Policies towards Foreign Direct Investment

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

The ABIA evaluates all FDI proposals and provides intelligence, business facilitation, and investment promotion to establish and expand profitable business enterprises.  The ABIA also advises the government on issues that are important to the private sector and potential investors to increase the international competitiveness of the local economy.

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

Other Investment Policy Reviews

The OECS, of which Antigua and Barbuda is a member, has not conducted a trade policy review in the last three years.

Business Facilitation

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

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

In the World Bank’s 2019 Doing Business Report, Antigua and Barbuda ranks 131st out of 190 in the ease of starting a business.  The establishment of a new business takes nine procedures and 22 days to complete. The general practice is to retain a local attorney who prepares all the relevant incorporation documents.  A business must register with the Intellectual Property and Commerce Office (IPCO), the Inland Revenue Department, the Medical Benefits Scheme, the Social Security Scheme, and the Board of Education.  Given the multiple agencies currently involved in the process, the government is exploring creating a Single Window facility to expedite the process.

In an effort to improve the standard of living for the population, the government of Antigua and Barbuda has put in place various initiatives to assist vulnerable citizens.  The Citizens’ Welfare Division within the Ministry of Social Transformation is responsible for the delivery of social services to vulnerable citizens, including the elderly, children, women, and people with disabilities.  The government of Antigua and Barbuda continues to advance the work of the Antigua and Barbuda Business Innovation Center, a two-year project to assist small business and entrepreneurs. The Antigua and Barbuda Innovation Center includes a business incubator and provides education, training, and investment opportunities to new and existing businesses.  The Innovation Center focuses on businesses in the healthcare, tourism, agriculture and environment sectors, as well as projects submitted by women.

Through the Prime Minister’s Entrepreneurial Development Program (EDP), people with disabilities can apply for a special incentive award.  The EDP will also provide opportunities for female and young entrepreneurs in keeping with government’s mandate to support the growth of niche markets, innovation, the intellectual capital and ingenuity of its citizens, and the development of micro-, small- and medium-sized enterprises.

Outward Investment

Although the government of Antigua and Barbuda prioritizes investment retention as a key component of its overall economic strategy, there are no formal mechanisms in place to achieve this.  Some companies have noted that the economy of Antigua and Barbuda. will continue to require significant foreign investment.

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

Transparency of the Regulatory System

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

Rulemaking and regulatory authority lies with the bicameral parliament of the government of Antigua and Barbuda.  The House of Representatives has 19 members, of which 17 memberselected for a five-year term in single-seat constituencies, one ex-officio member, and one Speaker.  The Senate has 17 appointed members.

Respective line ministries develop the relevant national laws and regulations, which are then drafted by the Ministry of Legal Affairs.  Laws relating to the ABIA and the CBI program are the main laws relevant to FDI. The laws of Antigua and Barbuda are available online at http://laws.gov.ag/new/index.php .  This website contains the full text of laws already in force, as well as those parliament is currently considering.

Although, some draft bills are not subject to public consultation, input from various stakeholder groups may be considered.  The process is detailed at:http://www.laws.gov.ag/makinglaws.htm  . The government encourages stakeholder organizations to support and contribute to the legal development process by participating in technical committees and commenting on drafts.

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

The constitution provides for the independent Office of the Ombudsman to guard against abuses of power by government officials.  The Ombudsman is responsible for investigating complaints about acts or omissions by government officials that violate the rights of members of the public.  

The ABIA has the main responsibility for investment supervision, and the Ministry of Finance and Corporate Governance monitors investments to collect information for national statistics and reporting purposes.

Antigua and Barbuda’s membership in regional organizations, particularly the OECS and its Economic Union, commits the state to implement all appropriate measures to fulfill its various treaty obligations.  Therefore, the eight member states and territories of the ECCU tend to enact laws uniformly, although there may be some minor differences in implementation. The enforcement mechanisms of these regulations include penalties and other sanctions.  The ABIA can revoke an issued Investment Certificate if the holder fails to comply with certain stipulations detailed in the Investment Authority Act and its regulations.

The government of Antigua and Barbuda has stated its commitment to achieving better development outcomes through improved transparency and accountability in the management of public finances.  The government has developed a Medium-Term Debt Management Strategy (MTDS) (covering the period 2016-2020) aimed at minimizing debt servicing, budgetary costs, and risk exposure to government while making every effort to maintain debt at a sustainable level.

The government enacted the Miscellaneous Amendments Act 2018 in December 2018, which ensured a number of important international standards were reflected in national legislation.  The government has also reduced the proportion of revenue required to pay the interest on government debt. The most recent Caribbean Financial Action Task Force (CFATF) Mutual Evaluation assessment found Antigua and Barbuda to be largely compliant.

The ECCB is the supervisory authority over financial institutions registered under the Banking Act of 2015.

International Regulatory Considerations

As a member of the OECS and the ECCU, Antigua and Barbuda subscribes to principles and policies outlined in the Revised Treaty of Basseterre.  The relationship between national and regional systems is such that each participating member state is expected to coordinate and adopt, where possible, common national policies aimed at the progressive harmonization of relevant policies and systems across the region.  Thus, Antigua and Barbuda is obligated to implement regionally developed regulations, such as legislation passed under the authority of the OECS, unless it seeks specific concessions to do otherwise.

The Antigua and Barbuda Bureau of Standards is a statutory body that prepares and promulgates standards in relation to goods, services, processes, and practices.  Antigua and Barbuda is a signatory to the World Trade Organization (WTO) Agreement on the Technical Barriers to Trade.

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

The Advanced Cargo Information System (ACIS) is a CARICOM project that seeks to improve the capability to track cargo efficiently.  Antigua and Barbuda is one of three regional pilot countries who have already enacted the enabling legislation. Antigua and Barbuda has fully implemented the Automated System for Customs Data (ASYCUDA).  Importers are no longer required to produce a Certificate of Good Standing (Tax Compliance Certificate) for the importation of goods. This has reduced the time needed to clear goods. Legislative changes to the Customs Control and Management Act enabled the electronic processing of manifests.

Legal System and Judicial Independence

Antigua and Barbuda bases its legal system on the British Common law system.  The Attorney General, the Chief Justice of the Eastern Caribbean Supreme Court, junior judges, and magistrates administer justice.  The Eastern Caribbean Supreme Court Act establishes the Supreme Court of Judicature, which consists of the High Court and the Eastern Caribbean Court of Appeal.  The High Court hears criminal and civil (commercial) matters and makes determinations on the interpretation of the Constitution. Parties may appeal first to the Eastern Caribbean Supreme Court, an itinerant court that hears appeals from all OECS members.  The final appellate authority is the Judicial Committee of the Privy Council of the United Kingdom.

The Caribbean Court of Justice (CCJ) has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas.  Currently, Antigua and Barbuda is subject only to the original jurisdiction of the CCJ.

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

Laws and Regulations on Foreign Direct Investment

The ABIA provides guidance on the relevant laws, rules, procedures, and reporting requirements for investors.  These are available at http://www.theiguides.org/public-docs/guides/antiguabarbuda  and http://investantiguabarbuda.org/ .

The government discontinued concessions provided under the Tourism and Business Special Incentives Act (2013) in 2018.  The government is currently reviewing its concessions regime.

Citizenship by Investment

Under the CBI program, foreign individuals can obtain citizenship in accordance with the Citizenship by Investment Act of 2013, which grants citizenship (without voting rights) to qualified investors.  Applicants are required to undergo a due diligence process before citizenship can be granted. The minimum contribution for investors under the CBI is a contribution of USD 100,000 to the National Development Fund for a family of up to four people and USD 125,000 for a family of five, with additional contributions of USD 15,000 per person for up to four additional family members.  Additionally, foreign individuals may contribute USD 150,000 to the University of the West Indies (UWI) Fund for a family of up to four people. This contribution entitles one member of the family to a one year tuition-only scholarship at UWI. Individual applicants can also qualify for the program by buying real estate valued at USD 400,000 or more or making a business investment of USD 1.5 million.  Alternatively, at least two applicants can propose to make a joint investment in an approved business with a total investment of at least USD 5 million.  Each investor must contribute at least USD 400,000 to the joint investment. Until October 31, 2019, two applications from related parties can make a joint investment, with each applicant investing a minimum of USD 200,000 in order to qualify.  CBI investors must own property for a minimum of five years before selling it.  All applicants must also pay relevant government and due diligence fees, as well as providing a full medical certificate, a police certificate, and evidence of the source of funds.  Further information is available at: http://www.cip.gov.ag/ .

Competition and Anti-Trust Laws

Chapter 8 of the Revised Treaty of Chaguaramas outlines the competition policy applicable to CARICOM states.  Member states are required to establish and maintain a national competition authority for implementing the rules of competition.  CARICOM established a Caribbean Competition Commission (CCC) to rule on complaints of anti-competitive cross-border business conduct.  CARICOM competition policy addresses anti-competitive business conduct such as collusion between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction, or distortion of competition within the Community, and actions by which an enterprise abuses its dominant position within the Community.  Antigua and Barbuda does not have any legislation regulating competition. The OECS agreed to establish a regional competition body to handle competition matters within its single market. The draft OECS bill is with the Ministry of Legal Affairs for review.

In March 2019, the CCC preliminarily ruled that parts of a proposed sale of the Bank of Nova Scotia’s banking assets in nine countries in the Caribbean, including OECS member countries,  to Republic Financial Holdings and life insurance operations in two other Caribbean countries to Sagicor Financial Corporation could have an anti-competitive impact in at least three member states.  The CCC stated it intends to liaise with national competition authorities and sector regulators for preliminary examinations of the proposed sales at the national level. The CCC has promised to monitor the situation and provide further updates.

Expropriation and Compensation

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

There is an unresolved dispute regarding the expropriation of an American-owned property.  Although the government of Antigua and Barbuda paid the former property owner a total of USD 39.8 million in compensation, it still owes interest payments of USD 20 million.  In March 2019, a judge dismissed a case bought by the former property owners against the government for payment of the outstanding balance. However, the owners intend to appeal.  For this reason, the industry recommends continued caution when investing in real estate in Antigua and Barbuda.

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

Investors may use national or international arbitration to resolve contractual disputes with the state.  Antigua and Barbuda also has Bilateral Investment Treaties with Germany and the United Kingdom that recognize binding international arbitration of investment disputes.  Antigua and Barbuda does not have a Bilateral Investment Treaty or a Free Trade Agreement with an investment chapter with the United States. U.S. Embassy Bridgetown is not aware of any current investment disputes in Antigua and Barbuda.

Antigua and Barbuda ranks 34 out of 190 countries in enforcing contracts in the 2019 World Bank Doing Business Report.  According to the report, dispute resolution in Antigua and Barbuda generally takes an average of 476 days. The slow court system and bureaucracy are widely seen as the main hindrances to timely resolutions to commercial disputes.  Through the Arbitration Act, the local courts recognize and enforce foreign arbitral awards issued against the government.

International Commercial Arbitration and Foreign Courts

As mandated by the Arbitration Act, alternative dispute mechanisms are available as a means for settling disputes between two private parties.  Parties may also use voluntary mediation or conciliation. The Arbitration Act mandates the legal recognition and enforcement of judgments of foreign courts by local courts.  Thus, the High Court of Antigua and Barbuda recognizes and enforces foreign arbitral awards. The Eastern Caribbean Supreme Court’s Court of Appeal provides meditation on commercial contracts.

Bankruptcy Regulations

Under the Bankruptcy Act (1975), Antigua and Barbuda has a bankruptcy framework that grants certain rights to debtors and creditors.  The World Bank’s 2019 Doing Business Report addresses the strength of the framework and its limitations in resolving insolvency in Antigua and Barbuda. Antigua and Barbuda is ranked 132nd of 190 countries in this area.

Investment Incentives

In 2018, the government of Antigua and Barbuda made a policy decision to stop granting waivers for property taxes.  Foreign investors can still access other concessions, including the manufacturers’ incentive that grants exemption from the payment of import duties, revenue recovery charge, and sales tax on raw materials, packaging materials, tools, equipment, and machinery.

The government of Antigua and Barbuda has been proactively pursuing public-private partnerships (PPPs) through the National Asset Management Company (NAMCO).  NAMCO is a wholly owned government entity that holds the government’s stake in joint ventures and manages the investment proceeds that accrue.

Foreign Trade Zones/Free Ports/Trade Facilitation

The government established the Antigua and Barbuda Free Trade and Processing Zone (Free Zone) in 1994.  A commission, acting as a private enterprise, administers the Free Zone.

The Free Zone is part of a government initiative to diversify the economy.  The commission is mandated to attract investment in priority areas.

Performance and Data Localization Requirements

The government does not mandate employment of its citizens by foreign investors.  However, the provisions of the Labor Code outline requirements for acquiring a work permit and prohibit anyone who is not a citizen of Antigua and Barbuda (or the OECS) to work without a work permit.  In practice, work permits may be granted to senior managers if no qualified Antiguan nationals are available for the post. There are no excessively onerous visa or residency, requirements.

As a member of the WTO, Antigua and Barbuda is party to the Agreement to the Trade Related Investment Measures.  While there are no formal performance requirements, the government encourages investments that will create jobs and increase exports and foreign exchange earnings. There are no requirements for participation either by nationals or by the government in foreign investment projects.  There is no requirement that enterprises must purchase a fixed percentage of goods or technology from local sources, but the government encourages local sourcing. Foreign investors receive the same treatment as citizens. There are no requirements for foreign information technology providers to turn over source code and/or provide access to surveillance (for example, backdoors into hardware and software or keys for encryption).

Responsible business conduct among both producers and consumers is positively regarded in Antigua and Barbuda.  The private sector is involved in projects that benefit society, including in support of environmental, social, and cultural causes.  Individuals benefit from business-sponsored initiatives when local and foreign-owned enterprises pursue volunteer opportunities and make monetary or in-kind donations to local causes.

The NGO community, while comparatively small, is involved in fundraising and volunteerism in gender, health, environmental, and community projects.  The government at times partners with NGOs in their activities and encourages philanthropy.

Antigua and Barbuda has a labor force of about 41,000 with a literacy rate of approximately 90 percent.  The minimum working age is 16 years old. People under 18 years old must have a medical clearance to work and may not work later than 10 p.m.  The Ministry of Labor, which conducts periodic workplace inspections, effectively enforces this law. The labor commissioner’s office also has an inspectorate that investigates child labor allegations.

Workers have the right to associate freely and to form labor unions.  Approximately 60 percent of workers in the formal sector belong to a union.  Unions are free to conduct activities without government interference. Labor unions form an important part of the membership of both political parties.  The law provides for the right of public and private sector workers to organize and bargain collectively without interference.

The labor code provides for the right to strike, but the Industrial Relations Court may limit this right in a given dispute.  Workers who provide essential services (including bus, telephone, port, petroleum, health, and safety workers) must give 21 days’ notice of intent to strike.  Once either party to a dispute requests that the court mediate, strikes are prohibited under penalty of imprisonment. Because of the delays associated with this process, unions often resolve labor disputes before calling a strike.  In addition, courts may issue an injunction against a legal strike when the national interest is threatened or affected. Labor law prohibits retaliation against strikers, and the government effectively enforces those laws. The labor code provides that the minister of labor may issue orders, which have the force of law, to establish a minimum wage.  The minimum wage is USD 3.03 an hour for all categories of labor. In practice, the great majority of workers earn substantially more than the minimum wage.

The customary standard workweek was 40 hours in five days.  The law provides that employers may not require workers to work more than a 48-hour, six-day workweek, and provides for 12 paid annual holidays.  The law requires that employees be paid one and a half times the employees’ basic wage per hour for overtime work in excess of the standard workweek.  The Ministry of Labor put few limitations on overtime, allowing it in temporary or occasional cases, but did not allow employers to make regular overtime compulsory.

Investors in Antigua and Barbuda are required to maintain workers’ rights and safeguard the environment.  While there are no specific health and safety regulations, the Labor Code provides general health and safety guidance to Labor Ministry inspectors.  The Labor Commission settles disputes over labor abuses, health, and safety conditions. The law gives the Labor Ministry the authority to require special safety measures, not otherwise defined in the law, to be put into place for worker safety.  Antigua and Barbuda is party to the International Labor Convention on Occupational Safety and Health No. 155 of 1981.

The labor inspectorate enforced standards in all sectors, including the informal sector.  The government enforced labor laws, including levying remedies and penalties of up to XCD 5,000 (USD USD 1,850) for nonpayment of work.  The government penalized overtime violations, but this was not always effective at deterring labor violations, according to some companies.

Workers have the right to report unsafe work environments without jeopardy to continued employment.  Inspectors then investigate such claims, and workers may leave such locations without jeopardy to their continued employment.

The Overseas Private Investment Corporation (OPIC) provides financing and political risk insurance to viable private sector projects, helps U.S. businesses invest overseas, and fosters economic development in new and emerging markets.  Antigua and Barbuda is a qualifying country for OPIC project. However, there are currently no active OPIC projects in the country.

Policies Towards Foreign Direct Investment

The Macri government actively seeks foreign direct investment. To improve the investment climate, the Macri administration has enacted reforms to simplify bureaucratic procedures in an effort to provide more transparency, reduce costs, diminish economic distortions by adopting good regulatory practices, and increase capital market efficiencies. Since 2016, Argentina has expanded economic and commercial cooperation with key partners including Chile, Brazil, Japan, South Korea, Spain, Canada, and the United States, and deepened its engagement in international fora such as the G-20, WTO, and OECD.

Over the past year, Argentina issued new regulations in the gas and energy, communications, technology, and aviation industries to improve competition and provide incentives aimed to attract investment in those sectors. Argentina seeks tenders for investment in wireless infrastructure, oil and gas, lithium mines, renewable energy, and other areas. However, many of the public-private partnership projects for public infrastructure planned for 2018 had to be delayed or canceled due to Argentina’s broader macroeconomic difficulties and ongoing corruption investigations into public works projects.

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

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law 19,550), the Argentina Civil and Commercial Code, and rules issued by the regulatory agencies. Foreign private entities can establish and own business enterprises and engage in all forms of remunerative activity in nearly all sectors.

Full foreign equity ownership of Argentine businesses is not restricted, for the most part, with exception in the air transportation and media industries. The share of foreign capital in companies that provide commercial passenger transportation within the Argentine territory is limited to 49 percent per the Aeronautic Code Law 17,285. The company must be incorporated according to Argentine law and domiciled in Buenos Aires. In the media sector, Law 25,750 establishes a limit on foreign ownership in television, radio, newspapers, journals, magazines, and publishing companies to 30 percent.

Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes that a foreigner cannot own land that allows for the extension of existing bodies of water or that are located near a Border Security Zone. In February 2012, the government issued Decree 274/2012 further restricting foreign ownership to a maximum of 30 percent of national land and 15 percent of productive land. Foreign individuals or foreign company ownership is limited to 1,000 hectares (2,470 acres) in the most productive farming areas. In June 2016, the Macri administration issued Decree 820 easing the requirements for foreign land ownership by changing the percentage that defines foreign ownership of a person or company, raising it from 25 percent to 51 percent of the social capital of a legal entity. Waivers are not available.

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

Other Investment Policy Reviews

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

Business Facilitation

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

In October 2016, the Ministry of Production issued Decree 1079/2016, easing bureaucratic hurdles for foreign trade and creating a Single Window for Foreign Trade (“VUCE” for its Spanish acronym). The VUCE centralizes the administration of all required paperwork for the import, export, and transit of goods (e.g., certificates, permits, licenses, and other authorizations and documents). Argentina subjects imports to automatic or non-automatic licenses that are managed through the Comprehensive Import Monitoring System (SIMI, or Sistema Integral de Monitoreo de Importaciones), established in December 2015 by the National Tax Agency (AFIP by its Spanish acronym) through Resolutions 5/2015 and 3823/2015. The SIMI system requires importers to submit detailed information electronically about goods to be imported into Argentina. Once the information is submitted, the relevant Argentine government agencies can review the application through the VUCE and make any observations or request additional information. The number of products subjected to non-automatic licenses has been modified several times, resulting in a net decrease since the beginning of the SIMI system.

The Argentine Congress approved an Entrepreneurs’ Law in March 2017, which allows for the creation of a simplified joint-stock company (SAS, or Sociedad por Acciones Simplifacada) online within 24 hours of registration. Detailed information on how to register a SAS is available at: https://www.argentina.gob.ar/crear-una-sociedad-por-acciones-simplificada-sas . As of April 2019, the online business registration process is only available for companies located in Buenos Aires. The government is working on expanding the SAS to other provinces. Further information can be found at http://www.produccion.gob.ar/todo-sobre-la-ley-de-emprendedores/.

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

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

Details on how to register a company can be found at the Ministry of Production and Labor’s website: https://www.argentina.gob.ar/produccion/crear-una-empresa . Instructions on how to obtain a tax identification code can be found at: https://www.argentina.gob.ar/obtener-el-cuit .

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

In April 2016, the Small Business Administration of the United States and the Ministry of Production of Argentina signed a Memorandum of Understanding (MOU) to set up small and medium sized business development centers (SBDCs) in Argentina. The goal of the MOU is to provide small businesses with tools to improve their productivity and increase their growth. Under the MOU, in June 2017, Argentina set up the first SBDC pilot in the province of Neuquen.

The Ministry of Production and Labor offers a wide range of attendance-based courses and online training for businesses. The full training menu can be viewed at: https://www.argentina.gob.ar/produccion/capacitacion 

Outward Investment

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

Transparency of the Regulatory System

The Macri administration has taken measures to improve government transparency. President Macri created the Ministry of Modernization, tasked with conducting quantitative and qualitative studies of government procedures and finding solutions to streamline bureaucratic processes and improve transparency. In September 2018, the Ministry of Modernization was downgraded into a Secretariat due to a budget-oriented streamlining of the Cabinet.

In September 2016, Argentina enacted a Right to Access Public Information Law (27,275) that mandates all three governmental branches (legislative, judicial, and executive), political parties, universities, and unions that receive public funding are to provide non-classified information at the request of any citizen. The law also created the Agency for the Right to Access Public Information to oversee compliance.

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

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

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

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

In April 2018, Argentina passed the Business Criminal Responsibility Law (27,041) through Decree 277. The decree establishes an Anti-Corruption Office in charge of outlining and monitoring the transparency policies with which companies must comply to be eligible for public procurement.

Under the bilateral Commercial Dialogue, Argentina and the United States discuss good regulatory practices, conducting regulatory impact analyses, and improving the incorporation of public consultations in the regulatory process. Similarly, under the bilateral Digital Economy Working Group, Argentina and the United States share best practices on promoting competition, spectrum management policy, and broadband investment and wireless infrastructure development.

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

Ministries, regulatory agencies, and Congress are not obligated to provide a list of anticipated regulatory changes or proposals, share draft regulations with the public, or establish a timeline for public comment. They are also not required to conduct impact assessments of the proposed legislation and regulations.

Since 2016, the Office of the President and various ministries has sought to increase public consultation in the rulemaking process; however, public consultation is non-binding and has been done in an ad-hoc fashion. In 2017, the Federal Government of Argentina issued a series of legal instruments that seek to promote the use of tools to improve the quality of the regulatory framework. Amongst them, Decree 891/2017 for Good Practices in Simplification establishes a series of tools to improve the rulemaking process. The decree introduces tools on ex-ante and ex-post evaluation of regulation, stakeholder engagement, and administrative simplification, amongst others. Nevertheless, no formal oversight mechanism has been established to supervise the use of these tools across the line of ministries and government agencies, which make implementation difficult and limit severely the potential to adopt a whole-of-government approach to regulatory policy, according to a 2019 OECD publication on Regulatory Policy in Argentina.

Some ministries and agencies have developed their own processes for public consultation, such as publishing the draft on their websites, directly distributing the draft to interested stakeholders for feedback, or holding public hearings. In 2016 the Ministry of Justice and Human Rights launched the digital platform Justicia2020 (https://www.justicia2020.gob.ar/ ), to foster public involvement in the Judiciary reform process projected by 2020. Once the draft of a bill is introduced into the Argentine Congress, the full text of the bill and its status can be viewed online at the Chamber of Deputies website (http://www.diputados.gov.ar/), and that of the Senate (http://www.senado.gov.ar/ ).

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

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

International Regulatory Considerations

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

Argentina has been a member of the WTO since 1995 and it ratified the Trade Facilitation Agreement in January 2018. Argentina notifies technical regulations, but not proposed drafts, to the WTO Committee on Technical Barriers to Trade. Argentina has sought to deepen its engagement with the OECD and submitted itself to an OECD regulatory policy review in March 2018, which was released in Mach 2019. Argentina participates in all 23 OECD committees and seeks an accession invitation before the end of 2019.

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

Legal System and Judicial Independence

According to the Argentine constitution, the judiciary is a separate and equal branch of government. In practice, there have been instances of political interference in the judicial process. Companies have complained that courts lack transparency and reliability, and that Argentine governments have used the judicial system to pressure the private sector. A 2017 working group review of Argentina’s application to join the OECD noted the politicization of the General Prosecutor’s Office created a lack of prosecutorial independence. The OECD working group said the executive branch, prior to the Macri government, had pressured judges through threatened or actual disciplinary proceedings. Media revelations of judicial impropriety and corruption feed public perception and undermine confidence in the judiciary.  

The Macri administration has publicly expressed its intent to improve transparency and rule of law in the judicial system, and the Justice Minister announced in March 2016 the “Justice 2020” initiative to reform the judiciary.

Argentina follows a Civil Law system. In 2014, the Argentine government passed a new Civil and Commercial Code that has been in effect since August 2015. The Civil and Commercial Code provides regulations for civil and commercial liability, including ownership of real and intangible property claims. The current judicial process is lengthy and suffers from significant backlogs. In the Argentine legal system, appeals may be brought from many rulings of the lower court, including evidentiary decisions, not just final orders, which significantly slows all aspects of the system. The Justice Ministry reported in December 2018 that the expanded use of oral processes had reduced the duration of 68 percent of all civil matters to less than two years.  

Many foreign investors prefer to rely on private or international arbitration when those options are available. Claims regarding labor practices are processed through a labor court, regulated by Law 18,345 and its subsequent amendments and implementing regulations by Decree 106/98. Contracts often include clauses designating specific judicial or arbitral recourse for dispute settlement.

Laws and Regulations on Foreign Direct Investment

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

All foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law No. 19,550) and the rules issued by the commercial regulatory agencies. Decree 27/2018 amended Law 19,550 to simplify bureaucratic procedures. Full text of the decree can be found at (http://servicios.infoleg.gob.ar/infolegInternet/anexos/305000-309999/305736/norma.htm ). All other laws and norms concerning commercial entities are established in the Argentina Civil and Commercial Code, which can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/235000-239999/235975/norma.htm 

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

• Ministry of Production and Labor (http://www.produccion.gob.ar/ )
• Treasury Ministry (https://www.argentina.gob.ar/hacienda )
• The Central Bank of the Argentine Republic (http://www.bcra.gov.ar/ )
• The National Securities Exchange Commission (http://www.cnv.gob.ar/ )
• The National Investment and Trade Promotion Agency (http://www.inversionycomercio.org.ar/ )
• Investors can download Argentina’s investor guide through this link: (https://drive.google.com/file/d/0B-086VB27JBjN0x0NmM4Y09GODA/view )

Competition and Anti-Trust Laws

The National Commission for the Defense of Competition and the Secretariat of Commerce, both within the Ministry of Production and Labor, have enforcement authority of the Competition Law (Law 25,156). The law aims to promote a culture of competition in all sectors of the national economy. In May 2018, the Argentine Congress approved a new Defense of the Competition Law (Law 27,442). The new law incorporates anti-competitive conduct regulations and a leniency program to facilitate cartel investigation. The full text of the law can be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=310241 .

Expropriation and Compensation

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

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

In May 2012, the Fernandez de Kirchner administration nationalized the oil and gas company Repsol-YPF. Although most of the litigation was settled in 2016, a small percentage of stocks owned by an American hedge fund remain in litigation in U.S. courts.

Dispute Settlement

ICSID Convention and New York Convention

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

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

In March 2012, the United States suspended Argentina’s designation as a Generalized System of Preferences (GSP) beneficiary developing country because it had not acted in good faith in enforcing arbitration awards in favor of United States citizens or a corporation, partnership, or association that is 50 percent or more beneficially owned by United States citizens. Effective January 1, 2018, the United States ended Argentina’s suspension from the GSP program.  Following Congressional reauthorization of the program, as of April 22, 2018, Argentina’s access was restored for GSP duty-free treatment for over 3,000 Argentine products.

Investor-State Dispute Settlement

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

In the past ten years, Argentina has been brought before the ICSID in 54 cases involving U.S. or other foreign investors. Argentina currently has four pending arbitration cases filed against it by U.S. investors. For more information on the cases brought by U.S. claimants against Argentina, go to: https://icsid.worldbank.org/en/Pages/cases/AdvancedSearch.aspx# .

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

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

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

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

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

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

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

International Commercial Arbitration and Foreign Courts

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

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

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

Bankruptcy Regulations

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

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

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

Investment Incentives

Government incentives do not make any distinction between foreign and domestic investors.

The Argentine government offers a number of investment promotion programs at the federal, provincial, and municipal levels to attract investment to specific economic sectors such as capital assets and infrastructure, innovation and technological development, and energy, with no discrimination between national or foreign-owned enterprises. They also offer incentives to encourage the productive development of specific geographical areas. The Investment and International Trade Promotion Agency provides cost-free assessment and information to investors to facilitate operations in the country. Argentina’s investment promotion programs and regimes can be found at: http://www.investandtrade.org.ar/?lang=en  http://www.inversionycomercio.org.ar/en/where_tax_benefits.php?wia=1&lang=en<http://www.inversionycomercio.org.ar/docs/pdf/Doing_Business_in_Argentina-2018.pdf, and http://www.produccion.gob.ar.

The National Fund for the Development of Micro, Small, and Medium Enterprises provides low cost credit to small and medium-sized enterprises for investment projects, labor, capital, and energy efficiency improvement with no distinction between national or foreign-owned enterprises. More information can be found at https://www.argentina.gob.ar/produccion/financiamiento 

The Ministry of Production and Labor supports numerous employment training programs that are frequently free to the participants and do not differentiate based on nationality.

Some of the investment promotion programs require investments within a specific region or locality, industry, or economic activity. Some programs offer refunds on Value-Added Tax (VAT) or other tax incentives for local production of capital goods.

Foreign Trade Zones/Free Ports/Trade Facilitation

Argentina has two types of tax-exempt trading areas: Free Trade Zones (FTZ), which are located throughout the country, and the more comprehensive Special Customs Area (SCA), which covers all of Tierra del Fuego Province and is scheduled to expire at the end of 2023.

Argentine law defines an FTZ as a territory outside the “general customs area” (GCA, i.e., the rest of Argentina) where neither the inflows nor outflows of exported final merchandise are subject to tariffs, non-tariff barriers, or other taxes on goods. Goods produced within a FTZ generally cannot be shipped to the GCA unless they are capital goods not produced in the rest of the country. The labor, sanitary, ecological, safety, criminal, and financial regulations within FTZs are the same as those that prevail in the GCA. Foreign firms receive national treatment in FTZs.

Merchandise shipped from the GCA to a FTZ may receive export incentive benefits, if applicable, only after the goods are exported from the FTZ to a third country destination. Merchandise shipped from the GCA to a FTZ and later exported to another country is not exempt from export taxes. Any value added in an FTZ or re-export from an FTZ is exempt from export taxes. For more information on FTZ in Argentina see: http://www.afip.gob.ar/zonasFrancas/ .

Products manufactured in an SCA may enter the GCA free from taxes or tariffs. In addition, the government may enact special regulations that exempt products shipped through an SCA (but not manufactured therein) from all forms of taxation except excise taxes. The SCA program provides benefits for established companies that meet specific production and employment objectives.

Performance and Data Localization Requirements

Employment and Investor Requirements

The Argentine national government does not have local employment mandates nor does it apply such schemes to senior management or boards of directors. However, certain provincial governments do require employers to hire a certain percentage of their workforce from provincial residents. There are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees. Under Argentine Law, conditions to invest are equal for national and foreign investors. As of March 2018, citizens of MERCOSUR countries can obtain legal residence within five months and at little cost, which grants permission to work. Argentina suspended its method for expediting this process in early 2018.

Goods, Technology, and Data Treatment

Argentina has local content requirements for specific sectors. Requirements are applicable to domestic and foreign investors equally. Argentine law establishes a national preference for local industry for most government procurement if the domestic supplier’s tender is no more than five to seven percent higher than the foreign tender. The amount by which the domestic bid may exceed a foreign bid depends on the size of the domestic company making the bid. On May 10, 2018, Argentina issued Law 27,437, giving additional priority to Argentine small and medium-sized enterprises and, separately, requiring that foreign companies that win a tender must subcontract domestic companies to cover 20 percent of the value of the work. The preference applies to procurement by all government agencies, public utilities, and concessionaires.  There is similar legislation at the sub-national (provincial) level.

On September 5, 2018, the government issued Decree 800/2018, which provides the regulatory framework for Law 27,437. On November 16, 2016, the government passed a public-private partnership (PPP) law (27,328) that regulates public-private contracts. The law lowered regulatory barriers to foreign investment in public infrastructure projects with the aim of attracting more foreign direct investment. Several projects under the PPP initiative have been canceled or put on hold due to an ongoing investigation on corruption in public works projects during the last administration. The PPP law contains a “Buy Argentina” clause that mandates at least 33 percent local content for every public project.

Argentina is not a signatory to the WTO Agreement on Government Procurement (GPA), but it became an observer to the GPA in February 1997.

On July 5, 2016, the Ministry of Production and Labor and the Ministry of Energy and Mining issued Joint Resolutions 123 and 313, which allow companies to obtain tax benefits on purchases of solar or wind energy equipment for use in investment projects that incorporate at least 60 percent local content in their electromechanical installations.  In cases where local supply is insufficient to reach the 60 percent threshold, the threshold can be reduced to 30 percent. The resolutions also provide tax exemptions for imports of capital and intermediate goods that are not locally produced for use in the investment projects.

On August 1, 2016, Argentina passed law 27,263, implemented by Resolution 599-E/2016, which provides tax credits to automotive manufacturers for the purchase of locally-produced automotive parts and accessories incorporated into specific types of vehicles. The tax credits range from 4 percent to 15 percent of the value of the purchased parts.  The list of vehicle types included in the regime can be found here: http://servicios.infoleg.gob.ar/infolegInternet/anexos/260000-264999/263955/norma.htm . On April 20, 2018, Argentina issued Resolution 28/2018, simplifying the procedure for obtaining the tax credits. The resolution also establishes that if the national content drops below the minimum required by the resolution because of relative price changes due to exchange rate fluctuations, automotive manufacturers will not be considered non-compliant with the regime. However, the resolution sets forth that tax benefits will be suspended for the quarter when the drop was registered.

The Media Law, enacted in 2009 and amended in 2015, requires companies to produce advertising and publicity materials locally or to include 60 percent local content. The Media Law also establishes a 70 percent local production content requirement for companies with radio licenses. Additionally, the Media Law requires that 50 percent of the news and 30 percent of the music that is broadcast on the radio be of Argentine origin. In the case of private television operators, at least 60 percent of broadcast content must be of Argentine origin. Of that 60 percent, 30 percent must be local news and 10 to 30 percent must be local independent content.

Argentina establishes percentages of local content in the production process for manufacturers of mobile and cellular radio communication equipment operating in Tierra del Fuego province.  Resolution 66, issued July 12, 2018, replaces Resolution 1219/2015 and maintains the local content requirement for products such as technical manuals, packaging, and labeling. Resolution 66 eliminated the local content requirement imposed by Resolution 1219 for batteries, screws, and chargers. The percentage of local content required ranges from 10 percent to 100 percent depending on the process or item. In cases where local supply is insufficient to meet local content requirements, companies may apply for an exemption that is subject to review every six months. A detailed description of local content percentage requirements can be found here .

There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption, nor does the government prevent companies from freely transmitting customer or other business-related data outside the country’s territory.

Argentina does not have forced localization of content in technology or requirements of data storage in country.

Investment Performance Requirements

There is no discrimination between domestic and foreign investors in investment incentives. There are no performance requirements. A complete guide of incentives for investors in Argentina can be found at: http://www.inversionycomercio.org.ar/invest_argentina.php .

There is an increasing awareness of corporate social responsibility (CSR) and responsible business conduct (RBC) among both producers and consumers in Argentina. RBC and CSR practices are welcomed by beneficiary communities throughout Argentina. There are many institutes that promote RBC and CSR in Argentina, the most prominent being the Argentine Institute for Business Social Responsibility (http://www.iarse.org /), which has been working in the country for more than 17 years and includes among its members many of the most important companies in Argentina.

Argentina is a member of the United Nation’s Global Compact. Established in April 2004, the Global Compact Network Argentina is a business-led network with a multi-stakeholder governing body elected for two-year terms by active participants. The network is supported by the United Nations Development Program (UNDP) Argentina in close collaboration with other UN Agencies. The Global Compact Network Argentina is the most important RBC/CSR initiative in the country with a presence in more than 20 provinces. More information on the initiative can be found at: http://pactoglobal.org.ar .

Foreign and local enterprises tend to follow generally accepted CSR/RBC principles. Argentina subscribed to the Declaration on the OECD Guidelines for Multinational Enterprises in April 1997.

Many provinces, such as Mendoza and Neuquen, have or are in the process of enacting a provincial CSR/RBC law. There have been many previously unsuccessful attempts to pass a CSR/RBC law. Distrust over the State’s role in private companies had been the main concern for legislators opposed to these bills.

In February 2019, the Argentine government joined the Extractive Industries Transparency Initiative (EITI).

Argentine workers are among the most highly-educated and skilled in Latin America. Foreign investors often cite Argentina’s skilled workforce as a key factor in their decision to invest in Argentina. Argentina has relatively high social security, health, and other labor taxes, however, and high labor costs are among foreign investors’ most often cited operational challenges. The unemployment rate was 9.1 percent in the fourth quarter of 2018, according to official statistics. The government estimated unemployment for workers below 29 years old as roughly double the national rate. Analysts estimate one-third of Argentina’s salaried workforce was employed informally. Though difficult to measure, analysts believe including self-employed informal workers in the estimate would drive the overall rate of informality to 40 percent of the labor force.

Labor laws are comparatively protective of workers in Argentina, and investors cite labor-related litigation as an important factor increasing labor costs in Argentina. There are no special laws or exemptions from regular labor laws in the Foreign Trade Zones. Organized labor plays an important role in labor-management relations and in Argentine politics. Under Argentine law, the Secretariat of Labor recognizes one union per sector per geographic unit (e.g., nationwide, a single province, or a major city) with the right to negotiate a collective bargaining agreement for that sector and geographic area. Roughly 40 percent of Argentina’s formal workforce is unionized. The Secretariat of Labor ratifies collective bargaining agreements. Collective bargaining agreements cover workers in a given sector and geographic area whether they are union members or not, so roughly 70 percent of the workforce was covered by an agreement. While negotiations between unions and industry are generally independent, the Secretariat of Labor often serves as a mediator. Argentine law also offers recourse to mediation and arbitration of labor disputes.

Tensions between management and unions occur. Many managers of foreign companies say they have good relations with their unions. Others say the challenges posed by strong unions can hinder further investment by their international headquarters. Depending on how sectors are defined, some activities such as oil and gas production or aviation involve multiple unions, which can lead to inter-union power disputes that can impede the companies’ operations.

During 2017, the government helped employers and workers agree on adjustments to collective bargaining agreements covering private sector oil and gas sector workers in Neuquen Province for unconventional hydrocarbon exploration and production. The changes were aimed at reducing certain labor costs and incentivizing greater productivity. Employers and unions reached similar agreements in the construction and automotive sectors. The government intends to adapt such agreements to other sectors, while it seeks to advance broader labor reforms through new legislation.

The government presented to the Congress in November 2017 a labor reform bill, including four broad thrusts: (1) a labor amnesty that would aim to reduce informality by encouraging employers to declare their off-the-books workers to the authorities without penalties or fines; (2) a National Institute of Worker Education to develop policies and programs aimed at workers’ skills development, as well as a system of workplace-based educational programs specifically for secondary, technical, and university students; (3) a technical commission to limit costs for union healthcare programs by evaluating drugs and medical treatments to determine which ones the union plans must cover; and (4) modifications to the labor contract law to reduce employers’ costs, incentivize hiring, and improve competitiveness. Union resistance to the fourth area led the government to divide the bill into three separate proposals covering the first three reform areas, respectively, and to resubmit the new bills to the congress in May 2018. The three labor reform bills remained pending before congress as of March 2019.

Labor-related demonstrations in Argentina occurred periodically in 2018. Reasons for strikes include job losses, high taxes, loss of purchasing power, and wage negotiations. Labor demonstrations may involve tens of thousands of protestors. Recent demonstrations have essentially closed sections of the city for a few hours or days at a time. Demonstrations by airline employees caused significant flight delays or cancellations in recent months as well.

The Secretariat of Labor has hotlines and an online website to report labor abuses, including child labor, forced labor, and labor trafficking. The Superintendent of Labor Risk (Superintendencia de Riesgos del Trabajo) has oversight of health and safety standards. Unions also play a key role in monitoring labor conditions, reporting abuses and filing complaints with the authorities. Argentina has a Service of Mandatory Labor Conciliation (SECLO), which falls within the Secretariat of Labor, Employment and Social Security. Provincial governments and the city government of Buenos Aires are also responsible for labor law enforcement.

The minimum age for employment is 16. Children between the ages of 16 and 18 may work in a limited number of job categories and for limited hours if they have completed compulsory schooling, which normally ends at age 18. The law requires employers to provide adequate care for workers’ children during work hours to discourage child labor. The Department of Labor’s 2016 Worst Form of Child Labor for Argentina can be accessed here: https://www.dol.gov/agencies/ilab/resources/reports/child-labor/argentina 

The Department of State’s 2018 Human Rights Report for Argentina can be accessed here. 

Argentine Law prohibits discrimination on the grounds of sex, race, nationality, religion, political opinion, union affiliation, or age. The law also prohibits employers, either during recruitment or time of employment, from asking about a worker’s political, religious, labor, and cultural views or sexual orientation. These national anti-discrimination laws also apply to labor relations and other social relations.

Argentina has been a member of the International Labor Organization since 1919.

The Argentine government signed a comprehensive agreement with the Overseas Private Investment Corporation (OPIC) in 1989. The agreement allows OPIC to insure U.S. investments against risks resulting from expropriation, inconvertibility, war or other conflicts affecting public order. In November 2018, OPIC and the Government of Argentina signed six letters of interest to advance several projects in support of Argentina’s economic growth. The agreements will support sectors ranging from infrastructure to energy to logistics and total USD 813 million dollars in U.S. support that will catalyze additional private investment.

OPIC is open for business in all Latin American and Caribbean countries except Venezuela and Cuba. Argentina is also a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

The government encourages FDI, particularly in the tourism and financial services sector.  The country provides incentives for second home ownership and currently has over 400 banks and trust companies operating in the jurisdiction.  The National Investment Policy explicitly encourages foreign investment in certain sectors of the economy. These sectors are listed on the BIA website at www.bahamas.gov.bs/bia   and are as follows: touristic resorts; upscale condominium, timeshare, and second home development; information/data processing; hi-tech services; ship registration; repair; light manufacturing for export; agro-industries; food processing; agriculture; financial services; offshore medical centers; and pharmaceutical manufacture.

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

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

With the exception of these sectors, the Bahamian government does not give preferential treatment to investors based on nationality, and investors have equal access to incentives, which include land grants, tax concessions, and direct marketing and budgetary support.  The government provides guidelines for investment through its National Investment Policy (NIP), which The Bahamas Investment Authority (BIA) administers in the Office of the Prime Minister. Large foreign investment projects, particularly those that do not fit within the NIP, require approval by the National Economic Council (NEC) of The Bahamas.  This process generally requires environmental and economic impact assessments for review by multiple government agencies prior to NEC consideration.

Bureaucratic impediments are not limited to the NEC approvals process, and the country continues to lag behind on international metrics related to starting a business.   According to the 2018 World Bank Doing Business rankings, The Bahamas scores 118 overall, 169 in registering property, 91 in getting construction permits, and 144 in access to credit.  The Embassy is aware of cases where the Bahamian government failed to respond to investment applications, and several cases where there have been significant delays in the approvals process.  Despite the challenges that investors have reported, investment continues to grow in tourism, finance, and quick-serve restaurant franchises.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

Other Investment Policy Reviews

The Bahamas ranks 118 out of 190 countries in terms of the ease of doing business in the 2018 World Bank Doing Business Report, with a Distance to Frontier score below the Caribbean regional average. (http://doingbusiness.org/rankings  .)

At present, The Bahamas is the only Western Hemisphere country that is not a member of the WTO.  The current government has re-engaged with the Accessions Division of the WTO with an aim of full membership by 2019, although this timeline may be delayed.  There is a small but vocal constituency against WTO accession that is unlikely to slow the government’s course.

Neither OECD nor UNCTAD have conducted investment policy reviews.  The Bahamas achieved the G-20 standard on transparency and cooperation on tax matters, a standard initially advanced by the OECD.

Business Facilitation

According to the 2018 World Bank Doing Business Index, starting a business in The Bahamas takes 46 days, requires seven separate procedures, and costs the same for both men and women.  In 2017, the Bahamian government streamlined this process and launched an e-business portal, which facilitated limited liability companies to register online (http://inlandrevenue.finance.gov.bs/business-licence/copy-applying-b-l/  ).  In early 2018, the government removed certain documentary requirements to register or renew registration of companies and is considering allowing company fees to be applicable on the date of incorporation to expedite the annual process.

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

Outward Investment

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

Transparency of the Regulatory System

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

International Regulatory Considerations

The country is not a member of a regional economic block and re-engaged with the WTO secretariat in 2017 to continue negotiations to join the organization.  The Bahamian government had a fourth meeting with the Working Party in April 2019 and reiterated its intention to complete plans to join the organization.

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

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

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

Legal System and Judicial Independence

The Bahamian legal system is based on English Common law and foreign nationals are afforded full rights in Bahamian legal proceedings.  Contracts are legally enforced through the courts; however, many companies have reported that there are many cases where investors have civil disputes tied up in the court system for many years.  Others have lost entire sums ranging from several hundred thousand to several million dollars due to fraud. In these instances, the court system has not been a viable option to recover their investments.

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

Judgments by British Courts and selected Commonwealth countries can be registered and enforced in The Bahamas under the Reciprocal Enforcement of Judgments Act.  Court judgments from other countries, including those of the United States, must be litigated in the local courts and are subject to all Bahamian legal requirements.  The judiciary is independent, and judicial process can be slow and less than transparent; however, the current government is taking steps to increase judicial transparency and efficiency.

Laws and Regulations on Foreign Direct Investment

No major laws, regulations, or judicial decisions on foreign direct investment have been passed since the 2018 Investment Climate Statement.

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

Order 66 of the Rules of the Bahamian Supreme Court provides rules for arbitration proceedings.  The 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards entered into force for The Bahamas on March 20, 2007.  This convention provides for the enforcement of agreements for commercial disputes. Under the convention, courts of a contracting state can enforce such an agreement by referring the parties to arbitration.  There are no restrictions on foreign investors negotiating arbitration provisions in private agreements. The government announced its intention to establish The Bahamas as a center for international arbitration cases, but a body has yet to be formally established.  Investment disputes in The Bahamas that directly involve the Bahamian government are rare.

The Bahamas is not a signatory to a bilateral international trade agreement with a developed dispute settlement mechanism and, therefore, disputes must be settled within the judicial system or be subject to international arbitration.  There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

Company liquidations, voluntary or involuntary, proceed according to the Companies Act.  Liquidations are routinely published in newspapers in accordance with the legislation. Creditors of bankrupt debtors and liquidated companies participate in the distribution of the bankrupt debtor’s or liquidated company’s assets according to statute.  U.S. investors should be aware that there is no equivalent to Chapter 11 bankruptcy law provisions to protect assets located in The Bahamas. The Bahamian government passed the Credit Reporting Act in February 2018 to establish a credit bureau. On April 13, 2018, the Central Bank of The Bahamas issued a request for proposal (RFP) inviting qualified credit bureau operators with international exposure to submit proposals.  The preferred credit bureau operator, Italian owned CRIF S.p.A was announced as the company chosen on January 17, 2019.

Investment Incentives

Tax relief is the most significant investment incentive in The Bahamas.  The government does not impose taxes on income, estates, or inheritances in the country.  Other incentives for investment include waivers on import duties, property tax abatement, and, in some cases, land grants or extended leases for private development at below-market rates.  Incentives are negotiated directly with the BIA and require the approval of the NEC. In some instances, terms of the incentives are outlined in a heads of agreement and the size of the concessions will vary depending on the scale of a project.

Further information on investment incentives is available at http://www.bahamas.gov.bs  .

Foreign Trade Zones/Free Ports/Trade Facilitation

The city of Freeport on the island of Grand Bahama is a 233 square mile Free Trade Zone.  The Hawksbill Creek Agreement (1955) between the Bahamian government and the Grand Bahama Port Authority guarantees that the “special economic zone” can continue to exist until 2054. Businesses operating in Freeport are exempt from most central government taxes (real property, excise, import, and business taxes) and subject to licensing by the Grand Bahama Port Authority. The Bahamian government has made several efforts to regulate business activities and extract tax revenues from the free zone.  Most efforts have been litigated to the Port’s benefit and the FNM administration repealed legislation that differentiated between local and foreign licensees within the Port.

Performance and Data Localization Requirements

The Bahamas maintains few formal performance requirements for investments.  During the approvals process, an investor provides proof of adequate and legitimate sources of funding and, depending on the type of investment, produces economic and environmental impact assessments.  The government negotiates requirements on a project-by-project basis, and, particularly in the case of larger developments, writes a “heads of agreement,” between the government and the investor. These agreements also include government obligations to the investor.  There is no official mandate for hiring local personnel, though many heads of agreement stipulate the proportion of workers who must be Bahamian.

There is no policy of forced localization or a legal requirement for technology transfers, but there is official encouragement to direct benefits to local producers and the transfer of skills to the local labor market.  This engagement is a part of the negotiations with the government and it is not uncommon for an investor to gain greater concessions where there is a direct benefit to local businesses, job creation, or an investment that supports the transfer of skills and technology.

The government negotiates work permits, but generally facilitates them for key employees, as part of the investment approvals process.  For non-essential services, the Bahamian government requires that investors document efforts to recruit local Bahamians as part of their applications for work permits, but the law does not stipulate an exact percentage.  Investors in second homes can apply for permanent residency and can benefit from expedited approval for investments that exceed USD 750,000. Fees for work permits do not cover the administrative costs, and the government collects them as a revenue measure.  Depending on the category, work permits can cost up to USD 12,500 annually.

Local and foreign companies operating in The Bahamas have become more aware of and committed to Responsible Business Conduct (RBC).  Local companies have led RBC-related initiatives, including educational programs directed at capacity building for specific industries, the maintenance of public spaces, and financial and technical assistance to charitable organizations.

The government encourages and enforces RBC through legislation, but it has been slow to implement the legislation.  The Bahamas enacted laws protecting individuals with disabilities from discrimination in the workplace, but lack of financial and human resources limits the enforcement of these laws.  There have been no high profile controversial instances of corporate violations of human rights, but civil society remains active in bringing attention to social issues.

Recent steps in support of RBC also include a requirement for local gaming houses to allocate three percent of net profits to community-based social development programs.  Several have established foundations that support issues ranging from the environment to education. The Bahamas has strong trade unions, and labor laws prohibit discrimination in employment based on race, creed, sex, marital status, political opinion, age, HIV status, or disability.

The Bahamas is not an adhering government to the OECD Guidelines for Multinational Enterprise.

The Bahamian labor force is considered well-educated by international literacy and numeracy standards.  The 2018 labor force was approximately 211,000 and the unemployment rate was 9 percent (IMF). Youth unemployment rates remain high at 24 percent.  Wage rates are slightly lower than in the United States but higher than most countries in the region. The minimum wage for private sector employees is USD 5.25 per hour (USD 210 per week).  There are significant numbers of foreign workers. The Bahamian government has 40,000 registered work permit holders and the majority are designated as unskilled or semi-skilled. The majority of this group is comprised of Haitian nationals working in a range of services.

The Bahamian government has granted special permission to large-scale tourist developments to bring in foreign laborers to support construction activities.  These numbers have ranged from a few hundred (The Pointe Development) to several thousand temporary workers during the construction of the Baha Mar resort. The concession for large groups of foreign workers was negotiated as part of the Heads of Agreement for the specific investment but generally, employment requires applications for individual work permits.  The terms and conditions of work for foreign workers is subject to Bahamian law.

The Fair Labor Standards Act (FLSA) requires at least one 24-hour rest period per week, paid annual vacations, and employer contributions to National Insurance (Social Security).  The Act also requires overtime pay (time and a half) for hours in excess of 40 or on public holidays. A 1988 law provides for maternity leave and the right to re-employment after childbirth.  The Minimum Labor Standards Act, including the Employment Act, Health and Safety at Work Act, Industrial Tribunal and Trade Disputes Act, and the Trade Union and Labor Relations Act were passed in 2001 and in early 2002.  Foreign workers also have claim to social security benefits after five consecutive years of contributions.

The Bahamian law also specifically grants labor unions the right to free assembly and association and to bargain collectively.  The unions and associations exercise these rights extensively, particularly in state-owned industries, but they have recently lost influence and membership in some segments of the tourism sector.  In 2016, the government amended legislation to require employers to inform the Minister of Labor in instances where more than 10 persons were being laid off. The action came in response to a hotel chain using union-busting tactics to lay off the majority of its employees and hire non-union workers as contractors.  In sectors where unions are still active, the Industrial Relations Act governs the right to strike, which requires a simple majority of union members to vote in favor of a strike before it can commence. The Ministry of Labor oversees strike votes and manages overall industrial relations.

The Bahamas ratified most International Labor Organization (ILO) Conventions and domestic law recognizes international labor rights.  The Bahamian government lacks fiscal and human resources to adequately investigate occupational safety and health issues, but is taking steps to improve this.  The country is committed to eliminating the worst forms of child labor, and the Ministry of Labor has periodically inspected food stores and other establishments to ensure the enforcement of laws governing child labor.

As part of the Caribbean Energy Security Initiative, OPIC is working with countries in the region to assist efforts to improve energy security.  The Bahamas is also associated with the Multilateral Investment Guarantee Agency of the World Bank, which insures investors against currency transfer restrictions, expropriation, war, civil disturbances and breach of contract by member countries.

Policies Towards Foreign Direct Investment

The government of Barbados, through Invest Barbados, welcomes foreign direct investment with the stated goals of creating jobs, earning foreign exchange, transferring technology, enhancing skills, and contributing to economic growth.

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

Through Invest Barbados, the government facilitates domestic and foreign private investment. Invest Barbados’ mandate is to actively promote Barbados as a desirable investment location, to provide advice, and to assist prospective investors.  Invest Barbados also provides customized support for investors to ensure the expansion and sustainability of the initial investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

Other Investment Policy Reviews

Barbados has not conducted a trade policy review in the last three years.

Business Facilitation

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

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

Invest Barbados offers a website that is useful for navigating applicable laws, rules, procedures, and registration requirements for foreign investors.  This is available at http://www.investbarbados.org  .  Steps to establish a business vary based on the type of business a foreign investor wishes to set up.  Potential investors should contact Invest Barbados for guidance.

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

Barbados ranks at 101 of 190 countries in the indicator of the ease of starting a business, which takes eight procedures and approximately 15 days to complete, according to the 2019 World Bank Doing Business Report.  The general practice is to retain an attorney to prepare relevant incorporation documents. A business must register with the CAIPO, the Barbados Revenue Authority (BRA), the Customs and Excise Department, and the National Insurance Scheme (NIS).

The government of Barbados continues to facilitate programs and partnerships to assist women entrepreneurs and people with disabilities.  The government of Barbados remains committed to working with civil society and other organizations to meet the UN Sustainable Development Goals by 2030.

Outward Investment

While no incentives are offered, Barbados generally encourages local companies to invest in other countries, particularly within the region.  Local companies in Barbados are actively encouraged to take advantage of export opportunities specifically related to the country’s membership in the Caribbean Community (CARICOM) and the Caribbean Single Market and Economy (CSME).  The Barbados Investment Development Corporation (BIDC) provides market development support for domestic companies seeking to enhance their export potential.

Transparency of the Regulatory System

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

Rulemaking and regulatory authority rest with the bicameral parliament of the government of Barbados.  The House of Assembly consists of 30 members who are elected in single seat constituencies. The Senate consists of 21 members who are appointed by the Governor General.

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

• Banking and financial services – CBB
• Insurance and non-banking financial services – Financial Services Commission (FSC)
• International business – International Business Unit, Ministry of International Business
• Business incorporation and intellectual property – CAIPO

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

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

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

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

Accounting, legal, and regulatory procedures are transparent.  Publicly listed companies publish annual financial statements and changes in portfolio shareholdings, including share values.  Service providers are required to adhere to international best practice standards including International Financial Reporting Standards (IFRS), International Standards on Auditing (ISA), and International Public Sector Accounting Standards (IPSAs) for government and public sector bodies.  They must also comply with the provisions of the Money Laundering and Financing of Terrorism Prevention and Control Act. Accounting professionals in particular must engage in continuous professional development. The Corporate and Trust Service Providers Act regulates Barbadian financial service providers.  Failure to adhere to these laws and regulations may result in revocation of the business license and/or cancellation of work permit(s). The most recent Caribbean Financial Action Task Force (CFATF) Mutual Evaluation assessment found Barbados to be largely compliant.

The Office of the Ombudsman is established by the constitution to guard against abuses of power by government officers in the performance of their duties.  The Office of the Ombudsman aims to provide quality service in an impartial and expeditious manner when investigating complaints by Barbadian nationals or residents who consider the conduct of a government body or official unreasonable, improper, inadequate, or unjust.

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

International Regulatory Considerations

The OECD recognized Barbados as largely compliant with international regulatory standards.   Barbados is a signatory to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, the Multilateral Competent Authority Agreement, and the Multilateral Convention to Implement Tax Treaty Related Matters to Prevent Base Erosion and Profit Shifting.

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

Barbados ratified the WTO Trade Facilitation Agreement (TFA) in 2018.  With full implementation, the Agreement improves the speed and efficiency of border procedures, facilitates trade costs reduction, and enhances participation in the global value chain.  Barbados has implemented the Automated System for Customs Data (ASYCUDA).

Legal System and Judicial Independence

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

The Caribbean Court of Justice (CCJ) is the regional judicial tribunal.  The CCJ has original jurisdiction to interpret and apply the RTC. In 2005, Barbados became a full member of the CCJ, making the body its final court of appeal and original jurisdiction of the RTC.

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

Laws and Regulations on Foreign Direct Investment

Invest Barbados’ foreign direct investment policy is to promote Barbados as a desirable investment location, to provide advice, and to assist prospective investors.  The main laws concerning investment in Barbados are the Barbados International Business Promotion Act (2005), the Tourism Development Act (2005), and the Companies Act.  There is also a framework of legislation that supports the jurisdiction as a global hub for business including insurance, ships’ registration, and wealth management.

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

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

Investor-State Dispute Settlement

The Barbados Arbitration Act (1976) and the Foreign Arbitral Awards Act (1980) provide for arbitration of investment disputes.  Barbados does not have a Bilateral Trade Treaty or a Free Trade Agreement with an investment chapter with the United States. U.S. Embassy Bridgetown is not aware of any current investment disputes in Barbados.

Barbados ranks 170 out of 190 countries in enforcing contracts according to the 2019 World Bank Doing Business Report.  Dispute resolution in Barbados generally takes an average of 1,340 days. The slow court system and bureaucracy are widely seen as the main hindrances to timely resolution of commercial disputes.  Through the Arbitration Act of 1976, local courts recognize and enforce foreign arbitral awards issued against the government. Barbados does not have recent cases of investment disputes involving either U.S. or foreign investors.

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

Under the Bankruptcy and Insolvency Act (2002), Barbados has a bankruptcy framework that recognizes certain debtor and creditor rights.  The Act gives a potentially bankrupt company three options: bankruptcy (voluntary or involuntary), receivership, or reorganization of the company.  The Companies Act provides for the insolvency and/or liquidation of a company incorporated under this Act. Barbados was ranked 34 out of 190 countries in resolving insolvency in the 2019 World Bank Doing Business Report.

Investment Incentives

In January 2019, Barbados repealed its Fiscal Incentives Act, bringing the country into conformity with its obligations under the WTO and in particular the Agreement on Subsidies and Countervailing Measures (SCM Agreement).  Manufacturers may still benefit from some concessions. For further information, please contact Invest Barbados.

The Small Business Development Act (1999) defines a small business as having no more than 25 employees.  Small businesses must be registered under the Companies Act, which applies to domestic and foreign-owned micro- and small enterprises. Small businesses are not eligible for incentives under the Tourism Development Act, the Special Development Areas Act, or the Shipping Incentives Act.

Enterprises generating export profits (other than from exports within CARICOM) may receive an export allowance expressed as a rebate of corporate tax on those profits.  The maximum rebate of 93 percent applies if more than 81 percent of an enterprise’s profits result from extra-regional exports. The export development allowance permits a company to deduct from taxable income an additional 50 percent of what the company spends in developing export markets outside CARICOM.

Initial allowances or investment allowances of up to 40 percent on capital expenditure are available for businesses making capital expenditures on machinery and plants or on an industrial building or structure.  The government also allows annual depreciation allowances on such expenditures.

In the tourism sector, the government’s market development allowance permits a company to deduct an additional 50 percent of what it spends to encourage tourists to visit Barbados.  Under the Tourism Development Act of 2002, businesses and individuals that invest in the tourism sector can write off capital expenditure and 150 percent of interest. These entities are also exempt from import duties and environmental levies on furniture, fixtures and equipment, building materials, supplies, and equity financing.  The Act expands the definition of tourist sector beyond accommodation to include restaurants, tourist recreational facilities, and tourism-related services. The Act encourages the development of attractions that emphasize the island’s natural, historic, and cultural heritage, and encourages construction of properties in non-coastal areas.

In response to concerns by the OECD and the European Union’s Tax Code of Conduct Group, the government of Barbados has reformed its international business sector regime by harmonizing the legislative and tax frameworks for domestic and international companies.   Companies conducting international business may operate with a tax rate from 1 to 5.50 percent. Companies exporting 100 percent of their services or products are able to apply for a foreign currency permit, affording them similar benefits previously enjoyed by international business companies and international societies with restricted responsibility.  For fiscal years commencing on or after January 1, 2019, all corporate entities will be taxed on the sliding scale shown:

There are no withholding taxes on dividends, interest, royalties, or management fees paid to non-residents.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are currently no foreign trade zones or free ports in Barbados.

Performance and Data Localization Requirements

Foreign investors must finance their investments from external sources or from income that the investment generates.  When a foreign investment generates significant employment or other tangible benefits for the country, the authorities may allow the company to borrow locally for working capital.  Invest Barbados may provide a training grant to qualifying manufacturing and information and communication technology enterprises during the initial operating period.

Barbados does not require that locals own shares of a foreign investor’s enterprise, but some restrictions may apply to share transfers.  The Companies Act does not permit bearer shares. Foreign investors do not need to establish facilities in any specific location, although there are some zoning restrictions on residential and commercial construction for environmental reasons.  There is no requirement that enterprises must purchase a fixed percentage of goods from local sources. However, investors, particularly within the hospitality industry, are encouraged to use local products and produce wherever possible.

Non-nationals, including all managerial and technical staff, (but not nationals of CARICOM member states) seeking to work in Barbados must apply for work permits.  The work permit is specific to the job and employer and the permit may be granted for a period of up to five years. Short-term permits of up to six months are also available.  To grant a work permit, the government requires that the expatriate must bring to the job special skills or knowledge not readily available in Barbados. While work permits are readily granted to senior management, the government may restrict the number of permits approved depending on the number of people employed by the local company.  There are no restrictions regarding foreign directors of boards. More information is available at: www.immigration.gov.bb/pages/WorkPermit.aspx   .

There are no requirements for foreign information technology providers to turn over source code and/or provide access to surveillance (for example, backdoors into hardware and software turn over keys for encryption).

As a member of the WTO, Barbados is party to the Agreement to the Trade Related Investment Measures.  The government strongly encourages investments that will create jobs and increase exports and foreign exchange earnings.  Barbados does not require participation by nationals or by the government in foreign investment projects. Barbados encourages local sourcing, but does not require enterprises to purchase a fixed percentage of goods from local sources.  Foreign investors receive the same treatment as Barbadians.

The private sector is involved in projects that benefit society, including in support of environmental, social, and cultural causes.  Individuals benefit from business-sponsored initiatives when local and foreign-owned enterprises volunteer and make monetary or in-kind donations to local causes.

The non-governmental organization (NGO) community, while comparatively small, is involved in fundraising and volunteerism in gender, health, environmental, and community projects.  The government at times partners with NGOs and encourages philanthropy.

Barbados’ labor force was approximately 144,300 people at the end of September 2018.  The total average unemployment rate at the end of September 2017 was approximately 10.7  percent.

Labor regulations in Barbados are guided by a framework of laws including the Holidays with Pay Act, the Sick Leave Act, the Public Holidays Act, and the Protection of Wages Act, as well as policies regarding maternity leave, national insurance (social security) contributions, unemployment benefits, and severance pay.  Barbados has ratified the eight core conventions of the International Labor Organization (ILO). Barbados upholds the ratified conventions and is guided by the ILO’s other conventions.

Wages in Barbados are some of the highest in the Caribbean.  Minimum wages are administratively established for only a few categories of workers, and enforced by the Ministry of Labor’s Labor Department.  The minimum wage for shop assistants is $3.13 per hour. The Ministry of Labor recommended that companies recognize this as the de facto minimum wage, though most employees earn more than this.

The standard legal workweek is 40 hours in five days and the law requires overtime payment for hours worked in excess of this.  The law prescribes that all overtime must be voluntary. Workers are guaranteed a minimum of fifteen business days of holiday with pay after one year of employment with their employer and are covered by unemployment benefits legislation and national insurance legislation.

Trade unions enjoy a strong voice in the labor and economic affairs of the country through their representation in Barbados’ Social Partnership, a tripartite consultative mechanism. Approximately 36  percent of the labor force belongs to trade unions, but despite this small percentage, unions in Barbados are influential. All key sectors are unionized, with all private and public employees in agriculture, tourism, the airport, and seaport belonging to a single union confederation.

The major unions recognize the advantages accruing to Barbados from foreign investment and foreign expertise and are generally flexible and accommodating in their dealings with employers.  However, local labor leadership is sensitive when it perceives a lack of respect for Barbadian laws and customs by large, visible foreign employers. It is generally cooperative with management in unionized shops.

The law, including related regulations and statutes, provides for the right of workers to form and join unions and conduct legal strikes but does not specifically recognize the right to bargain collectively.  The law does not obligate companies to recognize unions or to accept collective bargaining, and no specific law prohibits anti-union discrimination or requires reinstatement of workers fired for union activity.  A tribunal may order reinstatement, re-engagement, or compensation under the Employment Rights Act. All private-sector employees are permitted to strike, but the law prohibits workers in essential services, such as police, firefighters, and electricity and water company employees, from engaging in strikes.  With a few exceptions, workers’ rights were generally respected. Unions received complaints of collective bargaining agreement violations, but most were resolved through established mechanisms.

In general, Barbados effectively enforced the law in the formal sector, but, according to many companies, there is no information as to the adequacy of resources or inspections.  Penalties for violations include fines up to $500, imprisonment up to six months, or both. The Employment Rights Act of 2013 grants the right to have allegations of unfair dismissal tried before the Employment Rights Tribunal.

The law provides for a minimum working age of 16 and this provision is generally observed. Compulsory primary and secondary education policies reinforced minimum age requirements.  The Labor Department has a small cadre of labor inspectors who conduct spot investigations of enterprises and check records to verify compliance with the law. These inspectors may take legal action against an employer who is found to have underage workers.

Under the Severance Payments Act, an employer is obligated to pay an employee a severance payment where the employee is terminated on account of redundancy.  However, the Employment Rights Act, section 31, provides that dismissal of an employee on account of redundancy does not contravene the right not to be unfairly dismissed.  Qualifying workers who are laid off for economic reasons are generally entitled to receive a severance payment on a graduating scale that starts at 2.5 weeks’ pay for every completed year of employment.  All unemployed workers are eligible for unemployment benefits upon meeting the qualifying contribution periods established by the National Insurance and Social Security scheme.

The Occupational Health at Work Act governs the general health and safety of workers in all workplaces except the armed forces and private household domestic service.  The law requires firms employing more than 50 workers (fewer in certain sectors) to create a safety committee that may challenge the decisions of management concerning occupational safety and health.  The Labor Department also enforces health and safety standards and follows up to ensure that management corrects problems. Trade union monitors can identify safety problems for government factory inspectors.  The Labor Department’s Inspections Unit conducts routine annual inspections of government-operated corporations and manufacturing plants. Workers have the right to remove themselves from dangerous or hazardous job situations without jeopardizing their continued employment.

The Shops Act of 2016 expanded permitted opening hours for retail businesses and removed mandatory closure requirements on most public holidays.

The government allows people to make withdrawals from their registered retirement plan annuities.  The amount withdrawn must not exceed 15 percent of the total value of the accumulated savings. The government adds a withholding tax of 16.5  percent of the amount withdrawn to the eventual repayment.

The Overseas Private Investment Corporation (OPIC) provides financing and political risk insurance to viable private sector projects, helps U.S. businesses invest overseas, and fosters economic development in new and emerging markets.  Barbados is a qualifying country for OPIC projects. There are currently no active OPIC projects in Barbados.

Policies Towards Foreign Direct Investment

While the Government of Belize is interested in attracting foreign direct investment, certain regulatory requirements serve to impede growth and transparency.  There are no laws that explicitly discriminate against foreign investors. In practice, however, investors complain that they do not always receive the full extent of the incentives available, that land titles are not always secure, and that bureaucratic delays or corruption can hinder starting a business in Belize.

According to the International Monetary Fund (IMF), improving the business climate, reducing crime and facilitating access to credit would increase growth by one percentage point on a yearly basis.  They also note that lowering the debt burden and greater climate resilience would support growth by another percentage point per year.

The Belize Trade and Investment Development Service (BELTRAIDE; www.belizeinvest.org.bz  ), a statutory body, is the investment and export promotion agency.  It promotes FDI through various types of incentive packages and identified priority sectors for investment as agriculture, agro-processing, fisheries and aquaculture, logistics and light manufacturing, tourism and tourism-related industries, offshore outsourcing (BPOs), and sustainable energy.

The Government created the Economic Development Council to increase the national dialogue on private sector development and better inform policies for growth and development.  The Cabinet has also created a Sub–Committee on Investment composed of Ministers whose portfolios are directly involved in considering and approving investment proposals.

Limits on Foreign Control and Right to Private Ownership and Establishment

Generally, Belize has no restrictions on foreign ownership and control of companies; however, foreign investments must be registered at the Central Bank of Belize.  In addition, foreigners need to apply with a Belizean partner or someone with a permanent residence to register a business name.

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

Foreign investments must be registered and obtain an “Approved Status” from the Central Bank in order to facilitate inflows and outflows of foreign currency.  “Approved Status” investments will ordinarily be granted approval for repatriation of funds from profits, dividends, loan payments and interest. The Central Bank also reserves the right to request evidence-supporting applications for repatriation.

Additionally, persons seeking to open a bank account must also comply with Central Bank regulations.  These may differ based on residency status and whether the individual is seeking to establish a local or foreign currency account.

The Government’s Cabinet Sub-Committee on Investment considers investment projects which do not fall within Belize’s incentive regime or which may require special considerations.  For example, an investment may require legislative changes, a customized memorandum of understanding or agreement from the government, or a public–private partnership. Proposals are generally assessed based on size, scope, and the incentives requested.  In addition, proposals are assessed on a five-point system that analyses socio-economic acceptability of the project, revenues to the government, employment, foreign exchange earnings and environmental considerations. The Cabinet Sub-Committee is composed of five Cabinet Minsiters, including the minister with responsibility for Investment, Trade and Commerce as Chairperson.  The other members include the ministers with responsibility for Tourism and Culture; the Environment and Sustainable Development; and Natural Resources and Immigration, along with the Attorney General. There is no set timeframe for considering projects as it largely depends on the nature and complexity of the project.

When considering investment, foreign investors undertaking large capital investments must be aware of environmental laws and regulations.  There is a requirement to prepare an Environmental Impact Assessment (EIA) when a project meets certain land area, location, and/or industry criteria.  When purchasing land or planning to develop in or near an ecologically sensitive zone, it is recommended that the EIA fully address any measures by the investor to mitigate environmental risks.  Environmental clearance must be obtained prior to the start of site development. The Department of Environment website, http://www.doe.gov.bz   has more information on the Environmental Protection Act and other regulations, applications and guidelines.

Other Investment Policy Reviews

In the past three years, there has been no investment policy review of Belize by the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD).  Belize concluded its third Trade Policy Review in the World Trade Organization (WTO) in April 2017.

Business Facilitation

Belize does not operate a single window registration process.  BELTRAIDE (http://www.belizeinvest.org.bz), a statutory body of the Government of Belize, operates as the country’s investment and export promotion agency.  Its investment facilitation services are open to all investors. While there are support measures to advance greater inclusion of women and minorities in entrepreneurial initiatives and training, the business facilitation measures do not distinguish by gender or economic status.

The Belize Companies Corporate Affairs Registry (tel: (501) 822 0421; email: belizecompaniesregistry@yahoo.com; website: www.belizecompaniesregistry.gov.bz) is responsible for the registration process of all local business and companies.

Businesses must register with the tax department to pay business and general sales tax. They must also register with their local city council or town board to obtain a trade license to operate a business.  An employer should also register employees for social security. The 2019 Doing Business report (http://www.doingbusiness.org   ) estimates it takes on average 43 days to start up a company in Belize.  The same report ranks Belize at 162 of 190 economies on the ease of starting a business.

Outward Investment

The government does not promote or incentivize outward investments.  Domestic investors are not restricted from investing abroad. However, the Central Bank places currency controls that limit foreign currency outflows unless given prior approval.

Transparency of the Regulatory System

Regulatory authority exists both at the local and national levels with national laws and regulations being most relevant to foreign businesses.  Despite these measures, some investors complain that the regime for incentives did not always meet their needs, that land titles are not always reliable and secure, and that bureaucratic delays or corruption can be hindrances to doing business in Belize.

There are quasi-governmental organizations mandated by law to manage specified regulatory processes on behalf of the Government of Belize, e.g. the Belize Tourism Board, BELTRAIDE, and the Belize Agricultural Health Authority.  There are no reports that these processes significantly distort or discriminate against foreign investors.

The cabinet dictates government policies that are enacted by the legislature and implemented by the various government ministries.  Regulations exist at the local level, primarily relating to property taxes and registering for trade licenses to operate businesses in the municipality.

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

The mechanism for drafting bills, regulations and enacting legislation generally apply across the board and apply to investment laws and regulations.  The government publishes in the Gazette, proposed as well as enacted laws and regulations that are publicly available for a minimal fee.

Draft bills are generally open to public comment.  Once introduced in the House of Representatives, they are sent to Standing Committees of the House of Representatives, which then meet and invite the public and interested persons to review, recommend changes, or object to draft laws prior to further debate.  Public comments on draft legislation are not generally posted online nor made publicly available. It would be the prerogative of an interested party to attend public consultations, committee meetings, or to request the public comments from the National Assembly or relevant Ministry.  Additionally, laws are sometimes passed quickly without meaningful publication, public review or public debate; as was the case with the Central Bank of Belize (International Immunities Act) and the Crown Proceedings (Amendment Act) of 2017.

Government ministries also make available policies, laws, and regulations pertinent to their portfolio available on their respective ministry websites.  Since 2016, enacted laws have been published on the website of the National Assembly. There is however, a delay in updating the website.

Regulations and enforcement actions are appealable with regulatory decisions subject to judicial review.  There have been no regulatory systems including enforcement reforms announced in the last year.

Information on the public finance, the government’s budget and debt obligations (including explicit and contingent liabilities) are widely accessible to the general public, with most documents available online.

International Regulatory Considerations

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

Belize is also a member of several other treaties because of its CARICOM membership.  A primary example is the Economic Partnership Agreement (EPA) between CARIFORUM and the European Union (EU).  In the wake of Brexit, these countries also signed a CARIFORUM – United Kingdom Economic Partnership Agreement in March 2019.  The latter agreement is expected to come into effect by January 2021or soon after the UK leaves the EU.

Outside of CARICOM, Belize is a member of the Central American Integration System (SICA) at a political level, but is not a part of the Secretariat of Central American Economic Integration (SIECA) that supports economic integration of Central America.

Belize is also a member of the WTO and adheres to the organization’s agreements and reporting system.  The Belize Bureau of Standards (BBS) is the national standards body responsible for preparing, promoting and implementing standards for goods, services, and processes.  The BBS operates in in accordance with the WTO Agreement on Technical Barriers to Trade and the CARICOM Regional Organization for Standards and Quality. The BBS is also a member of the International Electrotechnical Commission (IEC), the International Organization for Standardization (ISO), and Codex Alimentarius.

Legal System and Judicial Independence

The Belize Constitution, is the supreme law and is founded on the principle of separation of powers with independence of the judiciary from the executive and legislative branches of government.  As a former British colony, Belize follows the English Common Law legal system, which is based on established case law. Belize has a written Contract Act, supported by precedents from the national courts as well as from the wider English speaking and Commonwealth case law.  Contracts are enforced through the courts.

General information relating to Belize’s judicial and legal system, including links to Belize’s Constitution, Laws and judicial decisions are available at the Judiciary of Belize website www.belizejudiciary.org  .  There are specialized courts that deal with family related matters including divorce and child custody, but no specialized courts to deal with commercial disputes or cases.

The current judicial process continues to face challenges including frequent adjournments, delays, and a backlog of cases.  Several measures are being implemented to improve the country’s judiciary. The training of mediators and the introduction of court-connected mediation support alternative methods to dispute settlement.  This effort along with better case management procedures is expected to decrease the court’s caseload, time delays, and cost particularly for smaller claim civil cases.

Regulations and enforcement actions are appealable.  Regulatory decisions are also subject to judicial review.  Judgments by the Belize Supreme Court and the Court of Appeal are available at http://www.belizejudiciary.org  .  In 2010, Belize adopted the Caribbean Court of Justice (CCJ) as its final appellate court on civil and criminal matters, replacing the Judicial Committee of the Privy Council of the United Kingdom.  Judgments by the Caribbean Court of Justice, are available at http://www.caribbeancourtofjustice.org  .

Laws and Regulations on Foreign Direct Investment

The country has an English Common Law legal system supplemented by local legislation and regulations.  Enacted laws are generally available in the National Assembly’s website at www.nationalassembly.gov.bz  .  Examples of key legislation passed in 2018 include:

• Designated Processing Areas Act, 2018
• Income and Business Tax (Amendment) Act, 2018
• Stamp Duties (Amendment) Act, 2018
• International Business Companies (Amendment) Act, 2018
• Bill of Sales (Amendment) Act, 2018
• General Sales Tax (Amendment) Act, 2018
• Customs Excise Duties (Amendment), 2018
• International Financial Services Commission, 2018

The laws, rules, procedures, and reporting requirements related to investors differ depending on the nature of the investment.  BELTRAIDE provides advisory services for foreign investors relating to procedures for doing business in Belize and incentives available to qualifying investors.  Further information is available at the BELTRAIDE website: http://www.belizeinvest.org.bz  

Competition and Anti-Trust Laws

Belize does not have any laws governing competition, but there are attempts to limit outside competition in certain industries (such as food and agriculture) by levying high import duties.

Expropriation and Compensation

The Government has used the right of eminent domain in several cases to appropriate private property, including land belonging to foreign investors.  There were no new expropriation cases in 2018. However, there are allegations that several previous expropriations were done for personal or political gain.  Belizean law requires that the government assess and compensate according to fair market value. Such expropriation cases can take several years to settle and there are a few cases where compensation is still pending.  In the cases of expropriations, the claimants assert that the Government failed to adhere to agreements entered into by a previous administration.

The process to acquire land titles is open to abuse with numerous cases of land title manipulation involving foreigners and Belizeans.  The government continues efforts at improving the land title system and in addressing delays in processing land transactions.

Dispute Settlement

ICSID Convention and New York Convention

The Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) was extended to Belize by an act of the United Kingdom when Belize was a colony.  After independence, Belize did not ratify the Convention nor is it listed as a contracting state. Nevertheless, the Arbitration Act governs arbitration and expressly incorporates three international conventions into domestic law.  These conventions include the 1923 Geneva Protocol on Arbitration Clauses; the Convention on the Execution of Foreign Arbitral Awards; and the New York Convention. A 2013 Caribbean Court of Justice judgment also upheld the Arbitration Act giving effect to the New York Convention in domestic law.

Belize signed but has not ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID convention).  For more information visit http://sice.oas.org/dispute/comarb/icsid/w_conv1.asp  

Investor-State Dispute Settlement

Belize is signatory to various investment agreements which make provisions for the settlement of investor-state disputes.  Belize is also a member of the CARICOM Single Market and Economy, as well as a party to two regional Economic Partnership Agreements (EPA): 1) between CARIFORUM and the EU; and 2) CARIFORUM and the United Kingdom.  These regional arrangements make provisions for the settlement of investor-state disputes.

Since Belize is not a party to any Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United States, investment disputes involving U.S. persons are taken either before the courts or before international arbitration panels.

Local courts are empowered to recognize and enforce foreign arbitral awards against the government but these are generally challenged up to the CCJ.  In January 2017, the Crown Proceedings (Amendment) Act and the Central Bank of Belize (International Immunities) Act were passed, which also affect the enforcement of foreign arbitral awards against the government.  Essentially, the Crown Proceedings Amendment Act provides that if a foreign judgment is entered against the government and later declared as “unlawful, void or otherwise invalid” by a court in Belize, the foreign judgement would not be enforced in or outside Belize.  The Act also provides for hefty penalties of fines and/or imprisonment on a person, individual or legal, seeking to enforce the foreign judgment. The Central Bank (International Immunities) Act restates the immunity of the Central Bank of Belize assets “from legal proceedings in other states.”  This Act similarly provides for penalties of fines and/or imprisonment on a person, individual or legal, which initiates any such proceedings. Despite these legislative acts, there has not been a history of extrajudicial actions against foreign investors.

Over the past decade, the Government of Belize has been involved in numerous investment disputes with one involving a U.S. company.  Most cases were initially entered in arbitration panels, but were eventually appealed either before the U.S. District Court of Colombia or the CCJ.  The majority of the judgements went against the Government, which has settled some and continues to settle other cases.

International Commercial Arbitration and Foreign Courts

Belize’s Arbitration Act allows the Supreme Court of Belize to support and supervise dispute settlement between private parties by arbitration.  In 2013, the Supreme Court also introduced the process of court-connected mediation as an alternative method to dispute settlement between private parties and as a means of reducing costs and duration of litigation.

Local courts are empowered to recognize and enforce foreign arbitral but these are generally challenged up to the CCJ, Belize’s highest appellate court.

There are numerous instances of cases involving State Owned Enterprises (SOEs) which went before domestic courts with rulings both in favor and against the SOE.

Bankruptcy Regulations

Chapter 244 of the Laws of Belize (Bankruptcy Act) provides and allows for bankruptcy filings. The Act provides for the establishment of receivership, trustees, adjudication and seizures of the property of the bankrupt.  The court may order the arrest of the debtor as well as the seizure of assets and documents in the event the debtor may flee or avoid payment to creditors. The Act also provides for imprisonment on conviction of certain specified offenses.  The Director of Public Prosecutions may also institute proceedings for offenses related to the bankruptcy proceedings.

Investment Incentives

The legal framework authorizing and providing for investment incentives include the Fiscal Incentives Act, the Designated Processing Areas Act, the Commercial Free Zone Act, the International Business Companies Act, the Retired Persons Incentives Act, the Trusts Act, the Offshore Banking Act, and the Gaming Control Act.

The Government of Belize enacted the Designated Processing Areas Act, 2018, which replaces the Export Processing Zone incentive program.  Additionally, legislative review of the Fiscal Incentives and the Commercial Free Zone programs continue. Investors seeking to take advantage of these programs should be aware of these developments when discussing investment concessions.

In exceptional circumstances, the current administration issues government guarantees from development institutions.  While government policies support public private partnership, there are not recent examples of joint financing of foreign direct investment projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Designated Processing Areas Act (DPA) was passed in 2018 to replace the former Export Processing Zone Act.  While the program is being fully implemented, it remains a tool to attract local and foreign investments to boost production for export markets.  Approved companies under this program receive a DPA status for a period of up to ten years and may quality for various tax exemptions. These may include exemptions from Custom and Excise duties as well as from taxes on imported goods, namely the General Sales Tax, the Environmental Tax, and the Revenue Replacement Duties.  Similarly, property and land tax may be waived on the designated area. In addition, approved companies are given certain exemptions, including from the Trade Licensing Act requirements for operating in a municipality and the Supplies Control Act, in relation to the importation of raw materials for production that are not for sale in Belize.  Companies may maintain a foreign currency account in a domestic or international bank located in Belize as well as sell, lease, or transfer goods and services between DPA companies. While subject to the Income and Business Tax, businesses may qualify for a preferential tax rate on chargeable income. They may also be eligible for an annual quota for fuel solely for specified uses.

A Commercial Free Zone (CFZ) is a specifically designated area for the conduct of business operations, including for example, manufacturing, commercial offices, insurance services, banking and financial services, offshore financial services, professional or related services, processing, packaging, warehousing, and the distribution of goods and services.  Belize currently has two CFZs, one on the northern border with Mexico and a small zone on the western border with Guatemala. Goods originating from these free zones can only be sold into Belize’s national customs territory after the necessary duties and taxes have been assessed and paid. The Commercial Free Zone Management Agency (CFZMA) monitors and administers the free zones.  Incentives include exemptions from import duties, income tax, taxes on dividends, capital gains tax, or any new corporate tax levied by the Government during the first 10 years of operation. In addition, imports and exports of a CFZ are exempt from customs duties, consumption taxes, excise taxes, or in-transit taxes, except those destined for or directly entering areas subject to the national customs territory. Additionally, CFZ businesses incurring a net loss over the five-year tax holiday may deduct losses from profits in the three years following the tax holiday period.

Performance and Data Localization Requirements

The Fiscal Incentives Act awards a qualified entity a development concession during the start-up or expansion stages to foster growth by offsetting custom duties. According to BELTRAIDE (www.belizeinvest.org.bz   ), two programs are offered under this Act, the Regular Program for investments exceeding USD150,000 and the Small and Medium Enterprise (SME) program for investments of less than USD150,000.  In general, the legal framework allows for full Customs Duties exemptions and Tax Holidays for up to 15 years for approved enterprises. The length and extent of a development concession are determined by several factors, including: (a) the extent of local value added; (b) the projected profitability of the enterprise; (c) foreign exchange earnings or savings; (d) transfer of skills and technology; and (e) new employment opportunities.

The Fiscal Incentives SME Program is aimed at smaller enterprises with a minimum of 51 percent Belizean ownership. The SME Program offers the same benefits of the Regular Program, with the exception of the allowable timeframe for duty exemptions.  Under this program, companies are allowed a maximum of five years of development concessions, with the expectation that after this period, companies can mature into the Regular Program.

The International Business Companies (Amendment) Act was passed in December 2018 largely to satisfy OECD base erosion and profit sharing requirements (BEPS).  The main change is that IBCs are no longer ring-fenced, with both residents and non-residents allowed to take part in the regime and IBCs no longer restricted from carrying on business with residents.  Additionally, IBCs are now liable for both income tax and stamp duty and required to file annual returns. Another important change is that IBC companies must be conducted and controlled from Belize with least two resident directors.  Certain activities are now also excluded, including those related to banking, fund management, or insurance business. See http://www.ibcbelize.com   and www.ifsc.gov.bz   for more information.

The Qualified Retirement Program (QRP) was created to facilitate eligible persons who have met the income requirements to permanently live and retire in Belize.  The Belize Tourism Board overseas this program designed to benefit retired persons over 45 years of age. To qualify, applicants need proof of income not less than USD2,000 per month through a pension or annuity generated outside of Belize.  An approved QRP is allowed to import personal effects as well as approved means of transportation, free of customs duties and taxes. All income generated outside of Belize is also free of taxes. An approved QRP is given one year to import all personal and household effects into Belize, using multiple shipments as necessary.  Duty and tax-free importation of an automobile, light aircraft or boat is allowed, with vehicles allowed to be replaced every three years. Effects and items imported under this program can only be sold, given away, or leased after the appropriate payment of applicable duties and taxes. For more information, visit http://www.belizetourismboard.org  

Belize generally lacks general awareness of the expectations and standards for responsible business conduct (RBC).  However, many foreign and local companies engage in responsible corporate behaviors, particularly from a social perspective.  Companies sponsor, inter alia, educational scholarships, sports related activities, community enhancement projects, or entrepreneurship activities.  There are no formal government measures or policies to promote RBC.

Several civil society agencies seek to protect individuals and address human rights, labor rights, consumer protection, and environmental concerns.  For example, the Office of the Ombudsman is responsible for investigating complaints of official corruption and abuse of power. As required by law, the Ombudsman is active in filing annual reports to the National Assembly and investigating incidents of alleged misconduct, particularly of police abuses.   This Office continues to be constrained by the lack of enforcement powers, political pressure, and limited resources.

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

There are no government measures relating to corporate governance, accounting, and executive compensation standards and RBC policies are not factored into procurement decisions.

There have been no recent cases of private sector impact on human rights and no NGOs, investment funds, worker organizations/unions, or business associations specifically promoting or monitoring RBC.  In recent years, labor unions and business associations have become actively engaged in advocating for stronger measures against corruption.

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

According to the Statistical Institute of Belize (SIB), as of September 2018, the population is an estimated 395,882 persons of which 155,950 were in the labor force.  The rate of unemployment stood at 9.4 percent percent in April 2018, representing a fall of 1.7 percent over the previous year. New entrants into the labor force for this period were primarily from urban areas and almost two-thirds of new entrants were females.  Males continue to comprise the majority of the labor force, accounting for 60 percent and were generally paid more.

The Ministry of Labor is charged with enforcing the minimum wage.  In May 2012, the national minimum wage was increased to BZ USD3.30 (USD1.65) per hour. The average graduate, with at least an Associate is Degree, would be paid a minimum of USD2.22 to USD3.13 an hour.

Belize is both a receiving and a sending country for migrant workers.  As a receiving country, it does not have a structured temporary employment program for migrant workers, but it has an established procedure for issuing work permits.  The majority of approved work permits are for Central Americans seeking seasonal employment in the agricultural industry, particularly in the banana, citrus, and sugar industries.  Additionally, a number of Caribbean professionals obtain a Certificate of Recognition of CARICOM Skills Qualification, which allows them to work in Belize under the Caribbean Single Market and Economy’s free movement of skilled labor initiative.

The labor force is largely unskilled, with 52 percent of employed persons engaged in sales or other elementary work occupations.  The education system continues to be poorly equipped in preparing labor force entrants to become entrepreneurs and adapt to a technology-driven global environment.  Compulsory education ends at age 14.

There are several agencies seeking to provide soft skills needed to enter the labor market.  BELTRAIDE hosts on-going trainings for small and micro enterprises on a wide range of basic skills related to customer service, business development, and management.  Additionally, more targeted training is conducted to meet employer demand in business process outsourcing and tourism related sectors.

Foreign investors who have a development concession are permitted to bring in skilled personnel to complement their local labor force and if appropriate, training programs for Belizean nationals are established.  Most of the unskilled or semi-skilled workers in commercial agriculture are recent immigrants or migrant workers from neighboring Spanish-speaking countries.

Employers in the agriculture sector tend to use temporary workers even for jobs that are not temporary in nature.  These jobs may be opened to workers from Central American countries and may be attributed to a shortage of local labor force in the rural areas where these jobs are concentrated.  Workers permits and other immigration related documents are processed by a labor committee, which has inter-ministerial representation from various Ministries including Labor, Immigration, and Human Development.

In general, there are no restrictions on employers adjusting their labor force in response to fluctuating market conditions.  Employers are flexible in offering salary increases, which are normally justified based on cost of living and prevailing practice consideration.  Severance payment is subject to local labor law, the Labor Amendment Act of 2011.

This Act differentiates between layoffs (voluntary termination and redundancy) and firing (dismissal).  In the cases of voluntary termination and redundancy, the law provides for an appropriate notice period to be provided, payment in lieu of notice, severance etc.  In the case of redundancy, the employer must notify where applicable the recognized trade union or workers’ representative as well as the Labor Commissioner.

The law also provides for dismissal by the employer but distinguishes between termination for “good and sufficient cause,” “termination for misconduct,” “unfair dismissal,” “constructive dismissal where the employer’s conduct makes it unreasonable to work,” and “summary dismissal where the employee commits an act of gross misconduct.”

In addition to the general Social Security system, the government maintains a National Health Insurance scheme in certain marginalized communities throughout the country.  They also provide some assistance to unemployed persons who represent marginalized sectors of the community, e.g. single women, single mothers, and young unemployed persons.  These services are not mandated by law.

Labor laws are not generally waived to attract or retain investment.  There are no additional/ different labor law provisions for Designated Processing Areas operating in Belize.

Where employees are unionized, employers must refer to the laws relating to the operation of unions, namely the Trade Union and Employee’s Organizations Act and the Settlement of Disputes in Essential Services Act, as well as the terms of existing collective bargaining agreements between the employer and unions.

Belize has nine trade unions and an umbrella organization, the National Trade Union Congress of Belize (NTUCB).  Belize has ratified 50 International Labor Organization (ILO) conventions, of which 45 are in force, including Convention 182 against the worst forms of child labor.

Trade Unions are independent of the government and employers both in practice and in law.  The Ministry of Labor recognizes unions and employers’ associations after they are registered.  Trade Union laws establish procedures for the registration and status of trade unions and employers’ organizations and for collective bargaining.  Unions are common in the public sector (teachers, general public servants), the social security board, the utility sectors (water, telecommunications and electricity), and port stevedores.

The law allows authorities to refer disputes involving public and private sector employees who provide “essential services” to compulsory arbitration, prohibit strikes, and terminate actions. The national fire service, postal service, monetary and financial services, civil aviation and airport security services, and port authority pilots and security services are deemed essential services outside of the International Labor Organization definition.  During the last year, there were no strikes that posed a risk to either local businesses or foreign investments.

Belize does have laws and regulations relating to international labor standards.  There is also a system in place for labor inspectors to advocate on labor related concerns and complaints as well as to visit and inspect business facilities to ensure adherence to local labor laws.

There are several gaps identified in relation to international labor standards.  Belize’s legislation does not address a situation in which child labor is contracted between a parent and the employer.  While there is need for better data, it does not seem likely that the penalties, remediation, and inspections sufficiently deter violations.  The penalty for employing a child below minimum age is a fine not exceeding USD10 or imprisonment not exceeding two months.

Additionally, while there are laws that prohibit a wide range of discrimination in the work place, they are not effectively enforced and do not explicitly provide protections for persons with disability or against discrimination related to sexual orientation and/or gender identity.  Finally, there is anecdotal evidence that certain vulnerable sectors, particularly undocumented persons, young service workers, and agricultural laborers, were regularly paid below the minimum wage.

There were no labor related laws or regulations enacted during the last year. The passage of an Occupational Health and Safety Bill has been delayed for a number of years due to lack of consensus between tripartite stakeholders representing the government, private sector and unions.

Belize is not a party to any trade agreements with the United States.  It is it is a qualifying country under the U.S. Generalized System of Preference (GSP) as well as the U.S. – Caribbean Basin Trade Partnership Act (CBTPA).

There is an Overseas Private Investment Corporation (OPIC) Agreement between Belize and the United States, which predates Belize’s independence.  Additionally, OPIC was involved in two projects in Belize, one in 2002 and the other in 2006. While Belize qualifies for OPIC support under the Clean Energy Security Initiative, there are no OPIC-related projects.  The country benefitted from two United States Trade and Development Agency (USTDA) projects in the last four years to investigate the potential of adopting clean energy technologies in the utilities sector.

Policies Towards Foreign Direct Investment

In general, Bolivia remains open to FDI.  The 2014 investment law guarantees equal treatment for national and foreign firms, however it also stipulates that public investment has priority over private investment (both national and foreign) and that the Bolivian Government will determine which sectors require private investment.

U.S. companies interested in investing in Bolivia should note that in 2012 Bolivia abrogated the BIT it signed with the United States and a number of other countries.  The Bolivian Government claimed the abrogation was necessary for Bolivia to comply with the 2009 Constitution.  Companies that invested under the U.S. –Bolivia BIT will be covered until June 10, 2022, but investments made after June 10, 2012 are not covered.

Pursuant to Article 320 of the 2009 Constitution, Bolivia no longer recognizes international arbitration forums for disputes involving the government.  The parties also cannot settle the dispute in an international court.  However, the implementation of this article is still uncertain.

Specifically, Article 320 of the Bolivian Constitution states:

1. Bolivian investment takes priority over foreign investment.
2. Every foreign investment will be subject to Bolivian jurisdiction, laws, and authorities, and no one may invoke a situation for exception, nor appeal to diplomatic claims to obtain more favorable treatment.

III. Economic relations with foreign states or enterprises shall be conducted under conditions of independence, mutual respect and equity.  More favorable conditions may not be granted to foreign states or enterprises than those established for Bolivians.

1. The state makes all decisions on internal economic policy independently and will not accept demands or conditions imposed on this policy by states, banks or Bolivian or foreign financial institutions, multilateral entities or transnational enterprises.
2. Public policies will promote internal consumption of products made in Bolivia.

Article 262 of the Constitution states:

“The fifty kilometers from the border constitute the zone of border security.  No foreign person, individual, or company may acquire property in this space, directly or indirectly, nor possess any property right in the waters, soil or subsoil, except in the case of state necessity declared by express law approved by two thirds of the Plurinational Legislative Assembly.  The property or the possession affected in case of non-compliance with this prohibition will pass to the benefit of the state, without any indemnity.”

The judicial system faces a huge backlog of cases, is short staffed, lacks resources, has problems with corruption, and is believed to be influenced by political actors.  Swift resolution of cases, either initiated by investors or against them, is unlikely.  The Marcelo Quiroga Anti-Corruption law of 2010 makes companies and their signatories criminally liable for breach of contract with the government, and the law can be applied retroactively.  Authorities can use this threat of criminal prosecution to force settlement of disputes.  Commercial disputes can often lead to criminal charges and cases are often processed slowly.  See our Human Rights Report as background on the judicial system, labor rights and other important issues.

Article 129 of the Bolivian Arbitration Law No. 708, established that all controversies and disputes that arise regarding investment in Bolivia will have to be addressed inside Bolivia under Bolivian Laws.  Consequently, international arbitration is not allowed for disputes involving the Bolivian Government or state-owned enterprises.

Bolivia does not currently have an investment promotion agency to facilitate foreign investment.  However, the government has said that it is working to create an investment promotion agency in order to attract investment in the non-traditional and industrial sectors.  The government has also recently launched an investment promotion website (www.investbolivia.gob.bo ) in order to provide information about investment opportunities in Bolivia.

The government does maintain ongoing dialogue with the private sector through several working groups, one of which addresses the investment climate.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is a right for foreign and domestic private entities to establish and own business enterprises and engage in remunerative activity.

There are some areas where investors may judge that preferential treatment is being given to their Bolivian competitors, for example in key sectors where private companies compete with state owned enterprises.  Additionally, foreign investment is not allowed in matters relating directly to national security.  And only the government can own most natural resources.

The Constitution specifies that all hydrocarbon resources are the property of the Bolivian people and that the state will assume control over their exploration, exploitation, industrialization, transport, and marketing (Articles 348 and 351).  The state-owned and operated company, Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) manages hydrocarbons transport and sales and is responsible for ensuring that the domestic market demand is satisfied at prices set by the hydrocarbons regulator before allowing any hydrocarbon exports.  YPFB benefitted from government action in 2006 that required operators to turn over their production to YPFB and to sign new contracts that gave YPFB control over the distribution of gasoline, diesel, and liquid petroleum gas (LPG) to gas stations.  The law allows YPFB to enter into joint venture contracts for limited periods with national or foreign individuals or companies wishing to exploit or trade hydrocarbons or their derivatives.  For companies working in the industry, contracts are negotiated on a service contract basis and there are no restrictions on ownership percentages of the companies providing the services.

The Constitution (Article 366) specifies that every foreign enterprise that conducts activities in the hydrocarbons production chain will submit to the sovereignty of the state, and to the laws and authority of the state.  No foreign court case or foreign jurisdiction will be recognized, and foreign investors may not invoke any exceptional situation for international arbitration, nor appeal to diplomatic claims.

According to the Constitution, no concessions or contracts may transfer the ownership of natural resources or other strategic industries to private interests.  Instead temporary authorizations to use these resources may be requested at the pertinent ministry (Mining, Water and Environment, Public Works, etc.).  The Bolivian Government is still renegotiating commercial agreements related to forestry, mining, telecommunications, electricity, and water services, in order to comply with these regulations.

The Telecommunications, Technology and Communications General Law (Law 164, Article 28) stipulates that the licenses for radio broadcasts will not be given to foreign persons or entities.  Further, in the case of broadcasting associations, the share of foreign investors cannot exceed 25 percent of the total investment, except in those cases approved by the state or by international treaties.

The Central Bank of Bolivia is responsible for registering all foreign investments.  According to the 2014 investment law, any investment will be monitored by the ministry related to the particular sector.  For example, the Mining Ministry is in charge of overseeing all public and private mining investments.  Each Ministry assesses industry compliance with the incentive objectives.  To date, only the Ministry of Hydrocarbons and Energy has enacted a Law (N 767) to incentivize the exploration and production of hydrocarbons.

Other Investment Policy Reviews

Bolivia underwent a World Trade Organization (WTO) trade policy review in 2017.  In concluding remarks by the Chairperson, the Chairperson noted that several WTO members raised challenges impacting investor confidence in Bolivia, due primarily to Bolivia’s abrogation of 22 BITs following the passage of its 2009 constitution.  However, some WTO members also commended Bolivia for enacting a new investment promotion law in 2014 and a law on conciliation and arbitration, both of which increased legal certainty for investors, according to those members.

Business Facilitation

According to the World Bank’s Doing Business 2019 rankings, Bolivia ranks 156 out of 190 countries on the ease of doing business, much lower than most countries in the region.  Bolivia ranks 178 out of 190 on the ease of starting a business.

FUNDEMPRESA is a mixed public/private organization authorized by the central government to register and certify new businesses.  Its website is www.fundempresa.org.bo  and the business registration process is laid out clearly within the tab labeled “processes, requirements and forms,” however the registration cannot be completed entirely online. A user can download the required forms from the site and can fill them out online, but then has to mail the completed forms or deliver them to the relevant offices.  A foreign applicant would be able to use the registration forms.  The forms do ask for a “cedula de identidad,” which is a national identification document; however, foreign users usually enter their passport numbers instead.  Once a company submits all documents required to FUNDEMPRESA, the process takes between 2-4 working days.

The steps to register a business are: (1) register and receive a certificate from Fundempresa; (2) register with the Bolivian Internal Revenue Service (Servicio de Impuestos Nacionales) and receive a tax identification number; (3) register and receive authorization to operate from the municipal government in which the company will be established; (4) if the company has employees, it must register with the national health insurance service and the national retirement pension agency in order to contribute on the employees’ behalf;  and (5) if the company has employees, it must register with the Ministry of Labor.  According to Fundempresa, the process should take 30 days from start to finish.  All steps are required and there is no simplified business creation regime.

Outward Investment

The Bolivian Government does not promote or incentivize outward investment.  Nor does the government restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Bolivia has no laws or policies that directly foster competition on a non-discriminatory basis.  However, Article 66 of the Commercial Code (Law 14379, 1977) states that unfair competition, such as maintaining an import, production, or distribution monopoly, should be penalized according to criminal law.  There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.

Regulatory authority regarding investment exists at the national level in Bolivia.  There are no informal regulatory procedures.

The Commercial Code requires that all companies keep adequate accounting records and legal records for transparency.  However, there is a large informal sector that does not follow these practices.  Most accounting regulations follow international principles, but the regulations do not always conform to international standards.  Large private companies and some government institutions, such as the Central Bank and the Banking Supervision Authority, have transparent and consistent accounting systems.

Formal bureaucratic procedures have been reported to be lengthy, difficult to manage and navigate, and sometimes debilitating.  Many firms complain that a lack of administrative infrastructure, corruption, and political motives impede their ability to perform. The one exception is when registering a new company in Bolivia.  Once a company submits all documents required to the FUNDEMPRESA, the process usually takes less than one week.

There is no established public comment process allowing social, political, and economic interests to provide advice and comment on new laws and decrees.  However, the government generally — but not always — discusses proposed laws with the relevant sector.  The lack of laws to implement the 2009 Constitution creates legal discrepancies between constitutional guarantees and the dated policies currently enforced, and thus an uncertain investment climate.  Draft text or summaries are usually published on the National Assembly’s website.

Online regulatory disclosures by the Bolivian Government can be found in the “Gaceta Judicial” at:  http://www.gacetaoficialdebolivia.gob.bo/ 

Supreme Decree 71 in 2009 created a Business Auditing Authority (AEMP), which is tasked with regulating the business activities of public, private, mixed, or cooperative entities across all business sectors.  AEMP’s decisions are legally reviewable through appeal.  However, should an entity wish to file a second appeal, the ultimate decision-making responsibility rests with the Bolivian Government ministry with jurisdiction over the economic sector in question.  This has led to a perception that enforcement mechanisms are neither transparent nor independent.

Environmental regulations can slow projects due to the constitutional requirement of “prior consultation” for any projects that could affect local and indigenous communities.  This has affected projects related to the exploitation of natural resources, both renewable and nonrenewable, as well as public works projects.  Issuance of environmental licenses has been slow and subject to political influence and corruption.

In 2010, the new pension fund was enacted; it increased the contributions that companies have to pay from 1.71 percent of payroll to 4.71 percent.

International Regulatory Considerations

Bolivia is a full member of the Andean Community of Nations (CAN), comprised of Bolivia, Colombia, Ecuador, and Peru.  Bolivia is also in the process of joining the Southern Common Market (MERCOSUR) as a full member.  The CAN’s norms are considered supranational in character and have automatic application in the regional economic block’s member countries.  The government does notify the WTO Committee on Technical Barriers to Trade regarding draft technical regulations.

Legal System and Judicial Independence

Property and contractual rights are enforced in Bolivian courts under a civil law system, but some have complained that the legal process is time consuming and has been subject to political influence and corruption.  Although many of its provisions have been modified and supplanted by more specific legislation, Bolivia’s Commercial Code continues to provide general guidance for commercial activities.  The constitution has precedence over international law and treaties (Article 410), and stipulates that the state will be directly involved in resolving conflicts between employers and employees (Article 50).  There have been allegations of corruption within the judiciary in high profile cases.  Regulatory and enforcement actions are appealable.

Laws and Regulations on Foreign Direct Investment

No major laws, regulations, or judicial decisions impacting foreign investment came out in the past year.  There is no primary central point-of-contact for investment that provides all the relevant information to investors.

Competition and Anti-Trust Laws

Bolivia does not have a competition law, but cases related to unfair competition can be presented to AEMP.  Article 314 of the 2009 Constitution prohibits private monopolies.  Based on this article, in 2009 the Bolivian Government created an office to supervise and control private companies (http://www.autoridadempresas.gob.bo/ ). Among its most important goals are: regulating, promoting, and protecting free competition; trade relations between traders; implementing control mechanisms and social projects, and voluntary corporate responsibility; corporate restructuring, supervising, verifying and monitoring companies with economic activities in the country in the field of commercial registration and seeking compliance with legal and financial development of its activities; and qualifying institutional management efficiency, timeliness, transparency and social commitment to contribute to the achievement of corporate goals.

Expropriation and Compensation

The Bolivian Constitution allows the central government or local governments to expropriate property for the public good or when the property does not fulfill a “social purpose” (Article 57).  In the case of land, this social purpose (FES) is understood as “sustainable land use to develop productive activities, according to its best use capacity, for the benefit of society, the collective interest and its owner.”  In all other cases where this article has been applied, the Bolivian Government has no official definition of “collective interest” and makes decisions on a case-by-case basis.  Noncompliance with the social function of land, tax evasion, or the holding of large acreage is cause for reversion, at which point the land passes to “the Bolivian people” (Article 401).  In cases where the expropriation of land is deemed a necessity of the state or for the public good, such as when building roads or laying electricity lines, payment of just indemnification is required, and the Bolivian Government has paid for the land taken in such cases.  However, in cases where there is non-compliance, or accusations of such, the Bolivian Government is not required to pay for the land and the land title reverts to the state.

The constitution also gives workers the right to reactivate and reorganize companies that are in the process of bankruptcy, insolvency, or liquidation, or those closed in an unjust manner, into employee-owned cooperatives (Article 54).  The mining code of 1997 (last updated in 2007) and hydrocarbons law of 2005 both outline procedures for expropriating land to develop underlying concessions.

Between 2006 and 2014, the Bolivian Government nationalized companies that were previously privatized in the 1990s.  The government nationalized the hydrocarbons sector, the majority of the electricity sector, some mining companies (including mines and a tin smelting plant), and a cement plant.  To take control of these companies, the government forced private entities to sell shares to the government, often at below market prices.  Some of the affected companies have cases pending with international arbitration bodies.  All outsourcing private contracts were canceled and assigned to public companies (such as airport administration and water provision).

There are still some former state companies that are under private control, including the railroad, and some electricity transport and distribution companies.  The first non-former state company was nationalized in December of 2012.  Government nationalizations have not discriminated by country; some of the countries affected were the United States, France, the United Kingdom, Spain, Argentina, and Chile.  In numerous cases the Bolivian Government has nationalized private interests in order to appease social groups protesting within Bolivia.

Dispute Settlement

ICSID Convention and New York Convention

In November 2007, Bolivia became the first country ever to withdraw from ICSID.  In August 2010, the Bolivian Minister of Legal Defense of the State said that the Bolivian Government would not accept ICSID rulings in the cases brought against them by the Chilean company Quiborax and Italian company Euro Telcom.  However, the Bolivian Government agreed to pay USD 100 million to Euro Telecom for its nationalization; this agreement was ratified by a Supreme Decree 692 on November 3, 2010.  Additionally, in 2014, a British company that owned the biggest electric generation plant in Bolivia (Guaracachi) won an arbitration case against Bolivia for USD 41 million.  In 2014, an Indian company won a USD 22.5 million international arbitration award in a dispute over the development of an iron ore project.  The Bolivian Government has appealed that award.

In another case, a Canadian mining company with significant U.S. interests failed to complete an investment required by its contract with the state-owned mining company.  The foreign company asserts it could not complete the project because the state mining company did not deliver the required property rights.  The foreign company entered into national arbitration (their contract does not allow for international arbitration) and in January 2011, the parties announced a settlement of USD 750,000, which the company says will be used to pay taxes, employee benefits, and pending debts — essentially leaving them without compensation for the USD 5 million investment they had made.  They also retained responsibility for future liabilities.

Investor-State Dispute Settlement

Conflicting Bolivian law has made international arbitration in some cases effectively impossible.  Previous investment contracts between the Bolivian Government and the international companies granted the right to pursue international arbitration in all sectors and stated that international agreements, such as the ICSID and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, must be honored.  However, the government claims these rights conflict with the 2009 Constitution, which states (Articles 320 and 366) that international arbitration is not recognized in any case and cannot proceed under any diplomatic claim, and specifically limits foreign companies’ access to international arbitration in the case of conflicts with the government.  The 2009 Constitution also states that all bilateral investment treaties must be renegotiated to incorporate relevant provisions of the new constitution.  The Investment Law of 2014 was enacted in late 2015.  Under the 2015 Arbitration Law (Law 708), international arbitration is not permitted when the dispute is against the government or a state-owned company.

A variety of companies of varying nationality were affected by the government’s nationalization policy between 2006 and 2014.  In 2014, President Morales announced there would be no more nationalizations.  The same year, one Brazilian company was nationalized, but that had been previously agreed to with the owner under the previous nationalization policy.

International Commercial Arbitration and Foreign Courts

In Bolivia, two institutions have arbitration bodies, including the National Chamber of Commerce and the Chamber of Industry and Commerce of Santa Cruz (CAINCO).  In order to utilize these domestic arbitration bodies, the private parties must include arbitration within their contracts.  Depending on the contract between the parties, UNCITRAL or Bolivia’s Arbitration Law (No. 708) may be used.  Local courts recognize and enforce foreign arbitral awards and judgments.   There are no statistics available regarding SOE involvement in investment disputes.

Bankruptcy Regulations

Bolivia ranks above regional averages for resolving insolvency according to the World Bank’s Doing Business Report.  The average time to complete bankruptcy procedures to close a business in Bolivia is 20 months.  The Bolivian Commercial Code includes (Article 1654) three different categories of bankruptcy:

1. No Fault Bankruptcy – when the owner of the company is not directly responsible for its inability to pay its obligations.
2. At- Fault Bankruptcy – when the owner is guilty or liable due to the lack of due diligence to avoid harm to the company.
3. Bankruptcy due to Fraud – when the owner intentionally tries to cause harm to the company.

In general, the application of laws related to commercial disputes and bankruptcy has been perceived as inconsistent, and charges of corruption are common.  Foreign creditors often have little redress beyond Bolivian courts, and judgments are generally more favorable to local claimants than international ones.  If a company declares bankruptcy, the company must pay employee benefits before other obligations.  Workers have broad-ranging rights to recover pay and benefits from foreign firms in bankruptcy, and criminal actions can be taken against individuals the Bolivian Government deems responsible for failure to pay in these matters.

No credit bureaus or credit monitoring authorities serve the Bolivian market.

In 2018, the Bolivian Government enacted a new law (No. 1055) called the Creation of Social Enterprises.  The law allows for employees of a company to assert ownership rights over companies under financial distress heading into bankruptcy.  Passage of the law was controversial, with numerous business chambers asserting that the law could incentivize employees and labor unions to undermine the performance of companies in order to force bankruptcy and gain control of company assets.

Investment Incentives

In an effort to attract more investment, the government enacted an investment law in 2014, which says that each Ministry will provide incentives for sector-specific investment.

Article 14 of the 2014 investment law requires technology transfer from foreign companies operating in Bolivia to Bolivian workers and institutions.  The law also specifies that Bolivians should work in operational, administrative, and executive offices of foreign companies.  Also, companies investing in Bolivia should donate equipment and machinery to universities and technical schools in the same area as the investment, and conduct research activities that will find solutions that contribute to public welfare.

Article 21 of the investment law stipulates that the government can incentivize investment in certain sectors that contribute to the economic and social development of the country.

Law 767 from 2015 aims to promote investments in the exploration and exploitation of hydrocarbons.  However, many companies considered this regulation as skewed to production and insufficient to incentivize new exploration.  In 2016, Supreme Decree 2830 was issued, providing a 12 percent reduction in the payment of the direct tax on hydrocarbons and other incentives in order to better incentive exploration.

Foreign Trade Zones/Free Ports/Trade Facilitation

In 2016, Supreme Decree 2779 was enacted, approving regulations for a new system of free trade zones in Bolivia.  The decree establishes a period of one year for existing free trade zones to transform into free industrial zones, which allow for industrial operations and assembly.  Free industrial zones exist in El Alto, Patacamaya, Oruro, Puerto Suarez, and Warnes.  Cobija is the only remaining free trade zone under this new system, with operations approved until 2038.  Concessions within free industrial zones are 15 years in duration and renewable.  The decree also eased customs procedures for goods entering the zones and established stronger government support for the promotion of productive investments in the zones.

Performance and Data Localization Requirements

Bolivian labor law requires businesses to limit foreign employees to 15 percent of their total work force and requires that such foreign hires be part of the technical staff.  These workers require a work visa that can be obtained in any Bolivian consulate, and in the case that they work for a Bolivian company, both the company and the workers should also contribute to the Bolivian Pension System (Pension Law Article 104.1)

Supreme Decree 27328 regulates national and local level government procurement, which give priority to national sourcing.  If an item required is not produced in Bolivia, buying decisions are made based on price.  Supreme Decree 28271 (Article 10), establishes the following preference margins for sourcing with Bolivian products:

Except for national tenders, 10 percent preference margin for Bolivian products regardless of the origin of materials.

For national public tenders, if the cost of Bolivian materials represents more than 50 percent of the total cost of the product, the producers receive a 10 percent preference margin over other sellers.

In national and international public tenders, if Bolivian inputs and labor represent more than the 50 percent of the total cost of the product, the seller receives a 25 percent preference margin over other sellers.  If the Bolivian inputs and labor represent between 30 percent and 50 percent of the total cost of the product, the seller receives a 15 percent preference margin over other sellers.

Under the Bolivian Criminal Code (Article 226), it is a crime to raise or lower the price of a product based on false information, interests, or actions.  For those caught doing so, punishment is six months to three years in prison.  It is also a crime to hoard or conceal products in order to raise prices.  The Bolivian Government has aggressively applied these provisions in a number of cases, applying regulations that allow them to request accounting records and audit companies’ financial actions looking for evidence of speculation.

Bolivia has laws that regulate aspects related to corporate social responsibility (CSR) practices,  Both producers and consumers in Bolivia are generally aware of CSR, but consumer decisions are ultimately based on price and quality.  Because the Bolivian Constitution stipulates that economic activity cannot damage the collective good (Article 47), CSR activities are generally looked upon favorably by the Bolivian Government.  However, during pre-electoral periods, government officials occasionally accuse companies of using CSR practices as political tools against the government and suggest that the government pioneer tighter CSR regulations.

Though Bolivia is not part of the OECD, it has participated in several Latin American Corporate Governance Roundtables since 2000.  Neither the Bolivian Government nor its organizations use the OECD Guidelines for CSR.  Instead, Bolivian companies and organizations are focused on trying to accomplish the UN’s Millennium Development Goals, and they use the Global Reporting Initiative (GRI) methodology in order to show economic, social and environmental results.  While the Bolivian Government, private companies, and non-profits are focused on the UN’s Millennium Development Goals, only a few private companies and NGOs focus on following the UN standard ISO 26000 guidelines and methodologies.  Another methodology widely accepted in Bolivia is the one developed by the ETHOS Institute, which provides measurable indicators accepted by PLARSE (Programa Latinoamericano de Responsabilidad Social Corporativa, the Latin American Program for CSR).The Bolivian Government issued a 2013 supreme decree that requires financial entities to allocate 6 percent of profits to CSR-related projects.

The 1942 General Labor Law is the basis for employment rights in Bolivia, but this law has been modified more than 2,000 times via 60 supreme decrees since 1942.  As a result of these modifications, the General Labor Law has become a complex web of regulations that is difficult to enforce or understand.  An example of the lack of enforcement is the Comprehensive System for Protection of the Disabled (Law 25689) which stipulates that at least 4 percent of the total work force in public institutions, state owned enterprises, and private companies should be disabled.  Neither the public nor private sectors are close to fulfilling this requirement, and most buildings lack even basic access modifications to allow for disabled workers.

In support of consumer protection rights, the Vice Ministry of Defense of User and Consumer Rights was created in 2009 (Supreme Decree 29894) under the supervision of the Ministry of Justice (which became the Ministry of Justice and Transparency in 2017).  This same year the Consumer Protection Law (Supreme Decree 0065) was enacted, which gave the newly created Vice Ministry the authority to request information, verify and follow up on consumer complaints.

The Mother Earth Law (Law 071) approved in October 2012 promotes CSR elements as part of its principles (Article 2), such as collective good, harmony, respect and defense of rights.  The Ministry of Environment and Water is in charge of overseeing the implementation of this law, but the implementing regulations and new institutions needed to enforce this law are still incomplete.

Even though Bolivia promotes the development of CSR practices in its laws, the government gives no advantage to businesses that implement these practices.  Instead, businesses implement CSRs in order to gain the public support necessary to pass the prior consultation requirements or strengthen their support when mounting a legal defense against claims that they are not using land to fulfill a socially valuable purpose, as defined in the Community Land Reform laws (# 1775 and #3545).

In April 2009 the Bolivian Government reorganized the supervisory agencies of the government (formerly Superintendencias) to include social groups, thus creating the “Authorities of Supervision and Social Control” (Supreme Decree 0071).  This authority controls and supervises the following sectors: telecommunications and transportation, water and sanitation, forests and land, pensions, electricity, and enterprises.  Each sector has an Authority of Supervision and Social Control assigned to its oversight, and each Authority has the right to audit the activities in the aforementioned sectors and the right to request the public disclosure of information, ranging from financial disclosures to investigation of management decisions.

Approximately two-thirds of Bolivia’s population is considered “economically active.”  Between 60 and 70 percent of workers participate in the informal economy, where no contractual employer-employee relationship exists.  Relatively low education and literacy levels limit labor productivity, a fact reflected in wage rates.  Unskilled labor is readily available, but skilled workers are often harder to find.

Article 3 of the Labor Code limits to 15 percent the number of foreign nationals that can be employed by any business.  Due to the limited number of labor inspectors, enforcement of the law is uneven.

The 2009 Constitution specifies that unjustified firing from jobs is forbidden and that the state will resolve conflicts between employers and employees (Articles 49.3 and 50).  Bolivian labor law guarantees workers the right of association and the right to organize and bargain collectively.  Most companies are unionized, and nearly all unions belong to the Confederation of Bolivian Workers (COB).

Labor laws, including related regulations and statutory instruments, provide for the freedom of association, the right to strike, and the right to organize and bargain collectively.  The law prohibits antiunion discrimination and requires reinstatement of workers fired for union activity.  The law does not require government approval for strikes and allows peaceful strikers to occupy business or government offices.  General and solidarity strikes are protected by the constitution, as is the right of any working individual to join a union.

Workers may form a union in any private company of 20 or more employees, but the law requires that at least 50 percent of the workforce be in favor of forming a union.  The law requires prior government authorization to establish a union and confirm its elected leadership, permits only one union per enterprise, and allows the government to dissolve unions by administrative fiat.  The law also requires that members of union executive boards be Bolivian by birth.  The labor code prohibits most public employees from forming unions, but some public-sector workers (including teachers, transportation workers, and health-care workers) were legally unionized and actively participated as members of the Bolivian Workers’ Union without penalty.

Freedom of association is limited by the government and under-resourced labor courts.  Moreover, the 20-worker threshold for forming a union proved an onerous restriction, as an estimated 72 percent of enterprises had fewer than 20 employees.  Labor inspectors may attend union meetings and monitor union activities.  Collective bargaining and voluntary direct negotiations between employers and workers without government participation was limited.  Most collective bargaining agreements were restricted to addressing wages.

Originally passed in 1942, Bolivia’s labor law has changed frequently due to new regulations.  Labor attorneys estimate that the law has been amended over two thousand times, with many amendments directly contradicting others.  Attorneys comment that it is virtually impossible to understand the rules clearly, creating significant uncertainty for both employers and employees.

Bolivia has no unemployment insurance or employment-related social safety net programs.  However, if an employee is laid off due to economic or technical reasons, employers are required to pay three months of salary as compensation.  If fired due to misconduct, the three month compensation is not applicable.  Nevertheless, employees generally have more negotiating leverage in Bolivia than employers, and many employers choose to pay the compensation in order to avoid retaliation.

The Ministry of Labor has labor-related conflict resolution mechanisms, but in reality these processes are skewed towards employees.  If parties cannot reach an agreement, employees are able to initiate legal proceedings, with appeals to Bolivia’s Supreme Court possible.

The National Labor Court handles complaints of antiunion discrimination, but rulings generally take a year or more.  In some cases, the court rules in favor of discharged workers and requires their reinstatement.  Union leaders state that problems are often resolved or are no longer relevant by the time the court rules.  For this reason, government remedies and penalties are often ineffective and insufficient to deter violations.

Violence during labor demonstrations continues to be a serious problem.  In August 2016, striking miners kidnapped and murdered Vice Minister Rodolfo Illanes during a conflict between miners and the government on the La Paz-Oruro highway.  Several miners were also shot and killed.  The case is still under investigation.

OPIC’s programs are not currently available in Bolivia.

Policies Towards Foreign Direct Investment

Brazil was the world’s fourth largest destination for Foreign Direct Investment (FDI) in 2017, with inflows of USD 62.7 billion, according to UNCTAD.  The GoB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, and transportation infrastructure sectors – to introduce greater innovation into Brazil’s economy and to generate economic growth.  GoB investment incentives include tax exemptions and low-cost financing with no distinction made between domestic and foreign investors. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, insurance, and air transport sectors.  

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

Screening of FDI

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

To enter Brazil’s insurance and reinsurance market, U.S. companies must establish a subsidiary, enter into a joint venture, acquire a local firm, or enter into a partnership with a local company.  The BCB reviews banking license applications on a case-by-case basis. Foreign interests own or control 20 of the top 50 banks in Brazil. Santander is the only major wholly foreign-owned retail bank remaining in Brazil.  Brazil’s anti-trust authorities (CADE) approved Itau bank’s purchase of Citibank’s Brazilian retail banking operation in August 2017. In June 2016, CADE approved Bradesco bank’s purchase of HSBC’s Brazilian retail banking operation.  

Currently, foreign ownership of airlines is limited to 20 percent.  Congressman Carlos Cadoca (PCdoB-PE) presented a bill to Brazilian Congress in August of 2015 to allow for 100 percent foreign ownership of Brazilian airlines (PL 2724/2015).  The bill was approved by the lower house, and since March 2019, it is pending a Senate vote. In 2011, the United States and Brazil signed an Air Transport Agreement as a step towards an Open Skies relationship that would eliminate numerical limits on passenger and cargo flights between the two countries.  Brazil’s lower house approved the agreement in December 2017, and the Senate ratified it in March 2018. The Open Skies agreement has now entered into force.

In July 2015, under National Council on Private Insurance (CNSP) Resolution 325, the Brazilian government announced a significant relaxation of some restrictions on foreign insurers’ participation in the Brazilian market, and in December 2017, the government eliminated restrictions on risk transfer operations involving companies under the same financial group.  The new rules revoked the requirement to purchase a minimum percentage of reinsurance and eliminated a limitation or threshold for intra-group cession of reinsurance to companies headquartered abroad that are part of the same economic group. Rules on preferential offers to local reinsurers, which are set to decrease in increments from 40 percent in 2016 to 15 percent in 2020, remain unchanged.  Foreign reinsurance firms must have a representation office in Brazil to qualify as an admitted reinsurer. Insurance and reinsurance companies must maintain an active registration with Brazil’s insurance regulator, the Superintendence of Private Insurance (SUSEP) and maintaining a minimum solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch ratings of at least BBB-.

In September 2011, Law 12485/2011 removed a 49 percent limit on foreign ownership of cable TV companies, and allowed telecom companies to offer television packages with their service.  Content quotas require every channel to air at least three and a half hours per week of Brazilian programming during primetime. Additionally, one-third of all channels included in any TV package have to be Brazilian.  

The National Land Reform and Settlement Institute administers the purchase and lease of Brazilian agricultural land by foreigners.  Under the applicable rules, the area of agricultural land bought or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal district.  Additionally, no more than 10 percent of agricultural land in any given municipal district may be owned or leased by foreign nationals from the same country. The law also states that prior consent is needed for purchase of land in areas considered indispensable to national security and for land along the border.  The rules also make it necessary to obtain congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding. Draft Law 4059/2012, which would lift the limits on foreign ownership of agricultural land,

has been awaiting a vote in the Brazilian Congress since 2015.

Brazil is not a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but became an observer in October 2017.  By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable. Additionally, U.S. and other foreign firms may only bid to provide technical services when there are no qualified Brazilian firms.  U.S. companies need to enter into partnerships with local firms or have operations in Brazil in order to be eligible for “margins of preference” offered to domestic firms to participate in Brazil’s public sector procurement to help these firms win government tenders.  Foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts. Under trade bloc Mercosul’s Government Procurement Protocol, member nations Brazil, Argentina, Paraguay, and Uruguay are entitled to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers.  However, only Argentina has ratified the protocol, and per the Brazilian Ministry of Economy website, this protocol has been in revision since 2010, so it has not yet entered into force.

Other Investment Policy Reviews

The Organization for Economic Co-operation and Development’s (OECD) 2018 Brazil Economic Survey of Brazil highlights Brazil as a leading global economy.  However, it notes that high commodity prices and labor force growth will no longer be able to sustain Brazil’s economic growth without deep structural reforms.  While praising the Temer government for its reform plans, the OECD urged Brazil to pass all needed reforms to realize their full benefit. The OECD cautions about low investment rates in Brazil, and cites a World Economic Forum survey that ranks Brazil 116 out of 138 countries on infrastructure as an area in which Brazil must improve to maintain competitiveness.  

The OECD’s March 15, 2019 Enlarged Investment Committee Report BRAZIL: Position Under the OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations noted several areas in which Brazil needs to improve.  These observations include, but are not limited to: restrictions to FDI requiring investors to incorporate or acquire residency in order to invest; lack of generalized screening or approval mechanisms for new investments in Brazil; sectoral restrictions on foreign ownership in media, private security and surveillance, air transport, mining, telecommunication services; and, restrictions for non-residents to own Brazilian flag vessels.  The report did highlight several areas of improvement and the GoB’s pledge to ameliorate several ongoing irritants as well.

The IMF’s 2018 Country Report No. 18/253 on Brazil highlights that a mild recovery supported by accommodative monetary and fiscal policies is currently underway.  But the economy is underperforming relative to its potential, public debt is high and increasing, and, more importantly, medium-term growth prospects remain uninspiring, absent further reforms.  The IMF advises that against the backdrop of tightening global financial conditions, placing Brazil on a path of strong, balanced, and durable growth requires a committed pursuit of fiscal consolidation, ambitious structural reforms, and a strengthening of the financial sector architecture.  The WTO’s 2017 Trade Policy Review of Brazil notes the country’s open stance towards foreign investment, but also points to the many sector-specific limitations (see above). All three reports highlight the uncertainty regarding reform plans as the most significant political risk to the economy.  These reports are located at the following links:

http://www.oecd.org/brazil/economic-survey-brazil.htm  ,

https://www.oecd.org/daf/inv/investment-policy/Code-capital-movements-EN.pdf ,

https://www.imf.org/~/media/Files/Publications/CR/2017/cr17216.ashx  , and https://www.wto.org/english/tratop_e/tpr_e/tp458_e.htm  .

Business Facilitation

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

Outward Investment

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

Transparency of the Regulatory System

In the 2019 World Bank Doing Business report, Brazil ranked 109th out of 190 countries in terms of overall ease of doing business in 2018, an improvement of 16 positions compared to the 2018 report.  According to the World Bank, it takes approximately 20.5 days to start a business in Brazil. Brazil is seeking to streamline the process and decrease the amount to time it takes to open a small or medium enterprise (SME) to five days through its RedeSimples Program.  Similarly, the government has reduced regulatory compliance burdens for SMEs through the continued use of the SIMPLES program, which simplifies the collection of up to eight federal, state, and municipal-level taxes into one single payment.  

The 2019 World Bank study noted that the annual administrative burden for a medium-size business to comply with Brazilian tax codes is an average of 1,958 hours versus 160.7 hours in OECD high-income economies.  The total tax rate for a medium-sized business in Rio de Janeiro is 69 percent of profits, compared to the average of 40.1 percent in the OECD high-income economies. Business managers often complain of not being able to understand complex, and sometimes contradictory, tax regulations, despite their housing large local tax and accounting departments in their companies.  

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

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

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

In addition to these federal regulatory agencies, Brazil has at least 27 state-level regulatory agencies and 17 municipal-level regulatory agencies.  

The Office of the Presidency’s Program for the Strengthening of Institutional Capacity for Management in Regulation (PRO-REG) has introduced a broad program for improving Brazil’s regulatory framework.  PRO-REG and the U.S. White House Office of Information and Regulatory Affairs (OIRA) are collaborating to exchange best practices in developing high quality regulations that mandate the least burdensome approach to address policy implementation.  

Regulatory agencies complete Regulatory Impact Analyses (RIAs) on a voluntary basis.  The Senate has approved a bill on Governance and Accountability for Federal Regulatory Agencies (PLS 52/2013 in the Senate, and PL 6621/2016 in the Chamber) that is pending Senate Transparency and Governance Committee approval after the Lower House proposed changes to the text in December 2018.  Among other provisions, the bill would make RIAs mandatory for regulations that affect “the general interest.” PRO-REG is drafting enabling legislation to implement this provision. While the legislation is pending, PRO-REG has been working with regulators to voluntarily make RIAs part of their internal procedures, with some success.  

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

In 2018, the Department of State found Brazil to have met its minimum fiscal transparency requirements in its annual Fiscal Transparency Report.  The Open Budget Index ranked Brazil on par with the United States in terms of budget transparency in its most recent (2017) index. The Brazilian government demonstrates adequate fiscal transparency in managing its federal accounts, although there is room for improvement in terms of completeness of federal budget documentation.  Brazil’s budget documents are publically available, widely accessible, and sufficiently detailed. They provide a relatively full picture of the GoB’s planned expenditures and revenue streams. The information in publicly available budget documents is considered credible and reasonably accurate.

International Regulatory Considerations

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

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

Legal System and Judicial Independence

Brazil has a civil legal system structured around courts at the state and federal level.  Investors can seek to enforce contracts through the court system or via mediation, although both processes can be lengthy.  The Brazilian Superior Court of Justice (STJ) must accept foreign contract enforcement judgments for the judgments to be considered valid in Brazil.  Among other considerations, the foreign judgement must not contradict any prior decisions by a Brazilian court in the same dispute. The Brazilian Civil Code, enacted in 2002, regulates commercial disputes, although commercial cases involving maritime law follow an older, largely superseded Commercial Code.  Federal judges hear most disputes in which one of the parties is the Brazilian State, and also rule on lawsuits between a foreign state or international organization and a municipality or a person residing in Brazil.

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

Laws and Regulations on Foreign Direct Investment

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

Brazil does not offer a “one-stop-shop” for international investors.  There have been plans to do so for several years, but nothing has been officially created to facilitate foreign investment in Brazil.  The BCB website offers some useful information, but is not a catchall for those seeking guidance on necessary procedures and requirements.  The BCB’s website in English is: https://www.bcb.gov.br/en#!/home .

Competition and Anti-Trust Laws

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

In 2018, CADE conducted 74 formal investigations of cases that allegedly challenged the promotion of the free market.  It also approved 390 merger and/or acquisition requests and rejected an additional 14 requests.

Expropriation and Compensation

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

Contract disputes in Brazil can be lengthy and complex.  Brazil has both a federal and a state court system, and jurisprudence is based on civil code and contract law.  Federal judges hear most disputes in which one of the parties is the State, and rule on lawsuits between a foreign State or international organization and a municipality or a person residing in Brazil.  Five regional federal courts hear appeals of federal judges’ decisions. The 2019 World Bank Doing Business report found that on average it takes 12.5 procedures and 731 days to litigate a breach of contract.

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

Brazil’s commercial code governs most aspects of commercial association, while the civil code governs professional services corporations.  In 2005, bankruptcy legislation (Law 11101) went into effect creating a system modeled on Chapter 11 of the U.S. bankruptcy code. Critics of Law 11101 argue it grants equity holders too much power in the restructuring process to detriment of debtholders.  Brazil is drafting an update to the bankruptcy law aimed at increasing creditor rights, but it has not yet been presented in Congress. The World Bank’s 2019 Doing Business Report ranks Brazil 77th out of 190 countries for ease of “resolving insolvency.”

Investment Incentives

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

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

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

In January 2015, the GoB eliminated the industrial products tax (IPI) exemptions on vehicles, while keeping all other tax incentives provided by the October 2012 Inovar-Auto program.  Through Inovar-Auto, auto manufacturers were able to apply for tax credits based on their ability to meet certain criteria promoting research and development and local content. Following successful WTO challenges against the trade-restrictive impacts of some of its tax benefits, the government allowed Inovar-Auto program to expire on December 31, 2017.  Although the government has announced a new package of investment incentives for the auto sector, Rota 2030, it remains at the proposal stage, with no scheduled date for a vote or implementation.

On February 27, 2015, Decree 8415 reduced tax incentives for exports, known as the Special Regime for the Reinstatement of Taxes for Exporters, or Reintegra Program.  Decree 8415 reduced the previous three percent subsidy on the value of the exports to one percent for 2015, to 0.1 percent for 2016, and two percent for 2017 and 2018.

Brazil provides tax reductions and exemptions on many domestically-produced information and communication technology (ICT) and digital goods that qualify for status under the Basic Production Process (PPB).  The PPB is product-specific and stipulates which stages of the manufacturing process must be carried out in Brazil in order for an ICT product to be considered produced in Brazil. The major fiscal benefits of the National Broadband Plan (PNBL) and supporting implementation plan (REPNBL-Redes) have either expired or been revoked.  In 2017, Brazil held a public consultation on a National Connectivity Plan to replace the PNBL, but has not yet published a final version.

Under Law 12598/2013, Brazil offers tax incentives ranging from 13 percent to 18 percent to officially classified “Strategic Defense Firms” (must have Brazilian control of voting shares) as well as to “Defense Firms” (can be foreign-owned) that produce identified strategic defense goods.  The tax incentives for strategic firms can apply to their entire supply chain, including foreign suppliers. The law is currently undergoing a revision, expected to be complete in 2018.

Industrial Promotion

The InovAtiva Brasil and Startup Brasil programs support start-ups in the country.  The GoB also uses free trade zones to incentivize industrial production. A complete description of the scope and scale of Brazil’s investment promotion programs and regimes can be found at: http://www.apexbrasil.com.br/en/home  .  

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

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

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

Presidential Decree 8135/2013 (Decree 8135) regulated the use of IT services provided to the Federal government by privately and state-owned companies, including the provision that Federal IT communications be hosted by Federal IT agencies. In 2015, the Ministry of Planning developed regulations to implement Decree 8135, which included the requirement to disclose source code if requested.  On December 26, 2018, President Michel Temer approved and signed the Decree 9.637/2018, which revoked Decree 8.135/2013 and eliminated the source code disclosure requirements.

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

Investors in certain sectors in Brazil must adhere to the country’s regulated prices, which fall into one of two groups: those regulated at the federal level by a federal company or agency, and those set by sub-national governments (states or municipalities).  Regulated prices managed at the federal level include telephone services, certain refined oil and gas products (such as bottled cooking gas), electricity, and healthcare plans. Regulated prices controlled by sub-national governments include water and sewage fees, vehicle registration fees, and most fees for public transportation, such as local bus and rail services.  As part of its fiscal adjustment strategy, Brazil sharply increased regulated prices in January 2015.

For firms employing three or more persons, Brazilian nationals must constitute at least two-thirds of all employees and receive at least two-thirds of total payroll, according to Brazilian Labor Law Articles 352 to 354.  This calculation excludes foreign specialists in fields where Brazilians are unavailable.

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

Brazil’s Marco Civil, an Internet law that determines user rights and company responsibilities, states that data collected or processed in Brazil must respect Brazilian law, even if the data is subsequently stored outside the country.  Penalties for non-compliance could include fines of up to 10 percent of gross Brazilian revenues and/or suspension or prohibition of related operations. Under the law, Internet connection and application providers must retain access logs for specified periods or face sanctions.  While the Marco Civil does not require data to be stored in Brazil, any company investing in Brazil should closely track its provisions – as well provisions of other legislation and regulations, including a data privacy bill passed in August 2018 and cloud computing regulations.

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

The U.S. diplomatic mission in Brazil supports U.S. business CSR activities through the +Unidos Group (Mais Unidos), a group of more than 100 U.S. companies established in Brazil.  Additional information on how the partnership supports public and private alliances in Brazil can be found at: www.maisunidos.org 

The Brazilian labor market is composed of approximately 124 million workers of whom 32.9 million (26.5 percent) work in the informal sector.  Brazil had an unemployment rate of 12 percent as of March 2019, although that percentage was nearly double (22.6 percent) for young workers ages 18-29.  Foreign workers made up less than one percent of the overall labor force, but the arrival of 160,000 economic migrants and refugees from Venezuela since 2016 has led to large local concentrations of foreign workers in the border state of Roraima and the city of Manaus.  Migrant workers from within Brazil play a significant role in the agricultural sector. There are no government policies requiring the hiring of Brazilian nationals.

Low-skilled employment dominates Brazil’s labor market.  During the country’s economic recession (2014-2016), eight low-skilled occupations – such as market attendants and janitors – accounted for half of the roughly 900,000 job openings added to the market.  The number of professionals working as biomedical and information analysts – however small – also increased, while that of bill collectors, cashier supervisors, and welders saw declines. Sectors such as information technology services stood out among those that generated job vacancies between 2011 and 2016.

Workers in the formal sector contribute to the Time of Service Guarantee Fund (FGTS) that equates to one month’s salary over the course of a year.  If a company terminates an employee, the employee can access the full amount of their FGTS contributions or 20 percent in the event they leave voluntarily.  Brazil’s labor code guarantees formal sector workers 30 days of annual leave and severance pay in the case of dismissal without cause. Unemployment insurance also exists for laid off workers equal to the country’s minimum salary (or more depending on previous income levels) for six months.  A labor law that went into effect in November 2017 modified 121 sections of the national labor code (CLT). The law introduced flexible working hours, eased restrictions on part-time work, relaxed how workers can divide their holidays and cut the statutory lunch hour to 30 minutes. The government does not waive labor laws to attract investment; they apply uniformly across the country.  

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

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

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

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

Brazil has ratified 97 International Labor Organization (ILO) conventions.  Furthermore, Brazil is party to the UN Convention on the Rights of the Child and major ILO conventions concerning the prohibition of child labor, forced labor, and discrimination.  For the past eight years (2010-2018), the Department of Labor, in its annual publication Findings on the Worst forms of Child Labor, has recognized Brazil for its significant advancement in efforts to eliminate the worst forms of child labor.  The Ministry of Labor (MTE), in 2018, inspected 231 properties, resulting in the rescue of 1,133 victims of forced labor. Additionally, MTE rescued 1,409 children working in violation of child labor laws.

On January 1, 2019, newly elected President Jair Bolsonaro extinguished MTE and divided its responsibilities between the Ministries of Economy, Justice and Social Development.  

Programs of the Overseas Private Investment Corporation (OPIC) are fully available.  Brazil has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1992.

Policies towards Foreign Direct Investment

Chile has a successful track record of attracting foreign direct investment (FDI), despite the relatively small size of its domestic market.  For nearly four decades, promoting FDI has been an essential part of the Chilean government’s national development strategy. The country’s market-oriented economic policies create significant opportunities for foreign investors to participate. Laws and practices are not discriminatory against foreign investors, who receive treatment similar to Chilean nationals. While Chile’s business climate is generally straightforward and transparent, the permitting process of infrastructure, mining and energy projects has become increasingly contentious, especially regarding politically sensitive environmental impact assessments and indigenous consultations.

InvestChile is the government agency that implements various types of initiatives aimed to foster the entry and retention of FDI into Chile. It provides services in four categories:

1. attraction (information provision about Chile’s business climate and specific investment opportunities in both public and private projects);
2. pre-investment (sector-specific legal advisory services and information for decision-making);
3. landing (advice for installation of the company, foreign investor certificates, access to funds and regional support networks), and
4. after-care (management of inquiries, assistance for exporting and information for re-investment).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors have access to all productive activities, except for the internal waterways freight transportation sector, in which there is a cap on foreign equity ownership of companies of 49 percent. In 2019, Chile loosened maritime cabotage rules and began allowing large foreign cruise ships to move between Chilean ports. Some international reciprocity restrictions exist for fishing.

Most enterprises in Chile may be 100 percent owned by foreigners.  Chile only restricts the right to private ownership or establishment in what it defines as certain “strategic” sectors, such as nuclear energy and mining.  The Constitution establishes the “absolute, exclusive, inalienable and permanent domain” of the Chilean state over all mineral, hydrocarbon, and fossil fuel deposits within Chilean territory.  However, Chilean law allows the government to grant concession rights to individuals and companies for exploration and exploitation activities, and to assign contracts to private investors, without discrimination against foreign investors.

FDI is subject to pro forma screening by InvestChile.  Businesses in general do not consider these screening mechanisms as barriers to investment because approval procedures are expeditious and investments are usually approved.

Other Investment Policy Reviews

The World Trade Organization (WTO) has not conducted a Trade Policy Review for Chile since June 2015 (available here: https://www.wto.org/english/tratop_e/tpr_e/tp415_e.htm  ). The Organization for Economic Cooperation and Development (OECD) has not conducted an Investment Policy Review for Chile since 1997, and the country is not part of the countries covered to date by the United Nations Conference on Trade and Development’s (UNCTAD) Investment Policy Reviews.

Business Facilitation

The Chilean government took significant steps towards business facilitation during the present decade, including introducing digital processes to start a company.  According to the World Bank, Chile has one of the smoothest and shortest processes among Latin American and Caribbean countries – 11 procedures over an average of 29 days – to establish a foreign-owned limited liability company (LLC). Drafting corporate statutes and obtaining an authorization number can be done online at the platform www.tuempresaenundia.cl  .  Electronic signature and electronic invoicing allow one to register a company, obtain a taxpayer ID number, and get legal receipts, invoices, credit and debit notes, and accountant registries.  A company typically needs to register with Chile’s Internal Revenue Service, obtain a business license from a municipality, and register either with the Institute of Occupational Safety (public) or with one of three private nonprofit entities that provide work-related accident insurance, which is mandatory for employers.  In addition to the steps required of a domestic company, a foreign company establishing a subsidiary in Chile must authenticate the parent company’s documents abroad and register the incoming capital with the Central Bank. This procedure, established under Chapter XIV of the Foreign Exchange Regulations, requires a notice of conversion of foreign currency into Chilean pesos when the investment exceeds USD 10,000.00.  The registration process at the Registry of Commerce of Santiago is available online.

Outward Investment

The Government of Chile does not have an active policy of promotion or incentives for outward investment, nor does it impose restrictions on it.

Transparency of the Regulatory System

Chile’s legal, regulatory, and accounting systems are transparent and provide clear rules for competition and a level playing field for foreigners.  They are consistent with international norms; however, environmental regulations, approvals, mandatory indigenous consultation required by the International Labor Organization’s Indigenous and Tribal Peoples Convention (ILO 169), and other permitting processes have become lengthy and unpredictable, especially in politically sensitive cases.

Four institutions play key roles in the rule-making process in Chile: the Ministry General-Secretariat of the Presidency (SEGPRES), the Ministry of Finance, the Ministry of Economy, and the General Comptroller of the Republic.  However, Chile does not have a regulatory oversight body in its institutional setup. Most regulations come from the national government; however, some, in particular those related to land use, are decided at the local level. Both levels get involved in environmental permits.  Regulatory processes are managed by governmental entities. NGOs and private sector associations may participate in public hearings or comment periods. The OECD’s April 2016 “Regulatory Policy in Chile” report asserts that Chile took steps to improve its rule-making process, but still lags behind the OECD average in assessing the impact of regulations, consulting with outside parties on their design, and evaluating them over time.

In Chile, non-listed companies follow norms issued by the Accountants Professional Association, while publicly listed companies use the International Financial Reporting Standards (IFRS).  Since January 1, 2018, IFRS 9 entered into force for companies in all sectors except for banking, in which IFRS 15 will be applied. IFRS 16 entered into force in 2019.

The legislation process in Chile allows for public hearings during discussion of draft bills in both chambers of Congress.  Draft bills submitted by the Executive Branch to the Congress are readily available for public comment. Ministries and regulatory agencies are required by law to give notice of proposed regulations, but there is no formal requirement in Chile for consultation with the public, conducting regulatory impact assessments of proposed regulations, requesting comments, or reporting results of consultations.  For lower-level regulations or norms that do not need congressional approval, there are no formal provisions for public hearing or comment. As a result, Chilean regulators and rulemaking bodies normally consult with stakeholders, but in a less regular manner.

All decrees and laws are published in the Diario Oficial (National Gazette), but other types of regulations will not necessarily be found there.  There are no other centralized online locations for published regulations in Chile, similar to the Federal Register in the United States.

According to the OECD, compliance rates in Chile are generally high.  The approach to enforcement remains punitive rather than preventive, and regulators still prefer to inspect rather than collaborate with regulated entities on fostering compliance.  Each institution with regulation enforcement responsibilities has its own sanction procedures. Law 19.880 from 2003 establishes the principles for reversal and hierarchical recourse against decisions by the administration.  An administrative act can be challenged by lodging an action in the ordinary courts of justice, or by administrative means with a petition to the Comptroller General of the Republic. Affected parties may also make a formal appeal to the Constitutional Court against a specific regulation.

Chile still lacks a comprehensive, “whole of government” regulatory reform program.  However, the National Productivity Commission, created in 2014, includes among its main functions the identification of regulatory constraints to increase productivity and recommendations to overcome them.

Chile’s level of fiscal transparency is excellent.  Information on the budget and debt obligations, including explicit and contingent liabilities, is easily accessible online.

International Regulatory Considerations

Chile does not share regulatory sovereignty with any regional economic bloc.  However, several international norms or standards from multilateral organizations (UN, WIPO, ILO, among others) are referenced or incorporated into the country’s regulatory system.  As a member of the WTO, the government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Chile bases its legal system on civil law.  Chile’s legal and regulatory framework provides for effective means for enforcing property and contractual rights.

Laws governing issues of interest to foreign investors are found in several statutes, including the Commercial Code of 1868, the Civil Code, the Labor Code and the General Banking Act.  Chile has specialized courts for dealing with tax and labor issues.

The judicial system in Chile is generally transparent and independent.  The likelihood of government intervention in court cases is low. If a state-owned firm is involved in the dispute, the Government of Chile may become directly involved through the State Defense Council.

Regulations can be challenged before the court system, the General Comptroller, or the Constitutional Court, depending on the nature of the claim.

Laws and Regulations on Foreign Direct Investment

See the section on Policies towards Foreign Direct Investment.

Competition and Anti-Trust Laws

Chile’s anti-trust law prohibits mergers or acquisitions that would prevent free competition in the industry at issue.  An investor may voluntarily seek a ruling by an Antitrust Court that a planned investment would not have competition implications.  The National Economic Prosecutor (FNE) is a very active institution conducting investigations in competition-related cases and filing complaints before the Free Competition Tribunal (TDLC), which rules on those cases.

In February 2019, the TDLC fined supermarket chains Walmart, Cencosud, and SMU USD 4.2 million, USD 5.1 million and USD 3.1 million, respectively.  The TDLC ruled in a collusion case introduced by the FNE in 2016 establishing that these retailers set up a minimum prices agreement in the market for fresh poultry meat.

In November 2018, the TDLC fined two laboratories (Biosano and Sanderson, subsidiary of Fresenius Kabi Chile) USD 25.6 million and USD 2.1 million, respectively. The TDLC ruled in a case brought by the FNE in 2012 regarding collusion by these labs in public procurement from the National Central Procurement System for Health Services (CENABAST).

In April 2019, the FNE asked the Supreme Court to overturn the TDLC’s decision in October 2018 to authorize alliances between the Chilean airline Latam and British Airways, Iberia, and American Airlines.  The FNE argued that such alliances would impermissibly reduce competition over the main air routes to Europe and North America.

In April 2018, Oracle agreed to an FNE-proposed plan to improve its information sharing practices. This was the result of an FNE investigation in 2015 into Oracle’s potential abuse of its market dominance in database management systems (DBMS software).

In 2018, the FNE approved the merger between Linde Aktiengesellschaft and Praxair Inc., and the acquisition by Turner International Latin America, Inc (Turner) of all shares in Football Channel (CDF).  On March 20, 2019, the FNE approved acquisition of all shares in Twenty- First Century Fox, Inc. by The Walt Disney Company (Disney.  On May 31, 2018, the FNE approved the acquisition of Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) by Scotiabank Chile.

Expropriation and Compensation

Chilean law grants the government authority to expropriate property, including property of foreign investors, only on public interest or national interest grounds, on a non-discriminatory basis and in accordance with due process.  The government has not nationalized a private firm since 1973. Expropriations of private land take place in a transparent manner, and typically only when the purpose is to build roads or other types of infrastructure. The law requires the payment of immediate compensation at fair market value, in addition to any applicable interest.

Dispute Settlement

ICSID Convention and New York Convention

Since 1991, Chile has been a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). In 1975 Chile became a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

National arbitration law in Chile includes the Civil Procedure Code (Law Num. 1552, modified by Law Num. 20.217 of 2007), and the Law Num. 19.971 on International Commercial Arbitration.

Investor-State Dispute Settlement

Apart from the New York Convention, Chile is also a party to the Pan-American Convention on Private International Law (Bustamante Code) since 1934; the Inter-American Convention on International Commercial Arbitration (Panama Convention) since 1976; and the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States since 1992.

The U.S.-Chile FTA, in force since 2004, includes an investment chapter that provides the right for investors to submit claims under the ICSID Convention; the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules; or any other mutually agreed upon arbitral institution.  So far, no U.S. investors have filed claims under the agreement.

Over the past 10 years, there were only two investment dispute cases brought by foreign investors against the state of Chile before the World Bank’s International Center for Settlement of Investment Disputes (ICSID) tribunal. The first relates to a Spanish-Chilean citizen regarding the expropriation of Chilean newspaper El Clarin in 1975 by Chile’s military regime.  On September 13, 2016, ICSID issued a final ruling in favor of the Chilean state, rejecting the claimant’s request for financial compensation. However, the same person brought a new case in April 2017, related to the State’s actions following a 2008 judgment of the Santiago court in relation to the confiscation of the Goss printing press, as well as the alleged lack of remedy for the deprivation of their property rights in El Clarin.  The case is now pending resolution.

The second case was brought in 2017 by Colombian firm Alsacia, which holds concession contracts as operators of Transantiago, the public transportation system in Santiago de Chile. Claims are that the Government’s actions in relation to Transantiago allegedly created unfavorable operating conditions for the claimants’ subsidiaries and resulted in bankruptcy proceedings.  The case is pending resolution.

Local courts respect and enforce foreign arbitration awards, and there is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Mediation and binding arbitration exist in Chile as alternative dispute resolution mechanisms.  A suit may also be brought in court under expedited procedures involving the abrogation of constitutional rights.  The U.S.-Chile FTA investment chapter encourages consultations or negotiations before recourse to dispute settlement mechanisms.  If the parties fail to resolve the matter, the investor may submit a claim for arbitration. Provisions in Section C of the FTA ensure that the proceedings are transparent by requiring that all documents submitted to or issued by the tribunal be available to the public, and by stipulating that proceedings be public.  The tribunal must also accept amicus curiae submissions. The FTA investment chapter establishes clear and specific terms for making proceedings more efficient and avoiding frivolous claims. Chilean law is generally to be applied to all contracts. However, arbitral tribunals decide disputes in accordance with FTA obligations and applicable international law.

In Chile, the Judiciary Code and the Code of Civil Procedure govern domestic arbitration. Local courts respect and enforce foreign arbitral awards and judgments of foreign courts.  Chile has a dual arbitration system in terms of regulation, meaning that different bodies of law govern domestic and international arbitration. International commercial arbitration is governed by the International Commercial Arbitration Act that is modeled on the 1985 UNCITRAL Model Law on International Commercial Arbitration.  In addition to this statute, there is also Decree Law Number 2349 that regulates International Contracts for the Public Sector and sets forth a specific legal framework for the State and its entities to submit their disputes to international arbitration.

No Chilean state-owned enterprises (SOEs) have been involved in investment disputes in recent decades.

Bankruptcy Regulations

Chile’s Insolvency Law from 1982 was updated in October 2014.  The current law aims to clarify and simplify liquidation and reorganization procedures for businesses to prevent criminalizing bankruptcy.  It also established the new Superintendence of Insolvency and created specialized insolvency courts. The new insolvency law requires creditors’ approval to select the insolvency representative and to sell debtors’ substantial assets.  The creditor also has the right to object to decisions accepting or rejecting creditors’ claims. However, the creditor cannot request information from the insolvency representative. The creditor may file for insolvency of the debtor, but for liquidation purposes only.  The creditors are divided into classes for the purposes of voting on the reorganization plan; each class votes separately, and creditors in the same class are treated equally.

Investment Incentives

The Chilean government generally does not subsidize foreign investment, nor does it issue guarantees or joint financing for FDI projects.  There are, however, some incentives directed to isolated geographical zones and to the information technology sector. These benefits relate to co-financing of feasibility studies as well as to incentives for the purchase of land in industrial zones, the hiring of local labor, and the facilitation of project financing.  Other important incentives include accelerated depreciation accounting for tax purposes and legal guarantees for remitting profits and capital. Additionally, the Start-Up Chile program provide selected entrepreneurs with grants for USD 15,000 to USD 80,000, along with a Chilean work visa to develop a “startup” business in Chile over a period of 4 to 7 months.  Chile has other special incentive programs aimed at promoting investment and employment in remote regions, as well as other areas that suffer development lags.

Foreign Trade Zones/Free Ports/Trade Facilitation

Chile has two free trade zones: one in the northern port city of Iquique (Tarapaca Region) and the other in the far south port city of Punta Arenas (Magallanes Region).  Merchants and manufacturers in these zones are exempt from corporate income tax; value added tax (VAT) – on operations and services that take place inside the free trade zone – and customs duties. The same exemptions also apply to manufacturers in the Chacalluta and Las Americas Industrial Park in Arica (Arica and Parinacota Region).  Mining, fishing, and financial services are not eligible for free zone concessions. Foreign-owned firms have the same investment opportunities in these zones as Chilean firms. The process for setting up a subsidiary is the same inside as outside the zones, regardless of whether the company is domestic or foreign-owned. Zofri is the main FTZ located in Iquique.

Performance and Data Localization Requirements

Chile mandates that 85 percent of workforces must be local employees.  Exceptions are described in Section 11. The costs associated with migration regulations do not significantly inhibit the mobility of foreign investors and their employees.

Chile does not follow “forced localization.”  A draft bill that moved forward in Congress and is currently pending final approval could result in additional requirements (owner’s consent) for international data transfers in cases involving jurisdictions with data protection regimes below Chile’s standards.  The bill also proposes the creation of an independent Chilean Data Protection Agency that would be responsible for enforcing data protection standards. Private sector legal experts believe that this draft legislation would impose fewer restrictions on the international transfer of commercial data compared to current U.S. law.

Neither Chile’s Foreign Investment Promotion Agency nor the Central Bank applies performance requirements in their reviews of proposed investment projects.  The investment chapter in the U.S.–Chile FTA establishes rules prohibiting performance requirements that apply to all investments, whether by a third party or domestic investors.  The FTA investment chapter also regulates the use of mandatory performance requirements as a condition for receiving incentives and spells out certain exceptions. These include government procurement, qualifications for export and foreign aid programs, and non-discriminatory health, safety, and environmental requirements.

Awareness of the need to ensure corporate social responsibility has grown over the last two decades in Chile.  However, NGOs and academics who monitor this issue believe that risk mapping and management practices still do not sufficiently incorporate its importance.

The government of Chile encourages foreign and local enterprises to follow generally accepted Responsible Business Conduct (RBC) principles and uses the United Nations’ Rio+20 Conference statements as its principal reference.  Chile adhered in 1997 to the OECD Guidelines for Multinational Enterprises. It also recognizes the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy; the UN Guiding Principles on Business and Human Rights; the UN Global Compact’s Ten Principles and the ISO 26000 Guidance on Social Responsibility.  The government established a National Contact Point (NCP) for OECD MNE guidelines located at the General Directorate for International Economic Relations, and recently created the Responsible Business Conduct Department, whose chief is also the NCP. On August 21, 2017 Chile released its National Action Plan on Business and Human Rights based on the UN Guiding Principles.  Separately, the Council on Social Responsibility for Sustainable Development, coordinated by Chile’s Ministry of Economy, is currently developing a National Policy on Social Responsibility.

Regarding procurement decisions, ChileCompra, the agency in charge of centralizing Chile’s public procurement, incorporates the existence of a Clean Production Certificate and an ISO 14001-2004 certificate on environmental management as part of its criteria to assign public purchases.

No high profile, controversial instances of corporate impact on human rights have occurred in Chile in recent years.

The Chilean government effectively and fairly enforces domestic labor, employment, consumer, and environmental protection laws.  There are no dispute settlement cases against Chile related to the Labor and Environment Chapters of the Free Trade Agreements signed by Chile.

Regarding the protection of shareholders, the Superintendence of Securities and Insurance (SVS) has the responsibility of regulating and supervising all listed companies in Chile.  Companies are generally required to have an audit committee, a directors committee, an anti-money laundering committee and an anti-terrorism finance committee. Laws do not require companies to have a nominating/corporate governance committee or a compensation committee.  Compensation programs are typically established by the board of directors and/or the directors committee.

Independent NGOs in Chile promote and freely monitor RBC.  Examples include NGO Accion RSE: http://www.accionrse.cl/, the Catholic University of Valparaiso’s Center for Social Responsibility and Sustainable Development VINCULAR: http://www.vincular.cl/ , ProHumana Foundation and the Andres Bello University’s Center Vitrina Ambiental.

Chile is an OECD member, but is not participating actively in the implementation of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.

Chile is not part of the Extractive Industries Transparency Initiative (EITI).

Unemployment in Chile averaged 6.9 percent of the labor force during 2018, while the labor participation rate was 59.7 percent of the working age population.  Immigrants account for nearly nine percent of the labor force. Chilean workers are adequately skilled and some sectors such as mining, agriculture, and fishing employ highly skilled workers.  In general, there is an adequate availability of technicians and professionals. Data on informality are not available for Chile in the ILO databases, but recent estimations made by the National Institute of Statistics suggest informal employment in Chile constitutes 30 percent of the workforce.

Article 19 of the Labor Code stipulates that employers must hire Chileans at least for 85 percent of their staff, except in the case of firms with less than 25 employees. However, Article 20 of the Labor Code includes several provisions under which foreign employees can exceed 25 percent, independent of the size of the company. 

In general, employees who have been working for at least one year are entitled to a statutory severance pay, upon dismissal without cause, equivalent to 30 days of the last monthly remuneration earned, for each year of service.  The upper limit is 330 days (11 years of service) for workers with a contract in force for one year or more. The same amount is payable to a worker whose contract is terminated for economic reasons. Upon termination, regardless of the reason, domestic workers are entitled to an unemployment insurance benefit funded by the employee and employer contributions to an individual unemployment fund equivalent to three percent of the monthly remuneration.  The employer’s contributions shall be paid for a maximum of 11 years by the same employer. Another fund made up of employer and government contributions is used for complementary unemployment payments when needed.

Labor and environmental laws are not waived in order to attract or retain investments.

According to the Labor Directorate, 1,139,955 workers (13.9 percent of Chilean workers) belonged to a trade union in the last quarter of 2016 (latest data available), when 11,653 unions were active.  In the same period, 347,142 workers (4.2 percent of Chilean workers) were covered by collective bargaining agreements. Collective bargaining coverage rates are higher in the financial, mining, and manufacturing sectors.  Unions can form nationwide labor associations and can affiliate with international labor federations. Contracts are normally negotiated at the company level. Workers in public institutions do not have collective bargaining rights, but national public workers’ associations undertake annual negotiations with the government.

The Labor Directorate under the Ministry of Labor is responsible for enforcing labor laws and regulations.  Both employers and workers may request labor mediation from the Labor Directorate, which is an alternate dispute resolution model aimed at facilitating communication and agreement between both parties.

According to a report from the Centre for Social Conflict and Cohesion Studies (COES), during 2017, 128 legal strikes took place in sectors where collective bargaining is permitted (a smaller number in comparison to 2017 when there were 198 strikes).  31,799 workers were involved in total in strikes during 2016 (latest data available from the Labor Directorate). As legal strikes in Chile have a restricted scope and duration, in general they do not present a risk for foreign investment.

Chile has and generally enforces laws and regulations in accordance with internationally recognized labor rights of: freedom of association and collective bargaining; the elimination of forced labor; child labor, including the minimum age for work; discrimination with respect to employment and occupation; and acceptable conditions of work related to minimum wage, occupational safety and health, and hours of work.  The maximum number of labor hours allowed per week in Chile is 45. In September 2018, Congress approved a minimum wage increase, by which beginning March, 2019 the national minimum wage is CLP 301,000 – USD 444 – a month for all occupations, including domestic servants, more than twice the official poverty line. There is a special minimum wage of CLP 224,704 (USD 331) a month for workers age 65 and older and age 18 and younger.  There are no gaps in compliance with international labor standards that may pose a reputational risk to investors.

Collective bargaining is not allowed in companies or organizations dependent upon the Defense Ministry or whose employees are prohibited from striking, such as in health care, law enforcement, and public utilities.  Labor courts can require workers to resume work upon a determination that a strike causes serious risk to health, national security, the supply of goods or services to the population, or to the national economy.

The United States-Chile Free Trade Agreement (FTA) entered into force on January 1, 2004.  The FTA requires the United States and Chile to maintain effective labor and environmental enforcement.

Since 2013, Overseas Private Investment Corporation (OPIC) partnered with U.S. solar energy developers to finance five large-scale power facilities throughout the Atacama Desert in northern Chile.  Other OPIC-financed projects in the country include the run-of-river hydropower project Alto Maipo, and the toll road Vespucio Norte Express.

An OPIC Bilateral Investment Agreement between Chile and the United States took effect in 1984.  Chile is a party to the convention of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

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.

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.

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.

An OECD report on Colombia’s labor market and social policies was published in January 2016.  The report mentions progress on labor market reforms, but cites large income inequality and structural flaws in labor market policies, despite relatively low unemployment and high labor force participation.  In 2018, the unemployment rate according to official government figures was 9.7 percent, a slight increase relative to the 2017 rate of 9.4 percent. According to DANE, 48.2 percent of the workforce was working in the informal economy at the end of 2018.  Colombia has a wide range of skills in its workforce, as well as managerial-level employees who are often bilingual.

Labor rights in Colombia are set forth in its Constitution, the Labor Code, the Procedural Code of Labor and Social Security, sector-specific legislation, and ratified international conventions, which are incorporated into national legislation.  Colombia’s Constitution guarantees freedom of association and provides for collective bargaining and the right to strike (with some exceptions). It also addresses forced labor, child labor, trafficking, discrimination, protections for women and children in the workplace, minimum wages, working hours, skills training, and social security.  Colombia has ratified all eight of the International Labor Organization’s (ILO’s) fundamental labor conventions, and all are in force, including those related to freedom of association, equal remuneration, right to organize and collectively bargain, discrimination, minimum working age, forced labor, and prohibition of the worst forms of child labor.  Colombia has also ratified conventions related to hours of work, occupational health and safety, and minimum wage. In 2013, Law 1636 was passed to increase protections and opportunities for Colombia’s unemployed population.

The 1991 Constitution protects the right to constitute labor unions.  Pursuant to Colombia’s labor law, any group of 25 or more workers, regardless of whether they are employees of the same company or not, may form a labor union.  Employees of companies with fewer than 25 employees may affiliate themselves with other labor unions. About four percent of the country’s labor force is unionized.  The largest and most influential unions are composed mostly of public-sector employees, particularly of the majority state-owned oil company and the state-run education sector.  Only 6.2 percent of all salaried workers are covered by collective bargaining agreements (CBAs), according to the OECD. The Ministry of Labor has expressed commitment to working on decrees to incentivize sectoral collective bargaining, and to strengthen union representation within companies and regulate strikes in the essential public services sector (i.e. hospitals).

Strikes, when held in accordance with the law, are recognized as legal instruments to obtain better working conditions, and employers are prohibited from using strike-breakers at any time during the course of a strike.  After 60 days of strike action, the parties are subject to compulsory arbitration. Strikes are prohibited in certain “essential public services,” as defined by law, although Colombia has been criticized for having an overly-broad interpretation of “essential.”

Foreign companies operating in Colombia must follow the same hiring rules as national companies, regardless of the origin of the employer and the place of execution of the contract.  No labor laws are waived in order to attract or retain investment. In 2010, Law 1429 eliminated the mandatory proportion requirement for foreign and national personnel; 100 percent of the workforce, including the board of directors, can be foreign nationals.  Labor permits are not required in Colombia, except for minors of the minimum working age. Foreign employees have the same rights as Colombian employees. Employers may use temporary service agencies to subcontract additional workers for peaks of production. Employers must receive advance permission from the Ministry of Labor before undertaking permanent layoffs.  The Ministry of Labor typically does not grant permission to lay off workers who have enhanced legal protections (those with work-related injuries or union leaders, for example). The Ministry of Labor has been cracking down on using temporary or contract workers for jobs that are not temporary in nature.

Reputational risks to investors come with a lack of effective and systematic enforcement of labor law, especially in rural sectors.  Homicides of unionists (social leaders) remain a concern. In January 2017, the U.S. Department of Labor issued a public report of review in response to a submission filed under Chapter 17 (the Labor Chapter) of the CTPA by the American Federation of Labor and Congress of Industrial Organizations and five Colombian workers’ organizations that alleged failures on the part of the government to protect labor rights in line with CTPA commitments.  In January 2018, the Department of Labor published the first periodic review of progress to address issues identified in the submission report. For additional information on labor law enforcement see Section 7 of Colombia’s Human Rights Report (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/), and the Department of Labor’s Findings on the Worst Forms of Child Labor (http://www.dol.gov/ilab/reports/child-labor/colombia.htm ) and Lists of Goods Produced with Child or Forced Labor (http://www.dol.gov/ilab/reports/child-labor/list-of-goods/ ).

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 .

Policies Towards Foreign Direct Investment

Costa Rica actively courts foreign direct investment (FDI), placing a high priority on attracting and retaining high-quality foreign investment.  There are some limitations to both private and foreign participation in specific sectors, as detailed in the following section.

The Foreign Trade Promotion Corporation (PROCOMER) as well as the Costa Rican Investment and Development Board (CINDE) lead Costa Rica’s investment promotion efforts.  CINDE has had great success over the last several decades in attracting and retaining investment in specific areas, currently services, advanced manufacturing, life sciences, light manufacturing, and the food industry.  In addition, the Tourism Institute (ICT) attends to potential investors in the tourism sector. CINDE and ICT are strong and effective guides and advocates for their client companies, prioritizing investment retention and maintaining an ongoing dialogue with investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

Costa Rica recognizes and encourages the right of foreign and domestic private entities to establish and own business enterprises and engage in most forms of remunerative activity.  The exceptions are in sectors that are reserved for the state (legal monopolies – see #7 below “State Owned Enterprises, first paragraph) or that require participation of at least a certain percentage of Costa Rican citizens or residents (electrical power generation, transport services, professional services, and aspects of broadcasting).  Properties in the Maritime Zone (from 50 to 200 meters above the mean high-tide mark) may only be leased from the state and with residency requirements. In the areas of medical services, telecommunications, finance and insurance, state-owned entities dominate, but that does not preclude private sector competition. Costa Rica does not have an investment screening mechanism for inbound foreign investment, beyond those applied under anti-money laundering procedures.  U.S. investors are not disadvantaged or singled out by any control mechanism or sector restrictions; to the contrary, U.S. investors figure prominently among the various major categories of FDI.

Other Investment Policy Reviews

The OECD accession process for Costa Rica beginning in 2015 has produced a series of changes by Costa Rica and recommendations by the OECD; within that context the OECD in April 2018 published the “OECD Economic Surveys Costa Rica 2018.” http://www.oecd.org/countries/costarica/oecd-economic-surveys-costa-rica-2018-eco-surveys-cri-2018-en.htm   .

In the same context, the OECD offers a number of recent publications relevant to investment policy: http://www.oecd.org/countries/costarica/  . As of April 2019, Costa Rica has passed 12 of the 22 technical bodies required for OECD accession, with the Investment Committee being one of the ten that remain.

Business Facilitation

Costa Rica’s single-window business registration website, crearempresa.go.cr  , brings together the various entities – municipalities and central government agencies – which must be consulted in the process of registering a business in Costa Rica.  A new company in Costa Rica must typically register with the National Registry (company and capital registry), Internal Revenue Directorate of the Finance Ministry (taxpayer registration), National Insurance Institute (INS) (basic workers’ comp), Ministry of Health (sanitary permit), Social Security Administration (CCSS) (registry as employer), and the local Municipality (business permit).  Crearempresa is rated 17th of 32 national business registration sites evaluated by “Global Enterprise Registration” (www.GER.co  ), which awards Costa Rica a relatively lackluster rating because Crearempresa has little payment facility and provides only some of the possible online certificates.

Traditionally, the Costa Rican government’s small business promotion efforts have tended to focus on participation by women and underserved communities.  The women’s institute INAMU, vocational training institute INA, MEIC, and the export promotion agency PROCOMER through its supply chain initiative have all collaborated extensively to promote small and medium enterprise with an emphasis on women’s entrepreneurship. In 2019, INA will launch a network of centers to support small and medium enterprises based upon the U.S. Small Business Development Center (SBDC) model.

The World Bank’s “Doing Business” evaluation for 2018, http://www.doingbusiness.org  , states that business registration takes nine steps in 22.5 days.  Notaries are a necessary part of the process and are required to use the Crearempresa portal when they create a company.  Women do not face explicitly discriminatory treatment when establishing a business.

Outward Investment

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

Transparency of the Regulatory System

Costa Rican laws, regulations, and practices are generally transparent and foster competition in a manner consistent with international norms, except in the sectors controlled by a state monopoly, where competition is explicitly excluded.  Publicly-traded companies adhere to International Accounting Standards Board standards under the supervision of SUGEVAL, the stock and bond market regulator.

Rule-making and regulatory authority is housed in any number of agencies specialized by function (telecom, financial, health, environmental) or location (municipalities, port authorities). Tax, labor, health, and safety laws, though highly bureaucratic, are not seen as unfairly interfering with foreign investment.  It is common to have Professional Associations that play a regulatory role. For example the Coffee Institute of Costa Rica (ICAFE), a private sector organization, promotes standardization of production models among national producers, roasters and exporters, as well as setting minimum market prices.

Costa Rica is a member of UNCTAD’s international network of transparent investment procedures (http://www.businessfacilitation.org  ). Within that context, the Ministry of Economy compiled the various procedures needed to do business in Costa Rica:  https://costarica.eregulations.org/  .  Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name, and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal basis justifying the procedures.

Accounting, legal, and regulatory procedures are transparent and consistent with international norms.  The Costa Rican College of Public Accountants (Colegio de Contadores Públicos de Costa Rica -CCPA) is responsible for setting accounting standards for non-regulated companies in Costa Rica and adopted full International Financial Reporting Standards.  For more, see the international federation of accountants IFAC: https://www.ifac.org/about-ifac/membership/country/costa-rica  .

Regulations must go through a public hearing process when being drafted.  Draft bills and regulations are made available for public comment through public consultation processes that will vary in their details according to the public entity and procedure in question, generally giving interested parties sufficient time to respond.  The standard period for public comment on technical regulations is 10 days. As appropriate, this process is underpinned by scientific or data-driven assessments.

Regulations and laws, both proposed and final, for all branches of government are published digitally in the government registry “La Gaceta”:  https://www.imprentanacional.go.cr/gaceta/  .  The Costa Rican American Chamber of Commerce (AmCham – http://amcham.co.cr   ) and other business chambers closely monitor these processes and often coordinate responses as needed.

The government has mechanisms to ensure laws and regulations are followed.  The Comptroller General’s Office conducts operational as well as financial audits and as such provides the primary oversight and enforcement mechanism within the Costa Rican government to ensure that government bodies follow administrative processes.  Each government body’s internal audit office and, in many cases, the customer-service comptroller (Contraloria de Servicios) provide additional support.

There are several independent avenues for appealing regulatory decisions, and these are frequently pursued by persons or organizations opposed to a public sector contract or regulatory decision.  The avenues include the Comptroller General (Contraloria General de la República), the Ombudsman (Defensor de los Habitantes), the public services regulatory agency (ARESEP), and the constitutional review chamber of the Supreme Court.  The State Litigator’s office (Procuraduria General) is frequently a participant in its role as the government’s attorney.

The review and enforcement mechanisms described above have kept the regulatory system relatively transparent and free of abuse, but have also rendered the system for public sector contract approval exceptionally slow and litigious.  There have been several cases in which these review bodies have overturned already-executed contracts, thereby interjecting uncertainty into the process. Bureaucratic procedures are frequently long, involved and can be discouraging to new investors.

A similarly transparent process applies to proposed laws.  The Legislative Assembly generally provides sufficient opportunity for supporters and opponents of a law to understand and comment upon proposals.  To become law, a proposal must be approved by the Assembly by two plenary votes. The signature of ten legislators (out of 57) is sufficient after the first vote to send the bill to the Supreme Court for constitutional review within one month, although the court may take longer. 

International Regulatory Considerations

While Costa Rica does consult with its neighbors on some regulations through participation in the Central American Integration System SICA (http://www.sica.int/sica/sica_breve.aspx  ), Costa Rica’s lawmakers and regulatory bodies habitually refer to sample regulations or legislation from OECD members and others.  Costa Rica’s commitment to the OECD accession process accentuated this traditional use of best-practices and model legislation. Costa Rica regularly notifies all draft technical regulations to the WTO Committee on Technical Barriers in Trade (TBT).

Legal System and Judicial Independence

Costa Rica uses the civil law system. The fundamental law is the country’s political constitution of 1949, which grants the unicameral legislature a particularly strong role.  Jurisprudence or case law does not constitute legal precedent but can be persuasive if used in legal proceedings. For example, the Chambers of the Supreme Court regularly cite their own precedents.  The civil and commercial codes govern commercial transactions. The courts are independent, and their authority is respected. The roles of public prosecutor and government attorney are distinct: the Chief Prosecuting Attorney or Attorney General (Fiscal General) operates a semi-autonomous department within the judicial branch while the government attorney or State Litigator (Procuraduria General) works within the Ministry of Justice and Peace in the Executive branch. Judgments and awards of foreign courts and arbitration panels may be accepted and enforced in Costa Rica through the exequatur process.  The Constitution specifically prohibits discriminatory treatment of foreign nationals.

The Costa Rican Judicial System is comprised of the civil, administrative, and criminal court structure.  The judicial system generally upholds contracts, but caution should be exercised when making investments in sectors reserved or protected by the Constitution or by laws for public operation.  Investments in state-protected sectors under concession mechanisms can be especially complex due to frequent challenges in the constitutional court of contracts permitting private participation in state enterprise activities. Furthermore, independent government agencies, including municipal governments, which grant construction permits, can issue permits or requirements that may contradict the decisions of other independent agencies, causing significant project delays.

Costa Rica’s commercial code details all business requirements necessary to operate in Costa Rica.  The laws of public administration and public finance contain most requirements for contracting with the state.

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

Laws and Regulations on Foreign Direct Investment

Costa Rican websites are useful to help navigate laws, rules and procedures including that of the investment promotion agency CINDE, http://www.cinde.org/en   (labor regulations), the export promotion authority PROCOMER, http://www.procomer.com/ (incentive packages), and the Health Ministry, https://www.ministeriodesalud.go.cr/   (product registration and import/export).  In addition, the State Litigator’s office (www.pgr.go.cr   – the “SCIJ” tab) compiles relevant laws.

Competition and Anti-Trust Laws

Several public institutions are responsible for consumer protection as it relates to monopolistic and anti-competitive practices.  The “Commission for the Promotion of Competition” (COPROCOM), a semi-autonomous agency housed in the Ministry of Economy, Industry and Commerce, is charged with investigating and correcting anti-competitive behavior across the economy. SUTEL, the Telecommunications Superintendence, shares that responsibility with COPROCOM in the Telecommunications sector.  Both agencies are charged with defense of competition, deregulation of economic activity, and consumer protection. COPROCOM is considered to be underfunded and weak; the OECD has repeatedly emphasized the need to reform COPROCOM in order to assure regulatory independence and sufficient operating budget. The government’s draft law to strengthen COPROCOM and give it more autonomy has faced considerable opposition.

Expropriation and Compensation

The three principal expropriating ministries in recent years have been the Ministry of Public Works – MOPT (highway rights-of-way), the Costa Rican Electrical Institute – ICE (energy infrastructure), and the Ministry of Environment and Energy – MINAE (National Parks and protected areas).  Expropriations generally conform to Costa Rica’s laws and treaty obligations, but there are allegations of expropriations of private land without prompt or adequate compensation.

Article 45 of Costa Rica’s Constitution stipulates that private property can be expropriated without proof that it is done for public interest.  The 1995 Law 7495 on expropriations further stipulates that expropriations require full and prior payment. The law makes no distinction between foreigners and nationals.  Provisions include: (a) return of the property to the original owner if it is not used for the intended purpose within ten years or, if the owner was compensated, right of first refusal to repurchase the property back at its current value; (b) a requirement that the expropriating institution complete registration of the property within six months; (c) a two-month period during which the tax office must appraise the affected property; (d) a requirement that the tax office itemize crops, buildings, rental income, commercial rights, mineral exploitation rights, and other goods and rights, separately and in addition to the value of the land itself;  (e) provision that upon full deposit of the calculated amount the government may take possession of land despite the former owner’s dispute of the price; and (f) provisions providing for both local and international arbitration in the event of a dispute. The expropriations law was amended in 1998, 2006, and 2015 to clarify and expedite some procedures, including those necessary to expropriate land for the construction of new roads.

There is no discernible bias against U.S. investments, companies, or representatives during the expropriations process.  Costa Rican public institutions follow the law as outlined above and generally act in a way acceptable to the affected landowners.  However, there are currently several cases in which landowners and government differ significantly in their appraisal of the expropriated lands’ value; in those cases, judicial processes took years to resolve.  In addition, landowners have, on occasion, been prevented from developing land which has not yet been formally expropriated for parks or protected areas; the courts will eventually order the government to proceed with the expropriations but the process can be long.

Dispute Settlement

ICSID Convention and New York Convention

In 1993, Costa Rica became a member state to the convention on International Center for Settlement of Investment Disputes (ICSID Convention).  Costa Rica paid the awards resulting from unfavorable ICSID rulings, most recently in 2012 regarding private property belonging to a German national within National Park boundaries.

Costa Rica is a signatory of the convention on the Recognition and Enforcement of Arbitral Awards (1958 New York Convention).  Consequently, within the Costa Rican legal hierarchy the Convention ranks higher than local laws although still subordinate to the Constitution. Costa Rican courts recognize and enforce foreign arbitral awards.  Judgments of foreign courts are recognized and enforceable under the local courts and the Supreme Court.

Investor-State Dispute Settlement

Disputes between investors and the government grounded in the government’s alleged actions or failure to act – termed investment disputes ‒ may be resolved administratively or through the legal system.

Under Chapter 10 of the CAFTA-DR agreement, Costa Rica legally obligated itself to answer investor arbitration claims submitted under ICSID or UNCITRAL, and accept the arbitration verdict.  To date there have been two claims by U.S. citizen investors under the provisions of CAFTA-DR. Extensive documentation for both cases is filed on the Foreign Trade Ministry (COMEX) website:  http://www.comex.go.cr/tratados/cafta-dr/  , under “documentos relevantes”. No local court denies or fails to enforce foreign arbitral awards issued against the government.

In some coastal areas of Costa Rica, there is a history of invasion and occupation of private property by squatters who are often organized and sometimes violent.  The Costa Rican police and judicial system have at times failed to deter or to peacefully resolve such invasions. It is not uncommon for squatters to return to the parcels of land from which they were evicted, requiring expensive and potentially dangerous vigilance over the land.

International Commercial Arbitration and Foreign Courts

The right to solve disputes through arbitration is guaranteed in the Costa Rican Constitution. For years, the practical application was regulated by the Civil Procedural Code, which made it ineffective with no arbitration cases until 1998, the year the local arbitration law #7727 was enacted.  A 2011 law on International Commercial Arbitration (Law 8937), drafted from the UNCITRAL model law (version 2006), brought Costa Rica to a dual arbitration system, with two valid laws, one law for local arbitration and one for international arbitration. Under the local act, arbitration has to be conducted in Spanish and only attorneys admitted to the local Bar Association may be named as arbitrators.  All cases brought before an arbitration panel, under the rules of local arbitration centers, must be resolved within 155 days after the complaint is served to the defendant; if the case does not fall under such arbitration centers’ rules then the award must be rendered within two months of final statements of the parties.  Parties can withdraw their case or reach an out-of-court settlement before the arbitral tribunal delivers an award.  If the award meets the review criteria, the losing party has the option to request that the Costa Rican Supreme Court examine the award, but only on procedural matters and never on the merits.  Under the UNCITRAL Law for International Arbitration, proceedings may be held in English and foreign attorneys are authorized to serve as arbitrators. The following arbitration centers are in operation in Costa Rica:

• Centro de Conciliacion y Arbitraje. Costa Rican Chamber of Commerce
• Centro de Resolución de Controversias. Costa Rican Association of Engineers and Architects
• Centro Internacional de Conciliación y Arbitraje. Costa Rican American Chamber of Commerce (AMCHAM)
• Centro de Arbitraje y Mediación/Centro Iberoamericano de Arbitraje (CIAR).  Costa Rican Bar Association.

Beyond such arbitration options, law #7727 also facilitates courts’ enforcement of conciliation agreements reached under the law.  Some universities and municipalities operate “Casas de Justicia” (Justice Houses) open to the public and offering mediation and conciliation at no cost.  Law #8937 empowered local arbitration centers, beginning with that pertaining to the Engineers and Architects’ Association, to implement Dispute Board regulations, as a method to address construction disputes.

Outcomes in local courts do not appear to favor state-owned enterprises (SOEs) any more or less than other actors.  SOEs can sign arbitral agreements, but must follow strict public laws to obtain the permissions necessary and follow correct procedures, otherwise the agreement could be voided.  Once SOEs find themselves in arbitration, they are subject to the same standards and treatment as any other actor.

The most frequently heard complaint about Costa Rican court process is that litigation can be long and costly.  U.S. companies cite the unpredictability of outcomes as a source of rising judicial insecurity in Costa Rica. The legal system is significantly backlogged, and civil suits may take several years from start to finish.  Some U.S. firms and citizens satisfactorily resolved their cases through the courts, while others see proceedings drawn out over a decade without a final resolution.  Commercial arbitration has consequently become an increasingly common dispute resolution mechanism.

Bankruptcy Regulations

The Costa Rican bankruptcy law, addressed in both the commercial code and the civil procedures code, is similar to corresponding U.S. law, according to local experts.  Title V of the civil procedures code outlines creditors’ rights and the processes available to register outstanding credits, administer the liquidation of the bankrupt company’s assets, and pay creditors according to their preferential status.  The Costa Rican system also allows for successive alternatives to full bankruptcy: “convenion preventivo” or arrangement with creditors; “administracion por intervencion” or administration through judicial intervention; “reorganizacion con intervencion judicial” or reorganization through judicial intervention; and finally bankruptcy.  As in the United States, penal law will also apply to criminal malfeasance in some bankruptcy cases. In the World Bank’s “resolving insolvency” ranking within the 2018 “Doing Business” report, Costa Rica ranked #134 of 190 (http://www.doingbusiness.org/rankings  ).

Investment Incentives

Four investment incentive programs operate in Costa Rica: the free trade zone system, an inward-processing regime, a duty drawback procedure, and the tourism development incentives regime.  These incentives are available equally to foreign and domestic investors, and include tax holidays, training of specialized labor force, and facilitation of bureaucratic procedures. Costa Rica’s Foreign Trade Promotion Authority (PROCOMER) is in charge of the first three programs and companies may choose only one of the three.  As of early 2019, 453 companies are in the free trade zone regime, 90 in the inward processing regime, and 10 in duty drawback.

The Costa Rican Tourism Board (ICT) administers the tourism incentives; over 1,000 tourism firms are declared as such with access to incentives of various types depending on the firm’s operations (hotels, rent-a-car, travel agencies, airlines and aquatic transport).  The free trade zone regime is based on the 1990 law #7210, updated in 2010 by law #8794 and attendant regulations, while inward processing and duty drawback derive from the General Customs Law #7557. Tourism incentives are based on the 1985 law #6990, most recently amended in 2001.

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

PROCOMER and CINDE are traditionally proactive in working with FTZ companies to streamline and improve law, regulation and procedures touching upon the FTZ regime.  Current initiatives include a proposal suggested by the OECD to eliminate the current requirement that service firms in FTZ regime may sell no more than 50 percent into the local market, and a proposal to work with the Customs agency to simplify the procedures that FTZ companies must follow to recycle or donate materials.

Performance and Data Localization Requirements

Costa Rica does not impose requirements that foreign investors transfer technology or proprietary business information or purchase a certain percentage of inputs from local sources. However, the Costa Rican agencies involved in investment and export promotion do explicitly focus on categories of foreign investor who are likely to encourage technology transfer, local supply chain development, employment of local residents, and cooperation with local universities.  The export promotion agency PROCOMER operates an export linkages department focused on increasing the percentage of local content inputs used by large multinational enterprises; one recent program is dedicated to helping small and medium enterprises (SME) obtain international certifications such as ISO9000.

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

Costa Rica does not require Costa Rican data to be stored on Costa Rican soil.  With entry into force of law #8968 ‒ Personal Data Protection Law and its corresponding regulation ‒ in 2014, companies must notify the Data Protection Agency (PRODHAB) of all existing databases  from which personal information is sold or traded. The notification requirement applies in some cases to employee databases maintained, used, or accessed by third parties. Databases pay an annual registration fee.

Costa Rica does not require any IT providers to turn over source code or provide access to encryption.  The regulation associated with law #8968 did originally mandate that PRODHAB be given “super-user” privileges in databases registered with the agency, but that requirement was never acted upon and was reversed by a new regulation effective December 2016.

Costa Rica does not impose measurements that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the economy/country’s territory.   The measures that do apply under the data privacy law and regulation are equally applicable to data managed within the country.

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

The Costa Rican government maintains and enforces laws with respect to labor and employment rights, consumer protection and environmental protection.  Costa Rica has no mineral extraction industry with its accompanying issues. Costa Rica encourages foreign and local enterprises to follow generally accepted RBC principles such as the OECD Guidelines for Multinational Enterprises (MNE) and maintains a national contact point for OECD MNE guidelines within the Ministry of Foreign Trade (see http://www.oecd.org/investment/mne/ncps.htm  ).

Some Costa Rican government agencies took the principles of public-private partnership to heart by working with private companies in addressing specific social issues.  For example, since 2003 the Foundation Paniamor (www.paniamordigital.org  ) is the designated lead agency in Costa Rica guiding the network of 428 (through December 2018) tourism-related businesses which are signatories to the “Code of Conduct” an initiative of the Costa Rican Tourism Board (ICT).  The purpose of this code is to organize and direct the private sector’s work against the sexual commercial exploitation of children and adolescents.

The Costa Rican labor force is relatively well-educated.  The country boasts an extensive network of publicly-funded schools and universities while Costa Rica’s national vocational training institute (INA) and private sector groups provide technical and vocational training.  According to the National Statistics Institute (INEC), as of December 2018, informal employment rose significantly from 41 percent in 2017 to 44.9 percent of total employment in 2018; 37.7 percent of the economically active population in the nonagricultural sector is in the informal economy.  The overall unemployment rate was 12 percent in 2018 while youth unemployment (between 15 and 24) reached 31.7 percent that year.

Several factors influenced Costa Rica’s labor market during 2018, including deceleration of the economy stemming from nation-wide public sector strikes, a drop in consumer confidence which reduced consumption, and the conflict in Nicaragua, which affected regional trade.  The Labor Ministry described the labor market in 2018 as a paradox: while the unemployment rate rose, the number of individuals employed also rose. Costa Rica has invested heavily in education and training, but the government recognizes it needs to focus on getting better results from its investment.  The government announced in November 2018 the creation of the National Qualifications Framework for Vocational Education and Training, a strategy to organize vocational education and to standardize and raise the quality of education.

The rapid growth of Costa Rica’s service, tourism, and technology sectors has stimulated demand for English-language speakers and prompted the Costa Rican government to declare English language and computer literacy to be a national priority at all levels of education.  In August 2018, the government announced an “Alliance for Bilingualism,” a public-private initiative to increase English teaching in the country. Several public and private institutions are also active in Costa Rica’s drive to English proficiency, including the 60-year-old U.S.-Costa Rican binational center (the Centro Cultural Costarricense Norteamericano), which offers general and business English courses to as many as 5,000 students annually, and receives U.S. government funding.  In 2010, the Peace Corps initiated a program in Teaching English as a Foreign Language and maintains an active program. While the presence of numerous multinational companies operating shared-services and call centers draw down the supply of speakers of fluent business and technical English, the pool of job candidates with English and technical skills in the Central Valley is sufficient to meet current demand.

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

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

Costa Rican labor law and practice allows some flexibility in alternate schedules but is nevertheless based on a 48-hour week made up of 8-hour days.  Workers are entitled to one day of rest after six consecutive days of work. The labor code stipulates that the workday may not exceed 12 hours. Use of temporary or contract workers for jobs that are not temporary in nature in order to lower labor costs and avoid payroll taxes does occur, particularly in construction and in agricultural activities dedicated to domestic (rather than export) markets.  No labor laws are waived to attract or retain investment‒all labor laws apply in all Costa Rican territory, including free trade zones. 

Costa Rican law guarantees the right of workers to join labor unions of their choosing without prior authorization.  Unions operate independently of government control and may form federations and confederations and affiliate internationally.  The vast majority of unions developed in the public sector, including state-run enterprises. “Permanent committees of employees” informally represent employees in some enterprises of the private sector and directly negotiate with employers; these negotiations are expressed in “direct agreements,” which have a legal status.  Based on 2018 statistics, 90.4 percent of government employees are union members as compared to 3.2 percent in the private sector. In 2018, the Labor Ministry reported 112 collective bargaining agreements, 80 with public sector entities and 32 within the private sector, covering 10.1 percent of the working population. The Ministry reported a total of 155 “direct agreements” in different sectors (agriculture, industry and transportation) during 2018.   The government continued in 2018 with the renegotiation of collective labor agreements in the public sector that began in 2016.

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

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

The law provides for the right of workers to conduct legal strikes, but it prohibits strikes in public services considered essential (police, hospitals and ports).  Strikes affecting the private sector are rare and do not pose a risk for investment. Public sector labor unions paralyzed government services with strikes in September 2018 to protest against a fiscal reform bill that became law in December 2018.  The government enforced the law by lifting blockades and clearing port entrances to guarantee the free transit of citizens and goods. Labor courts declared most of the strikes in the public sector illegal and most workers returned to work after four weeks (except for teachers’ union, which continued to strike for three months).

Child and adolescent labor is uncommon in Costa Rica.  The government has implemented a strategy to eliminate any remaining child labor by 2020 through programs to encourage school attendance, awareness campaigns on social media, increased inspections by the Labor Ministry, and improvements to child care in targeted areas.  Between 2011 and 2016, employment by minors under 15 fell by 76 percent from 34,494 to 8,071, or 1.1 percent of the population, according to Department of Labor reporting.

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

In December 2018, the government enacted a law to cut the fiscal deficit which amends and regulates legal provisions on public sector employment.  There are several bills pending before the National Assembly, including a reform to provisions regulating strikes, a bill expanding the list of essential services in which employees are prohibited from striking, and a bill facilitating internships, apprenticeships, and vocational education.

The Overseas Private Investment Corporation (OPIC) offers both financing and insurance coverage against expropriation, war, revolution, insurrection and inconvertibility for eligible U.S. investors in Costa Rica. OPIC can provide insurance for U.S. investors, contractors, exporters, and financial institutions.  Financing is available for overseas investments that are wholly owned by U.S. companies or that are joint ventures in which the U.S. company is a participant.

In Costa Rica, OPIC’s 2018 portfolio exposure totaled USD 151 million across 15 projects in financial services, real estate/construction, and utility sectors.  OPIC continues to be active in Costa Rica. For more information, see OPIC’s master list of projects by year: https://www.opic.gov/opic-action/all-project-descriptions  .   Costa Rica is a member of the Multilateral Investment Guarantee Agency, a member of the World Bank group.

Policies Towards Foreign Direct Investment

The government of Dominica strongly encourages foreign direct investment (FDI), particularly in industries that create jobs, earn foreign currency, and have a positive impact on local citizens.

Through the Invest Dominica Authority (IDA), the government instituted a number of investment incentives for businesses considering the possibility of locating in Dominica.  Government policies provide liberal tax holidays, duty-free import of equipment and materials, exemption from value added tax on some capital investments, and withholding tax exemptions on dividends, interest payments, and some external payments and income.

The government has prioritized investment in certain sectors, such as hotel accommodation, including eco-lodges and boutique hotels, nature and adventure tourism services, marina and yachting sector development, fine dining restaurants, information and technology services, particularly business processing operations.  Other sectors include film, music, and video production, agro-processing, manufacturing, bulk water export and bottled water operations, medical and nursing schools, health and wellness tourism, geothermal and biomass industries, biodiversity, aquaculture, and English language training services. The government has signaled that it is also willing to consider additional sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign control in Dominica.  Foreign investment in Dominica is not subject to any restrictions, and foreign investors are entitled to receive the same treatment as nationals of Dominica.  Foreign investors are entitled to hold up to 100 percent of their investment. The only restriction is the requirement to obtain an Alien Landholders License for foreign investors seeking to purchase property for residential or commercial purposes.  Local enterprises generally welcome joint ventures with foreign investors in order to access technology, expertise, markets, and capital.

Other Investment Policy Reviews

The OECS, of which Dominica is a member, has not conducted a trade policy review in the last three years.

Business Facilitation

The IDA is Dominica’s main business facilitation unit.  It facilitates FDI into priority sectors and advises the government on the formation and implementation of policies and programs to attract investment in Dominica.  The IDA provides business support services and market intelligence to all investors. It offers an online tool useful for navigating laws, rules, procedures, and registration requirements for foreign investors.  It is available at http://www.investdominica.com/  .

All potential investors applying for government incentives must submit their proposals for review by the IDA to ensure the project is consistent with the national interest and provides economic benefits to the country.

The Companies and Intellectual Property Office (CIPO) maintains an e-filing portal for most of its services, including company registration on its website.  However, this only allows for the preliminary processing of applications prior to the investor physically making a payment at the Supreme Court office. Investors are advised to seek the advice of a local attorney prior to starting the process.  Further information is available at: http://www.cipo.gov.dm/   .

According to the World Bank’s Doing Business Report for 2019, Dominica ranks 69th out of 190 countries in the ease of starting a business.  It takes five procedures and about 12 days to complete the process. The general practice is to retain an attorney who prepares all the relevant incorporation documents.  A business must register with the CIPO, the Tax Authority, and the Social Services Institute.

The government of Dominica continues to support the growth of women–led businesses.  The government supports equitable treatment and support of women in the private sector through non-discriminatory processes for business registration, fiscal incentives, investment opportunities, and quality assessments.

Outward Investment

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

Transparency of the Regulatory System

The government of Dominica provides a legal framework to foster competition and establish clear rules for foreign and domestic investors in the areas of tax, labor, environment, health, and safety.  The Ministry of Finance and the IDA provide oversight of the transparency of the system as it relates to investment.

Rule-making and regulatory authority lies with the unicameral parliament.  The parliament has 21 members elected for a five-year term in single-seat constituencies, nine appointed members, one Speaker, and one clerk.

Relevant ministries develop laws which are drafted by the Ministry of Justice, Immigration and National Security.  FDI is governed principally through the laws that oversee the IDA and the citizenship by investment (CBI) program. Laws are available online at http://www.dominica.gov.dm/laws-of-dominica  .

Although some draft bills are not subject to public consultation, the government generally solicits input from various stakeholder groups in the formulation of laws.  In some instances, the government convenes a special committee is convened to make recommendations on provisions outlined in the law. The government uses public awareness campaigns to sensitize the general population on legislative reforms.  Copies of proposed regulations are published in the official gazette just before the bills are taken to parliament.  Although Dominica does not have legislation guaranteeing access to information or freedom of expression, access to information is generally available in practice.  The government maintains a website and an information service on which it posts information such as directories of officials and a summary of laws and press releases.  The government budget and an audit of that budget are available on the website: http://www.opm.gov.dm  .

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

The Office of the Parliamentary Commissioner or Ombudsman guards against excesses by government officers in the performance of their duties.  The Ombudsman is responsible for investigating any complaint relating to any decision or act of any government officer or body in any case in which a member of the public claims to be aggrieved or appears to the Ombudsman to be the victim of injustice as a result of the exercise of the administrative function of that officer or body.

Dominica’s membership in regional organizations, particularly the OECS and its Economic Union, commits its members to implement all appropriate measures to ensure the fulfillment of its various treaty obligations.  For example, the Banking Act, which establishes a single banking space and the harmonization of banking regulations in the Economic Union, is uniformly in force in the eight member territories of the ECCU, although there are some minor differences in implementation from country to country.

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

International Regulatory Considerations

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

The Dominica Bureau of Standards develops, establishes, maintains, and promotes standards for improving industrial development, industrial efficiency, promoting the health and safety of consumers, protecting the environment, food and food products, and the facilitation of trade.  It also conducts national training and consultations in international standards practices. As a signatory to the World Trade Organization (WTO) Agreement on the Technical Barriers to Trade, Dominica, through the Dominica Bureau of Standards, is obligated to harmonize all national standards to international norms to avoid creating technical barriers to trade.

Dominica ratified the WTO Trade Facilitation Agreement (TFA) in 2016.  Ratification of the Agreement is an important signal to investors of the country’s commitment to improving its business environment for trade.  The TFA aims to improve the speed and efficiency of border procedures, facilitate trade costs reduction, and enhance participation in the global value chain.  Dominica has already implemented a number of TFA requirements. A full list is available at: https://www.tfadatabase.org/members/dominica/measure-breakdown   .

The Advanced Cargo Information System is a CARICOM project that seeks to improve the capability to track cargo efficiently.  Dominica is one of three regional pilot countries that have already enacted the enabling legislation. Dominica has fully implemented the Automated System for Customs Data.

Legal System and Judicial Independence

Dominica bases its legal system on British common law.  The Attorney General, the Chief Justice of the Eastern Caribbean Supreme Court, junior judges, and magistrates administer justice in the country.  The Eastern Caribbean Supreme Court Act establishes the Supreme Court of Judicature, which consists of the High Court and the Eastern Caribbean Court of Appeal.  The High Court hears criminal and civil matters and makes determinations on the interpretation of the Constitution. Parties may appeal to the Eastern Caribbean Supreme Court, an itinerant court that hears appeals from all OECS members.

The Caribbean Court of Justice (CCJ) is the regional judicial tribunal.  The CCJ has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas.  In 2015, Dominica acceded to the CCJ, making the CCJ its final court of appeal.

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

Laws and Regulations on Foreign Direct Investment

The main laws concerning investment in Dominica are the Invest Dominica Authority Act (2007), the Tourism Act (2005), and the Fiscal Incentives Act.  Regulatory amendments have been made to the Income Tax Act, the Value Added Tax Act, the Title by Registration Act, the Stamp Act, the Aliens Landholding Regulation Act, and the Residential Levy Act.

IDA reviews all proposals for investment concessions and incentives to ensure the project is consistent with the national interest and provides economic benefits to the country.  The Cabinet of Dominica makes the final decision on investment proposals.

The IDA provides “one-stop shop” facilitation services to investors to guide them through various stages of the investment process.  The IDA offers a website that is useful for navigating the laws, rules, procedures, and registration requirements for foreign investors: http://www.investdominica.com  .

Under Dominica’s Citizenship By Investment program, qualified foreign investors may obtain citizenship without voting rights.  Applicants can contribute a minimum of USD USD 100,000 to the Economic Diversification Fund for a single person or invest in designated real estate with a value of at least USD USD 200,000.  Applicants must also provide a full medical certificate, undergo a background check, and provide evidence of the source of funds before proceeding to the final stage of an interview. The government introduced a Citizen by Investment Certificate in order to minimize the risk of unlawful duplication.  Further information is available at: http://cbiu.gov.dm  .

Competition and Anti-Trust Laws

Chapter 8 of the Revised Treaty of Chaguaramas outlines the competition policy applicable to CARICOM States.  Member states are required to establish and maintain a national competition authority for implementing the rules of competition.  CARICOM established a Caribbean Competition Commission to apply rules of competition regarding anti-competitive cross-border business conduct.  CARICOM competition policy addresses anti-competitive business conduct such as agreements between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction, or distortion of competition within CARICOM, and actions by which an enterprise abuses its dominant position within CARICOM.  Dominica does not have domestic legislation to regulate competition. The OECS agreed to establish a regional competition body to handle competition matters within its single market. The draft OECS bill is with the Ministry of Justice, Immigration and Security for review.

Expropriation and Compensation

There are no known pending expropriation cases involving American citizens.  In such an event, Dominica would employ a system of eminent domain to pay compensation when property must be acquired in the public interest.  There were no reported tendencies of the government to discriminate against U.S. investments, companies, or landholdings. There are no laws mandating local ownership in specified sectors.

Dispute Settlement

ICSID Convention and New York Convention

Dominica is not a party to the Convention on the Settlement of Investment Disputes.  However, it is a member of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Arbitration Convention.  The Arbitration Act of 1988 is the main legislation that governs arbitration in Dominica. It adheres to the New York Arbitration Convention.

Investor-State Dispute Settlement

Investors are permitted to use national or international arbitration for contracts entered into with the state.  Dominica does not have a Bilateral Investment Treaty or a Free Trade Agreement with an investment chapter with the United States.

The country ranks 83rd out of 190 countries in resolving contract disputes in the 2019 World Bank Doing Business Report.  Dispute resolution in Dominica takes an average of 681 days. The slow court system and bureaucracy are widely seen as the main hindrances to timely resolution of commercial disputes.  Through the Arbitration Act of 1988, the local courts recognize and enforce foreign arbitral awards issued against the government. Dominica does not have a recent history of investment disputes involving a U.S. person or other foreign investors.

International Commercial Arbitration and Foreign Courts

The Eastern Caribbean Supreme Court is the domestic arbitration body.  Local courts recognize and enforce foreign arbitral awards. The Eastern Caribbean Supreme Court’s Court of Appeal also provides mediation.

Bankruptcy Regulations

Under the Bankruptcy Act (1990), Dominica has a bankruptcy framework that grants certain rights to debtor and creditor.  The 2019 Doing Business Report ranks Dominica 134 out of 190 countries in resolving insolvency.

Investment Incentives

The government of Dominica implemented a series of investment incentives codified in the Fiscal Incentives Act.  These include tax holidays for up to 20 years for approved hotel and resort development projects, duty-free concessions on the purchase of machinery and equipment, and various tax exemptions.  While there is no requirement for enterprises to purchase a fixed percentage of goods from local sources, the government encourages local sourcing. There are no requirements for participation by nationals or the government in foreign investment projects.

Under the Fiscal Incentives Act, four types of enterprise qualify for tax holidays.  The length of the tax holiday for the first three depends on the amount of value added in Dominica.  The fourth type, known as an enclave industry, must produce goods exclusively for export outside the CARICOM region.

Companies that qualify for tax holidays are allowed to import into Dominica duty-free all equipment, machinery, spare parts, and raw materials used in production.

The Hotels Aid Act provides relief from customs duties on items brought into the country for use in construction, extension, and equipping of a hotel of not less than five bedrooms.  In addition, the Income Tax Act provides special tax relief benefits for approved hotels and villa development. A tax holiday for up to 20 years is available for approved hotel and resort developments and up to 10 years for income accrued from the rental of villas in approved villa developments.  The Cabinet must approve these developments.

The standard corporate income tax rate is 25 percent.  There is no capital gains tax. International businesses are exempt from tax.  Corporate tax does not apply to exempt companies or to enterprises that have been granted tax concession.

Dominica provides companies with a further tax concession effective at the end of the tax holiday period.  In effect, it is a rebate of a portion of the income tax paid based on export profits as a percentage of total profits.  Full exemption from import duties on parts, raw materials, and production machinery is also available.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no foreign trade zones or free ports in Dominica.

Performance and Data Localization Requirements

Dominica does not mandate local employment.  The provisions of the Labor Code outline the requirements for acquiring a work permit and prohibit anyone who is not a citizen of Dominica or the OECS to engage in employment unless they have obtained a work permit.  When the government grants work permits to senior managers because no qualified nationals are available for the post, the government may recommend a counterparty trainee who is a Dominican citizen. There are no excessively onerous visa, residency, or work permit requirements.

As a member of the WTO, Dominica is party to the Agreement to the Trade Related Investment Measures.  While there are no formal performance requirements, the government encourages investments that will create jobs, increase exports and foreign exchange earnings.  There are no requirements for participation by nationals or by the government in foreign investment projects. There is no requirement that enterprises must purchase a fixed percentage of goods or technology from local sources, but the government encourages local sourcing.  Foreign investors receive national treatment. There are no requirements for foreign information technology providers to turn over source code and/or provide access to surveillance (backdoors into hardware and software, turn over keys for encryption, etc.).

The private sector is involved in projects that benefit society, including in support of environmental, social, and cultural causes.  Individuals benefit from business-sponsored initiatives when local and foreign owned enterprises pursue volunteer opportunities and make monetary or in-kind donations to local causes.

The non-governmental organization (NGO) community, while comparatively small, is involved in fundraising and volunteerism in gender, health, environmental, and community projects.  The government at times partners with NGOs in activities. The government encourages philanthropy, but does not have regulations in place to mandate such activities by private companies.

The government last raised Dominica’s minimum wage in June 2008.  It varies according to the category of worker, with the lowest minimum wage set at about USD USD 1.50 an hour and the maximum set at around USD USD 2.06 an hour.  The standard workweek is 40 hours for five or six days of work. The law provides overtime pay for work in excess of the standard workweek. Dominica has a labor force of about 32,630, with a literacy rate of 95 percent.

The local state college largely meets the country’s technical and training needs.  There is also a small pool of professionals to draw from in fields such as law, medicine, engineering, business, information technology, and accounting.  Many of the professionals in Dominica trained in the United States, Canada, the UK, or the wider Caribbean, where many of them gained work experience before returning to the country.

The labor legislation in Dominica is applicable to all employees and employers.  There are no waivers or exceptions regarding the application of labor laws and standards in Dominica.

Employers usually advertise job vacancies in local newspapers. The government recommends that the advertisement should be placed on three separate occasions to ensure transparency and equal opportunity for Dominican residents to apply.  The government does not interfere with the employer’s right to make hiring determinations.

The Labor Contracts Act stipulates that employees shall receive a contract within 14 days of engagement from his/her employer, which outlines the terms and conditions of employment.

 The labor laws clearly regulate and define layoffs and the conditions under which layoffs can occur.  Severance by redundancy is also regulated by law. People employed for three years or more qualify for severance pay.  Social Security benefits are payable only when the employee reaches retirement age.

The Industrial Relations Act provides for and regulates trade unions in both public and private sectors.  Dominican law provides for the right of workers to form and join independent unions, the right to strike, and the right of workers to bargain collectively with employers.  The government generally enforced laws governing worker rights effectively. The law prohibits anti-union discrimination by providing that employers must reinstate workers who file a successful complaint of illegal dismissal, which can cover being fired for engaging in union activities or other grounds of wrongful dismissal.

Collective bargaining is permitted in all firms (both public and private) where the employees are unionized.  A copy of the collective bargaining agreement must be filed at the Ministry of Labor. There are no sectoral collective agreements.  All unionized firms are obliged by law to negotiate terms and conditions of employment of all workers, whether or not they are members of a trade union.  Dominica ratified all of the International Labor Organization (ILO)’s eight core conventions on human rights and labor administration.

The government deemed emergency, port, electricity, telecommunications, and prison services employees, as well as the banana, coconut, and citrus fruit cultivation workers “essential,” deterring workers in these sectors from going on strike.  Nonetheless, in practice essential workers conducted strikes and did not suffer reprisals. The procedure for essential workers to strike is cumbersome, involving appropriate notice and submitting the grievance to the labor commissioner for possible mediation.  These actions are usually resolved through mediation by the Office of the Labor Commissioner, with the rest referred to the Industrial Relations Tribunal for binding arbitration.

The Industrial Relations Act also mandates the establishment of the Industrial Relations Board and the Industrial Relations Tribunals as dispute resolution mechanisms.  The Division of Labor acts as the first arbitrator with matters of investigation, mediation and conciliation. Matters are referred only to the tribunals by the Minister when conciliation fails or by request of any of the disputing parties.

Enforcement is the responsibility of the Labor Commissioner within the Ministry of Justice, Immigration and National Security.  Labor laws provide that the labor commissioner may authorize the employment of a person with disabilities at a wage lower than the minimum rate to enable that person to work.  The Employment Safety Act provides occupational health and safety regulations that are consistent with international standards. Workers have the right to remove themselves from unsafe work environments without jeopardizing their employment, and the authorities effectively enforced this right in practice.

The Overseas Private Investment Corporation (OPIC) provides financing and political risk insurance to viable private sector projects, helps U.S. businesses invest overseas, and fosters economic development in new and emerging markets.  Dominica is a qualifying country for OPIC projects. There are currently no active OPIC projects in Dominica.

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.

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.

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.

An ample labor supply is available, although there is a scarcity of skilled workers and technical supervisors.  Some labor shortages exist in professions requiring lengthy education or technical certification. According to 2016 World Bank data, the Dominican labor force consists of approximately 5 million workers.  The labor force participation rate is 67 percent; 70 percent of the labor force works in services, 18 percent in industry, and 13 percent in agriculture. The labor force is divided roughly 50-50 between the formal and informal sectors of the economy.  In 2018, unemployment and underemployment was approximately 16 percent. A 2017 survey by the National Statistics Office and UN Population Fund found that of the 334,092 Haitians age 10 or older living in the country, 67 percent were working in the formal and informal sectors of the economy.

The Dominican Labor Code establishes policies and procedures for many aspects of employer-employee relationships, ranging from hours of work and overtime and vacation pay to severance pay, causes for termination, and union registration.  The code applies equally to migrant workers, however, many irregular Haitian laborers and Dominicans of Haitian descent working in the construction and agricultural industries do not exercise their rights due to fear of being fired or deported.  The law requires that at least 80 percent of non-management workers of a company be Dominican nationals. Exemptions and waivers are available and regularly granted. The law provides for severance payments, which are due upon layoffs or firing without just cause.  The amount due is prorated based on length of employment.

Although the Labor code provides for freedom to form unions and bargain collectively, it places several restrictions on these rights, which the International Labor Organization (ILO) considers excessive.  For example, it restricts trade union rights by requiring unions to represent 51 percent of the workers in an enterprise to bargain collectively. In addition, the law prohibits strikes until mandatory mediation requirements have been met.  Formal requirements for a strike to be legal also include the support of an absolute majority of all company workers for the strike, written notification to the Ministry of Labor, and a 10-day waiting period following notification before proceeding with the strike.  Government workers and essential public service personnel may not strike.

The law prohibits dismissal of employees for trade union membership or union activities.  In practice, however, some report that the law is inconsistently enforced. The majority of companies resist collective negotiating practices and union activities. Companies reportedly fire workers for union activity and blacklist trade unionists, among other anti-union practices. Workers frequently have to sign documents pledging to abstain from participating in union activities. Companies also create and support company-backed unions. Formal strikes occur but are not common.

The law establishes a system of labor courts for dealing with disputes. The process is often long, with cases pending for several years.  One exception is workplace injury cases, which typically conclude quickly – and often in the worker’s favor. Both workers and companies report that mediation facilitated by the Ministry of Labor was the most rapid and effective method for resolving worker-company disputes.

Many of the major manufacturers in free trade zones have voluntary codes of conduct that include worker rights protection clauses generally aligned with the ILO Declaration on Fundamental Principles and Rights at Work; however, workers are not always aware of such codes or the principles they contain.  The Ministry of Labor monitors labor abuses, health, and safety standards in all worksites where an employer-employee relationship exists. Labor inspectors can request remediation for violations, and if remediation is not undertaken, can refer offending employers to the public prosecutor for sanctions.

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.

Policies Towards Foreign Direct Investment

Ecuador is open to FDI in most sectors.  The 2008 Constitution established that the state reserves the right to manage strategic sectors through state-owned or controlled companies.  The sectors identified are energy, telecommunications, non-renewable natural resources, transportation, hydrocarbon refining, water, biodiversity, and genetic patrimony.  Although Ecuador recently took some steps intended to attract FDI, foreign investors claim that Ecuador’s overall investment climate remains challenging as economic, commercial, and investment policies are subject to frequent change.  In 2018, total FDI inflow doubled from 2017 numbers to USD 1.4 billion, or about 1 percent of GDP.  Despite the increase, FDI inflow remains very low when compared to other countries in the region.

In general, companies complain that the legal complexity resulting from the inconsistent application and interpretation of existing laws and regulations increases the risks and costs of doing business in Ecuador.  Disputes involving U.S. companies have been allegedly politicized, especially in sensitive areas such as the energy sector.  Ecuador has been involved in several high profile investment disputes with U.S. companies.  Chevron, Conoco Phillips, Occidental Petroleum Corporation, and Murphy Oil Corporation were awarded damages in international arbitration rulings against Ecuador in the last several years.  Other companies such as Merck have received interim awards in international arbitration.

Limits on Foreign Control and Right to Private Ownership and Establishment

One hundred percent foreign equity ownership is allowed without the need for authorization or prior screening in sectors open to domestic private investment.

For license and franchise transactions, no limits exist on royalties that may be remitted, although financial outflows are subject to a five percent capital exit tax.  All license and franchise agreements must be registered with the National Service for Intellectual Property Rights (SENADI).  In addition to registering with the Superintendence of Companies, Securities, and Insurance, foreign investors must register investments with Ecuador’s Central Bank for statistical purposes.

Sectors of interest to Foreign Investors:

Automotive: the Ministry of Foreign Trade eliminated quotas of automobile imports January 1, 2017, and cancelled tariff surcharges in June 2017.  This action removed an important restriction on U.S. automobile exports to Ecuador.  In December 2018, Ecuador instituted COMEX Resolution 25 that eliminated tariffs on automobiles assembled in Ecuador based on new investments, with certain limitations.

Petroleum: per the 2008 Constitution, all subsurface resources belong to the state.  The petroleum sector is controlled by two state owned enterprises (SOEs).  In 2018, the government removed subsidies on all higher-octane gasoline and some subsidies on regular and diesel fuel, changing some fuel pricing.

Mining: the Ecuadorian government has taken steps to reduce taxes in the mining sector in order to attract FDI.  Presidential Decree 475, published in October 2014, made minor reductions to the windfall tax and sovereign adjustment calculations.  The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, included provisions to improve tax stability and lower the income tax rate in the mining sector.  Former President Correa’s administration also developed mining sector incentives such as fiscal stability agreements, limited VAT reimbursements, remittance tax exceptions, and mechanisms for companies to recover their investments before certain taxes are applied.

 Electricity: the Organic Law for the Public Service of Electric Energy, which took effect in January 2015, permits some private sector participation and foreign investment in Ecuador’s electricity sector.  Per the 2008 Constitution, the electricity sector is a public service and strategic sector.

Telecommunications: in February 2015, Ecuador’s National Assembly passed a telecommunications law that requires telecommunications companies to pay a percentage of revenue to the government.  This requirement applies to providers of cellular and fixed line telephone service, internet service, and subscription television with more than 30 percent of market share.  The payments range from 0.5 to 9 percent of revenue.

Media: the 2013 Communications Law introduced a requirement that advertising disseminated in Ecuador must have 80 percent domestic content.  It also requires that television and radio frequencies are distributed 33 percent to private media, 33 percent to public media, and 34 percent to community media.

The government controls a large share of radio, television, and other press holdings.  Article 312 of the Constitution prohibits shareholders and representatives of financial institutions from media ownership.  In addition, the 2011 Organic Law for Regulation and Control of Market Power prohibits anyone possessing more than a six percent interest in a media company from investing in any other business sector.

Other Investment Policy Reviews

Ecuador conducted a trade policy review with the World Trade Organization in March 2019; information can be found at https://www.wto.org/english/tratop_e/tpr_e/tp483_e.htm 

In the past three years, Ecuador has not conducted an investment policy review with the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

In 2018 Ecuador folded its ProEcuador (https://www.proecuador.gob.ec/ ), the entity that is responsible for promoting economic development through exports, imports, and investment in Ecuador, into the Ministry of Production, Foreign Trade, Investments and Fisheries (MPCIEP).  ProEcuador is now a Vice Ministry within MPCIEP, and has 31 offices in 26 countries, including four in the United States.  Ecuador is ranked 123rd out of 190 countries on the World Bank’s Ease of Doing Business report for 2019, with particularly low rankings for Starting a Business (168), Resolving Insolvency (158) and Paying Taxes (143).

A newly created company will at a minimum be required to register with the Superintendence of Companies Securities, and Insurance (http://www.supercias.gob.ec/.), the municipal government, the Internal Revenue Service, and the Social Security Institute. The registry with the Superintendence of Companies is a completely online process as of April 2019.

Outward Investment

Ecuador does not restrict domestic investors from investing abroad.  ProEcuador  is responsible for promotion of outward investment from Ecuador.  Foreign investments are subject to a capital exit tax of five percent.

In February 2017, voters passed a government-backed referendum prohibiting elected officials and public servants from having financial interactions with official lists of tax havens and other suspect jurisdictions.  The lists include several U.S. states and territories.  The prohibition entered into effect in September 2017.

Transparency of the Regulatory System

While there is a focus within the Moreno administration to improve transparency and government accountability, companies report that progress has been slow.  Several foreign investors report that economic, commercial, and investment policies are subject to frequent changes and can increase the risks and costs of doing business in Ecuador.  National and Municipal level regulations can be in conflict with each other.  Regulatory agencies are not required to publish proposed regulations before enactment and rulemaking bodies are not required to solicit public comments on proposed regulations, although there has been some movement towards prior consultation processes.  The ministries generally consult with relevant national actors when drafting regulations, but not always, according to some businesses.

The Government of Ecuador publishes regulatory actions in the Official Registry and posts them online at https://www.registroficial.gob.ec/.  Publicly listed companies adhere to International Financial Reporting Standards (IFRS).  While there are some transparency enforcement mechanisms within the government, it has been reported that they tend to be weak and rarely enforced.  There are no identified informal regulatory processes led by private sector associations or nongovernmental organizations.

International Regulatory Considerations

Ecuador is a member of the Andean Community of Nations (CAN) along with Bolivia, Colombia, and Peru.  Ecuador is an associate member of the Southern Cone Common Market (MERCOSUR).  Ecuador is a member of the WTO and notifies draft regulations to the WTO TBT Committee.  Ecuador has ratified the WTO Trade Facilitation Agreement on October 16, 2018.

Legal System and Judicial Independence

Ecuador has a civil codified legal system.  Concerns have been voiced by some businesses over systemic weakness in the judicial system and its susceptibility to political and economic pressures, which may constitute challenges faced by U.S. companies investing in Ecuador.  Enforcement of contract rights, equal treatment under the law, intellectual property protections, and unstable regulatory regimes continue to be concerns for foreign investors.

Laws and Regulations on Foreign Direct Investment

Ecuador does not have laws specifically on FDI, but two have effects on investment.  The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, includes provisions to improve tax stability and lower the income tax rate in the mining sector.  The Organic Law of Incentives for Public-Private Associations and Foreign Investment from 2015 includes provisions to improve legal stability, reduce red tape, and exempt public private partnerships from paying income and capital exit taxes under certain conditions.  ProEcuador’s website https://www.proecuador.gob.ec/  provides a guide for investors in English and Spanish and highlights the procedures to register a company, types of incentives for investors, and relevant taxes related to investing in Ecuador.

Competition and Anti-Trust Laws

The Superintendence of Control of Market Power reviews transactions for competition-related concerns.  Ecuador’s 2011 Organic Law for Regulation and Control of Market Power includes mechanisms to prevent, control, and sanction market power abuses, restrictive market practices, economic concentration, and unfair competition.  The Superintendence of Control of Market Power, can fine companies found to be in violation of the law up to 12 percent of gross revenue.

Expropriation and Compensation

The Constitution establishes that the state is in charge of managing the use and access to land, while recognizing and guaranteeing the right to private property.  It also provides for the redistribution of land if it has not in active use for more than two years.  The 2015 Telecommunications Law allows expropriation of private land in accordance with the rules and procedures of the law when necessary for the installation of network infrastructure.  The Government of Ecuador’s past use of a 99 percent excess profits tax on some investments was determined by international arbitration panels to be an indirect expropriation.

Under the U.S.-Ecuador BIT, which expired May 18, 2018, expropriation can only be carried out for a public purpose, in a nondiscriminatory manner, and upon payment of prompt, adequate, and effective compensation.

Dispute Settlement

 ICSID Convention and New York Convention

Ecuador withdrew from the International Centre for the Settlement of Investment Disputes (ICSID Convention) in 2010.  Ecuador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Ecuador’s National Assembly voted on May 3, 2017 to terminate 12 of its bilateral investment treaties, including its agreement with the United States.  The Government of Ecuador notified the U.S. government of its withdrawal from the BIT on May 18, 2017, with the effective date May 18, 2018.  The treaty further specifies that all U.S. investments in place at the date of termination enjoy the protections of the treaty for the subsequent ten years.  There have been numerous claims against Ecuador under the BIT that have gone to international arbitration.  There are two active cases awaiting a final decision, Chevron and Merck.

International Commercial Arbitration and Foreign Courts

A number of U.S. companies operating in Ecuador, most notably in the petroleum sector, have filed for international arbitration due to investment claims.  The GOE has reportedly treated these disputes as a political issue in some cases, speaking negatively about investors involved.  Payment of arbitration awards has taken more than a year.  The Ecuadorian Constitution from 2008 states that arbitration must take place either in Ecuador or in Latin America, and was the primary driver of the 2017 termination of BITs.

Bankruptcy Regulations

Ecuador is ranked 158 out of 190 in the category of Ease of Resolving Insolvency in the World Bank’s 2019 Ease of Doing Business Report.   With the goal of protecting consumers and preventing a real estate bubble, the National Assembly approved in June 2012 a law that allows homeowners to default on their first home and car loan without penalty if they forfeit the asset.  The provisions do not apply to homes with a market value of more than 500 times the basic salary (currently USD 197,000) or vehicles worth more than 100 times the basic salary (currently USD 39,400).

In cases of foreclosure, the average time for banks to collect on debts is 5.3 years, usually taking 4.5 years for courts to approve the initiation of foreclosures. After the appointment and acceptance of an auctioneer, it would take about six months for the auction to take place.  World Bank’s Doing Business Report estimates that the foreclosure proceedings would result in costs equal to about 18 percent of the value of the estate in question.

Investment Incentives

In August 2018, the National Assembly approved the Productive Development Law that provides income tax exemptions and VAT exemptions to attract investments, good for 12 years in all areas except the cities of Quito and Guayaquil, where it is 8 years, and 20 years in border regions.

In December 2015, Ecuador’s National Assembly approved a Public-Private Partnership law intended to attract investment.  The law offers incentives including the reduction of the income tax, value added tax, and capital exit tax, for investors in certain projects.  It designates Latin American arbitration bodies as the dispute resolution mechanism.  The law came into effect upon publication in the official registry on December 18, 2015.  The Organic Law of Production Incentives and Tax Fraud Prevention, which took effect on December 30, 2014, provides tax incentives related to depreciation calculations and income tax rates, which could benefit some foreign investors.

Foreign Trade Zones/Free Ports/Trade Facilitation

The 2010 Production Code authorized the creation of Special Economic Development Zones (ZEDEs) that are subject to reduced taxes and tariffs.  The government considers the extent to which projects promote technology transfer, innovation, and industrial diversification when granting ZEDE status; foreign owned firms have the same investment opportunities as national firms.

Performance and Data Localization Requirements

 Nationally the government does not mandate local employment, however, the Organic Law of the Amazon approved by the National Assembly on May 21, 2018, mandates that any company, national or foreign, operating within the area covered by the law (the Amazon Basin) must hire at least 70 percent of their staff locally, unless they cannot find qualified labor locally.

There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption.  Companies can transmit data freely into and out of Ecuador, and there are no requirements to store data within the country.

On October 11, 2016, Ecuador’s National Assembly passed the Code of the Social Economy of Knowledge, Creativity, and Innovation, covering a wide range of intellectual property matters.   Article 148 of the Code establishes that agencies must give preference to open source software with content developed in Ecuador when procuring software for government use.

Visa and residency requirements are relatively relaxed and do not inhibit foreign investment.

Article 66 of the 2008 Constitution guarantees the right to pursue economic activities in a manner that is socially and environmentally responsible.  NGOs such as the Institute of Corporate Social Responsibility and the Ecuadorian Consortium for Social Responsibility promote responsible business conduct.  Many Ecuadorian companies have programs to further responsible business conduct within their organizations.  The GOE committed in March 2018 to implement the Extractive Industries Transparency Initiative, but has not yet joined the initiative.

Semi-skilled and unskilled workers are relatively abundant at low wages.  The supply of available workers is high due to layoffs in sectors affected by the downturn in Ecuador’s economy since 2014.  In addition, first Colombian and now Venezuelan migrants have added to the supply of labor.  The National Wages Council and Ministry of Labor Relations set minimum compensation levels for private sector employees annually.  The minimum basic salary for 2019 is USD 394 per month.

Ecuador’s Production Code requires that workers be paid a dignified wage, defined as an amount that would enable a family of four with 1.6 wage earners to be able to afford necessities.  The cost and the products that are considered necessities are determined by Ecuador’s Statistics Institute (INEC).  In March 2019, the cost of basic necessities was USD 713.05, while the official family wage level is at USD 735.47.  As of December 2017, INEC estimated 37.9 percent of workers had adequate employment.  INEC defines adequate employment as earning at least the minimum basic salary working 40 hours per week.

Ecuador’s National Assembly passed a labor reform law in March 2016 intended to promote youth employment, support unemployed workers, and introduce greater labor flexibility for companies suffering from reduced revenue.  The law established a new unemployment insurance program, a subsidized youth employment scheme, temporary reductions in workers’ hours for financially strapped companies, and nine months of unpaid maternity or paternity leave.

The Law for Labor Justice and Recognition of Work in the Home, which included several changes related to labor and social security, took effect in April 2015.  The law limits the yearly bonus paid to employees, which is equal to 15 percent of companies’ profits and is required by law, to 24 times the minimum wage.  Any surplus profits are to be collected by IESS.  The law also mandates that employees’ thirteenth and fourteenth month bonuses, which are required by law, be paid in installments throughout the year instead of in lump sums.  Employees have the option to opt out of this change and continue to receive the payments in lump sums.  The law eliminates fixed-term employee contracts in favor of indefinite contracts, which shorten the allowable trial period for employees to 90 days.  The law also allows participation in social security pensions for non-paid work at home.

The Labor Code provides for a 40-hour workweek, 15 calendar days of annual paid vacation, restrictions and sanctions for those who employ child labor, general protection of worker health and safety, minimum wages and bonuses, maternity leave, and employer-provided benefits.  The 2008 Constitution bans child labor, requires hiring workers with disabilities, and prohibits strikes in most of the public sector.  Unpaid internships are not permitted in Ecuador.

Most workers in the private sector and at SOEs have the constitutional right to form trade unions and local law allows for unionization of any company with more than 30 employees.  Private employers are required to engage in collective bargaining with recognized unions.  The Labor Code provides for resolution of conflicts through a tripartite arbitration and conciliation board process.  The Code also prohibits discrimination against union members and requires that employers provide space for union activities.

Workers fired for organizing a labor union are entitled to limited financial indemnification, but the law does not mandate reinstatement.  The Public Service Law enacted in October 2010 prohibits the vast majority of public sector workers from joining unions, exercising collective bargaining rights, or paralyzing public services in general.  The Constitution lists health; environmental sanitation; education; justice; fire brigade; social security; electrical energy; drinking water and sewerage; hydrocarbon production; processing, transport, and distribution of fuel; public transport; and post and telecommunications as strategic sectors.  Public workers who are not under the Public Service Law may join a union and bargain collectively since they are governed by the provisions under the Labor Code.

Ecuador has an Investment Guarantee Agreement with the Overseas Private Investment Corporation.  Ecuador is also a signatory to the Multilateral Investment Guarantee Agreement.

Policies Toward Foreign Direct Investment

The GOES recognizes that attracting FDI is crucial to improving the economy.  El Salvador does not have laws or practices that discriminate against foreign investors.  The GOES does not screen or prohibit FDI. However, FDI levels are still paltry and lag far behind regional neighbors. The Central Bank reported net FDI inflows of USD 839.6 million in 2018.

The Exports and Investment Promotion Agency of El Salvador (PROESA) supports investment in nine main sectors: textiles and apparel; business services; tourism; aeronautics; agro-industry; medical devices; footwear manufacturing; logistic and infrastructure networks; and healthcare services.  PROESA provides information for potential investors about applicable laws, regulations, procedures, and available incentives for doing business in El Salvador. Website: http://www.proesa.gob.sv/investment/sector-opportunities 

The National Association of Private Enterprise (ANEP), El Salvador’s umbrella business/private sector organization, has established an ongoing dialogue with relevant GOES ministries.  http://www.anep.org.sv/ 

As part of a 2018 reorganization, the GOES created the post of Presidential Commissioner for Investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign citizens and private companies can freely establish businesses in El Salvador.

No single natural or legal person – whether national or foreign – can own more than 245 hectares (605 acres) of land.  The Salvadoran Constitution stipulates there is no restriction on foreign ownership of rural land in El Salvador, unless Salvadoran nationals face restrictions in the corresponding country.  Rural land to be used for industrial purposes is not subject to the reciprocity requirement.

The 1999 Investments Law grants equal treatment to foreign and domestic investors.  With the exception of limitations imposed on micro businesses, which are defined as having 10 or fewer employees and yearly sales of USD 121,319.40 or less, foreign investors may freely establish any type of domestic businesses.  Investors who begin operations with 10 or fewer employees must present plans to increase employment to the Ministry of Economy’s National Investment Office.

The Investment Law provides that any extractive resource is the exclusive property of the state.  The GOES may grant private concessions for resource extraction, though there have been no new permits issued in recent years.

Other Investment Policy Reviews

El Salvador has been a World Trade Organization (WTO) member since 1995.  The latest trade policy review performed by the WTO was published in 2016 (document: WT/TPR/S/226/Rev.1).

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

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

Business Facilitation

El Salvador has various laws that promote and protect investments, as well as providing benefits to local and foreign investors.  These include: the Investments Law, the International Services Law; the Free Trade Zones Law; the Tourism Law, the Renewable Energy Incentives Law; the Law on Public Private Partnerships; the Special Law for Streamlining Procedures for the Promotion of Construction Projects; and the Legal Stability Law for Investments.

Business Registration

Per the World Bank, registering a new business in El Salvador requires nine steps taking an average of 16.5 days.  According to the World Bank’s 2019 Doing Business Report, El Salvador ranks 147 in the “Starting a Business” indicator.  El Salvador launched an online business registration portal in 2017 designed to give entrepreneurs a one-stop shop for registering new companies.  Specifically, the online business registration website allows new businesses the ability to formalize registration within three days and conduct administrative operations through the online platform.  The portal (https://miempresa.gob.sv/  ) is available to all, though services are available only in Spanish.

The GOES’ Business Services Office (Oficina de Atencion Empresarial) caters to entrepreneurs and investors.  The office has two divisions: “Growing Your Business” (Crecemos Tu Empresa) and the National Investment Office (Direccion Nacional de Inversiones, DNI).  “Growing Your Businesses” provides business advice, especially for micro-, small- and medium-sized enterprises.  The DNI administers investment incentives and facilitates business registration.

Contact information:

Business Services Office
Telephone: (503) 2590-9000
Address: 1 calle Poniente, final 41 avenida Norte, N.°8, San Salvador.  Schedule: Monday-Friday, 7:30 a.m. – 3:30 p.m.

Crecemos Tu Empresa
E-mail: crecemostuempresa@minec.gob.sv
Website: www.minec.gob.sv/crecemostuempresa  

The National Investment Office:

• Ana Luisa Valiente, National Director of Investments, Email: lvaliente@minec.gob.sv
• Roberto Salguero, Deputy Director of Administration, Email: rsalguero@minec.gob.sv
• Special Investments; Christel Schulz, Business Climate Deputy, Email: cdearce@minec.gob.sv
• Laura Rosales de Valiente, Deputy Director of Investment Facilitation, Email: lrosales@minec.gob.sv

Telephone: (503) 2590-5116.

The Directorate for Coordination of Productive Policies at the Ministry of Economy focuses on five areas: Productive Development, Capacity Building, Trade Facilitation, Taxation, and Export Promotion.  Website: http://www.minec.gob.sv  

The Productive Development Fund (FONDEPRO) provides grants to small enterprises to strengthen competitiveness.  Website: http://www.fondepro.gob.sv/  

The National Commission for Micro and Small Businesses (CONAMYPE) supports micro and small businesses by providing training, technical assistance, financing, venture capital, and loan guarantee programs.  CONAMYPE also provides assistance on market access and export promotion, marketing, business registration, and the promotion of business ventures led by women and youth. Website: https://www.conamype.gob.sv/  

The Micro and Small Businesses Promotion Law defines a microenterprise as a natural or legal person with annual gross sales up to 482 minimum monthly wages, equivalent to USD 121,319.40 and up to ten workers.  A small business is defined as a natural or legal person with annual gross sales between 482 minimum monthly wages (USD 121,319.40) and 4,817 minimum monthly wages (USD 1,212,438.90) and up to 50 employees. To facilitate credit to small businesses, Salvadoran law allows for inventories, receivables, intellectual property rights, consumables, or any good with economic value to be used as collateral for loans.

El Salvador provides equitable treatment for women and under-represented minorities.  The GOES does not provide targeted assistance to under-represented minorities. CONAMYPE provides specialized counseling to female entrepreneurs and women-owned small businesses.

Outward Investment

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

Transparency of the Regulatory System

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

Companies have noted that the GOES has enacted laws and regulations without following required notice and comment procedures.  The Regulatory Improvement Law, enacted in December 2018, requires government agencies to publish online the list of laws and regulations they plan to approve, reform or repeal each year.  Institutions cannot adopt or modify regulations and laws not included in that list. Prior to adopting or amending laws or regulations, the Simplified Administrative Procedures Law requires the GOES to perform a Regulatory Impact Analysis (RIA) based on a standardized methodology.  Proposed legislation and regulations, as well as RIAs, must be made available for public comment. In practice, the Legislative Assembly does not publish draft legislation on its website and does not solicit comments on pending legislation. The GOES does not yet require the use of a centralized online portal to publish regulatory actions.  The implications of the recent reforms are not yet apparent, though private sector stakeholders have expressed support for the measures.

The GOES controls the price of some goods and services, including electricity, liquid propane gas, gasoline, fares on public transport, and medicines.  The government also directly subsidizes water services and residential electricity rates.

The Superintendent of Electricity and Telecommunications (SIGET) oversees electricity rates, telecommunications, and distribution of electromagnetic frequencies.  The Salvadoran government subsidizes residential consumers for electricity use of up to 100 kWh monthly. The electricity subsidy costs the government between USD 50 million to USD 60 million annually.  Energy sector companies have warned that the government’s inability to pay the subsidies in a timely manner has discouraged investment in new generation capacity.

El Salvador’s public finances are relatively transparent.  Budget documents, including the executive budget proposal, enacted budget, and end-of-year reports, as well as information on debt obligations are accessible to the public at: http://www.transparenciafiscal.gob.sv/ptf/es/  .  An independent institution, the Court of Accounts, audits the financial statements, economic performance, cash flow statements, and budget execution of all GOES ministries and agencies.  The results of these audits are publicly available online. However, the Office of the President manages reserved expenses and other special funds that are not subject to disclosure or audit.

International Regulatory Considerations

El Salvador belongs to the Central American Common Market and the Central American Integration System (SICA), organizations which are working on regional integration, (e.g., harmonization of tariffs and customs procedures).  El Salvador commonly incorporates international standards, such as the Pan-American Standards Commission (Spanish acronym COPANT), into its regulatory system.

El Salvador is a member of the WTO, adheres to the Agreement on Technical Barriers to Trade (TBT Agreement), and has adopted the Code of Good Practice annexed to the TBT Agreement.  El Salvador is also a signatory to the Trade Facilitation Agreement (TFA) and has notified its Categories A, B, and C commitments. El Salvador has established a National Trade Facilitation Committee as required by the TFA, though it has met only twice since its formation.

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

Legal System and Judicial Independence

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

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

Laws and Regulations on Foreign Direct Investment

Miempresa is the Ministry of Economy’s website for new businesses in El Salvador.  At Miempresa, investors can register new companies with the Ministry of Labor, Social Security Institute, pension fund administrators, and certain municipalities; request a tax identification number/card; and perform certain administrative functions. Website: https://www.miempresa.gob.sv/  

The country’s eRegulations site provides information on procedures, costs, entities, and regulations involved in setting up a new business in El Salvador.  Website: http://tramites.gob.sv/  

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

The Constitution allows the government to expropriate private property for reasons of public utility or social interest.  Indemnification can take place either before or after the fact. There are no recent cases of expropriation. In 1980, a rural/agricultural land reform established that no single natural or legal person could own more than 245 hectares (605 acres) of land, and the government expropriated the land of some large landholders.  In 1980, private banks were nationalized, but were subsequently returned to private ownership in 1989-90. A 2003 amendment to the Electricity Law requires energy generating companies to obtain government approval before removing fixed capital from the country.

Dispute Settlement

ICSID Convention and New York Convention

El Salvador is a member state to the ICSID Convention.  ICSID is included in a number of El Salvador’s investment treaties as the forum available to foreign investors.

Investor-State Dispute Settlement

In 2016, ICSID ruled in favor of El Salvador on a case brought by an international mining company that sought to force government acceptance of a gold-mining project.  Following the ruling, El Salvador banned the exploration and extraction of metal mining in the country.

The rights of investors from CAFTA-DR countries are protected under the trade agreement’s dispute settlement procedures.  There have been no successful claims by U.S. investors under CAFTA-DR. There are currently no pending claims by U.S. investors.

For foreign investors from a country without a trade agreement with El Salvador, amended Article 15 of the 1999 Investment Law limits access to international dispute resolution and may obligate them to use national courts.  Submissions to national dispute panels and panel hearings are open to the public. Interested third parties have the opportunity to be heard.

International Commercial Arbitration and Foreign Courts

A 2002 law allows private sector organizations to establish arbitration centers for the resolution of commercial disputes, including those involving foreign investors.  In 2009, El Salvador modified its arbitration law to allow parties to appeal a ruling to the Salvadoran courts. Investors have complained that the modification dilutes the efficacy of arbitration as an alternative method of resolving disputes.  Arbitrations takes place at the Arbitration and Mediation Center, a branch of the Chamber of Commerce and Industry of El Salvador. Website: http://www.mediacionyarbitraje.com.sv/  

El Salvador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) and the Inter-American Convention on International Commercial Arbitration (The Panama Convention).  Local courts recognize and enforce foreign arbitral awards and court judgments, but the process can be lengthy and difficult.

Bankruptcy Regulations

The Commercial Code, the Commercial Code of Procedures, and the Banking Law all contain sections that deal with the process for declaring bankruptcy.  However, there is no separate bankruptcy law or court. According to data collected by the 2019 World Bank’s Doing Business report, resolving insolvency in El Salvador takes 3.5 years on average and costs 12 percent of the debtor’s estate, with the most likely outcome being that the company will be sold piecemeal.  The average recovery rate is 32.5 percent. Globally, El Salvador ranks 89 out of 190 on Ease of Resolving Insolvency. Website: http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Profiles/Country/SLV.pdf 

Investment Incentives

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

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

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

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

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

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

El Salvador does not issue guarantees or directly co-finance foreign direct investment projects.  However, El Salvador has a Public-Private Partnerships Law that allows private investment in the development of infrastructure projects, including in areas of health, education and security.

Foreign Trade Zones/Free Ports/Trade Facilitation

The 1998 Free Trade Zone Law is designed to attract investment in a wide range of activities, although the vast majority of the businesses in free trade zones are textile plants.  A Salvadoran partner is not needed to operate in a free trade zone, and some textile operations are completely foreign-owned.

There are 17 free trade zones in El Salvador.  They host 242 companies in sectors including textiles, distribution, call centers, business process outsourcing, agribusiness, agriculture, electronics, and metallurgy.  Owned primarily by Salvadoran, U.S., Taiwanese, and Korean investors, free trade zone firms employ more than 84,000 people. The point of contact is the Chamber of Textile, Apparel and Free Trade Zones of El Salvador (CAMTEX) at: https://www.camtex.com.sv/site/  .

The 1998 law established rules for free trade zones and bonded areas.  The free trade zones are outside the nation’s customs jurisdiction while the bonded areas are within its jurisdiction, but subject to special treatment.  Local and foreign companies can establish themselves in a free trade zone to produce goods or services for export or to provide services linked to international trade.  The regulations for the bonded areas are similar.

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

• Exemption from all duties and taxes on imports of raw materials and the machinery and equipment needed to produce for export.
• Exemption from taxes for fuels and lubricants used for producing exports if they not domestically produced.
• Exemption from income tax, municipal taxes on company assets and property for either 15 years (if the company is located in the metropolitan area of San Salvador) or 20 years (if the company is located outside of the metropolitan area of San Salvador).
• Exemption from taxes on certain real estate transfers, e.g., the acquisition of goods to be employed in the authorized activity.

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

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

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

Performance and Data Localization Requirements

El Salvador’s Investment Law does not require investors to meet export targets, transfer technology, incorporate a specific percentage of local content, or fulfill other performance criteria.  Labor laws require that 90 percent of the workforce in plants and in clerical positions be Salvadoran citizens. Nationality restrictions are more lax for professional and technical jobs.

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

Investors who plan to live and work in El Salvador for an extended period need to obtain temporary residency, which may be renewed periodically.  Under Article 11 of the Investment Law, foreigners with investments totaling more than USD 1 million may obtain Investor’s Residency status, which allows them to work and remain in the country.  This residency may be requested within 30 days of registering the investment. It allows residency for the investor and family members for a period of one year, and may be extended annually.

It is customary for companies to hire local attorneys to manage the process of obtaining residency.  The American Chamber of Commerce in El Salvador can also provide information regarding the process. Website:  http://www.amchamsal.com/?lang=en  

The International Services Law establishes tax benefits for businesses that invest at least USD 150,000 during the first year of operations, including working capital and fixed assets, hire no fewer than 10 permanent employees, and have at least a one-year contract.  For hospital/medical services to qualify, the minimum capital investment must be USD 10 million, if surgical services are provided, or a minimum of USD 3 million, if surgical services are not provided. Hospitals or clinics must be located outside of major metropolitan areas, and medical services must be provided only to patients with insurance.

El Salvador does not require investors to incorporate a specific percentage of local content, to turn over source code or provide access to surveillance, or to fulfill other performance criteria.  Business-related data may be freely transferred outside of El Salvador.

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

The Secretariat of Transparency and Corruption was launched in 2009 to develop guidelines, strategies, and actions to promote transparency and combat corruption in government (see: http://www.presidencia.gob.sv/temas/secretaria-de-participacion-ciudadana-transparencia-y-anticorrupcion-de-la-presidencia/  ).  The watchdog organization Transparency International is represented in-country by the Salvadoran Foundation for Development (FUNDE).

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

In 2018, El Salvador had a labor force of approximately three million, according to the Ministry of Economy.  Informal employment accounts for approximately 72 percent of the economy. While Salvadoran labor is regarded as hard-working, general education and professional skill levels are low.  According to many large employers, there is a lack of middle management-level talent, which sometimes results in the need to bring in managers from abroad. Employers do not report labor-related difficulties in incorporating technology into their workplaces.

The Salvadoran Constitution guarantees the right of employees in the private sector to organize into associations and unions.  In practice, unions are independent of the government and employers. Unions may strike only to obtain or modify a collective bargaining agreement or to protect professional rights.  They must also engage in negotiation, mediation, and arbitration processes before striking, although many groups skip or go through these steps quickly.  Employers are free to hire union or non-union labor. Closed shops are illegal. Labor laws are generally in accordance with internationally–recognized standards, but are not enforced consistently by government authorities.  Although El Salvador has improved labor rights since the CAFTA-DR entered into force and the passage of the 2014 Special Trafficking in Persons Law, there remains room for better implementation.

The Ministry of Labor (MOL) is responsible for enforcing the law.  The government proved more effective in enforcing the minimum wage law in the formal sector than in the informal sector. Unions reported the ministry failed to enforce the law for subcontracted workers hired for public reconstruction contracts.  The government provided its inspectors updated training in both occupational safety and labor standards. As of June 2018, MOL conducted 13,315 inspections, in addition to 3,857 follow-up inspections, and levied USD 777,000 in fines against businesses.

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

While workers have the right to strike, the law contains cumbersome and complex registration procedures for conducting a legal strike.  The law does not recognize the right to strike for public and municipal employees or for workers in essential services, which include those services where disruption would jeopardize or endanger life, security, health, or normal conditions of existence for some or all of the population.  The law does not specify which services meet this definition, and courts apply this provision on a case-by-case basis. The law places several other restrictions on the right to strike, including the requirement that 30 percent of all workers in an enterprise must support a strike for it to be legal and that 51 percent must support the strike before all workers are bound by the decision to strike.  In addition, unions may strike only to obtain or modify a collective bargaining agreement or to protect the common professional interests of the workers. They must also engage in negotiation, mediation, and arbitration processes before striking, although many groups often skip or go through these steps quickly. The law prohibits workers from appealing a government decision declaring a strike illegal.

The government does not effectively enforce the laws on freedom of association and the right to collective bargaining in all cases.  Resources to conduct inspections were inadequate, and remedies remained ineffective. Penalties for employers who disrupt the right of a union to exist were generally not sufficient to deter violations.  The Ministry of Labor lacks sufficient resources to enforce the law fully. Judicial procedures were subject to lengthy delays and appeals. According to union representatives, the government did not consistently enforce labor rights for public workers, maquila/textile workers, subcontractors in the construction industry, security guards, informal sector workers, or migrant workers.  In 2018, the Ministry of Labor received 1,778 complaints of violations of the labor code, including 565 instances of failure to pay the minimum wage, and 15 claims of violations for labor discrimination.

El Salvador’s Labor Law mandates that the minimum wage must be proposed by the National Minimum Wage Council.  In January 2017, El Salvador raised the minimum wage in four sectors: commercial/industrial, textiles, seasonal harvesting, and agriculture.  The minimum wage increase applied to Salvadorans working in the formal economy, approximately 28 percent of the labor force or 770,000 people.

The Overseas Private Investment Corporation (OPIC) has an agreement with El Salvador that requires governmental approval on each project application.  In December 2017, OPIC announced its Northern Triangle initiative to leverage USD 1 billion in private investment in El Salvador, Guatemala, and Honduras over the next two years.  Currently, OPIC is supporting eight projects in El Salvador, as well as several regional projects that include El Salvador. More information on the Northern Triangle initiative is available at https://www.opic.gov/opic-action/regional-priorities/northern-triangle  

El Salvador uses the U.S. dollar, so full inconvertibility insurance is unnecessary.  El Salvador is a member of the Multilateral Investment Guarantee Agency (MIGA).

Policies Towards Foreign Direct Investment

Grenada employs a liberal approach to FDI.  The strategic agenda of the government of Grenada demonstrates its belief that investment is directly related to growth and development.  As a result, the government of Grenada identified additional foreign investment opportunities related to the country’s resource endowment of “sand, sun, sea and rich fertile soil.”  The government of Grenada’s accession to international trade and development agreements opened a greater number of sectors to foreign investment opportunities.

The GIDC is the country’s investment promotion agency.  It was established by Grenada in 1985 as a statutory body to stimulate, facilitate, and encourage the creation and development of industry.  Through an act of parliament, the name was changed to Grenada Investment Development Corporation in 2016 to convey its mandate more clearly. The GIDC is comprised of three strategic business units responsible for carrying out its core responsibilities. They are:

1. Investment Promotion Agency: responsible for investment promotion facilitation;
2. Business Development Centre: provides business support services to micro-, small and medium-sized enterprises; and,
3. Facilities: manages the three business parks owned by the GIDC.

A fourth unit, “shared services,” provides financial, human resource management, legal, research, and monitoring and evaluation support to the Strategic Business Units.  The GIDC is a “one-stop shop” offering:

• Investment and trade information
• Investment incentives
• Investment facilitation and aftercare
• Entrepreneurial/business skills training
• Small business support services
• Industrial facilities
• Policy advice

In an effort to promote FDI, the GIDC adopts a targeted approach to promote investment opportunities, provides investor facilitation and entrepreneurial development services, and advocates for a supportive enabling environment for investors to develop and grow businesses, trade, and industries.

Investment retention is a priority in Grenada.  This is maintained through ongoing dialogues with investors facilitated by the GIDC.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no economic and industrial strategies that discriminate against foreign investors.

Non-Grenadian investors may be required to obtain an Alien Landholding License and pay a property transfer tax, which levies a 10 percent fee on the purchase of shares in a Grenadian registered company or real estate.  In addition, the sale of such shares or real estate to non-nationals will attract a property transfer tax of 15 percent payable by the seller. Foreign investors employed in Grenada are required to obtain a work permit, renewable annually.  U.S. investors must pay a fee of USD $1,111 or XCD $3,000 for work permits. The renewal fee varies based on the investor’s country of citizenship.

There are no limits on foreign ownership or control.  Foreign investors may not invest in or operate investment enterprises that are prejudicial to national security or detrimental to the environment, public health, or the national culture, or which contravene the laws of Grenada.  Grenada has accepted but not yet implemented regional obligations on anti-competition concerns. U.S investors are not disadvantaged or singled out by any of the ownership or control mechanisms, sector restrictions, or investment screening mechanisms in Grenada relative to other foreign investors.

Other Investment Policy Reviews

Grenada passed its most recent Investment Promotion Act in 2014, replacing the 2009 Act.  The new legislation promotes, encourages, and protects investment in Grenada by providing investors with a stable framework of fundamental and enforceable rights.  It seeks to guarantee and ensure security and fairness in strict accordance with the rule of law and best international standards and practices. The 2014 Act is also in compliance with WTO regulations, the Economic Partnership Agreement (EPA) between the EU and the Caribbean Community (CARICOM), and the Agreement between the Caribbean Forum (CARIFORUM) and the EU.

In 2016, parliament approved a new incentives regime.  The new regime involved amendments to specific legislation that grants incentives.  This was devised to ensure that all new tax exemptions are codified in legislation. It also restricted discretionary exemptions and required that the beneficiaries of exemptions file appropriate tax returns and comply with tax requirements.

It also proposes a streamlined, simple, and non-discretionary system/process for the granting of incentives.  The Customs and Inland Revenue Departments administer exemptions through a clearly defined rule-based system, rather than the very open-ended incentive schemes that previously required each case to be approved at the cabinet level.

Under the new regime, incentives will be granted to projects within the priority sectors for investment.  They are tourism; manufacturing; agriculture and agribusiness; information technology services; telecommunication providers and business process outsourcing operations; education and training; health and wellness; creative industries; energy; and research and development.  Other sectors also include student accommodation; heavy equipment operators; investment projects above particular investment thresholds; and projects within specific geographical locations.

The new incentive regime seeks to provide investment incentives on a performance basis (i.e. the more one invests, the more incentives one can receive).  Therefore, based on the level of investment, different levels of incentives will be granted in a transparent, open, predictable, and non-discriminatory manner.

In the past three years, the government did not undergo any third-party investment policy reviews through multilateral organizations such as the Organization for Economic Cooperation and Development (OECD), the WTO, and the United Nations Conference on Trade and Development.

Business Facilitation

Political and economic stability, human resource capacity, supportive government policies, trade and investment opportunities, quality of life, and good infrastructure provide a positive environment for FDI in Grenada.

An investor must register a business name and identify whether it is a partnership or limited liability company.  A registered business can be wholly owned or a joint venture. The official website of the GIDC includes an investor’s guide that details the procedures for starting and operating a business in Grenada.  The guide has a business procedure flow chart and gives step-by-step instructions for various tasks from registering a business and owning properties to obtaining permits and licenses. Detailed information on business registration and timelines can be found at: http://grenadaidc.com/investor-centre/investors-guide/starting-up-a-business/#.WKxXdfnQe70  

The GIDC provides business facilitation mechanisms and ensures the equitable treatment of women and underrepresented minorities in the economy.

Outward Investment

The government of Grenada does not promote or incentivize outward investment.  However, under the Revised Treaty of Chagaramus, there are Rights of Establishment in any CARICOM member state.  There is also a chapter on service agreements under the European Partnership Agreement (EPA). Under certain circumstances, provisions in these agreements may offer incentives to the potential investor.  Grenada does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Grenada recognizes that investors value transparent rules and regulations dealing with investment.

The Investment Act and the new Investment Promotion Regime promote transparency by authorizing investment incentives to key sectors through the GIDC.  This helps to streamline processes, standardize treatment of investors, and better define investment rights. It also provides procedural guarantees and reduces the possibility for political influence in business negotiation.

Grenada also promotes investment by consulting with interested parties, simplifying and codifying legislation, using plain language drafting, developing registers of existing and proposed regulation, expanding the use of electronic dissemination of regulatory material, and publishing and reviewing administrative decisions.

Tax, labor, environment, health and safety, and other laws or policies do not distort nor impede investment.  In theory, bureaucratic procedures, including those for licenses and permits, are sufficiently streamlined and transparent.  In practice, local authorities recognize that the implementation of procedures can sometimes be slow.

Legal, regulatory, and accounting systems are generally transparent and consistent with international norms.  Public finances and debt obligations, including explicit and contingent liabilities, are also transparent and in keeping with international requirements.  There are clear institutional arrangements established to support the implementation of transparent regimes governing investment.

International Regulatory Considerations

Grenada has been a member of the WTO since 1996 and is a party to agreements established under the organization.  In pursuit of WTO compliance, Grenada recently signed, and is in the process of negotiating, trade and investment agreements that contain provisions better aligned with the provisions of the WTO.  Grenada is a member of CARICOM and the Caribbean Single Market Economy (CSME), which adheres to the international norms and regulatory standards outlined by the WTO.

Legal System and Judicial Independence

The Prime Minister and his cabinet have the executive authority to negotiate and sign international agreements and conventions with other states and international organizations.

Grenada’s judicial system is based on English common law.  The judiciary has four levels: the Magistrates Court, the High Court, the Eastern Caribbean Supreme Court, and the UK-based Privy Council.

The Magistrates Court primarily handles minor civil and criminal cases, while the High Court adjudicates cases under the purview of the Acts of Parliament.  Appeals from the Magistrates Court are heard by the High Court, while appeals from the High Court are heard by the Eastern Caribbean Supreme Court. The Eastern Caribbean Supreme Court is comprised of the Chief Justice, who serves as the Head of the Judiciary; four Justices of Appeal; nineteen High Court Judges; and three Masters, who are primarily responsible for procedural and interlocutory matters.  The Court of Appeal judges are based at the Court’s headquarters in Castries, Saint Lucia.

The Privy Council serves Grenada as the final Court of Appeal.  However, the Caribbean Court of Justice (CCJ) has compulsory and exclusive jurisdiction under Section 211 of the Revised Treaty of Chaguaramas, to which Grenada is a party.  The Treaty delineates rights and responsibilities within CARICOM to hear and decide disputes concerning the interpretation and application of the Treaty.

The judicial system remains independent of the executive branch, and judicial processes are generally competent, fair, and reliable.  Provisions are also made for appeals with the relevant court. Grenadian law also provides for the use of arbitration and mediation to resolve investment disputes.

Laws and Regulations on Foreign Direct Investment

The economy is supported by a strong legislative and regulatory framework that encourages FDI and promotes investment initiatives.  Grenada augmented the investment climate with a revitalization of its Citizenship by Investment (CBI) program. That program generated investments of XCD 81.1 million (USD 30.4 million) in 2017, providing financing for a number of developments in the tourism sector.

In 2016, parliament passed several legislative changes to promote investment:

• Value Added Tax Amendment Act – This Act amended the Value Added Tax Act Cap.333A to provide for VAT exemptions for qualifying investments in priority sectors and should be applied in conjunction with regulations made pursuant to the Investment Act of 2014 to determine what the priority sectors are for economic growth.
• Excise Tax Amendment Act – This Act amends the Excise Tax Act Cap. 94 to provide for tax incentives for investors engaged in manufacturing and investors entitled to conditional duties exemptions for motor vehicles.
• Property Transfer Tax Amendment Act – This Act amends the Property Transfer Tax Act Cap. 257C to provide more favorable rates of property transfer tax for investors. The Property Transfer Tax (Amendment) Act, 2015 (No. 23 of 2015) reduced the property transfer tax payable by non-citizens with qualifying investments from 10 percent to 5 percent.  This Act expands this incentive and would be applied in conjunction with regulations made pursuant to the Investment Act for the establishment of priority sectors for economic growth.
• Customs Service Charge Amendment Act – This Act amends the Customs (Service Charge) Act Cap. 75D to remove the discretionary power of cabinet to prescribe varying rates of customs service charge (CSC) and to prescribe a new rate of CSC applicable to investors engaged in manufacturing.
• Investment Amendment Act– This Act provides for specified circumstances under which the Minister of Finance may make regulations under the principal Act.
• Bankruptcy and Insolvency Amendment Act – This Act modernized the law relating to bankruptcy and insolvency of individuals and companies. The Bankruptcy Act, which applies only to individuals, was repealed.  Provisions in other Acts, such as the Companies Act, dealing with liquidation or winding up, continue to apply. The Act is based on the Canadian Bankruptcy and Insolvency Act, which has been used as a model in a number of Caribbean countries.
• Income Tax Amendment Act– This Act amended the Income Tax Act Cap. 149 to provide for a waiver on withholding tax applicable on specified types of repatriated funds relating to investors engaged in tourism accommodation or health and wellness, among other matters.

The GIDC, together with the Inland Revenue and Customs Departments of Grenada, works to ensure adherence to the rule of law and to facilitate the procedures outlined in the revised investment regime.  The legal and regulatory framework governing foreign direct investment in Grenada is described here: http://grenadaidc.com/investor-centre/investors-guide/starting-up-a-business/#.WLA0BfnQe70  

Competition and Anti-Trust Laws

There are no laws that regulate competition in Grenada.  However, Grenada discussed model draft bills at the CARICOM and Organization of Eastern Caribbean States (OECS) levels.  These drafts are being formulated to strengthen market regimes under the CSME. CARICOM established a Competition Commission and plans are underway to establish a sub-regional Eastern Caribbean Competition Commission.

Expropriation and Compensation

According to the Constitution, Grenada shall not compulsorily acquire or take possession of any investment or any asset of an investor except for a purpose which is legal and non-discriminatory.  If the government expropriates property for a legal purpose, it must promptly pay adequate and effective compensation. Owners of expropriated assets have the right to file claims in the High Court regarding the amount of compensation or ownership of the expropriated asset.  In 2016, parliament repealed the 1994 Electricity Supply Act and opened the market to potential investors who will transition to alternative sources of power generation, decreasing costs, reducing dependence on imported fossil fuels, and improving energy efficiency. The 2016 Electricity Supply Act allows a new government-run regulatory body to grant multiple licenses to energy generators.

In the past, Grenadian citizens had their lands expropriated to permit foreign investments, but were compensated for such actions.  There are no sectors at greater risk of expropriation, and there are no laws requiring local ownership. All expropriations have been subject to legal due process.

Dispute Settlement

ICSID Convention and New York Convention

Grenada is a signatory and contracting member of the International Center for Settlement of Investment Disputes since 1991, and has engaged this platform to resolve past disputes. While Grenadian laws have adapted the provisions outlined in the New York Convention, the country is not a contracting state and has not ratified the convention.

Investor-State Dispute Settlement

There were no known investment disputes involving a U.S. person over the past 10 years.

There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

In the event of an investment dispute between two foreign parties, between a foreign investor(s) and Grenadian parties, between Grenadian partners, or between investors and the government of Grenada, Grenadian law mandates that the parties shall first seek to settle their differences through consultation or mediation.  In the event that the parties fail to resolve the matter, they may then submit their dispute to arbitration; file a lawsuit in Grenadian courts; invoke the jurisdiction of the Caribbean Court of Justice; or adopt such other procedures as provided for in the Articles of Association of the investment enterprise.

There is no government interference in the court system.  Grenada participates in a court-connected mediation mechanism that can be accessed through the Mediation Centre.  This Centre was established by the statutory provisions of the Practice Direction Act No.1 of 2003. It extends court-connected mediation to all member states of the OECS and allows for civil actions filed in court to be referred to mediation.  Through this system, parties can utilize alternative dispute resolution mechanisms, including mediation, if the court deems them to be appropriate mechanisms for resolving the case.

Court-connected mediation, however, cannot be used in family proceedings, insolvency (including winding up of companies), non-contentious probate proceedings, proceedings when the High Court is acting as a prize court, and any other proceeding in the Supreme Court.

Bankruptcy Regulations

Grenada is ranked 168 out of 190 for ease of resolving insolvency in the World Bank’s Doing Business Report for 2019, the same ranking it received in 2018.

Chapter 27 of the Bankruptcy Act (Amended by Act No. 10 of 1990) makes provisions for all aspects of bankruptcy.  This was one of the laws recently amended under the new investment regime to modernize the law relating to bankruptcy and insolvency of individuals and companies.

Part III of this Act sets out what constitutes bankruptcy and the procedure for creditors to apply to the High Court for a bankruptcy order against a debtor and the appointment of a trustee in bankruptcy.  There are also provisions for the court to appoint an interim receiver pending the outcome of the application for a bankruptcy order.

Part III also has provision for a process whereby an insolvent person, with leave of the court, may make an assignment of the insolvent person’s property for the general benefit of creditors of the insolvent person.

The High Court exercises exclusive jurisdiction in matters related to bankruptcy.

Investment Incentives

Grenada provides a legal package of benefits and concessions for specific investment activities.  Incentives available include tax waivers, import duty exemptions, repatriation of profits, and withholding tax exemptions.

Trade-related incentives are notified under Article 25 and Article 27 of the Agreement on Subsidies and Countervailing Measures.  Concessions are available under the Income Tax Act, the Common External Tariff (SRO 42/09), the Property Transfer Act, the Petrol Tax Act, and the Customer Service Charge Act.

Incentives include accelerated depreciation (10 percent on physical plant and machinery; 2 percent on industrial buildings); investment allowance (100 percent write-off on total investment); carry forward of losses for three years; reductions in the property transfer tax; 100 percent relief from customs duties on physical plant, equipment, and raw materials; and deduction of expenditures incurred for training, research, and development.

Other incentives include no restrictions on foreign ownership; no restrictions on foreign currency transactions; and no restrictions on the repatriation of profits, capital, and dividends.  Certain incentives may be linked to the site of investment, the number of persons employed, or other factors. There was no instance that Grenada needed to review an approved investor for non-compliance with incentive requirements.

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

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no foreign trade zones or free ports in Grenada. However, there are various companies which offer duty free shopping for travelling customers.

Performance and Data Localization Requirements

CARICOM investors are accorded Rights of Establishment, while other foreign investors are required to obtain work permits and alien landholding licenses to invest in property.

The application fee for a work permit is XCD $100/USD $37 payable to the Work Permit Division of the Ministry of Labor.  Along with the completed application form, applicants must also submit four passport-sized photos, a police certificate of character from their country, certificates of qualification, and a letter of intention.  In addition, investors will need a character reference from a reputable person/former employer, a copy of the passport page indicating the last date of arrival in Grenada, a business registration certificate, company stamp, National Insurance Scheme compliance certificate, and recent tax compliance and VAT receipts.

The approval process takes two to three weeks, longer if there are questions, and is valid for one year.  U.S. investors and workers are required to pay USD $1,111 or XCD $3,000 per year for renewal.

There is no policy of “forced localization” of data storage and Grenada does not pressure international information and communications technology providers to provide source code or encryption keys.  The OECS and other stakeholders have begun to develop draft model laws on electronic regimes. Laws specific to data storage and protection have not yet made it onto the national legislative agenda.

There are no measures to prevent or impede companies from transmitting customer or business-related data outside the country. There are no performance requirements.  Investment incentives are applied uniformly to domestic and foreign investors on a case-by-case basis.

Corporate social responsibility (CSR), interchangeably used with responsible business conduct, is a concept that was introduced to Grenada relatively recently by multinational and regional corporations.  Local businesses are slowly incorporating this principle into their operations.

Some social responsibility initiatives undertaken by the private sector and non-governmental organizations (NGOs) include education programs, fitness programs, sporting activities, and cultural endeavors.  These are predominantly implemented by the telecommunication companies Digicel and LIME. There is also a recent push towards environmentally friendly business practices and project development.

While firms that promote CSR are more favorably viewed by the community, there is little familiarity with international CSR standards.  Activities are deemed to be responsible business conduct as long as they are lawful, not a threat to national security, and not detrimental to the environment, health, and culture of the Grenadian people.

There have been no high profile, controversial instances of private sector impact on human rights or resolution of such cases in the recent past.

Grenada effectively and fairly enforces domestic laws in relation to human rights, labor rights, consumer protection, environmental protection, and other laws/regulations intended to protect individuals from adverse business impacts.  Additionally, local labor unions play a role in promoting and monitoring responsible business conduct.

Grenada signed and ratified all of the International Labor Organization’s (ILO) undertakings and enshrined these rights into its labor laws, including the Labor Relations Act No.1 of 1999 and the Employment Act No. 1 of 1999.  Grenadian law protects the right of workers to be represented by a trade union of their choice.

Employers are generally expected to recognize a union that represents the majority of workers, but are not obligated to recognize a minority union formed by some employees if the majority of the workforce does not belong to said union.  In accordance with the Trade Union Recognition Act No 29 of 1979 (Cap. 325 of the Consolidated Laws of Grenada), investors shall grant union representation at any site of employment if the majority of their employees indicate the desire for union representation.  Investment enterprises are also required to contribute to the social insurance and welfare programs for their workers in accordance with the National Insurance Act.

With regard to essential services, the Ministry of Labor in its discretion may refer the disputes to compulsory arbitration.  Essential services include employees of utility companies; public health and protection sectors, including sanitation; and airport, seaport, and dock services.

Grenada does not restrict the legal activities of trade unions.  The majority of the workforce is unionized, and the labor relations atmosphere on the island is generally stable.

Article 32 of the Employment Act prohibits employment of children under the age of 16 except for temporary holiday employment.  Part 7 of the Employment Act provides for the protection and regulation of wages, and article 52 mandates the minimum wage. Minimum wage schedules are set by occupation.

Preliminary results from the 2018 Labor Force Survey indicated that the unemployment rate fell by 2.7 percent, moving from 23.6 percent in December 2017 to 20.9 percent in June 2018.

There were strikes in the past year but none posed an investment risk and negotiations towards a satisfactory resolution continue.  There are no gaps in compliance in law or practice with international labor standards that may pose a reputational risk to investors.  No potential gaps were identified in law or in practice with international standards by the ILO.

No new labor-related laws or regulations were enacted during the last year, and no bills are pending. While there was a revision to the Labor Code in 2016, this revision was not enacted due to employers’ concerns.

Grenada acceded to the U.S. Overseas Private Investment Corporation (OPIC) in 1968.  Through investment guarantees issued by the U.S. government and other programs, OPIC seeks to encourage private investments in projects that will contribute to the development of Grenada’s economic resources and productive capacities.

Grenada is eligible for assistance via the Clean Energy Finance Facility for the Caribbean and Central America, a financing mechanism supported by OPIC, the U.S. Agency for International Development, the U.S. Trade and Development Agency, and the U.S. Department of State.  For more on this program, see: www.opic.gov/opic-action/renewable-resources/caribbean-renewables  .

Policies Towards Foreign Direct Investment

The GoG continues to promote investment opportunities and work on reforms to enhance competitiveness and the business environment.  Guatemala’s investment promotion office, Guatemala Trade and Investment (GTI), currently operates within the Ministry of Economy and Foreign Trade (MINECO).  GTI provides support to potential foreign investors by offering information, assessment, and personalized assistance, including coordination of country visits and contact referrals.  Services are available to all investors without discrimination. The 2019 Heritage Economic Freedom Index gave Guatemala a score of 62.6 out of 100, down 0.8 points from 2018, reflecting declines in trade freedom and business freedom and slight improvements in fiscal health and government spending.  The 2019 Economic Freedom Index noted government integrity, property rights, judicial effectiveness, and business freedom were as areas of concern. The World Bank’s Doing Business 2019 ranked Guatemala 98 out of 190 countries, one position lower than its rank in 2018. The two areas where the country had the highest rankings were access to credit and electricity.  Areas where challenges remain and reforms are most needed are: protecting minority investors, enforcing contracts, and resolving insolvency. Guatemala’s ranking in the 2018 World Economic Forum’s Global Competitiveness Index 4.0 declined five positions from 91 to 96 (out of 140 economies). Guatemala ranked highly in internal labor mobility, attitudes towards entrepreneurial risk, and soundness of banks, but ranked 138 in organized crime and 132 in both homicide rate and mobile-broadband subscriptions.

International investors tend to engage with the GoG via chambers of commerce or industry associations, or directly with specific government ministries.  There is no formal business roundtable with regard to investment retention.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

There are no impediments to the formation of joint ventures or the purchase of local companies by foreign investors.  The absence of a developed, liquid, and efficient capital market, in which shares of publicly-owned firms are traded, makes equity acquisitions in the open market difficult.  Most foreign firms, therefore, operate through locally incorporated subsidiaries.

There are no restrictions on foreign investment in the telecommunications, electrical power generation, airline, or ground-transportation sectors.  The Foreign Investment Law removed limitations to foreign ownership in domestic airlines and ground-transport companies in January 2004. The GoG currently does not have any screening mechanisms for inbound foreign investment.

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

Other Investment Policy Reviews

Guatemala has been a World Trade Organization (WTO) member since 1995.  The GoG had its last WTO trade policy review (TPR) in November 2016. In 2011, the United Nations Conference on Trade and Development (UNCTAD) conducted an investment policy review (IPR) on Guatemala.  The WTO TPR highlighted Guatemala’s efforts to increase trade liberalization and economic reform efforts by eliminating export subsidies for free trade zone and export-focused manufacturing and assembly operation (maquila) regimes as well as the passage of amendments to the government procurement law to improve transparency and efficiency.  The WTO TPR also noted that Guatemala continues to lack a general competition law and a corresponding competition authority. The UNCTAD IPR recommended strengthening the public sector’s institutional capacity and highlighted that adopting a competition law and policy should be a priority in Guatemala’s development agenda. The GoG agreed to approve a competition law by November 2016 as part of its commitments under the Association Agreement with the European Union, but it has not been approved as of April 2019.  Other important recommendations from the UNCTAD IPR were to further explore alternative dispute resolution mechanisms and the establishment of courts for commercial and land disputes, though as of April 2019 the GoG had not made substantive progress on these recommendations either.

Business Facilitation

The GoG has a business registration website (https://minegocio.gt/  ), which facilitates on-line registration procedures for new businesses.  Foreign companies are able to use the online business registration, but the process is faster, less expensive, and requires fewer official notifications if the company is incorporated locally.  As a result of the entry into force of the Commercial Code amendments in January 2018, the time to register a new business online for a locally incorporated company went down from an average of 18.5 days in 2016 to an average of six days as of April 2019.  The legal cost to register a business also fell by approximately 75 percent. The new procedures allow locally incorporated businesses to receive their business registration certificates online. According to a self-assessment from the Guatemalan Ministry of Economy, which the Global Enterprise Registration also reviewed, businesses can simultaneously request more than 50 percent of the mandatory registrations online and the site provides phone or online contacts to submit complaints for each registration requirement.  At minimum, each company must register with the business registry, the tax administration authority, the social security institute, and the labor ministry.

Outward Investment

Guatemala does not incentivize nor restrict outward investment.

Transparency of the Regulatory System

Tax, labor, environment, health, and safety laws do not directly impede investment in Guatemala.  Bureaucratic hurdles are common for both domestic and foreign companies, including lengthy processes to obtain permits and licenses and receive shipments.  The legal and regulatory systems are confusing and not transparent. Regulations often contain few explicit criteria for government administrators, resulting in ambiguous requirements that are applied inconsistently by different government agencies and the courts.  While there is no apparent systematic discrimination against foreign companies in these processes, these inconsistencies can favor local firms that are more familiar with these challenges.

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

The Guatemalan Congress passed the Law to Strengthen Fiscal Transparency and Governance of Guatemala’s Tax and Customs Authority (SAT) in July 2016, which included amendments to SAT’s Internal Law, the Tax Code, and other laws to allow SAT’s access to banking records for auditing purposes with a judge’s approval.  Guatemala’s Constitutional Court (CC) provisionally suspended the 2016 law’s provision that allowed SAT’s access to banking records in August 2018 due to a claim of unconstitutionality filed against that provision. The final CC’s decision remains pending as of April 2019. The SAT is also analyzing methods to streamline various internal and external procedures.

International Regulatory Considerations

Guatemala is a member of the Central American Common Market and as such adopted the Central American uniformed customs tariff schedule.  As a member of the WTO, the GoG notifies the WTO Committee on Technical Barriers to Trade (TBT) of draft technical regulations. The Guatemalan Congress approved the WTO’s Trade Facilitation Agreement in January 2017, which entered into force for Guatemala March, 8, 2017.  Guatemala classified 63.9 percent of its commitments under Category A, which includes commitments to be implemented upon entry into the agreement; 8.8 percent under Category B, which includes commitments to be implemented between February 2019 to July 2020; and 27.3 percent under Category C, which includes commitments to be implemented between February 2020 and July 2024.  Guatemala transmitted its list of official websites with information for governments and trade participants to the WTO’s Committee on Trade Facilitation in March 2019.

In 1996, Guatemala ratified Convention 169 of the International Labor Organization (ILO 169), which entered into force in 1997.  Article 6 of the Convention requires the government to consult indigenous groups or communities prior to initiating a project that could affect them directly.  Potential investors should determine whether their investment will affect indigenous groups and, if so, request that the GoG lead a consultation process in compliance with ILO 169.  The Guatemalan Congress is currently considering a draft law to create a community consultation mechanism to fulfill its ILO-mandated obligations.

Legal System and Judicial Independence

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

The judicial system is designed to be independent of the executive branch, and the judicial process for the most part is procedurally competent, fair, and reliable.  However, there have been accusations of corruption within the judicial branch.

Laws and Regulations on Foreign Direct Investment

More than 200 U.S. firms as well as hundreds of foreign firms have active investments in Guatemala.  CAFTA-DR established a more secure and predictable legal framework for U.S. investors operating in Guatemala.  Under CAFTA-DR, all forms of investment are protected, including enterprises, debt, concessions, contracts, and intellectual property.  U.S. investors enjoy the right to establish, acquire, and operate investments in Guatemala on an equal footing with local investors in almost all circumstances.  The U.S. Embassy in Guatemala places a high priority on improving the investment climate for U.S. investors. Guatemala passed a foreign investment law in 1998 to streamline and facilitate foreign investment.  The GoG continues to work on legislative reforms aimed at supporting economic growth and closing regulatory loopholes that are barriers to investment. In order to ensure compliance with CAFTA-DR, the Guatemalan Congress approved in May 2006 a law that strengthened existing legislation on intellectual property rights (IPR) protection, government procurement, trade, insurance, arbitration, and telecommunications, as well as the penal code.  Congress approved an e-commerce law in August 2008, which provides legal recognition to electronically-executed communications and contracts; permits electronic communications to be accepted as evidence in all administrative, legal, and private actions; and, allows for the use of electronic signatures. The GOG does not regulate online payments outside of the formal financial sector, however.

The United States has filed two separate cases regarding concerns with the GoG’s adherence to its CAFTA-DR obligations.  For a labor law case, the GOG established an arbitral panel, pursuant to CAFTA-DR procedures, to consider whether Guatemala met its obligations to effectively enforce its labor laws.  The arbitral panel held a hearing in June 2015 and issued a decision favorable to Guatemala in June 2017. Regarding an environmental case, the CAFTA-DR Secretariat for Environmental Matters suspended its investigation in 2012 when the GoG provided evidence that the relevant facts of the case were under consideration by Guatemala’s Constitutional Court.  The court dismissed the case on procedural grounds in 2013.

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

Companies that carry out export activities or sell to exempted entities have the right to claim value added tax (VAT) credit refunds for the VAT paid to suppliers and documented with invoices for purchases of the goods and services used for production.  During the past few years, local and foreign companies experienced significant delays in receiving their refunds. Guatemala’s Tax and Customs Authority (SAT) began implementing a new plan in 2017 to streamline the process and expedite VAT credit refunds.  The Guatemalan congress approved legal provisions in April 2019 that will contribute to expediting VAT credit refunds to exporters later in 2019.

As part of its 2012 income tax reform, the GoG began implementing transfer pricing provisions in 2016.

Competition and Anti-Trust Laws

Guatemala does not currently have a law to regulate monopolistic or anti-competitive practices.  The GoG agreed to approve a competition law by November 2016 as part of its commitments under the Association Agreement with the European Union.  The GoG submitted a draft competition law to Congress in May 2016, but it was still pending approval by Congress as of April 2019.

Expropriation and Compensation

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

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

In June 2007, a U.S. company operating in Guatemala filed a claim under the investment chapter of CAFTA-DR against the GoG with the International Centre for Settlement of Investment Disputes (ICSID Convention).  The claimant alleged the GoG indirectly expropriated the company’s assets through a breach of contract. The company requested USD 65 million in compensation and damages from the GoG. The ICSID court issued its ruling on this case in June 2012 and stated that the GoG had in fact breached the minimum standard of treatment under Article 10.5 of CAFTA-DR and required the GoG to pay an award of USD 14.6 million.  The GoG paid the award in November 2013.

Dispute Settlement

ICSID Convention and New York Convention

Guatemala is a signatory to convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention), the Inter-American Convention on International Commercial Arbitration (Panama Convention), and is a member state to the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).

Investor-State Dispute Settlement

CAFTA-DR incorporated dispute resolution mechanisms for investors.  Over the past ten years, three investment disputes involving U.S. businesses were filed under the investment chapter of CAFTA-DR against the GoG with the ICSID – one in 2010 and the other in 2018.  A Spanish firm filed a claim with the ICSID in 2009 on the same case filed by the U.S. investor in 2010. The U.S. investor filed the first claim under the agreement in June 2007 and the status of that case is described under the Expropriation and Compensation section of this report.

In October 2010, a U.S. company operating in Guatemala filed the second claim against the GoG with the ICSID.  The claim seeks to resolve a dispute against the GoG regarding the regulation of electricity rates and the eventual sale of the company.  In 2013, ICSID’s arbitral tribunal issued its judgment and awarded the company over USD 21 million in damages over electricity rates and USD 7.5 million to cover legal expenses.  In 2014, the GoG filed an appeal to have the 2013 award annulled. On the same date, the company also filed for a partial annulment of the award. The ICSID ad-hoc committee issued its decision on both annulment proceedings in April 2016.  The company then filed a request to resubmit the dispute over the sale to a new tribunal in October 2016. The new ICSID tribunal, constituted in February 2017, held a hearing on jurisdiction and merits of this case in March 2019. The case remains pending before the ICSID as of April 2019.

In December 2018, a U.S company operating in Guatemala filed the third claim against the GoG under the investment chapter of CAFTA-DR with the ICSID.  The claim seeks to resolve a dispute against the GoG regarding the suspension of the claimant’s mining exploitation license by the Guatemalan courts in 2016 due to lack of consultations with local communities pursuant to International Labor Organization (ILO) 169 Convention.  The case remains pending before the ICSID as of April 2019.

International Commercial Arbitration and Foreign Courts

Guatemala’s Foreign Investment Law also allows alternative dispute resolution mechanisms, if agreed to by the parties.  Currently, there are two alternative dispute resolution mechanisms available in Guatemala to settle disputes between two private parties: the Center of Arbitration and Conciliation of the Guatemalan Chamber of Commerce (CENAC) and the Conflict Resolution Commission of the Guatemalan Chamber of Industry (CRECIG).  Both dispute resolution centers provide support with arbiters and logistics. Guatemala’s Arbitration Law of 1995 uses the U.N. Commission on International Trade Law (UNCITRAL) Model Law as the basis for its rules on international arbitration. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention), of which Guatemala is a signatory, recognizes the subsequent enforcement of arbitral awards under these arbitration rules.  The Law of the Judiciary recognizes judgments of foreign courts, but judgments must be final and comply with a legalization process to corroborate validity of the judgment.

Bankruptcy Regulations

Guatemala does not have an independent bankruptcy law.  However, the Code on Civil and Mercantile Legal Proceedings contains a specific chapter on bankruptcy proceedings.  Under the code, creditors can request to be included in the list of creditors; request an insolvency proceeding when a debtor has suspended payments of liabilities to creditors; and constitute a general board of creditors to be informed of the proceedings against the debtor.  Bankruptcy is not criminalized, but it can become a crime if a court determines there was intent to defraud. According to the World Bank’s 2019 Doing Business Report, Guatemala ranked 156 out of 190 countries in resolving insolvency. The Ministry of Economy and members of the Congressional Economic and Foreign Trade Committee submitted a draft bankruptcy law to Congress in May 2018, which is pending Congressional approval as of April 2019.

Investment Incentives

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

Guatemala’s primary incentive program – the Law for the Promotion and Development of Export Activities and Maquilas – is aimed mainly at the apparel and textile sector and at services exporters such as call centers and business processes outsourcing (BPO) companies.  The government grants investors in these two sectors a 10-year income tax exemption. Additional incentives include an exemption from duties and value-added taxes (VAT) on imported machinery and equipment and a one-year suspension of the same duties and taxes on imports of production inputs, samples, and packing material.  Taxes are waived when the goods are re-exported. The Free Trade Zone Law provides similar incentives to the incentive program described above, but its beneficiaries include only some services providers and a limited number of manufacturing activities such as apparel manufacturers and motorcycle assemblers. The Guatemalan Congress approved the Law for Conservation of Employment (Decree 19-2016) in February 2016, amending Guatemala’s two major incentive programs to replace tax incentives related to exports that Guatemala dismantled on December 31, 2015, per WTO requirements.  The income tax exemption granted through the Law for the Promotion and Development of Export Activities and Maquilas applies exclusively to apparel and textile companies as well as to exporters of services, such as call centers and BPO companies.

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

Foreign Trade Zones/Free Ports/Trade Facilitation

Decree 65-89, Guatemala’s Free Trade Zones Law and its amendments approved through Decree 19-2016, Law for Conservation of Employment, permits the establishment of free trade zones (FTZs) in any region of the country.  Developers of private FTZs must obtain authorization from MINECO to install and manage a FTZ. Businesses operating within authorized FTZs also require authorization from MINECO. The law specifies investment incentives, which are available to both foreign and Guatemalan investors without discrimination.  As of April 2019, there were 10 authorized FTZs operating in Guatemala. Currently, services and a limited number of manufacturing activities are the only beneficiaries of Guatemala’s Free Trade Zones Law. The Guatemalan Congress is considering amendments to the Free Trade Zones Law to reinstate tax incentives to some of the activities removed during the previous reform.

Performance and Data Localization Requirements

Guatemala does not impose performance, purchase, or export requirements, other than those normally associated with free trade zones and duty drawback programs.  The Labor Code requires that at least 90 percent of employees must be Guatemalan, but the requirement does not apply to high-level positions such as managers and directors.  Companies are not required to include local content in production.

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

There is a general awareness of expectations of standards for responsible business conduct (RBC) on the part of producers and service providers, as well as Guatemalan business chambers.   A local organization called the Center for Socially Responsible Business Action (CentraRSE) promotes, advocates, and monitors RBC in Guatemala. They operate freely with multiple partner organizations, ranging from private sector to United Nations entities.  CentraRSE currently has over 100 affiliated companies from 20 different sectors that represent about 30 percent of GDP and provide employment to over 150,000 individuals. CentraRSE defines RBC as a business culture based on ethical principles, strong law enforcement, and respect for individuals, families, communities, and the environment, which contributes to businesses competitiveness, general welfare, and sustainable development.  The GoG does not have a definition of RBC as of April 2019. Guatemala joined the Extractive Industries Transparency Initiative (EITI) in February 2011 and was designated EITI compliant in March 2014. The EITI board suspended Guatemala in February 2019 for failing to publish the 2016 EITI report and the 2017 annual progress report by the December 31, 2018 deadline. Guatemala published the 2016-2017 EITI report and the 2017 annual progress report in February and March 2019.

In January 2014, the State Department recognized a U.S.-based company as one of twelve finalists for the Secretary of State’s 2013 Award for Corporate Excellence for its contributions to sustainable development in Guatemala.  The Department has also recognized U.S. companies such as McDonald’s, Starbucks, and Denimatrix for corporate social responsibility (CSR) programs that aimed to foster safe and productive workplaces as well as provide health and education programs to workers, their families, and local communities.  Communities with low levels of government funding for health, education, and infrastructure generally expect companies to implement CSR practices.

Conflict surrounding extractive projects – in particular mining and hydroelectric projects – is frequent, and there have been several cases of violence against protestors in the recent past, including several instances of murder.  The GoG continues to improve its capacity to respond to protests and help facilitate a peaceful resolution. Protests against companies are normally peaceful and usually take place only after the aggrieved parties have attempted to dialogue directly with the company in question.

The Guatemala workforce consists of an estimated 2.0 million individuals employed in the formal sector and roughly 4.82 million individuals who work in the informal sector, including some who are too young for formal sector employment.  According to the 2017 Survey on Employment and Income, child labor, particularly in rural areas, remains a serious problem in certain industries. Approximately 33 percent of the total labor force is engaged in agricultural work. The availability of a large, unskilled, and inexpensive labor force led many employers, such as construction and agricultural firms, to use labor-intensive production methods.  Roughly 16 percent of the employed workforce is illiterate. In developed urban areas, however, education levels are much higher, and a workforce with the skills necessary to staff a growing service sector emerged. Even so, highly capable technical and managerial workers remain in short supply, with secondary and tertiary education focused on social science careers.

No special laws or exemptions from regular labor laws cover export-processing zones.  In December 2015, then-President Alejandro Maldonado issued an executive order establishing a lower minimum wage for workers employed by light manufacturing export companies in four of 340 municipalities of the country, with the intention of attracting foreign investment and creating jobs in those areas.  The order never took effect due to a temporary injunction filed against it. The Morales Administration revoked the executive order in February 2016. The Labor Code requires that at least 90 percent of employees be Guatemalan, but the requirement does not apply to high-level positions. The Labor Code sets out employer responsibilities regarding working conditions, especially health and safety standards, benefits; severance pay; premium pay for overtime work; minimum wages; and bonuses.  Mandatory benefits, bonuses, and employer contributions to the social security system can add up to about 55 percent of an employee’s base pay. However, many workers, especially in the agricultural sector, do not receive the full compensation package mandated in the labor law. According to the Human Rights Ombudsman (PDH) 2018 report, the Social Security Institute in Guatemala reported that in 2017 the social security system covered 18.3 percent of the Guatemalan population. All employees are subject to a two-month trial period during which time they may resign or be discharged without any obligation on the part of the employer or employee.  An employer may dismiss an employee at any time, for any reason (except pregnancy) and without giving the employee any notice during the trial period. For any dismissal after the two-month trial period, the employer must pay unpaid wages for work already performed, proportional bonuses, and proportional vacation time. If an employer dismisses an employee without just cause, the employer must also pay severance equal to one month’s regular pay for each full year of employment.

Guatemala’s Constitution guarantees the right of workers to unionize and to strike, with an exception to the right to strike for security force members and workers employed in hospitals, telecommunications, and other public services considered essential to public safety.  Before a strike can be declared, workers and employers must engage in mandatory conciliation and then approve a strike vote by 50 percent plus one worker in the enterprise. If conciliation fails, either party may ask the judge for a ruling on the legality of conducting a strike or lockout.  Legal strikes in Guatemala are extremely rare. The Constitution also commits the state to support and protect collective bargaining, and holds that international labor conventions ratified by Guatemala establish the minimum labor rights of workers if they offer greater protections than national law.  In most cases, labor unions operate independently of the government and employers both by law and in practice. The law requires unions to register with the Ministry of Labor (MinTrab) and their leadership must obtain credentials from MinTrab to carry out their functions. Delays in such proceedings are common. The law prohibits anti-union discrimination and employer interference in union activities and requires employers to reinstate workers dismissed for organizing union activities.  A combination of inadequate allocation of budget resources to MinTrab and other relevant state institutions, and inefficient administrative and justice sector processes, act as significant impediments for more effective enforcement of labor laws to protect these workers’ rights. As a result, investigating, prosecuting, and punishing employers who violate these guarantees remain a challenge, particularly the enforcement of labor court orders requiring reinstatement and payment of back wages resulting from dismissal.  The rate of unionization in Guatemala is very low. The PDH’s 2018 report indicates that there are only 640 active unions and 55 percent of those are in the public sector. In the private sector, PDH estimates that less than one percent of workers are unionized.

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

Guatemala ratified the Multilateral Investment Guarantee Agency (MIGA) Convention in 1996.  The Overseas Private Investment Corporation (OPIC) is active in Guatemala, providing both insurance and investment financing.  OPIC applicants are generally able to obtain foreign government approval quickly. For more information, U.S. investors should contact OPIC headquarters in Washington, D.C., at (202) 336-8799, or go to www.opic.gov  .

Policies Toward Foreign Direct Investment

Haiti’s legislation encourages foreign direct investment. Import and export policies are non-discriminatory and are not based on nationality. Haitian and foreign investors have the same rights, privileges and protections under the 1987 investment code. Investors have reported that despite Haiti’s investment code and legislation to encourage foreign direct investment, there have not been any notable improvements in recent years in the legal framework and investment code to improve Haiti’s business climate, create and strengthen core public institutions, and enhance economic governance and transparency. 

The Central Bank continues to work with the International Monetary Fund (IMF) and the World Bank to implement measures aimed at creating a stable macroeconomic environment. The Central Bank and the Ministry of Economy and Finance concluded a staff-level agreement in March 2019 with the IMF for an extended credit facility, which, if implemented, would provide liquidity to the Haitian government while also setting targets for improvement in fiscal policy. In the fall of 2018, the government of Haiti rescinded its spring 2018 decision that required all business transactions to be in Haitian gourdes. As of September 2018, the government’s foreign debt reached USD 2.12 billion, mainly in support of the country’s infrastructure and rebuilding efforts. Over 85 percent of this debt is owed to Venezuela through the Petro Caribe program.

Despite passing anti-money laundering and anti-corruption laws to ensure that Haiti’s legislation corresponds with international standards, some report that the government has not followed the legal framework of these laws, and has failed to incentivize investment in Haiti.  In early 2017, the government enacted a law making electronic signatures and electronic transactions legally binding. Other pieces of legislation that may improve Haiti’s investment climate are pending parliamentary approval, including incorporation procedures, a new mining code, and an insurance code. 

The Center for Facilitation of Investment (CFI) was established to promote investment opportunities in Haiti. The CFI’s main goals include streamlining the investment process by simplifying procedures related to trade and investment, providing updated economic and commercial information to local and foreign investors, and promoting investment in priority sectors. In practice, however, the government of Haiti made limited progress in 2018 in incentivizing job creation and boosting national production in agriculture, apparel assembly, and tourism. The Haitian government seeks to redirect CFI’s focus towards the promotion of domestic and international investment with continued emphasis on public relations. The CFI also offers tailored services to large investors interested in Haiti.

The CFI’s Director General oversees the agency, which also serves as the secretariat for Haiti’s Interministerial Commission, which makes decisions on business tax exemptions and incentives. The Director of Promotion works to attract investment in Haiti, while the Director of Facilitation coordinates with public sector agencies and administrative entities to ensure that CFI follows up with businesses in a timely fashion. The CFI was closed for multiple weeks and unable to operate at full capacity during periods of civil unrest in early 2019.  

Limits on Foreign Control and Right to Private Ownership and Establishment

Investors in Haiti can create the following types of businesses: sole proprietorship, limited or general partnership, joint-stock company, public company (corporation), subsidiary of a foreign company, and co-operative society. The most commonly used business structures in Haiti are corporations. Legislation for a Corporate Law Act, which would facilitate the creation of other types of businesses in Haiti, such as LLCs, is in draft stage and has been pending Parliamentary approval since May 2017. 

Foreign investors are permitted to own 100 percent of a company or subsidiary. As a Haitian entity, such companies enjoy all rights and privileges provided under the law. Additionally, foreign investors are permitted to operate businesses without equity-to-debt ratio requirements. The accounting law allows foreigners to capitalize using tangible and intangible assets in lieu of cash investments.

Foreign investors are free to enter into joint ventures with Haitian citizens. The distribution of shares is a private matter between the two parties. However, the State regulates the sale and purchase of company shares. Investment in certain sectors, such as health and agriculture, requires special government of Haiti authorization. Investment in “sensitive” sectors such as electricity, water, telecommunications, and mining requires a Haitian government concession as well as authorization from the appropriate state agency. In general, natural resources are the property of the state. Mining, prospecting, and operating permits may only be granted to companies established and resident in Haiti.

Entrepreneurs are free to dispose of their properties and assets, and to organize production and marketing activities in accordance with local laws.

The government of Haiti does not impose discriminatory requirements on foreign investors. Haitian laws related to residency status and employment are reciprocal. Foreigners who are legal residents in Haiti and wish to engage in trade have, within the framework of laws and regulations, the same rights granted to Haitian citizens. However, Article 5 of the Decree on the Profession of Merchants reserves the function of manufacturer’s agent for Haitian nationals.

Foreign firms are also encouraged to participate in government-financed development projects. Performance requirements are not imposed on foreign firms as a condition for establishing or expanding an investment, unless indicated in a signed contract.

Other Investment Policy Reviews

Haiti’s last investment policy review from the United Nations Conference on Trade and Development occurred in 2012-2013. In general, Haiti’s political instability, weak institutions, and inconsistent economic policies impede the country’s ability to drive foreign direct investment. 

The World Trade Organization’s (WTO) 2015 Trade Policy Review stated that Haiti’s Investment Code and Law on Free Trade Zones is fully compliant with the Agreement on Trade-Related Investment Measures (TRIMs).

Business Facilitation

The Ministry of Commerce and Industry’s internet registry allows investors to search for or verify the existence of a business in Haiti. The registry should eventually provide on-line registration of companies through an electronic one-stop shop. The one-stop shop is part of a project sponsored by the Inter-American Development Bank (IDB) that seeks to reduce the time needed to register a limited company in Haiti to 10 days, though it is not yet operational.  At present, it takes between 70 and 90 days to complete registration with the Commercial Registry at the Ministry of Commerce and obtain the authorization of operations (Droit de fonctionnement). 

All businesses must register with the Ministry of Commerce and Industry, the Haitian tax office, the quasi-governmental National Credit Bank (Banque Nationale de Credit), the social security office, and the retirement insurance office. Businesses, both foreign and domestic, can register at Haiti’s Center for Facilitation of Investments (CFI): http://cfihaiti.com/  .  According to the World Bank’s 2019 Ease of Doing Business Report, the average time to start a business in Haiti is 189 days. 

The Ministry of Commerce and Industry generally defines medium-sized enterprises as having less than 20 employees. The Ministry of Commerce and Industry offers some technical and financial assistance to small- and medium-sized businesses. 

Outward Investment

Neither Haitian law nor practice restricts domestic investors from investing abroad. Still, Haiti’s outward investment is limited to a few enterprises with small investments. The profile of these investors includes businesspersons with dual citizenship and others of Haitian origin who presently reside in the country in which their firms operate. The majority of these firms are service providers and not investment firms. 

The Center for Facilitation of Investment, in collaboration with the United Nations Development Program, Inter-American Development Bank, and the United Nations Development Program launched two distinct platforms, “Export Haiti” and “Haiti Service Providers,” on December 10, 2018 to help Haitian producers export their products, and help visitors find service providers in Haiti. 

Transparency of the Regulatory System

Haitian laws are written to allow for transparency and to be applied universally. Haitian officials, however, do not widely enforce these laws and the bureaucratic obstacles in the Haitian legal system are often considerable.

Tax, labor, health, and safety laws and policies are also loosely enforced. All regulatory processes are managed exclusively by the government and do not involve the private sector and non-governmental organizations.  The private sector often provides services, such as health care, to employees that are not entitled to coverage under government of Haiti agencies or institutions.

Draft bills or regulations are available to the public through Le Moniteur, the official journal of the Haitian government.  Some information is available online. Le Moniteur contains public agency rules, decrees, and public notices that the Les Presses Nationales d’Haiti publishes.

International Regulatory Considerations

Haiti is a member of the Caribbean Community (CARICOM). The CARICOM Single Market and Economy (CSME), created in 1989, aims to advance the region’s integration into the global economy by facilitating free trade in goods and services, and the free movement of labor and capital. CSME became operational in January 2006 in twelve of the fifteen Member States. Haiti, as a member of CARICOM, has expressed an interest in participating fully in CSME. However, to become eligible, Haiti must amend its customs code to align with CARICOM and WTO standards. In March of 2017, Haiti notified the WTO of its intent to adjust its tariff rates to align them with CARICOM Common External Tariffs. The proposal is still under consideration.  Haiti does not grant tariff preferences to any country, but will grant them when provisions of the CARICOM Treaty come into effect. 

Haiti also adheres to the compulsory jurisdiction of the International Court of Justice on issues of international law, and of the Caribbean Court of Justice for the settlement of trade disputes within CARICOM.

Haiti is an original member of the WTO. As such, it has made several commitments to the WTO with regard to the financial services sector. These commitments include allowing foreign investment in financial services, such as retail, commercial, investment banking, and consulting. One foreign bank, Citibank, operates in Haiti. Unibank bought the Haitian operations of Scotiabank when Scotiabank exited the Haitian market in 2017. Haiti has committed to notifying the WTO Committee on Technical Barriers to Trade of all draft technical regulations. Haiti is not party to the Trade Facilitation Agreement.

Legal System and Judicial Independence

As a former French colony, Haiti adopted the French civil law system. The Supreme Court, also known as the Superior Magistrate Council, is the highest court of the nation, followed, in descending order, by the Court of Appeals and the Court of First Instance. Haiti’s commercial code dates back to 1826 and underwent significant revisions in 1944. There are few commercial laws in place and there are no commercial courts. Injunctive relief is based upon penal sanctions rather than securing desirable civil action. Similarly, contracts to comply with certain obligations, such as commodities futures contracts, are not enforced. Haitian judges do not have specializations, and their knowledge of commercial law is limited. Utilizing Haitian courts to settle disputes is a lengthy process and cases can remain unresolved for years. Bonds to release assets frozen through litigation are unavailable. Business litigants often pursue out-of-court settlements.

The Haitian Chamber of Commerce and Industry, in partnership with the government of Haiti and with funding from the EU, has a commercial dispute settlement mechanism, known as the Arbitration and Conciliation Chamber that provides a mechanism for conciliation and arbitration in cases of private commercial disputes.

According to U.S. citizens seeking to resolve legal disputes, Haiti’s legal system often presents challenges. There are persistent allegations that some Haitian officials use their public office to influence commercial dispute outcomes for personal gain. With international assistance, however, the Haitian government is actively working to increase the credibility of the judiciary and the effectiveness of the national police.

Laws and Regulations on Foreign Direct Investment

The Investment Code prohibits fiscal and legal discrimination against foreign investors. The code explicitly recognizes the crucial role of foreign direct investment in promoting economic growth. It also aims to facilitate, liberalize, and stimulate private investment, and contains exemptions to promote investments that enhance competitiveness in sectors deemed priorities, especially export-oriented sectors. Tax incentives, such as reductions on taxable income and tax exemptions, are designed to promote private investment. Additionally, the code grants Haitian and foreign investors the same rights, privileges and equal protection. Foreign investors must be legally registered and pay appropriate local taxes and fees.

The code also established an Inter-Ministerial Investment Commission to examine investor eligibility for license exemptions as well as customs and tariff advantages. The CFI is the Technical Secretariat of the Commission. The Prime Minister, or his delegate, chairs the Commission, which is composed of representatives of the Ministries of Economy and Finance, Commerce, and Tourism, as well as those ministries that oversee specific areas of investment. The Commission must authorize all business sales, transfers, mergers, partnerships, and fiscal exemptions within the scope of the code. The Commission also manages the process of fining and sanctioning enterprises that disregard the code.

Investment in certain sectors, such as health and agriculture, requires special government of Haiti authorization. Investment in “sensitive” sectors, such as electricity, water, and telecommunications, requires a Haitian government concession as well as an authorization from the appropriate state agency. In general, the government of Haiti considers natural resources as state property. Accordingly, exploring or exploiting mineral and energy resources requires concessions and permits from the Ministry of Public Works’ Bureau of Mining and Energy. Mining, and operating permits may only be granted to firms and companies established in Haiti.

The following areas are often noted by businesses as challenging aspects of Haitian law: operation of the judicial system; publication of laws, regulations, and official notices; establishment of companies; land tenure and real property law and procedures; bank and credit operations; insurance and pension regulation; accounting standards; civil status documentation; customs law and administration; international trade and investment promotion; foreign investment regulations; and regulation of market concentration and competition. Although these deficiencies allegedly hinder business activities, they are not specifically aimed at foreign firms; rather, they appear to affect both foreign and local companies equally.

Competition and Anti-Trust Laws

There is currently no law to regulate competition. Haiti is one of the most open economies in the region. The investment code provides the same rights, privileges and equal protection to local and foreign investors. Anti-corruption legislation also criminalizes nepotism and the dissemination of inside information on public procurement processes. Haiti does not, however, have anti-trust legislation.

Expropriation and Compensation

The 1987 Constitution allows expropriation or dispossession only for reasons of public interest or land reform, and is subject to prior payment of fair compensation as determined by an expert. If the initial project for which the expropriation occurred is abandoned, the Constitution stipulates that the expropriation will be annulled and the property returned to the original owner. The Constitution prohibits nationalization and confiscation of real and personal property for political purposes or reasons.

Title deeds are vague and often insecure. The government of Haiti established the National Institute of Agrarian Reform (INARA) to implement expropriations of private agricultural properties with appropriate compensation. The agrarian reform project, initiated under the Preval administration (1996-2001), was controversial among both Haitian and U.S. property owners. There have been complaints of non-compensation for the expropriation of property. Moreover, a revision of the land tenure code, intended to address issues related to the lack of access to land records, surveys, and property titles in Haiti, has been pending in Parliament since 2014. A recent partnership between the private sector, Haitian government, and international organizations developed a useful guide formalizing land tenure, which can be found at: http://www.foncier-developpement.fr/publication/la-securisation-des-droits-fonciers-en-haiti-un-guide-pratique/  

Dispute Settlement

ICSID Convention and New York Convention

In 2009, Haiti ratified the 1965 International Convention on the Settlement of Investment Disputes between states and nationals of other states (ICSID). Under the convention, foreign investors can call for ICSID arbitration for disputes with the state. The government of Haiti appears to recognize that weak enforcement mechanisms and a lack of updated laws to handle modern commercial disputes severely compromises the protections and guarantees that Haitian law extends to investors.

Haiti is not a signatory to the Inter-American-U.S. convention on International Commercial Arbitration of 1975 (Panama Convention). 

Investor-State Dispute Settlement

Haiti is a signatory to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitration Awards, which provides for the enforcement of an agreement to arbitrate present and future investment disputes. Under the convention, Haitian courts can enforce such an agreement by referring the parties to arbitration. Disputes between foreign investors and the state can be settled in Haitian courts or through international arbitration, though claimants must select one to the exclusion of the other. A claimant dissatisfied with the ruling of the court cannot request international arbitration after the ruling be issued. The law provides mechanisms on the procedures a court should follow to enforce foreign arbitral awards issues. 

International Commercial Arbitration and Foreign Courts

International arbitration is strongly encouraged as a means of avoiding lengthy domestic court procedures.  Foreign judgments are enforceable under local courts. During the past ten years, there have not been any major commercial disputes between local and U.S. firms.  

Haiti is actively working with the international community to create a domestic culture that accepts international arbitration as an effective means for dispute resolution. In 2005, the Haitian Chamber of Commerce and Industry and the Inter-American Development Bank jointly developed the Haitian Arbitration and Conciliation Chamber, which provides mechanisms for conciliation and arbitration in private commercial disputes.

Bankruptcy Regulations

Haiti’s bankruptcy law was enacted in 1826 and modified in 1944. There are three phases of bankruptcy under Haitian law. In the first stage, payments cease and bankruptcy is declared. In the second stage, a judgment of bankruptcy is rendered, which transfers the rights to administer assets from the debtor to the Director of the Haitian Tax Authority (Direction Generale des Impots). In this phase, assets are sealed and the debtor is confined to debtor’s prison. In the last stage, the debtor’s assets are liquefied and the debtor’s verified debts are paid prorated according to their right. The debtor is released from prison once the debtor’s verified debts are paid. In practice, the above measures are seldom applied. Since 1955, most bankruptcy cases have been settled between the parties.

Although the concepts of real property mortgages and chattel mortgages – based on collateral of movable property, such as machinery, furniture, automobiles, or livestock to secure a mortgage – exist, real estate mortgages involve antiquated procedures and may fail to be recorded against the debtor or other creditors. Property is seldom purchased through a mortgage and secured debt is difficult to arrange or collect. Liens are virtually impossible to impose, and using the judicial process for foreclosure is time consuming and often futile. Banks frequently require that loans be secured in U.S. dollars.

Investment Incentives

In order to attract investment to certain industries, the Investment Code created a privileged status for some manufacturers.  Foreign and Haitian investors enjoy equal protection under the Law. Under the Investment Code, eligible firms can benefit from customs, tax, and other advantages. Investments that provide added value of at least 35 percent in the processing of local or imported raw materials are eligible for preferential status.

The statute allows for a five- to ten-year income tax exemption. Industrial or crafts-related enterprises must meet one of the following criteria in order to benefit from this exemption:

• Make intensive and efficient use of available local resources (i.e., advanced processing of existing goods, recycling of recoverable materials);
• Increase national income;
• Create new jobs and/or upgrade the level of professional qualifications;
• Reinforce the balance of payments position and/or reduce the level of dependency of the national economy on imports;
• Introduce or extend new technology more appropriate to local conditions (i.e., utilize non-conventional sources of energy, use labor-intensive production);
• Create and/or intensify backward or forward linkages in the industrial sector;
• Promote export-oriented production;
• Substitute a new product for an imported product, if the new product presents a quality/price ratio deemed acceptable by the appropriate entity and comprises a total production cost of at least 60 percent of the value added in Haiti, including the cost of local inputs used in its production;
• Prepare, modify, assemble, or process imported raw materials or components for finished goods that will be re-exported;
• Utilize local inputs at a rate equal or superior to 35 percent of the production cost.

For investments that match one or more of the criteria described above, the government of Haiti provides customs duty and tax incentives. Companies that enjoy tax-exempt status are required to submit annual financial statements. Fines or withdrawal of tax advantages may be assessed to firms failing to meet the Code’s provisions.

A progressive tax system applies to income, profits, and capital gains earned by individuals.

Foreign Trade Zones/Free Ports/Trade Facilitation

A law on Free Trade Zones (FTZ) was established in 2002. The law defines the conditions for operating and managing economic FTZs, with exemption and incentive regimes granted to investment in such zones. The law is not specific to a particular activity. Instead, it defines FTZs as geographical areas to which a special regime on customs duties and controls, taxation, immigration, capital investment, and foreign trade applies, and where domestic and foreign investors can provide services, import, store, produce, export, and re-export goods.

FTZs may be private or joint venture. The law provides the following incentives and benefits for enterprises located in FTZs:

• Full exemption from income tax for a maximum period of 15 years, followed by a period of partial exemption that gradually decreases;
• Customs and tax exemptions for the import of capital goods and equipment needed to develop the area, with the exception of tourism vehicles;
• Exemption from all communal taxes (with the exception of fixed occupancy tax) for a period not exceeding 15 years;
• Registration and transfer of the balance due for all deeds relating to purchase, mortgages, and collateral.

A FTZ has been established in the northeastern city of Ouanaminthe, where a Dominican company, Grupo M, manufactures clothing for a variety of U.S. companies – Hanesbrands, Nautica, Dockers, and Fruit of the Loom – at its CODEVI facility. Additionally, several American apparel companies lease factory space in this free zone. All the factories at CODEVI combined employ over 11,000 Haitians. 

In October 2012, the government of Haiti, with the support of the Inter-American Development Bank and the United States government, opened the 617-acre Caracol Industrial Park located near the town of Caracol in Haiti’s northeastern region. As of 2019, five companies are operating in the park: the Korean garment company S&H Global, the Sri Lankan company MAS Holdings, the Taiwanese company Everest, and two Haitian companies, Peintures Caraibes and Sisalco. Altogether, these companies employ over 13,000 Haitians. S&H Global is the single largest private sector employer in Haiti. 

In 2015, three major FTZ’s were added to the list: Agritrans, the first agricultural free trade zone in Haiti; Digneron, an entity of the Palm Apparel Group which also owns and operates the Palmiers free trade zone; and Lafito, a USD 150 million Panamax port and industrial park. Port Lafito, located 12 miles north of Port au Prince, includes port facility business services that cater to bulk and loose cargo imports, as well as terminal services to worldwide container service shipping lines. The Lafito economic zone currently includes a cement plant, but the industrial park portion of the project is not yet operational.  

Performance and Data Localization Requirements

Foreign firms are encouraged to participate in government-financed development projects. However, performance requirements are not imposed on foreign firms as a condition for establishing or expanding an investment, unless indicated in a signed contract.

Under Haitian law, foreign investors operate their businesses and use their assets to organize production freely. Companies are not forced to localize or to use local raw materials for the production of goods. Foreign information technology providers are not required to turn over source code or keys for encryption to any public agencies.

Awareness of responsible business conduct among producers and consumers is limited but growing. Though rather informal, some Haitian firms have a Corporate Social Responsibility (CSR) component to their business plan. Irish-owned telecommunications company Digicel, for example, sponsors an Entrepreneur of the Year program and has built 120 schools in Haiti. Natcom provides free internet service to several public schools throughout the country. Les Moulins d’Haiti, partially owned by U.S. firm Seaboard Marine, provides some services including electrical power to surrounding communities. In the aftermath of the 2010 earthquake, many firms provided logistical or financial support to humanitarian initiatives, and many continue to contribute to reconstruction efforts. Haiti’s various chambers of commerce have also become more supportive of social responsibility programs.

The government of Haiti has not established any incentives to encourage adherence to Responsible Business Conduct.

The special legislation of the Labor Code of 1984 establishes and governs labor regulations. Under the Code, the Ministry of Social Affairs enforces the law and maintains good relationships with employers and workers. Normal working hours consist of 8-hour shifts and 48-hour workweeks. In September 2017, the government of Haiti passed a labor law to permit three 8-hour shifts in a working day, although this has not been fully implemented for all sectors in Haiti. Workers’ social protection and benefits include annual leave, sick leave, health insurance, maternity insurance, insurance in case of accident at work, and other benefits for unfair dismissal.

Labor unions are generally receptive to investment that creates new jobs, and support from the international labor movement, including the AFL-CIO and ITUC, is building the capacity of unions to represent workers and engage in social dialogue. The Ministry of Labor and Social Affairs is still revising a new labor code that will better comply with international labor standards. 

According to U.S. companies, relations between labor and management in Haiti have at times been strained. In some cases, however, industries have autonomously implemented good labor practices. For example, the apparel assembly sector established its own voluntary code of ethics to encourage its members to adopt good labor practices. In addition to local entities, the International Labor Organization (ILO) has an office in Haiti and operates an ongoing project with the apparel assembly industry to improve productivity through improvement in working conditions. The initiative prompted ILO to launch Better Work Haiti, a program that was designed to ensure compliance with international labor standards and spur jobs creation in the garment sector.

Since the inception of Better Work Haiti, the garment sector has seen improvement in occupational safety and health across the factories. Employers have doubled their efforts to improve chemical safety, and over 95 percent of local factories have initiated policies to create a safer work environment as well as provide good working conditions to garment workers. Wages vary depending on the economic sector. As of October 2018, the minimum wage for the garment sector was HTG 420 for eight hours of work or (approximately USD 5.06) in the export-oriented apparel industry. These wages are based on production output so workers often earn more than the minimum wage. Better Work Haiti’s annual report found the majority of factories in compliance with the labor law. The report is available at: https://betterwork.org/blog/portfolio/better-work-haiti-17th-biannual-synthesis-report-under-the-hope-ii-legislation/  .

Haiti’s apparel industry has expanded in recent years, and now counts several local and foreign manufacturers, including U.S., Dominican, and Korean investors, which produce a wide range of clothing articles. The sector offers notable opportunities, such as an abundant workforce, duty-free access to the U.S. market, and a program implemented by the International Labor Organization’s Better Work program that ensures good working conditions in factories. Measures are currently underway to enhance the technical skills of the Haitian workforce. The South Korean International Cooperation Agency (KOICA), for example, funded the construction of an apparel training center in the Caracol Industrial Park in Northern Haiti.

The Overseas Private Investment Corporation (OPIC) offers insurance against political risks and financing programs for U.S. investments in Haiti. OPIC financing includes two programs: direct lending and investment guarantees. Direct loans are available to investment projects sponsored by or significantly involving U.S. small businesses. Investment guarantees are available to U.S. eligible investors of any size. OPIC has invested more than USD 223 million in 78 projects in Haiti over 40 years, in infrastructure, renewable resources, and other sectors.

OPIC has an on-lending facility with Citibank available to several Caribbean countries, including Haiti. OPIC guarantees loans totaling USD 100 million, with up to 20 percent of this amount available to Haiti. The OPIC risk share for the facility ranges from 25 to 75 percent for each loan.

In October 2019, OPIC’s mandate and operations will be transitioned into the new U.S. International Development Finance Corporation.

Haiti is a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA). MIGA guarantees investments against non-commercial risks and facilitate access to funding sources including banks and equity partners for investors.

Policies Toward Foreign Direct Investment

The Honduran government is generally open to foreign investment.  Low labor costs, proximity to the U.S. market, and the large Caribbean port of Puerto Cortes make Honduras attractive to investors.  At the same time, however, inconsistent and expensive energy, corruption, weak institutions, high levels of crime, low educational levels, and poor infrastructure hamper Honduras’ investment climate.

Entities that make up the legal framework for investment include the Honduran constitution; the investment chapter of CAFTA-DR; a self-executing international agreement that takes precedence over most domestic law; and the 2011 Law for the Promotion and Protection of Investments.  The Honduran constitution requires all foreign investment complement, but not substitute for, national investment. Honduras’ legal obligations guarantee national treatment and most favored nation treatment for U.S. investments in most sectors of the Honduran economy and include enhanced benefits in the areas of insurance and arbitration for domestic and foreign investors.  CAFTA-DR has equal status in Honduras with the constitution in most sectors of the Honduran economy.

Critics complain that lack of clarity and overlapping responsibilities among the multiple entities charged with attracting increased foreign direct investment hinder results.  As of April 2019, the Government of Honduras put forward draft legislation currently being debated by the Honduran Congress that would merge the National Investment Council, ProHonduras, and President Hernandez’s signature initiative Honduras 20/20, an ambitious plan to create 600,000 jobs in six targeted sectors by the year 2020.  It remains uncertain whether the proposed changes will galvanize the political will required to push forward significant reforms.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

Other Investment Policy Reviews

In 2016, the World Trade Organization conducted a Trade Policy review of Honduras: https://www.wto.org/english/tratop_e/tpr_e/s336_e.pdf .

Business Facilitation

The Honduran government simplified administrative procedures for establishing a company in recent years.  According to the 2019 World Bank Doing Business Report, the average time required for starting a business in Honduras is 13 days and requires 11 procedures.  Honduras’ business registration information portal (http://www.honduras.eregulations.org/  ) provides information on registering a business, including information fees, agencies, and required documents.  The World Bank’s Honduras Investment Regulation Portal provides quantitative indicators on Honduras’ laws, regulations, and practices affecting foreign companies (http://iab.worldbank.org/data/exploreeconomies/honduras  ).

Outward Investment

Honduras does not promote or incentivize outward investment.

Transparency of the Regulatory System

Though CAFTA-DR requires host governments publish proposed regulations that could affect businesses or investments, the Honduran government does not routinely post proposed regulations.  The lack of a formal notification process prevents nongovernmental groups, foreign companies, and other entities from commenting on proposed regulations. The government of Honduras publishes approved regulations in the official government Gazette.  Honduras lacks an indexed legal code so lawyers and judges must maintain the publication of laws on their own. Procedural red tape to obtain government approval for investment activities is common.

Some U.S. investors experience long waiting periods for environmental permits and other regulatory and legislative approvals.  Sectors in which U.S. companies frequently encounter problems include infrastructure, telecoms, mining, and energy. Generally, regulatory requirements are complex and lengthy, and may be influenced by political factors.  Regulatory approvals require congressional intervention if the time exceeds a presidential term of four years. Current regulations are available at the Honduran government’s eRegulations website (http://honduras.eregulations.org/  ).  While the majority of regulations are at the national level, municipal level regulations also exist.  No significant regulatory changes of relevance to foreign investors were announced since the last report.  Public comments received by regulators are not published. Honduras has made strides, in part with technical assistance from the U.S. Department of Treasury, to make public finances and debt obligations more transparent.

International Regulatory Considerations

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

Legal System and Judicial Independence

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

Resolving an investment or commercial dispute in the local Honduran courts is often a lengthy process.  Foreign investors report dispute resolution typically involves multiple appeals and decisions at different levels of the Honduran judicial system.  Each decision can take months or years, and it is usually not possible for the parties to predict the time required to obtain a decision. Final decisions from Honduran courts or from arbitration panels often require subsequent enforcement from lower courts to take effect, requiring additional time.  Foreign investors sometimes prefer to resolve disputes with suppliers, customers, or partners out of court when possible.

Laws and Regulations on Foreign Direct Investment

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

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

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

In 2015, the Honduran government implemented the online National Investment Register as a starting point for creating a one-stop foreign and domestic investment facility (www.prohonduras.hn  ).  Formalizing a business, however, still requires visiting a municipal chamber of commerce window for registration and permits.

Competition and Anti-Trust Laws

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

Expropriation and Compensation

The Honduran government has the authority to expropriate property for purposes of land reform or public use.  The National Agrarian Reform Law provides that idle land fit for farming can be expropriated and awarded to indigent and landless persons via the Honduran National Agrarian Institute.  In 2013, the Honduran government passed legislation regarding recovery and reassignment of concessions on underutilized assets. Both local and foreign firms have expressed concerns that the law does not specify what the government considers “underutilized.”  The government has not published implementing regulations for the law nor indicated plans to use the law against any private sector firm.

Government expropriation of land owned by U.S. companies is rare.  Seizure actions by squatters on both Honduran and non-U.S. foreign landowners are most common in agricultural areas.  Some occupations turn violent, especially in the Bajo Aguan region in the department of Colon. Owners of disputed land have found pursuing legal avenues costly, time consuming, and legally inconclusive.  CAFTA-DR’s Investment Chapter Section 10.7 states no party may expropriate or nationalize a covered investment either directly or indirectly, with limited public purpose exceptions that require prompt and adequate compensation.

Under the Agrarian Reform Law, the Honduran government must compensate expropriated land partly in cash and partly in 15-, 20-, or 25-year government bonds.  The portion to be paid in cash cannot exceed USD 1,000 if the expropriated land has at least one building and it cannot exceed USD 500 if the land is in use but has no buildings.  If the land is not in use, the government will compensate entirely in 25-year government bonds.

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

CAFTA-DR provides dispute settlement procedures between the United States and Honduras.  CAFTA-DR’s Investment Chapter dispute settlement mechanism allows an investor who believes the government has not honored a substantive obligation under CAFTA-DR to request a binding international arbitration.  Proceedings and documents submitted to substantiate the claim are generally open to the public. The agreement provides basic protections, such as nondiscriminatory treatment, limits on performance requirements, the free transfer of funds related to an investment, protection from expropriation other than in conformity with customary international law, a minimum standard of treatment, and the ability to hire key managerial personnel regardless of nationality.

International Commercial Arbitration and Foreign Courts

Honduras’ Conciliation and Arbitration Law, established in 2000, outlines procedures for arbitration and defines the procedures under which they take place.  The Investment Law permits investors to request arbitration directly, a swifter and more cost-effective means of resolving disputes between commercial entities.  Arbitrators and mediators may have specialized expertise in technical areas involved in specific disputes. Local courts recognize and enforce foreign arbitral awards issues against the government.  Judgements from foreign courts are recognized and enforceable under local courts.

The following links provide more localized information:

Tegucigalpa Chamber of Industry and Commerce – Center for Conciliation and Arbitration: https://www.ccit.hn/cca/  

San Pedro Sula Chamber of Industry and Commerce – Center for Conciliation and Arbitration: http://www.ccichonduras.org/es/?p=1571  

Numerous U.S. investors who have been involved with the local judicial system complain it can be inefficient, lacks transparency, and is subject to domestic influence and/or corruption.

Bankruptcy Regulations

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

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

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

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

Investment Incentives

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

In October 2018 President Hernandez introduced legislation creating a number of new tax incentives to promote job growth for small and medium enterprises.  The new laws entered into effect in November 2018 following publication in the official Gazette. The legislation provides access to credit and tax relief to encourage existing businesses to go through the formal registration process as well as encourage the creation of new companies.  The legislation includes provisions granting tax exemptions on national and municipal taxes and reduced permitting and licensing fees for new businesses.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Honduran government does not provide direct export subsidies, but does offer tax exemptions to firms in a free trade zone.  The Temporary Import Law allows exporters to introduce raw materials, parts, and capital equipment (except vehicles) into Honduras exempt from surcharges and customs duties if a manufacturer incorporates the input into a product for export (up to five percent can be sold locally).  The government allows the establishment of export processing zones anywhere in the country. Companies operating in export processing zones are exempt from paying import duties and other charges on goods and capital equipment. In addition, the production and sale of goods within export processing zones are exempt from state and municipal income taxes for the first 10 years of operation.  The government permits companies operating in an export processing zone unrestricted repatriation of profits and capital. Companies are required, however, to purchase the Lempiras needed for their local operations from Honduran commercial banks or from foreign exchange trading houses registered with the Central Bank.

Most industrial parks and export processing zones are located in the northern Department of Cortes, with close access to Puerto Cortes, Honduras’ major Caribbean port, and San Pedro Sula, Honduras’ major commercial city.  The government treats industrial parks and export processing zones as offshore operations and therefore companies must pay customs duties on products manufactured in the parks and sold in Honduras. In addition, the government treats Honduran inputs as exports, which companies must pay for in U.S. dollars.  Most companies operating in these parks are involved in apparel assembly, though the government and park operators have begun to diversify into other types of light industry, including automotive parts and electronics assembly. Additional information on Honduran free trade zones and export processing zones is available from the Honduran Manufacturers Association (http://www.ahm-honduras.com/  ).

In 2013, the Government of Honduras signed a law to allow establishment of Economic Development and Employment Zones (ZEDEs) to boost job growth and attract foreign investment.  Following a backlash from local and international NGOs concerned about labor rights, land issues, and environmental protection, the push for ZEDEs remained dormant until August 2017, when President Hernández revived the concept as a key job creation tool in conjunction with Honduras Plan 20/20 and his reelection campaign.  Per the Tourism Law, privately owned tourism zones permit free importation of equipment, supplies, and vehicles. As of May 2019 there are no ZEDEs operating in Honduras, though officials insist the first ZEDE will soon be operational.

Performance and Data Localization Requirements

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

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

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

RBC related to the environment and outreach to local communities are especially important to the success of investment projects in Honduras.  Several major foreign investment projects in Honduras have stalled due to concerns about environmental impact, land rights issues, lack of transparency, and problematic consultative processes with local communities, particularly indigenous communities.  Efforts to pass legislation in support of International Labor Organization Convention 169 on Indigenous and Tribal Peoples has stalled in congress, although nascent efforts within the business community to revive the legislative process are underway. Successful foreign investors in Honduras implement a proactive strategy to build trust and effective dialogue with local communities.  Investors should both meet Honduran legal obligations and employ international best practices and standards to engage with communities to reduce the risk of conflict and promote sustainable and equitable development.

Examples of international best practices include the following:

• Voluntary Principles on Security and Human Rights Initiative
• The UN Guiding Principles on Business and Human Rights
• The Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises.

Honduras has a large supply of low-skilled labor.  Due to low average education levels, there is a limited supply of skilled workers in all technological fields, including medical and high technology industries.  The unemployment rate in Honduras is 6.7 percent and 48.6 percent is underemployed. Approximately 62.8 percent of workers are in the informal economy. Honduran law lays out a multi-tier system for calculating minimum wage, based on the employment sector and size of the company.  The Ministry of Labor, private sector, and labor confederations renegotiate specific starting levels on a multi-annual basis. Effective January 1, 2019 the minimum salary will go up 4.7 percent to 7 percent, and in 2020 it will go up from 5 percent to 7 percent.

The Honduran Labor Law prescribes a maximum eight-hour workday, 44-hour workweek, and at least one 24-hour rest period per week.  The Labor Code requires paid vacation of 10 workdays after one year, and 20 workdays after four years. Most employment sectors also receive two months bonuses as part of the base salary, known as the 13th and 14th month salary, issued in mid-December and mid-June, respectively.  New hires receive a prorated amount based on time-in-service during their first year of employment. The Labor Code requires companies to pay one month’s salary to employees terminated without cause. Companies do not owe severance to employees who resign or are terminated for cause.  Employees terminated for cause can contest the basis for the termination in court to claim severance. There are no government-provided unemployment benefits in Honduras, although unemployed individuals may have access to their accumulated pension funds.

Many employers hire employees on a temporary basis under the Temporary Employment Law.  In some cases, employers will renew employees under short-term contracts, sometimes over a period of years.  Labor groups allege that some employers use temporary contracts to avoid responsibility for severance, provide employee benefits, and prevent union formation.  The Honduran Secretariat of Labor and Social Security (STSS) is responsible for registering collective bargaining agreements. The Labor Code prohibits the employment of persons under the age of 14, but grants special permission for minors between ages 16 and 18 to work evenings as long as it does not affect schooling.  The majority of the violations of the labor-related provisions of the children’s code occur in the agricultural sector and informal economy.

While Honduran labor law closely mirrors International Labor Organization standards, the U.S. Department of Labor has raised serious concerns regarding the effective enforcement of Honduran labor laws.  Labor organizations allege the Honduran Ministry of Labor fails to enforce labor laws, including the right to form unions, reinstating employees unjustly fired for union activities, child labor, minimum wages, hours of work, and occupational safety and health.  A U.S. Department of Labor report provided recommendations to address labor concerns in Honduras and called for a monitoring and action plan (MAP) to improve labor law enforcement in Honduras. In October 2018, the U.S. Department of Labor released a MAP assessment update noting significant progress toward addressing areas of concern and extending the MAP’s mandate for an additional year.

The U.S. Department of State Country Report on Human Rights Practices describes a number of labor and human rights compliance issues that affect the Honduran labor market https://www.state.gov/reports/2018-country-reports-on-human-rights-practices/honduras/).  These include employers’ anti-union discrimination, refusal to engage in collective bargaining, threats against union leaders, employer control of unions, blacklisting of employees who support unions, and refusal of Honduran labor inspectors.

The U.S. Overseas Private Investment Corporation (OPIC) provides loan guarantees (typically used for large projects) and direct loans reserved for projects sponsored by or substantially involving U.S. small businesses and cooperatives.  OPIC can normally guarantee or lend from USD 100,000 to USD 250 million per project.  OPIC also offers insurance against risks of currency inconvertibility, expropriation, and political violence. The Export-Import Bank of the U.S. also provides project financing in Honduras. Honduras is a party to the World Bank’s Multilateral Investment Guarantee Agency.

Policies Towards Foreign Direct Investment

The Government of Jamaica (GOJ) is open to foreign investment in all sectors of its economy, and is currently in the process of developing a National Investment Policy to guide future foreign direct investment (FDI) reform.  The GOJ has also made significant structural changes to its economy, under International Monetary Fund (IMF) guidance over the past six years, resulting in an improved investment environment. Since 2013, Jamaica’s Parliament passed numerous pieces of legislation to improve the business environment and support economic growth through a simplified tax system and broadened tax base.  The establishment of credit bureaus and a Collateral Registry under the Secured Interest in Personal Property (SIPP) legislation are improving access to credit. Jamaica made starting a business easier by consolidating forms and made electricity less expensive by reducing the cost of external connection works. The GOJ implemented an electronic platform for tax payments and established a 90-day window for development approvals.

The GOJ’s public procurement regime was amended, with effect from April 2019, to include provisions for domestic margins of preference, affording preferential treatment to Jamaican suppliers in public contracts in some circumstances, and setting aside a portion of the government’s procurement budget for local micro, small, and medium enterprises.  Notwithstanding, U.S. businesses are encouraged to participate in GOJ open procurements, many of which are published in media and via the government’s electronic procurement website: https://www.gojep.gov.jm/  .

With Jamaica’s debt to GDP ratio having decreased to approximately 96 percent, the government used the attendant fiscal space to reduce and/or abolish a number of distortionary taxes effective April 2019.

Jamaica’s commitment to regulatory reform is an intentional effort to become a more attractive destination for foreign investment.  According to the World Bank’s “Doing Business 2019” report, Jamaica ranked 75 out of 190 economies, above average compared to Latin American and Caribbean countries.  The country made significant improvement in resolving insolvency, following the passage of new bankruptcy legislation and now ranks 6th in starting a business and a much improved 12th in getting credit.  Jamaica ranked 79 out of 140 countries in the World Economic Forum’s 2018 Global Competitiveness Index.  Some report that bureaucracy remains a major impediment, with the country continuing to underperform in the ar