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

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

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

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

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

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

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

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

A new company in Costa Rica must typically register with the National Registry (company and capital registry), Internal Revenue Directorate of the Finance Ministry (taxpayer registration), National Insurance Institute (INS) (basic workers’ comp), Ministry of Health (sanitary permit), Social Security Administration (CCSS) (registry as employer), and the local Municipality (business permit). Legal fees are the biggest single business start-up cost, as all firms registered to individuals must hire a lawyer for a portion of the necessary paperwork. Costa Rica’s business registration website Crearempresa functions but in 2021 is rated last of 76 national business registration sites evaluated by “Global Enterprise Registration” ( www.GER.co ).

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

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

Costa Rican laws, regulations, and practices are generally transparent and meant to foster competition in a manner consistent with international norms, except in the sectors controlled by a state monopoly, where competition is explicitly excluded. Rule-making and regulatory authority is housed in any number of agencies specialized by function (telecom, financial, personal data, health, environmental) or location (municipalities, port authorities). Tax, labor, health, and safety laws, though highly bureaucratic, are not seen as unfairly interfering with foreign investment. It is common to have Professional Associations that play a role in policing or guiding their members.

Costa Rica is a member of UNCTAD’s international network of transparent investment procedures ( http://www.businessfacilitation.org ). Within that context, the Ministry of Economy compiled the various procedures needed to do business in Costa Rica: https://tramitescr.meic.go.cr/ . Accounting, legal, and regulatory procedures are transparent and consistent with international norms. The stock and bond market regulator SUGEVAL requires International Accounting Standards Board for public companies, while the Costa Rican College of Public Accountants (Colegio de Contadores Publicos de Costa Rica -CCPA) has adopted full International Financial Reporting Standards for non-regulated companies in Costa Rica; for more, see the international federation of accountants IFAC: https://www.ifac.org/about-ifac/membership/country/costa-rica .

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

Regulations must go through a public hearing process when being drafted. Draft bills and regulations are made available for public comment through public consultation processes that will vary in their details according to the public entity and procedure in question, generally giving interested parties sufficient time to respond. The standard period for public comment on technical regulations is 10 days. As appropriate, this process is underpinned by scientific or data-driven assessments. A similarly transparent process applies to proposed laws. The Legislative Assembly generally provides sufficient opportunity for supporters and opponents of a law to understand and comment on proposals. To become law, a proposal must be approved by the Assembly by two plenary votes. The signature of 10 legislators (out of 57) is sufficient after the first vote to send the bill to the Supreme Court for constitutional review within one month, although the court may take longer.

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

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

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

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

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

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

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

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

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

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

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

Costa Rica uses the civil law system. The fundamental law is the country’s political constitution of 1949, which grants the unicameral legislature a particularly strong role. Jurisprudence or case law does not constitute legal precedent but can be persuasive if used in legal proceedings. For example, the Chambers of the Supreme Court regularly cite their own precedents. The civil and commercial codes govern commercial transactions. The courts are independent, and their authority is respected. The roles of public prosecutor and government attorney are distinct: the Chief Prosecuting Attorney or Attorney General (Fiscal General) operates a semi-autonomous department within the judicial branch while the government attorney or State Litigator (Procuraduria General) works within the Ministry of Justice and Peace in the Executive branch. The primary criminal investigative body “Organismo de Investigacion Judicial” OIJ, is a semi-autonomous department within the Judicial Branch. Judgments and awards of foreign courts and arbitration panels may be accepted and enforced in Costa Rica through the exequatur process. The Constitution specifically prohibits discriminatory treatment of foreign nationals. The Costa Rican Judicial System addresses the full range of civil, administrative, and criminal cases with a number of specialized courts.  The judicial system generally upholds contracts, but caution should be exercised when making investments in sectors reserved or protected by the Constitution or by laws for public operation. Regulations and enforcement actions may be, and often are, appealed to the courts.

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

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

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

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

The three principal expropriating government agencies in recent years have been the Ministry of Public Works – MOPT (highway rights-of-way), the state-owned Costa Rican Electrical Institute – ICE (energy infrastructure), and the Ministry of Environment and Energy – MINAE (National Parks and protected areas). Expropriations generally conform to Costa Rica’s laws and treaty obligations.

Article 45 of Costa Rica’s Constitution stipulates that private property can be expropriated without proof that it is done for public interest. The 1995 Law 7495 on expropriations further stipulates that expropriations require full and prior payment, and upon full deposit of the calculated amount the government may take possession of land despite the former owner’s dispute of the price. The law makes no distinction between foreigners and nationals. The expropriations law was amended in 1998, 2006, and 2015 to clarify and expedite some procedures, including those necessary to expropriate land for the construction of new roads. (For full detail go to https://PGRweb.go.cr/SCIJ  . When reviewing the articles of the law go to the most recent version of each article.)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Costa Rican government’s general attitude towards foreign portfolio investment is prudently welcoming, seeking to facilitate the free flow of financial resources into the economy while minimizing the instability that might be caused by the sudden entry or exit of funds. The securities exchange (Bolsa Nacional de Valores) is small and is dominated by trading in bonds. Stock trading is of limited significance and involves less than 10 of the country’s larger companies, resulting in an illiquid secondary market. There is a small secondary market in commercial paper and repurchase agreements. The Costa Rican government has in recent years explicitly welcomed foreign institutional investors purchasing significant volumes of Costa Rican dollar-denominated government debt in the local market. The securities exchange regulator (SUGEVAL) is generally perceived to be effective.

Costa Rica accepted the obligations of IMF Article VIII, agreeing not to impose restrictions on payments and transfers for current international transactions or engage in discriminatory currency arrangements, except with IMF approval. There are no controls on capital flows in or out of Costa Rica or on portfolio investment in publicly traded companies. Some capital flows are subject to a withholding tax (see section on Foreign Exchange and Remittances). Within Costa Rica, credit is largely allocated on market terms, although long-term capital is scarce. Favorable lending terms for USD-denominated loans compared to colon-denominated loans have made USD-denominated mortgage financing popular and common. Foreign investors are able to borrow in the local market; they are also free to borrow from abroad, although a 15% withholding tax on interest paid will apply when the creditor is a non-tax resident in the country, under the reasoning that the interest payment constitutes income from a Costa Rican source. Potential overseas borrowers must also consider Costa Rica’s limitation on the deductibility of financial expenses by the debtor when the creditor is not an entity regulated in its country of origin by a body like the Costa Rican financial supervisory authority (SUGEF). In such cases, deductible interest for the current fiscal year is around 30% of EBITDA -Earnings Before Interest Taxes Depreciation and Amortization.

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

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

Costa Rica’s Central Bank performs the functions of a central bank while also providing support to the four autonomous financial superintendencies (Banking, Securities, Pensions and Insurance) under the supervision of the national council for the supervision of the financial system (CONASSIF). The Central Bank developed and operates the financial system’s transaction settlement and direct transfer mechanism “SINPE” through which clients transfer money to and from accounts with any other account in the financial system. The Central Bank’s governance structure is strong, with a significant degree of autonomy from the Executive Branch.

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

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

Costa Rica does not have a Sovereign Wealth Fund.

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

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

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

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

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

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

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

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

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

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

Department of State

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

Department of the Treasury

• OFAC Recent Actions

Department of Labor

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

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

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

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

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

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

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

Contact at “watchdog” organization:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Dominican Republic presents both opportunities and challenges for foreign investment. The government strongly promotes inward FDI and has prioritized creating a sound enabling environment for foreign investors. While the government has established formal programs to attract FDI, a lack of clear rules and uneven enforcement of existing rules can lead to difficulties. The approval in 2021 of a National Competitiveness Strategy, including the formation of a National Competitiveness Council, seeks to respond to the indicators of the Global Competitiveness Index of the World Economic Forum, and should help address some of these concerns.

The Dominican Republic provides tax incentives for investment in tourism, renewable energy, film production, Haiti-Dominican Republic border development, and the industrial sector. The country 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. However, some foreign investors indicate that the uneven enforcement of regulations and laws, or political interference in legal processes, creates difficulties for investment.

There are two main government agencies responsible for attracting foreign investment, the Export and Investment Center of the Dominican Republic (CEI-RD) and the National Council of Free Trade Zones for Export (CNZFE). CEI-RD promotes foreign investment and aids prospective foreign investors with business registration, matching services, and identification of investment opportunities. It publishes an annual “Investment Guide of the Dominican Republic,” highlighting many of the tools, incentives, and opportunities available for prospective investors. The CEI-RD also oversees “ProDominicana,” a branding and marketing program for the country launched in 2017 that promotes the DR as an investment destination and exporter. CNZFE aids foreign companies looking to establish operations in the country’s 79 free trade zones for export outside Dominican territory.

There are a variety of business associations that promote dialogue between the government and private sector, including the Association of Foreign Investor Businesses (ASIEX).

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. Private entities, both foreign and domestic, have the right to establish and own business enterprises and engage in all legal remunerative activity. 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, and the government imposes no conditions on foreign investors concerning location, local ownership, local content, or export requirements. See Section 3 Legal Regime for more information.

The Dominican Republic does not maintain a formalized investment screening and approval mechanism for inbound foreign investment. Details on the established mechanisms for registering a business or investment are elaborated in the Business Facilitations section below.

The Dominican Republic has not been reviewed recently by multilateral organizations regarding investment policy. The most recent reviews occurred in 2015. This included a trade policy review by the World Trade Organization (WTO) and a follow-up review by the United Nations Conference on Trade and Development (UNCTAD) regarding its 2009 investment policy recommendations.

2009 UNCTAD – https://unctad.org/en/pages/PublicationArchive.aspx?publicationid=6343 

2015 WTO – https://www.wto.org/english/tratop_e/tpr_e/s319_e.pdf

2015 UNCTAD – https://unctad.org/en/PublicationsLibrary/diaepcb2016d2_en.pdf

Foreign investment does not require any prior approval in the Dominican Republic, but once made it must be registered with the CEI-RD. Investments in free zones must be registered with the CNZFE, which will notify the CEI-RD. Foreign investment registration is compulsory, but failure to do so is not subject to any sanction.

Law No. 16-95 Foreign Investment, Law No. 98-03 on the Creation of the CEI-RD, and Regulation 214-04 govern foreign investment in the Dominican Republic and require an interested foreign investor to file an application form at the offices of CEI-RD within 180 calendar days from the date on which the foreign investment took place. The required documents include the application for registration, containing information on the invested capital and the area of the investment; proof of entry into the country of the foreign capital or physical or tangible goods; and documents of commercial incorporation or the authorization of operation of a branch office through the setting up of legal domicile in the country.  The reinvestment of profits (in the same or a different firm) must be registered within 90 days. Once the documents have been approved, the CEI-RD issues a certificate of registration within 15 business days subject to the payment of a fee which varies depending on the amount of the investment.

Lack of registration does not affect the validity of the foreign investment; but the fact that it is needed to fulfill various types of procedures, makes registration necessary in practice. For example, the registration certificate has to be presented to repatriate profits or investment in the event of sale or liquidation and to purchase foreign exchange from the authorized agencies for transfers abroad, as well as to process the residency of the investor.  In April 2021, CEI-RD launched an online Registry of Foreign Direct Investment, which aims to streamline and make the registration processes more transparent to investors. For more information on becoming an investor or exporter, visit the CEI-RD ProDominicana website at https://prodominicana.gob.do .

The Dominican Republic has a single-window registration website for registering a limited liability company (SRL by its Spanish acronym) that offers a one-stop shop for registration needs ( https://www.formalizate.gob.do/ ). 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 recommended for company registrations. According to the “Doing Business” report, starting a SRL in the Dominican Republic is a seven-step process that requires 16.5 days. However, some businesses advise the full incorporation process can take two to three times longer than the advertised process.

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 be 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.

There are no legal or government restrictions on Dominican investment abroad, although the government does little to promote it. Outbound foreign investment is significantly lower than inbound investment. The largest recipient of Dominican outward investment is the United States.

The national government manages all regulatory processes. Information about regulations is often scattered among various ministry and agency websites and is sometimes only available through direct communication with officials. It is advisable for U.S. investors to consult with local attorneys or advisors to assist with locating comprehensive regulatory information.

On the 2021 Global Innovations Index, the Dominican Republic’s overall rank was 93 out of 131 nations analyzed, which is a setback from its rank in 2020 by three positions. In sub-sections of the report, the Dominican Republic ranks 101 out of 131 for regulatory environment and 74 out of 131 for regulatory quality.

The World Bank Global Indicators of Regulatory Governance report states that Dominican ministries and regulatory agencies do not publish lists of anticipated regulatory changes or proposals intended for adoption within a specific timeframe. Law No. 107-13 requires regulatory agencies to give notice of proposed regulations in public consultations and mandates publication of the full text of draft regulations on the relevant agency’s website. Additionally, Law No. 200-04 allows citizens in general to request information to the government on a unified website: https://saip.gob.do/ . Foreign investors, however, note that these requirements are not always met in practice since not all relevant Dominican agencies provide content, and those that do often do not keep the content up to date, and many businesses point out that the scope of SAIP’s website content is not always adequate for investors or interested parties. U.S. businesses also reported years’ long delays in the enactment of regulations supporting new legislation, even when the common legal waiting period is normally six months.

The process of public consultation is not uniform across the government. Some ministries and regulatory agencies solicit comments on proposed legislation from the public; however, public outreach is generally limited and depends on the responsible ministry or agency. For example, businesses report that some ministries upload proposed regulations to their websites or post them in national newspapers, while others may form working groups with key public and private sector stakeholders participating in the drafting of proposed regulations. Often the criteria used by the government to select participants in these informal exchanges are unclear, which at a minimum creates the appearance of favoritism and that undue influence is being offered to a handpicked (and often politically connected) group of firms and investors. Public comments received by the government are generally not publicly accessible. Some ministries and agencies prepare consolidated reports on the results of a consultation for direct distribution 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, although they could challenge any of its content if deemed unconstitutional at the Constitutional Court and contest its application before the Superior Administrative Tribunal.

In February 2022, the Dominican Republic’s General Directorate of Internal Taxes (DGII) proposed to extend the existing 18% value added tax known as the ITBIS to digital services and published the draft regulation on its website (https://dgii.gov.do/Paginas/default.aspx) for public comment.

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 No. 479-08, which also declares that (as amended by Law No. 311-14) financial statements should be prepared in accordance with generally accepted accounting standards nationally and internationally. The ICPARD and the country’s Securities Superintendency 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 publishes on its website a quarterly report on the status of the non-financial public sector debt, which includes a wide array of information and statistics on public borrowing ( 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 nearly $10 billion in “quasi-fiscal” debt. When consolidated with central government debt, the debt-to-GDP ratio is over 60 percent, and the debt service ratio is over 30 percent.

As of the end of 2020, the Dominican Republic was involved in 18 dispute settlement cases with the WTO: one as complainant, eight as respondent, and nine as a third party. 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 provide proper notification under the WTO TBT agreement and CAFTA-DR.

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—civil law system in general. 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, including the total derogation of the Code of Criminal Procedure in 2002, resulting in a hybrid legal framework.

There is a Commercial Code and a wide variety of laws governing business formation and activity. 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.

Some investors complain of significant delays in obtaining a decision by the Judiciary. While Dominican law mandates overall time standards for the completion of key events in a civil case, these standards frequently are not met. The Judiciary has requested additional funds to hire more judges, clerks, and judicial personnel to address these concerns. In 2020 the World Bank noted that resolving complaints raised during the award and execution of a contract can take more than four years in the Dominican Republic, although some take longer. Dominican nationals and foreigners alike have the constitutional right to submit their cases to an appeal court or to request the Supreme Court review (recurso de casación in Spanish) the ruling of a lower court. If a violation of fundamental rights is alleged, the Constitutional Court might also review the case with the authority to nullify the lower court judgment. Notwithstanding, foreign investors have complained that the local court system is unreliable, is biased against them, and that special interests and powerful individuals are able to use the legal system in their favor. Others who have successfully won in courts, have struggled to get their ruling enforced.

While the law provides for an independent judiciary, businesses and other external groups have noted that traditionally the government did not respect judicial independence or impartiality, and improper influence on judicial decisions was widespread. The Abinader administration has made a concerted effort to respect the autonomy of the Public Ministry and the Office of the Attorney General, and investors have noted improvements. The administration has proposed a constitutional amendment to strengthen the independence of the Office of the Attorney General, but it faces uncertain prospects in the Dominican Congress.

Several large U.S. firms cite the improper and disruptive use of lower court injunctions as a way for local distributors to obtain more beneficial settlements at the end of contract periods. To engage effectively in the Dominican market, many U.S. companies seek local partners that are well-connected and understand the local business environment, but even this is a not a guarantee.

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. According to the law, foreign investment is not allowed in the following categories: a) disposal and remains of toxic, dangerous, or radioactive garbage not produced in the country; b) activities affecting the public health and the environmental equilibrium of the country, pursuant to the norms that apply in this regard; and c) production of materials and equipment directly linked to national defense and security, except for an express authorization from the Executive.

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

In February 2020, the Dominican government enacted the Public-Private Partnerships (PPP) Law No. 47-20 to establish a regulatory framework for the initiation, selection, award, contracting, execution, monitoring and termination of PPPs in line with the 2030 National Development Strategy of the Dominican Republic. The law also created the General Directorate of Public-Private Partnerships (DGAPP) as the agency responsible for the promotion and regulation of public-private alliances and the National Council of Public-Private Partnerships as the highest body responsible for evaluating and determining the relevance of the PPPs. The PPP law recognizes public-private and public-private non-profit partnerships from public or private initiatives and provides for forty-year concession contracts, five-year exemptions of the tax on the transfer of goods and services (ITBIS), and accelerated depreciation and amortization regimes. The DGAPP website has the most up to date information on PPPs ( https://dgapp.gob.do/en/home/  ).

The National Commission for the Defense of Competition (ProCompetencia) has the power to review transactions for competition-related concerns. Private sector contacts note, however, that strong public pressure is required for ProCompetencia to act. Its decisions can be challenged before the Superior Administrative Tribunal (TSA). The TSA’s ruling can be revised in its legality through a recurso de casación by the Supreme Court of Justice (SCJ), and if there was a constitutional violation, the case could be heard by the Constitutional Court.

On June 14, 2021, ProCompetencia approved sanctions against four pharmaceuticals firms found guilty of price fixing (Profarma Internacional, S.R.L, Sued & Fargesa, S.R.L., Mercantil Farmacéutica, S.A. y J. Gassó Gassó, S.A.S) for certain drugs such as analgesics and anti-flu medicines. Total fines reached $250,000 ($14 million pesos).

The Dominican constitution permits the government’s exercise of eminent domain after the President has declared a plot of land for public use by official decree; however, it also mandates fair market compensation in advance of the use of seized land. Nevertheless, there are many outstanding disputes between U.S. investors and the Dominican government concerning unpaid government contracts or expropriated property and businesses, as well indirect expropriation. Property claims make up the majority of cases. Most, but not all, expropriations have been used for infrastructure or commercial development and many claims remain unresolved for years. The Abinader administration has committed to resolve disputes over land title before government use, but in some cases the matters are protracted and there are multiple claims to the same piece of land.

Traditionally, 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 could be viewed as indirect expropriation. For example, they note that government decrees mandating atypical setbacks from roads, or establishing new protected areas can deprive investors of their ability to use purchased land in the manner initially planned, substantially affecting the economic benefit sought from the investment.

Many companies report that the procedures to resolve expropriations lack transparency. Government officials are rarely, if ever, held accountable for failing to pay a recognized claim or failing to pay in a timely manner.

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 halting further 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 Dominican Republic scores lower than the regional average and comparator economies on resolving insolvency on most international indices.

Investment incentives exist in various sectors of the economy, which are available to all investors, foreign and domestic. Incentives typically take the form of preferential tax rates or exemptions, preferential interest rates or access to finance, or preferential customs treatment. Sectors where incentives exist include agriculture, construction, energy, film production, manufacturing, and tourism.

Incentives for manufacturing apply principally to production in free trade zones (discussed in the subsequent section) or for the manufacturing of textiles, pharmaceutical products, tobacco and derivatives, clothing, and footwear specifically under Laws 84-99 on Re-activation and Promotion of Exports and 56-07 on Special Tax Incentives for the Textile Sector. Additionally, Law 392-07 on Competitiveness and Industrial Innovation provides a series of incentives that include exemptions on taxes and tariffs related to the acquisition of materials and machinery and special tax treatment for approved companies.

Special Zones for Border Development, created by Law No. 28-01, encourage development near the Dominican Republic-Haiti border. Law No. 12-21, passed in February 2021, modified and extended incentives for direct investments in manufacturing projects in the Zones for a period of 30 years. Incentives still largely take the form of tax exemptions but can be applied for a maximum period of 30 years, versus the 20 years in the original law. 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.

Tourism is a particularly attractive area for investment and one the government encourages strongly. 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. In January 2020, the government announced a special incentive plan to promote high-quality investment in tourism and infrastructure in the southwest region of Pedernales for more information contact the Ministry of Tourism at https://www.mitur.gob.do/ .

For existing projects, hotels and resort-related investments that are five years or older are granted complete exemption 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.

In addition, individuals and companies receive 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 Dominican Republic encourages investment in the renewable energy sector. Under Law 57-07 on the Development of Renewable Sources of Energy, investors in this area are granted, among other benefits, the following incentives: (a) no custom duties on the importation of the equipment required for the production, transmission and interconnection of renewable energy; (b) no tax on income derived from the generation and sale of electricity, hot water, steam power, biofuels or synthetic fuels generated from renewable energy sources; and (c) exemption from the goods and services tax in the acquisition or importation of certain types of equipment. Foreign investors praise the provisions of the law but have historically expressed frustration with approval and execution of potential renewable energy projects. Ongoing reforms to the energy sector discussed in Section 7 on State-Owned Enterprises should alleviate some of these concerns and have already enabled the completion of several solar power concessions over the past year. The Minister of Energy and Mines, Antonio Almonte, affirmed March 9 that the only way that the Dominican Republic has to counteract the fuel crisis in the international market is by stimulating and promoting the production of renewable energies.

The Dominican government does not currently have a practice of jointly financing foreign direct investment projects. However, in some circumstances, the government has authority to offer land or infrastructure as a method of attracting and supporting investment that meets government development goals. Anticipated reforms to government-owned asset management (See Section 7) may change the institutional actors and framework for engaging with government-owned resources.

In February 2020, the government passed a law on public-private partnerships (PPPs) that may encourage high-quality infrastructure projects and help catalyze private sector-led economic growth. In 2020, the Abinader administration officially launched the DGAPP as the government office responsible for planning, executing, and overseeing investment projects financed via PPPs. Their website has the most up to date information on their initiatives and mandates ( https://dgapp.gob.do/en/home/ ).

Law 8-90 on the Promotion of Free Zones from 1990 governs operations of the Dominican Republic’s free trade zones (FTZs), while the National Council of Free Trade Zones for Export (CNZFE) exercises regulatory oversight. The law provides for complete exemption from all taxes, duties, charges, and fees affecting production and export activities in the zones.

According to the Ministry of Industry and Commerce, the Dominican Republic has established 79 free trade zones – 38 in the Northern Zone, 17 in the Santo Domingo and the National District, 13 in the Southern Zone, and seven in the Eastern Zone. Additionally, there are 734 companies operating in the zones that employ over 182,700 people.

CNZFE delineates policies for the promotion and development of Free Trade Zones, as well as approving applications for operating licenses, with discretionary authority to extend the time limits on these incentives. CNZFE is comprised of representatives from the public and private sectors and is chaired by the Minister of Industry and Commerce.

Border FTZs located in one of the seven provinces along the Dominican-Haitian border benefit from incentives for a 20-year period, while those located throughout the rest of the country benefit for a 15-year period. Companies operating in the FTZs do pay tax on the purchase of locally sourced inputs and relevant taxes do apply when products produced in FTZs are sold in the Dominican market.

In general, firms operating in the FTZs 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 and Dominican companies operating in or adjacent to the FTZs benefit from exposure to international business standards and best practices.

According to CNZFE’s 2020 Statistical Report, exports from FTZs totaled $5.9 billion, comprising 3.5 percent of GDP. Investments made in FTZs by U.S. companies in 2020 represented approximately 32.7 percent of total investments. Other major investors include companies registered in the Dominican Republic (39.5 percent), Canada (2.7 percent), Germany (2.6 percent), and Puerto Rico (2.3 percent). Companies registered in 38 other countries comprised the remaining investments. The top exports from FTZs are medical and pharmaceutical products, tobacco and derivatives, apparel and textiles, jewelry, electronics, and footwear. Estimates for 2021 predict over $7 billion in exports from FTZs, representing over 60% of total exports from the country.

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: http://www.cnzfe.gov.do

Law 16-92 on the Labor Code stipulates that 80 percent of the labor force of a foreign or national company, including free trade zone companies, must be comprised of Dominican nationals. Senior management and boards of directors of foreign companies are exempt from this regulation.

The Dominican Republic does not have excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees. The host government does not have a forced localization policy to compel foreign investors to use domestic content in goods or technology.

There are no performance requirements as there is no distinction between Dominican and foreign investment. Investment incentives are applied uniformly to both domestic and foreign investors in accordance with World Trade Organization (WTO) requirements. In addition, there are no requirements for foreign IT providers to turn over source code or provide access to encryption.

Law No. 172-13 on Comprehensive Protection of Personal Data restricts companies from freely transmitting customer or other business-related data inside the Dominican Republic or beyond the country’s borders. Under this law, companies must obtain express written consent from individuals to transmit personal data unless an exception applies. The Superintendency of Banks currently supervises and enforces these rules, but its jurisdiction generally covers banks, credit bureaus, and other financial institutions. Industry representatives recommend updating this law to designate a national data protection authority that oversees other sectors.

The Dominican Constitution guarantees the right to own private property and provides that the state shall promote the acquisition of property, especially titled real property, however, a patchwork history of land titling systems and sometimes violent political change has complicated land titling in the Dominican Republic. By law, all land must be registered, and that which is not registered is considered state land. There are no restrictions or specific regulations on foreigners or non-resident owners of land. Registering property in the Dominican Republic requires 6 steps, an average of 33 days, and payment of 3.4 percent of the land value as a registration fee.

Land tenure insecurity has been fueled by government land expropriations, institutional weaknesses, lack of effective law enforcement, and local community support for land invasions and squatting. Political expediency, corruption, and fraud have all been cited as practices that have complicated the issuance of titles or respect for the rights of existing title holders. Moreover, while on the decline, long-standing titling practices, such as issuing provisional titles that are never completed or providing titles to land to multiple owners without requiring individualization of parcels, have created ambiguity in property rights and undermined the reliability of existing records.

In the last decade, the Dominican government received a $10-million, Inter-American Development Bank (IDB) loan to modernize its property title registration process, address deficiencies and gaps in the land administration system, and strengthen land tenure security. The project involved digitization of land records, decentralization of registries, establishment of a fund to compensate people for title errors, separation of the legal and administrative functions within the agency, and redefinition of the roles and responsibilities of judges and courts.

In 2008, the country transitioned to a new system based on GPS coordinates and has been working towards establishing clear titles, but, in March 2021, an industry source estimated that only 25 percent of all land titles were clear. The government advises that investors are ultimately responsible for due diligence and recommends partnering with experienced attorneys to ensure that all documentation, ranging from title searches to surveys, have been properly verified and processed.

Mortgages and liens do exist in the Dominican Republic. The Title Registry Office maintains the system for recording titles, as well as a complementary registry of third-party rights, such as mortgages, liens, easements, and encumbrances. Property owners maintain ownership of legally purchased property whether unoccupied or occupied by squatters, however, it can be difficult and costly to enforce private rights against squatters. This may in part be due to a provision in the law known as “adverse possession,” which allows squatters to acquire legal ownership of land without a title (thereby state-owned).

For investors in the tourism sector, it is important to note that the Dominican constitution guarantees public access to all beaches in the Dominican Republic. Disputes have arisen over whether this passage ensures access to sand or to the coast and may create legal risks for investors as coastlines change over time. In addition, investors or owners that might have property demarcated for sale when environmental sciences were not as developed are now subject to laws prohibiting private development any closer than 60 meters from the tideline.

The Dominican Republic has strong intellectual property rights (IPR) laws and is meeting its IP obligations under international agreements such as the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Nevertheless, weak institutions and limited enforcement can present challenges for investors. Under the Abinader administration, the country’s posture toward the protection and enforcement of IPR has improved. However, many agencies continue to be under resourced, a reality that is unlikely to change in a contracting fiscal environment. Illicit and counterfeit goods, as well as online and signal piracy, are common and continue to present challenges for authorities. In the Dominican Republic, illicit or counterfeit goods include the full gamut of fashion apparel and accessories, electronics, pharmaceuticals, cosmetics, cigarettes, and alcohol.

Several IP authorities in the Dominican Republic grant intellectual property rights. The National Office of Industrial Property (ONAPI) issues trademarks and patents, the National Copyright Office (ONDA) issues copyrights, the Ministry of Public Health and Social Assistance (MISPAS) issues sanitary registrations required for marketing foods, pharmaceuticals, and health products, and the Directorate of International Trade (DICOEX) has jurisdiction over the implementation of geographical indications. IPR registration processes have improved in recent years, but delays and questionable adjudication decisions are still common. ONAPI started e-filing services for patents, which has helped make the registration process more efficient. However, ONDA continues to be hampered by lack of expertise and resources. The agency has the authority to investigate copyright violations but continued to shirk its responsibility of submitting formal requests to the telecommunications regulator (Indotel) to cancel licenses of those using pirated signals. As a result, copyright enforcement and prosecutions have been nonexistent.

IPR Enforcement is carried out by the Customs Authority (DGA), the National Police, the National Copyright Office (ONDA), the Dominican Institute of Telecommunications (Indotel), the Special Office of the Attorney General for Matters of Health, and the Special Office of the Attorney General for High Tech Crimes.

In October 2021 the Deputy Attorney General formed the National Advisory Board for Intellectual Property that should be approved by the President’s Legal Counsel in 2022. If approved as currently envisioned, the Board should be vested with the legal authority to delegate roles to the different agencies. This Board is in addition to the already functional interagency working group that has led to more coordination between the various IP agencies and the private sector. As a result, prosecution case counts have risen from 73 cases in 2018 to 217 cases in 2021. Additionally, the prospector’s office is investigating more cases. From 2018-2020 the prosecutor’s office investigated 268 cases. In 2021 alone the office investigated 468 cases. This can be attributed to better training of prosecutors at the regional level. In February 2021, the IP unit partnered with ONAPI and ONDA to launch an IP training academy for prosecutors and judges to improve the country’s judicial capacity.

Since 2003, the U.S. Trade Representative (USTR) has designated the Dominican Republic as a Special 301 Watch List country for serious IPR deficiencies. The country, however, is not listed in USTR’s Review of Notorious Markets for Counterfeiting and Piracy. The Abinader administration has committed to getting the Dominican Republic removed from the Special 301 Watch List.

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

The Dominican Stock Market (BVRD by its Spanish acronym) is the only stock exchange in the Dominican Republic. It began operations in 1991 and is viewed as a cornerstone of the country’s integration into the global economy and domestic development. It is regulated by the Securities Market Law No. 249-17 and supervised by the Superintendency of Securities, which approves all public securities offerings.

The private sector has access to a variety of credit instruments. Foreign investors are able to obtain credit on the local market but tend to prefer less expensive offshore sources. The Central Bank regularly issues certificates of deposit using an auction process to determine interest rates and maturities.

In recent years, the local stock market has continued to expand, in terms of the securities traded on the BVRD. There are very few publicly traded companies on the exchange, as credit from financial institutions is widely available and many of the large Dominican companies are family-owned enterprises. Most of the securities traded in the BVRD are fixed-income securities issued by the Dominican State.

On August 6, 2021, the Law 163-21 for the Promotion of the Placement and Marketing of Publicly Offered Securities in the Stock Market of the Dominican Republic was enacted as a complement to Law 249-17, to promote the issuance of shares by private and public companies. This law declares of national interest the promotion and development of the public offering of securities as a financing mechanism for the revitalization of the national economy, with special emphasis on the issuance of shares of private and public companies in the stock market of the Dominican Republic. Among the incentives proposed by Law 163-21, is the exemption of listed companies from the 1% tax for capital increase when they issue new shares during their first three years of validity. Likewise, during that same 3-year period, the Law reduces to 15% the rate of Income Tax applicable to Capital gains generated by the seller of a share listed on the stock exchange.

Dominican Republic’s financial sector is relatively stable, and the IMF declared the financial system satisfactory during 2021 Article IV consultations, however, directors agreed that while financial system remains resilient and well monitored, it would benefit from moving closer to international standards for supervision and regulation and enhancing the macroprudential and crisis management toolkit.

According to the first National Financial Inclusion Survey from the Central Bank, published on March 22, 2020, only 46.3 percent of Dominicans have a bank account. Financial depth is relatively constrained. Private lending to GDP (around 30.5 percent, according to the IMF) is low by international and regional standards, representing around half the average for Latin America. Real interest rates, driven in part by large interest rate spreads, are also relatively high. The country’s relatively shallow financial markets can be attributed to a number of factors, including high fiscal deficits crowding out private investment; complicated and lengthy regulatory procedures for issuing securities in primary markets; and high levels of consolidation in the banking sector.

Dominican banking consists of 112 entities, as follows: 47 financial intermediation entities (including large commercial banks, savings and loans associations, financial intermediation public entities, credit corporations), 41 foreign exchange and remittance agents (specifically, 35 exchange brokers and 6 remittances and foreign exchange agents), and 24 trustees. According to the latest available information (January 2022), total bank assets were $47.7 billion. The three largest banks hold 69.7 percent of the total assets – Banreservas 32.6 percent, Banco Popular 21.9 percent, and BHD Leon 16.4 percent. While full-service bank branches tend to be in urban areas, several banks employ sub-agents to extend services in more rural areas. Technology has also helped extend banking services throughout the country.

The Monetary and Banking system is regulated by the Monetary and Financial Law No. 183-02, and is overseen by the Monetary Board, the Central Bank, and the Superintendency of Banks. The mission of the Central Bank is to maintain the stability of prices, promote the strength and stability of the financial system, and ensure the proper functioning of payment systems. The Superintendency of Banks carries out the supervision of financial intermediation entities, in order to verify compliance by said entities with the provisions of the law.

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

The Dominican government does not maintain a sovereign wealth fund.

The legacy of autocratic rule in the mid-twentieth century and the practice of distributing social services as political patronage have resulted in a relatively larger role for state-actors in the Dominican economy when compared with the United States. Since 1997, by means of the approval of the General Law of Reform of Public Companies No. 141-97, State-Owned Enterprises (SOEs) have been on the decline and do not have as significant a presence in the economy as they once did, with most functions now performed by privately held firms. Notable exceptions are in the electricity, banking, mining, and refining sectors.

The Dominican Corporation of State Enterprises (CORDE) was established by Law No. 289 of June 30, 1966, with the purpose of managing, directing, and developing all the productive and commercial companies, goods, and rights ceded by the Dominican State as a result of the death of the dictator Rafael Leónidas Trujillo. Among the state-owned companies that came to be managed by CORDE are the salt, gypsum, marble, and pozzolana mines. In 2017, the dissolution of CORDE was entrusted to a Commission chaired by the Legal Consultancy of the Executive Power, which assumed the operational, administrative, and financial management of this entity until the dissolution process was definitively completed. Within the framework of the dissolution process of CORDE, the ownership of the mining concessions of the Dominican State was transferred to the Patrimonial Fund of Reformed Companies (FONPER) through the Mining Concessions Transfer Agreement between CORDE and FONPER dated July 2, 2020.

Shortly after being sworn into office, in August 2020, President Abinader issued Decree 422-20 forming the Commission for the Liquidation of State Organs (CLOE) under the charge of the Ministry of the Presidency. Since then, the CLOE has been in the process of dissolution and liquidation of CORDE, and on December 8, 2020, CLOE requested the FONPER Board of Directors revoke the Concessions Transfer Agreement. FONPER’s Board of Directors approved the revocation through Minutes No. 02-2021 of March 11, 2021, authorizing the president of FONPER to sign an agreement with CLOE that revokes and nullifies the Transfer Agreement. It is not clear whether this revocation has been completed.

In 2021, the Office of the President proposed a bill to regulate government business assets, government participation in public trusts, and to create the National Center for Companies and Public Trusts (CENEFIP). The bill’s intent is to reform the management of state assets and replace the disgraced Patrimonial Fund of Reformed State Enterprises (FONPER), which is being investigated for alleged irregularities that may have personally benefited politically affiliated persons. The CENEFIP bill is under review in the legislature.

Also in 2021, the executive branch transferred the functions and properties of the State Sugar Council [Consejo Estatal del Azúcar] to the Directorate General of National Assests [Dirección General de Bienes Nacionales]. The State Sugar Council maintains one remaining sugar mill, Porvenir.

In the partially privatized electricity sector, private companies mainly provide electricity generation, while the government handles the transmission and distribution phases via the Dominican Electric Transmission Company (ETED) and the Dominican Corporation of State Electrical Companies (CDEEE). This sector is undergoing additional reforms, including the dissolution of the CDEEE and privatization of the management and operation of the distribution companies. The CDEEE and the distribution companies have traditionally been the largest SOEs in terms of government expenditures. The government also participates in the generation phase, too (most notably in hydroelectric power), and one of the distribution companies is partially privatized.

The Dominican financial sector consists of 112 entities, as follows: 47 financial intermediation entities (including large commercial banks, savings and loans associations, financial intermediation public entities, credit corporations), 41 foreign exchange and remittance agents (specifically, 35 exchange brokers and 6 remittances and foreign exchange agents), and 24 trustees. According to the latest available information (January 2022), total bank assets were $47.7 billion. The three largest banks hold 69.7 percent of the total assets – Banreservas 32.6 percent, Banco Popular 21.9 percent, and BHD Leon 16.4 percent. The state-owned, but autonomously operated BanReservas is the largest bank in the country and is a market leader in lending and deposits. Part of this success is due to a requirement for government employees to open accounts with BanReservas in order to receive salary payments. BanReservas was also utilized to distribute government social support payments during the pandemic. Roughly a third of the bank’s lending portfolio is to government institutions.

In the refining sector, the government is now the exclusive shareholder of the country’s only oil refinery; Refinery Dominicana (Refidomsa), after having extricated Petroleos de Venezuela, S.A. (PDVSA) in August 2021. Refidomsa operates and manages the refinery, is the only importer of crude oil in the country, and is also the largest importer of refined fuels, with a 60 percent market share. The price for fuel products is set by the Ministry of Industry, Commerce, and SMEs. Fuel prices are heavily subsidized.

Law No. 10-04 requires the Chamber of Accounts to audit SOEs. Audits should be published at https://www.camaradecuentas.gob.do/index.php/auditorias-publicadas . While audits have not always been publicly available, the new President of the Chamber is making a concerted effort to conduct and publish all audits required by law.

Partial privatization of state-owned enterprises (SOEs) in the late 1990s and early 2000s resulted in foreign investors obtaining management control of former SOEs engaged in activities such as electricity generation, airport management, and sugarcane processing. In the electricity sector, these reforms were reversed between 2003 and 2009, but have largely remained in place for other sectors.

Major reforms for the electricity sector, as outlined in the National Pact for Energy Reform signed February 2021, are ongoing. Plans for dissolving the CDEEE are in process, with the organization functional in name only, and the Ministry of Energy and Mines having assumed many of the authorities conferred to the CDEEE upon its founding in 2001 and across its 20-year life span. Complete dissolution and final distribution of authorities remains a legal question, which is currently being reviewed by the President’s legal advisor and the Ministry of Energy and Mines.

The DGAPP has taken the first step to improve the governance and performance of electricity distribution companies through the introduction of private sector participation. On November 29, 2021, the DGAPP publicly accepted for detailed evaluation an application submitted by the Board of the Electricity Distribution Companies (Consejo Unificado de las Empresas Distribuidoras de Electricidad) for a Public Private Partnership (PPP) covering the three state-owned distribution companies. The DGAPP Resolution No. 89/2021 follows the process in the PPP Law (Law No. 47-20), whereby any public or private entity wishing to propose a PPP must submit a formal proposal and justification to the DGAPP. Government officials expect the process to privatize the management and operation of the electricity distribution companies to begin in earnest in the summer of 2022 with the release of tender documents. All indications are that foreign firms will be invited to participate in these tenders. Questions should be directed toward the Ministry of Energy and Mines ( https://mem.gob.do/ ) or DGAPP ( https://dgapp.gob.do/en/home/ ).

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. There is a growing trend for businesses to align with the United Nations Sustainable Development Goals and small and medium enterprises are beginning to follow examples of the CSR work of the larger local business groups of being more responsible to societal and environmental issues. These entities are viewing CSR as a competitive advantage. The CSR Risk Checker  is a tool designed to help companies understand some of the CSR risks associated with countries from which they may import or in which they may have production facilities. The report lists a total of 19 possible risks for the Dominican Republic, of which 11 are related to labor rights, three to human rights and ethics, three to environment, and two to fair business practices.

The Dominican Constitution does guarantee consumer rights stating, “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, ProConsumidor, offers consumer advocacy services.

The Dominican Republic also joined the Extractive Industries Transparency Initiative (EITI) in 2016 ( https://eiti.org/dominican-republic)  and is rated as achieving meaningful progress in its efforts to incorporate EITI standards into its regulatory framework. Its fourth country report, covering 2019 and 2020, was recently approved and can be found at https://eiti.org/document/dominican-republic-20192020-eiti-report.  The Ministry of Energy and Mines, as the government entity in charge of sectoral policy, is carrying out reform processes in the area of mining and hydrocarbons, including modernizing, organizing, and streamlining its own role. Other reforms include 1) modification and modernizing of the Mining Law of 1971, which was submitted to the Presidency for review in February 2021; 2) public consultation and revision of the regulation that will govern creation and management of the 5% of the net benefits generated by the exploitation of non-renewable natural resources that accrue to the state, established in article 117 of Law No. 64-00 of Environment and Natural Resources, and 3) drafting the regulation governing Artisanal Mining.

In May 2018, the Ministry of Energy and Mines presented the Shared Production Model Contract that regulates hydrocarbon exploration and exploitation activities in the Dominican Republic, there are separate version of the contract for on and offshore explorations. These contract models are used in the awarding of oil and gas blocks in the country, which began in November 2019. The government is exploring another licensing round, but dates have not been released. After being signed, contracts must be approved by the National Congress and promulgated by the President.

On December 15, 2003, through Decree No. 1128-03, the government established the Superintendency of Surveillance and Private Security (SVSP) to exercises control, inspection, and surveillance, over all persons and institutions that carry out surveillance and private security activities and their users, in the Dominican Republic. Despite the sizeable sector, there do not appear to be any government, civil society, or private firms in the Dominican Republic affiliated with the International Code of Conduct Association (ICoCA) and the government is not a signatory of the Montreaux Document.

According to the 2020 List of Goods Produced with Child and Forced Labor, there are indicators of child labor in the production of baked goods, coffee, rice, and tomatoes in the Dominican Republic and indicators of child and forced labor in the production of sugarcane. Stakeholders have raised serious inquiries regarding inhumane labor conditions in the Dominican Republic’s sugar sector for many years. In December 2011, Father Christopher Hartley filed a submission under the labor chapter of DR-CAFTA alleging numerous labor violations across the Dominican Republic’s sugar production industry. The U.S. Department of Labor (DOL) conducted an investigation and found “evidence of apparent and potential labor violations in the sector,” including concerns regarding acceptable conditions of work, child labor, and forced labor. Since issuing its report in 2013, DOL has engaged directly with the Government of the Dominican Republic (GODR), the International Labor Organization (ILO), and Dominican Republic industry stakeholders; provided technical assistance and related program funding; and conducted six public periodic reviews. The most recent review in 2018 found that “while concerns remain, the GODR continues to take positive steps towards addressing some of the labor issues identified in the report.” Another DOL periodic review is expected to be released in 2022.

At the same time, recent findings by investigative journalists assert that, despite ten years of effort, labor conditions in the Dominican Republic’s sugar sector remain abhorrent. Reports from the Washington Post, Mother Jones, and the Center for Investigative Reporting focusing on conditions at the Central Romana Corporation (owner of the world-famous Casa de Campo resort), include written and video testimonies by laborers about the conditions they experience in the bateys, colonos, sugar cane fields, and throughout the country’s sugar production. These testimonies describe poverty-level wages and crippling debt, excessive work hours, inadequate safety or protective equipment, abhorrent housing conditions with limited access to water and electricity, denial of public benefits such as pensions, social security, and medical care, and harassment, intimidation, and retaliation by supervisors, company representatives, company armed guards, and police.

Department of State

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

Department of the Treasury

• OFAC Recent Actions

Department of Labor

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

According to the 2022 Climate Change Performance Index, the Dominican Republic is one of the most vulnerable countries in the world to the effects of climate change, though it represents only 0.06% of global greenhouse gas emissions. As a small island developing state, the Dominican Republic is particularly vulnerable to the effects of extreme climate events, such as storms, floods, droughts, and rising sea levels. Combined with rapid economic growth (over 5 percent until 2020) and urbanization (more than 50 percent of population in cities, 30 percent in Santo Domingo), climate change could strain key socio-economic sectors such as water, agriculture and food security, human health, biodiversity, forests, marine coastal resources, infrastructure, and energy.

The National Constitution calls for the efficient and sustainable use of the nation’s natural resources in accordance with the need to adapt to climate change. The National Council for Climate Change and the Clean Development Mechanism under the Office of the Presidency is responsible for creating the National Policy on Climate Change (PNCC), the Climate Compatible Development Plan (CCDP), and the Strategic Plan for Climate Change 2011-2030 (PECC). Through these documents, the Dominican government is acting, both domestically and in coordination with the international community, to mitigate the effects of climate change. In its January 2021, report MIT Technology Review’s Green Future Index ranked the Dominican Republic as 55th out of 76 countries and territories on their progress and commitment toward building a low carbon future, stating “a new national government is updating the country’s Paris Agreement commitments and developing a plan for carbon neutrality by 2050.” The full report can be found at The Green Future Index | MIT Technology Review .

The Dominican Republic is also signatory to multiple international environmental conventions, corresponding protocols and agreements, and free trade agreements with environmental protection provisions. The Dominican Republic is party to the UN Framework Convention on Climate Change (UNFCCC), the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), and the International Convention for the Prevention of Pollution from Ships (MARPOL).

In its latest Nationally Determined Contribution (NDC) from 2020, the Dominican Republic committed to a 27 percent greenhouse gas reduction by 2030 (compared to 2010 levels), with 20 percent conditional and seven percent unconditional. The country has also established the goal of net-zero emissions by 2050. The NDC identifies mitigation options in the energy (generation, efficiency) and Industrial Processes and Product Use (IPPU) sectors. Proposed actions are meant to improve electricity generation; energy efficiency; road transportation; agriculture, forestry, and other land use (AFOLU); and waste management.

The Dominican Republic is also part of several regional adaptation initiatives, such as CARIFORUM, the Increasing Climate Resilience Project, the Caribbean Biological Corridor, and the Haiti-Dominican Republic Binational Cooperation Program, among others.

The Ministry of Environment and Natural Resources, which provides guidance in matters of air quality, waste disposal, forestry management, and water quality, has designated 127 protected areas across the country, and is working towards designating and protecting a total of 30 percent of the country through public and public-private management. The Dominican government also encourages support for climate change prevention and mitigation from the private sector through tax and investment incentives, such as Renewable Energy Law 50-07, which grants numerous incentives and tax exemptions to investors in renewable energy. BloombergNEF’s Climatescope  report ranks the Dominican Republic as the 15th most attractive market for energy transition investment out of 107 emerging markets. The report looks at opportunities in the power, transportation, and building sectors, specifically.

The Dominican Republic has a legal framework that includes laws and regulations to combat corruption and provides criminal penalties for corruption by officials. While challenges remain, overall enforcement of these laws has improved thanks to a heightened focus on transparency by the Abinader administration and concerted efforts by the Office of the Attorney General. In a change from prior years, investigations targeted well-connected individuals and high-level politicians, both from prior administrations and the current one. The Dominican Republic’s rank on the Transparency International Corruption Perception Index rose to 128 in 2021 from 137 in 2020 (out of 180 countries assessed).

Nonetheless, U.S. companies continued to identify corruption as a barrier to FDI. Firms often complained about a lack of technical proficiency in government ministries that resulted in public tender opportunities that were not competently drafted or executed in accordance with international best practices. Some firms went so far as to suggest that more problematic tenders had been set up intentionally to favor politically connected firms. The business community has also complained about corruption at the municipal level and its relevance to such things as permitting procedures. U.S. businesses operating in the Dominican Republic often need to take extensive measures to ensure compliance with the Foreign Corrupt Practices Act.

President Abinader has generally made good on his commitment to make fighting corruption a top priority of his administration. He appointed officials with reputations for professionalism and independence and went to great efforts to respect the independence of his appointed head of the Public Procurement General Directorate, the Chamber of Accounts (the country’s Supreme Audit Institution), and the Attorney General’s Office. In addition, the Abinader administration has publicly committed to prioritizing passage of institutional reforms that will advance the fight against corruption, such as new public procurement legislation, and a bill that would allow for civil asset forfeiture. Passage of this legislation, however, remains in question as the measures are in various levels of administrative and legislative review.

In a notable change from prior administrations, investigations into corruption and arrests have targeted senior officials not just from the opposing parties, but also from the ruling coalition. These moves have sent a powerful signal that the Abinader administration no longer tolerates the sort of pervasive corruption that was seen under prior administrations.

Civil society has been a critical voice in anti-corruption campaigns to date. Several non-governmental organizations are particularly active in transparency and anti-corruption, notably the Foundation for Institutionalization and Justice (FINJUS), Citizen Participation (Participacion Ciudadana), and the Dominican Alliance Against Corruption (ADOCCO).

The Dominican Republic signed and ratified the UN Anticorruption Convention. The Dominican Republic is not a party to the OECD Convention on Combating Bribery.

Procuraduría Especializada contra la Corrupción Administrativa (PEPCA)
[Attorney General for Investigating Administrative Corruption]
Calle Hipólito Herrera Billini esq. Calle Juan B. Pérez,
Centro de los Heroes, Santo Domingo, República Dominicana
Telephone: (809) 533-3522
Email: pepca@pgr.gob.do 

La Dirección General de Ética e Integridad Gubernamental (DIGEIG)
[Directorate General for Governmental Ethics and Integrity]
Av. México No. 419 Esq. Leopoldo Navarro, Edificio Oficinas Gubernamentales Juan Pablo Duarte, Piso 12, Gascue, Santo Domingo, D. N. República Dominicana
Telephone: (809) 685-7135
Email: info@digeig.gob.do 

Linea 311
[Line 311] (government service for filing complaints and denunciations]
Phone: 311 (from inside the country)
Email: info@311.gob.do 
Website: http://www.311.gob.do/ 

Participación Ciudadana [Citizen Participation]
Wenceslao Alvarez #8, Zona Universitaria
Phone: (809) 685-6200
Website: https://pciudadana.org/
Email: info@pciudadana.org 

Despite political stability and strong pre-pandemic economic growth, citizen and public security concerns in the Dominican Republic impose significant costs on businesses and limit foreign and domestic investment. There are no known national security threats affecting foreign investment within the Dominican Republic.

The U.S. Department of State has assessed Santo Domingo as a critical-threat location for crime. According to the Latin American Public Opinion Project, there is a steady increase in crime-related victimization and a growing perception of insecurity in the Dominican Republic since 2010. In 2021, Fund for Peace ranked the Dominican Republic 107 out of 179 countries in its Fragile States index. Other than domestic violence, criminal activity is mostly associated with street-level incidents consisting of robberies and petty larcenies. Of these, street robbery is particularly concerning as criminals often use weapons to coerce compliance from victims. In addition, the Dominican Republic faces challenges with organized crime. Transnational criminal organizations in the Dominican Republic use land, airspace, and territorial waters for the transshipment of drugs from South America destined for the United States and Europe, transshipment of ecstasy from the Netherlands and Belgium destined for United States and Canada, substantial money laundering activity particularly by Colombian narcotics traffickers, and significant amphetamine consumption.

The U.S. Department of State has assessed the Dominican Republic as being a low-threat location for terrorism and a medium-threat location for political violence. There are no known organized domestic terrorist groups in the Dominican Republic. Nonetheless, the Dominican Republic is a likely transit point for extremists from within the Caribbean, Africa, and Europe.

A porous border between Haiti and the Dominican Republic remains an ongoing concern as the security situation in Haiti has worsened after the assassination of the Haitian President Moise in August 2021 and the growing gang problem in Haiti. Dominican officials have expressed concerns about widespread civil unrest or instability in Haiti contributing to illegal flows of people and illicit goods across the border.

In 2021, few protests took place. COVID-19 protocols might have had a dampening effect on the size and scale of protests.

The Dominican Republic armed forces view irregular migration along the border, citizen security, illicit trafficking of arms, weapons, and drugs, as well as natural disasters as threats to their national security. As a result, they have postured their forces to support land, air, and maritime whole of government efforts to protect their sovereign territory.

The Dominican labor market continues to regularize as pandemic-related economic impacts subside. 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 2021 Dominican Central Bank data for July-September (the latest available), the Dominican labor force consists of approximately 4.6 million workers. The labor force participation rate is 63.1 percent; 57.7 percent of the labor force works in services, 10.0 percent in industry, 9.8 percent in education and health, 7.9 percent in agriculture and livestock, 9.2 percent in construction, and 5.4 percent in public administration and defense. Approximately 41.1 percent of the labor force works in formal sectors of the economy and 58.9 percent in informal sectors.

From January to September 2021, unemployment decreased from 8.0 percent to 6.8 percent as the economy continued its rebound from the COVID-19 pandemic. When factoring in discouraged workers and others who were not actively seeking employment, however, the unemployment rate increased from 6.8 percent to 13.6 percent in the period July-September 2021. Youth unemployment remained steady at 13.5 percent, indicating the pandemic had a greater impact on employment for older, more vulnerable segments of the population. Central Bank data from 2021 indicates that the labor market has nearly recovered to pre-pandemic levels, with the percentage of employment reaching 97.5 percent of the levels before the pandemic.

With respect to migrant workers, the most recent reliable statistical data is from 2017 and shows a population of 334,092 Haitians aged ten or older living in the country, with 67 percent working in the formal and informal sectors of the economy. Migration experts believe that this number has increased to approximately 500,000 or more since 2017. The Dominican government and the United Nations are expected to provide an updated migrant survey in 2022.

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 undocumented 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) has characterized as 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, in theory, may not strike; however, in practice such employees, including healthcare workers, have protested and gone on strike.

The law prohibits dismissal of employees for trade union membership or union activities. In practice, however, 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, however, resources for adequate monitoring and inspection are insufficient. Labor inspectors can request remediation for violations, and if remediation is not undertaken, can refer offending employers to the public prosecutor for sanctions.

Economic Office
Embassy of the United States of America
Avenida República de Colombia #57
Santo Domingo, Dominican Republic +1 (809) 567-7775
InvestmentDR@State.gov

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

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

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

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

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

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

The Investments Law grants equal treatment to foreign and domestic investors. Apart from limitations imposed on micro businesses, which are defined as having 10 or fewer employees and yearly sales of $175,930 or less, foreign investors may freely establish any type of domestic business. Investors who begin operations with 10 or fewer employees must present plans to increase employment to the Ministry of Economy’s National Investment Office.

The Investment Law provides that extractive resources are the exclusive property of the state. The GOES may grant private concessions for resource extraction, though concessions are infrequently granted.

El Salvador has been a World Trade Organization (WTO) member since 1995. The latest trade policy review performed by the WTO was published in 2016 (document: WT/TPR/S/344/Rev.1).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

El Salvador is a member of the WTO, adheres to the Agreement on Technical Barriers to Trade (TBT Agreement), and has adopted the Code of Good Practice annexed to the TBT Agreement. El Salvador is also a signatory to the Trade Facilitation Agreement (TFA) and has notified its Categories A, B, and C commitments. In 2017, El Salvador established a National Trade Facilitation Committee (NTFC) as required by the TFA, which was reactivated in July 2019.

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

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

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

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

Miempresa is the Ministry of Economy’s website for new businesses in El Salvador. At Miempresa, investors can register new companies with the Ministry of Labor (MOL), Social Security Institute, pension fund administrators, and certain municipalities; request a tax identification number/card; and perform certain administrative functions. https://www.miempresa.gob.sv/ 

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

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

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

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

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

There are no recent cases of expropriation. In 1980, a rural/agricultural land reform established that no single natural or legal person could own more than 245 hectares (605 acres) of land, leading to the government expropriating the land of some large landholders. In 1980, private banks were nationalized but were subsequently returned to private ownership in 1989-90. A 2003 amendment to the Electricity Law requires energy-generating companies to obtain government approval before removing fixed capital from the country.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Superintendent of the Financial System ( https://www.ssf.gob.sv/ ) supervises individual and consolidated activities of banks and non-bank financial intermediaries, financial conglomerates, stock market participants, insurance companies, and pension fund administrators. Foreign investors may obtain credit in the local financial market under the same conditions as local investors. Interest rates are determined by market forces, with the interest rate for credit cards and loans capped at 1.6 times the weighted average effective rate established by the Central Bank. The maximum interest rate varies according to the loan amount and type of loan (consumption, credit cards, mortgages, home repair/remodeling, business, and microcredits).

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

The Securities Market Law establishes the framework for the Salvadoran securities exchange. Stocks, government and private bonds, and other financial instruments are traded on the exchange, which is regulated by the Superintendent of the Financial System.

Foreigners may buy stocks, bonds, and other instruments sold on the exchange and may have their own securities listed, once approved by the Superintendent. Companies interested in listing must first register with the National Registry Center’s Registry of Commerce. In 2021, the exchange traded $3.7 billion, with average daily volumes between $12 million and $30 million. Government-regulated private pension funds, Salvadoran insurance companies, and local banks are the largest buyers on the Salvadoran securities exchange. For more information, visit: https://www.bolsadevalores.com.sv/ 

All but two of the major banks operating in El Salvador are regional banks owned by foreign financial institutions. Given the high level of informality, measuring the penetration of financial services is difficult; however, it remains relatively low, between 30 percent – according to the Salvadoran Banking Association (ABANSA) – and 37 percent – reported by the Superintendence of the Financial System (SSF). The banking system is sound and generally well-managed and supervised. El Salvador’s Central Bank is responsible for regulating the banking system, monitoring compliance of liquidity reserve requirements, and managing the payment systems. No bank has lost its correspondent banking relationship in recent years. There are no correspondent banking relationships known to be in jeopardy.

The banking system’s total assets as of December 2021 were $21.1 billion. Under Salvadoran banking law, there is no difference in regulations between foreign and domestic banks and foreign banks can offer all the same services as domestic banks.

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

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

El Salvador does not have a sovereign wealth fund.

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

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

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

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

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

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

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

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

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

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

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

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

Department of State

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

Department of the Treasury

• OFAC Recent Actions

Department of Labor

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

*Coordinated Direct Investment Survey, International Monetary Fund 

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

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

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

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

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

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

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

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

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

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

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

Guatemala does not incentivize nor restrict outward investment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Guatemala does not have a sovereign wealth fund.

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

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

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

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

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

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

Department of State

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

Department of the Treasury

• OFAC Recent Actions

Department of Labor

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Contact at “watchdog” organization:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Honduras does not promote or incentivize outward investment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Honduras does not have a sovereign wealth fund.

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

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

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

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

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

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

Examples of international best practices include the following:

Voluntary Principles on Security and Human Rights Initiative

The UN Guiding Principles on Business and Human Rights

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

Department of State

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

Department of the Treasury

• OFAC Recent Actions 

Department of Labor

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

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

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

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

Honduras’s Rankings on Key Corruption Indicators:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Government of Jamaica (GoJ) is open to foreign investment in all sectors of the economy. The GOJ made significant structural changes to its economy, under International Monetary Fund (IMF) guidance during the six-year period to 2019, 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 the payment of taxes and established a 90-day window for development approvals.

The GOJ amended its public procurement regime 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/epps/home.do .

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 2020” report, Jamaica ranked 71 out of 190 economies, above average compared to Latin American and Caribbean countries. The country improved or held firm on all metrics assessed in the 2020 report, moving most significantly in the area registering property. The GoJ replaced the Ad Valorem Stamp Duty rate payable on the registration of collateral, such as property used to secure loan instruments, with a flat rate duty. Additionally, the transfer tax, payable on the change of ownership from one person to another, was also reduced during the year from five to two percent. Jamaica is ranked 80 out of 141 countries in the World Economic Forum’s 2019 Global Competitiveness Index. Bureaucracy remains a major impediment, with the country continuing to underperform in the areas of trading across borders, paying taxes, and enforcing contracts.

Jamaica’s trade and investment promotion agency, Jamaica Promotions Corporation (JAMPRO), is the GOJ agency responsible for promoting business opportunities to local and foreign investors. While JAMPRO does not institute general criteria for FDI, the institution targets specific sectors for investment and promotes Jamaican exports (see http://www.jamaicatradeandinvest.org/ ).

JAMPRO and the Jamaica Business Development Corporation assist micro, small, and medium-sized enterprises (MSME) primarily through business facilitation and capacity building. MSMEs tend to consist of less than 10 employees. Such fee-based services would be made available to foreign-owned MSMEs (see https://www.jbdc.net/ ).

All private entities, foreign and domestic, are entitled to establish and own business enterprises, as well as to engage in all forms of remunerative activity subject to, inter alia, labor, registration, and environmental requirements.  Jamaica does not impose limits on foreign ownership or control and local laws do not distinguish between local and foreign investors.  There are no sector-specific restrictions that impede market access.  A 2017 amendment to the Companies Act requires companies to disclose beneficial owners to the Companies Office of Jamaica (ORC).  The law mandates that the company retain records of legal and beneficial owners for seven years.  The GOJ proposed new legislation on the incorporation and operation of International Business Companies (IBC), which is designed to attract and facilitate a wide variety of international business activities to include: (1) holding companies providing asset protection for intellectual property rights, real property, and the shares of other companies; (2) serving as vehicles for licensing and franchising; (3) conducting international trade, and investment activities; (4) acting as special purpose vehicles in international financial transactions; and, (5) serving as the international headquarters for global companies.  

The U.S. government is not aware of any discrimination against foreign investors at the time of initial investment or after the investment is made.  However, under the Companies Act, investors are required to either establish a local company or register a branch office of a foreign-owned enterprise.  Branches of companies incorporated abroad must register with the Registrar of Companies if they intend to operate in Jamaica.  There are no laws or regulations requiring firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control.  Post is not aware of any formal screenings that exist for foreign investments.  Incentives are available to local and foreign investors alike, including various levels of tax relief.

Jamaica concluded a third-party trade policy review through the WTO in September 2017.  The WTO Secretariat’s recommendations are listed here: https://www.wto.org/english/tratop_e/tpr_e/tp459_e.htm 

Jamaica has not undertaken any investment policy reviews within the last three years in conjunction with the Organization for Economic Cooperation and Development (OECD) or United Nations Conference on Trade and Development (UNCTAD).  The GOJ’s previous WTO review took place in 2017 and an OECD review took place in 2004. 

No domestic or foreign civil society organizations have provided useful reviews of investment policy-related concerns within the past five years.

Businesses can easily register using the “Super Form,” a single Business Registration Form for New Companies and Business Names.  The ORC acts as a “one-stop-shop,” effectively reducing the registration time to between one and three days.  Foreign companies can register using these forms, with or without the assistance of an attorney or notary.  The “Super Form” can be accessed under Forms at the ORC’s website (https://www.orcjamaica.com).  All that is needed is a device with access to the internet, an approved reserved name, proof of address (any recent document used to verify your current address such as a utility bill or driver’s license), and a valid ID (Driver’s License, Passport or Voters Id).  The website gives detailed instructions throughout the process.

While the GOJ does not actively promote an outward investment program, it does not restrict domestic investors from investing abroad.

Jamaica’s regulatory systems are transparent and consistent with international norms.  Proposed legislation is available for public review at japarliament.gov.jm, and submissions are generally invited from members of the public when there is a distinct policy shift or for sensitive changes.  There is no law that requires the rulemaking body to solicit comments on proposed regulation and no timeframe for the length of a consultation period when it happens.  Furthermore, the law does not require reporting on public consultations, but the government presents the consultations directly to interested stakeholders in one unified report.  Laws in effect are available at japarliament.gov.jm or moj.gov.jm.  Companies interested in doing business in a particular sector should seek guidance from the relevant regulator(s), including the Office of Utilities Regulation (OUR) for utilities, the Bank of Jamaica (BOJ) for deposit taking institutions (DTIs) and the Financial Services Commission (FSC) for non-DTIs.

Jamaica is compliant with established benchmarks for public disclosure of its budget, the establishment and functioning of an independent and supreme audit body, and the award of contracts for natural resource extraction.  Additionally, Jamaica’s Public Debt Management Act (PDMA) of 2012 has codified a gradual reduction in its contingent liability or Government Guaranteed Loans (GGL).  The PDMA targets a three percent GGL-to-GDP ratio by 2027. 

Jamaica has adopted IFRS Standards including the IFRS for SMEs Standard for all companies. Jamaica adopted IFRS Standards in 2000 by Resolution of the members of the ICAJ.

The Jamaica Corporate Governance Code 2021 was officially launched on Friday, February 25, 2022. The Code remains the only tool of its kind to date in the Caribbean aimed at helping entities – public and private – to implement Corporate Governance best practices in keeping with international standards.  The Code, which was prepared by the PSOJ Corporate Governance Committee through funding by IDB Invest is available for viewing and download here: https://www.psoj.org/corporate-governance-2/.

The GOJ tends to adopt Commonwealth standards for its regulatory system, especially from Canada and the United Kingdom.  In 2001, CARICOM member states established the Regional Organization for Standards and Quality (CROSQ) under Article 67 of the Revised Treaty of Chaguaramas.  CROSQ is intended to harmonize regional standards to facilitate the smooth movement of goods in the common market.  Jamaica is also a full member of the WTO and is required to notify all draft technical regulations to the WTO Committee of Technical Barriers to Trade (TBT).

Jamaica has a common law legal system and court decisions are generally based on past judicial declarations.  The Jamaican Constitution provides for an independent judiciary with a three-tier court structure.  A party seeking to enforce ownership or contractual rights can file a claim in the Resident Magistrate or Supreme Court.  Appeals on decisions made in these courts can be taken before the Court of Appeal and then to the Judicial Committee of the Privy Council in the United Kingdom.  The Caribbean Court of Justice (CCJ), in its original jurisdiction, is the court of the 15-member Caribbean Community (CARICOM), but Jamaica has not signed on to its appellate jurisdiction.

Jamaica does not have a single written commercial or contractual law and case law is therefore supplemented by the following pieces of legislation: (1) Arbitration (Recognition and Enforcement of Foreign Awards) Act; (2) Companies Act; (3) Consumer Protection Act; (4) Fair Competition Act; (5) Investment Disputes Awards (Enforcement) Act; (6) Judgment (Foreign) (Reciprocal Enforcement) Act; (7) Law Reform (Frustrated Contracts) Act; (8) Loans (Equity Investment Bonds) Act; (9) Partnership (Limited) Act; (10) Registration of Business Names Act; (11) Sale of Goods Act; (12) Standards Act; and, (13) Trade Act.  The commercial and civil divisions of the Supreme Court have jurisdiction to hear intellectual property claims. 

Jamaica enforces the judgments of foreign courts through: (1) The Judgment and Awards (Reciprocal Enforcement) Act; (2) The Judgment (Foreign) (Reciprocal Enforcement) Act; and (3) The Maintenance Orders (Facilities for Enforcement) Act.  Under these acts, judgments of foreign courts are accepted where there is a reciprocal enforcement of judgment treaty with the relevant foreign state.  International arbitration is also accepted as a means for settling investment disputes between private parties.  

The Jamaican judicial system has a long tradition of being fair, but court cases can take years or even decades to resolve.  A new Chief Justice appointed in 2018 has set aggressive benchmarks to streamline the delivery of judgments, bring greater levels of efficiency to court administration, and target throughput rates in line with international best practice.  Efforts are currently underway to provide hearing date certainty and disposition of cases within 24 months, barring exceptional circumstances.  The deployment of new courtrooms and the appointment of additional Appeal Court Judges are indicators of Jamaica’s commitment to justice reform.  

Challenges with dispute resolution usually reflect broader problems within the court system, including long delays and resource constraints.  Subsequent enforcement of court decisions or arbitration awards is usually adequate, and the local court will recognize the enforcement of an international arbitration award. 

A specialized Commercial Court was established in 2001 to expedite the resolution of commercial cases.  The rules do not make it mandatory for commercial cases to be filed in the Commercial Court and the Court is largely underutilized by litigants. 

Jamaica ranked 119 in the 2019 World Bank Doing Business Report on the metric of enforcement of contracts, scoring 64.8 in the length of time taken for enforcement, 43.6 for costs associated with litigation and 52.8 on the quality of judicial processes.

There are no specific laws or regulations specifically related to foreign investment.  Since foreign companies are treated similar to Jamaican companies when investing, the relevant sections of the applicable laws are applied equally. 

The Fair-Trading Commission (FTC), an agency of the Ministry of Industry, Investment and Commerce, administers the Fair Competition Act (FCA).  The major objective of the FCA is to foster competitive behavior and provide consumer protection.  The Act proscribes the following anti-competitive practices: resale price maintenance; tied selling; price fixing; collusion and cartels; and bid rigging.  The Act does not specifically prohibit mergers or acquisitions that could lead to the creation of a monopoly.  The FTC is empowered to investigate breaches of the Act and businesses or individuals in breach can be taken to court if they fail to implement corrective measures outlined by the FTC.

Expropriation is generally not an issue in Jamaica, although land may be expropriated for national development under the Land Acquisition Act, which provides for compensation on the basis of market value.  The U.S. government is not aware of any current expropriation-related litigation between the Jamaican government and any private individual or company.  However, the U.S. government assisted investors who had property expropriated during the 1970’s socialist regime, with a payment in one such case received in 2010.

Jamaica enacted new insolvency legislation in 2014 that replaced the Bankruptcy Act of 1880 and seeks to make the insolvency process more efficient.  The Act prescribes the circumstances under which bankruptcy is committed; the procedure for filing a bankruptcy petition; and the procedures to be followed in the administration of the estates of bankrupts.  The reform addresses bankruptcy; insolvency, receiverships; provisional supervision; and winding up proceedings.  The law addresses corporate and individual insolvency and facilitates the rehabilitation of insolvent debtors, while removing the stigma formerly associated with either form of insolvency.  Both insolvents and “looming insolvents” (persons who will become insolvent within twelve months of the filing of the proposal if corrective or preventative action is not taken) are addressed in the reforms.

The Act contains a provision for debtors to make a proposal to their creditors for the restructuring of debts, subject to acceptance by the creditor.  Creditors can also invoke bankruptcy proceedings against the debtor if the amount owed is not less than the prescribed threshold or if the debtor has committed an act of bankruptcy.  The filing of a proposal or notice of intention to file a proposal creates a temporary stay of proceedings.  During this period, the creditor is precluded from enforcing claims against the debtor.  The stay does not apply to secured creditors who take possession of secured assets before the proposal is filed; gives notice of intention to enforce against a security at least 10 days before the notice of intention or actual proposal is filed; or rejects the proposal.  The 2014 legislation makes it a criminal offence if a bankrupt entity defaults on certain obligations set out in the legislation.

Jamaica ranked 34 on Resolving Insolvency in the 2020 World Bank’s Doing Business Report.  Bankruptcy proceedings take about a year to resolve, costing 18 percent of the estate value with an average recovery rate of 65 percent.

The text of the Bankruptcy and Insolvency Act can be found at: http://www.japarliament.gov.jm/attachments/341_The%20Insolvency%20Act%202014%20No.14%20rotated.pdf  

The Fiscal Incentives (Miscellaneous Provisions) Act 2013 repeals most of the legacy incentive legislation and provides flexibility for new tax incentives only to be granted in relation to the bauxite sector, special economic zone activities, the relocation of corporate headquarters, and Junior Stock Exchange listings.  The Act also outlines the arrangement for transitioning to the new regime.  Continuing beneficiaries may elect to keep old incentives such as relief from income tax and customs duty as well as zero-rated General Consumption Tax (GCT) status for imports.  

Below are short descriptions of notable, recently enacted investment incentives.

Omnibus legislation – Provides tax relief on customs duties, additional stamp duties, and corporate income tax.  These benefits are granted under the following four areas:

(1) The Fiscal Incentives Act: Targets small and medium size businesses and reduces the effective corporate income tax rate by applying: (a) an Employment Tax Credit (ETC) at a maximum value of 30 percent; and (b) a capital allowance applicable to a broadened definition of industrial buildings.

(2) The Income Tax Relief (Large-Scale Projects and Pioneer Industries) Act: Targets large-scale projects and/or pioneering projects and provides for an improved and more attractive rate for the ETC.  Projects will be designated either as large-scale or pioneer based on a decision by Parliament and subject to an Economic Impact Assessment.

(3) Revised Customs Tariff: Provides for the duty-free importation of capital equipment and raw material for the productive sectors. 

(4) Revised Stamp Duty Act: Provides exemption from additional stamp duty on raw materials and non-consumer goods for the manufacturing sector.

Urban Renewal Act: Companies that undertake development within Special Development Areas can benefit from Urban Renewal Bonds, a 33.3 percent investment tax credit, tax-free rental income, and the exemption from transfer tax and stamp duties on the ‘improved’ value of the property. 

Bauxite and Alumina Act: Under this Act, bauxite/alumina producers are allowed to import all productive inputs free of duties, Value Added Tax (VAT), and other port related taxes and charges.  

The Foreign Sales Corporation Act: This Act exempts income tax for five years for qualified income arising from foreign trade.  U.S. law through the Tax Information Exchange Agreement (TIEA) reinforces this incentive.  

Jamaica’s EX-IM Bank provides concessionary interest rate loans for trade financing, while the Development Bank of Jamaica offers reduced lending rates to the productive sectors.  Special tax incentives exist for companies that register on the Junior Stock Exchange.

Income Tax Act (Junior Stock Exchange): As of January 1, 2014, companies listed on the Junior Stock Exchange are not required to pay income tax during the first five years and 50 percent for the next five years.  

Special Economic Zone Act: In 2015, Jamaica passed legislation establishing Special Economic Zones (SEZs).  The SEZ Act repeals the Jamaica Free Zone Act, making way for: (1) the designation; promotion; development; operation; and management of Special Economic Zones; (2) the establishment of a SEZ Authority; and (3) the granting of benefits and other measures in order to attract domestic and foreign investments. 

Productive inputs relief (PIR): There is relief from customs duty and additional stamp duty on the importation of certain ‘productive inputs’ that are directly used in the ‘production of primary products’ or the ‘manufacture of goods’.  In addition to the manufacturing and agricultural sectors, relief is also granted on certain products imported for use in the tourism, creative arts, and healthcare industries.

As at March 2022 there were 164 entities operating in Jamaica’s Special Economic Zones (SEZ), occupying over 25 million square feet.  Operations in Jamaica’s SEZs include business process outsourcing (BPO); warehousing and distribution; manufacturing; and assembly and production facilities.  The Jamaica Special Economic Zone Authority (www.jseza.com) regulates, supervises, and promotes the Special Economic Zone (SEZ).  

SEZ operators benefit from a 12.5 percent corporate income tax rate (effective rate may be as low as 7.5 percent with the approval of additional tax credits); customs duty relief, General Consumption Tax (GCT) relief; employment tax credit; promotional tax credit on research and development; capital allowance; and a stamp duty payable of 50 percent.  Developers receive these benefits plus relief from income tax on rental income and relief from transfer tax.  There is a non-refundable one-time registration fee and renewable annual fee to enter the regime.

Duty-free zones are primarily found in airports, hotels, and tourist centers and, as with special economic zone activities, do not discriminate on the basis of nationality.  

No performance requirements are generally imposed as a condition for investing in Jamaica, and government of Jamaica (GOJ) imposed conditions are not overly burdensome.  The GOJ does not mandate local employment, although the use of foreign workers to fill semi-skilled and unskilled jobs is generally frowned upon, especially by trade unions.  When requesting work permits for foreign workers, both local and foreign employers must describe efforts to recruit locally.  The GOJ requires a description of efforts to recruit locally.  The U.S. government has heard of delays in obtaining work permits for foreign workers as the GOJ does not readily have data available to determine if the requisite skills exist in Jamaica.

The GOJ does not follow “forced localization,” requiring domestic content in goods or technology.  There are no requirements to provide the GOJ access to surveillance of data and there are no restrictions on maintaining certain amounts of data storage within the country.

Private entities, whether foreign or domestic, generally have the right to freely establish, own, acquire, and dispose of business enterprises and may engage in all forms of remunerative activity.

Property rights are guaranteed by the Jamaican Constitution.  The Registration of Titles Act recognizes and provides for the enforcement of secured interests in property by way of mortgage.  It also facilitates and protects the acquisition and disposition of all property rights, though working through Jamaica’s bureaucracy can result in significant delays.  With less than half of land in Jamaica registered, it can take a long time for landowners to secure titles.  

Squatting is also a major challenge in Jamaica, with an estimated 20 percent of the population living as squatters.  Three-quarters of these squatters reside on government lands.  Under the Registration of Titles Act, a squatter can claim a property by adverse possession (without compensating the owner for the land) if a person can demonstrate that he or she has lived on government land for more than 60 years, or on private property for more than 12 years undisturbed (including without any payment to the landowner).  There are no specific regulations regarding land lease or acquisition by foreign and/or non-resident investors.

The country’s World Bank Doing Business Report ranking for ease of “registering property” was 85 in 2020, improving significantly due to the reduction in cost associated with transferring and registering collateral using property.  Jamaica continued to outperform other Latin America and Caribbean countries in the time required to close a property transaction. 

Registration of Titles Act: http://moj.gov.jm/sites/default/files/laws/Registration%20of%20Titles.pdf  

Jamaica has one of the stronger intellectual property (IP) protection regimes in Latin America and the Caribbean according to the U.S. Chamber of Commerce’s Intellectual Property Rights Index, although legislative and enforcement gaps still exist.  Jamaica is a member of the World Intellectual Property Organization (WIPO) and is a signatory of the Berne Convention.  Jamaica and the United States have an Intellectual Property Rights Agreement and a Bilateral Investment Treaty, which provide assurances to protect intellectual property.  It is relatively easy to register IP, and the Jamaica Intellectual Property Office (JIPO) assists parties interested in registering IP and supports investors’ efforts to enforce their rights.  Overall, protections across all types of IP are improving.  

Law enforcement efforts to combat counterfeit and pirated goods are improving on the ground but border enforcement remains a challenge.  IP violations tend to be more in relation to physical goods, while electronic IP theft is less common.  

The country’s trademark and copyright regimes satisfy the World Trade Organization’s (WTO) Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).  In January 2020, the country passed its long-awaited TRIPS compliant Patent and Designs Act and has been removed from the USTR Special 301 Watchlist.  The Act came into force in February 2022.  The Geographical Indications Act (GI) of 2004 is now fully in force and is TRIPS compliant, protecting products whose particular quality or reputation is attributable to its geographical origin.  The Trademarks (Amendment) Act of 2021 went into force in March 2022, bringing into effect the Madrid Protocol.  General law provides protection for trade secrets and protection against unfair competition is guaranteed under the Fair Competition Act.  The Madrid Protocol allowing for international registration of a trademark on the basis of a single application takes effect on March 27, 2022.

In the area of copyright protection, amendments to the Copyright Act passed in June 2015 fulfilled Jamaica’s obligations under the WIPO Internet Treaties and extended copyright protection term from 50 to 95 years.  The Copyright Act complies with the TRIPS Agreement and adheres to the principles of the Berne Convention and covers works ranging from books and music to computer programs.  Amendments in June 1999 explicitly provide copyright protection on compilations of works such as databases and make it an offense for a person to manufacture or trade in decoders of encrypted transmissions.  It also gives persons in encrypted transmissions or in broadcasting or cable program services a right of action against persons who infringe upon their rights.

The Jamaica Constabulary Force established a specialized intellectual property unit within its counter terrorism and organized crime branch (C-TOC) in 2015 to boost IP enforcement.  The unit continued to work with the Contraband Enforcement Team of the Jamaica Customs Agency to seize and destroy counterfeit goods, while pursing criminal proceedings where possible.  In 2021, over $60 million in counterfeit goods were destroyed by state agencies.  The amount increased significantly due to the destruction of goods seized by Jamaica Customs in 2017.  The most commonly counterfeited goods include shoes, alcohol, cigarettes, clothing, handbags, and pharmaceuticals.  Jamaica’s border enforcement efforts are hampered by customs officers not having ex officio authority to seize and destroy counterfeit goods.  Rights holders must first be provided with visual samples of suspect merchandise to verify the item as counterfeit, submit a declaration indicating the differences between the fake and actual brands, and provide an authorization to seize the merchandise.  Rights holders are responsible for paying the costs associated with storage and destruction of counterfeit goods, and in recent cases the cost started at $250,000.  Presently the Commissioner of Customs may grant up to 10 days for a rights holder to produce the required evidence and commitments before releasing suspected counterfeit goods that are in transit.  

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

Credit is available at market terms, and foreigners are allowed to borrow freely on the local market at market-determined rates of interest.  A relatively effective regulatory system was established to encourage and facilitate portfolio investment.  Jamaica has had its own stock exchange, the Jamaica Stock Exchange (JSE), since 1969.  The JSE was the top performing capital market indices in 2018 and was among the top five performers in 2019.  The Financial Services Commission (FSC) and the Bank of Jamaica (BOJ), the central bank, regulate these activities.  Jamaica adheres to IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

At the end of 2021 there were 11 deposit-taking institutions (DTIs) consisting of eight commercial banks, one merchant bank (Licensed under the Financial Institutions Act) and two building societies.  The number of credit unions shrank from 47 at the end of 2009 to 25 at the end of 2021.  Commercial banks held assets of approximately $14 billion at the end of 2021.  Non-performing loans (NPL) of $200 million at end December 2020, were 3 percent of total loans.  Five of the country’s eight commercial banks are foreign owned.  After a financial sector crisis in the mid-1990s led to consolidations, the sector has remained largely stable.  

In October 2018, the GOJ took legislative steps to modernize and make the central bank operationally independent through the tabling of amendments to the Bank of Jamaica (BOJ) Act. The modernization program includes, inter alia, the institutionalization of the central bank independence, improved governance, and the transitioning of monetary policy towards inflation targeting.  The modernization efforts continued in 2020 with the passage of the Bank of Jamaica Amendment Act to allow for, among other things: (1) full-fledged inflation targeting; (2) improved capitalization, governance, transparency, and accountability; (3) monetary policy decisions to be devolved to a monetary policy committee; and (4) the central bank Governor to account to Parliament.  The Act will therefore remove the power of the government to give monetary policy direction to the central bank.  These changes will move Jamaica’s financial governance framework closer in line with international standards.   

In May of 2020, the BOJ, as a part of their ongoing retail payments reform, ventured into the digital innovation that is fast becoming a feature of global central banks, central bank digital currency (CBDC).  CBDC is a digital form of central bank issued currency and is therefore legal tender.  It is not to be confused with cryptocurrency, which is privately issued and not backed by a central authority.  CBDC is fully backed by the Central Bank, the sole issuer.  The Bank of Jamaica will roll out the digital Jamaican dollar in 2022 after a successful pilot during 2021.

Jamaica does not have a sovereign wealth fund or an asset management bureau.

Jamaican SOEs are most prominent in the agriculture, mining, energy, and transport sectors of the economy.  Of 149 public bodies, 54 are self-financing and are therefore considered SOEs as either limited liability entities established under the Companies Act of Jamaica or statutory bodies created by individual enabling legislation.  SOEs generally do not receive preferential access to government contracts.  SOEs must adhere to the provisions of the GOJ (Revised) Handbook of Public Sector Procurement Procedures and are expected to participate in a bidding process to provide goods and services to the government.  SOEs also provide services to private sector firms.  SOEs must report quarterly on all contracts above a prescribed limit to the Integrity Commission.  Since 2002, SOEs have been subject to the same tax requirements as private enterprises and are required to purchase government-owned land and raw material and execute these transactions on similar terms as private entities. 

Jamaica’s Public Bodies Management and Accountability Act (PBMA) requires SOEs to prepare annual corporate plans and budgets, which must be debated and approved by Parliament.  As part of the GOJ’s economic reform agenda, SOE performance is monitored against agreed targets and goals, with oversight provided by stakeholders including representatives of civil society.  The GOJ prioritized divestment of SOEs, particularly the most inefficient, as part of its IMF reform commitments.  Private firms compete with SOEs on fair terms and SOEs generally lack the same profitability motives as private enterprises, leading to the GOJ’s absorbing the debt of loss-making public sector enterprises. 

Jamaica’s public bodies report to their respective Board of Directors appointed by the responsible portfolio minister and while no general rules guide the allocation of SOE board positions, some entities allocate seats to specific stakeholders.  In 2012, the GOJ approved a Corporate Governance Framework (CGF) under which persons appointed to boards should possess the skills and competencies required for the effective functioning of the entity.  With some board members being selected on the basis of their political affiliation, the government is in the process of developing new board policy guidelines.  The Jamaican court system, while slow, is respected for being fair and balanced and in many cases has ruled against the GOJ and its agents.   

As part of its economic reform program, the GOJ identified a number of public assets to be privatized from various sectors.  Jamaica actively courts foreign investors as part of its divestment strategy.  In certain instances, the government encourages local participation.  Restrictions may be placed on certain assets due to national security considerations.  Privatization can occur through sale, lease, or concession.  Transactions are generally executed through public tenders, but the GOJ reserves the right to accept unsolicited proposals for projects deemed to be strategic.  The Development Bank of Jamaica, which oversees the privatization program, is mandated to ensure that the process is fair and transparent.  When some entities are being privatized, advertisements are placed locally and through international publications, such as the Financial Times, New York Times, and Wall Street Journal, to attract foreign investors.  Foreign investors won most of the privatization bids in the last decade.

While the time taken to divest assets depends on state of readiness and complexity, on average transactions take between 18 and 24 months.  The process involves pre-feasibility and due diligence assessments; feasibility studies; pre-qualification of bidders; and a public tender.  In 2019 the GOJ divested two of its major assets through initial public offerings (IPOs): a 62-megawatt wind farm, which raised almost $40 million, and a toll highway, which raised almost $90 million.  The GOJ is in planning to divest the Jamaica Mortgage Bank and its minority interest in the electricity provider, the Jamaica Public Service, through public offerings.  In 2018, the GOJ signed a 25-year concession for the management and development of the Norman Manley International Airport in Kingston.  Other large privatizations include the 2003 privatization of Sangster International Airport in Montego Bay and the 2015 privatization of the Kingston Container Terminal port facility.    

A list of current privatization transactions can be found at http://dbankjm.com/current-transactions/.

Responsible Business Conduct (RBC) among many Jamaican companies is a developing practice, with more established companies further along the scale.  In 2013, the government provided additional financial incentives for corporations to support charity work through the Charities Act, under which corporations and individuals can claim a tax deduction on contributions made to registered charitable organizations.  Some large publicly listed companies and multinational corporations in Jamaica maintain their own foundations that carry out social and community projects to support education, youth employment, and entrepreneurship.  

In 2018, the GOJ became party to the OECD’s Base Erosion and Profit Shifting Multilateral Convention, which updates the network of bilateral tax treaties and reduces opportunities for tax avoidance by multinational enterprises.  GOJ also became signatory to the Convention on Mutual Administrative Assistance in Tax Matters, effective March 1, 2019, having deposited instruments of ratification in November 2018.  

Recent years have seen increased disputes over bauxite mining rights in Jamaica’s Cockpit Country, an area inhabited by the semi-autonomous Maroon population.  In January 2022, the Jamaican government granted a Jamaican-owned subsidiary of an international firm rights to mine on more than one thousand acres of previously protected land claimed by the Maroons despite protests by community representatives.

Jamaican law provides criminal penalties for corruption by public officials, however, there is at least circumstantial evidence that some officials engage in corrupt practice.  There were also reports of government corruption in the last couple years and it remained a significant cause of public concern.  Media and civil society organizations continued to criticize the government for being slow and at times reluctant to tackle corruption.

Under the Corruption Prevention Act, public servants can be imprisoned for up to 10 years and fined as much as USD 100,000 if found guilty of engaging in acts of bribery, including bribes to foreign public officials.  

In 2017, Jamaica passed an Integrity Commission Act that consolidated three agencies with anti-corruption mandates into a single entity, the Integrity Commission, which now has limited prosecutorial powers.  The three agencies are the precursor Integrity Commission, which received and monitored statutory declarations from parliamentarians; the Office of the Contractor General (OCG), which monitored government contracts; and the Commission for the Prevention of Corruption, which received the financial filings of specified public servants.  A key area of concern for corruption is in government procurement.  However, successful prosecutions – particularly for high-level corruption – are rare.  Three Ministers of government demitted office between 2018 and March 2022, in the wake of corruption allegations.

Corruption, and its apparent linkages with organized crime, appear to be one of the root causes of Jamaica’s high crime rate and economic stagnation.  In 2021, Transparency International gave Jamaica a score of 44 out of a possible 100 on the Corruption Perception Index (CPI). 

Crime poses a greater threat to foreign investment in Jamaica than political violence, as the country has not experienced any major political violence since the early 1980s.  Violent crime, mostly attributed to gangs, is rooted in poverty, unemployment, social neglect, and transnational crime, including so-called “lottery-scamming”, and is a serious problem in Jamaica.  Gang violence is highly concentrated in inner-city neighborhoods but can occur elsewhere.  The Jamaica Constabulary Force recorded 1,463 murders in 2021, a per capita homicide rate of roughly 50 per 100,000, the highest homicide rate in Latin America and the Caribbean in 2021.  Jamaica also faces a significant problem with extortion in certain urban commercial areas and on large construction project sites.  The security challenges increase the cost of doing business as companies spend on additional security measures.

The U.S. Department of State Travel Advisory (of March 2022) assesses Jamaica at Level 3, indicating travelers should exercise increased caution.  U.S. companies with personnel assigned to Jamaica are strongly advised to conduct security and cultural awareness training. 

Please refer to the Jamaica 2019 Crime and Safety Report from the Department of State’s Overseas Security Advisory Council (OSAC) for additional information (https://www.osac.gov/Country/Jamaica/Detail).

Jamaica had an estimated labor force of 1.3 million as of October 2021 with an unemployment rate of 7.1 percent.  Women make up 46.2 percent of the labor force and have an unemployment rate of 9 percent.  Unemployment is highest within the 14-19 age cohort.  Most Jamaicans are employed in services including the retail and tourism sectors, followed by construction, transportation, and communications.  Since 1999, more Jamaicans have become trained in information technology and the business process outsourcing (BPO) industry currently employs more than 40,000 people.  

Data from the Statistical Institute of Jamaica (STATIN) show that the number of women securing employment is gradually increasing.  According to STATIN’s October 2021 Labor Force Survey, of the 76,600 additional persons gaining jobs to expand the employed labor force by 6.6 per cent to 1,234,800, women accounted for 43,700.  This out-turn represents 57 per cent of the overall additional jobs generated and pushed the number of gainfully employed females by 8.5 per cent up to 558,600.  While the margin of increase for males was smaller, at 39,900 or 5.1 per cent, the overall number of men in jobs was significantly larger, at 676,200 (https://jis.gov.jm/government/ministries/).

No law requires hiring locals, but foreign investors are expected to hire locals, especially for unskilled and lower skilled jobs.  Under the Work Permit Act, a foreign national who wishes to work in Jamaica must first apply for a permit issued by the Ministry of Labor and Social Security.  The law, which seeks to give first preference to Jamaicans, requires organizations planning to employ foreign nationals to prove that attempts were made to employ a Jamaican national.

The security guard industry adopted the practice of employing workers on extended contracts to avoid some of the cost, including severance, associated with direct employment.  Jamaica does not have a history of waiving labor laws to retain or attract investment and these laws tend to be uniform across the economy.     

There are no restrictions on employers adjusting employment to respond to market conditions, but there are severance payment requirements if a position is made redundant.  Under the law, there is a distinction between a layoff and a redundancy.  A layoff allows a temporary period without employment for up to four months.  The Employment (Termination and Redundancy Payments) Act provides redundancy pay to employees who are let go with at least two years of continuous employment.  There are no unemployment benefits in Jamaica, but low-income Jamaicans have the option of applying for social benefits under a conditional cash transfer program referred to as the Program for Advancement though Health and Education (PATH). 

The law provides for the rights of workers to form or join unions, to bargain collectively, and the freedom to strike.  Trade union membership accounts for about 20 percent of the labor force, although the movement has weakened in recent years.  The law prohibits anti-union discrimination, although it is not uncommon for private sector employers to lay off union workers and rehire them as contractors.  Labor law entitles protections to all persons categorized as workers, although it denies contract workers coverage under certain statutory provisions, such as redundancy benefits.  The law denies collective bargaining if no single union represents at least 40 percent of the workers in the unit.  Unionization is limited in Jamaica’s free zones.      

Jamaica has an Industrial Disputes Tribunal (IDT) to which the Minister of Labor and Social Security may refer disputes unsettled at the local level.    

Jamaica ratified most International Labor Organization (ILO) Conventions and international labor rights are recognized within domestic law.  Jamaica has ratified all key international conventions concerning child labor and established laws and regulations related to child labor, including in its worst forms.  However, gaps still exist in Jamaica’s legal framework to adequately protect children from child labor.  The GOJ is under-resourced for investigations on worker abuse as well as on occupational safety and health checks. 

Jamaica’s workplace policy incorporates all of the recommended practices of the ILO code of practice on HIV/AIDS but the legislation to regulate enforcement is yet to be ratified.  In conjunction with the ILO and local stakeholders, the GOJ passed legislation guiding flexible working arrangements. 

The informal economy (encompassing pure tax evasion, the irregular economy and illegal activities) represents a large and growing share of the overall economy.  This growing sector represents a diverse group of enterprises and workers, ranging from local peddlers to relatively sophisticated small entrepreneurs.  Tax evaders reduce revenue the Jamaican tax system would otherwise receive.  Tax evasion therefore contributes to lower levels of government services, higher taxes on the rest of the economy and larger government deficits.  Irregular economic activity is the least virulent portion of the informal economy, and even has beneficial aspects.  Irregular activity generates goods, services and jobs that might otherwise be unavailable.  

Joe James
Economic/Commercial Officer
kingstoncommercial@state.gov
142 Old Hope Road
Kingston 6, Jamaica
+1 876-702-6000

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Other agencies where companies typically register are:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Embassy point of contact:

Colombia Primola
Economic Specialist
PrimolaCE@state.gov 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The GoTT seeks foreign direct investment and has traditionally welcomed U.S. investors.

The U.S. Mission is not aware of laws or practices that discriminate against foreign investors, but some have seen the decision-making process for tenders and the subsequent awarding of contracts turn opaque without warning, especially when their interests compete with those of well-connected local firms.

InvesTT is the country’s investment promotion agency that assists investors through the process of setting up a non-energy business and provides aftercare services once established. Specifically, it provides market information, offers advice on accessing investment incentives, assists with regulatory and registry issues, and provides property and location services. It also assists with general problem solving and advocacy to the government.

While TT prioritizes investment retention, the U.S. Mission is not aware of a formal, ongoing dialogue with investors, either through an Ombudsman or formal business roundtable.

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity.

There are no limits on foreign ownership. Under the Foreign Investment Act of 1990, a foreign investor is permitted to own 100 percent of the share capital in a private company. A license is required to own more than a 30 percent of a public company.

The U.S. Mission is not aware of any sector-specific restrictions or limitations applied to U.S. investors.

TT maintains an investment screening mechanism for foreign investment related to specific projects that have been submitted for the purpose of accessing sector-specific incentives, such as for those offered in the tourism industry. Information on criteria to access the development incentives are listed in various legislative acts such as the Tourism Development Act of 2001.

The World Trade Organization conducted a trade policy review for TT in 2019: https://www.wto.org/english/tratop_e/tpr_e/tp488_e.htm 

The Business & Human Rights Resource Centre noted concerns about the expansion of Chinese investment in TT in 2019.

The GoTT’s business facilitation efforts focus primarily on investor services (helping deal with rules and procedures) through its investment promotion agency and is attempting to make the rules more transparent and predictable overall. However, more work needs to be done to achieve efficient administrative procedures and dispute resolution. TT ranks 158th of 190 countries for registering property, 174th for enforcing contracts, and 160th for payment of taxes in the World Bank’s Doing Business 2020 report, representing a deterioration of indicators that reflect a difficulty of doing business.

The business registration website is: www.ttbizlink.gov.tt . In 2022, the Global Enterprise Registration Network (GER) gives the TT business registration website an above-average score of 8.5 out of 10 for its single electronic window, and a below average score of 4 out of 10 for providing information on how to register a business ( http://www  .TTconnect.gov.tt ). While the process is clear, the inability to make online payments and submit online certificate requests are the two primary reasons for the low score. A feedback mechanism allowing users to communicate with authorities is a strength of the TT business registration website. Foreign companies can use the website and business registration requires completion of seven procedures over a period of 10 days. The agencies with which a company must typically register include:

• Companies Registry, Ministry of Legal Affairs
• Board of Inland Revenue
• National Insurance Board; and
• Value Added Tax (VAT Office, Board of Inland Revenue)

The GoTT does not promote or incentivize outward investment. The GoTT does not restrict domestic investors from investing abroad.

Through the TT Fair Trading Commission, the GoTT develops transparent policies and effective laws to foster market-based competition on a non-discriminatory basis and establishes “clear rules of the game.” Legal, regulatory, and accounting systems are generally transparent and consistent with international norms

There are no informal regulatory processes managed by non-governmental organizations or private sector associations.

Rule-making and regulatory authority exist within the ministries and regulatory agencies at the national level. The government consults frequently, but not always, with international agencies and business associations in developing regulations. The GoTT submits draft regulations to parliament for approval. The process is the same for each ministry.

Accounting, legal, and regulatory procedures are transparent and consistent with international norms. International financial reporting standards are required for domestic public companies. The GoTT promotes but does not require companies’ environmental, social and corporate governance disclosures to facilitate transparency to help investors and consumers distinguish between high- and low-quality investments.

Proposed laws and regulations are often published in draft form electronically for public review at http://www.ttparliament.org/  , though there is no legal obligation to do so. The GoTT often solicits private sector and business community comments on proposed legislation, although there is no timeframe for the length of a consultation period when it happens, nor is reporting mandatory on the consultations.

All draft bills and regulations are printed in the official gazette and other websites:

• www.news.gov.tt/content/e-gazette#
• www.ric.org.tt;
• www.ttparliament.org 

The U.S. Mission is not aware of an oversight or enforcement mechanism that ensures that the GoTT follows administrative processes.

There has not been any announcement regarding reforms to the regulatory system, including enforcement, since the last ICS report. Regulatory reform efforts announced in prior years, such as the mechanism to calculate and collect property tax and the establishment of the revenue authority, have not been fully implemented.

Establishment of the revenue authority is intended to increase collections and streamline the system for paying taxes.

At present, regulatory enforcement mechanisms are usually a combination of moral suasion and the use of applicable administrative, civil, or criminal sanctions. The enforcement process is not legally reviewable.

Regulation is usually reviewed based on scientific or data-driven assessments. Scientific studies or quantitative analyses are not made publicly available. Public comments received by regulators are generally not made public.

Public finances and debt obligations are transparent and publicly available on the central bank website: https://www.central-bank.org.tt 

TT is not a part of a regional economic block, although it participates in the Caribbean Community (CARICOM), a regional trading bloc that gives duty-free access to member goods, free movement to some CARICOM nationals, and establishes common treatment of non-members on specific issues. The Caribbean Single Market and Economy (CSME) is an initiative currently being explored by CARICOM that would eventually integrate its member-states into a single economic unit. When fully completed, the CSME would succeed CARICOM.

Legal, regulatory, and accounting systems are generally consistent with United Kingdom standards.

The GoTT has not consistently notified the World Trade Organization (WTO) Committee on Technical Barriers to Trade (TBT) of draft technical regulations.

TT’s legal system is based on English common law. Contracts are legally enforced through the court system.

The country has a written commercial law. There are few specialized courts and resolution of legal claims is time consuming. An industrial court exclusively handles cases relating to labor practices but also suffers from severe backlogs and is widely seen to favor claimants.

Civil cases of less than $2,250 are heard by the Magistrate’s Court. Matters exceeding that amount are heard in the High Court of Justice, which can grant equitable relief. There is no court or division of a court dedicated solely to hearing commercial cases.

TT’s judicial system is independent of the executive, and the judicial process is competent, procedurally and substantively fair, and reliable, although very slow. According to the World Bank’s Doing Business 2020 report, TT ranks 174 of 190 in ease of enforcing contracts and its court system requires 1,340 days to resolve a contract claim, nearly double the Latin American and Caribbean regional average.

Decisions may be appealed to the Court of Appeal in the first instance. The United Kingdom Privy Council Judicial Committee is the final court of appeal.

TT’s judicial system respects the sanctity of contracts and generally provides a level playing field for foreign investors involved in court matters. Due to the backlog of cases, however, there can be major delays in the process. It is imperative that foreign investors seek competent local legal counsel. Some U.S. companies are hesitant to pursue legal remedies, preferring to attempt good faith negotiations in order to avoid an acrimonious relationship that could harm their interests in the country’s small, tight-knit business community.

There is no “one-stop-shop” website for investment providing relevant laws, rules, and procedures. Useful websites to help navigate foreign investment laws, rules, and procedures include:

• http://www.legalaffairs.gov.tt 
• https://www.rgd.legalaffairs.gov.tt 
• http://www.tradeind.gov.tt 
• https://investmentpolicy.unctad.org/investment-laws/laws/46/trinidad-and-tobago-foreign-investment-act 

The TT Fair Trading Commission is an independent statutory agency responsible for promoting and maintaining fair competition in the domestic market. It is tasked with investigating the various forms of anti-competitive business conduct set out in the Fair-Trading Act. No cases that involve foreign investment have arisen in the past 12 months. The agency adheres to fair and transparent norms and procedures. The agency’s decisions can be appealed to the judicial system.

The GoTT can legally expropriate property based on the needs of the country and only after due process including adequate compensation generally based on market value. Various pieces of legislation make provisions for compulsory licensing in the interest of public health or intellectual property rights.

The U.S. Mission is not aware of any direct or indirect expropriation actions since the 1980s. All prior expropriations were compensated to the satisfaction of the parties involved. Energy sector contacts occasionally describe the tax regime as confiscatory, pointing to after-the-fact withdrawal or weakening of tax incentives offered to entice investment once investment occurs.

Claimants did not allege a lack of due process in prior expropriation cases.

Creditors have the right to be notified within 10 days of the appointment of a receiver and to receive a final report, a statement of accounts, and an assessment of claim. Claims of secured creditors are prioritized under the Bankruptcy Act. No distinction is made between foreign and domestic creditors or contract holders. Bankruptcy is not criminalized.

The World Bank ranked TT 83rd out of 190 countries in resolving insolvency in its Doing Business 2020 report. This reflects TT’s recovery rate (cents on the dollar), which is worse than the regional average, and cost as a percentage of estate.

Investment incentives include the following: exemption from import duties and customs duties; tax credits and deferrals; cash refunds; carry-over of losses; and access to loans. These are available equally to foreign and domestic investors, but delays in cash refund payments are a frequent complaint of those due them. There are no specific incentives for underrepresented investors such as women. Additional information is available on the following websites:

• https://www.finance.gov.tt/mof-investment-incentives-in-trinidad-and-tobago/ 
• http://www.investt.com 

The GoTT sometimes jointly finances foreign direct investment projects, but it is not common.

The Ministry of Energy and Energy Industries continues to work on a Feed in Tariff (FIT) policy and a FIT Implementation plan under the Global Climate Change Alliance+ initiative.

The Free Zones Act of 1988 (last amended in 1997) established the TT Free Zones Company (TTFZ) to promote export development and encourage both foreign and local investment projects in a relatively bureaucracy-free, duty-free, and tax-free environment. Foreign-owned firms have the same investment opportunities as TT entities. There are currently 15 approved enterprises located in 12 free zones. Three are located within a multiple-user site in north-central Trinidad. The Minister of Trade and Industry can designate any suitable area in TT as a free zone.

Free zone enterprises are exempt from customs duties on capital goods, parts, and raw materials for use in the construction and equipping of premises and in connection with the approved activity; import and export licensing requirements; land and building taxes; work permit fees; foreign currency and property ownership restrictions; capital gains taxes; withholding taxes on distribution of profits and corporation taxes or levies on sales or profits; VAT on goods supplied to a free zone; and duty on vehicles for use only within the free zone.

A corporation tax exemption for entities that qualify for free zone status is also in force. Application to carry out an approved activity in an existing free zone area is made on specified forms to the TTFZ.

Free zone activities that qualify for approval include manufacturing for export, international trading in products, services for export, and development and management of free zones. Activities that may be carried on in a free zone but do not qualify as approved activities include exploration and production activities involving petroleum, natural gas, or petrochemicals. For more information, please review the following website: http://ttfzco.com/ 

The TT Special Economic Zones Bill, 2021, was passed in the Parliament in January 2022. The legislation will result in the creation of a Special Economic Zone Authority. The act will take effect upon proclamation by the President of TT (no date has been set).

The GoTT does not mandate – although it strongly encourages through negotiable incentives – projects that generate employment and foreign exchange; provide training and/or technology transfer; boost exports or reduce imports; have local content; and generally contribute to the welfare of the country.

The GoTT does not mandate that Trinbagonian nationals be recruited to senior management and boards of directors.

Several foreign firms have encountered inconsistencies leading to long delays in the issuance of long-term work permits, but there are no explicit, onerous requirements.

There are no government/authority-imposed conditions on permission to invest.

There are no forced localization requirements.

There are no performance requirements, and thus no enforcement procedures. There is no indication of an intention to implement across-the-board performance requirements.

Investment incentives are uniform for domestic and foreign investors but offered on a case-by-case, vice across-the-board, basis.

There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption.

There are no measures that prevent or restrict companies from freely transmitting customer or other business-related data outside the country.

There are no rules on local data storage within TT.

Property rights and interests are enforced in court. Mortgages and liens exist. TT has a dual system of land titles, the old common law system and the registered land title system governed by the Real Property Act of 1946. Nearly 80 percent of land in TT remains under the more complicated common law system, which is not reliable for recording secured interests.

The Foreign Investment Act of 1990 governs the acquisition of any interest in land by foreign investors. It states that foreign investors wishing to acquire land larger than five acres must obtain a license from the Ministry of Finance. Licenses are generally granted in practice per the criteria provided here: https://www.finance.gov.tt/wp-content/uploads/2014/05/51.pdf .

It is not clear what proportion of land does not have clear title. The GoTT does not make a defined effort to identify property owners and register land titles.

Property ownership can revert to squatters if they can prove exclusive possession of another’s land, without permission, for at least 16 years in the case of private lands and 30 years on State lands.

The process of protecting intellectual property involves applying for and registering patents, trademarks, or designs. TT’s intellectual property rights (IPR) legal structure is strong, but enforcement is generally weak. Infringement on rights and theft is common.

TT is a member of the World Intellectual Property Organization (WIPO). In 2020, TT acceded to the Madrid Protocol on Trademarks. Implementing regulations remain in drafting for the 2000 Patent Law Treaty and the Hague Agreement on Industrial Designs.

TT does not track seizures of counterfeit goods. At its May 2019 WTO Trade Policy Review, it reported one seizure in 2018. TT has prosecuted IPR violations in the past, but such prosecutions are uncommon.

TT is listed in the United States Trade Representative’s (USTR) Special 301 Report Watch List for 2021. Challenges concern widespread copyright infringement and the country’s lack of institutional commitment to enforce IPR.

TT is not included in USTR’s 2021 Review of Notorious Markets for Counterfeiting and Piracy.

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

The GoTT welcomes foreign portfolio investment.

TT has its own stock market and has an established regulatory framework to encourage and facilitate portfolio investment. There is enough liquidity in the markets to enter and exit sizeable positions.

Existing policies facilitate the free flow of financial resources into the product and factor markets.

The GoTT and the Central Bank of TT respect IMF Article VIII by refraining from restrictions on payment and transfers for current international transactions. Shortages of foreign exchange, exacerbated by the government’s maintenance of the local currency at values higher than those which the market would bear, however, cause considerable delays in payments and transfers for international transactions.

A full range of credit instruments is available to the private sector. There are no restrictions on borrowing by foreign investors who are able to access credit. Credit is allocated on market terms, but interest rates tend to be higher for foreign borrowers.

Banking services are widespread throughout urban areas, but penetration is significantly lower in rural areas.

Although the banking sector is healthy and well-capitalized, the IMF in its 2020 Financial Stability Assessment Program noted TT’s banks are exposed to sovereign risk and potential liquidity risks stemming from non-bank financial entities in the group. The financial system overall faces risks of increasing household debt, a lack of supervisory independence and out-of-date regulatory frameworks, the sovereign-bank nexus and the absence of a macro-prudential toolkit, and contagion risks between investment funds and banks. The report further states the financial sector legislation and regulation have not kept pace with international best practice. The supervisors operate with guidelines in key areas instead of binding powers, which limits their authority

In December 2021, the estimated total assets of TT’s largest banks was $23.1 billion.

TT has a central bank system. Foreign banks may establish operations in TT provided they obtain a license from the central bank. TT has lost correspondent banking relationships in the past three years. The U.S. Mission is not aware of any current correspondent banking relationships that are in jeopardy.

There are no restrictions on a foreigner’s ability to establish a bank account.

The value of TT’s sovereign wealth fund (SWF), the Heritage and Stabilization Fund, as of September 2021 is approximately $5.6 billion. The fund invests in U.S. short duration fixed income, U.S. core domestic fixed income, U.S. core domestic equities, and non-U.S. core international equities.

The SWF follows the voluntary code of good practices known as the Santiago Principles. TT participates in the IMF-hosted International Working Group on SWFs.

None of the SWF is invested domestically. There are no potentially negative ramifications for U.S. investors in the local market.

TT has 55 SOEs comprised of 43 wholly owned companies, eight majority-owned, and four in which the government has a minority share. SOEs are in the energy, manufacturing, agriculture, tourism, financial services, transportation, and communication sectors. Information on the total assets of SOEs, total net income of SOEs and number of people employed by SOEs is not available. The Investments Division of the Ministry of Finance appoints directors to the boards of state enterprises, reportedly at the direction of the Minister of Finance. SOEs are often informally or explicitly obligated to consult with government officials before making major business decisions. According to TT’s constitution, the government is entitled to:

• exercise control directly or indirectly over the affairs of the enterprise
• appoint a majority of directors of the board of directors of the enterprise; and
• hold at least 50 per cent of the ordinary share capital of the enterprise.

A published list of SOEs for 2022 can be found here: https://www.finance.gov.tt/2021/10/04/https-www-finance-gov-tt-wp-content-uploads-2021-10-state-enterprises-investment-programme-seip-2022-pdf/ 

In sectors that are open to both the private sector and foreign competition, SOEs are sometimes favored for government contracts, which might negatively impact U.S. investors in the market.

The country has not adhered to the OECD corporate governance guidelines for SOEs.

TT does not have a privatization program in place, but the GoTT has issued initial public offerings of various state-owned companies to obtain revenue, primarily in the finance and energy sectors.

Foreign investors can participate in the initial public offerings of SOEs.

The purchase of initial public offering shares on past occasions was open to the public, easy to understand, non-discriminatory, and transparent. For example: https://ngc.co.tt/media/news/ngl-initial-public-offering-brokerage-details/ 

There is general awareness of expectations of, and standards for, responsible business conduct (RBC), including obligations to proactively conduct due diligence to ensure businesses are doing no harm, including with regards to environmental, social, and governance issues.

The GoTT has not put forward a clear definition of responsible business conduct, nor does it have specific policies to promote and encourage it. The GoTT has not conducted a national action plan on RBC, nor does it currently factor it into procurement decisions.

There are five reports of forced labor in the last 12 months. There are no reported claims in the last five years by indigenous or other communities that a government entity improperly allocated land or natural resources.

There have not been any high-profile, controversial instances of private sector impact on human rights.

TT has laws to ensure protection of human rights, labor rights, consumers, and the environment. Enforcement, however, is lacking due to staffing shortages, capacity issues, and a bureaucratic judiciary.

The GoTT, in collaboration with civil society, created the TT Corporate Governance Code, which incorporates governance, accounting, and executive compensation standards to protect shareholders. The code, however, is not mandatory.

The Caribbean Corporate Governance Institute is a not-for-profit organization headquartered in TT that freely advocates for responsible business conduct and improved corporate governance practices in the Caribbean.

The GoTT does not encourage adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. There are no domestic measures requiring supply chain due diligence for companies sourcing minerals originating from conflict-affected areas.

As a member of the Extractive Industries Transparency Initiative (EITI), the GoTT publicly declares annually all revenues received from companies engaged in the extractive industries. The companies, in turn, publicly declare payments to the government.

TT is not a signatory of the Montreux Document on Private Military and Security Companies.

Various pieces of legislation address corruption of public officials:

• The Integrity in Public Life Act requires public officials to disclose assets upon taking office and at the end of tenure.
• The Freedom of Information Act gives members of the public a general right (with specified exceptions) of access to public authorities’ official documents. The intention of the act was to address the public’s concerns of corruption and to promote a system of open and good governance. In compliance with the act, designated officers in each ministry and statutory authority process applications for information.
• The Police Complaints Authority Act establishes a mechanism for complaints against police officers in relation to, among other things, police misconduct and police corruption.
• The Prevention of Corruption Act provides for certain offences and punishment of corruption in public office.

The laws are non-discriminatory in their infrequent application. Effectiveness of these measures has been limited by a lack of thorough enforcement. These laws do not extend to family members of officials or to political parties. TT does not have laws or regulations to counter conflicts of interest in awarding contracts or government procurement.

The GoTT has been a party to the development of corporate governance standards (non-binding) to encourage private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. Some private companies, particularly the larger firms, use internal controls and compliance programs to detect and prevent bribery of government officials, although this is not a government requirement.

TT adheres to the UN Anticorruption Convention. There are no protections for NGOs involved in investigating corruption, but investigations are not feared since corrupt actors are rarely punished.

U.S. firms often say corruption is an obstacle to FDI, particularly in government procurement, since TT’s procurement processes are not transparent.

While non-violent demonstrations occasionally occur, widespread civil disorder is not typical. There have been no serious incidents of political violence since a coup attempt in 1990.

Subsequent to the closure of state oil firm Petrotrin in November 2018, which resulted in the lay-off of nearly 6,000 workers, there were reports of damage to installations.

Certain areas of TT are increasingly insecure due to a critical level of violent crime.

The labor market includes many skilled and experienced workers, and the educational level of the population is among the top 10 in North America, according to the Human Development Index, although there is a gap between official literacy statistics and functional literacy. In 2020, the International Labor Organization’s estimate of unemployment was 4.5 percent, while youth unemployment rate (15-24 years of age) was estimated at 11.17 percent in 2020. Information on the informal economy is not widely available.

Agricultural employment accounts for 3.6 percent of total employment while employment in services accounts for over 60 percent. The estimated non-agricultural workforce in the informal economy is 10 percent of the overall labor force. TT’s workforce includes not only TT nationals but also citizens of 11 other CARICOM countries as part of the free movement of labor without the need to obtain a work permit. In 2019, TT granted 16,523 Venezuelan refugees and migrants the right to work in the country for a period of one year under a temporary protective status. In 2021, the GoTT allowed registered Venezuelan refugees a one-year extension of status. Some members of the business community have indicated that many migrant workers have returned to their countries of origin due to the unavailability of job opportunities following the pandemic related closures.

TT is a net importer of expatriate labor, including doctors, nurses, construction workers, and extractive industry specialists. There are surpluses of accountants and attorneys and shortages of unskilled workers for the hospitality, retail, and agriculture sectors. The GoTT subsidizes tertiary-level education for citizens whose income falls within a minimum range. The Multi-Sector Skills Training Program provides training in construction and hospitality and tourism for eligible citizens of TT. The GoTT also encourages continuing learning opportunities for the disadvantaged via the Skills Training Program, which develops skills that can aid in the creation of home-based production of goods and services and employment generation.

There is no government policy requiring hiring of nationals, although it is encouraged, particularly in the energy sector.

There are no restrictions on employers adjusting employment to respond to fluctuating market conditions via severance. Labor laws differentiate between layoffs and firing. The Retrenchment and Severance Benefits Act provides guidance entitlements based on specific circumstances. Severance pay is usually only paid to retirees and workers who have been made redundant. An employer is not required to pay severance to workers if everyone is severed, since the business is being closed. However, if only a portion of the workforce is rendered redundant, the employer must pay severance. Unemployment insurance does not exist for workers who have been laid off for economic reasons, but programs designed to help job seekers get employed as quickly as possible are available. Due to the COVID-19 pandemic, the government instituted a 3-6-month unemployment benefit program for those laid off.

Labor laws are not waived in order to attract or retain investment. There are no separate labor law provisions for special economic zones, trade zones, or free ports.

Collective bargaining is common, with approximately 15 percent of the population covered by collective bargaining agreements. Government workers, including civil servants, police officers, firefighters, military personnel, and staff in several state-owned enterprises, are covered by collective bargaining agreements. Unions are also quite active in the energy, steel, and telecommunications industries. Collective bargaining takes place between the firm and the recognized majority union rather than on an industry-wide basis. The government as an employer also bargains collectively. The process of collective bargaining is regulated by the Industrial Relations Act. There are close to 30 active, independent labor unions in TT.

The Industrial Relations Act provides for dispute resolution through an industrial court in instances where the issue cannot be resolved by collective bargaining or through conciliation efforts by the Ministry of Labor.

There was no strike in the past year that posed an investment risk.

The International Labor Organization has not identified any compliance gaps in law or practice regarding international labor standards that may pose a reputational risk to investors. The GoTT does not have a labor inspectorate system to identify and remediate labor violations, but the industrial court investigates and prosecutes unfair labor practices, such as harassment and/or improper dismissal of union members.

There were no new labor related laws or regulations enacted or in draft over the last year.

Valerie Laboy
Economic-Commercial Officer
15 Queen’s Park West
Port of Spain, TT
+1 (868) 622-6371 ext. 5926
poscommercial@state.gov