1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward Foreign Direct Investment
The government of the RMI publicly expresses interest in finding ways to increase foreign investment, but there are many structural impediments to foreign investment and economic progress, such as land rights, which are unlikely to be changed in the foreseeable future.
Foreign investment is governed through the Foreign Investment Business License (Amendment Act (2000)), which established the Registrar of Foreign Investment and details restrictions on foreign investments, mostly in certain small-scale retail and service businesses. However, this law is reportedly not consistently enforced, and foreign investors may enter partnership agreements with local Marshallese businesses. The Ministry of Resources and Development, Trade and Investment Division, administers the law in coordination with the Office of the Attorney General.
The RMI Cabinet can approve tailor-made investment incentives including tax and duty exemptions. Investors who invest a minimum of USD 1 million or provide employment and wages in excess of USD 150,000 annually to Marshallese citizens are exempt from paying gross revenue tax and import duties for a five-year period in certain sectors including offshore or deep-sea fishing. This focus on Cabinet decision-making together with a lack of transparency and consistency across all sectors contravenes international best practices.
Land issues and disputes concerning leases are subject to customary law governing land tenure, and proceedings can take a protracted time to resolve. Land cannot be purchased by investors; it can only be leased through customary practices.
Limits on Foreign Control and Right to Private Ownership and Establishment
Although the Marshall Islands generally encourages foreign investment, the Foreign Investment Business License (Amendment) Act established a National Reserved List, which restricts foreign investment in certain small-scale retail and service businesses. However, this law is not consistently enforced, and foreign investors may enter partnership agreements with local Marshallese businesses. Officially, foreign investment is prohibited in the following business ventures:
- Small scale agriculture and marine culture for local markets
- Bakeries and pastry shops
- Motor garages and fuel filling stations
- Land taxi operations, not including airport taxis used by hotels
- Rental of all types of motor vehicles
- Small retail shops with a quarterly turnover of less than USD 1,000 (including mobile retail shops and/or open-air vendors/take-outs)
- Laundromat and dry cleaning, other than service provided by hotels/motels
- Tailor/sewing shops
- Video rental
- Handicraft shops
- Delicatessens, Deli Shops, or Food take-out
Other Investment Policy Reviews
The newly formed Office of Commerce Investment and Tourism (OCIT) drafted an investment policy review in 2018 for the purpose of stimulating private sector economic activity that will increase employment, sustainable FDI, and boost the RMI economy. According to the OCIT 2018-2020 Business Plan, the office’s priorities include revising and updating the RMI Investment Policy, addressing and removing constraints to business in the RMI, and implementing 3-year targeted development strategies for projected private sector growth sectors (tourism, fisheries, and MSMEs), and marketing the RMI for commerce, tourism, and investment.
The government of the Marshall Islands created the Office of Commerce and Investment and Tourism (OCIT) to assist foreign investors. OCIT’s website has helpful information regarding investment and doing business in the Marshall Islands: http://www.investrmi.org. OCIT developed a one-stop-shop business registration process, but it is still largely a paper-based system. They hope to launch an online business registration website next year. There currently is no online website for registering a business in the Marshall Islands. This must be done in person. After a foreign investor receives an FIBL, detailed in the Laws and Regulations on DFI, the business owner must complete the following steps:
Check the uniqueness of the proposed company name with the Registrar of Corporations. This costs USD 100 and takes one day.
Have the company charters notarized. Notarization can be done at the Office of the Attorney General. It takes two days on average and costs USD 10.
Register the company with the Registrar of Corporations. This takes five days and costs USD 250. Limited Liability Companies need to file a Certificate of Formation and need to have LLC agreements detailing how the LLC will be operated, managed, and distributions divided.
Obtain an Employer Identification Number from the Marshallese Social Security Administration. This number will also serve as the company’s tax identification number. This process takes two days and costs USD 20.
Apply for a business license. The business owner needs to submit a company charter along with the business license. Business licenses are usually issued in seven days. Licensing fees vary depending on the type of business. Fees are as follows:
- Retail Business: USD 150
- Banks: USD 5,000
- Professional: USD 3,000
- Hotels: USD 500
The Ministry of Finance segments the business sector for tax purposes using annual gross revenue amounts, not number of employees. There are no other segmentations recognized by the Marshall Islands. There is a Small Business Development Center in Majuro.
The RMI government does not actively promote, incentivize, or restrict outward investment.
4. Industrial Policies
The Marshall Islands offers tax and duty exemptions for investments in certain private sector industries. These investment incentives apply uniformly to both domestic and foreign investors through submission of a letter to the Minister of Finance. Tax incentives are specified by law, but have been rarely awarded, given the relative lack of large-scale investment.
All imports are subject to import duties, and the only current duty exemptions are for renewable and alternative energy items. Import duties are ad valorem rates on cost, insurance, and freight (CIF), and the number of tariff categories is small to facilitate administration. Goods in transit are exempt from the import tax, and the import tax on re-exported goods is refundable. The Marshall Islands has no taxes on exports.
Under the terms of the Compact of Free Association, as amended, all items grown, made or produced in the Marshall Islands are exempt from U.S. duties with the following exceptions:
- Watches, clocks, and timing apparatus provided for in Chapter 91, excluding heading 9113, of the Harmonized Tariff Schedule of the United States;
- Buttons (whether finished or not finished) provided for in items 9606.21.40 and 9606.29.20 of such schedule;
- Textile and apparel articles which are subject to textile agreements; and
- Footwear, handbags, luggage, flat goods, work gloves, and leather wearing apparel which were not eligible for the generalized system of preferences in the Trade Act of 1974.
Tuna in airtight containers exported to the U.S. is duty-free, provided it does not exceed 10 percent of total U.S. tuna consumption during the previous calendar year. The Compact also stipulates that U.S. products imported to the Marshall Islands receive Most-Favorable Nation status, and the country must consult with the U.S. should they enter into a Free Trade Agreement with another country or customs territory.
Investors who invest a minimum of USD 1 million or provide employment and wages in excess of USD 150,000 annually to Marshallese citizens are exempt from paying gross revenue tax for a five-year period in the following sectors:
- Off-shore or deep sea fishing
- Manufacturing for export, or for both export and local use
- Hotel and resort facilities
Investors in seabed hard mineral mining are exempt from paying all taxes, duties, and other charges (except taxes on wages and salaries, individual income tax, and social security contributions). In return, investors are required to pay the Government of the Marshall Islands a share of net proceeds accruing from the investment in the form of royalties, production charge, or some combination thereof as agreed to between the government and investor.
Foreign Trade Zones/Free Ports/Trade Facilitation
There are no geographic foreign trade zones or free ports in the Marshall Islands.
Performance and Data Localization Requirements
The RMI government requires all investors employing non-resident workers to agree to:
- Cover the cost of repatriating non-resident workers to the place hired,
- Train one or more citizen workers to perform the work for which the non-resident worker is employed,
- Pay a levy of USD 0.25 per hour for every hour of work performed by non-resident worker, to be paid to the Resident Workers Training Account for the purposes of training citizen workers, and repatriating non-resident workers should the need arise.
This requirement is set and evaluated on a case by case basis, and is usually included as part of a whole package that also includes investment incentives such as favorable taxation statuses.
U.S. Citizens do not require a visa to enter the Marshall Islands, and may be employed in the Marshall Islands without obtaining a work permit or a visa. They must register as an alien with the Department of Immigration on an annual basis. Though use of local products is encouraged, the government does not follow “forced localization.”
The RMI does not currently have laws or regulations on domestic storage or localization requirements.
5. Protection of Property Rights
Land rights are a highly complex and frequently contentious issue in the Marshall Islands. Land ownership is through family lineage and according to social class. Paramount Chiefs (Iroij) have title to entire islands or portions of islands within an atoll, clan elders (alaps) have title to several parcels of land under their Paramount Chiefs, and workers (dri-jerbal) have title to the parcel of land associated with their Paramount Chief on which they live. Each parcel of land is thus owned by at least three separate individual landowners, one each from the classes described above. Non-Marshallese may not purchase land, and land purchases by Marshallese are also very rare. Paramount Chiefs may grant land rights to others, though they retain their share of ownership in all circumstances.
Available land for development is scarce, particularly in the two major urban areas of Majuro and Ebeye. Non-citizen investors must negotiate lease agreements directly with customary groups of landowners. Land may be leased in perpetuity with many leases having a term of 50 years, and options for renewal. The Kwajalein land lease to the U.S. Government runs fifty years (to 2066) with an option to renew for another twenty years, for example. Mortgages against the title of land are not permitted, but commercial lease agreements and land lease payments may be used as collateral. There is limited written documentation of titles to land in the Marshall Islands, although local citizens generally know who controls each parcel of land on their particular atoll.
In 2003, the Government of the Marshall Islands established a Land Registration Authority to create a voluntary register of customary land and establish a legal framework for recording documents related to ownership rights. The Land Registration Authority has not achieved its objective of encouraging greater clarity and security of property rights in land. The continued lack of clear title creates uncertainty for investors and impedes lending. As a result, native-born Marshallese are disadvantaged, since they cannot mobilize their wealth (i.e., land) to finance business ventures. The government is exploring the possibility of acting as an intermediary between investors and landowners focusing on resort development.
In the World Bank’s Doing Business 2017 report, the Marshall Islands rank 187th out of 190 countries for registering property.
Intellectual Property Rights
The Marshall Islands is not a member of the World Trade Organization, the World Intellectual Property Organization (WIPO), or any other international agreement on intellectual property rights. There is inadequate protection for intellectual property, patents, copyrights, and trademarks. The only intellectual property-related legislation relates to locally produced music recordings, and it has never been enforced. The Marshall Islands are not listed on the USTR’s Special 301 Report, nor are they listed in the notorious market report. Pirated DVDs and CDs imported from off-island are readily available.
11. Labor Policies and Practices
The RMI workforce is estimated at 10,895 people based on RMI FY16 economic statistics, of which only 39.39 percent work in the private sector. According to RMI FY16 statistics, the Marshall Islands has a 31 percent unemployment rate, and a significant portion of the population remains underemployed as well. Unemployment rates among youth and young adults could be as high as 50–60 percent. Official reported unemployment is 4.7 percent, however, by including all household production such as fishing or making handicrafts for personal consumption.
Under the Compact of Free Association, Marshallese citizens are entitled to live, attend school, and work in the United States visa-free as “nonimmigrant residents.” Accordingly, the pool of capable workers is limited, as many skilled and professional workers migrate to the U.S. for its higher wages and standards of living. Recruiting skilled foreign workers is time-consuming and expensive. Professional, medical, management, and other special labor skills are in high demand in the Marshall Islands.
Given the scarcity of resident qualified workers, the Marshall Islands allows investors to employ non-resident workers provided they agree to cover the cost of repatriation, that they hire and train at least one citizen to perform the same work, and pay a levy of USD 0.25 per hour for every hour of work performed by a non-resident worker, to be paid to the Resident Workers Training Account for the purposes of training citizen workers, and repatriating non-resident workers should the need arise. Non-citizen investors issued with a foreign investment business license are exempted from obtaining a work permit for themselves. Also, citizens of the United States, Federated States of Micronesia, and Palau do not require work permits to work in the Marshall Islands. Investors and nationals of these countries, however, are required to register with the Labor Office. The RMI government may also issue investors work permit exemptions if investors can demonstrate that their investments will provide substantial economic benefits to the country. Such exemptions are limited to export-oriented investments. Applications for such exemptions should be submitted to the Chief of Labor.
Foreign workers are generally hired on a contract basis with opportunities for annual renewals. The National Training Council provides training resources for Marshallese workers. While many consider the law discriminatory against foreign workers, employers are willing to pay the training fee in order to hire skilled labor, which is not widely available in the country. Some companies, particularly in fisheries, seeking to expand business and hire additional workers are limited by other infrastructure constraints, such as the lack of available land, water, and power.
There are no laws that require employers to pay a severance package when an employee is released from service, either due to firing or lay-offs. Arrangements for severance payments are generally made at the time of hire through terms in the hiring instrument. There is no employment insurance or any other social safety net programs for unemployed individuals.
There is no legislation concerning collective bargaining or trade union organization, although a bill has recently been introduced into the RMI Nitijela for debate. The country has a very limited history or culture of organized labor. The only union ever created in the country, the Teachers’ Union, was formed several years ago and is inactive. The Marshall Islands has been a member of the International Labor Organization (ILO) since 2007.
12. OPIC and Other Investment Insurance Programs
The U.S. Overseas Private Investment Corporation (OPIC) provides investment insurance, financing, and loan guarantees in the Marshall Islands for qualified investors. Because the Marshall Islands uses the U.S. dollar as its national currency, there are no convertibility risks. The Marshall Islands is not a member of the Multilateral Investment Guarantee Agency.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
*Local GDP statistics from the Economic Policy, Planning and Statistics Office (EPPSO) which serves as an economic advisor to the Government of the Republic of the Marshall Islands. It is responsible for Policy & Strategy Development, Statistics & Analysis, and Performance Monitoring, Evaluation & Aid Co-ordination. EPPSO is directly responsible to the Office of the President.
Table 3: Sources and Destination of FDI
No detailed information is available on the IMF’s Coordinated Portfolio Investment Survey (CPIS) website and no information is available on outward direct investment from Burundi.
Table 4: Sources of Portfolio Investment
Data not available.