Policies Towards Foreign Direct Investment

The GoB publicly emphasizes the importance of attracting foreign direct investment (FDI).  It is currently drafting an investment facilitation law, as recommended by the 2014 Organisation for Economic Co-operation and Development (OECD) investment review.  UNCTAD is providing technical assistance in support of the legislation.  The GoB has launched initiatives to promote economic activity and foreign investment in specific areas, including the establishment of hubs to promote economic growth in the agriculture, diamond, education, health, and transportation sectors.  Additional investment opportunities in Botswana include large water, electricity, transportation, and telecommunication infrastructure. Economists have also noted Botswana’s considerable potential in the mining, mineral processing, energy, cattle, tourism, and financial services sectors.  The Botswana Trade and Investment Centre (BITC), the GoB’s investment and trade promotion authority, assists foreign investors with projects intended to diversify export revenue, create employment, and transfer skills to Botswana citizens.

Limits on Foreign Control and Right to Private Ownership and Establishment

Botswana’s 2003 Trade Act reserves licenses in 35 sectors for citizens, including butcheries, general trading establishments, gas stations, liquor stores, supermarkets (excluding chain stores), bars (other than those associated with hotels), certain types of restaurants, boutiques, auctioneers, car washes, domestic cleaning services, curio shops, fresh produce vendors, funeral homes, hairdressers, various types of rental/hire services, laundromats, specific types of government construction projects under a certain dollar amount, certain activities related to road and railway construction and maintenance, and certain types of manufacturing activities including the production of furniture for schools, welding, and bricklaying.  The law allows foreigners to participate in these sectors as minority joint venture partners in medium-sized businesses. Foreigners can hold the majority share if they obtain written approval from the trade minister.

The Ministry of Investment, Trade and Industry (MITI), which administers the citizen participation initiative, has taken an expansive interpretation of the term chain stores, so that it encompasses any store with more than one outlet.  This broad interpretation has resulted in the need to apply exemptions to certain supermarkets, simple specialty operations, and general trading stores. These exceptions were generally granted prior to 2015 and many large general merchandise markets, restaurants, and grocery networks are owned by foreigners as a result. Since 2015, the GoB has denied some exception requests, but reports they have approved some based on localization agreements directly negotiated between the ministry and the applying company.  These agreements reportedly include commitments to purchase supplies locally and capacity building for local workers and industry.

Other Investment Policy Reviews

In December of 2014, the OECD released an Investment Policy Review on Botswana. (http://www.oecd-ilibrary.org/finance-and-investment/oecd-investment-policy-reviews-botswana-2014_9789264203365-en  ).

Botswana has been a World Trade Organization (WTO) member since 1995. As a member of the Southern African Customs Union, the WTO last conducted a trade policy review in 2016. (https://www.wto.org/english/tratop_e/tpr_e/tp322_e.htm  )

Business Facilitation

To operate a business in Botswana, one needs to register a company with the GoB’s CIPA.  The registration forms are available online from the MITI website: http://www.mti.gov.bw/display-companies-forms  .  According to CIPA the company registration process takes about 14 days, and it takes approximately 48 days to complete additional required registrations such as tax registrations, opening bank accounts, and obtaining necessary licenses and permits.  The World Bank ranked Botswana 157 out of 190 in the ease of starting a business category. In April 2018, CIPA announced a partnership with a New Zealand company to install a new online registration system, which will reduce the company registration process from 12 days to one.  The system is expected to be launched by July 2019.

BITC (www.bitc.co.bw  ), the GoB’s investment promotion agency, was designed to serve as a one-stop shop to assist investors to set up a business and find a location for operation.  BITC’s ability to streamline procedures varies based on GoB entity and bureaucratic requirements.

BITC’s criteria for support for investment projects is whether the project will diversify the economy away from dependence on diamond mining, and whether it will create jobs for and transfer skills to Batswana citizens.  The BITC also hosts the Botswana Trade Portal (https://www.botswanatradeportal.org.bw  ) designed to ease trade across borders.  It is a single point of contact for all information relating to import and export to and from Botswana and represents a number of ministries and parastatals.

Botswana has a number of incentives and preferences for both citizen-owned and locally based companies.  Foreign-owned companies can benefit from local procurement preferences which are usually required for government tenders.  MITI instituted a program in 2015 to give locally based small companies a 15 percent preferential price margin in GOB procurement, with mid-sized companies receiving a 10 percent margin, and large companies a 5 percent margin.  Under this policy, MITI defines small companies as having less than five million pula in annual revenue reflected in their financial statements, medium companies with 5,000,001 to 19,999,999 pula in revenue, and large companies with 20 million pula or more. The directive applies to 27 categories of goods and services ranging from textiles, chemicals, and food, in addition to a broad range of consultancy services.

For Companies Act registration purposes, enterprises are classified as follows: Micro Enterprises —less than six employees including owner and annual turnover of up to 60,000 pula; Small Enterprises — less than 25 employees and annual revenue between 60,000 and 1,500,000 pula; Medium Enterprises — less than 100 employees and an annual revenue between 1,500,000 and 5,000,000 pula; Large Enterprises —more than 100 employees and an annual revenue of 5,000,000 pula or more.  This classification system permits foreigner participation as minority shareholders in medium-sized enterprises in the 35 business sectors reserved for citizens.

Outward Investment

The GOB neither promotes nor restricts outward investment.

The United States and the Southern Africa Customs Union (SACU), which includes Botswana, signed a Trade, Investment, and Development Cooperative Agreement (TIDCA) in 2008.  The TIDCA establishes a forum for consultative discussions, cooperative work, and possible agreements on a wide range of trade issues, with a special focus on customs and trade facilitation, technical barriers to trade, sanitary and phytosanitary (SPS) measures, and trade and investment promotion.

SACU has free trade agreements with Iceland, Liechtenstein, Norway, Switzerland, and the European Free Trade Association. SACU countries and MERCOSUR (Argentina, Brazil, Paraguay, and Uruguay) signed reciprocal preferential trade agreements in December 2008 and April 2009 respectively.  The PTA establishes fixed preference margins as a first step towards the creation of a free trade area between SACU and MERCOSUR. Botswana has ratified the agreement and is awaiting remaining Member States to complete ratification for the agreement to be implemented.

For more information on SACU’s tariff regime see the WTO document:http://www.wto.org/english/tratop_e/tpr_e/s222-00_e.doc .

Botswana is also a member of the Southern African Development Community (SADC), and is currently implementing the SADC Protocol on Trade. For more information about SADC, visit: www.sadc.int .

On June 10, 2016, Botswana signed an Economic Partnership Agreement (EPA) with the European Union as part of SADC EPA Group.  The EPA guarantees access to the EU market without any duties or quotas for Botswana, and gives asymmetric access to the SADC EPA Group.

Botswana has a trade agreement with Zimbabwe, which provides duty-free access for goods that meet the 25 percent local content requirement.

In 2018, Botswana signed the Tripartite Free Trade Area (TFTA) agreement consisting of 26 countries of the three Regional Economic communities of the Common Market for Eastern and Southern Africa (COMESA), East African Commission (EAC) and the Southern African Development Community (SADC).

Botswana was also the 51st country to sign the African Continental Free Trade Agreement (AfCFTA) in February 2019, which will improve intra-regional trade and provide access to a market of 1.2 billion people.

Transparency of the Regulatory System

Bureaucratic procedures necessary to start and maintain a business tend to be open, though slow, and regulatory procedures can be cumbersome to navigate.  However, in 2018, Botswana launched a Regulatory Impact Assessment Strategy that will work at improving the regulatory environment and ensuring that legislation is necessary and cost effective, reduce administrative burdens imposed by the regulatory environment to businesses, improve transparency, consultation, and government accountability.  Foreign investor complaints generally focus on the inefficiency and/or unresponsiveness of mid- and low-level government bureaucrats. The GoB has introduced a Performance Management System to improve the service and accountability of its employees. Unfair business practices or conduct can be reported to the Competition Authority, which seeks to level the playing field for all business operators and foster a conducive environment for business.  Bills in Botswana, including investment laws, go through a public consultation process and are available for public comment. Bills are also debated in Parliament whose sessions are open to the public.

The Companies Act of 2004 requires all companies registered in Botswana to prepare annual financial statements on the basis of generally accepted accounting principles.  It further requires every public company, including non-exempt private companies, to prepare their Financial Statement in accordance with the International Financial Reporting Standards.

The Public Procurement and Asset Disposal Board (PPADB) oversees all government tenders. Prospective government contractors are required to register with the PPADB.  The PPADB maintains a process by which tender decisions can be challenged; bidders can also challenge a tender procedure in the courts. The PPADB publishes its decisions concerning awarded tenders, prequalification lists, and newly registered contractors.

The PPADB Act calls for preferential procurement of citizen-owned contractors for works, service and supplies, as well as specific, disadvantaged women’s communities, though it states that such preferences must be time-bound, phased in and out as necessary, and consistent with the country’s external obligations and its “market-oriented, macroeconomic framework.”  When a procuring entity wishes to reserve a tender for citizen-only participation, it is required to publish a notice to that effect either in the bid document or the pre-qualification notice.

Health and safety laws, embodied in the Factories Act of 1973, provide basic protection for workers from unsafe working conditions.  Minimum working conditions required on work premises include cleanliness of the premises, adequate ventilation and sanitation, sufficient lighting and the provision of safety precautions.  Health inspectors and the Botswana Bureau of Standards carry out periodic checks at both new and operating factories.

International Regulatory Considerations

Botswana is a member of SACU and SADC.  Neither has authority over member state national regulatory systems.  Botswana is a member of the World Trade Organization (WTO) and notifies all draft technical regulations to the WTO’s Technical Barriers to Trade (TBT) Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

The Constitution provides for an independent judiciary system.  Botswana’s legal system is based on Roman-Dutch law as influenced by English common law. This type of system cohabits with legislation, judicial decisions, and local customary law.  The courts enforce commercial contracts, and the judicial system is widely regarded as being fair. Both foreign and domestic investors have equal access to the judicial system. Botswana does not have a dedicated commercial court.  The Industrial Court, set up by the Trade Dispute Act of 2004, primarily addresses labor matters.

The GoB is planning to create a corps of commercially specialized judges within the civil court system.  Under the new system, commercial cases will be overseen by these commercial judges in order to expedite handling and ensure relevant expertise.  The country already has a specialized anti-corruption court that handles all corruption cases.

Some U.S. litigants have reported that the time to obtain and enforce a judgment in a commercial dispute is unreasonably long.  The turnaround time for civil cases is approximately two years. In an effort to create more efficient adjudications, the GoB has established land tribunal, industrial, small claims, and corruption courts.  During the past several years, some dockets have improved, but progress has been uneven.

Local laws are accessible through the Botswana Attorney General’s Office website (www.laws.gov.bw  ).  It can take up to 24 months for a law, once passed, to appear on the website.

Laws and Regulations on Foreign Direct Investment

Under Botswana’s Company Act, foreigners who wish to operate a business are required to register as well as obtain the relevant licenses and permits as prescribed by the Trade Act of 2008.

Licenses are required for a wide spectrum of businesses, including banking, non-bank financial services, transportation, medical services, mining, energy provision, and alcohol sales.  Although amendments to the Trade Act have eliminated the catchall miscellaneous business license category, investors have reported on local authorities insisting a business apply for a license even when it does not fall within the established categories.  In addition, some businesses have observed the enforcement of licenses, as well as the time taken for inspections to comply with licensing requirements, varies widely across local government authorities.

Competition and Anti-Trust Laws

Botswana has developed anti-trust legislation and policies to ensure appropriate competition in the business environment.  Under the Competition Act, the Competition Authority is now monitoring mergers and acquisitions. During the year 2016/2017 the Authority dealt with a number of cases to address the non-competitive business conduct and these included bid rigging cases.  The Competition Authority is empowered to reject mergers deemed not to be in the public best interest. It has interpreted this ability to mean that it can prohibit mergers that result in the concentration of a majority of shares in the hands of foreign investors.

Expropriation and Compensation

Section 8 of the country’s Constitution prohibits the nationalization of private property.  The GoB has never pursued a policy of forced nationalization and is highly unlikely to adopt one.  The Acquisition of Property Act provides a process for any expropriation, including parameters to determine market value and receive compensation.  The 2007 Amendment to the Electricity Supply Act allows the GoB to revoke an Independent Power Producer’s license and confiscate the operations, with compensation, for public interest purposes.

Dispute Settlement

ICSID Convention and New York Convention

It has ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).  It is also a member state to the International Centre for the Settlement of Investment Disputes (ICSID convention), and the Multilateral Investment Guarantee Agency (MIGA).

Investor-State Dispute Settlement

There are no known investment disputes involving U.S. persons.  Botswana accepts international arbitration to settle investment disputes.  Judgments by foreign courts recognized by the GoB are enforceable under the local courts where the appropriate bilateral agreements between the countries exist.

International Commercial Arbitration and Foreign Courts

There are no known complaints about transparency or discrimination by local courts in Botswana.

Bankruptcy Regulations

Botswana’s commercial and bankruptcy laws are comprehensive.  Secured and unsecured creditors enjoy similar rights under bankruptcy proceedings to those they would enjoy in the United States.

Investment Incentives

Botswana has several mechanisms in place to attract foreign direct investment (FDI).  The BITC assists local and foreign investors. BITC is responsible for promoting FDI, investor aftercare, and the promotion of locally manufactured goods in export markets.  It assists investors with company registration, land acquisition, factory shells, utility connections, and work and residence permits for essential staff. Investors’ requests for support from BITC and other agencies are evaluated based on the extent to which the proposed project assists in the GoB’s diversification efforts, contributes to the growth of priority sectors, and provides employment and training to Botswana citizens.  The GoB also makes grants available to investors who partner with citizens and will extend credit to investors presenting proposals that have undergone appropriate due diligence and that have completed a feasibility study. Foreign investors are encouraged to transfer technology to Botswana and skills to Botswana citizens with a view to preparing them for promotion into management positions.

Botswana offers a relatively low tax rate of 22 percent on corporate taxable income and 7.5 percent withholding tax on all dividends distributed.  MITI can grant manufacturing companies the reduced level of 15 percent taxable income. Companies can pay the reduced rate of 15 percent of profit with accreditation from the Innovation Hub or the International Financial Services Centre on approved operations.

The Minister of Finance and Economic Development has the authority to issue development approval orders which are used for specific projects, which include providing tax holiday and education and training grants.  The Minister must be satisfied that the proposed project will be beneficial to Botswana’s economy. Any firm, local or foreign, may apply for a Development Approval Order through the Permanent Secretary at the finance ministry.  Applications are evaluated against the following criteria: job creation for Botswana citizens; the company’s training plans for Botswana citizens; the company’s plans to localize non-citizen positions; Botswana citizen participation in company management; amount of equity held by Botswana citizens in the company; the location of the proposed investment; the project’s effect on the stimulation of other economic activities; and the project’s effect on reducing local consumer prices.  MITI also offers rebates on imported materials for manufactures that produce products for export.

In 2017, Parliament approved and implemented a special incentive package for Selebi-Phikwe geared to promote economic growth and diversification.  Some of the incentives include reduced corporate tax of 5 percent for the first five years and 10 percent thereafter (versus the 22 percent national tax rate), zero customs duty on imported raw materials, rebates for customs duty and value-added tax for any exports outside the SACU, and a minimum of 50 years on land leases (instead of the standard lease of 25 years).

Foreign Trade Zones/Free Ports/Trade Facilitation

Parliament established a new parastatal organization, the Special Economic Zones Authority (SEZA), with the mandate to develop and operate special economic zones around the country.  It has earmarked five geographic areas with a total of eight zones though they are not yet fully operational. In 2015, Parliament approved a Special Economic Zones (SEZ) law to streamline investment in sector-targeted geographic areas in the country including two Gaborone area SEZs (multi-use, diamond processing, and financial services); two Selebi-Phikwe SEZs (mineral processing and horticulture); and additional SEZs in Lobatse (beef, leather, biogas); Palapye (energy); Pandamatenga (agriculture); and Francistown (mining and logistics).  The Special Economic Zones Act is available for sale in hard copy at the GoB bookshop. SEZA has prioritized four SEZs—Lobatse (leather park), Gaborone Fairgrounds (Financial Services), Gaborone Sir Seretse Khama Airport (Diamond and Logistics) and Pandamatenga (Agriculture)—and is actively recruiting investors, private developers, and manufacturers. The Botswana Unified Revenue Services has also introduced an electronic Customs Management System to replace the Automated System for Customs Data. This will pave the way for the National Single Window, an electronic trade platform that makes trading more secure and efficient.

Performance and Data Localization Requirements

Performance requirements are not imposed as a condition for establishing, maintaining, or expanding an investment in Botswana.  Foreign investors are encouraged, but not compelled, to establish joint ventures with citizens or citizen-owned companies.

Foreign investors wishing to invest in Botswana are required to register the company in accordance with the Companies Act and comply with other applicable legislation.  Investors are encouraged, but not required, to purchase from local sources. The GoB does not require investors to locate in specific geographical areas, use a specific percentage of local content, permit local equity in projects, manufacture substitutes for imports, meet export requirements or targets, or use national sources of financing for private-sector investments.  However, GoB entities, including BITC, use the criteria of diversifying the economy, creating employment, and transferring skills to Botswana citizens in determining whether to assist foreign investors.

As a matter of policy, the GoB encourages foreign firms to hire qualified Botswana nationals rather than expatriates.  The granting of work permits for foreign workers may be made contingent upon establishment of demonstrable localization efforts.  The government may additionally require evidence that a local is being trained to assume duties currently being fulfilled by foreign worker, specially focused at the middle-management level.  The GOB offers incentives to companies that train local employees, including the deduction of 200 percent of training expenses when an accredited institution conducts the training.

Foreign and local business managers noted increasing difficulty obtaining work permits for foreign skilled workers and managers over the last decade.  Permits for foreign workers decreased from 20,000 to about 5,000 during that time. Business leaders cite difficulty securing work permits combined with local skills deficits and constrained labor productivity as one of the foremost business constraints in Botswana.  In March 2019, GoB reports suggest permits for foreign workers has increased to over 8,000 with approval rates in excess of 90 percent. Select grants are available to foreign investors who partner with Botswana citizens. The Citizen Entrepreneurial Development Agency has established a venture capital fund to provide equity to citizens and ventures between citizens and foreign investors.  The majority of GoB loans and grants are designed specifically for citizen-owned contracting firms or for small enterprises and are therefore not available to foreign investors.

The GoB, the largest procuring entity in the country, has directed central government, local authorities and state-owned enterprises to purchase all products and services from locally based manufacturers and service providers if the goods and services are locally available, competitively priced, and meet tender specifications in terms of quality standards as certified or recognized by the Botswana Bureau of Standards.  Local preferences arise from numerous sources. In 2015, MITI instituted a program to give locally based small companies a 15 percent preferential price margin in GoB procurement, with mid-sized companies receiving a 10 percent margin, and large companies a 5 percent margin. The directive applies to 27 categories of goods and services ranging from textiles, chemicals, and food, in addition to a broad range consultancy services.  In 2014, the GoB and the Chamber of Mines created a committee to oversee the purchasing of mining supplies with a 10 percent preference towards those produced locally. The 2012 Citizen Economic Empowerment Policy also emphasized the preference for local companies and the GoB’s Public Procurement and Asset Disposal Board (PPADB) registers citizen-owned companies for preference purposes.

For a foreign firm to qualify with the Department of Industrial Affairs as a locally based manufacturer or service provider to sell goods or services to the government of Botswana, the firm first must be registered with the Registrar of Companies and possess a relevant license or waiver letter.  Few of these procedures can be completed online and in practice companies see the need to hire an agent on the ground to handle registrations. Tenders are generally designed based on the products available in the local market and with locally-based companies in mind. In addition, many tenders require local registration as a prerequisite for bids and the GoB frequently breaks up large-scale projects into a series of tenders.  All of these factors make it difficult to compete for tenders from outside Botswana.

Real Property

Property rights are enforced in Botswana.  The World Bank ranks Botswana 80 out of 190 in the Registering Property category.  There are three main categories of land in Botswana: freehold, state land, and tribal land.  Tribal and state land cannot be sold to foreigners. There are no restrictions on the sale of freehold land, but only about 5 percent of land in Botswana is freehold.  In the capital city of Gaborone, the number of freehold plots is limited.

State land represents about 25 percent of land in Botswana.  On application to the Department of Lands, both foreign-owned and local enterprises registered in Botswana may lease state land for industrial or residential use.  Commercial use leases are for 50 years and residential leases are for 99 years. Waiting periods tend to be long for leasehold applications, but subleases from current leaseholders are available.  In 2014, the GoB changed its implementing regulation to allow companies with less than five employees to operate in residential areas if their operations do not pose a health or safety risk to residents.

Tribal land represents 70 percent of land in Botswana.  To obtain a lease for tribal land, the investor must approach the relevant local Land Board.  Processes are unlikely to be streamlined or consistent across Land Boards.

Since independence, the trend in Botswana has been to increase the area of tribal land at the expense of both state and freehold land.  Landlord-tenant law in Botswana tends to be moderately pro-landlord.

In addition to helping investors who meet its criteria obtain appropriate land leaseholds, BITC has also built factory units for lease to industrialists with the option to purchase at market value.

Intellectual Property Rights

Botswana’s legal intellectual property rights (IPR) structure is adequate, although some improvements are needed.  The key challenge facing the GoB is effective implementation. The Companies and Intellectual Property Authority (CIPA) was established in 2014 and is comprised of three offices: the Companies and Business Office, the Industrial Property Office, and the Copyright Office.  Intellectual property is registered through CIPA. The priorities of this Authority are to strengthen and implement Botswana’s IPR regime and improve interagency cooperation. IPR infringement does occur in Botswana, primarily through the sale of counterfeit items in low-end sales outlets.  In 2017, CIPA cooperated with the Botswana Police to seize 12,923 counterfeit CDs and DVDs valued over USD 107,000.00. The U.S. government continues to work with the GoB to modernize and improve enforcement of IPR.

IPR is protected under the Industrial Property Act of 2010, which provides protections on patents, trademarks, utility designs, handicrafts, traditional knowledge and geographic indicators.  The 2000 Copyright and Neighboring Rights Act also protects art and literary works and the 1975 Registration of Business Names Act oversees corporate name and registration procedures. Other IPR-related Laws include the Competition Act, the Value Added Tax Act, the Botswana Penal Code, the Customs and Excise Duty Act, the Monuments and Relics Act, the Broadcasting Act, and the Societies Act.

Botswana is a signatory to the Beijing Treaty on Audiovisual Performances, the Hague Agreement Concerning the International Deposit of Industrial Designs, the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks, the Convention establishing the World Intellectual Property Organization (WIPO), the WIPO Copyright Treaty, the WIPO Performances and Phonograms Treaty, the Patent Cooperation Treaty, the Berne Convention for the Protection of Literary and Artistic Works, and the Paris Convention for the Protection of Industrial Property.  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/  .

Resources for Rights Holders

Goitseone Montsho
Economic/Commercial Specialist
MontshoG@state.gov
+267 373-2431

Local lawyers’ list: https://bw.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/

Capital Markets and Portfolio Investment

The government encourages foreign portfolio investment, although there are limits on foreign ownership in certain sectors.  It also embraces the establishment of new and diverse financial institutions to support increased foreign and domestic investment and to fill existing gaps where finance is not commercially available.  There are nine commercial banks, one merchant bank and one offshore bank, two statutory deposit-taking institution and one credit union operating in Botswana. All have corresponding relationships with U.S. banks.  Additional financial institutions include various pension funds, insurance companies, microfinance institutions, stock brokerage companies, asset management companies, statutory finance institutions, collective investment undertakings, and statutory funds.  Historically, commercial banks have accounted for 92 percent of total deposits and 98 percent of total loans in Botswana. A large portion of the population does not participate in the formal banking sector.

Money and Banking System

The central bank, the Bank of Botswana, acts as banker and financial advisor to the GoB and is responsible for the management of the country’s foreign exchange reserves, the administration of monetary and exchange rate policies, and the regulation and supervision of financial institutions in the country.  Monetary policy in Botswana is widely regarded as prudent, and the GoB has successfully managed to maintain a sensible exchange rate and a stable inflation rate, generally within the target of 3 to 6 percent.

Banks may lend to non-resident controlled companies without seeking approval from the Bank of Botswana.  Foreign investors usually enjoy better access to credit than local firms do. In July 2014, USAID’s Development Credit Authority, in collaboration with the Barclays Bank of Botswana, implemented a program to allow small and medium-sized enterprises (SME) to access up to USD 15 million in loans in an effort to diversify the economy.

As of the end of 2017, there were 24 companies on the Domestic Board and 11 companies on the Foreign Equities Board of the Botswana Stock Exchange (BSE).  In addition, there are 43 listed bonds and four exchange traded funds listed on the exchange. The total market capitalization for listed companies as at 2018 was USD 41.32 billion though one company constitutes the majority of that figure, Anglo-American Plc, which has a market capitalization of some USD 34.43 billion. The BSE is still highly illiquid compared to larger African markets and is dominated by mining companies which adds to index volatility.  Laws prohibiting insider trading and securities fraud are clearly stipulated under section 35 – 37 of the Securities Act, 2014 and charges for contravening these laws are listed under section 54 of the same Act.

The government has legitimized offshore capital investments and allows foreign investors, individuals and corporate bodies, and companies incorporated in Botswana to open foreign currency accounts in specified currencies.  The designated currencies are U.S. dollar, pound sterling, euro, and the South African rand. There are no known practices by private firms to restrict foreign investment participation or control in domestic enterprises. Private firms are not permitted to adopt articles of incorporation or association which limit or prohibit foreign investment, participation, or control.

In general, Botswana exercises careful control over credit expansion, the pula exchange rate, interest rates, and foreign and domestic borrowing.  Banking legislation is largely in line with industry norms for regulation, supervision, and payments. However, the country failed to meet compliance requirements of the Financial Action Task Force (FATF) resulting in a grey listing in October 2018.  Botswana is currently implementing an action plan to remedy the situation. The Non-Bank Financial Institutions Regulatory Authority (NBFIRA) was established in 2008 and provides regulatory oversight for the non-banking sector. It extends know-your-customer practices to non-banking financial institutions to help deter money laundering and terrorist financing.  NBFIRA is also responsible for regulating the International Financial Services Centre, a hub charged with promoting the financial services industry in Botswana.

Foreign Exchange and Remittances

There are no foreign exchange controls in Botswana or restrictions on capital outflows through financial institutions.  Commercial banks are required to ensure customers complete basic forms indicating name, address, purpose and other details prior to processing funds transfer requests or loan applications.  The finance ministry monitors data collected on the forms for statistical information on capital flows, but the form does not require government approval prior to the processing of a transaction and does not delay capital transfers.

To encourage portfolio investment, develop domestic capital markets, and diversify investment instruments, non-residents are able to trade in and issue Botswana pula-denominated bonds with maturity periods of more than one year, provided such instruments are listed on the Botswana Stock Exchange (BSE).  Only Botswana citizens can purchase Botswana’s Letlole Saving Certificate (equivalent to a U.S. Treasury bond). Foreigners can hold shares in BSE-listed Botswana companies.

Travelers are not restricted to the amount of currency they may carry, but they are required to declare to customs at the port of departure any cash amount in excess of 10,000 pula (~USD 950.00).  There are no quantitative limits on foreign currency access for current account transactions.

Bank accounts denominated in foreign currency are allowed in Botswana.  Commercial banks offer accounts denominated in U.S. Dollars, British Pounds, Euros and South African Rand.  Businesses and other bodies incorporated or registered domestically may open accounts without prior approval from the Bank of Botswana.  The GoB also permits the issuance of foreign currency denominated loans.

Upon disinvestment by a non-resident, the non-resident is allowed immediate repatriation of all proceeds including profits, rents, and fees.

The Botswana pula has a crawling peg exchange rate and is tied to a basket of currencies comprised of the South African rand, whose weighting was adjusted from 50 percent to 45 percent in January 2017, with the IMF’s Special Drawing Rights (consisting of the U.S. dollar, the Euro, British pound, Japanese yen, and Chinese renminbi) comprising the remaining 55 percent.  The GoB also reduced the upward rate of crawl from 0.38 percent to 0.26 percent. Under the regular five-year review of the composition of the SDR, the IMF added the Chinese renminbi to the pool. Movements of the South African rand against the U.S. dollar heavily influence the pula. There is no difficulty in obtaining foreign exchange. Shortages of foreign exchange that would lead banks to block transactions are highly unlikely.

Remittance Policies

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

Sovereign Wealth Funds

The Bank of Botswana maintains a long-term sovereign wealth fund, known as the Pula Fund, in addition to a regular foreign reserve account providing basic import cover. The Pula Fund, with an estimated value of some USD 5.06 billion as at 2016, was established under the Bank of Botswana Act and forms part of the country’s foreign exchange reserves, which are primarily funded by diamond revenues.  The Pula Fund is wholly invested in foreign currency-denominated assets and is managed by the Bank of Botswana Board with input from recognized international financial management and investment firms. All realized market and currency gains or losses are reported in the Bank of Botswana’s income statement. Botswana is among the founding members of the International Forum of Sovereign Wealth Fund and was one of the architects of the Santiago Principles in 2008.  More information is available at http://www.bankofbotswana.bw/assets/uploaded/BOTSWANA percent20PULA percent20FUND percent20- percent20SANTIAGO percent20PRINCIPLES percent20(2).pdf 

State-owned enterprises (SOEs), known as “parastatals,” are majority or 100 percent owned by the GoB.  There is a published list of SOEs at the GoB portal (www.gov.bw  ) with profiles of financial and development SOEs. Some SOEs are state-sanctioned monopolies, including the Botswana Meat Commission, the Water Utilities Corporation, Botswana Railways, and the Botswana Power Corporation.

The same business registration and licensing laws govern private and government-owned enterprises.  No law or regulation prohibits or restricts private enterprises from competing with SOEs. Botswana law requires SOEs to publish annual reports, and private sector accountants or the Auditor General audits SOEs depending on how they are constituted.  GoB ministries together with their respective SOEs are compelled on an annual basis to appear before Parliamentary Public Accounts committee to provide reports and answer questions regarding their performance. Some SOEs are not performing well and have been embroiled in scandals involving alleged fraud and mismanagement.

Botswana is not party to the Government Procurement Agreement within the framework of the WTO.

Privatization Program

The GOB has committed to privatization on paper.  It established a task force in 1997 to privatize all of its state-owned companies and formed a Public Enterprises Evaluation and Privatization Agency (PEEPA) to oversee this process.  Implementation of its privatization commitments has been limited to the January 2016 sale offer of 49 percent of the stock of the state-owned Botswana Telecommunications Corporation to Botswana citizens only.  In February 2017, the GOB issued an Expressions of Interest for the privatization of its national airline, but progress stopped due to the decision to re-fleet the airline before privatization. Conversely, the GoB has created new SOEs such as the Okavango Diamond Company, the Mineral Development Company, and Botswana Oil Limited in recent years.

The GoB, some foreign and local firms, and customers recognized and embraced Responsible Business Conduct (RBC), although Botswana is not an adherent of the OECD’s RBC Guidelines for Multinational Enterprises and has not specified its definition of RBC.  Large companies in the mining, communications technology, food supply, and financial services sectors have established RBC programs, sponsor projects, and support local nonprofit concerns. However, the ethos has not taken hold in many smaller firms. The U.S. Embassy worked with the local chamber of commerce, Business Botswana, on the issue of corporate social responsibility and ethical compliance to help enlist companies to sign onto a Corporate Code of Conduct that covers, among other things, conflicts of interest, bribery, political interference, political party funding, procurement and bidding and issues surrounding residence and work permits.  To date more than 300 firms have signed the Code of Conduct.

The Companies Act also sets out the expectations of business conduct and governance for directors and shareholders for both private and public companies.  Botswana is not a member of the Extractive Industries Transparency Initiative. Botswana’s Mines and Minerals Act and associated regulations govern mineral contracts and licenses.  Botswana’s laws and procedures for awarding mining contracts are fairly well developed. Mining licenses are required to undergo a public comment period before they are awarded, and that rule is followed.

The Overseas Private Investment Corporation (OPIC) makes insurance available for projects in Botswana.  In June 2016, it signed a USD 125 million loan guarantee with Barclays Bank Botswana which represents the first tranche of the approved USD 250 million guarantee facility for the diamond industry.  The second tranche of this facility it announced in 2018 will be utilized through the Stanbic Bank Botswana. Other OPIC programs in Botswana are in place to support lending to SMEs.

Botswana is a member of the Multilateral Investment Guarantee Agency (MIGA), which offers investors protection against inconvertibility, or transfer of currency, expropriation, breach of contract, and war and civil disturbance.

The Botswana Export Credit Insurance and Guarantee Ltd. allows investors to purchase coverage against certain events and losses such as the insolvency and inability of buyers to pay for purchases, unanticipated import restrictions, or the blockage by the buyer’s country of foreign exchange transfer.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

According to the Bank of Botswana, investment in Botswana totaled 84.75 billion pula in 2016, of which 31 billion pula were non-FDI investments.  Africa (33.3 percent) and Europe (64.4 percent) accounted for most of the 54 billion pula influx of FDI. Within these regions, South Africa and United Kingdom were the predominant players, accounting for 9.7 and 32.5 billion pula respectively.  Little data on FDI sources is available for countries and regions with limited investments in Botswana. Retail and Wholesale Trade surpassed the mining sector in 2016 to account for 38.9 percent of Foreign Investment inflows.

Table 4: Sources of Portfolio Investment

IMF Coordinated Direct Investment Survey data are not available for Botswana.  Equity securities represent 82 percent of Botswana’s portfolio investment assets abroad.  Information about country destination of these portfolio investments is not available.

Policies Towards Foreign Direct Investment

The Colombian government actively encourages foreign direct investment (FDI).  In the early 1990s, the country began economic liberalization reforms, which provided for national treatment of foreign investors, lifted controls on remittance of profits and capital, and allowed foreign investment in most sectors.  Colombia imposes the same investment restrictions on foreign investors that it does on national investors. Generally, foreign investors may participate in the privatization of state-owned enterprises without restrictions. All FDI involving the establishment of a commercial presence in Colombia requires registration with the Superintendence of Corporations (‘Superintendencia de Sociedades’) and the local chamber of commerce.  All conditions being equal during tender processes, national offers are preferred over foreign offers. Assuming equal conditions among foreign bidders, those with major Colombian national workforce resources, significant national capital, and/or better conditions to facilitate technology transfers are preferred.

ProColombia is the Colombian government entity that promotes international tourism, foreign investment, and non-traditional exports.  ProColombia assists foreign companies that wish to enter the Colombian market by addressing specific needs, such as identifying contacts in the public and private sectors, organizing visit agendas, and accompanying companies during visits to Colombia.  All services are free of charge and confidential. Business process outsourcing, software and IT services, cosmetics, health services, automotive manufacturing, textiles, graphic communications, and electric energy are priority sectors. ProColombia’s “Invest in Colombia” web portal offers detailed information about opportunities in agribusiness, manufacturing, and services in Colombia (www.investincolombia.com.co/sectors).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investment in the financial, hydrocarbon, and mining sectors is subject to special regimes, such as investment registration and concession agreements with the Colombian government, but is not restricted in the amount of foreign capital.  The following sectors require that foreign investors have a legal local representative and/or commercial presence in Colombia: travel and tourism agency services; money order operators; customs brokerage; postal and courier services; merchandise warehousing; merchandise transportation under customs control; international cargo agents; public service companies, including sewage and water works, waste disposal, electricity, gas and fuel distribution, and public telephone services; insurance firms; legal services; and special air services, including aerial fire-fighting, sightseeing, and surveying.

According to the World Bank’s Investing Across Sectors indicators, among the 14 countries in Latin America and the Caribbean covered, Colombia is one of the economies most open to foreign equity ownership.  With the exception of TV broadcasting, all other sectors covered by the indicators are fully open to foreign capital participation. Foreign ownership in TV broadcasting companies is limited to 40 percent. Companies publishing newspapers can have up to 100 percent foreign capital investment; however, there is a requirement for the director or general manager to be a Colombian national.

According to the Colombian constitution and foreign investment regulations, foreign investment in Colombia receives the same treatment as an investment made by Colombian nationals.  Any investment made by a person who does not qualify as a resident of Colombia for foreign exchange purposes will qualify as foreign investment. Foreign investment is permitted in all sectors, except in activities related to defense, national security, and toxic waste handling and disposal.  There are no performance requirements explicitly applicable to the entry and establishment of foreign investment in Colombia.

Foreign investors face specific exceptions and restrictions in the following sectors:

Media:  Only Colombian nationals or legally constituted entities may provide radio or subscription-based television services.  For National Open Television and Nationwide Private Television Operators, only Colombian nationals or legal entities may be granted concessions to provide television services.  Colombia’s national, regional, and municipal open-television channels must be provided at no extra cost to subscribers. Foreign investment in national television is limited to a maximum of 40 percent ownership of the relevant operator.  Satellite television service providers are obliged to include within their basic programming the broadcast of government-designated public interest channels. Newspapers published in Colombia covering domestic politics must be directed and managed by Colombian nationals.

Accounting, Auditing, and Data Processing:  To practice in Colombia, providers of accounting services must register with the Central Accountants Board; have uninterrupted domicile in Colombia for at least three years prior to registry; and provide proof of accounting experience in Colombia of at least one year.  No restrictions apply to services offered by consulting firms or individuals. A legal commercial presence is required to provide data processing and information services in Colombia.

Banking:  Foreign investors may own 100 percent of financial institutions in Colombia, but are required to obtain approval from the Financial Superintendent before making a direct investment of ten percent or more in any one entity.  Portfolio investments used to acquire more than five percent of an entity also require authorization. Foreign banks must establish a local commercial presence and comply with the same capital and other requirements as local financial institutions.  Foreign banks may establish a subsidiary or office in Colombia, but not a branch. Every investment of foreign capital in portfolios must be through a Colombian administrator company, including brokerage firms, trust companies, and investment management companies.  All foreign investments must be registered with the central bank.

Fishing:  A foreign vessel may engage in fishing and related activities in Colombian territorial waters only through association with a Colombian company holding a valid fishing permit.  If a ship’s flag corresponds to a country with which Colombia has a complementary bilateral agreement, this agreement shall determine whether the association requirement applies for the process required to obtain a fishing license.  The costs of fishing permits are greater for foreign flag vessels.

Private Security and Surveillance Companies:  Companies constituted with foreign capital prior to February 11, 1994 cannot increase the share of foreign capital.  Those constituted after that date can only have Colombian nationals as shareholders.

Telecommunications:  Barriers to entry in telecommunications services include high license fees (USD 150 million for a long distance license), commercial presence requirements, and economic needs tests.  While Colombia allows 100 percent foreign ownership of telecommunication providers, it prohibits “callback” services.

Transportation:  Foreign companies can only provide multimodal freight services within or from Colombian territory if they have a domiciled agent or representative legally responsible for its activities in Colombia.  International cabotage companies can provide cabotage services (i.e. between two points within Colombia) “only when there is no national capacity to provide the service,” according to Colombian law. Colombia prohibits foreign ownership of commercial ships licensed in Colombia and restricts foreign ownership in national airlines or shipping companies to 40 percent.  FDI in the maritime sector is limited to 30 percent ownership of companies operating in the sector. The owners of a concession providing port services must be legally constituted in Colombia and only Colombian ships may provide port services within Colombian maritime jurisdiction; however, vessels with foreign flags may provide those services if there are no capable Colombian-flag vessels.

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization such as the OECD, WTO, or UNCTAD.

Business Facilitation

New businesses must first register with the chamber of commerce of the city in which the company will reside.  Applicants also register using the Colombian tax authority’s portal at www.dian.gov.co. Apart from the registration with the chamber and the tax authority, companies must register a unified form to self-assess and pay social security and payroll contributions.  The unified form can be submitted electronically to the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), the Colombian Family Institute (Instituto Colombiano de Bienestar Familiar, or ICBF), and the Family Compensation Fund (Caja de Compensación Familiar).  After that, companies must register employees for public health coverage, affiliate the company to a public or private pension fund, affiliate the company and employees to an administrator of professional risks, and affiliate employees with a severance fund.

Colombia went down six spots from 59 to 65 in the World Bank’s 2019 “Ease of Doing Business” index.  According to the report, starting a company in Colombia requires eight procedures and takes an average of 11 days.  Information on starting a company can be found at www.ccb.org.co/en/Creating-a-company/Company-start-up/Step-by-step-company-creation ; http://www.investincolombia.com.co/how-to-invest.html#slider_alias_steps-to-establish-your-company-in-colombia ; and www.dian.gov.co. 

Outward Investment

ProColombia, the government’s FDI promotion agency, also promotes Colombian investment abroad.  The “Colombia Invests” web portal (http://www.colombiainvierte.com.co/ ) offers detailed information for opportunities in the priority sectors of agribusiness, manufacturing, and services for Colombian investors in a range of countries.  ProColombia also offers a network of foreign contacts and plans commercial missions.

BITs or FTAs:

Colombia has 13 free trade agreements or agreements of economic cooperation that include investment chapters with: the United States, the European Union, Canada, Chile, Costa Rica, Cuba, Mexico, South Korea, CAN (Andean Community of Nations – Peru, Ecuador, Bolivia), the Pacific Alliance (Colombia, Chile, Mexico and Peru), EFTA (European Free Trade Area –Switzerland, Liechtenstein, Norway and Iceland), Mercosur (Brazil, Uruguay, Paraguay, and Argentina), and Central America’s Northern Triangle (El Salvador, Honduras, and Guatemala).  Colombia has subscribed trade agreements with Panama and Israel, but they are not yet in effect. There are ongoing FTA negotiations with Japan and Turkey. Through the Pacific Alliance, Colombia is also participating in negotiations with Canada, Australia, New Zealand, and Singapore to extend “associate state” status to these countries. Additionally, Colombia has stand-alone bilateral investment treaties in force with China, India, Peru, Spain, Switzerland, the United Kingdom, and Japan.

 Bilateral Taxation Treaties:

Colombia has double taxation treaties with Bolivia, Canada, Chile, the Czech Republic, Ecuador, France, India, Italy, Mexico, Peru, Portugal, South Korea, Spain, Switzerland, United Arab Emirates, and the United Kingdom.  Colombia is currently negotiating double taxation agreements with Germany, Japan, the Netherlands, and Panama, and has expressed strong interest in renewing negotiations with the United States.

Transparency of the Regulatory System

The Colombian legal and regulatory systems are generally transparent and consistent with international norms.  The commercial code and other laws cover broad areas, including banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law.  The civil code contains provisions relating to contracts, mortgages, liens, notary functions, and registries. There are no identified private-sector associations or non-governmental organizations leading informal regulatory processes. The ministries generally consult with relevant actors, both foreign and national, when drafting regulations.  Proposed laws are typically published as drafts for public comment.

Enforcement mechanisms exist, but historically the judicial system has not taken an active role in adjudicating commercial cases.  The Constitution establishes the principle of free competition as a national right for all citizens and provides the judiciary with administrative and financial independence from the executive branch.  Colombia has transitioned to an oral accusatory system to make criminal investigations and trials more efficient. The new system separates the investigative functions assigned to the Office of the Attorney General from trial functions.  Lack of coordination among government entities as well as insufficient resources complicate timely resolution of cases.

Colombia is a member of UNCTAD’s international network of transparent investment procedures (see http://www.businessfacilitation.org/ and Colombia’s website http://colombia.eregulations.org/).  Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name, and contact details of the entities and people in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures.

International Regulatory Considerations

OECD countries agreed on May 25, 2018, to invite Colombia as the 37th member of the Organization.  With Law 1950 of January 8, 2019, President Duque ratified the Colombian accession to the oOECD. Colombia’s Constitutional Court must now review and uphold the law before accession is completed.  Colombia is part of the World Trade Organization (WTO). The government generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. In December 2017, the legislature ratified the WTO Trade Facilitation Agreement (TFA).  The TFA is now also pending constitutional court review before Colombia can deposit its letter of acceptance with the WTO. Regionally, Colombia is a member of organizations such as the Inter-American Development Bank (IADB), the Andean Community of Nations (CAN), the Union of South American Nations (UNASUR), and the Pacific Alliance.

Legal System and Judicial Independence

Colombia has a comprehensive legal system.  Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community.  The judicial framework includes the Council of State, the Constitutional Court, the Supreme Court of Justice, and various departmental and district courts, which collectively are overseen administratively by the Superior Judicial Council.  The 1991 constitution provided the judiciary with greater administrative and financial independence from the executive branch. Colombia has a commercial code and other laws covering broad areas, including banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law.  Regulations and enforcement actions are appealable through the different stages of legal court processes in Colombia. The judicial system is generally regarded as competent, fair, and reliable, but it did suffer reputational damage in 2017 following the arrest of an official in the Attorney General’s office on corruption charges, which led to the uncovering of a judicial influence-peddling scandal linked to the Supreme Court. 

Laws and Regulations on Foreign Direct Investment

Colombia has a comprehensive legal framework for business and FDI that incorporates binding norms resulting from its membership in the Andean Community of Nations as well as other free trade agreements and bilateral investment treaties.  Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community. The judicial framework includes the Superintendence of Industry and Commerce (SIC), the Council of State, the Constitutional Court, the Supreme Court of Justice, and the various departmental and district courts, which are also overseen for administrative matters by the Superior Judicial Council.  The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch. However, except for the SIC’s efficient exercise of judicial functions, the judicial system in general remains hampered by time-consuming bureaucratic requirements and corruption.  

Competition and Anti-Trust Laws

The SIC, Colombia’s national competition authority, has been strengthened over the last five years with the addition of personnel, including economists and lawyers.  The SIC issued landmark anti-competitiveness fines in 2015, including against a sugar cartel. More recently the SIC has sanctioned a rice cartel, three of the biggest telecommunication companies in the region, and truck transport operators for anticompetitive practices.  The SIC has imposed sanctions of over USD 400 million on approximately 400 individuals and companies in the last four years for unfair competition practices. In 2016, the SIC sanctioned cartels operating in the diaper, paper, and notebook sectors, imposing fines of over USD 150 million.  The SIC also imposed sanctions in several sectors for violations of consumer rights including for misleading advertising and noncompliance with warranty agreements. These sanctions included the telecommunications, furniture and home appliances, tourism, technology, automotive, and construction sectors.  In the last five years, the SIC has imposed fines of over USD 300 million for “business cartelization.”

Expropriation and Compensation

Article 58 of the Constitution governs indemnifications and expropriations and guarantees owners’ rights for legally-acquired property.  For assets taken by eminent domain, Colombian law provides a right of appeal both on the basis of the decision itself and on the level of compensation.  The Constitution does not specify how to proceed in compensation cases, which remains a concern for foreign investors. The Colombian government has sought to resolve such concerns through the negotiation of bilateral investment treaties and strong investment chapters in free trade agreements, such as the CTPA.

Dispute Settlement

ICSID Convention and New York Convention

Colombia is a member of the New York Convention on Investment Disputes, the International Center for the Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency.  Colombia is also party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. In October 2012, the new National and International Arbitration Statute (Law 1563), modeled after the UNCITRAL Model Law, took effect.

Investor-State Dispute Settlement

Domestic law allows contracting parties to agree to submit disputes to international arbitration, provided that: the parties are domiciled in different countries; the place of arbitration agreed to by the parties is a country other than the one in which they are domiciled; the subject matter of the arbitration involves the interests of more than one country; and the dispute has a direct impact on international trade.  The law permits parties to set their own arbitration terms, including location, procedures, and the nationality of rules and arbiters. Foreign investors have found the arbitration process in Colombia complex and dilatory, especially with regard to enforcing awards. However, some progress has been made in the number of qualified professionals and arbitrators with ample experience on transnational transactions, arbitrage centers with cutting-edge infrastructure and administrative capacity (there are approximately 340 arbitration and conciliation centers in Colombia), and courts that are progressively more accepting of arbitration processes.  The Chamber of Commerce of Bogota handles 75 percent of arbitration cases in Colombia. All arbitration tribunals combined handle around 600 cases a year.

There were 12 pending investment disputes in Colombia in 2019.  The pending cases include but are not limited to:

• A case initiated in 1994 involving a U.S. marine salvage company that claims rights to a shipwreck.  The company sued the Colombian government for not allowing it access to its property in Colombian waters, a process that resulted in a Colombian Supreme Court decision in 2007, but has not yet been resolved.
• A case involving a U.S. plane allegedly abandoned in Colombian territory in 2010.  The U.S. owner has been trying to claim his property since 2012. Colombian authorities maintain that the plane is now the property of the Colombian government according to national regulations on abandoned aircraft and have requested that U.S. authorities deregister the aircraft as it had become Colombia’s property.
• A case involving an American citizen alleging lack of restitution for land seized by the government in the course of an investigation into a prior owner.
• A case involving a U.S. agro-industrial company that acquired state land in Colombia.  The Colombian government asserts the land was acquired in violation of state lands law.
• A case, initiated in 2016 by a U.S. mining company, in which the company alleges the wrongful expropriation of a gold mining concession.  

Separately, a Spanish energy company that is the majority owner of a Colombian utility company initiated arbitration proceedings before the United Nations Commission on International Trade Law (UNCITRAL) in March 2017 after the government ordered the liquidation of the electricity supplier.  The company asserted that the move constituted expropriation without compensation, though the government cited mismanagement, an inability to service its debts, and failure to provide reliable electricity to the northern coast of Colombia as justification for its actions. The Colombian government also has pending cases in the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) (https://bit.ly/2D0OtLb).

According to the Doing Business 2019 report, the time from the moment a plaintiff files a lawsuit until actual payment and enforcement of the contract averages 1288 days, the same as in the previous two years.  Traditionally, most court proceedings are carried out in writing and only the evidence-gathering stage is carried out through hearings, including witness depositions, site inspections, and cross-examinations. The government has accelerated proceedings and reduced the backlog of court cases by allowing more verbal public hearings and creating alternative court mechanisms.  The new Code of General Procedure that entered into force in June 2014 also establishes oral proceedings that are carried out in two hearings, and there are now penalties for failure to reach a ruling in the time limit set by the law. Enforcement of an arbitral award can take between six months and one and a half years; a regular judicial process can take up to seven years for private parties and upwards of 15 years in conflicts with the State.  Thus, arbitration results are cheaper and much more efficient. According to the Doing Business report, Colombia has made enforcing contracts easier by simplifying and speeding up the proceedings for commercial disputes. In 2019, Colombia’s ranking in the enforcing contracts category of the report held at 177.

International Commercial Arbitration and Foreign Courts

Foreign judgments are recognized and enforced in Colombia once an application is submitted to the Civil Chamber of the Supreme Court.  In 2012, Colombia approved the use of the arbitration process when new legislation based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law was adopted.  The statute stipulates that arbitral awards are governed by both domestic law as well as international conventions (New York Convention, Panama Convention, etc.). This has made the enforcement of arbitral awards easier for all parties involved.  Arbitration in Colombia is completely independent from judiciary proceedings, and, once arbitration has begun, the only competent authority is the arbitration tribunal itself. The CTPA protects U.S. investments by requiring a transparent and binding international arbitration mechanism and allowing investor-state arbitration for breaches of investment agreements if certain parameters are met.  The judicial system is notoriously slow, leading many foreign companies to include international arbitration clauses in their contracts.

Bankruptcy Regulations

Colombia’s 1991 Constitution grants the government the authority to intervene directly in financial or economic affairs, and this authority provides solutions similar to U.S. Chapter 11 filings for companies facing liquidation or bankruptcy.  Colombia’s bankruptcy regulations have two major objectives: to regulate proceedings to ensure creditors’ protection, and to monitor the efficient recovery and preservation of still-viable companies. This was revised in 2006 to allow creditors to request judicial liquidation, which replaces the previous forced auctioning option.  Now, inventories are valued, creditors’ rights are taken into account, and either a direct sale takes place within two months or all assets are assigned to creditors based on their share of the company’s liabilities. The insolvency regime for companies was further revised in 2010 to make proceedings more flexible and allow debtors to enter into a long-term payment agreement with creditors, giving the company a chance to recover and continue operating.  Bankruptcy is not criminalized in Colombia. In 2013, a bankruptcy law for individuals whose debts surpass 50 percent of their assets value entered into force.

Restructuring proceedings aim to protect the debtors from bankruptcy.  Once reorganization has begun, creditors cannot use collection proceedings to collect on debts owed prior to the beginning of the reorganization proceedings.  All existing creditors at the moment of the reorganization are recognized during the proceedings if they present their credit. Foreign creditors, equity shareholders including foreign equity shareholders, and holders of other financial contracts, including foreign contract holders, are recognized during the proceeding.  Established creditors are guaranteed a vote in the final decision. According to the Doing Business 2019 report Colombia is ranked 40th for resolving insolvency and it takes an average of 1.7 years—the same as OECD high-income countries—to resolve insolvency; the average time in Latin America is 2.9 years.

Investment Incentives

The Colombian government offers investment incentives, such as income tax exemptions and deductions in specific priority sectors, including the so-called “orange economy,” which refers to the creative industries, as well as agriculture and entrepreneurship.  More recently, the government has offered additional incentives in an effort to generate investments in former conflict municipalities. Investment incentives through free trade agreements between Colombia and other nations include national treatment and most favored nation treatment of investors; establishment of liability standards assumed by countries regarding the other nation’s investors, including the minimum standard of treatment and establishment of rules for investor compensation from expropriation; establishment of rules for transfer of capital relating to investment; and specific tax treatment.

The government offers tax incentives to all investors, such as preferential import tariffs, tax exemptions, and credit or risk capital.  Some fiscal incentives are available for investments that generate new employment or production in areas impacted by natural disasters and former conflict-affected municipalities.  Companies can apply for these directly with participating agencies. Tax and fiscal incentives are often based on regional, sector, or business size considerations. Border areas have special protections due to currency fluctuations in neighboring countries which can impact local economies.  National and local governments also offer special incentives, such as tax holidays, to attract specific industries.

Special tax exemptions have existed since 2003 and range from 10 to 30 years.  Income tax exemptions for investments in tourism cover new hotels constructed between 2003 and 2017, and remodeled and/or expanded hotels though 2017, for a period of 30 years.  Investments in ecotourism services benefit from income tax exemptions through 2023. New forestry plantations and sawmills also have benefitted from income tax exemptions since 2003.  Late yield crops planted through 2014 are tax exempt for 10 years from the beginning of the harvesting. Electricity from wind power, biomass, and agricultural waste were tax exempt until January 1, 2018, as were river-based transportation services provided with certain shallow draft vessels and barges.  Certain printing and publishing companies can benefit from tax exemptions through 2033. Software developed in Colombia has been tax exempt for up to five years since 2013. To meet exemption requirements, the software must have its intellectual property rights protected, be based upon a high concentration of national scientific and technological research, and be certified by Colciencias (Colombia’s agency for promoting science, technology, and innovation).

Foreign investors can participate without discrimination in government-subsidized research programs, and most Colombian government research has been conducted with foreign institutions.  R&D incentives include Value-Added Tax (VAT) exemptions for imported equipment or materials used in scientific, technology, or innovation projects, and qualified investments may receive tax credits up to 175 percent.  A 2012 reform of Colombia’s royalty system allocates 10 percent of the government’s revenue to science, technology, and innovation proposals executed by subnational governments. Although only subnational governments can submit a project, anyone, including foreigners, can partner with them.

In a tax reform passed in December 2016, the Colombian government created two tax incentives to support investment in the 344 municipalities most affected by the armed conflict (ZOMAC).  Small and microbusinesses that invest in ZOMACs and meet a series of other criteria will be exempt from paying any taxes from 2017 to 2021, while medium and large-sized businesses will pay 50 percent of their normal taxes.  The second component is entitled “works for taxes” (“Obras por Impuestos”), a program through which the private sector can directly fund infrastructure investment in lieu of paying taxes.

In the financing law of 2019 (tax reform), the Colombian government introduced exemption incentives in the payment of income tax for the new orange economy companies that invest more than COP 150 million in three years and that generate at least three jobs.  In addition, it created incentives for new projects in the agricultural sector which will be exempt from income taxes for seven years. Finally, the law created an incentive for the tourism sector for the construction of new hotel infrastructure, and the benefits were extended to projects such as boat docks, theme parks, and eco and agro-tourism projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

To attract foreign investment and promote the importation of capital goods, the Colombian government uses a number of drawback and duty deferral programs.  One example is free trade zones (FTZs). As of the end of 2018, there were 112 FTZs (including permanent, single company, and special types). These have generated development of new industry infrastructure for more than 840 companies in 63 municipalities and 19 geographic departments.  While DIAN oversees requests to establish FTZs, the Colombian government is not involved in their operations.

Decree 2147 of 2016 integrated the regulatory framework for FTZs dating back to 2007 in one document, and made clarifications to certain processes without significant changes.  The government revised tax treatment of companies operating FTZs with the December 2016 tax reform, maintaining a preferential corporate income tax for FTZs while increasing it from 15 to 20 percent.  FTZ users with contracts of legal stability will continue to pay 15 percent. Other changes include VAT exemption for raw materials, inputs, and finished goods sold from the national customs territory to the FTZs, as long as those purchases are directly related to the corporate purpose.  By contrast, no matter the purpose of the purchase, companies not located in the FTZs are affected by VAT. The 2016 tax reform increased VAT from 16 to 19 percent, and eliminated the Income Tax for Equality (CREE), a nine percent tax on company profits over COP 800 million (approximately USD 275,000) designed to contribute to employment generation and social investments.

In return for these and other incentives, every permanent FTZ must meet specific investment and direct job creation commitments, depending on their total assets, during the first three years.  Special FTZs are required to generate a certain number of direct jobs depending on the economic sector. According to the figures of the Colombian National Administrative Department of Statistics (DANE), FTZs reached cumulative exports valuing USD 28,346 million between 2005 and 2018.  Between January and December of 2018, exports amounted to USD 2,812 million.

Performance and Data Localization Requirements

Performance requirements are not imposed on foreigners as a condition for establishing, maintaining, or expanding investments.  The Colombian government does not have performance requirements, impose local employment requirements, or require excessively difficult visa, residency, or work permit requirements for investors.  Under the CTPA, Colombia grants substantial market access across its entire services sector.

In 2017, Colombia issued implementing regulations of its Data Protection Law 1581 of 2012.  The SIC, under the Deputy Office for Personal Data Protection, is the Data Protection Authority (DPA) and has the legal mandate to ensure proper data protection.  The SIC issued a circular on August 10, 2017 defining adequate data protection and responsibilities of data controllers with respect to international data transfers.  The circular details several general criteria reflecting the SIC’s view of adequate data protection and also provides a list of countries, which includes the United States, that meet the SIC’s data protection guidelines.

In Colombia, software and hardware are protected by IPR (Dirección Nacional de Derecho de Autor – DNDA – http://www.derechodeautor.gov.co/).  There is no obligation to submit source code for registered software. However, if the IT provider is contracting with the Colombian government, through a clause of the service contract, the source code must be provided to the entity that the government IT provider is contracting.  The SIC launched a national database registry in November 2015 to implement Law 1581 pertaining to personal information protection and management. It requires data storage facilities that hold personal data to comply with government requirements for security and privacy, and data storage companies have one year to register. The SIC enforces the rules on local data storage within the country through audits/investigations and imposed sanctions.

Real Property

The 1991 Constitution explicitly protects individual rights against state actions and upholds the right to private property.

Secured interests in real property, and to a lesser degree movable property, are recognized and generally enforced after the property is properly registered.  In terms of protecting third-party purchasers, existing law is inadequate. The concepts of a mortgage, trust, deed, and other types of liens exists, as does a reliable system of recording such secured interests.  Deeds, however, present some legal risk due to the prevalence of transactions that have never been registered with the Public Instruments Registry.

According to Amnesty International, as of November 2015, eight million hectares of land had been abandoned or acquired illegally, equivalent to 14 percent of the Colombian territory.  The government estimates that approximately 6.5 million hectares of land are affected by violent usurpation. Around 18 percent of land owners do not have clear title. The Colombian government is working to title these plots and has started a formalization program for land restitution.

In the seven years that the Law on Victims and Land Restitution has been in force (2011-2018), the government has received nearly 112,000 restitution claims, corresponding to 99,155 properties and approximately 290,000 hectares.  Of these, the “Land Restitution Unit” (URT) created by the 2011 law has studied 58,291 cases and has transferred 14,851 cases for review by a restitution judge. As of March 2018, there have been 6,986 cases resolved by these judges, covering 5,598 properties.  With the entry into force of the 2016 peace deal with the FARC, the government is confident restitution efforts will be more effective as former violent areas become more accessible, although security in some of those areas remains a challenge. While some landowners who received their formal land titles have been threatened by illegal armed groups, the government confirms that the vast majority of land restitution beneficiaries have returned and stayed on their parcels, accessing a two-year subsidy for the implementation of productive projects provided by the URT.

The URT’s work is complementary to the work of the National Land Agency, which deals with property titles for lower income and minority communities.  The Agency was created at the end of 2015 to implement many of the commitments established in the peace deal with the FARC on formalization of rural land and aimed to formalize the property of 50,000 Colombian families in 2017.  Thanks to the implementation of a massive strategy to formalize rural property, the agency formalized the properties of 71,000 rural families by the end of 2017.

In March 2017, the Colombia’s Prosecutor’s Office announced the recovery of 277,000 hectares of land from dissidents and ex-combatants of the FARC and from narcotraffickers.  Colombia ranked 59 out of 190 economies for ease of registering property, according to the 2019 Doing Business report.

Intellectual Property Rights

In Colombia, the granting, registration, and administration of IPR are carried out by four primary government entities.  The SIC acts as the Colombian patent and trademark office. The Colombian Agricultural Institute (ICA) is in charge of issuing plant variety protections and data protections for agricultural products.  The Ministry of Interior administers copyrights through the National Copyright Directorate (DNDA). The Ministry of Health and Social Protection handles data protection for products registered through the National Food and Drug Institute (INVIMA).  Colombia is subject to Andean Community Decision 486 on trade secret protection, which is fully implemented domestically by the Unfair Competition Law of 1996.

Colombia made no significant changes to the distribution of responsibilities for IPR protection in 2018.  Decree 1162 of 2010 created the National Intellectual Property Administrative System and the Intersectoral Intellectual Property Commission (CIPI).  The CIPI serves at the interagency technical body for IPR issues, but has not issued any recent policy documents. The last comprehensive interagency policy for IPR issues (Conpes 3533) was issued by the National Planning Department in 2008.  Colombia’s National Development Plan (NDP) for 2018-2022 contains a requirement to update this policy.

The patent regime in Colombia currently provides for a 20-year protection period for patents, a 10-year term for industrial designs, and 20- or 15-year protection for new plant varieties, depending on the species.  Colombia has been on the U.S. Trade Representative’s Special 301 Watch List every year since 1991, and in 2018 was downgraded to “Priority Watch List” status. Special 301 reports can be found at https://ustr.gov/issue-areas/intellectual-property/Special-301.

The CTPA improved standards for the protection and enforcement of a broad range of IPR.  Such improvements include state-of-the-art protections for digital products such as software, music, text, and videos; stronger protection for U.S. patents, trademarks, and test data; and prevention of piracy and counterfeiting by criminalizing end-use piracy.  Colombia is a member of the Inter-American Convention for Trademark and Commercial Protection. Various procedures associated with industrial property, patent, and trademark registration are available at http://www.sic.gov.co/propiedad-Industrial

Colombia has outstanding CTPA commitments related to IPR.  In January 2013, the constitutional court declared Law 1520 of 2012 implementing several of these requirements (specifically related to copyright law and internet service provider liability) unconstitutional on procedural grounds.  In the case of copyright law reform, the Santos administration then introduced the legislation to congress in October 2017; it was subsequently enacted in July 2018. The bill extends the term of copyright protection, imposes civil liability for circumvention of technological protection measures, and strengthens enforcement of copyright and related rights.

Regarding other CTPA requirements, Colombian officials are discussing with the United States a draft of legislation regulating internet service providers on issues such as compulsory takedown of online content and the protection of intermediaries with “safe harbor” provisions for unintentional copyright infringement.  The legislation has not yet been introduced to congress. Colombia did not make progress in 2018 on an international agreement that it needs to sign in order to comply with CTPA provisions: the International Union for the Protection of New Varieties of Plants (UPOV 91). Colombia’s constitutional court declared accession to UPOV 91 unconstitutional in December 2012 due to lack of consultation with Afro-Colombian and indigenous communities.  Colombia also maintains that the existing Andean Community Decision 345 is in effect and equivalent to UPOV 91.

Colombia’s success combating counterfeiting and IPR violations remains limited.  A 2015 law increased penalties for those involved in running contraband, but more effective implementation is needed.  Colombian law continues to limit the ability of law enforcement (police, customs, and prosecutors) to effectively combat counterfeiting because they do not have the requisite authorities to effectively inspect, seize, and investigate smugglers and counterfeiters.  Colombian authorities did make a number of high-profile seizures of contraband (including counterfeit) goods in 2018. However, counterfeit goods remain widely available in Colombia’s “San Andresitos” markets, as a number of industry stakeholders have noted. Enforcement in the digital space remains weak as well.

Resources for Rights Holders

Embassy point of contact:

U.S. Embassy Bogota
Economic Section
Carrera 45 #22B-45
Bogota, Colombia
(571) 275-2000
Email: BogotaECONShared@state.gov

Country/Economy resources:

• American Chamber of Commerce in Colombia:  http://www.amchamcolombia.com.co/ 
• Council of American Companies in Colombia:  http://www.ceacolombia.com/es/ 
• Local attorneys list: https://co.usembassy.gov/u-s-citizen-services/attorneys/
• For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

The Colombian Stock Exchange (BVC) is the main forum for trading and securities transactions in Colombia.  The BVC is a private company listed on the stock market. The BVC, as a multi-product and multi-market exchange, offers trading platforms for the stock market, along with fixed income and standard derivatives.  The BVC also provides listing services for issuers. The BVC is part of the Latin American Integrated Market (MILA) along with the Mexican Stock Exchange, the Lima Stock Exchange, and the Santiago Stock Exchange.  BVC market capitalization has risen from USD 14 billion in 2003 to USD 126 billion in the first quarter of 2019. In the face of a lame-duck government and inflexible spending commitments, Standard & Poor’s downgraded Colombia’s credit rating to BBB- in December 2017.  Moody’s maintained their lowest investment-grade evaluation but modified the outlook from “stable” to “negative” in February 2018. Foreign investors can participate in capital markets by negotiating and acquiring shares, bonds, and other securities listed by the Foreign Investment Statute.  These activities must be conducted by a local administrator, such as trust companies or Financial Superintendence-authorized stock brokerage firms. Foreign investment capital funds are forbidden from acquiring more than 10 percent of the total amount of a Colombian company’s outstanding shares.  Foreigners can establish a bank account in Colombia as long as they have a valid visa and Colombian government identification.

The market has sufficient liquidity for investors to enter and exit sizeable positions.  The central bank respects IMF Article VIII and does not restrict payments and transfers for current international transactions.  The financial sector in Colombia offers credit to nationals and foreigners that comply with the requisite legal requirements.

Money and Banking System

In 2005, Colombia consolidated supervision of all aspects of the banking, financial, securities, and insurance sectors under the Financial Superintendence.  Colombia has an effective regulatory system that encourages portfolio investment. According to the Financial Superintendence, as of December 2018, the combined estimated assets of Colombia’s major banks totaled USD 219 billion.

Colombia’s financial system is strong by regional standards.  The financial sector as a whole is investing in new risk assessment and portfolio management procedures.  As of December 2018, two private financial groups, the Sarmiento Group (Grupo Aval) and the Business Group of Antioquia (Bancolombia), together own over half of all Colombian banking assets.  Grupo Aval controls about 27 percent of the sector and Bancolombia controls about 26 percent. No foreign bank is a major player in the Colombian financial sector.

Commercial banks are the principal source of long-term corporate and project finance in Colombia.  Loans rarely have a maturity in excess of five years. Unofficial private lenders play a major role in meeting the working capital needs of small and medium-sized companies.  Only the largest of Colombia’s companies participate in the local stock or bond markets, with the majority meeting their financing needs either through the banking system, by reinvesting their profits, or through credit from suppliers.

Colombia’s central bank is charged with managing inflation and unemployment through monetary policy.  Foreign banks are allowed to establish operations in the country. No block chain technology use in financial transactions is approved by the Financial Superintendence as of the end of 2018.  In order to operate in Colombia, foreign banks must set up a Colombian branch. The Colombian central bank has a variety of correspondent banks abroad. No correspondent banking relationships are in jeopardy.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on transferring funds associated with FDI.  Foreign investment into Colombia must be registered with the central bank in order to secure the right to repatriate capital and profits.  Direct and portfolio investments are considered registered when the exchange declaration for operations channeled through the official exchange market is presented, with few exceptions.  The official exchange rate is determined by the central bank. The rate is based on the free market flow of the previous day. Colombia does not manipulate its currency to gain competitive advantages.

Remittance Policies

The government permits full remittance of all net profits regardless of the type or amount of investment.  Foreign investments must be channeled through the foreign exchange market and registered with the central bank’s foreign exchange office within one year in order for those investments to be repatriated or reinvested.  There are no restrictions on the repatriation of revenues generated from the sale or closure of a business, reduction of investment, or transfer of a portfolio. Colombian law authorizes the government to restrict remittances in the event that international reserves fall below three months’ worth of imports.  International reserves have remained well above this threshold for decades.

Sovereign Wealth Funds

In 2012, Colombia began operating a sovereign wealth fund called the Savings and Stabilization Fund (FAE), which is administered by the central bank with the objective of promoting savings and economic stability in the country.  The fund can administer up to 30 percent of annual royalties from the extractives industry. The fund was valued at USD 3.1 billion in 2018 from an initial value of USD 500 million in 2012. The government transfers royalties not dedicated to the fund to other internal funds to boost national economic productivity through strategic projects, technological investments, and innovation.  At the end of 2018, the FAE was invested in 67 percent AAA sovereign bonds. There are no known negative ramifications for U.S. investors in the Colombian market. According to the International Forum of Sovereign Wealth Funds (http://www.ifswf.org/our-members), Colombia is not one of the 30 nations that voluntarily upholds the Santiago Principles.

Since 2015, the Government of Colombia has concentrated its industrial and commercial enterprises under the supervision of the Ministry of Finance.  By the end of 2018, the number of state-owned companies reached 109, with a combined value of USD 23 billion. The 109 companies under government ownership fall under the following sectors: agricultural, energy, financial, hydrocarbons, health, telecommunications, transport, and tourism.  The government is the majority shareholder of 39 companies and a minority shareholder in the remaining 70. Among the most notable companies with a government stake are Ecopetrol (Colombia’s majority state-owned and privately-run oil company), ISA, Banco Agrario de Colombia, Bancoldex, and La Previsora.  The asset value of the majority state-owned companies stands at USD 84 billion. SOEs competing in the Colombian market do not receive non-market based advantages from the government. The Ministry of Finance updates their annual report on SOEs every June.

Privatization Program

Colombia has privatized state-owned enterprises under article 60 of the Constitution and Law Number 226 of 1995.  This law stipulates that the sale of government holdings in an enterprise should be offered to two groups: first to cooperatives and workers’ associations of the enterprise, then to the general public.  During the first phase, special terms and credits have to be granted, and in the second phase, foreign investors may participate along with the general public. Colombia’s main privatizations have been in the electricity, mining, hydrocarbons, and financial sectors, and in January 2016, the government sold its majority stake in Isagen, the country’s third-largest energy generator, to Canadian firm Brookfield Asset Management for USD 2 billion.  The government views stimulating private-sector investment in roads, ports, electricity, and gas infrastructure as a high priority. The government is increasingly turning to concessions and utilizing public-private partnerships (PPPs) as a means for securing and incentivizing infrastructure development.

The Colombian government prioritized a fourth-generation infrastructure program (4G) focused on highway construction with PPP opportunities valued at USD 17 billion.  In order to attract investment and promote PPPs, on November 22, 2013, the Colombian government signed a new infrastructure law clarifying provisions for frequently-cited obstacles to participate in PPPs, including environmental licensing, land acquisition, and the displacement of public utilities.  The law puts in place a civil procedure that facilitates land expropriation during court cases, allows for expedited environmental licensing, and clarifies that the cost to move or replace public utilities affected by infrastructure projects falls to private companies. Foreign investment has played a substantial role in the 4G program, and the program, with the exception of the Odebrecht scandal mentioned below, has thus far been praised for its transparency and competitiveness.

Municipal enterprises operate many public utilities and infrastructure services.  These municipal enterprises have engaged private sector investment through concessions.  There are several successful concessions involving roads. These kinds of partnerships have helped promote reforms and create a more attractive environment for private, national, and foreign investment.

In December 2015, the Colombian government released their National Action Plan on Business and Human Rights, which responds to the UN Guiding Principles on Business and Human Rights and the OECD’s Guidelines for Multinational Enterprises (https://www.business-humanrights.org/en/un-guiding-principles/implementation-tools-examples/implementation-by-governments/by-type-of-initiative/national-action-plans ).  Colombia also adheres to the corporate social responsibility (CSR) principles outlined in the OECD Guidelines for Multinational Enterprises. CSR cuts across many industries and Colombia encourages public and private enterprises to follow OECD CSR guidelines. Beneficiaries of CSR programs include students, children, populations vulnerable to Colombia’s armed conflict, victims of violence, and the environment.  Larger companies structure their CSR programs in accordance with accepted international CSR principles. Companies in Colombia have been recognized on an international level for their CSR initiatives, including by the State Department.

Overall, Colombia has adequate environmental laws, is proactive at the federal level in enacting environmental protections, and does not waive labor or environmental regulations to attract investors.  However, the Colombian government struggles with enforcement, particularly in more remote areas. Geography, lack of infrastructure, and lack of state presence all play a role, as does a general shortage of resources in national and regional institutions.  The Environmental Chapter of the CTPA requires Colombia to maintain and enforce environmental laws, protect biodiversity, and promote opportunities for public participation

In parallel with its OECD accession process, the Colombian government has been working with the organization in a series of assessments in order to develop the implementation the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, especially related to gold mining.  The Colombian government faces challenges in formalizing illegal gold mining operations throughout the country. The government is also taking steps to address mercury use in mining, banning the use of mercury in mining as of July 2018. Colombia will phase out mercury use from all other industries by 2023. Colombia ratified the Minamata Convention on Mercury in March 2018, and is in the final stages of its accession to the treaty.  In March 2018, the Governments of the United States and Colombia signed a comprehensive memorandum of understanding to formalize existing cooperation on reducing illegal gold mining and its negative social, health, and environmental impacts.

Buyers, sellers, traders, and refiners of gold may wish to conduct additional due diligence as part of their risk management regimes to account for the influx of illegally-mined Colombian gold into existing supply chains.  Throughout the country, Colombian authorities have taken steps to dismantle illegal gold mining operations that are responsible for negative environmental, criminal, and human health impacts. The Colombian government has focused its efforts on transnational criminal elements involved in the production, laundering, and sale of illegally- mined gold, and the fraudulent documentation that is used to obscure the origin of illegally- mined gold.

OPIC made its first investment in Colombia in 1985 and has supported more than 70 projects in Colombia since 2005.  OPIC has seven active projects and is exploring several more. OPIC’s largest project in Colombia is a USD 250 million toll road project in the southern part of Colombia known as the Rumichaca-Pasto road.  As of end 2018, OPIC’s active investments in Colombia totaled USD 718 million. Additional information can be found at www.opic.gov .

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

*Data from the Colombian Statistics Departments, DANE, (https://www.dane.gov.co/  )  and the Colombian central bank (http://www.banrep.gov.co  ).

Table 3: Sources and Destination of FDI – 2018

Data from the Colombian central bank (http://www.banrep.gov.co).

Table 4: Sources of Portfolio Investment

Data from IMF’s Coordinated Direct Investment Survey. Source: http://data.imf.org/?sk=B981B4E3-4E58-467E-9B90-9DE0C3367363&sId=1481568994271  

Policies Towards Foreign Direct Investment

The Dominican government promotes inward FDI and has established formal programs to attract it, including the 2017 launch of the “ProDominicana” program.  The legal framework supports foreign investment. Article 221 of the Constitution declares that foreign investment shall receive the same treatment as domestic investment. Foreign Investment Law (No. 16-95) states that unlimited foreign investment is permitted in all sectors, with a few exceptions for hazardous materials or materials linked to national security. The Dominican Republic provides tax incentives to investment in tourism, renewable energy, film production, Haiti-Dominican Republic border development, and the industrial sector.  The Dominican Republic is also a signatory of CAFTA-DR, which mandates non-discriminatory treatment, free transferability of funds, protection against expropriation, and procedures for the resolution of investment disputes.

The Export and Investment Center of the Dominican Republic (CEI-RD) offers assistance for prospective foreign investors, including assistance with business registration and identification of investment opportunities.  The National Council of Free Trade Zones for Export (CNZFE) offers assistance to foreign companies looking to invest in the free trade zones.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no general (statutory, de facto, or otherwise) limits on foreign ownership or control.  According to Law No. 98-03 and Regulation 214-04, an interested foreign investor must file an application form at the offices of CEI-RD within 180 calendar days from the date on which the foreign investment took place. CEI-RD will then evaluate the application and issue the corresponding Certificate of Registration within 15 working days.

In order to set up a business in a free trade zone, a formal request must be made to the CNZFE, the entity responsible for issuing the operating licenses needed to a free zone company or operator.  CNZFE assesses the application and determines its feasibility. For more information on the procedure to apply for an operating license, visit the website of the CNZFE at http://www.cnzfe.gov.do  .

The Dominican Republic does not maintain a formalized investment screening and approval mechanism for inbound foreign investment.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) has not conducted an investment policy review of the Dominican Republic.  The United Nations Conference on Trade and Development (UNCTAD) published an investment policy review in 2009. The World Trade Organization (WTO) published a trade policy review in 2015.

• UNCTAD – https://unctad.org/en/pages/PublicationArchive.aspx?publicationid=6343  
• WTO – https://www.wto.org/english/tratop_e/tpr_e/s319_e.pdf 

Business Facilitation

According to the World Bank’s 2018 Doing Business report, starting a limited liability company (Sociedad de responsibilidad limitada or SRL) in the Dominican Republic is a seven-step process, which requires 16.5 days.  SRL registration steps include (1) verifying the availability of the company name with the National Office of Industrial Property (ONAPI); (2) purchasing the company name with ONAPI; (3) paying the incorporation tax with the National Internal Revenue Agency (DGII); (4) registering the company with the Chamber of Commerce and obtaining a tax identification number (RNC); (5) filing for the national taxpayer registry and applying for fiscal receipts at DGII; (6) registering local employees with the Ministry of Labor; and (7) registering employees at the Social Security Office.

The Dominican Republic has a single-window registration website for SRL registration (https://www.formalizate.gob.do/ ) that offers a one-stop shop for registration needs.  Foreign companies may use the registration website. However, this electronic method of registration is not widely used in practice and consultation with a local lawyer is advisable for company registrations.

The Ministry of Industry and Commerce (MIC) leads the Dominican Republic’s assistance and registration program for micro, small, and medium-sized enterprises (PYMES).  The PYMES program, a partnership between the MIC and the National Competitiveness Council, offers technical assistance to majority Dominican-owned micro, small, and medium companies.   According to the Law no. 187-17, micro enterprises are those with 10 employees or less, the small enterprises are defined as those with 11 to 50 employees, and medium enterprises employ 51 to 150 employees.

Outward Investment

There are no legal or government restrictions on domestic investment abroad, although outbound foreign investment is significantly lower than inbound investment.  The largest recipient of Dominican outward investment is the United States.

The Dominican Republic has Bilateral Investment Treaties (BIT) in-force with: Chile, Finland, France, Italy, Republic of Korea, Morocco, Netherlands, Panama, Spain, and Switzerland. (Note: The Dominican Republic also had a BIT with Taiwan.  Post is working to confirm whether that agreement remains in force after the Dominican Republic’s recognition of the People’s Republic of China in May 2018. End Note.). The Dominican Republic has signed BITs with Argentina, Cuba, and Haiti, however, these agreements are not in force. According to the Dominican Ministry of Industry and Commerce, free trade agreements currently in force include: CAFTA-DR; the Economic Partnership Agreement (EPA) between the European Union and CARIFORUM (an organization of Caribbean nations, including the Dominican Republic); a trade agreement between the Dominican Republic and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua; a free trade agreement with CARICOM (the Caribbean Community); and a trade agreement with Panama.

An agreement for the exchange of tax information between the United States and Dominican Republic has been in effect since 1989.  In 2016, the United States and the Dominican Republic signed an agreement to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA).  However, the agreement has yet to be implemented. The Dominican Republic has tax agreements in force with Canada and Spain to avoid double taxation and prevent tax evasion.

Transparency of the Regulatory System

On the 2018 Global Innovations Index, the Dominican Republic ranks 104 out of 127 for regulatory environment and 73 out of 127 for regulatory quality.  The World Economic Forum 2018 Global Competitiveness Report ranked the Dominican Republic 95 out of 140 countries in efficiency of the legal framework in challenging regulations, and 99 out of 140 in burden of government regulations.

The World Bank Global Indicators of Regulatory Governance states that Dominican ministries and regulatory agencies do not develop forward regulatory plans.  In other words, they do not publish a list of anticipated regulatory changes or proposals intended for adoption or implementation within a specific timeframe.  Law 200-04 requires regulatory agencies to give notice of proposed regulations in public consultations and mandates publication of the full text of draft regulations on a unified website: http://www.consultoria.gov.do/  .  Foreign investors, however, claim that these requirements are not always met in practice.  Moreover, many businesses note that the scope of the website content is not always adequate for investors or interested parties.  Some report that individual ministries sometimes upload proposed regulations to their websites or post them in national newspapers.  Ministries sometimes form working groups with key public and private sector stakeholders participating in the drafting of proposed regulations.   

Some Ministries and regulatory agencies solicit comments on proposed legislation from the public; however, public outreach is generally limited to stakeholders.  Comments are not publicly accessible. Some ministries and agencies prepare consolidated reports on the results of the consultation, which they distribute directly to interested stakeholders.  Ministries and agencies do not conduct impact assessments of regulations or ex post reviews. Affected parties cannot request reconsideration or appeal of adopted regulations. 

The Dominican Institute of Certified Public Accountants (ICPARD) is the country’s legally recognized professional accounting organization and has authority to establish accounting standards in accordance with Law 479-08, which also declares (as amended by Law 31-11) financial statements should be prepared in accordance with generally accepted accounting standards nationally and internationally.  The ICPARD and the country’s stock market regulator (Superintendencia del Mercado de Valores) require the use of International Financial Reporting Standards (IFRS) and IFRS for small and medium-sized entities (SMEs).

By law, the Office of Public Credit produces a quarterly report on the status of the non-financial public sector debt.  The Office of Public Credit presents a wide array of information and statistics on public debt bonds and projections on its website. www.creditopublico.gov.do/publicaciones/informes_trimestrales.htm  

 In addition to the public debt addressed by the office of Public Credit, the Central Bank maintains on its balance sheet approximately USD 11 billion in “quasi-fiscal” debt. Added to other borrowing, it puts the Debt-to-GDP ratio near 53 percent, and the Debt Service Ratio near 30 percent.

International Regulatory Considerations

Since 2003, the Dominican Republic has presented 226 regular notifications to the WTO Committee on Technical Barriers to Trade (TBT).  In recent years, the Dominican Republic has frequently changed technical requirements (e.g., for steel rebar imports and sanitary registrations, among others) and has failed to notify these requirements under the WTO TBT agreement and CAFTA-DR.

Legal System and Judicial Independence

The World Economic Forum 2018 Global Competitiveness report ranked the Dominican Republic 125 out of 140 countries in judicial independence and 95 of 140 in the efficiency of the legal framework in settling disputes.  On the 2018 Global Innovations Index, the Dominican Republic ranked 78 out of 126 countries for rule of law.

The judicial branch is an independent branch of the Dominican government.  According to Article 69 of the Constitution, all persons, including foreigners, have the right to appear in court.  The basic concepts of the Dominican legal system and the forms of legal reasoning derive from French law. The five basic French Codes (Civil, Civil Procedure, Commerce, Penal, and Criminal Procedure) were translated into Spanish and passed as legislation in 1884.  Some of these codes have since been amended and parts have been replaced. Subsequent Dominican laws are not of French origin.

The country is divided into 12 Judicial Departments, each one headed by a Court of Appeals with jurisdiction over civil and criminal matters in 35 Judicial Districts.  Justices of the Peace handle small claims, certain traffic accidents, landlord-tenant disputes, and other matters. There are also specialized courts with jurisdiction over labor cases, disputes involving registered land, cases involving minors, and administrative matters.  The Supreme Court is the highest court, with jurisdiction to handle most appeals from the courts of appeal, and first instance jurisdiction in criminal matters involving certain high-level government officials. The Constitutional Tribunal rules on the constitutionality of laws, decrees, and treaties and decides cases involving constitutional questions.

Some investors complain of long wait times for a decision by the judiciary.  According to the World Bank’s Doing Business report, while Dominican law mandates overall time standards for the completion of key events in a civil case, these standards frequently are not met. The Civil Procedure Code dates from 1884, and there have been few modifications.  The resolution of a civil case normally takes two to four years, although some take longer. Some investors have complained that the local court system is unreliable, biased against them, and that special interests and powerful individuals are able to use the legal system in their favor.

U.S. firms indicate that corruption on all levels – business, government, and judicial – impedes their access to justice. Several large U.S. firms have been subjects of injunctions issued by lower courts on behalf of distributors with whom they are engaged in a contract dispute.  According to some reports, these disputes are often the result of the firm seeking to end the relationship in accordance with the contract, and the distributor uses the injunction as a way of obtaining a more beneficial settlement. Many companies have noted that these injunctions often disrupt distribution activities, with negative effects on sales.  In order to engage effectively in the Dominican market, many U.S. companies seek local partners that are well-connected and understand the local business environment.

Decree No. 610-07 placed the Directorate of Foreign Commerce (DICOEX) in charge of commercial dispute settlement, including disputes related to the Investment Chapter of CAFTA-DR.  The main laws governing commercial disputes are the Commercial Code; Law No. 479-08, the Commercial Societies Law; Law No. 3-02, concerning Business Registration; Commercial Arbitration Law No. 489-08; Law No. 141-15 concerning Restructuring and Liquidation of Business Entities; and Law No. 126-02, concerning e-Commerce and Digital Documents and Signatures.

Laws and Regulations on Foreign Direct Investment

The Export and Investment Center of the Dominican Republic (CEI-RD) aims to be the one-stop-shop for investment information, registration, and investor after-care services.  CEI-RD maintains a user-friendly website for guidance on the government’s priority sectors for inward investment and on the range of investment incentives (http://cei-rd.gob.do/  ).

Competition and Anti-Trust Laws

The National Commission for the Defense of Competition (Pro-Competencia) has the power to review transactions for competition related concerns.  Private sector contacts note, however, that strong public pressure is required for Pro-Competencia to take action.

Expropriation and Compensation

The Dominican constitution permits the government’s exercise of eminent domain; however, it also mandates fair market compensation in advance of the use of land taken.  Nevertheless, there are many outstanding disputes between U.S. investors and the Dominican government concerning unpaid government contracts or expropriated property and businesses.  Property claims make up the majority of cases. Most, but not all, expropriations have been used for infrastructure or commercial development. Many claims remain unresolved for years.

Investors and lenders have reported that they typically do not receive prompt payment of fair market value for their losses.  They have complained of difficulties in the subsequent enforcement even in cases in which the Dominican courts, including the Supreme Court, have ordered compensation or when the government has recognized a claim.  In other cases, some indicate that lengthy delays in compensation payments are blamed on errors committed by government-contracted property assessors, slow processes to correct land title errors, a lack of budgeted funds, and other technical problems.  There are also cases of regulatory action that investors say they could be argued to be indirect expropriation. For example, they note that government decrees mandating atypical setbacks from roads or other public infrastructure may deprive investors of the economic benefits of their investments.

Many companies report that the procedures to resolve expropriations lack transparency and, to a foreigner, may appear antiquated.  Few examples exist where government officials are held accountable for failing to pay a recognized claim or failing to pay in a timely manner.

Dispute Settlement

ICSID Convention and New York Convention

In 2000, the Dominican Republic signed the International Center for the Settlement of Investment Disputes (Washington Convention), however, the Dominican Congress did not ratify the agreement as required by the constitution.  In 2001, the Dominican Republic became a contracting state to the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The agreement entered into force by Congressional Resolution 178-01.

Investor-State Dispute Settlement

The Dominican Republic has entered into 12 bilateral investment treaties, most of which contain dispute resolution provisions that submit the parties to arbitration.  As a signatory to CAFTA-DR, the Dominican Republic is bound by the investment chapter of CAFTA-DR. There are currently three pending U.S. investor-state dispute cases filed against the Dominican Republic under CAFTA-DR.

The Embassy is aware of at least 28 U.S. investors who are involved in ongoing legal disputes with the Dominican government and parastatal firms involving payments, expropriations, contractual obligations, or regulatory obligations.  The investors range from large firms to private individuals and the disputes are at various levels of legal review.

International Commercial Arbitration and Foreign Courts

Law 489-08 on commercial arbitration governs the enforcement of arbitration awards, arbitral agreements, and arbitration proceedings in the Dominican Republic.  Per law 489-09, arbitration may be ad-hoc or institutional, meaning the parties may either agree on the rules of procedure applicable to their claim, or they may adopt the rules of a particular institution.  Fundamental aspects of the United Nations Commission on International Trade (UNCITRAL) model law are incorporated into Law 489-08. In addition, Law 181-09 created an institutional procedure for the Alternative Dispute Resolution Center of the Chamber of Commerce Santo Domingo (http://www.camarasantodomingo.do/  ).

Foreign arbitral awards are enforceable in the Dominican Republic in accordance with Law 489-09 and applicable treaties, including the New York Convention.  U.S. investors complain that the judicial process is slow and that domestic claimants with political connections have an advantage.

Bankruptcy Regulations

Law 141-15 provides the legal framework for bankruptcy.  It allows a debtor company to continue to operate for up to five years during reorganization proceedings by staying legal proceedings.  It also authorizes specialized bankruptcy courts; contemplates the appointment of conciliators, verifiers, experts, and employee representatives; allows the debtor to contract for new debt which will have priority status in relation to other secured and unsecured claims; stipulates civil and criminal sanctions for non-compliance; and permits the possibility of coordinating cross-border proceedings based on recommendations of the UNCITRAL Model Law of 1997.  In March 2019, a specialized bankruptcy court was established in Santo Domingo. The national juridical school is still training specialized bankruptcy judges.

The Dominican Republic scores lower than the regional average and comparator economies on resolving insolvency, according to the World Bank’s Doing Business Report.

Investment Incentives

Foreign investors receive no special investment incentives and no other types of favored treatment, except for investments in renewable energy; in manufacturing investments located in Special Zones; and investments in tourism projects in certain locations. There are no requirements for investors to export a defined percentage of their production.

Foreign companies are not restricted in their access to foreign exchange.  There are no requirements that foreign equity be reduced over time or that technology be transferred according to defined terms.  The government imposes no conditions on foreign investors concerning location, local ownership, local content, or export requirements.

The Renewable Energy Incentives Law No. 57-07 provides some incentives to businesses developing renewable energy technologies.  Foreign investors praise the provisions of the law, but express frustration with approval and execution of potential renewable energy projects.

Special Zones for Border Development, created by Law No. 28-01, encourage development near the economically deprived Dominican Republic – Haiti border.  A range of incentives, largely in the form of tax exemptions for a maximum period of 20 years, are available to direct investments in manufacturing projects in the Zones.  These incentives include the exemption of income tax on the net taxable income of the projects, the exemption of sales tax, the exemption of import duties and tariffs and other related charges on imported equipment and machinery used exclusively in the industrial processes, as well as on imports of lubricants and fuels (except gasoline) used in the processes.

Law 158-01 on Tourism Incentives, as amended by Law 195-13, and its regulations, grants wide-ranging tax exemptions, for fifteen years, to qualifying new projects by local or international investors. The projects and businesses that qualify for these incentives are: (a) hotels and resorts; (b) facilities for conventions, fairs, festivals, shows and concerts; (c) amusement parks, ecological parks, and theme parks; (d) aquariums, restaurants, golf courses, and sports facilities; (e) port infrastructure for tourism, such as recreational ports and seaports; (f) utility infrastructure for the tourist industry such as aqueducts, treatment plants, environmental cleaning, and garbage and solid waste removal; (g) businesses engaged in the promotion of cruises with local ports of call; and (h) small and medium-sized tourism-related businesses such as shops or facilities for handicrafts, ornamental plants, tropical fish, and endemic reptiles.

For existing projects, hotels and resort-related investments that are five years or older are granted 100 percent exemptions from taxes and duties related to the acquisition of the equipment, materials and furnishings needed to renovate their premises. In addition, hotels and resort-related investments that are fifteen years or older will receive the same benefits granted to new projects if the renovation or reconstruction involves 50 percent or more of the premises.

Finally, individuals and companies get an income tax deduction for investing up to 20 percent of their annual profits in an approved tourist project. The Tourism Promotion Council (CONFOTOUR) is the government agency in charge of reviewing and approving applications by investors for these exemptions, as well as supervising and enforcing all applicable regulations. Once CONFOTOUR approves an application, the investor must start and continue work in the authorized project within a three-year period to avoid losing incentives.

The government does not currently have a practice of jointly financing foreign direct investment projects.  It has contemplated changes to the investment legal framework, such as a law on public-private partnerships, but this change has not yet been introduced.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Dominican Republic’s free trade zones (FTZs) are regulated by the Promotion of Free Zones Law (No. 8-90), which provides for 100 percent exemption from all taxes, duties, charges and fees affecting production and export activities in the zones. These incentives are for 20 years for zones located near the Dominican-Haitian border and 15 years for those located throughout the rest of the country.  This legislation is managed by the Free Trade Zone National Council (CNZFE), a joint private sector/government body with discretionary authority to extend the time limits on these incentives. Products produced in FTZs can be sold on the Dominican market, however, relevant taxes apply.

In general, firms operating in the FTZs experience report fewer bureaucratic and legal problems than do firms operating outside the zones.  Foreign currency flows from the FTZs are handled via the free foreign exchange market. Foreign and Dominican firms are afforded the same investment opportunities both by law and in practice.

In 2018, FTZs exports totaled USD USD 6.2 billion, comprising 3.3 percent of GDP.  According to CNZFE’s 2018 Statistical Report, there are 673 companies (up from 665 the previous year) operating in a total of 74 FTZs (up from 71 the previous year).  Of the companies operating in FTZs, 39.9 percent are from the United States. Other significant investments were made by companies registered in the Dominican Republic (22.4 percent), United Kingdom (8.2 percent), Canada (4.5 percent), and Germany (3.5 percent).  Companies registered in 38 other countries comprised the remaining 22.6 percent of investments. The main FTZ sectors receiving investment include: medical and pharmaceutical products (27.3 percent); tobacco and derivatives (20 percent); textiles (14.5 percent); services (7.7 percent); agroindustrial products (6 percent), footwear (4.2 percent); metals (3 percent); plastics (2.6 percent); and electronics (2.4 percent).

Exporters/investors seeking further information from the CNZFE may contact:

Consejo Nacional de Zonas Francas de Exportación
Leopoldo Navarro No. 61
Edif. San Rafael, piso no. 5
Santo Domingo, Dominican Republic
Phone: (809) 686-8077
Fax: (809) 686-8079
Website Address: http://www.cnzfe.gov.do  

Performance and Data Localization Requirements

The Dominican labor code establishes that 80 percent of the labor force of a foreign or national company, including free trade zone companies, be composed of Dominican nationals.  The management or administrative staff of a foreign company is exempt from this regulation. The Foreign Investment Law (No. 16-95) provides that contracts for licensing patents or trademarks, for the provision of technical expertise, and for leases of machinery and equipment must be registered with the Directorate of Foreign Investment of the Central Bank.

There are no requirements for foreign information technology providers to turn over source code and/or provide access (i.e. backdoors into hardware and software or turn-over keys for encryption) to surveillance.  There are no mechanisms used to enforce any rules on maintaining set amounts of data storage within the country/economy. The government has not enacted data localization policies.

Real Property

The Dominican Constitution guarantees the right to own private property and provides that the state shall promote the acquisition of property, especially titled real property.  The Constitution further provides that it is “in the public interest that land be devoted to useful purposes and that large estates be gradually eliminated.” Furthermore, the state social policy shall promote land reform and effectively integrate the rural population to the national development process by encouraging renewal of agricultural production.

Mortgages and liens exist in the Dominican Republic, and there is a National Registry of Deeds.  The government advises that investors are ultimately responsible for due diligence and recommends partnering with experienced attorneys to ensure that all documentation, ranging from title searches to surveys, have been properly verified and processed.

Under Dominican law, all land must be registered, and that which is not registered is considered state land.  Registration requires seven steps, an average of 60 days, and payment of 3.7 percent of the value of the land as a registration fee.  The landowner is required to have a survey of the land, a certificate demonstrating that property taxes are current, and a certificate from the Title Registry Office that evidences any encumbrances on the land (such as mortgages or easements) and serves as a check on the extent of land rights to be transferred.  Property ownership may revert to occupants (such as squatters) after twenty years, if they properly register the property.

Many businesses have complained that land tenure insecurity persists, fueled by government land expropriations, institutional weaknesses, lack of effective law enforcement, and local community support for land invasions and squatting.  Some companies have reported that concessions granted by the government are subsequently interfered with or not respected, and alleged political expediency or influence as a reason for such actions. Despite the requirement of land registration, some land in the Dominican Republic is not registered, and even if land rights are registered, tenure is not assured, according to some reports.  Investors have claimed that ln some parts of the country, unregistered land has been expropriated for development without notice or compensation. In some cases, however, holders of title certificates have reported to receive little or no additional security. Several companies note that long-standing titling practices, such as issuing provisional titles that are never completed or providing title to land to multiple owners without requiring individualization of parcels, have created substantial ambiguity in property rights and undermined the reliability of land records.  Some report that certain of these practices have been curtailed in the last few years, but nonetheless undermine the reliability of existing land documentation. In addition, companies have complained of the country’s struggles to control fraud in the creation and registration of land titles, including illegal operations within the government agencies responsible for issuing titles.

In the last decade, the Dominican government has implemented reform programs focused on developing institutional frameworks and strengthening government agencies and public administration.  As part of its overarching program to modernize the justice sector, the Dominican Republic Supreme Court modernized its property title registration process through a USD 10 million USD Inter-American Development Bank (IDB) loan in an effort to address deficiencies and gaps in the land administration system and strengthen land tenure security.  The project involved digitization of land records, decentralization of registries, establishment of a fund to compensate people for title errors, separation of the legal and administrative functions within the agency, and redefinition of the roles and responsibilities of judges and courts.

The Dominican government has instituted a number of reforms, including the development of a cadaster with digitized property titles and the establishment and expansion of 23 land registry offices across the country.  In 2012, the government created the State Lands Titling Commission, which, working with the Dominican Agrarian Institute, is intended to achieve the titling of around 150,000 urban and rural properties.

Intellectual Property Rights

Since 2003, the U.S. Trade Representative (USTR) has designated the Dominican Republic as a Special 301 Watch List country for serious intellectual property rights (IPR) deficiencies.  Despite strong IPR laws on the books, enforcement is reported to remain weak. In the 2019 Watch List designation, USTR cited the Dominican government’s lack of progress in addressing long-standing IPR issues such as signal piracy and the widespread availability of counterfeit products.  Weak IPR enforcement can be attributed to lack of resources and properly trained personnel; weak institutions and the absence of an inter-institutional enforcement mechanism to unite the various IPR authorities; and widespread cultural acceptance of piracy and counterfeiting.

Key IPR issues that third parties have flagged include rampant television signal broadcast piracy, insufficient enforcement actions against the manufacturers of counterfeit pharmaceuticals and other products, and weak customs enforcement against counterfeit trafficking. A 2018 Euromonitor International report noted that 30.8 percent of all alcohol consumed in the Dominican Republic was either counterfeit or smuggled, the highest rate in all of Latin America.

Customs officers have ex officio authority to seize any goods suspected as counterfeit.  Prior to destroying counterfeit goods, customs officers must notify the rights holder. During this time, customs stores the goods at the expense of the rights holder.  The rights holder then has 30 days to inspect the shipment and reach an agreement with the sender and manufacturer. At the end of the 30 days, if no agreement has been reached, then the rights holder can pay to send the items back or to have them destroyed.  If the rights holder does not act, customs will release the shipment to the importer.

U.S. industry representatives observe more willingness on the part of Dominican authorities to prosecute health and safety crimes as opposed to copyright and trademark violations.  In 2018, industry representatives said the Attorney General’s office for Technology Crimes, which oversees IPR prosecutions, deprioritized the prosecution of copyright and trademark violations and focused instead on cybercrimes.  By contrast, industry representatives complimented the work of the Attorney General’s Office for Health Matters, which is responsible for prosecuting manufacturers and distributors of counterfeit pharmaceuticals, cigarettes, and food products.

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/  .

Resources for Rights Holders

Contact at Mission:

Economic Officer
U.S. Embassy Santo Domingo
(809) 567-7775
Email: InvestmentDR@State.gov

Country/Economy resources:

List of Attorneys in the Dominican Republic, compiled by the Consular Section of the U.S. Embassy in Santo Domingo: https://do.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/legal-assistance/

American Chamber of Commerce of the Dominican Republic
Avenida Sarasota No. 20
Torre Empresarial, 6to. Piso.
Santo Domingo
(809) 381-0777
Email: amcham@amcham.org.do

National Copyright Office (ONDA)
Ministry of Industry and Commerce
Edificio del Archivo General de la Nación
Calle Modesto Diaz No. 2
Zona Universitaria
Santo Domingo, D.N.
809-508-7373 / 809-508-7742
Email: admin.onda@onda.gob.do

National Office of Industrial Property (ONAPI)
Ministry of Industry and Commerce
Av. Los Próceres No.11, Santo Domingo, D.N.
(809) 567-7474
Email: serviciocliente@onapi.gob.do

Capital Markets and Portfolio Investment

The Dominican stock market, the Bolsa de Valores de Santo Domingo, is regulated by the Monetary Council and supervised by the Superintendency of Securities, which approves all public securities offerings.  The private sector has access to a variety of credit instruments. Foreign investors are able to obtain credit on the local market, but tend to prefer less expensive offshore sources. The Central Bank regularly issues certificates of deposit, using an auction process to determine interest rates and maturities.

Money and Banking System

The Dominican banking sector is comprised by 124 entities, as follows: 60 financial intermediation entities (including multiple banks, savings and loans associations, savings and loans banks, financial intermediation public entities, credit corporations), 47 foreign exchange and remittance agents (specifically, 42 exchange brokers and 5 remittances and foreign exchange agents), and 17 trustees.

The mission of the Dominican Central Bank is to ensure the stability of prices, guarantee the efficient regulation of the financial system and the proper functioning of payment systems, as the issuing entity and executor of monetary, exchange, and financial policies to contribute with the growth of national economy

Foreign banks may establish operations in the Dominican Republic, although it may require a special decree for the foreign financial institution to establish domicile in the country.  Foreign banks not domiciled in the Dominican Republic may establish representative offices in accordance with current regulations. Major U.S. banks have a commercial presence in the country, but most focus on corporate banking services as opposed to retail banking.  Some other foreign banks offer retail banking. There are no restrictions on foreigners opening bank accounts, although identification requirements do apply.

The Dominican government enacted robust banking reforms in the wake of a 2003 financial crisis.  Today, the Dominican Republic’s financial sector is relatively stable and the IMF declared the financial system indicators largely satisfactory during 2019 Article IV consultations.  The IMF team’s preliminary report noted that the country’s “robust economic performance benefitted from the strengthened policy frameworks, competitiveness, and banking system over the past decade.”

Foreign Exchange and Remittances

Foreign Exchange

The Dominican exchange system is a market with free convertibility of the peso.  Economic agents perform their transactions of foreign currencies under free market conditions.  There are generally no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

The Central Bank sets the exchange rates and practices a policy of managed float.  Some firms have had repeated difficulties obtaining dollars during periods of high demand.  Importers may obtain foreign currency directly from commercial banks and exchange agents. The Central Bank participates in this market in pursuit of monetary policy objectives, buying or selling currencies and performing any other operation in the market to minimize volatility.

Remittance Policies

The Regulation No. 214-04 on the Registration of Foreign Investment in the Dominican Republic establishes the requirements for the registration of foreign investments, the remittance of profits, the repatriation of capital, and the requirements for the sale of foreign currency, among other issues related with investments.

Sovereign Wealth Funds

The Dominican government does not maintain a sovereign wealth fund.

State-Owned Enterprises (SOEs) in general do not have a significant presence in the economy, with most functions performed by privately-held firms.  Notable exceptions are in the electricity, banking, and refining sectors. The government lists 22 public enterprises in its budget documents, primarily as public utilities, state-run banks, or quasi-public entities that manage infrastructure.  The largest of these is the Dominican Corporation of State Electrical Companies (CDEEE). In the electricity sector, generally speaking, private companies only operate in the electricity generation phase of the process, with the government handling the transmission and distribution phases.  However, Punta Cana-Macao Energy Consortium (CEPM), a private company that generates and transmits electricity in the Punta Cana area, is a notable exception. 

Law 10-04 requires the Chamber of Accounts to audit SOEs.  Audits are published in http://www.camaradecuentas.gob.do/index.php/auditorias-realizadas  .  However, the available audits are dated several years ago. In addition, all audits are available upon request according to freedom of information provisions.

Privatization Program

The government does not have any privatization programs.  A partial privatization of state-owned enterprises (SOEs) in the late 1990s resulted in foreign investors obtaining management control of former SOEs engaged in activities such as electricity generation, airport management, and sugarcane processing.  In 2017, the government ordered the dissolution of the SOE corporation that previously managed several (now private) SOEs (CORDE).

The government does not have an official position or policy on responsible business conduct, including corporate social responsibility (CSR).  Although there is not a local culture of CSR, large foreign companies normally have active CSR programs, as do some of the larger local business groups.  While most local firms do not follow OECD principles regarding CSR, the firms that do are viewed favorably, especially when their CSR programs are effectively publicized.

The Dominican Constitution states “Everyone has the right to have quality goods and services, to objective, truthful and timely information about the content and characteristics of the products and services that they use and consume”  To that end, the national consumer protection agency, Pro Consumidor, offers consumer advocacy services.

The country joined the Extractive Industries Transparency Initiative (EITI) as candidate in 2016.  The government incorporates EITI standards into its mining transparency framework. In 2019, EITI is conducting a validation study of the Dominican Republic’s implementation of EITI standards.

Embassy Santo Domingo is actively working to attract Overseas Private Investment Corporation (OPIC) investment in the Dominican Republic.  OPIC was previously active in the Dominican Republic; however, lending largely dried up over the past 20 years, with only two projects approved for OPIC’s investment or political risk insurance since 2000.   A breakdown in the process for obtaining Foreign Government Approval (FGA), required for most projects under the 1962 bilateral agreement on investment guaranties, hampered OPIC’s ability to back projects in the Dominican Republic.  In January 2019, the Dominican government clarified the FGA process in a bilateral letter, paving the way for future OPIC investment. The Dominican government is also a party to the Multilateral Investment Guarantee Agency (MIGA) Agreement.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Data not available (country not reported on IMF/CDIS website)

Table 4: Sources of Portfolio Investment

Data not available (country not reported on IMF/CDIS website)

Policies Towards Foreign Direct Investment

With GDP growth of 5.17 percent in 2018, Indonesia’s young population, strong domestic demand, stable political situation, and well-regarded macroeconomic policy make it an attractive destination for foreign direct investment (FDI). Indonesian government officials welcome increased FDI, aiming to create jobs and spur economic growth, and court foreign investors, notably focusing on infrastructure development and export-oriented manufacturing. However, foreign investors have complained about vague and conflicting regulations,  bureaucratic issues, ambiguous legislation in regards to  tax enforcement, poor existing infrastructure, rigid labor laws, sanctity of contract issues, and corruption.

The Investment Coordination Board, or BKPM, serves as an investment promotion agency, a regulatory body, and the agency in charge of approving planned investments in Indonesia. As such, it is the first point of contact for foreign investors, particularly in manufacturing, industrial, and non-financial services sectors. In July 2018, Indonesia launched the OSS system to streamline 488 licensing and permitting processes through the issuance of Government Regulation No.24/2018 on Electronic Integrated Business Licensing Services. As a new process, OSS implementation is a work in progress and would benefit from greater socialization, especially at the subnational level. Special expedited licensing services are available for investors meeting certain criteria, such as making investments in excess of approximately IDR100 billion (USD7.4 million) or employing 1,000 local workers.

Limits on Foreign Control and Right to Private Ownership and Establishment

Restrictions on FDI are, for the most part, outlined in Presidential Decree No.44/2016, commonly referred to as the Negative Investment List or the DNI. The Negative Investment List aims to consolidate FDI restrictions from numerous decrees and regulations, in order to create greater certainty for foreign and domestic investors. The 2016 revision to the list eased restrictions in a number of previously closed or restricted fields. Previously closed sectors, including the film industry (including filming, editing, captioning, production, showing, and distribution of films), on-line marketplaces with a value in excess of IDR100 billion (USD7.4 million), restaurants, cold chain storage, informal education, hospital management services, and manufacturing of raw materials for medicine, are now open for 100 percent foreign ownership. The 2016 list also raises the foreign investment cap in the following sectors, though not fully to 100 percent: online marketplaces under IDR100 billion (USD7.4 million), tourism sectors, distribution and warehouse facilities, logistics, and manufacturing and distribution of medical devices. In certain sectors, restrictions are liberalized for foreign investors from other ASEAN countries. Though the energy sector saw little change in the 2016 revision, foreign investment in construction of geothermal power plants up to 10 MW is permitted with an ownership cap of 67 percent, while the operation and maintenance of such plants is capped at 49 percent foreign ownership. For investment in certain sectors, such as mining and higher education, the 2016 Negative Investment List is useful only as a starting point, as additional licenses and permits are required by individual ministries. A number of sensitive business areas, involving, for example, alcoholic beverages, ocean salvage, certain fisheries, and the production of some hazardous substances, remain closed to foreign investment or are otherwise restricted.

Foreign investment in small-scale and home industries (i.e. forestry, fisheries, small plantations, certain retail sectors) is reserved for micro, small and medium enterprises (MSMEs) or requires a partnership between a foreign investor and local entity. Even where the 2016 DNI revisions lifted limits on foreign ownership, certain sectors remain subject to other restrictions imposed by separate laws and regulations. In November 2018, the government announced its plans to liberalize further DNI sectors through the XVI economic policy package, before shelving the idea a few weeks later.

In November 2016, Bank Indonesia issued Regulation No.18/2016 on the implementation of payment transaction processing.  The regulation governs all companies providing the following services: principal, issuer, acquirer, clearing, final settlement operator, and operator of funds transfer.  The BI regulation capped foreign ownership of payments companies at 20 percent, though it contained a grandfathering provision.  BI’s July 2017 Regulation No.19/2017 on the National Payment Gateway (NPG) subsequently imposed a 20 percent foreign equity cap on all companies engaging in domestic debit switching transactions.  Firms wishing to continue executing domestic debit transactions are obligated to form partnership agreements with a NPG switching company.

Foreigners may purchase equity in state-owned firms through initial public offerings and the secondary market. Capital investments in publicly listed companies through the stock exchange are not subject to Indonesia’s Negative Investment List.

Other Investment Policy Reviews

The latest World Trade Organization (WTO) Investment Policy Review of Indonesia was conducted in April 2013 and can be found on the WTO website: http://www.wto.org/english/tratop_e/tpr_e/tp378_e.htm .

The most recent OECD Investment Policy Review of Indonesia, conducted in 2010, can be found on the OECD website: http://www.oecd.org/daf/inv/investmentfordevelopment/indonesia-investmentpolicyreview-oecd.htm .

UNCTADs report on ASEAN Investment can be found here: http://www.unctad.org/en/PublicationsLibrary/unctad_asean_air2017d1.pdf .

Business Facilitation

Business Registration

In order to conduct business in Indonesia, foreign investors must be incorporated as a foreign-owned limited liability company (PMA) through the Ministry of Law and Human Rights. Once incorporated, a PMA must register through the OSS system. Upon registration, a company will receive a business identity number (NIB) along with proof of participation in the Workers Social Security Program (BPJS) and endorsement of any Foreign Worker Recruitment Plans (RPTKA).  An NIB remains valid as long as the business operates in compliance with Indonesian laws and regulations. Existing businesses will eventually be required to register through the OSS system. In general, the OSS system simplified processes for obtaining NIB from three days to one day.

Once an investor has obtained a NIB, he/she may apply for a business license. At this stage, investors must: document their legal claim to the proposed project land/location; provide an environmental impact statement (AMDAL); show proof of submission of an investment realization report; and provide a recommendation from relevant ministries as necessary.  Investors also need to apply for commercial and/or operational licenses prior to commencing commercial operations. Previously the business license process averaged 260 days.  Following establishment of the 2018 OSS system, which includes 488 licenses for various ministries/agencies, the process of starting business has been reduced to 20 days according to the World Bank’s 2019 Ease of Doing Business report, which placed Indonesia 73^rd out of the 190 countries surveyed in the report. Special expedited licensing services are also available for investors meeting certain criteria, such as making investments in excess of approximately IDR 100 billion (USD 7.2 million) or employing 1,000 local workers. After obtaining a NIB, investors in some designated industrial estates can immediately start project construction.

Foreign investors are generally prohibited from investing in MSMEs in Indonesia, although the 2016 Negative Investment List opened some opportunities for partnerships in farming and catalog and online retail. In accordance with the Indonesian SMEs Law No. 20/2008, MSMEs are defined as enterprises with net assets less than IDR10 billion (USD0.8 million) or with total annual sales under IDR50 billion (USD 3.7 million). However, the Indonesian Central Bureau of Statistics defines MSMEs as enterprises with fewer than 99 employees. The government provides assistance to MSMEs, including: expanded access to business credit for MSMEs in farming, fishery, manufacturing, creative business, trading and services sectors; a tax exemption for MSMEs with annual sales under IDR 200 million (USD 14.8 million); and assistance with international promotion.

The Ministry of Law and Human Rights’ implementation of an electronic business registration filing and notification system has dramatically reduced the number of days needed to register a company. Foreign firms are not required to disclose proprietary information to the government.

Screening of FDI

BKPM is responsible for issuing “investment licenses” (the term used to encompass both NIB and business licenses) to foreign entities and has taken steps to simplify the application process. The OSS serves as an online portal which allows foreign investors to apply for and track the status of licenses and other services online. The OSS coordinates many of the permits issued by more than a dozen ministries and agencies required for investment approval. In addition, BKPM now issues soft-copy investment and business licenses. While the OSS’s goal is to help streamline investment approvals, investments in the mining, oil and gas, plantation, and most other sectors still require multiple licenses from related ministries and authorities. Likewise, certain tax and land permits, among others, typically must be obtained from local government authorities. Though Indonesian companies are only require to obtain one approval at the local level, businesses report that foreign companies often must additional approvals in order to establish a business.

The Ministry of Home Affairs, the Ministry of Administrative and Bureaucratic Reform, and BKPM issued a circular in 2010 to clarify which government offices are responsible for investment that crosses provincial and regional boundaries. Investment in a regency (a sub-provincial level of government) is managed by the regency government; investment that lies in two or more regencies is managed by the provincial government; and investment that lies in two or more provinces is managed by the central government, or central BKPM. BKPM has plans to roll out its one-stop-shop structure to the provincial and regency level to streamline local permitting processes at more than 500 sites around the country.

Outward Investment

Indonesia’s outward investment is limited, as domestic investors tend to focus on the domestic market. BKPM has responsibility for promoting and facilitating outward investment, to include providing information about investment opportunities in and policies of other countries. BKPM also uses their investment and trade promotion centers abroad to match Indonesian companies with potential investment opportunities. The government neither restricts nor provides incentives for outward investment.

Indonesia has investment agreements with 41countries, including: Algeria, Australia, Bangladesh, Chile, Croatia, Cuba, Czech Republic, Guyana, Iran,  Jamaica, Jordan, Libya, Mauritius, Mongolia, Morocco, Mozambique, Norway, Pakistan, Philippines, Poland, Qatar, Russia, Saudi Arabia, Serbia, Slovak Republic, South Korea, Sri Lanka, Sudan, Suriname, Syria, Sweden, Tajikistan, Thailand, Tunisia, Turkmenistan, Ukraine, United Kingdom, Uzbekistan, Venezuela, Yemen, and Zimbabwe.

In 2014, Indonesia began to abrogate its existing BITs by allowing the agreements to expire. By 2018, 26 BITs had expired, including those with Argentina, Belgium, Bulgaria, Cambodia, China, Denmark, Egypt, France, Finland, Germany, Hungary, India, Italy, Kyrgyzstan, Laos, Malaysia, Netherlands, Norway, Pakistan, Romania, Singapore, Spain, Slovakia, Switzerland, Turkey, and Vietnam. However, Indonesia renewed its BIT with Singapore in October 2018. Indonesia is currently developing a new model BIT that could limit the scope of Investor-State Dispute Settlement provisions.

The ASEAN Economic Community (AEC) arrangement came into effect on January 1, 2016, and was expected to reduce barriers for goods, services and some skilled employees across ASEAN. Under the ASEAN Free Trade Agreement, duties on imports from ASEAN countries generally range from zero to five percent, except for products specified on exclusion lists. Indonesia also provides preferential market access to Australia, China, Japan, Korea, India, Pakistan, and New Zealand under regional ASEAN agreements and to Japan under a bilateral agreement. In accordance with the ASEAN-China Free Trade Agreement (FTA), in August 2012 Indonesia increased the number of goods from China receiving duty-free access to 10,012 tariff lines. Indonesia is also participating in negotiations for the Regional Comprehensive Economic Partnership (RCEP), which includes the 10 ASEAN Member States and 6 additional countries (Australia, China, India, Japan, Korea and New Zealand). In February 2019, RCEP entered the 25^th round of negotiations, which included discussion on trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, e-commerce, SMEs and other issues. In March 2019, ASEAN and Japan signed the First Protocol to Amend their Comprehensive Economic Partnership Agreement.

Indonesia has been actively engaged in bilateral FTA negotiations. In 2018, Indonesia signed trade agreements with Australia, Chile, and the European Free Trade Association (Iceland, Liechtenstein, Norway, and Switzerland). Indonesia is currently negotiating bilateral trade agreements with the European Union, Iran, Japan, Malaysia, Morocco, Mozambique, South Korea, Tunisia, and Turkey. In addition, Indonesia seeks to initiate trade negotiations with Bangladesh, Sri Lanka, the Gulf Cooperation Council, South Africa, and Kenya.

The United States and Indonesia signed the Convention between the Government of the Republic of Indonesia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of the Fiscal Evasion with Respect to Taxes on Income in Jakarta on July 11, 1988. This was amended with a Protocol, signed on July 24, 1996. There is no double taxation of personal income.

Transparency of the Regulatory System

Indonesia continues to bring its legal, regulatory, and accounting systems into compliance with international norms, but progress is slow.  Notable developments included passage of a comprehensive anti-money laundering law in late 2010 and a land acquisition law in January 2012. Although Indonesia continues to move forward with regulatory system reforms foreign investors have indicated to still encounter challenges in comparison to domestic investors, and have criticized the current regulatory system in its function to establish clear and transparent rules for all actors.  Certain laws and policies, including the Negative Investment List, establish sectors that are either fully off-limits to foreign investors or are subject to substantive conditions.

Decentralization has introduced another layer of bureaucracy for firms to navigate, resulting in what companies have identified as costly red tape.  Certain business claim that Indonesia encounters challenges in launching bureaucratic reforms due to ineffective management, resistance from vested interests, and corruption. U.S. businesses cite regulatory uncertainty and a lack of transparency as two significant factors hindering operations. Government ministries and agencies, including the Indonesian House of Representatives (DPR), continue to publish many proposed laws and regulations in draft form for public comment; however, not all draft laws and regulations are made available in public fora and it can take years for draft legislation to become law.  Laws and regulations are often vague and require substantial interpretation by the implementers, leading to business uncertainty and rent-seeking opportunities.

U.S. companies note that regulatory consultation in Indonesia is inconsistent, at best, despite the existence of Law No. 12/2011 on the Development of Laws and Regulations and its implementing Government regulation 87/204, which states that the community is entitled to provide oral or written input into draft laws and regulations. The law also sets out procedures for revoking regulations and introduces requirements for academic studies as a basis for formulating laws and regulations. Nevertheless, the absence of a formal consultation mechanism has been reported to lead to different interpretations among policy makers of what is required.

In June 2016, the Jokowi administration repealed 3,143 regional bylaws that overlapped with other regulations and impeded the ease of doing business. However, a 2017 Constitutional Court ruling limited the Ministry of Home Affairs’ authority to revoke local regulations and allowed local governments to appeal the central government’s decision. The Ministry continues to play a consultative function in the regulation drafting stage, providing input to standardize regional bylaws with national laws.

In November 2017, the government issued Presidential Instruction No. 7/2017, which aims to improve the coordination among ministries in the policy-making process. The new regulation requires lead ministries to coordinate with their respective coordinating ministry before issuing a regulation. Presidential Instruction No. 7 also requires Ministries to conduct a regulatory impact analysis and provide an opportunity for public consultation. The presidential instruction did not address the frequent lack of coordination between the central and local governments. Pursuant to various Indonesian economy policy reform packages over the past several years, the government has eliminated 220 regulations as of September 2018. Fifty-one of the eliminated regulations are at the Presidential level and 169 at the ministerial or institutional level.

In July 2018, President Jokowi issued Presidential Regulation No. 54/2018, updating and streamlining the National Anti-Corruption Strategy to synergize corruption prevention efforts across ministries, regional governments, and law enforcement agencies. The regulation focuses on three areas: licenses, state finances (primarily government revenue and expenditures), and law enforcement reform. An interagency team, including KPK, leads the national strategy’s implementation efforts.

In October 2018, the government issued Presidential Regulation No. 95/2018 on e-government that requires all levels of government (central, provincial, and municipal) to implement online governance tools (e-budgeting, e-procurement, e-planning) to improve budget efficiency, government transparency, and the provision of public services.

International Regulatory Considerations

As a member of ASEAN, Indonesia has successfully implemented regional initiatives, including ratification of the legal protocol and becoming one of the first five ASEAN Member States to implement real-time movement of electronic import documents through the ASEAN Single Window, which reduces shipping costs, speeds customs clearance, and reduces opportunities for corruption.  Indonesia has also committed to ratify the ASEAN Comprehensive Investment Agreement (ACIA), ASEAN Framework Agreement on Services (AFAS), and the ASEAN Mutual Recognition Arrangement. Notwithstanding progress made in certain areas, the often-lengthy process of aligning national legislation has caused delays in implementation. The complexity of interagency coordination and/or a shortage of technical capacity are among the challenges being reported.

Indonesia joined the WTO in 1995. Indonesia’s National Standards Body (BSN) is the primary government agency to notify draft regulations to the WTO concerning technical barriers to trade (TBT) and sanitary and phytosanitary standards (SPS); however, in practice, notification is inconsistent.

In December 2017, Indonesia ratified the WTO Trade Facilitation Agreement (TFA). At this point, Indonesia has met 88.7 percent of its commitments to the TFA provisions, including publication and availability information, consultations, advance ruling, review procedure, detention and test procedure, fee and charges discipline, goods clearance, border agency cooperation, import/export formalities, and goods transit.

Legal System and Judicial Independence

Indonesia’s legal system is based on civil law. The court system consists of District Courts (primary courts of original jurisdiction), High Courts (courts of appeal), and the Supreme Court (the court of last resort). Indonesia also has a Constitutional Court. The Constitutional Court has the same legal standing as the Supreme Court, and its role is to review the constitutionality of legislation. Both the Supreme and Constitutional Courts have authority to conduct judicial reviews. Many businesses have noted that the judiciary is susceptible to corruption and influence from outside parties.

Certain companies have claimed that the court system often does not provide the necessary recourse for resolving property and contractual disputes and that cases that would be adjudicated in civil courts in other jurisdictions sometimes result in criminal charges in Indonesia. Judges are not bound by precedent and many laws are open to various interpretations. According to the U.S. industry, corruption also continues to plague Indonesia’s judiciary, with graft investigations involving senior judges and court staff.

A lack of clear land titles has plagued Indonesia for decades, although the land acquisition law No.2/2012 enacted in 2012 included legal mechanisms designed to resolve some past land ownership issues. In addition, companies find Indonesia to have a poor track record on the legal enforcement of contracts, and civil disputes are sometimes criminalized. Government Regulation No. 79/2010 opened the door for the government to remove recoverable costs from production sharing contracts. Indonesia has also required mining companies to renegotiate their contracts of work to include higher royalties, more divestment to local partners, more local content, and domestic processing of mineral ore.

Indonesia’s commercial code, grounded in colonial Dutch law, has been updated to include provisions on bankruptcy, intellectual property rights, incorporation and dissolution of businesses, banking, and capital markets. Application of the commercial code, including the bankruptcy provisions, remains uneven, in large part due to corruption and training deficits for judges, prosecutors, and defense lawyers.

Laws and Regulations on Foreign Direct Investment

FDI in Indonesia is regulated by Law No. 25/2007 (the Investment Law). Under the law, any form of FDI in Indonesia must be in the form of a limited liability company, with the foreign investor holding shares in the company. In addition, the government outlines restrictions on FDI in Presidential Decree No. 44/2016, issued in May 2016, commonly referred to as the 2016 Negative Investment List. It aims to consolidate FDI restrictions in certain sectors from numerous decrees and regulations to provide greater certainty for foreign and domestic investors. The 2016 Negative Investment List enables greater foreign investment in some sectors like film, tourism, logistics, health care, and e-commerce. A number of sectors remain closed to investment or are otherwise restricted. The 2016 Negative List contains a clause that clarifies that existing investments will not be affected by the 2016 revisions. The website of the Investment Coordination Board (BKPM) provides information on investment requirements and procedures: http://www2.bkpm.go.id/ .  Indonesia mandates reporting obligations for all foreign investors through BKPM Regulation No.7/2018.  See section two for Indonesia’s procedures for licensing foreign investment.

Competition and Anti-Trust Laws

The Indonesian Competition Authority (KPPU) implements and enforces the 1999 Indonesia Competition Law. The KPPU reviews agreements, business practices and mergers that may be deemed anti-competitive, advises the government on policies that may affect competition, and issues guidelines relating to the Competition Law. Strategic sectors such as food, finance, banking, energy, infrastructure, health, and education are KPPU’s priorities. In April 2017, the Indonesia DPR began deliberating a new draft of the Indonesian antitrust law, which would repeal the current Law No. 5/1999 and strengthen KPPU’s enforcement against monopolistic practices and unfair business competition.

Expropriation and Compensation

The Indonesian government generally recognizes and upholds the property rights of foreign and domestic investors. The 2007 Investment Law opened major sectors of the economy to foreign investment, while providing investors protection from nationalization, except where corporate crime is involved. However, Indonesian economic nationalism and an oft-stated desire for “self-sufficiency” continues to manifest itself through negotiations, policies, regulations, and laws in way that companies describe as eroding investor value. These include local content requirements, requirements to divest equity shares to Indonesian stakeholders, and requirements to establish manufacturing or processing facilities in Indonesia.

In 2012, the government issued a regulation requiring foreign-owned mining operations to divest majority equity to Indonesian shareholders within 10 years of operational startup using cost of investment incurred, rather than market value, for purposes of divestment valuation. In 2014, with Regulation No. 77/2014, the government eased the foreign ownership restrictions to 60 percent for companies that smelt domestically (40 percent divestment) and 70 percent for companies that operate underground mines (30 percent divestment). However, regulations enacted in 2017 again require foreign-owned miners to gradually divest over ten years 51 percent of shares to Indonesian interests, with the price of divested shares determined based on fair market value and not taking into account existing reserves. The government has indicated it intends the majority-share divestment requirement to supersede Regulation No. 77/2014 and apply to all foreign investors in the sector. Based on the 2009 Mining Law, all mining contracts of work must be renegotiated to alter the terms to more favor the government, including royalty and tax rates, local content levels, domestic processing of minerals, and reduced mine areas. Some mining companies had to reduce the size of their original mining work area without compensation.

In general, Indonesia’s rising resource nationalism advances the idea that domestic interests should not have to pay prevailing market prices for domestic resources. In addition, in the oil and gas sector, the government is increasingly explicit in its policy that expiring production sharing contracts operated by foreign companies be transferred to domestic interests rather than extended. While there is no obligation of compensation under the production sharing contract, this policy has begun to affect the Indonesian business interests of foreign companies.

The Law on Land Acquisition Procedures for Public Interest Development passed in 2011 sought to streamline government acquisition of land for infrastructure projects. The law seeks to clarify roles, reduce the time frame for each phase of the land acquisition process, deter land speculation, and curtail obstructionist litigation, while still ensuring safeguards for land-right holders. The implementing regulations went into effect in 2015. Some reports indicate that the law has reduced land acquisition timelines, with no accusations of illegal government expropriation of land.

Dispute Settlement

ICSID Convention and New York Convention

Indonesia is a member of the International Center for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL) through the ratification of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Thus, foreign arbitral awards are legally recognized and enforceable in the Indonesian courts; however, some note that these awards are not always enforced in practice.

Investor-State Dispute Settlement

Since 2004, Indonesia has faced seven known Investor-State Dispute Settlement (ISDS) arbitration cases, including those that have been settled and discontinued cases. In 2016, an ICSID tribunal ruled in favor of Indonesia in the arbitration case of British firm Churchill Mining. In March 2019, the tribunal rejected an annulment request from the claimants. In addition, a Dutch arbitration court recently ruled in favor of the Indonesian government in USD 469 million arbitration case against Indian firm Indian Metals & Ferro Alloys.  Two cases involved Newmont Nusa Tenggara under BIT with Netherlands and Oleovest under BIT with Singapore were discontinued.

Indonesia recognizes binding international arbitration of investment disputes in its bilateral investment treaties (BITs). All of Indonesia’s BITs include the arbitration under ICSID or UNCITRAL rules, except the BIT with Denmark. However, in response to an increase in the number of arbitration cases submitted to ICSID, BKPM formed an expert team to review the current generation of BITs and formulate a new model BIT that would more seek to better protect perceived national interests. The Indonesian model BIT is under legal review.

In spite of the cancellation of many BITs, the 2007 Investment Law still provides protection to investors through a grandfather clause. In addition, Indonesia also has committed to ISDS provisions in regional or multilateral agreement signed by Indonesia (i.e. ASEAN Comprehensive Investment Agreement).

International Commercial Arbitration and Foreign Courts

Judicial handling of investment disputes remains mixed. Indonesia’s legal code recognizes the right of parties to apply agreed-upon rules of arbitration. Some arbitration, but not all, is handled by Indonesia’s domestic arbitration agency, the Indonesian National Arbitration Body.

Companies have resorted to ad hoc arbitrations in Indonesia using the UNCITRAL model law and ICSID arbitration rules. Though U.S. firms have reported that doing business in Indonesia remains challenging, there is not a clear pattern or significant record of investment disputes involving U.S. or other foreign investors. Companies complain that the court system in Indonesia works slowly as international arbitration awards, when enforced, may take years from original judgment to payment.

Bankruptcy Regulations

Indonesian Law No. 37/2004 on Bankruptcy and Suspension of Obligation for Payment of Debts is decidedly pro-creditor and the law makes no distinction between domestic and foreign creditors. As a result, foreign creditors have the same rights as all potential creditors in a bankruptcy case, as long as foreign claims are submitted in compliance with underlying regulations and procedures. Monetary judgments in Indonesia are made in local currency.

Investment Incentives

Indonesia provides incentive facilities through fiscal incentives, non-fiscal incentives, and other benefits. Fiscal incentives are in the form of tax holidays, tax allowances, and exemptions of import duties for capital goods and raw materials for investment. As part of the Economic Policy Package XVI, Indonesia issued a modified tax holiday scheme in November 2018 through Ministry of Finance (MOF) Regulation 150/2018, which revokes MOF Regulation 35/2018.  This regulation is intended to attract more direct investment in pioneer industries and simplify the application process through the OSS. The period of the tax holiday is extended up to 20 years; the minimum investment threshold is IDR 100 trillion (USD 7.14 billion), which is a significant reduction from the previous regulation at IDR 500 trillion (USD 35.7 billion). In addition to the tax holiday, depending on the investment amount, this regulation also provides either 25 or 50 percent income tax reduction for the two years after the end of the tax holiday. The following table explains the parameters of the new scheme:

Based on BKPM Regulation 1/2019, the coverage of pioneer sectors was expanded to the digital economy, agricultural, plantation, and forestry, bringing the total to eighteen industries:

1. Upstream basic metals;
2. Oil and gas refineries;
3. Petrochemicals derived from petroleum, natural gas, and coal;
4. Inorganic basic chemicals;
5. Organic basic chemicals;
6. Pharmaceutical raw materials;
7. Semi-conductors and other primary computer components;
8. Primary medical device components;
9. Primary industrial machinery components;
10. Primary engine components for transport equipment;
11. Robotic components for manufacturing machines;
12. Primary ship components for the shipbuilding industry;
13. Primary aircraft components;
14. Primary train components;
15. Power generation including waste-to-energy power plants;
16. Economic infrastructure;
17. Digital economy including data processing; and
18. Agriculture, plantation, and forestry-based processing

Government Regulation No. 9/2016 expanded regional tax incentives for certain business categories in May 2016. Apparel, leather goods, and footwear industries in all regions are now eligible for the tax incentives. In this regulation, existing tax facilities are maintained, including:

• Deduction of 30 percent from taxable income over a six-year period
• Accelerated depreciation and amortization
• Ten percent of withholding tax on dividend paid by foreign taxpayer or a lower rate according to the avoidance of double taxation agreement
• Compensation losses extended from 5 to 10 years with certain conditions for companies that are:

1. 1. Located in industrial or bonded zone;
   2. Developing infrastructure;
   3. Using at least 70 percent domestic raw material;
   4. Absorbing 500 to 1000 laborers;
   5. Doing research and development (R&D) worth at least 5 percent of the total investment over 5 years;
   6. Reinvesting capital; or,
   7. Exporting at least 30 percent of their product.

The government also provides the facility of Government-Borne Import Duty (Bea Masuk Ditanggung Pemerintah /BMDTP) with zero percent import duty to improve industrial competitiveness and public goods procurement in high value added, labor intensive, and high growth sectors. MOF Regulation 209/2018 provides zero import duty for imported raw materials in 36 sectors including plastics, cosmetics, polyester, resins, other chemical materials, machinery for agriculture, electricity, toys, vehicle components, telecommunication, fertilizer, and pharmaceuticals until December 2019.

Research and Development

At present, Indonesia does not have formal regulations granting national treatment to U.S. and other foreign firms participating in government-financed or subsidized research and development programs. The Ministry for Research and Technology and Higher Education handles applications on a case-by-case basis.

Natural Resources

Indonesia’s vast natural resource wealth has attracted significant foreign investment over the last century and continues to offer significant prospects. However, some report that a variety of government regulations have made doing business in the resources sector increasingly difficult, and Indonesia now ranks near the bottom, 70th of 83 jurisdictions in the Fraser Institute’s 2018 Mining Policy Perception Index. In 2012, Indonesia banned the export of raw minerals, dramatically increased the divestment requirements for foreign mining companies, and required major mining companies to renegotiate their contracts of work with the government. The ban on the export of raw minerals went into effect in January 2014. In July 2014, the government issued regulations that allowed, until January 2017, the export of copper and several other mineral concentrates with export duties and other conditions imposed. When the full ban came back into effect in January 2017, the government issued new regulations that again allowed exports of copper concentrate and other specified minerals, but imposed  more onerous requirements. Of note for foreign investors, provisions of the regulations require that to be able to export non-smelted mineral ores, companies with contracts of work must convert to mining business licenses—and thus be subject to prevailing regulations—and must commit to build smelters within the next five years. Also, foreign-owned mining companies must gradually divest over ten years 51 percent of shares to Indonesian interests, with the price of divested shares determined based on fair market value and not taking into account existing reserves. The 2009 mining law devolved the authority to issue mining licenses to local governments, who have responded by issuing more than 10,000 licenses, many of which have been reported to overlap or be unclearly mapped. In the oil and gas sector, Indonesia’s Constitutional Court disbanded the upstream regulator in 2012, injecting confusion and more uncertainty into the natural resources sector. Until a new oil and gas law is enacted, upstream activities are supervised by the Special Working Unit on Upstream Oil and Gas (SKK Migas).

Infrastructure

Since taking office in October 2014, President Jokowi has made infrastructure development a top priority. The government originally announced plans to add 35,000 megawatts of electricity capacity by 2019, but in 2017 revised this target downward to 19,000 megawatts. The Jokowi administration also announced plans to create a maritime nexus, to include the development or expansion of 24 ports and other transportation infrastructure.  The Indonesian government is also implementing a PPP scheme to develop broadband internet access throughout the country as part of its “Palapa Ring” initiative. The initiative, which will install over 12,000 kilometers of fiber optic cable, is divided into three segments.  The western and central segments have been completed, and the eastern segment is expected to be complete by the end of 2019. Following completion of the Palapa Ring, Indonesia plans to deploy high-throughput satellites to connect remote and frontier areas for internet access. Many businesses report that the current institutional arrangement for infrastructure development still suffers from functional overlap, lack of capacity for public-private partnership (PPP) projects in regional governments, lack of solid value-for-money methodologies, crowding out of the private sector by state-owned enterprises (SOEs), legal uncertainty, lack of a solid land-acquisition framework, long-term operational risks for the private sector, unwillingness from stakeholders to be the first ones to test a new policy approach, and, especially, lack of a PPP apex agency. Currently infrastructure development is largely taking place through SOEs, with PPPs having only a marginal share of infrastructure projects.

Foreign Trade Zones/Free Trade/ Trade Facilitation

Indonesia offers numerous incentives to foreign and domestic companies that operate in special trade zones throughout Indonesia. The largest zone is the free trade zone (FTZ) island of Batam, located just south of Singapore. Neighboring Bintan Island and Karimun Island also enjoy FTZ status. Investors in FTZs are exempt from import duty, income tax, VAT, and sales tax on imported capital goods, equipment, and raw materials until the portion of production destined for the domestic market is “exported” to Indonesia, in which case fees are owed only on that portion.  Foreign companies are allowed up to 100 percent ownership of companies in FTZs. Companies operating in FTZs may lend machinery and equipment to subcontractors located outside of the zone for a maximum two-year period.

Indonesia also has numerous Special Economic Zones (SEZs), regulated under Law No. 39/2009, Government Regulation No. 2/2011 on SEZ management, and Government Regulation No. 96/2015. These benefits include a reduction of corporate income taxes for a period of years (depending on the size of the investment), income tax allowances, and expedited or simplified administrative processes for import/export, expatriate employment, immigration, and licensing. As of April 2019, Indonesia has identified twelve SEZs in manufacturing and tourism centers that are operational or under construction, with 20 additional areas proposed as new SEZs. Ten SEZs are operational (though development is sometimes limited) at: 1) Sei Mangkei, North Sumatera; 2) Tanjung Lesung, Banten, 3) Palu, Central Sulawesi; 4) Mandalika, West Nusa Tenggara, 5) Arun Lhokseumawe, Aceh, 6) Galang Batang, Bintan, Riau Islands 7) Tanjung Kelayang, Pulau Bangka, Bangka Belitung Islands; 8) Bitung, North Sulawesi; 9) Morotai, North Maluku; 10) Maloy Batuta Trans Kalimantan, East Kalimantan. Two more SEZs are expected to operate in 2019: Tanjung Api-Api, South Sumatera; and Sorong, Papua. In 2016, the government began the process of transitioning Batam from an FTZ to SEZ in order to provide further investment incentives in Batam. The Indonesian government announced in December 2018 that it plans to transition management of the Batam FTZ to the local government, creating a single regulatory authority on the island. The conversion to an SEZ is expected to be finished in 2019 and will not affect the status of the neighboring FTZs on Bintan and Karimun islands.

Indonesian law also provides for several other types of zones that enjoy special tax and administrative treatment.  Among these are Industrial Zones/Industrial Estates (Kawasan Industri), bonded stockpiling areas (Tempat Penimbunan Berikat), and Integrated Economic Development Zones (Kawasan Pengembangan Ekonomi Terpadu).  Indonesia is home to 97 industrial estates that host thousands of industrial and manufacturing companies.  Ministry of Finance Regulation No. 105/2016 provides several different tax and customs facilities available to companies operating out of an industrial estate, including corporate income tax reductions, tax allowances, VAT exemptions, and import duty exemptions depending on the type of industrial estate.  Bonded stockpile areas include bonded warehouses, bonded zones, bonded exhibition spaces, duty free shops, bonded auctions places, bonded recycling areas, and bonded logistics centers. Companies operating in these areas enjoy concessions in the form of exemption from certain import taxes, luxury goods taxes, and value added taxes, based on a variety of criteria for each type of location. Most recently, bonded logistics centers (BLCs) were introduced to allow for larger stockpiles, longer temporary storage (up to three years), and a greater number of activities in a single area. The Ministry of Finance issued Regulation 28/2018, providing additional guidance on the types of BLCs and shortening approval for BLC applications. By September 2018, Indonesia had designated 59 BLCs in 81 locations, with plans to designate more in eastern Indonesia.  KAPET zones, first announced in a 1996 presidential decree, are eligible for partial tax holidays, certain income tax exemptions and deductions, flexible treatment of amortization of capital and losses, and fiscal loss compensation. In 2018, Ministry of Finance and the Directorate General for Customs and Excise (DGCE) issued regulations (MOF Regulation No. 131/2018 and DGCE Regulation No. 19/2018) to streamline the licensing process for bonded zones.  Together the two regulations are intended to reduce processing times and the number of licenses required to open a bonded zone.

Shipments from FTZs and SEZs to other places in the Indonesia customs area are treated similarly to exports and are subject to taxes and duties.  Under MOF Regulation 120/2013, bonded zones have a domestic sales quota of 50 percent of the preceding realization amount on export, sales to other bonded zones, sales to free trade zones, and sales to other economic areas (unless otherwise authorized by the Indonesian government).  Sales to other special economic areas are only allowed for further processing to become capital goods, and to companies which have a license from the economic area organizer for the goods relevant to their business.

In 2017, the government issued Presidential Regulation 91 on the Acceleration of Business Operations, aiming to reduce and simplify the Indonesian business licensing regime, including in SEZs. Under this regulation, Indonesia has established national, ministerial, provincial and regional task forces to examine inefficiencies in the process of starting a business, including business licensing practices, the availability of one-stop business registration in SEZs and FTZs, and data sharing between different jurisdictions. The Coordinating Ministry for Economic Affairs, which leads implementation of the regulation, reports that all Indonesian provinces, FTZs, and SEZs, and more than 90 percent of regencies (kabupaten) had established one-stop business licensing services by February 2018.  Under the new rules, businesses that apply for a license under a one-stop system must begin setting up within 90 days unless given an extension. The regulation also provides that the central government may take control of business licensing if a local government unduly delays business license issuance. Business and bonded zone licensing is increasingly integrated into Indonesia’s OSS.

Performance and Data Localization Requirements

Performance Requirements

Indonesia expects foreign investors to contribute to the training and development of Indonesian nationals, allowing the transfer of skills and technology required for their effective participation in the management of foreign companies. Generally, a company can hire foreigners only for positions that the government has deemed open to non-Indonesians. Employers must have training programs aimed at replacing foreign workers with Indonesians. If a direct investment enterprise wants to employ foreigners, the enterprise should submit an Expatriate Placement Plan (RPTKA) to the Ministry of Manpower.

Indonesia recently made significant changes to its foreign worker regulations. Under Presidential Regulation No. 20/2018, issued in March 2018, the Ministry of Manpower now has two days to approve a complete RPTKA application, and an RPTKA is not required for commissioners or executives. An RPTKA’s validity is now based on the duration of a worker’s contract (previously it was valid for a maximum of five years). The new regulation no longer requires expatriate workers to go through the intermediate step of obtaining a Foreign Worker Permit (IMTA). Instead, expatriates can use an endorsed RPTKA to apply with the immigration office in their place of domicile for a Limited Stay Visa or Semi-Permanent Residence Visa (VITAS/VBS). Expatriates receive a Limited Stay Permit (KITAS) and a blue book, valid for up to two years and renewable for up to two extensions without leaving the country. Regulation No. 20/2018 also abolished the requirement for all expatriates to receive a technical recommendation from a relevant ministry. However, ministries may still establish technical competencies or qualifications for certain jobs, or prohibit the use of foreign worker for specific positions, by informing and obtaining approval from the Ministry of Manpower. Foreign workers who plan to work longer than six months in Indonesia must apply for employee social security and/or insurance.

Regulation No. 20/2018 provides for short-term working permits (maximum 6 months) for activities such as conducting audits, quality control, inspections, and installation of machinery and electrical equipment. Ministry of Manpower issued Regulation No.10/2018 to implement Regulation 20/2018, revoking its Regulation No. 16/2015 and No. 35/2015. Regulation 10/2018 provides additional details about the types of businesses that can employ foreign workers, sets requirements to obtain health insurance for expatriate employees, requires companies to appoint local “companion” employees for the transfer of technology and skill development, and requires employers to “facilitate” Indonesian language training for foreign workers. Any expatriate who holds a work and residence permit must contribute USD 1,200 per year to a fund for local manpower training at regional manpower offices. The Ministry of Manpower is preparing additional rules listing the specific types of jobs that will be open for foreign workers. Foreign workers will not be eligible for positions not listed in the decree. Some U.S. firms report difficulty in renewing KITASs for their foreign executives. In February 2017, the Ministry of Energy and Natural resources abolished regulations specific to the oil and gas industry, bringing that sector in line with rules set by the Ministry of Manpower.

With the passage of a defense law in 2012 and subsequent implementing regulations in 2014, Indonesia established a policy that imposes offset requirements for procurements from foreign defense suppliers. Current laws authorize Indonesian end users to procure defense articles from foreign suppliers if those articles cannot be produced within Indonesia, subject to Indonesian local content and offset policy requirements. On that basis, U.S. defense equipment suppliers are competing for contracts with local partners. The 2014 implementing regulations still require substantial clarification regarding how offsets and local content are determined. According to the legislation and subsequent implementing regulations, an initial 35 percent of any foreign defense procurement or contract must include local content, and this 35 percent local content threshold will increase by 10 percent every five years following the 2014 release of the implementing regulations until a local content requirement of 85 percent is achieved. The law also requires a variety of offsets such as counter-trade agreements, transfer of technology agreements, or a variety of other mechanisms, all of which are negotiated on a per-transaction basis. The implementing regulations also refer to a “multiplier factor” that can be applied to increase a given offset valuation depending on “the impact on the development of the national economy.” Decisions regarding multiplier values, authorized local content, and other key aspects of the new law are in the hands of the Defense Industry Policy Committee (KKIP), an entity comprising Indonesian interagency representatives and defense industry leadership. KKIP leadership indicates that they still determine multiplier values on a case-by-case basis, but have said that once they conclude an industry-wide gap analysis study, they will publish a standardized multiplier value schedule. According to government officials, rules for offsets and local content apply to major new acquisitions only, and do not apply to routine or recurring procurements such as those required for maintenance and sustainment.

WTO/Trade-Related Investment Measures

Indonesia notified the WTO of its compliance with Trade-Related Investment Measures (TRIMS) on August 26, 1998. The 2007 Investment Law states that Indonesia shall provide the same treatment to both domestic and foreign investors originating from any country. Nevertheless, the government pursues policies to promote local manufacturing that could be inconsistent with TRIMS requirements, such as linking import approvals to investment pledges, or requiring local content targets in some sectors.

Data Localization Requirements

In 2012, Indonesia issued Government Regulation No. 82/2012 requiring certain “public service providers” to establish data storage and disaster recovery centers on Indonesian soil. The regulation went into effect in October 2017 and several ministries have issued data localization regulations, including regulations related to data privacy, peer-to-peer lending, and insurance. As of April 2019, the Indonesian government has prepared a draft amendment to Government Regulation No. 82/2012 that would classify data into three categories: strategic, high-level, and low-level. The draft amendment offers vague definitions of these categories, defining strategic data as data potentially disruptive to the national governance, security, stability of the financial system, and/or other criteria established by law. The proposed amendment would require that “strategic” data be managed, stored, and processed only in Indonesia. The draft regulation would allow high- and low-level data to be managed, stored, and processed overseas so long as it does not reduce the effective implementation of Indonesian legal jurisdiction, subject to technical requirements established by the Ministry of Communications and Information Technology (KOMINFO).  The draft regulation would give financial sector regulators independent authority to identify and set conditions on the treatment of high-level financial data. It remains unclear how the proposed regulation would affect existing data localization requirements and what additional requirements may be imposed if the revised regulation is issued.

Real Property

The Basic Agrarian Law of 1960, the predominant body of law governing land rights, recognizes the right of private ownership and provides varying degrees of land rights for Indonesian citizens, foreign nationals, Indonesian corporations, foreign corporations, and other legal entities. Indonesia’s 1945 Constitution states that all natural resources are owned by the government for the benefit of the people. This principle was augmented by the passage of a land acquisition bill in 2011 that enshrined the concept of eminent domain and established mechanisms for fair market value compensation and appeals. The National Land Agency registers property under Regulation No. 24/1997, though the Ministry of Forestry administers all ‘forest land’. Registration is sometimes complicated by local government requirements and claims, as a result of decentralization. Registration is also not conclusive evidence of ownership, but rather strong evidence of such. Government Regulation No.103/2015 on house ownership by foreigners domiciled in Indonesia allows foreigners to have a property in Indonesia with the status of a “right to use” for a maximum of 30 years, with extensions available for up to 20 additional years.

Intellectual Property Rights

Indonesia is currently on the U.S. Trade Representative’s (USTR) Special 301 priority watch list for intellectual property rights (IPR) protection. According to U.S. stakeholders, Indonesia’s failure to effectively protect intellectual property and enforce IPR laws has resulted in high levels of physical and online piracy. Local industry associations have reported tens of millions of pirated films, music, and software in circulation in Indonesia in recent years, causing potentially billions of dollars in losses.  Indonesian physical markets, such as Pasar Mangga Dua, and online markets Tokopedia, Bukalapak, and IndoXXI.com were included in USTR’s Notorious Markets list in 2018.

Indonesian efforts to enhance IP protection policy were mixed this year. The 2016 Patent Law, continues to be a source of significant concern for IP stakeholders, especially expansive compulsory license provisions and a requirement under Article 20 to produce a patented product in Indonesia within 36 months of the grant of a patent. In July 2018, the Ministry of Law and Human Rights (MLHR) enacted Ministerial Regulation 15/2018, allowing patent holders to request a five-year, renewable exemption from the 36-month local production requirement under Article 20.  However, MLHR issued Ministerial Regulation 39/2018 on December 28, providing new procedures for obtaining compulsory licenses for a variety of patented products. Regulation 39/2018 would allow individuals, government institutions, and patent holders to apply for a compulsory license on three bases: 1) failure to produce a patented product in Indonesia within 36 months; 2) use of a patent in a manner detrimental to the public interest; and 3) where a patent cannot be implemented without utilizing another party’s patent. The new regulation also gives MLHR the discretion to grant compulsory licenses to produce, import, and export patented products needed to remedy human disease in Indonesia and third countries.

MLHR reports that the five-year exemption from local production requirements under Regulation 15/2018 will continue to be available despite the issuance of Regulation 39/2018. The 2016 Patent Law contains several other provisions that some have defined as “concerning”, including a  definition of “invention” that potentially imposes an additional “increased meaningful benefit” requirement for patents on new forms of existing compounds, an expansive national interest test for proposed patent licenses, and disclosure of genetic information and traditional knowledge to promote access and benefit sharing.  The Directorate General for Intellectual Property (DGIP) is currently drafting guidelines on pharmacy, computer, and biotechnology patents for examiners; DGIP plans to release the guidelines in 2019.

DGIP has become more active in its efforts to collect patent annuity fees. On August 16, 2018, DGIP issued a circular letter warning stakeholders that it may refuse to accept new patent applications from rights holders that have not paid patent annuity fee debts. The letter gave rights holders until February 16, 2019, to settle unpaid patent annuity payments. On February 17, 2019, DGIP issued another circular letter on its website to extend the period of time for a patent holder to settle any unpaid annuities for 6 months to August 17, 2019. The U.S. government continues to monitor implementation of this policy with DGIP and industry stakeholders.

Indonesia deposited its instrument of accession to the Madrid Protocol with the World Intellectual Property Organization (WIPO) in October 2017 and issued implementing regulations in June 2018. Under the new rules, Madrid Protocol applicants are required to register their application with DGIP first, and must be Indonesian citizens, domiciled in Indonesia, or have clear industrial or commercial interests in Indonesia. Although the Trademark Law of 2016 expanded recognition of non-traditional marks, Indonesia still does not recognize certification marks. In response to stakeholder concerns over a lack of consistency in treatment of international well-known trademarks, the Supreme Court issued Circular Letter 1/2017, which advised Indonesian judges to recognize cancellation claims for well-known international trademarks with no time limit stipulation.

The Ministry of Finance’s Directorate General for Customs and Excise (DGCE) continued to implement ex officio authorities to investigate shipments of infringing goods in 2018. Under MOF Regulation 40/2018, DGCE launched an online trademark recordation system that enables customs officials to detain a shipment of potentially IP-infringing goods for up to two days in order to inform a registered rights holder of the suspect shipment. Once the rights holder confirms the shipment is suspect, it has four days to file a request to suspend the shipment with the Indonesian Commercial Court. Rights holders are required to provide a monetary guarantee of IDR 100 million (approximately USD 7,700) when they request suspension of a shipment. Despite  business stakeholder concerns, the GOI retained a requirement that only companies with offices domiciled in Indonesia may use the recordation system.

In 2015, DGIP and KOMINFO jointly released implementing regulations under the Copyright Law to provide for rights holders to report websites that offer IP-infringing products and sets forth procedures for blocking IP-infringing sites. Also in 2015, Indonesia’s Creative Economy Agency (BEKRAF) launched an anti-piracy task force with film and music industry stakeholders. BEKRAF reported that the taskforce remained focused on coordinating the review of complaints from industry about infringing websites in 2018. KOMINFO reported that it blocked 442 infringing websites in 2018.

DGIP reports that its directorate of investigation has increased staffing to 187 investigators, including 40 nationwide investigators and 147 staff certified to act as local investigators in 33 provinces when needed for a pending case, and saw the number of investigations double from 16 in 2017 to 36 in 2018. BPOM, Indonesia’s food and drug administration, reported the seizure of more than USD 6.3 billion in counterfeit drugs and cosmetics during the year. Trademark, Patent, and Copyright legislation requires a rights-holder complaint for investigations, and DGIP and BPOM investigators lack the authority to make arrests so must rely on police cooperation for any enforcement action.

Resources for Rights Holders

Additional information regarding treaty obligations and points of contact at local IP offices, can be found at the World Intellectual Property Organization (WIPO) country profile website http://www.wipo.int/directory/en/ .For a list of local lawyers, see: http://jakarta.usembassy.gov/us-service/attorneys.html.

Capital Markets and Portfolio Investment

The Indonesia Stock Exchange (IDX) index has 618 listed companies as of December 2018 with a market capitalization of USD 526 billion. There were 57 initial public offerings in 2018 – the most in 26 years. As of January 2019, domestic entities conducted more than half of total IDX stock trades (65.08 percent). In November 2018, IDX introduced T+2 settlement, with sellers now receiving proceeds within two days instead of the previous standard of three days (T+3).

In 2011, the IDX launched the Indonesian Sharia Stock Index (ISSI), its first index of sharia-compliant companies, primarily to attract greater investment from Middle East companies and investors. In 2017, the IDX introduced the first online sharia stock trading platform. As of December 2018, the ISSI is composed of 403 stocks that are a part of IDX’s Jakarta Composite Index, with a total market cap of USD 275 billion.

Government treasury bonds are the most liquid bonds offered by Indonesia. Treasury bills are less liquid due to their small issue size. Liquidity in BI-issued Sertifikat Bank Indonesia (SBI) is also limited due to the three-month required holding period. The government also issues sukuk (Islamic treasury notes) treasury bills as part of its effort to diversify Islamic debt instruments and increase their liquidity. Indonesia’s sovereign debt as of December 2018 was rated as BBB- by Standard and Poor, BBB by Fitch Ratings and Baa2 by Moody’s.

The Financial Services Supervisory Authority (OJK) began overseeing capital markets and non-banking institutions in 2013, replacing the Capital Market and Financial Institution Supervisory Board, and assumed BI’s supervisory role over commercial banks as of 2014. Foreigners have access to the Indonesian capital markets and are a major source (37.32 percent of government securities) of portfolio investment. Indonesia respects International Monetary Fund (IMF) Article VIII by refraining from restrictions on payments and transfers for current international transactions. Foreign ownership of Indonesian companies may be limited in certain industries as determined by the Negative Investment List.

Money and Banking System

Although there is some concern regarding the operations of the many small and medium sized family-owned banks, the banking system is generally considered sound, with banks enjoying some of the widest interest rate margins in the region. As of May 2018, the 11 top banks had IDR 4,877 trillion (USD 348.3 billion) in total assets. Loans grew 11.5 percent in 2018 compared to 8.1 percent a year earlier. Gross non-performing loans in December 2018 remained at 2.4 percent y-o-y from 2.4 percent the previous year. For 2019, analysts project annual credit growth at 10-12 percent and deposit growth around 8-10 percent for Indonesia’s banking industry.

OJK Regulation No.56/03/2016 has limited bank ownership to no more than 40 percent by any single shareholder, applicable to foreign and domestic shareholders. This does not apply to foreign bank branches in Indonesia. Foreign banks may establish branches if the foreign bank is ranked in the top 200 global banks by assets.  A special operating license is required from OJK in order to establish a foreign branch. The OJK granted an exception in 2015 for foreign banks buying two small banks and merging them. To establish a representative office, a foreign bank must be ranked in the top 300 global banks by assets. In 2017, HSBC, which previously registered as a foreign branch, changed its legal status to a Limited Liability Company and merged with a local bank subsidiary which it had purchased in 2008.

In 2015, OJK eased rules for foreigners to open a bank account in Indonesia. Foreigners can open a bank account with a balance between USD 2,000-50,000 with just their passport. For accounts greater than USD 50,000, foreigners must show a supporting document such as a reference letter from a bank in the foreigner’s country of origin, a local domicile address, a spousal identity document, copies of a contract for a local residence, and/or credit/debit statements.

Foreign Exchange and Remittances

Foreign Exchange

The rupiah (IDR), the local currency, is freely convertible. Currently, banks must report all foreign exchange transactions and foreign obligations to the central bank, Bank Indonesia (BI). With respect to the physical movement of currency, any person taking rupiah bank notes into or out of Indonesia in the amount of IDR 100 million (approximately USD 7,377) or more, or the equivalent in another currency, must report the amount to DGCE. The limit for any person or entity to bring foreign currency bank notes into or out of Indonesia is the equivalent of IDR 1 billion (USD 71,429).

Banks on their own behalf or for customers may conduct derivative transactions related to derivatives of foreign currency rates, interest rates, and/or a combination thereof. BI requires borrowers to conduct their foreign currency borrowing through domestic banks registered with BI. The regulations apply to borrowing in cash, non-revolving loan agreements, and debt securities.

Under the 2007 Investment Law, Indonesia gives assurance to investors relating to the transfer and repatriation of funds, in foreign currency, on:

• capital, profit, interest, dividends and other income;
• funds required for (i) purchasing raw material, intermediate goods or final goods, and (ii) replacing capital goods for continuation of business operations;
• additional funds required for investment;
• funds for debt payment;
• royalties;
• income of foreign individuals working on the investment;
• earnings from the sale or liquidation of the invested company;
• compensation for losses; and
• compensation for expropriation.

U.S. firms report no difficulties in obtaining foreign exchange.

BI began in 2012 to require exporters to repatriate their export earnings through domestic banks within three months of the date of the export declaration form. Once repatriated, there are currently no restrictions on re-transferring export earnings abroad. Some companies report this requirement is not enforced.

In 2015, the government announced a regulation requiring the use of the rupiah in domestic transactions. While import and export transactions can still use foreign currency, importers’ transactions with their Indonesian distributors must now use rupiah, which has impacted some U.S. business operations. The central bank may grant a company permission to receive payment in foreign currency upon application, and where the company has invested in a strategic industry.

Remittance Policies

The government places no restrictions or time limitations on investment remittances. However, certain reporting requirements exist. Banks should adopt Know Your Customer (KYC) principles to carefully identify customers’ profile to match transactions.

Carrying rupiah bank notes of more than IDR 100 million (approximately USD 7,377) in cash out of Indonesia requires prior approval from BI, as well as verifying the funds with Indonesian Customs upon arrival. Indonesia does not engage in currency manipulation.

As of 2015, Indonesia is no longer subject to the intergovernmental Financial Action Task Force (FATF) monitoring process under its on-going global Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) compliance process. It continues to work with the Asia/Pacific Group on Money Laundering (APG) to further strengthen its AML/CTF regime. In July 2018, Indonesia was granted observer status by FATF, a necessary milestone toward becoming a full FATF member.

Sovereign Wealth Funds

Indonesia does not operate a traditional sovereign wealth fund, but several SOEs invest in the domestic market. In 2015, the Finance Ministry authorized one of those SOEs, PT Sarana Multi Infrastruktur (SMI) to manage the assets of the Pusat Investasi Pemerintah (PIP), or Government Investment Center (which had previously been seen as a potential sovereign wealth fund). SMI can use the funds for direct investment in infrastructure financing, the placement of funds in the form of government securities, Bank Indonesia Certificates, and/or other financial instruments in accordance with the provisions of laws. Indonesia does not participate in the IMF’s Working Group on Sovereign Wealth Funds.

Indonesia had 114 state-owned enterprises (SOEs) and 28 subsidiaries divided into 12 sectors as of December 2018, 10 of which contributed more than 85 percent of total SOE profit. Of the 114 SOEs, 17 are listed on the Indonesian stock exchange, and 14 are special purpose entities under the SOE Ministry (BUMN), with one SOE, the Indonesian Infrastructure Guarantee Fund, under the Ministry of Finance. Since mid-2016, the Indonesian government has been publicizing plans to consolidate SOEs into six holding companies based on sector of operations. In November 2017, Indonesia announced the creation of a mining holding company, PT Inalum, the first of the six planned SOE-holding companies.  Information regarding the SOEs can be found at the SOE Ministry website (http://www.bumn.go.id/ ) (Indonesian language only). There are also an unknown number of SOEs owned by regional or local governments. SOEs are present in almost all sectors/industries including banking (finance), tourism (travel), agriculture, forestry, mining, construction, fishing, energy, and telecommunications (information and communications).

In 2018 (the most recent data available), SOE profits increased by 0.01 percent year-on-year to IDR 188 trillion (USD 13.4 billion). As of year-end 2018, SOEs assets stood at IDR 8,092 trillion (USD578 billion) compared to the previous year at IDR 7,210 trillion (USD 515 billion). On December 31, 2018, the 17 listed state-owned companies had a market capitalization of IDR 1,578 trillion (USD 112.7 billion) or 22.46 percent of the total capitalization of shares listed on the IDX stock exchange. Indonesia is not a party to the WTO’s Government Procurement Agreement. Private enterprises can compete with SOEs under the same terms and conditions with respect to access to markets, credit, and other business operations. However, in reality, many sectors report that SOEs receive strong preference for government projects. SOEs purchase some goods and services from private sector and foreign firms. SOEs publish an annual report and are audited by the Supreme Audit Agency (BPK), the Financial and Development Supervisory Agency (BPKP), and external and internal auditors.

Privatization Program

While some state-owned enterprises have offered shares on the stock market, Indonesia does not have an active privatization program.

Indonesian businesses are required to undertake responsible business conduct (RBC) activities under Law 40/2007 concerning Limited Liability Companies. In addition, sectoral laws and regulations have further specific provisions on RBC. Indonesian companies tend to focus on corporate social responsibility (CSR) programs offering community and economic development, and educational projects and programs. This is at least in part caused by the fact that such projects are often required as part of the environmental impact permits (AMDAL) of resource extraction companies, which undergo a good deal of domestic and international scrutiny of their operations. Because a large proportion of resource extraction activity occurs in remote and rural areas where government services are reported to be limited or absent, these companies face very high community expectations to provide such services themselves. Despite significant investments – especially by large multinational firms – in CSR projects, businesses have noted that there is limited general awareness of those projects, even among government regulators and officials.

The government does not have an overarching strategy to encourage or enforce RBC, but regulates each area through the relevant laws (environment, labor, corruption, etc.). Some companies report that these laws  are not always enforced evenly. In 2017, the National Commission on Human Rights launched a National Action Plan on Business and Human Rights in Indonesia, based on the UN Guiding Principles on Business and Human Rights.

The Financial Services Authority (OJK) regulates corporate governance issues, but the regulations and enforcement are not yet up to international standards for shareholder protection.

OECD Guidelines On Corporate Governance Of SOEs

Indonesia does not adhere to the OECD Guidelines for Multinational Enterprises, nor has been recorded  the government encouraging adherence to those guidelines. Many companies claim that the government does not encourage adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas or any other supply chain management due diligence guidance. Indonesia does participate in the Extractive Industries Transparency Initiative (EITI). Indonesia was suspended by the EITI Board due to a missed deadline for its first EITI report, but the suspension was lifted following publication of its 2012-2013 EITI Report in November 2015.

In 2010, the Overseas Private Investment Corporation (OPIC) updated its 1967 Investment Support Agreement between the United States and Indonesia by adding OPIC products such as direct loans, coinsurance, and reinsurance to the means of OPIC support which U.S. companies may use to invest in Indonesia. OPIC projects in Indonesia cover various sectors, including but not limited to banking, renewable energy, agribusiness, extractive industries, science, health care, and social assistance. Since 1974, OPIC has committed USD 2.35 billion in finance and insurance across 116 projects in Indonesia. Currently, OPIC has seven active projects in Indonesia with total commitment of USD 131.2 million. OPIC’s latest project was financing for Indonesia’s first utility-scale wind power project in 2016.

Indonesia has joined the Multilateral Investment Guarantee Agency (MIGA). MIGA, a part of the World Bank Group, is an investment guarantee agency to insure investors and lenders against losses relating to currency transfer restrictions, expropriation, war and civil disturbance, and breach of contract. In 2018, MIGA provided a guarantee loan to Indonesian state-owned financial institutions and financed a hydroelectric power plant.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

*Bank of Indonesia, GDP from the host country website is converted into USD with the exchange rate 13.400 for 2018.

*Indonesia Investment Coordinating Board (BKPM), January 2019

There is a discrepancy between U.S. FDI recorded by BKPM and BEA due to differing methodologies. While BEA recorded transactions in balance of payments, BKPM relies on company realization reports. BKPM also excludes oil and gas, non-bank financial institutions, and insurance.

Table 3: Sources and Destination of FDI

Source:  IMF Coordinated Direct Investment Survey for inward investment data. World Investment Report 2018 UNTCAD for outward investment data, country specific data for outward investment is unavailable.

Table 4: Sources of Portfolio Investment

Source: IMF Coordinated Portfolio Investment Survey, 2018. Sources of portfolio investment are not tax havens.

The Bank of Indonesia published comparable data.

Policies Towards Foreign Direct

Jordan is largely open to foreign investment, and the government is committed to supporting foreign investment. Foreign and local investors are treated equally under the law. The Jordan Investment Commission is the body responsible for implementing the 2014 Investment Law and promoting new and existing investment in Jordan, through a range of measures to incentivize and facilitate investment procedures. The Investment Council, established by the law, which is comprised of the Prime Minister, ministers with economic portfolios, and representatives from the private sector, oversees the management and development of the national investment policy, and is responsible for legislative and economic reforms to facilitate investment.

In 2017, the Jordanian government introduced a new ministerial portfolio for Investment Affairs, and assigned the Minister of State for Investment Affairs as the President of Jordan Investment Commission. Investment Law No. 30/2014 identifies the Commission as the key reference point for investors and grants additional authorities to the Investment Window to facilitate and accelerate investment registration. The President of the Commission and the administrative team supervise and centrally approve investment-related matters within the guidelines set by the Investment Council and approved by the government.

The Investment Commission can expedite the provision of government services and provide a number of investment incentives, tax, and customs exemptions. An investment-dedicated “One Window  ” provides information and technical assistance to investors, with a mandate to simplify registration and licensing procedures for investment projects that benefit from the Investment Law. In 2018, the Commission launched a “Follow-Up and After Care” section with an aim to remove obstacles facing investors and find appropriate solutions as part of the investment process.

Limits on Foreign Control and Right to Private Ownership and Establishment

Investment and property laws allow domestic and foreign entities to establish businesses that engage in remunerative activities. Foreign companies may open regional and branch offices, branch offices may carry out full business activities, and regional offices may serve as liaisons between head offices and Jordanian or regional clients. The Ministry of Industry, Trade and Supply’s Companies Control Department implements the government’s policy on the establishment of regional and branch offices.

Foreign nationals and firms are permitted to own or lease property in Jordan for investment purposes and are allowed one residence for personal use, provided that their home country permits reciprocal property ownership rights for Jordanians.  Depending on the size and location of the property, the Lands and Surveys Department, the Ministry of Finance, and/or the Cabinet may need to approve foreign ownership of land and property, which must then be developed within five years after the date of approval.

Regulations governing foreign ownership include the following exceptions:

• Foreigners are prohibited from wholly or partially owning investigation and security services, sports clubs (exception: health clubs), stone quarrying operations for construction purposes, customs clearance services, and bakeries of all kinds; and are prohibited from trading in weapons and fireworks. The Cabinet, however, may approve foreign ownership of projects in these sectors upon the recommendation of the Investment Council. To qualify for the exemption, projects must be categorized as being highly valuable to the national economy.
• Investors are limited to 50 percent ownership in certain businesses and services, including periodical publications, printing/publishing companies, aircraft or maritime vessel maintenance and repair services, land transportation services, and retail and wholesale trading.
• Foreign firms may not import goods without appointing an agent registered in Jordan; the agent may be a branch office or a wholly owned subsidiary of the foreign firm. The agent’s connection to the foreign company must be direct, without a sub-agent or intermediary. The Commercial Agents and Intermediaries Law No. 28/2001 governs contractual agreements between foreign firms and commercial agents. Private foreign entities, whether licensed under sole foreign ownership or as a joint venture, compete on an equal basis with local companies.

However, according to the Bilateral Investment Treaty with Jordan, U.S. investors are granted several exceptions and are accorded the same treatment as Jordanian nationals, allowing U.S. investors to maintain 100 percent ownership in some restricted businesses. The most up-to-date listing of limitations on investments is available in the FTA Annex 3.1 and may be found at http://www.ustr.gov/trade-agreements/free-trade-agreements/jordan-fta/final-text.

For national security purposes, foreign investors must undergo security screening through the Ministry of Interior, which can be finalized through the “One Window” located at the Investment Commission.

Other Investment Policy Reviews

Jordan has been a World Trade Organization (WTO) member since 2000. The WTO conducted Jordan’s second Trade Policy Review   in November 2015.

In 2012, the United States and Jordan agreed to Statements of Principles for International Investment and for Information and Communication Technology Services, and a Trade and Investment Partnership Bilateral Action Plan, each of which is designed to increase transparency, openness, and governmental and private sector cooperation. The two parties also began discussions on a Customs Administration and Trade Facilitation Agreement.  All current treaties and agreements in force between the United States and Jordan may be found here: https://www.state.gov/s/l/treaty/tif/.

In follow up on OECD’s Investment Policy Review of Jordan and Jordan’s adherence to the OECD Declaration on International Investment and Multinational Enterprises in 2013, the MENA-OECD competitiveness program issued a report in 2018 entitled “Enhancing the legal framework for sustainable investment: Lessons from Jordan” (http://www.oecd.org/mena/competitiveness/Enhancing-the-Legal-Framework-for-Sustainable-Investment-Lessons-from-Jorden.pdf ).

Business Facilitation

Businesses in Jordan need to register with the Ministry of Industry, Trade, and Supply’s Companies Control Department, or the Chambers of Commerce or Industry depending on the type of business they conduct; open a bank account, obtain a tax identification number, and obtain a VAT number. They also need to obtain a vocational license from the municipality, receive a health inspection, and register with the Social Security Corporation. In November 2017, the government issued a decision to cancel all non-security related pre-approvals for registering a business and require all approvals before starting operations.

The “Investment Window” at the Jordan Investment Commission (www.jic.gov.jo  ) serves as a comprehensive investment center for investors. The window provides its services to both local and foreign investors, particularly those in the agricultural sector, medical, tourism, industrial, ICT-Business Process Outsourcing (BPO), and energy sectors. In 2018, the commission introduced a fast track for investors at Queen Alia International Airport.

In 2017, the Commission further streamlined procedures to register and license investment projects in development zones, introducing a Fast Track Investment Window, reducing the number of committee approvals from 23 to 13, and reducing registration procedures from 15 to five. These changes reduced the typical time period required to register in development zones from five days to one day. Additionally, the time period needed to grant or renew the investor card (an ID card for investors used to facilitate various transactions) has been reduced from five working days to two, the time period to grant exemptions under the investment law from two weeks to one, and the time period to grant exemptions under the decisions of the Prime Minister from seven days to one.

Jordan has also adopted a single security approval to replace the 11 approvals that were previously required for new investors. The new approval covers registering and licensing the company, obtaining driving licenses for investors, possessing immovable property for the establishment of investment projects in the industrial and developing zones, in addition to granting residence permits to non-Jordanian investors and their family members. The Companies Control Department has developed and launched a portal for online registration: http://www.ccd.gov.jo/  

The commission has completed the first phase of automating its services. Sixteen services are now fully automated as of March 31, 2019, and a number of guides are now available online, including the investor guide (https://www.jic.gov.jo/en/investor-guide/  ).

The World Bank Group in its Doing Business report   mapped out the registration requirements in Jordan and provided a detailed summary of procedures, time, cost, and legal requirements to incorporate and register a new firm in Jordan. The report compared regulations relevant to the life cycle of a small- to medium-sized domestic business in 188 economies. In the 2019 report, Jordan ranked 104 out of 190, with 12 days needed to complete registration (Link).

Outward Investment

Jordan does not have a mechanism in place to specifically incentivize outward investment.

In addition to the United States, Jordan has signed bilateral investment treaties with 57 countries including the European Union, Singapore, and Canada. Jordan’s bilateral investment treaty with the United States  entered into effect in 2003 and provides reciprocal protection of Jordanian and U.S. individual and corporate investments.

The U.S. Congress enacted the Qualifying Industrial Zone (QIZ)   initiative in 1996 to support the Middle East peace process. Goods produced in the 13 designated QIZs in Jordan can be imported into the United States tariff and quota free under the agreement if at least 35 percent of the product’s content comes from the QIZ, Israel, or West Bank/Gaza. Of that 35 percent, a minimum 11.7 percent of value must be added in the QIZ, eight percent in Israel, and 15.3 percent in a Jordanian QIZ, Israel, or the West Bank/Gaza. The QIZs have attracted over USD 1 billion dollars in capital investments, generated around USD 9.2 billion dollars in exports to the U.S. between 2006 and 2013, and currently employ more than 47,000 workers; about one-quarter of whom are Jordanians. The bulk of QIZ exports continue to be garments.

The U.S.-Jordan Free Trade Agreement (FTA),   which entered into force in 2001 and came into full effect in January 2010, does not supersede or eliminate the QIZ initiative. Nevertheless, exports under QIZ requirements considerably shrank as exporters took advantage of the FTA’s broader mandate. FTA rules of origin simply require 35 percent Jordanian content without other restrictions.

While the United States remains one of Jordan’s top trading partners and largest export market, Jordan maintains an active trade relationship with neighboring countries and has been actively pursuing enhanced trade arrangements globally. Jordan is a member of the Greater Arab Free Trade Area (GAFTA), which has been in force since 1998. The GAFTA reached full trade liberalization of goods in 2005 through full exemption of customs duties and charges for all 17 Arab member states, with the exception of gradual reductions for Sudan and Yemen. Jordan has also signed trade preference agreements and bilateral free trade agreements with various Arab neighbors, including Egypt, Syria, Morocco, Tunisia, the UAE, Algeria, Lebanon, the Palestinian Authority, Kuwait, Sudan, and Bahrain.

An economic association agreement between Jordan and the European Union (EU) entered into force in 2002 to establish free trade over a twelve-year period. This agreement calls for the free movement of capital as well as cooperation on development and political issues. Jordan also signed a Free Trade Area Agreement in 2001 with the European Free Trade Association (EFTA) states (Iceland, Liechtenstein, Norway, and Switzerland); this agreement completed the transitional period in 2014. In 2016, Jordan and the European Union agreed on new rules of origin designed to facilitate Jordanian exports to the EU manufactured with set percentages of Syrian labor content.  Jordan and the EU are discussing potential revisions to this agreement.

With respect to other agreements, Jordan signed a Free Trade Agreement with Singapore in 2004. In addition to enhancing bilateral trade ties, the agreement aimed to create new export opportunities for Jordanian products worldwide through the possibility of diagonal accumulation of origin with countries that have concluded free trade agreements with both Jordan and Singapore. That same year, Jordan completed the Agadir trade agreement with Egypt, Morocco, and Tunisia, and upgraded its trade agreement with Israel to take advantage of accumulation of content provisions in the European Union’s Pan Euro-Mediterranean trade rules of origin. Jordan signed a Free Trade Agreement with Canada in 2009 which came into effect in October 2012. The FTA with Canada eliminates all non-agricultural tariffs and most agricultural tariffs. A similar agreement with Turkey was also signed in November 2009 and entered into effect on March 1, 2011; in early 2018 Jordan announced its intention to suspend this agreement within six months. Jordan has also signed with Iraq a number of Memoranda of Understanding for bilateral cooperation in various sectors such as education, health, energy, transportation, and trade.

Jordan concluded double taxation avoidance agreements with 31 countries including the United Arab Emirates, Qatar, Bahrain, Egypt, Algeria, Tunisia, in addition to Canada, the United Kingdom, France, Turkey, UAE, and others. Jordan signed its first double taxation agreement in 1981 with Romania, and the latest with Saudi Arabia in 2018. The terms of each agreement vary to match the priorities of each signatory, but often include income tax, corporate tax, capital gain, social service tax, and gains generated by the alienation of movable and immovable property.

Jordan does not have a double taxation agreement with the United States.

Transparency of the Regulatory System

Legal, regulatory and accounting policies, applicable to both domestic and foreign investors, are transparent and promote competition. However, historically red tape and bureaucratic procedures, particularly at the local government level, presented problems for foreign and domestic investors.

The government is gradually implementing policies to improve competition and foster transparency in implementation. These reforms aim to change an existing system influenced in the past by family affiliations and business ties. The Jordan Investment Commission (JIC), through its Fast Track Investment Window, introduced a number of measures to streamline the investment process. All laws and regulations are usually published on the website of the Legislative and Opinion Bureau for public commenting, in addition to executive branch consultations, with the legislative branch and key stakeholders.

Most economic regulations are available on the Jordan Investment Commission website (https://www.jic.gov.jo/ar/investment-regulations-2/  ), or on the Ministry of Industry and Trade and Supply website (https://www.mit.gov.jo/Default). All regulations are published in the Official Gazette (http://pm.gov.jo/newspaper  ) or the Legislative and Opinion Bureau (http://www.lob.jo/  ).

The commission issued and published a services and licensing guides outlining processes and fees, in addition to the incentives guide (https://www.jic.gov.jo/en/services-guide/  ). Guides are currently available in Arabic.

Jordan is committed to its fiscal transparency policy, therefore the Ministry of Finance (MoF) publishes a monthly “General Government Finance Bulletin” and that includes detailed information on government’s debt obligations. (www.mof.gov.jo/Portals/0/Mof_content/النشرات والبيانات المالية/نشرة مالية الحكومة/2016/Arabic PDF December 2016.pdf  ).

For further details please contact:

Investment Window
Jordan Investment Commission
Telephone: +962 (6) 5608400/9 Ext: 120
P.O.Box 893
Amman 11821 Jordan
E-mail: info@jic.gov.jo

International Regulatory Considerations

Jordan recognizes and accepts most U.S. standards and specifications. However, Jordan has occasionally required additional product standards for imports. Some of these measures have been viewed as barriers to trade, such as a 2014 restriction imposed on packaging sizes for poultry available for retail resale.

As a member country of the WTO, Jordan is obliged to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Jordan is a signatory of the WTO Trade Facilitation Agreement. As of March, 2018, Jordan had implemented 81.5 percent of its commitments. Jordan submitted its notifications for Category A before the agreement came into force, and is currently in the final review for categories B and C.

Legal System and Judicial Independence

Jordan has a mixed legal system based on civil law, Sharia Law (Islamic Law), and customary law. The Constitution establishes the judiciary as one of three separate and independent branches of government. Jordanian commercial laws do not make a distinction between Jordanian and non-Jordanian investors. However, plaintiffs complain of judicial backlogs and subsequent delays in legal proceedings. Jordan has introduced economic judicial chambers, established under the Amman First Instance Court and Amman Appeal Court under the provisions of the Law of Formation of the amended Courts No. 30 of 2017. These chambers specialize in the adjudication of certain commercial and investment disputes mentioned in Article 4 of the Courts Formation Law.

Laws and Regulations on Foreign Direct Investment

Jordan’s Investment Law governs local and foreign investment. The law consolidated three entities – the Jordan Investment Board, the Jordanian Development Zones Commission, and the Free Zones Corporation – into the Jordan Investment Commission. The law incorporates a statement of investors’ rights and a legal framework for the newly established Investment Window, which is located at the Investment Commission’s headquarters.

The commission issued and published a services and licensing guides outlining processes and fees, in addition to the incentives guide (https://www.jic.gov.jo/en/services-guide/  ). Guides are currently available in Arabic. The commission is working to amend the bylaw that regulates non-Jordanian investments to increase investors’ confidence and attract more foreign investment.

In September 2017, Parliament passed the Monitoring and Inspection of Economic Activities Law No. 33 / 201, and amendments to Jordan’s Companies Law No. 34 /2017. This law governs the requirements to establish venture capital companies for the purpose of direct investment, or for creating funds, to contribute or invest in high-growth companies that are not listed in the stock market.

In 2018, Jordan passed the Insolvency Law, Movable Assets and Secured Lending Law and Bylaw, the Venture Capital Bylaw in addition to a new Income Tax Law, a number of related bylaws are in the pipeline.

There is no systematic or legal discrimination against foreign participation with respect to ownership and participation in Jordan’s major economic sectors other than the restrictions outlined in the governing regulations. In fact, many Jordanian businesses actively seek engagement with foreign partners as a way to increase their competitiveness and access to other international markets. The government’s efforts have made Jordan’s official investment climate welcoming; however, some U.S. investors have reported hidden costs, citing bureaucratic red tape, vague regulations, and conflicting jurisdictions.

Competition and Anti-Trust Laws

The Jordanian parliament passed amendments to Competition Law No. 33/2004 in 2011 to strengthen the local economic environment and attract foreign investment by providing incentives to improve market competitiveness, protect small and medium enterprises from restrictive anticompetitive practices, and give consumers access to high quality products at competitive prices. The Competition Directorate at the Ministry of Industry, Trade, and Supply conducts market research, examines complaints, and reports violators to the judicial system.

Expropriation and Compensation

Article 11 of the Jordanian Constitution stipulates that expropriations are prohibited unless specifically deemed to be in the public interest. In cases of expropriation, the law mandates provision of fair compensation to the investor in convertible currency.

Dispute Settlement

ICSD and New York Conventions

Since 1972, Jordan has been a contracting state to the International Centre for Settlement of Investment Disputes (ICSID Convention). Only a small number of cases between foreign investors and the Jordanian government have been brought before ICSID tribunals. Jordan is also a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention).

In January 2018, the Parliament passed amendments to Arbitration Law 2017, which aims to facilitate the use of arbitration as an alternative to dispute settlement procedures.

Investor-State Dispute Settlement

Under domestic law, foreign investors may seek third party arbitration as a means of settling disputes. Jordan abides by WTO dispute settlement mechanisms, and dispute settlement mechanisms under the U.S.-Jordan FTA are consistent with WTO commitments. Article IX of the United States-Jordan Bilateral Investment Treaty (BIT) establishes procedures for dispute settlements between Jordanians and U.S. persons.

Investment disputes are treated as any other commercial or civil dispute in the Jordanian judicial system. Investment agreements with the Jordanian government as a party generally contain a dispute resolution clause that would refer cases to arbitration in Jordan.  On average, it takes three to four years for cases that go through the local court system to reach a verdict. Cases settled through arbitration take between 12 to 18 months. The main challenge regarding litigating cases is being able to conduct proper process of service upon all concerned parties. Another challenge is the lack of specialized investment and commercial courts, limiting judges’ capacity to adequately review cases.

International Commercial Arbitration and Foreign Courts

Rulings by U.S. courts or other international arbitration committees can be upheld through the filing of an Enforcement of Ruling motion in a Jordanian court.

Bankruptcy Regulations

The Commercial Code, Civil Code, and Companies Law collectively govern bankruptcy and insolvency proceedings. In December 2017, the cabinet endorsed a bankruptcy bylaw which stipulates procedures for optional and compulsory liquidation, along with the mechanism, liquidation plan, and required documentation and reporting. In 2018, Parliament passed the Insolvency Law, which allows individuals and companies to offset their financial position through a debt management plan. The law helps the insolvent entity to continue its economic activity, rather than directly resorting to bankruptcy.

Investment Incentives

Under Investment Law No. 30/2014, the Council of Ministers, upon the recommendation of the Investment Council, may offer investment incentives in accordance with the law and governing regulations for projects outside the Development and Free Zones. The Investment Council and Investment Commission can also offer certain exemptions for projects in the following sectors:

1. Agriculture and Livestock
2. Hospitals and specialized medical centers
3. Hotel and touristic facilities
4. Tourism-related entertainment and recreation
5. Contact and communication centers
6. Scientific research centers and medical laboratories
7. Technical and media production

Such incentives include customs exemptions, refunding of the general tax for production inputs, and no sales tax. JIC can provide investors with further information on these exemptions (https://www.jic.gov.jo/en/incentives-outside-the-dz-and-fz/  ). Automatic exemptions are also granted for specific services whether purchased locally or imported. The Income and Sales Tax Department will refund the general tax levied within 30 days from submitting a written request in accordance with the terms and conditions determined by the Regulations Governing Investment Incentives (Number 33 of 2015).

A number of non-automatic exemptions are granted for production requirements and assets of economic, industrial, or handicrafts activities of dual-use. Such exemptions are subject to administrative procedures and approvals obtained from the Jordan Investment Commission Technical Committee and are governed by the previously referenced regulation.

Article 8-A of the 2014 Investment Law allows the cabinet to grant additional advantages, exemptions, or incentives to any economic activities in the Kingdom. Under this article, the cabinet granted additional incentives to the ICT, tourism, and transport sectors in 2016, as published in the Official Gazette.

Net profits generated from most exports were exempt from income tax until December 2018. The new Income Tax Law No. 38 (2018) imposed taxes on income generated from exports, in accordance with WTO agreements.

Foreign Trade Zones/Free Ports/Trade Facilitation

Investments in special economic zones and development zones receive a minimum 30 percent income tax waiver depending on the zone. Additional incentives are also provided for projects under the Industrial Estate Corporation and the Aqaba Special Economic Zone.

The country is divided into three development areas: Zones A, B, and C. Investments in Zone C, the least developed areas of Jordan, receive the highest level of incentives while those in Zone A receive the lowest level. All agricultural, maritime, transport and railway investments are classified as Zone C, irrespective of location. Hotel and tourism-related projects along the Dead Sea, leisure and recreational compounds, and convention and exhibition centers receive Zone A designations. Qualifying Industrial Zones (QIZs) are zoned according to their geographical location unless granted an exemption. The three-zone classification scheme does not apply to nature reserves and environmental protection areas.

Jordan’s 2014 investment law merged the Development and Free Zones Commission (DFZC) into the newly formed Jordan Investment Commission, an independent governmental body responsible for creating, regulating, and monitoring Jordan’s free trade zones, industrial estates, and development zones. The development areas are the King Hussein Bin Talal Development Area (KHBTDA) in Mafraq, the Ma’an Development Area, the Irbid Development Area (IDA), the Dead Sea Development Zone, the Jabal Ajloun Development Zone, and the King Hussein Business Park Development Zone. The Investment Law assigns the Jordan Industrial Estates Corporation (JIEC) and the Development and Free Zones Corporation (DFZC) as main developers of industrial estates and development and free zones, under the supervision of the Investment Commission.

As part of Jordan’s efforts to foster economic development and enhance its investment climate, the government has created four industrial estates in Amman, Irbid, Karak, and Aqaba, in addition to several privately-run industrial parks, including al-Mushatta, al-Tajamouat, al-Dulayl, Cyber City, al-Qastal, Jordan Gateway, and al-Hallabat. These estates provide basic infrastructure for a wide variety of manufacturing activities, reducing the cost of utilities and providing cost-effective land and buildings. Investors in the estates continue to receive incentives until their contracts expire, and receive various additional exemptions, such as a two-year exemption on income and social services taxes, complete exemptions from building and land taxes, and exemptions or reductions on most municipalities’ fees.

Besides the six public free zones in Zarqa, Sahab, Karak, Karama, Mowaqaar, and Queen Alia Airport, Jordan has over 37 designated private free zones administered by private companies under the DFZC’s supervision. The free zones are outside of the jurisdiction of Jordan Customs and provide a duty and tax-free environment for the storage of goods transiting Jordan.

Jordan has announced plans for new specialized development zones in a number of governorates including two solar parks in Ma’an and Ajloun, and four new industrial parks in Salt, Madaba, Tafileh, and Jarash.

The Aqaba Special Economic Zone (ASEZ) is an independent economic zone not governed by the Investment Commission or the articles in the Investment Law governing investments in free zones or development zones. It offers special tax exemptions, a flat five percent income tax, and facilitates customs handling at Aqaba Port. In recent years, ASEZ has attracted projects, mainly in hotel and property development sectors, valued at over USD 8 billion. The government continues to implement development projects aimed at attracting commerce and tourism through the Port of Aqaba. The Aqaba New Port project, initiated in 2010, became operational November 2018 at 40 percent of its design capacity, and is expected to reach 60 percent of operational capacity by June 2019. The new port, 20 km south of the previous port, added four new terminals and expanded general ship berthing and marine services, in addition to adding dedicated terminals for liquefied natural gas, phosphates, and propane.

Investors, either foreign or domestic, face specific requirements in trade, services, and industrial projects in free zones. Industrial projects must be related to one of the following industries:

• New industries that depend on advanced technology;
• Industries that require locally available raw material and/or locally manufactured parts;
• Industries that complement domestic industries;
• Industries that enhance labor skills and promote technical know-how; or,
• Industries that provide consumer goods and that contribute to reducing market dependency on imported goods.

For further details, please visit:

• Jordan Investment Commission (http://www.jic.gov.jo/)
• Jordan Industrial Estate Corporation (http://www.jiec.com)
• Aqaba Special Economic Zone (http://www.aqabazone.com/)

Performance and Data Localization Requirements

Jordan has a well-educated and trained labor force of 2.5 million people, of which approximately 700,000 are registered foreign workers. Unofficial indicators speculate that unregistered foreign workers are nearly double this number. Most foreign laborers are employed in construction, agriculture, and domestic housekeeping sectors. Approximately 70,000 also work in the QIZs as textile workers.

The Ministry of Labor regulates foreign worker licensing, licensing fees, prohibited sectors, and employer liability. Along with the Ministry of Interior, the Ministry of Labor is responsible for approving the hiring of professional foreign workers by private businesses.

To date, Jordan has no forced localization policy, but does mandate local-employment quotas depending on the sector.

Jordan does not have requirements for foreign IT providers to turn over source code or provide access to surveillance.

Real Property

The legal system reliably facilitates and protects the acquisition and disposition of property rights.  Foreign ownership of land and assets is governed by The Leasing of Immovable Assets and Their Sale to Non-Jordanian and Judicial Persons Law No. 47/2006. Under Article 3 of the law, if the buyer’s country of residence has a reciprocal relationship with Jordan, foreign nationals are afforded the right of ownership of property within urban borders in Jordan for residential purposes. According to the law, foreign nationals may rent immovable assets for business or accommodation purposes, provided that the plot of land does not exceed 10 acres and the lease is for no more than three years in duration. Interest in real property is recognized and enforced once recorded in a legal registry.

A new Property law was passed by the lower house on March 5, 2019, and went to the Senate for final review and approval. The new law aims to consolidate 13 laws governing property ownership in one legislation, and addresses issues such as zoning, and the facilitation of ownership and leases for foreign investors.

All land plots in Jordan are titled and registered with the Jordanian Land and Survey Department; any land not titled as private property is considered government property.

According the Ease of Doing Business report of 2019, Jordan ranked 72 out of 190 countries in “Registering Property.”

Intellectual Property Rights

Jordan has passed several laws in compliance with international commitments to protect intellectual property rights (IPR). Laws consistent with Trade Related Aspects of Intellectual Property Rights (TRIPS) now protect trade secrets, plant varieties, and semiconductor chip designs. Copyrights are registered with The Ministry of Culture’s National Library Department, and patents are registered with the Registrar of Patents and Trademarks at the Ministry of Industry and Trade. Jordan is a signatory to the Patent Cooperation Treaty and the Madrid Protocol, and accordingly, amended its patent and trademark laws in 2007 to enable ratification of the agreements. Jordan is a signatory to World Intellectual Property Organization (WIPO) treaties on both copyrights and on performances and phonograms, and it has been developing updated laws for copyrights, trademark standards, and customs regulations to meet international standards. Jordanian firms are able to seek joint ventures and licensing agreements with multinational partners.

In 2017, Jordan acceded to the Patent Cooperation Treaty (PCT); the treaty entered into force October 2017. The Ministry of Industry and Trade introduced an e-filing service in 2018 through https://ippd-eservice.mit.gov.jo/  .

Jordan’s record on IPR enforcement has improved in recent years, but more effective enforcement mechanisms and legal procedures are still needed. In particular, a large portion of pirated videos and software remain in the marketplace. Enforcement action against audio/video and software piracy is more frequent and enforcement capability is improving.  Since 2000, 6,011 violations of Jordan’s current copyright law have been referred to the judiciary, including 218 cases in 2018 and 174 cases in 2017. Trademark violations have also been problematic.

The U.S. Patent and Trademark Office has an Intellectual Property Attaché for the Middle East and North Africa region based in the U.S. Embassy in Kuwait City, Kuwait. Please see: https://www.uspto.gov/learning-and-resources/ip-policy/intellectual-property-rights-ipr-attach-program/ip-attach-kuwait   for contact information.

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

Capital Markets and Portfolio Investment

There are three key capital market institutions: the regulator, Jordan Securities Commission (JSC); the Amman Stock Exchange (ASE); and the custodian for all transaction contracts, clearings, and settlements, Securities Depository Center (SDC). The ASE launched an Internet Trading Service in 2010, providing an opportunity for investors to engage in securities trading regardless of geographic location.

Jordan’s market is among the most open among its regional competitors, as there are no caps in place for foreign ownership. At the end of 2018, non-Jordanian ownership in companies listed on the ASE represented 51.7 percent of the total market value (37.3 percent Arab investors and 14.4 percent for non-Arab investors); Jordanian ownership in the financial sector was 56.5 percent, 18.3 percent in the services sector, and 61.4 percent in the industrial sector. Investors, both foreign and domestic, are permitted to open margin accounts and to engage in short selling (commercial banks hold securities for their clients in a sub-account format).

In spite of recent reforms and technological advances, the ASE suffers from intermittent liquidity problems and low trading activity. The ASE’s market capitalization has grown and shrunk rapidly and repeatedly since 2003. Jordan’s financial market reached its height in 2007-2008, where average trading volumes topped USD 118 million daily. Following the global economic downturn, the market declined precipitously, with market capitalization falling from USD 41 billion in 2007 to USD 22.7 billion as of Dec 31, 2018.

By the end of 2018, the ASE price index had dropped 1908.8 points (10 percent) compared to its level at the end of 2017. In 2018, trading volume totaled USD 3.3 billion, a decline of 21 percent over 2017, with only 1.4 billion shares traded compared to 1.7 billion in 2017. The number of listed companies stood at 195 at the end of 2018 compared to 224 at the end of 2016.

At the same time, the net profits of 193 out of the 195 companies listed in the First and the Second Markets increased by USD 509.8 million in 2018 (according to preliminary financial statements provided to the ASE) reaching USD 1.153 billion, an increase of 44.7 percent over 2017.

Money and Banking System

Jordan has 25 banks, including commercial banks, Islamic banks, and foreign bank branches. Jordan does not distinguish between investment banks and commercial banks. Due to strict regulations on lending, particularly mortgage lending, and limited integration with global financial markets, the banking sector’s indicators remain strong. Banks continue to be profitable and well capitalized with deposits being the primary funding base. Liquidity ratios and provisioning remain high, while non-performing loan ratios modestly decreased over the past couple of years. Jordan’s rate of non-performing loans, as a percentage of all bank loans, was 4.2 percent in 2017, and reached 4.6 percent in the first half of 2018.

The banking law also does not discriminate between local and foreign banks. However, the minimum capital requirements differ with JD 50 million (USD 70.6 million) required for foreign banks and JD 100 million (USD 141 million) for local banks.

Banking Law No.28 / 2000 protects depositors’ interests, diminishes money market risk, guards against the concentration of lending, and includes articles on electronic banking practices and money laundering. The CBJ set up an independent Deposit Insurance Corporation (DIC) in 2000 that insures deposits up to JOD 50,000 (USD 71,000). The DIC also acts as the liquidator of banks as directed by the CBJ.

In January 2017, the CBJ and the 25 banks operating in the kingdom agreed to establish the “Jordan Payments and Clearing Company”, a private shareholding company based in Amman. The company began operations in 2018, with an aim to establish and develop digital retail and micro payments along with the investment in the innovative technology and digital financial services.

There is no legal impediment to applying block-chain technologies in banking transactions. The Central Bank actively supports the technology and is running two pilot projects deploying block-chain technologies: the Mobile Payment System (JoMoPay), and another for the verification of bank documents.

Foreign Exchange and Remittances

Foreign Exchange

The Central Bank of Jordan (CBJ) supervises and licenses all currency exchange businesses. These entities are exempt from paying commissions on exchange transactions and therefore enjoy a competitive edge over banks.

The Jordanian Dinar (JD or JOD) is fully convertible for all commercial and capital transactions. Since 1995, the JD has been pegged to the U.S. dollar at an exchange rate of JD 1 to USD 1.41.

Other notable foreign exchange regulations include:

• Non-residents are allowed to open bank accounts in foreign currencies. These accounts are exempted from all transfer-related commission fees charged by the CBJ.
• Banks are permitted to purchase unlimited amounts of foreign currency from their clients in exchange for JODs on a forward basis. Banks are permitted to sell foreign currencies in exchange for JODs on a forward basis for the purpose of covering the value of imports.
• There is no restriction on the amount of foreign currency that residents may hold in bank accounts, and there is no ceiling on the amount residents may transfer abroad. Banks do not require prior CBJ approval for a transfer of funds, including investment-related transfers.

Remittance Policies

Jordanian law entitles foreigners to remit abroad all returns, profits, and proceeds arising from the liquidation of investment projects. Non-Jordanian workers are permitted to transfer their salaries and compensation abroad.

Sovereign Wealth Funds

Jordan does not have a sovereign wealth fund.

A number of state-owned enterprises (SOEs) exist in Jordan. Currently, 17 SOEs of different sizes and mandates are fully owned by the government, five of which were established in 2016 and are not yet operational. Assets of wholly-owned SOEs exceed USD 11 billion in 2018, and the SOEs employ around 3,000 individuals.

Most of the operational SOEs are small in terms of the size of operations, assets, number of employees, and income. The largest SOEs are: National Electrical Power Company (NEPCO), Samra Electric Power Company, the Yarmouk Water Company, and Aqaba Development Corporation (ADC).

Jordan’s economy is private sector led, accounting for 71 percent of GDP and 75 percent of net cumulative investment. SOEs in Jordan exercise delegated governmental powers and operating in fields that are not yet open for investment, such as managing the transmission and distribution of electrical power and water. Other activities include logistics, mining, storage and inventory management of strategic products, in addition to economic development activities. The government supports these companies as necessary, for example, the government has issued and guaranteed Treasury bonds for NEPCO since 2011 to ensure continuous power supply for the country.

SOEs generally compete on largely equal terms with private enterprises with respect to access to markets, credit, and other business operations. The law does not provide preferential treatment to SOEs, and they are held accountable by their Board of Directors, typically chaired by the sector-relevant Minister and the Audit Bureau.

The government, enterprises and NGOs are progressively taking initiatives to incorporate Responsible Business Conduct into their practices.

Jordan is not a party to the Government Procurement Agreement.

Privatization Program

Over the last fifteen years, the Jordanian government has engaged in a wide-scale privatization program, including in the telecom, energy, and transportation sectors. The few remaining government assets not privatized, including Jordan Silos and Supply Company, have elicited little private sector interest.

Government is following a Public Private Partnership (PPP) model for new projects rather that full privatization.  Currently the PPP law is under review to make it easier for local and foreign investors to participate in bids.

There is general awareness of responsible business conduct among both manufacturers and consumers in Jordan, with many local and multinational companies voluntarily developing and adopting corporate social responsibility (CSR) programs. CSR efforts predominantly focus on improving infrastructure in adjoining communities or providing better access to educational opportunities.

The amended companies’ law regulates the work of companies through applying the rules of company governance and enhancing the monitoring authorities of shareholders at public liability companies.

The American Chamber of Commerce published in 2016 a framework code of conduct for the private sector, Jordan Integrity and Anti-Corruption Commission (JIACC) approved and embedded as part of the governance chapter in the amended companies’ law. In addition, there have been programs released and revised by the Jordanian government such as the Golden List Program. The Customs Department released and revised a Golden List Program, which encourages good corporate citizenship amongst trading companies and international best practice for trade across borders.

Investments in Jordan are eligible for Overseas Private Investment Corporation (OPIC) insurance and private financing. Projects require a minimum of 25 percent U.S. equity in order to qualify. Over the past several years, OPIC backed significant investments in Jordanian private equity ventures and in mortgage financing, with over USD 1 billion in investments in Jordan. OPIC is also active in financing projects in Jordan’s burgeoning renewable energy sector. In 2011, OPIC signed a USD 250 million loan guarantee program and established, the Jordan Loan Guarantee Facility (JLGF) in partnership with USAID, as an inclusive finance activity aimed at improving access to finance for small and medium sized enterprises in Jordan. OPIC previously extended a USD 250 million loan to support the USD 1 billion Disi water project to bring water to Amman from the Disi aquifer in the south.

Jordan is a member of the Multilateral Investment Guarantee Agency (MIGA), a World Bank agency which guarantees investment against non-commercial risks such as civil war, nationalization, and policy changes. The program covers investments in Jordan irrespective of the investor’s nationality in addition to Jordanian investments abroad.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Source for Host Country Data: Central Bank of Jordan, data published Q2 2018.

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Source: http://data.imf.org/regular.aspx?key=60587812  

Policies Towards Foreign Direct Investment

Kenya has enjoyed a steadily improving environment for foreign direct investment (FDI).  Foreign investors seeking to establish a presence in Kenya generally receive the same treatment as local investors, and multinational companies make up a large percentage of Kenya’s industrial sector.  The government’s export promotion programs do not distinguish between goods produced by local or foreign-owned firms. The major regulations governing FDI are found in the Investment Promotion Act (2004).  Other important documents that provide the legal framework for FDI include the 2010 Constitution of Kenya, the Companies Ordinance, the Private Public Partnership Act (2013), the Foreign Investment Protection Act (1990), and the Companies Act (2015).  GOK membership in the World Bank’s Multilateral Investment Guarantee Agency (MIGA) provides an opportunity to insure FDI against non-commercial risk.

The government does not have a policy to steer investment to specific geographic locations, but encourages investments in sectors that create employment, generate foreign exchange, and create forward and backward linkages with rural areas.  The Central Bank has successfully maintained macroeconomic stability with relatively low inflation and stable exchange rates. The National Treasury is increasingly attentive to ensuring prudent debt management. Kenya puts significant effort into assuring the health and growth of its tourism industry.  To strengthen Kenya’s manufacturing capacity, the government offers incentives for the production of goods for export.

Investment Promotion Agency

KenInvest, the country’s official investment promotion agency, is viewed favorably by international investors (http://www.investmentkenya.com  ).  KenInvest’s mandate is to promote and facilitate investment by assisting investors in obtaining the licenses necessary to invest and by providing other assistance and incentives to facilitate smoother operations.  To help investors navigate local regulations, KenInvest has developed an online database known as eRegulations, designed to provide investors and entrepreneurs with full transparency on Kenya’s investment-related regulations and procedures (http://kenya.eregulations.org/?l=en  ).

The GOK prioritizes investment retention and maintains an ongoing dialogue with investors.  All proposed legislation must pass through a period of public consultation in which investors have an opportunity to offer feedback.  Private sector representatives can serve as board members on Kenya’s state-owned enterprises. Since 2013, the Kenya Private Sector Alliance (KEPSA), the apex private sector business association, has had bi-annual round table meetings with President Kenyatta and his cabinet.  Investors’ concerns are considered by a Cabinet committee on the ease of doing business, chaired by President Kenyatta. The American Chamber of Commerce has also taken an increasingly active role in engaging the GOK on Kenya’s business environment, often providing a forum for dialogue.

Limits on Foreign Control and Right to Private Ownership and Establishment

The government provides the right for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity.  In an effort to encourage foreign investment, the GOK in 2015 repealed regulations that imposed a 75 percent foreign ownership limitation for firms listed on the Nairobi Securities Exchange, allowing such firms to be 100 percent foreign-owned.  Also in 2015, the government established regulations requiring Kenyans own at least 15 percent of the share capital of derivatives exchanges, through which derivatives such as options and futures can be traded.

Kenya considered imposing “local content” requirements on foreign investments under the Companies Act (2015), which initially contained language requiring all foreign companies to demonstrate at least 30 percent of shareholding by Kenyan citizens by birth.  United States business associations, however, raised concerns over the bill, pointing to its lack of clarity and the possibility such measures could run afoul of Kenya’s commitments under the WTO. After the U.S. government also raised the issue with the Kenyan government, the clause was repealed.

Telecommunications regulator Communications Authority requires 20 percent Kenyan shareholding within three years of receiving a license.  The Mining Act (2016) restricts foreign participation in the mining sector and reserves the acquisition of mineral rights to Kenyan companies, requiring 60 percent Kenyan ownership of mineral dealerships and artisanal mining companies.  The Private Security Regulations Act (2016) restricts foreign participation in the private security sector by requiring that at least 25 percent of shares in private security firms be held by Kenyans. The National Construction Authority Act (2011) imposes local content restrictions on “foreign contractors,” defined as companies incorporated outside Kenya or with more than 50 percent ownership by non-Kenyan citizens.  The act requires foreign contractors to enter into subcontracts or joint ventures assuring that at least 30 percent of the contract work is done by local firms. Regulations implementing these requirements remain in process. The Kenya Insurance Act (2010) restricts foreign capital investment to two-thirds, with no single person controlling more than 25 percent of an insurers’ capital.

Other Investment Policy Reviews

Kenya had no investment policy reviews though multilateral organizations in the last three years.

Business Facilitation

In 2011, the GOK established a state agency called KenTrade to address trading partners’ concerns regarding the complexity of trading regulations and procedures.  KenTrade is mandated to facilitate cross-border trade and to implement the National Electronic Single Window System. In 2017, KenTrade launched InfoTrade Kenya, located at infotrade.gov.ke, which provides a host of investment products and services to prospective investors in Kenya.  The site documents the process of exporting and importing by product, by steps, by paperwork, and by individuals, including contact information for officials’ responsible relevant permits or approvals.

The Movable Property Security Rights Bill (2017) enhanced the ability of individuals to secure financing through movable assets, including using intellectual property rights as collateral.  The Nairobi International Financial Centre Act (2017) seeks to provide a legal framework to facilitate and support the development of an efficient and competitive financial services sector in Kenya.  The act created the Nairobi Financial Centre Authority to establish and maintain an efficient operating framework to attract and retain firms. The Kenya Trade Remedies Act (2017) provides the legal and institutional framework for Kenya’s application of trade remedies consistent with World Trade Organization (WTO) law, which requires a domestic institution to both receive complaints and undertake investigations in line with the WTO Agreements.  To date, however, Kenya has implemented only 7.1 percent of its commitments under the WTO Trade Facilitation Agreement, which it ratified in 2015. The Kenya Trade Remedies Act provides for the establishment of the Kenya Trade Remedies Agency for the investigation and imposition of anti-dumping, countervailing duty, and trade safeguards measures, and enables the GOK to take necessary measures to protect domestic industries from unfair trade practices.

The Companies Amendment Act (2017) amended the prior Companies Act clarifying ambiguities in the act and conforms to global trends and best practices.  The act amends provisions on the extent of directors’ liabilities, on the extent of directors’ disclosures, and on shareholder remedies to better protect investors, including minority investors.  The amended act eliminates the requirement for small enterprises to have lawyers register their firms, the requirement for company secretaries for small businesses, and the need for small businesses to hold annual general meetings, saving regulatory compliance and operational costs.

The Business Registration Services (BRS) Act (2015) established a state corporation known as the Business Registration Service to ensure effective administration of the laws relating to the incorporation, registration, operation and management of companies, partnerships, and firms.  The BRS also devolves to the counties business registration services such as registration of business names and promoting local business ideas/legal entities, thus reducing costs of registration. The Companies Act (2015) covers the registration and management of both public and private corporations.

In 2014, the GOK established a Business Environment Delivery Unit to address challenges facing investors in the country.  The unit focuses on reducing the bureaucratic steps related to setting up and doing business in the country. Separately, the Business Regulatory Reform Unit operates a website (http://www.businesslicense.or.ke/  ) offering online business registration and providing information on how to access detailed information on additional relevant business licenses and permits, including requirements, costs, application forms, and contact details for the relevant regulatory agency.  In 2013, the GOK initiated the Access to Government Procurement Opportunities program, requiring all public procurement entities to set aside a minimum of 30 percent of their annual procurement spending facilitate the participation of youth, women, and persons with disabilities (https://agpo.go.ke/).

An investment guide to Kenya, also referred to as iGuide Kenya, can be found at http://www.theiguides.org/public-docs/guides/kenya/about#  .  iGuides designed by UNCTAD and the International Chamber of Commerce provide investors with up-to-date information on business costs, licensing requirements, opportunities, and conditions in developing countries.  Kenya is a member of UNCTAD’s international network of transparent investment procedures.

Outward Investment

The GOK does not promote or incentivize outward investment.  Despite this, Kenya is evolving into an outward investor in tourism, manufacturing, retail, finance, education, and media.  Currently, the majority of outward investment remains in the EAC, making the most of Kenyan preferential access between EAC member countries.  The GOK also does not restrict domestic investors from investing abroad. Rather, the EAC advocates for free movement of capital across the six member states – Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda.

BITs or FTAs

In 2018, Kenya did not sign any new BITs or FTAs with other countries.  Kenya’s BIT with Japan was signed in 2016 and came into force in 2017. Kenya’s BIT with the Republic of Korea was signed in 2014 and entered into forced in 2017.

Bilateral Taxation Treaties

The United States does not have a free trade agreement, bilateral investment treaty, or bilateral taxation treaty with Kenya.  Kenya, however, is a beneficiary of the African Growth and Opportunity Act (AGOA), a U.S. trade preference and export promotion policy, which Congress renewed in 2015 for an additional 10 years.  Under AGOA, Kenyan exporters enjoy duty-free access to U.S. markets for products falling under more than 6,400 tariff lines. Kenya’s primary exports to the United States under AGOA are apparel and accessories, coffee, tea, and nuts.  According to the Kenya National Bureau of Statistics’ 2018 Economic Survey, apparel exported under AGOA decreased to USD 327 million in 2017, down 4.6 percent from USD 344 million in 2016. Kenya, however, remains the largest textile exporter under AGOA.  In 2019, the United States and Kenya established a bilateral Trade and Investment Working Group (TIWG) to deepen trade and investment ties between the two countries, including exploratory talks on a future bilateral trade and investment framework.

The GOK has trade facilitation agreements (TFA) through the WTO, EAC Customs Union Protocol, Common Market for Eastern and Southern Africa (COMESA) Protocol on FTA, and the EU-EAC economic partnership agreement.  The nine COMESA FTA member countries are Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia, and Zimbabwe.  The other 10 COMESA countries that are not part of the FTA trade with Kenya on preferential terms, observing tariff reductions between 60 and 80 percent.  The status of EU-EAC economic partnership agreement is unclear at this time because of the failure of Tanzania and Uganda to renew the agreement in 2016 and 2017.  Kenya is continuing to participate in negotiations towards an African Continental Free Trade Area (AfCFTA) which seeks to establish the largest free-trade areas since the formation of the WTO.

According to World Bank and Price Waterhouse Coopers’ 2018 Paying Taxes Report, Kenya improved marginally in the ease of paying taxes, rising to 91 in 2018. The report shows that a medium sized company in Kenya pays a total tax rate of 37.2 percent, 9.8 percent less than the sub Saharan Africa average of 47 percent and below the global average of 40.4 percent.  The iTax system launched by the Kenya Revenue Authority in mid-2015 has reduced tax compiling time from 186 hours in 2016 to 180 in 2017, compared to the global average of 237 hours. Kenya, however, still performs poorly in the post-filing index, which measures value-added tax (VAT) refunds and corrections made to corporate income tax returns, scoring only 59.6 out of 100 in post-filing efficiency.

Transparency of the Regulatory System

Kenya’s regulatory system is relatively transparent and continues to improve.  Proposed laws and regulations pertaining to business and investment are published in draft form for public input and stakeholder deliberation before their passage into law (http://www.kenyalaw.org/   and http://www.parliament.go.ke/the-national-assembly/house-business/bills-tracker  ).  Kenya’s business registration and licensing systems are fully digitized and transparent while computerization of other government processes to increase transparency and close avenues for corrupt behavior is ongoing.

The 2010 Kenyan Constitution requires government to incorporate public participation before officials and agencies make certain decisions.  The draft Public Participation Bill (2018) would provide the general framework for such public participation. The Ministry of Devolution has produced a guide for counties on how to carry out public participation; many counties have enacted their own laws on public participation.  The Environmental Management and Coordination Act (1999) incorporates the principles of sustainable development, including public participation in environmental management. The Public Finance Management Act mandates public participation in the budget cycle. The Land Act, Water Act, and Fair Administrative Action Act (2015) also include provisions providing for public participation in agency actions.

Many GOK laws grant significant discretionary and approval powers to government agency administrators, which can create uncertainty among investors.  While some government agencies have amended laws or published clear guidelines for decision-making criteria, others have lagged in making their transactions transparent.  Work permit processing remains a particular problem, with overlapping and sometimes contradictory regulations. American companies have complained about delays and non-issuance of permits that appear compliant with known regulations.

International Regulatory Considerations

Kenya is a member state of the East African Community (EAC), and generally applies EAC policies to trade and investment.  Kenya operates under the EAC Custom Union Act (2004) and decisions on the tariffs to levy on imports from countries outside the EAC zone are made at the EAC Secretariat level.  The U.S. government engages with Kenya on trade and investment issues bilaterally and through the U.S.-EAC Trade and Investment Partnership. Kenya also is a member of COMESA and the Inter-Governmental Authority on Development (IGAD).

According to the Africa Regional Integration Index Report 2016, Kenya is a leader in regional integration policies within these regional blocs, with strong performance on regional infrastructure, productive integration, free movement of people, and financial and macro-economic integration.  The GOK maintains a Department of East African Community Integration within the Ministry of East Africa and Northern Corridor. Kenya generally adheres to international regulatory standards. The country is a member of the WTO and provides notification of draft technical regulations to the Committee on Technical Barriers to Trade (TBT).  Kenya maintains a TBT National Enquiry Point at http://notifyke.kebs.org  .  Additional information on Kenya’s WTO participation can be found at https://www.wto.org/english/thewto_e/countries_e/kenya_e.htm  .

Accounting, legal, and regulatory procedures are transparent and consistent with international norms.  Publicly listed companies adhere to International Financial Reporting Standards (IFRS) that have been developed and issued in the public interest by the International Accounting Standards Board.  The board is an independent, private sector, not-for-profit organization that is the standard-setting body of the IFRS Foundation. Kenya is a member of UNCTAD’s international network of transparent investment procedures.

Legal System and Judicial Independence

The legal system is based on English Common Law, and the 2010 constitution establishes an independent judiciary with a Supreme Court, Court of Appeal, Constitutional Court, and High Court.  Subordinate courts include: Magistrates, Khadis (Muslim succession and inheritance), Courts Martial, the Employment and Labor Relations Court (formerly the Industrial Court), and the Milimani Commercial Courts – the latter two of which both have jurisdiction over economic and commercial matters.  In 2016, Kenya’s judiciary instituted specialized courts focused on corruption and economic crimes. There is no systematic executive or other interference in the court system that affects foreign investors, however, the courts face allegations of corruption, political manipulation, and long delays in rendering judgments.

Laws and Regulations on Foreign Direct Investment

The Foreign Judgments (Reciprocal Enforcement) Act (2012) provides for the enforcement of judgments given in other countries that accord reciprocal treatment to judgments given in Kenya.  Kenya has entered into reciprocal enforcement agreements with Australia, the United Kingdom, Malawi, Tanzania, Uganda, Zambia, and Seychelles. Outside of such an agreement, a foreign judgment is not enforceable in the Kenyan courts except by filing a suit on the judgment.  Foreign advocates are not entitled to practice in Kenya unless a Kenyan advocate instructs and accompanies them, although a foreign advocate may practice as an advocate for the purposes of a specified suit or matter if appointed to do so by the Attorney General. The regulations or enforcement actions are appealable and are adjudicated in the national court system.

Competition and Anti-Trust Laws

The Competition Act (2010) created the Competition Authority of Kenya (CAK).  All mergers and acquisitions require the CAK’s authorization before they are finalized, and the CAK regulates abuse of dominant position and other competition and consumer-welfare related issues in Kenya.  In 2014, CAK imposed a filing fee for mergers and acquisitions set at one million Kenyan shillings (KSH) (approximately USD 10,000) for mergers involving turnover of between one and KSH 50 billion (up to approximately USD 500 million).  KSH two million (approximately USD 20,000) will be charged for larger mergers. Company takeovers are possible if the share buy-out is more than 90 percent, although such takeovers are rarely seen in practice.

Expropriation and Compensation

The 2010 constitution guarantees protection from expropriation, except in cases of eminent domain or security concerns, and all cases are subject to the payment of prompt and fair compensation.  The Land Acquisition Act (2010) governs due process and compensation in land acquisition, although land rights remain contentious and can cause significant project delays.

Dispute Settlement

ICSID Convention and New York Convention

Kenya is a member of the International Centre for Settlement of Investment Disputes, also known as the ICSID Convention or the Washington Convention, and the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards.  Regarding the arbitration of property issues, the Foreign Investments Protection Act (2014) cites Article 75 of the Kenyan Constitution, which provides that “[e]very person having an interest or right in or over property which is compulsorily taken possession of or whose interest in or right over any property is compulsorily acquired shall have a right of direct access to the High Court.”

Investor-State Dispute Settlement

There have been very few investment disputes involving U.S. and international companies.  Commercial disputes, including those involving government tenders, are more common. The private sector cites weak institutional capacity, inadequate transparency, and inordinate delays in dispute resolution in lower courts.  The resources and time involved in settling a dispute through the Kenyan courts often render them ineffective as a form of dispute resolution.

International Commercial Arbitration and Foreign Courts

The government does accept binding international arbitration of investment disputes with foreign investors.  The Kenyan Arbitration Act (1995) as amended in 2010 is anchored entirely on the United Nations Commission on International Trade Law (UNCITRAL) Model Law.  Legislation introduced in 2013 established the Nairobi Centre for International Arbitration (NCIA), which seeks to serve as an independent, not-for-profit international organization for commercial arbitration, and may offer a quicker alternative to the court system.  In 2014, the Kenya Revenue Authority launched an Alternative Dispute Resolution (ADR) mechanism aiming to provide taxpayers with an alternative, fast-track avenue for resolving tax disputes.

Bankruptcy Regulations

The Insolvency Act (2015) modernized the legal framework for bankruptcies.  Its provisions generally correspond to those of the United Nations’ Model Law on Cross Border Insolvency.  The act promotes fair and efficient administration of cross-border insolvencies to protect the interests of all creditors and other interested persons, including the debtor.  The act repeals the Bankruptcy Act (2012) and updates the legal structure relating to insolvency of natural persons and incorporated and unincorporated bodies. Section 720 of the Insolvency Act (2015) grants the force of law to the UNCITRAL Model Law.

Creditors’ rights are comparable to those in other common law countries, and monetary judgments typically are made in Kenyan shillings.  The Insolvency Act (2015) increased the rights of borrowers and prioritizes the revival of distressed firms. The law states that a debtor will automatically be discharged from debt after three years.  Bankruptcy is not criminalized in Kenya. Kenya moved up 38 ranks in the World Bank Group’s Doing Business 2019 report, moving to 57 of 190 countries in the “resolving insolvency” category.

Investment Incentives

The minimum foreign investment to qualify for GOK investment incentives is USD 100,000, a potential deterrent to foreign small and medium enterprise investment, especially in the services sector.  Investment Certificate benefits, including entry permits for expatriates, are outlined in the Investment Promotion Act (2004).

The government allows all locally-financed materials and equipment for use in construction or refurbishment of tourist hotels to be zero-rated for purposes of VAT calculation – excluding motor vehicles and goods for regular repair and maintenance.  The National Treasury principal secretary, however, must approve such purchases. In a measure to boost the tourism industry, one-week employee vacations paid by employers are a tax-deductible expense. The 2015 amendments to Kenya’s VAT rules clarified some items that are VAT exempt.  In 2018, the Kenya Revenue Authority (KRA) exempted from VAT certain facilities and machinery used in the manufacturing of goods under Section 84 of the East African Community Common External Tariff Handbook. VAT refund claims must be submitted within 12 months of purchase.

The government’s Manufacturing Under Bond (MUB) program encourages manufacturing for export.  The program provides a 100 percent tax deduction on plant machinery and equipment and raw materials imported for production of goods for export.  The program is also open to Kenyan companies producing goods that can be imported duty-free or goods for supply to the armed forces or to an approved aid-funded project.  Investors in metal manufacturing and products and the hospitality services sectors are able to deduct from their taxes a large portion of the cost of buildings and capital machinery.

The Finance Act (2014) amended the Income Tax Act (1974) to reintroduce capital gains tax on transfer of property located in Kenya.  Under this provision, gains derived on the sale or transfer of property by an individual or company are subject to tax at rates of at least five percent.  Sales and transfer of property related to the oil and gas industry are taxed up to 37.5 percent. The Finance Act (2014) also reintroduced the withholding VAT system by government ministries, departments and agencies.  The system excludes the Railway Development Levy (RDL) imports for persons, goods, and projects; the implementation of an official aid-funded project; diplomatic missions and institutions or organizations gazetted under the Privileges and Immunities Act (2014); and the United Nations or its agencies.

Foreign Trade Zones/Free Ports/Trade Facilitation

Kenya’s Export Processing Zones (EPZ) and Special Economic Zones (SEZ) offer special incentives for firms operating within their boundaries.  By the end of 2016, Kenya had 65 designated EPZs, with 91 companies and 52,019 workers contributing KSH 63.1 billion (about USD 622 million) to the Kenyan economy.  Companies operating within an EPZ benefit from the following tax benefits: a 10-year corporate-tax holiday and a 25 percent tax thereafter; a 10-year withholding tax holiday; stamp duty exemption; 100 percent tax deduction on initial investment applied over 20 years; and VAT exemption on industrial inputs.

About 54 percent of EPZ products are exported to the United States under AGOA.  The majority of the exports are textiles – Kenya’s third largest export behind tea and horticulture – and more recently handicrafts.  Eighty percent of Kenya’s textiles and apparel originate from EPZ-based firms. Approximately 50 percent of all firms in the zones are fully-owned by foreigners – mainly from India – while the rest are locally owned or joint ventures with foreigners.

While EPZs are focused on encouraging production for export, SEZs are designed to boost local economies by offering benefits for goods that are consumed both internally and externally.  SEZs will allow for a wider range of commercial ventures, including primary activities such as farming, fishing, and forestry. The 2016 Special Economic Zones Regulations state that the Special Economic Zone Authority (SEZA) must maintain an open investment environment to facilitate and encourage business by the establishment of simple, flexible, and transparent procedures for investor registration.  The rules also empower county governments to set aside public land for establishment of industrial zones.

Companies operating in the SEZs will receive the following benefits:  all SEZ supplies of goods and services to companies and developers will be exempted from VAT; the corporate tax rate for enterprises, developers, and operators will be reduced from 30 percent to 10 percent for the first 10 years and 15 percent for the next 10 years; exemption from taxes and duties payable under the Customs and Excise Act (2014), the Income Tax Act (1974), the EAC Customs Management Act (2004), and stamp duty; and exemption from county-level advertisement and license fees.  There are currently SEZs in Mombasa (2,000 sq. km), Lamu (700 sq. km), and Kisumu (700 sq. km). The Third Medium Term Plan of Kenya’s Vision 2030 economic development agenda calls for a study for an SEZ at Dongo Kundu, and an SEZ was also under consideration at a location near the Olkaria geothermal power plant.

Performance and Data Localization Requirements

The GOK mandates local employment in the category of unskilled labor.  The Kenyan government regularly issues permits for key senior managers and personnel with special skills not available locally.  For other skilled labor, any enterprise whether local or foreign may recruit from outside if the skills are not available in Kenya.  Firms seeking to hire expatriates must demonstrate that the requisite skills are not available locally through an exhaustive search. The Ministry of EAC and Northern Corridor, however, has noted plans to replace this requirement with an official inventory of skills that are not available in Kenya.  A work permit can cost up to KSH 400,000 (approximately USD 4,000).

The Public Procurement and Asset Disposal Act (2015) offers preferences to firms owned by Kenyan citizens and to products manufactured or mined in Kenya.  Tenders funded entirely by the government with a value of less than KSH 50 million (approximately USD 500,000), are reserved for Kenyan firms and goods. If the procuring entity seeks to contract with non-Kenyan firms or procure foreign goods, the act requires a report detailing evidence of an inability to procure locally.  The act also calls for at least 30 percent of government procurement contracts to go to firms owned by women, youth, and persons with disabilities. The act further reserves 20 percent of county procurement tenders to residents of that county.

The Finance Act (2017) amends the Public Procurement and Asset Disposal Act (2015) to introduce Specially Permitted Procurement as an alternative method of acquiring public goods and services.  The new method permits state agencies to bypass existing public procurement laws under certain circumstances. Procuring entities will be allowed to use this method where market conditions or behavior do not allow effective application of the 10 methods outlined in the Public Procurement and Disposal Act.  The act gives the National Treasury Cabinet Secretary the authority to prescribe the procedure for carrying out specially permitted procurement.

The GOK does not currently have any laws requiring data localization, though the draft Data Protection Bill (2018) would impose restrictions on the transfer of data in and out of Kenya, functionally requiring data localization.  The draft bill is similar to the European General Data Protection Regulation requirements on data processing. The GOK’s 2016 draft ICT Policy stated a preference for legislated data localization, but was never implemented.

Real Property

Foreigners cannot own land in Kenya, though they can lease it in 99-year increments.  The cumbersome and opaque process required to acquire land raises concerns about security of title, particularly given past abuses relating to the distribution and redistribution of public land.  The Land (Extension and Renewal of Leases) Rules (2017) has stopped the automatic renewal of leases and now ties renewals to the economic output of the land that must be beneficial to the economy.  If property legally purchased remains unoccupied, the property ownership can revert to other occupiers, including squatters. Privately-owned land comprised six percent of the total land area in 1990; government land was about 20 percent of the total and included national parks, forest land and alienated and un-alienated land.  Trust land is the most extensive type of tenure, comprising 64 percent of the total land area in 1990.

Mortgages and liens exist in Kenya, but the recording system is not reliable – Kenya has only some 40,000 recorded mortgages in a country of 42 million people – and there are often complaints of property rights and interests not being enforced.  The legal infrastructure around land ownership and registration has changed in recent years, and land issues delayed several major infrastructure projects coming into 2019. Kenya’s 2010 Constitution required all land leases to convert from 999 years to 99 years, giving the state the power to review leasehold land at the expiry of the 99 years, deny lease renewal, and confiscate the land if it determines the land has not been used productively.  The constitution also converted foreign-owned freehold interests into 99-year leases at a nominal “peppercorn rate” sufficient to satisfy the requirements for the creation of a legal contract. The GOK has not yet effectively implemented this provision. Work continues on the National Land Information Management System, but fully digitized, border-to-border cadastral data is still many years in the future.

The 2010 Constitution and subsequent land legislation created the National Land Commission, an independent government body mandated to review historical land injustices and provide oversight of government land policy and management.  This had the unintended side effect of introducing coordination and jurisdictional confusion between the commission and the Ministry of Lands. In February 2015, President Kenyatta commissioned the new National Titling Center with a promise to increase the 5.6 million title deeds issued since independence to 9 million.  According to the Ministry of Lands and Physical Planning, 8.6 million title deeds have now been processed. Land grabbing resulting from double registration of titles, however, remains prevalent. Property legally purchased and unoccupied can revert ownership to other parties.

Intellectual Property Rights

The major intellectual property enforcement issues in Kenya related to counterfeit products are corruption, lack of penalty enforcement, failure to impound imports of counterfeit goods at the ports of entry, and reluctance of brand owners to file a complaint with the Anti-Counterfeit Agency (ACA).  The prevalence of “gray market” products – genuine products that enter the country illegally without paying import duties – also presents a challenge, especially in the mobile phone and computer sectors. Copyright piracy and the use of unlicensed software are also emerging challenges.

In an attempt to combat the import of counterfeits, the Ministry of Industrialization and the Kenya Bureau of Standards (KEBS) decreed in 2009 that all locally-manufactured goods must have a KEBS standardization mark.  Several categories of imported goods, specifically food products, electronics, and medicines, must have an import standardization mark (ISM). Under this program, U.S. consumer-ready products may enter the Kenyan market without altering the U.S. label but must also carry an ISM.  Once the product qualifies for a Confirmation of Conformity, KEBS will issue the ISM free of charge.

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

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

Capital Markets and Portfolio Investment

Though relatively small by Western standards, Kenya’s capital markets are the deepest and most sophisticated in East Africa.  The Kenyan capital market has grown rapidly in recent years and has also exhibited strong capital raising capacity. The bond market is underdeveloped and dominated by trading in government debt securities.  The government domestic debt market, however, is deep and liquid. Long-term corporate bond issuances are uncommon, leading to a lack of long-term investment capital.

Foreign investors can obtain credit on the local market; however, the number of available credit instruments is relatively small and the government’s interest rate cap since 2016 continues to constrain the availability of credit.  Legal, regulatory, and accounting systems are generally aligned with international norms. The Kenyan National Treasury has launched its mobile money platform government bond to retail investors locally. The name of the product is M-Akiba, through which local Kenyans are able to purchase bonds as small as USD 30 on their mobile phones.  The product was enthusiastically received and generated 400,000 new accounts in the first two weeks of its issuance. The GOK expects to issue USD 10 million over this platform in 2019 in an effort to deepen financial inclusion and financial literacy.

The Central Bank of Kenya (CBK) is working with regulators in EAC member states through the Capital Market Development Committee (CMDC) and East African Securities Regulatory Authorities (EASRA) on a regional integration initiative and has successfully introduced cross-listing of equity shares.  The combined use of both the Central Depository System (CDS) and an automated trading system has moved the Kenyan securities market to globally accepted standards. Kenya is a full (ordinary) member of the International Organization of Securities Commissions Money and Banking System.

Money and Banking System

The Kenyan banking sector in 2018 included 47 commercial banks, one mortgage finance company, 14 microfinance banks, eight representative offices of foreign banks, 74 foreign exchange bureaus, 18 money remittance providers, and three credit reference bureaus.  Kenya also has 12 deposit-taking microfinance institutions. Of Kenya’s 47 banking institutions, 28 are locally owned and 13 are foreign owned. Major international banks operating in Kenya include Citibank, Barclays, Bank of India, Standard Bank (South Africa), and Standard Chartered.

In March, 2017, CBK lifted its moratorium on licensing new banks, issued in November 2015 following the collapse of Imperial Bank and Dubai Bank.  The CBK’s decision to restart licensing signaled a return of stability in the Kenyan banking sector. JPMorgan Chase has expressed interest in setting up a representative office in Nairobi and Qatari National Bank (QNB) is interested in arranging a Sukuk (sovereign bond) for Kenya. In 2018, Societé Generale (France) also set up a representative office in Nairobi.

In August 2016, President Kenyatta signed into law the Banking Act (2016), which caps the maximum interest rate banks can charge on loans at four percent above the CBK’s benchmark lending rate.  It further provides a floor for the deposit rate held in interest earning accounts to at least 70 percent of the CBK benchmark rate. The cap has hurt the GOK’s ability to raise funds in the local debt market.  The cap also has slowed the consumer and small and medium business credit market. The International Monetary Fund and other observers have warned that the restrictions will result in a continuing contraction in the availability of credit.  In March 2019, the Supreme Court found the interest rate cap to be unconstitutional, but suspended its ruling for 12 months to provide Parliament an opportunity to review the cap.

In the ongoing land registry digitization process, the Kenyan Government is working on a database, known as the single source of truth (SSOT), to eliminate fake title deeds in the Ministry of Lands.  The SSOT database development plan is premised on blockchain technology – distributed ledger technology – as the primary reference for all land transactions. The SSOT database would help the land transaction process to be efficient, open, and transparent.

The percentage of Kenya’s total population with access to financial services through conventional or mobile banking platforms is approximately 80 percent.  According to the World Bank, M-Pesa, Kenya’s largest mobile banking platform, processes more transactions within Kenya each year than Western Union does globally.  In September 2018, 30 million Kenyans were using mobile phone platforms to transfer money, according to the Communication Authority of Kenya. The 2017 National ICT Masterplan envisages the sector contributing at least 10 percent of GDP, up from 4.7 percent in 2015.  Several mobile money platform have achieved international interoperability, allowing the Kenyan diaspora to conduct financial transactions in Kenya from abroad.

Foreign Exchange and Remittances

Foreign Exchange Policies

Kenya has no restrictions on converting or transferring funds associated with investment.  Kenyan law requires the declaration to customs of amounts greater than KSH 1,000,000 (approximately USD 10,000) or the equivalent in foreign currencies for non-residents as a formal check against money laundering.  Kenya is an open economy with a liberalized capital account and a floating exchange rate. The CBK engages in volatility controls aimed exclusively at smoothing temporary market fluctuations. Between June 2015 and June 2016, the Kenyan shilling declined 3.5 percent after a sharp decline of 15 percent during the same period in 2014/2015.  In 2018, foreign exchange reserves remained relatively steady. The average inflation rate was between 3.7-5.7 percent in 2018 and the average rate on 91-day treasury bills had fallen to 7.75 percent in 2018. According to CBK figures, the average exchange rate was KSH 101.3to USD 1.00 in 2018.

Remittance Policies

Kenya’s Foreign Investment Protection Act (FIPA) guarantees capital repatriation and remittance of dividends and interest to foreign investors, who are free to convert and repatriate profits including un-capitalized retained profits (proceeds of an investment after payment of the relevant taxes and the principal and interest associated with any loan).

Foreign currency is readily available from commercial banks and foreign exchange bureaus and can be freely bought and sold by local and foreign investors.  The Central Bank of Kenya Act (2014), however, states that all foreign exchange dealers are required to obtain and retain appropriate documents for all transactions above the equivalent of KSH 1,000,000 (approximately USD 10,000).  As of March 2018, the CBK has licensed 18 money remittance providers following the operationalization of the Money Remittance Regulations in April 2013.

Kenya is listed as a country of primary concern for money laundering and financial crime by the State Department’s Bureau of International Narcotics and Law Enforcement.  Kenya was removed from the inter-governmental Financial Action Task Force (FATF) Watchlist in 2014 following progress in creating the legal and institutional framework to combat money laundering and terrorism financing.

Sovereign Wealth Funds

Kenya is in the process of establishing a sovereign wealth fund under the Kenya National Sovereign Wealth Fund Bill (2014).  The fund would receive income from any future privatization proceeds, dividends from state corporations, oil and gas, and minerals revenues due to the national government, revenue from other natural resources, and funds from any other source.  The bill remains under internal review and stakeholder consultations.

The Kenya Information and Communications Act (2009) provides for the establishment of a Universal Service Fund (USF).  The purpose of the USF is to fund national projects that have significant impact on the availability and accessibility of ICT services in rural, remote, and poor urban areas.  The USF has amassed sizeable assets, but to date, the fund and its managing committee have not been able to mobilize it for use on any project.

In 2013, the Presidential Task Force on Parastatal Reforms (PTFPR) published a list of all state-owned enterprises (SOEs) and recommended proposals to reduce the number of State Corporations from 262 to 187 to eliminate redundant functions between parastatals; close or dispose of non-performing organizations; consolidate functions wherever possible; and reduce the workforce — however, progress is slow.  The taskforce’s report can be found at http://www.cofek.co.ke/Report percent20of percent20The percent20Presidential percent20Task percent20force percent20on percent20Parastatal percent20Reforms.pdf .  In general, competitive equality is the standard applied to private enterprises in competition with public enterprises.  Certain parastatals, however, have enjoyed preferential access to markets. Examples include Kenya Reinsurance, which enjoys a guaranteed market share; Kenya Seed Company, which has fewer marketing barriers than its foreign competitors; and the National Oil Corporation of Kenya (NOCK), which benefits from retail market outlets developed with government funds.  Some state corporations have also benefited from easier access to government guarantees, subsidies, or credit at favorable interest rates. In addition, “partial listings” on the Nairobi Securities Exchange offer parastatals the benefit of financing through equity and GOK loans (or guarantees) without being completely privatized.

SOE procurement from the private sector is guided by the Public Procurement (Preference and Reservations) (Amendment) Regulations (2013).  The amendment reserves 30 percent government supply contracts for youth, women, and small and medium enterprises. Kenya is neither party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO) nor an Observer Government.

Privatization Program

Kenya is not currently pursuing privatization.

The Environmental Management and Coordination Act (1999) establishes a legal and institutional framework for the management of the environment while the Factories Act (1951) safeguards labor rights in industries.  The legal system, however, has remained slow to prosecute corporate malfeasance in both areas.

The GOK does not have laws or regulations encouraging Corporate Social Responsibility (CSR) for the risk of discouraging investment.  It is not an adherent to the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, and it is not yet an Extractive Industry Transparency Initiative (EITI) implementing country or a Voluntary Principles Initiative signatory.  Nonetheless, good examples of CSR abound as major foreign enterprises drive CSR efforts by applying international standards relating to human rights, business ethics, environmental policies, community development, and corporate governance.

In 2016, the U.S. Overseas Private Investment Corporation (OPIC) established a regional office in Nairobi, but the office is not currently staffed.  The agency is engaged in funding programs in Kenya with an active in-country portfolio of approximately USD 700 million, including projects in power generation, internet infrastructure, light manufacturing, and education infrastructure.  OPIC currently has an active pipeline of new projects including transactions in the energy, education, and financial service sectors. On October 2018, President Trump signed the Better Utilization of Investments Leading to Development Act (BUILD), which will consolidate the Overseas Private Investment Corporation (OPIC) and USAID’s Development Credit Authority (DCA) and increase OPIC’s overall portfolio from USD 29 Billion to USD 60 Billion.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Source:  IMF Coordinated Direct Investment Survey (CDIS). Figures are from 2012 (latest available).  IMF no longer publishes Kenya data as part of its CDIS.

Table 4: Sources of Portfolio Investment

Source:  IMF Coordinated Portfolio Investment Survey (CPIS). Figures are from 2012 (latest available).  IMF no longer publishes Kenya data as part of its CPIS.

Policies Towards Foreign Direct Investment

Mauritius actively seeks foreign investment.  The Investment Office (formerly the Board of Investment) of the Economic Development Board (EDB) is the single gateway government agency responsible for promoting investment in Mauritius, and for helping guide investors through the country’s legal and regulatory requirements.

According to a number of surveys and metrics, Mauritius is among the freest and most business-friendly countries in Africa.  The 2019 Index of Economic Freedom, published by the Heritage Foundation, ranks Mauritius first among 47 countries in the Sub-Saharan Africa region and 25th globally.  For the eleventh consecutive year, the World Bank’s 2019 Doing Business report ranks Mauritius first among African economies, and 20th worldwide, in terms of overall ease of doing business.

There is no formal ongoing dialogue with investors.  However, one-to-one meetings are usually held with investors while the government prepares its annual budget.

Limits on Foreign Control and Right to Private Ownership and Establishment

A non-citizen can hold, purchase, or acquire real property under the Non-Citizens (Property Restriction) Act (NCPRA), subject to government approval.  A foreigner can acquire residential property and apartments under the government-regulated Property Development Scheme (PDS) http://www.edbmauritius.org/schemes/property-development-scheme/  .  The NCPRA was amended in December 2016 to allow foreigners to purchase certain types of properties, as long as the amount paid is over 6 million Mauritian rupees (approximately USD 172,000).  A non-citizen is eligible for a residence permit upon the purchase of a house under the PDS if the investment made is more than USD 500,000. More information is available at http://dha.pmo.govmu.org/English/Mandate/Pages/Non-Citizens-Property-Restriction.aspx  .

Regarding business activities, the GoM generally does not discriminate between local and foreign investment.  There are, however, some business activities where foreign involvement is restricted. These include television broadcasting, sugar production, newspaper or magazine publishing, and certain operations in the tourism sector.

In television broadcasting, the Independent Broadcasting Authority (IBA) will not grant a license to a foreign company or to a company more than 20 percent-owned or controlled by foreign nationals.  Similarly, a foreign investor cannot hold 20 percent or more of a company that owns or controls any newspaper or magazine, or any printing press publishing such publications. The IBA Act can be accessed via the following link:  http://www.iba.mu/legal.htm  .

In the sugar sector, no foreign investor is allowed to make an investment that would result in 15 percent or more of the voting capital of a Mauritian sugar company being held by foreign investors.  More information can be accessed via the following link: https://www.stockexchangeofmauritius.com/media/2124/securities-investment-by-foreign-investors-rules-2013.pdf .

In the tourism sector, there are conditions on investment by non-citizens in the following activities:  (i) guesthouse/tourist accommodation; (ii) pleasure craft; (iii) scuba diving; and (iv) tour operators. Generally, the limitations refer to a minimum investment amount, number of rooms, or a maximum equity participation, depending on the business activity.  Details of the restrictions can be accessed via the following link: http://www.tourismauthority.mu/en/licence-categories-11/tourist-accommodation-certificate-30.html  .

In the construction sector, foreign consultants or contractors are required to register with the Construction Industry Development Board (CIDB).  Details on registration procedures are available on the following link: http://cidb.govmu.org/English/Consultants-Contractors/Pages/default.aspx  .

The Investment Office of the EDB screens foreign investment proposals and provides a range of services to potential investors.  The EDB is a useful resource for investors exploring business opportunities in Mauritius and provides assistance with occupation permits, licenses, and clearances by coordinating with relevant local authorities.  In 2018, the U.S. Embassy in Port Louis did not receive negative comments from U.S. businesses regarding the fairness of the government’s investment screening mechanisms.

The Investment Office of the EDB reviews proposals for economic benefit, environmental impact, and national security concerns.  EDB then advises the potential investor on specific permits or licenses required, depending on the nature of the business. Foreign investors can also apply through the EDB for necessary permits.  In the event an investment fails review, the prospective investor may appeal the decision within the EDB or to the relevant government ministry.

Other Investment Policy Reviews

Mauritius’ most recent third party investment policy reviews through multilateral organizations were completed in 2014.  In June 2014, the GoM conducted an investment policy review with the Organization for Economic Cooperation and Development (OECD).  The review can be accessed via the following link:  http://www.oecd.org/investment/countryreviews.htm  .  The review concluded that, while policies and legislation in Mauritius support private sector development, incentive schemes tend to bias investment towards real estate and property development.  In October 2014, the GoM also conducted a trade policy review with the World Trade Organization (WTO), which can be accessed via the following link:  http://www.wto.org/english/tratop_e/tpr_e/tpr_e.htm  .

Business Facilitation

The GoM recognizes the importance of a good business environment to attract investment and achieve a higher growth rate.  In 2017, the Business Facilitation (Miscellaneous Provisions) Act 2017 entered into force. The main reforms brought about by this legislation were:  expediting the process to start a business, streamlining procedures for issuing construction permits, facilitating property registration, improving the system for tax collection, and implementing a national e-licensing platform (a single window for application and processing of licenses and permits).

The incorporation of companies and registration of business activities falls under the provisions of Companies Act 2001   and Business Registration Act 2002  .  All businesses must register with the Registrar of Companies.  As a general rule, a company incorporated in Mauritius can be 100 percent foreign-owned with no minimum capital.  According to the World Bank 2019 Doing Business report, while the procedures for registering a company takes one day, actually starting a business takes five days.

After the Registrar of Companies issues a certificate of incorporation, foreign-owned companies must register their business activities with the EDB.  The company can then apply for occupation permits (work and residence permits) and incentives offered to investors. EDB’s investment facilitation services are available to all investors, domestic and foreign.

In partnership with the Corporate and Business Registration Department (a division of the Ministry of Finance and Economic Development), the Mauritius Network Services (MNS) has implemented the Companies and Business Registration Integrated System, a web-based portal that allows electronic submission for incorporation of companies and application for the Business Registration Number, file statutory returns, pay yearly fees, register businesses, and search for business information.  Applicants can register with MNS at the following link:  https://portalmns.mu/cbris/ .    In March 2019, the National Electronic Licensing System (NELS), which is co-financed by the European Union, was officially launched.  NELS is a single point of entry for the processing of permits and licenses needed to start and operate a business. It can be accessed here:  https://business.edbmauritius.org/  .

Outward Investment

The GoM imposes no restrictions on capital outflows.  Due to the small size of the Mauritian economy, the government encourages Mauritian entrepreneurs to invest overseas, particularly in Africa, to expand and grow their businesses.  As part of its Africa Strategy, the government has established the Mauritius Africa Fund: a public company with USD 13.8 million capitalization to support Mauritian investment in Africa.  Through the Fund, the government participates as an equity partner up to 10 percent of the seed capital invested by Mauritian investors in projects targeted towards Africa. The government has signed agreements with Senegal, Madagascar, and Ghana establishing and managing Special Economic Zones (SEZ) in these countries and has invited local and international firms to set up operations in the SEZs.  In its 2018-2019 budget, the GoM announced that Mauritian companies collaborating with the Mauritius-Africa Fund for development of infrastructure in the SEZs will benefit from a five-year tax holiday. To further facilitate investment, Mauritius has also signed Investment Promotion and Protection Agreements and Double Taxation Avoidance Agreements with African states. 

Since 2012, the Board of Investment (now restructured as the Investment Office of the EDB) has been operating an Africa Center of Excellence, a special office dedicated to facilitating investment from Mauritius into Africa.  It acts as a repository of business information for Mauritian entrepreneurs about investment opportunities in different sectors in Africa.

In 2017, the most recent year for which the Central Bank of Mauritius has published data, gross direct investment flows abroad (excluding the global business sector) amounted to USD 72 million.  The top three sectors for outward investment were finance and insurance activities (44 percent), manufacturing (24 percent) and real estate activities (23 percent). Investment abroad was mainly geared towards developing countries and Africa was the biggest recipient of foreign direct investment (FDI) amounting to USD 41 million.  Kenya and France were the top two recipient countries with shares of 36 percent and 9 percent, respectively. Data on outward investment can be obtained here:  https://www.bom.mu/publications-and-statistics/statistics/external-sector-statistics/direct-investment-flows  .

In 2006, Mauritius and the United States signed a Trade and Investment Framework Agreement (TIFA) aimed at strengthening and expanding trade and investment ties between the two countries.  The United States has not signed a bilateral investment treaty or a free trade agreement with Mauritius. Mauritius benefits from duty free and quota free access to the United States on approximately 6500 tariff lines through the African Growth and Opportunity Act (AGOA).  This trade preference is valid until 2025 unless Mauritius graduates out of AGOA by rising above the law’s maximum per capita GDP level before then.

Mauritius has been a member of the World Trade Organization since 1995 and has signed trade agreements with several regional blocs and countries.  These include the Common Market for Southern and Eastern Africa Free Trade Area (COMESA), the Indian Ocean Commission (IOC – only Madagascar offers trade preferences under the IOC), the interim Economic Partnership Agreement with the European Union (EU), the Southern African Development Community Free Trade Area (SADC), a free trade agreement with Turkey, and a preferential trade agreement with Pakistan.

The Mauritian government and the People’s Republic of China completed negotiations for a free trade agreement in September 2018.  The agreement has been signed by both countries but will not go into effect until ratified. In January 2018, the third round of discussions between Mauritius and India on the Comprehensive Economic Partnership Agreement (CECPA) was launched.  Mauritius also signed an agreement with the UK in January 2019 to safeguard trade preferences it currently enjoys under the interim Economic Partnership Agreement (iEPA) with the European Union.  The new agreement, known as the UK-ESA EPA, will enter into force when the UK completes the process of exiting the European Union.

As of March 2018, Mauritius has signed Investment Promotion and Protection Agreements (IPPA) with 44 countries.  The following 28 IPPAs have been ratified and are in force: Barbados, Belgium/Luxemburg Economic Union, Burundi, China, Czech Republic, Egypt, Finland, France, Germany, India, Indonesia, Kuwait, Madagascar, Mozambique, Pakistan, Portugal, Republic of Congo, Republic of Korea, Romania, Senegal, Singapore, South Africa, Sweden, Switzerland, Tanzania, Turkey, UK and Northern Ireland, and Zambia.  The following 16 IPPAs have been signed but await ratification: Benin, Cameroon, Chad, Comoros, Cote D’Ivoire, Gabon, Ghana, Guinea Republic, Kenya, Mauritania, Nepal, Rwanda, Swaziland, Sao Tome and Principe, United Arab Emirates, and Zimbabwe. Updated information on IPPAs can be accessed via the following link:  http://www.edbmauritius.org/resources/bilateral-agreements/  .

In 2013, Mauritius signed a Tax Information Exchange Agreement (TIEA) and an Inter-Governmental Agreement (IGA) with the United States to implement the Foreign Account Tax Compliance Act (FATCA).  Procedures for FATCA reporting can be accessed via the following link:  http://www.mra.mu/index.php/e-services/fatca  .

Mauritius has also signed TIEAs with Australia, Austria, Denmark, Faroe Island, Finland, Greenland, Guernsey, Iceland, Korea and Norway.  TIEAs with Argentina, Greece, and Isle of Man await signature.

As of mid-2019, Mauritius has concluded Double Taxation Avoidance Treaties (DTATs) with 46 countries:  Australia (partial), Bangladesh, Barbados, Belgium, Botswana, Cape Verde, China, Croatia, Cyprus, Egypt, France, Germany, Ghana, Guernsey, India, Italy, Jersey, Kuwait, Lesotho, Luxembourg, Madagascar, Malaysia, Malta, Monaco, Mozambique, Namibia, Nepal, Oman, Pakistan, Qatar, Rwanda, Republic of Congo, Senegal, Seychelles, Singapore, Sri Lanka, South Africa, Swaziland, Sweden, Thailand, Tunisia, Uganda, United Arab Emirates, United Kingdom, Zambia, and Zimbabwe.  Five DTAT treaties await ratification: Gabon, Kenya, Morocco, Nigeria, and Russia, and fifty-four DTAT treaties await signature: Cote d’Ivoire, Estonia, Gibraltar, Malawi and Gambia. Updated information on TIEAs and DTATs can be accessed via the following link: http://www.mra.mu/index.php/taxes-duties/double-taxation-agreements  .

Mauritius has adopted the OECD’s Standard for Automatic Exchange of Financial Account Information (Common Reporting Standard – CRS), which sets a global benchmark that participating countries will adhere to in a proactive fiscal-information world.  The first reporting under this standard was undertaken in September 2018. Further information on the list of reportable jurisdictions for the CRS can be accessed via the following link:  http://www.mra.mu/index.php/business-corporation/crs  .

Transparency of the Regulatory System

Since 2006, the GoM has reformed trade, investment, tariffs, and income tax regulations to simplify the framework for doing business.  Trade licenses and many other bureaucratic hurdles have been reduced or abolished. With a well-developed legal and commercial infrastructure and a tradition that combines entrepreneurship and representative democracy, Mauritius is one of Africa’s most successful economies.  Business Mauritius, the coordinating body of the Mauritian private sector, participates in discussions with and presents papers to government authorities on laws and regulations affecting the private sector.

Regulatory agencies do not request comments on proposed bills from the general public.  Both the notice of the introduction of a government bill and a copy of the bill are distributed to every member of the Legislative Assembly and published in the Government Gazette before enactment.  Bills with a “certificate of urgency” can be enacted with summary process. All proposed regulations are published on the Legislative Assembly’s website, which is publicly accessible via the following link: http://mauritiusassembly.govmu.org/English/bills/Pages/default.aspx  .

Companies in Mauritius are regulated by the Companies Act of 2001, which incorporates international best practices and promotes accountability, openness, and fairness.  To combat corruption, money laundering and terrorist financing, the government also enacted the Prevention of Corruption Act, the Prevention of Terrorism Act, and the Financial Intelligence and Anti-Money Laundering Act.  While Mauritius does not have a freedom of information act, members of the public may request information by contacting the permanent secretary of the relevant ministry.

Budget documents, including the executive budget proposal, enacted budget, and end-of-year report, are publicly available and provide a substantially full picture of Mauritius’ planned expenditures and revenue streams.  Information on debt obligations is also available online: http://mof.govmu.org/English/Public percent20Debt/Pages/Debt-Data.aspx  .

International Regulatory Considerations

Mauritius is a member of the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA).  It is a signatory to the Tripartite Free Trade Area and the African Continental Free Trade Area (AfCFTA), both of which remain under negotiation as of April 2019.  The GoM implements its commitments to these regional economic institutions with domestic legal and regulatory adjustments, as appropriate.

Mauritius has been a member of the World Trade Organization (WTO) since 1995.  The GoM reports that they notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade to the extent possible.  In July 2014, Mauritius notified its category A commitments to the WTO, among the first African countries to do so. Mauritius was the fourth country to submit its instrument of acceptance for the Trade Facilitation Agreement (TFA).  In 2019, Mauritius notified its category B and C commitments and their corresponding dates of implementation.

Of TFA’s 36 measures, Mauritius has classified 27 as category A, five as B, and four as C.  Discussions with donors to obtain technical assistance to finance trade facilitation projects listed under category C are ongoing and, at the time of writing of the report, Mauritius had secured assistance from the World Bank and the World Customs Organization.

To coordinate efforts to implement the TFA, in 2015 Mauritius set up a National Committee on Trade Facilitation co-chaired by representatives from government and the private sector.  Members include Customs, the Ministry of Agro-Industry and Food Security, the Ministry of Finance and Economic Development, and the Mauritius Chamber of Commerce and Industry. The Committee has met seven times since.  Discussion topics include identification of sources of financing for category C commitments and resolution of non-tariff barriers in Mauritius.

Legal System and Judicial Independence

The Mauritian legal system is a unique mixture of traditions.  Mauritius draws legal principles from both French civil law and British common law traditions; its procedures are largely derived from the English system, while its substance is based in the Napoleonic Code of 1804.  Commercial and contractual law is also based on the civil code. However, some specialized areas of law are comparable to other jurisdictions. For example, its company law is practically identical to that of New Zealand.  Mauritian courts often resolve legal disputes by drawing on current legislation, the local legal tradition, and by means of a comparative approach utilizing various legal systems. The highest court of appeal is the judicial committee of the Privy Council of England.  Mauritius is a member of the International Court of Justice. Mauritius established a Commercial Court in 2009 to expedite the settlement of commercial disputes.

Contracts are legally enforceable and binding.  Ownership of property is enforced with the registration of the title deed with the Registrar-General and payment of the registration duty.  Mauritian courts have jurisdiction to hear intellectual property claims, both civil and criminal. The judiciary is independent and the domestic legal system is generally non-discriminatory and transparent.

Laws and Regulations on Foreign Direct Investment

The Economic Development Board Act of 2017 governs investment in Mauritius, while the Companies Act of 2001 contains the regulations governing incorporation of businesses.  The Corporate and Business Registration Department (CBRD) of the Ministry of Finance and Economic Development administers the Companies Act of 2001, the Business Registration Act of 2002, the Insolvency Act of 2009, the Limited Partnerships Act of 2011, and the Foundations Act of 2012.  Information regarding the various acts can be accessed via the CBRD’s website: http://companies.govmu.org/English/Pages/default.aspx  .

All laws and regulations related to foreign investment can be downloaded from the EDB’s website:  http://www.edbmauritius.org/resources/legislations/  .

The Mauritian judiciary is independent and the legal system is generally non-discriminatory and transparent.  The Embassy is not aware of any recent cases of government or other interference in the court system affecting foreign investors.

Competition and Anti-Trust Laws

The Competition Commission of Mauritius (CCM) is an independent statutory body established in 2009 to enforce Competition Act 2007.  It is mandated to safeguard competition by preventing and remedying anticompetitive business practices in Mauritius. Anticompetitive business practices, also called restrictive business practices, may be in the form of cartels, abuse of monopoly situations, and mergers that lessen competition.

The institutional design of the Competition Commission houses both an adjudicative and an investigative organ under one body.  While the Executive Director has power to investigate restrictive business practices (the Investigative Arm), the Commissioners determine the cases (the Adjudicative Arm) on the basis of reports from the Executive Director.

Since it began operations, the CCM has undertaken 46 investigations, of which 32 have been completed and 13 are ongoing as of mid-2019.  The results of completed investigations are available on CCM’s website:  http://www.ccm.mu/  .

Expropriation and Compensation

The Constitution includes a guarantee against nationalization.  However, in 2015, the government passed the Insurance (Amendment) Act to enable the Financial Services Commission (FSC) to appoint “special administrators” in cases where there is evidence that the liabilities of an insurer and its related companies exceed assets by 1 billion rupees (approximately USD 28 million) and that such a situation “is likely to jeopardize the stability and soundness of the financial system of Mauritius.”  The special administrators are empowered to seize and sell assets. The government enacted this law in the immediate aftermath of the financial scandal explained below.

In April 2015, the Bank of Mauritius, the central bank, revoked the banking license of Bramer Bank, the banking arm of Mauritian conglomerate British American Investment (BAI) Group, citing an inadequate capital reserve ratio.  As a result, Bramer Bank entered receivership and by May 2015 the receiver had transferred the assets and liabilities of Bramer Bank to a newly created state-owned bank, the National Commercial Bank Ltd., thus effectively nationalizing Bramer Bank.  In January 2016, the Mauritian government merged the National Commercial Bank Ltd. with another government-owned bank resulting in Maubank, a new bank dedicated mainly to servicing small- and medium-sized enterprises. Efforts to privatize the bank did not materialize in 2018 and, as of March 2019, the GoM owns over 99 percent of Maubank’s shares.

The government likewise took over much of Bramer’s parent, the BAI Group.  The FSC placed the BAI Group in conservatorship, alleging fraud and corporate mismanagement in BAI’s insurance business.  Following passage of the Insurance (Amendment) Act in 2015, the FSC created the National Insurance Company, which took over the BAI Group’s core insurance business, and the National Property Fund, which took over other BAI Group assets, including a hospital and several retail outlets.  CIEL Healthcare, a local private company, bought the hospital in 2017.

In 2015, BAI’s former chairman filed a dispute against the GoM with the United Nations Commission on International Trade Law (UNCITRAL), alleging that the government illegally appropriated BAI’s assets.  The former chairman, who is a Mauritian-French dual national, claimed that Mauritius had breached the Mauritius-France bilateral investment treaty and requested the restitution of his assets and payment of compensation.  The tribunal concluded that it lacked jurisdiction over the dispute and ruled in favor of the GoM. The former chairman appealed the tribunal’s decision and the litigation continues.

Dispute Settlement

ICSID Convention and New York Convention

Mauritius is a member of the International Center for the Settlement of Investment Disputes and a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards Act.  Mauritius is also a member of the Multilateral Investment Guarantee Agency of the World Bank.

Investor-State Dispute Settlement

Mauritius does not have a bilateral investment treaty or free trade agreement with the United States.  The Embassy is unaware of any investment dispute involving U.S. investors.

As explained above, the former chairman of BAI, a dual French-Mauritian national, filed a dispute against the government of Mauritius with UNCITRAL alleging that the government illegally appropriated BAI’s assets.  The tribunal ruled in favor of the government.

In 2017, the Supreme Court rendered a judgment in a major unfair competition case lodged in 2005 by Emtel Ltd., a local telecommunications firm, against Mauritius Telecom, a parastatal entity, and the former regulator Telecommunications Authority.  Emtel was engaged in a joint venture with U.S. majority-owned Millicom Enterprises, but Emtel bought all the shares of Millicom in 2014.  The court awarded over USD 16 million in damages to Emtel.

A Malaysian power company, CT Power, is challenging the government’s decision to cancel a proposed energy project, which they had been negotiating with the previous government.  The case remains in court.

Another dispute involves local company Betamax against the State Trading Corporation (STC) for breach of contract.  In 2009, Betamax got a long-term contract with the previous government for the transportation of petroleum products from an oil refinery in India to Mauritius.  The new government elected in 2014 tried at first to negotiate Betamax out of the transportation contract on the ground that the contract had been awarded unlawfully.  After negotiations failed, the government decided to rescind the contract. Betamax took the case to the Singapore International Arbitration Center (SIAC). In 2017, SIAC decided in favor of Betamax and ordered the STC to pay approximately USD 133 million in damages to Betamax for breach of contract.  STC then petitioned the Supreme Court of Mauritius to set aside the verdict, arguing that the Singapore tribunal lacked jurisdiction. The Supreme Court ruled in a provisional order that SIAC’s judgment could be enforced within 14 days. STC challenged the provisional order. As of mid-2019, the case is ongoing.

The Association des Hoteliers et Restaurateurs of Mauritius (AHRIM), which promotes the interests of hotels and restaurants in Mauritius, challenged the GoM’s issuance of an environmental impact assessment license to Growfish International Ltd, a company involved in aquaculture.  AHRIM is concerned about the impact the fish farm can have on tourism and the marine environment. Growfish is a company incorporated in Mauritius and financed by investors from South Africa and Norway. On April 30, a tribunal ruled in favor of AHRIM.

International Commercial Arbitration and Foreign Courts

In 2011, the GoM, the London Court of International Arbitration (LCIA), and the Mauritius International Arbitration Center (MIAC) established a new arbitration center in Mauritius called the LCIA-MIAC Arbitration Center.  LCIA-MIAC offered all services offered by the LCIA in the United Kingdom. In July 2018, the LCIA and GoM terminated the partnership, after which the MIAC began operating as an independent organization. The organization’s website has additional information: http://miac.mu/  .

Additionally, the Mauritius Chamber of Commerce and Industry’s (MCCI) Arbitration and Mediation Center (MARC) was established in 1996 as an initiative of the MCCI to provide the business community with alternative forms of dispute resolution using internationally accepted arbitral and mediation standards.  More information is available via the following link:  https://www.marc.mu/en  .

Bankruptcy Regulations

Bankruptcy is not criminalized in Mauritius.  The Insolvency Act of 2009 amended and consolidated the law relating to insolvency of individuals and companies and the distribution of assets in the case of insolvency and related matters.  Most notably, the Act introduced administration procedures, providing creditors the option of a more orderly reorganization or restructuring of a business than in liquidation. A bankrupt individual is automatically discharged from bankruptcy three years after adjudication, but may apply to be discharged earlier.  The Act draws on the Model Law on Cross-Border Insolvency adopted by the United Nations Commission on International Trade Law in 1997. The Act can be accessed here: https://www.fscmauritius.org/media/1155/insolvency-act-2009-130114.pdf .  According to the World Bank’s 2019 Doing Business report, Mauritius ranks 35th out of 190 countries in terms of resolving insolvency.

Investment Incentives

Mauritius applies investment incentives uniformly to both domestic and foreign investors.  The incentives are outlined in the Income Tax Act, the Customs Act, and the Value Added Tax Act.  In the 2018-2019 national budget, a number of incentives were implemented to attract investors to Mauritius.  These include: (i) reduced corporate tax rate of three percent for companies engaged in global trading activities; (ii) investment tax credit of five percent over three years on the cost of new plant and machinery excluding motor vehicles; (iii) five year tax holiday for Mauritian companies collaborating with the Mauritius Africa Fund with respect to investment in the development of infrastructure in Special Economic Zones, and; (iv) five year tax holiday on income derived from smart parking solutions or other green initiatives.

Mauritius offers prospective investors a low-tax jurisdiction and a number of other fiscal incentives, including the following:  (i) flat corporate and income tax rate of 15 percent; (ii) 100 percent foreign ownership permitted; (iii) no minimum foreign capital required; (iv) no tax on dividends or capital gains; (v) free repatriation of profits, dividends, and capital; (vi) accelerated depreciation on acquisition of plant, machinery, and equipment; (vii) exemption from customs duty on imported equipment; and (viii) access to an extensive network of double taxation avoidance treaties.

Additionally, the government has established a Property Development Scheme (PDS) to attract high net worth non-citizens who want to acquire residences in Mauritius.  Buyers of a residential unit valued over USD 500,000 in certain projects are eligible to apply for a residence permit in Mauritius. The residential unit can be leased or rented out by the owner.  More details on the PDS and other investment schemes are available via the following link:  http://www.edbmauritius.org/schemes/  .

The Regulatory Sandbox License (RSL), announced in the 2016-2017 national budget, is intended to promote innovation by eliminating barriers to investment in cutting-edge technology.  An RSL gives an investor fast-track authorization to conduct business activity in a sector even if there is not yet a legal or regulatory framework in place for the sector. Further details on the RSL can be accessed via the following link:  http://www.edbmauritius.org/schemes/regulatory-sandbox-license/  .

Foreign Trade Zones/Free Ports/Trade Facilitation

The Mauritius Freeport, a free trade zone, was established in 1992 and is a customs-free zone for goods destined for re-export.  The Freeport has grown dramatically in its 26 year history: developed space has increased from 5,000 square meters in 1993 to over 300,000 square meters in 2018.  The government’s objective is to promote the country as a regional warehousing, distribution, marketing, and logistics center for eastern and southern Africa and the Indian Ocean rim.  Through its membership in COMESA, SADC, and the IOC, Mauritius offers preferential access to a market of over 600 million consumers, representing an import potential of USD 100 billion.  Companies operating in the Freeport are exempt from corporate tax. Foreign-owned firms operating in the Freeport have the same investment incentives and opportunities as local entities.

Activities carried out in the Freeport include warehousing and storage, breaking bulk, sorting, grading, cleaning and mixing, labeling, packing, repacking and repackaging, minor processing and light assembly, manufacturing activity, ship building, repairs and maintenance of ships, aircrafts and heavy-duty equipment, storage, maintenance and repairs of empty containers, export-oriented seaport and airport based activities, freight forwarding services, quality control and inspection services, and vault activity for storing precious stones and metals, works of art, and the like.  Approximately 3,800 people are employed at the Freeport.

Trade through the Freeport has increased in recent years.  In 2013, trade was valued at 23 billion rupees (approximately USD 730 million at 2013 exchange rates) and volume was recorded at 347,000 tons of goods; in 2018 trade value increased to 44 billion rupees (approximately USD 1.3 billion) and volume increased to 542,000 tons.  Top trading partners for import in 2018 were the United Kingdom, India, Taiwan, and China. Top trading partners for export for 2018 were Reunion (France), South Africa, and Madagascar. Top goods traded through the Freeport include liquefied petroleum gas (LPG), fish, ethanol, plastic preform, footwear, soap and detergents, noodles, beer, and soft drinks.

Performance and Data Localization Requirements

The GoM does not impose local employment requirements on foreign investors.  A foreign national can apply for an Occupation Permit (OP), which is a combined work and residence permit, subject to certain conditions such as minimum investment, salary, and/or business turnover.  The OP allows foreign nationals to work and reside in Mauritius under three specific categories, namely: (i) investor, (ii) professional, or (iii) self-employed. Also, foreign nationals above the age of 50 years may choose to retire in Mauritius under a Residence Permit (RP).  An OP or an RP is issued for a maximum period of three years and the permit holder may submit a new application upon expiry of the permit. Dependents of an OP or RP holder may also apply for residence permits for a duration not exceeding that of the OP or RP holder. Details on the minimum investment, salary, and turnover amounts required to qualify for an OP or RP are available via the following link:  http://www.edbmauritius.org/work-and-live-in-mauritius/occupation-permitresidence-permit/  .

The Data Protection Act (DPA) 2017 is the law that governs the protection of personal data in Mauritius.  The Government of Mauritius established the Data Protection Office (http://dataprotection.govmu.org/English/Pages/default.aspx  ) in 2009.  The Data Protection Commissioner is responsible for upholding the rights of individuals set forth in the DPA and for enforcing the obligations imposed on data controllers and processors.  In 2016, Mauritius ratified the Council of Europe’s Convention for Protection of Individuals with regard to Automatic Processing of Personal Data (Convention 108). Mauritius is the second non-European country and the first African country to sign the convention.  The agreement gives individuals the right to protection of their personal data.

Mauritian data protection law tracks the European Union’s Regulation on the Protection of Natural Persons with regards to the Processing of Personal Data and on the Free Movement of such Data, commonly known as the General Data Protection Regulation.  Mauritius’ DPA applies only when processing of personal data is concerned. Failure to comply with Section 28 of the DPA, which establishes the lawful purposes for which personal data may be processed, can result in a fine and up to five years imprisonment.  Section 29 sets requirements for processing special categories of data, such as ethnic origin, political adherence, and mental health condition.

There are no enforcement procedures for investment performance requirements.

Real Property

Real property rights are respected in Mauritius.  A non-citizen can hold, purchase, or acquire immovable property under the Non-Citizens (Property Restriction) Act, subject to the government’s approval.  Ownership of property is memorialized with the registration of the title deed with the Registrar-General and payment of the registration duty. The recording system of mortgages and liens is reliable.  Traditional use rights are not an issue in Mauritius as there were no indigenous peoples present at the time of European colonization. According to the World Bank’s 2019 Doing Business Report, Mauritius ranks 35th out of 190 countries for the ease of registering property.

Intellectual Property Rights

Intellectual property rights (IPR) in Mauritius are protected by two pieces of legislation, namely the Patents, Industrial Designs and Trade Marks Act of 2002 and the Copyrights Act of 2014.  The government plans to adopt a new Industrial Property Bill expanding protections and covering all aspects of intellectual property. In addition to patents, trademarks, and industrial designs, the Bill is intended to protect plant breeders’ rights, geographical indications, and layout designs of integrated circuits and utility models, which are not covered by existing legislation.  In his 2016-17 Budget Speech, the Minister of Finance announced that the government would adhere to the Patent Cooperation Treaty, Hague Convention, and Madrid Protocol to facilitate the registration of patents, trademarks, and industrial designs. The new Bill includes provisions that would incorporate international standards such as those articulated in the Madrid Protocol into Mauritian law.

In 2017, the Copyright Act was amended to redefine and better safeguard the interests of copyright owners and to put in place a new regulatory framework for the Mauritius Society of Authors (MASA).  MASA is responsible for collection of copyright fees and for administering the economic rights of copyright owners. Amendments to the Copyright Act can be accessed on the Supreme Court website: https://supremecourt.govmu.org/_layouts/CLIS.DMS/Legislations/SearchLegislations.aspx  .

Mauritius is a member of the World Intellectual Property Organization (WIPO) and party to the Paris and Bern Conventions for the protection of intellectual property and the Universal Copyright Convention.  Trademark and patent laws comply with the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). A trademark is initially registered for 10 years and may be renewed for successive periods of 10 years.  A patent is granted for 20 years and cannot be renewed.

While IP legislation in Mauritius is consistent with international norms, enforcement is relatively weak.  According to a leading IP law firm, police will normally only take action against IPR infringements in cases where the IPR owner has an official representative in Mauritius because the courts require a representative to testify that the products seized are counterfeit.

The Customs Department of the Mauritius Revenue Authority is the primary agency responsible for safeguarding Mauritian borders against counterfeit goods and piracy.  The Customs Department requires owners or authorized users of patents, industrial designs, collective marks, marks or copyrights to apply in writing to the Director General to suspend clearance of goods suspected of infringing IPR.  Once an application is approved, it remains valid for two years. There are no administrative costs to pay for an application. An application can also be filed as a preventive measure. Further details on the documents required to apply can be obtained on this link:  http://www.mra.mu/index.php/import-export-others/ipr  .

Customs may act upon its own initiative to suspend clearance if there is evidence of IPR infringement.  Customs will then contact the owner or authorized user for follow-up actions. Owners of IPR are recommended to join the Interface Public Members (IPM:  http://www.wcoipm.org/  ), which allows Customs officers to access operational data input by right owners concerning their products, thus facilitating the identification of counterfeit goods.

The Customs Department keeps a record of counterfeit goods seized.  Customs has authority to seize and destroy counterfeit goods. In 2017, the Customs Department carried out seizures of a total of 64,667goods valued at USD 123,850.  The infringing party is responsible for paying for the storage and/or destruction of the counterfeit goods.

Mauritius is not included in the U.S. Trade Representative (USTR) Special 301 Report or the Notorious Markets List.

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

Embassy Contact for IPR

Smita Bheenick
Economic/Commercial Section
U.S. Embassy Port Louis, Mauritius
Tel: +230 202 4430; Fax: +230 208 9534
Email: bheenicks@state.gov

Some IPR Law Firms in Mauritius*

Sanjeev Ghurburrun
Director, Geroudis
River Court, St Denis Street
Port Louis, Mauritius
Tel: +230 210 3838; Fax: + 230 210 3912
Email: sanjeev@geroudis.com
www.geroudis.com

Marc Hein
Chairman, Juristconsult Chambers
Level 12 Nexteracom Tower II, Ebene Cyber City
Ebene, Mauritius
Tel: +230 465 0020; Fax: +230 465 0021
Email: mhein@juristconsult.com
www.juristconsult.com

Michael Hough
CEO, Eversheds Sutherland
Suite 310, 3rd Floor Barkly Wharf, Le Caudan Waterfront
Port Louis, Mauritius
Tel: +230 5726 3941; Fax: +230 211 0780
Email: michaelhough@eversheds-sutherland.mu
www.eversheds-sutherland.com

*Law firms listed for convenience and should not be taken to imply U.S. Government endorsement.

Capital Markets and Portfolio Investment

The GoM welcomes foreign portfolio investment.  The Stock Exchange of Mauritius (SEM) was opened to foreign investors following the lifting of foreign exchange controls in 1994.  Foreign investors do not need approval to trade shares, except for when doing so would result in their holding more than 15 percent in a sugar company, a rule detailed in the Securities (Investment by Foreign Investors) Rules 2013.  Incentives to foreign investors include free repatriation of revenue from the sale of shares and exemption from tax on dividends and capital gains.

The SEM currently operates two markets:  the Official Market and the Development and Enterprise Market (DEM).  As of December 2018, the shares of 60 companies (local, global business and foreign companies) were listed on the Official Market, representing a market capitalization of USD 10.2 billion.  Unique in Africa, the SEM can list, trade, and settle equity and debt products in U.S. dollars, Euros, Pounds Sterling, South African Rand, as well as Mauritian Rupees. A variety of new asset classes of securities such as global funds, depositary receipts, mineral companies, and specialist securities including exchange-traded funds and structured products have also been introduced on the SEM.  The DEM was launched in 2006 and the shares of 43 companies are currently listed on this market with a market capitalization of USD 1.8 billion. Foreign investors accounted for 30 percent of trading volume on the exchange for the financial year 2017-2018. Standard & Poor’s, Morgan Stanley, Dow Jones, and FTSE have included the Mauritius stock market in a number of their stock indices. Since 2005, the SEM has been a member of the World Federation of Exchanges.  The SEM is also a partner exchange of the Sustainable Stock Exchanges Initiative. In 2018, in line with its strategy to digitalize its investor services, SEM launched the mySEM mobile application.

The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.  A variety of credit instruments is available to local and foreign investors through the banking system.

Money and Banking System

Mauritius has a sophisticated banking sector.  As of March 2019, 20 banks are licensed to undertake banking business, of which five are local banks, nine are foreign-owned subsidiaries, one is a joint venture, four are branches of foreign banks, and one is licensed as a private bank.  One bank conducts Islamic banking exclusively. Further details can be obtained on the following link: https://www.bom.mu/financial-stability/supervision/licensees/list-of-licencees  .  According to data from the Global Partnership for Financial Inclusion, 90 percent of Mauritians aged 15 and above have a bank account.

According to the Banking Act of 2004, all banks are free to conduct business in all currencies.  There are also eight non-bank deposit-taking institutions, as well as 12 moneychangers and foreign exchange dealers.  There are no official government restrictions on foreigners opening bank accounts in Mauritius, but banks may require letters of reference or proof of residence for their due diligence.  The Bank of Mauritius, the country’s central bank, carries out the supervision and regulation of banks as well as non-bank financial institutions authorized to accept deposits. The Bank of Mauritius has endorsed the Core Principles for Effective Banking Supervision as set out by the Basel Committee on Banking Supervision.

The banking system is dominated by two long-established domestic entities:  the Mauritius Commercial Bank (MCB) and the State Bank of Mauritius (SBM), which together constitute about 60 percent of the total domestic market.  Maubank, the third largest bank in the country, became operational in 2016 following a merger between the Mauritius Post & Cooperative Bank and the National Commercial Bank.  The Bank of China started operations in Mauritius in 2016. Other foreign banks present in Mauritius include HSBC, Barclays Bank, Bank of Baroda, Habib Bank, BCP Bank (Mauritius), Standard Bank, Standard Chartered Bank, State Bank of India, and Investec Bank.  As of July 2018, commercial banks’ total assets amounted to USD 38.3 billion.

According to the Bank of Mauritius 2018 Annual Report, the domestic financial system in Mauritius remains resilient.  Banks are profitable, liquid and well-capitalized. Asset quality of banks is good with low rates of non-performing loans.  This was reflected in the non-performing loans to total loans ratio, which fell from 7.0 percent in June 2017 to 6.5 percent in June 2018.  In July 2017, the Banking Act was amended to double the minimum capital requirement from 5.8 million to 11.2 million U.S. dollars. Banks must implement this provision by June 30, 2019.  The Central Bank began reporting the liquidity coverage ratio in 2017 to improve the liquidity profile of banks and their ability to withstand potential liquidity disruptions.

Most major banks in Mauritius have correspondent banking relationships with large banks overseas.  In recent years, according to industry experts, no banks have lost correspondent banking relationships and none report being in jeopardy of doing so as of April 2019.  The 2018 Mutual Evaluation Report for Mauritius conducted by the Eastern and Southern Africa Anti-Money Laundering Group identified areas for improvement in the Central Bank’s AML/CFT supervisory and regulatory framework.  These include: an improved AML/CFT risk-based framework; separation of prudential and AML/CFT supervisory frameworks; and improvements in legislation, enforcement, and administrative sanctions for breaches of AML/CFT compliance by licensees.  The Central Bank reports that it has started the implementation of an action plan to address these issues: https://www.bom.mu/media/media-releases/mutual-evaluation-report-mauritius-conducted-eastern-and-southern-africa-anti-money-laundering  .  In January 2019, the Central Bank signed a memorandum of cooperation with the Mauritius Police Force on financial crimes and illicit activities relating to the financial services sector.

In November 2017, the First Deputy Governor of the Bank of Mauritius announced that the bank had established internal and inter-bank committees on fintech and distributed ledger (blockchain) technologies.  The committees are tasked with studying opportunities related to fintech and proposing an innovation-friendly regulatory framework.

In February 2018, the Fintech and Innovation-driven Financial Services (FIFS) Regulatory Committee held its first meeting at the Financial Services Commission (FSC – the regulator for the non-bank financial services sector) to assess the current regulatory set up with respect to FIFS Regulations in Mauritius, and to identify priority areas within the regulatory space of fintech activities.  As announced in the 2018-2019 budget speech, a National Regulatory Sandbox License Committee has been set up to assess all fintech applications requiring a sandbox license. (A sandbox license offers an investor the possibility of conducting a business activity for which there exists no legal framework.) Effective March 2019, the Financial Services Commission permits businesses that provide custodial services for digital assets.

Foreign Exchange and Remittances

Foreign Exchange

The government of Mauritius abolished foreign exchange controls in 1994.  Consequently, no approval is required for converting, transferring, or repatriating profits, dividends, or capital gains earned by a foreign investor in Mauritius.  Funds associated with any form of investment can be freely converted into any world currency.

The exchange rate is generally market-determined, though the Bank of Mauritius, the central bank, occasionally intervenes.  Between January 2018 and December 2018, the Mauritian Rupee appreciated against the U.S. Dollar by 3.8 percent, but depreciated against the Pound Sterling and Euro by 3.1 percent and 5.0 percent respectively.

Remittance Policies

There are no time or quantity limits on remittance of capital, profits, dividends, and capital gains earned by a foreign investor in Mauritius.  Mauritius has a well-developed and modern banking system. There is no legal parallel market in Mauritius for investment remittances. The Embassy is unaware of any proposed changes by the government to its investment remittance policies.

Sovereign Wealth Funds

The government of Mauritius does not have a Sovereign Wealth Fund.

The government’s stated policy is to act as a facilitator to business, leaving production to the private sector.  The government, however, still controls key services directly or through parastatal companies in the power and water, television broadcasting, and postal service sectors.

The government holds controlling shares in the State Bank of Mauritius, Air Mauritius (the national airline), and Mauritius Telecom.  These state-controlled companies have Boards of Directors on which seats are allocated to senior government officials. The government nominates the chairperson and CEO of each of these companies.

The government also invests in a wide variety of Mauritian businesses through its investment arm, the State Investment Corporation.  The government is also the owner of Maubank Ltd and the National Insurance Company.

Two parastatal entities are involved in the importation of agricultural products:  the Agricultural Marketing Board (AMB) and the State Trading Corporation (STC). The AMB’s role is to ensure that the supply of certain basic food products is constant and their prices remain affordable.  The STC is the only authorized importer of petroleum products, liquefied petroleum gas, and flour. SOEs purchase from or supply goods and services to private sector and foreign firms through tenders.

Audited accounts of SOEs are published in their annual reports.  Mauritius is part of the OECD network on corporate governance of state-owned enterprises in southern Africa.

Privatization Program

The government has no specific privatization program.  In 2017, however, as part of its broader water reform efforts, the government agreed to a World Bank recommendation to appoint a private operator to maintain and operate the country’s potable water distribution system.  Under the World Bank’s proposed public-private partnership, the Central Water Authority (CWA) would continue to own distribution and supply assets and will be responsible for business planning, setting tariffs, capital expenditure, and monitoring and enforcing the private operator’s performance.  In March 2018, despite protest by trade unions and consumer associations, the Minister of Energy and Public Utilities reiterated his intention to engage by the end of the year a private operator as a strategic partner to take over the water distribution services of the CWA. To date, this has not materialized.  The government says it plans to sell control of Maubank, into which it has injected about 173 million U.S. dollars following its decision to nationalize the bank in 2015.

The National Committee for Corporate Governance (NCCG) was established under Section 63 of the Financial Reporting Act (2004) and is the coordinating body responsible for all matters pertaining to corporate governance in Mauritius.  The purpose of the Committee is to: (a) establish principles and practices of corporate governance; (b) promote the highest standards of corporate governance; (c) promote public awareness about corporate governance principles and practices; and (d) act as the national coordinating body responsible for all matters pertaining to corporate governance.  The latest Code of Corporate Governance for Mauritius (2016) was launched on February 13, 2017, and can be accessed here:  http://www.miod.mu/info-centre/new-code-of-corporate-governance-for-mauritius-2016  .  The Financial Reporting Council (FRC), also set up under the Financial Reporting Act (2004), aims to advocate for the provision of high-quality reporting of financial and non-financial information by public interest entities and to improve the quality of accountancy and audit service.

The Ministry of Financial Services, Good Governance and Institutional Reforms was established following the December 2014 elections.  Its mandate is to provide guidance and support for enforcement of good governance and the eradication of corruption. The Mauritius Institute of Directors (MIoD) is an independent, private sector-led organization that also promotes high standards and best practices of corporate governance, with additional information available on its website:  http://www.miod.mu/.

In 2017, the government set up a National Corporate Social Responsibility (CSR) Foundation, which operates under the aegis of the Ministry of Social Integration and Economic Empowerment.  The National CSR Foundation is managed by a Council consisting of members from the private and public sectors, civil society, and academia. Under the Finance Act of 2016, each year every company is expected to set up a CSR Fund equivalent to two per cent of its chargeable income of the preceding year.  In 2017 and 2018, companies were required to remit at least 50 percent of their CSR Funds to the tax authorities for the benefit of the National CSR Foundation. The required contribution increased in 2019 to 75 percent. The National CSR Foundation is supposed to channel the money to NGO projects falling under priority areas identified by the government.  These priority areas are poverty alleviation, educational support, social housing, family protection, people with severe disabilities, and victims of substance abuse. Further details can be found on the National CSR Foundation website: https://www.ncsrfoundation.org/  .

Mauritius is eligible for the full range of OPIC investment insurance programs, and OPIC currently has an investment incentive agreement with Mauritius.  Mauritius is also a member of the World Bank’s Multilateral Investment Guarantee Agency. Countries with significant government-financed investment in Mauritius include India, France, and China.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Source for Host Country Data:  National Accounts 2017, Statistics Mauritius, http://statsmauritius.govmu.org/English/StatsbySubj/Pages/National-Accounts.aspx  

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Policies Towards Foreign Direct Investment

Foreign direct investment has all but stopped since the onset of Nicaragua’s political crisis began in April 2018.  The Government of Nicaragua nevertheless continues to seek foreign direct investment.  Investment incentives target export-focused companies that require large amounts of unskilled or low-skilled labor.

The Government of Nicaragua encourages investors to work through ProNicaragua, the country’s investment and export promotion agency.  ProNicaragua provides a range of services, including information packages, investment facilitation, and prospecting services to interested investors.  Its reputation for professionalism has deteriorated over the past few years, becoming increasingly politicized after President Ortega installed his son as the organization’s figurehead.  For more information, see http://www.pronicaragua.org .

Personal connections and affiliation with industry associations and chambers of commerce are critical for foreigners investing in Nicaragua.  Prior to the crisis, the Superior Council of Private Enterprise (COSEP) had functioned as the main private sector interlocutor with the Government of Nicaragua through a series of roundtable and regular meetings with the government.  These roundtables have ceased since the onset of Nicaragua’s crisis in April 2018 as has collaboration between the Government, private sector, and unions.  Though municipal and ministerial authorities may enact decisions relevant to foreign businesses, all actions are subject to de facto approval by the Presidency.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity.  Any individual or entity may make investments of any kind.  In general, Nicaraguan law provides equal treatment for domestic and foreign investment.  There are a few exceptions imposed by specific laws, such as the Border Law (2010/749), which prohibits foreigners from owning land in certain border areas.  Domestic air transportation and television broadcasting also has certain limits on foreign ownership.  In practice, the government also requires that all investments in the energy sector include the state owned enterprise Petronic as a partner.  Other sectors, such as electricity transmission and port and airport operation also have de facto rules to inhibit foreign investment.

Nicaragua allows foreigners to be shareholders of local companies, but a company representative must be a national or a foreigner with legal residence in the country.  Many companies satisfy this requirement by using their local legal counsel as a representative.  Legal residency procedures for foreign investors can take up to eighteen months and require in-person interviews in Managua.

The Government of Nicaragua does not formally screen, review, or approve foreign direct investments.  However, President Daniel Ortega and the executive branch maintain de facto review authority over any foreign direct investment.  This review process remains unclear and opaque.

Other Investment Policy Reviews

In the past three years, the Government of Nicaragua has not undergone any third-party investment policy reviews through multilateral organizations such as the Organization for Economic Co-operation and Development (OECD), World Trade Organization (WTO), or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

Nicaragua does not have an online business registration system.  At a minimum, a company must typically register with the national tax administration, social security administration, and local municipality.  According to the Ministry of Industrial Development and Trade (MIFIC), the process to register a business takes a minimum of 14 days.  In practice, registration usually takes more time.  Establishing a foreign-owned limited liability company (LLC) takes eight procedures and 42 days.  One of the legal representatives of the company must be a resident of Nicaragua.  There is no process for simplified business creation without a notary.  MIFIC has established single window offices (Ventanilla Unica) in several cities in Nicaragua to assist with business registration.

Outward Investment

The Government of Nicaragua does not promote or incentivize outward investment and does not restrict domestic investors from investing abroad.

Nicaragua has signed and ratified bilateral investment treaties with Argentina, Chile, the Czech Republic, Denmark, France, Germany, Italy, the Netherlands, the Russian Federation, South Korea, Spain, Switzerland, and the United Kingdom.  Nicaragua also has treaties with investment provisions with Canada, Mexico, Panama, Taiwan, and CAFTA-DR member states as part of free trade agreements.

In November 2016, Nicaragua and four other Central American countries signed a free trade agreement with South Korea.  The agreement eliminates tariffs on about 95 percent of goods within ten years of implementation.  The treaty has not yet entered into force.

Nicaragua does not have a bilateral income tax treaty with the United States or any other country.  The country’s taxation authority increased audits of foreign investors in 2017 and has become more aggressive in collection and enforcement procedures against foreign investors.  On February 27, 2019 the Government of Nicaragua approved new tax reforms.  Previously, the government collected one percent of gross revenue as an alternative minimum tax.  A new law triples this alternative minimum tax rate for “large businesses” – the approximately 600 companies that earn more than five million dollars in gross annual revenue – and doubling it for “medium businesses” with incomes between USD 1.9 and five million in gross revenue.  The law also increases the number of items subject to value added taxes and increases taxes on investment income, among other changes. Industry executives assert that the reform will cause loss of competitiveness with Central American neighbors and steep drops in consumption due to higher prices and unemployment.

Transparency of the Regulatory System

Investors regularly complain that regulatory authorities are arbitrary, negligent, or slow to apply existing laws, at times in an apparent effort to favor one competitor over another.  Lack of a reliable means to resolve disputes with government administrative authorities or business associates quickly results in some disputes becoming intractable.  Few companies in Nicaragua adhere to internationally accepted accounting standards.  The Government of Nicaragua does not have transparent policies to establish clear “rules of the game.”  Additional regulatory hindrances can occur in the Autonomous Caribbean Region where regional government and territorial authorities exist in addition to central government and municipal authorities.

Prior to the crisis, the Superior Council of Private Enterprise (COSEP) provided the Government of Nicaragua with input to proposed regulations and laws.  These channels had become increasingly centralized and tended to disfavor smaller investors and businesses who may have more difficulty placing items on the agenda.  These roundtables have ceased since the onset of Nicaragua’s crisis in April 2018.  The Executive Branch retains ultimate rule making and regulatory authority, and they have used that power to make unilateral economic decisions related to taxation, minimum wage, and social security — subjects that were previously areas of collaboration between the Government, private sector, and unions.

Draft legislation is ostensibly made available for public comment through meetings with associations that will be affected by the proposed regulations; however, in most cases consultations are limited to pro-government groups.  Not all information is published on official websites and the legislature is not required by law to give notice.  Draft texts may be distributed directly to stakeholders the government deems impacted by the legislation.  The ruling Sandinista party has a supermajority in the National Assembly; in practice the legislative branch seldom modifies legislation proposed by the Executive.

Key regulatory actions are published in La Gaceta, the official journal of government actions in Nicaragua, including official summaries and the full text of all legislation.  There are limited oversight or enforcement mechanisms to ensure the government follows administrative processes.

International Regulatory Considerations

All CAFTA-DR provisions are fully incorporated into Nicaragua’s national regulatory system.  Nicaragua is a member of the WTO and notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade.  Nicaragua is a signatory to the Trade Facilitation Agreement and reported in July 2017 that it had implemented 77 percent of its commitments to date; however, this self-reported figure likely overstates trade facilitation progress, which remains beset with bureaucratic inefficiency and lack of transparency.

Legal System and Judicial Independence

Nicaragua is a civil law country in which legislation is the primary source of law.  The legislative process is found in Articles 140 to 143 of the Constitution.  Difficulty in resolving commercial disputes, particularly the enforcement of contracts, remains one of the most serious drawbacks to investment in Nicaragua.  The legal system is weak and cumbersome.  Members of the judiciary, including those at senior levels, are widely believed to be corrupt and are subject to significant political pressure, especially from the executive branch.  A commercial code and bankruptcy law exist, but both are outdated and rarely used.  While regulations and enforcement actions are technically subject judicial review, appeals procedures are not viewed as reliable.

Laws and Regulations on Foreign Direct Investment

CAFTA-DR entered into force on April 1, 2006, for the United States and Nicaragua.  The CAFTA-DR Investment Chapter establishes a secure, predictable legal framework for U.S. investors in Central America and the Dominican Republic.  The agreement provides six basic protections: (1) nondiscriminatory treatment relative to domestic investors and investors from third countries; (2) limits on performance requirements; (3) the free transfer of funds related to an investment; (4) protection from expropriation other than in conformity with customary international law; (5) a minimum standard of treatment in conformity with customary international law; and (6) the ability to hire key managerial personnel without regard to nationality.  The full text of CAFTA-DR is available at http://www.ustr.gov/trade-agreements/free-trade-agreements/cafta-dr-dominican-republic-central-america-fta/final-text .

In addition to CAFTA-DR, Nicaragua’s Foreign Investment Law (2000/344) defines the legal framework for foreign investment.  The law allows for 100 percent foreign ownership in most industries. (See Limits on Foreign Control and Right to Private Ownership and Establishment for exceptions.)  It also establishes the principle of national treatment for investors, guarantees foreign exchange conversion and profit repatriation, clarifies foreigners’ access to local financing, and reaffirms respect for private property.

In June 2017, the Government of Nicaragua passed Law 953  to establish a state-owned mining enterprise (ENIMINAS) operating under the authority of the Ministry of Energy and Mines (MEM).  The law requires ENIMINAS participation in the exploitation of mineral resources from national mining reserves, which necessitates that the state mining company shall have some level of commercial interest in new mining concessions.

MIFIC maintains an information portal regarding applicable laws and regulations for trade and investment at http://www.tramitesnicaragua.gob.ni .  Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time and legal bases justifying the procedures.  The site is available only in Spanish.

Competition and Anti-Trust Laws

The Competition Promotion Law (2007/601) established the Institute for the Promotion of Competition (Procompetencia), to investigate and discipline businesses engaged in anticompetitive business practices, including price fixing, dividing territories, exclusive dealing, and product tying.  Procompetencia does competent research but has no effective power.

Expropriation and Compensation

Considerable uncertainty remains in securing property rights in Nicaragua.  The World Bank reported in February 2018 that an estimated one-third of land parcels in rural areas were still held without a clear title and stated that land tenure insecurity has hindered potential investments and land market transactions in Nicaragua.  Recent changes to public property registry policy prohibit the disclosure of ownership information to most outside parties, making the verification of ownership claims even more difficult.  Police often refuse to intervene in property invasion cases or assist in the enforcement of court orders to remove illegal occupants.  U.S. citizens have also encountered challenges executing and enforcing final court orders, even under orders from the Supreme Court of Nicaragua.  Conflicting land title claims are abundant and judicial appeal in these cases is very challenging.

During the civil unrest of 2018, US Embassy Managua received numerous reports of land invasions.  Some U.S. citizens report difficulties exercising property rights due to lack of government action, such as failure by local authorities to remove illegal occupants or long unexplained delays in government authorities’ performing basic duties such as cadastral surveys or issuance of documents needed by property owners.  President Ortega declared on numerous occasions that the government would not act to evict those who had illegally taken possession of private property.

Dispute Settlement

ICSID Convention and New York Convention

Nicaragua is a member of the Convention of the Settlement of Investment Disputes between States and Nationals of Other States (ICSID).  The Government of Nicaragua signed the 1958 New York Convention on the recognition and enforcement of foreign arbitration awards in 2003. There is no specific domestic legislation providing for enforcement under the 1958 New York Convention or for the enforcement of awards under the ICSID Convention.

Investor-State Dispute Settlement

CAFTA-DR establishes an investor-state dispute settlement mechanism.  An investor who believes the government has breached a substantive obligation under CAFTA-DR or that the government has breached an investment agreement may request binding international arbitration in a forum defined by the Investment Chapter in the Agreement.

International Commercial Arbitration and Foreign Courts

The Mediation and Arbitration Law (2005/540) establishes the legal framework for alternative dispute resolution.  The Nicaraguan Chamber of Commerce and Services founded Nicaragua’s Mediation and Arbitration Center.  Arbitration clauses should be included in business contracts, but legal experts are uncertain whether local courts would enforce awards resulting from international or local proceedings.

Enforcement of court orders is frequently subject to non-judicial considerations.  Courts routinely grant injunctions (“amparos”) to protect citizen rights by enjoining official investigatory and enforcement actions indefinitely.  Foreign investors are at a disadvantage in disputes against Nicaraguans with political or personal connections.  Misuse of the criminal justice system sometimes results in individuals being charged with crimes arising out of civil disputes, often to pressure the accused into accepting a civil settlement.

Dispute resolution is even more difficult in the Northern and Southern Caribbean Autonomous Regions, where most of the country’s fishery, timber, and mineral resources are located.  These large regions, which share a Caribbean history and culture, comprise more than one-third of Nicaragua’s land mass, much of which is controlled by territorial collective systems of both Afro-Caribbean and indigenous populations.  The division of authority between the central government and regional authorities is complex and ambiguous.  Local officials may act without effective central government oversight, and industry-wide regulations, like those of timber, mining, and fishing, often contradict autonomous recognition of the region.

Bankruptcy Regulations

Although bankruptcy provisions are included in the Civil and Commercial Codes, there is no tradition or culture of bankruptcy in Nicaragua.  More often than not, companies simply choose to close their operations and set up a new entity without going through a formal bankruptcy procedure, effectively leaving their creditors unprotected.  For their part, creditors typically avoid a judicial procedure fraught with uncertainty and instead attempt to collect as much as they can directly from the debtor, or they simply give up on any potential claims they may have. Nicaragua’s rules on bankruptcy focus on the liquidation of business entities rather than on reorganization.  They do not provide for an equitable treatment of creditors, to the detriment of creditors located in foreign jurisdictions.

Investment Incentives

The Social Housing Construction Law (2009/ 677) provides incentives for the construction of housing units 36–60m² in size with construction costs less than USD 30,000 per unit.  Developers are exempt from paying local taxes on the construction, purchase of materials, equipment or tools. Additional tax breaks are also available.

The Hydroelectric Promotion Law (amended 2005/531) and the Law to Promote Renewable Resource Electricity Generation (2005/532) provide incentives to invest in electricity generation, including duty free imports of capital goods and income and property tax exemptions. Regulatory concerns limit investment despite these incentives (see Transparency of the Regulatory System).  In particular, private investment in hydroelectric dams is banned from the Asturias, Apanás, and Río Viejo Rivers, and the approval of the National Assembly is required for projects larger than 30 megawatts on all other rivers.

The Tourism Incentive Law (amended 2005/575) includes the following basic incentives for investments of USD 30,000 or more outside Managua and USD 100,000 or more within Managua: income tax exemption of 80 percent to 90 percent for up to 10 years; property tax exemption for up to 10 years; exoneration from import duties on vehicles; and value added tax exemption on the purchase of equipment and construction materials.  The General Tourism Law (amended 2010/724) stipulates that hotel owners pay a tax of USD 0.50 per customer and two percent of the rental rate per room for tourism promotion.  It also imposes anti-discrimination, public health, and environmental regulations on tourism-oriented businesses.

The Fishing and Fish Farming Law (2004/489) exempts gasoline used in fishing and fish farming from taxes.  This law’s Article 111 was amended (2012/797) to allow individuals or companies to request a temporary permit to take advantage of unexploited or underexploited aquatic resources during closed season.  Environmental regulations also apply (see Transparency of the Regulatory System).

The Forestry Sector Law (2003/462) provides income, property and municipal tax incentives for plantation investments and tax exemptions on importing wood processing machinery and equipment.

The Special Law on Mining, Prospecting and Exploitation (2001/387) exempts mining concessionaires from import duties on capital inputs (see Transparency of the Regulatory System for additional information on the mining sector).

Foreign Trade Zones/Free Ports/Trade Facilitation

The National Free Trade Zone (FTZ) Commission, a government agency, regulates FTZ activities.  As of 2018, 225 companies operate with FTZ status in Nicaragua and employ 118,087 people.  The Nicaraguan Customs Agency monitors all FTZ imports and exports.  Most free zones are in Managua and approximately 40 percent belong to the textile and apparel sector.

The Tax Equity Law (amended 2009/712) allows firms to claim an income tax credit of 1.5 percent of the free-on-board (FOB) value of exports.  The Law of Temporary Admission for Export Promotion (2001/382) exempts businesses from value-added tax (VAT) for the purchase of machinery, equipment, raw materials, and supplies if used in export processing.  Businesses must export 25 percent of their production to take advantage of these tax benefits.

In addition to export incentives and duty free capital imports granted by the Tax Concertation Law and the Temporary Admission Law for Export Promotion, the Free Trade Zones for Industrial Exports Decree (1991/46 and amendments) provides a 10-year income tax exemption for Nicaragua and foreign investments in FTZs.  The National Free Trade Zone Commission of Nicaragua (CNFZ) administers the FTZ regime. The CNFZ requires a deposit to guarantee that final salaries and other expenses be paid if a company goes out of business.  Free trade zone salaries are negotiated separately from other wage negotiations and are set for five-year periods.

The Government of Nicaragua focus on pragmatic collaboration with large companies comes at the expense of small and medium size enterprises (SMEs), which are mostly sidelined from policy dialogue. As a result, SMEs are left to bear the same fiscal and bureaucratic responsibilities as large companies but without the incentives and benefits received by large companies, putting them at a strategic disadvantage. In the agricultural sector, where cooperative structures are promoted with generous tax benefits, SMEs are particularly disadvantaged.

Performance and Data Localization Requirements

Article 14 of the Nicaraguan Labor Code states that 90 percent of any company’s employees must be Nicaraguan. The Ministry of Labor may make exceptions when justified for technical reasons.

Although visas and work permit procedures are not excessively onerous for foreign investors and their employees, Nicaraguan authorities have denied entry to or expelled foreigners, including U.S. government officials, NGO workers, academics, journalists, and others for reasons not clearly defined.  Residency permit applications can take 18 months or longer to receive final approval.

Foreign investors in Nicaragua are not required to purchase from local sources or to export a specific percentage of output, nor are their access to foreign exchange limited in proportion to their exports.  Likewise, Nicaraguan tax and customs incentives apply equally to foreign and domestic investors.

There are no requirements for foreign IT providers to turn over source code or provide access to surveillance.  The Government of Nicaragua does not require forced localization nor are there other measures that prevent or unduly impede freely transmitting customer or other business-related data outside the country.

Real Property

Many investors in Nicaragua experience difficulties defending their property rights. The government regularly failed to enforce court decisions with respect to seizure, restitution, or compensation of private property. Enforcement of court orders was frequently subject to non-judicial considerations.  Members of the judiciary, including those at senior levels, were widely believed to be corrupt or subject to political pressure. The government failed to evict those who illegally took possession of private property.  Within the context of social upheaval starting on April 19, members of the FSLN illegally took over privately owned lands, with implicit and explicit support by municipal and national government officials. Some land seizures were politically targeted and directed against specific individuals, such as businessmen traditionally considered independent or against the ruling party.  As of August 24, the private sector contended that approximately 15,000 acres remained seized.

Previously during the 1980s, the expropriation of 28,000 properties in Nicaragua from both Nicaraguans and foreign investors resulted in a large number of claims and counter claims involving real estate.  Property registries suffer from years of poor recordkeeping, making it difficult to establish a title history, although some improvements have ensued from World Bank-financed projects to modernize the land administration systems in certain regions.

The Embassy recommends extensive due diligence and extreme caution before investing in property.  Unscrupulous individuals have engaged in protracted confrontations with U.S. investors to wrest control of beachfront properties along the Pacific coast in the departments of Carazo, Rivas, and Chinandega, as well as prime real estate in the cities of Managua, Granada, and Leon.  Judges and municipal authorities have been known to collude with such individuals, and a cottage industry supplies false titles and other documents to those who scheme to steal land.

Additional constraints can occur with property in the Autonomous Caribbean Region in which communal land cannot be legally purchased.  However, unscrupulous individuals sell communal land and lawyers and notaries will knowingly extend the apparent correct paperwork, only to have property buyers be stripped from their property by communal authorities.

Those interested in purchasing property in Nicaragua should seek experienced legal counsel very early in the process.

The Capital Markets Law (2006/587) provides a legal framework for securitization of movable and real property.  The banking system is expanding its loan programs for housing purchases and car purchases, but there is currently only a limited secondary market for mortgages.

Intellectual Property Rights

Nicaragua established standards for the protection and enforcement of intellectual property rights (IPR) through CAFTA-DR implementing legislation consistent with U.S. and international intellectual property standards.  While the legal regime for protection of IPR in Nicaragua is adequate, enforcement has been limited. Piracy of optical media and trademark violations are common.  The United States also has concerns about the implementation of Nicaragua’s patent obligations under CAFTA-DR, including the mechanism through which patent owners receive notice of submissions from third parties, how the public can access lists of protected patents, and the treatment of undisclosed test data.  The country does not publicly report on seizures of counterfeit goods.  Nicaragua is not listed in the Office of the U.S. Trade Representative’s Special 301 Report or the 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/ 

Capital Markets and Portfolio Investment

New policies have restricted the free flow of financial resources into the product and factor markets, as well as foreign currency convertibility.  Banks must now request foreign currency purchases in writing, 48 hours in advance.  In an effort to shore up liquidity, banks have sharply restricted lending, increased interest rates, and implemented stricter collateral standards.  The overall size and depth of the country’s financial markets and portfolio positions are very limited.

Money and Banking System

The modern banking system in Nicaragua is relatively young, small, and undercapitalized. The Central Bank of Nicaragua was established in 1961, as the state regulator of the monetary system with the sole right to issue of the national currency, the córdoba.  In the 1980s, all domestic banks were nationalized and foreign banks were not permitted to accept local deposits, though they could continue to provide loans.  In 1990, the National Assembly reestablished private banking in the country.  During a banking crisis from 2000–2001, four banks went into bankruptcy and were dissolved.

The Superintendent of Banks and other Financial Institutions (SIBOIF) regulates banks, insurance companies, stock markets, and other financial intermediaries.  SIBOIF requires that supervised entities provide audited financial statements, prepared according to international accounting standards, on a regular schedule.  The Deposit Guarantee System Law (2005/551) established the Financial Institution Deposit Guarantee Fund (FOGADE) to guarantee bank deposits up to USD 10,000 per depositor, per institution.  SIBOIF dependence on commercial banks limits its transparency and independence.

Although the banking system has grown and developed in the past two decades, Nicaragua remains underbanked relative to other countries in the region.  Only 19 percent of Nicaraguans aged 15 or older have bank accounts, and only 8 percent have any savings in such accounts, approximately half the rate of other countries in the region, according to World Bank data.  One-third of Nicaraguans continue to save their money in their home or other location while 49 percent have no savings.  Nicaragua also has one of the lowest mobile banking rates in Central America.

Due to the ongoing socio-political crisis, Nicaragua’s private banks have faced many serious challenges.  In an attempt to secure their liquidity, banks cut off most new lending immediately after the crisis began as banks have limited resources to cover withdrawals.  Although the Nicaraguan Central Bank (BCN) supported the banks at the beginning of the crisis, since June 2018 the BCN cut financing to banks and unilaterally modified regulations governing Financial Assistance Lines (LAF), making them all but inaccessible.  The reduction in lending has reduced the banks revenue, which has had a 29 percent reduction in 2018.

The banking industry remains conservative and highly concentrated, with four banks (BANPRO, Lafise, BANCENTRO, BAC, and FICOHSA) constituting 77 percent of the country’s market share.  The ongoing crisis that began on April 18 sparked large withdrawals of deposits from the banking system in the following months.  As of December 2018, the four banks had total assets worth USD USD 3.9 billion, a 28.3 percent drop from the 5.5 billion held in March 2018. Due to an increasingly high country risk and a relatively small business volume, the number of correspondent banking relationships with the United States has come under risk in 2018.  In December, Wells Fargo Bank informed the four banks that it would withdraw from the country and would not continue to provide correspondent services.  Bank of America has also withdrawn correspondent services from a local bank.

BANCORP, a subsidiary of ALBA de Nicaragua (ALBANISA), a joint venture between the State-owned oil companies of Nicaragua (49 percent) and Venezuela (51 percent) began accepting deposits in 2015.   Because of its ownership structure, U.S. sanctions against the Venezuelan petroleum firm PDVSA apply to Bancorp.  On March 7, 2019, in an attempt to circumvent sanctions, the National Assembly of Nicaragua approved the sale of BANCORP to the state of Nicaragua through the creation of a new National Bank, which has yet to be signed into law.

Foreigners are still allowed to open bank accounts as long as they are legal residents in the country.  Due to capital flight, Central Bank data show that in 2018 the credit portfolio of Nicaraguan commercial banks fell by 14.8 percent from May to December.  Loans to industry plummeted by 17.9 percent, to consumers by 18.2 percent and to the commerce sector by 15.3 percent.  Despite considerable restructuring, as a result of the Establishment of Special Conditions for the Renegotiation of Debts by the SIBOIF (which expired in December 2018), non-performing loan ratios increased as a result of the economic recession.  Loans in default at the end of December increased from 1 percent to 2.5 percent of total loans, while those at risk of entering default rose to 8.3 percent, up from 2.7 percent prior to the crisis.

The Foreign Investment Law allows foreign investors residing in the country to access local credit and local banks have no restriction in accepting property located abroad as collateral. However, many investors find lower cost financing and more product variety from offshore banks.  Short-term government and Central Bank bonds, issued in Córdobas, dominate Nicaragua’s infant but growing capital market, and some limited stock issuances have become more prominent.  Foreign banks have acquired a presence in Nicaragua through the purchase of local banks, many acting as second floor banks.

On October 3, 2018 President Ortega issued a decree that granted the UAF direct access to the private information of individuals and organizations collected by the following government institutions: Customs, the Supreme Electoral Council, Tax Authority, Social Security Institute, General Directorate for Migration and Foreigner Service, National Police, the Judiciary, and the Superintendency of Banks and Other Financial Institutions.  The new regulation would give the UAF access to vital records that include salaries, travel information, police records, gun permits, vehicle registration, companies’ exports and imports, bank and insurance information, and tax payments.  Further, the new regulation broadens the entities subject to UAF supervision, previously limited to financial institutions like banks and insurance companies and now including nonprofits, payment companies, car dealerships, accountants, real estate firms, jewelry stores, and fiduciary services providers.  Entities under UAF supervision must comply with invasive UAF audits or face fines or the suspension of business operations.  The repeated failure to provide information can result in permanent closure. With the passage of the new regulations, there will be no institutional barriers between UAF investigators and troves of personal data.

Nicaragua has not explored or announced that it intends to implement or allow the implementation of blockchain technologies in its banking transactions, though there are some consumer driven efforts to mainstream blockchain technologies.

Foreign Exchange and Remittances

Foreign Exchange Policies

Nicaragua is a highly dollarized economy.  The Foreign Investment Law (2000/344) and the Banking, Nonbank Intermediary, and Financial Conglomerate Law (2005/561) allow investors to convert freely and transfer funds associated with an investment.  CAFTA-DR ensures the free transfer of funds related to a covered investment.  Local financial institutions freely exchange U.S. dollars and other foreign currencies.  The Superintendent of Banks and other Financial Institutions (SIBOIF) monitors financial transactions for illicit activity, and the Financial Intelligence Unit (UAF) enforces anti-money laundering legislation.  Transfers of funds over USD 10,000 requires additional paperwork and due diligence.

The Nicaraguan Central Bank adjusts the official exchange rate daily according to a crawling peg that devalues the Cordoba against the U.S. dollar at an annual rate of five percent. However, on August 24, the Nicaraguan Central Bank Board of Directors amended regulations to enable the Bank’s President to determine discretionarily the amount it will charge local banks for the sale of U.S. dollars, Euros and other foreign currencies.  Currently, the Central Bank charges one percent higher than the official exchange rate, covering operating costs and anchoring exchange rate expectations.  With the new regulation, the Central Bank’s President can charge more than the one percent, implicitly devaluing the currency as local banks would likely pass on the additional cost to consumers seeking to purchase foreign currency.  It is unclear whether the revisions remain valid.

On October 19th, BCN officials notified Nicaragua’s private banks that in place of an on-line automated clearing house, banks must now request foreign currency purchases in writing, 48 hours in advance, and provide the BCN with the names of savers who want to withdraw their foreign currency deposits, as well as the amounts each individual requests.  The BCN has not formally asserted the right to deny requests to purchase dollars implication.

The official exchange rate as of December 31, 2018, was 32.3 Córdobas to one U.S. dollar.  The daily exchange rate can be found on the Central Bank’s website .  According to the BCN, the accumulated rate of inflation for 2018 was 3.9 percent.

Remittance Policies

The Foreign Investment Law (2000/344) allows foreign investors to transfer funds abroad, whether dividends, interest or principal on private foreign debt, as well as royalties, and from compensation payments for declarations of eminent domain.  Foreign investors also enjoy foreign currency convertibility through the local banking system.  There are no limitations on the inflow or outflow of funds for remittances of profits or revenue.

Sovereign Wealth Funds

Nicaragua does not have a sovereign wealth fund.

President Ortega has used funds provided by Venezuela through the Bolivarian Alliance for the Americas (ALBA) to increase the role of the state and quasi-state actors in the economy. Through Petronic, Nicaragua’s state-owned oil company, the government owns a 49 percent share in ALBA de Nicaragua (ALBANISA), the company that imports and monetizes Venezuelan petroleum products through the ALBA Energy Agreement.  The other 51 percent of ALBANISA is owned by the Venezuelan state-owned oil company PDVSA.  President Ortega and the Sandinista Party (FSLN) have used ALBANISA funds to purchase television and radio stations, hotels, cattle ranches, electricity generation plants, and pharmaceutical laboratories.  ALBANISA’s large presence in the Nicaraguan economy and its ties to the Government of Nicaragua government put companies trying to compete in industries dominated by ALBANISA or government-managed entities at a disadvantage.

On January 28, 2019 the Office of Foreign Assets Control (OFAC) designated PDVSA and as a result all assets and subsidiary companies of PDVSA operating in Nicaragua have been subjected to the same restrictions as those in Venezuela.  This includes ALBANISA and all of its subsidiaries, including Bancorp.  For years, President Daniel Ortega and Vice President Rosario Murillo have engaged in corrupt deals via PDVSA that have pilfered the public resources of Nicaragua for private gain.

In October 2018, the National Assembly approved a law that would grant the forty-year-old Nicaraguan Import Company (ENIMPORT) a new mandate as the “discretionary importer and exporter of the State,” as well as a new name. The law creates a state-owned Nicaraguan Import and Export Company (ENIMEX), raising concerns in the business community that the regime plans to supplant private exporters in an effort to access foreign currency. This state-owned enterprise (SOE) would be empowered to act as the agent of the government of Nicaragua in import and export transactions, form joint enterprises with the private sector, transport, store, and sell goods and services to the public, and participate in unrestricted commercial activities.  ENIMEX is to be exempt from most taxes and duties, putting any private competitors at a sharp disadvantage.

The government owns and operates the National Sewer and Water Company (ENACAL), National Port Authority (EPN), National Lottery, and National Electricity Transmission Company (ENATREL).  Private sector investment is not permitted in these sectors.  In sectors where competition is allowed, the government owns and operates the Nicaraguan Insurance Institute (INISER), Nicaraguan Electricity Company (ENEL), Las Mercedes Industrial Park, Nicaraguan Food Staple Company (ENABAS), the Nicaraguan Post Office, the International Airport Authority (EAAI), the Nicaraguan Mining Company (ENIMINAS) and Nicaraguan Petroleum Company (Petronic).  Through the Nicaraguan Social Security Institute (INSS), the government owns a pharmaceutical manufacturing company, and other companies and real estate holdings.  The Military Institute of Social Security (IPSM) also has a controlling interest in companies in the construction, manufacturing, and services sectors.  Other companies have unclear ownership structures that likely include at least a minority ownership by the Government of Nicaragua or government officials.

Total assets of all SOEs in Nicaragua are unknown as not all SOEs have publicly available or audited accounts.  There are few mechanisms to ensure the transparency and accountability of state business decisions.  The U.S. Department of State’s Fiscal Transparency report cites the need for Nicaragua to improve reporting on allocation to and from state-owned enterprises. Nicaragua is not a signatory to the WTO Agreement on Government Procurement.

Many large businesses have active Responsible Business Conduct (RBC) programs that include improvements to the workplace environment, business ethics, and community development initiatives.  The Nicaraguan Union for Corporate Social Responsibility (UniRSE), which includes 102 companies, is working to create more awareness for Corporate Social Responsibility (CSR) in Nicaragua.  UniRSE organizes events and studies best practices throughout the region.  Increasingly, both Nicaraguan and foreign businesses recognize that CSR and RBC programs must go beyond compliance with environmental or labor law, but more work is needed in this area.

The Government of Nicaragua does not factor RBC policies or practices into its procurement decisions nor explicitly encourage generally accepted RBC principles.  The government does not participate in the Extractive Industries Transparency Initiative or the Voluntary Principles on Security and Human Rights.  There are no domestic transparency measures requiring the disclosure of payments made to governments.

The U.S. Overseas Private Investment Corporation (OPIC) offers financing and insurance against political risk, expropriation, and inconvertibility to U.S. investments in Nicaragua. Nicaragua is a member of the World Bank’s Multilateral Investment Guarantee Agency.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

*Source: Central Bank of Nicaragua, ProNicaragua

Note: The IMF’s CDIS site does not have the data available for Nicaragua, nor is such data available from publicly available Government of Nicaragua sources.

Table 4: Sources of Portfolio Investment

Note: The IMF’s CDIS site does not have the data available for Nicaragua, nor is such data available from publicly available Government of Nicaragua sources.