an aggregate total investment of more than USD 29 billion at the end of 2015. (Expansao Journal, March 3, 2017 edition).

Transparency of the Regulatory System

Angola’s regulatory system is complex, vague, and inconsistently enforced. In many sectors, no effective regulatory system exists due to lack of institutional capacity. The banking system is slowly adhering to International Financial Reporting Standards (IFRS). Public sector companies (SOEs) are still far from practicing IFRS. The public does not participate in draft bills or regulations formulation, nor does a public online location exist where the public can access this information for comment or hold executives accountable for irresponsible actions. The Angolan Communications Institute (INACOM) sets prices for telecommunications services and is the regulatory authority for the telecommunications sector. Revised energy-sector licensing regulations have permitted some purchase power agreements (PPA) participation.

Overall, Angola’s national regulatory system does not correlate to other international regulatory systems. However, Angola is a member of the World Bank, African Development Bank (AfDB), the Organization of Petroleum Exporting Countries (OPEC) (January 2007), the United Nations (UN) and most of its specialized agencies – International Conference on Reconstruction and Development (IBRD), the United Nations Development Program (UNCTAD), the International Monetary (IMF), the World Health Organization (WHO), World Trade Organization (WTO), and has a partnership agreement with the European Union (EU). At the regional level, the GRA is part of the Common Market for Eastern and Southern Africa (COMESA), the Community of Portuguese Speaking Countries (CPLP), and the Southern African Development Community (SADC), among other organizations. Angola has yet to join the SADC Free Trade Zone of Africa as a full member. On March 21, 2018, together with 44 African countries, Angola joined the African Continental Free Trade Area (AfCFTA), an agreement aimed at paving the way for a liberalized market for goods and services across Africa. Angola is also a member of the Port Management Association of Eastern and Southern Africa (PMAESA), which seeks to maintain relations with other port authorities or associations, regional and international organizations and governments of the region to hold discussions on matters of common interest.

Angola became an original WTO Member on 23 November 1996; however, it is not party to the Plurilateral Agreements on Government Procurement, the Trade in Civil Aircraft Agreement and has not yet notified the WTO of its state-trading enterprises within the meaning of Article XVII of the GATT. A government procurement management framework introduced in late 2010 stipulates a preference for goods produced in Angola and/or services provided by Angolan or Angola-based suppliers. Technical Barriers to Trade (TBT) regimes are not coordinated. There have been no investment policy reviews for Angola from either the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD) in the last four years. Angola conducts several bilateral negotiations with Portuguese Speaking countries (PALOPS), Cuba and Russia and extends trade preferences to China due to credit facilitation terms, while attempting to encourage and protect local content.

Regulation reviews are based on scientific or data driven assessments or baseline surveys. Evaluation is based on data; however, it is not made available for public comment.

The National Assembly is Angola’s main legislative body with the power to approve laws on all matters (except those reserved by the Constitution to the Government) by simple majority (except if otherwise provided in the Constitution). Each legislature comprises four legislative sessions of twelve months starting on October 15 annually. National Assembly members, parliamentary groups, and the government hold the power to put forward all draft-legislation. However, no single entity can present draft laws that involve an increase in the expenditure or decrease in the State revenue established in the annual budget.

The President promulgates laws approved by the Assembly and signs Government Decrees for enforcement. The State reserves the right to have the final say in all regulatory matters and relies on sectorial regulatory bodies for supervision of institutional regulatory matters concerning investment. The Economic Commission of the Council of Ministers oversees investment regulations that affect the country’s economy including the ministries in charge. Other major regulatory bodies responsible for getting deals through include:

• The Ministry of Petroleum: The government regulatory and oversight body responsible for regulating oil exploration and production activities. The national concessionaire is Sonangol EP, which is the holder of the concession rights and has the authority to conduct, execute, and ensure oil operations in Angola.
• IRSEA: The regulatory authority for renewable energies and enforcing powers of the electricity regulatory authority.
• The Angolan Communications Institute (INACOM): The institute sets prices for telecommunications services and is the regulatory authority for the telecommunications sector. Revised energy-sector licensing regulations have improved legal protection for investors to attract more private investment in electrical infrastructure, such as dams and hydro distribution stations.

Angola acceded to the New York Arbitration Convention on August 24, 2016 paving the way for the first time for effective recognition and enforcement in Angola of awards rendered outside of Angola and subject to reciprocity. Angola participates in the New Partnership for Africa’s Development (NEPAD), which includes a Peer Review Mechanism on good governance and transparency. Enforcement and protection of investors is under development in terms of regulatory, supervisory, and sanctioning powers. Investor protector mechanisms are weak or almost non-existent.

There are no informal regulatory processes managed by nongovernmental organizations or private sector associations, and the government does not allow the public to engage in the formulation of legislation or to comment on draft bills. Procurement laws and regulations are unclear, little publicized, and not consistently enforced. Oversight mechanisms are weak; no audits are required or performed to ensure internal controls are in place or administrative procedures are followed. Inefficient bureaucracy frequently leads to payment delays for goods delivered, resulting in an increase in the price the government must pay.

No regulatory reform enforcement mechanisms have been implemented since the last ICS report, in particular those relevant to foreign investors.

The Diario da Republica (the Federal Register equivalent), is a legal document where key regulatory actions are officially published.

International Regulatory Considerations

Angola’s overall national regulatory system does not correlate to other international regulatory systems and is overseen by its constitution. Angola is not a full member of the International Standards Organization (ISO), but has been a corresponding member since 2002. The Angolan Institute for Standardization and Quality (IANORQ) within the Ministry of Industry coordinates the country’s establishment and implementation of standards. Angola is an affiliate country of the International Electro-technical Commission that publishes consensus-based International Standards and manages conformity assessment systems for electric and electronic products, systems and services.

A government procurement management framework introduced in late 2010 stipulates a preference for goods produced in Angola and/or services provided by Angolan or Angola-based suppliers. Technical Barriers to Trade (TBT) regimes are not coordinated.

Angola acceded the Kyoto Convention on February 23, 2017.

Legal System and Judicial Independence

Angola’s formal legal system is primarily based on the Portuguese legal system and can be considered civil law based, with legislation as the primary source of law. Courts base their judgments on legislation and there is no binding precedent as understood in common law systems. The Constitution proclaims the Constitution as the supreme law of Angola (article 6(1)) and all laws and conduct are valid only if they conform to the Constitution (article 6(3)).

Businesses and non-governmental organizations report that the Angolan justice system is slow, arduous, and not always impartial. Legal fees are high, and most businesses avoid taking commercial disputes to court in the country. The World Bank’s Doing Business 2018 survey ranks Angola 186 out of 190 countries on contract enforcement, and estimates that commercial contract enforcement, measured by time elapsed between filing a complaint and receiving restitution, takes an average of 1,296 days, at an average cost of 44.4 percent of the claim.

Angola has commercial legislation that governs all commercial activities but no specialized court. In 2008, the Angola Attorney General ruled that Angola’s specialized tax courts were unconstitutional. The ruling effectively left businesses with no legal recourse to dispute taxes levied by the Ministry of Finance, as the general courts consistently rule that they have no authority to hear tax dispute cases, and refer all cases back to the Ministry of Finance for resolution. Angola’s Law 22/14, of December 5, 2014, which approved the Tax Procedure Code (“TPC”), sets forth in its Article 5 that the courts with tax and customs jurisdiction are the Tax and Customs Sections of the Provincial Courts and the Civil, Administrative, Tax and Customs Chamber of the Supreme Court. Article 5.3 of the law specifically states that tax cases pending with other courts must be sent to the Tax and Customs Section of the relevant court, except if the discovery phase (i.e., the production of proof) has already begun.

The Judicial system is administered by the Ministry of Justice at trial level for provincial and municipal courts and the Supreme Court nominates provincial court judges. In 1991, the constitution was amended to guarantee judiciary independence. However, as per the 2010 constitution, the President appoints Supreme Court judges for life upon recommendation of an association of magistrates and appoints the attorney general. Confirmation by the General Assembly is not required. The system lacks resources and independence to play an effective role and the legal framework is obsolete, with much of the criminal and commercial code reflecting colonial era codes with some Marxist era modifications. Courts remain wholly dependent on political power.

There is a general right of appeal to the court of first instance against decisions from the primary courts. To enforce judgments/orders, a party must commence further proceedings called executive proceedings with the civil court. The main methods of enforcing judgments are:

• Execution orders (to pay a sum of money by selling the debtor’s assets);
• Delivery up of assets; and,
• Provision of information on the whereabouts of assets.

The Civil Procedure Code also provides ordinary and extraordinary appeals. Ordinary appeals consist of first appeals, review appeals, interlocutory appeals, and full court appeals, while extraordinary appeals consist of further appeals and third-party interventions. Generally, an appeal does not operate as a stay of the decision of the lower court unless expressly provided for as much in the Civil Procedure Code.

Laws and Regulations on Foreign Direct Investment

The newly constituted Agency for Investment and Promotion of Exports of Angola (AIPEX) is the sole investment and export promotion center tasked with promoting Angola’s export potential, legal framework, environment, and investment opportunities nationally and abroad. Housed within the Ministry of Commerce, AIPEX is also responsible for ensuring the application of the new 2018 investment law on Foreign Direct investments.

Competition and Anti-Trust Laws

On May 17, Angola’s National Assembly approved a Law on Competition. The law provides for the creation of the Competition Regulatory Authority, which is tasked with preventing and cracking down on actions of economic agents that fail to comply with the rules and principles of competition. The Competition Regulatory Authority may file a suit based on violations of fair competition rules.

The Pricing and Competition Bureau under the Ministry of Finance was created in 2011 (Presidential Decree 162/11) to ensure the coordination and consistency of pricing and revenue, under which goods and services were divided into three categories: 1) Preco Fixo (Fixed Price): Oil, gas, electricity, water, urban transportation; 2) Preco Vigiado (Monitored Price): Basic Food Basket: Sugar, rice, oil, salt, milk tomatoes, onions, fish, meat, etc., plus transportation (air, surface, rail, sea, ports.); and, 3) Free Price (Preco Libre): items not included in categories one and two. A February 25, 2016 Presidential Decree (28/16), further established price formation on categories two and three.

Expropriation and Compensation

Under the Land Tenure Act of 2004, all land belongs to the state and the state reserves the right to expropriate land from any settlers. The State may also allow for land usage through a 60-year lease, after which the State reserves legal right to take over ownership.

Expropriation without compensation remains a common practice. Land tenure became a more significant issue following independence from Portugal when over 50 percent of the population moved to urban centers during the civil war. The State offered some areas for development within a specific timeframe. After this timeframe, areas that remained underdeveloped reverted to the state with no compensation to any claimants. Almost in all cases, claimants allege unfair treatment and little or no compensation.

Dispute Settlement

Angola is not a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention), but has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Its ratification was endorsed domestically via resolution No. 38/2016, published in the Official Gazette of Angola on August 12, 2016.

Investor-State Dispute Settlement

The Angolan Arbitration Law (Law 16/2003 of 25 July) (Voluntary Arbitration Law — VAL) provides for domestic and international arbitration. Substantially inspired by Portuguese 1986 arbitration law, it cannot be said to strictly follow the UN Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. In contrast the VAL contains no provisions on definitions, rules on interpretation, adopts the disposable rights criteria in regards to arbitration, does not address preliminary decisions, nor distinguish between different types of awards, and permits appeal on the merits in domestic arbitrations, unless the parties have otherwise agreed.

Angola is also a member of the Multilateral Investment Guarantee Agency (MIGA), which can provide dispute settlement assistance as part of its political risk insurance products and eligibility for preferential trade benefits under the African Growth Opportunity Act. The United States and Angola have signed a trade and investment framework agreement (TIFA), which seeks to promote greater trade and investment between the two nations.

The U.S. Embassy is aware of two ongoing formal investment disputes involving American companies that went to arbitration in 2017.

International Commercial Arbitration and Foreign Courts

In June 2014, the Ministry of Justice and Human Rights (MINJHR) opened the Center of Legal Alternatives for Conflict Resolution. Among other functions, the Center is tasked with providing consultation, mediation, and arbitration of contract disputes for both Angolan and foreign businesses. The process is designed to be faster and less costly than the traditional court system. The U.S. Embassy is not aware of any cases reviewed by this court.

Local courts do recognize arbitration, but do not enforce or distinguish between different types of awards, and permit appeal on the merits in domestic arbitrations, unless the parties have otherwise agreed.

Bankruptcy Regulations

Angola is ranked 168 out of 190 on the World Bank’s Doing Business 2018 report on resolving insolvency.

As a former Portuguese colony, Angola inherited the Portuguese insolvency legislation. The current civil procedure code in force since 1961 establishes two different processes: a bankruptcy procedure applicable exclusively to commercial debtors, or an insolvency procedure applicable to non-commercial debtors.

The World Bank Doing Business 2018 report found that no foreclosure, liquidation, or reorganization proceedings were filed within the past 12 months. While Angola’s arbitration law (Arbitration Law No. 16/03) adopted in 2013 introduced the concept of domestic and international arbitration, the practice of arbitration law is still not widely implemented.

The Ministry of Finance, the BNA and the Capital Markets Commission (CMC) oversee credit monitoring and regulation.

Capital Markets and Portfolio Investment

Angola’s capital markets remain very underdeveloped. To respond to the need for increased sources of financing of the economy, in 2013, the Angolan Government created the Capital Market Commission (CMC). Angola’s banks are likely the most established businesses that could potentially list on an exchange. However, many Angolan banks have a high rate of non-performing loans, reported to be as high as 31 percent. Angola’s banks have struggled in recent years due to the country’s deteriorating economic environment and increasing high rate of delinquent loans. The Governor of the BNA has stated that Angola’s banks must go through a consolidation phase over the next year, which may limit their ability in the near-term to list on the country’s fledgling stock exchange.

In May 2018, Angola raised USD 3 billion in its second Eurobond issue in international markets. The two-part deal included a USD 1.75 billion of 10-year bond with an 8.25 percent yield and a second of USD 1.25 billion of 30-year bonds with a 9.37 percent yield. Angola previously, in 2012, through Russia’s second-largest bank, VTB, managed the sale of its first international bond, a USD 1 billion, 7-year bond with a 7.0 percent yield. In November 2015, Angola placed a USD 1.5 billion, 10-year Eurobond with a 9.5 percent yield. Deutsche Bank, Goldman Sachs, and ICBC managed the 2015 bond placement.

The BNA has developed a market for short-term bonds, called Titulos do Banco Central, and long-term bonds, called Obrigacoes do Tesouro. Most of these bonds are bought and held by local Angolan banks. The Obrigacoes have maturities ranging from one to 7.5 years, whereas the Titulos have maturities of 91 to 182 days. For information on current rates, see: http://www.bna.ao/ .

Foreign investors do not normally access credit locally. For Angolan investors, credit access is very limited, and if available comes with a collateral requirement of 125 percent, so they either self-finance, or seek financing from non-Angolan banks and investment funds. Subsidized government loan programs to promote economic development, such as the Ministry of Economy’s Angola Invest USD 1.6 billion fund to support small and medium-sized enterprises with loans of up to USD 5 million. These loans are available only to majority-owned Angolan companies, but due to reports of limited quality projects and commercial banks reticence, only a handful of the Angola Invest loans were approved in 2017.

Money and Banking System

The BNA has remained under considerable pressure to stabilize Angola’s economy as the kwanza lost over 55 percent of its value since 2014. The BNA has struggled to fully implement reforms across Angola’s banks, which have lost their correspondent relationships with banks in the United States. Angola has been affected by the broader global de-risking trends wherein banks decide to close business in markets deemed too risky from an anti-money laundering and terrorist financing standpoint. In December 2016, Deutsche Bank, the last international bank providing dollar-clearing services, closed its dollar clearing services in Angola. A limited number of international banks still operate in Angola and provide limited trade finance such as Germany’s Commerzbank and South Africa’s Standard Bank. International banks have held back on entering the Angolan market because the risk of fines and other penalties outweighs the potential rewards of doing business in Angola.

In an effort to increase greater confidence in the banking sector, President Joao Lourenco appointed Jose de Lima Massano as new Governor of the Central Bank on October 30, 2017. The BNA has since raised the mandatory capital start-up requirements for banks from USD 25 million to USD 50 million in the hopes of reducing the number of banks and force necessary mergers. Commercial banks operating in Angola also have until the end of 2018 to increase their share capital to USD 35 million, in line with Notice 2/2018 from the BNA on the “Adequacy of Minimum Capital Stock and Regulatory Own Funds of Financial Banking Institutions.” This regulatory instruction will be reinforced by current draft legislation (“Implementation Strategy of Executive Macroeconomic Program 2017”), which seeks to designate six Angolan Banks (BAI, BIC, Banco Economico, Banco Millenium-Atlantico, BNI, and Banco Sol) to handle 80 percent of Forex in the primary market. The remaining 22 banks are likely to survive only by merging with other banks.

Angola has a low banking market penetration rate and ranks 183 out of 190 countries in the World Bank’s Doing Business 2018 report on the ease of getting credit indicator. According to latest demographics recorded on the last census in 2014, the rate of banked population is 47 percent. As of December 2013, the latest figures available indicated that total customer deposits with the Angolan commercial banks was 4.6 trillion Angolan kwanza, an increase of 17 percent since 2012. Angolan banks extend little unsecured credit, instead requiring significant amounts of collateral (125 percent) in the form of property, or dollar deposits from the borrower. Commercial credit in Angola remains tight. Unclear land titles and ill-defined property rights frequently complicate and lengthen the process of applying for a mortgage. While the BNA tries to limit foreign currency risk, some loans are denominated in foreign currencies, but are consequently weighted at 130 percent for the calculation of risk-weighted assets.

Five banks, Banco Angolano de Investimentos (BAI), Banco Economico, Banco de Fomento Angola (BFA), Banco BIC Angola (BIC) and Banco de Poupanca e Credito S.A.R.L. (BPC), control over 80 percent of total banking assets, deposits, and loans. Angolan banks focus on profit generating activities including transactional banking, short-term trade financing, foreign exchange, and investments in high-interest government bonds. Loans to most sectors have slowed because of the economic crisis. BNA and local bankers have also indicated that there is a growing level of non-performing loans (12 percent in 2015 and 31.3 percent as of December 31, 2017 according to the BNA Financial Indicator System) corresponding to USD 6.8 billion out of USD 22 billion of loans granted. Across most economic sectors, clients struggle to make payments on loans because of the economic crisis. Most banks focus their operations on short-term commission-related activities and are the largest purchasers of government treasuries. Even with the severe economic slowdown and reduction in overall foreign exchange availability, bank profit margins are still high enough to allow them to sustain operations. However, traditional commercial loans are still only a small part of banking in Angola. In the past, state and state-affiliated companies enjoyed privileged access to loans, often at concessionary rates without regard to risk, leading to several bank failures.

Foreign Exchange and Remittances

Foreign Exchange Policies

Angola continues trading mostly in two currencies, the USD and the Euro, with the Renminbi gaining greater prominence given the degree of trade with China. In a bid to deal with the foreign currency shortage and substantial foreign currency arbitrage in the parallel market, the government has opted for a managed float for its currency exchange rate. The Angolan Kwanza was pegged at a rate of 166.00 per U.S. dollar from April 2016 to January 2018 following a steep devaluation due to the slump in oil prices. On January 10, 2018, the BNA began conducting foreign currency auctions allowing the kwanza to fluctuate within an undisclosed but controlled band. As a result, the BNA facilitated a 20 percent devaluation of the kwanza. Commercial banks now purchase foreign currency from the BNA at weekly auctions within the undisclosed band. Payment of remittances in any form and non-strategic imports face a lengthy wait between 90-180 days for foreign exchange. Priority is given to strategic importers of food, raw materials for construction, agriculture, medicine and the oil sector. The government also has a huge backlog of forex arrears of approximately USD 3 billion.

Investors cannot freely convert their earnings in kwanza to any foreign exchange rate due to limited available foreign exchange. Credit cards and other options for payment are extremely limited and money-servicing businesses (Western Union & MoneyGram) have ceased foreign outward transactions in foreign currency.

Remittance Policies

The Angolan government established anti-money laundering restrictions in January 2014 to combat illicit remittance flows. The subsequent drop in foreign exchange availability in Angola beginning in 2015 due to declining petroleum revenues has severely impeded personal and legitimate business remittances. International and domestic companies operating in Angola face significant delays securing foreign exchange approval for remittances to cover key operational expenses, including imported goods and expatriate salaries. Profit and dividend remittances are even more problematic for most companies. The Angolan government has prioritized foreign exchange for essential goods and services including the food, health, defense, and petroleum industries. Due to the tremendous strains on foreign exchange, in 2017, reports indicated that the country drew substantially from its international reserves to increase foreign exchange liquidity in the market. As a result, Angola’s international reserves, which had been protected carefully at USD 24 billion, were reportedly down to USD 13.3 billion as of December 31, 2017. However current levels are now estimated at USD 12.5 billion. Foreign exchange allocations from the BNA since 2016 have been almost exclusively in Euros, partly driven by the loss of corresponding banking relationships with U.S. banks. Profits and dividends repatriation are not prioritized by the BNA, which aggressively protects the country’s foreign exchange.

The new 2018 investment law grants foreign investors “the right and guarantee to transfer abroad” dividends or distributed profits, the proceeds of the liquidation of their investments, capital gains, the proceeds of indemnities and royalties, or other income from remuneration of indirect investments related to technology transfer after proof of implementation of the project and payment of all taxes due. Under the previous 2015 investment law, foreign investors were required to pay higher taxes on early repatriation of dividends and profits within the first several years of an initial investment. The new tax on dividends starts at 15 percent and can rise to as high as 50 percent depending on the value and how early repatriation occurs. Under regulations established in July 2013 aimed at tracking capital movement, strengthening the banking system, and capturing tax revenue, foreign companies are required to process transactions through Angolan banks.

Sovereign Wealth Funds

In October 2012, former President Eduardo dos Santos established a petroleum-funded USD 5 billion sovereign wealth fund called the Fundo Soberano de Angola (FSDEA). The FSDEA was established in accordance with international governance standards and best practices as outlined in the Santiago Principles. In February 2015, the FSDEA was recognized as transparent by the Sovereign Wealth Fund Institute (SWFI), receiving a score of 8 out of 10. The FSDEA has the express purpose of profit maximization with a special emphasis on investing in domestic projects that have a social component (http://www.fundosoberano.ao/investments/ ). Jose Filomeno dos Santos (Zenu), son of President Jose Eduardo dos Santos, was appointed chairman of FSDEA in June 2013, but has been since removed by President Lourenco based reportedly on poor results at the FSDEA. Zenu also came into the spotlight following revelations by the “Paradise Papers” that approximately USD 3 billion of the FSDEA’s capital was illicitly invested in seven offshore corporations in Mauritius. Zenu was further accused of embezzling USD 500 million from a BNA account held in a London-based bank. Former Finance Minister Carlos Alberto Lopes was named new head of the FSDEA.

Half of the initial endowment of FSDEA was invested in agriculture, mining, infrastructure, and real estate in Angola and other African markets, and the other half was supposedly allocated to cash and fixed income instruments, global and emerging-market equities, and other alternative investments. Since the revelations of the Paradise Papers, the Government of Mauritius, in concert with the Angolan government, has frozen seven bank accounts in Mauritius linked to the FSDEA, and suspended business licenses linked to the FSDEA’s Swiss manager, Quantum Global Investment Management.

Policies Toward Foreign Direct Investment

The Government of Antigua and Barbuda strongly encourages FDI, particularly in industries that create jobs, enhance economic activity, earn foreign currency, and have a positive impact on its citizens. Diversification of the economy remains a priority for the Government of Antigua and Barbuda.

Through the Antigua and Barbuda Investment Authority, the government facilitates and supports FDI in the country and maintains an open dialogue with current and potential investors. While the government welcomes all FDI interests; agriculture, diversified tourism, healthcare services, outsourcing and business support services, information and communication technologies and international financial services are identified as priority investment areas.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign control in Antigua and Barbuda. Foreign investors may hold up to 100 percent of an investment, and a local or foreign entrepreneur needs about 40 days from start to finish to transfer the title on a piece of property. In June 1995, the government established a permanent residency program to encourage high-net-worth individuals to establish residency in Antigua and Barbuda for up to three years. As residents, their incomes are free of local taxation. This program is separate from the Citizenship by Investment program.

The Antigua and Barbuda Investment Authority evaluates all FDI proposals and provides intelligence, business facilitation and investment promotion to establish and expand profitable business enterprises in Antigua and Barbuda. The Antigua and Barbuda Investment Authority also advises the government on issues that are important to the private sector and potential investors to ensure that the business climate continues to improve, that investment opportunities grow, and to increase the international competitiveness of the local economy.

The Government of Antigua and Barbuda treats foreign and local investors equally with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investment in its territory.

Other Investment Policy Reviews

The last trade policy review for the Organization of Eastern Caribbean States (OECS), which Antigua and Barbuda is a member, was conducted by the World Trade Organization (WTO) in 2014.

Business Facilitation

Established in 2006, the Antigua and Barbuda Investment Authority facilitates foreign direct investment in the aforementioned priority sectors and advises the government on the formation and implementation of policies and programs to attract investment in Antigua and Barbuda. The Antigua and Barbuda Investment Authority provides crucial business support services and market intelligence to all investors. The Antigua and Barbuda Investment Authority offers an online tool that is useful for navigating the laws, rules, procedures and registration requirements for foreign investors. This can be found at http://www.theiguides.org/public-docs/guides/antiguabarbuda  and http://investantiguabarbuda.org/ .

All potential investors applying for government incentives must submit their proposals for review by the Antigua and Barbuda Investment Authority to ensure the project is consistent with national interests and provides economic benefits to the country.

According to the World Bank’s 2018 Doing Business Report, Antigua and Barbuda is ranked 126^th in ease of starting a business. The establishment of a new business takes nine procedures and 22 days to complete. The general practice is to retain a local attorney who prepares all the relevant incorporation documents. A business must register with the Intellectual Property and Commerce Office (IPCO), the Inland Revenue Department, the Medical Benefits Scheme, the Social Security Scheme and the Board of Education. Given the multiple agencies currently involved in the process, a Single Window facility to expedite the process is being planned.

Recently, there has been an increased focus on women’s issues. A number of regional development agencies have launched programs to assist Caribbean women entrepreneurs, notably Caribbean Export and the Women Innovators Network of the Caribbean. In this context, the Government of Antigua and Barbuda recently launched the Antigua and Barbuda Business Innovation Center to help support small business and entrepreneurs. This project is being implemented in collaboration with the United Nations Office for Project Services (UNOPS) and will run for an initial period of two years. The Antigua and Barbuda Innovation Center will include a business incubator and will provide education, training and investment opportunities to new and existing businesses.

Immediate focus will be placed on businesses in the healthcare, tourism, agriculture and environment sectors, as well as projects submitted by women. International partners in this enterprise include UN Women, MIT, Harvard University and the European International Bank.

The Government of Antigua and Barbuda has also ratified the United Nations Convention on the Rights of Persons with Disabilities and will take the appropriate steps to ensure implementation of policies and plans that effectively integrate persons with physical and intellectual disabilities into society, in collaboration with the Association of Persons with Disabilities,. It is important to the Government of Antigua and Barbuda that this group of citizens has increased access to opportunities, which will allow them to make a meaningful contribution to the development of Antigua and Barbuda. In this regard, the Prime Minister’s Entrepreneurial Development Program (EDP) will include a special incentive to be awarded to the first entrepreneur with a disability who submits a viable proposal for a new business. Special consideration will also be given to business proposals that incorporate provisions to meet the needs of persons with disabilities.

Outward Investment

Although the Government of Antigua and Barbuda prioritizes investment retention as a key component of its overall economic strategy, there are no formal mechanisms in place to achieve this. Even so, the economy will continue to require significant foreign investment.

There is no restriction on domestic investors seeking to do business abroad. Local companies in Antigua and Barbuda are actively encouraged to take advantage of export opportunities specifically related to the country’s membership in the OECS Economic Union and the Caribbean Community Single Market and Economy, which enhance the competitiveness of the local and regional private sectors across traditional and emerging high-potential markets.

Transparency of the Regulatory System

Antigua and Barbuda uses transparent policies and effective laws to foster competition and establish clear rules for foreign and domestic investors in the areas of tax, labor, environment, health, and safety. The Government of Antigua and Barbuda publishes laws, regulations, administrative practices and procedures of general application and judicial decisions that affect or pertain to investments or investors in Antigua and Barbuda. Where the national government establishes policies that affect or pertain to investments or investors that are not expressed in laws and regulations or by other means, the national government will make them publicly available.

Rulemaking and regulatory authority lies with the Bicameral Parliament of the Government of Antigua and Barbuda. The Parliament has two chambers: the House of Representatives has 19 members, 17 members elected for a five-year term in single-seat constituencies, one ex-officio member and one Speaker. The Senate has 17 appointed members.

All regulations that relate to foreign investment into Antigua and Barbuda are governed by the relevant National Laws of Antigua and Barbuda. These laws are developed within the respective Ministries and drafted by the Ministry of Legal Affairs. These laws are enforced by the requisite Ministry of the Government of Antigua and Barbuda. The attraction of Foreign Direct Investment is governed principally through laws overseeing the Antigua and Barbuda Investment Authority and the Citizenship by Investment Program. The National Laws of Antigua and Barbuda are available online at http://laws.gov.ag/new/index.php  . This website contains the full text of laws already in force, as well as those currently being proposed in Parliament.

Although, some draft bills are not subject to public consultation, input from various stakeholder groups is enlisted in the formulation of law. The process is detailed at: http://www.laws.gov.ag/makinglaws.htm . Stakeholder organizations are encouraged to support and contribute to the standards development process by participating in technical committees and remarking on drafts that are available for comment. These organizations support the standards development process by presenting their members’ interests, expert opinions and analysis to ensure standards are sound and effective.

Accounting, legal and regulatory procedures are generally transparent and consistent with international norms. The International Financial Accounting Standards, which stem from the General Accepted Accounting Principles, govern the accounting profession.

The Office of the Ombudsman is a Constitutional provision established to guard against excesses by government officers in the performance of their duties. The Office of the Ombudsman is independent and is not subject to the direction or control of any other person or authority. The function of the Ombudsman is to investigate any complaint relating to any decision or recommendation made or any act done or omitted by any officer of the Government or statutory body in any case in which a member of the public claims to be aggrieved, or appears to the Ombudsman to be the victim of an injustice as a result of the exercise of the administrative function of that officer or body.

Regulations are developed nationally and regionally. At the national level, the requisite ministry reviews and documents the desired legal authority that would enable it to effectively perform at the desired levels to reach optimum development objectives. These reviews are then submitted to the Ministry of Legal Affairs for the preparation of the draft legislation. Subsequently, the Ministry of Legal Affairs reviews all agreements and legal commitments (national, regional and international) to be undertaken by Antigua and Barbuda before they are finalized. The Antigua and Barbuda Investment Authority has the main responsibility for investment supervision, whereas the Ministry of Finance and Corporate Governance monitors investments to collect information for national statistics and reporting purposes.

Antigua and Barbuda’s membership in regional organizations, particularly the Organization of Eastern Caribbean States and its Economic Union, commits the state to implement all appropriate measures to ensure the fulfillment of its various treaty obligations. Thus, laws are uniformly enacted in the eight member territories of the Eastern Caribbean Currency Union, although there may be some minor differences in implementation from country to country.

The enforcement mechanisms of these regulations include penalties and other sanctions. The Antigua and Barbuda Investment Authority can revoke an issued Investment Certificate if the holder fails to comply with certain stipulations detailed in the Act and its regulations.

International Regulatory Considerations

As a member of the OECS and the Eastern Caribbean Economic Union, Antigua and Barbuda subscribes to principles and policies outlined in the Revised Treaty of Basseterre. The relationship between national and regional systems is such that each participating member state is expected to coordinate and adopt, where possible, common national policies aimed at the progressive harmonization of relevant policies and systems across the region. Thus, Antigua and Barbuda is obligated to implement regionally developed regulations, such as legislation passed under Organization of Eastern Caribbean States Authority, unless specific concessions are sought.

The Antigua and Barbuda Bureau of Standards is a statutory body established under the Standards Act of 1987 to prepare and promulgate standards in relation to goods, services, processes and practices. As a signatory to the WTO Agreement on the Technical Barriers to Trade, Antigua and Barbuda, through the Antigua and Barbuda Bureau of Standards, is therefore obligated to harmonize all national standards to international norms to avoid creating technical barriers to trade.

Antigua and Barbuda ratified the WTO Trade Facilitation Agreement (TFA) in November 2017. Ratification of the Agreement is an important signal to investors of the country’s commitment to improving its business environment for trade. It will also improve the speed and efficiency of border procedures, facilitate trade costs reduction and enhance participation in the global value chain. Antigua and Barbuda has already implemented a number of TFA requirements. A full list can be viewed here: https://www.tfadatabase.org/members/antigua-and-barbuda/measure-breakdown .

Legal System and Judicial Independence

Antigua and Barbuda bases its legal system on the British common law system. The Attorney General, the Chief Justice of the Eastern Caribbean Supreme Court, junior judges, and magistrates administer justice. The Eastern Caribbean Supreme Court Act establishes the Supreme Court of Judicature, which consists of the High Court and the Eastern Caribbean Court of Appeal. The High Court hears criminal and civil matters and makes determinations on the interpretation of the Constitution. Appeals are made in the first instance to the Eastern Caribbean Supreme Court, an itinerant court that hears appeals from all Organization of Eastern Caribbean States members. Final appeal is to the Judicial Committee of the Privy Council of the United Kingdom. In May 2018, the Government of Antigua and Barbuda signaled its intent to hold a referendum to decide whether or not the country should remain subject to the Privy Council or turn to the Trinidad-based Caribbean Court of Justice as its final court of appeal before the end of 2018.

The Caribbean Court of Justice is the regional judicial tribunal, established in 2001 by the Agreement Establishing the Caribbean Court of Justice. The Caribbean Court of Justice has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas.

Antigua and Barbuda is party to the WTO. The WTO Dispute Settlement Panel and Appellate Body resolve disputes over WTO agreements, while courts of appropriate jurisdiction in both countries resolve private disputes. Antigua and Barbuda brought a case against the United States before the WTO concerning the cross-border supply of gambling and betting services. The WTO ruled in favor of Antigua and Barbuda, but agreement on settlement terms remains outstanding.

Laws and Regulations on Foreign Direct Investment

The Antigua and Barbuda Investment Authority provides guidance on the relevant laws, rules, procedures, and reporting requirements for investors. These can be obtained at http://www.theiguides.org/public-docs/guides/antiguabarbuda  and http://investantiguabarbuda.org/ .

The Tourism and Business Special Incentives Act (2013) was extended in 2016 to facilitate the further development of other key sectors, such as the creative industries, yachting and marine services and information and computer technology-enabled services. The Act formally ended in April 2018.

Citizenship by Investment

Under the Citizenship by Investment Program, foreign individuals can obtain citizenship in accordance with the Citizenship by Investment Act of 2013, which grants citizenship (without voting rights), to qualified investors. Program applicants are required to undergo a due diligence process before citizenship can be granted. Amendments were made in 2017 with the minimum that would entitle an investor to qualify is now a USD 100,000 contribution to the National Development Fund for a family application for up to four persons and USD 125 000 for a family of five. Previous qualifications of a real estate purchase valued at USD 400,000 or above, or a business investment of USD 1.5 million individually or at least USD 400,000 for a joint project remain. All applicants must also pay relevant government and due diligence fees, as well as a full medical certificate, a police certificate, and evidence of the source of funds. Further information is available at: http://www.cip.gov.ag/ .

Competition and Anti-Trust Laws

Chapter 8 of the Revised Treaty of Chaguaramas outlines the competition policy applicable to CARICOM States. Member States are required to establish and maintain a national competition authority for implementing the rules of competition. CARICOM established a Caribbean Competition Commission to apply rules of competition regarding anti-competitive cross-border business conduct. CARICOM competition policy addresses anti-competitive business conduct, such as agreements between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction or distortion of competition within the Community, and actions by which an enterprise abuses its dominant position within the Community. No legislation is yet in operation to regulate competition in Antigua and Barbuda. The OECS agreed to establish a regional competition body to handle competition matters within its single market. The draft OECS bill is with the Ministry of Legal Affairs for review.

Expropriation and Compensation

According to the Investment Authority Act of 2006, investments in Antigua and Barbuda will not be nationalized, expropriated or subject to indirect measures having an equivalent effect, except where any such measures are adopted for the public good and in accordance with due process of law, on a non-discriminatory basis and accompanied by prompt, adequate and effective compensation. Compensation in such cases will amount to the fair market value of the expropriated investment immediately before the expropriation or the impending expropriation became public knowledge, whichever is earlier. It shall include interest from the date of dispossession of the expropriated property until the date of payment. Compensation is required to be paid without delay, in convertible currency, and be effectively realizable and freely transferable.

There is an unresolved dispute regarding the expropriation of an American-owned property with multiple U.S. citizen owners. In November 2015, the Government of Antigua and Barbuda paid the property owners a percentage of the total amount owed. In November 2017, the Government of Antigua and Barbuda disclosed that it has paid an additional installment towards the principal cost of the property. The government still owes outstanding interest payments to the property owners.

Arrangements are being finalized for the payment of the outstanding balance. The owner intends to continue battling the Government of Antigua and Barbuda in court until all monies are paid. For this reason, the U.S. government recommends continued caution when investing in real estate in Antigua and Barbuda.

Dispute Settlement

Antigua and Barbuda is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States; however it is a member of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Arbitration Convention. International or national arbitration may be used if specified in contracts between private parties. The Arbitration Act Cap. 33 (1975) is the main legislation which governs arbitration in Antigua and Barbuda. It adheres to the New York Arbitration Convention.

Investor-State Dispute Settlement

Investors are permitted to use national or international arbitration with regards to contracts entered into with the state. Antigua and Barbuda also has Bilateral Investment Treaties with the Federal Republic of Germany and the United Kingdom in which binding international arbitration of investment disputes is recognized. Antigua and Barbuda does not have a Bilateral Investment Treaty or a Free Trade Agreement with an investment chapter with the United States. U.S. Embassy Bridgetown is not aware of any current investment disputes in Antigua and Barbuda.

Antigua and Barbuda is ranked 33 out of 190 countries in resolving contracts in the 2018 World Bank Doing Business Report. According to the report, dispute resolution in Antigua and Barbuda generally takes an average of 476 days. The slow court system and bureaucracy are widely seen as main hindrances to timely resolutions to commercial disputes. Through the Arbitration Act Cap.33 (1975), the local courts recognize and enforce foreign arbitral awards issued against the government.

International Commercial Arbitration and Foreign Courts

As mandated by the Arbitration Act Cap 33 (1975), alternative dispute mechanisms are available as a means for settling disputes between two private parties. Voluntary mediation or conciliation is also used in dispute resolution. The Arbitration Act mandates the legal recognition and enforcement of judgements of foreign courts by local courts. Thus, the High Court of Antigua and Barbuda recognizes and enforces foreign arbitral awards. The Eastern Caribbean Supreme Court’s Court of Appeal provides meditation on commercial contracts.

Bankruptcy Regulations

Under the Bankruptcy Act (1975), Antigua and Barbuda has a bankruptcy framework that grants certain rights to debtor and creditor. The World Bank’s 2018 Doing Business Report addresses the strength of the framework and its limitations in resolving insolvency in Antigua and Barbuda and ranked Antigua and Barbuda 128^th of 190 countries in this area.

Capital Markets and Portfolio Investment

As a member of the Eastern Caribbean Currency Union, Antigua and Barbuda is also a member of the Eastern Caribbean Securities Exchange and the Regional Government Securities Market. The Eastern Caribbean Securities Exchange is a regional securities market established by the Eastern Caribbean Central Bank and licensed under the Securities Act of 2001, a uniform regional body of legislation governing securities market activities to facilitate the buying and selling of financial products for the eight member territories.

As at 31 March 2017, the number of securities listed on the ECSE totaled 129, comprising 109 sovereign debt instruments, 13 equities and seven corporate bonds. Market capitalization as at 31 March 2017 was USD 3.07 billion. Antigua and Barbuda is open to portfolio investment.

Antigua and Barbuda accepted the obligations of Article VIII of the International Monetary Fund Agreement, Sections 2, 3 and 4, and maintains an exchange system free of restrictions on making payments and transfers for current international transactions. Foreign tax credits normally are not granted unless in the case of taxes paid in a British Commonwealth country that grant similar relief for Antigua and Barbuda taxes, or where an applicable tax treaty provides a credit. The private sector has access to credit on the local market through loans, purchases of non-equity securities, and trade credits, as well as other accounts receivable that establish a claim for repayment.

Money and Banking System

The Eastern Caribbean Central Bank Agreement Act was passed into law by the eight Participating Governments. The Schedule to the Act contains an agreement established on July 5, 1983 by seven member governments and acceded to by the Government of Anguilla on April 1, 1987. This Agreement provides for the establishment of the Eastern Caribbean Central Bank, its management and administration, its currency, relations with financial institutions, relations with the participating governments, foreign exchange operations, external reserves and other related matters. Antigua and Barbuda is a signatory to this agreement and as such, the Eastern Caribbean Central Bank controls Antigua and Barbuda’s currency and regulates its domestic banks.

In its latest annual report, the Eastern Caribbean Central Bank listed the commercial banking sector as stable. Assets of commercial banks totaled USD 2.3 billion at the end of December 2017 and remained relatively consistent during the previous year. The reserve requirement for commercial banks was 6 percent of deposit liabilities.

The Caribbean has witnessed a withdrawal of correspondent banking services by U.S. and European banks in the last three years. In 2015, the Caribbean Community declared the loss of correspondent banking to be a grave issue facing the region. The Caribbean Community is committed to engaging with key stakeholders on the issue and appointed a Committee of Ministers of Finance on Correspondent Banking to collate a collective response to this issue. Antigua and Barbuda is the current chair of this Committee.

The Government of Antigua and Barbuda has announced plans to introduce Legislation to operate and regulate blockchain technology as an integral part of its ‘Vision 2023 and Beyond”. The introduction and regulation of blockchain technology is anticipated to give Antigua and Barbuda another platform to offer services globally through companies located in Antigua that provides employment and contribute to economic growth. In March 2018, the ECCB signed a Memorandum of Understanding with Barbados-based fintech company, Bitt Inc. to conduct a fintech pilot on blockchain technology in ECCB member countries.

During the pilot, the ECCB will work closely with Bitt Inc. to develop, deploy and test technology which focuses on data management, compliance and transaction monitoring system for Know Your Customer, Anti-Money Laundering, and Combating the Financing of Terrorism (KYC/AML/CFT). This will help to improve the risk profile of the Eastern Caribbean Currency Union (ECCU) and mitigate against the trend of de-risking by the region’s correspondent banking partners. The pilot will also focus on developing a secure, resilient digital payment and settlement platform with embedded regional and global compliance; and the issuance of a digital EC currency which will operate alongside physical EC currency. The pilot is expected to begin in late 2018.

Antigua and Barbuda remains well served by Bank and Non-Bank Financial Institutions. As a consequence there are minimal alternative financial services being offered. Informal community group lending is still practiced in some sections of the population, albeit not as significantly as in previous years.

Foreign Exchange and Remittances

Foreign Exchange Policies

Antigua and Barbuda is a member of the Eastern Caribbean Currency Union and the Eastern Caribbean Central Bank. The currency of exchange is the Eastern Caribbean Dollar (XCD). As a member of the Organization of Eastern Caribbean States, Antigua and Barbuda has a foreign exchange system that is fully liberalized. The Eastern Caribbean Dollar was pegged to the United States dollar at a rate of XCD 2.70 to USD 1.00 since 1976. As a result, the Eastern Caribbean Dollar does not fluctuate, creating a stable currency environment for trade and investment in Antigua and Barbuda.

Remittance Policies

Currently, companies registered in Antigua and Barbuda have the right to repatriate all capital, royalties, dividends and profits free of all taxes or any other charges on foreign exchange transactions. Withholding taxes are also levied on non-resident corporations and individuals receiving income in the form of dividends, preferred share dividends, interest and rentals, management fees, and royalties, as well as on interest on bank deposits to non-resident corporations. One must be on the island for 180 days to be considered a resident. Antigua and Barbuda is a member of the Caribbean Financial Action Task Force (CFATF).

In February 2017, the Government of Antigua and Barbuda signed an Intergovernmental Agreement in observance of the United States’ Foreign Account Tax Compliance Act (FATCA), making it mandatory for banks in Antigua and Barbuda to report the banking information of U.S. citizens.

Sovereign Wealth Funds

Neither the Government of Antigua and Barbuda, nor the Eastern Caribbean Central Bank, of which Antigua and Barbuda is a member, maintains a Sovereign Wealth Fund.

Policies Towards Foreign Direct Investment

The Macri government actively seeks foreign direct investment. To improve the investment climate, the Macri administration has enacted reforms to strengthen institutions, reduce economic distortions, and increase capital markets efficiencies. It expanded economic and commercial cooperation with key partners including Mexico, Chile, Brazil, Japan, South Korea, Spain, Canada, and the United States, and deepened its engagement in international fora such as the G20, WTO, and OECD.

Over the past year, Argentina issued new regulations in the gas and energy, communications and technology, aviation, and automobile industries to improve competition and provide incentives aimed to attract investments to those sectors. The government more than doubled public works spending during the first quarter of 2017 alone and continues to seek investment in its infrastructure development plans. Argentina is also seeking investments in wireless infrastructure, oil and gas, lithium mines, renewable energy, and other areas.

Foreign and domestic investors generally compete under the same conditions in Argentina. The amount of foreign investment is restricted in specific sectors such as aviation and media. Foreign ownership of rural productive lands, bodies of water, and areas along borders is also restricted.

Argentina has a national Investment and Trade Promotion Agency that provides information and consultation services to investors and traders on economic and financial conditions, investment opportunities, and Argentine laws and regulations. The agency also provides matchmaking services and organizes roadshows and trade delegations. The agency’s web portal provides detailed information on available services (http://www.produccion.gob.ar/agencia ). Many of the 24 provinces also have their own provincial investment and trade promotion.

The Macri Administration welcomes dialogue with investors. Argentine officials regularly host roundtable discussions with visiting business delegations and meet with local and foreign business chambers. During official visits over the past year to the United States, Russia, and Europe, among others, Argentine delegations often met with host-country business leaders.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law No. 19,550), the Argentina Civil and Commercial Code, and rules issued by the regulatory agencies. Foreign private entities can establish and own business enterprises and engage in all forms of remunerative activity in nearly all sectors.

Full foreign equity ownership of Argentine businesses is not restricted, for the most part, with exception in the air transportation and media industries. The share of foreign capital in companies that provide commercial passenger transportation within the Argentine territory is limited to 49 percent per the Aeronautic Code Law No. 17,285. The company must be incorporated according to Argentine law and domiciled in Buenos Aires. In the media sector, Law No. 25,750 establishes a limit on foreign ownership in television, radio, newspapers, journals, magazines, and publishing companies to 30 percent.

Law No. 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) restricts foreign ownership to a maximum of 15 percent of all national productive land. Individuals or companies from the same nation may not hold over 30 percent of that amount. Individually, each foreign individual or company faces an ownership cap of 1,000 hectares (2,470 acres) in the most productive farming areas, or the equivalent in terms of productivity levels in other areas. The law also establishes that a foreigner cannot own land that contains big and permanent extensions of water bodies, are located in riversides or water bodies with such features, or are located near a Border Security Zone. Waivers are not available.

Argentina does not maintain an investment screening mechanism for inbound foreign investment. U.S. investors are not at a disadvantage to other foreign investors or singled out for discriminatory treatment.

Other Investment Policy Reviews

Argentina was last subject to an investment policy review by the OECD in 1997 and a trade policy review by the WTO in 2013. The United Nations Conference on Trade and Development (UNCTAD) has not done an investment policy review of Argentina.

Business Facilitation

Since entering into office in December 2015, the Macri Administration has enacted reforms to normalize financial and commercial transactions and facilitate business creation and cross-border trade. These reforms include eliminating capital controls, reducing export taxes and import restrictions, streamlining business administrative processes, decreasing tax burdens, increasing businesses’ access to financing, and streamlining customs controls.

In October 2016, the Ministry of Production issued decree No. 1079/2016, easing bureaucratic hurdles for foreign trade and creating a Single Window for Foreign Trade (“VUCE” for its Spanish acronym). The VUCE centralizes the administration of all required paperwork for the import, export, and transit of goods (e.g., certificates, permits, licenses, and other authorizations and documents). Argentina subjects imports to automatic or non-automatic licenses that are managed through the Comprehensive Import Monitoring System (SIMI, or Sistema Integral de Monitoreo de Importaciones), established in December 2015 by the National Tax Agency (AFIP) through Resolutions 5/2015 and 3823/2015. The SIMI system requires importers to submit electronically detailed information about goods to be imported into Argentina. Once the information is submitted, the relevant Argentine government agencies can review the application through the VUCE and make any observations or request additional information. The number of products subjected to non-automatic licenses has been modified several times, resulting in a net decrease since the beginning of the SIMI system.

The Argentine Congress approved an Entrepreneurs’ Law in March 2017, which allows for the creation of a simplified joint-stock company (sociedad por acciones simplifacada, or SAS) within 24 hours and online. The Ministry of Production website provides the following link where there is a detailed explanation on how to register a SAS in Argentina (https://www.argentina.gob.ar/crear-una-sociedad-por-acciones-simplificada-sas ). As of April 2018, the online business registration process is only available for companies located in the city or province of Buenos Aires. The process is clear and complete and can be used by foreign companies. Officials project it will become available in other large municipalities by the end of 2018. More information may be found at http://www.produccion.gob.ar/todo-sobre-la-ley-de-emprendedores/ .

Foreign investors seeking to set up business operations in Argentina follow the same procedures as domestic entities without prior approval and under the same conditions as local investors. To open a local branch of a foreign company in Argentina, the parent company must be legally registered in Argentina. Argentine law requires at least two equity holders, with the minority equity holder maintaining at least a five percent interest. In addition to the procedures required of a domestic company, a foreign company establishing itself in Argentina must legalize the parent company’s documents, register the incoming foreign capital with the Argentine Central Bank, and obtain a trading license.

A company must register its name with the Office of Corporations (IGJ, or Inspeccion General de Justicia). The IGJ website describes the registration process and some portions can be completed online (http://www.jus.gob.ar/igj/tramites/guia-de-tramites/inscripcion-en-el-registro-publico-de-comercio.aspx ). Once the IGJ registers the company, the company must request that the College of Public Notaries submit the company’s accounting books to be certified with the IGJ. The company’s legal representative must obtain a fiscal code and a tax identification number from the federal tax agency (AFIP by its Spanish acronym), register for social security, and obtain blank receipts from another agency. Companies can register with AFIP online at www.afip.gob.ar  or by submitting the sworn affidavit form No. 885 to AFIP.

The enterprise must also provide workers’ compensation insurance for its employees through the Workers’ Compensation Agency (Aseguradora de Riesgos del Trabajo). The company must register and certify its accounting of wages and salaries with the General Bureau of Labor, within the Ministry of Labor.

Companies located in the City of Buenos Aires must register their by-laws and other documents related to their incorporation with the City’s Public Registry of Commerce. The company must file the proposed articles of association and by-laws, the publication in the Official Gazette, evidence of managers’ and unions’ (if applicable) acceptance of position, evidence of the deposit of the cash contributions in the National Bank of Argentina, evidence of compliance with the managers’ guarantee regime (filing of managers’ performance bonds), and evidence of the reservation of the corporate name for approval with the City’s Office of Corporations.

Some provinces offer training and assistance to facilitate business development. Under the law, those mechanisms are equally accessible by women and underrepresented minorities in the economy, but in practice may not be available in all areas with significant minority populations. At present, there is one operational small business center based on the Small Business Development Center model of the United States, located in Neuquén province.

Outward Investment

Argentina does not have a governmental agency to promote Argentine investors to invest abroad nor does it have any restrictions for a domestic investor investing overseas.

Transparency of the Regulatory System

The Macri administration has taken measures to improve public dialogue and government transparency. President Macri created the Ministry of Modernization, tasked with conducting quantitative and qualitative studies of government procedures, and finding solutions to streamline bureaucratic processes and improve transparency.

In September 2016, Argentina enacted a Right to Access Public Information Law (No. 27,275) that mandates all three governmental branches (legislative, judicial, and executive), political parties, universities, and unions that receive public funding are to provide non-classified information at the request of any citizen. The law also created the Agency for the Right to Access Public Information to oversee compliance.

Continuing its efforts to improve transparency, in November 2017, the Ministry of the Treasury launched a new website to communicate how the government spends public funds in a user-friendly format. Subsections of this website are targeted toward policymakers, such as a new page to monitor budget performance (https://www.minhacienda.gob.ar/secretarias/hacienda/metas-fiscales/ ), as well as improving citizens’ understanding of the budget, e.g. the new citizen’s budget “Presupuesto Ciudadano” website (https://www.minhacienda.gob.ar/onp/presupuesto_ciudadano/ ). This program is part of the broader Macri government initiative led by the Ministry of Modernization to build a transparent, active, and innovative state that includes data and information from every area of the public administration. The initiative aligns with the Global Initiative for Fiscal Transparency (GIFT) and UN Resolution 67/218 on promoting transparency, participation, and accountability in fiscal policy.

During 2017, the government introduced new procurement standards including electronic procurement, formalization of procedures for costing-out projects, and transparent processes to renegotiate debts to suppliers. The government also introduced OECD recommendations on corporate governance for state-owned enterprises to promote transparency and accountability during the procurement process. (The link to the regulation is at http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=306769 .)

Argentine government efforts to improve transparency were recognized internationally. In its December 2017 Article IV consultation, the International Monetary Fund (IMF) Executive Board noted that “Argentina’s government made important progress in restoring integrity and transparency in public sector operations,” and agreed with the staff appraisal that commended the government for the progress made in the systemic transformation of the Argentine economy, including efforts to rebuild institutions and restore integrity, transparency, and efficiency in government.

On January 10, 2018, the government issued Decree 27 with the aim of curbing bureaucracy and simplifying administrative proceedings to promote the dynamic and effective functioning of public administration. Broadly, the decree seeks to eliminate regulatory barriers and reduce bureaucratic burdens, expedite and simplify processes before the public administration, taking advantage of the benefits of existing technological tools and focusing on transparency.

In the bilateral Commercial Dialogue, Argentina and the United States share best practices to improve the incorporation of public consultation in the regulatory process as well as regulatory coherence. Similarly, through the bilateral Digital Economy Working Group, Argentina and the United States share best practices on a multi-stakeholder approach to Internet governance and liberalization of the telecommunications sector.

Legislation can be drafted and proposed by any citizen and is subject to Congressional and Executive approval before being passed into law. Argentine government authorities and a number of quasi-independent regulatory entities can issue regulations and norms within their mandates. There are no informal regulatory processes managed by non-governmental organizations or private sector associations. Rulemaking has traditionally been a top-down process in Argentina, unlike in the United States where industry organizations often lead in the development of standards and technical regulations.

Ministries, regulatory agencies, and Congress are not obligated to provide a list of anticipated regulatory changes or proposals, nor share draft regulations with the public, nor establish a timeline for public comment. They are also not required to conduct impact assessments of the proposed legislations and regulations.

Since 2016, the Office of the President and various ministries sought to increase public consultation in the rulemaking process; however, public consultation is non-binding and has been done in an ad-hoc fashion. Some ministries and agencies have developed their own processes for public consultation, such as publishing the draft on their websites, directly distributing the draft to interested stakeholders for feedback, or holding public hearings.

Once the draft of a bill is introduced into the Argentine Congress, the text can be viewed online at the websites of the chamber where the bill was introduced. The lower chamber’s website is located at http://www.diputados.gov.ar/ , and the senate’s website is at http://www.senado.gov.ar/ .

All final texts of laws, regulations, resolutions, dispositions, and administrative decisions must be published in the Official Gazette (https://www.boletinoficial.gob.ar ), as well as in newspapers and the websites of the Ministries and agencies. These texts can also be accessed through Infoleg (http://www.infoleg.gob.ar/ ), overseen by the Ministry of Justice. Interested stakeholders can pursue judicial review of regulatory decisions.

Argentina requires public companies to adhere to International Financial Reporting Standards (IFRS). Argentina is a member of UNCTAD’s international network of transparent investment procedures.

International Regulatory Considerations

Argentina is a founding member of MERCOSUR and has been a member of the Latin American Integration Association (ALADI for Asociacion Latinoamericana de Integracion) since 1980.

Argentina has been a member of the WTO since 1995, and it ratified the Trade Facilitation Agreement in January 2018. Argentina notifies technical regulations, but not proposed drafts, to the WTO Committee on Technical Barriers to Trade. Argentina voiced its intention to deepen its engagement with the OECD and submitted itself to an OECD regulatory policy review in March 2018. Argentina participates in all 23 OECD committees.

Additionally, the Argentine Institute for Standards and Certifications (IRAM) is a member of international and regional standards bodies including the International Standardization Organization (ISO), the International Electrotechnical Commission (IEC), the Panamerican Commission on Technical Standards (COPAM), the MERCOSUR Association of Standardization (AMN), the International Certification Network (i-Qnet), the System of Conformity Assessment for Electrotechnical Equipment and Components (IECEE), and the Global Good Agricultural Practice network (GLOBALG.A.P.).

Legal System and Judicial Independence

According to the Argentine constitution, the judiciary is a separate and equal branch of government. In practice, there have been instances of political interference in the judicial process. Companies have complained that courts lack transparency and reliability, and that Argentine governments have used the judicial system to pressure the private sector. The Macri administration has publicly expressed its intent to improve transparency and rule of law in the judicial system, and the Justice Minister announced in March 2016 the “Justice 2020” initiative to reform the judiciary.

Argentina follows a Civil Law system. In 2014, the Argentine government passed a new Civil and Commercial Code that has been in effect since August 2015. The Civil and Commercial Code provides regulations for civil and commercial liability, including ownership of real and intangible property claims. The current judicial process is lengthy and suffers from significant backlogs. In the Argentine legal system, appeals may be brought from many rulings of the lower court, including evidentiary decisions, not just final orders, which significantly slows all aspects of the system.

Many foreign investors prefer to rely on private or international arbitration when those options are available. Claims regarding labor practices are processed through a labor court, regulated by Law 18,345 and its subsequent amendments and implementing regulations by Decree No. 106/98. Contracts often include clauses designating specific judicial or arbitral recourse for dispute settlement.

Laws and Regulations on Foreign Direct Investment

According to the Foreign Direct Investment Law No. 21,382 and Decree 1853/93, foreign investors may invest in Argentina without prior governmental approval, under the same conditions as investors domiciled within the country. Foreign investors are free to enter into mergers, acquisitions, greenfield investments, or joint ventures. Foreign firms may also participate in publicly-financed research and development programs on a national treatment basis. Incoming foreign currency must be identified by the participating bank to the Central Bank of Argentina (www.bcra.gov.ar ). There is no official executive or other interference in the court that could affect foreign investors.

All foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law No. 19,550) and the rules issued by the commercial regulatory agencies. Decree 27/2018 amended Law No. 19,550 to simplify bureaucratic procedures. Full text of the decree can be found at (http://servicios.infoleg.gob.ar/infolegInternet/anexos/305000-309999/305736/norma.htm ). All other laws and norms concerning commercial entities are established in the Argentina Civil and Commercial Code.

Further information about Argentina’s investment policies can be found at the following websites:

• Ministry of Foreign Affairs and Worship, Investor’s Information Service (http://inversiones.gob.ar/atencion-al-inversor)
• The Embassy of the Argentine Republic in the United States of America (http://www.embassyofargentina.us/en/invest-in-argentina.html) 
• Ministry of Production (http://www.produccion.gob.ar/ )
• Ministry of Treasury (https://www.argentina.gob.ar/hacienda )
• The Central Bank of the Argentine Republic (http://www.bcra.gov.ar/ )
• The National Securities Exchange Commission ( http://www.cnv.gob.ar// )
• The National Investment and Trade Promotion Agency (http://www.produccion.gob.ar/agencia , http://www.investandtrade.org.ar/?lang=en )
• Investors can download Argentina’s investor guide through this link: https://drive.google.com/file/d/0B-086VB27JBjN0x0NmM4Y09GODA/view 

Competition and Anti-Trust Laws

The National Commission for the Defense of Competition and the Secretariat of Commerce, both within the Ministry of Production, have enforcement authority of the Competition Law (Law 25,156). The law aims to ensure the general economic interest and promotes a culture of competition in all sectors of the national economy. In April 2018, Argentina’s Senate passed a bill to amend the Competition Law, which is pending approval by the lower chamber of Congress.

Expropriation and Compensation

Section 17 of the Argentine Constitution affirms the right of private property and states that any expropriation must be authorized by law and compensation must be provided. The United States-Argentina BIT states that investments shall not be expropriated or nationalized except for public purposes upon prompt payment of the fair market value in compensation.

Argentina has a history of expropriations under previous administrations, the most recent of which occurred in March 2015 when the Argentine Congress approved the nationalization of the train and railway system. A number of companies that were privatized during the 1990s under the Menem administration were renationalized under the Kirchner administrations. Additionally, in October 2008, Argentina nationalized Argentina’s private pension funds, which amounted to approximately one-third of total GDP, and transferred the funds to the government social security agency.

Dispute Settlement

ICSID Convention and New York Convention

Argentina is signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which the country ratified in 1989. Argentina is also a party to the International Center for Settlement of Investment Disputes (ICSID) Convention since 1994.

There is neither specific domestic legislation providing for enforcement under the 1958 New York Convention nor legislation for the enforcement of awards under the ICSID Convention. Companies that seek recourse through Argentine courts may not simultaneously pursue recourse through international arbitration. In practice, the Macri administration has shown a willingness to negotiate settlements to valid arbitral awards.

In March 2012, the United States suspended Argentina’s designation as a Generalized System of Preferences (GSP) beneficiary developing country because it had not acted in good faith in enforcing arbitral awards in favor of United States citizens or a corporation, partnership, or association that is 50 percent or more beneficially owned by United States citizens. Effective January 1, 2018, the United States ended Argentina’s suspension from the GSP program and restored access for GSP duty-free treatment for over 3,000 Argentine products.

Investor-State Dispute Settlement

The Argentine government officially accepts the principle of international arbitration. The United States-Argentina BIT includes a chapter on Investor-State Dispute Settlement for U.S. investors.

In the past ten years, Argentina has been brought before the ICSID in 23 cases involving U.S. or other foreign investors. Of those, nine remain pending. Argentina currently has five pending arbitral cases filed against it by U.S. investors, including four which have been pending for several years. For more information on the cases brought by U.S. claimants against Argentina, go to: https://icsid.worldbank.org/en/Pages/cases/AdvancedSearch.aspx# .

Local courts cannot enforce arbitral awards issued against the government based on the public policy clause. There is no history of extrajudicial action against foreign investors.

Argentina is a member of the United Nations Commission on International Trade Law (UNCITRAL) and the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

Argentina is also a party to several bilateral and multilateral treaties and conventions for the enforcement and recognition of foreign judgments, which provide requirements for the enforcement of foreign judgments in Argentina, including:

Treaty of International Procedural Law, approved in the South-American Congress of Private International Law held in Montevideo in 1898, ratified by Argentina by law No. 3,192.

Treaty of International Procedural Law, approved in the South-American Congress of Private International Law held in Montevideo in 1939-1940, ratified by Dec. Ley 7771/56 (1956).

Panamá Convention of 1975, CIDIP I: Inter-American Convention on International Commercial Arbitration, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 24,322 (1995).

Montevideo Convention of 1979, CIDIP II: Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 22,921 (1983).

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution (ADR) mechanisms can be stipulated in contracts. Argentina also has ADR mechanisms available such as the Center for Mediation and Arbitrage (CEMARC) of the Argentine Chamber of Trade. More information can be found at: http://www.intracen.org/Centro-de-Mediacion-y-Arbitraje-Comercial-de-la-Camara-Argentina-de-Comercio—CEMARC–/#sthash.RagZdv0l.dpuf .

Argentina does not have a specific law governing arbitration, but it has adopted a mediation law (Law No. 24.573/1995), which makes mediation mandatory prior to litigation. Some arbitration provisions are scattered throughout the Civil Code, the National Code of Civil and Commercial Procedure, the Commercial Code, and three other laws. The following methods of concluding an arbitration agreement are non-binding under Argentine law: electronic communication, fax, oral agreement, and conduct on the part of one party. Generally, all commercial matters are subject to arbitration. There are no legal restrictions on the identity and professional qualifications of arbitrators. Parties must be represented in arbitration proceedings in Argentina by attorneys who are licensed to practice locally. The grounds for annulment of arbitration awards are limited to substantial procedural violations, an ultra petita award (award outside the scope of the arbitration agreement), an award rendered after the agreed-upon time limit, and a public order violation that is not yet settled by jurisprudence when related to the merits of the award. On average, it takes around 21 weeks to enforce an arbitration award rendered in Argentina, from filing an application to a writ of execution attaching assets (assuming there is no appeal). It takes roughly 18 weeks to enforce a foreign award. The requirements for the enforcement of foreign judgments are set out in section 517 of the National Procedural Code.

No information is available as to whether the domestic courts frequently rule in cases in favor of state-owned enterprises (SOE) when SOEs are party to a dispute.

Bankruptcy Regulations

Argentina’s bankruptcy law was codified in 1995 in Law 24,522. The full text can be found at: http://www.infoleg.gov.ar/infolegInternet/anexos/25000-29999/25379/texact.htm . Under the law, debtors are generally able to begin insolvency proceedings when they are no longer able to pay their debts as they mature. Debtors may file for both liquidation and reorganization. Creditors may file for insolvency of the debtor for liquidation only. The insolvency framework does not require approval by the creditors for the selection or appointment of the insolvency representative or for the sale of substantial assets of the debtor. The insolvency framework does not provide rights to the creditor to request information from the insolvency representative but the creditor has the right to object to decisions by the debtor to accept or reject creditors’ claims. Bankruptcy is not criminalized; however, convictions for fraudulent bankruptcy can carry two to six years of prison time.

Financial institutions regulated by the Central Bank of Argentina (BCRA) publish monthly outstanding credit balances of their debtors; the BCRA and the Central de Deudores (debtors’ center) compile and publish this information. The database is available for use of financial institutions that comply with legal requirements concerning protection of personal data. The credit monitoring system only includes negative information, and the information remains on file through the person’s life. At least one local NGO that makes microcredit loans is working to make the payment history of these loans publically accessible for the purpose of demonstrating credit history, including positive information, for those without access to bank accounts and who are outside of the Central Bank’s system. Equifax, which operates under the local name “Veraz” (or “truthfully”), also provides credit information to financial institutions and other clients, such as telecommunications service providers and other retailers that operate monthly billing or credit/layaway programs.

The World Bank’s 2018 Doing Business Report ranked Argentina 101 among 189 countries for the effectiveness of its insolvency law. This is a jump of 15 places from its ranking of 116 in 2017. The report notes that it takes an average of 2.4 years and 16.5 percent of the estate to resolve bankruptcy in Argentina.

Capital Markets and Portfolio Investment

The Macri administration enacted a series of macroeconomic reforms (unifying the exchange rate, settling with holdout creditors, annulling most of the trade restrictions, lifting capital controls, to mention a few) to improve the investment climate. In May 2018, the Congress approved a new capital markets law aimed at boosting economic growth through the development and deepening of the local capital market. Argentina also signed several bilateral agreements and memoranda of understanding with other countries aimed to increase inward foreign direct investment.

The Argentine Securities and Exchange Commission (CNV or Comision Nacional de Valores) is the federal agency that regulates securities markets offerings. Securities and accounting standards are transparent and consistent with international norms. Foreign investors have access to a variety of options on the local market to obtain credit.

The Buenos Aires Stock Exchange is the organization responsible for the operation of Argentina’s primary stock exchange, located in Buenos Aires City. The most important index of the Buenos Aires Stock Exchange is the MERVAL (Mercado de Valores).

U.S. banks, securities firms, and investment funds are well-represented in Argentina and are dynamic players in local capital markets. In 2003, the government began requiring foreign banks to disclose to the public the nature and extent to which their foreign parent banks guarantee their branches or subsidiaries in Argentina. The Congress approved in May 2018 a new capital markets law that will remove over-reaching regulatory intervention provisions introduced by the previous government and ease restrictions on mutual funds and foreign portfolio investment in domestic markets.

Money and Banking System

Argentina has a relatively sound banking sector based on diversified revenues, well-contained operating costs, and a high liquidity level. The main challenge for banks is to rebuild long-term assets and liabilities. In 2017, the quantity of money available as credit to the private sector increased 22 percent in real terms, achieving the largest increase in the last 16 years. As a result, the stock of credit to the private sector (for both corporations and individuals) reached 14 percent of GDP. BCRA regulatory changes revised the permitted calculations of interest rates in home loans in 2016; as a result, in 2017, the mortgage credit market had a stellar performance by growing 118 percent in real terms. The largest bank is the Banco de la Nacion Argentina. Non-performing private sector loans constitute less than two percent of banks’ portfolios. The ten largest private banks have total assets of approximately ARS 1,656 billion (USD 66 billion). Total financial system assets are approximately ARS 3,468 billion (USD 138 billion). The Central Bank of Argentina acts as the country’s financial agent and is the main regulatory body for the banking system.

Foreign banks and branches are allowed to establish operations in Argentina. They are subject to the same regulation as local banks. Argentina’s Central Bank has many correspondent banking relationships, none of which are known to have been lost in the past three years.

The Central Bank has enacted a resolution recognizing cryptocurrencies and requiring that they comply with local banking and tax laws. No implementing regulations have been adopted. Blockchain developers report that several companies in the financial services sector are exploring or considering using blockchain-based programs externally and are using some such programs internally. One Argentine NGO, through funding from the Inter-American Development Bank (IDB), is developing blockchain-based banking applications to assist very low income populations.

Foreign Exchange and Remittances

Foreign Exchange Policies

President Macri issued a number of regulations that lifted all capital controls and reduced trade restrictions. In November 2017, the government repealed the obligation to convert hard currency earnings on exports of both goods and services to pesos in the local foreign exchange market.

Per Resolution 36,162 of October 2011, locally registered insurance companies are mandated to maintain all investments and cash equivalents in the country. In November 2017, the Argentine insurance regulator issued Resolution 41057-E/2017, amending the investment regime for insurance companies. The Resolution prohibits insurance companies from purchasing (directly or indirectly through mutual funds) short-term Central Bank debt instruments (locally known as Lebac) for their investment portfolios.

The Argentine Central Bank limits banks’ dollar-denominated asset holdings to 10 percent of their net worth.

Since December 2015, Argentina has a managed floating exchange rate regime in which the Central Bank may intervene to reduce volatility in the domestic foreign exchange market, which generally is determined by demand and supply.

Remittance Policies

According to Resolutions No. 3,819/2015 and 1/2017, companies and investors have no official restrictions on money conversion, remittances, or repatriation of their earnings.

Sovereign Wealth Funds

The Argentine Government does not maintain a Sovereign Wealth Fund.

Policies Toward Foreign Direct Investment

The Armenian Government officially welcomes foreign investment; the country has achieved respectable rankings on some global indices measuring the business climate. Armenia’s investment and trade policy is relatively open; foreign companies are entitled by law to the same treatment as Armenian companies (national treatment). Armenia has strong human capital and a well-educated population, particularly in the Science, Technology, Engineering and Math (STEM) fields. The high-tech and information technology (IT) sectors have particularly attracted foreign investment. Many international companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists and trade preferences with Russia and the Eurasian Economic Union. However, Armenia’s investment climate poses several challenges as a result of its small market (Armenia has a population of less than three million), its relative geographic isolation due to closed borders with Turkey and Azerbaijan, its per capita gross national income (GNI) of about USD 3,800, and high levels of corruption.

Major sectors of Armenia’s economy are controlled by well-connected businessmen enjoying government-protected market dominance, creating barriers to new entrants and preventing a level playing field for all businesses. The Armenian government has also on occasion deployed government agencies, including the tax and customs services, for political motives. Foreign businesses, especially SMEs, may encounter non-transparent tax and customs procedures that increase costs and business risks. The open legislative framework and the government’s visible effort to attract more foreign investment are complicated by instances of unfair tender / procurement processes and practices and preferential treatment. The investment climate is also tainted by the failure to properly enforce or to selectively enforce intellectual property rights. The lack of an independent and strong judiciary has undermined the government’s assurances of equal treatment and transparency and reduced businesses’ recourse in the instances of contract or tax disputes. However, in 2011, the Republic of Armenia became the first country among the Commonwealth of Independent States (CIS) to accede to the WTO’s Government Procurement Agreement (GPA 1994). Armenia joined the GPA 2012 version in June 2015. Currently, the Armenian Government has submitted to Parliament a new draft Law on Foreign Investment, which would strengthen protections for foreign investors.

The Development Foundation of Armenia (DFA) is Armenia’s national authority for investment and export promotion; the DFA provides services and information to foreign investors related to the business climate, investment opportunities and legislation. It also provides support for investors’ visits as well as a liaison with governmental institutions. More information about the legislation, procedures and registrations can be obtained from the DFA (E-mail: info@dfa.am; www.dfa.am ; https://www.facebook.com/DFArmenia/ ). The Armenian Government established the Center for Strategic Initiatives to advance essential reforms, increase exports, and attract long-term and sustainable foreign investments into Armenia through public-private partnership (http://www.reforms.am/en ). Investment projects promoted by the Armenian Government could be found at http://investmentprojects.am/ .

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limitations on foreign ownership and control of commercial enterprises. There are also no sector specific restrictions.

The Armenian government does not screen foreign direct investments.

Other Investment Policy Reviews

Armenia has not undergone Investment Policy Reviews by either the Organization of Economic Cooperation and Development (OECD) or U.N Conference on Trade and Development (UNCTAD). The World Trade Organization (WTO) conducted a Trade Policy Review in 2010, which can be found at http://www.wto.org/english/tratop_e/tpr_e/tp328_e.htm .

Business Facilitation

Armenia has traditionally ranked well in the World Bank’s Ease of Doing Business report. Companies can register businesses electronically at http://www.e-register.am/en/ . This single window service was launched in 2011 and allows individual entrepreneurs and companies to obtain name reservation, business registration, and tax identification services at a single location and at the same time. The legal time limit for the process is two working days, but the application may be dealt with in one day. However, an electronic signature is needed in order to be able to register online. Foreign citizens can obtain an e-signature and more detailed information from the e-signature portal at https://www.ekeng.am/en/ . A foreign company is not required to seek investment approval. Companies in Armenia are free to open and maintain bank accounts in foreign currency and there are no minimum capital requirements for foreign or domestic companies.

Outward Investment

The Armenian Government does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

The Armenian regulatory system is still not implemented in a sufficiently transparent manner. A small cadre of businesses dominates particular sectors and utilize government assistance to suppress full competition. Despite some improvements in customs with regard to import procedures and the application of reference prices, the inconsistent application of tax, customs (especially with respect to valuation and classification), and regulatory rules (especially in the area of trade) undermines fair competition and adds risk for less politically-connected businesses, particularly small-and medium-sized businesses and new market entrants. Armenia’s legislation on protection of competition has recently been improved with clear definitions of limitation of competition and newly introduced concepts on price manipulation, imposition of fines on economic agents as a percentage of revenue vs. previous fixed amounts, and penalties for state officials for fixing tenders. However, the State Commission for the Protection of Economic Competition (SCPEC) lacks investigative powers and operates based on document studies, often provided by competing claimants. The efforts of the SCPEC alone are not enough to ensure a level playing field because of the roles of other state institutions, which affect competition, like courts, tax and customs agencies, and law enforcement agencies. Banking supervision is relatively well developed and largely consistent with the Basel Core Principles. The Central Bank of Armenia is the primary regulator for all segments of the financial sector, including banking, securities, insurance and pensions.

Safety and health requirements, most of them holdovers from the Soviet period, generally do not impede investment activities. Bureaucratic procedures can nevertheless be burdensome, and discretionary decisions by individual officials still provide opportunities for petty corruption. Despite persistent problems with corrupt officials, both local and foreign businesses assert that a sound knowledge of tax and customs law and regulations enables business owners to deflect the majority of unlawful bribe requests, which is easier for big companies than for SMEs. The unified online platform for publishing draft legislation was launched in March 2017, available at https://www.e-draft.am/ . The proposed legislation is available for everybody to view and the registered users can send feedback and get a summary of comments on draft legislation. However, the time period devoted to public comments in Armenia is often not sufficient for proper feedback. The results of consultations have not been reported by the government in the past.

International Regulatory Considerations

Armenia is a member of the Eurasian Economic Union (EAEU) and adheres to the technical regulations adopted within the EAEU. Armenia is also a member of the WTO and the Armenian Government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade. Armenia is a signatory to the Trade Facilitation Agreement and had already implemented all category A requirements. Notification on implementation of category B requirements will be submitted to the WTO in April 2018 and the Armenian Government is working with international donors on potential assistance for the implementation of category C requirements.

Legal System and Judicial Independence

Armenia has a hybrid legal system that includes elements of both civil and common law. Although Armenia is developing an international commercial code, the laws regarding commercial and contractual matters currently are set forth in the civil code. Thus, because Armenia lacks a commercial court, all disputes involving contracts, ownership of property, or commercial matters are resolved by litigants in the courts of general jurisdiction, which handle both civil and criminal cases. However, the courts which handle civil matters are overwhelmed by the volume of cases before them and are seen by the public as corrupt. Despite the ability of courts to use the precedential authority of the Court of Cassation and the European Court of Human Rights, many judges do not do so, making civil court decisions unpredictable.

Many Armenian courts suffer from low levels of efficiency, independence, and professionalism, creating a need to strengthen the Armenian judiciary. Very often in cases when additional forensic expertise is requested during the judicial proceedings, the court may suspend the process until the forensic opinion is received, which may take months. Litigants are wary of turning to Armenian courts for redress because of the lack of judicial independence. Many judges at the court of general jurisdiction are reluctant to make a decision without getting advice from high court judges. Thus, decisions may be influenced by factors other than the law and merits of the cases. In general, the government honors judgments from both arbitration and Armenian national courts.

Due to the nature and complexity of commercial and contractual issues and the caseload of the civil courts, many matters involving investment/commercial disputes take months or years to work their way through the civil courts. In addition, because of the inherent inefficiencies and institutional corruption of the courts, matters are often delayed and outcomes are not predictable. Even though the Armenian Constitution provides investors the tools to enforce awards and their property rights, there is little predictability in what a court may do.

Laws and Regulations on Foreign Direct Investment

The Development Foundation of Armenia (DFA) is Armenia’s national authority for investment, and export promotion that provides services and information to foreign investors on business climate, investment opportunities and the legislation, support for investors’ visits, as well as liaison with governmental institutions. More information about the legislation, procedures and registrations can be obtained from DFA (E-mail: info@dfa.am; www.dfa.am ).

Competition and Anti-Trust Laws

The State Commission for the Protection of Economic Competition reviews transactions for competition related concerns. The law, regulations, commission decisions, and more information can be found at http://www.competition.am/?lng=2 .

Expropriation and Compensation

Under Armenian law, foreign investments cannot be confiscated or expropriated except in extreme cases of natural or state emergency, upon obtaining an order from a domestic court. In all cases, proper and fair compensation is owed to the property owner. The U.S. Government is not aware of any confirmed cases of expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Armenia is a state member of the ICSID convention and a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Under Article 5 of the Armenian Constitution, international treaties are a constituent part of the legal system of the Republic of Armenia. When an international treaty is ratified, if it stipulates norms other than those present in the domestic laws, the guidelines of the treaty shall prevail.

Investor-State Dispute Settlement

According to the 1994 Foreign Investment Law, all disputes that arise between a foreign investor and the Republic of Armenia must be settled in Armenian courts. A law on Commercial Arbitration was enacted in 2007, which provides investors with a wider range of options for resolving their commercial disputes. The U.S.-Armenia BIT provides that in the event of a dispute between an American investor and the Republic of Armenia, the investor may take the case to international arbitration. As an international treaty, the BIT supersedes Armenian law, a point which Armenia’s constitution acknowledges and which holds in actual practice. While there have been a few investment disputes involving U.S. and other foreign investors, there is no evidence of a pattern of discrimination against foreign investors in these cases.

International Commercial Arbitration and Foreign Courts

Commercial disputes may be brought before an Armenian or any other competent court, as provided by law or in accordance to party agreement. Commercial disputes are heard in courts of general jurisdiction. The specialized administrative courts adjudicate cases brought against state entities. Final judgments may be appealed to the Court of Appeal and Court of Cassation, the highest judicial authority in Armenia.

The Law on Arbitration Courts and Arbitration Procedures provides rules governing the settlement of disputes by arbitration. Armenia is a member state to the International Center for Settlement of Investment Disputes (ICSID Convention) and convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). The stipulations of the New York convention have been incorporated into Article 5 of the Armenian Constitution which requires domestic courts to recognize foreign arbitral awards.

Armenia intends to develop an alternative dispute resolution (ADR) mechanism that will include mediation and arbitration. ADR could be used not only in commercial matters, including those involving mobile property and secured transactions, but also in cases involving family and labor disputes. While ADR options are available for those who seek alternatives to litigation, they currently are not widely used or trusted.

Bankruptcy Regulations

According to the Law on Bankruptcy adopted in 2006, the creditors, equity and contract holders (including foreign entities) have the right to participate and defend their interests in the judicial proceedings of a bankruptcy case. Creditors have the right to access all materials relevant to the case, submit claims to the court in relation to the bankruptcy, participate in creditors’ meeting, and nominate a candidate to administer the case. Monetary judgments are usually made in local currency. The Armenian Criminal code defines penalties for false and deliberate bankruptcy, for concealment of property or other assets of the bankrupt party, or for other illegal activities during the bankruptcy process. Armenia amended its bankruptcy law in 2012 to clarify procedures for appointing insolvency administrators, reducing the processing time for bankruptcy proceedings, and regulating asset sales by auction.

According to the World Bank’s 2018 Doing Business Index, resolving insolvency takes 1.9 years on average and costs 11 percent of the debtor’s estate, with the most likely outcome being that the company will be broken up and sold. The average recovery rate is 36.4 cents on the dollar. Globally, Armenia stands at 97 in the ranking of 190 economies on the ease of resolving insolvency in the World Bank’s Doing Business 2018 Report (http://www.doingbusiness.org/rankings ; http://www.doingbusiness.org/data/exploreeconomies/
armenia#resolving-insolvency ).

Capital Markets and Portfolio Investment

The banking system in Armenia is sound and well-regulated, but Armenia’s financial sector is not highly developed. IMF estimates suggest that banking sector assets account for about 90 percent of total financial sector assets. Financial intermediation is poor. Because Armenian banks charge service and other fees, the actual interest rate paid by the customer may be higher than the nominal interest rate quoted by the banks. Nearly all banks require collateral located in Armenia, and large collateral requirements often prevent potential borrowers from entering the market. This remains the main barrier for SMEs and start-up companies.

The Armenian Government welcomes foreign portfolio investments and there is a system in place and legal framework for investments. However, Armenia’s securities market is not well developed and has only minimal trading activity through the NASDAQ-OMS exchange. Liquidity for the transfer of large sums can be difficult due to the small size of Armenia’s financial market and overall economy. The Armenian Government is hoping that as a result of the 2014 pension reform, which brought two international asset managers (Amundi and C-Quadrat) to Armenia, the capital market will play a more prominent role in the financial sector of the country. Armenia respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions. Credit is allocated on market terms and foreign investors are able to access credit locally.

Money and Banking System

The banking sector is healthy; non-performing loans are less than 10 percent which is within acceptable international standards. The top three Armenian banks by assets are Ameriabank – 677.7 billion AMD (1.4 billion USD), Armbusinessbank – 574.9 billion AMD (1.2 billion USD) and Ardshinbank – 568.2 billion AMD (1.1 billion USD) and. The Central Bank of Armenia has initiated consolidation in the banking system; as of January 1, 2017 the minimum capital requirements for banks increased from the 5 billion AMD (10.4 million USD) to 30 billion AMD (62.5 million USD). This is intended to allow the banks to issue bigger loans at lower interest rates and will further strengthen the Armenian banking system. There are no restrictions for foreigners to open bank accounts. Foreign banks and branches are allowed to establish operations in the country, being subjected to the same prudential measures and regulations as local banks.

Foreign Exchange and Remittances

Foreign Exchange Policies

Armenia has no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, or management or technical service fees. Most banks can transfer funds internationally within two to four days. Armenia maintains the Armenian dram (AMD) as a freely convertible currency under a managed float. The Central Bank of Armenia (CBA) sought to maintain the AMD through intervention in the foreign exchange market and through administrative measures in November– December 2014 to prevent market panic and drastic devaluation in the currency market. As a result, a 17 percent depreciation of the Armenian dram was roughly on par with the widespread decline of many currencies against the dollar over the same period. The AMD/USD exchange rate as of March 2018 fluctuated around 480 AMD to the USD.

According to the 2005 law on Currency Regulation and Currency Control, prices for all goods and services, property and wages must be set in AMD. There are exceptions in the law, however, for transactions between resident and non-resident businesses and for certain transactions involving goods traded at world market prices. The law requires that interest on foreign currency accounts be calculated in that currency, but be paid in AMD.

Remittance Policies

Armenia has no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, lease payments, private foreign debt or management or technical service fees.

Sovereign Wealth Funds

Armenia does not have a sovereign wealth fund.

Policies Toward Foreign Direct Investment

Australia is generally welcoming to foreign direct investment (FDI), with foreign investment widely considered to be an essential contributor to Australia’s economic growth. Other than certain required review and approval procedures for certain types of foreign investment described below, there are no laws that discriminate against foreign investors.

A number of investment promotion agencies operate in Australia. The Australian Trade Commission (often referred to as Austrade) is the Commonwealth Government’s national ‘gateway’ agency to support investment into Australia. Austrade provides coordinated government assistance to promote, attract and facilitate FDI, supports Australian companies to grow their business in international markets, and delivers advice to the Australian Government on its trade, tourism, international education and training, and investment policy agendas. Austrade operates through a number of international offices, with U.S. offices primarily focused on attracting foreign direct investment into Australia and promoting the Australian education sector in the United States. Austrade in the United States operates from offices in Boston, Chicago, Houston, New York, San Francisco, and Washington, DC.

In addition, state investment promotion agencies also support international investment at the state level and in key sectors. For example, Investment Attraction South Australia aims to drive inward investment for South Australia. Invest in New South Wales similarly seeks to promote New South Wales as an investment location.

Limits on Foreign Control and Right to Private Ownership and Establishment

Within Australia, the right exists for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity in accordance with national legislative and regulatory practices.

See Section 4: Legal Regime – Laws and Regulations on Foreign Direct Investment below for information on Australia’s investment screening mechanism for inbound foreign investment.

Other than the screening process described in Section 4, there are few limits or restrictions on foreign investment in Australia. Foreign purchases of agricultural land greater than AUD 15 million (USD 12 million) is subject to screening. This threshold will apply to the cumulative value of agricultural land owned by the foreign investor, including the proposed purchase. However, the agricultural land screening threshold does not affect investments made under AUSFTA. The current threshold remains AUD 1.094 billion (USD 875 million) for U.S. non-government investors. Future investments made by U.S. non-government investors will be subject to inclusion on the foreign ownership register of agricultural land and are also subject to Australian Tax Office (ATO) information gathering activities on new foreign investment.

U.S. investors do not face any restrictions when investing in Australia relative to investors from other countries. All foreign persons, including U.S. investors, must notify the Australian government and receive prior approval to make investments of five percent or more in the media sector, regardless of the value of the investment.

Other Investment Policy Reviews

Australia has not conducted an investment policy review in the last three years through either the OECD or UNCTAD system. A WTO review of the trade policies and practices of Australia did take place however, in April 2015, and can be found at https://www.wto.org/english/tratop_e/tpr_e/tp412_e.htm .

The Australian Trade Commission compiles an annual ‘Why Australia Benchmark Report’ that presents comparative data on investing in Australia in the areas of Growth, Innovation, Talent, Location and Business. The report also compares Australia’s investment credentials with other countries and provides a general snapshot on Australia’s investment climate. See http://www.austrade.gov.au/International/Invest/Resources/Benchmark-Report .

Business Facilitation

Business registration in Australia is relatively straightforward and is facilitated through a number of Government web sites. The Commonwealth Department of Industry, Innovation and Science’s business.gov.au  provides an online resource and is intended as a ‘whole-of-government’ service providing essential information on planning, starting and growing a business. Foreign entities intending to conduct business in Australia as a foreign company must be registered with the Australian Securities and Investments Commission (ASIC). As Australia’s corporate, markets and financial services regulator, the ASIC web site provides information and guides on starting and managing a business or company.

In registering a business, individuals and entities are required to register as a company with the ASIC, which then gives the company an Australian Company Number, registers the company, and issues a Certificate of Registration. According to the World Bank ‘Starting a Business’ indicator, registering a business in Australia takes 2.5 days and Australia ranks 7^th globally on this indicator.

The Australian Government has a range of initiatives to assist women and minority groups with establishing new businesses. At a high level, the Office for Women within the Department of Prime Minister and Cabinet promotes economic security for women, leadership for women in business, and various grants and funding for initiatives that promote women in business. Various initiatives also exist to assist indigenous Australians engage in the economy including through business creation. Guidance on setting up new businesses is also available in a range of foreign languages through the business.gov.au  website.

Outward Investment

Australia generally looks positively towards outward investment as a ways to grow its economy. There are no restrictions on domestic investors. Austrade, the Australian Government’s export credit agency, Efic (Export Finance and Insurance Corporation), and various other government agencies offer assistance to Australian businesses looking to invest abroad.

Transparency of the Regulatory System

The Australian Government utilizes transparent policies and effective laws to foster national competition and is consultative in its policy making process. The government generally allows for public comment of draft legislation and publishes legislation once it enters into force.

Regulations drafted by Australian Government agencies must be accompanied by a Regulation Impact Statement when submitted to the final decision maker (which may be the Cabinet, a Minister, or another decision maker appointed by legislation). All Regulation Impact Statements must first be approved by the Office of Best Practice Regulation (OBPR) which sits within the Department of Prime Minister and Cabinet, prior to being provided to the relevant decision maker. They are required to demonstrate the need for regulation, the alternative options available (including non-regulatory options), feedback from stakeholders, and a full cost-benefit analysis. Regulations are subsequently required to be reviewed periodically. All Regulation Impact Statements, second reading speeches, explanatory memoranda, and associated legislation are made publicly available on Government websites. Australia’s state and territory governments have similar processes when making new regulations.

The Australian Government has tended to prefer self-regulatory options where an industry can demonstrate that the size of the risks are manageable and that there are mechanisms for the industry to agree on, and comply with, self-regulatory options that will resolve the identified problem. This manifests in various ways across industries, including voluntary codes of conduct and similar agreements between industry players.

The Australian Government has recognized the impost that regulation can impose on businesses and has undertaken a range of initiatives to reduce red tape. This has included specific red tape reduction targets for government agencies, and various deregulatory groups within government agencies.

Australian accounting, legal, and regulatory procedures are transparent and consistent with international standards. Accounting standards are formulated by the Australian Accounting Standards Board, an Australian Government agency under the Australian Securities and Investments Commission Act 2001. Under that Act, the statutory functions of the AASB are to develop a conceptual framework for the purpose of evaluating proposed standards; make accounting standards under section 334 of the Corporations Act 2001, and advance and promote the main objects of Part 12 of the ASIC Act, which include reducing the cost of capital, enabling Australian entities to compete effectively overseas and maintaining investor confidence in the Australian economy. The Australian Government conducts regular reviews of proposed measures and legislative changes and holds public hearings into such matters.

International Regulatory Considerations

Australia is a member of the WTO, the Asia-Pacific Economic Cooperation (APEC) and became the first of Association of Southeast Nations’ (ASEAN) ten dialogue partners in 1974. While not a regional economic block, Australia’s free trade agreement with New Zealand provides for a high level of integration between the two economies with the ultimate goal of a single economic market.

Australia is a signatory to the WTO Trade Facilitation Agreement (TFA) and performs at, or close to, the frontier for all eleven OECD Trade Facilitation Indicators. For the eight indicators where it is not located at the frontier, it has significantly improved on six between 2015 and 2017. While no new legislation has been required to progress Australia’s implementation of the TFA, Australia has created a National Committee on Trade Facilitation to oversee development of new trade facilitation initiatives. Two important initiatives to date have been the creation of an Authorized Economic Operator scheme to allow approved companies to streamline imports through Australian Customs, and the creation of a ‘single window’ portal for traders seeking information on importation and permit requirements.

Legal System and Judicial Independence

The Australian legal system is firmly grounded on the principles of equal treatment before the law, procedural fairness, judicial precedent, and the independence of the judiciary. Strong safeguards exist to ensure that people are not treated arbitrarily or unfairly by governments or officials. Property and contractual rights are enforced through the Australian court system, which is based on English Common Law.

Laws and Regulations on Foreign Direct Investment

Information regarding investing in Australia can be found in Austrade’s Investor Guide at http://www.austrade.gov.au/International/Invest/Investor-guide . The guide is designed to help international investors and businesses navigate investing and operating in Australia. It is an online guide to the regulations, considerations and assistance relevant to investing in, establishing, and running a business in Australia, with direct links to relevant regulators and government agencies that relate to Australian Government regulation and available assistance.

Foreign investment in Australia is regulated by the Foreign Acquisitions and Takeovers Act 1975 and Australia’s Foreign Investment Policy. The Foreign Investment Review Board (FIRB), a division of Australia’s Treasury, is a non-statutory body established to advise the Treasurer and the Commonwealth Government on Australia’s foreign investment policy and its administration. The FIRB screens potential foreign investments in Australia above threshold values, and based on advice from the FIRB, the Treasurer may deny or place conditions on the approval of particular investments above that threshold on national interest grounds. Following a number of recent investments made by foreign companies in key sectors of Australia’s economy, the laws and regulations governing foreign direct investment have been subject to a wide ranging and ongoing review.

The Australian Government has a ‘national interest’ consideration in reviewing foreign investment applications.

In January 2017, the Government established the Critical Infrastructure Centre (CIC) to better manage the risks to Australia’s critical infrastructure assets. A key role of the CIC is to advise the FIRB on risks associated with foreign investment in infrastructure assets, particularly telecommunications, electricity, water and port assets. While the CIC’s role in the foreign investment process signals the Government’s focus on these assets, its role is limited to providing advice to the Government and the approval framework itself was not changed when the CIC was established. Further changes to investments in electricity assets and agricultural land were announced in early 2018. Under these changes, electricity infrastructure is formally viewed as ‘critical infrastructure’ and foreign purchases will face additional scrutiny and conditions, while agricultural land is now required to be ‘marketed widely’ to Australian buyers before being sold to a foreign buyer. Various states also announced over 2017 that they would apply surcharges to foreign investment in real estate.

Under the Australia-United States Free Trade Agreement (AUSFTA), all U.S. greenfield investments are exempt from FIRB screening. U.S. investors require prior approval if acquiring a substantial interest in a primary production business valued above AUD 1.094 billion (USD 791.6 million).

Competition and Anti-Trust Laws

The Australian Competition and Consumer Commission (ACCC) enforces the Competition and Consumer Act 2010 and a range of additional legislation, promotes competition, fair trading and regulates national infrastructure for the benefit of all Australians. The ACCC plays a key role in assessing mergers to determine whether they will lead to a substantial lessening of competition in any market. ACCC also engages in consumer protection enforcement and has expanded responsibilities to monitor digital industries and the “sharing economy.”

Expropriation and Compensation

Private property can be expropriated for public purposes in accordance with Australia’s constitution and established principles of international law. Property owners are entitled to compensation based on “just terms” for expropriated property. There is little history of expropriation in Australia although a few U.S. investors have claimed certain commercial disputes should be considered expropriation. (See below description.)

Dispute Settlement

ICSID Convention and New York Convention

Australia is a member of the International Centre for the Settlement of Investment Disputes (ICSID Convention) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The International Arbitration Act 1974 governs international arbitration and the enforcement of awards.

Investor-State Dispute Settlement

Investor-State Dispute Settlement (ISDS) is included in some but not all of Australia’s 21 BITs and 9 FTAs. AUSFTA establishes a dispute settlement mechanism for investment disputes arising under the Agreement. However, AUSFTA does not contain an investor-state dispute settlement (ISDS) mechanism that would allow individual investors to bring a case against the Australian government. Regardless of the presence or absence of ISDS mechanisms, there is no history of extrajudicial action against foreign investors in Australia.

In 2010, an Australian company with approximately 30 percent U.S. institutional investor ownership acquired an Australian mining company for the purpose of obtaining the latter company’s primary asset, a coal exploration license. The New South Wales (NSW) government had legally approved the purchase. Subsequent to the purchase, however, the NSW Independent Commission Against Corruption (ICAC), a non-judicial anti-corruption entity with sweeping powers of investigation but no independent powers to prosecute, determined that the original Australian company had corruptly obtained the license. Based on the ICAC findings, the NSW government passed legislation cancelling the license, denying the investors the ability to seek compensation, and preventing the NSW government from having any liability for its past conduct. The result of these actions is the investors of the acquiring company, including the U.S. investors, have lost their entire investment.

International Commercial Arbitration and Foreign Courts

Australia has an established legal and court system for the conduct or supervision of litigation and arbitration, as well as alternate dispute resolutions. Australia is a leader in the development and provision of non-court dispute resolution mechanisms. It is a signatory to all the major international dispute resolution conventions and has organizations that provide international dispute resolution processes.

Bankruptcy Regulations

Bankruptcy is a legal status conferred under the Bankruptcy Act 1966 and operates in all of Australia’s States and Territories. Only individuals can be made bankrupt and not businesses or companies. Where there is a partnership or person trading under a business name, it is the individual or individuals who make up that firm that are made bankrupt. Companies cannot become bankrupt under the Bankruptcy Act though similar provisions (called administration and winding up) exist under the Corporations Act 2001. Bankruptcy is not a criminal offense in Australia.

Creditor rights are established under the Bankruptcy Act 1966, the Corporations Act 2001, and the more recent Insolvency Law Reform Act 2016. The latter legislation commenced in two tranches over 2017 and aims to increase the efficiency of insolvency administrations, improve communications between parties, increase the corporate regulator’s oversight of the insolvency market, and ‘improve overall consumer confidence in the professionalism and competence of insolvency practitioners’. Under the combined legislation, creditors have the right to: request information during the administration process, give direction to a liquidator or trustee, appoint a liquidator to review the current appointee’s remuneration, and remove a liquidator and appoint a replacement.

Four credit monitoring authorities operate in the Australian market: Equifax, Dun and Bradstreet, Experian, and the Tasmanian Collection Service. The information that can be provided to, and used by, these bodies is restricted by the Privacy Act 1988 and the associated Privacy (Credit Reporting) Code 2014. Current policy seeks to balance the privacy rights of individuals and the depth of information available to credit providers. Until 2018, credit reporting in Australia has consisted only of ‘negative’ reporting, however, in July 2018 the Government will require that credit providers also report ‘positive’ information on individuals’ credit history.

Capital Markets and Portfolio Investment

The Australian Government takes a favorable stance towards foreign portfolio investment with no restrictions on inward flows of debt or equity. Indeed, access to foreign capital markets is crucial to the Australian economy given its relatively small domestic fixed income markets. Australian capital markets are generally efficient and are able to provide financing options to businesses. While the Australian equity market is one of the largest and most liquid in the world, non-financial firms do face a number of barriers in accessing the corporate bond market. Large firms are more likely to use public equity and smaller firms more likely to use retained earnings and debt from banks and intermediaries. Australia’s corporate bond market is relatively small, and Australia is one of only two countries with insufficiently large Government debt issuance to enable domestic banks to meet their requirements under the Basel III regulations. Foreign investors are able to get credit on the local market on market terms.

Money and Banking System

Australia’s banking system is robust, highly evolved, and international in focus. Bank profitability is strong and has been supported by further improvements in asset performance.

Total assets of the four largest banks is US$296 billion, approximately 67 percent of total financial sector assets and 21 percent of the market value of all listed Australian companies. According to Australia’s Central Bank (the Reserve Bank of Australia or RBA), the ratio of non-performing assets to total loans was just under 1 percent at the end of 2017, having remained at around that level for the last four years after falling from highs of nearly 2 percent following the Global Financial Crisis. The RBA is responsible for monitoring and reporting on the stability of the financial sector, while the Australian Prudential Regulatory Authority (APRA) monitors individual institutions. Foreign banks are allowed to operate as a branch or a subsidiary in Australia. Australia has generally taken an open approach to allowing foreign companies to operate in the financial sector, largely to ensure sufficient competition in an otherwise small domestic market.

The RBA is responsible for monitoring and regulating payments systems in Australia. It has overseen the creation of the New Payments Platform that came online in early 2018, allowing fast processing of low value transactions. The Australian Government and RBA have investigated opportunities for using blockchain technologies in the financial sector. Private sector blockchain solutions are also being developed, including the announcement that the Australian Stock Exchange’s clearing solution will be replaced by a distributed ledger system. Governments at both the federal and state levels have sought to encourage the development of a local fintech industry, with assistance including supporting regulatory changes and in-kind assistance. Developments in these alternative payment systems remain nascent and the vast majority of transactions continue to be carried out through existing centrally-maintained payment platforms.

Foreign Exchange and Remittances

Foreign Exchange

The Commonwealth Government formulates exchange control policies with the advice of the Reserve Bank of Australia (RBA) and the Treasury. The RBA, charged with protecting the currency, has the authority to implement exchange controls, although there are currently none in place.

The Australian dollar is a fully convertible and floating currency. The Commonwealth Government does not maintain currency controls or limit remittances. Such payments are processed through standard commercial channels, without governmental interference or delay.

Remittance Policies

Australia does not limit investment remittances.

Sovereign Wealth Funds

Australia’s sovereign wealth fund, the Future Fund, is a financial asset investment fund owned by the Australian Government. The Fund’s objective is to enhance the ability of future Australian Government’s to discharge unfunded superannuation (pension) liabilities expected after 2020, when an ageing population is likely to place significant pressures on Government finances. As a founding member of the International Forum of Sovereign Wealth Fund (IFSWF), the Future Fund’s structure, governance and investment approach is in full alignment with the Generally Accepted Principles and Practices for Sovereign Wealth Funds (the ‘Santiago principles’).

In addition to the Future Fund, the Australian government has a number of ‘nation-building funds’, a Disability Care Fund, and a Medical Research Future Fund. A Building Australia Fund enhances the Commonwealth’s ability to make payments in relation to the creation or development of transport, communications, energy, and water infrastructure and in relation to eligible national broadband matters. An Education Investment Fund makes payments in relation to the creation or development of higher education infrastructure, research infrastructure, vocational education and training infrastructure, and eligible education infrastructure. A DisablityCare Australia Fund aims to reimburse States, Territories and the Commonwealth for expenditure incurred in relation to the National Disability Insurance Scheme Act 2013 and to fund implementation of that Act in its initial period of operation. A Medical Research Future Fund provides grants of financial assistance to support medical research and medical innovation.

As of December 31, 2017, the value of the Future Fund totaled AUD 138.9 billion. The value of the Education Investment Fund totaled AUS$3.8 billion; the Building Australia Fund totaled AUS$3.8 billion; the DisabilityCare Australia Fund totaled AUD 10.4 billion, and the Medical Research Future Fund totaled AUS$7.0 billion.

Policies Towards Foreign Direct Investment

The Austrian government welcomes foreign direct investment, particularly when such investments have the potential to create new jobs, support advanced technology fields, promote capital-intensive industries, and enhance links to research and development.

There are no sectoral or geographic restrictions on foreign investment. American investors have not complained of discriminatory laws against foreign investors. Corporate taxes are relatively low (25 percent flat tax) and a tax reform implemented in 2016 aimed to further stimulate the economy. Citizens and investors have reported that it is difficult to establish and maintain banking services since the Foreign Account Tax Compliance Act (FATCA) Agreement went into force in 2014, as some Austrian banks have been reluctant to take on this reporting burden.

Potential investors should also factor in Austria’s strict environmental regulations and environmental impact assessments into their investment decision-making. The requirement that over 50 percent of energy providers must be in public hands creates a potential additional burden for investments in the energy sector. Strict liability and co-existence regulations in the agriculture sector restrict research and virtually outlaw the cultivation, marketing, or distribution of biotechnology crops. That situation is unlikely to improve for biotech producers under the new coalition government.

Austria’s national investment promotion company, the Austrian Business Agency (ABA), is the first point of contact for foreign companies aiming to establish their own business in Austria. It provides comprehensive information about Austria as a business location, identifies suitable sites for greenfield investments, and consults in setting up a company. ABA provides its services free of charge.

Austrian agencies do not press investors to keep investments in the country, but the Federal Economic Chamber (WKO), and the American Chamber of Commerce in Austria (Amcham) carry out annual polls among their members to measure their satisfaction with the business climate, thus providing early warning to the government of problems investors have identified.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is no principal limitation on establishing and owning a business in Austria. A local managing director must be appointed to any newly-started enterprise. For non-EU citizens to establish and own a business, the Austrian Foreigner’s Law mandates a residence permit that includes the right to run a business. Many Austrian trades are regulated, and the right to run a business in many trades sectors is only granted when certain preconditions are met, such as certificates of competence, and recognition of foreign education. There are no limitations on ownership of private businesses. Austria maintains an investment screening process for takeovers of 25 percent or more in the sectors of national security and public services such as energy and water supply, telecommunication, and education services, where the Austrian government retains the right of approval. The screening process has been rarely used since its introduction in 2012, but could pose a de facto barrier, particularly in the energy sector.

Other Investment Policy Reviews

Not applicable.

Business Facilitation

Although the World Bank ranks Austria among the top 25 countries in 2018 with regard to “ease of doing business” (www.doingbusiness.org ), starting a business takes time and requires many procedural steps (rank 118 in 2018).

There is no business registration website or online process for starting a business in Austria.

In order to register a new company, or open a subsidiary in Austria, a company must first be listed on the Austrian Companies’ Register at a local court. The next step is to seek confirmation of registration from the Austrian Federal Economic Chamber (WKO) establishing that the company is really a new business. The investor must then notarize the “declaration of establishment,” deposit a minimum capital requirement with an Austrian bank, register with the tax office, register with the district trade authority, register employees for social security, and register with the municipality where the business will be located. Finally, membership in the WKO is mandatory for all businesses in Austria.

According to Deloitte Austria, the average time to set up a company in Austria is 25 days, far more than the EU average of 7 days. A one-stop shop procedure for completing all necessary steps would improve the situation for U.S. investors significantly.

Austrian law prohibits gender-based discrimination. Job advertisements have to be gender-neutral. While government entities advertise a preference for women for top positions if they possess the same qualifications as males, private companies have no formal quotas and only encourage applications from qualified female candidates.

The government-run Austrian Business Agency (ABA) provides consulting services to firms interested in setting up business operations in Austria. There are several legal structures for companies to use in establishing a presence in Austria. The ABA website contains further details and contact information, and is intended to serve as a first point of contact for investors: https://investinaustria.at/en/starting-business/ .

Outward Investment

The Austrian government encourages outward investment. There is no special focus on specific countries, but the United States is seen as an attractive target country. The “Austrian Foreign Trade Service” (“Aussenwirtschaft Austria”) is a special section of the WKO promoting outward foreign investment and exports alike. The ATS runs six offices in the United States in Washington, DC, New York, Chicago, Atlanta, Los Angeles, and San Francisco. The Ministry for Digital and Economic Affairs and the WKO run a joint program called: “go international,” providing services to companies that are considering investing for the first time in foreign countries. The program provides grants in form of contributions to “market access costs” and “soft subsidies,” such as counselling, legal advice, and marketing support.

Transparency of the Regulatory System

Austria’s legal, regulatory, and accounting systems are transparent and consistent with international norms.

Federal ministries generally publish draft laws and regulations for public comment prior to their adoption by Austria’s cabinet and/or Parliament. In addition, relevant stakeholders such as the “Social Partners” (Economic Chamber, Agricultural Chamber, Labor Chamber, and Trade Union Association), the Industrial Association, and research institutions are invited to provide comments and suggestions for improvement, which may be taken into account before adoption of laws. This mechanism encompasses investment laws, as well. Austria’s nine provinces can also adopt laws relevant to investments; their review processes are generally less extensive, but local laws are less important than federal laws for investments. The judicial system is independent from the executive branch, thus helping to ensure the government follows administrative processes.

Draft legislation by ministries (“Ministerialentwurfe”) and resulting government draft laws and parliamentary initiatives (“Regierungsvorlagen und Gesetzesinitiativen”) can be accessed through the website of the Austrian Parliament: https://www.parlament.gv.at/PAKT/  (all in German). The parliament also publishes a history of all law-making processes. All final Austrian laws can be accessed through a government data base, partly in English: https://www.ris.bka.gv.at/defaultEn.aspx .

The government has made progress in streamlining its complex and cumbersome requirements for issuing business licenses and permits. It claims to have reduced the processing time for business permits to less than three months, except in the case of projects requiring an environmental impact assessment.

Austrian regulations governing accounting provide U.S. investors with internationally standardized financial information. In line with EU regulations, listed companies must prepare their consolidated financial statements according to the International Financial Reporting Standards (IAS/IFRS) system.

International Regulatory Considerations

Austria is a member of the EU. As such, its laws must comply with EU legislation and the country is therefore subject to European Court of Justice (ECJ) jurisdiction. Austria is a member of the WTO and largely follows WTO requirements. Austria has ratified the Trade Facilitation Agreement (TFA), but has not taken specific actions to implement it.

Legal System and Judicial Independence

The Austrian legal system is based on Roman law. The constitution establishes a hierarchy, according to which each legislative act (law, regulation, decision, and fines) must have its legal basis in a higher instrument. The full text of each legislative act is available online for reference. All final Austrian laws can be accessed through a government data base, partly in English: https://www.ris.bka.gv.at/defaultEn.aspx .

Commercial matters fall within the competence of ordinary regional courts except in Vienna, which has a specialized Commercial Court. The Commercial Court also has nationwide competence for trademark, design, model, and patent matters. There is no special treatment of foreign investors and the executive does not interfere in judicial matters.

The system provides an effective means for protecting property and contractual rights of nationals and foreigners. Sensitive cases must be reported to the Minister of Justice who can issue instructions for addressing them. Austria’s civil courts enforce property and contractual rights and do not discriminate against foreign investors. Austria allows for court decisions to be appealed, first to a Regional Court and finally, in the Supreme Court.

Laws and Regulations on Foreign Direct Investment

There is no discrimination against foreign investors, but businesses are required to follow numerous local regulations. Although there is no requirement for participation by Austrian citizens in ownership or management of a foreign firm, at least one manager must meet Austrian residency and other legal requirements. Expatriates are allowed to deduct certain expenses (costs associated with moving, maintaining a double residence, education of children) from Austrian-earned income.

In April 2017, a new “Law to Support Investments in Municipalities” (published in the Federal Law Gazette, 74/2017, available online in German only on the federal legal information system www.ris.bka.gv.at ) was adopted that allows federal funding of up to 25 percent of the total investment amount of a project to “modernize” a municipality.

Competition and Anti-Trust Laws

Austria’s Anti-Trust Act (ATA) is in line with European Union anti-trust regulations, which take precedence over national regulations in cases concerning Austria and other EU member states. The Austrian Anti-Trust Act prohibits cartels, anticompetitive practices, and the abuse of a dominant market position. The independent Federal Competition Authority (FCA) and the Federal Cartel Prosecutor (FCP) are responsible for administering anti-trust laws. The FCA can conduct investigations and request information from firms. Private parties are enabled to file damage claims based on an infringement of Austrian and European anti-trust rules under an April 2017 ATA amendment. The ATA amendment also includes strengthened merger control, and more room for appeals against verdicts based on the ATA.

Companies must inform the FCA of mergers and acquisitions (M&A). Special M&A regulations apply to media enterprises, such as a lower threshold above which the ATA applies, and the requirement that media diversity must be maintained. A cartel court is competent to rule on referrals from the FCA or the FCP. For violations of anti-trust regulations, the cartel court can impose fines of up to the equivalent of 10 percent of a company’s annual worldwide sales. The independent energy regulator E-Control separately examines antitrust concerns in the energy sector, but must also submit cases to the cartel court.

Austria’s Takeover Law applies to friendly and hostile takeovers of corporations headquartered in Austria and listed on the Vienna Stock Exchange. The law protects investors against unfair practices, since any shareholder obtaining a controlling stake in a corporation (30 percent or more in direct or indirect control of a company’s voting shares) must offer to buy out smaller shareholders at a defined fair market price. The law also includes provisions for shareholders who passively obtain a controlling stake in a company. The law prohibits defensive action to frustrate bids. The Shareholder Exclusion Act allows a primary shareholder with at least 90 percent of capital stock to force out minority shareholders. An independent takeover commission at the Vienna Stock Exchange oversees compliance with these laws.

Expropriation and Compensation

According to the European Convention of Human Rights (applicable in Austria) and the Austrian Civil Code, property ownership is guaranteed in Austria. Expropriation of private property in Austria is rare and may be undertaken by federal or provincial government authorities only on the basis of special legal authorization “in the public interest” in such instances as land use planning, and infrastructure project preparations. The government can initiate such a procedure only in the absence of any other alternatives for satisfying the public interest; when the action is exclusively in the public interest; and when the owner receives just compensation. The expropriation process is non-discriminatory toward foreigners, including U.S. firms. There is no indication that significant expropriations will take place in the foreseeable future.

Dispute Settlement

ICSID Convention and New York Convention

Austria is a member of both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning local courts must enforce foreign arbitration awards in Austria. There is no specific domestic legislation in this regard, but local courts must enforce arbitration decisions where the affected companies have their business locations.

Investor-State Dispute Settlement

Austria is a member of the UN Commission on International Trade Law (UNCITRAL). Its arbitration law largely conforms to the UNCITRAL model law. The main divergence is that an award may only be set aside if the arbitral procedure is not in accordance with Austrian public policy.

Austria does not have a BIT or FTA with the United States. There is no special domestic arbitration body.

In 2015, the Austrian government was sued, for the first time ever, by the offshore parent company of the Austrian Meinl Bank, Far East. The case was brought before the ICSID in New York because of alleged damages arising from domestic prosecution in Austria; the ICSID dismissed the case in November 2017.

International Commercial Arbitration and Foreign Courts

The Vienna International Arbitral Center of the Austrian Federal Economic Chamber acts as Austria’s main arbitration institution. Legislation is modeled after the UNCITRAL model law (see above). The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC) overrides most of Austria’s domestic provisions, where applicable, and Austrian courts are consistent in applying it.

Bankruptcy Regulations

The Austrian Insolvency Act contains provisions for business reorganization and bankruptcy proceedings. Reorganization requires a restructuring plan from the still solvent debtor. The plan must offer a quota of at least 20 percent of the debtor’s obligation and be adopted by a majority of all creditors and a majority of creditors holding at least 50 percent of all claims. Bankruptcy proceedings take place in court and are opened upon application of the debtor or a creditor; the court appoints a receiver for winding down the business and distributes proceeds to the creditors. Bankruptcy is not criminalized, provided the affected person performed all his documentation and reporting in accordance with the law.

Austria’s major commercial association for the protection of creditors in cases of bankruptcy is the “KSV 1870 Group”, www.ksv.at , which also carries out credit assessments of all companies located in Austria. Other European-wide credit bureaus, particularly “CRIF” and “Bisnode”, also monitor the Austrian market.

Capital Markets and Portfolio Investment

Austria has sophisticated financial markets that allow foreign investors access without restrictions. The government welcomes foreign portfolio investment. The Austrian National Bank (OeNB) regulates portfolio investments effectively.

Austria has a national stock exchange which currently includes 66 companies. The Austrian Traded Index (ATX) is a price index consisting of the 20 largest stocks on the market and forms the most important index of Austria’s stock market. The size of the companies listed on the ATX is roughly equivalent with the MDAX in Germany. However, the stock exchange has been suffering from a declining number of listed companies in recent years and declining interest from investment bankers and brokers. This can be attributed to more companies pursuing a private ownership structure, as well as listed companies shifting to foreign stock exchanges. This trend is likely to continue in the future, as the Austrian stock exchange consists of largely small- to medium-sized companies which do not stand to benefit from the latest EU regulations. The new government intends to facilitate SME access to the Austrian stock exchange, but has not yet set incentives to increase the free flow of financial resources into product and factor markets.

Austria has robust financing for product markets, but the free flow of resources into factor markets (capital, raw materials) could be improved. To that end, the Austrian government has appointed a special envoy for capital markets, and announced it plans to open the stock exchange to small, innovative companies.

Austria is fully compliant with IMF Article VIII, all financial instruments are available, and there are no restrictions on payments. Credit is available to foreign investors at market-determined rates. Credit standards for loans have been tightened as banks work to improve the quality of their loan portfolios and align with European Central Bank regulations. Nevertheless, the strong growth in Austria’s economy resulted in a 4.8 percent increase in loans to Austrian companies in 2017, with loans reaching their highest value since 2009. Austria’s financial market development showed significant improvement, ranking 30^th in the most recent World Economic Forum’s Global Competitiveness Report out of 137 countries examined, compared to 47^th in the previous year.

Money and Banking System

Austria has one of the densest banking networks in Europe with over 535 Head Offices and close to 3,800 branch offices registered in the first quarter of 2018. The banking system is highly developed with worldwide correspondent banks, and representative offices and branches in the United States and other major financial centers. Large Austrian banks also have extensive networks in Central and Southeast European (CESEE) countries and the countries of the former Soviet Union. Total assets of the banking sector amounted to EUR 950 billion (USD 1.1 billion) in 2017, approximately three times the country’s GDP.

Austria’s banking sector is primarily managed and overseen by the Austrian National Bank (OeNB) and, to a lesser extent, the Financial Market Authority (FMA). Six Austrian banks with assets in excess of EUR 30 billion (USD 34 billion) are subject to the Eurozone’s Single Supervisory Mechanism (SSM), as is Sberbank Europe AG, a Russian bank subsidiary headquartered in Austria. All other Austrian banks continue to be subject to the country’s dual-oversight bank supervision system with roles for the OeNB and the FMA, both of which are also responsible for policing irregularities on the stock exchange and for supervising insurance companies, securities markets, and pension funds.

Due to U.S. government financial reporting requirements, Austrian banks are very cautious in accepting U.S. clients, whose access to banking services here is consequently restricted. Locally incorporated businesses belonging to U.S. investors have also reported problems in finding banking services.

There is considerable interest among Austria’s banking sector in cryptocurrencies and blockchain technology. Austria’s banks generally struggle to keep up with modern IT requirements, partially due to a lack of IT specialists available for hire. This opens up possibilities for mobile banking providers and Financial Technology Companies (Fintechs) to provide online banking services. These are still nascent, as a comparatively large share of the population continues to prefer traditional banking services and cash transactions.

Foreign Exchange and Remittances

Foreign Exchange Policies

Austria has no restrictions on cross-border capital transactions, including the repatriation of profits and proceeds from the sale of an investment, for non-residents and residents. The Euro, a freely convertible currency and the only legal tender in Austria and 18 other Euro-zone member states, shields investors from exchange rate risks within the Euro-zone.

Remittance Policies

Not applicable.

Sovereign Wealth Funds

Austria has no sovereign wealth funds.

Policies Toward Foreign Direct Investment

Over the past few years, the Azerbaijani government has worked to integrate the country more fully into the global economic marketplace and attempted to attract foreign investment in order to diversify its economy and boost economic growth and employment. The flows of foreign direct investment to Azerbaijan have risen steadily in recent years, primarily in the energy sector. The government continues to seek to attract FDI to the agriculture, transportation, tourism, and information and communication technology (ICT) sectors in an effort to diversify the economy, but foreign investments in these areas have thus far been limited.

Foreign investments enjoy complete and unreserved legal protection under the Law on the Protection of Foreign Investment, the Law on Investment Activity, and guarantees contained within international agreements and treaties. In accordance with these laws, Azerbaijan will treat foreign investors, including foreign partners in joint ventures, in a manner not less favorable than the treatment accorded to national investors. Azerbaijan’s Law on the Protection of Foreign Investments protects foreign investors against nationalization and requisition, except under specific circumstances. The government has not shown any pattern of discriminating against U.S. persons or entities through illegal expropriation.

Azerbaijan’s primary body responsible for investment promotion is the Azerbaijan Export and Investment Promotion Foundation (AzPromo). AzPromo is a joint public-private-initiative, established by the Ministry of Economy and Industry in 2003 to foster the country’s economic development and diversification by attracting foreign investment into the non-oil sectors of the economy and stimulating expansion of Azerbaijan’s exports of non-oil goods to overseas markets. In January 2018, President Aliyev issued a decree promoting foreign investment and protecting foreign investors’ rights. The decree called for the drafting of a new law on investment activities that will conform with international standards and establishes mechanisms to protect investors’ rights and regulate damages. The draft law has not yet been released. Additionally, the government regularly meets with the American Chamber of Commerce (AmCham) to solicit the input of the business community, particularly as part of AmCham’s biennial white paper process. AmCham is currently finalizing the 2018 edition and preparing for consultations with appropriate government officials.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreigners are allowed to register business entities by opening a fully-owned subsidiary, acquiring shares of an existing company, or creating a joint venture with a local partners. Foreign companies are also permitted to operate in Azerbaijan without creating a local legal entity by registering a representative or branch office with the Ministry of Taxes.

Foreigners are not permitted to own land in Azerbaijan, but are permitted to lease land and own real estate. Foreigners are also restricted from holding a majority share in certain sectors.

Furthermore, under Azerbaijani laws, the state must retain a controlling stake in companies operating in the mining, oil and gas, satellite communication, and military arms sectors, limiting foreign or domestic private ownership to a 49 percent share of companies in these industries. Foreign ownership in the media sector is also strictly limited. Unless there is an international agreement with Azerbaijan providing otherwise, foreign shareholding in media companies is limited to 33 percent in newspaper publishing and is prohibited in TV broadcasting companies. Restrictions on foreign equity ownership in the financial services sectors (banking and insurance) have been abolished; however, there are still limits within these sectors for how much total foreign capital participation is permitted. Furthermore, a special license to conduct business is required for foreign or domestic companies operating in telecommunications, sea and air transportation, insurance and other regulated industries. Azerbaijan does not screen inbound foreign investment and U.S. investors are not specifically disadvantaged by any existing control mechanisms.

Other Investment Policy Reviews

Azerbaijan has not conducted an Organization for Economic Cooperation and Development (OECD) investment policy review, a United Nations Conference on Trade and Development (UNCTAD) investment policy review, or a WTO Trade Policy Review.

Business Facilitation

Azerbaijan ranks 57^th in Ease of Doing Business and 5th in Starting a Business out of 190 countries in the World Bank’s 2017 Doing Business Report (rankings are available at: http://www.doingbusiness.org/rankings ). In 2017, the Doing Business Report highlighted reforms that simplified the process of obtaining a new electricity connection, eliminated the vehicle tax for residents, and introduced an electronic system for submitting import and export declarations. The 2018 Doing Business Report noted reforms related to the establishment of credit bureaus, protection of minority investors, electronic payment of court fees, and processes for resolving insolvency.

Azerbaijani law requires all companies operating in the country to register. Without formal registration, a company may not do business in Azerbaijan (e.g., maintain a bank account, or clear goods through customs). As part of the ongoing business law reforms, a “One Window” principle was introduced January 1, 2008. The registration procedures involving several government bodies (Ministry of Justice, Social Insurance Fund, and State Statistics Committee) have been eliminated, and businesses must register onlywith the Ministry of Taxes. The established period for registration with the Ministry of Taxes is officially set at three days for commercial organizations. Since 2011, companies have been able to e-register, reducing the number of procedures required from six to two and the number of days from eight to three. Online registration is available at http://taxes.gov.az/modul.php?lang=_eng&name=birpencere&bolme=registration .

Outward Investment

Azerbaijan does not actively promote or incentivize outward investment, though Azerbaijani entities, particularly the State Oil Company of Azerbaijan (SOCAR) and the State Oil Fund of Azerbaijan (SOFAZ), have invested in various countries, including the United States. The government does not restrict domestic investors from investing overseas.

Transparency of the Regulatory System

The Azerbaijani government has worked to improve its regulatory system over the past several years, and legal, regulatory, and accounting systems are approaching international norms. However, continued limited transparency and allegations of corruption in regulatory matters remain a problem. Tender procedures remain opaque and a small number of businesses dominate certain sectors of the economy.

The Azerbaijani legal system is based on civil law and the central government is the primary source of regulations relevant to foreign businesses. Azerbaijan’s regulatory system remains opaque, despite efforts to foster competition and establish clear rules. U.S. companies have complained about a lack of transparency and consistency in the application of regulations. Azerbaijan has yet to develop informal regulatory processes managed by private sector associations. Limited transparency and inconsistent enforcement of rules to foster competition are serious impediments to foreign direct investment. Draft legislation is neither made available for public comment nor usually run through a public consultation process. However, the government has begun engaging business organizations, such as the American Chamber of Commerce in Azerbaijan (AmCham) and consulting firms on various proposed draft laws. The website of Azerbaijan’s National Parliament, http://meclis.gov.az/ , lists all the country’s laws, but only in the Azerbaijani language.

Legal entities in Azerbaijan must adhere to the National Accounting Standards (NAS), which are based on the International Financial Reporting Standards (IFRS) with some modifications. “Publicly important” businesses, such as insurers, banks, and other large commercial entities, must adhere to IFRS. Certain small businesses can be registered as simplified taxpayers and are not obliged to maintain accounts in accordance with IFRS or NAS.

On October 19, 2015, the President of Azerbaijan approved a law suspending inspections of entrepreneurs for two years. This suspension was extended on October 31, 2017 to last until January 1, 2021. The suspension includes an exception to allow for inspections of food and pharmaceutical products for quality and safety control purposes, as well as inspections in certain other areas. The government has also simplified its licensing regime. All licenses are now issued with indefinite validity through the ASAN service centers and must be issued within 10 days of application. The Ministry of Economy also reduced the number of activities requiring a license from 60 to 32.

International Regulatory Considerations

Azerbaijan has had observer status at the World Trade Organization (WTO) since 1997. A working party on Azerbaijan’s accession to the WTO was established on July 16, 1997, and Azerbaijan began negotiations with WTO members in 2004. The WTO Secretariat reports that Azerbaijan is less than a quarter of the way to full membership. In 2016, Azerbaijan imposed higher tariffs on a number of imported goods, including agricultural products, to promote domestic production and reduce imports. Currently, Azerbaijan is negotiating bilateral market access with 19 economies.

Legal System and Judicial Independence

Azerbaijan’s legal system is based on Civil Law. Disputes or disagreements arising between foreign investors and enterprises with foreign investment, Azerbaijani state bodies and/or enterprises, and other Azerbaijani legal entities, are to be settled in the Azerbaijani court system or, upon agreement between the parties, in a court of arbitration, including international arbitration bodies. The judiciary consists of the Constitutional Court of the Republic of Azerbaijan, the Supreme Court of the Republic of Azerbaijan, the appellate courts of the Republic of Azerbaijan, trial courts, and other specialized courts. Trial court judgments may be appealed in appellate courts and the judgments of appellate courts can be appealed in the Supreme Court. The Supreme Court is the highest court in the country. Under the Civil Procedure Code of Azerbaijan, appellate court judgments are published within three days of issuance, or within ten days in exceptional circumstances. The Constitutional Court has the authority to review laws and court judgments for compliance with the Constitution. On February 3, 2016, President Aliyev signed the Decree on Establishment of the Board of Appeal in the Central and Local Executive Authorities for the investigation of recurring complaints by entrepreneurs regarding the executive authorities or their local organizations.

Businesses report problems with the reliability and independence of judicial processes in Azerbaijan. While the government promotes foreign investment and the laws guarantee national treatment, in practice investment disputes can arise when a foreign investor or trader’s success threatens well-connected or favored local interests. According to Freedom House’s 2017 report, Azerbaijan’s court system is “subservient to the executive.” The U.S. business community has complained about inconsistent application of regulations and non-transparent decision-making.

Laws and Regulations on Foreign Direct Investment

Foreign investment in Azerbaijan is regulated by a number of international treaties and agreements, as well as domestic legislation. These include the Bilateral Investment Treaty (BIT) between the United States and Azerbaijan, the Azerbaijan-EC Cooperation Agreement, the Law on Protection of Foreign Investment, the Law on Investment Activity, the Law on Investment Funds, the Law On Privatization of State Property, and the Second Program for Privatization of State Property, as well as by laws regulating specific sectors of the Azerbaijani economy. This legislation permits foreign direct investment in any activity in which a national investor may also invest, unless otherwise prohibited by law.

On January 2018, President Aliyev issued a decree on promoting foreign investment and protecting foreign investors’ rights. The decree called for the drafting of a new law on investment activities that is in conformance with international standards and establishes mechanisms to protect investors’ rights and regulate for damages, including lost profit caused to investors. The details of this law have not yet been made public.

Competition and Anti-Trust Laws

The State Service for Antimonopoly Policy and Consumer Protection under the Ministry of Economy is responsible for implementing competition-related policy. On April 28, 2016, President Aliyev signed an amendment to the law on Antimonopoly Activity and an Amendment to the Criminal Code. The amendments introduced the concept of cartel agreements, which are identified as anti-competitive arrangements that may include increasing or decreasing prices; maintaining prices at the same level; implementing privileges, rebates or bonuses; or other methods of restraining competition. A new version of the Competition Code began undergoing revision in Parliament in late 2014, but has not yet been passed.

Expropriation and Compensation

The Law on the Protection of Foreign Investments protects foreign investors against nationalization and requisition, except under certain specified circumstances. Nationalization of property can occur when authorized by parliamentary resolution, although there have been no known cases of official nationalization or requisition against foreign firms in Azerbaijan. Requisition – by a decision of the Cabinet of Ministers – is possible in the event of natural disaster, an epidemic, or other extraordinary situation. In the event of nationalization or requisition, foreign investors are entitled under the law to prompt, effective, and adequate compensation. Amendments made to Azerbaijan’s Constitution in September 2016 enable authorities to expropriate private property when necessary for social justice and effective use of land. According to Freedom House’s 2016 report, “[p]roperty rights and free choice of residence are affected by government-backed development projects that often entail forced evictions, unlawful expropriations, and demolitions with little or no notice.” The Azerbaijani government has not shown any pattern of discriminating against U.S. persons by way of direct expropriations.

Dispute Settlement

ICSID Convention and New York Convention

Azerbaijan is a member of the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID convention) as well as the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The Supreme Court of Azerbaijan is responsible for recognizing and enforcing arbitral awards rendered pursuant to the Conventions. While there are no specialized commercial courts in Azerbaijan, the Azerbaijan International Commercial Arbitration Court (AICAC) was established by a non-governmental organization in 2003 as an independent arbitral institution. The AICAC, a third-party tribunal, is the only arbitration institution functioning in Azerbaijan, but public information on the case load of the AICAC is not available.

Investor-State Dispute Settlement

Azerbaijan has also ratified the European Convention on Foreign Commercial Arbitration dated April 21, 1961. The Bilateral Investment Treaty (BIT) between the United States and Azerbaijan, which went into force in 2001, provides U.S. investors recourse to settle any investment dispute using the ICSID convention. Azerbaijan has been a party to three ICSID cases, two of which (Barmek v. Azerbaijan and Fondel Metal Participations and B.V. v. Republic of Azerbaijan) were settled and one of which (Azpetrol v. Azerbaijan) was decided in favor of the State. Thus far, the ICSID has not issued arbitral awards against the government of Azerbaijan. Over the past 10 years, the U.S. Embassy in Baku has been notified of three investment dispute cases regarding U.S. citizens. None of these cases, however, have been resolved.

International Commercial Arbitration and Foreign Courts

International arbitration in Azerbaijan is regulated by the Law on International Commercial Arbitration, based on the UNCITRAL model law. Parties may select arbitrators of any nationality, the language of the proceedings, the national law to be applied, and the arbitration procedure to be used. In cases in which parties did not stipulate the terms of the proceedings, the Supreme Court of the Republic of Azerbaijan will resolve the omission. Azerbaijan has incorporated the provisions of the New York Convention into the Law on International Commercial Arbitration. The Supreme Court may refuse to enforce a foreign arbitral award on specific grounds contained in Article 476 of the Civil Code.

Bankruptcy Regulations

Azerbaijan’s Bankruptcy Law continues to restrict economic development. Azerbaijan’s Bankruptcy Law applies only to legal entities and entrepreneurs, not to private individuals. Bankruptcy proceedings may be initiated by either a debtor facing insolvency or by any creditor. In general, the legislation focuses on liquidation procedures. Amendments to Azerbaijan’s bankruptcy law adopted in 2017 extended the obligations of bankruptcy administrators and defined new rights for creditors. In the World Bank’s 2017 Doing Business Report’s section on resolving insolvency, Azerbaijan’s ranking advanced from 84 in 2017 to 47 in 2018.

Capital Markets and Portfolio Investment

Azerbaijan’s stock market, the Baku Stock Exchange, opened in 2000. An effective regulatory system that encourages and facilitates portfolio investment, foreign or domestic, is not fully in place. There is not sufficient liquidity in the markets to enter or exit sizeable positions, and existing policies limit the free flow of financial resources into the product and factor markets. In February 2016, the government established the Financial Market Supervisory Authority (FMSA), a new financial supervisory authority, to take over all functions of the Azerbaijan State Committee for Securities, the State Insurance Supervision Service under the country’s Ministry of Finance, and the Financial Monitoring Service under the Central Bank of Azerbaijan. The FMSA aims to license, regulate and control the securities market, investment funds, insurance, credit organizations (banks, non-banking credit organizations and operator of postal communication) and payment systems. It also aims to improve the oversight system for combatting money laundering and preventing the financing of terrorism as well as to provide transparency and efficiency in this sphere.

Non-bank financial sector staples such as capital markets, insurance, and private equity are in the early stages of development. Several recent projects designed to strengthen Azerbaijan’s financial services sector, including the Capital Market Modernization Project (CMMP), the diversification of the State Oil Fund’s (SOFAZ) investment strategy, and pension reform represent opportunities for U.S. firms that provide asset management and global custodian services. The CMMP is an attempt by the government to build the foundation for a modern financial capital market, including developing market infrastructure and automation systems, and strengthening the legal and market frameworks for capital transactions. One major hindrance to the stock market’s growth is the difficulty in encouraging established Azerbaijani businesses to adapt to standard investor-friendly practices that are generally required for publicly listed companies.

The Government of Azerbaijan and Azerbaijan’s Central Bank respect IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions, and credit is allocated on market terms. Foreign investors are able to obtain credit on the local market, and the private sector has access to a variety of credit instruments. However, two currency devaluations in 2015 led to further dollarization of the economy, weakened bank balance sheets, and raised concerns about the country’s financial stability. Lending has still not recovered and limited access to capital remains a barrier to development, particularly for small and medium enterprises.

Money and Banking System

The country’s financial services sector – of which banking comprises more than 90 percent – remains underdeveloped, a factor that constrains economic growth and diversification. The drop in world oil prices in 2014/2015 and the resulting strain on Azerbaijan’s foreign currency earnings and the state budget exacerbated existing problems in the country’s banking sector. Furthermore, the resulting depreciation generated challenges for banks, given the high proportion of foreign currency loans to residents with local currency earnings. One of the banking sector’s main problems is the continuing growth in non-performing loans. According to the country’s Financial Market Supervisory Authority, about 19 percent of all consumer loans in Azerbaijan account for non-performing loans of over USD1 billion. According to other reports , the current volume of non-performing loans exceeds one-third of the capital in the country’s banks. The Institution of Banking Ombudsman was established in Azerbaijan in September 2017. The ombudsman considers appeals on disputes that amount to about USD 2,000.

As of December 2017, there were 30 banks registered in Azerbaijan, including 15 banks with foreign capital and two state-owned. As of December 31, 2017, there are 509 branches, 142 sub-branches, 2,431 ATMs of 30 banks throughout the country. A total of 16,171 people are employed in the banking sector. Bank regulator FMSA closed 10 banks in 2016 and completed restructuring of the country’s largest bank, the International Bank of Azerbaijan (IBA) in 2017. As of January 1, 2018, 47 non-bank credit organizations and 109 credit unions operate in the country. Lending by global banks to Azerbaijan’s financial sector has been minimal.

Total banking sector assets stood at approximately USD16.5 billion as of December 2017, with the top five banks holding almost 58 percent of this amount. The state-owned International Bank of Azerbaijan (IBA) accounts for approximately 40 percent of the country’s banking assets and has received several large cash infusions over the past several years from the government. In January 2017, the Ministry of Finance increased the government’s stake in the IBA from 54.96 percent to 76.73 percent. The government undertook a substantial cleanup of the assets of IBA, including transferring IBA’s non-performing assets at book value to Agrarkredit, a government-owned non-financial enterprise funded by the Central Bank. The amount of transferred assets totaled USD 6 billion in 2015-2016 and a further USD 3 billion transfer in 2017 (25 percent of 2016 GDP in total). In May 2017, IBA entered formal restructuring, similar to U.S. Chapter 11 Bankruptcy, and completed its restructuring process in September 2017.

Foreign banks are permitted in Azerbaijan and may take the form of representative offices, branches, joint ventures, and wholly owned subsidiaries. These banks are subject to the same regulations as domestic banks, with certain additional restrictions. Foreign individuals and entities are also permitted to open accounts with domestic or foreign banks in Azerbaijan.

In December 2017, the Central Bank of Azerbaijan announced plans for a pilot project to create a digital identification system for transactions between banks and customers based on blockchain technology.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no statutory restrictions on converting or transferring funds associated with an investment into freely usable currency at a legal, market-clearing rate. Foreign exchange transactions are governed by the Law on Currency Regulation. The Central Bank administers the overall enforcement of currency regulation. Among those regulations is a requirement that local cash sales be conducted in Azerbaijani manats (AZN), in accordance with the country’s constitution. Foreign companies and individuals may have both manat and foreign currency accounts at a local bank. Currency conversion is carried out through the Baku Interbank Currency Exchange Market (BICEX) and the Organized Interbank Currency Market.

The average time for remitting investment returns is two to three business days. Some requirements on disclosure of the source of currency transfers have been imposed in an effort to reduce illicit transactions. Azerbaijan’s foreign currency reserves are based on the reserves of the Central Bank of Azerbaijan, those of the State Oil Fund of Azerbaijan (SOFAZ), and the assets of the State Treasury Agency under the Ministry of Finance. Foreign currency reserves of the Central Bank) increased by USD 1.3 billion (34.2 percent) during 2017 and totaled USD 5.3 billion. As of January 1, 2018, SOFAZ assets increased by 8.02 percent to reach USD 35.8 million compared to the beginning of 2017 (USD 33.1 million).

The Central Bank of Azerbaijan officially adopted a floating exchange rate in 2016, but continues to operate under an “interim regime” which appears more like a managed float in practice, as it transitions to a full float.

Remittance Policies

Corporate branches of foreign investors are subject to a remittance tax of 10 percent on all profits derived from its business activities in Azerbaijan. There have not been any recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances. There do not appear to be time limitations on remittances, including dividends, return on investment, interest and principal on private foreign debt, lease payments, royalties, and management fees. Nor does there appear to be limits on the inflow or outflow of funds for remittances of profits or revenue.

Azerbaijan is a permanent member of the international Financial Action Task Force (FATF) and is listed as a country of concern. (The continuum of FATF lists countries as being of primary concern, concern, or monitored.) The main obstacle Azerbaijan faces is the endemic level of corruption, but other generators of illicit funds include robbery, tax evasion, smuggling, trafficking, and organized crime.

Sovereign Wealth Funds

Azerbaijan’s sovereign wealth fund is the State Oil Fund of Azerbaijan (SOFAZ). Its mission is to transform hydrocarbon reserves into financial assets generating perpetual income for current and future generations and to finance strategically important infrastructure and social projects of national scale. Since it was established in 1999, SOFAZ has financed several projects relating to infrastructure, housing, energy infrastructure, and education. According to its bylaws, SOFAZ is not permitted to invest domestically. The State Oil Fund publishes an annual report which it submits for independent audit. The fund’s assets totaled USD 35.8 billion as of January 1, 2018. More information is available at oilfund.az .

Policies Towards Foreign Direct Investment

The government encourages FDI, particularly in the tourism and financial services sector. The country provides incentives for second home ownership and currently has 250 bank and trust companies operating in the jurisdiction but reserves certain sectors of the economy for Bahamian investors. The reserved areas are: wholesale and retail operations; commission agencies engaged in import/export; real estate and domestic property management; domestic newspapers and magazine publications; domestic advertising and public relations firms; nightclubs and restaurants except specialty, gourmet, and ethnic restaurants and those operating in a hotel; security services; domestic distribution of building supplies; construction companies except for special structures; personal cosmetic/beauty establishments; shallow water scale fish, crustacean, mollusk, and sponge-fishing; auto and appliance service operations; and public transportation. In 2015, the domestic gaming industry was included as an area reserved for domestic investment and supported by a moratorium on new licenses.

With the exception of these sectors, the Bahamian government does not give preferential treatment to investors based on nationality, and investors have equal access to incentives, which include land grants, tax concessions, and direct marketing and budgetary support. The government provides guidelines for investment through its National Investment Policy (NIP), which is administered by The Bahamas Investment Authority (BIA) in the Office of the Prime Minister. Large foreign investment projects, particularly those that do not fit within the NIP, require approval by the National Economic Council (NEC) of The Bahamas. This process generally requires environmental and economic impact assessments for review by multiple government agencies prior to being considered by the NEC. Bureaucratic impediments are not limited to the approvals process and the country continues to lag behind according to the 2018 World Bank Doing Business numbers on the topics of starting a business, ranking 119 overall, and 167 in registering property, 86 in getting construction permits, and 142 in access to credit.

The Bahamas has an investment promotion strategy that includes multiple government agencies working to attract foreign direct investment. The BIA functions as the investment facilitation agency and acts as a ‘one stop shop’ to assist investors in navigating a potentially cumbersome approvals process. The Embassy is not aware of any formal retention strategies but each administration has consistently supported new investment and has generally honored agreements made by previous administrations. The FNM administration introduced plans for legislative support for Small and Medium Enterprises (SME), defined as companies with fewer than 10 employees, representing 85 percent of registered businesses.

The Embassy is aware of cases where the Bahamian government failed to respond to investment applications and several cases where there have been significant delays in the approvals process. Despite challenges, investment continues to grow in tourism, finance, and quick-serve restaurant franchises.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors have the right to establish private enterprises and, after approval, companies are allowed to operate unencumbered. Key considerations for the Bahamian government include economic impact/job creation and environmental protection. With the assistance of a local attorney, investors can create the following types of businesses: sole proprietorship, limited or general partnership, joint stock company, or subsidiary of a foreign company. The most popular all-purpose vehicles for foreign investors are the International Business Company (IBC) and the Limited Duration Company (LDC). Both benefit from income, capital gains, gift, estate, inheritance, and succession tax exemptions. Investors are required to establish a local company and be registered by the registrar of companies to operate in The Bahamas.

The Bahamian government considers FDI a critical driver for economic growth and the National Investment Policy explicitly encourages foreign investment in certain sectors of the economy. These sectors are listed on the BIA website at www.bahamas.gov.bs/bia  and are as follows: touristic resorts; upscale condominium, timeshare, and second home development; information/data processing; hi-tech services; ship registration; repair; light manufacturing for export; agro-industries; food processing; agriculture; financial services; offshore medical centers; and pharmaceutical manufacture.

The government has made exceptions to this policy on a case-by-case basis but generally, there is no guarantee of market access or right of establishment in the reserved sectors of the economy. The Embassy is aware of several cases in which the Bahamian government has granted foreign investors waivers to the policy and allowed full market access.

Other Investment Policy Reviews

The Bahamas ranks 119 out of 190 countries in terms of the ease of doing business in the 2017 World Bank Doing Business Report, with a Distance to Frontier score below the Caribbean regional average (http://doingbusiness.org/rankings ).

The country is not a member of the WTO. Neither OECD nor UNCTAD have conducted investment policy reviews. The Bahamas achieved the G-20 standard on transparency and cooperation on tax matters, a standard initially advanced by the OECD, and recently re-engaged with the Accessions Division of the WTO with an aim of full membership by 2019.

Business Facilitation

According to the 2018 World Bank Doing Business Index, starting a business in The Bahamas takes 21.5 days, requires seven separate procedures, and costs the same for both men and women. In 2017, the Bahamian government streamlined this process and launched an e-business portal, which facilitated limited liability companies to register online (http://inlandrevenue.finance.gov.bs/business-licence/copy-applying-b-l/ ). In early 2018, the government removed certain documentary requirements to register or renew registration of companies and is considering allowing company fees to be applicable on the date of incorporation to expedite the annual process.

All companies with an annual turnover of USD 100,000 or more are required to register with the government to receive a tax identification number. The registration process is generally viewed as an impediment to east of starting a business. Additionally, companies are required to provide financial reports on a monthly or quarterly basis.

Outward Investment

The Bahamian government does not promote nor incentivize outward investment. Additionally, the government does not restrict its citizens from investing internationally.

Transparency of the Regulatory System

The Bahamas’ legal and regulatory systems are transparent and consistent with international norms and the Bahamian government is engaged in making reforms to public accounting procedures to conform to international financial reporting standards. Proposed legislation is available at the Government Publications office and public comment and engagement of stakeholders is encouraged, particularly on legislation perceived as controversial. There is no equivalent to the Federal Register, but the government regularly updates its website (www.bahamas.gov.bs ) and includes draft legislation and policy pronouncements by Ministers of Government. There is regulatory system reform legislation, but it has not been fully implemented. In some instances, there is public consultation on investment proposals but the process is not required by law. The Embassy is unaware of any informal regulatory processes managed by non-governmental organizations (NGOs) or private sector associations that restrict foreign participation in the economy.

International Regulatory Considerations

The country is not a member of a regional economic block and only recently re-engaged with the WTO secretariat to continue negotiations to join the organization. The Bahamian government anticipates a third meeting of the Working Party by the end of 2018 and announced plans to join the organization by the end of 2019.

The country is not a member of UNCTAD’s international network of transparent investment procedures but is actively reviewing investment policies with the aim of developing comprehensive, WTO-compliant investment legislation.

The Bahamas Bureau of Standards and Quality (BBSQ) was launched in 2016 and benefits from EU-funded technical assistance to the Caribbean Regional Organization for Standards and Quality (CROSQ) in the development of national standards.

The Embassy is not aware of any discriminatory technical barriers to trade.

Legal System and Judicial Independence

The Bahamian legal system is based on English common law and foreign nationals are afforded full rights in Bahamian legal proceedings. Contracts are legally enforced through the courts. There is no written contract nor commercial law.

The judiciary is independent and allegations of government interference in the judicial process are rare. The Chief Justice of the Supreme Court, the Attorney General – who serves as the government’s chief legal advisor and is responsible for public prosecutions, and the President of the Court of Appeals are appointed by the Governor-General upon recommendation of the Prime Minister in consultation with the leader of Her Majesty’s Loyal Opposition. The Bahamas is a member of the Commonwealth of Nations and uses the Privy Council Judicial Committee in London as the final court of appeal. The country also contributes financially to the operations of the Caribbean Court of Justice and announced its intention to develop itself as a center for international arbitration.

Judgments by British Courts and selected Commonwealth countries can be registered and enforced in The Bahamas under the Reciprocal Enforcement of Judgments Act. Court judgments from other countries, including those of the United States, must be litigated in the local courts and are subject to all Bahamian legal requirements. The judiciary is independent and judicial process is considered procedurally competent, fair, and reliable.

Laws and Regulations on Foreign Direct Investment

No major laws, regulations, or judicial decisions have been passed since the 2017 Investment Climate Statement.

Competition and Anti-Trust Laws

The fledging Utilities Regulation and Competition Authority (URCA) regulates the telecommunications sector and new regulations have expanded the mandate to include the regulation of the energy sector. URCA is building technical capacity with the support of the U.S. government. There is no legislation governing competition or anti-trust.

Expropriation and Compensation

Property rights are protected under Article 27 of The Bahamian Constitution, which prohibits the deprivation of property without prompt and adequate compensation. There have been compulsory acquisitions of property for public use, but in all instances, there was satisfactory compensation at fair market value.

The Embassy is not aware of any direct or indirect expropriation actions in The Bahamas. There is no indication that the Bahamian government will consider the implementation of expropriations as an instrument of government policy.

Dispute Settlement

ICSID Convention and New York Convention

The Bahamas is a member of both the International Centre for Settlement of Investment Disputes (ICSID) Convention (adopted 1995) and the New York Convention (adopted 1958). The Arbitration Act of 2009 enacted the New York Convention and provides a legal framework. The Bahamas has been a member of the International Center for the Settlement of Investment Disputes since 1995 and is also a member of the Multilateral Investment Guarantee Agency. This agency insures investors against current transfer restrictions, expropriation, war and civil disturbances, and breach of contract by member countries.

Investor-State Dispute Settlement

Order 66 of the Rules of the Bahamian Supreme Court provides rules for arbitration proceedings. The 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards entered into force for The Bahamas on March 20, 2007. This convention provides for the enforcement of agreements for commercial disputes. Under the convention, courts of a contracting state can enforce such an agreement by referring the parties to arbitration. There are no restrictions on foreign investors negotiating arbitration provisions in private agreements.

The government announced its intention to establish The Bahamas as a center for international arbitration cases but a body has yet to be formally established.

Investment disputes in The Bahamas that directly involve the Bahamian government are rare. The Bahamas is not a signatory to a bilateral international trade agreement with a developed dispute settlement mechanism and, therefore, disputes must be settled within the judicial system or be subject to international arbitration.

The Embassy is only aware of a single dispute between a U.S. company and the Bahamian government over the past 10 years. The matter was resolved amicably and did not result in litigation. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

The Bahamas is a member of the Multilateral Investment Guarantee Agency, which insures investors against current transfer restrictions, expropriation, war and civil disturbances, and breach of contract by member countries. Local courts enforce and recognize foreign arbitral awards and foreign investors are provided national treatment. Disputes between companies are generally handled in local courts but foreign investors can refer cases to ICSID and in at least one instance, recourse was sought in a U.S. court in a dispute involving a USD 4 billion resort development. The Embassy is not aware of any cases involving state owned enterprises that resulted in litigation.

Bankruptcy Regulations

Company liquidations, voluntary or involuntary, proceed according to the Companies Act. Liquidations are routinely published in newspapers in accordance with the legislation. Creditors of bankrupt debtors and liquidated companies participate in the distribution of the bankrupt debtor’s or liquidated company’s assets according to statute. U.S. investors should be aware that there is no equivalent to Chapter 11 bankruptcy law provisions to protect assets located in The Bahamas. The Bahamian government circulated new draft legislation in January 2018 to establish a credit bureau and engaged in public consultation and consumer education on the legislation’s impact on access by both institutions and individuals to credit.

Capital Markets and Portfolio Investment

The free flow of capital to markets is encouraged by the Bahamian government and supported by the functions of the Central Bank of the Bahamas. The Bahamas is an Article VIII member of the IMF and has agreed not to place restrictions on currency transactions, such as payments for imports. The Bahamas Securities Commission regulates the activities of investment funds, securities, and capital markets. (www.scb.gov.bs ) The fledgling local stock market excludes foreign investors but is effectively regulated by the Securities Commission.

There are no legal limitations on foreigners’ access to the domestic credit market, and credit is available on market terms through commercial banks. Bahamian-foreign joint venture businesses are encouraged by the government and are eligible for financing through both commercial banks and the Bahamas Development Bank (http://www.bahamasdevelopmentbank.com/ ).

Money and Banking System

The financial sector of The Bahamas is highly developed and dynamic and consists of savings banks, trust companies, offshore banks, insurance companies, a development bank, a publicly controlled pension fund, a housing corporation, a public savings bank, private pension funds, cooperative societies, credit unions, commercial banks, and the majority state-owned Bank of The Bahamas. These institutions provide a wide array of services via several types of financial intermediaries. The Central Bank of The Bahamas, the Securities Commission, Insurance Commission, the Inspector of Financial and Corporate Service Providers, and the Compliance Commission regulate the financial sector.

The sector is healthy and, according to the Central Bank, liquidity and external reserves expanded during the fourth quarter of 2017 and banks’ credit quality indicators reflected sustained credit restructuring measures and loan write-offs. The latest available performance indicators showed an improvement in overall bank profitability due mainly to lower operating costs and a decline in provisioning for bad debt. Bank capital levels also remained robust and well in excess of regulatory requirements. Non-performing loans have declined to 9.2 percent of total loans at the end of 2017 from 11.4 percent at the end of 2016 due mainly to a sale of toxic loans held by the Bank of The Bahamas.

In the domestic banking sector, four of the eight commercial banks are subsidiaries of Canadian banks, three are locally owned, and one is a branch of a U.S.-based institution. Recent reorganization by the Canadian banks has severely limited banking services on some of the less populated islands but to date no local institutions are without correspondent banking relationships.

The Central Bank is exploring the use of block chain technologies to modernize payment systems. In March 2018, it announced its intention to develop a digital version of the Bahamian dollar within 24 to 30 months. The Central Bank’s strategic goals include responding to the loss of brick-and-mortar banks, particularly in the Family Islands, by implementing electronic funds transfer across the country and providing access for individuals to basic financial services through digital media. To this end, the Bank is leading efforts to develop a digital identification system with appropriate legal infrastructure. A pilot project is under development.

Foreign Exchange and Remittances

Foreign Exchange Policies

The Bahamas maintains a fixed exchange rate policy, which pegs the Bahamian dollar one-to-one with the U.S. dollar. The legal basis for the policy is the Exchange Control Act of 1974 and Exchange Control Regulations. The controls ensure that adequate foreign exchange flows are always available to support the fixed parity of the Bahamian dollar against the U.S. dollar. The peg is considered an essential convenience in the tourism-dependent economy, removes issues of rate conversions, and allows for unified pricing of goods and services for tourists and residents. To maintain this structure individuals and corporations resident in The Bahamas are subject to capital or exchange controls.

Exchange controls are not an impediment to foreign investment in the country. All non-resident investors in The Bahamas are required to register with the Central Bank, and non-resident investors who finance their projects substantially from foreign currency transferred into The Bahamas are permitted to convert and repatriate profits and capital gains freely. This is done with minimal bureaucratic formalities and without limitations on the inflows or outflows of funds.

In the administration of exchange controls, the Central Bank does not withhold or delay approval for legitimate foreign exchange purchases for currency transactions and, in the interest of facilitating international trade, it delegates this authority to major commercial banks and selected trust companies. International and local commercial banks, which are registered by the Central Bank as ‘Authorized Dealers,’ may administer and conduct foreign currency transactions with residents of The Bahamas. Similarly, private banks and trust companies which are designated as ‘Authorized Agents’ are permitted to act as depositories for foreign securities of residents and to conduct securities transactions for non-resident companies under their management.

Foreign exchange transactions that fall outside of the delegated authority are approved directly by the Central Bank and include loans, dividends, issues and transfer of shares, travel facilities, and investment currency. Gradual liberalization of exchange controls have continued over the years with the most recent measure implemented in April 2016. The new measures delegated increased authority to commercial banks for exchange control and seek to regularize nationals holding accounts in the United States by allowing nationals to open U.S. dollar denominated accounts within the jurisdiction.

Remittance Policies

There are no restrictions on investment remittances. Foreign investors who receive a Central Bank designation as a non-resident may open foreign currency-denominated bank accounts and repatriate those funds freely. In addition, with Central Bank approval, a foreign investor may open an account denominated in Bahamian currency to be used in paying local expenses. As mentioned, increased authority has been delegated to commercial banks and money transfer businesses.

The Bahamas is a member of the Caribbean Financial Action Task Force (CFATF). Its most recent peer review evaluation can be found at https://www.cfatf-gafic.org/index.php/documents/cfatf-mutual-evaluation-reports/the-bahamas-1 .

Sovereign Wealth Funds

The Bahamian government passed omnibus legislation for the effective management of the oil and gas sector in 2017, which included the creation of a sovereign wealth fund, but has not yet promulgated supporting regulations.

Policies Towards Foreign Direct Investment

The Government of Bahrain (GOB) has a liberal approach to foreign investment and actively seeks to attract foreign investors and businesses. Increasing foreign direct investment (FDI) is one of the government’s top priorities. The GOB permits 100 percent foreign ownership of a business or branch office, without the need for a local partner. The GOB does not tax corporate income, personal income, wealth, capital gains, withholding or death/inheritance. There are no restrictions on repatriation of capital, profits or dividends, aside from income generated by companies in the oil and gas sector, where profits are taxable at the rate of 46 percent. The Bahrain Economic Development Board, charged with promoting FDI in Bahrain, places particular emphasis on attracting FDI to the manufacturing, logistics, information and communications technology (ICT), financial services and tourism and leisure sectors.

To date, U.S. investors have not alleged any legal or practical discrimination against them based on nationality.

Limits on Foreign Control and Right to Private Ownership and Establishment

The GOB permits foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity. The GOB imposes only minimal limits on foreign control, and the right of ownership and establishment of a business. The Ministry of Industry, Commerce and Tourism (MoICT) maintains a small list of business activities that are restricted to Bahraini ownership, including press and publications, Islamic pilgrimage, clearance offices, and workforce agencies. The U.S.-Bahrain Free Trade Agreement outlines all activities in which the two countries restrict foreign ownership.

U.S citizens may own and operate companies in Bahrain, though many such individuals choose to integrate influential local partners into the ownership structure to facilitate quicker resolution of bureaucratic issues such as labor permits, issuance of foreign visas, and access to industrial zones. The most common challenges faced by U.S firms are those related to bureaucratic government processes, lack of market information, and customs clearance.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducted a formal Trade Policy Review of Bahrain in 2014 (see link below):
https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/tpr/g/*)%20and%20((%20@Title=%20bahrain%20)%20or%20
(@CountryConcerned=%20bahrain))&Language=ENGLISH&Context=FomerScripted
Search&languageUIChanged=true# .

Business Facilitation

In 2016, the Ministry of Industry, Commerce and Tourism (MoICT) introduced an online commercial registration portal, “Sijilat” (www.sijilat.bh ) to facilitate the commercial registration process. Through Sijilat, business people can obtain a business license and requisite approvals from relevant ministries. The business registration process normally takes two to three weeks, but can take longer if a business requires specialized approvals. In practice, some business people retain an attorney or clearing agent to assist them through the commercial registration process.

In addition to obtaining primary approval to register a company, most business owners must also obtain licenses from the following entities to operate their businesses:

• MoICT;
• Ministry of Electricity and Water;
• The Municipality in which their business will be located;
• Labour Market Regulatory Authority;
• General Organization for Social Insurance.

Outward Investment

The Government of Bahrain (GOB) neither promotes nor incentivizes outward investment. The GOB does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Currently, there is no competition law in force in Bahrain. However, Bahrain’s so-called Law of Commerce (Legislative Decree No. 7, passed in 1987) addresses the concept of unfair competition and prohibits acts that would have a damaging effect on competition. Companies also are forbidden from undertaking practices detrimental to their competitors or from attracting the customers of their competitors. There is no official competition authority in Bahrain.

The GOB uses International Financial Reporting Standards (IFRS) as part of its implementation of Generally Accepted Accounting Principles (GAAP). IFRS are used by domestic listed and unlisted companies in their consolidated financial statements for external financial reporting.

Bahrain adopted International Accounting Standard 1 (IAS 1) in 1994 in the absence of other local standards. Non-listed banks and other business enterprises use IASs in the preparation of financial statements.

The 2001 Bahrain Commercial Companies Law required each registered entity to produce a balance sheet, a profit-and-loss account and the director’s report for each financial year. All branches of foreign companies, limited liability companies and corporations must submit annual audited financial statements to the Directorate of Commerce and Company Affairs at the MoICT, along with the company’s articles and /or articles of association.

Depending on the company’s business, financial statements may be subject to other regulatory agencies such as the Bahrain Monetary Agency (BMA) and the Bahrain Stock Exchange (banks and listed companies).

Bahrain encourages firms to adhere to both the International Financial Reporting Standards (IFRS) and Bahrain’s Code of Corporate Governance. Bahrain-based companies by and large remain in compliance with IAS-1 disclosure requirements.

There are no informal regulatory processes managed by non-governmental organizations or private sector associations. The Council of Representatives (COR) engages in consultations on proposed regulations during committee meetings with the general public, businesses, or other entities that might be impacted by pending legislation. Those individuals or entities may raise concerns at committee meetings or send their comments in writing for review by Members of Parliament. According to the World Bank, however, the GOB does not have the legal obligation to publish the text of proposed regulations before their enactment and there is no period of time set by law for the text of the proposed regulations to be publicly available. Bahrain, therefore, ranks among the countries with low rule-making transparency.

http://rulemaking.worldbank.org/data/explorecountries/bahrain#cer_transparency 

Laws and regulatory actions can be proposed by legislators, the government, or the King and are normally drafted under the Cabinet’s guidance prior to being transferred back to the Council of Representatives (COR). If the bill or legislation is approved by a majority of the COR, the legislation advances to the Shura Council. If approved by a majority of the Shura Council, it is referred back to the Cabinet for the King’s ratification. If the COR advances a version that the Shura Council disagrees with, a revised draft goes back to the COR. If the two houses cannot agree, they meet in what is known as the National Assembly, where both chambers meet to iron out differences on a specific bill. The publication of the regulatory action in the Official Gazette is the final legislative step. The implementation of any laws takes place the day following its publication. The media sometimes publishes the draft laws and offers commentary on various legal interpretations.

International Regulatory Considerations

Bahrain is a member of the GCC. The GOB has agreed to enforce GCC standards and regulations where they exist, and not to create any domestic rules that contradict established GCC-wide standards and regulations. In certain cases, the GOB applies international standards where domestic or GCC standards have not been developed. For example, the GOB mandates that imported vehicles meet either the U.S. Federal Motor Vehicle Safety Standards or the so-called “1958 Agreement” standards developed by the United Nations Economic Commission for Europe. Bahrain is a member of the WTO and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Bahrain ratified the Trade Facilitation Agreement (TFA) in September 2016 through Law No. 17 of 2016. Bahrain Customs and MoICT have begun working toward implementing the TFA’s requirements.

Legal System and Judicial Independence

Bahrain’s Constitution defines the Kingdom as a sovereign, independent, Arab Muslim State. Although Article 2 of the Constitution states that Islamic Sharia (Islamic) law is the main source of legislation, general matters and private transactions are governed mainly by laws derived from modern legislation. Three types of courts are present in Bahrain – civil, criminal, and family courts.

The civil court system consists of lower courts, courts of appeal, and the Court of Cassation — the highest appellate court in the Kingdom, hearing a variety of civil, criminal and family cases. Civil courts deal with all administrative, commercial, and civil cases, as well as disputes related to the personal status  of non-Muslims. Family courts deal primarily with personal status matters, such as marriage, divorce, custody, and inheritance.

Many of the high-ranking judges in Bahrain come from the ruling family , prominent families, or are non-Bahrainis (mainly Egyptians). Bahraini law borrows a great deal from other Arab states, particularly Egyptian codes.

Bahrain has a long-established framework of commercial law. English is widely used, and a number of well-known international (including U.S.) law firms, working in association with local partners, are authorized to practice law in Bahrain and provide expert legal services both nationally and regionally. Fees are charged according to internationally accepted practices. Non-Bahraini lawyers can represent clients in Bahraini courts. In April 2007, the government permitted international law firms to be established in Bahrain. These firms provide services such as commercial and financial consultancy in legal matters.

Entrenched local business interests with government influence can sometimes cause problems for foreign companies. Interpretation and application of the law sometimes varies by Ministry and may be dependent on the stature and connections of an investor’s local partner. These departures from the consistent, transparent application of regulations and the law are not common, and investors report general satisfaction with government cooperation and support.

The GOB is eager to develop its legal framework further. The U.S. Department of Commerce’s Commercial Law Development Program (CLDP) has conducted training and capacity-building programs in Bahrain for several years, in cooperation with the Ministry of Justice and Islamic Affairs, the Higher Supreme Council for Judges, and the Judicial and Legal Studies Institute.

Judgments of foreign courts are recognized and enforceable under local courts. Article nine of the U.S.-Bahrain Bilateral Investment Treaty outlines how problems with U.S. investments should be handled within the Bahraini legal system. The most common source of investment-related problems in Bahrain is slow or incomplete application of the law.

Laws and Regulations on Foreign Direct Investment

The U.S.-Bahrain BIT provides benefits and protection to U.S. investors in Bahrain, such as most-favored nation and national treatment, the right to make financial transfers freely and immediately, the application of international legal standards for expropriation and compensation cases, and access to international arbitration. The BIT guarantees national treatment for U.S. investments across most sectors, with exceptions only for ownership of television, radio or other media, fisheries, and dredging or oil exploration. Bahrain also provides most-favored nation or national treatment status to U.S. investments in air transportation, the purchase or ownership of land, and the purchase or ownership of shares traded on the Bahrain Bourse.

The national treatment clause in the BIT ensures American firms interested in selling products exclusively in Bahrain are no longer required to appoint a commercial agent, though they may opt to do so. A commercial agent is any Bahraini party appointed by a foreign party to represent the foreign party’s product or service in Bahrain.

Bahrain permits 100 percent foreign-ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without local sponsors. Wholly foreign-owned companies may be set up for regional distribution services and may operate within the domestic market as long as they do not exclusively pursue domestic commercial sales. Private investment (foreign or Bahraini) in petroleum extraction is permitted only under a production-sharing agreement with the Bahrain Petroleum Company (BAPCO), the state-owned petroleum company.

Expatriates may own land in designated areas in Bahrain. Non-GCC nationals, including Americans, may own high-rise commercial and residential properties, as well as properties used for tourism, banking, financial and health projects, and training centers.

Officials from U.S. companies with investments in Bahrain occasionally have reported their belief that certain court cases brought against members of the Royal Family have languished in the court system. These officials believed the delays could be attributed to subtle executive pressure put on the judiciary.

Below is a link to a site designed to assist foreign investors navigate the laws, rules, and procedures related to investing in Bahrain: http://cbb.complinet.com/cbb/microsite/laws.html .

Competition and Anti-Trust Laws

There is no formal competition law in Bahrain, nor is there a specific agency that monitors competition-related issues. However, the MoICT’s Consumer Protection Directorate is responsible for ensuring that the law determining price controls is implemented and that violators are punished. There are general restrictions on FDI in some sectors, including the oil and gas and petrochemicals sectors, in which all companies are government-owned.

Expropriation and Compensation

There have been no expropriations in recent years, and there are no cases in contention. The U.S.-Bahrain BIT protects U.S. investments by banning all expropriations (including “creeping” and “measures tantamount to”) except those for a public purpose. Such transactions must be carried out in a non-discriminatory manner, with due process, and prompt, adequate, effective compensation.

Dispute Settlement

ICSID Convention and New York Convention

Bahrain uses multiple international and regional conventions to enhance its commercial arbitration legal framework. Bahrain is a party to the UNCITRAL Model Law on International Commercial Arbitration, the New York Convention, the International Centre for the Settlement of Investment Disputes (ICSID), and the GCC Convention for Execution of Judgments, among others. These conventions and international agreements established the foundation for the GCC Arbitration Centre, and the Bahrain Chamber for Disputes & Resolution (BCDR). Bahrain’s Constitution stipulates international conventions and treaties have the power of law.

Investor-State Dispute Settlement

The U.S.-Bahrain BIT provides for three dispute settlement options:

1. Submitting the dispute to a local court;
2. Invoking dispute-resolution procedures previously agreed upon by the national or company and the host country government; or,
3. Submitting the dispute for binding arbitration to the International Center for Settlement of Investment Disputes (ICSID) or any other arbitral institution agreed upon by both parties.

In 2010, the Ministry of Justice established the Bahrain Chamber for Dispute Resolution (BCDR). In partnership with the American Arbitration Association (AAA), the BCDR specializes in alternative dispute resolution services. The jurisdiction of the BCDR-AAA is twofold: Jurisdiction by Law (Section 1 cases), and Jurisdiction by Party Agreement (arbitration, also referred to as Section 2 cases).

Jurisdiction by Law (Section 1 Cases)

Disputes exceeding BD 500,000 (approximately USD 1.3 million) which involve either an international commercial dispute or a party licensed by the Central Bank of Bahrain (CBB) are referred to the BCDR-AAA. Prior to the creation of the BCDR, these cases fell within the jurisdiction of the courts of Bahrain.

From the establishment of the BCDR-AAA through April 2018, 205 cases were filed under Section 1, with claims totaling over USD 3.4 billion. Of these cases, 31.2 percent were decided or settled within 6 months; 41 percent were decided/settled within 6–12 months; 9.3 percent were decided or settled within 12–18 months; 6.8 percent were decided or settled within 18–24 months; 3.4 percent were decided or settled after 24 months; and 8.3 percent were ongoing.

Arbitration (Section 2 Cases)

As of April 2018, ten cases have been filed: one in 2013, one in 2015, three in 2016, and five in 2017. Of these cases only three of the cases filed in 2017 as of April 2018 were ongoing and the rest were awarded or settled.

Bahrain Chamber for Dispute Resolution
Suite 301, Park Plaza
Bldg. 247, Road 1704
P.O. Box 20006
Manama, Kingdom of Bahrain
Tel: + (973) 17-511-311
Website: www.bcdr-aaa.org 

The United Nations Conference on Trade and Development (UNCTAD) reported that Bahrain faced its first known Investor-State Dispute Settlement (ISDS) claim in 2017. The case involves investor claims over the Central Bank of Bahrain’s 2016 move to close the Manama branch of Future Bank, a commercial bank whose shareholders include Iranian banks. Bahrain and Iran are party to a BIT.

International Commercial Arbitration and Foreign Courts

Arbitration procedures are largely a contractual matter in Bahrain. Disputes historically have been referred to an arbitration body as specified in the contract, or to the local courts. In dealings with both local and foreign firms, Bahraini companies have increasingly included arbitration procedures in their contracts. Most commercial disputes are resolved privately without recourse to the courts or formal arbitration. Resolution under Bahraini law is generally specified in all contracts for the settlement of disputes that reach the stage of formal resolution but is optional in those designating the BCDR. Bahrain’s court system has adequately handled occasional lawsuits against individuals or companies for nonpayment of debts.

Bahrain Law No. 9 of 2015 promulgating the Arbitration Law (the “New Arbitration Law”) came into effect on August 9, 2015. The law provides that the UNCITRAL 1985 Model Law with its 2006 amendments on international commercial arbitration (the “UNCITRAL Law”) will apply to any arbitration, taking place in Bahrain or abroad, if the parties to the dispute agreed to be subject to the UNCITRAL Law.

The GCC Commercial Arbitration Center, established in 1995, serves as a regional specialized body providing arbitration services. It assists in resolving disputes among GCC countries or between other parties and GCC countries. The Center implements rules and regulations in line with accepted international practice. Thus far, few cases have been brought to arbitration. The Center conducts seminars, symposia, and workshops to help educate and update its members on any new arbitration-related matters.

GCC Commercial Arbitration Center
P.O. Box 2338
Manama, Kingdom of Bahrain
Arbitration Boards’ Secretariat
Tel: + (973) 17278006
Email: case@gcccac.org
Website: http://www.gcccac.org/en/ 

Bankruptcy Regulations

The GOB enacted its bankruptcy and insolvency law in 1987. Chapter three of the law states that if a business is facing financial difficulties, fails to make consistent financial payments, or fails to pay commercial transactions within a 30-day timeframe, either the company or debt collectors may declare bankruptcy or ask that the company be liquidated. Chapter 7 of the law specifies that the Supreme Court specialize in bankruptcy and liquidation cases. Chapter 2 briefly describes the procedures for managing insolvency, including that the Supreme Court designates a firm to represent the business in all legal and business procedures. The representative will be involved in managing the firm’s funds, making payments, and other administrative procedures.

CLDP attorneys have been working with the GOB for the last several years to help draft and ratify a new bankruptcy law. The law was approved by Bahrain’s Parliament and Shura Council on April 29, 2018 and as of May 2018 awaits final ratification by the King. The GOB has prioritized updating its bankruptcy law as part of efforts to spur entrepreneurship and the growth of small and medium-sized enterprises.

The Bahrain credit reference bureau, known as “BENEFIT,” is licensed by the Central Bank of Bahrain (CBB) and operates as the credit monitoring authority in Bahrain.

Capital Markets and Portfolio Investment

Consistent with the Government of Bahrain’s (GOB) liberal approach to foreign investment, government policies facilitate the free flow of financial transactions and portfolio investments. Expatriates and Bahrainis alike have ready access to credit on market terms. Generally, credit terms are variable, but often are limited to 10 years for loans under USD 50 million. For major infrastructure investments, banks often offer to assume a part of the risk, and Bahrain’s wholesale and retail banks have shown extensive cooperation in syndicating loans for larger risks. Commercial credit is available to private organizations in Bahrain but has been increasingly crowded out by the government’s local bond issuances.

In 2016, the GOB launched a new fund designed to inject greater liquidity in the Bahrain Bourse, worth USD 100 million. The Bahrain Liquidity Fund is supported by a number of market participants and will act as a market maker, providing two-way quotes on most of the listed stocks with a reasonable spread to allow investors to actively trade their stocks. Despite these efforts, the market remains relatively small compared to others in the region.

The GOB and the Central Bank of Bahrain are members of the IMF and fully compliant with Article VIII.

Money and Banking System

The Central Bank of Bahrain (CBB) is the single regulator of the entire financial sector, with an integrated regulatory framework covering all financial services provided by conventional and Islamic financial institutions. Bahrain’s banking sector remains quite healthy despite sustained lower global oil prices. Bahrain’s banks remain well capitalized, and there is sufficient liquidity to ensure a healthy rate of investment. Bahrain remains a financial center for the GCC region, though many financial firms have moved their regional headquarters to Dubai over the last decade. The GOB continues to be a driver of innovation and expansion in the Islamic finance sector. In 2017, Bahrain ranked as the GCC’s leading Islamic finance market and second out of 92 countries world-wide, according to the ICD-Thomson Reuters Islamic Finance Development Indicator.

Bahrain has an effective regulatory system that encourages portfolio investment, and the CBB has fully implemented Basel II standards, while attempting to bring Bahraini banks into compliance with Basel III standards. Bahrain’s banking sector includes 23 retail banks, 69 wholesale banks, and 36 representative offices. Twenty-four of these banks are Islamic banks.

There are no restrictions on foreigners opening bank accounts or corporate accounts. Bahrain is home to many prominent financial institutions, among them Citi, American Express, and JP Morgan.

Ahli United Bank is Bahrain’s largest bank with total assets estimated at USD 33.2 billion as of 2017.

Bahrain implemented the Real-Time Gross Settlement (RTGS) System and the Scripless Securities Settlement (SSS) System in 2007 to enable banks to carry out their payment and securities-related transactions securely on a real time basis. The CBB reported in 2017 that it was in the process of introducing a private network as an alternative communication network for the RTGS-SSS Systems.

After introducing Financial Technology “sandbox” regulations in the first half of 2017 that enabled the launch of cryptocurrency and blockchain startups, the CBB released additional regulations on its website in August 2017 for conventional and Shari’a compliant financing-based crowdfunding businesses. Any firm operating electronic financing/lending platforms must be licensed in Bahrain under the CBB Rulebook Volume 5 – Financing Based Crowdfunding Platform Operator.

Foreign Exchange and Remittances

Foreign Exchange Policies

Bahrain has no restrictions on the repatriation of profits or capital and no exchange controls. Bahrain’s currency, the Bahraini Dinar (BD), is fully and freely convertible at the fixed rate of USD 1.00 = BD 0.377 (1 BD = USD 2.659). There is no black market or parallel exchange rate.

There are no restrictions on converting or transferring funds, whether or not associated with an investment.

Remittance Policies

The Central Bank of Bahrain is responsible for regulating remittances, and its regulations are based on the Central Bank Law ratified in 2006. The majority of the workforce in the Kingdom of Bahrain is comprised of foreign workers, many of whom remit large amounts of money to their countries of origin. Commercial banks and currency exchange houses are licensed to provide remittances services.

The commercial banks and currency exchange houses require two forms of identification before processing a routine remittance request, and any transaction exceeding USD 10,000 must include a documented source of the income.

Bahrain enables foreign investors to remit funds through a legal parallel market, with no limitations on the inflow or outflow of funds for remittances of profits or revenue. The GOB does not engage in currency manipulation tactics.

Bahrain is a member of the Gulf Cooperation Council (GCC), and the GCC is a member of the Financial Action Task Force (FATF). Additionally, Bahrain is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), whose headquarters are located in Bahrain. Participating countries commit to combat the financing of terrorist groups and activities in all its forms and to implement FATF recommendations. The Government of Bahrain hosted the MENAFATF’s 26^th Plenary Meeting Manama from December 2-7, 2017. MENAFATF has not yet released a final declaration from the meeting.

Sovereign Wealth Funds

The Kingdom of Bahrain established Mumtalakat, its sovereign wealth fund, in 2006. Mumtalakat, which maintains an investment portfolio valued at roughly USD 11 billion as of early 2018, conducts its business transparently, including by issuing an annual report online. The annual report follows international financial reporting standards and is audited by external, internationally recognized auditing firms. By law, state-owned enterprises (SOEs) under Mumtalakat are audited and monitored by the National Audit Office. In 2016, Mumtalakat received the highest-possible ranking in the Linaburg-Maduell Transparency Index, which specializes in ranking the transparency of sovereign wealth funds. However, Bahrain’s sovereign wealth fund does not follow the Santiago Principles.

The sovereign wealth fund holds majority stakes in several firms. Mumtalakat invests 70 percent of its funds in the Middle East, 22 percent in Europe, and eight percent in the United States. The fund is diversified across a variety of business sectors including real estate and tourism, financial services, food & agriculture, and industrial manufacturing.

Mumtalakat often acts more as an active asset management company than a sovereign wealth fund, including by taking an active role in managing SOEs. Most notably, Mumtalakat has been instrumental in helping Gulf Air, Bahrain’s flagship air carrier, restructure and minimize its losses. A significant portion of Mumtalakat’s portfolio is invested in 38 Bahrain-based SOEs.

Through 2016, Mumtalakat had not been directly contributing to the National Budget. Beginning in September 2017, however, Mumtalakat announced it would distribute profits of BD 20 million to the National Budget for two consecutive years, distributed equally for the years 2017 and 2018.

Policies Toward Foreign Direct Investment

Bangladesh actively seeks foreign investment, particularly in the agribusiness, garment and textiles, leather and leather goods, light manufacturing, energy, information and communications technology (ICT), and infrastructure sectors. It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:

• Arms and ammunition and other defense equipment and machinery;
• Forest plantation and mechanized extraction within the bounds of reserved forests;
• Production of nuclear energy;
• Security printing.

The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with promoting supervising and promoting private investment. The BIDA Act of 2016 approved the merger of the now disbanded Board of Investment and the Privatization Committee. BIDA performs the following functions:

• Provides pre-investment counseling services;
• Registers and approves of private industrial projects;
• Issues approval of branch/liaison/representative offices;
• Issues work permits for foreign nationals;
• Issues approval of royalty remittances, technical know-how and technical assistance fees;
• Facilitates import of capital machinery and raw materials;
• Issues approvals for foreign loans and supplier credits.

BIDA’s newly designed website has aggregated information regarding Bangladesh investment policies and ease of doing business indicators: http://bida.gov.bd/ .

The Bangladesh Export Processing Zone Authority (BEPZA) acts as the investment supervisory authority in export processing zones (EPZs). BEPZA is the one-stop service provider and regulatory authority for companies operating inside EPZs. In addition, Bangladesh plans to establish over 100 Economic Zones (EZs) over the next several years. The EZs are designed to attract additional foreign investment to locations throughout the country. The Bangladesh Economic Zones Authority (BEZA) is responsible for supervising and promoting investments in the economic zones (EZs).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Bangladesh allows private investment in power generation and natural gas exploration, but efforts to allow full foreign participation in petroleum marketing and gas distribution have stalled. Draft regulations in the area of telecommunication infrastructure currently include provisions precluding 100 percent foreign ownership.

Four sectors are reserved for government investment and exclude both foreign and domestic private sector activity:

• Arms and ammunition and other defense equipment and machinery;
• Forest plantation and mechanized extraction within the bounds of reserved forests;
• Production of nuclear energy;
• Security printing.

In addition, there are 17 controlled sectors that require prior clearance/ permission from the respective line ministries/authorities. These are:

1. Fishing in the deep sea;
2. Bank/financial institution in the private sector;
3. Insurance company in the private sector;
4. Generation, supply and distribution of power in the private sector;
5. Exploration, extraction and supply of natural gas/oil;
6. Exploration, extraction and supply of coal;
7. Exploration, extraction and supply of other mineral resources;
8. Large-scale infrastructure projects (e.g. flyover, elevated expressway, monorail, economic zone, inland container depot/container freight station);
9. Crude oil refinery (recycling/refining of lube oil used as fuel);
10. Medium and large industry using natural gas/condescend and other minerals as raw material;
11. Telecommunication service (mobile/cellular and land phone);
12. Satellite channels;
13. Cargo/passenger aviation;
14. Sea-bound ship transport;
15. Sea-port/deep seaport;
16. VOIP/IP telephone;
17. Industries using heavy minerals accumulated from sea beach.

While discrimination against foreign investors is not widespread, the government frequently promotes local industries and some discriminatory policies and regulations exist. For example, the government closely controls approvals for imported medicines that compete with domestically-manufactured pharmaceutical products and it has required majority local ownership of new shipping and insurance companies, albeit with exemptions for existing foreign-owned firms, following a prime ministerial directive. In practical terms, foreign investors frequently find it necessary to have a local partner even though this requirement may not be statutorily defined.

In certain strategic sectors, the GOB has placed unofficial barriers on foreign companies’ ability to divest from the country.

Business Registration

The Bangladesh Investment Development Authority (BIDA), formerly the Board of Investment, is responsible for screening, reviewing and approving FDI in Bangladesh. BIDA is directly supervised by the Prime Minister’s office and the Chairman of BIDA has Minister-equivalent rank. There have been instances where receiving approval was delayed. Once the foreign investor’s application is submitted to BIDA, the authorities review the proposal to ensure the investment does not create conflicts with local business. Investors note it is frequently necessary to separately register with other entities such as the National Board of Revenue. According to the World Bank’s 2017 Doing Business Report, business registration in Bangladesh takes 19.5 days on average with nine distinct steps (http://www.doingbusiness.org/data/exploreeconomies/bangladesh/ ).

BIDA’s “Roadmap to Investment in Bangladesh” is also available at: http://bida.gov.bd/road-map-to-investment-bangladesh .

Requirements vary by sector, but all foreign investors are also required to obtain clearance certificates from relevant ministries and institutions with regulatory oversight. BIDA establishes time-lines for the submission of all the required documents. For example, if a proposed foreign investment is in the healthcare equipment field, investors need to obtain a No Objection Certificate (NOC) from the Directorate General for Health Services under the Ministry of Health. The NOC states that the specific investment will not hinder local manufacturers and is in alignment with the guidelines of the ministry. Negative outcomes can be appealed, except for applications pertaining to the four restricted sectors previously mentioned.

A foreign investor also must register its company with the Registrar of Joint Stock Companies and Firms (RJSC&F) and open a local bank account under the registered company’s name. For BIDA screening, an investor must submit the RJSC&F Company Registration certificate, legal bank account details, a NOC from the relevant ministry, department, or institution, and a project profile (if the investment is more than USD 1.25 million) along with BIDA’s formatted application form.

Other Investment Policy Reviews

In 2013, Bangladesh completed an investment policy review (IPR) with the United Nations Conference on Trade and Development (UNCTAD): http://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=444&Sitemap_x0020_Taxonomy=Investment%20Policy%20Reviews%20(IPR);
#20;#UNCTAD%20Home .

Bangladesh has not conducted an IPR through the Organization for Economic Cooperation and Development.

A Trade Policy Review was last done by the World Trade Organization in October 2012 and can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp370_e.htm .

With EU assistance, Bangladesh conducted a trade policy review, the “Comprehensive Trade Policy of Bangladesh”, which was published by the Ministry of Commerce in September 2014. Current Bangladesh government export and import policies are available at: http://www.mincom.gov.bd/site/page/30991fcb-8dfc-4154-a58b-09bb86f60601/Policy .

Business Facilitation

The Government has had limited success in reducing the time required to establish a company. BIDA and BEZA are both attempting to establish one-stop business registration shops and these agencies have proposed draft legislation for this purpose. In February 2018, the Bangladesh Parliament passed the “One Stop Service Bill 2018,” which aims to streamline business and investment registration processes. Expected streamlined services from BIDA include: company registration, name clearance issuance, tax certificate and TIN, VAT registration, visa recommendation letter issuance, work permit issuance, foreign borrowing request approval, and environment clearance. BIDA also aims to automate 150 processes from 34 government agencies by December 2018.

Companies can register their business at Office of the Registrar of Joint Stock Companies and Firms: www.roc.gov.bd . However, the online business registration process is not clear and cannot be used by a foreign company to attain the business registration as certain steps are required to be performed in-person.

In addition, BIDA has branch/liaison office registration information on its website at: http://bida.gov.bd/ .

The online business registration process is clear and complete but cannot be used by foreign companies to register their businesses as certain steps are required to be performed in-person.

Other agencies with which a company must typically register are as follows:

• City Corporation – Trade License;
• National Board of Revenue – Tax & VAT Registration;
• Chief Inspector of Shops and Establishments – Employment of workers notification.

The company registration process now takes around 15 workdays to complete. The process to open a branch or liaison office is approximately one month. The process for trade license, tax registration, and VAT registration requires seven days, two days, and three weeks, respectively.

Outward Investment

Outward foreign direct investment is generally restricted through the Foreign Exchange Regulation Act of 1947. As a result, the Bangladesh Bank plays a key role in limiting outbound investment. In September 2015, the government amended the 1947 Act by adding a “conditional provision” that permits outbound investment for export-related enterprises. Private sector contacts note that the few international investments approved by the Bangladesh Bank have been limited to large exporting companies with international experience.

Transparency of the Regulatory System

Since 1989, the government has gradually moved to decrease regulatory obstruction of private business. The chambers of commerce have called for a greater voice for the private sector in government decisions and for privatization, but at the same time, many support protectionism and subsidies for their own industries. The result is that policy and regulations in Bangladesh are often not clear, consistent, or publicized. Registration and regulatory processes are alleged to be frequently used as rent-seeking opportunities. The major rule-making and regulatory authority exist in the national level – under each Ministry with many final decisions being made at the top-most levels, including the Prime Minister’s office (PMO). The PMO is actively engaged in policies, as well as foreign investment in government-controlled projects.

The Bangladesh Investment Development Authority (BIDA) – a merger of the Board of Investment (BOI) and the Privatization Commission (PC) – was formed in accordance with the Bangladesh Investment Development Authority Bill 2016 passed by Parliament on July 25, 2016. The bill established BIDA as the lead private investment promotion and facilitation agency in Bangladesh. The move came amid complaints about redundancies in the BOI’s and the PC’s overlapping mandates and concerns that the PC had not made sufficient progress. BIDA hopes to become a “one-stop shop” for investors and a “true” investment promotion authority rather than simply follow the referral service-orientation of BOI. Currently, BIDA is not yet a one-stop shop and companies must still seek approvals from relevant line ministries.

Bangladesh has achieved incremental progress in using information technology to improve the transparency and efficiency of some government services and to develop independent agencies to regulate the energy and telecommunication sectors. Some investors cited government laws, regulations, and implementation as impediments to investment. The government has historically limited opportunities for the private sector to comment on proposed regulations. In 2009, Bangladesh adopted the Right to Information Act that provides for multilevel stakeholders consultation through workshops or media outreach. Although the consultation process exists, it is still weak and subject to further improvement.

Ministries do not generally publish and release draft proposals to the public. However, several agencies, including the Bangladesh Bank, BIDA, the Ministry of Commerce, and the Bangladesh Telecommunications Regulatory Commission have occasionally posted draft legislation and regulations online and solicited feedback from the business community. In some instances, parliamentary committees have also reached out to relevant stakeholders for input on draft legislation. The media continues to be the main information source for the public on many draft proposals. There is also no legal obligation to publish proposed regulations, consider alternatives to proposed regulation, or solicit comments from the general public.

Regulatory agencies generally do not solicit comments on proposed regulations from the general public; however, when a consultation occurs, comments may be received through public media consultation, feedback on websites (e.g., in the past, the Bangladesh Bank received comments on monetary policy), Focused Group Discussions, or workshops with relevant stakeholders. There is no government body tasked with soliciting and receiving comments, but the Bangladesh Government Press of the Ministry of Information is entrusted with the authority of disseminating government information to the public. The law does not require regulatory agencies to report on the results of consultations, and in practice, regulators do not generally report the results. Widespread use of social media in Bangladesh has created an additional platform for public input into developing regulations, and government officials appear to be sensitive to this form of messaging.

The Bangladesh Government Press ( http://www.dpp.gov.bd/bgpress/ ), the government printing office, publishes the weekly “Bangladesh Gazette” every Thursday. The gazette provides official notice of government actions, including the issuance of government rules and regulations and the transfer and promotion of government employees. Laws can also be accessed at http://bdlaws.minlaw.gov.bd/ .

Bangladesh passed the Financial Reporting Act of 2015 that created the Financial Reporting Council (FRC) and aims to establish transparency and accountability in the accounting and auditing of financial institutions. However, the FRC is not fully operational and accounting practices and quality varies widely in Bangladesh. Internationally known and recognized firms have begun establishing local offices in Bangladesh and the presence of these firms is positively influencing the accounting norms in the country. Some firms are capable of providing financial reports audited to international standards while others maintain unreliable (or multiple) sets of accounting reports. Regulatory agencies also do not conduct impact assessment of proposed regulations; hence, regulations are often not reviewed on the basis of data-driven assessments. National budget documents are not prepared according to internationally accepted standards.

International Regulatory Considerations

BIMSTEC aims to integrate regional regulatory systems between Bangladesh, India, Burma, Sri Lanka, Thailand, Nepal, and Bhutan. However, efforts to advance regional cooperation measures have stalled in recent years and regulatory systems remain uncoordinated.

Local law is based on English common law system, but most fall short of international standards. The country’s regulatory system remains weak, where many of the laws and regulations are not enforced and standards are not maintained.

Bangladesh has been a member of the World Trade Organization (WTO) since January 1995. WTO requires all signatories to the Agreement on Technical Barriers to Trade (TBT) to establish a National Inquiry Point and Notification Authority to gather and efficiently distribute trade-related regulatory, standards, and conformity assessment information to the WTO Member community. Bangladesh Standards and Testing Institute (BSTI) is the National Enquiry Point. There is an internal committee on WTO affairs in BSTI and it participates in the notification activities to WTO through the Ministry of Commerce and the Ministry of Industries.

Focal Points and Methods of Contact are:

• General Contact: Email ictecll.bsti@gmail.com;
• Email address for WTO-TBT National Enquiry Point: bsti_std@bangla.net, bsti_ad@bangla.net.

Focal Points for WTO:

• Mr. Taher Jamil, Deputy Director, BSTI, Dhaka, cell: +8801723704505;
• Mr. Shajjatul Bari, Deputy Director, Standards Wing, BSTI, Dhaka; Office tel: +880-2-8870285;
• Director General, WTO Cell, Ministry of Commerce; Office Tel: +880-2-8870285.

Focal Points for SPS, TBT and TRIPS:

• Mr. Hamidur Rahman Khan, Director, WTO Cell, Ministry of Commerce;
• Email: rezaulkarim60@gmail.com;
• Link to BSTI: WTO-TBT activities in BSTI (http://bsti.gov.bd/wto.html ).

Legal System and Judicial Independence

Bangladesh is a common law based jurisdiction. Many of the basic laws of Bangladesh, such as the penal code, civil and criminal procedural codes, contract law, and company law, are influenced by English common laws. However, family laws, such as laws relating to marriage, dissolution of marriage, and inheritance, are based on religious scripts, and therefore differ between religious communities. The Bangladeshi legal system is based on a written constitution and the laws often take statutory forms that are enacted by the legislature and interpreted by the higher courts. Ordinarily, executive authorities and statutory corporations cannot make any law, but can make by-laws to the extent authorized by the legislature. Such subordinate legislation is known as rules or regulations and is also enforceable by the court. Yet, being a common law system, the statutes are short, and set out basic rights and responsibilities, but are elaborated by the courts in their application and interpretation of those. The Judiciary of Bangladesh acts through (1) The Superior Judiciary having appellate, revision, and original jurisdiction, and (2) Sub-Ordinate Judiciary having original jurisdiction.

Since 1971, Bangladesh’s legal system has been updated in the areas of company, banking, bankruptcy, and money loan court laws, and other commercial laws. An important impediment to investment in Bangladesh is a weak and slow legal system in which the enforceability of contracts is uncertain. The judicial system does not provide for interest to be charged in tort judgments, which means delays in proceedings carry no penalties. Bangladesh does not have a separate court or division of a court dedicated solely to hearing commercial cases. The Joint District Judge court (a civil court) is responsible for enforcing contracts.

Some notable commercial laws include:

• The Contract Act, 1872 (Act No. IX of 1930);
• The Sale of Goods Act, 1930 (Act No. III of 1930);
• The Partnership Act, 1932 (Act No. IX of 1932);
• The Negotiable Instruments Act, 1881 (Act No. XXVI of 1881);
• The Bankruptcy Act, 1997 (Act No. X of 1997);
• The Arbitration Act, 2001 (Act No. I of 2001).

The judicial system of Bangladesh has never been completely independent from the interference of the executive branch of the government. In a significant milestone, the government in 2007 separated the country’s judiciary from the executive, but the executive retains strong influence over the judiciary through control of judicial appointments. Other pillars of the justice system, including the police, courts, and legal profession are also closely aligned with the executive branch. In lower courts, corruption is widely perceived as a serious problem. Regulations or enforcement actions are appealable under the Appellate Division of the Supreme Court. Bangladesh scored 2.38 in the World Bank’s 2016 Judicial Independence Index out of a 1-7 band score with 7 being the best.

Laws and Regulations on Foreign Direct Investment

Major laws affecting foreign investment include: the Foreign Private Investment (Promotion and Protection) Act of 1980, the Bangladesh Export Processing Zones Authority Act of 1980, the Companies Act of 1994, the Telecommunications Act of 2001, the Industrial Policy Act of 2005, the Industrial Policy Act of 2010, and the Bangladesh Economic Zones Act 2010. The Industrial Policy Act of 2016 was approved by the Cabinet Committee on Industrial Purchase on February 24, 2016 and replaces the Industrial Policy of 2010.

The Industrial Policy Act of 2016 offers incentives for “green,” (environmental) high-tech, or “transformative” industries. Foreign investors who invest USD 1 million or transfer USD 2 million to a recognized financial institution can apply for Bangladeshi citizenship. The Government of Bangladesh will provide financial and policy support for high-priority industries (those that create large-scale employment and earn substantial export revenue) and creative (architecture, arts and antiques, fashion design, film and video, interactive laser software, software, and computer and media programming) industries. Specific importance will be given to agriculture and food processing, ready-made garments (RMG), information and communication technology (ICT) and software, pharmaceuticals, leather and leather products, and jute and jute goods.

In 2017, BIDA has submitted proposed legislation for a One-Stop Service Act (OSS), which has since been approved by the Parliament, to attract further foreign direct investment to Bangladesh. In addition, Petrobangla, the state-owned oil and gas company, has modified its production sharing agreement contract for offshore gas exploration to include an option to export gas.

BIDA has a “one-stop” website that provides relevant laws, rules, procedure, and reporting requirements for investors at: http://www.bida.gov.bd/ .

Aside from information on relevant business laws and licenses, the website includes information on Bangladesh’s investment climate, opportunities for business, potential sectors, and how to do business in Bangladesh. The website also has an eService Portal for Investors, which provides services like visa recommendations for foreign investors, approval/extension of work permit for expatriates, approval of foreign borrowing, and approval/renewal of branch/liaison and representative office. However, the effectiveness of these online services is questionable.

Competition and Anti-Trust Laws

The GOB formed an independent agency in 2011 called the “Bangladesh Competition Commission (BCC)” under the Ministry of Commerce. The Bangladesh Parliament then passed the Competition Act in June 2012. However, the BCC has experienced operational delays and it has not received sufficient resources to fully operate. Currently, the WTO Cell of the Ministry of Commerce handles most competition-related issues.

In January 2016, the two parent companies of Malaysia-based Robi and India-based Airtel signed a formal deal to merge their operations in Bangladesh, completing the country’s first telecommunications merger. The deal, valued at USD 12.5 million, is to date Bangladesh’s largest corporate merger. The merger raised anti-competition concerns but it was completed in November 2016 after the Bangladesh Telecommunication Regulatory Commission (BTRC) and Prime Minister Sheikh Hasina gave final approvals.

Expropriation and Compensation

Since the Foreign Investment Act of 1980 banned nationalization or expropriation without adequate compensation, the GOB has not nationalized or expropriated property from foreign investors. In the years immediately following independence in 1971, widespread nationalization resulted in government ownership of more than 90 percent of fixed assets in the modern manufacturing sector, including the textile, jute and sugar industries and all banking and insurance interests, except those in foreign (but non-Pakistani) hands. The government has since taken steps to privatize many of these industries during the last 20 years and the private sector has developed into a main driver of the country’s sustained economic growth.

Dispute Settlement

ICSID Convention and New York Convention

Bangladesh is a signatory to the International Convention for the Settlement of Disputes (ICSID) and it acceded in May 1992 to the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards. Alternative dispute resolutions are possible under the Bangladesh Arbitration Act of 2001. The current legislation allows for enforcement of arbitral awards.

Investor-State Dispute Settlement

Bangladeshi law allows contracts to refer investor-state dispute settlement to third country fora for resolution. The U.S.-Bangladesh Bilateral Investment Treaty also stipulates that parties may, upon the initiative of either of them and as a part of their consultation and negotiation, agree to rely upon non-binding, third-party procedures, such as the fact-finding facility available under the Rules of the Additional Facility of the International Centre for the Settlement of Investment Disputes. If the dispute cannot be resolved through consultation and negotiation, then the dispute shall be submitted for settlement in accordance with the applicable dispute-settlement procedures upon which they have previously agreed. Bangladesh is also a party to the South Asia Association for Regional Cooperation (SAARC) Agreement for the Establishment of an Arbitration Council, signed November 2005, which aims to establish a permanent center for alternative dispute resolution in one of the SAARC member countries.

International Commercial Arbitration and Foreign Courts

Bangladeshi law allows contracts to refer dispute settlement to third country forums for resolution. The Bangladesh Arbitration Act of 2001 and amendments in 2004 reformed alternative dispute resolution in Bangladesh. The Act consolidated the law relating to both domestic and international commercial arbitration. It thus created a single and unified legal regime for arbitration in Bangladesh. Although the new Act is principally based on the UNCITRAL Model Law, it is a patchwork quilt as some unique provisions are derived from the Indian Arbitration and Conciliation Act 1996 and some from the English Arbitration Act 1996.

In practice, enforcement of arbitration results is applied unevenly and the GOB has challenged ICSID rulings, especially those that involve rulings against the GOB. The timeframe for dispute resolution is unpredictable and has no set limit. It can be done as quickly as a few months, but often takes years depending on the type of dispute. Anecdotal information indicates average resolution time can be as high as 16 years. Local courts may be biased against foreign investors in resolving disputes.

Bangladesh is a signatory of the New York Convention and recognizes the enforcement of international arbitration awards. Domestic arbitration is under the authority of the district judge court bench and foreign arbitration is under the authority of the relevant high court bench.

The ability of the Bangladeshi judicial system to enforce its own awards is weak. Senior members of the government have been effective in using their offices to resolve investment disputes on several occasions, but the GOB’s ability to resolve investment disputes at a lower level is mixed. The GOB does not publish the numbers of investment disputes involving U.S. or foreign investors. Anecdotal evidence indicates investment disputes occur with limited frequency and the involved parties often resolve the disputes privately rather than seek government intervention.

The practice of alternative dispute resolution (ADR) in Bangladesh has many challenges, including lack of funds, lack of lawyer cooperation, and lack of good faith. Slow adoption of ADR mechanisms and sluggish judicial processes impede the enforcement of contracts and the resolution of business disputes in Bangladesh.

As in many countries, Bangladesh has adopted a “conflicts of law” approach to determining whether a judgment from a foreign legal jurisdiction is enforceable in Bangladesh. This single criterion allows Bangladesh courts broad discretion in choosing whether to enforce foreign judgments with significant effects on matrimonial, adoption, corporate, and property disputes. Most enterprises in Bangladesh, and especially state-owned enterprises (SOEs), whose leadership is nominated by the ruling government party, maintain strong ties with the government. Thus, domestic courts strongly tend to favor SOEs and local companies, in investment disputes.

Investors are also increasingly turning to the Bangladesh International Arbitration Center (BIAC) for dispute resolution. BIAC is an independent arbitration center established by prominent local business leaders in April 2011 to improve commercial dispute resolution in Bangladesh to stimulate economic growth. The council committee is headed by the President of International Chamber of Commerce – Bangladesh (ICC,B) and includes the presidents of other prominent chambers such as like Dhaka Chamber of Commerce and Industry (DCCI) and Metropolitan Chamber of Commerce and Industry (MCCI). The center operates under the Bangladesh Arbitration Act of 2001. According to BIAC, fast track cases are resolved in approximately six months while typical cases are resolved in one year. Major Bangladeshi trade and business associations such as the American Chamber of Commerce in Bangladesh (AmCham) can sometimes help to resolve transaction disputes.

Bankruptcy Regulations

Many laws affecting investment in Bangladesh are old and outdated. Bankruptcy laws, which apply mainly to individual insolvency, are sometimes not used in business cases because of webs of falsified assets and uncollectible cross-indebtedness supporting insolvent banks and companies. A Bankruptcy Act was enacted in 1997, but has been ineffective in addressing these issues. An amendment to the Bank Companies Act of 1991 was enacted in 2013. Some bankruptcy cases fall under the Money Loan Court Act, which has more stringent and timely procedures.

Capital Markets and Portfolio Investment

Capital markets in Bangladesh are still developing and the financial sector remains highly dependent on bank lending. Current government policy inhibits the creation of reliable benchmarks for long-term bonds and prevents the development of a tradable bond market.

Bangladesh is home to the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE). The Bangladesh Securities and Exchange Commission (BSEC), a statutory body formed in 1993 and attached to the Ministry of Finance, regulate both. As of March 2018, the DSE market capitalization stood at USD 39.26 billion.

Although the Bangladesh government has a positive attitude towards foreign portfolio investors, participation remains low due to limited liquidity and the lack of publicly available and reliable company information. The DSE has attracted some foreign portfolio investors to the country’s capital market; however, the volume of foreign investment in Bangladesh remains a small fraction of total market capitalization. As a result, foreign portfolio investment has had limited influence on market trends and Bangladesh’s capital markets have been largely insulated from the volatility of international financial markets. Bangladeshi markets continue to rely primarily on domestic investors, and Bangladeshi firms increasingly rely on capital markets to finance investment projects. In March 2017, the government relaxed investment rules, making it possible for foreign investors to use local currency to invest in directly local companies through the purchase of corporate shares.

BSEC has formed separate committees to establish a central clearing and settlement company, allow venture capital and private equity firms, launch derivatives products, and activate the bond market. In December 2013, BSEC became a full signatory of International Organization of Securities Commissions (IOSCO) Memorandum of Understanding and was elevated to the ‘A’ category of regulators.

BSEC has taken steps to improve regulatory oversight, including installing a modern surveillance system, the “Instant Market Watch,” that provides real time connectivity with exchanges and depository institutions. As a result, the market abuse detection capabilities of BSEC have improved significantly. A new mandatory Corporate Governance Code for listed companies was introduced in August 2012. Demutualization of both the DSE and CSE was completed in November 2013 to separate ownership of the exchanges from trading rights. A majority of the members of the Demutualization Board, including the Chairman, are independent directors. Apart from this, a separate tribunal has been established to resolve capital market-related criminal cases expeditiously. All these reforms target a disciplined market with better infrastructure so that entrepreneurs can raise capital and attract foreign investors.

The Demutualization Act 2013 also directed DSE to pursue a strategic investor, who would acquire a 25 percent stake in the bourse. DSE opened bids for a strategic partner in February 2018 and it is still in the process of evaluating proposals from international bidders.

According to the International Monetary Fund (IMF), Bangladesh is an Article VIII member and maintains restrictions on the unapproved exchange, conversion, and/or transfer of proceeds of international transactions into non-resident taka-denominated accounts. Since 2015, authorities have relaxed restrictions by allowing some debits of balances in such accounts for outward remittances, but there is currently no established timetable for the complete removal of the restrictions.

Money and Banking System

The Bangladesh Bank (BB) acts as the central bank of Bangladesh. It was established on December 16, 1971 through the enactment of the Bangladesh Bank Order-1972. General supervision and strategic direction of BB has been entrusted to a 9-member Board of Directors, which is headed by the BB Governor. BB has 45 departments and 10 branch offices.

According to the BB, four types of banks operate in the formal financial system: State Owned Commercial Banks (SOCBs), Specialized Banks, Private Commercial Banks (PCBs), and Foreign Commercial Banks (FCBs). Some 57 “scheduled” banks including 6 SOCBs, 2 specialized government banks established for specific objectives like agricultural or industrial development, 40 PCBs, and nine 9 FCBs operate in Bangladesh within a network of almost 9,000 total branch offices as of March 2018. The scheduled banks are licensed to operate under Bank Company Act, 1991 (Amended 2013). There are also six non-scheduled banks in Bangladesh, established for special and definite objectives and operating under Acts that are enacted for meeting up those objectives.

Currently, 33 non-bank financial institutions (FIs) are operating in Bangladesh. They are regulated under the Financial Institution Act, 1993 and controlled by the BB. Out of the total, two are fully government owned, one is a subsidiary of an SOCB, 15 are private domestic initiatives, and 15 are joint venture initiatives. Major sources of funds of these financial institutions are term deposits (at least three months tenure), credit facilities from banks and other financial institutions, call money, as well as bonds and securitization.

The major difference between banks and FIs are as follows:

• FIs cannot issue checks, pay-orders or demand drafts;
• FIs cannot receive demand deposits;
• FIs cannot be involved in foreign exchange financing;
• FIs can employ diversified financing modes like syndicated financing, bridge financing, lease financing, securitization instruments, private placement of equity etc.

Microfinance institutions (MFIs) remain the dominant players in rural financial markets. As of 2016, there were 692 licensed micro-finance institutions operating a network of 17,241 branches with 33.17 million members. A 2014 Institute of Microfinance survey study showed that around 40 percent of the adult population and 75 percent of households had access to financial services in Bangladesh.

The banking sector has had a mixed record of performance over the past several years, but the sector has maintained overall healthy growth. Total assets in the banking sector stood at 63.8 percent of gross domestic product at end of September 2017. The gross non-performing loan (NPL) ratio was 10.7 percent at end of September 2017, with NPLs concentrated in 12 banks, each holding double-digit NPL rates at the end of September 2017.

On December 26, 2017, the BB issued a circular warning citizens and financial institutions about the risks associated with cryptocurrencies. The circular noted that using cryptocurrencies may violate existing money laundering and terrorist financing regulations and that users may incur financial losses. According to the BB, the circular did not constitute a ban. Bangladesh foreign exchange regulations, which limit outward payments, largely prevent the use of cryptocurrencies in Bangladesh. The BB issued similar warnings against cryptocurrencies in 2014.

Foreign Exchange and Remittances

Foreign Exchange Policies

Free repatriation of profits is legally allowed for registered companies and profits are generally fully convertible. However, companies report that the procedures for repatriation of foreign currency are lengthy and cumbersome. The Foreign Investment Act guarantees the right of repatriation of invested capital, profits, capital gains, post-tax dividends, and approved royalties and fees for businesses. The central bank’s exchange control regulations and the U.S.-Bangladesh Bilateral Investment Treaty (in force since 1989) provide similar investment transfer guarantees. The Bangladesh Investment Development Authority may need to approve repatriation of royalties and other fees.

Since 2013, Bangladesh has tried to manage its exchange rate vis-à-vis the U.S. dollar within a fairly narrow range. Until 2017, the Bangladesh taka traded between 76 and 78.8 taka to the dollar. The taka has depreciated relative to the dollar since October 2017 reaching 82.98, despite ongoing interventions from the Bangladesh Bank. The Bangladesh currency, the taka, is approaching full convertibility for current account transactions, such as imports and travel, but not for capital account transactions, such as investing, currency speculation, or e-commerce.

Remittance Policies

There are no set time limitations or waiting periods for remitting all types of investment returns. Remitting dividends, returns on investments, interest, and payments on private foreign debts do not require approval from the central bank and transfers are done within one to two weeks. For repatriating lease payments, royalties and management fees, some central bank approval is required, and this process can take between two and three-weeks. If a company fails to submit all the proper documents for remitting, it may take up to 60 days. Foreign investors have reported difficulties transferring funds to overseas affiliates and making payments for certain technical fees without the government’s prior approval to do so. Additionally, some regulatory agencies have reportedly blocked the repatriation of profits due to sector-specific regulations. The U.S. Embassy also received complaints of American citizens not being able to transfer the proceeds of sales of their properties. There is no mechanism in place for foreign investors to repatriate through government bonds issued in lieu of foreign currency payments. Bangladesh is not involved in currency manipulation tactics.

The Financial Action Task Force (FATF) notes that Bangladesh has established the legal and regulatory framework to meet its Anti-Money Laundering/Counterterrorism Finance commitments. The Asia/Pacific Group on Money Laundering (APG), an independent and collaborative international organization based in Bangkok, conducted its Mutual Evaluation of Bangladesh’s AML/CTF regime in September 2016 and found that Bangladesh had made significant progress since the last Mutual Evaluation Report (MER) in 2009, but that Bangladesh still faces significant money laundering and terrorism financing risks. The APG report is available online: http://www.apgml.org/mutual-evaluations/documents/default.aspx .

Sovereign Wealth Funds

The Bangladesh Finance Ministry first announced in 2015 that it is exploring the possibility of establishing a sovereign wealth fund for the purposes of investing a portion of Bangladesh’s foreign currency reserves. In February 2017, the Cabinet initially approved a USD 10 billion “Bangladesh Sovereign Wealth Fund,” (BSWF) that will be created with funds from excess foreign exchange reserves. The government claims the BSWF will be used to invest in “public interest” projects. Bangladesh does not currently follow the Santiago Principles, a voluntary set of 24 principles and practices designed to promote transparency, good governance, accountability and prudent investment practices while encouraging a more open dialogue and deeper understanding of sovereign wealth fund activities.

Policies Toward Foreign Direct Investment

The Government of Barbados, through Invest Barbados, welcomes foreign direct investment with the stated goals of creating jobs, earning foreign exchange, transferring technology and enhancing skills while having a positive impact on its citizens and contributing overall to economic activity.

Barbados encourages investment in the following key sectors: international financial services, tourism, information technology, education, health, cultural services, agro-processing, medical schools, and renewable energy. In the international financial services sector, the government maintains its regulatory oversight through standards designed to prevent money laundering and tax evasion.

Through Invest Barbados the government supports investment by businesses considering the possibility of locating in Barbados, facilitating both domestic and foreign private investment. Invest Barbados’ foreign direct investment policy is to actively promote Barbados as a desirable investment location, to provide advice, and to assist prospective investors. Invest Barbados also provides customized support for investors to ensure the expansion and sustainability of the initial investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign control in Barbados. Nationals and non-nationals may establish and own private enterprises and private property in Barbados. These rights extend to the acquisition and disposition of interests in private enterprises.

No industries are closed to private enterprise, although the government reserves the right not to allow certain investments. Some activities, such as telecommunications, utilities, broadcasting, franchises, banking, and insurance require a license from the government. There are no quotas, or other restrictions, on foreign ownership of a local enterprise or participation in a joint venture.

Other Investment Policy Reviews

In 2015, Barbados conducted an investment policy review through the World Trade Organization. This report, which addresses the general investment climate in Barbados, can be found at https://www.wto.org/english/tratop_e/tpr_e/tp408_e.htm .

Business Facilitation

Invest Barbados is the main investment promotion agency facilitating foreign investment in Barbados in the identified key sectors. All potential investors applying for government incentives must submit their proposals for review by Invest Barbados to ensure the projects are consistent with national interests and provide economic benefits to the country.

Invest Barbados has the authority to offer guidance and direction to new and established investors seeking to pursue investment opportunities in Barbados. The process is transparent and takes into account the size of capital investment as well as the economic impact a proposed project will have on the country.

Invest Barbados offers a website that is useful for navigating applicable laws, rules, procedures and registration requirements for foreign investors. This can be found at http://www.investbarbados.org . Based on the type of business a foreign investor wishes to set up, there are different steps that must be completed. Potential investors should contact Invest Barbados for guidance in this process.

The Corporate Affairs and Intellectual Property Office (CAIPO) maintains an online e-registry filing service for matters pertaining to the Corporate Registry. It is available to registered agents (usually attorneys). Further information can be obtained at www.caipo.gov.bb.

According to the 2018 World Bank Doing Business Report, Barbados is ranked at 99th of 190 countries in ease of starting a business, which takes eight procedures and 15 days to complete. The general practice is to retain an attorney to prepare relevant incorporation documents. A business must register with the Corporate Affairs and Intellectual Property Office, the Barbados Revenue Authority, the Customs and Excise Department and the National Insurance Scheme.

Recently, there has been an increased focus on issues that directly impact women. A number of regional development agencies launched programs to assist Caribbean women entrepreneurs, notably Caribbean Export and the Women Innovators Network of the Caribbean. Local organizations have also hosted workshops in support of women entrepreneurs. A draft bill which would facilitate the implementation of the Convention on the Rights of Persons with Disabilities is currently under consideration by Parliament. It seeks to systematize the rights to which every person with disabilities is entitled, and to ensure they are treated according to international best practice. The Bill would address issues such as access to public services, education, employment and will codify a supportive environment to promote equal opportunity in all areas of development in order that each person would reach his or her maximum potential; to empower persons with disabilities and their organizations to become involved in the social economic development of the country; to provide a framework for planning of programs, services and activities; and to encourage and support ongoing research in all areas that impact on the lives of persons with disabilities. Barbados’ national policy on persons with disabilities remains obligated to its international treaty commitments under the United Nations Convention on the Rights of Persons with Disabilities, which Barbados signed in 2008 and ratified in 2013. The Government of Barbados remains committed to implementing the 2030 Development Agenda for All Persons with Disabilities.

Outward Investment

While no incentives are offered, the government encourages companies to invest in other countries, particularly within the region. Such outward investment is generally encouraged, except where there may be political/diplomatic considerations. Local companies in Barbados are actively encouraged to take advantage of export opportunities specifically related to the country’s membership in the Caribbean Community and the Caribbean Single Market and Economy. The Barbados Investment Development Corporation provides market development support for domestic companies seeking to enhance their export potential.

Transparency of the Regulatory System

Barbados’ legal framework fosters competition and establishes clear rules for foreign and domestic investors with regard to tax, labor, environmental, health, and safety concerns. These regulations are in keeping with international standards. The Ministry of Finance and Economic Affairs and the Invest Barbados Agency each provide oversight aimed at ensuring the attraction and channeling of investment occurs transparently.

Rulemaking and regulatory authority rests with Parliament. This bicameral legislature is made up of the House of Assembly and the Senate. The House of Assembly consists of 30 members who are elected in single seat constituencies. The Senate consists of 21 members who are appointed by the Governor General.

Foreign investment into Barbados is governed by the national laws of Barbados and their implementing regulations. These laws and regulations are developed with the participation of relevant ministries and are drafted by the Office of the Attorney General and enforced by the relevant ministry or ministries. Additional compliance supervision is delegated to specific agencies, by sector, as follows:

• Banking and financial services – Central Bank of Barbados
• Insurance and non-banking financial services – Financial Services Commission
• International business – International Business Unit, Ministry of International Business
• Business incorporation and intellectual property – Corporate Affairs and Intellectual
• Property Office (CAIPO)

The Ministry of Finance and Economic Affairs monitors investments to collect information for national statistics and reporting purposes.

All foreign businesses must be registered or incorporated through CAIPO and will be regulated by one of the other aforementioned agencies, depending on the nature of the business.

Although Barbados does not have legislation that guarantees access to information or freedom of expression, access to information is generally available in practice. The government maintains a website and an information service to facilitate the posting of information such as government office directories and press releases. The Government Information Service website is available at: http://gisbarbados.gov.bb/ . The government also maintains a parliamentary website, where it posts legislation prior to parliamentary debate and live streaming of House sittings. The government budget is also available on this website, available at: http://www.barbadosparliament.com/ .

Although some bills are not subject to public consultation, input from various stakeholder groups and agencies is enlisted during the initial drafting of legislation. Public awareness campaigns, through print and electronic media, are used to inform the general public. Copies of regulations are circulated to stakeholders, government ministries and departments, and are published in the Official Gazette after passage in Parliament.

Accounting, legal and regulatory procedures are transparent. Publicly listed companies publish annual financial statements as well as any changes in portfolio shareholdings, including share values. Service providers are required to adhere to international best practice standards including International Financial Reporting Standards (IFRS), International Standards on Auditing (ISA) and International Public Sector Accounting Standards (IPSAs) for government and public sector bodies. They must also comply with the provisions of the Money Laundering and Financing of Terrorism Prevention and Control Act. Accounting professionals, in particular, must engage in continuous professional development. All Barbadian financial service providers are regulated by the Corporate and Trust Service Providers Act. Failure to adhere to these laws and regulations may result in revocation of the business license and/or cancellation of work permit(s).

The Office of the Ombudsman is established by the Constitution to guard against excesses by government officers in the performance of their duties. It is the objective of the Office of the Ombudsman to provide quality service in an impartial, timely and expeditious manner while investigating complaints by Barbadian nationals or residents who consider the conduct of a government body or official unreasonable, improper, inadequate or unjust.

The Office of the Auditor General is also established by the constitution and is regulated by the Financial Administration and Audit Act. The Auditor General is responsible for the audit and inspection of all public accounts of the Supreme Court, the Senate, the House of Assembly, all government ministries, departments, government-controlled entities and statutory bodies. The Office of the Auditor General’s annual reports can be found on the Parliament of Barbados website.

International Regulatory Considerations

Barbados adheres to international standards of best practice and is recognized by the Organization for Economic Cooperation and Development (OECD) as largely compliant. Barbados is a signatory to the Multilateral Convention on Mutual Administrative Assistance in Tax matters, the Multilateral Competent Authority Agreement, as well as the multilateral convention to implement tax treaty related matters to prevent base erosion and profit shifting.

The Barbados National Standards Institution was established in 1973 as a joint venture between the Government of Barbados and the private sector under the Companies Act. It oversees a laboratory complex housing metrology, textile, engineering and chemistry/microbiology laboratories. The primary functions of the Barbados National Standards Institution include the preparation, promotion and implementation of standards in all sectors of the economy, including the promotion of quality systems, quality control and certification. The work of the Barbados National Standards Institution is governed by the Standards Act (2006) and the Weights and Measures Act (1977) and Regulations (1985). As a signatory to the World Trade Organization Agreement on the Technical Barriers to Trade, Barbados, through the Barbados National Standards Institution, is obligated to harmonize all national standards to international norms to avoid creating technical barriers to trade.

Barbados ratified the WTO Trade Facilitation Agreement (TFA) in January 2018. Ratification of the Agreement is an important signal to investors of the country’s commitment to improving its business environment for trade. It will also improve the speed and efficiency of border procedures, facilitate trade costs reduction and enhance participation in the global value chain.

Legal System and Judicial Independence

Barbados’ legal system is based on the British common law system. Modern corporate law is modeled on the Canada Business Corporations Act. The Attorney General, the Chief Justice, junior (puisne) judges, and magistrates administer justice in Barbados. The Supreme Court consists of the Court of Appeal and the High Court. Appeals are made in the first instance to the Court of Appeal. The High Court hears criminal and civil matters and makes determinations on the interpretation of the Constitution.

The Caribbean Court of Justice is the regional judicial tribunal, established in 2001 by the Agreement Establishing the Caribbean Court of Justice. The Caribbean Court of Justice has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas. In 2005, Barbados became a full member of the Caribbean Court of Justice; thus making the Caribbean Court of Justice its final court of appeal and original jurisdiction.

The United States and Barbados are both parties to the World Trade Organization (WTO). The WTO Dispute Settlement Panel and Appellate Body resolve disputes over WTO agreements, while courts of appropriate jurisdiction in both countries resolve private disputes.

Laws and Regulations on Foreign Direct Investment

Invest Barbados’ foreign direct investment policy is to actively promote Barbados as a desirable investment location, to provide advice, and to assist prospective investors. The main laws concerning investment in Barbados are the Barbados International Business Promotion Act (2005), the Tourism Development Act (2005) and the Companies Act. There is also a framework of legislation concerning International Business Companies, Financial Services, International Insurance, Ships’ Registration and Trusts. Barbados is currently revamping its Fiscal Incentives legislation to bring it in line with the obligations under the World Trade Organization (WTO)’s Agreement on Subsidies and Countervailing Measures. Thus, Barbados has ceased all approvals of applications for new incentives or extensions of incentives under the Fiscal Incentives Act Cap. 71A of the Laws of Barbados. However, work continues on the development of a suite of benefits to investors that will not contravene the conditions of the agreements to which Barbados is a signatory.

All proposals for investment concessions and incentives are reviewed by Invest Barbados to ensure proposed projects are consistent with the national interest and provide economic benefits to the country. All proposals are submitted through Invest Barbados for final consideration.

Invest Barbados provides “one-stop shop” facilitation services to investors to guide them through various stages of the investment process. It offers a website useful for navigating the laws, rules, procedures and registration requirements for foreign investors. This can be found at http://www.investbarbados.org .

Competition and Anti-Trust Laws

Chapter 8 of the Revised Treaty of Chaguaramas outlines the competition policy applicable to Caribbean Community (CARICOM) States. Member States are required to establish and maintain a national competition authority for facilitating the implementation of the rules of competition. At the CARICOM level, a regional Caribbean Competition Commission is established to apply the rules of competition in respect of anticompetitive cross-border business conduct. The CARICOM competition policy addresses anticompetitive business conduct, such as agreements between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction, or distortion of competition within the Community and actions by which an enterprise abuses its dominant position within the Community. The Fair Competition Act codified the establishment of the Fair Trading Commission (FTC) in 2001. The Fair Trading Commission is responsible for the promotion and maintenance of fair competition and participates in the Caribbean Competition Commission. The Fair Trading Commission regulates the principles, rates and standards of service for public utilities and other regulated service providers. Sectorial regulation of competition in the telecommunications field is provided under the Telecommunications Act.

Expropriation and Compensation

The Barbados Constitution and the Companies Act (Chap. 308) contain provisions permitting the government to compulsorily acquire property for public use upon prompt payment of compensation at fair market value. The U.S. Embassy Bridgetown is not aware of any outstanding expropriation claims or nationalization of foreign enterprises in Barbados.

Dispute Settlement

ICSID Convention and New York Convention

The Government of Barbados wrote the New York Convention’s provisions into domestic law, but did not ratify the convention. The Arbitration Act (1976) and the Foreign Arbitral Awards Act (1980), which recognizes the 1958 New York Convention on the Negotiation and Enforcement of Foreign Arbitral Awards, are the main laws governing dispute settlement in Barbados.

Barbados is also a member of the International Center for the Settlement of Investment Disputes (ICSID), also known as the Washington Convention. Additionally, individual agreements between Barbados and multilateral lending agencies have provisions calling on Barbados officials to accept recourse to binding international arbitration to resolve investment disputes between foreign investors and the state.

Investor-State Dispute Settlement

The Barbados Arbitration Act (1976) and the Foreign Arbitral Awards Act (1980) contain provisions for arbitration of investment disputes.

Barbados does not have a Bilateral Trade Treaty or a Free Trade Agreement with an investment chapter with the United States. U.S. Embassy Bridgetown is not aware of any current investment disputes in Barbados.

According to the 2018 World Bank Doing Business Report, Barbados is ranked 167^th out of 190 countries in resolving contracts. Dispute resolution in Barbados generally takes an average of 1,340 days. The slow court system and bureaucracy are widely seen as the main hindrances to timely resolution of commercial disputes. Through the Arbitration Act of 1976, local courts recognize and enforce foreign arbitral awards issued against the government. Barbados does not have a recent history of investment disputes involving either U.S. or foreign investors.

International Commercial Arbitration and Foreign Courts

The Supreme Court of Barbados is the domestic arbitration body and the local courts do enforce foreign arbitral awards.

Bankruptcy Regulations

Under the Bankruptcy and Insolvency Act (2002), Barbados has a bankruptcy framework that recognizes certain debtor and creditor rights. The Act gives a potentially bankrupt company three options: bankruptcy (voluntary or involuntary), receivership, or reorganization of the company. The Companies Act makes provision for the insolvency and/or liquidation of a company incorporated under this Act. The 2018 World Bank Doing Business Report addressed the strength of the framework and its limitations in resolving insolvency in Barbados and ranked Barbados 34^th out of 190 countries in this area.

Capital Markets and Portfolio Investment

Barbados has a small stock exchange, an active banking sector, and opportunities for portfolio investment. Local policies seek to facilitate the free flow of financial resources, with the exception of periods of low liquidity. Such was the case in late 2016 and early 2017, leading the government to intervene in the local credit market to control interest rates, limit the volumes of funds available for borrowing, and borrow on the local market. Historically, the Central Bank of Barbados independently raised or lowered interest rates without any government intervention. There remains a variety of credit instruments in the commercial and public sectors that local and foreign investors may access.

The government continues to review legislation in the financial sector in an effort to strengthen and improve the regulatory regime and attract and facilitate retention of foreign portfolio investments. During 2013, the Central Bank of Barbados underwent a Financial Sector Assessment Program (FSAP) assessment by the International Monetary Fund and The World Bank. The resulting Financial System Stability Assessment Report was published in February, 2014. The Report noted that since the 2008 FSAP Update, Barbados substantially improved its legal, regulatory, and supervisory frameworks to support the banking system. The International Financial Services Act, which replaced the Offshore Banking Act in June 2002, incorporates Basel standards, and provides for on-site examinations of offshore banks. This allows the Central Bank of Barbados to augment its offsite surveillance system for reviewing anti-money laundering policy documents and analyzing prudential returns.

In 2000, under the authority of the Money Laundering and Financing of Terrorism Prevention and Control Act, the government established the Anti-Money Laundering Authority and its operating arm, the government’s Financial Intelligence Unit. In 2001, the Bank Supervision Department of the Central Bank of Barbados, in conjunction with the Anti-Money Laundering Authority, introduced the Anti-Money Laundering Guidelines for Licensed Financial Institutions, which were revised in 2006, 2011, and most recently in October 2013.

The Securities Exchange Act of 1982 established the Securities Exchange of Barbados (SEB), which was reincorporated as the Barbados Stock Exchange (BSE) in 2001. The 1982 Act was replaced by the Securities Act, which removed regulatory responsibility for the securities market activity from the BSE. This Act helped to strengthen the regulatory framework and development of the capital market. In 1987, the BSE began trading corporate stocks and fixed income securities, including government bonds (not commercial paper). Activities on the BSE include regional cross-border trading arrangements for shares listed on the Trinidad and Tobago and Jamaica stock exchanges.

The BSE operates a two-tier electronic trading system comprised of a regular market and a junior market. Companies applying for listing on the regular market must observe and comply with certain requirements. Specifically, they must inter alia have assets of not less than USD 500,000 and adequate working capital, based on the last three years of their financial performance, as well as three-year performance projections. Companies must also demonstrate competent management and be incorporated under the laws of Barbados or other regulated jurisdiction approved by the Financial Services Commission. Applications for listing on the junior market are less onerous, requiring minimum equity of one million shares at a stated minimum value of USD 100,000. Reporting and disclosure requirements for all listed companies include interim financial statements, and an annual report and questionnaire. Non-nationals must obtain exchange control approval from the Central Bank of Barbados to trade securities on the BSE.

The BSE publicized its intent to fully immobilize traditional share certificates where clearance and settlement is computerized through the Barbados Central Securities Depository Inc., which is a wholly owned subsidiary of the BSE Inc. The Financial Services Commission, under the Property Transfer Tax Act, can accommodate investors requiring a traditional certificate for a small fee. The Financial Services Commission also regulates mutual funds in accordance with the Mutual Funds Act.

Since 2014, the BSE introduced new rules in accordance with International Organization of Securities Commission guidelines designed to protect investors, ensure a fair, efficient, and transparent market, and reduce systemic risk. Public companies now have only 90 days from the close of their financial year to file audited financial statements with the BSE, 30 days fewer than before. Additionally, a fine not exceeding USD 5,000 was added to the list of possible penalties for any person under the jurisdiction of the BSE who contravenes or is not in compliance with any regulatory requirements.

In 2016, the BSE launched the International Securities Market (ISM). It is designed to operate as a separate market, thus allowing issuers from not only Barbados, but other international markets. This is aimed at developing the international business and financial services sector, a key contributor to Barbados’ economy. The ISM is founded on a strong regulatory framework that includes the BSE, the Central Bank of Barbados and the Financial Services Commission. To date, the International Securities Market has five listing sponsors.

On 2017, the BSE announced a historic collaboration with its regional partners, the Jamaica Stock Exchange and the Trinidad and Tobago Stock Exchange, through the adoption of new trading software. The capacity for this inter-exchange connectivity will provide a wealth of potential investment opportunities for both local and regional investors as the BSE seeks to position itself as a globally-recognized international exchange.

Barbados has accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement and maintains an exchange system free of restrictions on current account transactions.

Money and Banking System

The Barbados domestic financial sector consists of five commercial banks, 14 trust and finance companies and merchant banks; and 25 offshore banks. There are also 34 credit unions and four money remitters. Since 2001, the government required Barbados institutions and legal entities to reveal the identity of beneficiaries receiving dividends and/or interest. The total assets for the banking system stood at USD 6.74 billion as of December 2017. The local cash reserve requirement was five percent, the foreign cash reserve requirement was two percent, and the securities reserve requirement was 18 percent over the same period.

The Barbados Deposit Insurance Corporation, which was established under the Deposit Insurance Act (2006), provides protection for depositors of deposit-taking financial institutions. Oversight of the entire financial system is conducted by elements of the Financial Oversight Management Committee, which consists of the Central Bank of Barbados, the Barbados Deposit Insurance Corporation and the Financial Services Commission. The private sector has access to financing on the local market through short-term borrowing and credit, asset-financing, project-financing and mortgage financing.

In 2015, the Central Bank of Barbados announced the decision to deregulate interest rates for savings accounts by removing the minimum saving deposit rate. Accordingly, commercial banks and other deposit-taking institutions now set their own interest rates. In 2017, the CBB announced an increase in its Barbados dollar securities reserve requirement ratio for companies licensed under part II of the Financial Institutions Act. This increase requires banks to now hold 15 per cent of their domestic deposits in stipulated securities.

In 2016, Bitt, a Barbadian company, introduced a blockchain-based electronic mobile wallet for consumers. This digital e-commerce solution is praised by advocates of the technology as less expensive to use and more secure and traceable than cash. Officially launched in 2015, Bitt offers a digital asset exchange, remittance channel, and merchant-processing gateway available via a mobile application. Bitt is widely seen as the frontrunner in the Caribbean’s burgeoning cryptocurrency ecosystem and is expected to invest across the region. In March 2018, BITT signed a Memorandum of Understanding with the Eastern Caribbean Central Bank (ECCB) to conduct a fintech pilot on blockchain technology in ECCB member countries.

International banks domiciled in the United States, Canada and Europe are reviewing their correspondent banking relationships in regions they deem high-risk for financial services. The Caribbean witnessed a withdrawal of these services by U.S. and European banks in the last three years. In 2015, the Caribbean Community declared the loss of correspondent banking to be a grave issue facing the region. The Caribbean Community is committed to engaging with key stakeholders on the issue and appointed a Committee of Ministers of Finance on Correspondent Banking to collate a collective response to this issue.

Foreign Exchange and Remittances

Foreign Exchange Policies

Barbados’ currency of exchange is the Barbadian dollar (BBD). It is issued by the Central Bank of Barbados. Barbados’ foreign exchange operates under a liberal system. The Barbadian dollar is currently pegged to the United States dollar at a rate of BBD 2.00: USD 1.00 since 1975. As a result, the Barbadian dollar does not fluctuate. This creates a stable currency environment for trade and investment in Barbados.

Remittance Policies

Companies can freely repatriate profits and capital from foreign direct investment if they are registered with the Central Bank of Barbados at the time of investment. The Central Bank of Barbados has the right to stagger these conversions depending on the level of international reserves available to the Bank at the time capital repatriation is requested.

The Ministry of Finance and Economic Affairs controls the flow of foreign exchange and the Exchange Control Division of the Central Bank of Barbados executes foreign exchange policy under the Exchange Control Act. Individuals may apply through a local bank to convert the equivalent of USD 3,750 per year for personal travel and up to a maximum of USD 25,000 for business travel. One must apply to the CBB to convert any amount over these limits. International businesses, including exempt insurance and qualifying insurance companies, are exempt from these exchange control regulations.

Barbados is a member of the Caribbean Financial Action Task Force. In 2014, the government of Barbados signed an Intergovernmental Agreement in observance of the United States’ Foreign Account Tax Compliance Act (FATCA), making it mandatory for banks in Barbados to report the banking information of U.S. citizens.

Sovereign Wealth Funds

The Central Bank of Barbados does not maintain a Sovereign Wealth Fund.

Policies Towards Foreign Direct Investment

The GOB states attracting FDI is one of the priorities of the country’s foreign policy, and net inflows of FDI have been included in the list of government performance targets since December 2015. The GOB also does not have any specific requirements for foreigners wishing to establish a business in Belarus. Investors, whether Belarusian or foreign, reportedly benefit from equal legal treatment and have the same right to conduct business operations in Belarus by incorporating separate legal entities. However, the existing laws and practices often discriminate against the private sector, including foreign investors regardless of the country of their origin.

Limits on Foreign Control and Right to Private Ownership and Establishment

The GOB asserts foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity. The GOB also states there are no general limits (statutory, de facto, or otherwise) on foreign ownership or control. In reality, however, the GOB establishes such limits on a case-by-case basis. The limits on foreign equity participation in Belarus are above the average for the 20 countries covered by the World Bank Group’s Investing Across Borders indicators for Eastern Europe and the Central Asia region. Belarus, in particular, limits foreign equity ownership in service industries. Sectors such as fixed-line telecommunications services, electricity transmission and distribution, and railway freight transportation are closed to foreign equity ownership. In addition, a comparatively large number of sectors are dominated by government monopolies, including, but not limited to, those mentioned above. Those monopolies, together with a high-perceived difficulty of obtaining required operating licenses, make it difficult for foreign companies to invest in Belarus. Another example is that under local law, foreign ownership cannot exceed 30 percent in charter funds of Belarusian insurance companies. Finally, the government may restrict investments in the interests of national security (including environmental protection, historical and cultural values), public order, morality protection, public health, as well as rights and freedoms of people.

Although the GOB claims that it does not screen, review, or approve FDI, the above practices suggest the opposite. Belarus retains elements of a Soviet-style command economy, which prescreens and approves all significant foreign investment.

Belarus’s Ministry of Antimonopoly Regulation and Trade is responsible for reviewing transactions for competition-related concerns (whether domestic or international).

Other Investment Policy Reviews

The UN Conference on Trade and Development reviewed Belarus’s investment policy in 2009 and made recommendations regarding the improvement of its investment climate. http://unctad.org/en/Docs/diaepcb200910_en.pdf 

Business Facilitation

Individuals and legal persons can apply for business registration via the web portal of the Single State Register (http://egr.gov.by/egrn/index.jsp?language=en ) – a resource which includes all relevant information on establishing a business.

Belarus has a regime allowing for a simplified taxation system for small and medium-sized, and foreign-owned businesses.

Belarus defines enterprises as follows:

• Micro enterprises – less than 15 employees;
• Small enterprises – from 16 to 100 employees;
• Medium-sized enterprises – from 101 to 250 employees.

Belarus’s investment promotion agency is the National Agency of Investments and Privatization (NAIP). NAIP is tasked with representing the interests of Belarus as it seeks to attract FDI into the country. The Agency states it is a one-stop shop with services available to all investors for:

• organizing fact-finding missions to Belarus, including assisting with visa formalities;
• providing information on investment opportunities, special regimes and benefits, state programs, and procedures necessary for making investment decisions;
• selecting investment projects; and
• providing solutions and post-project support, i.e. aftercare.

To maintain an ongoing dialog with investors, Belarus also has the Foreign Investment Advisory Council (FIAC). Its activities include, but are not limited to:

• developing proposals to improve investment legislation;
• participating in examining corresponding regulatory and legal acts;
• approaching government agencies for the purpose of adopting, repealing or modifying the regulatory and legal acts which restrict the rights of investors. The FIAC is chaired by the Prime Minister of Belarus and includes the heads of government agencies and other state organizations subordinate to the GOB, heads of international organizations, foreign companies and corporations.

Outward Investment

The government does not promote or incentivize outward investment, nor does it restrict domestic investors from investing abroad. According to government statistics, Belarusian businesses’ outward investments in 2017 totaled $5.2 billion.

Transparency of the Regulatory System

The government states that its policies are transparent and the implementation of laws is consistent with international norms to foster competition and establish clear rules of the game. However, independent economic experts note that private sector businesses are often discriminated against in relation to public sector businesses. In particular, SOEs often receive government subsidies, benefits and exemptions, including cheaper loans and debt forgiveness. Such beneficial treatment is generally unavailable to private sector companies.

According to Belarusian legislation, drafts of laws and regulations pertaining to investment and doing business are subject to public discussion. Draft legislation is published on government agencies’ websites.

International Financial Reporting Standards (IFRS) have been a part of Belarus legislative framework since 2016. Public-interest entities, which include banks, insurance companies and public corporations with subsidiary companies, are required to publish their financial statements, which comply with IFRS. Such statements are subject to statutory audit.

IFRS in Belarus can be accessed through the Ministry of Finance at the following links:

• http://www.minfin.gov.by/accounting/inter_standards/docs/71f9f73c3eb44bb2.html ;
• http://www.minfin.gov.by/accounting/inter_standards/docs/fa70d11e0cb14c56.html ;
• http://www.minfin.gov.by/accounting/inter_standards/docs/f8f75f4fd1e848df.html ;
• http://www.minfin.gov.by/accounting/inter_standards/docs/eb7753f40f6f49f0.html ;
• http://www.minfin.gov.by/accounting/inter_standards/docs/9d4e40da559e40d4.html .

Belarus has no informal regulatory processes managed by nongovernmental organizations or private sector associations.

International Regulatory Considerations

Belarus is not a WTO member but announced in April 2016 it will step up efforts to join the organization. Belarus has previously committed to hasten efforts to join the WTO without taking corresponding decisions to speed up its possible entry into the WTO. After a 12-year break between meetings of the Working Party on Belarus’s Accession to the WTO, the group met for the eighth time in Washington in January 2017 and the ninth time in September in Geneva. A Belarusian delegation also attended WTO Ministerial conference in Buenos Aires in December 2017 at which time the MFA announced that Belarus still needed to conclude bilateral negotiations on market access for goods and services with 11 WTO members, including the United States, before it can accede to the organization.

Legal System and Judicial Independence

The Belarusian legal system is a civil law system with a legal separation of branches and institutions and with the main source of law being legal act, not precedent. Presidential edicts and decrees, however, typically carry more force than legal acts adopted by the legislature, which risks weakening investor protections and incentives previously passed into law. There is sometimes a public comment process during drafting of presidential decrees, but the process is often not transparent or sufficiently inclusive of investors’ concerns. There are also questions about the judiciary’s independence, which could limit investors’ recourse against the government and SOEs. Article 44 of Belarus’s Constitution guarantees the inviolability of property. Article 11 of the Civil Code safeguards property rights. Belarus has a written and consistently applied commercial law, which is broadly codified. The law, however, contains many inconsistencies and is not always considered to be business friendly.

Each of Belarus’s six regions and the capital city of Minsk have economic courts to address commercial and economic issues. In addition, the Supreme Court has a judicial panel on economic issues. In 2000, Belarus established a judicial panel on intellectual property rights (IPR) protection. Under the Labor Code any claims of unfair labor practices are heard by regular civil courts or commissions on labor issues. However, the judiciary’s lack of independence from the executive branch impedes its role as a reliable and impartial mechanism for resolving disputes, whether labor, economic, commercial, or otherwise.

Laws and Regulations on Foreign Direct Investment

Foreign investment in Belarus is governed by the July 12, 2013 laws On Investments, and On Concessions as well as Presidential Decree No. 10 On the Creation of Additional Conditions for Investment Activity in Belarus which was signed on August 6, 2009) and other legislation as well as international and investment agreements signed and ratified by Belarus. The GOB declares there is no executive or any other interference in the court system that could affect foreign investors. In reality, however, there have been instances of executive interference in the judiciary that have harmed foreign investors’ operations in Belarus.

The GOB regularly updates the following websites with the latest in laws, rules, procedures and reporting requirements for foreign investors:

• http://www.investinbelarus.by/en/ 
• http://www.economy.gov.by/ 
• http://president.gov.by/en/official_documents_en/ 

Competition and Anti-Trust Laws

The June 3, 2016 presidential edict number 188 authorized the Ministry of Antimonopoly Regulation and Trade to counteract monopolistic activities and promote competition in Belarus’s markets.

Expropriation and Compensation

According to Article 12 of the Investment Code, neither Party may expropriate or nationalize investments both directly and indirectly by means of measures similar to expropriation or nationalization, for other purposes than: for the public benefit; on nondiscriminatory basis; according to the appropriate legal procedure; and on conditions of compensation payment,

Belarus has signed 66 bilateral agreements on the mutual protection and encouragement of investments. According to such agreements, neither party may expropriate or nationalize investments either directly or indirectly by means or measures similar to expropriation or nationalization, for purposes other than public benefit or according to the appropriate legal procedure.

Expropriation of private property sometimes occurs in Belarus in the form of de-privatization. That is, the government sometimes seeks to secure majority share in some joint stock companies under various pretexts, e.g. securing the interests of workers, long record of profit-loss, etc. Some successful local businessmen have been forced out of business through bureaucratic methods. In the past there have been instances of confiscation of business property as a penalty for violations of law. Although under the Investment Code, fair compensation for the expropriated property should be offered, the government usually refers to breaches of domestic laws and offers no compensation.

Confiscations are not usually related to any particular industry and are not targeted exclusively at international firms. Both foreign and domestic assets sometimes become subject to expropriation.

Dispute Settlement

There were no known investment disputes with American investors in 2017.

ICSID Convention and New York Convention

Belarus is a party of the Conventions on the Settlement of Investment Disputes between States and Nationals of Other States of March 18, 1965 (ICSID Convention) and of August 9, 1992, and Conventions on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 and February 13, 1961.

The GOB states that local courts recognize and enforce foreign arbitral awards in compliance with the above conventions, national laws and regulations. The enforcement of arbitral awards in Belarus is governed by Chapter 28 of the Code of Commercial Procedure.

Most of the BITs concluded by Belarus include a provision on international investment arbitration as a mechanism for settling investor-state disputes and recognize the binding force of the awards issued in investment arbitrations.

Under Belarusian law, if an international treaty signed by Belarus establishes rules other than those established by local law, the rules of the international treaty shall prevail.

Investor-State Dispute Settlement

Local economic court proceedings normally do not exceed two months. The term of such proceedings with the participation of foreign persons is normally no longer than seven months, unless established otherwise by the international agreement signed by Belarus.

International Commercial Arbitration and Foreign Courts

Judgments of foreign courts are accepted and enforced if there is a relevant international agreement signed by Belarus. Courts recognize and enforce foreign arbitral awards. International arbitration is accepted as a means for settling investment disputes between private parties. In principle, the GOB accepts binding international arbitration of investment disputes between foreign investors and the state, although the Embassy is not aware of any cases where this has been put to the test. The Belarusian Chamber of Commerce and Industry has an International Arbitration Court. The July 12, 2013 law on mediation, as well as codes of civil and economic procedures, established various alternative ways of addressing investment disputes.

Bankruptcy Regulations

Belarus has a written bankruptcy law adopted on July 13, 2012 and several additional presidential edicts, which are not always consistently applied, especially with regard to SOEs. Some other legal acts, such as the Civil Code, also include certain regulations on bankruptcy-related issues.

Under the bankruptcy law, foreign creditors have the same rights as Belarusian creditors. Belarusian law criminalizes false and intentional insolvency as well as concealing insolvency. According to the World Bank’s 2018 Doing Business Report, Belarus was ranked 68 in Resolving Insolvency, up from 69 in 2017 and 95 in 2016 (rankings available at: http://www.doingbusiness.org/data/exploreeconomies/belarus ).

Capital Markets and Portfolio Investment

The Belarusian government welcomes portfolio investment and has taken steps to safeguard such investment and ensure a free flow of financial instruments. The Belarusian Currency and Stock Exchange is open to foreign investors, but it is still largely undeveloped because the government only allows companies to trade stocks if they meet certain criteria, which are often burdensome for many companies, especially private ones. Private companies must be profitable and have net assets of at least 1 million Euro. In addition, any income from resulting operations is taxed at 24 percent. Finally, the state owns more than 70 percent of all stocks in the country, and the government appears hesitant and unwilling to trade in them freely. Bonds are the predominant financial instrument on Belarus’s corporate securities market.

In 2001, Belarus joined Article VIII of the IMF’s Articles of Agreement, undertaking to refrain from restrictions on payments and transfers under current international transactions. Loans are allocated on market terms and foreign investors are able to get them. However, the discount rate of 11 percent (as of October 2017) makes it too expensive for many private businesses, which, unlike many SOEs, do not receive subsidized, reduced interest loans.

Starting in March 2016, Belarus’s National Bank allowed businesses to buy and sell foreign exchange at the Belarusian Currency and Stock Exchange through their banks. Previously they could only buy or sell foreign currencies from or to banks. As part of its liberalizing monetary policy, the National Bank reduced the mandatory sale requirement for businesses from 20 to 10 percent in October 2017, saying at the time “the reduction of the mandatory sale requirement for foreign currency proceeds will contribute to the development of the export potential of economic entities of the Republic of Belarus and will become a consistent step aimed at harmonizing currency regulations within the framework of the Eurasian Economic Union.” The National Bank is said to be poised to abolish mandatory sales by businesses of foreign currency revenues altogether in the first half of 2018.

Money and Banking System

Belarus has a central banking system. The country’s main bank, the National Bank of the Republic of Belarus, represents the interest of the state. It is the main regulator of the country’s banking system. The President of Belarus appoints the Chairperson and Members of the Board of the National Bank, designates auditing organizations to examine its activities, and approves its annual report.

As of January 1, 2018, the banking system of Belarus included 24 commercial banks and three non-banking credit and finance organizations. According to the National Bank, the share of troubled loans in the banking sector was 12.9 percent as of January 1, 2018. The country’s five largest commercial banks, one of which is fully private, account for 77 percent of the total assets of the country’s banking sector, totaling the equivalent of some USD26 billion. To the best of the Embassy’s knowledge, rules on hostile take-overs are clear, and applied on a non-discriminatory basis.

Foreign Exchange and Remittances

Foreign Exchange Policies

According to the GOB, Belarus’s foreign exchange regulations do not include any restrictions or limitations regarding converting, transferring, or repatriating funds associated with investment. Foreign exchange transactions related to FDI, portfolio investments, real estate purchasing, and opening bank accounts are carried out without any restrictions. Foreign exchange is freely traded in the domestic foreign exchange market. Foreign investors can purchase foreign exchange from their Belarusian accounts in Belarusian banks for repaying investments and transferring it outside Belarus without any restrictions.

Since June 1, 2015, the Belarusian Currency and Stock Exchange has traded the U.S. dollar, the euro, and the Russian ruble in a continuous double auction regime. Local banks submit their bids for buying and selling foreign currency into the trading system during the entire period of the trading session. During the trades the bids are honored if and when the specified exchange rates are met. The average weighted exchange rate of the U.S. dollar, the euro, and the Russian ruble set during the trading session is used by the National Bank as the official exchange rate of the Belarusian ruble versus the above-mentioned currencies from the day on which the trades are made. The cross rates versus other foreign currencies are calculated based on the data provided by other countries’ central banks or information from Reuters and Bloomberg. The stated quotation becomes effective on the next calendar day and is valid till the new official exchange rate of the Belarusian ruble versus these foreign currencies comes into force. The IMF has listed Belarus’s exchange rate regime in the floating exchange rate category.

Remittance Policies

There have not been reports of problems exchanging currency and/or remitting revenues earned abroad.

Sovereign Wealth Funds

Belarus has the State Budget Fund of National Development, which is used for implementing major economic and social projects in the country.

Policies Towards Foreign Direct Investment

Belgium has traditionally maintained an open economy that is highly dependent on international trade. Since WWII, foreign investment has played a vital role in the Belgian economy, providing technology and employment. It is one of the key economic policies of the current center-right government to make Belgium a more attractive destination to foreign investment. Though the federal government regulates important elements of foreign direct investment such as salaries and labor conditions, it is primarily the responsibility of the regions to attract FDI. Flanders Investment and Trade (FIT), Wallonia Foreign Trade and Investment Agency (AWEX) and Brussels Invest and Export are the three investment promotion agencies who seek to attract FDI to Flanders, Wallonia and the Brussels Capital Region, respectively.

The regional investment promotion agencies have focused their industrial strategy on key sectors including aerospace and defense; agribusiness, automotive and ground transportation; architecture and engineering; chemicals, petrochemicals, plastics and composites; environmental technologies; food processing and packaging; health technologies; information and communication; and services.

Foreign corporations account for about one-third of the top 3,000 corporations in Belgium. According to Graydon, a Belgian company specializing in commercial and marketing information, there are currently more than one million companies registered in Belgium. The federal government and the regions do not specifically prioritize investment retention or maintain an ongoing “facilitation” dialogue with investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are currently no limits on foreign ownership or control in Belgium. There are no distinctions between Belgian and foreign companies when establishing or owning a business or setting up a remunerative activity.

Other Investment Policy Reviews

Over the past three years, the country has not been the subject of third-party investment policy reviews (IPRs) through a multilateral organization such as the OECD, WTO, or UNCTAD.

Business Facilitation

In order to set up a business in Belgium, one has to take the following steps:

1. Deposit at least 20 percent of the initial capital with a Belgian credit institution and obtain a standard certification confirming that the amount is held in a blocked capital account;
2. Deposit a financial plan with a notary, sign the deed of incorporation and the by-laws in the presence of a notary, who authenticates the documents and registers the deed of incorporation. The authentication act must be drawn up in either French, Dutch or German (Belgium’s three official languages);
3. Register with one of the Registers of legal entities, VAT and social security at a centralized company docket and obtain a company number.

In most cases, the business registration process can be completed within one week.

https://www.business.belgium.be/en/managing_your_business/setting_up_your_business 

Based on the number of employees, the projected annual turnover and the shareholder class, a company will qualify as a small or medium-sized enterprise (SME) according to the meaning of the Promotion of Independent Enterprise Act of February 10, 1998. For a small or medium-sized enterprise, registration will only be possible once a certificate of competence has been obtained. The person in charge of the daily management of the company must prove his or her knowledge of business management, with diplomas and/or practical experience. In the Global Enterprise Register, Belgium currently scores 7 out of 10 for ease of setting up a limited liability company.

Business facilitation agencies provide for equitable treatment of women and underrepresented minorities in the economy.

The three Belgian regions each have their own investment promotion agency, whose services are available to all foreign investors.

Outward Investment

The Belgian government does not actively promote outward investment; neither does it impose restrictions to certain countries or sectors, other than those where Belgium applies UN resolutions.

Transparency of the Regulatory System

The Belgian government maintains a generally transparent competition policy that encompasses tax, labor, health, safety, and other policies to avoid distortions or impediments to the efficient mobilization and allocation of investment, comparable to those in other EU member states. Foreign and domestic investors in some sectors face stringent regulations designed to protect small- and medium-sized enterprises. Many companies in Belgium also try to limit their number of employees to 49, the threshold above which certain employee committees must be set up, such as for safety and trade union interests.

The American Chamber of Commerce has called attention to the adverse impact of cumbersome procedures and unnecessary red tape on foreign investors, although foreign companies do not appear to be impacted more than Belgian firms. Draft bills are not made available for public comment, but rather go through an independent court for vetting and consistency. Recognizing the need to streamline administrative procedures in many areas, in 2015 the federal government set up a special task force to simplify official procedures, so far with little result. It also agreed to streamline laws regarding the telecommunications sector into one comprehensive volume after new entrants in this sector had complained about a lack of transparency. Additionally the government reinforced its Competition Policy Authority with a number of academic experts and additional resources. Traditionally, scientific studies or quantitative analysis conducted on the impact of regulations are made publicly available for comment. However, not all public comments received by regulators are made public.

Accounting standards are regulated by the Belgian law of January 30, 2001; balance sheet and profit and loss statements follow international accounting norms. Cash flow positions and reporting changes in non-borrowed capital formation are not required. However, contrary to IAS/IFRS standards, Belgian accounting rules do require an extensive annual policy report.

Belgium publishes all its relevant legislation and administrative guidelines in an official Gazette, called Le Moniteur Belge (www.moniteur.be ).

International Regulatory Considerations

As a founding member of the EU, Belgium enforces EU directives and occasionally applies stricter rules, as has been the case for data privacy issues. On May 25, 2018 Belgium implemented the General Data Protection Regulation (GDPR) (EU) 2016/679, an EU regulation on data protection and privacy for all individuals within the European Union.

Through the European Union, Belgium is a member of the WTO, and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). The country does not maintain any measures that are inconsistent with the Agreement on Trade-Related Investment Measures (TRIMs) obligations.

Legal System and Judicial Independence

Belgium’s (civil) legal system enjoys judicial independent and is an efficient means for resolving commercial disputes or protecting property rights. Belgium has a wide-ranging codified law system since 1830. There are specialized commercial courts which apply the existing commercial and contractual laws. As in many countries, the Belgian courts labor under a growing caseload, and backlogs cause delays. There are several levels of appeal.

Laws and Regulations on Foreign Direct Investment

Payments and transfers within Belgium and with foreign countries require no prior authorization. Transactions may be executed in euros as well as in other currencies.

Belgium has no debt-to-equity requirements. Dividends may be remitted freely except in cases in which distribution would reduce net assets to less than paid-up capital. No further withholding tax or other tax is due on repatriation of the original investment or on the profits of a branch, either during active operations or upon the closing of the branch.

Since there are three different regional Investment Authorities, the links to their respective websites are given below.

Flanders: www.flandersinvestmentandtrade.com ;
Wallonia: www.awex.be ;
Brussels: www.investinbrussels.com .

Competition and Anti-Trust Laws

The contact address for competition-related concerns:

Federal Competition Authority
City Atrium, 6th floor
Vooruitgangsstraat 50
1210 Brussels
tel: +32 2 277 5272
fax: +32 2 277 5323
email: info@bma-abc.be
website: www.bma-abc.be 

In 2017, the Belgian Competition Authority ruled in the case of the merger between a Belgian and a Dutch supermarket chain. The Authority ruled that the newly created supermarket chain would be in a position to abuse its dominant market position and ordered the chain to shed 19 stores.

Expropriation and Compensation

There are no outstanding expropriation or nationalization cases in Belgium with U.S. investors. There is no pattern of discrimination against foreign investment in Belgium.

When the Belgian government uses its eminent domain powers to acquire property compulsorily for a public purpose, adequate compensation is paid to the property owners. Recourse to the courts is available if necessary. The only expropriations that occurred during the last decade were related to infrastructure projects such as port expansion, roads, and railroads.

Dispute Settlement

ICSID Convention and New York Convention

Belgium is a member of the International Center for the Settlement of Investment Disputes (ICSID) and regularly includes provision for ICSID arbitration in investment agreements.

Investor-State Dispute Settlement

The government accepts binding international arbitration of disputes between foreign investors and the state. There have been no investment disputes involving a U.S. person within the past 10 years. Local courts are expected to enforce foreign arbitral awards issued against the government. To date, there has been no evidence of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

• Alternative Dispute Resolution is not mandatory by law and is therefore not commonly used in disputes, except for matters where the determination by an expert is sought, whether appointed by the parties in agreement or in accordance with a contractual clause or appointed by the court in the context of dispute resolution;
• Belgium has no domestic arbitration bodies;
• Local courts recognize and enforce foreign arbitral awards. Judgments of foreign courts are recognized and enforceable under the local courts.

Bankruptcy Regulations

Belgian bankruptcy law is governed by the Bankruptcy Act of 1997 and is under the jurisdiction of the commercial courts. The commercial court appoints a judge-auditor to preside over the bankruptcy proceeding and whose primary task is to supervise the management and liquidation of the bankrupt estate, in particular with respect to the claims of the employees. Belgian bankruptcy law recognizes several classes of preferred or secured creditors. A person who has been declared bankrupt may subsequently start a new business unless the person is found guilty of certain criminal offences that are directly related to the bankruptcy. The Business Continuity Act of 2009 provides the possibility for companies in financial difficulty to enter into a judicial reorganization. These proceedings are to some extent similar to Chapter 11 as the aim is to facilitate business recovery. In the World Bank’s Doing Business Report, Belgium ranks number 11 (out of 198) for the ease of resolving insolvency.

Capital Markets and Portfolio Investment

Belgium has policies in place to facilitate the free flow of financial resources. Credit is allocated at market rates and is available to foreign and domestic investors without discrimination. Belgium is fully served by the international banking community and is implementing all relevant EU financial directives. At the same time, Belgium currently ranks 138th out of 190 for “getting credit” on the World Bank’s “Doing Business” rankings, and in the bottom quintile among OECD high income countries.

Bruges (Now Belgium) established the world’s first stock market almost 600 years ago, and the bourse is well-established today. On Euronext, a company may increase its capital either by capitalizing reserves or by issuing new shares. An increase in capital requires a legal registration procedure, and new shares may be offered either to the public or to existing shareholders. A public notice is not required if the offer is to existing shareholders, who may subscribe to the new shares directly. An issue of bonds to the public is subject to the same requirements as a public issue of shares: the company’s capital must be entirely paid up, and existing shareholders must be given preferential subscription rights.

In 2016, the Belgian government passed legislation to improve entrepreneurial financing through crowdfunding and more flexible capital venture rules.

Money and Banking System

Because the Belgian economy is directed toward international trade, more than half of its banking activities involve foreign countries. Belgium’s major banks are represented in the financial and commercial centers of dozens of countries by subsidiaries, branch offices, and representative offices. The country does have a central bank, the National Bank of Belgium (NBB), whose governor is also a board member of the European Central Bank.

Belgium is one of the countries with the highest number of banks per capita in the world. The banking system is considered sound but was particularly hard hit by the financial crisis that began in the fall of 2008, when federal and regional governments had to step in with lending and guarantees for the three largest banks. Following a review of the 2008 financial crisis, the Belgian government decided in 2012 to shift the authority of bank supervision from the Financial Market Supervision Authority (FMSA) to the NBB. In 2017, supervision of systemic Belgian banks shifted to the ECB. The country has not lost any correspondent banking relationship in the past three years, nor are there any correspondent banking relationships currently in jeopardy.

The developments since September 2008 have also resulted in a major de-risking of the Belgian banks’ balance sheets, on the back of a rising share of exposure to the public sector – albeit more concentrated on Belgium – and a gradual further expansion of the domestic mortgage loan portfolio. Since the introduction of the Single Supervisory Mechanism (SSM), the vast majority of the Belgian banking sector’s assets are held by banks that come under SSM supervision, including the “significant institutions” KBC Bank, Belfius Bank, Argenta, AXA Bank Europe, Bank of New-York Mellon and Bank Degroof/Petercam. Other banks governed by Belgian law – such as BNP Paribas Fortis and ING Belgium – are also subject to SSM supervision as they are subsidiaries of non-Belgian “significant institutions”.

In 2017, the banking sector conducted its business in a context of only gradual economic recovery and persistently low interest rates. That situation had two effects: it put pressure on the sector’s profitability and caused a credit default problem in some European banks. The National Bank of Belgium designated eight Belgian banks as domestic systemically important institutions, and divided them into two groups according to their level of importance. A 1.5 percent capital surcharge was imposed on the first group (BNP Paribas Fortis, KBC Group and Belfius Bank). The second group (AXA Bank Europe, Argenta, Euroclear and The Bank of New York Mellon) is required to hold a supplementary capital buffer of 0.75 percent. These surcharges will be phased in over a three-year period.

Under pressure from the European Union, bank debt has decreased in volume overall, from close to 1.6 trillion euros in 2007 to just over 1 trillion euros in 2017, according to the National Bank of Belgium, particularly in the risky derivative markets. KBC, the country’s largest bank, has total assets equivalent to € 292.3 billion. According to the NBB, 3 percent of all the currently outstanding loans are considered to be non-performing, compared to an average of 8 percent in the Euro area.

Belgian banks use modern, automated systems for domestic and international transactions. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) has its headquarters in Brussels. Euroclear, a clearing entity for transactions in stocks and other securities, is also located in Brussels.

Opening a bank account in the country is linked to residency status. FATCA (Foreign Account Tax Compliance Act) requires Belgian banks to report information on U.S. account holders directly to the Belgian tax authorities, who then release the information to the IRS.

Some Belgian banks have already made great progress with blockchain technology. For instance, one Belgian bank offers a product called MyCar, a digital ecosystem that connects all the players in a car purchase with blockchain technology, creating a single, trusted source of confidence and a centralized workflow that takes the hassle out of buying a car.

With regard to cryptocurrencies, the National Bank of Belgium has no central authority overseeing the network. Unlike many other EU countries, Belgium has no cryptocurrency ATMs, and the NBB has repeatedly warned about the potential consequences of the use of cryptocurrencies for financial stability.

Foreign Exchange and Remittances

Foreign Exchange

Payments and transfers within Belgium and with foreign countries require no prior authorization. Transactions may be executed in euros as well as in other currencies.

Remittance Policies

Dividends may be remitted freely except in cases in which distribution would reduce net assets to less than paid-up capital. No further withholding tax or other tax is due on repatriation of the original investment or on the profits of a branch, either during active operations or upon the closing of the branch.

Sovereign Wealth Funds

Belgium has a sovereign wealth fund (SWF) in the form of the Federal Holding and Investment Company, a quasi-independent entity created in 2004 and now mainly used as a vehicle to manage the banking assets which were taken on board during the 2008 banking crisis. The SWF has a board whose members reflect the composition of the governing coalition and are regularly audited by the “Cour des Comptes” or national auditor. At the end of 2017, its total assets amounted to € 2 billion. Due to the origins of the fund, the majority of the funds are invested domestically. Its role is to allow public entities to recoup their investments and support Belgian banks. The SWF routinely fulfills all legal obligations, is required by law to publish an annual report, and is subject to domestic and international accounting standards and rules. It is not a member of the International Forum of Sovereign Wealth Funds, and as such not a subscriber to the Santiago Principles.

Policies Towards Foreign Direct Investment

While the Government of Belize is interested in attracting foreign direct investment (FDI), certain regulatory requirements serve to impede growth and transparency.

There are no laws that explicitly discriminate against foreign investors. In practice, however, investors complain that they do not always receive the full extent of the incentives available, that land titles are not always reliably secure, and that bureaucratic delays or corruption can be hindrances to starting a business in Belize. There is a sense among investors that incentives are administered in an ad hoc manner, with frequent delays or payments not issued as originally guaranteed.

According to the International Monetary Fund (IMF), Belize’s attractiveness to foreign investors could be improved by reducing the cost of doing business, particularly the costs of inputs (energy, transportation and telecommunications), and combating crime.

The Belize Trade and Investment Development Service (BELTRAIDE; www.belizeinvest.org.bz ), a statutory body of the Government of Belize, is the investment and export promotion agency. BELTRAIDE promotes FDI through various types of incentive packages and identified priority sectors for investment as agriculture, agro-processing, aquaculture, light manufacturing, food processing and packaging, tourism and tourism-related industries, business process outsourcing (BPOs), and renewable energy.

The Government created the Economic Development Council to increase the national dialogue on private sector development and better inform policies for growth and development. The Cabinet has also created a Sub–Committee on Investment composed of Ministers whose portfolios are directly involved in considering and approving investment proposals.

Limits on Foreign Control and Right to Private Ownership and Establishment

Generally, Belize has no restrictions on foreign ownership and control of companies; however, foreign investments in Belize must be registered at the Central Bank of Belize. In addition, foreigners will need to apply with a Belizean partner or someone with a permanent residence to be able to register a business name.

Some investment incentives show preference to Belizean-owned companies. For example, the Small and Medium Enterprise (SME) Fiscal Incentive, offered by BELTRAIDE, stipulates that an entity applying for benefits under the SME incentive must have a minimum of 51 percent Belizean ownership. If this condition is met, the incentive provides for a lower application fee structure.

According to the Belize Tourism Board (http://www.travelbelize.org ), a company must have a minimum of 51 percent Belizean ownership to qualify for a Tour Operator License. This qualification is negotiable particularly in the event a tour operation would expand into a new sector of the market and does not result in competition with local operators.

Foreign investments in Belize must be registered and obtain an “Approved Status” from the Central Bank in order to facilitate inflows and outflows of foreign currency. “Approved Status” investments will ordinarily be granted approval for repatriation of funds from profits, dividends, loan payments, and interest. The Central Bank reserves the right to request evidence-supporting applications for repatriation.

Additionally, persons seeking to open a bank account must also comply with Central Bank regulations, which differ based on residency status and whether the individual is seeking to establish a local bank account or a foreign currency account.

The Government of Belize’s Cabinet Sub-Committee on Investment considers investment projects which do not fall within Belize’s incentive regime or which may require special considerations. For example, an investment may require legislative changes, a customized memorandum of understanding or agreement from the government, or a public–private partnership. Proposals are generally assessed based on size, scope, and subsidy requested. In addition, proposals are assessed on a five-point system that analyses socio-economic acceptability of the project, revenues to the government, employment, foreign exchange earnings and environmental considerations. The Cabinet Sub-Committee is composed of five Cabinet-level officials of government including the minister with responsibility over Investment, Trade and Commerce as Chairperson. The other members include the ministers with responsibility for Tourism and Culture; the Environment and Sustainable Development; and Natural Resources and Immigration, along with the Attorney General. There is no set timeframe for considering projects as this would largely depend on the nature and complexity of the project.

When considering investment, foreign investors undertaking large capital investments must be aware of Belize’s environmental laws and regulations. There is a requirement to prepare an Environmental Impact Assessment (EIA) when a project meets certain land area, location, and/or industry criteria. When purchasing land or planning to develop in or near an ecologically sensitive zone, it is recommended that the EIA fully address any measures by the investor to mitigate environmental risks. Environmental clearance must be obtained prior to the start of site development. The Department of Environment website, http://www.doe.gov.bz  has more information on the Environmental Protection Act and other regulations, applications and guidelines.

In 2015, the Caribbean Court of Justice issued its landmark decision issuing a consent order to the Government to create “an effective mechanism to identify and protect Mayan customary land rights.” The parties have still not decided how and when to implement the court ruling because of disagreement between the government and the Maya communities.

Other Investment Policy Reviews

In the past three years, there has been no investment policy review of Belize by the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD). Belize concluded its third Trade Policy Review in the World Trade Organization (WTO) in April 2017.

Business Facilitation

Belize does not operate a single window registration process. The Belize Companies Corporate Affairs Registry (tel: (501) 822 0421; email: belizecompaniesregistry@yahoo.com; website: www.belizecompaniesregistry.gov.bz ) is responsible for the registration process of all business and companies.

Businesses must also register with the tax department to pay business and general sales tax. They must also register with their local city council or town board to obtain a trade license to operate a business. An employer should also register employees for social security. The 2018 Doing Business report (http://www.doingbusiness.org ) estimates it takes on average 43 days to start up a company in Belize. The same report ranks Belize at 121 of 190 economies on the ease of starting a business.

Belize also has offshore business services legislation, which allows offshore banking, and the establishment of International Business Companies (IBCs) and trusts. In 2017, the IBC Act was amended to allow, inter alia, for the elimination of bearer shares as well as the requirement for companies to maintain a register of directors and a register of beneficial owners. For more information on Belize’s offshore financial sector visit http://www.ibcbelize.com/ .

BELTRAIDE (http://www.belizeinvest.org.bz/ ), a statutory body of the Government of Belize, operates as the country’s investment and export promotion agency. Its investment facilitation services are open to all investors. While there are support measures to advance greater inclusion of women and minorities in entrepreneurial initiatives and training, the business facilitation measures do not distinguish by gender or economic status.

Outward Investment

The government does not promote or incentivize outward investments. Domestic investors are not restricted from investing abroad. However, the Central Bank places currency controls that limit foreign currency outflows.

Transparency of the Regulatory System

Regulatory authority exists both at the local and national levels with national laws and regulations being most relevant to foreign businesses. The government publishes a Gazette that includes proposed as well as enacted laws and regulations. Government ministries also make available policies, laws, and regulations pertinent to their portfolio available on their respective ministry websites. Since 2016, enacted laws have been published on the website of the National Assembly. There is usually a delay updating the website.

Despite these measures, some investors complain that the regime for incentives did not always meet their needs, that land titles are not always reliable and secure, and that bureaucratic delays or corruption can be hindrances to doing business in Belize.

There are quasi-governmental organizations mandated by law to manage specified regulatory processes on behalf of the Government of Belize, e.g. the Belize Tourism Board, BELTRAIDE, and the Belize Agricultural Health Authority. There are no reports that these processes significantly distort or discriminate against foreign investors.

The cabinet dictates government policies that are enacted by the legislature and implemented by the various government ministries. Regulations exist at the local level, primarily relating to property taxes and registering for trade licenses to operate businesses in the municipality.

Accounting, legal, and regulatory systems are consistent with international norms. Publicly owned companies are generally audited annually and the reports are prepared in accordance with International Financial Reporting Standards and International Standards on Auditing.

Draft bills are published in the Gazette by the Government of Belize printers and are publicly available for a minimal fee. Draft bills are generally open to public comment. Once introduced in the House of Representatives, they are passed to Standing Committees of the House of Representatives which then meet and invite the public and interested persons to review, recommend changes, or object to draft laws prior to further debate. Public comments on draft legislation are not generally posted online nor made publicly available. It would be the prerogative of an interested party to attend public consultations, committee meetings, or to request the public comments from the National Assembly or relevant Ministry. Additionally, laws are sometimes passed quickly without meaningful publication or public review, as was the case with the Central Bank of Belize (International Immunities Act) 2017 and the Crown Proceedings (Amendment Act), 2017.

Regulatory decisions are subject to judicial review.

International Regulatory Considerations

As a full member of the Caribbean Community (CARICOM), Belize’s foreign, economic and trade policies regarding non-members are coordinated regionally. The country’s import tariffs are largely defined by CARICOM’s Common External Tariffs.

Belize is also a member of several other treaties as a result of its membership within CARICOM. A primary example is the Economic Partnership Agreement (EPA) between CARIFORUM and the European Union (EU).

Outside of CARICOM, Belize is also a member of the Central American Integration System (SICA) at a political level, but is not a part of the Secretariat of Central American Economic Integration (SIECA) that supports economic integration of Central America.

Belize is a member of the WTO and CARICOM and adheres to the norms established by these organizations. Belize also ratified the Trade Facilitation Agreement in 2015 and is at 33.6 percent rate of implementation.

The Belize Bureau of Standards (BBS) is the national standards body responsible for preparing, promoting and implementing standards for goods, services, and processes. The BBS operates in in accordance with the WTO Agreement on Technical Barriers to Trade and the CARICOM Regional Organization for Standards and Quality.

Legal System and Judicial Independence

The Belize Constitution is founded on the principle of separation of powers with independence of the judiciary from the executive and legislative branches of government. As a former British colony, Belize follows the English Common Law legal system, which is based on established case law. Belize has a written Contract Act, which is supported by precedents from the national courts as well as from the wider English speaking and Commonwealth case law. Contracts are legally enforced through the courts. In 2010, Belize adopted the Caribbean Court of Justice (CCJ) as its final appellate court on civil and criminal matters. This replaced the Judicial Committee of the Privy Council of the United Kingdom.

General information relating to Belize’s judicial and legal system, including links to Belize’s Constitution, Laws and judicial decisions are available at the Judiciary of Belize website www.belizejudiciary.org. 

There are specialized courts that deal with family related matters including divorce and child custody but no specialized courts to deal with commercial disputes or cases.

The current judicial process faces systematic challenges that relate both to civil and criminal cases, including frequent adjournments, delays, and a backlog of cases. Several measures are being implemented to improve the country’s judiciary. The training of mediators and the introduction of court-connected mediation support alternative methods to dispute settlement. This effort along with better case management procedures is expected to decrease the court’s caseload, time delays, and cost particularly for smaller claim civil cases.

Regulations and enforcement actions are appealable. Judgments by the Belize Supreme Court and the Court of Appeal are available at http://www.belizejudiciary.org . Judgments by the Caribbean Court of Justice, Belize’s highest appellate court are available at http://www.caribbeancourtofjustice.org .

Laws and Regulations on Foreign Direct Investment

The laws, rules, procedures, and report requirements related to investors differ depending on the nature of the investment. BELTRAIDE provides advisory services and other related information for foreign investors relating to procedures for doing business in Belize and incentives available to qualifying investors. Further information is available at the BELTRAIDE website: http://www.belizeinvest.org.bz/ .

Enacted laws are generally available in the National Assembly’s website at www.nationalassembly.gov.bz . See above for judicial decisions from the higher courts. Examples of key legislation passed in 2017 include:

• Central Bank of Belize (International Immunities) Act;
• Crown Proceedings (Amendment) Act;
• Income and Business Tax (Amendment) Act- excise duty on fuel products;
• Business Tax;
• National Payments System Act to establish a National Payment System;
• Moneylenders (Amendment) Act;
• Mutual Administrative Assistance in Tax Matters (Amendment) Act;
• Stamp Duties (Amendment) Act raise duty to 1.75 percent;
• Statutory Bodies (Development Contribution).

Competition and Anti-Trust Laws

Belize does not have any laws governing competition, but there are attempts to limit outside competition in certain industries (such as food and agriculture) by levying high import duties.

Expropriation and Compensation

There have been several cases in which the government used eminent domain to appropriate private property, including land belonging to foreign investors. There were no new expropriation cases. However, there are allegations that several previous expropriations were done for personal or political gain. Belizean law requires that the government assess and compensate according to fair market value. These types of expropriation cases can take many years to settle and there are numerous cases where there was no compensation or compensation is still pending. In the cases of expropriations, the claimants affirm that the Government failed to adhere to agreements entered into by a previous administration.

The process to acquire land titles has issues with cases of private as well as government manipulation of land titles involving foreigners and Belizeans. Although the government recognizes this flaw, efforts at improving the land title system remain ongoing.

In late 2017, the Government of Belize made final payments for the nationalized Belize Telemedia Limited (BTL) in line with a judgment issued by the Permanent Court of Arbitration. The final settlement cost the government approximately USD 250 million and almost eight years of lengthy legal battles against the Ashcroft Alliance.

Since July 2015, the U.S. courts have upheld four arbitration judgments against the government including one related to the BTL nationalization. The Government of Belize has chosen to ignore these judgments holding the view that enforcement actions need to proceed through Belizean courts and should be appealed up to the Caribbean Court of Justice.

Dispute Settlement

ICSID Convention and New York Convention

The Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) was extended to Belize by an act of the United Kingdom when Belize was a colony. After independence, Belize did not ratify the Convention nor is it listed as a contracting state. Nevertheless, arbitration is governed by the Arbitration Act (Chapter 125) of the Laws of Belize. Part IV of the Arbitration Act specifically addresses the New York Convention and empowers domestic courts to enforce awards under the Convention. A 2013 judgment of the Caribbean Court of Justice restored Part IV of the Arbitration Act for the enforcement of arbitral awards.

Belize signed on to but has not yet ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID convention). For more information visit: http://sice.oas.org/dispute/comarb/icsid/w_conv1.asp .

Investor-State Dispute Settlement

Please see Section 2 above- Bilateral Investment Agreements and Taxation Agreements.

Belize is also a member of the Caribbean Community (CARICOM) Single Market and Economy as well as a party to a regional Economic Partnership Agreement (EPA) between CARIFORUM and the European Union (EU). Both these regional arrangements make provisions for the settlement of investor-state disputes.

Since Belize is not a party to any Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United States, investment disputes involving U.S. persons are taken either before the courts or before international arbitration panels.

Local courts would recognize and enforce foreign arbitral awards against the government but these would likely be adjudicated to the Caribbean Court of Justice (CCJ), Belize’s highest appellate court.

There has not been a history of extrajudicial actions against foreign investors.

International Commercial Arbitration and Foreign Courts

Belize’s Arbitration Act allows the Supreme Court of Belize to support and supervise dispute settlement between private parties by arbitration. In 2013, the Supreme Court introduced the process of court-connected mediation as an alternative method to dispute settlement between private parties and as a means of reducing costs and duration of litigation.

There are numerous instances of cases involving State Owned Enterprises (SOEs) which went before domestic courts with ruling both in favor and against the SOE.

In January 2017, the Crown Proceedings (Amendment) Act and the Central Bank of Belize (International Immunities) Act were passed which affect the enforcement of foreign arbitral awards against the government. Essentially, the Crown Proceedings Amendment Act provides that if a foreign judgment is entered against the government and later declared as “unlawful, void or otherwise invalid” by a court in Belize, the foreign judgement would not be enforced in or outside Belize. The Act also provides for hefty penalties of fines and or imprisonment on a person, individual or legal, seeking to enforce the foreign judgment. The Central Bank (International Immunities) Act restates the immunity of the Central Bank of Belize assets “from legal proceedings in other states.” The Central Bank International Immunities Act similarly provides for penalties of fines and/or imprisonment on a person, individual or legal, which initiates any such proceedings.

Bankruptcy Regulations

Chapter 244 of the Laws of Belize (Bankruptcy Act) provides and allows for bankruptcy filings. The Act provides for the establishment of receivership, trustees, adjudication and seizures of the property of the bankrupt. The court may order the arrest of the debtor and seizure of assets and documents in the event the debtor will flee or avoid payment to creditors. The Act also provides for imprisonment on conviction of certain specified offenses. The Director of Public Prosecutions may also institute prosecution proceedings for offenses emanating or related to the bankruptcy proceedings.

Capital Markets and Portfolio Investment

Belize’s financial system is small with limited to non-existent foreign portfolio investment transactions. The major participants in the domestic financial market include the domestic commercial banks and the Central Bank of Belize. Most international banks also provide corporate formation services to register International Business Companies as well as the establishment of trusts.

Ten credit unions operate as non-profit cooperatives that function as savings banks, offering mainly savings accounts and consumer, education, and residential loans to their shareholders. The Development Finance Corporation (DFC), a state owned development bank offers loan financing services in various sectors, including agriculture, aquaculture, tourism, eco-products, housing, education, and micro and small enterprises. To qualify for a loan from DFC, an individual must be a Belizean resident or citizen, while a company must be majority 51 percent Belizean owned. The National Bank of Belize is state owned bank that provides concessionary credit to public officers, teachers, and low income Belizeans.

Belize does not have its own stock market and capital market operations are rudimentary. Private sector participation as both suppliers and buyers of securities in the financial market is generally not significant.

Foreign investments in Belize must be registered at the Central Bank. See Foreign Currency and Remittances below. The government does not restrict payments for international transactions.

Belize has onshore and offshore financial activities. Generally, Belizean citizens and foreigners with official residency status are allowed to deposit and borrow only from onshore banks while non-residents are only allowed to use offshore banks. Exceptions may be made only with the Central Bank’s explicit approval. See below Money and Banking System for further information.

Credit is made available on market terms. Despite the fact that this is regulated by the Central Bank, interest rates are largely set by local market conditions prevailing within the commercial banks.

Money and Banking System

The Central Bank of Belize (https://www.centralbank.org.bz ) is responsible for formulating and implementing monetary policy focusing on the stability of the exchange rate and economic growth. Persons seeking to open a bank account must also comply with Central Bank regulations, which differ based on residency status and whether the individual is seeking to establish a local bank account or a foreign currency account. Like many countries with fixed currency rates, the Belize banking sector is split into two branches: onshore (domestic banks that cater only to residents) and offshore (international banks intended for non-residents of Belize to freely move foreign exchange in and out of the country). The Government of Belize asserts this design is to prevent disruptions of the local economy (and the peg to the US dollar) due to large foreign exchange fluctuations.

Belize’s financial system remains underdeveloped with a banking sector that may be characterized as stable but fragile. In 2017, net foreign assets of the banking system were approximately USD 5.8 billion and contracted due to the governments’ external debt servicing to bondholders as well as the second compensation payment for the BTL arbitration settlement. The largest domestic commercial bank holds approximately USD 465 million in total assets. For 2017, non-performing loans (NPLs) for commercial banks remained steady at 2.4 percent well below the 5 percent threshold required by the Central Bank.

In the past three years, two onshore banks had their correspondent banking services terminated along with other banks operating in the offshore banking sector. While all banks have current correspondent banking relations, there is still uncertainty with regard to the longevity of those relationships, delay in transactions, and fewer services being offered by the correspondent banks at higher costs. The business community continues to be concerned by negative impacts related to derisking including higher costs and longer wait times for processing wire transactions, increased obstacles in paying for imports, and tougher access to credit for import purchases.

Foreign banks and branches are allowed to operate in the country. Two of the five commercial banks operating onshore are local subsidiaries of international banks. There are five international banks that offer banking services in foreign currencies exclusively to non-residents. All banks are subject to Central Bank measures and regulations.

Persons seeking to open a bank account must also comply with Central Bank regulations, which differ based on residency status and whether the individual is seeking to establish a local bank account or a foreign currency account.

In 2017, the Moneylenders (Amendment) Act was passed to modernize the moneylenders sector and enhance the supervisory and enforcement powers of the Central Bank of Belize. In late 2016, the Central Bank of Belize launched the Automated Payment and Securities Settlement System to facilitate electronic payments, electronic auctions, and improve the ease of doing business in Belize. In 2017, accompanying legislation for the national payments system was also passed.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are currency controls in Belize and foreign investors seeking to convert, transfer, or repatriate funds must comply with Central Bank regulations.

Foreign investments in Belize must be registered at the Central Bank in order to facilitate inflows and outflows of foreign currency transactions, including transfers, and repatriation of profits and dividends. Foreign investors should notify and register their inflow of funds with the Central Bank of Belize to obtain an “Approved Status” for their investment. These “Approved Status” investments will ordinarily be granted approval for repatriation of funds from profits, dividends, loan payments, and interest. The Central Bank does, however, reserve the right to request evidence supporting applications for repatriation.

The Belize dollar has been pegged to the United States Dollar since May 1976 at a fixed exchange rate of BZD 2.00 to the USD 1.00. There are reports of shortages and delays in obtaining foreign exchange.

Remittance Policies

There are no changes to investment remittance policies. There are currency controls in Belize. Foreign investors may repatriate their investments and profits provided they register transactions with the Central Bank. As mentioned above, foreign investors should notify and register their inflow of funds with the Central Bank of Belize to obtain an “Approved Status” for their investment.

Sovereign Wealth Funds

Belize does not have a sovereign wealth fund.

Policies Toward Foreign Direct Investment

The Government of Benin (GOB) actively encourages foreign investment. The creation of APIEX in 2015 resulted in a dialogue between the Government and investors to implement reforms and improve Benin’s business environment. The APIEX mission is to reduce and, where possible, eliminate administrative barriers to doing business and to attracting additional foreign direct investment. The agency has significantly reduced processing times for construction permits (from 90 to 30 days) and registration of new companies (from 15 days to one day). In July 2016, Benin passed a law establishing a commercial tribunal of first instance and a commercial appellate court, a move that is expected to expedite the settlement of business-related disputes. The full-service office that expedites customs clearances, reduces the cost of clearances, and minimizes processing barriers to clearing cargo at the Port of Cotonou makes it possible to obtain cargo clearance within 48 hours of the date of its off-loading at the Port of Cotonou, though in practice this tends to take somewhat longer. The reinstitution of the cargo inspection and scanning program known as PVI, first tried in 2012, resumed operations at the Port of Cotonou in 2017.

Limits on Foreign Control and Right to Private Ownership and Establishment

Beninese law guarantees the right to own and transfer private property. The court system enforces contracts, but the judicial process is inefficient, plagued by corruption, and enforcement of rulings is problematic. Most firms entering the market work with an established local partner and retain a competent Beninese attorney. A list of English-speaking lawyers and legal counselors is available on the Embassy’s website https://bj.usembassy.gov/u-s-citizen-services/attorneys/.

Other Investment Policy Reviews

In 2015 the Beninese government conducted an investment policy review (IPR) jointly through the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), and the United Nations Conference on Trade and Development (UNCTAD). Further to a 2016 fact-finding mission, the UNCTAD Report on the Implementation of the IPR of Benin assesses progress in implementing the original recommendations of the IPR, and highlights a few more policy issues to be addressed in the investment climate. The full report may be found at http://investmentpolicyhub.unctad.org/Upload/BeninIR2016.pdf 

Business Facilitation

In an effort to attract Foreign Direct Investment (FDI), Benin has instituted a visa-free system for African nationals. Those traveling on non-African passports can obtain e-visas through an online process for short stays. The country is also planning to open four new trade offices abroad to enhance Benin’s international business opportunities. One is already underway in Shenzhen, China; others will be located in Europe, the United States, and the Middle East.

Benin made property registration simpler and less expensive in order to boost the real estate market and improve access to credit. The measures apply to real personal property, estate and mortgage taxes, and property purchase receipts, with the aim of reducing corruption in the property registration process. In order to register property, individuals and businesses must present a taxpayer identification number (registration for which is now free). Land registration and property purchase certifications are free, but there is a fee for obtaining a property title. In a related measure, the government issued 2,513 titles free of charge in 2016 for owners of land that had been registered with the financial and technical assistance of the Millennium Challenge Corporation’s first compact with Benin.

It should take roughly 24 hours to register a business, and there is no need for a notary’s assistance. APIEX serves as the single investment promotion center and conduit of information between the foreign investor and the Beninese government.

Benin defines:

• Micro-enterprises as having less than five employees;
• Small and medium size enterprises (SMEs) as having between five and 99 employees. SMEs may be a subsidiary of an international firm.

A full-service office – run by a private company under the supervision of the Ministry of Infrastructure and Transport – expedites customs clearances, reduces the cost of clearances, and minimizes processing barriers to clearing cargo at the Port of Cotonou. This office makes it possible to obtain cargo clearance within as little as 48 hours after its off-loading at the Port of Cotonou, though in practice this tends to take somewhat longer.

Outward Investment

The Beninese government has no policy or incentive in place to encourage the country’s businessmen to invest abroad. The Beninese government does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Benin is a member of UNCTAD’s international network of transparent investment procedures. Foreign and domestic investors can find detailed information on administrative procedures applicable to investment and income generating operations at http://benin.eregulations.org/ , including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures. There is no rule to prevent a monopoly over a particular business sector. The Benin Private Investment Council-CIPB is the only business-related think-tank or body that advocates for investors, http://www.cipb.bj/ . Generally, draft bills are not available for public comment. However, individuals (including non-citizens) have the option to file appeals about or challenge passed or enacted bills with the country’s Constitutional Court.

International Regulatory Considerations

Benin is a member of the Organization for the Harmonization of African Business Law, known by its French acronym OHADA, and has adopted OHADA’s Universal Commercial Code (codified law) to manage commercial disputes and bankruptcies within French-speaking African member countries. Benin is also a member of OHADA’s Common Court of Justice and Arbitration and the International Center for the Settlement of Investment Disputes (ICSID). OHADA provisions govern bankruptcy. Debtors may file for reorganization only, and the creditor may file for liquidation only.

Legal System and Judicial Independence

The preamble of the Beninese Constitution, adopted on December 11, 1990, highlights the attachment of the Beninese people “to principles of democracy and human rights as they have been defined by the Charter of the United Nations of 1945 and the Universal Declaration of Human Rights of 1948, the African Charter on Human and Peoples’ Rights adopted in 1981 by the Organization of African Unity and ratified by Benin on 20 January 1986 and whose provisions form an integral part of this present Constitution and of Beninese law and have a value superior to the internal law.”

Benin’s domestic law includes various legislative and regulatory texts covering family law, land law, labor law, criminal law, criminal procedure, and civil, commercial, social, and administrative proceedings. The newly created commercial court enforces commercial related issues. Court cases tend to proceed slowly and there may be challenges in the enforcement of court decisions. Magistrates and judges, though appointed by the Executive, remain independent. Benin’s courts enforce rulings of foreign courts and international arbitration.

Laws and Regulations on Foreign Direct Investment

Benin is a member of OHADA’s Common Court of Justice and Arbitration (CCJA) and the International Center for the Settlement of Investment Disputes (ICSID). Investors may include arbitration provisions in their contracts in order to avoid prolonged entanglements in the Beninese courts. The United Nations’ http://www.theiguides.org/guides/benin.pdf  details investment procedures in Benin. In 2014, CCJA judged that the Beninese government had illegally seized the ginning assets of the cotton company SODECO (Societe de Developpement du Coton, a public-private joint venture), and had illegally revoked the Port of Cotonou cargo inspection contract with the private company Benin Control. The CCJA ordered payment of USD 267 million in compensation to the two companies owned or largely controlled by then-cotton tycoon, and current Head of State, Patrice Talon (see http://www.ohada.org/index.php/fr/ohada-au-quotidien/role-des-audiences-publiques-de-la-cour-ccja ).

The APIEX one-stop-shop website, http://benin.eregulations.org/ , provides information on regulations and procedures for investment in Benin.

Competition and Anti-Trust Laws

There is no existing agency that reviews transactions for competition-related concerns. Only the local court or international arbitration courts may address these concerns filed with them. There are no recent or existing competition cases to highlight.

Expropriation and Compensation

Based on a 1992 privatization law, the Government is forbidden from nationalizing private enterprises operating in Benin.

In conformity with World Bank structural reform commitments, the government opened the cotton sector and its related components (namely ginning and inputs) to the private sector in the 1990s, and in 2008 divested the ginning industry part of its agricultural parastatal SONAPRA (Societe Nationale pour la Promotion Agricole) moving the ginning assets and regulatory control functions to SODECO. SODECO is a public-private joint venture: 35 percent government, 45 percent private (owned by now-president Patrice Talon), and the remainder split between stock market, local communities, cotton growers, and staff members. In October 2012, prompted by concerns over performance and mismanagement, the government reassumed control of cotton production and ginning holdings under SONAPRA. Under President Talon’s administration, in 2016 SODECO took back control of its ginning facilities and SONAPRA has been dissolved.

In 2006, the government took over the management of previously privatized oil company SONACOP on the grounds that the company was in financial disarray, lacked funds for its operations, and was unable to supply gas stations throughout the country. SONACOP remains a state-owned enterprise today, charged with import and distribution of petroleum products.

In February 2017, the Council of Ministers announced that the government was terminating concessions for the management of four state-owned hotels (two in Cotonou and two in northern Benin), and instructed the Minister of Justice to file reparations claims against the concessionaires on the grounds that they had not fulfilled their concession agreements.

In 2012, the government took control of the private bank Banque Internationale du Benin (BIBE) stating that poor management risked leading the bank to bankruptcy and possible systemic risk to the banking sector. BIBE is still in government hands.

Dispute Settlement

ICSID Convention and New York Convention

Benin is a member of the International Center for the Settlement of Investment Disputes (ICSID) and New York Convention.

Investor-State Dispute Settlement

Post has no reports of government interference in judicial handling of investment disputes.

All three known past investment disputes between U.S. investors and the Beninese government were resolved in favor of the U.S. investors. However, in 2016, the government revoked the contract of U.S.-based company SECURIPORT for the provision of civil aviation and immigration security services; this dispute remains unresolved. The local courts recognize and enforce foreign arbitral awards issued against the government. In 2010, Benin’s civil society challenged a contract awarded by the government in the communications sector and the award decision was reversed.

There is an investment incentive agreement between the Government of the United States of America and the Government of Benin.

International Commercial Arbitration and Foreign Courts

Benin is a member of the Organization for the Harmonization of African Business Law, known by its French acronym OHADA, and has adopted OHADA’s Universal Commercial Code (codified law) to manage commercial disputes and bankruptcies. Benin is also a member of OHADA’s Common Court of Justice and Arbitration and the International Center for the Settlement of Investment Disputes (ICSID) and as such enforces foreign arbitral awards as well as foreign court rulings. Post is unaware of any investment dispute resolution made in favor of a state-owned enterprise by domestic courts.

Bankruptcy Regulations

OHADA provisions govern bankruptcy. Debtors may file for reorganization only, and creditors may file for liquidation only.

Benin’s score of 105 on the 2018 World Bank Group Doing Business report’s ‘Resolving Insolvency” category is an upgrade from the 2017 score of 115.

Capital Markets and Portfolio Investment

Government policy supports free financial markets, subject to oversight by the Ministry of Finance and Economy and the Central Bank of West African States (BCEAO). Fourteen commercial banks operate in Benin, where the access rate to banking services is estimated at 12 percent. Foreign investors may seek credit from Benin’s private financial institutions and the West Africa Economic and Monetary Union (WAEMU) Regional Stock Exchange (Bureau Regional des Valeurs Mobilieres – BRVM) headquartered in Abidjan, Cote d’Ivoire with local branches in each WAEMU member country.

There are no restrictions for foreign investors to establish a bank account in Benin and get loans on the local market. However, proof of residency or evidence of company registration is required to open a bank account.

Money and Banking System

The banking sector has been generally reliable. Fourteen private commercial banks operate in Benin in addition to the regional central bank (BCEAO) and a soon-to-open subsidiary of the African Development Bank. Only 12 percent of the Beninese population uses banking services. If microfinance institutions are taken into account, banking access may be as high as 18 percent. In recent years, non-performing loans have been growing at an alarming rate. Fifteen percent of total banking sector assets are estimated to be non-performing. Benin is part of WAEMU. The BCEAO regulates the banks in Benin and is present in all member states including Benin.

Foreign banks are required to obtain a banking license before operating branches in Benin. They are subject to the same prudential regulations as local or regional banks. Benin has lost no correspondent banking relationships during the last three years. There is no known current correspondent banking relationship in jeopardy. Foreigners are required to present proof of residency to open bank accounts.

Foreign Exchange and Remittances

Foreign Exchange

All funds entering the country from abroad for investment purposes require reporting and registration with the Ministry of Economy and Finance at the time of arrival of funds. Evidence of registration is required to justify remittances of investment capital, earnings, loan/lease repayments or royalties. Such remittances are allowed without restrictions.

Funds entering the country from abroad for investment purposes must be converted into local currency. For the purposes of repatriating such funds, either the invested funds or the interest/earnings or royalties can be converted into any world currency.

The currency of Benin is BCEAO-CFA Franc (international code: XOF). XOF has a fixed parity with the Euro and fluctuates against all other currencies based on this parity. This parity was established at the time of the Euro’s creation (January 1, 1999) and has not changed since then. The parity stands at XOF 655.957= EUR 1.00, guaranteed by the French government under an arrangement between the Treasury of France and the European Union.

Remittance Policies

There have been no recent plans to change investment remittance policies. Banks require documents to justify remittances related to investments. The waiting time to remit investment returns does not exceed 60 days in practice.

Sovereign Wealth Funds

Benin has no Sovereign Wealth Fund.

Policies Towards Foreign Direct Investment

Bermuda’s investment climate welcomes foreign direct investment (FDI). The Bermuda Business Development Agency (BDA) is an independent, public-private partnership funded by both the Bermuda government and the private sector. The agency is governed by a Board of Directors comprised of senior industry professionals representing the diversity of Bermuda’s financial services sector. The BDA carries out pro-active, targeted marketing and business development strategies to stimulate growth in the Bermuda economy and create and maintain jobs. (http://bda.bm/overview/ )

The BDA acts as a partner for existing Bermuda-based companies and also assists entities that are considering establishing operations in Bermuda. It connects prospective companies with industry partners and relevant representatives in the Bermuda Monetary Authority (BMA) and the Bermuda Government’s Business Development Unit, making formal introductions, trouble-shooting and following up with clients to simplify the process.

The BDA has segmented its business development efforts into four distinct pillars or industry areas of focus: Risk (insurance, reinsurance, captives, and insurance linked securities), Asset Management, Trust & Private Client, and International Commerce (technology, international markets, etc.). These are key sectors of the Bermuda marketplace, or areas for potential growth, and the BDA has separate business development managers, strategies and goals for each.

The BDA’s Concierge Service provides a one-stop-shop for businesses considering relocating or starting up operations in Bermuda. The Concierge team is the primary point of contact to connect clients with industry professionals, Government and regulatory officials, and service providers such as realtors, law firms, auditors and relocation experts. Their goal is to help get business off the ground quickly and make doing business in Bermuda beneficial and straightforward.

The GOB has not implemented its plans to privatize, mutualize (a form of privatization in which employees are shareholders), and/or outsource non-core government functions. In November 2014 the GOB signed an exclusive agreement with the semi-public Canadian Commercial Corporation to build a new USD 200 million airport terminal pursuant to a public-private partnership to be financed from future airport revenues.

Limits on Foreign Control and Right to Private Ownership and Establishment

Reference the section on Laws/Regulations of Foreign Direct Investment for information regarding the 60/40 Rule.

Other Investment Policy Reviews

Bermuda is a World Trade Organization (WTO) member through the United Kingdom. Bermuda has not conducted an investment policy review through the OECD, WTO, or UNCTAD in the last five years.

Business Facilitation

The Investment Business Act 2003 is the statutory basis for regulating investment business in Bermuda. The act provides a licensing regime for any person or entity (unless otherwise exempted or excluded) engaging in investment business, as defined by the act, either in or from Bermuda.

The Registrar of Companies (ROC) is a Bermuda government department falling under the Ministry of Economic Development. It oversees the day-to-day responsibilities in regards to the administration of companies, name reservation, fees, insolvency and real estate. https://www.roc.gov.bm/roc/rocweb.nsf/roc?OpenFrameSet .

Foreign companies may not use the online registration system; the services of a local corporate service provider must be retained in order to set up a company in Bermuda. At a minimum, a company must typically register with the Registrar of Companies, the Tax Commissioner, the Social Insurance Department, and the Bermuda Monetary Authority if it is a regulated company. The Registrar of Companies usually takes 24 days from the date of consent from the BMA for a typical incorporation. Time needs to be taken into account for the corporate service provider’s vetting and the Know Your Customer process. There is no provision allowing simplified business creation without a notary.

Under the Bermuda Economic Development Corporation (BEDC) Act 1980, a “small business” is defined as a Bermudian-owned and owner-operated business enterprise having an annual gross payroll not exceeding USD 500,000 or having annual sales revenues of less than one million dollars. A “medium sized business” is a Bermudian-owned and owner-operated business enterprise with at least three of the following attributes: gross annual revenues USD 1 million-USD 5 million; annual payroll USD 500,000-USD USD 2.5 million; a minimum of 11 and a maximum of 50 employees; in operation for a minimum of 10 years; and net assets of less than USD USD 2.5 million.

The BEDC grants loans or other forms of financial assistance to support establishing, carrying on or expanding small businesses, medium-sized businesses and entities within economic empowerment zones (EEZs). It also provides technical advice or assistance to persons who are seeking or who are granted financial assistance; operates and manage markets; oversees and manages the development and implementation of economic empowerment zones; and maintains a register of small businesses, medium-sized business and EEZ business entities.

The BEDC’s financial products include loan guarantees up to 50 percent of a loan up to a maximum of USD USD 200,000; micro loans guarantees of 100 percent of a small loan up to USD USD 7,500; bank preferential rates and terms for business formation and relocation into the Northeast Hamilton Economic Empowerment Zone (EEZ) payroll tax concessions in all three EEZs for nine tax periods; EEZ customs duty deferment up to five years for businesses and residences that undertake capital projects or purchases in the three EEZs; a 100 percent guaranteed letter of credit to allow duty payment on retail goods to be deferred for three months on each importation up to a credit limit of USD USD 10,000; and graduates of the BEDC’s mobilization loan program have preferential rates up to one year backed by a 100 percent guarantee from BEDC. While these benefits are only available to Bermudian-owned and owner-operated businesses, local businesses that meet the requirements of the 60/40 Rule (60 percent Bermudian-owned and 40 percent foreign ownership) may take advantage of BEDC’s financial products. All can use its advisory services.

Outward Investment

Bermuda is not involved in outward investment.

Transparency of the Regulatory System

Bermuda’s legal, regulatory and accounting systems adhere to high ethical and transparency standards. As noted previously, the legal and regulatory systems are grounded in UK law. Accounting systems and auditing standards typically follow Canadian Generally Accepted Accounting Principles (GAAP). A Bermudian company may choose to follow the GAAP of any other jurisdiction, subject to full disclosure of its accounts.

Bermuda is a member of regulatory standard-setting bodies for banking (via the Basel Committee on Bank Supervision), insurance (via the International Association of Insurance Supervisors or IAIS), and investment business (via the Financial Services Authority or FSA). In December 2013, Bermuda signed the Foreign Account Transaction Compliance Act (FATCA) Intergovernmental Model 2 Agreement with the U.S. to promote transparency on tax matters, having concluded a FATCA-type agreement with the UK in the previous month. Bermuda financial institutions now automatically transmit FATCA information to the U.S. and UK.

The BMA is Bermuda’s sole regulatory body for financial services, responsible for the licensing, supervision, and regulation of financial institutions conducting deposit-taking, insurance, investment, and trust business on the island. The GOB continues to strengthen its anti-money laundering and anti-terrorism financing (AML/ATF) framework to ensure a high level of compliance with international standards. Amendments to the Proceeds of Crime Act in 2013 created an obligation to report suspicions of money laundering or terrorist financing and to allow civil proceedings before the Supreme Court for the recovery of property obtained through unlawful conduct.

The BMA’s Guidance Notes for AML/ATF Regulated Financial Institutions on Anti-money Laundering and Anti-terrorist Financing outline and interpret the legal and regulatory framework, propose good industry practices, and assist institutions to design and implement systems and controls to limit AML/ATF risks to institutions. In this respect, Bermuda laws and regulations do not distinguish between businesses operating in the local economy and exempt companies operating internationally from within Bermuda. Neither unlicensed nor unregistered entities are permitted to operate in the financial services sector.

Bermuda’s Financial Intelligence Agency is a member of the Egmont Group of Financial Intelligence Units. It shares information with other agencies, within and outside Bermuda. The BMA Amendment (No. 3) Act 2004 clarified the power of the BMA to share information with other overseas authorities. Other laws that authorize the sharing of information with overseas regulators include the Banks and Deposit Companies Act 1999, the Trusts (Regulation of Trust Business) Act 2001, and the Investment Act 2003.

The Investment Business Amendment Act 2012, the Trust (Regulation of Trust Business) Amendment Act 2012, and the Banks and Deposit Companies Amendment Act 2012 regulate investment businesses, trusts, and banks in the areas of civil penalties, public censure, prohibitions against providing certain services, and publication of decisions. The Investment Business Act 2003 granted the BMA stronger intervention powers, including the ability to cooperate with foreign bodies, while the Investment Business Investment Act 2012 brought the Bermuda Stock Exchange (BSX) under the regulation of the BMA. Other provisions provide for criminal penalties, e.g., the Banks and Deposit Companies Amendment Act.

The BMA regulates collective investment schemes (CIS). The 1997 Proceeds of Crime Act (POCA) and the 2006 Investment Funds Act (IFA) regulate fund administrators. CIS are also subject to IFA, which clarifies and codifies the current regulation of funds in order to strengthen Bermuda’s position in the international funds market.

For Bermuda laws in general, see www.bermudalaws.bm . The GOB posts new laws and regulations in the Royal Gazette newspaper (the official public record). Draft bills are made available at http://www.parliament.bm . The GOB often consults with organizations prior to introducing proposed legislation.

International Regulatory Considerations

See previous section on transparency of regulatory system.

Legal System and Judicial Independence

Bermuda’s legal system is based on English statutory and common law and principles of equity. The system is generally effective at enforcing property, commercial and contractual rights.

There is no government interference in the court system. Three courts preside in Bermuda; the Magistrates Courts, the Supreme Court, and the Court of Appeal. The Commercial Court, a division of the Supreme Court, in effect since January 2006, was established to provide a forum in which commercial litigation is tried expeditiously by an experienced commercial judge in accordance with the best modern practice. The court of last resort is London’s Privy Council.

Foreign money judgments can be enforced under Bermudian statutory law. Under the 1958 Judgments Reciprocal Enforcement Act (JRE), local courts must recognize and enforce foreign judgments. The JRE follows the same procedure as the UK Foreign Judgments (Reciprocal Enforcement) Act of 1933. Bermuda also has arbitration legislation.

Laws and Regulations on Foreign Direct Investment

The Minister of Economic Development has broad discretion to approve privatization applications under the Companies Act 1981. The Ministry of Finance treats foreign and local investors equally when privatization opportunities arise. There is no government interference in the court system that could affect foreign investors.

The Bermuda Monetary Authority (BMA) at www.bma.bm , regulates the financial services sector in Bermuda, providing rigorous vetting, supervision, and inspection of all financial institutions operating in or from within Bermuda. It also assists other authorities in Bermuda to detect and prevent financial crime and develops risk-based financial regulations that it applies to the supervision of Bermuda’s banks, trust companies, investment businesses, and insurance companies. The Companies Act 1981 as amended is the principal statute governing the formation and operation of Bermuda companies and foreign investment.

Most international business (IB) companies are classified as exempt, a term that addresses ownership, not taxation. Bermuda’s tax system applies equally to local and exempt companies. An exempt company may be 100 percent owned by non-Bermudians. For information about local companies, see below. Being exempt does not relieve exempt companies of the supervisory, regulatory, or fiscal rules governing local, non-exempt companies (more about non-exempt companies below).

An exempt company may not do business within the local economy, except to the extent that it is so authorized by its constitutional documents and has been granted a license by the Minister of Finance, who decides if the granting of such a license is in the best interest of Bermuda. Certain activities are expressly excluded from the requirement for a license, including doing business with other exempted undertakings; dealing in securities of exempted undertakings, local companies or partnerships; carrying on business as manager or agent for, or consultant or advisor to, any exempted company or permit company which is affiliated (whether or not incorporated in Bermuda) with the exempted company or an exempted partnership in which the exempted company is a partner or, in the case of mutual funds, selling or distributing their shares in Bermuda. An exempt company may buy its locally-needed supplies or services from local companies, such as accounting, banking, legal, management and office supply services.

An exempt company is exempt from the ownership regulations – otherwise known as the 60/40 Rule – governing local, non-exempt companies, which are permitted to do business within the local economy. To be classified as a local or non-exempt company, Bermudians must be beneficial owners of at least 60 percent of the shares in the company; exercise at least 60 percent of the total voting rights in the company; and make up at least 60 percent of the directors of the company.

In July 2012, in an effort to ease foreign ownership restrictions and boost the economy, Bermuda amended the Companies Act to allow companies listed on the BSX to apply for a license to seek foreign investment over and above the 40 percent maximum foreign ownership. Previously, foreign investors interested in doing business in Bermuda had to adhere to the 60/40 Rule. Many hotels and telecommunications companies fall into this category, as do Bermuda’s four banks.

Compliance with Organization for Economic Cooperation and Development (OECD) guidelines that seek to eliminate separate regulatory regimes for local and international companies may have been a factor contributing to the decision to ease ownership restrictions. Some local businesses support relaxing the 60/40 rule to encourage FDI, increase liquidity in the local market, and boost the economy. Other businesses oppose it out of concern that they might not be able to compete with majority foreign-owned businesses. The current government is exploring relaxing this rule, with the Premier announcing this intent in the fall of 2017.

Overseas and resident investors may form partnerships under the Partnership Act 1902, which may be local or exempted and general or limited. A local partnership is composed of Bermudian partners only and is permitted to conduct business locally and abroad. If one or more of the partners is not Bermudian, the partnership is considered an exempted partnership and may only conduct business outside Bermuda from a principal place of business within Bermuda. An overseas partnership formed outside Bermuda may, through the BMA, apply to the Minister of Finance for a permit to operate in Bermuda or outside Bermuda from a place of business in Bermuda. These partnerships must appoint and maintain a resident representative on the island.

Bermuda strives to be innovative with new financial services and products. For example, in an effort to make Bermuda more competitive in the hedge fund management arena, the Investment Fund Amendment Act 2013 exempts certain hedge funds from authorization and supervision requirements, provides two new classes of exempt funds, and grandfathers currently-exempt funds. Exempt class A funds, which must be regulated by a recognized authority or have at least USD 1000 million in assets under management, are eligible for expedited registration. To encourage improvements in telecommunication, the Customs Tariff Amendment (No 2) Act 2013 gives full customs duty relief on the importation of goods, apparatus, and machinery imported by holders of integrated communications operating licenses to be used to build or maintain telecommunications network infrastructure.

Bermuda generally prohibits the establishment of foreign franchises, with the exception of franchise hotels. The Companies Act gives the Ministry of Economic Development the authority to grant investors special permission to establish a franchise on the island.

As an overseas UK territory, Bermuda does not receive separate mention in many third-party data information sources, such as the World Bank or Transparency International. Because it is not a member of the Organization for Economic Cooperation and Development (OECD), International Monetary Fund (IMF) or World Bank, it does not participate in any of those organizations’ routine reviews. Bermuda is part of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes (see http://www.oecd.org/tax/transparency/ ), so it is reviewed under this initiative. Neither the World Trade Organization nor the UN Committee on Trade and Development has reviewed Bermuda’s investment policy.

Competition and Anti-Trust Laws

Bermuda has some traditional state-owned enterprises (SOEs) that compete with the private sector, including public transit, waste management, and the postal service. Governance of SOEs is led by a politically-appointed Cabinet Minister. SOEs must provide financial information to the Minister, who submits the information annually to the Auditor General. Most SOEs are prohibited from having a board of directors but may have an advisory board.

Bermuda also has quasi-autonomous, non-governmental organizations (QUANGOs)/Public Authorities, established under their respective legislative incorporation acts. The GOB controls several other organizations either through the possession of shares or voting rights or by some other means. These organizations include the National Sports Center, Port Royal Golf Course, Ocean View Golf Course, Bermuda College, Bermuda Housing Trust, Bermuda Housing Corporation, Bermuda Land Development Corporation, West End Development Corporation, Bermuda Hospitals Board, Bermuda Health Council, the Regulatory Authority (telecommunications), Bermuda Tourism Authority, Bermuda Economic Development Corporation, Pension Commission, and parish councils.

Bermuda is not a party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization.

Expropriation and Compensation

The Housing Loan Insurance (Mortgage) Regulations 1984 and the Municipalities Act 1923 regulate expropriations. There is no history of expropriation in Bermuda without proper compensation and no expropriator acts against foreign investors.

Dispute Settlement

ICSID Convention and New York Convention

Through the United Kingdom, Bermuda has ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Under the convention, foreign arbitral awards are enforceable within Bermuda’s domestic courts. Likewise under the United Kingdom, Bermuda is also a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention).

Investor-State Dispute Settlement

Mexico Infrastructure Finance, LLC (MIF), a U.S. company, loaned money to a Bermuda company to enable it to source financing for a hotel development in Hamilton, Bermuda. The Corporation of Hamilton (“the Corporation” a statutory municipal corporation) guaranteed the loan. The local company defaulted on the loan and on 31st December 2014 MIF issued a demand to the Corporation, in its capacity as guarantor, to pay the entire outstanding balance of USD 18 million plus interest. When payment was not forthcoming, MIF brought an action against the Corporation in the Supreme Court to enforce the Guarantee. The Corporation consented to judgment but then petitioned the court to withdraw its consent and argue that it did not have the statutory authority to give the guarantee in the first place. In a decision dated November 2016, the Bermuda Supreme Court (Hellman, J) ruled that the municipality did not have the authority in its statute to give a guarantee for the proposed purpose of a hotel development, and nullified the consent judgment: see Corporation of Hamilton v. Mexico Infrastructure [2016] SC (Bda) 94 Com (18 November 2016). The appeal by MIF of that case was heard, but a judgment is pending. MIF’s insurers have filed a civil case in New York against a Bermudian law firm for failing “to exercise the care and skill to be expected of reasonably competent attorneys.”

International Commercial Arbitration and Foreign Courts

The growth in commercial arbitration is directly linked to the presence of international companies, which operate primarily in the insurance and reinsurance industry. Arbitration within Bermuda has become increasingly popular and it is often named as the seat for arbitration. The GOB has considered promoting Bermuda as a global center for international arbitration.

Bermuda has its own arbitration legislation. The Bermuda International Conciliation and Arbitration Act of 1993 adopted the UN Commission on International Trade Law (UNCITRAL model law) as their rules for governing arbitration procedures. Under the umbrella of the United Kingdom, the ratification of the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention) was extended to Bermuda who became a member state in 1980.

Under Bermuda law, arbitrators and foreign legal counsel traveling to Bermuda for the purposes of participating in arbitration do not need to be locally licensed. The Department of Immigration does however require advance notice of their presence in the jurisdiction.

The judicial system handles investment disputes unless the parties have agreed to submit their disputes to arbitration.

Bankruptcy Regulations

The Bankruptcy Act 1989, the Companies Act 1981, and the Companies (Winding Up) Rules 1982 govern bankruptcy and the winding-up of companies. The Supreme Court (the first instance court of general jurisdiction) administers the bankruptcy process. A foreign creditor may apply for the bankruptcy of an individual or for the winding-up of a company provided the creditor follows the procedures set out in the aforementioned statutes.

Capital Markets and Portfolio Investment

The Bermuda Stock Exchange (BSX) is the world’s preeminent fully – electronic, offshore securities exchange, offering a variety of domestic and international listing options. Established in 1971, the BSX is globally recognized for its commercially sensible listing requirements and partners with the Bermuda Monetary Authority (BMA) and Bermuda Business Development Agency (BBDA) to further develop Bermuda’s reputation.

Bermuda does not have a central bank, but the BMA issues and redeems notes and coins, supervises, regulates, and inspects financial institutions which operate in or from Bermuda, and generally promotes the financial stability and soundness of financial institutions. The BMA does not, however, determine interest rates, which are set by the market, regulated by the Ministry of Finance, and usually follow the Federal Reserve System rates.

Bermuda does not have developed capital markets and does not control monetary policy. Commercial credit lines are normally arranged through U.S. or other overseas institutions. Credit is allocated on market terms, and foreign investors may get credit on the local and international markets. The private sector has access to various credit instruments via local banks. Many companies, particularly the larger ones, maintain external banking relationships

Money and Banking System

The Bermuda Dollar (BMD) is interchangeable with U.S. currency with an exchange rate of 1:1. Bermuda has four banks, all of which are exempt from the 60/40 Rule. The Banks and Deposit Companies Act 1999 implemented the Base Committee’s Core Principles for Effective Banking Supervision. Bermuda banks are compliant with the Basel II Accord and have either implemented or are moving toward full implementation of Basel III.

Liquidity and solvency are important concerns for Bermuda’s banks as there is no monetary policy, no lender of last resort, and no implied guaranty. In July 2011, the GOB passed the Deposit Insurance Act, which lays out proposals for implementing a Deposit Insurance Scheme (DIS) for the Bermuda market; it has yet to be implemented. The DIS would provide insurance coverage to small depositors in banks and credit unions. In February 2016, the House of Assembly passed the Banking (Special Resolutions Regime) Act 2016 to allow the government to temporarily take over a failing bank.

According to the BMA’s December 2016 Regulatory Update, the primary regulatory form of capital, as measured by the Common Equity Tier 1 (CET1) ratio, rose from 18.2 percent to 18.6 percent in Q4 while the Risk Asset Ratio (RAR) capital measure decreased from 21.9 percent to 20.4 percent. The sector’s capital adequacy remains above the minimum requirements per the adopted Basel III standards. Risk-Weighted Assets (RWAs) fell by 2.2 percent during Q4 as banks continued to reduce their credit risk exposures.

As of January 1, 2016, banks were required to meet the Capital Conservation Buffer of 0.6 percent which will increase to 1.2 percent effective January 1, 2017. Banks that are designated as systemically important to the local economy were required to include an additional capital buffer, ranging from 0.0 percent to 3.0 percent. All newly implemented measures are in line with the Authority’s prudential regulatory framework.

Banking at the capital level continues to exceed regulatory requirements. The Banking sector aggregated balance sheet recorded a small increase in Q4 206 while profitability increased significantly compared to Q3 2016. Following the US Federal Reserve’s announcement to increase their short-term interest rate by 25 basis points, some local banks revised their base lending rate by 0.25 percent.

Liquidity conditions remained sound in Q4 as loans-to-deposits experienced a modest decline during the period from 47.3 percent to 43.4 percent. Customer deposits continued to be the primary source of funding, with banks receiving more customer deposits, up by 3.7 percent during the period relative to decline by 4.9 percent, widening the overall funding gap. Loan growth was steady during the quarter, with the real estate sector experiencing a small increase to 50.8 percent of total loans. Loans classified as “other” consisting primarily of other forms of loans and personal loans fell from 34.7 percent to 32.0 percent. At the end of Q4 2016, all banks were in compliance with the Authority’s 70 percent phased-in Liquidity Coverage Ratio requirement. The Bermuda dollar supply was USD USD 3.5 billion in Q4 2016 which was 2.7 percent higher year-on-year.

Bermuda’s reinsurance industry posted higher losses in Q4 compared to last year, while the aggregate balance sheet improved by 6.1 percent. Reported gross profit of USD USD 1.3 billion was 20.8 percent lower compared to Q4 2015, as the combination of higher losses and capital losses negatively impacted profitability. Return on invested assets remained low, as profitability indicators showed Return on Investments close to 0.6 percent while Return on Equity was 0.9 percent.

The Bermuda Stock Exchange (BSX) total market capitalization (excluding funds) was USD USD 343.8 billion at the end of Q4 2016, an increase of USD USD 25.4 billion from the USD USD 318.4 billion recorded in Q3 2016. Most of the activity arose from higher trading volume, which rose to 8,269,818 shares (up from 6,948,612 shares in the prior quarter). Total market value was USD USD 46.4 million (up from USD USD 37 million in the prior quarter). BSX recorded positive returns during the quarter, bolstered by the Bank of Butterfield’s initial public offering. The Insurance Linked Securities (ILS) market had a total of 84 deals listed on the BSX, with an aggregate nominal value of approximately USD USD 20.1 billion.

The Federal Reserve’s confidence in the US economy was marked by an increase in short-term interest rates in December, while the response to the Brexit vote has triggered legal challenges in the UK. The Federal Open Market Committee (FOMC) intends to increase rates at a faster pace in 2017, with policy makers anticipating three rate increases in 2017. The Federal Reserve projects that the US economy grew 1.9 percent in 2016 and will grow 2.1 percent in 2017. In the UK, the economy has performed well since the Brexit vote and growth beat expectations in the fourth quarter at 0.6 percent. However, expansion of the UK economy is still being almost entirely driven by services and consumer spending, continuing the trend of lopsided growth seen in recent years. Households are borrowing more and saving less. An expected pickup in inflation through 2017 raises the risk of an income squeeze.

In 1996, U.S. Securities and Exchange Commission recognized the Bermuda Stock Exchange (BSX) as a Designated Offshore Securities Market. In 1999, the BSX became a full member of the International Federation of Stock Exchanges. In 2005, the UK Financial Services Authority granted the BSX Designated Investment Exchange status. The BMA provides oversight of the BSX and its trading activity. The BSX employs the Bermuda Securities Depository (BSD) – an electronic clearing, settlement and registration system – under BMA oversight. The BSD was designed to facilitate more efficient trade settlement for BSX-listed securities by allowing book entry settlement rather than paper-based settlement. Currently, over 600 companies are listed on the BSX.

Protection from hostile takeovers falls under the Insurance Amendment Act 2013 and the Companies Act 1981. The Insurance Amendment Act is designed to improve insurance group supervision by requiring that certain material changes be reported to the BMA, such as amalgamation with another firm or acquisition of a controlling interest in a business. The Companies Act requires notification of shareholders of amalgamation agreements.

Foreign Exchange and Remittances

USD currency is widely used and accepted in Bermuda. It is par to the Bermuda dollar. In Bermuda, both currencies are freely interchangeable and transferable without any restrictions.

The BMA issues Bermuda’s national currency and manages exchange control transactions. It administers the Exchange Control Act 1972 that states that no capital or exchange controls apply to non-residents or to the various forms of offshore entities, which are free to import and export funds in all currencies.

The Exchange Control Regulations 1973 and the Companies Act 1981 regulate the issue, transfer, redemption, and repurchase of securities. For exchange control purposes, the BMA must give prior approval for issues to and transfers of securities in Bermuda companies involving non-residents, except where general permission has been granted pursuant to the Notice to the Public of June 2005.

The 2009 Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Amendment gave the BMA the authority to oversee all money transactions involving wire transfers. The act requires financial institutions to verify the accuracy and completeness of the information on the payer before authorizing the transfer of funds. The institution must also retain all the records pertaining to the transaction for a period of no less than five years. In 2013, amendments created an obligation to report suspicious money transactions which could possibly be linked to money laundering or to monies being used to fund terrorism. It established a civil proceeding before the Supreme Court for the purpose of recovering money obtained through unlawful conduct.

In 2009, Bermuda updated the 1898 Revenue Act to strengthen the requirements related to cross-border transporting of currency and negotiable instruments. The threshold was set at USD 10,000, after a financial transaction surpasses that amount; the financial institution is automatically required to report the transaction. Passengers arriving to Bermuda (regardless of point of embarkation) must complete a mandatory declaration form. This mandatory disclosure system applies to all outgoing passengers traveling to the U.S., Canada, and the UK.

The 2010 Foreign Currency Purchase Tax Amendment Act is applied to the purchase of all non-local currencies, including the USD. In 2010, the foreign currency purchase tax doubled from 0.5 percent to 1 percent per transaction.

Bermuda is a member of the Caribbean Financial Action Task Force (CFATF), an organization of states and territories of the Caribbean basin which have agreed to implement common counter-measures against money laundering and it is listed under the 2014 International Narcotics Control Strategy Report (INCSR) as being a monitored country.

The Bermuda Financial Network (BFN) Limited is a local international financial services firm. Their main objective is to facilitate banking transactions for consumer and business including e-commerce and money service businesses. In May 2008, the BFN was granted a Money Service Business License from the Bermuda Monetary Authority (BMA) in conjunction with the launch of its Western Union agency in Bermuda which offers international money transfer services. The BFN provides guidance on compliance policies and procedures with local regulations. Money transfer services are popular among foreign workers looking to send funds to their families overseas. The Moneyshop is another business providing financial services in Bermuda with money transfer options through MoneyGram or wire transfers.

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

Sovereign Wealth Funds

Not applicable/information unavailable.

Policies Toward Foreign Direct Investment

In general, Bolivia remains open to foreign direct investment. The 2014 investment law guarantees equal treatment for national and foreign firms, however it also stipulates that public investment has priority over private investment (both national and foreign) and that the Bolivian Government will determine which sectors require private investment.

U.S. companies interested in investing in Bolivia should note that in 2012 Bolivia abrogated the Bilateral Investment Treaties (BIT) it signed with the United States and a number of other countries. The Bolivian Government claimed the abrogation was necessary for Bolivia to comply with the 2009 Constitution. Companies that invested under the U.S. –Bolivia BIT will be covered until June 10, 2022, but investments made after June 10, 2012 are not covered.

Pursuant to Article 320 of the 2009 Constitution, Bolivia no longer recognizes international arbitration forums for disputes involving the government. The parties also cannot settle the dispute in an international court. However, the implementation of this article is still uncertain.

Specifically, Article 320 of the Bolivian Constitution states:

1. Bolivian investment takes priority over foreign investment.
2. Every foreign investment will be subject to Bolivian jurisdiction, laws, and authorities, and no one may invoke a situation for exception, nor appeal to diplomatic claims to obtain more favorable treatment.
3. Economic relations with foreign states or enterprises shall be conducted under conditions of independence, mutual respect and equity. More favorable conditions may not be granted to foreign states or enterprises than those established for Bolivians.
4. The state makes all decisions on internal economic policy independently and will not accept demands or conditions imposed on this policy by states, banks or Bolivian or foreign financial institutions, multilateral entities or transnational enterprises.
5. Public policies will promote internal consumption of products made in Bolivia.

Article 262 of the Constitution states:

“The fifty kilometers from the border constitute the zone of border security. No foreign person, individual, or company may acquire property in this space, directly or indirectly, nor possess any property right in the waters, soil or subsoil, except in the case of state necessity declared by express law approved by two thirds of the Plurinational Legislative Assembly. The property or the possession affected in case of non-compliance with this prohibition will pass to the benefit of the state, without any indemnity.”

The judicial system faces a huge backlog of cases, is short staffed, lacks resources, has problems with corruption, and is believed to be influenced by political actors. Swift resolution of cases, either initiated by investors or against them, is unlikely. The Marcelo Quiroga Anti-Corruption law of 2010 makes companies and their signatories criminally liable for breach of contract with the government, and the law can be applied retroactively. Authorities can use this threat of criminal prosecution to force settlement of disputes. Commercial disputes can often lead to criminal charges and cases are often processed slowly. See our Human Rights Report as background on the judicial system, labor rights and other important issues.

Article 129 of the Bolivian Arbitration Law No. 708, established that all controversies and disputes that arise regarding investment in Bolivia will have to be addressed inside Bolivia under Bolivian Laws. Consequently, international arbitration is not allowed.

Bolivia does not currently have an investment promotion agency to facilitate foreign investment. However, the government has said that it is working to create an investment promotion agency in order to attract investment in the non-traditional and industrial sectors.

The government does maintain ongoing dialogue with the private sector through several working groups, one of which addresses the investment climate.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is a right for foreign and domestic private entities to establish and own business enterprises and engage in remunerative activity.

There are some areas where investors may judge that special treatment is being given to their Bolivian competitors, for example in key sectors where private companies compete with state owned enterprises. Additionally, foreign investment is not allowed in matters relating directly to national security. And only the government can own most natural resources.

The Constitution specifies that all hydrocarbon resources are the property of the Bolivian people and that the state will assume control over their exploration, exploitation, industrialization, transport, and marketing (Articles 348 and 351). The state-owned and operated company, Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) manages hydrocarbons transport and sales and is responsible for ensuring that the domestic market demand is satisfied at prices set by the hydrocarbons regulator before allowing any hydrocarbon exports. YPFB benefitted from government action in 2006 that required operators to turn over their production to YPFB and to sign new contracts that gave YPFB control over the distribution of gasoline, diesel, and liquid petroleum gas (LPG) to gas stations. The law allows YPFB to enter into joint venture contracts for limited periods with national or foreign individuals or companies wishing to exploit or trade hydrocarbons or their derivatives. For companies working in the industry, contracts are negotiated on a service contract basis and there are no restrictions on ownership percentages of the companies providing the services.

The Constitution (Article 366) specifies that every foreign enterprise that conducts activities in the hydrocarbons production chain will submit to the sovereignty of the state, and to the laws and authority of the state. No foreign court case or foreign jurisdiction will be recognized, and foreign investors may not invoke any exceptional situation for international arbitration, nor appeal to diplomatic claims.

According to the Constitution, no concessions or contracts may transfer the ownership of natural resources or other strategic industries to private interests. Instead temporary authorizations to use these resources may be requested at the pertinent ministry (Mining, Water and Environment, Public Works, etc.). The Bolivian Government is still renegotiating commercial agreements related to forestry, mining, telecommunications, electricity, and water services, in order to comply with these regulations.

The Telecommunications, Technology and Communications General Law (Law 164, Article 28) stipulates that the licenses for radio broadcasts will not be given to foreign persons or entities. Further, in the case of broadcasting associations, the share of foreign investors cannot exceed 25 percent of the total investment, except in those cases approved by the state or by international treaties.

The Central Bank of Bolivia is responsible for registering all foreign investments. According to the 2014 investment law, any investment will be monitored by the ministry related to the particular sector. For example, the Mining Ministry is in charge of overseeing all public and private mining investments. Each Ministry assesses industry compliance with the incentive objectives. To date, only the Ministry of Hydrocarbons and Energy has enacted a Law (N 767) to incentivize the exploration and production of hydrocarbons.

Other Investment Policy Reviews

Bolivia underwent a WTO trade policy review in 2017. In concluding remarks by the Chairperson, the Chairperson noted that several WTO members raised challenges impacting investor confidence in Bolivia, due primarily to Bolivia’s abrogation of 22 BITs following the passage of its 2009 constitution. However, some WTO members also commended Bolivia for enacting a new investment promotion law in 2014 and a law on conciliation and arbitration, both of which increased legal certainty for investors, according to those members.

Business Facilitation

According to the World Bank’s Doing Business 2017 rankings, Bolivia ranks 147 out of 190 countries on the ease of doing business, much lower than most countries in the region. Bolivia ranks 177 out of 190 on the ease of starting a business.

FUNDEMPRESA is a mixed public/private organization authorized by the central government to register and certify new businesses. Its website is www.fundempresa.org.bo  and the business registration process is laid out clearly within the tab labeled “processes, requirements and forms,” however the registration cannot be completed entirely online. A user can download the required forms from the site and can fill them out online, but then has to mail the completed forms or deliver them to the relevant offices. A foreign applicant would be able to use the registration forms. The forms do ask for a “cedula de identidad,” which is a national identification document; however foreign users usually enter their passport numbers instead. Once a company submits all documents required to FUNDEMPRESA, the process takes between 2-4 working days.

The steps to register a business are: (1) register and receive a certificate from Fundempresa; (2) register with the Bolivian Internal Revenue Service (Servicio de Impuestos Nacionales) and receive a tax identification number; (3) register and receive authorization to operate from the municipal government in which the company will be established; (4) if the company has employees, it must register with the national health insurance service and the national retirement pension agency in order to contribute on the employees’ behalf; and (5) if the company has employees, it must register with the Ministry of Labor. According to Fundempresa, the process should take 30 days from start to finish. All steps are required and there is no simplified business creation regime.

Outward Investment

The Bolivian Government does not promote or incentivize outward investment. Nor does the government restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Bolivia has no laws or policies that directly foster competition on a non-discriminatory basis. However, Article 66 of the Commercial Code (Law 14379, 1977) states that unfair competition, such as maintaining an import, production, or distribution monopoly, should be penalized according to criminal law. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.

Regulatory authority regarding investment exists at the national level in Bolivia. There are no informal regulatory procedures.

The Commercial Code requires that all companies keep adequate accounting records and legal records for transparency. However, there is a large informal sector that does not follow these practices. Most accounting regulations follow international principles, but the regulations do not always conform to international standards. Large private companies and some government institutions, such as the Central Bank and the Banking Supervision Authority, have transparent and consistent accounting systems.

Formal bureaucratic procedures are generally considered to be lengthy, difficult to manage and navigate, and sometimes debilitating. Many firms complain that a lack of administrative infrastructure, corruption, and political motives impede their ability to perform. The one exception is when registering a new company in Bolivia. Once a company submits all documents required to the FUNDEMPRESA, the process usually takes less than one week.

There is no established public comment process allowing social, political, and economic interests to provide advice and comment on new laws and decrees. However, the government generally — but not always — discusses proposed laws with the relevant sector. The lack of laws to implement the 2009 Constitution creates legal discrepancies between constitutional guarantees and the dated policies currently enforced, and thus an uncertain investment climate. Draft text or summaries are usually published on the National Assembly’s website.

Online regulatory disclosures by the Bolivian Government can be found in the “Gaceta Judicial” at: http://www.gacetaoficialdebolivia.gob.bo/ .

Supreme Decree 71 in 2009 created a Business Auditing Authority (AEMP), which is tasked with regulating the business activities of public, private, mixed, or cooperative entities across all business sectors. AEMP’s decisions are legally reviewable through appeal. However, should an entity wish to file a second appeal, the ultimate decision-making responsibility rests with the Bolivian Government ministry with jurisdiction over the economic sector in question. This has led to a perception that enforcement mechanisms are neither transparent nor independent.

Environmental regulations can slow projects due to the constitutional requirement of “prior consultation” for any projects that could affect local and indigenous communities. This has affected projects related to the exploitation of natural resources, both renewable and nonrenewable, as well as public works projects. Issuance of environmental licenses has been slow and subject to political influence and corruption.

In 2010, the new pension fund was enacted; it increased the contributions that companies have to pay from 1.71 percent of payroll to 4.71 percent.

International Regulatory Considerations

Bolivia is a full member of the Andean Community of Nations (CAN), comprised of Bolivia, Colombia, Ecuador, and Peru. Bolivia is also in the process of joining the Southern Common Market (MERCOSUR) as a full member. The CAN’s norms are considered supranational in character and have automatic application in the regional economic block’s member countries. The government does notify the WTO Committee on Technical Barriers to Trade regarding draft technical regulations.

Legal System and Judicial Independence

Property and contractual rights are enforced in Bolivian courts under a civil law system, but some have complained that the legal process is time consuming and has been subject to political influence and corruption. Although many of its provisions have been modified and supplanted by more specific legislation, Bolivia’s Commercial Code continues to provide general guidance for commercial activities. The constitution has precedence over international law and treaties (Article 410), and stipulates that the state will be directly involved in resolving conflicts between employers and employees (Article 50). There have been allegations of corruption within the judiciary in high profile cases. Regulatory and enforcement actions are appealable.

Laws and Regulations on Foreign Direct Investment

No major laws, regulations, or judicial decisions impacting foreign investment came out in the past year. There is no primary central point-of-contact for investment that provides all the relevant information to investors.

Competition and Anti-Trust Laws

Bolivia does not have a competition law, but cases related to unfair competition can be presented to AEMP. Article 314 of the 2009 Constitution prohibits private monopolies. Based on this article, in 2009 the Bolivian Government created an office to supervise and control private companies (http://www.autoridadempresas.gob.bo/ ). Among its most important goals are: regulating, promoting, and protecting free competition; trade relations between traders; implementing control mechanisms and social projects, and voluntary corporate responsibility; corporate restructuring, supervising, verifying and monitoring companies with economic activities in the country in the field of commercial registration and seeking compliance with legal and financial development of its activities; and qualifying institutional management efficiency, timeliness, transparency and social commitment to contribute to the achievement of corporate goals.

Expropriation and Compensation

The Bolivian Constitution allows the central government or local governments to expropriate property for the public good or when the property does not fulfill a “social purpose” (Article 57). In the case of land, this social purpose (FES) is understood as “sustainable land use to develop productive activities, according to its best use capacity, for the benefit of society, the collective interest and its owner.” In all other cases where this article has been applied, the Bolivian Government has no official definition of “collective interest” and makes decisions on a case-by-case basis. Noncompliance with the social function of land, tax evasion, or the holding of large acreage is cause for reversion, at which point the land passes to “the Bolivian people” (Article 401). In cases where the expropriation of land is deemed a necessity of the state or for the public good, such as when building roads or laying electricity lines, payment of just indemnification is required, and the Bolivian Government has paid for the land taken in such cases. However, in cases where there is non-compliance, or accusations of such, the Bolivian Government is not required to pay for the land and the land title reverts to the state.

The constitution also gives workers the right to reactivate and reorganize companies that are in the process of bankruptcy, insolvency, or liquidation, or those closed in an unjust manner, into employee-owned cooperatives (Article 54). The mining code of 1997 (last updated in 2007) and hydrocarbons law of 2005 both outline procedures for expropriating land to develop underlying concessions.

Between 2006 and 2014, the Bolivian Government nationalized companies that were previously privatized in the 1990s. The government nationalized the hydrocarbons sector, the majority of the electricity sector, some mining companies (including mines and a tin smelting plant), and a cement plant. To take control of these companies, the government forced private entities to sell shares to the government, often at below market prices. Some of the affected companies have cases pending with international arbitration bodies. All outsourcing private contracts were canceled and assigned to public companies (such as airport administration and water provision).

There are still some former state companies that are under private control, including the railroad, and some electricity transport and distribution companies. The first non-former state company was nationalized in December of 2012. Government nationalizations have not discriminated by country; some of the countries affected were the United States, France, the United Kingdom, Spain, Argentina, and Chile. In numerous cases the Bolivian Government has nationalized private interests in order to appease social groups protesting within Bolivia.

Dispute Settlement

ICSID Convention and New York Convention

In November 2007, Bolivia became the first country ever to withdraw from ICSID. In August 2010, the Bolivian Minister of Legal Defense of the State said that the Bolivian Government would not accept ICSID rulings in the cases brought against them by the Chilean company Quiborax and Italian company Euro Telcom. However, the Bolivian Government agreed to pay USD 100 million to Euro Telecom for its nationalization; this agreement was ratified by a Supreme Decree 692 on November 3, 2010. Additionally, in 2014, a British company that owned the biggest electric generation plant in Bolivia (Guaracachi) won an arbitration case against Bolivia for USD 41 million. In 2014, an Indian company won a USD 22.5 million international arbitration award in a dispute over the development of an iron ore project. The Bolivian Government has appealed that award.

In another case, a Canadian mining company with significant U.S. interests failed to complete an investment required by its contract with the state-owned mining company. The foreign company asserts it could not complete the project because the state mining company did not deliver the required property rights. The foreign company entered into national arbitration (their contract does not allow for international arbitration) and in January 2011, the parties announced a settlement of USD 750,000, which the company says will be used to pay taxes, employee benefits, and pending debts — essentially leaving them without compensation for the USD 5 million investment they had made. They also retained responsibility for future liabilities.

Investor-State Dispute Settlement

Conflicting Bolivian law has made international arbitration in some cases effectively impossible. Previous investment contracts between the Bolivian Government and the international companies granted the right to pursue international arbitration in all sectors and stated that international agreements, such as the ICSID and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, must be honored. However, the government claims these rights conflict with the 2009 Constitution, which states (Articles 320 and 366) that international arbitration is not recognized in any case and cannot proceed under any diplomatic claim, and specifically limits foreign companies’ access to international arbitration in the case of conflicts with the government. The 2009 Constitution also states that all bilateral investment treaties must be renegotiated to incorporate relevant provisions of the new constitution. The Investment Law of 2014 was enacted in late 2015. Under the 2015 Arbitration Law (Law 708), international arbitration is not permitted when the dispute is against the government or a state-owned company.

A variety of companies of varying nationality were affected by the government’s nationalization policy between 2006 and 2014. In 2014, President Morales announced there would be no more nationalizations. The same year, one Brazilian company was nationalized, but that had been previously agreed to with the owner under the previous nationalization policy.

International Commercial Arbitration and Foreign Courts

In Bolivia, two institutions have arbitration bodies, including the National Chamber of Commerce and the Chamber of Industry and Commerce of Santa Cruz (CAINCO). In order to utilize these domestic arbitration bodies, the private parties must include arbitration within their contracts. Depending on the contract between the parties, UNCITRAL or Bolivia’s Arbitration Law (No. 708) may be used. Local courts recognize and enforce foreign arbitral awards and judgments. There are no statistics available regarding SOE involvement in investment disputes.

Bankruptcy Regulations

Bolivia ranks above regional averages for resolving insolvency according to the World Bank’s Doing Business Report. The average time to complete bankruptcy procedures to close a business in Bolivia is 20 months. The Bolivian Commercial Code includes (Article 1654) three different categories of bankruptcy:

1. No Fault Bankruptcy – when the owner of the company is not directly responsible for its inability to pay its obligations.
2. At- Fault Bankruptcy – when the owner is guilty or liable due to the lack of due diligence to avoid harm to the company.
3. Bankruptcy due to Fraud – when the owner intentionally tries to cause harm to the company.

In general, the application of laws related to commercial disputes and bankruptcy has been perceived as inconsistent, and charges of corruption are common. Foreign creditors often have little redress beyond Bolivian courts, and judgments are generally more favorable to local claimants than international ones. If a company declares bankruptcy, the company must pay employee benefits before other obligations. Workers have broad-ranging rights to recover pay and benefits from foreign firms in bankruptcy, and criminal actions can be taken against individuals the Bolivian Government deems responsible for failure to pay in these matters.

No credit bureaus or credit monitoring authorities serve the Bolivian market.

Capital Markets and Portfolio Investment

The government’s general attitude toward foreign portfolio investment is neutral. Established Bolivian firms may issue short or medium-term debt in local capital markets, which act primarily as secondary markets for fixed-return securities. Bolivian capital markets have sought to expand their handling of local corporate bond issues and equity instruments. Over the last few years, several Bolivian companies and some foreign firms have been able to raise funds through local capital markets. However, the stock exchange is small and is highly concentrated in bonds and debt instruments (more than 95 percent of transactions). The amount of total transactions per year generally hovers at around one-third of the GDP.

Since 2008, the financial markets have experienced high liquidity, which has led to historically low interest rates. However, liquidity has been returning to normal levels in recent years and there are some pressures to increase interest rates. The Bolivian financial system is not well integrated with the international system and there is only one foreign bank among the top ten banks of Bolivia.

In October 2012, Bolivia returned to global credit markets for the first time in nearly a century, selling USD 500 million worth of 10-year bonds at the New York Stock Exchange. The sovereign bonds were offered with an interest rate of 4.875 percent and demand for the bonds well surpassed the offer, reaching USD 1.5 billion. U.S. financial companies Bank of America, Merrill Lynch, and Goldman Sachs were the lead managers of the deal. In 2013, Bolivia sold another USD 500 million at 5.95 percent for ten years. HSBC, Bank of America, and Merrill Lynch were the lead managers of the deal. In 2017, Bolivia sold another USD 1 billion at 4.5 percent for ten years, with Bank of America and JP Morgan managing the deal. According to the Ministry of Economy, the resources gained from the sales will be used to finance infrastructure projects.

The government and central bank respect their obligations under IMF Article VIII, as the exchange system is free of restrictions on payments and transfers for international transactions.

Foreign investors legally established in Bolivia are able to get credits on the local market. However, due to the size of the market, large credits are rare and may require operations involving several banks. Credit access through other financial instruments is limited to bond issuances in the capital market. A recent financial services law directs credit towards the productive sectors and caps interest rates.

Money and Banking System

The Bolivian banking system is small, composed of 16 banks, 6 banks specialized in mortgage lending, 3 private financial funds, 30 savings and credit cooperatives, and 8 institutions specialized in microcredit. Of the total number of personal deposits made in Bolivia through December 2017 (USD 24.8 billion), the banking sector accounted for 80 percent of the total financial system. Similarly, of the total loans and credits made to private individuals (USD 23.3 billion) through December 2017, 80 percent were made by the banking sector, while private financial funds and the savings and credit cooperatives accounted for the other 20 percent.

Bolivian banks have developed the capacity to adjudicate credit risk and evaluate expected rates of return in line with international norms. The banking sector is stable and healthy with delinquency rates at less than 2 percent in 2017.

In 2013, a new Financial Services Law entered into force. This new law enacted major changes to the banking sector, including deposit rate floors and lending rate ceilings, mandatory lending allocations to certain sectors of the economy and an upgrade of banks’ solvency requirements in line with the international Basel standards. The law also requires banks to spend more on improving consumer protection, as well as providing increased access to financing in rural parts of the country.

Credit is now allocated on government-established rates for productive activities, but foreign investors may find it difficult to qualify for loans from local banks due to the requirement that domestic loans be issued exclusively against domestic collateral. Since commercial credit is generally extended on a short-term basis, most foreign investors prefer to obtain credit abroad. Most Bolivian borrowers are small and medium-sized enterprises (SMEs).

In 2007, the government created a Productive Development Bank to boost the production of small, medium-sized and family-run businesses. The bank was created to provide loans to credit institutions which meet specific development conditions and goals, for example by giving out loans to farmers, small businesses, and other development focused investors. The loans are long term and have lower interest rates than private banks can offer in order to allow for growth of investments and poverty reduction.

In September 2010, the Bolivian Government bought the local private bank Banco Union as part of a plan to gain control of part of the financial market. Banco Union is one of the largest banks, with a share of 10.8 percent of total national credits and 12.7 percent of the total deposits; one of its principal activities is managing public sector accounts. Bolivian Government ownership of Banco Union was illegal until December 2012, when the government enacted the State Bank Law, allowing for state participation in the banking sector.

There is no strong evidence of “cross-shareholding” and “stable-shareholding” arrangements used by private firms to restrict foreign investment, and the 2009 Constitution forbids monopolies and supports antitrust measures. In addition, there is no evidence of hostile takeovers (other than government nationalizations that took place from 2006-14).

The Financial sector is regulated by ASFI (Supervising Authority of Financial Institutions), a decentralized institution that is under the Ministry of Economy. The Central Bank of Bolivia (BCB) oversees all financial institutions, provides liquidity when necessary, and acts as lender of last resort. The BCB is the only monetary authority and is in charge of managing the payment system, international reserves, and the exchange rate.

Foreigners are able to establish bank accounts only with residency status in Bolivia.

Blockchain technologies in Bolivia are still in the early stages. Currently, the banking sector is analyzing blockchain technologies and the sector intends to propose a regulatory framework in coordination with ASFI in the future.

Three different settlement mechanisms are available in Bolivia: (1) the high-value payment system administered by the Central Bank for inter-bank operations; (2) a system of low value payments utilizing checks and credit and debit cards administered by the local association of private banks (ASOBAN); and (3) the deferred settlement payment system designed for small financial institutions such as credit cooperatives. This mechanism is also administered by the Central Bank.

Foreign Exchange and Remittances

Foreign Exchange Policies

The Banking Law (#393, 2013) establishes regulations for foreign currency hedging and authorizes banks to maintain accounts in foreign currencies. A significant, but dropping, percentage of deposits are denominated in U.S. dollars (currently less than 14 percent of total deposits). Bolivian law currently allows repatriation of profits, with a 12.5 percent withholding tax. However, a provision of the 2009 Constitution (Article 351.2) requires reinvestment within Bolivia of private profits from natural resources. Until specific implementing legislation is passed, it is unclear how this provision will be applied. In addition, all bank transfers in U.S. dollars within the financial system and leaving the country must pay a Financial Transaction Tax (ITF) of .03 percent. This tax applies to foreign transactions for U.S. dollars leaving Bolivia, not to money transferred internally.

Any banking transaction above USD 10,000 (in one operation or over three consecutive days) requires a form stating the source of funds. In addition, any hard currency cash transfer from or to Bolivia equal to or greater than USD 10,000 must be registered with the customs office. Amounts between USD 50,000 and USD 500,000 require authorization by the Central Bank and quantities above USD 500,000 require authorization by the Ministry of the Economy and Public Finance. The fine for underreporting any cash transaction is equal to 30 percent of the difference between the declared amount and the quantity of money found. The reporting standard is international, but many private companies in Bolivia find the application cumbersome due to the government requirement for detailed transaction breakdowns rather than allowing for blanket transaction reporting.

Administrative Resolution 398/10 approved in June 2010 forces Bolivian banks to reduce their investments and/or assets outside the country to an amount that does not exceed 50 percent of the value of their net equity.

The Central Bank charges a fee for different kinds of international transactions related to banking and trade. The current list of fees and the details can be found at: https://www.bcb.gob.bo/webdocs/01_resoluciones/RD%20181%202017.pdf .

Law 843 on tax reform directly affects the transfer of all money to foreign countries. All companies are charged 25 percent tax, except for banks which can be charged 37.5 percent, on profits under the Tax Reform Law, but when a company sends money abroad, the presumption of the Bolivian Tax Authority is that 50 percent of all money transmitted is profit. Under this presumption, the 25 percent tax is applied to half of all money transferred abroad, whether actual or only presumed profit. In practical terms it means there is a payment of 12.5 percent as a transfer tax.

Currency is freely convertible at Bolivian banks and exchange houses. The Bolivian Government describes its official exchange system as an “incomplete crawling peg.” Under this system, the exchange rate is fixed, but undergoes micro-readjustments which are not pre-announced to the public. There is a spread of ten basis points between the exchange rate for buying and selling U.S. dollars. The Peso Boliviano (Bs) has remained fixed at 6.96 Bs/USD 1 for selling and 6.86 Bs/USD 1 for buying since October 2011. The parallel rate closely tracks the official rate, suggesting the market finds the Central Bank’s policy acceptable. In order to avoid distortions in the exchange rate market, the Central Bank requires all currency exchange to occur at the official rate ±1 basis point.

Remittance Policies

Each remittance transaction from Bolivia to other countries has a USD 2,500 limit per transaction, but there is no limit to the number of transactions that an individual can remit. The volume of remittances sent to and from Bolivia has increased considerably in the past five years, and the central bank and banking regulator are currently analyzing whether to impose more regulations sometime in the future. Foreign investors are theoretically able to remit through a legal parallel market utilizing convertible, negotiable instruments, but, in practice, the availability of these financial instruments is limited in Bolivia. For example, the Bolivian Government mainly issues bonds in Bolivianos and the majority of corporate bonds are also issued in Bolivianos.

The official exchange rate between Bolivianos and dollars is the same as the informal rate. The government allows account holders to maintain bank accounts in Bolivianos or dollars and make transfers freely between them. Business travelers may bring up to USD 10,000 in cash into the country. For amounts greater than USD 10,000, government permission is needed through sworn declaration.

Sovereign Wealth Funds

Neither the Bolivian Government nor any government-affiliated entity maintains a sovereign wealth fund.

Policies Towards Foreign Direct Investment

Bosnia and Herzegovina struggles to attract foreign investment. Complex labor and pension laws, the lack of a single economic space, and inadequate judicial and regulatory protections deter investment. Under the BiH constitution, established through the Dayton Accords, Bosnia and Herzegovina (henceforth “the state”) is divided into two “entities,” the Federation of BiH (the Federation) and the Republika Srpska (RS). A third, smaller area, the Brcko District, operates under a separate administration. The Federation is further divided into ten cantons, each with its own government and responsibilities. There are also 143 municipalities in BiH: 63 in the RS and 80 in the Federation. As a result, BiH has a multi-tiered legal and regulatory framework that can be duplicative and contradictory, and is not conducive to attracting foreign investors.

Employers bear a heavy burden toward governments. They must contribute 69 percent on top of wages in the Federation and 52 percent in the RS to the health and pension systems. The labor and pension laws are also deterrents to investment, though both are being reformed to decrease burdens on employers. While corporate income taxes in the two entities and Brcko District are now harmonized at 10 percent, entity business registration requirements are not harmonized. The RS has its own registration requirements, which apply to the entire entity. Each of the Federation’s ten cantons has different business regulations and administrative procedures affecting companies. Simplifying and streamlining this framework is essential to improving the investment climate. The EU Reform Agenda targets changes that should improve the investment climate by clarifying and simplifying regulation and procedures while decreasing fees faced by businesses at the entity, canton, and municipal levels.

Generally, BiH’s legal framework does not discriminate against foreign investors. However, given the high level of corruption, foreign investors can be at a significant disadvantage in relation to entrenched local companies, especially those with formal or informal backing by BiH’s various levels of government.

The Foreign Investment Promotion Agency (FIPA) is a state-level organization mandated by the Council of Ministers to facilitate and support FDI. FIPA provides data, analysis, and advice on the business and investment climate to foreign investors. All FIPA services are free of charge.

BiH does not maintain an ongoing, formal dialogue with foreign investors. Sporadically, high-ranking government officials give media statements inviting foreign investments in the energy, transportation, and agriculture industries; however, the announcements are rarely supported by tangible, commercially-viable investment opportunities.

Limits on Foreign Control and Right to Private Ownership and Establishment

According to the Law on the Policy of FDI, foreign investors are entitled to invest in any sector of the economy in the same form and under the same conditions as those defined for local residents. There are two exceptions: the defense industry and some areas of publishing and media where foreign ownership is restricted to 49 percent, and electric power transmission, which is closed to foreign investment. In practice, additional sectors are dominated by government monopolies (such as airport operation), or characterized by oligopolistic market structures (such as telecommunications and electricity generation), making it difficult for foreign investors to engage.

Other Investment Policy Reviews

In the past three years, the BiH government has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD); the World Trade Organization (WTO); or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

Establishing a business in BiH can be an extremely burdensome and time-consuming process for investors. The World Bank estimates there are an average of 12 procedures (actual number depends on the type of business), taking a total of 65 days, to register a new business in the capital city of Sarajevo. Registration in BiH can sometimes be expedited if companies retain a local lawyer to follow up at each step of the process. In 2013, the RS established a one-stop shop for business registration in the entity. On paper, this dramatically reduced the time required to register a business in the RS, bringing the government-reported time to register a company down to an average of 7 to 14 days. Some businesses, however, report that in practice it can take significantly longer.

The entity, cantonal, and municipal levels of government each establish their own laws and regulations on business operations, creating redundant and inconsistent procedures that enable corruption. It is often difficult to understand all the laws and rules that might apply to certain business activities, given overlapping jurisdictions and the lack of a central information source. It is therefore critical that foreign investors obtain local assistance and advice. Investors in the Federation may register their business as a branch in the RS and vice versa.

The most common U.S. business presence found in BiH are representative offices. A representative office is not considered to be a legal entity and its activities are limited to market research, contract or investment preparations, technical cooperation, and similar business facilitation activities. The BiH Law on Foreign Trade Policy governs the establishment of a representative office. To open a representative office, a company must register with the Registry of Representative Offices, maintained by the BiH Ministry of Foreign Trade and Economic Affairs (MoFTER) and the appropriate entity’s ministry of trade.

Additional English-language information on the business registration process can be found at:

BiH Ministry of Foreign Trade & Economic Relations (MoFTER):
Ph: +387-33-220-093
www.mvteo.gov.ba 

BiH Foreign Investment Promotion Agency (FIPA):
Ph: + 387 33 278 080
www.fipa.gov.ba 

Republika Srpska Company Registration Website:
http://www.investsrpska.net 

Outward Investment

The government does not restrict domestic investors from investing abroad. There are no programs to promote or incentivize outward investment.

Transparency of the Regulatory System

The government has adequate laws to foster competition; however, due to corruption, laws are often not implemented transparently or efficiently. The multitude of state, entity, cantonal (in the Federation only), and municipal administrations – each with the power to establish laws and regulations affecting business – creates a heavily bureaucratic, non-transparent system. Ministries and/or regulatory agencies are not typically obligated to publish the text of proposed regulations before they are enacted. Some local and international companies have expressed frustration with generally limited opportunities to provide input and influence/improve draft legislation that impacts the business community.

Foreign investors have criticized government and public procurement tenders for a lack of openness and transparency. Dispute resolution is also challenging as the judicial system moves slowly, often does not adhere to existing deadlines, and provides no recourse if the company in question re-registers under a different name.

In an effort to promote the growth of business in its entity, the Republika Srpska government passed a series of amendments in 2013 to create an RS one-stop-shop for business registration. This institution centralizes the process of registering a business, ostensibly making it easier, faster, and cheaper for new business owners to register their companies in the RS. The Federation’s announced plans to establish a one-stop-shop have long been delayed.

Businesses are subject to inspections from a number of entity and cantonal/municipal agencies, including the financial police, labor inspectorate, market inspectorate, sanitary inspectorate, health inspectorate, fire-fighting inspectorate, environmental inspectorate, institution for the protection of cultural monuments, tourism and food inspectorate, construction inspectorate, communal inspectorate, and veterinary inspectorate. Some investors have complained about non-transparent fees levied during inspections, changing rules and regulations, and an ineffective appeals process to protest these fines.

International Regulatory Considerations

BiH is not a part of the EU, the WTO, or a signatory to the TFA.

Legal System and Judicial Independence

BiH has a clogged court system and it often takes several years for a case to be brought to trial. Moreover, commercial cases with subject matter that judges do not have experience adjudicating, such as intellectual property cases, are often left unresolved for lengthy periods of time. Most judges have little to no in-depth knowledge of adjudicating international commercial disputes and require training on applicable international treaties and laws. Regulations or enforcement actions can be appealed, and appeals are adjudicated in the national court system.

The U.S. Government has provided training to judges, trustees, attorneys, and other stakeholders at the state and entity levels to assist in the development of bankruptcy and intellectual property rights laws. Those laws are now in effect at both the entity and state levels, but have not been fully implemented.

Laws and Regulations on Foreign Direct Investment

The state-level Law on the Policy of Foreign Direct Investment accords foreign investors the same rights as domestic investors and guarantees foreign investors national treatment, protection against nationalization/expropriation, and the right to dispose of profits and transfer funds. In practice, most business sectors in Bosnia and Herzegovina are fully open to foreign equity ownership. Notable exceptions to this general rule are select strategic sectors, such as defense; electric power transmission, which is closed to foreign investment; and some areas of publishing and media, where foreign ownership is restricted to 49 percent (see below). However, an Entity Government may decide that companies normally subject to this limitation are not subject to restrictions.

According to legal amendments adopted in March 2015, foreign investors can now own more than 49 percent of capital business entities dealing with media activities, such as publishing newspapers, magazines and other journals, publishing of periodical publications, production and distribution of television programs, privately owned broadcasting of radio and TV programs, and other forms of daily or periodic publications. The new law maintains the restriction that foreign investors cannot own more than 49 percent of public television and radio services. The March 2015 amendments also set conditions to enhance legal security and clarity for foreign direct investment flows. The Foreign Investment Promotion Agency maintains a list of laws relevant to investors on its website: http://www.fipa.gov.ba/publikacije_materijali/zakoni/default.aspx?id=317&langTag=en-US .

The complex legal environment in BiH underlines the utility of local legal representation for foreign investors. Bosnian attorneys’ experience base is still limited with respect to legal questions and the issues that arise in a market-oriented economy. However, local lawyers are quickly gaining experience in working with international organizations and companies operating in BiH. Companies’ in-house legal counsel should be prepared to oversee their in-country counsel, with explicit explanations and directions regarding objectives. The U.S. Embassy maintains a list of local lawyers willing to represent U.S. citizens and companies in BiH. The list can be accessed at https://ba.usembassy.gov/u-s-citizen-services/attorneys/.

Competition and Anti-Trust Laws

BiH has a Competition Council, designed to be an independent public institution to enforce anti-trust laws, prevent monopolies, and enhance private sector competition. The Council reviews and approves foreign investments in cases of mergers and acquisitions of local companies by foreign companies. The Competition Council consists of six members appointed for six-year terms of office with the possibility of one reappointment. The BiH Council of Ministers appoints three Competition Council members, the Federation Government appoints two members, and the RS Government appoints one member. From the six-member Competition Council, the BiH Council of Ministers affirms a president of the Council for a one-year term without the possibility of reappointment.

Expropriation and Compensation

BiH investment law forbids expropriation of investments, except in the public interest. According to Article 16, “Foreign investment shall not be subject to any act of nationalization, expropriation, requisition, or measures that have similar effects, except where the public interest may require otherwise.” In such cases of public interest, expropriation of investments would be executed in accordance with applicable laws and regulations, be free from discrimination, and include payment of appropriate compensation. Neither the entity governments nor the state government have expropriated any foreign investments to date.

Dispute Settlement

ICSID Convention and New York Convention

BiH is a signatory of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Bosnia and Herzegovina is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID), also known as the Washington Convention.

Investor-State Dispute Settlement

Over the last decade, there have been two cases of legal disputes involving U.S. investors and the local government. While efforts are being made to improve BiH’s commercial court system, its current capacity and practical inefficiencies limit timely resolution of commercial disputes.

International Commercial Arbitration and Foreign Courts

BiH has been a member of the International Center for the Settlement of Investment Disputes since 1997. BiH does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United States. It accepts international arbitration to settle private investment disputes if the parties outline this option in a contract.

The only domestic arbitration body in BiH, the Arbitration Court of the BiH Foreign Trade Chamber, is an inexperienced institution. It needs updated and modernized laws and regulations to comply with international norms and standards. The Arbitration Court would benefit from licensed and trained arbitrators. Domestic arbitration legislation is encompassed within the Civil Procedure Code and is not currently modeled on internationally-accepted regulations. As for the legislation, arbitration is generally poorly addressed. Namely, there are few provisions in the entities’ laws that regulate litigation procedures, which are the legal basis for parties in dispute to entrust the dispute to arbitration. There is no legislation that is modelled on internationally accepted regulations, such as the model law of the United Nations Commission on International Trade Law (UNICITRAL).

Bankruptcy Regulations

Both the Federation and Republika Srpska entities have Laws on Bankruptcy. However, bankruptcy proceedings are not resolved in a timely manner, and there is insufficient emphasis placed on companies’ rehabilitation and/or reorganization. The entities’ laws define the rights of creditors, equity shareholders, and holders of other financial contracts. Foreign contract holders enjoy the same rights as local contract holders. Bankruptcy is not criminalized. The U.S. Government provided recent training to judges on international bankruptcy principles.

Capital Markets and Portfolio Investment

Capital markets remain underdeveloped in BiH. Both entities have created their own modern stock market infrastructure with separate stock exchanges in Sarajevo (SASE) and Banja Luka (BLSE), both of which started trading in 2002. The small size of the markets, lack of privatization, weak shareholder protection, and public mistrust of previous privatization programs has impeded the development of the capital market. During the global economic crisis, foreign investment dwindled and investors saw previous gains dissipate on both exchanges. Foreign investment has shown few signs of growth since 2008, shaped not only by the global financial crisis but also by BiH’s lack of political stability and slowdown of reforms.

Both the RS and Federation issued government securities for the first time during 2011, as part of their plans to raise capital in support of their budget deficits during this period of economic stress. Both entity governments continue to issue government securities in order to fill budget gaps. These securities are also available for secondary market trading on the stock exchanges.

In February 2018, Moody’s affirmed BiH a B3 credit rating with a stable outlook, forecasting the Bosnian economy will expand and GDP will grow 3.7 percent in 2018. Moody’s concluded BiH’s rating is constrained by challenges related to government effectiveness, a wide external deficit, and high unemployment. The challenging political environment has hindered progress on the EU’s Reform Agenda. According to Moody’s, the rating could increase with structural, institution-strengthening reforms, streamlined policymaking processes, and compliance with the current IMF agreement to ensure government debt sustainability. By contrast, downward rating pressures could occur if the country were to fail to comply with the ongoing IMF deal, which would increase uncertainty about the government’s ability to roll over the large IMF repayments due over the coming years.

Money and Banking System

The banking and financial system has been stable with the most significant investments coming from Austria. As of March 2018, there are 23 commercial banks operating in BiH: 15 with headquarters in the Federation and 8 in the Republika Srpska. Twenty two commercial banks are members of a deposit insurance program, which provides for deposit insurance of KM 50,000 (USD 28,000). In 2015, two commercial banks in the RS, Bobar Banka (Bijeljina) and Banka Srpske (Banja Luka) collapsed, and both are in bankruptcy proceedings. The banking sector is divided between the two entities with entity Banking Agencies responsible for banking supervision. The BiH Central Bank defines and controls the implementation of monetary policy (via its currency board) and supports and maintains payment and settlement systems. It also coordinates the activities of the entity Banking Agencies, which are in charge of bank licensing and supervision. Reforms of the banking sector, mandated by the IMF and performed in conjunction with the IMF and World Bank, are in progress.

BiH passed a state-level framework law in 2010 mandating the use of international accounting standards, and both entities passed legislation that eliminated differences in standards between the entities and Brcko District. All governments have implemented accounting practices that are fully in line with international norms.

Foreign Exchange and Remittances

Foreign Exchange

The Law on Foreign Direct Investment guarantees the immediate right to transfer and repatriate profits and remittances. Local and foreign companies may hold accounts in one or more banks authorized to initiate or receive payments in foreign currency. The implementing laws in both entities include transfer and repatriation rights. The Central Bank’s adoption of a currency board in 1997 guarantees the local currency, the convertible mark or KM (aka BAM), is fully convertible to the euro with a fixed exchange rate of KM 1.95583 = EUR 1.00.

Remittance Policies

BiH has no remittance policy, although remittances are generally high due to a large diaspora. Remittances are estimated to range up to 15 percent of total GDP. Based on the two entities’ Laws on Foreign Currency Exchange, all payments in the country must be in national currency.

Sovereign Wealth Funds

BiH does not have a government-affiliated Sovereign Wealth Fund.

Policies Towards Foreign Direct Investment

The GOB publicly emphasizes the importance of attracting foreign direct investment (FDI). It is currently drafting an investment facilitation law, as recommended by the 2014 Organization for Economic Cooperation and Development (OECD) investment review. United Nations Conference on Trade and Development (UNCTAD) is providing technical assistance in support of the legislation. The GOB has launched initiatives to promote economic activity and foreign investment in specific areas, including the establishment of hubs to promote economic growth in the agriculture, diamond, education, health and transportation sectors. Additional investment opportunities in Botswana include large water, electricity, transportation, and telecommunication infrastructure. Economists have also noted Botswana’s considerable potential in the mining, mineral processing, energy, cattle, tourism, and financial services sectors. BITC, the GOB’s investment and trade promotion authority, assists foreign investors with projects that will diversify Botswana’s economy away from diamond mining, create employment, and transfer skills to Botswana citizens.

Limits on Foreign Control and Right to Private Ownership and Establishment

Botswana’s 2003 Trade Act reserves licenses for 35 sectors for citizens, including butcheries, general trading establishments, gas stations, liquor stores, supermarkets (excludes chain stores), bars (other than those associated with hotels), certain types of restaurants, boutiques, auctioneers, car washes, domestic cleaning services, curio shops, fresh produce vendors, funeral homes, hairdressers, various types of rental/hire services, laundromats, specific types of government construction projects under a certain dollar amount, certain activities related to road and railway construction and maintenance, and certain types of manufacturing activities including the production of furniture for schools, welding, and bricklaying. The law allows foreigners to participate in these sectors as minority joint venture partners in medium-sized businesses. Foreigners can hold the majority share if they obtain written approval from the trade minister.

The Ministry of Investment, Trade and Industry (MITI), which administers the citizen participation initiative, has taken an expansive interpretation of the term chain stores, so that it encompasses any store with more than one outlet. This broad interpretation has resulted in the need to apply exemptions to certain supermarkets, simple specialty operations, and general trading stores. These exceptions were generally granted prior to 2015 and many large general merchandise markets, restaurants, and grocery networks are owned by foreigners as a result. Since 2015, the GOB has denied some exception requests, but reports they have approved some based on localization agreements directly negotiated between the ministry and the applying company. These agreements reportedly include commitments to purchase supplies locally and capacity building for local workers and industry.

Other Investment Policy Reviews

In December of 2014, the OECD released an Investment Policy Review on Botswana: http://www.oecd-ilibrary.org/finance-and-investment/oecd-investment-policy-reviews-botswana-2014_9789264203365-en .

Botswana has been a World Trade Organization (WTO) member since 1995. As a member of the Southern African Customs Union, the WTO last conducted a trade policy review in 2009: https://www.wto.org/english/tratop_e/tpr_e/tp322_e.htm .

Business Facilitation

To operate a business in Botswana, business owners need to register a company with the GOB’s CIPA. The registration forms can be downloaded online from the CIPA website: http://www.cipa.co.bw/forms-fees?qt-display_cipa_forms=2. According to CIPA the company registration process takes about 14 days, and it takes approximately 48 days to complete additional required registrations such as tax registrations, opening bank accounts, and obtaining necessary licenses and permits. The World Bank ranked Botswana 153 out of 190 for ease of starting a business. CIPA announced in April 2018 that in conjunction with a New Zealand company, a new online registration system will be put in place to cut down company registration from 14 days to one.

BITC, the GOB’s investment promotion agency, was designed to serve as a one-stop shop to assist investors to set up a business and find a location for operation. BITC’s ability to streamline procedures varies based on GOB entity and bureaucratic requirements. Its website is: www.bitc.co.bw . BITC’s criteria for support for investment projects is whether the project will diversify the economy away from dependence on diamond mining, and whether it will create jobs for and transfer skills to Botswana citizens.

Botswana has a number of incentives and preferences for both citizen-owned and locally-based companies. Foreign-owned companies can benefit from local procurement preferences, which are usually required for government tenders. MITI instituted a program in 2015 to give locally-based small companies a 15 percent preferential price margin in GOB procurement, with mid-sized companies receiving a 10 percent margin, and large companies a 5 percent margin. Under this policy, MITI defines large companies as having less than BWP 5 million in annual turnover reflected in their financial statements, medium companies with BWP 5,000,001 to BWP 19,999,999 in turnover, and large companies with BWP 20 million or more. The directive applies to 27 categories of goods and services ranging from textiles, chemicals, and food, in addition to a broad range consultancy services.

For Companies Act registration purposes, enterprises are classified as follows: Micro Enterprises — less than six employees including owner and annual turnover of up to BWP 60,000; Small Enterprises — less than 25 employees and annual revenue between BWP 60,000 and BWP 1,500,000; Medium Enterprises — less than 100 employees and an annual revenue between BWP 1,500,000 and BWP 5,000,000; Large Enterprises —more than 100 employees and an annual revenue between BWP 5,000,000 or more. This classification is used for the purposes of permitting foreigner participation as minority shareholders in medium-sized enterprises in the 35 business sectors reserved for citizens.

Outward Investment

The GOB neither promotes nor restricts outward investment.

Transparency of the Regulatory System

Bureaucratic procedures necessary to start and maintain a business tend to be open, though slow, and regulatory procedures can be cumbersome to navigate. Foreign investor complaints generally focus on the inefficiency and/or unresponsiveness of mid-level and low-level bureaucrats in government. The government has introduced a Performance Management System to improve the service and accountability of government employees. Unfair business practices or conduct can be reported to the Competition Authority, which seeks to level the playing field for all business operators and foster a conducive environment for business. Bills in Botswana, including investment laws, pass through a public consultation process and are made available for public comment. Bills are also debated in Parliament whose sessions are open to the public.

The Companies Act of 2004 requires all companies registered in Botswana to prepare annual Financial Statements on the basis of generally accepted accounting principles. It further requires that every public company including non-exempt private companies, prepare their Financial Statement in accordance with the International Financial Reporting Standards.

The Public Procurement and Asset Disposal Board (PPADB) oversees all government tenders. Prospective government contractors are required to register with the PPADB. The PPADB maintains a process by which tender decisions can be challenged, and a bidder can also challenge a tender procedure in the courts. The PPADB publishes its decisions concerning awarded tenders, prequalification lists, and newly registered contractors.

The PPADB Act calls for preferential procurement of citizen-owned contractors for works, service and supplies, as well as specific, disadvantaged women’s communities, though it states that such preferences must be time-bound, phased in and out as necessary, and consistent with the country’s external obligations and its “market-oriented, macroeconomic framework.” When a procuring entity wishes to reserve a tender for citizen-only participation, it is required to publish a notice to that effect either in the bid document or the pre-qualification notice.

Health and safety laws, embodied in the Factories Act of 1973, provide basic protection for workers from unsafe working conditions. Minimum working conditions required on work premises include cleanliness of the premises, adequate ventilation and sanitation, sufficient lighting and the provision of safety precautions. Health inspectors and the Botswana Bureau of Standards carry out periodic checks at both new and operating factories.

International Regulatory Considerations

Botswana is a member of SACU and SADC. Neither have authority over member state national regulatory systems. Botswana is a member of the WTO and notifies all draft technical regulations to the WTO’s Technical Barriers to Trade (TBT) Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

The local Constitution provides for an independent judiciary system. The legal system of Botswana is based on Roman-Dutch law as influenced by English common law. This type of system cohabits with legislation, judicial decisions, and local customary law. The courts enforce commercial contracts, and the judicial system is widely regarded as being fair, though high profile cases challenging the Executive’s role in judicial appointments, and the suspension of four high court judges in September 2015 (suspension lifted in March 2017) have generated speculation judicial independence has eroded. Both foreign and domestic investors have equal access to the judicial system. Botswana does not have a dedicated commercial court. The Industrial Court set up by the Trade Dispute Act of 2004 primarily addresses labor matters.

The GOB is planning to create a corps of commercially specialized judges within the civil court system. Under the new system, commercial cases will be overseen by these commercial judges in order to expedite handling and ensure relevant expertise.

Some U.S. litigants have reported that the time taken to obtain and enforce a judgment in a commercial dispute is unreasonably long. The turnaround time for civil cases is approximately two years. In an effort to create more efficient adjudications, the government has established land tribunal, industrial, small claims and corruption courts. During the past several years, some dockets have improved, but progress has been uneven.

Local laws are accessible through the Botswana Attorney General’s Office website: http://www.elaws.gov.bw/ . It can take up to 24 months for a law, once passed, to appear on the website.

Laws and Regulations on Foreign Direct Investment

Under Botswana’s Company Act, foreigners who wish to operate a business are required to register as well as obtain the relevant licenses and permits as prescribed by the Trade Act of 2008.

Licenses are required for a wide spectrum of businesses, including banking, non-bank financial services, transportation, medical services, mining, energy provision, and alcohol sales. Although amendments to the Trade Act have eliminated the catch-all miscellaneous business license category, investors have reported on local authorities insisting a business apply for a license even when it does not fall within the established categories. In addition, some businesses have observed the enforcement of licenses, as well as the time taken for inspections to comply with licensing requirements, varies widely across local government authorities.

Competition and Anti-Trust Laws

Botswana has developed anti-trust legislation and policies to ensure appropriate competition in the business environment. Under the Competition Act, the Competition Authority is now monitoring mergers and acquisitions. During the year 2016/2017 the Authority dealt with a number of cases to address the non-competitive business conduct and these included bid rigging cases. The Competition Authority is empowered to reject mergers when they are deemed not to be in the public’s best interest. It has interpreted this ability to mean that it can prohibit mergers when the end result is the concentration of a majority of shares in the hands of foreign investors.

Expropriation and Compensation

Section 8 of the country’s Constitution prohibits the nationalization of private property. The GOB has never pursued a policy of forced nationalization and is highly unlikely to adopt one. The Acquisition of Property Act provides a process for any expropriation, including parameters to determine market value and receive compensation. The 2007 Amendment to the Electricity Supply Act allows the GOB to revoke an Independent Power Producer’s license and confiscate the operations with compensation for public interest purposes.

Dispute Settlement

ICSID Convention and New York Convention

It has ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). It is also a member state to the International Centre for the Settlement of Investment Disputes (ICSID convention), and the Multilateral Investment Guarantee Agency (MIGA).

Investor-State Dispute Settlement

There are no known investment disputes involving U.S. persons. Botswana accepts international arbitration to settle investment disputes. Judgments by foreign courts recognized by the GOB are enforceable under the local courts where the appropriate bilateral agreements between the countries exist.

International Commercial Arbitration and Foreign Courts

There are no known complaints about transparency or discrimination by local courts in Botswana.

Bankruptcy Regulations

Botswana’s commercial and bankruptcy laws are comprehensive. Secured and unsecured creditors enjoy similar rights under bankruptcy proceedings to those in the United States.

Capital Markets and Portfolio Investment

The government encourages foreign portfolio investment, although there are limits on foreign ownership in certain sectors. It also embraces the establishment of new and diverse financial institutions to support increased foreign and domestic investment and to fill existing gaps where finance is not commercially available. There are nine commercial banks, a merchant bank, an offshore bank, a statutory deposit-taking institution, and a credit union operating in Botswana. All have corresponding relationships with U.S. banks. Additional financial institutions include various pension funds, insurance companies, microfinance institutions, stock brokerage companies, asset management companies, statutory finance institutions, collective investment undertakings, and statutory funds. Historically, commercial banks have accounted for 92 percent of total deposits and 98 percent of total loans in Botswana (Source: Bank of Botswana). A large portion of the population does not participate in the formal banking sector.

Money and Banking System

The central bank, the Bank of Botswana, acts as banker and financial advisor to the government and is responsible for the management of the country’s foreign exchange reserves, the administration of monetary and exchange rate policies, and the regulation and supervision of financial institutions in the country. Monetary policy in Botswana is widely regarded as prudent and the government has successfully managed to maintain a sensible exchange rate and a stable inflation rate, generally within the target of 3 to 6 percent.

Banks may lend to non-resident controlled companies without seeking approval from the Bank of Botswana. Foreign investors usually enjoy better access to credit than local firms do. In July 2014, USAID’s Development Credit Authority, in collaboration with the Barclays Bank of Botswana, implemented a program to allow small- and medium-sized enterprises (SME) to access up to USD 15 million in loans in an effort to diversify the current economy.

As of the end of 2017, there were 24 companies on the Domestic Board and 11 companies on the Foreign Equities Board. In addition, four exchange traded funds were listed on the exchange. The total market capitalization for listed companies as of 2016 was USD 43.74 billion though one company constitutes the majority of that figure, Anglo-American Plc, which has a market capitalization of some USD 35.9 billion (Source: Botswana Stock Exchange). The BSE is still highly illiquid compared to larger African markets and is dominated by mining companies which adds to index volatility. Laws prohibiting insider trading and securities fraud are still under development.

The government has legitimized offshore capital investments and allows foreign investors, individuals and corporate bodies, and companies incorporated in Botswana to open foreign currency accounts in specified currencies. The designated currencies are the U.S. Dollar, Pound Sterling, Euro and South African Rand. There are no known practices by private firms to restrict foreign investment participation or control in domestic enterprises. Private firms are not permitted to adopt articles of incorporation or association which limit or prohibit foreign investment, participation or control.

In general, Botswana exercises careful control over credit expansion, the Pula exchange rate, interest rates, and foreign and domestic borrowing. Banking legislation is largely in line with industry norms for regulation, supervision, and payments, and its anti-money laundering and combating the financing of terrorism regime is improving (see section two).

The Non-Bank Financial Institutions Regulatory Authority (NBFIRA) was established in 2008 and provides regulatory oversight for the non-banking sector. It extends know-your-customer practices to non-bank financial institutions, and is intended to help deter money laundering and terrorist financing. NBFIRA is also responsible for regulating the International Financial Services Centre, a hub charged with promoting the financial services industry in Botswana.

Foreign Exchange and Remittances

There are no foreign exchange controls in Botswana or restrictions on capital outflows through financial institutions. Commercial banks are required to ensure customers complete basic forms indicating name, address, purpose, and other details prior to processing funds transfer requests or loan applications. The finance ministry monitors data collected on the forms for statistical information on capital flows, but the form does not require government approval prior to the processing of a transaction and does not delay capital transfers.

To encourage portfolio investment, develop domestic capital markets, and diversify investment instruments, non-residents are able to trade in and issue Botswana Pula-denominated bonds with maturity periods of more than one year, provided such instruments are listed on the Botswana Stock Exchange (BSE). Botswana’s Letlole Saving Certificate (equivalent to a U.S. Treasury bond) can be purchased only by Botswana citizens. Foreigners can hold shares in BSE-listed Botswana companies.

Travelers are not restricted to the amount of currency they may carry, but they are required to declare to customs at the port of departure any cash amount in excess of BWP 10,000 (USD 1,200). There are no quantitative limits on foreign currency access for current account transactions.

Bank accounts denominated in foreign currency are allowed in Botswana. Commercial banks offer accounts denominated in U.S. Dollars, British Pounds, Euros and South African Rand. Businesses and other bodies incorporated or registered domestically may open accounts without prior approval from the Bank of Botswana. The government also permits the issuance of foreign currency denominated loans.

Upon disinvestment by a non-resident, the non-resident is allowed immediate repatriation of all proceeds including profits, rents, and fees.

The Botswana Pula has a crawling peg exchange rate and is tied to a basket of currencies comprised of the South African Rand, whose weighting has been adjusted from 50 percent to 45 percent in January 2017, with the IMF’s Special Drawing Rights (consisting of the U.S. dollar, the Euro, British pound, Japanese yen, and the newly added Chinese Renminbi) comprising the remaining 55 percent. The upward rate of crawl was also reduced from 0.38 percent to 0.26 percent (Source: Bank of Botswana). Under the regular five year review of the composition of the SDR, the IMF added the Chinese Renminbi to the pool. The Pula continues to be heavily influenced by movements of the South African Rand against the U.S. Dollar. There is no difficulty in obtaining foreign exchange. Shortages of foreign exchange that would lead banks to block transactions are highly unlikely.

Remittance Policies

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

Sovereign Wealth Funds

The Bank of Botswana maintains a long-term sovereign wealth fund, known as the Pula Fund, in addition to a regular foreign reserve account providing basic import cover. The Pula Fund, with an estimated value of some USD 5.06 billion as of 2016, was established under the Bank of Botswana Act and forms part of the country’s foreign exchange reserves, which are primarily funded by diamond revenues (Source: Bank of Botswana). The Pula Fund is wholly invested in foreign currency -denominated assets and is managed by the Bank of Botswana Board with input from recognized international financial management and investment firms. All realized market and currency gains or losses are reported in the Bank of Botswana’s income statement. Botswana is among the founding members of the International Forum of Sovereign Wealth Fund and was one of the architects of the Santiago Principles in 2008. More information is available at: http://www.bankofbotswana.bw/assets/uploaded/BOTSWANA%20PULA%20FUND%20-%20SANTIAGO%20PRINCIPLES%20(2).pdf .

Policies Towards Foreign Direct Investment

Brazil was the world’s seventh largest destination for Foreign Direct Investment (FDI) in 2016, with inflows of USD 58.7 billion, according to UNCTAD. The GOB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, and transportation infrastructure sectors – to introduce greater innovation into Brazil’s economy and to generate economic growth. GOB investment incentives include tax exemptions and low-cost financing with no distinction made between domestic and foreign investors. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, insurance, and air transport sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

Screening of FDI

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

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

Foreign ownership of airlines is limited to 20 percent. The government of Brazil presented a bill in the Brazilian Congress in April of 2017 to allow for 100 percent foreign ownership of Brazilian airlines (PL 7425/2017). There has been no vote on this bill. On March 19, 2011, the United States and Brazil signed an Air Transport Agreement as a step towards an Open Skies relationship that would eliminate numerical limits on passenger and cargo flights between the two countries. Brazil’s lower house approved the agreement in December 2017 and the Senate ratified it in March 2018. The agreement is now undergoing executive branch certification procedures before diplomatic notes can be exchanged and the agreement enters into force.

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

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

The National Land Reform and Settlement Institute (INCRA) administers the purchase and lease of Brazilian agricultural land by foreigners. According to guidelines published in 2013, the foreign interests cannot buy or lease more than 25 percent of the overall land area in a given municipal district. Additionally, foreign investors from a single country may not own or lease more than 10 percent of agricultural land in any given municipal district. The rules also require Congressional approval before foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding can purchase large plots of agricultural land. Draft Law 2289/2017, which would lift the limits on foreign ownership of agricultural land, except near national borders, will be up for a vote in the Brazilian Congress in 2018.

Brazil is not a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but became an observer in October 2017. By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable. Additionally, U.S. and other foreign firms may only bid to provide technical services 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 to participate in Brazil’s public sector procurement to help these firms win government tenders. Foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts. Under trade bloc Mercosul’s Government Procurement Protocol, member nations Brazil, Argentina, Paraguay, and Uruguay are entitled to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers. Only Argentina has ratified the protocol so it has not yet entered into force.

Other Investment Policy Reviews

The Organization for Economic Co-operation and Development’s (OECD) 2018 Brazil Economic Survey of Brazil highlights Brazil as a leading economy. However, it notes that high commodity prices and labor force growth will no longer be able to sustain Brazil’s economic growth without deep structural reforms. While praising the Temer government for its reform plans, the OECD urged that Brazil must pass all needed reforms to realize their full benefit. The OECD cautions about low investment rates in Brazil, and cites a World Economic Forum survey that ranks Brazil 116 out of 138 countries on infrastructure as an area where Brazil must improve to maintain competitiveness. The IMF’s 2017 Country Report No. 17/216 on Brazil highlights that a deterioration in Brazil’s medium-term growth rates, rising policy uncertainty, rising real interest rates and other varied factors have contributed to a 30 percent decline in investment from the beginning of 2014 to 2017 that hampers Brazil’s prospects for more robust economic growth. In order to boost competitiveness and productivity, the IMF suggests better allocation of factors of production such as labor and capital equipment, as well as greater efficiency of tax policy. The IMF recognizes that these are structural but necessary reforms, if Brazil seeks to correct the current misallocation of resources. The WTO’s 2017 Trade Policy Review of Brazil notes the country’s open stance towards foreign investment, but also points to the many sector-specific limitations (see above). All three reports highlight the upcoming October 2018 presidential elections and uncertainty regarding reform plans as the most significant political risk to the economy. These reports are located at http://www.oecd.org/brazil/economic-survey-brazil.htm ; https://www.imf.org/~/media/Files/Publications/CR/2017/cr17216.ashx ;

and https://www.wto.org/english/tratop_e/tpr_e/tp458_e.htm .

Business Facilitation

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

Outward Investment

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

Transparency of the Regulatory System

In the 2018 World Bank Doing Business report, Brazil ranked 125th out of 190 countries in terms of overall ease of doing business in 2017, a decline of two positions compared to the 2017 report. According to the World Bank, it takes approximately 101.5 days to start a business in Sao Paulo, Brazil’s largest economic center. 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 attempted to reduce regulatory compliance burdens for SMEs through the implementation of the SIMPLES program, designed to simplify the collection of up to eight federal, state, and municipal-level taxes into one single payment.

The 2018 World Bank study noted that the annual administrative burden for a medium-size business to comply with Brazilian tax codes is an average of 1,958 hours versus 160.7 hours in OECD high-income economies. The total tax rate for a medium-sized business in Rio de Janeiro is 69 percent of profits, compared to the average of 40.1 percent in the OECD high-income economies. Business managers often complain of not being able to understand complex and sometimes contradictory tax regulations, despite their housing large local tax and accounting departments in their companies.

Tax regulations, while burdensome and numerous, do not generally differentiate between foreign and domestic firms. However, some investors complain that in certain instances the value-added tax collected by individual states (ICMS) favors locally based companies 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 agency, which handles telecommunications, and licensing and assigning of radio spectrum bandwidth;
• ANP, the National Petroleum Agency, which regulates oil and gas contracts and oversees auctions for oil and natural gas exploration and production, including for offshore pre-salt oil and natural gas;
• ANAC, Brazil’s civil aviation agency;
• IBAMA, Brazil’s environmental licensing and enforcement agency; and
• ANEEL, Brazil’s electric energy regulator that regulates Brazil’s power electricity sector and oversees auctions for electricity transmission, generation, and distribution contracts.

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

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

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

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

International Regulatory Considerations

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

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

Legal System and Judicial Independence

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

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

Laws and Regulations on Foreign Direct Investment

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

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

Dispute Settlement

ICSID Convention and New York Convention

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 is to 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 2018 World Bank Doing Business report found that on average it takes 11 procedures and 731 days to litigate a breach of contract.

International Commercial Arbitration and Foreign Courts

Brazil ratified the 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention) and the 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitration Awards (Montevideo Convention). Law 9307/1996 provides advanced legislation on arbitration, and provides guidance on governing principles and rights of participating parties. Brazil developed a new Cooperation and Facilitation Investment Agreement (CFIA) model in 2016 (https://concordia.itamaraty.gov.br/ ), but it does not include ISDS mechanisms. (See sections on bilateral investment agreements and responsible business conduct.)

Bankruptcy Regulations

Brazil’s commercial code governs most aspects of commercial association, while the civil code governs professional services corporations. In 2005, bankruptcy legislation (Law 11101) went into effect creating a system modeled on Chapter 11 of the U.S. bankruptcy code. Critics of Law 11101 argue it grants equity holders too much power in the restructuring process to detriment of debtholders. Brazil is drafting an update to the bankruptcy law aimed at increasing creditor rights, but it has not been presented in Congress yet. The World Bank’s 2018 Doing Business Report ranks Brazil 80th out of 190 countries for ease of “resolving insolvency.”

Capital Markets and Portfolio Investment

The Central Bank of Brazil (BCB) embarked in October 2016 on a sustained monetary easing cycle, lowering the Special Settlement and Custody System (Selic) baseline reference rate from a high of 14 percent in October 2016 to 6.5 percent in March 2018. Inflation fell to 2.9 percent by year-end 2017 – lower than 3 percent floor of inflation central target set for 2017-2018, allowing for further possible monetary policy easing. In June 2017, the National Monetary Council reduced the BCB’s inflation target to 4.25 percent in 2019 and 4 percent in 2020. Because of a heavy public debt burden and other structural factors, most analysts expect the “neutral” policy rate will remain higher than target rates in Brazil’s emerging-market peers (around five percent) over the forecast period.

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

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

While local private sector banks are beginning to offer longer credit terms, state-owned development bank BNDES is a traditional Brazilian source of long-term credit. BNDES also offers export financing. BNDES lending in 2017 reached its lowest level in 18 years. Although some of this reflected a reduction in disbursements due to complications stemming from the Operacao Lavo Jato (Operation Car Wash) investigation and corruption scandal, at least half of the decline reflects a new more limited focus in BNDES lending. (For more information on BNDES’ lending programs, please see the investment incentives section.)

The Sao Paulo Stock Exchange (BOVESPA) is the sole stock market in Brazil, while trading of public securities takes place at the Rio de Janeiro market. In 2008, the Brazilian Mercantile & Futures Exchange (BM&F) merged with the BOVESPA to form what is now the fourth largest exchange in the Western Hemisphere, after the NYSE, NASDAQ, and Canadian TSX Group exchanges. At year-end, there were 344 companies traded on the BM&F/BOVESPA. Total daily trading average volume increased from R$ 7.3 billion (USD 2.3 billion) in 2015 to R$ 7.4 billion (USD 2.3 billion) in 2016. In 2000, BOVESPA launched Novo Mercado (New Market), an equities trading segment in which listed companies must comply with stricter corporate governance requirements. A majority of initial public offerings (IPOs) list on the Novo Mercado. At year-end 2017, there were 140 companies listed under the Novo Mercado program with a combined market value of USD 779 billion in 2017.

Foreign investors, both institutions and individuals, can directly invest in equities, securities, and derivatives. Foreign investors are limited to trading derivatives and stocks of publicly held companies on established markets. At year-end 2017, foreign investors accounted for 49 percent of the total turnover on the BOVESPA. Domestic institutional investors were the second most active market participants, accounting for 28 percent of activity. Individual investors comprised 17 percent of activity, followed by financial institutions (five percent), and public and private companies (one percent).

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 which remain relatively high compared to other emerging economies. Reasons cited by industry observers include high taxation, repayment risk, and concern over inconsistent judicial enforcement of contracts, high mandatory reserve requirements, and administrative overhead, as well as persistently high real (net of inflation) interest rates.

The financial sector is concentrated, with BCB data indicating that the four largest commercial banks (excluding brokerages) account for approximately 72 percent of the commercial banking sector assets. Three of the five largest banks (by assets) in the country – Banco do Brasil, Caixa Economica Federal, and BNDES – are partially or completely federally owned. Large private banking institutions focus their lending on Brazil’s largest firms, while small- and medium-sized banks primarily serve small- and medium-sized companies.

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. 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.

Foreign Exchange and Remittances

Foreign Exchange

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

Brazil’s banking system has adequate capitalization and has traditionally been highly profitable, reflecting high interest rates and fees. Per an April 2018 Central Bank Financial Stability Report, all banks exceeded required solvency ratios, and stress testing demonstrated the banking system has adequate loss absorption capacity in all simulated scenarios. Furthermore, the report noted 99.9 percent of banks already met Basel III requirements, scheduled to enter into force in 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 Finance Ministry’s Treasury Secretariat, and must be registered with the BCB.

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

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

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

Remittance Policies

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

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

Sovereign Wealth Funds

Law 11887 established the Sovereign Fund of Brazil (FSB) in 2008. It is a non-commodity fund with a mandate to support national companies in their export activities and to offset counter-cyclical development, promoting investment in projects of strategic interest to Brazil both domestically and abroad. The GOB also has the authority to use money from this fund to help meet its fiscal targets when annual revenues are lower than expected, and to invest in state-owned companies. The FSB was worth USD 4.1 billion in 2017. The Brazilian government is seeking to extinguish the FSB in order to improve its fiscal accounts.

Policies Towards Foreign Direct Investment

Brunei has an open economy favorable to foreign trade and FDI as the government continues its economic diversification efforts to limit its long reliance on oil and gas exports.

FDI is important to Brunei as it plays a key role in the country’s economic and technological development. Brunei encourages FDI in the domestic economy through various investment incentives offered by the Energy and Industry Department under the Prime Minister’s Office, and through activities conducted by the Ministry of Foreign and Trade and the Brunei Economic Development Board.

The 2018 World Bank Ease of Doing Business report indicated that Brunei’s ranking rose 16 spots from 72 in 2017 to 56 out of 190 world economies. The significant gain was largely due to removing post-incorporation procedures for starting a business, increasing transparency of the land administration system for property registration, and strengthening minority investor protections. Improving Brunei’s Ease of Doing Business ranking has been a focus for the government, and the Prime Minister’s Office has setup a special task force, referred to as “PENGGERAK” to centralize government efforts to improve this ranking.

Brunei amended its laws to make it easier and quicker for entrepreneurs and investors to establish businesses. The Business License Act (Amendment) of 2016 exempts several business activities (eateries, boarding and lodging houses or other places of public resort; street vendors and stalls; motor vehicle dealers; petrol stations including places for storing petrol and inflammable material; timber store and furniture factories; and retail shops and workshops) from needing to obtain a business license. The Miscellaneous License Act (Amendment) of 2015 reduces the wait times for new business registrants to start operations, with low-risk businesses like eateries and shops able to start operations immediately.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is no restriction on total foreign ownership of companies incorporated in Brunei. The Companies Act requires locally incorporated companies to have at least one of the two directors—or if more than two directors, at least two of them—to be ordinarily resident in Brunei, but exemptions may be obtained in some circumstances. The rate of corporate income tax is the same whether the company is locally or foreign owned and managed.

All businesses in Brunei must be registered with the Registry of Companies and Business Names at the Ministry of Finance. Foreign investors can fully own incorporated companies, foreign company branches, or representative offices, but not sole proprietorships and partnerships. Foreign ownership of companies is not restricted, although under the Companies Act, at least one of two directors of a locally incorporated company must be a resident of Brunei, unless granted an exemption by the Brunei government.

More information on incorporation of companies can be found here on the Ministry of Finance website: http://www.mof.gov.bn/index.php/incorporation-of-companies .

Other Investment Policy Reviews

The World Trade Organization (WTO) Secretariat prepared a Trade Policy Review of Brunei in December 2014 and a revision in April 2015.

Business Facilitation

As part of Brunei’s effort to attract foreign investment, several facilitating agents were established including: the Brunei Economic Development Board (BEDB), FDI Action and Support Center (FAST), and Darussalam Enterprise (DARe). These organizations work together to smoothen the process of obtaining permits, approvals and licenses. Facilitating services are now consolidated into one government website: http://business.gov.bn/ .

BEDB, the frontline agency that promotes and facilitates foreign investment into the country, works with FAST to evaluate investment proposals, liaise with government agencies and obtain project approval from the government’s Foreign Direct Investment and Downstream Industry Committee.

Outward Investment

A major share of outward investment is made by the government through its sovereign wealth funds, which are managed by the Brunei Investment Agency (BIA) under the Ministry of Finance. No data is available on the total investment amount due to a strict policy of secrecy. It is believed that the majority of sovereign wealth funds are invested in foreign portfolio investments and real estate. State-owned Brunei National Petroleum Company has also evolved into an outward foreign investor, winning tenders to explore and develop onshore blocks in Myanmar. Despite the limited availability of public information regarding the amount, the funds are generally viewed positively and managed well by BIA.

Transparency of the Regulatory System

Brunei’s regulatory system is generally seen as lacking in transparency. There is little to no transparency in lawmaking processes, nor is there any available information on whether impact assessments are made prior to proposing regulations. Each ministry is responsible for coordinating with the Attorney General’s Chambers to draft proposed legislation. Legislation does not receive broad reviews and few outside of the originating ministry are able to provide their input. The Sultan has final authority to approve proposed legislation. Laws and regulations that are in effect are readily available and accessible from the Attorney General’s Chambers.

International Regulatory Considerations

Brunei is an active member of ASEAN, through which it has concluded FTAs with Australia & New Zealand, China, India, Japan and South Korea. Brunei became a WTO member in 1995 and a signatory to the General Agreement on Tariffs and Trade (GATT) in 1993.

Legal System and Judicial Independence

Brunei’s constitution does not specifically provide for judicial independence, but in practice the court system operates without government interference. Brunei’s legal system includes parallel systems; one based on Common Law and the other based on Islamic law. In 2016, Brunei began to recognize the importance of protecting investors’ rights and contracts enforcement, and established a Commercial Court.

In 2014, Brunei implemented Phase one of three of the Sharia Penal Code (SPC), which expanded existing restrictions on minor offenses—such as eating during Ramadan—that are punishable by fines. The second phase of the SPC, which would include amputating the hands of thieves, is not scheduled to come into effect until one year after the publication of a Sharia Courts Criminal Procedure Code (CPC). Phase three of the SPC – which includes punishments, in certain situations, such as stoning to death for rape, adultery, or sodomy, and execution for apostasy, contempt of the Prophet Muhammad, or insult of the Quran – is scheduled to be implemented two years after the publication of the CPC. The punishments included in phases two and three include different standards of proof than the common law-based penal code, such as requiring four pious men to witness personally an act of fornication to support a sentence of stoning. The timing for Phases two and three remain unclear.

Laws and Regulations on Foreign Direct Investment

The basic legislation on investment includes the Investment Incentive Order 2001 and the Income Tax (As Amended) Order 2001. Investment Order 2001 supports economic development in strategically important industrial and economic enterprises and, through the Energy and Industry Department of the Prime Minister’s Office EIDPMO, offers investment incentives through a favorable tax regime. Although Brunei does not have a stock exchange, government plans to establish a securities market are reportedly under way.

Foreign ownership of companies is not restricted, although under the Companies Act, at least one of two directors of a locally incorporated company must be a resident of Brunei, unless granted an exemption from the appropriate authorities.

Business Registration

All businesses in Brunei must be registered with the Registry of Companies and Business Names at the Ministry of Finance. Except for sole proprietorships and partnerships, foreign investors can fully own incorporated companies, foreign company branches, or representative offices. Foreign direct investments by multi-national corporations may not require local partnership in setting up a subsidiary of their parent company in Brunei. However, at least one company director must be a Brunei citizen or permanent resident of Brunei. Brunei’s “one-stop-shop” website for investments and business start-ups can be found here: http://business.gov.bn/ .

Competition and Anti-Trust Laws

Brunei does not have any legislation pertaining to the regulation of competition issues. In 2015, Brunei enacted the 2015 Competition Order, to promote and maintain fair and healthy competition to enhance market efficiency and consumer welfare. The Sultan also announced the establishment of the Competition Commission to oversee and act on competition issues that includes adjudicating anti-competitive cases and imposing penalties on companies that violate the 2015 Competition Order. The Order is scheduled to be enforced in phases, starting with the prohibition of anti-competitive agreements and practices.

Expropriation and Compensation

There is no history of expropriation of foreign owned property in Brunei. There have been cases of domestically owned private property being expropriated for infrastructure development. Compensation was provided in such cases, and claimants were provided with due process regarding their disputes.

Dispute Settlement

ICSID Convention and New York Convention

Brunei is a member state to the convention on the International Center for Settlement of Investment Disputes (ICSID Convention) and a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Legislation related to dispute settlement is covered under Brunei’s Arbitration Order 2009.

Investor-State Dispute Settlement

In 2016, Brunei’s Supreme Court announced the establishment of a commercial court to deal with business-related cases. More information about Brunei’s judiciary system is available at through their website: http://www.judiciary.gov.bn/Theme/Home.aspx .

International Commercial Arbitration and Foreign Courts

In May 2016, Brunei’s Attorney General’s Chambers has announced the establishment of the Brunei Darussalam Arbitration Center (BDAC). BDAC delivers services and administration for arbitration and mediation to fulfil the needs of domestic and international users in relation to commercial disputes, as a resolution alternative to court proceedings.

The International Arbitration Order (IAO) which regulates international and domestic arbitrations came into effect in February 2010. More information about Brunei’s Attorney General’s Chambers is available on its website: http://www.agc.gov.bn/Theme/Home.aspx .

Bankruptcy Regulations

In 2012, amendments to Brunei’s Bankruptcy Act increased the minimum threshold for declaring bankruptcy from BND 500 to BND 10,000 (USD 357 to USD 7,133) and enabled the trustee to direct the Controller of Immigration to impound and retain the debtor’s passport, certificate of identity, or travel document to prevent him from leaving the country. The amendment also requires the debtor to deliver all property under his possession to the trustee. Information about Brunei’s bankruptcy laws is available on the judiciary’s website: http://judiciary.gov.bn/SJD%20Images/Bankruptcy%20leaflet.pdf .

Capital Markets and Portfolio Investment

In 2013, Brunei signed a Memorandum of Understanding (MOU) with the Securities

Commission Malaysia (SCM) to boost cooperation in the capital markets. The MOU was designed to strengthen collaboration in the development of fair and efficient capital markets in the two countries. It also provided a framework to facilitate greater cross-border capital market activities and cooperation in the areas of regulation as well as capacity building and human capital development, particularly in the area of Islamic capital markets. In March 2018, the Minister of Finance II budgeted USD 3.7 million to help launch Brunei’s stock exchange once all preconditions for such a market are met.

Money and Banking System

Brunei has a small banking sector which includes both conventional and Islamic banking. The Monetary Authority of Brunei Darussalam (AMBD) is the sole central authority for the banking sector, in addition to being the country’s central bank. Banks in the country have high levels of liquidity, good capital adequacy ratios and well-managed levels of non-performing loans. A handful of foreign banks have established operations in the country such as Standard Chartered and Bank of China (Hong Kong). In March 2018, HSBC officially ended its operations in Brunei, after announcing its planned departure from Brunei in late 2016. All banks are under the supervision of AMBD, which has also established a credit bureau that centralizes information on an applicant’s credit worthiness.

The Brunei dollar (BND) is pegged to the Singapore dollar, and each currency is accepted in both countries.

Foreign Exchange and Remittances

Foreign Exchange Policies

In June 2013, the Financial Action Task Force (FATF) announced that Brunei is no longer subject to FATF’s monitoring process under its global Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) compliance process. Brunei will work with the Asia-Pacific Group (APG) as it continues to address the full range of AML/CFT issues identified in its Mutual Evaluation Report. The report cited Brunei’s significant progress in improving its AML/CFT regime and noted that Brunei had established the legal and regulatory framework to meet its commitments in its Action Plan regarding the strategic deficiencies that the FATF identified in June 2011.

Remittance Policies

Any person or company providing services for the transmission of money must be licensed by the Brunei government. Only Brunei citizens may hold remittance licenses. Local financial institutions, including banks such as Bank Islam Brunei Darussalam (BIBD) and Standard Chartered Bank also provide remittance services Remittance companies are required their customer’s full name, identification number, address, and purpose of the remittance. They are also required to file suspicious transaction reports with the AMBD.

Sovereign Wealth Funds

The Brunei Investment Agency (BIA) manages Brunei’s General Reserve Fund and their external assets. Established in 1983, BIA’s assets are estimated to be USD 170 billion. BIA’s activities are not publicly disclosed and are ranked the lowest in transparency ratings by the Sovereign Wealth Fund Institute.

Policies Toward Foreign Direct Investment

At present, there are no general limits on foreign ownership or control of firms, nor is there screening or restricting of foreign investment in Bulgaria. Companies with more than 10 percent foreign participation are banned from doing business in Bulgaria across 28 specific activities, including in government procurement, natural resource exploitation, national park management, banking, and insurance, but certain exemptions are available.

While Bulgaria generally affords national treatment to foreign investors, there are reports of discrimination against U.S. investors by government officials. Investors more often cite general problems with corruption, rule of law, frequently changing legislation, and weak law enforcement. Transparency International’s (TI) Corruption Perception Index for 2017 ranked Bulgaria 71st out of 180 countries surveyed – the lowest-ranked EU member state. As of early 2018, the government has been openly discussing the possibility of abrogating its long-term contracts with two major U.S. investors, citing the need to adhere to EU regulatory policies. In another case, a U.S. company has been facing major regulatory, and possibly political, obstacles in its efforts to compete with an entrenched foreign incumbent in the energy market.

Limits on Foreign Control and Right to Private Ownership and Establishment

Generally, there are no existing limits for foreign and domestic private entities to establish and own a business in Bulgaria. The Offshore Company Act lists 28 activities banned for business by companies registered in offshore jurisdictions with more than 10 percent offshore participation. The law, however, allows those companies to do business if the physical owners of the parent company are Bulgarian citizens and known to the public, if the parent company’s stock is publicly traded, or if the parent company is registered in a jurisdiction with which Bulgaria enjoys a treaty for the avoidance of double taxation (such as the United States).

Other Investment Policy Reviews

There have been no recent Investment Policy Reviews of Bulgaria by multilateral economic organizations.

Business Facilitation

Bulgaria typically supports small and medium business creation and development in conjunction with EU-funded innovation and competitiveness programs and with a special emphasis on export promotion and small- and medium-sized enterprise (SME) development. Typically, a new business is expected to register an account in the government social security institute and, in some cases, with the local municipality as well. Electronic company registration is available at: https://public.brra.bg/Internal/Registration.ra?0 . Women receive equitable treatment to men, and generally Bulgarian law does not discriminate against minorities doing business.

Bulgaria ranked overall 50th (out of 190 surveyed economies worldwide) in the World Bank’s 2018 Doing Business report, ranked 95th in Starting a New Business, and had its worst ranking in the Getting Electricity category (141st place).

The Invest Bulgaria Agency (IBA), the government’s investment coordinating body, provides information, administrative services, and incentive assessments to prospective foreign investors. Its website http://www.investbg.government.bg/  contains relevant information for foreign investors.

Outward Investment

There is no government agency for outward investment promotion, and no restrictions exist for any local business to invest abroad.

Transparency of the Regulatory System

In general, the regulatory environment in Bulgaria is characterized by complexity, lack of transparency, and arbitrary or weak enforcement. These factors create incentives for public corruption. Bulgarian law defines 38 operations that must be licensed. The law requires all regulations to be justified by defined need (in terms of national security, environmental protection, or personal and material rights of citizens), and prohibits restrictions merely incidental to the stated purposes of the regulation. The law also requires the regulating authority to perform a cost-benefit analysis of any proposed regulation. This requirement, however, is often ignored when Parliament reviews draft bills. With few exceptions, all draft bills are made available for public comment, both on the central government website and the respective agency’s website and interested parties are given 30 days to submit their opinions. The government maintains a web platform, at www.strategy.bg  on which it posts draft legislation. In addition, the law eliminates bureaucratic discretion in granting requests for routine economic activities, and provides for silent consent when the government does not respond to a request in the allotted time. Local companies in which foreign partners have controlling interests may be requested to provide additional information or meet mandatory requirements in order to engage in certain licensed activities, including production and export of arms and ammunition, banking and insurance, and the exploration, development, and exploitation of natural resources. Bulgarian government licenses exports of dual-use goods and bans the export all goods under international trade sanctions lists.

International Regulatory Considerations

Bulgaria became a member of the World Trade Organization in December 1996. Under the provisions of Article 207 of the Treaty on the Functioning of the European Union (Lisbon Treaty), common EU trade policies are exclusively the competence of the EU and the European Commission, which coordinates them with the 27 member states.

Legal System and Judicial Independence

The 1991 Constitution serves as the foundation of the legal system and creates an independent judicial branch comprised of judges, prosecutors, and investigators. The judiciary continues to be the least trusted institution in the country, with widespread allegations of corruption and undue political and business influence. The busiest courts in Sofia suffer from serious backlogs, limited resources, and inefficient procedures that hamper the swift and fair administration of justice.

There are three levels of courts. Bulgaria’s 113 regional courts exercise jurisdiction over civil and criminal cases. Above them, 29 district courts (including the Sofia City Court and the Specialized Court for Organized Crime) serve as courts of appellate review for regional court decisions and have trial-level (first-instance) jurisdiction in serious criminal cases and in civil cases where claims exceed BGN 25,000 (USD 15,720), excluding alimony, labor disputes, and financial audit discrepancies, or in property cases where the property’s value exceeds BGN 50,000 (USD 31,440). Six appellate courts review the first-instance decisions of the district courts. The Supreme Court of Cassation is the court of last resort for criminal and civil appeals. There is a separate system of 28 specialized administrative courts which rule on the legality of local and national government decisions, with the Supreme Administrative Court serving as the court of final instance. The Constitutional Court, which is separate from the rest of the judiciary, issues final rulings on the compliance of laws with the Constitution.

Bulgaria has adequate means of enforcing property and contractual rights under local legislation. In practice, however, the government’s handling of investment disputes has been slow, and intervention at the highest level is often required. Investors sometimes perceive that jurisprudence is inconsistent, and that national legislation is used to deter competition from foreign investors.

Laws and Regulations on Foreign Direct Investment

The 2004 Investment Promotion Act stipulates equal treatment of foreign and domestic investors. The law encourages investment in manufacturing and high technology, as well as in education and human resource development. It creates investment incentives by helping investors purchase land, providing state financing for basic infrastructure and training new staff, and facilitating tax incentives and opportunities for public-private partnerships (PPPs) with the central and local government. The most common form of PPPs presently is concessions, which include the lease of government property for private use for up to 35 years.

Foreign investors must comply with the 1991 Commercial Code, which regulates commercial and company law, and the 1951 Law on Obligations and Contracts, which regulates civil transactions.

Competition and Anti-Trust Laws

The Commission for Protection of Competition (the “Commission”) oversees market competition and enforces the Law on the Protection of Competition (the “Competition Law”). The Competition Law, enacted in 2008, is intended to implement EU rules that promote competition and consumer protection. The law forbids monopolies, restrictive trade practices, abuse of market power, and certain forms of unfair competition. Monopolies can only be legally established in enumerated categories of strategic industries. In practice, the Competition Law has been applied inconsistently, and the Competition Commission has been seen as subject to influence and as having overstepped its mandate.

Expropriation and Compensation

Private real property rights are legally protected by the Bulgarian Constitution. Only in the case where a public need cannot be met by other means, the Council of Ministers or a regional governor may expropriate land provided that the owner is compensated at fair market value. Expropriation actions of the Council of Ministers can be appealed directly to the Supreme Administrative Court on the legality of the action itself, the property appraisal, or the amount of compensation. A regional governor’s expropriation can be appealed in the appropriate local administrative court. In the Bilateral Investment Treaty (BIT) with the United States, Bulgaria committed to international arbitration in the event of expropriation and other investment disputes.

An investment dispute with two major U.S. investors emerged in early 2018, in which the government is threatening to abrogate its long-term contracts with the companies. While the government is citing pressure emanating from EU regulatory policy, the companies view the compensation offers made by the government to date as woefully inadequate.

Dispute Settlement

ICSID Convention and New York Convention

Bulgaria is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention) and the 1961 European Convention on International Commercial Arbitration. Bulgaria is a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

Investor-State Dispute Settlement

Bulgaria accepts binding international arbitration in disputes with foreign investors. The most experienced arbitration institution in Bulgaria is the Arbitration Court (AC) of the Bulgarian Chamber of Commerce and Industry (BCCI). Established more than 110 years ago, the Arbitration Court hears civil disputes between legal persons, one of whom must be located outside Bulgaria. It began to act as a voluntary arbitration court between natural and/or legal persons domiciled in Bulgaria in 1989.

International Commercial Arbitration and Foreign Courts

Arbitral awards, both foreign and domestic, are enforced through the judicial system. The party must petition the Sofia City Court for a writ of execution. Having obtained a writ, however, the creditor must then execute the award using the general framework for execution of judgments in the country. Foreclosure proceedings may also be initiated.

Bulgarian law instructs courts to act on civil litigation cases within three months after the case is filed. However, in practice, dispute settlement can take several months and up to a few years. Courts in Sofia are typically slower than those outside the capital city and may rule on a case several years after the case has been filed. In courts outside of Sofia, it takes anywhere from several months up to a year for a case to be completed. Bankruptcy cases are the most complicated and resolution may take years.

Bankruptcy Regulations

The 1994 Commercial Code Chapter on Bankruptcy provides for reorganization or rehabilitation of a legal entity, maximizes asset recovery, and provides for fair and equal distribution among all creditors. The law applies to all commercial entities, except public monopolies or state-owned enterprises (SOEs) established by a special law. The 2005 Insurance Code regulates insurance company failures while bank failures are regulated under the 2002 Bank Insolvency Act and 2006 Credit Institutions Act. The 2014 bankruptcy of the country’s fourth largest bank, Corporate Commercial bank, was a test case that showed serious deficiencies in ensuring that bank assets are adequately recovered and preserved during bankruptcy proceedings. In 2016, Parliament approved legislative amendments intended to allow bank trustees to better manage assets while at the same time increasing their accountability.

Non-performance of a monetary obligation must be adjudicated before the bankruptcy court can determine whether the debtor is insolvent. There is a presumption of insolvency when the debtor is unable to perform an executable obligation under a commercial transaction or public debt or related commercial activities, has suspended all payments, or is able to pay only the claims of certain creditors. The debtor is deemed over-indebted if its assets are insufficient to cover its short-term monetary obligations.

Bankruptcy proceedings may be initiated on two grounds: the debtor’s insolvency, or the debtor’s excessive indebtedness. Under Part IV of the Commercial Code, debtors or creditors, including state authorities such as the National Revenue Agency, can initiate bankruptcy proceedings. The debtor must declare bankruptcy within 30 days of becoming insolvent or over-indebted. Bankruptcy proceedings supersede other court proceedings initiated against the debtor except for labor cases, enforcement proceedings, and cases related to receivables securitized by third parties’ property. Such cases may be initiated even after bankruptcy proceedings begin.

Creditors must declare to the trustee all debts owed to them within one month of the start of bankruptcy proceedings. The trustee then has seven days to compile a list of debts. A rehabilitation plan must be proposed within one month after publication of the list of debts in the Commercial Register. After creditors’ approval, the court endorses the rehabilitation plan, terminates the bankruptcy proceeding, and appoints a supervisory body for overseeing the implementation of the rehabilitation plan. The court must endorse the plan within seven days and put it forward to the creditors for approval. The creditors must convene to discuss the plan within a period of 45 days. The court may renew the bankruptcy proceedings if the debtor does not fulfill its obligations under the rehabilitation plan.

In the World Bank’s 2018 Doing Business Report, Bulgaria ranked 50 for ease of “resolving insolvency,” ahead of three other EU peers, Romania, Greece and Croatia.

Capital Markets and Portfolio Investment

Since 1997, the Bulgarian Stock Exchange (BSE) has operated under a license from the Securities and Stock Exchange Commission (SSEC). The 1999 Law on Public Offering of Securities regulates the issuance of securities, securities transactions, stock exchanges, and investment intermediaries.

Since its 2007 entry in the EU, Bulgaria has aligned its regulation of securities markets with EU standards under the Markets in Financial Instruments Directive (MiFID). The BSE is the only securities-trading venue in Bulgaria. Its infrastructure has substantially improved in recent years, including the establishment of an official index (SOFIX), an Internet-based trading system, and a growing number of brokers. The BSE allows trading of stocks, government bonds, corporate bonds, Bulgarian Depositary Receipts, municipal bonds, and mortgage-backed securities. Three other indices have appeared in addition to the official SOFIX: BG40, BG TR30, and BGREIT. Capital gains from securities transactions are not subject to withholding tax; the tax on dividends and liquidation proceeds is five percent. The BSE’s total market capitalization, although still small, more than doubled in 2017, reaching 24 percent of Bulgaria’s GDP, as companies issued more stock. The Ministry of Finance holds a majority stake of 50.05 percent in the BSE, with the remaining shareholders – local and international institutional investors and private persons – each controlling less than five percent of the capital.

Money and Banking System

In 2017, there were 27 commercial banks (22 subsidiaries and 5 branches), with total assets of BGN 95.1 billion (USD 59.8 billion), 96.4 percent of GDP. Approximately 73 percent of the banking system is owned by foreign banking groups, mostly EU, including UniCredito Italiano SpA (UCI), BNP PARIBAS, KBC, Societe Generale, Raiffeisen International, OTP Group, and Citibank. The top five bank concentration rate in 2017 was 56.3 percent. Part of Bulgarian banking system is currently going through asset consolidation. Some of the smaller actors in the banking sector have recently been offered for sale.

The Bulgarian government finances some of its expenditures by issuing bonds (generally Euro-denominated) in capital markets. Commercial banks and private pension funds are the primary purchasers of these instruments. EU-based banks are eligible to be primary dealers of Bulgarian government bonds. In order to acquire Bulgarian government bonds, a foreign bank must register with the Ministry of Finance and open a “custody account” in Bulgarian leva. The Investment Promotion Act defines securities, including treasury bills, with maturities over six months as investments. Repatriation of profits is possible after presenting documentation that taxes have been paid.

Foreign Exchange and Remittances

Foreign Exchange Policies

Bulgaria operates a Currency Board Arrangement (CBA) whereby the lev (BGN) is fixed to Euro, exchanging EUR 1 for BGN 1.9558. Foreign exchange is freely accessible. The Foreign Currency Act stipulates that anyone may import or export up to EUR 10,000 or its foreign exchange equivalent without filling out a customs declaration. The import or export of over EUR 10,000 or its equivalent in Bulgarian leva or another currency across the border to or from a non-EU country must be declared to the customs authorities; in the case of an EU country, it must be declared if requested by the customs authorities. Exporting over BGN 30,000 (USD 18,800) in cash requires a declaration about the source of the funds, supported by documents certifying that the exporter does not owe taxes (unless the funds were earlier imported and declared).

In 2014, United States and Bulgaria signed an intergovernmental agreement that implements provisions of the Foreign Account Tax Compliant Act (FATCA), which targets tax non-compliance by U.S. persons who do business with Bulgarian financial institutions. The Parliament ratified the agreement in 2015.

Remittance Policies

There is no official policy regarding remittances. Remittances as personal transfers are an increasingly important source of funding for Bulgarian families with relatives overseas. According to official statistics, foreign remittances amounted to nearly a billion dollars in 2017 (a figure that does not include transfers via informal channels).

Sovereign Wealth Funds

Bulgaria does not have a sovereign wealth fund.

Policies Toward Foreign Direct Investment

In his state of the nation address at the National Assembly on April 12, 2018, Prime Minister Paul Kaba Thieba expressed his desire to improve Burkina Faso’s standing on the World Bank’s “Doing Business” index (Burkina Faso is currently ranked 148 out of 190 countries, a drop of two places from 2017). In this vein, a series of reforms were also announced as part of a global strategy to make the national economy viable and competitive. These measures seek to align Burkina Faso’s business climate with international best practices. The goal is to become one of the top 10 African countries on the World Bank rankings.

In early December 2016, the Government held a donor conference in Paris to raise funds for its new socio-economic development plan, known by its French acronym, PNDES. During the conference, partners pledged roughly USD 13 billion of funding for the PNDES, which is 40 percent more than expected, although this amount includes already promised support and other items such as loan guarantees. Topping off these commitments were three partnership agreements with the European Union (EU), France, and Luxembourg, the largest of these from the EU. With a total commitment of EUR 800 million (USD 860 million), the EU will finance a project for good governance and development as well as support the sectoral policy on water and sanitation.

Limits on Foreign Control and Right to Private Ownership and Establishment

Burkina Faso is a member of the Organization for the Harmonization of Corporate Law in Africa (OHCLA). All the Uniform Acts enacted by this organization are applicable in the country. Regarding business structures, OHCLA allows most forms of companies admissible under French business law, including: public corporations, limited liability companies, limited share partnerships, sole proprietorships, subsidiaries, and affiliates of foreign enterprises. With each scheme, there is a corresponding set of related preferences, duty exceptions, corporate tax exemptions, and operation-related taxes.

Under the investment code, all personal and legal entities lawfully established in Burkina Faso, both local and foreign, are entitled to the following rights: fixed property; forest and industrial rights; concessions; administrative authorizations; access to permits; and participation in state contracts.

Burkina Faso’s National Assembly passed a law in 2012 establishing a special tax and customs regime for investment agreements signed by the state with large investors. This scheme provides significant tax benefits. Burkina Faso further strengthened the legal and institutional framework for investment through the adoption in May 2013 of general investment guidelines. This included the creation of a deposit institution that provides financing for small and medium-sized enterprises, public-private partnerships, and real estate investments, among others.

U.S. investors are not specifically targeted regarding ownership or control mechanisms.

Other Investment Policy Reviews

There have been no recent investment policy reviews by the WTO or UNCTAD. In July 2014, the organizations Reseau Africain de Journalistes pour l’Integrite et la Transparence and the Natural Resource Governance Institute published a report entitled Impact of Tax and Customs Regimes on the Mining Sector and on the EITI Reports in Burkina Faso.

Business Facilitation

In March 2013, the GoBF created the Burkina Faso Investment Promotion Agency (API-BF). The establishment of the Presidential Council fulfilled recommendations of a 2009 UNCTAD Investment Policy Review. The website is www.investburkina.com .

To simplify the registration process for companies wishing to establish a presence in Burkina Faso, the government has created eight enterprise registration centers called Centres de Formalites des Entreprises, known by their French acronym as CEFOREs. The CEFOREs are one-stop shops for company registration. On average, a company can register its business in 13 days with three procedures. The CEFOREs are located in Ouagadougou, Bobo-Dioulasso, Ouahigouya, Tenkodogo, Koudougou, Fada N’Gourma, Kaya, Dedougou and Gaoua.

In 2018, Burkina Faso strengthened protections for minority investors by enhancing access to shareholder actions and by increasing disclosure requirements on related-party transactions. This helped Burkina move up one place to 146 of 189 in the World Bank rankings on Protecting Minority Investors.

Other sites of interest:

Chamber of Commerce business registration:
http://cci.bf/?q=fr/creation-dentreprise 

Mining Chamber of Commerce:
http://chambredesmines.bf/ 

Investment Promotion Agency of Burkina Faso or
l’Agence de Promotion des Investissements du Burkina Faso (API-BF):
http://www.investburkina.com 

Tax and administrative procedures:
https://burkinafaso.eregulations.org/ 

World Bank Investing Across Borders:
http://iab.worldbank.org/data/exploreeconomies/burkina-faso 

Among the 21 countries covered by the World Bank’s Investing across Sectors indicators in the Sub-Saharan Africa region, Burkina Faso is one of the more open economies to foreign equity ownership. Most of its sectors are fully open to foreign capital participation, although the law requires companies providing mobile or wireless communication services to have at least one domestic shareholder. Furthermore, the state automatically owns 10 percent of the shares of all companies active in the mining sector. The government is entitled to nominate one member of the board of directors for such companies. Select additional strategic sectors are characterized by monopolistic market structures. In particular, the oil and gas sector, the electricity transmission and distribution sectors, and the fixed-line telephony sector are dominated by publicly owned enterprises, making it difficult for foreign investors to engage.

Outward Investment

The Burkinabe Government tries to promote outward investment via the Investment Promotion Agency of Burkina Faso or L’Agence de Promotion des Investissements du Burkina Faso (API-BF), which sits under the Presidential Council for Investment (Conseil Presidentiel pour l’Investissement). The API-BF’s mission is to promote the economic potential of Burkina Faso to attract investment and spur economic development.

Burkina Faso currently imposes no restrictions for investors interested in investing abroad, within the framework of the Economic Community of West African States (ECOWAS) and West African Economic and Monetary Union (WAEMU) regional markets.

Transparency of the Regulatory System

The government of Burkina Faso aims for transparency in law and policy to foster competition. By law, prices of goods, and services must be established according to fair and sound competition. The government believes that cartels, the abuse of dominant position, restrictive practices, refusal to sell to consumers, discriminatory practices, unauthorized sales, and selling at a loss are practices that distort free competition.

At the same time, the price of some staple goods and services are still regulated by the government, including fuel, essential generic drugs, tobacco, cotton, school supplies, water, electricity, and telecommunications.

There are regulatory authorities for government procurement, for electronic communication and posts, for electricity, and for quality standards.

Provinces and municipalities have the power to regulate in their jurisdiction, but that regulation has a minimal effect on business entities. There are several regulatory bodies at the national level and they usually internalize regulations enacted by international organizations. Regulations exist at the supra-national level mostly through WAEMU and ECOWAS.

Burkina Faso’s legal, regulatory, and accounting systems are transparent and consistent with international norms. Since January 2018, Burkina Faso as an OHADA member state adopted the revised version of the SYSCOHADA. It is composed of the Uniform Act on Accounting and Financial Law (AUDCIF); the OHADA General Accounting Plan (PCGO); the SYSCOHADA application guide, and the International Financial Reporting Standards (IFRS) application guide. The SYSCOHADA complies with the IFRS norms.

There is no online Regulatory Disclosure.

International Regulatory Considerations

Burkina Faso is a member of the West African Economic Monetary Union (WAEMU) and the Economic Community of West African States (ECOWAS). There is a supranational relationship between these organizations and their state members. Burkina Faso is also a member of the Organization for the Harmonization of Corporate Law in Africa (OHCLA). As such, Uniform Laws adopted by the OHCLA are automatically part of the national legal system.

The Government of Burkina Faso regularly notifies all the draft technical barriers to the relevant WTO Committee. In the October 2017 Trade Policy Review, the WTO congratulated WAEMU countries for their continued efforts to improve their international trading environment, especially through the implementation of the Trade Facilitation Agreement (TFA). Burkina Faso has begun the ratification process of the TFA but it has not yet completed it. However, WAEMU and ECOWAS members already implement many of the TFA provisions.

Legal System and Judicial Independence

Burkina Faso’s legal, regulatory, and accounting systems are transparent and consistent with international norms. Burkina Faso adheres to the West African Economic and Monetary Union’s accounting system, (Systeme Comptable Ouest Africain or SYSCOA). Introduced in 1998, SYSCOA allows enterprises to use a common accounting system. SYSCOA complies with international norms in force and is a source of economic and financial data.

Laws and Regulations on Foreign Direct Investment

The investment code, revised in 2010, 2012 and 2013, demonstrates the government’s interest in attracting FDI to create industries that produce export goods and provide training and jobs for its domestic workforce. The code provides standardized guarantees to all legally established firms operating in Burkina Faso, whether foreign or domestic. It contains four investment and operations preference schemes, which are equally applicable to all investments, mergers, and acquisitions. In light of the policy declaration of the Prime Minister and his background in the finance sector, it is likely that the investment code will be revised again. Moreover, there is a draft investment code being prepared for the agricultural sector. In addition, an investment code for the development of the oil sector is currently under discussion.

Burkina Faso’s regulations governing the establishment of businesses include most forms of companies admissible under French business law, including: public corporations, limited liability companies, limited share partnerships, sole proprietorships, subsidiaries, and affiliates of foreign enterprises. With each scheme, there is a corresponding set of related preferences, duty exceptions, corporate tax exemptions, and operation-related taxes.

Under the investment code, all personal and legal entities lawfully established in Burkina Faso, both local and foreign, are entitled to the following rights: fixed property; forest and industrial rights; concessions; administrative authorizations; access to permits; and participation in state contracts.

Competition and Anti-Trust Laws

Competition matters are reviewed by the National Commission for Competition and Consumption (Commission Nationale pour la Concurrence et la Consommation). Some competition matters are under the aegis of the West African Economic and Monetary Union (WAEMU).

Expropriation and Compensation

The Burkinabe constitution guarantees basic property rights. These rights cannot be infringed upon except in the case of public necessity, as defined by the government. This has rarely occurred. Until 2007, all land belonged to the government, but could be leased to interested parties. The government reserves the right to expropriate land at any time for public use. In instances where property is expropriated, the government must compensate the property holder in advance, except in the event of an emergency.

In 2007, Burkina Faso drafted a national land reform policy that recognizes and protects the rights of all rural and urban stakeholders to land and natural resources. It also clarifies the institutional framework for conflict resolution at a local level, establishes a viable institutional framework for land management, and strengthens the general capacities of the government, local communities and civil society on land issues.

A 2009 rural land management law provides for equitable access to rural lands in order to promote agricultural productivity, manage natural resources, encourage investment, and reduce poverty. It enables legal recognition of rights legitimated by traditional rules and practices. In rural areas, traditional land tenure rules have long governed land transactions and allocations. The 2009 law reinforces the decentralization and devolution of authority over land matters, and provides for formalization of individual and collective use rights and the possibility of transforming these rights into private titles.

In 2012, the government revised the 2009 law, marking the end of exclusive authority of the state over all land. It includes provisions to recognize local land use practices. The new law provides conciliation committees to resolve conflicts between parties prior to any legal action. There are several property rights recognition and protection acts, such as land charters, individual or collective land ownership certificates, and loan agreements that govern the nature, duration and counterparties for transfer rights between a landowner and a third party.

The first (2010-2014) Millennium Challenge Corporation (MCC) compact supported the establishment of local authorities and the issuance of titles as part of the land tenure reform process. USAID continues to support the decentralization of land policy, through the establishment of the National Land Observatory, which produces, collects, and distributes information on national/local land tenure issues to aid in government decision-making.

As of this date, we are not aware of any outstanding cases of expropriation. However, there is an arbitration case pending before the International Chamber of Commerce between the Government of Burkina Faso and the private company Pan African Minerals concerning the disposition of a manganese mine in the northern part of the country.

The Global Economy website rates the expropriation risk of Burkina Faso at 5 (1 = low; 7 = high).

Dispute Settlement

ICSID Convention and New York Convention

The ICSID Convention entered into force for Burkina Faso on October 14, 1966. In the event that an amicable settlement of a dispute between the government and an investor cannot be reached, the investment code requires that arbitration procedures be submitted to international arbitration under the rules outlined by the 1965 Convention of the International Center for Settlement of Investment Disputes (ICSID), of which Burkina Faso is a member.

When the ownership of a company does not meet the nationality requirements laid out by Article 25 of the Convention, the code specifies that the dispute be resolved in accordance with the dispositions of the supplementary mechanisms approved by ICSID in September 1978.

Investor-State Dispute Settlement

Burkina Faso is a party to the Washington Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards and outlines arbitration procedures in its investment code as a means of solving investment disputes. BITs signed by Burkina Faso provide for international arbitration. Burkinabe courts accept international arbitration as a means for settling investment disputes between private parties. Longstanding disputes that remain unresolved after administrative jurisdictional hearings may be submitted to arbitration. Burkinabe courts recognize and enforce foreign arbitral awards.

International Commercial Arbitration and Foreign Courts

Mediation and conciliation are available and encouraged in Burkina Faso. In 2006, Burkina Faso introduced specialized commercial chambers in the general courts and in 2007 opened the Arbitration, Mediation and Resolution Center (Centre d’Arbitrage, de Mediation et de Conciliation de Ouagadougou (CAMCO)) under the auspices of the Chamber of Commerce and Industry. (http://www.camco.bf/ ). If a dispute is not settled by the CAMCO, the case can be referred to international bodies such as the International Chamber of Commerce of Paris.

Burkina Faso is not a member of the Apostille Convention. Consequently, any arbitral award rendered abroad should receive an exequatur before enforcement.

Bankruptcy Regulations

Burkina Faso being a member of the OHADA, the Uniform Act on Bankruptcy is applicable.

There is no credit bureau in Burkina Faso. The country is ranked 104 out of 190 countries for Resolving Insolvency in the World Bank’s 2018 Doing Business report.

Capital Markets and Portfolio Investment

The government of Burkina Faso is more focused on attracting FDI and concessionary lending for development than it is on developing its capital markets. Net portfolio inflows were estimated at around 0.1 percent of GDP in 2017, while FDI was about 2.9 percent, according to Standard & Poor’s. While the government does issue some sovereign bonds to raise capital in the WAEMU regional bond market, in general the availability of different kinds of investment instruments is extremely limited.

Money and Banking System

The banking system is sound, relatively profitable and well capitalized, but credit is highly concentrated to a small number of clients and a few sectors of the economy, according to the IMF’s March 2018 Country Report. Only 15 percent of the population has a checking account. Like all member states of WAEMU, Burkina Faso is a member of the Central Bank of West African States. Many foreign banks have branches in the country. The traditional banking sector is composed of twelve commercial banks and five specialized credit institutions called etablissements financiers. The use of mobile money is becoming more prevalent.

Foreign Exchange and Remittances

Foreign Exchange Policies

Burkina Faso is a member of the West African Economic and Monetary Union (WAEMU, or UEMOA when referred to by its French acronym), whose currency is the CFA franc (XOF), or FCFA. The FCFA is freely convertible into euros at a fixed rate of 655.957 FCFA to 1 euro. Investors should consider the advantages offered by the WAEMU, which allows the FCFA to be used in all eight member countries: Senegal, Togo, Cote d’Ivoire, Mali, Benin, Guinea Bissau, Niger, and Burkina Faso.

Burkina Faso’s investment code guarantees foreign investors the right to the overseas transfer of any funds associated with an investment, including dividends, receipts from liquidation, assets, and salaries. Such transfers are authorized in the original currency of the investment. Once the interested party presents the request for transfer, accompanied by all relevant bank documents, Burkinabe banks transfer the funds directly to the recipient banking institution. Foreign exchange is readily available at all banks and most hotels in Ouagadougou and Bobo-Dioulasso.

Remittance Policies

The GoBF is not expected in the near future to change its current remittance policy concerning purchasing foreign currency in order to repatriate profits or other earnings.

As a member of a regional currency union (WAEMU), Burkina Faso does not engage in currency manipulation.

Burkina Faso is a member of the Intergovernmental Action Group against Money Laundering in West Africa (GIABA), a FATF-style regional body.

Sovereign Wealth Funds

Burkina Faso does not have a sovereign wealth fund.

Policies Towards Foreign Direct Investment

Burma is open to foreign investors. In 2016, Burma passed the new Myanmar Investment Law (MIL) to attract more investment from both foreign and domestic businesses. The MIL is intended to simplify the rules and regulations for investment and bring Burma more in line with international standards. The government actively sought the advice of international experts and lawyers and held public consultations to help draft rules and regulations that were released on April 1, 2017, when the law went into effect. Burma also has three Special Economic Zones (SEZs) to encourage development and investment, and is continuing to expand those SEZs as they reach capacity.

The new Myanmar Companies Law will go into force in August 2018. It updates and streamlines business regulations. Pursuant to the new law, the government expects to launch a new online registry which should improve the investment climate if it is implemented well. The updated law will make it easier to start and operate small businesses, and provide the government with tools to enforce corporate governance rules and regulations. Foreign investment of up to 35 percent will be allowed in domestic companies—which will also open the stock exchange to limited foreign participation.

There is no evidence that the Myanmar Investment Commission (MIC) discriminates against foreign investors. The MIL includes a “negative list” of prohibited, restricted, and special sectors.

The Directorate for Investment and Company Administration (DICA) is Burma’s investment promotion agency. One of DICA’s roles is to encourage and facilitate both foreign and local investment by providing information, fostering coordination and networks between investors and continually exploring new opportunities in Burma that would benefit both the nation and the business community. DICA added an “Americas Desk” in 2016 to facilitate and support U.S. direct investment in Burma.

The government engages with chambers of commerce and foreign companies to maintain a dialogue with investors. In June 2017, MIC announced prioritized sectors related to agriculture and livestock, power, education, health care, logistics, construction for affordable housing, export promotion industries, import substitution industries, aircraft and airports, and establishment of industrial estate and urban areas both for foreign and Burmese investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

The MIL went into effect in April 2017 and applies to all investment in Burma, both domestic and foreign. According to the MIL, some investments require a permit while others do not. The MIL also lists specific sectors where tax incentives are available. Under the MIL, foreign investors are now able to enter into long term leases. The MIL revised restrictions on investment to liberalize investment. Section 42 of the MIL lists types of investment activities that only the Union government can undertake; that are not permitted for foreign investors; that are permitted only as a joint-venture with resident citizens or citizen-owned entities; and that are subject to specifically prescribed conditions (e.g. approval from relevant ministries).

When forming or registering a business in Burma, generally two options exist: (i) registration under the 1914 Companies Act only or (ii) registration as an MIC-company under the MIL (with registration under the 2014 Special Economic Zone Law for businesses located in a Special Economic Zone as a third option). Under the MIL, investors involved in the following businesses must still submit a proposal to the MIC and apply for a permit: businesses/investment activities that are strategic for the Union; large capital intensive investment projects; projects which have large potential impacts on the environment and local communities; businesses/investment activities that use state-owned land and buildings; and/or businesses/investment activities that the government designates as requiring the submission of a proposal to the MIC.

The State-Owned Economic Enterprises Law, enacted in March 1989 and still in effect today, also regulates certain investments and economic activities. The previous government drafted a privatization law; the current government plans to merge this with a new state-owned enterprise (SOE) law, with discussions underway at the Ministry of Planning and Finance. As the government has encouraged more private sector development, however, SOEs are increasingly less important parts of the economy. While the 1989 law stipulated that SOEs have the sole right to carry out a range of economic activities, including teak extraction, oil and gas, banking and insurance, and electricity generation, in practice many of these areas are now open to private sector development.

The 2016 Rail Transportation Enterprise Law allows, for instance, foreign and local businesses to make certain investments in railways, including in the form of public-private partnerships.

More broadly, the MIC, “in the interest of the State,” can make exceptions to the SOE law. The MIC has routinely granted numerous exceptions including through joint ventures or special licenses in the areas of banking (for domestic investors only), mining, petroleum and natural gas extraction, telecommunications, radio and television broadcasting, and air transport services.

The Burmese military is associated with the Union of Myanmar Economic Holdings, Ltd. (UMEHL) and runs the Myanmar Economic Corporation (MEC), two large conglomerates with many commercial interests. As government policies continue to allow for greater private sector involvement in the economy, the market share of these conglomerates is decreasing.

Other Investment Policy Reviews

The OECD conducted an investment policy review of Burma in March 2014. The entire report can be found at: http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdf .

The World Trade Organization (WTO) conducted a trade policy review of Burma in March 2014. The entire report can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp393_e.htm .

The World Bank’s Doing Business 2017 report includes an analysis of Burma’s investment sectors and business environment, and can be found at: http://www.doingbusiness.org/data/exploreeconomies/myanmar/ 

The World Bank also conducted an enterprise survey of Burma in 2016, the results of which can be found at: http://www.enterprisesurveys.org/data/exploreeconomies/2016/myanmar 

Business Facilitation

The Directorate of Investment and Company Administration (DICA) website (http://www.dica.gov.mm/ ) provides information on how to register a business in Burma. Registration is the first step a businessperson must take before incorporating a company or making an investment in Burma, whether that person is a citizen of Burma or a foreigner. In accordance with the Myanmar Companies Act of 1914 and the Special Companies Act of 1950, a company may register in one of the following forms: as a private or public company by Burmese citizens, as a foreign company or branch of a foreign company, as a joint venture company, or as an association/nonprofit organization. First steps include checking availability of the company name at DICA, obtaining company registration forms at DICA and paying a stamp duty, and submitting the forms and paying a company registration fee. Under the new Companies Law, signed in December 2017 and expected to go into force August 2018, company registration will be available online and the process will be simplified. In addition to liberalization of corporate structures and the standardization of corporate governance rules, registration fees will be reduced along with regulations over small- and medium-sized business. The law will also eliminate the need for companies to get a “permit to trade,” removing an obstacle businesses faced under the old version of the law.

The MIC is responsible for verifying and approving investment proposals and regularly issues notifications about sector-specific developments. The MIC is comprised of representatives and experts from government ministries, departments and governmental and non-governmental bodies. Companies can use the DICA website to retrieve information on requirements for MIC permit applications and submit a proposal to the MIC. If the proposal meets the criteria, it will be accepted within 15 days. If accepted, the MIC will review the proposal and reach a decision within 90 days. The MIC issued a statement in March 2016 granting authority to state and regional investment committees to approve any investment with capital of under USD 5 million. Such investments no longer need to seek approval from the MIC.

To attract foreign and domestic investors, the MIC has released lists of townships that fall under three different zones/categories: underdeveloped, moderately developed, and adequately developed. Investors will receive a tax break of seven years, five years or three years when they make investments in these respective zones. A total of 166 townships fall under the least developed zone category. In 2017, DICA expanded its presence throughout Burma to support companies and promote investment in of all the country’s states and regions.

Outward Investment

Burma does not promote outward investment, not does it restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Burma lacks regulatory and legal transparency. In the past, all existing regulations were subject to change with no advance or written notice, and without opportunity for public comment. Some Ministries now engage in public consultation before promulgating bills or issuing new regulations. For instance, the 2016 Investment Law was presented to the public and open for comments, including the drafting of the rules and regulations, which went through three rounds of public consultations. While there is no legal requirement to have public consultation, 75 percent of parliamentarians are elected representatives of their constituencies and are expected to respond to public engagement. An active and vocal civil society, alongside advances in press freedom, also results in more public discourse about proposed legislation and regulations than in the past.

The government of Burma publishes information online on government websites and has established websites through which businesses can access trade information. The Ministry of Commerce publishes a weekly Commerce Journal and a monthly Trade News booklet, providing trade-related information, and in May 2016, launched the National Trade Portal. The government of Burma publishes new regulations and laws in government-run newspapers and “The Burma Gazette.” Burma has issued the annual Citizen Budget in the Burmese language since FY 2015-16. The Ministry of Planning and Finance has published quarterly budget execution reports, six-month overview of budget execution reports and annual budget execution reports on its website since FY 2015-16. (See http://www.mof.gov.mm/my/ ) The Burmese government also publishes its debt obligation report on the Treasury Department’s Facebook page. (See https://www.facebook.com/pages/biz/Treasury-Department-of-Myanmar-777018172438019/ ). For more information on Burma’s regulatory transparency see http://rulemaking.worldbank.org/data/explorecountries/myanmar .

As part of the government’s commitment to transparency of its regulatory system, Burma became a candidate country in the Extractive Industries Transparency Initiative in 2014, and on January 2, 2016 Burma’s Extractive Industries Transparency Initiative (EITI) National Coordination Office, a global standard for the promotion of revenue transparency, submitted the country’s first EITI report covering three sub-sectors for 2013-2014 – Oil and Gas, Gems and Jade, and other minerals. The government announced its new EITI authority, the administrative body for the EITI process, in December 2016. In March 2018, the government published its second and third reports for FY 2014/15 and FY 2015/16 FY; a forestry sector report is expected in June 2018. (See https://eiti.org/myanmar , http://myanmareiti.org/my/meiti-reconciliation-report-2014-2015-0 , and http://myanmareiti.org/my/meiti-reconciliation-report-2015-2016 )

International Regulatory Considerations

In 2016, the Ministry of Commerce launched its new National Trade Portal and Repository, an online platform that has all of Burma’s laws, processes, forms, and points of contact for trade. This portal represents increased transparency in Burma and also meets Burma’s requirements under Articles 12 and 13 of the ASEAN Trade in Goods Agreement. While Burma is not in compliance with WTO notification requirements, the government developed a WTO notification strategy that is expected to go into effect in 2018. This should increase the number and quality of notifications. More information on the Trade Portal can be found at: http://www.myanmartradeportal.gov.mm/index.php .

Legal System and Judicial Independence

Burma’s legal system is a unique combination of customary law, English common law and statutes introduced through the pre-independence India Code, and post-independence Burmese legislation. Where there is no statute regulating a particular matter, courts are to apply Burma’s general law, which is based on English common law as adopted and molded by Burmese case law. Every state and region has a High Court, with lower courts in each district and township. High Court judges are appointed by the President while district and township judges are appointed by the Chief Justice through the Office of the Supreme Court of the Union. The Union Attorney General’s law officers (prosecutors) operate sub-national offices in each state, region, district, and township.

The Attorney General enforces standards of due process in the criminal justice system and provides the government’s law officers with a mandate to act as an independent check in the criminal justice system. The Ministry of Home Affairs, led by a minister appointed by the Commander-in-Chief but reporting to the President, retains oversight of the Myanmar Police Force, which files cases directly with the courts. While foreign companies have the right to bring cases to and defend themselves in local courts, there are concerns about the impartiality and lack of independence of the courts.

In order to address the concerns of foreign investors regarding dispute settlement, the government acceded in 2013 to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). In 2016, Burma’s parliament enacted the much-anticipated Arbitration Law, putting the New York Convention into effect and replacing arbitration legislation that was more than 70 years old. Since April 2016, foreign companies can pursue arbitration in a third country. However, the Arbitration Law does not eliminate all risks. There is still little track record of enforcing foreign awards in Burma and inherent jurisdictional risks remain in any recourse to the local legal system. The new Arbitration Law however brings Burma’s legislation more in line with internationally accepted standards in arbitration.

Laws and Regulations on Foreign Direct Investment

The MIC plays a leading role in the regulation of foreign investment, and approves all investment projects receiving incentives except those in special economic zones, which are handled by the Central Working Body, set up under the existing Special Economic Zone Law. Joint ventures between foreign investors and SOEs are the responsibility of the relevant line ministries. There is no evidence that the MIC discriminates against foreign investors.

The MIL outlines the procedures the MIC must take in considering foreign investments. Investment approvals are made on a case-by-case basis. The MIC evaluates foreign investment proposals and stipulates the terms and conditions of investment permits. To obtain an investment permit, the investor must submit a proposal in the prescribed form to the MIC, together with supporting documentation including details of intended activities and the financial credibility of the company/individual; an undertaking not to engage in trading activities; and annual reports for the last two financial years, or copies of the company’s head office’s balance sheet and profit-and-loss account for the last two financial years, notarized by the Burmese Embassy in the country where the company is incorporated. The MIC accepts or rejects an application within 15 days, and decides whether to approve the proposal within 60 days. In November 2015, the government’s Cabinet approved an Environmental Impact Assessment Procedure. The Chairman of the MIC gives the final approval.

The MIC does not record foreign investments that do not require MIC approval. Joint ventures with military controlled enterprises require MIC approval and abide by the same rules as other investments. Many smaller investments may also go unrecorded. Once licensed, foreign firms may register their companies locally, use their permits to obtain resident visas, lease cars and real estate, and obtain import and export licenses from the Ministry of Commerce. Foreign companies may register locally without an MIC license, in which case they are not entitled to receive the benefits and incentives provided for in the MIL. Many import and export licenses requirements have been removed since 2014; for more information see http://www.myanmartradeportal.gov.mm/?r=site/display&id=13 

More information on the MIC and DICA can be found at: http://www.dica.gov.mm/en/apply-mic-permit 

Competition and Anti-Trust Laws

A Competition Law was passed on February 24, 2015, and went into effect on February 24, 2017. The objective of the law is to protect public interest from monopolistic acts, limit unfair competition, and prevent abuse of dominant position and economic concentration that weakens competition. Specifically, the Competition Law sets a foundation for creation of a regulatory body with investigative and adjudicative powers, addresses the three standard pillars of competition law (agreements that restrain competition, abuse of dominance and mergers) as well as unfair trade practices, and establishes a comprehensive penalty regime.

The law classifies four types of behavior as sanctionable violations: acts restricting competition (applicable to all persons); acts leading to monopolies (applicable only to entrepreneurs); unfair competitive acts (applicable only to entrepreneurs); and business combinations such as mergers. The law also restricts the production of goods, market penetration, technological development and investment, although the government may exempt restrictive agreements “if they are aimed at reducing production costs and benefit consumers” such as reshaping the organizational structure and business model of a business so as to improve its efficiency; enhancing technology and technological advances for the improvement of the quality of goods and service; and promoting competitiveness of small- and medium-sized enterprises.

Burma is not party to any bilateral or regional agreement on anti-trust cooperation.

Expropriation and Compensation

According to the OECD’s 2014 investment policy review, Burma’s “expropriation regime . . . does not appear to protect investors against indirect expropriations.” In addition, it reports that Burma has not incorporated the principle of non-discrimination into its investment framework. Other than a constitutional safeguard that states that the government will not nationalize economic enterprises, there is no specific provision in Burma’s legislation against expropriation without compensation. The 2016 MIL prohibits nationalization and states that foreign investments approved by the MIC will not be nationalized during the term of their investment. In addition, the law guarantees that the government of Burma will not terminate an enterprise without reasonable cause, and upon expiry of the contract, the government of Burma guarantees an investor the withdrawal of foreign capital in the foreign currency in which the investment was made. Finally, the law states that “the Union government guarantees that it shall not cease an investment enterprise operating under a Permit of the Commission before the expiry of the permitted term without any sufficient reason.”

The new Companies Law will replace a colonial-era Myanmar Companies Act from 1914, simplifying requirements for small and family-owned businesses, improving corporate governance standards and removing outdated regulations. The new law will also allow foreign investors to hold 35 percent of shares in Burmese firms. The authorities hope this will make it easier for local companies to attract international funding and expertise. The new legislation will not automatically treat companies with a degree of foreign ownership differently. The Director General of DICA said foreign-owned companies will be defined as those where foreign ownership exceeds 35 percent, but that the Ministry of Finance and Planning can change this ratio as the economy develops. This law would also allow foreigners to buy shares on the new Yangon Stock Exchange for the first time.

Dispute Settlement

ICSID Convention and New York Convention

Burma is not a party to the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID). In 2016, the Burmese parliament enacted the Arbitration Law, putting the 1958 New York Convention into effect (see international arbitration below).

Investor-State Dispute Settlement

To date, Burma has not been party to any investment dispute. In addition, Burma has not been party to any dispute settlement proceeding at the WTO.

International Commercial Arbitration and Foreign Courts

The new 2016 Arbitration Law is based on the UNCITRAL Model Law (Model Law), addressing arbitration in Burma as well as the enforcement of a foreign award in Burma. For example, the provisions relating to the definition of an arbitration agreement, the procedure of appointing arbitrator(s) and the grounds for setting aside an award, are mirrored in the Arbitration Law and the Model Law; however there are some differences between these two laws. For instance, while parties are free to decide on the substantive law in an international commercial arbitration, the Arbitration Law provides that arbitrations seated in Burma must adopt Burmese law as the substantive law if those arbitrations do not fall within this definition. This may create uncertainty as to what can be defined as an international commercial dispute, such that parties are allowed to adopt any foreign law as substantive law under this provision. According to the Arbitration Law, foreign arbitral awards can be enforced if they are the result of a commercial dispute and were made at a place covered by international conventions connected to Burma and as notified in the State Gazette by the President. If the Burmese court is satisfied with the award, it has to enforce it as if it were a decree of a Burmese court. While observers note that there are still issues to be ironed out, the Arbitration Law brings Burma’s legislation much closer to international arbitration standards and legislation.

Bankruptcy Regulations

There is no bankruptcy law in Burma. Existing, antiquated insolvency laws – such as The Insolvency Act of 1910 and The Insolvency Act of 1920 – are rarely used.

Capital Markets and Portfolio Investment

Burma has very small publicly traded equity and debt markets. Banks have been the primary buyers of government bonds issued by Burma’s Central Bank, which has established a nascent bond market auction system. The Central Bank issues government treasury bonds with maturities of two, three, and five years.

The Burmese government opened the Yangon Stock Exchange in 2015, and the first company was listed on March 25, 2016. As of April 2018, five companies are listed on the exchange. Japan Exchange Group and Japan-based Daiwa Securities Group helped launched the bourse, owning a combined 49 percent of the stock exchange, with the remaining 51 percent owned by state-owned Myanma Economic Bank. In 2013, the Securities Exchange Law came into effect, establishing a securities and exchange commission and helping clarify licensing for securities businesses (such as dealing, brokerage, underwriting, investment advisory and company representation). The New Companies Law will allow foreign investment of up to 35 percent in domestic companies and allow foreign investment in the stock market.

Money and Banking System

Burma’s banks continue to face a number of significant regulatory restrictions that limit the growth of the formal financial sector. Burma’s Central Bank is tasked with supervisory and regulatory functions for the banking sector. The Central Bank’s policy objectives include domestic price stability, financial stability, and efficient payment systems, and it is responsible for approving new banks and supervising new and existing banks. In 2013, the Central Bank Law established the Central Bank as independent from the Ministry of Finance.

In October 2014, the government awarded limited banking licenses to nine foreign banks – all from the Asia-Pacific region – allowing each bank to set up one branch and provide loans to foreign companies. All nine banks began operations by the end of October 2015. In mid-December 2015, the Burmese government announced a second round of foreign bank licensing, designed to increase the presence of banks headquartered in a wider variety of countries, and in early March 2016 the Central Bank granted new licenses to banks headquartered in India, South Korea, Taiwan, and Vietnam. Foreign banks are restricted to providing loans to foreign entities and are required to partner with local banks in order to lend in local currency and lend to local companies. Burma’s largest private bank, KBZ, and Japan-headquartered Sumitomo Mitsui Banking Corporation announced in February 2017 the beginning of a direct correspondent relationship between the United States and Burma via Sumitomo Mitsui’s New York branch office.

The Financial Institution Law was enacted in January 2016. In Burma’s banking sector, credit is extended through loans not exceeding 12 months – the maximum duration the Central Bank allows – and these are routinely rolled over with capitalization of interest, masking non-performing loans both to banks, the Central Bank, and international financial institutions. Insufficient access to formal sources of credit is the most frequently identified obstacle to doing business in Burma, according to numerous business surveys. There are high levels of informality throughout the economy, with a pervasive, unregulated financial sector constituting the large majority of lending. In July 2017, the Central Bank issued four regulations on capital adequacy ratio, asset classification and provisioning, large exposures and liquidity ratio requirements aiming to align Burma’s banking standards with international Basel II standards.

Foreign Exchange and Remittances

Foreign Exchange

Since 2012, the Central Bank of Burma runs a managed float of the Burmese kyat. Although the exchange rate is determined by daily dollar auctions at Burma’s Central Bank, the open market often sells foreign exchange at illegal rates outside of the 0.8 percent band around the Central Bank’s daily rate.

Remittance Policies

According to the MIL, foreign investors have the right of remittance of foreign currency. Foreign investors are allowed to remit foreign currency overseas through banks which are authorized to conduct foreign banking business at the prevailing exchange rate. Banks began introducing remittance services during 2012 and the volume of such formal transfer is low but growing, according to local bank managers.

Nevertheless, in practice, the transfer of money in or out of Burma has been difficult, as many international banks have been slow to update their internal prohibitions on conducting business in Burma, given the long history of U.S. and European sanctions that had isolated the country. The majority of foreign currency transactions are conducted through banks in Singapore.

The difficulties presented by the formal banking system are reflected in the continued use of informal sources of finance for loans and remittances by both the public and businesses. Although these informal sources tend to have higher interest charges, they offer an alternative to the limited loan services offered by banks, which generally provide only short-term credit for trade on a limited basis and require collateral. Remittances are also often made through a well-developed informal financial network (commonly known as the “Hundi system”).

Burma is a “country of primary money laundering concern” according to the 2017 International Narcotics Control Strategy Report. According to the report, Burma is not a regional or offshore financial center, and its economy is underdeveloped and its historically isolated banking sector is just beginning to reconnect to the international financial system. However, the report notes that Burma’s prolific drug production and lack of financial transparency make it attractive for money laundering. Burma enacted anti-money-laundering laws in 2014 and issued relevant rules in 2015. Burma’s Financial Intelligence Unit (FIU) is the agency to investigate and take legal action. The FIU is now a part of Burma’s police force under the Ministry of Home Affairs.

The FIU is building its capacity to become an independent unit in line with the recommendations of the Financial Action Task Force. In July 2016, Burma was delisted from the Financial Action Task Force list. While Burma is still designated as a jurisdiction of “primary money laundering concern” under Section 311 of the USA PATRIOT Act, the U.S. Department of the Treasury issued an administrative exception to this finding in October 2016, similar to waivers issued for certain banks since 2012, thereby allowing corresponding banking relationships with the United States. For more information on the Department of Treasury exception, please see: https://www.fincen.gov/news/news-releases/fincen-issues-exception-prohibition-imposed-section-311-action-against-burma 

Burma does not engage in currency manipulation tactics.

Sovereign Wealth Funds

Burma does not have a sovereign wealth fund.

Policies Toward Foreign Direct Investment

The government of Burundi is generally favorable to FDI and seeks investment as a means to restore economic growth. Uneven implementation of laws and regulations, however, limits the predictability of the environment for Burundian and foreign investors alike. The GoBhas not implemented laws, regulations, or economic or industrial strategies that limit market access or discriminate against foreign investors. There is a minimum foreign initial investment of USD 50,000, which does not apply to domestic investors. A 2018 overview of the legal framework for foreign investment can be found at http://www.eatradehub.org/burundi_investment_policy_assessment_2018_presentation .

The government established the Investment Promotion Authority (API) in October 2009 based on the Burundi Investment Code enacted in 2008. API provides investors with information on investment and export promotion, assists them with legal formalities including obtaining the required documents, and intervenes when laws and regulations are not properly applied.

The government seeks to promote investment and conducts dialogues with Burundian and foreign investors; for example, the government organized a two-day conference on investment in Burundi in July 2017. The API is the initial and primary point of entry for investors, but government ministries meet regularly with private investors to discuss regulatory and legal issues.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic companies have the same rights to establish and own businesses in the country and engage in all forms of activities. There are no general limits on foreign ownership or control, and Burundi does not maintain an investment screening mechanism for inbound foreign investment. However, there are restrictions on foreign investments in weaponry, ammunition, and any sort of military or para-military enterprises. There is no other restriction, nor are there any sectors where foreign investors are denied the same treatment as domestic firms. Article 63 of the 2013 mining code stipulates that the GoB must own at least 10 percent of shares in any foreign company with an industrial mining license. Embassy Bujumbura is aware of no examples of U.S. investors being disadvantaged or singled out relative to other foreign investors.

Other Investment Policy Reviews

No investment policy review from a multilateral organization has taken place in the last three years. The most recent review was performed in 2010 by UNCTAD.

Business Facilitation

In addition to fiscal advantages provided in the investment code, Burundi has implemented reforms including reinforcing its single window for starting a business, simplifying tax procedures for small and medium enterprises, launching an electronic single window for business transactions, and harmonizing commercial laws with those of the East African Community.

No website for business registration exists. Investors must be physically present in country and register with the Investment Promotion Agency (API). Registration takes approximately four hours and costs 130,000 Burundian francs (approximately USD 73).

There is not specific mechanism for ensuring equitable treatment of women and underrepresented minorities.

Outward Investment

The host government does not have mechanisms for promoting or incentivizing outward investment, but does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Although parts of the government are working to create more transparent policies for fostering competition, Burundi lacks clear rules of the game. Many policies for foreign investment are not transparent and laws or regulations on the books are often ineffective or unenforced. Burundi’s regulatory and accounting systems are generally transparent and consistent with international norms on paper, but a lack of capacity, training, and political will sometimes limit the regularity and transparency of their implementation.

Rule-making and regulatory authority is exercised exclusively at the national level. Relevant ministries and the Council of Ministers exercise regulatory and rule-making authority, based on laws passed by the Senate and National Assembly. In practice, government officials sometimes exercise influence over the application and interpretation of rules and regulations outside of formal structures. The government sometimes discusses proposed legislation and rule-making with private sector interlocutors and civil society, but does not have a formal public comment process. There are no informal regulatory processes managed by NGOs or private sector associations.

Accounting, legal and regulatory procedures are generally transparent or consistent with international norms on paper but are unevenly implemented in practice. The government generally issues terms of reference and recruits private consultants who prepare a study on the draft legislation for review and comment by the private sector. The government analyzes these comments and takes them into consideration while drafting new regulations. New regulations can be issued by a presidential decree or submitted to the parliament when they have become a law. This mechanism applies to laws and regulations on investment.

Burundi does not have a centralized online location where key regulatory actions are published. Burundi has sectoral regulatory agencies covering taxes and revenues, mining and energy, water, and agriculture. Regulatory actions are reviewable by courts. There have been no recent reforms to the regulatory enforcement system.

International Regulatory Considerations

The member states of the East African Community including Burundi have not yet harmonized their regulatory systems.

Burundian law and regulations reference a number of standards including the East African Standards, Codex Alimentarius Standards, the International Organization for Standardization (ISO), and its own standards. However, ISO remains the main reference.

The country joined the WTO member on July 23, 1995. According to the Ministry of Commerce, Industry, and Tourism, Burundi has not notified the WTO Committee on TBT of all draft technical regulations.

Legal System and Judicial Independence

The country’s legal system is civil (Roman), based on German and French civil codes. For local civil matters, customary law also applies. Burundi’s legal system contains standard provisions guaranteeing the right to private property and the enforcement of contracts. The country has a written commercial law and a commercial court. The investment code offers plaintiffs recourse in the national court system and to international arbitration.

The judicial system is not effectively independent of the executive branch. A lack of capacity hinders judicial effectiveness, and judicial procedures are not rigorously observed.

Laws and Regulations on Foreign Direct Investment

There were no major laws, regulations, or judicial decisions pertaining to foreign investment in the past year. In August 2009, a series of amendments designed to clarify the somewhat vague provisions of the investment code came into effect. These amendments include substantial tax exemptions for real estate purchases related to new investments, tax reductions for goods used to establish new businesses and profit-tax breaks for investors employing more than 50 Burundian workers. The paperwork for creating a business has been made easier and most proposals receive a response within three to four days after the application is submitted. Along with the new code, the government created the API. Currently, its main objectives are not only to inform and assist potential investors, but also to ensure that new laws and regulations that benefit investors are being upheld, and promote reforms aimed at improving the business climate. In 2012, API set up a one-stop investment center to help facilitate and simplify business registration in Burundi. In 2014, API created a follow-up mechanism to make sure that investors are implementing projects for which they received tax exemptions and other advantages provided in the investment code.

Competition and Anti-Trust Laws

There is no Burundian agency in charge of reviewing transactions for competition-related concerns.

Expropriation and Compensation

Burundian law allows the GoB to expropriate property for exceptional and state-approved reasons but stipulates that fair market value payment is required. There are no recent cases involving expropriation of foreign investments, nor do any foreign firms have active pending complaints regarding compensation in Burundian courts.

Dispute Settlement

ICSID Convention and New York Convention

Burundi is a full member of ICSID Convention since 1969 and became the 150th country to sign the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Burundi has a commercial law allowing enforcement of foreign courts judgments by local courts.

Investor-State Dispute Settlement

Burundi is a signatory of ICSID and MIGA. Burundi has no bilateral investment treaty with the US.

After receiving a 30-year concession to manage the Port of Bujumbura in 2012, the United Kingdom-based company Global Port Services accused the Government of Burundi of breach of contract, citing numerous issues including misrepresentation of cash flows, alleged solicitation of bribes, illegal collusion with ostensibly private Burundian shareholders, and theft. In September of 2014, the claimant sued the Government of Burundi and the private Burundian shareholders for USD 56 million. As of April 2018, the commercial court’s decision is still pending.

In cases involving international elements, the GoB accepts international arbitration, and recognizes and enforces foreign arbitral awards. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

In rare cases involving international elements the GoB accepts international arbitration, and recognizes and enforces foreign arbitral awards. In investment disputes between private parties, international arbitration is accepted as a means of settlement provided one of the parties is an extra-national. In 2007, the GOB created a Center for Arbitration and Mediation (CEBAC) to handle such disputes, but it is not very active. There is no operational commercial arbitration body in the country besides CEBAC.

Foreign arbitral awards are recognized but local courts are not legally equipped to enforce them. No Burundian private entity has been involved in a foreign arbitration. In the past, one registered case involved the Government and a private gold refining company (Affimet). The ICSID ruling was enforced by GoB, which lost the case.

Although there are complaints about the discriminatory and opaque nature of court processes in general, there are no known cases involving SOEs in investment disputes.

Bankruptcy Regulations

Burundi has two laws governing or pertaining to bankruptcy: Law No1/07 of 15 March 2006 on bankruptcy and Law No1/08 of March 15, 2006 on legal settlement of insolvent companies. Under Burundian law, creditors have the right to file for liquidation and the right to request information from the legal bankruptcy agent. The bankruptcy framework does not require that creditors approve the selection of the bankruptcy agent and does not provide creditors the right to object to decisions accepting or rejecting creditors’ claims.

Burundi’s credit bureau is the Banque de la Republique du Burundi (BRB), the country’s central bank. Burundi ranks 144 on resolving insolvency in the World Bank Doing business report.

Capital Markets and Portfolio Investment

Although there are no regulatory restrictions on foreign portfolio investment, Burundi does not have capital markets that would enable it. Capital allocation within Burundi is entirely dependent on commercial banks. The country does not have its own stock market. There is no regulatory system to encourage and facilitate portfolio investment. There is not sufficient liquidity in the markets to enter and exit sizeable positions.

Existing policies do not actively facilitate nor impede the free flow of financial resources into product and factor markets, but there is no regulation restricting international transactions. In practice however, the Government restricts payments and transfers for current international transactions due to a shortage of access to foreign currency.

In theory, foreign investors have access to all existing credit instruments and on market terms. In practice, available credit is extremely limited.

Money and Banking System

The country has a very small banking services penetration according to the IMF. The Banque de la Republique du Burundi (BRB) is the country’s central bank. The banking penetration as of 2016 was 32.2 percent. The total assets of the three largest commercial banks in 2016 were USD 503.3 million. Of this amount, Credit Bank of Bujumbura (BCB) held assets totaling USD 185.6 million, Burundi Commercial Bank (BANCOBU), USD 175.8 million and Interbank Burundi (IBB) held USD 141.9 million. The several local commercial banks have branches in urban centers. The only alternative financial services are basic micro-credit institutions and mobile money services, and rural areas are mostly served by micro-finance institutions.

Foreign banks are allowed to establish operations in the country, and there are many branches of regional banks operating in the country. The central bank directs banking regulatory policy including prudential measures for the banking system. The country has kept all its foreign corresponding banks during the last three years. Foreigners and locals are subject to the same conditions when opening a bank account. The only requirement is the presentation of identification.

The banking sector has struggled with non-performing loans as a significant number of economic actors froze their activities or fled the country in 2015 and 2016. It also suffers from a shortage of foreign currency following the Central Bank’s establishment of de facto capital controls in 2016.

According to the EuroMoney Institutional Investor Company (CEIC), the average rate of non-performing loans (NPLs) was estimated at 17.3 percent in 2017.

Foreign Exchange and Remittances

Foreign Exchange Policies

According to the law, there are no restrictions on transferring funds associated with investment after paying taxes. In practice, foreign investors have encountered difficulties in converting funds associated with investments into foreign currency due to de-facto capital controls implemented by the BRB in 2016.

According to the government, funds associated with an investment can be converted into a freely usable currency at a legal market rate, pending their availability. Due to a shortage of foreign currency, the central bank prioritizes companies in specific strategic industries for access to foreign exchange accommodation. In practice, the Burundian franc is not freely convertible at the official government rate.

According to the government, the national currency (BIF) fluctuates and the central bank sends the daily rate to commercial banks each morning. In practice, the government has imposed de-facto capital controls to prevent abrupt exchange rate movements; a gap exists between the official rate and a floating parallel market rate.

Remittance Policies

The government has not passed any new laws regarding a change to investment remittances policies. The average delay for remitting investment returns (once all taxes have been paid) is three months due to general inefficiency in the banking sector and the rarity of such transactions in an environment with very little foreign direct investment.

Sovereign Wealth Funds

Burundi does not have a sovereign wealth fund (SWF).

Policies Towards Foreign Direct Investment

The Government of Cabo Verde looks to both private and foreign investment to drive the country’s economic growth with a focus on tourism, transportation services, renewable energy, and export-oriented industries. A great effort has been made to promote a market-oriented economic model where all investors, regardless of their nationality, have the same rights and are subject to the same duties and obligations under the law. The government, elected in 2016, is investing in administrative decentralization, reduction of the state’s role in the economy, and the empowerment of the private sector, improving the business climate to attract investments.

Cabo Verde TradeInvest (CI), the agency responsible for investment promotion, is the one-stop-shop for external investors. It provides investor assistance based on the One-Stop-Shop approach, whereby all the services required for approving projects are centralized. The investor can express interest in investing, attach the necessary documents for formalizing a project, and monitor all the project approval stages. The investment approval process has been expedited with the revision of the external investment code. Although bureaucratic procedures have been simplified in a number of cases, there is still room for improvement. Through CI, the government maintains dialogue with investors using personalized meetings, round tables, conferences, and workshops.

Services provided for the investor:

• Expression of interest in investment and upload of project documents;
• Monitoring the investment process using a monitoring code;
• Payment of certificate issuance fee.

CI also provides the investor/exporter support with the following services:

• Information about preferences of the country trade agreements Act (AGOA, ECOWAS, and others);
• Market information;
• Organization of and participation in exhibitions, fairs, congresses, conferences, seminars or other events in the field of exports of goods and services in the country;
• Contacts with other State institutions, providing or promoting partnerships, etc.

CI has an After Care service aimed at supporting investors after they obtain their Investment Registration Certificate and implement their investment project. CI assists investors in their implementation process, in resolving bureaucratic issues in conjunction with other public institutions, and in establishing reinvestment and export processes such as:

• Obtaining operating authorization and licensing;
• Obtaining tax and customs incentives;
• Obtaining work permits for foreign workers;
• Obtaining visas for company workers;
• Assistance with obtaining housing for foreign workers;
• Assistance with registering workers with social security;
• Assistance to investors and their families in the process of settling in the country;
• Assistance with obtaining premises for company offices;
• Introduction to service providers, such as banks, lawyers, accountants, estate agents;
• Export assistance.

For investments of less than USD 500,000, ProEmpresa and the Casa do Cidadao provide similar services for investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

The country is investment-friendly as foreign investors, regardless of their nationality, have the same rights and are subject to the same duties and obligations under the laws of Cabo Verde.

Other Investment Policy Reviews

No reviews have taken place under Organization for Economic Cooperation and Development (OECD) or the-United Nations Conference on Trade and Development (UNCTAD). The first review of the trade policies and practices of Cabo Verde under the World Trade Organization (WTO) took place on 6 and 8 October 2015.

Business Facilitation

Cabo Verde has made significant progress in recent years in simplifying its business registration process. The Commercial Registry Department (Casa do Cidadao), is a one-stop-shop where a company can be created and registered in less than a day. The overall business environment has become more efficient. The process for launching a business is more streamlined, and licensing requirements are less burdensome.

An information website on business registration is available at https://portondinosilhas.gov.cv/  and http://caboverde.eregulations.org/show-list.asp?l=pt&mid=1 .

Step by step information on procedures, time and cost involved in starting a company can be found at http://www.doingbusiness.org/data/exploreeconomies/cabo-verde/starting-a-business/ .

As the agency in charge for the promotion and facilitation of investment in Cabo Verde, CI is the first point of contact for foreign investment in Cabo Verde. It offers an Electronic Platform, “One Stop Shop for Investments,” which is important for the promotion, settlement, and monitoring of investments in the country. The platform aims to increase the efficiency and effectiveness of the investment processes, improving understanding and communication between CI, its customers, other stakeholders, public and private entities, and project developers of domestic and foreign investments. The “One Stop Shop” offers a single platform containing all the necessary services once scattered through various institutions.

CI’s website is where all information pertaining to investing in Cabo Verde can be found, including Cabo Verde’s Investment Law, the Code of Fiscal Benefits, and the Contractual Tax Benefits-Incentives http://www.cvtradeinvest.com/en/ . The platform is helping with de-bureaucratization of the investment process, ensuring that the process is completed within a maximum period of 75 days.

The State Budget law of 2017 contained measures to facilitate and stimulate business activity, including a one percentage point lowering of the maximum personal income tax (IRPS) to 24 percent, the easing of the Special Scheme for Micro and Small Businesses, and the introduction of new tax benefits.

Elimination of double taxation, release from payment in installments for taxpayers who had negative results or began their activity in the previous year, and elimination of the obligation to pay the minimum installment are some of the new measures undertaken by the 2017 State Budget law.

The tax benefit package included in the 2017 State Budget aims to make accessing the benefit easier than previously: it reduces the amount of investment to benefit from contractual benefits to 500 million escudos (USD 4.8 million) and reduces the requirements on number of jobs created and expansion into new strategic sectors of the 50 percent investment credit. It also extends the period for deduction of credit for investment to 15 years.

Outward Investment

Incentives for outward investment in developing countries are not included in the legislation, but they have been provided on an ad hoc basis.

Transparency of the Regulatory System

Cabo Verde is a model for much of Africa because of its transparency and good governance. The government is committed to improving the conditions for foreign investment and to encouraging a more transparent and competitive economic environment. In 2017, Cabo Verde ranked 48th on Transparency International’s Corruption perception index, second among African nations, trailing only Botswana.

Laws to promote exports, incentives to export, and free-zone enterprises stress the commitment of the government to encourage investment in export-oriented industries. The tax regime encourages entrepreneurial activity, and government policies support free trade and open markets. Although bureaucratic procedures have been simplified in a number of cases, there is still room for improvement. CI is the one-stop shop for external investors.

The Investment Law – Law n. 13 / VIII / 2012 of 11 July 2012 – establishes the general basis for accelerating and facilitating investment in Cabo Verde, as well as the rights, guarantees, and incentives to be granted to investments. These laws establish the principle of equal treatment for both national and foreign investment and confirm the government’s commitment to the creation of a dynamic business environment. The Industrial Development Statute regulates the granting of incentives and simplifies the investment approval process.

In addition, the code for Fiscal Benefits, Law no. 26 / VIII / 2013, January 21 and the amendments made by Law 102 / VIII / 2016 of January 6 and by the State Budget for 2017 establish the principles and rules applicable to tax benefits, establish the content, and set the corresponding rules for granting and monitoring

The following is the government official register site for the entity responsible for the official publication of all approved laws: https://kiosk.incv.cv/ .

Laws on economic activity sectors can also be consulted on the following websites:

• Legispalop: http://www.ecosphere-consult.com/en/legis-palop ;
• CaboVerde TradeInvest website: http://cvtradeinvest.com/ .

In Cabo Verde there is free access to all laws through the Government Official Register Site.

International Regulatory Considerations

Cabo Verde is a member of UNCTAD’s international network of transparent investment procedures [http://caboverde.eregulations.org/ ]. Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures.

In January 2008, four years after the United Nations Resolution 59/210 recommendation, Cabo Verde graduated from Least Developed Country status to Lower Middle Income Country status. On May 26 of the same year, five months after the World Trade Organization (WTO) approved its application, Cabo Verde’s legislature unanimously ratified the agreement and formally acceded to the WTO. Cabo Verde has not notified the WTO of any measures that are inconsistent with its TRIMS obligations.

Legal System and Judicial Independence

Cabo Verde was a Portuguese colony until 1975; consequently, its legal system is based on the civil law system of Portugal, and it has systematic codification of its general law. The 1992 constitution provides for a judiciary independent from the executive branch. The judicial system is composed of the Supreme Court, the Constitutional court, and the regional courts. There is no interference from the government, and judges cannot be affiliated with political parties.

The Supreme Tribunal (Court) of Justice has a minimum of five members, one appointed by the president, one appointed by the National Assembly, and three appointed by the Supreme Council of Magistrates. The Ministry of Justice and Labor appoints local judges. The judiciary generally provides due process rights; however, the right to an expeditious trial is constrained by a seriously overburdened and understaffed judicial system. Criminal defendants are presumed innocent and have the right to counsel, to a public, non-jury trial, and to appeal. Cabo Verde has modern commercial and contractual laws. Cases brought to court often linger for years.

The right to private ownership and establishment is guaranteed under the constitution. Property rights are recognized and guaranteed by several Cabo Verdean laws, as well as by the constitution. There is a legal entity that records secured interests in property, both chattel and real estate. The legal system also protects and facilitates acquisition and disposition of all property rights.

The judicial system in Cabo Verde is widely seen as transparent and independent. There is no government interference in the court system, but judicial decisions are often delayed by years.

Laws and Regulations on Foreign Direct Investment

Foreign investment is regulated by the Cabo Verde Investment Law (Decree-Law No. 13/VII/2012) and the Law of Industrial Development. These laws establish the principle of equal treatment for national and foreign investment and confirm the government’s commitment to the creation of a dynamic business environment. The Industrial Development Statute regulates the granting of incentives and simplifies the investment approval process. In addition the codes for Fiscal Benefits (Laws: No. 26/VIII/2013, 102/VIII/2016, and State Budget 2017) establish the principles and rules applicable to tax benefits, establish the content, and set the corresponding rules for granting and monitoring. Laws to promote exports, incentives to export, and free-zone enterprises stress the government’s commitment to encourage investment in export-oriented industries.

During the past year, there have been a few changes in regulations encouraging free investment initiatives, creating Special Zones to encourage private investment outside municipal urban areas, creating Special Economic Zones for the implementation and operation of specific economic activities according to their nature, and establishing the regime of the rights and obligations of the investor. There has also been a clarification of the concept of an Investor’s Certificate, and the right to transfer funds abroad from any investment or reinvestment made in Cabo Verde has been strengthened.

Competition and Anti-Trust Laws

The regulatory agencies are the bodies in charge of y responsible for competition-related concerns.

The law establishes the regime of protection of competition applicable to all economic activities, carried out on a permanent or occasional, in private, public and cooperative basis.

Decree Law 53/2003 substituted Decree-Law Nº 2/99 of February 1.
Issue date: 24/11/2003
Date of Entry into force: 23/01/2004

Expropriation and Compensation

Cabo Verde laws allow for expropriation if done for public interest. In the event of expropriation, the government will compensate the owner on the basis of prevailing market prices or the actual market value of the property on the day of expropriation. Compensation may be repatriated at the exchange rate in effect on the day of expropriation.

There have been no cases of illegal expropriations, and the government has never shown any pattern of discriminating against foreigners.

Dispute Settlement

ICSID Convention and New York Convention

In 2011, Cabo Verde became a contracting state to the International Centre for the Settlement of Investment Disputes (ICSID convention). Cabo Verde is not a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Representatives from the Brazilian telecommunications company Oi and the government of Cabo Verde are trying to work towards the resolution of a boardroom dispute relating to the country’s telecommunication company, Cabo Verde Telecom (CVT). According to the government of Cabo Verde, the Portuguese company that held 40 percent of the company violated agreements by agreeing to sell its shares held in CVT to Oi without the prior permission of the Cabo Verde authorities.

International Commercial Arbitration and Foreign Courts

Disputes between the government and any investor concerning the interpretation and application of the law, which cannot be resolved amicably or via negotiation, are submitted for resolution by the judicial authorities, in accordance with Cabo Verdean laws. Disputes between the government and foreign investors on investments authorized and made in the country, if no other process has been agreed upon, are settled by arbitration.

The law favors arbitration as a mechanism for settling investment disputes between the government of Cabo Verde and foreign investors, under national and international dispute resolution rules, and the courts recognize and enforce foreign arbitral awards. Generally, arbitration will be carried out in Cabo Verde and in Portuguese, unless the parties agree on another location and language. Arbitration is generally accepted as a dispute resolution mechanism. The decision of the single referee or the arbitration committee is final and there is no appeal.

Legislation:

• The principal national arbitration statute in Cabo Verde is the Arbitration Law No. 76/VI/2005 of 16 August 2005;
• Law No. 89/IV/93 of 13 December 1993 provides that disputes between the State of Cabo Verde and foreign investors shall be resolved through arbitration and conciliation subject to Cabo Verde arbitration law;
• Decree-Law No. 35/2010 of 6 September 2010 provides that disputes related to the validity, interpretation, and non-fulfillment of insurance agreements may be addressed by arbitration;
• Decree No. 8/2005 of 10 October 2005 provides for institutional arbitration.

Bankruptcy Regulations

Cabo Verde made resolving insolvency easier by adopting a law that introduces a reorganization procedure and facilitates continuation of the debtor’s business during insolvency proceedings. The law also allows creditors greater participation in important decisions during insolvency proceedings. The law, published in December 2015, entered into effect in September 2016 and positively affected Cabo Verde’s rating on the Doing Business Report 2018.

Capital Markets and Portfolio Investment

Limited capital market and portfolio investment opportunities exist in Cabo Verde. The Cabo Verdean stock market, Bolsa de Valores de Cabo Verde (BVC), is fully operational. It has been most active in the issuance of bonds. Foreign investors must open a bank account with a local bank in Cabo Verde before buying stocks or bonds from BVC.

The regulatory system does not stop the free flow of financial resources. Foreign interests may access credit under the same market conditions as locals. However, foreign investors typically bring capital in from outside the country.

The financial sector is supervised and regulated by a single institution: the Central Bank of Cabo Verde (BCV). The financial sector consists of:

• Credit institutions (banks and other institutions that are qualified by law);
• Special credit institutions (credit unions and savings banks);
• Nonbanking institutions;
• Insurance companies;
• Stock Exchange.

In the 1990s, the statute of International Financial Institutions (IFI) was created for institutions whose activities are directed primarily at non-residents. Most IFI banks in Cabo Verde are foreign branches or subsidiaries of Portuguese banks, which were established in Cabo Verde to benefit from tax advantages in their transactions with non-residents.

The onshore segment is composed of seven banks:

• Banco Comercial do Atlantico;
• Caixa Economica de Cabo Verde;
• Banco Interatlantico;
• Banco Cabo-Verdiano de Negocios;
• Banco Angolano de Investimentos;
• Ecobank-Cabo Verde;
• Banco Espirito Santo-Cabo Verde.

There are 10 non-bank institutions:

• A venture capital management company – A Promotora;
• Three currency exchange offices;
• Cotacambios de Cabo Verde;
• Arisconta – Cambios Lda.;
• Girassol – Cambios Lda.;
• A company that issues credit cards and handles the payment system – SISP;
• A leasing company, Promoleasing – Sociedade de Locacao Financeira SA;
• Three securities fund management companies;
• Innovation Box;
• Sociedade de Gestao de Fundos de Habitacao de Interesse Social;
• Novagest SA;
• A money transfer agency – Global Money Transfer-Cabo Verde SA.

The offshore market comprises of nine institutions licensed to operate, eight in banking activities and one acting as fund manager:

• Banco Fiduciario Internacional;
• Banco Sul Atlantico;
• Banco Portugues de Negocios;
• Banco Montepio Geral;
• Banco Espirito Santo;
• Banco Privado Internacional;
• Caixa de Credito Agricola Mutua;
• Atlantic International Bank);
• CA Finance SA (fund manager).

Banking, insurance, and securities market regulations comply with international regulations and meet international best practices. Foreign investors have the same access to credit in the local market. However, foreign investors are often discouraged by the high interest rates. Credit above certain values may dictate partnerships of more than one bank, and sometimes requires the participation of a foreign bank. Both local and foreign investors complain about the lack of commercial products to support investment.

Money and Banking System

Cabo Verde has a small but relatively sound, efficient, and well-managed financial sector supervised and regulated by a single institution: the Central Bank of Cabo Verde.

The onshore segment is composed of seven banks:

• Banco Comercial do Atlantico;
• Caixa Economica de Cabo Verde;
• Banco Interatlantico;
• Banco Cabo-Verdiano de Negocios;
• Banco Angolano de Investimentos;
• Ecobank-Cabo Verde;
• Banco Espirito Santo-Cabo Verde.

Overall, the banking sector is still relatively small, with a limited supply of financial products. However, it is relatively well-managed and exhibits stable performance indicators. Credit risk is mainly controlled through a limited exposure and strict compliance with prudential ratios. In March 2017, shortly after a political transition, the BCV took strong and adequate actions when Novo Banco’s non-compliance threatened Cabo Verde’s banking sector. The measures taken prevented contagion of the sector and reinforced the authority of the banking watchdog institutions.

Banks have branches in all inhabited islands, which are also served by an extensive network of ATM and widely available POS machines. Debit cards, credit cards, and prepaid Visa cards are available through all banks. International credit cards are seldom accepted except on the major tourist destination islands of Sal and Boa Vista.

Establishing a bank account is easy as long as the client provides proper identification independent of nationality and obtains a taxpayer number from the Casa do Cidadao. Bank credit is available to foreign investors under the same conditions as for national investors. The private sector has access to some credit instruments such as loans, letters of credit, and lines of credit. Local and foreign investors complain about the lack of commercial products for accessing credit. The legal guidelines for accounting systems are clear but are not totally consistent with international norms.

According to data from BCV, since 2012 more than 90 percent of the Cabo Verdean population has been serviced by banks, following a long positive trend. Technological innovation in information and communications technology (ICT) has contributed to the revolution in the banking industry with significant impacts on the services traditionally offered by banks. Internet-based tools and services in the banking sector continue to grow in Cabo Verde, gaining an increasing importance and changing the model of the client-bank relationship of the past. New ICT products allow customers to make certain decisions without the constraints of working-hours and from any place with internet access.

Foreign Exchange and Remittances

Foreign Exchange Policies

Foreign investors have the right to convert their investment to any other freely convertible currency and transfer all of their income. The government gives foreign investors important guarantees, such as privately managed foreign currency accounts, which can be credited from abroad or from other foreign accounts in Cabo Verde. In addition, it allows undisputed repatriation of dividends, profits, and capital from foreign investment operations. To receive these benefits the investor has to qualify for foreign investor status through the government’s investment agency, CI.

The regulatory legislation specifies that for the first five years of operation, dividends may be freely expatriated without tax and that for the next fifteen years dividends may be expatriated with a flat tax rate of ten percent. Incentives for outward investment in developing countries are not included in the legislation, but they have been provided on an ad hoc basis.

Cabo Verde’s exchange-rate fluctuation risk is as low as the escudo has been pegged to the euro since its introduction in 1999 at the rate of 110.27 escudos per euro. This fixed exchange rate arrangement is a credit facility granted by Portugal to Cabo Verde – Credit Facility Contract – and managed by a joint Cabo Verdean and Portuguese body named the Commission on the Agreement for Exchange Cooperation (Comissao do Acordo de Cooperacao Cambial – COMACC). Both residents and non-residents may hold foreign exchange accounts, subject to government approval and regulations. Most payments and transfers have been liberalized. Cabo Verde is looking at the possibility of introducing the use of the euro in the local economy. The euro is already accepted as form of payment in the most touristic islands and in the main hotels and restaurants of the country.

Remittance Policies

Current law permits a foreign investor to request transfer loan repayment, revenue/profits, and capital gains overseas from the Bank of Cabo Verde (central bank) within 30, 60, and 90 days, respectively.

Sovereign Wealth Funds

Cabo Verde does not maintain a sovereign wealth fund.

Policies Towards Foreign Direct Investment

As mentioned above, Cambodia has an open and liberal foreign investment regime and actively courts FDI. The primary law governing investment is the 1994 Law on Investment. The government permits 100 percent foreign ownership of companies in most sectors. In a few sectors, such as cigarette manufacturing, movie production, rice milling, gemstone mining and processing, publishing and printing, radio and television, wood and stone carving production, and silk weaving, foreign investment is subject to local equity participation or prior authorization from authorities. There is little or no discrimination against foreign investors either at the time of initial investment or after investment. Some foreign businesses, however, have reported that they are at disadvantaged vis-a-vis Cambodian or other foreign rivals that engage in acts of corruption or tax evasion or take advantage of Cambodia’s poor regulatory enforcement.

The Council for the Development of Cambodia’s (CDC) is the lead investment promotion agency in Cambodia and is the principal government agency responsible for providing incentives to stimulate investment. Investors are required to submit an investment proposal to either the CDC or the Provincial-Municipal Investment Sub-committee to obtain a Qualified Investment Project (QIP) status depending on capital level and location of the investment question. More information about investment and investment incentives in Cambodia may be found on the website at: www.cambodiainvestment.gov.kh .

To facilitate foreign investment, Cambodia has created special economic zones (SEZs). These zones provide companies with ready access to land, infrastructure, and services to facilitate the set-up and operation of businesses. Services provided include utilities, tax services, customs facilitation and other administrative services designed to support import-export processes. Projects within the SEZs are also offered with incentives such as tax holidays, zero rate VAT and import duty exemption for raw materials, machinery and equipment. The primary authority responsible for SEZs is the Cambodia Special Economic Zone Board (CSEZB).

Limits on Foreign Control and Right to Private Ownership and Establishment

There are few limitations on foreign control and ownership in Cambodia. Foreign investors may own 100 percent of their investment projects except in the sectors mentioned above. According to Cambodia’s 2003 Amended Law on Investment and related sub-decrees, there are no limitations based on shareholder nationality or discrimination against foreign investors except in relation to investments in real property or state-owned enterprises. Both the Law on Investment and the Amended Law on Investment state that the majority interest in land, however, must be held by one or more Cambodian citizens. Pursuant to the Law on Public Enterprise, the Cambodian government must directly or indirectly hold more than 51 percent of the capital or the right to vote in state-owned enterprises. In addition, the Cambodian Bar has periodically taken actions to restrict or impede the work of foreign lawyers or foreign law firms.

Other Investment Policy Reviews

In compliance with WTO requirements, Cambodia conducted its first review of trade policies and practices in November 2011. The second review was conducted on November 21-23, 2017. Cambodia’s full trade policy review report can be found on the WTO website: https://www.wto.org/english/tratop_e/tpr_e/tp464_e.htm . Cambodia also conducted an Organization for Economic Co-operation and Development investment policy review in 2017.

In response to the WTO trade policy review recommendations, Cambodia completed the following reforms:

• Elimination of the Certificate of Origin requirement for exports to countries where a certificate is not required;
• Implementation of online business registration;
• Adoption of a competitive hiring process for Ministry of Commerce staff;
• Implementation of risk evaluation measures for the Cambodia Import-Export Inspection and Fraud Repression Directorate General (CamControl) and creation of a CamControl risk management unit;
• Enactment of the Law on Public Procurement;
• Enactment of three judicial system laws: the Law on Court Structures, the Law on the Duties and Discipline of Judges and Prosecutors, and the Law on the Organization and Functioning of the Supreme Council of Magistracy;
• Creation of the Commercial Court as a specialized Court of First Instance;
• The creation of a credit bureau;
• Establishment of a Telecom Regulator of Cambodia (TRC); in 2012, the Ministry of Posts and Telecommunication transferred its regulatory role to the TRC;
• Enactment of the Law on Telecommunications in December 2015; and
• Enactment of the Law on Animal Health and Production in February 2016.

Areas of ongoing or planned reforms include a law on Special Economic Zones, amending the Standards Law, and enacting laws on competition, food safety, and e-commerce.

Business Facilitation

All businesses are required to register with the Ministry of Commerce (MoC) and the General Department of Taxation (GDT). In January 2016, the Ministry of Commerce launched an online business registration portal that allows all existing and new businesses to register their companies at: http://www.businessregistration.moc.gov.kh . Information about the online business registration process is available on the website of the MoC at www.moc.gov.kh/en-us/company-registration . The link also provides sources of information for various types of business registration documents. Depending on the types of business activities, new businesses are also required to register with other relevant ministries. For example, travel agencies must register with the Ministry of Tourism and private universities must register with the Ministry of Education, Youth and Sport, in addition to registering with the MoC and the GDT. The World Banks 2018 Ease of Doing Business Report ranks Cambodia 183 of 190 countries globally for the ease of starting a business. The report notes that it includes nine separate procedures and can take up to three months to complete all business, tax, and employment registration processes.

Cambodia’s 1994 Law on Investment created an investment licensing system to regulate the approval process for foreign direct investment and provide incentives to potential investors. The website of the Council for the Development of Cambodia (CDC) provides a list of laws, rules, procedures and regulations, which could be useful for foreign investors. CDC’s website is found here: www.cambodiainvestment.gov.kh .

Outward Investment

There are no restrictions on domestic citizens investing abroad. A number of local companies have already invested in neighboring countries, particularly Laos and Myanmar, in various sectors including banking, IT services, legal and consulting services, and the entertainment industry.

Transparency of the Regulatory System

Numerous issues related to the general lack of transparency in the regulatory regime arise from the lack of legislation and limited capacity of key institutions. Investors often complain that the decisions of Cambodian regulatory agencies are inconsistent, arbitrary, or motivated by corruption. For example, in May 2016 in what was perceived as a populist move, the government set caps on retail fuel prices, with little consultation with petroleum companies.

Cambodian ministries and regulatory agencies are not legally obligated to publish the text of proposed regulations before their enactment. Draft regulations are only selectively available for public consultation with relevant non-governmental organizations (NGOs) or parties before their enactment. Approved or passed laws are available on websites of some line Ministries but are not always up to date. The Council of Jurists, the government body reviewing law and regulation, publishes a list of updated laws and regulations on its website at http://www.coj.gov.kh .

Under Prakas (sub-decree) 643 of the Ministry of Economy and Finance, enterprises must submit their annual financial statements to be audited by an independent auditor registered with the Kampuchea Institute of Certified Public Accountants and Auditors (KICPAA) provided those enterprises meet two of the following three criteria: (1) annual turnover above KHR 3 billion (approximately USD 750,000); (2) total assets above KHR 2 billion (approximately USD 500,000); and (3) more than 100 employees. QIPs registered with the CDC are also obligated to submit their annual financial statement to be audited by an independent auditor registered with the KICPAA.

International Regulatory Considerations

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

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

Legal System and Judicial Independence

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

Although the Cambodian Constitution calls for an independent judiciary, most investors are generally reluctant to use the Cambodian judicial system because the courts are perceived as unreliable and susceptible to external political influence or bribery. Both local and foreign businesses report problems with inconsistent judicial rulings, corruption, and difficulty enforcing judgments. For these reasons, most commercial disputes are currently resolved through negotiations facilitated by the Ministry of Commerce, the Council for the Development of Cambodia, the Cambodian Chamber of Commerce, or other institutions.

Cambodia adopted a Commercial Arbitration Law in 2006. In 2010, the government provided for the establishment of the National Commercial Arbitration Center (NCAC), the country’s first alternative dispute resolution mechanism, to enable companies to resolve commercial disputes more quickly and inexpensively than through the court system. The NCAC was officially launched in March 2013, but has limited capacity.

Laws and Regulations on Foreign Direct Investment

Cambodia’s 1994 Law on Investment created an investment licensing system to regulate the approval process for foreign direct investment and provide incentives to potential investors. In March 2003, the government simplified licensing and increased transparency and predictability by enacting the Law on the Amendment to the Law on Investment (Amended Law on Investment). Sub-decree No. 111 on the Implementation of the Law on the Amendment to the Law on Investment, issued in September 2005, lays out detailed procedures for registering a QIP, which is entitled to certain taxation incentives, with the CDC and provincial/municipal investment subcommittees.

Information about investment and investment incentives in Cambodia may be found on the CDC’s website: http://www.cambodiainvestment.gov.kh .

Competition and Anti-Trust Laws

The government has announced plans to draft a competition law but the law has yet to be enacted. A competition department was established under the Directorate General of CamControl in 2016. The department aims to work on drafting laws and regulations on competition, study and coordinate with various relevant agencies on local and international competition. The draft law is now reportedly being considered in a technical working group at the Council of Ministers.

Expropriation and Compensation

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

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

Commercial disputes can also be resolved through the National Commercial Arbitration Center (NCAC), Cambodia’s first alternative dispute resolution mechanism, which was officially launched in March 2013.

Bankruptcy Regulations

Cambodia’s 2007 Law on Insolvency was intended to provide collective, orderly, and fair satisfaction of creditor claims from debtor properties and, where appropriate, the rehabilitation of the debtor’s business. The Law on Insolvency applies to the assets of all business people and legal entities in Cambodia. The World Bank’s 2018 Doing Business Report ranks Cambodia 74 out of 190 in terms of the “ease of resolving insolvency.”

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

Capital Markets and Portfolio Investment

In a move designed to address the need for capital markets in Cambodia, the Cambodian Securities Exchange (CSX) was launched on July 11, 2011. In April 2012, the Phnom Penh Water Supply Authority, a state-owned enterprise, was the first domestically registered company on the CSX.

In September 2017, the National Bank of Cambodia (NBC) adopted Prakas B7-017-300 Pror Kor on Condition for Banking and Financing Institutions to be listed on the Cambodian Securities Exchange. The Prakas sets additional requirements for banks and financial institutions that intend to issue securities to the public. This includes prior approval from the NBC and minimum equity of KHR 60 billion (approx. USD 15 million).

Cambodia does not currently have a functioning debt market but has taken steps to establish one. The Securities and Exchange Commission of Cambodia is working toward the issuance of Cambodia’s first government bond by 2018.

Money and Banking System

As the central bank, the National Bank of Cambodia (NBC) regulates the operations of banking systems in Cambodia. Foreign banks and branches are freely allowed to register and operate in the country. There are 39 commercial banks, 15 specialized banks (set up to finance specific turn-key projects such as real estate development), 54 licensed microfinance institutions, and seven licensed microfinance deposit taking institutions in Cambodia. NBC has also granted licenses to 11 financial leasing companies and one credit bureau company to improve transparency and credit risk management and encourage more lending to small-and medium-sized enterprise customers.

In August 2017, Moody’s Investor Services affirmed Cambodia’s issuer rating at B2 with a stable outlook. The overall B2 rating was based on Cambodia’s strong revenue collection and macroeconomic and exchange rate stability. However, Moody’s cited several potential threats such as corruption, weak rule of law, high dollarization, and political risk. In addition, persistently strong credit growth, which has outpaced nominal GDP growth, poses risks to economic and financial stability, Moody’s said.

The government does not use regulation of capital markets to restrict foreign investment. Banks have been free to set their own interest rates since 1995, and increased competition between local institutions has led to a gradual lowering of interest rates from year to year. However, in March 2017, at the direction of Prime Minister Hun Sen, the NBC capped interest rates on loans offered by micro-finance institutions (MFIs) at 18 percent per annum. MFIs had no opportunity to consult about the decision, and were given just three weeks to implement the interest rate cap.

In March 2016, the NBC doubled the minimum capital reserve requirement for banks to USD 75 million for commercial bank and USD 15 million for specialized banks. Based on the new regulations, microfinance deposit taking institutions are required to increase capital reserves from USD 2.5 million to USD 30 million and other microfinance institutions need to increase to USD 1.5 million.

Cambodia’s financial system is dominated by banking institutions (commercial and specialized banks), whose assets comprise approximately 90 percent of the total assets in the financial system. By the end of 2016 (the latest figure available), total assets in banking institutions had reached USD 23.76 billion, an increase of 21 percent from 2015 and equivalent to 118.20 percent of the GDP. ACLEDA bank and Canadia bank, both local banks, have the most assets in the market, amounting to 19.30 percent and 13.80 percent of the national total, respectively. The increasing maturity of the financial sector were evidenced by the public’s improved understanding of financial services, the expansion of financial intermediation, and the increasing diversity of financial products and services. In 2016, the number of depositors increased by 13.4 percent to 2,993,386, and the number of borrowers went up by 45.72 percent to 746,930. Loans and deposits rose by 20.52 percent to USD 13.83 billion and 21.82 percent to USD 13.75 billion, respectively.

The ratio of non-performing loans increased by 0.4 percentage points to 2.4 percent in 2016.

Foreign Exchange and Remittances

Foreign Exchange Policies

Though Cambodia has its own currency, the riel (denoted as KHR), U.S. dollars widely circulation in Cambodia and remain the primary currency for most large transactions. There are no restrictions on the conversion of capital for investors. Cambodia’s 1997 Law on Foreign Exchange states that there shall be no restrictions on foreign exchange operations through authorized banks. Authorized banks are required, however, to report the amount of any transfer equaling or exceeding USD 100,000 to the NBC on a regular basis.

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

The exchange rate between the riel and U.S. dollar is governed by a managed float and has been stable at around one U.S. dollar to KHR 4,000. Daily fluctuations of the exchange rate are low, typically under three percent. The Embassy is not aware of any cases in which investors have encountered obstacles in converting local currency to foreign currency or in sending capital out of the country. In the past several years, the Cambodian government has taken steps to increase general usage of the riel but, as noted above, the country’s economy remains largely dollarized.

Remittance Policies

Article 11 of the Law on the Amendment to the Law on Investment of 2003 states that QIPs can freely remit abroad foreign currencies purchased through authorized banks for the discharge of financial obligations incurred in connection with investments. These financial obligations include:

• Payment for imports and repayment of principal and interest on international loans;
• Payment of royalties and management fees;
• Remittance of profits; and
• Repatriation of invested capital in case of dissolution.

Sovereign Wealth Funds

Cambodia does not have a Sovereign Wealth Fund.

Government of the Republic of Cameron (GRC) from the President on down regularly state that they want to attract more foreign direct investment, particularly in infrastructure. In 2017, the GRC undertook several initiatives to attract FDI, including the second annual Cameroon Investment Forum in Douala. President Biya attended the EU-Africa economic summit and visited France and China, with the aim of inviting greater investment inflows.

Cameroon does not have laws that prohibit, limit, or condition foreign investment in any sector of the economy. The investment code has a number of general minimum requirements, which can also qualify the investor for some benefits. Local content, specifically in terms of local jobs going to Cameroonians, is increasingly becoming a requirement of contracts, though not yet enshrined in law. In general terms, the four criteria, though not obligatory, required to benefit from the code are (i) the share of local staff employed, (ii) the percentage of sales derived from exports, (iii) the use of local natural resources and (iv) the value-added contribution to the economy.

The Cameroon Investment Promotion Agency (CIPA), in collaboration with other authorities, is in charge of implementing these measures. CIPA promotes the image of Cameroon abroad, contributes to the creation of an enabling business environment in Cameroon, proposes measures to attract investors, and tries to improve implementation of sector codes. The GRC prioritizes and maintains ongoing dialogue with investors through private-public formal and informal institutions. An example of these institutions is the Cameroon Business Forum, which works to improve the business climate. Another example is the Groupement Inter-Patronal du Cameroun (GICAM), Cameroon’s largest business group, which also works with government to address specific sectoral issues. The GRC also consults with businesses on a broad range of issues such as taxation and industrial and labor regulations.

Limits on Foreign Control and Right to Private Ownership and Establishment

In Cameroon, foreign businesses can set up and own their businesses independently. There are no compulsory requirements to have a local partner. Subject to specific sector regulations, companies can engage in all forms of remunerative activities. There are no limits to foreign ownership or control. The GRC is the main economic actor in dozens of sectors, including upstream oil, telecom infrastructure, and electricity production. These sectors have specific regulations detailing the conditions under which the private sector may invest. These regulations are not outright prohibitions, but the State may grant a license (telecom) or operate through a production sharing contract (oil and gas sector). The government may screen some investment proposals in the context of standard due diligence in order to verify the credentials and professional competence of investors or investing companies. The GRC does not impose restrictions on outward or inward investment.

If an investor is prohibited from owning an assets it has built in Cameroon, the public private partnership (PPP) framework offers opportunities for a “Build, Operate and Transfer” (BOT) model, which enables investors to recoup their investment over time. The PPP framework is the main model recommended for foreign direct investment in large infrastructure projects. The government PPP Commission claims to have approved PPP projects worth USD 500 million since its creation.

Other Investment Policy Reviews

In recent months, the GRC and donors have conducted several economic policy reviews in the aftermath of the oil price collapse. In June 2017, the IMF approved a USD 666 million, three-year extended credit facility (ECF) for Cameroon to support economic and financial reforms. The ECF should help Cameroon control deficits and boost growth.

Despite the continued crisis in the two Anglophone regions, Cameroon perception from international sovereign rating agency is stable for 2017-2018. Standard & Poor’s, Moody’s, and Fitch each forecast a “stable outlook” for Cameroon. Authorities have endeavored to reassure investors and donors by stating that the country is “borrowing cautiously and spending wisely.” Strong internal factors support Cameroon’s economic resilience.

Cameroon has immense natural resource potential, in oil and gas, mineral deposits, forests, and arable land. Agriculture, services, transportation, and oil and gas drive the economy. An emerging consumer culture holds promise. Over half the population is under 19. A small but growing urban middle class seek new technology and are increasingly brand conscious.

Cameroon important economic sectors and their contribution to the GDP (2017)

Business Facilitation

In order to facilitate the creation of new enterprises, Cameroon has business creation centers around the country. These are known in French as the Centres de Formalites de Creation d’Entreprises (CFCE ), which can finalize the creation of a new enterprise within 72 hours. The CFCE also provides start-up tool kits for new entrepreneurs, and is referred to as a “one stop shop” for small- and medium-sized companies. Cameroon is also a member of the Organization for the Harmonization of Business Law and Accounting in Africa (known by its French Acronym OHADA, or Organisation pour l’harmonisation en Afrique du droit des affaires). OHADA aims to create a better investment climate by regional standardization of laws to attract investment and to foster more economic growth in the markets of the 17 OHADA member countries.

Cameroon’s Ministry of Small- and Medium-size Enterprises is developing an online business registration process. The government is assisted in this project by the United Nations Conference on Trade and Development (UNCTAD). More information can be found on https://businessfacilitation.org/countries/ .

The Institute of National Statistics provides quantitative indicators on the economy and sectors. http://www.statistics-cameroon.org/ 

The World Bank’s Doing Business Report 2018 found persistent challenges in enforcing contracts in Cameroon. Globally, Cameroon stands at 163 out of 190 economies on the ease of enforcing contracts, with one being the easiest. However, the report also indicates that Cameroon made enforcing contracts easier by creating specialized commercial divisions within its courts of first instance, the Francophone equivalent of trial courts. In principle, Cameroon has transparent policies and effective laws to foster competition on a non-discriminatory basis. Officials argue that these represent clarity and fairness, but in practice, the courts have severe logistical and other challenges. For example, court data is manually recorded because the legal system is not computerized. In many courts around Cameroon, court records are filed in paper and stored in folders, which make them subject to fire, deterioration, and tampering.

In terms of standards, Cameroon’s commercial legal system follows the OHADA rules which are supposed to be aligned with International Financial Reporting Standards (IFRS). Unfortunately, enforcement is weak in part because of lack of capacity. Cameroon does not train enough specialized judges in the commercial and economic fields. Consequently, poor enforcement of laws and accounting standards tends to create confusion for foreign investors. Despite efforts to align OHADA standards to international norms, GRC accounting regulations remain obsolete in the face of rapid developments in international finance and capital markets. To circumvent the problem, U.S. enterprises and investors often maintain two sets of accounting records, one in accordance with U.S. GAAP and suitable international standards, and another set to address the OHADA standards and GRC reporting requirements.

In view of dysfunctions and weaknesses in the courts, arbitration is becoming an increasingly common solution to business disputes. It is possible in Cameroon to solve some complex legal disputes through arbitration; and OHADA corporate law includes arbitration as an alternative to courts. Since OHADA is a supranational law, Cameroon must abide by its decisions, which follow international norms.

The National Assembly is the source of regulatory power, recognizing that the National Assembly, like the Senate and the Judiciary, are subservient to the President. Ministries initiate draft legislation and review some laws on a yearly basis. The public finance law is subject to scrutiny annually. Institutions and groups can also initiate legislation. In rare cases, draft bills or regulations are available for public comment. The National Institute of Statistics provides quantitative analysis that may be used during the review. However, public involvement is limited and enforcement mechanisms are weak, leading to poor oversight of administrative processes. Appeal and pressure mechanisms are limited, as the government does not consider the observations of civil society groups in final draft legislation. Consequently, the executive branch is responsible for 98 percent of laws, including the most relevant texts for businesses. President Paul Biya’s Cameroon Peoples’ Democratic Movement holds an overwhelming majority in the legislative body and draft legislation from the executive branch is rarely challenged.

Approved legislation is recorded in the Official Journal, a paper-based record system. The GRC does not have an electronic or online version of laws. The legislation process is completed when the President issues an implementation decree, which generally details the ways in which the law will be implemented. The power to issue decrees gives a high level of influence to the Executive branch. Individual ministries and bodies in the civil administration, all components of the executive branch, are responsible for the implementation of laws and regulations.

In recent years, with the support of donors, Cameroon has undertaken reforms to improve the efficiency of the legal system and public finance procedures. The budget reform process, for example, is ongoing. If fully implemented, public finance reforms could have a positive impact on foreign investors, create a better investment climate, and lead to more broad-based inclusive growth.

International Regulatory Considerations

Cameroon is a member of the Economic and Monetary Community of Central Africa (CEMAC). The treaties of this regional body supersede the laws of the member states. Cameroon is also a member of the United Nations system and a party to many international conventions. Cameroon has been a member of World Trade Organization since December 1995 and a member of GATT since May 1963.

Legal System and Judicial Independence

The Cameroonian legal system is a blend of French civil law and English common law. This dynamic creates tension within the judicial system, as lawyers and judges are rarely competent in both systems. Courts are structured in a pyramid system, with the Supreme Court functioning as the highest court in the land. Regulations and enforcement actions may be appealed and adjudicated in the national court system. Contracts are enforced through the courts or through arbitration. The country’s commercial law is the OHADA law.

The President of the Republic is also the supreme head of the judiciary. This constitutional status gives the executive branch immense power over the judiciary. The President of the Republic can appoint and demote judges, and he can decide on the internal and territorial deployment of legal institutions such as courts. In the absence of proper checks and balances, the current judicial process is unpredictable. The outcomes of the legal process are uncertain because judges are not immune from political pressure. Simple logistical challenges, such as the lack of computers to digitally process court documents, can create serious delays.

Laws and Regulations on Foreign Direct Investment

Law No. 2013/004 of 18 April 2013 defines incentives for private investment in Cameroon and makes explicit that government’s stated commitment to protect investors’ rights. The law is valid for domestic as well as foreign investors. Additional laws and regulations are available on the website of Cameroon’s Ministry of Finance http://www.minfi.gov.cm/index.php/en/documents). Cameroon’s Investment Promotion Agency (CIPA) offers a one-stop-shop website for investment, with relevant laws, rules, procedures, and reporting requirements for investors. The National Competition Commission of the Ministry of Commerce is the official body in charge of competition regulations.

Expropriation and Compensation

Decree No.85-9 of July 4, 1985 and the subsequent implementation of Decree No.87-1872 of December, 16 1987 lay down the procedure governing expropriation for public purposes and conditions for compensation. Some of the provisions of these legal texts were repealed by Instruction No005/I/Y.25/MINDAF/D220 of December 29, 2005.

In the name of public interest, the State may expropriate from any person or entity previously privately owned land. The laws also lay down the formalities to be observed within the context of the procedure, both at the central and local levels. In recent years, the GRC expropriated private property for the construction of large infrastructure projects such as roads and hydroelectric dams. The government has a compensation process in place to meet the losses of those affected by such decisions. In practice, over the past 10 years, serious corruption schemes have marred several compensation cases. These incidents have diluted public trust in the expropriation process.

Dispute Settlement

ICSID Convention and New York Convention

Cameroon ratified the International Centre for Settlement of Investment Disputes (ICSID) Convention on January 3, 1967, and the New York Convention on February 19, 1988. There is no specific domestic legislation providing for enforcement under the 1988 New York Convention and for the enforcement of awards under the ICSID Convention.

The OHADA-signatory nations adopted a uniform act on arbitration (the Uniform Act) on March 11, 1999. The Uniform Act sets out the basic rules applicable to any arbitration, when the seat of arbitration is located in an OHADA member state. The Uniform Act is based on the United Nations Commission on International Trade Law (UNCITRAL) model law. It supersedes the national laws on arbitration of the OHADA states. Cameroon’s arbitration law is contained in its code of civil and commercial procedure in the third volume, Articles 576 to 601.

There have been cases of disputes between Cameroonian partners and U.S. companies, but they are often solved through arbitration. Misunderstandings between partners about contractual commitments tend to cause conflicts, though such cases have been infrequent over the past ten years. Issues related to a Bilateral Investment Treaty or a Free Trade Agreement with an investment chapter with the United States have thus far not emerged in claims by U.S. investors. Local courts may recognize foreign arbitral awards issued against the GRC, but they are not well equipped to enforce such decisions. In general, foreign investors complain more about administrative harassment or bottlenecks and less about extrajudicial actions.

The Embassy has engaged key government officials for some cases in which U.S. companies faced disputes or harassment. In practice, the duration of dispute resolution will depend on the complexity of the case, and no standard timeline exists. This alternative approach can be further complicated by the inherent dysfunctions within the public administration, such as bureaucratic red tape, corruption, and lack of technical expertise on modern commercial contracts.

Additional alternative dispute resolution may involve mediation and negotiations, also possibly through third-party binding arbitration. The OHADA system serves both as domestic and primary reference legislation. The Groupement Interpatronal du Cameroon, the country’s most powerful business lobbying group, has an arbitration center based in Douala.

As a treaty, the OHADA prevails over domestic laws. An international arbitration award can prevail, especially if operating through the OHADA framework. The Common Court of Justice and Arbitration (CCJA) is both an arbitration institution and a judicial court, with a remit covering all the OHADA states. Judicial processes are bureaucratic, expensive, and time-intensive. This is true even for domestic and state-owned companies, which, like their foreign competitors, also suffer from the weaknesses of the legal system and are not guaranteed any better treatment in case of dispute.

Bankruptcy Regulations

Cameroon has bankruptcy laws, which recognize the right of creditors, the equity of shareholders, and other types of liabilities. Bankruptcy is not criminalized, if it is not a deliberate collusion to avoid taxes or mislead investors. Globally, Cameroon stands at 122 in the ranking of 190 economies for the ease of resolving insolvency. According to data collected by Doing Business 2017, resolving insolvency takes 2.8 years on average and costs 33.5 percent of the debtor’s estate, with the most likely outcome being that the company will be sold piecemeal. The average recovery rate is 15.8 cents on the dollar.

Capital Markets and Portfolio Investment

Cameroon is open to foreign investment and has been able to attract global brands. U.S. companies such as General Electric, Boeing, and Oracle have projects in the country. There are no governmental restrictions at this time and no policy obstructions are interfering in the investment markets. In October 2016, JP Morgan led senior executives from five investment management companies to Cameroon. These investment firms – Franklin Templeton Investments, Fidelity, Lazard Asset Management, Grantham Mayo van Otterloo & Co. and Alliance Bernstein have about USD 145 million invested in Cameroon. Another group of prospective investors led by Citibank visited Cameroon in late October 2016. Collectively, this group has at least three major U.S. funds have invested USD 145 million in Cameroon’s first Eurobond, issued in 2015.

The Douala Stock Exchange (DSX) is one of the youngest stock exchanges in Sub-Saharan Africa. Created in 2001, it currently has only three companies and five sovereign bonds listed. The regulatory system of the DSX permits portfolio investment, but the market is still in its infancy, suffering from low liquidity and bureaucratic inertia.

International capital market actors, including private equity firms, operate in Cameroon, enabling Cameroon to connect with larger international investors. There are also major bank credit instruments available on the open market and venture capital operations are gaining traction in the business sector. Foreign investors can get credit on the local market and the private sector has access to a variety of credit instruments. Cameroon is connected to international banking payment systems and there are no government restrictions on payments or transfers. The banking system is regulated by the regional Bank of Central African States (BEAC). The bank follows IMF standards.

Money and Banking System

The banking sector is regulated, but financial institutions tend to suffer from under-performance on local debt and un-serviced loans from both commercial and individual debtors. Less than 10 percent of Cameroonians have access to banking services. According to the World Bank, non-performing loans were 10.31 percent of total bank loans in 2016. Local banks include:

1. Afriland First Bank Group (USD 2.3 billion in assets)
2. Banque Internationale pour l’Epargne et le Credit (USD 2.1 billion)
3. Societe Generale Cameroun (USD 972 million in Cameroon, global assets of EUR 1.308 trillion)
4. Standard Chartered Bank Cameroon (USD 706 million)
5. Ecobank (USD 508 million in Cameroon, global USD 22.5 billion)

BEAC serves the CEMAC region, which includes Cameroon, the Central African Republic, Chad, Equatorial Guinea, Gabon, and the Republic of Congo (https://www.beac.int/ ). BEAC has been in operation since 1972, although rocked by embezzlement scandals in 2009 and 2010. The current governor of BEAC is Abbas Mahamat Tolli (from Chad).

There are no restrictions on foreigners establishing bank accounts, credit instruments, business financing, or other such transactions. Rules on all forms of mergers and acquisitions, including hostile, are governed by OHADA and are detailed in a lengthy body of commercial, legal, and accounting codes.

Foreign Exchange and Remittances

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment. Funds may be converted to any currency. The national (regional) currency, the Central African CFA Franc (CFA) is pegged to the Euro and fixed at a specific rate. BEAC follows IMF standards and its authority is independent of member state influence.

Cameroon has not passed any laws which change or tighten access to foreign exchange for investment remittances. There are no time limitations on transactions beyond the classic banking transactions timeline. Remittance policies and banking transactions are regulated by the regional Central Bank. Foreign investors can remit through convertible and negotiable instruments using legal channels recognized by the regional central bank. Any incidence of currency manipulation tactics is handled by the regional central bank.

Domestically, the remittance market is expanding. Cameroon currently counts more than six million registered mobile money subscribers. In addition, 1.5 million people are using four different digital solutions currently offered by banks and mobile phone companies, namely ATM, mobile wallet, mobile debit card, and website. These systems support various forms of remittances and financial services. Cameroon does not have a sovereign wealth fund.

Policies Toward Foreign Direct Investment

With few exceptions, Canada offers full national treatment to foreign investors within the context of a developed open market economy operating with democratic principles and institutions. Canada reviews investments under the ICA. Foreign investment is prohibited or restricted in several sectors of the economy such as telecoms, airlines and culture. The U.S. and Canada agree on important foreign investment principles, including right of establishment and national treatment.

The U.S. has long been Canada’s primary source for foreign investment, and Canada is the second largest source of FDI in the U.S. after the United Kingdom (U.K.). Nearly 50 percent of Canada’s FDI comes from the U.S. At the end of 2016, the most recent year available, U.S. FDI in Canada was USD 364 billion. The U.S.’ share of FDI in Canada has declined considerably since 2005 when it was 63.2 percent of Canada’s total FDI stock. According to the United Nations Conference on Trade and Development (UNCTAD), Canada attracted 3.3 percent of the world’s FDI in 2015.

Canadian residents have become increasingly active as worldwide investors. Canadian FDI in the U.S. was USD 454 billion in 2016, an increase of 12 percent (USD 55 billion) compared to 2015 (http://bea.gov/international/direct_investment_multinational_companies_comprehensive_
data.htm ). The U.S. is the top destination for Canadian FDI. The U.S.’ share of total Canadian FDI in 2016 increased to 47.5 percent from 44 percent in 2015 (http://www.international.gc.ca/economist-economiste/performance/state-point/state_2017_point/index.aspx?lang=eng ).

The Canadian government launched a new federal agency, Invest in Canada, in March 2018. The agency will help global business navigate Canada’s investment landscape and promote inward FDI.

Limits on Foreign Control and Right to Private Ownership and Establishment

Aerospace and Defense ‑ Commercial Aviation: Canada limits foreign ownership of Canadian air carriers to 25 percent. In addition, foreign interests may not control a Canadian air carrier. One Canadian airline has put a special procedure in place for foreign share transfers that reclassifies its stock as variable voting shares. This allows non-Canadians to own more than 25 percent of the equity while reducing foreign voting rights and allowing the airline to remain Canadian with at least 75 percent of its voting interests owned and controlled by Canadians. Bill C-49 is in Parliament and would increase foreign ownership limits for commercial airlines to 49 percent.

Aerospace and Defense – General Aviation: No non-Canadian (other than permanent residents) may register a general aviation aircraft for commercial or personal use in Canada.

Energy and Environmental Industries: Canada continues to encourage additional foreign investment in its energy sector to develop its vast oil and gas resources. In Quebec, calls for tender for energy projects vary between 30 and 60 percent of local content. Canada has faced several investment disputes involving energy in recent years. A U.S. oil and gas company filed a notice of arbitration under NAFTA Chapter 11 in September 2013, following the Government of Quebec’s announced suspension of oil and gas exploration beneath the Saint Lawrence River in June 2011. The U.S. company filed an additional memorial in April 2015 stating that Quebec’s provincial legislation effectively destroyed the economic potential of its investment and deprived it of the ability to enjoy any economic benefit from the investment. The USD 118.9 million damages claim is still active and the government of Canada filed a counter-memorial in January 2016. Further, the company claims the suspension breached NAFTA expropriation and minimum standard of treatment provisions.

Energy and Environmental Industries – Mining: Generally, foreigners cannot be majority owners of uranium mines.

Energy and Environmental Industries – Electric Power Generation and Distribution: Regulatory reform in electricity continues in Canada in expectation that increased competition will lower costs of electricity supply. Province-owned power firms are interested in gaining greater access to the U.S. power market. Since power markets fall under the jurisdiction of the Canadian provinces, they are at the forefront of the reform effort. Several Canadian provinces have introduced initiatives to encourage the development and implementation of renewable sources of electricity.

Finance – Financial Services: Chapter 14 of the NAFTA deals specifically with the financial services sector, and eliminates discriminatory asset and capital restrictions on U.S. bank subsidiaries in Canada. The NAFTA also exempts U.S. firms and investors from the federal “10/25” rule so that they will be treated the same as Canadian firms. The “10/25” rule prevents any non-NAFTA, nonresident entity from acquiring more than 10 percent of the shares (and all such entities collectively from acquiring more than 25 percent of the shares) of a federally regulated, Canadian-controlled financial institution. The limit for single, non-NAFTA shareholders is 20 percent. Several provinces, however, including Ontario and Quebec, have similar “10/25” rules for provincially chartered trust and insurance companies that were not waived under the NAFTA.

The requirement that bank ownership be “widely held” with no more than 25 percent of its shares owned by a single shareholder is said to prevent ownership concentration without discriminating against foreign investors; however, Canadian influence is still exerted through certain requirements of the Bank Act:

• the head office of a bank must be located in Canada;
• shareholders’ meetings are required to be held in Canada;
• two-thirds of the directors must be resident Canadians;
• the chief executive officer of the bank must ordinarily be resident in Canada;
• important corporate and transactional documents must be kept in Canada;
• certain administrative changes require ministerial approval.

Information & Communication – Telecommunications: Under provisions of Canada’s Telecommunications Act, foreign ownership of transmission facilities is limited to 20 percent direct ownership and 33 percent through a holding company, for an effective limit of 46.7 percent total foreign ownership. Canada also requires that at least 80 percent of the members of the board of directors of facilities-based telecommunications service suppliers be Canadian citizens.

Canada amended the Telecommunications Act in June 2012 to rescind foreign ownership restrictions on carriers with less than 10 percent share of the total Canadian telecommunications market. Foreign-owned carriers are permitted to continue operating if their market share grows beyond 10 percent provided the increase does not result from the acquisition of or merger with another Canadian carrier. The policy change was part of the Canadian government’s strategy to facilitate more competition in the telecom sector.

Canada defines cultural industries to include: the publication, distribution or sale of books, magazines, periodicals or newspapers, other than the sole activity of printing or typesetting; the production, distribution, sale or exhibition of film or video recording, or audio or video music recordings; the publication, distribution or sale of music in print or machine-readable form; and any radio, television and cable television broadcasting undertakings and any satellite programming and broadcast network services.

The Broadcasting Act sets out the policy objectives of enriching and strengthening the cultural, political, social, and economic fabric of Canada. The Canadian Radio-television and Telecommunications Commission (CRTC) administers broadcasting policy. When a Canadian broadcast service is licensed in a format competitive with that of an authorized non-Canadian service, the commission can drop the non-Canadian service if a new Canadian applicant requests it to do so. Licenses will not be granted or renewed to firms that do not have at least 80 percent Canadian control, represented both by shareholding and by representation on the firms’ board of directors.

Canada allows up to 100 percent foreign equity in an enterprise to publish, distribute and sell periodicals, but all foreign investments in this industry are subject to review by the Minister for Canadian Heritage, and investments may not occur through acquisition of a Canadian-owned enterprise. No more than 18 percent of the total advertising space in foreign periodicals exported to Canada may be aimed primarily at the Canadian market. Canadian advertisers may place advertisements in foreign-owned periodicals, and may claim a tax deduction for the advertising costs, including in cases where the periodical is a Canadian issue of a foreign-owned periodical.

This regime is the result of a 1999 U.S.-Canada agreement, which balanced U.S. publishers’ desire for access to the Canadian market against Canada’s desire to ensure that Canadian advertising expenditures support the production of Canadian editorial content.

Other Investment Policy Reviews

Canada has not conducted an Investment Policy Review through the Organization for Economic Co-operation and Development (OECD), WTO, or UNCTAD in the past three years.

Business Facilitation

Innovation, Science and Economic Development Canada (ISED) works with Global Affairs Canada (GAC) to encourage foreign companies to invest in Canada and to promote an open, rules-based global investment regime. The Canadian Trade Commissioner Service has a comprehensive website “Invest in Canada” with the needed information for starting and registering a business in Canada. It can be found at the following website: http://www.international.gc.ca/investors-investisseurs/index.aspx?lang=eng . While the website is available in several languages, navigation can be difficult. In addition to Federal registration, businesses may also be required to register with the provincial, territorial, and municipal revenue agencies (http://www.cra-arc.gc.ca/tx/bsnss/tpcs/bn-ne/bro-ide/menu-eng.html ). Canada ranks 18th on the 2017 World Bank’s Ease of Doing Business Scale. For more general information on the Canadian business climate, see:

• http://iab.worldbank.org ;
• http://ger.co/how-it-works/information-portals ;
• http://www.doingbusiness.org/data/exploretopics/starting-a-business .

In its 2018 budget, the Canadian government launched a Canadian Women Entrepreneurship Strategy to break down the barriers to growth-oriented entrepreneurship that will include new funding from the regional development agencies targeted to women entrepreneurs, mentorship, and skills training, as well as targets for federal procurement from women-led business. The Procurement Strategy for Aboriginal Business promotes subcontracting to Aboriginal firms and encourages Aboriginal firms to form joint ventures with other Aboriginal and non-Aboriginal businesses (http://www.aadnc-aandc.gc.ca/eng/1100100032802/1100100032803). Departments must set aside procurement contracts for competition among Aboriginal businesses when an Aboriginal population is the end user of the good or service being procured and the value exceeds USD 3,884 (C5,000).

Outward Investment

Canada does not restrict domestic investors from investing abroad. Canadian companies are encouraged to invest abroad through Export Development Canada (EDC), which created the Canadian Direct Investment Abroad (CDIA) program. CDIA offers Canadian businesses a range of solutions to obtain financing and research international markets in support of long-term business objectives.

Transparency of the Regulatory System

The transparency of Canada’s regulatory system is similar to that of the U.S. The legal, regulatory, and accounting systems are transparent and consistent with international norms. Proposed legislation is subject to parliamentary debate and public hearings, and regulations are issued in draft form for public comment prior to implementation. While federal and/or provincial licenses or permits may be needed to engage in economic activities, regulation of these activities is generally for statistical or tax compliance reasons. The Bureau of Competition Policy and the Competition Tribunal, a quasi-judicial body, enforce Canada’s antitrust legislation.

Canada and the U.S. announced the creation of the Canada-U.S. Regulatory Cooperation Council (RCC) on February 4, 2011. This regulatory cooperation does not encompass all regulatory activities within all agencies. Rather, the RCC is focused on areas where benefits can be realized by regulated parties, consumers, and/or regulators without sacrificing outcomes such as protecting public health, safety and the environment. The initial RCC Joint Action Plan set out 29 initiatives where Canada and the U.S. sought greater regulatory alignment.

The World Bank published in-depth information on regulatory transparency for 185 economies. For information on Canada, see http://rulemaking.worldbank.org/data/explorecountries/canada#cer_transparency .

International Regulatory Considerations

Canada is not part of a regional economic block and does not incorporate regional standards into its economic system. Canada and the U.S. work together through the RCC to develop like standards and streamline product certification on both sides of the border. Canada, with the U.S. and Mexico, is a member of the NAFTA.

Canada is a member of the WTO and notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Canada is a signatory to the Trade Facilitation Agreement, which it ratified in December 2016.

Legal System and Judicial Independence

Canada’s legal system is based on English common law, except for Quebec, which follows civil law. Canada has both a federal parliament which makes laws for all of Canada and a legislature in each of the provinces and territories that deals with laws in their areas. When Parliament or a provincial or territorial legislature passes a statute, it takes the place of common law or precedents dealing with the same subject. The judicial branch of government is independent of the executive branch and the current judicial process is considered procedurally competent, fair, and reliable. The provinces administer justice in their jurisdictions. This includes organizing and maintaining the civil and criminal provincial courts and civil procedures in those courts.

Canada has both written commercial law and contractual law, and specialized commercial and civil courts. Canada’s Commercial Law Directorate provides advisory and litigation services to federal departments and agencies whose mandate includes a commercial component and has legal counsel in Montréal and Ottawa.

Parliament and provincial and territorial legislatures give government organizations the authority to make specific regulations. As of June 1, 2009, all consolidated Acts and regulations on the Justice Laws Website (http://laws-lois.justice.gc.ca/eng/ ) are “official,” meaning they can be used for evidentiary purposes.

Laws and Regulations on FDI

Foreign investment policy in Canada has been guided by the Investment Canada Act (ICA) since 1985. The ICA liberalized policy on foreign investment by recognizing that investment is central to economic growth and key to technological advancement. The ICA provides for review of large acquisitions by non-Canadians and imposes a requirement that these investments be of “net benefit” to Canada, and conducts a national security review of every acquisition. For the vast majority of small acquisitions and the establishment of new businesses, foreign investors need only to notify the Canadian government of their investments.

U.S. FDI in Canada is subject to provisions of the ICA, the WTO, and the NAFTA. Chapter 11 of the NAFTA ensures that regulation of U.S. investors in Canada and Canadian investors in the U.S. results in treatment no different than that extended to domestic investors within each country, i.e., “national treatment.” Both governments are free to regulate the ongoing operation of business enterprises in their respective jurisdictions provided that the governments accord national treatment to both U.S. and Canadian investors.

Competition and Anti-Trust Laws

The Bureau of Competition Policy and the Competition Tribunal, a quasi-judicial body, enforce Canada’s antitrust legislation.

Expropriation and Compensation

Canadian federal and provincial laws recognize both the right of the government to expropriate private property for a public purpose, and the obligation to pay compensation. The federal government has not nationalized any foreign firm since the nationalization of Axis property during World War II. Both the federal and provincial governments have assumed control of private firms, usually financially distressed, after reaching agreement with the former owners.

Dispute Settlement

ICSID Convention and New York Convention

Canada ratified the International Centre for Settlement of Investment Disputes (ICSID) Convention on December 1, 2013 and is a signatory to the 1958 New York Convention, ratified on May 12, 1986. Canada signed the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (known as the Mauritius Convention on Transparency) in March 2015.

Investor-State Dispute Settlement

Canada accepts binding arbitration of investment disputes to which it is a party only when it has specifically agreed to do so through a bilateral or multilateral agreement, such as a Foreign Investment Protection Agreement. The provisions of Chapter 11 of the NAFTA guide the resolution of investment disputes between NAFTA persons and NAFTA member governments. The NAFTA encourages parties to settle disputes through consultation or negotiation. It also establishes special arbitration procedures for investment disputes separate from the NAFTA’s general dispute settlement provisions. Under the NAFTA, a narrow range of disputes dealing with government monopolies and expropriation between an investor from a NAFTA country and a NAFTA government may be settled, at the investor’s option, by binding international arbitration. An investor who seeks binding arbitration in a dispute with a NAFTA party gives up his right to seek redress through the court system of the NAFTA party, except for proceedings seeking nonmonetary damages. As stated previously, the NAFTA is currently being renegotiated. Canada does not have a history of extrajudicial action against foreign investors.

A list of current NAFTA Chapter 11 Arbitrations is below:

• Clayton/Bilcon v. Government of Canada: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/clayton.aspx?lang=eng ;
• Lone Pine Resources Inc. v. Government of Canada: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/lone.aspx?lang=eng ;
• Mercer International Inc. v. Government of Canada: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/mercer.aspx?lang=eng ;
• Mobil Investments Inc. v. Government of Canada: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/mobil2.aspx?lang=eng ;
• Resolute Forest Products Inc. v. Government of Canada: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/resolute.aspx?lang=eng ;
• Tennant Energy, LLC. v. Government of Canada: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/tennant.aspx?lang=eng .

International Commercial Arbitration and Foreign Courts

Provinces primarily regulate arbitration within Canada. With the exception of Quebec, each province has legislation adopting the UNCITRAL Model Law. The Quebec Civil Code and Code of Civil Procedure are consistent with the UNCITRAL Model Law. The Canadian Supreme Court has ruled that arbitration agreements must be broadly interpreted and enforced. Canadian courts respect arbitral proceedings and have been willing to lend their enforcement powers to facilitate the effective conduct of arbitration proceedings, requiring witnesses to attend and give evidence and produce documents and other evidence to the arbitral tribunal.

Bankruptcy Regulations

Bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act (BIA) and is not criminalized. Creditors must deliver claims to the trustee and the trustee must examine every proof of claim. The trustee may disallow, in whole or in part, any claim of right to a priority under the BIA or security. Generally, the test of proving the claim before the trustee in bankruptcy is very low and a claim is proved unless it is too “remote and speculative.” Provision is also made for dealing with cross-border insolvencies and the recognition of foreign proceedings. Canada is ranked number 11 for ease of “resolving insolvency” by the World Bank. Credit bureaus in Canada include Equifax Canada and TransUnion Canada.

Capital Markets and Portfolio Investment

Canada’s capital markets are open, accessible, and without onerous regulatory requirements. Foreign investors are able to get credit in the local market. Canada has its own stock market, the Toronto Exchange, and there is sufficient liquidity in the markets to enter and exit sizeable positions. The World Economic Forum ranked Canada’s banking system as the second “most sound” in the world in 2017. Canadian banking stability is linked to high capitalization rates that are well above the norms set by the Bank for International Settlements. The Canadian government and Bank of Canada do not place restrictions on payments and transfers for current international transactions.

Money and Banking System

The Canadian banking industry is dominated by six major domestic banks, but includes a total of 32 domestic banks, 21 foreign bank subsidiaries, 28 full-service foreign bank branches and four foreign bank lending branches operating in Canada. The six largest banks account for approximately 93 percent of total assets among Canada’s federally regulated deposit-taking institutions. These institutions manage close to USD 4 trillion in assets. The remaining 10 percent of Canadian banks’ assets are held by smaller banks with niche focuses such as mortgage lending or credit cards. Many large international banks have a presence in Canada through a subsidiary, representative office, or branch of the parent bank. Ninety-nine percent of Canadians have an account with a financial institution. The IMF noted in 2014 that Canada’s banking system is well capitalized, profitable, and nonperforming loans are low.

Foreign financial firms interested in investing submit their applications to the Office of the Superintendent of Financial Institutions (OSFI) for approval by the Finance Minister. U.S. firms are present in all three sectors, but play secondary roles. U.S. and other foreign banks have long been able to establish banking subsidiaries in Canada, but no U.S. banks have retail banking operations in Canada. Several U.S. financial institutions have established branches in Canada, chiefly targeting commercial lending, investment banking, and niche markets such as credit card issuance.

The Bank of Canada is the nation’s central bank. Its principal role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act. The Bank’s four main areas of responsibility are monetary policy, promoting a safe, sound, and efficient financial system, issuing and distributing currency, and being the fiscal agent for Canada.

Foreign Exchange and Remittances

Foreign Exchange Policies

Canada has a free floating exchange rate.

Remittance Policies

The Canadian dollar is fully convertible and the central bank does not place time restrictions on remittances. Canada provides some incentives for Canadian investment in developing countries through programs offered by Global Affairs Canada.

Sovereign Wealth Funds

Canada does not have a sovereign wealth fund, but the province of Alberta has the Heritage Savings Trust Fund established to manage the province’s share of petroleum royalties. The fund’s value was US9.3 billion (C12.6 billion) on December 31, 2017. It is invested in a globally diversified portfolio of public and private equity, fixed income, and real assets. The fund follows the voluntary code of good practices known as the “Santiago Principles” and participates in the IMF-hosted International Working Group of SWFs. 45 percent of the Heritage Fund is currently held in equity investments, 14 percent of which are Canadian equities. The fund is currently heavily invested in the U.S. dollar (16 percent of total currency) with more than USD 2.9 billion in reserves.

Policies Toward Foreign Direct Investment

The GOC’s policies towards foreign direct investment (FDI) are generally positive. There are few formal restrictions on foreign trade and investment.

Chad’s laws and regulations encourage FDI. The National Investment Charter of 2008, a set of guildelines promulgated by the National Agency for Investment and Exports (ANIE, Agence Nationale des Investissements et des Exports), an agency of the Ministry of Industrial and Development & Private Sector Promotion, offers incentives to foreign companies establishing operations in Chad, including up to five years of tax-exempt status. Under Chadian law, foreign and domestic entities may establish and own business enterprises. The National Investment Charter permits full foreign ownership of companies in Chad. The only limit on foreign control is on ownership of companies deemed related to national security. The National Investment Charter guarantees both foreign companies and individual’s equal standing with Chadian companies and individuals in the privatization process. In principle, tenders for foreign investment in state-owned enterprises (SOEs) and for government contracts are conducted through open international bid procedures.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign ownership or control. There are no sector-specific restrictions that discriminate against market access for U.S. investors.

Other Investment Policy Reviews

The World Trade Organization (WTO) last published a trade policy review for Chad, Cameroon, Republic of Congo, Gabon, and Central African Republic in July 2013.

Neither the Organization for Economic Cooperation and Development (OECD) nor the United Nations Committee on Trade and Development (UNCTAD) has published any investment policy reviews (IPR) of Chad.

Business Facilitation

Foreign businesses interested in investing in or establishing an office in Chad should contact ANIE, which offers a one-stop shop for filing the legal forms needed to start a business. The process officially takes 72 hours and is the only legal requirement for investment. ANIE’s website (www.anie-tchad.com ) provides additional information. Online business registration is not yet available via the Global Enterprise Registration web site (www.GER.co ) or the Business Facilitation Program (www.businessfacilitation.org ). However, ANIE aims to join these initiatives in the near future.

In 2017, the World Bank ranked Chad 180 out of 190 countries for ease of starting a business.

Contracts are tailored to each investment and often include additional incentives and concessions, such as permissions to import labor or agreements to work with specific local suppliers. Some contracts are confidential. There have been reports where the government has changed the terms of contracts or apply new laws broadly, even to companies that have pre-existing agreements that exempt them. Chad’s judicial system is weak, and rulings, including those relating to contract disputes, are susceptible to government interference. There is limited capacity within the judiciary to address commercial issues, including contract disputes. Parties usually settle disputes directly or through arbitration provided by the Chamber of Commerce, Industry, Agriculture, Mining, and Crafts (CCIAMA) or through an outside entity, such as the International Chamber of Commerce (ICC) in Paris. The Ministry responsible for trade has intervened in a number of out-of-court settlements.

Outward Investment

The GOC does not offer any programs or incentives encouraging outward investment, although there no restrictions on domestic investors who might have the means and the interest in investing abroad.

Transparency of the Regulatory System

Chad is currently implementing effective laws to foster competition and establish clear rules based on Uniform Acts produced by the Organization for the Harmonization of Business Law in Africa (OHADA, Organisation pour l’Harmonisation en Afrique du Droit des Affaires, www.ohada.com ). However, in the current climate, certain Chadian and foreign companies in some sectors may encounter situations in which competition with other well-established companies is difficult.

Regulations and financial policies generally do not impede competition in the financial sector. Legal, regulatory, and accounting systems pertaining to banking are transparent and consistent with international norms. Chad began using OHADA’s accounting system in 2002, bringing its national standards into harmony with accounting systems throughout the region. Several international accounting firms have offices in Chad. However, while accounting, legal, and regulatory procedures are consistent with international norms, some local firms do not use generally accepted standards and procedures in their business practices.

There are no informal regulatory processes managed by nongovernmental organizations or private sector associations. Proposed laws and regulations are not published in draft form for public comment. The GOC occasionally provides opportunities for local associations, such as the National Council of Employers (CNPT, Conseil National du Patronat Tchadien) or the CCIAMA to comment on proposed laws and regulations pertaining to investment.

Chad is not yet listed on www.businessfacilitation.org .

International Regulatory Considerations

As indicated above, Chad is a member of OHADA. It is also a member of the Central African Economic and Monetary Community (CEMAC, Communaute Economique et Financiere de l’Afrique Centrale, www.cemac.int ) and OHADA. Chad is currently implementing business and economic laws and regulations based on CEMAC standards and OHADA Uniform Acts. Chad’s banking sector is regulated by COBAC (Commission Bancaire de l’Afrique Centrale), a regional agency.

Legal System and Judicial Independence

Chad’s legal system and commercial law are based on the French Civil Code. The constitution recognizes customary and traditional law if it does not interfere with public order or constitutional rights. Chad’s judicial system rules on commercial disputes in a limited technical capacity. The Chadian President appoints judges without National Assembly confirmation, and thus the judiciary may be subject to executive influence. Courts normally award monetary judgments in local currency, although it may designate awards in foreign currencies based on the circumstances of the disputed transaction.

Chad’s commercial laws are based on standards promulgated by CEMAC, OHADA, and the Economic Community of Central African States (CEEAC, Communaute Economique des Etats de l’Afrique Centrale, http://www.ceeac-eccas.org ). The Government and National Assembly are currently in the process of adopting legislation to comply fully with all these provisions.

Specialized commercial tribunal courts were authorized in 1998 but not operational until 2004. These tribunals exist in five major cities but lack adequate technical capacity to perform their duties. Firms not satisfied with judgments in these tribunals may appeal to OHADA’s regional court in Abidjan, Ivory Coast which ensures uniformity and consistent legal interpretations across its member countries and several Chadian companies have done so. OHADA also allows foreign companies to utilize tribunals outside of Chad, generally in Paris, France, to adjudicate business disputes. Finally, CEMAC established a regional court in N’Djamena in 2001 to hear business disputes, but this body is not widely used.

Contracts and investment agreements can stipulate arbitration procedures and jurisdictions for settlement of disputes. If both parties agree and settlements do not violate Chadian law, Chadian courts will respect the decisions of courts in the nations where particular agreements were signed, including the United States. This principle also applies to disputes between foreign companies and the Chadian Government. Such disputes can be arbitrated by the International Chamber of Commerce (ICC). Foreign companies frequently choose to include clauses in their contract to mandate ICC arbitration.

Bilateral judicial cooperation is in effect between Chad and certain nations. In 1970, Chad signed the Antananarivo Convention, covering the discharge of judicial decisions and serving of legal documents, with eleven other former French colonies (Benin, Burkina Faso, Cameroon, CAR, Congo-Brazzaville, Gabon, Cote d’Ivoire, Madagascar, Mauritania, Niger, and Senegal). Chad has similar arrangements in place with France, Nigeria, and Sudan.

Laws and Regulations on Foreign Direct Investment

The National Investment Charter encourages foreign direct investment. Chad is a member of the Central African Economic and Monetary Community (CEMAC, Communaute Economique et Financiere de l’Afrique Centrale, www.cemac.int ) and the Organization for the Harmonization of Business Law in Africa (OHADA, Organisation pour l’Harmonisation en Afrique du Droit des Affaires, www.ohada.com ). Chad is currently implementing business and economic laws and regulations based on CEMAC standards and OHADA Uniform Acts.

Foreign investors using the court system are not generally subject to executive interference. In addition, the OHADA Treaty allows foreign companies to utilize tribunals outside of Chad, e.g., the ICC in Paris, France, to adjudicate any disputes. Companies may also access the OHADA’s court located in Abidjan, Cote d’Ivoire.

Competition and Anti-Trust Laws

Regulation of competition is covered by the OHADA Uniform Acts that form the basis for Chadian business and economic laws and regulations. The Office of Competition in Chad’s Ministry of Industrial and Commercial Development & Private Sector Promotion reviews transactions for competition-related concerns.

Expropriation and Compensation

Chadian law protects businesses from nationalization and expropriation, except in cases where expropriation is in the public interest. There were no government expropriations of foreign-owned property in 2017. There are no indications that the GOC intends to expropriate foreign property in the near future.

Article 41 of Chad’s Constitution prohibits seizure of private property except in cases of urgent public need. A 1967 Land Law prohibits deprivation of ownership without due process, stipulating that the state may not take possession of expropriated properties until 15 days after the payment of compensation. The government continues to work on reform of the 1967 law. A draft law encourages foreign companies to own property instead of leasing.

Dispute Settlement

ICSID Convention and New York Convention

Chad has been a signatory and contracting state of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”) since 1966.

Chad is not a contracting state of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Arbitration Convention”).

Investor-State Dispute Settlement

Chad is signatory to an investment agreement among the member states of CEMAC, CEEAC, and OHADA. The OHADA Investment Arrangement, with provisions for securities, arbitration, dispute settlement, bankruptcy, recovery, and other aspects of commercial regulation, has defined the commercial rights of several economic stakeholders, e.g., the Chadian Treasury, and provides for the enforcement of foreign arbitral awards. Chad has no Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter with the United States.

There is no formal record of the government’s handling of investment disputes. Some U.S. and other foreign investors have been involved in disputes with the GOC, particularly over issues regarding taxes and duties, though there are no official statistics. Investment disputes involving foreign investors are frequently arbitrated by an independent body.

International Commercial Arbitration and Foreign Courts

In addition to independent courts, such as the ICC, Chad’s constitution recognizes customary and traditional law as long as it does not interfere with public order or constitutional rights. As most businesses operate in the informal sector, customary and traditional law function as alternative dispute resolution (ADR) mechanisms when parties are from the same tribe or clan and express their desire to settle outside of the formal court.

Specialized commercial tribunal courts were authorized in 1998 and became operational in 2004. These tribunals exist in five major cities, but lack adequate capacity to perform their duties. The Commercial Tribunal N’Djamena has heard disputes involving foreign companies.

Foreign investors using the court system are not generally subject to executive interference. In addition, the OHADA Treaty allows foreign companies to utilize tribunals outside of Chad, e.g., the ICC in Paris, France, to adjudicate any disputes. Companies may also access the OHADA’s court located in Abidjan, Cote d’Ivoire.

Bankruptcy Regulations

Chad’s bankruptcy laws are based on OHADA Uniform Acts. According to Section 3, Articles 234 – 239 of OHADA’s Uniform Insolvency Act, creditors and equity shareholders may designate trustees to lodge complaints or claims to the commercial court collectively or individually. These laws criminalize bankruptcy and the OHADA provisions grant Chad the discretion to apply its own sentences.

The World Bank’s 2018 Doing Business Report ranks Chad’s ease of resolving insolvency at 150 of 189. This is decrease of four positions over 2017. The report is available at http://www.doingbusiness.org/data/exploreeconomies/chad/#resolving-insolvency .

Capital Markets and Portfolio Investment

There are no capital markets or money markets in Chad. A limited number of financial instruments are available to the private sector, including letters of credit, short- and medium-term loans, foreign exchange services, and long-term savings instruments.

Credit is available from commercial banks on market terms, often at rates of 12 to 25 percent for short-term loans. Medium-term loans are difficult to obtain, as lending criteria are rigid. Most large businesses maintain accounts with foreign banks and borrow money outside of Chad. There are ATMs in some major hotels, N’Djamena airport, and in some neighborhoods of N’Djamena.

There is no effective regulatory system to encourage or facilitate portfolio investments.. A small regional stock exchange, known as the Central African Stock Exchange, in Libreville, Gabon, was established by CEMAC countries in 2006. Cameroon, a CEMAC member, launched its own market in 2005. Both exchanges are poorly capitalized.

Money and Banking System

Chad’s banking sector is small and continues to streamline lending practices and reduce the volume of bad debt. Chad’s four largest banks have been privatized. The former Banque Internationale pour l’Afrique au Tchad (BIAT) became a part of Togo-based Ecobank; the former Banque Tchadienne de Credit et de Depot was re-organized as the Societe General Tchad; the former Financial Bank became part of Togo-based Orabank; and the former Banque de Developpement du Tchad (BDT) was reorganized as Commercial Bank Tchad (CBT), in partnership with Cameroon-based Commercial Bank of Cameroon. There are two Libyan banks in Chad, BCC (formerly Banque Libyenne) and Banque Sahelo-Saharienne pour l’Investissement et le Commerce (BSCIC), along with one Nigerian bank (UBA, United Bank for Africa).

Chad shares a common central bank system with the members of the CEMAC – the Banque des Etats de l’Afrique Centrale (BEAC).

The only restriction on a foreigner’s ability to establish a bank account is the establishment of legal residency.

Foreign Exchange and Remittances

Foreign Exchange

Chad, as a CEMAC member, shares a central bank with Cameroon, Central African Republic, Republic of Congo, Equatorial Guinea, and Gabon – the Central African Economic Bank (BEAC, Banque des Etats de l’Afrique Centrale), headquartered in Yaounde, Cameroon. The government does not restrict converting funds associated with an investment (including remittances of investment capital, earnings, loan repayments, lease payments, royalties) into a freely usable currency at legal market-clearing rates. There are no restrictions on repatriating these funds, although there are some limits associated with transferring funds. Individuals transferring funds exceeding USD 1,000 must document the source and purpose of the transfer with the local sending bank. Companies and individuals transferring more than USD 800,000 out of Chad need BEAC authorization to do so. Authorization may take up to three working days. To request authorization for a transfer, companies and individuals must submit contact information for the sender and recipient, a delivery timetable, and proof of the sender’s identity. There were no reports of other capital outflow restrictions in 2017. Businesses can obtain advance approval for regular money transfers.

Chad is a member of the African Financial Community (CFA) and uses the Central African CFA Franc (FCFA) as its currency. The FCFA is pegged to the Euro at a fixed rate of one Euro to 655.957 FCFA exactly (100 FCFA = 0.152449 Euro). In 2017, the CFA/USD exchange rate fluctuated between 590 and 650 FCFA as a function of the performance of the USD against the Euro. There are no restrictions on obtaining foreign exchange.

Remittance Policies

There are no recent changes to or plans to change investment remittance policies. There are no time limitations on remittances, dividends, returns on investment, interest, and principal on private foreign debt, lease payments, royalties, or management fees.

Chad does not engage in currency manipulation.

Chad is a member state of the Action Group against Money Laundering in Central Africa (GABAC), which is in the process of becoming a Financial Action Task Force (FATF)-style regional body. On the national level, the National Financial Investigation Agency (ANIF) has implemented GABAC recommendations to prevent money laundering and terrorist financing.

Sovereign Wealth Funds

The GOC does not currently maintain a Sovereign Wealth Fund. In 2016, it indicated intentions to create a “stabilization fund” funded by additional taxes on diesel fuel and Jet A-1 fuel. However, to date there has been no progress on establishing the fund.

Policies Towards Foreign Direct Investment

Chile has a successful track record of attracting foreign direct investment (FDI), despite the relatively small size of its domestic market. For over three decades, promoting FDI has been an essential part of the Chilean government’s national development strategy. The country’s market-oriented policies have generated and supported significant opportunities for foreign investors to participate in the country’s economic growth. While Chile’s business climate is generally straightforward and transparent, environmental permitting processes, indigenous consultation requirements, and court proceedings are increasingly unpredictable, especially in cases with political sensitivities.

Foreign investors receive treatment similar to Chilean nationals, and laws and practices are not discriminatory against foreign investment.

The Chilean Investment Promotion Agency (APIE), also known as InvestChile, implements Chile’s FDI attraction policy. It provides services in four categories: attraction (offer of investment opportunities and value propositions), pre-investment (specialized advisory services for decision-making), landing (advice for installation, matchmaking and management of inquiries related to other government agencies), and after-care (assistance for exporting and forging linkages with domestic suppliers). The latter is aimed at retaining FDI inflows by encouraging re-investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors have access to all productive activities, except for the internal waterways freight transportation sector, in which foreign equity ownership of companies is capped at 49 percent. Some international reciprocity restrictions exist for fishing.

Most enterprises in Chile may be 100 percent owned by foreigners. Chile only restricts the right to private ownership or establishment in what it defines as certain “strategic” sectors, such as nuclear energy and mining. The Constitution establishes the “absolute, exclusive, inalienable and permanent domain” of the Chilean state over all mineral, hydrocarbon, and fossil fuel deposits within Chilean territory. However, Chilean law allows the government to grant concession rights to individuals and companies for exploration and exploitation activities, and to assign contracts to private investors. These concessions and contracts are assigned without discrimination against foreign investors.

FDI is subject to pro forma screening by InvestChile. Businesses in general do not consider these screening mechanisms barriers to investment because approval procedures are expeditious and, with the exception of a few sensitive sectors, investments are usually approved. InvestChile must approve all investments exceeding USD 5 million, as well as investments in the media and public services, and investments made by foreign governments or by foreign public entities.

U.S. investors are not disadvantaged or singled out by any of the ownership or control mechanisms, sector restrictions, or investment screening mechanisms, relative to other foreign investors.

Other Investment Policy Reviews

The Government of Chile conducted an investment policy review as part of the Trade Policy Review published by the World Trade Organization (WTO) in June 2015, available here: https://www.wto.org/english/tratop_e/tpr_e/tp415_e.htm . The Organization for Economic Co-operation and Development (OECD) has not conducted an Investment Policy Review for Chile since 1997, and the country has not been covered by the United Nations Conference on Trade and Development’s (UNCTAD) Investment Policy Reviews.

Business Facilitation

The Chilean government took significant steps towards business facilitation, and according to the World Bank, Chile has the smoothest procedures to establish a foreign-owned company in Latin America and the Caribbean. The pace of reform has been particularly rapid since 2010.

Entrepreneurs have to go through six steps, some of them simultaneous, taking in total less than five days:

• Draft statutes of the company and obtain an authorization number. [Note: Since 2013, this step can be done online at the platform www.tuempresaenundia.cl .];
• Register the company online, using an advanced electronic signature (a token) and obtaining a tax payer ID number (RUT), which is also the company Registration ID;
• Give online notice of initiation of activities to the Internal Tax Service (www.sii.cl );
• Print receipts/invoices in an authorized printing company and seal them, along with accounting books, and other documents at the Internal Tax Service. [Note: This step has been replaced by the mandatory use of electronic invoicing on August 1, 2016, for firms with annual sales over a threshold of nearly USD 100,000];
• Obtain a working license from the corresponding municipality for each of the enterprise’s establishments, offices, warehouses, etc.;
• Register to obtain labor-related accident insurance, which is mandatory for employers, either with the Institute of Occupational Safety (public) or with one of three private nonprofit entities.

Procedures to start a business in Chile are the same for men and women. No special assistance is offered for women and/or underrepresented minorities in the economy.

Outward Investment

The Government of Chile does not have an active policy of promotion or incentives for outward investment, nor does it impose restrictions on it.

The Trade Directorate (Direcon) conducts an analytical monitoring of trends in Chilean investment abroad, available in this report: https://www.direcon.gob.cl/inversion-exterior/presencia-de-inversiones-directas-de-capitales-chilenos-en-el-mundo-1990-diciembre-2016/ .

Transparency of the Regulatory System

Chile’s legal, regulatory, and accounting systems are transparent and provide clear rules for competition and a level playing field for foreigners. They are consistent with international norms; however, environmental regulations and permitting processes in particular have become lengthy and unpredictable, especially in politically sensitive cases, due to mandatory indigenous consultation requirements arising from Chile’s ratification of the International Labor Organization’s Indigenous and Tribal Peoples Convention (ILO 169).

Four institutions play key roles in the rule-making process in Chile: the Ministry General-Secretariat of the Presidency (SEGPRES), the Ministry of Finance, the Ministry of Economy, and the General Comptroller of the Republic. However, Chile does not have a regulatory oversight body in its institutional set up. Most regulations are decided at the national level; however, some, in particular those related to permit processing for land use, are decided at the local level.

The OECD’s April 2016 “Regulatory Policy in Chile” report asserts that Chile took steps to improve its rule-making process, but still lags behind the OECD average in assessing the impact of regulations, consulting with outside parties on their design and evaluating them over time. The OECD recommends that Chile create a regulatory oversight body to oversee the rule-making process currently managed by different government departments. It also recommends that Chile develop mandatory standards and guidelines for the preparation of laws and regulations, including compulsory consultation practices and forward planning, and the use of management tools such as regulatory impact assessments and ex-post evaluations.

Regulatory processes are managed by governmental entities. NGOs and private sector associations may participate in public hearings or comment periods.

In Chile, non-listed companies follow norms issued by the Accountants Professional Association, while publicly listed companies use the International Financial Reporting Standards (IFRS). Since January 1, 2018, IFRS 9 entered into force for companies in all sectors except for banking, in which IFRS 15 will be applied. IFRS 16 will enter into force in 2019.

The legislation process in Chile allows for public hearings during discussion of draft bills in both Chambers of Congress. Draft bills submitted by the Executive Branch to the Congress are readily available for public comment. Ministries and regulatory agencies are required by law to give notice of proposed regulations, but there is no formal requirement in Chile for consultation with the general public (except as per ILO 169), conducting regulatory impact assessments of proposed regulations, requesting comments, or reporting results of consultations on proposed regulations. For lower-level regulations or norms that do not need congressional approval, there are no formal provisions for public hearing or comment. As a result, Chilean regulators and rulemaking bodies normally consult with stakeholders, but in a less regular manner.

All decrees and laws are published in the Diario Oficial (National Gazette), but other types of regulations will not necessarily be found there. There are no other centralized online locations where regulations in Chile are published, similar to the Federal Register in the United States.

According to the OECD, compliance rates in Chile are generally high, although there is no monitoring mechanism that can prove this finding. The approach to enforcement remains punitive rather than preventive, and regulators still prefer to inspect rather than collaborate with regulated entities on fostering compliance. In terms of sanctions, each institution with regulation enforcement responsibilities has its own procedures. Law 19.880 from 2003 establishes the principles for reversal and hierarchical recourse against decisions by the administration. An administrative act can be challenged by lodging an action in the ordinary courts of justice, or by administrative means with a petition to the Comptroller General of the Republic. Affected parties may also make a formal appeal to the Constitutional Court against a specific regulation.

Chile still lacks a comprehensive, “whole of government” regulatory reform program. However, the Agriculture and Transportation Ministries have taken steps to create units designed to improve the preparation and implementation of regulations. In 2014, the government created the National Productivity Commission, which includes among its main functions the identification of regulatory constraints to increase productivity and recommendations to overcome them.

International Regulatory Considerations

Chile does not share regulatory sovereignty with any regional economic bloc. However, several international norms or standards are referenced or incorporated into the country’s regulatory system.

As a member of the WTO, the government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Chile ratified the Trade Facilitation Agreement (TFA) in November 2016. Chile implemented a new law modernizing the Customs Service in March 2017.

Legal System and Judicial Independence

Chile’s legal system is based on civil law. The basis for its public law is the 1980 Constitution, which was most recently reformed in 2005. Chile’s legal and regulatory framework provides for effective means for enforcing property and contractual rights.

Laws governing issues of interest to foreign investors are found in several statutes, including the Commercial Code of 1868, the Civil Code, the Labor Code and the General Banking Act. Chile has specialized courts for dealing with tax and labor issues.

The judicial system in Chile is generally transparent and independent. The likelihood of government intervention in court cases is low. If a state-owned firm is involved in the dispute, the Government of Chile may become directly involved through the State Defense Council.

Regulations can be challenged before the court system, the National Comptroller, or the Constitutional Court, depending on the nature of the claim.

Laws and Regulations on Foreign Direct Investment

See the section on Policies Towards Foreign Direct Investment.

Competition and Anti-Trust Laws

Foreign investors are not required to seek a ruling on the potential competition implications of a planned investment. Chile’s anti-trust law prohibits mergers or acquisitions that would prevent free competition in the industry at issue. An investor may voluntarily seek a ruling by an Antitrust Court that a planned investment would not have antitrust implications. The National Economic Prosecutor (FNE) is in charge of conducting investigations for competition-related cases and filing complaints before the Free Competition Tribunal (TDLC), which rules on those cases.

In October 2015, paper manufacturers CMPC and Sweden’s SCA subsidiary PISA were accused of having colluded for at least a decade to inflate prices in the Chilean tissue and toilet paper markets. The companies agreed to a compensation plan with the National Consumer Service to reimburse Chilean citizens in 2017.

In August 2016, the FNE accused two pharmaceutical companies, Laboratorio Biosano and Fresenius Kabi Chile and Laboratorio Sanderson (local subsidiaries of Germany-based Fresenius), of forming a cartel to rig bids in public tenders for the procurement of ampoules. Hearings took place during 2017 and will extend through 2018. The FNE is demanding that the TDLC impose fines on Sanderson and Fresenius Kabi Chile amounting to more than USD 18 million. Biosano has entered into a leniency agreement.

In 2015, the FNE opened an investigation into Oracle for potential abuse of market dominance regarding database management systems (DBMS software). On April 2018, the company agreed with the FNE on a plan to improve its practices related to information sharing with its users.

Expropriation and Compensation

Chilean law grants the government authority to expropriate property, including property of foreign investors, only for public or national interests, on a non-discriminatory basis and in accordance with due process. The government has not nationalized a private firm since 1973. Expropriations of private land have only taken place in a transparent manner, and generally when the purpose is to build roads or other types of infrastructure. The law requires the payment of compensation without delay at fair market value, in addition to any applicable interest.

Dispute Settlement

ICSID Convention and New York Convention

Since 1991, Chile has been a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). In 1975 Chile became a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

National arbitration law in Chile includes the Civil Procedure Code (Law Num. 1552, modified by Law Num. 20.217 of 2007), and the Law Num. 19.971 on International Commercial Arbitration.

Investor-State Dispute Settlement

Apart from the New York Convention, Chile is also a party to the Pan-American Convention on Private International Law (Bustamante Code) since 1934; the Inter-American Convention on International Commercial Arbitration (Panama Convention) since 1976; and the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States since 1992.

The U.S.-Chile FTA has been in force since 2004 and includes an investment chapter. This chapter provides a mechanism for investors to pursue a claim against a host government that is in breach of the FTA’s investment obligations, an investment agreement, or an investment authorization. The investor pursuing a claim may by right submit a claim under the ICSID Convention or under the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules, or any other mutually agreed upon arbitral institution. So far no claims have been filed by U.S. investors under the agreement.

Over the past 10 years, the only investment dispute involving a U.S. person or other foreign investor was one case brought by a Spanish-Chilean citizen against the state of Chile regarding the expropriation of a newspaper in 1975 by Chile’s military regime. On September 13, 2016, the World Bank’s Washington-based International Center for Settlement of Investment Disputes (ICSID) tribunal issued a final ruling in favor of the Chilean state, rejecting the claimant’s request for financial compensation. However, a new case was brought by the same person in April 2017 and is now pending resolution.

Local courts respect and enforce foreign arbitral awards, and there is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Mediation and binding arbitration exist in Chile as alternative dispute resolution mechanisms. A suit may also be brought in court under expedited procedures involving the abrogation of constitutional rights. The U.S.-Chile FTA investment chapter encourages consultations or negotiations before recourse to dispute settlement mechanisms. If the parties fail to resolve the matter, the investor may submit a claim for arbitration. Provisions in Section C of the FTA ensure that the proceedings are transparent by requiring that all documents submitted to or issued by the tribunal be available to the public, and by stipulating that proceedings be public. The tribunal must also accept amicus curiae submissions. The FTA investment chapter establishes clear and specific terms for making proceedings more efficient and avoiding frivolous claims. Chilean law is generally to be applied to all contracts. However, arbitral tribunals decide disputes in accordance with FTA obligations and applicable international law.

The Judiciary Code and the Code of Civil Procedure govern domestic arbitration.

Local courts respect and enforce foreign arbitral awards and judgments of foreign courts. Chile has a dual arbitration system in terms of regulation, meaning that different bodies of law govern domestic and international arbitration. International commercial arbitration is governed by the International Commercial Arbitration Act that is modeled on the 1985 UNCITRAL Model Law on International Commercial Arbitration. In addition to this statute, there is also Decree Law Number 2349 that regulates International Contracts for the Public Sector and sets forth a specific legal framework for the State and its entities to submit their disputes to international arbitration.

No Chilean state-owned enterprises (SOEs) have been involved in investment disputes in recent decades.

Bankruptcy Regulations

Chile’s Insolvency Law from 1982 was updated in October 2014. The current law aims to clarify and simplify liquidation and reorganization procedures for businesses to prevent criminalizing bankruptcy. It also established the new Superintendence of Insolvency and created specialized insolvency courts. The new insolvency law requires creditors’ approval to select the insolvency representative and to sell debtors’ substantial assets. The creditor also has the right to object to decisions accepting or rejecting creditors’ claims. However, the creditor is not given the right to request information from the insolvency representative. The creditor may file for insolvency of the debtor, but for liquidation purposes only. The creditors are divided into classes for the purposes of voting on the reorganization plan; each class votes separately, and creditors in the same class are treated equally.

Chile’s credit reporting system is a negative-only system with some positive data elements, which distributes data on both firms and individuals, including data from retailers, utility companies, as well as banks and financial institutions. Chile has a competitive commercial credit bureau industry in which agencies not owned by creditors (the largest of which is Equifax) coexist with non-commercial, creditor association reporting such as the National Chamber of Commerce.

Capital Markets and Portfolio Investment

Chile’s authorities are committed to developing capital markets and keeping them open to foreign portfolio investors. U.S.-based firms offer services in Chile in areas such as financial information, data processing, financial advisory services, portfolio management, voluntary saving plans and pension funds. Under the U.S.-Chile FTA, Chile opened up significantly its insurance sector, with very limited exceptions.

The Santiago Stock Exchange is Chile’s dominant stock exchange, and the third largest in Latin America. However, when compared to other OECD countries, it does not rank high in terms of market liquidity.

Existing policies facilitate the free flow of financial resources into Chile’s product and factor markets and adjustment to external shocks in a commodity-dependent economy.

Chile has accepted the obligations of Article VIII (sections 2, 3 and 4) and maintains a free floating exchange rate system, free of restrictions on the making of payments and transfers for current international transactions.

Credit is allocated on market terms and is available to foreigners, although the Central Bank does reserve the right to restrict foreign investors’ access to internal credit if a credit shortage exists. To date, this authority has not been exercised.

Money and Banking System

Nearly one third of Chileans have a credit card from a bank, but a lower proportion (15 percent) has a checking account. However, financial inclusion is higher than banking penetration: a large number of lower-income Chilean residents have a CuentaRut, which is a commission-free card with an electronic account available for all, launched by the state-owned Banco Estado, also the largest provider of microcredit in Chile.

The Chilean banking system is sound and competitive, and many Chilean banks already meet Basel III standards. Capital adequacy ratios remain stable (around 14 percent as of February 2018). Stress tests conclude that the banking system has an adequate financial position to face the materialization of severe stress scenarios. Capital adequacy ratios are robust even when including discounts due to market and/or operational risks.

Non-performing loans have shown a steadily decreasing trend during the last five years, across all three major portfolios (mortgage lending below 3 percent, commercial loans slightly above 2 percent, and consumer loans around 1.5 percent), when measured by the standard 90 days past due criterion.

The Chilean banking system’s total assets, as of February 2018, amounted to USD 378.5 billion, according to the Superintendence of Banks and Financial Institutions. The largest 4 banks account for approximately 63 percent of banking assets (Banco Santander-Chile, Banco Estado, Banco de Credito e Inversiones, and Banco de Chile).

Chile’s Central Bank conducts the country’s monetary policy, is constitutionally autonomous from the government, and is not subject to regulation by the Superintendence of Banks. Private banks manage most corporate business.

There are currently 21 banks in Chile, including 6 banks that are foreign-owned but legally established banks in Chile and 6 branches of foreign banks (one of them has been authorized but has not yet started its operations). There is one state-owned bank, Banco Estado. There are also approximately 20 representative offices of foreign banks in Chile. Both the foreign-owned but legally established banks in Chile and the branches of foreign banks are subject to the requirements set out under the Chilean banking law. As of August 2003, Chile’s Central Bank had 12 correspondent banking relationships (CBR). There are no reports of CBR withdrawal in Chile.

In order to open a bank account in Chile, a foreigner must present his/her Chilean ID Card or passport, Chilean tax ID number, proof of address, proof of income/solvency, photo, and fingerprints.

A number of Chilean banks have announced they are exploring blockchain technologies and their potential for banking applications. Additionally, the Superintendence of Banks and Financial Institutions (SBIF) in September 2017 joined, as a regulatory member, an international consortium of 70 financial institutions for the research and development of distributed ledger in the financial system, led by U.S. firm R3, a software developer of blockchain technology. The Santiago Stock Exchange, in partnership with IBM, is in the process of implementing a blockchain-based solution to accelerate back-office processing of securities lending.

Financial services supervised by the SBIF include mainly traditional banking products, credit card operations, and prepaid cards. A new law (Ley 20.950) authorizes the emission of prepaid cards by non-banking entities.

Foreign Exchange and Remittances

Foreign Exchange Policies

Law 20.848, which regulates FDI (described in section 1), prohibits arbitrary discrimination against foreign investors and guarantees access to the formal foreign exchange market, as well as the free remittance of capital and profits generated by investments. There are no other restrictions or limitations placed on foreign investors for the conversion, transfer or remittance of funds associated with an investment.

Investors, importers, and others are guaranteed access to foreign exchange in the official inter-bank currency market without restriction. The Central Bank reserves the right to deny access to the inter-bank currency market for royalty payments in excess of five percent of sales. The same restriction applies to payments for the use of patents that exceed five percent of sales. In such cases, firms would have access to the informal market. The Chilean tax service reserves the right to prevent royalties of over five percent of sales from being counted as expenses for domestic tax purposes.

Chile has a free floating (flexible) exchange rate system. Exchange rates of foreign currencies are fully determined by the market. The Central Bank reserves the right to intervene under exceptional circumstances to correct significant deviations of the currency from its fundamentals. In practice, however, this right to intervene is used sparingly (if at all).

Remittance Policies

Remittances of profits generated by investments can be made any time after tax obligations are fulfilled; remittances of capital can be made after one year since the date of entry into the country. In practice, this one-year permanency requirement for capital has not constituted a restriction for productive investment, because normally projects need more than one year to mature. Under the investment chapter of the U.S.–Chile FTA, the parties must allow transfers of covered investments to be made freely and without delay into and out of its territory. These include transfers of profits, royalties, sales proceeds, and other remittances related to the investment. However, for certain types of short-term capital flows this chapter allows Chile to impose transfer restrictions for up to 12 months as long as those restrictions do not substantially impede transfers. If restrictions are found to impede transfers substantially, damages accrue from the date of the initiation of the measure. In practice, these restrictions have not been applied in the last two decades.

Sovereign Wealth Funds

Chile has two sovereign wealth funds (SWFs) built from annual contributions made by the government when there is an effective fiscal surplus. The Economic and Social Stabilization Fund (FEES) was established in 2007 and was valued at USD 15 billion as of January 2017. The FEES seeks to fund public debt payments and temporary deficit spending, in order to keep a countercyclical fiscal policy. The Pensions Reserve Fund (FRP) was established in 2006 and was valued at USD 10.2 billion as of January 2017. The purpose of the FRP is to anticipate future needs of payments from the government to those eligible to receive pensions, but whose contributions to the private pension system fall behind a minimum guaranteed by the State.

Chile is a member of the International Working Group of Sovereign Wealth Funds (IWG) and adheres to the Santiago Principles.

Chile’s government policy is to invest SWFs abroad into instruments denominated in foreign currencies. As of January 2017, FEES’ portfolio consisted of 88.1 percent of sovereign bonds and monetary market instruments, 3.4 percent of inflation-indexed sovereign bonds and 8.5 percent of stocks. At the same date, FRP’s portfolio consisted in 46.8 percent of sovereign bonds and related instruments, 17.1 percent of inflation-indexed bonds, 19.6 percent of corporate bonds and 16.5 percent of stocks.

Policies Towards Foreign Direct Investment

Foreign direct investment (FDI) has historically played an essential role in China’s economic development. China still restricts foreign investment in multiple sectors by requiring joint venture arrangements with Chinese companies, limiting foreign investment control by restricting shareholder rights, or, in some industries, prohibiting foreign investment outright. However, government officials continue to encourage foreign investment to further develop segments of China’s economy. Due to stagnant FDI growth over the past few years, along with a significant gap in technology and labor capacities, Chinese government officials have publicly promoted FDI by promising market access expansion to foreign investors, stronger national treatment of foreign firms, and the strengthening of China’s legal and regulatory frameworks to enhance market-based competition.

Despite assurances of market access and small modifications to the FIC that liberalized a handful of new sectors, FDI growth in China remained relatively flat in 2017. According to Chinese official statistics, FDI in 2017 was USD 131 billion, a less than four percent increase from the prior year. Despite static FDI growth in the past few years, China still is one of the largest recipients of FDI due to its sustained high economic growth rate, growing middle class, and the expansion of consumer demand for diverse products.

In addition to market access concerns, China’s willingness to offer a level playing field for foreign companies is often in question. Foreign investors voice concerns over China’s current investment climate, including: broad use of industrial policies to protect domestic firms through subsidies, preferential financing, and selective legal and regulatory enforcement; weak protection and enforcement of IPR; corruption; discriminatory and non-transparent anti-monopoly enforcement that forces companies to license technology at below-market prices to Chinese competitors; excessive cybersecurity data localization and data-flow requirements; increased emphasis on requirements to include CCP cells in foreign enterprises; and an unreliable legal system lacking transparency and rule of law. Other laws and regulations, including the 2015 Anti-Terrorism Law and the Cyber Security Law, impede local Chinese firms from purchasing foreign-origin technology, raising concerns that China has back-tracked on reforms to further open up to foreign investment.

China promotes FDI through the MOFCOM “Invest in China” website (www.fdi.gov.cn ). MOFCOM publishes laws and regulations, economic statistics, investment projects, relevant news articles, and other relevant information about investing in China. In addition, each province has a provincial-level investment promotion agency that operates through local MOFCOM departments.

American Chamber of Commerce China 2018 American Business in China White Paper: https://www.amchamchina.org/policy-advocacy/white-paper/ .

American Chamber of Commerce China 2018 Business Climate Survey:
http://www.amchamchina.org/policy-advocacy/business-climate-survey .

U.S.-China Business Council’s 2017 China Business Environment Member Survey:
https://www.uschina.org/reports/uscbc-2017-china-business-environment-member-survey .

EU Chamber’s 2018 Business Confidence Survey:
http://www.europeanchamber.com.cn/en/publications-business-confidence-survey .

MOFCOM’s Investment Promotion Website:
http://www.fdi.gov.cn/1800000121_10000161_8.html .

Limits on Foreign Control and Right to Private Ownership and Establishment

The FIC governs the “pre-establishment,” or market access, phase of foreign investment by listing particular economic sectors or industries as “encouraged”, “restricted”, or “prohibited” when it comes to foreign investment. In June 2017, the Chinese government rebranded the FIC as a “nationwide negative list” by moving economic sectors subject to equity caps, joint ventures requirements, and shareholder rights restrictions in the “encouraged” section to the “restricted” section. The “encouraged” list reflects Chinese sector-specific industrial policy goals. The “restricted” and “prohibited” lists have been combined and renamed the “nationwide negative list” and include industries and economic sectors that are seen as sensitive, possibly touching on national security concerns, or at odds with the industrial goals of China’s economic development plans. In June 2018, China implemented a nationwide negative list that removed “encouraged” investments and restructured the negative list by industry. Instead of maintaining a “restricted” and “prohibited” separate list, all restrictions/prohibitions are now together by industry. Foreign investors interested in industries not on the negative list are no longer required to obtain pre-approval from MOFCOM, but only need to register their investment.

The 2017 Foreign Investment Catalogue made minor liberalizations in manufacturing (rail transportation equipment, automobile equipment, civilian satellites, processing of seeds and other food goods), services (operation of highway transport, ocean shipping, credit rating, accounting/auditing), and mining (exploration of non-conventional gas and oil, precious metals, and smelting of some rare earths) sectors. While modest liberalizations were welcomed by U.S. businesses, many foreign investors were underwhelmed and disappointed by the lack of ambition on market access liberalization, pointing out new openings mainly were in industries that domestic Chinese companies already dominate.

The June 2018 revision of the FIC (i.e., implementation of the nationwide negative list) saw substantial market openings, most of which were previously announced. These included: eliminating equity caps for specialty and new energy vehicles, shipbuilding, and aircraft manufacturing, with a five-year plan to phase out equity caps in other automotive categories, including commercial vehicles by 2020 and passenger vehicles by 2022 (announced April 2018); and some openings in financial services and insurance industry segments, including by raising foreign ownership caps to 51 percent, and thus, allowing majority foreign ownership (announced November 2017).

The Chinese language version of the 2017 FIC:
www.ndrc.gov.cn/zcfb/zcfbl/…/W020170628553266458339.pdf .

The English language version of the 2017 FIC:
http://www.fdi.gov.cn/1800000121_39_4851_0_7.html .

The Chinese language version of the 2018 Nationwide Negative List:
http://www.ndrc.gov.cn/zcfb/zcfbl/201806/W020180628640822720353.pdf .

Ownership Restrictions

In the “restricted” category of the FIC, certain industries require joint ventures, impose control requirements requiring that an investment is led by a Chinese national, and apply specific equity caps. Below are some examples, but not an exhaustive list, of investment restrictions:

Examples of foreign investments that require an equity joint venture or cooperative joint venture for foreign investment include:

• The exploration and exploitation of oil and natural gas;
• Preschool, general high school, and higher education institutes (which are also required to be led by a Chinese partner);
• Production of radio and television programming and movies;
• General Aviation companies for forestry, agriculture, and fisheries;
• Market investigations;
• Establishment of medical institutions; and
• Commercial and passenger vehicle manufacturing.

Examples of foreign investments requiring Chinese control include:

• Water transport companies (domestic);
• The construction and operation of civilian airports;
• The construction and operation of nuclear power plants;
• The establishment and operation of cinemas;
• Selection and cultivation of new varieties wheat and corn seeds; and
• Public air transportation companies.

Examples of foreign investment equity caps include:

• 50 percent in value-added telecom services (excepting e-commerce);
• 49 percent in basic telecom enterprises;
• 51 percent in life insurance firms;
• 51 percent in security investment fund management companies; and
• 50 percent in manufacturing of commercial and passenger vehicles.

These investment restrictions often force foreign investors to transfer technology to Chinese partners as a prerequisite to market access, providing Chinese stakeholders tremendous benefit. While such practices are explicitly against WTO rules, foreign companies have reported that in many sectors, these dictates and decisions are made behind closed doors and are thus difficult to attribute as official policies of the Chinese government. In addition, the approval process for foreign investment remains non-transparent with regards to licensing and other approval steps, giving broad discretion to Chinese authorities to impose deal-specific conditions beyond written legal requirements, in a blatant effort to support industrial policy goals that bolster the technological capabilities of local competitors.

Other Investment Policy Reviews

Organization for Economic Cooperation and Development (OECD)

China is not a member of the OECD. The OECD Council decided to establish a country program of dialogue and co-operation with China in October 1995. The most recent OECD Investment Policy Review for China was completed in 2008. The OECD Investment Policy Review noted that policy changes in China between 2006 and 2008 tightened restrictions on inward direct investment, including cross-border mergers and acquisitions (M&As).

OECD 2008 report:
http://www.oecd.org/daf/inv/investment-policy/oecdinvestmentpolicyreviews-china2008encouragingresponsiblebusinessconduct.htm .

In 2013, OECD published a working paper entitled “China Investment Policy: An Update,” which provided an update on China’s investment policy since the publication of the 2008 Investment Policy Review. The paper noted that, although China’s economic strength buoys foreign investor confidence, fears of investment protectionism are growing.

OECD 2013 Update:
http://www.oecd.org/china/WP-2013_1.pdf .

OECD 2016 Regulatory Restrictiveness Survey:
http://www.oecd.org/investment/fdiindex.htm .

World Trade Organization (WTO)

China became a member of the WTO in 2001. WTO membership boosted China’s economic growth and advanced its legal and governmental reforms. The sixth and most recent WTO Investment Trade Review for China was completed in 2016. The report highlighted key changes between the 2011 and 2015 FICs. In addition, it noted that the foreign investment pilot negative list expanded from the Shanghai Pilot FTZ to the FTZs of Tianjin, Fujian, and Guangdong. The trade review also said that China encourages inward FDI, as well as joint ventures between Chinese and foreign companies, particularly in research and development. The report further mentioned that technology transfer, while not a requirement for investment approval, is a practice widely encouraged by Chinese authorities.

WTO Investment Trade Review for China:
https://www.wto.org/english/tratop_e/tpr_e/tp442_e.htm .

International Monetary Fund (IMF) information on China:
http://www.imf.org/external/country/Chn/ .

FDI Statistics from MOFCOM:
http://www.fdi.gov.cn/1800000121_10000177_8.html .

Business Facilitation

Registering a business in China can be difficult. The World Bank ranked China 78th out of 190 economies in terms of ease of doing business and 93rd for starting a business. In Shanghai and Beijing, at least 11 procedures are required to establish a business, with an average timeline of more than 30 days to complete the registration process. Steps to register a business include pre-approval for a company name, a business license approved by the State Administration for Industry and Commerce (SAIC), an organization code certificate with the Quality and Technology Supervision Bureau, registration with the provincial and local tax bureaus, a company seal issued by the police department, registration with the local statistics bureau, a local bank account, the authorization to print or purchase invoices and receipts, and registration with the Ministry of Human Resources and Social Security, as well as with the Social Welfare Insurance Center.

World Bank Ease of Doing Business:
http://www.doingbusiness.org/rankings .

World Bank Investing Across Borders:
http://iab.worldbank.org/data/exploreeconomies/china .

The Government Enterprise Registration (GER), an initiative of the United Nations Conference on Trade and Development (UNCTAD), gave China a score of 1.5 out of 10 on its website for registering and obtaining a business license. SAIC is the main government body that approves business licenses, and according to GER, SAIC’s website lacks even basic information, such as what to do and how to do it.

UNCTAD GER:
https://ger.co/ .

SAIC’s Business Registration Information:
http://www.saic.gov.cn/ .

The State Council in recent years has reduced red tape by eliminating hundreds of administrative licenses and delegating administrative approval power across a range of sectors. The number of investment projects subject to central government approval has reportedly dropped more than 75 percent. The State Council also has set up a website in English, which is more user-friendly than SAIC’s website, to help foreign investors looking to do business in China.

The State Council Information on Doing Business in China:
http://english.gov.cn/services/doingbusiness .

The Department of Foreign Investment Administration within MOFCOM is responsible for foreign investment promotion in China, including promotion activities, coordinating with investment promotion agencies at the provincial and municipal levels, engaging with international economic organizations and business associations, and conducting research related to foreign direct investment into China. MOFCOM also maintains the “Invest in China” website.

MOFCOM “Invest in China” Information:
http://www.fdi.gov.cn/1800000121_10000041_8.html .

Despite recent efforts by the Chinese government to streamline business registration procedures, foreign companies still complain about the challenges they face when setting up a business, including registration and licensing problems. In addition, U.S. companies complain they are treated differently from domestic companies when setting up an investment, which is an added market access barrier for U.S. companies. Numerous companies offer consulting, legal, and accounting services for establishing wholly foreign-owned enterprises, partnership enterprises, joint ventures, and representative offices. The differences among these corporate entities are significant, and investors should review their options carefully with an experienced advisor before choosing a particular corporate entity or investment vehicle.

Outward Investment

China has a relatively new history with outbound investment. In 2001, China initiated its “going-out” investment strategy that encouraged SOEs to go abroad and acquire primarily energy investments that helped facilitate greater market access for Chinese exports to foreign markets. As Chinese investors gained experience, and as China’s economy grew and diversified, China’s outbound investment strategy also changed to include both state and private enterprise investments in multiple economic sectors. China now is one of the largest outward direct investors in the world. While China has reported a decrease in outbound investment in 2017 compared to record-setting investments levels in 2016, some third-party data suggest actual global outbound investment figures in 2017 were on par with 2016 global investment levels. Experts who track investment flows from China noted that while the United States was one of the top investment destinations of Chinese investors in 2017, outbound investment to the United States decreased almost 50 percent in 2017 compared to 2016 numbers. However, experts estimate that outbound investment to Europe and in Asian countries around the “Belt and Road” (described further below) increased.

In August 2017, in reaction to concerns about capital outflows and exchange rate volatility, the Chinese government issued guidance to curb “irrational” outbound investments and created “encouraged,” “restricted,” and “prohibited” investment categories to guide Chinese outbound investment. The guidelines restrict Chinese outbound investment in sectors like property, hotels, cinemas, entertainment, sports teams, and “financial investments that create funds that are not tied to specific investment projects.” The guidance encouraged outbound investment in sectors that supported industrial policy, such as Strategic Emerging Industries (SEI) and MIC 2025, by acquiring advanced manufacturing and high-technology assets. MIC 2025’s main aim is to transform China into an innovation-based economy that can better compete against advanced economies in 10 key high-tech sectors, including: new energy vehicles, next-generation IT, biotechnology, new materials, aerospace, oceans engineering and ships, railway, robotics, power equipment, and agriculture machinery. Chinese firms in MIC 2025 industries often receive preferential treatment such as preferred financing, subsidies, and access to an opaque network of investors to promote and provide incentives for outbound investment in key sectors. The outbound investment guidance also encourages investments that promote China’s Belt and Road development strategy that seeks to create connectivity and cooperation agreements between China and countries along the Chinese designated “Silk Road Economic Belt and the 21st-century Maritime Silk Road” through an expansion of infrastructure investment, construction materials, real estate, power grids, etc.

Transparency of the Regulatory System

The World Bank assessed China’s regulatory governance by providing a composite score of 2 out 6 points. The World Bank attributes the relatively low score to the futility of foreign companies appealing administrative authorities’ decisions, given impartial courts, not having laws and regulations in one accessible place that is updated regularly, the lack of impact assessments conducted prior to issuing a new law, and other concerns about public comments and transparency.

World Bank Rule Making Information:
http://rulemaking.worldbank.org/data/explorecountries/china#cer_transparency 

U.S. businesses consistently rank arbitrary legal enforcement and the lack of regulatory transparency among the top challenges of doing business in China. China’s legal and regulatory systems are complex and allow regulators and government authorities broad discretion to enforce regulations, rules, and other regulatory guidelines in an inconsistent and impartial manner. Government-controlled trade organizations, business associations, and regulatory bodies set industry standards that often are inconsistent with international norms and best practices and directly benefit Chinese competitors, while simultaneously allowing regulators to ignore Chinese transgressors but strictly enforce regulations targeting foreign companies. In addition to central and provincial-level rules and guidelines that impact foreign businesses and investors, there are also administrative rules and enforcement guidelines, which are not necessarily part of the legal code or even published. The complex regulatory system and unpublished enforcement guidelines overly burden foreign investors and foreign companies that must confront a regulatory system rife with contradictions and inconsistencies. A lack of confidence in the regulatory system and overall confusion is a common complaint of U.S. businesses operating in the local Chinese business environment.

To comply with China’s WTO accession commitments, the State Council’s Legislative Affairs Office (SCLAO) has issued instructions to Chinese agencies to publish all foreign trade and investment-related laws, regulations, rules, and policy measures in the MOFCOM Gazette. The State Council also issued Interim Measures on Public Comment Solicitation of Laws and Regulations and the Circular on Public Comment Solicitation of Department Rules, which require government agencies to post proposed trade and economic-related administrative regulations and departmental rules on the official SCLAO website for a 30-day public comment period. Despite these commitments, Chinese agencies often do not meet the WTO commitments. Chinese ministries under the State Council continue to post only some of the draft administrative regulations and departmental rules on the SCLAO website; even when drafts are published, they often are available for comment for less than the required 30 days.

The State Council and the ministries under the State Council also issue “normative documents” (opinions, circulars, notices, etc.), which are quasi-regulations used to implement applicable rules, laws, and regulations and to address legal specificity problems or situations where there is no governing law. These documents typically are not available for public comment and sometimes are not even published, yet the U.S. business community reports that Chinese ministries impose requirements on companies by referencing these normative documents.

Proposed draft regulations are often drafted without using scientific studies or quantitative analysis to assess the regulation’s impact. When Chinese officials claim an assessment was made, the methodology of the study and the results are not made available to the public. When draft regulations are available for public comment, it is unclear what impact third-party comments have on the final regulation. The lack of transparency in regulation drafting only adds to foreign investor perceptions that industrial policy goals and other anti-competitive factors are the driving forces behind China’s regulatory regime.

The inability to separate the relationships between the CCP, the Chinese government, Chinese businesses, and other stakeholders in the domestic economy makes it impossible to determine the motivating factors behind state actions. As a result, many foreign-invested companies perceive that Chinese government officials prioritize political goals, industrial policies, and a desire to protect social stability at the expense of foreign investors. An example of these blurred lines is evident with Chinese Self-Regulatory Organizations (SROs) that are responsible for licensing decisions. For instance, a Chinese financial institution may be a voting member, and can exert tremendous influence upon, the same SRO that adjudicates the license application of a foreign competitor. To protect one’s market share and competitive position, a Chinese company has incentive to disapprove the license application. The licensing procedures, because of the blurred lines, are non-transparent, discriminatory, and erode the rule of law.

Access to foreign online resources – including news, cloud-based business services, and virtual private networks (VPNs) – are increasingly restricted without official acknowledgement or explanation. Foreign-invested companies have also reported threats of retaliation by government regulators for actions taken by the United States and other foreign governments at the WTO or other legal forums.

For accounting standards, Chinese companies must use the Chinese Accounting Standards for Business Enterprises (ASBE) for all financial reporting within mainland China. Companies listed overseas (including in Hong Kong) may choose to use ASBE, the International Financial Reporting Standards, or Hong Kong Financial Reporting Standards.

International Regulatory Considerations

China has been a member of the WTO since 2001. As part of its accession agreement, China agreed to notify the WTO Committee on Technical Barriers to Trade of all draft technical regulations. Compliance with this WTO commitment is something Chinese officials have promised in previous dialogues with U.S. government officials.

Legal System and Judicial Independence

The Chinese legal system is based on a civil law model that borrowed heavily from the legal systems of Germany and France, but retains local Chinese legal characteristics. The rules governing commercial activities are present in various laws, regulations, and judicial interpretations, including China’s civil law, contract law, partnership enterprises law, security law, insurance law, enterprises bankruptcy law, labor law, and Supreme People’s Court (SPC) Interpretation on Several Issues Regarding the Application of the Contract Law. While China does not have specialized commercial courts, in 2014, three IP courts were established in Beijing, Guangzhou, and Shanghai.

While China’s Constitution and various laws provide a legal basis for court independence, or the exercise of adjudicative power free from interference by administrative organs, public organizations, and/or powerful individuals, in practice, courts are heavily influence by Chinese regulators and the CCP. The Chinese Constitution also emphasizes the “leadership of the Communist Party,” which has only been strengthened by consolidation of political power by China’s senior-most leaders at the end of 2017. The reasons for interference may include:

• Courts fall under the jurisdiction of local governments;
• Court budgets are appropriated by local administrative authorities;
• Judges in China have administrative ranks and are managed as administrative officials;
• The CCP is in charge of the appointment, dismissal, transfer, and promotion of administrative officials;
• China’s Constitution stipulates that local legislatures appoint and supervise the courts; and
• Corruption may also influence local court decisions.

The U.S. business community consistently reports that Chinese courts, particularly at lower levels, are susceptible to outside political influence (particularly from local governments), lack the sophistication to understand complex commercial disputes, and operate without transparency. U.S. companies often avoid challenging administrative decisions or bringing commercial disputes before a local court for fear of future retaliation.

Reports of business disputes involving violence, death threats, hostage-taking, and travel bans involving Americans continue to be prevalent, although American citizens and foreigners in general do not appear to be more likely than Chinese nationals to be subject to this treatment. Police are often reluctant to intervene in what they consider internal contract disputes.

Laws and Regulations on Foreign Direct Investment

China’s foreign direct investment legal and regulatory frameworks have more across-the-board foreign investment restrictions and less transparency than developed countries, including the United States. Broad investment restrictions at both the central and local level lead to inconsistent enforcement of foreign investment laws and add to the difficulty of gaining necessary approvals from different agencies and localities. In turn, all of this adds to a feeling among U.S. investors that the Chinese legal system discriminates against them.

China’s central-level foreign investment regime consists of three laws: the China-Foreign Equity Joint Venture Enterprise Law, the China-Foreign Cooperative Joint Venture Enterprise Law, and the Foreign-Invested Enterprise (FIE) Law. In addition, there are multiple administrative regulations and regulatory documents issued by the State Council that are directly derived from these three laws, including:

• Implementation Regulations of the China-Foreign Equity Joint Venture Enterprises Law;
• Implementation Regulations of the China-Foreign Cooperative Joint Venture Enterprise Law;
• Implementation Regulations of the FIE Law;
• State Council Provisions on Encouraging Foreign Investment;
• Provisions on Guiding the Direction of Foreign Investment; and
• Administrative Provisions on Foreign Investment to Telecom Enterprises.

There are also over 1,000 rules and regulatory documents related to foreign investment in China and issued by government ministries, including:

• the FIC;
• Provisions on Mergers & Acquisition of Domestic Enterprises by Foreign Investors;
• Administrative Provisions on Foreign Investment in Road Transportation Industry;
• Interim Provisions on Foreign Investment in Cinemas;
• Administrative Measures on Foreign Investment in Commercial Areas;
• Administrative Measures on Ratification of Foreign Invested Projects;
• Administrative Measures on Foreign Investment in Distribution Enterprises of Books, Newspapers, and Periodicals;
• Provision on the Establishment of Investment Companies by Foreign Investors; and
• Administrative Measures on Strategic Investment in Listed Companies by Foreign Investors.

Local legislatures and governments also enact their own regulations, rules, and guidelines that directly impact foreign investment in their geographical area. Examples include the Wuhan Administration Regulation on Foreign-Invested Enterprises and Shanghai’s Municipal Administration Measures on Land Usage of Foreign-Invested Enterprises.

A Chinese language list of Chinese laws and regulations, at both the central and local levels: http://www.gov.cn/zhengce/ .

FDI Laws on Investment Approvals

Foreign investments in industries and economic sectors that are not listed in the “restricted” or “prohibited” sections of the FIC are not subject to MOFCOM pre-approval, but only require notification of the proposed investment. However, wanting to invest in a category that is not restricted or prohibited does not guarantee approval, as other steps and approvals are required in order to proceed, including, for example, receiving land rights, business licenses, and other necessary permits. In some industries, such as telecommunications, foreign investors will also need to receive approval from regulators like the Ministry of Industry and Information Technology (MIIT).

In July 2004, the State Council issued the Decision on Investment Regime Reform and the Catalogue of Investment Projects subject to Government Ratification (Ratification Catalogue). According to the Ratification Catalogue, all proposed foreign investment projects in China must be submitted for “review and ratification” by the NDRC, or provincial or local Development and Reform Commissions (DRCs), depending on the sector and value of the investment. In 2013, however, the government issued a new catalogue to narrow the scope of foreign investment projects subject to NDRC ratification. Per the updated guidance, an “encouraged” investment under the FIC that does not require a Chinese controlling interest, and is in a sector not listed on the Ratification Catalogue, only needs to be “filed for record” with the local DRC office. This policy shift marked a positive step toward easing bureaucratic barriers to foreign investment.

In November 2014, China released an updated edition of the Ratification Catalogue, which eliminated NDRC ratification requirements for 15 new sectors and delegated ratification authority to local governments in 23 additional sectors. In several new sectors, the new Ratification Catalogue also raised the threshold of foreign ownership that would trigger the requirement for NDRC approval. When announcing the reforms, NDRC stated the goal of the latest revision to the Ratification Catalogue was to limit ratification to projects relating to “national and ecological security, geographic and resource development,” and the “public interest.” NDRC estimates that revisions made to the Ratification Catalogue over the past several years will reduce the number of projects requiring ratification from central government authorities by 76 percent.

Ratification Catalogue:
http://www.gov.cn/zhengce/content/2014-11/18/content_9219.htm .

The NDRC approval process for foreign investment projects also includes assessing the project’s compliance with China’s laws and regulations; its compliance with the FIC and industrial policy; its national security, environmental safety, and public interest implications; its use of resources and energy; and its economic development ramifications. In some cases, NDRC also solicits the opinions of relevant Chinese industrial regulators and “consulting agencies,” which may include industry associations that represent Chinese domestic firms. This presents potential conflicts of interest that can disadvantage foreign investors seeking to receive project approval. The State Council may also weigh in on high-value projects in “restricted” sectors.

After receiving NDRC approval for the investment project and either notifying or applying for approval for an investment from MOFCOM, investors next apply for a business license with the SAIC. Once a license is obtained, the investor registers with China’s tax and foreign exchange agencies. Greenfield investment projects must also seek approval from China’s Environmental Protection Ministry and its Ministry of Land Resources. The specific approvals process may vary from case to case, depending on the details of a particular investment proposal and local rules and practices.

For investments made via merger or acquisition with a Chinese domestic enterprise, an anti-monopoly review and national security review may be required by MOFCOM if there are concerns about the foreign transaction. The anti-monopoly review is detailed in a later section of this report, on competition policy.

Article 12 of MOFCOM’s Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investment stipulates that parties are required to report a transaction to MOFCOM if:

• Foreign investors obtain actual control, via merger or acquisition, of a domestic enterprise in a key industry;
• The merger or acquisition affects or may affect “national economic security”; or
• The merger or acquisition would cause the transfer of actual control of a domestic enterprise with a famous trademark or a Chinese time-honored brand.

If MOFCOM determines the parties did not report a merger or acquisition that affects or could affect national economic security, it may, together with other government agencies, require the parties to terminate the transaction or adopt other measures to eliminate the impact on national economic security. In February 2011, China released the State Council Notice Regarding the Establishment of a Security Review Mechanism for Foreign Investors Acquiring Domestic Enterprises. The notice established an interagency Joint Conference, led by NDRC and MOFCOM, with authority to block foreign M&As of domestic firms that it believes may impact national security. The Joint Conference is instructed to consider not just national security, but also “national economic security” and “social order” when reviewing transactions. China has not disclosed any instances in which it invoked this formal review mechanism.

Local commerce departments are responsible for flagging transactions that require a national security review when they review them in an early stage of China’s foreign investment approval process. Some provincial and municipal departments of commerce have published online a Security Review Industry Table listing non-defense industries where transactions may trigger a national security review, but MOFCOM has declined to confirm whether these lists reflect official policy. In addition, third parties such as other governmental agencies, industry associations, and companies in the same industry can seek MOFCOM’s review of transactions, which can pose conflicts of interest that disadvantage foreign investors. Investors may also voluntarily file for a national security review.

U.S. Chamber of Commerce report on Approval Process for Inbound Foreign Direct Investment:

http://www.uschamber.com/sites/default/files/reports/020021_China_InvestmentPaper_hires.pdf .

Draft Foreign Investment Law

In January 2015, MOFCOM issued for public comment a new Foreign Investment Law. This law, if enacted, would unify and supersede the three governing foreign investment laws established by the State Council. It also would abolish the case-by-case approval system for foreign investment and replace it with a system that gives foreign investors “national treatment,” or treats foreign investors the same as domestic investors, except in the limited number of industries enumerated on the “negative list.” The draft law called for streamlining the approval process for foreign investment in some sectors, but contains a number of troubling provisions – e.g., broadening the definition of foreign investor, expanding the role of the national security review mechanism, increasing reporting requirements, and threatening the structure of variable interest entities (VIEs) – that could facilitate discriminatory treatment against foreign investment. In addition to transforming the current foreign investment regime, the aforementioned MOFCOM draft Foreign Investment Law would also establish a broad and potentially intrusive national security review mechanism. As it is currently envisaged, the national security review could be used to hinder market access and increase the financial burden of foreign investment in China. While Chinese officials have noted future plans for a unified foreign investment law, the timeline and the content of the new law is unclear.

China also issued in 2015 the Interim Measures on the National Security Review of Foreign Investment in Free Trade Zones. The definition of “national security” is broad, implicating investments in military, national defense, agriculture, energy, infrastructure, transportation, culture, information technology products and services, key technology, and manufacturing.

In addition, MOFCOM issued the Administrative Measures for the Record-Filing of Foreign Investment in Free Trade Zones, outlining the streamlined process that foreign investors need to follow to register investments in the FTZs.

Competition and Anti-Trust Laws

China uses a complex system of laws, regulations, and agency specific guidelines at both the central and provincial levels that impacts an economic sector’s makeup, sometimes as a monopoly, near-monopoly, or authorized oligopoly. These measures are particularly common in resource-intensive sectors such as electricity and transportation, as well as in industries seeking unified national coverage like fixed-line telephony and postal services. The measures also target sectors the government deems vital to national security and economic stability, including defense, energy, and banking. Examples of such laws and regulations include the Law on Electricity (1996), Civil Aviation Law (1995), Regulations on Telecommunication (2000), Postal Law (amended in 2009), Railroad Law (1991), and Commercial Bank Law (amended in 2003), among others.

Anti-Monopoly Law

China’s Anti-Monopoly Law (AML) went into effect on August 1, 2008. The AML delegates antitrust enforcement to three agencies: MOFCOM to review concentrations (M&As); the NDRC to review cartel agreements, abuse of dominant position, and abuse of administrative powers centered on product pricing; and the SAIC to review the same types of activities as NDRC when those activities are not directly price-related. In addition, the AML established the Anti-Monopoly Commission to provide oversight, expertise, and coordination among different stakeholders and enforcement agencies. After the AML was enacted, the need to clarify parts of the law became apparent, leading MOFCOM, NDRC, SAIC, and other Chinese government ministries and agencies to formulate implementing guidelines, departmental rules, and other measures. Generally, the AML enforcement agencies have sought public comment on proposed measures and guidelines, although comment periods can be less than 30 days.

During the National People’s Congress (NPC) in March 2018, the CCP announced that the three AML agencies would be consolidated under the newly-established State Administration for Market Regulation (SAMR). Details and timelines for this new announcement have not yet been provided.

In 2016, the three AML enforcement agencies drafted guidelines on six enforcement areas: anti-monopoly guidelines for the automobile industry, guidelines on determining illegal incomes and fines, guidelines on the “leniency” system in horizontal monopoly agreements, guidelines on AML settlement cases, guidelines for IP abuse, and guidelines on monopolistic agreement exemptions. While these guidelines may provide greater clarity and business predictability for foreign investment, they have yet to be finalized by the State Council.

In addition, the State Council in June 2016 issued guidelines for the Fair Competition Review Mechanism that targets administrative monopolies created by government agents, primarily at the local level. The mechanism not only requires government agencies to conduct a fair competition review prior to issuing new laws, regulations, and guidelines, to certify that proposed measures do not inhibit competition, but also requires government agencies to conduct a review of all existing rules, regulations, and guidelines, to eliminate existing laws and regulations that are competition inhibiting. In October 2017, the State Council, SCLAO, Ministry of Finance, and three AML agencies issued implementation rules for the fair competition review system to strengthen review procedures, provide review criteria, enhance coordination among government entities, and improve overall competition-based supervision in new laws and regulations. While it is too early to estimate the impact of the mechanism on competition and in breaking up administrative monopolies, Chinese academics in particular are optimistic that this development signals a more prominent role for competition in future economic decisions.

While procedural developments such as those outlined above are seen as generally positive, the actual enforcement of competition laws and regulations is uneven. Inconsistent central and provincial enforcement of antitrust law often exacerbates local protectionism by restricting inter-provincial trade, limiting market access for certain imported products, using measures that raise production costs, and limiting opportunities for foreign investment. Government authorities at all levels in China may also restrict competition to insulate favored firms from competition through various forms of regulations and industrial policies. The ultimate benefactor of such policies is often unclear; however, foreign companies have expressed concern that the central government’s use of AML enforcement is often selectively used to target foreign companies, becoming an extension of other industrial policies that favor SOEs and Chinese companies deemed potential “national champions.”

MOFCOM currently is responsible for M&A review. However, with the reorganization of AML enforcement now under SAMR, a new division within SAMR will take over M&A review in 2018. Since the AML went into effect, the number of M&A transactions MOFCOM has reviewed each year has continued to grow. U.S. companies and other observers have expressed concerns that MOFCOM needs to consult with other agencies when reviewing a potential transaction and that other agencies can raise concerns that are not related to competition to either block, delay, or force one or more of the parties to comply with a condition in order to receive MOFCOM approval. There is also suspicion that Chinese regulators rarely approve “on condition” transactions involving two Chinese companies, thus signaling an inherent AML bias against foreign enterprises.

The NDRC has made some procedural progress in AML enforcement on price-related cases by releasing aggregate data on investigations and publicizing case decisions. However, many U.S. companies complain that NDRC discourages companies from having legal representation during informal discussions or formal investigations and that the investigative process lacks transparency or specific guidance on evidence gathering or other practices. Observers also worry about future “dawn raids” and express concerns that NDRC regulators, along with the other AML regulators, can at any time use competition law to promote China’s industrial policy goals by targeting foreign firms to limit competition. Observers further worry that despite commitments by Chinese officials to protect commercial secrets obtained during an AML investigation, access to secret and proprietary information could nevertheless be given to a Chinese competitor.

In bilateral dialogues, China continues to express its commitment to protect and enforce IPR across a wide range of industry sectors. While U.S. companies see this as a positive development, there is growing concern on how China handles IPR protection that intersects with antitrust concerns. Enforcement practice, along with the draft guidelines that Chinese officials have issued for public comment on IP abuse, disproportionately impact foreign firms by requiring a company to license IP technology to local competitors, at a “fair price” that does not abuse the company’s “dominant market position.” Foreign companies have long complained that such a view of antitrust serves industrial policy goals to force technology transfer to local competitors under the guise of the AML.

Another consistent area of concern from foreign companies is how the AML applies to SOEs and other government monopolies permitted in some industries. All three AML enforcement agencies have provided assurance that AML enforcement applies to SOEs, and there have been some AML punitive actions taken by NDRC and SAIC against provincial-level SOEs in recent years. However, the AML explicitly protects the lawful operations of SOEs and government monopolies in industries deemed nationally important. While SOEs have not been entirely immune from AML investigations, when considering the number of SOE investigations compared to the role SOEs play in China’s economy, the numbers are not commensurate. The CCP’s proactive orchestration of mergers and consolidation of SOEs in industries like rail, marine shipping, metals, and other strategic sectors, which in most instances only further insulates SOEs from both private and foreign competition, signals that enforcement against SOEs will remain limited despite potential negative impacts on consumer welfare.

Expropriation and Compensation

Chinese law prohibits nationalization of foreign-invested enterprises, except under “special circumstances.” Chinese officials have said these circumstances may include when there is a national security component or when an investment presents an obstacle to achieving a large civil engineering project. However, Chinese law does not define what special circumstances would lead to nationalization of a foreign investment. Chinese law, while requiring compensation of expropriated foreign investments, does not say what method or formula to use to calculate the value of the foreign investment. The Department of State is not aware of any cases since 1979 in which China has expropriated a U.S. investment, although the Department has notified Congress through the annual 527 Investment Dispute Report of several cases of concern.

Dispute Settlement

ICSID Convention and New York Convention

China is a contracting State to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and has ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). The domestic legislation that provides for enforcement of foreign arbitral awards related to these two Conventions includes the Arbitration Law adopted in 1994, the Civil Procedure Law adopted in 1991 (later amended in 2012), the Law on Chinese-Foreign Equity Joint Ventures adopted in 1979 (amended most recently in 2001), and a number of other laws with similar provisions. China’s Arbitration Law has embraced many of the fundamental principles of The United Nations Commission on International Trade Law’s Model Law on International Commercial Arbitration.

International Commercial Disputes and the Chinese Legal System

Chinese officials typically urge private parties to resolve commercial disputes through informal conciliation. If formal mediation is necessary, Chinese parties and the authorities typically promote arbitration over litigation. Many contract disputes require arbitration by the Beijing-based China International Economic and Trade Arbitration Commission (CIETAC). Established by the State Council in 1956 under the auspices of the China Council for the Promotion of International Trade (CCPIT), CIETAC is China’s most widely-utilized arbitral body for foreign-related disputes. Some foreign parties have obtained favorable rulings from CIETAC, while others question CIETAC’s fairness and effectiveness.

CIETAC also had four sub-commissions located in Shanghai, Shenzhen, Tianjin, and Chongqing. In 2012, CCPIT, under the authority of the State Council, issued new arbitration rules that granted CIETAC headquarters significantly more authority to hear cases than the sub-commissions; CIETAC Shanghai and CIETAC Shenzhen then declared their independence from the Beijing authority and issued their own rules and changed their name. As a result, CIETAC disqualified its former Shanghai and Shenzhen affiliates from administering arbitration disputes. This jurisdictional dispute between CIETAC in Beijing and the former sub-commissions raised serious concerns among the U.S. business and legal communities, particularly regarding the validity of arbitration agreements specifying particular arbitration procedures and the enforceability of arbitral awards issued by the sub-commissions. In 2013, the SPC issued a notice clarifying that any lower court that hears a case arising out of the CIETAC split must report the case to the SPC before making a decision. However, the SPC notice is brief and lacks detail on certain issues, including the timeframe for the lower court’s decision to reach the SPC and for the SPC to issue its opinion.

There are also many provincial and municipal arbitration commissions, like the Beijing Arbitration Commission and the Shanghai Arbitration Commission, that have emerged as serious domestic competitors to CIETAC. A foreign party may seek arbitration from an offshore commission. Foreign companies often encounter challenges in enforcing arbitration decisions issued by Chinese and foreign arbitration bodies. In these instances, foreign investors may appeal to higher courts in such cases.

The Chinese government and judicial bodies do not maintain a public record of investment disputes. The SPC maintains a count of the annual number of cases involving foreigners tried in China, but does not specify the types of cases, identify civil or commercial disputes, or note foreign investment disputes. Rulings in some cases are open to the public.

International Commercial Arbitration and Foreign Courts

The recognition and enforcement of judgments issued by foreign courts in the Chinese court system is governed by Articles 281 and 282 of the Civil Procedural Law. The law states that a Chinese court must review China’s treaty obligations, reciprocity principles, basic Chinese law, Chinese sovereignty, Chinese social and public interests, and national security before determining if the validity of a judgment from a foreign court should be recognized. As a result, there are few examples of a Chinese court recognizing and enforcing a foreign court judgment, and China’s recognition of U.S. court judgments has been inconsistent, according to anecdotal reports. China has concluded 27 bilateral agreements on the recognition and enforcement of foreign court judgments, but none with the United States.

Article 270 of China’s Civil Procedure Law states that time limits in civil cases do not apply to cases involving foreign investment. According to the 2012 CIETAC Arbitration Rules, in an ordinary procedure case, the arbitral tribunal shall render an arbitral award within six months (in foreign-related cases) from the date on which the arbitral tribunal is formed. In a summary procedure case, the arbitral tribunal shall make an award within three months from the date on which the arbitral tribunal is formed.

Bankruptcy Regulations

China’s primary bankruptcy legislation is the Enterprise Bankruptcy Law, which was promulgated on August 27, 2006, and took effect on June 1, 2007. The 2007 law applies to all companies incorporated under Chinese laws and regulations, including private companies, public companies, SOEs, foreign invested enterprises (FIEs), and financial institutions. It is commensurate with developed countries’ bankruptcy laws and provides for potential reorganization or restructuring, rather than liquidation. Due to uncertainty about authorities and procedures, lack of implementation guidelines, and the limited number of cases providing precedent, the law has never been fully enforced, and most corporate debt disputes are settled through negotiations led by local governments. Companies are disincentivized from pursing bankruptcy because of the potential of local government interference and fear of losing control. Chinese courts lack capacity to handle bankruptcy cases, and bankruptcy administrators, clerks, and judges all lack experience.

In the October 2016 State Council Guiding Opinion on Reducing Enterprises’ Leverage Ratio, bankruptcy was identified as a tool to manage China’s corporate debt problems. This was consistent with increased government rhetoric throughout the year in support of bankruptcy. For example, in June 2016, the SPC issued a notice to establish bankruptcy divisions at intermediate courts and to increase the number of judges and support staff to handle liquidation and bankruptcy issues. On August 1, the SPC also launched a new bankruptcy and reorganization electronic information platform: http://pccz.court.gov.cn/pcajxxw/index/xxwsy .

The number of bankruptcy cases has continued to grow since 2015. The SPC reported that in 2017, 9,542 bankruptcy cases were accepted by the Chinese courts, representing a 68.4 percent year-on-year increase from 2016, and 6,257 cases were closed, representing a 73.7 percent year-on-year increase from 2016. The SPC has continued to issue clarifications and new implementing measures to improve bankruptcy procedures.

Capital Markets and Portfolio Investment

China’s leadership has stated that it seeks to build a modern, highly developed, and multi-tiered capital market. Bank loans continue to provide the majority of credit options (reportedly around 70 percent) for Chinese companies, although other sources of capital, such as corporate bonds, trust loans, equity financing, and private equity are quickly expanding their scope, reach, and sophistication. Chinese regulators regularly use administrative methods to control credit growth, although market-based tools such as interest rate policy play an increasingly important role.

The People’s Bank of China (PBOC), China’s central bank, has gradually increased flexibility for banks in setting interest rates, formally removing the floor on the lending rate in 2013 and the deposit rate cap in 2015 – but is understood to still influence bank’s interest rates through “window guidance.” Favored borrowers, particularly SOEs, benefit from greater access to capital and lower financing costs, as they can use political influence to secure bank loans, and lenders perceive these entities to have an implicit government guarantee. Small- and medium-sized enterprises, by contrast, have the most difficulty obtaining financing, often forced to rely on retained earnings or informal investment channels.

In the past year, Chinese regulators have taken measures to rein in the rapid growth of China’s “shadow banking” sector, which includes vehicles such as wealth management and trust products. These vehicles often provide private firms additional channels to obtain capital, although at higher than benchmark rates. Chinese authorities have taken steps to increase the transparency requirements and strengthen supervision of these banking activities. In 2017, worried about increasingly interconnected leverage across China’s corporate sector, President Xi Jinping declared China’s financial security to be a matter of national security, and regulators redoubled their efforts to rein in financial sector risks.

Direct financing has expanded over the last few years, including through public listings on stock exchanges, both inside and outside of China, and issuing more corporate and local government bonds. The majority of foreign portfolio investment in Chinese companies occurs on foreign exchanges, primarily in the United States and Hong Kong. In addition, China has significantly expanded quotas for certain foreign institutional investors to invest in domestic stock markets; opened up direct access for foreign investors into China’s interbank bond market; and approved a two-way, cross-border equity direct investment scheme between Shanghai and Hong Kong that allows Chinese investors to trade designated Hong Kong-listed stocks through the Shanghai Exchange, and vice versa. Direct investment by private equity and venture capital firms is also rising, although from a small base, and has faced setbacks due to China’s capital controls that complicate the repatriation of returns.

Money and Banking System

After several years of rapid credit growth, China’s banking sector faces asset quality concerns. For 2017, the China Banking Regulatory Commission reported a non-performing loans (NPL) ratio of 1.74 percent, the same NPL ratio reported the last quarter of 2016. The outstanding balance of commercial bank NPLs in 2017 reached 1.71 trillion RMB (approximately USD 270.6 billion). China’s total banking assets surpassed 252 trillion RMB (approximately USD 39.9 trillion) in December 2017, an 8.7 percent year-on-year increase. Experts estimate Chinese banking assets account for over 20 percent of global banking assets. In 2017, China’s credit and broad money supply slowed to 8.2 percent growth, slower than the nominal gross domestic product (GDP) growth rate of 11.23 percent and the lowest published rate since the PBOC first started publishing M2 money supply data in 1986.

Foreign Exchange and Remittances

Foreign Exchange Policies

While the central bank’s official position is that companies with proper documentation should be able to freely conduct business, in practice, companies have reported challenges and delays in getting foreign currency transactions approved by sub-national regulatory branches. In 2017, several foreign companies complained about administrative delays in remitting large sums of money from China, even after completing all of the documentation requirements. Such incidents come amid announcements that the State Administration of Foreign Exchange (SAFE) had issued guidance to tighten scrutiny of foreign currency outflows due to China’s rapidly decreasing foreign currency exchange. China has since announced that it will gradually reduce those controls, but market analysts expect they would be re-imposed if capital outflows accelerate again.

Under Chinese law, FIEs do not need pre-approval to open foreign exchange accounts and are allowed to retain income as foreign exchange or to convert it into RMB without quota requirements. Foreign exchange transactions related to China’s capital account activities do not require review by SAFE, but designated foreign exchange banks review and directly conduct foreign exchange settlements. Chinese officials register all commercial foreign debt and will limit foreign firms’ accumulated medium- and long-term debt from abroad to the difference between total investment and registered capital. China issued guidelines in February 2015 that allow, on a pilot basis, a more flexible approach to foreign debt within several specific geographic areas, including the Shanghai Pilot FTZ. The main change under this new approach is to allow FIEs to expand their foreign debt above the difference between total investment and registered capital, so long as they have sufficient net assets.

Chinese foreign exchange rules cap the maximum amount of RMB individuals are allowed to convert into other currencies at approximately USD 50,000 each year and restrict them from directly transferring RMB abroad without prior approval from SAFE. In 2017, authorities further restricted overseas currency withdrawals by banning sales of life insurance products and capping credit card withdrawals at USD 5,000 per transaction. SAFE has not reduced this quota, but during periods of higher than normal capital outflows, banks are reportedly instructed by SAFE to increase scrutiny over individuals’ requests for foreign currency and to require additional paperwork clarifying the intended use of the funds, with the express intent of slowing capital outflows.

China’s exchange rate regime is managed within a band that allows the currency to rise or fall by 2 percent per day from the “reference rate” set each morning. In August 2015, China announced that the reference rate would more closely reflect the previous day’s closing spot rate. Since that change, daily volatility of the RMB has at times been higher than in recent years, but for the most part, remains below what is typical for other currencies. In 2017, the PBOC took additional measures to reduce volatility, introducing a “countercyclical factor” into its daily RMB exchange rate calculation. Although the PBOC reportedly suspended the countercyclical factor in January 2018, the tool remains available to policymakers if volatility re-emerges.

Remittance Policies

The following operations do not require SAFE approval: purchase and remittance of foreign exchange as a result of capital reduction, liquidation, or early repatriation of an investment in a foreign-owned enterprise, or as a result of the transfer of equity in an FIE to a Chinese domestic entity or individual where lawful income derived in China is reinvested.

The remittance of profits and dividends by FIEs is not subject to time limitations, but FIEs need to submit a series of documents to designated banks for review and approval. The review period is not fixed, and is frequently completed within one or two working days of the submission of complete documents. In the past year, this period has lengthened during periods of higher than normal capital outflows, when the government strengthens capital controls.

Remittance policies have not changed substantially since SAFE simplified some regulations in January 2014, devolving many review and approval procedures to banks. Firms that remit profits at or below USD 50,000 dollars can do so without submitting documents to the banks for review. For remittances above USD 50,000, the firm must submit tax documents, as well as the formal decision by its management to distribute profits.

For remittance of interest and principle on private foreign debt, firms must submit an application form, a foreign debt agreement, and the notice on repayment of the principle and interest. Banks will then check if the repayment volume is within the repayable principle.

The remittance of financial lease payments falls under foreign debt management rules. There are no specific rules on the remittance of royalties and management fees. In September 2017, SAFE lowered the reserve requirement for foreign currency transactions to zero, significantly reducing the cost of foreign currency transactions. The reserve ratio was raised to 20 percent in 2016.

The Financial Action Task Force has identified China as a country of primary concern. Global Financial Integrity (GFI) estimates that over USD 1 trillion of illicit money left China between 2003 and 2012, making China the world leader in illicit capital flows. In 2013, GFI estimated that another USD 260 billion left the country.

Sovereign Wealth Funds

China officially has only one sovereign wealth fund (SWF), the China Investment Corporation (CIC). Established in 2007, CIC manages over USD 900 billion in assets (as of August 2017) and invests on a 10-year time horizon. China’s sovereign wealth is also invested by a subsidiary of SAFE, the government agency that manages China’s foreign currency reserves, and reports directly to the PBOC. The SAFE Administrator also serves concurrently as a PBOC Deputy Governor.

CIC publishes an annual report containing information on its structure, investments, and returns. CIC invests in diverse sectors like financial, consumer products, information technology, high-end manufacturing, healthcare, energy, telecommunication services, and utilities.

China also operates other funds that function in part like sovereign wealth funds, including: China’s National Social Security Fund, with an estimate USD 295 billion in assets; the China-Africa Development Fund (solely funded by the China Development Bank), with an estimated USD 5 billion; the SAFE Investment Company, with an estimated USD 441 billion; and China’s state-owned Silk Road Fund, established in December 2014 with USD 40 billion to foster investment in countries along the Belt and Road. Chinese SWFs do not report the percentage of their assets that are invested domestically.

Chinese SWFs follow the voluntary code of good practices known as the Santiago Principles and participate in the IMF-hosted International Working Group on SWFs. The Chinese government does not have any formal policies specifying that CIC invest funds consistent with industrial policies or in government-designated projects, although CIC is expected to pursue government objectives. The SWF generally adopts a “passive” role as a portfolio investor.

Policies Towards Foreign Direct Investment

The Colombian government actively encourages foreign direct investment (FDI). In the early 1990s, the country began economic liberalization reforms, which provided for national treatment of foreign investors, lifted controls on remittance of profits and capital, and allowed foreign investment in most sectors. Colombia imposes the same investment restrictions on foreign investors that it does on national investors. Generally, foreign investors may participate in the privatization of state-owned enterprises without restrictions. All FDI involving the establishment of a commercial presence in Colombia requires registration with the Superintendence of Corporations (Superintendencia de Sociedades) and the local chamber of commerce. All conditions being equal during tender processes, national offers are preferred over foreign ones. Assuming equal conditions among foreign bidders, those with major Colombian national workforce resources, significant national capital, and/or better conditions to facilitate technology transfers have an edge in tenders.

ProColombia is the Colombian government entity that promotes international tourism, foreign investment, and non-traditional exports. ProColombia assists foreign companies that wish to enter the Colombian market and addresses specific needs, identifying contacts in the public and private sectors, organizing visit agendas, and accompanying companies during visits to Colombia. All services are free of charge and confidential. Business process outsourcing, software and IT services, cosmetics, health services, automotive manufacturing, textiles, graphic communications, and electricity are sectors that receive special priority. ProColombia’s “Invest in Colombia” web portal offers detailed information for opportunities in agribusiness, manufacturing, and services in Colombia (www.investincolombia.com.co/sectors ).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investment in the financial, hydrocarbon, and mining sectors is subject to special regimes, such as investment registration and concession agreements with the Colombian government, but is not restricted in the amount of foreign capital. The following sectors require that foreign investors have a legal local representative and/or commercial presence in Colombia: travel and tourism agency services; money order operators; customs brokerage; postal and courier services; merchandise warehousing; merchandise transportation under customs control; international cargo agents; public service companies including sewage and water works, waste disposal, electricity, gas and fuel distribution, and public telephone service; insurance firms; legal services; and special air services including aerial fire-fighting, sightseeing, and surveying.

According to the World Bank’s Investing Across Sectors indicators, among the 14 countries in Latin America and the Caribbean covered, Colombia is one of the economies most open to foreign equity ownership. With the exception of TV broadcasting, all other sectors covered by the indicators are fully open to foreign capital participation. Foreign ownership in TV broadcasting companies is limited to 40 percent. Companies publishing newspapers can have up to 100 percent foreign capital investment; however, there is a requirement for the director or general manager to be a Colombian national.

According to the Colombian constitution and foreign investment regulations, foreign investment in Colombia receives the same treatment as an investment made by Colombian nationals. Any investment made by a person who does not qualify as a resident of Colombia for foreign exchange purposes will qualify as foreign investment. Foreign investment is permitted in all sectors, except in activities related to defense, national security, and toxic waste handling and disposal. There are no performance requirements explicitly applicable to the entry and establishment of foreign investment in Colombia. However, there are export incentives relating to the operation of free trade zones.

Foreign investors face specific exceptions and restrictions in the following sectors:

Media: Only Colombian nationals or legally constituted entities may provide radio or subscription-based television services. For National Open Television and Nationwide Private Television Operators, only Colombian nationals or legal entities may be granted concessions to provide television services. Colombia’s national, regional, and municipal open-television channels must be provided at no extra cost to subscribers. Foreign investment in national television is limited to a maximum of 40 percent ownership of the relevant operator. Satellite television service providers are only obliged to include within their basic programming the broadcast of government-designated public interest channels. Newspapers published in Colombia covering domestic politics must be directed and managed by Colombian nationals.

Accounting, Auditing, and Data Processing: To practice in Colombia, providers of accounting services must register with the Central Accountants Board; have uninterrupted domicile in Colombia for at least three years prior to registry; and provide proof of accounting experience in Colombia of at least one year. No restrictions apply to services offered by consulting firms or individuals. A legal commercial presence is required to provide data processing and information services in Colombia.

Banking: Foreign investors may own 100 percent of financial institutions in Colombia, but are required to obtain approval from the Financial Superintendent before making a direct investment of 10 percent or more in any one entity. Portfolio investments used to acquire more than five percent of an entity also require authorization. Foreign banks must establish a local commercial presence and comply with the same capital and other requirements as local financial institutions. Foreign banks may establish a subsidiary or office in Colombia, but not a branch. Every investment of foreign capital in portfolios must be through a Colombian administrator company, including brokerage firms, trust companies, and investment management companies. All foreign investments must be registered with the central bank.

Fishing: A foreign vessel may engage in fishing and related activities in Colombian territorial waters only through association with a Colombian company holding a valid fishing permit. If a ship’s flag corresponds to a country with which Colombia has a complementary bilateral agreement, this agreement shall determine whether the association requirement applies for the process required to obtain a fishing license. The costs of fishing permits are greater for foreign flag vessels.

Private Security and Surveillance Companies: Companies constituted with foreign capital prior to February 11, 1994 cannot increase the share of foreign capital. Those constituted after that date can only have Colombian nationals as shareholders.

Telecommunications: Barriers to entry in telecommunications services include high license fees (USD 150 million for a long distance license), commercial presence requirements, and economic needs tests. While Colombia allows 100 percent foreign ownership of telecommunication providers, it prohibits “callback” services, services which route international calls via a third country where call charges are substantially lower.

Transportation: Foreign companies can only provide multimodal freight services within or from Colombian territory if they have a domiciled agent or representative legally responsible for its activities in Colombia. International cabotage companies can provide cabotage services (i.e. between two points within Colombia) “only when there is no national capacity to provide the service,” according to Colombian law. Colombia prohibits foreign ownership of commercial ships licensed in Colombia and restricts foreign ownership in national airlines or shipping companies to 40 percent. FDI in the maritime sector is limited to 30 percent. The owners of a concession providing port services must be legally constituted in Colombia and only Colombian ships may provide port services within Colombian maritime jurisdiction; however, vessels with foreign flags may provide those services if there are no capable Colombian-flag vessels.

Other Investment Policy Reviews

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

Business Facilitation

New businesses have to first register with the chamber of commerce of the city in which the company will reside. Since May 2008, applicants can go online to register at the tax authority’s portal www.dian.gov.co . The portal provides access to information and speeds up the process of starting a business. The chambers of commerce portals also offer clear and complete information (in English) on the business registration process. Beside the registration with the chamber and the tax authority, companies must register a unified form to self-assess and pay social security and payroll contributions. The unified form can be submitted electronically to the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), the Colombian Family Institute (Instituto Colombiano de Bienestar Familiar, or ICBF) and the Family Compensation Fund (Caja de Compensacion Familiar). After that, companies must register employees for public health coverage, affiliate the company to a public or private pension fund, affiliate the company and employees to an administrator of professional risks, and affiliate employees with a severance fund.

Colombia improved two spots from 61 to 59 in “Ease of Doing Business,” according to the World Bank’s 2018 Doing Business report. According to the report, starting a company in Colombia requires eight procedures and takes an average of 11 days. Information on starting a company can be found at www.ccb.org.co/en/Creating-a-company/Company-start-up/Step-by-step-company-creation ; http://www.investincolombia.com.co/how-to-invest.html#slider_alias_steps-to-establish-your-company-in-colombia ; and www.dian.gov.co .

Outward Investment

ProColombia, the government’s FDI promotion agency, also promotes Colombian investment abroad. The “Colombia Invests” web portal (http://www.colombiainvierte.com.co/ ) offers detailed information for opportunities in the priority sectors of agribusiness, manufacturing, and services for Colombian investors in a range of countries. ProColombia also offers a network of foreign contacts and plans commercial missions.

Transparency of the Regulatory System

The Colombian legal and regulatory systems are generally transparent and consistent with international norms. The commercial code and other laws cover broad areas including banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law. The civil code contains provisions relating to contracts, mortgages, liens, notary functions, and registries. There are no identified private sector associations or non-governmental organizations leading informal regulatory processes. The ministries generally consult with relevant actors, both foreign and national, when drafting regulations, but not always and sometimes for a very limited time period. Proposed laws are typically published as drafts for public comment, though not always, and the complexity of the subject is not necessarily taken into account.

Enforcement mechanisms exist, but historically the judicial system has not taken an active role in adjudicating commercial cases. The Constitution establishes the principle of free competition as a national right for all citizens and provides the judiciary with greater administrative and financial independence from the executive branch. Colombia has transitioned to an oral accusatory system to make criminal investigations and trials more efficient. The new system separates the investigative functions assigned to the Office of the Attorney General from trial functions. Lack of coordination among government entities as well as insufficient resources complicate timely resolution of cases.

Colombia is a member of UNCTAD’s international network of transparent investment procedures (see http://www.businessfacilitation.org/  and Colombia’s website http://colombia.eregulations.org/ ). Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name, and contact details of the entities and people in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures.

International Regulatory Considerations

Colombia is making a hard push to join the Organization for Economic Cooperation and Development (OECD) in summer 2018, before President Santos’ term ends in August. If not completed, the accession process would continue into the next administration. Colombia is part of the World Trade Organization (WTO). The government generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. In December 2017, the legislature ratified the WTO Trade Facilitation Agreement (TFA), which was subsequently endorsed by President Santos. The TFA is now pending constitutional court review before Colombia can deposit its letter of acceptance with the WTO. Regionally Colombia is a member of organizations such as the Inter-American Development Bank (IADB), the Andean Community of Nations (CAN), the Union of South American Nations (UNASUR) and the Pacific Alliance.

Legal System and Judicial Independence

Colombia has a comprehensive legal system. Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community. The judicial framework includes the Superintendence of Industry and Commerce (SIC), the Council of State, the Constitutional Court, the Supreme Court of Justice, and various departmental and district courts, which collectively are administered by the Superior Judicial Council. The 1991 constitution provided the judiciary with greater administrative and financial independence from the executive branch. Colombia has a commercial code and laws covering broad areas including banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law. Regulations and enforcement actions are appealable at the different stages of court processes in Colombia. The judicial system is generally regarded as competent, fair, and reliable, but it did suffer reputational damage in 2017 following the arrest of an official in the Attorney General’s office on corruption charges, which led to the uncovering of a judicial influence-peddling scandal linked to the Supreme Court. Except for the SIC’s efficient exercise of judicial functions, investors may encounter time-consuming bureaucratic requirements and corruption in parts of the judicial system.

Laws and Regulations on Foreign Direct Investment

Colombia has a comprehensive legal framework for business and FDI which incorporates binding norms resulting from its membership in the Andean Community of Nations as well as other free trade agreements and bilateral investment treaties.

Competition and Anti-Trust Laws

The SIC is Colombia’s national competition authority and has been strengthened over the last five years by adding additional personnel, including economists, and lawyers. The SIC issued landmark anti-competitiveness fines in 2015, including against a sugar cartel. More recently the SIC has sanctioned a rice cartel, three of the biggest telecommunication companies in the region, and truck transport operators for anticompetitive practices. In the last four years, the SIC has imposed sanctions of approximately USD 400 million for unfair competition practices on approximately 400 individuals and companies. In 2016, the SIC sanctioned cartels operating in the sectors of baby diapers, soft paper and notebooks, imposing fines of over USD 150 million. The SIC also sanctioned several sectors – including the telecommunications, furniture and home appliances, tourism, technology, automotive, and construction sectors – for consumer rights violations, such as misleading advertising or noncompliance with warranty agreements. In the last five years, the SIC has imposed fines of over USD 300 million for “business cartelization,” collusion among producers to control prices or restrict production.

Expropriation and Compensation

Article 58, numeral 4 of the Constitution governs indemnifications and expropriations, and guarantees owners’ rights for legally-acquired property. For assets taken by eminent domain, Colombian law provides a right of appeal, both on the basis of the decision itself and on the level of compensation. The Constitution does not specify how to proceed in compensation cases, which remains a concern for foreign investors. The Colombian government has sought to resolve such concerns through the negotiation of bilateral investment treaties and strong investment chapters in free trade agreements, such as the CTPA.

Dispute Settlement

ICSID Convention and New York Convention

Colombia is a member of the New York Convention on Investment Disputes, the International Center for the Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency. Colombia is also party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. In October 2012, the new National and International Arbitration Statute (Law 1563), modeled after the UNCITRAL Model Law, took effect.

Investor-State Dispute Settlement

Domestic law allows contracting parties to agree to submit disputes to international arbitration, provided that the parties are domiciled in different countries, the place of arbitration agreed to by the parties is a country other than the one in which they are domiciled, the subject matter of the arbitration involves the interests of more than one country, and the dispute has a direct impact on international trade. The law lets parties set their own arbitration terms including location, procedures, and the nationality of rules and arbiters. Foreign investors have asserted that the arbitration process in Colombia complex and dilatory, especially with regard to enforcing awards. However, investors note some signs of progress – increases in the number of professionals and arbitrators with ample experience on trade and transnational transactions, growth in the number of arbitrage centers with cutting edge infrastructure and administrative capacity (around 340 arbitration and conciliation centers across the country), and greater receptivity in the courts to arbitration processes. The Chamber of Commerce of Bogota handles 75 percent of all arbitration cases in the country. All arbitration tribunals in total handle around 600 cases a year.

There were eight pending investment disputes in Colombia in 2018. The pending disputes represent a wide array of sectors including marine services, aviation, real estate, mining, and financial services industry.

Separately, a Spanish energy company which is the majority owner of a Colombian utility company initiated arbitration proceedings before the United Nations Commission on International Trade Law (UNCITRAL) in March 2017 after the government ordered the liquidation of the electricity supplier. The company asserted that the move constituted expropriation without compensation, though the government cited mismanagement, an inability to service its debts, and failure to provide reliable electricity to the northern coast of Colombia as justification for its actions. The Colombian government also has three disputes in the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).

According to the World Bank’s Doing Business 2018 report, the time from the moment a plaintiff files the lawsuit until payment and enforcement of the contract averages 1288 days, the same as in the previous two years. Traditionally, most court proceedings are carried out in writing and only the evidence-gathering stage is carried out through hearings, including witness depositions, site inspections, and cross-examinations. The government has accelerated proceedings and reduced the backlog of court cases by allowing more verbal public hearings and creating alternative court mechanisms. The new Code of General Procedure that entered into force in June 2014 also establishes an oral proceeding which is carried out in two hearings, and there are now penalties for not ruling in the time limit set by the law. Enforcement of an arbitral award can take from six months to one and a half years; a regular judicial process can take up to 7 years for private parties and upwards of 15 years in conflicts with the State. Thus, arbitration results are cheaper and much more efficient. According to the Doing Business report, Colombia has made enforcing contracts easier by simplifying and speeding up the proceedings for commercial disputes. In 2018, Colombia’s ranking in the enforcing contracts category of the report held at 177.

International Commercial Arbitration and Foreign Courts

Foreign judgments are recognized and enforced in Colombia once an application is submitted to the Civil Chamber of the Supreme Court. In 2012, Colombia approved the use of the arbitration process when new legislation based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law was adopted. The statute stipulates that arbitral awards are governed by both domestic law as well as international conventions (New York Convention, Panama Convention, etc.). This has made the enforcement of arbitral awards easier for all parties involved. Arbitration in Colombia is completely independent from judiciary proceedings, and once arbitration has begun, the only competent authority is the arbitration tribunal itself. The CTPA protects U.S. investments by requiring a transparent and binding international arbitration mechanism and allowing investor-state arbitration for breaches of investment agreements if certain parameters are met. The judicial system is notoriously slow, leading to many foreign companies to include international arbitration clauses in their contracts.

Bankruptcy Regulations

Colombia’s 1991 Constitution grants the government the authority to intervene directly in financial or economic affairs, and this authority provides solutions similar to U.S. Chapter 11 filings for companies facing liquidation or bankruptcy. Colombia’s bankruptcy regulations have two major objectives: to regulate proceedings to ensure creditors’ protection, and to monitor the efficient recovery and preservation of still-viable companies. This was revised in 2006 to allow creditors to request judicial liquidation, which replaces the previous forced auctioning option. Now, inventories are valued, creditors’ rights are taken into account, and either a direct sale takes place within two months or all assets are assigned to creditors based on their share of the company’s liabilities. The insolvency regime for companies was again revised in 2010 to make proceedings more agile and flexible and allow debtors to enter into a long-term payment agreement with creditors, giving the company a chance to recover and continue operating. Bankruptcy is not criminalized in Colombia. In 2013, a bankruptcy law for individuals whose debts surpass fifty percent of their assets value entered into force.

Restructuring proceedings aim to protect the debtors from bankruptcy. Once reorganization has begun, creditors cannot use collection proceedings to collect on debts owed prior to the beginning of the reorganization proceedings. All existing creditors at the moment of the reorganization are recognized during the proceedings if they present their credit. Foreign creditors, equity shareholders including foreign equity shareholders, and holders of other financial contracts, including foreign contract holders, are recognized during the proceeding. Established creditors are guaranteed a vote in the final decision. According to the Doing Business 2018 report, Colombia takes an average of 1.7 years to resolve insolvency – the same as OECD high income countries; the average time in Latin America is 2.9 years.

Capital Markets and Portfolio Investment

The Colombian Stock Exchange (BVC) is the main market for trading and security transactions in Colombia. The BVC is a private company listed on the stock market. The BVC, as a multi-product and multi-market exchange, offers trading platforms for the stock market, along with fixed income and standard derivatives. The BVC also provides listing services for issuers. The BVC is part of the Latin American Integrated Market (MILA) along with the Mexican Stock Exchange, the Lima Stock Exchange and the Santiago Stock Exchange. BVC market capitalization has risen from USD 14 billion in 2003 to USD 121 billion in 2017. In the face of a lame-duck government and inflexible spending commitments, Standard & Poor’s downgraded Colombia’s credit rating to BBB- in December 2017. Moody’s maintained their lowest investment-grade evaluation but modified the outlook from “stable” to “negative” in February 2018. Foreign investors can participate in capital markets by negotiating and acquiring shares, bonds, and other securities listed by the Foreign Investment Statute. These activities must be conducted by a local administrator, such as trust companies or Financial Superintendency authorized stock brokerage firms. Foreign investment capital funds are forbidden from acquiring more than ten percent of the total amount of a Colombian company’s outstanding shares. Foreigners can establish a bank account in Colombia as long as they have a valid visa and Colombian government identification.

The market has sufficient liquidity for investors to enter and exit sizeable positions. The central bank respects IMF Article VIII and does not restrict payments and transfers for current international transactions. The financial sector in Colombia offers credit to nationals and foreigners that comply with the requisite legal requirements.

Money and Banking System

In 2005, Colombia consolidated supervision of all aspects of the banking, financial, securities, and insurance sectors under the Financial Superintendency. Colombia has an effective regulatory system that encourages portfolio investment. According to the Financial Superintendency, as of December 2017, the combined estimated assets of Colombia’s major banks totaled USD 225 billion.

Market analysts generally consider Colombia’s financial system to be strong by regional standards. The financial sector as a whole is investing in new risk assessment and portfolio management procedures. As of December 2017, two private financial groups, the Sarmiento Group (Grupo Aval) and the Business Group of Antioquia (Bancolombia), together own over half of all Colombian banking assets. Grupo Aval controls about 27 percent of the sector and Bancolombia controls about 26 percent. Total foreign-owned bank assets account for approximately 28 percent of the sector.

Commercial banks are the principal source of long-term corporate and project finance in Colombia. Loans rarely have a maturity in excess of five years. Unofficial private lenders play a major role in meeting the working capital needs of small and medium-sized companies. Only the largest of Colombia’s companies participate in the local stock or bond markets, with the majority meeting their financing needs either through the banking system, by reinvesting their profits, or through credit from suppliers.

Colombia’s central bank, Banco de la Republica, is charged with managing inflation and unemployment through monetary policy. Foreign banks are allowed to establish operations in the country. As of the end of 2017, the Financial Superintendence had not approved of the use of blockchain technology in financial transactions.

In order to operate in Colombia, foreign banks must set up a Colombian branch. Colombian banks generally have multiple correspondent banking relationships with U.S. banks, and none of those relationships are known to be in jeopardy at this time.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions on transferring funds associated with FDI. Foreign investment into Colombia must be registered with the central bank in order to secure the right to repatriate capital and profits. Direct and portfolio investments are considered registered when the exchange declaration for operations channeled through the official exchange market is presented, with few exceptions. The official exchange rate is determined by the central bank. The rate is based on the free market flow of the previous day. Colombia does not manipulate its currency to gain competitive advantages.

Remittance Policies

Repatriations of profits are permitted without restrictions. The government permits full remittance of all net profits regardless of the type or amount of investment. Foreign investments must be channeled through the foreign exchange market and registered with the central bank’s foreign exchange office within one year to be able to repatriate or reinvest the proceeds. There are no restrictions on the repatriation of revenues generated from the sale or closure of a business, reduction of investment, or transfer of a portfolio. Colombian law authorizes the government to restrict remittances in the event that international reserves fall below three months’ worth of imports. International reserves have remained well above this threshold for decades.

Sovereign Wealth Funds

In 2012, Colombia began operating a sovereign wealth fund (SWF) called the Savings and Stabilization Fund (FAE), which is administered by the central bank with the objective of promoting savings and economic stability in the country. The fund can administer up to 30 percent of annual royalties from the extractive industry. The fund was valued at USD 3.7 billion in 2017 from an initial value of USD 500 million in 2012. The government transfers royalties not dedicated to the fund to other internal funds to boost national economic productivity through strategic projects, technological investments, and innovation. At the end of 2017, the FAE was invested in 90 percent AAA sovereign bonds. There are no known negative ramifications for U.S. investors in the Colombian market due to FAE investment activities. The FAE is not a member of the International Forum of Sovereign Wealth Funds (http://www.ifswf.org/our-members ), and is not one of the 30 SWFs that has voluntarily upholds the Santiago Principles’ standards for governance and risk management.

Policies toward Foreign Direct Investment

The DRC remains an extremely challenging environment in which to conduct business. At the same time, the GDRC sporadically takes steps to improve economic governance and its business climate, while the DRC’s rich endowment of natural resources, large population and generally open trading system provide significant potential opportunities for U.S. investors. The GDRC’s investment agency, the National Agency for Investment Promotion (ANAPI), provides investment facilitation services for initial investments over USD 200,000 and is mandated to simplify the investment process, make procedures more transparent, assist new foreign investors and improve the image of the DRC as an investment destination. Current investment regulations prohibit foreign investors from engaging in informal small retail commerce, referred to locally as petit commerce, and ban foreign majority-ownership of agricultural concerns. Visas for foreign workers are limited to six consecutive months and cost between USD 300 (single entry) and USD 400 (multiple-entry).

Following approval of an initial “temporary” work visa, which, normally, is not difficult to procure, a foreign worker may qualify for a more expensive “establishment visa” with at least a one year validity. Salaries paid to expatriates are taxed at a higher rate than those of locals to encourage local employment.

Limits on Foreign Control and Right to Private Ownership and Establishment

The DRC Constitution stipulates entitlement to own and establish a business enterprise, and to engage in all forms of remunerative activity, noting minimal restrictions related to small commerce (as described in Section 1.1) and a prohibition of foreign shareholder ownership of more than 49 percent of an agri-business. The government has drafted foreign ownership legislation, but parliamentary debate is still pending. Although it may not be based in law, many investors note that in practice the GDRC requires foreign investors to both hire local agents and participate in a joint venture with the government or local partners.

A new law on subcontracting in the private sector, which was enacted in January 2017, restricts foreign investors’ participation in subcontracting in almost all sectors and is considered by U.S. companies operating in DRC as discriminatory to their interests. The law restricts subcontracting activity to majority Congolese-owned and capitalized-companies whose head offices are located in the national territory. The only exception is in the case of unavailability of expertise in a specific subcontracting area. In that case, proof of lack of expertise must be provided to the competent authority to enable a non-Congolese company to be used as a subcontractor, but the activity may not exceed six months.

The law also forbids the subcontracting of more than 40 percent of the overall value of a contract; voids clauses, stipulations and contractual arrangements that violate the provisions of this law; and carries penalties of up to USD 150,000 and the risk of closure of operations for six months if certain provisions are violated. As of April 2017, the Federations of Enterprises of the Congo (FEC), the American Chamber of Commerce DRC, and other business organizations were lobbying to review and revise the law. Currently foreign businesses had a 12-month grace period, which ended in January 2018, to comply with the new law. As the government has yet to issue implementing regulations, however, the law has yet to come into force.

On March 9, 2018, the government promulgated a new mining code which increased royalty rates by two to ten percent, raised tax rates on “strategic” metals, and imposed a surcharge on “super profits” of mining companies. Of particular concern to mining companies, the government unilaterally removed a stability clause contained in the mining code of 2002. The stability clause protects investors from any new fees or taxes for ten years. Overall, the 2002 Mining Code sought to re-vitalize the mining sector by attracting foreign investors to DRC, which was then considered to be an extremely high-risk investment destination. With no coherent and transparent legal and fiscal framework to alleviate investors’ concerns, the stability clause offered a significant inducement to the major mining companies. Removal of the stability clause may deter future investment in the mining sector.

Other Investment Policy Reviews

The DRC has not undergone an OECD (Organization for Economic Co-operation and Development ) or UNCTAD ( United Nations Conference on Trade and Development )Investment Policy Review in the last 10 years, although in 2010, in collaboration with the World Bank and the European Union, the GDRC published a Diagnostic Study on Commercial Integration – a trade survey that identifies commercial hurdles and provides recommendations. The report highlighted four key points, which for the most part remain valid:

• The GDRC’s customs procedures are outdated and fail to comply with international standards as recommended by the World Customs Organization (WCO) in the Revised Kyoto Agenda;
  • Trade information and management systems are inadequately computerized; Where they are computerized, computerization is often ignored in favor of manual records;
• Exporters face indiscriminate fees imposed by government agencies along with informal facilitation costs for record handling;
• Onerous regulations and administrative hurdles lead to average administrative wait times of four to five days at port, costing on average more than USD 1,020.

The GDRC has recently computerized the customs offices in Kinshasa, Matadi, and Haut Katanga, which generate 70 percent of customs revenue, but the transition from manual to computerized systems has been poorly managed, leading to extended delays in clearing customs.

Business Facilitation

Since 2013, the GDRC has operated a “one-stop shop” (https://www.guichetunique.cd/ ) that brings together all the government entities involved in the registration of a company in the DRC. The registration process now officially takes three days, but in practice it can take much longer. However, some businesses have reported that the Guichet Unique has considerably shortened and simplified the overall process of business registration.

Local sourcing requirements for foreign investors in the new subcontracting law (discussed in Section 1.2) will hinder foreign business activity if the law is implemented as written.

The GDRC does not provide any specific provision for equitable treatment of women or underrepresented minorities in the economy, although women and underrepresented minorities are accorded all citizen rights within the law.

Outward Investment

The GDRC does not prohibit outward investment, nor does it particularly promote it. There are no current government restrictions preventing domestic investors from investing abroad, and there are no current blacklisted countries with which domestic investors are precluded from doing business.

Transparency of the Regulatory System

The DRC does not yet have a complete legal and regulatory framework for the orderly conduct of business and the protection of investments. The GDRC authority on business standards, the Congolese Office of Control (OCC), oversees foreign businesses engaged in the DRC.

There are no formal or informal provisions systematically employed by the GDRC to impede foreign investment, but neither are there provisions that are universally employed to attract such investment. Problems encountered within the GDRC tend largely to be administrative and/or bureaucratic in nature, as reforms and improved laws and regulations are often poorly or unevenly applied. Proposed laws and regulations are rarely published in draft format for public discussion and comments; discussion is typically limited to the governmental entity that proposes the draft law and Parliament prior to enactment.

By implementing the OHADA, the GDRC strengthened its legal framework in the areas of contract, company, and bankruptcy law and set up an accounting system better aligned to international standards. For this purpose, a Coordination Committee was established internally in the DRC to monitor OHADA implementation.

The Extractive Industries Transparency Initiative (EITI), a multi-stakeholder initiative to increase transparency in transactions between governments and companies in the extractive industries, declared in 2014 that DRC’s payment and receipt procedures conform to EITI requirements. In 2016, EITI awarded the DRC the first Initiative Award for Transparency in Extractive Industries.

The DRC adopted a beneficial ownership Roadmap in December 2016 outlining the steps to be taken to ensure the country complies with the EITI standard. The roadmap sought to achieve stakeholder consensus on a definition of beneficial ownership in the DRC context, and draft legislation requiring certain categories of businesses to disclose their beneficial owners. Unfortunately, its implementation has been so delayed that no activities were carried out during 2016 as planned. As a result, stakeholders amended the roadmap and a revised version was published in December 2017.

The DRC’s validation process for compliance with the EITI standard commences July 2018, with assessment due in 2020. The 2016 annual progress report published in July 2017 indicates that, overall, the country has made meaningful progress in complying with the EITI standard, a rating that, if not improved, would fall short of the threshold for designation as EITI compliant. The report noted no progress in GDRC’s reporting of revenues and expenses, and inadequate progress in facilitating public debate and implementing its work plan.

International Regulatory Considerations

The DRC is a member of several regional economic blocks, including the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA), the Economic Community of Central African States (ECCAS), and the Economic Community of the Great Lakes Countries (ECGLC).

According to the Congolese National Standardization Committee, the DRC has adopted 370 harmonized COMESA standards, almost achieving the objective set by the country in 2008.

In order to formalize the DRC’s integration into the COMESA Free Trade Area and in order to comply with its commitments within COMESA, the DRC President promulgated in December 2015, after its adoption by both chambers of Parliament, an Act establishing a new scale of import duties and taxes pursuant to the COMESA Treaty. The Act establishes a zero rate for goods originating in COMESA member countries following a three-year graduated scale of 40 percent, 30 percent and 30 percent reductions respectively. However, the DRC is not on track to meet this goal.

The DRC is a World Trade Organization (WTO) member and, as such, seeks to comply with Trade Related Investment Measures (TRIM) requirements. In October 2016, the WTO noted that there had been positive developments on various fronts in the DRC, including streamlining of the country’s tax system, introduction of a VAT, and enactment of a new customs act, a new excise act, and a new procurement code. The WTO also noted that the business environment has improved as a result of the progressive establishment of single windows for conducting international trade (https://segucerdc.cd/ ) and setting up enterprises (www.guichetunique.cd ). The WTO further commended the adoption of new sectorial policies that have opened several economic sectors, including insurance services and hydrocarbon trade, to competition. The GRDC has proposed a new Strategic National Development Plan which sets the goal of modernizing and industrializing the country by 2035.

Legal System and Judicial Independence

The DRC is a civil law country, and the main provisions of its private law can be traced to the Napoleonic Civil Code. The general characteristics of the Congolese legal system are similar to those of the Belgian legal system, as the DRC largely received its law from its Belgian colonialists. Customary or tribal law is another aspect of the legal system. Various local customary laws regulate both personal status laws and property rights, especially the inheritance and land tenure systems in traditional communities throughout the country. The Congolese legal system is divided into three branches: public law, private law and economic law. Public law regulates legal relationships involving the state or state authority; private law regulates relationships between private persons; and economic law regulates interactions in areas such as labor, trade, mining and investment.

As of early 2018, the DRC had established thirteen commercial courts located in DRC’s main business cities, including Kinshasa, Lubumbashi, Matadi, Boma, Kisangani, and Mbuji-Mayi, though only the Kikwit and Boma courts appear to be functioning reasonably well. These courts are designed to be led by professional judges specializing in commercial matters and exist in parallel to an otherwise inadequate judicial system. A lack of qualified personnel and a reluctance by some DRC jurisdictions to fully recognize OHADA law and institutions have precluded effective operation of the commercial courts. The European Union began funding the construction or rehabilitation of commercial courts in Boma, Butembo, Kolwezi and Kananga in 2013, and the World Bank later supported the rehabilitation of the courts in Kinshasa, Kisangani, and Mbuji-Mayi. Infrastructure quality issues and delays in execution have hampered these projects.

The current judicial process is not procedurally reliable, as its rulings are often not respected. The national court system provides appeals mechanism, and the OHADA provides regulations and a legal framework to appeal verdicts. Legal documents in the DRC can be found at: http://www.leganet.cd/index.htm .

Laws and Regulations on Foreign Direct Investment

Most Foreign Direct Investment (FDI) is governed by the 2002 Investment Code. Mining, hydrocarbons, finance, and other sectors are also governed by sector-specific investment laws. The GDRC deregulated the electricity and insurance sectors in 2015, and in 2016 Parliament passed a bill to reform the hydrocarbons sector and revised the labor law. Lawmakers have authored legislation to address consumer protection, e-commerce, liberalization of prices, competition regulation, account auditing, agriculture regulation, trade courts, entrepreneurship, and free trade areas. With the exception of the property rights legislation, all of these bills are included in the current (March 15 to June 15) Parliamentary agenda. Passage of these bills would improve the DRC’s investment environment.

ANAPI is the DRC agency with the mandate to simplify the investment process, make procedures more transparent, assist new foreign investors, and improve the image of the country as an investment destination (investindrc.cd). There is also a Steering Committee for the Improvement of the Business and Investment Climate (CPCAI), which has the overall goal of improving the DRC’s ranking in the World Bank’s “Doing Business” indicators by reducing administrative delays, red tape, and the overall cost of establishing a business. Since its inception, CPCAI has eliminated 46 of 117 taxes applied to cross-border trade. The GDRC also instituted a Guichet Unique, in 2013, which is a one-stop shop to simplify business creation, cutting processing time from five months to three days, and reducing incorporation fees from USD 3,000 to USD 120. (www.guichetunique.cd ). A “one stop shop” also exists for import-export business, covering, among other things, the collection of taxes and transshipment operations. (https://segucerdc.cd/ ).

Competition and Anti-Trust Laws

There is no existing national agency that reviews transactions for competition or antitrust related concerns; however, as a member of COMESA, the DRC falls under the Competition regime adopted by COMESA, which is made up of the COMESA Competition Regulations, and the COMESA Competition Rules. Under the COMESA Treaty, the Regulations are binding on all member states. Since the DRC does not have a dedicated domestic competition law regime, the regional competition law regime is effectively the only competition law available.

Expropriation and Compensation

Technically, the GDRC may only proceed with an expropriation when it benefits the public interest, and the person or entity subject to an expropriation should receive fair compensation. The U.S. Embassy is unaware of any new expropriation activities by the GDRC against U.S. citizens in 2016, 2017, and thus far in 2018, but there are a number of existing (some long standing) claims of expropriation made against the GDRC, including by Americans. Some claims have been taken to arbitration, though many arbitral judgments against the GDRC are not paid in a timely manner, if at all.

Dispute Settlement

ICSID Convention and New York Convention

The DRC is a member of the International Center for Settlement of Investment Disputes (ICSID) Convention and has been a Contracting State to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) since February 2015. Although the DRC has not made any notifications or reservations in accordance with the New York Convention, the internal legislation facilitating the DRC’s accession to the New York Convention contains reservations regarding reciprocity (the DRC will only enforce awards made in the territory of other Contracting States); commerciality (only awards on matters which are considered commercial under DRC law will be recognized and enforced under the New York Convention); non-retroactivity (the New York Convention will only apply to awards made after February 3, 2015); and finally, that the New York Convention will not apply to disputes related to immovable property (i.e. real estate, industrial plants, etc.) or to rights related to immovable property.

In the case of an investment dispute, the U.S.-DRC BIT provides for reconciliation or national or international arbitration. In the case of a dispute between a U.S. investor and the GDRC, the U.S. investor is subject to the Congolese civil code and legal system. If the parties cannot reach agreement under the terms of the U.S.-DRC BIT the dispute is taken to ICSID or the Paris-based International Chamber of Commerce (ICC). Commercial parties may also seek redress under the Organization for the Harmonization of African Business Law (OHADA).

The DRC’s accession to the New York Convention is important to international investors seeking to develop activities in the DRC because it facilitates the enforcement of international arbitral awards. However, the reservation related to immovable property effectively excludes disputes relating to mining rights, which, under Congolese law, are considered immovable property.

Although there are instances of ongoing corruption at every level of the DRC judicial system, several disputes between foreign investors and State Owned Enterprises (SOE) have been resolved in favor of the foreign investor.

International Commercial Arbitration and Foreign Courts

As a signatory to the OHADA, the DRC also adopted the OHADA Uniform Act on Arbitration (the UAA). The UAA sets out the basic rules applicable to any arbitration where the seat of arbitration is located in an OHADA member state. Because DRC is a member of the New York Convention, the requirements set out under Article 5 of the New York Convention for the recognition and enforcement of foreign awards will apply where the seat of any arbitration is outside an OHADA member state, or where the parties chose arbitral rules outside the UAA.

OHADA‘s UAA offers an alternative dispute resolution mechanism for settling disputes between two parties. The two main consequences of the DRC’s September 2012 accession to OHADA with respect to dispute resolution are:

• The mandatory application of the UAA, which sets out arbitration procedures applicable to any arbitration arising in a Member State of OHADA where the place of arbitration is situated in a Member State;
• Disputes must be submitted to the Common Court of the Justice and Arbitration (CCJA) (based in Abidjan, Cote d’Ivoire) in accordance with the provisions of the OHADA Treaty and the OHADA Arbitration Rules.

The UAA, while not directly based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law, is similar in that it provides for the recognition and enforcement of arbitration agreements and arbitral awards and supersedes the national laws on arbitration to the extent that any conflict arises. Arbitral awards with a connection to an OHADA member state are given final and binding status in all OHADA member states, on a par with a judgment of a national court. Support is provided by the CCJA which can rule on the application and interpretation of the UAA. Arbitral awards rendered in any OHADA Member State are enforceable in any other OHADA member state, subject to obtaining an exequatur (a legal document issued by a sovereign authority allowing a right to be enforced in the authority’s domain of competence) of the competent court of the State in which the award is to be made. Exequaturs shall, in principle, be granted unless the award clearly affects public order in that State. Decisions granting or refusing the granting of an exequatur may be appealed to the CCJA.

Bankruptcy Regulations

The OHADA Uniform Act on Insolvency Proceedings provides a comprehensive framework not only for companies encountering financial difficulties and seeking relief from the pressing demands of creditors, but also for creditors to file their claims. The GDRC judiciary system has agreed to enforce the OHADA Insolvency Act.

Capital Market and Portfolio Investment

The Congolese financial system has recovered from the 2009 crisis but is now at a crossroads. Although reforms have been launched, the system remains small, heavily dollarized, characterized by fragile balance sheets, and cumbersome to use. The GDRC backed away from its short-lived (2013-2016) de-dollarization program, and further reforms are needed to strengthen the financial system, support the expansion of the financial sector, and spur economic growth. Shock resilience is undermined by inadequate risk-based controls, weak enforcement of regulations, low profitability, and excessive reliance on demand deposits. The system is also characterized by a significant concentration of credit and exposure to systemic failure in the event of the insolvency of a large borrower.

Financial inclusion is increasing, but substantial progress is needed to develop payment systems, facilitate the use of financial services, and strengthen regulation of the non-banking sector. Consolidation and strengthening of microfinance along with reform of the insurance and pension sub-sector could facilitate the expansion of financial services and attract long-term investors.

The DRC’s capital market remains underdeveloped and consists mainly of the issuance of treasury bonds. There are no stock exchanges operating in the country, although a small number of private equity firms are actively investing in the mining industry.

The institutional investor base is poorly developed, with only an insurance company and a state pension fund as participants. The Central Bank of Congo (BCC), developed a market for short-term bonds, but most of these bonds are bought and held by local Congolese banks. In the absence of private debt securities, the fixed-rate market is limited to government-issued treasury bonds with maturities of up to 28 days traded through commercial banks.

Access to the primary market is limited to commercial banks holding securities accounts at the BCC and all investors, including institutional and individual investors, must submit bids through banks. Commercial banks, which dominate the investor base, may trade in treasury bills in the secondary market, but in order to do so bids and prices for which they agree to trade must be transparent and publicized. There is no market for derivatives in the country.

The DRC suffers from a weak and fragile financial infrastructure. National payment systems are not governed by central legislation, although the DRC’s National Payments and Settlement Committee is in the process of proposing legal reform through a draft bill that was proposed in 2016, has been adopted by the DRC Senate, and, as of the date of this report, is before the National Assembly for a second reading.

The Central Bank worked for a decade to implement reform on the national payment system via a gradual and interactive approach that identified and corrected deficiencies at each stage. This culminated with the Central Bank inaugurating in September 2017 an automated system that supports customer transfers, regulation of monetary policy operations, and the processing of transactions for the regional payment system-REPSS, set up by COMESA member countries. The system also includes an interbank automated clearing module for check payments, collections, and bills of exchange.

Borrowing options for small and medium enterprises (SME) are limited. Maturities for loans are usually limited to 3-6 months, and interest rates typically hover around 16-18 percent. The weakness of the legal system, the often cumbersome business climate and the difficulty in obtaining inter-bank financing discourages banks from providing long term loans. There are limited possibilities to finance major projects in the domestic currency, the Congolese franc (CDF). The Central Bank sets minimum capital requirements for local banks in CDF or its equivalent in USD . Prior to 2016, the average was roughly USD 12 million per bank, but the economic downturn prompted the Central Bank to mandate an increase to USD 30 million by January 2019. Foreign currency deposits account for almost 90 percent of bank holdings.

Portfolio investment is absent in the DRC. Cross-shareholding and stable shareholding arrangements are also not common. There are occasional complaints about unfair privileges extended to certain investors in profitable sectors such as mining and telecommunications.

Money and Banking system

The Congolese financial system is growing but remains fragile and operates primarily through the BCC. The financial sector is comprised of 17 licensed banks, a national insurance company (SONAS), the National Social Security Institute (INSS), one development bank, SOFIDE (Societe Financière de Development), a savings fund (CADECO), 102 micro finance institutions and cooperatives, 72 money transfer institutions which are concentrated in Kinshasa, Kongo Central, North and South Kivu and the former Katanga provinces, three electronic money institutions, and 23 foreign exchange offices. There is no secondary equity or debt market.

The Congolese Central Bank currently works with three correspondent banks, namely, Commerzbank, Credit Suisse and the Bank for International Settlements-BIS. All foreign banks accredited by the Congolese Central Bank are considered Congolese banks with foreign capital and fall under provisions and regulations covering the credit institutions’ activities in the DRC.

The financial system is mostly bank-based with aggregate holdings of banks estimated at USD 5.1 billion, about 95 percent of the overall holdings of the financial system. Bank deposits account for about 90 percent of total deposits, with the balance held by microfinance institutions. Among the five largest banks, four are local and one is controlled by foreign holdings. The five largest banks hold almost 65 percent of bank deposits and more than 60 percent of total bank assets.

Bank financing is dominated by the collection of deposits, nearly 90 percent of which are denominated in U.S. dollars and held in demand accounts. Bank operations are highly dollarized and financed largely by demand deposits. Nearly 95 percent of loans are in dollars, and clients are mainly companies seeking working capital primarily for daily operations and import/export activities. National and local government entities have significant balances in some banks (deposits in dollars used for investments) and also borrow funds from a few banks to finance administrative expenses. Statistics on non-performing loans do not seem reliable. According to the BCC’s regulatory framework many banks only record the balance due rather than the total amount of the non-performing loan.

Transactions involving correspondence with associated foreign banks represent a significant part of the activities of DRC banks. Correspondent accounts represent more than 30 percent of bank assets and more than 95 percent of interbank market activity. They allow banks to settle transactions denominated in dollars, reflecting efforts to limit risks. The profitability of the banks is fragile and has deteriorated over the last year, reflecting high operating costs and exchange rates. Fees charged by banks are a major source of their revenues.

The DRC has roughly USD 3.7 billion in deposits in the banking system, up slightly from 2016. An estimated USD 10 billion of savings exist outside of banks. Most deposits in the formal system are U.S. dollar-denominated. A slight increase in bank penetration occurred after 2011 as the GDRC switched public employee payments from cash to bank transfers.

Bank penetration is roughly 6 percent or about 3.9 million accounts, which places the country among the most under-banked nations in the world. Based on its strategic plan, the BCC seeks to reach more than 20 million bank accounts by 2030. Banks are increasingly offering savings accounts that pay approximately 3 percent interest, but few Congolese hold savings in banks. According to the Banking Association of Congo (ACB), of an estimated 65 percent of the population that saves, only 4.7 percent do so through a bank.

The overall balance sheet of the banks amounted to roughly USD 5.3 billion in 2017. Credit volume is estimated at roughly USD 1.9 billion in comparison to USD 2.3 billion reached in 2016, a decline of 18 percent. Credit remains scarce, short-term, and highly concentrated. From 2012 to 2016, credit volume was only 13 percent of GDP. Domestic credit granted by banks declined from USD 2.4 billion in 2016 to USD 1.9 billion in 2017. Microfinance institutions also experienced a decline during the same period, from USD 136 million to USD 126 million. The largest depositors in the banking system are private enterprises and households with 46 and 43 percent of deposits, respectively. Public enterprises, central administration and local administration deposits are estimated at seven percent, four percent and one percent respectively.

Foreign Exchange and Remittances

Foreign Exchange

As part of broad economic reforms begun in 2001, the DRC adopted a free-floating exchange rate policy and lifted various restrictions on business transactions, including in the mining sector. The international transfer of funds takes place freely when channeled through local commercial banks. On average, bank declaration requirements and payments for international transfers take less than one week to complete.

The BCC is responsible for regulating foreign exchange and trade. The only currency restriction imposed on travelers is a USD 10,000 limit on the amount an individual can carry when entering or leaving the DRC. The GDRC requires that the BCC license exporters and importers. The DRC’s informal foreign exchange market is large and unregulated and has tended to offer exchange rates not widely dissimilar from the official rate. In practice, the nation’s economy remains highly dollarized.

On September 25, 2014, new foreign exchange regulations were put into place by the BCC. Among other things, these regulations declared the Congolese franc (CDF) as the main currency in all transactions within the DRC. Payment of fees related to education, medical care, water and electricity consumption, residential rents, and national taxes were mandated to be paid in CDF. In the last several years, this requirement has been relaxed and where the parties involved and the appropriate monetary officials agree, exceptions may, and routinely are, made.

Any payments exceeding USD 10,000 must be executed within the banking system, unless there is no presence of banking entities. The largest, albeit rare, banknote in circulation is the CDF 20,000 note (approximately USD 12.36). Far more common are the CDF 500 and CDF 1,000 notes worth approximately USD 0.30 and USD 0.61 respectively. U.S. banknotes printed after 2008 are readily accepted in virtually all transactions, with the exception of one-dollar bills. Banks provide accounts denominated in either currency. In September 2013, the GDRC embarked on a process of “de-dollarizing” the economy by requiring that tax records be kept in CDF and tax payments from mining companies be paid in CDF. In March 2016, however, as a result of a dollar shortage, the GDRC began requiring mining and oil companies to pay their customs fees and taxes in U.S. dollars.

The value of the Congolese franc remained stable at approximately 920 francs to the US dollar between 2012 and 2015, but depreciated against the US dollar by 23.7 percent in 2016 and 23.6 percent in 2017. Similarly, the annualized inflation rate, which was stable at an average 1.4 percent from 2013 through 2015, increased to 23.6 percent in 2016 and 54.7 percent 2017. The economic forecast calls for continuing inflation and currency depreciation over the long term, but the currency has remained stable since August 2017. As of April 2018, foreign exchange reserves totaled USD 1 billion or 4.2 weeks of import cover in comparison to the 2017 level of USD 859 million 2.9 weeks of cover). If government revenues from the extractive sectors continue to increase, the Central Bank will again have the option to support the CDF and maintain currency stability. (Note: Macroeconomic data for the DRC often vary according to the source. This document sources inflation, foreign exchange reserve, GDP growth, and currency exchange rate data from Central Bank of Congo data bases. End Note)

Remittance Policies

Although there is no legal restriction on converting or transferring funds related to investment, new exchange regulations will increase the time for in-country foreigners to repatriate export and re-export income from 30 to 60 days. The BCC is the legal authority controlling and providing the legal framework on foreign exchange in the DRC. Foreign investors may remit through parallel markets when they are legally established and recognized by the BCC.

Sovereign Wealth Funds

The DRC has no reported Sovereign Wealth Funds.

Policies Toward Foreign Direct Investment

Diversifying beyond the petroleum sector, which account for over 90 percent of FDI inflows, is a key government priority to stimulate growth and development. The country has pledged to undertake a variety of legislative, regulatory and institutional reforms to improve the investment climate with the goal of becoming an emerging market economy by 2025. ROC President Denis Sassou N’Guesso reiterated the government’s intent to diversify the economy and improve the investment climate in his December 2017 state of the nation address. Several government ministries began working to implement World Bank Doing Business recommendations in January 2018 under the leadership of the Ministry of Economy.

There are no known laws or common practices that discriminate against foreign investors, including U.S. investors, by prohibiting, limiting or conditioning foreign investment in a sector of the economy. The U.S. and ROC signed an Investment Agreement in 1994.

ROC’s Agency for the Promotion of Investments (API), established in 2013, is charged with promoting economic diversification through expanding the pool of external investors. However, the services it provides are limited. The Ministry of Economy has the lead on coordinating government-wide economic diversification efforts.

The government has not made significant efforts to retain foreign investments. The High Committee for Public-Private Dialogue (“Le Haut Comité du Dialogue Public-Privé”), established in 2012, and has not convened since 2014.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity.

There are no known general limits on foreign ownership or control.

Foreign business entities investing in the petroleum sector are required to pursue a joint venture with the Congolese National Petroleum Company (SNPC). There are no other known sector-specific restrictions, limitations, or requirements applied to foreign ownership and control.

The host country does not have an investment screening mechanism for inbound foreign investment.

U.S. investors are not especially disadvantaged or singled out by any of the ownership or control mechanisms.

Other Investment Policy Reviews

The government has not undergone any third-party investment policy reviews (IPRs) in recent years.

Business Facilitation

The ROC government has a “one-stop shop” for establishing a business called the Centre de Formalité des Entreprises (CFE). CFE has offices in Brazzaville, Pointe-Noire, N’kayi, Ouesso, and Dolisie. In order to establish a business in the ROC, investors must provide CFE with two copies of the company by-laws, two copies of capitalization documents (e.g. a bank letter or an affidavit), a copy of the company’s investment strategy, company-approved financial statements (if available), and ownership documents or lease agreements for the company’s offices in the ROC.

The ROC has no operational business registration website.

ROC’s business facilitation mechanism does not employ measures to ensure equitable treatment of women and underrepresented minorities in the economy. Women and underrepresented minorities routinely face discrimination and other burdens in registering businesses.

Outward Investment

The ROC government does not promote or incentivize outward investment.

The ROC government does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Lack of transparency one of the greatest hurdles to FDI as investors must navigate an opaque regulatory bureaucracy. Companies that have successfully navigated the bureaucracy, including with Embassy support, are often an important source of advice for prospective investors on how to overcome this challenge, since ROC government policies and practices have not helped to establish clear “rules of the game.” Instead, personal contacts are often the most important resource for prospective investors.

Proposed laws and regulations are not published in draft form for public comment. Non-governmental organizations and intra-governmental task forces have sought to improve government transparency with little success to date. Ministries or regulatory agencies are supposed to give notice of proposed regulations to the general public, but these drafts are often not published or communicated formally.

Formal Regulatory Authority and Processes

Various ministries have regulatory authority over the individual industries in their area of responsibility, with overall authority coordinated by the Ministry of Economy. New regulations are developed internally, occasionally with input requested from industry representatives. There is usually not a formal public comment period. Departmental and local authorities may impose additional regulations or requirements on a case by case basis. Regulations are usually not reviewed on the basis of scientific or data-driven assessments.

Informal Regulatory Processes

There are no known informal regulatory processes managed by nongovernmental organizations or private sector associations.

Accounting, Legal, and Regulatory Procedures

The ROC uses francophone Africa’s OHADA system of accounting, legal and regulatory procedures.

Draft Legislation

Draft bills or regulations are not generally made available for public comment.

Online Regulatory Disclosure

New laws and regulations are regularly published in ROC’s Official Journal. This document is sometimes available for download at the website of the Secretary General of the Government (www.sgg.cg ). However, this website is not regularly updated.

Transparency Enforcement Mechanisms

No known Transparency Enforcement Mechanisms for the ROC.

International Regulatory Considerations

The ROC is a member of the Economic Community of Central African States (CEEAC), an economic community of the African Union for the promotion of regional economic cooperation, as well as the Economic and Monetary Community of Central Africa (CEMAC), a monetary union of six Central African states that share a common currency. Much of the national regulatory system is inspired, legislated or controlled by these regional economic organizations.

Francophone African regulatory norms, such as those promulgated by OHADA, are frequently incorporated into the ROC’s regulatory system for business disputes and regulations governing company registration structure and incorporation.

The ROC is a member of the World Trade Organization (WTO), though it is unclear if the government notifies the WTO Committee of all draft regulations relating to Technical Barriers to Trade. ROC is a signatory to the WTO Trade Facilitation Agreement, but has not begun implementing the agreement.

Legal System and Judicial Independence

The Congolese legal system is largely inspired by the French Common Law legal system.

OHADA, the common commercial law among francophone African countries, serves as the basis for ROC’s national commercial law, which also incorporates provisions unique to ROC. There is a Commercial Court in ROC, but it has not convened in over three years.

The judicial system is in principle independent, however, in practice the executive branch regularly intervenes in the judicial system. Judges face high pressure to rule in favor of the executive branch and the ruling party’s interests.

Enforcement actions may be appealed to an appellate court. Public Law 6-2003, which established the country’s Investment Charter, states that investment disputes are subject to settlement under Congolese law. However, independent settlement or conciliation procedures can be enacted by either party. These procedures are governed by:

• The convention regulating the Community Justice Court;
• The treaty of October 17, 1993, implementing the Organization for the Harmonization of Business Law in Africa (OHADA); and
• The International Center for the Settlement of Investment Disputes (ICSID).

In practice, judgments of foreign courts are difficult to enforce in the ROC. Though the government does not usually deny those judgments outright, it may propose obstacles, processes or procedures that prolong the matter indefinitely without resolution.

Laws and Regulations on Foreign Direct Investment

ROC’s Hydrocarbons Law and Mining Code contain industry-specific regulations for foreign investments. There is no other known code of laws or regulations that applies specifically to foreign investment, aside from the provisions contained in bilateral investment treaties. All legal disputes involving foreign investors are heard by the Commercial Court.

No major laws, regulations, or judicial decisions related to foreign investment have come out in the past year.

Competition and Anti-Trust Laws

No agencies review transactions for competition-related concerns, whether domestic or international in nature. Economic ministries monitor individual industries and review industry-related transactions.

Expropriation and Compensation

The ROC government may legally expropriate if there is a public need for a given public facility or infrastructure (e.g. roads, hospitals, etc.).

There is no recent history of expropriation regarding private companies; however, the ROC government has expropriated private property from Congolese citizens to build roads and stadiums. The claimants are entitled to fair market value compensation, but payment is generally not made.

Beginning in 2012, the ROC government expropriated the land of Congolese owners of private property in the Kintele neighborhood of Brazzaville, which was used to build a state-of-the-art sports complex for the 2015 African Games. Property owners subsequently complained that they had no way to sue the government or follow up on their expropriation claims. The government has not offered any explanation or compensation and its handling of the process lacked transparency.

Dispute Settlement

ICSID Convention and New York Convention

The ROC is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). The ROC government has not ratified the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

There is no specific domestic legislation providing for enforcement of awards under the ICSID Convention.

Investor-State Dispute Settlement

The ROC is a member of the Organization for the Harmonization of Business Law in Africa (OHADA), which includes binding international arbitration of investment disputes.

The ROC has a Bilateral Investment Treaty (BIT) with the United States that includes an investment chapter. There were no recent claims by U.S. investors under the agreement.

There have been two investment disputes involving U.S. entities in the past ten years. In one, an American vulture fund bought a Congolese default commercial bond and successfully negotiated a settlement with the Congolese authority after suing ROC in a U.S. court. In the second, a joint British-American construction company successfully sued ROC in U.S. and French courts over unpaid construction contracts dating back to the 1980s; however, the ROC government have to date not recognized these judgements, and Congolese courts have instead issued their own judgements in favor of the ROC government. The case is pending indefinitely as the ROC government no longer engages on the issue.

Local courts have rarely recognized and enforced foreign arbitral awards issued against the government.

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

International Commercial Arbitration and Foreign Courts

The ROC abides by international arbitration for any treaty, international convention, or organization of which it is a member. In practice, arbitral judgments may be difficult to enforce.

There is no domestic arbitration body within the country.

Local courts do not recognize and enforce foreign arbitral awards. In theory, judgments of foreign courts may be recognized when the relevant laws are sufficiently similar to Congolese law; however, in practice Congolese courts have not accepted any foreign arbitral awards in recent years.

Post is not aware of any investment disputes involving SOEs in recent years. However, given the evidence that the executive routinely exercises significant influence on the judicial system, it is likely that this could also occur in investment disputes involving SOEs.

Bankruptcy Regulations

The ROC does not have a specific law that governs bankruptcy. However, as a member of OHADA, ROC applies OHADA bankruptcy law provisions in the event of company insolvency.

The ROC does not have a credit bureau or other credit monitoring authority serving the country’s market.

Capital Markets and Portfolio Investment

The Congolese government’s general attitude toward foreign portfolio investment is neutral. Foreign portfolio investment is not widely practiced in the country.

The ROC does not have a stock exchange. ROC-based companies may be listed on the Douala Stock Exchange (DAC) that was recently merged with the CEMAC Zone Stock Exchange (BVMAC). Monetary and credit policies are determined by the regional central bank, BEAC, within the CEMAC framework. The main objective is to ensure the stability of the common regional currency.

Existing policies facilitate the free flow of financial resources, though complex products are not widely used.

The government and central bank respect IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Most credits are allocated on market terms and are closely monitored by the National Office of the Central Bank (BEAC). Foreign investors that establish solid business partnerships can easily obtain credit on the local market. The private sector may access several types of credit instruments; however, the ROC is not a mature financial market and thus offers a limited range of credit instruments.

Money and Banking System

ROC’s banking sector is highly concentrated and lags behind regional peers. The Congolese banking sector is supervised by the Banking Commission of Central Africa (COBAC), the regulatory body of the Central Bank of Central African States (BEAC). Most international reports contend that banking penetration remains in the five-to-seven percent range, but a government survey conducted in 2015 estimates a rate of 25-30 percent. High intermediation costs and high collateral requirements limit the pool of customers. Banks themselves, of which there are approximately 10 commercial entities, suffer from strained liquidity and have deposits outpacing credit. Growth and innovation within the sector appear most salient in microfinance and electronic banking.

The banking sector is somewhat healthy, however the current economic crisis and the government’s deteriorating balance sheet have put additional strain on the banking sector in the past three to five years.

Non-performing loans remained steady at about 15 percent in 2017.

It is difficult to accurately estimate the total assets controlled by the ROC’s largest banks. However, it is likely that the assets of the largest banks have decreased significantly in recent years as a result of the economic crisis.

The ROC is part of the Central African Economic and Monetary Community (CEMAC) zone and as such is also part of the Central Bank of the Central African States system (BEAC).

Foreign banks are allowed to establish operations in ROC, and indeed, the majority of banking operations are foreign banks or branches of foreign banks. Foreign and domestic banks are subject to the same set of banking regulations promulgated by BEAC. The country has not lost any correspondent banking relationship in the past three years and no correspondent banking relationship is known to be in jeopardy.

There are no known restrictions on a foreigner’s ability to establish a bank account.

The country has not explored or announced its intent to implement or allow the implementation of blockchain technologies in its banking transactions.

Microfinance institutions provide alternative financial services in the country and primarily cater to the needs of small-scale and informal operators who lack sufficient means to access traditional banking services.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no legal restrictions or limitations on converting, transferring or repatriating funds associated with an investment, including remittances, though CEMAC regulations require banks to record and report the identity of customers engaging in transactions valued at over USD 10,000. Additionally, financial institutions must maintain records of large transactions for a minimum of five years. The General Director of Monies and Credit (DGMC) within the Ministry of Finance has responsibility for exchange control. Investors are authorized to remit on a legal parallel market with approval from the DGMC. The Central Bank (BEAC) recently began monitoring and controlling fund transfers larger than USD 100,000.

Foreign investors may hold local bank accounts. There is no difficulty obtaining foreign assets (currencies) from any of the major commercial banks, which are subsidiaries of French, Moroccan, or African banks. There are no U.S.-based banks, but transfers directly to and from the United States are possible.

The common currency used in the ROC and other CEMAC member states is the Central African CFA Franc (FCFA, sometimes abbreviated XAF). The CFA is pegged to the Euro and is treated as an intervention monetary unit at a fixed exchange rate of 1 Euro: 655.957 CFA Franc. This agreement guarantees the availability of foreign exchange and the unlimited convertibility of the CFA Franc. It also provides considerable monetary stability to the ROC and other CEMAC countries. The exchange rate between the CFA Franc and the U.S. dollar fluctuates in line with exchange rate fluctuations between the Euro and the U.S. Dollar.

Remittance Policies

There are no recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.

There are no known time limitations on remittances.

Sovereign Wealth Funds

There is currently no formal Sovereign Wealth Fund (SWF), although a law enabling the creation of such a SWF has been adopted by the Parliament. The law envisages establishing the SWF at the BEAC and acquiring mostly risk-free foreign assets. Separately, the IMF and BEAC have confirmed the existence of non-public “rainy day funds,” a sort of off-the-books sovereign wealth fund created by the government in 2007 to deposit budget surpluses from oil revenue. These funds are not disclosed publicly.

Policies Towards Foreign Direct Investment

Costa Rica actively courts foreign direct investment (FDI), placing a high priority on attracting and retaining high-quality foreign investment. There are some limitations to both private and foreign participation in specific sectors, as detailed in the following section.

The Foreign Trade Promotion Corporation (PROCOMER) as well as the Costa Rican Investment and Development Board (CINDE) lead Costa Rica’s investment promotion efforts. CINDE has had great success over the last several decades in attracting and retaining investment in specific areas, currently services, advanced manufacturing, life sciences, light manufacturing, and the food industry. In addition, the Tourism Institute (ICT) attends to potential investors in the tourism sector. CINDE and ICT are strong and effective guides and advocates for their client companies, prioritizing investment retention and maintaining an ongoing dialogue with investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

Costa Rica recognizes and encourages the right of foreign and domestic private entities to establish and own business enterprises and engage in most forms of remunerative activity. The exceptions are in sectors that are reserved for the state (legal monopolies – see #7 below “State Owned Enterprises, first paragraph) or that require participation of at least a certain percentage of Costa Rican citizens or residents (electrical power generation, transport services, professional services, and aspects of broadcasting). Properties in the Maritime Zone (from 50 to 200 meters above the mean high-tide mark) may only be leased from the state and with residency requirements. In the areas of medical services, telecommunications, finance and insurance, state-owned entities dominate, but that does not preclude private sector competition. Costa Rica does not have an investment screening mechanism for inbound foreign investment, beyond those applied under anti-money laundering procedures. U.S. investors are not disadvantaged or singled out by any control mechanism or sector restrictions; to the contrary, U.S. investors figure prominently among the various major categories of FDI.

Other Investment Policy Reviews

Costa Rica’s investment policy reviews in recent years tend to be positive but qualified by a list of problems that need immediate attention, for example underfinanced infrastructure, lax intellectual property rights (IPR) enforcement, slow environmental permitting, and a persistent and growing government budget deficit. The OECD completed a comprehensive investment policy review in September 2013: http://www.oecd.org/daf/inv/investment-policy/costa-rica-investment-policy-review.htm . In 2014, Costa Rica became the 45th country to adhere to the OECD Declaration on International Investment and Multinational Enterprises. OECD accession talks for Costa Rica began in 2015; within that context the OECD in April 2018 published the “OECD Economic Surveys Costa Rica 2018”. http://www.oecd.org/countries/costarica/oecd-economic-surveys-costa-rica-2018-eco-surveys-cri-2018-en.htm .

In the same context, the OECD offers a number of recent publications relevant to investment policy: http://www.oecd.org/countries/costarica/ .

The World Trade Organization (WTO) completed its most recent trade policy review in September 2013: https://www.wto.org/english/tratop_e/tpr_e/tp386_e.htm .

Business Facilitation

Costa Rica’s single-window business registration website, crearempresa.go.cr, brings together the various entities – municipalities and central government agencies – that must be consulted in the process of registering a business in Costa Rica. A new company in Costa Rica must typically register with the National Registry (company and capital registry), Internal Revenue Directorate of the Finance Ministry (taxpayer registration), National Insurance Institute (INS) (basic workers’ comp), Ministry of Health (sanitary permit), Social Security Administration (CCSS) (registry as employer), and the local Municipality (business permit). Crearempresa is one of 31 national business registration sites evaluated by “Global Enterprise Registration” (www.GER.co ), which awards Costa Rica a relatively lackluster rating because Crearempresa has little payment facility and provides only some of the possible online certificates.

The Costa Rican government’s small business promotion efforts tend to publicly focus on participation by women and underserved communities. The women’s institute INAMU, vocational training institute INA, Ministry of Economy MEIC, and the export promotion agency PROCOMER through its supply chain initiative have all collaborated extensively to promote small and medium enterprise with an emphasis on women’s entrepreneurship.

The World Bank’s “Doing Business” evaluation for 2018, http://www.doingbusiness.org , states that business registration takes a total of 9 steps in 22.5 days. Notaries are a necessary part of the process and are required to use the Crearempresa portal when they create a company. Women do not face explicitly discriminatory treatment when establishing a business.

Outward Investment

The Costa Rican government does not promote or incentivize outward investment. Neither does the government discourage or restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Costa Rican laws, regulations, and practices are generally transparent and foster competition in a manner consistent with international norms, except in the sectors controlled by a state monopoly, where competition is explicitly excluded. Publicly-traded companies adhere to International Accounting Standards Board standards under the supervision of SUGEVAL, the stock and bond market regulator.

Rule-making and regulatory authority is housed in any number of agencies specialized by function (telecom, financial, health, environmental) or location (municipalities, port authorities). Tax, labor, health, and safety laws, though highly bureaucratic, are not seen as unfairly interfering with foreign investment. When applying environmental regulations, the Costa Rican agency that reviews environmental impact statements has been slow in issuing its findings, causing delays for investors in completing projects. The Association of Engineers and Architect’s review of all building plans, Costa Rica’s most prominent example of a regulatory process managed by a nongovernmental organization or private sector association, has not been the subject of U.S. investor discrimination complaints. Costa Rica is a member of UNCTAD’s international network of transparent investment procedures (http://www.businessfacilitation.org ). Within that context, the Ministry of Economy compiled the various procedures needed to do business in Costa Rica: https://costarica.eregulations.org/ . Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name, and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal basis justifying the procedures.

Accounting, legal, and regulatory procedures are transparent and consistent with international norms. The Costa Rican College of Public Accountants (Colegio de Contadores Públicos de Costa Rica -CCPA) is responsible for setting accounting standards for non-regulated companies in Costa Rica and adopted full International Financial Reporting Standards. For more, see the international federation of accountants IFAC: https://www.ifac.org/about-ifac/membership/country/costa-rica .

Regulations must go through a public hearing process when being drafted. Draft bills and regulations are made available for public comment through public consultation processes that will vary in their details according to the public entity and procedure in question, generally giving interested parties sufficient time to respond. The standard period for public comment on technical regulations is 10 days. As appropriate, this process is underpinned by scientific or data-driven assessments. Comments from the public received by regulators during the regulatory hearing process are generally made public.

Regulations and laws, both proposed and final, for all branches of government are published digitally in the government registry “La Gaceta”: https://www.imprentanacional.go.cr/gaceta/ . The Costa Rican American Chamber of Commerce (AmCham – http://amcham.co.cr ) and other business chambers closely monitor these processes and often coordinate responses as needed.

There are several independent avenues for appealing regulatory decisions, and these are frequently pursued by persons or organizations opposed to a public sector contract or regulatory decision. The avenues include the Comptroller General (Contraloria General de la República), the Ombudsman (Defensor de los Habitantes), the public services regulatory agency (ARESEP), and the constitutional review chamber of the Supreme Court. The State Litigator’s office (Procuraduria General) is frequently a participant in its role as the government’s attorney.

A similarly transparent process applies to proposed laws. The Legislative Assembly generally provides sufficient opportunity for supporters and opponents of a law to understand and comment upon proposals. To become law, a proposal must be approved by the Assembly by two plenary votes. The signature of ten legislators (out of 57) is sufficient after the first vote to send the bill to the Supreme Court for constitutional review within one month, although the court may take longer.

The government has mechanisms to ensure laws and regulations are followed. The Comptroller General’s Office conducts operational as well as financial audits and as such provides the primary oversight and enforcement mechanism within the Costa Rican government to ensure that government bodies follow administrative processes. Each government body’s internal audit office and, in many cases, the customer-service comptroller (Contraloria de Servicios) provide additional support.

The Ministry of Finance’s progressive introduction during 2017 of mandatory universal electronic invoicing (by companies, doctors, lawyers, contractors and similar) to improve tax collection is this year’s major reform affecting companies and individuals operating in Costa Rica. When combined with the ongoing introduction of enhanced monitoring by the financial regulator SUGEF of “Designated Non-Financial Businesses and Professions” (DNFBPs), Costa Rican regulatory and executive authorities are effectively enhancing their ability to understand the activities and financial flows of Costa Rica’s economic actors.

The review and enforcement mechanisms described above have kept the regulatory system relatively transparent and free of abuse, but have also rendered the system for public sector contract approval exceptionally slow and litigious. There have been several cases in which these review bodies have overturned already-executed contracts, thereby interjecting uncertainty into the process. Bureaucratic procedures are frequently long, involved and can be discouraging to new investors.

International Regulatory Considerations

While Costa Rica does consult with its neighbors on some regulations through participation in the Central American Integration System SICA (http://www.sica.int/sica/sica_breve.aspx ), Costa Rica’s lawmakers and regulatory bodies habitually refer to sample regulations or legislation from OECD members and others. Costa Rica’s commitment to the OECD accession process accentuated this traditional use of best-practices and model legislation.

Costa Rica appears to be notifying all draft technical regulations to the WTO Committee on Technical Barriers in Trade (TBT), notifying 11 technical regulations in 2017. Costa Rica is also a signatory to the WTO Trade Facilitation Agreement (TFA), ratifying the agreement May 1, 2017. On March 20, 2018, Costa Rica became the fourth country in Latin America to submit its transparency notification to the WTO, a top priority for TFA implementation. This notification will enable U.S. traders to review all import, export, and transit procedures, documents, and requirements on the internet at https://www.tfadatabase.org . U.S. businesses benefit from the increased transparency and streamlining of import and export rules under the TFA. Costa Rica’s Trade Facilitation Council, launched in September 2017 to comply with the TFA, has taken an important role in public-private sector policy coordination.

Legal System and Judicial Independence

Costa Rica uses the civil law system. The fundamental law is the country’s political constitution of 1949, which grants the unicameral legislature a particularly strong role. Jurisprudence or case law does not constitute legal precedent but can be persuasive if used in legal proceedings. For example, the Chambers of the Supreme Court regularly cite their own precedents. The civil and commercial codes govern commercial transactions. The courts are independent, and their authority is respected. The roles of public prosecutor and government attorney are distinct: the Chief Prosecuting Attorney or Attorney General (Fiscal General) operates a semi-autonomous department within the judicial branch while the government attorney or State Litigator (Procuraduria General) works within the Ministry of Justice and Peace in the Executive branch. Judgments and awards of foreign courts and arbitration panels may be accepted and enforced in Costa Rica through the exequatur process. The Constitution specifically prohibits discriminatory treatment of foreign nationals.

The Costa Rican Judicial System is made up of the civil, administrative, and criminal court structure. The judicial system generally upholds contracts, but caution should be exercised when making investments in sectors reserved or protected by the Constitution or by laws for public operation. Investments in state-protected sectors under concession mechanisms can be especially complex due to frequent challenges in the constitutional court of contracts permitting private participation in state enterprise activities. Furthermore, independent government agencies, including municipal governments, which grant construction permits, can issue permits or requirements that may contradict the decisions of other independent agencies, causing significant project delays.

Costa Rica’s commercial code details all business requirements necessary to operate in Costa Rica. The laws of public administration and public finance contain most requirements for contracting with the state.

Investors must exercise caveat emptor (buyer beware) since many firms operate in the informal sector of the economy. Appropriate due diligence should include confirming a company’s registry and formal participation in the Costa Rican economy, such as paying taxes and registering all workers with the Social Security system.

Monetary judgments can be made in USD but paid in the local Costa Rican currency.

The legal process to resolve cases involving squatting on land can be especially cumbersome. Land registries are at times incomplete or even contradictory. The Public Registry of Costa Rica is very effective with nationwide information on-line and in real time. However, rural records or the Cadastral Plans (Planos Catastrados) can be outdated and create land and boundary conflicts. Potential buyers should confirm the validity of their land title. Buyers should retain experienced legal counsel to help them determine the necessary due diligence regarding the purchase of property.

Laws and Regulations on Foreign Direct Investment

While Costa Rica has no major new laws or judicial decisions affecting foreign direct investment, authorities did complete an update of regulations for Free Trade Zones, where most FDI is invested in Costa Rica. (See “Industrial Policy” #5 below). Costa Rican websites useful to help navigate laws, rules and procedures include that of the investment promotion agency CINDE, http://www.cinde.org/en (labor regulations), the export promotion authority PROCOMER, http://www.procomer.com/ (incentive packages), and the Health Ministry, https://www.ministeriodesalud.go.cr/  (product registration and import/export). In addition, the State Litigator’s office (www.pgr.go.cr  – the “SCIJ” tab) compiles relevant laws.

Competition and Anti-Trust Laws

Several public institutions are responsible for consumer protection as it relates to monopolistic and anti-competitive practices. The “Commission for the Promotion of Competition” (COPROCOM), a semi-autonomous agency housed in the Ministry of Economy, Industry and Commerce, is charged with investigating and correcting anti-competitive behavior across the economy. SUTEL, the Telecommunications Superintendence, shares that responsibility with COPROCOM in the Telecommunications sector. Both agencies are charged with defense of competition, deregulation of economic activity, and consumer protection. COPROCOM is considered to be underfunded and weak; the OECD has repeatedly emphasized the need to reform COPROCOM in order to assure regulatory independence and sufficient operating budget. The government’s draft law to strengthen COPROCOM and give it more autonomy has faced considerable opposition.

Expropriation and Compensation

The three principal expropriating ministries in recent years have been the Ministry of Public Works – MOPT (highway rights-of-way), the Costa Rican Electrical Institute – ICE (energy infrastructure), and the Ministry of Environment and Energy – MINAE (National Parks and protected areas). Expropriations generally conform to Costa Rica’s laws and treaty obligations, but there are allegations of expropriations of private land without prompt or adequate compensation.

Article 45 of Costa Rica’s Constitution stipulates that private property can be expropriated without proof that it is done for public interest. The 1995 Law 7495 on expropriations further stipulates that expropriations require full and prior payment. The law makes no distinction between foreigners and nationals. Provisions include: (a) return of the property to the original owner if it is not used for the intended purpose within ten years or, if the owner was compensated, right of first refusal to repurchase the property back at its current value; (b) a requirement that the expropriating institution complete registration of the property within six months; (c) a two-month period during which the tax office must appraise the affected property; (d) a requirement that the tax office itemize crops, buildings, rental income, commercial rights, mineral exploitation rights, and other goods and rights, separately and in addition to the value of the land itself; (e) provision that upon full deposit of the calculated amount the government may take possession of land despite the former owner’s dispute of the price; and (f) provisions providing for both local and international arbitration in the event of a dispute. The expropriations law was amended in 1998, 2006, and 2015 to clarify and expedite some procedures, including those necessary to expropriate land for the construction of new roads.

There is no discernible bias against U.S. investments, companies, or representatives during the expropriations process. Costa Rican public institutions follow the law as outlined above and generally act in a way acceptable to the affected landowners. However, there are currently several cases in which landowners and government differ significantly in their appraisal of the expropriated lands’ value; in those cases, judicial processes took years to resolve. In addition, landowners have on occasion been prevented from developing land which has not yet been formally expropriated for parks or protected areas; the courts will eventually order the government to proceed with the expropriations but the process can be long.

Dispute Settlement

ICSID Convention and New York Convention

In 1993, Costa Rica became a member state to the convention on International Center for Settlement of Investment Disputes (ICSID Convention). Costa Rica paid the awards resulting from unfavorable ICSID rulings, most recently in 2012 regarding private property belonging to a German national within National Park boundaries.

Costa Rica is a signatory of the convention on the Recognition and Enforcement of Arbitral Awards (1958 New York Convention). Consequently, within the Costa Rican legal hierarchy the Convention ranks higher than local laws although still subordinate to the Constitution.

Investor-State Dispute Settlement

Disputes between investors and the government grounded in the government’s alleged actions or failure to act – termed investment disputes – may be resolved administratively or through the legal system.

Under Chapter 10 of the CAFTA-DR agreement, Costa Rica legally obligated itself to answer investor arbitration claims submitted under ICSID or UNCITRAL, and accept the arbitration verdict. To date there are two claims by U.S. citizen investors under the provisions of CAFTA-DR. Extensive documentation for both cases is filed on the Foreign Trade Ministry (COMEX) website: http://www.comex.go.cr/tratados/cafta-dr/ , under “documentos relevantes”. No local court denies or fails to enforce foreign arbitral awards issued against the government.

In some coastal areas of Costa Rica, there is a history of invasion and occupation of private property by squatters who are often organized and sometimes violent. The Costa Rican police and judicial system have at times failed to deter or to peacefully resolve such invasions. It is not uncommon for squatters to return to the parcels of land from which they were evicted, requiring expensive and potentially dangerous vigilance over the land.

International Commercial Arbitration and Foreign Courts

The right to solve disputes through arbitration is guaranteed in the Costa Rican Constitution. For years, the practical application was regulated by the Civil Procedural Code, which made it ineffective with no arbitration cases until 1998, the year the local arbitration law #7727 was enacted. A 2011 law on International Commercial Arbitration (Law 8937), drafted from the UNCITRAL model law (version 2006), brought Costa Rica to a dual arbitration system, with two valid laws, one law for local arbitration and one for international arbitration. Under the local act, arbitration has to be conducted in Spanish and only attorneys admitted to the local Bar Association may be named as arbitrators. All cases brought before an arbitration panel, under the rules of local arbitration centers, must be resolved within 155 days after the complaint is served to the defendant; if the case does not fall under such arbitration centers’ rules then the award must be rendered within two months of final statements of the parties. Parties can withdraw their case or reach an out-of-court settlement before the arbitral tribunal delivers an award. If the award meets the review criteria, the losing party has the option to request that the Costa Rican Supreme Court examine the award, but only on procedural matters and never on the merits. Under the UNCITRAL Law for International Arbitration, proceedings may be held in English and foreign attorneys are authorized to serve as arbitrators. The following arbitration centers are in operation in Costa Rica:

• Centro de Conciliacion y Arbitraje. Costa Rican Chamber of Commerce;
• Centro de Resolucion de Controversias. Costa Rican Association of Engineers and Architects;
• Centro Internacional de Conciliacion y Arbitraje. Costa Rican American Chamber of Commerce (AMCHAM);
• Centro de Arbitraje y Mediacion/Centro Iberoamericano de Arbitraje (CIAR). Costa Rican Bar Association.

Beyond such arbitration options, law #7727 also facilitates courts’ enforcement of conciliation agreements reached under the law. Some universities and municipalities operate “Casas de Justicia” (Justice Houses) open to the public and offering mediation and conciliation at no cost. Law #8937 empowered local arbitration centers, beginning with that pertaining to the Engineers and Architects’ Association, to implement Dispute Board regulations, as a method to address construction disputes.

Costa Rican courts recognize and enforce foreign arbitral awards. Judgments of foreign courts are recognized and enforceable under the local courts and the Supreme Court. Costa Rica is part of the New York Convention (1958) on Recognition of Arbitral Awards.

Outcomes in local courts do not appear to favor state-owned enterprises (SOEs) any more or less than other actors. SOEs can sign arbitral agreements, but must follow strict public laws to obtain the permissions necessary and follow correct procedures, otherwise the agreement could be voided. Once SOEs find themselves in arbitration, they are subject to the same standards and treatment as any other actor.

The most frequently heard complaint about Costa Rican court process is that litigation can be long and costly. U.S. companies cite the unpredictability of outcomes as a source of rising judicial insecurity in Costa Rica. The legal system is significantly backlogged, and civil suits may take several years from start to finish. Some U.S. firms and citizens satisfactorily resolved their cases through the courts, while others see proceedings drawn out over a decade without a final resolution. Commercial arbitration has consequently become an increasingly common dispute resolution mechanism.

Bankruptcy Regulations

The Costa Rican bankruptcy law, addressed in both the commercial code and the civil procedures code, is similar to corresponding U.S. law, according to local experts. Title V of the civil procedures code outlines creditors’ rights and the processes available to register outstanding credits, administer the liquidation of the bankrupt company’s assets, and pay creditors according to their preferential status. The Costa Rican system also allows for successive alternatives to full bankruptcy: “convenion preventivo” or arrangement with creditors; “administracion por intervencion” or administration through judicial intervention; “reorganizacion con intervencion judicial” or reorganization through judicial intervention; and finally bankruptcy. As in the United States, penal law will also apply to criminal malfeasance in some bankruptcy cases. In World Bank’s “resolving insolvency” ranking within the 2017 “Doing Business” report, Costa Rica ranked #131 of 168 (http://www.doingbusiness.org/rankings ).

In Costa Rica, the function of a credit bureau has been partially supplanted by the Costa Rican Central Bank’s (BCCR) credit reporting system “Centro de Informacion Crediticia (CIC)” through which all members of the Costa Rican financial system both report and query credit history and current status of all borrowers in the system. Nevertheless, some private credit reporting agencies, including Equifax and TransUnion, compete in the Costa Rican market.

Capital Markets and Portfolio Investment

The Costa Rican government’s general attitude towards foreign portfolio investment is cautiously welcoming, seeking to facilitate the free flow of financial resources into the economy while minimizing the instability that might be caused by the sudden entry or exit of funds. The securities exchange (Bolsa Nacional de Valores) is small and is dominated by trading in bonds. Stock trading is of limited significance and involves less than 20 of the country’s larger companies, resulting in an illiquid secondary market. There is a small secondary market in commercial paper and repurchase agreements. The Costa Rican government has recently explicitly welcomed foreign institutional investors purchasing significant volumes of Costa Rican dollar-denominated government debt in the local market. The securities exchange regulator SUGEVAL is generally perceived to be effective.

Costa Rica accepted the obligations of IMF Article VIII, agreeing not to impose restrictions on payments and transfers for current international transactions or engage in discriminatory currency arrangements, except with IMF approval. There are no controls on capital flows in or out of Costa Rica or on portfolio investment in publicly-traded companies. However, law #9227 adopted in 2014 allows the Central Bank, in coordination with the executive branch, to discourage short-term investments through the imposition of taxes on interest earned by foreign non-residents on Costa Rican bonds and also provides for a special reserve requirement of up to 25 percent of the value of those bonds. The Central Bank has never used the powers given it by law #9227, and within the context of OECD-recommended reforms the Costa Rican government has committed to abrogating it. Some capital flows are subject to a withholding tax (see section on Foreign Exchange and Remittances).

Within Costa Rica, credit is largely allocated on market terms, although long-term capital is scarce. Favorable lending terms for USD-denominated loans compared to colon-denominated loans have made USD-denominated mortgage financing popular and common. Foreign investors are able to borrow in the local market; they are also free to borrow from abroad, although withholding tax may apply.

Money and Banking System

Costa Rica’s financial system boasts a relatively high financial inclusion rate, with 64.5 percent of adults over the age of 15 holding a bank account. As part of an ongoing financial inclusion campaign, the Costa Rican government in early 2016 began allowing non-resident foreigners to open what are termed “simplified accounts” in Costa Rican financial institutions. Resident foreigners have full access to all banking services.

The banking sector is healthy. Non-performing loans have risen over the past year but remained low at 2.1 percent of total loans as of December 2017; the state-owned banks had a higher 2.9 percent average. The country hosts a large number of smaller private banks, credit unions, and factoring houses, although the four public banks are still dominant, accounting for just under 50 percent of the country’s financial system assets. Consolidated total assets of the country’s public commercial banks were approximately USD 28.1 billion in December 2017, while consolidated total assets of the eleven private commercial and cooperative banks were over USD 18.3 billion and consolidated total assets of the credit unions and lending houses were almost USD 10.3 billion, for combined assets of all bank groups (public banks, private banks and others) of approximately USD 56.6 billion as of December 2017.

Costa Rica’s Central Bank performs the functions of a central bank while also providing support to the four autonomous financial superintendencies (Banking, Securities, Pensions and Insurance) under the supervision of the national council for the supervision of the financial system (CONASSIF). The Central Bank developed and operates the financial system’s transaction settlement mechanism “SINPE.” In addition to managing all transaction settlement between banks, SINPE allows all financial institutions to offer clients the opportunity to transfer money to and from accounts with any other account in the financial system. Such direct bank transfer has become a common means of payment in the country.

Foreign banks may establish operations in the country under the supervision of the banking regulator SUGEF and as such are subject to the same regulatory burden as locally owned banks. The Central Bank has a good reputation and has had no problem in maintaining sufficient correspondent relationships. Costa Rica is steadily improving its ability to ensure the efficacy of anti-money-laundering and anti-terrorism-finance and was removed from intensive monitoring by the Financial Action Task Force in 2017. While Costa Rican commercial banks are reported to have lost some correspondent banking relationships over the past three years, the Costa Rican financial sector in broad terms appears to be satisfied to date with the available correspondent banking services.

Cyber currencies are currently legal in Costa Rica, but Costa Rica’s Central Bank has taken a cautious approach to them in general, warning Costa Ricans that such currencies do not enjoy any formal backing. The financial authorities have also noted that cyber currencies are a potential avenue for money laundering.

Foreign Exchange and Remittances

Foreign Exchange Policies

No restrictions are imposed on capital gains, royalties, or capital except when these rights are otherwise stipulated in contractual agreements with the government of Costa Rica. However, Costa Rican sourced rents and benefits remitted overseas, including royalties, are subject to a withholding tax (see below).

There are no restrictions on receiving, holding, or transferring foreign exchange. There are no delays for foreign exchange, which is readily available at market clearing rates and readily transferable through the banking system. Dollar bonds and other dollar instruments may be traded legally. Euros are increasingly available in the market. Costa Rica’s has had a floating exchange rate regime since the end of 2015 after transitioning from a crawling peg (1983-2006) through a crawling band regime. The Central Bank pledged to intervene, if necessary, to smooth any exchange rate volatility; the Bank has sufficient international reserves for such actions.

Remittance Policies

Costa Rica does not have restrictions on remittances of funds to any foreign country; however, all funds remitted are subject to applicable withholding taxes that are paid to the country’s tax administration. The default level of withholding tax is 30 percent with royalties capped at 25 percent, dividends at 15 percent, professional services at 15 percent, transportation and communication services at 8.5 percent, and reinsurance at 5.5 percent (different withholding taxes also apply for other types of services). By Costa Rican law, in order to pay dividends, procedures need to be followed that include being in business in the corresponding fiscal year and paying all applicable local taxes. Those procedures for declaring dividends in effect put a timing restriction on them. Withholding tax does not apply to payment of interest to multilateral and bilateral banks that promote economic and social growth, and companies located in free trade zones pay no dividend withholding tax and receive other tax benefits. Both Spain and Germany have double-taxation tax treaties with Costa Rica, lowering the withholding tax on dividends paid by companies from those countries.

The Law for Development Banking, which took effect in May 2015, eliminated a provision allowing foreign banks registered with the Central Bank of Costa Rica to be exempt from withholding taxes on interest payments. The change is designed to motivate banks to either register as financial entities within Costa Rica or stop lending to Costa Rican businesses. Industry observers indicate that some foreign banks have reduced their level of business activities due to the new tax treatment.

Sovereign Wealth Funds

Costa Rica does not have a Sovereign Wealth Fund.

Policies Toward Foreign Direct Investment

The government actively encourages Foreign Direct Investment (FDI) and is committed to doubling foreign investment over the next several years. Foreign companies are free to invest and list on the regional stock exchange (BRVM), which is based in Abidjan and dominated by Ivoirian and Senegalese firms. With the inception of the regional exchange, the West African Economic and Monetary Union (WAEMU) members established the Regional Council for Savings and Investment, a regional securities regulatory body.

In most sectors, there are no laws that limit foreign investment. There are restrictions on foreign investment in the health sector, law and accounting firms, and travel agencies. Although there are regulations designed to control land speculation, in urban areas foreigners own significant amounts of land. Free-hold tenure in rural areas is difficult to negotiate and inhibits outside investment. Land tenure disputes exist all over the country, owing to the lack of formal private land ownership in most areas. Most businesses, including agribusinesses and forestry companies, circumvent this by acquiring long-term leases. Companies that wish to purchase land must have the property surveyed before obtaining a title. Surveying is tightly controlled by a small group of companies, and can often cost more than the value of the parcel of land.

Cote d’Ivoire’s investment promotion agency, the Centre for the Promotion of Investment in Cote d’Ivoire (CEPICI), facilitates foreign investment, and its services are available to all investors. CEPICI provides its services through a one-stop shop to facilitate business creation, operation, and expansion; requests incentives in the investment code and for access to industrial land; promotes and attracts national and foreign investments; has an action plan to improve the business climate; and serves as an exchange platform for the public and private sectors. More information is available at http://www.cepici.gouv.ci/ 

Cote d’Ivoire maintains an ongoing dialogue with investors through various business networks and platforms, such as CEPICI, the Ivoirian chamber of commerce (CCI-CI), the association of large enterprises (CGECI), and the bankers’ association (APEBF-CI).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors generally have access to all forms of remunerative activity on terms equal to those enjoyed by Ivoirians. The government encourages foreign investment, including in the privatization of state-owned and public firms, although in most cases the state reserves an equity stake in the new company.

There are no significant limits on foreign investment, nor are there legal differences in the treatment of foreign and national investors, either in terms of the level of foreign ownership or sector of investment. There are no laws specifically authorizing private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control, and no such practices have been reported.

Banks and insurance companies are subject to licensing requirements, but there are no restrictions designed to limit foreign ownership or to establish subsidiaries of foreign companies in this sector. Investments in health, law and accounting, and travel agencies are subject to prior approval and require appropriate licenses and association with an Ivoirian partner. Nevertheless; foreign companies operate successfully in all of these service sectors.

The government does not have an official policy to screen investments, and its overall economic and industrial strategy does not discriminate against foreign-owned firms. There are indications in some instances of preferential treatment for firms from countries with longstanding commercial ties to Cote d’Ivoire.

Other Investment Policy Reviews

Cote d’Ivoire has not conducted an investment policy review (IPR) through the OECD.

A Trade Policy Review was last done by the WTO in July 2012 and can be found athttps://www.wto.org/english/tratop_e/tpr_e/tp366_e.htm .

UNCTAD does not provide an IPR report for Cote d’Ivoire, though there are statistics on FDI in the country profile athttp://unctadstat.unctad.org/CountryProfile/GeneralProfile/en-GB/384/index.html  .

The Government of Cote d’Ivoire provides information about sector policies and business opportunities in various reports. More information can be found at: http://www.cepici.gouv.ci/en/  or at: www.gcpnd.gouv.ci/ .

Business Facilitation

The government has engaged in business facilitation efforts through a series of reforms using the World Bank Doing Business index as a reference to improve the business environment. These include the acceleration of business creation to 24 hours, the issuing of a construction permit in 26 days, the establishment of a one-stop shop for external trade, the establishment of a single tax declaration form, the protection of minority shareholders, and insolvency resolution.

Cote d’Ivoire’s online information portal containing all documents dedicated to business creation and registration (https://cotedivoire.eregulations.org/ ) is managed by CEPICI. All the necessary documentation for registration is available online. The one-stop shop for business registration takes between 24-48 hours and has all the agencies under a single roof, allowing for a more simplified approach to business creation. Businesses have noted the one-stop shop has been very successful in speeding up registration.

The registration process is generally equitable toward women and underrepresented nationalities, and there have not been any reports of discrimination.

Outward Investment

Cote d’Ivoire does not promote or incentivize outward investment. The government does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

The government has taken steps to encourage a more transparent and competitive economic environment, and the IMF, World Bank, EU, and other large donors continue to urge the government to make further reforms. The government aims for transparency in law and policy to foster competition and provide clear rules of the game and a level playing field for domestic and foreign investors. Transparency of the regulatory system, however, is a concern in Cote d’Ivoire, as companies complain that regulations are issued with little warning and without a period for public comment.

In general, regulatory authority exists at the national level and is the most relevant for foreign businesses. For most industries or sectors, regulations are developed through the relevant ministry. In the telecommunications, electricity, cocoa, coffee, cotton, and cashew sectors, the government has established control boards or independent regulatory agencies sto regulate the sector and establishes prices. Regulation is reviewed on data-driven assessments, as regulatory bodies regularly publish and promote access for the business community and development partners to their data. Quantitative analysis and public comments are made available.

There are no informal regulatory processes managed by non-governmental organizations or private sector associations.

Cote d’Ivoire’s accounting, legal, and regulatory procedures are consistent with international norms, though businesses often complain about the system’s lack of clarity and the government’s poor communication. Cote d’Ivoire is a member of the Organization for the Harmonization of African Business Law (OHADA), which is common to 16 countries and adheres to the West African Economic and Monetary Union’s accounting system. In accounting, companies use the SYSCOA system. SYSCOA complies with international norms in force and is a source of economic and financial data.

Draft bills and regulations are not published and made available for public comment. Still, the National Assembly debates most legislation, and the government often holds public seminars and workshops to discuss proposed plans with trade and industry associations.

Key regulatory actions are published in the Journal Officiel de la Republique de Cote d’Ivoire and each regulatory body provides regulatory actions (laws, decisions, and sanctions) on its website. The regulatory enforcement mechanisms are made accountable to the public through the private and public institutions tasked with controlling and regulating these sectors. There is no centralized online location where regulatory actions or their summaries are published similar to the Federal Register. The website abidjan.net makes the Journal Officiel available for purchase online.

The regulatory body ANRMP ensures transparency and compliance with administrative processes. Consumers, trade associations, private companies, and individuals have the right to file complaints with ANRMP to ensure that the government follows administrative processes.

Post does not have knowledge of any recent regulatory system, including enforcement reforms, that has been announced since the last ICS report. Regulatory reforms announced in prior years have been fully implemented, with the goal to create an enabling business environment, foster competition, and build investors’ confidence in the economy.

International Regulatory Considerations

The Ivoirian government accounts for regional bodies in public procurement by incorporating directives 4 and 5 from the WAEMU into bidding processes and auditing, as well as into the regulation of public procurement within the Union. The public procurement code harmonizes public procurement policy and is in compliance with WAEMU directives. Changes include the separation of auditing and regulating functions, the transformation from a national to a regional system of procurement for intellectual services, and an increase from 25 to 30 percent of advance payment for the initial procurement of goods and services. The ANRMP regulates public procurement with a view to improve governance and transparency. It may sanction entities which do not comply with public procurement regulations.

Cote d’Ivoire’s laws, codes, professional association standards, and regional directives are incorporated in the country’s regulatory system. European norms are often followed due to Cote d’Ivoire’s free trade agreement with the EU.

Cote d’Ivoire has been a WTO member since 1995 but has not notified all draft technical regulations to the WTO Committee on Technical Barriers to Trade. Cote d’Ivoire signed the Trade Facilitation Agreement (TFA) in December 2013 and ratified it in December 2015. There have been notable efforts to implement the TFA requisites with the establishment of the TFA National Committee to coordinate its implementation. Other efforts include the USAID trade facilitation support program which has helped in the national implementation of the TFA.

Legal System and Judicial Independence

Cote d’Ivoire’s legal system is based on the French civil law model. The law guarantees the right to own and transfer private property. While this right is respected in most instances, the law regarding rural land tenure make it prohibitively difficult to do so. The court system enforces contracts.

Cote d’Ivoire is signatory to the Organization for the Harmonization of Corporate Law in Africa (OHADA) that provides common corporate law and arbitration procedures for the 16 member states.

The Commercial Court of Abidjan handles business cases. Mediation is also available through the Ivoirian legal framework in addition to the Commercial Court and the Arbitration Tribunal. Following the recommendations of business associations and commercial law experts, in August 2017, the government established the Court of Appeals of the Commercial Court of Abidjan. The IMF has recommended the creation of other commercial jurisdictions in the interior of the country.

Cote d’Ivoire’s judicial system is ostensibly independent, but magistrates are sometimes subject to political or financial influence. Judges sometimes fail to base their decisions on the legal or contractual merits of the case and are seen to rule against foreign investors in favor of entrenched interests. The greatest complaint from investors is the slow process. Cases are often postponed and appealed without a reasonable explanation, moving from court to court for years or even decades. With international assistance, the government is making an effort to reform the judiciary system to make it more efficient and transparent.

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

Laws and Regulations on Foreign Direct Investment

The major law affecting foreign investment is the 2012 Investment Code. The code is considered generous as it has no restrictions on foreign investment or the repatriation of funds. The code offers incentives, including tax reductions and in some cases exemptions from value added taxes (VAT) on equipment for private investors. The code also includes planned industrial zones, which offer benefits to investors such as special tax treatment for periods ranging from 8 to 15 years, depending on the location of the investment. There are also incentives to promote sectors, such as low-cost housing construction, factories, and infrastructure development, which the government considers key to the country’s economic development. In mining, the 2014 Mining Code allows a period for holding permits for ten years with a possibility to extend for two more years on a limited permit area of 400 square kilometers. The code has spurred investment in the sector.

CEPICI provides a one stop shop website for investment. More information on Cote d’Ivoire’s laws, rules, procedures, and reporting requirements can be found at: www.apex-ci.org/ ;  www.cepici.gouv.ci/ 

Competition and Anti-Trust Laws

The Ministry of Commerce, Handicraft and Small Business Promotion through the Commission on Anti-Competition Practices is responsible for reviewing competition–related concerns under the 1991 competition law, which was updated in 2013. The National Authority for the Regulation of Public Tenders is responsible for reviewing the awards of contracts.

No significant competition cases were reported over the past year.

Expropriation and Compensation

There is no history of public expropriations. Private expropriation to force settlement of contractual or investment disputes continues to be a problem. Local individuals or local companies, using what appear to be spurious court decisions, have challenged the ownership of some foreign companies in recent years. On occasion, the government has blocked the bank accounts of U.S. and other foreign companies because of ownership and tax disputes.

In cases of illegal expropriations, Cote d’Ivoire law affords claimants due process. Even so, perceived corruption and lack of capacity in the judicial and security services have resulted in poor enforcement of private property rights, particularly when the entity in question is foreign and the plaintiff is Ivoirian or a long-established foreign resident.

Dispute Settlement

ICSID Convention and New York Convention

Cote d’Ivoire is a signatory to the International Center for Settlement of Investment Disputes (ICSID) and a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral awards.

In cases where the firm does not meet the nationality conditions stipulated by Article 25 of the Convention, the code stipulates that the dispute be resolved within the provisions of the supplementary mechanisms approved by the ICSID.

Investor-State Dispute Settlement

Cote d’Ivoire is a signatory to investment agreements subject to binding international arbitration of investment disputes. Cote d’Ivoire recognizes and has been known to enforce foreign arbitral awards, but enforcement is inconsistent.

Cote d’Ivoire does not have Bilateral Investment Treaty (BIT) or a Free Trade Agreement (FTA) with the United States.

In the past 10 years, foreign investors have had investment disputes, which are often resolved through arbitration or an amicable settlement. One U.S. firm was involved in tax and customs disputes over its investment in the cocoa sector. As a result, the U.S. firm chose to divest its holdings. One U.S. dispute still ongoing involves the decision of the government to nullify a memorandum of understanding with a U.S. company to fulfill sanitation work.

As a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, local courts are obliged to enforce foreign arbitral awards.

Post is not aware of any history of extrajudicial action against foreign investors, including U.S. firms.

International Commercial Arbitration and Foreign Courts

The Abidjan-based regional Joint Court of Justice and Arbitration (CCJA) provides a means of solving contractual disputes. The arbitration tribunal has the ability to enforce awards more quickly, but the use of the tribunal in lieu of the court system has been limited.

Cote d’Ivoire is a member of OHADA, whose provisions of 1999 have replaced domestic law on arbitration. The unified law is based on the UNICITRAL model law.

Judgments of foreign courts are recognized but difficult to enforce in local courts. To avoid working through the Ivoirian legal system, some investors stipulate in contracts that disputes must be settled through international commercial arbitration. Yet, even if stipulated in the contract, decisions reached through international arbitration or through the African regional arbitration body are sometimes not honored by local courts.

Cote d’Ivoire’s domestic courts have no preferential treatment for state-owned enterprises involved in investment disputes.

Bankruptcy Regulations

As a member of the Organization for the Harmonization of African Business Law (OHADA), Cote d’Ivoire has both commercial and bankruptcy laws that address the liquidation of business liabilities. OHADA is a regional system of uniform laws on bankruptcy, debt collection, and rules governing business transactions. OHADA permits three different types of bankruptcy liquidation: an ordered suspension of payment to permit a negotiated settlement; an ordered suspension of payment to permit restructuring of the company, similar to Chapter 11; and the complete liquidation of assets, similar to Chapter 7. Creditors’ rights, irrespective of nationality, are protected equally by the Act. Bankruptcy is not criminalized. Monetary judgments resulting from a bankruptcy are usually paid out in local currency. Cote d’Ivoire is ranked 77 out of 190 countries for ease of resolving insolvency, according to the World Bank’s Doing Business Report.

The joint venture Credit Info -Volo West Africa manages regional credit bureaus in the WAEMU.

Capital Markets and Portfolio Investment

Government policies generally encourage foreign portfolio investment.

The Regional Stock Exchange (BRVM) based in Abidjan covers the eight countries of the WAEMU and trades equity securities. An effective regulatory system exists to facilitate portfolio investment through the West African Central Bank (BCEAO) and the Regional Council for Savings Investments (CREPMF). There is sufficient liquidity in the markets to enter and exit sizeable positions.

Government policies allow the free flow of financial resources into the product and factor markets.

The central bank BCEAO respects IMF Article VIII on payment and transfers for current international transactions.

Credit allocation is based on market terms and has increased to support the private sector and economic growth, specifically for large businesses. Banks lend to the private sector, offering short-term and long-term loans and overdraft facilities. Foreign investors can acquire credit on the local market.

Money and Banking System

The banking sector is composed of twenty-eight commercial banks and two credit institutions. Banks are expanding their networks, especially in the secondary cities outside Abidjan as domestic investment has increased upcountry. The total number of bank branches has increased from 324 in 2010 to 666 branches in 2017.

Cote d’Ivoire’s banking sector is improving with all but four banks complying with the minimum capital requirements. Some public banks have had large numbers of nonperforming loans. The government is privatizing the commercial banking sector in order to reinvigorate the banks and remove low performers from government accounts.

The estimated total assets of the five largest banks are around USD 9 billion.

The central bank BCEAO is common to the eight member states of the West Africa Economic and Monetary Union (WEAMU) and manages regulations.

Foreign banks are allowed to establish operations in Cote d’Ivoire. They are subject to prudential measures and regulations of the Banking Commission of the WAEMU. Cote d’Ivoire lost no known correspondent banking relationships in the past three years. No known correspondent banking relationships are in jeopardy.

Post is not aware of the implementation of blockchain technologies in banking transactions.

Alternative financial services available include mobile money and microfinance for payments, transfers, and finances. Mobile money has become a very popular way to make payments and more Ivoirians prefer mobile money over banking, but it has yet to expand to offering full financial services.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions on the transfer or repatriation of capital and income earned, or on investments financed with convertible foreign currency. Once an investment is established and documented, the government regularly approves remittances of dividends and/or repatriation of capital. The same holds true for requests for other sorts of transactions (e.g. imports, licenses, and royalty fees).

Funds associated with investments funded with convertible currency are freely convertible into any world currency.

Cote d’Ivoire is a member of the WAEMU which uses the West African Franc (XOF), known as the CFA, a convertible currency. The French Treasury continues to hold the international reserves of WAEMU member states and supports the fixed exchange rate of 655.956 CFA to the Euro.

Remittance Policies

There are no recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.

There are no time limitations on remittances. Remittances for Ivoirians were about USD 386 million in 2017 or 0.9 percent of GDP.

Sovereign Wealth Funds

Cote d’Ivoire does not have a sovereign wealth fund.

Policies Towards Foreign Direct Investment

Croatia is open to foreign investment and the Croatian government continues to prioritize attracting foreign investors. All investors, both foreign and domestic, are guaranteed equal treatment by law. There are no laws or practices that discriminate against U.S. investors; however, bureaucratic and political barriers remain. Investors agree that an unpredictable regulatory framework, lack of transparency, duration of administrative procedures, lack of structural reforms, and unresolved property ownership issues weigh heavily upon the investment climate. The Agency for Investment and Competitiveness, a Croatian government entity, provides investors with various services intended to help with implementation of investment projects. For more information, go to: http://www.aik-invest.hr/en/ . The Strategic Investment Act helps investors streamline large projects by gathering all necessary information the investor needs to implement the project and then fast-tracking the necessary procedures for implementation of the project, including acquiring permits and help with location. Various business groups, including the American Chamber of Commerce, Foreign Investors’ Council and the Croatian Employers’ Association, are in dialogue with the government about ways to make doing business easier and keep investment retention as a priority.

Limits on Foreign Control and Right to Private Ownership and Establishment

Croatian law allows for all entities, both foreign and domestic, to establish and own businesses and to engage in all forms of remunerative activities. The Croatian government restricts foreign ownership or control of services for inland waterways transport, maritime transport, rail transport, air ground-handling, freight-forwarding, publishing, education, and ski instruction. Otherwise, there is no sector-specific legislation that discriminates against market access, apart from professional (architect, auditor, engineer, lawyer, and veterinarian) requirements. Over 90 percent of the banking sector is foreign-owned and there are no investment screening mechanisms for inbound foreign investment. Article 49 of the Constitution states all entrepreneurs have equal legal status.

Other Investment Policy Reviews

The World Bank Group published a “Doing Business” Economic Profile of Croatia in 2017. Please find the report at http://www.doingbusiness.org/data/exploreeconomies/croatia .

Business Facilitation

The government’s e-government initiative “Hitro.hr” (www.hitro.hr ) provides 24-hour on-line business registration, although registering on weekends and holidays can delay registration for several days. Hitro.hr offices are located in more than 60 Croatian cities and towns. In order to begin business activities, a company needs to register with the Commercial Court, Notary Public, Tax Administration, Health and Pension agencies, and the State Statistics Bureau to obtain a company identification number. It can take from one to three days to register a business, depending on the efficiency of the local Commercial court, which processes the registration.

The Global Enterprise Agency Rated Croatia’s Business Registration Process 4 out of 10, while the World Bank Ease of Doing Business report has Croatia as 87^th out of 190 countries in the category of registering a business, an improvement of eight spots from 2017.

The business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.

Outward Investment

There is not a government-based mechanism for incentivizing outward investment. There are no restrictions on domestic investors who wish to invest abroad.

Transparency of the Regulatory System

All investors, foreign or domestic, are guaranteed equal treatment under all forms of market-related legislation. Croatian legislation, which is harmonized with European Union legislation (acquis communautaire), affords transparent policies and fosters a climate in which all investors are treated equally. Nevertheless, bureaucracy and regulation can be complex and time-consuming, although the government is working to remove unnecessary regulations.

The Croatian Parliament adopts all national legislation, which is implemented at every level of government throughout the country, although local regulations vary from county to county. Members of Government and Members of Parliament, through working groups or caucuses, are responsible for presenting legislation. Responsible ministries draft and present new legislation to the government for approval. When the Government approves a draft text, it is sent to Parliament for approval. The approved act becomes official on the date defined by Parliament. Citizens maintain the right to initiate a law through their district Member of Parliament. New legislation and changes to existing legislation which have a significant impact on citizens are made available for public debate. The Law on the Review of the Impact of Regulations defines the procedure for impact assessment, planning of legislative activities, and communication with the public, as well as the entities responsible for implementing the impact assessment procedure. There are no informal regulatory processes, and investors should rely solely on government issued legislation to conduct business.

Croatia uses international accounting standards and abides by international practices through the Accounting Act, which is applied to all accounting businesses.

Croatian courts are responsible for ensuring that laws are enforced correctly. If an investor believes that the law or an administrative procedure is not implemented correctly, the investor may initiate a case against the government at the appropriate court. Judicial remedies are often ineffective because of timing and political influence. All legislation is published both on-line and in in the National Gazette, available at: www.nn.hr .

The Enforcement Act defines the procedure for enforcing claims and seizures carried out by the Financial Agency (FINA), the state-owned company responsible for offering various financial services to include securing payment to claimants following a court enforcement order. FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. The Enforcement Act was amended in August 2017 and has incorporated European Union Parliament and Council provisions for making cross-border financial claims easily enforced in both business and private instances. More information can be found at www.fina.hr . Various types of regulation exist, which prescribe complicated or time-consuming procedures for businesses to implement.

Croatia has been a member of UN Conference on Trade and Development since 1992.

International Regulatory Considerations

Croatia, as an EU member, adopts all EU legislation. Domestic legislation is applied nationally and there is no locally based legislation that overrides national legislation. Local governments oversee zoning for construction and can therefore delay investment projects. International accounting, arbitration, financial and labor norms are incorporated into Croatia’s regulatory system.

Croatia has been a member of the World Trade Organization (WTO) since 2000 and maintains obligations to the WTO. There are no cases of dispute involving Croatia as complainant, respondent or third party.

Legal System and Judicial Independence

The legal system in Croatia is civil and provides for ownership of property and enforcement of legal contracts.

The Commercial Company Act defines the forms of legal organization for domestic and foreign investors. It covers general commercial partnerships, limited partnerships, joint stock companies, limited liability companies and economic interest groupings. The Obligatory Relations Act serves to enforce commercial contracts and includes the provision of goods and services in commercial agency contracts.

The Croatian constitution provides for an independent judiciary. The judicial system consists of courts of general and specialized jurisdictions. Core structures are the Supreme Court, County Courts, Municipal Courts, and Magistrate/Petty Crimes Courts. Specialized courts include the Administrative Court and High and Lower Commercial Courts. A Constitutional Court determines the constitutionality of laws and government actions and protects and enforces constitutional rights. Municipal courts are courts of first instance for civil and juvenile/criminal cases. The High Commercial Court is located in Zagreb and has appellate review of lower commercial court decisions. The Administrative Court has jurisdiction over the decisions of administrative bodies of all levels of government. The Supreme Court is the highest court in the country and, as such, enjoys jurisdiction over all civil and criminal cases. It hears appeals from the County, High Commercial, and Administrative Courts. The government continues efforts to reform the judiciary, including reducing the backlog of cases, reforming the land registry, training court officers and reducing the backlog and length of bankruptcy procedures. Although reforms are underway, investors often face problems with lengthy court procedures, legal certainty, contract enforcement, and judicial efficiency.

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

Laws and Regulations on Foreign Direct Investment

There are no specific laws aimed at foreign investment. Both foreign and domestic market participants in Croatia are protected under the same legislation. The Company Act defines the forms of legal organization for domestic and foreign investors. The following entity types are permitted for foreigners: general partnerships; limited partnerships; branch offices; limited liability companies; and joint stock companies. The Obligatory Relations Act regulates commercial contracts.

The Agency for Investments and Competitiveness (www.aik-invest.hr/en ) facilitates both foreign and domestic investment and is available to all interested investors for assistance. Their website offers relevant information on business and investment legislation and includes an investment guide.

Competition and Anti-Trust Laws

The Competition Act defines the rules and methods for promoting and protecting competition. In theory, competitive equality is the standard applied with respect to market access, credit and other business operations, such as licenses and supplies. In practice, however, state-owned enterprises and “strategic” firms may still receive preferential treatment. The Croatian Competition Agency is the country’s competition watchdog, determining whether anti-competitive practices exist and punishing infringements. It has determined in the past that some subsidies to state-owned firms constituted unlawful state aid. Information on authorities of the Agency and past rulings can be found at www.aztn.hr . The website includes a “call to the public” inviting citizens to provide information on competition-related concerns.

Expropriation and Compensation

There have been no cases of expropriation of foreign investments by the government since Croatia’s independence in 1991. Article III of the U.S.-Croatia BIT covers both direct and indirect expropriations. The BIT bars all expropriations or nationalizations except those that are for a public purpose, carried out in a non-discriminatory manner, in accordance with due process of law, and subject to prompt, adequate and effective compensation.

Croatian Law on Expropriation and Compensation gives the government broad authority to expropriate real property under various economic and security-related circumstances, including eminent domain. The Law on Strategic Investments also provides for expropriation for projects that meet the criteria for “strategic” projects. However, it includes provisions that guarantee adequate compensation, in either the form of monetary compensation or real estate of equal value to the expropriated property, in the same town or city. The law includes an appeals mechanism to challenge expropriation decisions by means of a complaint to the Ministry of Justice within 15 days of the expropriation order. The law does not describe the Ministry’s adjudication process, and the fact that the Ministry of Justice represents the government, which initiates expropriations, could be an area of potential concern. Parties not pleased with the outcome of the Ministry decision can take administrative action against the decision, but no appeal to the decision is allowed.

Dispute Settlement

ICSID Convention and New York Convention

There is no specific legislation that refers to the ICSID, however Article 19 of the Act on Enforcement, states that judgments of foreign courts may be executed only if they “fulfill the conditions for recognition and execution as prescribed by an international agreement or the law,” and would be applied after an ICSID ruling.

Investor-State Dispute Settlement

Croatia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration: the 1923 Geneva Protocol on Arbitration Clauses; the 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions; the 1958 New York Convention on the Acceptance and Execution of Foreign Arbitration Decisions; and the 1961 European Convention on International Business Arbitration. In 1998 Croatia ratified the Washington Convention that established the International Center for the Settlement of Investment Disputes (ICSID). The Croatian Law on Arbitration is implemented for both national and international proceedings in Croatia. Parties to arbitration cases are free to appoint arbitrators of any nationality or professional qualifications and Article 12 of the Law on Arbitration requires impartiality and independence of arbitrators. Croatia recognizes binding international arbitration, which may be defined in investment agreements as a means of dispute resolution. For example, the Croatian government has two open arbitration cases with a private investor MOL in the national oil company INA. Article X of the U.S.-Croatia BIT sets forth several mechanisms for the resolution of investment disputes, defined as any dispute arising out of or relating to an investment authorization, an investment agreement, or an alleged breach of rights conferred, created, or recognized by the BIT with respect to a covered investment. There is not a history of extra-judicial action against foreign investors. There are currently three cases regarding U.S. investor claims before Croatian courts. The cases are in regard to privatization and the real estate sectors, and have all been pending for years.

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution is implemented at the High Commercial Court, at the Zagreb Commercial Court and and at the six municipal courts around the country. In order to reduce the backlog, non-disputed cases are passed to public notaries.

Although underutilized, both mediation and arbitration services are available through the Croatian Chamber of Economy. The Chamber’s permanent arbitration court has been in operation since 1965. Arbitration is voluntary and conforms to UNCITRAL model procedures. . The Chamber of Economy’s Mediation Center has been operating since 2002 – see http://www.hok-cba.hr/hr/center-za-mirenje-hoka . The Arbitration Act covers domestic arbitration, recognition and enforcement of arbitration rulings, jurisdictional matters. Once an arbitration decision has been reached, the judgment is executed by court order. If no payment is made by the established deadline, the party benefiting from the decision notifies the Commercial Court, which becomes responsible for enforcing compliance. Arbitration rulings have the force of a final judgment, but can be appealed within three months.

In regard to implementation of foreign arbitral awards, Article 19 of the Act on Enforcement states that judgments of foreign courts may be executed only if they “fulfill the conditions for recognition and execution as prescribed by an international agreement or the law.” The Act on Enforcement serves to decrease the burden on the courts by passing responsibility for the collection of financial claims and seizures to the Financial Agency (FINA), which is responsible for paying claimants once the court has rendered a decision ordering enforcement. FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. More information can be found at www.fina.hr . The Ministry of Justice continues to pursue a court reorganization plan intended to increase efficiency and reduce the backlog of cases.

The World Bank Ease of Doing Business 2016 report commended Croatia for making enforcing contracts easier by introducing an electronic system to handle public sales of movable assets and by streamlining the enforcement process as a whole.

There are no major investment disputes currently underway involving state-owned enterprises, other than the dispute between the Croatian government and Hungarian oil company MOL over implementation of the purchase agreement of Croatian oil and gas company INA. There is no evidence that domestic courts rule in favor of state-owned enterprises.

Bankruptcy Regulations

Croatia’s Bankruptcy Act is internationally harmonized and corresponds to the EU regulation on insolvency proceedings and United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency. All stakeholders in the bankruptcy proceeding, foreign and domestic are treated equally in terms of the Bankruptcy Act. The World Bank Ease of Doing Business 2018 rating for Croatia in the category of resolving insolvency was 60, down four spots from the 2017 ranking of 54. Bankruptcy is not considered a criminal act.

The Financial Operations and Pre-Bankruptcy Settlement Act helps expedite proceedings and establish timeframes for the initiation of bankruptcy proceedings. One of the most important provisions of pre-bankruptcy is that it allows a firm that has been unable to pay all its bills to remain open during the proceedings, thereby allowing it to continue operations and generate cash under financial supervision in hopes that it can recover financial health and avoid closure. In April 2017, the Croatian government passed the “Law on Extraordinary Appointment of Management Boards for Companies of Systematic Importance to the Republic of Croatia,” when it became clear that Croatia’s largest corporation, Agrokor, was in crisis and would likely go bankrupt. The Law allows the Government to install an Emergency Commissioner, who leads the process of maintaining and restructuring a company that satisfies the criteria for application of the law.

The Commercial Court of the county in which a bankrupt company is headquartered has exclusive jurisdiction over bankruptcy matters. A bankruptcy tribunal decides on initiating formal bankruptcy proceedings, appoints a trustee, reviews creditor complaints, approves the settlement for creditors, and decides on the closing of proceedings. A bankruptcy judge supervises the trustee (who represents the debtor) and the operations of the creditors’ committee, which is convened to protect the interests of all creditors, oversee the trustee’s work and report back to creditors. The Act establishes the priority of creditor claims, assigning higher priority to those related to taxes and revenues of state, local and administration budgets. It also allows for a debtor or the trustee to petition to reorganize the firm, an alternative aimed at maximizing asset recovery and providing fair and equitable distribution among all creditors.

Capital Markets and Portfolio Investment

Croatia’s securities and financial markets are open equally to domestic and foreign investment. Foreign residents may open non-resident accounts and may do business both domestically and abroad. Specifically, Article 24 of the Foreign Currency Act states that non-residents may subscribe, pay in, purchase, or sell securities in the Republic of Croatia in accordance with regulations governing securities transactions. Non-residents and residents are afforded the same treatment in spending and borrowing. These and other non-resident financial activities regarding securities are covered by the Foreign Currency Act, available on the central bank website (www.hnb.hr ).

Securities are traded on the Zagreb Stock Exchange (ZSE), established in 1991. Regulations that govern activity and participation in the ZSE can be found (in English) at: http://zse.hr/default.aspx?id=97 . There are three tiers of securities traded on the ZSE. The Capital Markets Act regulates all aspects of securities and investment services, and defines the responsibilities of the Croatian Financial Services Supervisory Agency (HANFA). The Capital Market Act was amended in April 2018 to give HANFA more authority in terms of investigating and sanctioning false annual business reporting. All legislation associated with the Capital Market act can be found (in English) at: http://www.hanfa.hr/regulations/capital-market/ . There is sufficient liquidity in the markets to enter and exit sizeable positions. There are no policies that hinder the free flow of financial resources. There are no restrictions on international payments or transfers. As such, Croatia is in accordance with IMF Article VIII. The private sector, both domestic and foreign owned, enjoys open access to credit and a variety of credit instruments on the local market on market terms.

Money and Banking System

The banking sector is now overwhelmingly privatized, consolidated, highly developed, competitive, and increasing the diversity of products available to businesses (foreign and domestic) and consumers. French, German, Italian or Austrian companies own over 90 percent of Croatia’s banks. In 2016, Addiko Bank became the first U.S. bank registered in Croatia by taking over all of Hypo Bank’s holdings in Croatia. The banking sector suffered no long-term consequences during the last global banking crisis. More than 90 percent of total banking sector assets are foreign-owned. As of December 31, 2017 there were 25 commercial banks and five savings banks, with assets totaling USD USD 61.2 billion. The largest bank in Croatia is Italian-owned Zagrebacka Banka, with assets of USD 15.6 billion, for a market share of 25.6 percent of total banking assets in Croatia. Second-largest is Italian-owned Privredna Banka Zagreb, with USD 11.6 billion, or 19.01 percent of total banking assets. The third largest is Austrian Erste Bank, with assets of USD 8.7 billion, with a 14.33 percent market share in Croatia. The country has a central bank system and all information regarding the Croatian National Bank can be found at http://www.hnb.hr/ .

Non-residents are able to open bank accounts with no restrictions or delays. The Croatian government has not introduced nor announced intention of introducing block chain technologies in banking transactions.

Foreign Exchange and Remittances

The Croatian Constitution guarantees the free transfer, conversion, and repatriation of profits and invested capital for foreign investments. Article VI of the U.S.-Croatia Bilateral Investment Treaty (BIT) additionally establishes protection for American investors from government exchange controls. The BIT obliges both countries to permit all transfers relating to a covered investment to be made freely and without delay into and out of each other’s territory. Transfers of currency are additionally protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7 ).

The Croatian Foreign Exchange Act permits foreigners to maintain foreign currency accounts and to make external payments. The Foreign Exchange Act also defines foreign direct investment (FDI) in a manner that includes use of retained earnings for new investments/acquisitions, but excludes financial investments made by institutional investors such as insurance, pension and investment funds. The law also allows Croatian entities and individuals to invest abroad. Funds associated with any form of investment can be freely converted into any world currency.

The exchange rate is determined by the Croatian National Bank. The National Bank intervenes in the foreign exchange market to ensure the Euro-Croatian kuna rate remains stable as an explicit and longstanding policy. The exchange rate of the Croatian kuna, while floating freely, is more tightly linked to the euro than the U.S. dollar. The risk of currency devaluation or significant depreciation is low.

Remittance Policies

There are not limitations, either temporal or by volume, on remittances. The government does not engage in currency manipulation. The U.S. Embassy in Zagreb has not received any complaints from American companies regarding transfers and remittances.

Sovereign Wealth Funds

The Republic of Croatia does not own any sovereign wealth funds.

Policies Towards Foreign Direct Investment

REPUBLIC OF CYPRUS

The ROC has a favorable attitude towards foreign direct investment (FDI), putting to good advantage its strategic geographic location, low corporate and personal tax rates, 63 double taxation avoidance treaties (including with the United States), transportation infrastructure, and an educated, mostly English-speaking labor force. The 2013 financial crisis brought to the surface several underlying structural and institutional obstacles to investment, ranging from delays in obtaining building permits and court judgments, to difficulties in starting a business, and limited access to financing. In the aftermath of the crisis, ROC authorities have addressed some of these challenges in an effort to make Cyprus increasingly attractive to foreign investors. Key sectors that hold potential for investment include tourism-related infrastructure, casinos, ports, banks, real estate, and hydrocarbons/energy-related support services. Foreign investors may establish a business in Cyprus with the same benefits as local investors in most sectors with a few well-defined and transparent limitations for non-EU investors (see limits on Foreign Control, below).

For more information:

One-Stop-Shop & Point of Single Contact
Ministry of Commerce, Industry and Tourism (MECIT)
13-15 Andreas Araouzos
1421 Nicosia, Cyprus
Tel. +357 22 409318 or 321
Fax: +357 22 409432
Email 1: onestopshop@mcit.gov.cy
Email 2: psccyprus@mcit.gov.cy
Website: www.businessincyprus.gov.cy 

AREA ADMINISTERED BY TURKISH CYPRIOTS

TCs welcome FDI and are eager to attract investments, particularly those that will lead to the transfer of advanced technology and technical skills. Priority is also given to investments in export-oriented industries. The “Turkish Cypriot Investment Development Agency” (“YAGA”) is a one-stop shop for all investors.

“Turkish Cypriot Development Agency” (“YAGA”)
Tel: +90 392 – 22 82317
Website: http://www.investinnorthcyprus.org 

Limits on Foreign Control and Right to Private Ownership and Establishment

REPUBLIC OF CYPRUS

The following restrictions apply to investing in the ROC:

Non-EU entities (persons and companies) may purchase only two real estate properties for private use (two holiday homes or a holiday home and a shop or office). This restriction does not apply if the investment property is purchased through a domestic company or as a corporation elsewhere in the EU.

Non-EU entities also cannot invest in the production, transfer, and provision of electrical energy. Additionally, the Council of Ministers may refuse granting a license for investment in hydrocarbons prospecting, exploration, and exploitation to a third-country national or company if that third country does not provide similar treatment to Cyprus or other EU member states.

Individual non-EU investors may not own more than five percent of a local television or radio station, and total non-EU ownership of a local TV or radio station is restricted to a maximum of 25 percent.

The right to register as a building contractor in Cyprus is reserved for citizens of EU member states. Non-EU entities are not allowed to own a majority stake in a local construction company. Non-EU physical persons or legal entities may bid on specific construction projects but only after obtaining a special license by the Council of Ministers.

Non-EU entities cannot invest in private tertiary education institutions.

The provision of healthcare services on the island is also subject to certain restrictions, applying equally to all non-residents.

Finally, the Central Bank of Cyprus’ prior approval is necessary before any individual person or entity, whether Cypriot or foreign, can acquire more than 9.99 percent of a bank incorporated in Cyprus.

AREA ADMINISTERED BY TURKISH CYPRIOTS

According to the “Registrar of Companies Office,” foreign ownership of construction companies is restricted to 49 percent. Currently the travel agency sector is closed to foreign investment. Registered foreign investors may buy property for investment purposes. Foreign natural persons also have the option of forming private liability companies, and foreign investors can form mutual partnership with one or more foreign or domestic investors.

Other Investment Policy Reviews

REPUBLIC OF CYPRUS

The ROC has been a member of World Trade Organization (WTO) since July 30, 1995. As of May 1, 2004 it is a member State of the EU. Cyprus has not undergone investment policy reviews by the Organization for Economic Cooperation and Development (OECD) or United Nations Committee on Trade and Development (UNCTAD). The WTO published a Trade Policy Review on the EU28, including Cyprus, in July 2015. The text is available at: https://www.wto.org/english/tratop_e/tpr_e/tp417_e.htm .

AREA ADMINISTERED BY TURKISH CYPRIOTS

TC “officials” have not conducted policy reviews on investment.

Business Facilitation

REPUBLIC OF CYPRUS

Domestic and foreign investors may establish any of the following legal entities or businesses in the ROC:

• Companies (private or public);
• General or limited partnerships;
• Business/trade name;
• European Company (SE); and
• Branches of overseas companies.

The registration process takes approximately two working days and involves completing an application for approval/change of name, followed by the steps outlined in the following link: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/All/A2E29870C32D7F17C2257857002E18C9?OpenDocument .

At the end of 2017, there were 217,588 companies registered in the ROC, 13,677 of which had been registered in 2017 (for more statistics on company registrations, please see: http://www.mcit.gov.cy/mcit/drcor/drcor.nsf/company_statistics_en/company_statistics_en?OpenDocument ).

The Ministry of Energy, Commerce, Industry, and Tourism’s (MECIT’s) One-Stop-Shop offers assistance with the logistics of registering a business in Cyprus to all investors, regardless of origin and size.

In addition to registering a business, foreign investors, like domestic business owners, are required to obtain all permits that may be necessary under Cypriot law. At a minimum, they must obtain residence and employment permits, register for social insurance, and register with the tax authorities for both income tax and Valued Added Tax (VAT). In order to use any building or premises for business, including commerce, industry, or any other income-earning activity, one also needs to obtain a municipal license. Additionally, town planning or building permits are required for building new offices, or converting existing buildings. There are also many sector-specific procedures. Information on all of the above procedures is available online at: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/eke08_en/eke08_en?OpenDocument .

The World Bank’s 2018 Doing Business report (http://www.doingbusiness.org/rankings ) ranked Cyprus 53rd out of 190 countries for ease of doing business. Among the ten sub-categories that make up this index, Cyprus performed best in the areas of resolving insolvency (21/190) and protecting minority investors (43/190), and worst in the areas of enforcing contracts (138/190) and dealing with construction permits (120/190). Despite making small gains in several important areas, such as dealing with construction permits and starting a business, Cyprus backtracked in other areas, including paying taxes and protecting minority investors, causing it to slip in the overall ranking. However, using another metric, the Global Competitiveness Index, issued by the World Economic Forum, Cyprus climbed 19 spots in the 2017-2018 edition, ranking 64th rank out of 137 countries, compared to 83rd out of 138 countries in the previous year. The two most problematic factors for doing business in Cyprus, according to this report were providing access to financing and an inefficient government bureaucracy.

Foreign-owned micro, small and medium-sized enterprises (MSMEs) are free to take advantage of programs in Cyprus designed to help such companies, including the following:

• http://www.fundingprogrammesportal.gov.cy/easyconsole.cfm/page/programme/fsId/18/lang/en ;
• http://www.ebrd.com/cs/Satellite?c=Content&cid=1395266780410&d=Mobile&pagename=EBRD%2FContent%2FContentLayout .

It should be noted that Cyprus follows the EU definition of MSMEs.

Additionally, foreign investors can take advantage of the services and expertise of the Cyprus Investment Promotion Agency (CIPA), an agency registered under the companies’ law and funded mainly by the state, dedicated to attracting investment. CIPA is structured to support larger investors, investing in the country more than approximately EUR 500,000 (USD 550,000), although this is not a fixed minimum requirement.

CIPA
9A Makarios III Ave
Severis Bldg., 4th Flr.
1065 Nicosia
Tel. +357-22-441133
Fax: +357-22-441134
Email: info@investcyprus.org.cy
Website: http://www.investcyprus.org.cy/ 

AREA ADMINISTERED BY TURKISH CYPRIOTS

Information available on the “Registrar of Companies’” website is available only in Turkish: http://www.rkmmd.gov.ct.tr/ . An online registration process for domestic or foreign companies does not exist and registration needs to be completed in person.

The “YAGA” was established by TC authorities with the aim of it becoming a one-stop-shop for both local and foreign investors who are interested in investing in the area administered by TCs. Their website provides explanations and guides in English on how to register a company in the area administrated by TCs.

As of March 2018, the “Registrar of Companies Office” statistics indicated there were 19, 821 registered companies, of which 18,874 were TC majority-owned limited liability companies; 403 foreign companies; and 422 offshore companies.

The area administered by TCs defines MSMEs as entities having less than 250 employees. There are several grant programs financed through Turkish aid and EU aid targeting MSMEs.

The TC Chamber of Commerce (KTTO) publishes an annual Competitiveness Report on the TC economy, based on the World Economic Forum’s methodology. KTTO’s 2017-2018 report ranked northern Cyprus 109 among 137 economies, dropping five places from its ranking in 2016.

For more information and requirements on establishing a company, obtaining licenses, and doing business visit:

“Turkish Cypriot Development Agency” (“YAGA”)
Tel: +90 392 – 22 82317
Website: http://www.yaga.gov.ct.tr/ 

Turkish Cypriot Chamber of Commerce (KTTO)
https://www.ktto.net/en/ 
Tel: +90 392 – 228 37 60 / 228 36 45
Fax: +90 392 – 227 07 82

Outward Investment

REPUBLIC OF CYPRUS

The ROC does not restrict outward investment, other than in compliance with international obligations, like specific UN Security Council Resolutions. In terms of programs to encourage investment, businessmen in Cyprus have access to several EU programs promoting entrepreneurship, such as the European Commission’s Investment Plan for Europe (EC IPE), known as the “Juncker Plan” for projects over EUR 15 million (USD 16.6 million) or the Erasmus program for Young Entrepreneurs, in addition to the European Investment Bank’s guarantee facilities for SMEs for projects under EUR 4 million (USD 4.4 million).

AREA ADMINISTERED BY TURKISH CYPRIOTS

TC “officials” do not incentivize or promote outward investment. The TC authorities do not restrict domestic investors.

Transparency of the Regulatory System

REPUBLIC OF CYPRUS

The ROC achieved a score of 3.8 out of 6 in the World Bank’s composite Global Indicators of Regulatory Governance score (based on data collected December 2015 to April 2016) designed to explore good regulatory practices in three core areas: publication of proposed regulations, consultation around their content, and the use of regulatory impact assessments. For more information, please see: http://rulemaking.worldbank.org/data/explorecountries/cyprus .

U.S. companies competing for ROC government tenders have noted concerns about opaque rules and possible bias by technical committees responsible for preparing specifications and reviewing tender submissions. Overall, however, procedures and regulations are transparent and applied in practice by the government without bias towards foreign investors. The ROC actively promotes good governance and transparency as part of its administrative reform action plan: http://www.reform.gov.cy/en/ .

In line with the above plan and EU requirements, the ROC launched in 2016 the National Open Data Portal (www.data.gov.cy ) to increase transparency in government services. Government agencies are now required to post on this portal publicly-available information, data, records, on the entire spectrum of their activities, for use, including commercial use, by the public. The number of data sets available through this portal has been growing rapidly in recent months.

Several agencies and non-governmental organizations (NGOs) share competency on fostering competition and transparency, including the ROC Commission for the Protection of Competition (www.competition.gov.cy ), the Competition and Consumer Protection Service, under MECIT (http://www.consumer.gov.cy/mcit/cyco/cyconsumer.nsf/page03_en/page03_en?OpenDocument ), the Cyprus Consumers Association (www.cyprusconsumers.org.cy ), and the Cyprus Securities and Exchange Commission (www.cysec.gov.cy ).

Most laws and regulations are published only in Greek and obtaining official English translations can be difficult. When passing new legislation or regulations, Cypriot authorities follow the EU acquis communautaire. A formal public notice and comment procedure is not required in Cyprus, except for specific types of laws. In general, the ROC will seek stakeholder feedback directly. Draft legislation must be published in the Official Gazette before it is debated in the House to allow stakeholders an opportunity to submit comments. The ROC House of Representatives also typically invites specific stakeholders to offer their feedback when debating bills. Draft regulations, on the other hand, do not have to be published in the Official Gazette prior to being approved.

In an effort to contribute to global tax transparency, the ROC has adopted the Standard of Automatic Exchange of Information developed by the Organization for Economic Co-Operation and Development (OECD) known as Common Reporting Standard (CRS). Since January 1, 2016, the ROC Tax Department requires all financial institutions to confirm their clients’ jurisdiction(s) of Tax Residence and Respective Tax Identification Number, if applicable. Additionally, the ROC has signed the U.S. Foreign Account Tax Compliance Act (FATCA), allowing Cypriot tax authorities to share information with U.S. counterparts.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The level of transparency for “lawmaking” and adoption of “regulations” in the area administered by TCs are lagging behind U.S. or EU standards.

International Regulatory Considerations

REPUBLIC OF CYPRUS

As an EU Member State since May 1, 2004, the Republic of Cyprus must ensure compliance with the acquis communautaire — the body of common rights and obligations that is binding on all EU members. The acquis is constantly evolving and comprises of Treaties, international agreements, legislation, declarations, resolutions, and other legal instruments. EU legislation, for its part, is subdivided into:

• Regulations, which are directly applicable to Member States and require no further action to have legal effect;
• Directives, which are addressed to and are binding on Member States, but the Member State may choose the method by which to implement the directive. Generally, a Member State must enact national legislation to comply with a directive;
• Decisions, which are binding on those parties to whom they are addressed;
• Recommendations and opinions, which have no binding force.

When there is conflict between European law and the law of any Member State, European law prevails; the norms of national law have to be set aside, under the principle of EU law primacy or supremacy.

Legal System and Judicial Independence

REPUBLIC OF CYPRUS

Cyprus is a common law jurisdiction and its legal system is based on English Common Law, in both substantive and procedural matters. Cyprus inherited many elements of its legal system from the United Kingdom, including the presumption of innocence, the right to due process, the right to appeal, and the right to a fair public trial. Courts in Cyprus possess the necessary powers to enforce compliance by parties who fail to obey judgments and orders made against them. There is a high level of public confidence in the integrity of the Cypriot legal system, although long delays in courts tend to undermine this trust.

International disputes are resolved through litigation in Cypriot courts or by alternative dispute resolution methods such as mediation or arbitration. Businesses often complain of court gridlock and judgments on cases generally taking years to be issued, and even more for claims involving property foreclosure.

AREA ADMINISTERED BY TURKISH CYPRIOTS

Investors should note the EU’s acquis communautaire is suspended in the area administered by the TCs.

The area administrated by TCs is a common law jurisdiction. Judicial power other than the “Supreme Court” is exercised by the Heavy Penalty “courts,” “District Courts,” and “Family Courts.”

TCs inherited many elements of their legal system from the British rule in the island pre-1960, including the right to appeal, and the right to a fair public trial. There is a high level of public confidence in the judicial system in the area administrated by TCs. The current judicial process is procedurally competent, fair, and reliable.

Foreign investors can make use of all the rights guaranteed to TCs. Alternative dispute resolution mechanisms are not available in the TC-administered area. The resolution of commercial or investment disputes through the “judicial system” can take several years.

The TC administration has several trade and economic cooperation agreements with Turkey. For more information about legislation, visit http://www.yaga.gov.ct.tr .

Laws and Regulations on Foreign Direct Investment

REPUBLIC OF CYPRUS

Below are links to various publications and laws affecting incoming foreign investment:

• http://www.investcyprus.org.cy/en/media-center ;
• http://www.cypruslawdigest.com/topics/foreign-investments/item/149-protection-of-foreign-investments ;
• http://www.cypruslawdigest.com/ .

AREA ADMINISTERED BY TURKISH CYPRIOTS

Visit the one-stop-shop, “YAGA” website, for more information about laws, regulations on FDI: http://www.yaga.gov.ct.tr .

Below are links to laws affecting incoming foreign investment: http://www.yaga.gov.ct.tr .

Competition and Anti-Trust Laws

REPUBLIC OF CYPRUS

The oversight agency for competition is the Commission for the Protection of Competition: www.competition.gov.cy 

AREA ADMINISTERED BY TURKISH CYPRIOTS

The relevant “agency” for competition is the “Competition Board”. More information can be found here: www.rekabet.gov.ct.tr .

Expropriation and Compensation

REPUBLIC OF CYPRUS

Private property may, in exceptional instances, be expropriated for public purposes, in a non-discriminatory manner, and in accordance with established principles of international law. The expropriation process entitles investors to proper compensation, whether through mutual agreement, arbitration, or the local courts. Foreign investors may claim damages resulting from an act of illegal expropriation by means other than litigation. Investors and lenders to expropriated entities receive compensation in the currency in which the investment was made. In the event of any delay in the payment of compensation, the Government is also liable for the payment of interest based on the prevailing six-month LIBOR for the relevant currency.

The bail-in of depositors (converting deposits to equity) in March 2013 and other related actions sparked lawsuits in Cyprus against the ROC and the banks, most of which are still pending. Additionally, haircut victims have filed a class- action suit against various European bodies at the General Court of the European Union, while similar disputes are still pending before the World Bank’s International Centre for Settlement of Investment Disputes, and the Paris-based International Chamber of Commerce (ICC) International Court of Arbitration. The ROC set up a solidarity fund in 2017, aimed at helping depositors who lost their money in the haircut, although it is still unclear how this will work in practice. In September of 2016, the European Court of Justice (ECJ) ruled that adoption of the Memorandum of Understanding (MOU) was not an unlawful act, and dismissed actions for compensation. Additionally, in its 2017 Annual Report, the European Central Bank noted that it did not expect any losses from four lawsuits filed against it and other EU bodies by depositors, shareholders and bondholders of Cypriot banks.

AREA ADMINISTERED BY TURKISH CYPRIOTS

Private property may be expropriated for public purposes. The expropriation process entitles investors to proper compensation. Foreign investors may claim damages resulting from an act of illegal expropriation by means other than litigation.

In the cases involving private owners, these are notified, the property is then inspected, and if an agreement is reached regarding the amount, then the owner is compensated. In cases where the owner declines the compensation package, the case is turned over to local courts” a final decision.

Dispute Settlement

REPUBLIC OF CYPRUS

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

There have been no reports of investment disputes in Cyprus involving U.S. persons over the past 10 years, and there is no history of extrajudicial action against foreign investors. Local courts recognize and enforce foreign arbitral awards issued against the government.

International Commercial Arbitration and Foreign Courts

Cyprus offers several different means of Alternative Dispute Resolution (ADR). However, recourse to ADR is not common. Some of the entities offering ADR are the following:

• The Cyprus Chamber of Commerce and Industry (CCCI): http://www.ccci.org.cy/ ;
• The Scientific and Technical Chamber of Cyprus: http://www.etek.org.cy/site-menu-82-en.php ;
• The ROC Financial Ombudsman’s office, offers mediation services between banks and customers since 2015: www.financialombudsman.gov.cy ;
• The Cyprus Arbitration and Mediation Centre (CAMC): http://cyprusarbitration.org.cy/;
• The European Court of Arbitration in Cyprus: http://cour-europe-arbitrage.org/contacts/ ;
• The Euro-Mediterranean Alternative Dispute Resolution Centre: http://www.euromedadr.org/.

Additionally, the ROC Ministry of Justice and Public Order maintains a publicly-available Register of Mediators for both commercial and civil disputes: http://www.mjpo.gov.cy/mjpo/mjpo.nsf/All/64BC1F595AB40EB6C22579AD00346FE2?OpenDocument&highlight=mediation .

EU citizens and businesses can also use SOLVIT, a free, online service, to resolve problems pertaining to internal EU market issues, like visa and residence rights, pension rights, and VAT refunds, within 10 weeks from the day the problem is reported: http://ec.europa.eu/solvit/what-is-solvit/ .

Under the Arbitration Law of Cyprus, if the parties are unable to reach a settlement an arbitrator can be appointed. Arbitration rulings are fully enforceable and the court may settle an arbitral award in the same way as a judgment. Mediation is not fully enforceable, unless the settlement agreement explicitly stipulates that the parties can apply to court for enforcement. The ROC honors the enforcement of foreign court judgments and foreign arbitration awards. Domestic legislation on binding international arbitration is modeled after internationally-accepted regulations, such as the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, which the ROC adopted in 1985. Cyprus’ bilateral investment treaties with several countries also include dispute settlement provisions (see Section 3, Bilateral Investment Agreements).

AREA ADMINISTERED BY TURKISH CYPRIOTS

Foreign investors can make use of all the rights guaranteed to TCs. Alternative dispute resolution mechanisms are not available in the TC-administered area. The resolution of commercial or investment disputes through the “judicial system” takes can take several years.

Bankruptcy Regulations

REPUBLIC OF CYPRUS

The ROC parliament approved in 2015 a new package of insolvency laws to overhaul existing bankruptcy procedures and help resolve the island’s very high levels of non-performing loans. Bankruptcy procedures can be initiated by a creditor through compulsory liquidation or by the debtor through voluntary liquidation. The court can impose debt rescheduling, in cases where aggregate liabilities do not exceed EUR 350,000 (USD 385,000) and individuals with minimal assets and income may apply to the court via the Insolvency Service for a debt relief order of up to EUR 25,000 (USD 27,500). Discharge from bankruptcy is automatic after three years, provided all debtor assets are sold and the proceeds distributed to creditors. Fraudulent alienation of assets prior to bankruptcy and non-disclosure of assets draws criminal sanctions under the new legislation. Cypriot authorities are monitoring closely progress in implementing the new insolvency framework in order to ensure it helps rehabilitate the real economy. In March 2018, the government and political parties agreed to set up a committee of experts to forge a new national strategy on how best to deal with the persistent problem of non-performing loans.

The World Bank’s 2017 Doing Business report ranked Cyprus 21st from the top among 190 countries in terms of the ease with which it resolves insolvency. For additional information, please see: http://www.doingbusiness.org/data/exploreeconomies/cyprus#resolving-insolvency .

AREA ADMINISTERED BY TURKISH CYPRIOTS

In 2013, the TCs passed a debt restructuring “law” aimed at providing incentives to restructure debts.

Capital Markets and Portfolio Investment

REPUBLIC OF CYPRUS

The ROC Stock Exchange (CSE), launched in 1996, is one of the EU’s smallest stock exchanges, with a capitalization of just under EUR 2.1 billion (USD 2.6 billion) as of March 2018. The CSE and the Athens Stock Exchange (ASE) have operated from a joint trading platform since 2006, allowing capital to move more freely from one exchange to the other, even though both exchanges retain their autonomy and independence. The joint platform has increased capital available to Cypriot firms and improved the CSE’s liquidity, although its small size remains a constraint. The private sector has access to a variety of credit instruments, which has been enhanced through the operation of private venture capital firms. Credit is allocated on market terms to foreign and local investors alike. Foreign investors may acquire up to 100 percent of the share capital of Cypriot companies listed on the CSE with the notable exception of companies in the banking sector.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There is no stock exchange in the area administrated by TCs and no foreign portfolio investment. Foreign investors are able to get credit from the local market, provided they have established domestic legal presence, majority-owned (at least 51 percent) by domestic companies or persons.

Money and Banking System

REPUBLIC OF CYPRUS

The ROC banking sector is still in a process of healing and restructuring, following the March 2013 haircut of uninsured deposits. Total deposits in the Cypriot banking system grew from EUR 47.0 billion (USD 60.6 billion) at the end of 2013 to EUR 49.4 billion (USD 54.3 billion) at the end of 2017, with the EUR 2.4 billion (USD 2.6 billion) increase reflecting growing, but still fragile, depositor confidence. New legislation on foreclosures and insolvency is helping banks gradually address this problem, but progress is slow. Cypriot banks continue to face significant asset quality challenges with NPLs falling at a slow pace. At the end of November 2017, NPLs stood at EUR 21.1 billion or 43.7 percent of all loans, compared to EUR 27.3 billion or 47.8 percent in December 2014. The government and political parties agreed March 15 to set up a committee of experts to formulate a new national strategy on how to expedite resolution of the high NPLs problem. Meanwhile, an improving economy and stabilizing property market are helping households and companies service their high debt.

The state-owned Cooperative Central Bank (CCB) is facing its own set of problems, with a portfolio full of primary residences, which the current foreclosures and insolvency laws make it difficult to move overcome. The CCB, recapitalized with EUR 1.7 billion in taxpayer money in 2014 and 2015, is currently struggling with some EUR 6.4 billion in NPLs, accounting for more than half of its loan portfolio. The CCB invited interest from investors in March 2018 to either acquire a controlling stake, or buy up part of its assets and liabilities. Both local financial entities and global financial and strategic investors have expressed an interest in this process and the CCB expects to receive binding offers by the end of May 2018. The process generated uncertainty concerning the future of the CCB triggering deposit outflows, prompting the state to deposit EUR 2.5 billion at the CCB on April 3 to bolster it.

In order to open a new bank account, a foreigner must establish residency status and provide information on employment status.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The “Central Bank” oversees and regulates local, foreign, and private banks. In addition to the “Central Bank” and the “Development Bank”, there are 22 banks in the area administrated by Turkish Cypriots, of which 14 are TC-owned banks, and eight are international branch banks. Banks are required to follow “know-your-customer” (KYC) and AML “laws,” which are regulated by the “Ministry of Economy,” and supervised by the “Central Bank.” Due to non-recognition issues, TC banks encounter practical difficulties as a result of not qualifying for an international SWIFT number (SWIFT code is a standard format of Bank Identifier Codes (BIC)). Therefore, TC and foreigners making international transfers depend on Turkish banks for assistance as local banks access international markets via Turkey. The total number of deposits, which includes bank, “public,” individual and other was approximately USD 5.1 billion as of September 2017. More information is available at the “Central Bank” website: http://www.kktcmerkezbankasi.org/ .

Foreign Exchange and Remittances

Foreign Exchange Policies

REPUBLIC OF CYPRUS

As a member of the Eurozone, the ROC uses the euro as its currency. The Eurozone has no restrictions on the transfer or conversion of its currency, and the exchange rate is freely determined in the foreign exchange market. There is no difficulty in obtaining foreign exchange. Since the 2008 financial crisis, the European Commission, has pursued several initiatives aimed at creating a safer and sounder financial sector, known as the Banking Union. These initiatives, which include stronger prudential requirements for banks, improved depositor protection and rules for managing failing banks, form a single rulebook for all financial actors in the 28 Member States of the EU. The single rulebook is the foundation of the Banking Union. For more info, please refer to: http://ec.europa.eu/finance/general-policy/banking-union/index_en.htm .

AREA ADMINISTERED BY TURKISH CYPRIOTS
The northern part of Cyprus has a separate financial system. As a result, the financial crisis in the ROC government-controlled area has had little impact on capital transfer policies in the area administered by TCs. The financial system in the area administered by TCs is linked closely with that of Turkey. The Turkish Lira (TL) is the main currency in use, although the Euro, U.S. dollar, and British Pound are commonly accepted. The vast majority of business borrowing is derived from domestic and Turkish sources.

Any kind of devaluation of the TL in Turkey against foreign exchange rates (or the opposite), has an effect on the economy of the area administered by TCs. Wages across sectors are generally paid in TL, but almost all real estate, electronic white goods, vehicles, and other products are sold in foreign currencies. Banks in the TC administered areas provide low interest rate loans to customers who seek foreign exchange loans in Euros or British Pounds, but interest rates are higher in TL. Foreign investors are authorized to repatriate all proceeds from their investments and business.

Banks are free to keep foreign currency, act as intermediary in import and export transactions, accept foreign currency savings, engage in purchase and sale of foreign currency, and give foreign currency loans.

Remittance Policies

REPUBLIC OF CYPRUS

There are no restrictions or delays on investment remittances or the inflow or outflow of profits.

Cyprus is a member of the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body. Its most recent mutual evaluation report of the Cypriot banking sector, conducted in March 2013, can be found at: https://www.coe.int/en/web/moneyval/jurisdictions/cyprus .

Sovereign Wealth Funds

REPUBLIC OF CYPRUS

The ROC is currently in the process of establishing a sovereign wealth fund, dubbed the National Investment Fund (NIF). The NIF will administer future revenues from future offshore hydrocarbons revenue. Draft legislation for the NIF is pending before parliament, undergoing final vetting by the House Finance Committee as of March 2018. The draft incorporates feedback from various entities, including political parties, the Auditor General, and the Fiscal Council, and it is based on the Norwegian model and internationally-accepted best practices. The NIF will be based on the Fiscal Responsibility and Budget Systems Law (Law 20(I) of 2014), reforming Public Financial Management in line with international best practices, and introducing greater fiscal discipline.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There is no established sovereign wealth fund.

Policies Towards Foreign Direct Investment

The Czech government actively seeks to attract foreign investment via policies that make the country an attractive destination for companies to locate, operate, and expand. Act No. 72/2000 allows the Czech government to give investment incentives to investors who make new investments or expand their existing investments in the country. CzechInvest, the government investment promotion agency that operates under the Ministry of Trade and Industry, negotiates on behalf of the Czech government with foreign investors. In addition, CzechInvest provides: assistance during implementation of investment projects, consulting services for foreign investors entering the Czech market, support for suppliers, and assistance for the development of innovative start-up firms.

The Czech Republic is a recipient of substantial foreign direct investment (FDI). As a medium-sized, open, export-driven economy, the Czech economy is strongly dependent on foreign demand, especially from the Eurozone. In 2017, almost 80 percent of Czech exports went to fellow EU member states, with more than 60 percent of this volume shipped to the Eurozone and 40 percent to the Czech Republic’s largest trading partner, Germany, according to the Czech Statistical Office. The global economic crisis pulled the Czech Republic into its longest historical recession and highlighted its sensitivity to economic developments in the Eurozone. Since emerging from recession in 2013, the economy has enjoyed some of the highest GDP growth rates of the European Union. In 2015, GDP growth reached 5.3 percent, followed by 2.6 percent in 2016. The 2017 GDP growth rate of 4.6 percent was the second best performing year in the last decade, according to the Czech Statistical Office.

The Czech trade balance has been positive every year since 2005, and in 2016 and 2017 rose substantially, with surpluses of around USD 20.5 billion and USD 18.9 billion, respectively. Export revenues were just over 83.2 percent of GDP in 2016, according to the Czech Statistical Office. The main export commodities are automobiles, machinery, and information and communications technology.

The Czech Republic has no plans to adopt the EUR and instead has taken a wait-and-see approach to taking on the common currency. Economic difficulties in the Eurozone during the global downturn weakened public support for the country’s adoption of the EUR, as did the more recent Greek crisis, and the current government opposes setting a target date for accession.

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

While there have been many success stories involving American and other foreign investors, a handful have experienced problems, mainly in heavily regulated sectors of the economy, such as media. The slow pace of the courts is often compounded by judges’ lack of familiarity with commercial or intellectual property law.

Both foreign and domestic businesses voice concerns about corruption. Other long-term economic challenges include dealing with an aging population and diversifying the economy away from an over-reliance on manufacturing and shared services toward a more high-tech, services-based, knowledge economy.

Since 1990, the Czech Republic has become one of the leading destinations for FDI in the region. Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD 121.9 billion at the end of 2016, compared to USD 116.6 billion in 2015. The increased activity of foreign investors reflects the solid state of the Czech economy and recovery in Europe. Of these, CzechInvest negotiated 76 new investment projects by foreign investors in the Czech Republic in 2016, worth USD 1.95 billion.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

As of early 2012, U.S. and other non-EU nationals can purchase real property, including agricultural land, in the Czech Republic without restrictions. Czech legal entities, including 100 percent foreign-owned subsidiaries, may own real estate without any limitations. The right of foreign and domestic private entities to establish and own business enterprises is guaranteed by law. Enterprises are permitted to engage in any legal activity with the previously noted limitations in sensitive sectors. Laws on auditing, accounting, and bankruptcy are in force, including the use of international accounting standards (IAS).

The government does not differentiate between foreign investors from different countries, and does not screen foreign investment projects other than in the banking, insurance, and defense sectors for money laundering, transparency, origin of funds, and security purposes. Following the European Commission (EC) September 2017 investment screening proposal, the Czech government is expected to launch expert discussions on developing an investment screening mechanism that would effectively combine the national screening criteria with those newly proposed by the EC.

U.S. investors are not disadvantaged or singled out by any of the aforementioned Czech policies. The U.S.-Czech Bilateral Investment Treaty contains specific guarantees of national treatment and Most Favored Nation treatment for U.S. investors in all areas of the economy other than insurance and real estate (see the section on the Bilateral Investment Treaty below).

Other Investment Policy Reviews

The Czech Republic scores well on recent “doing business” surveys. For example, the World Bank’s Doing Business 2018 Economic Profile and the Economist Intelligence Unit provide further detail on the Czech Republic’s investment climate. More information can be found at http://www.doingbusiness.org/data/exploreeconomies/czech-republic .

Business Facilitation

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

Establishing a business requires visits to various Czech offices and on average takes nine days. The Czech Republic’s Business Register is publicly accessible and provides details on business entities. An application for an entry into the Business Register can be submitted in a hard copy, via a direct entry by a public notary, or electronically, subject to meeting online registration criteria requirements. The Business Register is publically available at: https://www.czso.cz/csu/res/business_register . The Czech Republic’s Trade Register is an online information system that collects and provides information on entities facilitating small trade and craft-oriented business activities, as specifically determined by related legislation. It is available online at: http://www.rzp.cz/eng/index.html .

The Ministry of Industry and Trade has two organizations that promote trade and investment. CzechTrade supports the development of international trade and cooperation between Czech and foreign entities and offers information and assistance to exporters and investors to facilitate business between Czech and foreign businesses. CzechInvest, established in 1992, seeks to attract foreign investment and develop domestic companies through its services and development programs. The organization also runs a number of EU programs to promote business. The organization also has the mandate to offer investment incentives to foreign investors.

Outward Investment

While the government does not restrict domestic investors from investing abroad, the volume of outward investment remains significantly lower than incoming FDI. This is primarily due to the fact that most Czech companies have only gotten to a point in the last few years where they are mature enough and generate sufficient capital to seek out more distant markets like the United States. The Czech government does not incentivize outward investment.

Transparency of the Regulatory System

Tax, labor, environment, health and safety, and other laws generally do not distort or impede investment. Policy frameworks are consistent with a market economy. Fair market competition is overseen by the Office for the Protection of Competition (UOHS) http://www.uohs.cz/en/homepage.html . UOHS is a central administrative body entirely independent in its decision-making practice. The office is mandated to create conditions for support and protection of competition and to supervise public procurement and state aid.

All laws and regulations in the Czech Republic are published before they enter into force. Opportunities for prior consultation on pending regulations exist, and all interested parties, including foreign entities, can participate. A biannual governmental plan of legislative and non-legislative work is available online, along with information on draft laws and regulations (often only in the Czech language). Business associations, consumer groups, and other non-governmental organizations, including the American Chamber of Commerce, can submit comments on laws and regulations. Laws on auditing, accounting, and bankruptcy are in force. These laws include the use of international accounting standards (IAS) for consolidated corporate groups.

International Regulatory Considerations

Membership in the EU requires the Czech Republic to adopt EU laws and regulations, including rulings by the European Court of Justice (ECJ).

Czechoslovakia (the predecessor to the Czech Republic) was a founding member of the GATT in 1947, and a member of the World Trade Organization (WTO). Since the country’s entry into the EU in 2004, the European Commission – an independent body representing all EU members –oversees Czech interests in the WTO.

Legal System and Judicial Independence

The Czech Commercial Code and Civil Code are largely based on the German legal system, which follows a continental legal system where the principle areas of law and procedures are codified. The commercial code details rules pertaining to legal entities and is analogous to corporate law in the United States. The civil code deals primarily with contractual relationships among parties.

The Czech Civil Code, Act. No. 89/2012 Coll. and the Act on Business Corporations, Act No. 90/2012 Coll. (Corporations Act) govern business and investment activities. The Act on Business Corporations introduced substantial changes to Czech corporate law such as supervision over the performance of a company’s management team, decision-making process, and remuneration and damage liability. Detailed provisions for mergers and time limits on decisions by the authorities on registration of companies are covered, as well as protection of creditors and minority shareholders.

The judiciary is independent, but decisions may vary from court to court. The reason for diverse legislative approaches may well be the fact that the new civil code did not only rewrite the system, but also introduced new terminology. Consequently, the two substantive laws, the Penal Code and the Civil Code, have been adopted without a new procedural law to explain how the laws should be applied, which would allow courts to proceed according to clearly outlined jurisdictional guidelines. Regulations and enforcement actions are appealable and the judicial process is procedurally competent, fair, and reliable.

Laws and Regulations on Foreign Direct Investment

The Foreign Direct Investment agenda is governed by the Civil Code and by the Act on Business Corporations.

The Czech Ministry of Industry and Trade maintains a “doing business” website at http://www.businessinfo.cz/en/  which aids foreign companies in establishing and managing a foreign-owned business in the Czech Republic, including navigating the legal requirements, licensing, and operating in the EU market.

Competition and Anti-Trust Laws

The Office for the Protection of Competition (UOHS) is the central authority responsible for creating conditions that favor and protect competition. UOHS also supervises public procurement and monitors state aid programs. UOHS is led by a chairperson who is appointed by the president of the Czech Republic for a six-year term.

Expropriation and Compensation

Government acquisition of property is done only for public purposes in a non-discriminatory manner and in full compliance with international law. The process of tracing the history of property and land acquisition by potential investors can be complex and time-consuming, but it is necessary to ensure clear title. Title insurance is still a relatively new concept in the Czech Republic. Investors participating in privatization of state-owned companies are protected from restitution claims through a binding contract with the government.

Dispute Settlement

ICSID Convention and New York Convention

The Czech Republic is a signatory and contracting state to the Convention on the Settlement of Investment Disputes between States and Nations of Other States (ICSID Convention). It also has ratified the convention on the Recognition and Enforcement of Arbitral Awards (New York Convention of 1958), which obligates local courts to enforce a foreign arbitral award if it meets the legal criteria.

Investor-State Dispute Settlement

In 1993, the Czech Republic became a member state to the ICSID Convention. The 1993 U.S.-Czech Bilateral Investment Treaty contains provisions regarding the settling of disputes through international arbitration.

International Commercial Arbitration and Foreign Courts

Mediation is an option in nearly every area of law including family law, commercial law, and criminal law. Mediators can be contracted between the parties to the dispute and found through such sources as the Czech Mediators Association, the Czech Bar Association, or the Union for Arbitration and Mediation Procedures of the Czech Republic. A number of other non-governmental organizations (NGOs) and entities work in the area of mediation. Directive 2008/52/EC allows those involved in a dispute to request that a written agreement arising from mediation be made enforceable. The results of mediation may be taken into account by the public prosecutor and the court in their decision in a given case. The local courts recognize and enforce foreign arbitral awards issued against the government.

Bankruptcy Regulations

A significant amendment to the bankruptcy law came into force on June 1, 2017. The amendment includes provisions prohibiting insolvency tourism, restriction of voting rights of the creditors from the debtor’s group, provisions against “bullying” insolvency petitions, and stricter rules for documenting the existence of a claim when filing a creditor’s insolvency petitions. It also sets penalties for bankruptcy administrators of up to CZK5 million (USD 200,000) for serious administrative violations such as failure to state the address of the bankruptcy administrator where the administrator actually executes his activities. The 2018 edition of the World Bank’s Doing Business Report ranked the Czech Republic twenty-fifth for ease of resolving insolvency.

There is a nationwide Central Register of Credits for the Czech Republic, governed by the Czech National Bank, which serves as the country’s credit monitoring authority.

Capital Markets and Portfolio Investment

The Czech Republic is open to portfolio investment. The Prague Stock Exchange (PSE) is small, with only 13 listed companies. Over the past year, some of these companies threatened to withdraw from the exchange. The overall trade volume of stocks decreased from CZK 168.03 billion (USD 6.8 billion) in 2016 to CZK 138.78 billion (USD 5.8 billion) in 2017, with an average daily trading volume of CZK 555.13 million (USD 23.0 million). The PSE index, which had stagnated for the past five years, increased by 14.3 percent in 2017, according to the Prague Stock Exchange 2017 Annual Report.

In March 2007, the PSE created the Prague Energy Exchange (PXE) to trade electricity in the Czech Republic and Slovakia and, later, Hungary. PXE’s goal is to increase liquidity in the electricity market and create a standardized platform for trading energy. Following a June 2017 merger of PXE’s trading platform with German power exchange EEX, the PXE benefited from both an increased number of traders and increased trade volume.

The Czech National Bank, as the financial market supervisory authority, sets rules to safeguard the stability of the banking sector, the capital markets, the insurance industry, and the pension scheme industry, and systematically regulates, supervises and, where appropriate, issues penalties for non-compliance with these rules.

The Central Credit Register (CCR) is an information system that pools information on the credit commitments of individual entrepreneurs and legal entities, and facilitates the efficient exchange of this information between CCR participants. CCR participants consist of all of the banks and branches of foreign banks carrying on business in the Czech Republic, as well as other persons where so provided in a special legislative act.

As an EU member country, the local market provides credits and credit instruments on market terms. Foreign investors are able to get credit on the local market and a variety of credit instruments are available.

The Czech Republic respects IMF Article VIII.

Money and Banking System

Large domestic banks belong to European banking groups. Most operate conservatively and concentrate almost exclusively on the domestic Czech market. As a result, Czech banks remained relatively healthy throughout the last global financial crisis. Results of regular banking sector stress tests, as conducted by the Czech National Bank, repeatedly confirm the outstanding state of the Czech banking sector, presenting a capital adequacy ratio exceeding 18 percent, on average, which is deemed sufficient resistance to potential shocks. The stress test conditions developed by the Czech National Bank present substantially stricter criteria than those established by the European Central Bank (ECB). Results of the most recent stress test conducted by the Czech National Bank are available at https://www.cnb.cz/en/financial_stability/stress_testing/ . As of December 31, 2017, the total assets of commercial banks stood at CZK7.06 trillion (approximately USD 336 billion), according to the Czech National Bank. Foreign investors have access to bank credit on the local market, and credit is generally allocated on market terms. Domestic household borrowing in foreign currencies is negligible.

The Czech National Bank has 10 correspondent banking relationships. The Czech Republic has not lost any correspondent banking relationships in the past three years and there are no relationships in jeopardy.

The Czech National Bank does not determine crypto currencies to be standard currency units and, therefore, does not regulate them. An amendment to the Anti-Money Laundering Act No. 253/2008 Col., effective from January 2017, expands the list of entities that are likely to be confronted with money laundering cases as a result of access to virtual currencies, such as currency platforms and wallet providers, and subjects them to additional reporting requirements.

Foreign Exchange and Remittances

Foreign Exchange Policies

The CZK is fully convertible. From November 2013 to April 2017, the Czech National Bank intervened to weaken the CZK relative to the EUR, and to prevent deflation. In April 2017, the Czech National Bank returned to conventional monetary policy and the CZK floats freely. The Czech National Bank supervises the foreign exchange market and its compliance with foreign exchange regulations. The law permits conversion into any currency.

Imports or exports equal to or exceeding EUR10,000 (~USD 12,200) in cash, travelers’ checks, money orders, securities, other investment tools or commodities of high value (such as precious metals or stones) must be declared at the border.

Remittance Policies

All international transfers of investment-related profits and royalties can be carried out freely. The U.S.-Czech Bilateral Investment Treaty guarantees repatriation of earnings from U.S. investments in the Czech Republic. However, a 15 percent withholding tax is charged on repatriation of profits from the Czech Republic. This tax is reduced under the terms of applicable double taxation treaties. There are no administrative obstacles for removing capital. The average delay for remitting investment returns meets the international standard of three working days.

Sovereign Wealth Funds

The Czech government does not operate a sovereign wealth fund.

Policies Towards Foreign Direct Investment

A small country with an open economy, Denmark is highly dependent on foreign trade, with exports comprising the largest component (54%) of GDP. Danish trade and investment policies are liberal. In general, investment policies are forward-looking, aimed at fostering and developing businesses, especially in high-growth sectors. A business environment survey from the Economist Intelligence Unit (EIU) for the period 2017–2021 ranked Denmark ninth globally and fourth regionally as the most attractive nation for foreign investment. The EIU characterizes Denmark’s business environment as among the most attractive in the world, reflecting a sound macroeconomic framework, excellent infrastructure, and a friendly policy towards private enterprise and competition. Principal concerns include a high personal tax burden and uncertainties relating to Brexit, as the UK is a close trading partner that shares many of Denmark’s policy goals within the EU. Overall, however, operating conditions for companies should remain broadly favorable. Several factors are included in the 2017-2021 survey, and Denmark scores top marks in various categories, including the political and institutional environment, macroeconomic stability, policy towards private enterprise, foreign investment policy, financing, and infrastructure.

As of January 2018, the EIU rated Denmark an “AA” country on its Country Risk Service, with a stable outlook. Sovereign risk rated “AA,” and political risk “AAA.” Denmark ranked twelfth out of 137 on the World Economic Forum’s 2017-2018 Global Competitiveness Report, third on the World Bank’s 2017 Doing Business ranking, and fifth on the EIU 2016 Democracy Index. “The Big Three” credit rating agencies (Standard & Poor’s, Moody’s, and Fitch Group) all score Denmark AAA.

“Invest in Denmark,” an agency of the Ministry of Foreign Affairs and part of the Danish Trade Council, provides detailed information to potential investors. The website for the agency is www.investindk.com .

Corporate tax records of all companies operating in Denmark were made public beginning in December 2012 and are updated annually. As of March 2018 the corporate tax rate is 22 percent.

Limits on Foreign Control and Right to Private Ownership and Establishment

As an EU member state, Denmark is bound by EU rules on free movement of goods, capital, persons and certain services. Denmark welcomes foreign investment and does not distinguish between EU and other investors. There are no additional permits required by foreign investors, nor any reported bias against foreign companies from municipal or national authorities.

Denmark’s central and regional governments actively encourage foreign investment on a national-treatment basis, with relatively few limits on foreign control. A foreign or domestic private entity may freely establish, own, and dispose of a business enterprise in Denmark. The capital requirement for establishing a corporation (A/S) is DKK 500,000 (approx. $75,870) and for establishing a private limited liability company (ApS) DKK 50,000 (approx. $7,587). An “Entrepreneurial Company” (IVS) can be established for DKK 1 ($0.15). No restrictions apply regarding the residency of directors and managers.

Since October 2004, any private entity may establish a European public limited company (SE company) in Denmark. The legal framework of an SE company is subject to Danish corporate law, but it is possible to change the nationality of the company without liquidation and re-founding. An SE company must be registered at the Danish Business Authority if the official address of the company is in Denmark. The minimum capital requirement is 120,000 Euros (approx. $135,000).

Danish professional certification and/or local Danish experience are required to provide professional services in Denmark. In some instances, Denmark may accept an equivalent professional certification from other EU or Nordic countries on a reciprocal basis. EU-wide residency requirements apply to the provision of legal and accountancy services.

Ownership restrictions are applied in the following sectors:

• Hydrocarbon exploration: Requires 20 percent Danish government participation on a “non-carried interest” basis.
• Defense materials: The law governing foreign ownership of Danish defense companies (L538 of May 26, 2010) stipulates that the Minister of Justice has to approve foreign ownership of more than 40 percent of the equity or more than 20 percent of the voting rights, or if foreign interests gain a controlling share in a defense company doing business in Denmark. This approval is generally granted unless there are security or other foreign policy considerations weighing against approval.
• Maritime: There are foreign (non-EU resident) ownership requirements on Danish-flagged vessels other than those owned by an enterprise incorporated in Denmark. Ships owned by Danish citizens, Danish partnerships or Danish limited liability companies are eligible for registration in the Danish International Ships Register (DIS). Ships owned by EU or European Economic Area (EEA) entities with a genuine link to Denmark are also eligible for registration, and foreign companies with a significant Danish interest can register a ship in the DIS.
• Aviation: For an airline to be established in Denmark it must have majority ownership and be effectively controlled by an EU state or a national of an EU state, unless otherwise provided for through an international agreement to which the EU is a signatory.
• Securities Trading: Non-resident financial institutions may engage in securities trading on the Copenhagen Stock Exchange only through subsidiaries incorporated in Denmark.
• Real Estate: Purchases of designated vacation properties are restricted to citizens of Denmark. EU citizens and companies from EU member states can purchase any type of real estate, except vacation properties, without prior authorization from the authorities. Companies and individuals from non-EU countries that have been present/resident in Denmark for at least five years in total and are currently resident in Denmark can also purchase real estate, except vacation properties, without prior authorization. Non-EU companies or individuals that do not meet these requirements can only purchase real estate with the permission of the Danish Ministry of Justice. Permission is freely given to people with a Danish residency permit, except with regard to purchases of vacation properties.

Other Investment Policy Reviews

The most recent UNCTAD review of Denmark occurred in March 2013, available here: http://unctad.org/en/PublicationsLibrary/webdiaeia2013d2_en.pdf . There is no specific mention of Denmark in the latest WTO Trade Policy Review of the European Union, revised in October 2017.

An EU Commission Staff Working Paper on the investment environment in Denmark is available here: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester/european-semester-your-country/denmark_en  while a 2015 private sector investment and taxation review by Deloitte can be found here: http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-denmarkguide-2015.pdf .

Denmark ranked second out of 175 in Transparency International’s 2017 Corruption Perceptions Index. It received a ranking of 3 out of 190 for “Ease of Doing Business” in the World Bank’s 2017 Doing Business Report, placing it first in Europe. In the World Economic Forum’s Global Competitiveness report for 2017-2018, Denmark was ranked 12 out of 137 countries.

The World Intellectual Property Organization’s (WIPO) Global Innovation Index ranked Denmark 6 out of 127 in 2017.

Business Facilitation

The Danish Business Authority (DBA) is responsible for business registrations in Denmark. As a part of the Danish Business Authority, “Business in Denmark” provides information on relevant Danish rules and online registrations to foreign companies in English, German, Polish and Lithuanian. The Danish business registration website is www.virk.dk . It is the main digital tool for licensing and registering companies in Denmark and offers a business registration processes that is clear and complete.

Registration of sole proprietorships and partnerships is free of charge, while there is a fee for registration of other business types: DKK 670 ($101) if the registration is done digitally and DKK 2150 ($326) if the registration form is sent by e-mail or post.

The process for establishing a new business is distinct from that of registration. The Ministry of Foreign Affairs “Invest in Denmark” program provides a step-by-step guide to establishing a business, which can be found here: www.investindk.com/Downloads . The services are free of charge and available to all investors, regardless of country of origin.

Processing time for establishing a new business varies depending on the chosen business entity. Establishing a Danish Limited Liability Company (Anpartsselskab – ApS), for example, generally takes four to six weeks for a standard application. Establishing a sole proprietorship (Enkeltmandsvirksomhed) is simpler, with processing generally taking about one week.

Those providing temporary services in Denmark must provide their company details to the Registry of Foreign Service Providers (RUT). The website (www.virk.dk ) provides English guidance on how to register a service with RUT, a process which requires a Danish digital signature/NemID employee signature. A digital signature/NemID is also required for those wishing to register a foreign company in Denmark.

In the Danish Financial Statements Act no. 1580 of 10 January 2015 section 7(2), small enterprises are defined as enterprises with fewer than 50 employees and whose annual turnover does not exceed DKK 89 million (approx. $13.6 million) or annual balance sheet total does not exceed DKK 44 million (approx. $6.7 million). Medium-sized enterprises are defined as enterprises with fewer than 250 employees and either have an annual turnover that does not exceed DKK 313 million (approx. $47.5 million) or annual balance sheet total does not exceed DKK 156 million (approx. $23.7 million).

Outward Investment

Danish companies are not restricted from investing abroad, and Danish outward investment has exceeded inward investments for more than a decade.

Transparency of the Regulatory System

The judicial system is extremely well-regarded and considered fair. The legal system is independent of the legislative branch of the government and is based on a centuries-old legal tradition. It includes written and consistently applied commercial and bankruptcy laws. Secured interests in property are recognized and enforced. The World Economic Forum’s (WEF) 2017-2018 Global Competitiveness Report, which ranks Denmark as the world’s twelfth most competitive economy and fifth among EU member states, characterizes it as having among the best functioning and most transparent institutions in the world. Denmark ranks high on specific WEF indices related to ethical behavior of firms (5^th), irregular payments and bribes (7^th), judicial independence (11^th), intellectual property protection (24^th), efficiency of legal framework in settling disputes (19^th), and quality of overall infrastructure (11^th).

In an effort to facilitate business administration, Denmark maintains only two “legislative days” per year—January 1^st and July 1^st—the only days on which new laws and regulations affecting the business sector can come into effect. Danish laws and policies granting national treatment to foreign investments are designed to increase FDI in Denmark. Denmark consistently applies high standards with regard to health, environment, safety, and labor laws. Danish corporate law is generally in conformity with current EU legislation. The legal, regulatory and accounting systems are relatively transparent and in accordance with international standards. Bureaucratic procedures are streamlined and transparent, and proposed laws and regulations are published in draft form for public comment.

As of December 19, 2012, the Ministry of Taxation made all companies’ corporate tax records public, and it updates and publicizes them annually. The publication is intended to increase transparency and public scrutiny of corporate tax payments. Greenland and the Faroe Islands retain autonomy with regards to tax policy.

The government uses transparent policies and effective laws to foster competition and establish “clear rules of the game,” consistent with international norms and applicable equally to Danish and foreign entities. The Danish Competition and Consumer Authority work to make markets well-functioning so businesses compete efficiently on all parameters. The Authority is a government agency under the Danish Ministry of Industry, Business and Financial Affairs. It enforces the Danish Competition Act. The purpose of the Act and Danish consumer legislation is to promote efficient resource allocation in society, to prevent the restriction of efficient competition, to create a level playing field for enterprises and to protect consumers.

Publicly listed companies in Denmark must adhere to the Danish Financial Statements Act when preparing their annual reports. The accounting principles are International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) and Danish Generally Accepted Accounting Principles (GAAP). Financial statements must be prepared annually. The Danish Financial Statements Act covers all businesses.

Private limited companies, public limited companies and corporate funds are obliged to prepare financial statements in accordance with which accounting class the company should follow based on size, as follows:

• Small businesses (Class B): Total assets of DKK 44 million ($6.7 million), net revenue of DKK 89 million ($13.5 million), average number of full-time employees during the financial year of 50.
• Medium-sized enterprises (Class C medium): Total assets of DKK 156 million ($23.7 million), net revenue of DKK 313 million ($47.5 million), average number of full-time employees during the financial year of 250.
• Large companies (Class C large): Companies that are neither small nor medium companies.

According to the Danish Financial Statements Act, personally owned businesses, personally owned general partnerships (multiple owners) and general funds are characterized as Class A and thus have no requirement to prepare financial statements unless the owner voluntarily chooses to do so.

All government draft proposed regulations are published at the portal for public hearings, “Høringsportalen” (www.hoeringsportalen.dk ), to solicit inputs from interested parties. After receiving feedback and possibly undergoing amendments, proposed regulations are published at the Danish Parliament’s website (www.ft.dk). Final regulations are published at www.lovtidende.dk and www.ft.dk . All ministries and agencies are required to publish proposed regulations. Denmark has a World Bank composite score of “5” for the Global Indicators of Regulatory Governance, on a 0 – 6 scale. With respect to governance, the World Bank suggests the following areas for improvement:

• Affected parties cannot request reconsideration or appeal adopted regulations to the relevant administrative agency;
• There is no existing requirement that regulations be periodically reviewed to see whether they are still needed or should be revised.

International Regulatory Considerations

Denmark adheres to the WTO Agreement on Trade-Related Investment Measures (TRIMs); no inconsistencies have been reported.

Legal System and Judicial Independence

Since the adoption of the Danish constitution in 1849, decision-making power in Denmark has been divided into the legislative, executive and judicial branches. The principle of a three-way separation of power and the independence of courts of law help ensure democracy and the legal rights of the country’s citizens. The district courts, the high courts and the Supreme Court represent the three basic levels of the Danish legal system, but the legal system also comprises a range of other institutions with special functions.

For further information please see:
http://www.domstol.dk/om/publikationer/HtmlPublikationer/Profil/Profilbrochure%20-%20UK/index.html .

Laws and Regulations on Foreign Direct Investment

The government agency “Invest in Denmark” is part of the Danish Trade Council and is situated within the Ministry of Foreign Affairs. The agency provides detailed information to potential investors. The website for the agency is www.investindk.com . The Faroese government promotes Faroese trade and investment through its website https://www.faroeislands.fo/economy-business/ . For more information regarding investment potential in Greenland, please see Greenland Holding at www.venture.gl  or the Greenland Tourism & Business Council at https://visitgreenland.com/ .

As an EU member state, Denmark is bound by EU rules on the free movement of goods, capital, persons and certain services. Denmark welcomes foreign investment and does not distinguish between EU and other investors. There are no additional permits required of foreign investors, nor any reported biases against foreign companies from municipal or national authorities.

Competition and Anti-Trust Laws

The Danish Competition and Consumer Authority (CCA) reviews transactions for competition-related concerns. According to the Danish Competition Act, the CCA requires notification of mergers and takeovers if the combined turnover of the participating companies exceeds DKK 50 million (approx. $7.6 million). However, notification is not required if one of the participating companies has turnover of less than DKK 10 million (approx. $1.5 million). If the combined turnover of the merging companies exceeds DKK 900 million (approx. $137 million) and at least two of the merging companies each have turnover exceeding DKK 100 million (approx. $15.1 million) or if one of the merging companies has domestic annual turnover exceeding DKK 3.8 billion (approx. $577 million) and at least one of the merging companies has global annual turnover exceeding DKK 3.8 billion (approx. $577 million), the merger or takeover is also subject to approval by the CCA. Large scale mergers also require approval from EU Competition authorities.

Expropriation and Compensation

By law, private property can only be expropriated for public purposes, in a non-discriminatory manner, with reasonable compensation, and in accordance with established principles of international law. There have been no recent expropriations of significance in Denmark and there is no reason to expect significant expropriations in the near future.

Dispute Settlement

There have been no major disputes over investment in Denmark in recent years. Denmark has been a member of the World Bank-based International Center for the Settlement of Investment Disputes (ICSID) since 1968. ICSID offices have also been extended to the Faroe Islands and Greenland. Denmark is a party to the 1958 (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning local courts must enforce international arbitration awards that meet certain criteria. Subsequent Danish legislation makes international arbitration of investment disputes binding in Denmark. Denmark declared in 1976 that the New York Convention applies to the Faeroe Islands and Greenland. Denmark is a party to the 1961 European Convention on International Commercial Arbitration and to the 1962 Agreement relating to the application of this Convention. Denmark adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985.

Bankruptcy Regulations

Monetary judgments under the bankruptcy law are made in freely convertible Danish Kroner. The bankruptcy law addresses creditors’ claims against a bankruptcy in the following order: (1) costs and debt accrued during the treatment of the bankruptcy; (2) costs, including the court tax, relating to attempts to find a solution other than bankruptcy; (3) wage claims and holiday pay; (4) excise taxes owed to the government; and (5) all other claims. In the World Bank’s 2018 Doing Business Report, Denmark ranks 7^th in “resolving insolvency.”

Capital Markets and Portfolio Investment

Denmark has fully liberalized foreign exchange flows, including those for direct and portfolio investment purposes. Credit is allocated on market terms and freely available. Denmark adheres to its IMF Article VIII obligations. The Danish banking system is under the regulatory oversight of the Financial Supervisory Authority. Differentiated voting rights – A and B stocks – are used to some extent, and several Danish companies are controlled by foundations, which can restrict potential hostile takeovers, including foreign takeovers.

The Danish stock market functions efficiently. In 2005, the Copenhagen Stock Exchange became part of the integrated Nordic and Baltic market place, OMX Exchanges, which is headquartered in Stockholm. Besides Stockholm and Copenhagen, OMX also includes the stock exchanges in Helsinki, Tallinn, Riga and Vilnius. In order to increase the access to capital for primarily small companies, the OMX in December 2005 opened a Nordic alternative marketplace – “First North” – in Denmark. In February 2008, the exchanges were acquired by the NASDAQ-OMX Group. In the World Economic Forum 2017/2018 report, Denmark ranks 21^st out of 137 in “Financial Market Development”

The Danish stock market is divided into four different branches/indexes. The C25 index contains the 25 most valuable companies in Denmark. Other large companies with a market value exceeding $1.1 billion are in the group of “Large Cap,” companies with a market value between $170 million and $1.1 billion belong to the “Mid Cap” segment, while companies with a market value smaller than $170 million belong to “Small Cap” group.

Money and Banking System

Denmark’s banking sector is relatively large; based on the ratio of consolidated banking assets to GDP, the sector is three times bigger than the national economy. Domestic banks in Denmark own approximately 87 percent of the industry’s total assets, while foreign banks hold only 13 percent. The assets of the three largest Danish banks – Danske Bank, Nordea Bank Danmark, and Jyske Bank – constitute approximately 75 percent of the total assets in the Danish banking sector.

The primary goal of the Central Bank (Nationalbanken) is keeping the peg of the Danish currency towards the Euro – with allowed fluctuations of 2.25 percent. It also functions as the general lender to Danish commercial banks and controls the money supply in the economy. Nationalbanken CEO, Lars Rohde has expressed his support and openness towards the use of blockchain technology in the future. Also Danske Bank pushes for commercial application of blockchain by increasing its investment to aid the technology’s move towards commercialization.

The major Danish banks are rated by international agencies, and their creditworthiness is rated as high by international standards. The European Central Bank and the Danish National Bank reported that Denmark’s major banks have passed stress tests by considerable margins.

Like banks in many other countries, Danish banks experienced significant turbulence in 2008 – 2009. In October 2008, the Danish Parliament passed legislation that calls for all private banks and the Danish government to finance jointly a “safety net” program that provides unlimited guarantees for bank deposits and certain classes of bank creditors through September 2010. Both Danish and foreign deposits were covered by the legislation. A total of 133 banks joined this so-called “Bank Package.” In spite of this legislation, some local businesses reportedly complain of continued tight lending practices and difficulty in obtaining bank financing. When the “Bank Package” expired in September 2010, the Government had acquired a profit from the agreement.

In January 2009 a second initiative, “Bank Package 2,” was passed, which provided government lending to financial institutions in need of capital to uphold their solvency requirements. Only Danish banks were eligible for inclusion in the second initiative. Forty-three applicants received DKK 46 billion (approximately $7 billion). A government-run Financial Stability Company was initiated to take over failed banks. By the end of 2010, 10 banks had been taken over or divided and sold by the Financial Stability Company.

A third package was enacted in July 2010 without a set expiration date, which ensured the orderly winding down of failed banks through the Financial Stability Company in the period after September 30, 2010, when Bank Package I expired. The package guarantees all deposits up to DKK 750,000 (approx. $113,800). The third Bank Package received much national and international recognition for its stringent measures making senior debt holders responsible in the event of bank failure.

A fourth Bank Package was passed in August 2011 proposing to identify systemically important financial institutions, ensure the liquidity of banks which assume control of a troubled bank, support banks acquiring troubled banks by allowing them to write off obligations of the troubled bank to the government, and change the funding mechanism for the sector-funded guarantee fund to a premiums-based, pay-as-you-go system. According to the Danish Government, Bank Package 4 provides mechanisms for a sector solution to troubled banks without senior debt holder losses, but does not supersede Bank Package 3. Senior debt holder losses are still a possibility in the event of a bank failure.

On October 10, 2013, the Danish Minister for Business and Growth concluded a political agreement with broad political support which, based on the most recent financial statements, identified seven financial institutions as “systemically important”: Danske Bank, Nykredit, Nordea Bank Danmark, Jyske Bank, BRFkredit, Sydbank and DLR Kredit. Spar Nord Bank is expected to be added to the list in 2018. These were identified based on three quantitative measures: 1) a balance sheet to GDP ratio above 6.5 percent; 2) market share of lending in Denmark above 5 percent; or 3) market share of deposits in Denmark above 5 percent, which will be lowered to 3 percent during 2018. If an institution is above the requirement of any one of the three measures, it will be considered systemically important and must adhere to the stricter requirements on capitalization, liquidity and resolution.

Experts expect a revision of the Danish system of troubled financial institution resolution mechanisms in connection with a decision to join the EU Banking Union. The national payment system, “Nets” was sold to a consortium consisting of Advent International Corp., Bain Capital LLC, and Danish pension fund ATP in March 2014 for DKK 17 billion ($2.58 billion). Nets went public with an IPO late 2016.

Foreign Exchange and Remittances

Exchange rate conversions throughout this document are based on the 2017 average exchange rate where Danish Kroner (DKK) 6.5953 = 1 USD ($).

There are no restrictions on converting or transferring funds associated with an investment into or out of Denmark. Policies in place are intended to facilitate the free flow of capital and to support the flow of resources in the product and services markets. Foreign investors can obtain credit in the local market at normal market terms, and a wide range of credit instruments is available.

Denmark has not adopted the Euro currency. The country meets the EU’s economic convergence criteria for membership and can join if it wishes to do so. Denmark conducts a fixed exchange rate policy with the Danish Krone linked closely to the Euro within the framework of ERM II. The Danish Krone (DKK; plural: Kroner, in English, “the Crown”) has a fluctuation band of +/- 2.25 percent of the central rate of DKK 746.038 per 100 Euro. The Danish Government supports inclusion in a European Banking Union, as long as it can be harmonized with the Danish Euro opt-out and there is a guarantee that the Danish mortgage finance system will be allowed to continue in its present form.

The Danish political reservation concerning Euro participation can only be abolished by national referendum, and Danish voters have twice (in 1992 and 2000) voted it down. The government has stated that in principle it supports adopting the Euro, but no referendum is expected for the foreseeable future. Regular polling on this issue shows a majority of public opinion remains in favor of keeping the Krone. According to the Stability and Growth Pact, a Euro country’s debt to GDP ratio cannot exceed 60 percent and budget deficit to GDP ratio cannot exceed 3 percent. Denmark’s debt to GDP ratio was 36.4 percent by the end of 2017. Denmark ran a budget deficit of 0.4 percent in 2016 and a budget surplus of 1.0 percent in 2017, well within Stability & Growth Pact parameters.

Sovereign Wealth Funds

Denmark maintains no sovereign wealth funds.

Policies Towards Foreign Direct Investment

Djibouti’s laws encourage FDI, with state-run media providing favorable coverage of projects funded by foreign entities. The government sees FDI as a driving force behind Djibouti’s economic growth. Faced with high unemployment rates of over thirty-nine percent, FDI is expected to generate jobs.

There is no screening of investment or any discriminatory mechanisms. Navigating the bureaucracy, however, can be complicated. Certain sectors – most notably public utilities – are state-owned and are not open to investors. In July 2015, the Djiboutian government approved a bill liberalizing the production of electricity. The state-owned company Djibouti Electricity (EDD) has had a monopoly on electricity production for decades. The bill will begin the process of opening the sector to competition, though this will likely be slow, and EDD retains all rights to the transmission and distribution of electricity. Nonetheless, the liberalization of production is a positive step in promoting private investment in the energy sector.

Djibouti’s National Investment Promotion Agency (NIPA), created in 2001 under the Ministry of Finance, promotes private-sector investment, facilitates investment operations, and works to modernize the country’s regulatory framework. NIPA assists foreign and domestic investors by disseminating information and streamlining administrative procedures. In March 2017, NIPA’s one-stop-shop was officially inaugurated. The NIPA is the main coordinator of the one-stop-shop which houses several agencies. NIPA has identified several priority sectors for investment, including infrastructure and renewable energy.

A new ministerial position was created in 2016 to further attract and reach out to potential investors. The new minister position reports directly to the presidency.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have equal rights in establishing and owning business enterprises and engaging in all forms of remunerative activity. Furthermore, foreign investors are not required by law to have a local partner except in the insurance industry, and there only if the company is registered as a local company and not a branch of an existing foreign company.

There is not an established screening process for FDI. FDI is encouraged and given favorable tax status. Specific terms are negotiated on a case-by-case basis. Many companies therefore have a unique status created by agreement with varying preferences and advantages.

Business Facilitation

The government of Djibouti has increasingly improved efforts to facilitate the registration of business by reducing the capital needed for investment, simplifying the formalities needed to register with the Intellectual Property (IP) office and simplifying some of the tax procedures. The most important result is the finalization of a one-stop shop, managed by NIPA. The one-stop-shop brings together all the agencies with which a company must register.

Typically, a company registers with the following offices: Djibouti Office of Intellectual Property, Tax office, and the Social Security office. Online registration is not possible; the normal registration process takes 14 days, according to the World Bank. In Djibouti, every new business must have to get every document notarized to begin operations. Djibouti ranked 154 out of 190 countries in the World Bank 2018 Ease of Doing Business report.

Outward Investment

The host government does not promote nor restrict outward investment.

Transparency of the Regulatory System

Government policies are sometimes not transparent, and do not foster competition on a non-discriminatory basis. Likewise, the legal, regulatory, and accounting systems are not always transparent and consistent with international norms. Rule-making and regulatory authority exists at the state level.

The Djiboutian accounting system is loosely based on the French accounting system as it existed at independence (1977) and has been updated since that time. Legal and regulatory procedures are complex and unevenly enforced.

Draft bills are initiated in a process of public consultation in which stakeholders participate.

Regulatory actions including laws and decrees are available online at the following site: http://www.presidence.dj/recherchetexte.php .

The State General Inspection (SGI) is tasked with ensuring human and material resources in the public sector are properly utilized. It also acts as the enforcement mechanism.

The regulatory regime is written in a way that promotes open competition, at least in the sectors that are open to private investment. Implementation of the law is sometimes not transparent, and public functions such as licensing and issuing permits are not always done in a systematic fashion. Application of the rules is not always consistent. The laws are proposed by the ministry, and then debated and passed by the parliament. The promulgation by the president is the last stage.

International Regulatory Considerations

Djibouti is a member of the Intergovernmental Authority on Development (IGAD) and the Common Market for Eastern and Southern Africa (COMESA). The regulatory systems in these countries are not yet harmonized. The European norms and standards are referenced in Djibouti. Djibouti is a member of the WTO. We are not aware whether the government notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

Djibouti’s legal system is based on Civil law, inherited from the French Napoleon Code. It consists of three courts: a Court of First Instance presided over by a single judge; a Court of Appeals, with three judges; and the Supreme Court. In addition, the Islamic law (shariah) and the traditional law is practiced. Djibouti has a written commercial code and specialized courts, including criminal court, administrative court and civilian court as well.

The court system is de jure independent from executive power. However, it is not always the case in practice so most investors in the market request the right to counsel including agreements for arbitration in a recognized international court.

International lawyers practicing in Djibouti have reported effective application of maritime and other commercial laws, but there have been reports in the past from foreign companies operating in Djibouti that court deliberations were biased or delayed.

Laws and Regulations on Foreign Direct Investment
The country’s legal system has no discriminatory policy against foreign investment, and frequently negotiates extended tax breaks and other incentives to attract larger investments. The National Investment Promotion Agency website has useful information and acts as a guide for investors: www.djiboutinvest.com.

The Djibouti Office of Industrial and Commercial Protection (ODPIC) is the agency in charge of registering businesses. Its website contains information about the registration process: http://www.odpic.info 

Competition and Anti-Trust Laws

In 2008, Djibouti adopted a law on competition and consumer protection, which does not cover State-Owned Enterprises. Under this law, the Government of Djibouti regulates prices areas where competition remains limited. For example, the government regulates postal services, telecommunications, utilities and urban transport services. Djibouti does not have an agency that specifically promotes competition and does not have a comprehensive strategy to restrict market monopolies.

Expropriation and Compensation

Foreign companies enjoy the same benefits as domestic companies under Djibouti’s Investment Code. Djibouti’s Investment Code stipulates that “no partial or total, temporary or permanent expropriation will take place without equitable compensation for the damages suffered”. There is no history of massive expropriations and we are not aware of any recent cases of U.S. companies’ expropriations. There have been cases of foreign companies facing de facto expropriation via fines, while other companies have had their concession to run a public service unilaterally revoked.

Dispute Settlement

ICSID Convention and New York Convention

Djibouti is not a member state of the ICSID.

Investor-State Dispute Settlement

Djibouti is not a member state to the International Centre for Settlement of Investment Disputes convention. Djibouti, however, is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Djibouti’s government has had only a few investment disputes in the past several years, none with U.S. businesses. In some cases, the disputes have been settled in international arbitration courts and the government has abided by those decisions. In other cases, there has been de facto expropriation through large fines. As in any country, a strong, enforceable contract is important.

International Commercial Arbitration and Foreign Courts

There is no domestic arbitration body within the country. In February 2014, the IGAD countries agreed to set up an international Business Arbitration Center in Djibouti. This institution provides a mechanism for resolving business disputes, and helps create a more transparent business environment in the region by reinforcing the principles of contract law and increasing the number of lawyers practicing commercial and contract law in Djibouti. Djibouti’s rule of law is weak as it relates to business disputes involving non-Djiboutian. Investment dispute cases are not made public.

Bankruptcy Regulations

Djibouti does have bankruptcy laws, and bankruptcy is not criminalized. Insolvency laws are a high point in Djibouti’s investment climate, as it was ranked 73 out of 189 by the World Bank in 2018 in this area.

Capital Markets and Portfolio Investment

In recent years, Djibouti has relied heavily on foreign investment and the government is open and receptive to foreign investors. Portfolio investment in Djibouti is primarily done through private equity. Some multinational companies with investments in Djibouti are publicly traded. Investments in Djibouti are inherently illiquid for that reason, and the purchase or sale of any sizeable investment in Djibouti affects the market accordingly. Djibouti does not have its own stock market. Existing policies facilitate the free flow of financial resources into the product and factor markets.

Credit is allocated on market terms, and foreign companies do not face discrimination in obtaining it. Generally, however, only well-established businesses obtain bank credit, as the cost of credit is high. Credit is available to the private sector, whether foreign or domestic. Where credit is not available, it is primarily due to the associated risk and not structural factors

Money and Banking System

Three large banks, Bank of Africa (BOA) and Bank for Commerce and Industry – Mer Rouge (BCI-MR), and EXIM bank dominate Djibouti’s banking sector. While these three banks account for the majority share of deposits in-country, there are 12 total banks, all established in the last twelve years. Two of the new banks closed in the last four years —WARKA Bank from Iraq and Shura Bank from Egypt. In 2011 a new banking law went into effect, fixing the minimum capital requirement for financial institutions at DJF 1 billion (USD 5,651,250) and extended the scope of the law to include financial auxiliaries, such as money transfer agencies and Islamic financial institutions. Two additional banks, Commercial Bank of Djibouti and Silkroad Bank were established respectively in 2015 and 2017, bringing the total number of banks operating in Djibouti to 12.

The banking sector suffers from a lack of consistent supervision but it has been improving. Non-performing loans were decreased from 22.5 percent in 2016 to 16.5 percent in 2017. The total assets of the economy’s five largest banks were estimated to be USD 1.96 billion in 2017. The country has a Central Bank, which is in charge of delivering licenses to banks and supervising them.

Foreign banks or branches are allowed to establish operations in the country. They are subject to the same regulations as local banks.

Djibouti has not explored or announced that it intends to implement or allow the implementation of blockchain technologies in its banking transactions. However, some banks have begun to provide mobile and e-banking services.

Foreign Exchange and Remittances

Foreign Exchange Policies

Djibouti has no foreign exchange restrictions. Businesses are free to repatriate profits. There are no limitations on converting or transferring funds, or on the inflow and outflow of cash. The Djibouti franc, which has been pegged to the U.S. dollar since 1949, is stable. The fixed exchange rate is 177.71 Djibouti francs to the U.S. dollar. Funds can be transferred by using banks or international money transfer companies such as Western Union which are both monitored by the Central Bank.

Remittance Policies

There are no recent changes or plans to change investment remittance policies. There are no time limitations on remittances. The government does not issue bonds on the open market, and cash-like instruments are not in common use in Djibouti, so direct currency transfers are the only practical method of remitting profits.

Sovereign Wealth Funds

Neither the government nor any government-affiliated entity maintains a Sovereign Wealth Fund (SWF) or other similar entity.

Policies Towards Foreign Direct Investment

The Government of Dominica strongly encourages foreign direct investment (FDI), particularly in industries that create jobs, earn foreign currency, and have a positive impact on local citizens.

Through the Invest Dominica Authority, the government instituted a number of investment incentives for businesses considering the possibility of locating in Dominica, encouraging both domestic and foreign private investment. Government policies provide liberal tax holidays, duty-free import of equipment and materials, exemption from value added tax on some capital investments, and withholding tax exemptions on dividends, interest payments, and some external payments and income. Fiscal incentives are provided under various laws to encourage the establishment and expansion of both foreign and domestic investment.

The government has prioritized investment in certain sectors, namely; hotel accommodation including eco-lodges and boutique hotels, nature and adventure tourism services, marina and yachting sector development, fine dining restaurants, information and technology services particularly business processing operations, film, music and video production, agro-processing, manufacturing, bulk water export and bottled water operations, medical and nursing schools, health and wellness tourism, geothermal and biomass industries, biodiversity, aquaculture, and English language training services. The government has signaled that they are also willing to consider additional sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign control in Dominica. Foreign investment in Dominica is not subject to any restrictions, and foreign investors are entitled to receive the same treatment as nationals of Dominica. Foreign investors are entitled to hold up to 100 percent of their investment. The only restriction is the requirement to obtain an Alien Landholders License for foreign investors seeking to purchase property for residential or commercial purposes. Local enterprises generally welcome joint ventures with foreign investors in order to access technology, expertise, markets, and capital.

Other Investment Policy Reviews

The last trade policy review for the Organization of Eastern Caribbean States (OECS), of which Dominica is a member, was conducted through the World Trade Organization (WTO) in 2014.

Business Facilitation

The Invest Dominica Authority is Dominica’s main business facilitation unit. It facilitates FDI into priority sectors, and advises the government on the formation and implementation of policies and programs to attract investment in Dominica. The Invest Dominica Authority provides crucial business support services and market intelligence to all investors. It offers an online tool useful for navigating laws, rules, procedures and registration requirements for foreign investors. It is available at http://www.investdominica.com/ .

All potential investors applying for government incentives must submit their proposals for review by the Invest Dominica Authority to ensure the project is consistent with the national interest and provides economic benefits to the country.

The Companies and Intellectual Property Office (CIPO) maintains an e-filing portal for most of its services including company registration on its website. However, this only allows for the preliminary processing of applications prior to the investor physically making a payment at the Supreme Court office. It is advisable that investors seek the advice of a local attorney prior to starting the process. Further information is available at: http://www.cipo.gov.dm/  .

According to the World Bank’s 2018 Doing Business Report, Dominica is ranked 67th of 190 countries in ease of starting a business. It takes just five procedures and 12 days to complete the process. The general practice is to retain an attorney who prepares all the relevant incorporation documents. A business must register with the Companies and Intellectual Property Office, the Tax Authority and the Social Services Institute.

Recently, there has been an increased focus on issues that directly impact women. A number of regional development agencies have launched programs to assist Caribbean women entrepreneurs, notably Caribbean Export and the Women Innovators Network of the Caribbean. Local organizations have also hosted workshops in support of women entrepreneurs. The Government of the Commonwealth of Dominica continues to support the growth of women–led business as they have made immense contribution to the growth and development of the economy. The Government affirms equitable treatment and support of women in the private sector through non- discriminatory processes for business registration process, fiscal incentives, investment opportunities and quality assessments.

Outward Investment

Although the Government of Dominica prioritizes investment retention as a key component of its overall economic strategy, there are no formal mechanisms in place to achieve this. Even so, the economy will continue to require significant foreign investment.

There is no restriction on domestic investors seeking to do business abroad. Local companies in the Dominica are actively encouraged to take advantage of export opportunities specifically related to the country’s membership in the Organization of Eastern Caribbean States Economic Union and the Caribbean Community Single Market and Economy, which enhance the competitiveness of the local and regional private sectors across traditional and emerging high-potential markets.

Transparency of the Regulatory System

The Commonwealth of Dominica provides a legal framework to foster competition and establish clear rules for foreign and domestic investors in the areas of tax, labor, environment, health, and safety. The Ministry of Finance and the Invest Dominica Authority provide oversight of the transparency of the system as it relates to investment.

Rule-making and regulatory authority lies with the Unicameral Parliament of the Government of Dominica. The Parliament has one chamber which consists of 21 members elected for a five-year term in single-seat constituencies, nine appointed members and one Speaker and one Clerk of Parliament.

All regulations that relate to foreign investment into Dominica are governed by the relevant national laws of Dominica. These laws are developed within the respective ministries and drafted by the Ministry of Justice, Immigration and National Security. These laws are enforced by the relevant ministry or ministries. The attraction of foreign direct investment is governed principally through the laws that oversee the Invest Dominica Authority and the Citizenship by Investment Program. The National Laws are available online at http://www.dominica.gov.dm/laws-of-dominica . This website contains the full text of laws currently in force.

Although some draft bills are not subject to public consultation, input from various stakeholder groups is enlisted in the formulation of the law. In some instances, a special committee is convened to make recommendations on provisions outlined in the law. Public awareness campaigns via print and electronic media are used to sensitize the general population. Copies of proposed regulations are published in the Official Gazette just before the bills are taken to the House of Assembly. Although Dominica does not have legislation guaranteeing access to information or freedom of expression, access to information is generally available in practice. The government maintains a website and an information service on which it posts information such as directories of officials and a summary of laws and press releases. The government budget and an audit of that budget are available on the website: http://www.opm.gov.dm  .

Accounting, legal and regulatory procedures are generally transparent and consistent with international norms. The International Financial Accounting Standards which stem from the General Accepted Accounting Principles govern the accounting profession in Dominica.

The Office of the Parliamentary Commissioner or Ombudsman is a constitutional provision to guard against excesses by government officers in the performance of their duties. The Ombudsman is responsible for investigating any complaint relating to any decision or act of any government officer or body in any case in which a member of the public claims to be aggrieved or appears to the Ombudsman to be the victim of injustice as a result of the exercise of the administrative function of that officer or body.

Regulations are developed nationally and regionally. At the national level, the relevant ministry reviews and recommends the legal authority that would enable it to effectively perform at the desired levels to reach optimum development objectives. These reviews are then submitted to the Ministry of Justice, Immigration and National Security for the preparation of corresponding draft legislation. Subsequently, the Ministry of Justice, Immigration and National Security reviews all agreements and legal commitments (national, regional and international) to be undertaken by Dominica, to ensure consistency prior to finalization. The Invest Dominica Authority has the main responsibility for investment supervision, whereas the Ministry of Finance monitors investments to collect information for national statistics and reporting purposes.

Dominica’s membership in regional organizations, particularly the Organization of Eastern Caribbean States and its Economic Union, commits the state to implement all appropriate measures to ensure the fulfillment of its various treaty obligations. For example, the new Banking Act, which establishes a single banking space and the harmonization of banking regulations in the Economic Union, is uniformly in force in the eight member territories of the Eastern Caribbean Currency Union, although there are some minor differences in implementation from country to country.

The enforcement mechanisms of these regulations include penalties or legal sanctions. The Invest Dominica Authority can revoke an issued Investment Certificate if the holder fails to comply with certain stipulations detailed in the Act and its regulations.

International Regulatory Considerations

As a member of the Organization of Eastern Caribbean States and the Eastern Caribbean Economic Union, the Commonwealth of Dominica subscribes to a set of principles and policies outlined in the Revised Treaty of Basseterre. The relationship between national and regional systems is such that each participating member state is expected to coordinate and adopt, where possible, common national policies, aimed at the progressive harmonization of relevant policies and systems across the region. Thus, Dominica is obligated to implement regionally developed regulations, such as legislation passed under Organization of Eastern Caribbean States Authority, unless specific concessions are sought.

The Dominica Bureau of Standards is a statutory body established under the Standards Act of 1999. It develops, establishes, maintains and promotes standards for improving industrial development, industrial efficiency, promoting the health and safety of consumers as well as protecting the environment, food and food products, the quality of life for the citizenry and the facilitation of trade. It also conducts national training and consultations in international standards practices. As a signatory to the World Trade Organization Agreement on the Technical Barriers to Trade, the Commonwealth of Dominica, through the Dominica Bureau of Standards, is obligated to harmonize all national standards to international norms to avoid creating technical barriers to trade.

Legal System and Judicial Independence

Dominica bases its legal system on British common law. The Attorney General, the Chief Justice of the Eastern Caribbean Supreme Court, junior judges, and magistrates administer justice in the country. The Eastern Caribbean Supreme Court Act establishes the Supreme Court of Judicature, which consists of the High Court and the Eastern Caribbean Court of Appeal. The High Court hears criminal and civil matters and makes determinations on the interpretation of the Constitution. Appeals are made in the first instance to the Eastern Caribbean Supreme Court, an itinerant court that hears appeals from all Organization of Eastern Caribbean States members.

The Caribbean Court of Justice (CCJ) is the regional judicial tribunal, established in 2001 by the Agreement Establishing the Caribbean Court of Justice. The CCJ has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas. In 2015, Dominica acceded to the CCJ, making the CCJ its final court of appeal.

The United States and Dominica are both parties to the WTO. The WTO Dispute Settlement Panel and Appellate Body resolve disputes over WTO agreements, while courts of appropriate jurisdiction in both countries resolve private disputes.

Laws and Regulations on Foreign Direct Investment

The Invest Dominica Authority’s foreign direct investment policy is to actively pursue foreign direct investment into priority sectors, and advise the government on the formation and implementation of policies and programs to attract sustainable investment into Dominica. The main laws concerning investment in Dominica are the Invest Dominica Authority Act (2007), the Tourism Act (2005), and the Fiscal Incentives Act. Regulatory amendments have been made to the Income Tax Act, the Value Added Tax Act, the Title by Registration Act, the Stamp Act, the Aliens Landholding Regulation Act and the Residential Levy Act.

All proposals for investment concessions and incentives are reviewed by the Investment Dominica Authority to ensure the project is consistent with the national interest and provides economic benefits to the country. All proposals are submitted to the Cabinet of Dominica for final consideration.

The Invest Dominica Authority provides ‘one-stop shop’ facilitation services to investors to guide them through various stages of the investment process. The Invest Dominica Authority offers a website that is useful for navigating the laws, rules, procedures and registration requirements for foreign investors: http://www.investdominica.com .

Under Dominica’s Economic Citizenship Program, foreign individuals may obtain citizenship in accordance with section VII of the Constitution and the 1993 Amendment to the Citizenship Act, which grants citizenship (without voting rights) to qualified investors. Applicants can contribute a minimum of USD 100,000 to the Economic Diversification Fund for a single person or an investment in designated real estate with a value of at least USD 200,000. Applicants must also provide a full medical certificate, undergo a background check and provide evidence of the source of funds before proceeding to the final stage of an interview. The government introduced a Citizen by Investment Certificate in order to minimize the risk of unlawful duplication. Further information can be obtained from the Citizenship by Investment Unit of Dominica website at: http://cbiu.gov.dm .

Competition and Anti-Trust Laws

Chapter 8 of the Revised Treaty of Chaguaramas outlines the competition policy applicable to CARICOM States. Member States are required to establish and maintain a national competition authority for implementing the rules of competition. CARICOM established a Caribbean Competition Commission to apply rules of competition regarding anti-competitive cross-border business conduct. CARICOM competition policy addresses anti-competitive business conduct, such as agreements between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction or distortion of competition within the Community, and actions by which an enterprise abuses its dominant position within the Community. No legislation is yet in operation to regulate competition in Dominica. The OECS agreed to establish a regional competition body to handle competition matters within its single market. The draft OECS bill is with the Ministry of Legal Affairs for review.

Expropriation and Compensation

There are no known pending expropriation cases involving American citizens. In such an event, Dominica would employ a system of eminent domain to pay compensation when property needs to be acquired in the public interest. There were no reported tendencies of the government to discriminate against U.S. investments, companies or landholdings in the reporting period. There are no laws mandating local ownership in specified sectors.

Dispute Settlement

ICSID Convention and New York Convention

Dominica is not a party to the Convention on the Settlement of Investment Disputes. However, it is a member of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Arbitration Convention. The Arbitration Act of 1988 is the main legislation that governs arbitration in Dominica. It adheres to the New York Arbitration Convention.

Investor-State Dispute Settlement

Investors are permitted to use national or international arbitration with regards to contracts entered into with the state. Dominica does not have a Bilateral Investment Treaty or a Free Trade Agreement with an investment chapter with the United States. U.S. Embassy Bridgetown is not aware of any current investment disputes in Dominica.

Dispute resolution in Dominica generally took an average of 681 days. The slow court system and bureaucracy are widely seen as the main hindrances to timely resolutions to commercial disputes. Dominica is ranked 79^th out of 190 countries in resolving contracts in the World Bank’s 2018 Doing Business Report. Through the Arbitration Act of 1988, the local courts recognize and enforce foreign arbitral awards issued against the government. Dominica does not have a recent history of investment disputes involving a U.S. person or other foreign investors.

International Commercial Arbitration and Foreign Courts

The Eastern Caribbean Supreme Court is the domestic arbitration body and the local courts do recognize and enforce foreign arbitral awards. The Eastern Caribbean Supreme Court’s Court of Appeal also provides meditation.

Bankruptcy Regulations

Under the Bankruptcy Act (1990), Dominica has a bankruptcy framework that grants certain rights to debtor and creditor. The 2018 Doing Business Report addresses the strength of the framework and its limitations in resolving insolvency in Dominica and ranked Dominica 132^nd of 190 countries in this area.

Capital Markets and Portfolio Investment

Dominica is a member of the Eastern Caribbean Currency Union. As such, it is a member of the Eastern Caribbean Securities Exchange and the Regional Government Securities Market. The Eastern Caribbean Security Exchange is a regional securities market established by the Eastern Caribbean Central Bank and licensed under the Securities Act of 2001, a uniform regional body of legislation governing securities market activities to facilitate the buying and selling of financial products for the eight member territories. The number of equities listed is 13, while the number of debt securities listed is 90. Market capitalization stood at USD 3.07 billion as of December 2016. The Commonwealth of Dominica is a member of this stock exchange, and is open to portfolio investment.

The Commonwealth of Dominica has accepted the obligations of Article VIII of the International Monetary Fund Agreement, Sections 2, 3, and 4 and maintains an exchange system free of restrictions on making payments and transfers for current international transactions. Foreign tax credits normally are not granted unless in the case of taxes paid in a British Commonwealth country that grants similar relief for Dominica taxes or where an applicable tax treaty provides a credit. The private sector has access to credit on the local market through loans, purchases of non-equity securities, and trade credits and other accounts receivable that establish a claim for repayment.

Money and Banking System

The Eastern Caribbean Central Bank Agreement Act was passed into law by the eight Participating Governments. The Schedule to the Act contains an agreement made on July 5, 1983 by seven member governments and acceded to by the Government of Anguilla on April 1, 1987. This Agreement provides for the establishment of the Eastern Caribbean Central Bank, its management and administration, its currency, relations with financial institutions, relations with the participating governments, foreign exchange operations, external reserves and other related matters. Dominica is a signatory to this agreement and as such, the Eastern Caribbean Central Bank controls Dominica’s currency and regulates its domestic banks.

In its latest annual report, the Eastern Caribbean Central Bank listed the commercial banking sector as stable. Assets of commercial banks in Dominica totaled USD 938.7 million at the end of December 2017 and remained relatively consistent during the previous year. The reserve requirement for commercial banks was 6 percent of deposit liabilities.

International banks domiciled in the U.S., Canada and Europe are reviewing their correspondent banking relationships in regions that they deem as high-risk for financial services. The Caribbean witnessed a withdrawal of these services by U.S. and European banks in the last three years. In 2015, the Caribbean Community declared the loss of correspondent banking to be a grave issue facing the region. The Caribbean Community is committed to engaging with key stakeholders on the issue and appointed a Committee of Ministers of Finance on Correspondent Banking to collate a collective response to this issue.

In March 2018, the ECCB signed a Memorandum of Understanding with Barbados-based fintech company, Bitt Inc. to conduct a fintech pilot on blockchain technology in ECCB member countries. During the pilot, the ECCB will work closely with Bitt Inc. to develop, deploy and test technology which focuses on data management, compliance and transaction monitoring system for Know Your Customer, Anti-Money Laundering, and Combating the Financing of Terrorism (KYC/AML/CFT). This will help to improve the risk profile of the Eastern Caribbean Currency Union (ECCU) and mitigate against the trend of de-risking by the region’s correspondent banking partners. The pilot will also focus on developing a secure, resilient digital payment and settlement platform with embedded regional and global compliance; and the issuance of a digital EC currency which will operate alongside physical EC currency. The pilot is expected to begin in late 2018.

Dominica remains well served by Bank and Non-Bank Financial Institutions. As a consequence there are minimal alternative financial services being offered. Informal community group lending is still practiced in some sections of the population, albeit not as significantly as in previous years.

Foreign Exchange and Remittances

Foreign Exchange Policies

Dominica is a member of the Eastern Caribbean Currency Union and the Eastern Caribbean Central Bank. The currency of exchange is the Eastern Caribbean dollar (denoted as XCD). As a member of the Organization of Eastern Caribbean States, Dominica has a foreign exchange system that is fully liberalized. The Eastern Caribbean Dollar has been pegged to the United States dollar at a rate of XCD 2.70 to USD 1.00 since 1976. As a result, the Eastern Caribbean Dollar does not fluctuate, creating a stable currency environment for trade and investment in Dominica.

Remittance Policies

Companies registered in Dominica have the right to repatriate all capital, royalties, dividends and profits free of all taxes or any other charges on foreign exchange transactions. There are no restrictions on the repatriation of dividends for totally foreign-owned firms, however a mixed foreign-domestic company may repatriate profits to the extent of its foreign participation.

As a member of the Organization of Eastern Caribbean States, there are no exchange controls in Dominica and the invoicing of foreign trade transactions may be made in any currency. Importers are not required to make prior deposits in local funds and export proceeds do not have to be surrendered to government authorities or to authorized banks. There are no controls on transfers of funds. Dominica is a member of the Caribbean Financial Action Task Force (CFATF).

In June 2018, the Government of Dominica formally signed an Intergovernmental Agreement in observance of the United States’ Foreign Account Tax Compliance Act (FATCA), making it mandatory for banks in Dominica to report the banking information of U.S. citizens.

Sovereign Wealth Funds

The Eastern Caribbean Central Bank, of which Dominica is a member, does not maintain a Sovereign Wealth Fund.

Policies Toward Foreign Direct Investment

Under the Foreign Investment Law (No. 16-95), dated November 20, 1995, unlimited foreign investment is permitted in all sectors, with the exception of the disposal and storage of toxic, hazardous, or radioactive waste not produced in the country; activities negatively impacting public health and the environment; and the production of materials and equipment directly linked to national security, unless authorized by the President. The Dominican Republic provides certain tax incentives to investment in tourism, renewable energy, film industry, Haiti-Dominican Republic border development, and the industrial sector.

The Dominican Republic is a signatory of the Free Trade Agreement between the United States and the countries of Central America (CAFTA-DR), which sets forth rules for the protection of current or potential investors against unfair or discriminatory governmental action. CAFTA-DR mandates non-discriminatory treatment, free transferability of funds, protection against expropriation, and procedures for the resolution of investment disputes.

The Export and Investment Center of the Dominican Republic (CEI-RD), a government agency created in 2013, offers assistance to foreign investors wanting to invest in the Dominican Republic. The National Council of Free Trade Zones for Export (CNZFE) offers assistance to companies looking to invest in the free trade zones.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no general (statutory, de facto, or otherwise) limits on foreign ownership or control. According to Law No. 98-03 and Regulation 214-04, an interested foreign investor must file an application form at the offices of CEI-RD within 180 calendar days from the date on which the foreign investment took place. CEI-RD will then evaluate the application and issue the corresponding Certificate of Registration within 15 working days.

In order to set up a business in a free trade zone, a formal request must be made to the National Council of Free Trade Zones, the entity responsible for issuing the operating licenses needed to a free zone company or operator. The Council assesses the application and determines its feasibility. For more information on the procedure and the steps to be taken in order to apply for an operating license, visit the website of the National Council of Free Zones at http://www.cnzfe.gov.do .

Other Investment Policy Reviews

The government conducted an investment policy review in the context of a World Trade Organization (WTO) Trade Policy Review in 2015. https://www.wto.org/english/tratop_e/tpr_e/s319_e.pdf .

In the past three years, the government has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD). The last United Nations Conference on Trade and Development (UNCTAD) investment policy review was published in 2009.

Business Facilitation

According to the World Bank’s 2017 Doing Business report, starting a business in the Dominican Republic requires a 7-step process that takes 14.5 days. Steps include (1) checking the company name with the National Office of Industrial Property (ONAPI); (2) purchasing the company name with ONAPI; (3) paying the incorporation tax with the National Internal Revenue Agency (DGII); (4) registering the company with the Chamber of Commerce and obtaining an identification number; (5) filing for the national taxpayer registry and applying for fiscal receipts at DGII; (6) registering local employees with the Ministry of Labor; and (7) registering employees at the Social Security Office.

The Dominican Republic has a single-window registration website for S.R.L. company registration (http://www.formalizate.gob.do/ ) that offers a one-stop shop for registration needs. Foreign companies may use the registration website. The website received a rating of 6 out of 10 in the UN’s Global Enterprise Registration ranking for clarity and completeness. The use of a local lawyer is highly advisable for company registrations.

The Ministry of Industry and Commerce (MIC) leads the Dominican Republic’s assistance and registration program for small and medium-sized enterprises (PYMES). The +PYMES program, a partnership between the Ministry of Industry and Commerce (MIC) and the National Competitiveness Council, offers technical assistance to majority Dominican-owned companies and defines small businesses as those with fewer than 75 employees and medium-sized businesses as those with between 76 and 150 employees.

Outward Investment

The Dominican Republic promotes outward investment through the Export and Investment Center (CEI-RD), the government investment promotion agency. There are no restrictions on domestic investors investing abroad. Top exports are gold, silver, and agricultural goods. The largest recipient of Dominican outward investment is the United States.

Transparency of the Regulatory System

By law, the full text of draft regulations should be made available for public review, and regulatory agencies should give notice of proposed regulations in public meetings where consultations can take place. All proposed regulations should be published on a unified website: http://www.consultoria.gov.do/ . In practice, however, these actions do not always occur. Moreover, the scope of the website content is not always adequate for investors or interested parties.

On the 2017 Global Innovations Index, the Dominican Republic ranks 104 out of 127 for regulatory environment and 73 out of 127 for regulatory quality. The World Economic Forum’s 2017-18 Global Competitiveness report ranked the Dominican Republic 115^th out of 137 countries in efficiency of the legal framework in challenging regulations, and 117^th in burden of government regulations.

The Dominican Institute of Certified Public Accountants (ICPARD) is the country’s legally-recognized professional accounting organization and has authority to establish accounting standards in accordance with article 31 of Law 479-08, which also declares that financial statements should be prepared in accordance with generally accepted accounting standards nationally and internationally (as amended by Law 31-11). The ICPARD and the country’s stock market regulator (Superintendencia de Valores) require the use of International Financial Reporting Standards (IFRS) and IFRS for small and medium-sized entities (SMEs).

Law 42-08 from 2008 established he National Commission for the Defense of Competition (Pro-Competencia), an agency to improve and enforce competition laws. Private sector contacts note that significant public pressure is required for Pro-Competencia to take action. Efforts to establish the rule of law in many sectors of the economy have been impeded, or in some cases, soundly defeated by special interests. For example, in 2008, the government refused to enforce a court ruling to halt an illegal blockade of a U.S. business by disgruntled ex-contractors. As another example, in 2013, the Dominican government rescinded permits for an American-owned tourism and real estate development and declared large swaths of their land as a national park. In 2015, several U.S. investors cited the Dominican government’s repeated failure to pay compensation for or return expropriated land, even though valid court orders had been obtained. Some investors, both Dominican and foreign, consider that influence through political contacts can trump formal systems of regulation.

Legal System and Judicial Independence

The legal system of the Dominican Republic is civil law and is based on the Napoleonic code. On October 23, 2007, Decree No. 610-07 placed the Directorate of Foreign Commerce of the then-Secretariat of State for Industry and Commerce (DICOEX) in charge of commercial dispute settlement, including disputes related to the Investment Chapter of CAFTA-DR. The main laws governing commercial disputes are the Commercial Code; Law No. 479-08, the Commercial Societies Law; Law No. 3-02, concerning Business Registration; Commercial Arbitration Law No. 489-08; and Law No. 126-02, concerning e-Commerce and Digital Documents and Signatures.

The country is divided into 11 Judicial Departments, each one headed by a Court of Appeals with jurisdiction over civil and criminal matters in 35 Judicial Districts. See website http://www.poderjudicial.gob.do/poder_judicial/organizacion_judicial/organizacion_
judicial.aspx . Each Judicial District has a court of first instance. Justices of the Peace handle small claims, certain traffic accidents, landlord-tenant disputes, and other matters. There are also specialized courts with jurisdiction over labor cases, disputes involving registered land, cases involving minors, and administrative matters. The Supreme Court is the highest court, with jurisdiction to handle most appeals from the courts of appeal, and first instance jurisdiction in criminal matters involving certain high-level government officials. The Constitutional Tribunal, created in 2010, rules on the constitutionality of laws, decrees, and treaties and decides cases involving constitutional questions.

According to the Constitution, the Judicial Branch is independent of the other branches of the State. The right of access to justice is a constitutional right granted by Article 69 of the Constitution. It provides that every person, including foreigners, has the right to appear in court.

Some investors complain of long wait times for a decision by the judiciary. The Civil Procedure Code dates from 1884, and there have been few modifications. The resolution of a civil case normally takes 2-4 years, although some take significantly longer. Some investors have complained that the local court system is unreliable, biased against them, and that special interests and powerful individuals are able to use the legal system in their favor. Regardless of whether they are located in a free-trade zone, multiple companies have asserted that they have problems with dispute resolution, both with the Dominican government and with private-sector entities. U.S. firms indicate that corruption on all levels – business, government, and judicial – impedes their access to justice to defend their interests. Several large U.S. firms have been subjects of injunctions issued by lower courts on behalf of distributors with whom they are engaged in a contract dispute. These disputes are often the result of the firm seeking to end the relationship in accordance with the contract, and the distributor using the injunction as a way of obtaining a more beneficial settlement. These injunctions often disrupt the U.S. companies’ distribution activities, resulting in severe negative impact on sales. In order to effectively engage in the Dominican market, many U.S. companies seek local partners that are well-connected and understand the local business environment.

The World Economic Forum’s 2017 Global Competitiveness report ranked the Dominican Republic 130^th out of 137 countries in judicial independence and 112^th in efficiency of the legal framework in settling disputes. On the Global Innovations Index, the Dominican Republic ranked 89 out of 127 countries for rule of law.

Laws and Regulations on Foreign Direct Investment

The Export and Investment Center of the Dominican Republic (CEI-RD), which aims to be a one-stop-shop for investment information, registration, and investor after-care services, maintains a user-friendly website for guidance on the government’s priority sectors for inward investment and on the range of investment incentives (http://cei-rd.gob.do/ ).

Competition and Anti-Trust Laws

There is no government agency that reviews transactions for competition-related concerns (whether domestic or international in nature); however, the government’s National Commission for the Defense of Competition (ProCompetencia) is responsible for promoting and defending competition by fostering best practices.

Expropriation and Compensation

There are dozens of outstanding disputes between U.S. investors and the Dominican government concerning unpaid government contracts or expropriated property and businesses. Property claims make up the majority of expropriation cases. Most, but not all, expropriations have been used for infrastructure or commercial development. In most cases, claims have remained unresolved for many years. Typically, investors and lenders have not received prompt payment of fair market value for their losses, and subsequent enforcement has been difficult even in cases in which the Dominican courts, including the Supreme Court, have ordered compensation or the government has recognized a claim. In other cases, lengthy delays in compensation payments have been blamed on errors committed by government-contracted property assessors, slow processes to correct land title errors, a lack of budgeted funds, and other technical problems. The procedures to resolve expropriations lack transparency and, to a foreigner, may appear to be antiquated. Few examples exist where government officials have been held responsible for not paying a recognized claim or not paying the claim in a timely manner.

Discussions at the U.S.-Dominican Trade and Investment Council meetings in October 2002 prompted the Dominican government to establish procedures under a 1999 law to issue bonds to settle claims against the Dominican government dating from before August 16, 1996, including claims for expropriated property.

Dispute Settlement

ICSID Convention and New York Convention

In 2000, the Dominican Republic signed the International Center for the Settlement of Investment Disputes (ICSID, also known as the Washington Convention), but has not ratified it. In 2002, the Dominican Republic became signatory to the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Investor-State Dispute Settlement

The Dominican Republic has entered into several bilateral investment treaties, most of which contain dispute resolution provisions that submit the parties to arbitration. The Dominican Republic is a signatory to CAFTA-DR and is thus bound by the investment chapter of CAFTA-DR. There is currently one pending investor-state case filed against the Dominican Republic under CAFTA-DR.

The Embassy is aware of at least 26 U.S. investors who are involved in ongoing legal disputes with the Dominican government and parastatal firms involving payments, expropriations, contractual obligations, or regulatory obligations. The investors range from large firms to private individuals and the disputes are at various levels of legal review.

International Commercial Arbitration and Foreign Courts

Law 489-08 on commercial arbitration governs the enforcement of arbitration awards, arbitral agreements, and arbitration proceedings in the Dominican Republic. Per law 489-09, arbitration may be ad-hoc or institutional, meaning the parties may either agree on the rules of procedure applicable to their claim, or they may adopt the rules of a particular institution. Fundamental aspects of the United Nations Commission on International Trade (UNCITRAL) model law are incorporated into Law 489-08.

Foreign arbitral awards are enforceable in the Dominican Republic in accordance with Law 489-09 and applicable treaties, including the New York Convention, to which the Dominican Republic is a party. There are complaints that the court process is slow and that domestic claimants with political connections have an advantage.

Bankruptcy Regulations

The Restructuring and Liquidation of Business Entities and Merchants Law (Law 141-15) was signed by President Medina on August 18, 2015, and took effect 18 months after it was signed. The law allows a debtor company to continue to operate for up to five years during reorganization proceedings by staying legal proceedings. The law orders the creation of new courts with exclusive jurisdiction to hear all matters regarding the insolvency process, contemplates the appointment of conciliators, verifiers, experts, and employee representatives, allows the debtor to contract for new debt which will have priority status in relation to other secured and unsecured claims, stipulates civil and criminal sanctions for non-compliance, and permits the possibility of coordinating cross-border proceedings based on recommendations of the UNCITRAL Model Law of 1997.

Nearly two years after the law’s signing, specialized bankruptcy courts have not yet been established. However, the Supreme Court designated two lower courts and appeals courts to hear bankruptcy cases. The national juridical school is in the process of training judges on bankruptcy.

Capital Markets and Portfolio Investment

The Dominican securities market, the Bolsa de Valores de Santo Domingo, opened on December 12, 1991, and mostly handles offerings of commercial paper. It is supervised by the Superintendency of Securities (SIV), which approves all public securities offerings. The private sector has access to a variety of credit instruments. Foreign investors are able to obtain credit on the local market, but tend to prefer less expensive offshore sources. The Central Bank regularly issues certificates of deposit, using an auction process to determine interest rates and maturities.

Money and Banking System

During a period of strong GDP growth and largely successful economic reforms in the 1990s, Dominican authorities, including the Central Bank, failed to detect years of large-scale fraud and mismanagement at the privately-owned Banco Intercontinental (Baninter), the country’s third largest bank. The failure of Baninter and two other banks in 2003 cost the government in excess of USD 3 billion, severely destabilized the country’s finances, and shook business confidence. The failures, and their consequences, brought about a crisis of devaluation, inflation, and economic hardship. Upon taking office in August 2004, Leonel Fernandez’s administration formulated with the IMF, a comprehensive program aimed at addressing the weaknesses in macroeconomic policies, the banking system, and a wide range of other structural areas. In 2005, the IMF’s Executive Board approved a USD 665 million stand-by agreement (SBA) that helped the DOMINICAN REPUBLIC recover from its 2003 banking crisis. Business confidence gradually returned, but after effects of the 2003-2004 economic crisis remain, including lingering difficulty in accessing consumer and business credit financing. Reforms enacted after the 2003 crisis allowed the Dominican banking sector to avoid severe difficulties during the international financial crisis of 2008.

In the wake of the 2008 global economic and financial crisis, the IMF’s Executive Board approved a USD 1.7 billion SBA with the Dominican Republic. The 28-month program sought to assist the government in pursuing short-term counter-cyclical polices, strengthen medium-term sustainability, reduce vulnerabilities, and set the foundation for eventual recovery. The SBA lapsed in April 2012 with USD 500 million in pending IMF disbursements.

Currently, the Dominican Republic’s financial sector remains relatively stable and the financial system indicators were declared largely satisfactory by the IMF during its 2018 Article IV consultations, which noted that “Sound regulatory and supervisory reforms adopted since the banking crisis 15 years ago have strengthened the financial sector.”

Foreign Exchange and Remittances

Foreign Exchange

The Dominican exchange system is a market with free convertibility of the peso. Economic agents perform their transactions of foreign currencies under free market conditions. There are generally no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

The Central Bank sets the exchange rates and practices a policy of managed float. Some firms have had repeated difficulties obtaining dollars during periods of high demand. Importers may obtain foreign currency directly from commercial banks and exchange agents. The Central Bank participates in this market in pursuit of monetary policy objectives, buying or selling currencies and performing any other operation in the market to minimize volatility.

Remittance Policies

The government has made no changes to investment remittance policies. The Dominican Republic became a member of the Financial Action Task Force of Latin America in 2016. A mutual evaluation was conducted in January 2018 and will be published later in 2018 here: http://www.gafilat.org/index.php/es/biblioteca-virtual/miembros/republica-dominicana .

Sovereign Wealth Funds

State operations have few mechanisms and measures to ensure transparency and accountability. There is no requirement for an annual report from sovereign wealth funds.

Policies toward Foreign Direct Investment

The flotation of the EGP in November 2016 and the restart of Egypt’s interbank foreign exchange FX market as part of the IMF program was the first major step in restoring investor confidence that immediately led to increased portfolio investment and should lead to increased FDI over the long term. The stable macro-economic outlook has allowed Egypt to focus on structural reforms to support strong economic growth. The next phase of reform has included a new investment law, an industrial licensing law, a bankruptcy law and other reforms to reduce regulatory overhang and improve the ease of doing business. Successful implementation of these reforms should give greater confidence to foreign investors leading to increased FDI. Egypt’s government has announced plans to further improve its business climate through investment promotion, facilitation, efficient business services, and advocacy of investor friendly policies overall.

With a few exceptions, Egypt does not legally discriminate between Egyptian nationals and foreigners in the formation and operation of private companies. The 1997 Investment Incentives Law was designed to encourage domestic and foreign investment in targeted economic sectors and to promote decentralization of industry away from the Nile Valley. The law allows 100 percent foreign ownership of investment projects and guarantees the right to remit income earned in Egypt and to repatriate capital.

The Tenders Law (Law 89 of 1998) requires the government to consider both price and best value in awarding contracts and to issue an explanation for refusal of a bid. However, the law contains preferences for Egyptian domestic contractors, who are accorded priority if their bids do not exceed the lowest foreign bid by more than 15 percent.

The Capital Markets Law (Law 95 of 1992) and its amendments, including the most recent in February 2018, and regulations govern Egypt’s capital markets. Foreign investors are able to buy shares on the Egyptian Stock Exchange on the same basis as local investors.

The General Authority for Investment and Free Zones (GAFI) is an affiliate of the Ministry of Investment and International Cooperation (MIIC) and the principal government body regulating and facilitating investment in Egypt.

”The Investor Service Center (ISC)” is an administrative unit established within GAFI that provides ”one-stop-shop” services, easing the way for global investors looking for opportunities presented by Egypt’s domestic economy and the nation’s competitive advantages as an export hub for Europe, the Arab world, and Africa. This is in addition to promoting Egypt’s investment opportunities in various sectors.

ISC provides a full start-to-end service to the investor, including assistance related to company incorporation, establishment of company branches, approval of minutes of Board of Directors and General Assemblies, increase of capital, change of activity, liquidation procedures, and other corporate-related matters. The Center also aims to issue licenses, approvals, and permits required for investment activities, within 60 days from the date of request submissions. Other services GAFI provides include:

• Advice and support to help in the evaluation of Egypt as a potential investment location;
• Identification of suitable locations and site selection options within Egypt;
• Assistance in identifying suitable Egyptian partners;
• Aftercare and dispute settlement services.

ISC Branches are expected to be established in all Egypt’s Governorates. Egypt maintains ongoing communication with investors through formal business roundtables, investment promotion events (conferences and seminars), and one-on-one investment meetings.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Egyptian Companies Law does not set any limitation on the number of foreigners, neither as shareholders nor as managers or board members, except for Limited Liability Companies where the only restriction is that one of the managers should be an Egyptian national. In addition, companies are required to obtain a commercial and tax license, and pass a security clearance process. Companies are able to operate while undergoing the often lengthy security screening process. However, if the firm is rejected, it must cease operations and undergo a lengthy appeals process. Businesses have cited instances where Egyptian clients were hesitant to conclude long term business contracts with foreign businesses that have yet to receive a security clearance. They have also expressed concern about seemingly arbitrary refusals, a lack of explanation when a security clearance is not issued, and the lengthy appeals process. Although the Government of Egypt has made progress streamlining the business registration process at GAFI, its general lack of familiarity or experience of Egyptians working with foreigners has sometimes led to inconsistent and questionable treatment by banks and government officials, thus, delaying registration.

Sector-specific limitations to investment include restrictions on foreign shareholding of companies owning lands in the Sinai Peninsula. Likewise, the Import-Export Law requires companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians. In 2016, the Ministry of Trade prepared an amendment to the law allowing the registration of importing companies owned by foreign shareholders, but, as of April 2018, the law had not yet been submitted to Parliament. Nevertheless, the new Investment Law does allow wholly foreign companies, which invest in Egypt to import goods and materials.

Land/Real Estate Law 15 of 1963 explicitly prohibits foreign individual or corporation ownership of agricultural land (defined as traditional agricultural land in the Nile Valley, Delta and Oases). The ownership of land by foreigners is governed by three laws: Law No. 15 of 1963, Law No. 143 of 1981, and Law No. 230 of 1996. Law No. 15 stipulates that no foreigners, whether natural or juristic persons, may acquire agricultural land. Law No. 143 governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is equal to approximately one hectare) that may be owned by individuals, families, cooperatives, partnerships and corporations. Partnerships are permitted to own 10,000 feddans. Joint stock companies are permitted to own 50,000 feddans.

Under Law No. 230 non-Egyptians are allowed to own real estate (vacant or built) only under the following conditions:

• Ownership is limited to two real estate properties in Egypt that serve as accommodation for the owner and his family (spouses and minors) in addition to the right to own real estate needed for activities licensed by the Egyptian Government;
• The area of each real estate property does not exceed 4,000 m²;
• The real estate is not considered a historical site.

Exemption from the first and second conditions is subject to the approval of the Prime Minister. Ownership in tourist areas and new communities is subject to conditions established by the Cabinet of Ministers. Non-Egyptians owning vacant real estate in Egypt must build within a period of five years from the date their ownership is registered by a notary public. Non-Egyptians cannot sell their real estate for five years after registration of ownership, unless the consent of the Prime Minister for an exemption is obtained. http://www.gafi.gov.eg/English/StartaBusiness/Laws-and- Regulations/Pages/BusinessLaws.aspx .

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) signed a declaration with Egypt on International Investment and Multinational Enterprises on July 11, 2007, at which time Egypt became the first Arab and African country to sign the OECD Declaration, marking a new stage in Egypt’s drive to attract more FDI.

The United Nations Conference of Trade Development (UNCTAD) and GAFI also signed in June 1999 an Investment Policy Review with Egypt that recognized the efforts that the Government of Egypt had made to establish an adequate investment regulatory framework and improve the business environment.

It also pointed out that overcoming the limited involvement of multinational companies in manufacturing sectors with export potential such as food, garments, and electronics, would require a policy emphasis on the following issues:

• Infrastructure investments relating to the physical, technological, and educational infrastructure;
• Specific sectors to promote clusters of related enterprises and self-sustaining development.

Since the publication of the policy review on Egypt, UNCTAD has assisted the government with training diplomats on investment trends, policies, and promotion, and staff on FDI statistics.

Business Facilitation

GAFI’s new ISC was launched on February 21, 2018 at a ceremony attended by President Sisi. The ISC provides a full start-to-end service to the investor as described above. The new Investment Law also introduces ”Ratification Offices” to facilitate the obtaining of necessary approvals, permits, and licenses within 10 days of issuing a Ratification Certificate.

The investor may fulfill the technical requirements of obtaining the required licenses through these Ratification Offices, directly through the concerned authority, or through its representatives at the Investment Window at GAFI. The Investor Service Center is required to issue licenses within 60 days from submission. Companies can also register online. MIIC and GAFI have also launched e-establishment, e-signature, and e-payment services to facilitate establishing companies.

Outward Investment

Egypt promotes and incentivizes outward investment. According to the Egyptian government’s FDI Markets database for the period from January 2003 to February 2018, outward investment featured the following:

Egyptian companies implemented 64 Egyptian FDI projects. Estimated total value of projects, which employed about 50,000 workers, was USD 24 billion.

The following countries respectively received the largest amount of Egyptian outward investment in terms of total project value: United Arab Emirates (UAE), Saudi Arabia, Algeria, Jordan, Libya, Sudan, Ethiopia, Kenya, Germany, and Iraq. The UAE, Saudi Arabia and Algeria accounted for about 28 percent of the total amount.

Elsewedy Electric was the largest Egyptian company investing abroad, implementing 17 projects with a total investment estimated to be USD 2.5 billion.

Egypt does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

The Egyptian government has made efforts to improve the transparency of government policy and to support a fair, competitive marketplace. However, improving government transparency and consistency has proven difficult and reformers have faced strong resistance from entrenched bureaucratic and private interests. Significant obstacles continue to hinder private investment, including the often arbitrary imposition of bureaucratic impediments and the length of time needed to resolve them. However, the impetus for positive change driven by the government reform agenda augurs well for improvement in policy implementation and transparency.

Enactment of laws is the purview of the Parliament, while executive regulations are the domain of line ministries. Under the Constitution, draft legislation can be presented by the president, the cabinet, and any member of parliament. After submission, parliamentary committees review and approve, including any amendments. Upon parliamentary approval, a judicial body reviews the constitutionality of any legislation before referring it to the president for his approval. Although notice and full drafts of legislation are typically printed in the Official Gazette (similar to the Federal Register in the United States), in practice consultation with the public is limited. In recent years, the Ministry of Trade and other government bodies have circulated draft legislation among concerned parties, including business associations and labor unions. This has been a welcome change from previous practice, but is not yet institutionalized across the government.

While Egyptian parliaments have historically held “social dialogue” sessions with concerned parties and private or civic organizations to discuss proposed legislation, it is unclear to what degree the current Parliament, seated in January 2016, will adopt a more inclusive approach to social dialogue. Many aspects of the 2016 IMF program and related economic reforms stimulated parliament to engage more broadly with the public, marking some progress in this respect.

Accounting, legal, and regulatory procedures are transparent and consistent with international norms. The Financial Regulatory Authority (FRA) supervises and regulates all non-banking financial markets and instruments, including capital markets, futures exchanges, insurance activities, mortgage finance, financial leasing, factoring, securitization, and microfinance. It issues rules that facilitate market efficiency and transparency. FRA has issued legislation and regulatory decisions on non-banking financial laws which govern FRA’s work and the entities under its supervision. (http://www.fra.gov.eg/jtags/efsa_en/index_en.jsp ).

The criteria for awarding government contracts and licenses are made available when bid rounds are announced. The process actually used to award contracts is broadly consistent with the procedural requirements set forth by law. Further, set-aside requirements for small- and medium-sized enterprise (SME) participation in GoE procurement are increasingly highlighted. FRA maintains a centralized website where key regulations and laws are published: http://www.fra.gov.eg/content/efsa_en/efsa_pages_en/laws_efsa_en.htm .

The Parliament, seated in early 2016, and the independent “Administrative Control Authority” both ensure the government’s commitment to follow administrative processes at all levels of government. Egypt does not have an online equivalent of the U.S. Federal Register and there is no centralized online location for key regulatory actions or their summaries.

The cabinet develops and submits proposed regulations to the president following discussion and consultation with the relevant ministry and informal consultation with other interest groups. Based on the recommendations provided in the proposal, including recommendations by the presidential advisors, the president issues “Presidential Decrees” that function as implementing regulations. Presidential decrees are published in the “Official Gazette” for enforcement.

The specific government agency or entity responsible for enforcing the regulation works with other departments for implementation across the government. Not all issued regulations are announced online. Theoretically, the enforcement process is legally reviewable.

Before a government regulation is implemented, there is an attempt to properly analyze and thoroughly debate proposed legislation and rules using appropriate available data. But there are no laws requiring scientific studies or quantitative analysis of impacts of regulations. Not all public comments received by regulators are made public.

International Regulatory Considerations

In general, international standards are the main reference for Egyptian standards. According to the EOS, approximately 7,000 national standards are aligned with international standards in various sectors. In the absence of international standards, Egypt uses other references which are referred to in Ministerial decrees No. 180//1996 and No. 291//2003, which stipulate that in the absence of Egyptian standards, the producers and importers may use the following:

• European standards (EN);
• U.S. standards (ANSI);
• Japanese standards (JIS).

Egypt is a member of the WTO and participates actively in various committees. Egypt ratified the Trade Facilitation Agreement (TFA) on June 22, 2017 by a vote of parliament and issuance of presidential decree No. 149/2017. Egypt is currently preparing the instrument of acceptance of the TFA to be deposited to the WTO.

Legal System and Judicial Independence

Egypt’s legal system is a civil codified law system based on the French model. If contractual disputes arise, claimants can sue for remedies through the court system or seek resolution through arbitration. Egypt has written commercial and contractual laws. The country has a system of economic courts, specializing in private sector disputes, which have jurisdiction over cases related to economic and commercial matters, including intellectual property disputes. The judiciary is set up as an independent branch of the government.

Regulations and enforcement actions can be appealed through Egypt’s courts, though appellants often complain about the very lengthy judicial process, which can often take years. To enforce judgments of foreign courts in Egypt, the party seeking to enforce the judgment must obtain an exequatur (a legal document issued by governments allowing judgements to be enforced). To apply for an exequatur, the normal procedures for initiating a lawsuit in Egypt must be satisfied. Moreover, several other conditions must be satisfied, including ensuring reciprocity between the Egyptian and foreign country’s courts, and verifying the competence of the court rendering the judgment.

Judges in Egypt are said to enjoy a high degree of public trust and are the designated monitors for general elections. The Judiciary is proud of its independence and can point to a number of cases where a judge has made surprising decisions that run counter to the desires of the regime. The judge’s ability to loosely interpret the law can sometimes lead to an uneven application of justice. The system’s slowness and dependence on paper processes hurts its overall competence and reliability. The executive branch claims to have no influence over the judiciary, but in practice political pressures seem to influence the courts on a case by case basis. In the experience of the Embassy, judicial decisions are highly appealable at the national level and this appeal process is regularly used by litigants.

Laws and Regulations on Foreign Direct Investment

No specialized court exists for foreign investments.

In 2016, the Import-Export Law was revised to allow companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians; formerly the law required 100 percent Egyptian ownership and management. In November 2016, the Supreme Investment Council also announced seventeen presidential decrees designed to spur investment or resolve longstanding issues. These include:

• Forming a “National Payments Council” that will work to restrict the handling of FX outside the banking sector;
• A decision to postpone for three years the capital gains tax on stock market transactions;
• Producers of agricultural crops that Egypt imports or exports will get tax exemptions;
• Five-year tax exemptions for manufacturers of “strategic” goods that Egypt imports or exports;
• Five-year tax exemptions for agriculture and industrial investments in Upper Egypt;
• Begin tendering land with utilities for industry in Upper Egypt for free as outlined by the Industrial Development Authority.

The Ministry of Investment and International Cooperation issued a new Investment Law that was discussed extensively with all stakeholders prior to its mid-2017 release. New laws regarding Bankruptcy and Companies’ Law were also released in late 2017 and early 2018.

Competition and Anti-Trust Laws

The Egyptian Competition Authority (ECA) is the body tasked with ensuring free competition in the market and preventing anticompetitive practices. The Authority operates under the Egyptian Competition Law, which covers three categories of violations: (1) cartels; (2) abuse of dominance; and (3) vertical restraints. The ECA monitors the market, detects anti-competitive practices that are considered violations to the law, and takes measures to stop such violations. The Anti-Trust and Competition Protection Council (ACPC) monitors business practices of companies to ensure they comply with the standards of the free market. The main challenges to competition in Egypt include a regulatory system that protects established companies and large companies, a significant informal sector, and the lack of availability of reliable information.

Expropriation and Compensation

The Investment Incentives Law provides guarantees against nationalization or confiscation of investment projects under the law’s domain. The law also provides guarantees against seizure, requisition, blocking, and placing of assets under custody or sequestration. It offers guarantees against full or partial expropriation of real estate and investment project property. The U.S.-Egypt Bilateral Investment Treaty also provides protection against expropriation. Private firms are able to take cases of alleged expropriation to court, but the judicial system can take several years to resolve a case.

Dispute Settlement

ICSID Convention and New York Convention

Egypt acceded to the International Convention for the Settlement of Investment Disputes (ICSID) in 1971 and is a member of the International Center for the Settlement of Investment Disputes, which provides a framework for the arbitration of investment disputes between the government and foreign investors from another member state, provided the parties agree to such arbitration. Without prejudice to Egyptian courts, the Investment Incentives Law recognizes the right of investors to settle disputes within the framework of bilateral agreements, the ICSID or through arbitration before the Regional Center for International Commercial Arbitration in Cairo, which applies the rules of the United Nations (UN) Commissions on International Trade Law.

Egypt adheres to the 1958 New York Convention on the Enforcement of Arbitral Awards; the 1965 Washington Convention on the Settlement of Investment Disputes between States and the Nationals of Other States; and the 1974 Convention on the Settlement of Investment Disputes between the Arab States and Nationals of Other States. An award issued pursuant to arbitration that took place outside Egypt may be enforced in Egypt if it is either covered by one of the international conventions to which Egypt is party or it satisfies the conditions set out in Egypt’s Dispute Settlement Law 27 of 1994, which provides for the arbitration of domestic and international commercial disputes and limited challenges of arbitration awards in the Egyptian judicial system. The Dispute Settlement Law was amended in 1997 to include disputes between public enterprises and the private sector.

To enforce judgments of foreign courts in Egypt, the party seeking to enforce the judgment must obtain an exequatur. To apply for an exequatur, the normal procedures for initiating a lawsuit in Egypt, and several other conditions must be satisfied, including ensuring reciprocity between the Egyptian and foreign country’s courts and verifying the competence of the court rendering the judgment.

Egypt has a system of economic courts specializing in private sector disputes that have jurisdiction over cases related to economic and commercial matters, including intellectual property disputes. Despite these provisions, business and investors in Egypt’s renewable energy projects have reported significant problems resolving disputes with the Government of Egypt.

Investor-State Dispute Settlement

The U.S.-Egypt Bilateral Investment Treaty allows an investor to take a dispute directly to binding third-party arbitration. The Egyptian courts generally endorse international arbitration clauses in commercial contracts. For example, the Court of Cassation, on a number of occasions, has confirmed the validity of arbitration clauses included in contracts between Egyptian and foreign parties.

A new mechanism for simplified settlement of investment disputes aimed at avoiding the court system altogether has been established. In particular, the law established a Ministerial Committee on Investment Contract Disputes, responsible for the settlement of disputes arising from investment contracts to which the state, or an affiliated public or private body, is a party. This is in addition to establishing a Complaint Committee to consider challenges connected to the implementation of Egypt’s Investment Law. Finally, the decree established a Committee for Resolution of Investment Disputes, which will review complaints or disputes between investors and the government related to the implementation of the Investment Law. In practice, Egypt’s dispute resolution mechanisms are time-consuming, but broadly effective. Businesses have, however, reported difficulty collecting payment from the government when awarded a monetary settlement.

Over the past 10 years, there have been several investment disputes involving both U.S. persons and foreign investors. Most of the cases have been settled, though no definitive number is available. Local courts in Egypt recognize and enforce foreign arbitral awards issued against the government. There are no known extrajudicial actions against foreign investors in Egypt during the period of this report.

International Commercial Arbitration and Foreign Courts

Egypt allows mediation as a mechanism for alternative dispute resolution (ADR), a structured negotiation process in which an independent person known as a mediator assists the parties to identify and assess options, and negotiate an agreement to resolve their dispute. GAFI has an Investment Disputes Settlement Center, which uses mediation as an ADR.

The Economic Court recognizes and enforces arbitral awards. Judgments of foreign courts may be recognized and enforceable under local courts under limited conditions.

In most cases, domestic courts have found in favor of state-owned enterprises (SOEs) involved in investment disputes. In such disputes, non-government parties have often complained about the delays and discrimination in court processes.

It is recommended that U.S. companies employ contractual clauses that specify binding international (not local) arbitration of disputes in their commercial agreements.

Bankruptcy Regulations

Egypt passed a new bankruptcy law in January 2018, but the executive regulations to implement the law have not been published. Once enacted, the law will speed up the restructuring and settlement of troubled companies. It will also replace the threat of imprisonment with fines in cases of bankruptcy.

In practice, the paperwork involved in liquidating a business remains convoluted and extremely protracted; starting a business is much easier than shutting one down. Bankruptcy is frowned upon in Egyptian culture and many businesspeople believe they may be found criminally liable if they declare bankruptcy.

Capital Markets and Portfolio Investment

To date, high returns on GoE debt have crowded out Egyptian investment in productive capacity. The large foreign inflows Egypt witnessed in 2017 have been mostly portfolio capital, which is highly volatile. Returns on GoE debt have begun to decrease, which could presage investment by Egyptian capital in the real economy

The Egyptian Stock Exchange (EGX) is Egypt’s registered securities exchange. By the end of 2017, about 1,150 entities were listed on the EGX with well over EGP800 billion in total valuation. There are more than 500,000 investors registered to trade on the exchange. Stock ownership is open to foreign and domestic individuals and entities. The GoE issues dollar-denominated and Egyptian pound-denominated debt instruments. The GoE has developed a positive outlook toward foreign portfolio investment, recognizing the need to attract foreign capital to help develop the Egyptian economy.

The Capital Market Law 95//1992, along with the Banking Law 88//2003, constitutes the primary regulatory frameworks for the financial sector. The law grants foreigners full access to capital markets, and authorizes establishment of Egyptian and foreign companies to provide underwriting of subscriptions, brokerage services, securities and mutual funds management, clearance and settlement of security transactions, and venture capital activities. The law specifies mechanisms for arbitration and legal dispute resolution and prohibits unfair market practices. Law 10//2009 created the Egyptian Financial Supervisory Authority (EFSA) and brought the regulation of all non-banking financial services under its authority. In 2017, EFSA became the Financial Regulatory Authority (FRA).

Settlement of transactions takes one day for treasury bonds and two days for stocks. Although Egyptian law and regulations allow companies to adopt bylaws limiting or prohibiting foreign ownership of shares, virtually no listed stocks have such restrictions. A significant number of the companies listed on the exchange are family-owned or dominated conglomerates, and free trading of shares in many of these ventures, while increasing, remains limited. Companies are delisted from the exchange if not traded for six months.

The Higher Investment Council extended the suspension of capital gains tax for three years, until 2020 as part of efforts to draw investors back. In March 2017, the government announced plans to impose a stamp duty on all stock transactions with a duty of 0.125 percent on all buyers and sellers starting in May 2017, followed by an increase to 0.150 percent in the second year and 0.175 percent thereafter. Egypt’s new stamp duty on stock exchange transactions will include for the first time a 0.3 percent levy for investors acquiring more than a third of a company’s stocks.

Foreign investors can access Egypt’s banking system by opening accounts with local banks, and buying and selling all marketable securities with brokerages. The government has repeatedly emphasized its commitment to maintaining the profit repatriation system to encourage foreign investment in Egypt, especially since the pound floatation and implementation of the IMF loan program in November 2016. The current system for profit repatriation by foreign firms requires sub-custodian banks to open foreign and local currency accounts for foreign investors (global custodians), which are exclusively maintained for stock exchange transactions. The two accounts serve as a channel through which foreign investors process their sales, purchases, dividend collections, and profit repatriation transactions using the bank’s posted daily exchange rates. The system is designed to allow for settlement of transactions in fewer than two days, though in practice some firms have reported significant delays in repatriating profits due to problems with availability. Foreign firms and individuals continue to report delays in repatriating funds and problems accessing hard currency for the purpose of repatriating profits.

The Egyptian credit market, open to foreigners, is vibrant and active. Repatriation of investment profits has become much easier, as there is enough available hard currency to execute FX trades. Since the floatation of the EGP in November 2016, FX trading is considered straightforward, given the reestablishment of the interbank foreign currency trading system.

Money and Banking System

Benefitting from the nation’s increasing economic stability over the past two years, Egypt’s banks have enjoyed both ratings upgrades and continued profitability. Thanks to economic reforms, a new floating exchange system, and a new Investment Law passed in 2017, the project finance pipeline is increasing after a period of lower activity. Banking competition is improving to serve a largely untapped retail segment and the nation’s challenging, but potentially rewarding, the SME segment. The Central Bank of Egypt (CBE) has mandated that 20 percent of bank loans go to SMEs within the next three years (four years from 2016). Also, with only about a quarter of Egypt’s adult population owning or sharing an account at a formal financial institution (according to press and comments from contacts), the banking sector has potential for growth and higher inclusion, which the government and banks discuss frequently. A low median income plays a part in modest banking penetration. But the CBE has taken steps to work with banks and technology companies to expand financial inclusion.

Egypt’s banking sector is generally regarded as healthy and well-capitalized due in part to its deposit-based funding structure and ample liquidity—especially since the floatation and restoration of the interbank market. The CBE estimates that approximately 5 percent of the banking sector’s loans are non-performing in 2017. However, since 2011, a high level of exposure to government debt, accounting for over 40 percent of banking system assets, at the expense of private sector lending, has reduced the diversity of bank balance sheets and crowded out domestic investment. Given the floatation of the Egyptian Pound and restart of the interbank trading system, Moody’s and S&P have upgraded the outlook of Egypt’s banking system to stable from negative to reflect improving macroeconomic conditions and ongoing commitment to reform.

38 banks operate in Egypt, including several foreign banks. The CBE has not issued a new commercial banking license since 1979. The only way for a new commercial bank, whether foreign or domestic, to enter the market (except as a representative office) is to purchase an existing bank. To this end, in 2013, QNB Group acquired National Société Générale Bank Egypt (NSGB). That same year, Emirates NBD, Dubai’s largest bank, bought the Egypt unit of BNP Paribas. In 2015, Citibank sold its retail banking division to CIB Bank. In 2016 and 2017, Egypt indicated a desire to partially (less than 35 percent) privatize at least one (potentially two) state-owned banks and a total of 23 firms through either expanded or new listings on the Egypt Stock Exchange, though no action has been taken as of early 2018.

According to the CBE, banks operating in Egypt held EGP 4.216 trillion in total assets at the end of first quarter of 2018, of which approximately 45 percent were held by the largest five banks (the National Bank of Egypt, Banque Misr, the Commercial International Bank, Qatar National Bank Al-Ahli, and the Banque Du Caire). Egypt’s three state-owned banks (Banque Misr, Banque du Caire, and National Bank of Egypt) control nearly 40 percent of banking sector assets.

The chairman of the EGX recently stated that Egypt is allowing, even encouraging, exploration of the use of blockchain technologies across the banking community. The FRA will review the development and most likely regulate how the banking system adopts the fast-developing blockchain systems into banks’ back-end and customer-facing processing and transactions. Seminars and discussions are beginning around Cairo, including visitors from Silicon Valley, in which leaders and experts are still forming a path forward. While not outright banning cryptocurrencies, which is distinguished from blockchain technologies, authorities caution against speculation in unknown asset classes.

Alternative financial services in Egypt are extensive, given the large informal economy, estimated to be from 30 to 50 percent of the GDP. Informal lending is prevalent, but the total capitalization, number of loans, and types of terms in private finance is less well known.

Foreign Exchange and Remittances

Foreign Exchange Policies

There has been significant progress in accessing hard currency since the floatation of the EGP and reestablishment of the interbank currency trading system in November 2016. While the immediate aftermath saw some lingering difficulty of accessing currency, by 2017 most businesses operating in Egypt reported having little difficulty obtaining hard currency for business purposes, such as importing inputs and repatriating profits. In 2016 the Central Bank lifted dollar deposit limits on households and firms importing priority goods which had been in place since early 2015. Into 2016, businesses, including foreign-owned firms, which were not operating in priority sectors, encountered difficulty accessing currency, including importers. But 2017 has seen an elimination of the backlog for demand for foreign currency. With net foreign reserves at an all-time high of over USD 42.6 billion (March 2018), accessing foreign currency is no longer an issue.

Funds associated with investment can be freely converted into any world currency, depending on the availability of that currency in the local market. Some firms and individuals report that the process takes time. But the interbank trading system works in general and currency is available as the foreign exchange markets continue to react positively to the government’s commitment to macro and structural reform.

The floating exchange rate operates on the principle of market supply and demand: the exchange rate is dictated by availability of currency and demand by firms and individuals. While there is some reported informal Central Bank window guidance, the rate generally fluctuates depending on market conditions, without direct market intervention by authorities. In general, the EGP has stabilized within an acceptable exchange rate range, which has increased the foreign exchange market’s liquidity. Since the early days following the floatation, there has been very low exchange rate volatility.

Remittance Policies

The 1992 U.S.-Egypt Bilateral Investment Treaty provides for free transfer of dividends, royalties, compensation for expropriation, payments arising out of an investment dispute, contract payments, and proceeds from sales. As previously reported, prior to reform implementation throughout 2016 and 2017, large corporations had been unable to repatriate local earnings for months at a time. But, given the current record net foreign reserves, repatriation is no longer an issue that companies complain about.

The Investment Incentives Law stipulates that non-Egyptian employees hired by projects established under the law are entitled to transfer their earnings abroad. Conversion and transfer of royalty payments are permitted when a patent, trademark, or other licensing agreement has been approved under the Investment Incentives Law.

Banking Law 88//2003 regulates the repatriation of profits and capital. The current system for profit repatriation by foreign firms requires sub-custodian banks to open foreign and local currency accounts for foreign investors (global custodians), which are exclusively maintained for stock exchange transactions. The two accounts serve as a channel through which foreign investors process their sales, purchases, dividend collections, and profit repatriation transactions using the bank’s posted daily exchange rates. The system is designed to allow for settlement of transactions in fewer than two days, though in practice some firms have reported short delays in repatriating profits, no longer due to availability but more due to processing steps.

Sovereign Wealth Funds

The Cabinet has approved  the establishment of a sovereign wealth fund, which will be charged with investing state funds locally and abroad across asset classes and will be tapped to manage underutilized assets. The EGP200 billion sovereign wealth fund is expected launch by October 2018, by which time the legislation establishing the fund should receive the necessary sign-off from the House of Representatives, according to the Ministry of Planning. The government is currently in talks with regional and European institutions to take part in forming the fund’s sector-specific units.

Policies Toward Foreign Direct Investment

The GOES recognizes that attracting FDI is crucial to improving the economy. El Salvador does not have laws or practices that discriminate against foreign investors. The GOES does not screen or prohibit FDI. However, FDI levels are still paltry and lag far behind regional neighbors. The Central Bank reported net FDI inflows at USD 436.1 million in the first three quarters of 2017.

The Exports and Investment Promotion Agency of El Salvador (PROESA) supports investment in nine main sectors: textiles and apparel; business services; tourism; aeronautics; agro-industry; medical devices; footwear manufacturing; logistic and infrastructure networks; and healthcare services. PROESA provides information for potential investors about applicable laws, regulations, procedures, and available incentives for doing business in El Salvador. Website: http://www.proesa.gob.sv/investment/sector-opportunities .

The National Association of Private Enterprise (ANEP), El Salvador’s umbrella business/private sector organization, has established an ongoing dialogue with relevant GOES ministries. Website: http://www.anep.org.sv/ .

As part of a March 2018 reorganization, the GOES created the post of Commissioner for Investment and appointed the former Economy Minister to the position. The Vice President previously covered this portfolio.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign citizens and private companies can freely establish businesses in El Salvador.

No single natural or legal person – whether national or foreign – can own more than 245 hectares (605 acres) of land. Per the Salvadoran Constitution, there is no restriction on the ownership of rural land by foreigners in El Salvador, unless Salvadoran nationals face restrictions in the corresponding country. If the rural land will be used for industrial purposes, however, the reciprocity requirement does not apply. Foreigners may engage in commercial fishing anywhere in Salvadoran waters provided they obtain a license from the Center for the Development of Fishing and Aquaculture (CENDEPESCA), a government entity.

Other Investment Policy Reviews

El Salvador has been a World Trade Organization (WTO) member since 1995. The latest trade policy review performed by the WTO was published in 2016 (document: WT/TPR/S/226/Rev.1). Website: World Trade Organization Documents .

The latest investment policy review performed by the United Nations Conference on Trade and Development (UNCTAD) was in 2010. Website: http://unctad.org/en/Docs/diaepcb200920_en.pdf .

Business Facilitation

El Salvador has various laws that promote and protect investments, as well as providing benefits to local and foreign investors. These include: the Investments Law, the International Services Law; the Free Trade Zones Law; the Tourism Law, the Renewable Energy Incentives Law; the Law on Public Private Partnerships; the Special Law for Streamlining Procedures for the Promotion of Construction Projects; and the Legal Stability Law for Investments.

The 1999 Investments Law grants equal treatment to foreign and domestic investors. With the exception of limitations imposed on micro businesses, which are defined as having 10 or fewer employees and yearly sales of USD 121,319.40 or less, foreign investors may freely establish any type of domestic businesses. Investors who begin operations with 10 or fewer employees must present plans to increase employment to the Ministry of Economy’s National Investment Office. The Investment Law provides that any mined resource is the exclusive property of the state. The government may, however, grant private concessions for resource extraction, but there have been no new permits issued in recent years.

Per the Salvadoran constitution, there are no special restrictions on ownership of rural land by citizens of other countries, unless Salvadoran citizens are restricted in their rural land ownership in those countries. If rural land will be used for industrial purposes, the reciprocity requirement is lifted.

Business Registration

Per the World Bank, nine steps taking an average of 16.5 days are necessary to register a new business in El Salvador. According to the World Bank’s 2018 Doing Business Report, El Salvador ranks 140 in the “Starting a Business” indicator. El Salvador launched an online business registration portal in August 2017 designed to give entrepreneurs a one-stop shop for registering new companies. Specifically, the online business registration website allows new business entrepreneurs the ability to formalize registration within three days and maintain administrative operations all through the online platform. The portal (https://miempresa.gob.sv/ ) is available to all, though services are available only in Spanish.

The GOES’ Business Services Office (Oficina de Atencion Empresarial) caters to entrepreneurs and investors. The office has two components: “Growing Your Business” (Crecemos Tu Empresa) and the National Investment Office (Direccion Nacional de Inversiones, DNI). “Growing Your Businesses” provides business and investment advice, especially for micro-, small- and medium-sized enterprises. The DNI administers investment incentives and facilitates business registration.

Contact information:

Business Services Office
Telephone: (503) 2590-9000
Address: 3 calle Poniente, entre la 71 y 73 avenida Norte, N.° 3729, edificio Bel Air, colonia Escalon, San Salvador. Schedule: Monday-Friday, 7:30 a.m. – 3:30 p.m.

Crecemos Tu Empresa
E-mail: crecemostuempresa@minec.gob.sv
Website: www.minec.gob.sv/crecemostuempresa 

The National Investment Office:

Luisa Valiente, National Director of Investments, lvaliente@minec.gob.sv;
Roberto Salguero, Deputy Director of Administration, rsalguero@minec.gob.sv
Special Investments; Christel Schulz, Business Climate Deputy, cdearce@minec.gob.sv
Monica Aguirre, Deputy Director of Investment Facilitation, maguirre@minec.gob.sv.
Telephone: (503) 2590-5806.

The Directorate for Coordination of Productive Policies at the Ministry of Economy focuses on five areas: Productive Development, Capacity Building, Trade Facilitation, Taxation, and Export Promotion. Website: http://www.minec.gob.sv/fomento/ .

The Productive Development Fund (FONDEPRO) provides grants to small enterprises to strengthen competitiveness. Website: http://www.fondepro.gob.sv/ .

The National Commission for Micro and Small Businesses (CONAMYPE) supports micro and small businesses by providing training, technical assistance, financing, venture capital, and loan guarantee programs. CONAMYPE also provides assistance on market access and export promotion, marketing, business registration, and the promotion of business ventures led by women and youth. Website: https://www.conamype.gob.sv/ .

The Micro and Small Businesses Promotion Law defines a microenterprise as a natural or legal person with annual gross sales up to 482 minimum monthly wages, equivalent to USD 121,319.40 and up to ten workers. A small business is defined as a natural or legal person with annual gross sales between 482 minimum monthly wages (USD 121,319.40) and 4,817 minimum monthly wages (USD 1,212,438.90) and up to 50 employees. To facilitate credit to small businesses, Salvadoran law allows for inventories, receivables, intellectual property rights, consumables, or any good with economic value to be used as collateral for loans.

El Salvador provides equitable treatment for women and under-represented minorities. The GOES does not provide targeted assistance to under-represented minorities. CONAMYPE provides specialized counseling to female entrepreneurs and women-owned small businesses.

Outward Investment

While the government encourages Salvadoran investors to invest in El Salvador, it does not promote nor restrict investment abroad.

Transparency of the Regulatory System

The laws and regulations of El Salvador are relatively transparent and generally foster competition. The GOES publishes some of its draft laws and regulations for public comments online, especially those that affect the financial sector. However, the GOES does not regularly make draft bills or regulations available for public comment. National regulations are most relevant for foreign businesses, though localities have permitting authority that may be necessary for foreign investors.

The GOES controls the price of some goods and services, including electricity, liquid propane gas, gasoline, fares on public transport, and medicines. The government also directly subsidizes water services and residential electricity rates. Regulatory agencies are often understaffed and inexperienced in dealing with complex issues. New foreign investors should review the regulatory environment carefully.

The Superintendent of Electricity and Telecommunications (SIGET) oversees electricity rates, telecommunications, and distribution of electromagnetic frequencies. In 2003, the government amended the 1996 Electricity Law with the intention of reducing volatility in the wholesale market and thereby stabilizing retail electricity prices and encouraging new investment. The reforms allowed SIGET to develop a cost-based pricing model for the electricity sector, which it introduced to the marketplace in 2011. The new system requires the adoption of additional long-term contracts that should alleviate various market distortions. The Salvadoran government subsidizes consumers using up to 99 kWh monthly. The electricity subsidy costs the government between USD 50 million to USD 100 million annually. Energy sector companies have warned that ever-changing subsidies and the government’s inability to pay the subsidies in a timely manner have eroded the financial stability of the power sector and discouraged needed investment in new generation capacity.

International Regulatory Considerations

El Salvador belongs to the Central American Common Market and the Central American Integration System (SICA), organizations which are working on regional integration, (e.g., harmonization of tariffs and customs procedures). El Salvador commonly incorporates international standards such as the Pan-American Standards Commission (Spanish acronym COPANT), into its regulatory system.

El Salvador is a member of the WTO Agreement on Technical Barriers to the Trade (TBT Agreement) and has adopted the Code of Good Practice annexed to the TBT Agreement. El Salvador is also a signatory to the Trade Facilitation Agreement (TFA) and has fully notified in Category A commitments. El Salvador has established a National Trade Facilitation Committee as required by the TFA.

There are opportunities to provide comments when the government forms committees to discuss proposed laws, and when regulations are being developed at government agencies. Companies have complained, however, that laws have passed without following required notice and comment procedures, i.e., not in accordance with CAFTA-DR and WTO regulations.

El Salvador is a member of the U.N. Conference on Trade and Development’s international network of transparent investment procedures: http://tramites.gob.sv . Foreign and national investors can find detailed information on administrative procedures applicable to investment and income-generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures. Accounting systems are generally consistent with international norms.

Legal System and Judicial Independence

El Salvador’s commercial law is based on the Commercial Code and the corresponding Commercial and Civil Code of Procedures. There are specialized commercial courts that resolves these disputes. All documents and payments can be submitted electronically to the Commerce Registry.

Local investment and commercial dispute resolution proceedings in El Salvador routinely last many years. The Salvadoran Foundation for Economic and Social Development (FUSADES), an internationally-recognized think-tank and research entity, characterizes domestic courts as being unwilling to enforce arbitration awards and instead opting to politicize conflicts between the government and the investors.

Foreign investors may seek redress for commercial disputes through local domestic courts but some investors have found the slow-moving legal system to be costly and unproductive. The handling of some cases has demonstrated that the legal system may be subject to manipulation by diverse interests, and final judgments are at time difficult to enforce. The Embassy recommends that any person thinking of investing in El Salvador carry out proper due diligence by hiring competent local legal counsel. In recent years, there have been several U.S. firms tied up in litigation associated with their investments. Local investment and commercial dispute resolution proceedings in El Salvador routinely last many years.

Laws and Regulations on Foreign Direct Investment

Miempresa is the Ministry of Economy’s website for new businesses in El Salvador. At Miempresa, investors can register new companies with the Ministry of Labor, Social Security Institute, pension fund administrators, and certain municipalities; request a tax identification number/card; and perform certain administrative functions. Website: https://www.miempresa.gob.sv/ .

The country’s eRegulations site provides information on procedures, costs, entities, and regulations involved in setting up a new business in El Salvador. Website: http://tramites.gob.sv/ .

The Exports and Investment Promoting Agency of El Salvador (PROESA) was created to attract domestic and foreign private investment, promote exports of goods and services produced in the country, evaluate and monitor the business climate and drive investment and export policies. PROESA provides direct technical assistance to investors interested in starting up operations in El Salvador, regardless of the size of the investment or number of employees. Website: http://www.proesa.gob.sv/ .

Competition and Anti-Trust Laws

The Competition Law entered into force in 2006 and established the Office of the Superintendent of Competition. According to the Organization for Economic Co-operation and Development (OECD) and the Inter-American Development Bank (IDB), the Office employs enforcement standards that are consistent with global best practices and has appropriate authority to enforce the law effectively. Appeals of decisions made by the Office of the Superintendent of Competition are made directly to the Supreme Court, the country´s highest court. Website: http://www.sc.gob.sv/home/ .

Expropriation and Compensation

The Constitution allows the government to expropriate private property for reasons of public utility or social interest, and indemnification can take place either before or after the fact. There are no recent cases of expropriation. In 1980, a rural/agricultural land reform established that no single natural or legal person could own more than 245 hectares (605 acres) of land, and the government expropriated the land of some large landholders. In 1980, private banks were nationalized, but were subsequently returned to private ownership. A 2003 amendment to the Electricity Law requires energy generating companies to obtain government approval before removing fixed capital from the country, which is intended to prevent energy supply disruptions.

Dispute Settlement

Amended Article 15 of the 1999 Investment Law limits a foreign investor’s access to international dispute resolution and may obligate them to use national courts, if the foreigner comes from a country without a pre-existing trade agreement with El Salvador. The rights of investors from CAFTA-DR countries are protected under the trade agreement’s dispute settlement procedures. There have been no successful claims by U.S. investors under CAFTA-DR. There are currently no pending claims by U.S. investors.

Submissions to national dispute panels and panel hearings are open to the public, and interested third parties have the opportunity to be heard. In 2002, the government approved a law that allowed private sector organizations to establish arbitration centers for the resolution of commercial disputes, including those involving foreign investors. Local courts recognize and enforce foreign arbitral awards and court judgments.

El Salvador approved the Mediation, Conciliation and Arbitration Law in 2002. However, in 2009, El Salvador modified its arbitration law to allow parties to arbitration disputes the ability to appeal a ruling to the Salvadoran courts. Investors have complained that the modification dilutes the fundamental efficacy of arbitration as an alternative method of resolving disputes. According to the Law, arbitration takes place at the Arbitration and Mediation Center, a branch of the Chamber of Commerce and Industry of El Salvador. Website: http://www.mediacionyarbitraje.com.sv/ .

In 2016, the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) ruled in favor of El Salvador on a case brought by an international mining company that challenged the government’s failure sought to force government acceptance of a gold-mining project. The ruling served to galvanize the country’s anti-mining movement, which led to the approval of a bill banning the exploration and extraction of metal mining in the country.

ICSID Convention and New York Convention

El Salvador is a member state to the ICSID Convention. ICSID is included in a number of El Salvador’s investment treaties as the forum available to foreign investors. Within the domestic legal framework it is also mentioned in the Investment Law, with the limitations mentioned above regarding the change to the Arbitration Law in 2009.

El Salvador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) and the Inter-American Convention on International Commercial Arbitration (The Panama Convention).

Bankruptcy Regulations

The Commercial Code, the Commercial Code of Procedures, and the Banking Law all contain sections that deal with the process for declaring bankruptcy. However, there is no separate bankruptcy law or court. According to data collected by the 2018 World Bank’s Doing Business report, resolving insolvency in El Salvador takes 3.5 years on average and costs 12 percent of the debtor’s estate, with the most likely outcome being that the company will be sold piecemeal. The average recovery rate is 32.6 cents per U.S. dollar. El Salvador scores 2 out of 3 points on the commencement of proceedings index, 4 out of 6 points on the management of debtor’s assets index, 0 out of 3 points on the reorganization proceedings index, and 3 out of 4 points on the creditor participation index. El Salvador’s total score on the strength of insolvency framework index is 9 out of 16. Globally, El Salvador ranks 84 out of 190 on Ease of Resolving Insolvency. Website:

http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Profiles/Country/SLV.pdf .

Capital Markets and Portfolio Investment

The Superintendent of the Financial System supervises individual and consolidated activities of banks and non-bank financial intermediaries, financial conglomerates, stock market participants, insurance companies, and pension fund administrators. Foreign investors may obtain credit in the local financial market under the same conditions as local investors. Interest rates are determined by market forces. According to legislation, the maximum interest rate for credit cards and loans is 1.6 times the weighted average effective rate established by the Central Bank. There are different maximum interest rates according to the different market segments and amounts (consumption, credit cards, mortgages, home repair/remodeling, business, and microcredits).

In 2014, the Legislative Assembly approved the Financial Transactions Tax Law. The law assesses a 0.25 percent tax on many financial transactions such as electronic, check or wire transfers and payments exceeding USD 1,000; loan or disbursements; and transactions between entities of the financial system. There are also several exemptions from the tax, such as end-use credit card payments; social security, pensions, and insurance payments; transactions made by the state, NGOs, diplomats, or international organizations; and stock exchange primary market operations. The 0.25 percent withholding tax is designed to capture some revenue from the informal sector and expand the tax base. The taxes withheld are credited against any obligation due to the tax authorities within a two-year period of the withholding date.

The 1994 Securities Market Law established the present framework for the Salvadoran securities exchange. Stocks, government and private bonds, and other financial instruments are traded on the exchange, which is regulated by the Superintendent of the Financial System.

Foreigners may buy stocks, bonds, and other instruments sold on the exchange and may have their own securities listed, once approved by the Superintendent. Companies interested in listing must first register with the National Registry Center’s Registry of Commerce. In 2017, the exchange averaged daily trading volumes between USD 10 million and USD 13 million. Government-regulated private pension funds, Salvadoran insurance companies, and local banks are the largest buyers on the Salvadoran securities exchange.

Money and Banking System

Many of the major banks operating in El Salvador are regional banks owned by foreign financial institutions. The penetration of financial services is relatively low with only 35 percent of Salvadorans holding bank accounts. The banking system is sound and generally well-managed and supervised. El Salvador’s Central Bank is responsible for regulating the banking system, monitoring compliance of liquidity reserve requirements, and managing the payment systems.

The banking system’s total assets as of January 2018 totaled USD 17.09 billion. Under Salvadoran banking law, there is no difference in regulations between foreign and domestic banks and foreign banks can offer all the same services as domestic banks. Banking sector contacts confirm that implementation of blockchain technologies would be permitted under Salvadoran law, though there are no plans to implement the technology.

The Non-Bank Financial Intermediaries Law regulates the organization, operation, and activities of financial institutions such as cooperative savings associations, nongovernmental organizations, and other microfinance institutions. The Money Laundering Law requires financial institutions to report suspicious transactions to the Attorney General and the Superintendent of the Financial System.

The Insurance Companies Law regulates the operation of both local and foreign insurance firms. Foreign firms, including U.S., Colombian, Canadian, and Spanish companies, have invested in Salvadoran insurers.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions on transferring investment-related funds out of the country. Foreign businesses can freely remit or reinvest profits, repatriate capital, and bring in capital for additional investment. The 1999 Investment Law allows unrestricted remittance of royalties and fees from the use of foreign patents, trademarks, technical assistance, and other services. Tax reforms introduced in 2011, however, levy a five percent tax on national or foreign shareholders’ profits. Moreover, shareholders domiciled in a state, country or territory that is considered a tax haven or has low or no taxes, will be subject to a tax of twenty-five percent.

The Monetary Integration Law dollarized El Salvador in 2001. The U.S. dollar accounts for nearly all currency in circulation and can be used in all transactions. Salvadoran banks, in accordance with the law, must keep all accounts in dollars. Dollarization is supported by family remittances – almost all from workers in the United States – that totaled USD 5.02 billion in 2017.

Remittance Policies

There are no restrictions placed on investment remittances. The Caribbean Financial Action Task Force report on monitoring remittances, https://www.cfatf-gafic.org/member-countries/el-salvador , was generally positive and noted that El Salvador has strengthened its remittances regimen, prohibiting anonymous accounts and limiting suspicious transactions. In July 2015, the Legislature approved reforms to the Law of Supervision and Regulation of the Financial System so that any entity sending or receiving systematic or substantial amounts of money by any means, at the national and international level, falls under the jurisdiction of the Superintendence of the Financial System.

Sovereign Wealth Funds

El Salvador does not have a sovereign wealth fund.

Policies Toward Foreign Direct Investment

The government of the Republic of Equatorial Guinea is actively soliciting foreign investment. In 2017, the Minister of Economy and Finance attended the Investment Initiative for the Future Forum, held from the 24th to the 26th of October in the city of Riyadh, Saudi Arabia, to promote its strong investment capabilities and unique strategic location to become a global investment hub connecting three continents.

The primary focus of the Future Investment Initiative is to provide a platform for objective, expert-led debate on both current and long-term global investment trends, with the ultimate aim of exploring opportunities for achieving sustainable returns, which deliver positive and lasting impacts. The government of the Republic of Equatorial Guinea recently passed a law to establish a “one-stop-shop” for investors and simplify the process to register a business. This new process is expected to begin in 2018, as the government of the Republic of Equatorial Guinea has fully-constructed facilities equipped for processing applications, and the government has started training staff.

Limits on Foreign Control and Right to Private Ownership and Establishment

Decree 127/2004 stipulates that shareholder capital firms and companies operating in the petroleum sector must have Equatoguinean shareholders. The government of the Republic of Equatorial Guinea requires that Equatoguinean partners hold at least 35 percent of share capital of foreign companies or companies created by foreigners. Equatoguinean partners must also account for one third of the representatives on the Board of Directors. In some sectors, investments must be part of public-private partnerships with a government entity. The Chamber of Commerce of Equatorial Guinea is attempting through media campaign to sensitize Equatoguinean companies to their roles and responsibilities to foreign partners.

Statutorily, the Minister of Economy, Finances, and Budget Investments approves investment permits. A new state entity, Holdings Equatorial Guinea 2020, was created to help guide diversification efforts (significant permit-holders include ALTAAQA GLOBAL: joint-venture of Zahid Group with Caterpillar, and PLATECORE EDUCATION EMEA “AF/EU/ME”). This entity is expected to ultimately serve as a hub for foreign investors. For now, however, investors still work with the relevant government ministries to negotiate contracts. Decisions regarding larger investment deals may rise to the presidential level. U.S. investors may reach out to the Equatoguinean Embassy in the United States for guidance regarding connection to the appropriate ministry outreach efforts.

Other Investment Policy Reviews

This year the government of Equatorial Guinea has adhered to the Improved Integrated Framework Program of the World Trade Organization, which is a program of aid for trade, intended exclusively for the least developed countries.

Business Facilitation

According the World Bank’s Doing Business 2017 report, starting a business in Equatorial Guinea requires 17 procedures and takes 134 days. The government of the Republic of Equatorial Guinea does not maintain a website for guidance, and starting a business requires multiple trips to the appropriate government agency and lengthy waits. As a result, Equatorial Guinea isplaced 187 in the ranking of 190 economies on the ease of starting a business.

The government of the Republic of Equatorial Guinea recently passed a law to establish a “one-stop-shop” for investors and simplify the process to register a business. This new process is expected to begin in 2018, as the government of the Republic of Equatorial Guinea has fully-constructed facilities equipped for processing applications, and the government of the Republic of Equatorial Guinea has started training staff.

Outward Investment

Although Equatoguinean citizens may legally invest outside the country, the government of the Republic of Equatorial Guinea discourages outward investment. The government’s only outward investment are its production-sharing contracts with foreign oil and gas companies.

Transparency of the Regulatory System

The government of the Republic of Equatorial Guinea publishes Equatoguinean labor laws for public consumption, however, they do not consistently apply regulations. Officials expect foreign companies to follow every detail of the labor law or face penalties. Enforcement of the labor law on national companies is far less strict. Bureaucratic procedures are neither streamlined nor transparent, and can be extremely slow for those without the proper political or familial connections. Proposed laws and regulations are not published in draft form for public comment, but are sometimes informally shared with representatives of specific industries for comment.

International Regulatory Considerations

Equatorial Guinea is not a member of the World Trade Organization (WTO) and is listed as an observer government. The General Council of the WTO established a Working Party to examine the application of Equatorial Guinea on February 5, 2008. Efforts to join have faltered, as Equatorial Guinea has not submitted a Memorandum on the Foreign Trade Regime. Equatorial Guinea is part of the Economic Monetary Community of Central Africa (CEMAC) and the Economic Community of Central African States (ECCAS).

Legal System and Judicial Independence

Equatorial Guinea’s legal system is a mixed system of civil and customary law. Law No. 7/1992 states that disputes that cannot be resolved through direct negotiation by the involved parties shall be referred to Equatoguinean courts. Either party can also submit the dispute to international arbitration. Foreign investors are asked to declare their desired international arbitration venue in their initial application to invest in the country. Arbitration must take place in a neutral location and Spanish will be the official language of the arbitration. The government of the Republic of Equatorial Guinea does not always comply with signed international agreements or international legal decisions.

Laws and Regulations on Foreign Direct Investment

Law No. 7/1992, Law No. 2/1994, Decree No. 54/1994, and Decree 127/2004 regulate foreign investment. Certain industries have additional regulations. Enforcement of laws and judicial decisions is neither reliable nor consistent. The executive branch heavily influences the judicial branch, as the president is also the chief magistrate of the Republic of Equatorial Guinea. While the government has made efforts to streamline inward investment procedures and simplify business registration processes, they have not yet implemented these processes.

Competition and Anti-Trust Laws

Equatorial Guinea does not have an agency that actively enforces any competition laws. Because Equatorial Guinea is a member of the Organization for the Harmonization of Business Laws in Africa (OHADA), any OHADA competition laws should apply in Equatorial Guinea.

Expropriation and Compensation

Law No. 7/1992 states that the government will not expropriate foreign investments except when acting in the public interest with fair, just, and proper compensation. The government of the Republic of Equatorial Guinea does not generally nationalize or expropriate foreign investments, although in 2013 a Spanish investor had his property confiscated. The government of the Republic of Equatorial Guinea does have an extensive record of expropriating locally-owned property, frequently offering little or no compensation.

Dispute Settlement

ICSID Convention and New York Convention

Equatorial Guinea is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention — also known as the Washington Convention), although Law No. 7/1992 states that international arbitration may utilize ICSID as the basis of procedure. Equatorial Guinea is not a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

Recent investment disputes have centered on non-payment to investors or contractors by the government of the Republic of Equatorial Guinea or state-owned enterprises (SOEs). Few established local mechanisms compel the government of the Republic of Equatorial Guinea to pay investors, and the Embassy has limited capacity to intervene. U.S. and foreign enterprises from France, Cote d’Ivoire, Lebanon, Egypt, and Turkey, operating in the Republic of Equatorial Guinea, have been subject to non-payments or severely delayed payments and have received no recourse in payment disputes. This, along with the downturn in the economy, has led to all many foreign-led operations to pull out of the country completely or downsize substantially.

International Commercial Arbitration and Foreign Courts

The OHADA Uniform Act on Arbitration rules would apply where the seat of arbitration is in Equatorial Guinea.

Bankruptcy Regulations

The government of the Republic of Equatorial Guinea has adopted the business laws of the Organization for the Harmonization of Business Laws of Africa (OHADAOHADA), including the law pertaining to bankruptcy. The Republic of Equatorial Guinea currently ranks in last place for processes related to resolving insolvency, according to the World Banks’s Doing Business Report’s ranking of Resolving Insolvency.

The Republic of Equatorial Guinea received the World Bank’s ‘no practice mark,’ due to the lack cases, in the past five years, involving a judicial reorganization, judicial liquidation, or debt enforcement. This is interpreted to mean that creditors are unlikely to recover their money through a formal legal process.

Capital Markets and Portfolio Investment

The small banking sector provides limited financing to businesses. Capital markets are virtually non-existent.

In 2015, the country had USD 834,015,839 in total outstanding debt at years end. This was several USD 100 million less than in previous years, representing a decreasing trend since 2011.

The average interest rate on loans has varied. The most recent average is from 2014, when it was 8.81 percent. There are no microfinance institutions in the country.

Money and Banking System

The government of the Republic of Equatorial Guinea is a member of the Economic and Monetary Community of Central African States and shares a regional Central Bank with other CEMAC members. Members have ceded regulatory authority over their banks to CEMAC. The government of the Republic of Equatorial Guinea is also a member of the Banking Commission of Central African States within CEMAC. The banking sector, much like the country, is plagued with overly burdensome bureaucracy, red tape, and a lack of computerized record-keeping.

All contracted employees are required to have a bank account, which is still a very low percentage due to the fact that a lot of people are working without a contract, just like everything else in country the banking system is considered weak compared to other countries in the CEMAC. The total number of assets in the banking sector was USD 3,407,220,000 in 2015. All banks in country are foreign banks expect the national bank, with five commercial banks in the country as of 2015. There is not any correspondent banking in country. In 2015, there were 52 ATMs in the country. This is an improvement from 4 ATMs in 2007.

Foreign Exchange and Remittances

Foreign Exchange Policies

Along with 13 other countries, Equatorial Guinea utilizes the Central African Franc (XAF). It is not easily obtained outside of the Central African Franc zone. The XAF is backed by the French treasury, which covers a large share of central and western African countries. Western African countries generally use the Western African Franc (XOF), but the two currencies are effectively interchangeable. Both currencies have a fixed exchange rate tied to the euro. One euro is equal to 655.95 Francs.

Remittance Policies

Decree No. 54/1994 provides the right to freely transfer convertible currency abroad at the end of each fiscal year. Limited financial services create barriers to successfully executing international transfers.

Local currency is not widely available outside of the Central African Franc zone, but can be relatively easily obtained in the Republic of Equatorial Guinea. The country is an almost entirely cash economy, with credit cards available, but not widely used in the general population. Credit cards are used primarily by visitors or wealthy citizens at international hotels.

There have been no recent changes or plans to change investment remittance policies. Equatorial Guinea is a member of the Task Force against Money Laundering in Central Africa, an entity in the process of becoming a Financial Action Task Force-style regional body.

Equatorial Guinea does not engage in currency manipulation as the CFA franc (CFA) currently has a fixed exchange rate to the Euro (EUR): CFA100 = 1 former French (nouveau) franc = EUR0.152449; or EUR1 = CFA655.957.

The Bureau of International Narcotics and Law Enforcement’s 2015 International Narcotics Control Strategy Report (INCSR) lists Equatorial Guinea as a monitored country.

Sovereign Wealth Funds

The government of the Republic of Equatorial Guinea established a sovereign wealth fund, the Fund for Future Generations, in 2002. The fund has little transparency regarding how the fund is managed or the value of the fund. The U.S. Department of the Treasury and the Board of Governors of the Federal Reserve ranks the fund as the least transparent fund in the world.

Policies Towards Foreign Direct Investment

Estonia is open for FDI and foreign investors are treated on an equal footing with local investors.

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

Other Investment Policy Reviews

Over the past three years, the government has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization such as the Organisation for Economic Co-operation and Development (OECD), World Trade Organization (WTO), or United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

The World Bank’s Ease of Doing Business report ranks Estonia in 12^th place out of 190 countries on the ease of starting a business. Economic freedom, ease of doing business, per capita investments, the record-low national debt, Eurozone membership, low corruption scores – all these factors play a role in fostering a strong climate for business facilitation.

There are two ways of registering your business:

• Electronic registration via the e-Commercial Register’s Company Registration Portal (takes from five minutes to one business day);
• Through a notary (takes two to three business days).

Access to the Register: https://www.eesti.ee/eng/ettevotte_registreerimine/ .

An overview of the different type of legal business entities in Estonia can be found at: http://www.investinestonia.com/en/investment-guide/establishing-a-company .

On 1 July 2014, an amended Taxation Act establishing the employment register entered into force, requiring all natural and legal employers to register the persons employed by them with the Estonian Tax and Customs Board.

The company must register itself as a VAT payer if the taxable turnover of the company, excluding imports of goods, exceeds EUR 40,000 as calculated from the beginning of the calendar year.

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

International institutions and organizations give Estonia’s economic policies high marks. The Wall Street Journal/Heritage Foundation’s 2018 Index of Economic Freedom ranked Estonia 7th in the world. The index is a composite of scores in monetary policy, banking and finance, black markets, wages, and prices. Estonia scores highly on this scale for investment freedom, fiscal freedom, financial freedom, property rights, business freedom, and monetary freedom.

Outward Investment

Estonia does not restrict domestic investors from investing abroad nor does it promote outward investment. Estonia companies have invested abroad about USD 7 billion, mostly into EU countries. The main sectors for outward investments are services, manufacturing, real estate and financial.

Transparency of the Regulatory System

The Government of Estonia has set transparent policies and effective laws to foster competition and establish “clear rules of the game.” However, due to the small size of Estonia’s commercial community, instances of favoritism are not uncommon despite regulations and procedures designed to limit these practices.

Accounting, legal, and regulatory procedures are transparent and consistent with international norms. Financial statements should be prepared in accordance with either:

• Accounting principles generally accepted in Estonia; or
• International Financial Reporting Standards (IFRS) as adopted by the EU.

Listed companies and financial institutions are required to prepare financial statements in accordance with IFRS as adopted by the European Union.

The Estonian Generally Accepted Accounting Principles (GAAP) are written by the Estonian Accounting Standards Board (EASB). Estonian GAAP, effective since 2013, is based on IFRS for Small and Medium-sized Entities (IFRS for SMEs) with limited differences from IFRS for SMEs with regard to accounting policies as well as disclosure requirements. More info: https://investinestonia.com/business-in-estonia/establishing-company/accounting-requirements/ .

The Minister of Justice has responsibility for promoting regulatory reform. The Legislative Quality Division of the Ministry of Justice provides an oversight and coordination function for

Regulatory Impact Analysis (RIA) and evaluations with regard to primary legislation. For government strategies, EU negotiations and subordinate regulations, oversight responsibilities lie within the Government Office.

The GOE has placed a strong focus on accessibility and transparency of regulatory policy by making use of online tools: There is an up-to-date database of all primary and subordinate regulations (https://www.riigiteataja.ee/en/ ) in an easily searchable format. An online information system tracks all legislative developments, and makes available RIAs and documents of legislative intent (http://eelnoud.valitsus.ee/main). Estonia also established the website www.osale.ee , an interactive website of all ongoing consultations where every member of the public can submit comments and review comments made by others. Regulations are reviewed on the basis of scientific and data-driven assessments.

Estonia’s widely-praised “e-governance” solutions and other bureaucratic procedures are generally far more streamlined and transparent than those of other countries in the region and are among the easiest to use globally.

Estonia, an OECD member country, has committed, at the highest political level, to an explicit whole-of-government policy for regulatory quality and has established sufficient regulatory oversight.

Estonia scores the same as the United States on the World Bank`s Global Indicators of Regulatory Governance on whether governments publish or consult with public about proposed regulations: http://rulemaking.worldbank.org/data/explorecountries/estonia#cer_assessment .

International Regulatory Considerations

Estonia is a member of the European Union. An EU regulation is a legal act that becomes immediately enforceable by law in all member states simultaneously. Regulations can be distinguished from directives which, at least in principle, need to be transposed into national law. Regulations can be adopted by means of a variety of legislative procedures depending on their subject matter. European Standards are under the responsibility of the European Standardization Organizations (CEN, CENELEC, ETSI) and can be used to support EU legislation and policies.

Estonia has been a member of WTO since November 13, 1999. More on Estonian information exchange with the WTO Committee on Technical Barriers to Trade (TBT): https://www.evs.ee/Tootedjateenused/WTOteatised/tabid/101/language/en-US/Default.aspx .

Estonia is a signatory to the Trade Facilitation Agreement (TFA) since 2015.

Legal System and Judicial Independence

Estonia’s judiciary is independent and insulated from government influence. The legal system in Estonia is based on the Continental European civil law model and has been influenced by the German legal system. In contrast to common law countries, Estonia has detailed codifications.

Estonian law is divided into private and public law. Generally private law consists of civil and commercial law. Public law consists of international law, constitutional law, administrative law, criminal law, financial law, and procedural law.

Estonian arbitral tribunals can decide in cases of civil matters that have not previously been settled in court. More on Estonian court system: https://www.riigikohus.ee/en . Arbitration is usually employed because it is less time-consuming and cheaper than court settlements. The following disputes can be settled in arbitral tribunals:

• Labor disputes;
• Lease disputes;
• Consumer complaints arguments;
• Insurance conflicts;
• Public procurement disputes;
• Commercial and industrial disputes.

The Court of Arbitration of the Estonian Chamber of Commerce and Industry serves as a permanent arbitration court to settle disputes arising from private law relationships, including foreign trade and other international business relations. More info: https://www.koda.ee/en/about-chamber/court-arbitration .

Recognition of court rulings of EU Member States is regulated by EU legislation. More info: http://www.europarl.europa.eu/RegData/etudes/STUD/2015/509988/IPOL_STU(2015)509988_EN.pdf .

Laws and Regulations on Foreign Direct Investment

Estonia is part of the Continental European legal system (civil law system). The most important sources of law are legal instruments such as the Constitution, EU law, international agreements and Acts and Regulations. Major laws affecting incoming foreign investment include: the Commercial Code, Taxation Act, Income Tax Act, Value Added Tax Act, Social Tax Act, Unemployment Insurance Payment Act. More information is available at https://www.riigiteataja.ee/en/ . An overview of the investment-related regulations can be found here: http://www.investinestonia.com/en/investment-guide/legal-framework .

Competition and Anti-Trust Laws

The Estonian Competition Authority reviews transactions for anti-competition concerns. Government review and licensing have proven to be routine and non-discriminatory.

More info on specific competition cases: http://www.konkurentsiamet.ee/?lang=en .

Expropriation and Compensation

Private property rights are observed in Estonia. The government has the right to expropriate for public interest related to policing the borders, public ports and airports, public streets and roads, supply to public water catchments, etc. Compensation is offered based on market value. Cases of expropriation are extremely rare in Estonia, and the Embassy is not aware of any expropriation cases involving discrimination against foreign owners.

Dispute Settlement

ICSID Convention and New York Convention

Estonia has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1992 and a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1993, meaning local courts are obliged to enforce international arbitration awards that meet certain criteria.

Investor-State Dispute Settlement

The Embassy is not aware of any claims under Estonia’s Bilateral Investment Treaty (BIT) with the United States. Investment disputes concerning U.S. or other foreign investors in Estonia are rare.

In October 2014, AS Tallinna Vesi and its shareholder United Utilities (Tallinn) B.V., registered in the Kingdom of the Netherlands, commenced international arbitration proceedings against the Republic of Estonia for breach of the Agreement on the Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Republic of Estonia. The decision in the matter is expected in 2018. More info: https://www.tallinnavesi.ee/en/investor-news-eng/recordings-of-the-international-arbitration-hearings-are-available-on-as-tallinna-vesis-website .

International Commercial Arbitration and Foreign Courts

The Arbitration Court of the Estonian Chamber of Commerce and Industry is a permanent arbitration court, which settles disputes arising from contractual and other civil law relationships, including foreign trade and other international economic relations. More info: http://www.lawyersestonia.com/arbitration-in-estonia .

Recognition of court rulings of EU Member States is regulated by EU legislation. More: http://www.europarl.europa.eu/RegData/etudes/STUD/2015/509988/IPOL_STU(2015)509988_EN.pdf .

Local courts recognize and enforce foreign arbitral awards. The Embassy is not aware of any investment disputes involving state-owned enterprises (SOEs).

Bankruptcy Regulations

Bankruptcy is not criminalized in Estonia. Bankruptcy procedures in Estonia fall under the regulations of Bankruptcy Act that came into force in February 1997. The Estonian Bankruptcy Act focuses on the protection of the debtors’ and creditors’ rights. According to the Act, bankruptcy proceedings in Estonia can be compulsory, in which case a court will decide to commence the procedures for debt collection, or voluntarily by company reorganization. More info on bankruptcy procedures: http://www.lawyersestonia.com/bankruptcy-procedures-in-estonia .

The detailed information about the creditor’s rights: https://www.riigiteataja.ee/en/eli/ee/Riigikogu/act/504072016002/consolide .

More info from World Bank’s Doing Business Report on Estonian ranking for ease of “resolving insolvency” http://www.doingbusiness.org/data/exploreeconomies/estonia#resolving-insolvency .

Capital Markets and Portfolio Investment

Estonia is a member of the Eurozone. Estonia’s financial sector is modern and efficient. Credit is allocated on market terms and foreign investors are able to obtain credit on the local market. The private sector has access to an expanding range of credit instruments similar in variety to those offered by banks in Estonia’s Nordic neighbors Finland and Sweden.

Legal, regulatory, and accounting systems are transparent and consistent with international norms. The Estonian capital markets are rather inactive as both stock and bond market liquidity has been in a downward trend for the past ten years.

The Security Market Law complies with EU requirements and enables EU securities brokerage firms to deal in the market without establishing a local subsidiary. The NASDAQ OMX stock exchanges in Tallinn, Riga, and Vilnius form the Baltic Market, which facilitates cross-border trading and attracts more investments to the region. This includes sharing the same trading system, and harmonizing rules and market practices, all with the aim of reducing the costs of cross-border trading in the Baltic region.

Certain investment services and products may be limited to U.S. persons in Estonia due to financial institutions’ response to the U.S. Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

Estonian financial services market overview: https://www.fi.ee/index.php?id=12737 .

IMF report on Estonia: http://www.imf.org/en/News/Articles/2017/01/13/PR1710-Republic-of-Estonia-IMF-Executive-Board-Concludes-2016-Article-IV-Consultation .

Money and Banking System

Estonia’s banking system has consolidated rapidly. Total assets of the commercial banks were approximately EUR 25 billion in early 2018. The banking sector is dominated by two major commercial banks, Swedbank and SEB, owned by Swedish banking groups. These two banks control approximately 61 percent of the financial services market. The third largest bank is an affiliate of the Finnish Nordea group. There are no state-owned commercial banks or other credit institutions.

More information is available at: http://statistika.eestipank.ee/#/en/p/FINANTSSEKTOR/147/645 .

The Scandinavian-owned Estonian banking system is modern and efficient, encompassing the strongest and best-regulated banks in the region. These provide both domestic and international services (including internet and mobile banking) at very competitive rates. Both local and international firms provide a full range of financial, insurance, accounting, and legal services. Estonia has a highly advanced internet banking system: currently 98 percent of banking transactions are conducted via the internet. By the IMF assessment from January 2017, the Estonian financial sector is in a strong position and adequately supports the economy.

The Bank of Estonia (Eesti Pank) is the independent central bank. As Estonia is part of the Euro zone, the core tasks of the Bank are to help to define the monetary policy of the European Community and to implement the monetary policy of the European Central Bank. Eesti Pank is also responsible for holding and managing Estonian official foreign exchange reserves as well as supervising overall financial stability, and maintaining reliable and well-functioning payment systems. Eesti Pank is responsible for the circulation of cash in Estonia. The Central Bank and the government hold no shares in the banking sector.

Due to strict anti-money laundering regulations and bank compliance practices, it can be difficult for non-residents to open a bank account. More info on opening a bank account for investors: https://transferwise.com/gb/blog/opening-a-bank-account-in-estonia .

There are several alternatives to standard banks for payment transfer services. One option is Estonian-developed company TransferWise, which offers a multi-currency borderless account (https://transferwise.com/gb/blog/opening-a-bank-account-in-estonia ). TransferWise supports more than 300 currency routes across the world as well as providing multi-currency accounts. Additional payment services options can be found at: https://transferwise.com/gb/blog/opening-a-bank-account-in-estonia .

Foreign Exchange and Remittances

Foreign Exchange Policies

Estonia has been a member of the euro currency area since 2011. There are no restrictions on currency transfers or conversion.

Remittance Policies

There are no restrictions, limitations or delays involved in converting or transferring funds associated with an investment (including remittances of investment capital, earnings, loan repayments, or lease payments) into other currencies at market rates. There is no limit on dividend distributions as long as they correspond to a company’s official earnings records. If a foreign company ceases to operate in Estonia, all its assets may be repatriated without restriction. These policies are long-standing; there is no indication that they will be altered in the future. Foreign exchange is readily available for any purpose.

Sovereign Wealth Funds

There are no sovereign wealth funds or state owned investment funds in Estonia.

Policies Toward Foreign Direct Investment

The Government of the Kingdom of Eswatini (GKoE) regards foreign direct investment (FDI) as a means to drive the country’s economic growth, obtain access to foreign markets for its exports, and improve international competitiveness. While the government has strongly encouraged foreign investment over the past 15 years, it has not been very effective in implementing that policy. The government has largely left events to take their own course, following the trends, interests, and opportunities that the country’s location and resources offer. Eswatini does not have a single policy on investment, but rather investment facilitation is spread across various ministries and can be found in their relevant policies including the Small and Medium Enterprise (SME) policy, agriculture, energy, transportation, mining, education, telecommunications, and various other policies. Calls for more concerted action on these policies have intensified in the last few years as Eswatini has suffered from drought, fiscal challenges, and general economic recession.

The Swati constitution states, generally, that non-citizens and/or companies with a majority of non-citizen shareholders may not own land unless they were vested in their ownership rights prior to the enactment of the constitution in 2006. On the other hand, the constitution’s general prohibition “may not be used to undermine or frustrate an existing or new legitimate business undertaking of which land is a significant factor or base.” Furthermore, non-citizens and non-citizen majority-owned companies may hold long-term (up to 99 years) leases on Title Deed Land. Outside of land ownership laws, there are no laws that discriminate against foreign investors. In practice, most successful foreign investors associate local partners to navigate the complex bureaucracy of the country. In addition, the majority of the land is Swati Nation Land held by the king “in trust for the Swati Nation” and cannot be purchased by foreign investors. Foreign investors that require significant land for their enterprise must engage the Land Management Board to negotiate long-term leases on Title Deed Land.

The Swaziland Investment Promotion Authority (SIPA) is charged with designing and implementing strategies for attracting desired foreign investors. Eswatini’s Investment Policy (http://www.sipa.org.sz/images/documents/pdf/Swaziland_Investment_Policy_2012_2.pdf ) and Industrial Policy (http://www.sipa.org.sz/images/documents/pdf/Industrial_Development_Policy%202015_2022
_Swaziland_FINAL_AND_ADOPTED.pdf ) are available online. SIPA is currently functional and helpful, but it is not yet a one-stop-shop for foreign investors. SIPA services include:

• Attract and promote local and foreign direct investments
• Identify and disseminate trade and investment opportunities
• Provide investor facilitation and aftercare services
• Promote internal and external trade
• Undertake research and policy analysis
• Facilitate company registration and business licenses/permits
• Facilitate work permits and visas for investors
• Provide a one stop shop information and support facility for businesses
• Export product development
• Facilitation of participation in external trade fairs
• Buyer-Seller Missions

The Eswatini Government continues its attempts to improve the ease of doing business in the country through the Investor Roadmap Unit (IRU). The IRU engages with businesses and government to review and report on the progress and implementation of the investor roadmap reforms.

SIPA has an aftercare division which is a direct avenue for investors to communicate concerns they may have. It is noteworthy that those investors that stay beyond the 5-year investment incentives generally offered by government have not only been retained but have not found a sufficient reason to relocate.

Limits on Foreign Control and Right to Private Ownership and Establishment

Both foreign and domestic private entities have a right to establish businesses and acquire and dispose of interest in business enterprises. Foreign investors currently own the majority of Eswatini’s largest businesses, either fully or with minority participation by Swati institutions.

There are no general limits on foreign ownership and control of companies, which can be 100 percent foreign owned and controlled. The only industries that have limits on foreign ownership and control are mining and real estate. The Mines and Minerals Act of 2011 stipulates that the king will acquire 25 percent of shareholding without any monetary consideration, and another 25 percent shareholding in any mining enterprise will be allocated to the government. There are also sector-specific exclusions that prohibit foreign control, which include business dealings in firearms, radioactive material, explosives, hazardous waste, and security printing.

Foreign investments are only screened for typical background and credit checks. Under the Money Laundering and Financing of Terrorism (Prevention) Act of 2011, investors must submit certain documents including proof of residence and source of income for deposits. SIPA also conducts general screening of FDI monies through credit bureau checks and Interpol. This screening is not a barrier to investing in Eswatini. There are no discriminatory mechanisms applied against US foreign direct investors.

Other Investment Policy Reviews

In 2015, the WTO performed a Trade Policy Review of the Southern African Customs Union which included Namibia, Botswana, Eswatini, South Africa, and Lesotho (https://www.wto.org/english/tratop_e/tpr_e/tp424_e.htm ). Eswatini’s portion of that review is available online: https://www.wto.org/english/tratop_e/tpr_e/s324-04_e.pdf .

Business Facilitation

Eswatini does not have a single overarching business facilitation policy. Policies that address business facilitation can be found across the spectrum of relevant ministries. The IRU is the public entity that is responsible for the review and monitoring of business environment reforms. SIPA facilitates foreign and domestic investment opportunities and has a fairly modern, up-to-date website: http://www.sipa.org.sz/index.php/en/ . Certain GKoE application forms are available online at the SIPA website. However, despite online information to suggest the contrary, the Swati government does not currently have a functioning online business registration process. Instead, a company must reserve a unique name for itself by physically visiting the Registrar of Companies at the Ministry of Commerce Industry and Trade. The company must pay statutory fees, including a reservation of name and registration fee, to the Swaziland Revenue Authority (SRA) and obtain a tax clearance from the SRA. According to the Doing Business Report, the process of registering a company in Eswatini takes approximately 10 days. In practice, the process can take much longer for foreign investors.

Outward Investment

The government does not specifically promote or incentivize outward investment, as this is a relatively new phenomenon for Eswatini. There have been a few cases, such as in the retail sector, and the largest outward investment is currently being pursued by the Royal Swazi Sugar Corporation (RSSC) in acquiring land from South Africa for the growing of sugarcane.

There are no restrictions on domestic investors from investing abroad. The only two exceptions may be the Public Service Pension Fund and the Swaziland National Provident Fund which are state-owned enterprises (SOEs) and are required by law to invest a minimum of 30 percent of their balance sheets in the domestic economy.

Transparency of the Regulatory System

In general, the laws of the country are transparent, including laws to foster competition. The Swaziland Competition Act came into force in 2007, and the Competition Commission Regulations came into effect in 2011. The Swaziland Competition Commission (SCC) is a statutory body charged with the administration and enforcement of the Competition Act of 2007. The legal and regulatory environment is underdeveloped, but currently growing as the GKoE has recently established additional regulatory bodies in the financial, energy, communications, and construction procurement sectors. These bodies generally attempt to emulate the regulatory practices of South Africa or Britain.

Eswatini’s rule-making and regulatory authority lies with the central government and may be allocated by the relevant line ministry to a department, parastatal, or board. The primary custodian of policy and regulation is the minister responsible for the relevant law. All laws, regulations, and policies are applied at a national level. There are no regulatory processes managed by nongovernmental organizations or private sector associations.

Proposed laws and regulations are published in the government Gazette and have a public comment period of thirty days prior to a bill’s presentation to parliament. Ministries sometimes consult with selected members of the public and private sectors through stakeholder meetings. Most draft regulations are not available online, but can be acquired in hard copy through the government printing office. Regulations are generally developed and reviewed through various stakeholder consultations. The use of science and data to inform regulatory reform is not widespread.

Foreign investors coming into the country can join the Federation of Swaziland Employers and Chamber of Commerce (FSE&CC) on an equal basis with nationals of the country. This association is the link between the private sector and the government. There are no informal regulatory processes that apply to foreign investors.

International Regulatory Considerations

Eswatini is part of four distinct economic blocks: the Common Monetary Area (CMA), the Southern African Customs Union (SACU), the Southern African Development Community (SADC), and the Common Market for Eastern and Southern Africa (COMESA). The standards of membership in these blocks is primarily based on British law and has been domesticated accordingly into each context.

Eswatini is a member of the WTO and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. Eswatini signed and ratified the Trade Facilitation Agreement (TFA) in 2016 and has begun implementing its requisites. For example, in partnership with the World Bank, Eswatini is currently developing a trade portal to make reliable trade-related information accessible to the private sector.

Legal System and Judicial Independence

Eswatini has a dual legal system consisting of a set of courts that follow Roman-Dutch law and a set of national courts that follow Swati law and custom. The former consists of a Court of Appeals (Supreme Court) and a High Court, in addition to magistrate’s courts in each of the four districts. The traditional courts deal with minor offenses and violations of traditional Swati law and custom. Sentences in traditional courts are subject to appeal and review at the Court of Appeals and High Court. The western-style court system enforces contracts and property rights.

The country has various written commercial and contractual laws. Commercial and contractual disputes are handled in the magistrate court or High Court depending on the magnitude of the case. There are currently no specialized commercial courts; however, the government is in the process of incorporating a Small Claims Court as an additional resource in the judicial system. There is an Industrial Court that hears industrial relations matters.

The courts are generally independent of executive control or influence as outlined by the Swati constitution. The current judicial process is procedurally competent, fair, and reliable, although the capacity of the judiciary to handle cases in a timely manner is extremely limited, creating significant case backlogs.

Enforcement of laws and regulations is appealable up to the Supreme Court.

Laws and Regulations on Foreign Direct Investment

The Swaziland Investment Promotion Act of 1998 established SIPA and provides for the freedom of investment, protection of investment, and non-discrimination on the part of the government with respect to investors. The Competition Act of 2007 prescribes anti-competitive trade practices, requirements for mergers and acquisitions, and protection of consumer welfare. The Economic Recovery Strategy identifies the need to promote further reforms in order to facilitate investment.

In February 2018, the GKoE enacted the Special Economic Zones (SEZ) Act in an effort to attract foreign direct investment. The benefits for an SEZ investor include: a 20-year exemption from all corporate taxation, followed by taxation at the rate of 5 percent; full refunds of customs duties, value-added tax, and all other taxes payable in respect of goods purchased for use as raw material, equipment, machinery, and manufacturing; unrestricted repatriation of profits; and full exemption from foreign exchange controls for all operations conducted within the SEZ.

Competition and Anti-Trust Laws

The Swaziland Competition Commission (SCC) was established in 2007 to provide for the encouragement of competition in Eswatini’s economy by controlling anti-competitive trade practices, mergers and acquisitions, protecting consumer welfare and providing for an institutional mechanism for implementing these objectives. The Swaziland Competition Act  and Competition Commission Regulations  are available online. All entities must submit their merger and acquisition plans to the SCC for prior approval. Although the SCC has the power not only to investigate and regulate, but also to issue administrative decisions relating to mergers, competition and anti-trust, it has yet to issue a formal decision. There have been no rulings against foreign investors since the establishment of the Swaziland Competition Commission.