Policies Towards Foreign Direct Investment

Brunei has an open economy favorable to foreign trade and foreign direct investment (FDI) as the government continues its economic diversification efforts to limit its long reliance on oil and gas exports.

FDI is important to Brunei as it plays a key role in the country’s economic and technological development. Brunei encourages FDI in the domestic economy through various investment incentives offered by the Ministry of Finance and Economy.

Improving Brunei’s Ease of Doing Business ranking has been a focus for the government. The World Bank Ease of Doing Business report indicated that Brunei’s ranking rose 17 spots from 72 in 2017 to 55 out of 190 world economies in 2019.  The significant gain was largely due to removing post-incorporation procedures for starting a business, increasing transparency of the land administration system for property registration, and strengthening minority investor protections.

Brunei amended its laws to make it easier and quicker for entrepreneurs and investors to establish businesses.  The Business License Act (Amendment) of 2016 exempts several business activities (eateries, boarding and lodging houses or other places of public resort; street vendors and stalls; motor vehicle dealers; petrol stations, including places for storing petrol and inflammable material; timber store and furniture factories; and retail shops and workshops) from needing to obtain a business license.  The Miscellaneous License Act (Amendment) of 2015 reduced the wait times for new business registrants to start operations, with low-risk businesses like eateries and shops able to start operations immediately.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is no restriction on foreign ownership of companies incorporated in Brunei.  The Companies Act requires locally incorporated companies to have at least one of the two directors—or if more than two directors, at least two of them—to be ordinarily resident in Brunei, but exemptions may be obtained in some circumstances.  The rate of corporate income tax is the same whether the company is locally or foreign owned and managed.

All businesses in Brunei must be registered with the Registry of Companies and Business Names at the Ministry of Finance.  Foreign investors can fully own incorporated companies, foreign company branches, or representative offices, but not sole proprietorships and partnerships.

More information on incorporation of companies can be found here on the Ministry of Finance: https://www.mofe.gov.bn  .

Other Investment Policy Reviews

The World Trade Organization (WTO) Secretariat prepared a Trade Policy Review of Brunei in December 2014 and a revision in April 2015.

Business Facilitation

As part of Brunei’s effort to attract foreign investment, the government established several facilitating agents including: the Brunei Economic Development Board (BEDB), FDI Action and Support Center (FAST), and Darussalam Enterprise (DARe). These organizations work together to smooth the process of obtaining permits, approvals and licenses. Facilitating services are now consolidated into one government: http://business.gov.bn  .

BEDB, the frontline agency that promotes and facilitates foreign investment into the country, works with FAST to evaluate investment proposals, liaise with government agencies and obtain project approval from the government’s Foreign Direct Investment and Downstream Industry Committee.

Outward Investment

A major share of outward investment is made by the government through its sovereign wealth funds, which are managed by the Brunei Investment Agency (BIA) under the Ministry of Finance.  No data is available on the total investment amount due to a strict policy of secrecy. It is believed that the majority of sovereign wealth funds are invested in foreign portfolio investments and real estate.  The state-owned Brunei National Petroleum Company has also evolved into an outward foreign investor, winning tenders to explore and develop onshore blocks in Myanmar. Despite the limited availability of public information regarding the amount, the funds are generally viewed positively and managed well by BIA.

Transparency of the Regulatory System

Brunei’s regulatory system is generally seen as lacking in transparency.  There is little to no transparency in lawmaking processes, nor is there any available information on whether impact assessments are made prior to proposing regulations.  Each ministry is responsible for coordinating with the Attorney General’s Chambers to draft proposed legislation. Legislation does not receive broad reviews and few outside of the originating ministry are able to provide their input.  The Sultan has final authority to approve proposed legislation. Laws and regulations that are in effect are readily accessible on the Attorney General’s Chambers: http://www.agc.gov.bn  .

International Regulatory Considerations

Brunei is an active member of ASEAN, through which it has concluded FTAs with Australia and New Zealand, China, India, Japan and South Korea.  Brunei became a WTO member in 1995 and a signatory to the General Agreement on Tariffs and Trade (GATT) in 1993.

Legal System and Judicial Independence

Brunei’s constitution does not specifically provide for judicial independence, but in practice the court system operates without government interference.  Brunei’s legal system includes two parallel systems: one based on common law and the other based on Islamic law. In 2016, recognizing the importance of protecting investors’ rights and contract enforcement, Brunei established a Commercial Court.

In 2014, Brunei implemented the first phase of its Sharia Penal Code (SPC), which expanded existing restrictions on minor offenses—such as eating during Ramadan—that are punishable by fines or imprisonment.  On April 3, 2019, Brunei commenced full implementation of its Sharia Penal Code, introducing the possibility of barbaric punishments in certain situations such as stoning to death for rape, adultery, or sodomy, and execution for apostasy, contempt of the Prophet Muhammad, or insult of the Quran.  The punishments require different standards of proof from the common law-based penal code. For example, four pious men must personally witness an act of fornication to support a sentence of stoning.

Laws and Regulations on Foreign Direct Investment

The basic legislation on investment includes the Investment Incentive Order 2001 and the Income Tax (As Amended) Order 2001.  Investment Order 2001 supports economic development in strategically important industrial and economic enterprises and, through the Ministry of Finance and Economy, offers investment incentives through a favorable tax regime.  Although Brunei does not have a stock exchange, government plans to establish a securities market are reportedly under way.

Foreign ownership of companies is not restricted, although under the Companies Act, at least one of two directors of a locally incorporated company must be a resident of Brunei, unless granted an exemption from the appropriate authorities.

Business Registration

All businesses in Brunei must be registered with the Registry of Companies and Business Names at the Ministry of Finance and Economy.  Except for sole proprietorships and partnerships, foreign investors can fully own incorporated companies, foreign company branches, or representative offices.  Foreign direct investments by multinational corporations may not require local partnership in setting up a subsidiary of their parent company in Brunei. However, at least one company director must be a Brunei citizen or permanent resident of Brunei.  Brunei’s “one-stop-shop” website for investments and business start-ups can be found here: http://business.gov.bn  .

The Business License Act (Amendment) of 2016 exempts several business activities (eateries, boarding and lodging houses or other places of public resort; street vendors and stalls; motor vehicle dealers; petrol stations including places for storing petrol and inflammable materials; timber stores and furniture factories; and retail shops and workshops) from needing to obtain a business license.

Competition and Anti-Trust Laws

Brunei does not have any legislation pertaining to the regulation of competition issues.  In 2015, Brunei enacted the Competition Order, to promote and maintain fair and healthy competition to enhance market efficiency and consumer welfare.  The Sultan also announced the establishment of the Competition Commission in 2017 to oversee and act on competition issues that include adjudicating anti-competitive cases and imposing penalties on companies that violate the 2015 Competition Order.  The Order is scheduled to be enforced in phases, starting with the prohibition of anti-competitive agreements and practices.

Expropriation and Compensation

There is no history of expropriation of foreign-owned property in Brunei.  There have been cases of domestically owned private property being expropriated for infrastructure development. Compensation was provided in such cases, and claimants were provided with due process regarding their disputes.

Dispute Settlement

ICSID Convention and New York Convention

Brunei is a member state to the convention on the International Center for Settlement of Investment Disputes (ICSID Convention) and a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).  Legislation related to dispute settlement is covered under Brunei’s Arbitration Order 2009.

Investor-State Dispute Settlement

In 2016, Brunei’s Supreme Court announced the establishment of a commercial court to deal with business-related cases.  More information about Brunei’s judiciary system is available through the judiciary: http://www.judiciary.gov.bn  .

International Commercial Arbitration and Foreign Courts

In May 2016, Brunei’s Attorney General’s Chambers announced the establishment of the Brunei Darussalam Arbitration Center (BDAC).  BDAC delivers services and administration for arbitration and mediation to fulfill the needs of domestic and international users in relation to commercial disputes, as a resolution alternative to court proceedings.

The International Arbitration Order (IAO) which regulates international and domestic arbitrations came into effect in February 2010.  More information about Brunei’s Attorney General’s Chambers is available here: http://www.agc.gov.bn   .

Bankruptcy Regulations

In 2012, amendments to Brunei’s Bankruptcy Act increased the minimum threshold for declaring bankruptcy from BND 500 to BND 10,000 (USD $368 to USD $7,379) and enabled the trustee to direct the Controller of Immigration to impound and retain the debtor’s passport, certificate of identity, or travel document to prevent the debtor from leaving the country.  The amendment also requires the debtor to deliver all property under the debtor’s possession to the trustee. Information about Brunei’s bankruptcy laws is available on the judiciary’s website: http://www.judiciary.gov.bn  .

Capital Markets and Portfolio Investment

In 2013, Brunei signed a Memorandum of Understanding (MOU) with the Securities

Commission Malaysia (SCM) to boost cooperation in the capital markets.  The MOU was designed to strengthen collaboration in the development of fair and efficient capital markets in the two countries.  It also provided a framework to facilitate greater cross-border capital market activities and cooperation in the areas of regulation as well as capacity building and human capital development, particularly in the area of Islamic capital markets.  In March 2019, the Minister of Finance II budgeted USD 15 million of the 2019/2020 fiscal budget to help launch Brunei’s stock exchange once all preconditions for such a market are met.

Money and Banking System

Brunei has a small banking sector which includes both conventional and Islamic banking.  The Monetary Authority of Brunei Darussalam (AMBD) is the sole central authority for the banking sector, in addition to being the country’s central bank.  Banks in the country have high levels of liquidity, good capital adequacy ratios, and well-managed levels of non-performing loans. A handful of foreign banks have established operations in the country such as Standard Chartered and Bank of China (Hong Kong).  In March 2018, HSBC officially ended its operations in Brunei, after announcing its planned departure from Brunei in late 2016. All banks are under the supervision of AMBD, which has also established a credit bureau that centralizes information on applicants’ credit worthiness.

The Brunei dollar (BND) is pegged to the Singapore dollar, and each currency is accepted in both countries.

Foreign Exchange and Remittances

Foreign Exchange

In June 2013, the Financial Action Task Force (FATF) announced that Brunei is no longer subject to FATF’s monitoring process under its global Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) compliance process.  Brunei’s Mutual Evaluation Report cited Brunei’s significant progress in improving its AML/CFT regime and noted that Brunei had established the legal and regulatory framework to meet its commitments in its Action Plan regarding strategic deficiencies that the FATF identified in June 2011.

Remittance Policies

Any person or company providing services for the transmission of money must be licensed by the Brunei government.  Only Brunei citizens may hold remittance licenses. Local financial institutions, including banks such as Bank Islam Brunei Darussalam (BIBD) and Standard Chartered Bank provide remittance services.  Remittance companies require the customer’s full name, identification number, address, and purpose of the remittance. They are also required to file suspicious transaction reports with the AMBD.

Sovereign Wealth Funds

The Brunei Investment Agency (BIA) manages Brunei’s General Reserve Fund and their external assets.  Established in 1983, BIA’s assets are estimated to be USD 170 billion. BIA’s activities are not publicly disclosed and are ranked the lowest in transparency ratings by the Sovereign Wealth Fund Institute.

Responsible business conduct is a relatively new concept in Brunei, and there are no specific government programs encouraging foreign and local enterprises to follow generally accepted corporate social responsibility (CSR) principles.  However, there is broad awareness of CSR among producers and consumers, and individual private and public sector organizations have formalized CSR programs and policies. There are no reporting requirements and no independent nongovernmental organizations (NGOs) in Brunei that promote or monitor CSR.

Since 1982, Brunei has enforced the Emergency (Prevention of Corruption) Act.  In 1984, the Act was renamed the Prevention of Corruption Act (Chapter 131). The Anti-Corruption Bureau (ACB) was established in 1982 for the purpose of enforcing the Act.  The Prevention of Corruption Act provides specific powers to the ACB for the purpose of investigating accusations of corruption. The Act authorizes ACB to investigate certain offences under other written laws, provided such offences were disclosed during the course of ACB investigation.  Corrupt practices are punishable under the Prevention of Corruption Act, which also applies to Brunei citizens abroad. Brunei is a member of the International Association of Anti-Corruption Authorities.

In 2018, Brunei was ranked the 31st of 180 countries worldwide in Transparency International’s corruption perception index.  The ranking is an improvement from its 2016 ranking (41st). U.S. companies do not generally identify corruption as an obstacle to conducting business in Brunei. The level and extent of reported corruption in Brunei is generally low.  In 2018, however, the government charged two former judges with embezzling large sums from the court system. The Sultan has made repeated statements to the effect that corruption is unacceptable.

Apart from the Anti-Corruption Bureau, there are no international, regional, local or NGOs operating in Brunei that monitor corruption.

Brunei has signed and ratified the United Nations Convention against Corruption.

Resources to Report Corruption

Government Point of Contact:

Datin Hajah Elinda Haji C.A. Mohamed
Director
Anti-Corruption Bureau Brunei Darussalam
Old Airport Berakas, BB 3510 Brunei Darussalam
Telephone: +673 238-3575
Fax: +673 238-3193
Email: info.bmr@acb.gov.bn

Brunei is an absolute monarchy and has no recent history of political violence. Sultan Hassanal Bolkiah is an experienced and popular monarch who rules the country as Prime Minister while also retaining the titles of Minister of Finance and Economy, Minister of Defense, and Minister of Foreign Affairs.  The country experienced an uprising in 1962, when it was a British protectorate, which ended through the intervention of British troops. The country has been ruled peacefully under emergency law ever since. Brunei has managed to avoid demands for political reform by making use of its hydrocarbon revenues to provide its citizens with generous welfares and subsidies.

Policies Towards Foreign Direct Investment

With GDP growth of 5.17 percent in 2018, Indonesia’s young population, strong domestic demand, stable political situation, and well-regarded macroeconomic policy make it an attractive destination for foreign direct investment (FDI). Indonesian government officials welcome increased FDI, aiming to create jobs and spur economic growth, and court foreign investors, notably focusing on infrastructure development and export-oriented manufacturing. However, foreign investors have complained about vague and conflicting regulations,  bureaucratic issues, ambiguous legislation in regards to  tax enforcement, poor existing infrastructure, rigid labor laws, sanctity of contract issues, and corruption.

The Investment Coordination Board, or BKPM, serves as an investment promotion agency, a regulatory body, and the agency in charge of approving planned investments in Indonesia. As such, it is the first point of contact for foreign investors, particularly in manufacturing, industrial, and non-financial services sectors. In July 2018, Indonesia launched the OSS system to streamline 488 licensing and permitting processes through the issuance of Government Regulation No.24/2018 on Electronic Integrated Business Licensing Services. As a new process, OSS implementation is a work in progress and would benefit from greater socialization, especially at the subnational level. Special expedited licensing services are available for investors meeting certain criteria, such as making investments in excess of approximately IDR100 billion (USD7.4 million) or employing 1,000 local workers.

Limits on Foreign Control and Right to Private Ownership and Establishment

Restrictions on FDI are, for the most part, outlined in Presidential Decree No.44/2016, commonly referred to as the Negative Investment List or the DNI. The Negative Investment List aims to consolidate FDI restrictions from numerous decrees and regulations, in order to create greater certainty for foreign and domestic investors. The 2016 revision to the list eased restrictions in a number of previously closed or restricted fields. Previously closed sectors, including the film industry (including filming, editing, captioning, production, showing, and distribution of films), on-line marketplaces with a value in excess of IDR100 billion (USD7.4 million), restaurants, cold chain storage, informal education, hospital management services, and manufacturing of raw materials for medicine, are now open for 100 percent foreign ownership. The 2016 list also raises the foreign investment cap in the following sectors, though not fully to 100 percent: online marketplaces under IDR100 billion (USD7.4 million), tourism sectors, distribution and warehouse facilities, logistics, and manufacturing and distribution of medical devices. In certain sectors, restrictions are liberalized for foreign investors from other ASEAN countries. Though the energy sector saw little change in the 2016 revision, foreign investment in construction of geothermal power plants up to 10 MW is permitted with an ownership cap of 67 percent, while the operation and maintenance of such plants is capped at 49 percent foreign ownership. For investment in certain sectors, such as mining and higher education, the 2016 Negative Investment List is useful only as a starting point, as additional licenses and permits are required by individual ministries. A number of sensitive business areas, involving, for example, alcoholic beverages, ocean salvage, certain fisheries, and the production of some hazardous substances, remain closed to foreign investment or are otherwise restricted.

Foreign investment in small-scale and home industries (i.e. forestry, fisheries, small plantations, certain retail sectors) is reserved for micro, small and medium enterprises (MSMEs) or requires a partnership between a foreign investor and local entity. Even where the 2016 DNI revisions lifted limits on foreign ownership, certain sectors remain subject to other restrictions imposed by separate laws and regulations. In November 2018, the government announced its plans to liberalize further DNI sectors through the XVI economic policy package, before shelving the idea a few weeks later.

In November 2016, Bank Indonesia issued Regulation No.18/2016 on the implementation of payment transaction processing.  The regulation governs all companies providing the following services: principal, issuer, acquirer, clearing, final settlement operator, and operator of funds transfer.  The BI regulation capped foreign ownership of payments companies at 20 percent, though it contained a grandfathering provision.  BI’s July 2017 Regulation No.19/2017 on the National Payment Gateway (NPG) subsequently imposed a 20 percent foreign equity cap on all companies engaging in domestic debit switching transactions.  Firms wishing to continue executing domestic debit transactions are obligated to form partnership agreements with a NPG switching company.

Foreigners may purchase equity in state-owned firms through initial public offerings and the secondary market. Capital investments in publicly listed companies through the stock exchange are not subject to Indonesia’s Negative Investment List.

Other Investment Policy Reviews

The latest World Trade Organization (WTO) Investment Policy Review of Indonesia was conducted in April 2013 and can be found on the WTO website: http://www.wto.org/english/tratop_e/tpr_e/tp378_e.htm .

The most recent OECD Investment Policy Review of Indonesia, conducted in 2010, can be found on the OECD website: http://www.oecd.org/daf/inv/investmentfordevelopment/indonesia-investmentpolicyreview-oecd.htm .

UNCTADs report on ASEAN Investment can be found here: http://www.unctad.org/en/PublicationsLibrary/unctad_asean_air2017d1.pdf .

Business Facilitation

Business Registration

In order to conduct business in Indonesia, foreign investors must be incorporated as a foreign-owned limited liability company (PMA) through the Ministry of Law and Human Rights. Once incorporated, a PMA must register through the OSS system. Upon registration, a company will receive a business identity number (NIB) along with proof of participation in the Workers Social Security Program (BPJS) and endorsement of any Foreign Worker Recruitment Plans (RPTKA).  An NIB remains valid as long as the business operates in compliance with Indonesian laws and regulations. Existing businesses will eventually be required to register through the OSS system. In general, the OSS system simplified processes for obtaining NIB from three days to one day.

Once an investor has obtained a NIB, he/she may apply for a business license. At this stage, investors must: document their legal claim to the proposed project land/location; provide an environmental impact statement (AMDAL); show proof of submission of an investment realization report; and provide a recommendation from relevant ministries as necessary.  Investors also need to apply for commercial and/or operational licenses prior to commencing commercial operations. Previously the business license process averaged 260 days.  Following establishment of the 2018 OSS system, which includes 488 licenses for various ministries/agencies, the process of starting business has been reduced to 20 days according to the World Bank’s 2019 Ease of Doing Business report, which placed Indonesia 73^rd out of the 190 countries surveyed in the report. Special expedited licensing services are also available for investors meeting certain criteria, such as making investments in excess of approximately IDR 100 billion (USD 7.2 million) or employing 1,000 local workers. After obtaining a NIB, investors in some designated industrial estates can immediately start project construction.

Foreign investors are generally prohibited from investing in MSMEs in Indonesia, although the 2016 Negative Investment List opened some opportunities for partnerships in farming and catalog and online retail. In accordance with the Indonesian SMEs Law No. 20/2008, MSMEs are defined as enterprises with net assets less than IDR10 billion (USD0.8 million) or with total annual sales under IDR50 billion (USD 3.7 million). However, the Indonesian Central Bureau of Statistics defines MSMEs as enterprises with fewer than 99 employees. The government provides assistance to MSMEs, including: expanded access to business credit for MSMEs in farming, fishery, manufacturing, creative business, trading and services sectors; a tax exemption for MSMEs with annual sales under IDR 200 million (USD 14.8 million); and assistance with international promotion.

The Ministry of Law and Human Rights’ implementation of an electronic business registration filing and notification system has dramatically reduced the number of days needed to register a company. Foreign firms are not required to disclose proprietary information to the government.

Screening of FDI

BKPM is responsible for issuing “investment licenses” (the term used to encompass both NIB and business licenses) to foreign entities and has taken steps to simplify the application process. The OSS serves as an online portal which allows foreign investors to apply for and track the status of licenses and other services online. The OSS coordinates many of the permits issued by more than a dozen ministries and agencies required for investment approval. In addition, BKPM now issues soft-copy investment and business licenses. While the OSS’s goal is to help streamline investment approvals, investments in the mining, oil and gas, plantation, and most other sectors still require multiple licenses from related ministries and authorities. Likewise, certain tax and land permits, among others, typically must be obtained from local government authorities. Though Indonesian companies are only require to obtain one approval at the local level, businesses report that foreign companies often must additional approvals in order to establish a business.

The Ministry of Home Affairs, the Ministry of Administrative and Bureaucratic Reform, and BKPM issued a circular in 2010 to clarify which government offices are responsible for investment that crosses provincial and regional boundaries. Investment in a regency (a sub-provincial level of government) is managed by the regency government; investment that lies in two or more regencies is managed by the provincial government; and investment that lies in two or more provinces is managed by the central government, or central BKPM. BKPM has plans to roll out its one-stop-shop structure to the provincial and regency level to streamline local permitting processes at more than 500 sites around the country.

Outward Investment

Indonesia’s outward investment is limited, as domestic investors tend to focus on the domestic market. BKPM has responsibility for promoting and facilitating outward investment, to include providing information about investment opportunities in and policies of other countries. BKPM also uses their investment and trade promotion centers abroad to match Indonesian companies with potential investment opportunities. The government neither restricts nor provides incentives for outward investment.

Transparency of the Regulatory System

Indonesia continues to bring its legal, regulatory, and accounting systems into compliance with international norms, but progress is slow.  Notable developments included passage of a comprehensive anti-money laundering law in late 2010 and a land acquisition law in January 2012. Although Indonesia continues to move forward with regulatory system reforms foreign investors have indicated to still encounter challenges in comparison to domestic investors, and have criticized the current regulatory system in its function to establish clear and transparent rules for all actors.  Certain laws and policies, including the Negative Investment List, establish sectors that are either fully off-limits to foreign investors or are subject to substantive conditions.

Decentralization has introduced another layer of bureaucracy for firms to navigate, resulting in what companies have identified as costly red tape.  Certain business claim that Indonesia encounters challenges in launching bureaucratic reforms due to ineffective management, resistance from vested interests, and corruption. U.S. businesses cite regulatory uncertainty and a lack of transparency as two significant factors hindering operations. Government ministries and agencies, including the Indonesian House of Representatives (DPR), continue to publish many proposed laws and regulations in draft form for public comment; however, not all draft laws and regulations are made available in public fora and it can take years for draft legislation to become law.  Laws and regulations are often vague and require substantial interpretation by the implementers, leading to business uncertainty and rent-seeking opportunities.

U.S. companies note that regulatory consultation in Indonesia is inconsistent, at best, despite the existence of Law No. 12/2011 on the Development of Laws and Regulations and its implementing Government regulation 87/204, which states that the community is entitled to provide oral or written input into draft laws and regulations. The law also sets out procedures for revoking regulations and introduces requirements for academic studies as a basis for formulating laws and regulations. Nevertheless, the absence of a formal consultation mechanism has been reported to lead to different interpretations among policy makers of what is required.

In June 2016, the Jokowi administration repealed 3,143 regional bylaws that overlapped with other regulations and impeded the ease of doing business. However, a 2017 Constitutional Court ruling limited the Ministry of Home Affairs’ authority to revoke local regulations and allowed local governments to appeal the central government’s decision. The Ministry continues to play a consultative function in the regulation drafting stage, providing input to standardize regional bylaws with national laws.

In November 2017, the government issued Presidential Instruction No. 7/2017, which aims to improve the coordination among ministries in the policy-making process. The new regulation requires lead ministries to coordinate with their respective coordinating ministry before issuing a regulation. Presidential Instruction No. 7 also requires Ministries to conduct a regulatory impact analysis and provide an opportunity for public consultation. The presidential instruction did not address the frequent lack of coordination between the central and local governments. Pursuant to various Indonesian economy policy reform packages over the past several years, the government has eliminated 220 regulations as of September 2018. Fifty-one of the eliminated regulations are at the Presidential level and 169 at the ministerial or institutional level.

In July 2018, President Jokowi issued Presidential Regulation No. 54/2018, updating and streamlining the National Anti-Corruption Strategy to synergize corruption prevention efforts across ministries, regional governments, and law enforcement agencies. The regulation focuses on three areas: licenses, state finances (primarily government revenue and expenditures), and law enforcement reform. An interagency team, including KPK, leads the national strategy’s implementation efforts.

In October 2018, the government issued Presidential Regulation No. 95/2018 on e-government that requires all levels of government (central, provincial, and municipal) to implement online governance tools (e-budgeting, e-procurement, e-planning) to improve budget efficiency, government transparency, and the provision of public services.

International Regulatory Considerations

As a member of ASEAN, Indonesia has successfully implemented regional initiatives, including ratification of the legal protocol and becoming one of the first five ASEAN Member States to implement real-time movement of electronic import documents through the ASEAN Single Window, which reduces shipping costs, speeds customs clearance, and reduces opportunities for corruption.  Indonesia has also committed to ratify the ASEAN Comprehensive Investment Agreement (ACIA), ASEAN Framework Agreement on Services (AFAS), and the ASEAN Mutual Recognition Arrangement. Notwithstanding progress made in certain areas, the often-lengthy process of aligning national legislation has caused delays in implementation. The complexity of interagency coordination and/or a shortage of technical capacity are among the challenges being reported.

Indonesia joined the WTO in 1995. Indonesia’s National Standards Body (BSN) is the primary government agency to notify draft regulations to the WTO concerning technical barriers to trade (TBT) and sanitary and phytosanitary standards (SPS); however, in practice, notification is inconsistent.

In December 2017, Indonesia ratified the WTO Trade Facilitation Agreement (TFA). At this point, Indonesia has met 88.7 percent of its commitments to the TFA provisions, including publication and availability information, consultations, advance ruling, review procedure, detention and test procedure, fee and charges discipline, goods clearance, border agency cooperation, import/export formalities, and goods transit.

Legal System and Judicial Independence

Indonesia’s legal system is based on civil law. The court system consists of District Courts (primary courts of original jurisdiction), High Courts (courts of appeal), and the Supreme Court (the court of last resort). Indonesia also has a Constitutional Court. The Constitutional Court has the same legal standing as the Supreme Court, and its role is to review the constitutionality of legislation. Both the Supreme and Constitutional Courts have authority to conduct judicial reviews. Many businesses have noted that the judiciary is susceptible to corruption and influence from outside parties.

Certain companies have claimed that the court system often does not provide the necessary recourse for resolving property and contractual disputes and that cases that would be adjudicated in civil courts in other jurisdictions sometimes result in criminal charges in Indonesia. Judges are not bound by precedent and many laws are open to various interpretations. According to the U.S. industry, corruption also continues to plague Indonesia’s judiciary, with graft investigations involving senior judges and court staff.

A lack of clear land titles has plagued Indonesia for decades, although the land acquisition law No.2/2012 enacted in 2012 included legal mechanisms designed to resolve some past land ownership issues. In addition, companies find Indonesia to have a poor track record on the legal enforcement of contracts, and civil disputes are sometimes criminalized. Government Regulation No. 79/2010 opened the door for the government to remove recoverable costs from production sharing contracts. Indonesia has also required mining companies to renegotiate their contracts of work to include higher royalties, more divestment to local partners, more local content, and domestic processing of mineral ore.

Indonesia’s commercial code, grounded in colonial Dutch law, has been updated to include provisions on bankruptcy, intellectual property rights, incorporation and dissolution of businesses, banking, and capital markets. Application of the commercial code, including the bankruptcy provisions, remains uneven, in large part due to corruption and training deficits for judges, prosecutors, and defense lawyers.

Laws and Regulations on Foreign Direct Investment

FDI in Indonesia is regulated by Law No. 25/2007 (the Investment Law). Under the law, any form of FDI in Indonesia must be in the form of a limited liability company, with the foreign investor holding shares in the company. In addition, the government outlines restrictions on FDI in Presidential Decree No. 44/2016, issued in May 2016, commonly referred to as the 2016 Negative Investment List. It aims to consolidate FDI restrictions in certain sectors from numerous decrees and regulations to provide greater certainty for foreign and domestic investors. The 2016 Negative Investment List enables greater foreign investment in some sectors like film, tourism, logistics, health care, and e-commerce. A number of sectors remain closed to investment or are otherwise restricted. The 2016 Negative List contains a clause that clarifies that existing investments will not be affected by the 2016 revisions. The website of the Investment Coordination Board (BKPM) provides information on investment requirements and procedures: http://www2.bkpm.go.id/ .  Indonesia mandates reporting obligations for all foreign investors through BKPM Regulation No.7/2018.  See section two for Indonesia’s procedures for licensing foreign investment.

Competition and Anti-Trust Laws

The Indonesian Competition Authority (KPPU) implements and enforces the 1999 Indonesia Competition Law. The KPPU reviews agreements, business practices and mergers that may be deemed anti-competitive, advises the government on policies that may affect competition, and issues guidelines relating to the Competition Law. Strategic sectors such as food, finance, banking, energy, infrastructure, health, and education are KPPU’s priorities. In April 2017, the Indonesia DPR began deliberating a new draft of the Indonesian antitrust law, which would repeal the current Law No. 5/1999 and strengthen KPPU’s enforcement against monopolistic practices and unfair business competition.

Expropriation and Compensation

The Indonesian government generally recognizes and upholds the property rights of foreign and domestic investors. The 2007 Investment Law opened major sectors of the economy to foreign investment, while providing investors protection from nationalization, except where corporate crime is involved. However, Indonesian economic nationalism and an oft-stated desire for “self-sufficiency” continues to manifest itself through negotiations, policies, regulations, and laws in way that companies describe as eroding investor value. These include local content requirements, requirements to divest equity shares to Indonesian stakeholders, and requirements to establish manufacturing or processing facilities in Indonesia.

In 2012, the government issued a regulation requiring foreign-owned mining operations to divest majority equity to Indonesian shareholders within 10 years of operational startup using cost of investment incurred, rather than market value, for purposes of divestment valuation. In 2014, with Regulation No. 77/2014, the government eased the foreign ownership restrictions to 60 percent for companies that smelt domestically (40 percent divestment) and 70 percent for companies that operate underground mines (30 percent divestment). However, regulations enacted in 2017 again require foreign-owned miners to gradually divest over ten years 51 percent of shares to Indonesian interests, with the price of divested shares determined based on fair market value and not taking into account existing reserves. The government has indicated it intends the majority-share divestment requirement to supersede Regulation No. 77/2014 and apply to all foreign investors in the sector. Based on the 2009 Mining Law, all mining contracts of work must be renegotiated to alter the terms to more favor the government, including royalty and tax rates, local content levels, domestic processing of minerals, and reduced mine areas. Some mining companies had to reduce the size of their original mining work area without compensation.

In general, Indonesia’s rising resource nationalism advances the idea that domestic interests should not have to pay prevailing market prices for domestic resources. In addition, in the oil and gas sector, the government is increasingly explicit in its policy that expiring production sharing contracts operated by foreign companies be transferred to domestic interests rather than extended. While there is no obligation of compensation under the production sharing contract, this policy has begun to affect the Indonesian business interests of foreign companies.

The Law on Land Acquisition Procedures for Public Interest Development passed in 2011 sought to streamline government acquisition of land for infrastructure projects. The law seeks to clarify roles, reduce the time frame for each phase of the land acquisition process, deter land speculation, and curtail obstructionist litigation, while still ensuring safeguards for land-right holders. The implementing regulations went into effect in 2015. Some reports indicate that the law has reduced land acquisition timelines, with no accusations of illegal government expropriation of land.

Dispute Settlement

ICSID Convention and New York Convention

Indonesia is a member of the International Center for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL) through the ratification of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Thus, foreign arbitral awards are legally recognized and enforceable in the Indonesian courts; however, some note that these awards are not always enforced in practice.

Investor-State Dispute Settlement

Since 2004, Indonesia has faced seven known Investor-State Dispute Settlement (ISDS) arbitration cases, including those that have been settled and discontinued cases. In 2016, an ICSID tribunal ruled in favor of Indonesia in the arbitration case of British firm Churchill Mining. In March 2019, the tribunal rejected an annulment request from the claimants. In addition, a Dutch arbitration court recently ruled in favor of the Indonesian government in USD 469 million arbitration case against Indian firm Indian Metals & Ferro Alloys.  Two cases involved Newmont Nusa Tenggara under BIT with Netherlands and Oleovest under BIT with Singapore were discontinued.

Indonesia recognizes binding international arbitration of investment disputes in its bilateral investment treaties (BITs). All of Indonesia’s BITs include the arbitration under ICSID or UNCITRAL rules, except the BIT with Denmark. However, in response to an increase in the number of arbitration cases submitted to ICSID, BKPM formed an expert team to review the current generation of BITs and formulate a new model BIT that would more seek to better protect perceived national interests. The Indonesian model BIT is under legal review.

In spite of the cancellation of many BITs, the 2007 Investment Law still provides protection to investors through a grandfather clause. In addition, Indonesia also has committed to ISDS provisions in regional or multilateral agreement signed by Indonesia (i.e. ASEAN Comprehensive Investment Agreement).

International Commercial Arbitration and Foreign Courts

Judicial handling of investment disputes remains mixed. Indonesia’s legal code recognizes the right of parties to apply agreed-upon rules of arbitration. Some arbitration, but not all, is handled by Indonesia’s domestic arbitration agency, the Indonesian National Arbitration Body.

Companies have resorted to ad hoc arbitrations in Indonesia using the UNCITRAL model law and ICSID arbitration rules. Though U.S. firms have reported that doing business in Indonesia remains challenging, there is not a clear pattern or significant record of investment disputes involving U.S. or other foreign investors. Companies complain that the court system in Indonesia works slowly as international arbitration awards, when enforced, may take years from original judgment to payment.

Bankruptcy Regulations

Indonesian Law No. 37/2004 on Bankruptcy and Suspension of Obligation for Payment of Debts is decidedly pro-creditor and the law makes no distinction between domestic and foreign creditors. As a result, foreign creditors have the same rights as all potential creditors in a bankruptcy case, as long as foreign claims are submitted in compliance with underlying regulations and procedures. Monetary judgments in Indonesia are made in local currency.

Capital Markets and Portfolio Investment

The Indonesia Stock Exchange (IDX) index has 618 listed companies as of December 2018 with a market capitalization of USD 526 billion. There were 57 initial public offerings in 2018 – the most in 26 years. As of January 2019, domestic entities conducted more than half of total IDX stock trades (65.08 percent). In November 2018, IDX introduced T+2 settlement, with sellers now receiving proceeds within two days instead of the previous standard of three days (T+3).

In 2011, the IDX launched the Indonesian Sharia Stock Index (ISSI), its first index of sharia-compliant companies, primarily to attract greater investment from Middle East companies and investors. In 2017, the IDX introduced the first online sharia stock trading platform. As of December 2018, the ISSI is composed of 403 stocks that are a part of IDX’s Jakarta Composite Index, with a total market cap of USD 275 billion.

Government treasury bonds are the most liquid bonds offered by Indonesia. Treasury bills are less liquid due to their small issue size. Liquidity in BI-issued Sertifikat Bank Indonesia (SBI) is also limited due to the three-month required holding period. The government also issues sukuk (Islamic treasury notes) treasury bills as part of its effort to diversify Islamic debt instruments and increase their liquidity. Indonesia’s sovereign debt as of December 2018 was rated as BBB- by Standard and Poor, BBB by Fitch Ratings and Baa2 by Moody’s.

The Financial Services Supervisory Authority (OJK) began overseeing capital markets and non-banking institutions in 2013, replacing the Capital Market and Financial Institution Supervisory Board, and assumed BI’s supervisory role over commercial banks as of 2014. Foreigners have access to the Indonesian capital markets and are a major source (37.32 percent of government securities) of portfolio investment. Indonesia respects International Monetary Fund (IMF) Article VIII by refraining from restrictions on payments and transfers for current international transactions. Foreign ownership of Indonesian companies may be limited in certain industries as determined by the Negative Investment List.

Money and Banking System

Although there is some concern regarding the operations of the many small and medium sized family-owned banks, the banking system is generally considered sound, with banks enjoying some of the widest interest rate margins in the region. As of May 2018, the 11 top banks had IDR 4,877 trillion (USD 348.3 billion) in total assets. Loans grew 11.5 percent in 2018 compared to 8.1 percent a year earlier. Gross non-performing loans in December 2018 remained at 2.4 percent y-o-y from 2.4 percent the previous year. For 2019, analysts project annual credit growth at 10-12 percent and deposit growth around 8-10 percent for Indonesia’s banking industry.

OJK Regulation No.56/03/2016 has limited bank ownership to no more than 40 percent by any single shareholder, applicable to foreign and domestic shareholders. This does not apply to foreign bank branches in Indonesia. Foreign banks may establish branches if the foreign bank is ranked in the top 200 global banks by assets.  A special operating license is required from OJK in order to establish a foreign branch. The OJK granted an exception in 2015 for foreign banks buying two small banks and merging them. To establish a representative office, a foreign bank must be ranked in the top 300 global banks by assets. In 2017, HSBC, which previously registered as a foreign branch, changed its legal status to a Limited Liability Company and merged with a local bank subsidiary which it had purchased in 2008.

In 2015, OJK eased rules for foreigners to open a bank account in Indonesia. Foreigners can open a bank account with a balance between USD 2,000-50,000 with just their passport. For accounts greater than USD 50,000, foreigners must show a supporting document such as a reference letter from a bank in the foreigner’s country of origin, a local domicile address, a spousal identity document, copies of a contract for a local residence, and/or credit/debit statements.

Foreign Exchange and Remittances

Foreign Exchange

The rupiah (IDR), the local currency, is freely convertible. Currently, banks must report all foreign exchange transactions and foreign obligations to the central bank, Bank Indonesia (BI). With respect to the physical movement of currency, any person taking rupiah bank notes into or out of Indonesia in the amount of IDR 100 million (approximately USD 7,377) or more, or the equivalent in another currency, must report the amount to DGCE. The limit for any person or entity to bring foreign currency bank notes into or out of Indonesia is the equivalent of IDR 1 billion (USD 71,429).

Banks on their own behalf or for customers may conduct derivative transactions related to derivatives of foreign currency rates, interest rates, and/or a combination thereof. BI requires borrowers to conduct their foreign currency borrowing through domestic banks registered with BI. The regulations apply to borrowing in cash, non-revolving loan agreements, and debt securities.

Under the 2007 Investment Law, Indonesia gives assurance to investors relating to the transfer and repatriation of funds, in foreign currency, on:

• capital, profit, interest, dividends and other income;
• funds required for (i) purchasing raw material, intermediate goods or final goods, and (ii) replacing capital goods for continuation of business operations;
• additional funds required for investment;
• funds for debt payment;
• royalties;
• income of foreign individuals working on the investment;
• earnings from the sale or liquidation of the invested company;
• compensation for losses; and
• compensation for expropriation.

U.S. firms report no difficulties in obtaining foreign exchange.

BI began in 2012 to require exporters to repatriate their export earnings through domestic banks within three months of the date of the export declaration form. Once repatriated, there are currently no restrictions on re-transferring export earnings abroad. Some companies report this requirement is not enforced.

In 2015, the government announced a regulation requiring the use of the rupiah in domestic transactions. While import and export transactions can still use foreign currency, importers’ transactions with their Indonesian distributors must now use rupiah, which has impacted some U.S. business operations. The central bank may grant a company permission to receive payment in foreign currency upon application, and where the company has invested in a strategic industry.

Remittance Policies

The government places no restrictions or time limitations on investment remittances. However, certain reporting requirements exist. Banks should adopt Know Your Customer (KYC) principles to carefully identify customers’ profile to match transactions.

Carrying rupiah bank notes of more than IDR 100 million (approximately USD 7,377) in cash out of Indonesia requires prior approval from BI, as well as verifying the funds with Indonesian Customs upon arrival. Indonesia does not engage in currency manipulation.

As of 2015, Indonesia is no longer subject to the intergovernmental Financial Action Task Force (FATF) monitoring process under its on-going global Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) compliance process. It continues to work with the Asia/Pacific Group on Money Laundering (APG) to further strengthen its AML/CTF regime. In July 2018, Indonesia was granted observer status by FATF, a necessary milestone toward becoming a full FATF member.

Sovereign Wealth Funds

Indonesia does not operate a traditional sovereign wealth fund, but several SOEs invest in the domestic market. In 2015, the Finance Ministry authorized one of those SOEs, PT Sarana Multi Infrastruktur (SMI) to manage the assets of the Pusat Investasi Pemerintah (PIP), or Government Investment Center (which had previously been seen as a potential sovereign wealth fund). SMI can use the funds for direct investment in infrastructure financing, the placement of funds in the form of government securities, Bank Indonesia Certificates, and/or other financial instruments in accordance with the provisions of laws. Indonesia does not participate in the IMF’s Working Group on Sovereign Wealth Funds.

Indonesian businesses are required to undertake responsible business conduct (RBC) activities under Law 40/2007 concerning Limited Liability Companies. In addition, sectoral laws and regulations have further specific provisions on RBC. Indonesian companies tend to focus on corporate social responsibility (CSR) programs offering community and economic development, and educational projects and programs. This is at least in part caused by the fact that such projects are often required as part of the environmental impact permits (AMDAL) of resource extraction companies, which undergo a good deal of domestic and international scrutiny of their operations. Because a large proportion of resource extraction activity occurs in remote and rural areas where government services are reported to be limited or absent, these companies face very high community expectations to provide such services themselves. Despite significant investments – especially by large multinational firms – in CSR projects, businesses have noted that there is limited general awareness of those projects, even among government regulators and officials.

The government does not have an overarching strategy to encourage or enforce RBC, but regulates each area through the relevant laws (environment, labor, corruption, etc.). Some companies report that these laws  are not always enforced evenly. In 2017, the National Commission on Human Rights launched a National Action Plan on Business and Human Rights in Indonesia, based on the UN Guiding Principles on Business and Human Rights.

The Financial Services Authority (OJK) regulates corporate governance issues, but the regulations and enforcement are not yet up to international standards for shareholder protection.

OECD Guidelines On Corporate Governance Of SOEs

Indonesia does not adhere to the OECD Guidelines for Multinational Enterprises, nor has been recorded  the government encouraging adherence to those guidelines. Many companies claim that the government does not encourage adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas or any other supply chain management due diligence guidance. Indonesia does participate in the Extractive Industries Transparency Initiative (EITI). Indonesia was suspended by the EITI Board due to a missed deadline for its first EITI report, but the suspension was lifted following publication of its 2012-2013 EITI Report in November 2015.

President Jokowi was elected in 2014 on a strong good-governance platform. However, corruption remains a serious problem according to some U.S. companies, preventing increased FDI. The government has issued detailed directions on combating corruption in targeted ministries and agencies, and the 2018 release of the updated and streamlined National Anti-Corruption Strategy mandates corruption prevention efforts across the government in three focus areas (licenses, state finances, and law enforcement reform). The Corruption Eradication Commission (KPK) was established in 2002 as the lead government agency to investigate and prosecute corruption.  KPK is one of the most trusted and respected institutions in Indonesia, and President Jokowi has continually expressed support for a strong and independent KPK, opposing proposals by legislators to weaken the anti-graft body’s authorities. The KPK has taken steps to encourage companies to establish effective internal controls, ethics, and compliance programs to detect and prevent bribery of public officials. By law, the KPK is authorized to conduct investigations, file indictments, and prosecute corruption cases involving law enforcement officers, government executives, or other parties connected to corrupt acts committed by those entities; attracting the “attention and the dismay” of the general public; and/or involving a loss to the state of at least IDR 1 billion (approximately USD 74,500).The government began prosecuting companies who engage in public corruption under new corporate criminal liability guidance issued in a 2016 Supreme Court regulation, with the first conviction of a corporate entity in January 2019.  Presidential decree No. 13/2018 issued in March 2018 clarifies the definition of beneficial ownership and outlines annual reporting requirements and sanctions for non-compliance.

Indonesia’s ranking in Transparency International’s Corruption Perceptions Index in 2018 improved to 89 out of 180 countries surveyed, compared to 96 out of 180 countries in 2017.  Indonesia’s score of public corruption in the country, according to Transparency International, improved to 38 in 2018 (scale of 0/very corrupt to 100/very clean). At the beginning of President Jokowi’s term in 2014, Indonesia’s score was  34. Indonesia ranks 4^th of the 10 ASEAN countries.

Nonetheless, according to certain reports, corruption remains pervasive despite laws to combat it. Some have noted that KPK leadership, along with the commission’s investigators and prosecutors, are sometimes harassed, intimidated, or attacked due to their anticorruption work. In early 2019, a Molotov cocktail and bomb components were placed outside the homes of two KPK commissioners, and in 2017 unidentified assailants committed an acid attack against a senior KPK investigator. Police have not identified the perpetrators of either attack. The Indonesian National Police and Attorney General’s Office also investigate and prosecute corruption cases; however, neither have the same organizational capacity or track-record of the KPK. Giving or accepting a bribe is a criminal act, with possible fines ranging from USD 3,850 to USD 77,000 and imprisonment up to a maximum of 20 years or life imprisonment, depending on the severity of the charge.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Indonesia ratified the UN Convention against Corruption in September 2006. Indonesia has not yet acceded to the OECD Anti-Bribery Convention, but attends meetings of the OECD Anti-Corruption Working Group. In 2014, Indonesia chaired the Open Government Partnership, a multilateral platform to promote transparency, empower citizens, fight corruption, and strengthen governance. Several civil society organizations function as vocal and competent corruption watchdogs, including Transparency International Indonesia and Indonesia Corruption Watch.

Resources to Report Corruption

Komisi Pemberantasan Korupsi (Anti-Corruption Commission)
Jln. HR Rasuna Said Kav. C1 Kuningan
Jakarta Selatan 12920
informasi@kpk.go.id

Indonesia Corruption Watch
Jl. Kalibata Timur IV/D No. 6 Jakarta Selatan 12740
Tel: +6221.7901885 or +6221.7994015
Email: info@antikorupsi.org

As in other democracies, politically motivated demonstrations occasionally occur throughout Indonesia, but are not a major or ongoing concern for most foreign investors.

Since the large-scale Bali bombings in 2002 that killed over 200 people, Indonesian authorities have aggressively and successfully continued to pursue terrorist cells throughout the country, disrupting multiple aspirational plots. Despite these successes, violent extremist networks and terrorist cells remain intact and have the capacity to become operational and conduct attacks with little or no warning, as do lone wolf-style ISIL sympathizers.

According to the industry, foreign investors in Papua face certain unique challenges. Indonesian security forces occasionally conduct operations against the Free Papua Movement, a small armed separatist group that is most active in the central highlands region. Low-intensity communal, tribal, and political conflict also exists in Papua and has caused deaths and injuries. Anti-government protests have resulted in deaths and injuries, and violence has been committed against employees and contractors of a U.S. company there.

Travelers to Indonesia can visit the U.S. Department of State travel advisory website for the latest information and travel resources: https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Indonesia.html.

Policies Towards Foreign Direct Investment

Malaysia has one of the world’s most trade-dependent economies with exports and imports of goods and services reaching about 130 percent of annual GDP according to the World Trade Organization. The Malaysian government values foreign investment as a driver of continued national economic development, but has been hampered by restrictions in some sectors and an at-times burdensome regulatory regime.  Some of these restrictions may be lifted by the new government in an effort to attract FDI.

In 2009, Malaysia removed its former Foreign Investment Committee (FIC) investment guidelines, enabling transactions for acquisitions of interests, mergers, and takeovers of local companies by domestic or foreign parties without FIC approval. Although the FIC itself still exists, its primary role is to review of investments related to distributive trade (e.g., retail distributors) as a means of ensuring 30 percent of the equity in this economic segment is held by the bumiputera (ethnic Malays and other indigenous ethnicities in Malaysia).

Since 2009, the government has gradually liberalized foreign participation in the services sector to attract more foreign investment. Following removal of certain restrictions on foreign participation in industries ranging from computer-related consultancies, tourism, and freight transportation, the government in 2011 began to allow 100 percent foreign ownership across the following sectors: healthcare, retail, education as well as professional, environmental, and courier services. Some limits on foreign equity ownership remain in place across in telecommunications, financial services, and transportation.

Foreign investments in services, whether in sectors with no foreign equity limits or controlled sub-sectors, remain subject to review and approval by ministries and agencies with jurisdiction over the relevant sectors. A key function of this review and approval process is to determine whether proposed investments meet the government’s qualifications for the various incentives in place to promote economic development goals. Nevertheless, the Ministerial Functions Act grants relevant ministries broad discretionary powers over the approval of specific investment projects. Investors in industries targeted by the Malaysian government often can negotiate favorable terms with ministries, or other bodies, regulating the specific industry. This can include assistance in navigating a complex web of regulations and policies, some of which can be waived on a case-by-case basis. Foreign investors in non-targeted industries tend to receive less government assistance in obtaining the necessary approvals from the various regulatory bodies and therefore can face greater bureaucratic obstacles.

Limits on Foreign Control and Right to Private Ownership and Establishment

The legal framework for foreign investment in Malaysia grants foreigners the right to establish businesses and hold equity stakes across all parts of the economy.  However, despite the progress of reforms to open more of the economy to a greater share of foreign investment, limits on foreign ownership remain in place across many sectors.

Telecommunications

Malaysia began allowing 100 percent foreign equity participation in Applications Service Providers (ASP) in April 2012.  However, for Network Facilities Providers (NFP) and Network Service Provider (NSP) licenses, a limit of 70 percent foreign participation remains in effect.  In certain instances, Malaysia has allowed a greater share of foreign ownership, but the manner in which such exceptions are administered is non-transparent.  Restrictions are still in force on foreign ownership allowed in Telekom Malaysia. The limitation on the aggregate foreign share is 30 percent or five percent for individual investors.

Oil and Gas

Under the terms of the Petroleum Development Act of 1974, the upstream oil and gas industry is controlled by Petroleum Nasional Berhad (PETRONAS), a wholly state-owned company and the sole entity with legal title to Malaysian crude oil and gas deposits.  Foreign participation tends to take the form of production sharing contracts (PSCs). PETRONAS regularly requires its PSC partners to work with Malaysian firms for many tenders. Non-Malaysian firms are permitted to participate in oil services in partnership with local firms and are restricted to a 49 percent equity stake if the foreign party is the principal shareholder.  PETRONAS sets the terms of upstream projects with foreign participation on a case-by-case basis.

Financial Services

Malaysia’s 10-year Financial Sector Blueprint envisages further opening to foreign institutions and investors, but does not contain specific market-opening commitments or timelines.  For example, the services liberalization program that started in 2009 raised the limit of foreign ownership in insurance companies to 70 percent. However, Malaysia’s Central Bank (Bank Negara Malaysia (BNM)), would allow a greater foreign ownership stake if the investment is determined to facilitate the consolidation of the industry.  The latest Blueprint, 2011-2020, helped to codify the case-by-case approach. Under the Financial Services Act passed in late 2012, issuance of new licenses will be guided by prudential criteria and the “best interests of Malaysia,” which may include consideration of the financial strength, business record, experience, character and integrity of the prospective foreign investor, soundness and feasibility of the business plan for the institution in Malaysia, transparency and complexity of the group structure, and the extent of supervision of the foreign investor in its home country.  In determining the “best interests of Malaysia,” BNM may consider the contribution of the investment in promoting new high value-added economic activities, addressing demand for financial services where there are gaps, enhancing trade and investment linkages, and providing high-skilled employment opportunities. BNM, however, has never defined criteria for the “best interests of Malaysia” test, and no firms have qualified.

While there has been no policy change in terms of the 70 percent foreign ownership cap for insurance companies, the government did agree to let a foreign owned insurer maintain a 100 percent equity stake after that firm made a contribution to a health insurance scheme aimed at providing health coverage to lower income Malaysians.

BNM currently allows foreign banks to open four additional branches throughout Malaysia, subject to restrictions, which include designating where the branches can be set up (i.e., in market centers, semi-urban areas and non-urban areas).  The policies do not allow foreign banks to set up new branches within 1.5 km of an existing local bank. BNM also has conditioned foreign banks’ ability to offer certain services on commitments to undertake certain back office activities in Malaysia.

Other Investment Policy Reviews

Malaysia’s most recent Organization for Economic Cooperation and Development (OECD) investment review occurred in 2013.  Although the review underscored the generally positive direction of economic reforms and efforts at liberalization, the recommendations emphasized the need for greater service sector liberalization, stronger intellectual property protections, enhanced guidance and support from Malaysia’s Investment Development Authority (MIDA), and continued corporate governance reforms.

Malaysia also conducted a WTO Trade Policy Review in February 2018, which incorporated a general overview of the country’s investment policies.  The WTO’s review noted the Malaysian government’s action to institute incentives to encourage investment as well as a number of agencies to guide prospective investors.  Beyond attracting investment, Malaysia had made measurable progress on reforms to facilitate increased commercial activity. Among the new trade and investment-related laws that entered into force during the review period were: the Companies Act, which introduced provisions to simplify the procedures to start a company, to reduce the cost of doing business, as well as to reform corporate insolvency mechanisms; the introduction of the goods and services tax (GST) to replace the sales tax; the Malaysian Aviation Commission Act, pursuant to which the Malaysian Aviation Commission was established; and various amendments to the Food Regulations.  Since the WTO Trade Policy Review, however, the new government has already eliminated the GST, and has revived the Sales and Services Tax, which was implemented on September 1, 2018.

http://www.oecd.org/investment/countryreviews.htm  https://www.wto.org/english/tratop_e/tpr_e/tp466_e.htm  

Business Facilitation

The principal law governing foreign investors’ entry and practice in the Malaysian economy is the Companies Act of 2016 (CA), which entered into force on January 31, 2017 and replaced the Companies Act of 1965.  Incorporation requirements under the new CA have been further simplified and are the same for domestic and foreign sole proprietorships, partnerships, as well as privately held and publicly traded corporations. According to the World Bank’s Doing Business Report 2019, Malaysia streamlined the process of obtaining a building permit and made it faster to obtain construction permits; eliminated the site visit requirement for new commercial electricity connections, making getting electricity easier for businesses; implemented an online single window platform to carry out property searches and simplified the property transfer process; and introduced electronic forms and enhanced risk-based inspection system for cross-border trade and improved the infrastructure and port operation system at Port Klang, the largest port in Malaysia, thereby facilitating international trade; and made resolving insolvency easier by introducing the reorganization procedure.  These changes led to a significant improvement of Malaysia’s ranking per the Doing Business Report, from 24 to 15 in one year.

In addition to registering with the Companies Commission of Malaysia, business entities must file: 1) Memorandum and Articles of Association (ie, company charter); 2) a Declaration of Compliance (ie, compliance with provisions of the Companies Act); and 3) a Statutory Declaration (ie, no bankruptcies, no convictions).  The registration and business establishment process takes two weeks to complete, on average. The new government repealed GST and installed a new sales and services tax (SST), which began implementation on September 1, 2018.

Beyond these requirements, foreign investors must obtain licenses.  Under the Industrial Coordination Act of 1975, an investor seeking to engage in manufacturing will need a license if the business claims capital of RM2.5 million (approximately USD 641,000) or employs at least 75 full-time staff.  The Malaysian Government’s guidelines for approving manufacturing investments, and by extension, manufacturing licenses, are generally based on capital-to-employee ratios. Projects below a threshold of RM55,000 (approximately USD 14,100) of capital per employee are deemed labor-intensive and will generally not qualify.  Manufacturing investors seeking to expand or diversify their operations will need to apply through MIDA.

Manufacturing investors whose companies have annual revenue below RM50 million (approximately USD12.8 million) or with fewer than 200 full-time employees meet the definition of small and medium size enterprises (SMEs) and will generally be eligible for government SME incentives.  Companies in the services or other sectors that have revenue below RM20 million (approximately USD5.1 million) or fewer than 75 full-time employees will meet the SME definition.

[Reference]

• http://www.mida.gov.my/home/getting-started/posts/   – The Malaysian Investment Development Authority’s starting point for prospective foreign investors.  Select the “General Guidelines and Facilities” tab.
• http://www.ssm.com.my/en    – The Malaysian Companies Commission homepage for registering sole proprietorships, partnerships, and companies.
• http://www.mdec.my/    – The Malaysia Digital Economy Corporation (MDEC) is responsible for governing the Multimedia Super Corridor (MSC), the initiative to attract investment in information and communications technologies.
• http://www.skmm.gov.my/Sectors/Broadcasting.aspx    – The Malaysian Communications and Multimedia Commission’s page for requirements in the communications sector.
• http://www.moh.gov.my/english.php/pages/view/160    – The Ministry of Health’s FAQs on liberalization of medical services.
• http://www.doingbusiness.org/content/dam/doingBusiness/country/m/malaysia/MYS.pdf 
• http://iab.worldbank.org  
• http://ger.co/how-it-works/information-portals  

Outward Investment

While the Malaysian government does not promote or incentivize outward investment, a number of Government-Linked companies, pension funds, and investment companies do have investments overseas.  These companies include the sovereign wealth fund of the Government of Malaysia, Khazanah Nasional Berhad, KWAP, Malaysia’s largest public services pension fund, and the Employees’ Provident Fund of Malaysia.  Government owned oil and gas firm Petronas also has investments in several regions outside Asia.

Transparency of the Regulatory System

In July 2013, the Malaysian Government initiated a National Policy on Development and Implementation of Regulations (NPDIR).  Under this policy, the federal government embarked on a comprehensive approach to minimize redundancies in the country’s regulatory framework.  The benefits to the private sector thus far have largely been reduced licensing requirements, fees, and approval wait-times for construction projects.  The main components of the policy have been: 1) a regulatory impact assessment (a cost-benefit analysis of all newly proposed regulations); and 2) the creation of a regulations guide, PEMUDAH (similar to the role MIDA plays for prospective investors), to aid businesses and civil society organizations in understanding regulatory requirements affecting their organizations’ activities.  Under the NPDIR, the government has committed to reviewing all new regulations every five years to determine with the new regulations need to be adjusted or eliminated.

Despite this effort to make government more accountable for its rules and to make the process more inclusive, many foreign investors continue to criticize the lack of transparency in government decision making.  The implementation of rules on government procurement contracts are a recurring concern. Non-Malaysian pharmaceutical companies claim to have lost bids against bumiputera (ethnic Malay)-owned companies further claiming they’d offered more effective medicines at lower cost.

[Reference]

(http://rulemaking.worldbank.org/  provides data for 185 economies on whether governments publish or consult with public about proposed regulations)

International Regulatory Considerations

Malaysia is one of 10 Member States that constitute the Association of Southeast Asian Nations (ASEAN). On December 31, 2015, the ASEAN Economic Community formally came into existence. For many years ahead of that date, and since, ASEAN’s economic policy leaders have met regularly to discuss promoting greater economic integration within the 10-country bloc.  Although trade within the 10-country bloc is robust, Member States have prioritized steps to facilitate a greater flow of goods, services, and capital. No regional regulatory system is in place. As a member of the WTO, Malaysia provides notification of all draft technical regulations to the Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

Malaysia’s legal system generally reflects English Law in that it consists of written and unwritten laws.  Written laws include the federal and state constitutions as well as laws passed by Parliament and state legislatures.  Unwritten laws are derived from court cases and local customs. The Contract Law of 1950 still guides the enforcement of contracts and resolution of disputes.  States generally control property laws for residences, although the Malaysian government has recently adopted measures, including high capital gains taxes, to prevent the real estate market from overheating.  Nevertheless, through such programs as the Multimedia Super Corridor, Free Commercial Zones, and Free Industrial Zones, the federal government has substantial reach into a range of geographic areas as a means of encouraging foreign investment and facilitating ownership of commercial and industrial property.

In 2007 the judiciary introduced dedicated intellectual property (IP) courts that consist of 15 “Sessions Courts” that sit in each state, and six ‘High Courts’ that sit in certain states (i.e. Kuala Lumpur, Johor, Perak, Selangor, Sabah and Sarawak).  Malaysia launched the IP courts to deter the use of IP-infringing activity to fund criminal activity and to demonstrate a commitment to IP development in support of the country’s goal to achieve high-income status. These lower courts hear criminal cases, and have the jurisdiction to impose fines for IP infringing acts.  There is no limit to the fines that they can impose. The higher courts are designated for civil cases to provide damages incurred by rights holders once the damages have been quantified post-trial. High courts have the authority to issue injunctions (i.e., to order an immediate cessation of infringing activity) and to award monetary damages.

Labor Courts, which the Ministry of Human Resources describes as “a quasi-judicial system that serves as an alternative to civil claims,” provide a means for workers to seek payment of wages and other financial benefits in arrears.  Proceedings are generally informal but conducted in accordance with civil court principles. The High Court has upheld decisions which Labor Courts have rendered.

Certain foreign judgments are enforceable in Malaysia by virtue of the Reciprocal Enforcement of Judgments Act 1958 (REJA).  However, before a foreign judgment can be enforceable, it has to be registered. The registration of foreign judgments is only possible if the judgment was given by a Superior Court from a country listed in the First Schedule of the REJA: the United Kingdom, Hong Kong Special Administrative Region of the People’s Republic of China, Singapore, New Zealand, Republic of Sri Lanka, India, and Brunei.

To register a foreign judgment under the REJA, the judgment creditor has to apply for the same within six years after the date of the foreign judgment. Any foreign judgment coming under the REJA shall be registered unless it has been wholly satisfied, or it could not be enforced by execution in the country of the original Court.

If the judgment is not from a country listed in the First Schedule to the REJA, the only method of enforcement at common law is by securing a Malaysian judgment. This involves suing on the judgment in the local Courts as an action in debt. Summary judgment procedures (explained above) may be used to expedite the process.

Post is not aware of instances in which political figures or government authorities have interfered in judiciary proceedings involving commercial matters.

Laws and Regulations on Foreign Direct Investment

The Government of Malaysia established the Malaysia Investment Development Authority (MIDA) to attract foreign investment and to serve as a focal point for legal and regulatory questions.  Organized as part of the Ministry of International Trade and Industry (MITI), MIDA serves as a guide to foreign investors interested in the manufacturing sector and in many services sectors.  Regional bodies providing support investors include: Invest Kuala Lumpur, Invest Penang, Invest Selangor, the Sabah Economic Development and Investment Authority (SEDIA), and the Sarawak Economic Development Corporation, among others.

As noted, the Ministerial Functions Act authorizes government ministries to oversee investments under their jurisdiction.  Prospective investors in the services sector will need to follow requirements set by the relevant Malaysian Government ministry or agency over the sector in question.

Competition and Anti-Trust Laws

On April 21, 2010, the Parliament of Malaysia approved two bills, the Competition Commission Act 2010 and the Competition Act 2010.  The Acts took effect January 1, 2012. The Competition Act prohibits cartels and abuses of a dominant market position, but does not create any pre-transaction review of mergers or acquisitions.  Violations are punishable by fines, as well as imprisonment for individual violations. Malaysia’s Competition Commission has responsibility for determining whether a company’s “conduct” constitutes an abuse of dominant market position or otherwise distorts or restricts competition.  As a matter of law, the Competition Commission does not have separate standards for foreign and domestic companies. Commission membership consists of senior officials from the Ministry of International Trade and Industry (MITI), the Ministry of Domestic Trade, Cooperatives, and Consumerism (MDTCC), the Ministry of Finance, and, on a rotating basis, representatives from academia and the private sector.

In addition to the Competition Commission, the Acts established a Competition Appeals Tribunal (CAT) to hear all appeals of Commission decisions.   In the largest case to date, the Commission imposed a fine of RM10 million on Malaysia Airlines and Air Asia in September 2013 for colluding to divide shares of the air transport services market.  The airlines filed an appeal in March 2014. In February 2016, the CAT ruled in favor of the airlines in its first-ever decision and ordered the penalty to be set aside and refunded to both airlines.

Expropriation and Compensation

The Embassy is not aware of any cases of uncompensated expropriation of U.S.-held assets, or confiscatory tax collection practices, by the Malaysian government. The government’s stated policy is that all investors, both foreign and domestic, are entitled to fair compensation in the event that their private property is required for public purposes. Should the investor and the government disagree on the amount of compensation, the issue is then referred to the Malaysian judicial system.

Dispute Settlement

ICSID Convention and New York Convention

Malaysia signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) on October 22, 1965, coming into force on October 14, 1966.  In addition, it is a contracting state of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards since November 5, 1985.

Malaysia adopted the following measures to make the two conventions effective in its territory:

The Convention on the Settlement of Investment Disputes Act, 1966. (Act of Parliament 14 of 1966); the Notification on entry into force of the Convention on the Settlement of Investment Disputes Act, 1966. (Notification No. 96 of March 10, 1966); and the Arbitration (Amendment) Act, 1980. (Act A 478 of 1980).

Although the domestic legal system is accessible to foreign investors, filing a case generally requires any non-Malaysian citizen to make a large deposit before pursuing a case in the Malaysian courts.  Post is unaware of any U.S. investors’ recent complaints of political interference in any judicial proceedings.

References:

• https://icsid.worldbank.org/en/Pages/about/MembershipStateDetails.aspx?state=ST86  
• http://www.newyorkconvention.org/countries  

Investor-State Dispute Settlement

Malaysia’s investment agreements contain provisions allowing for international arbitration of investment disputes.  Malaysia does not have a Bilateral Investment Treaty with the United States.

Post has little data concerning the Malaysian Government’s general handling of investment disputes.  In 2004, a U.S. investor filed a case against the directors of the firm, who constituted the majority shareholders.  The case involves allegations by the U.S. investor of embezzlement by the other directors, and its resolution is unknown.

The Malaysian government has been involved in three ICSID cases — in 1994, 1999, and 2005.  The first case was settled out of court. The second, filed under the Malaysia-Belgo-Luxembourg Investment Guarantee Agreement (IGA), was concluded in 2000 in Malaysia’s favor.  The 2005 case, filed under the Malaysia-UK Bilateral Investment Treaty, was concluded in 2007 in favor of the investor. However, the judgment against Malaysia was ultimately dismissed on jurisdictional grounds, namely that ICSID was not the appropriate forum to settle the dispute because the transaction in question was not deemed an investment since it did not materially contribute to Malaysia’s development. Nevertheless, Malaysian courts recognize arbitral awards issued against the government. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Malaysia’s Arbitration Act of 2005 applies to both international and domestic arbitration. Although its provisions largely reflect those of the UN Commission on International Trade Law (UNCITRAL) Model Law, there are some notable differences, including the requirement that parties in domestic arbitration must choose Malaysian law as the applicable law.  Although an arbitration agreement may be concluded by email or fax, it must be in writing: Malaysia does not recognize oral agreements or conduct as constituting binding arbitration agreements.

Many firms choose to include mandatory arbitration clauses in their contracts.  The government actively promotes use of the Kuala Lumpur Regional Center for Arbitration (http://www.rcakl.org.my), established under the auspices of the Asian-African Legal Consultative Committee to offer international arbitration, mediation, and conciliation for trade disputes.  The KLRCA is the only recognized center for arbitration in Malaysia. Arbitration held in a foreign jurisdiction under the rules of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 or under the United Nations Commission on International trade Law Arbitration Rules 1976 and the Rules of the Regional Centre for Arbitration at Kuala Lumpur can be enforceable in Malaysia.

Bankruptcy Regulations

Malaysia’s Department of Insolvency (MdI) is the lead agency implementing the Insolvency Act of 1967, previously known as the Bankruptcy Act of 1967.  On October 6, 2017, the Bankruptcy Bill 2016 came into force, changing the name of the previous Act, and amending certain terms and conditions. The most significant changes in the amendment include — (1) a social guarantor can no longer be made bankrupt; (2) there is now a stricter requirement for personal service for bankruptcy notice and petition; (3) introduction of the voluntary arrangement as an alternative to bankruptcy; (4) a higher bankruptcy threshold from RM30,000 to RM50,000; (5) introduction of the automatic discharge of bankruptcy; (6) no objection to four categories of bankruptcy for applying a discharge under section 33A (discharge of bankrupt by Certificate of Director General of Insolvency); (7) introduction of single bankruptcy order as a result of the abolishment of the current two-tier order system, i.e. receiving and adjudication orders; (8) creation of the Insolvency Assistance fund.

The distribution of proceeds from the liquidation of a bankrupt company’s assets generally adheres to the “priority matters and persons” identified by the Companies Act of 2016.  After the bankruptcy process legal costs are covered, recipients of proceeds are: employees, secured creditors (i.e., creditors of real assets), unsecured creditors (i.e., creditors of financial instruments), and shareholders.  Bankruptcy is not criminalized in Malaysia. The country ranks 46th on the World Bank Group’s Doing Business Rankings for Ease of Resolving Insolvency.

• http://www.mdi.gov.my/index.php/57-announcements/1182-announcement-on-the-enforcement-date-of-insolvency-act-1967  
• http://www.ssm.com.my/sites/default/files/companies_act_2016/
  aktabi_20160915_companiesact2016act777_0.pdf 
• http://www.doingbusiness.org/data/exploreeconomies/malaysia  

Capital Markets and Portfolio Investment

Foreigners may trade in securities and derivatives.  Malaysia houses one of Asia’s largest corporate bond markets, and is the largest sukuk (Islamic bond) market in East Asia.  Both domestic and foreign companies regularly access capital in Malaysia’s bond market. Malaysia provides tax incentives for foreign companies issuing Islamic bonds and financial instruments in Malaysia.

Malaysia’s stock market (Bursa Malaysia) is open to foreign investment and foreign corporation issuing shares.  However, foreign issuers remain subject to bumiputera ownership requirements of 12.5 percent if the majority of their operations are in Malaysia.  Listing requirements for foreign companies are similar to that of local companies. There are additional criteria for foreign companies wanting to list in Malaysia including, among others: approval of regulatory authorities of foreign jurisdiction where the company was incorporated, valuation of assets that are standards applied in Malaysia or International Valuation Standards, and the company must have been registered with the Registrar of Companies under the Companies Act 1965 or 2016.

Malaysia has taken steps to promote good corporate governance by listed companies.  Publicly listed companies must submit quarterly reports that include a balance sheet and income statement within two months of each financial quarter’s end and audited annual accounts for public scrutiny within four months of each year’s end. An individual may hold up to 25 corporate directorships.  All public and private company directors are required to attend classes on corporate rules and regulations.

Legislation also regulates equity buybacks, mandates book entry of all securities transfers, and requires that all owners of securities accounts be identified.  A Central Depository System (CDS) for stocks and bonds established in 1991 makes physical possession of certificates unnecessary. All shares traded on the Bursa Malaysia must be deposited in the CDS.  Short selling of stocks is prohibited.

Money and Banking System

International investors generally regard Malaysia’s banking sector as dynamic and well regulated.  Although privately owned banks are competitive with state-owned banks, the state-owned banks dominate the market.  The five largest banks – Maybank, CIMB, Public Bank, RHB, and Ambank – account for an estimated 75 percent of banking sector loans.  According to the World Bank, total banking sector lending for 2017 was 140.27 percent of GDP, and 1.5 percent of the Malaysian banking sector’s loans were non-performing for 2017.

Bank Negara prohibits hostile takeovers of banks, but the Securities Commission has established non-discriminatory rules and disclosure requirements for hostile takeovers of publicly traded companies.

Foreign Exchange and Remittances

Foreign Exchange

In December 2016, the central bank, began implementing new foreign exchange management requirements. Under the policy, exporters are required to convert 75 percent of their export earnings into Malaysian ringgit. The goal of this policy was to deepen the market for the currency, with the goal of reducing exchange rate volatility.  The policy remains in place, with the Central Bank giving case-by-case exceptions. All domestic trade in goods and services must be transacted in ringgit only, with no optional settlement in foreign currency. The Central Bank has demonstrated little flexibility with respect to the ratio of earnings that exporters hold in ringgit. Post is unaware of any instances where the requirement for exporters to hold their earnings in ringgit has impeded their ability to remit profits to headquarters.

Remittance Policies

Malaysia imposes few investment remittance rules on resident companies. Incorporated and individual U.S. investors have not raised concerns about their ability to transfer dividend payments, loan payments, royalties or other fees to home offices or U.S.-based accounts.  Tax advisory firms and consultancies have not flagged payments as a significant concern among U.S. or foreign investors in Malaysia. Foreign exchange administration policies place no foreign currency asset limits on firms that have no ringgit-denominated debt. Companies that fund their purchases of foreign exchange assets with either onshore or offshore foreign exchange holdings, whether or not such companies have ringgit-denominated debt, face no limits in making remittances.  However, a company with ringgit-denominated debt will need approval from the Central Bank for conversions of RM50 million or more into foreign exchange assets in a calendar year.

The Treasury Department has not identified Malaysia as a currency manipulator.

Sovereign Wealth Funds

The Malaysian Government established government-linked investment companies (GLICs) as vehicles to harness revenue from commodity-based industries and promote growth in strategic development areas.  Khazanah is the largest of the GLICs, and the company holds equity in a range of domestic firms as well as investments outside Malaysia. The other GLICs – Armed Forces Retirement Fund (LTAT), National Capital (PNB), Employees Provident Fund (EPF), Pilgrimage Fund (Tabung Haji), Public Employees Retirement Fund (KWAP) – execute similar investments but are structured as savings vehicles for Malaysians.  Khazanah follows the Santiago Principles and participates in the International Forum on Sovereign Wealth Funds

Khazanah was incorporated in 1993 under the Companies Act of 1965 as a public limited company with a charter to promote growth in strategic industries and national initiatives.  As of December 31, 2018, Khazanah reported a 21 percent drop in its net worth and a decline in its “realizable” assets to RM136 billion (from USUSD 39.3 billion to USUSD 32.9 billion).  Khazanah also recorded a pre-tax loss of RM6.27 billion (USUSD 1.52 billion) compared to a pre-tax profit of RM2.89 billion (USUSD 723 million) the previous year. The sectors comprising its major holdings include telecommunications and media, airports, banking, real estate, health care, and the national energy utility.  According to its Annual Review 2019 presentation, in 2018, Khazanah’s mandate and objectives were refreshed, and the company will now pursue its two distinct objectives (commercial vs. strategic) through a dual-fund investment structure: (1) an intergenerational wealth fund to meet its commercial objectives (which will include public and private assets); and (2) a strategic fund to meet its strategic objective (which will include strategic assets and developmental ones).

• https://www.khazanah.com.my/khazanah/files/60/60f2c749-314c-4a89-831a-c28bd45024e6.pdf 
• https://www.khazanah.com.my/getmedia/806f3b69-9bb5-452d-a3fa-ce7e77e612b4/Khazanah-Annual-Review-2019-Presentation-Deck-5-Mar-2019_2.aspx  

The development of responsible business conduct programs in Malaysia has shifted from a government-led initiative to business-led practices.  In 2006, Malaysian stock market regulator, the Securities Commission, published a Corporate Social Responsibility (CSR) Framework for all publicly listed companies, which are required to disclose their CSR programs in their annual financial reports.  In 2007 the Women, Family and Community Ministry launched the Prime Minister’s CSR’s Awards to encourage the spread of CSR programs. In 2011, the Malaysian Government launched the 1Malaysia Training Plan (SL1M), an employment incentive that allows businesses to double the tax deduction for expenses to hire and train graduates from rural areas or from low-income families.  In 2011, the Board for Corporate Sustainability and Responsibility Malaysia (BCSRM) supplanted the Institute for Corporate Responsibility Malaysia as the focal point for the country’s responsible business conduct programs. The BCSRM is the local affiliate of the World Business Council for Sustainable Development.

Although the Malaysian Government encourages companies to adopt RBC programs, it does not promote adherence to the principles in the OECD Guidelines for Multinational Enterprises or the UN Guiding Principles on Business and Human Rights.  Malaysia is not a member of the Extractive Industries Transparency Initiative.

The Malaysian government established the Malaysian Anti-Corruption Commission (MACC) in 2008 and the Whistleblower Protection Act in 2010.  The Malaysian government considers bribery a criminal act and does not permit bribes to be deducted from taxes. Malaysia’s anti-corruption law prohibits bribery of foreign public officials, permits the prosecution of Malaysians for offense committed overseas, and provides for the seizure of property.

The MACC conducts investigations, but prosecutorial discretion remains with the Attorney General’s Chambers (AGC).  There is no systematic requirement for public officials to disclose their assets and the Whistleblower Protection Act does not provide protection for those who disclose allegations to the media.   In 2015, the Attorney General and Parliament opened investigations into allegations of financial mismanagement at the state development fund 1 Malaysia Development Berhad (1MDB), chaired by then-Prime Minister Najib Razak.  After Najib installed a new Attorney General and removed other ministers, the MACC’s investigation closed in late 2015 and the new Attorney General declared the Prime Minister innocent.

The new government prioritized  anti-corruption efforts in its campaign manifesto. Since taking office in May 2018, it established Royal Commissions of Inquiry into alleged corruption at 1MDB, the Federal Land Development Authority (FELDA), the Council of Trust for the People (MARA), and the Hajj Pilgrims Fund (Tabung Haji), all government or government-linked agenices.  On May 21, 2018 the MACC established a 1MDB taskforce, including the police and central bank. As of April 2019, the government has charged former Prime Minister Najib with 42 counts of money laundering, criminal breach of trust, and abuse of power.

On July 2, 2018, the government announced it was reducing the number of agencies and departments under the Prime Minister’s Department (PMD) from over 90 to only 26 for greater transparency.  Of those reduced, 40 will be re-designated to other ministries, while 10 agencies, offices, and task forces will be abolished. Nine have been given the green light to operate as independent entities, reporting directly to Parliament while five other agencies have been merged.  The Malaysian Anti-Corruption Commission, the Election Commission, Human Rights Commission of Malaysia and the National Audit Department will now report directly to Parliament instead of the PMD

Resources to Report Corruption

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

Datuk Seri Mohd Shukri bin Abdull -Chief Commissioner
Malaysia Anti-Corruption Commission
Block D6, Complex D, Pusat Pentadbiran
Kerajaan Persekutuan, Peti Surat 6000
62007 Putrajaya
+6-1800-88-6000
Email: info@sprm.gov.my

Contact at a “watchdog” organization:

Cynthia Gabriel, Director
The Center to Combat Corruption and Cronyism (C4)
C Four Consultancies Sdn Bhd
A-2-10, 8 Avenue
Jalan Sg Jernih 8/1, Seksyen 8, 46050 Petaling Jaya
Selangor, Malaysia
Email: info@c4center.org

There have been no significant incidents of political violence since the 1969 national elections.  The May 9, 2018 national election led to the first transition of power between coalitions since independence and was peaceful.  In April 2012, the Peaceful Assembly Act took effect, eliminating the need for permits for public assemblies, but outlaws street protests and placing other significant restrictions on public assemblies.  On April 28 2012, the police disrupted a large protest march that took place despite restrictions the government attempted to impose. Subsequent demonstrations and protest marches took place in 2013 and 2014 without disruption.  Following the July 2014 Israeli incursion into Gaza, several Malaysian non-governmental entities organized a boycott of McDonald’s. Over a several week period, protestors picketed at several McDonalds restaurants, at times taunting and harassing employees.  Periodically, Malaysian groups will organize modest protests against U.S. government policies, usually involving demonstrations outside the U.S. embassy. To date, these have remained peaceful and localized, with a strong police presence. Likewise, several non-governmental organizations have organized mass rallies in major cities in peninsular and East Malaysia related to domestic policies that have been peaceful.

Policies Towards Foreign Direct Investment

Singapore maintains a heavily trade-dependent economy characterized by an open investment regime, with some licensing restrictions in the financial services, professional services, and media sectors. The World Bank’s Doing Business 2018 report ranked Singapore as the world’s second-easiest country in which to do business. The 2018 Global Competitiveness Report ranks Singapore as the second -most competitive economy globally. The 2004 USSFTA expanded U.S. market access in goods, services, investment, and government procurement, enhanced intellectual property protection, and provided for cooperation in promoting labor rights and the environment.

The Government of Singapore is committed to maintaining a free market, but it also actively plans Singapore’s economic development, including through a network of government-linked corporations (GLCs). As of February 2019, the top three Singapore-listed GLCs accounted for 13.1 percent of total capitalization of the Singapore Exchange (SGX). Some observers have criticized the dominant role of GLCs in the domestic economy, arguing that they have displaced or suppressed private sector entrepreneurship and investment.

Singapore’s legal framework and public policies are generally favorable toward foreign investors. Foreign investors are not required to enter into joint ventures or cede management control to local interests, and local and foreign investors are subject to the same basic laws. Apart from regulatory requirements in some sectors (reference Limits on National Treatment and Other Restrictions), eligibility for various incentive schemes depends on investment proposals meeting the criteria set by relevant government agencies. Singapore places no restrictions on reinvestment or repatriation of earnings or capital. The judicial system, which includes international arbitration and mediation centers and a commercial court, upholds the sanctity of contracts, and decisions are generally considered to be transparent and effectively enforced.

Singapore’s Economic Development Board (EDB) is the lead investment promotion agency that facilitates foreign investment into Singapore (https:www.edb.gov.sg). EDB undertakes investment promotion and industry development and works with international businesses, both foreign and local, by providing information and facilitating introductions and access to government incentives. The government maintains close engagement with investors through the EDB, which provides feedback to other government agencies to ensure that infrastructure and public services remain efficient and cost-competitive.

Exceptions to Singapore’s general openness to foreign investment exist in telecommunications, broadcasting, the domestic news media, financial services, legal and accounting services, and ports and airports sectors, as well as property ownership. Under Singapore law, articles of incorporation may include shareholding limits that restrict ownership in corporations by foreign persons.

Telecommunications

Since 2000, the Singapore telecommunications market has been fully liberalized. This move has allowed foreign and domestic companies seeking to provide facilities-based (e.g. fixed line or mobile networks) or services-based (e.g. local and international calls and data services over leased networks) telecommunications services to apply for licenses to operate and deploy telecommunication systems and services. Singapore Telecommunications (SingTel) – a GLC that is majority owned by Temasek, a state-owned investment company with the Singapore Minister for Finance as its sole shareholder – faces competition in all market segments. However, its main competitors, M1 and StarHub, are also GLCs. In December 2018, Australian telco TPG Telecom announced a limited, free mobile service to run through 2019. TPG offers only subscriber identity module (SIM) services in Singapore. In the past three years, four Singapore start-ups offering mobile virtual network operator services (MVNOs) have also entered the market. The three established Singapore telecommunications competitors are expected to strengthen their partnerships with the MVNOs in a defensive move against TPG’s entry.

As of November 2018, Singapore has 69 facilities-based operators and 257 services-based (individual) operators offering prepaid services. Since 2007, SingTel has been exempted from dominant licensee obligations for the residential and commercial portions of the retail international telephone services. SingTel is also exempted from dominant licensee obligations for wholesale international telephone services, international managed data, international IP transit, leased satellite bandwidth (VSAT, DVB-IP, satellite TV Downlink, and Satellite IPLC), terrestrial international private leased circuit, and backhaul services. The info-communications Media Development Authority (IMDA) granted Singtel’s exemption after assessing that the market for these services had effective competition.

In April 2017, Singapore held a General Spectrum Auction for mobile airwaves, the largest such auction in 16 years, allocating additional blocks of spectrum to accommodate increasing demand for mobile data services. Singtel, Starhub, M1, and TPG paid a combined total of USUSD 870 million (SUSD 1.15billion) in this heavily-bid auction for additional frequency bands.  To facilitate 5G technology and service trials, IMDA has waived frequency fees for companies interested in conducting 5G trials for equipment testing, research, and assessment of commercial potential.

Singapore’s IMDA operates as both the regulatory agency and the investment promotion agency for the country’s telecommunications sector. IMDA conducts public consultations on major policy reviews and provides decisions on policy changes to relevant companies.

Media

The local free-to-air broadcasting, cable, and newspaper sectors are effectively closed to foreign firms. Section 44 of the Broadcasting Act restricts foreign equity ownership of companies broadcasting in Singapore to 49 percent or less, although the Act does allow for exceptions. Individuals cannot hold shares that would make up more than five percent of the total votes in a broadcasting company without the government’s prior approval. The Newspaper and Printing Presses Act (NPPA) restricts equity ownership (local or foreign) of newspaper companies to less than five percent per shareholder and requires directors to be Singapore citizens. Newspaper companies must issue two classes of shares, ordinary and management, with the latter available only to Singapore citizens or corporations approved by the government. Holders of management shares have an effective veto over selected board decisions.

Singapore regulates content across all major media outlets. The government controls the distribution, importation, and sale of any newspaper and has curtailed or banned the circulation of some foreign publications. Singapore’s leaders have also brought defamation suits against foreign publishers, which have resulted in the foreign publishers issuing apologies and paying damages. Several dozen publications remain prohibited under the Undesirable Publications Act, which restricts the import, sale, and circulation of publications that the government considers contrary to public interest. Examples include pornographic magazines, publications by banned religious groups, and publications containing extremist religious views. Following a routine review in 2015, the then-Media Development Authority lifted a ban on 240 publications, ranging from decades-old anti-colonial and communist material to adult interest content.

Singaporeans generally face few restrictions on the internet. However, the IMDA has blocked various websites containing material that the government deems objectionable, such as pornography and racist and religious hatred sites. Online news websites that report regularly on Singapore and have a significant reach are individually licensed, which requires these sites to submit a bond of USD 40,000 (SGD 50,000) and to adhere to requirements to remove prohibited content within 24 hours of notification from IMDA. Some view this regulation as a way to censor online critics of the government. In December 2018 authorities charged the editor of an online news site with criminal defamation following the publication of a contributor’s allegedly defamatory letter, although the editor had removed the post when advised to do so by the authorities.

In April 2019, the government introduced legislation in Parliament to counter “deliberate online falsehoods.” The legislation, called the Protection from Online Falsehoods and Manipulation Bill, would require websites to run corrections alongside “online falsehoods” and would impose penalties on sites or individuals that spread “misinformation,” as determined by the government.

Pay-Television

MediaCorp TV is the only free-to-air TV broadcaster and is 100 percent owned by the government via Temasek Holdings (Temasek). Local Pay-TV providers are StarHub and Singtel, which are both partially owned by Temasek or its subsidiaries. Local free-to-air radio broadcasters are MediaCorp Radio Singapore, which is also owned by Temasek Holdings, SPH Radio, owned by the publically-held Singapore Press Holdings, and So Drama! Entertainment, owned by the Singapore Ministry of Defense. BBC World Services is the only foreign free-to-air radio broadcaster in Singapore.

To rectify the high degree of content fragmentation in the Singapore pay-TV market, and shift the focus of competition from an exclusivity-centric strategy to other aspects such as service differentiation and competitive packaging, the MDA implemented cross-carriage measures in 2011 requiring pay-TV companies designated by MDA to be Receiving Qualified Licensees (RQL) – currently SingTel and StarHub – to cross-carry content subject to exclusive carriage provisions. Correspondingly, Supplying Qualified Licensees (SQLs) with an exclusive contract for a channel are required to carry that content on other RQL pay-TV companies. In February 2019, the IMDA proposed to continue the current cross-carriage measures. The Motion Picture Association of America (MPAA) has expressed concern that this measure restricts copyright exclusivity. Content providers consider the measures an unnecessary interference in a competitive market that denies content holders the ability to negotiate freely in the marketplace, and an interference with their ability to manage and protect their intellectual property. More common content is now available across the different pay-TV platforms, and the operators are beginning to differentiate themselves by originating their own content, offering subscribed content online via PCs and tablet computers, and delivering content via fiber networks.

Streaming services have entered the market, which MPAA has found leads to a significant reduction in intellectual property infringements. StarHub and Singtel have both partnered with multiple content providers, including U.S. companies, to provide streaming content in Singapore and around the region.

Banking and Finance

The Monetary Authority of Singapore (MAS) regulates all banking activities as provided for under the Banking Act. Singapore maintains legal distinctions between foreign and local banks and the type of license (i.e. full service, wholesale, and offshore banks) held by foreign commercial banks. As of March 2019, 28 foreign full-service licensees and 97 wholesale banks operated in Singapore. An additional 27 merchant banks are licensed to conduct corporate finance, investment banking, and other fee-based activities. Offshore and wholesale banks are not allowed to operate Singapore dollar retail banking activities. Only Full Banks and “Qualifying Full Banks” (QFBs) can operate Singapore dollar retail banking activities but are subject to restrictions on the number of places of business, ATMs, and ATM networks. Additional QFB licenses may be granted to a subset of full banks, which provide greater branching privileges and greater access to the retail market than other full banks. As of March 2019, there are ten banks operating QFB licenses.

Except in retail banking, Singapore laws do not distinguish operationally between foreign and domestic banks. Currently, all banks in Singapore are required to maintain a Domestic Banking Unit (DBU) and an Asian Currency Unit (ACU), separating international and domestic banking operations from each other. Transactions in Singapore dollars can be booked only in the DBU whereas transactions in foreign currency are typically booked in the ACU. The ACU is an accounting unit that the banks use to book all their foreign currency transactions conducted in the Asian Dollar Market (ADM). This enables additional prudential requirements to be imposed on banks’ domestic businesses in Singapore, while also avoiding undue restrictions on the offshore activities of banks. Following public consultations, MAS initiated a 30-month implementation timeline from February 2017 for the removal of the DBU-ACU divide, which will be aligned with the revisions made to MAS 610 (Submission of Statistics and Returns).

The government initiated a banking liberalization program in 1999 to ease restrictions on foreign banks and has supplemented this with phased-in provisions under the USSFTA, including removal of a 40 percent ceiling on foreign ownership of local banks and a 20 percent aggregate foreign shareholding limit on finance companies. The Minister in charge of the Monetary Authority of Singapore must approve the merger or takeover of a local bank or financial holding company, as well as the acquisition of voting shares in such institutions above specific thresholds of five percent, 12 percent, or 20 percent of shareholdings.

Although Singapore’s government has lifted the formal ceilings on foreign ownership of local banks and finance companies, the approval of controllers of local banks ensures that this control rests with individuals or groups whose interests are aligned with the long-term interests of the Singapore economy and Singapore’s national interests. Of the 29 full-service licenses granted to foreign banks, three have gone to U.S. banks. U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, U.S.-licensed full-service banks that are also QFBs, which is only one as of March 2019, have been able to operate at an unlimited number of locations (branches or off-premises ATMs) versus 25 for non-U.S. full-service foreign banks with QFB status. U.S. and foreign full-service banks with QFB status can freely relocate existing branches and share ATMs among themselves. They can also provide electronic funds transfer and point-of-sale debit services and accept services related to Singapore’s compulsory pension fund. In 2007, Singapore lifted the quota on new licenses for U.S. wholesale banks.

Locally and non-locally incorporated subsidiaries of U.S. full-service banks with QFB status can apply for access to local ATM networks. However, no U.S. bank has come to a commercial agreement to gain such access. Despite liberalization, U.S. and other foreign banks in the domestic retail-banking sector have reported to still face barriers. Under the enhanced QFB program launched in 2012, MAS requires QFBs it deems systemically significant to incorporate locally. If those locally incorporated entities are deemed “significantly rooted” in Singapore, with a majority of Singaporean or permanent resident members, Singapore may grant approval for an additional 25 places of business, of which up to ten may be branches. Local retail banks do not face similar constraints on customer service locations or access to the local ATM network. As noted above, U.S. banks are not subject to quotas on service locations under the terms of the USSFTA.  Holders of credit cards issued locally by U.S. banks incorporated in Singapore cannot access their accounts through the local ATM networks. They are also unable to access their accounts for cash withdrawals, transfers, or bill payments at ATMs operated by banks other than those operated by their own bank or at foreign banks’ shared ATM network. Nevertheless, full-service foreign banks have made significant inroads in other retail banking areas, with substantial market share in products like credit cards and personal and housing loans.

In January 2019, MAS announced the passage of the Payment Services Bill after soliciting public feedback for design of the bill. The bill requires more payment services such as digital payment tokens, dealing in virtual currency and merchant acquisition, to be licensed and regulated by MAS. It also limits the amount of money stored in personal mobile wallets and how much can be transferred to another user’s bank accounts in a year. Regulations are tailored to the type of activity preformed and address issues related to terrorism financing, money laundering, and cyber risks.

Singapore has no trading restrictions on foreign-owned stockbrokers. There is no cap on the aggregate investment by foreigners regarding the paid-up capital of dealers that are members of the SGX. Direct registration of foreign mutual funds is allowed provided MAS approves the prospectus and the fund. The USSFTA has relaxed conditions foreign asset managers must meet in order to offer products under the government-managed compulsory pension fund (Central Provident Fund Investment Scheme).

Legal Services

The Legal Services Regulatory Authority (LSRA) under the Ministry of Law oversees the regulation, licensing, and compliance of all law practice entities and the registration of foreign lawyers in Singapore. Foreign law firms with a licensed Foreign Law Practice (FLP) may offer the full range of legal services in foreign law and international law but cannot practice Singapore law except in the context of international commercial arbitration. U.S. and foreign attorneys are allowed to represent parties in arbitration without the need for a Singapore attorney to be present. To offer Singapore law, FLPs require either a Qualifying Foreign Law Practice (QFLP) license, a Joint Law Venture (JLV) with a Singapore Law Practice (SLP), or a Formal Law Alliance (FLA) with a SLP. The vast majority of Singapore’s 127 foreign law firms operate FLPs, while QFLPs and JLVs each number in the single digits.

The QFLP licenses allow foreign law firms to practice in permitted areas of Singapore law, which excludes constitutional and administrative law, conveyancing, criminal law, family law, succession law, and trust law. As of March 2019 there are nine QFLPs in Singapore, including five U.S. firms. In January 2019, the Ministry of Law announced the deferral to 2020 of the decision to renew the licenses of five QFLPs, which were set to expire in 2019 so that the government can better assess their contribution to Singapore along with the other four firms whose licenses were also extended to 2020. Decisions on the renewal considers the firms’ quantitative and qualitative performance such as the value of work that the Singapore office will generate, the extent to which the Singapore office will function as the firm’s headquarter for the region, the firm’s contributions to Singapore, and the firm’s proposal for the new license period.

A Joint Law Venture (JLV) is a collaboration between a Foreign Law Practice and Singapore Law Practice, which may be constituted as a partnership or company. The Director of Legal Services in the Legal Services Regulatory Authority (LSRA) will consider all the relevant circumstances including the proposed structure and its overall suitability to achieve the objectives for which JLV are permitted to be established. There is no clear indication on the percentage of shares that each JLV partner may hold in the JLV.

Law degrees from designated U.S., British, Australian, and New Zealand universities are recognized for purposes of admission to practice law in Singapore. Under the USSFTA, Singapore recognizes law degrees from Harvard University, Columbia University, New York University, and the University of Michigan. Singapore will admit to the Singapore Bar law school graduates of those designated universities who are ranked among the top 70 percent of their graduating class or have obtained lower-second class honors (under the British system).

Engineering and Architectural Services

Engineering and architectural firms can be 100 percent foreign-owned. Engineers and architects are required to register with the Professional Engineers Board and the Board of Architects, respectively, to practice in Singapore. All applicants (both local and foreign) must have at least four years of practical experience in engineering or two years of practical training in architectural works, and pass written and oral examinations set by the respective Board.

Accounting and Tax Services

Major international accounting firms operate in Singapore. Registration as a public accountant under the Accountants Act is required to provide public accountancy services (i.e. the audit and reporting on financial statements and other acts that are required by any written law to be done by a public accountant) in Singapore, although registration as a public accountant is not required to provide other accountancy services, such as accounting, tax, and corporate advisory work. All accounting entities that provide public accountancy services must be approved under the Accountants Act and their supply of public accountancy services in Singapore must be under the control and management of partners or directors who are public accountants ordinarily resident in Singapore. In addition, if the accounting entity firm has two partners or directors, at least one of them must be a public accountant. If the business entity has more than two partners or directors, two-thirds of the partners or directors must be public accountants.

Energy

Singapore further liberalized its gas market with the amendment of the Gas Act and implementation of a Gas Network Code in 2008, which were designed to give gas retailers and importers direct access to the onshore gas pipeline infrastructure. However, key parts of the local gas market, such as town gas retailing and gas transportation through pipelines remain controlled by incumbent Singaporean firms. Singapore has sought to grow its supply of Liquefied Natural Gas (LNG), and BG Singapore Gas Marketing Pte Ltd (acquired by Royal Dutch Shell in February 2016) was appointed in 2008 as the first aggregator with an exclusive franchise to import LNG to be sold in its re-gasified form in Singapore. In October 2017, Shell eastern Trading Pte Ltd and Pavilion Gase Pte Ltd were awarded import licenses to market up to 1 Million Tonnes Per Annum (Mtpa) or for three years, whichever occurs first. This also marked the conclusion of the first exclusive franchise awarded to BG Singapore Gas Marketing Pte Ltd.

In November 2018, Singapore began a progressive launch of an Open Electricity Market that will be completed in May 2019. Over 1.4 million households and business accounts will have the option of buying electricity from a retailer licensed by the Energy Market Authority (EMA). To participate in the Open Electricity Market licensed retailers must satisfy additional credit, technical, and financial requirements set by EMA in order to sell electricity to households and small businesses. There are two types of electricity retailers: Market Participant Retailers (MPRs) and Non-Market Participant Retailers (NMPRs). MPRs have to be registered with the Energy Market Company (EMC) to purchase electricity from the National Electricity Market of Singapore (NEMS) to sell to contestable consumers. NMPRs need not register with EMC to participate in the NEMS since they will purchase electricity indirectly from the NEMS through the Market Support Services Licensee (MSSL). As of April 2019, there were 13 firms in the market, including foreign and local.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and local entities may readily establish, operate, and dispose of their own enterprises in Singapore subject to certain requirements. A foreigner who wants to incorporate a company in Singapore is required to appoint a locally resident director; foreigners may continue to reside outside of Singapore.  Foreigners who wish to incorporate a company and be present in Singapore to manage its operations are strongly advised to seek approval from the Ministry of Manpower (MOM) before incorporation. Except for representative offices (where foreign firms maintain a local representative but do not conduct commercial transactions in Singapore) there are no restrictions on carrying out remunerative activities. As of October 2017, foreign companies may seek to transfer their place of registration and be registered as companies limited by shares in Singapore under Part XA (Transfer of Registration) of the Companies Act. Such transferred foreign companies are subject to the same requirements as locally-incorporated companies.

All businesses in Singapore must be registered with the Accounting and Corporate Regulatory Authority (ACRA). Foreign investors can operate their businesses in one of the following forms: sole proprietorship, partnership, limited partnership, limited liability partnership, incorporated company, foreign company branch or representative office. Stricter disclosure requirements were passed in March 2017 requiring foreign company branches registered in Singapore to maintain public registers of their members, while locally incorporated companies. Foreign company branches registered in Singapore as well as limited liability partnerships will be required to maintain registers of controllers (generally defined as individuals or legal entities with more than 25 percent interest or control of the companies and foreign companies) aimed at preventing money laundering.

While there is currently no cross-sectional screening process for foreign investments, investors are required to seek approval from specific sector regulators for investments into certain firms. These sectors include energy, telecommunications, broadcasting, the domestic news media, financial services, legal services, public accounting services, ports and airports, and property ownership. Under Singapore law, Articles of Incorporation may include shareholding limits that restrict ownership in corporations by foreign persons.

Singapore does not maintain an investment screening mechanism for inbound foreign investment. There are no reports of U.S. investors being especially disadvantaged or singled out relative to other foreign investors.

Other Investment Policy Reviews

Singapore underwent a trade policy review with the World Trade Organization (WTO) in July 2016. No major policy recommendations were raised. This was the country’s only policy review in the past three years. (https://www.wto.org/english/tratop_e/tpr_e/tp443_e.htm)

The OECD and United Nations Industrial Development Organization (UNIDO) released a joint report in February 2019 on the ASEAN-OECD Investment Program. The Program aims to foster dialogue and experience sharing between OECD countries and Southeast Asian economies on issues relating to the business and investment climate. It is implemented through regional policy dialogue, country investment policy reviews, and training seminars. (http://www.oecd.org/countries/singapore/seasia.htm  )

The OECD released a Transfer Pricing Country Profile for Singapore in June 2018. The country profiles focus on countries’ domestic legislation regarding key transfer pricing principles, including the arm’s length principle, transfer pricing methods, comparability analysis, intangible property, intra-group services, cost contribution agreements, transfer pricing documentation, administrative approaches to avoiding and resolving disputes, safe harbors and other implementation measures. (http://www.oecd.org/countries/singapore/transfer-pricing-country-profile-singapore.pdf )

The OECD released a peer review report in March 2018 on Singapore’s implementation of internationally agreed tax standards under Action Plan 14 of the base erosion and profit shifting (BEPS) project. Action 14 strengthens the effectiveness and efficiency of the mutual agreement procedure, a cross-border tax dispute resolution mechanism.

The UNCTAD has not conducted an IPR of Singapore.

Business Facilitation

Singapore’s online business registration process is clear and efficient and allows foreign companies to register branches. All businesses must be registered with the Accounting & Corporate Regulatory Authority (ACRA) through Bizfile, its online registration and information retrieval portal (http://bizfile.gov.sg  ), including any individual, firm or corporation that carries out business for a foreign company. Applications are typically processed immediately after the application fee is paid, but may take between 14 days to two months if the application is referred to another agency for approval or review. The process of establishing a foreign-owned limited liability company in Singapore is among the fastest of the countries surveyed by IAB.

ACRA provides a single window for business registration. However, additional regulatory approvals (e.g. licensing or visa requirements) are obtained via individual applications to the respective Ministries or Statutory Boards. Additional information and business support on registering a branch of a foreign company is available through the EDB (https://www.edb.gov.sg/en/how-we-help/setting-up.html  ). Furthermore, GuideMeSingapore by corporate services firm Hawskford provides details on setting up a business in Singapore (https://www.guidemesingapore.com/).

Foreign companies may lease or buy privately or publicly held land in Singapore, though there are some restrictions on foreign ownership of property. Foreign companies are free to open and maintain bank accounts in foreign currency. There is no minimum paid-in capital requirement, but at least one subscriber share must be issued for valid consideration at incorporation.

At GER (ger.co), Singapore’s online business registration process scores 7/10 in Online Single Windows (https://www.bizfile.gov.sg/).

Business facilitation processes provide for fair and equal treatment of women and minorities, and there are no mechanisms that provide special assistance to women and minorities.

Outward Investment

Singapore places no restrictions on domestic investors investing abroad. The government promotes outward investment through Enterprise Singapore, a statutory board under the Ministry of Trade and Industry (MTI). It provides market information, business contacts, and financial assistance and grants for internationalizing companies. While it has a global reach and runs overseas centers in major cities across the world, a large share of its overseas centers are located in major trading and investment partners and regional markets like China, India, and ASEAN.

Transparency of the Regulatory System

Transparency Policies and Non-Discrimination:

The government establishes clear rules that foster competition. The USSFTA enhances transparency by requiring regulatory authorities to consult with interested parties before issuing regulations, and to provide advance notice and comment periods for proposed rules, as well as to publish all regulations. Singapore’s legal, regulatory, and accounting systems are transparent and consistent with international norms.

Formal Regulatory Authority and Processes:

Rule-making authority is vested in the Parliament to pass laws that determine the regulatory scope, purpose, rights and powers of the regulator and the legal framework for the industry. Regulatory authority is vested in government statutory boards, which are organizations that have been given autonomy to perform an operational function by legal statutes passed as Acts in parliament, and report to a specific Ministry. Local laws give regulatory bodies wide discretion to modify regulations and impose new conditions, but in practice agencies use this positively to adapt incentives or other services on a case-by-case basis to meet the needs of foreign as well as domestic companies. Acts of Parliament also confer certain powers on a Minister or other similar persons or authorities to make rules or regulations in order to put the Act into practice; these rules are known as subsidiary legislation.

National-level regulations are the most relevant for foreign businesses. Singapore, being a city-state, has no local or state regulatory layers.

Before a ministry instructs the Attorney-General’s Chambers (AGC) to draft a new bill or make an amendment to a bill, the ministry has to seek in-principle approval from the Cabinet for the proposed bill. The Legislation Division of AGC advises and helps vet or draft bills in conjunction with policymakers from relevant ministries. Proposed draft legislative amendments are released for public or private consultation. Thereafter, approval from the Ministry of Law is required, followed by the Cabinet’s approval, before the bill can be introduced in Parliament.  All Bills passed by Parliament (with some exceptions) must be forwarded to the Presidential Council for Minority Rights (PCMR) for scrutiny, and thereafter presented to the President for assent. Only after the President has assented to the Bill does the Bill become law (i.e. an Act of Parliament).

While ministries or regulatory agencies do conduct internal impact assessments of proposed regulations, there are no criteria used for determining which proposed regulations are subjected to an impact assessment, and there are no specific regulatory impact assessment guidelines. There is no independent agency tasked with reviewing and monitoring regulatory impact assessments and distributing findings to the public. The Ministry of Finance publishes a biennial Singapore Public Sector Outcomes Review (http://www.mof.gov.sg/Resources/Singapore-Public-Sector-Outcomes-Review-SPOR). It focuses on broad outcomes and indicators rather than policy evaluation. Results of scientific studies or quantitative analysis conducted in review of policies and regulations are not made publicly available.

Informal Regulatory Processes:

Industry self-regulation occurs in several areas, including advertising and corporate governance. Advertising Standards Authority of Singapore   (ASAS), an advisory council under the Consumers Association of Singapore, administers the Singapore Code of Advertising Practice, which focuses on ensuring that advertisements are legal, decent, and truthful. Listed companies are required under the Singapore Exchange (SGX) Listing Rules to describe in their annual reports their corporate governance practices with specific reference to the principles and provisions of the Code. Listed companies must comply with the principles of the Code, and, if their practices vary from any provisions of the Code, they must note the reason for the variation and explain how the practices they have adopted are consistent with the intent of the relevant principle. The SGX plays the role of a self-regulatory organization (SRO) in listings, market surveillance, and member supervision to uphold the integrity of the market and ensure participants’ adherence to trading and clearing rules. There have been no reports of discriminatory practices aimed at foreign investors.

Accounting, legal, and regulatory procedures:

Singapore’s legal and accounting procedures are transparent and consistent with international norms and rank similar to the U.S. in international comparisons (http://worldjusticeproject.org/rule-of-law-index  ). The prescribed accounting standards for Singapore-incorporated companies listed on the Singapore Exchange or SFRS(1), Singapore Financial Reporting Standards, are identical to those of the International Accounting Standards Board (IASB). Non-listed Singapore-incorporated companies can voluntarily apply for SFRS(1). Otherwise, they are required to comply with Singapore Financial Reporting Standards (SFRS), which are aligned with those of IASB. For the use of foreign accounting standards, the companies are required to seek approval of the Accounting and Corporate Regulatory Authority (ACRA).

For foreign companies with primary listings on the Singapore Exchange, the SGX Listing Rules allow the use of alternative standards such as International Financial Reporting Standards (IFRS) or the U.S. Generally Accepted Accounting Principles (U.S. GAAP). Accounts prepared in accordance with IFRS U.S. GAAP need not be reconciled to SFRS(1). Companies with secondary listings on the Singapore Exchange need only reconcile their accounts to SFRS(1), IFRS, or U.S. GAAP.

Draft Legislation:

Notices of proposed legislation to be considered by Parliament are published, including the text of the laws, the dates of the readings, and whether or not the laws eventually pass. The government has established a centralized Internet portal (www.reach.gov.sg) to solicit feedback on selected draft legislation and regulations, a process that is being used with increasing frequency. There is no stipulated consultative period.  Results of consultations are usually consolidated and published on relevant websites. As noted in the “Openness to Foreign Investment” section, some U.S. companies, in particular in the telecommunications and media sectors, are concerned about the government’s lack of transparency in its regulatory and rule-making process.  However, many U.S. firms report they have opportunities to weigh in on pending legislation that affects their industries. These mechanisms also apply to investment laws and regulations.

Online Regulatory Disclosure:

The Parliament of Singapore website (https://www.parliament.gov.sg/publications/bills-introduced  ) publishes a database of all Bills introduced, read, and passed in Parliament in chronological order as of 2006. The contents are the actual draft texts of the proposed legislation/legislative amendments. All statutes are also publicly available in the Singapore Statutes Online website (https://sso.agc.gov.sg  ). However, there is no centralized online location where key regulatory actions are published. Regulatory actions are published separately on websites of Statutory Boards.

Transparency Enforcement Mechanisms:

Enforcement of regulatory offences is governed by both Acts of Parliament and subsidiary legislation. Enforcement powers of government statutory bodies are typically enshrined in the Act of Parliament constituting that statutory body. There is accountability to Parliament for enforcement action through Question Time, where Members of Parliament may raise questions with the Ministers on their respective Ministries’ responsibilities.

Singapore’s judicial system and courts serve as the oversight mechanism in respect of executive action (such as the enforcement of regulatory offences) and dispense justice based on law. The Supreme Court is made up of the Court of Appeal and the High Court, and hears both civil and criminal matters. The Chief Justice heads the Judiciary. The President appoints the Chief Justice, the Judges of Appeal and the Judges of the High Court if he, acting at his discretion, concurs with the advice of the Prime Minister.

No systemic regulatory reforms or enforcement reforms relevant to foreign investors have been announced. The Monetary Authority of Singapore stated focus in enforcement is on timely disclosure of corporate information, business conduct of financial advisors, compliance with anti-money laundering/combatting the financing of terrorism requirements, deterring stock market abuse, and insider trading as of March 2019. In March 2019, MAS published its inaugural Enforcement Report that details enforcement actions over previous periods.

International Regulatory Considerations

Singapore was the 2018 chair of the Association of Southeast Asian Nations (ASEAN). ASEAN is working towards the 2025 ASEAN Economic Community (AEC) Blueprint aimed at achieving a single market and production base, with a free flow of goods, services, and investment within the region. While ASEAN is working towards regulatory harmonization, there are no regional regulatory systems in place; instead, ASEAN agreements and regulations are enacted through each ASEAN Member State’s domestic regulatory system.

The WTO’s 2016 trade policy review notes that Singapore’s guiding principle for standardization is to align national standards with international standards, and Singapore is an elected member of the International Organization of Standardization (ISO) and International Electrotechnical Commission (IEC) Councils. Singapore encourages the direct use of international standards whenever possible. Singapore Standards (SS) are developed when there is no appropriate international standard equivalent, or when there is a need to customize standards to meet domestic requirements. At the end of 2015, Singapore had a stock of 553 SS, about 40 percent of which were references to international standards. Enterprise Singapore, the Agri-Food and Veterinary Authority and the Ministry of Trade and Industry are the three national enquiry points under the TBT Agreement. There are no known reports of omissions in reporting to TBT.

A non-exhaustive list of major international norms and standards referenced or incorporated into the country’s regulatory systems include Base Erosion and Profit Shifting (BEPs) project, Common Reporting Standards (CRS), Basel III, EU Dual-Use Export Control Regulation, 27 International Labor Organization (ILO) conventions on labor rights and governance, UN conventions, and WTO agreements.

Singapore is signatory to the Trade Facilitation Agreement (TFA). The WTO reports that Singapore has fully implemented the TFA (https://www.tfadatabase.org/members/singapore  ).

Legal System and Judicial Independence

Singapore’s legal system has its roots in English common law and practice and is enforced by courts of law. The current judicial process is procedurally competent, fair, and reliable. In the 2019 Rule of Law Index by World Justice Project, it is ranked overall 13th in the world, 1st on order and security, 3rd on regulatory enforcement, 3rd in absence of corruption, 5th on civil and criminal justice, 27th on constraints on government powers, 25th on open government, and 30th on fundamental rights. Singapore’s legal procedures are ranked 2nd in the world in the World Bank’s 2018 Ease of Doing Business sub-indicator on contract enforcement which measures speed, cost, and quality of judicial processes to resolve a commercial dispute. The judicial system remains independent of the executive branch and the executive does not interfere in judiciary matters.

Laws and Regulations on Foreign Direct Investment

Singapore strives to promote an efficient, business-friendly regulatory environment. Tax, labor, banking and finance, industrial health and safety, arbitration, wage, and training rules and regulations are formulated and reviewed with the interests of both foreign investors and local enterprises in mind. Starting in 2005, a Rules Review Panel, comprising senior civil servants, began overseeing a review of all rules and regulations; this process will be repeated every five years. A Pro-Enterprise Panel of high-level public sector and private sector representatives examines feedback from businesses on regulatory issues and provides recommendations to the government.

The Cybersecurity Act, which came into force in August 2018, establishes a comprehensive regulatory framework for cybersecurity. The Act provides the Commissioner of Cyber Security with powers to investigate, prevent, and assess the potential impact of cyber security incidents and threats in Singapore.  These can include requiring persons and organizations to provide requested information, requiring the owner of a computer system to take any action to assist with cyber investigations, directing organizations to remediate cyber incidents, and, if safeguards have been met, authorizing officers to enter premises, and installing software and take possession of computer systems to prevent serious cyber-attacks in the event of severe threat. The Act also establishes a framework for the designation and regulation of Critical Information Infrastructure (CII). Requirements for CII owners include a mandatory incident reporting regime, regular audits and risk assessments, and participation in national cyber security stress tests. In addition, the Act will establish a regulatory regime for cyber security service providers and required licensing for penetration testing and managed security operations center (SOC) monitoring services. U.S. business chambers have expressed concern about the effects of licensing and regularly burdens on compliance costs, insufficient checks and balances on the investigatory powers of the authorities, and the absence of a multidirectional cyber threat sharing framework that includes protections from liability.

Competition and Anti-Trust Laws

The Competition and Consumer Commission of Singapore (CCCS) is a statutory board under the Ministry of Trade and Industry (MTI) and is tasked with administering and enforcing the Competition Act. The Act contains provisions on anti-competitive agreements, decisions, and practices; abuse of dominance; enforcement and appeals process; and mergers and acquisitions. The Competition Act was enacted in 2004 in accordance with U.S-Singapore FTA commitments, which contains specific conduct guarantees to ensure that Singapore’s GLCs will operate on a commercial and non-discriminatory basis towards U.S. firms. GLCs with substantial revenues or assets are also subject to enhanced transparency requirements under the FTA.

In September 2018, CCCS issued an infringement decision against Grab and Uber in relation to the sale of Uber’s Southeast Asia business to the private-hire transport company Grab, which led to a substantial lessening of competition in the provision of ride-hailing platform services in Singapore. Combined financial penalties of USD 9.5 million were imposed on Grab and Uber. A spokesperson for Uber said it believed the decision was based on an “inappropriately narrow definition of the market.” Uber will also be required to sell its car rental business to any rival that makes a reasonable offer and will not be allowed to sell those vehicles to Grab. Uber will have its appeal of the ruling heard in the second half of 2019.

In January 2018 CCCS imposed record financial penalties of USD 14.8 million (SUSD 19.6 million) against five Japanese capacitor manufacturers for price-fixing and the exchange of confidential sales, distribution and pricing information for Aluminum Electrolytic Capacitors.

Expropriation and Compensation

Singapore has not expropriated foreign owned property and has no laws that force foreign investors to transfer ownership to local interests. Singapore has signed investment promotion and protection agreements with a wide range of countries. These agreements mutually protect nationals or companies of either country against certain non-commercial risks, such as expropriation and nationalization and remain in effect unless otherwise terminated. The USSFTA contains strong investor protection provisions relating to expropriation of private property and the need to follow due process; provisions are in place for an owner to receive compensation based on fair market value. No disputes are pending.

Dispute Settlement

ICSID Convention and New York Convention

Singapore is party to the Convention on the Settlement of Investment Disputes (ICSID convention) and the convention on the Recognition and Enforcement of Foreign Arbitration Awards (1958 New York Convention). Singapore passed an Arbitration (International Investment Disputes) Act to implement the ICSID convention in 1968. Singapore acceded to the 1958 New York Convention in August 1986 and gave effect to it via the International Arbitration Act (IAA).  The 1958 New York Convention is annexed to the IAA as the Second Schedule. Singapore is bound to recognize awards made in any other country that is a signatory to the 1958 New York Convention. (http://www.lexology.com/library/detail.aspx?g=3f833e8e-722a-4fca-8393-f35e59ed1440  )

Domestic arbitration in Singapore is governed by the Arbitration Act (Cap 10). The Arbitration Act was enacted to align the laws applicable to domestic arbitration with the Model Law.

Investor-State Dispute Settlement

After Singapore’s accession to the New York Convention of 1958 on August 21, 1986, it re-enacted most of its provisions in Part III of the IAA. By acceding to this Convention, Singapore is bound to recognize awards made in any other country that is a signatory to the Convention. Singapore is a member of the Commonwealth of Nations and, under the Reciprocal Enforcement of Commonwealth Judgments Act (RECJA), recognizes judgments made in the United Kingdom, as well as jurisdictions that are part of the Commonwealth and with which Singapore has reciprocal arrangements for the recognition and enforcement of judgments. The Act lists the countries with which such arrangements exist, and of the 53 countries that are members of the Commonwealth, nine have been listed. (http://www.lawgazette.com.sg/2001-8/Aug01-focus4.htm  ) Singapore also has reciprocal recognition of foreign judgements with Hong Kong Special Administrative Region of the People’s Republic of China.

Singapore is party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). Singapore passed an Arbitration (International Investment Disputes) Act to implement the ICSID Convention in 1968. ICSID Convention has an enforcement mechanism for arbitration awards rendered pursuant to ICSID rules that is separate from the 1958 arbitration awards rendered pursuant to ICSID rules that is separate from the 1958 New York Convention. Investor-State dispute settlement provisions in Singapore’s trade agreements, including the USSFTA, refer to ICSIID rules as one of the possible options for resolving disputes. Investor-State arbitration under rules other than ICSID’s would result in an arbitration award that may be enforced using the 1959 New York Convention.

Singapore has had no investment disputes with U.S. persons or other foreign investors in the past ten years that have proceeded to litigation. Any disputes settled by arbitration/mediation would remain confidential. There have been no claims made by U.S. investors under the USSFTA. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Dispute resolution (DR) institutions include the Singapore International Arbitration Centre (SIAC), Singapore International Mediation Centre (SIMC), Singapore International Commercial Court (SICC), and the Singapore Chamber of Maritime Arbitration (SCMA). Singapore’s extensive dispute resolution institutions and integrated dispute resolution facilities at Maxwell Chambers have contributed to its development as a regional hub for alternative disputes mechanisms. The SIAC is the major arbitral institution and its increasing caseload reflects Singapore’s policy of encouraging the use of alternative modes of dispute resolution, including arbitration. On average, it takes approximately eight weeks to enforce an arbitration award rendered in Singapore, from filing an application to a writ of execution attaching assets (assuming there is no appeal), and seven weeks for a foreign award.

Arbitral awards in Singapore, for either domestic or international arbitration, are legally binding and enforceable in Singapore domestic courts, as well as in jurisdictions that have ratified the 1958 New York Convention.

The International Arbitration Act (IAA) regulates international arbitrations in Singapore. Domestic arbitrations are regulated by the Arbitration Act (AA). The IAA is heavily based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law, with a few significant differences. For example, arbitration agreements must be in writing. This requirement is deemed to be satisfied if the content is recorded in any form, including electronic communication, regardless of whether the arbitration agreement was concluded orally, by conduct, or by other means (e.g. an arbitration clause in a contract or a separate agreement can be incorporated into a contract by reference). The AA is also primarily based on the UNCITRAL Model Law. There have been no reported complaints about the partiality or transparency of court processes in investment and commercial disputes.

Bankruptcy Regulations

Singapore has bankruptcy laws allowing both debtors and creditors to file a bankruptcy claim. Singapore is ranked number 27 for resolving insolvency in the World Bank’s 2018 Doing Business index. While Singapore performed well in recovery rate and time and cost of proceedings, it did not score highly in the creditor participation and reorganization sub-indexes. In particular, the insolvency framework does not require approval by the creditors for sale of substantial assets of the debtor or approval by the creditors for selection or appointment of the insolvency representative.

Singapore has made several reforms to enhance corporate rescue and restructuring processes, including features from Chapter 11 of the U.S. Bankruptcy Code. Amendments to the Companies Act, which came into force in May 2017, include additional disclosure requirements by debtors, rescue financing provisions, provisions to facilitate the approval of pre-packaged restructurings, increased debtor protections, and cram-down provisions that will allow a scheme to be approved by the court even if a class of creditors oppose the scheme, provided the dissenting class of creditors are not unfairly prejudiced by the scheme.

In October 2018, the Insolvency, Restructuring and Dissolution Act was passed and will go into effect in the first half of 2019. It updates the insolvency legislation and introduces a significant number of new provisions, particularly with respect to corporate insolvency. It mandates licensing, qualifications, standards, and disciplinary measures for insolvency practitioners. It also includes standalone voidable transaction provisions for corporate insolvency and, a new wrongful trading provision.  The Act allows ‘out of court’ commencement of judicial management, permits judicial managers to assign the proceeds of certain insolvency related claims, restricts the operation of contractual ‘ipso facto clauses’ upon the commencement of certain restructuring and insolvency procedures, and modifies the operation of the scheme of arrangement cross class ‘cram down’ power.

Two MAS-recognized consumer credit bureaus operate in Singapore: the Credit Bureau (Singapore) Pte Ltd and DP Credit Bureau Pte Ltd. U.S. industry advocates enhancements to Singapore’s credit bureau system, in particular, adoption of an open admission system for all lenders, including non-banks. Bankruptcy is not criminalized in Singapore. https://www.acra.gov.sg/CA_2017/  

Capital Markets and Portfolio Investment

The government takes a favorable stance towards foreign portfolio investment and fixed asset investments. While it welcomes capital market investments, the government has introduced macro-prudential policies aimed at reducing foreign speculative inflows in the real estate sector since 2009. The government promotes Singapore’s position as an asset and wealth management center, and asset under management grew 7 percent in 2016 to USUSD 2.1 trillion (SUSD 2.7 trillion)– the latest year for which data are available.

The Government of Singapore facilitates the free flow of financial resources into product and factor markets, and the Singapore Exchange (SGX) is Singapore’s stock market. An effective regulatory system exists to encourage and facilitate portfolio investment. Credit is allocated on market terms and foreign investors can access credit, U.S. dollars, Singapore dollars (SGD), and other foreign currencies on the local market. The private sector has access to a variety of credit instruments through banks operating in Singapore. The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Money and Banking System

Singapore’s banking system is sound and well regulated by the Monetary Authority of Singapore (MAS), and it serves as a financial hub for the region. Banks have a very high domestic penetration rate, and according to World Bank Financial Inclusion indicators, over 97 percent of persons held a financial account in 2017 (latest year available). According to a 2014 McKinsey Asia Personal Financial Services Survey, the average number of banking products held by the customer is 5.72, while 94 percent of respondents used internet banking via PC or smartphone. Local Singapore banks saw net profits rise 27 percent in the last quarter of 2019. Banks are statutorily prohibited from engaging in non-financial business. Banks can hold 10 percent or less in non-financial companies as an “equity portfolio investment.” As of 2018Q4, the non-performing loans ratio (NPL ratio) of the three local banks averaged 1.5 percent, down from the NPL ratio of 1.7in 2017 Q4. The World Bank records Singapore’s banking sector overall NPL ratio at 1.22 in 2016.

Foreign banks require licenses to operate in the country. The tiered licenses, for Merchant, Offshore, Wholesale, Full Banks and Qualifying Full Banks (QFBs) subject banks to further prudential safeguards in return for offering a greater range of services. U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, U.S.-licensed full service banks that are also QFBs have been able to operate at an unlimited number of locations (branches or off-premises ATMs) versus 25 for non-U.S. full service foreign banks with QFB status.

Under the OECD Common Reporting Standards (CRS) which has been in effect since January 2017, Singapore-based Financial Institutions (SGFIs) – depository institutions such as banks, specified insurance companies, investment entities, and custodial institutions – are required to establish the tax residency status of all their account holders, collect and retain CRS information for all non-Singapore tax residents in the case of new accounts and report to tax authorities the financial account information of account holders who are tax residents of jurisdictions with which Singapore has a Competent Authority Agreement (CAA) to exchange the information.

U.S. financial regulations do not restrict foreign banks’ ability to hold accounts for U.S. citizens. U.S. Citizens are encouraged to alert the nearest U.S. Embassy of any practices they encounter with regard to the provision of financial services.

Fintech investments in Singapore doubled in 2018 to USD 365 million. To strengthen Singapore’s position as a global Fintech hub, MAS has created a dedicated Fintech Office as a one-stop virtual entity for all FinTech-related matters to enable FinTech experimentation and promote an open-API (Application Programming Interfaces) in the financial industry. According to Research and Markets, the Singapore mobile wallet and payment market is expected to be worth over USD 40 billion by 2025.

MAS also aims to be a regional leader in the implementation of blockchain technologies to position Singapore as a financial technology center. MAS and the Association of Banks in Singapore are prototyping the use of Distributed Ledger Technology (DLT) for inter-bank clearing and settlement of payments and securities. Two phases have been completed, including a proof-of-concept project for inter-bank payments and software prototypes for decentralized inter-bank payment and settlements. Two spin-off projects are currently under development. (http://www.mas.gov.sg/Singapore-Financial-Centre/Smart-Financial-Centre/Project-Ubin.aspx  ).

Alternative financial services include retail and corporate non-bank lending via finance companies, co-operative societies, and pawnshops; and burgeoning financial technology-based services across a wide range of sectors: crowdfunding, Initial Coin Offerings, payment services and remittance, which remains a small but growing sector. In January 2019, the Payment Services Bill went into effect which will require all cryptocurrency service providers to be licensed with the intent to provide more user protection. Smaller payment firms will receive a different classifications from larger institutions and will be less heavily regulated. Key infrastructures supporting Singapore’s financial market include interbank (MEP), Foreign exchange (CLS, CAPS), retail (SGDCCS, USDCCS, CTS, IBG, ATM), securities (MEPS+-SGS, CDP, SGX-DC) and derivatives settlements (SGX-DC, APS).

Please consult http://www.mas.gov.sg/Singapore-Financial-Centre/Payment-and-Settlement-Systems/Clearing-and-Settlement-Systems.aspx   and https://www.bis.org/cpmi/publ/d97.htm to read about to find additional information regarding payment, clearing/ and settlement systems that are used in Singapore.

Foreign Exchange and Remittances

Foreign Exchange

The USSFTA commits Singapore to the free transfer of capital, unimpeded by regulatory restrictions. Singapore places no restrictions on reinvestment or repatriation of earnings and capital, and maintains no significant restrictions on remittances, foreign exchange transactions and capital movements.

Singapore’s monetary policy has been centered on the management of the exchange rate since 1981, with the stated primary objective of promoting medium term price stability as a sound basis for sustainable economic growth. As described by MAS, there are three main features of the exchange rate system in Singapore. MAS operates a managed float regime for the Singapore dollar with the trade-weighted exchange rate allowed to fluctuate within a policy band. The Singapore dollar is managed against a basket of currencies of its major trading partners. The exchange rate policy band is periodically reviewed to ensure that it remains consistent with the underlying fundamentals of the economy.

Remittance Policies

There are no time or amount limitations on remittances. No significant changes to investment remittance was implemented or announced over the past year.

Sovereign Wealth Funds

The Government of Singapore has three key investment entities. GIC Private Limited (GIC) is the sovereign wealth fund in Singapore that manages the government’s substantial investments, fiscal, and foreign reserves, with the stated objective to achieve long-term returns and preserve the international purchasing power of the reserves. Temasek is a holding company wholly owned by the Singapore Minister for Finance. Under the Singapore Minister for Finance (Incorporation) Act, the Minister for Finance is a corporate body. The MAS, as the central bank of Singapore, manages the Official Foreign Reserves, and a significant proportion of its portfolio is invested in liquid financial market instruments.

GIC does not publish the size of the funds under management, but some industry observers estimate its managed assets exceed USD 390 billion. GIC does not invest domestically, but manages Singapore’s international investments, which are generally passive (non-controlling) investments in publicly traded entities. The United States is its top investment destination, accounting for 32 percent of GIC’s portfolio as of March 2018, while Asia ex-Japan accounts for 19 percent, the Eurozone 13 percent, Japan 13 percent, and UK 6 percent. Investments in the United States are diversified and include industrial and commercial properties, student housing, power transmission companies, and financial, retail and business services. Although not required by law, GIC has published an annual report since 2008.

Temasek began as a holding company for Singapore’s state-owned enterprises, now GLCs, but has since branched to other asset classes, and often holds significant stake in companies. As of March 2018, Temasek’s portfolio value reached USD 235 billion, and its asset exposure to Singapore was 27 percent; 41 percent in the rest of Asia, and 13 percent in North America. As set out in the Temasek Charter, Temasek delivers sustainable value over the long term for its stakeholders. Temasek formerly focused on managing industries to promote economic development, but has since shifted its emphasis to commercial objectives. Temasek has published a Temasek Review annually since 2004. The statements only provides consolidated financial statements, which aggregate all of Temasek and its subsidiaries into a single financial report. Temasek Group’s annual statutory financial statements are audited by a major international audit firm. GIC and Temasek uphold the Santiago Principles for sovereign investments. Singapore is a member of the International Forum of Sovereign Wealth Funds.

Other investing entities of government funds include EDB Investments Pte Ltd, Singapore’s Housing Development Board, and other government statutory boards with funding decisions driven by goals emanating from the central government.

The awareness and implementation of corporate social responsibility (CSR) in Singapore has been increasing since the formation of the Global Compact Network Singapore (GCNS) under the United Nations Global Compact (UNGC) network, with the goals of encouraging companies to adopt sustainability principles related to human and labor rights, environmental conservation, and anti-corruption. GCNS facilitates exchanges, conducts research, and provides training in Singapore to build capacity in areas including sustainability reporting, supply chain management, ISO 26000, and measuring and reporting carbon emissions.

KPMG’s 2017 Corporate Responsibility Reporting survey showed that 84 percent of the largest companies in Singapore are fulfilling their corporate responsibility and sustainability reporting responsibilities, which is higher than the global average at 72 percent. KPMG’s survey also noted that climate and environment risks are not adequately recognized or addressed by Singapore companies. Only 17 percent of Singapore companies have set carbon-reduction targets, lower than the global rate of 50 percent.  The Government of Singapore notes that in 2018 as part of the Year of Climate Action, the Ministry of Environment and Water Resources received more than 500 pledges from companies that have made public commitments toward taking climate action. A 2017 World Wide Fund for Nature (WWF) survey showed a lack of transparency by Singapore companies in disclosing palm oil sources. However, awareness is growing and the Southeast Asia Alliance for Sustainable Palm Oil (Saspo) has received additional pledges in 2018 by companies to adhere to standards for palm oil sourcing set by the Roundtable for Sustainable Palm Oil (RSPO). A group of F&B, retail and hospitality companies announced in January 2019 what the WWF calls “the most impactful business response to-date on plastics.” The pact, initiated by WWF and supported by Singapore’s National Environment Agency, is a commitment to significantly reduce plastic production and usage by 2030.

In January 2019, Singapore’s Ministry of Environment and Water Resources and MAS released a joint statement welcoming the formation of the Asia Sustainable Finance Initiative. With WWF as secretariat, the initiative seeks to shift Asia’s financial flows towards sustainable economic, social, and environmental outcomes.

In June 2016, the Singapore Exchange (SGX) introduced mandatory, comply-or-explain, sustainability reporting requirements for all listed companies, including material environmental, social and governance practices, from the financial year ending December 31, 2017 onwards. The Singapore Environmental Council (SEC) operates a green labeling scheme, which endorses environmentally-friendly products, numbering over 3,000 from 29 countries. The Association of Banks in Singapore (ABS) issued voluntary guidelines to banks in Singapore in October 2015 encouraging them to adopt sustainable lending practices, including the integration of environmental, social and governance (ESG) principles into their lending and business practices. Singapore-based banks have been listed in a 2018 Market Forces report on contributions to regional coal-financing.

Singapore has not developed a National Action Plan on business and human rights, but promotes responsible business practices, and encourages foreign and local enterprises to follow generally accepted CSR principles. The government does not explicitly factor responsible business conduct (RBC) policies into its procurement decisions.

The host government effectively and fairly enforces domestic laws with regard to human rights, labor rights, consumer protection, environmental protections, and other laws/regulations intended to protect individuals from adverse business impacts. The private sector’s impact on migrant workers and their rights, and domestic migrant workers in particular (due to the latter’s exemption from the Employment Act which stipulates the rights of workers), remains an area of advocacy by civil society groups. The government has taken incremental steps to improve the channels of redress and enforcement of workers’ rights; however, key concerns about legislative protections remain unaddressed for domestic migrant workers. The government generally encourages businesses to comply with international standards. However, there are no specific mentions of the host government encouraging adherence to the OECD Due Diligence Guidance, or supply chain due diligence measures.

The Companies Act principally governs companies in Singapore. Key areas of corporate governance covered under the act include separation of ownership from management, fiduciary duties of directors, shareholder remedies, and capital maintenance rules. Limited liability partnerships are governed by the Limited Liability Partnerships Act. Certain provisions in other statutes such as the Securities and Futures Act are also relevant to listed companies.  Listed companies are required under the Singapore Exchange Listing Rules to describe in their annual reports their corporate governance practices with specific reference to the principles and provisions of the Code of Corporate Governance (the code). Listed companies must comply with the principles of the Code and if their practices vary from any provision in the Code, they must explain the variation and demonstrate the variation is consistent with the relevant principle.  The Code of Corporate Governance was revised in 2018 and will impact Annual Reports covering financial years beginning on January 1, 2019. The revised code encourages board renewal, strengthens director independence, increases transparency of remuneration practices, enhances board diversity, and encourages communication with all stakeholders. MAS also established an independent Corporate Governance Advisory Committee (CGAC) to advocated good corporate governance practices in February 2019. The CGAC monitors companies’ implementation of the code and advises regulators on corporate governance issues.

There are independent NGOs promoting and monitoring responsible business conduct (RBC). Those monitoring or advocating around RBC are generally able to do their work freely within most areas. However, labor unions are tightly controlled and legal rights to strike are granted with restrictions under the Trade Disputes Act.

Singapore has no oil, gas, or mineral resources and is not a member of the Extractive Industries Transparency Initiative (EITI). A small sector processes and rare minerals, and complies with responsible supply chains and conflict mineral principles. Under the new Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) framework introduced in 2014, it is a requirement for Corporate Service Providers to develop and implement internal policies, procedures and controls to comply with Financial Action Task Force (FATF) recommendations on combating of money laundering and terrorism financing.

Resources to Report Corruption

Singapore actively enforces its strong anti-corruption laws and corruption is not cited as a concern for foreign investors. Transparency International’s 2018 Corruption Perception index ranks Singapore 3rd of 175 countries globally, the highest ranking for an Asian country. The Prevention of Corruption Act (PCA), and the Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act provide the legal basis for government action by the Corrupt Practices Investigation Bureau (CPIB), which is the only agency authorized under the PCA to investigate corruption offences and other related offences. These laws cover acts of corruption within Singapore as well as those committed by Singaporeans abroad. When cases of corruption are uncovered, whether in the public or private sector, the government deals with them firmly, swiftly, and publicly. The anti-corruption laws extend to family members of officials, and to political parties. The CPIB is effective and non-discriminatory. Singapore is generally perceived to be one of the least corrupt countries in Asia and the world, and corruption is not identified as an obstacle to FDI in Singapore. Singapore is a signatory to the UN Anticorruption Convention, but not the OECD Anti-Bribery Convention.

Resources to Report Corruption

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

Corrupt Practices Investigation Bureau
2 Lengkok Bahru, Singapore 159047
+65 6270 0141
info@cpib.gov.sg

Singapore’s political environment is stable and there is no history of incidents involving politically motivated damage to foreign investments in Singapore. The ruling People’s Action Party (PAP) has dominated Singapore’s parliamentary government since 1959 and currently controls 83 of the 89 regularly contested parliamentary seats. Singapore opposition parties, which currently hold six regularly contested parliamentary seats and three additional seats reserved to the opposition by the constitution, do not usually espouse views that are radically different from the mainstream of Singapore political opinion.