Policies Towards Foreign Direct Investment

The Austrian government welcomes foreign direct investment, particularly when such investments have the potential to create new jobs, support advanced technology fields, promote capital-intensive industries, and enhance links to research and development.

There are no specific legal, practical or market access restrictions on foreign investment.  American investors have not complained of discriminatory laws against foreign investors. Corporate taxes are relatively low (25 percent flat tax), and the government plans to reduce them further in a tax reform to be implemented by 2022. U.S. citizens and investors have reported that it is difficult to establish and maintain banking services since the U.S.-Austria Foreign Account Tax Compliance Act (FATCA) Agreement went into force in 2014, as some Austrian banks have been reluctant to take on this reporting burden.

Potential investors should also factor in Austria’s lengthy environmental impact assessments in their investment decision-making.  The requirement that over 50 percent of energy providers must be publicly-owned creates a potential additional burden for investments in the energy sector.  Strict liability and co-existence regulations in the agriculture sector restrict research and virtually outlaw the cultivation, marketing, or distribution of biotechnology crops.

Austria’s national investment promotion company, the Austrian Business Agency (ABA), is the first point of contact for foreign companies aiming to establish their own business in Austria.  It provides comprehensive information about Austria as a business location, identifies suitable sites for greenfield investments, and consults in setting up a company. ABA provides its services free of charge.

Austrian agencies do not press investors to keep investments in the country, but the Federal Economic Chamber (WKO), and the American Chamber of Commerce in Austria (Amcham) carry out annual polls among their members to measure their satisfaction with the business climate, thus providing early warning to the government of problems investors have identified.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is no principal limitation on establishing and owning a business in Austria. A local managing director must be appointed to any newly-started enterprise.  For non-EU citizens to establish and own a business, the Austrian Foreigner’s Law mandates a residence permit that includes the right to run a business. Many Austrian trades are regulated, and the right to run a business in many trades sectors is only granted when certain preconditions are met, such as certificates of competence, and recognition of foreign education.  There are no limitations on ownership of private businesses. Austria maintains an investment screening process for takeovers of 25 percent or more in the sectors of national security and public services such as energy and water supply, telecommunications, and education services, where the Austrian government retains the right of approval. The screening process has been rarely used since its introduction in 2012, but could pose a de facto barrier, particularly in the energy sector. In April 2019, the EU Regulation on establishing a framework for the screening of foreign direct investments into the Union entered into force.  It creates a cooperation mechanism through which EU countries and the EU Commission will exchange information and raise concerns related to specific investments which could potentially threaten the security of EU countries.

Other Investment Policy Reviews

Not applicable.

Business Facilitation

While the World Bank ranks Austria as the 26th best country in 2019 with regard to “ease of doing business” (www.doingbusiness.org), starting a business takes time and requires many procedural steps (Austria ranked 118 in this category in 2019).

In order to register a new company, or open a subsidiary in Austria, a company must first be listed on the Austrian Companies’ Register at a local court.  The next step is to seek confirmation of registration from the Austrian Federal Economic Chamber (WKO) establishing that the company is really a new business.  The investor must then notarize the “declaration of establishment,” deposit a minimum capital requirement with an Austrian bank, register with the tax office, register with the district trade authority, register employees for social security, and register with the municipality where the business will be located.  Finally, membership in the WKO is mandatory for all businesses in Austria.

For companies with sole proprietorship, it is possible under certain conditions to use an online registration process via government websites in German to either found or register a company: https://www.usp.gv.at/Portal.Node/usp/public/content/gruendung/egruendung/269403.html  or www.gisa.gv.at/online-gewerbeanmeldung . It is advisable to seek information from ABA or the WKO before applying to register a firm.

The website of the ABA contains further details and contact information, and is intended to serve as a first point of contact for foreign investors in Austria: https://investinaustria.at/en/starting-business/ .

According to the World Bank, the average time to set up a company in Austria is 21 days, well above the EU average of 12.5 days.

Outward Investment

The Austrian government encourages outward investment.  There is no special focus on specific countries, but the United States is seen as an attractive target country given the U.S. position as the second biggest market for Austrian exports.  Advantage Austria, the “Austrian Foreign Trade Service” is a special section of the WKO that promotes Austrian exports and also supports Austrian companies establishing an overseas presence. Advantage Austria operates six offices in the United States in Washington, DC, New York, Chicago, Atlanta, Los Angeles, and San Francisco.  The Ministry for Digital and Economic Affairs and the WKO run a joint program called “Go International,” providing services to Austrian companies that are considering investing for the first time in foreign countries. The program provides grants in form of contributions to “market access costs,” and also provides “soft subsidies,” such as counselling, legal advice, and marketing support.

There is no current investment agreement between the United States and Austria.  Austria has Bilateral Investment Treaties (BITs) in force with: Albania, Algeria, Argentina, Armenia, Azerbaijan, Bangladesh, Belarus, Belize, Bosnia and Herzegovina, Bulgaria, Chile, China, Croatia, Cuba, Czech Republic, Egypt, Estonia, Ethiopia, Georgia, Guatemala, Hong Kong, Hungary, Iran, Jordan, Kazakhstan, Republic of Korea, Kuwait, Latvia, Lebanon, Libya, Lithuania, North Macedonia, Malaysia, Malta, Mexico, Moldova, Mongolia, Montenegro, Morocco, Namibia, Oman, Paraguay, Philippines, Poland, Romania, Russia, Saudi Arabia, Serbia, Slovakia, Slovenia, Tajikistan, Tunisia, Turkey, Ukraine, United Arab Emirates, Uzbekistan, Vietnam, and Yemen.  BITs with Cambodia, Kyrgyzstan, Nigeria, and Zimbabwe have been signed, but have not yet entered into force.

On March 16, 2018, the European Court of Justice determined that arbitration clauses in Member State BITs are incompatible with EU law; subsequently, Austria agreed with the EU Commission to terminate its 12 bilateral intra-EU BITS (as did the other Member States), but negotiations on the date of termination are ongoing.

Austria and the United States are parties to a bilateral double taxation convention covering income and corporate taxes, which went into effect in January 1998.  Another bilateral double taxation convention (covering estates, inheritances, gifts and generation-skipping transfers) has been in effect since 1982 (amended in 1999).  Austria and the United States signed the Foreign Account Tax Compliance Act (FATCA) Agreement on April 29, 2014, covering U.S. citizen account holders in Austria. The FATCA Agreement went into force December 9, 2014.

Austria has 90 additional double taxation treaties in force with other countries.

Two other Austrian agreements, with Switzerland and Liechtenstein, on cooperation in the areas of taxation and financial markets (which entered into force in January and April 2013 respectively) cover the treatment of anonymous accounts from Austrian citizens in those countries.

Investment Incentives

Financial incentives and business subsidies provided by Austrian federal, state, and local governments to promote investments are equally available to domestic and foreign investors and include tax incentives, preferential loans, loan guarantees, and grants.  Most incentives are targeted to investments that meet specified criteria, including job-creation, use of cutting-edge technology, improving regional infrastructure, strengthening SMEs, and promoting startups. Tax allowances for advanced employee training and R&D expenditures are also available, as are financing options for start-ups and cash grants.  The Austrian Labor Market Service (AMS) offers grants for job creation and personnel development training.

Austria offers financial and tax incentives within EU regional co-funding schemes to firms undertaking projects in economically underdeveloped and rural areas. Eligibility for co-financing subsidies has already shown a decline within the EU “Common Strategic Framework” for the period 2014 to 2020, compared to previous funding periods.

Austria’s Wirtschaftsservice (AWS) is the government’s institution that provides financial incentives for businesses.  Additional information on targeted investment incentives is available at https://www.aws.at/en/ . More detailed information on investment incentives in English language is available on the ABA website (see chapter 2) at http://investinaustria.at/en/ 

Various government agencies in Austria offer attractive incentives for research and development (R&D) activities (up to 50 percent of the investment amount).  The incentives are also available for foreign-owned enterprises. The agencies providing incentives include: The Austrian Research Promotion Agency (FFG) (https://www.ffg.at/en ); the Austrian Science Fund (FWF), which is the country’s central body for the promotion of basic research (https://www.fwf.ac.at/en/ ); and AWS (above). The latter also provides guarantees of up to €25 million over 5 to 10 years for investments in Austria, with a focus on small and medium-sized companies.

Performance and Data Localization Requirements

If investors want to employ foreign workers from outside the EU in Austria, they need to apply for a work permit with the Austrian Labor Service (AMS).  The AMS only grants that permission if there is no comparable person in the pool of registered unemployed persons in Austria. This does not apply to senior management positions, researchers, highly qualified personnel, and a limited set of other categories.

Austria offers several non-immigrant business visa classifications, including intra-company transfers/rotational workers, and employees on temporary duty.  Recruitment of long-term, overseas specialists or those with managerial duties is governed by a points-based immigration scheme to attract skilled workers and specialists in individual sectors (points are available for qualification, education, age, and language skills).  This Red-White-Red card (RWR) model allows firms to react flexibly to rising demand for talent in different occupations. It is available to highly qualified individuals, qualified specialists/craftsmen in certain understaffed professions (qualified labor and registered nurse jobs), and key personnel/professionals.  Applicants must have an offer of employment to apply for the RWR. Highly qualified individuals holding U.S. citizenship may apply locally in Austria, or opt to find a potential employer from abroad and have the company apply in Austria on their behalf.

Austrian immigration law requires those applying for residency permits in some categories to take German language courses and exams.  The Austrian government in 2017 passed a law that introduces a specific visa category under the RWR model for founders of start-up enterprises to support Austria’s push to expand its innovation economy.  A draft law aimed at making Austria more attractive to qualified specialists is expected to go into effect in 2019.  This law addresses problematic visa application requirements regarding minimum salary and housing that have been making it hard for applicants to qualify.

While there is no requirement for foreign IT providers to turn over source code and/or provide access to encryption, EU and Austrian data protection stipulations apply.  The EU General Data Protection Regulation (GDPR) was adopted by Austria in May 2018 and places restrictions on companies’ ability to store and use customer data. It also requires specific user consent, in order for companies to send out promotional materials (previously, implied consent was sufficient). Transmission of customer or business related data is therefore subject to EU GDPR regulations.  Austria’s Data Protection Authority is in charge of enforcing all GDPR-related matters, which include GDPR rules on data storage. In February 2019, the DPA initiated proceedings against Austria’s postal service for illegal use of customer data, which included collecting and selling data on party affiliations. The postal service was ordered to delete the data concerned.

The Austrian government may impose performance requirements when foreign investors seek financial or other assistance from the government, although there are no performance requirements to apply for tax incentives.  There is no requirement that Austrian nationals hold shares in foreign investments or for technology transfer, and no requirement for foreign investors to use domestic content in the production of goods or technology.

Real Property

The Austrian legal system protects secured-interests in property.  For any real estate agreement to be effective, owners must register with the land registry.  Mortgages and liens must also be registered. As a rule, property for sale must be unencumbered.  In case of rededication of land, approval of the land transfer commission or the office of the state governor is required.  The land registry is a reliable system for recording interests in property, and access to the registry is public.

Non-EU/EEA citizens need authorization from administrative authorities of the respective Austrian province to acquire land.  Provincial regulations vary, but in general there must be a public (economic, social, cultural) interest for the acquisition to be authorized.  Often, the applicant must guarantee that he does not want to build a vacation home on the land in order to receive the required authorization.

Intellectual Property Rights

Austria has a strong legal structure to protect intellectual property rights, including patent and trademark laws, a law protecting industrial designs and models, and a copyright law.  Austria is a party to the World Intellectual Property Organization (WIPO) and several international property conventions. Austria also participates in the Patent Prosecution Highway (PPH) program with the USPTO (started in 2014), which allows filing of streamlined applications for inventions determined to be patentable in other participating countries.

Austria’s Copyright Act conforms to EU directives on intellectual property rights. It grants authors exclusive rights to publish, distribute, copy, adapt, translate, and broadcast their work.  The law also regulates copyrights of digital media (restrictions on private copies), works on the Internet, protection of computer programs, and related damage compensation. Infringement proceedings, however, can be time-consuming and costly.   Between 2015 and 2017, the Austrian High Court confirmed that Austrian Internet providers must prevent access to illegal music and streaming platforms once they are made aware of a copyright violation. They must also block workaround websites from these platforms.

Austria also has a law against trade in counterfeit articles.  In 2018, Austrian customs authorities confiscated pirated goods worth EUR 2.6 million (USD 3.1 million).

Austria is not listed in USTR’s Special 301 report, but its trade secrets regime is a concern for some U.S. businesses.  Austrian and U.S. companies have voiced specific concerns about both the scope of protection and the difficulty of adjudicating breaches. Following years of steady U.S. government advocacy, and because Austria was required to implement the 2016 EU Directive on Trade Secrets, the country improved its trade secrets regime in the Law Against Unfair Competition (entered into force in February 2019) to address these concerns.  The most relevant change in the law is a requirement for safeguarding the confidentiality of trade secrets (and other business confidential information) in court procedures. Under the old law, the opposing party could learn confidential trade secrets during court hearings, so companies often avoided taking legal action against offenders.  The new law requires a party to only “credibly demonstrate that the violation of a trade secret exists,” without having to disclose it to other parties during the court proceedings. The court is required to ensure full confidentiality of the proceedings.  The new law also defines injunctive relief and claims for damages in case of breach of trade secrets.

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

Capital Markets and Portfolio Investment

Austria has sophisticated financial markets that allow foreign investors access without restrictions. The government welcomes foreign portfolio investment.  The Austrian National Bank (OeNB) regulates portfolio investments effectively.

Austria has a national stock exchange that currently includes 63 companies on its regulated market and several others on its multilateral trading facility (MTF).  The Austrian Traded Index (ATX) is a price index consisting of the 20 largest stocks on the market, and forms the most important index of Austria’s stock market. The size of the companies listed on the ATX is roughly equivalent to those listed on the MDAX in Germany.  In order to combat declining interest from investment bankers and brokers, the stock exchange introduced two new market segments in 2018: Direct Market, which replaces the Mid-Market segment, and Direct Market Plus. These segments target SMEs and young, developing companies.  The move comes in response to ongoing criticism that the stock exchange does not accurately reflect Austria’s business landscape, which largely consists of small- to medium-sized companies. The market capitalization of Austrian listed companies is small compared to its western European counterparts, accounting for 36 percent of Austria’s GDP, compared to 62 percent in Germany or 166 percent in the United States.

Unlike the other market segments in the stock exchange, Direct Market and Direct Market Plus are only subject to the Vienna Stock Exchange’s general terms of business, but not EU regulations. These segments also have lower reporting requirements but also greater risk for investors, as prices are more likely to fluctuate, due to the respective companies’ low level of market capitalization.

Austria has robust financing for product markets, but the free flow of resources into factor markets (capital, raw materials) could be improved. The Austrian government hopes that the recent opening of the stock exchange to small, innovative companies will help serve that purpose.

Austria is fully compliant with IMF Article VIII, all financial instruments are available, and there are no restrictions on payments.  Credit is available to foreign investors at market-determined rates. Austria’s financial market ranked 28th in the 2018 World Economic Forum’s Global Competitiveness Report, out of 140 countries examined, compared to 30th place in 2017 and 47th in 2016.

Money and Banking System

Austria has one of the densest banking networks in Europe with almost 4,200 branch offices registered in 2018.  The banking system is highly developed, with worldwide correspondent banks and representative offices and branches in the United States and other major financial centers.  Large Austrian banks also have extensive networks in Central and Southeast European (CESEE) countries and the countries of the former Soviet Union. Total assets of the banking sector amounted to EUR 986 billion (USD 1.2 trillion) in 2018 approximately three times the country’s GDP.  The Austrian banking sector is considered to be one of the most stable in the world. In 2018, Standard & Poor’s raised Austria’s industry country risk assessment from 3 to 2, making the domestic banking system one of the 13 most stable systems worldwide (no country has a rating of 1).  Moody’s also improved its outlook for the Austrian banking system in 2018, improving its outlook from positive to stable.

Austria’s banking sector is managed and overseen by the Austrian National Bank (OeNB) and the Financial Market Authority (FMA).  Five Austrian banks with assets in excess of EUR 30 billion (USD 34 billion) are subject to the Eurozone’s Single Supervisory Mechanism (SSM), as is Sberbank Europe AG, a Russian bank subsidiary headquartered in Austria, due to its significant cross-border assets.  All other Austrian banks continue to be subject to the country’s dual-oversight bank supervision system with roles for the OeNB and the FMA, both of which are also responsible for policing irregularities on the stock exchange and for supervising insurance companies, securities markets, and pension funds.

Due to U.S. government financial reporting requirements, Austrian banks are very cautious in accepting U.S. clients, whose access to banking services here is consequently restricted. Locally incorporated businesses belonging to U.S. investors have also reported problems in finding banking services.

Foreign Exchange and Remittances

Foreign Exchange

Austria has no restrictions on cross-border capital transactions, including the repatriation of profits and proceeds from the sale of an investment, for non-residents and residents.  The Euro, a freely convertible currency and the only legal tender in Austria and 18 other Euro-zone member states, shields investors from exchange rate risks within the Euro-zone.

Remittance Policies

Not applicable.

Sovereign Wealth Funds

Austria has no sovereign wealth funds.

Austria has two major wholly state-owned enterprises (SOEs):  The OeBB (Austrian Federal Railways) and Asfinag (highway financing, building, maintenance and administration).  Other government industry holding companies are bundled in the government holding company OeBAG (new website under construction): http://www.oebib.gv.at/en/ 

The government reformed its holding company in 2018, changing its name from OeBIB to OeBAG, incorporating energy provider Verbund AG and the state-owned real estate holding company BIG into its portfolio and increasing its oversight powers.  Under the new regulation, the government will gain direct representation in the supervisory boards of its companies (commensurate with its ownership stake), and the new holding company will be given the power to buy and sell company shares, as well as purchase minority stakes in strategically relevant companies.  Such purchases will be subject to approval from a newly-established audit committee consisting of government-nominated independent economic experts.

OeBAG holds a 53 percent stake in the Post Office, 51 percent in energy company Verbund, 33 percent in the gambling group Casinos Austria, 31.5 percent in the energy company OMV, 28 percent in the Telekom Austria Group, and a few other minor ventures.  Local governments own the majority of utilities, Vienna International Airport, and more than half of Austria’s 268 hospitals and clinics.

Private enterprises in Austria can generally compete with public enterprises under the same terms and conditions with respect to market access, credit, and other such business operations as licenses and supplies. While most SOEs must finance themselves under terms similar to private enterprises, some large SOEs (such as OeBB) benefit from state-subsidized pension systems.  As a member of the EU, Austria is also a party to the Government Procurement Agreement (GPA) of the WTO, which indirectly also covers the SOEs (since they are entities monitored by the Austrian Court of Auditors).

The five major OeBAG companies (Postal Service, Verbund AG, Casinos Austria, OMV, Telekom Austria), are listed on the Vienna stock exchange. In these cases, senior management does not directly report to a minister, but to an oversight board.  However, the government often appoints management and board members, who usually have strong political affiliations.

The Austrian Foreign Trade Act (FTA) requires advance approval by the Austrian Ministry for Digital and Economic Affairs for foreign acquisitions of a relevant stake (25 percent) in enterprises in certain strategic industries (with sales over EUR 700,000 per year), comprising a wide range of sectors.    Strategic sectors include not only internal and external security services, but also public order and safety, procurement, and crisis services. The latter include hospitals, ambulance and emergency medical services; fire fighters and civil protection services; energy and gas supply; water supply; telecoms; railways; road traffic; universities; schools of various types; and pre-schooling institutions.

Privatization Program

The government has not privatized any public enterprises since 2007.  Austrian public opinion is skeptical regarding further privatization. The current government consisting of the center-right People’s Party (OVP) and right-populist Freedom Party (FPO) is decidedly more pro-market than the previous government, but there is no plan for further privatization.

In prior privatizations, foreign and domestic investors received equal treatment.  Despite a historical government preference for maintaining blocking minority rights for domestic shareholders, foreign investors have successfully gained full control of enterprises in several strategic sectors of the Austrian economy, including in telecommunications, banking, steel, and infrastructure.

Austrian Responsible Business Conduct (RBC)/Corporate Social Responsibility (CSR) standards are laid out in the Austrian Corporate Governance Codex, which is based on the EU Commission’s 2011 “Strategy for Corporate Social Responsibility.”  The Austrian Standards Institute’s ONR 192500 acts as the main guidance for CSR and is based on the EU Commission’s published Strategy, which is also compliant with UN guidelines. Major Austrian companies follow generally accepted CSR principles and publish a CSR chapter in their annual reports; many also provide information on their health, safety, security, and environmental activities.

Austria adheres to the OECD’s Guidelines for Multinational Enterprises.  The Ministry for Labor, Social Affairs, Health, and Consumer Protection is represented in national and international CSR-relevant associations and supports CSR initiatives while working closely together with the Austrian Standards Institute.

The Austrian export credit agency promotes information on CSR issues, principles and standards, including the OECD Guidelines, on its website.

https://www.oekb.at/en/oekb-group/our-claim/corporate-governance.html 

Austria is a member of the Council of Europe’s Group of States against Corruption (GRECO) and also ratified the UN Convention against Corruption (UNCAC) and the OECD Anti-Bribery Convention.  As part of the UNCAC ratification process, Austria has implemented a national anti-corruption strategy. Central elements of the strategy are promoting transparency in public sector decisions and raising awareness of corruption.  Corruption generally is not a major issue in Austria, which ranked 14th (out of 180 countries) in Transparency International’s latest Corruption Perceptions Index.

Bribery of public officials is covered by the Austrian Criminal Code and corruption does not significantly affect business in Austria.  However, there is a small risk of corruption in public procurement, most commonly in the form of criteria that are tailor-made for certain participants.

Anti-corruption cases are often characterized by slow-moving trials that drag on for years.  Bribing members of Parliament is considered a criminal offense, and accepting a bribe is a punishable offence with the sentence varying depending on the amount of the bribe. There are no rules on managing conflicts of interest for parliamentarians and no framework for dealing with gifts and other benefits.

Austria is in the midst of a prominent corruption case involving former Finance Minister Karl-Heinz Grasser and the privatization of BUWOG, an Austrian real-estate company, in 2003.  The case, which began in 2010 and went to trial in 2017, features 16 defendants. Grasser is accused of having demanded a bribe of EUR 9.6 million (USD 11 million) in exchange for privatization advantages, and judicial proceedings are ongoing.  There were no major new corruption cases uncovered in 2018.

Corruption provisions in Austria’s Criminal Code cover managers of Austrian public enterprises, civil servants, and other officials (with functions in legislation, administration, or justice on behalf of Austria, in a foreign country, or an international organization), representatives of public companies, members of parliament, government members, and mayors.  The term “corruption” includes the following in the Austrian interpretation: active and passive bribery; illicit intervention; and abuse of office. Corruption can sometimes include a private manager’s fraud, embezzlement, or breach of trust.

Criminal penalties for corruption include imprisonment of up to ten years for all parties involved.  Jurisdiction for corruption investigations rests with the Austrian Federal Bureau of Anti-Corruption and covers corruption taking place both within and outside the country.  The Lobbying Act of 2013 introduced binding rules of conduct for lobbying. It requires domestic and foreign organizations to register with the Austrian Ministry of Justice. Financing of political parties requires disclosure of donations exceeding EUR 3,500 (USD 3,960).  Private companies are subject to the Austrian Act on Corporate Criminal Liability, which makes companies liable for active and passive criminal offences. Penalties include fines up to EUR 1.8 million (USD 2.0 million).

Resources to Report Corruption

Contacts at government agencies responsible for combating corruption:

Wirtschafts- und Korruptionsstaatsanwaltschaft
(Central Public Prosecution for Business Offenses and Corruption)
Dampfschiffstraße 4
1030 Vienna, Austria
Phone:  +43-(0)1-52 1 52 0
E-Mail: wksta.leitung@justiz.gv.at

BAK – Bundesamt zur Korruptionsprävention und Korruptionsbekämpfung
(Federal Agency for Preventing and Fighting Corruption)
Ministry of the Interior
Herrengasse 7
1010 Vienna, Austria
Phone:   +43-(0)1-531 26 – 6800
E-Mail: BMI-III-BAK-SPOC@bak.gv.at

Contact at “watchdog” organization:

Transparency International – Austrian Chapter
Berggasse 7
1090 Vienna, Austria
Phone:  +43-(0)1-960 760
E-Mail: office@ti-austria.at

There have been no incidents of politically motivated damage to foreign businesses.  Civil disturbances are rare and the overall security environment in the country is considered to be safe.

Austria has a well-educated and productive labor force of about 4.3 million, of whom 3.8 million are employees and 500,000 are self-employed or farmers.  In line with EU regulations, the free movement of labor from all member states is allowed, except for Croatia, which joined the EU in July 2013 and is subject to a transition period until 2020.

Austria’s strong economy has led to a drop in the unemployment rate, from 5.5 percent in 2017 to 4.8 percent in 2018.  Austria’s economy is forecast to grow at a slower rate in 2019 and 2020 (around 1.7 percent compared to 2.7 percent in 2018), which may result in an increase in the unemployment rate. Foreigners account for almost one-fifth of Austria’s labor force; around 700,000 foreign workers are employed in Austria.  Migrant workers are largely from the CEE region but the 2015 Syria refugee crisis led to a stream of asylum-seekers from the Middle East entering the country and gradually becoming active on the labor market. Migrants from Eastern Europe frequently accept low-paid jobs and fill crucial vacancies in the tourism and healthcare sectors, which generally experience shortages.

Youth unemployment is much less of a problem in Austria than in other EU member states, due in large measure to Austria’s successful dual-education apprenticeship system.  That system combines on-the-job training with classroom instruction in vocational schools, and includes guaranteed placement by the Public Employment Service for those 15-24 year olds who cannot find an apprenticeship.

The Austrian government continues to adopt changes to existing labor market policies in an effort to make Austria a more attractive business location. The most controversial reform in 2018 was increasing the maximum allowable number of hours worked per week from 50 to 60, and from 10 to 12 hours per day.  The government is also planning to make the maximum duration of unemployment benefits payments more dependent on the length of time spent working, and to increase the base rate of pay from 55 percent of the last net income to 65 percent in the first months of unemployment.

Social insurance is compulsory in Austria and is comprised of health insurance, old-age pension insurance, unemployment insurance, and accident insurance.  Employers and employees contribute a percentage of total monthly earnings to a compulsory social insurance fund. Austrian laws closely regulate terms of employment, including working hours, minimum vacation time, holidays, maternity leave, statutory separation notice, severance pay, dismissal, and an option for part-time work for those parents with children under the age of seven.  Problematic areas include increased deficits in the pension and health insurance systems, the shortage of healthcare personnel to care for the increasing number of elderly, and escalating costs for retirement and long-term care. Due to its generous social welfare system, Austria has a high rate of employer non-wage labor costs, amounting to approximately 30 percent of gross wages.

Labor-management relations are relatively harmonious in Austria, which traditionally enjoys a low incidence of industrial unrest. However, 2018 lead to several contentious collective bargaining negotiations, with the metalworkers and railway sectors issuing several warning strikes before reaching a new collective bargaining agreement. Approximately 32 percent of the work force belongs to a union.  Additionally, all employees are automatically members of Austria’s Worker’s Chamber.

Collective bargaining revolves mainly around wages and fringe benefits.  Approximately 90 percent of the labor force works under a collective bargaining agreement.  In June 2017, Austria decided to implement a national minimum wage of EUR 1,500 (approx. USD 1,700) per month.  This equates to an hourly wage of EUR 10.09 (approx. USD 11.50), placing Austria in the upper tier among European countries with a minimum wage, ahead of France, Germany and the UK.  Sectors where wages are currently below this threshold have until 2020 to amend their collective bargaining agreements accordingly.

Austrian law stipulates a 40-hour workweek, but collective bargaining agreements also allow for a workweek of 38 or 38.5 hours per week.    Firms may increase the maximum regular hours from 40 to 60 per week in special cases, with no more than 12 hours in a single day. Responsibility for agreements on flextime or reduced workweeks resides at the company level.  Overtime is paid at an additional 50 percent of the employee’s and, in some cases, such as work on public holidays, even 100 percent. Austrian employees are generally entitled to five weeks of paid vacation (and an additional week after 25 years in the workforce); the rate of absence due to illness/injury averages 12 workdays annually.

OPIC programs are not available for Austria.  Austria is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA). Austria is a significant donor to EDGE, the International Finance Corporation’s (IFC) green building certification program, with which OPIC started to collaborate in 2018.

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

*Statistics Austria (GDP):
http://www.statistik.at/web_de/statistiken/wirtschaft/volkswirtschaftliche_
gesamtrechnungen/bruttoinlandsprodukt_und_hauptaggregate/jahresdaten/019505.html 

Austrian National Bank (Investments)

https://www.oenb.at/isaweb/report.do?lang=EN&report=9.3.31 

Differences between Austrian and U.S. statistics can arise from different allocations of investments to countries (headquarters versus subsidiaries) and different survey methods

Table 3: Sources and Destination of FDI

Austria’s domestic investment figures show significant lower numbers for the Netherlands and Luxembourg. Special Purpose Entities (SPEs) may be used to avoid corporate taxes.

Table 4: Sources of Portfolio Investment

Alexander Schratt
Economic Specialist
U.S. Embassy Vienna
1090 Vienna
+43 1 31339-2206
Email: schrattax@state.gov

Policies Towards Foreign Direct Investment

Belgium has traditionally maintained an open economy that is highly dependent on international trade.  Since WWII, foreign investment has played a vital role in the Belgian economy, providing technology and employment.  It is a key economic policy of the government to make Belgium a more attractive destination to foreign investment. Though the federal government regulates important elements of foreign direct investment such as salaries and labor conditions, it is primarily the responsibility of the regions to attract FDI.  Flanders Investment and Trade (FIT), Wallonia Foreign Trade and Investment Agency (AWEX), and Brussels Invest and Export are the three investment promotion agencies who seek to attract FDI to Flanders, Wallonia and the Brussels Capital Region, respectively.

The regional investment promotion agencies have focused their industrial strategy on key sectors including aerospace and defense; agribusiness, automotive and ground transportation; architecture and engineering; chemicals, petrochemicals, plastics and composites; environmental technologies; food processing and packaging; health technologies; information and communication; and services.

Foreign corporations account for about one-third of the top 3,000 corporations in Belgium.  According to Graydon, a Belgian company specializing in commercial and marketing information, there are currently more than one million companies registered in Belgium. The federal government and the regions do not have specific policies that prioritize investment retention or maintain an ongoing dialogue with investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are currently no limits on foreign ownership or control in Belgium.  There are no distinctions between Belgian and foreign companies when establishing or owning a business or setting up a remunerative activity.

Other Investment Policy Reviews

Over the past 3 years, the country has not been the subject of third-party investment policy reviews (IPRs) through a multilateral organization such as the OECD, WTO, or UNCTAD.

Business Facilitation

In order to set up a business in Belgium, one must:

1. Deposit at least 20 percent of the initial capital with a Belgian credit institution and obtain a standard certification confirming that the amount is held in a blocked capital account;
2. Deposit a financial plan with a notary, sign the deed of incorporation and the by-laws in the presence of a notary, who authenticates the documents and registers the deed of incorporation.  The authentication act must be drawn up in either French, Dutch or German (Belgium’s three official languages);
3. Register with one of the Registers of legal entities, VAT and social security at a centralized company docket and obtain a company number.

In most cases, the business registration process can be completed within one week.

https://www.business.belgium.be/en/managing_your_business/setting_up_your_business  

http://procedures.business.belgium.be/en/procedures-iframe/?_ga=2.174982369.210217559.1555582522-1537979373.1536327711  

Based on the number of employees, the projected annual turnover and the shareholder class, a company will qualify as a small or medium-sized enterprise (SME) according to the meaning of the Promotion of Independent Enterprise Act of February 10, 1998.  For a small or medium-sized enterprise, registration will only be possible once a certificate of competence has been obtained. The person in charge of the daily management of the company must prove his or her knowledge of business management, with diplomas and/or practical experience. In the Global Enterprise Register, Belgium currently scores 7 out of 10 for ease of setting up a limited liability company.

Business facilitation agencies provide for equitable treatment of women and underrepresented minorities in the economy.

The three Belgian regions each have their own investment promotion agency, whose services are available to all foreign investors.

Outward Investment

The Belgian governments do not promote outward investment as such.  There are also no restrictions to certain countries or sectors, other than those where Belgium applies UN resolutions.

Belgium has no specific investment agreement with the United States; investment-related issues are covered in the 1951 Treaty of Friendship, Enterprise and Navigation.  Belgium has bilateral investment treaties in force with Albania, Algeria, Argentina, Armenia, Bangladesh, Bolivia, Burkina Faso, Burundi, Chile, China, Democratic Republic of the Congo, Egypt, El Salvador, Philippines, Gabon, Georgia, Hong Kong, India, Indonesia, Yemen, Cameroon, Kazakhstan, Kuwait, Korea, Lebanon, Lithuania, Macedonia, Morocco, Mexico, Moldavia, Mongolia, Ukraine, Uzbekistan, Paraguay, Rwanda, Saudi Arabia, Singapore, South Africa, Sri-Lanka, Thailand, Tunisia, Uruguay, Russia, Venezuela, and Vietnam.

Additionally, Belgium and Luxembourg have jointly signed (as The Belgium Luxembourg Economic Union – BLEU) but not yet unimplemented agreements with Liberia, Mauritania, and Thailand.  Belgium and Luxembourg also have joint investment treaties with Poland and Russia, but these are not BLEU agreements. All these agreements provide for mutual protection of investments.

Belgium does have a bilateral taxation treaty with the United States, the last version of which dates from 2006 but which has been augmented with various MOUs since then.  In January 2016, the European Commission ruled that Belgium had to reclaim more than USD 900 million from companies that had benefitted from “excess profit” rulings. The scheme had reduced the corporate tax base of the companies by between 50% and 90% to discount for excess profits that allegedly resulted from being part of a multinational group. However, in a February 14, 2019 ruling, the EU General Court decided that the excess profit ruling was not a State-aid scheme. Observers note that the ruling is based on a procedural defect from the European Commission, and highlight that the General Court did not per se validate the excess profit ruling. The European Commission has two months and ten days to appeal the ruling.

Investment Incentives

Since the law of August 1980 on regional devolution in Belgium, investment incentives and subsidies have been the responsibility of Belgian’s three regions: Brussels, Flanders, and Wallonia.  Nonetheless, most tax measures remain under the control of the federal government as do the parameters (social security, wage agreements) that govern general salary and benefit levels. In general, all regional and national incentives are available to foreign and domestic investors alike.

Belgian investment incentive programs at all levels of government are limited by EU regulations and are normally kept in line with those of the other EU member states.  The European Commission has tended to discourage certain investment incentives in the belief that they distort the single market, impair structural change, and threaten EU convergence, as well as social and economic cohesion.   In January 2016, the European Commission ordered Belgium to reclaim up to USD 900 million in tax breaks from 36 companies (12 of whom are U.S. companies) going as far back as 2004. The Belgian Government had given these breaks to companies through a series of one-off fiscal rulings. Belgium legally challenged the EC decision and won, but the EC can still appeal the ruling (see above).

In their investment policies, the regions emphasize innovation promotion, research and development, energy savings, environmental cleanliness, exports, and most of all, employment.  The three regional agencies have staff specializing on specific regions of the world, including the United States, and have representation offices in different countries. In addition, the Finance Ministry established a foreign investment tax unit in 2000 to provide assistance and to make the tax administration more “user friendly” to foreign investors.

In 2005, the Belgian Federal Finance Ministry proposed a new investment incentive program in the form of a notional interest rate deduction.  This was adopted by Parliament, and since January 1, 2006, the new tax law permits a corporation established in Belgium, foreign or domestic, to deduct from its taxable profits a percentage of its adjusted net assets linked to the rate of the Belgian long-term state bond.  The law permits all companies operating in Belgium to deduct the “notional” interest rate that would have been paid on their locally invested capital had it been borrowed at a rate of interest equal to the current rate the Belgian government pays on its 10-year bonds. This amount is deducted from profits, thus lowering nominal Belgian corporate taxes.  The applicable interest rate is adjusted annually, but will never be allowed to vary more than one percent (100 basis points) in one year nor exceed 6.5 percent.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no foreign trade zones or free ports as such in Belgium.  However, the country utilizes the concept of customs warehouses. A customs warehouse is a warehouse approved by the customs authorities where imported goods may be stored without payment of customs duties and VAT.  Only non-EU goods can be placed under a customs warehouse regime. In principle, non-EU goods of any kind may be admitted, regardless of their nature, quantity, and country of origin or destination. Individuals and companies wishing to operate a customs warehouse must be established in the EU and obtain authorization from the customs authorities.  Authorization may be obtained by filing a written request and by demonstrating an economic need for the warehouse.

Performance and Data Localization Requirements

Performance requirements in Belgium usually relate to the number of jobs created. There are no national requirement rules for senior management or board of directors. There are no known cases where export targets or local purchase requirements were imposed, with the exception of military offset programs, which were reintroduced under Prime Minister Verhofstadt in 2006.  While the government reserves the right to reclaim incentives if the investor fails to meet his employment commitments, enforcement is rare. However, in 2012, with the announced closure of an automotive plant in Flanders, the Flanders regional government successfully reclaimed training subsidies that had been provided to the company.

There is currently no requirement for foreign IT providers to share source code and/or provide access to surveillance agencies.  There is for the moment no forced localization, but the European Parliament is currently considering legislative steps in that direction.

Real Property

Property rights in Belgium are well protected by law, and the courts are independent and considered effective in enforcing property rights.  Mortgages and liens exist through a reliable recording system operated by the Belgian notaries.

However, on the World Bank’s latest ranking on the ease for registering property, Belgium ranks only 143rd on a total of 190 countries.

Intellectual Property Rights

While Belgium generally meets very high standards in the protection of intellectual property rights (IPR), rights granted under specific American patent, trademark, or copyright law can only be enforced in the United States, its territories, and possessions.  The European Union has taken a number of initiatives to promote intellectual property protection, but in cases of non-implementation, national laws continue to apply. Despite legal protection of intellectual property, Belgium experiences a rate of commercial and private infringement – particularly internet music piracy and illegal copying of software – similar to most EU states.

All intellectual property rights are administered and enforced by the Belgian Office of Intellectual Property in the Ministry for Economic Affairs: https://economie.fgov.be/en/themes/intellectual-property/institutions-and-actors/belgian-office-intellectual   The Office of Intellectual Property, Directorate General Regulation and Market Organization (ORPI) administers intellectual property in Belgium.  The Director General is Ms. Severine Waterbley. This office manages and provides Belgian intellectual property titles, informs the public about IPR, drafts legislation and advises Belgian authorities with regard to national and international issues. Belgium is currently not listed on USTR’s Special 301 Report.

Enforcement of IPR is in the hands of the Belgian Ministry of Justice.  For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/ .

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

Capital Markets and Portfolio Investment

Belgium has policies in place to facilitate the free flow of financial resources. Credit is allocated at market rates and is available to foreign and domestic investors without discrimination. Belgium is fully served by the international banking community and is implementing all relevant EU financial directives.  At the same time, Belgium currently ranks 60th out of 190 for “getting credit” on the World Bank’s “Doing Business” rankings, and in the bottom quintile among OECD high income countries.

Bruges established the world’s first stock market almost 600 years ago, and the Belgian bourse is well-established today.  On Euronext, a company may increase its capital either by capitalizing reserves or by issuing new shares. An increase in capital requires a legal registration procedure, and new shares may be offered either to the public or to existing shareholders.  A public notice is not required if the offer is to existing shareholders, who may subscribe to the new shares directly. An issue of bonds to the public is subject to the same requirements as a public issue of shares: the company’s capital must be entirely paid up, and existing shareholders must be given preferential subscription rights.

In 2016, the Belgian government passed legislation to improve entrepreneurial financing through crowdfunding and more flexible capital venture rules.

Money and Banking System

Because the Belgian economy is directed toward international trade, more than half of its banking activities involve foreign countries.  Belgium’s major banks are represented in the financial and commercial centers of dozens of countries by subsidiaries, branch offices, and representative offices.  The country does have a central bank, the National Bank of Belgium (NBB), whose governor is also a board member of the European Central Bank (ECB).

Belgium is one of the countries with the highest number of banks per capita in the world. The banking system is considered sound but was hard hit by the financial crisis that began in the fall of 2008, when federal and regional governments had to step in with lending and guarantees for the three largest banks. Following a review of the 2008 financial crisis, the Belgian government decided in 2012 to shift the authority of bank supervision from the Financial Market Supervision Authority (FMSA) to the NBB. In 2017, supervision of systemically important Belgian banks shifted to the ECB.  The country has not lost any correspondent banking relationships in the past 3 years, nor are there any correspondent banking relationships currently in jeopardy.

The developments since September 2008 have also resulted in a major de-risking of the Belgian banks’ balance sheets, on the back of a rising share of exposure to the public sector – albeit more concentrated on Belgium – and a gradual further expansion of the domestic mortgage loan portfolio. Since the introduction of the Single Supervisory Mechanism (SSM), the vast majority of the Belgian banking sector’s assets are held by banks that come under SSM supervision, including the “significant institutions” KBC Bank, Belfius Bank, Argenta, AXA Bank Europe, Bank of New-York Mellon and Bank Degroof/Petercam. Other banks governed by Belgian law – such as BNP Paribas Fortis and ING Belgium – are also subject to SSM supervision as they are subsidiaries of non-Belgian “significant institutions.”

In 2018, the banking sector conducted its business in a context of gradual economic recovery and persistently low interest rates. That situation had two effects: it put pressure on the sector’s profitability and caused a credit default problem in some European banks. The National Bank of Belgium designated eight Belgian banks as domestic systemically important institutions, and divided them into two groups according to their level of importance. A 1.5 % capital surcharge was imposed on the first group (BNP Paribas Fortis, KBC Group and Belfius Bank).  The second group (AXA Bank Europe, Argenta, Euroclear and The Bank of New York Mellon) is required to hold a supplementary capital buffer of 0.75 %. These surcharges will be phased in over a three-year period.

Under pressure from the European Union, bank debt has decreased in volume overall, from close to 1.6 trillion euros in 2007 to just over 1 trillion euros in 2018, according to the National Bank of Belgium, particularly in the risky derivative markets.

Belgian banks use modern, automated systems for domestic and international transactions. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) has its headquarters in Brussels. Euroclear, a clearing entity for transactions in stocks and other securities, is also located in Brussels.

Opening a bank account in the country is linked to residency status.  FATCA (Foreign Account Tax Compliance Act) requires Belgian banks to report information on U.S. account holders directly to the Belgian tax authorities, who then release the information to the IRS.

Some Belgian banks have already made great progress with blockchain technology: for instance, one Belgian bank offers a product called MyCar, a digital ecosystem that connects all the players in a car purchase with blockchain technology, creating a single, trusted source of confidence and a centralized workflow that takes the hassle out of buying a car.

With regard to cryptocurrencies, the National Bank of Belgium has no central authority overseeing the network.

Unlike most other EU countries, there are no cryptocurrency ATMs, and the NBB has repeatedly warned about the potential consequences of the use of cryptocurrencies for financial stability.

Foreign Exchange and Remittances

Foreign Exchange

Payments and transfers within Belgium and with foreign countries require no prior authorization. Transactions may be executed in euros as well as in other currencies.

Remittance Policies

Dividends may be remitted freely except in cases in which distribution would reduce net assets to less than paid-up capital. No further withholding tax or other tax is due on repatriation of the original investment or on the profits of a branch, either during active operations or upon the closing of the branch.

Sovereign Wealth Funds

Belgium has a sovereign wealth fund (SWF) in the form of the Federal Holding and Investment Company, a quasi-independent entity created in 2004 and now mainly used as a vehicle to manage the banking assets which were taken on board during the 2008 banking crisis.  The SWF has a board whose members reflect the composition of the governing coalition and are regularly audited by the “Cour des Comptes” or national auditor. At the end of 2017, its total assets amounted to € 2.2 billion. Due to the origins of the fund, the majority of the funds are invested domestically. Its role is to allow public entities to recoup their investments and support Belgian banks.  The SWF is required by law to publish an annual report and is subject to the same domestic and international accounting standards and rules. The SWF routinely fulfills all legal obligations. However, it is not a member of the International Forum of Sovereign Wealth Funds, and as such not a subscriber to the Santiago Principles.

Belgium does not have any State Owned Enterprises (SOEs) that exercise delegated government powers.  Private enterprises are allowed to compete with public enterprises under the same terms and conditions, but since the EU started to liberalize network industries such as electricity, gas, water, telecoms and railways, there have been regular complaints in Belgium about unfair competition from the former state monopolists.  Complaints have ranged from lower salaries (railways) to lower VAT rates (gas and electricity) to regulators with a conflict of interest (telecom). Although these complaints have now largely subsided, many of these former monopolies are now market leaders in their sector, due mainly to their ability to charge high access costs to networks fully amortized years ago. However, former telecom monopolist Proximus still features on the EU’s list of companies receiving state aid.  Belgium has about 80,000 employees working in SOEs, mainly in the railways, telecoms and general utility sectors. There are also several regional-owned enterprises where the regions often have a controlling majority: for a full listing on the companies located in Wallonia, see www.actionnariatwallon.be  .  There is no equivalent website for companies located in Flanders or in Brussels. Details on the shareholders of the Bel20 (benchmark stock market index of Euronext Brussels) can be found on http://www.gresea.be/Qui-sont-les-actionnaires-du-BEL-20  .

Privatization Program

Belgium currently has no ongoing privatization programs.  There are ongoing discussions about the possible privatization of the state-owned bank Belfius and the government share in telecom operator Proximus, in which the government needs to weigh of the benefits of a one-time sale against the recurring stream of dividends generated by these holdings.  There are no indications that foreign investors would be excluded from these eventual privatizations.

The Belgian government encourages both foreign and local enterprises to follow generally accepted Corporate Social Responsibility principles such as the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights, endorsed by the UN Human Rights Council in 2011.  The Belgian government also encourages adherence to the OECD Due Diligence guidance for responsible supply chains of minerals from conflict-affected areas.

When it comes to human rights, labor rights, consumer and environmental protection, or laws/regulations which would protect individuals from adverse business impacts, the Belgian government is generally considered to enforce domestic laws in a fair and effective manner.

There is a general awareness of corporate social responsibility among producers and consumers. Boards of directors are encouraged to pay attention to corporate social responsibility in the 2009 Belgian Code on corporate governance. This Code, also known as the ‘Code Buysse II’ was drafted by a group of independent corporate experts and stresses the importance of sound entrepreneurship, good corporate governance, an active board of directors and an advisory council.  It deals with unlisted companies and is complementary to existing Belgian legislation. However, adherence to the Code Buysse II is not factored into public procurement decisions. For listed companies, far stricter guidelines apply, which are monitored by the Financial Services and Markets Authority.

Belgium is part of the Extractive Industries Transparency Initiative.

Belgian anti-bribery legislation was revised completely in March 1999, when the competence of Belgian courts was extended to extraterritorial bribery.  Bribing foreign officials is a criminal offense in Belgium. Belgium has been a signatory to the OECD Anti-Bribery Convention since 1999, and is a participating member of the OECD Working Group on Bribery.  In the Working Group’s Phase 3 review of Belgium in 2013 it called on Belgium to address the lack of resources available for fighting foreign bribery.

Under Article 3 of the Belgian criminal code, jurisdiction is established over offenses committed within Belgian territory by Belgian or foreign nationals. Act 99/808 added Article 10 related to the code of criminal procedure. This Article provides for jurisdiction in certain cases over persons (foreign as well as Belgian nationals) who commit bribery offenses outside the territory of Belgium. Various limitations apply, however.  For example, if the bribe recipient exercises a public function in an EU member state, Belgian prosecution may not proceed without the formal consent of the other state.

Under the 1999 Belgian law, the definition of corruption was extended considerably.  It is considered passive bribery if a government official or employer requests or accepts a benefit for him or herself or for somebody else in exchange for behaving in a certain way.  Active bribery is defined as the proposal of a promise or benefit in exchange for undertaking a specific action. Until 1999, Belgian anti-corruption law did not cover attempts at passive bribery.  The most controversial innovation of the 1999 law was the introduction of the concept of “private corruption,” or corruption among private individuals.

Corruption by public officials carries heavy fines and/or imprisonment between 5 and 10 years. Private individuals face similar fines and slightly shorter prison terms (between six months and two years).  The current law not only holds individuals accountable, but also the company for which they work. Contrary to earlier legislation, the 1999 law stipulates that payment of bribes to secure or maintain public procurement or administrative authorization through bribery in foreign countries is no longer tax deductible.  Recent court cases in Belgium suggest that corruption is most serious in government procurement and public works contracting. American companies have not, however, identified corruption as a barrier to investment.

The responsibility for enforcing corruption laws is shared by the Ministry of Justice through investigating magistrates of the courts, and the Ministry of the Interior through the Belgian federal police, which has jurisdiction in all criminal cases.  A special unit, the Central Service for Combating Corruption, has been created for enforcement purposes but continues to lack the necessary staff. Belgium is also an active participant in the Global Forum on Asset Recovery.

The Belgian Employers Federation encourages its members to establish internal codes of conduct aimed at prohibiting bribery.  To date, U.S. firms have not identified corruption as an obstacle to FDI.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Belgium has signed and ratified the UN Anticorruption Convention of 1998, and is also party to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Office of the Federal Prosecutor of Belgium
Transparency International Belgium
Wolstraat 66-1 – 1000 Brussels
T 02 55 777 64
F 02 55 777 94

Transparency Belgium
Nijverheidsstraat 10, 1000 Brussels
tel: +32 (0)2 893 2584
email: infoa@transparencybelgium.be

Belgium is a peaceful, democratic nation comprised of federal, regional, and municipal political units: the Belgian federal government, the regional governments of Flanders, Wallonia, and the Brussels capital region, and 581 communes (municipalities).  Political divisions do exist between the Flemish and the Walloons, but they are addressed in democratic institutions and generally resolved through compromise. The Federal Council of Ministers, headed by the prime minister, remains in office as long as it retains the confidence of the lower house (Chamber of Representatives) of the bicameral parliament.  Observers considered federal parliamentary elections held in 2014 to be free and fair.

In 2015, the Belgian government eliminated the differential contractual treatment between blue collar and white collar employees.  The main result of this streamlining will be a substantial reduction in the cost of firing employees. The government also increased the retirement age from the current age of 65 to 66 as of 2027 and 67 as of 2030.

Under the plan various schemes of early retirement before the age of 65 will be gradually phased out, and unemployment benefits will decrease over time as an incentive for the unemployed to regain employment.  Historically, unemployment benefits do not expire and some unemployed lived off the benefits indefinitely. Finally, during the 2015 budget negotiations the government and labor agreed to skip the 2015 automatic wage adjustment, but the process of automatic wage indexation resumed in 2016.

Wage increases are negotiated by sector within the parameters set by automatic wage indexation and the 1996 Law on Competitiveness.  The purpose of automatic wage indexation is to establish a bottom margin that protects employees against inflation: for every increase in consumer price index above 2 percent, wages must be increased by (at least) 2 percent as well. The top margin is determined by the competitiveness law, which requires the Central Economic Council (CCE) to study wage projections in neighboring countries and make a recommendation on the maximum margin that will ensure Belgian competitiveness.  The CCE is made up of civil society organizations, primarily representatives from employer and employee organizations, and its mission is to promote a socio-economic compromise in Belgium by providing informed recommendations to the government. The CCE’s projected increases in neighboring countries have historically been higher than their real increases, however, and have caused Belgium’s wages to increase more rapidly than its neighbors. Since 2016 however, that wage gap has decreased substantially.

Belgian labor law provides for dispute settlement procedures, with the labor minister appointing an official as mediator between the employers and employee representatives.

The Belgian labor force is generally well trained, highly motivated and very productive.  Workers have an excellent command of foreign languages, particularly in Flanders. There is a low unemployment rate among skilled workers, such as local managers.  Enlargement of the EU in May 2004 and January 2007 facilitated the entry of skilled workers into Belgium from new member states. However, registration procedures were required until mid-2009 for entrants from some new EU member states.  Non-EU nationals must apply for work permits before they can be employed. Minimum wages vary according to the age and responsibility level of the employee and are adjusted for the cost of living.

Belgian workers are highly unionized and usually enjoy good salaries and benefits.  Belgian wage and social security contributions, along with those in Germany, are among the highest in Western Europe.  For 2018, Belgium’s harmonized unemployment figure was 5.5 percent, below the EU28 average of 6.6 percent (OECD). High wage levels and pockets of high unemployment coexist, reflecting both strong productivity in new technology sector investments and weak skills of Belgium’s long-term unemployed, whose overall education level is significantly lower than that of the general population.  There are also significant differences in regional unemployment levels: 4 percent in Flanders, against 9 percent in Wallonia and 13.5 percent in Brussels. As a consequence of high wage costs, employers have tended to invest more in capital than in labor. At the same time, a shortage exists of workers with training in computer hardware and software, automation and marketing, increasing wage pressures in these sectors.

Belgian’s comprehensive social security package is composed of five major elements: family allowance, unemployment insurance, retirement, medical benefits and a sick leave program that guarantees salary in event of illness.  Currently, average employer payments to the social security system stand at 25 percent of salary while employee contributions comprise 13 percent. In addition, many private companies offer supplemental programs for medical benefits and retirement.

Belgian labor unions, while maintaining a national superstructure, are, in effect, divided along linguistic lines.  The two main confederations, the Confederation of Christian Unions and the General Labor Federation of Belgium, maintain close relationships with the Christian Democratic and Socialist political parties, respectively.  They exert a strong influence in the country, politically and socially. A national bargaining process covers inter-professional agreements that the trade union confederations negotiate biennially with the government and the employers’ associations. In addition to these negotiations, bargaining on wages and working conditions takes place in the various industrial sectors and at the plant level.  About 51 percent of employees from the public service and private sector are labor union members. A cause for concern in labor negotiation tactics is isolated cases where union members in Wallonia have resorted to physically forcing management to stay in their offices until an agreement can be reached.

Firing a Belgian employee can be very expensive.  An employee may be dismissed immediately for cause, such as embezzlement or other illegal activity, but when a reduction in force occurs, the procedure is far more complicated.  In those instances where the employer and employee cannot agree on the amount of severance pay or indemnity, the case is referred to the labor courts for a decision. To avoid these complications, some firms include a “trial period” (of up to one year) in any employer-employee contract.  Belgium is a strict adherent to ILO labor conventions.

Belgium was one of the first countries in the EU to harmonize its legislation with the EU Works Council Directive of December 1994.  Its flexible approach to the consultation and information requirements specified in the Directive compares favorably with that of other EU member states.

Belgium, as a developed country, does not qualify for OPIC programs.  No other countries operate investment insurance programs in Belgium.

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

* Source for Host Country Data:
GDP: https://stat.nbb.be/Index.aspx?ThemeTreeId=41&lang=fr#  
National Bank of Belgium offers different statistics, but it does not match the BEA stats. https://stat.nbb.be/Index.aspx?DataSetCode=INVDIR  

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

New link: http://data.imf.org/CPIS   

Susan Delja
Economic Officer
U.S. Embassy Brussels
Boulevard du Regent 25
1000 Bruxelles
0032-2-811-4167

Policies Towards Foreign Direct Investment

Germany has an open and welcoming attitude towards FDI.  The 1956 U.S.-Federal Republic of Germany Treaty of Friendship, Commerce and Navigation affords U.S. investors national treatment and provides for the free movement of capital between the United States and Germany. As an OECD member, Germany adheres to the OECD National Treatment Instrument and the OECD Codes of Liberalization of Capital Movements and of Invisible Operations.  The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for the Federal Ministry for Economic Affairs and Energy to review acquisitions of domestic companies by foreign buyers, to assess whether these transactions pose a risk to the public order or national security (for example, when the investment pertains to critical infrastructure).  For many decades, Germany has experienced significant inbound investment, which is widely recognized as a considerable contributor to Germany’s growth and prosperity. The German government and industry actively encourage foreign investment. U.S. investment continues to account for a significant share of Germany’s FDI. The investment-related challenges foreign companies face are generally the same as for domestic firms, for example, high marginal income tax rates and labor laws that complicate hiring and dismissals.

Limits on Foreign Control and Right to Private Ownership and Establishment

Under German law, a foreign-owned company registered in the Federal Republic of Germany as a GmbH (limited liability company) or an AG (joint stock company) is treated the same as a German-owned company.  There are no special nationality requirements for directors or shareholders.

However, Germany does prohibit the foreign provision of employee placement services, such as providing temporary office support, domestic help, or executive search services.

While Germany’s Foreign Economic Law permits national security screening of inbound direct investment in individual transactions, in practice no investments have been blocked to date.  Growing Chinese investment activities and acquisitions of German businesses in recent years – including of Mittelstand (mid-sized) industrial market leaders – led German authorities to amend domestic investment screening provisions in 2017, clarifying their scope and giving authorities more time to conduct reviews.  The government further lowered the threshold for the screening of acquisitions in critical infrastructure and sensitive sectors in 2018, to 10 percent of voting rights of a German company. The amendment also added media companies to the list of sensitive sectors to which the lower threshold applies, to prevent foreign actors from engaging in disinformation.  In a prominent case in 2016, the German government withdrew its approval and announced a re-examination of the acquisition of German semi-conductor producer Aixtron by China’s Fujian Grand Chip Investment Fund based on national security concerns.

Other Investment Policy Reviews

The World Bank Group’s “Doing Business 2019” and Economist Intelligence Unit both provide additional information on Germany investment climate.  The American Chamber of Commerce in Germany publishes results of an annual survey of U.S. investors in Germany on business and investment sentiment (“AmCham Germany Transatlantic Business Barometer”).

Business Facilitation

Before engaging in commercial activities, companies and business operators must register in public directories, the two most significant of which are the commercial register (Handelsregister) and the trade office register (Gewerberegister).

Applications for registration at the commercial register, which is publically available under www.handelsregister.de  , are electronically filed in publicly certified form through a notary.  The commercial register provides information about all relevant relationships between merchants and commercial companies, including names of partners and managing directors, capital stock, liability limitations, and insolvency proceedings.  Registration costs vary depending on the size of the company.

Germany Trade and Invest (GTAI), the country’s economic development agency, can assist in the registration processes (https://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/Establishing-a-company/business-registration.html  ) and advise investors, including micro-, small-, and medium-sized enterprises (MSMEs), on how to obtain incentives.

In the EU, MSMEs are defined as follows:

• Micro-enterprises:  less than 10 employees and less than €2 million annual turnover or less than €2 million in balance sheet total.
• Small-enterprises:  less than 50 employees and less than €10 million annual turnover or less than €10 million in balance sheet total.
• Medium-sized enterprises:  less than 250 employees and less than €50 million annual turnover or less than €43 million in balance sheet total.

Outward Investment

The Federal Government provides guarantees for investments by German-based companies in developing and emerging economies and countries in transition in order to insure them against political risks.  In order to receive guarantees, the investment must have adequate legal protection in the host country. The Federal Government does not insure against commercial risks.

Germany does not have a bilateral investment treaty (BIT) with the United States. However, a Friendship, Commerce and Navigation (FCN) treaty dating from 1956 contains many BIT-relevant provisions including national treatment, most-favored nation, free capital flows, and full protection and security.

Germany has bilateral investment treaties in force with 126 countries and territories.  Treaties with former sovereign entities (including Czechoslovakia, the Soviet Union, Sudan, and Yugoslavia) continue to apply in an additional seven cases.  These are indicated with an asterisk (*) and have not been taken into account in regard to the total number of treaties. Treaties are in force with the following states, territories, or former sovereign entities.  For a full list of treaties containing investment provisions that are currently in force, see the UNCTAD Navigator at http://investmentpolicyhub.unctad.org/IIA/CountryBits/78#iiaInnerMenu  .

Afghanistan; Albania; Algeria; Angola; Antigua and Barbuda; Argentina; Armenia; Azerbaijan; Bahrain; Bangladesh; Barbados; Belarus; Benin; Bosnia and Herzegovina; Botswana; Brunei; Bulgaria; Burkina Faso; Burundi; Cambodia; Cameroon; Cape Verde; Central African Republic; Chad; Chile; China (People’s Republic); Congo (Republic); Congo (Democratic Republic); Costa Rica; Croatia; Cuba; Czechoslovakia; Czech Republic*; Dominica; Egypt; El Salvador; Estonia; Eswatini; Ethiopia; Gabon; Georgia; Ghana; Greece; Guatemala; Guinea; Guyana; Haiti; Honduras; Hong Kong; Hungary; Iran; Ivory Coast; Jamaica; Jordan; Kazakhstan; Kenya; Republic of Korea; Kosovo*; Kuwait; Kyrgyzstan; Laos; Latvia; Lebanon; Lesotho; Liberia; Libya; Lithuania; Madagascar; Malaysia; Mali; Malta; Mauritania; Mauritius; Mexico; Moldova; Mongolia; Montenegro*; Morocco; Mozambique; Namibia; Nepal; Nicaragua; Niger; Nigeria; North Macedonia; Oman; Pakistan; Palestinian Territories; Panama; Papua New Guinea; Paraguay; Peru; Philippines; Poland; Portugal; Qatar; Romania; Russia*; Rwanda; Saudi Arabia; Senegal; Serbia*; Sierra Leone; Singapore; Slovak Republic*; Slovenia; Somalia; South Sudan*; Soviet Union; Sri Lanka; St. Lucia; St. Vincent and the Grenadines; Sudan; Syria; Tajikistan; Tanzania; Thailand; Togo; Trinidad & Tobago; Tunisia; Turkey; Turkmenistan; Uganda; Ukraine; United Arab Emirates; Uruguay; Uzbekistan; Venezuela; Vietnam; Yemen; Yugoslavia; Zambia; and Zimbabwe.

A BIT with Bolivia was terminated in May 2014, a BIT with South Africa was terminated in October 2014, BITs with India and Indonesia were terminated in June 2017, and a BIT with Ecuador was terminated in May 2018.  The current BIT with Poland will be terminated in October 2019.

Germany has ratified treaties with the following countries and territories that have not yet entered into force:

Bilateral Taxation Treaties:

Taxation of U.S. firms within Germany is governed by the “Convention for the Avoidance of Double Taxation with Respect to Taxes on Income.” This treaty has been in effect since 1989 and was extended in 1991 to the territory of the former German Democratic Republic. With respect to income taxes, both countries agreed to grant credit for their respective federal income taxes on taxes paid on profits by enterprises located in each other’s territory.  A Protocol of 2006 updates the existing tax treaty and includes several changes, including a zero-rate provision for subsidiary-parent dividends, a more restrictive limitation on benefits provision, and a mandatory binding arbitration provision. In 2013, Germany and the United States signed an agreement on legal and administrative cooperation and information exchange with regard to the U.S. Foreign Account Tax Compliance Act. (Full document at https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Internationales_
Steuerrecht/Staatenbezogene_Informationen/Laender_A_Z/Verein_Staaten/2013-10-15-USA-Abkommen-FATCA.html  ).

As of January 2019, Germany had bilateral tax treaties with a total of 96 countries, including with the United States, and, regarding inheritance taxes, with 6 countries.  It has special bilateral treaties with respect to income and assets by shipping and aerospace companies with 10 countries and has treaties relating to the exchange of information and administrative assistance with 27 countries.  Germany has initiated and/or is renegotiating new income and wealth tax treaties with 64 countries, special bilateral treaties with respect to income and assets by shipping and aerospace companies with 2 countries, and information exchange and administrative assistance treaties with 7 countries.

Investment Incentives

Federal and state investment incentives – including investment grants, labor-related and R&D incentives, public loans, and public guarantees – are available to domestic and foreign investors alike.  Different incentives can be combined. In general, foreign and German investors have to meet the same criteria for eligibility.

Germany Trade & Invest, Germany’s federal economic development agency, provides comprehensive information on incentives in English at:  www.gtai.com/incentives-programs  .

Foreign Trade Zones/Free Ports/Trade Facilitation

There are currently two free ports in Germany operating under EU law:  Bremerhaven and Cuxhaven. The duty-free zones within the ports also permit value-added processing and manufacturing for EU-external markets, albeit with certain requirements.  All are open to both domestic and foreign entities. In recent years, falling tariffs and the progressive enlargement of the EU have eroded much of the utility and attractiveness of duty-free zones.

Performance and Data Localization Requirements

In general, there are no requirements for local sourcing, export percentage, or local or national ownership.  In some cases, however, there may be performance requirements tied to the incentive, such as creation of jobs or maintaining a certain level of employment for a prescribed length of time.

U.S. companies can generally obtain the visas and work permits required to do business in Germany.  U.S. Citizens may apply for work and residential permits from within Germany. Germany Trade & Invest offers detailed information online at www.gtai.com/coming-to-germany  .

There are no localization requirements for data storage in Germany.  However, in recent years German and European cloud providers have sought to market the domestic location of their servers as a competitive advantage.

Real Property

The German Government adheres to a policy of national treatment, which considers property owned by foreigners as fully protected under German law.  In Germany, mortgages approvals are based on recognized and reliable collateral. Secured interests in property, both chattel and real, are recognized and enforced.  According to the World Bank’s Doing Business Report, it takes an average of 52 days to register property in Germany.

The German Land Register Act dates back to 1897 and was last amended in 2017.  The land register mirrors private real property rights and provides information on the legal relationship of the estate.  It documents the owner, rights of third persons, liabilities and restrictions and how these rights relate to each other. Any change in property of real estate must be registered in the land registry to make the contract effective.  Land titles are now maintained in an electronic database and can be consulted by persons with a legitimate interest.

Intellectual Property Rights

Germany has a robust regime to protect intellectual property (IP) rights.  Legal structures are strong and enforcement is good. Nonetheless, internet piracy and counterfeit goods remain an issue, and specific infringing websites are included in the 2018 Notorious Markets List.  Germany has been a member of the World Intellectual Property Organization (WIPO) since 1970. The German Central Customs Authority annually publishes statistics on customs seizures of counterfeit and pirated goods.  The statistics for 2018 can be found under: https://www.zoll.de/SharedDocs/Broschueren/DE/Die-Zollverwaltung/jahresstatistik_2018.html?nn=287024  .  

Germany is also a party to the major international intellectual property protection agreements: the Bern Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention, the Patent Cooperation Treaty, the Brussels Satellite Convention, the Treaty of Rome on Neighboring Rights, and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  Many of the latest developments in German IP law are derived from European legislation with the objective to make applications less burdensome and allow for European IP protection.

The following types of protection are available:

Copyrights:  National treatment is also granted to foreign copyright holders, including remuneration for private recordings.  Under the World Trade Organization (WTO) TRIPS Agreement, Germany also grants legal protection for U.S. performing artists against the commercial distribution of unauthorized live recordings in Germany.  Germany signed the World Intellectual Property Organization (WIPO)_Copyright Treaty and ratified it in 2003. Most rights holder organizations regard German authorities’ enforcement of intellectual property protections as effective.  In 2008, Germany implemented the EU enforcement directive with a national bill, thereby strengthening the privileges of rights holders and allowing for improved enforcement action.

Trademarks:  Foreigners may register trademarks subject to exactly the same terms as German nationals at the German Patent and Trade Mark Office.  Protection is valid for a period of ten years and can be extended in ten-year periods.

Patents:  Foreigners may register patents subject to the same terms as German nationals at the German Patent and Trade Mark Office.  Patents are granted for technical inventions which are new, involve an inventive step, and are industrially applicable. However, applicants having neither a domicile nor an establishment in Germany must appoint a patent attorney in Germany as a representative filing the patent application.  The documents must be submitted in German or with a translation into German. The duration of a patent is 20 years, beginning on the day following the invention patent application. Patent applicants can request accelerated examination when filing the application provided that the patent application was previously filed at the U.S. patent authority and that at least one claim had been determined to be allowable. There are a number of differences in patent law that a qualified patent attorney can explain to U.S. patent applicants.

Trade Secrets: Both technical and commercial trade secrets are protected in Germany by the Law Against Unfair Competition.  According to the law, the illegal passing of trade secrets to third parties – including the attempt to do so – for reasons related to competition, self-interest, the benefit of a third party, or with the intent to harm the business owner, is punishable with prison sentences of up to three years or a monetary fine.  In severe cases, including commercial-scale theft and those that involve passing trade secrets to foreign countries, courts can impose prison sentences of up to five years or a monetary fine.

U.S. grants of IP rights are valid in the United States only.  U.S. IPR owners should note that the EU operates on a “first-to-file” principle and not on the “first-inventor-to-file” principle, used in the United States.  It is possible to register for trademark and design protection nationally in Germany or with the European Union Trade Mark and/or Registered Community Design. These provide protection for industrial design or trademark in the entire EU market.  Both national trademarks and European Community Trade Marks (CTMs) can be applied for from the U.S. Patent and Trademark Office as part of an international trademark registration system (http://www.uspto.gov  ), or the applicant may apply directly for those trademarks from the European Union Intellectual Property Office (EUIPO) at https://euipo.europa.eu/ohimportal/en/home  .

For patents, the situation is slightly different but protection can still be gained via the U.S. Patent and Trademark Office (USPTO).  Although there is not yet a single EU-wide patent system, the European Patent Office (EPO) does grant individual European patents for the contracting states to the European Patent Convention (EPC), which entered into force in 1977.  The 38 contracting states include the entire EU membership and several additional European countries. As an alternative to filing patents for European protection with the USPTO, the EPO provides a convenient single point to file a patent in as many of these countries as an applicant would like: https://www.epo.org/index.html.

In addition, German law offers the possibility to register designs and utility models.

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

Country resources:

For additional information about how to protect intellectual property in Germany, please see Germany Trade & Invest website at http://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/The-legal-framework/patents-licensing-trade-marks.html  .

Statistics on the seizure of counterfeit goods are available through the German Customs Authority (Zoll):

https://www.zoll.de/SharedDocs/Broschueren/DE/Die-Zollverwaltung/jahresstatistik_2018.html?nn=287024  

Investors can identify IP lawyers in AmCham Germany’s Online Services Directory: https://www.amcham.de/services/overview/member-services/address-services-directory/   (under “legal references” select “intellectual property.”)

Businesses can also join the Anti-counterfeiting Association (APM)

http://www.markenpiraterie-apm.de/index.php?article_id=1&clang=1   or the Association for the  Enforcement of Copyrights (GVU) http://www.gvu.de  .

Capital Markets and Portfolio Investment

As an EU member state with a well-developed financial sector, Germany welcomes foreign portfolio investment and has an effective regulatory system.  Germany has a very open economy, routinely ranking among the top countries in the world for exports and inward and outward foreign direct investment.  As a member of the Eurozone, Germany does not have sole national authority over international payments, which are a shared task of the Eurosystem, comprised of the European Central Bank and the national central banks of the 19 member states that are part of the eurozone, including the German Central Bank (Bundesbank).  A European framework for screening of foreign investments, which entered into force in April 2019, provides a basis under European law to restrict capital movements into Germany. Global investors see Germany as a safe place to invest, as the real economy continues to outperform other EU countries and German sovereign bonds retain their “safe haven” status.

Listed companies and market participants in Germany must comply with the Securities Trading Act, which bans insider trading and market manipulation.  Compliance is monitored by the Federal Financial Supervisory Authority (BaFin) while oversight of stock exchanges is the responsibility of the state governments in Germany (with BaFin taking on any international responsibility).  Investment fund management in Germany is regulated by the Capital Investment Code (KAGB), which entered into force on July 22, 2013. The KAGB represents the implementation of additional financial market regulatory reforms, committed to in the aftermath of the global financial crisis.  The law went beyond the minimum requirements of the relevant EU directives and represents a comprehensive overhaul of all existing investment-related regulations in Germany with the aim of creating a system of rules to protect investors while also maintaining systemic financial stability.

Money and Banking System

Although corporate financing via capital markets is on the rise, Germany’s financial system remains mostly bank-based.  Bank loans are still the predominant form of funding for firms, particularly the small- and medium-sized enterprises that comprise Germany’s “Mittelstand,” or mid-sized industrial market leaders.  Credit is available at market-determined rates to both domestic and foreign investors, and a variety of credit instruments are available. Legal, regulatory and accounting systems are generally transparent and consistent with international banking norms.  Germany has a universal banking system regulated by federal authorities, and there have been no reports of a shortage of credit in the German economy. After 2010, Germany banned some forms of speculative trading, most importantly “naked short selling.” In 2013, Germany passed a law requiring banks to separate riskier activities such as proprietary trading into a legally separate, fully capitalized unit that has no guarantee or access to financing from the deposit-taking part of the bank.

Germany supports a worldwide financial transaction tax and is pursuing the introduction of such a tax along with several other Eurozone countries.

Germany has a modern banking sector but is considered “over-banked” resulting in low profit margins and a need for consolidation.  The country’s “three-pillar” banking system consists of private commercial banks, cooperative banks, and public banks (savings banks/Sparkassen and the regional state-owned banks/Landesbanken).  The private bank sector is dominated by Deutsche Bank and Commerzbank, with balance sheets of €1.35 trillion and €462 billion respectively (2018 figures). Commerzbank received €18 billion in financial assistance from the federal government in 2009, for which the government took a 25 percent stake in the bank (now reduced to 15.6 percent).  Deutsche Bank and Commerzbank confirmed in March 2019 that they are in merger talks, with the outcome unclear as of April 2019. A merger of the two institutions would create the Eurozone’s third-largest lender after HSBC and BNP Paribas with roughly €1.9 trillion in assets (USD 2.04 trillion), about 150,000 employees, about one-fifth of the private customers in Germany, but a market value of just €25 billion (USD 28.4 billion).  Germany’s regional state-owned banks (Landesbanken) were among the hardest hit by the global financial crisis and were forced to reduce their business activities but have lately stabilized again.

Foreign Exchange and Remittances

Foreign Exchange

As a member of the Eurozone, Germany uses the euro as its currency, along with 18 other EU countries.  The Eurozone has no restrictions on the transfer or conversion of its currency, and the exchange rate is freely determined in the foreign exchange market.

German authorities respect the independence of the European Central Bank (ECB), and thus have no scope to manipulate the bloc’s exchange rate.  In a February 2019 report, the European Commission (EC) concluded Germany’s persistently high current account surplus – the world’s largest in 2018 at USD 294 billion (7.8 percent of GDP) – “has slightly narrowed since 2016 and is expected to gradually decline due to a pick-up in domestic demand in the coming years whilst remaining at historically high levels over the forecast horizon.”  While low commodity prices and the weak euro exchange rate explain some of the surplus’ increase in 2015-2016, the persistence of Germany’s surplus is a matter of international controversy. German policymakers view the large surplus is the result of market forces rather than active government policies, while the EC and IMF have called on authorities to rebalance towards domestic sources of economic growth by expanding public investment, using available fiscal space, and other policy choices that boost domestic demand.

Germany is a member of the Financial Action Task Force (FATF) and is committed to further strengthening its national system for the prevention, detection and suppression of money laundering and terrorist financing.  In 2017, Germany’s Financial Intelligence Unit (FIU) was restructured and given more staff. It was transferred to the General Customs Directorate in the Federal Ministry of Finance. At the same time, its tasks and competencies were redefined taking into account the provisions of the Fourth EU Money Laundering Directive.  One focus is now on operational and strategic analysis. On June 26, 2017, legislation to implement the Fourth EU Money Laundering Directive and the European Funds Transfers Regulation (Geldtransfer-Verordnung) entered into force.  (The Act amends the German Money Laundering Act (Geldwäschegesetz – GwG) and a number of further laws).

There is no difficulty in obtaining foreign exchange.

Remittance Policies

There are no restrictions or delays on investment remittances or the inflow or outflow of profits.

Germany is the sixth-largest remittance-sending country worldwide.  Migrants in Germany posted USD 22.09 billion (0.6 percent of GDP) abroad in 2018 (World Bank, Bilateral Remittances Matrix 2018).  The most important receiving states for remittances from Germany are EU neighbors such as France, Poland, and Italy. Around USD 8 billion was sent to developing countries, out of which Lebanon, Vietnam, China, Nigeria and Serbia were the biggest receivers.  Remittance flows into Germany amounted to around USD 17.36 billion in 2017, approximately 0.4 percent of Germany’s GDP.

The issue of remittances played a role during the German G20 Presidency.  During its presidency, Germany passed an updated version of its “G20 National Remittance Plan.”  The document states that Germany’s focus will remain on “consumer protection, linking remittances to financial inclusion, creating enabling regulatory frameworks and generating research and data on diaspora and remittances dynamics.” The 2017 “G20 National Remittance Plan” can be found at https://www.gpfi.org/sites/default/files/documents/2017 percent20G20 percent20Financial percent20Inclusion percent20Action percent20Plan percent20final.pdf    

Sovereign Wealth Funds

The German government does not currently have a sovereign wealth fund or an asset management bureau.  Following German reunification, the federal government set up a public agency to manage the privatization of assets held by the former East Germany.  In 2000, the agency, known as TLG Immobilien, underwent a strategic reorientation from a privatization-focused agency to a profit-focused active portfolio manager of commercial and residential property.  In 2012, the federal government sold TLG Immobilien to private investors.

The formal term for state-owned enterprises (SOEs) in Germany translates as “public funds, institutions, or companies,” and refers to entities whose budget and administration are separate from those of the government, but in which the government has more than 50 percent of the capital shares or voting rights.  Appropriations for SOEs are included in public budgets, and SOEs can take two forms, either public or private law entities. Public law entities are recognized as legal personalities whose goal, tasks, and organization are established and defined via specific acts of legislation, with the best-known example being the publicly-owned promotional bank KfW (Kreditanstalt für Wiederaufbau).  The government can also resort to ownership or participation in an entity governed by private law if the following conditions are met: doing so fulfills an important state interest, there is no better or more economical alternative, the financial responsibility of the federal government is limited, the government has appropriate supervisory influence, yearly reports are published, and such control is approved by the Federal Finance Ministry and the ministry responsible for the subject matter.

Government oversight of SOEs is decentralized and handled by the ministry with the appropriate technical area of expertise.  The primary goal of such involvement is promoting public interests rather than generating profits. The government is required to close its ownership stake in a private entity if tasks change or technological progress provides more effective alternatives, though certain areas, particularly science and culture, remain permanent core government obligations.  German SOEs are subject to the same taxes and the same value added tax rebate policies as their private sector competitors. There are no laws or rules that seek to ensure a primary or leading role for SOEs in certain sectors or industries. Private enterprises have the same access to financing as SOEs, including access to state-owned banks such as KfW.

The Federal Statistics Office maintains a database of SOEs from all three levels of government (federal, state, and municipal) listing a total of 16,833 entities for 2016, or 0.5 percent of the total 3.5 million companies in Germany.  SOEs in 2016 had €547 billion in revenue and €529 billion in expenditures. Almost 40 percent of SOEs’ revenue was generated by water and energy suppliers, 13 percent by health and social services, and 12 percent by transportation-related entities.  Measured by number of companies rather than size, 88 percent of SOEs are owned by municipalities, 10 percent are owned by Germany’s 16 states, and 2 percent are owned by the federal government.

The Federal Finance Ministry is required to publish a detailed annual report on public funds, institutions, and companies in which the federal government has direct participation (including a minority share), or an indirect participation greater than 25 percent and with a nominal capital share worth more than €50,000.  The federal government held a direct participation in 106 companies and an indirect participation in 469 companies at the end of 2016, most prominently Deutsche Bahn (100 percent share), Deutsche Telekom (32 percent share), and Deutsche Post (21 percent share). Federal government ownership is concentrated in the areas of science, infrastructure, administration/increasing efficiency, economic development, defense, development policy, culture.  As the result of federal financial assistance packages from the federally-controlled Financial Market Stability Fund during the global financial crisis of 2008-9, the federal government still has a partial stake in several commercial banks, including a 15.6 percent share in Commerzbank, Germany’s second largest commercial bank. The 2017 annual report (with 2016 data) can be found here:

https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Bundesvermoegen/
Privatisierungs_und_Beteiligungspolitik/Beteiligungspolitik/Beteiligungsberichte/beteiligungsbericht-des-bundes-2017.pdf?__blob=publicationFile&v=7  

Publicly-owned banks also constitute one of the three pillars of Germany’s banking system (cooperative and commercial banks are the other two).  Germany’s savings banks are mainly owned by the municipalities, while the so-called Landesbanken are typically owned by regional savings bank associations and the state governments.  There are also many state-owned promotional/development banks which have taken on larger governmental roles in financing infrastructure. This increased role removes expenditures from public budgets, particularly helpful in light of Germany’s balanced budget rules, which go into effect for the states in 2020.

A longstanding, prominent case of a partially state-owned enterprise is automotive manufacturer Volkswagen, in which the state of Lower Saxony owns the fourth-largest share in the company at 12.7 percent share, but controls 20 percent of the voting rights.  The so-called Volkswagen Law, passed in 1960, limited individual shareholder’s voting rights in Volkswagen to a maximum of 20 percent regardless of the actual number of shares owned, so that Lower Saxony could veto any takeover attempts. In 2005, the European Commission successfully sued Germany at the European Court of Justice (ECJ), claiming the law impeded the free flow of capital.  The law was subsequently amended to remove the cap on voting rights, but Lower Saxony’s 20 percent share of voting rights was maintained, preserving its ability to block hostile takeovers.

The wholly federal government-owned railway company, Deutsche Bahn, was cleared by the European Commission in 2013 of allegations of abusing its dominant market position after Deutsche Bahn implemented a new, competitive pricing system.  A similar case brought by the German Federal Cartel Office against Deutsche Bahn was terminated in May 2016 after the company implemented a new pricing system.

Privatization Program

Germany does not have any privatization programs at this time.  German authorities treat foreigners equally in privatizations.

In December 2016, the Federal Government passed the National Action Plan for Business and Human Rights (NAP).  The action plan aims to apply the UN Guiding Principles for Business and Human Rights for the activities of German companies nationally as well as globally in their value and supply chains.  The 2018 coalition agreement for the 19th legislative period between the governing Christian Democratic parties, CDU/CSU, and the Social Democratic Party of Germany (SPD) states its commitment to the action plan, including the principles on public procurement.  It further states that, if the NAP 2020’s effective and comprehensive review comes to the conclusion that the voluntary due diligence approach of enterprises is insufficient, the government will initiate legislation for an EU-wide regulation. The government is currently reviewing and evaluating the German companies’ voluntary measures to respect human rights in their business operations under the NAP.  

Germany adheres to the OECD Guidelines for Multinational Enterprises; the National Contact Point (NCP) is housed in the Federal Ministry of Economic Affairs and Energy.  The NCP is supported by an advisory board composed of several ministries, business organizations, trade unions, and NGOs. This working group usually meets once a year to discuss all Guidelines-related issues.  The German NCP can be contacted through the Ministry’s website: https://www.bmwi.de/Redaktion/EN/Textsammlungen/Foreign-Trade/national-contact-point-ncp.html  .

There is general awareness of environmental, social, and governance issues among both producers and consumers in Germany, and surveys suggest that consumers increasingly care about the ecological and social impacts of the products they purchase.  In order to encourage businesses to factor environmental, social, and governance issues into their decision-making, the government provides information online and in hard copy. The federal government promotes corporate social responsibility (CSR) through awards and prizes, business fairs, and reports and newsletters.  The government also set up so called “sector dialogues” to connect companies and facilitate the exchange of best practices, and offers practice days to help nationally as well as internationally operating small- and medium-sized companies discern and implement their entrepreneurial due diligence under the NAP. To this end it has created a website on CSR in Germany (http://www.csr-in-deutschland.de/EN/Home/home.html   in English). The German government maintains and enforces domestic laws with respect to labor and employment rights, consumer protections, and environmental protections.  The German government does not waive labor and environmental laws to attract investment.

On the business side, the American Chamber of Commerce in Germany (AmCham Germany) is active in promoting standards of ecological, economic, and social responsibility and sustainability within their members’ entrepreneurial actions in keeping with the UN Sustainable Development Goals, adopted in 2015.  AmCham Germany issues publications on selected member companies’ approaches to CSR. Its Corporate Responsibility Committee serves as a platform to exchange best practices, identify trends, and discuss regulatory initiatives. Other business initiatives, platforms, and networks on sustainable corporate conduct and CSR exist.  In addition, Germany’s four leading business organizations regularly provide information on a common CSR internet portal to promote and illustrate companies’ engagement on CSR: www.csrgermany.de  .

Social reporting is voluntary, but publicly listed companies frequently include information on their CSR policies in annual shareholder reports and on their websites.

Civil society groups that work on CSR include 3p Consortium for Sustainable Management, Amnesty International Germany, Bund für Umwelt und Naturschutz Deutschland e. V. (BUND), CorA Corporate Accountability – Netzwerk Unternehmensverantwortung, Forest Stewardship Council (FSC), Germanwatch, Greenpeace Germany, Naturschutzbund Deutschland (NABU), Sneep (Studentisches Netzwerk zu Wirtschafts- und Unternehmensethik), Stiftung Warentest, Südwind – Institut für Ökonomie und Ökumene, TransFair – Verein zur Förderung des Fairen Handels mit der „Dritten Welt“ e. V., Transparency International, Verbraucherzentrale Bundesverband e.V., Bundesverband Die Verbraucher Initiative e.V., and the World Wide Fund for Nature (WWF, known as the „World Wildlife Fund“ in the United States).

Among industrialized countries, Germany ranks 11th out of 180, according to Transparency International’s 2018 Corruption Perceptions Index.  Some sectors including the automotive industry, construction sector, and public contracting, exhibit political influence and party finance remains only partially transparent.  Nevertheless, U.S. firms have not identified corruption as an impediment to investment in Germany. Germany is a signatory of the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery.

Over the last two decades, Germany has increased penalties for the bribery of German officials, corrupt practices between companies, and price-fixing by companies competing for public contracts.  It has also strengthened anti-corruption provisions on financial support extended by the official export credit agency and has tightened the rules for public tenders. Government officials are forbidden from accepting gifts linked to their jobs.  Most state governments and local authorities have contact points for whistle-blowing and provisions for rotating personnel in areas prone to corruption. There are serious penalties for bribing officials and price fixing by companies competing for public contracts.

According to the Federal Criminal Office, in 2017, 63 percent of all corruption cases were directed towards the public administration (up from 49 percent in 2016), 22 percent towards the business sector (down from 30 percent in 2016), 12 percent towards law enforcement and judicial authorities (down from 18 percent in 2016), and 3 percent to political officials (same as in 2016).

A prominent corruption case concerns the “BER” Berlin Airport construction project. Proceedings were opened in October 2015 against a manager of the airport operating company. In October 2016, the Cottbus district court sentenced the manager to 3.5 years in prison and a fine of €150,000 (USD 160,000) on the grounds of corruption.  Two leading employees of a technical company working on electricity, heating, and sanitary equipment received suspended jail sentences.

Parliamentarians are subject to financial disclosure laws that require them to publish earnings from outside employment.  Disclosures are available to the public via the Bundestag website (next to the parliamentarians’ biographies) and in the Official Handbook of the Bundestag. Penalties for noncompliance can range from an administrative fine to as much as half of a parliamentarian’s annual salary.

Donations to political parties are legally permitted.  However, if they exceed €50,000, they must be reported to the President of the Bundestag.  Donations of €10,000 or more must be included in the party’s annual accountability report to the President of the Bundestag.

State prosecutors are generally responsible for investigating corruption cases, but not all state governments have prosecutors specializing in corruption.  Germany has successfully prosecuted hundreds of domestic corruption cases over the years, including large scale cases against major companies.

Media reports in recent years about bribery investigations against Siemens, Daimler, Deutsche Telekom, and Ferrostaal increased awareness of the problem of corruption.  As a result, an increasing number of listed companies and multinationals have expanded their compliance departments, tightened internal codes of conduct, established points of conducts, and offered more ethics training to employees.

The Federation of Germany Industries (BDI), the Association of German Chamber of Commerce and Industry (DIHK) and the International Chamber of Commerce (ICC) provide guidelines in paper and electronic format on how to prevent corruption in an effort to convince all including small- and medium- sized companies to catch up.  In addition, BDI provides model texts if companies with two different sets of compliance codes want to do business with each other.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Germany was a signatory to the UN Anti-Corruption Convention in 2003.  The Bundestag ratified the Convention in November 2014.

Germany adheres to the OECD Anti-Bribery Convention which criminalizes bribery of foreign public officials by German citizens and firms.  The necessary tax reform legislation ending the tax write-off for bribes in Germany and abroad became law in 1999. Germany actively enforces the convention and is increasingly better managing the risk of transnational corruption.

Germany participates in the relevant EU anti-corruption measures and signed two EU conventions against corruption.  However, while Germany ratified the Council of Europe Criminal Law Convention on Corruption in 2017, it has not yet ratified the Civil Law Convention on Corruption.

Resources to Report Corruption

There is no central government anti-corruption agency in Germany.

Contact at “watchdog” organization:

Prof. Dr. Edda Muller, Chair
Transparency International Germany
Alte Schonhauser Str. 44, 10119 Berlin
+49 30 549 898 0
office@transparency.de

The Federal Criminal Office publishes an annual report: “Lagebild Korruption” – the latest one covers 2017.

https://www.bka.de/SharedDocs/Downloads/DE/Publikationen/JahresberichteUndLagebilder/
Korruption/korruptionBundeslagebild2017.pdf?__blob=publicationFile&v=6 10  

Political acts of violence against either foreign or domestic business enterprises are extremely rare.  Isolated cases of violence directed at certain minorities and asylum seekers have not targeted U.S. investments or investors.

The German labor force is generally highly skilled, well-educated, and productive.  Employment in Germany has continued to rise for the thirteenth consecutive year and reached an all-time high of 44.8 million in 2018, an increase of 562,000 (or 1.3 percent) from 2017—the highest level since German reunification in 1990.

Simultaneously, unemployment has fallen by more than half since 2005, and reached in 2018 the lowest average annual value since German reunification.  In 2018, around 2.34 million people were registered as unemployed, corresponding to an unemployment rate of 5.2 percent, according to the Germany Federal Employment Agency.  Using internationally comparable data from the European Union’s statistical office Eurostat, Germany had an average annual unemployment rate of 3.4 percent in 2018, the second lowest rate in the European Union.  All employees are by law covered by the federal unemployment insurance that compensates for the lack of income for up to 24 months.

Germany’s national youth unemployment rate was 6.2 percent in 2018, the lowest in the EU.  The German vocational training system has gained international interest as a key contributor to Germany’s highly skilled workforce and its sustainably low youth unemployment rate. Germany’s so-called “dual vocational training,” a combination of theoretical courses taught at schools and practical application in the workplace, teaches and develops many of the skills employers need.  Each year, there are more than 500,000 apprenticeship positions available in more than 340 recognized training professions, in all sectors of the economy and public administration. Approximately 50 percent of students choose to start an apprenticeship. The government is promoting apprenticeship opportunities, in partnership with industry, through the “National Pact to Promote Training and Young Skilled Workers.”

An element of growing concern for German business is the aging and shrinking of the population, which will result in labor shortages in the future.  Official forecasts at the behest of the Federal Ministry of Labor and Social Affairs predict that the current working age population will shrink by almost 3 million between 2010 and 2030, resulting in an overall shortage of workforce and skilled labor.  Labor bottlenecks already constrain activity in many industries, occupations, and regions. According to the Federal Employment Agency, doctors; medical and geriatric nurses; mechanical, automotive, and electrical engineers; and IT professionals are in particular short supply.  The government has begun to enhance its efforts to ensure an adequate labor supply by improving programs to integrate women, elderly, young people, and foreign nationals into the labor market. The government has also facilitated the immigration of qualified workers.

Labor Relations

Germans consider the cooperation between labor unions and employer associations to be a fundamental principle of their social market economy and believe this has contributed to the country’s resilience during the economic and financial crisis.  Insofar as job security for members is a core objective for German labor unions, unions often show restraint in collective bargaining in weak economic times and often can negotiate higher wages in strong economic conditions. According to the Institute of Economic and Social Research (WSI), the number of workdays lost to labor actions increased significantly to 1 million in 2018, compared to 238,000 in 2017.  WSI assesses this unusual increase was mostly due to the labor conflict in the metal industry, which resulted in a large number of warning strikes at various companies and plants. However, in an international comparison, Germany is in the lower midrange with regards to strike numbers and intensity. All workers have the right to strike, except for civil servants (including teachers and police) and staff in sensitive or essential positions, such as members of the armed forces.

Germany’s constitution, federal legislation, and government regulations contain provisions designed to protect the right of employees to form and join independent unions of their choice. The overwhelming majority of unionized workers are members of one of the eight largest unions — largely grouped by industry or service sector — which are affiliates of the German Trade Union Confederation (Deutscher Gewerkschaftsbund, DGB).  Several smaller unions exist outside the DGB. Overall trade union membership has, however, been in decline over the last several years. In 2016, about 18.5 percent of the workforce and 26 percent of the whole population belonged to unions. Since peaking at around 12 million members shortly after German reunification, total DGB union membership has dropped to 5.9 million, IG Metall being the largest German labor union with 2.3 million members, followed by the influential service sector union Ver.di (1.9 million members).

The constitution and enabling legislation protect the right to collective bargaining, and agreements are legally binding to the parties.  In 2017, over three quarters (78 percent) of non-self-employed workers were directly or indirectly covered by a collective wage agreement, 59 percent of the labor force in the western part of the country and approximately 47 percent in the East.  On average, collective bargaining agreements in Germany were valid for 25 months in 2017.

By law, workers can elect a works council in any private company employing at least five people.  The rights of the works council include the right to be informed, to be consulted, and to participate in company decisions.  Works councils often help labor and management to settle problems before they become disputes and disrupt work. In addition, “co-determination” laws give the workforce in medium-sized or large companies (corporations, limited liability companies, partnerships limited by shares, co-operatives, and mutual insurance companies) significant voting representation on the firms’ supervisory boards.  This co-determination in the supervisory board extends to all company activities.

The strong collectively negotiated wage increases in 2018 and the rise of the federal Germany-wide statutory minimum wage to €9.19 (USD 10.32) on January 1, 2019, led to 3.1 percent nominal wage increase, the highest in Germany for eight years.

Labor costs increased by 2.6 percent in 2017.  With an average labor cost of €34.10 (USD 42.24) per hour, Germany ranked fifth among the 28 EU-members states (EU average: €26.80/USD 33.20) in 2017.  Since the introduction of the European common currency, the increases of the unit labor cost in Germany remained significantly below EU average.

OPIC programs were available for the new states of eastern Germany for several years during the early 1990s following reunification, but were later suspended due to economic and political progress which caused the region to “graduate” from OPIC coverage.

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

* Source for Host Country Data: Federal Statistical Office DESTATIS, Bundesbank; http://www.bundesbank.de   (German Central Bank, 2017 data to be published in April 2019, only available in €)

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Economic Section
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Policies Towards Foreign Direct Investment

The Ministry of Economic Development (MED) is responsible for overseeing investment policy in Russia. The Foreign Investment Advisory Council (FIAC), established in 1994, is chaired by the Prime Minister and currently includes 53 international company members and four companies as observers. The FIAC allows select foreign investors to directly present their views on improving the investment climate in Russia, and advises the government on regulatory rule-making. Russia’s basic legal framework governing investment includes 1) Law 160-FZ, July 9, 1999, “On Foreign Investment in the Russian Federation”; 2) Law No. 39-FZ,  February 25, 1999, “On Investment Activity in the Russian Federation in the Form of Capital Investment”; 3) Law No. 57-FZ, April 29, 2008, “Foreign Investments in Companies Having Strategic Importance for State Security and Defense”; and 2) the Law of the RSFSR No. 1488-1, June 26, 1991, “On Investment Activity in the Russian Soviet Federative Socialist Republic (RSFSR).” This framework nominally attempts to guarantee equal rights for foreign and local investors in Russia. However, exemptions are permitted when it is deemed necessary to protect the Russian constitution, morality, health, human rights, and national security or defense, and to promote the socioeconomic development of Russia. Foreign investors may freely use their revenues and profits obtained from Russia-based investments for any purpose provided they do not violate Russian law.

Limits on Foreign Control and Right to Private Ownership and Establishment

Russian law places two primary restrictions on land ownership by foreigners. First are restrictions on foreign ownership of land located in border areas or other “sensitive territories.” The second restricts foreign ownership of agricultural land: foreign individuals and companies, persons without citizenship, and agricultural companies more than 50-percent foreign-owned may hold agricultural land through leasehold right. As an alternative to agricultural land ownership, foreign companies typically lease land for up to 49 years, the maximum legally allowed.

President Vladimir Putin signed in October 2014 the law “On Mass Media,” which took effect on January 1, 2015, and restricts foreign ownership of any Russian media company to 20 percent (the previous law applied a 50 percent limit only to Russia’s broadcast sector). U.S. stakeholders have also raised concerns about similar limits on foreign direct investments in the mining and mineral extraction sectors; they describe the licensing regime as non-transparent and unpredictable as well.  In December 2018, the State Duma approved in its first reading a draft bill introducing new restrictions on online news aggregation services. If adopted, foreign companies, including international organizations and individuals, would be limited to a maximum of 20 percent ownership interest in Russian news aggregator websites.

Russia’s Commission on Control of Foreign Investment (Commission) was established in 2008 to monitor foreign investment in strategic sectors in accordance with the SSL. Between 2008 and 2017, the Commission received 484 applications for foreign investment, 229 of which were reviewed, according to the Federal Antimonopoly Service (FAS). Of those 229, the Commission granted preliminary approval for 216 (94 percent approval rate), rejected 13, and found that 193 did not require approval. (See https://fas.gov.ru/p/presentations/86). In 2018, the Commission reviewed 24 applications and granted approvals for investments worth RUB 400 billion (USD 6.4 billion).  International organizations, foreign states, and the companies they control, are treated as single entities under this law, and with their participation in a strategic business, subject to restrictions applicable to a single foreign entity.

Since January 1, 2019, foreign providers of electronic services to business customers in Russia (B2B e-services) have new Russian value-added tax (VAT) obligations. These include: (1) VAT registration with the Russian tax authorities (even for VAT exempt e-services); (2) invoice requirements; and (3) VAT reporting to the Russian tax authorities and VAT remittance rules.

Other Investment Policy Reviews

The WTO conducted the first Trade Policy Review of the Russian Federation in September 2016. Reports relating to the review are available at: https://www.wto.org/english/tratop_e/tpr_e/tp445_e.htm  .

The United Nations Conference on Trade and Development (UNCTAD) issues an annual review of investment and new industrial policies: https://unctad.org/sections/dite_dir/docs/wir2018/wir18_fs_ru_en.pdf  and an investment policy monitor: https://investmentpolicyhub.unctad.org/IPM 

Business Facilitation

The Agency for Strategic Initiatives (ASI) was created by President Putin in 2011 to increase innovation and reduce bureaucracy. Since 2014, ASI has released an annual ranking of Russia’s regions in terms of the relative competitiveness of their investment climates, and provides potential investors with important information about regions most open to foreign investment. ASI provides a benchmark to compare regions, the “Regional Investment Standard,” and thus has stimulated competition between regions, causing an overall improved investment climate in Russia. See https://asi.ru/investclimate/rating/ (in Russian). The Federal Tax Service (FTS) operates Russia’s business registration website: www.nalog.ru.Per law (Article 13 of Law 129-FZ of 2001), a company must register with a local FTS office within 30 days of launching a new business, and he business registration process must not take more than three days, according to. Foreign companies may be required to notarize the originals of incorporation documents included in the application package. To establish a business in Russia, a company must pay a registration fee of RUB 4,000 and register with the FTS. Starting January 1, 2019, a registration fee waived for online submission of incorporation documents.  See http://www.doingbusiness.org/data/exploreeconomies/russia .

The Russian government established in 2010 an ombudsman for investor rights protection to act as partner and guarantor of investors, large and small, and as referee in pre-court mediation facilitation. The First Deputy Prime Minister was appointed as the first federal ombudsman. In 2011, ombudsmen were established at the regional level, with a deputy of the Representative of the President acting as ombudsman in each of the seven federal districts. The ombudsman’s secretariat, located in the Ministry of Economic Development, attempts to facilitate the resolution of disputes between parties. Cases are initiated with the filing of a complaint by an investor (by e-mail, phone or letter), followed by the search for a solution among the parties concerned. According to the breakdown of problems reported to the ombudsman, the majority of cases are related to administrative barriers, discrimination of companies, exceeding of authority by public officials, customs regulations, and property rights protection.

In June 2012, a new mechanism for protection of entrepreneur’s rights was established. Boris Titov, the head of the business organization “Delovaya Rossia” was appointed as the Presidential Commissioner for Entrepreneur’s Rights.

In 2018, Russia implemented four reforms that increased its score in World Bank’s Doing Business ranking. First, Russia made the process of obtaining a building permit faster by reducing the time needed to obtain construction and occupancy permits.  Russia also increased quality control during construction by introducing risk-based inspections. Second, it made getting electricity faster by imposing new deadlines for connection procedures and by upgrading the utility’s single window as well as its internal processes. Getting electricity was also made cheaper by reducing the costs to obtain a connection to the electric network. Third, Russia made paying taxes less costly by allowing a higher tax depreciation rate for fixed assets. Fourth, Russia made trading across borders easier by prioritizing online customs clearance and introducing shortened time limits for its automated completion.

Outward Investment

The Russian government does not restrict Russian investors from investing abroad. In effect since 2015, Russia’s “de-offshorization law” (376-FZ) requires that Russian tax residents notify the government about their overseas assets, potentially subjecting these to Russian taxes.

While there are no restrictions on the distribution of profits to a nonresident entity, some foreign currency control restrictions apply to Russian residents (both companies and individuals), and to foreign currency transactions. As of January 1, 2018, all Russian citizens and foreign holders of Russian residence permits are considered Russian “currency control residents.” These “residents” are required to notify the tax authorities when a foreign bank account is opened, changed, or closed and when there is a movement of funds in a foreign bank account. Individuals who have spent less than 183 days in Russia during the reporting period are exempt from the reporting requirements and the restrictions on the use of foreign bank accounts.

Russia is party to some 63 treaties in force which contain investment provisions. For a full list, see http://investmentpolicyhub.unctad.org/IIA . Russia is a signatory but has never ratified, and ultimately terminated, its application to the European Energy Charter Treaty, which includes a mechanism for investor-state dispute settlement.

Four regional integration agreements include the Eurasian Economic Union (EAEU) treaty (with Armenia, Belarus, Kazakhstan, and Kyrgyzstan), the Belarus-Kazakhstan-Russia agreement on services and investment, the Common Economic Zone Agreement (with Belarus, Kazakhstan, Ukraine), and the European Union-Russia Partnership and Cooperation Agreement (PCA). As a member of the EAEU, Russia is party to the EAEU-Vietnam Free Trade Agreement (FTA), which contains investment provisions. Individual member countries of the EAEU generally retain authority to enter into their own bilateral investment treaties.  In January 2018, the EAEU and India announced plans to sign an FTA in the near future. The EAEU is also negotiating FTAs with other countries, including Singapore, and Turkey. An interim three-year free trade agreement (IFTA) between EAEU and Iran was signed in May 2018. This IFTA came into force in early 2019, and reduces or eliminates tariffs on certain goods – accounting for roughly 50 percent of trade between the parties. In May 2018, the EAEU and China signed an agreement on trade and economic cooperation.

The United States and Russia signed a bilateral investment treaty (BIT) in 1992. However, it was never ratified by Russia and is not in force. A U.S.-Russian dialogue to explore prospects for negotiating a new BIT ceased upon Russia’s purported annexation of Crimea in 2014. As such, investors from the two countries have no protections beyond domestic laws.

The U.S.-Russia Income Tax Convention, in effect since 1994, was designed to address the issue of double taxation and fiscal evasion with respect to taxes on income and capital. The treaty is available at https://www.irs.gov/pub/irs-trty/russia.pdf . In total, Russia is party to 82 double taxation treaties. The Russian Ministry of Finance’s list (in Russian) is available at http://minfin.ru/ru/document/?id_4=117045 .

Investment Incentives

Since 2005, Russia’s industrial investment incentive regime has granted tax breaks and other government incentives to foreign companies in certain sectors in exchange for producing locally. As part of its WTO Protocol, Russia agreed to eliminate the elements of this regime that are inconsistent with the Trade-Related Investment Measures TRIMS Agreement by July 2018. The TRIMS Agreement requires elimination of measures such as those that require or provide benefits for the use of domestically produced goods (local content requirements), or measures that restrict a firm’s imports to an amount related to its exports or related to the amount of foreign exchange a firm earns (trade balancing requirements). Russia notified the WTO that it had terminated these automotive investment incentive programs as of July 1, 2018. However, shortly thereafter, the Ministry of Industry and Trade announced that it would provide support to automotive manufacturers if they meet certain production quotas and local content requirements. The government is developing a new points-based system to estimate vehicle localization levels to determine original Equipment Manufacturer (OEM)’s eligibility for Russian state support.  The government will provide state support only to OEMs whose finished vehicles are deemed to be of Russian origin, which will depend upon them scoring at least 2,000 points under the new system to get some assistance and 6,000 point to enjoy a full range of support measures. Points will be awarded for localizing the supply of certain components.

The government also introduced Special Investment Contracts (SPIC) as an alternative incentive program in 2015. On December 18, 2017, the government changed the rules for concluding SPIC, to increase investment in Russia by offering tax incentives and simplified procedures for government interactions. These contracts, generally negotiated with and signed by the Ministry of Industry and Trade, ostensibly allow for the inclusion of foreign companies in Russia’s import substitution programs by providing access to certain subsidies to foreign producers if local production is established. In principle, these contracts may also aid in expediting customs procedures. In practice, however, reports suggest even companies that sign such contracts find their business hampered by policies biased in favor of local producers. The amendments aim to improve the SPIC mechanism by clarifying investment requirements and necessary documentation. They also provide a timeframe and procedures for application review, and for amending or terminating a SPIC. Finally, the amendments allow for broader composition of the SPIC private partner: the investor may now procure not only manufacturing services, but also engineering, distribution, and financial services, among others.

The Russian Direct Investment Fund (RDIF) was established in 2011 as a state-backed private equity fund to operate with long term financial and strategic investors and by offering co-financing for foreign investments directed at the modernization of the Russian economy. RDIF participates in projects estimated from USD 50 to USD 500 million, with a share in the project not exceeding 50 percent. RDIF has attracted long-term foreign capital investments totaling more than USD 40 billion in the following sectors: energy, energy saving technologies, telecommunications, healthcare and other areas. RDIF has also developed a system for foreign co-investment in its projects that allows foreign investors to participate automatically in each RDIF project.

Foreign Trade Zones/Free Ports/Trade Facilitation

Russia continues to promote the use of high-tech parks, special economic zones, and industrial clusters, which offer additional tax and infrastructure incentives to attract investment. “Resident companies” can receive a broad range of benefits, including exemption from profit tax, value-added tax, property tax, import duties, and partial exemption from social fund payments. The government evaluates and grants funding for investments on a yearly basis.

Russia has 25 special economic zones (SEZs), which fall in one of four categories: industrial and production zones; technology and innovation zones; tourist and recreation zones; and port zones. As of January 2018, 15 U.S. companies are working in Russian SEZs. According to Russian data, U.S. investors had invested over USD 1 billion in SEZs as of October 2018, making the U.S. the second largest investor in Russian SEZs.  A Russian Audit Chamber investigation of SEZs in April 2017 found the zones have had no measurable impact on the Russian economy since they were founded in 2005. “Territories of Advanced Development,” a separate but similar program, was launched in 2015 with plans to create areas with preferential tax treatment and simplified government procedures in Siberia, Kaliningrad, and the Russian Far East. In May 2016, President Putin ordered work on 10 existing SEZ’s to cease and suspended the creation of any new SEZs, at least until a more integrated approach to SEZ’s and “Territories of Advanced Development” was put in place.

Performance and Data Localization Requirements

Russian law generally does not impose performance requirements, and they are not widely included as part of private contracts in Russia. Some have appeared, however, in the agreements of large multinational companies investing in natural resources and in production-sharing legislation. There are no formal requirements for offsets in foreign investments. Since approval for investments in Russia can depend on relationships with government officials and on a firm’s demonstration of its commitment to the Russian market, these conditions may result in offsets in practice.

In certain sectors, the Russian government has pressed for localization and increased local content. For example, in a bid to boost high-tech manufacturing in the renewable energy sector, Russia guarantees a 12 percent profit over 15 years for windfarms using turbines with at least 65 percent local content. Russia is currently considering local content requirements for industries that have high percentages of government procurement, such as medical devices and pharmaceuticals. Russia is not a signatory to the WTO’s Government Procurement Agreement. Consequently, restrictions on public procurement have been a major avenue for Russia to implement localization requirements without running afoul of international commitments.

Russia’s data storage provisions (the “Yarovaya law”) took effect on July 1, 2018, with providers being required to store data in “full volume” beginning October 1, 2018. The Yarovaya law requires domestic telecoms and ISPs to store all customers’ voice calls and texts for six months; ISPs must store data traffic for one month. The Yarovaya law initially required even longer retention with a shorter implementation window, which companies criticized as costly and unworkable.

The Central Bank of Russia has imposed caps on the percentage of foreign employees in foreign banks’ subsidiaries. The ratio of Russian employees in a subsidiary of a foreign bank is set at less than 75 percent. If the executive of the subsidiary is a non-resident of Russia, at least 50 percent of the bank’s managing body should be Russian citizens.

Russia placed 12th overall in the 2019 World Bank Doing Business Report for “registering a property,” which analyzes the “steps, time and cost involved in registering property, assuming a standardized case of an entrepreneur who wants to purchase land and a building that is already registered and free of title dispute,” as well as the “the quality of the land administration system.”

The Russian Constitution, along with a 1993 presidential decree, gives Russian citizens the right to own, inherit, lease, mortgage, and sell real property. The state owns the majority of Russian land, although the structures on the land are typically privately owned. Mortgage legislation enacted in 2004 facilitates the process for lenders to evict homeowners who do not stay current in their mortgage payments. To date, this law has been successfully implemented and is generally effective.

Intellectual Property Rights

Russia remained on the U.S. Trade Representative (USTR) Special 301 Priority Watch List in 2019 and had several illicit streaming websites and online markets reported in the 2018 Notorious Markets List as a result of continued and significant challenges to intellectual property right (IPR) protection and enforcement.  Particular areas of concern include copyright infringement, trademark counterfeiting/hard goods piracy, and non-transparent royalty collection procedures. Stakeholders reported in 2018 that IPR enforcement continued to decline overall from 2017, following similar declines in the prior several years and a reduction in resources for enforcement personnel. There were also reports that IPR protection and enforcement were not priorities for government officials.

Online piracy continues to pose a significant problem in Russia. Russia has not met a series of commitments to protect IPR in the domestic market, including commitments made to the United States as part of its World Trade Organization (WTO) accession. Although the Russian government has made strides in copyright protection, most notably with antipiracy laws and blocking internet sites hosting pirated material, film studios and other copyright-intensive industries have made no progress with copyright-violating search engine Yandex or social networks vKontakte, OK.ru, and  Telegram. Amendments to the anti-piracy law aimed to block “mirror” websites came into force in October 2017 and oblige search engines, such as Google or Yandex, to withhold information about the domain name of an infringing website and any references to mirror sites of permanently blocked websites upon receiving a request from Roskomnadzor, the federal body responsible for regulating media content. Expediting the legal process remains important since these “mirrors” can appear within hours or days of a site being blocked. Industry sources estimate that obtaining a final writ of execution from a court to block permanently a “mirror” site will take around two weeks.  As a result of increased scrutiny, internet companies Yandex, Mail.Ru Group, Rambler, and Rutube signed an anti-piracy memorandum with several domestic right holders on November 1, 2018. The anti-piracy memorandum will be valid until September 1, 2019, if the relevant law is not adopted by this deadline. Industry sources believe compliance is unlikely if updated legislation is not enacted.

Modest progress has been made in the area of customs IPR protection since the Federal Customs Service (FTS) can now confiscate imported goods that violate IPR.  Between January and September 2018, the FTS seized 14.4 million counterfeit goods, compared with 10.1 million in 2017. The FTS prevented infringement and damages to copyright holders amounting to RUB 5.8 billion (USD 94.4 million) between January and September 2018, compared with RUB 4.5 billion (USD 77.1 million) in all of 2017.  For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/  .

Capital Markets and Portfolio Investment

Russia is open to portfolio investment and has no restrictions on foreign investments. Russia’s two main stock exchanges – the Russian Trading System (RTS) and the Moscow Interbank Currency Exchange (MICEX) – merged in December 2011. The MICEX-RTS bourse conducted an initial public offering on February 15, 2013, auctioning an 11.82 percent share.

The Russian Law on the Securities Market includes definitions of corporate bonds, mutual funds, options, futures, and forwards. Companies offering public shares are required to disclose specific information during the placement process as well as on a quarterly basis. In addition, the law defines the responsibilities of financial consultants assisting companies with stock offerings and holds them liable for the accuracy of the data presented to shareholders. In general, the Russian government respects IMF Article VIII, which it accepted in 1996.

Credit in Russia is allocated generally on market terms, and the private sector has access to a variety of credit instruments. Foreign investors can get credit on the Russian market, but interest rate differentials tend to prompt investors from developed economies to borrow on their own domestic markets when investing in Russia.

Money and Banking System

Banks make up a large share of Russia’s financial system. Although Russia had 432 licensed banks as of March 13, 2019, state-owned banks, particularly Sberbank and VTB Group, dominate the sector. The top five largest banks are state-controlled (with private Alfa Bank ranked sixth). The top five banks held 59.2 percent of all bank assets in Russia as of March 1, 2019. The role of the state in the banking sector continues to distort the competitive environment, impeding Russia’s financial sector development. At the beginning of 2019, the aggregate assets of the banking sector amounted to 91.4 percent of GDP, and aggregate capital was 9.9 percent of GDP. Russian banks reportedly operate on short time horizons, limiting capital available for long-term investments. Overall, a share of non-performing loans (NPLs) to total gross loans reached 5.5 percent as of January 1, 2019. Foreign banks are allowed to establish subsidiaries, but not branches within Russia. The Russian Central Bank and the Far East Development Ministry have proposed a number of policy initiatives aimed at creating a Regional Financial Center (RFC) in the Russian Far East. The Far East Development Ministry has drafted a bill to create the RFC that is still undergoing an interagency approval process.  These proposed measures, still to be approved, include legal amendments permitting foreign bank branches in the region. Foreign businesses operating within Russia must register as a business entity in Russia.

Foreign Exchange and Remittances

Foreign Exchange

While the ruble is the only legal tender in Russia, companies and individuals generally face no significant difficulty in obtaining foreign currency. Only authorized banks may carry out foreign currency transactions, but finding a licensed bank is not difficult. The Central Bank of Russia (CBR) retains the right to impose restrictions on the purchase of foreign currency, including the requirement that the transaction be completed through a special account, according to Russia’s currency control laws. The CBR does not require security deposits on foreign exchange purchases. Otherwise, there are no barriers to remitting investment returns abroad, including dividends, interest, and returns of capital, apart from the fact that reporting requirements exist and failure to report in a timely fashion will result in fines. To navigate these requirements, investors should seek legal expert advice at the time of making an investment.

Currency controls also exist on all transactions that require customs clearance, which, in Russia, applies to both import and export transactions, and certain loans. As of March 1, 2018, the Central Bank of Russia (CBR) no longer requires a “transaction passport” (i.e. a document with the authorized bank through which a business receives and services a transaction) when concluding import and export contracts. The CBR also simplified the procedure to record import and export contracts, reducing the number of documents required for bank authorization. Additionally, banks are now responsible for preparing reporting documentation and keeping record of such contracts. The new instruction is an example of further liberalization of the settlement procedure for foreign trade transactions in Russia. In 2016, the CBR tightened regulations for cash currency exchanges: a client must provide his full name, passport details, registration place, date of birth, and taxpayer number, if the transaction value exceeds 15,000 rubles (approximately USD 220). In July 2016, this amount was increased to 40,000 rubles (approximately USD 606). The declared purpose of this regulation is to combat money laundering and terrorist financing.

Remittance Policies

The CBR retains the right to impose restrictions on the purchase of foreign currency, including the requirement that the transaction be completed through a special account, according to Russia’s currency control laws. The CBR does not require security deposits on foreign exchange purchases. Otherwise, there are no barriers to remitting investment returns abroad, including dividends, interest, and returns of capital, apart from the fact that reporting requirements exist and failure to report in a timely fashion will result in fines. To navigate these requirements, investors should seek legal expert advice at the time of making an investment. Banking contacts confirm that investors have not had issues with remittances and in particular with repatriation of dividends.

Sovereign Wealth Funds

On February 1, 2018, Russia combined its two sovereign wealth funds, the Reserve Fund and the National Wealth Fund (NWF). These funds have a combined holding of USD 59.13 billion as of March 1, 2019. The government plans to use domestic and foreign borrowing to finance the budget deficit in 2019, while accumulating funds in the NWF. The Ministry of Finance oversees the fund’s assets, while the CBR acts as the operational manager. Russia’s Accounts Chamber (the standing body of state financial control established by Russia’s parliament) regularly audits the NWF, and the results are reported to the State Duma. The NWF is maintained in foreign currencies, and is included in Russia’s foreign currency reserves, which amounted to USD 479.3 billion as of March 8, 2019.

Russia does not have a unified definition of a state-owned enterprise (SOE). However, analysts define SOEs as enterprises where the state has significant control, through full, majority, or at least significant minority ownership. The OECD defines material minority ownership as 10 percent of voting shares, while under Russian legislation, a minority shareholder would need 25 percent plus one share to exercise significant control, such as block shareholder resolutions to the charter, make decisions on reorganization or liquidation, increase in the number of authorized shares, or approve certain major transactions. SOEs are subdivided into four main categories: 1) unitary enterprises (federal or municipal that are fully owned by the government), of which there are 862 unitary enterprises owned by the federal government as of January 1, 2018. 2) other state-owned enterprises where government holds a stake of which there are 1,130 joint-stock companies owned by the federal government as of January 1, 2018 – such as Sberbank, the biggest Russian retail bank (over 50 percent is owned by the government); 3) natural monopolies, such as Russian Railways; and 4) state corporations (usually a giant conglomerate of companies) such as Rostec and Vnesheconombank (VEB). There are currently six state corporations. Nevertheless, the number of federal government-owned “unitary enterprises” declined by 22.2 percent in 2017, according to the Federal Agency for State Property Management, while the number of joint-stock companies with state participation declined by 20.2 percent in the same period.

SOE procurement rules are non-transparent and use informal pressure by government officials to discriminate against foreign goods and services. Sole-source procurement by Russia’s SOEs increased to 45.5 percent in 2018, or to 37.7 percent in value terms, according to a study by the non-state “National Procurement Transparency Rating” analytical center.  The current Russian government policy of import substitution mandates numerous requirements for localization of production of certain types of machinery, equipment, and goods.

Privatization Program

The Russian government and its SOEs dominate the economy. The government approved in early 2017 a new 2017-19 plan identifying state-controlled assets of Sovcomflot, Alrosa, Novorossiysk Commercial Seaport, and United Grain Company for privatization. The plan would also reduce the state’s share in VTB, one of Russia’s largest banks, from over 60 percent to 25 percent plus one share within three years. However, citing unfavorable market conditions, the government once again put on hold privatization of Russia’s largest SOEs and sold none of its largest companies slated for privatization in 2017-2019. As a result, the total privatization revenues received in 2018 reached only RUB 2.44 billion (USD 39 million), down 58 percent compared to 2017.

While not standard practice, Russian companies are beginning to show an increased level of interest in their reputation as good corporate citizens. When seeking to acquire companies in Western countries or raise capital on international financial markets, Russian companies face international competition and scrutiny, including with respect to corporate social responsibility (CSR) standards. Consequently, most large Russian companies currently have a CSR policy in place, or are developing one, despite the lack of pressure from Russian consumers and shareholders to do so. CSR policies of Russian firms are usually published on corporate websites and detailed in annual reports, but do not involve a comprehensive “due diligence” approach of risk mitigation that the OECD Guidelines for Multinational Enterprises promotes. Most companies choose to create their own non-government organization (NGO) or advocacy outreach rather than contribute to an already existing organization. The Russian government is a powerful stakeholder in the development of certain companies’ CSR agendas. Some companies view CSR as merely financial support of social causes and choose to support local health, educational, and social welfare organizations favored by the government. One association, the Russian Union of Industrialists and Entrepreneurs (RSPP), developed a Social Charter of Russian Business in 2004 in which 265 Russian companies and organizations have since joined, as of October 2017. According to a study conducted by Skolkovo Business School together with UBS bank, in 2017 corporate contributions to charitable causes in Russia reached an estimated RUB 220 billion (USD 3.8 billion). RSPP reported that as many as 176 major Russian companies published 924 corporate non-financial reports in 2000-2017, including on social responsibility initiatives.

Despite some government efforts to combat it, the level of corruption in Russia remains high. Endemic corruption at the highest levels of government was the focus of nationwide protests in March 2017 led by one of Russia’s opposition leader Alexei Navalny. Anti-corruption protests continued across Russia in April 2017, days after President Vladimir Putin admitted Russia had a problem with state corruption. The protests hit the capital and several other cities, but attendance was notably smaller than in March 2017, when Russians took to the streets in droves demanding government reforms to tackle the issue. Transparency International’s 2018 Corruption Perception Index (CPI), ranked Russia 138 out of 180.

Russia’s CPI scores declined in 2018 to 28, down from 29 in 2015-2017. Roughly 39 percent of entrepreneurs surveyed by the Russian Chamber of Commerce in June-July 2018 said corruption declined in the preceding six months, while 9.5 percent said corruption intensified. Businesses mainly experienced corruption during applications for permits (39.2 percent), during inspections (34.5 percent), and in the procurement processes at the municipal level (30 percent).

In December 2018, Russia’s Prosecutor General Yuri Chaika reported 7,800 corruption convictions in 2018, including of 837 law enforcement officers, 63 elected officials at regional and municipal levels, and 606 federal, regional, and municipal officials.  Among these corruption convictions was Sakhalin Region’s former governor, Aleksandr Horoshavin, sentenced to 13 years in prison for bribery and money laundering.

In December 2018, the Russian government awarded 46 million rubles (USD 690,000) to a private company to direct discussions on anticorruption and civil-society development across the country.  During 2019, the contractor will conduct 135 events in Moscow, Saint Petersburg, Crimea, and 17 regions in Russia. These will include round table discussions, lectures, seminars, forums, and conferences. The company will also conduct social polling and in-depth interviews.

Russia adopted a law in 2012 requiring individuals holding public office, state officials, municipal officials, and employees of state organizations to submit information on the funds spent by them and members of their families (spouses and underage children) to acquire certain types of property, including real estate, securities, stock, and vehicles. The law also required public servants to disclose the source of the funds for these purchases and to confirm the legality of the acquisitions. Recent anti-corruption campaigns include guidance for government employees and establishment of a legal framework for lobbying. In 2014, government plans called for an education campaign for employees and students in tertiary education on bribery and the law. In 2015, federal legislation provided a clear definition of conflict of interest as a situation in which the personal interest (direct or indirect) of an official affects or may affect the proper, objective, and impartial performance of official duties.

The 2016 anti-corruption plan, typically adopted for two years, called for anti-corruption activity in the judiciary, investigations into conflicts of interest, and increased practical cooperation between the NGO/expert community and government officials. Legislative amendments were introduced in 2017 to improve the anti-corruption climate including the creation of a registry of officials charged with corruption-related offences (entered into force on January 1, 2018). The information about the officials who were dismissed for having committed corruption-related offences will be kept in the registry for the period of five years. The employer of an official dismissed for corruption will be responsible for entering the information in the online database. The Constitutional Court gave clear guidance to law enforcement bodies on the issue of asset confiscation due to the illicit enrichment of officials. Russia has ratified the UN Convention against Corruption, but its ratification did not include article 20, which deals with illicit enrichment. The Council of Europe’s Group of States against Corruption reported in 2016 that Russia fully complied with 11 recommendations – and partially complied with 10 – provided by this organization during the previous periodic review.

Nonetheless, the Russian government acknowledged difficulty enforcing the law effectively, and Russian officials often engaged in corrupt practices with impunity. Some analysts have expressed concern that a lack of depth in the compliance culture in Russia will render Russia’s adherence to international treaties a formality that does not function in reality. The implementation and enforcement of the many measures required by these conventions have not yet been fully tested. In recent years, there appear to have been a greater number of prosecutions and convictions of mid-level bureaucrats for corruption, although real numbers were difficult to obtain. The areas of government spending that ranked highest in corruption were public procurement, media, national defense, and public utilities.

Corruption in the past was mostly associated with large construction or infrastructure projects. Russia’s Federal Security Service stated in February 2016 that RUB5 billion (USD 77 million) of defense spending was lost to corruption in 2014. In 2016, authorities brought corruption charges against three governors, one federal minister, one deputy minister, the head of Federal Customs (charges were later dropped), and the deputy head of the Federal Investigative Committee. Not one law-enforcement agency managed to avoid high-level corruption investigations in their ranks, including the newly-formed National Guard. In September of 2016, Russian authorities arrested an MVD colonel who allegedly had stashed more than USD 120 million in cash in a Moscow apartment.

It is important for U.S. companies, irrespective of size, to assess the business climate in the relevant market in which they will be operating or investing and to have effective compliance programs or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in Russia should take time to become familiar with the relevant anticorruption laws of both Russia and the United States in order to comply fully with them. They should also seek, when appropriate, the advice of legal counsel.

Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/.

Resources to Report Corruption

Vladimir Tarabrina
Ambassador at Large for International Anti-Corruption Cooperation
Ministry of Foreign Affairs
32/34 Smolenskaya-Sennaya pl, Moscow, Russia
+7 499 244-16-06

Anton Pominov
Director General
Transparency International – Russia
Rozhdestvenskiy Bulvar, 10, Moscow
Email: Info@transparency.org.ru

Individuals and companies that wish to report instances of bribery or corruption that impact, or potentially impact their operations, and to request the assistance of the United States Government with respect to issues relating to issues of corruption may call the Department of Commerce’s Russia Corruption Reporting hotline at (202) 482-7945, or submit the form provided at http://tcc.export.gov/Report_a_Barrier/reportatradebarrier_russia.asp  

Political freedom continues to be limited by restrictions on the fundamental freedoms of expression, assembly, and association and crackdowns on political opposition, independent media, and civil society. In the aftermath of Russia’s attempted annexation of Crimea in March 2014, nationalist rhetoric increased markedly. Russian laws give the government the authority to label NGOs as “foreign agents” if they receive foreign funding, greatly restricting the activities of these organizations. Since the law’s enactment, more than 150 NGOs have been labelled foreign agents. A law enacted in May 2015 authorizes the government to designate a foreign organization as “undesirable” if it is deemed to pose a threat to national security or national interests. Fourteen foreign organizations currently have this designation and are banned from operations in Russia.

According to the Russian press, 7,700 individuals were convicted of economic crimes in 2018; the Russian business community alleges many of these cases were the result of commercial disputes.  Potential investors should be aware of the risk of commercial disputes being criminalized. In Chechnya, Ingushetia, and Dagestan in the northern Caucasus region, Russia continues to battle resilient separatists who increasingly ally themselves with ISIS. These jurisdictions and neighboring regions in the northern Caucasus have a high risk of violence and kidnapping. Since December 2016, the number of terror attacks in Chechnya claimed by ISIS has increased markedly, as have counterterror military operations. Chechens and other North Caucasus natives have joined the ranks of ISIS fighters by the thousands, and the group has issued threats against Chechen and Russian targets. In the past, ISIS affiliated cells have carried out attacks in major Russian cities, including Moscow and St. Petersburg. In 2016, Russian law enforcement reportedly thwarted planned ISIS cell attacks in both cities.

Public protests continue to occur sporadically in Moscow and other cities. Authorities frequently refuse to grant permits for opposition protests, and there is usually a heavy police presence at demonstrations. Large-scale protests took place on March 26, 2017, when tens of thousands of people took to the streets in coordinated demonstrations in Moscow, St. Petersburg, and dozens of other cities across Russia to protest government corruption. Police arrested more than 1,000 people.

The Russian labor market remains fragmented, characterized by limited labor mobility across regions and substantial differences in wages and employment conditions. Earning inequalities are significant, enforcement of labor standards remains relatively weak, and collective bargaining is underdeveloped. Employers regularly complain about shortages of qualified skilled labor. This phenomenon is due, in part, to weak linkages between the education system and the labor market. In addition, the economy suffers from a general shortage of highly skilled labor. Meanwhile, a large number of inefficient enterprises, with high vacancy levels offer workers unattractive, uncompetitive salaries and benefits. After years of gradual hikes, the monthly minimum wage in Russia will finally be increased to the official “subsistence” level of RUB 11,163 (USD 196) on May 1, 2019, eight months ahead of the original schedule. Employers are required to make severance payments when laying off employees in light of worsening market conditions.

The rate of actual unemployment, calculated according to International Labor Organization (ILO) methodology, averaged 4.9 percent in 2018. As of the end of 2017, Moscow and the Republic of Ingushetia had the lowest and highest unemployment rates in the country – 1.2 percent and 26.3 percent, respectively. Real wages increased in 2018 by 6.8 percent year-on-year, with retail sales expanding by 2.6 percent year-on-year. Private businesses must compete with SOEs, which dominate the economy. Recent surveys indicate Russians would prefer to work for SOEs because they offer better salaries and benefits. SOEs and the public sector employ 33 percent of Russia’s 65.6 million economically active persons. The public sector, which maintains inefficient and unproductive positions, directly accounts for about 24.5 percent of the workforce.

The 2002 Labor Code governs labor standards in Russia. Normal labor inspections identify labor abuses and health and safety standards in Russia. The government generally complies with ILO conventions protecting worker rights, though enforcement is often insufficient, as the Russian government employs a limited number of labor inspectors.

Official statistics show 1.8 million registered migrant workers in 2017 (down from 1.83 million in 2017) who have valid work permits from visa countries or work “patents” from visa-free Central Asian countries. Workers from EAEU countries (Armenia, Belarus, Kazakhstan, and Kyrgyzstan) are eligible to work in Russia without work authorization documents. The Russian Interior Ministry estimated at the end of 2018 that the number of illegal immigrants in Russia accounted for about 2.0 million people and continued to fall. Migrant workers are concentrated in the construction, retail, housing, and utilities sectors. The Russian government enacted sectoral restrictions for foreign workers in 2016 that cap the percentage of foreign workers allowed in different industries.

The U.S. Overseas Private Investment Corporation (OPIC; slated to be incorporated into the U.S. International Development Finance Corporation in October 2019) announced in the wake of Russia’s actions in Ukraine in 2014 that it had suspended consideration of any new financing and insurance transactions in Russia. Prior to this decision, OPIC had been authorized to provide loans, loan guarantees (financing), and investment insurance against political risks to U.S. companies investing in Russia since 1992. OPIC currently has 15 active projects in Russia totaling nearly USD 502 million (10 projects covered by OPIC finance and five projects by OPIC insurance). See https://www.opic.gov/opic-action/active-opic-projects for more information.

The OPIC agreement (Investment Incentive Agreement) between the United States and Russia can be found at https://www.opic.gov/sites/default/files/docs/europe/BL_Russia-04-03-1992.pdf .

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

* Source for Host Country Data: FDI data – Central Bank of Russia; GDP data – Rosstat (GDP) (Russia’s GDP was 92,000 billion rubles in 2017, according to Rosstat. The yearly average ruble-dollar exchange rate in 2017, according to the IRS, was 58.3529 rubles to the dollar.)

Table 3: Sources and Destination of FDI

Table 4: Russian Portfolio Investment Destinations

Embassy of the United States of America
Economic Section
Bolshoy Deviatinsky Pereulok No. 8
Moscow 121099, Russian Federation
+7 (495) 728-5000 (Economic Section)
Email: MoscowECONTradeInvestmentAM@state.gov

Policies Towards Foreign Direct Investment

With the exception of a heavily protected agricultural sector, foreign investment into Switzerland is generally not hampered by significant barriers, with no reported discrimination against foreign investors or foreign-owned investments.  Incidents of trade discrimination do exist, for example with regards to agricultural goods such as bovine genetics products. Some city and cantonal governments offer access to an ombudsman, who may address a wide variety of issues involving individuals and the government, but does not focus exclusively on investment issues.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic enterprises may engage in various forms of remunerative activities in Switzerland and may freely establish, acquire, and dispose of interests in business enterprises in Switzerland.  There are, however, some investment restrictions in areas under state monopolies, including certain types of public transportation, postal services, alcohol and spirits, aerospace and defense, certain types of insurance and banking services, and the trade in salt.  Restrictions (in the form of domicile requirements) also exist in air and maritime transport, hydroelectric and nuclear power, operation of oil and gas pipelines, and the transportation of explosive materials. Additionally, the following legal restrictions apply within Switzerland:

Corporate boards: The board of directors of a company registered in Switzerland must consist of a majority of Swiss citizens residing in Switzerland; at least one member of the board of directors who is authorized to represent the company (i.e., to sign legal documents) must be domiciled in Switzerland.  If the board of directors consists of a single person, this person must have Swiss citizenship and be domiciled in Switzerland. Foreign controlled companies usually meet these requirements by nominating Swiss directors who hold shares and perform functions on a fiduciary basis. Mitigating these requirements is the fact that the manager of a company need not be a Swiss citizen and, with the exception of banks, company shares can be controlled by foreigners.  The establishment of a commercial presence by persons or enterprises without legal status under Swiss law requires an establishment authorization according to cantonal law. The aforementioned requirements do not generally pose a major hardship or impediment for U.S. investors.

Hostile takeovers: Swiss corporate shares can be issued both as registered shares (in the name of the holder) or bearer shares.  Provided the shares are not listed on a stock exchange, Swiss companies may, in their articles of incorporation, impose certain restrictions on the transfer of registered shares to prevent hostile takeovers by foreign or domestic companies (article 685a of the Code of Obligations).  Hostile takeovers can also be annulled by public companies; however, legislation introduced in 1992 made this practice more difficult.  Public companies must cite in their statutes significant justification (relevant to the survival, conduct, and purpose of their business) to prevent or hinder a takeover by a foreign entity.  Furthermore, public corporations may limit the number of registered shares that can be held by any shareholder to a percentage of the issued registered stock. In practice, many corporations limit the number of shares to 2-5 percent of the relevant stock.  Under the public takeover provisions of the 2015 Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading and its 2019 amendments, a formal notification is required when an investor purchases more than 3 percent of a Swiss company’s shares.  An “opt-out” clause is available for firms which do not want to be taken over by a hostile bidder, but such opt-outs must be approved by a super-majority of shareholders and must take place well in advance of any takeover attempt.

Banking: Those wishing to establish banking operations in Switzerland must obtain prior approval from the Swiss Financial Market Supervisory Authority (FINMA), a largely independent agency, administered under the Swiss Federal Department of Finance.  FINMA promotes confidence in financial markets and works to protect customers, creditors, and investors. FINMA approval of bank operations is generally granted if the following conditions are met: reciprocity on the part of the foreign state; the foreign bank’s name must not give the impression that the bank is Swiss; the bank must adhere to Swiss monetary and credit policy; and a majority of the bank’s management must have their permanent residence in Switzerland.  Otherwise, foreign banks are subject to the same regulatory requirements as domestic banks.

Banks organized under Swiss law must inform FINMA before they open a branch, subsidiary, or representation abroad.  Foreign or domestic investors must inform FINMA before acquiring or disposing of a qualified majority of shares of a bank organized under Swiss law.  If exceptional temporary capital outflows threaten Swiss monetary policy, the Swiss National Bank, the country’s independent central bank, may require other institutions to seek approval before selling foreign bonds or other financial instruments.  On December 20, 2008, government deposit insurance of individual current accounts held in Swiss banks was raised from CHF 30,000 to CHF 100,000.

Insurance: A federal ordinance requires the placement of all risks physically situated in Switzerland with companies located in the country.  Therefore, it is necessary for foreign insurers wishing to provide liability coverage in Switzerland to establish a subsidiary or branch in-country.

U.S. investors have not identified any specific restrictions that create market access challenges for foreign investors.

Other Investment Policy Reviews

The World Trade Organization’s (WTO) September 2017 Trade Policy Review of Switzerland and Liechtenstein includes investment information.  Other reports containing elements referring to the investment climate in Switzerland include the OECD Economic Survey of November 2017.

• Link to the WTO report: https://www.wto.org/english/tratop_e/tpr_e/tp_rep_e.htm#bycountry  

• Link to the OECD reports / papers: https://www.oecd-ilibrary.org/economics/oecd-economic-surveys-switzerland_19990464;jsessionid=174m5wrgvwd7j.x-oecd-live-02  

Business Facilitation

The Swiss government-affiliated non-profit organization Switzerland Global Enterprise (SGE) has a nationwide mandate to attract foreign business to Switzerland on behalf of the Swiss Confederation.  SGE promotes Switzerland as an economic hub and fosters exports, imports, and investments. Larger regional offices include the Greater Geneva-Berne Area (that covers large parts of Western Switzerland), the Greater Zurich Area, and the Basel Area.  Each canton has a business promotion office dedicated to helping facilitate real estate location, beneficial tax arrangements, and employee recruitment plans. These regional and cantonal investment promotion agencies do not require a minimum investment or job-creation threshold in order to provide assistance. However, these offices generally focus resources on attracting medium-sized entities that have the potential to create between 50 and 249 jobs in their region.

References:

• The Swiss government’s online portal (“easygov”) is Switzerland’s online registration website and includes links to the main local interlocutors for business related questions: https://www.easygov.swiss/easygov/#/  
• Switzerland Global Enterprise connects companies with potential host regions: https://www.s-ge.com/en/investment-promotion  
• Some of the larger promotion offices are:
  • Invest Western Switzerland Area: https://www.ggba-switzerland.ch/  
  • Greater Zurich Area: https://www.greaterzuricharea.com  
  • Basel Area: https://www.baselarea.ch/  

Switzerland has a dual system for granting work permits and allowing foreigners to create their own companies in Switzerland.  Employees who are citizens of the EU/EFTA area can benefit from the EU Free Movement of Persons Agreement. U.S. citizens who are not citizens of an EU/EFTA country and want to become self-employed in Switzerland must meet Swiss labor market requirements.  The criteria for admittance, usually not creating a hindrance for U.S. persons, are contained in the Federal Act on Foreign Nationals (FNA), the Decree on Admittance, Residence and Employment (VZAE) and the provisions of the FNA and the VZAE.

• The Federal Act on Foreign Nationals (FNA) (unofficial English translation): https://www.admin.ch/opc/en/classified-compilation/20020232/index.html  
• Decree on Admittance, Residence and Employment (VZAE) (not available in English): https://www.admin.ch/opc/de/classified-compilation/20070993/index.html  
• Provisions of the FNA and the VZAE (not available in English): https://www.ejpd.admin.ch/dam/data/bfm/rechtsgrundlagen/weisungen/auslaender/weisungen-aug-d.pdf 

Setting up a company in Switzerland requires registration at the relevant cantonal Commercial Registry.  The cost for registering a company is typically USD 1,300 – USD 15,200, depending on the company type. These costs mainly cover the Public Notary and entry into the Commercial Registry.

Other steps/procedures for registration include: 1) placing paid-in capital in an escrow account with a bank; 2) drafting articles of association in the presence of a notary public; 3) filing a deed certifying the articles of association with the local commercial register to obtain a legal entity registration; 4) paying the stamp tax at a post office or bank after receiving an assessment by mail; 5) registering for VAT; and 6) enrolling employees in the social insurance system (federal and cantonal authorities).

The World Bank Doing Business Report 2019 ranks Switzerland 38th in the ease of doing business among the 190 countries surveyed, and  77th in the ease of starting a business, with a  six-step registration process and 10 days required to set up a company.

Outward Investment

While Switzerland does not explicitly promote or incentivize outward investment, Switzerland’s export promotion agency Switzerland Global Enterprise facilitates overseas market entry for Swiss companies through its Swiss Business Hubs in several countries, including the United States.  Switzerland does not restrict domestic investors from investing abroad.

The United States and Switzerland do not have a bilateral investment agreement (BIT).  Switzerland has concluded numerous investment protection treaties with developing and emerging market economies; over 112 BITs and 29 relevant Free Trade Agreements (FTAs) with investment commitments are in force.

See the UNCTAD Investment Policy Hub for a full listing of BITs: https://investmentpolicyhub.unctad.org/IIA/CountryBits/203#iiaInnerMenu  

Currently, Switzerland is in various stages of discussions regarding FTAs with Algeria, Belarus, India, Kazakhstan, Malaysia, MERCOSUR, Russia, Thailand, and Vietnam.

Switzerland concluded an Income Tax Treaty with the United States in 1996.  https://www.irs.gov/businesses/international-businesses/switzerland-tax-treaty-documents  

A 2009 Protocol to this Treaty – ratified by Switzerland but not by the U.S. Senate – has not yet entered into force.

Investment Incentives

Many of Switzerland’s cantons make significant use of financial incentives to attract investment to their jurisdictions.  Some of the more forward-leaning cantons have occasionally waived taxes for new firms for up to ten years. However, this practice has been criticized by the OECD and European Union.  To satisfy OECD and EU standards, the Federal Council proposed the “Corporate Tax Reform III” (later renamed “Tax Reform and AHV Financing” (TRAF), which was approved by the Swiss parliament on September 28, 2018 and was accepted by 64.4 percent of Swiss voters in a May 19, 2019 popular vote.  Left-leaning parties had successfully organized opposition to CTR III, arguing that the proposed reform would benefit business while creating a tax revenue shortfall that would ultimately be borne by individual households.  TRAF appeased some on the Left by including a provision for the federal government to boost Swiss pension system (AHV) funding by CHF 2 billion (USD 2 billion) annually.  The Swiss Finance Ministry notes, however, that this injection will not resolve the structural problem that the pay-as-you-go AHV system is facing.  Green Party leaders criticized TRAF’s passage in Swiss media, stressing that an anticipated CHF 2 billion (USD 2 billion) tax revenue shortfall created by the tax reform would ultimately affect social services, regardless of the government’s additional AHV financing.  TRAF’s proponents have argued that greater investment and job growth resulting from the lower tax rates would likely offset the revenue shortfall. Whatever the economic reasoning, commentators note sweetening the pension pot favorably impacted some voters’ view of the tax reform law.

Entering into force on January 1, 2020, TRAF will oblige Swiss cantons to offer the same corporate tax rates to both Swiss and foreign companies, but will allow cantons to continue to set their own cantonal rates and offer incentives for corporate investment through deductions and preferential tax treatment for certain types of income.  Observers note that tax-friendly cantons such as Zug will likely remain competitive for foreign investment by continuing to offer aggressive incentives.  Swiss firms will also likely benefit, as overall cantonal tax rates are expected to decrease under TRAF.

The new proposed corporate tax code aims to create an internationally compliant, competitive tax system for companies while strengthening the AHV (Swiss pension scheme).  The TRAF tax reform is intended to safeguard the appeal and competitiveness of Switzerland as a business location and secure jobs and tax receipts in the medium to longer term.  In addition, the proposal will generate additional receipts for the AHV, thus helping to secure pensions. If approved by the Swiss public, TRAF would enter into force on January 1, 2020, abolishing special tax privileges that only apply to foreign firms and establishing a level playing field between Swiss and foreign companies, while allowing cantons to offer various tax deductions to incentivize investment.  Many cantons have already lowered their overall corporate tax rate independently of the reform to accommodate foreign companies. Zurich, which is sometimes used as a reference point for corporate location tax calculations within Switzerland, has a combined corporate tax rate of roughly 25 percent, including municipal, cantonal, and federal tax.

Individual income tax rates also vary widely across the 26 cantons.

Foreign Trade Zones/Free Ports/Trade Facilitation

Switzerland’s free ports remain an important hub particularly for art works and collectibles from all over the world.  The country has taken steps in recent years to minimize the risks of abuse in free ports and to ensure that processes are in line with international standards.

Performance and Data Localization Requirements

There are no “forced localization” laws designed to require foreign investors to use domestic content in goods or technology (e.g., data storage within Switzerland).  In a June 2017 court decision regarding a February 2014 Federal Council decision to exclude a foreign competitor from bidding on services related to the government’s critical infrastructure, the court ruled in favor of the Swiss State-Owned Enterprise involved in the bid.  U.S. companies have to date not voiced concerns.

Switzerland follows strict privacy laws and certain data may not be collected in Switzerland, as it is deemed personal and particularly “worthy of protection.”  The collection of certain data may need to be registered at the office of the Federal Data Protection and Information Commissioner. Some foreign companies have located data centers in Switzerland due to the country’s strict privacy rules and neutrality.  On April 1, 2018, FINMA published an outsourcing circular clarifying regulations for data storage for the banking and insurance sector at: https://www.finma.ch/en/documentation/circulars/  

Real Property

Physical property rights are recognized and enforced within Switzerland, which currently ranks 16th out of 190 countries in the ease of transferring and registering property, according to the World Bank’s Doing Business Report 2019.

Intellectual Property Rights

According to the World Intellectual Property Organization’s (WIPO’s) World Intellectual Property Indicators, in 2017 Switzerland ranked 8th globally in filing patents, 11th in industrial designs, and 14th in trademarks, which reflects Switzerland’s overall strong protection and enforcement of intellectual property rights (IPR).  In 2016, USTR placed Switzerland on its Special 301 Watch List due to concerns regarding specific difficulties in Switzerland’s system of online copyright protection.  A legal proposal to address these issues was sent to parliament in November 2017. If the proposed draft law now being debated is approved by parliament, the amended law is expected to provide right holders with necessary tools to limit online piracy, including stay-down obligations for Swiss internet hosting providers and allow the use of IP addresses to file complaints against illegal uploaders.  If approved by parliament in 2019, the revised Copyright Act is expected to enter into force in 2020.

Federal customs authorities in Switzerland have the authority to seize counterfeit goods, upon request from the IPR holder or from related interest groups (e.g., professional associations).  Goods can be seized for 10 days if there is reasonable suspicion that they are counterfeit. Provisional measures can also be obtained from a Swiss court to ensure evidence is not destroyed. If the destruction of goods is requested by an IPR holder, the owner of the goods can dispute that claim in writing within 10 days.  In 2018, Swiss customs conducted 1,682 interventions and seized counterfeit goods valued at USD 20 million (excluding pharmaceuticals, which are tracked separately).  Of the goods seized at the Swiss border, 86.2 percent included bags, watches, jewelry and glasses.  In 2018, a total of 3,203 pharmaceutical consignments, which included both counterfeit and excess items, were reported to Swissmedic, the surveillance authority for medicines and medical devices.  42 percent of the seized consignments came from India.

Detailed information is available on Swiss Customs website: https://www.ezv.admin.ch/ezv/en/home/documentation/publications/fakten_und_zahlen.html  

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

Resources for Rights Holders

Thomas (Toby) Wolf, Economic/Commercial Officer
Theodore Fisher, Economic/Commercial Officer
Nadia Nadalin, Economic Assistant
U.S. Embassy in Bern, Sulgeneckstrasse 19, 3003 Bern, Switzerland
+41 31 357 7319
Email: Business-bern@state.gov

Country / Economy resources

Swiss American Chamber of Commerce
Talacker 41
8001 Zurich
+41 43 443 72 00
Email: info@amcham.ch

Capital Markets and Portfolio Investment

The Swiss government’s attitude toward foreign portfolio investment and market structures is positive, resulting in high global rankings by many indices.

The SIX Swiss stock exchange based in Zurich is one of the top stock markets worldwide based on market capitalization.

Money and Banking System

Switzerland is home to a sophisticated banking system that provides a high degree of service to both foreign and domestic entities.  Switzerland also has an effective regulatory system that encourages and facilitates portfolio investment. Domestic and foreign bidders are treated equally when it comes to hostile takeovers within Switzerland.  The Swiss Bankers Association (SBA), a trade association of almost 300 member financial institutions, estimated that Switzerland’s banks held assets amounting to approximately USD 7 trillion in 2018, almost half of which belong to foreigners.  The largest banks, UBS and Credit Suisse, each hold about USD 1 trillion in assets, while Raiffeisen Switzerland holds about USD 220 billion and Zurich Cantonal Bank holds roughly USD 172 billion. Swiss banks maintain a high ratio of deposit assets when compared with the country’s GDP (178 percent), a measure of the strength of the financial system.  Switzerland also maintains an independent central bank – the Swiss National Bank (SNB).

U.S. citizens who are resident in Switzerland may face difficulties in opening bank accounts at smaller Swiss banks as a result of the administrative costs of complying with additional regulatory and administrative procedures required for U.S. related person accounts under accepted disclosure rules.

The Swiss government created a blockchain task force in January 2018 to foster cooperation between the traditional banking sector and the nascent industry and to discuss potential legal and regulatory reforms to attract blockchain technologies while maintaining anti-money laundering controls.  In December 2018, the Swiss government endorsed a report on the legal framework for blockchain and distributed ledger technology (DLT) in the financial sector with the goal of creating favorable conditions for Switzerland to establish itself and evolve as a leading location for fintech and DLT companies.  On March 22, 2019, the Swiss government initiated consultations on adapting federal legislation to recent developments in DLT.

Several associations provide information about Swiss banks that offer services to U.S. clients:

• https://www.amcham.ch/publications/p_publications.asp?publication=Other percent20Chamber percent20Publications  
• https://americanswelcome-expats.swiss/list-of-swiss-banks.php  

Foreign Exchange and Remittances

Foreign Exchange

On January 15, 2015 the Swiss National Bank (SNB) abandoned the Swiss franc’s euro peg (1.20 CHF/EUR).  In the wake of the SNB’s announcement, the franc increased over 30 percent in value against the euro. The franc currently trades at around 1.13 CHF/EUR.  The Swiss franc trades around parity with the dollar, with one Swiss franc equaling 0.9986 USD (as of 04/04/2019).

Since 2015, the SNB has attempted to prevent further strengthening of the Swiss franc by instituting a negative interest rate for commercial bank deposits at the SNB, currently -0.75 percent, while continuing an expansionary monetary policy through intervention in the foreign currency market.  As of March 21, 2019, the SNB maintained its assessment that the Swiss franc is “highly valued.” The strength of the franc has lowered effective prices of imports to Switzerland, but it also has harmed Swiss competitiveness as an export-oriented economy. In 2018, the Swiss franc remained fairly stable against the euro and the U.S. dollar.

Remittance Policies

There are currently no restrictions on converting, repatriating, or transferring funds associated with an investment (including remittances of capital, earnings, loan repayments, lease payments, royalties) into a freely usable currency and at the a legal market clearing rate.

Sovereign Wealth Funds

Switzerland does not have a sovereign wealth fund or an asset management bureau.

The Swiss Confederation is the largest or sole shareholder in Switzerland’s five State-Owned Enterprises (SOEs), active in the areas of ground transportation (SBB), information and communication (Swiss Post, Swisscom), defense (RUAG – currently slated for a split and partial privatization), and aerospace (Skyguide).  These companies are typically responsible for “public function mandates,” but may also cover commercial activities (e.g., Swisscom in the area of telecommunications). SOEs typically have commercial relationships with private industry; Swisscom and RUAG are also active in foreign markets. Private sector competitors can compete with SOEs under the same terms and conditions with respect to access to markets, credit, and other business operations.  Additional SOEs controlled by the cantons are active in the areas of energy, water supply, and a number of subsectors. SOEs may benefit from exclusive rights and privileges (some of which are listed in Table A 3.2 of the WTO Trade Policy Review https://www.wto.org/english/tratop_e/tpr_e/tp455_e.htm  .

Switzerland is a party to the WTO Government Procurement Agreement (GPA).  Some areas are partly or fully exempted from the GPA, such as the management of drinking water, energy, transportation, telecommunications, and defense.  Private companies may encounter difficulties gaining business in these exempted sectors.

Privatization Program

In the aftermath of a 2016 cyberattack, the Federal Council reviewed RUAG’s structure in light of cybersecurity concerns for the Swiss military and decided in June 2018 to split the company. As of January 1, 2020, RUAG will divide its corporate structure into MRO Switzerland, which will serve the Swiss Armed Forces, and RUAG International, which will be partially privatized and will focus on aerospace technology.

The Swiss Confederation and Swiss companies are generally aware of the importance of pursuing due diligence to responsible business conduct (RBC) and demonstrating corporate social responsibility (CSR).  In response to criticism from civil society about the business practices of Swiss companies abroad, the Swiss government commissioned a series of reports on the government’s role in ensuring CSR, particularly in the commodities sector, and in December 2016 published a national action plan in conjunction with its commitments under the UN Guiding Principles on Business and Human Rights (https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-64884.html  ).  In June 2017, the Swiss government report on the progress of the action plan concluded that Switzerland promotes voluntary principles, such as the upholding of human rights standards, and also supports including mandatory CSR market incentives, such as minimum conditions for the protection of workers abroad, in forthcoming legislation.

The latest updates on corporate social responsibility are available on https://www.seco.admin.ch/seco/en/home/Aussenwirtschaftspolitik_Wirtschaftliche_Zusammenarbeit/Wirtschaftsbeziehungen/Gesellschaftliche_Verantwortung_der_Unternehmen.html  

There is ongoing political debate over whether Swiss courts should exercise jurisdiction over alleged human rights and environmental abuses by Swiss companies abroad. On March 12, 2019, the Swiss Senate voted narrowly to reject talks on a counter-proposal on responsible business put forward by the Lower House of Parliament.  The debate may culminate in an eventual vote on a popular initiative, known as the “Responsible Business Initiative” (RBI), in which Swiss citizens will decide whether to adopt or reject a partial revision of the Swiss Constitution that aims to introduce a specific provision on responsible business (https://www.bk.admin.ch/ch/f/pore/vi/vis462t.html  ).

Switzerland ranked 1st out of 180 countries in the 2018 Yale University-based Environmental Performance Index (EPI).

The Swiss government implements the OECD Due Diligence Guide for Responsible Supply Chains of Minerals from Conflict and High Risk Areas.  Switzerland is a member of the Extractive Industries Transparency Initiative and supports the Better Gold Initiative, which promotes responsible gold mining in Peru, with plans to expand to Bolivia and Colombia.  Switzerland’s Point of Contact for the OECD Guidelines at the State Secretariat for Economic Affairs (SECO) within the Federal Department of Economic Affairs, Education, and Research, may be contacted at: https://mneguidelines.oecd.org/ncps/switzerland.htm  

Information about the Swiss Better Gold Association: https://www.swissbettergold.ch/en/about  

Switzerland has signed a number of nonbinding agreements outlining best practices for corporations, including the Voluntary Principles on Security and Human Rights and the International Code of Conduct for Private Security Service Providers.

Under Swiss law, officials are not to accept anything that would “challenge their independence and capacity to act.”  According to the law, the range of permissible receipt of “individual advantages” is a sliding scale, depending on the role of the official.  Some officials may receive advantages up to several hundred Swiss francs, while others may receive no advantages at all (e.g., those working for financial regulators).  The upper limit value for gifts, such as champagne or watches, is a grey area that varies according to department and canton. Transparency International has recommended that at the federal level a maximum sum should be set.

The law provides criminal penalties for official corruption, and the government generally implements these laws effectively.  Investigating and prosecuting government corruption is a federal responsibility. A majority of cantons requires members of cantonal parliaments to disclose their interests.  A joint working group comprising representatives of various federal government agencies works under the leadership of the Federal Department of Foreign Affairs (MFA) to combat corruption.  Some multinationals have assisted with the fight against corruption by setting up internal hotlines to enable staff to report problems anonymously.

On September 24, 2009, Switzerland ratified the United Nations Convention against Corruption.  Swiss Government experts believe this ratification did not result in significant domestic changes, since passive and active corruption of public servants was already considered a crime under the Swiss Criminal Code (Art. 322).

A Group of States against Corruption (GRECO, Council of Europe) review in March 2017 recommended the adoption of a code of ethics/conduct, together with awareness-raising measures, for members of the federal parliament, judges, and the Office of the Attorney General (OAG) to avoid conflict of interests.  These measures needed to be accompanied by a reinforced monitoring of members of parliament’s compliance with their obligations. In March 2018, the OECD Working Group on Bribery in International Business Transactions recommended that Switzerland adopt an appropriate legal framework to protect private sector whistleblowers from discrimination and disciplinary action, to ensure that sanctions imposed for foreign bribery against natural and legal persons are effective, proportionate, and dissuasive, and to ensure broader and more systematic publication of concluded foreign bribery cases.  The OECD Working Group positively highlighted Switzerland’s proactive policy on seizure and confiscation, its active involvement in mutual legal assistance, and its role as a promoter of cooperation in field of foreign bribery. Regarding detection, the OECD Working Group commended the key role played by the Swiss Financial Intelligence Unit (MROS) in detecting foreign bribery.

A number of Swiss federal administrative authorities are involved in combating bribery.  The Swiss State Secretariat for Economic Affairs (SECO) deals with issues relating to the OECD Convention.  The Federal Office of Justice deals with those relating to the Council of Europe Convention, while the Federal Department of Foreign Affairs (MFA) deals with the UN Convention.  The power to prosecute and judge corruption offenses is shared between the relevant Swiss canton and the Swiss federal government. For the federal government, the competent authorities are the Office of the Attorney General, the Federal Criminal Court, and the Federal Police.  In the cantons, the relevant actors are the cantonal judicial authorities and the cantonal police forces.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

In February 2001, Switzerland signed the Council of Europe’s Criminal Law Convention on Corruption.  In 1997, Switzerland signed the OECD Anti-Bribery Convention, which entered into force on May 1, 2000.  Switzerland signed the UN Convention against Corruption in December 2003. Switzerland ratified the UN Anticorruption Convention on September 24, 2009.

In order to implement the Council of Europe’s convention, the Swiss parliament amended the Penal Code to make bribery of foreign public officials a federal offense (Title Nineteen “Bribery”); these amendments entered into force on May 1, 2000.  In accordance with the revised 1997 OECD Anti-Bribery Convention, the Swiss parliament amended legislation on direct taxes of the Confederation, cantons, and townships to prohibit the tax deductibility of bribes; these amendments became effective on January 1, 2001.

Switzerland maintains an effective legal and policy framework to combat domestic corruption.  U.S. firms investing in Switzerland have not raised with the Embassy any corruption concerns in recent years.  Offering or accepting bribes in Switzerland is subject to criminal and civil penalties, including imprisonment for up to five years.

Resources to Report Corruption

Government Agency Contact:

Michel Huissoud
Director, Swiss Federal Audit Office
Monbijoustrasse 45
3003 Bern / Switzerland
Ph. +41 58 463 10 35
Messages can be submitted via https://www.bkms-system.ch/bkwebanon/report/clientInfo?cin=5efk11  

“Watchdog” Organization Contact:

Martin Hilti
Executive Director, Transparency International Switzerland
Schanzeneckstrasse 25
P.O. Box 8509
3001 Bern / Switzerland
Ph. +41 31 382 3550
E-Mail: info@transparency.ch

Political violence in Switzerland is rare.  It is perpetrated by representatives of both left- and right-wing groups, including nuclear power opponents and neo-Nazi groups.  In April 2011, a letter bomb targeting employees of a nuclear power lobbying organization exploded. A group of Turkish nationalists clashed with a group of Kurdish independence supporters on the streets of Bern (the nation’s political capital) in 2015.  During the resulting violence, two protestors were killed and a number of people were injured. Lower-level clashes between left-wing demonstrators and the police happen several times a year, but violence is directed at police officers rather than businesses or members of the public.

The Swiss labor force is highly educated and highly skilled.  The Swiss economy is capital intensive and geared toward high value-added products and services.  In 2018, 76.6 percent of the workforce was employed in services, 20.3 percent in manufacturing, and 3.1 percent in agriculture.  Full-time work compared to part-time work is more prevalent among foreign workers than among Swiss workers: 73 percent of the foreign working population work full-time, while only 60 percent of their Swiss peers work full-time.  Wages in Switzerland are among the highest in the world. Switzerland continues to observe International Labor Organization (ILO) core conventions. Government regulations cover maximum work hours, minimum length of holidays, sick leave, compulsory military service, contract termination, and other requirements.  There is no minimum wage law.

Foreigners fill not only low-skilled, low-wage jobs, but also highly technical positions in the manufacturing and service industries.  Foreigners account for 31.2 percent of Switzerland’s labor force estimated at about 5 million people. Many foreign nationals are long-time Swiss residents who have not applied for or been granted Swiss citizenship.  Foreign seasonal workers take many low-wage jobs in agriculture.

In a February 9, 2014 national initiative, Swiss voters decided to impose limits on immigration, via parliamentary action, which could have negated the Swiss-EU Free Movement of Persons Agreement and carried potentially significant implications for the immigrant-dependent labor market.  In the wake of the 2014 immigration referendum, the government introduced a series of measures aimed at bringing into the labor market traditionally underemployed groups – women, older job seekers, refugees, and temporarily accepted asylum seekers. In December 2016, the parliament responded to the 2014 initiative by legislating a requirement that companies in sectors with more than 5 percent unemployment provide information on job openings to government-run employment centers.  These centers would provide employers with suitable candidates, which employers would be required to interview before filling a job. However, registration at the employment centers would be open to cross-border commuters and EU residents at large, thus blunting the effect of the legislation, which was implemented by the Federal Council as of July 2018.

Switzerland generally prohibits commerce on Sunday.  Swiss voters narrowly accepted a 2005 revision of the Swiss Federal labor law in order to provide flexible working hours, such as Sunday openings in major railway stations and airports.  Shopping hours outside of these locations remain mainly regulated by cantonal laws. Employees in the retail sector and in restaurants and bars, in cooperation with other interests, have been successful in resisting the easing of the federal and cantonal laws governing opening hours, but in recent years the State Secretariat for Economic Affairs (SECO) has loosened work restrictions on Sundays in a few specific instances, for example in allowing for a limited number of outlet malls to be open on Sundays.

Approximately a quarter of Switzerland’s full-time workers are unionized.  Labor-management relations are generally constructive, with a willingness on both sides to settle disputes by negotiation rather than labor action.  According to the Federal Office of Statistics, some 602 collective agreements exist in Switzerland today, of which approximately 61.5 percent concern the services sector, 37.5 percent the manufacturing sector, and 1 percent the agricultural sector; these are usually renewed without major difficulties.  Trade unions continue to promote a wider coverage of collective agreements for the Swiss labor force. Although the number of workdays lost to strikes in Switzerland is among the lowest in the OECD, Swiss trade unions have encouraged workers to strike on several occasions in recent years. In difficult economic times, employers may temporarily shift their full-time employees to part-time by registering with cantonal authorities and justifying reductions as necessary to business activities.  Employees can reject the shift to part-time work, but risk dismissal. Responsibility for establishing and enforcing rules for part-time work ultimately belongs to the Federal Council, the seven-member executive of the Swiss government.

The prohibition on strikes by Swiss public servants was generally repealed in 2000, although restrictions remain in place in a few cantons.  The Federal Council may now only restrict or prohibit the right to strike where it affects the security of the state, external relations, or the supply of vital goods to the country.

Switzerland’s average unemployment rate was 4.9 percent in 2018 (according to the ILO), or 2.6 percent according to the State Secretariat for Economic Affairs (SECO), using a different methodology.  The average unemployment rate was 5.9 percent for foreigners and 3.5 percent for Swiss citizens in 2017 (according to the ILO). All cantons bordering EU countries experience higher unemployment rates than Switzerland as a whole.  The unemployment rate of younger workers aged 15-24 is slightly below the average unemployment rate (2.4 percent, SECO), and the rate for older employees (50-64 years) is slightly higher (2.5 percent, SECO). According to Swiss labor statistics, 85 percent of unemployed workers found a new position within 12 months in 2017.

Switzerland does not have a free trade agreement with the United States and no agreed bilateral labor standards.

There is no OPIC agreement between the U.S. and Switzerland.  Switzerland is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA); the country has not signed a political risk insurance agreement with any Western European country or the United States.

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

Average exchange rate for 2017: 1 USD = 0.985 CHF
*Sources: Swiss National Bank   / Federal Office of Statistics  
**According to the OECD
***Significant statistical discrepancies are due to methodological differences in measuring foreign direct investment.  Data most recently available.

As the OECD Benchmark Definition of Foreign Investment concludes, there “are two possible approaches to identify the home country (of the direct investor) for inward FDI and the host country (of the direct investment enterprise) for outward FDI:

• by immediate host country/investing country (IHC/IIC)
• by ultimate host country/ultimate investing country (UHC/UIC)

Switzerland uses the immediate investing country approach (IIC) and the United States uses the more complex ultimate investing country approach (UIC).  The OECD  report explains in detail how the two different approaches generate different figures.

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Thomas (Toby) Wolf, Economic/Commercial Officer
Theodore Fisher, Economic/Commercial Officer
Nadia Nadalin, Economic Assistant
U.S. Embassy in Bern, Sulgeneckstrasse 19, 3003 Bern
+41 31 357 7319
Email: Business-bern@state.gov