Policies Towards Foreign Direct Investment

The government of Niger is committed to attracting FDI and has repeatedly pledged to take whatever steps necessary to encourage the development of private sector and increase trade. The country offers numerous investment opportunities, particularly in agriculture, livestock, energy, telecommunication, industry, infrastructure, hydrocarbons, services and mining. In the past several years, new investor codes have been implemented (the most recent being in 2014), Public-Private Partnership law was adopted in 2018 and implemented since then, transparency has improved, and customs and taxation procedures have been simplified. There are no laws that specifically discriminate against foreign and/or U.S. investors. The government of Niger has demonstrated a willingness to negotiate with prospective foreign investors on matters of taxation and customs.

The Investment Code adopted in 2014 guarantees the reception and protection of foreign direct investment, as well as tax advantages available for investment projects. The Investment Code allows tax exemptions for a certain period and according to the location and amount of the projects to be negotiated on a case-by-case basis with the Ministry of Commerce. The code guarantees fair treatment of investors regardless of their origin. The code also offers tax incentives for sectors that the government deems to be priorities and strategic, including energy production, agriculture, fishing, social housing, health, education, crafts, hotels, transportation and the agro-food industry. The code allows free transfer of profits and free convertibility of currencies.

The Public-Private Partnership law adopted in 2018 and implemented since then gives projects of the public private partnership type for their operations in the design and /or implementation phase, total exemption from duties and taxes collected by the State, including Value Added Tax (VAT), on the provision of services, works and services directly contributing to the realization of the project. However, parts and spare parts, raw materials intended for projects do not benefit from a duty exemption and customs taxes only when not available at Niger. In the design and /or production phase, private public partnership type benefit from free registration agreements and all acts entered into by the contracting authority and the contracting partner within the framework of the project.

There are no laws or practices that discriminate against foreign investors including U.S. investors.

The High Council for Investment of Niger (HCIN), created in 2017, reports directly to the President of the Republic. HCIN is the platform of public-private dialogue with a view to increasing Foreign Direct Investments, improving Niger’s business environment, and defining private sector priorities to possible investors.

In 2018, Niger’s government reviewed the HCIN’s mission as related to international best practices on attracting FDI. Accordingly, the GoN added by Presidential Decree a Nigerien Agency for the Promotion of Private Investment and Strategic Projects (ANPIPS). This new agency reports to the HCIN and implements the lead agencies policy initiatives.

The government put in place an Institutional Framework for Improving Business Climate Indicators office (Dispositif Institutionnel d’Amélioration et de Suivi du Climat des Affaires), within the Ministry of Commerce, focused on improving business climate indicators. Its goal is to create a framework that permits the implementation of sustainable reforms.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises. Energy, mineral resources, and national security related sectors restrict foreign ownership and control; otherwise, there are no limitations on ownership or control. In the extractive industries, any company to which the GoN grants a mining permit must give the GoN a minimum 10 percent share of the company. This law applies to both foreign and domestic operations.

The GoN also reserves the right to require companies exploiting mineral resources to give the GoN up to a 33 percent stake in their Nigerien operations. Although Ministry of Planning authorization is required, foreign ownership of land is permitted. In 2015, under the auspices of the Ministry of Commerce, the GoN validated a new Competition and Consumer Protection Law, replacing a 1992 law that was never operational. Niger adheres to the Community Competition Law of the West African Economic and Monetary Union (WAEMU) and directives of the Economic Community of West African States (ECOWAS) as well as those offered to investors by the Multilateral Investment Guarantee Agency (MIGA) all of which provide benefits and guarantees to private companies.

Foreign and domestic private entities have the right to establish and own business enterprises. A legal Investment Code governs most activities except accounting, which the Organization for the Harmonization of Business Law in Africa (OHADA) governs. The Mining Code governs the mining sector and the Petroleum Code governs the petroleum sector, with regulations enforced through their respective ministries. The investment code guarantees equal treatment of investors regardless of nationality. Companies are protected against nationalization, expropriation or requisitioning throughout the national territory, except for reasons of public utility.

The state remains the owner of water resources through the Niger Water Infrastructure Corporation (SPEN), created in 2001 and is responsible for the management of the state’s hydraulic infrastructure in urban and semi-urban areas, of its development, and project management. Concessions for the use of water and for the exploitation of works and hydraulic installations may be granted to legal persons governed by private law, generally by presidential decree.

An investment screening mechanism does not exist under the Investment Code.

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment policy reviews through a multi-lateral organization. Neither the United Nations Conference on Trade and Development (UNCTAD), nor the Organization for Economic Cooperation and Development (OECD) has carried out a policy review for Niger.

Business Facilitation

Niger’s one-stop shop, the Maison de l’Entreprise (Enterprise House) is mandated to enhance business facilitation by mainstreaming and simplifying the procedures required to start a business within a single window registration process.

From 2016 to 2019, the cost and time needed to register businesses dropped from 100,000 CFA (about USD190) to 17,500 CFA (about USD33), the time to get permit construction for the business drop, the cost of getting access to the water and electricity network drop also. Further reforms have included the creation of an e-regulations website ( https://niger.eregulations.org/procedure/2/1?l=fr ), which allows for a clear and complete registration process. Foreign companies may use this website. The website lists government agencies, with which a business must register. The business registration process is about 3 days, down from over 14 days in 2016.

( https://niger.eregulations.org/procedure/2/1?l=fr ), which allows for a clear and complete registration process. Foreign companies may use this website. The website lists government agencies, with which a business must register. The business registration process is about 3 days, down from over 14 days in 2016.

Company registration can be done at the Centre de Formalités des Entreprises (CFE), at the Maison de l’Entreprise, which is designed as a one-stop-shop for registration. Applicants must file the documents with the Commercial Registry (Registre du Commerce et du Crédit Mobilier – RCCM), which has a representative at the one-stop shop.

At the same location, a company can register for taxes, obtain a tax identification number (Numéro d’Identification Fiscale – NIF), register with social security (Caisse nationale de Sécurité Sociale – CNSS), and with the employment agency (Agence Nationale pour la Promotion de l’Emploi – ANPE). Employees can be registered with social security at the same location.

At the moment of company registration, the applicant may also request for the publication of a notice of company incorporation on the Maison de l’Entreprise website: http://mde.ne/spip.php?rubrique10 . The notice of company incorporation can alternatively be published in an official newspaper (journal d’annonces légales).

Outward Investment

The government does not promote outward investment. The government’s policy objectives, as specified in the second Nigerien Renaissance Program (section 1.2), is the development of international markets, especially that of ECOWAS, for Nigerien exports rather than investment.

The GON does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

The GoN possesses transparent policies and requisite laws to foster competition on a non-discriminatory basis, but does not enforce them equally, in large part due to corruption and weak governmental systems. Legal, regulatory, and accounting systems are generally transparent and consistent with international norms. The Legal Regime – related to the Investment Code, Labor Code and Commercial Acts – applies the provisions of the Organization for the Harmonization of Business Law in Africa (OHADA). It also offers free access to public procurement and with a moderate transparency in the procedures for awarding contract.

Niger does not have any regulatory processes managed by nongovernmental organizations or private sector associations. A company in Niger must be entered in the Register of Companies, must obtain a Tax Identification Number (TIN), be registered with the National Social Security Fund (CNSS), and with the National Employment Promotion Agency (ANPE).

There, however, is a large informal sector that does not submit to any of the legal provisions and is not formally regulated.

Rule-making regulatory, and anti-corruption authorities exist in telecommunication, public procurement, and energy, all of which are relevant for foreign businesses, and are exercised at the national level. The law No 2015-58 established the Energy Sector Regulatory Agency, an independent administrative authority, to regulate the energy sector at the national level, but effectively only in major cities. The December 2012 law No 2012-70 created the Telecommunications and Post Office Regulatory Authority (ARTP). ARTP regulates all aspects of telecommunications operators. Legal, regulatory, and accounting systems are generally transparent and consistent with international norms. The Legal Regime – related to the Tax Code, Customs Code, Investment Code, Mining Code, Petroleum Code, Labor Code and Commercial Acts – applies the provisions of the Organization for the Harmonization of Business Law in Africa OHADA. It also offers free access to public procurement and transparency in the procedures for awarding contracts.

GoN officials have confirmed their intent to comply with international norms in its legal, regulatory, and accounting systems, but frequently fall short. Clear procedures are frequently not available.

Draft bills are not always available for public comment, although some organizations, such as the Chamber of Commerce, are invited to offer suggestions during the drafting process.

Niger does not have a centralized online location where key regulatory actions are published but does have a Directorate of National Archives where Key regulatory actions are kept in print; this direction is under the Ministry Secretary of Government.

Foreign and national investors, however, can find detailed information on administrative procedures applicable to investment at the following site: http://niger.eregulations.org/ . The site includes information on income generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal basis justifying the procedures.

A General Inspectorate of Administrative Governance and the Regional Directorates of Archives are in place to oversee administrative processes. Their efforts are reinforced by incentives for state employees, unannounced inspections in public administrations, and an introduction of a sign-in system and exchange meetings.

No major regulatory system and/or enforcement reforms were announced in 2020.

Regulations are developed via a system of ministerial collaborations and discussions, consultation with the State Council, selection of the text and passage by the Council of Ministers. This is followed by discussions in Parliament, approval by the Constitutional Council and finally approved by the President for publication and distribution to interested stakeholders.

Based on the Constitution of 2011, the regulatory power belongs to the President of the Republic and the Prime Minister who can issue regulations for the whole of the national territory. Other administrative authorities also have regulatory power, such as ministers, governors, or prefects and mayors, who have the power of enforcement at the local level.

Ministries or regulatory agencies do not conduct impact assessments of proposed regulations. However, ministries or regulatory agencies solicit comments on proposed regulations from the general public through public meetings and targeted outreach to stakeholders, such as business associations or other groups. Public comments are generally not published.

Public finances and debt obligations are not enough transparent; however, the International Monetary Fund and the European Union are funding projects to improve finances and debt transparency in which there is annual review that Niger is assessed to make progress.

International Regulatory Considerations

Niger is a part of the Economic Community of West African States (ECOWAS), a 15-member West African trade block. National policy generally adheres to ECOWAS guidelines concerning business regulations.

Niger is a member of the U.N. Conference on Trade and Development’s international network of transparent investment procedures:  http://niger.eregulations.org/  (French language only).

Niger is a member of the WTO, but as a lower income member, is exempt from Trade-Related Investment Measures (TRIMs) obligations. The GoN does not notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Niger ratified a Trade Facilitation Agreement (TFA) in August 2015. The country has reported some progress on implementing the TFA requirements.

Legal System and Judicial Independence

Niger’s legal system is a legacy of the French colonial system. The legal infrastructure is insufficient, making it difficult to use the courts to enforce ownership of property or contracts. While Niger’s laws protect property and commercial rights, the administration of justice can be slow and unequal.

Niger has a written commercial law that is heavily based on the Organization for the Harmonization of Business Law in Africa (OHADA). Niger has been a member of OHADA since 1995. OHADA aims to harmonize business laws in 16 African countries by adopting common rules adapted to their economies, setting up appropriate judicial procedures, and encouraging arbitration for the settlement of contractual disputes. OHADA regulations on business and commercial law include definition and classification of legal persons engaged in trade, procedures for credit and recovery of debts, means of enforcement, bankruptcy, receivership, and arbitration. As of 2015, Niger established Commercial Court.

In 2015, Niger set up a Commercial Court in Niamey. There were 300 cases recorded in 2019, 173 cases judged at the merits at the end of 2019, and 59 cases remains to be treated. There were 170 cases treated in 2020 by the Commercial Court.

Article 116 of the constitution clearly states that the judicial system is independent of the executive and legislative branches. However, the personnel management process for assignments and promotions is through politically appointed personnel in the Ministry of Justice, seriously weakening the independence of the judiciary and raising questions about the fairness and reliability of the judicial process.

Regulations or enforcement actions are appealable and adjudicated in the court system. However, it is extremely rare for individuals or corporations to challenge government regulations or enforcement actions in court due to costs and administrative obstacles.

For example, in 2018, the GoN initiated tax cases against the telecommunication companies of Orange, Airtel, Moov and Nigertelecom (the state-owned entreprise). Moov, Nigertelecom and Airtel negotiated a settlement. Orange, a French owned multi-national corporation that provides cell phone and Internet service in Niger challenged the government order through the commerce tribunal and later in the constitutional court. To begin the process, Orange had to submit 75 percent of the claimed tax discrepancy. As part of the Constitutional Court’s determination on one aspect of the case, it determined that if an appeal is successful the government must repay the funds, thus the 75 percent charge is not an obstacle to gaining access to the courts.

Laws and Regulations on Foreign Direct Investment

Niger offers guarantees to foreign direct investors pertaining to security of capital and investment, compensation for expropriation, and equality of treatment. Foreign investors may be permitted to transfer income derived from invested capital and from liquidated investments, provided the original investment is made in convertible currencies.

Law 2015-08 from 2015 established a specialized Commercial Court in Niamey. This is a mixed court with professional magistrates, who are lawyers by training, who work in tandem with lay-judges, and who generally come from the commercial sector. The concept was to have commercial disputes resolved by a panel of judges with legal training, combined with judges who have experience in the commercial sector. The Commercial Court has 26 judges, who make up five chambers. Unlike U.S. trial courts, where cases are handled by a single judge, in Niger, cases are adjudicated by a panel of judges. After passage of the law in 2015, the Commercial Court began operations in 2016. Judicial decisions that have come out in the past years can be found on the Commerce tribunal of Niamey website: http://www.tribunalcommerceniamey.org/index.php .

Niger does not have a dedicated one-stop shop website for investment, but the Chamber of Commerce and Industry houses a specialized institution, known as the Investment Promotion Center (CPI) which supports domestic and foreign investors in terms of business creation, extension and rehabilitation. The GoN is currently developing a Guichet Exterior, or Exterior Window, as a single internet portal for information and applications on foreign investment practices, to be finished at the end of 2021.

Competition and Antitrust Laws

In 2015, the Ministry of Trade validated a new Competition and Consumer Protection Law, replacing a 1992 law that was never fully operational. Niger also adheres to the Community Competition Law of the West African Economic and Monetary Union (WAEMU).

Expropriation and Compensation

The Investment Code guarantees that no business will be subject to nationalization or expropriation except when deemed “in the public interest” as prescribed by the law. The code requires that the government compensate any expropriated business with just and equitable payment. There have been a number of expropriations of commercial and personal property, most of which were not conducted in a manner consistent with Nigerien law requiring “just and prior compensation.” It is in fact rare for property owners to be compensated by the government after expropriations of property.

With the planned construction of the Kandaji Dam from 2021-2029, the government offered the resettlement of 38,000 individuals and additional animals to new sites. The government created an agency to conduct all resettlement related activities upstream and downstream of the dam construction. The agency conducted a census to determine who would be impacted, and public consultations to meet the populations and collect their complaints at each step of the process were made. The process is ongoing, with some individuals expressing concern about the value of compensation and the ability to farm where they are being resettled.

In cases of expropriation carried out by the GoN, claimants and community leaders have alleged a lack of due process. These complaints are currently limited to community forums and press coverage. Many of the families impacted lack the knowledge and ability to exercise their rights under the law. High rates of illiteracy, complexity of the legal system, and lack of resources to retain competent legal counsel present insurmountable barriers to legal remedies for people whose property has been expropriated. Even in situations where educated and wealthy business owners have had their property expropriated, legal challenges to expropriation are not lodged.

Dispute Settlement

ICSID Convention and New York Convention

Investor-State Dispute Settlement

The Investment Code offers the possibility for foreign nationals to seek remedy through the International Center for the Settlement of Investment Disputes. Niger does not have a BIT or FTA with the United States that would provide dispute settlement processes. Over the past 10 years, there were no investment disputes that involved a U.S. person. Local courts are generally reluctant to recognize foreign arbitral awards issued against the GoN. Niger does not have a record of extrajudicial actions against foreign investors.

International Commercial Arbitration and Foreign Courts

Niger has an operational center for mediation and arbitration of business disputes. The center’s stated aim is to maintain investor confidence by eliminating long and expensive procedures traditionally involved in the resolution of business disputes.

The Investment Code provides for settlement of disputes by arbitration or by recourse to the World Bank’s International Center for Settlement of Disputes on Investment. However, investment dispute mechanisms in contracts are not always respected and exercising due diligence is extremely important.

There was no publicly available information in 2019 on foreign arbitral award enforcement in Niger.

Procedures are in place but are often not adhered to because of a lack of resources and corruption in the judicial system. The Investment Code offers the possibility for foreign nationals to seek remedy through the International Center for the Settlement of Investment Disputes.

Bankruptcy Regulations

Niger has laws related to insolvency and/or bankruptcy. Creditors have the right to object to decisions accepting or rejecting a creditor’s claims and may vote on debtors’ bankruptcy reorganization plans. However, the creditors’ rights are limited: creditors do not have the right to receive from a reorganized firm as much as they may have received from one that had been liquidated. Likewise, the law does not require that creditors be consulted on matters pertaining to an insolvency framework following the declaration of bankruptcy. Bankruptcy is not criminalized.

According to data collected by the World Bank’s Doing Business survey, resolving insolvency takes five years on average and costs 18 percent of the debtor’s total assets. Globally, Niger stands at 114 in the 2020 ranking of 190 economies on the ease of resolving insolvency. Niger strength of insolvency framework index (0–16) is 9.

Capital Markets and Portfolio Investment

Niger’s government welcomes foreign portfolio investment where possible. Niger’s capital markets are extremely underdeveloped, and the country do not have its own stock market. However, the country shares a regional stock market The Bourse Régionale des Valeurs Mobilières (BRVM) with the eight (8) Member States in the West African Economic and Monetary Union (WAEMU), namely: Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo. This is the only stock market in the world shared by several countries, run totally in digital format and integrated in a perfect manner.

Although an effective regulatory system exists, and policies in fact encourage portfolio investment, there is little market liquidity and hence little opportunity for such investment. The agency UMOA-Titres (AUT), a regional agency to support public securities issuance and management in the WAEMU (bonds market), is dedicated to helping member states use capital markets to raise the resources they need to fund their economic development policies at reasonable cost.

There are no limits on the free flow of financial resources.

The government works closely with the IMF to ensure that payments and transfers overseas occur without undue restrictions. Credit is allocated on market terms and foreigners do not face discrimination.

Credit is allocated on market terms through large corporations. Although foreign investors are generally able to get credit on the local market, limited domestic availability tends to drive investors to international markets. To access a variety of credit instruments, the private sector often looks to multinational institutions in Niger or international sources for credit. Private actors in the agriculture, livestock, forestry, and fisheries sectors (which account for more than 40 percent of GDP) receive less than one percent of total bank credit.

Money and Banking System

Less than three percent of Nigeriens have a bank account and the debt rate of the financial sector, measured by the ratio money supply, is at 24.1 percent in 2012 (the average for the sub-region is 32 percent). The banking sector in Niger is generally healthy and well capitalized.

As of December 31, 2017, the resources mobilized by the banking system amounted to 1096.5 billion CFA (1.9 billion USD), an increase of 63.1 billion cfaf (112.5 million USD) or 6.1 percent compared to the same period of 2016. This evolution mainly explained by the increase in net capital of banks by 34.9 billion cfaf (62.3 million USD) or 27.3 percent and the increase of borrowing deposits by 16.3 billion CFA (29 million USD) or 2.0 percent. Demand deposits represent more than half of the total resources of the sector throughout the period under review. Foreign banks control about 80 percent of the sector’s assets, with SONIBANK, BIA Niger, Ecobank and Bank of Africa (BOA) being the largest banks operating in the country.

The Central Bank of West African States governs Niger’s banking institutions and sets minimum reserve requirements through its national Central Bank representation.

There are no restrictions on a foreigner’s ability to establish a bank account, and foreign banks and their subsidiaries operate within the economy without undue restrictions. Niger is a part of the West African Economic and Monetary Union (WAEMU), which utilizes the CFA, pegged to the Euro at 655.61 CFA per euro.

Foreign Exchange and Remittances

Foreign Exchange

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

Funds are freely convertible into any world currency. However, the government must approve currency conversions above 2 million CFA (approximately 3,413 USD).

The exchange rate is determined via the euro’s fluctuations on the international currency market. The CFA is pegged to the euro.

Remittance Policies

Niger’s Investment Code offers the possibility to transfer income of any kind, including capital investment and the proceeds of investment liquidation, regardless of the destination.

There are no limitations or waiting periods on remittances, though the Ministry of Finance must approve currency conversions above 2 million CFA (approximately 3,250 USD).

Sovereign Wealth Funds

Niger does not maintain a Sovereign Wealth Fund (SWF), and does not subscribe to the Santiago Principles. The government has plans for a build-up of reserves at the Central Bank of West African States (BCEAO) using oil revenues.

State-Owned Enterprises (SOEs) in Niger are defined as companies in which the GoN is the majority stakeholder. They play a major role in Niger’s economy and dominate or heavily influence a number of key sectors, including energy (NIGELEC), telecommunications (Niger Telecom), and water resources (SEEN and SPEN), construction and retail markets (SOCOGEM); petroleum products distribution (SONIDEP); mining (SOPAMIN, SOMAIR, COMINAK, SONICHAR); oil refinery (SORAZ), textile (SOTEX) and hotels (SPEG).

SOEs do not receive non-market based advantages from the host government. According to the 2016 Public Expenditures and Financial Accountability (PEFA) draft document, there are eight wholly-owned SOEs, and six SOEs majority-owned by the state. State-Owned enterprises are answerable to their supervisory ministry and send certified accounting records to the supervisory ministries and to the Public Enterprises and State Portfolio Directorate (DEP/ PE). SOE record-keeping is expected to comply with SYSCOHADA accounting system standards.

There are no laws or rules that offer preferential treatment to SOEs. They are subject to the same tax rules and burdens (although many remain in tax arrears) as the private sector and are subject to budget constraints. Niger is not a member of the OECD and does not adhere to its guidelines.

Privatization Program

Most sectors of the economy, with the exception of SOEs, have been privatized. The state-owned oil-distribution company (SONIDEP) no longer has a monopoly over oil exportation; exportation authority is now equally shared between SONIDEP and the Chinese National Petroleum Corporation (CNPC). Likewise, although the national electricity company (NIGELEC) continues to hold a virtual monopoly on electricity distribution, steps were taken in 2016 to allow third party access to the country’s electricity grid. This should pave the way for future privatization. Competition in the mobile telecommunication sector forced the GoN to combine state-owned fixed line telecommunications provider SONITEL with the state-owned mobile provider Sahelcom to form a new parastatal, known as Niger Telecom. Although the state continues to hold a monopoly on fixed-line telephony, mobile communications is open to competition, with several foreign competitors in the market.

Foreign investors are welcome to participate in the country’s privatization program. Privatization operations are conducted under the technical direction of the ministry that currently controls the company. After a detailed analysis of business operations conducted by an internationally known independent audit firm, the government issues a call for bids.

When privatization occurs, there is a process for public bidding. Depending on the ministry responsible, there may be no electronic bidding. Rather tenders may be announced only in local media.

Niger has been politically stable since 2010, when the most recent of Niger’s coup d’états (there have been four since 1990) concluded within less than a year in a return to democratic governance. The most recent general elections were held in in December 2020, with a presidential run-off in February 2021. President Bazoum Mohamed was elected in the first democratic transfer of executive power in Niger’s history. Tensions over the results of the elections widened divisions between opposition activists and supporters of the incumbent president and his ruling Nigerien Party for Democracy and Socialism (PNDS) and coalition. However, the election proceeded without violence. Brief protests erupted following the election results, but were restrained to only two cities for a few days.

Although Niger’s politics are often contentious and antagonistic, political violence is rare. Most parties agree that national security and peaceful cohabitation among Niger’s ethnicities are the government’s principal priority. However, protests and strikes about non-payment of salaries for public employees, lack of funding for education, and general dissatisfaction with social conditions remain a concern.

Public protest over issues like poverty, corruption, and unemployment can also sometimes turn violent. In 2020, police arrested several protesters engaged in burning tires and vandalizing property in protest of embezzlement at the Ministry of National Defense. Protests also followed the government’s announcement of social lockdown procedures in March 2020 to respond to COVID-19.

Niger experiences security threats on three distinct border areas. Niger is a founding member of the G5 Sahel fighting terrorism in the Sahel while integrating the poverty reduction dimension to mitigate the effects of youth underemployment and violent extremism. The collapse of the Libyan state to the north has resulted in a flow of weapons and extremists throughout the Sahel region. Boko Haram and ISIS-West Africa terrorists regularly launch attacks in the Diffa Region in Niger’s southeast, leading to numerous civilian and security forces deaths. Jama’at al Nusrat al-Islam wa al-Muslimin (JNIM), which is a loose affiliation of al-Qaeda in the Islamic Maghreb (AQIM), the Macina Liberation Front (MLF), Ansar Dine, and al-Mourabitoun; along with ISIS-Greater Sahara (ISIS-GS), threaten Niger’s northern and northwestern borders. Terrorists regularly crossed the Mali border to attack civilian and security sites in the Tillaberi and Tahoua regions. Niger has a history of western residents and aid workers being kidnapped by terrorist groups or kidnapping for ransom gangs, as recently as October 2020. So far, more than 15 out of the 266 communes in Niger are in a state of emergency. The State Department’s Travel Advisory for Niger from April 2017 advises travels to be aware that violent crimes including robbery are common and terrorism is a threat.

* Source for Host Country Data: https://data.worldbank.org/country/niger

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

The Nigerian Investment Promotion Commission (NIPC) Act of 1995, amended in 2004, dismantled controls and limits on FDI, allowing for 100% foreign ownership in all sectors, except those prohibited by law for both local and foreign entities. These include arms and ammunitions, narcotics, and military apparel. In practice, however, some regulators include a domestic equity requirement before granting foreign firms an operational license. Nevertheless, foreign investors receive largely the same treatment as domestic investors in Nigeria, including tax incentives. The Act also created the NIPC with a mandate to encourage and assist investment in Nigeria. The NIPC features a One-Stop Investment Center (OSIC) that includes participation by 27 governmental and parastatal agencies to consolidate and streamline administrative procedures for new businesses and investments. The NIPC is empowered to negotiate special incentives for substantial and/or strategic investments. The Act also provides guarantees against nationalization and expropriation. The NIPC occasionally convenes meetings between investors and relevant government agencies with the objective of resolving specific investor complaints. The NIPC’s role and effectiveness is limited to that of convenor and moderator in these sessions as it has no authority over other Government agencies to enforce compliance. The NIPC’s ability to attract new investment has been limited because of the unresolved challenges to investment and business.

The Nigerian government continues to promote import substitution policies such as trade restrictions, foreign exchange restrictions, and local content requirements in a bid to attract investment that develops domestic production capacity. The import bans and high tariffs used to advance Nigeria’s import substitution goals have been undermined by smuggling of targeted products through the country’s porous borders, and by corruption in the import quota systems developed by the government to incentivize domestic investment. The government opened land borders in December 2020, which were progressively closed to commercial trade starting in August 2019 with the aim of curbing smuggling and bolstering domestic production.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are currently no limits on foreign control of investments; however, Nigerian regulatory bodies may insist on domestic equity as a prerequisite to doing business. The NIPC Act of 1995, amended in 2004, liberalized the ownership structure of business in Nigeria, allowing foreign investors to own and control 100% of the shares in any company. One hundred percent ownership is allowed in the oil and gas sector. However, the dominant models for oil extraction are joint venture and production sharing agreements between oil companies (both foreign and local) and the federal government. Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Act reviewed in 2020. A foreign company may apply for exemption from incorporating a subsidiary if it meets certain conditions including working on a specialized project specifically for the government, and/or funded by a multilateral or bilateral donor or a foreign state-owned enterprise. The NIPC Act prohibits the nationalization or expropriation of foreign enterprises except in cases of national interest and stipulates modalities for “fair and adequate” compensation should that occur.

Other Investment Policy Reviews

The World Bank published an Investment Policy and Regulatory Review of Nigeria in 2019. It provides an overview of Nigeria’s legal and regulatory framework as it affects FDI, foreign investors, and businesses at large and is available at https://openknowledge.worldbank.org/handle/10986/33596 . The WTO published a trade policy review of Nigeria in 2017, which also includes a brief overview and assessment of Nigeria’s investment climate. That review is available at https://www.wto.org/english/tratop_e/tpr_e/tp456_e.htm .

Business Facilitation

The government established the Presidential Enabling Business Environment Council (PEBEC) in 2016 with the objective of removing constraints to starting and running a business in Nigeria. Nigeria’s ranking has since jumped from 169 to 131 on the World Bank’s 2020 Doing Business Report and has ranked in the top ten most improved economies in two out of the last three years. Nigeria recorded improvements in eight of the 10 categories with “obtaining construction permits” witnessing the highest increase. The other two categories, “getting credit” and “protecting minority investments” remained static. Despite these improvements, Nigeria remains a difficult place to do business, ranking 179 out of 190 countries in the “trading across borders” category and scoring below its sub-Saharan counterparts in all trading subcategories. Particularly egregious were time to import (border compliance) and cost to import (documentary compliance) which, at 242 hours and $564, respectively, are double the sub-Saharan African average. PEBEC’s focal areas are improving trade, starting a business, registering property, obtaining building permits and electricity, and obtaining credit.

The OSIC co-locates relevant government agencies to provide more efficient and transparent services to investors, although much of its functions have yet to be moved online. The OSIC assists with visas for investors, company incorporation, business permits and registration, tax registration, immigration, and customs issues. Investors may pick up documents and approvals that are statutorily required to establish an investment project in Nigeria.

All businesses, both foreign and local, are required to register with the Corporate Affairs Commission (CAC) before commencing operations. CAC began online registration as part of PEBEC reforms. Online registration is straightforward and consists of three major steps: name search, reservation of business name, and registration. A registration guideline is available on the website as is a post-registration portal for enacting changes to company details. The CAC online registration website is https://pre.cac.gov.ng/home . The registration requires the signature of a Legal Practitioner and attestation by a Notary Public or Commissioner for Oaths. Business registration can be completed online but the certificate of incorporation is usually collected at a CAC office upon presentation of the original application and supporting documents. Online registration can be completed in as little as three days if there are no issues with the application. On average, a limited liability company (LLC) in Nigeria can be established in seven days. This average is significantly faster than the 22-day average for Sub-Saharan Africa. It is also faster than the OECD average of nine days. Timing may vary in different parts of the country.

Businesses must also register with the Federal Inland Revenue Service (FIRS) for tax payments purposes. If the business operates in a state other than the Federal Capital Territory, it must also register with the relevant state tax authority. CAC issues a Tax Identification Number (TIN) to all businesses on completion of registration which must be validated on the FIRS website https://apps.firs.gov.ng/tinverification/  and subsequently used to register to pay taxes. The FIRS will then assign the nearest tax office with which the business will engage for tax payments purposes. Some taxes may also be filed and paid online on the FIRS website. Foreign companies are also required to register with NIPC which maintains a database of all foreign companies operating in Nigeria. Companies which import capital must do so through an authorized dealer, typically a bank, after which they are issued a Certificate of Capital Importation. This certificate entitles the foreign investor to open a bank account in foreign currency and provides access to foreign exchange for repatriation, imports, and other purposes. A company engaging in international trade must get an import-export license from the Nigerian Customs Service (NCS). Businesses may also be required to register with other regulatory agencies which supervise the sector within which they operate.

Outward Investment

Nigeria does not promote outward direct investments. Instead, it focuses on promoting exports especially as a means of reducing its reliance on oil exports and diversifying its foreign exchange earnings. The Nigerian Export Promotion Council (NEPC) administered a revised Export Expansion Grant (EEG) in 2018 when the federal government set aside 5.1 billion naira ($13 million) in the 2019 budget for the EEG scheme. The Nigerian Export-Import (NEXIM) Bank provides commercial bank guarantees and direct lending to facilitate export sector growth, although these services are underused. NEXIM’s Foreign Input Facility provides normal commercial terms of three to five years (or longer) for the importation of machinery and raw materials used for generating exports.

Agencies created to promote industrial exports remain burdened by uneven management, vaguely defined policy guidelines, and corruption. Nigeria’s inadequate power supply and lack of infrastructure, coupled with the associated high production costs, leave Nigerian exporters at a significant disadvantage. Many Nigerian businesses fail to export because they find meeting international packaging and safety standards is too difficult or expensive. Similarly, firms often are unable to meet consumer demand for a consistent supply of high-quality goods in sufficient quantities to support exports and meet domestic demand. Most Nigerian manufacturers remain unable to or uninterested in competing in the international market, given the size of Nigeria’s domestic market.

Domestic firms are not restricted from investing abroad. However, the Central Bank of Nigeria (CBN) mandates that export earnings be repatriated to Nigeria, and controls access to the foreign exchange required for such investments. Noncompliance with the directive carries sanctions including expulsion from accessing financial services and the foreign exchange market.

Nigeria’s Securities and Exchange Commission (SEC) in April 2020 prohibited investment and trading platforms from facilitating Nigerians’ purchase of foreign securities listed on other stock exchanges. SEC cites Nigeria’s Investment and Securities Act of 2007, which mandates that only foreign securities listed on a Nigerian exchange should be sold to the Nigerian investing public.

Transparency of the Regulatory System

Nigeria’s legal, accounting, and regulatory systems comply with international norms, but application and enforcement remain uneven. Opportunities for public comment and input into proposed regulations rarely occur. Professional organizations set standards for the provision of professional services, such as accounting, law, medicine, engineering, and advertising. These standards usually comply with international norms. No legal barriers prevent entry into these sectors.

Ministries and regulatory agencies develop and make public anticipated regulatory changes or proposals and publish proposed regulations before their application. The general public has opportunity to comment through targeted outreach, including business groups and stakeholders, and during the public hearing process before a bill becomes law. There is no specialized agency tasked with publicizing proposed changes and the time period for comment may vary. Ministries and agencies do conduct impact assessments, including environmental, but assessment methodologies may vary. The National Bureau of Statistics reviews regulatory impact assessments conducted by other agencies. Laws and regulations are publicly available.

Fiscal management occurs at all three tiers of government: federal, 36 state governments and Federal Capital Territory (FCT) Abuja, and 774 local government areas (LGAs). Revenues from oil and non-oil sources are collected into the federation account and then shared among the different tiers of government by the Federal Account Allocation Committee (FAAC) in line with a statutory sharing formula. All state governments can collect internally generated revenues, which vary from state to state. The fiscal federalism structure does not compel states to be accountable to the federal government or transparent about revenues generated or received from the federation account. However, the federal government can demand states meet predefined minimum fiscal transparency requirements as prerequisites for obtaining federal loans. For instance, compliance with the 22-point Fiscal Sustainability Plan, which focused on ensuring better state financial performance, more sustainable debt management, and improved accountability and transparency, was a prerequisite for obtaining a federal government bailout in 2016. The federal government’s finances are more transparent as budgets are made public and the financial data are published by the Central Bank of Nigeria (CBN), Debt Management Office (DMO), the Budget Office of the Federation, and the National Bureau of Statistics. The state-owned oil company (Nigerian National Petroleum Corporation (NNPC)) began publishing audited financial data in 2020.

International Regulatory Considerations

Foreign companies operate successfully in Nigeria’s service sectors, including telecommunications, accounting, insurance, banking, and advertising. The Investment and Securities Act of 2007 forbids monopolies, insider trading, and unfair practices in securities dealings. Nigeria is not a party to the WTO’s Government Procurement Agreement (GPA). Nigeria generally regulates investment in line with the WTO’s Trade-Related Investment Measures (TRIMS) Agreement, but the government’s local content requirements in the oil and gas sector and the Information and Communication Technology (ICT) sector may conflict with Nigeria’s commitments under TRIMS.

ECOWAS implemented a Common External Tariff (CET) beginning in 2015 with a five-year phase in period. An internal CET implementation committee headed by the Fiscal Policy/Budget Monitoring and Evaluation Department of the NCS was set up to develop the implementation work plans that were consistent with national and ECOWAS regulations. The CET was slated to be fully harmonized by 2020, but in practice some ECOWAS Member States have maintained deviations from the CET beyond the January 1, 2020, deadline. The country has put in place a CET monitoring committee domiciled at the Ministry of Finance, consisting of several ministries, departments, and agencies (MDAs) related to the CET. Nigeria applies five tariff bands under the CET: zero duty on capital goods, machinery, and essential drugs not produced locally; 5% duty on imported raw materials; 10% duty on intermediate goods; 20% duty on finished goods; and 35% duty on goods in certain sectors such as palm oil, meat products, dairy, and poultry that the Nigerian government seeks to protect. The CET permits ECOWAS member governments to calculate import duties higher than the maximum allowed in the tariff bands (but not to exceed a total effective duty of 70%) for up to 3% of the 5,899 tariff lines included in the ECOWAS CET. Legal System and Judicial Independence

Legal System and Judicial Independence

Nigeria has a complex, three-tiered legal system comprised of English common law, Islamic law, and Nigerian customary law. Most business transactions are governed by common law modified by statutes to meet local demands and conditions. The Supreme Court is the pinnacle of the judicial system and has original and appellate jurisdiction in specific constitutional, civil, and criminal matters as prescribed by Nigeria’s constitution. The Federal High Court has jurisdiction over revenue matters, admiralty law, banking, foreign exchange, other currency and monetary or fiscal matters, and lawsuits to which the federal government or any of its agencies are party. The Nigerian court system is generally slow and inefficient, lacks adequate court facilities and computerized document-processing systems, and poorly remunerates judges and other court officials, all of which encourages corruption and undermines enforcement. Judges frequently fail to appear for trials and court officials lack proper equipment and training.

The constitution and law provide for an independent judiciary; however, the judicial branch remains susceptible to pressure from the executive and legislative branches. Political leaders have influenced the judiciary, particularly at the state and local levels.

The World Bank’s publication, Doing Business 2020, ranked Nigeria 73 out of 190 on enforcement of contracts, a significant improvement from previous years. The Doing Business report credited business reforms for improving contract enforcement by issuing new rules of civil procedure for small claims courts, which limit adjournments to unforeseen and exceptional circumstances but noted that there can be variation in performance indicators between cities in Nigeria (as in other developing countries). For example, resolving a commercial dispute takes 476 days in Kano but 376 days in Lagos. In the case of Lagos, the 376 days includes 40 days for filing and service, 194 days for trial and judgment, and 142 days for enforcement of the judgment with total costs averaging 42% of the claim. In Kano, however, filing and service only takes 21 days with enforcement of judgement only taking 90 days, but trial and judgment accounts for 365 days with total costs averaging lower at 28% of the claim. In comparison, in OECD countries the corresponding figures are an average of 589.6 days and averaging 21.5% of the claim and in sub-Saharan countries an average of 654.9 days and averaging 41.6% of the claim.

Laws and Regulations on Foreign Direct Investment

The NIPC Act allows 100 percent foreign ownership of firms. Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Act of 2020. The NIPC Act prohibits the nationalization or expropriation of foreign enterprises except in case of national interest, but the Embassy is unaware of specific instances of such interference by the government.

Competition and Antitrust Laws

The Nigerian government enacted the Federal Competition and Consumer Protection (FCCPC) Act in 2019. The act repealed the Consumer Protection Act of 2004 and replaced the previous Consumer Protection Council with a Federal Competition and Consumer Protection Commission while also creating a Competition and Consumer Protection Tribunal to handle issues and disputes arising from the operations of the Act. Under the terms of the Act, businesses will be able to lodge anti-competitive practices complaints against other firms in the Tribunal. The act prohibits agreements made to restrain competition, such as price fixing, price rigging, collusive tendering, etc. (with specific exemptions for collective bargaining agreements and employment, among other items). The act empowers the President of Nigeria to regulate prices of certain goods and services on the recommendation of the Commission.

The law prescribes stringent fines for non-compliance. The law mandates a fine of up to 10% of the company’s annual turnover in the preceding business year for offences. The law harmonizes oversight for consumer protection, consolidating it under the FCCPC.

Expropriation and Compensation

The FGN has not expropriated or nationalized foreign assets since the late 1970s, and the NIPC Act forbids nationalization of a business or assets unless the acquisition is in the national interest or for a public purpose. In such cases, investors are entitled to fair compensation and legal redress.

Dispute Settlement

ICSID Convention and New York Convention

Nigeria is a member of the International Center for Settlement of Investment Disputes and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (also called the “New York Convention”). The Arbitration and Conciliation Act of 1988 provides for a unified and straightforward legal framework for the fair and efficient settlement of commercial disputes by arbitration and conciliation. The Act created internationally competitive arbitration mechanisms, established proceeding schedules, provided for the application of the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules or any other international arbitration rule acceptable to the parties, and made the New York Convention applicable to contract enforcement, based on reciprocity. The Act allows parties to challenge arbitrators, provides that an arbitration tribunal shall ensure that the parties receive equal treatment, and ensures that each party has full opportunity to present its case. Some U.S. firms have written provisions mandating International Chamber of Commerce (ICC) arbitration into their contracts with Nigerian partners. Several other arbitration organizations also operate in Nigeria.

Investor-State Dispute Settlement

Nigeria’s civil courts have jurisdiction over disputes between foreign investors and the Nigerian government as well as between foreign investors and Nigerian businesses. The courts occasionally rule against the government. Nigerian law allows the enforcement of foreign judgments after proper hearings in Nigerian courts. Plaintiffs receive monetary judgments in the currency specified in their claims.

Section 26 of the NIPC Act provides for the resolution of investment disputes through arbitration as follows:

1. Where a dispute arises between an investor and any Government of the Federation in respect of an enterprise, all efforts shall be made through mutual discussion to reach an amicable settlement.
2. Any dispute between an investor and any Government of the Federation in respect of an enterprise to which this Act applies which is not amicably settled through mutual discussions, may be submitted at the option of the aggrieved party to arbitration as follows:
   1. in the case of a Nigerian investor, in accordance with the rules of procedure for arbitration as specified in the Arbitration and Conciliation Act; or
   2. in the case of a foreign investor, within the framework of any bilateral or multilateral agreement on investment protection to which the Federal Government and the country of which the investor is a national are parties; or
   3. in accordance with any other national or international machinery for the settlement of investment disputes agreed on by the parties.
3. Where in respect of any dispute, there is disagreement between the investor and the Federal Government as to the method of dispute settlement to be adopted, the International Centre for Settlement of Investment Dispute Rules shall apply.

Nigeria is a signatory to the 1958 Convention on Recognition and Enforcement of Foreign Arbitral Awards. Nigerian Courts have generally recognized contractual provisions that call for international arbitration. Nigeria does not have a Bilateral Investment Treaty or Free Trade Agreement with the United States.

Bankruptcy Regulations

Reflecting Nigeria’s business culture, entrepreneurs generally do not seek bankruptcy protection. Claims often go unpaid, even in cases where creditors obtain judgments against defendants. Under Nigerian law, the term bankruptcy generally refers to individuals whereas corporate bankruptcy is referred to as insolvency. The former is regulated by the Bankruptcy Act of 1990, as amended by Bankruptcy Decree 109 of 1992. The latter is regulated by the Companies and Allied Matters Act 2020. The Embassy is not aware of U.S. companies that have had to avail themselves of the insolvency provisions under Nigerian law.

Capital Markets and Portfolio Investment

The NIPC Act of 1995, amended in 2004, liberalized Nigeria’s foreign investment regime, which has facilitated access to credit from domestic financial institutions. Foreign investors who have incorporated their companies in Nigeria have equal access to all financial instruments. Some investors consider the capital market, specifically the Nigerian Stock Exchange (NSE), a financing option, given commercial banks’ high interest rates and the short maturities of local debt instruments. The NSE was the world’s best performing stock market in 2020, as assessed by Bloomberg. It closed the year at 40,270 points, a 50% increase from the end of 2019. The NSE equity market capitalization increased by 62% to 21 trillion naira ($55.4 billion) from 2019 to 2020 while market turnover increased by 7% to 1 trillion ($2.6 billion). Domestic investors dominated the NSE for the second consecutive year with a 65% share of market turnover by value. Foreign investors had accounted for over 50% of the market in 2018. The NSE’s bond market capitalization increased by 36% to 18 trillion naira ($47.5 billion) from 2019 to 2020. At 92%, the Nigeria government accounted for the majority of issuances raising 2.4 trillion naira ($6.3 billion) in 2020. Much of the growth in the NSE may be attributable to declining rates in Nigeria’s debt market. Treasury bill rates fell below 1% in 2020 with 91-day bills briefly dipping below 0% before settling at a record low of 0.34%. As of March 2021, the NSE had 168 listed companies, 132 listed bonds, and 12 exchange-traded funds. The Nigerian government has considered requiring companies in certain sectors such as telecoms, oil and gas, or over a certain size to list on the NSE as a means to encourage greater corporate participation and sectoral balance in the Nigerian Stock Exchange, but those proposals have not been enacted.

The government employs debt instruments, issuing treasury bills of one year or less, and bonds of various maturities ranging from two to 30 years. Nigeria is increasingly relying on the bond market to finance a widening deficit especially as domestic bond rates fell well below Nigeria’s Eurobond rates in 2020, and Nigeria continues to shirk the conditionalities attached to multilateral borrowing. Some state governments have issued bonds to finance development projects, while some domestic banks have used the bond market to raise additional capital. Nigeria’s SEC has issued stringent guidelines for states wishing to raise funds on capital markets, such as requiring credit assessments conducted by recognized credit rating agencies.

The CBN plans to stop offering its lucrative Open Market Operations (OMO) bills to non-residents, a departure from its strategy of attracting hard currency investments to shore up foreign exchange supply. OMO bills have recently provided foreign investors with returns of up to 30% in dollar terms, which has led to issuances being oversubscribed. CBN officials say OMO offerings to foreigners will be phased out once current obligations have been redeemed due to the large debt burden placed on the CBN. The CBN has also placed limits on transactions that can be made in foreign currency due to this foreign currency shortage. The OMO bills’ market was estimated at about $40 billion at the end of 2020, with foreigners holding about a third.

Money and Banking System

The CBN is the apex monetary authority of Nigeria; it was established by the CBN Act of 1958 and commenced operations on July 1, 1959. It has oversight of all banks and other financial institutions and is designed to be operationally independent of political interference although the CBN governor is appointed by the president and confirmed by the Senate. The amended CBN Act of 2007  mandates the CBN to have the overall control and administration of the monetary and financial sector policies of the government. The new Banking and Other Financial Institutions Act (BOFIA) of 2020 broadens CBN’s regulatory oversight function to include financial technology companies as it prohibits the operations of unlicensed financial institutions.

Foreign banks and investors are allowed to establish banking business in Nigeria provided they meet the current minimum capital requirement of N25 billion ($65 million) and other applicable regulatory requirements for banking license as prescribed by the CBN. The CBN regulations for foreign banks regarding mergers with or acquisitions of existing local banks in the country stipulate that the foreign institutions’ aggregate investment must not be more than 10% of the latter’s total capital.

In addition, any foreign-owned bank in Nigeria desirous of acquiring or merging with a local bank must have operated in Nigeria for a minimum of five years. To qualify for merger or acquisition of any of Nigeria’s local banks, the foreign bank must have achieved a penetration of two-thirds of the states of the federation. This provision mandates that the foreign-owned bank have branches in at least 24 out of the 36 states in Nigeria. The CBN also stipulates that the foreign bank or investors’ shareholding arising from the merger or acquisition should not exceed 40% of the total capital of the resultant entity.

The CBN currently licenses 22 deposit-taking commercial banks in Nigeria. Following a 2009 banking crisis, CBN officials intervened in eight of 24 commercial banks and worked to stabilize the sector through reforms, including the adoption of uniform year-end International Financial Reporting Standards to increase transparency, a stronger emphasis on risk management and corporate governance, and the nationalization of three distressed banks. As of 2019, there were 5,000 bank branches operating in Nigeria and, according to the Nigeria interbank settlement scheme, 40 million Nigerians had a Bank Verification Number (BVN), which every bank account holder is mandated to have.

Before October 2018, only banks and licensed financial institutions were allowed to provide financial services in Nigeria, and about 37% of 100 million adult Nigerians were financially excluded. The CBN reiterated its commitment to enhance the level of financial inclusion in the country and defined a target of 80% financial inclusion rate by 2020 and 95% by 2024. Its revised National Financial Inclusion Strategy was planned to focus on women; rural areas; youth; Northern Nigeria; and micro, small, and medium enterprises. The CBN plans to massively leverage technology with the licensing of mobile money operators and approved some telecom companies to operate as payment service banks because of their huge subscriber base.

The CBN supports non-interest banking. Several banks have established Islamic banking operations in Nigeria including Jaiz Bank International Plc, Nigeria’s first full-fledged non-interest bank, which commenced operations in 2012. A second non-interest bank, Taj Bank, started operations in December 2019. There are six licensed merchant banks: (1) Coronation Merchant Bank Limited, (2) FBN Merchant Bank, (3) FSDH Merchant Bank Ltd, (4) NOVA Merchant Bank, (5) Greenwich Merchant Bank, and (6) Rand Merchant Bank Nigeria Limited.

Many bank branches’ operations were disrupted by the COVID-19 pandemic, and profitability was expected to be impacted. The CBN announced monetary interventions to cushion the impact of the pandemic including the reduction of interest rates on CBN intervention loans from 9% to 5%, a one-year moratorium on CBN loans, and regulatory forbearance to restructure loans in impacted sectors like aviation and hospitality. The banking sector remained resilient despite the operational disruptions, currency devaluation, and monetary policy tweaks. Banking stocks remained top picks for investors and the banking index of the Nigeria Stock Exchange grew by 10% in 2020. Many banks were able to leverage technology to deliver services to customers and therefore earned income on digital channels usage which had grown during the lockdown.

The CBN has continued its system of liquidity management using unorthodox monetary policies. The measures included an increase in cash reserve ratio (CRR) to 27.5% – among the highest globally – to absorb the excess liquidity within the system which was a direct consequence of the lack of investment opportunities. The CBN arbitrarily debited banks for carrying excess loanable deposits on their books resulting in the effective CRR for some banks rising as high as 50%, which limited banks’ capacity to lend. The CBN also enforced a 65% minimum loan to deposit ratio in order to increase private sector credit and boost productivity. In December 2020, the CBN released some of the excess CRR back to banks by selling them special bills in an attempt to improve liquidity and support economic recovery.

CBN reported that non-performing loans (NPLs) declined marginally to 5.5% in September 2020 from 6.1% in December 2019. Full year NPLs are projected to have remained relatively stable despite the challenges presented by the pandemic in 2020. It is expected that the effect of the pandemic, currency devaluation, and subsidy removal could become more evident in some sectors of the economy which may result in defaults on loans and increasing banks’ NPLs.

The top ten banks in Nigeria control nearly 70% of the banking sector. Twelve out of the commercial banks listed on the NSE (Access Bank, GT Bank, Fidelity Bank, FCMB, Sterling Bank, FBNH, Union Bank, Zenith Bank, UBA, Ecobank, Stanbic IBTC, and Wema Bank) reported a combined total asset of N42.9 trillion ($112.9 billion) as of September 2020. This represents an 12% rise from total assets of N38.4 trillion ($101 billion) in December 2019. The size of their total assets also indicates how much support they can give to the Nigerian economy as their collective total assets represent roughly one-third of Nigeria’s GDP. FBNH and Access Bank lead the pack with N6.9 trillion ($18.1 billion) each in assets, closely followed by Zenith Bank with N6.8 trillion ($17.9 billion) and UBA with N4.8 trillion ($12.6 billion). The CBN reported that total deposits increased by N8.4 trillion or 32% and aggregate credit grew by N3.45 trillion or 13% by December 2020.

In 2013, the CBN introduced a stricter supervision framework for the country’s top banks, identified as “Systemically Important Banks” (SIBs) as they account for a majority of the industry’s total assets, loans and deposits, and their failure or collapse could disrupt the entire financial system and the country’s real economy. The current list, released in 2019, includes seven banks which were selected based on their size, interconnectedness, substitutability, and complexity. These banks accounted for 64% of the industry’s total assets of N35.1 trillion and 65% of the industry’s total deposits of N21.7 trillion. Under the supervision framework, the operations of SIBs are closely monitored with regulatory authorities conducting stress tests on the SIBs’ capital and liquidity adequacy. Moreover, SIBs are required to maintain a higher minimum capital adequacy ratio of 15%.

Under Nigerian laws and banking regulations, one of the conditions any foreigner seeking to open a bank account in Nigeria must fulfill is to be a legal resident in Nigeria. The foreigner must have obtained the Nigerian resident permit, known as the Combined Expatriate Residence Permit and Aliens Card which can only be processed by a foreigner that has been employed by a Nigerian company through an expatriate quota. Another requirement is the biometric BVN, which every account holder in Nigeria must have according CBN regulations.

Only a company duly registered in Nigeria can open a bank account in the country. Therefore, a foreign company is not entitled to open a bank account in Nigeria unless its subsidiary has been registered in Nigeria.

Foreign Exchange and Remittances

Foreign Exchange

Foreign currency for most transactions is procured through local banks in the inter-bank market, irrespective of investment type. Low value foreign exchange, typically in U.S. dollars, British pounds or the Euro, may also be procured at a premium from foreign exchange bureaus, called Bureaus de Change. In 2020, the COVID-19 pandemic affected foreign currency inflows to Nigeria. In response, the CBN placed some capital restrictions to manage investment outflows. Domestic and foreign businesses frequently express strong concern about the CBN’s foreign exchange restrictions, which they report prevent them from importing needed equipment and goods and from repatriating naira earnings. Foreign exchange demand remains high due to the dependence on foreign inputs for manufacturing and refined petroleum products.

In 2015, the CBN published a list of 41 product categories which could no longer be imported using official foreign exchange channels ( https://www.cbn.gov.ng/out/2015/ted/ted.fem.fpc.gen.01.011.pdf ). The list has since been increased to include fertilizer, dairy products, and maize bringing the total number of product categories to 44.

The CBN maintains a managed-float exchange rate regime where the exchange rate is fixed with little room to maneuver. It also maintains several “windows” through which foreign exchange is sold to different clients at different rates. While the CBN had been able to maintain convergence between its various rates in 2019, the forex shortages experienced in 2020 caused a divergence of exchange rates starting March 2020. The CBN devalued the official exchange rate through 2020 from 305 naira to the dollar to 379 naira to the dollar. The Investors and Exporters (I&E) rate, used by businesses to repatriate and trade, has since depreciated to around 408 naira to the dollar while the retail market rate depreciated to 480 naira to the dollar as of December 2020.

Remittance Policies

The NIPC guarantees investors unrestricted transfer of dividends abroad (net a 10% withholding tax). Companies must provide evidence of income earned and taxes paid before repatriating dividends from Nigeria. Money transfers usually take no more than 48 hours. In 2015, the CBN mandated that all foreign exchange remittances be transferred through banks. Such remittances may take several weeks depending on the size of the transfer and the availability of foreign exchange at the remitting bank. Due to the forex shortages currently being experienced in Nigeria, remittances take longer than usual. The CBN claims to have plans to clear the backlog of demand with targeted forex injections into the market. Transfers of currency are protected by Article VII of the International Monetary Fund Articles of Agreement ( http://www.imf.org/External/Pubs/FT/AA/index.htm#art7 ).

Sovereign Wealth Funds

The Nigeria Sovereign Investment Authority (NSIA) manages Nigeria’s sovereign wealth fund. It was created by the NSIA Act in 2011 and began operations in October 2012 with $1 billion seed capital and received an additional $250 million each in 2015 and 2017 bringing total capital to $1.5 billion. It was created to harness Nigeria’s excess oil revenues toward economic stability, wealth creation, and infrastructure development.

The NSIA is a public agency that subscribes to the Santiago Principles, which are a set of 24 guidelines that assign “best practices” for the operations of Sovereign Wealth Funds globally. The NSIA invests through three ring-fenced funds: the Future Generations Fund for diversified portfolio of long term growth, the Nigeria Infrastructure Fund for domestic infrastructure development, and the Stabilization Fund to act as a buffer against short-term economic instability. The NSIA does not take an active role in management of companies. The Embassy has not received any report or indication that NSIA activities limit private competition.

The government does not have an established practice consistent with the OECD Guidelines on Corporate Governance for state-owned enterprises (SOEs), but SOEs do have enabling legislation that governs their ownership. To legalize the existence of state-owned enterprises, provisions have been made in the Nigerian constitution under socio-economic development in section 16 (1) of the 1979 and 1999 Constitutions respectively. The government has privatized many former SOEs to encourage more efficient operations, such as state-owned telecommunications company Nigerian Telecommunications and mobile subsidiary Mobile Telecommunications in 2014.

Nigeria does not operate a centralized ownership system for its state-owned enterprises. The enabling legislation for each SOE stipulates its ownership and governance structure. The boards of directors are usually appointed by the president on the recommendation of the relevant minister. The boards operate and are appointed in line with the enabling legislation which usually stipulates the criteria for appointing board members. Directors are appointed by the board within the relevant sector. In a few cases, however, appointments have been viewed as a reward to political affiliates.

NNPC is Nigeria’s most prominent state-owned enterprise. NNPC Board appointments are made by the presidency, but day-to-day management is overseen by the Group Managing Director (GMD). The GMD reports to the Minister of Petroleum Resources. In the current administration, the President has retained that ministerial role for himself, and the appointed Minister of State for Petroleum Resources acts as the de facto Minister of Petroleum in the president’s stead with certain limitations.

NNPC is Nigeria’s biggest and arguably most important state-owned enterprise and is involved in exploration, refining, petrochemicals, products transportation, and marketing. It owns and operates Nigeria’s four refineries (one each in Warri and Kaduna and two in Port Harcourt), all of which are currently largely inoperable. Nigeria’s tax agency receives taxes on petroleum profits, while the Department of Petroleum Resources under the Ministry of Petroleum Resources collects rents, royalties, license fees, bonuses, and other payments. In an effort to provide greater transparency in the collection of revenues that accrue to the government, the Buhari administration requires these revenues, including some from the NNPC, to be deposited in the Treasury Single Account. NNPC began publishing audited financial statements in 2020 for the three prior fiscal years, a significant step toward improving transparency of NNPC operations.

Another key state-owned enterprise is the Transmission Company of Nigeria (TCN), responsible for the operation of Nigeria’s national electrical grid. Private power generation and distribution companies have accused the TCN grid of significant inefficiency and inadequate technology which greatly hinders the nation’s electricity output and supply. TCN emerged from the defunct National Electric Power Authority as an incorporated entity in 2005. It is the only major component of Nigeria’s electric power sector which was not privatized in 2013.

Privatization Program

The Privatization and Commercialization Act of 1999 established the National Council on Privatization, the policy-making body overseeing the privatization of state-owned enterprises, and the Bureau of Public Enterprises (BPE), the implementing agency for designated privatizations. The BPE has focused on the privatization of key sectors, including telecommunications and power, and calls for core investors to acquire controlling shares in formerly state-owned enterprises.

The BPE has privatized and concessioned more than 140 enterprises since 1999, including an aluminum complex, a steel complex, cement manufacturing firms, hotels, a petrochemical plant, aviation cargo handling companies, vehicle assembly plants, and electricity generation and distribution companies. The electricity transmission company remains state-owned. Foreign investors can and do participate in BPE’s privatization process. The government also retains partial ownership in some of the privatized companies. The federal government and several state governments hold a 40% stake, managed by BPE, in the power distribution companies.

The National Assembly has questioned the propriety of some of these privatizations, with one ongoing case related to an aluminum complex privatization the subject of a Supreme Court ruling on ownership. In addition, the failure of the 2013 power sector privatization to restore financial viability to the sector has raised criticism of the privatized power generation and distribution companies. Nevertheless, the government’s long-delayed sale in 2014 of state-owned Nigerian Telecommunications and Mobile Telecommunications shows a continued commitment to the privatization model.

The federal government intends to raise about 205 billion naira ($541 million) from privatization proceeds in 2021. BPE held an International Investors’ webinar in February 2021 to showcase investment opportunities in the two trade fair complexes in Lagos state slated for concession in 2021.

Political, religious, and ethnic violence continue to affect Nigeria. The Islamist group Jama’atu Ahl as-Sunnah li-Da’awati wal-Jihad, popularly known as Boko Haram, and Islamic State – West Africa (ISIS-WA) have waged a violent terrorist campaign to destabilize the Nigerian government, killing tens of thousands of people, forcing over two million to flee to other areas of Nigeria or into neighboring countries, and leaving more than seven million people in need of humanitarian assistance in the country’s northeast. Boko Haram has targeted markets, churches, mosques, government installations, educational institutions, and leisure sites with improvised explosive devices (IEDs) and suicide vehicle-borne IEDs across nine northern states and in Abuja. In 2017, Boko Haram employed hundreds of suicide bombings against the local population. Women and children were forced to carry out many of the attacks. There were multiple reports of Boko Haram killing entire villages suspected of cooperating with the government. ISIS-WA targeted civilians with attacks or kidnappings less frequently than Boko Haram. ISIS-WA employed acts of violence and intimidation to expand its area of influence and gain control over critical economic resources. As part of a violent and deliberate campaign, ISIS-WA also targeted government figures, traditional leaders, humanitarian workers, transportation workers, and contractors.

President Buhari has focused on matters of insecurity in Nigeria and in neighboring countries. While the two insurgencies maintain the ability to stage forces in rural areas and launch attacks against civilian and military targets across the northeast, Nigeria is also facing rural violence in the Nigeria’s north central and northwest states caused by bandits and criminals and by conflicts between migratory pastoralist and farming communities, often over scarce resources. Another major trend is the nationwide rise in kidnappings for ransom and attacks on villages by armed gangs.

Due to challenging security dynamics throughout the country, the U.S. Mission to Nigeria has significantly limited official travel in the northeast, and travel to other parts of Nigeria requires security precautions.

Decades of neglect, persistent poverty, and environmental damage caused by oil spills have left Nigeria’s oil rich Niger Delta region vulnerable to renewed violence. Though each oil-producing state receives a 13% derivation of the oil revenue produced within its borders, and several government agencies, including the Niger Delta Development Corporation (NDDC) and the Ministry of Niger Delta Affairs, are tasked with implementing development projects, bureaucratic mismanagement and corruption have prevented these investments from yielding meaningful economic and social development in the region. Niger Delta militants have demonstrated their ability to attack and severely damage oil instillations at will as seen when they cut Nigeria’s production by more than half in 2016. While attacks on oil installations have since decreased due to a revamped amnesty program and continuous high-level engagement with the region, the underlying issues and historical grievances of the local communities have not been addressed. As a result, insecurity in various forms continues to plague the region.

* Source for Host Country Data: Nigerian Bureau of Statistics

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

Attracting FDI remains one of the government’s main pillars of economic growth and job creation, although the COVID-19 pandemic prevented government officials from engaging with potential investors in person in 2020. There are no laws or practices that discriminate against foreign investors. In March 2018, the government passed its “Plan for Economic Growth” (https://vicepremier-ekonomija.gov.mk/?q=node/275), which provides substantial incentives to foreign companies operating in the 15 free economic zones. The incentives include a variety of measures such as job creation subsidies, capital investment subsidies, and financial support to exporters. Also, North Macedonia is a signatory to multilateral conventions protecting foreign investors and is party to a number of bilateral investment protection treaties, though none with the United States.

The new government, ratified by parliament on August 30, 2020, removed ministerial positions specifically responsible for attracting foreign investments. Instead, the office of the Deputy Prime Minister for Economic Affairs (https://vicepremier-ekonomija.gov.mk) coordinates the government’s activities related to foreign investments. Invest North Macedonia – the Agency for Foreign Investments and Export Promotion, http://www.investinmacedonia.com, is the primary government institution in charge of facilitating foreign investments. It works directly with potential foreign investors, provides detailed explanations and guidance for registering a business in North Macedonia, produces analysis on potential industries and sectors for investing, shares information on business regulations, and publishes reports about the domestic market. The North Macedonia Free Zones Authority, http://fez.gov.mk/, a governmental managing body responsible for developing free economic zones throughout the country, also assists foreign investors interested in operating in the zones. It manages all administrative affairs of the free economic zones and assists foreign investors to identify appropriate investment locations and facilities. North Macedonia does not maintain a “one-stop-shop” for FDI, requiring investors to navigate through several bureaucratic institutions to implement their investments.

The government maintains contact with large foreign investors through frequent meetings and formal surveys to solicit feedback. Large foreign investors have direct and easy access to government leaders, whom they can contact for assistance to resolve issues. The Foreign Investors Council, https://www.fic.mk/Default.aspx?mId=1, advocates for foreign investors and suggests ways to improve the business environment.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors can invest directly in all industry and business sectors except those limited by law. For instance, investment in the production of weapons and narcotics remains subject to government approval, while investors in sectors such as banking, financial services, insurance, and energy must meet certain licensing requirements that apply equally to domestic and foreign investors. Foreign investment may be in the form of money, equipment, or raw materials. Under the law, if assets are nationalized, foreign investors have the right to receive the full value of their investment. This provision does not apply to national investors. Invest North Macedonia conducts screening and due diligence reviews of foreign direct investments in a non-standard, non-public procedure and on an ad-hoc basis. The main purpose of the screening is to ensure economic benefit for the country and to protect national security. The process does not disadvantage foreign investors. More information about the screening process is available directly from Invest North Macedonia, at http://www.investinmacedonia.com. U.S. investors are not disadvantaged or singled out by any of the ownership or control mechanisms, sector restrictions, or investment screening mechanisms.

Other Investment Policy Reviews

The World Trade Organization’s (WTO) last review of North Macedonia’s trade policy published in 2019 is available at: https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/TPR/S390R1.pdf&Open=True. The most recent United Nations Conference on Trade and Development (UNCTAD) investment policy review on North Macedonia, from March 2012, is available at: https://unctad.org/en/PublicationsLibrary/diaepcb2011d3_en.pdf. A 2017 regional investment policy review of South-East Europe covering seven economies including North Macedonia is available at: https://unctad.org/en/PublicationsLibrary/diaepcb2017d6_en.pdf. The Organization for Economic Cooperation and Development (OECD) has not done an investment policy review on North Macedonia to date. The International Monetary Fund (IMF) and the World Bank have mentioned aspects of the government’s policies for attracting foreign investment in their regular country reports but have not provided specific policy recommendations.

Business Facilitation

All legal entities in the country must register with the Central Registry of the Republic of North Macedonia (Central Registry). Foreign businesses may register a limited liability company, single-member limited liability company, joint venture, or joint stock company, as well as branches and representative offices. There is a one-stop-shop system which enables investors to register their businesses within a day by visiting one office, obtaining the information from a single place, and addressing one employee. Once the company is registered with the Central Registry, the registration is valid for all other agencies. In addition to registering, some businesses must obtain additional working licenses or permits for their activities from relevant authorities. More information on business registration documentation and procedures is available at the Central Registry’s website, http://www.crm.com.mk. All investors may register a company online at http://e-submit.crm.com.mk/eFiling/en/home.aspx. Applications must be submitted by an authorized registration agent. The online business registration process is clear, complete, and available for use by foreign companies. The 2020 World Bank Doing Business Report ranked North Macedonia 78th in the world for ease of starting a business, 31 spots down from 2019.

Outward Investment

The government does not restrict domestic investors from investing abroad, but it does not promote or provide incentives for outward investments. The publicly reported total stock of outward investments is small, worth approximately $68 million, the majority of which is in the Balkan region, the Netherlands, Germany, and Russia, and in production facilities, pharmaceuticals, metal processing, and wholesale and retail trade.

Transparency of the Regulatory System

The government has made progress adopting reform priorities called for by the EU, NATO, and other bodies, leading to well defined laws, institutional structures, and regulatory legal frameworks. However, laws are not regularly drafted based on data-driven evidence or assessments and, at times, move through parliament using shortened legislative procedures. While laws are in place, enforcement and universal implementation of laws and regulations are generally lacking and can be a problem for businesses and citizens.

North Macedonia has simplified regulations and procedures for large foreign investors operating in the TIDZ. While the country’s overall regulatory environment is complex and not fully transparent, the government is making efforts to improve transparency. The government is implementing reforms designed to avoid frequent regulatory and legislative changes, coupled with inconsistent interpretations of the rules, which create an unpredictable business environment that enables corruption. The current government has published all incentives for businesses operating in North Macedonia, which are standardized and available to domestic and international companies. However, companies worth more than $1 billion that want to invest in North Macedonia can negotiate terms different from the standard incentives. The government can offer customized incentive packages if the investment is of strategic importance.

Rule-making and regulatory authorities reside within government ministries, regulatory agencies, and parliament. Almost all regulations most relevant to foreign businesses are on the national level. Regulations are generally developed in a four-step process. First, the regulatory agency or ministry drafts the proposed regulation. The proposal is then published in the Unique National Electronic Register of Regulations (ENER: https://ener.gov.mk/) for public review and comment. After public comments are considered and properly incorporated into the draft, it is sent to the central government to be reviewed and adopted in an official government session. Once the government has approved the draft law, it is sent to parliament for full debate and adoption. The public consultation process has improved, with businesses, the public, and NGOs having an increasing role in commenting on draft regulations and proposing changes through ENER.

There is no single centralized location which maintains a copy of all regulatory actions. All newly adopted regulations, rules, and government decisions are published in the Official Gazette of the Republic of North Macedonia after they are adopted by the government or parliament, or signed by the corresponding minister or director. Public comments are not published nor made public as part of the regulation, and limited information is available in English.

North Macedonia accepts International Accounting Standards, and the legal, regulatory, and accounting systems used by the government are consistent with international norms. North Macedonia has aligned its national law with EU directives on corporate accounting and auditing.

The government has systems in place to regularly communicate and consult with the business community and other stakeholders before amending and adopting legislation, through ENER. Interested parties, including chambers of commerce, can review the legislation published on ENER. The online platform is intended to facilitate public participation in policymaking, increase public comment, and provide a phase-in period for legal changes to allow enterprises to adapt. Key institutions influencing the business climate publish official and legally-binding instructions for the implementation of laws. These institutions are obliged to publish all relevant laws, by-laws, and internal procedures on their websites, however, some of them do not maintain regular updates. The government makes significant efforts to ensure respect for the principles of transparency, merit, and equitable representation.

In 2018, the government adopted a new Strategy for Public Administration Reform and Action Plan (2018-2022), and the National Plan for Quality Management of Public Administration, which focus on policy creation and coordination, strengthening public service capacities, and increasing accountability and transparency. The government also adopted its Open Data Strategy (2018-2020), which puts forth measures to encourage the release and use of public data as an effective tool for innovation, growth, and transparent governance. With the introduction of the Transparency Strategy (2019-2021), which closely ties to the Open Data Strategy, the government intends to contribute to greater transparency of government central bodies, both at the central and local levels.

Public finances and debt obligations are fairly transparent. The Ministry of Finance publishes budget execution data monthly; public debt figures, including contingent liability, quarterly; and the fiscal strategy is updated annually.

International Regulatory Considerations

As a candidate country for accession to the EU, North Macedonia is gradually harmonizing its legal and regulatory systems with EU standards. As a member of the WTO, North Macedonia regularly notifies the WTO Committee on Technical Barriers to Trade of proposed amendments to technical regulations concerning trade. North Macedonia ratified the Trade Facilitation Agreement (TFA) in July 2015 (Official Gazette 130/2015), becoming the 50th out of 134 members of the WTO to do so. In October 2017, the government formed a National Trade Facilitation Committee, chaired by the Minister of Economy, which includes 22 member institutions. The Committee identified areas which need harmonization with the TFA and is working toward implementation.

Legal System and Judicial Independence

North Macedonia’s legal system is based on the civil law tradition, with increasing adversarial-style elements, and includes an established legal framework for both commercial and contract law. The Constitution established independent courts which rule on commercial and contractual disputes between business entities, and court rulings are legally executed by private enforcement agents. Enforcement actions may be appealed before the court. The enforcement procedure fees were lowered and simplified in 2019. Disputes up to €15,000 ($17,715 per 03/25/2021 exchange rate) require mediation as a precondition to initiating legal action within the courts. Cases involving international elements may be decided using international arbiters. Ratified international instruments prevail over national laws.

Businesses complained that lengthy and costly commercial disputes adjudicated through the court system created legal uncertainty. Businesses, however, are not inclined to use mediation as a swifter and often less costly way to resolve disputes. In December 2020, the government announced a new and improved Mediation Law would address noted deficiencies and was in the final drafting stage. Numerous international reports note rule of law remains a key challenge in North Macedonia, pointing to undue executive, business, and/or political interference in the judiciary, and poor funding for and management of administrative courts as major obstacles. The government continued major reforms, throughout 2020, to improve judicial independence and impartiality, but contract enforcement and perceived non-transparent public procurement practices remain a challenge for businesses.

Laws and Regulations on Foreign Direct Investment

There is no single law regulating foreign investments, nor a “one-stop-shop” website which provides all relevant laws, rules, procedures, and reporting requirements for investors. Rather, the legal framework is comprised of several laws including: the Trade Companies Law; the Securities Law; the Profit Tax Law; the Customs Law; the Value Added Tax (VAT) Law; the Law on Trade; the Law on Acquiring Shareholding Companies; the Foreign Exchange Operations Law; the Payment Operations Law; the Law on Foreign Loan Relations; the Law on Privatization of State-owned Capital; the Law on Investment Funds; the Banking Law; the Labor Law; the Law on Financial Discipline; the Law on Financial Support of Investments; and the Law on Technological Industrial Development Zones (free economic zones). An English language version of the consolidated Law on Technological Industrial Development Zones (free economic zones) is available at: https://fez.gov.mk/wp-content/uploads/2018/01/law-in-tidz-eng.pdf , and additional information at https://www.worldfzo.org/Portals/0/OpenContent/Files/487/Macedonia_FreeZones.pdf . No other new major laws, regulations, or judicial decisions related to foreign investments were passed during the past year; however, some existing laws were amended slightly.

Competition and Antitrust Laws

The Commission for Protection of Competition (CPC) is responsible for enforcing the Law on Protection of Competition. The CPC issues opinions on draft legislation which may impact competition. The CPC reviews the impact on competition of proposed mergers and can prohibit a merger or approve it with or without conditions. The CPC also reviews proposed state aid to private businesses, including foreign investors, under the Law on Control of State Aid (Official Gazette 145/10) and the Law on State Aid (Official Gazette 24/03). The CPC determines whether the state aid gives economic advantage to the recipient, is selective, or adversely influences competition and trade. More information on the CPC’s activities is available at http://kzk.gov.mk/en. There were no significant competition cases during the past year.

Expropriation and Compensation

The Law on Expropriation (http://www.mioa.gov.mk/sites/default/files/pbl_files/documents/legislation/zakon_za_eksproprijacija_konsolidiran_032018.pdf) states the government can seize or limit ownership and real estate property rights to protect the public interest and to build facilities and carry out other activities of public interest. According to the Constitution and the Law on Expropriation, property under foreign ownership is exempt from expropriation except during instances of war or natural disaster, or for reasons of public interest. Under the Law on Expropriation, the state is obliged to pay market value for any expropriated property. If the payment is not made within 15 days of the expropriation, interest will accrue. The government has conducted a number of expropriations, primarily to enable capital projects of public interest, such as highway and railway construction for which the government offered market value compensation. Expropriation procedures have followed strict legal regulations and due process. The government has not undertaken any measures that have been alleged to be, or could be argued to be, indirect expropriation, such as confiscatory tax regimes or regulatory actions that deprive investors of substantial economic benefits from their investments.

Dispute Settlement

ICSID Convention and New York Convention

North Macedonia is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and the European Convention on International Commercial Arbitration. Additionally, North Macedonia has either signed, or has inherited by means of succession from the former Yugoslavia, a number of bilateral and multilateral conventions on arbitration, including the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA); the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards; the Geneva Protocol on Arbitration Clauses from 1923; and the Geneva Convention on Enforcement of Foreign Arbitration Decisions.

In April 2006, the Law on International Commercial Arbitration came into force in North Macedonia. This law applies exclusively to international commercial arbitration conducted in the country. An arbitration award under this law has the validity of a final judgment and can be enforced without delay. Any arbitration award decision from outside North Macedonia is considered a foreign arbitral award and is recognized and enforced in accordance with the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral awards.

Investor-State Dispute Settlement

North Macedonia accepts binding international arbitration in disputes with foreign investors. Foreign arbitration awards are generally recognized and enforceable in the country provided the conditions of enforcement set out in the Convention and the Law on International Private Law (Official Gazette of the Republic of North Macedonia, No. 87/07 and No. 156/2010: https://www.slvesnik.com.mk/besplate-pristap-do-izdanija.nspx ) are met. So far, the country has been involved in six reported investor-state disputes resolved before international arbitration panels. None of those cases involved U.S. citizens or companies. Local courts recognize and enforce foreign arbitration awards issued against the Government of North Macedonia. The country does not have a history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

North Macedonia accepts international arbitration decisions on investment disputes. The country’s Law on International Commercial Arbitration is modeled on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. Local courts recognize and enforce foreign arbitral awards and the judgments of foreign courts. Alternative dispute resolution mechanisms are available for settling disputes between two private parties but seldom utilized. A Permanent Court of Arbitration, established in 1993 within the Economic Chamber of Macedonia (a non-government business association), has the authority to administer both domestic and international disputes. North Macedonia requires mediation in disputes between companies up to €15,000 ($17,715 per 03/25/2021 exchange rate) in value before companies can go to court.

There is no tracking system of cases involving State Owned Enterprises (SOEs) involved in investment disputes in North Macedonia, and post is not aware of any examples.

Bankruptcy Regulations

North Macedonia’s bankruptcy law governs the settlement of creditors’ claims against insolvent debtors. Bankruptcy proceedings may be initiated over the property of a debtor, be it a legal entity, an individual, a deceased person, joint property of spouses, or a business. However, bankruptcy proceedings may not be implemented over a public legal entity or property owned by the Republic of North Macedonia. The Government of North Macedonia announced March 31, 2020 bankruptcy proceedings would be forbidden during the COVID-19 crisis as well as for six months thereafter. The 2020 World Bank Doing Business Report ranked North Macedonia 30th out of 190 countries for resolving insolvency. (As noted in the World Bank’s December 16, 2020 Statement on Doing Business Data Corrections and Findings of Internal Audit, arrangements for publication of the Doing Business 2021 report will be completed in mid-2021.)

The Macedonian Credit Bureau (https://mkb.mk/en/), commercial banks, and the National Bank of the Republic of North Macedonia serve as credit monitoring authorities.

Capital Markets and Portfolio Investment

The government openly welcomes foreign portfolio investors. The establishment of the Macedonian Stock Exchange (MSE) in 1995 made it possible to regulate portfolio investments, although North Macedonia’s capital market is modest in turnover and capitalization. Market capitalization in 2020 was $3.5 billion, a 1.2 percent drop from the previous year. The main index, MBI10, increased by 1.2 percent, reaching 4,705 points at year-end. Foreign portfolio investors accounted for an average of 7.6 percent of total MSE turnover, 17.4 percentage points less than in 2019. The current regulatory framework does not appear to discriminate against foreign portfolio investments.

There is an effective regulatory system for portfolio investments, and North Macedonia’s Securities and Exchange Commission (SEC) licenses all MSE members to trade in securities and regulates the market. In 2020, the total number of listed companies was 104, two less than in 2019, and total turnover increased by 6.4 percent. Compared to international standards, overall liquidity of the market is modest for entering and/or exiting sizeable positions. Individuals generally trade on the MSE as individuals, rather than through investment funds, which have been present since 2007.

There are no legal barriers to the free flow of financial resources into the products and factor markets. The National Bank of the Republic of North Macedonia (NBRNM) respects IMF Article VIII and does not impose restrictions on payments and transfers for current international transactions. A variety of credit instruments are provided at market rates to both domestic and foreign companies.

Money and Banking System

In its regular report on Article IV consultations, published January 2020, the International Monetary Fund assessed North Macedonia’s banking sector is healthy, well-capitalized, liquid, and profitable. Banks comfortably meet capital adequacy requirements, but efforts are needed to further mitigate credit risk. Domestic companies secure financing primarily from their own cash flows and bank loans due to the lack of corporate bonds and other securities as credit instruments.

Financial resources are almost entirely managed through North Macedonia’s banking system, consisting of 14 banks and a central bank, the NBRNM. On August 12, 2020, NBRNM revoked the operating license of Eurostandard Bank due to the bank’s insolvency. Eurostandard Bank controlled just 1.3 percent of the total banking sector’s assets, and its closure did not affect the banking sector’s stability, but did improve its overall ratio of non-performing loans by one percentage point. The banking sector is highly concentrated, with three of the largest banks controlling 57.6 percent of the banking sector’s total assets of about $10.7 billion and collecting 70.9 percent of total household deposits. The largest commercial bank in the country has estimated total assets of about $2.4 billion, and the second largest about $2 billion. The nine smallest banks, which have individual market shares of less than 6 percent each, account for 23.5 percent of total banking sector assets. Foreign banks or branches are allowed to establish operations in the country on equal terms as domestic operators, subject to licensing and prudent supervision from the NBRNM. In 2020, foreign capital remained present in 13 of North Macedonia’s 14 banks, and was dominant in 10 banks, controlling 71.5 percent of total banking sector assets, 80.4 percent of total loans, and 69.4 percent of total deposits.

According to the NBRNM, the banking sector’s non-performing loans at the end of Q3 of 2020 (latest available data) were 3.4 percent of total loans, dropping by 1.4 percentage points on an annual basis, mostly due to the NBRNM’s anti-crisis measures allowing temporary postponement of loan installment payments and regulatory amendments in managing and calculating credit risk. Total profits at the end of Q3 of 2020 reached $112 million, which was 2.1 percent higher compared to the same period of 2019.

Banks’ liquid assets at the end of Q3 of 2020 were 29.9 percent of total assets, 2.5 percentage points lower compared to the same period in 2019, remaining comfortably high. In 2020, the NBRNM conducted different stress-test scenarios on the banking sector’s sensitivity to increased credit risk, liquidity shocks, and insolvency shocks, all of which showed the banking sector is healthy and resilient, with a capital adequacy ratio remaining above the legally required minimum of eight percent. The actual capital adequacy ratio of the banking sector at the end of Q3 of 2020 was 16.9 percent, unchanged compared to the same period in 2019, with all banks, except the one which was closed, maintaining a ratio above the required minimum.

There are no restrictions on a foreigner’s ability to establish a bank account. All commercial banks and the NBRNM have established and maintain correspondent banking relationships with foreign banks. The banking sector lost no correspondent banking relationships in the past three years, nor were there any indications that any current correspondent banking relationships were in jeopardy. There is no intention to implement or allow the implementation of blockchain technologies in banking transactions in North Macedonia. Also, alternative financial services do not exist in the economy. The transaction settlement mechanism is solely through the banking sector.

Foreign Exchange and Remittances

Foreign Exchange

The Constitution provides for free transfer, conversion, and repatriation of investment capital and profits by foreign investors. Funds associated with any form of investment can be freely converted into other currencies. Conversion of most foreign currencies is possible at market rates on the official foreign exchange market. In addition to banks and savings houses, numerous authorized exchange offices also provide exchange services. The NBRNM operates the foreign exchange market but participates on an equal basis with other entities. There are no restrictions on the purchase of foreign currency.

Parallel foreign exchange markets do not exist in the country, largely due to the long-term stability of the national currency, the denar (MKD). The denar is convertible domestically but is not convertible on foreign exchange markets. The NBRNM is pursuing a strategy of pegging the denar to the euro and has successfully kept it at the same level since 1997. Required foreign currency reserves are spelled out in the banking law.

Remittance Policies

There were no changes in investment remittance policies, and there are no immediate plans for changes to the regulations. By law, foreign investors are entitled to transfer profits and income without being subject to a transfer tax. All types of investment returns are generally remitted within three working days. There are no legal limitations on private financial transfers to and from North Macedonia. Remittances from workers in the diaspora represent a significant source of income for North Macedonia’s households. In 2020, net private transfers amounted to $1.5 billion, accounting for 12.2 percent of GDP.

Sovereign Wealth Funds

North Macedonia does not have a sovereign wealth fund.

There are about 120 State Owned Enterprises (SOEs) in North Macedonia, the majority of which are public utilities, predominately owned by the central government or the 81 local governments. The government estimated about 8,600 people are employed in SOEs. SOEs operate in several sectors of the economy, including energy, transportation, and media. There are also industries such as arms production and narcotics in which private enterprises may not operate without government approval. SOEs are governed by boards of directors, consisting of members appointed by the government. All SOEs are subject to the same tax policies as private sector companies. SOEs are allowed to purchase or supply goods or services from the private sector and are not given advantages that are not market-based, such as preferential access to land and raw materials.

There is no published registry with complete information on all SOEs in the country.

The government has yet to implement broad public administration reform, which would also include SOEs, especially addressing their employment policies and governance. North Macedonia is not a signatory to the OECD Guidelines on Corporate Governance for SOEs. In February 2018, the government sent its bid to the World Trade Organization to upgrade its status from observer to a full member of the Government Procurement Agreement (GPA). The negotiation process is still ongoing.

Privatization Program

North Macedonia’s privatization process is almost complete, and private capital is dominant in the market. The government is trying to resolve the status of one remaining state-owned loss-making company in a non-discriminatory process through an international tender. Foreign and domestic investors have equal opportunity to participate in the privatization of the remaining state-owned assets through an easily understandable, non-discriminatory, and transparent public bidding process. Neither the central government nor any local government has announced plans to fully or partially privatize any of the utility companies or SOEs in their ownership.

North Macedonia generally has been free from political violence over the past decade, although interethnic relations have been strained at times. Public protests, demonstrations, and strikes occur sporadically, and often result in traffic jams, particularly near the center of Skopje.

Following 2016 parliamentary elections, an organized group of protestors leveraged ongoing protests and eventually stormed the parliament building on April 27, 2017 in reaction to the change of government and the election of Talat Xhaferi as Speaker of Parliament, the first ethnic Albanian to assume that post since the country’s independence. More than 100 people were injured, including several members of the government and seven MPs. On March 18, 2019, 16 individuals were convicted and given lengthy prison sentences for their involvement in the attack, including the former head of the Public Security Bureau (who had previously served as Minister of Interior) and former security officers. The trial against the suspected organizers is ongoing. Defendants include the former prime minister and now fugitive from justice (Nikola Gruevski), parliament speaker, two former ministers, and a former director of the Department of Security and Counterintelligence.

There is neither widespread anti-American nor anti-Western sentiment in North Macedonia. There have been no incidents in recent years involving politically motivated damage to U.S. projects or installations. Violent crime against U.S. citizens is rare. Theft and other petty street crimes do occur, particularly in areas where tourists and foreigners congregate.

North Macedonia formally deposited its instrument of accession to the North Atlantic Treaty and was formally accepted as NATO’s 30th member on March 27, 2020. The country has been an EU candidate country since December 2005 and, on March 25, 2020, the General Affairs Council of the European Union decided to open accession negotiations with North Macedonia, which was endorsed by the European Council the following day. However, Bulgaria refused to approve North Macedonia’s EU negotiating framework in November 2020, effectively blocking the official launch of EU accession talks.

* Source for Host Country Data: State Statistical Office (SSO) publishes data estimates on GDP; National Bank of the Republic of North Macedonia (NBRNM) publishes data on FDI. Data is publicly available online and is published immediately upon processing with a lag of less than one quarter. End-year data for previous year is usually published in March of current year.

The results from the International Monetary Fund (IMF) are consistent with host country data. Sources of portfolio investments are not tax havens.

Policies Towards Foreign Direct Investment

Oman actively seeks foreign direct investment and is in the process of improving the regulatory framework to encourage such investments.  The Foreign Capital Investment Law (FCIL) allows 100 percent foreign ownership in most sectors and removed the minimum capital requirement.  The law effectively provides all foreign investors with an open market in Oman, privileges already extended to U.S. nationals due to the provisions in the 2009 U.S.-Oman Free Trade Agreement (FTA), although the FTA goes further in providing American companies with national treatment.

The Omani government’s “In-Country Value” (ICV) policy seeks to incentivize companies, both Omani and foreign, to procure local goods and services and provide training to Omani national employees.  The government includes bidders’ demonstration of support for ICV as one factor in government tender awards.  While the government initially applied ICV primarily to oil and gas contracts, the principle is now embedded in government tenders in all sectors, including transportation and tourism.  New-to-market foreign companies, including U.S. firms, may find the bid requirements related to ICV prohibitive.

Limits on Foreign Control and Right to Private Ownership and Establishment

With the implementation of the U.S.-Oman FTA in 2009, U.S. firms may establish and fully own a business in Oman without a local partner.  Although U.S. investors are provided national treatment in most sectors, Oman has an exception in the FTA for legal services, limiting U.S. ownership in a legal services firm to no more than 70 percent.  Since January 1, 2021, foreign lawyers may not represent cases in Omani courts at any level.  The government also has a “negative list” that restricts foreign investment to safeguard national security interests.  The list includes some services related to radio and television transmission as well as air and internal waterway transportation.   The Ministry of Commerce, Industry, and Investment Promotion (MOCIIP) – until August 2020 known as the Ministry of Commerce and Industry (MOCI) – issued Ministerial Decision 209/2020 on December 8, 2020, updating the list of activities in which foreign investors are prohibited from engaging, from 37 in 2019 to 70.  MOCIIP is applying the new law on a reported case-by-case basis, and it remains uncertain whether
a 100 percent foreign-owned company can now undertake an activity which is not on the negative list.  Under the new FCIL, foreign nationals seeking to own 100 percent shares in local companies no longer are required to seek MOCIIP approval.

Oman bans non-Omani ownership of real estate and land in various governorates and in other areas the government deems necessary to restrict, as per Royal Decree 29/2018.  However, Oman permits the establishment of real estate investment funds (REIFs) in order to encourage new inflows of capital into Oman’s property sector, and foreign investors, as well as expatriates in Oman, may own property units in REIFs.  In January 2020, Oman’s first REIF (Aman) launched an initial private offering valued at $26 million for Omani and non-Omani investors.  In addition, the Ministry of Housing and Urban Planning in October 2020 issued Ministerial Decision 357/2020 extending permissions for non-Omanis to own units in multi-story commercial and residential real estate buildings under the usufruct system in some locations in Muscat governorate.

Other Investment Policy Reviews 

Oman has not undergone any third-party investment policy reviews in the past seven years.  The last WTO Trade Policy Review was in April 2014 (Link to 2014 report: https://www.wto.org/english/tratop_e/tpr_e/tp395_e.htm.)

Business Facilitation

Royal Decree 97/2020 restructured the Ministry of Commerce, Industry, and Investment Promotion (MOCIIP) in August 2020 to assume the functions that the Public Authority for Investment Promotion and Export Development (Ithraa) previously held.  In this role, MOCIIP works toward attracting foreign investors and smoothing the path for business formation and private-sector development.  It works closely with government organizations and businesses in Oman and abroad to provide a comprehensive range of business support.  MOCIIP also offers a comprehensive range of business investor advice geared exclusively to support foreign companies looking to invest in Oman, based on company-specific needs and key target sectors that the country’s diversification program identifies.  Oman’s “Invest in Oman” website (https://investinoman.om) provides information on Oman as a business location.

MOCIIP has an online business registration site, known as “Invest Easy” (business.gov.om), through which businesses can obtain a Commercial Registration certificate from MOCIIP.    MOCIIP can normally complete most registrations in approximately three or four business days, however, some commercial registration and licensing decisions may require the approval of multiple ministries and could take longer.  The “Invest Easy” portal integrates several government agencies into a single portal and serves as a single window for businesses in Oman.

Outward Investment 

The government neither promotes nor provides incentives for outward investment but does not restrict its citizens from investing abroad.

Transparency of the Regulatory System 

The legal, regulatory, and accounting systems in Oman remain less than fully transparent and new policies are often ambiguous.  There are no regulatory processes managed by community organizations or private sector associations.  Ministries or regulatory agencies do not solicit comments on proposed regulations from the general public and do not conduct impact assessments of proposed regulations.  There is no requirement for periodic review of regulations.

Although reforms enacted in 2011 expanded the policy review function of the Majlis Oman, or Council of Oman (Oman’s parliamentary body), its powers remain limited.  Omani community organizations and private sector associations do not play a significant role in the regulatory environment.

The Ministry of Justice and Legal Affairs (MJLA) prepares and revises draft laws, drafts royal decrees, and negotiates international agreements and contracts in which the Omani government is one of the involved parties.  MJLA also gives legal opinions and advice on matters from other ministries and government departments.  Its website contains copies of actual royal decrees and some ministerial decisions, mostly in Arabic, but some have English translations.  It also publishes Omani budget documents within a reasonable period of time.

Oman’s Capital Market Authority (CMA) is in the process of developing an updated legal framework for the capital markets sector.  Toward that end, it issued the Commercial Companies Law (CCL) and related regulations in 2019 to create a more transparent and robust corporate governance system by imposing rules on shareholders and boards of directors.

Oman’s budget is widely and easily accessible to the general public, including online on MJLA’s website and via the Official Gazette.  The government maintains off-budget accounts, including sovereign wealth funds.  Their portfolios are opaque, and transfers to and from these funds are only included in the debt-financing section of the budget as a debt financing mechanism.  Limited information on debt obligations is publicly available.

International Regulatory Considerations

As a member of the Gulf Cooperation Council (GCC), Oman largely follows its regional regulatory system.  In 2013, GCC Member States issued regulations on the GCC Regional Conformity Assessment Scheme and GCC “G” Mark in an effort to “unify conformity marking and facilitate the control process of the common market for the GCC members, and to clarify requirements of manufacturers.”  U.S. and GCC officials continue to discuss concerns about consistency of interpretation and implementation of these regulations across all six GCC member states, as well as the relationship between national conformity assessment requirements and the GCC regulations.

As Oman is a member of the World Trade Organization (WTO), it is committed to update the WTO Committee on any technical barriers to trade.  Oman’s Trade Facilitation Agreement with the WTO entered into force on February 22, 2017.

Legal System and Judicial Independence

Oman’s legal system is code based, but incorporates elements from a variety of legal traditions, most notably modern English and French law, as well as Islamic law in the Ibadhi interpretation.

Oman has a written commercial law and specialized commercial courts.  Oman’s Commercial Court is responsible for resolving business disputes.  The Commercial Court has jurisdiction over most tax and labor cases, and can issue orders of enforcement of decisions.  The Commercial Court can accept cases against governmental bodies, but can only issue, and not enforce, rulings against the government.

Oman’s judicial system is independent and reliable, though the procedures can be long, and many steps are required to initiate a case.  Oman’s multi-level court system has an appeals process.  The Supreme Court is the court of last resort for appeals of regulations and enforcement actions.

Laws and Regulations on Foreign Direct Investment 

The Foreign Capital Investment Law (FCIL) issued by Royal Decree 50/2019 in July 2019 removed the prior capital requirement of investing at least RO 150,000 (about $390,000) under the old FCIL and eliminated the prior 70 percent limit on foreign ownership of an Omani company.  In August 2020, the Ministry of Commerce, Industry, and Investment Promotion (MOCIIP) issued ministerial decision 72/2020 as the executive regulations of the FCIL.  December 8, 2020, MOCIIP also released an official “negative list” by ministerial decision 209/2020 of 70 commercial activities that are prohibited to foreign investors, an increase from 37 the year before.

Competition and Anti-Trust Laws

Oman does not screen investments for competition considerations, and Oman does not have an active competition commission.  The Competition and Anti-Monopoly Law (Royal Decree No. 67/2014), promulgated in December 2014, aims to combat monopolistic practices by prohibiting anti-competitive agreements and price manipulation.  It includes a reporting requirement for any activity, such as mergers and acquisitions, which results in a dominant market position for one firm.  Royal Decree 2/2018 issued in January 2018 established a Competition Protection and Monopoly Prevention Center.

Expropriation and Compensation 

Oman’s interest in increased foreign investment and technology transfer makes expropriation or nationalization unlikely.  In the event that a property is nationalized, Article 11 of the Basic Law of the State issued in January 2021 stipulates that the Government of Oman must provide prompt and fair compensation.  There are no recent examples of expropriation or nationalization.

Dispute Settlement

ICSID Convention and New York Convention

Oman is a party to the International Convention for the Settlement of Investment Disputes between States and Nationals of other States (ICSID) and the United Nations New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

In June 2018, Oman sued U.S. mining company owner Adel Hamadi Al Tamini in Massachusetts federal court for a $5.6 million arbitration award issued against him by ICSID.  In 2011, Al Tamini filed a claim against the Government of Oman alleging that it improperly ended limestone mining leases that violated his rights under the U.S.-Oman Free Trade Agreement (FTA).  The Tamini case was the first ICSID case filed against Oman and the first case filed under the bilateral FTA.  An ICSID tribunal dismissed the claim and rendered an award for Oman, which the government is now seeking to enforce.  No Oman-related cases are pending in the ICSID.

Investor-State Dispute Settlement

Oman has a modern arbitration law that is largely based on the United Nations Commission on International Trade Law (UNCITRAL) model.  Pursuant to its arbitration law, an arbitration agreement must be in writing, and it can be in one or more instruments.  The parties are free to choose any law relating to the arbitration agreement and, in the absence of an explicit law, the courts are given the power to make the determination.  Additionally, there are specific dispute resolution mechanisms through the FTA that can assist Omani and U.S. companies in resolving disputes outside of the Omani legal system.

International Commercial Arbitration and Foreign Courts

Many corporate entities in Oman are increasingly turning to arbitration to resolve their disputes, since arbitration is considered a more efficient and reliable mechanism than court processes. An arbitral award is usually rendered in Oman within 12 months after the aggrieved party states in writing that a dispute has arisen.  In contrast, court processes can often be much lengthier, particularly where technically complex issues are involved.  Cases normally go through three tiers of justice (Primary, Appeal, and Supreme), lengthening the process.

The Omani Arbitration Law (Royal Decree 47/97 as amended) defines the term “arbitration” as a dispute resolution mechanism agreed to by parties of their own volition.  Usually, the parties will state in their initial contract that any dispute will be resolved by arbitration pursuant to, for instance, the Omani Arbitration Law.  The Law mandates that an arbitration agreement should be in writing.  It is also permissible for parties to agree in writing, once a dispute has arisen, to resolve it by arbitration.  In such cases, however, the agreement has to specify the underlying issues that the parties have agreed to resolve by arbitration.

The Omani government recognizes binding international arbitration of investment disputes with foreign investors, though the government has increasingly challenged rulings in favor of foreign companies in payment collection cases. The government has been slow in the payment of some arbitration awards to foreign companies.  Oman’s legal framework provides for the enforcement of international arbitration awards and most foreign companies elect for dispute resolution by arbitration.  Arbitration is generally cheaper, quicker, and easier than settling commercial disputes in the normal court system, where judges often lack expertise on technical commercial issues.

Bankruptcy Regulations 

Oman introduced a new Bankruptcy Law in 2019 which came into effect in July 2020.  The main provisions of the new law involve the concepts of restructuring and preventive compositions.  Other provisions of the new law prescribing expert input and instituting strict timelines into bankruptcy proceedings will be beneficial to both businesses and investors in avoiding liquidation.  The Bankruptcy Law will apply to foreign agencies and branches of foreign companies established in Oman, but exclude entities licensed by the Central Bank of Oman and insurance companies.

According to the World Bank, it takes on average three years to complete foreclosure proceedings in Oman, and the cost of resolving bankruptcy as a percentage of the estate (3.5 percent) is lower in Oman than elsewhere the region.  In 2019, the World Bank ranked Oman 97^th in the world for resolving insolvency, up three slots from the previous year.  Oman ranks higher than many other countries in the region for resolving insolvency.

Capital Markets and Portfolio Investment

There are no restrictions in Oman on the flow of capital and the repatriation of profits.  Foreigners may invest in the Muscat Securities Market so long as they do so through an authorized broker.  Access to Oman’s limited commercial credit and project financing resources is open to Omani firms with foreign participation.  At this time, there is not sufficient liquidity in the market to allow for the entry and exit of sizeable amounts of capital.  According to the 2018 annual report on exchange arrangements and exchange restrictions of the International Monetary Fund, Article VIII practices are reflected in Oman’s exchange system.

The Commercial Companies Law requires the listing of joint stock companies with capital in excess of $5.2 million.  The law also requires companies to existence for two years before their owners can float them for public trading.  Publicly traded firms in Oman are still a relatively rare phenomenon; the majority of businesses are private family enterprises.

Money and Banking System

The banking system is sound and well capitalized with low levels of non-performing loans and generally high profits.  Oman’s banking sector includes eight local banks, nine foreign banks, two Islamic banks, and two specialized banks.  Bank Muscat, the largest domestic bank operating in Oman, has $28.1 billion in assets.  The Central Bank of Oman (CBO) is responsible for maintaining the internal and external value of the national currency.  It is also the single integrated regulator of Oman’s financial services industry.  The CBO issues regulations and guidance to all banks operating within Oman’s borders.  Foreign businesspeople must have a residence visa or an Omani commercial registration to open a local bank account.  There are no restrictions for foreign banks to establish operations in the country as long as they comply with CBO instructions.

Foreign Exchange and Remittances

Foreign Exchange

Oman does not have restrictions or reporting requirements on private capital movements into or out of the country.  The Omani rial (RO) is pegged at a rate of RO 0.3849 to $1, and there is no difficulty in obtaining exchange.  In general, all other currencies are first converted to dollars, then to the desired currency; national currency rates fluctuate, therefore, as the dollar fluctuates.  The government has consistently stated publicly that it is committed to maintaining the current peg.  The government has stated publicly that it will not join a proposed Gulf Cooperation Council (GCC) common currency.  There is no delay in remitting investment returns or limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains returns on intellectual property, or imported inputs.

Remittance Policies

Oman does not restrict the remittance abroad of equity or debt capital, interest, dividends, branch profits, royalties, management and service fees, and personal savings, but it does apply withholding tax to many of these transfers at a rate of 10 percent.  Because Oman’s currency is pegged to the dollar, the Omani government is unable to engage in currency manipulation tactics.  Investors can remit through legal parallel markets utilizing convertible, negotiable instruments.  There are no surrender requirements for profits earned overseas.

The GCC, of which Oman is a member, is a member of the Financial Action Task Force (FATF) and its regional body.  In February 2019, Oman hosted a workshop on combating money laundering and terrorism in cooperation with FATF.  The level of compliance of Oman’s anti-money laundering and counter-terrorist financing regime with the FATF Recommendations is comparatively high for the region, and the legal framework is sound.  However, the government has not yet fully addressed a number of gaps, including completing the certification procedures for anti-money laundering/countering the financing of terrorism (AML/CFT), issuing AML/CFT regulations to the sectors identified in Oman’s CFT law, and designating wire transfer amounts for customer due diligence procedures.  Statistics regarding suspicious transaction reports, investigations, and convictions are not widely available.

Sovereign Wealth Funds

The Oman Investment Authority (OIA) is Oman’s principal Sovereign Wealth Fund.  It replaced the State General Reserve Fund (SGRF) in June 2020 by Royal Decree 61/2020.  SGRF joined the International Forum of Sovereign Wealth Funds in 2015 as a full member and follows the Santiago Principles.  Omani law does not require sovereign wealth funds to publish an annual report or submit their books for an independent audit.  Many of the smaller wealth funds and pension funds actively invest in local projects.

The OIA focuses on two main investment categories:  public markets assets (tradable) that include global equity, fixed income bonds and short-term assets; and private markets assets (non-tradable) which include private investments in real estate, logistics, services, commercial, and industrial projects.

State-owned enterprises (SOEs) are active in many sectors in Oman, including oil and gas extraction, oil and gas services, oil refining, liquefied natural gas processing and export, manufacturing, telecommunications, aviation, infrastructure development, and finance.  The government does not have a standard definition of an SOE, but tends to limit its working definition to companies wholly owned by the government and more frequently refers to companies with partial government ownership as joint ventures.  All SOEs in Oman fall under the Oman Investment Authority.  The government does not publish a complete list of companies in which it owns a stake.

In theory, the government permits private enterprises to compete with public enterprises under the same terms and conditions with access to markets, and other business operations, such as licenses and supplies, except in sectors deemed sensitive by the Omani government such as mining, telecom and information technology.  SOEs purchase raw materials, goods, and services from private domestic and foreign enterprises.  Public enterprises, however, have comparatively better access to credit.  Board membership of SOEs is traditionally composed of various government officials, with a cabinet-level senior official usually serving as chairperson.  Especially since the government reorganization began in August 2020, the government is making efforts to include private-sector officials on SOE boards.

SOEs receive operating budgets, but, like budgets for ministries and other government entities, the budgets are flexible and not subject to hard constraints.  The information that the Omani government published about its 2021 budget did not include allocations to and earnings from most SOEs.  The government restructuring that began in August 2020 is bringing increased oversight to the structure and operations of some SOEs.

Privatization Program

The Omani government has indicated that it hopes to reduce its budget deficits by privatizing or partially privatizing some state-owned enterprises.  Although the plan for privatization is not publicly available, the Omani government has already begun to reorganize some of its holdings for public offerings.

In March 2020, State Grid Corporation of China acquired a 49 percent stake in the Oman Electricity Transmission Company from Nama Holding, a government-owned holding company for five electricity transmission and distribution companies.  The government’s divestment of a portion of its ownership in telecommunications firm Omantel is also an example of a partial privatization.  In this case, the government in 2014 offered 19 percent of Omantel’s ownership as stock on the Muscat Securities Market, but only to Omani investors.  The government today owns a 51 percent share of Omantel, according to the company’s website.

The government allows foreign investors to participate fully in some privatization programs, even in drafting public-private partnership frameworks.  In July 2019, Oman established the Public Authority for Privatization and Partnership (PAPP), which was reportedly examining 38 public-private partnership projects for implementation.  Royal Decree 110/2020 in August 2020 subsequently folded the PAPP and moved its functions to the Ministry of Finance, as part of the government’s broad restructuring and consolidation of the Omani Civil Service.

Oman is stable, and politically motivated violence is rare.  Oman’s first head of state transition since 1970 occurred on January 11, 2020, with the peaceful rise to power of Sultan Haitham bin Tarik, in accordance with Oman’s Basic Law of the State.  Omani law provides for limited freedom of assembly, and the government allows some peaceful demonstrations to occur.  Oman experienced Arab Spring-related demonstrations in 2011.  These were far smaller than in other Arab countries, although demonstrations in the northwestern Omani city of Sohar resulted in some reported deaths and injuries, property destruction, and the blocking of pedestrian and vehicle access to the Port.  In recent years, high youth unemployment has been the Omani public’s most significant social grievance, and the Omani government prioritizes providing employment opportunities for Omani nationals.  On regional security, Oman is committed to securing its border with Yemen, ensuring that Yemen’s instability does not affect Oman, countering illicit trade and terrorist travel, and supporting freedom of navigation through its strategic territorial waters in the Strait of Hormuz.

According to the Oman’s National Centre for Statistics and Information (NCSI) — the only host-country source of foreign direct investment (FDI) data — total FDI in Sultanate through the third quarter of 2020 was RO 15.6 billion, representing growth of 11.7 percent increase over the same period in 2019.  FDI inflow at the end of the third quarter of 2020 stood at RO 1.644 billion ($4.25 billion).  The United Kingdom remains by far the biggest investor in FDI (RO 7.92 billion – $20.5 billion), followed by the United States (RO 1,847.9 billion – $4.8 billion), UAE (1,267.7 billion – $3.3 billion), Kuwait (RO 933.2 million – $2.4 billion), and China (RO 848.9 million – $2.2 billion).

Major foreign investors that have entered the Omani market within the last five years include SV Pittie Textiles (India), Moon Iron & Steel Company (India), Sebacic Oman (India), BP (UK), Sembcorp (Singapore), Daewoo (Korea), LG (Korea), Veolia (France), Huawei (China), SinoHydro (China), and Vale (Brazil).

* Source for Host Country Data: National Centre for Statistics and Information (NCSI). 

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

Pakistan seeks inward investment in order to boost economic growth, particularly in the energy, agribusiness, information and communications technology, and industrial sectors.  Since 1997, Pakistan has established and maintained a largely open investment regime.  Pakistan introduced an Investment Policy in 2013 that further liberalized investment policies in most sectors to attract foreign investment and signed an economic co-operation agreement with China, the China-Pakistan Economic Corridor (CPEC), in April 2015.  CPEC Phase I, which concluded in late 2019, focused primarily on infrastructure and energy production.  CPEC Phase II, which is ongoing, is pivoting away from infrastructure development to mainly focus on promoting Pakistan’s industrial growth by establishing special economic zones throughout the country.  The PRC has also pledged to provide $1 billion in socio-economic initiatives focused on agriculture, health, education, poverty alleviation, and vocational training by 2024.  However, progress on Phase II is significantly delayed due to the COVID pandemic, fiscal constraints, and regulatory issues including the government’s inability so far to pass legislation formalizing the CPEC Authority (a centralized federal body charged with CPEC implementation across the country).  Some opportunities are only open to approved Chinese companies, and CPEC has ensured those projects and their investors receive the authorities’ attention.

To support its Investment Policy, Pakistan also has implemented sectoral policies designed to provide additional incentives to investors in those specific sectors.  The Automotive Policy 2016, Strategic Trade Policy Framework (STPF) 2015-18, Export Enhancement Package 2019, Alternative and Renewable Energy Policy 2019, Merchant Marine Shipping Policy 2019 with 2020 updates, the Electric Vehicle Policy 2020-2025, and the Textile Policy 2021 (still awaiting final approval) are a few examples of sector-specific incentive schemes.  Sector-specific incentives typically include tax breaks, tax refunds, tariff reductions, the provision of dedicated infrastructure, and investor facilitation services.  A new STPF 2020-25 and the Textile Policy 2021 have been approved by the Prime Minister but are still awaiting final Cabinet approvals.

In the absence of the new STPF 2020-2025, incentives introduced through STPF 2015-18 remain in place.  Nonetheless, foreign investors continue to advocate for Pakistan to improve legal protections for foreign investments, protect intellectual property rights, and establish clear and consistent policies for upholding contractual obligations and settlement of tax disputes.

The Foreign Private Investment Promotion and Protection Act (FPIPPA), 1976, and the Furtherance and Protection of Economic Reforms Act, 1992, provide legal protection for foreign investors and investment in Pakistan.  The FPIPPA stipulates that foreign investments will not be subject to higher income taxes than similar investments made by Pakistani citizens.  All sectors and activities are open for foreign investment unless specifically prohibited or restricted for reasons of national security and public safety.  Specified restricted industries include arms and ammunitions; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol.  There are no restrictions or mechanisms that specifically exclude U.S. investors.

Pakistan’s investment promotion agency is the Board of Investment (BOI).  BOI is responsible for attracting investment, facilitating local and foreign investor implementation of projects, and enhancing Pakistan’s international competitiveness.  BOI assists companies and investors who seek to invest in Pakistan and facilitates the implementation and operation of their projects.  BOI is not a one-stop shop for investors, however.

Pakistan prioritizes investment retention through “business dialogues” (virtual or in-person engagements) with existing and potential investors.  BOI plays the leading role in initiating and managing such dialogues.  However, Pakistan does not have an Ombudsman’s office focusing on investment retention.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreigners, except Indian and Israeli citizens/businesses, can establish, own, operate, and dispose of interests in most types of businesses in Pakistan, except those involved in arms and ammunitions; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol.  There are no restrictions or mechanisms that specifically exclude U.S. investors.  There are no laws or regulations authorizing domestic private entities to adopt articles of incorporation discriminating against foreign investment.

Pakistan does not place any limits on foreign ownership or control.  The 2013 Investment Policy eliminated minimum initial capital requirements across sectors so that there is no minimum investment requirement or upper limit on the allowed share of foreign equity, with the exception of investments in the airline, banking, agriculture, and media sectors.  Foreign investors in the services sector may retain 100 percent equity, subject to obtaining permission, a “no objection certificate,” and license from the concerned agency, as well as fulfilling the requirements of the respective sectoral policy.  In the education, health, and infrastructure sectors, 100 percent foreign ownership is allowed, while in the agriculture sector, the threshold is 60 percent, with an exception for corporate agriculture farming, where 100 percent ownership is allowed.  Small-scale mining valued at less than PKR 300 million (roughly $1.9 million) is restricted to Pakistani investors.

Foreign banks may establish locally incorporated subsidiaries and branches, provided they have $5 billion in paid-up capital or belong to one of the regional organizations or associations to which Pakistan is a member (e.g., Economic Cooperation Organization (ECO) or the South Asian Association for Regional Cooperation (SAARC).  Absent these requirements, foreign banks are limited to a 49-percent maximum equity stake in locally incorporated subsidiaries.

There are no restrictions on payments of royalties and technical fees for the manufacturing sector, but there are restrictions on other sectors, including a $100,000 limit on initial franchise investments and a cap on subsequent royalty payments of 5 percent of net sales for five years.  Royalties and technical payments are subject to remittance restrictions listed in Chapter 14, Section 12 of the SBP Foreign Exchange Manual (http://www.sbp.org.pk/fe_manual/index.htm).

Pakistan maintains investment screening mechanisms for inbound foreign investment.  The BOI is the lead organization for such screening.  Pakistan blocks foreign investments where the screening process determines the investment could negatively affect Pakistan’s national security.

Other Investment Policy Reviews

Pakistan has not undergone any third-party investment policy reviews over the past three years.

Business Facilitation

The government utilizes the World Bank’s “Doing Business” criteria to guide its efforts to improve Pakistan’s business climate.  The government has simplified pre-registration and registration facilities and automated land records to simplify property registration, eased requirements for obtaining construction permits and utilities, introduced online/electronic tax payments, and facilitated cross-border trade by expanding electronic submissions and processing of trade documents.  Starting a business in Pakistan normally involves five procedures and takes at least 16.5 days – as compared to an average of 7.1 procedures and 14.5 days for the group of countries comprising the World Bank’s South Asia cohort.  Pakistan ranked 72 out of 190 countries in the Doing Business 2020 report’s “Starting a Business” category.  Pakistan ranked 28 out of 190 for protecting minority investors.  (Note: the 2020 Doing Business Report is the last available report.  End Note.)

The Securities and Exchange Commission of Pakistan (SECP) manages company registration, which is available to both foreign and domestic companies.  Companies first provide a company name and pay the requisite registration fee to the SECP.  They then supply documentation on the proposed business, including information on corporate offices, location of company headquarters, and a copy of the company charter.  Both foreign and domestic companies must apply for national tax numbers with the Federal Board of Revenue (FBR) to facilitate payment of income and sales taxes.  Industrial or commercial establishments with five or more employees must register with Pakistan’s Federal Employees Old-Age Benefits Institution (EOBI) for social security purposes.  Depending on the location, registration with provincial governments may also be required.  The SECP website (www.secp.gov.pk) offers a Virtual One Stop Shop (OSS) where companies can register with the SECP, FBR, and EOBI simultaneously.  The OSS can be used by foreign investors.

Outward Investment

Pakistan does not promote nor incentivize outward investment.  Pakistan does not explicitly restrict domestic investors from investing abroad.  However, cumbersome and time consuming approval processes, involving multiple entities such as the SBP, SECP, and the Ministries of Finance, Economic Affairs, and Foreign Affairs, generally discourage outward investors.  Despite the cumbersome processes, larger Pakistani corporations have made investments in the United States in recent years.

Transparency of the Regulatory System

Pakistan generally lacks transparency and effective policies and laws that foster market-based competition in a non-discriminatory manner.  The Competition Commission of Pakistan has a mandate to ensure market-based competition.  In spite of this, however, the “rules of the game” in Pakistan are opaque and variable, and sometimes applied to benefit domestic businesses.

All businesses in Pakistan are required to adhere to certain regulatory processes managed by the chambers of commerce and industry.  Rules, for example on the requirement for importers or exporters to register with a chamber, are equally applicable to domestic and foreign firms.  To date, Post is not aware of any incidents where such rules have been used to discriminate against foreign investors in general or U.S. investors specifically.

The Pakistani government is responsible for establishing and implementing legal rules and regulations, but sub-national governments have a role as well depending on the sector.  Prior to implementation, non-government actors and private sector associations can provide feedback to the government on regulations and policies, but governmental authorities are not bound to follow their input.  Regulatory authorities are required to conduct in-house post-implementation reviews of regulations in consultation with relevant stakeholders.  However, these assessments are not made publicly available.  Since the 2010 introduction of the 18th amendment to Pakistan’s constitution, which delegated significant authorities to provincial governments, foreign companies must comply with provincial, and sometimes local, laws in addition to federal law.  Foreign businesses complain about the inconsistencies in the application of laws and policies from different regulatory authorities.  There are no rules or regulations in place that discriminate specifically against U.S. firms or investors, however.

The SECP is the main regulatory body for foreign companies operating in Pakistan, but it is not the sole regulator.  Company financial transactions are regulated by the State Bank of Pakistan (SBP), labor by Social Welfare or the Employee Old-Age Benefits Institution (EOBI), and specialized functions in the energy sector are administered by bodies such as the National Electric Power Regulatory Authority (NEPRA), the Oil and Gas Regulatory Authority (OGRA), and Alternate Energy Development Board (AEDB).  Each body has independent management but all must submit draft regulatory or policy changes through the Ministry of Law and Justice before any proposed rules or regulations may be submitted to parliament or, in some cases, the executive branch.

The SECP is authorized to establish accounting standards for companies in Pakistan, however, execution and implementation of those standards is poor.  Pakistan has adopted most, though not all, International Financial Reporting Standards.  Though most of Pakistan’s legal, regulatory, and accounting systems are transparent and consistent with international norms, execution and implementation is inefficient and opaque.

Most draft legislation is made available for public comment but there is no centralized body to collect public responses.  The relevant authorities, usually the ministry under which a law may fall, gathers public comments, if it deems it necessary; otherwise legislation is directly submitted by the government to the legislative branch.  For business and investment laws and regulations, the Ministry of Commerce relies on stakeholder feedback obtained from local chambers and associations – such as the American Business Council (ABC) and Overseas Investors Chamber of Commerce and Industry (OICCI) – rather than publishing regulations online for public review.

There is no centralized online location where key regulatory actions are published.  Different regulators publish their regulations and implementing actions on their respective websites.  However, in most cases, regulatory implementing actions are not published online.

Businesses impacted by non-compliance with government regulations may seek relief from the judiciary, Ombudsman’s offices, and the Parliamentary Public Account Committee.  These forums are designed to ensure the government follows required administrative processes.

Pakistan did not announce any enforcement reforms during the last year.  Pakistan is in the process of fully implementing IPR Customs rules to improve IPR enforcement.  However, delayed legislative amendments in IP laws restricts full and effective implementation of such rules.

If fully implemented, IPR Customs rules will improve IPR enforcement and will boost foreign innovators’ confidence in introducing their innovations in Pakistan.

Enforcement processes are legally reviewable – initially by specialized IP Tribunals, but also through the High and Supreme Courts of Pakistan.

The government publishes limited debt obligations in the budget document in two broad categories: capital receipts and public debt, which are published in the “Explanatory Memorandum on Federal Receipts.”  These documents are available at http://www.finance.gov.pk, http://www.fbr.gov.pk, and http://www.sbp.org.pk/edocata.  The government does not publicly disclose the terms of bilateral debt obligations.

International Regulatory Considerations

Pakistan is a member of the South Asian Association for Regional Cooperation (SAARC), the Central Asia Regional Economic Cooperation (CAREC), and Economic Cooperation Organization (ECO).  However, there is no regional cooperation between Pakistan and other member nations on regulatory development or implementation.

Pakistan’s judicial system incorporates British standards.  As such, most of Pakistan’s regulatory systems use British norms to meet international standards.

Pakistan has been a World Trade Organization (WTO) member since January 1, 1995, and provides most favored nation (MFN) treatment to all member states, except India and Israel.  In October 2015, Pakistan ratified the WTO’s Trade Facilitation Agreement (TFA).  Pakistan is one of 23 WTO countries negotiating the Trade in Services Agreement.  Pakistan notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade, albeit at times with significant delays.

Legal System and Judicial Independence

Most international norms and standards incorporated in Pakistan’s regulatory system, including commercial matters, are influenced by British law.  Laws governing domestic or personal matters are strongly influenced by Islamic Sharia law.  Regulations and enforcement actions may be appealed through the court system.  The Supreme Court is Pakistan’s highest court and has jurisdiction over the provincial courts, referrals from the federal government, and cases involving disputes among provinces or between a province and the federal government.  Decisions by the courts of the superior judiciary (the Supreme Court, the Federal Sharia Court, and five High Courts (Lahore High Court, Sindh High Court, Balochistan High Court, Islamabad High Court, and Peshawar High Court) have national standing.  The lower courts are composed of civil and criminal district courts, as well as various specialized courts, including courts devoted to banking, intellectual property, customs and excise, tax law, environmental law, consumer protection, insurance, and cases of corruption.  Pakistan’s judiciary is influenced by the government and other stakeholders.  The lower judiciary is influenced by the executive branch and seen as lacking competence and fairness.  It currently faces a significant backlog of unresolved cases.

Pakistan’s Contract Act of 1872 is the main law that regulates contracts with Pakistan.  British legal decisions, under some circumstances, are also been cited in court rulings.  While Pakistan’s legal code and economic policy do not discriminate against foreign investments, enforcement of contracts remains problematic due to a weak and inefficient judiciary.

Theoretically, Pakistan’s judicial system operates independently of the executive branch.  However, the reality is different, as the military wields significant influence over the judicial branch.  As a result, there are doubts concerning the competence, fairness, and reliability of Pakistan’s judicial system.  However, fear of contempt of court proceedings inhibit businesses and the public generally from reporting on perceived weaknesses of the judicial process.

Regulations and enforcement actions are appealable.  Specialized tribunals and departmental adjudication authorities are the primary forum for such appeals.  Decisions made by a tribunal or adjudication authority may be appealed to a high court and then to the Supreme Court.

Laws and Regulations on Foreign Direct Investment

Pakistan’s investment and corporate laws permit wholly-owned subsidiaries with 100 percent foreign equity in most sectors of the economy.  In the education, health, and infrastructure sectors, 100 percent foreign ownership is allowed.  In the agricultural sector, the threshold is 60 percent, with an exception for corporate agriculture farming, where 100 percent ownership is allowed.

A majority of foreign companies operating in Pakistan are “private limited companies,” which are incorporated with a minimum of two shareholders and two directors registered with the SECP.  While there are no regulatory requirements on the residency status of company directors, the chief executive must reside in Pakistan to conduct day-to-day operations.  If the chief executive is not a Pakistani national, she or he is required to obtain a multiple-entry work visa.  Corporations operating in Pakistan are statutorily required to retain full-time audit services and legal representation.  Corporations must also register any changes to the name, address, directors, shareholders, CEO, auditors/lawyers, and other pertinent details to the SECP within 15 days of the change.  To address long process delays, in 2013, the SECP introduced the issuance of a provisional “Certificate of Incorporation” prior to the final issuance of a “No Objection Certificate” (NOC).  The certificate of incorporation includes a provision noting that company shares will be transferred to another shareholder if the foreign shareholder(s) and/or director(s) fails to obtain a NOC.

No new law, regulation, or judicial decision was announced or went into effect during the last year which would be significant to foreign investors.

There is no “single window” website for investment in Pakistan which provides direct access to all relevant laws, rules and reporting requirements for investors.

Competition and Antitrust Laws

Established in 2007, the Competition Commission of Pakistan (CCP) is designed to ensure private and public sector organizations are not involved in any anti-competitive or monopolistic practices.  Complaints regarding anti-competitive practices can be lodged with CCP, which conducts the investigation and is legally empowered to impose penalties; complaints are reviewable by the CCP appellate tribunal in Islamabad and the Supreme Court of Pakistan.  The CCP appellate tribunal is required to issue decisions on any anti-competitive practice within six months from the date in which it becomes aware of the practice.

The CCP is currently investigating a cement sector cartel.  While the CCP has found that cement manufacturers in Pakistan established a cartel and kept prices at an artificially high level raising excess revenues worth $250 million, a review is not yet final.  The CCP also conducted a recent inquiry into sugar prices and submitted a report to the prime minister’s office.  That report has not yet been made public and no action has been taken on the report’s findings.  The CCP generally adheres to transparent norms and procedures.

Expropriation and Compensation

Two Acts, the Protection of Economic Reforms Act 1992 and the Foreign Private Investment Promotion and Protection Act 1976, protect foreign investment in Pakistan from expropriation, while the 2013 Investment Policy reinforced the government’s commitment to protect foreign investor interests.  Pakistan does not have a strong history of expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Pakistan is a member of the International Center for the Settlement of Investment Disputes (ICSID).  Pakistan ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) in 2011 under its “Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act.”

Investor-State Dispute Settlement

Pakistan has Bilateral Investment Treaties (BIT) with 32 countries.  The BITs include binding international arbitration of investment disputes.  Since foreign investors generally distrust Pakistan’s domestic courts to enforce commercial contracts, they often include clauses requiring binding international arbitration of investment disputes in contracts with the Government of Pakistan.

Pakistan does not have a BIT or FTA with the United States.

A U.S. industrial services company has an ongoing issue regarding the re-possession of its property – three gas compressors – which remain at Pakistan’s Bhikhi power grid station and have an estimated worth of $2 million.  The company entered into a three-year lease agreement with Pakistan Power Resources (PPR) LLC whereby the three compressors were installed at the Bhikki Rental Power Plant on November 1, 2007.  PPR had entered into a contract with Pakistan’s Water and Power Development Authority (WAPDA) to supply 136MW of electricity under a Government of Pakistan rental power project scheme.  The compressors, with WAPDA identified as the importing entity, were brought in under a “temporary import” scheme of Pakistan’s Federal Bureau of Revenue (FBR), which allowed for lower assessed import duties on the compressors with the understanding that the compressors would be re-exported within a pre-defined time period.  To date, WAPDA has not released the compressors due to outstanding penalties/duties assessed by the FBR for the company’s alleged failure to comply with “temporary import” rules.  The FBR has not granted a requested waiver from the parties, continuing to bar their export.

A California-based information technology company responded to the Capital Development Authority (CDA)’s Expression of Interest for the construction, development, and management of an information technology university in Islamabad in 2008.  According to the Expression of Interest, the CDA would provide the land on a 99-year lease to the highest bidder, on agreed yearly payments.  The company was selected, entered into a lease agreement for approximately 200,000 square yards, and made regular payments to CDA.  Upon taking possession of the land, the company determined that the land area was less than the area agreed in the lease contract.  CDA was unsuccessful in clearing access to the leased land due to unlawful encroachment by local dwellers.  Since 2015, the company has attempted to have CDA either clear the land or reimburse the company its lease payments with interest.

A large U.S. insurance company has sought U.S. support to repatriate approximately $4 million (approximate value based on the dollar-rupee exchange rate) from the sale of its shares in its former Pakistani operations.  The company purchased the Pakistani operations in 2010, which included business entities in the U.S. and Pakistan, and sold its Pakistani interest (worth 81 percent of the Pakistani business) in two tranches in 2014 and 2015.  The company has requested the State Bank of Pakistan (SBP) and Ministry of Finance permit the repatriation of the proceeds.  In the past, the Finance Ministry has held that proceeds from the sale of its Pakistani interests could not be repatriated because they were earned prior to the liberalization of the foreign exchange regime in 1997.

Local courts do not recognize and enforce foreign arbitral awards issued against the government.  Any award involving domestic enforcement component needs an additional affirmative ruling from a local court.

There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Arbitration and special judicial tribunals do exist as alternative dispute resolution (ADR) mechanisms for settling disputes between two private parties.  Pakistan’s Arbitration Act of 1940 provides guidance for arbitration in commercial disputes, but cases typically take years to resolve.  To mitigate such risks, most foreign investors include contract provisions that provide for international arbitration.

Pakistan’s judicial system also allows for specialized tribunals as a means of alternative dispute resolution.  Special tribunals are able to address taxation, banking, labor, and IPR enforcement disputes.  However, foreign investors lament the lack of clear, transparent, and timely investment dispute mechanisms.  Protracted arbitration cases are a major concern.  Pakistani courts have not upheld some international arbitration awards.

Pakistan’s local courts do not recognize and enforce foreign arbitral awards.  Any such award, involving local enforcement, requires direction from a local court.  The Reko Diq mining dispute is an example where an international arbitral award against Pakistan was not enforced by local Pakistani courts and remains unresolved.

Generally, domestic courts favor SOEs for their investment disputes against foreign entities on the basis of “public interest.”  However, there has not been a relevant case in the past ten years.  In the 2006 Pakistan Steel Case, the Supreme Court struck down the contract between the Privatization Commission of Pakistan and the foreign investor who won the bid.  The Supreme Court decided the bidder should have furnished a guarantee that it would  make future investments to raise production capacity.  Despite the fact that this was not a condition specified in the bid documents, the Supreme Court invalidated the contract.  Since then, the government has not been able to find a serious investor/buyer for Pakistan Steel.

Bankruptcy Regulations

Pakistan does not have a single, comprehensive bankruptcy law.  Foreclosures are governed under the Companies Act 2017 and administered by the SECP, while the Banking Companies Ordinance of 1962 governs liquidations of banks and financial institutions.  Court-appointed liquidators auction bankrupt companies’ property and organize the actual bankruptcy process, which can take years to complete.  On average, Pakistan requires 2.6 years to resolve insolvency issues and has a recovery rate of 42.8 percent.  Pakistan was ranked 58 of 190 for ease of “resolving insolvency” rankings in the World Bank’s Doing Business 2020 report.

The Companies Act 2017 regulates mergers and acquisitions.  Mergers are allowed between international companies, as well as between international and local companies.  In 2012, the government enacted legislation for friendly and hostile takeovers.  The law requires companies to disclose any concentration of share ownership over 25 percent.

Pakistan has no dedicated credit monitoring authority.  However, SBP has authority to monitor and investigate the quality of the credit commercial banks extend.

Capital Markets and Portfolio Investment

Pakistan’s three stock exchanges (Lahore, Islamabad, and Karachi) merged to form the Pakistan Stock Exchange (PSX) in January 2016.  As a member of the Federation of Euro-Asian Stock Exchanges and the South Asian Federation of Exchanges, PSX is also an affiliated member of the World Federation of Exchanges and the International Organization of Securities Commissions.  Per the Foreign Exchange Regulations, foreign investors can invest in shares and securities listed on the PSX and can repatriate profits, dividends, or disinvestment proceeds.  The investor must open a Special Convertible Rupee Account with any bank in Pakistan in order to make portfolio investments.  In 2017, the government modified the capital gains tax and imposed a 15 percent tax on stocks held for less than 12 months, 12.5 percent on stocks held for more than 12 but less than 24 months, and 7.5 percent on stocks held for more than 24 months. The 2012 Capital Gains Tax Ordinance appointed the National Clearing Company of Pakistan Limited to compute, determine, collect, and deposit the capital gains tax.

The SBP and SECP provide regulatory oversight of financial and capital markets for domestic and foreign investors.  Interest rates depend on the reverse repo rate (also called the policy rate).

Pakistan has adopted and adheres to international accounting and reporting standards – including IMF Article VIII, with comprehensive disclosure requirements for companies and financial sector entities.

Foreign-controlled manufacturing, semi-manufacturing (i.e. goods that require additional processing before marketing), and non-manufacturing concerns are allowed to borrow from the domestic banking system without regulated limits.  Banks are required to ensure that total exposure to any domestic or foreign entity should not exceed 25 percent of a bank’s equity.  Foreign-controlled (minimum 51 percent equity stake) semi-manufacturing concerns (i.e., those producing goods that require additional processing for consumer marketing) are permitted to borrow up to 75 percent of paid-up capital, including reserves.  For non-manufacturing concerns, local borrowing caps are set at 50 percent of paid-up capital.  While there are no restrictions on private sector access to credit instruments, few alternative instruments are available beyond commercial bank lending.  Pakistan’s domestic corporate bond, commercial paper and derivative markets remain in the early stages of development.

Money and Banking System

The State Bank of Pakistan (SBP) is the central bank of Pakistan.

According to the most recent statistics published by the SBP (2021), only 24 percent of the adult population uses formal banking channels to conduct financial transactions while 25 percent are informally served by the banking sector; women are financially excluded at higher rates than men.  The remaining 51 percent of the adult population do not utilize formal financial services.

Pakistan’s financial sector has been described by international banks and lenders as performing well in recent years.  According to the latest review of the banking sector conducted by SBP in July 2020, improving asset quality, stable liquidity, robust solvency, and slow pick-up in private sector advances were noted.  The asset base of the banking sector expanded by 7.8 percent during 2020 due to a surge in banks’ investments, which increased by 22.8 percent (or PKR 2 trillion).  The five largest banks, one of which is state-owned, control 50.4 percent of all banking sector assets.

SBP conducted the 6th wave of the Systemic Risk Survey in August-2020.  The survey results indicated respondents perceived key risks for the financial system to be mostly exogenous and global in nature.  Importantly, the policy measures rolled out by SBP to mitigate the effects of COVID-19 have been very well received by the stakeholders.

The risk profile of the banking sector remained satisfactory and moderation in profitability and asset quality improved as non-performing loans as a percentage of total loans (infection ratio) was recorded at 9.7 percent at the end of FY 2020 (June 30, 2020).  In 2020, total assets of the banking industry were estimated at $151.9 billion and net non-performing bank loans totaled approximately $1 billion– 1.9 percent of net total loans.

The penetration of foreign banks in Pakistan is low, making a small contribution to the local banking industry and the overall economy.  According to a study conducted by the World Bank Group in 2018, (the latest data available) the share of foreign bank assets to GDP stood at 3.5 percent while private credit by deposit to GDP stood at 15.4 percent.  Foreign banks operating in Pakistan include Citibank, Standard Chartered Bank, Deutsche Bank, Samba Bank, Industrial and Commercial Bank of China, Bank of Tokyo, and the Bank of China.  International banks are primarily involved in two types of international activities: cross-border flows, and foreign participation in domestic banking systems through brick-and-mortar operations.  SBP requires foreign banks to hold at minimum $300 million in capital reserves at their Pakistani flagship location, and maintain at least an 8 percent capital adequacy ratio.  In addition, foreign banks are required to maintain the following minimum capital requirements, which vary based on the number of branches they are operating:

• 1 to 5 branches: $28 million in assigned capital;
• 6 to 50 branches: $56 million in assigned capital;
• Over 50 branches: $94 million in assigned capital.

Foreigners require proof of residency – a work visa, company sponsorship letter, and valid passport – to establish a bank account in Pakistan.  There are no other restrictions to prevent foreigners from opening and operating a bank account.

Foreign Exchange and Remittances

Foreign Exchange

As a prior action of its July 2019 IMF program, Pakistan agreed to adopt a flexible market-determined exchange rate.  The SBP regulates the exchange rate and monitors foreign exchange transactions in the open market, with interventions limited to safeguarding financial stability and preventing disorderly market conditions.  However, other government entities can influence SBP decisions through their membership on the SBP’s board; the finance secretary and the Board of Investment chair currently sit on the board.

Banks are required to report and justify outflows of foreign currency.  Travelers leaving or entering Pakistan are allowed to physically carry a maximum of $10,000 in cash.  While cross-border payments of interest, profits, dividends, and royalties are allowed without submitting prior notification, banks are required to report loan information so SBP can verify remittances against repayment schedules.  Although no formal policy bars profit repatriation, U.S. companies have faced delays in profit repatriation due to unclear policies and coordination between the SBP, the Ministry of Finance and other government entities.  Mission Pakistan has provided advocacy for U.S. companies which have struggled to repatriate their profits.  Exchange companies are permitted to buy and sell foreign currency for individuals, banks, and other exchange companies, and can also sell foreign currency to incorporated companies to facilitate the remittance of royalty, franchise, and technical fees.

There is no clear policy on convertibility of funds associated with investment in other global currencies.  The SBP opts for an ad-hoc approach on a case-by-case basis.

Remittance Policies

The 2001 Income Tax Ordinance of Pakistan exempts taxes on any amount of foreign currency remitted from outside Pakistan through normal banking channels.  Remittance of full capital, profits, and dividends over $5 million are permitted while dividends are tax-exempt.  No limits exist for dividends, remittance of profits, debt service, capital, capital gains, returns on intellectual property, or payment for imported equipment in Pakistani law.  However, large transactions that have the potential to influence Pakistan’s foreign exchange reserves require approval from the government’s Economic Coordination Committee.  Similarly, banks are required to account for outflows of foreign currency.  Investor remittances must be registered with the SBP within 30 days of execution and can only be made against a valid contract or agreement.

In September 2020, Prime Minister Imran Khan launched the Roshan Digital Account (RDA) project aimed at providing digital banking facilities to overseas Pakistanis.  Customers can use  both PKR and USD for transactions and the accounts receive special tax treatment.

Sovereign Wealth Funds

Pakistan does not have its own sovereign wealth fund (SWF) and no specific exemptions for foreign SWFs exist in Pakistan’s tax law.  Foreign SWFs are taxed like any other non-resident person unless specific concessions have been granted under an applicable tax treaty to which Pakistan is a signatory.

Pakistan has 197 state-owned enterprises (SOEs) in the power, oil and gas, banking and finance, insurance, and transportation sectors.  They provide stable employment and other benefits for more than 420,000 workers, but a number require annual government subsidies to cover their losses.

Three of the country’s largest SOEs include:  Pakistan Railways (PR), Pakistan International Airlines (PIA), and Pakistan Steel Mills (PSM).  According to the IMF, the total debt of SOEs now amounts to 2.3 percent of GDP – just over $7 billion in 2019.  Note: IMF and WB data for 2020 regarding SOEs is not yet available, however, according to SBP provisional data from December 2020, the total debt of Pakistani SOEs is $14.62 billion.  End Note.  The IMF required audits of PIA and PSM by December 2019 as part of Pakistan’s IMF Extended Fund Facility.  PR is the only provider of rail services in Pakistan and the largest public sector employer with approximately 90,000 employees.  PR has received commitments for $8.2 billion in CPEC loans and grants to modernize its rail lines.  PR relies on monthly government subsidies of approximately $2.8 million to cover its ongoing obligations.  In 2019, government payments to PR totaled approximately $248 million.  The government provided a $37.5 million bailout package to PR in 2020.  In 2019, the Government of Pakistan extended bailout packages worth $89 million to PIA.  Established to avoid importing foreign steel, PSM has accumulated losses of approximately $3.77 billion per annum.  The government has provided $562 million to PSM in bailout packages since 2008.  The company loses $5 million a week, and has not produced steel since June 2015, when the national gas company shut off supplies to PSM facilities due to its greater than $340 million in outstanding unpaid utility bills.

SOEs competing in the domestic market receive non-market based advantages from the host government.  Two examples include PIA and PSM, which operate at a loss but continue to receive financial bailout packages from the government.  Post is not aware of any negative impact to U.S firms in this regard.

The Securities and Exchange Commission of Pakistan (SECP) introduced corporate social responsibility (CSR) voluntary guidelines in 2013.  Adherence to the OECD guidelines is not known.

Privatization Program 

Terms to purchase public shares of SOEs and financial institutions are the same for both foreign and local investors.  The government on March 7, 2019 announced plans to carry out a privatization program but postponed plans because of significant political resistance.  Even though the government is still publicly committed to privatizing its national airline (PIA), the process has been stalled since early 2016 when three labor union members were killed during a violent protest in response to the government’s decision to convert PIA into a limited company, a decision which would have allowed shares to be transferred to a non-government entity and pave the way for privatization.  A bill passed by the legislature requires that the government retain 51% equity in the airline in the event it is privatized, reducing the attractiveness of the company to potential investors.

The Privatization Commission claims the privatization process to be transparent, easy to understand, and non-discriminatory.  The privatization process is a 17-step process available on the Commission’s website under this link http://privatisation.gov.pk/?page_id=88.

The following links provide details of the Government of Pakistan’s privatized transactions over the past 18 years, since 1991:  http://privatisation.gov.pk/?page_id=125

Despite improvements to the security situation in recent years, the presence of foreign and domestic terrorist groups within Pakistan continues to pose some threat to U.S. interests and citizens.  Terrorist groups commit occasional attacks in Pakistan, though the number of such attacks has declined steadily over the last decade.  Terrorists have in the past targeted transportation hubs, markets, shopping malls, military installations, airports, universities, tourist locations, schools, hospitals, places of worship, and government facilities.  Many multinational companies operating in Pakistan employ private security and risk management firms to mitigate the significant threats to their business operations.  Baloch militant groups continue to target the Pakistani military as well as Chinese and CPEC installations in Balochistan, where Gwadar port is being developed under CPEC.  There are greater security resources and infrastructure in the major cities, particularly Islamabad, and security forces in these areas may be more readily able to respond to an emergency compared to other areas of the country.

The BOI, in collaboration with Provincial Investment Promotion Agencies, can coordinate airport-to-airport security and secure lodging for foreign investors.  To inquire about this service, investors can contact the BOI for additional information – https://www.invest.gov.pk/

Abductions/kidnappings of foreigners for ransom remains a concern.

While security challenges exist in Pakistan, the country has not grown increasingly politicized or insecure in the past year.

Policies Towards Foreign Direct Investment

Panama depends heavily on foreign investment and has worked to make the investment process attractive and simple.  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.

Prior to the pandemic, Panama had the highest level of Foreign Direct investment (FDI) in Central America.  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.  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.  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.

Panama’s Attraction of Investment and Promotion of Exports (PROPANAMÁ) program, which operates under the auspices of the Ministry of Foreign Affairs (MFA), 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.  The Government of Panama (GoP) proposed a bill in February 2021 to make PROPANAMÁ an independent agency with its own budget (http://propanama.mire.gob.pa/sobre-propanama).

In 2020, the United States ran a $5.1 billion trade surplus in goods with Panama.  Both countries have signed a Trade Promotion Agreement (TPA) that entered into force in October 2012.  The U.S.-Panama 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.

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.  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. In addition, Panama is a full participant in the WTO Information Technology Agreement.

Panama passed a Private Public Partnership (PPP) law in 2019 and published regulations for the program in 2020, 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 2021 budget included funding to implement PPP projects.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Panamanian government imposes some limitations on foreign ownership in the retail 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, more than 200 professions 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 ride share platforms must use drivers who possess commercial licenses, which are available only to Panamanians.

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.

Other Investment Policy Reviews

Panama has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization in the past three years. Panama does not have a formal investment screening mechanism, but the government monitors large foreign investments, especially in the energy sector.

Business Facilitation

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.

The process for online business registration is clear and available to foreign companies. Panama is ranked 51 out of 190 countries for ease of starting a business and 88 out of 190 for protecting minority investors, according to the 2019 World Bank’s Doing Business Report: https://www.doingbusiness.org/en/data/exploretopics/starting-a-business#close

Other agencies where companies typically register are:

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

Outward Investment

Panama does not promote or incentivize outward investment, but neither does it restrict domestic investors from investing abroad.

Transparency of the Regulatory System

In 2012, Panama modified its securities law to regulate brokers, fund managers, and matters related to the securities industry. 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).

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. 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 similar to that of the banking regulator. Post is not aware of any informal regulatory processes managed by nongovernmental 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. Regulatory bodies can impose sanctions and fines which are made public and can be appealed.

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 is published on the Ministry of Economy and Finance’s website under the directorate of public finance, but it is not consistently updated: https://fpublico.mef.gob.pa/en.

International Regulatory Considerations

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.

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, President Cortizo signed a new bill that eliminated AUPSA and replaced it with the Panamanian Food Agency (APA). 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 four years it has ignored comments on its regulations offered by other WTO members, including but not limited to the United States.

Legal System and Judicial Independence

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 137 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. 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.

Laws and Regulations on Foreign Direct Investment

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/marco-legal-direccion-general-de-servicios-al-inversionista

Competition and Antitrust Laws

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.

Expropriation and Compensation

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.

Dispute Settlement

ICSID Convention and New York Convention

Panama is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards).

Investor-State Dispute Settlement

Panama is a signatory to several agreements and Bilateral Investment Treaties (BITs) in which binding international arbitration of investment disputes is recognized. Panama has a total of 11 Free Trade Agreements (FTA), including with Singapore, Peru, Central America, Mexico, South Korea, and Israel, as well as the Trade Promotion Agreement (TPA) with the United States. Panama also has more than 20 BITs with different countries around the world, such as Germany, Italy, the Netherlands, Qatar, Sweden, Switzerland, and the United Kingdom, among others. Panama also has a BIT with the United States. There have been four claims by U.S. investors under these agreements under the ICSID.

Resolving commercial and investment disputes in Panama can be a lengthy and complex process. Despite protections built into the U.S.-Panamanian trade agreement, investors have struggled to resolve investment issues in court and have often reverted to arbitration. There are frequent claims of bias and favoritism in the judicial system and complaints about inadequate titling, inconsistent regulations, and a lack of trained officials outside the capital.

There have been allegations that politically connected businesses have received preferential treatment in court decisions and that judges have “slow-rolled” dockets for years without taking action. Panamanian law firms often suggest writing binding arbitration clauses into all commercial contracts. Local courts recognize and enforce foreign arbitration awards issued against the government. Post is not aware of any extrajudicial actions against foreign investors.

International Commercial Arbitration and Foreign Courts

The Panamanian government accepts binding international arbitration of disputes with foreign investors. Private entities are increasingly reaching out for Alternative Dispute Resolution (ADR) in Panama, primarily due to a lack of confidence in the national judicial system and the attractiveness of a quick turnaround for the settlement of disputes. Two organizations handle most arbitration cases in Panama: the Chamber of Commerce of Panama and the International Chamber of Commerce, via their affiliations with the Panamanian Center for Conflict Resolution and Arbitration (Centro de Conciliación y Arbitraje de Panamá (CeCAP)).

Panama is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as well as to the similar 1975 Panama OAS Convention. Panama became a member of the International Center for the Settlement of Investment Disputes (ICSID) in 1996. Panama adopted the UNCITRAL model arbitration law as amended in 2006. Law 131 of 2013 regulates national and international commercial arbitrations in Panama.

Bankruptcy Regulations

The World Bank 2020 Doing Business Indicator currently ranks 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. The Panamanian Government has proposed a bill that would significantly improve bankruptcy proceedings. As of the writing of this report the bill was awaiting the President’s signature.

Capital Markets and Portfolio Investment

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.

Money and Banking System

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. In early 2021, Fitch downgraded four private banks and one state-owned bank, based primarily on concerns about Panama’s pandemic-related weakening of public finances. As of this writing, three banks have been downgraded to non-investment grade. Approximately 4.7 percent of total banking sector assets are estimated to be non-performing. The four largest banks have total assets of $54.5 billion, which represents 47.07 percent of the National Banking System.

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.

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 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. At its plenary in February 2021, FATF left Panama on the grey list and noted its progress so far, but also pointed to Action Plan items that still need to be addressed.

Panama is only beginning to accurately track criminal prosecutions and convictions related to money laundering and tax evasion. 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. However, Panama has made progress in assessing high-risk sectors, improving inter-ministerial cooperation, and passing (though not yet implementing) a law on beneficial ownership. Additionally, the GoP and the United States recently signed an MOU to provide training to combat money laundering and corruption, through judicial investigations, prosecutions, and convictions.

Foreign Exchange and Remittances

Foreign Exchange

Panama’s official currency is the U.S. Dollar.

Remittance Policies

Panama has customer due diligence, bulk cash, and suspicious transaction reporting requirements for money service providers (MSB), including 18 remittance companies. Post is not aware of any time limits or waiting periods for remittances. In 2017, the Bank Superintendent assumed oversight of AML/CFT compliance for MSBs. The Ministry of Commerce and Industry (MICI) grants operating licenses for remittance companies under Law 48 (2003). There have not been any changes to the remittance policies in 2020.

Sovereign Wealth Funds

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 2020 the fund had $1.38 billion in equity, compared to $1.39 billion at the end of 2019, with less than 3 percent invested domestically. Panama withdrew $105 million from the FAP in 2020 for pandemic relief.  The fund had a gross income of $96 million in 2020.

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/#.

Privatization Program

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 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 expensive 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.

Strife between rival gangs and turf battles in the narcotraffic trade led to a rising homicide rate through the first seven months of 2020, although early indications suggest the wave of gang homicides is receding. The 2020 homicide rate of 11.62 per 100,000 people is still among the lowest in Central America. Crimes other than homicides and cattle rustling were significantly lower in 2020, most likely due to pandemic-related movement restrictions and increased police presence to enforce the restrictions.

* Source for Host Country Data: https://www.contraloria.gob.pa/assets/informe-del-contralor-2019.pdf
https://www.inec.gob.pa/archivos/P053342420201202152627Cuadro%2001.pdf

Panama reports its GDP numbers as compared to a benchmark of $21.296 million from 2007. The 2019 figures from the table are measured from this benchmark and correspond to a 3 percent increase from 2018.

Table 3: Sources and Destination of FDI

Outward Direct Investment data is not available. No countries designated as tax havens are sources of inward FDI.

Table 4: Sources of Portfolio Investment

The data is from June 2020.

Policies towards Foreign Direct Investment

The PNG Government remains focused on fostering an enabling environment for businesses to grow and attracting foreign direct investment. PNG aims to increase Foreign Direct Investment (FDI) in mining and the petroleum/gas sector from USD 40.0 million in 2016 to USD 100.0 million by 2022. FDI stock reached USD 4.2 billion in 2016. The mining, oil, and gas sectors attract most of the FDI. There is a target to increase stock to USD 10 billion by 2022. The government also aims to increase FDI in the renewable sector.

The goal of the 2017-2032 PNG National Trade Policy (NTP) ( http://www.pngeutra2.org.pg/wp-content/uploads/2017/08/PNG-National-Trade-Policy-2017-2032.pdf ) is to maximize trade and investment by increasing exports, reducing imports on substitute goods, and increasing FDI that generates wealth and contributes to growing the economy. The NTP envisions a future PNG with “an internationally competitive export-driven economy that is built on and aided by an expanding and efficient domestic market.”

The policy lays out numerous legal, regulatory, and administrative measures to be adopted by the Government of PNG in furtherance of these objectives. It also sets very ambitious economic targets, including the creation of over 100,000 new jobs, USD 10 billion in foreign investment, increased foreign exchange reserves, reduced government debt to GDP ratio, and a more diversified economy in the next five years.

Limits on Foreign Control and Right to Private Ownership and Establishment

PNG does not have any specific policy or law that promotes discrimination against foreign investors. However, the Foreign Investment Regulatory Authority Bill 2018 (FIRA Bill) prompted serious concern from businesses that the bill would impose restraints on foreign investment in the country, particularly by reserving investments below 10 million Kina for Papua New Guineans and by setting an extensive reserve activity list. In response to these concerns, the government maintains that the bill is more conducive to investments and growth of SMEs but suspended the bill for further review and wider consultation.

Soon after taking office in May 2019, the State Negotiation Team (SNT), made up of heads of various state-owned enterprises and government agencies secured additional concessions on the Papua Gas Agreement negotiated between the O’Neill Government and French multinational TotalEnergies. SNT ended negotiations, though, without an agreement with ExxonMobil PNG over investment returns for P’nyang, a major gas resource project. In April, acting at the behest of the Mining Advisory Council, the Government ended talks with Canadian firm Barrick Gold on renewing its lease on a major gold mine, pointing to environmental problems and the displacement of local residents. Barrick Gold expressed concern that the Government of Papua New Guinea’s position amounted to nationalization.

Given the important role that these resource sectors play, cabinet has set up strategic teams to lead dialogue and negotiations with relevant stakeholders. For gas resources, the State is represented by the SNT, while in mining, the Mining Advisory Committee, an independent committee established under the Mining Act, deliberates on the application process.

In addition, the government of PNG is an active partner in hosting regular resource sector forums that attract large numbers of international industry experts and investors. The government co-hosts the annual Petroleum and Energy Summit in Port Moresby and supports the bi-annual PNG Mining and Petroleum Conference.

Foreign investment in Papua New Guinea is facilitated, regulated, and monitored by the Investment Promotion Act. Section 37 of the Act guarantees that the property of a foreign investor shall not be nationalized or expropriated except in accordance with law, for a public purpose defined by law and in payment of compensation as defined by law. Foreigners are not allowed to own land in PNG. Most foreign businesses use long-term leases for land instead of direct purchases. There are no other specific requirements. PNG recently changed its citizenship laws to allow dual citizenship which had previously been a limiting factor for Papua New Guineans returning from overseas that naturalized elsewhere. Additionally, it allows long-term residents to naturalize as PNG citizens with full legal rights and responsibilities. PNG does not have any specific policy or law that promotes discrimination against foreign investors.

Although the PNG government does not have a minimum investment requirement, the Investment Promotion Authority (IPA) may, however, pursuant to Section 28(7) of the Investment Promotion Act, require a potential investor to deposit the prescribed amount prior to IPA approval. The purpose of the screening mechanism is to assess the net economic benefit and alignment with national interest. The possible outcomes of a review are prohibition, divestiture, and imposition of additional requirements. The IPA and other regulatory bodies in their particular sectors make the decision on the outcome. Appeal processes differ among the sectors. For IPA-related matters, a company must submit its appeal to the Ministry of Commerce and Industry. Appeals may be lodged in response to any decision made by the IPA, including rejection of an application or the cancellation of a registration.

The Bank of Papua New Guinea, PNG’s Central Bank, approves all foreign investment proposals. Such proposals include the issue of equity capital to a non-resident, the borrowing of funds from a non-resident investor or financial intermediary, and the supply of goods and services on extended terms by a non-resident. In its review, the Bank is mostly concerned that the terms of the investment funds are reasonable in the context of prevailing commercial conditions and that full subscription of loan funds are promptly brought to Papua New Guinea. A debt-to-equity ratio of five-to-one is generally imposed with respect to overseas borrowing and a ratio of three-to-one is generally imposed on local borrowing.

Other Investment Policy Reviews

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

Business Facilitation

The IPA, through the Companies Office, is responsible for the administration of Papua New Guinea’s key business laws such as the Companies Act, Business Names Act, Business Groups Incorporation Act, and the Associations Incorporation Act.

The services provided by the Authority include: Business, registration, regulation, and certification (under the Business Registration and Certification or Office of the Registrar of Companies), Investor Servicing and Export Promotion (under the Investor Services and Promotion Division), Protection of Intellectual Property Rights (under the Intellectual Property Office of PNG), and regulating capital Markets (under the Securities Commission of PNG).

Service information is available at http://www.ipa.gov.pg/business-registration-regulation-and-certification.

The IPA is the lead agency for PNG’s business facilitation efforts. It can be reached online at http://www.ipa.gov.pg/. The new “Do It Online” section allows both overseas and domestic business registration. Previously, the processing times were substantial, but the current processing time for IPA is seven days. A foreign company must first register under the Companies Act of 1997. Foreign companies have two options for registration in PNG: to incorporate a new company in PNG or to register an overseas company under the Companies Act of 1997. In practice, most foreign companies incorporate a new PNG subsidiary when entering the PNG market. Once incorporated and registered with the IPA, a newly incorporated PNG company or overseas company should also register with the Internal Revenue Commission for tax and employment purposes. Typically, this process takes nine days.

Outward Investment

Through the IPA, the government has a range of direct and indirect taxation-based incentives for large and small proposals. There are international treaties, agreements and pacts which give Papua New Guinea’s manufactured goods preferential access to various export markets, including duty free and reduced tariff entry to some of the largest markets in the world. These include access to the European Union (EU) under the Cotonou Agreement, and the United States Generalized System of Preferences Program (GSP). The GSP Program is a U.S. government arrangement that provides enhanced access to the U.S. markets, and designed to help countries grow their economies through trade. It provides duty-free treatment for almost 3,500 products from PNG and its neighbors.

The Multilateral Investment Guarantee Agency’s (MIGA) principal responsibility is promotion of investment for economic development in member countries through: * guarantees to foreign investors against losses caused by non-commercial risks; and

* guarantees to foreign investors against losses caused by non-commercial risks; and * advisory and consultative services to member countries to assist them in creating a responsive investment climate and information base to guide and encourage flow of capital.

* advisory and consultative services to member countries to assist them in creating a responsive investment climate and information base to guide and encourage flow of capital.

There are no explicit legal restrictions on outward investment. The most likely barrier for this type of investment would be securing sufficient access to foreign currency. There have been no recent large-scale outward investments originating from PNG.

Transparency of the Regulatory System

The Independent Consumer and Competition Commission (ICCC) is charged with fostering competition. While there are transparent policies in place, the competition regime is oriented towards regulating existing monopolies and does little to foster competition. Tax, labor, environment, health, and safety and other laws do not distort or impede investment. There are long bureaucratic delays in the processing of work permits and frequent complaints about corruption and bribery in government departments.

The IPA and the Government are moving, with the assistance of the International Finance Corporation, towards a more streamlined regulatory framework to encourage foreign investment. One example of this trend is the IPA’s move to an online registration process for businesses. There are informal regulatory processes managed by nongovernmental organizations and private sector associations. There are impediments to the licensing of skilled foreign labor that are imposed by local professional associations, such as the Papua New Guinea Institute of Engineers and the Law Society (both of which have their own regulatory processes), that foreigners must go through before they can work/practice in the country.

There are no private sector or government efforts to restrict foreign participation in industry standards-setting consortia or organizations. Proposed laws and regulations are made available for public comment, but comments are not always taken into consideration or acted on by lawmakers or regulators. Legal, regulatory, and accounting systems are transparent and consistent with international norms, but there are delays in the dispute resolution system due to a lack of human resources in the judiciary.

When possible, proposed laws are made available for public comment, but comments are not always taken into consideration or acted on by lawmakers. Frequently, important Parliamentary decisions, such as the annual budget, are taken with no hearings and little or no debate before voting.

Regulatory decisions can sometimes be capricious and opaque, but they do not specifically target foreign-owned businesses. Most regulatory decisions can be appealed to courts with jurisdiction. There are no regulatory reforms currently planned. Many PNG government functions and documents are available online, but not all, and they are not centralized.

The Marape government successfully processed the 2019 supplementary and 2020 national budget plans, aided in large part by an AUD 300 million infusion by the government of Australia. The new Treasurer, Ian Ling-Stuckey, proactively conducted a due diligence exercise on the state of the country’s economy, which was led by a joint committee comprising international financial institutions and key government economic agencies. The public was well-informed of the findings of a month-long review through press commentaries and debate on the floor of parliament during the tabling of the supplementary budget.

There is strong political will in PNG to restore public confidence and engagement in the government’s fiscal reporting systems. However, greater action by reporting agencies is critical to realize full and timely reporting practices in PNG’s public finance management systems.

Overall, the government needs greater coordination among reporting agencies to deliver their mandated functions and responsibilities effectively. This includes all government agencies consistently and fully reporting all required financial activities, with proper financial statements to the supreme audit institution. The lack of full and timely reporting practices continues to undermine public finance management systems, and publicly available budget information.

At the same time, most budget documents remain incomprehensible to many ordinary citizens due to low financial literacy levels and the lack of proper public and civic awareness programs.

International Regulatory Considerations

PNG is a party to the Melanesian Free Trade Agreement. The agreement came into effect in 2017 and does address the need for competent regulatory authorities in each country (PNG, Solomon Islands, Vanuatu, and Fiji). However, the regulatory chapter is small and is designed to be strengthened and improved going forward.

When international standards are used in PNG, they are most often Australian models due to PNG’s history under Australian colonial governance and their continuing close economic ties.

The government has notified the WTO Committee on Technical Barriers to Trade only once. That notification covered food safety issues and was issued in 2006.

Legal System and Judicial Independence

The legal system is based on English common law. Contract law in Papua New Guinea is very similar to and applies in much the same way as in other common law countries such as Great Britain, Australia, Canada, and New Zealand. There is, however, considerably less statutory regulation of the application and operation of contracts in Papua New Guinea than in those other countries.

The Supreme Court is the nation’s highest judicial authority and final court of appeal. Other courts are the National Court; district courts, which deal with summary and non-indictable offenses; and local courts, established to deal with minor offenses, including matters regulated by local customs.

While often painstakingly slow, the judiciary system is widely viewed as independent from government interference. The Supreme Court has original jurisdiction in matters of constitutional interpretation and enforcement and has appellate jurisdiction in appeals from the National Court, certain decisions of the Land Titles Commission, and those of other regulatory entities as prescribed in their own Acts. The National Court also has original jurisdiction for certain constitutional matters and has unlimited original jurisdiction for criminal and civil matters. The National Court has jurisdiction under the Land Act in proceedings involving land in Papua New Guinea other than customary land.

Laws and Regulations on Foreign Direct Investment

Foreign investors can either be incorporated in PNG as a subsidiary of an overseas company or incorporated under the laws of another country and therefore registered as an overseas company under the Companies Act 1997. The 1997 Companies Act and 1998 Companies Regulation oversee matters regarding private and public companies, both foreign and domestic. All foreign business entities must have IPA approval and must be certified and registered with the government before commencing operations in PNG. While government departments have their own procedures for approving foreign investment in their respective economic sectors, the IPA provides investors with the relevant information and contacts. In 2013, the government amended the Takeovers Code to include a test for foreign companies wishing to buy into the ownership of local companies. The new regulation states that the Securities Commission of Papua New Guinea (SCPNG) shall issue an order preventing a party from acquiring any shares, whether partial or otherwise, if the commission views that such acquisition or takeover is not in the national interest of PNG. This applies to any company, domestic or foreign, registered under the PNG Companies Act, publicly traded, with more than 5 million PGK (USD 1.53 million) in assets, with a minimum of 25 shareholders, and more than 100 employees.

In recent years, this law was not used to prevent ExxonMobil’s acquisition of InterOil or Chinese company Zijin Mining’s purchase of 50 percent of the Porgera Joint Venture gold mine. The IPA website ( https://www.ipa.gov.pg/ ) is the official online information platform to engage with the public on matters relating to the IPA’s mandated roles and function.

Competition and Antitrust Laws

The 2002 Independent Consumer and Competition Commission Act is the law that governs competition. It also established the Independent Consumer & Competition Commission (ICCC), the country’s premier economic regulatory body and consumer watchdog; introduced a new regime for the regulation of utilities, in particular in relation to prices and service standards; and allowed the ICCC to take over the price control tasks previously undertaken by the Prices Controller as well as the consumer protection tasks previously undertaken by the Consumer Affairs Council. The ICCC’s website is http://www.iccc.gov.pg .

There have been no significant actions taken by ICCC in the last 12 months that have affected international investors.

Expropriation and Compensation

The judicial system upholds the sanctity of contracts, and the Investment Promotion Act of 1992 expressly prohibits expropriation of foreign assets. The 2013 nationalization of the Ok Tedi copper-gold-silver mine was an Act of Parliament, considered and voted on in the regular order of business. There was no recourse or due process beyond the Parliament.

Dispute Settlement

ICSID Convention and New York Convention

PNG signed the instrument of Accession to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) on June 22, 2019. The Instrument of Accession was deposited with the UN Treaties Depository in New York on July 17, 2019, and PNG became the 160th country to accede to the New York Convention. As a signatory to the New York Convention, PNG’s National Executive Council endorsed reform to the country’s outdated Arbitration Act 1951 (Chapter 46 of the Revised Laws of PNG) through the adoption of new legislation based on international model laws to implement the New York Convention and to provide enhanced support for modern arbitration in PNG.

PNG has been a member of the International Centre for Settlement of Investment Disputes (ICSID Convention) since 1978. In agreements with foreign investors, GPNG traditionally adopts the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL model law). While no specific domestic legislation exists for enforcement of awards under the 1958 New York Convention or ICSID Convents, in early 2018, an Arbitration Technical Working Committee (ATWC) was formed to advance arbitration reform in PNG. Consisting of members of the PNG Judiciary and representatives of the First Legislative Counsel and other relevant inter-governmental departments and agencies, the ATWC produced a draft Arbitration Bill 2019 in consultation with the United Nations Commission on International Trade Law (UNCITRAL), Asian Development Bank and internationally recognized arbitration experts. The draft Arbitration Bill 2019 aims to conform with best modern international arbitration law practice. The draft bill is subject to further vetting before its enactment.

Investor-State Dispute Settlement

Investment disputes may be settled through diplomatic channels or through the use of local remedies before having such matters adjudicated at the International Centre for the Settlement of Investment Disputes or through another appropriate tribunal of which Papua New Guinea is a member. The Investment Promotion Act 1992, which is administered by the IPA, also protects against expropriation, cancellation of contracts, and discrimination through the granting of most favored nation treatment to investors. PNG does not have a Bilateral Investment Treaty (BIT) with the United States, and no claims have been made under such an agreement. There is not a recent history of international judgments against GoPNG nor is there a recent history of extrajudicial action against foreign investors. PNG does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter with the United States.

Over the last 10 years, there here have been no known disputes involving a U.S. person or other foreign investors, nor have the local courts heard cases to recognize or enforce foreign arbitral awards issued against the governments. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

According to the Port Moresby Chamber of Commerce & Industry, local and foreign parties settle disputes in Papua New Guinea through the courts. Litigation in PNG is perceived to be an expensive and drawn-out process, sometimes taking years for a decision to be handed down.

There is no domestic arbitration body outside of the courts and contract enforcement. A 2015 international arbitration decision in favor of Interoil (which has since been acquired by ExxonMobil) and against Oil Search was reportedly respected in PNG. To date, there have been no cases in which SOEs were involved in investment disputes.

Bankruptcy Regulations

Papua New Guinea’s bankruptcy laws are included in chapter 253 of the Insolvency Act of 1951 and sections 254 through 362 of the Companies Act of 1997, which covers receivership and liquidation. Bankruptcy and litigation searches can only be conducted in person at the National Court in Port Moresby.

According to the World Bank’s Doing Business Report, resolving insolvency in Papua New Guinea takes an average of three years, and typically costs 23 percent of the debtor’s estate. The average recovery rate is 25.2 cents on the dollar. Globally, Papua New Guinea stands at 141 out of 189 economies for the Ease of Resolving Insolvency on the World Bank Ease of Doing Business Survey.

Capital Markets and Portfolio Investment

Portfolio investments are unregulated and limited to the availability of stocks. PNG has one stock market in Port Moresby, PNGX Limited (Formerly POMSoX). Founded in 1999, it is closely aligned with the Australian Stock Exchange (ASX) and mimics its procedures.

Credit is allocated on market terms, and foreign investors are able to get credit on the local market, much more so than in previous years due to the liberalization of policies, provided that foreign investors have a good credit history. Credit instruments are limited to leasing and bank finance.

Money and Banking System

PNG’s commercial banking sector comprises four commercial banks. Two are Australian institutions, Westpac and Australian and New Zealand Group (ANZ) banks, with local banks Bank of South Pacific (BSP) and Kina Bank.

BSP is both the largest bank and non-mining taxpayer in PNG. BSP operates 79 branches, 52 sub-branches, 351 agents, 499 ATMs, 11,343 electronic funds transfer at point of sale (EFTPOS) units and 4261 employees.

Official government sources indicate that much remains to be done in terms of financial inclusion, with nearly three quarters of PNG’s population lacking access to formal financial services. Most of those excluded represent the low-income population in rural areas, urban settlements, especially women.

Based on the Oxford Business Group business update issue of 2018, assets in the commercial sector have recorded exponential growth since 2002, with the Bank of PNG reporting that total commercial banking assets rose from PGK3.9 billion (USD 1.2billion) in that year to reach PGK 20.3billion (USD 6.3bn) in 2011. Growth has been slower in recent years, however, with total assets rising from PGK 22.7 billion (USD 7.1billion) in 2012 to a high of PGK 29.8 billion.

The banking system in Papua New Guinea is sound. The Bank of Papua New Guinea acts as the central bank for Papua New Guinea. The Central Banking Act of 2000 outlines the powers, functions, and objectives of the Bank. Foreigners are required to show documentation either of their employment or their business along with proof of a valid visa in order to register for a bank account.

Foreign Exchange and Remittances

Foreign Exchange

While there are no legal restrictions on such activities, a lack of available foreign exchange makes such conversions, transfers, and repatriations time consuming. Bank of Papua New Guinea requires that all funds held in PNG be held in PNG kina. This rule was announced with little notice and caught many businesses off-guard in 2016. While there was an appeal process for businesses that wished to keep non-PGK accounts, none of the appeals were granted.

Remittance Policies

There have been no recent changes or plans to change remittance policies. Remittance is done only through direct bank transfers. All remittances overseas in excess of PGK 50,000 (USD 15,340) per year require a tax clearance certificate issued by the Internal Revenue Commission (IRC). In addition, approval of PNG’s Central Bank – the Bank of Papua New Guinea – is required for annual remittances overseas in excess of PGK 500,000 (USD 153,420).

While there are no legal time limitations on remittances, foreign companies have waited many months for large transfers or performed transfers in small increments over time due to a shortage of foreign exchange.

Sovereign Wealth Funds

A Sovereign Wealth Fund Bill was passed in Parliament on July 30, 2015. However, falling commodity prices have severely impacted government revenues. Plans for the SWF have been put on hold indefinitely.

SOEs in PNG continue to dominate critical public utilities ranging from electricity, water and sewerage, transport, and telecommunications. PNG’s total state assets stand at PGK 9.3 billion with staff strength of 7,000 employees. Papua New Guinea’s nine SOEs altogether comprise 4.8 percent of GDP with a total revenue of PGK 3 billion.

The SOEs operate and provide services in aviation, mobile services and telecommunications, water and sewerage, motor vehicle insurance, development banking and finance, petroleum sector, data service, port services, electricity, and postal and logistics services. Each SOE has an independent board that is appointed by the cabinet which then reports to the Minister of State-Owned Enterprises.

Recent reports highlighted the rapid growth in the assets of the nine largest SOEs. Asset use, however, has been inefficient and with their profitability steadily declining since 2005.

Structural reform in 2015 established Kumul Consolidated Holdings (KCH). The purpose of the reform was to give SOEs greater autonomy and accountability, but this is still lacking in day-to-day operations. Under the Kumul Consolidated Holdings Act 2015, the cabinet can appoint SOE directors, grant approvals for corporate plans, remuneration levels, tenders, engagement of consultants, and other powers, thereby reducing the autonomy of the SOE. It has also been reported that the Act allows the cabinet to direct governance control over the SOEs, a responsibility normally reserved for SOE boards. This increases the risk of political considerations overriding commercial targets. PNG’s SOEs generally lack transparency, accountability, autonomy, and a robust legal framework that requires the SOEs to operate as viable commercial entities. Most SOEs in PNG continue to fail to produce financial accounts in a timely manner to allow for more informed government and legislative decision-making. This includes KCH’s failure to publicly report its audited financial statements to date.

Privatization Program

There is no privatization program in place and thus no guidelines or structure on when and how foreign investors are allowed to participate in privatization programs. The government has funding available for privatization and is currently using the Public Private Partnership (PPP) structure as a model for privatization. The trend has been towards growing SOEs. The cumulative asset value of SOEs grew from USD1.58 billion in 2012 to USD6.32 billion by the end of 2015.

Tribal conflicts occur regularly, particularly in the Highlands and Sepik regions of the country, and election-related violence broke out following the 2017 national elections. While foreign investors/interests are not generally the target of these confrontations, project infrastructure can be inadvertently damaged, or their operations disrupt.

Most of the disruption and damage caused to projects is due to disputes between landowners and the central government, which are fueled by an often-true perception that the central government has failed to uphold its financial commitments to landowners. Landowners in these disputes have taken out their frustration with the central government by damaging the infrastructure or disrupting the operations of foreign projects in their regions.

The central bureaucracy is increasingly politicized, which has eroded the capacity of government departments and allowed nepotism and political cronyism to thrive in parts the public service. Civil disturbances have been triggered by the government’s failure to deliver financial and development commitments, particularly to landowners in the resource project areas. They have also occurred in major urban areas based on disputes between long-term residents and newly arrived migrants or between competing criminal networks.

*Host Country Source: Bank of PNG

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

The Paraguayan government publicly encourages private foreign investment, but U.S. companies often struggle with practices that inhibit or slow their activities. Paraguay guarantees equal treatment of foreign investors and permits full repatriation of capital and profits. Paraguay has historically maintained the lowest tax burden in the Latin American region, with a 10 percent corporate tax rate and a 10 percent value added tax (VAT) on most goods and services. Despite these policies, U.S. companies continue to have difficulty with investments and contracts in Paraguay, including questionable public procurement adjudications, seemingly frivolous legal entanglements taking multiple years to resolve, non-payment and delayed payments from Paraguayan government customers, and opaque permitting processes that slow project execution.

The Ministry of Industry and Commerce (MIC) signed in February 2021 an MOU with the Ministry of Justice to strengthen the rule of law and provide additional legal security to foreign investments in the country. Within MIC, REDIEX provides useful information for foreign investors, including business opportunities in Paraguay, registration requirements, laws, rules, and procedures.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities may establish and own business enterprises. Foreign businesses are not legally required to be associated with Paraguayan nationals for investment purposes, though this is strongly recommended, on an unofficial basis, by national authorities.

There is no restriction on repatriation of capital and profits. Private entities may freely establish, acquire, and dispose of business interests.

Under the Investment Incentive Law (60/90) and the maquila program, the government has an approval mechanism for foreign investments that seeks to estimate the proposed investment’s economic impact in areas including employment, incorporation of new technologies, and economic diversification.

Other Investment Policy Reviews

The WTO conducted an Investment Policy Review in 2017. Please see following website: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=240507,87161,40418,27051&CurrentCatalogueIdIndex=0&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=False&HasSpanishRecord=False 

Business Facilitation

Paraguay has responded to complaints about its traditionally onerous business registration process — previously requiring new businesses to register with a host of government entities one-by-one — by creating a portal in 2007 that provides one-stop service. The Sistema Unificado de Apertura y Cierre de Empresas – SUACE ( www.suace.gov.py ) – is the government’s single platform for registering a local or foreign company.  The process takes about 35 days.

On January 8, 2020, President Abdo Benitez signed law 6480 to facilitate the creation of SMEs. A new registration process allows individuals to complete the required forms online and at no cost. The approval process takes between 24 and 72 hours. This new registration process has been operational since July 2020.

Outward Investment

There are no restrictions to Paraguayans investing abroad. The Paraguayan government does not incentivize or promote outward investment.

Transparency of the Regulatory System

Proposed Paraguayan laws and regulations, including those pertaining to investment, are usually available in draft form for public comment after introduction into senate and lower house committees. In most instances, there are public hearings where members of the general public or interested parties can provide comments.

Regulatory agencies’ supervisory functions over telecommunications, energy, potable water, and the environment are inefficient and opaque. Politically motivated changes in the leadership of regulating agencies negatively impact firms and investors. Although investors may appeal to the Comptroller General’s Office in the event of administrative irregularities, corruption has historically been common in this and other institutions, as time-consuming processes provide opportunities for front-line civil servants to seek bribes to accelerate the paperwork.

While regulatory processes are managed by governmental organizations, the Investment Incentive Law (60/90) establishes an Investment Council that includes the participation of two private sector representatives.

Public finances and debt obligations of government institutions, agencies, and state-owned enterprises (SOEs) are available online and mostly centralized by the Ministry of Finance.

International Regulatory Considerations

Paraguay is a founding member of the Mercosur common market, which was formed in 1991. As Mercosur’s purpose is to promote free trade and fluid movement of goods, people, and currency, each country member is expected to adjust their regulations based on multilateral treaties, protocols, and agreements.

Paraguay is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade of all draft technical regulations.

Legal System and Judicial Independence

Paraguay has a Civil Law legal system based on the Napoleonic Code. A new Criminal Code went into effect in 1998, with a corresponding Code of Criminal Procedure following in 2000. A defendant has the right to a public and oral trial. A three-judge panel acts as a jury. Judges render decisions on the basis of (in order of precedence) the Constitution, international agreements, the codes, decree law, analogies with existing law, and general principles of the law.

Private entities may file appeals to government regulations they assess to be contrary to the constitution or Paraguayan law. The Supreme Court is responsible for answering these appeals.

The judiciary is a separate and independent branch of government, however there are frequent media reports of political interference with judicial decision making. Judicial corruption also remains a concern, including reports of judges investing in plaintiffs’ claims in return for a percentage of monetary payouts.

Paraguay has a specialized court for civil and commercial judicial matters.

Laws and Regulations on Foreign Direct Investment

The Investment Incentive Law (60/90) passed in 1990 permits full repatriation of capital and profits. No restrictions exist in Paraguay on the conversion or transfer of foreign currency, apart from bank reporting requirements for transactions in excess of USD 10,000. This law also grants investors a number of tax breaks, including exemptions from corporate income tax and value-added tax.

The 1991 Investment Law (117/91) guarantees equal treatment of foreign investors and the right to real property. It also regulates joint ventures (JVs), recognizing JVs established through formal legal contracts between interested parties. This law allows international arbitration for the resolution of disputes between foreign investors and the Government of Paraguay.

In December 2015, former President Cartes signed an Investment Guarantee Law (5542/15) to promote investment in capital-intensive industries. Implementing regulations were published in 2016. The law protects the remittance of capital and profits, provides assurances against administrative and judicial practices that might be considered discriminatory, and permits tax incentives for up to 20 years. There is no minimum investment amount, but projects must be authorized by a joint resolution by the Ministry of Finance and Ministry of Industry and Commerce.

In 2013 the Paraguayan Congress passed a law to promote public-private partnerships (PPP) in public infrastructure and allow for private sector entities to participate in the provision of basic services such as water and sanitation. The government signed implementing regulations for the PPP law in 2014. As a result, the Executive Branch can now enter into agreements directly with the private sector without the need for congressional approval. In 2015, the Government of Paraguay implemented its first contract under the new law. In 2016, it awarded its second PPP to a consortium of Spanish, Portuguese, and local companies to expand and maintain two of the country’s federal highways. Paraguay’s bid for an airport expansion PPP in Asuncion in 2016, was officially cancelled in October 2018 due to concerns over the contracting process. No other PPPs have been awarded since, although some are under consideration by the Ministry of Public Works. Large infrastructure projects are usually open to foreign investors.

The Paraguay government seeks increased investment in the maquila sector, and Paraguayan law grants investors a number of incentives. The maquila program entitles a company to foreign investment participation of up to 100 percent and to special tax and customs treatment. In addition to tax exemptions, inputs are allowed to enter Paraguay tax free, and up to 10 percent of production is allowed for local consumption after paying import taxes and duties. There are few restrictions on the type of product that can be produced under the maquila system and operations are not restricted geographically. Ordinarily, all maquila products are exported.

Paraguay took steps in 2019 to demonstrate increased transparency in its financial system with the aim of attracting additional foreign investment. In December 2019, President Abdo Benitez signed into law the last of a series of twelve anti-money laundering laws at the recommendation of the Financial Action Task Force against Money Laundering in Latin America (GAFILAT). The laws comply with international standards and facilitate the fight against money laundering, terrorist financing, and the proliferation of weapons of mass destruction. More information on the anti-money laundering laws and regulations can be found here: http://www.seprelad.gov.py/disposiciones-legales-i68 

Paraguay’s budget and information on debt obligations were widely and easily accessible to the general public, including online.  The published budget was adequately detailed and considered generally reliable.  Revised estimates were made public in end-of-year and in-year execution reports. Paraguay’s Comptroller’s Office selected sections of the government’s accounts for audit according to a risk assessment because it lacks sufficient resources to audit the entire executed budget annually.

REDIEX provides a website to facilitate access to relevant legislation, laws, and regulations for investors: www.bit.do/REDIEX20 

Competition and Anti-Trust Laws

Paraguay passed a Competition Law in 2013, which entered into force in April 2014. Law 4956/13 explicitly prohibits anti-competitive acts and created the National Competition Commission (CONACOM) as the government’s enforcement arm.

Expropriation and Compensation

Private property has historically been respected in Paraguay as a fundamental right. Expropriations must be sanctioned by a law authorizing the specific expropriation. There have been reports of expropriations of land without prompt and fair compensation.

Dispute Settlement

ICSID Convention and New York Convention

Paraguay is a member of the International Center for the Settlement of Investment Disputes (ICSID). Paraguay is a contracting state to the New York Convention. Under the 1958 New York Convention, Paraguay elaborated and enacted Law 1879/02 for arbitrage and mediation.

Investor-State Dispute Settlement

Law 117/91 guarantees national treatment for foreign investors. This law allows international arbitration for the resolution of disputes between foreign investors and the Government of Paraguay. Foreign decisions and awards are enforceable in Paraguay.

Local courts recognize and enforce foreign arbitral awards issued against the government. According to the International Centre for Settlement of Investment Disputes (ICSID), Paraguay has had three concluded investment disputes involving foreign investors. One registered in 1998 and two in 2007. ICSID resolved the first in the private company’s favor, and the other two in the Paraguayan government’s. There are no records of U.S. investors using the ICSID mechanism for an investment dispute in Paraguay.

Paraguay ranks 72 out of 190 for “Ease of Enforcing Contracts” in the World Bank’s 2020 Doing Business Report. World Bank data states the process averages 606 days and costs 30 percent of the claimed value.

There are currently three ongoing investor-state disputes involving U.S. companies. Two of them involve delayed government payments to U.S. firms and one involves delays in the process of acquiring environmental permits to initiate a large scale real estate development.

International Commercial Arbitration and Foreign Courts

Under Paraguayan Law 194/93, foreign companies must demonstrate just cause to terminate, modify, or not renew contracts with Paraguayan distributors. Severe penalties and high fines may result if a court determines that a foreign company ended the relationship with its distributor without first establishing that just-cause exists, which sometimes compels foreign companies to seek expensive out-of-court settlements first with the Paraguayan distributors. Nevertheless, cases are infrequent, and courts have upheld the rights of foreign companies to terminate representation agreements after finding the requisite showing of just cause.

Under two laws, Article 195 of the Civil Procedural Code and Law 1376/1988, a plaintiff pursuing a lawsuit may seek reimbursement for legal costs from the defendant calculated as a percentage (not to exceed 10 percent) of claimed damages. In larger suits, the amount of reimbursed legal costs often far exceeds the actual legal costs incurred.

Paraguay possesses an Arbitration and Mediation Center (CAMPS), which is a non-profit, private entity that promotes the application of alternative dispute resolution methods.

Under Paraguayan Law 2051/03, foreign companies undergoing contractual problems with any government entity can request arbitration from Paraguay’s national public procurement Agency (DNCP, in Spanish).

Bankruptcy Regulations

Paraguay has a bankruptcy law (154/63) under which a debtor may suspend payments to creditors during the evaluation period of the debtors’ restructuring proposal. If no agreement is reached, a trustee may liquidate the company’s assets. According to the World Bank’s 2020 Doing Business Report, Paraguay stands at 105 in the ranking of 190 economies on the ease of resolving insolvency. The report states resolving insolvency takes 3.9 years on average and costs nine percent of the debtor’s estate, with the most likely outcome being that the company will be sold as piecemeal sale. The average recovery rate is 23 cents on the dollar. Bankruptcy is not criminalized in Paraguay.

Capital Markets and Portfolio Investment

Credit is available but expensive. As of January 2021, banks charged on average 25 percent interest on consumer loans (up to 34 percent), with the vast majority favoring repayment horizons of one year. Loans for up to 10 years are available at higher interest rates. High collateral requirements are generally imposed. Private banks, in general, avoid mortgage loans. Because of the difficulty in obtaining bank loans, Paraguay has seen growth in alternative and informal lending mechanisms, such as “payday” lenders. These entities can charge up to 85 percent interest on short-term loans according to banking contacts. The high cost of capital makes the stock market an attractive, although underdeveloped option. Paraguay has a relatively small capital market that began in 1993. As of February 2021, the Asuncion Stock exchange consisted of 104 companies. Many family-owned enterprises fear losing control, dampening enthusiasm for public offerings. Paraguay passed a law in 2017 abolishing anonymously held businesses, requiring all holders of “bearer shares” to convert them. Foreign banks and branches are allowed to establish operations in country, as such Paraguay currently has three foreign bank branches and four majority foreign-owned banks.

The Paraguayan government issued Paraguay’s first sovereign bonds in 2013 for USD 500 million to accelerate development in the country. Since then, Paraguay has issued bonds each year. During 2020, Paraguay issued a total of USD 1,450 million (USD 1 billion under its National Emergency Law due to the COVID-19 pandemic) and recently in 2021 for USD 826 million. The debt component of the 2021 bond raised USD 500 million of new money at the lowest cost ever for a Paraguayan sovereign bond (2.74 percent). The transaction’s historically low interest rate, oversubscription, and its extension of Paraguay’s maturity profile reflect increased investor confidence in Paraguay. Proceeds are expected to finance key infrastructure development programs designed to promote economic and social development and job creation.

Commercial banks also issue debt to fund long-term investment projects.

Paraguay became an official member of the IMF in December 1945 and its Central Bank respects IMF Article VIII related to the avoidance of restrictions on current payments.

Money and Banking System

Paraguay’s banking system includes 17 banks with an approximate total USD 24.5 billion in assets and USD 18 billion in deposits. The banking system is generally sound but remains overly liquid. Long-term financing for capital investment projects is scarce. Most lending facilities are short-term. Banks and finance companies are regulated by the Banking Superintendent, which is housed within, and is under the direction of, the Central Bank of Paraguay.

The Paraguayan capital markets are essentially focused on debt issuances. As the listing of stock is limited, with the exception of preferred shares, Paraguay does not have clear rules regarding hostile takeovers and shareholder activism.

Paraguay has a high percentage of unbanked citizens. Six out of ten adults do not have bank accounts. Many Paraguayans use alternative methods to save and transfer money. In recent years, the use of e-wallets has grown considerably to fill this void. According to the Central Bank of Paraguay, the total transactions increased by 51.2 percent, from USD 374 million in January-September 2019 to USD 565 million in January-September 2020. The number of quarterly transactions also increased considerably from 4.9 million in April-June 2019 to 8.5 million in July-September 2020. E-wallet providers noted this increase was the result of the COVID-19 subsidies transferred to the e-wallet of beneficiaries outside of the formal banking sector. This growth made the Central Bank publish regulations on e-wallets in February 2020 to expand their “know your customer” (KYC) and other requirements to match those of traditional bank operations.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment (e.g. remittances of investment capital, earnings, loan or lease payments, royalties). Funds associated with any form of investment can be freely converted into any world currency. Paraguay has a flexible exchange rate system making the national currency rate fluctuate according to the foreign-exchange market mechanisms.

Remittance Policies

There are currently no plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances. There are no time limitations on remittances. Paraguay is a member of the GAFILAT, a Financial Action Task Force (FATF)-style regional body. GAFILAT initiated a review of Paraguay’s work and measures taken against money laundering in December 2019. The final assessment was postponed for the third time due to the COVID-19 pandemic, and is currently scheduled for August 2021.

Sovereign Wealth Funds

Paraguay does not have a sovereign wealth fund. However, in December 2020, the Ministry of Finance presented to Congress the draft law for the Strengthening of Fiscal Governance that will reform Paraguay´s current Fiscal Responsibility Law and create Paraguay´s first wealth fund to strengthen the country´s macroeconomic stability in years of poor economic development and/or emergency situations.

Paraguay has seven major state-owned enterprises (SOEs), active in the petroleum distribution, cement, electricity (distribution and generation), water, aviation, river navigation, and cellular telecommunication sectors. Paraguay has another two minor SOEs, one dedicated to the production of alcoholic beverages through raw sugar cane and another, essentially inactive, focused on railway services. In general, SOEs are monopolies with no private sector participation. Most operate independently but maintain an administrative link with the Ministry of Public Works & Communications. SOEs have audited accounts, and the results are published online. Public information and audited accounts from 2018 indicate SOEs employ over 17,000 people and have assets for $4.2 billion. Reported net incomes from January to October 2019 of all SOEs are approximately $114 million.

SOEs’ corporate governances are weak. SOEs operate with politically appointed advisors and executives and are often overstaffed and an outlet for patronage, resulting in poor administration and services. Some SOEs burden the country’s fiscal position, running deficits most years. SOEs are not required to have an independent audit. The Itaipu and Yacyreta bi-national hydroelectric dams, which are considered semi-autonomous entities administered by joint bilateral government commissions (since they are on shared international borders), have a board of directors.

Link to the list of Paraguayan SOEs: https://www.economia.gov.py/index.php/dependencias/direccion-general-de-empresas-publicas/direccion-general-de-empresas-publicas 

Privatization Program

Paraguay does not have a privatization program.

Paraguay experienced its worst political violence since the March 2017 storming of the Congress, as protesters gathered daily for more than two weeks in March 2021 to call for the resignations of President Abdo Benitez and Vice President Velazquez for their inadequate efforts to address the COVID-19 pandemic, and to repudiate the corruption within their administration. Clashes between police and protesters on the first night of protests resulted in 20 wounded (eight protesters, 12 police) and protesters set fire to the ruling ANR party headquarters March 17. While Abdo Benitez survived the resulting impeachment motion (the second of his term), his administration emerged weakened from the political crisis as it tries to manage a deteriorating COVID-19 situation at the time of this report.

Paraguay has been spared a large number of kidnappings that occur in neighboring Latin American countries, but a few high profile cases have occurred in recent years, most of them attributed to suspected members of the organized criminal group Paraguayan People’s Army (EPP). In September 2020, the EPP kidnapped former Vice President Oscar Denis and his employee Adelio Mendoza near Denis’ property in Concepcion department. The Paraguayan government has responded to the EPP threat with combined military and police operations, but its failure to recover hostages – including Denis, whose whereabouts are still unknown at the time of this report – from such a small group has seriously damaged its credibility. Land invasions, marches, and organized protests occur, mostly by rural and indigenous communities making demands on the government, but these events have rarely turned violent.

Significant discrepancies can be noted between the local and the USG statistical sources in terms of U.S. FDI in Paraguay for 2019. UNCTAD total inbound of FDI as a percentage of Paraguay’s GDP differs less than three percent when compared to Paraguay’s local statistics. However, if compared to other international statistics, such as the World Bank and the IMF, the relation between total inbound stocks of FDI as a percentage of Paraguay’s GDP is consistent with local statistics. *Host country statistical data source: Central Bank of Paraguay

*Host country statistical data source: Central Bank of Paraguay

The information obtained through the IMF’s Coordinated Direct Investment Survey is consistent with the information provided by the Central Bank of Paraguay.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

Peru seeks to attract investment – both foreign and domestic – in nearly all sectors.. Peru reported $2 billion in Foreign Direct Investment (FDI) in 2020 and seeks increased investment for 2021. It has prioritized $6 billion in public-private partnership projects in transportation infrastructure, electricity, education, broadband expansion, gas distribution, health, and sanitation.

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

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

The GOP created the investment promotion agency ProInversion in 2002 to manage privatizations and concessions of state-owned enterprises and natural resource-based industries. The agency currently manages private concession processes in the energy, education, transportation, health, sanitation, and telecommunication sectors, and organizes international roadshow events to attract investors. Major recent and upcoming concessions include ports, water treatment plants, power generation facilities, mining projects, electrical transmission lines, oil and gas distribution, and telecommunications. Project opportunities are available on ProInversion’s website: https://www.proyectosapp.pe/default.aspx?ARE=1&PFL=0&sec=30. Companies are required to register all foreign investments with ProInversion.

The National Competitiveness Plan 2019 – 2030 outlines Peru’s economic growth strategy for the next decade and seeks to close the country’s $110 billion infrastructure gap. The plan was supplemented by a National Infrastructure Plan in July 2019, which identified 52 infrastructure projects keyed to critical sectors. Priority projects include two Lima metro lines, an expansion of Jorge Chavez International Airport, and multiple energy projects including electricity transmission lines. Peru reported in February 2021 that the energy projects had advanced significantly while many transport and agricultural projects suffered significant delays. Of note, the Ministry of Transportation prioritized the Fourth Metro Line and Central Highway, each multi-billion dollar projects, which were not included in the National Infrastructure Plan. Peru maintains an investment research portal to promote these infrastructure investment opportunities: https://www.mef.gob.pe/es/aplicativos-invierte-pe?id=5455

Although Peruvian administrations since the 1990s have supported private investments, Peru occasionally passes measures that some observers regard as a contravention of its open, free market orientation. In December 2011, Peru signed into law a 10-year moratorium on the entry of live genetically modified organisms (GMOs) for cultivation. In December 2020, the moratorium was extended an additional 15 years and will now remain enforced until 2035. Peru also implemented two sets of rules for importing pesticides, one for commercial importers, which requires importers to file a full dossier with technical information, and another for end-user farmers, which only requires a written affidavit.

Peru reformed its agricultural labor laws in 2020 impacting labor costs and tax incentives that could adversely affect investors in Peru’s agricultural sector. The U.S. Department of Agriculture estimated U.S. direct investment in the agriculture sector to reach $1.3 billion in 2021.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

Other Investment Policy Reviews

The World Trade Organization (WTO) published a Trade Policy Review (HYPERLINK “https://www.wto.org/english/tratop_e/tpr_e/tp493_e.htm” https://www.wto.org/english/tratop_e/tpr_e/tp493_e.htm) on Peru in October 2019. The WTO commented that foreign investors received the same legal treatment as local investors in general, although Peru restricted foreign investment on property at the country’s borders, and in air transport and broadcasting. The report highlighted the government’s ongoing efforts to promote public-private partnerships (PPPs) and strengthen the PPP legal framework with Organization for Economic Cooperation and Development (OECD) principles. The report noted that Peru maintained a regime open to domestic and foreign investment that fostered competition and equal treatment.

Peru aspires to become a member of the OECD and launched an OECD Country Program in 2014, comprising policy reviews and capacity building projects. The OECD published the Initial Assessment of its Multi-Dimensional Review in 2015 (https://www.oecd.org/countries/peru/multi-dimensional-review-of-peru-9789264243279-en.htm), finding that, in spite of economic growth, Peru “still faces structural challenges to escape the middle-income trap and consolidate its emerging middle class.” In every year since this study was published, Peru has enacted and implemented dozens of reforms to modernize its governance practices in line with OECD recommendations. Recent OECD studies on Peru include: Investing in Youth (April 2019), Digital Government (June 2019), Pension Systems (September 2019), Transport Regulation (February 2020), and Tax Transparency (April 2020). Peru has adhered to 45 of OECD’s 248 existing legal instruments, but its accession roadmap remains unclear.

Peru has not had a third-party investment policy review through the OECD or UNCTAD in the past three years.

Business Facilitation

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

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

Outward Investment

The GOP promotes outward investment by Peruvian entities through the Ministry of Foreign Trade and Tourism (MINCETUR). Trade Commission Offices of Peru (OCEX), under the supervision of Peru’s export promotion agency (PromPeru), are located in numerous countries, including the United States, and promote the export of Peruvian goods and services and inward foreign investment. The GOP does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

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

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

International Regulatory Considerations

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

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

Legal System and Judicial Independence

Peru uses a civil law system. Peru’s civil code includes a contract section and a general corporations law that regulates companies. Peru’s civil court resolves conflicts between companies. Companies can also access conflict resolution services in civil courts for conflicts and litigation for which a legal claim has been filed. Litigation processes in Peruvian courts are slow.

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

Laws and Regulations on Foreign Direct Investment

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

• Legislative Decree 662 that approves foreign investment legal stability regulations,
• Legislative Decree 757 that approves the private investment growth framework law, and
• Supreme Decree 162-92-EF that approves private investment guarantee mechanism regulations

Peru’s legal system is available to investors. All laws relevant to foreign investment along with pertinent explanations and forms can be found on the ProInversion website: https://www.proinversion.gob.pe/modulos/LAN/landing.aspx?are=1&pfl=1&lan=9&tit=institucional .

Competition and Antitrust Laws

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

A legislative decree issued in September 2018 (DL 1444) modified the public procurement law to allow government agencies to use government-to-government (G2G) agreements to facilitate procurement processes.  The GOP sees this G2G procurement model as a method for expediting priority infrastructure projects in a manner that is more transparent and less susceptible to corruption. The USG, however, does not have a mechanism to support Peru’s G2G contracts and the U.S. Embassy has raised concerns with the GOP that its use limits U.S. firms’ participation in infrastructure solicitations. Peru expanded the use of G2G agreements in 2020 to include large infrastructure projects including a $1.6 billion general reconstruction initiative (related to damages caused by the El Nino event of 2017) and a $5 billion Lima metro line project.

Expropriation and Compensation

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

Illegal expropriation of foreign investment has been alleged in the extractive industry. A U.S. company alleged indirect expropriation due to changes in regulatory standards. Landowners have also alleged indirect expropriation due to government inaction and corruption in “land-grab” cases that have, at times, been linked to local government endorsed projects.

Dispute Settlement

ICSID Convention and New York Convention, and PTPA

Peru is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and to the International Center for the Settlement of Investment Disputes (ICSID convention). Disputes between foreign investors and the GOP regarding pre-existing contracts must still enter national courts, unless otherwise permitted, such as through provisions found in the PTPA. In addition, investors who enter into a juridical stability agreement may submit disputes with the government to national or international arbitration if stipulated in the agreement. Several private organizations – including the American Chamber of Commerce, the Lima Chamber of Commerce, and the Catholic University – operate private arbitration centers. The quality of such centers varies and investors should choose arbitration venues carefully.

The PTPA includes a chapter on dispute settlement, which applies to implementation of the Agreement’s core obligations, including labor and environment provisions. Dispute panel procedures set high standards of openness and transparency through the following measures: open public hearings, public release of legal submissions by parties, admission of special labor or environment expertise for disputes in these areas, and opportunities for interested third parties to submit views. The Agreement emphasizes compliance through consultation and trade-enhancing remedies and encourages arbitration and other alternative dispute resolution measures.

Investor-State Dispute Settlement

The PTPA provides investor-state claim mechanisms. It does not require that an investor exhaust local judicial or administrative remedies before a claim is filed. The investor may submit a claim under various arbitral mechanisms, including the Convention on the Settlement of Investment Disputes (ICSID Convention) and ICSID Rules of Procedure, the ICSID Additional Facility Rules, the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, or, if the disputants agree, any other arbitration institution or rules. Peru has paid previous arbitral awards; however, a U.S. court found in one case that Peru altered its tax code prior to payment, thus reducing interest payments.

In February 2016, a U.S. investor filed a Notice of Intent to pursue international arbitration against the GOP for violation of the U.S.-Peru Trade Promotion Agreement. The investor, which refiled its claim in August 2016, holds agrarian land reform bonds that it argues the GOP has undervalued.

In September 2019, a U.S. investor filed an arbitration claim against the GOP over alleged interference over environmental permitting and contractual issues for a hydro power project.

In February 2020, a claimant filed an arbitration claim against Peru for violation of the U.S.-Peru Trade Promotion Agreement regarding a tax and royalty dispute between its mining subsidiary and Peru’s tax authority SUNAT.

There is no recent history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

The 1993 Constitution allows disputes among foreign investors and the government or state-controlled enterprises to be submitted to international arbitration.

Bankruptcy Regulations

Peru has a creditor rights hierarchy similar to that established under U.S. bankruptcy law, and monetary judgments are usually made in the currency stipulated in the contract. However, administrative bankruptcy procedures are slow and subject to judicial intervention. Compounding this difficulty are occasional laws passed to protect specific debtors from action by creditors that would force them into bankruptcy or liquidation. In August 2016, the GOP extended the period for bankruptcy from one to two years. Peru does not criminalize bankruptcy. World Bank’s 2020 Doing Business Report ranked Peru 90 of 190 countries for ease of “resolving insolvency.”

Capital Markets and Portfolio Investment

Peru allows foreign portfolio investment and does not place restrictions on international transactions. The private sector has access to a variety of credit instruments. Peruvian mutual funds managed $12.7 billion in December 2020. Private pension funds managed a total of $47.2 billion in December 2020.

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

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

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

Money and Banking System

Peru’s banking sector is highly consolidated. Sixteen commercial banks account for 90 percent of the financial system’s total assets, valued at $164 billion in December of 2020. In 2020, three banks accounted for 72 percent of loans and 70 percent of deposits among commercial banks. Peru has a relatively low level of access to financial services at 50 percent, particularly outside Lima and major urban areas.

The Central Bank of Peru (BCRP) is an independent institution, free to manage monetary policy to maintain financial stability. The BCRP’s primary goal is to maintain price stability via inflation targeting between one to three percent. Year-end inflation reached 1.8 percent in 2020.

The banking system is considered generally sound, thanks to the GOP’s lessons learned during the 1997-1998 Asian financial crisis. Non-performing bank loans accounted for 3.8 percent of gross loans as of December 2020, an increase from the three percent registered in 2019. The rapid implementation of the $39.5 billion BCRP loan guarantee program in response to the COVID-19 pandemic attenuated loan default risk, but banks are still expected to feel an impact on credit operations within sensitive sectors such as tourism, services, and retail.

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

Foreign Exchange and Remittances

Foreign Exchange

There were no reported difficulties in obtaining foreign exchange. Under Article 64 of the Constitution, the GOP guarantees the freedom to hold and dispose of foreign currency. Exporters and importers are not required to channel foreign exchange transactions through the Central Bank and can conduct transactions freely on the open market. Anyone may open and maintain foreign currency accounts in Peruvian commercial banks. Under the PTPA, portfolio managers in the United States are able to provide portfolio management services to both mutual funds and pension funds in Peru, including funds that manage Peru’s privatized social security accounts.

The Constitution guarantees free convertibility of currency. However, limited capital controls still exist as private pension fund managers (AFPs) are constrained by how much of their portfolio can be invested in foreign securities. The maximum limit is set by law (currently 50 percent since July 2011), but the BCRP sets the operating limit AFPs can invest abroad. Over the years, the BCRP has gradually increased the operating limit. Peru reached the 50 percent limit in September 2018.

The foreign exchange market mostly operates freely. Funds associated with any form of investment can be freely converted into any world currency. To quell “extreme variations” of the exchange rate, the BCRP intervenes through purchases and sales in the open market without imposing controls on exchange rates or transactions. Since 2014,BCRP has pursued de-dollarization to reduce dollar denominated loans in the market and purchased U.S. dollars to mitigate the risk that spillover from expansionary U.S. monetary policy might result in over-valuation of the Peruvian Sol relative to the U.S. dollar. In December 2020, dollar-denominated loans reached 22 percent, and deposits 32 percent.

The U.S. Dollar averaged PEN 3.49 per $1 in 2020.

Remittance Policies

Article 7 of the Legislative Decree 662 issued in 1991 provided that foreign investors may send, in freely convertible currencies, remittances of the entirety of their capital derived from investments, including the sale of shares, stocks or rights, capital reduction or partial or total liquidation of companies, the entirety of their dividends or proven net profit derived from their investments, and any considerations for the use or enjoyment of assets that are physically located in Peru, as registered with the competent national entity, without a prior authorization from any national government department or decentralized public entities, or regional or municipal Governments, after having paid all the applicable taxes.

Sovereign Wealth Funds

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

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

Privatization Program

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

According to the Ombudsman, there were 145 active social conflicts in Peru as of January 2021. Although political violence against investors is rare, protests are common. In many cases, protestors sought public services not provided by the government. Widespread protests in late 2020 across several agricultural producing regions resulted in the repeal and rewriting of the nation’s major agricultural law. Protests related to extractives activities stopped operations of Peru’s northern oil pipeline for nearly two months in 2018 and effectively closed Peru’s second largest copper mine, Las Bambas for a month in early 2019. In October 2019, protests erupted in the mining province of Arequipa over Peru’s approval of a construction license for a Mexican copper company, which indefinitely halted its $1.4 billion plan for a copper mine project.

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

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

* Source for Host Country Data: Peru’s Central Bank of Reserve , ProInversion .

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

The Philippines seeks foreign investment to generate employment, promote economic development, and contribute to inclusive and sustained growth.  The Board of Investments (BOI) and Philippine Economic Zone Authority (PEZA) are the country’s lead investment promotion agencies (IPAs).  They provide incentives and special investment packages to investors. Noteworthy advantages of the Philippine investment landscape include free trade zones, including economic zones, and a large, educated, English-speaking, and relatively low-cost Filipino workforce.  Philippine law treats foreign investors the same as their domestic counterparts, except in sectors reserved for Filipinos by the Philippine Constitution and the Foreign Investment Act (see details under Limits on Foreign Control section).  Additional information regarding investment policies and incentives are available on the BOI (http://boi.gov.ph) and PEZA (http://www.peza.gov.ph) websites.

Restrictions on foreign ownership, inadequate public investment in infrastructure, and lack of transparency in procurement tenders hinder foreign investment.  The Philippines’ regulatory regime remains ambiguous in many sectors of the economy, and corruption is a significant problem.  Large, family-owned conglomerates, including San Miguel, Ayala, Aboitiz Equity Ventures, and SM Investments, dominate the economic landscape, crowding out other smaller businesses.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreigners are prohibited from fully owning land under the 1987 Constitution, although the 1993 Investors’ Lease Act allows foreign investors to lease a contiguous parcel of up to 1,000 hectares (2,471 acres) for a maximum of 75 years.  Dual citizens are permitted to own land.

The 1991 Foreign Investment Act (FIA) requires the publishing every two years of the Foreign Investment Negative List (FINL), which outlines sectors in which foreign investment is restricted.  The latest FINL was released in October 2018 and will be updated once the Strategic Investment Priorities Plan (SIPP) is drafted.  The FINL bans foreign ownership/participation in the following investment activities:  mass media (except recording and internet businesses); small-scale mining; private security agencies; utilization of marine resources; cockpits; manufacturing of firecrackers and pyrotechnic devices; and manufacturing and distribution of nuclear, biological, chemical and radiological weapons, and anti-personnel mines.  With the exception of the practices of law, radiologic and x-ray technology, and marine deck and marine engine officers, other laws and regulations on professions allow foreigners to practice in the Philippines if their country permits reciprocity for Philippine citizens, these include medicine, pharmacy, nursing, dentistry, accountancy, architecture, engineering, criminology, teaching, chemistry, environmental planning, geology, forestry, interior design, landscape architecture, and customs brokerage.  In practice, however, language exams, onerous registration processes, and other barriers prevent this from taking place.

The Philippines limits foreign ownership to 40 percent in the manufacturing of explosives, firearms, and military hardware; private radio communication networks; natural resource exploration, development, and utilization (with exceptions); educational institutions (with some exceptions); operation and management of public utilities; operation of commercial deep sea fishing vessels; Philippine government procurement contracts (40 percent for supply of goods and commodities); contracts for the construction and repair of locally funded public works (with some exceptions); ownership of private lands; and rice and corn production and processing (with some exceptions).  Other areas that carry varying foreign ownership ceilings include the following: private employee recruitment firms (25 percent) and advertising agencies (30 percent).

Retail trade enterprises with capital of less than USD 2.5 million, or less than USD 250,000, for retailers of luxury goods, are reserved for Filipinos.  The Philippines allows up to full foreign ownership of insurance adjustment, lending, financing, or investment companies; however, foreign investors are prohibited from owning stock in such enterprises, unless the investor’s home country affords the same reciprocal rights to Filipino investors.

Foreign banks are allowed to establish branches or own up to 100 percent of the voting stock of locally incorporated subsidiaries if they can meet certain requirements.  However, a foreign bank cannot open more than six branches in the Philippines.  A minimum of 60 percent of the total assets of the Philippine banking system should, at all times, remain controlled by majority Philippine-owned banks.  Ownership caps apply to foreign non-bank investors, whose aggregate share should not exceed 40 percent of the total voting stock in a domestic commercial bank and 60 percent of the voting stock in a thrift/rural bank.

Other Investment Policy Reviews

The World Trade Organization (WTO) and the Organization for Economic Co-operation and Development (OECD) conducted a Trade Policy Review of the Philippines in March 2018 and an Investment Policy Review of the Philippines in 2016, respectively.  The reviews are available online at the WTO website (https://www.wto.org/english/tratop_e/tpr_e/tp468_e.htm) and OECD website (http://www.oecd.org/daf/oecd-investment-policy-reviews-philippines-2016-9789264254510-en.htm).

Business Facilitation

Business registration in the Philippines is cumbersome due to multiple agencies involved in the process.  It takes an average of 33 days to start a business in Quezon City in Metro Manila, according to the 2020 World Bank’s Ease of Doing Business report.  The Duterte Administrations’ landmark law, Republic Act No. 11032 or the Ease of Doing Business and Efficient Government Service Delivery Act of 2018 sought to address the issues through the amendment of the Anti-Red Tape Act of 2007 (https://www.officialgazette.gov.ph/2018/05/28/republic-act-no-11032/).  It legislates standardized deadlines for government transactions, a single business application form, a one-stop-shop, automation of business permits processing, a zero-contact policy, and a central business databank.  Implementing rules and regulations for the Act was signed in 2019 (http://arta.gov.ph/pages/IRR.html).  It created an Anti-Red Tape Authority (ARTA) under the Office of the President that oversees national policy on anti-red tape issues and implements reforms to improve competitiveness rankings.  It also monitors compliance of agencies and issue notices to erring and non-compliant government employees and officials.  ARTA is governed by a council that includes the Secretaries of Trade and Industry, Finance, Interior and Local Governments, and Information and Communications Technology.  The Department of Trade and Industry serves as interim Secretariat for ARTA.  Since this landmark legislation, the Philippines jumped 29 notches in the World Bank’s 2020 Doing Business Report ranking 95th from its previous 124th rank with the ARTA pushing for the full adoption of an online application system as an efficient alternative to on-site application procedures, issue online permits, and use e-signatures in the processing of government transactions.

The Revised Corporation Code, a business-friendly amendment that encourages entrepreneurship, improves the ease of business and promotes good corporate governance.  This new law amends part of the four-decade-old Corporation Code and allows for existing and future companies to hold a perpetual status of incorporation, compared to the previous 50-year term limit which required renewal.  More importantly, the amendments allow for the formation of one-person corporations, providing more flexibility to conduct business; the old code required all incorporation to have at least five stockholders and provided less protection from liabilities.

Outward Investment

There are no restrictions on outward portfolio investments for Philippine residents, defined to include non-Filipino citizens who have been residing in the country for at least one year; foreign-controlled entities organized under Philippine laws; and branches, subsidiaries, or affiliates of foreign enterprises organized under foreign laws operating in the country.  However, outward investments funded by foreign exchange purchases above USD 60 million or its equivalent per investor per year, require prior notification to the Central Bank.

Transparency of the Regulatory System

Proposed Philippine laws must undergo public comment and review.  Government agencies are required to craft implementing rules and regulations (IRRs) through public consultation meetings within the government and with private sector representatives after laws are passed.  New regulations must be published in newspapers or in the government’s official gazette, available online, before taking effect (https://www.gov.ph/).  The 2016 Executive Order on Freedom of Information (FOI) mandates full public disclosure and transparency of government operations, with certain exceptions.  The public may request copies of official records through the FOI website (https://www.foi.gov.ph/).  Government offices in the Executive Branch are expected to come up with their respective agencies’ implementation guidelines.  The order is criticized for its long list of exceptions, rendering the policy less effective.

Stakeholders report regulatory enforcement in the Philippines is generally weak, inconsistent, and unpredictable.  Many U.S. investors describe business registration, customs, immigration, and visa procedures as burdensome and frustrating.  Regulatory agencies are generally not statutorily independent but are attached to cabinet departments or the Office of the President and, therefore, are subject to political pressure.  Issues in the judicial system also affect regulatory enforcement.

International Regulatory Considerations

The Philippines is a member of the World Trade Organization (WTO) and provides notice of draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).  (http://tbtims.wto.org/en/Notifications/Search?ProductsCoveredHSCodes=&ProductsCoveredICSCodes=&DoSearch=True&ExpandSearchMoreFields=False&NotifyingMember=Philippines&DocumentSymbol=&DistributionDateFrom=&DistributionDateTo=&SearchTerm=&ProductsCovered=&DescriptionOfContent=&CommentPeriod=&FinalDateForCommentsFrom=&FinalDateForCommentsTo=&ProposedDateOfAdoptionFrom=&ProposedDateOfAdoptionTo=&ProposedDateOfEntryIntoForceFrom=&ProposedDateOfEntryIntoForceTo=).

The Philippines continues to fulfill required regulatory reforms under the ASEAN Economic Community (AEC).  The Philippines officially joined live operations of the ASEAN Single Window (ASW) on December 30, 2019.  The country’s National Single Window (NSW) now issues an electronic Certificate of Origin via the TRADENET.gov.ph platform, and the NSW is connected to the ASW, allowing for customs efficiencies and better transparency.

The Philippines passed the Customs Modernization and Tariff Act in 2016, which enables the country to largely comply with the WTO Agreement on Trade Facilitation.  However, the various implementing rules and regulations to execute specific provisions have not been completed by the Department of Finance and the Bureau of Customs as of April 2020.

Legal System and Judicial Independence

The Philippines has a mixed legal system of civil, common, Islamic, and customary laws, along with commercial and contractual laws.

The Philippine judicial system is a separate and largely independent branch of the government, made up of the Supreme Court and lower courts.  The Supreme Court is the highest court and sole constitutional body.  More information is available on the court’s website (http://sc.judiciary.gov.ph/).  The lower courts consist of:  (a) trial courts with limited jurisdictions (i.e., Municipal Trial Courts, Metropolitan Trial Courts, etc.); (b) Regional Trial Courts (RTCs); (c) Shari’ah District Courts (Muslim courts); and (d) Court of Appeals (appellate courts).  Special courts include the “Sandiganbayan” (anti-graft court for public officials) and the Court of Tax Appeals.  Several RTCs have been designated as Special Commercial Courts (SCC) to hear intellectual property (IP) cases, with four SCCs authorized to issue writs of search and seizure on IP violations, enforceable nationwide.  In addition, nearly any case can be appealed to appellate courts, including the Supreme Court, increasing caseloads and further clogging the judicial system.

Foreign investors describe the inefficiency and uncertainty of the judicial system as a significant disincentive to investment.  Many investors decline to file dispute cases in court because of slow and complex litigation processes and corruption among some personnel.  The courts are not considered impartial or fair.  Stakeholders also report an inexperienced judiciary when confronted with complex issues such as technology, science, and intellectual property cases.  The Philippines ranked 152nd out of 190 economies, and 18th among 25 economies from East Asia and the Pacific, in the World Bank’s 2020 Ease of Doing Business report in terms of enforcing contracts.

Laws and Regulations on Foreign Direct Investment

The Fiscal Incentives Review Board (FIRB) is the ultimate governing body that oversees the administration and grant of tax incentives by investments promotions agencies (IPAs).  It also determines the target performance metrics used as conditions to avail of tax incentives and reviews, approve, and cancels incentives for investments above  USD 20 million as endorsed by IPAs.  The BOI regulates and promotes investment into the Philippines that caters to the domestic market.  The Strategic Investment Priorities Plan (SIPP), identified by the National Economic and Development Authority (NEDA) and administered by the BOI, identifies preferred economic activities approved by the President.  Government agencies are encouraged to adopt policies and implement programs consistent with the SIPP.

The Foreign Investment Act (FIA) requires the publishing of the Foreign Investment Negative List (FINL) that outlines sectors in which foreign investment is restricted.  The FINL consists of two parts:  Part A details sectors in which foreign equity participation is restricted by the Philippine Constitution or laws; and Part B lists areas in which foreign ownership is limited for reasons of national security, defense, public health, morals, and/or the protection of small and medium enterprises (SMEs).

The 1995 Special Economic Zone Act allows PEZAs to regulate and promote investments in export-oriented manufacturing and service facilities inside special economic zones, including grants of fiscal and non-fiscal incentives.

Further information about investing in the Philippines is available at BOI website (http://boi.gov.ph/) and PEZA website (http://www.peza.gov.ph).

Competition and Antitrust Laws

The 2015 Philippine competition law established the Philippine Competition Commission (PCC), an independent body mandated to resolve complaints on issues such as price fixing and bid rigging, to stop mergers that would restrict competition.  More information is available on PCC website (http://phcc.gov.ph/#content).  The Department of Justice (https://www.doj.gov.ph/) prosecutes criminal offenses involving violations of competition laws.

Expropriation and Compensation

Philippine law allows expropriation of private property for public use or in the interest of national welfare or defense in return for fair market value compensation.  In the event of expropriation, foreign investors have the right to receive compensation in the currency in which the investment was originally made and to remit it at the equivalent exchange rate.  However, the process of agreeing on a mutually acceptable price can be protracted in Philippine courts.  No recent cases of expropriation involve U.S. companies in the Philippines.

The 2016 Right-of-Way Act facilitates acquisition of right-of-way sites for national government infrastructure projects and outlines procedures in providing “just compensation” to owners of expropriated real properties to expedite implementation of government infrastructure programs.

Dispute Settlement

ICSID Convention and New York Convention

The Philippines is a member of the International Center for the Settlement of Investment Disputes (ICSID) and has adopted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or the New York Convention.

Investor-State Dispute Settlement

The Philippines is signatory to various bilateral investment treaties that recognize international arbitration of investment disputes.  Since 2002, the Philippines has been respondent to five investment dispute cases filed before the ICSID.  Details of cases involving the Philippines are available on the ICSID website (https://icsid.worldbank.org/en/).

International Commercial Arbitration and Foreign Courts

Investment disputes can take years to resolve due to systemic problems in Philippine courts.  Lack of resources, understaffing, and corruption make the already complex court processes protracted and expensive.  Several laws on alternative dispute resolution (ADR) mechanisms (i.e., arbitration, mediation, negotiation, and conciliation) were approved to decongest clogged court dockets.  Public-Private Partnership (PPP) infrastructure contracts are required to include ADR provisions to make resolving disputes less expensive and time-consuming.

A separate action must be filed for foreign judgments to be recognized or enforced under Philippine law.  Philippine law does not recognize or enforce foreign judgments that run counter to existing laws, particularly those relating to public order, public policy, and good customary practices.  Foreign arbitral awards are enforceable upon application in writing to the regional trial court with jurisdiction.  The petition may be filed any time after receipt of the award.

Bankruptcy Regulations

The 2010 Philippine bankruptcy and insolvency law provides a predictable framework for rehabilitation and liquidation of distressed companies, although an examination of some reported cases suggests uneven implementation.  Rehabilitation may be initiated by debtors or creditors under court-supervised, pre-negotiated, or out-of-court proceedings.  The law sets conditions for voluntary (debtor-initiated) and involuntary (creditor-initiated) liquidation.  It also recognizes cross-border insolvency proceedings in accordance with the United Nations Conference on Trade and Development (UNCTAD) Model Law on Cross-Border Insolvency, allowing courts to recognize proceedings in a foreign jurisdiction involving a foreign entity with assets in the Philippines.  Regional trial courts designated by the Supreme Court have jurisdiction over insolvency and bankruptcy cases.  The Philippines ranked 65th out of 190 economies, and ninth among 25 economies from East Asia and the Pacific, in the World Bank’s 2020 Ease of Doing Business report in terms of resolving insolvency and bankruptcy cases.

Capital Markets and Portfolio Investment

The Philippines welcomes the entry of foreign portfolio investments, including local and foreign-issued equities listed on the Philippine Stock Exchange (PSE).  Investments in certain publicly listed companies are subject to foreign ownership restrictions specified in the Constitution and other laws.  Non-residents are allowed to issue bonds/notes or similar instruments in the domestic market with prior approval from the Central Bank; in certain cases, they may also obtain financing in Philippine pesos from authorized agent banks without prior Central Bank approval.

Although growing, the PSE (with 271 listed firms as of end-2020) lags behind many of its neighbors in size, product offerings, and trading activity.  Efforts are underway to deepen the equity market, including introduction of new instruments (e.g., real investment trusts) and plans to amend listing rules for small and medium enterprises (SME).  The securities market is growing, and while it remains dominated by government bills and bonds, corporate issuances continue to expand due to the favorable interest rate environment and recent regulatory reforms.  Hostile takeovers are uncommon because most companies’ shares are not publicly listed and controlling interest tends to remain with a small group of parties.  Cross-ownership and interlocking directorates among listed companies also decrease the likelihood of hostile takeovers.

The Bangko Sentral ng Pilipinas (BSP/Central Bank) does not restrict payments and transfers for current international transactions in accordance to the country’s acceptance of International Monetary Fund Article VIII obligations of September 1995.  Purchase of foreign currencies for trade and non-trade obligations and/or remittances requires submission of a foreign exchange purchase application form if the foreign exchange is sourced from banks and/or their subsidiary/affiliate foreign exchange corporations falls within specified thresholds (currently USD 500,000 for individuals and USD 1 million for corporates/other entities).  Purchases above the thresholds are also subject to the submission of minimum documentary requirements but do not require prior Central Bank approval.  Meanwhile, a person may freely bring in or carryout foreign currencies up to USD 10,000; more than this threshold requires submission of a foreign currency declaration form.

Credit is generally granted on market terms and foreign investors are able to obtain credit from the liquid domestic market.  However, some laws require financial institutions to set aside loans for preferred sectors such as agriculture, agrarian reform, and MSMEs.  Notwithstanding, bank loans to these sectors remain constrained; for example, lending to MSMEs only amount to 5.9 percent of the total banking system loans despite comprising 99 percent of domestic firms. The government has implemented measures to promote lending to preferred sectors at competitive rates, including the establishment of a centralized credit information system and enactment of the 2018 Personal Property Security Law allowing the use of non-traditional collaterals (e.g., movable assets like machinery and equipment and inventories).  The government also established the Philippine Guarantee Corporation in 2018 to expand development financing by extending credit guarantees to priority sectors, including MSMEs.

Money and Banking System

The Bangko Sentral ng Pilipinas (BSP/Central Bank) is a highly respected institution that oversees a stable banking system.  The Central Bank has pursued regulatory reforms promoting good governance and aligning risk management regulations with international standards.  Capital adequacy ratios are well above the eight percent international standard and the Central Bank’s 10 percent regulatory requirement.  The non-performing loan ratio was at 3.7 percent as of end-2020, and there is ample liquidity in the system, with the liquid assets-to-deposits ratio estimated at about 53 percent.  Commercial banks constitute more than 93 percent of the total assets of the Philippine banking industry.  As of September 2020, the five largest commercial banks represented 60 percent of the total resources of the commercial banking sector.  The banking system was liberalized in 2014, allowing the full control of domestic lenders by non-residents and lifting the limits to the number of foreign banks that can operate in the country, subject to central bank prudential regulations.   Twenty-six of the 46 commercial banks operating in the country are foreign branches and subsidiaries, including three U.S. banks (Citibank, Bank of America, and JP Morgan Chase).  Citibank has the largest presence among the foreign bank branches and currently ranks 12th overall in terms of assets.  Despite the adequate number of operational banks, 31 percent of cities and municipalities in the Philippines were still without banking presence as of end-2019 and 4.6 percent were without any financial access point. The level of bank account penetration – the percentage of adults with a formal transaction account – stands at 34.5 percent, nearly halfway to the central bank goal of 70 percent by 2023.

Foreign residents and non-residents may open foreign and local currency bank accounts.  Although non-residents may open local currency deposit accounts, they are limited to the funding sources specified under Central Bank regulations.  Should non-residents decide to convert to foreign currency their local deposits, sales of foreign currencies are limited up to the local currency balance.  Non-residents’ foreign currency accounts cannot be funded from foreign exchange purchases from banks and banks’ subsidiary/affiliate foreign exchange corporations.

Foreign Exchange and Remittances

Foreign Exchange

The Bangko Sentral ng Pilipinas (Central Bank) has actively pursued reforms since the 1990s to liberalize and simplify foreign exchange regulations.  As a general rule, the Central Bank allows residents and non-residents to purchase foreign exchange from banks, banks’ subsidiary/affiliate foreign exchange corporations, and other non-bank entities operating as foreign exchange dealers and/or money changers and remittance agents to fund legitimate foreign exchange obligations, subject to provision of information and/or supporting documents on underlying obligations.  No mandatory foreign exchange surrender requirement is imposed on exporters, overseas workers’ incomes, or other foreign currency earners; these foreign exchange receipts may be sold for pesos or retained in foreign exchange in local and/or offshore accounts.  The Central Bank follows a market-determined exchange rate policy, with scope for intervention to smooth excessive foreign exchange volatility.

Remittance Policies

Foreign exchange policies do not require approval of inward foreign direct and portfolio investments unless the investor will purchase foreign currency from banks to convert its local currency proceeds or earnings for repatriation or remittance.  Registration of foreign investments with the Central Bank or custodian banks is generally optional.  Duly registered foreign investments are entitled to full and immediate repatriation of capital and remittance of dividends, profits, and earnings.  The Central Bank particularly requires foreign exchange for divestment purposes to be directly remitted to the account of non-resident investor on the date of purchase, with limited exemptions.  To repatriate capital from investments that did not fully materialize, non-resident investors can exchange excess local currencies provided at least 50 percent of inwardly remitted foreign exchange have been invested onshore, except for certain conditions.

As a general policy, government-guaranteed private sector foreign loans/borrowings (including those in the form of notes, bonds, and similar instruments) require prior Central Bank approval.  Although there are exceptions, private sector loan agreements should also be registered with the Central Bank if serviced through the purchase of foreign exchange from the banking system.

The Philippines strengthened its Anti-Money Laundering Act (AMLA) on January 29, 2021. The amended law expands covered entities and empowers the Anti-Terrorism Council to designate covered persons.

Sovereign Wealth Funds

The Philippines does not presently have sovereign wealth funds.

State-owned enterprises, known in the Philippines as government-owned and controlled corporations (GOCC), are predominantly in the finance, power, transport, infrastructure, communications, land and water resources, social services, housing, and support services sectors.  There were 133 operational and functioning GOCCs as of end-2020; a list is available on the Governance Commission for GOCC [GCG] website (https://gcg.gov.ph).  The government corporate sector has a combined asset of USD 300 billion and liability of  USD 210 billion (or net assets/equity worth about USD 9 billion) as of end-2019.  Its total income increased by 3.3 percent to  USD 33 billion during the year, while total expense rose by 0.6 percent to USD 24 billion; these result in a profit of USD 9 billion.  GOCCs are required to remit at least 50 percent of their annual net earnings (e.g., cash, stock, or property dividends) to the national government.

Private and state-owned enterprises generally compete equally.  The Government Service Insurance System (GSIS) is the only agency, with limited exceptions, allowed to provide coverage for the government’s insurance risks and interests, including those in build-operate-transfer (BOT) projects and privatized government corporations.  Since the national government acts as the main guarantor of loans, stakeholders report GOCCs often have an advantage in obtaining financing from government financial institutions and private banks.  Most GOCCs are not statutorily independent, thus could potentially be subject to political interference.

OECD Guidelines on Corporate Governance of SOEs

The Philippines is not an OECD member country.  The 2011 GOCC Governance Act addresses problems experienced by GOCCs, including poor financial performance, weak governance structures, and unauthorized allowances.  The law allows unrestricted access to GOCC account books and requires strict compliance with accounting and financial disclosure standards; establishes the power to privatize, abolish, or restructure GOCCs without legislative action; and sets performance standards and limits on compensation and allowances.  The GCG formulates and implements GOCC policies.  GOCC board members are limited to one-year term and subject to reappointment based on a performance rating set by GCG, with final approval by the Philippine President.

Privatization Program

The Philippine Government’s privatization program is managed by the Privatization Management Office (PMO) under the Department of Finance (DOF).  The privatization of government assets undergoes a public bidding process.  Apart from restrictions stipulated in FINL, no regulations discriminate against foreign buyers and the bidding process appears to be transparent.  Additional information is available on the PMO website (http://www.pmo.gov.ph/index.htm).

Terrorist groups and criminal gangs operate around the country.  The Department of State publishes a consular information sheet and advises all Americans living in or visiting the Philippines to review the information periodically.  A travel advisory is in place for those U.S. citizens contemplating travel to the Philippines.

Terrorist groups, including the ISIS-Philippines affiliated Abu Sayyaf Group (ASG), the Maute Group, Ansar al-Khalifa Philippines (AKP) and elements of the Bangsamoro Islamic Freedom Fighters (BIFF), periodically attack civilian targets, kidnap civilians – including foreigners – for ransom, and engage in armed attacks against government security forces.  These groups have mostly carried out their activities in the western and central regions of Mindanao, including the Sulu Archipelago and Sulu Sea.  Groups affiliated with ISIS-Philippines continued efforts to recover from battlefield losses, recruiting and training new members, and staging suicide bombings and attacks with improvised explosive devices (IEDs) and small arms that targeted security forces and civilians.

In 2017, ISIS-affiliated groups in Mindanao occupied and held siege to Marawi City for five months, prompting President Duterte to declare martial law over the entire Mindanao region – approximately one-third of the country’s territory.  After granting multiple extensions of over two and a half years, Congress, with support from the government, allowed martial law to lapse on December 31, 2019.  In expressing its support for the decision, the military cited improvement in the security climate in Mindanao, but also noted that Proclamation 55, a national state of emergency declaration, remained in effect and would be used as necessary.

The Philippines’ most significant human rights problems were killings allegedly undertaken by vigilantes, security forces, and insurgents; cases of apparent governmental disregard for human rights and due process; official corruption; shrinking civic spaces; and a weak and overburdened criminal justice system notable for slow court procedures, weak prosecutions, and poor cooperation between police and investigators.  In 2020, the Philippines has seen a number of arrests and killings of human rights defenders and members of the media.

President Duterte’s administration continued its nationwide campaign against illegal drugs, led primarily by the Philippine National Police (PNP) and the Philippine Drug Enforcement Agency (PDEA), which continues to receive worldwide attention for its harsh tactics.  In 2020, the government also renewed focus on  anti-terrorism with a particular emphasis against communist insurgents.  In addition to Philippine military and police actions against the insurgents, the Philippine government also pressured a number of political groups and activists – accusing them of links to the NPA, often without evidence.  The Anti-Terrorism Act of 2020, signed into law on July 3, intends to prevent, prohibit, and penalize terrorism in the country, although critics question whether law enforcement and prosecutors might be able to use the law to punish political opponents and endanger human rights.

* Host Country Statistical Sources:
Philippine Statistical Authority (http://psa.gov.ph/nap-press-release/data-charts)
Bangko Sentral ng Pilipinas (http://www.bsp.gov.ph/statistics/efs_ext2.asp#FCDU)

The Philippine Central Bank does not publish or post inward and outward FDI stock broken down by country.  Total stock figures are reported under the “International Investment Position” data that the Central Bank publishes and submits to the International Monetary Fund’s Dissemination Standards Bulletin Board (DSBB).  As of the third quarter of 2020, inward direct investment (i.e. liabilities) is USD 95 billion, while outward direct investment (i.e., assets) is USD 61 billion.

The Philippine Central Bank disaggregates data into equity and debt securities but does not publish or post the stock of portfolio investments assets broken down by country.  Total foreign portfolio investment stock figures are reported under the “International Investment Position” data that Central Bank publishes and submits to the International Monetary Fund’s Dissemination Standards Bulletin Board (DSBB).  As of third quarter 2020, outward portfolio investment (i.e., assets) was USD 30.9 billion, of which USD 3.9 billion was in equity investments and USD 27 billion was in debt securities.

Policies Toward Foreign Direct Investment

Poland welcomes foreign investment as a source of capital, growth, and jobs, and as a vehicle for technology transfer, research and development (R&D), and integration into global supply chains. The government’s Strategy for Responsible Development identified key goals for attracting investment, including improving the investment climate, a stable macroeconomic and regulatory environment, and high-quality corporate governance, including in state-controlled companies. By the end of 2019, according to IMF and National Bank of Poland data, Poland attracted around $234.9 billion (cumulative) in foreign direct investment (FDI), principally from Western Europe and the United States. In 2019, reinvested profits again dominated the net inflow of FDI to Poland. The greatest reinvestment of profits occurred in services and manufacturing, reflecting the change of Poland’s economy to a more service-oriented and less capital-intensive structure.

Foreign companies generally enjoy unrestricted access to the Polish market. However, Polish law limits foreign ownership of companies in selected strategic sectors, and limits acquisition of real estate, especially agricultural and forest land. Additionally, the current government has expressed a desire to increase the percentage of domestic ownership in some industries such as media, banking and retail which have large holdings by foreign companies, and has employed sectoral taxes and other measures to advance this aim. In March 2018, Sunday trading ban legislation went into effect, which has gradually phased out Sunday retail commerce in Poland, especially for large retailers. From 2020, the trade ban applies to all but seven Sundays a year. In 2020, a law was adopted requiring producers and importers of sugary and sweetened beverages to pay a fee. The government is planning to introduce (in mid-2021) an advertising tax – hailed as a “solidarity fee”- covering a wide array of entities including publishers, tech companies and cinemas. Only small media businesses would be exempt from the new levy. The revenue would support the National Health Fund, the National Fund for the Protection of National Monuments, and establish a new fund, the Media Support Fund for Culture and National Heritage, to support Polish culture and creators struggling due to the pandemic. Polish authorities have also publicly favored introducing a comprehensive digital services tax. The details of such a tax are unknown because no draft has been publicly released, but it would presumably affect mainly large foreign digital companies.

There are a variety of agencies involved in investment promotion:

The Ministry of Development has two departments involved in investment promotion and facilitation: the Investment Development and the Trade and International Relations Departments. The Deputy Minister supervising the Investment Development Department is also the ombudsman for foreign investors. https://www.gov.pl/web/przedsiebiorczosc-technologia/ 

The Ministry of Foreign Affairs (MFA) promotes Poland’s foreign relations including economic relations, and along with the Polish Chamber of Commerce (KIG), organizes missions of Polish firms abroad and hosts foreign trade missions to Poland. https://www.msz.gov.pl/ ; https://kig.pl/ 

The Polish Investment and Trade Agency (PAIH) is the main institution responsible for promotion and facilitation of foreign investment. The agency is responsible for promoting Polish exports, for inward foreign investment and for Polish investments abroad. The agency operates as part of the Polish Development Fund, which integrates government development agencies. PAIH coordinates all operational instruments, such as commercial diplomatic missions, commercial fairs and programs dedicated to specific markets and sectors. The Agency has opened offices abroad including in the United States (San Francisco and Washington, D.C, Los Angeles, Chicago, Houston and New York). PAIH’s services are available to all investors. https://www.paih.gov.pl/en 

The American Chamber of Commerce has established the American Investor Desk – an investor-dedicated know-how gateway providing comprehensive information on investing in Poland and investing in the USA: https://amcham.pl/american-investor-desk 

Limits on Foreign Control and Right to Private Ownership and Establishment

Poland allows both foreign and domestic entities to establish and own business enterprises and engage in most forms of remunerative activity per the Entrepreneurs’ Law which went into effect on April 30, 2018. Forms of business activity are described in the Commercial Companies Code. Poland does place limits on foreign ownership and foreign equity for a limited number of sectors. Polish law limits non-EU citizens to 49 percent ownership of a company’s capital shares in the air transport, radio and television broadcasting, and airport and seaport operations sectors. Licenses and concessions for defense production and management of seaports are granted on the basis of national treatment for investors from OECD countries.

Pursuant to the Broadcasting Law, a television broadcasting company may only receive a license if the voting share of foreign owners does not exceed 49 percent and if the majority of the members of the management and supervisory boards are Polish citizens and hold permanent residence in Poland. In 2017, a team comprised of officials from the Ministry of Culture and National Heritage, the National Broadcasting Council (KRRiT) and the Office of Competition and Consumer Protection (UOKiK) was created in order to review and tighten restrictions on large media and limit foreign ownership of the media. While no legislation has been introduced, there is concern that possible future proposals may limit foreign ownership of the media sector as suggested by governing party politicians.

Over the past five years, Poland’s ranking on Reporters without Borders’ Press Freedom Index has dropped from 18th to 62nd. The governing Law and Justice (PiS) party aims to decrease foreign ownership of media, particularly outlets critical of their governing coalition. Approaches have included proposals to set caps on foreign ownership, the use of a state-controlled companies to purchase media, and the application of economic tools (taxes, fines, advertising revenue) to pressure foreign and independent media. In the insurance sector, at least two management board members, including the chair, must speak Polish. The Law on Freedom of Economic Activity (LFEA) requires companies to obtain government concessions, licenses, or permits to conduct business in certain sectors, such as broadcasting, aviation, energy, weapons/military equipment, mining, and private security services. The LFEA also requires a permit from the Ministry of Development for certain major capital transactions (i.e., to establish a company when a wholly or partially Polish-owned enterprise has contributed in-kind to a company with foreign ownership by incorporating liabilities in equity, contributing assets, receivables, etc.). A detailed description of business activities that require concessions and licenses can be found here: https://www.paih.gov.pl/publications/how_to_do_business_in_Poland 

Polish law restricts foreign investment in certain land and real estate. Land usage types such as technology and industrial parks, business and logistic centers, transport, housing plots, farmland in special economic zones, household gardens and plots up to two hectares are exempt from agricultural land purchase restrictions. Since May 2016, foreign citizens from European Economic Area member states, Iceland, Liechtenstein, and Norway, as well as Switzerland, do not need permission to purchase any type of real estate including agricultural land. Investors from outside of the EEA or Switzerland need to obtain a permit from the Ministry of Internal Affairs and Administration (with the consent of the Defense and Agriculture Ministries), pursuant to the Act on Acquisition of Real Estate by Foreigners, prior to the acquisition of real estate or shares which give control of a company holding or leasing real estate. The permit is valid for two years from the day of issuance, and the ministry can issue a preliminary document valid for one year. Permits may be refused for reasons of social policy or public security. The exceptions to this rule include purchases of an apartment or garage, up to 0.4 hectares of undeveloped urban land, and “other cases provided for by law” (generally: proving a particularly close connection with Poland). Laws to restrict farmland and forest purchases (with subsequent amendments) came into force April 30, 2016 and are addressed in more detail in Section 5, Protection of Property Rights.

Since September 2015, the Act on the Control of Certain Investments has provided for the national security-related screening of acquisitions in high-risk sectors including: energy generation and distribution; petroleum production, processing and distribution; telecommunications; media; mining; and manufacturing and trade of explosives, weapons and ammunition. Poland maintains a list of strategic companies which can be amended at any time, but is updated at least once a year, usually in late December. The national security review mechanism does not appear to constitute a de facto barrier for investment and does not unduly target U.S. investment. According to the Act, prior to the acquisition of shares of strategic companies (including the acquisition of proprietary interests in entities and/or their enterprises) the purchaser (foreign or local) must notify the controlling government body and receive approval. The obligation to inform the controlling government body applies to transactions involving the acquisition of a “material stake” in companies subject to special protection. The Act stipulates that failure to notify carries a fine of up to PLN 100,000,000 ($25,000,000) or a penalty of imprisonment between six months and five years (or both penalties together) for a person acting on behalf of a legal person or organizational unit that acquires a material stake without prior notification.

As part of the COVID-19 Anti-Crisis Shield, on June 24, 2020, new legislation entered into force extending significantly the FDI screening mechanism in Poland for 24 months. An acquisition from a country that is not a member of the EU, the EEA, or the OECD requires prior clearance from the President of the Polish Competition Authority if it targets a company generating turnover exceeding EUR 10 million (almost $12 million) that either: 1) is a publicly-listed company, 2) controls assets classified as critical infrastructure, 3) develops or maintains software crucial for vital processes (e.g., utilities systems, financial transactions, food distribution, transport and logistics, health care systems); 4) conducts business in one of 21 specific industries, including energy, gas and oil production, storage, distribution and transportation; manufacture of chemicals, pharmaceuticals and medical instruments; telecommunications; and food processing. The State Assets Ministry is preparing similar and more permanent measures.

In November 2019, the governing Law and Justice party reestablished a treasury ministry, known as the State Assets Ministry, to consolidate the government’s control over state-owned enterprises. The government dissolved Poland’s energy ministry, transferring that agency’s mandate to the State Assets Ministry. The Deputy Prime Minister and Minister of State Assets announced he would seek to consolidate state-owned companies with similar profiles, including merging Poland’s largest state-owned oil and gas firm PKN Orlen with state-owned Lotos Group. At the same time, the government is working on changing the rules of governing state-owned companies to have better control over the firms’ activities. In September 2020, a new government plenipotentiary for the transformation of energy companies and coal mining was appointed.

Other Investment Policy Reviews

The government has not undergone any third-party investment policy review through a multilateral organization,

The OECD published its 2020 survey of Poland. It can be found here: https://www.oecd.org/economy/poland-economic-snapshot/ 

Additionally, the OECD Working Group on Bribery has provided recommendations on the implementation of the OECD Anti-Bribery Convention in Poland here:  https://www.oecd.org/poland/poland-should-urgently-implement-reforms-to-boost-fight-against-foreign-bribery-and-preserve-independence-of-prosecutors-and-judges.htm 

Business Facilitation

In 2020, government activities and regulations focused primarily on addressing challenges related to the outbreak of the pandemic.

The Polish government has continued to implement reforms aimed at improving the investment climate with a special focus on the SME sector and innovations. Poland reformed its R&D tax incentives with new regulations and changes encouraging wider use of the R&D tax breaks. As of January 1, 2019, a new mechanism reducing the tax rate on income derived from intellectual property rights (IP Box) was introduced. Please see Section 5, Protection of Property Rights of this report for more information.

A package of five laws referred to as the “Business Constitution”—intended to facilitate the operation of small domestic enterprises—was gradually introduced in 2018. The main principle of the Business Constitution is the presumption of innocence of business owners in dealings with the government.

Poland made enforcing contracts easier by introducing an automated system to assign cases to judges randomly. Despite these reforms and others, some investors have expressed serious concerns regarding over-regulation, over-burdened courts and prosecutors, and overly burdensome bureaucratic processes. Tax audit methods have changed considerably. For instance, in many cases an appeal against the findings of an audit must now be lodged with the authority that issued the initial finding rather than a higher authority or third party. Poland also enabled businesses to get electricity service faster by implementing a new customer service platform that allows the utility to better track applications for new commercial connections.

The Ministry of Finance and the National Tax Administration have launched an e-Tax Office, available online at https://www.podatki.gov.pl/ . The website, which will be constructed in stages through September 2022, will make it possible to settle all tax matters in a single user-friendly digital location. digital location.

In Poland, business activity may be conducted in the forms of a sole proprietor, civil law partnership, as well as commercial partnerships and companies regulated in provisions of the Commercial Partnerships and Companies Code. Sole proprietor and civil law partnerships are registered in the Central Registration and Information on Business (CEIDG), which is housed with the Ministry of Development here:  https://prod.ceidg.gov.pl/CEIDG.CMS.ENGINE/?D;f124ce8a-3e72-4588-8380-63e8ad33621f 

Commercial companies are classified as partnerships (registered partnership, professional partnership, limited partnership, and limited joint-stock partnership) and companies (limited liability company and joint-stock company). A partnership or company is registered in the National Court Register (KRS) and maintained by the competent district court for the registered office of the established partnership or company. Local corporate lawyers report that starting a business remains costly in terms of time and money, though KRS registration in the National Court Register averages less than two weeks according to the Ministry of Justice and four weeks according to the World Bank’s 2020 Doing Business Report. A 2018 law introduced a new type of company—PSA (Prosta Spółka Akcyjna – Simple Joint Stock Company). PSAs are meant to facilitate start-ups with simpler and cheaper registration procedures. The minimum initial capitalization is 1 PLN ($0.25) while other types of registration require 5,000 PLN ($1,274) or 50,000 PLN ($12,737). A PSA has a board of directors, which merges the responsibilities of a management board and a supervisory board. The provision for PSAs will enter into force in July 2021.

On August 5, 2020, the Government Legislation Center published the detailed assumptions of a draft amendment to the Commercial Companies Code developed by the Commission for Owner Oversight Reform with the Ministry of State Assets. The draft amendment’s primary assumption is to enact a so-called “holding law,” laying down the principles of how a parent company may instruct its subsidiaries, as well as stipulating the parent company’s liability and the principles of creditor, officer, and minority shareholder protections. Apart from introducing the holding law, the draft provides for several additional regulations, including those enhancing the supervisory board’s position, both within the holding law framework and for companies not comprising any group. The amendment is projected to come into force sometime in 2021.

On January 1, 2021, a new law on public procurement entered into force. This law was adopted by the Polish Parliament on September 11, 2019. The new law aims to reorganize the public procurement system and further harmonize it with EU law. The new public procurement law is also more transparent than the previous act.

Beginning in July 2021, an electronic system must be used for all applications submitted in registration proceedings by commercial companies disclosed in the National Court Register, i.e., both applications for registration, deletion, and any changes in the register.

A certified e-signature may be obtained from one of the commercial e-signature providers listed on the following website:  https://www.nccert.pl/ 

National Court Register (KRS): https://www.gov.pl/web/gov/uslugi-dla-przedsiebiorcy 

Agencies with which a business will need to file in order to register in the KRS include:

Central Statistical Office to register for a business identification number (REGON) for civil-law partnership http://bip.stat.gov.pl/en/regon/subjects-and-data-included-in-the-register/ 

ZUS – Social Insurance Agency http://www.zus.pl/pl/pue/rejestracja 

Ministry of Finance http://www.mf.gov.pl/web/bip/wyniki-wyszukiwania/?q=business percent20registration 

Both registers (KRS and REGON) are available in English and foreign companies may use them.

Poland’s Single Point of Contact site for business registration and information is: https://www.biznes.gov.pl/en/ 

Outward Investment

The Polish Agency for Investment and Trade (PAIH), under the umbrella of the Polish Development Fund (PFR), plays a key role in promoting Polish investment abroad. More information on PFR can be found in Section 7, State-Owned Enterprises and at its website: https://pfr.pl/ 

PAIH has 70 offices worldwide, including six in the United States.

PAIH assists entrepreneurs with administrative and legal procedures related to specific projects as well as with the development of legal solutions and with finding suitable locations, and reliable partners and suppliers.

The Agency implements pro-export projects such as “Polish Tech Bridges” dedicated to the outward expansion of innovative Polish SMEs.

Poland is a founding member of the Asian Infrastructure Investment Bank (AIIB). Poland co-founded and actively supports the Three Seas Initiative, which seeks to improve north-south connections in road, energy, and telecom infrastructure in 12 countries on NATO’s and the EU’s eastern flank.

Under the Government Financial Support for Exports Program, the national development bank BGK (Bank Gospodarstwa Krajowego) grants foreign buyers financing for the purchase of Polish goods and services. The program provides the following financing instruments: credit for buyers granted through the buyers’ bank; credit for buyers granted directly from BGK; the purchase of receivables on credit from the supplier under an export contract; documentary letters of credit post-financing; the discounting of receivables from documentary letters of credit; confirmation of documentary letters of credit; and export pre-financing. BGK has international offices in London and Frankfurt.

In May 2019, BGK and the Romanian development bank EximBank founded the Three Seas Fund, a commercial initiative to support the development of transport, energy and digital infrastructure in Central and Eastern Europe. As of March 2021, there were nine core sponsors involved in the Fund.

In July 2019, BGK, the European Investment Bank, and four other development banks (French Deposits and Consignments Fund, Italian Deposits and Loans Fund, the Spanish Official Credit Institute, and German Credit Institute for Reconstruction), began the implementation of the “Joint Initiative on Circular Economy” (JICE), the goal of which is to eliminate waste, prevent its generation and increase the efficiency of resource management. PFR TFI S.A, an entity also under the umbrella of PFR, supports Polish investors planning to or already operating abroad. PFR TFI manages the Foreign Expansion Fund (FEZ), which provides loans, on market terms, to foreign entities owned by Polish entrepreneurs. See https://www.pfrtfi.pl/  and https://pfr.pl/en/offer/foreign-expansion-fund.html 

Transparency of the Regulatory System

The Polish Constitution contains a number of provisions related to administrative law and procedures.  It states administrative bodies have a duty to observe and comply with the law of Poland.  The Code of Administrative Procedures (CAP) states rules and principles concerning participation and involvement of citizens in processes affecting them, the giving of reasons for decisions, and forms of appeal and review.

As a member of the EU, Poland complies with EU directives by harmonizing rules or translating them into national legislation.  Rule-making and regulatory authority exists at the central, regional, and municipal levels.  Various ministries are engaged in rule-making that affects foreign business, such as pharmaceutical reimbursement at the Ministry of Health or incentives for R&D at the Ministry of Development, Labor, and Technology.  Regional and municipal level governments can levy certain taxes and affect foreign investors through permitting and zoning.

Polish accounting standards do not differ significantly from international standards.  Major international accounting firms provide services in Poland.  In cases where there is no national accounting standard, the appropriate International Accounting Standard may be applied.  However, investors have complained of regulatory unpredictability and high levels of administrative red tape.  Foreign and domestic investors must comply with a variety of laws concerning taxation, labor practices, health and safety, and the environment.  Complaints about these laws, especially the tax system, center on frequent changes, lack of clarity, and strict penalties for minor errors.

Poland has improved its regulatory policy system over the last several years.  The government introduced a central online system to provide access for the general public to regulatory impact assessments (RIA) and other documents sent for consultation to selected groups such as trade unions and business.  Proposed laws and regulations are published in draft form for public comment, and ministries must conduct public consultations.  Poland follows OECD recognized good regulatory practices, but investors say the lack of regulations governing the role of stakeholders in the legislative process is a problem.  Participation in public consultations and the window for comments are often limited.

New guidelines for RIA, consultation and ex post evaluation were adopted under the Better Regulation Program in 2015, providing more detailed guidance and stronger emphasis on public consultation.  Like many countries, Poland faces challenges to fully implement its regulatory policy requirements and to ensure that RIA and consultation comments are used to improve decision making.  The OECD suggests Poland extend its online public consultation system and consider using instruments such as green papers more systematically for early-stage consultation to identify options for addressing a policy problem.  OECD considers steps taken to introduce ex post evaluation of regulations encouraging.

Bills can be submitted to Parliament for debate as “citizens’ bills” if authors collect 100,000 signatures in support for the draft legislation.  NGOs and private sector associations most often take advantage of this avenue.  Parliamentary bills can also be submitted by a group of parliamentarians, a mechanism that bypasses public consultation and which both domestic and foreign investors have criticized.  Changes to the government’s rules of procedure introduced in June 2016 reduced the requirements for RIA for preparations of new legislation.

Administrative authorities are subject to oversight by courts and other bodies (e.g., the Supreme Audit Chamber – NIK), the Office of the Human Rights Ombudsperson, special commissions and agencies, inspectorates, the Prosecutor and parliamentary committees.  Polish parliamentary committees utilize a distinct system to examine and instruct ministries and administrative agency heads.  Committees’ oversight of administrative matters consists of: reports on state budgets implementation and preparation of new budgets, citizens’ complaints, and reports from the NIK.  In addition, courts and prosecutors’ offices sometimes bring cases to parliament’s attention.

The Ombudsperson’s institution works relatively well in Poland.  Polish citizens have a right to complain and to put forward grievances before administrative bodies.  Proposed legislation can be tracked on the Prime Minister’s webpage,  https://legislacja.rcl.gov.pl/  and the Parliament’s webpage:  https://www.sejm.gov.pl/sejm9.nsf/proces.xsp . Poland has consistently met or exceeded the Department of State’s minimum requirements for fiscal transparency: https://www.state.gov/2020-fiscal-transparency-report/

Poland’s budget and information on debt obligations were widely and easily accessible to the general public, including online. The budget was substantially complete and considered generally reliable. NIK audited the government’s accounts and made its reports publicly available, including online. The budget structure and classifications are complex, and the Polish authorities agree more work is needed to address deficiencies in the process of budgetary planning and procedures. State budgets encompass only part of the public finances sector.

The European Commission regularly assesses the public finance sustainability of Member States based on fiscal gap ratios. In 2021, Poland’s public finances will continue to be exposed to a high general government deficit, uncertainty in financial markets resulting primarily from the macroeconomic environment, the effects of the fight against the COVID-19 epidemic, and the monetary policy of the NBP and major central banks, including the European Central Bank and the U.S. Federal Reserve.

International Regulatory Considerations

Since its EU accession in May 2004, Poland has been transposing European legislation and reforming its regulations in compliance with the EU system. Poland sometimes disagrees with EU regulations related to renewable energy and emissions due to its important domestic coal industry.

Poland participates in the process of creation of European norms. There is strong encouragement for non-governmental organizations, such as environmental and consumer groups, to actively participate in European standardization. In areas not covered by European normalization, the Polish Committee for Standardization (PKN) introduces norms identical with international norms, i.e., PN-ISO and PN-IEC. PKN actively cooperates with international and European standards organizations and with standards bodies from other countries. PKN has been a founding member of the International Organization for Standardization (ISO) and a member of the International Electro-technical Commission (IEC) since 1923.

PKN also cooperates with the American Society for Testing and Materials (ASTM) International and the World Trade Organization’s (WTO) Agreement on Technical Barriers to Trade (TBT). Poland has been a member of the WTO since July 1, 1995 and was a member of GATT from October 18, 1967. All EU member states are WTO members, as is the EU in its own right. While the member states coordinate their position in Brussels and Geneva, the European Commission alone speaks for the EU and its members in almost all WTO affairs. PKN runs the WTO/TBT National Information Point in order to apply the provisions of the TBT with respect to information exchange concerning national standardization.

Useful Links:
http://ec.europa.eu/growth/single-market/european-standards/harmonised-standards/ 
http://eur-lex.europa.eu/oj/direct-access.html?locale=en )

Legal System and Judicial Independence

The Polish legal system is code-based and prosecutorial.  The main source of the country’s law is the Constitution of 1997.  The legal system is a mix of Continental civil law (Napoleonic) and remnants of communist legal theory.  Poland accepts the obligatory jurisdiction of the ECJ, but with reservations.  In civil and commercial matters, first instance courts sit in single-judge panels, while courts handling appeals sit in three-judge panels. District Courts (Sad Rejonowy) handle the majority of disputes in the first instance.  When the value of a dispute exceeds a certain amount or the subject matter requires more expertise (such as those regarding intellectual property rights), Circuit Courts (Sad Okregowy) serve as first instance courts.  Circuit Courts also handle appeals from District Court verdicts.  Courts of Appeal (Sad Apelacyjny) handle appeals from verdicts of Circuit Courts as well as generally supervise the courts in their region.

The Polish judicial system generally upholds the sanctity of contracts.  Foreign court judgements, under the Polish Civil Procedure Code and European Community regulation, can be recognized.  There are many foreign court judgments, however, which Polish courts do not accept or accept partially.  There can also be delays in the recognition of judgments of foreign courts due to an insufficient number of judges with specialized expertise.  Generally, foreign firms are wary of the slow and over-burdened Polish court system, preferring other means to defend their rights.  Contracts involving foreign parties often include a clause specifying that disputes will be resolved in a third-country court or through offshore arbitration.  (More detail in Section 4, Dispute Settlement.)

Since coming to power in 2015, the PiS government has pursued far-reaching reforms to Poland’s judicial system. The reforms have led to legal disputes with the European Commission over threats to judicial independence. The reforms have also drawn criticism from legal experts, NGOs, and international organizations. Poland’s government contends the reforms are needed to purge the old Communist guard and increase efficiency and democratic oversight in the judiciary.

Observers noted in particular the introduction of an extraordinary appeal mechanism in the 2017 Supreme Court Law.  The extraordinary appeal mechanism states:  final judgments issued since 1997 can be challenged and overturned in whole or in part for a three-year period starting from the day the legislation entered into force on April 3, 2018.  On February 25, 2021, the Sejm passed an amendment to the law on the Supreme Court, which extended by two years (until April 2023) the deadline for submitting extraordinary complaints.  The bill is now waiting for review by the opposition-controlled Senate.  During 2020, the Extraordinary Appeals Chamber received 217 new complaints. During 2020, the Chamber reviewed 166 complaints, of which 18 were accepted, and 13 were rejected. Seventy-three cases were pending at the end of 2020 the status of the remaining cases was unavailable.

On April 8, 2020, the European Court of Justice (ECJ) issued interim measures ordering the government to suspend the work of the Supreme Court Disciplinary Chamber with regard to disciplinary cases against judges. The ECJ is evaluating an infringement proceeding launched by the European Commission in April 2019 and referred to the ECJ in October 2019. The commission argued that the country’s disciplinary regime for judges “undermines the judicial independence of…judges and does not ensure the necessary guarantees to protect judges from political control, as required by the Court of Justice of the EU.” The commission stated the disciplinary regime did not provide for the independence and impartiality of the Disciplinary Chamber, which is composed solely of judges selected by the restructured National Council of the Judiciary, which is appointed by the Sejm. The ECJ has yet to make a final ruling. The European Commission and judicial experts complained the government has ignored the ECJ’s interim measures.

On April 29, 2020, the European Commission launched a new infringement procedure regarding a law that came into effect on February 14, 2020. The law allows judges to be disciplined for impeding the functioning of the legal system or questioning a judge’s professional state or the effectiveness of his or her appointment. It also requires judges to disclose memberships in associations. The commission’s announcement stated the law “undermines the judicial independence of Polish judges and is incompatible with the primacy of EU law.” It also stated the law “prevents Polish courts from directly applying certain provisions of EU law protecting judicial independence and from putting references for preliminary rulings on such questions to the [European] Court of Justice.” On December 3, the commission expanded its April 29 complaint to include the continued functioning of the Disciplinary Chamber in apparent disregard of the ECJ’s interim measures in the prior infringement procedure.  On January 27, 2021, the European Commission sent a reasoned opinion to the Polish government for response. If not satisfied, the Commission noted it would refer the matter to the ECJ.

Laws and Regulations on Foreign Direct Investment

Foreign nationals can expect to obtain impartial proceedings in legal matters. Polish is the official language and must be used in all legal proceedings. It is possible to obtain an interpreter. The basic legal framework for establishing and operating companies in Poland, including companies with foreign investors, is found in the Commercial Companies Code. The Code provides for establishment of joint-stock companies, limited liability companies, or partnerships (e.g., limited joint-stock partnerships, professional partnerships). These corporate forms are available to foreign investors who come from an EU or European Free Trade Association (EFTA) member state or from a country that offers reciprocity to Polish enterprises, including the United States.

With few exceptions, foreign investors are guaranteed national treatment. Companies that establish an EU subsidiary after May 1, 2004 and conduct or plan to commence business operations in Poland must observe all EU regulations. However, in some cases they may not be able to benefit from all privileges afforded to EU companies. Foreign investors without permanent residence and the right to work in Poland may be restricted from participating in day-to-day operations of a company. Parties can freely determine the content of contracts within the limits of European contract law. All parties must agree on essential terms, including the price and the subject matter of the contract. Written agreements, although not always mandatory, may enable an investor to avoid future disputes. Civil Code is the law applicable to contracts.

Useful websites (in English) to help navigate laws, rules, procedures and reporting requirements for foreign investors:

Polish Investment and Trade Agency: https://www.paih.gov.pl/en 
Polish Financial Supervision Authority (KNF):  https://www.knf.gov.pl/en/ 
Office of Competition and Consumer Protection (UOKIK):  https://uokik.gov.pl/legal_regulations.php 

Biznes.gov.pl is intended for people who plan to start a new business in Poland. The portal is designed to simplify the formalities of setting up and running a business. It provides up-to-date regulations and procedures for running a business in Poland and the EU; it supports electronic application submission to state institutions; and it answers questions regarding running a business. Information is available in Polish and English. https://www.biznes.gov.pl/en/przedsiebiorcy/ 

Competition and Antitrust Laws

Poland has a high level of nominal convergence with the EU on competition policy in accordance with Articles 101 and 102 of the Lisbon Treaty. Poland’s Office of Competition and Consumer Protection (UOKiK) is well within EU norms for structure and functioning, with the exception that the Prime Minister both appoints and dismisses the head of UOKiK. This is supposed to change to be in line with EU norms, however, as of March 2021, the Prime Minister was still exercising his right to remove and nominate UOKiK’s presidents.

The Act on Competition and Consumer Protection  was amended in mid-2019. The most important changes, which concern geo-blocking and access to fiscal and banking secrets, came into force on September 17, 2019. Other minor changes took effect in January 2020. The amendments result from the need to align national law with new EU laws.

Starting in January 2020, UOKiK may intervene in cases when delays in payment are excessive. UOKiK can take action when the sum of outstanding payments due to an entrepreneur for three subsequent months amounts to at least PLN 5 million ($1.7 million). In 2022, the minimum amount will decrease to PLN 2 million ($510,000).

The President of UOKiK issues approximately 100 decisions per year regarding practices restricting competition and infringing on collective interests of consumers. Enterprises have the right to appeal against those decisions to the court. In the first instance, the case is examined by the Court of Competition and Consumer Protection and in the second instance, by the Appellate Court. The decision of the Appellate Court may be challenged by way of a cassation appeal filed to the Supreme Court. In major cases, the General Counsel to the Republic of Poland will act as the legal representative in proceedings concerning an appeal against a decision of the President of UOKiK.

As part of new COVID-related measures, the Polish Parliament adopted legislation amending the Act of July 24, 2015, on the Control of Certain Investments, introducing full-fledged foreign direct investment control in Poland and giving new responsibilities to UOKiK. Entities from outside the EEA and/or the OECD have to notify the Polish Competition Authority of the intention to make an investment resulting in acquisition, achievement or obtaining directly or indirectly: “significant participation” (defined briefly as 20 percent or 40 percent of share in the total number of votes, capital, or profits or purchasing or leasing of an enterprise or its organized part) or the status of a dominant entity within the meaning of the Act of July 24, 2015, on the Control of Certain Investments in an entity subject to protection. The new law entered into force on July 24, 2020 and is valid for 24 months.

On October 28, 2020, the government proposed new legislation by virtue of which the tasks pursued by the Financial Ombudsman will be taken over by UOKiK. According to the justification of this legislation, the objective of the draft is to enhance the efficiency of protection, in terms of both group and individual interests of financial market entities’ clients. According to the new regulations, a new position of coordinator conducting out-of-court procedures in matters of resolving disputes between financial market entities and their clients will be established. Such a coordinator will be appointed by UOKiK for a four-year term. Moreover, the new proposal provides for creating the Financial Education Fund (FEF), a special-purpose fund managed by UOKiK.

Additional provisions in the proposed legislation concern the UOKiK’s investigative powers, cooperation between anti-monopoly authorities, and changes to fine imposition and leniency programs. One of the amendments also stipulates that the President of UOKiK will be elected to a 5-year term and the dismissal of the anti-monopoly authority will only be possible in precisely defined situations, such as: legally valid conviction for a criminal offense caused by intentional conduct and the deprivation of public rights or of Polish citizenship. Adoption of these solutions is linked to the implementation of the EU’s ECN+ directive.

All multinational companies must notify UOKiK of a proposed merger if any party to it has subsidiaries, distribution networks or permanent sales in Poland.

Examples of competition reviews can be found at:
https://www.uokik.gov.pl/news.php?news_id=16649  (Gazprom NS2)
https://www.uokik.gov.pl/news.php?news_id=17198  (Agora/Eurozet)
https://www.uokik.gov.pl/news.php?news_id=17202  (Orlen/Polska Press)
https://www.uokik.gov.pl/news.php?news_id=17198  (BPH Bank spread clauses)

Decisions made by the President of UOKiK can be searched here:
https://decyzje.uokik.gov.pl/bp/dec_prez.nsf 

The President of UOKiK has the power to impose significant fines on individuals in management positions at companies that violate the prohibition of anticompetitive agreements. The amendment to the law governing UOKiK’s operation, which entered into force on December 15, 2018, provides for a similar power to impose significant fines on the management of companies in the case of violations of consumer rights. The maximum fine that can be imposed on a manager may amount to PLN 2 million ($510,000) and, in the case of managers in the financial sector, up to PLN 5 million ($1.27 million).

Expropriation and Compensation

Article 21 of the Polish Constitution states: “expropriation is admissible only for public purposes and upon equitable compensation.”  The Law on Land Management and Expropriation of Real Estate states that property may be expropriated only in accordance with statutory provisions such as construction of public works, national security considerations, or other specified cases of public interest.  The government must pay full compensation at market value for expropriated property.  Acquiring land for road construction investment and recently also for the Central Airport and the Vistula Spit projects has been liberalized and simplified to accelerate property acquisition, particularly through a special legislative act. Most acquisitions for road construction are resolved without problems.  However, there have been a few cases in which the inability to reach agreement on remuneration has resulted in disputes.  Post is not aware of any recent expropriation actions against U.S. investors, companies, or representatives.

Dispute Settlement

ICSID Convention and New York Convention

Poland is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington Convention). Poland is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Poland is party to the following international agreements on dispute resolution, with the Ministry of Finance acting as the government’s representative: the 1923 Geneva Protocol on Arbitration Clauses; the 1961 Geneva European Convention on International Trade Arbitration; the 1972 Moscow Convention on Arbitration Resolution of Civil Law Disputes in Economic and Scientific Cooperation Claims under the U.S.-Poland Bilateral Investment Treaty (BIT) (with further amendments).

The United Nations Conference on Trade and Development (UNCTAD) database for treaty-based disputes lists three cases for Poland involving a U.S. party over the last decade. The majority of Poland’s investment disputes are with companies from other EU member states. According to the UNCTAD database, over the last decade, there have been 16 known disputes with foreign investors.

There is no distinction in law between domestic and international arbitration. The law only distinguishes between foreign and domestic arbitral awards for the purpose of their recognition and enforcement. The decisions of arbitration entities are not automatically enforceable in Poland, but must be confirmed and upheld in a Polish court. Under Polish Civil Code, local courts accept and enforce the judgments of foreign courts; in practice, however, the acceptance of foreign court decisions varies. Investors say the timely process of energy policy consolidation has made the legal, regulatory and investment environment for the energy sector uncertain in terms of how the Polish judicial system deals with questions and disputes around energy investments by foreign investors, and in foreign investor interactions with state-owned or affiliated energy enterprises.

A Civil Procedures Code amendment in January 2016, with further amendments in July 2019, implements internationally recognized arbitration standards and creates an arbitration-friendly legal regime in Poland. The amendment applies to arbitral proceedings initiated on or after January 1, 2016 and introduced one-instance proceedings to repeal an arbitration award (instead of two-instance proceedings). This change encourages mediation and arbitration to solve commercial disputes and aims to strengthen expeditious procedure. The Courts of Appeal (instead of District Courts) handle complaints. In cases of foreign arbitral awards, the Court of Appeal is the only instance. In certain cases, it is possible to file a cassation (or extraordinary) appeal with the Supreme Court of the Republic of Poland. In the case of a domestic arbitral award, it will be possible to file an appeal to a different panel of the Court of Appeal.

International Commercial Arbitration and Foreign Courts

Poland does not have an arbitration law, but provisions in the Polish Code of Civil Procedures of 1964, as amended, are based to a large extent on UNCITRAL Model Law. Under the Code of Civil Procedure, an arbitration agreement must be concluded in writing. Commercial contracts between Polish and foreign companies often contain an arbitration clause. Arbitration tribunals operate through the Polish Chamber of Commerce, and other sector-specific organizations. A permanent court of arbitration also functions at the business organization Confederation Lewiatan in Warsaw and at the General Counsel to the Republic of Poland (GCRP). GCRP took over arbitral cases from external counsels in 2017 and began representing state-owned commercial companies in litigation and arbitration matters for amounts in dispute over PLN 5 million ($1.27 million). The list of these entities includes major Polish state-owned enterprises in the airline, energy, banking, chemical, insurance, military, oil and rail industries as well as other entities such as museums, state-owned media and universities.

The Court of Arbitration at the Polish Chamber of Commerce in Warsaw, the biggest permanent arbitration court in Poland, operates based on arbitration rules complying with the latest international standards, implementing new provisions on expedited procedure. In recent years, numerous efforts have been made to increase use of arbitration in Poland. In 2019, online arbitration courts appeared on the Polish market. Their presence reflects the need for reliable, fast and affordable alternatives to state courts in smaller disputes. Online arbitration is becoming increasingly popular with exporting companies. One of the reasons is the possibility to file claims faster for overdue payments to foreign courts.

Polish state courts generally respect the wide autonomy of arbitration courts and show little inclination to interfere with their decisions as to the merits of the case. The arbitral awards are likely to be set aside only in rare cases. As a rule, in post-arbitral proceedings, Polish courts do not address the merits of the cases decided by the arbitration courts. An arbitration-friendly approach is also visible in other aspects, such as in the broad interpretation of arbitration clauses.

In mid-2018, the Polish Supreme Court introduced a new legal instrument into the Polish legal field: an extraordinary complaint. Although this new instrument does not refer directly to arbitration proceedings, it may be applied to any procedures before Polish state courts, including post-arbitration proceedings (see Section 3 for more details).

Bankruptcy Regulations

Poland’s bankruptcy law has undergone significant change and modernization in recent years. There is now a bankruptcy law and a separate, distinct restructuring law. Poland ranks 25th for ease of resolving insolvency in the World Bank’s Doing Business report 2020. Bankruptcy in Poland is criminalized if a company’s management does not file a petition to declare bankruptcy when a company becomes illiquid for an extended period of time or if a company ceases to pay its liabilities. https://www.paih.gov.pl/polish_law/bankruptcy_law_and_restructuring_proceedings 

In order to reduce the risk of overwhelming the bankruptcy courts with an excess of cases resulting from the pandemic, changes have been introduced in the bankruptcy process for consumers, shifting part of the duties to a trustee. A second significant change is the introduction of simplified restructuring proceedings. During restructuring proceedings, a company appoints an interim supervisor and is guaranteed protection against debt collection while seeking approval for specific restructuring plans from creditors. The simplified proceedings enjoy great support among entities at risk of insolvency, but are limited in time until June 30, 2021. Some of the solutions provided in the simplified restructuring procedure are the implementation of recommendations from Directive 2019/1023 of the European Parliament and of the Council (EU) of June 20, 2019. It is likely that, taking advantage of the state of the epidemic, the government is testing new solutions, which may continue to be applied after the economic situation has returned to normal.

Capital Markets and Portfolio Investment

The Polish regulatory system is effective in encouraging and facilitating portfolio investment.  Both foreign and domestic investors may place funds in demand and time deposits, stocks, bonds, futures, and derivatives.  Poland’s equity markets facilitate the free flow of financial resources.  Poland’s stock market is the largest and most developed in Central Europe.  In September 2018, it was reclassified as developed market status by FTSE Russell’s country classification report.  The stock market’s capitalization amounts to less than 40 percent of GDP.  Although the Warsaw Stock Exchange (WSE) is itself a publicly traded company with shares listed on its own exchange after its partial privatization in 2010, the state retains a significant percentage of shares which allows it to control the company.  WSE has become a hub for foreign institutional investors targeting equity investments in the region.  It has also become an increasingly significant source of capital.

In addition to the equity market, Poland has a wholesale market dedicated to the trading of treasury bills and bonds (Treasury BondSpot Poland).  This treasury market is an integral part of the Primary Dealers System organized by the Finance Ministry and part of the pan-European bond platform.  Wholesale treasury bonds and bills denominated in zlotys and some securities denominated in euros are traded on the Treasury BondSpot market.  Non-government bonds are traded on Catalyst, a WSE managed platform.  The capital market is a source of funding for Polish companies.  While securities markets continue to play a subordinate role to banks in the provision of finance, the need for medium-term financial support for the modernization of the electricity and gas sectors is likely to lead to an increase in the importance of the corporate bond market.  The Polish government acknowledges the capital market’s role in the economy in its development plan.  Foreigners may invest in listed Polish shares, but they are subject to some restrictions in buying large packages of shares.  Liquidity remains tight on the exchange.

The Capital Markets Development Strategy, published in 2018, identifies 20 key barriers and offers 60 solutions.  Some key challenges include low levels of savings and investment, insufficient efficiency, transparency and liquidity of many market segments, and lack of taxation incentives for issuers and investors.  The primary aim of the strategy is to improve access of Polish enterprises to financing.  The strategy focuses on strengthening trust in the market, improving the protection of individual investors, the stabilization of the regulatory and supervisory environment and the use of competitive new technologies.  The strategy is not a law, but sets the direction for further regulatory proposals.  The Ministry of Finance assumes in its development directions for 2021-2024, the liquidation of approximately 50 percent of barriers to the development of the financial market identified in the strategy and an increase in the capitalization of companies listed on the WSE to 50 percent of GDP.  The WSE has signed an agreement with the European Bank for Reconstruction and Development (EBRD) on cooperation in the promotion of advanced environmental reporting by listed companies in Poland and the region of Central and Southeast Europe.  Poland is one of the most rigorously supervised capital markets in Europe according to the European Commission.

The Employee Capital Plans program (PPK)—which is designed to increase household saving to augment individual incomes in retirement—could provide a boost to Poland’s capital markets and reduce dependence on foreign saving as a source for investment financing.  The program has been delayed due to the outbreak of the COVID-19 pandemic.

High-risk venture capital funds are becoming an increasingly important segment of the capital market.  The market is still shallow, however, and one major transaction may affect the value of the market in a given year.  The funds remain active and Poland is a leader in this respect in Central and Eastern Europe.

In 2020, Poland saw an almost 70 percent increase in venture capital (VC) funding, with around $500 million flowing into Polish startups throughout the year, according to a report by PFR Ventures and Inovo Venture Partners.  This marks a new record for Poland, which is increasingly emerging as an important startup hub.  According to the report, a quarter of Polish startups that received VC funding in 2020 were involved in or around healthcare.

In 2020, WSE strengthened its position as the global leader when it comes to the number of listed companies from the game developers sector.  The WSE’s main and start-up markets list a total of 58 game development companies.

Poland provides full IMF Article VIII convertibility for current transactions.  Banks can and do lend to foreign and domestic companies.  Companies can and do borrow abroad and issue commercial paper, but the market is less robust than in Western European countries or the United States.  The Act on Investment Funds allows for open-end, closed-end, and mixed investment funds, and the development of securitization instruments in Poland.  In general, no special restrictions apply to foreign investors purchasing Polish securities.

Credit allocation is on market terms.  The government maintains some programs offering below-market rate loans to certain domestic groups, such as farmers and homeowners.  Foreign investors and domestic investors have equal access to Polish financial markets.  Private Polish investment is usually financed from retained earnings and credits, while foreign investors utilize funds obtained outside of Poland as well as retained earnings.  Polish firms raise capital in Poland and abroad.

Recent changes in the governance structure of the Polish Financial Supervisory Authority (KNF) are aimed at increasing cross governmental coordination and a better-targeted response in case of financial shocks, while achieving greater institutional effectiveness through enhanced resource allocation.  KNF’s supplementary powers have increased, allowing it to authorize the swift acquisition of a failing or likely to fail lender by a stronger financial institution.

Money and Banking System

The Polish financial sector entered the pandemic with strong capital and liquidity buffers and without significant imbalances.  The COVID-19 pandemic presents risks for the Polish financial sector resulting from a sharp economic slowdown and an increase in the number of business failures.  Loosening of reserve requirements, government-provided loan guarantees, and fiscal support measures should help to mitigate losses faced by financial sector firms including banks.

The banking sector plays a dominant role in the financial system, accounting for about 70 percent of financial sector assets.  The sector is mostly privately owned, with the state controlling about 40 percent of the banking sector and the biggest insurance company.  Poland had 30 locally incorporated commercial banks at the end of August 2020, according to KNF.  The number of locally-incorporated banks has been declining over the last five years.  Poland’s 533 cooperative banks play a secondary role in the financial system, but are widespread.  The state owns eight banks.  Over the last few years, growing capital requirements, lower prospects for profit generation and uncertainty about legislation addressing foreign currency mortgages has pushed banks towards mergers and acquisitions.  KNF welcomes this consolidation process, seeing it as a “natural” way to create an efficient banking sector.

The Polish National Bank (NBP) is Poland’s central bank.  At the end of 2020, the banking sector was overall well capitalized and solid.  Poland’s banking sector meets European Banking Authority regulatory requirements.  The share of non-performing loans is close to the EU average and recently has been rising, but modestly.  In December 2020, non-performing loans were 6.8 percent of portfolios.  Poland’s central bank is willing and able to provide liquidity support to the banking sector, in local and foreign currencies, if needed.  The NBP responded swiftly to the COVID-19 pandemic.  It cut rates in early 2020 to 0.1 percent from 1.5 percent over the previous five years and started buying government bonds.  To support liquidity in the banking sector, the central bank has lowered reserve requirements, introduced repo operations, and offered bill discount credit aimed at refinancing loans granted to enterprises by banks.

The banking sector is liquid, still profitable, and major banks are well capitalized, although disparities exist among banks.  This was confirmed by NBP’s Financial Stability Report and stress tests conducted by the central bank.  In 2020, the net profit of the banking sector amounted to PLN 7.8 billion ($2 billion), decreasing on an annual basis by around 44 percent – according to the data of the Polish Financial Supervision Authority.  Returns on equity fell to around 3 percent in 2020 vs 6.7 percent in 2019.  The level of write-offs and provisions as well as the net commission income increased significantly.  The need to make allowances to cover the costs of the pandemic and loans in Swiss francs had a significant impact on the decline in business profitability – the result from impairment losses and provisions increased by 33 percent up to PLN 12.7 billion ($3.2 billion).  Profits remain under pressure due to low interest rates, the issue of conversion of Swiss francs mortgage portfolios into Polish zlotys, and a special levy on financial institutions (0.44 percent of the value of assets excluding equity and Polish sovereign bonds).

The ECJ issued a judgement in October 2019 on mortgages in Swiss francs, taking the side of borrowers.  The ECJ annulled the loan agreements, noting an imbalance between the parties and the use of prohibited clauses.  The legal risk arising from the portfolio of foreign exchange mortgage loans has risen and is substantial.  The number of borrowers who have filed lawsuits against banks and the percentage of court rulings in favor of borrowers has increased.  In December 2020, the head of Poland’s financial market regulator KNF proposed a plan for banks to convert foreign currency loans into zlotys as if they had been taken out in the local currency originally.  This solution could cost the banking sector PLN 34.5 billion ($8.8 billion).  While some observers initially expected banks to finalize a plan for such out-of-court settlements before the Supreme Court sitting, scheduled for April 2021, lenders appear to be waiting for guidelines that could prove crucial to clients trying to decide whether they should go to court.  An additional financial burden for banks resulted from the necessity to return any additional fees they charged customers who repaid loans ahead of schedule.

Since 2015, the Polish government established an active campaign aiming to increase the market share of national financial institutions.  Since 2017, Polish investors’ share in the banking sector’s total assets exceeds the foreign share in the sector.  The State controls around 40 percent of total assets, including the two largest banks in Poland.  These two lenders control about one third of the market.  Rating agencies warn that an increasing state share in the banking sector might impact competitiveness and profits in the entire financial sector.  There is concern that lending decisions at state-owned banks could come under political pressure.  Nevertheless, Poland’s strong fundamentals and the size of its internal market mean that many foreign banks will want to retain their positions.

The financial regulator has restricted the availability of loans in euros or Swiss francs in order to minimize the banking system’s exposure to exchange risk resulting from fluctuations.  Only individuals who earn salaries denominated in these currencies continue to enjoy easy access to loans in foreign currencies.

In 2020, NBP had relationships with 27 commercial and central banks and was not concerned about losing any of them.

The coronavirus-driven recession will likely depress business volumes and increase loan losses, but Polish banks seem to have strong enough capital and liquidity positions to persevere.

Foreign Exchange and Remittances

Foreign Exchange

Poland is not a member of the Eurozone; its currency is the Polish zloty.  The current government has shown little desire to adopt the euro (EUR).  The Polish zloty (PLN) is a floating currency; it has largely tracked the EUR at approximately PLN 4.2-4.3 to EUR 1 in recent years and PLN 3.7 – 3.8 to $1.  Foreign exchange is available through commercial banks and exchange offices.  Payments and remittances in convertible currency may be made and received through a bank authorized to engage in foreign exchange transactions, and most banks have authorization.  Foreign investors have not complained of significant difficulties or delays in remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties, or management fees.  Foreign currencies can be freely used for settling accounts.

Poland provides full IMF Article VIII convertibility for currency transactions.  The Polish Foreign Exchange Law, as amended, fully conforms to OECD Codes of Liberalization of Capital Movements and Current Invisible Operations.  In general, foreign exchange transactions with the EU, OECD, and European Economic Area (EEA) are accorded equal treatment and are not restricted.

Except in limited cases which require a permit, foreigners may convert or transfer currency to make payments abroad for goods or services and may transfer abroad their shares of after-tax profit from operations in Poland.  In general, foreign investors may freely withdraw their capital from Poland, however, the November 2018 tax bill included an exit tax.  Full repatriation of profits and dividend payments is allowed without obtaining a permit.  A Polish company (including a Polish subsidiary of a foreign company), however, must pay withholding taxes to Polish tax authorities on distributable dividends unless a double taxation treaty is in effect, which is the case for the United States.  Changes to the withholding tax in the 2018 tax bill increased the bureaucratic burden for some foreign investors (see Section 2).  The United States and Poland signed an updated bilateral tax treaty in February 2013 that the United States has not yet ratified.  As a rule, a company headquartered outside of Poland is subject to corporate income tax on income earned in Poland, under the same rules as Polish companies.

Foreign exchange regulations require non-bank entities dealing in foreign exchange or acting as a currency exchange bureau to submit reports electronically to NBP at: http://sprawozdawczosc.nbp.pl.

An exporter may open foreign exchange accounts in the currency the exporter chooses.

Remittance Policies

Poland does not prohibit remittance through legal parallel markets utilizing convertible negotiable instruments (such as dollar-denominated Polish bonds in lieu of immediate payment in dollars).  As a practical matter, such payment methods are rarely, if ever, used.

Sovereign Wealth Funds

The Polish Development Fund (PFR) is often referred to as Poland’s Sovereign Wealth Fund.   PFR is an umbrella organization pooling resources of several governmental agencies and departments, including EU funds.  A strategy for the Fund was adopted in September 2016, and it was registered in February 2017.  PFR supports the implementation of the Responsible Development Strategy.  The PFR operates as a group of state-owned banks and insurers, investment bodies, and promotion agencies.  The budget of the PFR Group initially reached PLN 14 billion ($3.6 billion), which managers estimate is sufficient to raise capital worth PLN 90-100 billion ($23-25 billion).  Various actors within the organization can invest through acquisition of shares, through direct financing, seed funding, and co-financing venture capital.  Depending on the instruments, PFR expects different rates of return.

In July 2019, the President of Poland signed the Act on the System of Development Institutions.  Its main goal is to formalize and improve the cooperation of institutions that make up the PFR Group, strengthen the position of the Fund’s president and secure additional funding from the Finance Ministry.  The group will have one common strategy.  The introduction of new legal solutions will increase the efficiency and availability of financial and consulting instruments.  An almost four-fold increase in the share capital will enable PFR to significantly increase the scale of investment in innovation and infrastructure and will help Polish companies expand into foreign markets.  While supportive of overseas expansion by Polish companies, the Fund’s mission is domestic.

PFR plans to invest PLN 2.2 billion ($560 million) jointly with private-equity and venture-capital firms and PLN 600 million ($153 million) into a so-called fund of funds intended to kickstart investment in midsize companies.

Since its inception, PFR has carried out over 30 capital transactions, investing a total of PLN 8.3 billion ($2.1 billion) directly or through managed funds.  PFR, together with the support of other partners, has implemented investment projects with a total value of PLN 26.2 billion ($6.7 billion).  The most significant transactions carried out together with state-controlled insurance company PZU S.A. include the acquisition of 32.8 percent of the shares of Bank Pekao S.A. (PFR’s share is 12.8 percent); the acquisition of 100 percent of the shares in PESA Bydgoszcz S.A. (a rolling stock producer); and the acquisition of 99.77 percent of the shares of Polskie Koleje Linowe S.A.  PFR has also completed the purchase, together with PSA International Ptd Ltd and IFM Investors, of DCT Gdansk, the largest container terminal in Poland (PFR’s share is 30 percent).  Also, 59 funds supported by PFR Ventures have invested almost PLN 3.5 billion ($1.0 billion) () in nearly 400 companies.  Over one third of this sum went to innovative, young start-ups and the rest for financing mature companies.  In April 2020, the President of Poland signed into law an amendment to the law on development institution systems, expanding the competencies of PFR as part of the government’s Anti-Crisis Shield.  The Act assumes that, in the years 2020-2029, the maximum limit of government budget expenditures resulting from the financial effects of the amendment will be PLN 11.7 billion ($3.0 billion).

The amendment expands the competencies of PFR so that it can more efficiently support businesses in the face of the coronavirus epidemic.  The fund has been charged with management of the Financial Shield, a loan and subsidies government scheme worth approximately PLN 100 billion ($25.0 billion) for firms to maintain liquidity and protect jobs.  The scheme is accessible to small, medium and large firms.

State-owned enterprises (SOEs) exist mainly in the defense, energy, transport, banking and insurance sectors.  The main Warsaw stock index (WIG) is dominated by state-controlled companies. The government intends to keep majority share ownership and/or state-control of economically and strategically important firms and is expanding the role of the state in the economy, particularly in the banking and energy sectors.  Some U.S. investors have expressed concern that the government favors SOEs by offering loans from the national budget as a capital injection and unfairly favoring SOEs in investment disputes.  Since Poland’s EU accession, government activity favoring state-owned firms has received careful scrutiny from Brussels.  Since the Law and Justice government came to power in 2015, there has been a considerable increase in turnover in managerial positions of state-owned companies (although this has also occurred in previous changes of government, but to a lesser degree) and increased focus on building national champions in strategic industries to be able to compete internationally.  There have also been cases of takeovers of foreign private companies by state-controlled companies the viability of which has raised doubts.  SOEs are governed by a board of directors and most pay an annual dividend to the government, as well as prepare and disclose annual reports.

A list of companies classified as “important for the economy” is at this link:  https://nadzor.kprm.gov.pl/spolki-z-udzialem-skarbu-panstwa

Among them are companies of “strategic importance” whose shares cannot be sold, including:  Grupa Azoty S.A., Grupa LOTOS S.A., KGHM Polska Miedz S.A., Energa S.A, and the Central Communication Port.

The government sees SOEs as drivers and leaders of its innovation policy agenda.  For example, several energy SOEs established a company to develop electro mobility.  The performance of SOEs has remained strong overall and broadly similar to that of private companies.  International evidence suggests, however, that a dominant role of SOEs can pose fiscal, financial, and macro-stability risks.

As of June 2020, there were over 349 companies in partnership with state authorities.  Among them there are companies under bankruptcy proceedings and in liquidation and in which the State Treasury held residual shares.  Here is a link to the list of companies, including under the control of which ministry they fall:  http://nadzor.kprm.gov.pl/spolki-z-udzialem-skarbu-panstwa.

The Ministry of State Assets, established after the October 2019 post-election cabinet reshuffle, has control over almost 180 enterprises.  Their aggregate value reaches several dozens of billions of Polish zlotys.  Among these companies are the largest chemical, energy, and mining groups; firms in the banking and insurance sectors; and transport companies.  This list does not include state-controlled public media, which are under the supervision of the Ministry of Culture or the State Securities Printing Company (PWPW) supervised by the Interior Ministry.  Supervision over defense industry companies has been shifted from the Ministry of Defense to the Ministry of State Assets.

According to the latest data from the National Bank of Poland, at the end of September 2019. stocks and shares held by state (and local government) institutions amounted to just over PLN 261 billion ($66 billion).

The same standards are generally applied to private and public companies with respect to access to markets, credit, and other business operations such as licenses and supplies.  Government officials occasionally exercise discretionary authority to assist SOEs.  In general, SOEs are expected to pay their own way, finance their operations, and fund further expansion through profits generated from their own operations.

On February 21, 2019, an amendment to the Act on the principles of management of state-owned property was adopted, which provides for the establishment of a new public special-purpose fund – the Capital Investment Fund.  The Fund is a source of financing for the purchase and subscription of shares in companies.  The Fund is managed by the Prime Minister’s office and financed by dividends from state-controlled companies.

A commission for the reform of corporate governance was established on February 10, 2020, by the Minister of State Assets.  The commission developed recommendations regarding the introduction of a law on consortia/holdings; changes in the powers of supervisory boards and their members, with particular emphasis on the rights and obligations of parent companies’ supervisory boards; changes in the scope of information obligations of companies towards partners or shareholders; and other changes, including in the Commercial Companies Code.  The Ministry of State Assets plans to introduce the regulations of the holding law into the Polish legal system in 2021, which is a part of a draft reform of commercial law prepared by the commission.  Some law offices expressed concerns that the solutions provided for in the amendment may impose new obligations on entrepreneurs conducting business activity in this form. Since coming to power in 2015, the governing Law and Justice party (PiS) has increased control over Poland’s banking and energy sectors

Proposed legislation to “deconcentrate” and “repolonize” Poland’s media landscape, including through the possible forced sale of existing investments, has met with domestic and international protest.  Critical observers allege that PiS and its allies are running a pressure campaign against foreign and independent media outlets aimed at destabilizing and undermining their businesses.  These efforts include blocking mergers through antimonopoly decisions, changes to licensing requirements, and the proposed new advertising tax.  Increasing government control over state regulatory bodies, advertising agencies and infrastructure such as printing presses and newsstands, are other possible avenues.  Since 2015, state institutions and state-owned and controlled companies have ceased to subscribe to or place advertising in independent media, cutting off an important source of funding for those media companies.  At the same time, public media has received generous support from the state budget.

In December 2020, state-controlled energy firm PKN Orlen, headed by PiS appointees, acquired control of Polska Press in a deal that gives the governing party indirect control over 20 of Poland’s 24 regional newspapers.  Because this acquisition was achieved without legislative changes, it has not provoked diplomatic repercussions with other EU member states or a head-on collision with Brussels over the rule of law.  Having successfully taken over a foreign-owned media company with this model, there are concerns PKN Orlen will continue to be used for capturing independent media not supportive of the government.

OECD Guidelines on Corporate Governance of SOEs

In Poland, the same rules apply to SOEs and publicly-listed companies unless statutes provide otherwise.  The state exercises its influence through its rights as a shareholder in proportion to the number of voting shares it holds (or through shareholder proxies).  In some cases, an SOE is afforded special rights as specified in the company’s articles, and in compliance with Polish and EU laws.  In some non-strategic companies, the state exercises special rights as a result of its majority ownership but not as a result of any specific strategic interest.  Despite some of these specific rights, the state’s aim is to create long-term value for shareholders of its listed companies by adhering to the OECD’s SOE Guidelines.  State representatives who sit on supervisory boards must comply with the Commercial Companies Code and are expected to act in the best interests of the company and its shareholders.  The European Commission noted that “Polska Fundacja Narodowa” (an organization established to promote Polish culture worldwide and funded by Polish SOEs) was involved in the organization and financing of a campaign supporting the controversial judiciary changes by the government.  The commission stated this was broadly against OECD recommendations on SOE involvement in financing political activities.

SOE employees can designate two fifths of the SOE’s Supervisory Board’s members.  In addition, according to Poland’s privatization law, in wholly state-owned enterprises with more than 500 employees, the employees are allowed to elect one member of the Management Board.  SOEs are subject to a series of additional disclosure requirements above those set forth in the Company Law.  The supervising ministry prepares specific guidelines on annual financial reporting to explain and clarify these requirements.  SOEs must prepare detailed reports on management board activity, plus a report on the previous financial year’s activity, and a report on the result of the examination of financial reports.  In practice, detailed reporting data for non-listed SOEs is not easily accessible.  State representatives to supervisory boards must go through examinations to be able to apply for a board position.  Many major state-controlled companies are listed on the Warsaw Stock Exchange and are subject to the “Code of Best Practice for WSE Listed Companies.”

On September 30, 2015, the Act on Control of Certain Investments entered into force.  The law creates mechanisms to protect against hostile takeovers of companies operating in strategic sectors (gas, power generation, chemical, copper mining, petrochemical and telecoms) of the Polish economy (see Section 2 on Investment Screening), most of which are SOEs or state-controlled.  In 2020, the government amended the legislation preventing hostile take overs.  The amendments will be in force for 24 months.  They are a part of the pandemic-related measures introduced by the Polish government. The SOE governance law of 2017 (with subsequent amendments) is being implemented gradually.  The framework formally keeps the oversight of SOEs centralized.  The Ministry of State Assets exercises ownership functions for the majority of SOEs.  A few sector-specific ministries (e.g., Culture and Infrastructure) also exercise ownership for SOEs with public policy objectives.  The Prime Minister’s Office oversees development agencies such as the Polish Development Fund and the Industry Development Agency.

Privatization Program

The Polish government has completed the privatization of most of the SOEs it deems not to be of national strategic importance.  With few exceptions, the Polish government has invited foreign investors to participate in major privatization projects.  In general, privatization bidding criteria have been clear and the process transparent.

The majority of SOEs classified as “economically important” or “strategically important” is in the energy, mining, media, telecommunications, and financial sectors.  The government intends to keep majority share ownership of these firms, or to sell tranches of shares in a manner that maintains state control.  The government is currently focused on consolidating and improving the efficiency of the remaining SOEs.

Poland is a politically stable country.  Constitutional transfers of power are orderly.  The last presidential elections took place in June 2020 and parliamentary elections took place in October 2019; observers considered both elections free and fair.  The Organization for Security and Cooperation in Europe, which conducted the election observation during June 2020 presidential elections, found the presidential elections were administered professionally, despite legal uncertainty during the electoral process due to the outbreak of the COVID-19 epidemic.  Prime Minister Morawiecki’s government was re-appointed in November 2019.  Local elections took place in October 2018.  Elections to the European Parliament took place in May 2019.  The next parliamentary elections are scheduled for the fall of 2023.  There have been no confirmed incidents of politically motivated violence toward foreign investment projects in recent years.  Poland has neither insurgent groups nor belligerent neighbors.  The U.S. International Development Finance Corporation (DFC) provides political risk insurance for Poland but it is not frequently used, as competitive private sector financing and insurance are readily available.

* Source for Host Country Data: In Poland, the National Bank of Poland (NBP) collects data on FDI. An annual FDI report and data are published at the end of the following year. GDP data are published by the Central Statistical Office. Final annual data are available at the end of May of the following year.

D/ Suppressed to avoid disclosure of data of individual companies.

Results of table are consistent with the data of the National Bank of Poland (NBP).  NBP publishes FDI data in October/November.

A number of foreign countries register businesses in the Netherlands, Luxemburg and Cyprus, hence results for these countries include investments from other countries/economies.

* In Poland, the National Bank of Poland (NBP) collects data on FDI. An annual FDI report and data are published at the end of the following year. GDP data are published by the Central Statistical Office. Final annual data are available at the end of May of the following year.

Policies Towards Foreign Direct Investment

The government of Portugal recognizes the importance of foreign investment and sees it as a driver of economic growth, with an overall positive attitude towards foreign direct investment (FDI).  Portuguese law is based on a principle of non-discrimination, meaning foreign and domestic investors are subject to the same rules.  Foreign investment is not subject to any special registration or notification to any authority, with exceptions for a few specific activities.

The Portuguese Agency for Foreign Investment and Commerce (AICEP) is the lead for promotion of trade and investment.  AICEP is responsible for attracting FDI, global promotion of Portuguese brands, and export of goods and services.  It is the primary point of contact for investors with projects over € 25 million or companies with a consolidated turnover of more than € 75 million.  For foreign investments not meeting these thresholds, AICEP will make a preliminary analysis and direct the investor to assistance agencies such as the Institute of Support to Small- and Medium- Sized Enterprises and Innovation (IAPMEI), a public agency within the Ministry of Economy that provides technical support, or to AICEP Capital Global, which offers technology transfer, incubator programs, and venture capital support.  AICEP does not favor specific sectors for investment promotion. It does, however, provide a “Prominent Clusters” guide on its website,  where it advocates investment in Portuguese companies by sector. Additionally, Portugal has introduced the website Simplex, designed to help navigate starting a business.

The Portuguese government maintains regular contact with investors through the Confederation of Portuguese Business (CIP), the Portuguese Commerce and Services Confederation (CCP), the Portuguese Chamber of Commerce and Industry (CCIP), among other industry associations.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no legal restrictions in Portugal on foreign investment.  To establish a new business, foreign investors must follow the same rules as domestic investors, including mandatory registration and compliance with regulatory obligations for specific activities.  There are no nationality requirements and no limitations on the repatriation of profits or dividends.

Non-resident shareholders must obtain a Portuguese taxpayer number for tax purposes.  EU residents may obtain this number directly with the tax administration (in person or by means of an appointed proxy); non-EU residents must appoint a Portuguese resident representative to handle matters with tax authorities.

Portugal enacted a national security investment review framework in 2014, which gave the Council of Ministers authority to block specific foreign investment transactions that would compromise national security.  Reviews can be triggered on national security grounds in strategic industries like energy, transportation, and communication. Investment reviews can be conducted in cases where the purchaser acquiring control is an individual or entity not registered in an EU member state.  In such instances, the review process is overseen by the applicable Portuguese ministry according to the assets in question. Portugal has yet to activate its investment screening mechanism.

Portuguese government approval is required in the following sensitive sectors: defense, water management, public telecommunications, railways, maritime transportation, and air transport.  Any economic activity that involves the exercise of public authority also requires government approval; private sector companies can operate in these areas only through a concession contract.

Portugal additionally limits foreign investment with respect to the production, transmission, and distribution of electricity, the production of gas, the pipeline transportation of fuels, wholesale services of electricity, retailing services of electricity and non-bottled gas, and services incidental to electricity and natural gas distribution.  Concessions in the electricity and gas sectors are assigned only to companies with headquarters and effective management in Portugal.

Investors wishing to establish new credit institutions or finance companies, acquire a controlling interest in such financial firms, and/or establish a subsidiary must have authorization from the Bank of Portugal (for EU firms) or the Ministry of Finance (for non-EU firms).  Non-EU insurance companies seeking to establish an agency in Portugal must post a special deposit and financial guarantee and must have been authorized for such activity by the Ministry of Finance for at least five years.

Other Investment Policy Reviews

Business Facilitation

To combat the perception of a cumbersome regulatory environment, the government has created a ‘cutting red tape’ the website Simplex (simplex.gov.pt) that details measures taken since 2005 to reduce bureaucracy, and the Empresa na Hora (“Business in an Hour”) program that facilitates company incorporation by citizens and non-citizens in less than 60 minutes.  More information is available at Empresa na Hora.

In 2007, the government established AICEP, a promotion agency for investment and foreign trade that also manages industrial parks and provides business location solutions for investors through its subsidiary AICEP Global Parques.

Established in 2012, Portugal’s “Golden Visa” program gives fast-track residence permits to foreign investors meeting certain conditions, including making capital transfers, job creation or real estate acquisitions. As of 2021, the government is planning to introduce changes to the “Golden Visa” program that includes restricting the purchase of real estate to regions in the interior, in the Azores and Madeira, a package of measures expected to kick-in in 2022. Between 2012 and 2020, Portugal issued 9,444 ‘Golden Visas’, representing €5.67 billion of investment, of which €5.1 billion went into real estate. Chinese nationals dominate the ‘Golden Visa’ issuance, with 5,672, followed by Brazilian nationals, with 994. Other measures implemented to help attract foreign investment include the easing of some labor regulations to increase workplace flexibility and EU-funded programs.

Portuguese citizens can alternatively register a business online through the “Citizen’s Portal” available at Portal do Cidadão.  Companies must also register with the Directorate General for Economic Activity (DGAE), the Tax Authority (AT), and with the Social Security administration.  The government’s standard for online business registration is a two to three day turnaround but the online registration process can take as little as one day.

Portugal defines an enterprise as micro-, small-, and medium-sized based on its headcount, annual turnover, or the size of its balance sheet.  To qualify as a micro-enterprise, a company must have fewer than 10 employees and no more than €2 million in revenues or €2 million in assets.  Small enterprises must have fewer than 50 employees and no more than €10 million in revenues or €10 million in assets. Medium-sized enterprises must have fewer than 250 employees and no more than €50 million in revenues or €43 million in assets.  The Small- and Medium-Sized Enterprise (SME) Support Institute (IAPMEI)   offers financing, training, and other services for SMEs based in Portugal.

More information on laws, procedures, registration requirements, and investment incentives for foreign investors in Portugal is available at AICEP’s website.

Outward Investment

The Portuguese government does not restrict domestic investors from investing abroad.  On the contrary, it promotes outward investment through AICEP’s customer managers, export stores and its external commercial network that, in cooperation with the diplomatic and consular network, are operating in about 80 markets.  AICEP provides support and advisory services on the best way of approaching foreign markets, identifying international business opportunities for Portuguese companies, particularly SMEs.

Transparency of the Regulatory System

The government of Portugal employs transparent policies and effective laws to foster competition, and the legal system welcomes FDI on a non-discriminatory basis, establishing clear rules of the game. Legal, regulatory, and accounting systems are consistent with international norms. Public finances and debt obligations are transparent, with data regularly published by the Bank of Portugal, the IGCP debt management agency, and the Ministry of Finance. Regulations drafted by ministries or agencies must be approved by Parliament and, in some cases, by European authorities. All proposed regulations are subject to a 20 to 30 day public consultation period during which the proposed measure is published on the relevant ministry or regulator’s website. Only after ministries or regulatory agencies have conducted an impact assessment of the proposed regulation can the text be enacted and published. The process can be monitored and consulted at the official websites of Parliament and of the Official Portuguese Republic Journal. Ministries or regulatory agencies report the results of the consultations through a consolidated response published on the website of the relevant ministry or regulator.

Rule-making and regulatory authorities exist across sectors including energy, telecommunications, securities markets, financial, and health.  Regulations are enforced at the local level through district courts, on the national level through the Court of Auditors, and at the supra-national level through EU mechanisms including the European Court of Justice, the European Commission, and the European Central Bank. The OECD, the European Commission, and the  IMF also publish key regulatory actions and analysis.  UTAO, the Parliamentary Technical Budget Support Unit, is a nonpartisan body composed of economic and legal experts that support parliamentary budget deliberations by providing the Budget Committee with quality analytical reports on the executive’s budget proposals. In addition, the Portuguese Public Finance Council conducts an independent assessment of the consistency, compliance with stated objectives, and sustainability of public finances, while promoting fiscal transparency.

The legal, regulatory, and accounting systems are transparent and consistent with international norms.  Since 2005, all listed companies must comply with International Financial Reporting Standards as adopted by the European Union (“IFRS”), which closely parallels the U.S. GAAP-Generally Accepted Accounting Principles.  Portugal’s Competition Authority enforces adherence to domestic competition and public procurement rules.  The European Commission further ensures adhesion to EU administrative processes among its member states.

Public finances are generally deemed transparent, closely scrutinized by Eurostat and monitored by an independent technical budget support unit, UTAO, and the Supreme Audit Institution ‘Tribunal de Contas.’  Over the last decades, Portugal has also consolidated within the State accounts many state-owned enterprises, making budget analysis more accurate.

International Regulatory Considerations

Portugal has been a member of the EU since 1986, a member of the Schengen area since 1995, and joined the Eurozone in 1999.  With the Treaty of Lisbon’s entry into force in 2009, trade policy and rules on foreign direct investment became exclusive EU competencies, as part of the bloc’s common commercial policy. The European Central Bank is the central bank for the euro and determines monetary policy for the 19 Eurozone member states, including Portugal. Portugal complies with EU directives regarding equal treatment of foreign and domestic investors. Portugal has been a member of the World Trade Organization since 1995.

Legal System and Judicial Independence

The Portuguese legal system is a civil law system, based on Roman law.  The hierarchy among various sources of law is as follows: (i) Constitutional laws and amendments; (ii) the rules and principles of general or common international law and international agreements; (iii) ordinary laws enacted by Parliament; (iv) instruments having an effective equivalent to that of laws, including approved international conventions or decisions of the Constitutional Court; and (v) regulations used to supplement and implement laws. The country’s Commercial Company Law and Civil Code define Portugal’s legal treatment of corporations and contracts.  Portugal has a Supreme Court and specialized family courts, labor courts, commercial courts, maritime courts, intellectual property courts, and competition courts.  Regulations or enforcement actions are appealable, and are adjudicated in national Appellate Courts, with the possibility to appeal to the European Court of Justice. The judicial system is independent of the executive branch and the judicial process procedurally competent, fair, and reliable. Regulations and enforcement actions are appealable.

Laws and Regulations on Foreign Direct Investment

The Bank of Portugal defines FDI as “an act or contract that obtains or increases enduring economic links with an existing Portuguese institution or one to be formed.” A non-resident who invests in at least 10 percent of a resident company’s equity and participates in the company’s decision-making is considered a foreign direct investor. Current information on laws, procedures, registration requirements, and investment incentives for foreign investors in Portugal is available at AICEP’s website.

Competition and Antitrust Laws

The domestic agency that reviews transactions for competition-related concerns is the Portuguese Competition Authority and the international agency is the European Commission’s Directorate General for Competition. Portuguese law specifically prohibits collusion between companies to fix prices, limit supplies, share markets or sources of supply, discriminate in transactions, or force unrelated obligations on other parties.  Similar prohibitions apply to any company or group with a dominant market position. The law also requires prior government notification of mergers or acquisitions that would give a company more than 30 percent market share in a sector, or mergers or acquisitions among entities that had total sales in excess of €150 million during the preceding financial year.  The Competition Authority has 60 days to determine if the merger or acquisition can proceed. The European Commission may claim authority on cross-border competition issues or those involving entities large enough to have a significant EU market share.

Expropriation and Compensation

Under Portugal’s Expropriation Code, the government may expropriate property and its associated rights if it is deemed to support the public interest, and upon payment of prompt, adequate, and effective compensation.  The code outlines criteria for calculating fair compensation based on market values. The decision to expropriate as well as the fairness of compensation can be challenged in national courts.

On July 2, 2020, the government of Portugal nationalized a 71.7% stake in energy company Efacec, controlled by Angola’s Isabel dos Santos, given its strategic importance for the economy, in a move aimed at ending legal uncertainty and facilitating the sale of her shares. The government is currently seeking investors interested in reprivatizing the company.

Dispute Settlement

ICSID Convention and New York Convention

Portugal has been a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention – also known as the Washington Convention) since 1965.  Portugal has been a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since January 1995. Portugal’s national arbitration law No. 63-2011 of December 14, 2011 enforces awards under the 1958 New York Convention and the ICSID Convention.

Investor-State Dispute Settlement

Portugal has ratified the 1927 Geneva Convention on the Execution of Foreign Arbitral Awards, and in 2002 ratified the 1975 Inter-American Convention on International Commercial Arbitration.

Portugal’s Voluntary Arbitration Law, enacted in 2011, is based on the UNCITRAL Model Law, and applies to all arbitration proceedings in Portugal.  The leading commercial arbitration institution is the Arbitration Center of the Portuguese Chamber of Commerce and Industry.

The government promotes non-judicial dispute resolution through the Ministry of Justice’s Office for Alternative Dispute Resolution (GRAL), including conciliation, mediation or arbitration.  Portuguese courts recognize and enforce foreign arbitral awards issued against the government.  There have been no recent extrajudicial actions against foreign investors.

International Commercial Arbitration and Foreign Courts

Arbitration is the preferred alternative dispute resolution mechanism in Portugal.  The country has a long-standing tradition of arbitration in administrative and contract disputes.  It has also become the standard mechanism for resolving tax disputes between private citizens or companies and tax authorities, as well as in pharmaceutical patent disputes.

Portugal has four domestic arbitration bodies: 1) The Arbitration Center of the Portuguese Chamber of Commerce and Industry (CAC); 2) CONCORDIA (Centro de Conciliacao, Mediacao, de Conflictos de Arbritragem); 3) Arbitrare (Centro de Arbitragem para a Propriedade Industrial, Nomes de Dominio, Firmas e Denominacoes); and 4) the Instituto de Arbitragem Commercial do Porto.  Each arbitration body has its own regulations, but all comply with the Portuguese Arbitration Law 63/11, which came into force in March 2012. The Arbitration Council of the Centre for Commercial Arbitration also follows New York Convention, Washington Convention, and Panama Convention guidelines. Arbitration Law 63/11 follows the standard established by the UNCITRAL Model Law, but is not an exact copy of that text.

Under the Portuguese Constitution, the Civil Code of Procedure (CCP) and the New York Convention, applied in Portugal since 1995, awards rendered in a foreign country must be recognized by the Portuguese courts before they can be enforced in Portugal.  There is no legal authority in Portugal on the enforceability of foreign awards set aside at the seat of the arbitration. The CCP sets forth the legal regime applicable to all judicial procedures related to arbitration, including appointment of arbitrators, determination of arbitrators’ fees, challenge of arbitrators, appeal (where admissible), setting aside, enforcement (and opposition to enforcement) and recognition of foreign arbitral awards.

While Portugal’s judicial system has historically been considered relatively slow and inefficient, the country has taken several important steps, including simplifying land registry procedures and increasing the portfolio of online services.

Bankruptcy Regulations

Portugal’s Insolvency and Corporate Recovery Code defines insolvency as a debtor’s inability to meet his commitments as they fall due.  Corporations are also considered insolvent when their liabilities clearly exceed their assets. A debtor, creditor or any person responsible for the debtor’s liabilities can initiate insolvency proceedings in a commercial court.  The court assumes the key role of ensuring compliance with legal rules governing insolvency proceedings, with particular responsibility for ruling on the legality of insolvency and payment plans approved by creditors. After declaration of insolvency, creditors may submit their claims to the court-appointed insolvency administrator for a specific term set for this purpose, typically up to 30 days.  Creditors must submit details regarding the amount, maturity, guarantees, and nature of their claims. Claims are ranked as follows: (i) claims over the insolvent’s estate, i.e. court fees related to insolvency proceedings; (ii) secured claims; (iii) privileged claims; (iv) common, unsecured claims; and (v) subordinated claims, including those of shareholders.  Portugal ranks highly – 15th of 190 countries – in the World Bank’s Doing Business Index “Resolving Insolvency” measure.

Capital Markets and Portfolio Investment

The Portuguese stock exchange is managed by Euronext Lisbon, part of the NYSE Euronext Group, which allows a listed company access to a global and diversified pool of investors.  The Portuguese Stock Index-20 (PSI20) is Portugal’s benchmark index representing the largest (only 18, not 20, since 2018) and most liquid companies listed on the exchange. The Portuguese stock exchange offers a diverse product portfolio: shares, funds, exchange traded funds, bonds, and structured products, including warrants and futures.

The Portuguese Securities Market Commission (CMVM) supervises and regulates securities markets, and is a member of the Committee of European Securities Regulators and the International Organization of Securities Commissions.  Additional information on CMVM can be found here:  http://www.cmvm.pt/en/Pages/homepage.aspx.

Portugal respects IMF Article VIII by refraining from placing restrictions on payments and transfers for current international transactions.  Credit is allocated on market terms, and foreign investors are eligible for local market financing. Private sector companies have access to a variety of credit instruments, including bonds.

Money and Banking System

Portugal has 148 credit institutions, of which 60 are banks.  Online banking penetration stood at 60 percent in 2019. Portugal’s banking assets totaled EUR 410.4 billion at the end of June 2020. Portuguese banks’ non-performing loan portfolios remain among the largest in Europe despite improving since the global financial crisis. Total loans stood at around €200 billion, 5.5% of which constitute non-performing loans, above the Eurozone average of around 2.8% percent.

Banks’ return on equity and on assets remained was 0.9% in the first half of 2020 versus 4.9% for full-year 2019.  In terms of capital buffers, the Common Equity Tier 1 ratio stabilized at 14.6% as of June 2020.

Foreign banks are allowed to establish operations in Portugal.  In terms of decision-making policy, a general ‘four-eyes policy,’ with two individuals approving actions, must be in place at all banks and branches operating in the country, irrespective of whether they qualify as international subsidiaries of foreign banks or local banks.  Foreign branches operating in Portugal are required to have such decision-making powers that enable them to operate in the country, but this requirement generally does not prevent them from having internal control and rules governing risk exposure and decision-making processes, as customary in international financial groups.

No restrictions exist on a foreigners’ ability to establish a bank account and both residents and non-residents may hold bank accounts in any currency.  However, any transfers of EUR 10,000 or more must be declared to Portuguese customs authorities. See more at: https://www.bportugal.pt/.

Foreign Exchange and Remittances

Foreign Exchange

Portugal has no exchange controls and there are no restrictions on the import or export of capital.  Funds associated with any form of investment can be freely converted into any world currency.

Portugal is a member of the European Monetary Union (Eurozone) and uses the euro, a floating exchange rate currency controlled by the European Central Bank (ECB).  The Bank of Portugal is the country’s central bank; the Governor of the Bank of Portugal participates on the board of the ECB.

Remittance Policies

There are no limitations on the repatriation of profits or dividends.  There are no time limitations on remittances.

Sovereign Wealth Funds

The Ministry of Labor, Solidarity, and Social Security manages Portugal’s Social Security Financial Stabilization Fund (FEFSS), with total assets of around EUR 22 billion.  It is not a Sovereign Wealth Fund (SWF) and does not subscribe to the voluntary code of good practices (Santiago Principles), or participate in the IMF-hosted International Working Group on SWFs.  Among other restrictions, Portuguese law requires that at least 25 percent of the fund’s assets be invested in Portuguese public debt, and limits FEFSS investment in equity instruments to that of EU or OECD members.  FEFSS acts as a passive investor and does not take an active role in the management of portfolio companies.

There are currently over 40 major state-owned enterprises (SOEs) operating in Portugal in the banking, health care, transportation, water, and agriculture sectors.  Portugal’s only SOE with revenues greater than one percent of GDP is the Caixa Geral de Depositos (CGD). CGD has the largest market share in customer deposits, commercial loans, mortgages, and many other banking services in the Portuguese market.

Parpublica is a government holding company for several smaller SOEs, providing audits and reports on these.  More information can be found at: http://www.parpublica.pt/.  The activities and accounts of Parpublica are fully disclosed in budget documents and audited annual reports.  In addition, the Ministry of Finance publishes an annual report on SOEs through a specialized monitoring unit (UTAM) that presents annual performance data by company and sector:  http://www.utam.pt/.  In 2019, total assets were around €12 billion and the net income of Parpublica was €23.3 million.

When SOEs are wholly owned, the government appoints the board, although when SOEs are majority-owned the board of executives and non-executives nomination depends on the negotiations between government and the remaining shareholders, and in some cases on negotiations with EU authorities as well.

According to Law No.  133/2013, SOEs must compete under the same terms and conditions as private enterprises, subject to Portuguese and EU competition laws.  Still, SOEs often receive preferential financing terms from private banks.

In 2008 Portugal’s Council of Ministers approved resolution no. 49/2007, which defined the Principles of Good Governance for SOEs according to OECD guidelines.  The resolution requires SOEs to have a governance model that ensures the segregation of executive management and supervisory roles, to have their accounts audited by independent entities, to observe the same standards as those for companies publicly listed on stock markets, and to establish an ethics code for employees, customers, suppliers, and the public.  The resolution also requires the Ministry of Finance’s Directorate General of the Treasury and Finances to publish annual reports on SOEs’ compliance with the Principles of Good Governance. Credit and equity analysts generally tend to criticize SOEs’ over-indebtedness and inefficiency, rather than any poor governance or ties to government.

Privatization Program

Portugal launched an aggressive privatization program in 2011 as part of its EU-IMF-ECB bailout, including SOEs in the air transportation, land transportation, energy, communications, and insurance sectors.  Foreign companies have been among the most successful bidders in these privatizations since the program’s inception. The bidding process was public, transparent, and non-discriminatory to foreign investors. On July 2, 2020, the government of Portugal nationalized a 71.7% stake in energy company Efacec, controlled by Angola’s Isabel dos Santos, given its strategic importance for the economy, in a move aimed at ending legal uncertainty and facilitating the sale of her shares. The government is currently seeking investors interested in reprivatizing the company.

In July 2020, the Portuguese Government reached an agreement with the private shareholders of TAP to assume a 72.5% stake in the airline, an increase of 22.5 percentage points. U.S.-Brazilian entrepreneur David Neeleman exited the company and shareholder businessman Humberto Pedrosa remained with a 22.5% stake, with workers keeping the remaining 5%. The Government has stated its interest in seeing other airlines enter TAP’s capital structure in the future.

Since the 1974 Carnation Revolution, Portugal has had a long history of peaceful social protest.  Portugal experienced its largest political rally since its revolution in response to proposed budgetary measures in 2012. Public workers, including nurses, doctors, teachers, aviation professionals, and public transportation workers organized peaceful demonstrations periodically in protest of insufficient economic support, low salary levels, and other measures.

* Eurostat and Bank of Portugal:

Policies Towards Foreign Direct Investment

Over the past few years, the government of Qatar enacted reforms to incentivize foreign investment. As Qatar finalizes major infrastructure developments in preparation for hosting the 2022 FIFA World Cup, the government has allocated $15 billion for new, non-oil sector projects to be awarded between 2021 and 2023, including for developing new residential land, setting up drainage networks, and building new public hospitals. As of 2021, the government plans to increase LNG production by 64 percent by 2027 and Qatari government officials expect significant investment opportunities for international companies in the upstream and downstream sectors. In 2019, Qatar’s national oil and gas company, Qatar Petroleum, announced localization initiative “Tawteen,” which provides incentives to local and foreign investors willing to establish domestic manufacturing facilities for oil and gas sector inputs. The government established in 2019 the Investment Promotion Agency to further attract foreign direct investment to Qatar. These economic spending and promotion plans should create additional opportunities for foreign investors.

In 2019, the government enacted a new foreign investment law (Law 1/2019) to ease restrictions on foreign investment. The law’s executive regulations permit full foreign ownership of businesses in most sectors with the possibility of fully repatriating the foreign owner’s profits, protecting the owner from expropriation, in addition to several other benefits. Excepted sectors include banking, insurance, and commercial agencies, where foreign capital investment remains limited to a maximum of 49 percent ownership, barring special dispensation from the Cabinet. In 2020, the government also enacted long-awaited Public-Private Partnership Law 12/2020, to further develop the domestic private sector and improve the government’s ability to manage and finance projects. The government is currently in the process of publishing regulations for the implementation of this new law, which should include rules governing foreign participation. Qatar’s primary foreign investment promotion and evaluation body is the Invest in Qatar Center within the Ministry of Commerce and Industry. Qatar is also home to the Qatar Financial Centre, Qatar Science and Technology Park, and the Qatar Free Zones Authority, all of which offer full foreign ownership and repatriation of profits, tax incentives, and investment funds for small- and medium-sized enterprises.

The government extends preferential treatment to suppliers who use local content in their bids on government contracts. Participation in tenders with a value of QAR five million ($1.37 million) or less is limited to local contractors, suppliers, and merchants registered with the Qatar Chamber of Commerce and Industry. Higher-value tenders sometimes in theory do not require any local commercial registration; in practice, certain exceptions exist.

Qatar maintains ongoing dialogue with the United States through both official and private sector tracks, including the annual U.S.-Qatar Strategic Dialogue and official trade missions. Qatari officials have repeatedly emphasized a desire to increase both American investments in Qatar and Qatari investments in the United States.

Limits on Foreign Control and Right to Private Ownership and Establishment

The government recently reformed its foreign investment legal framework. As noted above, full foreign ownership is now permitted in all sectors except for banking, insurance, and commercial agencies. Law 1/2019 on Regulating the Investment of Non-Qatari Capital in Economic Activity (replacing Law 13/2000) grants foreign investors the ability to invest either through partnership with a Qatari investor owning 51 percent or more of the enterprise, or by applying to the Ministry of Commerce and Industry for up to 100 percent foreign ownership. The Invest in Qatar Center within the Ministry of Commerce and Industry is the entity responsible for vetting full foreign ownership applications. The law includes provisions on the protection of foreign investment from expropriation, the exemption of some foreign investment projects from income tax and customs duties, and the right to transfer profits and ownership without delay.

Law 16/2018 on Regulating Non-Qatari Ownership and Use of Properties allows foreign individuals, companies, and real estate developers freehold ownership of real estate in 10 designated zones and ‎usufructuary rights up to 99 years in 16 other zones. Foreigners may also own villas within residential complexes, as well as retail outlets in certain commercial complexes. Foreign real estate investors and owners are eligible for residency in Qatar for as long as they own their property. The Ministry of Justice created a Committee on Non-Qatari Ownership and Use of Real Estate in December 2018 to regulate non-Qatari real estate ownership and use.

Other FDI incentives exist, including ones extended by the Qatar Financial Centre, the Qatar Free Zones Authority, and the Qatar Science and Technology Park. A Public-Private Partnership legislation (Law 12/2020) was enacted in May 2020 to facilitate direct foreign investment in national infrastructure development (currently focused on hospitals, land development, and drainage networks). In part due to these reforms, Qatar’s World Bank’s Doing Business ranking improved in 2020 from 83rd to 77th position. Nonetheless, Qatar’s World Bank ranking in more than half of its annual categories continues to be lower than 100th, including in the categories of starting a business, getting credit, protecting minority investors, trading across borders, enforcing contracts, and resolving insolvency.

U.S. investors and companies are not disadvantaged by existing ownership or control mechanisms, sector restrictions, or investment screening mechanisms more than other foreign investors.

Other Investment Policy Reviews

Qatar underwent a World Trade Organization (WTO) policy review in April 2014. Qatar is due for another review in 2021. The reviews may be viewed on the WTO website: https://www.wto.org/english/tratop_e/tpr_e/tp396_e.htm 

Business Facilitation

Recent reforms have further streamlined the commercial registration process. Local and foreign investors may apply for a commercial license through the Ministry of Commerce and Industry’s (MOCI) physical “one-stop shop” or online through the Invest in Qatar Center’s portal. Per Law 1/2019, upon submission of a complete application, the Ministry will issue its decision within 15 days. Rejected applications can be resubmitted or appealed. For more information on the application and required documentation, visit: https://invest.gov.qa 

The World Bank’s 2020 Doing Business Report estimates that registering a small-size limited liability company in Qatar can take eight to nine days. For detailed information on business registration procedures, as evaluated by the World Bank, visit: http://www.doingbusiness.org/data/exploreeconomies/qatar/ 

For more information on business registration in Qatar, visit:

• Ministry of Commerce and Industry’s Invest in Qatar Center: https://invest.gov.qa
• Qatar Financial Centre: http://www.qfc.qa/
• Qatar Free Zones Authority: https://fza.gov.qa/
• Qatar Science and Technology Park: https://qstp.org.qa/
• Qatar Petroleum Tawteen Program: https://www.tawteen.com.qa/

Outward Investment

Qatar does not restrict domestic investors from investing abroad. According to the latest foreign investment survey from the Planning and Statistics Authority, Qatar’s outward foreign investment stock reached $109.9 billion in the second quarter of 2019. In 2018, sectors that accounted for most of Qatar’s outward FDI were finance and insurance (40 percent of total), transportation, storage, information and communication (33 percent), and mining and quarrying (18 percent). As of 2018, Qatari investment firms held investments in about 80 countries; the top destinations were the European Union (34 percent of total), the Gulf Cooperation Council (GCC, 24 percent), and other Arab countries (14 percent).

Transparency of the Regulatory System

The World Trade Organization recognizes Qatar’s legal framework as conducive to private investment and entrepreneurship and enabling of the development of an independent judiciary system. Qatar has taken measures to protect competition and ensure a free and efficient economy. In addition to the National Competition Protection and Anti-Monopoly Committee, regulatory authorities exist for most economic sectors and are mandated to monitor economic activity and ensure fair practices.

Nonetheless, according to the World Bank’s Global Indicators of Regulatory Governance, Qatar lacks a transparent rulemaking mechanism, as government ministries and regulatory agencies do not share regulatory plans or publish draft laws for public consideration. An official public consultation process does not exist in Qatar. Laws and regulations are developed by relevant ministries. The 45-member Shura Council (which should statutorily have at least 30 publicly elected officials, is in practice comprised solely of direct appointees by the Amir) must reach consensus to pass draft legislation, which is then returned to the Cabinet for further review and to the Amir for final approval. Shura Council elections are planned for October 2021. The text of all legislation is published online and in local newspapers upon approval by the Amir. All Qatari laws are issued in Arabic and eventually translated to English. Qatar-based legal firms provide translations of Qatari legislation to their clients. Each approved law explicitly tasks one or more government entities with implementing and enforcing legislation. These entities are clearly defined in the text of each law. In some cases, the law also sets up regulatory and oversight committees consisting of representatives of concerned government entities to safeguard enforcement. Qatar’s official legal portal is http://www.almeezan.qa .

Qatar’s primary commercial regulator is the Ministry of Commerce and Industry. Commercial Companies’ Law 11/2015 requires that publicly traded companies submit financial statements to the Ministry in compliance with the International Financial Reporting Standards (IFRS) and the International Accounting Standards (IAS). Publicly listed companies must also publish financial statements at least 15 days prior to annual general meetings in two local newspapers (in Arabic and English) and on their websites. All companies are required to prepare accounting records according to standards promulgated by the IAS Board.

The Qatar Central Bank (QCB) is the main financial regulator that oversees all financial institutions in Qatar, per Law 13/2012. To promote financial stability and enhance regulatory coordination, the law established a Financial Stability and Risk Control Committee, which is headed by the QCB Governor. According to Law 7/2005, the Qatar Financial Centre (QFC) Regulatory Authority is the independent regulator of the QFC firms and individuals conducting financial services in or from the QFC, but the QCB also oversees financial markets housed within QFC. QFC regulations are available at http://www.qfcra.com/en-us/legislation/ .

The government of Qatar is transparent about its public finances and debt obligations. QCB publishes quarterly banking data, including on government external debt, government bonds, treasury bills, and sukuk (Islamic bonds).

International Regulatory Considerations

Qatar is a member of the Gulf Cooperation Council (GCC), a political and economic regional union. Laws based on GCC regulations must be approved through Qatar’s domestic legislative process and are reviewed by the Qatari Cabinet and the Shura Council prior to implementation. Qatar has been a member of the World Trade Organization (WTO) since 1996 and usually notifies its draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Qatar’s legal system is based on a combination of civil and Islamic Sharia laws. The Constitution takes precedence over all laws, followed by legislation and decrees, and finally ministerial resolutions. All judges are appointed by the Supreme Judicial Council, under Law 10/2003. The Supreme Judicial Council oversees Qatari courts and functions independently from the executive branch of the government, per the Constitution. Qatari courts adjudicate civil and commercial disputes in accordance with civil and Sharia laws. International agreements have equal status with Qatari laws; the Constitution ensures that international pacts, treaties, and agreements to which Qatar is a party are respected.

Qatar does not currently have a specialized commercial court, but in 2019, the Cabinet approved a draft decision to set up a court for investment and trade disputes. Pending the establishment of the new court, domestic commercial disputes continue to be settled in civil courts. Contract enforcement is governed by the Civil Code Law 22/2004. Decisions made in civil courts can be appealed before the Court of Appeals, or later the Court of Cassation.

Companies registered with the Ministry of Commerce and Industry are subject to Qatari courts and laws—primarily the Commercial Companies’ Law 11/2015—while companies set up through Qatar Financial Center (QFC) are regulated by commercial laws based on English Common Law and the courts of the QFC Regulatory Authority, per Law 7/2005. The QFC legal regime is separate from the Qatari legal system—with the exception of criminal law—and is only applicable to companies licensed by the QFC. Similarly, companies registered within the Qatar Free Zones Authority are governed by specialized regulations.

Laws and Regulations on Foreign Direct Investment

Over the past few years, the Amir enacted Law 1/2019 on Regulating the Investment of Non-Qatari Capital in Economic Activity and Law 16/2018 on Regulating Non-Qatari Ownership and Use of Properties. These aim to encourage greater foreign investment in the economy by authorizing, incentivizing and protecting foreign ownership.

The MOCI’s Invest in Qatar Center is the Ministry’s main investment promotion body. It has a physical “one-stop-shop” and an online portal. It gives preference to investments that add value to the local economy and align with the country’s national development plans. For more information on investment opportunities, commercial registration application and required documentation, visit: https://invest.gov.qa .

Separate laws and regulations govern foreign direct investment at the Qatar Financial Centre ( http://www.qfc.qa/ ), the Qatar Free Zones Authority ( https://fza.gov.qa/ ), the Qatar Science and Technology Park ( https://qstp.org.qa/ ), and Manateq ( https://www.manateq.qa/ ).

Competition and Antitrust Laws

Certain sectors are not open for domestic or foreign competition, such as public transportation, as well as fuel distribution and marketing. In those sectors, semi-public companies maintain a predominant role. Law 19/2006 for the Protection of Competition and Prevention of Monopolistic Practice established the Competition Protection and Anti-Monopoly Committee in charge of receiving complaints about anti-competition violations. The law protects against monopolistic behavior by entities outside the state, if it is deemed they would impact the Qatari market; instead, the law affords state institutions and government-owned companies full or predominant role in those sectors.

Qatari laws allow international law firms with at least 15 years of continuous experience in their countries of origin to operate in Qatar, however, they can only be licensed in Qatar if Qatari authorities deem their fields of specialization useful to Qatar. Cabinet Decision Number 57/2010 stipulates that the Doha office of an international law firm can practice in Qatar only if its main office in the country of origin remains open.

Expropriation and Compensation

Under current legislation (Law 1/2019 and Law 16/2018), the government protects foreign investment and property from direct or indirect expropriation, unless for public benefit, in a non-discriminatory manner, and after providing adequate compensation. The same procedures are applied to expropriated property of Qatari citizens. Law 13/1988 covers the rules of expropriation for public benefit.

There were no Cabinet-approved expropriation decisions in 2020, and one decision in 2019. Expropriation is unlikely to occur in the investment zones in which foreigners may purchase or obtain rights to property, although the law does not restrict the power to expropriate in these areas.

Dispute Settlement

ICSID Convention and New York Convention

Qatar has been party to the 1958 New York Convention since 2011 and a member of the International Center for the Settlement of Investment Disputes (ICSID) since 2002. Qatar enforces foreign arbitral decisions concluded in states that are party to the New York Convention.

Investor-State Dispute Settlement

The government accepts binding international arbitration in the event of investment disputes; nevertheless, Qatari courts will not enforce judgments or awards from other courts in disputes emanating from legal proceedings or arbitrations made under the jurisdictions of other nations/systems.

According to the United Nations Conference on Trade and Development, over the past 10 years, Qatar was involved in 10 investment disputes, nine of which were initiated by Qatari investors against foreign governments. Three of the 10 disputes have been discontinued, and the remaining seven are still outstanding.

International Commercial Arbitration and Foreign Courts

The Qatar Financial Centre (QFC) features an Alternative Dispute Resolution Center. Although primarily concerned with hearing commercial matters arising within the QFC itself, the QFC has expanded the center’s jurisdiction to accept other disputes at its discretion. The Qatar International Court and Dispute Resolution Center adjudicates disputes brought by firms associated with the QFC in accordance with English common law.

Qatar’s arbitration law (Law 2/2017) based on the United Nations Commission on International Trade Law gives Qatar’s International Court and Dispute Resolution Centre the jurisdiction to oversee arbitration cases in Qatar in line with recent local and international developments. The purpose of this law is to stimulate and strengthen Qatar’s investment and business environment.

There is no set duration for dispute resolution and the time to obtain a resolution depends on the case. The Qatar International Court and Dispute Resolution Centre publishes past judgments on its website ( https://www.qicdrc.com.qa/the-courts/judgments ).

In order to protect their interests, U.S. firms are advised to consult with a Qatari or foreign-based law firm when executing contracts with local parties.

Bankruptcy Regulations

Two concurrent bankruptcy regimes exist in Qatar. The first is the local regime, the provisions of which are set out in Commercial Law 27/2006 (Articles 606-846). The bankruptcy of a Qatari citizen or a Qatari-owned company is rarely announced, and the government sometimes plays the role of guarantor to prop up domestic businesses and safeguard creditors’ rights. The law aims to protect creditors from a bankrupted debtor whose assets are insufficient to meet the amount of the debts. Bankruptcy is punishable by imprisonment, but the length of the prison sentence depends on violations of other penal codes, such as concealment or destruction of company records, embezzlement, or knowingly contributing to insolvency.

The Qatar Central Bank (QCB) established the Qatar Credit Bureau in 2010 to promote credit growth in Qatar. The Credit Bureau provides QCB and the banking sector with a centralized credit database to inform economic and financial policies and support the implementation of risk management techniques as outlined in the Basel II Accord.

The second bankruptcy regime is encoded in QFC’s Insolvency Regulations of 2005 and applies to corporate bodies and branches registered within the QFC. There are firms that offer full dissolution bankruptcy services to QFC-registered companies.

The World Bank’s Doing Business Report for 2020 gave Qatar a score of 38 out of 100 on its Resolving Insolvency Indicator (123rd in the world) due to the high cost associated with the process and the long time it takes to complete foreclosure proceedings (2.8 years, on average).

Capital Markets and Portfolio Investment

The government of Qatar has permitted foreign portfolio investment since 2005. There are no restrictions on the flow of capital in Qatar. Qatar Central Bank (QCB) adheres to conservative policies aimed at maintaining steady economic growth and a stable banking sector. It respects IMF Article VIII and does not restrict payments or transfers for international transactions. It allocates loans on market terms, and essentially treats foreign companies the same way it does local ones.

Existing legislation currently limits foreign ownership of Qatari companies listed on the Qatar Stock Exchange to 49 percent. The law permits foreign capital investment up to 100 percent in most sectors upon approval of an application submitted to MOCI’s Invest in Qatar Center. Foreign portfolio investment in national oil and gas companies or companies with the right of exploration of national resources cannot exceed 49 percent.

Almost all import transactions require standard letters of credit from local banks and their correspondent banks in the exporting countries. Financial institutions extend credit facilities to local and foreign investors within the framework of standard international banking practices. Creditors typically require foreign investors to produce a letter of guarantee from their local sponsor or equity partner.

In accordance with QCB guidelines, banks operating in Qatar give priority to Qataris and to public development projects in their financing operations. Additionally, banks usually refrain from extending credit facilities to single customers exceeding 20 percent of the bank’s capital and reserves. QCB does not allow cross-sharing arrangements among banks. QCB requires banks to maintain a maximum credit ratio of 90 percent.

Qatar has become an important banking and financial services hub in the Gulf region. Qatar’s monetary freedom score is 80.7 out of 100 (“free”) and ranks third in the Middle East and North Africa region (after the United Arab Emirates and Israel) in terms of economic freedom.

Money and Banking System

There are 17 licensed banks in Qatar, seven of which are foreign institutions. Qatar also has 20 exchange houses, six investment and finance companies, 16 insurance companies, and 17 investment funds. Other foreign banks and financial institutions operate under the Qatar Financial Center’s platform, but they are not licensed by QCB; they are regulated by the Qatar Financial Center Regulatory Authority and are not allowed to have retail branches in Qatar. Qatar National Bank is the largest financial institution by assets in the Middle East and Africa, with total assets exceeding $259.5 billion. To open a bank account in Qatar, foreigners must present proof of residency.

As the main financial regulator, QCB continues to introduce incentives for local banks to ensure a strong financial sector that is resilient during times of economic volatility. QCB manages liquidity by mandating a reserve ratio of 4.5 percent and utilizing treasury bonds, bills, and other macroprudential measures. Banks that do not abide by the required reserve ratio are penalized. QCB uses repurchase agreements, backed by government securities, to inject liquidity into the banks. According to QCB data, total domestic liquidity reached $164.8 billion in December 2020, and only 2.2 percent of Qatar’s bank loans in 2019 were nonperforming. International ratings agencies have expressed confidence in the financial stability of the country’s banks, given liquidity levels strong earnings and the support of the Central Bank to the banking industry.

Cryptocurrency trading is illegal in Qatar, per a 2018 Qatar Central Bank circular. In January 2020, the Qatar Financial Centre Regulatory Authority (QFCRA) announced that firms operating under QFC are not permitted to provide or facilitate the provision or exchange of crypto assets and related services.

Foreign Exchange and Remittances

Foreign Exchange

Due to minimal demand for the Qatari riyal outside Qatar and the national economy’s dependence on gas and oil revenues, which are priced in dollars, the government has pegged the riyal to the U.S. dollar. The official peg is QAR 1.00 per $0.27 or $1.00 per QAR 3.64, as set by the government in June 1980 and reaffirmed by Amiri decree 31/2001.

Per the provisions of Law 20/2019 on Combating Money Laundering and Terrorism Financing and following the issuance of Cabinet Resolution 41/2019, starting February 2020, travelers to or from Qatar are required to complete a declaration form upon entry or departure, if carrying cash, precious metals, financial instruments, or jewelry, valued at QAR 50,000 or more ($13,736).

Remittance Policies

Qatar neither delays remittance of foreign investment returns nor restricts transfer of funds associated with an investment, such as return on dividends, return on capital, interest and principal payments on private foreign debt, lease payments, royalties, management fees, proceeds generated from sale or liquidation, sums garnered from settlements and disputes, and compensation from expropriation to financial institutions outside Qatar.

In accordance with Law 20/2019 on Combating Money Laundering and Terrorism Financing, QCB requires financial institutions to apply due diligence prior to establishing business relationships, carrying out financial transactions, and performing wire transfers. Executive regulations for this law promulgate that originator information should be secured when a wire transfer exceeds QAR 3,500 ($962). Similarly, due diligence is required when a customer is completing occasional transactions in a single operation or several linked operations of an amount exceeding QAR 50,000 ($13,736).

Qatar is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), a Financial Action Task Force-style regional body. Qatar is currently undergoing its second round FATF Mutual Evaluation and is tentatively scheduled to have its onsite assessment in summer 2021. In July 2017, Qatar signed a counterterrorism Memorandum of Understanding with the United States, which provides for information sharing, joint training, enhanced cooperation, and other deliverables related to combating money laundering and terrorism financing.

Sovereign Wealth Funds

The Qatar Investment Authority (QIA), Qatar’s sovereign wealth fund, was established by Amiri Decree 22/2005. Chaired by the Amir, the Supreme Council for Economic Affairs and Investment oversees QIA, which does not disclose its assets (independent analysts estimate QIA’s holdings to be around $295 billion). QIA pursues direct investments and favors luxury brands, prime real estate, infrastructure development, and banks. Various QIA subsidiaries invest in other sectors, as well. In 2015, QIA opened an office in New York City to facilitate its $45 billion commitment of investments in the United States. QIA’s real estate subsidiary, Qatari Diar, has operated an office in Washington, D.C. since 2014.

QIA was one of the early supporters of the Santiago Principles, and among the few members that drafted the initial and final versions of the principles and continues to be a proactive supporter of their implementation. QIA was also a founding member of the IMF-hosted International Working Group of Sovereign Wealth Funds. QIA supported the establishment of the International Forum of Sovereign Wealth Funds and helped create the Forum’s constitution.

The State Audit Bureau oversees state-owned enterprises (SOEs), several of which operate as monopolies or with exclusive rights in most economic sectors. Despite the dominant role of SOEs in Qatar’s economy, the government has affirmed support for the local private sector and encourages small and medium-sized enterprise development as part of its National Vision 2030. The Qatari private sector is favored in bids for local contracts and generally receives favorable terms for financing at local banks. The following are Qatar’s major SOEs:

Energy and Power:

• Qatar Petroleum (QP), its subsidiaries, and its partners operate all oil and gas activities in the country. QP is wholly owned by the government. Non-Qataris can invest in its stock exchange listed subsidiaries, but shareholder ownership is limited to two percent and total non-Qatari ownership to 49 percent.
• Qatar General Electricity and Water Corporation (Kahramaa) is the main utility provider in the country and is majority-owned by Qatari government entities. To privatize the sector, the Qatar Electricity and Water Company (QEWC) was established in 2001 as a separate and private provider that sells its desalinated water and electricity to Kahramaa. Other privatization efforts included the Ras Laffan Power Company, established in 2001, and 55 percent owned by a U.S. company.

Aerospace:

• Qatar Airways is the country’s national carrier and is wholly owned by the state.

Services:

• Qatar General Postal Corporation is the state-owned postal company. Several other delivery companies compete in the courier market, including Aramex, DHL Express, and FedEx Express.

Information and Communication:

• Ooredoo Group is a telecommunications company founded in 2013. It is the dominant player in the Qatari telecommunications market and is 70 percent owned by Qatari government entities. Ooredoo (previously known as Q-Tel) dominates both the cell and fixed line telecommunications markets in Qatar and partners with telecommunications companies in 13 markets in the Middle East, North Africa, and Asia. Ooredoo Group is listed on the Qatari Stock Exchange.
• Vodafone Qatar is the only other telecommunications operator in Qatar, with the quasi-governmental entity Qatar Foundation owning 62 percent of its shares. Other Qatari government entities and Qatar-based investors own the remaining 38 percent. Vodafone Qatar is listed on the Qatari Stock Exchange.

Qatari SOEs may adhere to their own corporate governance codes and are not required to follow the OECD Guidelines on Corporate Governance. Some SOEs publish online corporate governance reports to encourage transparency, but there is no general framework for corporate governance across all Qatari SOEs. SOEs listed on the stock exchange must publish financial statements at least 15 days before annual general meetings in two local newspapers (in Arabic and English) and on their websites. When an SOE is involved in an investment dispute, the case is reviewed by the appropriate sector regulator (for example, the Communications Regulatory Authority for the information and communication sector).

Privatization Program

There is no ongoing official privatization program for major SOEs.

Qatar is a politically stable country with low rates of crime. There are no political parties, labor unions, or organized domestic political opposition. The U.S government rates Qatar as medium for terrorism, which includes threats from transnational actors.

The State Department encourages U.S. citizens in Qatar to stay in close contact with the U.S. Embassy in Doha for up-to-date threat information. The Department invites U.S. visitors to Qatar to enroll in its State Department’s Smart Traveler Enrollment Program to receive further information on safety conditions in Qatar: https://step.state.gov/step/.

Source for Host Country Data: Qatar’s Planning and Statistics Authority https://www.psa.gov.qa/en/

Source: 2018 Data form Qatar’s Planning and Statistics Authority https://www.psa.gov.qa/en/

Table 4: Sources of Portfolio Investment
Data not available.

Policies Towards Foreign Direct Investment

The ROC government welcomes FDI in most sectors and particularly in the oil sector, which accounts for 90 percent of FDI inflows. The government has stated an urgent need to attract investment outside of the petroleum sector. In conjunction with an International Monetary Fund extended credit facility awarded in July 2019, ROC pledged to undertake legislative, regulatory, and institutional reforms to improve the investment climate.

The United States and ROC signed an investment agreement in 1994. No known laws or practices discriminate against foreign investors, including U.S. investors, by prohibiting, limiting or conditioning foreign investment in a sector of the economy.

ROC’s Agency for the Promotion of Investments (API), established in 2013, promotes economic diversification by seeking to expand the pool of external investors. API provides French-language advisory services to potential investors and maintains a database of government projects seeking private investor partners.

The government has made no significant efforts to retain foreign investments or to maintain dialogue with investors. The High Committee for Public-Private Dialogue, Le Haut Comité du Dialogue Public-Privé, established in 2012, convened one meeting in 2020.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

ROC has no known limits on foreign ownership or control.

Foreign business entities investing in the petroleum sector must pursue a joint venture with the Congolese National Petroleum Company (SNPC). An ROC executive order of November 15, 2019 requires foreign companies in the hydrocarbons sector to employ Congolese in 80 percent of management positions and 90 percent of all employee positions.

All forestry companies, both foreign- and locally-owned, are required by law to process 85 percent of their timber domestically and export it as furniture or otherwise transformed wood. The law allows timber companies to export up to 15 percent of their wood product as natural timber. In practice, however, the economy exports as much timber as natural timber.

ROC has no formal investment screening mechanism for inbound foreign investment.

Other Investment Policy Reviews

The government has not undertaken any third-party investment policy reviews in recent years.

Business Facilitation

The ROC Agency for Business Creation, or Agence Congolaise Pour la Création des Entreprises (ACPCE), serves as a “one-stop shop” for establishing a business. ACPCE has offices in Brazzaville, Pointe-Noire, N’kayi, Ouesso, and Dolisie.

To establish a business in ROC, investors must provide ACPCE with two copies of the company by-laws, two copies of capitalization documents (e.g. a bank letter or an affidavit), a copy of the company’s investment strategy, company-approved financial statements (if available), and ownership documents or lease agreements for the company’s offices in ROC.

The ACPCE has a website, http://www.acpce.cg/, which serves as an information-only website. Business registration cannot be completed through the website.

Outward Investment

The ROC government does not promote or incentivize outward investment.

The ROC government does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Lack of transparency poses one of the greatest hurdles to FDI, as investors must navigate an opaque regulatory bureaucracy. Companies routinely find themselves embroiled in tax, customs, and labor disputes arbitrated by court officials who make decisions that do not conform with Congolese law and ROC Ministry of Justice regulations.

ROC has no known informal regulatory processes managed by nongovernmental organizations or private sector associations.

The government develops new regulations internally and rarely requests input from industry representatives. Various ministries have regulatory authority over the individual industries in their area of responsibility, with overall authority coordinated by the Ministry of Economy. The government does not usually offer a formal, public comment period.

ROC’s accounting, legal, and regulatory procedures are transparent. ROC uses Francophone Africa’s OHADA – the Organization for Business and Customs Harmonization, or Organisation pour l’Harmonisation en Afrique du Droit des Affaires – system of accounting, legal, and regulatory procedures.

The government does not normally make draft bills or regulations available for public comment.

The government publishes new laws and regulations in ROC’s Official Journal. The Official Journal is available for download at the website of the Secretary General of the Government maintains the Official Journal online at http://www.sgg.cg.

Most government ministries have an inspector general that conducts oversight to ensure that government agencies follow administrative processes. The office of the president additionally has an inspector general who supervises the entire government.

The government announced no new regulatory system, including enforcement reforms, during the reporting period.

No new reforms were made in the reporting period.

The inspector general process is not legally reviewable and not accountable to the public.

The government makes transparent some public finances and debt obligations, including explicit and contingent liabilities. The Ministry of Finance publishes the arrangements on its website, https://www.finances.gouv.cg/.

International Regulatory Considerations

ROC participates as a member in the Economic Community of Central African States (CEEAC), a regional economic cooperation community, and in the Economic and Monetary Community of Central Africa (CEMAC), a monetary union of six Central African states. These regional economic organizations control much of the national economic and finance regulatory system.

ROC’s regulatory system for business disputes and regulations governing company registration structure and incorporation incorporate Francophone African regulatory norms promulgated by OHADA – the Organization for Business and Customs Harmonization, or Organisation pour l’harmonisation en Afrique du droit des affaires.

ROC participates as a member country of the World Trade Organization (WTO). The government does not provide information as to whether or not it notifies the WTO Committee of all draft regulations relating to Technical Barriers to Trade. ROC signed the WTO Trade Facilitation Agreement but has not begun implementing the agreement.

Legal System and Judicial Independence

The French civil law legal system serves as the basis of the Congolese legal system.

The Organization for the Harmonization of Business Law in Africa (OHADA), or Organisation pour l’harmonisation en Afrique du droit des affaires, provides the basis for ROC’s national commercial law, which also incorporates provisions unique to ROC. A commercial court exists in ROC but has not convened since 2016.

The judicial system remains independent in principle, however, in practice the executive branch has intervened in the judicial system.

Appellate courts exist and receive appeals of enforcement actions. Public Law 6-2003, which established the country’s Investment Charter, states that Congolese law will resolve investment disputes. Judgments of foreign courts are difficult to enforce in ROC. Though the government does not usually deny those judgments outright, it may propose process or procedural delays that prolong the matter indefinitely without resolution.

Laws and Regulations on Foreign Direct Investment

ROC’s Commercial Court has authority over any legal disputes involving foreign investors. Investors may also file legal complaints in the OHADA court – based in Abidjan, Cote d’Ivoire – which has jurisdiction throughout Francophone Africa. ROC’s Hydrocarbons Law and Mining Code of 2016 contain industry-specific regulations for foreign investments.

The government published no major laws, regulations, or judicial decisions related to foreign investment during the reporting period.

The ROC Agency for Business Creation, or Agence Congolaise Pour la Création des Entreprises (ACPCE), serves as a “one-stop shop” for establishing a business. Its website has limited information about laws, rules, and reporting requirements: http://www.acpce.cg/.

Competition and Antitrust Laws

No agencies review transactions for competition-related concerns, either domestic or international in nature. Ministries in general monitor individual industries and review industry-related transactions.

Expropriation and Compensation

The ROC government may legally expropriate property if it finds a public need for a given public facility or infrastructure (e.g. roads, hospitals, etc.).

No recent history of expropriation regarding private companies exists. Historically, however, the ROC government has expropriated private property from Congolese citizens to build roads and stadiums. Law entitles the claimants to fair market value compensation, but the government made such compensation inconsistently.

Beginning in 2012, the ROC government expropriated the land of Congolese private property owners in the Kintele suburb of Brazzaville to build a state-of-the-art sports complex for the 2015 African Games. The government offered little or no compensation to some property owners, and they complained of a lack of legal recourse against the government.

Dispute Settlement

ICSID Convention and New York Convention

ROC is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). The ROC government has not ratified the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

There is no specific domestic legislation providing for enforcement of awards under the ICSID Convention.

Investor-State Dispute Settlement

ROC is a member of the Organization for the Harmonization of Business Law in Africa (OHADA), which includes binding international arbitration of investment disputes.

ROC has a Bilateral Investment Treaty (BIT) with the United States that includes an investment chapter. U.S. investors have made no recent claims under the agreement.

There have been two investment disputes involving U.S. entities in the past ten years.

In one, a company successfully negotiated a settlement with ROC authorities after filing suit in a New York district court. In the second, a company successfully sued ROC in U.S. and French courts over non-payment for goods and services, however, the ROC government refused to recognize the judgements. Congolese courts subsequently issued their own judgements in favor of the ROC government. The ROC government no longer responds to attempts by the company or intermediaries to engage on this dispute.

Local courts have rarely recognized and enforced foreign arbitral awards issued against the government.

There is no known history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

There is no known alternative dispute resolution (ADR) mechanisms available in ROC. ROC inconsistently abides by international arbitration for any treaty, international convention, or organization of which it is a member. In practice, arbitral judgments are difficult to enforce.

Commercial courts constitute the domestic arbitration bodies within the country. The commercial court legislation and structure follows French commercial legislation and structure.

Local courts inconsistently recognize and enforce foreign arbitral awards. ROC law allows for the recognitions of foreign judgments when the relevant laws appear sufficiently similar to Congolese law. Congolese courts have not accepted any foreign arbitral awards in recent years.

There are no known investment disputes involving state owned enterprises in recent years.

Bankruptcy Regulations

ROC has no specific law that governs bankruptcy. As a member of OHADA, the Organization for Business and Customs Harmonization or Organisation pour l’harmonisation en Afrique du droit des affaires, ROC applies OHADA bankruptcy provisions in the event of corporate or individual insolvency.

No laws criminalize bankruptcy.

ROC does not have a credit bureau or other credit monitoring authority serving the country’s market.

Capital Markets and Portfolio Investment

The ROC government maintains a neutral attitude toward foreign portfolio investment and does not widely practice foreign portfolio investment.

ROC does not have a national stock exchange. ROC-based companies may seek regional listing on the Douala Stock Exchange, which merged with the Economic and Monetary Community of Central Africa (CEMAC) Zone Stock Exchange. The Bank of Central African States (BEAC) determines monetary and credit policies within the CEMAC framework to ensure the stability of the common regional currency.

Existing policies facilitate the free flow of financial resources, though complex products are not widely used.

The government and Central Bank respect IMF Article VIII in principle, however, within the last year the BEAC imposed restrictions on international payments and transfers. Mining and oil companies especially expressed concerns about the new restrictions.

In June 2019, the BEAC issued a number of directives to implement currency exchange controls previously approved by CEMAC on December 21, 2018. The CEMAC regulation provides the framework, terms, and conditions for the regulation of foreign exchange transactions in the CEMAC member States – Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon, and the Republic of the Congo. The new regulation increases the BEAC’s role in declaring and authorizing international transactions, the control of the compliance with the foreign exchange regulations and the interpretation of the CEMAC Regulation. The regulation was supposed to enter into force on March 1, 2019, however the compliance/application of the regulation is extended to December 31, 2021 referring to the decision of the Governor n°119 /GR/2020.

The BEAC monitors credits and market terms. Foreign investors can obtain credit on the local market as long as they have a locally registered company. ROC, however, offers only a limited range of credit instruments.

Money and Banking System

Banking penetration likely remains in the 10- to 12-percent range, although a government survey conducted in 2015 estimated a rate of 25-30 percent. High intermediation costs and high collateral requirements limit the pool of customers. Microfinance banks and mobile banking remain the fastest growth areas in the banking sector.

The current economic crisis and the government’s consecutive years of fiscal deficits have additionally strained the banking sector over the past five years. Overall loan default has remained around 30 percent in the reporting period due to strained economic conditions.

Non-performing loans amount to approximately 30 percent in 2020.

Fiscal transparency issues limit any estimate of the total assets controlled by ROC’s largest banks. The assets of the largest banks have likely decreased significantly in recent years as a result of the economic crisis.

ROC participates in the Central African Economic and Monetary Community (CEMAC) zone and the Central Bank of the Central African States (BEAC) system. BEAC’s regulatory body, the Banking Commission of Central Africa (COBAC), supervises the Congolese banking sector.

Foreign banks and branches may operate in ROC and constitute the majority of banking operations in ROC. BEAC banking regulations govern foreign and domestic banks in ROC. No banks have left ROC in the past ten years.

No known restrictions exist on a foreigner’s ability to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

In 2019, the Bank of the Central African States (BEAC) imposed new restrictions on international payments and transfers that have negatively affected foreign exchange. CEMAC regulations require banks to record and report the identity of customers engaging in transactions valued at over $10,000. The BEAC recently began monitoring closely fund transfers larger than $100,000.

New BEAC restrictions have created difficulties obtaining foreign currencies from commercial banks. No U.S.-based banks operate in ROC but transfers directly to and from the United States are possible.

ROC and other CEMAC member states use the Central African CFA Franc (FCFA, sometimes abbreviated XAF) as a common currency. The CFA is pegged to the Euro as an intervention monetary unit at a fixed exchange rate of 1 Euro: 655.957 CFA Franc.

Remittance Policies

In 2019, the Bank of the Central African States (BEAC) imposed new restrictions on international payments and transfers that have negatively affected remittances.

In June 2019, the Bank of Central African States issued a number of standard operating procedures to implement currency exchange controls. Since the implementation of these regulations, the average waiting period for any fund transfer is 10 days in 2020.

Sovereign Wealth Funds

GROC maintains no formal Sovereign Wealth Fund (SWF). An ROC law envisages the establishment of an SWF at the BEAC and acquiring mostly risk-free foreign assets.

As a former people’s republic, state-owned enterprises (SOEs) dominated the Congolese economy of the 1970s and 1980s. The number of SOEs remains comparatively small following a wave of privatization in the 1990s. The national oil company (SNPC), electricity company (E2C), and water supply company (LCDE) constitute the largest remaining SOEs. SOEs report to their respective ministries.

Constraints on SOEs operating in the non-oil sector appear sufficiently monitored and subject to civil society and media scrutiny. The operations of SNPC, however, continue to present transparency concerns. SOEs must publish annual reports subject to examination by the government’s supreme audit institution. In practice, these examinations do not always occur.

The government publishes no official list of SOEs.

Private companies may compete with public companies and have in some cases won contracts sought by SOEs. Government budget constraints limit SOE’s operations.

Privatization Program

ROC has no known privatization programs.

Congo has experienced several periods of political violence and civil disturbance since its independence in 1960. The most recent period ended in December 2017, when anti-government forces in the Pool region – which surrounds the capital of Brazzaville – signed a ceasefire agreement with the government.

There are no known examples of damage to commercial projects and/or installations in the past ten years. Civil disturbances have occasionally resulted in damage to high-profile, public places such as police stations.

The political environment is noticeably calmer since the end of the 2017 legislative elections.

ROC held a presidential election in March 2021 that proceeded without any unrest or violence. Authorities inhibited the ability of some organizations to monitor the election and arrested a small number of political activists before and after the election. The country’s internet was shut down from the morning of the election until the announcement of results three days later.

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

* Source for Host Country Data: Institut National de la Statistique (National Institute of Statistics)

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available.