Argentina

Executive Summary

Argentina presents significant investment and trade opportunities, particularly in infrastructure, health, agriculture, information technology, energy, and mining. In 2018, President Mauricio Macri continued to reform the market-distorting economic policies of his immediate predecessors. Since entering office in December 2015, the Macri administration has taken steps to reduce bureaucratic hurdles in business creation, enacted some tax reforms, courted foreign direct investment, and attempted to implement labor reforms through sector-specific agreements with unions. However, Argentina’s economic recession coupled with the political stagnation of an election year have reduced the Macri administration’s ability to enact pro-business reforms and have choked international investment to Argentina.

In 2018, Argentina´s economy suffered from stagnant economic growth, high unemployment, and soaring inflation: economic activity fell 2.6 percent and annual inflation rate reached 47.6 percent by the end of year. This deteriorating macroeconomic situation prevented the Macri administration from implementing structural reforms that could address some of the drivers of the stagflation: high tax rates, high labor costs, access to financing, cumbersome bureaucracy, and outdated infrastructure. In September 2018, Argentina established a new export tax on most goods through December 31, 2020, and in January 2019, began applying a similar tax of 12 percent on most exports of services. To account for fluctuations in the exchange rate, the export tax on these goods and services may not exceed four pesos per dollar exported. Except for the case of the energy sector, the government has been unsuccessful in its attempts to curb the power of labor unions and enact the reforms required to attract international investors.

The Macri administration has been successful in re-establishing the country as a world player. Argentina assumed the G-20 Presidency on December 1, 2017, and hosted over 45 G-20 meetings in 2018, culminating with the Leaders’ Summit in Buenos Aires. The country also held the Financial Action Task Force (FATF) presidency for 2017-2018 and served as host of the WTO Ministerial in 2017.

In 2018, Argentina moved up eight places in the Competitiveness Ranking of the World Economic Forum (WEF), which measures how productively a country uses its available resources, to 81 out of 140 countries, and 10 out of the 21 countries in the Latin American and Caribbean region. Argentina is courting an EU-MERCOSUR trade agreement and is increasing engagement with the Organization for Economic Cooperation and Development (OECD) with the goal of an invitation for accession this year. Argentina ratified the WTO Trade Facilitation Agreement on January 22, 2018. Argentina and the United States continue to expand bilateral commercial and economic cooperation, specifically through the Trade and Investment Framework Agreement (TIFA), the Commercial Dialogue, the Framework to Strengthen Infrastructure Investment and Energy Cooperation, and the Digital Economy Working Group, in order to improve and facilitate public-private ties and communication on trade and investment issues, including market access and intellectual property rights. More than 300 U.S. companies operate in Argentina, and the United States continues to be the top investor in Argentina with more than USD $14.9 billion (stock) of foreign direct investment as of 2017.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 85 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 119 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 80 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2017 $14,907 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $13,030 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

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

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

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

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

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

Other Investment Policy Reviews

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

Business Facilitation

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

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

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

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

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

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

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

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

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

Outward Investment

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

2. Bilateral Investment Agreements and Taxation Treaties

Argentina has a Bilateral Investment Treaty (BIT) with the United States, which entered into force on October 20, 1994. The text of the Argentina-United States BIT is available at: http://2001-2009.state.gov/documents/organization/43475.pdf .

As of April 2019, Argentina has 50 BITs in force. Argentina has signed treaties that are not yet in force with six other countries: Greece (October 1999), New Zealand (August 1999), the Dominican Republic (March 2001), Qatar (November 2016), United Arab Emirates (April 2018), and Japan (December 2018).

During 2018 and the first quarter of 2019, Argentina continued discussions to strengthen bilateral commercial, economic, and investment cooperation with a number of countries, including China, Denmark, India, Mexico, Japan, the Netherlands, Spain, South Korea, Russia, Vietnam, and the United States. Argentina and the United States established a bilateral Commercial Dialogue and a Trade and Investment Framework Agreement (TIFA) in 2016. Bilateral talks are ongoing through both mechanisms. Argentina does not have a Free Trade Agreement with the United States.

Argentina is a founding member of the Southern Common Market (MERCOSUR), which includes Brazil, Paraguay, Uruguay, and Venezuela (currently suspended). Through MERCOSUR, Argentina has Free Trade Agreements with Egypt, Israel, Bolivia, Chile, and Peru. MERCOSUR has Trade Framework Agreements with Morocco and Mexico, and Preferential Trade Agreements (PTA) with the Southern African Customs Union (SACU), India, Colombia, Chile, Mexico, and Ecuador. MERCOSUR is currently pursuing a Free Trade Agreement with the European Union and the European Free Trade Association (EFTA) and has initiated free trade discussions with Canada, South Korea, and Japan. The bloc is also in talks to expand on its agreements with SACU and India.

Argentina has Economic Complementarity Agreements with Bolivia, Colombia, Ecuador, Mexico, Peru, and Chile that were established before MERCOSUR and thus, grandfathered into Mercosur. Argentina is engaged in ongoing negotiations to expand the PTA agreement with Mexico. Argentina also has an economic association agreement with Colombia signed in June 2017. In January 2019, the expanded Economic Complementation Agreement (ECA) between Chile and Argentina entered into effect. The new ECA was signed in November 2017, approved by the Argentine Congress in December 2018, and ratified by the Chilean Congress in January 2019. The new deal includes trade facilitation regulation and development programs directed to supporting SMEs, and adds chapters on e-commerce, trade in services, and government procurement.

Argentina does not have a bilateral taxation treaty with the United States. In December 2016, Argentina signed a Tax Information Exchange Agreement with the United States, which increases the transparency of commercial transactions between the two countries to aid with combating tax and customs fraud. The Agreement entered into force on November 13, 2017. The United States and Argentina have initiated discussions to sign a Foreign Account Tax Compliance Act (FATCA) inter-governmental agreement.

In 2014, Argentina committed to implementing the OECD single global standard on automatic exchange of financial information. According to media sources, Argentina had been set to make its first financial information exchange in September 2018, but it was postponed to 2019.

In June 2018, AFIP and the OECD signed an MOU to establish the first Latin American Financial and Fiscal Crime Investigation Academy.

Argentina has signed 18 double taxation treaties, including with Germany, Canada, Russia, and the United Kingdom. In November 2016, Argentina and Switzerland signed a bilateral double taxation treaty. In November 2016, Argentina signed an agreement with the United Arab Emirates, which has not yet entered into force. In July 2017, Argentina updated a prior agreement with Brazil, which also has not yet been implemented. Argentina also has customs agreements with numerous countries. A full listing is available at: http://www.afip.gov.ar/institucional/acuerdos.asp .

In general, national taxation rules do not discriminate against foreigners or foreign firms (e.g., asset taxes are applied to equity possessed by both domestic and foreign entities).

3. Legal Regime

Transparency of the Regulatory System

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

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

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

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

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

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

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

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

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

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

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

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

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

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

International Regulatory Considerations

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

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

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

Legal System and Judicial Independence

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

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

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

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

Laws and Regulations on Foreign Direct Investment

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

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

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

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

Investor-State Dispute Settlement

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

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

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

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

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

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

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

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

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

International Commercial Arbitration and Foreign Courts

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

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

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

Bankruptcy Regulations

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

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

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

4. Industrial Policies

Investment Incentives

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

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

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

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

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

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

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

Performance and Data Localization Requirements

Employment and Investor Requirements

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

Goods, Technology, and Data Treatment

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

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

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

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

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

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

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

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

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

Investment Performance Requirements

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

5. Protection of Property Rights

Real Property

Secured interests in property, including mortgages, are recognized in Argentina. Such interests can be easily and effectively registered. They also can be readily bought and sold. Argentina manages a national registry of real estate ownership (Registro de la Propiedad Inmueble) at http://www.dnrpi.jus.gov.ar/ . No data is available on the percent of all land that does not have clear title. There are no specific regulations regarding land lease and acquisition of residential and commercial real estate by foreign investors. Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes the restrictions of foreign ownership on rural and productive lands, including water bodies. Foreign ownership is also restricted on land located near borders.

Legal claims may be brought to evict persons unlawfully occupying real property, even if the property is unoccupied by the lawful owner. However, these legal proceedings can be quite lengthy, and until the legal proceedings are complete, evicting squatters is problematic. The title and actual conditions of real property interests under consideration should be carefully reviewed before acquisition.

Argentine Law 26.160 prevents the eviction and confiscation of land traditionally occupied by indigenous communities in Argentina, or encumbered with an indigenous land claim. Indigenous land claims can be found in the land registry. Enforcement is carried out by the National Institute of Indigenous Affairs, under the Ministry of Social Development.

Intellectual Property Rights

The government of Argentina adheres to some treaties and international agreements on intellectual property (IP) and belongs to the World Intellectual Property Organization and the World Trade Organization. The Argentine Congress ratified the Uruguay Round agreements, including the provisions on intellectual property, in Law 24425 on January 5, 1995.

The U.S. Trade Representative’s 2019 Special 301 Report identified Argentina on the Priority Watch List. Trading partners on the Priority Watch List present the most significant concerns regarding inadequate or ineffective IP protection or enforcement or actions that otherwise limit market access for persons relying on IP protection. For a complete version of the 2019 Report, see: https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/april/ustr-releases-2018-special-301-report .

Argentina continues to present longstanding and well-known challenges to IP-intensive industries, including from the United States. A key deficiency in Argentina’s legal framework for patents is the unduly broad limitations on patent eligible subject matter. Pursuant to a highly problematic 2012 Joint Resolution establishing guidelines for the examination of patents, Argentina rejects patent applications for categories of pharmaceutical inventions that are eligible for patentability in other jurisdictions, including in the United States. Additionally, to be patentable, Argentina requires that processes for the manufacture of active compounds disclosed in a specification be reproducible and applicable on an industrial scale. Stakeholders assert that Resolution 283/2015, introduced in September 2015, also limits the ability to patent biotechnological innovations based on living matter and natural substances. Such measures have interfered with the ability of companies investing in Argentina to protect their IP and may be inconsistent with international norms. Another ongoing challenge to the innovative agricultural, chemical, and pharmaceutical sectors is inadequate protection against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for products in those sectors. Argentina struggles with a substantial backlog of patent applications resulting in long delays for innovators seeking patent protection in the market, a problem compounded by a reduction in the number of patent examiners in 2018 primarily due to a government-wide hiring freeze.

Enforcement of IP rights in Argentina continues to be a challenge and stakeholders report widespread unfair competition from sellers of counterfeit and pirated goods and services. La Salada in Buenos Aires remains the largest counterfeit market in Latin America. Argentine police generally do not take ex officio actions, prosecutions can stall and languish in excessive formalities, and, when a criminal case does reach final judgment, infringers rarely receive deterrent sentences. Hard goods counterfeiting and optical disc piracy is widespread, and online piracy continues to grow as criminal enforcement against online piracy is nearly nonexistent. As a result, IP enforcement online in Argentina consists mainly of right holders trying to convince cooperative Argentine ISPs to agree to take down specific infringing works, as well as attempting to seek injunctions in civil cases. Right holders also cite widespread use of unlicensed software by Argentine private enterprises and the government.

Over the last year, Argentina made limited progress in IP protection and enforcement. Beset with economic challenges, Argentina’s government agencies were strapped by a reduction of funding and a government-wide hiring freeze, and many of Argentina’s IP-related initiatives that had gained momentum last year did not gain further traction due to a lack of resources. Despite these circumstances, the National Institute of Industrial Property (INPI) revamped its procedures and began accepting electronic filing of patent, trademark, and industrial designs applications as of October 1, 2018. Argentina also improved registration procedures for trademarks and industrial designs.  On trademarks, the law now provides for a fast track option that reduces the time to register a trademark to four months. The United States continues to monitor this change as INPI works on the implementing regulation. For industrial designs, INPI now accepts multiple applications in a single filing and applicants may substitute digital photographs for formal drawings. To further improve patent protection in Argentina, including for small and medium-sized enterprises, the United States urges Argentina to ratify the Patent Cooperation Treaty (PCT).

Argentina’s efforts to combat counterfeiting continue, but without systemic measures, illegal activity persists.  Argentine authorities arrested the alleged operators of the market La Salada as well as numerous associates in 2017, but vendors continue to sell counterfeit and pirated goods at the market and throughout Buenos Aires. The United States has encouraged Argentina to create a national IP enforcement strategy to build on these successes and move to a sustainable, long-lasting initiative. The United States also has encouraged legislative proposals to this effect, along the lines of prior bills introduced in Congress to provide for landlord liability and stronger enforcement on the sale of infringing goods at outdoor marketplaces such as La Salada, and to amend the trademark law to increase criminal penalties for counterfeiting carried out by criminal networks. In November 2017, Argentina entered into an agreement with the Chamber of Medium-Sized Enterprises and the Argentine Anti-Piracy Association to create a National Anti-Piracy Initiative focusing initially on trademark counterfeiting. The United States encourages Argentina to expand this initiative to online piracy. In March, revisions to the criminal code, including certain criminal sanctions for circumventing technological protection measures (TPMs), were submitted to Congress. While Argentina has moved forward with the creation of a federal specialized IP prosecutor’s office, the office is not yet in operation. In November 2018, following a constructive bilateral meeting earlier in the year, Argentina and the United States held a DVC under the bilateral Innovation and Creativity Forum for Economic Development, part of the U.S.-Argentina Trade and Investment Framework Agreement (TIFA), to continue discussions and collaboration on IP topics of mutual interest. The United States intends to monitor all the outstanding issues for progress, and urges Argentina to continue its efforts to create a more attractive environment for investment and innovation.

For statistics on illegal sales in Argentina, go to the following link: http://redcame.org.ar/seccion/relevamiento-venta-ilegal 

6. Financial Sector

Capital Markets and Portfolio Investment

The Macri administration has enacted a series of macroeconomic reforms (unifying the exchange rate, settling with holdout creditors, annulling most of the trade restrictions, lifting capital controls, to mention a few) to improve the investment climate. In May 2018, the Congress approved a new capital markets law aimed at boosting economic growth through the development and deepening of the local capital market. The law removed over-reaching regulatory intervention provisions introduced by the previous government and eased restrictions on mutual funds and foreign portfolio investment in domestic markets. Argentina also signed several bilateral agreements and MOUs with other countries aimed to increase foreign direct investment. There are no restrictions on payments and transfers abroad (in accordance with IMF Article VIII).

The Argentine Securities and Exchange Commission (CNV or Comision Nacional de Valores) is the federal agency that regulates securities markets offerings. Securities and accounting standards are transparent and consistent with international norms. Foreign investors have access to a variety of options on the local market to obtain credit. Nevertheless, the domestic credit market is small – credit is 16 percent of GDP, according to the World Bank. The Buenos Aires Stock Exchange is the organization responsible for the operation of Argentina’s primary stock exchange, located in Buenos Aires city. The most important index of the Buenos Aires Stock Exchange is the MERVAL (Mercado de Valores).

U.S. banks, securities firms, and investment funds are well-represented in Argentina and are dynamic players in local capital markets. In 2003, the government began requiring foreign banks to disclose to the public the nature and extent to which their foreign parent banks guarantee their branches or subsidiaries in Argentina.

Money and Banking System

Argentina has a relatively sound banking sector based on diversified revenues, well-contained operating costs, and a high liquidity level. The main challenge for banks is to rebuild long-term assets and liabilities. Due to adverse international and domestic conditions with the economy entering into a recession with high inflation and interest rates, credit to the private sector in local currency (for both corporations and individuals) decreased 18 percent in real terms in 2018. In spite of falling credit, banks remain well equipped to weather weak economic conditions. The largest bank is the Banco de la Nacion Argentina. Non-performing private sector loans constitute less than four percent of banks’ portfolios. The ten largest private banks have total assets of approximately ARS 2,643 billion (USD 64 billion). Total financial system assets are approximately ARS 5,506 billion (USD 134 billion). The Central Bank of Argentina acts as the country’s financial agent and is the main regulatory body for the banking system.

Foreign banks and branches are allowed to establish operations in Argentina. They are subject to the same regulation as local banks. Argentina’s Central Bank has many correspondent banking relationships, none of which are known to have been lost in the past three years.

The Central Bank has enacted a resolution recognizing cryptocurrencies and requiring that they comply with local banking and tax laws. No implementing regulations have been adopted. Blockchain developers report that several companies in the financial services sector are exploring or considering using blockchain-based programs externally and are using some such programs internally. One Argentine NGO, through funding from the Inter-American Development Bank (IDB), is developing blockchain-based banking applications to assist low income populations.

Foreign Exchange and Remittances

Foreign Exchange

President Macri has issued a number of regulations that lifted all capital controls and reduced trade restrictions. In November 2017, the government repealed the obligation to convert hard currency earnings on exports of both goods and services to pesos in the local foreign exchange market.

Per Resolution 36,162 of October 2011, locally registered insurance companies are mandated to maintain all investments and cash equivalents in the country. The BCRA limits banks’ dollar-denominated asset holdings to 10 percent of their net worth.

In June 2018, the International Monetary Fund (IMF) and Argentina announced a Standby Arrangement agreement (SBA). Three months after agreeing to a USD 50 billion SBA, Argentina and the IMF announced in September 2018 a set of revisions, including an increase of the line of credit by USD 7.1 billion and front loading the disbursement of funds. The revised program sought to erase any doubts about the government’s ability to cover its financing needs for 2018 and 2019 and in turn, Argentina committed to meeting strict new budget and monetary policy targets. On the monetary side, the BCRA replaced inflation targeting with a policy to ensure zero growth of the monetary base through December 2019. The BCRA also allows the exchange rate to float freely between a floor and ceiling of 34 and 44 pesos per dollar (at the time of introducing the framework).

Originally, the BCRA hoped that the floor and ceiling bounds would avoid a real appreciation of the peso; the adjustment started with a 3 percent monthly increase for the last quarter of 2018, and would drop to a monthly 1.75 percent increase for the second quarter of 2019. However, in mid-April 2019, the BCRA announced that the floor and ceiling will remain constant until the end of 2019, at 39.8 and 51.5 pesos per dollar, respectively. Under this framework, the BCRA may only sell up to USD 150 million reserves per day when trading above the ceiling.

Remittance Policies

According to Resolutions 3,819/2015 and 1/2017, companies and investors have no official restrictions on money conversion, remittances, or repatriation of their earnings.

Sovereign Wealth Funds

The Argentine Government does not maintain a Sovereign Wealth Fund.

7. State-Owned Enterprises

The Argentine government has state-owned enterprises (SOEs) or significant stakes in mixed-capital companies in the following sectors: civil commercial aviation, water and sanitation, oil and gas, electricity generation, transport, paper production, satellite, banking, railway, shipyard, and aircraft ground handling services.

By Argentine law, a company is considered a public enterprise if the state owns 100 percent of the company’s shares. The state has majority control over a company if the state owns 51 percent of the company’s shares. The state has minority participation in a company if the state owns less than 51 percent of the company’s shares. Laws regulating state-owned enterprises and enterprises with state participation can be found at http://www.saij.gob.ar/13653-nacional-regimen-empresas-estado-lns0001871-1955-03-23/123456789-0abc-defg-g17-81000scanyel .

Through the government’s social security agency (ANSES), the Argentine government owns stakes ranging from one to 31 percent in 46 publically-listed companies. U.S. investors also own shares in some of these companies. As part of the ANSES takeover of Argentina’s private pension system in 2008, the government agreed to commit itself to being a passive investor in the companies and limit the exercise of its voting rights to 5 percent, regardless of the equity stake the social security agency owned. A list of such enterprises can be found at: http://fgs.anses.gob.ar/participacion .

State-owned enterprises purchase and supply goods and services from the private sector and foreign firms. Private enterprises may compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives. Private enterprises also have access to financing terms and conditions similar to SOEs. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors. SOEs are not currently subject to firm budget constraints under the law, and have been subsidized by the central government in the past; however, the Macri administration is reducing subsidies in the energy, water, and transportation sectors. Argentina does not have regulations that differentiate treatment of SOEs and private enterprises. Argentina has observer status under the WTO Agreement on Government Procurement and, as such, SOEs are subject to the conditions of Argentina’s observance.

Argentina does not have a specified ownership policy, guideline or governance code for how the government exercises ownership of SOEs. The country generally adheres to the OECD Guidelines on Corporate Governance of SOEs. The practices for SOEs are mainly in compliance with the policies and practices for transparency and accountability in the OECD Guidelines.

Argentina does not have a centralized ownership entity that exercises ownership rights for each of the SOEs. The general rule in Argentina is that requirements that apply to all listed companies also apply to publicly-listed SOEs.

In 2018, the OECD released a report evaluating the corporate governance framework for the Argentine SOE sector relative to the OECD Guidelines on Corporate Governance of SOEs, which can be viewed here: http://www.oecd.org/countries/argentina/oecd-review-corporate-governance-soe-argentina.htm .

Privatization Program

The current administration has not developed a privatization program.

8. Responsible Business Conduct

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

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

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

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

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

9. Corruption

Argentina’s legal system incorporates several measures to address public sector corruption. The government institutions tasked with combatting corruption include the Anti-Corruption Office (ACO), the National Auditor General, and the General Comptroller’s Office. Public officials are subject to financial disclosure laws, and the Ministry of Justice’s ACO is responsible for analyzing and investigating federal executive branch officials based on their financial disclosure forms. The ACO is also responsible for investigating corruption within the federal executive branch or in matters involving federal funds, except for funds transferred to the provinces. While the ACO does not have authority to independently prosecute cases, it can refer cases to other agencies or serve as the plaintiff and request a judge to initiate a case.

Argentina enacted a new Corporate Criminal Liability Law in November 2017 following the advice of the OECD to comply with its Anti-Bribery Convention. The full text of Law 27,401 can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/295000-299999/296846/norma.htm . The new law entered into force in early 2018. It extends anti-bribery criminal sanctions to corporations, whereas previously they only applied to individuals; expands the definition of prohibited conduct, including illegal enrichment of public officials; and allows Argentina to hold Argentines responsible for foreign bribery. Sanctions include fines and blacklisting from public contracts. Argentina also enacted an express prohibition on the tax deductibility of bribes.

Corruption has been an issue in Argentina. In its March 2017 report, the OECD expressed concern about Argentina’s enforcement of foreign bribery laws, inefficiencies in the judicial system, politicization and perceived lack of independence at the Attorney General’s Office, and lack of training and awareness for judges and prosecutors. According to the World Bank’s worldwide governance indicators, corruption remains an area of concern in Argentina. In the latest Transparency International Corruption Perceptions Index (CPI) that ranks countries and territories by their perceived levels of corruption, Argentina ranked 85 out of 180 countries in 2018, an improvement of 10 places versus 2016. Allegations of corruption in provincial as well as federal courts remained frequent. Few Argentine companies have implemented anti-foreign bribery measures beyond limited codes of ethics.

Since assuming office, President Macri made combating corruption and improving government transparency a priority objective for his administration. In September 2016, Congress passed a law on public access to information. The law explicitly applies to all three branches of the federal government, the public justice offices, and entities such as businesses, political parties, universities, and trade associations that receive public funding. It requires these institutions to respond to citizen requests for public information within 15 days, with an additional 15-day extension available for “exceptional” circumstances. Sanctions apply for noncompliance. The law also mandates the creation of the Agency for Access to Public Information, an autonomous office within the executive branch. President Macri also proposed a series of criminal justice and administrative reforms. Chief among these are measures to speed the recovery of assets acquired through corruption, plea-bargaining-type incentives to encourage judicial cooperation, and greater financial disclosure for public servants. In early 2016, the Argentine government reaffirmed its commitment to the Open Government Partnership (OGP), became a founding member of the Global Anti-Corruption Coalition, and reengaged the OECD Working Group on Bribery.

Argentina is a party to the Organization of American States’ Inter-American Convention against Corruption. It ratified in 2001 the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention). Argentina also signed and ratified the UN Convention against Corruption (UNCAC) and participates in UNCAC’s Conference of State Parties. Argentina also participates in the Mechanism for Follow-up on the Implementation of the Inter-American Convention against Corruption (MESICIC).

Since Argentina became a party to the OECD Anti-Bribery Convention, allegations of Argentine individuals or companies bribing foreign officials have surfaced. A March 2017 report by the OECD Working Group on Bribery indicated there were 13 known foreign bribery allegations involving Argentine companies and individuals as of that date.  According to the report, Argentine authorities investigated and closed some of the allegations and declined to investigate others.  The authorities determined some allegations did not involve foreign bribery but rather other offenses.  Several such allegations remained under investigation. 

Resources to Report Corruption

Laura Alonso
Director
Government of Argentina Anti-Corruption Office
Oficina Anticorrupción, Tucumán 394, C1049AAH, Ciudad Autónoma de Buenos Aires.
Phone: +54 11 5167 6400
Email: anticorrupcion@jus.gov.ar and http://denuncias.anticorrupcion.gob.ar/ 

Poder Ciudadano (Local Transparency International Affiliate)
Phone: +54 11 4331 4925 ext 225
Fax: +54 11 4331 4925
Email: comunicaciones@poderciudadano.org
Website: http://www.poderciudadano.org 

10. Political and Security Environment

Demonstrations are common in metropolitan Buenos Aires and in other major cities and rural areas. Political violence is not widely considered a hindrance to the investment climate in Argentina.

Protesters regularly block streets, highways, and major intersections, causing traffic jams and delaying travel. Public demonstrations, strikes, and street blocking barricades increased in 2018 in response to economic and political issues. While demonstrations are usually non-violent, individuals sometimes seek confrontation with the police and vandalize private property. Groups occasionally protest in front of the U.S. Embassy or U.S.-affiliated businesses. In February 2016, the Ministry of Security approved a National Anti-Street Pickets Protocol that provides guidelines to prevent the blockage of major streets and public facilities during demonstrations. However, this protocol did not often apply to venues within the City of Buenos Aires (CABA), which fall under the city’s jurisdiction.  The CABA government often did not enforce security protocols against illegal demonstrations.

In December 2017, while Congress had called an extraordinary session to address the retirement system reforms, several demonstrations against the bill turned violent, causing structural damage to public and private property, injuries to 162 people (including 88 policemen), and arrests of 60 people. The demonstrations ultimately dissipated, and the government passed the bill.

11. Labor Policies and Practices

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

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

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

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

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

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

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

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

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

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

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

12. OPIC and Other Investment Insurance Programs

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

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

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $451,443 2017 $637,430 www.worldbank.org/en/country  
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 N/A 2017 $14,907 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  

www.bcra.gov.ar

Host country’s FDI in the United States ($M USD, stock positions) 2017 N/A 2017 $1,020 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP 2017 N/A 2017 12.2% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  

* https://www.indec.gob.ar/uploads/informesdeprensa/pib_03_19.pdf ;  www.bcra.gov.ar 


Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $80,373 100% Total Outward N/A 100%
United States $17,713 22% N/A N/A
Spain $13,874 17% N/A N/A
Netherlands $9,300 12% N/A N/A
Brazil $4,983 6% N/A N/A
Chile $4,650 6% N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.

No information from the IMF’s Coordinated Portfolio Investment Survey (CPIS) for Outward Direct Investment is available for Argentina.


Table 4: Sources of Portfolio Investment

Data not available.

14. Contact for More Information

Economic Section
U.S. Embassy Buenos Aires
Avenida Colombia 4300
(C1425GMN)
Buenos Aires, Argentina
+54-11-5777-4747
ECONBA@state.gov

Brazil

Executive Summary

Brazil is the second largest economy in the Western Hemisphere behind the United States, and the eighth largest economy in the world, according to the World Bank.  The United Nations Conference on Trade and Development (UNCTAD) named Brazil the fourth largest destination for global Foreign Direct Investment (FDI) flows in 2017.  In recent years, Brazil received more than half of South America’s total incoming FDI, and the United States is a major foreign investor in Brazil. The Brazilian Central Bank (BCB) reported the United States had the largest single-country stock of FDI by final ownership, representing 22 percent of all FDI in Brazil (USD 118.7 billion) in 2017, the latest year with available data.  The Government of Brazil (GoB) prioritized attracting private investment in infrastructure during 2017 and 2018.

The current economic recovery, which started in the first quarter of 2017, ended the deepest and longest recession in Brazil’s modern history.  The country’s Gross Domestic Product (GDP) expanded by 1.1 percent in 2018, below most initial market analysts’ projections of 3 percent growth in 2018.  Analysts forecast a 2 percent growth rate for 2019. The unemployment rate reached 11.6 percent at the end of 2018. Brazil was the world’s fourth largest destination for FDI in 2017, with inflows of USD 62.7 billion, according to UNCTAD.  The nominal budget deficit stood at 7.1 percent of GDP (USD132.5 billion) in 2018 and is projected to end 2019 at around 6.5 percent of GDP (USD 148.5 billion). Brazil’s debt-to-GDP ratio reached 76.7 percent in 2018 with projections to reach 83 percent by the end of 2019.  The BCB has maintained its target for the benchmark Selic interest rate at 6.5 percent since March 2018 (from a high of 13.75 percent at the end of 2016).

President Bolsonaro took office on January 1, 2019, following the interim presidency by President Michel Temer, who had assumed office after the impeachment of former President Dilma Rousseff in August 2016.  Temer’s administration pursued corrective macroeconomic policies to stabilize the economy, such as a landmark federal spending cap in December 2016 and a package of labor market reforms in 2017. President Bolsonaro’s economic team pledged to continue pushing reforms needed to help control costs of Brazil’s pension system, and has made that issue its top economic priority.  Further reforms are also planned to simplify Brazil’s complex tax system. In addition to current economic difficulties, since 2014, Brazil’s anti-corruption oversight bodies have been investigating allegations of widespread corruption that have moved beyond state-owned energy firm Petrobras and a number of private construction companies to include companies in other economic sectors.  

Brazil’s official investment promotion strategy prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors.  Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are restrictions in the health, mass media, telecommunications, aerospace, rural property, maritime, and air transport sectors.  The Brazilian Congress is considering legislation to liberalize restrictions on foreign ownership of rural property and air carriers.

Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil.  Foreign investors also cite concerns over poor existing infrastructure, still relatively rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.  

 

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 105 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 109 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 64 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical-cost basis) 2017 $68,272 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $8,600 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

Screening of FDI

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

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

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

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

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

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

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

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

Other Investment Policy Reviews

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

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

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

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

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

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

Business Facilitation

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

Outward Investment

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

2. Bilateral Investment Agreements and Taxation Treaties

Brazil does not have a Bilateral Investment Treaty (BIT) with the United States.  In the 1990s, Brazil signed BITs with Belgium, Luxembourg, Chile, Cuba, Denmark, Finland, France, Germany, Italy, the Republic of Korea, the Netherlands, Portugal, Switzerland, the United Kingdom, and Venezuela.  The Brazilian Congress has not ratified any of these agreements. In 2002, the Executive branch withdrew the agreements from Congress after determining that treaty provisions on international Investor-State Dispute Settlement (ISDS) were unconstitutional.  

In 2015, Brazil developed a state-to-state Cooperation and Facilitation Investment Agreement (CFIA) which, unlike traditional BITs, does not provide for an ISDS mechanism.  CFIAs instead outline progressive steps for the settlement of “issue[s] of interest to an investor,” including: 1) an ombudsmen and a Joint Committee appointed by the two governments will act as mediators to amicably settle any dispute; 2) if amicable settlement fails, either of the two governments may bring the dispute to the attention of the Joint Committee; 3) if the dispute is not settled within the Joint Committee, the two governments may resort to interstate arbitration mechanisms.”  The GOB has signed several CFIAs since 2015 with: Mozambique (April 2015), Angola (May 2015), Mexico (May 2015), Malawi (October 2015), Colombia (October 2015), Peru (October 2015), Chile (November 2015), Iran (November 2016), Azerbaijan (December 2016), Armenia (November 2017), Ethiopia (April 2018), Suriname (May 2018), Guyana (December 2018), and the United Arab Emirates (March 2019). The following CFIAs are in force: Mexico, Angola, Armenia, Azerbaijan, and Peru. A few CFIAs have received Congressional ratification in Brazil and are pending ratification by the other country: Mozambique, Malawi, and Colombia (https://concordia.itamaraty.gov.br/ ).  Brazil also negotiated an intra-Mercosul protocol similar to the CFIA in April 2017, which was ratified on December 21, 2018.  (See sections on responsible business conduct and dispute settlement.)

Brazil does not have a double taxation treaty with the United States, but it does have such treaties with 34 other countries, including: Japan, France, Italy, the Netherlands, Canada, Spain, Portugal, and Argentina.  Brazil signed a Tax Information Exchange Agreement (TIEA) with the United States in March 2007, which entered into force on May 15, 2013. In September 2014, Brazil and the United States signed an intergovernmental agreement to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA).  This agreement went into effect in August 2015.

3. Legal Regime

Transparency of the Regulatory System

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

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

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

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

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

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

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

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

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

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

International Regulatory Considerations

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

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

Legal System and Judicial Independence

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

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

Laws and Regulations on Foreign Direct Investment

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

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

Competition and Anti-Trust Laws

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

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

Expropriation and Compensation

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

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

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

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

4. Industrial Policies

Investment Incentives

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

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

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

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

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

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

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

Industrial Promotion

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

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

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

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

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

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

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

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

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

5. Protection of Property Rights

Real Property

Brazil has a system in place for mortgage registration, but implementation is uneven and there is no standardized contract.  Foreign individuals or foreign-owned companies can purchase real property in Brazil. Foreign buyers frequently arrange alternative financing in their own countries, where rates may be more attractive.  Law 9514 from 1997 helped spur the mortgage industry by establishing a legal framework for a secondary market in mortgages and streamlining the foreclosure process, but the mortgage market in Brazil is still underdeveloped, and foreigners may have difficulty obtaining mortgage financing.  Large U.S. real estate firms, nonetheless, are expanding their portfolios in Brazil.

Intellectual Property Rights

The last year brought increased attention to IP in Brazil, but rights holders still face significant challenges.  Brazil’s National Institute of Industrial Property (INPI) streamlined procedures for review processes to increase examiner productivity for patent and trademark decisions.  Nevertheless, the wait period for a patent remains nine years and the market is flooded with counterfeits. Brazil’s IP enforcement regime is constrained by limited resources.  Brazil has remained on the “Watch List” of the U.S. Trade Representative’s Special 301 report since 2007. For more information, please see: https://ustr.gov/issue-areas/intellectual-property/Special-301 .

Brazil has no physical markets listed on USTR’s 2017 Review of Notorious Markets, though the report does acknowledge a file sharing site popular among Brazilians that is known for pirated digital media.  For more information, please see: https://ustr.gov/sites/default/files/files/Press/Reports/2017 percent20Notorious percent20Markets percent20List percent201.11.18.pdf .

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

6. Financial Sector

Capital Markets and Portfolio Investment

The Central Bank of Brazil (BCB) embarked in October 2016 on a sustained monetary easing cycle, lowering the Special Settlement and Custody System (Selic) baseline reference rate from a high of 14 percent in October 2016 to 6.5 percent in December 2018.  Inflation for 2018 was 3.67 percent, within the 1.5 percent plus/minus of the 4 percent target. In June 2018, the National Monetary Council (CMN) set the BCB’s inflation target to 4.25 percent in 2019, 4.5 percent in 2020, and 3.75 percent for 2021. Because of a heavy public debt burden and other structural factors, most analysts expect the “neutral policy rate will remain higher than target rates in Brazil’s emerging-market peers (around five percent) over the forecast period.  

After a boom in 2004-2012 that more than doubled the lending/GDP ratio (to 55 percent of GDP), the recession and higher interest rates significantly decreased lending.  In fact, the lending/GDP ratio remained below 55 percent at year-end 2017. Financial analysts contend that credit will pick up again in the medium term, owing to interest rate easing and economic recovery.  

The role of the state in credit markets grew steadily beginning in 2008, with public banks now accounting for over 55 percent of total loans to the private sector (up from 35 percent).  Directed lending (that is, to meet mandated sectoral targets) also rose and accounts for almost half of total lending. Brazil is paring back public bank lending and trying to expand a market for long-term private capital.  

While local private sector banks are beginning to offer longer credit terms, state-owned development bank BNDES is a traditional Brazilian source of long-term credit.  BNDES also offers export financing. Approvals of new financing by BNDES increased 27 percent year-over-year, with the infrastructure sector receiving the majority of new capital.

The Sao Paulo Stock Exchange (BOVESPA) is the sole stock market in Brazil, while trading of public securities takes place at the Rio de Janeiro market.  In 2008, the Brazilian Mercantile & Futures Exchange (BM&F) merged with the BOVESPA to form what is now the fourth largest exchange in the Western Hemisphere, after the NYSE, NASDAQ, and Canadian TSX Group exchanges.  As of April 2019, there were 430 companies traded on the BM&F/BOVESPA. The BOVESPA index increased 15.03 percent in valuation during 2018. Foreign investors, both institutions and individuals, can directly invest in equities, securities, and derivatives.  Foreign investors are limited to trading derivatives and stocks of publicly held companies on established markets.

Wholly owned subsidiaries of multinational accounting firms, including the major U.S. firms, are present in Brazil.  Auditors are personally liable for the accuracy of accounting statements prepared for banks.

Money and Banking System

The Brazilian financial sector is large and sophisticated.  Banks lend at market rates that remain relatively high compared to other emerging economies.  Reasons cited by industry observers include high taxation, repayment risk, and concern over inconsistent judicial enforcement of contracts, high mandatory reserve requirements, and administrative overhead, as well as persistently high real (net of inflation) interest rates.  According to BCB data collected from 2011 through the first quarter of 2019, the average rate offered by Brazilian banks was 9.22 percent, with an average monthly high of 11.34 percent in July 2016, and an average monthly rate of 7.7 percent for March 2019.

The financial sector is concentrated, with BCB data indicating that the four largest commercial banks (excluding brokerages) account for approximately 70 percent of the commercial banking sector assets, totaling USD 1.59 trillion as of Q1, 2019.  Three of the five largest banks (by assets) in the country – Banco do Brasil, Caixa Economica Federal, and BNDES – are partially or completely federally owned. Large private banking institutions focus their lending on Brazil’s largest firms, while small- and medium-sized banks primarily serve small- and medium-sized companies.  Citibank sold its consumer business to Itau Bank in 2016, but maintains its commercial banking interests in Brazil. It is currently the sole U.S. bank operating in the country.

In recent years, the BCB has strengthened bank audits, implemented more stringent internal control requirements, and tightened capital adequacy rules to reflect risk more accurately.  It also established loan classification and provisioning requirements. These measures apply to private and publicly owned banks alike. In April 2018, Moody’s upgraded a collection of 20 Brazilian banks and their affiliates to stable from negative.  The Brazilian Securities and Exchange Commission (CVM) independently regulates the stock exchanges, brokers, distributors, pension funds, mutual funds, and leasing companies with penalties against insider trading.

Foreigners may find it difficult to open an account with a Brazilian bank.  The individual must present a permanent or temporary resident visa, a national tax identification number issued by the Brazilian government (CPF), either a valid passport or identity card for foreigners (CIE), proof of domicile, and proof of income.  On average, this process from application to account opening lasts more than three months

Foreign Exchange and Remittances

Foreign Exchange

Brazil’s foreign exchange market remains small, despite recent growth.  The latest Triennial Survey by the Bank for International Settlements, conducted in December 2016, showed that the net daily turnover on Brazil’s market for OTC foreign exchange transactions (spot transactions, outright forwards, foreign-exchange swaps, currency swaps and currency options) was USD 19.7 billion, up from USD 17.2 billion in 2013.  This was equivalent to around 0.3 percent of the global market in both years.

Brazil’s banking system has adequate capitalization and has traditionally been highly profitable, reflecting high interest rates and fees.  Per an April 2018 Central Bank Financial Stability Report, all banks exceeded required solvency ratios, and stress testing demonstrated the banking system has adequate loss absorption capacity in all simulated scenarios.  Furthermore, the report noted 99.9 percent of banks already met Basel III requirements, and possess a projected Common Equity Tier 1 (CET1) capital ratio above the minimum 7 percent required at the beginning of 2019.

There are few restrictions on converting or transferring funds associated with a foreign investment in Brazil.  Foreign investors may freely convert Brazilian currency in the unified foreign exchange market where buy-sell rates are determined by market forces.  All foreign exchange transactions, including identifying data, must be reported to the BCB. Foreign exchange transactions on the current account are fully liberalized.

The BCB must approve all incoming foreign loans.  In most cases, loans are automatically approved unless loan costs are determined to be “incompatible with normal market conditions and practices.”  In such cases, the BCB may request additional information regarding the transaction. Loans obtained abroad do not require advance approval by the BCB, provided the Brazilian recipient is not a government entity.  Loans to government entities require prior approval from the Brazilian Senate as well as from the Economic Ministry’s Treasury Secretariat, and must be registered with the BCB.

Interest and amortization payments specified in a loan contract can be made without additional approval from the BCB.  Early payments can also be made without additional approvals, if the contract includes a provision for them. Otherwise, early payment requires notification to the BCB to ensure accurate records of Brazil’s stock of debt.

In March 2014, Brazil’s Federal Revenue Service consolidated the regulations on withholding taxes (IRRF) applicable to earnings and capital gains realized by individuals and legal entities resident or domiciled outside Brazil.  The regulation states that the cost of acquisition must be calculated in Brazilian currency (reais). Also, the definition of “technical services” was broadened to include administrative support and consulting services rendered by individuals (employees or not) or resulting from automated structures having clear technological content.

Upon registering investments with the BCB, foreign investors are able to remit dividends, capital (including capital gains), and, if applicable, royalties.  Investors must register remittances with the BCB. Dividends cannot exceed corporate profits. Investors may carry out remittance transactions at any bank by documenting the source of the transaction (evidence of profit or sale of assets) and showing payment of applicable taxes.

Remittance Policies

Under Law 13259/2016 passed in March 2016, capital gain remittances are subject to a 15 to 22.5 percent income withholding tax, with the exception of capital gains and interest payments on tax-exempt domestically issued Brazilian bonds.  The capital gains marginal tax rates are: 15 percent up to USD 1.5 million in gains; 17.5 percent for USD 1.5 million to USD 2.9 million in gains; 20 percent for USD 2.9 million to USD 8.9 million in gains; and 22.5 percent for more than USD 8.9 million in gains.

Repatriation of a foreign investor’s initial investment is also exempt from income tax under Law 4131/1962.  Lease payments are assessed a 15 percent withholding tax. Remittances related to technology transfers are not subject to the tax on credit, foreign exchange, and insurance, although they are subject to a 15 percent withholding tax and an extra 10 percent Contribution for Intervening in Economic Domain (CIDE) tax.

Sovereign Wealth Funds

Law 11887 established the Sovereign Fund of Brazil (FSB) in 2008.  It was a non-commodity fund with a mandate to support national companies in their export activities and to offset counter-cyclical development, promoting investment in projects of strategic interest to Brazil both domestically and abroad.  The GoB also had the authority to use money from this fund to help meet its fiscal targets when annual revenues were lower than expected, and to invest in state-owned companies. In May 2018, then-President Temer signed an executive order abolishing the fund.  The money in the fund was earmarked for repayment of foreign debt.

7. State-Owned Enterprises

The GoB maintains ownership interests in a variety of enterprises at both the federal and state levels.  Typically, boards responsible for state-owned enterprise (SOE) corporate governance are comprised of directors elected by the state or federal government with additional directors elected by any non-government shareholders.  Although Brazil, a non-OECD member, has participated in many OECD working groups, it does not follow the OECD Guidelines on Corporate Governance of SOEs. Brazilian SOEs are concentrated in the oil and gas, electricity generation and distribution, transportation, and banking sectors.  A number of these firms also see a portion of their shares publically traded on the Brazilian and other stock exchanges.

In the 1990s and early 2000s, the GoB privatized many state-owned enterprises across a broad spectrum of industries, including mining, steel, aeronautics, banking, and electricity generation and distribution.  While the GoB divested itself from many of its SOEs, it maintained partial control (at both the federal and state level) of some previously wholly state-owned enterprises. This control can include a “golden share” whereby the government can exercise veto power over proposed mergers or acquisitions.  

Notable examples of majority government owned and controlled firms include national oil and gas giant Petrobras and power conglomerate Eletrobras.  Both Petrobras and Eletrobras include non-government shareholders, are listed on both the Brazilian and NYSE stock exchanges, and are subject to the same accounting and audit regulations as all publicly-traded Brazilian companies.  Brazil previously restricted foreign investment in offshore oil and gas development through 2010 legislation that obligated Petrobras to serve as the sole operator and minimum 30 percent investor in any oil and gas exploration and production in Brazil’s prolific offshore pre-salt fields.  As a result of the GoB’s desire to increase foreign investment in Brazil’s hydrocarbon sector, in October 2016 the Brazilian Congress granted foreign companies the right to serve as sole operators in pre-salt exploration and production activities and eliminated Petrobras’ obligation to serve as a minority equity holder in pre-salt oil and gas operations.  Nevertheless, the 2016 law still gives Petrobras right-of-first refusal in developing pre-salt offshore fields before those areas are available for public auction.  Industry estimates project bonuses of USD 26.3 billion by opening the Brazilian oil and gas market to foreign investment.

Privatization Program

Given limited public investment funding, the GoB has focused on privatizing state–owned energy, airport, road, railway, and port assets through long-term (up to 30 year) infrastructure concession agreements.  Eletrobras successfully sold its six principal, highly-indebted power distributors. The SOE is currently working to begin a capitalization process to reduce the GoB’s share holdings in the company to less than 50 percent.  The process cannot move forward, however, until Congress passes a bill authorizing the reduction. In 2018, Petrobras faced criticism over its daily fuel adjustment policy and a major 12-day truckers strike hit Brazil and forced the resignation of Petrobras’ CEO Pedro Parente.  To end the strike, the GoB eliminated the collection of the CIDE tax over diesel and gave a USD 3 billion subsidy to diesel producers (mainly Petrobras) to reduce the prices to consumers (primarily truckers).

In 2016, Brazil launched its newest version of these efforts to promote privatization of primary infrastructure.  The Temer administration created the Investment Partnership Program (PPI) to expand and accelerate the concession of public works projects to private enterprise and the privatization of some state entities.  PPI covers federal concessions in road, rail, ports, airports, municipal water treatment, electricity transmission and distribution, and oil and gas exploration and production contracts. Between 2016 and 2018, PPI auctioned off 124 projects and collected USD 62.5 billion in investments.  The full list of PPI projects is located at: https://www.ppi.gov.br/schedule-of-projects 

While some subsidized financing through BNDES will be available, PPI emphasizes the use of private financing and debentures for projects.  All federal and state-level infrastructure concessions are open to foreign companies with no requirement to work with Brazilian partners. In 2017, Brazil launched the Agora é Avançar initiative for promoting investments in primary infrastructure, and this has supported several projects.  Details can be found at: www.avancar.gov.br .The latest information available about Avançar Parcerias is from September 30, 2018.  From over 7,000 projects, the program has completed 36.5 percent and 92.2 percent are in progress.

In 2008, the Ministry of Health initiated the use of Production Development Partnerships (PDPs) to reduce the increasing dependence of Brazil’s healthcare sector on international drug production and the need to control costs in the public healthcare system, services that are an entitlement enumerated in the constitution.  The healthcare sector accounts for 9 percent of GDP, 10 percent of skilled jobs, and more than 25 percent of research and development nationally. These agreements provide a framework for technology transfer and development of local production by leveraging the volume purchasing power of the Ministry of Health. In the current administration, there is increasing interest in PDPs as a cost saving measure.  U.S. companies have both competed for these procurements and at times raised concerns about the potential for PDPs to be used to subvert intellectual property protections under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

8. Responsible Business Conduct

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

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

9. Corruption

Brazil has laws, regulations, and penalties to combat corruption, but their effectiveness is inconsistent.  Several bills to revise the country’s regulation of the lobbying/government relations industry have been pending before Congress for years.  Bribery is illegal, and a bribe by a local company to a foreign official can result in criminal penalties for individuals and administrative penalties for companies, including fines and potential disqualification from government contracts.  A company cannot deduct a bribe to a foreign official from its taxes. While federal government authorities generally investigate allegations of corruption, there are inconsistencies in the level of enforcement among individual states. Corruption is problematic in business dealings with some authorities, particularly at the municipal level.  U.S. companies operating in Brazil are subject to the U.S. Foreign Corrupt Practices Act (FCPA).

Brazil signed the UN Convention against Corruption in 2003, and ratified it in 2005.  Brazil is a signatory to the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on bribery.  It was one of the founders, along with the United States, of the intergovernmental Open Government Partnership, which seeks to help governments increase transparency.  

In 2018, Brazil ranked 105th out of 180 countries in Transparency International’s Corruption Perceptions Index.  The full report can be found at: https://www.transparency.org/cpi2018 

Since 2014, the federal criminal investigation known as Operação Lava Jato (Operation Car Wash) has uncovered a complex web of public sector corruption, contract fraud, money laundering, and tax evasion stemming from systematic overcharging for government contracts, particularly at parastatal oil company Petrobras.  The ongoing investigation led to the arrests of Petrobras executives, oil industry suppliers including executives from Brazil’s largest construction companies, money launderers, former politicians, and political party operatives. Many sitting Brazilian politicians are currently under investigation.  In July 2017, former Brazilian President Luiz Inacio Lula da Silva (Lula) was convicted of corruption and money laundering charges stemming from the Lava Jato investigation.  The Brazilian authorities jailed Lula in April 2018, and the courts sentenced him in February 2019 to begin serving an almost 13-year prison sentence.  In March 2019, authorities arrested former President Michel Temer on charges of corruption.

In December 2016, Brazilian construction conglomerate Odebrecht and its chemical manufacturing arm Braskem agreed to pay the largest FCPA penalty in U.S. history and plead guilty to charges filed in the United States, Brazil, and Switzerland that alleged the companies paid hundreds of millions of dollars in bribes to government officials around the world.  The U.S. Department of Justice case stemmed directly from theLava Jatoinvestigation and focused on violations of the anti-bribery provisions of the FCPA.  Details on the case can be found at: https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve 

In January 2018, Petrobras settled a class-action lawsuit with investors in U.S. federal court for USD 3 billion, which was one of the largest securities class action settlements in U.S. history.  The investors alleged that Petrobras officials accepted bribes and made decisions that had a negative impact on Petrobras’ share value. In September 2018, the U.S. Department of Justice announced that Petrobras would pay a fine of USD 853.2 million to settle charges that former executives and directors violated the FCPA through fraudulent accounting used to conceal bribe payments from investors and regulators.

In 2015, GoB prosecutors announced Operacão Zelotes (Operation Zealots), in which both domestic and foreign firms were alleged to have bribed tax officials to reduce their assessments.  The operation resulted in a complete closure and overhaul of Brazilian tax courts, including a reduction in the number of courts and judges as well as more subsequent rulings in favor of tax authorities.  

Resources to Report Corruption

Petalla Brandao Timo Rodrigues
International Relations Chief Advisor
Brazilian Federal Public Ministry
contatolavajato@mpf.mp.br

Transparencia Brasil
Bela Cintra, 409; Sao Paulo, Brasil
+55 (11) 3259-6986
http://www.transparencia.org.br/contato 

10. Political and Security Environment

Strikes and demonstrations occasionally occur in urban areas and may cause temporary disruption to public transportation.  Occasional port strikes continue to have an impact on commerce. Brazil has over 60,000 murders annually, with low rates of success in murder investigations and even lower conviction rates.  Brazil announced emergency measures in 2017 to counter a rise in violence in Rio de Janeiro state, and approximately 8,500 military personnel deployed to the state to assist state law enforcement.  In February, 2018, then-President Temer signed a federal intervention decree giving the federal government control of the state’s entire public security apparatus under the command of an Army general.  The federal intervention ended on December 31, 2018, with the withdrawal of the military. Shorter-term and less expansive deployments of the military in support of police forces also occurred in other states in 2017, including Rio Grande do Norte and Roraima.  The military also supported police forces in 11 states and nearly 500 cities for the 2018 general elections.

In 2016, millions peacefully demonstrated to call for and against then-President Dilma Rousseff’s impeachment and protest against corruption, which was one of the largest public protests in Brazil’s history.  Non-violent pro- and anti-government demonstrations have occurred regularly in recent years.

Although U.S. citizens are usually not targeted during such events, U.S. citizens traveling or residing in Brazil are advised to take common-sense precautions and avoid any large gatherings or any other event where crowds have congregated to demonstrate or protest.  For the latest U.S. State Department guidance on travel in Brazil, please consult www.travel.state.gov

11. Labor Policies and Practices

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

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

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

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

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

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

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

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

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

12. OPIC and Other Investment Insurance Programs

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

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($ USD) 2017 $2,053 trillion 2017 $2.056 trillion www.worldbank.org/en/country  
U.S. FDI in partner country ($M USD, stock positions)

BCB data, year-end.

2017 $95,100 2017 $68,300 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  

*U.S. is historical-cost basis

Host country’s FDI in the United States ($M USD, stock positions) 2017 $16,070 2017 ($2,030) BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  

*U.S. is historical-cost basis

Total inbound stock of FDI as % host GDP 2017 26.29% 2017 36.4% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx    

* IBGE and BCB data, year-end.


Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, billions)
Inward Direct Investment Outward Direct Investment
Total Inward 635.12 100% Total Outward 254.23 100%
Netherlands 158.42 24.9% Cayman Islands 72.58 28.5%
United States 109.61 17.3% British Virgin Islands 46.73 18.4%
Luxembourg 60.12 6.5% Bahamas 37.21 14.6%
Spain 57.98 9.1% Austria 32.14 12.6%
France 33.30 5.2% United States 14.92 5.9%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (billions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 40.13 100% All Countries 31.11 100% All Countries 9.02 100%
United States 13.84 34.5% United States 10.37 33.3% United States 3.47 38.5%
Bahamas 6.80 16.9% Bahamas 6.76 21.7% Spain 2.64 29.3%
Cayman Islands 4.25 10.6% Cayman Islands 3.93 12.6% Korea, South 0.50 5.5%
Spain 3.72 9.3% Switzerland 2.01 6.5% Switzerland 0.41 4.5%
Switzerland 2.42 6.0% Luxembourg 1.69 5.4% Denmark 0.38 4.2%

 

14. Contact for More Information

Economic Section
U.S.  Embassy Brasilia
BrasiliaECON2@State.gov
+55-61-3312-7000

Paraguay

Executive Summary

Paraguay has a small but growing open economy, which for the past decade averages 4 percent GDP growth per year, and has the potential for continued growth over the next decade.  Major drivers of economic growth in Paraguay are the agriculture, retail, and construction sectors. The Paraguayan government encourages private foreign investment. Paraguayan law grants investors tax breaks, permits full repatriation of capital and profits, supports maquila operations (special benefits for investors in manufacturing of exports), and guarantees national treatment for foreign investors.  Standard & Poor’s, Fitch, and Moody’s all have upgraded Paraguay’s credit ratings over the past several years. Most recently, Fitch improved Paraguay’s credit rating to BB+ in December 2018 with a stable outlook.

Paraguay scores at the mid-range or lower in most competitiveness indicators, judicial insecurity hinders the investment climate, and trademark infringement and counterfeiting are major concerns.  In April 2018, Paraguay elected President Mario Abdo Benitez in a peaceful election. His government is proposing new legislation to combat money laundering. Previously, the government has taken measures to improve the investment climate, including the passage of laws addressing competition, public sector payroll disclosures, and access to information.  A number of U.S. companies, however, continue to have issues working with government offices to solve investment disputes, including the government’s unwillingness to pay debts incurred under the previous administration and even some current debts.

Paraguay’s export and investment promotion bureau, REDIEX, prepares comprehensive information about business opportunities in Paraguay.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 132 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report “Ease of Doing Business” 2018 113 of 190 http://doingbusiness.org/rankings 
Global Innovation Index 2018 89 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $179  http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $5,470 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

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 in Paraguay, including 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.

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 window for registering a company.  The process takes about 35 days.

Outward Investment

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

2. Bilateral Investment Agreements and Taxation Treaties

Paraguay has bilateral investment agreements or treaties with the following countries: Austria; Belgium; Bolivia; Chile; Costa Rica; Cuba, Czech Republic, El Salvador; France; Germany; Hungary; Italy, Korea; Luxembourg; the Netherlands; Peru; Portugal, Romania; South Africa; Spain; Switzerland; Taiwan; the United Kingdom; and Venezuela.

Paraguay is a founding member of the Mercosur common market, formed in 1991.  Mercosur has investment protocols for internal and external investment. Mercosur’s full members are Argentina, Brazil, Paraguay, and Uruguay.  Venezuela’s membership was suspended in 2016. Bolivia is an associate member, having signed an accession agreement in 2012 that has been ratified by all members except Brazil.  Mercosur has investment agreements with Bolivia, Canada, Chile, Colombia, Ecuador, Egypt, India, Israel, Mexico, Palestine, Peru, and the Southern African Customs Union (SACU). Mercosur continues to pursue a free trade agreement with the European Union.

The United States and Paraguay do not have a Bilateral Investment Treaty, a Free Trade Agreement, or a Bilateral Taxation Treaty.  The two countries signed a Trade and Investment Framework Agreement in January 2017 that was officially ratified and entered into effect in December 2017.

3. Legal Regime

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.

International Regulatory Considerations

Paraguay is a founding member of the Mercosur common market, 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.

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.  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.

REDIEX provides a website to facilitate access to relevant legislation, laws, and regulations for investors: http://www.bit.do/REDIEX19  

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 investment disputes involving foreign investors.  One 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 91 out of 190 for “Ease of Enforcing Contracts” in the World Bank’s 2019 Doing Business Report.  World Bank data states the process averages 606 days and costs 30 percent of the claimed value.

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 Paraguayan distributors to seek expensive out-of-court settlements first.  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 (CAMP, in Spanish), which is a non-profit, private entity that promotes the application of alternative dispute resolution methods.

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 2019 Doing Business Report, Paraguay stands at 103 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 21.6 cents on the dollar.  Bankruptcy is not criminalized in Paraguay.

4. Industrial Policies

Investment Incentives

Paraguay grants investors a number of tax breaks under Law 60/90, including exemptions from corporate income tax and value-added tax.  Paraguay also has a temporary entry system, which allows duty free admission of capital goods such as machinery, tools, equipment, and vehicles to carry out public and private construction work.  The government also allows temporary entry of equipment for scientific research, exhibitions, training or testing, competitive sports, and traveler or tourist items.

Foreign Trade Zones/Free Ports/Trade Facilitation

Paraguayan Law 523/95 (which entered into force in 2002) permits the establishment of free trade zones (FTZs).  Paraguay has two FTZs in Ciudad del Este – one that operates largely as a manufacturing center and a second that focuses on warehouse storage.  Paraguay is a landlocked country with no seaports but has numerous private and public inland river ports. About three-fourths of commercial goods are transported by barge on the Paraguay-Parana river system that connects Paraguay with Buenos Aires, Argentina, and Montevideo, Uruguay.  Paraguay has agreements with Uruguay, Argentina, Brazil, and Chile on free trade ports and warehouses for the reception, storage, handling, and trans-shipment of merchandise.

Performance and Data Localization Requirements

Paraguay does not mandate local employment or have excessively onerous visa, residence, work permit or similar requirements inhibiting mobility of foreign investors and their employees. However, the bureaucratic process to comply with these requirements can be lengthy.  Voting board members of any company incorporated in Paraguay must have legal residence, which takes a minimum of 90 days to establish, posing a potential obstacle to foreign investors.

Paraguay does not have a “forced localization” policy requiring foreign investors to use domestic content in goods or technology.  There are no requirements for maintaining a certain amount of data storage within Paraguay or for foreign IT providers to turn over source code and/or provide access to surveillance.  Paraguayan law requires internet service providers to retain IP address for six months for certain commercial transactions.

Paraguay’s Public Contracting Law (4558/11) gives preference in government bids to locally produced goods in public procurements open to foreign suppliers, even if the domestic good is up to 20 percent more expensive than the imported good.  Foreign firms can bid on tenders deemed “international” and on “national” tenders through the foreign firm’s local agent or representative. The government is making efforts to enhance transparency and accountability, including through the use of an internet-based government procurement system.  Paraguay is not a signatory to the World Trade Organization (WTO) Agreement on Government Procurement.

5. Protection of Property Rights

Real Property

The 1992 constitution guarantees the right of private property ownership.  While it is common to use real property as security for loans, the lack of consistent property surveys and registries often makes it impossible to foreclose.  According to government figures, there is 35 percent more titled land in Paraguay than physically exists. In some cases, acquiring title documents for land can take two years or more.  The World Bank’s 2019 Doing Business report ranks Paraguay 74 of 190 for ease of “registering property,” noting the process requires six procedures, averages 46 days, and costs 1.8 percent of the property value.

Paraguay has a “squatter’s rights” law by which ownership of property can be gained by possession of it beyond the lapse of 20 years.

Intellectual Property Rights

The United States and Paraguay signed a Memorandum of Understanding (MOU) on intellectual property rights (IPR) in June 2015, under which Paraguay committed to take specific steps to improve its IPR protection and enforcement environment.  Additionally, the MOU solidifies bilateral cooperation by which the United States supports Paraguay’s efforts to strengthen the legal protection and enforcement of IPR. This led to Paraguay being removed from the U.S. Trade Representative’s (USTR) 2015 Special 301 Report Watch List pursuant to an Out-of-Cycle Review.  Due in part to Paraguay’s unfulfilled commitments under the MOU, Paraguay returned to the Special 301 Report Watch List in 2019.

The market Ciudad del Este has been named in either the USTR Notorious Market List or the Special 301 Report for over 17 years.  The border crossing at Ciudad del Este, and the city itself, reportedly serves as a hub for the distribution of counterfeit and pirated products in the Brazil-Argentina-Paraguay tri-border region and beyond.  Informality and border porosity in the area remains a challenge.

Concerns remain about inadequate protection against unfair commercial use of proprietary test or other data generated to obtain marketing approval for agrochemical or pharmaceutical products and the shortcomings in Paraguay’s patent regime.  Law 3283 from 2007 and Law 3519 from 2008, (1) require pharmaceutical products and agrochemical products to be registered first in Paraguay to be eligible for data protection; (2) allow regulatory agencies to use test data in support of similar agricultural chemical product applications filed by third parties; and (3) limit data protection to five years.  Additionally, Law 2593/05 that modifies Paraguay’s patent law has no regulatory enforcement. Because of this, foreign pharmaceutical companies have seen their patented products openly replicated and marketed under other names by Paraguayan pharmaceutical companies.

Although law enforcement authorities track seizures of counterfeit goods independently, there is no consolidated report available online, and the statistics vary between government offices.  DINAPI reported 197 seizures of counterfeit goods in 2018 with an estimated retail price of USD 12 million. 

Paraguay has ratified all of the Uruguay Round accords, including the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), and has ratified two World Intellectual Property Organization (WIPO) copyright treaties.  The Paraguayan Congress ratified the TRIPS Agreement in July 2018.

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

Regional IP Attaché
U.S. Consulate General – Rio de Janeiro
Telephone: +55 (21) 3823-2499

Deputy Political and Economic Counselor
U.S. Embassy Asuncion
Telephone: +595 (21) 213-715

National Intellectual Property Directorate: https://www.dinapi.gov.py/  

Paraguayan-American Chamber of Commerce: http://www.amcham.com.py/  

Local Lawyers: http://photos.state.gov/libraries/paraguay/5/Consular/Attorneys percent20at percent20Law_001.pdf 

6. Financial Sector

Capital Markets and Portfolio Investment

Credit is available but expensive.  Banks frequently charge from 40 percent to 60 percent interest on consumer loans, 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 April 2018, the Asuncion Stock exchange consisted of 92 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.  Paraguay also issued bonds in 2014, 2015, 2016, 2017, 2018 and recently in 2019 for USD 500 million. 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 21.5 billion in assets and USD 15.1 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.

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 Financial Action Task Force against Money Laundering in Latin America (GAFILAT), a Financial Action Task Force (FATF)-style regional body and is due a GAFILAT review in 2019.

Sovereign Wealth Funds

Paraguay does not have a sovereign wealth fund.

7. State-Owned Enterprises

Paraguay has seven state-owned enterprises (SOEs), and they are active in the petroleum distribution, cement, electricity (distribution and generation), water, aviation, river navigation, and cellular telecommunication sectors.  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.

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.

Privatization Program

Paraguay does not have a privatization program.

8. Responsible Business Conduct

Responsible Business Conduct (RBC) is growing with the support of Paraguay’s largest firms.  Additionally, the private sector is taking measures to institutionalize ethical business conduct under initiatives such as the Pacto Etico Comercial (Business Ethics Pact).  An initiative sponsored by the U.S. Department of Commerce, the pact was established by over 100 local, U.S., and international companies that committed to creating a code of ethics and undergoing a rigorous auditing process to reach certification.  The Paraguayan government does not have any formal programs or policies to encourage the pact or RBC, but they showed interest in the organization’s work.

9. Corruption

Paraguayan law provides criminal penalties for official corruption; however, impunity impedes effective implementation.  Historically, officials in all branches and at all levels of government have engaged in corrupt practices. Judicial insecurity and corruption mar Paraguay’s investment climate.  Many investors find it difficult to enforce contracts and are frustrated by lengthy bureaucratic procedures, limited transparency and accountability, and impunity. A recent trend is for private companies to insist on arbitration for dispute resolution and bypass the judicial system completely.

The Paraguayan government has taken several steps in recent years to increase transparency and accountability, including the creation of an internet-based government procurement system, the disclosure of government payroll information, the appointment of nonpartisan officials to key posts, and increased civil society input and oversight.  Notwithstanding, corruption and impunity continue to affect the investment climate.

The constitution requires all public employees, including elected officials and employees of independent government entities, to disclose their income and assets at least 15 days after taking office and again within 15 days after finishing their term or assignment, but at no point in between, which is problematic for congressional representatives that are re-elected numerous times.  Public employees are required to include information on the assets and income of spouses and dependent children. Officials are not required to file periodically when changes occur in their holdings.

UN Anticorruption Convention, OECD Convention on Combating Bribery:

Paraguay signed and ratified the UN Anti-corruption Convention in 2005.

Resources to Report Corruption:

General Auditors Office
Bruselas 1880, Asuncion, Paraguay
Telephone: +595 21 620 0260
Email: atencion@contraloria.gov.py

Public Ministry
Nuestra Señora de la Asunción c/ Haedo, Asuncion, Paraguay
Telephone: +595 21 454 611
http://www.ministeriopublico.gov.py/direccion-de-denuncias-penales  

Anti-Corruption Secretariat
El Paraguayo Independiente esquina Río Ypané, Asunción, Paraguay
Telephone: +595 21 450-001/2
http://www.senac.gov.py/  

Seeds for Democracy
Roma 1055 casi Colón, Asuncion, Paraguay
Telephone: +595 21 420 323
Email: semillas@semillas.org.py

10. Political and Security Environment

While Paraguay has not traditionally been affected by political violence, this streak was broken in March 2017 when approximately 2,500 protesters stormed and partially burned the congressional assembly building.  Protesters also damaged and vandalized storefronts, parked cars, and additional government offices in the downtown area. The police response resulted in the death on one protester and numerous injuries. The protests erupted in response to senators passing a bill approving a constitutional amendment to allow former President Cartes and other former presidents to run for re-election.

Paraguay has been spared the 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).  The Paraguayan government has responded to the EPP threat with combined military and police operations. 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.

11. Labor Policies and Practices

With a population growth rate above 1.43 percent per annum and more than 65 percent of the population below the age of 35, job creation to meet the large and growing labor force is one of the most pressing issues for the government.  However, the weak education system limits the supply of well-educated workers and is an obstacle to growth. Current levels of unemployment are at 5.7 percent for year 2018. Employment informality remains high in Paraguay. According to the Paraguayan National Administrative Department of Statistics, informal employment represented 65.2 percent of the total working population in 2017 and studies published by the World Bank suggested the rate reached 71 percent for 2018.

Paraguay’s labor code makes it very difficult to lay off a formally registered, full-time employee who has completed ten consecutive years of employment.  Firms often opt for periodic renewals of “temporary” work contracts instead of long-term contracts.

Paraguayan law provides for the right of workers to form and join independent unions (with the exception of the armed forces and the police), bargain collectively, and conduct legal strikes. The law prohibits binding arbitration and retribution against union organizers and strikers.  While the law prohibits anti-union discrimination and sets the financial penalty, employers are not required by law to reinstate workers fired for union activity, even in cases where labor courts fine firms for anti-union discrimination.

The minimum age for formal, full-time employment is 18, including for domestic workers.  Adolescents between the ages of 14 and 17 may work if they have a written authorization from their parents, attend school, do not work more than four hours a day, and do not work more than a maximum of 24 hours per week.  Adolescents between the ages of 16 and 18 who do not attend school may work up to six hours a day, with a weekly ceiling of 36 hours.

For more background on labor issues in Paraguay, please refer to the Department of Labor’s Findings on the Worst Forms of Child Labor at www.dol.gov/ilab/reports/child-labor/findings/   and the latest Department of State’s Country Reports on Human Rights Practices at https://www.state.gov/reports/2018-country-reports-on-human-rights-practices/paraguay/.

12. OPIC and Other Investment Insurance Programs

The United States and Paraguay signed a 1992 investment guaranty agreement, allowing the Overseas Private Investment Corporation (OPIC) to conduct full operations in Paraguay.  OPIC has financed telecommunications, forestry, and various renewable energy projects. OPIC has also partnered with Citibank to support loans for small and medium-sized enterprises (SMEs) and micro finance loans.  OPIC last visited Paraguay in November 2018.

Paraguay is a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($B USD) 2017 $39.41 2017 $39.67 www.worldbank.org/en/country   
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $0.31 2017 $179 BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm   
Host country’s FDI in the United States ($M USD, stock positions) n/a n/a n/a n/a BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP n/a 15.3% n/a 19.0% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  

Significant discrepancies can be noted between the local and the USG statistical sources in terms of U.S. FDI in Paraguay for 2017.  UNCTAD total inbound of FDI as a percentage of Paraguay’s GDP differs about four 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


Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $6,029 100% Total Outward n/a n/a
USA  $984 16% n/a n/a n/a
Brazil $971 16% n/a n/a n/a
Spain $738 12% n/a n/a n/a
Guatemala $323 5% n/a n/a n/a
Luxembourg $277 5% n/a n/a n/a
“0” reflects amounts rounded to +/- USD 500,000.

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

According to the latest, June 2018, Coordinated Portfolio Investment Survey Reporters, this information is not available for Paraguay.

14. Contact for More Information

Javier Pérez
Economic Specialist
U.S. Embassy in Asuncion
Telephone: +595 021 213 715
Email: PerezJ1@state.gov

Uruguay

Executive Summary

The Government of Uruguay (GoU) recognizes the important role foreign investment plays in economic development and continues to maintain a favorable investment climate that does not discriminate against foreign investors.  Uruguay has a stable legal system in which foreign and national investments are treated alike, most investments are allowed without prior authorization, and investors can freely transfer the capital and profits from their investments abroad.  International investors can choose between arbitration and the judicial system to settle disputes. Local courts recognize and enforce foreign arbitral awards.

The World Bank’s 2019 “Doing Business” Index placed Uruguay fifth out of twelve countries in South America (and 95th out of 190 worldwide).  Even with some tax incentives for investors, foreign direct investment (FDI) remains low compared to the period before 2015.  Domestic and FDI dropped significantly between 2015 and 2018. 

About 120 U.S. firms operate locally and distribute their investments among a wide array of sectors, including forestry, tourism and hotels, services, and telecommunications.  U.S. firms have not identified corruption as an obstacle to investment. In 2018, Transparency International ranked Uruguay as the most transparent country in Latin America and the Caribbean.  Uruguay is a stable democracy. Political risk is low, and there have been no recent cases of expropriation.

Uruguay has strengthened bilateral trade, investment, and political ties with China, its principal trading partner.  In August 2018, Uruguay was the first country in the Southern Cone to join the Chinese One Belt One Road initiative. Since 2016, Uruguay and China have held numerous meetings concerning trade issues, but no comprehensive bilateral free trade agreement has been advanced despite both sides’ stated aims to do so.

Uruguay has bilateral investment treaties with over 30 countries, including the United States.  The United States does not have a double-taxation treaty with Uruguay. Both countries have a Trade and Investment Framework Agreement in place, and have signed agreements on open skies, trade facilitation, customs mutual assistance, promotion of small and medium enterprises, and social security totalization.

A 2018 survey by Uruguay’s export and investment promotion agency and the Ministry of Economy shows that about half of foreign investors are satisfied or very satisfied with Uruguay´s investment climate, principally its rule of law, macroeconomic stability, strategic location, and investment incentives.  Almost all investors were satisfied or highly satisfied with Uruguay´s free trade zones and free ports. On the other hand, roughly one-fourth of investors were dissatisfied with at least one aspect of doing business locally, and expressed concerns about high labor costs and taxes, as well as unions and labor conflicts.

Labor unions are vocal and labor conflicts can escalate fast, with strikes affecting overall productivity.  The World Economic Forum’s 2018 Global Competitiveness Index ranked Uruguay 53rd out of 140 countries surveyed, and 138th in labor relations.  Many U.S. and regional investors have voiced concerns that Uruguayan labor unions can legally occupy work spaces and in that way shut down operations with few repercussions.  Private sector representatives have also pointed out that labor unions’ close relationships with the current government mean that the tripartite salary councils often increase salaries without sufficient regard for companies’ ability to absorb the increased costs.

Uruguay is a founding member of MERCOSUR, the Southern Cone Common Market composed of Argentina, Brazil, Paraguay, and Venezuela.  [Note: Venezuela was suspended from MERCOSUR in December 2016 for failing to adopt the bloc’s democratic principles. End Note.] Uruguay has separate trade agreements with Bolivia, Chile, Colombia, Ecuador, and Peru, all of which are also MERCOSUR associate members.  Montevideo is the headquarters of the MERCOSUR Secretariat and MERCOSUR’s parliamentary institution PARLASUR. In 2004, Uruguay and Mexico deepened a 1999 agreement, which resulted in Uruguay’s first comprehensive trade agreement with a non-MERCOSUR country. In October 2016, Uruguay signed an agreement with Chile to extend and augment the existing free trade agreement to increase trade in goods and services.  The agreement was ratified in mid-2018 after a major internal debate within the ruling Frente Amplio ruling coalition.

Uruguay’s strategic location (in the center of MERCOSUR´s wealthiest and most populated area), and its special import regimes (such as free zones and free ports) make it a well-situated distribution center for U.S. goods into the region.  Several U.S. firms warehouse their products in Uruguay’s tax-free areas and service their regional clients effectively. With a small market of high-income consumers, Uruguay can also be a good test market for U.S. products.

In 2012, Uruguay regained the international credit ratings agencies’ investment grade status it had enjoyed from 1998 through 2002, when the country was struck by a major economic and financial crisis.  While its budget deficit and public debt ratios are relatively high compared to its rating peer group, as of April 2019, Standard&Poor’s and Moody’s rate Uruguay two steps above the investment grade threshold with a stable outlook.

Table 1: International Rankings and Statistics 

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 23 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2019 95 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2018 62 of 126 https://www.globalinnovationindex.org/analysis-indicator%20Global%20Innovation%20Index
U.S. FDI in Partner Country ($M USD, stock positions) 2017 $1,556 https://bea.gov/international/factsheet
World Bank GNI per capita 2017 $15,250 http://www.data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies towards Foreign Direct Investment

The GoU has traditionally recognized the important role that foreign and local investment plays in economic and social development and works to maintain a favorable investment climate.  Uruguay has a stable legal system in which foreign and national investments are treated alike, most investments are allowed without prior authorization, and investors may freely transfer the capital and profits from their investments abroad.  Investors can choose between arbitration and the judicial system to settle disputes. The judiciary is independent and professional.

Foreign investors are not required to meet any specific performance requirements.  Moreover, foreign investors are not subject to discriminatory or excessively onerous visa, residence, or work permit requirements.  The government does not require that nationals own shares or that the share of foreign equity be reduced over time, and does not impose conditions on investment permits.  Uruguay normally treats foreign investors as nationals in public sector tenders. Uruguayan law permits investors to participate in any stage of the tender process.

Uruguay’s export and investment promotion agency, Uruguay XXI (http://www.uruguayxxi.gub.uy  ), provides information on Uruguay’s business climate and investment incentives, at both a national and a sectoral level.  The agency also has several programs to promote the internationalization of local firms and regularly participates in trade missions.

There is no formal business roundtable or ombudsman responsible for regular dialogue between government officials and investors.  Some private business associations have suggested that formal, regular dialogue could ease concerns regarding perceived or actual government biases towards labor unions and against the private sector.

In 2017, Uruguay started taxing digital services with value-added and non-resident income taxes.  Tax rates vary depending on whether the company provides audiovisual transmissions or intermediation services, and on the geographical locations of the company and of the consumers of the service.

Limits on Foreign Control and Right to Private Ownership and Establishment

Aside from a few limited sectors involving national security and limited legal government monopolies in which foreign investment is not permitted, Uruguay practices neither de jure nor de facto discrimination toward investment by source or origin, with national and foreign investors treated equally.

In general, the GoU does not require specific authorization for firms to set up operations, import and export, make deposits and banking transactions in any particular currency, or obtain credit.  Screening mechanisms do not apply to foreign or national investments, and investors do not need special government authorization for access to capital markets or to foreign exchange.

Other Investment Policy Reviews

Uruguay is a member of the UN Conference on Trade and Development (UNCTAD), but the organization has not yet conducted an Investment Policy Review on the country.

Uruguay is not a member of the Organization for Economic Co-operation and Development (OECD), but even so, it has gradually endorsed several principles and joined some of its institutions.  Uruguay is a member of the OECD Development Center and its Global Forum on Transparency and Exchange of Information for Tax Purposes, and it participates in its Program for International Student Assessment (PISA).  In 2018, high-level Uruguayan government officials expressed interest in joining the OECD’s Investment Committee.

The World Trade Organization published its Trade Policy Review of Uruguay, which included a detailed description of the country’s trade and investment regimes in 2018 and is available at https://www.wto.org/english/tratop_e/tpr_e/tp474_e.htm  .

Business Facilitation

Uruguay is ranked 65st in the World Bank’s “starting a business” sub-indicator, well ahead of its overall aggregate ranking of 95th for the ease of doing business.  Domestic and foreign businesses can register operations in approximately seven days without a notary at http://empresas.gub.uy  .

Uruguay receives high marks in electronic government.  The UN’s 2018 Electronic Government Development and Electronic Participation indexes ranked Uruguay third in the entire Western Hemisphere (after the United States and Canada).

Recently, industrial small to medium-sized U.S. enterprises (SMEs) describe the Uruguayan market as difficult to enter in some sectors of the economy.  Those SMEs pointed to legacy business relationships and loyalties, along with a cultural resistance by distributors and clients to trusting new producers.  Local law firms working with U.S. companies said that industrial production companies entering the Uruguayan market might have to operate for two years to establish a client base and a revenue stream.  U.S. company representatives said they filed a complaint with Uruguay’s Commission for the Defense of Competition regarding monopolistic business practices in Uruguay’s chemical production market.

Outward Investment

The government does not promote nor restrict domestic investment abroad.

2. Bilateral Investment Agreements and Taxation Treaties

In November 2005, Uruguay and the United States signed a Bilateral Investment Treaty (BIT) to promote and protect reciprocal investments.  The BIT, which entered into force on November 1, 2006, grants national and most-favored-nation treatment to investments and investors sourced in each country.  The agreement also includes detailed provisions on compensation for expropriation, and a precise procedure for settling bilateral investment disputes. The annexes include sector-specific measures not covered by the agreement and specific sectors or activities that governments may restrict further.  The BIT is available at https://ustr.gov/trade-agreements/bilateral-investment-treaties/bit-documents  .

Besides the United States, Uruguay has Bilateral Investment Agreements in force with 30 countries from different regions.  The full list is available at https://investmentpolicyhub.unctad.org/IIA/  .

Uruguay and the United States do not have double taxation or tax information agreements in place.

Over the past decade, the GoU has endorsed OECD standards on transparency and exchange of information and upgraded several regulations prompted by the OECD including Uruguay in its 2009 grey list of jurisdictions that had not “committed to implement the internationally agreed tax standard.”  In 2012, the OECD acknowledged the GoU’s progress and allowed Uruguay to move on to the second phase of the review process, consisting of a survey of the practical implementation of the standards. In 2016, the GoU passed a fiscal transparency law. In 2017, it began implementing an automatic exchange of tax information with the countries with which it has established Tax Information Exchange Agreements (TIEAs).  In November 2018, Uruguay hosted the annual meeting of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes, which marked the worldwide rollout of automatic exchange of financial account information between countries that have TIEAs.

The OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes indicates that Uruguay has exchange-of-information relationships with 35 jurisdictions through 21 double-taxation agreements and 16 Tax Information Exchange Agreements.  The full list is available at http://www.eoi-tax.org/jurisdictions/UY#agreements  .

A social security totalization agreement with the United States was signed in December 2017, and took effect in November 2018.  The agreement eliminates dual social security taxation and helps workers who have split their careers between the United States and Uruguay to meet the minimum eligibility requirements (years worked) more quickly by adding together years worked in both countries to qualify for benefits  (https://www.ssa.gov/international/Agreement_Texts/uruguay.html  )

3. Legal Regime

Transparency of the Regulatory System

Transparent and streamlined procedures regulate local and foreign investment in Uruguay. Uruguay has state and national regulations.  The Constitution does not provide for supra-national regulations. Most draft laws, except those having an impact on public finances, can start either in the executive branch or in the parliament.  The President needs the agreement of all ministries with competency on the regulated matter to issue decrees. Ministers may also issue resolutions. All regulatory actions—including bills, laws, decrees, and resolutions—are publicly available at https://www.presidencia.gub.uy/normativa  .

The U.S. governemnt’s Fiscal Transparency Report labels Uruguay as a fiscally transparent country.  Accounting, legal, and regulatory procedures are transparent and consistent with international norms.  The government only occasionally proposes laws and regulations in draft form for public comment. Parliamentary commissions typically engage stakeholders while discussing a bill.  Non-governmental organizations or private sector associations do not manage any informal regulatory processes.

Article 10 of the U.S.–Uruguay BIT mandates that both countries publish promptly or make public any law, regulation, procedure, or adjudicatory decision related to investments.  Article 11 sets transparency procedures that govern the accord.

International Regulatory Considerations

Uruguay is a member of several regional economic blocs, including MERCOSUR and the Latin American Integration Association, neither of which have supranational legislation.  In order to create local law Uruguay’s parliament must ratify these blocs’ decisions.

Legal System and Judicial Independence

The legal system in Uruguay follows civil law based on the Spanish civil code.  The highest court in the country is the Supreme Court of Uruguay, which has five judges.  The executive branch nominates judges and the Parliament’s General Assembly appoints them.  Judges serve a ten-year term and can be reelected after a lapse of five years following the previous term.  Other subordinate courts include the court of appeal, district courts, peace courts, and rural courts.

In 2017, Uruguay enacted a new criminal procedural code, expressed in Law No. 19.293.  The law passed in December 2014, but because the changes it made were very significant it took three years for the authorities to bring it into force.  The process for criminal cases is now accusatory instead of inquisitorial. Uruguay is implementing changes to improve criminal procedures carried out by police, prosecutors, and judges.  Judges will not be involved at the start of an investigation or arrest, and prosecutors will take on a prominent role in leading the investigations. Other fundamental changes include the right to bail, instead of the courts’ remanding individuals into custody to await trial, and opening up hearings to the public.

The judiciary remains independent of the executive branch.  Critics of the court system complain that its civil sector can be slow.  The executive branch rarely interferes directly in judicial matters, but at times voices its dissatisfaction with court rulings.  Investors can appeal regulations, enforcement actions, and legislation. International investors may choose between arbitration and the judicial system to settle disputes. 

Laws and Regulations on Foreign Direct Investment

Uruguayan law treats foreign and domestic investment alike.  Law 16,906 (passed in 1998) declares that promotion and protection of investments made by both national and foreign investors are in the nation’s interest, and allows investments without prior authorization or registration.  The law also provides that investors can freely transfer their capital and profits abroad and that the government will not prevent the establishment of investments in the country.

Prompted by a fall in domestic and foreign investment since 2015, in May 2018 the GoU amended Decree 002/12 (with Decree 143/018) to strengthen incentives for investment further and advance a number of the GoU´s strategic goals, such as creating jobs, fostering research and development, and developing clean production.

Government tenders favor local products or services, provided that they are of comparable quality and any cost increase is no more than 10 percent.  U.S. and other foreign firms are able to participate in local or national government financed or subsidized research and development programs.

Uruguay’s export and investment promotion agency, Uruguay XXI  , helps potential investors navigate Uruguayan laws and rules.

Competition and Anti-Trust Laws

Uruguay has transparent legislation established by the Commission for the Promotion and Defense of Competition at the Ministry of Economy to foster competition.  The main legal pillars (Law No. 18,159 and decree 404, both passed in 2007) are available at the commission’s site: https://www.mef.gub.uy/578/5/areas/defensa-de-la- percent20competencia—uruguay.html  .

A 2017 peer review of Uruguay´s competition law and policy is available at https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1640  .

In 2001, the GoU created regulatory and controlling agencies for telecommunications (URSEC) and water and energy.  Notwithstanding, in 2010, the executive branch transferred URSEC’s policy-design capacity to the National Telecommunications Directorate , leaving URSEC with only regulatory control attributes.

The GoU passed an Audiovisual Communications Law (No 19,307) in December 2014.  Also known as the media law, it includes provisions on market caps for cable TV providers that could limit competition.  In April 2016, Uruguay’s Supreme Court ruled that these market caps and some local content requirements were unconstitutional.  In late 2017, the Executive Branch presented a draft regulation that, as of April 2019, was pending approval. 

Expropriation and Compensation

Uruguay’s constitution declares property rights an “inviolable right” subject to legal determinations that may be taken for general interest purposes and states that no individuals can be deprived of this right—except in case of public need and with fair compensation.

Article 6 of the U.S.–Uruguay BIT rules out direct and indirect expropriation or nationalization of private property except under specific circumstances.  The article also contains detailed provisions on how to compensate investors, should expropriation take place. There have been no cases of expropriation of investment from the United States or other countries in the past five years.

Dispute Settlement

International Center for the Settlement of Investment Disputes (ICSID) Convention and New York Convention

Uruguay became a member of the ICSID in September 2000 and is a signatory of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor–State Dispute Settlement

Local courts recognize and enforce foreign arbitral awards issued against the government.  The U.S.–Uruguay BIT devotes over ten pages to establishing detailed and expedited dispute settlement procedures.

Over the past decade, two U.S. companies have sued the GoU before the World Bank´s ICSID.  In 2010, the tobacco company Philip Morris International sued the GoU, arguing that new health measures involving cigarette packaging amounted to unfair treatment of the firm.  They filed the case under the Uruguay–Switzerland Bilateral Investment Treaty, and in 2016 the ICSID ruled in the GoU’s favor. In 2015, U.S. telecom company Italba also sued the GoU before ICSID, which in March 2019 ruled in the GoU’s favor.

International Commercial Arbitration and Foreign Courts

Commercial contracts frequently contain mediation and arbitration clauses and local courts recognize them.  Investors may choose between arbitration and the judicial system to settle disputes. Local courts recognize and enforce foreign courts’ arbitral awards.

Duration of Dispute Resolution

Uruguay’s judiciary is independent.  The average time to resolve a dispute, counted from the moment the plaintiff files the lawsuit in court until payment, is about two years, according to contacts in local law firms.  The courts’ decisions are legally enforced and Uruguayan law respects international arbitration awards.

Bankruptcy Regulations

The Bankruptcy Law passed in 2008 (No. 18,387) expedites bankruptcy procedures, encourages arrangements with creditors before a firm may go bankrupt, and provides the possibility of selling the firm as a single unit.  Bankruptcy has criminal and civil implications with intentional or deliberate bankruptcy deemed a crime. The law protects the rights of creditors according to the nature of the credit, and workers have privileges over other creditors.

The World Bank’s 2018 Doing Business Report ranks Uruguay third out of twelve countries in South America for its ease of “resolving insolvency.”  Uruguay ranks 70th globally in this sub-index, well ahead of its overall aggregate global ranking of 95th for ease of doing business.

4. Industrial Policies

Investment Incentives

The investment promotion regime, regulated by Law 16,906 (passed in 1998), grants automatic tax incentives of up to 40 percent of corporate income tax to several activities, including personnel training; research, scientific and technological development, reinvestment of profits, and investments in industrial machinery and equipment.  The GoU provides other benefits to industrial and agricultural firms by regulatory decree.

In addition to the automatic tax exemptions, Uruguay has several other incentives for greenfield and brownfield investments that help achieve some of the government´s strategic goals, including creating jobs, contributing to geographical decentralization away from the capital, increasing exports, promoting research and development, and fostering the use of clean technologies.  The principal incentive consists of the deduction from corporate income tax of a share of total investment over a pre-defined period. Other incentives include the exemption from tariffs and taxes on imports of capital goods and the refunding of the Value Added Tax paid on domestic purchases of certain goods.

There are also special regimes to promote specific sectors.  Certain activities—such as the purchasing of land, real estate, or private vehicles—are not eligible for the benefits.  Please refer to a detailed document on incentives to investment, available in English at http://www.uruguayxxi.gub.uy/guide/schemes.html  .

Foreign Trade Zones/Free Ports/Trade Facilitation

The GoU has increasingly promoted Uruguay as a regional, world-class logistics and distribution hub.  In 2010, the GoU created the National Logistics Institute (INALOG by its Spanish acronym), a public-private sector institution that seeks to coordinate efforts towards establishing Uruguay as the leading MERCOSUR distribution hub.  INALOG and Uruguay XXI have issued several reports on Uruguay’s role and advantages as a logistics hub.

The GoU established free trade zones (FTZs) in 1987 (Law 15,921) and in 2017 passed new legislation (Law 19,566).  The new law provides for minor changes in tax benefits, streamlines the requirements and activities that companies must accomplish in order to be able to operate inside a FTZ, and improves international cooperation related to the prevention of international tax evasion.  Full legislation and regulations are available at http://zonasfrancas.mef.gub.uy/  .  Almost all foreign investors surveyed in 2018 were satisfied or highly satisfied with Uruguay´s free trade zones and free ports.

There are 11 FTZs located throughout the country.  Most FTZs host a wide variety of tenants performing various services, including, financial, software development, call centers, warehousing, and logistics.  One FTZ is dedicated exclusively to the development of pharmaceuticals, and two to the production of paper pulp. MERCOSUR regulations treat products manufactured in most member states’ FTZs, with the exception of Tierra del Fuego, Argentina and Manaus, Brazil, as extra-territorial and charge them the common external tariff upon entering any member country.  As a result, industrial production in local FTZs is usually destined for non-MERCOSUR countries.

Firms may bring foreign and Uruguayan origin goods, services, products, and raw materials into the FTZs.  Firms may hold, process, and re-export the goods without payment of Uruguayan customs duties or import taxes.  Uruguay exempts firms operating in FTZs from national taxes. Laws governing legal monopolies do not apply within the FTZs.  Additionally, the employer does not pay social security taxes for non-Uruguayan employees who have waived coverage under the Uruguayan social security system.  Uruguay treats goods of Uruguayan origin entering FTZs as Uruguayan exports for tax and other legal purposes.

Uruguay has other special import regimes in place called “temporary admission,” “bonded warehouse,” and “free port.”  The temporary admission regime allows manufacturers to import duty-free raw materials, supplies, parts, and intermediate products they will use in manufacturing products for export.  However, the regime requires government authorization, and firms must export all finished products within 18 months. Firms do not have to be in a specific location to benefit from temporary admission.  Free ports and bonded warehouses are special areas where goods that remain on the premises are exempted from all import-related duties and tariffs.  The two main differences between free ports and bonded warehouses are that goods can stay for an unlimited amount of time in free ports and up to one year in bonded warehouses, and that firms may not significantly modify goods in free ports.  Firms may engage in “industrialization” in bonded warehouses. Firms operating in both premises may re-label and re-package merchandise.

Law 17,547 passed in August 2002 allows for the establishment of industrial parks.  Several additional decrees signed since 2007 allow for the establishment of sector-specific industrial parks.  Industrial park advantages include tax exemptions and benefits, and private sector, national, or local governments may establish them.  There are three industrial parks that operate under Law 17,547, and eleven that operate under state’s regulations.

Performance and Data Localization Requirements

Foreign investors are not required to meet any specific performance requirements, and have not reported impediments or onerous visa, residence, or work permit requirements.  The government does not require that nationals own shares or that the share of foreign equity be reduced over time, and does not impose conditions on the number of foreign workers or on investment permits.  A labor-related requirement is that tenants of free trade zones employ at least 50 percent Uruguayan workers.

Article 8 of the U.S.–Uruguay BIT bans both countries from imposing performance requirements on new investments, or tying the granting of existing or new advantages to performance requirements.

Uruguay does not require foreign investors to use local content in goods or technology in order to invest.  However, local content may be required in some sectors in order to become eligible for special tax treatment or government procurements.  For instance, in 2016 the state-owned electric utility (UTE) offered a number of long-term purchase agreements for wind and solar generated electricity that included 20 percent local content requirements.

Uruguay does not require foreign IT providers to turn over source code or provide access for surveillance.  Companies can freely transmit customer or business-related data across borders. Banks can transmit information out of Uruguay on their loan portfolios but not on their depositor base.  Banks are obliged to provide information once a year to the local tax authority on their depositors. This information is exchanged with tax authorities from countries that enjoy Tax Information Exchange Agreements with Uruguay (Uruguay does not have a TIEA with the United States).  Legislation governs the central government’s computer system security requiring all assets to remain in Uruguay, except those that do not constitute a risk for the government. The GoU’s Agency for e-Government and Information Society is in charge of enforcing this regulation. In 2016, the state-owned telecommunications company ANTEL inaugurated a USD 50 million, tier III data center, at the time one of five such facilities in Latin America.  In 2017, ANTEL teamed with Google to extend an underwater fiberoptic line to Uruguay, connecting Uruguay directly with the U.S. network.

5. Protection of Property Rights

Real Property

The GoU recognizes and enforces secured interests in property and contracts.  Mortgages exist, and Uruguay has a recognized and reliable system of recording such securities.  Uruguay’s legal system protects the acquisition and disposition of all property, including land, buildings, and mortgages.

Law 19,283, passed in 2014, prevents foreign governments from buying land, either directly or in association with private companies.  Traditional use rights are not applicable as there is no applicable indigenous community in Uruguay. The vast majority of land has clear property titles.

The three administrations that have ruled since 2005 have supported the unions’ position that sit-ins or occupation of workplaces are an extension of workers’ right to strike, thus enabling workers to lawfully occupy workplaces.  Business chambers have opposed extending the definition of the right to strike to include the physical occupation of a workplace. The chambers have filed cases before the International Labor Organization (ILO) objecting to workplace occupations (see Labor Section for further information).

Intellectual Property Rights

Uruguay is a member of the World Intellectual Property Organization (WIPO), and a party to the Bern and Universal Copyright Conventions, as well as the Paris Convention for the Protection of Industrial Property.  In March 2017, Uruguay’s Office of the President sent a bill to the Uruguayan parliament for approval and to adhere to WIPO’s Patent and Cooperation Treaty. As of April 2019, the bill remained before the Senate’s International Affairs Commission.

The quality of intellectual-property (IP) protection and level of enforcement has improved over time.  The Office of the U.S. Trade Representative (USTR) removed Uruguay from its Special 301 Watch List in 2006 in response to Uruguay’s progress in enforcing intellectual property rights, especially with respect to copyright enforcement.  As of April 2018, Uruguay remains off the USTR Watch List.

Uruguay was included in USTR’s 2014 Notorious Markets Report (for an increase in reports of counterfeiting and piracy from its free trade zones), and was removed from the Report in 2015 (due to the passage of a decree that imposed stricter customs controls on free zones).  The 2015 decree gave Customs officials the authority to operate inside free trade zones, control the flow of incoming and outgoing goods, and fine both the owners of counterfeit goods and the storage providers that facilitate distribution of counterfeits. Since 2016, Uruguay has not been included in the Notorious Markets Report.

Some industry groups criticize the slowness of the patent-granting process, as well as the lack of data protection for proprietary research submitted as part of the grant process.  They also criticize an amendment to the Patent Law (passed in a 2013 omnibus law) that eliminated provisional protection for patents during patent pendency, which removed the ability of patent right holders to claim damages for infringement of their rights from the date of the patent application filing up to its granting date.

While enforcement of trademark rights has improved in recent years, local citizens have sometimes managed to register trademarks without owners’ prior consent.

Customs officers have border measures authority for trademark protection.  After temporarily freezing a shipment of suspicious goods, Customs has to communicate with the local representatives of the trademarks’ right-holders to determine the legality of the goods and seek cooperation.  Customs is responsible for paying for the storage and the local representatives are responsible for paying for the destruction of any counterfeit goods.

Uruguay tracks and reports on Custom’s seizures of goods, some of which are counterfeit.  Information can be found at https://www.aduanas.gub.uy/innovaportal/v/10500/1/innova.front/incautacion-de-mercaderias.html  .  However, there is no centralized dedicated reporting system for seizures of counterfeit goods.

Resources for Rights Holders

Post’s Economic Officer covering IP issues is:

Ms. Salina Rico, Economic Unit
Lauro Muller 1776
Tel: (5982) 1770-2449
E-mail: RicoS@state.gov

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

For questions concerning completion of this section or anything related to IP, please contact EB/TPP/IPE Charles Randolph at RandolphC@state.gov or EEB-A-IPE-DL@state.gov.

6. Financial Sector

Capital Markets and Portfolio Investment

Uruguay passed a capital markets law (No. 18,627) in 2009 to jumpstart the local capital market.  However, despite some very successful bond issuances by public firms, the local capital market remains underdeveloped and highly concentrated in sovereign debt.  Such under-development makes it very difficult to finance business ventures through the local equity market, and restricts the flow of financial resources into the product and factor markets.  Due to its underdevelopment and lack of sufficient liquidity, Uruguay typically receives only “active” investments oriented to establishing new firms or gaining control over existing ones and lacks “passive investments” from major investment funds.

The government maintains an open attitude towards foreign portfolio investment; there is no effective regulatory system to encourage or facilitate it.  Uruguay does not impose any restrictions on payments and transfers for current international transactions.

Uruguay allocates credit on market terms, but long-term banking credit has traditionally been difficult to obtain.  Foreign investors can access credit on the same market terms as nationals.

As part of the process of complying with OECD requirements (see Bilateral Investment Agreements section), the GoU banned “bearer shares” in 2012, which had been widely used.   Private firms do not use “cross shareholding” or “stable shareholder” arrangements to restrict foreign investment, nor do they restrict participation in or control of domestic enterprises.

Money and Banking System

Uruguay established The Central Bank of the Uruguay (BCU) in 1967 as an autonomous state entity.  Prior to the creation of the BCU, the issuing of currency and managing and supervising of the banking system was handled by the department of the Banco de la República Oriental del Uruguay (BROU).  In 1995, Parliament passed a bank charter law that expanded the BCU’s responsibilities and set out the management structure as well as the functions and responsibilities of the bank. With over 40 percent of the market, the government-owned BROU is the nation’s largest bank.  The rest of the banking system is comprised of another government-owned mortgage bank and nine international commercial banks. The BCU’s Superintendent of Financial Services regulates and supervises foreign banks or branches.

Mostly related to the United States’ Foreign Account Tax Compliance Act provisions, there have been some cases of U.S. citizens having difficulties establishing a first-time bank account.  The U.S. Department of State’s 2017 International Narcotics Control Strategy Report classified Uruguay a “Jurisdiction of Primary Concern” for money laundering.

The GoU started developing a financial inclusion program in 2011, with a view to granting universal access to basic financial services and modernizing the domestic payment system.  Since then, and especially after the passage of a financial inclusion law in 2014 (No. 19,210), the use of debit cards, credit cards, and account holders has increased significantly.  The GoU has authorized a number of private sector firms to issue electronic currency. In 2018, the BCU and the BROU developed a pilot program to assess the possibility of implementing an electronic currency, the e-peso.

In December 2017 the GoU relaxed several aspects of the 2014 law, such as enabling citizens to withdraw their entire wages from financial institutions.  More information, in Spanish, on the GoU´s financial inclusion program is available at http://inclusionfinanciera.mef.gub.uy/  .

Fintech represents technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment, and crypto-currencies.  The first Fintech Forum held in Montevideo in mid-2017 led to the creation of the Fintech Ibero-American Alliance. The Alliance is composed of Fintech associations from Central America and the Caribbean, Colombia, Spain, Mexico, Panama, Portugal, Peru, and Uruguay.  While some local firms have developed domestic and international electronic payment systems, emerging technologies like blockchain and crypto currencies remain underdeveloped.

Foreign Exchange and Remittances

Foreign Exchange

Uruguay maintains a long tradition of not restricting the purchase of foreign currency or the remittance of profits abroad.  Free purchases of any foreign currency and free remittances were preserved even during the severe 2002 banking and financial crisis.

Uruguay does not engage in currency manipulation to gain competitive advantage.  Since 2002, the peso has floated relatively freely, albeit with intervention from the Central Bank aimed at reducing the volatility of the price of the dollar.  Foreign exchange can be obtained at market rates and there is no black market for currency exchange. The U.S. Embassy uses official rates when purchasing local currency.

Remittance Policies

Uruguay maintains a long tradition of not restricting remittance of profits abroad.

Article 7 of the U.S.– Uruguay BIT provides that both countries “shall permit all transfers relating to investments to be made freely and without delay into and out of its territory.”  The agreement also establishes that both countries will permit transfers “to be made in a freely usable currency at the market rate of exchange prevailing at the time of the transfer.”

Sovereign Wealth Funds

There are no Sovereign Wealth Funds in Uruguay.

7. State-Owned Enterprises

There is no consolidated published list of State-Owned Enterprises.  The State still plays a dominant role in the economy and Uruguay maintains government monopolies or oligopolies in certain areas, including the importing and refining of oil, workers’ compensation insurance, and basic telecommunications (landline phones).

Uruguay’s largest state-owned enterprises (SOEs) include the petroleum, cement, and alcohol company ANCAP, telecommunications company ANTEL, electric utility UTE, water utility OSE, and Uruguay’s largest bank BROU.  While deemed autonomous, in practice these enterprises coordinate in several areas—mainly on tariffs—with their respective ministries and the executive branch. Their boards are appointed by the executive branch, require parliamentary ratification, and remain in office for the same term as the executive branch.  Uruguayan law requires SOEs to publish an annual report, and independent firms audit their balances.

Some traditionally government-run monopolies are open to private-sector competition.  Cellular and international long-distance services, insurance, and media services are open to local and foreign competitors.  The GoU permits private-sector generation of power and private interests dominate renewable energy production, but the state-owned power company UTE holds a monopoly on the transfer of electrical power through transmission and distribution lines from one utility’s service area to another’s, otherwise known as wheeling rights.  State-owned companies tend to have the largest market share even in sectors open to competition. Potential cross-subsidies likely give SOEs an advantage over their private sector competitors.

Uruguay does not adhere to the OECD’s Guidelines on Corporate Governance of State-Owned Enterprises.  A parliamentary commission investigated the multi-million dollar losses of the government-owned oil company ANCAP in 2015, which triggered a debate about the need to reform the corporate governance of SOEs.  The World Bank has assisted the GoU in strengthening the management of SOEs with no notable policy change.

Privatization Program

Uruguay has not undertaken a major privatization program in recent decades.  While Uruguay opened some previously government-run monopolies to private-sector competition, the government continues to maintain a monopoly in the import and refining of petroleum as well as basic telecommunications (land line services). 

Parliament passed a public-private partnership (PPP) law by consensus in July 2011 and created regulations with decree 007/12.  The law allows various kinds of contracts that enable private sector companies to design, build, finance, operate, and maintain certain infrastructures, including brownfield projects.  With some exceptions (such as medical services in hospitals or educational services in schools), PPPs can also be applied to social infrastructure. The return for the private sector company may come in the form of user payments, government payments, or a combination of both.

Historically, the GoU had been unsuccessful in attracting private sector participation in major infrastructure projects via PPPs.  In 2015, the GoU passed new regulations (Decree 251/15) to simplify the procedures and expedite the PPP process. To date, Uruguay has constructed a USD 100 million prison under a PPP, and there is a USD 1.9 billion pipeline.  The largest project in the pipeline is a 170-miles long railroad (USD 839 million), and there are twelve other projects, in different stages of development, related to roads, education, and health projects.

8. Responsible Business Conduct

The concept of Responsible Business Conduct (RBC) is relatively new to producers, consumers, and the government, and does not have a high-profile plan to encourage its application.  Many companies do abide by the principles of RBC as a matter of course. Many multinational companies develop RBC strategies and make significant contributions in promoting safety awareness, better regulation, a positive work environment, and sustainable environmental practices.  U.S. companies have proven to be leaders in promoting a greater awareness of and appreciation for RBC in Uruguay. In 2015, the U.S. Department of State awarded a U.S. company the Secretary of State’s Award for Corporate Excellence for its work on environmental sustainability.

Consumers tend to pay attention to the RBC image of companies, especially as it relates to a firm’s work with local charities or community causes.  The Catholic University (Universidad Catolica) has a program in place to monitor RBC matters (http://www.ucu.edu.uy/es/rse  ).  In the late 1990s, the Catholic University also founded DERES  , a non-profit business organization to promote corporate social responsibility, which currently has over 120 member companies.

9. Corruption

Transparency International ranked Uruguay as having the lowest levels of perceived corruption in Latin America and the Caribbean in its 2018 edition of the Corruption Perception Index.  Overall, U.S. firms have not identified corruption as an obstacle to investment.

Uruguay has laws to prevent bribery and other corrupt practices.  The GoU approved a law against corruption in the public sector in 1998, and the acceptance of a bribe is a felony under Uruguay’s penal code.  The government prosecuted some high-level Uruguayan officials from the executive, parliamentary, and judiciary branches for corruption in recent years.  The government neither encourages nor discourages private companies to establish internal codes of conduct.

The Transparency and Public Ethics Board (JUTEP by its Spanish acronym, http://www.jutep.gub.uy/  ) is the government office responsible for dealing with public sector corruption.  Traditionally a low-profile office and still with a limited scope, it gained relevance in face of a case that ended in the resignation of Uruguay´s Vice-President in 2017.  Since then JUTEP has played a role in denouncing alleged nepotism in the public sector. There are no major NGOs involved in investigating corruption.

A 2017 law (No. 19,574) sets an integral framework against money laundering and terrorism finance, brings Uruguay into compliance with OECD and UN norms, and includes corruption as a predicate crime.

Conventions Against Corruption

Uruguay signed and ratified the UN’s Anticorruption Convention.  It is not a member of the OECD and therefore not party to the OECD’s Convention on Combating Bribery.

Resources to Report Corruption

Government agency responsible for combating corruption:

Ricardo Gil, President
Junta de Transparencia y Ética Publica
Address: Rincon 528, 8th floor, ZC 11000
Tel: (598) 2917 0407
E-mail: secretaria@jutep.gub.uy 

The local branch of Transparency International is http://www.uruguaytransparente.uy  

10. Political and Security Environment

Uruguay is a stable democracy in which respect for the rule of law and transparent national debates to resolve political differences are the norm.  The majority of the population is committed to non-violence. In 2017, the Economist magazine ranked Uruguay as the only “full democracy” in Latin America, and one of only two in the world “outside of the rich western countries of Europe, North America, and Australasia.”  There have been no cases of political violence or damage to projects or installations over the past decade.

Violent crime is on the rise in Uruguay.  Rising homicide rates have alarmed business owners.  Uruguay’s police forces have complained that they do not receive sufficient backing from the central government and therefore do not take aggressive action against criminal bands.  The issue of reduced citizen security is a central issue in the October 2019 presidential elections.

11. Labor Policies and Practices

Tracking strong economic growth, Uruguay’s labor market operated at virtually full employment with rising labor costs until 2014.  The economy has cooled since 2015 and the unemployment rate has risen. Uruguay’s National Statistics Institute estimates the total working-age population to be 1.8 million.  Uruguay’s unemployment rate increased in 2018 to 8.4 percent (or 151,200 working-age people), up from 7.9 percent in 2017, its highest rate since 2007. Unemployment is structurally higher among the youth, especially young women.  In recent years, there has been a significant increase in migrant workers, especially from Venezuela, Cuba, and the Dominican Republic.

Uruguay’s labor system is compliant in law and practice with most international labor standards.  The Uruguayan Constitution guarantees workers the right to organize and the law against dismissal for union activities protects the right to strike and union members.  Uruguay has ratified numerous International Labor Organization conventions that protect worker rights, and generally adheres to their provisions. Reports by the UN’s Economic Commission for Latin America and the Caribbean indicate that the percentage of informal workers has dropped significantly over the past decade.

The World Economic Forum’s 2018 Global Competitiveness Index ranked Uruguay 53rd of 140 countries surveyed.  However, echoing private sector concerns with Uruguayan labor unions and rigid labor laws, Uruguay ranked 138 of 140 countries in the labor relations category.  Several of the labor unions espouse strongly leftist-ideological, “anti-imperialist,” and anti-capitalist positions.  

Business owners, managers, and government employees often describe local labor laws as rigid and very burdensome.  Arguing that unions are particularly aggressive and that labor conflicts escalate quickly, private sector representatives have called for the creation of a labor-dispute process that would define the necessary steps needed before workers may strike or occupy a workplace.  Many foreign investors report high absentee rates by employees and resulting lower-than-average productivity rates. Productivity is not included in the negotiations that take place in the Salary Councils.

Labor-intensive businesses are increasingly under stress, and new business creation in Uruguay is not replacing the better-paying jobs lost from exiting private sector enterprises.  While global workforces are under stress from increased efficiencies driven by automation and business consolidations, in Uruguay the overbearing labor movement, high taxes, and low corporate profit margins further exacerbate Uruguay’s labor situation.

Labor unions are nominally independent from the government, but in practice have a close relationship with the ruling Frente Amplio coalition and key Ministries.  For years, Communist Party leaders have occupied leading positions in the unions and inside the Ministry of Labor. Unionization quadrupled from about 110,000 in 2003 to over 400,000 in 2018 (almost one-fourth of employed workers), and is particularly high in the public sector and some private sectors, such as construction, the metal industry, and banking.

Since 2005, the government has passed over 30 labor laws.  Some of these laws promote and protect labor unions, reinstate collective bargaining, regulate outsourcing activities, regulate work times in rural activities, extend the term to claim worker’s rights, relate to the eviction of employees who occupy workplaces, and impose criminal sanctions on employers who fail to adopt safety standards in their firms.  In labor trials, the judiciary tends to rule in favor of the worker, assuming the worker to be the disadvantaged party.

Collective bargaining is the rule.  Salary Councils are responsible for assessing wage increases annually at a sectoral level.  The Councils then apply agreed-upon wage increases to all individual firms in the sector, irrespective of their size or geographical location.  Councils consist of a three-party board, which includes representatives from unions, employers, and the government. If unions and employers fail to reach an agreement to determine the wage increase, the government makes the final decision.

Labor provisions apply across the board, and the government does not normally issue waivers to attract or retain investment.  Except in the construction sector, social security payments are approximately 13 percent of workers’ basic salary. Including health care insurance, social security, and other charges, employers pay approximately 40 percent of a worker’s basic total salary to the government.  In addition, there is a mandatory annual bonus and vacation pay, which result in employers paying the equivalent of 14 months of salary per employee each year. Labor laws do not differentiate between layoffs and firing. Employers must pay dismissed workers one month for each year of work with a cap of six months, except in cases of “for cause” firings.  Laws prohibit private sector employers from firing workers for discriminatory or anti-union reasons. Dismissals often result in labor conflicts, even if dismissals are required to adjust employment to fluctuating market conditions. Unemployment insurance pays workers a percentage of their salary for up to six months. In the past, the government has extended the term of the unemployment insurance for select groups of laid-off workers.

Historically, Uruguay took pride in a high literacy rate and tradition of quality public education.  However, Uruguay is experiencing a crisis in its public education system. Dropout rates at the high school level are very high, and Uruguayan students have performed poorly in the OECD’s PISA tests.  These challenges may limit the number of qualified workers available over the mid- to long-term. In 2008, the government launched a special institute, National Employment and Training Institute (INEFOP), to bolster workforce development.  There is a structural shortage of workers in the IT sector and other specialized technical industries as well.

12. OPIC and Other Investment Insurance Programs

OPIC programs are active in Uruguay, though few U.S. companies or projects request their services due to Uruguay’s stability and access to foreign currency.  The GoU signed an investment insurance agreement with OPIC in December 1982.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $59,630    2017 $56,157 http://www.bcu.gub.uy/Estadistics e Indicadores/Paginas/Default.aspx  

www.worldbank.org/en/country    

Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $1,415 2017 $1,556 BCU estadisticas e indicadores.

http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm  

Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 $82 https://www.bea.gov/international/factsheet  .
Total inbound stock of FDI as % host GDP 2017 50% 2017 51.22% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  

* http://www.bcu.gub.uy/Estadisticas-e-Indicadores/Paginas/Default.aspx


Table 3:  Sources and Destination of FDI

Uruguay’s Central Bank reports that, excluding intra-firms’ loans, the U.S. was the fourth largest foreign investor in Uruguay 2013-2017.  In 2017, the U.S. held the sixth largest stock of foreign direct investment, after Argentina, Spain, Switzerland, Panama, and Chile. U.S. investment is distributed among a wide array of sectors, including forestry, tourism and hotels, services (e.g., call centers or back office), and telecommunications.

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $19,955 100% N/A N/A N/A
Argentina $5,126 29% N/A N/A N/A
Spain $5,043 28% N/A N/A N/A
Switzerland $3,099 17% N/A N/A N/A
Panama $3,033 17% N/A N/A N/A
Chile $1,634 9% N/A N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.

Source: IMF Coordinated Direct Investment Survey


Table 4:  Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $10,211 100% All Countries $232 100% All Countries $10,131 100%
United States $5,578 55% Chile $136 59% United States $5,578 55%
Luxembourg $1,755 17% Brazil $51 22% Luxembourg $1,741 17%
Germany $1,577 16% Canada $24 10% Germany $1,577 16%
Ireland $677 7% Luxembourg $14 6% Ireland $677 7%
Japan $558 6% U.K. $7 3% Japan $558 6%

14. Contact for More Information

Ms. Salina Rico, Economic Unit
Lauro Muller 1776
Tel: (5982) 1770-2449
E-mail: RicoS@state.gov