Andorra is an independent principality with a population of about 77,500 and area of 181 square miles situated between France and Spain in the Pyrenees mountains. Although not a member of the European Union, Andorra is part of the EU Customs Union and, due to a monetary agreement with the EU, uses the euro as its national currency. Andorra has become a popular tourist destination, accounting for about 80 percent of GDP, visited by over 8 million people each year who are drawn by its winter sports, summer climate, and duty-free shopping. Andorra has also become a wealthy international commercial center because of its integrated banking sector and low taxes. As part of its effort to modernize its economy, Andorra has opened to foreign investment, and engaged in other reforms, such as advancing tax initiatives aimed at supporting a broader infrastructure.
Andorra is actively seeking to attract foreign investment and to become a center for entrepreneurs, talent, innovation, and knowledge. In doing so, Andorra has fostered a large project with the Massachusetts Institute of Technology (MIT) on innovation and big data, employing Andorra’s unique economy as a test market.
The Andorran economy is undergoing a process of diversification centered largely on tourism, trade, property, and finance. To provide incentives for growth and diversification in the economy, the Government began sweeping economic reforms in 2006. The Parliament approved three main regulations to complement the first phase of economic openness: the law of Companies (October 2007), the Law of Business Accounting (December 2007), and the Law of Foreign Investment (April 2008 and June 2012). From 2011 to 2017, the Parliament approved direct taxes in the form of a corporate tax, tax on economic activities, tax on income of non-residents, tax on capital gains, savings taxation, and personal income tax. These regulations aim to establish a transparent, modern, and internationally comparable regulatory framework.
These reforms aim to attract investment and businesses that have the potential to boost Andorra’s economic development and diversification. Prior to 2008, Andorra limited foreign investment, worried that large foreign firms would have an oversized impact on its small economy. For example, previous regulations allowed non-citizens with less than 20 years residence in Andorra to own no more than 33 percent of a company. While foreigners may now own 100 percent of a trading enterprise or a holding company, the Government must approve the establishment of any private enterprise. The approval can take up to one month, which can be rejected if the proposal is found to threaten the environment, the public order, or the general interests of the principality.
Andorra has per capita income above the European average and above the level of its neighbors, Spain and France. The country has developed a sophisticated infrastructure including a one-of-a-kind micro-fiber-optic network for the entire country that provides universal access to all households and companies. Andorra’s retail tradition is well known around Europe, thanks to more than 2,900 shops, the quality of their products, and competitive prices. Products taken out of the Principality are tax-free up to certain limits; the purchaser must declare those that exceed the allowance.
2. Bilateral Investment Agreements and Taxation Treaties
Andorra has bilateral agreements with France (2003), Spain (2003), and Portugal (2007). No bilateral investment treaty exists between Andorra and the United States.
Andorra has signed bilateral agreements for the exchange of fiscal information with 24 countries. All those agreements have been ratified and are in force.
In 2014, Andorra became the 48th signatory to the OECD Declaration on Automatic Exchange of Information in Tax Matters, which commits countries to end bank secrecy for tax evasion purposes. Andorra signed a Non-Double Taxation agreement with France, Spain, Portugal, Luxembourg, Liechtenstein, Malta, Cyprus, and United Arab Emirates, and is currently negotiating other such agreements.
3. Legal Regime
Transparency of the Regulatory System
The Government set out transparent policies and laws, which have significantly liberalized all economic sectors in Andorra. New, foreign-owned businesses have to be approved by the government, and the process can take up to a month. The Government is committed to a transparent process. Andorra has begun to relax labor and immigration standards; previously, foreign professionals had to establish 20 years of residency before being eligible to own 100 percent of their business in Andorra. This restriction has been lifted for nationals coming from countries that have reciprocal standards for Andorran citizens.
Following approval of the new Accounting Law in 2007, individuals carrying out business or professional activities, trading companies, and legal persons or entities with a profit purpose must file financial statements with the administration.
International Regulatory Considerations
Although not a member of the European Union (EU), Andorra, as a member of the European Customs Union, is subject to all EU free trade regulations and arrangements with regard to industrial products. Concerning agriculture, the EU allows duty free importation of products originating in Andorra.
Andorra is negotiating a new association agreement with the European Union that will allow Andorrans to establish themselves in Europe and Andorran companies will be able to trade in the EU market.
Although the Government took some steps in the past to become a member of the World Trade Organization (WTO); Andorra currently holds observer status in the WTO. Andorra has applied for membership in the International Monetary Fund (IMF). Its process of adhesion is ongoing.
Legal System and Judicial Independence
Andorra has a mixed legal system of civil and customary law with the influence of canon law. The judiciary is independent from the executive branch. The Supreme Court consists of a court president and eight judges, organized into civil, criminal, and administrative chambers; four magistrates make up the Constitutional Court. The Tribunal of Judges and the Tribunal of the Courts are lower courts. Regulations and enforcement actions can be appealed in the national court system.
Laws and Regulations on Foreign Direct Investment
The Law on Foreign Investment (10/2012) entered into force in 2012, opening the country’s economy by removing the sectorial restrictions stipulated in the prior legislation. In this way, Andorra has positioned itself on equal terms with neighboring economies, enabling it to become more competitive for new sectors and enterprises.
ACTUA is responsible for economic promotion and provides relevant laws, rules, procedures, and reporting requirements to investors.
Competition and Anti-Trust Laws
The Law on Effective Competence and Consumer Protection (13/2013) protects investors against unfair practices. The Ministry of Economy is responsible for administering anti-trust laws and reviews transactions for competition-related concerns (whether domestic or international in nature).
Expropriation and Compensation
The Law of Expropriation (1993) allows the Government to expropriate private property for public purposes in accordance with international norms, including appropriate compensation. We know of no incidents of expropriation involving the U.S. entities in Andorra.
Dispute Settlement
Andorran legislation establishes mechanisms to resolve disputes if they arise and its judicial system is transparent. The Constitution guarantees an independent judiciary branch, overseen by a High Council of Justice. The prosecution system allows for successive appeals to higher courts. The European Court of Justice is the ultimate arbiter of unsettled appeals.
Andorra became a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards in September 2015, requiring Andorran courts to enforce financial awards. Andorra is not a member of the International Center for the Settlement of Investment Disputes (ICSID).
Parties to a dispute can also resolve disputes contractually through international arbitration. Contractual disputes between U.S. individuals or companies and Andorran entities are rare, but when they arise are handled appropriately. There have been no reported cases of U.S. investment disputes.
Bankruptcy Regulations
Andorra’s Bankruptcy decree dates to 1969. Other laws from 2008 and 2014 complement the initial text and further protect workers’ rights to fair salaries as well set up mechanisms to monitor the implementation of judicial resolutions. Additionally, Law 8/2015 outlines urgent measures allowing Government intervention of the banking sector in a crisis.
4. Industrial Policies
Investment Incentives
Andorra is known for its favorable tax regime, which investors exploit to promote tobacco, alcohol, jewelry, cosmetic, dairy products, among others. In recent years, Andorra reached agreements with neighboring countries to limit and regulate duty-free sales with a view towards promoting economic integration, though smuggling continues to be an issue. Andorra is a member of the European Customs Union and therefore has no tariffs on EU-manufactured goods.
ACTUA provides investment incentives based on their three key priorities:
Economic diversification through the development of clusters oriented towards the fields of innovation; health and wellness; education and sport.
Attracting direct foreign investors and supporting national companies throughout their internationalization process.
Supporting entrepreneurs: promoting collaboration between the public and private sectors and giving support to the development of new business initiatives.
ACTUA provides grants for small and medium size companies to foster competitiveness and facilitate their internationalization. The ACTUA Tech Foundation was created in 2015, in collaboration with the Media Lab of the Massachusetts Institute of Technology, with the aim of employing Andorra’s unique economy as a “living lab” to promote innovation. Andorra, thanks to its size, recent liberalizing legislation, relative affluence, and its 8 million visitors per year offers ideal conditions to test this technology.
The Andorran Chamber of Commerce, Industry, and Services of Andorra (www.ccis.ad) is a public body that aims to promote and strengthen Andorra’s financial and business activity as well as supply services to foreign companies. The Chamber’s activities include the creation of a census of commercial, industrial and service activities; the protection of the general interests of commerce, industry, and services; promoting fair competition; and, issuing certificates of origin and other commercial documents.
The Andorran Business Confederation (CEA) provides support to national companies to navigate within the new legal, labor and fiscal national framework as well as it facilitates companies’ international projects. CEA also works to foster international investment into the country. With its Iwand project, it provides information about Andorra’s economic and fiscal environment, which makes the country attractive to business opportunities of all kinds (www.cea.ad).
Foreign Trade Zones/Free Ports/Trade Facilitation
Although not a full member of the European Union (EU), Andorra, as a member of the European Customs Union, is subject to all EU free trade regulations and arrangements regarding industrial products. Moreover, the EU allows duty free importations of products acquired by visitors in Andorra in the framework of the franchises covered in the Customs Union Agreement (1990). Concerning agriculture, the EU allows duty free importation of products originating in Andorra. No free trade zones exist in the country.
Performance and Data Localization Requirements
All employees wishing to work in Andorra must have work permits, issued by annual quotas established by the Government.
Both domestic and foreign private entities have the right to establish and own business enterprises. While foreigners may now own 100 percent of a trading enterprise or a holding company, the Government must approve the establishment of any private enterprise. For a foreign resident, the process for obtaining permissions takes up to one month and is automatically approved if there are no objections. An application can be rejected if the proposal is found to threaten the environment, the public order, or the general interests of the principality. As soon as the foreign investor receives authorization to invest in the country, national laws are applicable just like any other national investor.
The Government does not follow a “forced localization” policy.
5. Protection of Property Rights
The Constitution guarantees the right to private ownership for citizens and residents. Both domestic and foreign private entities now have the right to establish and own business enterprises.
Real Property
Andorran law protects property rights with enforcement carried out at the administrative and judicial levels. Foreign investments for the purchase of property are possible in Andorra, subject to prior authorization. There is a four percent asset-transfer tax. Secured property loans are available through the Andorran banking sector. The Andorran Financial Authority (AFA) oversees mortgages.
Intellectual Property Rights
Andorra joined the World Intellectual Property Organization (WIPO) in 1994 and has been party to the Paris Convention, the Berne Convention, and the Rome Convention since 2004. Andorra continues to hold observer status at the World Trade Organization (WTO) since it has not yet updated its intellectual property rights (IPR) regime to be in compliance with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
Protection of IP rights in Andorra is weak. The legal framework includes: the Trademark Act of May 1, 1995, the Law 26/2014 on Patents, the Law on Authors’ Rights of June 1999, and Law 23/2011on the Creation of the Society of Collective Management of Copyright and Neighboring Rights.
In 2012, the Society for the Administration of Authors’ Rights (SDADV) was created to manage the economic rights, neighboring rights, and the interests of copyright holders. Right holders can choose whether to participate in this voluntary collective arrangement.
Businesses seeking to register a trademark should contact the Andorran Trademarks Office:
Trademarks Office of the Principality of Andorra
Ministry of Economy
Edifici Administratiu del Prat del Rull
Cami de la Grau s/n
AD 500 Andorra La Vella
Tel. (376) 875 600
Email: ompa@andorra.ad http://www.ompa.ad/
Andorra is not listed in the U.S. Trade Representative (USTR) Special 301 Report, nor is it included in the Notorious Markets List.
For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/
6. Financial Sector
Capital Markets and Portfolio Investment
The Andorran financial sector is efficient and is currently the main pillar of the Andorran economy, representing 21 percent of the country’s GDP and over 5 percent of the workforce. Created in 1989, and redefined with more responsibilities in 2003, the Andorran Financial Authority (AFA; www.afa.ad) regulates all aspects of the integrated financial system and safeguards its stability. The AFA is a public entity with its own legal status, functionally independent from the Government. AFA has the power to carry out all necessary actions to ensure the correct development of its supervision and control functions, disciplinary and punitive powers, treasury and public debt management services, financial agency, international relations, advice, and studies.
The Andorran Financial Intelligence Unit (UIFAND) was created in 2000 as an independent organ to deal with the tasks of promoting and coordinating the prevention of money laundering and the financing of terrorism (www.uifand.ad).
The State Agency for the Resolution of Banking Institutions (AREB); is a public-legal institution created by Law 8/2015 to take urgent measures to introduce mechanisms for the recovery and resolution of banking institutions (www.areb.ad).
Money and Banking System
Andorra adopted the use of the Euro in 2002 and in 2011 signed a new Monetary Agreement with the European Union (EU) making the Euro the official currency. Since July 1, 2013, Andorra has had the right to coin Euros. No exchange or capital controls exist.
The Andorra banking system is sound and considered the most important part of the financial sector. The Andorran banks offer a variety of services at market rates. The country also has a sizeable and growing market for portfolio investments.
The U.S. Internal Revenue Service certified all the Andorran banks as qualified intermediaries.
Founded in 1960, the Association of Andorran Banks (ABA; www.aba.ad) represents all Andorran banks. Among its tasks are representing and defending interests of its members, watching over the development and competitiveness of Andorran banking at national and international levels, improving sector technical standards, co-operation with public administrations, and promoting professional training, particularly dealing with money laundering prevention. At present, all five Andorran banking groups are ABA members, totaling an estimated 46 billion Euros in combined assets for 2017.
Foreign Exchange and Remittances
Andorra adopted the Euro in 2002 and in 2011 signed a new Monetary Agreement with the EU making the Euro the official currency. Since 2013, Andorra has the right to coin Euros. There are no limits or restrictions on remittances provided that they correspond to a company’s official earning records.
Sovereign Wealth Funds
Andorra has no Sovereign Wealth Fund (SWF).
7. State-Owned Enterprises
Andorra has thirty-five state-owned enterprises (SOEs) associated with health, social services, and energy and telecommunication, which are generally allowed to compete with private, enterprises without restriction. The only exception is the government-owned Andorra Telecom, which has enjoyed a monopoly on the telecommunications industry since 2015.
The Andorran public sector is made up of the central Administration and seven local administrations, one for each of the country’s seven parishes. The public sector employs 11.6 percent of Andorra’s workforce, or approximately 4,377 employees.
Privatization Program
Andorra has no current plans to privatize any of its SOEs.
8. Responsible Business Conduct
Local enterprises follow generally accepted accounting principles and the Government has taken some measures to promote responsible business conduct, including Law 35/2008, which establishes a protocol for acknowledging companies that excel in their human resource policies, especially regarding non-discrimination and equal opportunities for men and women.
Over the years, the Andorran banking sector has been consolidating its voluntary responsible business conduct practices, mainly through their foundations. Rather than focus on a due diligence approach to lower risks, as promoted by international guidelines such as the OECD Guidelines for Multinational Enterprises or UN Guidance on Business and Human Rights, the banking sector initiatives reaffirm their commitment to the country through ad hoc projects in a variety of areas like culture, sports, solidarity, education, and the environment.
9. Corruption
Andorra’s laws penalize corruption, money laundering, drug trafficking, hostage taking, sale of illegal arms, prostitution, terrorism, as well as the financing of terrorism. Additional amendments were added in 2008, 2014, 2015, and 2016 to the Criminal Code and the Criminal Procedure Code that modify and introduce money laundering and terrorism financing provisions.
In 1994, Andorra joined the Council of Europe, an institution that oversees the defense of democracy, the rule of law, and human rights. That same year, the Justice Ministers of the Member States decided to fight corruption at the European level after considering that the phenomenon posed a serious threat to the stability of democratic institutions.
In early 2005, Andorra joined the Council of Europe’s Group of States against Corruption (GRECO) and, consequently, the fight against corruption. The Government has gradually built its internal regulations and relevant legal instruments and has undertaken numerous initiatives to improve the State’s response to reprehensible acts and conduct committed internally and internationally.
The Government created the Unit for the Prevention and the Fight against Corruption (UPLC) in 2008 to centralize and coordinate actions that might concern local administrations, national bodies, and entities with an international scope. UPLC is in charge of implementing the recommendations made by GRECO in the framework of periodic evaluation reports.
Andorra has not signed the UN Anticorruption Convention or the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.
There are explicitly defined rules for the ethical behavior of all participating bodies within the Andorran financial system. The Andorran Financial Authority (AFAINAF) has also established rules regarding ethical behavior in the financial system.
The Andorran government modified and implemented new laws in order to comply with international corruption standards. The Andorran Financial Intelligence Unit (UIFAND) was created in 2000 as an independent body charged with mitigating money laundering and terrorist funding (www.uifand.ad).
Resources to Report Corruption:
Unitat de Prevencio i Lluita contra la Corrupcio
Ministeri d’Afers Socials, Justicia i Interior
Govern d’Andorra
Ctra.de l’Obac s/n
AD700 Escaldes-Engordany
Phone: +376 875 700
Email: uplc_govern@govern.ad
10. Political and Security Environment
Andorra has not experienced any politically motivated damage to projects or installations, or destruction of private property. There are no nascent insurrections, belligerent neighbors, or other politically motivated activities. The likelihood of widespread civil disturbances is very low. Civil unrest is generally not a problem in Andorra. No anti-American sentiment is evident in the country.
11. Labor Policies and Practices
All employees wishing to work in Andorra must have work permits, issued by annual quotas established by the Government. The tourism sector is the largest labor sector.
The Constitution recognizes workers’ rights to form trade unions to defend their economic and social interests. However, the law does not provide for collective bargaining or the right to strike. Alternative dispute mechanisms such as mediation and arbitration do exist. Despite these rights, union membership is relatively low.
Andorra is not a member of the International Labor Organization (ILO).
There were a total of 42,550 employed workers in Andorra in March 2020 As a result of COVID-19 pandemic, the unemployment rates have exponentially increased with an increase of 45 percent in March. As of June 2020, the national minimum wage was 6,25euros (roughly USD 7) per hour and 1,083euros (roughly USD 1,212) per month.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
Andorra does not participate in government risk insurance programs such as those offered by the U.S. International Development Finance Corporation or the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Due to foreign investment limitations up until 2012, FDI statistics are too negligible to be available through the U.S. Bureau of Economic Analysis. However, Andorra’s Investment Promotion Agency, ACTUA, has compiled available data on foreign direct investment at: http://www.actua.ad/en/foreign-direct-investment-data-andorra.
United States Consulate General Barcelona tel. (34) 93 280 22 27
Marshall Islands
Executive Summary
With a total population of approximately 55,000 people (11,465 in the labor force) spread out over 1,200 small islands and islets across 750,000 square miles of ocean but just 70 square miles of total land mass, the Republic of the Marshall Islands (RMI) has a tiny economy with an annual GDP of around USD 221 million, per capita GDP of USD 4,056 and a 3.5 percent real growth rate. The remoteness of the RMI from major markets (2,300 miles from Honolulu, 1,900 miles from Guam, and 2,800 miles from Tokyo) severely impacts the economy. The Marshallese economy combines a small subsistence sector in the outer islands with a modest urban sector in Majuro and Kwajalein. The RMI government is the country’s largest employer, employing approximately 46 percent of the salaried work force. The U.S. Army Garrison – Kwajalein Atoll (USAG-KA) is the second largest employer. A semi-modern service-oriented economy is located in Majuro and in Ebeye, on Kwajalein Atoll, and is largely sustained by government expenditures and by USAG-KA. Primary commercial industries include wholesale/retail trade, business services, commercial fisheries, construction, and tourism. Fish, coconuts, breadfruit, bananas, taro, and pandanus cultivation constitute the subsistence sector. However, as the land in RMI is not very nutrient rich, the agricultural base is limited. The RMI has a narrow export base and limited production capacity and is therefore vulnerable to external shocks. Primary export products include frozen fish (tuna), tropical aquarium fish, ornamental clams and corals, coconut oil and copra cake, and handicrafts. The RMI continues to rely heavily on imports and continues to run trade deficits (USD 63 million in 2018).
The Marshallese economy remains dependent on donor funding. The RMI is part of the former US-administered Trust Territory of the Pacific Islands that gained independence in 1986 and continues to use the U.S. dollar as its currency. Since independence it has operated under a Compact of Free Association with the United States. Since 2004, the U.S. has provided over USD 800 million in direct assistance, subsidies, and financial support to the Marshall Islands, equivalent to approximately 70 percent of the country’s total GDP during the same period. The Marshall Islands has received additional aid from Australia, Japan, Taiwan, the United Arab Emirates (UAE), Thailand, the European Union, and organizations such as the Asian Development Bank.
The U.S., China, South Korea, Japan, Germany, and the Philippines are the Marshall Islands’ major trading partners. Top U.S. exports to RMI include food products, prefabricated buildings, recreational boats, excavation machinery, aircraft parts, tobacco, and wood/paper products.
With the renegotiation of the Compact’s direct grant assistance approaching in 2023, the Government of the Marshall Islands is increasing its efforts to attract foreign investment and recognizes its important role in growing private sector development. Most local government officials encourage foreign investment, though attitudes may differ from island to island. The government particularly encourages foreign investment in fisheries, aquaculture, deep-sea mining, manufacturing, tourism, renewable energy, and agriculture and provides certain investment incentives for foreign investors.
Foreign investment in the Marshall Islands is complicated, however, by laws that prevent non-Marshallese from purchasing land. There is no public land in the country and no land registry; foreign businesses must lease land from private landowners in order to operate in the country. The high cost of doing business due to the country’s remoteness, its dependence on imported materials and services, and its limited infrastructure, especially transportation links, create additional challenges. Finally, due to the RMI’s very low elevation, the potential threats of climate change and sea level rise make attracting FDI to the Marshall Islands even more difficult.
The major foreign direct investments are concentrated in the fisheries sector, including a tuna loining plant and a tuna processing plant along with several fishing purse seiners, the majority of which are owned by investors from China and Taiwan. There has been no significant foreign investment over the past year.
2. Bilateral Investment Agreements and Taxation Treaties
The Marshall Islands does not have a bilateral investment treaty with any country.
3. Legal Regime
Transparency of the Regulatory System
Regulatory and accounting systems are generally transparent and consistent with international norms. Bureaucratic procedures are generally transparent, although nepotism and customary hierarchal relationships can play a role in government actions. Proposed laws and regulations are available in draft form for public comment pursuant to the Administrative Procedures Act, Title 6 of the Marshall Islands Revised Code. Generally, tax, labor, environment, health and safety, and other laws and policies do not impede investment. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.
International Regulatory Considerations
The Marshall Islands is a member of the Pacific Islands Forum (PIF) which has a model regulatory and policy framework focused on competition, access and pricing, fair trading, and consumer protections. The RMI seeks to implement PIF-agreed standards domestically; however, the capacity for enforcement remains weak.
Legal System and Judicial Independence
The Republic of the Marshall Islands has a responsive judiciary that consistently upholds the sanctity of contracts. The legal system in the Marshall Islands is patterned on common law proceedings as they exist in the United States. The country has a judicial branch composed of a Supreme Court, a High Court, a Traditional Rights Court, District Courts, and Community Courts. The Supreme Court is made up of one Chief Justice and two Associate Justices. The High Court consists of the Chief Justice and one Associate Justice. The Chief Justices are both U.S. Citizens serving 10-year terms. There are also three Traditional Rights Court judges, two District Court judges, and several Community Court judges serving the Marshall Islands. On certain occasions, as necessary, the Marshall Islands Judicial Service Commission recruits qualified judges on contract from the United States to serve with the Chief Justice on the Supreme Court and to temporarily fill vacancies on the High Court as there are few qualified and independent Marshallese who can fill these positions. The Traditional Rights Court deals with customary law and land disputes.
The Marshall Islands Courts are generally considered fair, without undue influence or interference. Marshall Islands Court rulings, legal codes, and public law can be found on their website: http://www.rmicourts.org/.
Laws and Regulations on Foreign Direct Investment
All non-citizens wishing to invest in the Marshall Islands must obtain a Foreign Investment Business License (FIBL). The FIBL is obtained from the Registrar of Foreign Investment in the office of the Attorney General. In coordination with the Investment Promotion Unit at the Ministry of Natural Resources and Commerce, the Ministry of Finance reviews the application and ensures that the business does not fall under the categories of the National Reserved List listed above. The application process usually takes 7-10 working days. The FIBL grants non-citizens the right to invest in the Marshall Islands, provided the investment remains within the scope of business activity for which the FIBL was granted.
The 2015 amendment to the Foreign Investment Business License Act requires all holders of FIBLs to maintain reliable and complete accounting records and records of ownership, and that all business records must be kept in such a way that they can be converted into written form at the request of an authorized inspector. These records must be retained for a period of five years.
Competition and Anti-Trust Laws
The Marshall Islands does not currently have any anti-trust legislation or agency which reviews transactions for competition-related concerns.
Expropriation and Compensation
All land is privately owned by Marshallese citizens through complex family lineages. Although the Government of the Marshall Islands may legally expropriate property under the country’s constitution, the government has only exercised this right on one occasion and only for a temporary period of time. Given the importance of private land ownership in customary law and practice, it is very unlikely that the government will exercise this right in the foreseeable future.
If a business activity is subsequently added to the reserved List, the Registrar of Foreign Investment may not cancel or revoke an existing Foreign Investment Business License if the investment has already commenced.
Dispute Settlement
ICSID Convention and New York Convention
The Marshall Islands has been a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 1958 New York Convention) since 2006, but is not a member of the International Center for Settlement of Investment Disputes (ICSID), nor does it have plans to become a member at this time.
Investor-State Dispute Settlement
There are no ongoing investment disputes involving the Government of the Republic of the Marshall Islands and foreign investors. There is a very limited record of foreign investment disputes in the Marshall Islands due to the small size of foreign investment in the country. The most common type of business disputes are with landowners over land use, and land rights issues, and as there is currently no official dispute resolution procedure, these are frequently resolved informally or only after protracted court disputes. Domestic civil society has traditionally not been actively engaged in dispute resolution. The Marshall Islands Courts are generally considered fair, without undue influence or interference. There is no history of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
The Republic of the Marshall Islands does not have any alternative dispute resolution (ADR) mechanisms or domestic arbitration bodies available as a means for setting disputes between two private parties. There is no known history of the RMI enforcing foreign commercial arbitral decisions.
Bankruptcy Regulations
There is no legal provision for bankruptcy in the Marshall Islands. It ranks 153 out of 190 for resolving insolvency in World Bank’s 2020 Doing Business Report.
4. Industrial Policies
Investment Incentives
The Republic of the Marshall Islands offers a range of investment incentives, many of which can be found at https://www.rmiocit.org.
The Marshall Islands offers tax and duty exemptions for investments in certain private sector industries. These investment incentives apply uniformly to both domestic and foreign investors through submission of a letter to the Minister of Finance. Tax incentives are specified by law, but have been rarely awarded, given the relative lack of large-scale investment.
All imports are subject to import duties, and the only current duty exemptions are for renewable and alternative energy items. Import duties are generally low ad valorem rates on cost, insurance, and freight (CIF), and the number of tariff categories is small to facilitate administration. Goods in transit are exempt from the import tax, and the import tax on re-exported goods is refundable. The Marshall Islands has no taxes on exports. Due to weak infrastructure and enforcement, tax and revenue continue to seep through the economy at a loss of about USD 60 million.
Under the terms of the Compact of Free Association, as amended, all items grown, made or produced in the Marshall Islands are exempt from U.S. duties with the following exceptions:
Watches, clocks, and timing apparatus provided for in Chapter 91, excluding heading 9113, of the Harmonized Tariff Schedule of the United States;
Buttons (whether finished or not finished) provided for in items 9606.21.40 and 9606.29.20 of such schedule;
Textile and apparel articles which are subject to textile agreements; and
Footwear, handbags, luggage, flat goods, work gloves, and leather wearing apparel which were not eligible for the generalized system of preferences in the Trade Act of 1974.
Tuna in airtight containers exported to the U.S. is duty-free, provided it does not exceed 10 percent of total U.S. tuna consumption during the previous calendar year. The Compact also stipulates that U.S. products imported to the Marshall Islands receive Most-Favorable Nation status, and the country must consult with the U.S. should they enter into a Free Trade Agreement with another country or customs territory.
Investors who invest a minimum of USD 1 million or provide employment and wages in excess of USD 150,000 annually to Marshallese citizens are exempt from paying gross revenue tax for a five-year period in the following sectors:
Off-shore or deep-sea fishing
Manufacturing for export, or for both export and local use
Agriculture
Hotel and resort facilities
Investors in seabed hard mineral mining are exempt from paying all taxes, duties, and other charges (except taxes on wages and salaries, individual income tax, and social security contributions). In return, investors are required to pay the Government of the Marshall Islands a share of net proceeds accruing from the investment in the form of royalties, production charge, or some combination thereof as agreed to between the government and investor.
Foreign Trade Zones/Free Ports/Trade Facilitation
There are no geographic foreign trade zones or free ports in the Marshall Islands.
Performance and Data Localization Requirements
The RMI government requires all investors employing non-resident workers to agree to:
Cover the cost of repatriating non-resident workers to the place hired,
Train one or more citizen workers to perform the work for which the non-resident worker is employed,
Pay a levy of USD 0.25 per hour for every hour of work performed by non-resident worker, to be paid to the Resident Workers Training Account for the purposes of training citizen workers, and repatriating non-resident workers should the need arise.
This requirement is set and evaluated on a case by case basis and is usually included as part of a whole package that also includes investment incentives such as favorable taxation statuses.
U.S. Citizens do not require a visa to enter the Marshall Islands, and may be employed in the Marshall Islands without obtaining a work permit or a visa. They must register as an alien with the Department of Immigration on an annual basis. Though use of local products is encouraged, the government does not follow “forced localization.”
The RMI does not currently have laws or regulations on domestic storage or localization requirements.
5. Protection of Property Rights
Real Property
Land rights are a highly complex and frequently contentious issue in the Marshall Islands. Land ownership is through family lineage and according to social class. Paramount Chiefs (Iroij) have title to entire islands or portions of islands within an atoll, clan elders (alaps) have title to several parcels of land under their Paramount Chiefs, and workers (dri-jerbal) have title to the parcel of land associated with their Paramount Chief on which they live. Each parcel of land is thus owned by at least three separate individual landowners, one each from the classes described above. Non-Marshallese may not purchase land, and land purchases by Marshallese are also very rare. Paramount Chiefs may grant land rights to others, though they retain their share of ownership in all circumstances.
Available land for development is scarce, particularly in the two major urban areas of Majuro and Ebeye. Non-citizen investors must negotiate lease agreements directly with customary groups of landowners. Land may be leased in perpetuity with many leases having a term of 50 years, and options for renewal. The Kwajalein land lease to the U.S. Government runs fifty years (to 2066) with an option to renew for another twenty years, for example. Mortgages against the title of land are not permitted, but commercial lease agreements and land lease payments may be used as collateral. There is limited written documentation of titles to land in the Marshall Islands, although local citizens generally know who controls each parcel of land on their particular atoll. In 2003, the Government of the Marshall Islands established a Land Registration Authority to create a voluntary register of customary land and establish a legal framework for recording documents related to ownership rights.
In the World Bank’s Doing Business 2020 report, the Marshall Islands rank 187th out of 190 countries for registering property.
Intellectual Property Rights
The Marshall Islands is not a member of the World Trade Organization, the World Intellectual Property Organization (WIPO), or any other international agreement on intellectual property rights. There is inadequate protection for intellectual property, patents, copyrights, and trademarks. The only intellectual property-related legislation relates to locally produced music recordings, and it has never been enforced. The Marshall Islands are not listed on the USTR’s Special 301 Report, nor are they listed in the notorious market report. Pirated DVDs and CDs imported from off-island are readily available.
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/.
6. Financial Sector
Capital Markets and Portfolio Investment
There are no stock exchanges or financial regulatory institutions in the country.
Money and Banking System
There are currently two banks with branches in the Marshall Islands. The Bank of Guam is a publicly owned U.S. company with its headquarters in Guam. It complies with all U.S. regulations and is FDIC-insured. The Bank of the Marshall Islands is a privately-owned Marshallese company with headquarters in Majuro.
Foreign Exchange and Remittances
Foreign Exchange
The government does not impose any restrictions on converting or transferring funds associated with an investment. The Marshall Islands uses the U.S. dollar as its official currency, and there is no central bank. There are no official remittance policies and no restrictions on foreign exchange transactions. There have been no reported difficulties in obtaining foreign exchange as the vast majority of funds are denominated in U.S. dollars.
Remittance Policies
While the government encourages reinvestment of profits locally, there are no laws restricting repatriation of profits, dividends, or other investment capital acquired in the Marshall Islands. To comply with international money laundering commitments, cash transactions and transfers exceeding USD 10,000 are reported by the banks to the Banking Commission, which monitors this information and has the authority to investigate financial records when necessary. To date, however, the country has not successfully prosecuted any money laundering cases.
Sovereign Wealth Funds
The Marshall Islands has no sovereign wealth fund (SWF) or asset management bureau (AMB), but the Compact of Free Association established a Trust Fund for the Marshall Islands that is independently overseen by a committee composed of the United States, Taiwan, and Marshall Islands representatives.
7. State-Owned Enterprises
Nearly all major industries are controlled by state-owned enterprises (SOEs). The SOE sector, comprising 11 public enterprises, continues to underperform and to impose significant risks and burden on the fiscal system and economy. In the Republic of the Marshall Islands Single Audit for FY2019, the government recognized the need for continued reforms at SOEs. Air Marshall Islands, Marshall Islands Resort, Marshall Islands National Communications Agency, and Tobolar all have negative cash flows and require subsidies each year. The Marshall Islands Marine Resource Authority (MIMRA) is the only SOE to be a net revenue provider for the Marshall Islands, but the audit cautioned that the long-term future support from the fisheries sector cannot be taken for granted. The Marshall Islands is not a member of the WTO.
In 2015 the Marshallese parliament passed the State-Owned Enterprises Act which set standards for the formation and operation of SOEs. The Act changed the way the boards of directors of SOEs are structured, and set minimum reporting requirements for the 11 SOEs. Boards must consist of at least three but no more than seven directors, only one of which can be a public official and that public official may not hold a term longer than three years after the Act goes into effect. A public official may not be selected as Chairman of the Board.
All SOEs are required to have their books independently audited as part of the government’s overall audit.
Privatization Program
There is no formal privatization program in the RMI. Currently, foreign investors are allowed to purchase shares only in the National Telecommunications Agency, but foreign investors may not own a majority of shares. Bidding criteria are not readily available, and the process remains largely controlled by the national government.
8. Responsible Business Conduct
The Marshall Islands has some basic worker protection laws, including a minimum wage and protections for foreign workers. With the exception of a few retail businesses, the banking sector, and the ship registry, there is little general awareness of corporate social responsibility or responsible business conduct among producers or consumers. Firms that pursue these objectives are viewed neither favorably nor unfavorably.
9. Corruption
There are credible allegations and periodic prosecutions for misuse of government funds and abuse of public office for private gain. Government procurement and transfers appear most vulnerable to corruption, and personal relationships sometimes play a role in government decisions. Government officials at all levels are permitted to invest in and own private businesses without regard for conflict-of-interest considerations. Foreign aid has been abused and past audits report a number of financial irregularities connected to donor-funded activities. Bribery is a second-degree felony, whether to a domestic or foreign official. The Marshall Islands acceded to the UN Convention against Corruption in September 2011.
Domestic and international firms as well as NGOs have repeatedly identified corruption as a problem in the business environment and a major detractor for international firms exploring investment or business activities in the local market.
Resources to Report Corruption
Richard Hickson
Attorney General
RMI Attorney General Office
PO Box 890
Majuro, Republic of the Marshall Islands 96960
RichardHicksonLawyer@gmail.com
Tel: +692 625 3244
Fax: +692 625 5218
No international, regional, or local watchdog organizations operate in the country.
10. Political and Security Environment
There have been no reported incidents involving politically motivated damage to projects or installations.
11. Labor Policies and Practices
The RMI workforce is estimated at 11,465 based on the 2019 economic summary, of which 45 percent work in the public sector. Results from the 2011 Marshall Islands census indicate the country has a 31 percent unemployment rate, and a significant portion of the population remains underemployed as well. Unemployment rates among youth and young adults could be as high as 50–60 percent.
Under the Compact of Free Association, Marshallese citizens are entitled to live, attend school, and work in the United States visa-free as “nonimmigrant residents.” Accordingly, many skilled and professional workers migrate to the U.S. for its higher wages and standards of living. Professional, medical, management, and other special labor skills are in high demand in the Marshall Islands.
Given the scarcity of resident qualified workers, the Marshall Islands allows investors to employ non-resident workers provided they agree to cover the cost of repatriation, that they hire and train at least one citizen to perform the same work, and pay a levy of USD 0.25 per hour for every hour of work performed by non-resident worker, to be paid to the Resident Workers Training Account for the purposes of training citizen workers, and repatriating non-resident workers should the need arise. Non-citizen investors issued with a foreign investment business license are exempted from obtaining a work permit for themselves. Also, citizens of the United States, Federated States of Micronesia and Palau do not require work permits to work in the Marshall Islands. Investors and nationals of these countries, however, are required to register with the Labor Office. The RMI government may also issue investors work permit exemptions if investors can demonstrate that their investments will provide substantial economic benefits to the country. Such exemptions are limited to export-oriented investments. Applications for such exemptions should be submitted to the Chief of Labor.
Foreign workers are generally hired on a contract basis with opportunities for annual renewals. The National Training Council provides training resources for Marshallese workers. While many consider the law discriminatory against foreign workers, employers are willing to pay the fee in order to hire skilled labor, which is not widely available in the country. Some companies, particularly in fisheries, seeking to expand business and hire additional workers are limited by other infrastructure constraints, such as the lack of available land, water, and power.
There are no laws that require employers to pay a severance package when an employee is released from service, either due to firing or lay-offs. Arrangements for severance payments are generally made at the time of hire through terms in the hiring instrument. There is no employment insurance or any other social safety net programs for unemployed individuals.
There is no legislation concerning collective bargaining or trade union organization. The country has a very limited history or culture of organized labor. The only union ever created in the country, the Teachers’ Union, was formed several years ago and is inactive. The Marshall Islands has been a member of the International Labor Organization (ILO) since 2007.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
The U.S. International Development Finance Corporation (DFC) provides investment insurance, financing, and loan guarantees in the Marshall Islands for qualified investors. Because the Marshall Islands uses the U.S. dollar as its national currency, there are no convertibility risks. The Marshall Islands are not a member of the Multilateral Investment Guarantee Agency.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data
Year
Amount
Year
Amount
Host Country Gross Domestic Product (GDP) ($M USD)
*Local GDP statistics from the Economic Policy, Planning and Statistics Office (EPPSO) serves as an economic advisor to the Government of the Republic of the Marshall Islands. It is responsible for Policy & Strategy Development, Statistics & Analysis, and Performance Monitoring, Evaluation & Aid Co-ordination. EPPSO is directly responsible to the Office of the President.
Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Data not available.