Policies Towards Foreign Direct Investment

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

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

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

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

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

Other Investment Policy Reviews

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

Business Facilitation

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

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

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

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

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

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

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

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

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

Outward Investment

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

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

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

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

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

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

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

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

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

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

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

Transparency of the Regulatory System

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

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

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

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

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

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

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

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

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

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

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

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

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

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

International Regulatory Considerations

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

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

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

Legal System and Judicial Independence

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

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

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

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

Laws and Regulations on Foreign Direct Investment

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

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

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

• Ministry of Production and Labor (http://www.produccion.gob.ar/ )
• Treasury Ministry (https://www.argentina.gob.ar/hacienda )
• The Central Bank of the Argentine Republic (http://www.bcra.gov.ar/ )
• The National Securities Exchange Commission (http://www.cnv.gob.ar/ )
• The National Investment and Trade Promotion Agency (http://www.inversionycomercio.org.ar/ )
• Investors can download Argentina’s investor guide through this link: (https://drive.google.com/file/d/0B-086VB27JBjN0x0NmM4Y09GODA/view )

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

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

Investor-State Dispute Settlement

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

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

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

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

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

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

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

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

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

International Commercial Arbitration and Foreign Courts

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

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

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

Bankruptcy Regulations

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

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

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

Investment Incentives

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

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

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

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

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

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

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

Performance and Data Localization Requirements

Employment and Investor Requirements

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

Goods, Technology, and Data Treatment

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

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

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

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

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

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

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

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

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

Investment Performance Requirements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Table 3: Sources and Destination of FDI

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

Table 4: Sources of Portfolio Investment

Data not available.

Policies Towards Foreign Direct Investment

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

Screening of FDI

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

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

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

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

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

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

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

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

Other Investment Policy Reviews

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

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

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

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

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

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

Business Facilitation

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

Outward Investment

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

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

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

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

Transparency of the Regulatory System

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

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

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

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

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

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

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

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

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

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

International Regulatory Considerations

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

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

Legal System and Judicial Independence

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

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

Laws and Regulations on Foreign Direct Investment

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

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

Competition and Anti-Trust Laws

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

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

Expropriation and Compensation

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

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

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

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

Investment Incentives

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

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

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

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

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

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

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

Industrial Promotion

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* IBGE and BCB data, year-end.

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Policies towards Foreign Direct Investment

Chile has a successful track record of attracting foreign direct investment (FDI), despite the relatively small size of its domestic market.  For nearly four decades, promoting FDI has been an essential part of the Chilean government’s national development strategy. The country’s market-oriented economic policies create significant opportunities for foreign investors to participate. Laws and practices are not discriminatory against foreign investors, who receive treatment similar to Chilean nationals. While Chile’s business climate is generally straightforward and transparent, the permitting process of infrastructure, mining and energy projects has become increasingly contentious, especially regarding politically sensitive environmental impact assessments and indigenous consultations.

InvestChile is the government agency that implements various types of initiatives aimed to foster the entry and retention of FDI into Chile. It provides services in four categories:

1. attraction (information provision about Chile’s business climate and specific investment opportunities in both public and private projects);
2. pre-investment (sector-specific legal advisory services and information for decision-making);
3. landing (advice for installation of the company, foreign investor certificates, access to funds and regional support networks), and
4. after-care (management of inquiries, assistance for exporting and information for re-investment).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors have access to all productive activities, except for the internal waterways freight transportation sector, in which there is a cap on foreign equity ownership of companies of 49 percent. In 2019, Chile loosened maritime cabotage rules and began allowing large foreign cruise ships to move between Chilean ports. Some international reciprocity restrictions exist for fishing.

Most enterprises in Chile may be 100 percent owned by foreigners.  Chile only restricts the right to private ownership or establishment in what it defines as certain “strategic” sectors, such as nuclear energy and mining.  The Constitution establishes the “absolute, exclusive, inalienable and permanent domain” of the Chilean state over all mineral, hydrocarbon, and fossil fuel deposits within Chilean territory.  However, Chilean law allows the government to grant concession rights to individuals and companies for exploration and exploitation activities, and to assign contracts to private investors, without discrimination against foreign investors.

FDI is subject to pro forma screening by InvestChile.  Businesses in general do not consider these screening mechanisms as barriers to investment because approval procedures are expeditious and investments are usually approved.

Other Investment Policy Reviews

The World Trade Organization (WTO) has not conducted a Trade Policy Review for Chile since June 2015 (available here: https://www.wto.org/english/tratop_e/tpr_e/tp415_e.htm  ). The Organization for Economic Cooperation and Development (OECD) has not conducted an Investment Policy Review for Chile since 1997, and the country is not part of the countries covered to date by the United Nations Conference on Trade and Development’s (UNCTAD) Investment Policy Reviews.

Business Facilitation

The Chilean government took significant steps towards business facilitation during the present decade, including introducing digital processes to start a company.  According to the World Bank, Chile has one of the smoothest and shortest processes among Latin American and Caribbean countries – 11 procedures over an average of 29 days – to establish a foreign-owned limited liability company (LLC). Drafting corporate statutes and obtaining an authorization number can be done online at the platform www.tuempresaenundia.cl  .  Electronic signature and electronic invoicing allow one to register a company, obtain a taxpayer ID number, and get legal receipts, invoices, credit and debit notes, and accountant registries.  A company typically needs to register with Chile’s Internal Revenue Service, obtain a business license from a municipality, and register either with the Institute of Occupational Safety (public) or with one of three private nonprofit entities that provide work-related accident insurance, which is mandatory for employers.  In addition to the steps required of a domestic company, a foreign company establishing a subsidiary in Chile must authenticate the parent company’s documents abroad and register the incoming capital with the Central Bank. This procedure, established under Chapter XIV of the Foreign Exchange Regulations, requires a notice of conversion of foreign currency into Chilean pesos when the investment exceeds USD 10,000.00.  The registration process at the Registry of Commerce of Santiago is available online.

Outward Investment

The Government of Chile does not have an active policy of promotion or incentives for outward investment, nor does it impose restrictions on it.

According to ICSID, Chile has signed 50 Bilateral Investment Treaties (BITs), 37 of which are in force to date. There are agreements in force with Argentina, Austria, Belgium and Luxembourg, Bolivia, Colombia, Costa Rica, Croatia, Cuba, Czech Republic, Denmark, Dominican Republic, El Salvador, Finland, France, Germany, Greece, Guatemala, Honduras, Iceland, Italy, Malaysia, Nicaragua, Norway, Panama, Paraguay, Philippines, Poland, Portugal, Romania, South Korea, Spain, Sweden, Switzerland, Ukraine, the United Kingdom and Venezuela.

Chile has 26 FTAs with 64 countries. On January 1, 2004, the United States and Chile brought into force the investment chapter in our bilateral FTA.  Chile has additional investment chapters in force under FTAs with Australia, Canada, China (Supplementary Investment Agreement to the FTA), Colombia, Japan, Mexico, Republic of Korea, Peru and the Pacific Alliance (composed of four countries: Chile, Colombia, Mexico and Peru).  Chile also signed a new generation bilateral investment agreement with Uruguay that entered into force in 2012. FTAs with investment chapters that are signed but have not entered into force include the Investment Agreement with Hong Kong SAR (Supplementary Investment Agreement to the FTA), the Comprehensive and Progressive Transpacific Partnership (CPTPP) –which currently awaits ratification from the Senate-, and the Chile-Argentina FTA.  Chile is currently negotiating investment chapters that are part of FTA negotiations between the Pacific Alliance and Associated States (Australia, Canada, New Zealand and Singapore), and between Chile and the European Union.

Chile and the United States signed the U.S.-Chile Treaty to Avoid Double Taxation in 2010.  In May 2012, it was submitted to the U.S. Senate and is still pending ratification. The Chilean Congress ratified the treaty in September 2015. Chile has 33 double taxation treaties in force with Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Colombia, Croatia, Czech Republic, Denmark, Ecuador, France, Ireland, Italy, Japan, Malaysia, Mexico, New Zealand, Norway, Paraguay, Peru, Poland, Portugal, Russia, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, the United Kingdom and Uruguay.  Apart from the U.S.-Chile Treaty to Avoid Double Taxation, Chile has signed double taxation treaties with the Pacific Alliance countries (Colombia, Mexico and Peru) and with China, which have not yet entered into force.

Chile’s 2014 tax reform increased the effective marginal income tax rate on dividends or profits earned by Chilean residents in other countries up to 44.45 percent.  This change is only applied to residents from countries without a bilateral taxation treaty in force with Chile (such as the United States), while residents from the 32 countries with such a treaty maintain a maximum marginal tax rate of 35 percent.

Transparency of the Regulatory System

Chile’s legal, regulatory, and accounting systems are transparent and provide clear rules for competition and a level playing field for foreigners.  They are consistent with international norms; however, environmental regulations, approvals, mandatory indigenous consultation required by the International Labor Organization’s Indigenous and Tribal Peoples Convention (ILO 169), and other permitting processes have become lengthy and unpredictable, especially in politically sensitive cases.

Four institutions play key roles in the rule-making process in Chile: the Ministry General-Secretariat of the Presidency (SEGPRES), the Ministry of Finance, the Ministry of Economy, and the General Comptroller of the Republic.  However, Chile does not have a regulatory oversight body in its institutional setup. Most regulations come from the national government; however, some, in particular those related to land use, are decided at the local level. Both levels get involved in environmental permits.  Regulatory processes are managed by governmental entities. NGOs and private sector associations may participate in public hearings or comment periods. The OECD’s April 2016 “Regulatory Policy in Chile” report asserts that Chile took steps to improve its rule-making process, but still lags behind the OECD average in assessing the impact of regulations, consulting with outside parties on their design, and evaluating them over time.

In Chile, non-listed companies follow norms issued by the Accountants Professional Association, while publicly listed companies use the International Financial Reporting Standards (IFRS).  Since January 1, 2018, IFRS 9 entered into force for companies in all sectors except for banking, in which IFRS 15 will be applied. IFRS 16 entered into force in 2019.

The legislation process in Chile allows for public hearings during discussion of draft bills in both chambers of Congress.  Draft bills submitted by the Executive Branch to the Congress are readily available for public comment. Ministries and regulatory agencies are required by law to give notice of proposed regulations, but there is no formal requirement in Chile for consultation with the public, conducting regulatory impact assessments of proposed regulations, requesting comments, or reporting results of consultations.  For lower-level regulations or norms that do not need congressional approval, there are no formal provisions for public hearing or comment. As a result, Chilean regulators and rulemaking bodies normally consult with stakeholders, but in a less regular manner.

All decrees and laws are published in the Diario Oficial (National Gazette), but other types of regulations will not necessarily be found there.  There are no other centralized online locations for published regulations in Chile, similar to the Federal Register in the United States.

According to the OECD, compliance rates in Chile are generally high.  The approach to enforcement remains punitive rather than preventive, and regulators still prefer to inspect rather than collaborate with regulated entities on fostering compliance.  Each institution with regulation enforcement responsibilities has its own sanction procedures. Law 19.880 from 2003 establishes the principles for reversal and hierarchical recourse against decisions by the administration.  An administrative act can be challenged by lodging an action in the ordinary courts of justice, or by administrative means with a petition to the Comptroller General of the Republic. Affected parties may also make a formal appeal to the Constitutional Court against a specific regulation.

Chile still lacks a comprehensive, “whole of government” regulatory reform program.  However, the National Productivity Commission, created in 2014, includes among its main functions the identification of regulatory constraints to increase productivity and recommendations to overcome them.

Chile’s level of fiscal transparency is excellent.  Information on the budget and debt obligations, including explicit and contingent liabilities, is easily accessible online.

International Regulatory Considerations

Chile does not share regulatory sovereignty with any regional economic bloc.  However, several international norms or standards from multilateral organizations (UN, WIPO, ILO, among others) are referenced or incorporated into the country’s regulatory system.  As a member of the WTO, the government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Chile bases its legal system on civil law.  Chile’s legal and regulatory framework provides for effective means for enforcing property and contractual rights.

Laws governing issues of interest to foreign investors are found in several statutes, including the Commercial Code of 1868, the Civil Code, the Labor Code and the General Banking Act.  Chile has specialized courts for dealing with tax and labor issues.

The judicial system in Chile is generally transparent and independent.  The likelihood of government intervention in court cases is low. If a state-owned firm is involved in the dispute, the Government of Chile may become directly involved through the State Defense Council.

Regulations can be challenged before the court system, the General Comptroller, or the Constitutional Court, depending on the nature of the claim.

Laws and Regulations on Foreign Direct Investment

See the section on Policies towards Foreign Direct Investment.

Competition and Anti-Trust Laws

Chile’s anti-trust law prohibits mergers or acquisitions that would prevent free competition in the industry at issue.  An investor may voluntarily seek a ruling by an Antitrust Court that a planned investment would not have competition implications.  The National Economic Prosecutor (FNE) is a very active institution conducting investigations in competition-related cases and filing complaints before the Free Competition Tribunal (TDLC), which rules on those cases.

In February 2019, the TDLC fined supermarket chains Walmart, Cencosud, and SMU USD 4.2 million, USD 5.1 million and USD 3.1 million, respectively.  The TDLC ruled in a collusion case introduced by the FNE in 2016 establishing that these retailers set up a minimum prices agreement in the market for fresh poultry meat.

In November 2018, the TDLC fined two laboratories (Biosano and Sanderson, subsidiary of Fresenius Kabi Chile) USD 25.6 million and USD 2.1 million, respectively. The TDLC ruled in a case brought by the FNE in 2012 regarding collusion by these labs in public procurement from the National Central Procurement System for Health Services (CENABAST).

In April 2019, the FNE asked the Supreme Court to overturn the TDLC’s decision in October 2018 to authorize alliances between the Chilean airline Latam and British Airways, Iberia, and American Airlines.  The FNE argued that such alliances would impermissibly reduce competition over the main air routes to Europe and North America.

In April 2018, Oracle agreed to an FNE-proposed plan to improve its information sharing practices. This was the result of an FNE investigation in 2015 into Oracle’s potential abuse of its market dominance in database management systems (DBMS software).

In 2018, the FNE approved the merger between Linde Aktiengesellschaft and Praxair Inc., and the acquisition by Turner International Latin America, Inc (Turner) of all shares in Football Channel (CDF).  On March 20, 2019, the FNE approved acquisition of all shares in Twenty- First Century Fox, Inc. by The Walt Disney Company (Disney.  On May 31, 2018, the FNE approved the acquisition of Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) by Scotiabank Chile.

Expropriation and Compensation

Chilean law grants the government authority to expropriate property, including property of foreign investors, only on public interest or national interest grounds, on a non-discriminatory basis and in accordance with due process.  The government has not nationalized a private firm since 1973. Expropriations of private land take place in a transparent manner, and typically only when the purpose is to build roads or other types of infrastructure. The law requires the payment of immediate compensation at fair market value, in addition to any applicable interest.

Dispute Settlement

ICSID Convention and New York Convention

Since 1991, Chile has been a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). In 1975 Chile became a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

National arbitration law in Chile includes the Civil Procedure Code (Law Num. 1552, modified by Law Num. 20.217 of 2007), and the Law Num. 19.971 on International Commercial Arbitration.

Investor-State Dispute Settlement

Apart from the New York Convention, Chile is also a party to the Pan-American Convention on Private International Law (Bustamante Code) since 1934; the Inter-American Convention on International Commercial Arbitration (Panama Convention) since 1976; and the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States since 1992.

The U.S.-Chile FTA, in force since 2004, includes an investment chapter that provides the right for investors to submit claims under the ICSID Convention; the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules; or any other mutually agreed upon arbitral institution.  So far, no U.S. investors have filed claims under the agreement.

Over the past 10 years, there were only two investment dispute cases brought by foreign investors against the state of Chile before the World Bank’s International Center for Settlement of Investment Disputes (ICSID) tribunal. The first relates to a Spanish-Chilean citizen regarding the expropriation of Chilean newspaper El Clarin in 1975 by Chile’s military regime.  On September 13, 2016, ICSID issued a final ruling in favor of the Chilean state, rejecting the claimant’s request for financial compensation. However, the same person brought a new case in April 2017, related to the State’s actions following a 2008 judgment of the Santiago court in relation to the confiscation of the Goss printing press, as well as the alleged lack of remedy for the deprivation of their property rights in El Clarin.  The case is now pending resolution.

The second case was brought in 2017 by Colombian firm Alsacia, which holds concession contracts as operators of Transantiago, the public transportation system in Santiago de Chile. Claims are that the Government’s actions in relation to Transantiago allegedly created unfavorable operating conditions for the claimants’ subsidiaries and resulted in bankruptcy proceedings.  The case is pending resolution.

Local courts respect and enforce foreign arbitration awards, and there is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Mediation and binding arbitration exist in Chile as alternative dispute resolution mechanisms.  A suit may also be brought in court under expedited procedures involving the abrogation of constitutional rights.  The U.S.-Chile FTA investment chapter encourages consultations or negotiations before recourse to dispute settlement mechanisms.  If the parties fail to resolve the matter, the investor may submit a claim for arbitration. Provisions in Section C of the FTA ensure that the proceedings are transparent by requiring that all documents submitted to or issued by the tribunal be available to the public, and by stipulating that proceedings be public.  The tribunal must also accept amicus curiae submissions. The FTA investment chapter establishes clear and specific terms for making proceedings more efficient and avoiding frivolous claims. Chilean law is generally to be applied to all contracts. However, arbitral tribunals decide disputes in accordance with FTA obligations and applicable international law.

In Chile, the Judiciary Code and the Code of Civil Procedure govern domestic arbitration. Local courts respect and enforce foreign arbitral awards and judgments of foreign courts.  Chile has a dual arbitration system in terms of regulation, meaning that different bodies of law govern domestic and international arbitration. International commercial arbitration is governed by the International Commercial Arbitration Act that is modeled on the 1985 UNCITRAL Model Law on International Commercial Arbitration.  In addition to this statute, there is also Decree Law Number 2349 that regulates International Contracts for the Public Sector and sets forth a specific legal framework for the State and its entities to submit their disputes to international arbitration.

No Chilean state-owned enterprises (SOEs) have been involved in investment disputes in recent decades.

Bankruptcy Regulations

Chile’s Insolvency Law from 1982 was updated in October 2014.  The current law aims to clarify and simplify liquidation and reorganization procedures for businesses to prevent criminalizing bankruptcy.  It also established the new Superintendence of Insolvency and created specialized insolvency courts. The new insolvency law requires creditors’ approval to select the insolvency representative and to sell debtors’ substantial assets.  The creditor also has the right to object to decisions accepting or rejecting creditors’ claims. However, the creditor cannot request information from the insolvency representative. The creditor may file for insolvency of the debtor, but for liquidation purposes only.  The creditors are divided into classes for the purposes of voting on the reorganization plan; each class votes separately, and creditors in the same class are treated equally.

Investment Incentives

The Chilean government generally does not subsidize foreign investment, nor does it issue guarantees or joint financing for FDI projects.  There are, however, some incentives directed to isolated geographical zones and to the information technology sector. These benefits relate to co-financing of feasibility studies as well as to incentives for the purchase of land in industrial zones, the hiring of local labor, and the facilitation of project financing.  Other important incentives include accelerated depreciation accounting for tax purposes and legal guarantees for remitting profits and capital. Additionally, the Start-Up Chile program provide selected entrepreneurs with grants for USD 15,000 to USD 80,000, along with a Chilean work visa to develop a “startup” business in Chile over a period of 4 to 7 months.  Chile has other special incentive programs aimed at promoting investment and employment in remote regions, as well as other areas that suffer development lags.

Foreign Trade Zones/Free Ports/Trade Facilitation

Chile has two free trade zones: one in the northern port city of Iquique (Tarapaca Region) and the other in the far south port city of Punta Arenas (Magallanes Region).  Merchants and manufacturers in these zones are exempt from corporate income tax; value added tax (VAT) – on operations and services that take place inside the free trade zone – and customs duties. The same exemptions also apply to manufacturers in the Chacalluta and Las Americas Industrial Park in Arica (Arica and Parinacota Region).  Mining, fishing, and financial services are not eligible for free zone concessions. Foreign-owned firms have the same investment opportunities in these zones as Chilean firms. The process for setting up a subsidiary is the same inside as outside the zones, regardless of whether the company is domestic or foreign-owned. Zofri is the main FTZ located in Iquique.

Performance and Data Localization Requirements

Chile mandates that 85 percent of workforces must be local employees.  Exceptions are described in Section 11. The costs associated with migration regulations do not significantly inhibit the mobility of foreign investors and their employees.

Chile does not follow “forced localization.”  A draft bill that moved forward in Congress and is currently pending final approval could result in additional requirements (owner’s consent) for international data transfers in cases involving jurisdictions with data protection regimes below Chile’s standards.  The bill also proposes the creation of an independent Chilean Data Protection Agency that would be responsible for enforcing data protection standards. Private sector legal experts believe that this draft legislation would impose fewer restrictions on the international transfer of commercial data compared to current U.S. law.

Neither Chile’s Foreign Investment Promotion Agency nor the Central Bank applies performance requirements in their reviews of proposed investment projects.  The investment chapter in the U.S.–Chile FTA establishes rules prohibiting performance requirements that apply to all investments, whether by a third party or domestic investors.  The FTA investment chapter also regulates the use of mandatory performance requirements as a condition for receiving incentives and spells out certain exceptions. These include government procurement, qualifications for export and foreign aid programs, and non-discriminatory health, safety, and environmental requirements.

Unemployment in Chile averaged 6.9 percent of the labor force during 2018, while the labor participation rate was 59.7 percent of the working age population.  Immigrants account for nearly nine percent of the labor force. Chilean workers are adequately skilled and some sectors such as mining, agriculture, and fishing employ highly skilled workers.  In general, there is an adequate availability of technicians and professionals. Data on informality are not available for Chile in the ILO databases, but recent estimations made by the National Institute of Statistics suggest informal employment in Chile constitutes 30 percent of the workforce.

Article 19 of the Labor Code stipulates that employers must hire Chileans at least for 85 percent of their staff, except in the case of firms with less than 25 employees. However, Article 20 of the Labor Code includes several provisions under which foreign employees can exceed 25 percent, independent of the size of the company. 

In general, employees who have been working for at least one year are entitled to a statutory severance pay, upon dismissal without cause, equivalent to 30 days of the last monthly remuneration earned, for each year of service.  The upper limit is 330 days (11 years of service) for workers with a contract in force for one year or more. The same amount is payable to a worker whose contract is terminated for economic reasons. Upon termination, regardless of the reason, domestic workers are entitled to an unemployment insurance benefit funded by the employee and employer contributions to an individual unemployment fund equivalent to three percent of the monthly remuneration.  The employer’s contributions shall be paid for a maximum of 11 years by the same employer. Another fund made up of employer and government contributions is used for complementary unemployment payments when needed.

Labor and environmental laws are not waived in order to attract or retain investments.

According to the Labor Directorate, 1,139,955 workers (13.9 percent of Chilean workers) belonged to a trade union in the last quarter of 2016 (latest data available), when 11,653 unions were active.  In the same period, 347,142 workers (4.2 percent of Chilean workers) were covered by collective bargaining agreements. Collective bargaining coverage rates are higher in the financial, mining, and manufacturing sectors.  Unions can form nationwide labor associations and can affiliate with international labor federations. Contracts are normally negotiated at the company level. Workers in public institutions do not have collective bargaining rights, but national public workers’ associations undertake annual negotiations with the government.

The Labor Directorate under the Ministry of Labor is responsible for enforcing labor laws and regulations.  Both employers and workers may request labor mediation from the Labor Directorate, which is an alternate dispute resolution model aimed at facilitating communication and agreement between both parties.

According to a report from the Centre for Social Conflict and Cohesion Studies (COES), during 2017, 128 legal strikes took place in sectors where collective bargaining is permitted (a smaller number in comparison to 2017 when there were 198 strikes).  31,799 workers were involved in total in strikes during 2016 (latest data available from the Labor Directorate). As legal strikes in Chile have a restricted scope and duration, in general they do not present a risk for foreign investment.

Chile has and generally enforces laws and regulations in accordance with internationally recognized labor rights of: freedom of association and collective bargaining; the elimination of forced labor; child labor, including the minimum age for work; discrimination with respect to employment and occupation; and acceptable conditions of work related to minimum wage, occupational safety and health, and hours of work.  The maximum number of labor hours allowed per week in Chile is 45. In September 2018, Congress approved a minimum wage increase, by which beginning March, 2019 the national minimum wage is CLP 301,000 – USD 444 – a month for all occupations, including domestic servants, more than twice the official poverty line. There is a special minimum wage of CLP 224,704 (USD 331) a month for workers age 65 and older and age 18 and younger.  There are no gaps in compliance with international labor standards that may pose a reputational risk to investors.

Collective bargaining is not allowed in companies or organizations dependent upon the Defense Ministry or whose employees are prohibited from striking, such as in health care, law enforcement, and public utilities.  Labor courts can require workers to resume work upon a determination that a strike causes serious risk to health, national security, the supply of goods or services to the population, or to the national economy.

The United States-Chile Free Trade Agreement (FTA) entered into force on January 1, 2004.  The FTA requires the United States and Chile to maintain effective labor and environmental enforcement.

Since 2013, Overseas Private Investment Corporation (OPIC) partnered with U.S. solar energy developers to finance five large-scale power facilities throughout the Atacama Desert in northern Chile.  Other OPIC-financed projects in the country include the run-of-river hydropower project Alto Maipo, and the toll road Vespucio Norte Express.

An OPIC Bilateral Investment Agreement between Chile and the United States took effect in 1984.  Chile is a party to the convention of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

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

* Source for Host Country Data: Central Bank of Chile.

Table 3: Sources and Destination of FDI

According to the IMF’s Coordinated Direct Investment Survey (CDIS), total stock of FDI in Chile in 2017 amounted to USD 274.7 billion, compared to USD 248.6 billion in 2016.  The United States remains the main source of FDI to Chile with USD 31.7 billion, representing 12 percent of the total. The following top sources (Canada, Spain and the Netherlands) accounted for 25 percent of Chile’s inward FDI stock.  Cayman Islands, a tax haven, is Chile’s fifth source of FDI. Chile’s outward direct investment stock in 2017 remains concentrated in South America, where Brazil, Peru and Argentina together represented 31 percent of total Chilean outward FDI.  The United States accounted for 9 percent of the total.

Table 4: Sources of Portfolio Investment

According to the IMF’s Coordinated Portfolio Investment Survey (CPIS), total stock of portfolio investment in Chile as of June 2018 amounted to USD 180.6 billion, of which USD 139 billion were equity and investment funds shares, and the rest were debt securities. The United States are the main source of portfolio investment to Chile with USD 55.6 billion, representing 31 percent of the total.  The following top source is Luxembourg (a tax haven), which is also the main source of equity investment, with 40 percent of the total. Ireland, the United Kingdom and Germany are the following top sources of total portfolio investment to Chile, while Mexico and Japan are among the top five sources of debt securities investment.

Policies Towards Foreign Direct Investment

The Colombian government actively encourages foreign direct investment (FDI).  In the early 1990s, the country began economic liberalization reforms, which provided for national treatment of foreign investors, lifted controls on remittance of profits and capital, and allowed foreign investment in most sectors.  Colombia imposes the same investment restrictions on foreign investors that it does on national investors. Generally, foreign investors may participate in the privatization of state-owned enterprises without restrictions. All FDI involving the establishment of a commercial presence in Colombia requires registration with the Superintendence of Corporations (‘Superintendencia de Sociedades’) and the local chamber of commerce.  All conditions being equal during tender processes, national offers are preferred over foreign offers. Assuming equal conditions among foreign bidders, those with major Colombian national workforce resources, significant national capital, and/or better conditions to facilitate technology transfers are preferred.

ProColombia is the Colombian government entity that promotes international tourism, foreign investment, and non-traditional exports.  ProColombia assists foreign companies that wish to enter the Colombian market by addressing specific needs, such as identifying contacts in the public and private sectors, organizing visit agendas, and accompanying companies during visits to Colombia.  All services are free of charge and confidential. Business process outsourcing, software and IT services, cosmetics, health services, automotive manufacturing, textiles, graphic communications, and electric energy are priority sectors. ProColombia’s “Invest in Colombia” web portal offers detailed information about opportunities in agribusiness, manufacturing, and services in Colombia (www.investincolombia.com.co/sectors).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investment in the financial, hydrocarbon, and mining sectors is subject to special regimes, such as investment registration and concession agreements with the Colombian government, but is not restricted in the amount of foreign capital.  The following sectors require that foreign investors have a legal local representative and/or commercial presence in Colombia: travel and tourism agency services; money order operators; customs brokerage; postal and courier services; merchandise warehousing; merchandise transportation under customs control; international cargo agents; public service companies, including sewage and water works, waste disposal, electricity, gas and fuel distribution, and public telephone services; insurance firms; legal services; and special air services, including aerial fire-fighting, sightseeing, and surveying.

According to the World Bank’s Investing Across Sectors indicators, among the 14 countries in Latin America and the Caribbean covered, Colombia is one of the economies most open to foreign equity ownership.  With the exception of TV broadcasting, all other sectors covered by the indicators are fully open to foreign capital participation. Foreign ownership in TV broadcasting companies is limited to 40 percent. Companies publishing newspapers can have up to 100 percent foreign capital investment; however, there is a requirement for the director or general manager to be a Colombian national.

According to the Colombian constitution and foreign investment regulations, foreign investment in Colombia receives the same treatment as an investment made by Colombian nationals.  Any investment made by a person who does not qualify as a resident of Colombia for foreign exchange purposes will qualify as foreign investment. Foreign investment is permitted in all sectors, except in activities related to defense, national security, and toxic waste handling and disposal.  There are no performance requirements explicitly applicable to the entry and establishment of foreign investment in Colombia.

Foreign investors face specific exceptions and restrictions in the following sectors:

Media:  Only Colombian nationals or legally constituted entities may provide radio or subscription-based television services.  For National Open Television and Nationwide Private Television Operators, only Colombian nationals or legal entities may be granted concessions to provide television services.  Colombia’s national, regional, and municipal open-television channels must be provided at no extra cost to subscribers. Foreign investment in national television is limited to a maximum of 40 percent ownership of the relevant operator.  Satellite television service providers are obliged to include within their basic programming the broadcast of government-designated public interest channels. Newspapers published in Colombia covering domestic politics must be directed and managed by Colombian nationals.

Accounting, Auditing, and Data Processing:  To practice in Colombia, providers of accounting services must register with the Central Accountants Board; have uninterrupted domicile in Colombia for at least three years prior to registry; and provide proof of accounting experience in Colombia of at least one year.  No restrictions apply to services offered by consulting firms or individuals. A legal commercial presence is required to provide data processing and information services in Colombia.

Banking:  Foreign investors may own 100 percent of financial institutions in Colombia, but are required to obtain approval from the Financial Superintendent before making a direct investment of ten percent or more in any one entity.  Portfolio investments used to acquire more than five percent of an entity also require authorization. Foreign banks must establish a local commercial presence and comply with the same capital and other requirements as local financial institutions.  Foreign banks may establish a subsidiary or office in Colombia, but not a branch. Every investment of foreign capital in portfolios must be through a Colombian administrator company, including brokerage firms, trust companies, and investment management companies.  All foreign investments must be registered with the central bank.

Fishing:  A foreign vessel may engage in fishing and related activities in Colombian territorial waters only through association with a Colombian company holding a valid fishing permit.  If a ship’s flag corresponds to a country with which Colombia has a complementary bilateral agreement, this agreement shall determine whether the association requirement applies for the process required to obtain a fishing license.  The costs of fishing permits are greater for foreign flag vessels.

Private Security and Surveillance Companies:  Companies constituted with foreign capital prior to February 11, 1994 cannot increase the share of foreign capital.  Those constituted after that date can only have Colombian nationals as shareholders.

Telecommunications:  Barriers to entry in telecommunications services include high license fees (USD 150 million for a long distance license), commercial presence requirements, and economic needs tests.  While Colombia allows 100 percent foreign ownership of telecommunication providers, it prohibits “callback” services.

Transportation:  Foreign companies can only provide multimodal freight services within or from Colombian territory if they have a domiciled agent or representative legally responsible for its activities in Colombia.  International cabotage companies can provide cabotage services (i.e. between two points within Colombia) “only when there is no national capacity to provide the service,” according to Colombian law. Colombia prohibits foreign ownership of commercial ships licensed in Colombia and restricts foreign ownership in national airlines or shipping companies to 40 percent.  FDI in the maritime sector is limited to 30 percent ownership of companies operating in the sector. The owners of a concession providing port services must be legally constituted in Colombia and only Colombian ships may provide port services within Colombian maritime jurisdiction; however, vessels with foreign flags may provide those services if there are no capable Colombian-flag vessels.

Other Investment Policy Reviews

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

Business Facilitation

New businesses must first register with the chamber of commerce of the city in which the company will reside.  Applicants also register using the Colombian tax authority’s portal at www.dian.gov.co. Apart from the registration with the chamber and the tax authority, companies must register a unified form to self-assess and pay social security and payroll contributions.  The unified form can be submitted electronically to the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), the Colombian Family Institute (Instituto Colombiano de Bienestar Familiar, or ICBF), and the Family Compensation Fund (Caja de Compensación Familiar).  After that, companies must register employees for public health coverage, affiliate the company to a public or private pension fund, affiliate the company and employees to an administrator of professional risks, and affiliate employees with a severance fund.

Colombia went down six spots from 59 to 65 in the World Bank’s 2019 “Ease of Doing Business” index.  According to the report, starting a company in Colombia requires eight procedures and takes an average of 11 days.  Information on starting a company can be found at www.ccb.org.co/en/Creating-a-company/Company-start-up/Step-by-step-company-creation ; http://www.investincolombia.com.co/how-to-invest.html#slider_alias_steps-to-establish-your-company-in-colombia ; and www.dian.gov.co. 

Outward Investment

ProColombia, the government’s FDI promotion agency, also promotes Colombian investment abroad.  The “Colombia Invests” web portal (http://www.colombiainvierte.com.co/ ) offers detailed information for opportunities in the priority sectors of agribusiness, manufacturing, and services for Colombian investors in a range of countries.  ProColombia also offers a network of foreign contacts and plans commercial missions.

BITs or FTAs:

Colombia has 13 free trade agreements or agreements of economic cooperation that include investment chapters with: the United States, the European Union, Canada, Chile, Costa Rica, Cuba, Mexico, South Korea, CAN (Andean Community of Nations – Peru, Ecuador, Bolivia), the Pacific Alliance (Colombia, Chile, Mexico and Peru), EFTA (European Free Trade Area –Switzerland, Liechtenstein, Norway and Iceland), Mercosur (Brazil, Uruguay, Paraguay, and Argentina), and Central America’s Northern Triangle (El Salvador, Honduras, and Guatemala).  Colombia has subscribed trade agreements with Panama and Israel, but they are not yet in effect. There are ongoing FTA negotiations with Japan and Turkey. Through the Pacific Alliance, Colombia is also participating in negotiations with Canada, Australia, New Zealand, and Singapore to extend “associate state” status to these countries. Additionally, Colombia has stand-alone bilateral investment treaties in force with China, India, Peru, Spain, Switzerland, the United Kingdom, and Japan.

 Bilateral Taxation Treaties:

Colombia has double taxation treaties with Bolivia, Canada, Chile, the Czech Republic, Ecuador, France, India, Italy, Mexico, Peru, Portugal, South Korea, Spain, Switzerland, United Arab Emirates, and the United Kingdom.  Colombia is currently negotiating double taxation agreements with Germany, Japan, the Netherlands, and Panama, and has expressed strong interest in renewing negotiations with the United States.

Transparency of the Regulatory System

The Colombian legal and regulatory systems are generally transparent and consistent with international norms.  The commercial code and other laws cover broad areas, including banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law.  The civil code contains provisions relating to contracts, mortgages, liens, notary functions, and registries. There are no identified private-sector associations or non-governmental organizations leading informal regulatory processes. The ministries generally consult with relevant actors, both foreign and national, when drafting regulations.  Proposed laws are typically published as drafts for public comment.

Enforcement mechanisms exist, but historically the judicial system has not taken an active role in adjudicating commercial cases.  The Constitution establishes the principle of free competition as a national right for all citizens and provides the judiciary with administrative and financial independence from the executive branch.  Colombia has transitioned to an oral accusatory system to make criminal investigations and trials more efficient. The new system separates the investigative functions assigned to the Office of the Attorney General from trial functions.  Lack of coordination among government entities as well as insufficient resources complicate timely resolution of cases.

Colombia is a member of UNCTAD’s international network of transparent investment procedures (see http://www.businessfacilitation.org/ and Colombia’s website http://colombia.eregulations.org/).  Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name, and contact details of the entities and people in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures.

International Regulatory Considerations

OECD countries agreed on May 25, 2018, to invite Colombia as the 37th member of the Organization.  With Law 1950 of January 8, 2019, President Duque ratified the Colombian accession to the oOECD. Colombia’s Constitutional Court must now review and uphold the law before accession is completed.  Colombia is part of the World Trade Organization (WTO). The government generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. In December 2017, the legislature ratified the WTO Trade Facilitation Agreement (TFA).  The TFA is now also pending constitutional court review before Colombia can deposit its letter of acceptance with the WTO. Regionally, Colombia is a member of organizations such as the Inter-American Development Bank (IADB), the Andean Community of Nations (CAN), the Union of South American Nations (UNASUR), and the Pacific Alliance.

Legal System and Judicial Independence

Colombia has a comprehensive legal system.  Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community.  The judicial framework includes the Council of State, the Constitutional Court, the Supreme Court of Justice, and various departmental and district courts, which collectively are overseen administratively by the Superior Judicial Council.  The 1991 constitution provided the judiciary with greater administrative and financial independence from the executive branch. Colombia has a commercial code and other laws covering broad areas, including banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law.  Regulations and enforcement actions are appealable through the different stages of legal court processes in Colombia. The judicial system is generally regarded as competent, fair, and reliable, but it did suffer reputational damage in 2017 following the arrest of an official in the Attorney General’s office on corruption charges, which led to the uncovering of a judicial influence-peddling scandal linked to the Supreme Court. 

Laws and Regulations on Foreign Direct Investment

Colombia has a comprehensive legal framework for business and FDI that incorporates binding norms resulting from its membership in the Andean Community of Nations as well as other free trade agreements and bilateral investment treaties.  Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community. The judicial framework includes the Superintendence of Industry and Commerce (SIC), the Council of State, the Constitutional Court, the Supreme Court of Justice, and the various departmental and district courts, which are also overseen for administrative matters by the Superior Judicial Council.  The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch. However, except for the SIC’s efficient exercise of judicial functions, the judicial system in general remains hampered by time-consuming bureaucratic requirements and corruption.  

Competition and Anti-Trust Laws

The SIC, Colombia’s national competition authority, has been strengthened over the last five years with the addition of personnel, including economists and lawyers.  The SIC issued landmark anti-competitiveness fines in 2015, including against a sugar cartel. More recently the SIC has sanctioned a rice cartel, three of the biggest telecommunication companies in the region, and truck transport operators for anticompetitive practices.  The SIC has imposed sanctions of over USD 400 million on approximately 400 individuals and companies in the last four years for unfair competition practices. In 2016, the SIC sanctioned cartels operating in the diaper, paper, and notebook sectors, imposing fines of over USD 150 million.  The SIC also imposed sanctions in several sectors for violations of consumer rights including for misleading advertising and noncompliance with warranty agreements. These sanctions included the telecommunications, furniture and home appliances, tourism, technology, automotive, and construction sectors.  In the last five years, the SIC has imposed fines of over USD 300 million for “business cartelization.”

Expropriation and Compensation

Article 58 of the Constitution governs indemnifications and expropriations and guarantees owners’ rights for legally-acquired property.  For assets taken by eminent domain, Colombian law provides a right of appeal both on the basis of the decision itself and on the level of compensation.  The Constitution does not specify how to proceed in compensation cases, which remains a concern for foreign investors. The Colombian government has sought to resolve such concerns through the negotiation of bilateral investment treaties and strong investment chapters in free trade agreements, such as the CTPA.

Dispute Settlement

ICSID Convention and New York Convention

Colombia is a member of the New York Convention on Investment Disputes, the International Center for the Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency.  Colombia is also party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. In October 2012, the new National and International Arbitration Statute (Law 1563), modeled after the UNCITRAL Model Law, took effect.

Investor-State Dispute Settlement

Domestic law allows contracting parties to agree to submit disputes to international arbitration, provided that: the parties are domiciled in different countries; the place of arbitration agreed to by the parties is a country other than the one in which they are domiciled; the subject matter of the arbitration involves the interests of more than one country; and the dispute has a direct impact on international trade.  The law permits parties to set their own arbitration terms, including location, procedures, and the nationality of rules and arbiters. Foreign investors have found the arbitration process in Colombia complex and dilatory, especially with regard to enforcing awards. However, some progress has been made in the number of qualified professionals and arbitrators with ample experience on transnational transactions, arbitrage centers with cutting-edge infrastructure and administrative capacity (there are approximately 340 arbitration and conciliation centers in Colombia), and courts that are progressively more accepting of arbitration processes.  The Chamber of Commerce of Bogota handles 75 percent of arbitration cases in Colombia. All arbitration tribunals combined handle around 600 cases a year.

There were 12 pending investment disputes in Colombia in 2019.  The pending cases include but are not limited to:

• A case initiated in 1994 involving a U.S. marine salvage company that claims rights to a shipwreck.  The company sued the Colombian government for not allowing it access to its property in Colombian waters, a process that resulted in a Colombian Supreme Court decision in 2007, but has not yet been resolved.
• A case involving a U.S. plane allegedly abandoned in Colombian territory in 2010.  The U.S. owner has been trying to claim his property since 2012. Colombian authorities maintain that the plane is now the property of the Colombian government according to national regulations on abandoned aircraft and have requested that U.S. authorities deregister the aircraft as it had become Colombia’s property.
• A case involving an American citizen alleging lack of restitution for land seized by the government in the course of an investigation into a prior owner.
• A case involving a U.S. agro-industrial company that acquired state land in Colombia.  The Colombian government asserts the land was acquired in violation of state lands law.
• A case, initiated in 2016 by a U.S. mining company, in which the company alleges the wrongful expropriation of a gold mining concession.  

Separately, a Spanish energy company that is the majority owner of a Colombian utility company initiated arbitration proceedings before the United Nations Commission on International Trade Law (UNCITRAL) in March 2017 after the government ordered the liquidation of the electricity supplier.  The company asserted that the move constituted expropriation without compensation, though the government cited mismanagement, an inability to service its debts, and failure to provide reliable electricity to the northern coast of Colombia as justification for its actions. The Colombian government also has pending cases in the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) (https://bit.ly/2D0OtLb).

According to the Doing Business 2019 report, the time from the moment a plaintiff files a lawsuit until actual payment and enforcement of the contract averages 1288 days, the same as in the previous two years.  Traditionally, most court proceedings are carried out in writing and only the evidence-gathering stage is carried out through hearings, including witness depositions, site inspections, and cross-examinations. The government has accelerated proceedings and reduced the backlog of court cases by allowing more verbal public hearings and creating alternative court mechanisms.  The new Code of General Procedure that entered into force in June 2014 also establishes oral proceedings that are carried out in two hearings, and there are now penalties for failure to reach a ruling in the time limit set by the law. Enforcement of an arbitral award can take between six months and one and a half years; a regular judicial process can take up to seven years for private parties and upwards of 15 years in conflicts with the State.  Thus, arbitration results are cheaper and much more efficient. According to the Doing Business report, Colombia has made enforcing contracts easier by simplifying and speeding up the proceedings for commercial disputes. In 2019, Colombia’s ranking in the enforcing contracts category of the report held at 177.

International Commercial Arbitration and Foreign Courts

Foreign judgments are recognized and enforced in Colombia once an application is submitted to the Civil Chamber of the Supreme Court.  In 2012, Colombia approved the use of the arbitration process when new legislation based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law was adopted.  The statute stipulates that arbitral awards are governed by both domestic law as well as international conventions (New York Convention, Panama Convention, etc.). This has made the enforcement of arbitral awards easier for all parties involved.  Arbitration in Colombia is completely independent from judiciary proceedings, and, once arbitration has begun, the only competent authority is the arbitration tribunal itself. The CTPA protects U.S. investments by requiring a transparent and binding international arbitration mechanism and allowing investor-state arbitration for breaches of investment agreements if certain parameters are met.  The judicial system is notoriously slow, leading many foreign companies to include international arbitration clauses in their contracts.

Bankruptcy Regulations

Colombia’s 1991 Constitution grants the government the authority to intervene directly in financial or economic affairs, and this authority provides solutions similar to U.S. Chapter 11 filings for companies facing liquidation or bankruptcy.  Colombia’s bankruptcy regulations have two major objectives: to regulate proceedings to ensure creditors’ protection, and to monitor the efficient recovery and preservation of still-viable companies. This was revised in 2006 to allow creditors to request judicial liquidation, which replaces the previous forced auctioning option.  Now, inventories are valued, creditors’ rights are taken into account, and either a direct sale takes place within two months or all assets are assigned to creditors based on their share of the company’s liabilities. The insolvency regime for companies was further revised in 2010 to make proceedings more flexible and allow debtors to enter into a long-term payment agreement with creditors, giving the company a chance to recover and continue operating.  Bankruptcy is not criminalized in Colombia. In 2013, a bankruptcy law for individuals whose debts surpass 50 percent of their assets value entered into force.

Restructuring proceedings aim to protect the debtors from bankruptcy.  Once reorganization has begun, creditors cannot use collection proceedings to collect on debts owed prior to the beginning of the reorganization proceedings.  All existing creditors at the moment of the reorganization are recognized during the proceedings if they present their credit. Foreign creditors, equity shareholders including foreign equity shareholders, and holders of other financial contracts, including foreign contract holders, are recognized during the proceeding.  Established creditors are guaranteed a vote in the final decision. According to the Doing Business 2019 report Colombia is ranked 40th for resolving insolvency and it takes an average of 1.7 years—the same as OECD high-income countries—to resolve insolvency; the average time in Latin America is 2.9 years.

Investment Incentives

The Colombian government offers investment incentives, such as income tax exemptions and deductions in specific priority sectors, including the so-called “orange economy,” which refers to the creative industries, as well as agriculture and entrepreneurship.  More recently, the government has offered additional incentives in an effort to generate investments in former conflict municipalities. Investment incentives through free trade agreements between Colombia and other nations include national treatment and most favored nation treatment of investors; establishment of liability standards assumed by countries regarding the other nation’s investors, including the minimum standard of treatment and establishment of rules for investor compensation from expropriation; establishment of rules for transfer of capital relating to investment; and specific tax treatment.

The government offers tax incentives to all investors, such as preferential import tariffs, tax exemptions, and credit or risk capital.  Some fiscal incentives are available for investments that generate new employment or production in areas impacted by natural disasters and former conflict-affected municipalities.  Companies can apply for these directly with participating agencies. Tax and fiscal incentives are often based on regional, sector, or business size considerations. Border areas have special protections due to currency fluctuations in neighboring countries which can impact local economies.  National and local governments also offer special incentives, such as tax holidays, to attract specific industries.

Special tax exemptions have existed since 2003 and range from 10 to 30 years.  Income tax exemptions for investments in tourism cover new hotels constructed between 2003 and 2017, and remodeled and/or expanded hotels though 2017, for a period of 30 years.  Investments in ecotourism services benefit from income tax exemptions through 2023. New forestry plantations and sawmills also have benefitted from income tax exemptions since 2003.  Late yield crops planted through 2014 are tax exempt for 10 years from the beginning of the harvesting. Electricity from wind power, biomass, and agricultural waste were tax exempt until January 1, 2018, as were river-based transportation services provided with certain shallow draft vessels and barges.  Certain printing and publishing companies can benefit from tax exemptions through 2033. Software developed in Colombia has been tax exempt for up to five years since 2013. To meet exemption requirements, the software must have its intellectual property rights protected, be based upon a high concentration of national scientific and technological research, and be certified by Colciencias (Colombia’s agency for promoting science, technology, and innovation).

Foreign investors can participate without discrimination in government-subsidized research programs, and most Colombian government research has been conducted with foreign institutions.  R&D incentives include Value-Added Tax (VAT) exemptions for imported equipment or materials used in scientific, technology, or innovation projects, and qualified investments may receive tax credits up to 175 percent.  A 2012 reform of Colombia’s royalty system allocates 10 percent of the government’s revenue to science, technology, and innovation proposals executed by subnational governments. Although only subnational governments can submit a project, anyone, including foreigners, can partner with them.

In a tax reform passed in December 2016, the Colombian government created two tax incentives to support investment in the 344 municipalities most affected by the armed conflict (ZOMAC).  Small and microbusinesses that invest in ZOMACs and meet a series of other criteria will be exempt from paying any taxes from 2017 to 2021, while medium and large-sized businesses will pay 50 percent of their normal taxes.  The second component is entitled “works for taxes” (“Obras por Impuestos”), a program through which the private sector can directly fund infrastructure investment in lieu of paying taxes.

In the financing law of 2019 (tax reform), the Colombian government introduced exemption incentives in the payment of income tax for the new orange economy companies that invest more than COP 150 million in three years and that generate at least three jobs.  In addition, it created incentives for new projects in the agricultural sector which will be exempt from income taxes for seven years. Finally, the law created an incentive for the tourism sector for the construction of new hotel infrastructure, and the benefits were extended to projects such as boat docks, theme parks, and eco and agro-tourism projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

To attract foreign investment and promote the importation of capital goods, the Colombian government uses a number of drawback and duty deferral programs.  One example is free trade zones (FTZs). As of the end of 2018, there were 112 FTZs (including permanent, single company, and special types). These have generated development of new industry infrastructure for more than 840 companies in 63 municipalities and 19 geographic departments.  While DIAN oversees requests to establish FTZs, the Colombian government is not involved in their operations.

Decree 2147 of 2016 integrated the regulatory framework for FTZs dating back to 2007 in one document, and made clarifications to certain processes without significant changes.  The government revised tax treatment of companies operating FTZs with the December 2016 tax reform, maintaining a preferential corporate income tax for FTZs while increasing it from 15 to 20 percent.  FTZ users with contracts of legal stability will continue to pay 15 percent. Other changes include VAT exemption for raw materials, inputs, and finished goods sold from the national customs territory to the FTZs, as long as those purchases are directly related to the corporate purpose.  By contrast, no matter the purpose of the purchase, companies not located in the FTZs are affected by VAT. The 2016 tax reform increased VAT from 16 to 19 percent, and eliminated the Income Tax for Equality (CREE), a nine percent tax on company profits over COP 800 million (approximately USD 275,000) designed to contribute to employment generation and social investments.

In return for these and other incentives, every permanent FTZ must meet specific investment and direct job creation commitments, depending on their total assets, during the first three years.  Special FTZs are required to generate a certain number of direct jobs depending on the economic sector. According to the figures of the Colombian National Administrative Department of Statistics (DANE), FTZs reached cumulative exports valuing USD 28,346 million between 2005 and 2018.  Between January and December of 2018, exports amounted to USD 2,812 million.

Performance and Data Localization Requirements

Performance requirements are not imposed on foreigners as a condition for establishing, maintaining, or expanding investments.  The Colombian government does not have performance requirements, impose local employment requirements, or require excessively difficult visa, residency, or work permit requirements for investors.  Under the CTPA, Colombia grants substantial market access across its entire services sector.

In 2017, Colombia issued implementing regulations of its Data Protection Law 1581 of 2012.  The SIC, under the Deputy Office for Personal Data Protection, is the Data Protection Authority (DPA) and has the legal mandate to ensure proper data protection.  The SIC issued a circular on August 10, 2017 defining adequate data protection and responsibilities of data controllers with respect to international data transfers.  The circular details several general criteria reflecting the SIC’s view of adequate data protection and also provides a list of countries, which includes the United States, that meet the SIC’s data protection guidelines.

In Colombia, software and hardware are protected by IPR (Dirección Nacional de Derecho de Autor – DNDA – http://www.derechodeautor.gov.co/).  There is no obligation to submit source code for registered software. However, if the IT provider is contracting with the Colombian government, through a clause of the service contract, the source code must be provided to the entity that the government IT provider is contracting.  The SIC launched a national database registry in November 2015 to implement Law 1581 pertaining to personal information protection and management. It requires data storage facilities that hold personal data to comply with government requirements for security and privacy, and data storage companies have one year to register. The SIC enforces the rules on local data storage within the country through audits/investigations and imposed sanctions.

An OECD report on Colombia’s labor market and social policies was published in January 2016.  The report mentions progress on labor market reforms, but cites large income inequality and structural flaws in labor market policies, despite relatively low unemployment and high labor force participation.  In 2018, the unemployment rate according to official government figures was 9.7 percent, a slight increase relative to the 2017 rate of 9.4 percent. According to DANE, 48.2 percent of the workforce was working in the informal economy at the end of 2018.  Colombia has a wide range of skills in its workforce, as well as managerial-level employees who are often bilingual.

Labor rights in Colombia are set forth in its Constitution, the Labor Code, the Procedural Code of Labor and Social Security, sector-specific legislation, and ratified international conventions, which are incorporated into national legislation.  Colombia’s Constitution guarantees freedom of association and provides for collective bargaining and the right to strike (with some exceptions). It also addresses forced labor, child labor, trafficking, discrimination, protections for women and children in the workplace, minimum wages, working hours, skills training, and social security.  Colombia has ratified all eight of the International Labor Organization’s (ILO’s) fundamental labor conventions, and all are in force, including those related to freedom of association, equal remuneration, right to organize and collectively bargain, discrimination, minimum working age, forced labor, and prohibition of the worst forms of child labor.  Colombia has also ratified conventions related to hours of work, occupational health and safety, and minimum wage. In 2013, Law 1636 was passed to increase protections and opportunities for Colombia’s unemployed population.

The 1991 Constitution protects the right to constitute labor unions.  Pursuant to Colombia’s labor law, any group of 25 or more workers, regardless of whether they are employees of the same company or not, may form a labor union.  Employees of companies with fewer than 25 employees may affiliate themselves with other labor unions. About four percent of the country’s labor force is unionized.  The largest and most influential unions are composed mostly of public-sector employees, particularly of the majority state-owned oil company and the state-run education sector.  Only 6.2 percent of all salaried workers are covered by collective bargaining agreements (CBAs), according to the OECD. The Ministry of Labor has expressed commitment to working on decrees to incentivize sectoral collective bargaining, and to strengthen union representation within companies and regulate strikes in the essential public services sector (i.e. hospitals).

Strikes, when held in accordance with the law, are recognized as legal instruments to obtain better working conditions, and employers are prohibited from using strike-breakers at any time during the course of a strike.  After 60 days of strike action, the parties are subject to compulsory arbitration. Strikes are prohibited in certain “essential public services,” as defined by law, although Colombia has been criticized for having an overly-broad interpretation of “essential.”

Foreign companies operating in Colombia must follow the same hiring rules as national companies, regardless of the origin of the employer and the place of execution of the contract.  No labor laws are waived in order to attract or retain investment. In 2010, Law 1429 eliminated the mandatory proportion requirement for foreign and national personnel; 100 percent of the workforce, including the board of directors, can be foreign nationals.  Labor permits are not required in Colombia, except for minors of the minimum working age. Foreign employees have the same rights as Colombian employees. Employers may use temporary service agencies to subcontract additional workers for peaks of production. Employers must receive advance permission from the Ministry of Labor before undertaking permanent layoffs.  The Ministry of Labor typically does not grant permission to lay off workers who have enhanced legal protections (those with work-related injuries or union leaders, for example). The Ministry of Labor has been cracking down on using temporary or contract workers for jobs that are not temporary in nature.

Reputational risks to investors come with a lack of effective and systematic enforcement of labor law, especially in rural sectors.  Homicides of unionists (social leaders) remain a concern. In January 2017, the U.S. Department of Labor issued a public report of review in response to a submission filed under Chapter 17 (the Labor Chapter) of the CTPA by the American Federation of Labor and Congress of Industrial Organizations and five Colombian workers’ organizations that alleged failures on the part of the government to protect labor rights in line with CTPA commitments.  In January 2018, the Department of Labor published the first periodic review of progress to address issues identified in the submission report. For additional information on labor law enforcement see Section 7 of Colombia’s Human Rights Report (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/), and the Department of Labor’s Findings on the Worst Forms of Child Labor (http://www.dol.gov/ilab/reports/child-labor/colombia.htm ) and Lists of Goods Produced with Child or Forced Labor (http://www.dol.gov/ilab/reports/child-labor/list-of-goods/ ).

OPIC made its first investment in Colombia in 1985 and has supported more than 70 projects in Colombia since 2005.  OPIC has seven active projects and is exploring several more. OPIC’s largest project in Colombia is a USD 250 million toll road project in the southern part of Colombia known as the Rumichaca-Pasto road.  As of end 2018, OPIC’s active investments in Colombia totaled USD 718 million. Additional information can be found at www.opic.gov .

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

*Data from the Colombian Statistics Departments, DANE, (https://www.dane.gov.co/  )  and the Colombian central bank (http://www.banrep.gov.co  ).

Table 3: Sources and Destination of FDI – 2018

Data from the Colombian central bank (http://www.banrep.gov.co).

Table 4: Sources of Portfolio Investment

Data from IMF’s Coordinated Direct Investment Survey. Source: http://data.imf.org/?sk=B981B4E3-4E58-467E-9B90-9DE0C3367363&sId=1481568994271  

Policies Towards Foreign Direct Investment

Costa Rica actively courts foreign direct investment (FDI), placing a high priority on attracting and retaining high-quality foreign investment.  There are some limitations to both private and foreign participation in specific sectors, as detailed in the following section.

The Foreign Trade Promotion Corporation (PROCOMER) as well as the Costa Rican Investment and Development Board (CINDE) lead Costa Rica’s investment promotion efforts.  CINDE has had great success over the last several decades in attracting and retaining investment in specific areas, currently services, advanced manufacturing, life sciences, light manufacturing, and the food industry.  In addition, the Tourism Institute (ICT) attends to potential investors in the tourism sector. CINDE and ICT are strong and effective guides and advocates for their client companies, prioritizing investment retention and maintaining an ongoing dialogue with investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

Costa Rica recognizes and encourages the right of foreign and domestic private entities to establish and own business enterprises and engage in most forms of remunerative activity.  The exceptions are in sectors that are reserved for the state (legal monopolies – see #7 below “State Owned Enterprises, first paragraph) or that require participation of at least a certain percentage of Costa Rican citizens or residents (electrical power generation, transport services, professional services, and aspects of broadcasting).  Properties in the Maritime Zone (from 50 to 200 meters above the mean high-tide mark) may only be leased from the state and with residency requirements. In the areas of medical services, telecommunications, finance and insurance, state-owned entities dominate, but that does not preclude private sector competition. Costa Rica does not have an investment screening mechanism for inbound foreign investment, beyond those applied under anti-money laundering procedures.  U.S. investors are not disadvantaged or singled out by any control mechanism or sector restrictions; to the contrary, U.S. investors figure prominently among the various major categories of FDI.

Other Investment Policy Reviews

The OECD accession process for Costa Rica beginning in 2015 has produced a series of changes by Costa Rica and recommendations by the OECD; within that context the OECD in April 2018 published the “OECD Economic Surveys Costa Rica 2018.” http://www.oecd.org/countries/costarica/oecd-economic-surveys-costa-rica-2018-eco-surveys-cri-2018-en.htm   .

In the same context, the OECD offers a number of recent publications relevant to investment policy: http://www.oecd.org/countries/costarica/  . As of April 2019, Costa Rica has passed 12 of the 22 technical bodies required for OECD accession, with the Investment Committee being one of the ten that remain.

Business Facilitation

Costa Rica’s single-window business registration website, crearempresa.go.cr  , brings together the various entities – municipalities and central government agencies – which must be consulted in the process of registering a business in Costa Rica.  A new company in Costa Rica must typically register with the National Registry (company and capital registry), Internal Revenue Directorate of the Finance Ministry (taxpayer registration), National Insurance Institute (INS) (basic workers’ comp), Ministry of Health (sanitary permit), Social Security Administration (CCSS) (registry as employer), and the local Municipality (business permit).  Crearempresa is rated 17th of 32 national business registration sites evaluated by “Global Enterprise Registration” (www.GER.co  ), which awards Costa Rica a relatively lackluster rating because Crearempresa has little payment facility and provides only some of the possible online certificates.

Traditionally, the Costa Rican government’s small business promotion efforts have tended to focus on participation by women and underserved communities.  The women’s institute INAMU, vocational training institute INA, MEIC, and the export promotion agency PROCOMER through its supply chain initiative have all collaborated extensively to promote small and medium enterprise with an emphasis on women’s entrepreneurship. In 2019, INA will launch a network of centers to support small and medium enterprises based upon the U.S. Small Business Development Center (SBDC) model.

The World Bank’s “Doing Business” evaluation for 2018, http://www.doingbusiness.org  , states that business registration takes nine steps in 22.5 days.  Notaries are a necessary part of the process and are required to use the Crearempresa portal when they create a company.  Women do not face explicitly discriminatory treatment when establishing a business.

Outward Investment

The Costa Rican government does not promote or incentivize outward investment.  Neither does the government discourage or restrict domestic investors from investing abroad.

Costa Rica has bilateral investment treaties (BITs) in force with Argentina, Canada, Chile, China, the Czech Republic, France, Germany, South Korea, the Netherlands, Paraguay, Qatar, Spain, Switzerland, Taiwan and Venezuela.  Treaty texts are on the COMEX website (http://www.comex.go.cr/Tratados  ).  The investment chapter of CAFTA-DR includes all aspects of a BIT thereby making a separate BIT with the United States unnecessary.   United Nations Conference on Trade and Development (UNCTAD) (http://investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu  ) features a parallel list of both signed investment treaties and those entered into force.

Costa Rica has in-force free trade agreements (FTA) with five groupings of countries.  The Central American Free Trade Agreement CAFTA-DR is with the United States, Nicaragua, Honduras, El Salvador, Guatemala, and Dominican Republic.  The European Union Association Agreement with Central America is with all EU members, Guatemala, Honduras, El Salvador, Nicaragua, and Panama. The European Free Trade Association (EFTA) free trade agreement is with Iceland, Liechtenstein, Norway, Switzerland, Panama and Guatemala.  The free trade agreement with the Caribbean nations of CARICOM is with Trinidad and Tobago, Guyana, Barbados, Belize, and Jamaica.    With Costa Rica’s March 2019 ratification of the South Korea Central American Free Trade Agreement between South Korea, Costa Rica, El Salvador, Honduras, Nicaragua and Panama, that FTA is now in force between Costa Rica and South Korea.  Costa Rica also has individual FTAs with Canada, Mexico, Panama, Colombia, Peru, Chile, China, and Singapore. Costa Rica in recent years has slowed the pace at which it has negotiated and signed new free trade agreements.

Costa Rican and U.S. tax authorities currently coordinate under the terms of two agreements, a Taxation Information Exchange Agreement (TIEA) signed in 1989, and a U.S-Costa Rica intergovernmental agreement titled “Agreement between the Government of the United States of America and the Government of the Republic of Costa Rica to Improve International Tax Compliance and to Implement FATCA” signed in December 2013 and expected to enter-into-force (EIF) during 2019.  Costa Rica has active bilateral or regional tax information exchange agreements with 16 other jurisdictions, in addition to a number of signed agreements that are not yet in force; see the Global Forum on Transparency and Exchange of Information for Tax Purposes for the full list: http://www.eoi-tax.org/jurisdictions/CR#agreements  .  Of those 16 agreements, two (Germany, Spain) are “Double Tax Conventions” that address overlapping tax obligations in addition to simple information exchange.  Costa Rica is also a party to the OECD “Convention on Mutual Administrative Assistance in Tax Matters,” which entered into force in August 2013: http://www.oecd.org/tax/exchange-of-tax-information/Status_of_convention.pdf .

In accordance with its international commitments to address the use of corporate tax havens, the Costa Rican government in 2013 adopted a new set of transfer pricing rules, followed by their implementation regulations [DGT-R-44-2016 published by the internal revenue department (DGT) of the Finance Ministry] in September 2016.  Large transnational companies must declare and justify the transfer-pricing methods they are using in a manner consistent with international norms.

Transparency of the Regulatory System

Costa Rican laws, regulations, and practices are generally transparent and foster competition in a manner consistent with international norms, except in the sectors controlled by a state monopoly, where competition is explicitly excluded.  Publicly-traded companies adhere to International Accounting Standards Board standards under the supervision of SUGEVAL, the stock and bond market regulator.

Rule-making and regulatory authority is housed in any number of agencies specialized by function (telecom, financial, health, environmental) or location (municipalities, port authorities). Tax, labor, health, and safety laws, though highly bureaucratic, are not seen as unfairly interfering with foreign investment.  It is common to have Professional Associations that play a regulatory role. For example the Coffee Institute of Costa Rica (ICAFE), a private sector organization, promotes standardization of production models among national producers, roasters and exporters, as well as setting minimum market prices.

Costa Rica is a member of UNCTAD’s international network of transparent investment procedures (http://www.businessfacilitation.org  ). Within that context, the Ministry of Economy compiled the various procedures needed to do business in Costa Rica:  https://costarica.eregulations.org/  .  Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name, and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal basis justifying the procedures.

Accounting, legal, and regulatory procedures are transparent and consistent with international norms.  The Costa Rican College of Public Accountants (Colegio de Contadores Públicos de Costa Rica -CCPA) is responsible for setting accounting standards for non-regulated companies in Costa Rica and adopted full International Financial Reporting Standards.  For more, see the international federation of accountants IFAC: https://www.ifac.org/about-ifac/membership/country/costa-rica  .

Regulations must go through a public hearing process when being drafted.  Draft bills and regulations are made available for public comment through public consultation processes that will vary in their details according to the public entity and procedure in question, generally giving interested parties sufficient time to respond.  The standard period for public comment on technical regulations is 10 days. As appropriate, this process is underpinned by scientific or data-driven assessments.

Regulations and laws, both proposed and final, for all branches of government are published digitally in the government registry “La Gaceta”:  https://www.imprentanacional.go.cr/gaceta/  .  The Costa Rican American Chamber of Commerce (AmCham – http://amcham.co.cr   ) and other business chambers closely monitor these processes and often coordinate responses as needed.

The government has mechanisms to ensure laws and regulations are followed.  The Comptroller General’s Office conducts operational as well as financial audits and as such provides the primary oversight and enforcement mechanism within the Costa Rican government to ensure that government bodies follow administrative processes.  Each government body’s internal audit office and, in many cases, the customer-service comptroller (Contraloria de Servicios) provide additional support.

There are several independent avenues for appealing regulatory decisions, and these are frequently pursued by persons or organizations opposed to a public sector contract or regulatory decision.  The avenues include the Comptroller General (Contraloria General de la República), the Ombudsman (Defensor de los Habitantes), the public services regulatory agency (ARESEP), and the constitutional review chamber of the Supreme Court.  The State Litigator’s office (Procuraduria General) is frequently a participant in its role as the government’s attorney.

The review and enforcement mechanisms described above have kept the regulatory system relatively transparent and free of abuse, but have also rendered the system for public sector contract approval exceptionally slow and litigious.  There have been several cases in which these review bodies have overturned already-executed contracts, thereby interjecting uncertainty into the process. Bureaucratic procedures are frequently long, involved and can be discouraging to new investors.

A similarly transparent process applies to proposed laws.  The Legislative Assembly generally provides sufficient opportunity for supporters and opponents of a law to understand and comment upon proposals.  To become law, a proposal must be approved by the Assembly by two plenary votes. The signature of ten legislators (out of 57) is sufficient after the first vote to send the bill to the Supreme Court for constitutional review within one month, although the court may take longer. 

International Regulatory Considerations

While Costa Rica does consult with its neighbors on some regulations through participation in the Central American Integration System SICA (http://www.sica.int/sica/sica_breve.aspx  ), Costa Rica’s lawmakers and regulatory bodies habitually refer to sample regulations or legislation from OECD members and others.  Costa Rica’s commitment to the OECD accession process accentuated this traditional use of best-practices and model legislation. Costa Rica regularly notifies all draft technical regulations to the WTO Committee on Technical Barriers in Trade (TBT).

Legal System and Judicial Independence

Costa Rica uses the civil law system. The fundamental law is the country’s political constitution of 1949, which grants the unicameral legislature a particularly strong role.  Jurisprudence or case law does not constitute legal precedent but can be persuasive if used in legal proceedings. For example, the Chambers of the Supreme Court regularly cite their own precedents.  The civil and commercial codes govern commercial transactions. The courts are independent, and their authority is respected. The roles of public prosecutor and government attorney are distinct: the Chief Prosecuting Attorney or Attorney General (Fiscal General) operates a semi-autonomous department within the judicial branch while the government attorney or State Litigator (Procuraduria General) works within the Ministry of Justice and Peace in the Executive branch. Judgments and awards of foreign courts and arbitration panels may be accepted and enforced in Costa Rica through the exequatur process.  The Constitution specifically prohibits discriminatory treatment of foreign nationals.

The Costa Rican Judicial System is comprised of the civil, administrative, and criminal court structure.  The judicial system generally upholds contracts, but caution should be exercised when making investments in sectors reserved or protected by the Constitution or by laws for public operation.  Investments in state-protected sectors under concession mechanisms can be especially complex due to frequent challenges in the constitutional court of contracts permitting private participation in state enterprise activities. Furthermore, independent government agencies, including municipal governments, which grant construction permits, can issue permits or requirements that may contradict the decisions of other independent agencies, causing significant project delays.

Costa Rica’s commercial code details all business requirements necessary to operate in Costa Rica.  The laws of public administration and public finance contain most requirements for contracting with the state.

The legal process to resolve cases involving squatting on land can be especially cumbersome. Land registries are at times incomplete or even contradictory.  Buyers should retain experienced legal counsel to help them determine the necessary due diligence regarding the purchase of property.

Laws and Regulations on Foreign Direct Investment

Costa Rican websites are useful to help navigate laws, rules and procedures including that of the investment promotion agency CINDE, http://www.cinde.org/en   (labor regulations), the export promotion authority PROCOMER, http://www.procomer.com/ (incentive packages), and the Health Ministry, https://www.ministeriodesalud.go.cr/   (product registration and import/export).  In addition, the State Litigator’s office (www.pgr.go.cr   – the “SCIJ” tab) compiles relevant laws.

Competition and Anti-Trust Laws

Several public institutions are responsible for consumer protection as it relates to monopolistic and anti-competitive practices.  The “Commission for the Promotion of Competition” (COPROCOM), a semi-autonomous agency housed in the Ministry of Economy, Industry and Commerce, is charged with investigating and correcting anti-competitive behavior across the economy. SUTEL, the Telecommunications Superintendence, shares that responsibility with COPROCOM in the Telecommunications sector.  Both agencies are charged with defense of competition, deregulation of economic activity, and consumer protection. COPROCOM is considered to be underfunded and weak; the OECD has repeatedly emphasized the need to reform COPROCOM in order to assure regulatory independence and sufficient operating budget. The government’s draft law to strengthen COPROCOM and give it more autonomy has faced considerable opposition.

Expropriation and Compensation

The three principal expropriating ministries in recent years have been the Ministry of Public Works – MOPT (highway rights-of-way), the Costa Rican Electrical Institute – ICE (energy infrastructure), and the Ministry of Environment and Energy – MINAE (National Parks and protected areas).  Expropriations generally conform to Costa Rica’s laws and treaty obligations, but there are allegations of expropriations of private land without prompt or adequate compensation.

Article 45 of Costa Rica’s Constitution stipulates that private property can be expropriated without proof that it is done for public interest.  The 1995 Law 7495 on expropriations further stipulates that expropriations require full and prior payment. The law makes no distinction between foreigners and nationals.  Provisions include: (a) return of the property to the original owner if it is not used for the intended purpose within ten years or, if the owner was compensated, right of first refusal to repurchase the property back at its current value; (b) a requirement that the expropriating institution complete registration of the property within six months; (c) a two-month period during which the tax office must appraise the affected property; (d) a requirement that the tax office itemize crops, buildings, rental income, commercial rights, mineral exploitation rights, and other goods and rights, separately and in addition to the value of the land itself;  (e) provision that upon full deposit of the calculated amount the government may take possession of land despite the former owner’s dispute of the price; and (f) provisions providing for both local and international arbitration in the event of a dispute. The expropriations law was amended in 1998, 2006, and 2015 to clarify and expedite some procedures, including those necessary to expropriate land for the construction of new roads.

There is no discernible bias against U.S. investments, companies, or representatives during the expropriations process.  Costa Rican public institutions follow the law as outlined above and generally act in a way acceptable to the affected landowners.  However, there are currently several cases in which landowners and government differ significantly in their appraisal of the expropriated lands’ value; in those cases, judicial processes took years to resolve.  In addition, landowners have, on occasion, been prevented from developing land which has not yet been formally expropriated for parks or protected areas; the courts will eventually order the government to proceed with the expropriations but the process can be long.

Dispute Settlement

ICSID Convention and New York Convention

In 1993, Costa Rica became a member state to the convention on International Center for Settlement of Investment Disputes (ICSID Convention).  Costa Rica paid the awards resulting from unfavorable ICSID rulings, most recently in 2012 regarding private property belonging to a German national within National Park boundaries.

Costa Rica is a signatory of the convention on the Recognition and Enforcement of Arbitral Awards (1958 New York Convention).  Consequently, within the Costa Rican legal hierarchy the Convention ranks higher than local laws although still subordinate to the Constitution. Costa Rican courts recognize and enforce foreign arbitral awards.  Judgments of foreign courts are recognized and enforceable under the local courts and the Supreme Court.

Investor-State Dispute Settlement

Disputes between investors and the government grounded in the government’s alleged actions or failure to act – termed investment disputes ‒ may be resolved administratively or through the legal system.

Under Chapter 10 of the CAFTA-DR agreement, Costa Rica legally obligated itself to answer investor arbitration claims submitted under ICSID or UNCITRAL, and accept the arbitration verdict.  To date there have been two claims by U.S. citizen investors under the provisions of CAFTA-DR. Extensive documentation for both cases is filed on the Foreign Trade Ministry (COMEX) website:  http://www.comex.go.cr/tratados/cafta-dr/  , under “documentos relevantes”. No local court denies or fails to enforce foreign arbitral awards issued against the government.

In some coastal areas of Costa Rica, there is a history of invasion and occupation of private property by squatters who are often organized and sometimes violent.  The Costa Rican police and judicial system have at times failed to deter or to peacefully resolve such invasions. It is not uncommon for squatters to return to the parcels of land from which they were evicted, requiring expensive and potentially dangerous vigilance over the land.

International Commercial Arbitration and Foreign Courts

The right to solve disputes through arbitration is guaranteed in the Costa Rican Constitution. For years, the practical application was regulated by the Civil Procedural Code, which made it ineffective with no arbitration cases until 1998, the year the local arbitration law #7727 was enacted.  A 2011 law on International Commercial Arbitration (Law 8937), drafted from the UNCITRAL model law (version 2006), brought Costa Rica to a dual arbitration system, with two valid laws, one law for local arbitration and one for international arbitration. Under the local act, arbitration has to be conducted in Spanish and only attorneys admitted to the local Bar Association may be named as arbitrators.  All cases brought before an arbitration panel, under the rules of local arbitration centers, must be resolved within 155 days after the complaint is served to the defendant; if the case does not fall under such arbitration centers’ rules then the award must be rendered within two months of final statements of the parties.  Parties can withdraw their case or reach an out-of-court settlement before the arbitral tribunal delivers an award.  If the award meets the review criteria, the losing party has the option to request that the Costa Rican Supreme Court examine the award, but only on procedural matters and never on the merits.  Under the UNCITRAL Law for International Arbitration, proceedings may be held in English and foreign attorneys are authorized to serve as arbitrators. The following arbitration centers are in operation in Costa Rica:

• Centro de Conciliacion y Arbitraje. Costa Rican Chamber of Commerce
• Centro de Resolución de Controversias. Costa Rican Association of Engineers and Architects
• Centro Internacional de Conciliación y Arbitraje. Costa Rican American Chamber of Commerce (AMCHAM)
• Centro de Arbitraje y Mediación/Centro Iberoamericano de Arbitraje (CIAR).  Costa Rican Bar Association.

Beyond such arbitration options, law #7727 also facilitates courts’ enforcement of conciliation agreements reached under the law.  Some universities and municipalities operate “Casas de Justicia” (Justice Houses) open to the public and offering mediation and conciliation at no cost.  Law #8937 empowered local arbitration centers, beginning with that pertaining to the Engineers and Architects’ Association, to implement Dispute Board regulations, as a method to address construction disputes.

Outcomes in local courts do not appear to favor state-owned enterprises (SOEs) any more or less than other actors.  SOEs can sign arbitral agreements, but must follow strict public laws to obtain the permissions necessary and follow correct procedures, otherwise the agreement could be voided.  Once SOEs find themselves in arbitration, they are subject to the same standards and treatment as any other actor.

The most frequently heard complaint about Costa Rican court process is that litigation can be long and costly.  U.S. companies cite the unpredictability of outcomes as a source of rising judicial insecurity in Costa Rica. The legal system is significantly backlogged, and civil suits may take several years from start to finish.  Some U.S. firms and citizens satisfactorily resolved their cases through the courts, while others see proceedings drawn out over a decade without a final resolution.  Commercial arbitration has consequently become an increasingly common dispute resolution mechanism.

Bankruptcy Regulations

The Costa Rican bankruptcy law, addressed in both the commercial code and the civil procedures code, is similar to corresponding U.S. law, according to local experts.  Title V of the civil procedures code outlines creditors’ rights and the processes available to register outstanding credits, administer the liquidation of the bankrupt company’s assets, and pay creditors according to their preferential status.  The Costa Rican system also allows for successive alternatives to full bankruptcy: “convenion preventivo” or arrangement with creditors; “administracion por intervencion” or administration through judicial intervention; “reorganizacion con intervencion judicial” or reorganization through judicial intervention; and finally bankruptcy.  As in the United States, penal law will also apply to criminal malfeasance in some bankruptcy cases. In the World Bank’s “resolving insolvency” ranking within the 2018 “Doing Business” report, Costa Rica ranked #134 of 190 (http://www.doingbusiness.org/rankings  ).

Investment Incentives

Four investment incentive programs operate in Costa Rica: the free trade zone system, an inward-processing regime, a duty drawback procedure, and the tourism development incentives regime.  These incentives are available equally to foreign and domestic investors, and include tax holidays, training of specialized labor force, and facilitation of bureaucratic procedures. Costa Rica’s Foreign Trade Promotion Authority (PROCOMER) is in charge of the first three programs and companies may choose only one of the three.  As of early 2019, 453 companies are in the free trade zone regime, 90 in the inward processing regime, and 10 in duty drawback.

The Costa Rican Tourism Board (ICT) administers the tourism incentives; over 1,000 tourism firms are declared as such with access to incentives of various types depending on the firm’s operations (hotels, rent-a-car, travel agencies, airlines and aquatic transport).  The free trade zone regime is based on the 1990 law #7210, updated in 2010 by law #8794 and attendant regulations, while inward processing and duty drawback derive from the General Customs Law #7557. Tourism incentives are based on the 1985 law #6990, most recently amended in 2001.

The inward-processing regime suspends duties on imported raw materials of qualifying companies and then exempts the inputs from those taxes when the finished goods are exported. The goods must be re-exported within a non-renewable period of one year.  Companies within this regime may sell to the domestic market if they have registered to do so and pay applicable local taxes. The drawback procedure provides for rebates of duties or other taxes that were paid by an importer for goods subsequently incorporated into an exported good.  Finally, the tourism development incentives regime provides a set of advantages, including duty exemption – local and customs taxes – for construction and equipment to tourism companies, especially hotels and marinas, which sign a tourism agreement with ICT.

Foreign Trade Zones/Free Ports/Trade Facilitation

Individual companies are able to create industrial parks that qualify for free trade zone (FTZ) status by meeting specific criteria and applying for such status with PROCOMER.  Companies in FTZs receive exemption from virtually all taxes for eight years and at a reduced rate for some years to follow. Established companies may be able to renew this exemption through additional investment.  In addition to the tax benefits, companies operating in FTZs enjoy simplified investment, trade, and customs procedures, which provide a convenient way to avoid Costa Rica’s burdensome business licensing process. Call centers, logistics providers, and software developers are among the companies that may benefit from FTZ status but do not physically export goods. Such service providers have become increasingly important participants in the free trade zone regime.

PROCOMER and CINDE are traditionally proactive in working with FTZ companies to streamline and improve law, regulation and procedures touching upon the FTZ regime.  Current initiatives include a proposal suggested by the OECD to eliminate the current requirement that service firms in FTZ regime may sell no more than 50 percent into the local market, and a proposal to work with the Customs agency to simplify the procedures that FTZ companies must follow to recycle or donate materials.

Performance and Data Localization Requirements

Costa Rica does not impose requirements that foreign investors transfer technology or proprietary business information or purchase a certain percentage of inputs from local sources. However, the Costa Rican agencies involved in investment and export promotion do explicitly focus on categories of foreign investor who are likely to encourage technology transfer, local supply chain development, employment of local residents, and cooperation with local universities.  The export promotion agency PROCOMER operates an export linkages department focused on increasing the percentage of local content inputs used by large multinational enterprises; one recent program is dedicated to helping small and medium enterprises (SME) obtain international certifications such as ISO9000.

Costa Rica does not have excessively onerous visa, residence, work permit, or similar requirements designed to inhibit the mobility of foreign investors and their employees, although the procedures necessary to obtain residency in Costa Rica are often perceived to be long and bureaucratic.  Existing immigration measures do not appear to have inhibited foreign investors’ and their employees’ mobility to the extent that they affect foreign direct investment in the country. The government is responsible for monitoring so that foreign nationals do not displace local employees in employment, and the Immigration Law and Labor Ministry regulations establish a mechanism to determine in which cases the national labor force would need protection.  However, investors in the country do not generally perceive Costa Rica as unfairly mandating local employment. The Labor Ministry prepares a list of recommended and not recommended jobs to be filled by foreign nationals. Costa Rica does not have government/authority-imposed conditions on any permission to invest.

Costa Rica does not require Costa Rican data to be stored on Costa Rican soil.  With entry into force of law #8968 ‒ Personal Data Protection Law and its corresponding regulation ‒ in 2014, companies must notify the Data Protection Agency (PRODHAB) of all existing databases  from which personal information is sold or traded. The notification requirement applies in some cases to employee databases maintained, used, or accessed by third parties. Databases pay an annual registration fee.

Costa Rica does not require any IT providers to turn over source code or provide access to encryption.  The regulation associated with law #8968 did originally mandate that PRODHAB be given “super-user” privileges in databases registered with the agency, but that requirement was never acted upon and was reversed by a new regulation effective December 2016.

Costa Rica does not impose measurements that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the economy/country’s territory.   The measures that do apply under the data privacy law and regulation are equally applicable to data managed within the country.

The Costa Rican labor force is relatively well-educated.  The country boasts an extensive network of publicly-funded schools and universities while Costa Rica’s national vocational training institute (INA) and private sector groups provide technical and vocational training.  According to the National Statistics Institute (INEC), as of December 2018, informal employment rose significantly from 41 percent in 2017 to 44.9 percent of total employment in 2018; 37.7 percent of the economically active population in the nonagricultural sector is in the informal economy.  The overall unemployment rate was 12 percent in 2018 while youth unemployment (between 15 and 24) reached 31.7 percent that year.

Several factors influenced Costa Rica’s labor market during 2018, including deceleration of the economy stemming from nation-wide public sector strikes, a drop in consumer confidence which reduced consumption, and the conflict in Nicaragua, which affected regional trade.  The Labor Ministry described the labor market in 2018 as a paradox: while the unemployment rate rose, the number of individuals employed also rose. Costa Rica has invested heavily in education and training, but the government recognizes it needs to focus on getting better results from its investment.  The government announced in November 2018 the creation of the National Qualifications Framework for Vocational Education and Training, a strategy to organize vocational education and to standardize and raise the quality of education.

The rapid growth of Costa Rica’s service, tourism, and technology sectors has stimulated demand for English-language speakers and prompted the Costa Rican government to declare English language and computer literacy to be a national priority at all levels of education.  In August 2018, the government announced an “Alliance for Bilingualism,” a public-private initiative to increase English teaching in the country. Several public and private institutions are also active in Costa Rica’s drive to English proficiency, including the 60-year-old U.S.-Costa Rican binational center (the Centro Cultural Costarricense Norteamericano), which offers general and business English courses to as many as 5,000 students annually, and receives U.S. government funding.  In 2010, the Peace Corps initiated a program in Teaching English as a Foreign Language and maintains an active program. While the presence of numerous multinational companies operating shared-services and call centers draw down the supply of speakers of fluent business and technical English, the pool of job candidates with English and technical skills in the Central Valley is sufficient to meet current demand.

The government does not keep track of shortages or surpluses of specialized labor skills.  Foreign nationals have the same rights, duties, and benefits as local employees. The government is responsible for monitoring that foreign nationals do not displace local employees in employment.  Labor law provisions apply equally across the nation, both within and outside free trade zones. The Immigration Law and the Labor Ministry regulations establish a mechanism to determine in which cases the national labor force would need protection.  The Labor Ministry prepares a list of recommended and not recommended jobs to be filled by foreign nationals.

There are no restrictions on employers adjusting employment to respond to fluctuating market conditions.  The law does not differentiate between layoffs and dismissal without cause. There are concepts established in the law related to unemployment and dismissals such as the mandatory savings plan (Fondo de Capitalizacion Laboral), as well as the notice of termination of employment (preaviso) and severance pay (cesantia).  Costa Rican labor law requires that employees released without cause receive full severance pay, which can amount to close to a full year’s pay in some cases.  Although there is no insurance for workers laid off for economic reasons, employers may establish voluntarily an unemployment fund.

Costa Rican labor law and practice allows some flexibility in alternate schedules but is nevertheless based on a 48-hour week made up of 8-hour days.  Workers are entitled to one day of rest after six consecutive days of work. The labor code stipulates that the workday may not exceed 12 hours. Use of temporary or contract workers for jobs that are not temporary in nature in order to lower labor costs and avoid payroll taxes does occur, particularly in construction and in agricultural activities dedicated to domestic (rather than export) markets.  No labor laws are waived to attract or retain investment‒all labor laws apply in all Costa Rican territory, including free trade zones. 

Costa Rican law guarantees the right of workers to join labor unions of their choosing without prior authorization.  Unions operate independently of government control and may form federations and confederations and affiliate internationally.  The vast majority of unions developed in the public sector, including state-run enterprises. “Permanent committees of employees” informally represent employees in some enterprises of the private sector and directly negotiate with employers; these negotiations are expressed in “direct agreements,” which have a legal status.  Based on 2018 statistics, 90.4 percent of government employees are union members as compared to 3.2 percent in the private sector. In 2018, the Labor Ministry reported 112 collective bargaining agreements, 80 with public sector entities and 32 within the private sector, covering 10.1 percent of the working population. The Ministry reported a total of 155 “direct agreements” in different sectors (agriculture, industry and transportation) during 2018.   The government continued in 2018 with the renegotiation of collective labor agreements in the public sector that began in 2016.

In the private sector, many Costa Rican workers join “solidarity associations,” under which employers provide easy access to saving plans, low-interest loans, health clinics, recreation centers, and other benefits.  A 2011 law solidified that status by giving solidarity associations constitutional recognition comparable to that afforded labor unions. Solidarity associations and labor unions coexist at some workplaces, primarily in the public sector.  Business groups claim that worker participation in permanent committees and/or solidarity associations provides for better labor relations compared to firms with workers represented only by unions. However, some labor unions allege that private businesses use permanent committees and solidarity associations to hinder union organization while permanent workers’ committees displace labor unions on collective bargaining issues in contravention of internationally recognized labor rights.

The Ministry of Labor has a formal dispute-resolution body and will engage in dispute-resolution when necessary; labor disputes may also be resolved through the judicial process.  The Ministry of Labor regulations establish that conciliation is the mechanism to solve individual labor disputes, as defined in the Alternative Dispute Resolution Law (No. 7727 dated 9 December 1997).  The Labor Code and ADR Law establish the following mechanisms: dialogue, negotiation, mediation, conciliation, and arbitration. The Labor Law promotes alternate dispute resolution in judicial, administrative and private proceedings.  The law establishes three specific mechanisms: arbitration to resolve individual or collective labor disputes (including a Labor Ministry’s arbitrator roster list); conciliation in socio-economic collective disputes (introducing private conciliation processes); and arbitration in socio-economic collective disputes (with a neutral arbitrator or a panel of arbitrators issuing a decision). The Labor Ministry also participates as mediator in collective conflicts, facilitating and promoting dialogue among interested parties.  The law provides for protection from dismissal for union organizers and members and requires employers found guilty of anti-union discrimination to reinstate workers fired for union activities.

The law provides for the right of workers to conduct legal strikes, but it prohibits strikes in public services considered essential (police, hospitals and ports).  Strikes affecting the private sector are rare and do not pose a risk for investment. Public sector labor unions paralyzed government services with strikes in September 2018 to protest against a fiscal reform bill that became law in December 2018.  The government enforced the law by lifting blockades and clearing port entrances to guarantee the free transit of citizens and goods. Labor courts declared most of the strikes in the public sector illegal and most workers returned to work after four weeks (except for teachers’ union, which continued to strike for three months).

Child and adolescent labor is uncommon in Costa Rica.  The government has implemented a strategy to eliminate any remaining child labor by 2020 through programs to encourage school attendance, awareness campaigns on social media, increased inspections by the Labor Ministry, and improvements to child care in targeted areas.  Between 2011 and 2016, employment by minors under 15 fell by 76 percent from 34,494 to 8,071, or 1.1 percent of the population, according to Department of Labor reporting.

Chapter 16 of the U.S.-Central American Free Trade Agreement (CAFTA-DR) obliges Costa Rica to enforce its laws that defend core international labor standards. The government, organized labor, employers organizations, and the International Labor Organization signed a memorandum of understanding to launch a Decent Work Program for the period 2019-2023, which aims to improve labor conditions and facilitate employability for vulnerable groups through government-labor-business tripartite dialogue.

In December 2018, the government enacted a law to cut the fiscal deficit which amends and regulates legal provisions on public sector employment.  There are several bills pending before the National Assembly, including a reform to provisions regulating strikes, a bill expanding the list of essential services in which employees are prohibited from striking, and a bill facilitating internships, apprenticeships, and vocational education.

The Overseas Private Investment Corporation (OPIC) offers both financing and insurance coverage against expropriation, war, revolution, insurrection and inconvertibility for eligible U.S. investors in Costa Rica. OPIC can provide insurance for U.S. investors, contractors, exporters, and financial institutions.  Financing is available for overseas investments that are wholly owned by U.S. companies or that are joint ventures in which the U.S. company is a participant.

In Costa Rica, OPIC’s 2018 portfolio exposure totaled USD 151 million across 15 projects in financial services, real estate/construction, and utility sectors.  OPIC continues to be active in Costa Rica. For more information, see OPIC’s master list of projects by year: https://www.opic.gov/opic-action/all-project-descriptions  .   Costa Rica is a member of the Multilateral Investment Guarantee Agency, a member of the World Bank group.

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

* For 2017 GDP in dollars with National Accounts exchange rate, the Costa Rican Central Bank (BCCR) is “Host Country Statistical Source”.  http://indicadoreseconomicos.bccr.fi.cr/indicadoreseconomicos/Cuadros/frmVerCatCuadro.aspx?idioma=1&CodCuadro= percent202999  

* For 2017 US FDI stock in Costa Rica, and Costa Rican FDI stock in the US, the Costa Rican Central Bank (BCCR) is “Host Country Statistical Source

* For “Total Inbound Stock of FDI as  percent host GDP”, local statistical source is BCCR.  GDP for 2017 was USD 58,174.6 million; total Inbound FDI stock in 2017 was USD 36,742.7.

Table 3: Sources and Destination of FDI

Costa Rica’s open and globally integrated economy receives FDI principally from the United States followed by Europe and Latin America.   Costa Rica’s outward FDI is more regionally focused on its neighbors Nicaragua, Guatemala and Panama, with the U.S. and Colombia following.

Stock Positions.  IMF’s Coordinated Direct Investment Survey (CDIS) site: (http:/data.imf.org/CDIS)

Table 4: Sources of Portfolio Investment

Policies Towards Foreign Direct Investment

Ecuador is open to FDI in most sectors.  The 2008 Constitution established that the state reserves the right to manage strategic sectors through state-owned or controlled companies.  The sectors identified are energy, telecommunications, non-renewable natural resources, transportation, hydrocarbon refining, water, biodiversity, and genetic patrimony.  Although Ecuador recently took some steps intended to attract FDI, foreign investors claim that Ecuador’s overall investment climate remains challenging as economic, commercial, and investment policies are subject to frequent change.  In 2018, total FDI inflow doubled from 2017 numbers to USD 1.4 billion, or about 1 percent of GDP.  Despite the increase, FDI inflow remains very low when compared to other countries in the region.

In general, companies complain that the legal complexity resulting from the inconsistent application and interpretation of existing laws and regulations increases the risks and costs of doing business in Ecuador.  Disputes involving U.S. companies have been allegedly politicized, especially in sensitive areas such as the energy sector.  Ecuador has been involved in several high profile investment disputes with U.S. companies.  Chevron, Conoco Phillips, Occidental Petroleum Corporation, and Murphy Oil Corporation were awarded damages in international arbitration rulings against Ecuador in the last several years.  Other companies such as Merck have received interim awards in international arbitration.

Limits on Foreign Control and Right to Private Ownership and Establishment

One hundred percent foreign equity ownership is allowed without the need for authorization or prior screening in sectors open to domestic private investment.

For license and franchise transactions, no limits exist on royalties that may be remitted, although financial outflows are subject to a five percent capital exit tax.  All license and franchise agreements must be registered with the National Service for Intellectual Property Rights (SENADI).  In addition to registering with the Superintendence of Companies, Securities, and Insurance, foreign investors must register investments with Ecuador’s Central Bank for statistical purposes.

Sectors of interest to Foreign Investors:

Automotive: the Ministry of Foreign Trade eliminated quotas of automobile imports January 1, 2017, and cancelled tariff surcharges in June 2017.  This action removed an important restriction on U.S. automobile exports to Ecuador.  In December 2018, Ecuador instituted COMEX Resolution 25 that eliminated tariffs on automobiles assembled in Ecuador based on new investments, with certain limitations.

Petroleum: per the 2008 Constitution, all subsurface resources belong to the state.  The petroleum sector is controlled by two state owned enterprises (SOEs).  In 2018, the government removed subsidies on all higher-octane gasoline and some subsidies on regular and diesel fuel, changing some fuel pricing.

Mining: the Ecuadorian government has taken steps to reduce taxes in the mining sector in order to attract FDI.  Presidential Decree 475, published in October 2014, made minor reductions to the windfall tax and sovereign adjustment calculations.  The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, included provisions to improve tax stability and lower the income tax rate in the mining sector.  Former President Correa’s administration also developed mining sector incentives such as fiscal stability agreements, limited VAT reimbursements, remittance tax exceptions, and mechanisms for companies to recover their investments before certain taxes are applied.

 Electricity: the Organic Law for the Public Service of Electric Energy, which took effect in January 2015, permits some private sector participation and foreign investment in Ecuador’s electricity sector.  Per the 2008 Constitution, the electricity sector is a public service and strategic sector.

Telecommunications: in February 2015, Ecuador’s National Assembly passed a telecommunications law that requires telecommunications companies to pay a percentage of revenue to the government.  This requirement applies to providers of cellular and fixed line telephone service, internet service, and subscription television with more than 30 percent of market share.  The payments range from 0.5 to 9 percent of revenue.

Media: the 2013 Communications Law introduced a requirement that advertising disseminated in Ecuador must have 80 percent domestic content.  It also requires that television and radio frequencies are distributed 33 percent to private media, 33 percent to public media, and 34 percent to community media.

The government controls a large share of radio, television, and other press holdings.  Article 312 of the Constitution prohibits shareholders and representatives of financial institutions from media ownership.  In addition, the 2011 Organic Law for Regulation and Control of Market Power prohibits anyone possessing more than a six percent interest in a media company from investing in any other business sector.

Other Investment Policy Reviews

Ecuador conducted a trade policy review with the World Trade Organization in March 2019; information can be found at https://www.wto.org/english/tratop_e/tpr_e/tp483_e.htm 

In the past three years, Ecuador has not conducted an investment policy review with the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

In 2018 Ecuador folded its ProEcuador (https://www.proecuador.gob.ec/ ), the entity that is responsible for promoting economic development through exports, imports, and investment in Ecuador, into the Ministry of Production, Foreign Trade, Investments and Fisheries (MPCIEP).  ProEcuador is now a Vice Ministry within MPCIEP, and has 31 offices in 26 countries, including four in the United States.  Ecuador is ranked 123rd out of 190 countries on the World Bank’s Ease of Doing Business report for 2019, with particularly low rankings for Starting a Business (168), Resolving Insolvency (158) and Paying Taxes (143).

A newly created company will at a minimum be required to register with the Superintendence of Companies Securities, and Insurance (http://www.supercias.gob.ec/.), the municipal government, the Internal Revenue Service, and the Social Security Institute. The registry with the Superintendence of Companies is a completely online process as of April 2019.

Outward Investment

Ecuador does not restrict domestic investors from investing abroad.  ProEcuador  is responsible for promotion of outward investment from Ecuador.  Foreign investments are subject to a capital exit tax of five percent.

In February 2017, voters passed a government-backed referendum prohibiting elected officials and public servants from having financial interactions with official lists of tax havens and other suspect jurisdictions.  The lists include several U.S. states and territories.  The prohibition entered into effect in September 2017.

Ecuador’s National Assembly voted on May 3, 2017 to terminate 12 of its bilateral investment treaties, including its agreement with the United States.  The Government of Ecuador notified the U.S. government of its withdrawal from our Bilateral Investment Treaty (BIT) on May 18, 2017, effective May 18, 2018.  Investments made prior to withdrawal are covered for 10 years, but the BIT covers no new investments in Ecuador.

Ecuador signed on June 25, 2018 a Comprehensive Economic Partnership Agreement with the European Free Trade Association, which includes Switzerland, Norway, Liechtenstein, and Iceland.  That agreement has yet to be ratified.  The accession of Ecuador to the European Union’s Multiparty Trade Agreement with Colombia and Peru became effective January 1, 2017.  Ecuador concluded two limited trade agreements in 2017, with El Salvador on November 16, 2017 and Nicaragua on November 19, 2017.  Ecuador has been negotiating a Strategic Cooperation Agreement with South Korea.

Ecuador does not have a bilateral taxation treaty with the United States.

Transparency of the Regulatory System

While there is a focus within the Moreno administration to improve transparency and government accountability, companies report that progress has been slow.  Several foreign investors report that economic, commercial, and investment policies are subject to frequent changes and can increase the risks and costs of doing business in Ecuador.  National and Municipal level regulations can be in conflict with each other.  Regulatory agencies are not required to publish proposed regulations before enactment and rulemaking bodies are not required to solicit public comments on proposed regulations, although there has been some movement towards prior consultation processes.  The ministries generally consult with relevant national actors when drafting regulations, but not always, according to some businesses.

The Government of Ecuador publishes regulatory actions in the Official Registry and posts them online at https://www.registroficial.gob.ec/.  Publicly listed companies adhere to International Financial Reporting Standards (IFRS).  While there are some transparency enforcement mechanisms within the government, it has been reported that they tend to be weak and rarely enforced.  There are no identified informal regulatory processes led by private sector associations or nongovernmental organizations.

International Regulatory Considerations

Ecuador is a member of the Andean Community of Nations (CAN) along with Bolivia, Colombia, and Peru.  Ecuador is an associate member of the Southern Cone Common Market (MERCOSUR).  Ecuador is a member of the WTO and notifies draft regulations to the WTO TBT Committee.  Ecuador has ratified the WTO Trade Facilitation Agreement on October 16, 2018.

Legal System and Judicial Independence

Ecuador has a civil codified legal system.  Concerns have been voiced by some businesses over systemic weakness in the judicial system and its susceptibility to political and economic pressures, which may constitute challenges faced by U.S. companies investing in Ecuador.  Enforcement of contract rights, equal treatment under the law, intellectual property protections, and unstable regulatory regimes continue to be concerns for foreign investors.

Laws and Regulations on Foreign Direct Investment

Ecuador does not have laws specifically on FDI, but two have effects on investment.  The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, includes provisions to improve tax stability and lower the income tax rate in the mining sector.  The Organic Law of Incentives for Public-Private Associations and Foreign Investment from 2015 includes provisions to improve legal stability, reduce red tape, and exempt public private partnerships from paying income and capital exit taxes under certain conditions.  ProEcuador’s website https://www.proecuador.gob.ec/  provides a guide for investors in English and Spanish and highlights the procedures to register a company, types of incentives for investors, and relevant taxes related to investing in Ecuador.

Competition and Anti-Trust Laws

The Superintendence of Control of Market Power reviews transactions for competition-related concerns.  Ecuador’s 2011 Organic Law for Regulation and Control of Market Power includes mechanisms to prevent, control, and sanction market power abuses, restrictive market practices, economic concentration, and unfair competition.  The Superintendence of Control of Market Power, can fine companies found to be in violation of the law up to 12 percent of gross revenue.

Expropriation and Compensation

The Constitution establishes that the state is in charge of managing the use and access to land, while recognizing and guaranteeing the right to private property.  It also provides for the redistribution of land if it has not in active use for more than two years.  The 2015 Telecommunications Law allows expropriation of private land in accordance with the rules and procedures of the law when necessary for the installation of network infrastructure.  The Government of Ecuador’s past use of a 99 percent excess profits tax on some investments was determined by international arbitration panels to be an indirect expropriation.

Under the U.S.-Ecuador BIT, which expired May 18, 2018, expropriation can only be carried out for a public purpose, in a nondiscriminatory manner, and upon payment of prompt, adequate, and effective compensation.

Dispute Settlement

 ICSID Convention and New York Convention

Ecuador withdrew from the International Centre for the Settlement of Investment Disputes (ICSID Convention) in 2010.  Ecuador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Ecuador’s National Assembly voted on May 3, 2017 to terminate 12 of its bilateral investment treaties, including its agreement with the United States.  The Government of Ecuador notified the U.S. government of its withdrawal from the BIT on May 18, 2017, with the effective date May 18, 2018.  The treaty further specifies that all U.S. investments in place at the date of termination enjoy the protections of the treaty for the subsequent ten years.  There have been numerous claims against Ecuador under the BIT that have gone to international arbitration.  There are two active cases awaiting a final decision, Chevron and Merck.

International Commercial Arbitration and Foreign Courts

A number of U.S. companies operating in Ecuador, most notably in the petroleum sector, have filed for international arbitration due to investment claims.  The GOE has reportedly treated these disputes as a political issue in some cases, speaking negatively about investors involved.  Payment of arbitration awards has taken more than a year.  The Ecuadorian Constitution from 2008 states that arbitration must take place either in Ecuador or in Latin America, and was the primary driver of the 2017 termination of BITs.

Bankruptcy Regulations

Ecuador is ranked 158 out of 190 in the category of Ease of Resolving Insolvency in the World Bank’s 2019 Ease of Doing Business Report.   With the goal of protecting consumers and preventing a real estate bubble, the National Assembly approved in June 2012 a law that allows homeowners to default on their first home and car loan without penalty if they forfeit the asset.  The provisions do not apply to homes with a market value of more than 500 times the basic salary (currently USD 197,000) or vehicles worth more than 100 times the basic salary (currently USD 39,400).

In cases of foreclosure, the average time for banks to collect on debts is 5.3 years, usually taking 4.5 years for courts to approve the initiation of foreclosures. After the appointment and acceptance of an auctioneer, it would take about six months for the auction to take place.  World Bank’s Doing Business Report estimates that the foreclosure proceedings would result in costs equal to about 18 percent of the value of the estate in question.

Investment Incentives

In August 2018, the National Assembly approved the Productive Development Law that provides income tax exemptions and VAT exemptions to attract investments, good for 12 years in all areas except the cities of Quito and Guayaquil, where it is 8 years, and 20 years in border regions.

In December 2015, Ecuador’s National Assembly approved a Public-Private Partnership law intended to attract investment.  The law offers incentives including the reduction of the income tax, value added tax, and capital exit tax, for investors in certain projects.  It designates Latin American arbitration bodies as the dispute resolution mechanism.  The law came into effect upon publication in the official registry on December 18, 2015.  The Organic Law of Production Incentives and Tax Fraud Prevention, which took effect on December 30, 2014, provides tax incentives related to depreciation calculations and income tax rates, which could benefit some foreign investors.

Foreign Trade Zones/Free Ports/Trade Facilitation

The 2010 Production Code authorized the creation of Special Economic Development Zones (ZEDEs) that are subject to reduced taxes and tariffs.  The government considers the extent to which projects promote technology transfer, innovation, and industrial diversification when granting ZEDE status; foreign owned firms have the same investment opportunities as national firms.

Performance and Data Localization Requirements

 Nationally the government does not mandate local employment, however, the Organic Law of the Amazon approved by the National Assembly on May 21, 2018, mandates that any company, national or foreign, operating within the area covered by the law (the Amazon Basin) must hire at least 70 percent of their staff locally, unless they cannot find qualified labor locally.

There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption.  Companies can transmit data freely into and out of Ecuador, and there are no requirements to store data within the country.

On October 11, 2016, Ecuador’s National Assembly passed the Code of the Social Economy of Knowledge, Creativity, and Innovation, covering a wide range of intellectual property matters.   Article 148 of the Code establishes that agencies must give preference to open source software with content developed in Ecuador when procuring software for government use.

Visa and residency requirements are relatively relaxed and do not inhibit foreign investment.

Semi-skilled and unskilled workers are relatively abundant at low wages.  The supply of available workers is high due to layoffs in sectors affected by the downturn in Ecuador’s economy since 2014.  In addition, first Colombian and now Venezuelan migrants have added to the supply of labor.  The National Wages Council and Ministry of Labor Relations set minimum compensation levels for private sector employees annually.  The minimum basic salary for 2019 is USD 394 per month.

Ecuador’s Production Code requires that workers be paid a dignified wage, defined as an amount that would enable a family of four with 1.6 wage earners to be able to afford necessities.  The cost and the products that are considered necessities are determined by Ecuador’s Statistics Institute (INEC).  In March 2019, the cost of basic necessities was USD 713.05, while the official family wage level is at USD 735.47.  As of December 2017, INEC estimated 37.9 percent of workers had adequate employment.  INEC defines adequate employment as earning at least the minimum basic salary working 40 hours per week.

Ecuador’s National Assembly passed a labor reform law in March 2016 intended to promote youth employment, support unemployed workers, and introduce greater labor flexibility for companies suffering from reduced revenue.  The law established a new unemployment insurance program, a subsidized youth employment scheme, temporary reductions in workers’ hours for financially strapped companies, and nine months of unpaid maternity or paternity leave.

The Law for Labor Justice and Recognition of Work in the Home, which included several changes related to labor and social security, took effect in April 2015.  The law limits the yearly bonus paid to employees, which is equal to 15 percent of companies’ profits and is required by law, to 24 times the minimum wage.  Any surplus profits are to be collected by IESS.  The law also mandates that employees’ thirteenth and fourteenth month bonuses, which are required by law, be paid in installments throughout the year instead of in lump sums.  Employees have the option to opt out of this change and continue to receive the payments in lump sums.  The law eliminates fixed-term employee contracts in favor of indefinite contracts, which shorten the allowable trial period for employees to 90 days.  The law also allows participation in social security pensions for non-paid work at home.

The Labor Code provides for a 40-hour workweek, 15 calendar days of annual paid vacation, restrictions and sanctions for those who employ child labor, general protection of worker health and safety, minimum wages and bonuses, maternity leave, and employer-provided benefits.  The 2008 Constitution bans child labor, requires hiring workers with disabilities, and prohibits strikes in most of the public sector.  Unpaid internships are not permitted in Ecuador.

Most workers in the private sector and at SOEs have the constitutional right to form trade unions and local law allows for unionization of any company with more than 30 employees.  Private employers are required to engage in collective bargaining with recognized unions.  The Labor Code provides for resolution of conflicts through a tripartite arbitration and conciliation board process.  The Code also prohibits discrimination against union members and requires that employers provide space for union activities.

Workers fired for organizing a labor union are entitled to limited financial indemnification, but the law does not mandate reinstatement.  The Public Service Law enacted in October 2010 prohibits the vast majority of public sector workers from joining unions, exercising collective bargaining rights, or paralyzing public services in general.  The Constitution lists health; environmental sanitation; education; justice; fire brigade; social security; electrical energy; drinking water and sewerage; hydrocarbon production; processing, transport, and distribution of fuel; public transport; and post and telecommunications as strategic sectors.  Public workers who are not under the Public Service Law may join a union and bargain collectively since they are governed by the provisions under the Labor Code.

Ecuador has an Investment Guarantee Agreement with the Overseas Private Investment Corporation.  Ecuador is also a signatory to the Multilateral Investment Guarantee Agreement.

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

* Source for Host Country Data: Central Bank of Ecuador.  The Central Bank publishes FDI calculated as net flows only.  Outward Direct Investment statistics are not published by the Central Bank.

Table 3: Sources and Destination of FDI

Source: Ecuador Central Bank, no Information available on the IMF’s CDIS website, and there no information available on Outward Direct Investment

Policies Towards Foreign Direct Investment

Mexico is open to foreign direct investment (FDI) in the vast majority of economic sectors and has consistently been one of the largest emerging market recipients of FDI.  Mexico’s macroeconomic stability, large domestic market, growing consumer base, rising skilled labor pool, welcoming business climate, and proximity to the United States all help attract foreign investors.

Historically, the United States has been one of the largest sources of FDI in Mexico.  According to Mexico’s Secretariat of Economy, FDI flows to Mexico from the United States totaled USD 12.3 billion in 2018, nearly 39 percent of all inflows to Mexico (USD 31.6 billion).  The automotive, aerospace, telecommunications, financial services, and electronics sectors typically receive large amounts of FDI. Most foreign investment flows to northern states near the U.S. border, where most maquiladoras (export-oriented manufacturing and assembly plants) are located, or to Mexico City and the nearby “El Bajio” (e.g. Guanajuato, Queretaro, etc.) region.  In the past, foreign investors have overlooked Mexico’s southern states, although that may change if the new administration’s focus on attracting investment to the region gain traction.

The 1993 Foreign Investment Law, last updated in March 2017, governs foreign investment in Mexico.  The law is consistent with the foreign investment chapter of NAFTA. It provides national treatment, eliminates performance requirements for most foreign investment projects, and liberalizes criteria for automatic approval of foreign investment.  The Foreign Investment Law provides details on which business sectors are open to foreign investors and to what extent. Mexico is also a party to several Organization for Economic Cooperation and Development (OECD) agreements covering foreign investment, notably the Codes of Liberalization of Capital Movements and the National Treatment Instrument.

The new administration stopped funding ProMexico, the government’s investment promotion agency, and is integrating its components into other ministries and offices.  PROMTEL, the government agency charged with encouraging investment in the telecom sector, is expected to continue operations with a more limited mandate. Its first director and four other senior staff recently left the agency.  In April 2019, the government sent robust participation to the 11th CEO Dialogue and Business Summit for Investment in Mexico sponsored by the U.S. Chamber of Commerce and its Mexican equivalent, CCE. Cabinet-level officials conveyed the Mexican government’s economic development and investment priorities to dozens of CEOs and business leaders.

Limits on Foreign Control and Right to Private Ownership and Establishment

Mexico reserves certain sectors, in whole or in part, for the State including:  petroleum and other hydrocarbons; control of the national electric system, radioactive materials, telegraphic and postal services; nuclear energy generation; coinage and printing of money; and control, supervision, and surveillance of ports of entry.  Certain professional and technical services, development banks, and the land transportation of passengers, tourists, and cargo (not including courier and parcel services) are reserved entirely for Mexican nationals. See section six for restrictions on foreign ownership of certain real estate.

Reforms in the energy, power generation, telecommunications, and retail fuel sales sectors have liberalized access for foreign investors.  While reforms have not led to the privatization of state-owned enterprises such as Pemex or the Federal Electricity Commission (CFE), they have allowed private firms to participate.

Hydrocarbons:  Private companies participate in hydrocarbon exploration and extraction activities through contracts with the government under four categories:  competitive contracts, joint ventures, profit sharing agreements, and license contracts. All contracts must include a clause stating subsoil hydrocarbons are owned by the State.  The government has held four separate bid sessions allowing private companies to bid on exploration and development of oil and gas resources in blocks around the country. In 2017, Mexico successfully auctioned 70 land, shallow, and deep water blocks with significant interest from international oil companies.  The Lopez Obrador administration decided to suspend all future auctions until 2022.

Telecommunications:  Mexican law states telecommunications and broadcasting activities are public services and the government will at all times maintain ownership of the radio spectrum.

Aviation:  The Foreign Investment Law limited foreign ownership of national air transportation to 25 percent until March 2017, when the limit was increased to 49 percent.

Under existing NAFTA provisions, U.S. and Canadian investors receive national and most-favored-nation treatment in setting up operations or acquiring firms in Mexico.  Exceptions exist for investments restricted under NAFTA. Currently, the United States, Canada, and Mexico have the right to settle any dispute or claim under NAFTA through international arbitration.  Local Mexican governments must also accord national treatment to investors from NAFTA countries.

Approximately 95 percent of all foreign investment transactions do not require government approval.  Foreign investments that require government authorization and do not exceed USD 165 million are automatically approved, unless the proposed investment is in a legally reserved sector.

The National Foreign Investment Commission under the Secretariat of the Economy is the government authority that determines whether an investment in restricted sectors may move forward.  The Commission has 45 business days after submission of an investment request to make a decision. Criteria for approval include employment and training considerations, and contributions to technology, productivity, and competitiveness.  The Commission may reject applications to acquire Mexican companies for national security reasons. The Secretariat of Foreign Relations (SRE) must issue a permit for foreigners to establish or change the nature of Mexican companies.

Other Investment Policy Reviews

The World Trade Organization (WTO) completed a trade policy review of Mexico in February 2017 covering the period to year-end 2016.  The review noted the positive contributions of reforms implemented 2013-2016 and cited Mexico’s development of “Digital Windows” for clearing customs procedures as a significant new development since the last review.

The full review can be accessed via:  https://www.wto.org/english/tratop_e/tpr_e/tp452_e.htm  .

Business Facilitation

According to the World Bank, on average registering a foreign-owned company in Mexico requires 11 procedures and 31 days.  In 2016, then-President Pena Nieto signed a law creating a new category of simplified businesses called Sociedad for Acciones Simplificadas (SAS).  Owners of SASs will be able to register a new company online in 24 hours.  The Government of Mexico maintains a business registration website:  www.tuempresa.gob.mx  .  Companies operating in Mexico must register with the tax authority (Servicio de Administration y Tributaria or SAT), the Secretariat of the Economy, and the Public Registry.  Additionally, companies engaging in international trade must register with the Registry of Importers, while foreign-owned companies must register with the National Registry of Foreign Investments.

Outward Investment

In the past, ProMexico was responsible for promoting Mexican outward investment and provided assistance to Mexican firms acquiring or establishing joint ventures with foreign firms, participating in international tenders, and establishing franchise operations, among other services.  Various offices at the Secretariat of Economy and the Secretariat of Foreign Affairs now handle these issues. Mexico does not restrict domestic investors from investing abroad.

Bilateral Investment Treaties

On November 30, 2018, leaders of the United States, Mexico, and Canada signed a trade agreement to replace and modernize NAFTA – the United States-Mexico-Canada Agreement.  The agreement is now pending ratification by all three countries’ legislatures. The agreement contains an investment chapter.

Mexico has signed 13 FTAs covering 50 countries and 32 Reciprocal Investment Promotion and Protection Agreements covering 33 countries.  Mexico is a member of Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force December 30, 2018.  Mexico currently has 29 Bilateral Investment Treaties in force. Mexico and the European Union signed an agreement in principle to revise its FTA.

Bilateral Taxation Treaties

The United States-Mexico Income Tax Convention, which came into effect January 1, 1994, governs bilateral taxation between the two nations.  Mexico has negotiated double taxation agreements with 55 countries. Recent reductions in U.S. corporate tax rates may drive a future change to the Mexican fiscal code, but there is no formal legislation under consideration.

International Regulatory Considerations

Generally speaking, the Mexican government has established legal, regulatory, and accounting systems that are transparent and consistent with international norms.  Still, the Lopez Obrador administration has publicly questioned the value of specific anti-trust and energy regulators. Furthermore, corruption continues to affect equal enforcement of some regulations.  The Lopez Obrador administration has an ambitious plan to centralize government procurement in an effort to root out corruption and generate efficiencies.  The administration estimates it can save up to USD 25 billion annually by consolidating government purchases in the Mexican Secretariat of Finance (Hacienda).  Under the current decentralized process, more than 70 percent of government contracts are sole-sourced, interagency consolidated purchases are uncommon, and the entire process is susceptible to corruption.  The Mexican government’s budget is published online and readily available.  The Bank of Mexico also publishes and maintains data about the country’s finances and debt obligations.

The Federal Commission on Regulatory Improvement (COFEMER), within the Secretariat of Economy, is the agency responsible for streamlining federal and sub-national regulation and reducing the regulatory burden on business.  Mexican law requires Secretariats and regulatory agencies to conduct impact assessments of proposed regulations. Assessments are made available for public comment via COFEMER’s website: www.cofemer.gob.mx  .  The official gazette of state and federal laws currently in force in Mexico is publicly available via:  http://www.ordenjuridico.gob.mx/  .

Mexico’s antitrust agency, the Federal Commission for Economic Competition (COFECE), plays a key role protecting, promoting, and ensuring a competitive free market in Mexico.  COFECE is responsible for eliminating barriers both to competition and free market entry across the economy (except for the telecommunications sector, which is governed by its own competition authority) and for identifying and regulating access to essential production inputs.

In addition to COFECE, the Energy Regulatory Commission (CRE) and National Hydrocarbon Commission (CNH) are both technically-oriented independent agencies that play important roles in regulating the energy and hydrocarbons sectors.  CRE regulates national electricity generation, coverage, distribution, and commercialization, as well as the transportation, distribution, and storage of oil, gas, and biofuels. CNH supervises and regulates oil and gas exploration and production and issues oil and gas upstream (exploration/production) concessions.

Investors are increasingly concerned the administration is undermining confidence in the “rules of the game,” particularly in the energy sector, by weakening the political autonomy of COFECE, CNH, and CRE.  The administration appointed four of seven CRE commissioners over the Senate’s objections, which voted twice to reject the nominees in part due to concerns their appointments would erode the CRE’s political autonomy.  The administration’s budget cuts resulted in significant layoffs, which has reportedly hampered the agencies’ ability to carry out its work, a key factor in investment decisions.

The Secretariat of Public Administration has made considerable strides in improving transparency in government, including government contracting and involvement of the private sector in enhancing transparency and fighting corruption.  The Mexican government has established four internet sites to increase transparency of government processes and to establish guidelines for the conduct of government officials: (1) Normateca (http://normatecainterna.sep.gob.mx  ) provides information on government regulations; (2) Compranet (https://compranet.funcionpublica.gob.mx  ) displays federal government procurement actions on-line; (3) Tramitanet (www.tramitanetmexico.com  ) permits electronic processing of transactions within the bureaucracy; and (4) Declaranet (https://declaranet.gob.mx/  ) allows federal employees to file income taxes online.

Legal System and Judicial Independence

Since the Spanish conquest in the 1500s, Mexico has had an inquisitorial system adopted from Europe in which proceedings were largely carried out in writing and sealed from public view.  Mexico amended its Constitution in 2008 to facilitate change to an oral accusatorial criminal justice system to better combat corruption, encourage transparency and efficiency, while ensuring respect for the fundamental rights of both the victim and the accused.  An ensuing National Code of Criminal Procedure passed in 2014, and is applicable to all 32 states. The national procedural code is coupled with each state’s criminal code to provide the legal framework for the new accusatorial system, which allows for oral, public trials with the right of the defendant to face his/her accuser and challenge evidence presented against him/her, right to counsel, due process and other guarantees.  Mexico fully adopted the new accusatorial criminal justice system at the state and federal levels in June 2016.

Mexico’s Commercial Code, which dates back to 1889, was most recently updated in 2014.  All commercial activities must abide by this code and other applicable mercantile laws, including commercial contracts and commercial dispute settlement measures.  Mexico has multiple specialized courts regarding fiscal, labor, economic competition, broadcasting, telecommunications, and agrarian law.

The judicial branch is nominally independent from the executive.  Following a reform passed in February 2014, the Attorney General’s Office (Procuraduria General de la Republica or PGR) became autonomous of the executive branch, as the Prosecutor General’s Office (Fiscalia General de la Republica or FGR).  The Mexican Senate confirmed Mexico’s first Fiscal on January 18, 2019.  The Fiscal will serve a nine-year term, intended to insulate his office from the executive branch, whose members serve six-year terms.

Laws and Regulations on Foreign Direct Investment

Mexico’s Foreign Investment Law sets the rules governing foreign investment into the country.  The National Commission for Foreign Investments, formed by several cabinet-level ministries including Interior (SEGOB), Foreign Relations (SRE), Finance (Hacienda), Economy (SE), and Social Development (SEDESOL), establishes the criteria for administering investment rules.

Competition and Anti-Trust Laws

Mexico has two constitutionally autonomous regulators to govern matters of competition – the Federal Telecommunications Institute (IFT) and the Federal Commission for Economic Competition (COFECE).  IFT governs broadcasting and telecommunications, while COFECE regulates all other sectors. For more information on competition issues in Mexico, please visit COFECE’s bilingual website at: www.cofece.mx  .

Expropriation and Compensation

Mexico may not expropriate property under NAFTA, except for public purpose and on a non-discriminatory basis.  Expropriations are governed by international law and require rapid fair market value compensation, including accrued interest.  Investors have the right to international arbitration for violations of this or any other rights included in the investment chapter of NAFTA.

Dispute Settlement

ICSID Convention and New York Convention

Mexico ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) in 1971 and has codified this into domestic law.  Mexico is also a signatory to the Inter-American Convention on International Commercial Arbitration (1975 Panama Convention) and the 1933 Montevideo Convention on the Rights and Duties of States.  Mexico is not a member of the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention), even though many of the investment agreements signed by Mexico include ICSID arbitration as a dispute settlement option.

Investor-State Dispute Settlement

Chapters 11, 19, and 20 of the existing NAFTA cover international dispute resolution.  Chapter 11 allows a NAFTA Party investor to seek monetary damages for violations of its provisions.  Investors may initiate arbitration against the NAFTA Party under the rules of the United Nations Commission on International Trade Law (UNCITRAL Model Law) or through the ICSID Convention.  A NAFTA investor may also choose to use the domestic court system to litigate their case. The USMCA contains revisions to these chapters, but will not enter into force until all three countries have ratified the agreement.

Since NAFTA’s inception, there have been 17 cases filed against Mexico by U.S. and Canadian investors who allege expropriation and/or other violations of Mexico’s NAFTA obligations.  Details of the cases can be found at: https://www.state.gov/s/l/c3742.htm.

International Commercial Arbitration and Foreign Courts

The Arbitration Center of Mexico (CAM) is a specialized, private institution administering commercial arbitration as an alternative dispute resolution mechanism.  The average duration of an arbitration process conducted by CAM is 14 months. The Commercial Code dictates an arbitral award, regardless of the country where it originated, must be recognized as binding.  The award must be enforced after a formal written petition is presented to a judge.

The internal laws of both Pemex and CFE state all national disputes of any nature will have to be resolved by federal courts.  State-owned Enterprises (SOEs) and their productive subsidiaries may opt for alternative dispute settlement mechanisms under applicable commercial legislation and international treaties of which Mexico is a signatory.  When contracts are executed in a foreign country, Pemex and CFE have the option to follow procedures governed by non-Mexican law, to use foreign courts, or to participate in arbitration.

Bankruptcy Regulations

Mexico’s Reorganization and Bankruptcy Law (Ley de Concursos Mercantiles) governs bankruptcy and insolvency.  Congress approved modifications in 2014 in order to shorten procedural filing times and convey greater juridical certainty to all parties, including creditors.  Declaring bankruptcy is legal in Mexico and it may be granted to a private citizen, a business, or an individual business partner. Debtors, creditors, or the Attorney General can file a bankruptcy claim.  Mexico ranked 32 out of 190 countries for resolving insolvency in the World Bank’s 2019 Doing Business report. The average bankruptcy filing takes 1.8 years to be resolved and recovers 64.7 cents per USD, which compares favorably to average recovery in Latin America and the Caribbean of just 30.9 cents per USD.  “Buró de Crédito” is Mexico’s main credit bureau.  More information on credit reports and ratings can be found at:  http://www.burodecredito.com.mx/  .

Investment Incentives

Land grants or discounts, tax deductions, and technology, innovation, and workforce development funding are commonly used incentives.  Additional federal foreign trade incentives include: (1) IMMEX: a promotion which allows manufacturing sector companies to temporarily import inputs without paying general import tax and value added tax; (2) Import tax rebates on goods incorporated into products destined for export; and (3) Sectoral promotion programs allowing for preferential ad-valorem tariffs on imports of selected inputs.  Industries typically receiving sectoral promotion benefits are footwear, mining, chemicals, steel, textiles, apparel, and electronics.

Foreign Trade Zones/Free Ports/Trade Facilitation

The new administration launched a two-year program in January 2019 that established a border economic zone (BEZ) in 43 municipalities in six northern border states within 15.5 miles from the U.S. border.  The BEZ program entails: 1) a fiscal stimulus decree reducing the Value Added Tax (VAT) from 16 percent to 8 percent and the Income Tax (ISR) from 30 percent to 20 percent, 2) a minimum wage increase to MXN 176.72 (USD 8.75) per day, and 3) the gradual harmonization of gasoline, diesel, natural gas, and electricity rates with neighboring U.S. states.  The purpose of the BEZ program is to boost investment, promote productivity, and create more jobs in the region.  Interested businesses or individuals must apply to the government’s “Beneficiary Registry” by March 31 demonstrating income from border business activities comprise at least 90 percent of total income.  The company headquarters or branch must be located in the border region for at least 18 months prior to the application.  Sectors excluded from the preferential ISR rate include financial institutions, the agricultural sector, and export manufacturing companies (maquilas).

Separately, the administration announced plans to review and possibly end the Special Economic Zones (SEZs) program throughout the country.

Performance and Data Localization Requirements

Mexican labor law requires at least 90 percent of a company’s employees be Mexican nationals.  Employers can hire foreign workers in specialized positions as long as foreigners do not exceed 10 percent of all workers in that specialized category.  Mexico does not follow a “forced localization” policy—foreign investors are not required by law to use domestic content in goods or technology. However, investors intending to produce goods in Mexico for export to the United States should take note of the rules of origin prescriptions contained within NAFTA if they wish to benefit from NAFTA treatment.

Mexico does not have any policy of forced localization for data storage, nor must foreign information technology (IT) providers turn over source code or provide backdoors into hardware or software.  Within the constraints of the Federal Law on the Protection of Personal Data, Mexico does not impede companies from freely transmitting customer or other business-related data outside the country.

Mexico’s 57.4 percent rate of informality remains higher than countries with similar GDP per capita levels.  High informality, defined as those working in unregistered firms or without social security protection, distorts labor market dynamics, contributes to persistent wage depression, drags overall productivity, and slows economic growth.  Mexico’s efforts to increase formality over the past four years reduced the rate by 2.4 percentage points, a modest decrease given the scope of the problem. In the formal economy, there is a general surplus of labor but a shortage of technically skilled workers and engineers.  Manufacturing companies, particularly along the U.S.-Mexico border and in the states of Aguascalientes, Guanajuato, Jalisco, and Querétaro, report labor shortages and an inability to retain staff.

Mexico’s labor relations system has been widely criticized as skewed to represent the interests of employers and the government at the expense of workers.  Mexico’s legal framework governing collective bargaining created the possibility of negotiation and registration of initial collective bargaining agreements without the support or knowledge of the covered workers.  These agreements are commonly known as protection contracts and constitute a gap in practice with international labor standards regarding freedom of association. The percentage of the economy covered by collective bargaining agreements is between five and 10 percent.

The first element of a labor justice reform package was passed into law February 24, 2017, replacing biased tripartite dispute resolution entities (Conciliation and Arbitration Boards) with independent judicial bodies.  In terms of labor dispute resolution mechanisms, the Conciliation and Arbitration Boards (CABs) previously adjudicated all individual and collective labor conflicts. The constitutional labor reform requires complementary revisions to the existing labor law.  The lower house of the Mexican Congress approved a bill with the requisite revisions in April 2019. Full congressional approval is expected once the Senate has also considered the bill.

Labor experts predict approval and implementation of the labor reform legislation, as required under the United States-Mexico-Canada Agreement (USMCA), will likely result in a greater level of labor actionas well as inter-union and intra-union competition.  Employer association and organized labor representatives agree, but differ on how much and how quickly labor actions will spread. The increasingly friendly political and legal environment for independent unions is already changing the way established unions manage disputes with employers, prompting more authentic collective bargaining.  As independent unions compete with corporatist unions to represent worker interests, workers are likely to be further emboldened in demanding higher wages.

According to the International Labor Organization (ILO), government enforcement was reasonably effective in enforcing labor laws in large and medium-sized companies, especially in factories run by U.S. companies and in other industries under federal jurisdiction.  Enforcement was inadequate in many small companies and in the agriculture and construction sectors, and it was nearly absent in the informal sector. Workers organizations have made numerous complaints of poor working conditions in maquiladoras and in the agricultural production industry.  Low wages, poor labor conditions, long work hours, unjustified dismissals, lack of social security benefits and safety in the workplace, and lack of freedom of association were among the most common complaints.

Mexico and Overseas Private Investment Corporation (OPIC) finalized in 2004 the agreement enabling OPIC programs and services within the country.  Since then, OPIC has provided over USD 1 billion in financing and political risk insurance to support to more than 22 projects in Mexico. OPIC has announced a drive to catalyze an additional USD 1 billion in investments in Mexico and Central America by 2021.  In December 2018 OPIC announced the possibility of expanding its funding opportunities in Mexico to upwards of USD 5 billion. For more information on OPIC’s projects in Mexico, please consult OPIC’s website at https://www.opic.gov .

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

*Mexico does not report total FDI stock, only flows of FDI.  https://datos.gob.mx/busca/organization/se  

Table 3:  Sources and Destination of FDI

The data included in the IMF’s Coordinated Direct Investment Survey is consistent with Mexican government data.

Table 4:  Sources of Portfolio Investment

The data included in the IMF’s Coordinated Portfolio Investment Survey (CPIS) is consistent with Mexican government data.

Policies Towards Foreign Direct Investment

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

REDIEX provides useful information for foreign investors, including business opportunities in Paraguay, registration requirements, laws, rules, and procedures.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

Other Investment Policy Reviews

The WTO conducted an Investment Policy Review in 2017.  Please see following website:

https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=240507,87161,40418,27051&CurrentCatalogueIdIndex=0&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=False&HasSpanishRecord=False  

Business Facilitation

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

Outward Investment

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

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

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

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

Transparency of the Regulatory System

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

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

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

International Regulatory Considerations

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

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

Legal System and Judicial Independence

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

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

There are frequent media reports of political interference with judicial decision making.  Judicial corruption also remains a concern, including reports of judges investing in plaintiffs’ claims in return for a percentage of monetary payouts.

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

Laws and Regulations on Foreign Direct Investment

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

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

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

In 2013 the Paraguayan Congress passed a law to promote public-private partnerships (PPP) in public infrastructure and allow for private sector entities to participate in the provision of basic services such as water and sanitation.  The government signed implementing regulations for the PPP law in 2014. As a result, the Executive Branch can now enter into agreements directly with the private sector without the need for congressional approval. In 2015, the Government of Paraguay implemented its first contract under the new law.  In 2016, it awarded its second PPP to a consortium of Spanish, Portuguese, and local companies to expand and maintain two of the country’s federal highways. Paraguay’s bid for an airport expansion PPP in Asuncion in 2016, was officially cancelled in October 2018 due to concerns over the contracting process.  Large infrastructure projects are usually open to foreign investors.

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

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

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

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

International Commercial Arbitration and Foreign Courts

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

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

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

Bankruptcy Regulations

Paraguay has a bankruptcy law (154/63) under which a debtor may suspend payments to creditors during the evaluation period of the debtors’ restructuring proposal.  If no agreement is reached, a trustee may liquidate the company’s assets. According to the World Bank’s 2019 Doing Business Report, Paraguay stands at 103 in the ranking of 190 economies on the ease of resolving insolvency.  The report states resolving insolvency takes 3.9 years on average and costs nine percent of the debtor’s estate, with the most likely outcome being that the company will be sold as piecemeal sale. The average recovery rate is 21.6 cents on the dollar.  Bankruptcy is not criminalized in Paraguay.

Investment Incentives

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

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

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

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

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

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

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

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

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

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

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

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

Significant discrepancies can be noted between the local and the USG statistical sources in terms of U.S. FDI in Paraguay for 2017.  UNCTAD total inbound of FDI as a percentage of Paraguay’s GDP differs about four percent when compared to Paraguay’s local statistics.  However, if compared to other international statistics, such as the World Bank and the IMF, the relation between total inbound stocks of FDI as a percentage of Paraguay’s GDP is consistent with local statistics.

*Host country statistical data source: Central Bank of Paraguay

Table 3: Sources and Destination of FDI

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

Table 4: Sources of Portfolio Investment

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

Policies Towards Foreign Direct Investment

The GOP seeks to attract investment — both foreign and domestic — in nearly all sectors of the economy.  The GOP prioritized USD 10.3 billion in public-private partnership projects in transportation infrastructure, electricity, mining, broadband expansion, gas distribution, health and sanitation for 2019-2021.  The Ministry of Energy and Mines aims to spur exploration and investment in the mining sector, increase oil and gas exploration, and modernize the Talara refinery.

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

Peruvians and Americans benefit from the United States-Peru Trade Promotion Agreement (PTPA), which entered into force on February 1, 2009.  The PTPA established a secure, predictable legal framework for U.S. investors operating in Peru. The PTPA protects all forms of investment. U.S. investors enjoy the right to establish, acquire, and operate investments in Peru on an equal footing with local investors in almost all circumstances.

The GOP created ProInversion, in 2002, based on an existing, similar investment promotion agency.  ProInversion has completed both privatizations and concessions of state-owned enterprises and natural resource-based industries.  The agency regularly organizes international roadshow events, including in the United States, to attract investors and manages the GOP’s public-private investment project portfolio.  Major recent concession areas include ports, water treatment plants, power generation facilities, mining projects, electrical transmission lines, oil and gas distribution, and telecommunications.  Project opportunities are available on ProInversion’s Project Portfolio page at: http://www.proyectosapp.pe/modulos/JER/PlantillaProyectoEstadoSector.aspx?are=1&prf=2&jer=5892&sec=30  .

The GOP passed legislative decrees in July 2018 to attract and facilitate investment.  These include measures to reform the public-private partnership (PPP) process. The reforms establish the Economy and Finance Ministry (MEF) as the PPP policymaking authority in the country and allows government entities to contract out PMO services throughout all stages of the PPP process, including through the GOP promotion investment agency Proinversion. The regulations also established that Proinversion’s board of directors will be composed of GOP Ministers, reversing an earlier decree that allowed for two private sector representatives on the board. The GOP established an investment research portal within the invierte.pe public investment online database (https://www.mef.gob.pe/es/aplicativos-invierte-pe?id=5455).  While ProInversion does not maintain an ongoing dialogue with investors, it has authority to oversee PPP investments throughout their lifecycles. The GOP plans to publish a National Infrastructure Plan in July 2019, with infrastructure projects keyed to critical sectors outlined in a National Competitveness Plan that will be published by the end of 2019.

To spur project financing, the GOP loosened banking regulations to enable an entity to operate more than one tier-one financial institution in the country.  A new Tourism Entrepreneurship Fund created in 2017 will provide grants to finance or co-finance business ventures that incorporate conservation, sustainable use, and economic development in the tourism industry. The GOP later developed a four-year Tourism Entrepreneurship Program to channel the USD 3 million fund to tourism ventures (http://turismoemprende.pe/  ).  The program aims to fund 24 new tourism ventures worth USD 450,000 in 2018.

Although all Peruvian administrations since the 1990s have vowed to support private investment and abide by Peruvian laws, the GOP occasionally passes measures that some observers regard as a contravention of Peru’s open investment laws.  Furthermore, the GOP in December 2011 signed into law a 10-year moratorium on the entry into Peru of live genetically modified organisms (GMOs) to be used for cultivation. Peru also implemented two sets of rules for importing pesticides, one for commercial importers, which requires importers to file a full dossier with technical information, and another for end-user farmers, which only requires a written affidavit.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Constitution (Article 6 under Supreme Decree No. 162-92-EF) authorizes foreign investors to carry out any economic activity provided investors comply with all constitutional precepts, laws, and treaties.  Exceptions exist, including exclusion of foreign investment activities in natural protected reserves and manufacturing of military weapons, pursuant to Article 6 of Legislative Decree No. 757. While long-term concessions are granted, the law states Peruvians must maintain majority ownership in certain strategic sectors:  media; air, land and maritime transportation infrastructure; and private security surveillance services.

Prior approval is required in the banking and defense-related sectors.  Foreigners are legally prohibited from owning a majority interest in radio and television stations in Peru; nevertheless, foreigners have in practice owned controlling interests in such companies.  Under the Constitution, foreign interests cannot “acquire or possess under any title, mines, lands, forests, waters, or fuel or energy sources” within 50 kilometers of Peru’s international borders. However, foreigners can obtain concessions and rights within the restricted areas with the authorization of a supreme resolution approved by the Cabinet and the Joint Command of the Armed Forces.

The GOP does not screen, review, or approve foreign direct investment outside of those sectors that require a governmental waiver.

Other Investment Policy Reviews

The World Trade Organization (WTO) published a Trade Policy Review on Peru in 2013.  The WTO commented that foreign investors receive the same legal treatment as local investors in general, although foreign investment on maritime services, air transport, and broadcasting is restricted.  The report also noted that the Peruvian government promotes public-private partnerships to build infrastructure and spur economic growth, with tax exemptions and low-cost financing available for domestic and foreign investors alike.

Report available at: https://www.wto.org/english/tratop_e/tpr_e/tp389_e.htm  

Peru aspires to become a member of the Organization for Economic Cooperation and Development (OECD).  Peru launched an OECD Country Program on December 8, 2014, comprising policy reviews and capacity building projects, and allowing it to participate in substantive work of OECD’s specialized committees.  An 18-month OECD review identified economic, social, and political obstacles that could hamper Peru’s OECD membership aspirations. The government noted that the study would act as a “roadmap” for Peru’s goal to achieve membership by 2021.  The OECD published the Initial Assessment of its Multi-Dimensional Review of Peru in October 2015, finding that in spite of economic growth, Peru “still faces structural challenges to escape the middle-income trap and consolidate its emerging middle class.”  In every year since this study was published, Peru has enacted and implemented dozens of governance reforms to modernize its governance practices in line with OECD recommendations.

Report: www.oecd.org/countries/peru/multi-dimensional-review-of-peru-9789264243279-en.htm  

Peru has not had any third-party investment policy review (IPR) through the OECD, WTO, or UNCTAD in the past three years.

Business Facilitation

The GOP does not have a regulatory system to facilitate business operations but the Competition and Consumer Protection Agency (INDECOPI) regulates the enactment of new regulations by government entities that can place burdens on business operations.  INDECOPI’s authority allowing it to block any new business regulations can limit restrictions of businesses. In addition, the GOP passed in 2016 a “sunset law” that requires a review of existing regulations by government agencies.

Peru allows foreign business ownership, provided that a company has at least two shareholders and that its legal representative is a Peruvian resident.  The process takes an average of 43 days and involves 11 procedures. An entrepreneur must reserve the company name through the national registry, SUNARP (www.sunarp.gob.pe  ), and prepare a deed of incorporation through Portal de Servicios al Ciudadano y a las Empresas (http://www.serviciosalciudadano.gob.pe/  ).  The deed is then signed and filed with a Public Notary, with notary fees of up to 1 percent of a company’s capital, before submission to the Public Registry.  The company’s legal representative must obtain a Certificate of Registration and tax identification number from the National Tax Authority. Finally, the company must obtain a license from the municipality of the jurisdiction in which it is located.

All foreign investments must be registered with ProInversion.  The agency helps potential investors navigate investment regulations and provides sector-specific information on the investment process.

Outward Investment

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

The United States-Peru Trade Promotion Agreement (PTPA) eliminated the need for a bilateral investment agreement between the United States and Peru.  Peru also has free trade agreements with Canada, Chile, China, Venezuela, Costa Rica, the European Union, the European Free Trade Association (Iceland, Liechtenstein, Norway, and Switzerland), Honduras, Japan, Mexico, Panama, Singapore, South Korea, and Thailand.  It has Framework Agreements with MERCOSUR countries (Argentina, Brazil, Paraguay, Uruguay, and Venezuela). It has a partial preferential agreement with Cuba. More agreements have been signed and await full implementation, including with Guatemala, the Pacific Alliance (Mexico, Colombia, and Chile), Brazil, Australia, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership CPTPP (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Singapore and Vietnam). Peru has also ratified the WTO Agreement on Trade Facilitation, which entered into force in February 2017.

Peru has bilateral investment agreements in force with Argentina, Australia, Belgium-Luxembourg, Bolivia, Canada, Chile, China, Colombia, Cuba, Czech Republic, Denmark, Ecuador, El Salvador, Finland, France, Germany, Italy, Japan, Korea, Malaysia, Netherlands, Norway, Paraguay, Portugal, Romania, Singapore, Spain, Sweden, Switzerland, Thailand, United Kingdom, and Venezuela.  In total, Peru is a party to 32 bilateral investment agreements.

Peru does not have a bilateral taxation treaty with the United States.  Peru has signed tax treaties with the Andean Community (Bolivia, Colombia, Ecuador), Chile, Brazil, Canada, Mexico, Switzerland, South Korea, Portugal, and is negotiating one with Spain.  After taking office in July 2016, former President Pedro Pablo Kuczynski initiated a series of reforms, among them alterations to the tax regime. Beginning on January 1, 2017, real estate income tax for foreigners decreased from 30 percent to 5 percent and taxes on dividends and other forms of distribution decreased from 6.8 percent to 5 percent.  Corporate income taxes increased from 28 percent to 29.5 percent.

Transparency of the Regulatory System

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

Accounting, legal, and regulatory standards are consistent with international norms.  Peru’s Accounting Standards Council endorses the use of IFRS standards by private entities.

International Regulatory Considerations

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

Legal System and Judicial Independence

Peru has an independent judiciary.  The executive branch does not interfere with the judiciary as a matter of policy.  Peru is in the process of transitioning to an accusatory legal system. The new system is already in place in the regions outside Lima.  Regulations and enforcement actions are appealable through administrative process and the court system.

Laws and Regulations on Foreign Direct Investment

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

Competition and Anti-Trust Laws

The Institute for the Protection of Intellectual Property, Consumer Protection, and Competition (INDECOPI) is the GOP agency responsible for reviewing competition-related concerns of a domestic nature.  In 2016, INDECOPI levied sanctions against a U.S. company and its Chilean counterpart for fixing the price of toilet paper in Peru. The Peruvian Congress is evaluating a bill that would require prior approval by INDECOPI for mergers and acquisitions with the goal of eliminating anticompetitive practices.

Expropriation and Compensation

Congress passed a law streamlining expropriation procedures in August 2015.  The GOP announced in January 2017 that it would create a body within ProInversion to focus on acquiring land for infrastructure projects.  The Peruvian Constitution states that the GOP can only expropriate private property on the basis of public interest, such as public works projects or for national security.  In order to expropriate, Congress is required to pass a legislative decree. The Government of Peru has expressed its intention to comply with international standards concerning expropriations.  Peruvian law bases compensation for expropriation on fair market value. Concessionaires have complained that the government has been slow in implementing expropriations, causing delays to their investment commitments.

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

Investor-State Dispute Settlement

The PTPA provides investor-state claim mechanisms.  It does not require that an investor

exhaust local judicial or administrative remedies before a claim may be filed.  The investor may submit a claim under various arbitral mechanisms, including the Convention on the Settlement of Investment Disputes (ICSID Convention) and ICSID Rules of Procedure, the ICSID Additional Facility Rules, the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, or, if the disputants agree, any other arbitration institution or rules.  Peru has paid previous arbitral awards; however, a U.S. court found in one case that Peru altered its tax code prior to payment, thus reducing interest payments.

In 2011, a claimant filed an arbitral challenge against Peru stemming from the alleged failure by the state to undertake agreed-upon environmental remediation at a mining facility.  The arbitration was dismissed in 2016 on grounds of jurisdiction.

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

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

International Commercial Arbitration and Foreign Courts

The 1993 Constitution allows disputes among foreign investors and the government or state-controlled enterprises to be submitted to international arbitration.  The Supreme Court ruled in 2005 that all arbitration awards are final and are not subject to appeal.

Bankruptcy Regulations

Peru has a creditor rights hierarchy similar to that established under U.S. bankruptcy law, and monetary judgments are usually made in the currency stipulated in the contract.  However, administrative bankruptcy procedures under INDECOPI (the Antitrust, Unfair Competition, Intellectual Property Protection, Consumer Protection, Dumping, Standards and Elimination of Bureaucratic Barriers Agency) have proven to be slow and subject to judicial intervention.  Compounding this difficulty are occasional laws passed to protect specific debtors from action by creditors that would force them into bankruptcy or liquidation. In August 2016, the GOP extended the period for bankruptcy from one to two years. Peru does not criminalize bankruptcy.  World Bank’s 2018 Doing Business Report ranked Peru 88th of 190 countries for ease of “resolving insolvency.”

Investment Incentives

Peru offers both foreign and national investors legal and tax stability agreements to stimulate private investment.  These agreements guarantee that the statutes on income taxes, remittances, export promotion regimes (such as drawbacks, or refunds of duties), administrative procedures, and labor hiring regimes in effect at the time of the investment contract will remain unchanged for that investment for 10 years.  To qualify, an investment must exceed USD 10 million in the mining and hydrocarbons sectors or USD 5 million within two years in other sectors. An agreement to acquire more than 50 percent of a company’s shares in the privatization process may also qualify an investor for a legal or tax stability agreement, provided that the added investment will expand the installed capacity of the company or enhance its technological development.

Foreign Trade Zones/Free Ports/Trade Facilitation

Peruvian law currently covers two types of trade zones:  export, transformation, industry, trade and services zones (CETICOS), and a free trade zone (ZOFRATACNA) in Tacna.  The rules and tax benefits applying to these zones are the same for foreign and national investors. These zones have failed to attract sizable investment and their economic importance is negligible.

CETICOS exist at Ilo, Matarani, and Paita.  A CETICOS is authorized in Loreto department but is not operational.  There is concern that the GOP does not have the proper WTO waivers to validate the CETICOS export requirement.  The U.S. automotive industry has expressed a specific concern that U.S. brands are unable to compete with used Japanese vehicles that enter the Peruvian market duty-free through the CETICOS.  The Ministry of Transportation and Communications banned the importation of right-hand drive vehicles in 2013, citing environmental, and safety concerns. Imports of used cars more than five years old and used buses and trucks more than two years old are prohibited.

Performance and Data Localization Requirements

The PTPA has greatly reduced burdensome investor requirements in Peru.  Under the PTPA, Peru made concessions beyond its commitments to the World Trade Organization (WTO), eliminating investment barriers such as the requirement for U.S. firms to hire nationals rather than U.S. professionals, and measures requiring the purchase of local goods.  The GOP does not maintain any measures that are inconsistent with Trade-Related Investment Measure (TRIM) requirements, according to a WTO Committee on Trade-Related Investment Measure notification dated August 19, 2010.

Current law limits foreign employees to 20 percent of the total number of employees in a local company (whether owned by foreign or national interests).  The combined salaries of foreign employees are limited to no more than 30 percent of the total company payroll. However, DL 689 from November 1991 provides a variety of exceptions to these limits.  For example, a foreigner is not counted against a company’s total if he or she holds an immigrant visa, has a certain amount invested in the company (approximately USD 4,000), or is a national of a country that has a reciprocal labor or dual nationality agreement with Peru.  The United States and Peru tolerate dual nationality, but do not have a formal agreement. Furthermore, the law exempts foreign banks, and international transportation companies from these hiring limits, as well as all firms located in free trade zones. Companies may apply for exemptions from the limitations for managerial or technical personnel.  Sector-specific regulating bodies enforce performance requirements.

Although there are no discriminatory or onerous visa requirements, residence, or work permit requirements that inhibit foreign investors’ mobility, the application and approval process can be cumbersome and lengthy.

There are no performance requirements that apply exclusively to foreign investors.  Peruvian civil law applies to legal stability agreements, which means the GOP cannot unilaterally alter agreements.  Notwithstanding these protections, investors should be aware that government officials have delivered negative remarks to the press regarding companies exercising their contractual rights and obligations.

Peru does not follow a policy in which foreign investors must use domestic content in goods or technology.

Data Storage

A data controller who processes personal data must notify the National Authority for Personal Data Protection (ANPDP for its Spanish acronym), which keeps a public register of data processors and the type of data they collect.  Personal data is defined by the Law as any information on an individual which identifies or makes him/her identifiable through means that may be reasonably used. Sensitive personal data means any of the following: biometric data, data on racial and ethnic origin; political, religious, philosophical or moral opinions or convictions, personal habits, union membership, and information related to health or sexual preference.  Unless otherwise exempted by statute, data controllers are generally required to obtain the consent of data subjects for the processing of their personal data. Consent must be prior, informed, expressed, and unequivocal. In the case of sensitive personal data, consent must also be given in writing, which may be done digitally. Even without the consent of the subject, sensitive data may be processed when authorized by law, provided it is in the public interest.

Data controllers may process personal data without consent:

• When the personal data are compiled or transferred for public entities in control of the personal data and in the performance of its duties;
• When personal data is accessible to the public or is intended to be accessible to the public;
• To comply with other laws related to financial solvency and credit;
• In the case of a law for the promotion of competition in regulated markets under certain circumstances;
• When necessary to perform a contract to which the data subject is a party;
• For personal data related to health, under certain circumstances;
• When processing is carried out by non-profit organizations with political, religious or union purposes, under certain circumstances; or
• In an anonymization or disassociation procedure.

A data controller may transfer personal data to places outside of Peru only if the recipients have adequate protection measures.  The ANPDP supervises compliance with this requirement. That provision does not apply in the following cases:

• When the data subject has given his/her prior, informed, express and unequivocal consent;
• Agreements under international treaties to which Peru is a party;
• International judicial cooperation;
• International cooperation between intelligence agencies for the fight against terrorism, illegal drug trafficking, money laundering, corruption, human trafficking and other forms of organized crime;
• When necessary to implement a contract to which the data subject is a party;
• To comply with laws concerning the transfer of bank or stock exchanges; or
• When the transfer is for the prevention, diagnosis or medical or surgical treatment of the data subject; or when necessary to carry out epidemiological or similar studies (provided that adequate disassociation procedures are applied).

Data controllers must adopt technical, organizational, and legal measures to guarantee the security of personal data and avoid their alteration, loss, unauthorized processing or access.  Peru’s law does not require any notifications to any data subject or any other entity upon a breach. Peru does not mandate special regulations be enacted for the processing of personal data of minors.  The ANPDP is responsible for enforcement and can issue the following administrative sanctions/fines based upon whether the violation is mild, serious or very serious. The law provides a “principle for availability of recourse for the data subject” stating that any data subject must have the administrative and/or jurisdictional channel necessary to claim and enforce his/her rights when they are violated by the processing of his/her personal data.  There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption.

Peru adopted the Personal Data Protection Law (N° 29733) in July 2011 and went into effect on March 22, 2013.  The Law is available here in English: https://www.huntonprivacyblog.com/wp-content/uploads/sites/28/migrated/Peru percent20Data percent20Protection percent20Law percent20July percent2028_EN percent20_2_.pdf 

The implementing regulations are available in Spanish here: http://spij.minjus.gob.pe/normas/textos/220313T.pdf  (page 28)

Labor is abundant, although several large investment projects in recent years led to localized shortages of highly skilled workers in some fields.  While the legal framework to uphold international labor standards is well defined, the government does not effectively enforce the law in all cases.

Mining sector contacts praise the technical knowledge and professional dedication of Peruvian engineering graduates.  Since the 1960s, the number of jobs created by the Peruvian economy was consistently below the number of new entrants to the labor market.  The situation meant underemployment or seeking work in the informal economy. According to the National Bureau for Statistics (INEI), 73.2 percent of the labor force is informal.

The statutory monthly minimum wage is PEN 930/month (approximately USD 281).  INEI estimated the poverty line to be PEN 328/month (USD 99) per person, although it varied by region due to different living costs.  The Ministry of Labor (MOL) enforces the minimum wage only in the formal sector. Many workers in the unregulated informal sector, most of them self-employed, make less than the minimum wage.  Wages are sometimes higher than U.S. wages in the mining sector for management positions and consulting services. Workers in Peru are paid by the month, not by the year. Some workers, like formal miners, are highly paid and also (per statute) receive a share of company profits up to a maximum total annual amount of 18 times their base monthly salary.  Peru’s labor law provides for a 48-hour workweek and one day of rest, and requires companies to pay overtime for more than eight hours of work per day and additional compensation for work at night. Noncompliance with the law is a punishable infraction. There is no prohibition on excessive compulsory overtime. Micro-enterprise workers are entitled to social security and pensions.

Unemployment was 5 percent in 2017.  Urban unemployment is most prevalent among 14-24 year olds (13.7 percent unemployment in 2017).  Additionally, 96 percent of unemployed people reside in urban areas. The ILO’s Global Wage Report 2018/2019 stated that average real wages in Peru grew at over 0.8 percent in 2016 and decreased by 0.2 percent in 2017.

Foreign employees may not comprise more than 20 percent of the total number of employees of a local company (whether owned by foreign or Peruvian persons) or more than 30 percent of the total company payroll.  However, under the PTPA, Peru has agreed not to apply most of its nationality-based hiring requirements to U.S. professionals and specialty personnel. Peru also has bilateral agreements with Spain and Argentina, for example, so that Spaniards and Argentines working in Peru do not count as foreigners and vice versa.

Employers are not obligated to pay severance if the reason for dismissing an employee is covered by law.  If the dismissal is found to be arbitrary, severance pay is required. Unemployed workers are eligible for benefits through the Compensation for Time of Service program.

Peru does not have a specific unemployment insurance program.  The country does, however, have the “Compensation for Time of Service” (CTS) requirement that mandates an employer pay one month’s salary of an employee per year worked into the employee’s CTS Account.  When the employee stops working for the employer (willingly or not), she/he can access the CTS Account. The amount will vary according to how much the employee earned and how long she/he worked for the employer.  In addition, a fired employee receives one month’s salary per year worked, up to a maximum of twelve months.

Peru’s Decree Law 22342 relaxed labor laws for the non-traditional exports (NTE) sector, which includes textiles and certain agricultural products.  Law 27360, published in 2000, also gave such exceptions in the agricultural sector.  The laws allow businesses in the NTE and agricultural sectors to employ workers indefinitely on consecutive short-term contracts, in contrast to the 5-year limit on consecutive short-term contracts in place for other sectors.  Peru used the exceptions to boost these industries.  On March 18, 2016, the U.S. Department of Labor identified serious concerns that the provisions may violate the U.S.-Peru Trade Promotion Agreement by infringing on workers’ freedom of association. As of April 2018, two proposed bills seek to end the exceptions, which would stop the indefinite use of short-term contracts and provide a path for contract workers to become full time employees.

Labor unions are independent of the government and employers.  Approximately six percent of Peru’s private sector labor force was organized in 2017, with unionization highest in electricity, water, construction, and mining (from 39 percent to 22 percent) and generally low in the rest of the economy.  The labor procedure law (No.29497) requires the resolution of labor conflicts in less than six months, allows unions or their representatives to appear in court on behalf of workers, requires proceedings to be conducted orally and video-recorded, and relieves the employee from the burden of proving an employer-employee relationship.  The labor procedure law was in effect in 30 of Peru’s 31 judicial districts in 2017.

Either unions or management can request binding arbitration in contract negotiations.  Strikes can be called only after approval by a majority of all workers (union and non-union), voting by secret ballot, and only in defense of labor rights.  Unions in essential public services, as determined by the government, must provide a sufficient number of workers during a strike to maintain operations.

Foreign-owned extractive projects are frequently the source of social unrest (see section 11, Political and Security Environment).  In August 2017, Indigenous communities in Loreto region seized facilities from a Canada-based oil company, claiming lack of consultation with local communities over changes to operations.  In March 2017, union workers at the Freeport McMoran’s Cerro Verde mine initiated a strike over pay and working conditions.

While the government has made improvements in recent years, it often does not dedicate sufficient personnel and resources to labor law enforcement.  The Ministry of Labor created the National Labor Inspectorate Superintendence (SUNAFIL) in April 2014 and opened nine regional offices to represent the labor inspectorate nationally.  SUNAFIL opened four new regional offices in Callao, Lambayeque, Cusco, and Piura in 2017 and two in Ayacucho and Puno in 2018. There are now 16 SUNAFIL offices in Lima, Huanuco, La Libertad, Loreto, Cajamarca, Ica, Moquegua, Tumbes, Ancash, Arequipa, Callao, Lambayeque, Cusco, Piura, Ayacucho, and Puno.  As of November 2018, SUNAFIL had 636 labor inspectors, compared to 480 in 2017. The Ministry has announced plans to open up additional SUNAFIL offices in 2019 and 2020. SUNAFIL labor inspectors also help identify and investigate cases of forced and child labor. Additional information on forced labor in Peru can be found in the 2019 Trafficking in Persons Report:  https://www.state.gov/reports/2019-trafficking-in-persons-report-2/peru/

The Overseas Private Investment Corporation (OPIC), an independent U.S. Government agency, offers medium-to-long-term financing and political risk insurance.  There is an OPIC agreement between Peru and the United States. From 2010 thru 2014, OPIC supported solar power plants, consumer lending, operation and expansion of retail stores, microfinance, installation/operation of stereotactic radiosurgery equipment, consulting services, export services, import-export logistical services, and portfolio expansion of SME, micro-credit and consumer loans, in the form of commitments totaling more than USD 21 million.  Peru is a member of the Multilateral Investment Guarantee Agency.

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

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available. IMF Coordinated Portfolio Investment Survey data for 2016 is not available for Peru.

Policies towards Foreign Direct Investment

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

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

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

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

Other Investment Policy Reviews

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

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

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

Business Facilitation

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

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

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

Outward Investment

The government does not promote nor restrict domestic investment abroad.

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

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

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

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

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

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

Transparency of the Regulatory System

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

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

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

International Regulatory Considerations

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

Legal System and Judicial Independence

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

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

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

Laws and Regulations on Foreign Direct Investment

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

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

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

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

Competition and Anti-Trust Laws

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

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

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

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

Expropriation and Compensation

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

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

Dispute Settlement

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

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

Investor–State Dispute Settlement

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

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

International Commercial Arbitration and Foreign Courts

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

Duration of Dispute Resolution

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

Bankruptcy Regulations

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

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

Investment Incentives

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

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

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

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

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

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

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

Performance and Data Localization Requirements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Table 3:  Sources and Destination of FDI

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

Source: IMF Coordinated Direct Investment Survey

Table 4:  Sources of Portfolio Investment