Belize’s government encourages FDI to relieve fiscal pressure and transform the economy.  In November 2021, the Government of Belize hosted its first national Investment Summit under the theme “Belize: Open for Business.” The Government of Belize also conducted trade missions to the United States to promote itself as an investment destination and credible export market. In April 2022, senior Belizean government representatives hosted a diaspora tour in the United States to encourage Belizean-Americans to invest in Belize. The estimated Belize diaspora is 300,000 persons. While the government is interested in attracting FDI, certain bureaucratic and regulatory requirements impede investment and growth.

Public debt declined from 133 percent of GDP in 2020 to 108 percent in 2021. This was in large part due to the Blue Bond Agreement, a successful marine protection and conservation-driven financial transaction. Under this deal, The Nature Conservancy (TNC) lent funds to Belize to buy back its Superbond (totaling US $553 million or 30 percent of GDP) at a discounted price of 55 cents per dollar. In exchange, Belize committed to increase expenditure on marine conservation until 2041 and to expand its Biodiversity Protection Zones to 30 percent by 2026.

There are no laws that explicitly discriminate against foreign investors.  In practice, however, investors complain that lack of transparency, land insecurity, bureaucracy, delays, and corruption are factors that make it difficult to do business in Belize. U.S. firms have identified challenges in participating and competing in areas related to the bidding, procurement, and dispute settlement processes, in particular relating to State Owned Enterprises (SOEs).

The Belize Trade and Investment Development Service (BELTRAIDE; www.belizeinvest.org.bz ) is the investment and export promotion agency.  It promotes FDI through various incentive packages and identified priority sectors.  Export-orientated businesses operating in less developed areas also receive preferential treatment. The Economic Development Council, https://edc.gov.bz , is a public-private sector advisory body established to advance public sector reforms, to promote private sector development and to inform policies for growth and development.

Belize acknowledges the right for foreign and domestic private entities to establish and own business enterprises and engage in remunerative activities.  Foreign and domestic entities must first register their business before engaging in business. They must also register for the appropriate taxes, including business tax and general sales tax, as well as obtain a social security number and trade license.

Generally, Belize has no restrictions on foreign ownership and control of companies; however, foreign investments must be registered with the Central Bank of Belize and adhere to the Exchange Control Act and related regulations.  To register a business name, foreigners must apply with a Belizean partner or someone with a permanent residence. Requirements differ based on the applicant’s residency status and whether the individual is seeking to establish a local or foreign currency account.

Foreign investments must be registered and obtain an “Approved Status” from the Central Bank to facilitate inflows and outflows of foreign currency and repatriate funds gained from profits, dividends, loan payments, and interest.  The Exchange Control Regulation Act was amended in 2020 to relax the requirement for non-residents to obtain prior permission from the Central Bank to conduct transaction in securities and real estate. The amendment now requires for prior written notice to the Central Bank with full particulars of the transaction.

Some investment incentives show preference to Belizean-owned companies.  For example, to qualify for a tour operator license, a business must be majority-owned by Belizeans or permanent residents of Belize ( http://www.belizetourismboard.org ).  This qualification is negotiable, particularly where a tour operation would expand into a new sector of the market and does not result in competition with local operators.  The government does not impose any intellectual property transfer requirements.

Foreign investors seeking to avail themselves of various incentives programs are required to adhere to screening guidelines outlined in the specific program. These may include updating their shareholders registry, obtaining requisite Central Bank of Belize approvals, and fulfilling performance requirements. Foreign investors undertaking large capital investments are also advised to adhere to environmental laws and regulations.  The government requires developers to prepare an Environmental Impact Assessment (EIA) for certain projects. When purchasing land or planning to develop in or near an ecologically sensitive zone, the government recommends the EIA fully address any measures by the investor to mitigate environmental risks.  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 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 2017.

In the past five years, civil society organizations concerned with investment policy lobbied directly with government. As an example, the Belize Chamber of Commerce and Industry, the Belize Network of NGOs, and the opposition were represented on the National Oversight Committee during the height of the COVID- 19 pandemic.

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, foreign and domestic.  While there are support measures to advance greater inclusion of women and minorities in entrepreneurial initiatives and training, the business facilitation measures do not generally distinguish by gender or economic status.

The GoB made progress on the ease of doing business through trade license, stamp duty, exchange control, and land reforms to streamline business applications and related processes. Myriad government services are going digital. Business and personal income tax offices amalgamated into the Belize Tax Service which launched an online tax payment system. Belize’s Financial Inclusion Strategy also expands access of financial services to underserved populations. Businesses must register with the tax department and local government to pay business and general sales tax and obtain a trade license.  An employer should also register employees for social security. Permission from the Central Bank is required for all overseas investments between residents and non-residents

The Belize Companies and Corporate Affairs Registry (tel: +501 822 0421; email: info@belizecompaniesregistry.gov.bz ; website: https://belizecompaniesregistry.gov.bz ) is responsible for the registration process of all local businesses and companies.

Belize does not promote or incentivize outward investments.  The government does not restrict domestic investors from investing abroad.  However, the Central Bank places currency controls on investment abroad, with Central Bank approval required prior to foreign currency outflows.

There are no reports of government policies, processes, or laws significantly distort or discriminate against foreign investors.  Nonetheless, some investors have complained of systematic shortfalls such as unreliable land titles and bureaucratic delays or corruption, which hinder doing business in Belize. U.S. firms have also identified challenges in participating and competing in areas related to the bidding, procurement, and dispute settlement processes, particular to State Owned Enterprises (SOEs). There are no nongovernmental organizations (NGOs) or private sector associations that manage regulatory processes.  NGOs and private sector associations do lobby on behalf of their members but have no statutory authority.

Regulatory authority exists both at the local and national levels with national laws and regulations being most relevant to foreign businesses.  The cabinet dictates government policies that are enacted by the legislature and implemented by the various government authorities.  Some quasi-governmental organizations are also mandated by law to manage specific regulatory processes, e.g., the Belize Tourism Board, BELTRAIDE, and the Belize Agricultural Health Authority.  Regulations exist at the local level, primarily relating to property taxes and registering for trade licenses to operate businesses in the municipality.

Some supra-national organizations and regulatory structures exist.  For example, some elements of international trade affecting U.S. businesses are affected by CARICOM treaties, as in the case of the export of sugar within CARICOM.

Accounting, legal, and regulatory systems are consistent with international norms.  Publicly owned companies generally receive audits annually, and the reports are in accordance with International Financial Reporting Standards and International Standards on Auditing.

The government does not promote or require companies’ environmental, social and governance disclosure to facilitate transparency or help investors and consumers distinguish between high- and low-quality investments.

Draft bills or regulations are generally made available for public comment through a public consultation process.  Once introduced in the House of Representatives, draft bills are sent to the relevant standing committee, which then meet and invite the public and interested persons to review, recommend changes, or object to draft laws prior to further debate.  The mechanism for drafting bills, and enacting regulations and legislation generally applies across the board and includes investment laws and regulations.  Public comments on draft legislation are not generally posted online nor made publicly available.  In a few instances, laws are passed quickly without meaningful publication, public review, or public debate. The government does not generally disclose the basis on which it reviews regulations.  Some government agencies make scientific studies publicly available.

Printed copies of the Belize Government Gazette contain proposed as well as enacted laws and regulations and are publicly available for a subscription fee.  Additionally, enacted laws are published free of cost on the website of the National Assembly or Parliament, but there is a delay in updating the website.

Regulations and enforcement actions are appealable with regulatory decisions subject to judicial review.  The Office of the Ombudsman also may investigate allegations of official wrongdoing but has no legal authority to bring judicial charges.  Reports of wrongdoing are submitted to the affected ministry. Additionally, the Annual Report of the Ombudsman is presented to the National Assembly and is a publicly available document.

The offices for business and personal income tax amalgamated into the Belize Tax Service, which launched an online tax payment system in August 2021. The Companies Registries, along with the court system, are being digitized to facilitate e-filing of documents and online payment of fees. In March 2022, the government lowered business tax on the net interest income charged to banks and financial institutions with a view to incentivizing lending in strategic foreign exchange earning sectors and at the same time increased the tax on specific sectors to disincentivize personal and distribution loans. The amendments to the tax system will improve tax collection and a stem leakage. Other anticipated reforms are expected to improve the ease of doing business, provide greater transparency and stimulate economic growth with lending to foreign exchange earning sectors.

Information on public finance, both the government’s budget and its debt obligations (including explicit and contingent liabilities) are widely accessible to the public, with most documents available online.  The budget documents do not include information on contingent or state-owned enterprise (SOE) debt unless the GoB guarantees or is paying these debts. Nonetheless, the audited annual reports of all major SOEs were publicly available on their websites.  The Auditor General’s report on government spending, however, is often significantly delayed.

As a full member of the Caribbean Community (CARICOM), Belize’s foreign, economic and trade policies vis-a-vis non-member states are coordinated regionally.  The country’s import tariffs are largely defined by CARICOM’s Common External Tariff.

Besides CARICOM, Belize is 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 with Central America.  Belize is also a member of the WTO and adheres to the Organization’s agreements and reporting system.

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 accordance with the WTO Agreement on Technical Barriers to Trade and the CARICOM Regional Organization for Standards and Quality.  The BBS is also a member of the International Electrotechnical Commission (IEC), the International Organization for Standardization (ISO), and Codex Alimentarius.

As a former British colony, Belize follows the English Common Law legal system. The Belize Constitution is the supreme law and founded on the principle of a separation of powers with independence of the judiciary from the executive and legislative branches of government. Belize has a written Contract Act, but no specialized courts to deal with commercial disputes or cases.

The judicial system remains generally independent of the executive branch.  Case law exists where the judiciary has ruled against the government, and its judgements are respected and authoritative.  The highest appellate court exists outside of Belize at the Caribbean Court of Justice, providing a level of independence for the judiciary.  The judiciary remains underfunded and understaffed resulting in frequent adjournments, delays, poor case-flow management and a backlog of cases.  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 .

Businesses and citizens may appeal regulations and enforcement actions.  Regulatory decisions are also subject to judicial review.  Judgments by the Belize Supreme Court and the Court of Appeal are available at http://www.belizejudiciary.org .

The Caribbean Court of Justice has two jurisdictions, appellate and original, in relation to CARICOM Members States. In its appellate jurisdiction, the CCJ is the final court of appeal for both civil and criminal matters emanating from CARICOM Member States. In its original jurisdiction, this Court is responsible for interpreting and applying the Revised Treaty of Chaguaramas, the treaty establishing the Caribbean Community and CARICOM Single Market and Economy.

The country has an English Common Law legal system supplemented by local legislation and regulations.  The legal system does not generally discriminate against foreign investment and there are no restrictions to foreign ownership.  The Exchange Control Act and its subsidiary laws and regulations, however, provide the legal framework that applies to foreign ownership and control. Other laws stipulate that foreign investment can qualify for incentives; citizens have the right to private property; contracts are legally binding and enforceable, and regulations are subject to judicial review among other provisions favorable to foreign investment.

Major laws enacted or amended are generally available in the National Assembly’s website at www.nationalassembly.gov.bz .  For the previous year, these include the Blue Bond Loan Act, 2021; Companies (Amendment) Act, 2021; Data Protection Act, 2021; Electronic Evidence Bill, 2021; Electronic Transactions Act, 2021; Electronic Transfer of Funds Crime Act, 2021; Immigration (Amendment) Act,, 2021; Patents (Amendment) Act, 2021; Public Sector Data Sharing Act, 2021; Securities Industry Act, 2021; Stamp Duties (Amendment) Act, 2021; Sugar Industry (Amendment) Act, 2021; Trademarks (Amendment) Act, 2021; Tax Administration and Procedures (Amendment) Act, 2021; Central Bank of Belize (Amendment) Act, 2022; and Income and Business Tax (Amendment) Act, 2022.

There is no “one-stop-shop” website for investment, and the laws, rules, procedures, and reporting requirements related to investors differ depending on the nature of the investment.  BELTRAIDE provides advisory services for foreign investors relating to procedures for doing business in Belize and what incentives might be available to qualifying investors.  Further information is available at the BELTRAIDE website:  http://www.belizeinvest.org.bz 

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 and import licensing requirements.

The government used the right of eminent domain in several cases to expropriate private property, including land belonging to foreign investors.  There were no new expropriation cases in 2021. However, claimants in previous cases of expropriation assert the GoB failed to honor agreements entered into by a previous administration.  Belizean law requires that the government assess and compensate according to fair market value.  Expropriation cases can take several years to settle and there are a few cases where compensation is still pending.  Belize nationalized two companies in public-private partnership: Belize Electricity Limited and Belize Telemedia Limited.  These actions were challenged in the courts and resolved in 2015 and 2017, respectively.

The Caribbean Court of Justice delivered a judgment relating to the Belmopan Land Development Corporation Limited (BLDCL) in January 2022, wherein it upheld the decision of the trial judge in favor of BLDCL. The case pertained to compensation owed by the government for 1,394 acres of land expropriated in 2013. After negotiations for market value failed, the matter was taken before local courts. The CCJ upheld the trial judge’s quantum of damages to BLDCL for just over US $8 million.

The Bankruptcy Act of Belize provides 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 as well as the seizure of assets and documents in the event the debtor may flee or avoid payment to creditors.  The Director of Public Prosecutions may institute proceedings for offenses related to the bankruptcy proceedings.   The bankruptcy law generally outlines actions a creditor may take to recoup losses.  Bankruptcy protections are not as comprehensive as U.S. bankruptcy law.

The legal framework authorizing and providing for investment incentives include the Fiscal Incentives Act, the Designated Processing Areas Act, the Free Zones Act, the International Business Companies Act, the Retired Persons Incentives Act, the Diaspora Retiree Incentive Program, the Trusts Act, the Offshore Banking Act, and the Gaming Control Act.  These acts offer a range of incentives including tax deferments, tax reductions, access to land and capital, and preferential access to some government concessions.

While government policies support public private partnerships, they do not generally issue guarantees or joint financing of foreign direct investment projects.  In exceptional circumstances, guarantees have been issued for SOE investments to purse funding from development institutions. In October 2021, the GoB approved a draft public private partnership policy (PPP) and the creation of the PPP unit to mobilize private sector capital to support large-scale investments in infrastructure and other development projects.

In March 2022, the government amended the Income and Business Tax Act to decrease the incentive lending rate from 15 percent to 12 percent in strategic foreign exchange earning sectors including tourism, agriculture, and business processing outsourcing. The Central Bank of Belize and the Government of Belize also established the Emergency Business Support Program (EBSP) in the last year to provide financing through domestic banks and the Development Finance Corporation to businesses affected by the COVID –19 pandemic.

The Designated Processing Areas Act (DPA) was passed in 2018 to replace the former Export Processing Zone Act.  The DPA remains a tool to attract local and foreign investments that follow value-added business models to boost production for export markets.  Approved companies under this program receive a DPA status for a period of up to ten years and may qualify for various tax exemptions.  Approved companies are given certain exemptions, including from the Trade Licensing Act requirements for operating in a municipality and the Supplies Control Act, in relation to the importation of raw materials for production that are not available in Belize.  Companies may maintain a foreign currency account in a domestic or international bank located in Belize as well as sell, lease, or transfer goods and services between DPA companies.  While subject to the Income and Business Tax, businesses may qualify for a preferential tax rate on chargeable income.  They may also be eligible for an annual quota for fuel solely for specified uses.

A Free Zone Act passed in 2019 amended the Commercial Free Zone (CFZ) Act.  Belize currently has two CFZs, one on the northern border with Mexico and a small zone on the western border with Guatemala.  The legislation limited the activities allowed in CFZ to specific sectors. Banks and financial institutions licensed under the laws of Belize are allowed to operate within a CFZ, but their transactions are limited to only CFZ-centered business.

Companies may operate both in the national customs territory and in the Free Zone, but must maintain separate accounts in respect of business activities.  Additionally, goods entering the customs territory are subject to customs duties.  The Commercial Free Zone Management Agency (CFZMA) monitors and administers the free zones.  Incentives include exemptions from import duties, income tax, taxes on dividends, capital gains tax, or any new corporate tax levied by the government during the first ten years of operation.  In addition, imports and exports of a CFZ are exempt from customs duties, consumption taxes, excise taxes, or in-transit taxes, except those destined for or directly entering areas subject to the national customs territory.

Domestic and foreign investors seeking to access incentives offered under the various incentive programs must comply with the program conditions including performance requirements. Investments that have been approved for incentives generally report to the authorizing agency, namely BELTRAIDE or the Ministry of Finance, Economic Development and Investment, to ensure they meet stipulations on the concession.

The Fiscal Incentives Act awards a qualified entity a development concession during the start-up or expansion stages to foster growth by offsetting custom duties.  According to BELTRAIDE (www.belizeinvest.org.bz), two programs are offered under this Act: the Regular Program for investments exceeding US $150,000 and the Small and Medium Enterprise (SME) program for investments of less than US $150,000.

In general, investment incentives are applicable to both domestic and foreign investors.  The Fiscal Incentives SME Program, however, is aimed at smaller enterprises with a minimum of 51 percent Belizean ownership.  The SME Program offers the same benefits of the Regular Program, except for the allowable timeframe for duty exemptions.  Under this program, companies are allowed a maximum of five years of development concessions, with the expectation that after this period, companies can mature into the Regular Program.

The Qualified Retirement Program (QRP) was created to facilitate eligible persons who have met the income requirements to permanently live and retire in Belize.  The Belize Tourism Board oversees this program designed to benefit retired persons over 45 years of age.  To qualify, applicants need proof of income not less than US $2,000 per month through a pension or annuity generated outside of Belize.  An approved QRP is allowed to import personal effects as well as approved means of transportation, free of customs duties and taxes.  Under the program, beneficiaries cannot engage in employment, own a business or invest in Belize. 

In November 2021, Belize passed the Data Protection Act, which is partially aligned with Europe’s General Data Protection Regulation (GDPR). The Act mandates the sharing of data between governmental agencies and categorizes financial records as sensitive personal data. It also lays out fines are as high as US $250,000. The Act creates a carve-out for international transfers of data to cloud storage outside Belize whereby no consent is required from data subjects. Additionally, the Act gives a three-day window as the default for notifying the Commissioner and data subjects of breaches.

The preamble of the Belize Constitution preserves the right of the individual to own private property to operate private businesses.  Common law, Belize legislation, and case law all reinforce property rights and interests.  Private entities, whether foreign or local, have the right to freely establish, acquire, and dispose of interests in property and business enterprises.  Generally, the country has no restrictions on foreign ownership and control; however, foreign investments in Belize must be registered at the Central Bank of Belize and adhere to the Exchange Control Act and related regulations.

Mortgages and liens exist, and related real estate is recorded with the registry of the Lands and Survey Department.  The Lands and Survey Department has a history of corruption, and there have been charges of land fraud, abuses, and cronyism leveled against the Department during each administration.  As part of its land reform policy, the Lands Department continues to engage with the public through mobile clinics, where Lands Department personnel visit communities across to country to address land concerns, including issuing freehold titles. Investors are nonetheless advised to perform due diligence prior to purchasing property.

Foreign and/or non-resident investors are not allowed to acquire national lease property but may acquire titled privately owned property.  The Central Bank regulates real estate transactions involving non-residents for exchange control purposes.  Additionally, the rate of stamp duty chargeable on land transfers involving foreign persons or a foreign controlled company is 8 percent for land transfers valued in excess of US $10,000, as opposed to 5 percent on transfers involving Belizeans and CARICOM nationals.

There are three different types of titles to freehold property in Belize: Deed of Conveyance, Transfer of Certificate of Title, and Land Certificate.  Leasehold property from the government is available to Belizeans who can then apply for conversion to a fee simple title. Squatters’ rights exist but are only enforceable by order of the Supreme Court after the resident has proven uninterrupted possession for at least 30 years on national lands or at least 12 years on registered lands.

Belize is a member of the WTO and has implemented the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS).  Generally, Intellectual Property (IP) rights must be registered and enforced in Belize.  IP protections are enforceable through civil proceedings initiated by the IP holder.  The Belize Intellectual Property Office (BELIPO) (http://belipo.bz) was established to administer IP laws and functions as the country’s national intellectual property registry.  Its mandate covers the protection of copyrights, industrial designs, patents, trademarks, new plant varieties, and topographies of integrated circuits.

In practice, however, there is no active enforcement of IP protections, though there is active pursuit and prosecution of contraband.  Bootleg CDs and DVDs are widespread and are marketed throughout the country and are especially prevalent in the Free Zones. During the past year, Belize enacted the Patents (Amendment) Act, 2021 and the Trademarks (Amendment) Act, 2021. Both amendments allow the Registrar of Intellectual Property to delegate certain function to the Deputy Registrar. There has been no report on seizures of counterfeit goods and no prosecution of IPR violations in the last year. Belize is not listed in the 2021 USTR’s Special 301 report nor the 2021 notorious market report.

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

Belize’s financial system is small with little to no foreign portfolio investment transactions.  It does not have a stock exchange and capital market operations are rudimentary.  In 2021, Belize passed the Securities Industry Act for the modernization of the laws on securities and capital markets. The Central Bank of Belize must approve capital transactions, such as the purchase and sale of land, company shares, financial assets, and other investments that the transfer of assets between foreign and local entities. The Central Bank advised that, effective April 2022, it would only accept electronic applications for the approval of portfolio and capital investments and land transfers.

Belize accepted the obligations of Article VIII, and the exchange regime is free of restrictions or multiple currency practices.

Credit is made available on market terms with interest rates largely set by prevailing local market conditions within the commercial banks.  The credit instruments accessible to the private sector include loans, overdrafts, lines of credit, credit cards, and bank guarantees.  Foreign investors can access credit on the local market.  Under the International Banking Act, foreign investors/nonresidents may access credit from international banks registered and licensed in Belize. However, permission to access credit from the domestic banks requires Central Bank approval. The Belize Development Finance Corporation (DFC), a state-owned development bank, offers loan financing services in various sectors.  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 a state-owned bank that provides concessionary credit primarily to public officers, teachers, and low-income Belizeans.

A financial inclusion survey undertaken by the Central Bank of Belize in 2019 showed that approximately 65.5 percent of adult Belizeans had access to a financial account. In response, the banking sector has begun introducing digital wallet solutions to reach “unbanked” segments of the population.

Belize’s financial system remains underdeveloped with a banking sector that may be characterized as stable but fragile. International reserves increased from US $348 million (3.8 months of imports) in 2020 to US $420 million (3.9 months of imports) in 2021, partly due to the IMF’s Special Drawing Rights (SDR) 25.6 million allocation, which Belizean authorities are keeping as reserve.

Regulatory capital is still well above minimum requirements, while the gross non-performing loan (NPL) ratio at the end of February 2022 stood at 5.58 percent of loans. However, the Central Bank is reviewing domestic banks and credit unions self-assessments as the expired forbearance measures from 2020 could represent a risk as a fraction of their loan portfolio could turn into NPLs.

The Central Bank of Belize (CBB) ( https://www.centralbank.org.bz ) is responsible for formulating and implementing monetary policy focusing on the stability of the exchange rate and economic growth.

Generally, there are no restrictions on foreigners opening bank accounts in Belize. Regulations differ based on residency status and whether the individual is seeking to establish a local bank account or a foreign currency account.   Foreign banks and branches are allowed to operate in the country with all banks subject to Central Bank measures and regulations.

Since January 2020 to present, a domestic bank and an international bank each lost a correspondent bank. Belize’s financial system comprises five domestic banks, three international banks, and ten credit unions. Correspondent banks discontinued offered correspondent banking relationships (CBR) to Scotiabank (Belize) Limited following the acquisition of the Scotiabank (Belize) Limited by the Caribbean International Holdings Limited. As of February 2022, the estimated total assets of the country’s largest bank were US $1.09 billion.

In the last few years, Belize continues reforms to strengthen the anti-money laundering and counterterrorism-financing regime, including conducting an interagency national money laundering and terrorist financing (ML/TF) risk assessment.

Belize does not have a sovereign wealth fund.

State Owned Enterprises (SOEs) exist largely in the utilities sectors, generally as a result of nationalization.  The government is the majority shareholder in the Belize Water Services Limited, the country’s sole provider of water services, the Belize Electricity Limited, the sole distributor of electricity, and the Belize Telemedia Limited, the largest telecommunications provider in the country. The Public Utilities Commission regulates all utilities.

SOEs usually select senior government officials, members of local business bureaus and chambers of commerce, labor organizations, and quasi-governmental agencies to staff these companies’ boards of directors.  The board serves to direct policy and shape business decisions of the ostensibly independent SOE.  Current and previous administrations have been accused of nepotism and cronyism and criticized for having conflicts of interest when board members or directors are also represented in organizations that do business with the SOEs.

There is no published list of SOEs.  The following are the major SOEs operating in the country.  Information relating to their operations is available on their websites:  Belize Electricity Limited http://www.bel.com.bz ; Belize Telemedia Limited at https://www.livedigi.com ;  Belize Water Services Limited http://www.bws.bz 

There is no public third-party market analysis that evaluate whether SOEs receive non-market advantages by the government.  The Belize Electricity Limited and the Belize Water Services Limited are the only service providers in their respective sectors.  The Belize Telemedia Limited, on the other hand, competes with one other provider for mobile connectivity and there are multiple players that provide internet and data services.  U.S. firms have identified challenges in participating and competing in areas related to the bidding, procurement and dispute settlement processes, particular to SOEs.

The Government of Belize does not currently have a privatization program.

Belize generally lacks broad awareness of the expectations and standards for responsible business conduct (RBC).  However, many foreign and local companies engage in responsible corporate behaviors and partner with NGOs or international organizations to reinvest in community development and charitable work.  Companies sponsor educational scholarships, sports-related activities, community enhancement projects, and entrepreneurship activities, among other programs.  There is a strong thread of environmental awareness that also impacts business decision-making.  BELTRAIDE, in its official public outreach, promotes civic responsibility, especially in its outreach to entrepreneurs and aspiring businesspeople.

The Office of the Ombudsman is responsible for investigating complaints of official corruption and abuse of power.  As required by law, the Ombudsman is active in filing annual reports to the National Assembly and investigating incidents of alleged misconduct, particularly of police abuses.   This office continues to be constrained by the lack of enforcement powers, political pressure, and limited resources.

Belize has no recent cases of private-sector impact on human rights and no NGOs, investment funds, worker organizations/unions, or business associations specifically promote or monitor RBC.

Certain projects require the Department of the Environment’s approval for Environmental Impact Assessments or Environmental Compliance Plans. The Department of Environment website, http://www.doe.gov.bz , has more information on the Environmental Protection Act, various regulations, applications, and guidelines.

Belize has not adopted a particular accounting framework as its national standard. The International Financial Reporting Standards (IFRS) are required for domestic banks under the Domestic Bank and Financial Institutions Act (DBFIA) of Belize. Also, under the DBFIA, the Central Bank of Belize issues practice direction, directives, guidance, and advisories on corporate governance applicable to all banks and financial institutions operating and supervised by the Central Bank.

For other companies, Belize permits the use of IFRS Standards and the IFRS for SMEs as the standard financial reporting framework for preparing financial statements. The Institute of Chartered Accountants of Belize regards IFRS Standards as an allowed accounting framework under its professional standards. Alternatively, non-bank companies are permitted to use other internationally recognized standards. The U.S. Generally Accepted Accounting Principles (GAAP) and Canadian GAAP are often used. There are no government measures relating executive compensation standards and RBC policies are not factored into procurement decisions.  Opposition party political pronouncements often target official malfeasance in procurement and cronyism in government contracts, but these concerns are historically muted once the opposition takes power.

There are similarly no alleged or reported human or labor rights concerns relating to RBC. In recent years, labor unions and business associations have become actively engaged in advocating for stronger measures against corruption.

Belize does not have a developed mineral sector and is not a conflict or high-risk country.  As such, it does not adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.  Belize’s extractive/mining industry is not developed, and it does not participate in the Extractive Industries Transparency Initiative (EITI) and/or the Voluntary Principles on Security and Human Rights.

The country is not a signatory of The Montreux Document on Private Military and Security Companies, nor is it a supporter of the International Code of Conduct or Private Security Service Providers and is not a participant in the International Code of Conduct for Private Security Service Providers’ Association.

Over the last decade, Belize has developed several important climate policy frameworks. These include the National Climate Resilience Investment Plan, Growth and Sustainable Development Strategy 2012 – 2017, and the National Climate Change Policy, Strategy and Action Plan (2015 – 2020. More recently in 2021, Belize submitted its updated National Determined Contributions (NDC), as well as its National Climate Finance Strategy, to reduce national greenhouse gas emissions as it responds to climate change.

Belize is categorized as a small island developing state (SIDS) that is highly vulnerable to the effects of climate changes and is a relatively minor contributor to global greenhouse gas emissions. Belize’s updated National Determined Contributions (NDC) is nonetheless committed to developing a long-term strategy aligned with achieving net zero global emissions by 2050. Government strategies do specify expectations on private sector contributions as well as support required to the private sector to achieve climate targets, particularly as they relate to the electricity, transportation, and waste management sectors.

Belize has a wide array of government policies that contribute to its climate and conservation agenda, including over one hundred terrestrial and marine protected areas through co-management arrangements between the government, non-government organizations, and community-based organizations. These are complemented by sustainable forest management, fisheries management, and other ecosystem management plans. Belize is hopeful for greater climate financing from multilateral institutions and creditors to implement climate change mitigation and adaptation policies.  In January 2022, the government established the Climate Finance Unit (CFU) to maximize Belize’s access to climate finance to enhance resilience and sustainable development. Some procurement policies do include environment and green growth considerations, particularly if projects are funded by external donors.

Belize has anticorruption laws that are seldom enforced.  Under the Prevention of Corruption in Public Life Act, public officials are required to make annual financial disclosures, but there is little adherence and poor enforcement.  The Act criminalizes acts of corruption by public officials and includes measures on the use of office for private gain; code of conduct breaches; the misuse of public funds; and bribery.  This Act also established an Integrity Commission mandated to monitor, prevent, and combat corruption by examining declarations of physical assets and financial positions filed by public officers.  In practice, the office is understaffed and charges are almost never brought against officials.  It is not uncommon for politicians disgraced in corruption scandals to return to government after a short period of time has elapsed. The Money Laundering and Terrorism (Prevention) Act identifies “politically exposed persons” to include family members or close associates of any politician.

The Ministry of Finance issues the Belize Stores Orders and Financial Orders – policies and procedures for government procurement.  The Manual for the Control of Public Finances provides the framework for the registration and use of public funds to procure goods and services. Private companies are neither required to establish internal codes of conduct, ethics, or compliance programs, nor is it common to use them.

In June 2001, the Government of Belize signed the Organization of American States (OAS) Inter-American Convention on Corruption, which calls for periodic reviews.   In December 2016, Belize acceded to the United Nations Convention Against Corruption (UNCAC) amid public pressure and demonstrations from the teachers’ unions.  The Belizean government continues to be criticized for the lack of political will to fully implement UNCAC.

There are few non-governmental institutions that monitor government activities. The most active, the National Trade Union Congress of Belize (NTUCB), lobbies within narrow labor-related areas.  Environmental NGOs and the Belize Chamber of Commerce and Industry (BCCI) often make statements regarding government policy as it affects their respective spheres of activity.  The government does not provide protection to NGOs investigating corruption.

Despite these measures, many businesspeople complain that both major political parties practice bias that creates an unlevel playing field related to businesses seeking licenses, the importation of goods, winning government contracts for procurement of goods and services, and transfer of government land to private owners.  Some middle-class citizens and business owners have complained of government officials, including police, soliciting bribes.

Contact at the government agency or agencies that are responsible for combating corruption:

Office of the Ombudsman
91 Freetown Road
Belize City, Belize
T: +501-223-3594
E:   ombudsman@btl.net 
W:   www.ombudsman.gov.bz

Office of the Auditor General
Corner of Douglas Jones Street & New Road
Belize City, Belize
Mountain View Boulevard
Belmopan City, Belize
501-222-5181, 222-5086, 822-2850, 822-0208

Belize Integrity Commission
National Assembly Building, Independence Hill
Belmopan, Belize
501-822-0121

For specific complaints within the police force:

Professional Standards Branch
1902 Constitutions Drive
Belmopan, Belize
T: +501-822-2218 or 822-2674

Belize has traditionally enjoyed one of the most stable political environments in the region, having held peaceful and transparent democratic elections since gaining independence on September 21, 1981.  In general elections, the two major political parties usually trade leadership. The current People’s United Party gained an overwhelming majority in the November 2020 General Elections, winning twenty-six of the thirty-one electoral divisions. The few times political candidates have questioned the result of elections, these have been settled by the court.

There were incidents of property destruction at two American companies involved in sugar cane industry in the last year. In December 2021, cane farmers from Belize’s largest cane farmers association blockaded the access road to a major American investment in Orange Walk for three days, preventing other farmers from delivering cane to the factory. An impasse between the cane farmer association and the sugar mill for a contract to deliver cane sparked the incident. The American investment subsequently initiated two legal suits against the cane farmer’s association for destruction to property and economic losses incurred. The second company located in the Cayo District, suffered arson in January 2022, presumably related to a conflict associated with land rights. Over 1,200 acres of sugar cane was lost in the fire, an estimated loss of US $1.15 million. In response, a prominent agro-productive organization wrote to the Government in January 2022 expressing concerns that the Belizean government’s failure to protect and support private sector investors in these instances led to damaging the investment climate and Belizean economy still further.

Neighboring Guatemala’s long-standing territorial claim on Belize has persisted for almost two centuries.  The International Court of Justice (ICJ) is currently deliberating the territorial dispute.  In December 2020, Guatemala filed its claim to Belize’s continental land, islands, and seas, and Belize will file its counter claim in June 2022. Despite legal efforts to resolve the claim, the Friends for Conservation and Development (FCD), a local Belizean NGO, continues to document illegal encroachments and settlements in and beyond the adjacency zone in Belize. In July 2021, FCD rangers accompanied by Belize Defence Force (BDF) members were fired upon by Guatemalan civilians as the former attempted to destroy illegal plantations in the Chiquibul forest reserve in Belize. The BDF retaliated, which in turn instigated the response of the Guatemalan Armed Forces (GAF). The incident did not escalate further and there were no casualties.

The second major security concern is the high level of crime countrywide. While Belize has a high murder rate per capita, it is primarily focused on the urban areas of Belize City. Corruption, human and drug trafficking, money laundering (institutional and trade-based), and local criminal gang activity remain significant problems exacerbated by the low conviction rate.

According to the Statistical Institute of Belize (SIB), the population was estimated to be 432,516 as of September 2021.  The labor force was 191,881 as of September 2021.  Of this, the unemployed amounted to 17,644 persons for an unemployment rate of 9.2 percent, representing a 4.5 percent decrease from September 2020. The report noted that about 48 percent of working aged women participated in the labor force and 76.1 percent of men. The main reason women did not look for work was due to personal or family responsibilities, while men did not look for work mainly due to school or training.

In its Labor Force Survey of September 2021, the Statistical Institute of Belize estimated the number of persons in informal employment was 72,433 accounting for about 41.6 percent of all employed persons. Persons in informal employment earned about US $420 per month. A 2018/2019 Household Budget Survey assessed the country’s poverty level had increased from 41.3 percent in 2009 to 52 percent in 2012. The poverty line in 2018 was assessed at US $3,980 per annum or US $331.66 monthly. The Government of Belize asserts the COVID-19 pandemic raised the poverty rate, which hovers at almost 60 percent, and sparked significant growth of the informal sector. The agriculture sector has identified shortage of unskilled labor in the agriculture sector. The health sector faces a shortage of qualified nurses and high.

In general, there are no restrictions on employers adjusting their labor force in response to fluctuating market conditions.  Employers are flexible in offering salary increases, which are normally justified based on cost of living and prevailing practice consideration.  Severance payment is subject to local labor law, the Labour Act Chapter 297.  This Act differentiates between layoffs (voluntary termination and redundancy) and firing (dismissal).  In the cases of voluntary termination and redundancy, the law provides for an appropriate notice period, payment in lieu of notice, severance, etc.  In the case of redundancy, the employer must notify, where applicable, the recognized trade union or workers’ representative as well as the Labour Commissioner.

In addition to the general Social Security system, the government maintains a National Health Insurance scheme in certain marginalized communities throughout the country.  The government also provides some assistance to unemployed persons who represent marginalized sectors of the community, e.g., single women, single mothers, and young unemployed persons.

Foreign investors who have a development concession are permitted to bring in skilled personnel to complement their local labor force and, if appropriate, establish training programs for Belizean nationals. Labor laws are not generally waived to attract or retain investment.

Belize has eleven trade unions and an umbrella organization, the National Trade Union Congress of Belize (NTUCB).  Belize has ratified 50 International Labor Organization (ILO) conventions, of which 45 are in force, including Convention 182 against the worst forms of child labor.  Trade unions are independent of the government and employers both in practice and in law.  The Department of Labour recognizes registered unions and employers’ associations.  Trade union laws establish procedures for the registration and status of trade unions and employers’ organizations and for collective bargaining.  Unions are common in the public sector (teachers, general public servants), the Social Security Board, the utility and agriculture sectors, and among port stevedores.

Where employees are unionized, employers must refer to the laws relating to the operation of unions as well as the terms of existing collective bargaining agreements between the employer and unions. Where disputes arise between an employer and employee in the private sector and where the employee is not represented by a union, both parties may approach the Labour Department to mediate discussions for an amicable solution. Failing a resolution, the matter is then first referred to the labor tribunal then to the court.

The national fire service, postal service, monetary and financial services, civil aviation and airport security services, and port authority pilots and security services are all deemed essential services. The law allows authorities to refer disputes involving employees who provide “essential services” to compulsory arbitration, prohibit strikes, and terminate actions.   On January 21, 2022, stevedores at the port in Belize City undertook industrial action against the port. The Essential Services Arbitration Tribunal delivered a notice on January 27, 2022, mandating the port management confirm the selected stevedores as registered stevedores, pay contributions to retirement savings for stevedores, and commence negotiations for the payment of redundancy packages. Port management countered with a lawsuit that remains before the courts, claiming US $500,000 in damages and loss of business.

Belize does have laws and regulations relating to international labor standards.  There is also a system in place for labor inspectors to advocate on labor-related concerns and complaints, as well as to visit and inspect business facilities to ensure adherence to local labor laws. Belize’s legislation does not address a situation in which child labor is contracted between a parent and the employer. The penalty for employing a child below minimum age is a fine not exceeding US $10 or imprisonment not exceeding two months.

Additionally, while there are laws that prohibit a wide range of discrimination in the workplace, they are not effectively enforced and do not explicitly provide protections for persons with disabilities or against discrimination related to sexual orientation and/or gender identity. There is anecdotal evidence that certain vulnerable sectors, particularly migrant workers, undocumented persons, young service workers, and agricultural laborers, were regularly paid below the minimum wage and classified as contract and nonpermanent employees to avoid providing certain benefits.

The GoB established a minimum wage task force to oversee the implementation of the five-dollar minimum wage in a phased approach, which is expected to commence by July 1, 2022.

The United States International Development Finance Corporation (DFC) has provided $610 million in political risk insurance in support of Belize’s Blue Bond for Conservation, globally the largest blue bond for ocean conservation to date. There is an OPIC Agreement between Belize and the United States, which predates Belize’s independence. The DFC has not negotiated the amendment of or replacement of the OPIC agreement.

Andrea De Arment
Chief of Political/Economic Section
4 Floral Park Road
Belmopan, Belize
T: +501-822-4011
BelmopanPolEcon@state.gov 

Vincent Lowney
Environmental, Science, Technology and Health Officer
4 Floral Park Road
Belmopan, Belize
T: +501-822-4011
BelmopanPolEcon@state.gov 

Carmen Silva
Economic/Commercial Assistant
4 Floral Park Road
Belmopan, Belize
T: +501-822-4011
BelmopanPolEcon@state.gov 

Costa Rica actively courts FDI, placing a high priority on attracting and retaining high-quality foreign investment.

PROCOMER and 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, PROCOMER, and ICT are strong and effective guides and advocates for their client companies, prioritizing investment retention and maintaining an ongoing dialogue with investors.

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.

On May 25, 2021, Costa Rica officially became the 38th OECD member. A comprehensive review of the Costa Rican economy was published by the OECD at the conclusion of the accession process, which offered valuable insights into challenges faced by the economy, “OECD Economic Surveys Costa Rica 2020: https://www.oecd.org/countries/costarica/oecd-economic-surveys-costa-rica-2020-2e0fea6c-en.htm . In the same context, the OECD offered a March 2020 review of international investment in Costa Rica: https://www.oecd.org/investment/OECD-Review-of-international-investment-in-Costa-Rica.pdf . For the index of OECD reports on Costa Rica, go to https://www.oecd.org/costarica/ 

The World Trade Organization (WTO) conducted its 2019 “Trade Policy Review” of Costa Rica in September of that year. Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries’ trade and related policies are examined and evaluated at regular intervals: https://www.wto.org/english/tratop_e/tpr_e/tp492_e.htm  .

The United Nations Conference on Trade and Development (UNCTAD) produced in 2019 the report Overview of Economic and Trade Aspects of Fisheries and Seafood Sectors in Costa Rica:

https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2583  .

The Environmental Justice Atlas – https://ejatlas.org/country/costa-rica  – highlights a number of environmental disputes involving foreign investors, some moribund and some ongoing.

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). Legal fees are the biggest single business start-up cost, as all firms registered to individuals must hire a lawyer for a portion of the necessary paperwork. Costa Rica’s business registration website Crearempresa functions but in 2021 is rated last of 76 national business registration sites evaluated by “Global Enterprise Registration” ( www.GER.co ).

Traditionally, the Costa Rican government’s small business promotion efforts have tended to focus on participation by women and underserved communities.  The National Institute for Women (INAMU), National Training Institute (INA), the Ministry of Economy (MEIC), and PROCOMER through its supply chain initiative have all collaborated extensively to promote small and medium enterprise with an emphasis on women’s entrepreneurship. In 2020, INA launched a network of centers to support small and medium-sized enterprises based upon the U.S. Small Business Development Center (SBDC) model.

The Costa Rican government does not promote or incentivize outward investment. Neither does the government discourage or restrict domestic investors from investing abroad.

Costa Rican laws, regulations, and practices are generally transparent and meant to foster competition in a manner consistent with international norms, except in the sectors controlled by a state monopoly, where competition is explicitly excluded. Rule-making and regulatory authority is housed in any number of agencies specialized by function (telecom, financial, personal data, 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. It is common to have Professional Associations that play a role in policing or guiding their members.

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://tramitescr.meic.go.cr/ . Accounting, legal, and regulatory procedures are transparent and consistent with international norms. The stock and bond market regulator SUGEVAL requires International Accounting Standards Board for public companies, while the Costa Rican College of Public Accountants (Colegio de Contadores Publicos de Costa Rica -CCPA) has adopted full International Financial Reporting Standards for non-regulated companies in Costa Rica; for more, see the international federation of accountants IFAC: https://www.ifac.org/about-ifac/membership/country/costa-rica .

While the government does not require companies’ environmental, social, and governance (ESG) disclosure, to facilitate transparency and better inform investors, government entities do regularly encourage commitments to environmental and social standards (e.g., within the coffee and tourism industries) beyond or complementary to purely legal requirements.  Certifications with Responsible Business Conduct (RBC) components used by the Costa Rican private sector include an array of agricultural certifications, the B Corporation Certificate, the Environmental Design Certification from the Green Building Council, and the ISO 26000 Social Responsibility standard.  In the banking sector, entities under the supervision of the Superintendencia General de Entidades Financieras (Financial Regulator) must comply with corporate governance regulations such as transparency and accountability to shareholders.

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. 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 on proposals. To become law, a proposal must be approved by the Assembly by two plenary votes. The signature of 10 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.

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.

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.

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 Republica), 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.

Costa Rica is transparent in reporting its public finances and debt obligations, including explicit and contingent liabilities. Debt obligations are transparent; the Ministry of Finance provides updates on public debt through the year, with the debt categorized as Central Government, Central Government and Non-Financial Sector, and Central Bank of Costa Rica.

https://www.hacienda.go.cr/contenido/12519-informacion-de-la-deuda-publica .

The following chart covers contingent debt as of January 31, 2022:

https://www.hacienda.go.cr/docs/6213fa8ea594c_01-2022%20DEUDA%20CONTINGENTE%20PUBLICAR.pdf

The review and enforcement mechanisms described above have kept Costa Rica’s 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.

Furthermore, Costa Rica’s product market regulations are more stringent than in any other OECD country, according to the OECD’s 2020 Product Market Regulations Indicator, leading to market inefficiencies. Find this explanation as well as a detailed review of the regulatory challenges Costa Rica faces in the September 2020 OECD report on regulatory reform:

https://www.oecd.org/countries/costarica/enhancing-business-dynamism-and-consumer-welfare-in-costa-rica-with-regulatory-reform-53250d35-en.htm 

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 OECD standards as an OECD member has accentuated this traditional use of best-practices and model legislation. Costa Rica regularly notifies all draft technical regulations to the WTO Committee on Technical Barriers in Trade (TBT).

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. The primary criminal investigative body “Organismo de Investigacion Judicial” OIJ, is a semi-autonomous department within the Judicial 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 addresses the full range of civil, administrative, and criminal cases with a number of specialized courts.  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. Regulations and enforcement actions may be, and often are, appealed to the courts.

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.

The legal process to resolve cases involving squatting on land can be especially cumbersome. Land registries are at times incomplete or even contradictory. Buyers should retain experienced legal counsel to help them determine the necessary due diligence regarding the purchase of property.

Costa Rican websites are useful to help navigate laws, rules and procedures including that of the investment promotion agency CINDE, http://www.cinde.org/en , the export promotion authority PROCOMER, http://www.procomer.com/ (“inversionista”), 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.

Two public institutions are responsible for consumer protection as it relates to monopolistic and anti-competitive practices. The “Commission for the Promotion of Competition” (COPROCOM), an autonomous agency housed in the Ministry of Economy, Industry and Commerce, is charged with investigating and correcting anti-competitive behavior across the economy. The Telecommunications Superintendence (SUTEL) shares that responsibility with COPROCOM in the Telecommunications sector. Both agencies are charged with defense of competition, deregulation of economic activity, and consumer protection. Their decisions may be appealed judicially. For the OECD assessment of competition law and policy in Costa Rica, see this July 2020 report: https://www.oecd.org/countries/costarica/costarica-competition.htm. 

The three principal expropriating government agencies in recent years have been the Ministry of Public Works – MOPT (highway rights-of-way), the state-owned 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.

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, and upon full deposit of the calculated amount the government may take possession of land despite the former owner’s dispute of the price. The law makes no distinction between foreigners and nationals. 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. (For full detail go to https://PGRweb.go.cr/SCIJ  . When reviewing the articles of the law go to the most recent version of each article.)

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, when landowners and government differ significantly in their appraisal of the expropriated lands’ value, the resultant judicial processes generally take 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.

The Costa Rican bankruptcy law, addressed in both the commercial code and the civil procedures code, has long been similar to corresponding U.S. law. In February 2021, Costa Rica’s National Assembly approved a comprehensive bankruptcy law #9957 “Ley Concursal”, in effect since December 1, 2021. The new law eases bankruptcy processes and help companies in financial distress to move through the “administrative intervention” intended to save the companies. The previous law too often ended with otherwise viable companies ceasing operations, rather than allowing them to recover, due to a bias towards dissolution of companies in distress. As in the United States, penal law will also apply to criminal malfeasance in some bankruptcy cases.

Four investment incentive programs operate in Costa Rica: the free trade zone system, an inward-processing regime, a duty drawback procedure, and the tourism development incentives regime. These incentives are available equally to foreign and domestic investors, and include tax holidays, training of specialized labor force, and facilitation of bureaucratic procedures. PROCOMER is in charge of the first three programs and companies may choose only one of the three. As of early 2022, 568 companies are in the free trade zone regime, 90 in the inward processing regime, and 10 in duty drawback.

ICT administers the tourism incentives; through early 2022, 1,133 tourism firms are declared as such with access to incentives of various types depending on the firm’s operations (hotels, rent-a-car, travel agencies, airlines and aquatic transport). The free trade zone regime is based on the 1990 law #7210, updated in 2010 by law #8794 and attendant regulations, while inward processing and duty drawback derive from the General Customs Law #7557. Tourism incentives are based on the 1985 law #6990, most recently amended in 2001.

The inward-processing regime suspends duties on imported raw materials of qualifying companies and then exempts the inputs from those taxes when the finished goods are exported. The goods must be re-exported within a non-renewable period of one year. Companies within this regime may sell to the domestic market if they have registered to do so and pay applicable local taxes. The drawback procedure provides for rebates of duties or other taxes that were paid by an importer for goods subsequently incorporated into an exported good. Finally, the tourism development incentives regime provides a set of advantages, including duty exemption – local and customs taxes – for construction and equipment to tourism companies, especially hotels and marinas, which sign a tourism agreement with ICT.

Costa Rica has not established distinct incentives for under-represented investors, for example women. Incentives for environmentally “green” investment tend towards structural or institutional facilitation rather than subsidy. Electricity tariffs, including net-metering and access tariffs for rooftop solar installation, are designed to encourage renewable energy generation and use without creating a clear subsidy of those activities. Green hydrogen production is encouraged through several executive decrees that provide import tariff exemptions for equipment and seek to establish a flexible and enabling regulatory framework for the use of national grid surpluses in the development of a green hydrogen economy in Costa Rica.

Individual companies are able to create industrial parks that qualify for free trade zone (FTZ) status by meeting specific criteria and applying for such status with PROCOMER. Companies in FTZs receive exemption from virtually all taxes for eight years and at a reduced rate for some years to follow. Established companies may be able to renew this exemption through additional investment. In addition to the tax benefits, companies operating in FTZs enjoy simplified investment, trade, and customs procedures, which provide a convenient way to avoid Costa Rica’s burdensome business licensing process. Call centers, logistics providers, and software developers are among the companies that may benefit from FTZ status but do not physically export goods. Such service providers have become increasingly important participants in the free trade zone regime. PROCOMER and CINDE are traditionally proactive in working with FTZ companies to streamline and improve law, regulation and procedures touching upon the FTZ regime. A study of the benefits of FTZ regime for the broader economy is available on PROCOMER’s website.

Costa Rica does not impose requirements that foreign investors transfer technology or proprietary business information or purchase a certain percentage of inputs from local sources. However, the Costa Rican agencies involved in investment and export promotion do explicitly focus on categories of foreign investor who are likely to encourage technology transfer, local supply chain development, employment of local residents, and cooperation with local universities. The export promotion agency PROCOMER operates an export linkages department focused on increasing the percentage of local content inputs used by large multinational enterprises.

Costa Rica does not have excessively onerous visa, residence, work permit, or similar requirements designed to inhibit the mobility of foreign investors and their employees, although the procedures necessary to obtain residency in Costa Rica are often perceived to be long and bureaucratic. Existing immigration measures do not appear to have inhibited foreign investors’ and their employees’ mobility to the extent that they affect foreign direct investment in the country. The government is responsible for monitoring so that foreign nationals do not displace local employees in employment, and the Immigration Law and Labor Ministry regulations establish a mechanism to determine in which cases the national labor force would need protection. However, investors in the country do not generally perceive Costa Rica as unfairly mandating local employment. The Labor Ministry prepares a list of recommended and not recommended jobs to be filled by foreign nationals. Costa Rica does not have government/authority-imposed conditions on any permission to invest.

Costa Rica does not require Costa Rican data to be stored on Costa Rican soil. Under law #8968 ‒ Personal Data Protection Law – and its corresponding regulation, companies must notify the Data Protection Agency (PRODHAB) of all existing databases from which personal information is sold or traded. Costa Rica does not impose measures that unduly impede companies from securing and freely transmitting customer or other business-related data. While Costa Rica in the next several years is looking to modernize its law pertaining to data privacy and cross border data transfer, Costa Rica’s vibrant digital services industry will likely ensure that the new regulations do not interfere unduly with legitimate digital services business.

The laws governing investments in land, buildings, and mortgages are generally transparent. Secured interests in both chattel and real property are recognized and enforced. Mortgage and title recording are mandatory and the vast majority of land in Costa Rica has clear title. However, the National Registry, the government entity that records property titles, has been successfully targeted on occasion with fraudulent filing, which has led in some cases to overlapping title to real property. Costa Rican law allows long-time occupants of a property belonging to someone else (i.e. squatters) to eventually take legal possession of that property if unopposed by the property owner. Potential investors in Costa Rican real estate should also be aware that the right to use traditional paths is enshrined in law and can be used to obtain court-ordered easements on land bearing private title; disputes over easements are particularly common when access to a beach is an issue.

Foreigners are subject to the same land lease and acquisition laws and regulations as Costa Ricans with the exception of concessions within the Maritime Zone (Zona Maritima Terrestre – ZMT). Almost all beachfront is public property for a distance of 200 meters from the mean high tide line, with an exception for long-established port cities and a few beaches such as Jaco. The first 50 meters from the mean high tide line is severely restricted. The next 150 meters, also owned by the state, is the Maritime Zone and can only be leased from the local municipalities or the Costa Rican Tourism Institute (ICT) for specified periods and particular uses, such as tourism installation or vacation homes. Concessions in this zone cannot be given to foreigners or foreign-owned companies.

Costa Rica’s legal structure for protecting intellectual property rights (IPR) is quite strong, but enforcement is sporadic and does not always get the attention and resources required to be effective. In the 2019 United States Trade Representative (USTR) Special 301 Report, USTR noted the substantial progress made by Costa Rica in protecting IPR. As a result, USTR did not include Costa Rica in the 2020 or 2021 Special 301 reports. Costa Rica was not listed in USTR’s 2021 Review of Notorious Markets for Counterfeiting and Piracy.

Costa Rica is a signatory of many major international agreements and conventions regarding intellectual property.  Building on the existent regulatory and legal framework, the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) required Costa Rica to strengthen and clarify its IPR regime further, with several new IPR laws added to the books in 2008.  Prior to that, the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) took effect in Costa Rica on January 1, 2000.  In 2002, Costa Rica ratified the World Intellectual Property Organization (WIPO) Performances and Phonograms Treaty and the WIPO Copyright Treaty.

On June 22, 2020, the General Directorate of the National Registry merged the Registry of Industrial Property and the Registry of Copyright and Related Rights into a single Registry of Intellectual Property, improving the National Registry’s efficiency.

While online piracy remains a concern for the country, in February 2019 Costa Rica modified the existing regulation on internet service providers (ISPs) to shorten significantly the 45 days previously allowed for notice and takedown of pirated online content, creating an expeditious safe harbor system for ISPs in Costa Rica.

In August 2020, Costa Rica’s Intellectual Property Registry launched a WIPO online platform that will allow interested parties to submit online applications to register trademarks.  The online service has improved efficiency and encouraged registrations from small-to-medium-sized companies across the country. In 2021, the Intellectual Property Registry launched the development of the second stage of WIPO File that will allow for online filing of applications for patents, models, and industrial designs. In 2019, the National Registry of Industrial Property announced the implementation of TMview and DesignView, search tools that allow users to consult trademarks and industrial design data.

The Costa Rican government does not release official statistics on the seizure of counterfeit goods, but the Chamber of Commerce compiles statistics from Costa Rican government sources: http://observatorio.co.cr/  In the first six months of 2021, Costa Rica’s Economic Crimes Prosecutor investigated 26 IPR cases, up from the total of 14 cases in 2020. As in years past, prosecutors ultimately dismissed several cases due to lack of interest, collaboration, and follow-up by the representatives of trademark rights holders.  Government authorities complained that the lack of response by trademark representatives is a recurring behavior dating back to at least 2016 and may explain the drop in IPR cases.  In 2020, the Prosecutor’s Office established a specialized cybercrime unit with the purpose of improving the country’s response toward computer-oriented crimes, including copyrights infringements.

On September 4, 2019, Costa Rican Customs issued an executive decree titled “Contact of the Representatives of Intellectual Property Rights for Enforcement Issues” establishing a formal customs recordation system for trademarks that allows customs officers to make full use of their ex officio authority to inspect and detain goods. Under the decree, customs offices have the power to include new trademark rights holders in a formal database for use by customs officials in the field. As of 2021, 173 trademarks are included in this database.

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

The Costa Rican government’s general attitude towards foreign portfolio investment is prudently 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 10 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 in recent years 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. 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 a 15% withholding tax on interest paid will apply when the creditor is a non-tax resident in the country, under the reasoning that the interest payment constitutes income from a Costa Rican source. Potential overseas borrowers must also consider Costa Rica’s limitation on the deductibility of financial expenses by the debtor when the creditor is not an entity regulated in its country of origin by a body like the Costa Rican financial supervisory authority (SUGEF). In such cases, deductible interest for the current fiscal year is around 30% of EBITDA -Earnings Before Interest Taxes Depreciation and Amortization.

Costa Rica’s financial system boasts a relatively high financial inclusion rate, estimated by the Central Bank through August 2020 at 81.5 percent (the percentage of adults over the age of 15 holding a bank account). Non-resident foreigners may open what are termed “simplified accounts” in Costa Rican financial institutions, while resident foreigners have full access to all banking services.

The banking sector is healthy and well-regulated, although the 2020 non-performing loan ratio of 2.4 percent of active loans as of December 2021 (2.8 percent in state-owned banks) would be significantly higher if not for Covid-19 temporary regulatory measures allowing banks to readjust loans. The country hosts a large number of smaller private banks, credit unions, and factoring houses, although the four state-owned banks (two commercial, one mortgage and one workers’) are still dominant, accounting for 46 percent of the country’s financial system assets. Consolidated total assets of those state-owned banks were USD 29.6 billion, while combined assets of the regulated financial sector (public banks, private banks, savings-and-loans and others) were almost USD 64 billion as of December 2021.

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 and direct transfer mechanism “SINPE” through which clients transfer money to and from accounts with any other account in the financial system. The Central Bank’s governance structure is strong, with a significant degree of autonomy from the Executive Branch.

Foreign banks may establish both full operations and branch operations in the country under the supervision of the banking regulator SUGEF. The Central Bank has a good reputation and has had no problem maintaining sufficient correspondent relationships. Costa Rica is steadily improving its ability to ensure the efficacy of anti-money laundering and anti-terrorism finance. The Costa Rican financial sector in broad terms appears to be satisfied to date with the available correspondent banking services.

The OECD 2020 report “review of the financial system” for Costa Rica is an excellent resource for those seeking more detail on the current state of Costa Rica’s financial system: https://www.oecd.org/countries/costarica/Costa-Rica-Review-of-Financial-System-2020.pdf .

Costa Rica does not have a Sovereign Wealth Fund.

Costa Rica’s total of 28 state-owned enterprises (SOEs) are commonly known by their abbreviated names. They include monopolies in petroleum-derived fuels (RECOPE), lottery (JPS), railroads (INCOFER), local production of ethanol (CNP/FANAL), water distribution (AyA), and electrical distribution (ICE, CNFL, JASEC, ESPH). SOEs have market dominance in insurance (INS), telecommunications (ICE, RACSA, JASEC, ESPH) and finance (BNCR, BCR, Banco Popular, BANHVI, INVU, INFOCOOP). They have significant market participation in parcel and mail delivery (Correos) and ports operation (INCOP and JAPDEVA). Six of those SOEs hold significant economic power with revenues exceeding 1 percent of GDP: ICE, RECOPE, INS, BNCR, BCR and Banco Popular. The 2020 OECD report “Corporate Governance in Costa Rica” reports that Costa Rican SOE employment is 1.9% of total employment, somewhat below the OECD average of 2.5%. Audited returns for each SOE may be found on each company’s website, while basic revenue and costs for each SOE are available on the General Controller’s Office (CGR) “Sistema de Planes y Presupuestos” https://www.cgr.go.cr/02-consultas/consulta-pp.html . The Costa Rican government does not currently hold minority stakes in commercial enterprises.

Costa Rican state-owned enterprises have not in recent decades required continuous and substantial state subsidy to survive. Several (notably ICE, AyA and RECOPE) registered major losses in pandemic year 2020, while others (INS, BCR, BNCR) registered substantial profits, which are allocated as dictated by law and boards of directors. Financial allocations to and earnings from SOEs may be found in the CGR “Sistema de Informacion de Planes y Presupuestos (SIPP)”.

U.S. investors and their advocates cite some of the following ways in which Costa Rican SOEs competing in the domestic market receive non-market-based advantages because of their status as state-owned entities.

• According to Law 7200, electricity generated privately must be purchased by public entities and the installed capacity of the private sector is limited to 30 percent of total electrical installed capacity in the country: 15 percent to small privately-owned renewable energy plants and 15 percent to larger “buildoperatetransfer” (BOT) operations.
• Telecoms and technology sector companies have called attention to the fact that government agencies often choose SOEs as their telecom services providers despite a full assortment of private-sector telecom companies. The Information and Telecommunications Business Chamber (CAMTIC) has long protested against what its members feel to be unfair use by government entities of a provision (Article 2) in the public contracting law that allows noncompetitive award of contracts to public entities (also termed “direct purchase”) when functionaries of the awarding entity certify the award to be an efficient use of public funds. CAMTIC has compiled detailed statistics showing that while the yearly total dollar value of Costa Rican government direct purchases in the IT sector under Article 2 has dropped considerably from USD 226 million in 2017, to USD 72.5 million in 2018, USD 27.5 million in 2019, USD 54 million in 2020, and USD 5 million in 2021, the number of purchases has actually increased from 56 purchases in both 2017 and 2018 to 86 in 2019, 104 in 2020, and 115 in 2021.
• The state-owned insurance provider National Insurance Institute (INS) has been adjusting to private sector competition since 2009 but in 2021 still registered 66 percent of total insurance premiums paid; 13 insurers are now registered with insurance regulator SUGESE: ( https://www.sugese.fi.cr/SitePages/index.aspx ). Competitors point to unfair advantages enjoyed by the stateowned insurer INS, including a strong tendency among SOE’s to contract their insurance with INS.

Costa Rica is not a party to the WTO Government Procurement Agreement (GPA) although it is registered as an observer. Costa Rica is working to adhere to the OECD Guidelines on Corporate Governance for SOEs ( www.oecd.org/daf/ca/oecdguidelinesoncorporategovernanceofstate-ownedenterprises.htm ). For more information on Costa Rica’s SOE’s, see the OECD Accession report “Corporate Governance in Costa Rica”, dated October 2020: https://www.oecd.org/countries/costarica/corporate-governance-in-costa-rica-b313ec37-en.htm  .

Costa Rica does not have a privatization program and the markets that have been opened to competition in recent decades – banking, telecommunications, insurance and Atlantic Coast container port operations – were opened without privatizing the corresponding state-owned enterprises (SOs). Two relatively minor SOEs, the state liquor company (Fanal) and the International Bank of Costa Rica (Bicsa), are the most likely targets for privatization if such political sentiment grows.

Corporations in Costa Rica, particularly those in the export and tourism sectors, generally enjoy a positive reputation within the country as engines of growth and practitioners of Responsible Business Conduct (RBC).  The Costa Rica government actively highlights its role in attracting high-tech companies to Costa Rica; the strong RBC culture that many of those companies cultivate has become part of that winning package.  Large multinational companies commonly pursue RBC goals in line with their corporate goals and have found it beneficial to publicize RBC orientation and activities in Costa Rica.  Many smaller companies, particularly in the tourism sector, have integrated community outreach activities into their way of doing business. There is a general awareness of RBC among both producers and consumers in Costa Rica.

Multinational enterprises in Costa Rica have not been associated in recent decades in any systematic or high-profile way with alleged human or labor rights violations.  The Costa Rican government maintains and enforces laws with respect to labor and employment rights, consumer protection and environmental protection.  Costa Rica has no legal mineral extraction industry with its accompanying issues, but illegal small scale gold mining, particularly in the north of the country, is a focal point of serious environmental damage, organized crime, and social disruption.  Large scale industrial agriculture is also occasionally the focus of health or environmental complaints, including in recent years the pineapple industry for allegedly affecting water supplies and a banana producer with many workers with rashes allegedly induced by pesticide use. The government appears to respond appropriately. Indigenous communities in specific areas of the country have longstanding grievances against non-indigenous encroachment on their reserves, which has led to recent incidents of violence.

Costa Rica encourages foreign and local enterprises to follow generally accepted RBC principles such as the OECD Guidelines for Multinational Enterprises (MNE) and maintains a national contact point for OECD MNE guidelines within the Ministry of Foreign Trade (see https://www.comex.go.cr/punto-nacional-de-contacto/  or  http://www.oecd.org/investment/mne/ncps.htm ). Costa Rica has been a participant since 2011 in the Montreux Document reaffirming the obligations of states regarding private military and security companies during armed conflict.

Costa Rica has a national climate strategy and a sophisticated system for monitoring natural capital, biodiversity, and ecosystem services. While the Central Bank compiles environmental accounts ( https://www.bccr.fi.cr/en/Economic-Indicators/environmental-accounts ), the Ministry of Environment and Energy oversees policies on environmental impact assessments and emissions. As part of Costa Rica’s nationally determined contribution to the United National Framework on Climate Change, Costa Rica targets maximum national net emissions in 2030 of 9.11 million tons of CO2. This number is consistent with the targeted trajectory of their National Decarbonization Plan which seeks to achieve net-zero emissions by 2050. Within the transportation sector Costa Rica aims to adopt standards to migrate towards a zero-emission motorcycle fleet by 2025, have 8% of their fleet of small vehicles be electric, and by 2030 have 8% of the public transportation fleet fully electric. There are currently no regulatory incentives or rebates for private sector contributions to achieve these goals. Costa Rican government efforts to reach net-zero emissions are largely limited to encouraging purchase and use of electric vehicles through tax reduction. In the absence of any significant budget for climate change response, the Costa Rican government necessarily relies on the private sector and international donors to implement its ambitions to be net zero by 2050. Costa Rica supports labels or designations meant to encourage good behavior with some considerable success: blue flag program at beaches and the Costa Rican country brand “Essential Costa Rica”. Official procurement policies do not include environmental or green growth considerations beyond those otherwise mandated by law.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

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

Costa Rica has laws, regulations, and penalties to combat corruption. Though the resources available to enforce those laws are limited, Costa Rica’s institutional framework is strong, such that those cases that are prosecuted are generally perceived as legitimate. Anti-corruption laws extend to family members of officials, contemplate conflict-of-interest in both procurement and contract award, and penalize bribery by local businessmen of both local and foreign government officials. Public officials convicted of receiving bribes are subject to prison sentences up to ten years, according to the Costa Rican Criminal Code (Articles 347-360). Entrepreneurs may not deduct the costs of bribes or any other criminal activity as business expenses. In recent decades, Costa Rica saw several publicized cases of firms prosecuted under the terms of the U.S. Foreign Corrupt Practices Act.

Costa Rica ratified the Inter-American Convention Against Corruption in 1997. This initiative of the OECD and the Organization of American States (OAS) obligates subscribing nations to implement criminal sanctions for corruption and implies a series of follow up actions: http://www.oas.org/juridico/english/cri.htm . Costa Rica also ratified the UN Anti-Corruption Convention in March 2007, has been a member of the Open Government Partnership (OGP) since 2012, and as of July 2017 is a party to the OECD Convention on Combatting Bribery of Foreign Public Officials.

The Costa Rican government has encouraged civil society interest in good governance, open government and fiscal transparency, with a number of NGO’s operating unimpeded in this space. While U.S. firms do not identify corruption as a major obstacle to doing business in Costa Rica, some have made allegations of corruption in the administration of public tenders and in approvals or timely processing of permits. Developers of tourism facilities periodically cite municipal-level corruption as a problem when attempting to gain a concession to build and operate in the restricted maritime zone.

For further material on anti-bribery and corruption in Costa Rica, see the 2020 OECD study: https://www.oecd.org/countries/costarica/costa-rica-has-improved-its-foreign-bribery-legislation-but-must-strengthen-enforcement-and-close-legal-loopholes.htm 

Also on the OECD website, information relating to Costa Rica’s membership in the OECD anti-bribery convention: https://www.oecd.org/countries/costarica/costarica-oecdanti-briberyconvention.htm 

Name:  José Armando López Baltodano
Title:  Procurador Director, Procuraduría de la Ética Pública.
Organization:  Procuraduría General de la República (PGR)
Address: Avenida 2 y 6, Calle 13.  San José, Costa Rica.
Telephone Number:  2243-8330, 2243-8321
Email Address: armandolb@pgr.go.cr     
evelynhk@pgr.go.cr 

Contact at “watchdog” organization:

Evelyn Villarreal F.
Asociación Costa Rica Íntegra
Tel:. (506) 8355 3762
Email: evelyn.villarreal@cr.transparency.org 

Since 1948, Costa Rica has not experienced significant domestic political violence. There are no indigenous or external movements likely to produce political or social instability. However, Costa Ricans occasionally follow a long tradition of blocking public roads for a few hours as a way of pressuring the government to address grievances; the traditional government response has been to react slowly, thus giving the grievances time to air. This practice on the part of peaceful protesters can cause logistical problems.

Crime increased in Costa Rica in recent decades and U.S. citizen visitors and residents are frequent victims.  While petty theft is the main problem, criminals show an increased tendency to use violence. Some crime in Costa Rica is associated with the illegal drug trade.  Please see the State Department’s Travel Advisory page for Costa Rica for the latest information- https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/costa-rica-travel-advisory.html

Although the unemployment rate fell in 2021, unemployment remains a major issue for Costa Rica’s economy. According to the National Statistics Institute (INEC) as of January 2022, the unemployment rate was 13.1 percent, or 319,000 unemployed workers. The unemployment rate among the male population was estimated at 10.6 percent and the female population at 16.8 percent. When comparing these figures with the same quarter in 2020-21, there was a 4.6 percent decrease among males and a 7.8 percent reduction among females. 45.7 percent of work was in the informal sector (45.7 percent among males and 45.6 percent among females) with no significant variation compared to the same period in 2020-21. From the percentage of individuals with informal employment, 91.5 percent were self-employed, and 29.4 percent received a salary.

INEC reported that from November 2021 to January 2022, 532,000 persons in the labor force (employed and unemployed) were negatively affected by COVID-19. Of the country’s employed population, 213,000 had a reduction in salary or income associated with suspension or reduction in working hours or had to suspend their own activity or business during the pandemic, which represented 10.1 percent of the employed population, of which 63.5 percent were male, and 36.5 percent were female. Of the total number of unemployed persons, 318,000 were negatively affected by the pandemic. Of those, 48.7 percent were men and 51.3 percent were women. Of the total number of unemployed persons affected, 97.5 percent indicated that they could not find a job due to COVID-19; and 2.5 percent stated that they were fired, suspended, or closed their business or activity.

INEC reported that during the pandemic more formal jobs were preserved and more informal jobs were lost. It is possible that some of the informal businesses that survived the pandemic chose to seek formal work, given increased demand for health insurance. Some of the activities most affected by health restrictions and the consequences of the pandemic (such as tourism, commerce, construction, and entertainment activities) had high demand for workers, including informal workers, before the pandemic.

According to the Central Bank of Costa Rica, formal employment returned to levels registered before the beginning of the pandemic, while as of November 2021, the number of informally employed persons was 11.4 percent lower than in February 2020. The recovery of employment for workers operating in the informal sector and those with medium qualifications has been much slower than that of the most qualified and those who work in the formal sector. Workers in the informal sector were not covered by wage, hour, and occupational health and safety laws and inspections, nor were they enrolled in the public health system.

The Costa Rican labor force has high educational standards. The country boasts an extensive network of publicly funded schools and universities while Costa Rica’s national vocational training institute (INA) and private sector groups provide technical and vocational training.

The growth of Costa Rica’s service, tourism, and technology sectors has stimulated demand for English-language speakers. The pool of job candidates with English and technical skills in the Central Valley is sufficient to meet current demand. However, the current finite number of job candidates with these skills limits the ability of foreign and local businesses to expand operations.

The government implemented a controlled entry of foreign migrant workers (Migration Traceability System, SITLAM) through the northern and southern borders. In a joint effort, the Costa Rican Social Security System (CCSS), Ministry of Labor and Social Security (MTSS) and the Costa Rican Coffee Institute implemented a program to enroll coffee workers in the health insurance system while taking into account turnover, migratory conditions, and harvest seasons while protecting the families of the workers.

The government does not keep track of shortages or surpluses of specialized labor skills. Foreign nationals have the same rights, duties, and benefits as local employees. The government is responsible for ensuring that foreign nationals do not displace local employees in employment. Labor law provisions apply equally across the nation, both within and outside free trade zones. The Immigration Law and the Labor Ministry’s regulations establish a mechanism to determine in which cases the national labor force would need protection. The Labor Ministry prepares a list of recommended and not-recommended jobs to be filled by foreign nationals.

There are no restrictions on employers adjusting employment to respond to fluctuating market conditions. The law does not differentiate between layoffs and dismissal without cause. There are concepts established in the law related to unemployment and dismissals such as the mandatory savings plan (Labor Capitalization Fund or Fondo de Capitalizacion Laboral, FCL), as well as the notice of termination of employment (preaviso) and severance pay (cesantia). The FCL, which is funded through employer contributions, functions as an unemployment insurance; the employee can withdraw the savings every five years if the employee has worked without interruption for the same employer. Costa Rican labor law requires that employees released without cause receive full severance pay, which can amount to close to a full year’s pay in some cases. Although there is no insurance for workers laid off for economic reasons, employers may voluntarily establish an unemployment fund.

In response to government-ordered temporary business closures due to the Covid-19 pandemic, in 2020, the Labor Ministry implemented the temporary suspension of employment contracts, a procedure established in the Labor Code, which grants employers the option of stopping the payment of wages temporarily during an emergency. Executive orders (Nos. 42522-MTSS and 42248-MTSS) established the procedures for employers to request the temporary suspension of labor contracts with their employees. Employers requested the suspension of contracts through the Labor Inspectorate of the Labor Ministry. In 2021, the Labor Ministry continued implementing the temporary suspension of employment contracts but only in sectors most adversely affected by the COVID-19 pandemic due to the restrictions and closures imposed by authorities.

The National Assembly approved a law (Law 9832) in 2020 to reduce working hours during the pandemic. Under the law, if income in a company decreases by 20 percent, compared to the income during the same month in 2019 or compared to the income of the previous three months, the employer can reduce the employees’ hours and salary up to 50 percent. If the decrease in income is greater than 60 percent, the reduction in salary can reach 75 percent. Legislators initially authorized this reduction for three months and employers could request extensions for two equal terms (9 months) and then to five terms (15 months) as the emergency continued. In May 2021, the National Assembly approved an extension (Legislative Order No. 9982) in the tourism sector which authorizes a reduction for four equal terms with previous approval from the Labor Ministry.

In 2020, the National Assembly authorized employees, whose labor contracts were terminated or suspended or whose salaries were reduced during the state of emergency declaration, to withdraw their contributions to the FCL plan (Law 9839).

Costa Rican labor law and practice allows some flexibility in alternate schedules; nevertheless, it is based on a 48-hour week made up of eight-hour days. Workers are entitled to one day of rest after six consecutive days of work. The labor code stipulates that the workday may not exceed 12 hours. Use of temporary or contract workers for jobs that are not temporary in nature to lower labor costs and avoid payroll taxes does occur, particularly in construction and in agricultural activities dedicated to domestic (rather than export) markets. No labor laws are waived to attract or retain investment‒all labor laws apply in all Costa Rican territory, including free trade zones. The government has been actively exploring ways to introduce more flexibility into the labor code to facilitate teleworking and flexible work schedules.

Costa Rican law guarantees the right of workers to join labor unions of their choosing without prior authorization. Unions operate independently of government control and may form federations and confederations and affiliate internationally. Most unions are in the public sector, including in state-run enterprises. Collective bargaining agreements are common in the public sector. “Permanent committees of employees” informally represent employees in some enterprises of the private sector and directly negotiate with employers; these negotiations are expressed in “direct agreements,” which have a legal status. Based on 2021 statistics, 15 percent of employees were union members. The Labor Ministry reported that from 2019 to 2021, they approved 27 collective agreements and accompanied 43 negotiation processes and handled 7 conciliation processes of a social economic nature. In 2021, the Ministry reported that collective bargaining agreements covered 10.6 percent of the working population, 50.7 percent within public sector entities and 1.1 percent within the private sector. The Ministry reported that 13,897 workers were covered by “direct agreements” in different sectors (agriculture and manufacturing industry) during 2021.

In the private sector, many Costa Rican workers join “solidarity associations,” through which employers provide easy access to saving plans, low-interest loans, health clinics, recreation centers, and other benefits. A 2011 law solidified that status by giving solidarity associations constitutional recognition comparable to that afforded labor unions. Solidarity associations and labor unions coexist at some workplaces, primarily in the public sector. Business groups claim that worker participation in permanent committees and/or solidarity associations provides for better labor relations compared to firms with workers represented only by unions. However, some labor unions allege private businesses use permanent committees and solidarity associations to hinder union organization while permanent workers’ committees displace labor unions on collective bargaining issues in contravention of internationally recognized labor rights.

The Ministry of Labor has a formal dispute-resolution body and will engage in dispute-resolution when necessary; labor disputes may also be resolved through the judicial process. The Ministry of Labor’s regulations establish that conciliation is the mechanism to solve individual labor disputes, as defined in the Alternative Dispute Resolution (ADR) Law (No. 7727, dated 9 December 1997). The Labor Code and ADR Law establish the following mechanisms: dialogue, negotiation, mediation, conciliation, and arbitration. The Labor Law promotes alternative dispute resolution in judicial, administrative, and private proceedings. The law establishes three specific mechanisms: arbitration to resolve individual or collective labor disputes (including a Labor Ministry’s arbitrator roster list); conciliation in socio-economic collective disputes (introducing private conciliation processes); and arbitration in socio-economic collective disputes (with a neutral arbitrator or a panel of arbitrators issuing a decision). The Labor Ministry also participates as mediator in collective conflicts, facilitating and promoting dialogue among interested parties. The law provides for protection from dismissal for union organizers and members and requires employers found guilty of anti-union discrimination to reinstate workers fired for union activities.

The law provides for the right of workers to conduct legal strikes, but it prohibits strikes in public services considered essential (police, hospitals, and ports). Strikes affecting the private sector are rare and do not pose a risk for investment.

Child and adolescent labor is uncommon in Costa Rica, and it occurs mainly in agriculture in the informal sector.  In 2020, the government published the results of a child labor risk identification model and a strategy to design preventive measures at local level. In 2021, the government continued a pilot project for the prevention of child labor in two at-risk cantons in the province of Limón. The government also activated the Houses of Joy (“Casas de la Alegría”) during the coffee harvest season 2021-2022. These are daycare centers for children of workers in different coffee regions of the country, mainly in the Brunca, Los Santos, and Western Valley regions.

Chapter 16 of the U.S.-Central American Free Trade Agreement obliges Costa Rica to enforce laws that defend core international labor standards. The government, organized labor, employer organizations, and the International Labor Organization signed a memorandum of understanding to launch a Decent Work Program for the period 2019-2023, which aims to improve labor conditions and facilitate employability for vulnerable groups through government-labor-business tripartite dialogue.

The National Assembly recently approved a public employment reform bill that aims to establish the same salary for equal responsibilities in the public sector, eliminating different wage systems and salary bonus structures, which is projected to reduce the fiscal deficit.The legislation will take effect in March 2023.

The Development Finance Corporation (DFC) offers financing (loans and guarantees) as well as political risk insurance.  DFC loan guarantee activities in Costa Rica are covered under the bilateral “Investment Guarantees Agreement” signed in 1968 and entered into force in 1969.

In Costa Rica, DFC’s portfolio exposure in early 2022 totaled USD 326 million across 8 projects, mostly in the financial services to support affordable mortgage lending and lending to small and medium and women-owned enterprises, and to expand access to electricity such as rooftop solar. Costa Rica is a member of the Multilateral Investment Guarantee Agency, a member of the World Bank group.

* Source for Host Country Data: Costa Rican Central Bank. The “FDI Stock” positions detailed here are an accounting expression of the accumulation of FDI through 2020, while the “FDI inflow” statistic given in the first paragraph of the executive summary is the sum of foreign direct investment made in Costa Rica during calendar year 2020, as reported by the Costa Rican Central Bank.    

Attention: Investment Climate Statement
Economic Section
Embassy San Jose, Costa Rica
2519-2000
SanJoseEcon@state.gov 

The GOES recognizes the benefits of attracting FDI. El Salvador does not have laws or practices that discriminate against foreign investors, nor does the GOES screen or prohibit FDI. However, FDI levels are among the lowest in Central America. The Central Bank reported net annual FDI inflows of $408.5 million, or approximately 1.5 percent of GDP, at the end of September 2021.

The Exports and Investment Promotion Agency of El Salvador (PROESA) supports investment in seven main sectors: textiles and apparel; business services; tourism; aeronautics; agro-industry; light manufacturing; and energy. PROESA provides information for potential investors about applicable laws, regulations, procedures, and available incentives for doing business in El Salvador. Websites: https://investelsalvador.com/  and https://proesa.gob.sv/servicios/servicios-al-inversionista/ .

The National Association of Private Enterprise (ANEP), El Salvador’s umbrella business chamber, serves as the primary private sector representative in dialogues with GOES ministries. http://www.anep.org.sv/ .

In 2019, the Bukele administration created the Secretariat of Commerce and Investment, a position within the President’s Office responsible for the formulation of trade and investment policies, as well as overall coordination of the Economic Cabinet. In addition, the Bukele administration created the Presidential Commission for Strategic Projects to lead the GOES’ major infrastructure projects.

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. The Salvadoran Constitution stipulates there is no restriction on foreign ownership of rural land in El Salvador except in cases where Salvadoran nationals face ownership restrictions in the corresponding country. Rural land to be used for industrial purposes is not subject to this reciprocity requirement.

The Investments Law grants equal treatment to foreign and domestic investors. Apart from limitations imposed on micro businesses, which are defined as having 10 or fewer employees and yearly sales of $175,930 or less, foreign investors may freely establish any type of domestic business. 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 extractive resources are the exclusive property of the state. The GOES may grant private concessions for resource extraction, though concessions are infrequently granted.

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/344/Rev.1).

https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/tpr/s/*)%20and%20((%20@Title=%20el%20salvador%20)%20or%20(@CountryConcerned=%20el%20salvador))&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true# 

The latest investment policy review performed by the United Nations Conference on Trade and Development (UNCTAD) was in 2010. http://unctad.org/en/Docs/diaepcb200920_en.pdf

In 2018, the Salvadoran Foundation for Economic and Social Development (FUSADES) published a position paper on investment policies, expanding on a 2015 study of the role of policies in productive development and investment. The report, written in Spanish, contains an analysis of policies, competitive advantages, constraints to investment attraction, and private sector views of the business climate. The report recommends that the government formulate a long-term development strategy, strengthen the cohesion between investment, trade facilitation and competitiveness policies, and develop an infrastructure policy that includes investment and PPP portfolios, among others. In addition, a September 2021 report on foreign direct investment in El Salvador, also by FUSADES, points out that investment attraction continues to be constrained by the lack of a comprehensive development and competitiveness strategy, poor coordination among government agencies on investment issues, including promotion and aftercare, and institutional capacity limitations. The analysis also notes that stabilizing public finances would contribute to supporting capital flows to El Salvador.

http://fusades.org/publicaciones/Como_reactivar_inversiones_ES.pdf .

http://fusades.org/publicaciones/la-inversion-extranjera-sigue-baja-falta-un-plan-estrategico-publico-y-privado-para-revertirla 

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.

While the government encourages Salvadoran investors to invest in El Salvador, it neither promotes nor restricts investment abroad.

El Salvador has bilateral investment treaties in force with Argentina, Belize, BLEU (Belgium-Luxembourg Economic Union), Chile, the Czech Republic, Finland, France, Germany, Israel, Republic of Korea, Morocco, the Netherlands, Paraguay, Peru, Spain, Switzerland, the United Kingdom, and Uruguay. El Salvador is one of the five Central American Common Market countries that have an investment treaty among themselves.

The CAFTA-DR entered into force in 2006 between the United States and El Salvador. CAFTA-DR’s investment chapter provides protection to most categories of investment, including enterprises, debt, concessions, contract, and intellectual property. Under this agreement, U.S. investors enjoy the right to establish, acquire, and operate investments in El Salvador on an equal footing with local investors. Among the rights afforded to U.S. investors are due process protections and the right to receive a fair market value for property in the event of expropriation. Investor rights are protected under CAFTA-DR by an effective, impartial procedure for dispute settlement that is transparent and open to the public.

El Salvador also has free trade agreements (FTAs) with Mexico, Chile, Panama, Colombia, and Taiwan. Although the GOES announced the cancellation of the Taiwan FTA in February 2019, the Supreme Court halted the cancellation in March 2019. The FTA remains in force pending a Supreme Court ruling.

In January 2020, the South Korea-Central America FTA became effective. This FTA includes investment provisions. El Salvador’s FTAs with Mexico, Chile, Dominican Republic, and Panama also include investment provisions. El Salvador continues trade agreement negotiations with Canada, which will likely include investment provisions. The Salvadoran government signed a Partial Scope Agreement (PSA) with Cuba in 2011 and an additional Protocol to the PSA in October 2018. El Salvador and Bolivia signed a PSA in November 2018 that is pending ratification in the Legislative Assembly. A PSA with Ecuador entered into force in 2017.

El Salvador, along with Costa Rica, Guatemala, Honduras, Nicaragua, and Panama, signed an Association Agreement with the European Union that establishes a Free Trade Area. The agreement entered into force with El Salvador in 2013. On March 1, 2022, El Salvador ratified the Protocol to the Association Agreement to take account of the accession of the Republic of Croatia to the European Union. The United Kingdom-Central America Association Agreement entered into force in January 2021. The agreement ensures continuity of commercial ties following Brexit and provides a framework for cooperation and investment.

El Salvador does not have a bilateral taxation treaty with the United States. El Salvador has one tax agreement with Spain, in effect since 2008.

El Salvador is a signatory of the Central American Mutual Assistance and Technical Cooperation Agreement in Tax and Customs Matters in force since 2012. On October 2018, El Salvador’s Legislative Assembly ratified the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters . The jurisdictions participating in the Convention can be found at:  www.oecd.org/ctp/exchange-of-tax-information/Status_of_convention.pdf

El Salvador became a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes in 2011. The OECD published El Salvador’s Phase 1 peer review report, which demonstrates its commitment to international standards for tax transparency and exchange of information, in 2015. The Phase 2 peer review on implementation of the standards, published in 2016, concluded that El Salvador is “largely compliant.”

El Salvador is not a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting.

In November 2020, El Salvador eliminated the Security Special Contribution on Large Taxpayers (CESC). Enacted in 2015, the CESC levied a five-percent tax on companies whose net income exceeded $500,000 to finance security measures, including the GOES’ Plan Control Territorial (Territorial Control Plan).

In May 2019, the legislature also approved an Authentic Interpretation of the Income Tax Law to clarify that energy distributors may deduct energy losses from the income tax, as energy losses are an unavoidable cost of distribution.  Prior to the authentic interpretation, tax authorities repeatedly imposed back taxes, interest, and penalties for improper deductions. Companies successfully challenged most of the tax assessments but had incurred legal costs and increased financial exposure.

The laws and regulations of El Salvador are relatively transparent and generally foster competition, but government accountability has weakened in recent years. Legal, regulatory, and accounting systems are transparent and consistent with international norms. However, the discretionary application of rules can complicate routine transactions, such as customs clearances and permitting applications. Regulatory agencies are often understaffed and inexperienced in dealing with complex issues. New foreign investors should review the regulatory environment carefully. In addition to applicable national laws and regulations, localities may impose permitting requirements on investors.

Environmental, social and governance (ESG) disclosures are not mandatory in El Salvador. However, the financial services industry is introducing ESG factors into investment portfolios and strategies. In 2019, 12 private banks signed the “Sustainable Finance Protocol” to develop green finance strategies, design specialized products and services for sustainable development, and implement result-based frameworks for achieving environmental and social sustainability. In June 2021, the Stock Exchange issued guidelines for the issuance of sustainability-linked bonds and announced dedicated listing segments for thematic bonds (green, social and sustainable bonds).

Companies note the GOES has enacted laws and regulations without adhering to established notice and comment procedures. The Regulatory Improvement Law, which entered into force in 2019, requires GOES agencies to publish online the list of laws and regulations they plan to approve, reform, or repeal each year. Institutions cannot adopt or modify regulations and laws not included in that list. The implementation of the law is gradual; the regulatory agenda is required for the executive branch since 2020, for the legislative and judicial branches, and autonomous entities in 2022, and municipalities in 2023. Prior to adopting or amending laws or regulations, the Simplified Administrative Procedures Law requires the GOES to perform a Regulatory Impact Analysis (RIA) based on a standardized methodology. Proposed legislation and regulations, as well as RIAs, must be made available for public comment. In practice, however, the Legislative Assembly does not publish draft legislation on its website and does not solicit comments on pending legislation. The GOES does not yet require the use of a centralized online portal to publish regulatory actions. The reforms have not been fully implemented. In 2021, 13 ministries (out of 16) drafted and published their regulatory agendas. Only five ministries revised their regulatory agendas to publish modifications. GOES agencies performed only five RIAs prior to approving new legislation. Although the implications of the reforms are still not apparent, private sector stakeholders have expressed support for the measures.

El Salvador continues to develop the National Procedures Registry, an online platform listing all investment and trade-related procedures and requirements. The registry aims at increasing transparency and legal certainty, as only registered procedures and requirements will be enforceable. Procedures and requirements of central government agencies will be registered in 2022, autonomous institutions and state-owned companies in 2023, and municipalities in 2024. In 2021, ten ministries registered their procedures and requirements.

El Salvador began implementing the Simplified Administrative Procedures Law in February 2019. This law seeks to streamline and consolidate administrative processes among GOES entities to facilitate investment. In 2016, El Salvador adopted the Electronic Signature Law to facilitate e-commerce and trade. Policies, procedures and needed infrastructure (data centers and specialized hardware and software) are in place for implementation. The first digital certification providers were licensed in 2021. Six GOES agencies plan to implement electronic signature in 2022, including the Ministry of Economy, the National Directorate of Medicines, the National Registry Center, and the Planning Office of the Metropolitan Area of San Salvador. El Salvador also enacted the Electronic Commerce Law, which entered into force in February 2021. The law establishes the framework for commercial and financial activities, contractual or not, carried out by electronic and digital means, introduces fair and equitable standards to protect consumers and providers, and sets processes to minimize risks arising from the use of new technologies. The law aims to support rapidly growing online businesses and financial technology (FinTech).

In 2018, El Salvador enacted the Law on the Elimination of Bureaucratic Barriers, which created a specialized tribunal to verify that regulations and procedures are implemented in compliance with the law and to sanction public officials who impose administrative requirements not contemplated in the law. However, the law is pending implementation until the GOES appoints members of the tribunal.

The GOES controls the price of some goods and services, including electricity, liquid propane gas, gasoline, public transport fares, and medicines. The government also directly subsidizes water services and residential electricity rates. Electricity price is set by supply and demand and traded on a spot market. The market also operates with Power Purchase Agreements (PPAs) and long-term contracts. The GOES took over some private buses and routes in March 2022 in an effort to confront rising inflation, which critics said violated the Constitution.

The Superintendent of Electricity and Telecommunications (SIGET) oversees electricity rates, telecommunications, and distribution of electromagnetic frequencies. The Salvadoran government subsidizes residential consumers for electricity use of up to 105 kWh monthly. The electricity subsidy costs the government between $50 million to $64 million annually.

El Salvador’s public finances are relatively transparent, but do not fully meet international standards. Budget documents, including the executive budget proposal, enacted budget, and end-of-year reports, as well as information on debt obligations are accessible to the public at: http://www.transparenciafiscal.gob.sv/ptf/es/PTF2-Index.html  An independent institution, the Court of Accounts, audits the financial statements, economic performance, cash flow statements, and budget execution of all GOES ministries and agencies. The results of these audits are publicly available online.

The GOES has not disclosed information on the use of public funds devoted for Bitcoin implementation, including information about bitcoin holdings and operations. In addition, the GOES continues to shield the accounts of the Intelligence Agency from Court of Accounts and has limited the Court’s capacity to audit state-owned enterprise subsidiaries.

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, adheres to the Agreement on Technical Barriers to 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 notified its Categories A, B, and C commitments. In 2017, El Salvador established a National Trade Facilitation Committee (NTFC) as required by the TFA, which was reactivated in July 2019.

El Salvador is a member of the U.N. Conference on Trade and Development’s international network of transparent investment procedures:  https://elsalvador.eregulations.org/  Investors can find information on administrative procedures applicable to investment and income-generating operations including the name and contact details for those in charge of procedures, required documents and conditions, costs, processing time, and legal bases for the procedures.

El Salvador’s legal system is codified law. Commercial law is based on the Commercial Code and the corresponding Commercial and Civil Code of Procedures. There are specialized commercial courts that resolve disputes.

Although foreign investors may seek redress for commercial disputes through Salvadoran courts, many investors report the legal system to be slow, costly, and unproductive. Local investment and commercial dispute resolution proceedings routinely last many years. Final judgments are at times difficult to enforce. The Embassy recommends that potential investors carry out proper due diligence by hiring competent local legal counsel.

According to the Constitution, the judicial system is independent of the executive branch. Recent actions by the Legislative Assembly have eroded separation of powers and independence of the judiciary. In May 2021, the Legislative Assembly dismissed the Attorney General and all five justices of the Supreme Court’s Constitutional Chamber and immediately replaced them with officials loyal to President Bukele. Furthermore, in August 2021, the legislature amended the Judicial Career Organic Law to force into retirement judges ages 60 or above and those with at least 30 years of service. The move was justified by the ruling party as an effort to root out corruption in the judiciary from past administrations. Legal analysts believe these measures were unconstitutional and enabled the Legislative Assembly and the Bukele administration to exert control over the judiciary.

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 (MOL), Social Security Institute, pension fund administrators, and certain municipalities; request a tax identification number/card; and perform certain administrative functions. https://www.miempresa.gob.sv/ 

The country’s e-Regulations site provides information on procedures, costs, entities, and regulations involved in setting up a new business in El Salvador. https://elsalvador.eregulations.org/ 

The Exports and Investment Promoting Agency of El Salvador (PROESA) is responsible for attracting domestic and foreign private investment, promoting exports of goods and services, evaluating and monitoring the business climate, and driving investment and export policies. PROESA provides technical assistance to investors interested in starting operations in El Salvador, regardless of the size of the investment or number of employees. http://www.proesa.gob.sv/ 

The Office of the Superintendent of Competition reviews transactions for competition concerns. The OECD and the Inter-American Development Bank note the Superintendent employs enforcement standards that are consistent with global best practices and has appropriate authority to enforce the Competition Law effectively. Superintendent decisions may be appealed directly to the Supreme Court, the country´s highest court. https://www.sc.gob.sv/ 

The Constitution allows the government to expropriate private property for reasons of public utility or social interest. Indemnification can take place either before or after the fact.

In November 2021, the Legislative Assembly passed the Eminent Domain Law for Municipal Works to enable the National Directorate of Municipal Works (DOM) to expropriate land necessary for the development of infrastructure projects in the 262 municipalities of the country. The law allows the DOM to begin works before condemnation proceedings are finalized and without depositing the estimated value of the property. Landowners can appeal the court’s determination of the compensation but cannot challenge the grounds for the seizure. Legal experts have noted that the law’s broad expropriation parameters and insufficient guarantees for landowners could lead to arbitrary land seizures.

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, leading to the government expropriating the land of some large landholders. In 1980, private banks were nationalized but were subsequently returned to private ownership in 1989-90. A 2003 amendment to the Electricity Law requires energy-generating companies to obtain government approval before removing fixed capital from the country.

The Commercial Code, the Commercial Code of Procedures, and the Banking Law contain sections that deal with the process for declaring bankruptcy. There is no separate bankruptcy law or court. Bankruptcy proceedings are cumbersome, lengthy, and costly. In practice, bankruptcy proceedings are uncommon. In El Salvador, real estate mortgages and pledges grant the creditor privileged rights to obtain payment from assets given in guarantee. Thus, in case of insolvency, creditors with preferred guarantees file individual lawsuits. In addition, any creditor can request the judge the appointment of a receiver, procedure much simpler than bankruptcy.

Companies in financial distress can request a payment deferral from the judge to prevent bankruptcy. If approved by the judge and the creditors, the company may be able to negotiate a rescue plan with creditors.

Bankruptcy is not criminalized, but it can become a crime if the judge determines there was intent to defraud.

The International Services Law, approved in 2007, established service parks and centers with incentives similar to those received by El Salvador’s free trade zones. Service Park developers are exempted from income tax for 15 years, municipal taxes for ten years, and real estate transfer taxes. Service Park administrators are exempted from income tax for 15 years and municipal taxes for ten years.

Firms located in the service parks/service centers may receive the following permanent incentives:

Tariff exemption for the import of capital goods, machinery, equipment, tools, supplies, accessories, furniture, and other goods needed for the development of the service activities, along with full exemption from income tax and municipal taxes on company assets.

Service firms operating under the existing Free Trade Zone Law are also eligible for the incentives, though firms providing services to the Salvadoran market cannot receive the incentives. Eligible services include: international distribution, logistical international operations, call centers, information technology, research and development, marine vessels repair and maintenance, aircraft repair and maintenance, entrepreneurial processes (e.g., business process outsourcing), hospital-medical services, international financial services, container repair and maintenance, technology equipment repair, elderly and convalescent care, telemedicine, cinematography postproduction services, including subtitling and translation, and specialized services for aircraft (e.g., supply of beverages and prepared food, laundry services and management of inventory).

The Tourism Law establishes tax incentives for those who invest a minimum of $25,000 in tourism-related projects in El Salvador, including: value-added tax exemption for the acquisition of real estate; import tariffs waiver for construction materials, goods, equipment (subject to limitation); and a ten-year income tax waiver. The investor also benefits from a five-year exemption from land acquisition taxes and a 50 percent reduction of municipal taxes. To take advantage of these incentives, the enterprise must contribute five percent of its profits during the exemption period to a government-administered Tourism Promotion Fund. More information about tax incentives for tourism, please visit: http://www.mitur.gob.sv/ii-aspectos-legales-en-beneficio-de-la-inversion-contemplados-en-la-ley-de-turismo/ 

The Renewable Energy Incentives Law promotes investment projects that use renewable energy sources. In 2015, the Legislative Assembly approved amendments to encourage the use of renewable energy sources and reduce dependence on fossil fuels. These reforms extended the incentives to power generation using renewable energy sources, such as hydro, geothermal, wind, solar, marine, biogas, and biomass. The incentives include a 10-year exemption from customs duties on the importation of machinery, equipment, materials, and supplies used for the construction and expansion of substations, transmission, or sub-transmission lines. Revenues directly derived from renewable power generation enjoy full income tax exemptions for a period of five years in case of projects above 10 MW and 10 years for smaller projects. The Law also provides a tax exemption on income derived directly from the sale of certified emission reductions (CERs) under the Mechanism for Clean Development of the Kyoto Protocol, or carbon markets (CDM).

El Salvador does not issue guarantees or directly co-finance foreign direct investment projects. However, El Salvador has a Public-Private Partnerships Law that allows private investment in the development of infrastructure projects, including in areas of health, education, and security. Under the second MCC Compact, El Salvador launched international tenders for two Public-Private Partnerships projects. In August 2021, the Legislative Assembly approved the contract award of the first-ever PPP project to design, expand, construct, and operate expanded cargo operations of El Salvador’s primary international airport. The estimated budget for the PPP is $57 million. A second PPP tender was released in January 2020 for the design, financing, installation, equipment, operation and maintenance of a public lighting and video surveillance systems on approximately 143 kilometers of roads in San Salvador, La Libertad and La Paz departments. The GOES, however, cancelled the tender in 2022, because the key components of the project were dated after passing nearly two years since it was initially published. It is unclear if the GOES will relaunch the tender.  El Salvador has undertaken pre-feasibility studies on other potential PPP projects, including a second airport in eastern El Salvador, a toll road concession to connect its biggest port (Acajutla) to the La Hachadura border with Guatemala, and improvements of four border crossings (La Hachadura, Anguiatu, El Poy and El Amarillo) and three intermediate customs facilities (Metalio, Santa Ana and San Bartolo). The GOES has planned a total of 16 PPPs.

The Free Trade Zone Law is designed to attract investment in a wide range of activities, although most of the businesses in free trade zones are textile plants. A Salvadoran partner is not needed to operate in a free trade zone, and some textile operations are completely foreign owned.

There are 17 free trade zones in El Salvador. They host 206 companies in sectors including textiles, distribution, call centers, business process outsourcing, agribusiness, agriculture, electronics, and metallurgy. Owned primarily by Salvadoran, U.S., Taiwanese, and Korean investors, free trade zone firms employ more than 81,000 people. The point of contact is the Chamber of Textile, Apparel and Free Trade Zones of El Salvador (CAMTEX) at: https://www.camtex.com.sv/site/ .

The Free Trade Zone Law establishes rules for free trade zones and bonded areas. The free trade zones are outside the nation’s customs jurisdiction while the bonded areas are within its jurisdiction, but subject to special treatment. Local and foreign companies can establish themselves in a free trade zone to produce goods or services for export or to provide services linked to international trade. The regulations for the bonded areas are similar.

Qualifying firms located in the free trade zones and bonded areas may enjoy the following benefits:

Exemption from all duties and taxes on imports of raw materials and the machinery and equipment needed to produce for export;

Exemption from taxes for fuels and lubricants used for producing exports if they not domestically produced;

Exemption from income tax, municipal taxes on company assets and property for either 15 years (if the company is in the metropolitan area of San Salvador) or 20 years (if the company is located outside of the metropolitan area of San Salvador);

Exemption from taxes on certain real estate transfers, e.g., the acquisition of goods to be employed in the authorized activity; and

Exemption from value-added tax on goods and services sourced locally to be employed in the authorized activity, including goods that are not incorporated into the final product, security and transportation services, as well as construction services and materials.

Companies in the free trade zones are also allowed to sell goods or services in the Salvadoran market if they pay applicable taxes on the proportion sold locally. Additional rules apply to textile and apparel products.

Regulations allow a WTO-complaint “drawback” to refund custom duties paid on imported inputs and intermediate goods exclusively used in the production of goods exported outside of the Central American region. Regulations also included the creation of a Business Production Promotion Committee with the participation of the private and public sector to work on policies to strengthen the export sector, and the creation of an Export and Import Center.

All import and export procedures are handled by the Import and Export Center (Centro de Trámites de Importaciones y Exportaciones – CIEX El Salvador). More information about the procedures can be found at: https://www.ciexelsalvador.gob.sv/ciexelsalvador/

El Salvador’s Investment Law does not require investors to meet export targets, transfer technology, incorporate a specific percentage of local content, turn over source code or provide access to surveillance, or fulfill other performance criteria.

In August 2021, the Legislative Assembly passed amendments to the Credit History Law. The amendments introduce data localization requirements mandating credit bureaus and economic agents that report on credit history to store data and its backup exclusively in El Salvador and grant unrestricted access to the Central Bank and the Superintendence of the Financial System. The amendments took effect September 9, 2021, with a grace period of six months for companies to comply as the Central Bank develops technical norms for implementation. U.S. stakeholders have expressed concerns that these new requirements could compromise consumer data privacy and protection. There are no restrictions on cross-border transfers of other business-related data.

Foreign investors and domestic firms are eligible for the same incentives. Exports of goods and services are exempt from value-added tax.

The International Services Law establishes tax benefits for businesses that invest at least $150,000 during the first year of operations, including working capital and fixed assets, hire at least 10 permanent employees, and have at least a one-year contract. For hospital/medical services, the minimum capital investment must be $1 million and a minimum of $250,000 for care services for the elderly and convalescent. Hospitals or clinics must be located outside of major metropolitan areas, and medical services must be provided only to patients with insurance.

Private property, both non-real estate and real estate, is recognized and protected in El Salvador. Mortgages and real property liens exist. Companies that plan to buy property are advised to hire competent local legal counsel to guide them on the property’s title prior to purchase.

Per the Constitution, no single natural or legal person- whether national or foreign- can own more than 245 hectares (605 acres) of land. Reciprocity applies to the ownership of rural land, i.e., El Salvador does not restrict the ownership of rural land by foreigners, unless Salvadoran citizens are restricted in the corresponding states. The restriction on rural land does not apply if used for industrial purposes.

Real property can be transferred without government authorization. For title transfer to be valid regarding third parties, however, it needs to be properly registered. Laws regarding rental property tend to favor the interests of tenants. For instance, tenants may remain on property after their lease expires, provided they continue to pay rent. Likewise, the law limits the permissible rent and makes eviction processes extremely difficult.

Squatters occupying private property in “good faith” can eventually acquire title. If the owner of the property is unknown, squatters can acquire title after 20 years of good faith possession through a judicial procedure; if the owner is known, squatters can acquire title after 30 years.

Squatters may never acquire title to public land, although municipalities often grant the right of use to the squatter.

Zoning is regulated by municipal rules. Municipalities have broad power regarding property use within their jurisdiction. Zoning maps, if they exist, are generally not available to the public.

The perceived ineffectiveness of the judicial system discourages investments in real estate and makes execution of real estate guarantees difficult. Securitization of real estate guarantees or titles is legally permissible but does not occur frequently in practice.

El Salvador’s intellectual property rights (IPR) legal framework is strong. El Salvador revised several laws to comply with CAFTA-DR´s provisions on IPR, such as extending the copyright term to 70 years. The Intellectual Property Promotion and Protection Law (1993, revised in 2005), Law of Trademarks and Other Distinctive Signs (2002, revised in 2005), and Penal Code establish the legal framework to protect IPR. Investors can register trademarks, patents, copyrights, and other forms of intellectual property with the National Registry Center´s Intellectual Property Office. In 2008, the government enacted test data exclusivity regulations for pharmaceuticals (for five years) and agrochemicals (for 10 years) and ratified an international agreement extending protection to satellite signals.

In November 2021, the National Registry Center inaugurated the first Technology and Innovation Support Center (TISC) to assist innovators and entrepreneurs create, protect, and manage IP rights. The TISC provides access to patent and non-patent (scientific and technology) databases and IP-related publications, and information on IP laws and regulations.

El Salvador’s enforcement of IPR protections falls short of its written policies. Salvadoran authorities have limited resources to dedicate to enforcement of IPR laws. The National Civil Police (PNC) has an Intellectual Property Section with five investigators, while the Attorney General’s Office (FGR) has 13 prosecutors in its Private Property division that also has responsibility for other property crimes including cases of extortion. According to ASPI, the PNC section coordinates well with other government and private entities. Nevertheless, the PNC admits that a lack of resources and expertise (e.g., regarding information technology) hinders its effectiveness in combatting IPR crimes.

The National Directorate of Medicines (DNM) has 38 products registered for data protection, including five in 2019 and 3 in 2022. The DNM protects the confidentiality of relevant test data and the list of such protected medications is available on the DNM https: https://www.medicamentos.gob.sv/index.php/es/servicios-m/informes/unidad-de-registro-y-visado/listado-de-productos-farmaceuticos-con-proteccion-de-datos-de-prueba .

The Salvadoran Intellectual Property Association (ASPI – Asociación Salvadoreña de Propiedad Intelectual) notes that piracy is common in El Salvador because the police focus on investigating criminal networks rather than points of sale. Trade in counterfeit medicines and pirated software is common.

Customs officials have identified some counterfeit products arriving directly from China through the Salvadoran seaport of Acajutla. In 2021, Customs officials seized 20 shipments based on the presumption of containing counterfeit products. These shipments primarily involved toys (e.g., Mattel and Rubin Cube), clothing, handbags, and footwear (e.g., Victoria’s Secret, Pink, Levi’s, Guess, Ralph Lauren, Cartier, Puma, Nike, Adidas, Vans, and Tommy Hilfiger), perfumes and colognes (e.g., Chanel, Dior, Hugo Boss and Lacoste), mobile phone accessories (e.g., Samsung), and accessories for vehicles (e.g., Kia and Hyundai). Contraband and counterfeit products, especially cigarettes, liquor, toothpaste, and cooking oil, remain widespread. According to the GOES and private sector contacts, most unlicensed or counterfeit products are imported to El Salvador. The Distributors Association of El Salvador (ADES) estimated in 2019 that the annual cost of illicit trade in El Salvador amounts to $1 billion. Most contraband cigarettes come in from China, Panama, South Korea, and Paraguay and undercut legitimately imported cigarettes, which are subject to a 39 percent tariff. According to ADES, most contraband cigarettes are smuggled in by gangs, with the complicity of Salvadoran authorities.

The national Intellectual Property Registry has 22 registered geographical indications for El Salvador. In 2018, the GOES registered four geographical indications involving Denominations of Origin for “Jocote Barón Rojo San Lorenzo” (a sour fruit), “Pupusa de Olocuilta” (a variant of El Salvador’s traditional food), “Camarones de la Bahía de Jiquilisco” (shrimp from the Jiquilisco Bay), and “Loroco San Lorenzo” (flower used in Salvadoran cuisine). Existing geographic indications include “Balsamo de El Salvador” (balm for medical, cosmetic, and gastronomic uses – since 1935), “Café Ilamatepec” (coffee – since 2010), and “Chaparro” (Salvadoran hard liquor- since 2016).

El Salvador is not listed in the U.S. Trade Representative’s Special 301 Report or its Review of Notorious Markets for Counterfeiting and Piracy. There are no IP-related laws pending.

El Salvador is a signatory of the Berne Convention for the Protection of Literary and Artistic Works; the Paris Convention for the Protection of Industrial Property; the Geneva Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication; the World Intellectual Property Organization (WIPO) Copyright Treaty; the WIPO Performance and Phonograms Treaty; the Rome Convention for the Protection of Performers, Phonogram Producers, and Broadcasting Organizations; and the Beijing Treaty on Audiovisual Performances (2012), which grants performing artists certain economic rights (such as rights over broadcast, reproduction, and distribution) of live and recorded works.

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

The Superintendent of the Financial System ( https://www.ssf.gob.sv/ ) 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, with the interest rate for credit cards and loans capped at 1.6 times the weighted average effective rate established by the Central Bank. The maximum interest rate varies according to the loan amount and type of loan (consumption, credit cards, mortgages, home repair/remodeling, business, and microcredits).

In January 2019, El Salvador eliminated a Financial Transactions Tax (FTT), which was enacted in 2014 and greatly opposed by banks.

The Securities Market Law establishes the 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 2021, the exchange traded $3.7 billion, with average daily volumes between $12 million and $30 million. Government-regulated private pension funds, Salvadoran insurance companies, and local banks are the largest buyers on the Salvadoran securities exchange. For more information, visit: https://www.bolsadevalores.com.sv/ 

All but two of the major banks operating in El Salvador are regional banks owned by foreign financial institutions. Given the high level of informality, measuring the penetration of financial services is difficult; however, it remains relatively low, between 30 percent – according to the Salvadoran Banking Association (ABANSA) – and 37 percent – reported by the Superintendence of the Financial System (SSF). 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. No bank has lost its correspondent banking relationship in recent years. There are no correspondent banking relationships known to be in jeopardy.

The banking system’s total assets as of December 2021 were $21.1 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.

The Cooperative Banks and Savings and Credit Associations Law regulates the organization, operation, and activities of financial institutions such as cooperative banks, credit unions, savings and credit associations, and other microfinance institutions. The Money Laundering Law requires financial institutions to report suspicious transactions to the Attorney General. Despite having regulatory scheme in place to supervise the filing of reports by cooperative banks and savings and credit associations, these entities rarely file suspicious activity reports.

The Insurance Companies Law regulates the operation of both local and foreign insurance firms. Foreign firms, including U.S., Colombian, Dominican, Honduran, Panamanian, Mexican, and Spanish companies, have invested in Salvadoran insurers.

El Salvador does not have a sovereign wealth fund.

El Salvador has successfully liberalized many sectors, though it maintains state-owned enterprises (SOEs) in energy generation and transmission, water supply and sanitation, ports and airports, and the national lottery (see chart below).

Although the GOES privatized energy distribution in 1999, it maintains significant energy production facilities through state-owned Rio Lempa Executive Hydroelectric Commission (CEL), a significant producer of hydroelectric and geothermal energy.

In October 2021, El Salvador’s legislature enacted the Creation Law of the Power, Hydrocarbons, and Mines General Directorate. The new General Directorate will be responsible for dictating the national energy policy and proposing amendments to energy legislation and by-laws, as well as implementing the energy policy. The law allows the President of the state-owned power company (CEL) to serve as the Director General of the new entity. The law will enter into force in November 2022. Industry stakeholders are concerned about the potential conflict of interest that would result from CEL making energy policy and participating in the sector as SOE.

The primary water service provider is the National Water and Sewer Administration (ANDA), which provides services to 96.6 percent of urban areas and 77 percent of rural areas in El Salvador.

The Autonomous Executive Port Commission (CEPA) operates both the seaports and the airports. CEL, ANDA, and CEPA Board Chairs hold Minister-level rank and report directly to the President.

The Law on Public Administration Procurement and Contracting (LACAP) covers all procurement of goods and services by all Salvadoran public institutions, including the municipalities. Exceptions to LACAP include: procurement and contracting financed with funds coming from other countries (bilateral agreements) or international bodies; agreements between state institutions; and the contracting of personal services by public institutions under the provisions of the Law on Salaries, Contracts and Day Work. Additionally, LACAP allows government agencies to use the auction system of the Salvadoran Goods and Services Market (BOLPROS) for procurement. Although BOLPROS is intended for use in purchasing standardized goods (e.g., office supplies, cleaning products, and basic grains), the GOES uses BOLPROS to procure a variety of goods and services, including high-value technology equipment and sensitive security equipment. As of October 2021, public procurement using BOLPROS totaled $157.1 million. The United Nations Office for Project Services (UNOPS) and United Nations Development Program (UNDP) also support government agencies in the procurement of a wide range of infrastructure projects. Procurement for municipal infrastructure works is governed by the Simplified Procurement Law for Municipal Works in force since November 2021 and centralized in the National Directorate of Municipal works created by the Bukele administration to oversee investment in infrastructure and social projects in municipalities. The GOES has created a dedicated procurement website to publish tenders by government institutions. https://www.comprasal.gob.sv/comprasal_web/ ).

In August 2020, President Bukele signed an executive order allowing the submission of bids for contractual services via email and eliminating bidders’ obligation to register online with the public procurement system (Comprasal), as well as lifting the responsibility of procurement officers to keep a record of companies and individuals who receive tender documents. Transparency advocates and legal experts have noted that the order would decrease potential bidders’ ability to access and compete fairly for government tenders. The order is pending review in the Supreme Court of Justice, but without injunctive effect.

Alba Petroleos is a joint venture between a consortium of mayors from the FMLN party and a subsidiary of Venezuela’s state-owned oil company PDVSA. As majority PDVSA owned, Alba Petroleos has been subject to Office of Foreign Assets Control (OFAC) sanctions since January 2019. Alba Petroleos operates a reduced number of gasoline service stations and businesses in other industries, including energy production, food production, convenience stores, and bus transportation. Alba Petroleos has been surrounded by allegations of mismanagement, corruption, and money laundering. Critics charged that the conglomerate received preferential treatment during FMLN governments and that its commercial practices, including financial reporting, are non-transparent. In May 2019, the Attorney General’s Office initiated an investigation against Alba Petroleos and its affiliates for money laundering. Alba Petroleos’ assets are frozen by court order and some of its gasoline service stations are being managed by the National Council for Asset Administration (CONAB).

El Salvador is not engaged in a privatization program and has not announced plans to privatize.

The private sector in El Salvador, including several prominent U.S. companies, has embraced the concept of responsible business conduct (RBC). Many companies donated to COVID-19 relief efforts in 2020. Several local foundations promote RBC practices, entrepreneurial values, and philanthropic initiatives. El Salvador is also a member of international institutions such as Forum Empresa (an alliance of RBC institutions in the Western Hemisphere), AccountAbility (UK), and the InterAmerican Corporate Social Responsibility Network. Businesses have created RBC programs to provide education and training, transportation, lunch programs, and childcare. In addition, RBC programs have included inclusive hiring practices and assistance to communities in areas such as health, education, senior housing, and HIV/AIDS awareness. Organizations monitoring RBC are able to work freely.

Following a reorganization under the Bukele administration, the Legal Secretariat is responsible for developing strategies and actions to promote transparency and accountability of government agencies, as well as fostering citizen participation in government. The watchdog organization Transparency International is represented in-country by the Salvadoran Foundation for Development (FUNDE).

El Salvador does not waive or weaken labor laws, consumer protection, or environmental regulations to attract foreign investment. El Salvador’s ability to enforce domestic laws effectively and fairly is limited by a lack of resources. El Salvador does not allow metal mining activity.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

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

El Salvador has a high exposure to natural hazards, such as earthquakes and volcanic eruptions, and is highly vulnerable to climate change impacts, including frequent occurrences of floods, droughts, and tropical storms. Climate change, contamination, and overexploitation have contributed to water insecurity. Aquifers in the coastal and central zones of El Salvador have receded by as much as 13 feet (4 meters) due to climate change and at least 90 percent of surface water sources are contaminated by untreated sewage, agricultural and industrial waste, according to a 2018 study by the Ministry of Environment and Natural Resources (MARN).

After nearly 15 years of a polarized debate over water management, the Legislative Assembly passed the Water Resources Law in December 2021. The law prohibits the privatization of water resources and establishes access to water and sanitation as a human right, as well as prioritizes water usage towards human consumption. The law creates an all-public governing body the Salvadoran Water Authority (ASA) charged with drafting policies and guidelines for water extraction and wastewater discharge.  The ASA will issue water permits for industrial purposes and other GOES ministries will issue permits relevant to their sectors.  ASA will be the sole issuer of effluent discharge permits. The law will take effect in July 2022 as by-laws and regulations needed for implementation are drafted. The private sector has expressed concerns about legal uncertainty, as the law does not differentiate existing water permits from new ones and does not clearly define regulatory entity by sector.

MARN released for public consultation the National Environmental Policy on February 7, 2022. The policy focuses on climate change management and adaptation, biodiversity mainstreaming in the economy, restoration and conservation of water resources, and environmental zoning. To enable implementation, three cross-cutting issues are highlighted in the policy (education and awareness- raising, research and scientific innovation, and governance) as action required by the GOES.

El Salvador presented the update of its Nationally Determined Contributions (NDC) to the United Nations Framework Convention on the Climate Change (UNFCCC) on January 6, 2022. The updated NDCs include actions to reduce greenhouse gas emissions (GHG) in the energy sector; a cumulative emissions reduction target, and activities to increase carbon sinks and reservoirs in the agricultural landscape of the agriculture, forestry, and land-use change sector if large-scale financing is obtained from international and national sources with the participation of the private sector.

El Salvador carried out a capacity needs assessment as the initial phase in the process of formulating its long-term low emission development strategy. The evaluation helped identify national strengths, priority sectors, institutional framework, relevant actors, and capacity constraints, as well as served as input to draft a roadmap to guide the development and implementation of the strategy. The assessment and roadmap were published on January 18, 2022. Work is underway to design El Salvador’s 2050 Low Emission and Resilient Development Strategy.

The Environmental Law creates the National Incentives and Disincentives Program and establishes parameters for its design. The program is prepared by MARN in conjunction with the Ministries for Finance and Economy. In 2021, MARN finalized drafting the program that focuses on restoration of ecosystems and productive landscapes and includes tools such as reputational incentives (National Price for the Environment), financial incentives (payments for ecosystem services and lines of credit with state-owned banks to undertake restoration actions in productive landscapes), non-financial incentives (technical assistance), and market incentives (eco-labels and certifications). The program is pending approval of the Economic Cabinet.

Protected areas, use of nature-based solutions, sustainable forest management, and other ecosystem management plans are regulated in the Natural Protected Areas Law and Wildlife Conservation Law. El Salvador does not have green public procurement policies.

U.S. companies operating in El Salvador are subject to the U.S. Foreign Corrupt Practices Act (FCPA).

Corruption can be a challenge to investment in El Salvador. El Salvador ranks 115 out of 180 countries in Transparency International’s 2021 Corruption Perceptions Index. While El Salvador has laws, regulations, and penalties to combat corruption, their effectiveness is at times questionable. Soliciting, offering, or accepting a bribe is a criminal act in El Salvador. The Attorney General’s Anticorruption and Anti-Impunity Unit handles allegations of public corruption. The Constitution establishes a Court of Accounts that is charged with investigating public officials and entities and, when necessary, passing such cases to the Attorney General for prosecution. Executive-branch employees are subject to a code of ethics, including administrative enforcement mechanisms, and the government established an Ethics Tribunal in 2006.

In June 2021, El Salvador terminated its 2019 agreement with the organization of American States (OAS) to back the International Commission Against Impunity and Corruption (CICIES). CICIES audited pandemic spending in 2020. After receiving CICIES preliminary findings in November 2021, the Attorney General’s Office began criminal investigations in 17 government agencies for alleged procurement fraud and misuse of public funds. In May 2021, the Legislative Assembly passed the “Law for the Use of Products for Medical Treatments in Exceptional Public Health Situations Caused by the COVID-19 Pandemic” to protect vaccine manufacturers from liability, a precondition for Pfizer to sell vaccines to El Salvador. However, the law’s broad liability shield provisions, including civil and criminal immunity for a wide range of medical product manufacturers and healthcare providers, raised concerns about the future of investigations into fraudulent purchases of medical supplies and PPE. The law was subsequently amended in October 2021 to clarify there is no immunity for acts of corruption, fraud, bribery, theft, counterfeiting or piracy and trafficking of stolen goods. Even though the reforms removed some of the most controversial aspects of the bill, investigations stalled after the Attorney General appointed by the Bukele Administration removed prosecutors working on pandemic-related probe against GOES officials.

Corruption scandals at the federal, legislative, and municipal levels are commonplace and there have been credible allegations of judicial corruption. Three of the past four presidents have been indicted for corruption, a former Attorney General is in prison on corruption-related charges, and a former president of the Legislative Assembly, who also served as president of the investment promotion agency during the prior administration, faces charges for embezzlement, fraud, and money laundering. The former Minister of Defense during two FMLN governments is being prosecuted for providing illicit benefits to gangs in exchange for reducing homicides (an agreement known as the 2012-2014 Truce). In February 2020, the Attorney General’s Office indicted high-ranking members of the ARENA and FMLN parties under charges of conspiracy and electoral fraud for negotiating with gangs for political benefit during the run up to the 2014 presidential elections. In September 2020, the Attorney General’s Office launched a probe against the Director of Penal Centers, the Vice Minister of Justice, and the Chief of the Social Fabric Reconstruction Unit for covert dealings with gangs on a homicide reduction in exchange for better prison conditions. Since the appointment of the current Attorney General, the investigation into Bukele administration’s gang pacts has not progressed. U.S Treasury designated the two officials and Bukele’s Chief of Cabinet for financial sanctions in December 2021. The law provides criminal penalties for corruption, but implementation is generally perceived as ineffective. Former President Funes faces criminal charges for embezzlement, money laundering, and misappropriation of public funds. Although there are several pending arrest warrants against Funes, he has fled to Nicaragua and cannot be extradited because he was granted Nicaraguan citizenship. In 2018, former president Elias Antonio (Tony) Saca pleaded guilty to embezzling more than $300 million in public funds. The court sentenced him to 10 years in prison and ordered him to repay $260 million.

The NGO Social Initiative for Democracy stated that officials, particularly in the judicial system, often engaged in corrupt practices with impunity. Long-standing government practices in El Salvador, including cash payments to officials, shielded budgetary accounts, and diversion of government funds, facilitate corruption and impede accountability.  For example, the accepted practice of ensuring party loyalty through off-the-books cash payments to public officials (i.e., sobresueldos) persisted across five presidential administrations. President Bukele eliminated these cash payments to public officials and the “reserved spending account,” nominally for state intelligence funding. At his direction, in July 2019, the Court of Accounts began auditing reserve spending of the Sanchez Ceren administration. In July 2021, the Attorney General’s Office accused ten former FMLN legislators and former cabinet members who served in the Funes administration (2009-2014), including former President Salvador Sanchez, of money laundering, embezzlement, and illicit enrichment for allegedly receiving sobresueldos from the President’s Office reserved spending account.

El Salvador has an active, free press that reports on corruption. The Illicit Enrichment Law requires appointed and elected officials to declare their assets to the Probity Section. The declarations are not available to the public, and the law only sanctions noncompliance with fines of up to $500. In 2015, the Probity Section of the Supreme Court began investigating allegations of illicit enrichment of public officials. In 2017, Supreme Court Justices ordered its Probity Section to audit legislators and their alternates. In 2019, in observance of the Constitution, the Supreme Court instructed the Probity Section to focus its investigations only on public officials who left office within ten years. In 2020, the Supreme Court issued regulations to standardize the procedures to examine asset declarations of public officials and carry out illicit enrichment investigations, as well as to set clear rules for decision-making. At the end of 2021, the Probity Section had a total of 452 active investigations on illicit enrichment. Between 2015 and 2021, the office completed economic examinations in 58 cases, but the Supreme of Court recommended civil prosecution for illicit enrichment in only 21 of those cases. In an October 2021 interview, the President of the Criminal Chamber of the Supreme Court indicated that 127 illicit enrichment cases were nearing the end of the 10-year constitutional statute of limitations.

In 2011, El Salvador approved the Law on Access to Public Information. The law provides for the right of access to government information, but authorities have not always effectively implemented the law. The law gives a narrow list of exceptions that outline the grounds for nondisclosure and provide for a reasonably short timeline for the relevant authority to respond, no processing fees, and administrative sanctions for non-compliance. The Bukele administration has weakened the autonomy of the Access to Public Information Agency (IAIP) – charged with ensuring compliance with the law – by reforming IAIP’s regulations to increase the President’s Office control over the appointment of its commissioners. Enacted amendments also add requirements for accessing information, including for the release of restricted information. Civil society organizations claim it is common practice of the Bukele administration to declare information to be reserved (confidential) or deny information without justification and in violation of the law to avoid citizen oversight and accountability.

In 2011, El Salvador joined the Open Government Partnership. The Open Government Partnership promotes government commitments made jointly with civil society on transparency, accountability, citizen participation and use of new technologies ( http://www.opengovpartnership.org/country/el-salvador ).

El Salvador is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. El Salvador is a signatory to the UN Anticorruption Convention and the Organization of American States’ Inter-American Convention against Corruption.

The following government agency or agencies are responsible for combating corruption:

Doctor Jose Nestor Castaneda Soto, President of the Court of Government Ethics
Court of Government Ethics (Tribunal de Ética Gubernamental)
87 Avenida Sur, No.7, Colonia Escalón, San Salvador
(503) 2565-9403
Email: n.castaneda@teg.gob.sv
http://www.teg.gob.sv/ 

Licenciado Rodolfo Delgado
Fiscalía General de La República (Attorney General’s Office)
Edificio Farmavida, Calle Cortéz Blanco
Boulevard y Colonia Santa Elena
(503) 2593-7400
(503) 2528-6012
Email: radelgado@ fgr.gob.sv
http://www.fiscalia.gob.sv/ 

Chief Justice
Oscar Alberto López Jerez
Avenida Juan Pablo II y 17 Avenida Norte
Centro de Gobierno
(503) 2271-8888 Ext. 1424
Email: oscar.lopez@oj.gob.sv
http://www.csj.gob.sv 

Contact at “watchdog” organization (international, regional, local, or nongovernmental organization operating in the country/economy that monitors corruption, such as Transparency International):

Roberto Rubio-Fabián
Executive Director
National Development Foundation (Fundación Nacional para el Desarrollo – FUNDE)
Calle Arturo Ambrogi #411, entre 103 y 105 Avenida Norte, Colonia Escalón, San Salvador
(503) 2209-5300
Email: direccion@funde.org 

Access to Public Information Institute (IAIP for its initials in Spanish)
Ricardo Gómez Guerrero
Commissioner President of the IAIP
Prolongación Ave. Alberto Masferrer y
Calle al Volcán, Edif. Oca Chang # 88
(503) 2205-3800
Email: rgomez@iaip.gob.sv

El Salvador’s 12-year civil war ended in 1992. Since then, there has been no political violence aimed at foreign investors.

The crime threat level in El Salvador is critical, with high rates of crime and violence. Most serious crimes in El Salvador are never solved. El Salvador lacks sufficient resources to properly investigate and prosecute cases and to deter crime. For more information, visit: https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/ElSalvador.html

El Salvador has thousands of known gang members from several gangs including Mara Salvatrucha (MS-13) and 18th Street (M18). Gang members engage in violence or use deadly force if resisted. These “maras” concentrate on extortion, violent street crime, carjacking, narcotics and arms trafficking, and murder for hire. Extortion is a common crime in El Salvador. U.S. citizens who visit El Salvador for extended periods are at higher risk for extortion demands. Bus companies and distributors often must pay extortion fees to operate within gang territories, and these costs are passed on to customers. The World Economic Forum’s 2019 Global Competitiveness Index reported that costs due to organized crime for businesses in El Salvador are the highest among 141 countries.

According to the National Directorate of Statistics and Censuses (DIGESTYC), in 2021 El Salvador had a labor force of about 2.9 million people. Female labor force participation remained low at 41.2 percent. Around 70 percent of the workers were employed in the informal sector. The number of people working in the informal sector increased during the pandemic due to high unemployment rates. These workers do not have access to government health and pension benefits, and according to the 2020-2021 Salvadoran Foundation for Economic and Social Development report, 63.9 percent of workers the informal sector belong to vulnerable groups, such as women, children, and the rural poor.

http://fusades.org/publicaciones/informe-de-coyuntura-social-2020-2021 

https://www.elsalvador.com/noticias/negocios/trabajo-informal-pocos-incentivos-alejan-salvadorenos-tener-pension/829945/2021/ )

Labor laws require 90 percent of the workforce in plants and in clerical positions be Salvadoran citizens. While Salvadoran labor is regarded as hard-working, general education and professional skill levels are low. According to many large employers, there is a lack of middle management-level talent, which sometimes results in the need to bring in managers from abroad. Employers do not report labor-related difficulties in incorporating technology into their workplaces.

The law provides for the right of most workers to form and join independent unions, to strike, and to bargain collectively. The law also prohibits anti-union discrimination, although it does not require reinstatement of workers fired for union activity. Military personnel, national police, judges, and high-level public officers may not form or join unions. Workers who are representatives of the employer or in “positions of trust” also may not serve on a union’s board of directors. Only Salvadoran citizens may serve on unions’ executive committees. The labor code also bars individuals from holding membership in more than one trade union.

Unions must meet complex requirements to register, including having a minimum membership of 35 individuals. If the Ministry of Labor (MOL) denies registration, the law prohibits any attempt to organize for up to six months following the denial. Collective bargaining is obligatory only if the union represents most workers.

In 2021, some unions were concerned about the MOL’s delay in approving their organization’s credentials, required to continue operating as a union and to participate in various tripartite consultative committees between government, the private sector, and the unions. Without credentials, unions cannot participate in decision-making within tripartite committees on subjects such as worker social security benefits, minimum wage, housing, and other worker benefits. The members of the unions also lose their immunity from termination by their employers if their unions do not have credentials. As of January 2022, the MOL failed to grant credentials to more than 250 unions before their certifications expired. These unions represent workers in municipal, healthcare, education, and judicial trades, leaving these workers vulnerable to termination by their employers. The unions receiving their credentials quickly were those aligned with the political party of the Nuevas Ideas dominated government.

The law contains cumbersome and complex procedures for conducting a legal strike. The law does not recognize the right to strike for public and municipal employees or for workers in essential services. The law does not specify which services meet this definition, and courts therefore interpret this provision on a case-by-case basis. The law requires that 30 percent of all workers in an enterprise must support a strike for it to be legal and that 51 percent must support the strike before all workers are bound by the decision to strike. Unions may strike only to obtain or modify a collective bargaining agreement or to protect the common professional interests of the workers. They must also engage in negotiation, mediation, and arbitration processes before striking, although many unions often skip or expedite these steps. The law prohibits workers from appealing a government decision declaring a strike illegal.

The government did not effectively enforce the laws on freedom of association and the right to collective bargaining. Penalties remained insufficient to deter violations. Judicial procedures were subject to lengthy delays and appeals. According to union representatives, the government inconsistently enforced labor rights for public workers, maquiladora/textile workers, food manufacturing workers, subcontracted workers in the construction industry, security guards, informal-sector workers, and migrant workers.

Unions functioned independently from the government and political parties, although many generally were aligned with the traditional political parties of ARENA and the FMLN. Workers at times engaged in strikes regardless of whether the strikes met legal requirements.

Employers are free to hire union or non-union labor. Closed shops are illegal. Labor laws are generally in accordance with internationally recognized standards but are not enforced consistently by government authorities. Although El Salvador has improved labor rights since the CAFTA-DR entered into force and the law prohibits all forms of forced or compulsory labor, there remains room for better implementation and enforcement.

The MOL is responsible for enforcing the law. The government proved more effective in enforcing the minimum wage law in the formal sector than in the informal sector. Unions reported the ministry failed to enforce the law for subcontracted workers hired for public reconstruction contracts. The government provided its inspectors updated training in both occupational safety and labor standards and conducted thousands of inspections in 2019.

The law sets a maximum normal workweek of 44 hours, limited to no more than six days and to no more than eight hours per day, but allows overtime, which is to be paid at a rate of double the usual hourly wage.  The law mandates that full-time employees receive pay for an eight-hour day of rest in addition to the 44-hour normal workweek. The law provides that employers must pay double time for work on designated annual holidays, a Christmas bonus based on the time of service of the employee, and 15 days of paid annual leave. The law prohibits compulsory overtime. The law states that domestic employees are obligated to work on holidays if their employer makes this request, but they are entitled to double pay in these instances. The government does not adequately enforce these laws.

There is no national minimum wage; the minimum wage is determined by sector. On July 1, 2021, the government announced an increase in the minimum wage by about 20 percent for all industries in the formal sector. This was implemented on August 1, 2021, resulting in a one-month implementation period for industry. The increase had no impact on the majority of workers because most are employed in the informal sector.

El Salvador adopted the Telework Regulation Law in March 2020. The law is applicable in both private and public sectors and requires a written agreement between employer and employee outlining the terms and conditions of the arrangement, including working hours, responsibilities, workload, performance evaluations, reporting and monitoring, and duration of the arrangement, among others. Legislation prescribes employers as responsible for providing the equipment, tools, and programs necessary to perform duties remotely. Employers are subject to the obligations contained in labor laws, while workers are entitled to the same rights as staff working at the employer’s premises, including benefits and freedom of association.

* Central Bank, El Salvador. In 2018, the Central Bank released GDP estimates using the new national accounts system from 2008 and using 2005 as the base year.

*Coordinated Direct Investment Survey, International Monetary Fund 

Aaron Feit
Deputy Economic Counselor
U.S. Embassy San Salvador
Address: Final Blvd. Santa Elena, Antiguo Cuscatlán, La Libertad, El Salvador
Phone: +503 2501-2999
Email: FeitAL@state.gov

To reach the U.S. Foreign Commercial Service (FCS) Office, please email: Office.Sansalvador@trade.gov 

The Guatemalan government continues to promote investment opportunities and work on reforms to enhance competitiveness and the business environment. As part of the government’s efforts to promote economic recovery during and after the COVID-19 pandemic, the Ministry of Economy (MINECO) began implementing an economic recovery plan in September 2020, which focuses on recovering lost jobs and generating new jobs, attracting new strategic investment, and promoting consumption of Guatemalan goods and services locally and globally. Private consultants contributed to the government’s September 2020 economic recovery plan, which focuses on increasing exports and attracting foreign direct investment. During 2021 and first months of 2022 the Guatemalan congress approved some key economic legislation included in the economic recovery plan to improve the investment climate and foster economic growth, such as a leasing law, amendments to the free trade zone law, a law to simplify administrative procedures and requirements, and an insolvency law.

Guatemala’s investment promotion office operates within MINECO’s National Competitiveness Program (PRONACOM). PRONACOM supports potential foreign investors by offering information, assessment, coordination of country visits, contact referrals, and support with procedures and permits necessary to operate in the country. Services are offered to all investors without discrimination. The World Bank’s Doing Business 2020 report ranked Guatemala 96 out of 190 countries, one position lower than its rank in 2019. (Word Bank discontinued its Doing Business report in September 2021.) The two areas where the country had the highest rankings that year were electricity and access to credit. The areas of the lowest ranking were protecting minority investors, enforcing contracts, and resolving insolvency.

International investors tend to engage with the Guatemalan government via chambers of commerce and industry associations, and/or directly with specific government ministries. PRONACOM began to prioritize investment retention in 2020 and continued this policy throughout 2021.

The Guatemalan Constitution recognizes the right to hold private property and to engage in business activity. Foreign private entities can establish, acquire, and dispose freely of virtually any type of business interest, with the exception of some professional services as noted below. The Foreign Investment Law specifically notes that foreign investors enjoy the same rights of use, benefits, and ownership of property as Guatemalan citizens. Guatemalan law prohibits foreigners, however, from owning land immediately adjacent to rivers, oceans, and international borders.

Guatemalan law does not prohibit the formation of joint ventures or the purchase of local companies by foreign investors. The absence of a developed, liquid, and efficient capital market, in which shares of publicly owned firms are traded, makes equity acquisitions in the open market difficult. Most foreign firms operate through locally incorporated subsidiaries.

The law does not restrict foreign investment in the telecommunications, electrical power generation, airline, or ground-transportation sectors. The Foreign Investment Law removed limitations to foreign ownership in domestic airlines and ground-transport companies in January 2004. The Guatemalan government does not have a screening mechanism for inbound foreign investment.

Some professional services may only be supplied by professionals with locally-recognized academic credentials. Public notaries must be Guatemalan nationals. Foreign enterprises may provide licensed, professional services in Guatemala through a contract or other relationship with a Guatemalan company. As of 2010, Guatemalan law allows foreign insurance companies to open branches in Guatemala, a requirement under CAFTA-DR. This law requires foreign insurance companies to fully capitalize in Guatemala.

Guatemala has been a World Trade Organization (WTO) member since 1995. The Guatemalan government had its last WTO trade policy review (TPR) in November 2016. In 2011, the United Nations Conference on Trade and Development (UNCTAD) conducted an investment policy review (IPR) on Guatemala. The WTO TPR highlighted Guatemala’s efforts to increase trade liberalization and economic reform efforts by eliminating export subsidies for free trade zones, export-focused manufacturing, and assembly operations (maquilas) regimes, as well as amendments to the government procurement law to improve transparency and efficiency. The WTO TPR noted that Guatemala continues to lack a general competition law and a corresponding competition authority. The UNCTAD IPR-recommended strengthening the public sector’s institutional capacity and highlighted that adopting a competition law and policy should be a priority in Guatemala’s development agenda. The government agreed to approve a competition law by November 2016 as part of its commitments under the Association Agreement with the European Union, but the draft law had not been approved as of March 2022. Other important recommendations from the UNCTAD IPR were to further explore alternative dispute resolution mechanisms and the establishment of courts for commercial and land disputes, though the government had not made substantive progress on these recommendations as of March 2022.

The Guatemalan government has a business registration website (https://minegocio.gt/), which facilitates on-line registration procedures for new businesses. Foreign companies that are incorporated locally are able to use the online business registration window, but the system is not yet available to other foreign companies. The commercial code amendments that entered into force in January 2018 reduced the time and costs to register a new business online. As of March 2022, the estimated time to register a new mercantile company online was from four to 36 hours and the estimated time to register a limited liability company was between 11 and 15 days.. The estimated costs to register a new mercantile company and a new limited liability company were $19 and $77, respectively, as of March 2022. The procedures allow mercantile companies to receive their business registration certificates online. Every company must register with the business registry, the tax administration authority, the social security institute, and the labor ministry. Licenses, if required from the Ministry of Environment and Natural Resources, Ministry of Agriculture, Livestock and Food, and/or Ministry of Health and Social Assistance, add considerable additional time.

Guatemala does not incentivize nor restrict outward investment.

Tax, labor, environment, health, and safety laws do not directly impede investment in Guatemala. Bureaucratic hurdles are common for both domestic and foreign companies, including lengthy processes to obtain permits and licenses as well as to clear shipments through Customs. The legal and regulatory systems can be confusing and administrative decisions are often not transparent. Laws and regulations often contain few explicit criteria for government administrators, resulting in ambiguous requirements that are applied inconsistently by different government agencies and the courts.

Public participation in the formulation of laws or regulations is rare. In some cases, private sector groups, and to a lesser extent civil society groups are able to submit comments to the issuing government office or to the congressional committee reviewing the bill, but with limited effect. There is no legislative oversight of administrative rule making. The Guatemalan congress publishes all draft bills on its official website, but it does not make them available for public comment. The congress often does not disclose last-minute amendments before congressional decisions. Final versions of laws, once signed by the President, must be published in the official gazette before entering into force. Congress publishes scanned versions of all laws that are published in the official gazette. Information on the budget and debt obligations is publicly available at the Ministry of Finance’s primary website, but information on debt obligations does not include state-owned enterprise debt.

Guatemala is a member of the Central American Common Market and has adopted the Central American uniform customs tariff schedule. As a member of the WTO, the Guatemalan government notifies the WTO Committee on Technical Barriers to Trade (TBT) of draft technical regulations. The Guatemalan congress approved the WTO’s Trade Facilitation Agreement (TFA) in January 2017, which entered into force for Guatemala March 8, 2017. Guatemala classified 63.9 percent of its commitments under Category A, which includes commitments implemented upon entry into the agreement; 8.8 percent under Category B, which includes commitments to be implemented between February 2019 to July 2020; and 27.3 percent under Category C, which includes commitments to be implemented between February 2020 and July 2024. In February 2022, Guatemala requested an extension of time for a commitment to implement a single window for importation, exportation, and transit of goods, established under Article 10.4.1 and 10.4.2 of the TFA from the initial date of July 2022 to January 2024.

In 1996, Guatemala ratified Convention 169 of the International Labor Organization (ILO 169), which entered into force in 1997. Article 6 of the Convention requires the government to consult indigenous groups or communities prior to initiating a project that could affect them directly. Potential investors should determine whether their investment will affect indigenous groups and, if so, request that the Guatemalan government lead a consultation process in compliance with ILO 169. The Guatemalan congress began considering a draft law to create a community consultation mechanism to fulfill its ILO-mandated obligations in March 2018, but the bill was still pending congressional approval as of March 2022. The lack of a clear consultation process significantly impedes investment in large-scale projects.

Guatemala has a civil law system. The codified judicial branch law stipulates that jurisprudence or case law is also a source of law. Guatemala has a written and consistently applied commercial code. Contracts in Guatemala are legally enforced when the holder of a property right that has been infringed upon files a lawsuit to enforce recognition of the infringed right or to receive compensation for the damage caused. The civil law system allows for civil cases to be brought before, after, or concurrently with criminal claims. Guatemala does not have specialized commercial courts, but it does have civil courts that hear commercial cases and specialized courts that hear labor, contraband, or tax cases.

The judicial system is designed to be independent of the executive branch, and the judicial process for the most part is procedurally competent, fair, and reliable. There are frequent and wide-ranging accusations of corruption within the judicial branch.

More than 200 U.S. firms as well as hundreds of foreign firms have active investments in Guatemala. CAFTA-DR established a more secure and predictable legal framework for U.S. investors operating in Guatemala. Under CAFTA-DR, all forms of investment are protected, including enterprises, debt, concessions, contracts, and intellectual property. U.S. investors enjoy the right to establish, acquire, and operate investments in Guatemala on an equal footing with local investors in almost all circumstances. The U.S. Embassy in Guatemala places a high priority on improving the investment climate for U.S. investors. Guatemala passed a foreign investment law in 1998 to streamline and facilitate processes in foreign direct investment. In order to ensure compliance with CAFTA-DR, the Guatemalan congress approved in May 2006 a law that strengthened existing legislation on intellectual property rights (IPR) protection, government procurement, trade, insurance, arbitration, and telecommunications, as well as the penal code. Congress approved an e-commerce law in August 2008, which provides legal recognition to electronically executed communications and contracts; permits electronic communications to be accepted as evidence in all administrative, legal, and private actions; and, allows for the use of electronic signatures.

Guatemala previously faced two for violating its CAFTA-DR obligations—one under the labor chapter and the other under the environmental chapter. In the 2008 labor case filed by the AFL-CIO and six Guatemalan worker organizations, the arbitration panel found that the Guatemalan government failed to effectively enforce its labor laws, particularly by failing to enforce labor court orders for anti-union dismissals and to take enforcement actions in response to worker complaints. The panel determined that beyond the noted enforcement failures, evidence did not rise to a level sufficient to prove a violation of CAFTA-DR. Regarding the environmental case, the CAFTA-DR Secretariat for Environmental Matters suspended its investigation in 2012 when the Guatemalan government provided evidence that the relevant facts of the case were under consideration by Guatemala’s Constitutional Court. The constitutional court dismissed the case on procedural grounds in 2013.

Complex and confusing laws and regulations, inconsistent judicial decisions, bureaucratic impediments and corruption continue to constitute practical barriers to investment. According to the World Bank’s Doing Business Reports for 2015 and 2016, Guatemala made paying taxes easier and less costly by improving the electronic filing and payment system (“Declaraguate”) and by lowering the corporate income tax rate. Despite these measures, World Banks Doing Business Report for 2020 (the last available) ranked Guatemala 104 of 190 countries with respect to paying taxes. The Guatemalan government developed a useful website to help navigate the laws, procedures and registration requirements for investors (http://asisehace.gt/). The website provides detailed information on laws and regulations and administrative procedures applicable to investment, including the number of steps, names, and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time and legal grounds justifying the procedures.

Companies that carry out export activities or sell to exempted entities have the right to claim value added tax (VAT) credit refunds for the VAT paid to suppliers and documented with invoices for purchases of the goods and services used for production. Some local and foreign companies continue to experience significant delays in receiving refunds. Guatemala’s Tax and Customs Authority (SAT) began implementing a new plan in 2017 to streamline the process and expedite VAT credit refunds. The Guatemalan congress approved legal provisions in April 2019 that went into effect in November 2019. SAT established in December 2019 an electronic tax credit refund regime that expedites VAT credit refunds to exporters, but exporters claiming refunds outside the electronic tax credit refund regime continued to reportdelays in VAT refunds as of March 2022.

As part of its 2012 income tax reform, the Guatemalan government began implementing transfer pricing provisions in 2016. The Guatemalan congress approved a leasing law in February 2021 to regulate real estate and other types of leasing operations, including lease contracts with an option to purchase. A Guatemalan law to simplify, streamline, and digitize requirements and administrative procedures that are carried out with Executive Branch’s offices entered into force in August 2021.

Guatemala does not have a law to regulate monopolistic or anti-competitive practices. The Guatemalan government agreed to approve a competition law by November 2016 as part of its commitments under the Association Agreement with the European Union. The Guatemalan government submitted a draft competition law to Congress in May 2016, but it was still pending approval by Congress as of March 2022.

Guatemala’s constitution prohibits expropriation, except in cases of eminent domain, national interest, or social benefit. The Foreign Investment Law requires proper compensation in cases of expropriation. Investor rights are protected under CAFTA-DR by an impartial procedure for dispute settlement that is fully transparent and open to the public. Submissions to dispute panels and dispute panel hearings are open to the public, and interested parties have the opportunity to submit their views.

The Guatemalan government maintains the right to terminate a contract at any time during the life of the contract, if it determines the contract is contrary to the public welfare. It has rarely exercised this right and can only do so after providing the guarantees of due process.

Guatemala does not have an independent bankruptcy law in effect as of March 2022. However, the Guatemalan congress passed an insolvency law that applies to both individuals and businesses and regulates the renegotiation procedure between debtors and creditors in case of insolvency in February 2022. The new law will enter into force in August 2022 and requires the judicial branch to create specialized bankruptcy/insolvency courts within five years of the law’s enactment. Meanwhile, individuals and businesses that are facing insolvency can continue to use the Code on Civil and Mercantile Legal Proceedings, which contains a specific chapter on bankruptcy proceedings. Under the code, creditors can request to be included in the list of creditors; request an insolvency proceeding when a debtor has suspended payments of liabilities to creditors; and constitute a general board of creditors to be informed of the proceedings against the debtor. Bankruptcy is not criminalized, but it can become a crime if a court determines there was intent to defraud. According to the World Bank’s 2020 Doing Business Report, Guatemala ranked 157 out of 190 countries in resolving insolvency.

Guatemala’s main investment incentive programs are specified in law and are offered nationwide to both foreign and Guatemalan investors without discrimination.

Guatemala’s primary incentive program – the Law for the Promotion and Development of Export Activities and Maquilas (factories that import duty-free materials and assemble products for export) – is aimed mainly at the apparel and textile sector and at services exporters such as call centers and business processes outsourcing (BPO) companies. The government grants investors in these two sectors a 10-year income tax exemption. Additional incentives include an exemption from duties and value-added taxes (VAT) on imported machinery and equipment and a one-year suspension of the same duties and taxes on imports of production inputs, samples, and packing material. The Free Trade Zone Law provides similar incentives to the incentive program described above. The Guatemalan congress approved the Law for Conservation of Employment (Decree 19-2016) in February 2016,amending Guatemala’s two major incentive programs to replace tax incentives related to exports that Guatemala dismantled on December 31, 2015, per WTO requirements. Congress approved new amendments to the Free Trade Zones (FTZ) Law in May 2021 to reincorporate some of the economic activities that had been excluded during the 2016 reforms, such as manufacturing of plastic products, medications, and electronic devices and household appliances. The amendments to the FTZ law establish that local and foreign businesses and individuals with activities already taxed in the national customs territory may not migrate to FTZ or benefit from the incentives provided by this law. However, companies already operating in country that create new businesses with different activities than those already taxed are exempt from this provision.

The public Free Trade Zone of Industry and Commerce Santo Tomas de Castilla (ZOLIC) that operates contiguous to the state-owned port Santo Tomas de Castilla issued a regulation in January 2019 allowing the establishment of ZOLIC’s special public economic development zones outside of ZOLIC’s customs perimeter. The ZOLIC law grants businesses operating within the new special public economic development zones a 10-year income tax exemption. Additional exemptions include an exemption from VAT, customs duties, and other charges on imports of goods entering the area, including raw materials, supplies, machinery and equipment, as well as a VAT exemption on all taxable transactions carried out within the free trade zone when goods are exported. The law states that the incentives are available to local and foreign investors engaged in manufacturing and commercial activities as well as the provision of services.

The Law on Incentives for the Development of Renewable Energy Projects (Decree 52-2003) is aimed at municipalities, the National Electricity Institute (INDE), joint ventures, individuals and businesses that develop any renewable energy projects. It grants a 10-year exemption from import duties, including value added tax on imported machinery and equipment used exclusively for the generation of electricity in the area where the renewable projects are located. This incentive is valid only during the pre-investment and construction periods. The law also provides a 10-year income tax exemption valid from the date when a project starts commercial operation. The incentive is granted only to individuals and businesses that directly develop the project and only for the project.

Decree 65-89, Guatemala’s Free Trade Zones Law and its amendments approved through Decree 19-2016, Law for Conservation of Employment and Decree 6-2021, permits the establishment of free trade zones (FTZs) in any region of the country. Developers of private FTZs must obtain authorization from MINECO to install and manage a FTZ. Businesses operating within authorized FTZs also require authorization from MINECO. The law specifies investment incentives, which are available to both foreign and Guatemalan investors without discrimination. As of March 2022, there were four authorized FTZs operating in Guatemala. The Guatemalan congress approved amendments to the Free Trade Zones Law in May 2021 to reinstate tax incentives to some of the activities removed during the previous reform. Decree 22-73, ZOLIC’s law and its amendments approved through Decree 30-2018, allow the establishment of ZOLIC’s special public economic development zones outside of ZOLIC’s customs perimeter as described under the Investment Incentives subsection above. Special public economic development zones can be installed in ZOLIC’s facilities or property owned by third parties that is leased or granted in usufruct to ZOLIC. Administrators of special public economic development zones must obtain authorization from ZOLIC’s board of directors for a minimum period of 12 years. ZOLIC´s board of directors had approved nine special public economic development zones as of March 2022.

Guatemalan law does not impose performance, purchase, or export requirements nor does the government require foreign investors to use domestic content in goods or technology. Companies are not required to include local content in production.

Guatemalan companies do not require foreign IT providers to turn over source code. Some industries, such as the banking and financial sector, can request that their institution or a source code facilities management company receive a copy of the source code in case of potential problems with the IT provider.

Guatemala follows the real property registry system. Defects in the titles and ownership gaps in the public record can lead to conflicting claims of land ownership, especially in rural areas. The government stepped up efforts to enforce property rights by helping to provide a clear property title. Nevertheless, when rightful ownership is in dispute, it can be difficult to obtain and subsequently enforce eviction notices.

Mortgages are available to finance homes and businesses. Most banks offer mortgage loans with terms as long as 25 years for residential real estate. Mortgages and liens are recorded at the real estate property registry. According to the 2020 World Bank’s Doing Business Report, registering property in Guatemala takes 24 days, and it costs 3.6 percent of the property value. In the 2020 report, Guatemala ranked 89 out of 190 countries in the category of Registering Property.

The legal system is accessible to foreigners who may buy, sell, and file suit under the law. However, the legal system is not easily navigated without competent counsel. Foreign investors are advised to seek reliable local counsel early in the investment process.

Guatemala has been a member of the WTO since 1995 and the World Intellectual Property Organization (WIPO) since 1983. It is also a signatory to the Paris Convention, Berne Convention, Rome Convention, Phonograms Convention, and the Nairobi Treaty. Guatemala has ratified the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT). In June 2006, as part of CAFTA-DR implementation, Guatemala ratified the Patent Cooperation Treaty and the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure. Also in June 2006, the Guatemalan congress approved the International Convention for the Protection of New Varieties of Plants (UPOV Convention). Implementing legislation that would allow Guatemala to become a party to the convention, however, is still pending. The Guatemalan congress approved the Trademark Law Treaty (TLT) and the Marrakesh Treaty in February 2016. Legislation to incorporate TLT provisions into local law is pending as of March 2022. The Guatemalan congress passed amendments to the Copyright and Related Rights Law to adapt Marrakesh Treaty provisions into local law in October 2018, and the Guatemalan government issued its implementing regulation in March 2022.

Guatemala has a registry for intellectual property. Trademarks, copyrights, patents rights, industrial designs, and other forms of intellectual property must be registered in Guatemala to obtain protection in the country.

The Guatemalan congress passed an industrial property law in August 2000, bringing the country’s intellectual property rights laws into compliance with the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. Congress modified the legislation in 2003 to provide pharmaceutical test data protection consistent with international practice and again in 2005 to comply with IPR protection requirements in CAFTA-DR. CAFTA-DR provides for improved standards for the protection and enforcement of a broad range of IPR, which are consistent with U.S. standards of protection and enforcement as well as emerging international standards. Congress approved a law to prohibit the production and sale of counterfeit medicine in November 2011. It approved amendments to the Industrial Property Law in June 2013 to allow the registration of geographical indications (GI), as required under the Association Agreement with the European Union. Guatemalan administrative authorities issued rulings on applications to register GIs that appear sound and well-reasoned for compound GI names, but U.S. exporters are concerned that 2014 rulings on single-name GIs will effectively prohibit new U.S. products in the Guatemalan market from using what appear to be generic or common names when identifying their goods locally.

Guatemala remains on USTR’s Special 301 Watch List in 2022 and has been on the Watch list for more than 10 years. Despite a generally sound legal framework, IPR enforcement remains limited due to resource constraints, and limited coordination among law enforcement agencies. Piracy and copyright and trademark infringement, including those of some major U.S. food and pharmaceutical brands, remain problematic in Guatemala.

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

Guatemala’s capital markets lack a securities regulator. The local stock exchange (Bolsa Nacional de Valores) deals almost exclusively in commercial paper, repurchase agreements (repos), and government bonds. The Guatemalan Central Bank (Banguat),the Superintendency of Banks (SIB), and the Ministry of Economy were drafting an updated capital markets bill that included a chapter on securitization companies and the securitization process as of March 2022. Notwithstanding the lack of a modern capital markets law, the government debt market continues to develop. Domestic treasury bonds represented 58.1 percent of total public debt as of December 2021.

Guatemala lacks a market for publicly traded equities, which raises the cost of capital and complicates mergers and acquisitions. As of December 2021, borrowers faced a weighted average annual interest rate of 15.4 percent in local currency and 6.1 percent in foreign currency, with some banks charging over 40 percent on consumer or micro-credit loans. Commercial loans to large businesses offered the lowest rates and were on average 5.5 percent in local currency as of December 2021. Dollar-denominated loans typically are some percentage points lower than those issued in local currency. Foreigners rarely rely on the local credit market to finance investments.

Overall, the banking system remains stable. The Monetary Board, Banguat, and SIB approved various temporary measures during 2020 to increase liquidity of the banking system during the first months of the pandemic and to allow banks to approve restructuring of loans or deferral of loans to businesses and individuals affected by the pandemic. About 5.8 percent of the total number of loans remained subject to the temporary measures approved in 2020 as of December 2021. Non-performing loans represented 1.8 percent of total loans as of January 2022. According to information from the SIB, Guatemala’s 17 commercial banks had an estimated $56 billion in assets in December 2021. The six largest banks control 88 percent of total assets. In addition, Guatemala has 11 non-bank financial institutions, which perform primarily investment banking and medium- and long-term lending, and three exchange houses. Access to financial services is very high in Guatemala City, as well as in major regional cities. Guatemala had 23.7 access points per 10,000 adults at the national level and 29.1 access points per 10,000 adults in the capital area as of December 2021. There were 12,446 banking accounts per 10,000 adults at the national level and 24,915 banking accounts per 10,000 adults in the capital area as of December 2021. Most banks offer a variety of online banking services.

Foreigners are normally able to open a bank account by presenting their passport and a utility bill or some other proof of residence. However, requirements vary by bank.

In April 2002, the Guatemalan congress passed a package of financial sector regulatory reforms that increased the regulatory and supervisory authority of the SIB, which is responsible for regulating the financial services industry. The reforms brought local practices more in line with international standards and spurred a round of bank consolidations and restructurings. The 2002 reforms required that non-performing assets held offshore be included in loan-loss-provision and capital-adequacy ratios. As a result, a number of smaller banks sought new capital, buyers, or mergers with stronger banks, reducing the number of banks from 27 in 2005 to 17 in 2021.

Guatemalan banking and supervisory authorities and the Guatemalan congress actively work on new laws in the business and financial sectors. In August 2012, the Guatemalan congress approved reforms to the Banking and Financial Groups Law and to the Central Bank Organic Law that strengthened supervision and prudential regulation of the financial sector and resolution mechanisms for failed or failing banks. The Guatemalan government submitted to congress proposed amendments to the Banking and Financial Groups Law in November 2016 and an anti-money laundering and counter-terrorism financing draft law in August 2020. Both proposed laws were pending congressional approval as of March 2022.

Foreign banks may open branches or subsidiaries in Guatemala subject to Guatemalan financial controls and regulations. These include a rule requiring local subsidiaries of foreign banks and financial institutions operating in Guatemala to meet Guatemalan capital and lending requirements as if they were stand-alone operations. Groups of affiliated credit card, insurance, financial, commercial banking, leasing, and related companies must issue consolidated financial statements prepared in accordance with uniform, generally accepted accounting practices. The groups are audited and supervised on a consolidated basis.

The total number of correspondent banking relationships with Guatemala’s financial sector showed a slight decline in 2016, but the changes in the relationships were similar to those seen throughout the region and reflected a trend of de-risking. The situation stabilized in 2017. The number of correspondent banking relationships remained stable in 2021.

Alternative financial services in Guatemala include credit and savings unions and microfinance institutions.

Guatemala does not have a sovereign wealth fund.

Guatemala has three main state-owned enterprises: The National Electricity Institute (INDE) and two state-owned ports, Santo Tomas on the Caribbean coast, and Port Quetzal on the Pacific coast. INDE is a state-owned electricity company responsible for expanding the provision of electricity to rural communities. INDE owns approximately 14 percent of the country’s installed effective generation capacity, and it participates in the wholesale market under the same rules as its competitors. It also provides a subsidy to consumers of up to 88 kilowatt-hours (kWh) per month. Its board of directors comprises representatives from the government, municipalities, business associations, and labor unions. The board of directors appoints the general manager. The Guatemalan President appoints Santo Tomas Ports’ board of directors, and the board of directors appoints the general manager. The Guatemalan President also appoints the president of Port Quetzal’s board, and the president of the board appoints the general manager. The Guatemalan government also appoints the manager of state-owned telephone company GUATEL, which split off from the fixed-line telephone company during the 1998 privatization program. GUATEL’s operations are small, and it continuously fails to generate sufficient revenue to cover expenses. The GUATEL director reports to the Guatemalan President and to the board of directors.

The Guatemalan government currently owns 16 percent of the shares of the Rural Development Bank (Banrural), the second largest bank in Guatemala, and holds 3 out of 10 seats on its board of directors. Banrural is a mixed capital company and operates under the same laws and regulations as other commercial banks.

The Guatemalan government privatized a number of state-owned assets in industries and utilities in the late 1990s including power distribution, telephone services, and grain storage. Guatemala does not currently have a privatization program.

There is a general awareness of expectations of standards for responsible business conduct (RBC) on the part of producers and service providers, as well as Guatemalan business chambers. A local organization called the Center for Socially Responsible Business Action (CentraRSE) promotes, advocates, and monitors RBC in Guatemala. They operate freely with multiple partner organizations, ranging from private sector to United Nations entities. CentraRSE currently has over 100 affiliated companies from 20 different sectors that provide employment to over 150,000 individuals. CentraRSE defines RBC as a business culture based on ethical principles, strong law enforcement, and respect for individuals, families, communities, and the environment, which contributes to businesses competitiveness, general welfare, and sustainable development. The Guatemalan government did not have a definition of RBC as of March 2022. Guatemala joined the Extractive Industries Transparency Initiative (EITI) in February 2011 and was designated EITI compliant in March 2014. The EITI board suspended Guatemala in February 2019 for failing to publish the 2016 EITI report and the 2017 annual progress report by the December 31, 2018 deadline. Guatemala published the 2016-2017 EITI report and the 2017 annual progress report in February and March 2019. The EITI board suspended Guatemala again in January 2020 after deciding that Guatemala has made inadequate progress in implementing the 2016 EITI standard. The EITI board requested Guatemala to undertake corrective actions before a second validation related to the requirements started on July 23, 2021. On December 24, 2020, the EITI board postponed the date to start Guatemala’s second validation process to April 1, 2022. Guatemala published the 2018-2020 EITI report in November 2021 but remained suspended as of March 2022.

The State Department has recognized U.S. companies such as McDonald’s, Starbucks, and Denimatrix for corporate social responsibility (CSR) programs in Guatemala that aimed to foster safe and productive workplaces as well as provide health and education programs to workers, their families, and local communities. Communities with low levels of government funding for health, education, and infrastructure generally expect companies to implement CSR practices.

Conflict surrounding certain industrial projects – in particular mining and hydroelectric projects – is frequent, and there have been several cases of violence against protestors in the recent past, including several instances of murder. On October 24, 2021, President Alejandro Giammattei declared a State of Siege in El Estor as dozens of protestors, including environmental defenders, indigenous activists, and outside agitators blocked coal trucks from accessing a nickel mine and clashed with National Police (PNC). Media reported that the government maintained a force of 500 police and military in El Estor during the 30-day State of Siege to carry out patrols, manage vehicle checkpoints, and conduct raids. Indigenous leaders, journalists, and civil society organizations alleged that they faced arbitrary detentions and persecution for participating in anti-mining protests. Lack of clarity over indigenous consultations continues to impact Guatemala’s investment climate. On December 10, 2021, the government declared the successful conclusion of the ILO consultations with those indigenous groups they designated as participants in the consultation process for the nickel mine. The community’s self-determined governance structure, the Ancestral Council of Q’eqchi Peoples, was excluded from the consultations, and critics claimed that the government purposely neglected to include the group.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

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

The Climate Change Framework Law (Decree 7-2013) outlines requirements for the government’s response to the impacts of climate change, in particular by reducing climate change vulnerability, improving adaptive capacity, and promoting mitigation activities. The law also creates a National Climate Change Information System, managed by the Ministry of Environment and Natural Resources (MARN), as well as a National Climate Change Council to supervise implementation of the law and its associated Climate Change Fund. The Climate Change Framework Law also enables development of the National Reducing Emissions from Deforestation and Degradation (REDD+) Strategy, which clarifies questions about carbon emission reduction ownership and charges MARN with the creation of the National Registry for Greenhouse Gas Emission Reduction Projects. The law establishes the groundwork for Guatemala’s Low Emission Development Strategy (LEDS) and is designed to align Guatemala’s emissions and development targets with national planning documents in six sectors: energy, transportation, industry, land use, agriculture, and waste management. In November 2020, the Guatemalan government endorsed the LEDS as the country’s official strategy for climate change mitigation.

In 2015, Guatemala submitted its first nationally determined contribution (NDC) under the Paris Accords, pledging to reduce current greenhouse gas (GHG) emissions by 11.2 percent by 2030 by its own means. With the support of the international community, Guatemala also committed to reducing GHG emissions by 22.6 percent compared to its emissions growth trend from 1990-2005. Guatemala’s NDC does not target net zero emissions by 2050, nor do local climate experts believe the country is likely to achieve its current goals, primarily due to resource and capacity constraints. Guatemala failed to submit a revised NDC at COP-26 in 2021 but continues to prepare a revision to its NDCs led by MARN, the Ministry of Finance (MINFIN) and SEGEPLAN with the support of United Nations Development Programme (UNDP) in Guatemala and the NDC Partnership’s Climate Action Enhancement Package. The revised NDC pledges the same level of GHG reductions as the 2015 version. The document assigns few specific emissions reductions targets except in the agricultural and energy sectors. It does not delineate specific targets for the private sector. Critics say the NDC lacks the specific policies necessary to achieve even these modest reductions.

In 2018, Guatemala submitted to the UNFCCC the second edition of its National Climate Change Action Plan known in general, as a National Adaptation Plan. It is important to highlith the updated NDC claims to integrate cross-cutting issues, such as gender and inclusion of indigenous peoples by integrating inputs from the strategy for mainstreaming gender considerations in climate change in support of the NDC (UNDP-MARN, 2020), institutional gender representatives, and the Indigenous Climate Change Roundtable. Furthermore, Guatemala stated it will undertake an analysis of available funding and gaps for implementing NDC goals, identifying capacity-building needs, and managing information.

The Law on Protected Areas (Decree 4-89) created both the Guatemalan System of Protected Areas (SIGAP) and the National Council of Protected Areas (CONAP), which oversees SIGAP. The general objectives of this law are to ensure the optimal functioning of essential ecological processes and key natural systems; preserve biological diversity; attain sustained utilization of species and ecosystems in the national territory; defend and preserve the natural patrimony of the country; and establish the protected areas in the country as a matter of public utility and social interest. Protected areas are defined as those created with the purpose of conserving, managing, and restoring wild flora and fauna, other related resources, and natural and cultural interactions. Guatemala’s congress must approve the designation of a new protected area and had so designated 349 areas as of January 2021. The Protected Areas law requires CONAP to determine fines for infractions, up to and including prison sentences for crimes against the nation’s natural and cultural patrimony, illegal wildlife trafficking, and squatting in protected areas. Regulatory fines are often challenged in the courts, delaying enforcement.

Within the Guatemala NDC, the Agriculture, Forestry, and Other Land Use sectors (AFOLU) are recognized as the largest sources of GHG emissions in the country and offer opportunities for emission reductions. Guatemala has experienced some of the highest deforestation rates in Latin America. From 1990 to 2015, overall forest cover declined by more than 1.2 million hectares, which accounts for nearly 12 percent of Guatemala’s total land area. To prevent further emissions in the AFOLU sectors, the Government maintains contracts with eleven community groups in northern Guatemala that derive significant income by sustainably managing over 500,000 hectares of certified forests. Both former President Morales and current President Giammattei directed their cabinets to approve the renewal of 25-year contracts for the concessions. So far, five of the original nine have been approved and President Giamattei in 2021 established two additional community managed concessions bringing the total to eleven community forest concessions. PROBOSQUE (created by Decree 2-2015) is a forestry program that devotes one percent of the national budget to incentivize the protection of natural forests, reforestation, and the establishment of agroforestry practices. While PROBOSQUE builds on past forestry incentive programs, key differences include a wider range of eligible activities and eligible groups, a minimum project size of 0.5 hectares, and the removal of earmarks distinguishing between plantation and natural forest subsidies. The Forest Incentives Law for Owners of Small Extensions of Forest or Agroforestry Land (PINPEP, created by Decree 51-2010) is a forest incentive program for forest and agroforestry plots of fewer than 15 hectares. PINPEP provides landowners with funds to plant trees or maintain existing forests.

Bribery is illegal under Guatemala’s Penal Code. Guatemala scored 25 out of 100 points on Transparency International’s 2021 Corruption Perception Index, ranking it 150 out of 180 countries globally, and 28 out of 32 countries in the region. The law provides criminal penalties for official corruption, but the Public Ministry (MP) prosecuted very few government corruption cases.

Investors find corruption pervasive in government procurement, including payment of bribes in exchange for awarding public construction contracts. Investors and importers are frequently frustrated by opaque customs transactions, particularly at ports and borders. The Tax and Customs Authority (SAT) launched a customs modernization program in 2006, which implemented an advanced electronic manifest system and resulted in the removal of many corrupt officials. However, reports of corruption within customs’ processes remain. In 2021, SAT implemented additional customs reforms that route flagged shipments to a dedicated secondary inspection team for resolution, rather than assigning the case to the original inspector. The change eliminates opportunity for an inspector to impose deliberate delays.

From 2006 to 2019, the UN-sponsored International Commission against Impunity in Guatemala (CICIG) undertook numerous high-profile official corruption investigations, leading to significant indictments. For example, CICIG unveiled a customs corruption scheme in 2015 that led to the resignations of the former president and vice president. Since then-President Morales terminated CICIG in 2019 and actions by Attorney General Consuelo Porras to impede anti-corruption prosecutors, impunity has increased and poses significant risks for potential new investors.

Guatemala’s Government Procurement Law requires most government purchases over $116,363 to be submitted for public competitive bidding. Since March 2004, Guatemalan government entities are required to use Guatecompras ( https://www.guatecompras.gt/ ), an Internet-based electronic procurement system to track government procurement processes. Guatemalan government entities must also comply with government procurement commitments under CAFTA-DR. In August 2009, the Guatemalan congress approved reforms to the Government Procurement Law, which simplified bidding procedures; eliminated the fee previously charged to receive bidding documents; and provided an additional opportunity for suppliers to raise objections over the bidding process. Despite these reforms, large government procurements are often subject to appeals and injunctions based on claims of irregularities in the bidding process (e.g., documentation issues and lack of transparency). In November 2015, the Guatemalan congress approved additional amendments to the Government Procurement Law that tried to improve the transparency of the procurement processes by barring government contracts for some financers of political campaigns and parties, members of congress, other elected officials, government workers, and their immediate family members. However, there continue to be multiple allegations corruption and nepotism in the procurement process. The 2015 reforms expanded the scope of procurement oversight to include public trust funds and all institutions (including NGOs) executing public funds. The U.S. government continues to advocate for the use of open, fair, and transparent tenders in government procurement as well as procedures that comply with CAFTA-DR obligations, which would allow open participation by U.S. companies.

Guatemala ratified the U.N. Convention against Corruption in November 2006, and the Inter-American Convention against Corruption in July 2001. Guatemala is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. In October 2012, the Guatemalan congress approved an anti-corruption law that increased penalties for existing crimes and added new crimes such as illicit enrichment, trafficking in influence, and illegal charging of commissions.

Contact at the government agency or agencies that are responsible for combating corruption:

Public Ministry
Address: 23 Calle 0-22 Zona 1, Ciudad de Guatemala
Phone: (502) 2251-4105; (502) 2251-4219; (502) 2251-5327; (502) 2251-8480; (502) 2251-9225 Email address: fiscaliacontracorrupcion@mp.gob.gt 

Comptroller General’s Office
Address: 7a Avenida 7-32 Zona 13
Phone: (502) 2417-8700

Contact at “watchdog” organization:

Accion Ciudadana (Guatemalan Chapter of Transparency International)
Address: Avenida Reforma 12-01 Zona 10, Edificio Reforma Montufar, Nivel 17, Oficina 1701
Phone: (502) 2388- 3400

Toll free to submit corruption complaints: 1-801-8111-011 Email address: alac@accionciudadana.org.gt ; accionciudadana@accionciudadana.org 

According to the National Civil Police (PNC), the murder rate in 2020 dropped 28 percent – from 20.8 per 100,000 to 15 per 100,000, compared to 2019, continuing a downward trend in recent years. The Guatemalan government attributed the general decline in violence to the economic downturn during the first months of the coronavirus pandemic, including interdepartmental travel restrictions and the prohibition of most alcohol sales. The murder rate increased to 16.6 per 100,000 in 2021, a 9 percent increase compared to 2020. Rule of law is a challenge and the judicial system is faces significant delays in case processing and inefficiency. Local police may lack the resources to respond effectively to serious criminal incidents. Major criminal groups operating in Guatemala are involved in a number of illicit activities, including violent street crime, drug trafficking, kidnaping, extortion, arms trafficking, illegal adoption rings, and environmental crimes. Although security remains a concern, foreigners are not usually singled out as targets of crime.

The political climate in Guatemala, marked by its 36 years of armed conflict, is characterized by periodic civil disturbances. For example, in October 2021, President Alejandro Giammattei declared a State of Siege in El Estor as dozens of protestors, including environmental defenders, indigenous activists, and outside agitators blocked coal trucks from accessing a nickel mine and allegedly clashed with National Police (PNC) forces who attempted to clear the road for mining traffic. Protests and highway roadblocks organized by transportation workers and military veterans have caused disruption and heightened security, impacting general mobility and traffic condition, on a recurring basis in recent years.

In November 2020 civil unrest sparked by congressional approval of the 2021 budget proposal, which added to long-standing grievances. Largely peaceful protests were marred by isolated acts of vandalism and violence, including fire damage to the national congress building, as well as acts of violence by both security forces against some protestors and by some protestors against security forces. The main source of tension among indigenous communities, Guatemalan authorities, and private companies is the lack of prior consultation and alleged environmental damage.

Damage to projects or installations is rare. However, there were instances in October 2018 and January 2019 in which unidentified arsonists burned machinery and other equipment at the site of a hydroelectric construction project near the northern border with Mexico. Additionally, activist groups at times have engaged in blockades to prevent personnel, materials, and equipment from entering or leaving disputed installations.

According to the 2021 national survey of employment and income, the Guatemalan workforce consists of an estimated 2.1 million individuals employed in the formal sector. Additionally, roughly 5.1 million individuals, or 70.8 percent of the total workforce, work in the informal sector, including some who are too young for formal sector employment. According to the 2017 Survey on Employment and Income, the most recent survey with child labor data available, child labor, particularly in rural areas, remains a serious problem in certain economic activities. The informal economy represented 22 percent of GDP in 2019 according to official data. About 75.7 percent of female workers and 84.9 percent of indigenous workers were employed in the informal sector. Approximately 30 percent of the total labor force is engaged in agricultural work. The availability of a large, unskilled, and inexpensive labor force led many employers, such as construction and agricultural firms, to use labor-intensive production methods. Roughly, 14 percent of the employed workforce is illiterate. In developed urban areas, however, education levels are much higher, and a workforce with the skills necessary to staff a growing service sector emerged. Even so, highly capable technical and managerial workers remain in short supply, with secondary and tertiary education focused on social science careers. The Ministry of Labor issued a regulation in March 2022 that requires recruiters of Guatemalans being employed outside of Guatemala to be registered and to comply with all the requirements related to contracts established in Article 34 of the Labor Code.

No special laws or exemptions from regular labor laws cover export-processing zones. The Ministry of Labor issued a regulation in December 2021 that allows to set different minimum wages for two economic regions of the country starting in 2023. In July 2021, the Constitutional Court revoked the provisional suspension of the Ministry of Labor’s agreement on part-time work, based on ILO Convention 175, which enabled companies to hire workers for six hours or fewer per workday for wages equivalent to the fraction of full time work they complete.

The Labor Code requires that at least 90 percent of employees be Guatemalan, but the requirement does not apply to high-level positions, such as managers and directors. The Labor Code sets out: employer responsibilities regarding working conditions, especially health and safety standards; benefits; severance pay; premium pay for overtime work; minimum wages; and bonuses. Mandatory benefits, bonuses, and employer contributions to the social security system can add up to about 55 percent of an employee’s base pay. However, many workers, especially in the agricultural sector, do not receive the full compensation package mandated in the labor law. All employees are subject to a two-month trial period during which time they may resign or be discharged without any obligation on the part of the employer or employee. For any dismissal after the two-month trial period, the employer must pay unpaid wages for work already performed, proportional bonuses, and proportional vacation time. If an employer dismisses an employee without just cause, the employer must also pay severance equal to one month’s regular pay for each full year of employment. Guatemala does not have unemployment insurance or other social safety net programs for workers laid off for economic reasons.

Guatemala’s Constitution guarantees the right of workers to unionize and to strike, with an exception to the right to strike for security force members and workers employed in hospitals, telecommunications, and other public services considered essential to public safety. Before a strike can be declared, workers and employers must engage in mandatory conciliation and then approve a strike vote by 50 percent plus one worker in the enterprise. If conciliation fails, either party may ask the judge for a ruling on the legality of conducting a strike or lockout. Legal strikes in Guatemala are extremely rare. The Constitution also commits the state to support and protect collective bargaining and holds that international labor conventions ratified by Guatemala establish the minimum labor rights of workers if they offer greater protections than national law. In most cases, labor unions operate independently of the government and employers both by law and in practice. The law requires unions to register with the Ministry of Labor and their leadership must obtain credentials to carry out their functions. Delays in such proceedings are common. The law prohibits anti-union discrimination and employer interference in union activities and requires employers to reinstate workers dismissed for organizing union activities. A combination of inadequate allocation of budget resources for labor rights enforcement to the Ministry of Labor and other relevant state institutions, and inefficient administrative and justice sector processes, act as significant impediments for more effective enforcement of labor laws to protect these workers’ rights. As a result, investigating, prosecuting, and punishing employers who violate these guarantees remain a challenge, particularly the enforcement of labor court orders requiring reinstatement and payment of back wages resulting from dismissal. The rate of unionization in Guatemala is very low.

Both the U.S. government and Guatemalan workers have filed complaints against the Guatemalan government for allegedly failing to adequately enforce its labor laws and protect the rights of workers. In September 2014, the U.S. government convened an arbitration panel alleging that Guatemala had failed to meet its obligations under CAFTA-DR to enforce effectively its labor laws related to freedom of association and collective bargaining and acceptable conditions of work. The panel held a hearing in June 2015 and issued a decision favorable to Guatemala in June 2017. Separately, the Guatemalan government faced an International Labor Organization (ILO) complaint filed by workers in 2012 alleging that the government had failed to comply with ILO Convention 87 on Freedom of Association. The complaint called for the establishment of an ILO Commission of Inquiry, which is the ILO’s highest level of scrutiny when all other means failed to address issues of concern. In 2013, the Guatemalan government agreed to a roadmap with social partners in an attempt to avoid the establishment of a Commission. The government took some steps to implement its roadmap, including the enactment of legislation in 2017 that restored administrative sanction authority to the labor inspectorate for the first time in 15 years. As part of a tripartite agreement reached at the ILO in November 2017, a National Tripartite Commission on Labor Relations and Freedom of Association was established in February 2018 to monitor and facilitate implementation of the 2013 roadmap. Based in large part on the 2017 tripartite agreement, the ILO Governing Body closed the complaint against Guatemala in November 2018.

Guatemala signed an investment guaranty agreement with the United States in 1962 and ratified the Multilateral Investment Guarantee Agency (MIGA) Convention in 1996. The Overseas Private Investment Corporation (OPIC) was active in Guatemala and provided both insurance and investment financing. In 2019, OPIC became the DFC. Now, DFC in conjunction with USAID, has developed a pipeline of potential Guatemalan projects seeking financing. The projects vary in their current status of development. Some projects are in the initial development phase while others are closer to DFC conducting due diligence and potentially providing financing. Three projects were announced for financing in June 2021 during the visit to Guatemala of Vice President Kamala Harris.

John Szypula
szypulaj@state.gov
Trade and Investment Officer
U.S. Embassy Guatemala
Av. Reforma 7-01 Zona 10, Guatemala
(502) 2326-4000

Honduras is generally open to foreign investment and government leaders consistently assert their desire to attract investment. At the same time, recent government actions have increased uncertainty in the investment climate. The legal framework for investment includes the Honduran constitution, the investment chapter of CAFTA-DR (which takes precedence over most domestic law), and the 2011 Law for the Promotion and Protection of Investments. The Honduran constitution requires all foreign investment to complement, but not substitute for, national investment. Honduras’ legal obligations guarantee national treatment and most favored nation treatment for U.S. investments in most sectors of the Honduran economy and include enhanced benefits in the areas of insurance and arbitration for domestic and foreign investors. CAFTA-DR has equal status with the constitution in most sectors of the Honduran economy. In addition to liberalizing trade in goods and services, CAFTA-DR includes important requirements relating to investment, customs administration and trade facilitation, technical barriers to trade, government procurement, telecommunications, electronic commerce, intellectual property rights, transparency, and labor and environmental protection.

Representatives from the international investment community have voiced concerns that several Castro administration policies have made the investment climate in Honduras less attractive. For example, after the hourly employment law was repealed in April 2022, all Honduran employees must now be salaried, eliminating flexible hiring practices vital for seasonal work. In addition, the threat of expropriation in a May 2022 energy law damaged perceptions of commercial rule of law in Honduras, increasing state control of the sector and leaving many investors wondering which other sectors will be subjected to government coercion and threats. The repeal of the framework establishing the special economic “ZEDE” zones further contributed to uncertainty over the government’s commitment to investment protections required by international treaties. And the Castro administration’s tendency to pass important laws very quickly, with little consultation or consideration of secondary and tertiary effects has created concerns about the stability and predictability of the investment environment.

The National Investment Council, the Ministry of Investment Promotion, and the Ministry of Economic Development all have equities in attracting foreign investment and an ambitious job creation mandate. Critics complain that lack of clarity and overlapping responsibilities among these entities undermine the government’s ability to effectively promote Honduras as a profitable destination for foreign capital.

Honduras’ Investment Law does not limit foreign ownership of businesses, except for those specifically reserved for Honduran investors, including small firms with capital less than $6,300 and the domestic air transportation industry. For all investments, at least 90 percent of companies’ labor forces must be Honduran, and companies must pay at least 85 percent of their payrolls to Hondurans. Majority ownership by Honduran citizens is required for companies in the commercial fishing sector, forestry, local transportation, radio, television, or benefiting from the Agrarian Reform Law. There is no screening or approval process specific to foreign direct investments in Honduras. Foreign investors are subject to the same requirements for environmental and other regulatory approvals as domestic investors.

According to the law, investors can establish, acquire, and dispose of enterprises at market prices under freely negotiated conditions without government intervention, but some foreign business operators report difficulty closing businesses. Private enterprises fairly compete with public enterprises on market access, credit, and other business operations. Foreign investors have the right to own property, subject to certain restrictions established by the Honduran constitution and several laws relating to property rights. Investors may acquire, profit, use, and dispose of property ownership with the exception of land within 40 kilometers of international borders and shorelines. Honduran law does permit, however, foreign individuals to purchase properties close to shorelines in designated “tourism zones.”

In 2020, the UN Working Group on Business and Human Rights conducted a review of Honduras: A/HRC/44/43/Add.2 (un.org) 

The Environmental Justice Atlas details 23 cases of environmental conflicts in Honduras: https://ejatlas.org/country/honduras 

The Business and Human Rights Centre aggregates news articles about responsible business conduct in Honduras: https://www.business-humanrights.org/en/latest-news/?&language=en&countries=HN 

Global Witness details concerns about environmental and human rights practices in Honduras: https://www.globalwitness.org/tagged/honduras/ 

The Honduran government has worked to simplify administrative procedures for establishing a company in recent years, including by offering many processes online. Government of Honduras (GOH) officials are pressing for, and have made good progress in, the digitalization of business, import, permitting and licensing, and taxation processes to increase efficiency and transparency, but procedural red tape to obtain government approval for investment activities remains common, especially at the local level. Honduras’ business registration information portal (  https://honduras.eregulations.org/  ) provides clear step-by-step information on registering a business, including fees, agencies, and required documents.

Honduras does not promote or incentivize outward investment.

The GOH publishes approved regulations in the official government Gazette. Honduras lacks an indexed legal code so lawyers and judges must maintain their own libraries of law publications.  The government does not have a process to solicit comments on proposed regulations from the general public.

CAFTA-DR requires host governments publish proposed regulations that could affect businesses or investments. Honduras made significant progress in 2019 and 2020 in relation to the publication and availability of information under CAFTA-DR. Honduras notified Article 1 technical provisions, per CAFTA-DR requirements, and the Customs Administration (ADUANAS) and Sanitary Regulatory Agency (ARSA) have improved publication of regulations through their official online portals.

Some U.S. investors experience long waiting periods for environmental permits and other regulatory and legislative approvals. Sectors in which U.S. companies frequently encounter problems include infrastructure, telecoms, mining, and energy. Generally, regulatory requirements are complex and lengthy and vulnerable to rent-seeking and corruption. Regulatory approvals require congressional intervention if the time exceeds a presidential term of four years. Current regulations are available at the Honduran government’s eRegulations website (  http://honduras.eregulations.org/  ). While the majority of regulations are at the national level, municipal level regulations also exist and can be very discouraging to investment. No significant regulatory changes of relevance to foreign investors were announced since the last report. Public comments received by regulators are not published. The government does not promote or require companies’ environmental, social, and governance (ESG) disclosure to facilitate transparency and/or help investors and consumers distinguish between high- and low-quality investments.

As a member of the WTO, Honduras notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Honduras has a civil law system. The Honduran Commercial Code, enacted in 1950, regulates business operations and falls under the jurisdiction of the Honduran civil court system. The Civil Procedures Code, which entered into force in 2010, introduced the use of open, oral arguments for adversarial procedures. The Civil Procedures Code provides for protection of commercial transactions, property rights, and land tenure. It also established a process for the enforcement of rulings issued by foreign courts. Despite these codes, U.S. claimants have noted the lack of transparency and the slow administration of justice in the courts. U.S. firms report favoritism, external pressure, and bribes within the judicial system. They also mention the poor quality of legal representation from Honduran attorneys.

Resolving an investment or commercial dispute in the local Honduran courts is often a lengthy process. Foreign investors report dispute resolution typically involves multiple appeals and decisions at different levels of the Honduran judicial system. Each decision can take months or years, and it is usually not possible for the parties to predict the time required to obtain a decision. An electronic case management system has recently been introduced with US Government support to increase transparency and reduce corruption. This system is gradually being rolled out to the different courts. Final decisions from Honduran courts or from arbitration panels often require subsequent enforcement from lower courts to take effect, requiring additional time. Foreign investors sometimes prefer to resolve disputes with suppliers, customers, or partners out of court when possible. Honduras has a very high-quality mechanism for alternate dispute resolution.

Honduras’ Investment Law requires all local and foreign direct investment be registered with the Investment Office in the Ministry of Economic Development. Upon registration, the Investment Office issues certificates to guarantee international arbitration rights under CAFTA-DR. An investor who believes the government has not honored a substantive obligation under CAFTA-DR may pursue CAFTA-DR’s dispute settlement mechanism, as detailed in the Investment Chapter. The claim’s proceedings and documents are generally open to the public.

The Government of Honduras requires authorization for both foreign and domestic investments in the following areas:

• Basic health services
• Telecommunications
• Generation, transmission, and distribution of electricity
• Air transport
• Fishing, hunting, and aquaculture
• Exploitation of forestry resources
• Agricultural and agro-industrial activities exceeding land tenancy limits established by the Agricultural Modernization Law of 1992 and the Land Reform Law of 1974
• Insurance and financial services
• Investigation, exploration, and exploitation of mines, quarries, petroleum, and related substances.

The Government of Honduras offers one-stop business set-up at its My Business Online website, which helps domestic and international investors submit initial business registry information and provides step-by-step instructions. ( https://www.miempresaenlinea.org/  ) However, formalizing a business still requires visiting a municipal chamber of commerce window for registration and permits, a process vulnerable to rent-seeking and corruption.

The Commission for the Defense and Promotion of Competition (CDPC) is the Honduran government agency that reviews proposed transactions for competition-related concerns. Honduras’ Competition Law established the CDPC in 2005 as part of the effort to implement CAFTA-DR. The Honduran Congress appoints the members of the CDPC, which functions as an independent regulatory commission.

Laws that grant sole companies exclusive distribution rights for imported goods have created artificial monopolies in Honduras, hindering the availability and raising the price of imported goods in the Honduran market.

The Honduran government has the authority to expropriate property for purposes of land reform or public use. The National Agrarian Reform Law provides that idle land fit for farming can be expropriated and awarded to indigent and landless persons via the Honduran National Agrarian Institute. In 2013, the Honduran government passed legislation regarding recovery and reassignment of concessions on underutilized assets. Both local and foreign firms have expressed concerns that the law does not specify what the government considers “underutilized.” The government has not published implementing regulations for the law nor indicated plans to use the law against any private sector firm. The May 2022 energy law threatens energy producers with expropriation if they do not renegotiate their power-purchasing agreements to the government’s satisfaction.

Government expropriation of land owned by U.S. companies is rare. CAFTA-DR’s Investment Chapter Section 10.7 states no party may expropriate or nationalize a covered investment either directly or indirectly, with limited public purpose exceptions that require prompt and adequate compensation. Under the Agrarian Reform Law, the Honduran government must compensate expropriated land partly in cash and partly in 15-, 20-, or 25-year government bonds. The portion to be paid in cash cannot exceed $1,000 if the expropriated land has at least one building and it cannot exceed $500 if the land is in use but has no buildings. If the land is not in use, the government will compensate entirely in 25-year government bonds.

Land invasions by squatters on both Honduran and foreign-owned land are increasingly common, especially in agricultural areas. These invasions have grown more frequent in 2022, sometimes leading to violent confrontations. Owners of disputed land have found pursuing legal avenues costly, time consuming, and ineffective at enforcing property rights.

Companies that default in payment of their obligations in Honduras can declare bankruptcy. A Honduran court must ratify a bankruptcy for it to take effect. These cases are regulated by the country’s Commercial Code.

The judicial ruling that declares the bankruptcy of the company establishes the value of the assets, the recognition and classification of the credits, the procedure for the sale of assets and the schedule for the payment of the obligations, in the case that it is not possible for the company to continue its operations. The ruling must be published in the Gazette. The liquidation of companies is always a judicial matter, except in the case of banking institutions which are liquidated by the National Banking and Insurance Commission.

Any creditor or a company itself may initiate the liquidation procedure, which is generally a civil matter. The judge appoints a liquidator to execute the procedure. A mechanism that a company may exercise to prevent bankruptcy is to request a suspension of payments from the judge. If approved by the judge and the creditors, the company may be able to reach an agreement with its creditors that allows the same administrative board to maintain control of the company.

A company may be prosecuted for fraudulently declaring bankruptcy in the case that the administrative board or shareholders withdraw their assets before the declaration, alter accounting books making it impossible to determine the real situation of the company, or favor certain creditors granting them benefits that they would not be entitled to otherwise.

The 2017 Tourism Incentives Law offers tax exemptions for national and international investment in tourism development projects. The law provides income tax exemptions for the first 10 years of a project and permits the duty-free import of goods needed for a project, including publicity materials. To receive benefits, a business must be located in a designated tourism zone. Restaurants, casinos, nightclubs, movie theaters, and certain other businesses are not eligible for incentives under this law. Foreigners or foreign companies seeking to purchase property exceeding 3,000 square meters for tourism or other development projects in designated tourism zones must present an application to the Honduran Tourism Institute at the Ministry of Tourism. The buyer must prove a contract to purchase the property exists and present feasibility studies and plans about the proposed tourism project.

The Honduran government historically has offered four primary tax-advantaged structures to incentivize investment in Honduras: the Free Trade Zone (ZOLI), the Free Tourism Zone (ZOLT), the Industrial Zone for Export Processing (ZIP) and the Temporary Import Law (RIT). Although there has been no formal announcement, the Castro administration has expressed its intentions both publicly and privately to eliminate these tax incentive structures.

Both ZOLIs and ZIPs allow foreign investors tariff and tax incentives for export-only manufacturing. The following cities have been designated as free zones: Puerto Cortes, Omoa, Choloma, Tela, La Ceiba, and Amapala. The government allows the establishment of ZIPs anywhere in the country. Currently, ZIPs are located in Choloma, Buffalo, La Lima, San Pedro Sula, Tegucigalpa, and Villanueva. Companies operating in ZIPs are exempt from paying import duties and other charges on goods and capital equipment. The RIT allows exporters to introduce raw materials, parts, and capital equipment (except vehicles) into Honduras exempt from surcharges and customs duties if a manufacturer incorporates the input into a product for export (up to five percent can be sold locally).  Additional information on these incentive programs is available from the National Investment Council (https://www.cni.hn).

In April 2022, President Castro abolished Honduras’ Zones for Employment and Economic Development (ZEDEs), the largely autonomous economic zones created by the Honduran National Congress in 2013. Opponents viewed ZEDEs as an unconstitutional abrogation of Honduran sovereignty, ceding national territory and resources to rich investors who would elude Honduras’ already weak oversight of environmental standards, property laws, human rights, and labor standards, while providing no economic benefit to ordinary Hondurans. ZEDE owners saw them as an opportunity to spur economic growth through secure, privately-run enclaves with their own tax and regulatory schemes, security forces, and dispute-resolution mechanisms, as well as a model of how life could be in Honduras with more government efficiency and less corruption. ZEDE owners, who are exploring possible litigation, say they relied in good faith on the legality of the ZEDE law and have tried to negotiate with the Castro Administration to identify a mutually satisfactory way forward, but the government has so far been unwilling to engage in talks.

Honduras ratified the World Trade Organization’s (WTO) Trade Facilitation Agreement (TFA) in July 2016, agreeing to expedite the movement, release, and clearance of goods, including goods in transit. The TFA also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. According to the WTO/TFA database, Honduras’ current rate of implementation of TFA Category A notification commitments stands at 58.4 percent. The Honduran government has received significant technical assistance from the U.S. government to meet compliance requirements in publication, notification, advance rulings, border agency cooperation, and establishing a national trade facilitation committee. Honduras, Guatemala, and El Salvador operate a trilateral customs union to foster and increase efficient cross-border trade, but implementation challenges persist.  Honduras uses digitized import permits for agricultural products to reduce costs and dispatch times. Honduras and Guatemala also use an online pre-arrival screening protocol to reduce border times and transit costs for goods.

With U.S. support, the GOH has advanced several initiatives to facilitate trade and reduce dispatch times and costs at key land and sea borders. Use of high-spec tablets by Aduanas (Customs) at Puerto Cortes has reduced dispatch times by over 30 percent; expansion of tablet use is envisioned to La Mesa as well (San Pedro Sula airport Customs). A streamlined inspections manual for to be adopted by Aduanas and the National Health and Agrifood Safety Entity (SENASA) as well as additional IT developments to integrate Aduanas and SENASA inspection systems will further compound time and cost reductions at key land and border crossings. Trade policy is overseen by the National Trade Committee, chaired by the Minister of Economic Development.

Many U.S. companies that operate in Honduras take advantage of the commercial framework established by the Central American and Dominican Republic Free Trade Agreement (CAFTA-DR).  Substantial intra-industry trade now occurs in textiles and electrical machinery, alongside continued trade in traditional Honduran exports such as coffee and bananas.

The government rushed the opening in December 2021 of an incomplete, controversial new airport, Palmerola, designed to reduce costs for airlines, passengers, and shipping companies once cargo processing procedures have been fully implemented.  The airport connects with a recently completed highway (the ‘Dry Canal’) to the Pacific coast and with another highway to the Caribbean coast and its deep-water port – for a sea-to-sea logistics and transit system.  As of this writing, cargo functions are not operational at the airport and drive time to Tegucigalpa is approximately an hour and a half.

The Honduran government encourages foreign investors to hire locally and to make use of domestic content, especially in manufacturing and agriculture. The government looks favorably on investment projects that contribute to employment growth, either directly or indirectly. U.S. investors in Honduras have not reported instances in which the government has imposed performance or localization requirements on investments.

The Honduran government and courts can require foreign and domestic investors that operate in Honduras to turn over data for use in criminal investigations or civil proceedings. Honduran law enforcement, prosecutors, and civil courts have the authority to make such requests.

Honduran law recognizes secured interests in movable and real property. The Chamber of Commerce and Industry of Tegucigalpa (CCIT) and the Chamber of Commerce and Industry of San Pedro Sula (CCIC) both manage their own merchant records. The national property registry is managed by the Property Institute. The right for CCIT and CCIC to administer their own merchant registries is derived from a concession in Honduras’ secured transactions law.

Land title procedures have been an issue leading to investment disputes involving U.S. nationals who are landowners, especially, but not limited to, the tourist destination of Roatan. Title insurance is not widely available in Honduras and approximately 80 percent of the privately held land in the country is either untitled or improperly titled. Resolution of disputes in court often takes years. There are claims of widespread corruption in land sales, deed filing, and dispute resolution, including claims against attorneys, real estate companies, judges, and local officials. Although Honduras has made some progress, the property registration system is perceived as unreliable and represents a constraint on investment, particularly in the Bay Islands. In addition, a lack of implementing regulations leads to long delays in the awarding of titles in some regions.

The legislative framework for the protection of intellectual property (IP) rights , which includes the Honduran copyright law and its industrial property law, is generally adequate, but often poorly enforced. Honduras has enacted legislation to implement its obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organization (WTO). Honduran law protects data exclusivity for a period of five years and protects process patents, but does not recognize second-use patents. The Property Institute and Public Ministry handle IP protection and enforcement.

CAFTA-DR Chapter 15 on Intellectual Property Rights further provides for the protection and enforcement of a range of IP rights, which are consistent with U.S. and international standards . There are also provisions on deterrence of piracy and counterfeiting. Additionally, CAFTA-DR provides authorities the ability to confiscate pirated goods and investigate intellectual property cases on their own initiative.

The Honduran legal framework provides deterrence against piracy and counterfeiting by requiring the seizure, forfeiture, and destruction of counterfeit and pirated goods and the equipment used to produce them. The law also provides for statutory damages for copyright and trademark infringement, to ensure monetary damages are awarded even when losses associated with an infringement are difficult to assign.

Digital piracy is widespread and frequently ignored in Honduras, especially by telecommunications companies. The Special Prosecutor for IP will not investigate a case unless it receives a complaint from a rights holder. Often, rights holders do not submit complaints because of either the perceived bureaucratic process or the fear of losing business. In addition, sentencing for IP crimes remains ineffective to deter future violations. IP violators typically receive a three-to-six-year sentence and an approximately $2,000 fine. If a sentence is less than five years, however, the convicted party can choose to pay a larger fine and not serve any jail time.

Honduras is not listed in United States Trade Representative’s 2021 Special 301 Report or its 2020 Review of Notorious Markets for Counterfeiting and Piracy.

A list of local attorneys is available at  https://hn.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/. The U.S. Commercial Service office also maintains a screened list of attorneys through its  Business Service Provider (BSP) directory  . The American Chamber of Commerce Honduras works with U.S. and Honduran companies that encounter commercial challenges, including intellectual property rights issues (  http://www.amchamhonduras.org/  ). For additional information about national laws and points of contact at local IP offices, please see World Intellectual Property Organization’s country profiles:  http://www.wipo.int/directory/en/  .

There are no government restrictions on foreign investors’ access to local credit markets, though the local banking system generally extends only limited amounts of credit. Investors should not consider local banks a significant capital resource for new foreign ventures unless they use specific business development credit lines made available by bilateral or multilateral financial institutions such as the Central American Bank for Economic Integration.

A limited number of credit instruments are available in the local market. The only security exchange operating in the country is the Central American Securities Exchange (BCV) in Tegucigalpa, but investors should exercise caution before buying securities listed on it. Supervised by the National Banking and Insurance Commission (CNBS), the BCV theoretically offers instruments to trade bankers’ acceptances, repurchase agreements, short-term promissory notes, Honduran government private debt conversion bonds, and land reform repayment bonds. In practice, however, the BCV is almost entirely composed of short- and medium-term government securities and no formal secondary market for these bonds exists.

A few banks have offered fixed rate and floating rate notes with maturities of up to three years, but outside of the banks’ issuances, the private sector does not sell debt or corporate stock on the exchange. Any private business is eligible to trade its financial instruments on the BCV, and firms that participate are subject to a rigorous screening process, including public disclosure and ratings by a recognized rating agency. Historically, most traded firms have had economic ties to the other business and financial groups represented as shareholders of the exchange. As a result, risk management practices are lax and public confidence in the institution is limited.

The Honduran financial system is comprised of commercial banks, state-owned banks, savings and loans institutions, and financial companies. There are currently 15 commercial banks, and 10 financial groups operating in Honduras. There is no offshore banking or homegrown blockchain technology in Honduras. Honduras has a highly professional, independent Central Bank and an effective banking regulator, the Comisión Nacional de Bancos y Seguros. While access to credit remains limited in Honduras, especially for historically underserved populations, the financial sector is a source of economic stability in the country.

Honduras does not have a sovereign wealth fund.

Most state-owned enterprises are in telecommunications, electricity, water utilities, banking, and commercial ports. The main state-owned Honduran telephone company, Hondutel, has private contracts with eight foreign and domestic carriers. The GOH has yet to establish a legal framework for foreign companies to obtain licenses and concessions to provide long distance and international calling. As a result, investors remain unsure if they can become fully independent telecommunication service providers.

The state-owned National Electric Energy Company (ENEE) is the single largest contributor to the country’s fiscal deficit. Due to years of mismanagement and corruption, ENEE loses over $30 million every month and its debt amounts to more than 10 percent of Honduran GDP. With the May 2022 energy law, the government has reversed energy reform legislation that called for the separation of ENEE into three independent units for distribution, transmission, and generation. The law also weakened the electricity regulator and eliminated the independent systems operator. Electricity subsector experts say that dispatch decisions have become much less transparent since the elimination of the systems operator, a disincentive for new investment. The electrical subsector faces serious structural problems, including high electricity system losses, a transmission system in need of upgrades, vulnerability of generation costs to volatile international oil prices, an electricity tariff that does not reflect actual costs, and the high costs of long-term power purchase agreements (PPAs), which have often been awarded directly to companies with political connections instead of via a fair and transparent tendering and procurement process. Many businesses have installed on-site power generation systems to supplement or substitute for power from ENEE due to frequent blackouts and high tariffs.

Honduran law grants municipalities the right to manage water distribution and to grant concessions to private enterprises. Major cities with public-private concessions include San Pedro Sula, Puerto Cortes, and Choloma. The state water authority National Autonomous Aqueduct and Sewer Service (SANAA) manages Tegucigalpa’s water distribution. Persistent water shortages are another constraint on private enterprise in Honduras, especially during the spring dry season. The Honduran National Port Company (ENP) is the state-owned organization that oversees management of the country’s government-operated maritime ports, including Puerto Cortes, La Ceiba, Puerto Castilla, and San Lorenzo. Private companies Central American Port Operators and Maritime Ports of Honduras have 30-year concessions to operate container and bulk shipping facilities at Honduras’ principal port Puerto Cortes.

The Honduran government is not seeking to privatize state-owned enterprises. The May 2022 energy law aims to increase government control over the electricity sector.

Awareness of the importance of Responsible Business Conduct (RBC) is growing among both producers and consumers in Honduras. An increasing number of local and foreign companies operating in Honduras include conduct-related responsibility practices in their business strategies. The Honduran Corporate Social Responsibility Foundation (FUNDAHRSE) has become a strong proponent in its efforts to promote transparency in the business climate and provides the Honduran private sector, particularly small- and medium-sized businesses, with the skills to engage in responsible business practices. FUNDAHRSE’s approximately 110 members can apply for the foundation’s “Corporate Social Responsibility Enterprise” seal for exemplary responsible business conduct involving work in areas related to health, education, environment, codes of ethics, employment relations, and responsible marketing.

RBC related to the environment and outreach to local communities is especially important to the success of investment projects in Honduras. Several major foreign investment projects in Honduras have stalled due to concerns about environmental impact, land rights issues, lack of transparency, and problematic consultative processes with local communities, particularly indigenous communities. Although the International Labor Organization Convention 169 on Indigenous and Tribal Peoples was ratified by the GOH in 1995 and Honduras voted in favor of UN’s Indigenous People’s rights in 2007, there is still much to do in the area. There is still a need for foreign investors to build trust with local communities, while employing international best practices and standards to reduce the risk of conflict and promote sustainable and equitable development.

Examples of international best practices include the following:

Voluntary Principles on Security and Human Rights Initiative

The UN Guiding Principles on Business and Human Rights

The Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions 

Department of Labor

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

GOH has a National Adaptation and Climate Strategy and a Biodiversity Strategy. In 2022, the Castro Administration created the Environmental Cabinet comprised of Ministries of Environment, Forestry, Agriculture, Energy, Economic Development and Finance and the Protected Areas and Wildlife Institute.  The purpose of this body is to coordinate interagency efforts to address climate change, biodiversity conservation and Forestry Management.  The GOH has taken positive steps to implement climate related policies including a National Adaption and Climate Strategy and a Biodiversity Strategy. The GOH has not established policies to reach net-zero carbon emissions by 2050. However, in collaboration with the UN, GOH conducted sectoral studies to determine Nationally Determined Contributions (NDC) and drafted a greenhouse gases mitigation strategy. While sectoral studies provided recommendations and targets for NDCs, these recommendations have not translated into official policy.  The GOH does have an ecotax to support efforts to administer protected areas, which generally adds additional taxes on imported cars.  At this time, the GOH has not implemented public procurement policies that include environmental and green growth consideration such as resources efficiency, pollution abatement, and climate resilience.

In February 2022, President Castro fulfilled her campaign promise to request support from the UN for an international anti-corruption commission (CICIH).  A UN Technical Assistance Mission visited Honduras in May 2022 to begin work on the request.  The commission would continue the work started by the OAS Mission Against Corruption and Impunity in Honduras (MACCIH) which left Honduras in 2020 after the former administration failed to renew its mandate. Though details are still under discussion, the commission would likely fill an investigative and prosecutorial role similar to MACCIH. Its mandate would likely extend beyond the current administration.  Several risks remain; notably, a broad amnesty law passed in February 2022 that would prevent the commission from investigating a significant number of cases, and unclear financing for the commission.

U.S. businesses and citizens report corruption in the public sector and the judiciary is a significant constraint to investment in Honduras.  Historically, corruption has been pervasive in government procurement, issuance of government permits, customs, real estate transactions (particularly land title transfers), performance requirements, and the regulatory system.  Civil society groups are critical of recent legislation granting qualified immunity to government officials and a 2019 law that gave the highly politicized government audit agency a first look at corruption cases.  Congress repealed the latter in 2022.  In 2018, Congress passed a revision of the 1984 penal code that lowered penalties for some corruption offenses. The new code went into effect in June 2020 and was retroactively applied to several high-profile corruption cases resulting in a spate of dismissals and retrials.  In late 2020, the GOH created a new Ministry of Transparency to act as the government’s lead institution in coordinating and implementing efforts to promote transparency and integrity and prevent government corruption. The Castro government further institutionalized the ministry’s anti-corruption mandate, naming it the Ministry of Transparency and the Fight against Corruption. The Castro administration’s Government by Results initiative should pay off in decreased vulnerability to corruption, and the ministers of Health and Economic Development both signed cooperation agreements with the country’s Anticorruption Council.

Honduras’s Rankings on Key Corruption Indicators:

The United States Foreign Corrupt Practices Act (FCPA) deems it unlawful for a U.S. person, and certain foreign issuers of securities to make corrupt payments to foreign public officials for the purpose of obtaining or retaining business for directing business to any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more information, see the FCPA Lay-Person’s Guide:  http://www.justice.gov/criminal/fraud/  .

Honduras ratified the UN Anticorruption Convention in December 2005. The UN Convention requires countries to establish criminal penalties for a wide range of acts of corruption. The UN Convention covers a broad range of issues from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence, and the concealment and laundering of the proceeds of corruption. The UN Convention contains transnational business bribery provisions that are functionally similar to those in the Organization for Economic Cooperation and Development Anti-Bribery Convention.

Honduras ratified the Inter-American Convention against Corruption (OAS Convention) in1998. The OAS Convention establishes a set of preventive measures against corruption; provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment; and contains a series of provisions to strengthen the cooperation between its states’ parties in areas such as mutual legal assistance and technical cooperation.

Companies that face corruption-related challenges in Honduras may contact the following organizations to request assistance.

José Mario Salgado
Director General of the Prosecutor’s Office
Honduran Public Ministry
Direcciongf2018@gmail.com
The Public Ministry is the Honduran government agency responsible for criminal prosecutions, including corruption cases.

Association for a More Just Society (ASJ)
Carlos Hernandez
Honduras Country Director
Residencial El Trapiche, 2da etapa Bloque B, Casa #25
+504-2235-2291
info@asjhonduras.com
ASJ is a nongovernmental Honduran organization that works to reduce corruption and increase transparency. It is an affiliate of Transparency International.

National Anti-Corruption Council (CNA)
Alejandra Ferrera
Executive Board Assistant
Colonia San Carlos, calle Republica de Mexico
504-2221-1181
aferrera@cna.hn
CNA is a Honduran civil society organization.

U.S. Embassy Tegucigalpa, Honduras
Attention: Economic Section
Avenida La Paz  Tegucigalpa M.D.C., Honduras
Telephone Numbers: (504) 2236-9320, 2238-5114
Fax Number: (504) 2236-9037
Companies can also report corruption through the Department of Commerce Trade Compliance Center Report a Trade Barrier website:  http://tcc.export.gov/Report_a_Barrier/index.asp  .

Crime and violence rates remain high and add cost and constraint to investments. Demonstrations occur regularly in Honduras and political uncertainty poses a challenge to ongoing stability.

U.S. citizens should be aware that large public gatherings might become unruly or violent quickly. For more information, consult the Department of State’s latest travel warning:  https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Honduras.html.

Although violent crime remains a persistent problem, Honduras has successfully reduced homicides to less than 40 per 100,000 inhabitants. Cases of violence, extortion, and kidnapping are still relatively common, particularly in urban areas where gang presence is more pervasive. Drug traffickers continue to use Honduras as a transit point for cocaine and other narcotics en route to the United States and Europe, which fuels local turf battles in some areas and injects illicit funds into judicial proceedings and local governance structures to distort justice. The business community historically had been a target for ransom kidnappings, but the number of such kidnappings dropped from 92 in 2013 to 15 in 2021, primarily through the work of the USG-supported Honduran National Police National Anti-Kidnapping Unit. Although violent crime rates are trending downward, corruption and white-collar crime, including money laundering, negatively affect economic prosperity and stability for the business community.

The Honduran Labor Law prescribes a maximum eight-hour workday, 44-hour workweek, and at least one 24-hour rest period per week. The Labor Code provides for paid national holidays and annual leave. Most employment sectors also receive two one-month bonuses as part of the base salary, known as the 13th and 14th month salary, issued in mid-December and mid-June, respectively. New hires receive a prorated amount based on time-in-service during their first year of employment. The Labor Code requires companies to pay one month’s salary to employees terminated without cause. Companies do not owe severance to employees who resign or are terminated for cause. Employees terminated for cause can contest the basis for the termination in court to claim severance. There are no government-provided unemployment benefits in Honduras, although unemployed individuals may have access to their accumulated pension funds.

As mentioned above, in April 2022, President Castro signed the repeal of the Hourly Employment Law. Labor groups had alleged that some employers used hourly contracts to avoid responsibility for severance, provide employee benefits, and prevent union formation. The repeal did not stipulate the process for transitioning employees from hourly to salaried, but it did prevent the termination of employees.

The Secretariat of Labor and Social Security (SETRASS) is responsible for registering collective bargaining agreements. The Labor Code prohibits the employment of persons under the age of 14. Minors between the ages of 14 and 18 must receive special permission from SETRASS to work. The majority of the violations of the labor-related provisions of the children’s code occur in the agricultural sector and informal economy.

While Honduran labor law closely mirrors International Labor Organization standards, the U.S. Department of Labor has raised serious concerns regarding the effective enforcement of Honduran labor laws. Labor organizations allege the SETRASS fails to enforce labor laws, including laws on the right to form unions, reinstating employees unjustly fired for union activities, child labor, minimum wages, hours of work, and occupational safety and health. A 2015 U.S. Department of Labor report provided recommendations to address labor concerns in Honduras and called for a monitoring and action plan (MAP) to improve labor law enforcement in Honduras following a 2012 submission brought under the labor chapter of CAFTA-DR. While the government has made significant progress toward addressing areas of concern, outstanding issues to completing the Honduran government’s obligations under the MAP include resolution of emblematic collective bargaining cases and the enforcement and collection of fines for labor violations.

The U.S. Department of State Country Report on Human Rights Practices describes a number of labor and human rights compliance issues that affect the Honduran labor market: https://www.state.gov/reports/2021-country-reports-on-human-rights-practices/honduras/. These include employers’ anti-union discrimination, refusal to engage in collective bargaining, and employer control of unions.

The U.S. International Development Finance Corporation provides loan guarantees and direct loans for investments in priority areas: energy, healthcare, critical infrastructure, technology, small and medium enterprises, and women-owned businesses. With a global investment cap at $60 billion (increased from OPIC’s previous cap of $29 billion), loans range from $1 million to $250 million with loan guarantees potentially mobilizing more. The DFC also offers political risk insurance, technical assistance for financial institutions, and limited equity authority. The Export-Import Bank of the U.S. also provides project financing in Honduras. Honduras is a party to the World Bank’s Multilateral Investment Guarantee Agency.

U.S. Embassy
Avenida La Paz  Tegucigalpa, M.D.C.

Panama welcomes FDI and relies heavily on investment to fuel its economy. With few exceptions, the Government of Panama makes no distinction between domestic and foreign companies for investment purposes. Panama benefits from stable and consistent economic policies, a dollarized economy, and a government that consistently supports trade and open markets and encourages foreign direct investment.

Panama has had one of the highest levels of FDI in Central America, a trend that continued even during the pandemic. Through the Multinational Headquarters Law (SEM), the Multinational Manufacturing Services Law (EMMA), and a Private Public Partnership framework, Panama offers tax breaks and other incentives to attract investment. Executive Decree No. 722 of October 2020 created a new immigration category: Permanent Residence as a Qualified Investor, after an initial investment of $300,000. The Ministry of Commerce and Industry (MICI) is responsible for overseeing foreign investment, prepares an annual foreign investment promotion strategy, and provides services required by investors to expedite investments and project development (for more details, please visit: https://www.mici.gob.pa/noticias/gobierno-nacional-crea-programa-de-residencia-para-inversionistas-calificados).

The Cortizo administration created a new Minister Counselor for Investment position that reports directly to the President, with the aim of attracting new investors and dislodging barriers that confront current ones. MICI, in cooperation with the Minister Counselor for Investment, facilitates the initial investment process and provides integration assistance once a company is established in Panama.

The Export and Investment Promotion Authority “PROPANAMA” was created by Law 207 on April 5, 2021. It provides investors with information, expedites specific projects, leads investment-seeking missions abroad, and supports foreign investment missions to Panama. In some cases, other government offices work with investors to ensure that regulations and requirements for land use, employment, special investment incentives, business licensing, and other conditions are met. Entities that carry out a minimum investment of two million dollars in Panama enjoy the benefits of legal stability, with national, municipal, and customs tax incentives and stability in the labor regime for a period of ten years.

In 2021, the United States ran a $7.5 billion trade surplus in goods with Panama. The U.S.-Panama Trade Promotion Agreement (TPA) entered into force in October 2012. The TPA has significantly liberalized trade in goods and services, including financial services. The TPA also includes sections on customs administration and trade facilitation, sanitary and phytosanitary measures, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, and labor and environmental protections.  In March 2022, however, the Panamanian government (GoP) formally asked the U.S. government to review certain agricultural tariff provisions of the TPA. Over the last year, Panamanian producers have become increasingly vocal in demanding that their government renegotiate new protections in the face of declining Panamanian tariffs on U.S. agricultural exports. As of March 2022, the U.S. government was reviewing the GoP’s request.

Panama is one of the few economies in Latin American that is predominantly services-based. Services represent nearly 80 percent of Panama’s GDP. The TPA has improved U.S. firms’ access to Panama’s services sector and gives U.S. investors better access than other WTO members under the General Agreement on Trade in Services. All services sectors are covered under the TPA, except where Panama has made specific exceptions, such as for postal services, air transportation, and water distribution. Under the agreement, Panama has provided improved access to sectors like express delivery and granted new access in certain areas that had previously been reserved for Panamanian nationals. However, some American companies face problems in this sector, including allegations of tax evasion by some local companies. In addition, Panama is a full participant in the WTO Information Technology Agreement.

Panama passed a Private Public Partnership (PPP) law in 2019 (Ley 93) and published regulations for the program in 2020 (Decree 840) as an incentive for private investment, social development, and job creation. The law is a first-level legal framework that orders and formalizes how the private sector can invest in public projects, thereby expanding the State’s options to meet social needs. Panama’s 2022 budget includes funding to implement PPP projects.

Panama has been selected to host Bloomberg’s “New Economy Gateway” forum in May 2022, which will cover sustainable investment and the future of trade. It will be the first time that this forum has been held outside of Asia.

The Panamanian government imposes some limitations on foreign ownership in the retail, maritime, and media sectors, in which, in most cases, owners must be Panamanian. However, foreign investors can continue to use franchise arrangements to own retail within the confines of Panamanian law (under the TPA, direct U.S. ownership of consumer retail is allowed in limited circumstances). There are also limits on the number of foreign workers in some foreign investment structures.

In addition to limitations on ownership, around 200 professions in both the public and private sectors, including within the Panama Canal Authority, are reserved for Panamanian nationals. Medical practitioners, lawyers, engineers, accountants, and customs brokers must be Panamanian citizens. Furthermore, the Panamanian government instituted a regulation that rideshare platforms must use drivers who possess commercial licenses, which are available only to Panamanians, and is considering the implementation of additional regulations that would further restrict American ride-sharing companies.

With the exceptions of retail trade, the media, and many professions, foreign and domestic entities have the right to establish, own, and dispose of business interests in virtually all forms of remunerative activity, and the Panamanian government does not screen inbound investment. Foreigners do not need to be legally resident or physically present in Panama to establish corporations or obtain local operating licenses for a foreign corporation. Business visas (and even citizenship) are readily obtainable for significant investors.

Panama generally allows private entities to establish and own businesses and engage in remunerative activities. It does not have a formal investment screening mechanism, but the government monitors large foreign investments, especially in the energy sector.

Panama does not currently impose any sector-specific restrictions or limitations on foreign ownership or control. There are no licensing restrictions, although Executive Decree 81 of May 25, 2017, established controls over dual-use goods for reasons of national security. Panama does not currently have any requirements for controls over technology transfers.

Panama has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization in the past three years.

The World Trade Organization (WTO) conducted a “Trade Policy Review” of Panama as of December 2021. Trade Policy Reviews are an exercise mandated in WTO agreements in which member countries’ trade and related policies are examined and evaluated at regular intervals: WTO | Trade policy review -Panama2022 

Post has no knowledge of any civil society organization that has provided comprehensive reviews of concerns about investment policy.

Procedures regarding how to register foreign and domestic businesses, as well as how to obtain a notice of operation, can be found on the Ministry of Commerce and Industry’s website ( https://www.panamaemprende.gob.pa/ ), where one may register a foreign company, create a branch of a registered business, or register as an individual trader from any part of the world. Corporate applicants must submit notarized documents to the Mercantile Division of the Public Registry, the Ministry of Commerce and Industry, and the Social Security Institute. Panamanian government statistics show that applications from foreign businesses typically take between one to six days to process.

Historically, government procurement procedures have presented barriers to trade with Panama. The Cortizo administration has publicly committed to ensuring greater transparency in the award of government tenders. Law 153, officially passed in May 2020, provides greater transparency in public procurement by mandating that all public entities use an electronic procurement system https://www.panamacompra.gob.pa/Inicio/#!/ .

Other agencies where companies typically register are:

• Business Registration: https://ampyme.gob.pa/?page_id=144
• Tax administration: https://dgi.mef.gob.pa/ 
• Corporations, property, mortgage: https://www.rp.gob.pa 
• Social security: http://www.css.gob.pa 
• Municipalities: https://mupa.gob.pa 

Panama does not incentivize outward investment, nor does it restrict domestic investors from investing abroad.

The Panamanian legal, accounting, and regulatory systems are generally transparent and consistent with international norms.

Panama has five regulatory agencies, four that supervise the activities of financial entities (banking, securities, insurance, and “designated non-financial businesses and professions (DNFBPs)” and a fifth that oversees credit unions. Each of the regulators regularly publishes on their websites detailed policies, laws, and sector reports, as well as information regarding fines and sanctions. Panama’s banking regulator began publishing fines and sanctions in late 2016, which tend to be significantly lower than neighboring countries. The securities and insurance regulators have published fines and sanctions since 2010. Law 23 of 2015 created the regulator for DNFBPs, which began publishing fines and sanctions in 2018. In January 2020, the regulator for DNFBPs was granted independence and superintendency status like that of the banking regulator. The Superintendency of the Securities Market is generally considered a transparent, competent, and effective regulator. Panama is a full signatory to the International Organization of Securities Commissions (IOSCO).

Post is not aware of any informal regulatory processes managed by non-governmental organizations or private sector associations.

Relevant ministries or regulators oversee and enforce administrative and regulatory processes. Any administrative errors or omissions committed by public servants can be challenged and taken to the Supreme Court for a final ruling, a process that often involves a long and arduous dispute resolution. Regulatory bodies can impose sanctions and fines which are made public and can be appealed.

Panama does not promote or require companies to disclose environmental, social, and governance (ESG) data to facilitate transparency and/or help investors and consumers distinguish between high- and low-quality investments.

Laws are developed in the National Assembly. A proposed bill is discussed in three rounds, edited as needed, and approved or rejected. The President then has 30 days to approve or veto a bill the Assembly has passed. If the President vetoes the bill, it can be returned to the National Assembly for changes or sent to the Supreme Court to rule on its constitutionality. If the bill was vetoed for reasons of unconstitutionality, and the Supreme Court finds it constitutional, the President must sign the bill. Regulations are created by agencies and other governmental bodies but they can be modified or overridden by higher authorities.

In general, draft bills, including those for laws and regulations on investment, are made available on the National Assembly’s website and can be introduced for discussion at the bill’s first hearing. All bills and approved legislation are published in the Official Gazette in full and summary form and can also be found on the National Assembly’s website: https://www.asamblea.gob.pa/buscador-de-gacetas .

Accounting, legal, and regulatory procedures in Panama are based on standards set by the International Financial Reporting Standards (IFRS) Foundation, including financial reporting standards for small and medium-sized enterprises (SMEs). Panama is a member of UNCTAD’s international network of transparent investment procedures. Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations, including the number of steps, the names and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing times, and legal bases justifying the procedures.

Information on public finances and debt obligations (includes explicit and contingent liabilities) is transparent. It is published on the Ministry of Economy and Finance’s website under the directorate of public finance, but not consistently updated: https://fpublico.mef.gob.pa/en .

Mining regulations are changing. In 2018, the Supreme Court declared unconstitutional the law on which the country largest mining investment contract was based. According to some industry experts, the ruling was a deliberate move to force contract renegotiations and achieve more favorable terms for the government. In 2022, the same company’s concession was renegotiated for renewal, with its royalties to the government increasing significantly as a result. Panama’s enormous potential for generating mining income is undercut by long delays in the government’s concession and permit approval process, according to foreign investor contacts.

Panama is part of the Central American Customs Union (CACU), the regional economic block for Central American countries. Panama has adopted many of the Central American Technical Regulations (RTCA) for intra-regional trade in goods. Panama applies the RTCA to goods imported from any CACU member and updates Panama’s regulations to be consistent with RTCA. However, Panama has not yet adopted some important RTCA regulations, such as for processed food labeling, and dietary supplements/vitamins.

The United States and Panama signed an agreement regarding “Sanitary and Phytosanitary Measures and Technical Standards Affecting Trade in Agricultural Products,” which entered into force on December 20, 2006. The application of this agreement supersedes the RTCA for U.S. food and feed products imported into Panama.

A 2006 law established the Panamanian Food Safety Authority (AUPSA) to issue science-based sanitary and phytosanitary (SPS) import policies for food and feed products entering Panama. Since 2019, AUPSA and other government entities have implemented or proposed measures that restrict market access. These measures have also increased AUPSA’s ability to limit the import of certain agricultural goods. The Panamanian government, for example, has issued regulations on onions and withheld approval of genetically-modified foods, limiting market access and resulting in the loss of millions in potential investment. In March 2021, Panama passed a bill to eliminate the AUPSA. In its place, the bill created the Panamanian Food Agency (APA).  APA began operations on October 1, 2021, and has responsibility for both imports and exports.  The APA intends to improve efficiency for agro-exports and industrial food processes, as well as increase market access.

Historically, Panama has referenced or incorporated international norms and standards into its regulatory system, including the Agreements of the World Trade Organization (WTO), Codex Alimentarius, the World Organization for Animal Health (OIE), the International Plant Protection Convention, the World Intellectual Property Organization, the World Customs Organization, and others. Also, Panama has incorporated into its national regulations many U.S. Food and Drug Administration regulations, such as the Pasteurized Milk Ordinance.

Panama, as a member of the WTO, notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). However, in the last five years it has ignored comments on its regulations offered by other WTO members, including but not limited to the United States.

When ruling on cases, judges rely on the Constitution and direct sources of law such as codes, regulations, and statutes. In 2016, Panama transitioned from an inquisitorial to an accusatory justice system, with the goal of simplifying and expediting criminal cases. Fundamental procedural rights in civil cases are broadly similar to those available in U.S. civil courts, although some notice and discovery rights, particularly in administrative matters, may be less extensive than in the United States. Judicial pleadings are not always a matter of public record, nor are processes always transparent.

Panama has a legal framework governing commercial and contractual issues and has specialized commercial courts. Contractual disputes are normally handled in civil court or through arbitration, unless criminal activity is involved. Some U.S. firms have reported inconsistent, unfair, and/or biased treatment from Panamanian courts. The judicial system’s capacity to resolve contractual and property disputes is often weak, hampered by a lack of technological tools and susceptibility to corruption. The World Economic Forum’s 2019 Global Competitiveness Report rated Panama’s judicial independence at 129 of 141 countries.

The Panamanian judicial system suffers from significant budget shortfalls that continue to affect all areas of the system. The transition to the accusatory system faces challenges in funding for personnel, infrastructure, and operational requirements, while addressing a significant backlog of cases initiated under the previous inquisitorial system. The judiciary still struggles with lack of independence, a legacy of an often-politicized system for appointing judges, prosecutors, and other officials. On January 11, 2022, President Cortizo committed $15 million to the Judicial Branch to implement Law 53 of August 27, 2015, which mandates that judges be selected by a merit-based process instead of by appointment, but implementation still faces serious challenges. Under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges, and only the Supreme Court may initiate investigations against members of the National Assembly, which has led to charges of a de facto “non-aggression pact” between the two branches.

Regulations and enforcement actions can be appealed through the legal system from Municipal Judges, to Circuit Judges, to Superior Judges, and ultimately to the Supreme Court.

Panama has different laws governing investment incentives, depending on the activity, including its newest law intended to draw manufacturing investment, the 2020 Multinational Manufacturing Services Law (EMMA). In addition, it has a Multinational Headquarters Law (SEM), a Tourism Law, an Investment Stability Law, and miscellaneous laws associated with particular sectors, including the film industry, call centers, certain industrial activities, and agricultural exports. In addition, laws may differ in special economic zones, including the Colon Free Zone, the Panama Pacifico Special Economic Area, and the City of Knowledge.

Government policy and law treat Panamanian and foreign investors equally with respect to access to credit. Panamanian interest rates closely follow international rates (i.e., the U.S. federal funds rate, the London Interbank Offered Rate, etc.), plus a country-risk premium.

The Ministries of Tourism, Public Works, and Commerce and Industry, as well as the Minister Counselor for Investment, promote foreign investment. However, some U.S. companies have reported difficulty navigating the Panamanian business environment, especially in the tourism, branding, imports, and infrastructure development sectors. Although individual ministers have been responsive to U.S. companies, fundamental problems such as judicial uncertainty are more difficult to address. U.S. companies have complained about several ministries’ failure to make timely payments for services rendered, without official explanation for the delays. U.S. Embassy Panama is aware of tens of millions of dollars in overdue payments that the Panamanian government owes to U.S. companies.

Some private companies, including multinational corporations, have issued bonds in the local securities market. Companies rarely issue stock on the local market and, when they do, often issue shares without voting rights. Investor demand is generally limited because of the small pool of qualified investors. While some Panamanians may hold overlapping interests in various businesses, there is no established practice of cross-shareholding or stable shareholder arrangements designed to restrict foreign investment through mergers and acquisitions.

The Ministry of Commerce and Industry’s website lists information about laws, transparency, legal frameworks, and regulatory bodies.

https://www.mici.gob.pa/direccion-general-de-servicios-al-inversionista/informacion-para-el-inversionista-direccion-general-de-servicios-al-inversionista 

Panama’s Consumer Protection and Anti-Trust Agency, established by Law 45 on October 31, 2007, and modified by Law 29 of June 2008, reviews transactions for competition-related concerns and serves as a consumer protection agency.

Panamanian law recognizes the concept of eminent domain, but it is exercised only occasionally, for example, to build infrastructure projects such as highways and the metro commuter train. In general, compensation for affected parties is fair. However, in at least one instance a U.S. company has expressed concern about not being compensated at fair market value after the government revoked a concession. There have been no cases of claimants citing a lack of due process regarding eminent domain.

The World Bank 2020 Doing Business Indicator, the most recent report available, ranked Panama 113 out of 190 jurisdictions for resolving insolvency because of a slow court system and the complexity of the bankruptcy process. Panama adopted a new insolvency law (similar to a bankruptcy law) in 2016, but the Doing Business Indicator ranking has not identified material improvement for this metric.

Panama provides Industrial Promotion Certificates (IPCs) to incentivize industrial development in high-value-added sectors. Targeted sectors include research and development, management and quality assurance systems, environmental management, utilities, and human resources. Approved IPCs provide up to 35 percent in tax reimbursements and preferential import tariffs of 3 percent. Panama does not have a practice of issuing guarantees or jointly financing FDI projects.

Law 1 (2017) modified Law 28 (1995) by exempting exports from income tax and exempting from import duty machinery for companies that export 100 percent of their products. Producers that sell any portion of their products in the domestic market pay only a three percent import tariff on machinery and supplies.

Law 41, the Special Regime for the Establishment and Operation of Multinational Company Headquarters (SEM), was enacted in 2007 to encourage multinational investment in Panama. The law focuses on administrative back-office operations, such as payroll, accounting, and other functions. Any company that is licensed under SEM will automatically qualify for MSM.

The GoP enacted Law 159 on Manufacturing Services for Multinational Companies (EMMA) in 2020 as a special incentive law to attract Foreign Direct Investment in manufacturing, remanufacturing, maintenance and product repair, assembly, logistics services, and refurbishing. The EMMA law is a complement to the SEM law and offers tax and employee incentives, reducing import duties and fees for equipment and supplies used in the manufacturing process, to companies that qualify.

In 2012, Panama introduced a tourism incentive law to promote foreign investment in tourism and the hospitality industry. The incentives are available outside the district of Panama to companies registered through the National Tourism Registry of the Panama Tourism Authority (ATP) and provide tax incentives and exemptions on real estate, imported good, construction materials, appliances, furniture, and equipment. Panama further modified the law in 2019 to provide additional tax credits for new projects and extensions on existing projects. These tax credits must be used within ten years from the start of a project.

Law 186 of December 2, 2020, facilitates entrepreneurship through a simplified registration system and tax incentives for entrepreneurs.

Panama has enacted a list of laws that provide attractive incentives for domestic and foreign investment in the energy sector. These laws encourage all-source energy projects such as hydroelectric plants, LNG plants, biofuel and biomass plants, wind, and solar. Some of the incentives include a 5 percent discount on income tax. For biofuel and biomass projects, incentives include a 10-year exemption from income taxes, a total exemption from entry fee costs, and a 10-year exemption from distribution or transmission rights for spot market operations.

Law No. 37 of June 10, 2013, establishes incentives for the construction, operation, and maintenance of solar power plants and/or installations.

Executive Decree No. 45 of June 10, 2009, provides incentives for hydroelectric generation systems and other new renewable and clean sources listed in Law No.45 of August 4, 2004, which establishes incentives for hydroelectric plants and other renewable and clean energy sources, as well as other favorable provisions.

Law No. 44 of April 25, 2011, establishes incentives for the construction and operation of wind power plants for the public electricity sector/service.

Panama is home to the Colon Free Trade Zone, the Panama Pacifico Special Economic Zone, and 18 other “free zones,” (12 active and six in development). The Colon Free Trade Zone has more than 2,500 businesses, the Panama Pacifico Special Economic Zone has more than 345 businesses, and the remaining free zones host 126 companies in total. These zones provide special tax and other incentives for manufacturers, back-office operations, and call centers. Additionally, the Colon Free Zone offers companies preferential tax and duty rates that are levied in exchange for basic user fees and a five percent dividend tax (or two percent of net profits if there are no dividends). Banks and individuals in Panama pay no tax on interest or other income earned outside Panama. No taxes are withheld on savings or fixed time deposits in Panama. Individual depositors do not pay taxes on time deposits. Free zones offer tax-free status, special immigration privileges, and license and customs exemptions to manufacturers who locate within them. Investment incentives offered by the Panamanian government apply equally to Panamanian and foreign investors.

There are no legal performance requirements such as minimum export percentages, significant requirements of local equity interest, or mandatory technology transfers. There are no requirements that host country nationals be chosen to serve in roles of senior management or on boards of directors. There are no established general requirements that foreign investors invest in local companies, purchase goods or services from local vendors, or invest in research and development (R&D) or other facilities. Depending on the sector, companies may be required to have 85-90 percent Panamanian employees. There are exceptions to this policy, but the government must approve these on a case-by-case basis. Fields dominated by strong unions, such as construction, have opposed issuing work permits to foreign laborers and some investors have struggled to fully staff large projects. Visas are available and the procedures to obtain work permits are generally not considered onerous.

As part of its effort to become a hub for finance, logistics, and communications, Panama has endeavored to become a data storage center for companies (see data protection law below). According to the Panamanian Authority for Government Innovation (AIG, http://www.innovacion.gob.pa/noticia/2834 ), most of these firms offer services to banking and telephone companies in Central America and the Caribbean. Panama boasts strong international connectivity, with seven undersea fiber optic cables and an eighth currently under construction.

Panama’s data protection law (Law 81 of 2019) established the principles, rights, obligations, and procedures that regulate the protection of personal data. The National Authority for Transparency and Access to Information (ANTAI) oversees the law’s enforcement, which began in March 2021. For extra-territorial transfer of data, the implementing regulation allows for contractual clauses or adequacy findings. An adequacy finding for the United States is still pending.

In September 2021, AIG issued a resolution requiring government entities with mission-critical or sensitive data in the cloud to transition such data to in-country storage facilities by December 2022. This would have an impact on foreign companies offering cloud services to the public sector in Panama. AIG is developing a data classification scheme to accompany this requirement and clarify which data can be held in data centers outside Panama.

The personal privacy of communications and documents is provided for in the Panamanian Constitution as a fundamental right (Political Constitution, article 29). The Constitution also provides for a right to keep personal data confidential (article 44). The Criminal Code imposes an obligation on businesses to maintain the confidentiality of information stored in databases or elsewhere and establishes several crimes for the misuse of such information (Criminal Code, articles 164, 283, 284, 285, 286). Panama’s electronic commerce legislation also states that providers of electronic document storage must guarantee the protection, reliability, and proper use of information and data stored on behalf of their customers (Law 51, July 22, 2008, article 55).

Mortgages and liens are widely used in both rural and urban areas and the recording system is reliable. There are no specific regulations regarding land leasing or acquisition by foreign and/or non-resident investors.

A large portion of land in Panama, especially outside of Panama City, is not titled. A system of rights of possession exists, but there are multiple instances where such rights have been successfully challenged. The World Bank’s Doing Business 2020 report ( http://www.doingbusiness.org/data/exploreeconomies/panama ) notes that Panama is ranked 87 out of 190 countries on the Registering Property indicator and ranks 141st in enforcing contracts. Panama enacted Law 80 (2009) to address the lack of titled land in certain parts of the country; however, the law does not address deficiencies in government administration or the judicial system. In 2010, the National Assembly approved the creation of the National Land Management Authority (ANATI) to administer land titling; however, investors have complained about ANATI’s capabilities and lengthy adjudication timelines. ANATI has attempted to clean up some titling issues and sought international assistance to modernize.

The judicial system’s capacity to resolve contractual and property disputes is generally considered weak and susceptible to corruption, as illustrated by the most recent World Economic Forum’s Global Competitiveness Report 2019 ( http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf ), which ranks Panama’s judicial independence as 129 out of 141 countries. Americans should exercise greater due diligence in purchasing Panamanian real estate than they would in purchasing real estate in the United States. Engaging a reputable attorney and a licensed real estate broker is strongly recommended.

If legally purchased property is unoccupied, property ownership can revert to other owners (squatters) after 15 years of living on or working the land, although the parties must go to court to resolve ownership.

Panama has an adequate and effective domestic legal framework to protect and enforce intellectual property rights (IPR). The legal structure is strong and enforcement is generally good. Although theft and infringement on rights occur, they are not so common as to include Panama on the Special 301 Watch List or Priority Watch List. There were no new IPR laws or regulations proposed or enacted in the past year, although Customs is in the process of modifying its contraband legislation. The U.S.-Panama TPA improved standards for the protection and enforcement of a broad range of IPR, including patents; trademarks; undisclosed tests and data required to obtain marketing approval for pharmaceutical and agricultural chemical products; and digital copyright products such as software, music, books, and videos. To implement the requirements of the TPA, Panama passed Law 62 of 2012 on industrial property and Law 64 of 2012 on copyrights. Law 64 also extended copyright protection to the life of the author plus 70 years, mandates the use of legal software in government agencies, and protects against the theft of encrypted satellite signals and the manufacturing or sale of tools to steal signals.

Panama is a member of the Paris Convention for the Protection of Industrial Property. Panama’s Industrial Property Law (Law 35 of 1996) provides 20 years of patent protection from the date of filing, or 15 years from the filing of pharmaceutical patents. Panama has expressed interest in participating in the Patent Protection Highway with the U.S. Patent and Trademark Office (USPTO). Law 35, amended by Law 61 of 2012, also provides trademark protection, simplified the registration of trademarks, and allows for renewals for 10-year periods. The law grants ex-officio authority to government agencies to conduct investigations and seize suspected counterfeit materials. Decree 123 of 1996 and Decree 79 of 1997 specify the procedures that National Customs Authority (ANA) and Colon Free Zone officials must follow to investigate and confiscate merchandise. In 1997, ANA created a special office for IPR enforcement; in 1998, the Colon Free Zone followed suit.

The Government of Panama is making efforts to strengthen the enforcement of IPR. A Committee for Intellectual Property (CIPI), comprising representatives from five government agencies (the Colon Free Zone, the Offices of Industrial Property and Copyright under the

Ministry of Commerce and Industry (MICI), the Customs Administration (ANA), and the Attorney General), under the leadership of the MICI, is responsible for the development of intellectual property policy. Since 1997, two district courts and one superior tribunal have exclusive jurisdiction of antitrust, patent, trademark, and copyright cases. Since January 2003, a specific prosecutor with national authority over IPR cases has consolidated and simplified the prosecution of such cases. Law 1 of 2004 added crimes against IPR as a predicate offense for money laundering, and Law 14 establishes a 5 to 12-year prison term.

Various Panamanian entities track and report on seizures of counterfeit goods, but there is no single repository or website that consolidates this information. Panama’s Public Ministry has a Specialized Prosecutors Office dedicated to IPR violations, but there have so far been relatively few criminal prosecutions for IPR violations. Panama executes search warrants on businesses that trade in counterfeit goods, but such items are usually seized administratively without criminal prosecutions.

Panama is not included in the United States Trade Representative (USTR) Special 301 Report. One online market on the Notorious Markets List is reportedly operated from Panama.

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

Embassy point of contact:

Colombia Primola
Economic Specialist
PrimolaCE@state.gov 

Local lawyers list: https://pa.usembassy.gov/u-s-citizen-services/attorneys/

Panama has a stock market with an effective regulatory system developed to support foreign investment. Article 44 of the constitution guarantees the protection of private ownership of real property and private investments. Some private companies, including multinational corporations, have issued bonds in the local securities market. Companies rarely issue stock on the local market and, when they do, often issue shares without voting rights. Investor demand is generally limited because of the small pool of qualified investors. While some Panamanians may hold overlapping interests in various businesses, there is no established practice of cross-shareholding or stable shareholder arrangements designed to restrict foreign investment through mergers and acquisitions. Panama has agreed to IMF Article VIII and pledged not to impose restrictions on payments and transfers for current international transactions.

In 2012, Panama modified its securities law to regulate brokers, fund managers, and matters related to the securities industry. The Commission structure was modified to follow the successful Banking Law model and now consists of a superintendent and a board of directors. The Superintendency of the Securities Market is generally considered a competent and effective regulator. Panama is a full signatory to the International Organization of Securities Commissions (IOSCO).

Government policy and law with respect to access to credit treat Panamanian and foreign investors equally. Panamanian interest rates closely follow international rates (i.e., the U.S. federal funds rate, the London Interbank Offered Rate, etc.), plus a country-risk premium.

Panama’s banking sector is developed and highly regulated and there are no restrictions on a foreigner’s ability to establish a bank account. Foreigners are required to present a passport and taxpayer identification number and an affidavit indicating that the inflow and outflow of money meets the tax obligations of the beneficiary’s tax residence. The adoption of financial technology in Panama is nascent, but there are several initiatives underway to modernize processes.

Some U.S. citizens and entities have had difficulty meeting the high documentary threshold for establishing the legitimacy of their activities both inside and outside Panama. Banking officials counter such complaints by citing the need to comply with international financial transparency standards. Several of Panama’s largest banks have gone so far as to refuse to establish banking relationships with whole sectors of the economy, such as casinos and e-commerce, in order to avoid all possible associated risks. Regulatory issues have made it difficult for some private U.S. citizens to open bank accounts in Panama, leaving some legitimate businesses without access to banking services in Panama. Panama has no central bank.

The banking sector is highly dependent on the operating environment in Panama, but it is generally well-positioned to withstand shocks. The banking sector could be impacted if Panama’s sovereign debt rating continues to fall. As of March 18, 2022, the sovereign debt rating remains investment grade, with ratings of Baa2 (Moody’s), BBB- (Fitch), and BBB (Standard & Poor’s). Approximately 4.7 percent of total banking sector assets are estimated to be non-performing.

Panama’s 2008 Banking Law regulates the country’s financial sector. The law concentrates regulatory authority in the hands of a well-financed Banking Superintendent ( https://www.superbancos.gob.pa/ ).

Traditional bank lending from the well-developed banking sector is relatively efficient and is the most common source of financing for both domestic and foreign investors, offering the private sector a variety of credit instruments. The free flow of capital is actively supported by the government and is viewed as essential to Panama’s 68 banks (2 official banks, 39 domestic banks, 17 international banks, and 10 bank representational offices).

Foreign banks can operate in Panama and are subject to the same regulatory regime as domestic banks. Panama has not lost any correspondent banking relationships in the last three years despite its inclusion on the FATF grey list since June 2019.

There are no restrictions on, nor practical measures to prevent, hostile foreign investor takeovers, nor are there regulatory provisions authorizing limitations on foreign participation or control, or other practices that restrict foreign participation. There are no government or private sector rules that prevent foreign participation in industry standards-setting consortia. Financing for consumers is relatively open for mortgages, credit cards, and personal loans, even to those earning modest incomes.

Panama’s strategic geographic location, dollarized economy, status as a regional financial, trade, and logistics hub, and favorable corporate and tax laws make it an attractive destination for money launderers. Money laundered in Panama is believed to come in large part from the proceeds of drug trafficking. Tax evasion, bank fraud, and corruption are also believed to be major sources of illicit funds in Panama. Criminals have been accused of laundering money through shell companies and via bulk cash smuggling and trade at airports and seaports, and in active free trade zones.

In 2015, Panama strengthened its legal framework, amended its criminal code, harmonized legislation with international standards, and passed a law on anti-money laundering/combating the financing of terrorism (AML/CFT). Panama also approved Law 18 (2015), which severely restricts the use of bearer shares; companies still using them must appoint a custodian and maintain strict controls over their use. In addition, Panama passed Law 70 (2019), which criminalizes tax evasion and defines it as a money laundering predicate offense. In 2021, Panama passed Law 254, which modifies six distinct laws in order to give the non-financial regulator more authority and strengthen know-your-customer (KYC) requirements. For example, it modifies Law 23 of 2015 to align Panama with accounting records standards and increase sanctions for money laundering violations from $1 million to $5 million; it also modifies Law 52 of 2016 to require resident agents for offshore corporations to hold or have access to a copy of the company’s accounting records.

In June 2019, the Financial Action Task Force (FATF) added Panama to its grey list of jurisdictions subject to ongoing monitoring due to strategic AML/CFT deficiencies. FATF cited Panama’s lack of “positive, tangible progress” in measures of effectiveness. Panama agreed to an Action Plan in four major areas: 1) risk, policy, and coordination; 2) supervision; 3) legal persons and arrangements; and 4) money laundering investigation and prosecution. The Action Plan outlined concrete measures that were to be completed in stages by May and September 2020. Due to the COVID-19 pandemic, FATF granted Panama two extensions, pushing the deadline to January 2021. In its March 2022 plenary, FATF recognized that Panama had largely completed eight of fifteen items on its Action Plan and highlighted the items Panama must still address, while noting the country’s progress since the last plenary meeting.

In February 2022, the European Union (EU) kept Panama on its tax haven blacklist along with American Samoa, Fiji, Guam, Palau, Samoa, Trinidad and Tobago, the U.S. Virgin Islands, and Vanuatu. The EU does not consider Panama to have met international criteria on transparency and exchange of tax information. Panama, however, remains committed to complying with the recommendations of the OECD’s domestic tax base erosion and profit shifting action plan.

Panama has made strides in increasing criminal prosecutions and convictions related to money laundering and tax evasion. However, law enforcement needs more tools and training to conduct long-term, complex financial investigations, including undercover operations. The criminal justice system remains at risk for corruption. Panama has made progress in assessing high-risk sectors, improving inter-ministerial cooperation, and approving – though not yet implementing – a law on beneficial ownership. Additionally, the GoP and the United States signed an MOU in August 2020 that created an anti-money laundering and anti-corruption task force that has advanced investigations of financial crimes. The United States provides training to the task force to combat money laundering and corruption, as well as training for judicial investigations and prosecutions.

Panama started a sovereign wealth fund, called the Panama Savings Fund (FAP), in 2012 with an initial capitalization of $1.3 billion. The fund follows the Santiago Principles and is a member of the International Forum of Sovereign Wealth Funds. The law mandates that from 2015 onward contributions to the National Treasury from the Panama Canal Authority in excess of 3.5 percent of GDP must be deposited into the Fund. In October 2018, the rule for accumulation of the savings was modified to require that when contributions from the Canal exceed 2.5 percent of GDP, half the surplus must go to national savings. At the end of 2021, the value of the FAP’s assets totaled $1.4 billion. Since the beginning of its operations, FAP has generated returns of $455.6 million and contributions to the National Treasury of $235.6 million.

Panama has 16 non-financial State-Owned Enterprises (SOE) and 8 financial SOEs that are included in the budget and broken down by enterprise. Each SOE has a Board of Directors with Ministerial participation. SOEs are required to send a report to the Ministry of Economy and Finance, the Comptroller General’s Office, and the Budget Committee of the National Assembly within the first ten days of each month showing their budget implementation. The reports detail income, expenses, investments, public debt, cash flow, administrative management, management indicators, programmatic achievements, and workload. SOEs are also required to submit quarterly financial statements. SOEs are audited by the Comptroller General’s Office.

The National Electricity Transmission Company (ETESA) is an example of an SOE in the energy sector, and Tocumen Airport and the National Highway Company (ENA) are SOEs in the transportation sector. Financial allocations and earnings from SOEs are publicly available at the Official Digital Gazette ( http://www.gacetaoficial.gob.pa/ ). There is a website under construction that will consolidate information on SOEs: https://panamagov.org/organo-ejecutivo/empresas-publicas/ #.

Panama’s privatization framework law does not distinguish between foreign and domestic investor participation in prospective privatizations. The law calls for pre-screening of potential investors or bidders in certain cases to establish technical capability, but nationality and Panamanian participation are not criteria. The Government of Panama undertook a series of privatizations in the mid-1990s, including most of the country’s electricity generation and distribution, its ports, and its telecommunications sector. There are presently no privatization plans for any major state-owned enterprise.

Panama maintains strict domestic laws relating to labor and employment rights and environmental protection. While enforcement of these laws is not always stringent, major construction projects are required to complete environmental assessments, guarantee worker protections, and comply with government standards for environmental stewardship.

The ILO program “Responsible Business Conduct in Latin America and the Caribbean” is active in Panama and has partnered with the National Council of Private Enterprise (CoNEP) to host events on gender equality. Panama does not yet have a State National Action Plan on Business and Human Rights.

In February 2012, Panama adopted ISO 26000 to guide businesses in the development of corporate social responsibility (CSR) platforms. In addition, business groups, including the Association of Panamanian Business Executives (APEDE) and the American Chamber of Commerce (AmCham), are active in encouraging and rewarding good CSR practices. Since 2009, the AmCham has given an annual award to recognize member companies for their positive impact on their local communities and environment.

Panama has two goods on the U.S. Department of Labor’s (DOL) “List of Goods Produced by Child Labor or Forced Labor”: melons and coffee. DOL removed sugarcane from the list in 2019. Child labor is also prevalent among street vendors and in other informal occupations.

There have been several disputes over the resettlement of indigenous populations to make room for hydroelectric projects, such as at Barro Blanco and Bocas del Toro. The government mediates in such cases to ensure that private companies are complying with the terms of resettlement agreements.

Despite human resource constraints, Panama effectively enforces its labor and environmental laws relative to the region and conducts inspections in a methodical and equitable manner. Panama encourages adherence to the OECD’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and supports the Kimberley Process. Panama is not a government sponsor of either the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights.

The National Council of Organized Workers (CONATO) and the National Confederation of Trade Union Unity (CONUSI) are the most active labor organizations advocating for worker rights in the private sector. They enjoy access to and dialogue with key decisionmakers. CONATO is currently participating in a nationwide dialogue to defend the sustainability of the workers retirement fund. CONUSI is focused on labor rights in the construction sector.

Panama is a signatory of the Montreux Document on Private Military and Security Companies. Panama follows the standards set by the International Standards Organization (ISO) and certifies security companies in quality management and security principles consistent with ISO standards.

Panama ratified the United Nations Framework Convention on Climate Change (UNFCCC) through Law 10 of April 12, 1995. Law 8 of March 25, 2015, includes a title on climate change and chapters on mitigation and adaptation. Executive Decree 36 of May 28, 2018, established the Ministry of Environment, which includes the Climate Change Directorate, in accordance with Law 41 of July 1, 1998, the General Law on the Environment.

The government relies on the Green Climate Fund, established within the framework of the UNFCCC, to finance programs and projects for mitigation and adaptation, promulgated by the public and private sectors.

The National Climate Change Policy (PNCC), approved through Executive Decree No. 35 of February 26, 2007, establishes the framework for all entities seeking to contribute to the stabilization of GHGs, promote adaptation measures, and ensure sustainable development.

Since the approval of the PNCC, the Ministry of Environment has proposed a project to update the PNCC and the development of a Climate Change Framework Law. The PNCC project is intended to influence the national climate agenda by reformulating current public policy to update it consistent with international commitments that have emerged since 2007 and current national actions with a 2050 compliance horizon. The project aims to strengthen climate governance through the:

1. Update of the National Climate Change Policy of Panama to 2050 (PNCC2050), its Action Plan and the formulation of a set of indicators for monitoring and evaluation.
2. Formulation of a draft Framework Law on Climate Change (LMCC) through a process of citizen participation and agreement.

Panama presented three National Communications, in 2000, 2011, and 2019; a biennial update report in2019; its first Nationally Determined Contribution (NDC) in 2016; and an update to the First Nationally Determined Contribution (CDN1) in 2020. Panama’s enhanced Nationally Determined Contribution (NDC) is in line with the 2030 Paris Agreement to limit warming to 1.5 degrees Celsius and to maintain negative or net zero GHG emissions through 2050.

Panamanian President Laurentino Cortizo claimed at the United Nations Climate Change conference (COP26) in November 2021that Panama is one of only three countries in the world whose emissions are “carbon negative,” along with Bhutan and Suriname. In 2021, Panama began the “Reduce Your Corporate Footprint” (Corporate RTH) program, which is the first voluntary state program for the management of the carbon and water footprint at the organizational level in the country. This program establishes a standardized process to identify, calculate, report and verify the carbon and water footprint within the operational limits of public, private, and civil society organizations that are legally constituted in the national territory.

Panama’s national strategy for climate change aims to boost and increase the use of renewables, protect coastal regions, create green jobs, integrate transportation networks, design a carbon market, manage GHG emissions, boost adaptation capabilities, and contribute to the socioecological wellbeing of all Panamanians. The Ministry of Environment is developing a roadmap for implementation of its climate change commitments presented in 2021.

Corruption is among Panama’s most significant challenges. Panama ranked 105 out of 180 countries in the 2021 Transparency International Corruption Perceptions Index (CPI). High-profile alleged procurement irregularities in 2020, including several related to pandemic response, contributed to public skepticism of government transparency. U.S. investors allege that corruption is present in the private sector and at all levels of the Panamanian government. Purchase managers and import/export businesses have been known to overbill or skim percentages off purchase orders, while judges, mayors, members of the National Assembly, and local representatives have reportedly accepted payments for facilitating land titling and favorable court rulings. The Foreign Corrupt Practice Act (FCPA) precludes U.S. companies from engaging in bribery or other similar activities, and U.S. companies look carefully at levels of corruption before investing or bidding on government contracts.

The process to apply for permits and titles can be opaque, and civil servants have been known to ask for payments at each step of the approval process. The land titling process has been troublesome for many U.S. companies, some of which have waited decades for cases to be resolved. U.S. investors in Panama also complain about a lack of transparency in government procurement. The parameters of government tenders often change during the bidding process, creating confusion and the perception that the government tailors tenders to specific companies. Panama passed Law 153 on May 8, 2020, to modernize its public procurement system and address some of these concerns.

Panama’s government lacks strong systemic checks and balances that incentivize accountability. All citizens are bound by anti-corruption laws; however, under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges, and only the Supreme Court may initiate investigations against members of the National Assembly, which has led to charges of a de facto “non-aggression pact” between the branches. Another key component of the judicial sector, the Public Ministry (Department of Justice) and the Organo Judicial (Judicial Branch), have struggled with a historical susceptibility to political influence.

In late 2016, Brazilian construction firm Odebrecht admitted to paying $59 million in bribes to win Panamanian contracts worth at least $175 million between 2010 and 2014. Odebrecht’s admission was confined to bribes paid during the Martinelli administration; however, former President Juan Carlos Varela (2014-2019) is also under investigation on charges of corruption related to Odebrecht. Odebrecht agreed to pay a large fine as part of a judicial settlement, but Panama has imposed sanctions because Odebrecht failed to make all the required payments. While Odebrecht continues to operate in Panama, two Odebrecht projects have been cancelled: the Hydraulic Project Chan II and the new Tocumen Airport. The Government of Panama is now seeking to ban Odebrecht from any other public procurement tenders.

Panama has anti-corruption mechanisms in place, including whistleblower and witness protection programs and conflict-of-interest rules. However, the public perceives that anti-corruption laws are weak and not applied rigorously and that government enforcement bodies and the courts are not effective in pursuing and prosecuting those accused of corruption. The lack of a strong professionalized career civil service in Panama’s public sector has also hindered systemic change. The fight against corruption is hampered by the government’s refusal to dismantle Panama’s dictatorship-era libel and contempt laws, which can be used to punish whistleblowers. Acts of corruption are seldom prosecuted, and perpetrators are almost never jailed.

Under President Cortizo, Panama has taken some measures to improve the business climate and encourage transparency. These include a public-private partnership (APP) law passed in September 2019 that covers construction, maintenance, and operations projects valued at more than $10 million. The law is designed to implement checks and balances and eliminate discretion in contracting, a positive step that will increase transparency and create a level playing field for investors. In addition, the public procurement law that was approved in May 2020 is aimed at improving bidding processes so that no tenders can be “made to order”.

Panama ratified the UN’s Anti-Corruption Convention in 2005 and the Organization of American States’ Inter-American Convention Against Corruption in 1998. However, there is a perception that Panama should more effectively implement both conventions.

ELSA FERNÁNDEZ AGUILAR
National Director
Autoridad Nacional de Transparencia y Acceso a la Informacion (ANTAI)
Ave. del Prado, Edificio 713, Balboa, Ancon, Panama, República de Panama
(507) 527-9270
efernandez@antai.gob.pa
www.antai.gob.pa

Olga de Obaldia
Executive Director
Fundacion Para el Desarrollo y Libertad Ciudadana (Panama’s TI Chapter)
Urbanización Nuevo Paitilla. Calle 59E. Dúplex Nº 25. Ciudad de Panamá. PANAMÁ
(507) 2234120
odeobaldia@libertadciudadana.org
https://www.libertadciudadana.org/ 

Panama is a peaceful and stable democracy. On rare occasions, large-scale protests can turn violent and disrupt commercial activity in affected areas. Mining and energy projects have been sensitive issues, especially those that involve development in designated indigenous areas called comarcas. One U.S. company has reported not only protests and obstruction of access to one of its facilities, but costly acts of vandalism against its property. The unrest is related to disagreements over compensation for affected community members. The GoP has attempted to settle the dispute, but without complete success.

In May 2019, Panama held national elections that international observers agreed were free and fair. The transition to the new government was smooth. Panama’s Constitution provides for the right of peaceful assembly, and the government respects this right. No authorization is needed for outdoor assembly, although prior notification for administrative purposes is required. Unions, student groups, employee associations, elected officials, and unaffiliated groups frequently attempt to impede traffic and disrupt commerce in order to force the government or private businesses to agree to their demands.

Homicides in Panama increased by 11 percent in 2021, to 554, 57 more than were recorded in 2020. Strife among rival gangs and turf battles in the narcotrafficking trade contributed significantly to the increase in the homicide rate in 2021. Panamanian authorities assess that 70 percent of homicides in the country are linked to organized crime, especially transnational drug trafficking and gangs. The 2021 homicide rate of 12.95 per 100,000 people is still among the lowest in Central America, but is consistent with an upward trend since 2019, year-on-year.

According to official surveys carried out in October 2021, the unemployment rate in Panama improved significantly, but the level of informality and the size of the economically active population (EAP) worsened. That is, fewer people were looking for work. As of October 2021, the unemployment rate stood at 11.3 percent and the informality rate at 47.6 percent, while the economically active population had decreased by 66.5 percent, according to the labor market survey (EML) carried out by the National Institute of Statistics and Census (INEC).

There is a shortage of skilled workers in accounting, information technology, and specialized construction, and a minimal number of English-speaking workers. Panama spends approximately 13 percent of its budget, or 3 percent of GDP, on education. While Panama has one of the highest minimum wages in the hemisphere, the 2018-2019 World Economic Forum Global Competitiveness Report ranked Panama 89 out of 141 countries for the skillsets of university graduates.

The government’s labor code remains highly restrictive. The Panamanian Labor Code, Chapter 1, Article 17, establishes that foreign workers can constitute only 10 percent of a company’s workforce, or up to 15 percent if those employees have a specialized skill. By law, businesses can only exceed these caps for a defined period and with prior approval from the Ministry of Labor.

Several sectors, including the Panama Canal Authority, the Colon Free Zone, and export processing zones/call centers, are covered by their own labor regimes. Employers outside these zones, such as those in the tourism sector, have called for greater flexibility, easier termination of workers, and the elimination of many constraints on productivity-based pay. The Panamanian government has issued waivers to regulations on an ad hoc basis to address employers’ demands, but there is no consistent standard for obtaining such waivers.

The law allows private sector workers to form and join independent unions, bargain collectively, and conduct strikes. Public sector employees may organize to create a professional association to bargain collectively on behalf of its members, even though public institutions are not legally obligated to bargain with the association. Members of the national police are the only workers prohibited from creating professional associations. The law prohibits anti-union discrimination and requires reinstatement of workers terminated for union activity, but does not provide adequate mechanisms to enforce this right.

The Ministry of Labor’s Board of Appeals and Conciliation has authority to resolve certain labor disagreements, such as internal union disputes, enforcement of the minimum wage, and some dismissal issues. The law allows arbitration by mutual consent, at the request of the employee or the ministry, and in the case of a collective dispute in a privately held public utility. It allows either party to appeal if arbitration is mandated during a collective dispute in a public-service company. The Board of Appeals and Conciliation has exclusive competency for disputes related to domestic employees, some dismissal issues, and claims of less than $1,500.

The Ministry of the Presidency’s Conciliation Board hears and resolves complaints by public-sector workers. The Board refers complaints that it fails to resolve to an arbitration panel, which consists of representatives from the employer, the professional association, and a third member chosen by the first two. If the dispute cannot be resolved, it is referred to a tribunal under the Board. Observers, however, have noted that the Ministry of the Presidency has not yet designated the tribunal judges. The alternative to the Board is the civil court system.

Panama does not have a system of unemployment insurance. Instead, workers receive large severance payments from their employer upon termination. During the COVID-19 pandemic, employers were permitted to furlough workers for longer than normally permitted, without paying severance. Law 201 of February 25, 2021 allowed employers to establish temporary measures to preserve employment and normalize labor relations by extending furloughs to the end of 2021, This law ended on December 31, 2021. Yet even after its expiration, some companies have kept workers furloughed because of a lack of resources to rehire them or pay their severances. Press reports suggest these companies have yet to recover from the pandemic-related economic crisis.

The United States and Panama signed a comprehensive agreement with the Overseas Private Investment Corporation (OPIC, now DFC) in April 2000. The World Bank’s downgrade of Panama to upper-middle-income classification in July 2021 following a GDP decline of 18 percent in 2020 opened the door for development assistance opportunities. Panama has nine active projects under the DFC valued at a total of $283 million in the financial, energy, and real estate sectors https://www.dfc.gov/our-impact/all-active-projects . Panama has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1996.

Colombia Primola
Economic Specialist – Economic Section
E-mail: PrimolaCE@state.gov
Office: +507-317-5491
Cell: +(507) 6613-4687

Peru seeks to attract investment, both foreign and domestic, in nearly all sectors. Peru reported $2 billion in Foreign Direct Investment (FDI) in 2021 and seeks increased investment for 2022. It has prioritized public-private partnership projects in transportation infrastructure, electricity, education, telecommunications, ports, health, and sanitation, among other sectors.

Peru’s 1993 Constitution grants national treatment for foreign investors and permits foreign investment in almost all economic sectors. Under the constitution, foreign investors have the same rights as national investors to benefit from investment incentives, such as tax exemptions. In addition to the constitutional provisions, Peru has several laws governing FDI including the Foreign Investment Promotion Law (Legislative Decree (DL) 662 of September 1991) and the Framework Law for Private Investment Growth (DL 757 of November 1991). Other important laws include the Private Investment in State-Owned Enterprises Promotion Law (DL 674) and the Private Investment in Public Services Infrastructure Promotion Law (DL 758). Article 6 of Supreme Decree No. 162-92-EF (the implementing regulations of DLs 662 and 757) authorized private investment in all industries except within natural protected areas and weapons manufacturing.

Peru and the United States benefit from the United States-Peru Free Trade Agreement (PTPA), which entered into force on February 1, 2009. The PTPA established a more secure, predictable legal framework for U.S. investors in Peru. The PTPA protects all forms of investment. U.S. investors enjoy the right to establish, acquire, and operate investments in Peru on an equal footing with local investors in almost all circumstances. The PTPA can be found here: https://ustr.gov/trade-agreements/free-trade-agreements/peru-tpa 

The GOP created the investment promotion agency ProInversion in 2002 to manage privatizations and concessions of state-owned enterprises and natural resource-based industries. The agency currently focuses on private concessions in the energy, education, transportation, health, sanitation, and telecommunication sectors, and organizes international roadshow events to attract investors. Specific project opportunities are available on the ProInversion website: https://www.investinperu.pe/es/app/cartera-de-proyectos-de-proinversion . Companies are required to register all foreign investments with ProInversion.

Peru’s National Competitiveness Plan 2019 – 2030 outlined a set of recommendations aimed to make Peru’s economy and investment climate more competitive. The 2019 National Infrastructure Plan (PNIC) identified 52 priority infrastructure projects to help address an estimated $110 billion infrastructure gap, some of which are underway including construction of Lima metro lines, an expansion to the Jorge Chavez International Airport, and multiple energy projects. Investors report in recent years that Peru’s energy projects advance more quickly than transport and agricultural projects, which can suffer extended delays. The GOP announced in February 2022 that it will update the PNIC by July 2022 with an emphasis on sustainable development opportunities. Of note, in May 2021, Peru signed a government-to-government (G2G) agreement with France for a $3.1 billion highway project, an opportunity that was not included in the PNIC.

Although Peru has generally supported private investments since the 1990s, administrations occasionally pass measures that some observers regard as contrary to the nation’s open and free market orientation. In December 2011, for example, Peru signed into law a 10-year moratorium on the entry of live genetically modified organisms (GMOs) for cultivation. In December 2020, the government extended the moratorium for an additional 15 years, until 2035.

Peru’s Constitution (Article 6 under Supreme Decree No. 162-92-EF) authorizes foreign investors to carry out economic activity provided that investors comply with all constitutional precepts, laws, and treaties. Exceptions exist, including exclusion of foreign investment activities in natural protected reserves and military weapons manufacturing. Peruvian law requires majority Peruvian ownership in media; air, land, and maritime transportation infrastructure; and private security surveillance services. Foreign interests cannot “acquire or possess under any title, mines, lands, forests, waters, or fuel or energy sources” within 50 kilometers of Peru’s international borders. However, foreigners can obtain concessions in these areas and in certain cases the GOP may grant a waiver. The GOP does not screen, review, or approve foreign direct investment outside of those sectors that require a governmental waiver.

The World Trade Organization (WTO) published a Trade Policy Review ( https://www.wto.org/english/tratop_e/tpr_e/tp_rep_e.htm#bycountry ) on Peru in February 2020. The WTO commented that foreign investors received the same legal treatment as local investors in general, although Peru restricted foreign investment on property at the country’s borders, and in air transport and broadcasting. The report highlighted the government’s ongoing efforts to promote public-private partnerships (PPPs) and strengthen the PPP legal framework with Organization for Economic Cooperation and Development (OECD) principles. The report noted that Peru maintained a regime open to domestic and foreign investment that fostered competition and equal treatment.

In January 2022, the OECD formally opened accession discussions with Peru. The GOP expects the OECD will adopt an individual Accession Roadmap for Peru later in 2022, which will establish the terms, conditions, and process for accession. The process will include a rigorous evaluation by more than 20 OECD technical committees that will establish expectations covering a wide range of policy areas, including open trade and investment, public governance, integrity and anti-corruption, and environmental protection. There is no deadline for completion of the accession processes, although typically the process takes three-to-five years or more. The outcome and timeline will depend on Peru’s political will and capacity to adjust its regulations and policies to further align with OECD standards and best practices.

Peru has not had a third-party investment policy review through the OECD or UNCTAD in the past five years. Post is also not aware of any major civil society-led investment policy review within the last five years.

The GOP does not have a specific regulatory agency that facilitates business operations, but the Institute for the Protection of Intellectual Property, Consumer Protection, and Competition (INDECOPI) reviews the enactment of new regulations by government entities that can place burdens on business operations. INDECOPI has the authority to block any new business regulation. INDECOPI also has a Commission for Elimination of Bureaucratic Barriers: https://www.indecopi.gob.pe/web/eliminacion-de-barreras-burocraticas/presentacion .

Peru allows foreign business ownership, provided that a company has at least two shareholders and that its legal representative is a Peruvian resident. Businesses must reserve a company name through the national registry, SUNARP, and prepare a deed of incorporation through a Citizen and Business Services Portal ( https://www.serviciosalciudadano.gob.pe/ ). After a deed is signed, businesses must file with a public notary, pay notary fees of up to one percent of a company’s capital, and submit the deed to the Public Registry. The company’s legal representative must obtain a certificate of registration and tax identification number from the national tax authority SUNAT (www.sunat.gob.pe). Finally, the company must obtain a license from the municipality of the jurisdiction in which it is located. Depending on the core business, companies may need to obtain further government approvals such as sanitary, environmental, or educational authorizations.

Peru’s Trade Commission Offices (OCEXs), which promote the exports of Peruvian goods and services, under the supervision of Peru’s export promotion agency PromPeru, are located in numerous countries, including the United States. The GOP does not restrict domestic investors from investing abroad.

Laws and regulations most relevant to foreign investors are enacted and implemented at the national level. Most ministries and agencies make draft regulations available for public comment. El Peruano, the state’s official gazette, publishes regulations at the national, regional, and municipal level. Ministries generally maintain current regulations on their websites. Rule-making and regulatory authority also exists through executive agencies specific to different sectors. The Supervisory Agency for Forest Resources and Wildlife (OSINFOR), the Supervisory Agency for Energy and Mining (OSINERGMIN), and the Supervisory Agency for Telecommunications (OSIPTEL), all of which report directly to the President of the Council of Ministers, can enact new regulations that affect investments in the economic sectors they manage. These agencies also have the right to enforce regulations with fines. Regulation is generally reviewed on the basis of scientific and data-driven assessments, but public comments are not always received or made public. The government does not promote or require companies’ environmental, social, and governance (ESG) disclosure.

Accounting, legal, and regulatory standards are consistent with international norms. Peru’s Accounting Standards Council endorses the use of IFRS standards by private entities. Public finances and debt obligations, including explicit and contingent liabilities, are transparent and publicly available at the Ministry of Economy and Finance website: https://www.mef.gob.pe/es/estadisticas-sp-18642/deuda-del-sector-publico .

Peru is a member of regional economic blocs. Under the Pacific Alliance, Peru looks to harmonize regulations and reduce barriers to trade with other members: Chile, Colombia, and Mexico. Peru is a member of the Andean Community (CAN), which issues supranational regulations (based on consensus of its members) that supersede domestic provisions.

Peru follows international food standard bodies, including: CODEX Alimentarius, World Organization for Animal Health (OIE), and International Plant Protection Convention (IPPC) guidelines for Sanitary and Phytosanitary (SPS) standards. When CODEX does not have limits or standards established for a product, Peru defaults to the U.S. maximum residue level or standard. Peru’s system is generally more aligned with the U.S. regulatory system and standards than with its other trading partners. Peru notifies all agricultural-related technical regulations to the WTO Technical Barriers to Trade (TBT) committee.

Peru uses a civil law system. Companies are generally regulated through Peru’s civil code, which includes sections governing contracts and general corporate law. Peru’s civil court system resolves conflicts between companies. Companies can also access conflict resolution services in civil courts. Litigation processes in Peruvian courts are slow.

Peru has an independent judiciary. The executive branch does not interfere with the judiciary as a matter of policy. Regulations and enforcement actions are appealable through administrative process and the court system. Peru is in the process of reforming its justice system. The National Justice Board (Junta Nacional de Justicia), which began operating in January 2020, supervises the selection processes, appointments, evaluations, and disciplinary actions for judges.

Peru has a stable and attractive legal framework used to promote private investment. The 1993 Peruvian Constitution includes provisions that establish principles to ensure a favorable legal framework for private investment, particularly for foreign investment. A key constitutional and regulatory principle is equal treatment of domestic and foreign investment. Some of the main private investment regulations include:

• Legislative Decree 662, which establishes foreign investment legal stability regulations;
• Legislative Decree 757, which establishes Peru’s private investment growth framework law; and
• Supreme Decree 162-92-EF, which establishes private investment guarantee mechanism regulations.

Peru’s legal system is available to investors. All laws relevant to foreign investment along with pertinent explanations and forms can be found on the ProInversion website: https://www.investinperu.pe/en/climate/legal-framework-for-investments .

INDECOPI is the GOP agency responsible for reviewing domestic competition-related concerns. Congress published a mergers and acquisitions (M&A) control law in January 2021. The law currently requires INDECOPI to review and approve M&As involving companies, including multinationals, that have combined annual sales or gross earnings over $146 million in Peru and if the value of the sales or annual gross earnings in Peru of two or more of the companies involved in the proposed M&A operation exceed $22 million each.

A legislative decree issued in September 2018 (DL 1444) modified the public procurement law to allow government agencies to use government-to-government (G2G) agreements to facilitate procurement processes.  The GOP considers the G2G procurement model as a suitable method for expediting priority infrastructure projects in a manner that is more transparent and less susceptible to corruption. However, the USG, outside of the US Army Corps of Engineers, does not have a mechanism to support Peru’s G2G contracts. Peru expanded the use of G2G agreements in 2021 to include large infrastructure projects including a $1.6 billion general reconstruction initiative (related to damages caused by the El Nino event of 2017) and a $3.0 billion Central Highway project.

The Peruvian Constitution states that Peru can only expropriate private property based on public interest, such as public works projects or for national security. Article 70 of the Constitution establishes that the State can only expropriate through a judicial process or prior mandate of the law, and only after payment of compensation, including for damages. Peruvian law bases compensation for expropriation on fair market value. Article 70 also guarantees the inviolability of private property.

Public dialogue has at times touched the theme of expropriation or nationalization of the extractives sectors, including during political campaigns, but the GOP has not to date moved forward with any direct expropriation of sectors or businesses. Landowners have alleged indirect expropriation due to government inaction and corruption in “land-grab” cases that have, at times, been linked to projects endorsed by subnational governments.

Peru has a creditor rights hierarchy similar to that established under U.S. bankruptcy law, and monetary judgments are usually made in the currency stipulated in the contract. However, administrative bankruptcy procedures are slow and subject to judicial intervention. Compounding this difficulty are occasional laws passed to protect specific debtors from action by creditors that would force them into bankruptcy or liquidation. In August 2016, the GOP extended the period for bankruptcy from one year to two years. Peru does not criminalize bankruptcy.

Peru offers foreign and national investors legal and tax stability agreements to stimulate private investment. These agreements guarantee that the statutes on income taxes, remittances, export promotion regimes (such as drawbacks, or refunds of duties), administrative procedures, and labor hiring regimes in effect at the time of the investment contract will remain unchanged for that investment for 10 years. To qualify, an investment must exceed $10 million in the mining and hydrocarbons sectors or $5 million within two years in other sectors. An agreement to acquire more than 50 percent of a state-owned company’s shares in a privatization process may also qualify an investor for a legal or tax stability agreement, provided that the added investment will expand the installed capacity of the company or enhance its technological development. The government does not currently offer any incentives for clean energy investments.

Peru was accepted as a member of the Association of Free Zones of the Americas (AZFA) as well as the World Free Zone Organization (WFZO) in 2019. Peru has nine Special Economic Zones (SEZ): Free Zones in Tacna, Cajamarca, Chimbote; and Special Development Zones (SDZ) in Ilo, Matarani, Paita, Tumbes, Loreto, and Puno (the last three are currently not in operation).

MINCETUR Supreme Decree 005-2019 published in August 2019 implemented regulations for the SDZ of Ilo, Matarani, Paita, and Tumbes. SDZ businesses can perform activities in seven economic sectors: industry, logistics, repair/overhaul, telecommunications, information technology, science, technological research, and development. SDZs enjoy the same economic benefits as the SEZs. The MINCETUR Foreign Trade Facilitation Office oversees Peru’s free trade zones.

Companies can become SEZ users through public auctions. This condition grants access to tax benefits and customs advantages promoting entry, permanence, and exit facilitation procedures for goods. Benefits include:

Taxes

• Income Tax exemption (rate outside of the SEZ is 29.5 percent)
• General Sales Tax (IGV) exemption (rate outside of the SEZ is 16 percent)
• Municipal Promotion Tax exemption (rate outside of the SEZ is 2 percent)
• Excise Tax (ISC) exemption (rate outside of the SEZ ranges from 2 to 30 percent depending on the product)
• Ad Valorem tariff exemption when importing products from overseas (rates outside of the SEZ are 0, 6, and 11 percent)
• Exemption from all central, regional, or municipal government taxes created in the future, except for social security (EsSalud) contributions and fees

Customs

• Entry of machinery, equipment, raw materials and supplies from abroad is eligible for the suspension of import duties and taxes payments
• Indefinite permanence of goods within the SEZ, as long as company maintains user status
• Products manufactured in the SEZ can be exported directly without having to undergo a nationalization customs regime
• Products manufactured in the SEZ can be entered into national territory under international agreements and conventions
• Entry of goods into the SEZ is direct and does not require prior storage

Peru adopted the Personal Data Protection Law (Law Number 29733) in 2011, and it went into effect in 2013. A data controller who processes personal data must notify the National Authority for Personal Data Protection (ANPDP), which maintains a public register. Personal data is defined as any information on an individual which identifies or makes him/her identifiable through reasonable means, including: biometric data; data on racial and ethnic origin; political, religious, philosophical or moral opinions or convictions; personal habits; union membership; and information related to health or sexual preference. Unless otherwise exempted by statute, data controllers are generally required to obtain the consent of data subjects for the processing of personal data. Consent must be prior, informed, expressed, and unequivocal. A data controller may transfer personal data to places outside of Peru only if the recipients have adequate protection measures.

Data controllers must adopt technical, organizational, and legal measures to guarantee the security of personal data and avoid their alteration, loss, unauthorized processing or access. Peru’s law does not require any notifications to any data subject or any other entity upon a breach. Peru does not have special regulations related to the processing of the personal data of minors. The ANPDP is responsible for enforcement and can issue administrative sanctions/fines based upon whether the violation is mild, serious, or very serious. The law provides a “principle for availability of recourse for the data subject [i.e., the actual person to which to the identifiable personal data refers],” stating that any data subject must have the administrative and/or jurisdictional channel necessary to claim and enforce their rights when they are violated by the processing of their personal data. There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption.

In January 2020, Peru established the Digital Trust Framework (Urgency Decree 007-2020) which provides for personal data protection and transparency, consumer protection, and digital security. The law established the National Digital Secretariat (SEGDI) under the Prime Minister’s Office as the overall coordinator and governing body for digital security, but it placed data protection and transparency under the Ministry of Justice and Human Rights MINJUS. The order created a national data center as a digital platform to manage, direct, articulate, and supervise the operation, education, promotion, collaboration, and cooperation of data nationwide.

Peru enforces property rights and interests.  Mortgages and liens exist, and the recording system is reliable, performed by SUNARP, the National Superintendency of Public Records. Foreigners and/or non-resident investors cannot own land within 50 km of a border.

Peru is listed on the Watch List in the United States Trade Representative’s (USTR’s) 2021 Special 301 Report. According to the report, Peru has yet to fully address several of the most important and longstanding recommendations from previous Watch List appearances, including fulfilling its intellectual property (IP) obligations under the United States-Peru Trade Promotion Agreement (PTPA), namely Articles 16.11.8 and 16.11.29(b)(ix) regarding statutory damages and Internet Service Provider (ISP) safe harbor protections, respectively.

Nevertheless, the Government of Peru has increased its enforcement activity over the past five years and generally offers strong regulatory intellectual property rights (IPR) protections. Peru’s legal framework provides for easy registration of trademarks, and inventors have been able to patent their inventions since 1994. Peruvian law does not provide pipeline protection for patents or protection from parallel imports. Peru’s Copyright Law is generally consistent with the WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), and it provides the same protections for U.S. companies as Peruvian companies in all IPR categories under the PTPA and other international commitments such as the World Intellectual Property Organization (WIPO) and the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Peru’s intellectual property and competition authority INDECOPI is a reliable partner for the U.S. government, the private sector, and civil society, and it has made good faith efforts to decrease the trademark and patent registration backlog and filing time. Although INDECOPI is the GOP agency charged with promoting and defending intellectual property rights, IPR enforcement also involves other GOP agencies and offices, including: the Public Prosecutor’s Office (Fiscalía), the Peruvian National Police (PNP), the Tax and Customs Authority (SUNAT), the Ministry of Production (PRODUCE), the Judiciary, and the Ministry of Health’s (MINSA’s) Directorate General for Medicines (DIGEMID).

In 2021, the GOP approved regulations for a System of Guaranteed Protections for Traditional Specialties (TSG) and Geographical Indications (GIs), which cover various food and food preparations, such as prepared dishes, beer, chocolate and derived products, pastry, bakery, and pastry products, drinks based on plant extracts, alcoholic beverages and/or cocktails, and cheese and dairy products. The GOP also published a Supreme Decree in 2021 regulating access to genetic resources and by-products, including rules on fair and equitable sharing of benefits in access contracts, as well as the obligation to file with INDECOPI the authorization or access contract in patents, industrial designs, plant breeder’s certificates and other intellectual property applications that use genetic resources or by-products with Peruvian origin.

For additional information on Peru’s intellectual property regime, including national laws and points of contact, please see WIPO’s country profile for Peru at: https://www.wipo.int/directory/en/details.jsp?country_code=PE .

Peru allows foreign portfolio investment and does not place restrictions on international transactions. The private sector has access to a variety of credit instruments. Peruvian mutual funds managed $8 billion in December 2021. Private pension funds managed a total of $33 billion in December 2021.

The Lima Stock Exchange (BVL) is a member of the Integrated Latin American Market, which includes stock markets from Pacific Alliance countries. As of July 2018, mutual funds registered in Pacific Alliance countries may trade in the Lima Stock Exchange.

The Securities Market Superintendent (SMV) regulates the securities and commodities markets. SMV’s mandate includes controlling securities market participants, maintaining a transparent and orderly market, setting accounting standards, and publishing financial information about listed companies. SMV requires stock issuers to report events that may affect the stock, the company, or any public offerings. Trading on insider information is a crime, with some reported prosecutions in past years. SMV must vet all firms listed on the Lima Stock Exchange or the Public Registry of Securities. SMV also maintains the Public Registry of Securities and Stockbrokers.

London Stock Exchange Group FTSE Russell downgraded Peru from Secondary Emerging Market to Frontier status in March 2020. In a statement, the BVL stated that the decision is not necessarily replicable among the other index providers adding that Morgan Stanley Capital International, which is considered a main benchmark for emerging markets, is not expected to reconsider the BVL’s status.

Citing, in part, political instability that has undermined investor confidence and constrained growth prospects, the three major credit agencies downgraded Peru’s sovereign credit ratings since the beginning of President Pedro Castillo’s term in July 2021: Moody’s downgraded in September 2021, Fitch in October 2021, and S&P Ratings in March 2022. Despite the downgrades, all three agencies maintain investment grade ratings for Peru.

Peru’s banking sector is highly consolidated. Sixteen commercial banks account for 90 percent of the financial system’s total assets, valued at $172 billion in December of 2021. In 2021, three banks accounted for 72 percent of loans and 69 percent of deposits among commercial banks. Peru has a relatively low level of access to financial services (50 percent nationwide), with access significantly lower outside of Lima and other major urban areas.

The Central Bank of Peru (BCRP) is an independent institution, free to manage monetary policy to maintain financial stability. The BCRP’s primary goal is to maintain price stability via inflation targeting between one to three percent. Year-end inflation rose to 4.0 percent in 2021, up from 1.8 percent in 2020. Inflation continued in 2022, with Peru’s 12-month rate through March reaching 6.8 percent. President Castillo reappointed the BCRP’s well-respected President Julio Velarde for a fourth consecutive five-year term in October 2021.

Analysts consider the banking system to be generally sound, thanks in part to lessons learned during the 1997-1998 Asian financial crisis. Non-performing bank loans accounted for 3.9 percent of gross loans as of December 2021, nearly identical to the 3.8 percent registered in 2020. The rapid implementation of the $39.5 billion BCRP loan guarantee program in response to the COVID-19 pandemic attenuated loan default risk and prevented any major systemic risk to the financial system.

Under the PTPA, U.S. financial service firms have full rights to establish subsidiaries or branches for banks and insurance companies. While foreign banks are allowed to freely establish banks in the country, they are subject to the supervision of Peru’s Superintendent of Banks and Securities (SBS). Peruvian law and regulations do not authorize or encourage private firms to adopt articles of incorporation or association to limit or restrict foreign participation. However, larger private firms often use “cross-shareholding” and “stable shareholder” arrangements to restrict investment by outsiders (not necessarily foreigners) in their firms. As families or close associates often control ownership of Peruvian corporations, hostile takeovers are practically non-existent. In the past few years, several companies from the region, China, North America, and Europe have begun actively buying local companies in power transmission, retail trade, fishmeal production, and other industries.

Peru’s Ministry of Economy and Finance (MEF) manages the Fiscal Stabilization Fund which serves as a buffer for the GOP’s fiscal accounts in the event of adverse economic conditions. It consists of treasury surplus, concessional fees, and privatization proceeds, and is capped at four percent of GDP. The fund was nearly completely exhausted to finance increased spending in response to the COVID-19 pandemic, dropping from $5.5 billion at the end of 2019 to $1 million at the end of 2020, but has since recovered to $4.3 billion by the end of 2021. The Fund is not a party to the IMF International Working Group or a signatory to the Santiago Principles.

Peru wholly owns 35 state-owned enterprises (SOEs), 34 of which are under the parastatal conglomerate FONAFE. The list of SOEs under FONAFE can be found here: https://www.fonafe.gob.pe/empresasdelacorporacion . FONAFE appoints an independent board of directors for each SOE using a transparent selection process. There is no notable third-party analysis on SOEs’ ties to the government. SOE ownership practices are generally consistent with OECD guidelines.

The largest SOE is PetroPeru which refines oil, operates Peru’s main oil pipeline, and maintains a stake in select concessions. In March 2022, S&P Ratings downgraded PetroPeru’s global foreign currency rating to “junk” status, citing PricewaterhouseCoopers’ refusal to sign the firm’s 2021 financial audit.

The GOP initiated an extensive privatization program in 1991, in which foreign investors were encouraged to participate. Since 2000, the GOP has promoted multi-year concessions as a means of attracting investment in major projects, including a 30-year concession to a private group (Lima Airport Partners) to operate the Lima airport in 2000 and a 30-year concession to Dubai Ports World to improve and operate a new container terminal in the Port of Callao in 2006.

Peru has legal and regulatory frameworks to support responsible business conduct (RBC) standards. However, Peru does not have a holistic action plan or national standards for RBC, and there are still challenges of enforcement – particularly in remote regions of the country and with respect to informal workers, indigenous people, and other vulnerable groups. Many Peruvian and multinational companies already adhere to high standards for RBC. Several independent NGOs freely monitor and promote RBC. Standards for conduct on environmental, social, and governance issues are implemented through sector-specific regulation. The UN Working Group on Business & Human Rights is pressing Peru to join the Voluntary Principles on Human Rights and Security Initiative as part of its work towards implementing the UN Principles.

Given its importance to the Peruvian economy, the extractives sector has been a GOP priority for promoting RBC. Supreme Decree No. 042-2003-EM promotes social responsibility in the mining sector, encouraging local employment opportunities, community investment, and purchase of local goods and services. The decree requires mining companies publish an annual report on sustainable development activities. In 2012, Peru joined the Extractive Industries Transparency Initiative (EITI) as a compliant country, requiring the GOP and extractive industries to regularly and openly publish government revenues and private firm financials related to oil, gas, and mining. The EITI Board found that Peru had made meaningful progress in meeting the EITI Standard in its first EITI validation in 2017. However, Peru failed to submit its National EITI report due March 2022. Given the reporting lapse, the EITI Board is reviewing Peru’s EITI revalidation.

ProInversion serves as the National Point of Contact (NCP) for the OECD Guidelines for Multinational Enterprises (MNE), to which Peru is an adherent. The NCP participates in activities with the NCP OECD Network located in 50 countries and is in permanent coordination with the OECD Responsible Business Conduct working group.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

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

Peru’s updated Nationally Determined Contribution (NDC) goals include reaching national net zero greenhouse gas emissions by 2050. As of March 2022, the Government of Peru is working to update its National Climate Change Strategy (last updated 2015) to align it with the NDC goals. In March 2022 MINAM reiterated the importance of reducing carbon and meetings REDD+ obligations. Peru generally lacks a developed regulatory regime related to the reduction of greenhouse gas emissions.

Corruption in Peru is widespread and systematic, affecting all levels of government and the whole of society, which, until recently, had developed a high tolerance to corruption. Embezzlement, collusion, bribery, extortion, and fraud in the justice system, politics, and public works by high-level authorities and key public officers is common. Corruption in public procurement is relatively common due to weak control and risk management systems, lack of ethical or integrity values among some public officials, lack of transparency and accountability in procurement processes, social tolerance of corruption, and minimal enforcement. This embedded dynamic has eroded trust in public entities and the private sector.

In 2021, Peru fell to 105 (from 94 in 2020) among 180 countries in Transparency International’s annual Corruption Perceptions Index, below Chile (27), Colombia (87), and Argentina (96), and tied with Ecuador. According to Transparency International, this backsliding reflected, in part, continued problems with structural corruption, impunity, and political instability. National surveys on corruption by Proética, Transparency International’s National Chapter in Peru, identified corruption as one of the leading public issues in the country. The OECD’s January 2022 decision to open accession discussions with Peru may provide momentum for anti-corruption efforts.

It is illegal in Peru for a public official or an employee to accept any type of outside remuneration for the performance of his or her official duties. The law extends to family members of officials and to political parties. In 2019, Peru made the irregular financing of political campaigns a crime, carrying penalties up to eight-years jail time. Peru has ratified both the UN Convention against Corruption and the OAS’ Inter-American Convention against Corruption. Peru has signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and has adopted OECD public sector integrity standards through its National Integrity and Anticorruption Plan.

The Public Auditor (Contraloria) oversees public administration. In January 2017, Peru passed legislative decrees extending the scope of civil penalties for domestic acts of bribery, including by NGOs, corporate partners, board members, and parent companies if subsidiaries acted with authorization.  Penalties include an indefinite exclusion from government contracting and substantially increased fines. The Public Auditor also began auditing construction projects in real time, rather than after project implementation, in an effort to improve transparency. It is also auditing the government’s response to the COVID-19 pandemic.

Secretary of Public Integrity of the Prime Minister Office and General Coordinator

Eloy Munive Pariona
Jr. Carabaya Cdra. 1 S/N – Lima,
(51) (1) 219-7000, ext. 1137
emunive@pcm.gob.pe 

General Comptroller’s Office

Jr. Camilo Carrillo 114, Jesus Maria, Lima
(51) (1) 330-3000
contraloria@contraloria.gob.pe 

ProEtica, the Peruvian chapter of Transparency International

Samuel Rotta
Executive Director
Calle Manco Capac 816, Miraflores, Lima
(51) (1) 446-8581, 446-8941, 446-8943
srotta@proetica.org.pe 

President Pedro Castillo is Peru’s fifth president in five years (and fourth president since 2020), a reflection of both deep polarization and continued power struggles between the legislative and executive branches over multiple administrations.  Allegations of corruption and incompetence among cabinet ministers spurred Castillo to designate four cabinets in seven months.  There are also ongoing investigations of persons close to the president for alleged high-level corruption. Castillo’s Peru Libre party holds the largest congressional voting bloc, 34 of 130 seats, in an opposition-led congress that took office July 28.  Eleven political parties in the legislature divide the congress in thirds among left, right, and center.  Pedro Castillo has been subject to two failed impeachment motions since his July 2021 inauguration, one in December and the second in March. According to a March 2022 IPSOS poll, Castillo held just a 26 percent approval rating, while President of Congress Maricarmen Alva held just 20 percent approval.

According to the Ombudsman, there were 157 active social conflicts in Peru as of March 2022. Although political violence against investors is rare, protests are common. In many cases, protestors sought public services not provided by the government. Widespread protests in late 2020 across several agricultural producing regions resulted in the repeal and rewriting of the nation’s agricultural law. Protests throughout 2021 and 2022 across several mining producing regions also resulted in temporary suspension of activities at several mining operations, including an intermittent suspension at Peru’s second largest copper mine, Las Bambas, for several months in 2021 and 2022.

Violence remains a concern in coca-growing regions. The Shining Path (Sendero Luminoso, “SL”) narco-terrorist organization continued to conduct a limited number of attacks in its base of operations in the Valley of the Apurimac, Ene, and Mantaro Rivers (VRAEM) emergency zone, which includes parts of Ayacucho, Cusco, Huancavelica, Huanuco, and Junin regions. Estimates vary, but most experts and Peruvian security services assess SL membership numbers between 250 and 300, including 60 to 150 armed fighters. SL collects “revolutionary taxes” from those involved in the drug trade and, for a price, provides security and transportation services for drug trafficking organizations to support its terrorist activities.

At present, there is little government presence in the remote coca-growing zones of the VRAEM. The U.S. Embassy in Lima restricts visits by official personnel to these areas because of the threat of violence by narcotics traffickers and columns of the Shining Path. Information about insecure areas and recommended personal security practices can be found at http://www.osac.gov  or http://travel.state.gov.

Labor is abundant, although several large investment projects in recent years led to localized shortages of highly skilled workers in some fields. According to the National Bureau for Statistics (INEI), 76.8 percent of the labor force was informal as of December 2021, following an uptick in informal labor caused by the COVID-19 pandemic’s economic impact. Unemployment was 7.4 percent in 2020. Unemployment is most prevalent among 14-24 year olds (14.7 percent in 2020). Additionally, 96 percent of unemployed people reside in urban areas.

Workers in Peru are usually paid monthly. Some workers, like formal miners, are relatively highly paid and, per statute, receive a share of company profits up to a maximum total annual amount of 18 times their base monthly salary. The statutory monthly minimum wage is PEN 930/month ($266 USD). INEI estimated the poverty line to be PEN 344/month ($99) per person, although it varied by region due to different living costs. Many workers in the unregulated informal sector, most of them self-employed, make less than minimum wage. Peru’s labor law provides for a 48-hour workweek and one day of rest and requires companies to pay overtime for more than eight hours of work per day and additional compensation for work at night.

Peru does not have a specific unemployment insurance program, however the “Compensation for Time of Service” (CTS) requirement mandates an employer pay one month’s salary of an employee per year of work into the employee’s CTS Account set for that purpose. When employees stop working for the employer (willingly or not), they can access the CTS Account. In addition, a fired employee receives one month’s salary per year worked, up to a maximum of twelve months.

In December 2020, in response to agricultural worker protests, Congress repealed a 2019 Executive Order (Urgency Decree 043-2019) that had extended policies originally designed to support investment in the agriculture sector. With Congress’s repeal, businesses in the non-traditional exports (NTE) sector, which includes textiles and certain agricultural products, became subject to the same labor rules as other sectors, such as a five-year limit on consecutive short-term contracts.

Labor unions are independent of the government and employers. Approximately six percent of Peru’s private sector labor force was unionized in 2017 (latest date available), with unionization highest in the electricity, water, construction, and mining sectors (ranging from 22 to 39 percent unionization in each sector). Union membership is more common in the public sector (16 percent). The labor procedure law (No. 29497) requires the resolution of labor conflicts in less than six months, allows unions or their representatives to appear in court on behalf of workers, requires proceedings to be conducted orally and video-recorded, and relieves the employee from the burden of proving an employer-employee relationship.

Either unions or management can request binding arbitration in contract negotiations. Strikes can be called only after approval by a majority of all workers (union and non-union), voting by secret ballot, and only in defense of labor rights. Unions in essential public services, as determined by the government, must provide a sufficient number of workers during a strike to maintain operations.

According to the U.S. Department of Labor’s (USDOL’s) Worst Forms of Child Labor Report ( https://www.dol.gov/agencies/ilab/resources/reports/child-labor/peru ), some children in Peru have been subjected to the worst forms of child labor, including in mining and in commercial sexual exploitation, sometimes as a result of human trafficking.  However, in 2020 (the last available report), USDOL reported that Peru made significant advancement in efforts to eliminate the worst forms of child labor.

While the government has made improvements in recent years, it often does not dedicate sufficient personnel and resources to labor law enforcement. The Ministry of Labor created the National Labor Inspectorate Superintendent (SUNAFIL) in 2014 and oversees regional offices to represent the labor inspectorate nationally. In 2021, SUNAFIL employed 822 labor inspectors. SUNAFIL labor inspectors also help identify and investigate cases of forced and child labor. Additional information on forced labor in Peru can be found in the 2020 Trafficking in Persons Report: https://www.state.gov/reports/2020-trafficking-in-persons-report/peru/.

The DFC is an independent agency of the U.S. Government that provides financing for private development projects. It was created by the Better Utilization of Investments Leading to Development (BUILD) Act of 2018, which consolidated the Overseas Private Investment Corporation (OPIC) and Development Credit Authority (DCA) of the United States Agency for International Development (USAID). In addition to OPIC and DCA’s existing capabilities, DFC is equipped with a more than doubled investment cap of $60 billion and new financial tools. According to the DFC site ( https://www.dfc.gov/our-impact/all-active-projects ) there is only one active project in Peru as of April 1, 2022.

Peru is a member of the Multilateral Investment Guarantee Agency.

Michael Gunzburger
Economic Officer
U.S. Embassy Peru
+51 1-618-2414
gunzburgerml@state.gov

Esteban Sandoval
Senior Economic Specialist
U.S. Embassy Peru
+51 1-618-2672
sandovalej@state.gov

Foreign direct investment (FDI) played a significant role in modernizing the Spanish economy during the past 40 years. Foreign companies set up operations in large numbers to take advantage of Spain’s large domestic market, export possibilities, and growth potential. Spain’s automotive industry is mostly foreign-owned, and multinationals control half of the food production companies, one-third of chemical firms, and two-thirds of the cement sector. Foreign firms control about one-third of the insurance market.

The Government of Spain recognizes the value of foreign investment and sees it as a key part of its post COVID-19 economic recovery. U.S. FDI is especially attractive as Spain looks to deepen its transatlantic ties after Russia’s full-scale invasion of Ukraine. Spain offers investment opportunities in sectors and activities with significant added value. Spanish law permits 100 percent foreign ownership in investments (limits apply regarding audio-visual broadcast licenses and strategic sectors of the economy; see next section), and capital movements are completely liberalized. Due to its openness and the favorable legal framework for foreign investment, Spain has received significant foreign investments in knowledge-intensive activities.

New FDI into Spain increased by 17.7 percent in 2021 compared to 2020 when the COVID-19 pandemic reduced FDI, according to data from Spain’s Ministry of Industry, Trade, and Tourism. In 2020, acquisitions of existing companies were the predominant form of foreign investment, representing 42.7 percent of the total, compared to 17.8 percent of new greenfield and brownfield investments. In 2021 the United States, as ultimate beneficial owner, had a gross direct investment in Spain of EUR 4.2 billion, accounting for 14.5 percent of total investment and representing an increase of 1.5 percent compared to 2020. According to the latest available Spanish data, U.S. FDI stock in Spain totaled about $88.6 billion in 2019.

Spain has a favorable legal framework for foreign investors. The Spanish Constitution and Spanish law establish clear rights to private ownership, and foreign firms receive the same legal treatment as Spanish companies. There is no discrimination against public or private firms with respect to local access to markets, credit, licenses, and supplies.

Spain adapted its foreign investment rules to a system of general liberalization, and its inbound investment screening mechanism is focused on protecting national security. Law 18/1992, which established rules on foreign investments in Spain, provides a specific regime for non-EU persons investing in defense, aerospace, gambling, television, and radio. For EU investors, the only sectors with a specific regime are the manufacture and trade of weapons or national defense-related activities. For non-EU investors, the Spanish government restricts individual ownership of audio-visual broadcasting licenses to 25 percent. Specifically, Spanish law permits non-EU companies to own a maximum of 25 percent of a company holding a digital terrestrial television broadcasting license; and for two or more non-EU companies to own a maximum of 50 percent in aggregate. In addition, under Spanish law a reciprocity principle applies (art. 25.4 General Audiovisual Law). The home country of the (non-EU) foreign company must have foreign ownership laws that permit a Spanish company to make the same transaction in the audio-visual sector.

The Spanish government issued new regulations on foreign investment in March 2020 that stipulate prior authorization for foreign investments in critical sectors. Prior approval is also required if the foreign investor is controlled directly or indirectly by the government of another country, if the investor has invested or participated in sectors affecting the security, public order, or public health in another EU Member State, or if administrative or judicial proceedings have been initiated against the investor for exercising illegal or criminal activities. Failure to request authorization for a transaction is a serious infringement of the law. These new regulations are outlined below (see Laws and Regulations on Foreign Direct Investment).

Spain is a signatory to the convention on the Organization for Economic Co-operation and Development (OECD). Spain is also a member of the World Trade Organization (WTO) and the United Nations Conference on Trade and Development (UNCTAD). Spain has not undergone Investment Policy Reviews with these three organizations within the past three years.

To set up a company in Spain, the two basic requirements include incorporation before a Public Notary and filing a public deed with the Mercantile Register (Registro Mercantil). The public deed of incorporation of the company can be submitted electronically by the Public Notary. The Central Mercantile Register is an official institution that provides access to companies’ information supplied by the Regional Mercantile Registers after January 1, 1990. Any national or foreign company can use it but must also be registered and pay taxes and fees. According to the World Bank’s Doing Business report, it takes on average about two weeks to start a business in Spain.

“Invest in Spain” is the Spanish investment promotion agency to facilitate foreign investment. Services are available to all investors. It has partner offices in five major U.S. cities.

Useful web sites:
Mercantile register: http://www.rmc.es/Home.aspx
Mercantile register for the Madrid region: https://www.rmercantilmadrid.com/RMM/Home/Index.aspx
Investment promotion agency: http://www.investinspain.org/invest/es/cabecera/faq-s/establecimiento-de-una-empresa/index.html

Among the financial instruments approved by the Spanish Government to provide official support for the internationalization of Spanish enterprise are the Foreign Investment Fund (FIEX), the Fund for Foreign Investment by Small and Medium-sized Enterprises (FONPYME), the Enterprise Internationalization Fund (FIEM), and the Fund for Investment in the Tourism Sector (FINTUR). The Spanish Government also offers financing lines for investment in the electronics, information technology and communications, energy (renewables), and infrastructure concessions sectors.

There is transparency throughout the rule making process at all levels of government. The Spanish government launched a transparency website in 2014 that makes more than 500,000 items of public interest freely accessible to all citizens (http://transparencia.gob.es/transparencia/en/transparencia_Home/index.html ). The website offers details about the central government, public institutions such as the Royal House, the Parliament, the Constitutional Court, the Judicial Power, the Ombudsman, the Audit Court, the Central Bank, and the Economic and Social Council, and other organisms such as the European Commission. Regional and local authorities have developed their own transparency portals and related legislation. Spain’s Boletin Oficial de Estado ( https://www.boe.es/ ) publishes key regulatory actions.

Many large established Spanish companies have not yet fully adopted environmental, social, and governance (ESG) criteria, though companies are increasingly committed to making positive impact on society. New companies, especially startups, tend to incorporate ESG values into their operations from the start, acting with transparency and adopting innovative, modern technologies for continuous improvement. Several official Spanish certifications recognized at European and global level accredit companies that meet ESG and CSR criteria, such as Norma SGE21, B Corp Spain, and SDG Certificate (AENOR.) To promote transparency in the disclosure of non-financial information and its impact on corporate governance of companies, the Spanish government published Law 11/2018 on non-financial and diversity matters ( https://www.boe.es/boe/dias/2018/12/29/pdfs/BOE-A-2018-17989.pdf ). The law reinforces requirements that companies disclose relevant information about their management in five areas: environment; social impact and workers’ rights; respect for human rights; fight against corruption and bribery; and impact on society.

Spain is a member of the European Union, and its local regulatory framework compares favorably with other major European countries, although permitting and licensing processes may result in significant delays. The efficacy of regulation at the regional level is uneven. With a license from only one of Spain’s 17 regional governments or two enclaves, companies can operate throughout Spanish territory. The measures are designed to reduce business operating costs, improve competitiveness, and attract foreign investment.

The Spanish judiciary has a well-established tradition of supporting and facilitating the enforcement of both foreign judgments and awards. For a foreign judgment to be enforced in Spain, an order declaring it is enforceable or exequatur is necessary. Once the order is granted, enforcement itself is quite fast, provided that the assets are identified. First instance courts are responsible for the enforcement of foreign rulings.

Local legislation establishes mechanisms to resolve disputes if they arise. Spain’s civil (Roman-based) judicial system is fair and accessible, although sometimes slow-moving. Investigating judges are in charge of the criminal investigation, assuring independence from the executive branch of the government. The Spanish judicial system allows for successive appeals to a higher court.

The number of civil claims has grown significantly over the past decade, due in part to litigation stemming from Spain’s financial 2008 crisis, resulting in an increased openness to alternative dispute resolution mechanisms. Although ordinary proceedings are relatively straightforward, due to the significant number of cases within each court, it can take years for a case to come to trial. Domestic court decisions are subject to appeal, and the average time taken for a final judgment to be issued by the Court of Appeal can be anywhere from months to years. A decision may still be subject to appeal to the Supreme Court (although the grounds for appeal are quite limited), a process that generally takes two to three years to produce a final ruling. Due to the uncertainty surrounding the duration of appeals, disputes involving large companies or significant amounts of money tend to be resolved through arbitration.

The Spanish government issued new regulations on foreign investment in March 2020 (Royal Decrees 8/2020, 11/2020, and 34/2020) that require prior authorization for foreign investors seeking to acquire more than a 10 percent stake in the following critical sectors:

• critical infrastructures, both physical and virtual (energy industries, transportation, water, healthcare, communications, media, data storage and processing, aerospace, defense, financial services, and sensitive installations)
• critical technology and dual-use products;
• essential supplies (energy, hydrocarbons, electricity, raw materials and food and agriculture value chains);
• sectors with sensitive information such as personal data or with capacity to control such information and;
• the media.

Purchases of less than 10 percent are also subject to authorization if they result in participation in the control or management of the company. Under these new Royal Decrees, foreign investments in any industry must also receive prior approval if the foreign investor is controlled directly or indirectly by the government of another country; if the investor has invested or participated in sectors affecting the security, public order, or public health in another EU Member State; or if administrative or judicial proceedings have been initiated against the investor for exercising illegal or criminal activities. Investments less than EUR 1 million are exempted, and investments between EUR 1 and 5 million are subject to a simplified review.

Spanish law conforms to multi-disciplinary EU Directive 88/361, which prohibits all restrictions of capital movements between Member States as well as between Member States and other countries. The Directive also classifies investors according to residence rather than nationality. However, Royal Decree 34/2020 also temporarily requires residents of the European Union and European Free Trade Association to receive prior approval for investments into companies listed in Spain or investments exceeding EUR 500 million. This temporary requirement has been extended several times and is valid until December 31, 2022.

Registration requirements are straightforward and apply equally to foreign and domestic investments. They aim to verify the purpose of the investment, not block any investment. On September 1, 2016, a resolution established new forms for declaration of foreign investments before the Investment Registry, which oblige the investor(s) to declare foreign participation in the company.

In 2015, changes to the Personal Income Tax Law affected the transfer of investments outside of Spain by creating a tax on unrealized gains from investment. Residents who have resided in Spain for at least 10 of the previous 15 years are subject to a tax of 19-23 percent if they relocate their holdings or investments outside of Spain if the market value of the shares held exceeds EUR 4 million or if the individual holds 25 percent or more shares in a venture whose market value exceeds EUR 1 million.

A Protocol to the 1990 Income Tax Convention between the United States and Spain entered into force in November 2019. The Protocol significantly reduces taxes on interest, royalties, certain direct dividends, and capital gains. It also provides for mandatory binding arbitration to streamline dispute resolutions between the two countries’ tax administrations.

Spain’s digital services tax on companies, approved in January 2021, was dropped as of January 2022 in response to the OECD/G20’s multilateral agreement during international tax negotiations. Spain will credit amounts paid in excess of the global minimum tax from January 2022 against future taxes owed.

Useful websites:
Ministry of Industry, Trade, and Tourism page on Foreign Investment: https://comercio.gob.es/InversionesExteriores/Paginas/control-inversiones.aspx
Invest in Spain (investment promotion agency): http://www.investinspain.org/invest/en/index.html
Investment aid and incentives in Spain: https://guidetobusinessinspain.com/en/

The parliament passed Act 3/2013 on June 4, 2013, by which the entities that regulated energy (CNE), telecoms (CMT), and competition (CNC) merged into a new entity: the National Securities Market Commission (CNMC). The law attributes practically all functions entrusted to the National Competition Commission under the Competition Act 15/2007, of July 3, 2007 (LDC), to the CNMC. The CNMC’s website ( https://www.cnmv.es/Portal/home.aspx ) provides information to the public about major cases.

Spanish legislation set up safeguards to prevent the nationalization or expropriation of foreign investments. Since the 2008 economic crisis, Spain has altered its renewables policy several times, creating regulatory uncertainty and resulting in losses to U.S. companies’ earnings and investments. As a result, Spain accumulated more than 32 lawsuits, totaling about EUR 7.6 billion in claims. Spain now faces an array of related international claims for solar photovoltaic and other renewable energy projects. Spain registered one case with ICSID in 2021 related to renewable energy generation.

Spain has a fair and transparent bankruptcy regime. In 2014, the government approved a reform of the bankruptcy law to promote Spain’s economic recovery by establishing mediation mechanisms. These reforms – nicknamed the Second Chance Law – aimed to avoid the bankruptcy of viable companies and preserve jobs by facilitating refinancing agreements through debt write-off, capitalization, and rescheduling. However, declaring bankruptcy remains less prevalent in Spain than in other parts of the world.

A range of investment incentives exist in Spain, and they vary according to the authorities granting incentives and the type and purpose of the incentives. The national government provides financial aid and tax benefits for activities pursued in certain priority industries (e.g., mining, technological development, research and development, etc.), given these industries’ potential effect on the nation’s overall economy. Regional governments also provide similar incentives. Financial aid includes both nonrefundable subsidies and interest relief on loans obtained by beneficiaries, or combinations of the two.

Because Spain is a European Union Member State, potential investors can access European aid programs, which provide further incentives for investing in Spain. Spain’s central government provides numerous financial incentives for foreign investment, which are designed to complement EU financing. The Ministry of Industry, Trade, and Tourism assists businesses seeking investment opportunities through the Directorate General for International Trade and Investments and the ICEX Spain Export and Investment office. These offices support foreign investors in both the pre- and post-investment phases. Most grants seek to promote the development of select economic sectors; however, while these sectoral subsidies are often preferential, they are not exclusive.

A comprehensive list of incentive programs is available at the website:  http://www.investinspain.org 

The Ministry for the Ecological Transition and Demographic Challenge, through the Institute for Energy Diversification and Saving (IDAE), makes grants to promote renewable installations for the production of energy, both thermal and electrical. These grants, financed by the European Regional Development Fund (ERDF), are executed through calls for proposals made by the IDAE in each autonomous community/regional government. The grants are non-refundable and are governed by the principle of competitive competition with the aim of optimizing their application as widely as possible.

In 2013, Spain passed the “Law of Entrepreneurs,” which established an entrepreneur visa for investors and entrepreneurs. Entrepreneurs may apply for the visa with a business plan approved by the Spanish Commercial Office. Entrepreneurs must demonstrate the intent to develop the project in Spain for at least one year. Investors who purchase at least EUR 2 million in Spanish bonds or acquire at least EUR 1 million in shares of Spanish companies or Spanish banks deposits may also apply. Foreigners who acquire real estate with an investment value of at least EUR 500,000 are also eligible.

Spain’s 17 regional governments, known as autonomous communities, provide additional incentives for investments in their region. Many are similar to the incentives offered by the central government and the EU, but they are not all compatible. Additionally, some autonomous community governments grant investment incentives in areas not covered by state legislation, but which are included in EU regional financial aid maps. Royal Decree 899/2007 sets out the areas entitled to receive aid, along with their ceilings. Each area’s specific aspects and requirements (economic sectors, investments which can be subsidized, and conditions) are established in the Royal Decrees. Most are granted on an annual basis.

Incentives from national, regional, or municipal governments and the European Union are granted to Spanish and foreign companies alike without discrimination. The most notable incentives include those aimed at fostering innovation, technological improvement, and research and development projects.

Both the mainland and islands (and most Spanish airports and seaports) have free trade zones where manufacturing, processing, sorting, packaging, exhibiting, sampling, and other commercial operations may be undertaken free of any Spanish duties or taxes. Spain’s seven free zone ports are located in Vigo, Cadiz, Barcelona, Santander, Seville, Tenerife, and Las Palmas de Gran Canaria – all of which fall under the EU Customs Union, permitting the free circulation of goods within the EU. The entire province of the Canary Islands is a Special Economic Zone (SEZ), offering fiscal benefits that include a reduced corporate tax rate, a reduced Value-Added Tax (VAT) rate, and exemptions for transfer taxes and stamp duties. The Spanish enclaves of Ceuta and Melilla also offer unique tax incentives; they do not impose a VAT but instead tax imports, production, and services at a reduced rate. Spanish customs legislation also allows companies to have their own free trade areas. Duties and taxes are payable only on those items imported for use in Spain. These companies must abide by Spanish labor laws.

Spain does not have performance and localization requirements for investors. The Spanish Data Protection Agency and the Spanish Police request data from companies, although the companies may refuse unless required by court order.

There are generally no restrictions on foreign ownership of real estate. The buyer must fill out a Declaration to the Foreign Investment Register form before buying the property if the funds for the purchase come from a country or territory considered to be a tax haven. The declaration lasts six months. Foreign individuals require an identification card for foreigners (NIE). Other foreign legal persons require an identification number known as a NIF. Apart from money laundering regulations, no special restrictions or limitations apply to foreign mortgage guarantees and loans.

The Land Register provides evidence of title and legal certainty to all parties involved in a transaction. Public or private acts that affect the property are included in the land register. The Property Registry is responsible for managing the Land Register. A right or title recorded in the registry prevails over any other right or title. Certain administrative concessions (licenses for individuals to use or develop publicly owned property for a particular purpose) may also be registered. Anyone who can prove a legitimate interest in the information contained in the register may access the register. It is not possible to make changes to the ownership of the real estate by electronic means. The transfer of real estate or the grant of rights over property should be executed by public deed in front of a notary before being registered with the Land Registry. A registered title includes the plot of land and the buildings attached to the land. Each plot constitutes a registered property. Each registered property is a legal object and has its own separate entry in the registry in which all related data is registered. There are rules that determine whether a parcel of land, a building, farm, spring, or other type of property has a separate entry in the registry system.

Lenders generally use mortgages as security. Mortgages are made by public deed and registered at the land registry. Once registered, the mortgage takes priority over the interest of any third party. Anyone with a legitimate interest in a property can find out whether it is mortgaged by consulting the register. Sale and leaseback are another form of real estate financing that has been used by some Spanish financial institutions. These institutions raised financing through the sale of their offices to their clients and subsequently leased them back. The institution raised funds and their clients received a stream of rental income.

Spanish law protects intellectual property rights (IPR), and enforcement is carried out at the administrative and judicial levels. In Spain, IPR is separated into industrial property, which refers to industry and innovative activity (patents and trademarks), and intellectual property, which focuses on the rights of creators. Spanish patent, copyright, and trademark laws all approximate or exceed EU standards for IPR protection. Spain is a member of the World Intellectual Property Organization (WIPO) and party to many of its treaties, including the Berne Convention, the Paris Convention, the Madrid Accord on Trademarks, the WIPO Copyright Treaty, and the WIPO Phonograms and Performances Treaty.

Since its removal from the U.S. Trade Representative’s (USTR’s) Special 301 Watch List in 2012, Spain has undertaken extensive, multi-year reform measures to strengthen its framework for IPR protections. The latest legislative changes to the 1996 Law on Intellectual Property, in force as of March 2019, streamline anti-piracy and anti-counterfeit measures. As a result, Spain now has a stronger legal framework and corresponding criminal procedures to address IPR violations.

USTR removed Spain from its Notorious Markets List in 2020. Although physical and online marketplaces for counterfeit goods persist in Spain, Spanish authorities continue to make significant regulatory, legal, and enforcement progress in protecting IPR, and Spain is now ranked 11th out of 50 countries in the U.S. Chamber of Commerce’s IPR protection index.

Spanish authorities published a new Patents Law in 2015 (Law 24/2015), which entered into force in April 2017. A non-renewable 20-year period for working patents is available if the patent is used within the first three years. Spain permits both product and process patents. Patents can be awarded by the Spanish Office of Patents and Trademark (OEPM), a Spanish autonomous region via an Industrial Property Regional Information Center, or the European Patent Office.

Spanish law extends copyright protection to all literary, artistic, or scientific creations, including computer software.

Amendments to the 2001 Trademark Law (17/2001), which amend the regulations for the 2001 law, entered in force in April 2019. OEPM oversees protection for national trademarks. Trademarks registered in the Industrial Property Registry receive protection for a 10-year period from the date of application and may be renewed. Protection is not granted for generic names, names that violate Spanish customs, or other inappropriate trademarks. The Spanish parliament passed a reform of the penal code that entered into force in July 2015 (Ley Organica 1/2015). The revised penal code removed the condition that certain IPR crimes related to the sale of counterfeit items meet a threshold of EUR 400 in order to merit prosecution, and it changed the procedure for destruction of counterfeit items seized by law enforcement. Counterfeit items may now be destroyed once an official report is filed unless a judge formally requests the items be retained.

Businesses may seek a trademark valid throughout the EU via the Office for Harmonization in the Internal Market (OHIM), which is located in Alicante:

Office for Harmonization in the Internal Market (Trademarks and Designs)Avenida de Europa, 4E-03008 AlicanteTel: (34) 96-513-9100 http://oami.europa.eu/ows/rw/pages/OHIM/contact.en.do  

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

The Spanish government welcomes all forms of investment, including portfolio investment, and actively courts foreign investment as part of its COVID-19 recovery plan. Foreign investors do not face discrimination when seeking local financing for projects. Credit is allocated on market terms, and foreign investors are eligible to receive credit in Spain. A large range of credit instruments are available through Spanish and international financial institutions. Many large Spanish companies rely on cross-holding arrangements and ownership stakes by banks rather than pure loans. However, these arrangements do not restrict foreign ownership. Several of the largest Spanish companies that engage in this practice are also publicly traded in the United States. There is a significant amount of portfolio investment in Spain, including by U.S. entities. Spain has an actively traded and liquid stock market, the IBEX 35.

In 2019, the United States and Spain amended their bilateral tax agreement to prevent double taxation of each other’s nationals and firms and to improve information sharing between tax authorities.

Spain has accepted the obligations of Article VIII, Sections 2, 3, and 4, and maintains an exchange rate system free of restrictions on payments and transfers for current international transactions, other than restrictions notified to the Fund under Decision No. 144 (52/51).

In January 2021, Spain’s new Financial Transactions Tax (FTT) or “Tobin tax,” entered into force. The FTT is an indirect tax of 0.2 percent on the acquisition of Spanish companies with a market capitalization of at least EUR 1 million EUR. The financial intermediary executing the transaction – not the seller or acquirer of the shares – pays the tax.

There were about 50 commercial bank branches per 100,000 adults in Spain in 2019, down from 104 in 2007 but still more than twice the eurozone average, according to the IMF. There are 20,421 financial institution branches as of December 2021, after having closed 2,488 offices in 2021, according to the Bank of Spain. Spain’s domestic housing crisis, which began in 2007, was linked to poor lending practices by Spanish savings banks. The government subsequently created a Fund for Orderly Bank Restructuring (FROB) through Royal Decree-law 9/2009, which restructured credit institutions to bolster capital and provisioning levels. The number of Spanish financial entities dropped significantly since 2009 through consolidation as banks have faced increased capital requirements and shrinking profit margins.

The COVID-19 pandemic adversely affected the outlook for Spanish banks, though the government’s income support measures, fiscal support for ailing firms, and loan guarantees helped reduce the pressure on the sector. Slim profit margins for the Spanish financial sector are also likely to persist, however, due to slowing growth, low (or negative) interest rates, and nonperforming loans (NPLs). The NPL ratio in Spain – 4.3 percent in December 2021 – was a marked improvement from 2014 levels. The sector has capital buffers to absorb the unexpected losses associated with this crisis, though there is significant disparity between institutions. Spanish financial institutions have significantly higher capital levels than the minimum regulatory requirements, which can be used to absorb unexpected losses from the economic fallout of pandemic. Total profit for the Spanish banking system was about EUR 19.8 billion euros in 2021, compared to the losses of 5.5 billion registered in 2020.

The Bank of Spain, Spain’s central bank, is a member of the euro system and the European System of Central Banks. Within the framework of the Single Supervisory Mechanism (SSM), the Bank of Spain and European Central Bank (ECB) jointly supervise the Spanish banking system.

Foreign banks can establish themselves in Spain and are subject to the same conditions as Spanish banks to access the Spanish financial system. Foreign banks with authorization in another EU member state do not need to get authorization from the Bank of Spain to establish a branch or representative office in Spain.

The National Securities Market Commission (CNMV) is responsible for the supervision and inspection of Spanish securities markets. Since its creation in 1988, the CNMV’s regime has been updated to adapt to the evolution of financial markets and to introduce new measures to protect investors.

Total assets for the five biggest banks in Spain at the end of 2021 were EUR 3.3 trillion:

Banco Santander: EUR 1.6 trillion
Banco Bilbao Vizcaya Argentaria (BBVA): EUR 662.9 billion
CaixaBank: EUR 680 billion
Banco Sabadell: EUR 251.9 billion
Bankinter: EUR 107.6 billion

To open a bank account as a non-resident, a foreigner needs a proof of identity, proof of address in Spain, and proof of employment status or where the funds originated. All documents that are not in Spanish or issued by Spanish authorities must be translated into Spanish.

Spain does not have a sovereign wealth fund or similar entity. Spain was among the top ten receiving countries for sovereign wealth investments, attracting EUR 2.8 billion between October 2020 and December 2021.

Spain’s public enterprise sector is relatively small, and the role and importance of state-owned enterprises (SOE) decreased since the privatization process started in the early 1980s. The reform of SOE oversight in the 1990s led the government to create the State Holding for Industrial Participations (SEPI) in 1995. SEPI has direct majority participation in 15 SOEs, which make up the SEPI Group, with a workforce of more than 78,000 employees. It is a direct minority shareholder in nine SOEs (five of them listed on stock exchanges) and participates indirectly in ownership of more than one hundred companies. Either legislative chamber and any parliamentary group may request the presence of SEPI and SOE representatives to discuss issues related to their performance. SEPI and the SOEs are required to submit economic and financial information to the legislature on a regular basis. The European Union, through specialized committees, also controls SOEs’ performance on issues concerning sector-specific policies and anti-competitive practices.

Companies with a majority interest: Agencia Efe, Cetarsa, Ensa, Grupo Cofivacasa, Grupo Correos, Grupo Enusa, Grupo Hunosa, Grupo Mercasa, Grupo Navantia, Grupo Sepides, GrupoTragsa, Hipodromodo la Zarzuela, Mayasa, Saeca, Defex (in liquidation)

Companies with a minority interest: Airbus Group, Alestis Aerospace, Enagas, Enresa, Hispasat, Indra, International Airlines Group, Red Electrica Corporacion, Ebro Foods

Attached companies: RTVE, Corporacion de Radio y Television Espanola

SEPI also has indirect participation in more than 100 subsidiaries and other investees of the majority companies, which make up the SEPI Group.

Corporate Governance of Spain’s SOEs uses criteria based on OECD principles and guidelines. These include the state ownership function and accountability, as well as issues related to performance monitoring, information disclosure, auditing mechanisms, and the role of the board in the companies.

Spain does not have a formal privatization program.

Although the visibility of responsible business conduct (RBC) efforts is still moderate by international standards, it has garnered growing interest over the last two decades. Today, almost all of Spain’s largest energy, telecommunications, infrastructure, transportation, financial services, and insurance companies, among many others, undertake RBC projects, and such practices are spreading throughout the economy.

Spain enforces domestic and EU laws and regulations to protect human rights, labor rights, consumer protection, and environmental protections. Spain endorsed the OECD Guidelines for Multinational Enterprises and supports the Montreux Document on Private Military and Security Companies. The national point of contact is the Ministry of Industry, Trade, and Tourism.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

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

Comply Chain.

Spain’s Climate Change and Energy Transition Law (Law 7/2021) entered into force in May 2021. The law sets a goal of reaching climate neutrality by 2050 and establishes renewable energy, energy efficiency, and greenhouse gas (GHG) emission reduction national targets that align with those established in Spain’s Integrated National Energy and Climate Plan. It sets the following targets for 2030:

• 23 percent reduction of GHG emissions compared to 1990;
• 42 percent of final energy consumption from renewable energy sources;
• 74 percent of electricity generation from renewable energy sources; and
• 39.5 percent reduction of the country’s primary energy consumption.

By 2050, Spain expects to generate 100 percent of its electricity from renewable sources. The law allows the Council of Ministers to raise (but not lower) Spain’s targets periodically, with the first review expected in 2023.

Law 7/2021 also restricts the future exploitation of fossil fuel deposits in Spain by prohibiting new hydrocarbon exploration and extraction projects, though a new oil and gas exploitation concession may still be awarded if a company with a valid exploration license applied for an exploitation concession prior to the date when Law 7/2021 entered into force. In addition, the law states that existing hydrocarbon research or exploitation concessions will not be extended beyond December 31, 2042, effectively ending fossil fuel production beyond this date. Fossil fuel producers with existing concessions must submit a plan to convert their drilling platforms to produce cleaner types of energy, such as renewables and geothermal, five months before the concession expires. The law also prohibits the use of high-volume hydraulic fracturing (fracking) for any project and bans new permits for radioactive mining, such as uranium mining. It ends tax benefits for fossil fuel producers, except if producers demonstrate a strong social and economic interest or if there is a lack of technological alternatives. The law introduces provisions that promote renewable gases, including biogas, biomethane, and hydrogen, and allows for annual targets for renewable gas penetration in natural gas sales and consumption.

Law 7/2021 stipulates that all new passenger cars and light commercial vehicles must have 0g CO2/km emissions by 2040, with the goal of achieving a decarbonized fleet of passenger cars and light commercial vehicles by 2050. To advance this goal, the government approved a Strategic Project for the Recovery and Economic Transformation ( PERTE) of Electric Vehicles to mobilize EUR 24 billion (roughly EUR 3.4 billion of public funding and EUR 19.7 billion of private investment) for electric vehicle manufacturing.

Spain’s Ecological Public Procurement Plan (2018-2025) applies to state administrators, public entities, and social security managing bodies, and responds to the need to incorporate ecological criteria in public procurement. The plan aims to promote the acquisition of goods, works, and services with the least environmental impact; promote the Spanish Circular Economy Strategy; and promote environmental clauses in public procurement. It prioritizes 20 goods, including construction and building management, electricity supply, cleaning products, HVAC systems, and printing equipment.

Spain has a variety of laws, regulations, and penalties to address corruption. The legal regime has both civil and criminal sanctions for corruption, bribery, financial malfeasance, etc. Giving or accepting a bribe is a criminal act. Under Section 1255 of the Spanish civil code, corporations and individuals are prohibited from deducting bribes from domestic tax computations. There are laws against tax evasion and regulations for banks and financial institutions to fight money laundering terrorist financing. In addition, the Spanish Criminal Code provides for jail sentences and hefty fines for corporations’ (legal persons) administrators who receive illegal financing.

The Spanish government continues to build on its already strong measures to combat money laundering. After the European Commission threatened to sanction Spain for failing to bring its anti-money laundering regulations into full accordance with the EU’s Fourth Anti-Money Laundering Directive, in 2018, Spain approved measures to modify its money laundering legislation to comply with the EU Directive. These measures establish new obligations for companies to license or register service providers, including identifying ultimate beneficial owners; institute harsher penalties for money laundering offenses; and create public and private whistleblower channels for alleged offenses.

The General State Prosecutor is authorized to investigate and prosecute corruption cases involving funds in excess of roughly USD 500,000. The Office of the Anti-Corruption Prosecutor, a subordinate unit of the General State Prosecutor, investigates and prosecutes domestic and international bribery allegations. The Audiencia Nacional, a corps of magistrates has broad discretion to investigate and prosecute alleged instances of Spanish businesspeople bribing foreign officials.

Spain enforces anti-corruption laws on a generally uniform basis. Public officials are subjected to more scrutiny than private individuals, but several wealthy and well-connected business executives have been successfully prosecuted for corruption. In 2021, Spanish courts arraigned 344 defendants involved in 53 corruption cases. The courts issued 65 sentences, with 44 including a full or partial guilty verdict.

There is no obvious bias for or against foreign investors. U.S. firms rarely identify corruption as an obstacle to investment in Spain, although entrenched incumbents have frequently attempted and at times succeeded in blocking the growth of U.S. franchises and technology platforms in both Madrid and Barcelona.

Spain’s rank in Transparency International’s annual Corruption Perceptions Index fell slightly in 2021 to position 34; its overall score (61) is lower than that of many other Western European countries.

Spain is a signatory to the OECD Convention on Combating Bribery and the UN Convention Against Corruption. It has also been a member of the Group of States Against Corruption (GRECO) since 1999. Spain has made progress addressing OECD concerns about the low level of foreign bribery enforcement in Spain and the lack of implementation of the enforcement-related recommendations. In a 2021 report, GRECO highlighted that of the group’s 11 recommendations to combat corruption from 2013, six had been fully implemented, four had been partly implemented, and one had not been implemented.

Ministry of Finance
Calle Alcala, 9
28071 Madrid, Spain
Telephone: +34 91 595 8000
Email: informacion.administrativa@minhap.es 
Website: https://ssweb.seap.minhap.es/ayuda/consulta/PTransparencia  

Transparency International
National Chapter – Spain
Fundacion Jose Ortega y Gasset-Marañón
Calle Fortuny, 53
28010 Madrid, Spain
Telephone: +34 91 700 4105
Email: info@transparencia.org.es
Website: http://www.transparencia.org.es/ 

There are periodic peaceful demonstrations calling for salary and pension increases and other social or economic reforms. Public sector employees and union members organize frequent small demonstrations in response to service cuts, privatization, and other government measures. Demonstrations and civil unrest in Catalonia have resulted in vandalism and damage to store fronts and buildings in Barcelona and other cities. Some regional business leaders have expressed concern that disturbances could negatively affect business operations and investments in the region.

The COVID-19 pandemic and public health crisis derailed progress on reducing Spain’s stubbornly high unemployment rate, which peaked at 26.9 percent in 2013 after the European financial crisis. At the end of 2021, unemployment stood at 13.3 percent, among the highest unemployment rates in the EU. The figure, however, excludes about 100,000 workers who were enrolled in temporary government furlough schemes established to provide income support for workers who lost their jobs during the pandemic. The youth unemployment rate decreased to 30.7 percent in 2021, from the 40.1 percent in 2020, representing 452,000 unemployed people under the age of 25. Spain’s economically active population totaled 23.3 million people, of whom 20.2 million were employed and 3.1 million unemployed. Foreign nationals comprised 15.3 percent of Spain’s workforce (3,094,900 people) in 2021.

Spain approved a landmark labor reform law in 2022 that satisfies EU requirements to unlock subsequent tranches of European recovery funds. Key components include:

• Elimination of temporary contracts except for periods of high demand and temporary substitution of workers: The reform allows for two types of temporary contracts: structural, to respond to temporary increases in demand for up to one year, and substitution, to cover workers’ absences due to medical and parental leave.
• Permanent-intermittent contracts: The reform’s limitations on temporary contracts will push employers to use a permanent-intermittent contract, which provides firms flexibility to use seasonal workers and allows seasonal workers to earn seniority for the entire duration of the employment relationship – not just the time of services provided.
• Limits on training contracts: The goal of this measure is to reduce the share of Spanish young people employed on temporary contracts. It defines two broad types of educational contracts, including for students under 30 who work part-time while studying for a period of up to two years, and for professional trainees who are seeking work experience toward specific certifications.

• Workers sector-wide will receive the same benefits: Firms must now apply the appropriate sector-wide labor agreement to the service a subcontractor performs, such as cleaning, maintenance, or information support, rather than the firm-level labor agreement.

• Restoration of indefinite agreements between firms and unions: Expired labor agreements will now stay in effect until they are replaced.

• Establishment of permanent state-backed furloughs (ERTEs) and stronger fraud-fighting measures: The reform establishes a permanent furlough scheme to protect workers in firms or sectors facing significant structural economic changes that require workers to retrain and find new employment. The measures strengthen fines for firms “overusing” temporary contracts.

The labor market is mainly divided into permanent workers with full benefits and temporary workers with many fewer benefits. In the event of dismissal for an objective reason (e.g., economic reasons), severance pay is available to the worker and amounts to 20 days’ wages per year of service with a maximum of 12 months’ wages. A worker dismissed for disciplinary reasons is not entitled to severance pay. For termination of a fixed term contract (either its term expiration or completion of the work), the worker is entitled to a severance payment of 12 days per year of service. Under Spanish Labor law, an employee may bring a claim against the employer for unfair dismissal within 20 days of receiving a termination letter.

Mechanisms for preventing and resolving individual labor disputes in Spain are developed by labor laws and alternative dispute resolution (ADR) systems through collective bargaining agreements. Each of Spain’s 17 autonomous communities has a different ADR system at different levels generally dealing with collective disputes. Spanish law stipulates that, before taking individual labor disputes to court in search of a solution, parties must first attempt to reach agreement through conciliation or mediation.

The Spanish Public Employment Service (SEPE) under the Ministry of Labor and Social Economy administers unemployment benefits called the Contributory Unemployment Protection. This benefit protects those who can and wish to work but become unemployed temporarily or permanently, or those whose normal working day is reduced by a minimum of 10 percent and a maximum of 70 percent.

Collective bargaining is widespread in both the private and public sectors. A high percentage of the working population is covered by collective bargaining agreements, although only a minority (generally estimated to be about 10 percent) of those covered are union members. Large employers generally have individual collective bargaining agreements, while smaller companies use industry-wide or regional agreements. As a result of the recent labor reform, sectoral-level agreements currently hold primacy over business-level agreements.

The Constitution guarantees the right to strike, and this right has been interpreted to include the right to call general strikes to protest government policy.

The informal or underground economy costs Spain an estimated EUR 270 billion, or about 25 percent of GDP as of 2020. The informal economy is most common in sectors such as construction or retail that tend to use more cash in commercial transactions. In July 2021, the Spanish Parliament approved an anti-fraud law (Law 11/2021) to prevent and combat tax fraud, lower the limit for cash payments to EUR 1,000 between professionals and EUR 2,500 between individuals, and prohibit tax amnesties.

As Spain is a member of the European Union, DFC products are generally not offered. Various EU directives, as adopted into Spanish law, adequately protect the rights of foreign investors. Spain is a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

Ana Maria Waflar, Economic Specialist, tel.: (34) 91 587 2290