Albania is an upper middle-income country with a gross domestic product (GDP) of USD 16.77 billion (2021 IMF estimate) and a population of approximately 2.9 million people.
In 2020, the economy contracted by 4 percent in the height of COVID-19 and in 2021 re-bounded with a growth rate of 8.7 percent. The increase was fueled by construction, easing of pandemic related restrictions, recovery of tourism sector, increase in the real estate sector, record domestic electricity production, and continued budgetary, monetary, and fiscal policy support, including IMF and EU pandemic and earthquake related support. The initial growth projection for 2022 was 4.1 percent, despite uncertainties related to the pandemic, elevated fiscal deficits and public debt, and external and internal inflationary pressures. However, uncertainties due to Russia’s 2022 invasion of Ukraine, surging energy prices, and inflationary pressures, coupled with limited room for fiscal maneuvering due to high public debt that exceeded 80 percent at the end of 2021, present challenges to the Albanian economy.
Albania joined NATO in 2009 and has been a member of WTO since 2000. The country signed the Stabilization and Association Agreement with the European Union in 2006, received the status of the EU candidate country in 2014, and began accession negotiations with the EU in July 2022.
Albania’s legal framework is in line with international standards in protecting and encouraging foreign investments and does not discriminate against foreign investors. The Law on Foreign Investments of 1993 outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies in all but a few sectors. The U.S.-Albanian Bilateral Investment Treaty, which entered into force in 1998, ensures that U.S. investors receive national treatment and most-favored-nation treatment. Albania and the United States signed a Memorandum of Economic Cooperation in October 2020 with an aim of increasing trade and investment between the two countries. Since the signing multiple U.S. companies have signed agreements for major projects in the country.
As a developing country, Albania offers large untapped potential for foreign investments across many sectors including energy, tourism, healthcare, agriculture, oil and mining, and information and communications technology (ICT). In the last decade, Albania has been able to attract greater levels of foreign direct investment (FDI). According to the UNCTAD data, during 2010-2020, the flow of FDI has averaged USD 1.1 billion and stock FDI at the end of 2020 reached USD 10 billion or triple the amount of 2010. According to preliminary data of the Bank of Albania the FDI flow in 2021 is expected to reach USD 1 billion. Investments are concentrated in extractive industries and processing, real estate, the energy sector, banking and insurance, and information and communication technology. Switzerland, the Netherlands, Canada, Italy, Turkey, Austria, Bulgaria, and France are the largest sources of FDI. The stock FDI from United States accounts for a small, but rapidly growing share. At the end of Q3 2021, the United States stock FDI in Albania reached USD168 million, up from USD 99 million at the end of 2020, nearly a 70 percent increase.
Despite a sound legal framework, foreign investors perceive Albania as a difficult place to do business. They cite endemic corruption, including in the judiciary and public procurements, unfair competition, informal economy, frequent changes of the fiscal legislation, and poor enforcement of contracts as continuing challenges for investment and business in Albania. Reports of corruption in government procurement are commonplace. The continued use of public private partnership (PPP) contracts has reduced opportunities for competition, including by foreign investors, in infrastructure and other sectors. Poor cost-benefit analyses and a lack of technical expertise in drafting and monitoring PPP contracts are ongoing concerns. U.S. investors are challenged by corruption and the perpetuation of informal business practices. Several U.S. investors have faced contentious commercial disputes with both public and private entities, including some that went to international arbitration. In 2019 and 2020, a U.S. company’s attempted investment was allegedly thwarted by several judicial decisions and questionable actions of stakeholders involved in a dispute over the investment. The case is now in international arbitration.
Property rights continue to be a challenge in Albania because clear title is difficult to obtain. There have been instances of individuals allegedly manipulating the court system to obtain illegal land titles. Overlapping property titles is a serious and common issue. The compensation process for land confiscated by the former communist regime continues to be cumbersome, inefficient, and inadequate. Nevertheless, parliament passed a law on registering property claims on April 16, 2020, which will provide some relief for title holders.
In an attempt to limit opportunities for corruption, the GoA embarked on a comprehensive reform to digitalize all public services. As of March 2021, 1,200 services or 95 percent of all public services to citizens and businesses were available online through the E-Albania Portal. However, Albania continues to score poorly on the Transparency International’s Corruption Perceptions Index. In 2021, Albania declined to 110th out of 180 countries, a fall of six places from 2020. Albania continues to rank low in the Global Innovation Index, ranking 84 out of 132 countries.
To address endemic corruption, the GOA passed sweeping constitutional amendments to reform the country’s judicial system and improve the rule of law in 2016. The implementation of judicial reform is underway, heavily supported by the United States and the EU, including the vetting of judges and prosecutors for unexplained wealth. More than half the judges and prosecutors who have undergone vetting have been dismissed for unexplained wealth or ties to organized crime. The EU expects Albania to show progress on prosecuting judges and prosecutors whose vetting revealed possible criminal conduct. The implementation of judicial reform is ongoing, and its completion is expected to improve the investment climate in the country. The Albanian parliament voted overwhelmingly and unopposed to extend this vetting mandate in February 2022.
1. Openness To, and Restrictions Upon, Foreign Investment
Albanian government leaders have acknowledged that private sector development and increased levels of foreign investment are critical to supporting sustainable economic development. Albania maintains a liberal foreign investment regime designed to attract FDI. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies, except in the areas of domestic and international air passenger transport and television broadcasting. Albanian legislation does not distinguish between domestic and foreign investments.
The Law on Strategic Investments approved in 2015 offers incentives and fast-track administrative procedures, depending on the size of the investment and number of jobs created, to both foreign and domestic investors who apply before December 31, 2023.
The Albanian Investment Development Agency (AIDA) is the entity responsible for promoting foreign investments in Albania. Potential U.S. investors in Albania should contact AIDA to learn more about services AIDA offers to foreign investors ( http://aida.gov.al/ ). The Law on Strategic Investments stipulates that AIDA, as the Secretariat of the Strategic Investment Council, serves as a one-stop-shop for foreign investors, from filing the application form to granting the status of strategic investment/investor. Despite supporting legislation, very few foreign investors have benefited from the “Strategic Investor” status, and almost all projects have been granted to domestic companies operating in the tourism sector.
Foreign and domestic investors have equal rights of ownership of local companies, based on the principle of “national treatment.” There are only a few exemptions regarding ownership restrictions:
Domestic and international air passenger transport: foreign interest in airline companies is limited to 49 percent ownership by investors outside the Common European Aviation Zone, for both domestic and international air transportation.
Audio and audio-visual broadcasting: An entity, foreign or domestic, that has a national audio or audio-visual broadcasting license cannot hold more than 20 percent of shares in another audio or audio-visual broadcasting company. Additional restrictions apply to the regional or local audio and audio-visual licenses.
Agriculture: No foreign individual or foreign incorporated company may purchase agricultural land, though land may be leased for up to 99 years. However, if the company registers in Albania, this limitation on agricultural land does not apply.
Albania currently lacks an investment-review mechanism for inbound FDI. However, in 2017, the government introduced a new provision in the Petroleum Law, which allows the government to reject a petroleum-sharing agreement or the sale of shares in a petroleum-sharing agreement to any prospective investor due to national security concerns.
Albanian law permits private ownership and establishment of enterprises and property. To operate in certain sectors, licenses are required but foreign investors do not require additional permission or authorization beyond that required of domestic investors. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property. Foreigners can acquire concession rights on natural resources and resources of the common interest, as defined by the Law on Concessions and Public Private Partnerships.
Foreign and domestic investors have numerous options available for organizing business operations in Albania. The 2008 Law on Entrepreneurs and Commercial Companies and Law Establishing the National Business Center (NBC) allow for the following legal types of business entities to be established through the NBC: sole proprietorship; unlimited partnership; limited partnership; limited liability company; joint stock company; branches and representative offices; and joint ventures.
The National Business Center (NBC) serves as a one-stop shop for business registration. All required procedures and documents are published online http://www.qkb.gov.al/information-on-procedure/business-registration/ . Registration may be done in person or online via the e-Albania portal. Many companies choose to complete the registration process in person, as the online portal requires an authentication process and electronic signature and is only available in the Albanian language. When a business registers in the NBC it is also automatically registered with the Tax Office, Labor Inspectorate, Customs, and the respective municipality. According to the 2020 World Bank Doing Business Report, it takes 4.5 days and five procedures to register a business in Albania.
Albania neither promotes nor incentivizes outward investment, nor does it restrict domestic investors from investing abroad.
3. Legal Regime
Albania’s legal, regulatory, and accounting systems have improved in recent years, but there are still many serious challenges. Endemic corruption, uneven enforcement of legislation, cumbersome bureaucracy, distortion of competition, and a lack of transparency all hinder the business community.
Albanian legislation includes rules on disclosure requirements, formation, maintenance, and alteration of firms’ capitalization structures, mergers and divisions, takeover bids, shareholders’ rights, and corporate governance principles. The Competition Authority ( http://caa.gov.al ) is an independent agency tasked with ensuring fair and efficient competition in the market. However, business groups have raised concerns about unfair competition and monopolies, rating the issue as one of the most concerning items damaging the business climate.
The Law on Accounting and Financial Statements includes reporting provisions related to international financial reporting standards (IFRS) for large companies, and national financial reporting standards for small and medium enterprises. Albania meets minimum standards on fiscal transparency, and debt obligations are published by the Ministry of Finance and Economy. Albania’s budgets are publicly available, substantially complete, and reliable.
In August 2020, Albania approved the law for the establishment of the register of the Ultimate Beneficiary Owners. The law aims to ensure transparency on the ultimate beneficiary owners, who directly and indirectly own more than 25 percent of shares, voting rights, or ownership interests in all entities registered to do business in Albania, and was adopted following the recommendations of MONEYVAL.
The rulemaking process in Albania meets the minimum requirements of transparency. Ministries and regulatory agencies develop forward regulatory plans that include changes or proposals intended to be adopted within a set timeframe. The law on notification and public consultation requires the GoA to publish draft laws and regulations for public consultation or notification and sets clear timeframes for these processes. Such draft laws and regulations are published at the following page: http://www.konsultimipublik.gov.al/ . The business community frequently complains that final versions of laws and regulations fail to address their comments and concerns and that comment periods are frequently not respected.
The Albania Assembly (www.parlament.al) publishes a list of both proposed and adopted legislation. All laws, by-laws, regulations, decisions by the Council of Ministers (the government), decrees, and any other regulatory acts are published at the National Publication Center at the following site: https://qbz.gov.al/
Independent agencies and bodies, including but not limited to, the Energy Regulatory Entity (ERE), Agency for Electronic and Postal Communication (AKEP), Financial Supervising Authority (FSA), Bank of Albania, Competition Authority (CA), National Agency of Natural Resources (NARN), and Extractive Industries Transparency Initiative (EITI), oversee transparency and competition in specific sectors.
Albania acceded to the WTO in 2000 and the country notifies the WTO Committee on Technical Barriers to Trade of all draft technical regulations.
Albania signed a Stabilization and Association Agreement (SAA) with the EU in 2006. The EU agreed to open accession talks on March 25, 2020, and the country is awaiting to hold the first Inter-Governmental Conference (IGC), which would mark the official opening of accession talks. Albania has long been involved in the gradual process of legislation approximation with the EU acquis. This process is expected to accelerate with the opening of accession negotiations.
The Albanian legal system is a civil law system. The Albanian constitution provides for the separation of legislative, executive, and judicial branches, thereby supporting the independence of the judiciary. The Civil Procedure Code, enacted in 1996, governs civil procedures in Albania. The civil court system consists of district courts, appellate courts, and the High Court (the supreme court). The district courts are organized in specialized sections according to the subject of the claim, including civil, family, and commercial disputes.
The administrative courts of first instance, the Administrative Court of Appeal, and the Administrative College of the High Court adjudicate administrative disputes. The Constitutional Court, reviews cases related to the constitutionality of legislation and, in limited instances, protects and enforces the constitutional rights of citizens and legal entities.
Parties may appeal the judgment of the first-instance courts within 15 days of a decision, while appellate court judgments must be appealed to the High Court within 30 days. A lawsuit against an administrative action is submitted to the administrative court within 45 days from notification and the law stipulates short procedural timeframes, enabling faster adjudication of administrative disputes.
Investors in Albania are entitled to judicial protection of legal rights related to their investments. Foreign investors have the right to submit disputes to an Albanian court. In addition, parties to a dispute may agree to arbitration. Many foreign investors complain that endemic judicial corruption and inefficient court procedures undermine judicial protection in Albania and seek international arbitration to resolve disputes. It is beneficial to U.S. investors to include binding international arbitration clauses in any agreements with Albanian counterparts. Albania is a signatory to the New York Arbitration Convention and foreign arbitration awards are typically recognized by Albania. However, the government initially refused to recognize an injunction from a foreign arbitration court in one high-profile case in 2016. The Albanian Civil Procedure Code outlines provisions regarding domestic and international commercial arbitration.
Albania does not have a specific commercial code but has a series of relevant commercial laws, including the Entrepreneurs and Commercial Companies Law, Bankruptcy Law, Public Private Partnership and Concession Law, Competition Law, Foreign Investment Law, Environmental Law, Law on Corporate and Municipal Bonds, Transport Law, Maritime Code, Secured Transactions Law, Employment Law, Taxation Procedures Law, Banking Law, Insurance and Reinsurance Law, Concessions Law, Mining Law, Energy Law, Water Resources Law, Waste Management Law, Excise Law, Oil and Gas Law, Gambling Law, Telecommunications Law, and Value-Added Law.
There is no one-stop-shop that lists all legislation, rules, procedures, and reporting requirements for investors. However, foreign investors should visit the Albania Investment Development Agency webpage ( www.aida.gov.al ), which offers broad information for foreign investors.
Major laws pertaining to foreign investments include:
Law on Foreign Investments
Law on Strategic Investments: Defines procedures and rules to be observed by government authorities when reviewing, approving, and supporting strategic domestic and foreign investments in Albania
Law on Foreigners
Law on Concessions and Public Private Partnerships: Establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects
Law on Entrepreneurs and Commercial Companies: Outlines general guidelines on the activities of companies and the legal structure under which they may operate
Law on Cross-Border Mergers: Determines rules on mergers when one of the companies involved in the process is a foreign company
Law on Protection of Competition: Stipulates provisions for the protection of competition, and the concentration of commercial companies; and
Law on Collective Investment Undertakings: Regulates conditions and criteria for the establishment, constitution, and operation of collective investment undertakings and of management companies.
The Law on Foreign Investments seeks to create a hospitable legal climate for foreign investors and stipulates the following:
No prior government authorization is needed for an initial investment.
Foreign investments may not be expropriated or nationalized directly or indirectly, except for designated special cases, in the interest of public use and as defined by law.
Foreign investors enjoy the right to expatriate all funds and contributions in kind from their investments.
Foreign investors receive most favored nation treatment according to international agreements and Albanian law.
There are limited exceptions to this liberal investment regime, most of which apply to the purchase of real estate. Agricultural land cannot be purchased by foreigners and foreign entities but may be leased for up to 99 years. Investors can buy agricultural land if registered as a commercial entity in Albania. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property.
To boost investments in strategic sectors, the government approved a new law on strategic investments in May 2015. Under the new law, a “strategic investment” may benefit from either “assisted procedure” or “special procedure” assistance from the government to help navigate the permitting and regulatory process. Despite supporting legislation, very few foreign investors have benefited from the “Strategic Investor” status, and almost all projects have been granted to domestic companies operating in the tourism sector.
Authorities responsible for mergers, change of control, and transfer of shares include the Albanian Competition Authority ACA: http://www.caa.gov.al/laws/list/category/1/page/1 , which monitors the implementation of the competition law and approves mergers and acquisitions when required by the law; and the Albanian Financial Supervisory Authority FSA: http://www.amf.gov.al/ligje.asp , which regulates and supervises the securities market and approves the transfer of shares and change of control of companies operating in this sector.
Albania’s tax system does not distinguish between foreign and domestic investors. Informality in the economy, which may be as large as 40 percent of the total economy, presents challenges for tax administration.
Visa requirements to obtain residence or work permits are straightforward and do not pose an undue burden on potential investors. Generally, U.S. passport holders are entitled to a one year stay in Albania without a residence permit, a special provision the GoA reaffirmed in March 2022. The government approved a new Law on Foreigners in July 2021, which partially aligns the domestic legislation, including that on migration, with the EU Directives. The new law introduces a single application procedure for permits in general. For investors there is a special permit called “Unique Investor Permit.” Foreign investors are issued a 2-year unique investor permit if they invest in Albania and meet certain criteria, including a quota ratio of one to five, of foreign and Albanian workers. In addition, same ratio should be preserved in the Board of Directors and other leading and supervisory structures of the company. Salaries of the Albanian workers should match the average of last year for equivalent positions. The permit can be renewed for an additional three years and after that the investor is eligible to receive a permanent permit provided that they fulfil the criteria outlined above and prove that the company is properly registers, has paid taxes and is not incurring losses. The Council of Ministers approves the annual quota of foreign workers following a needs assessment by sector and profession. However, work permits for staff that occupy key positions, among other categories, can be issued outside the annual quota.
Foreign investors can obtain the single permit by the immigration authorities following the initial approval for employment from the National Agency for Employment and Skills https://www.akpa.gov.al/. U.S. citizens along with EU, Western Balkans, and Schengen-country citizens are exempt from this requirement. In addition, U.S., EU, and Kosovo citizens when applying for residency permit for the first time, have a term of 5 years. The new law also introduced the National Electronic Register for Foreigners (NERF), which is a state database on foreigners, who enter or intend to enter Albania, with purpose of staying, transiting, working, or studying in Albania. NERF will register data on foreign nationals, who have an entry visa, stay, or transit in the Republic of Albania, have a temporary or permanent residence permit, and have a have a unique permit (residence and employment) in Albania.
The Law on Entrepreneurs and Commercial Companies sets guidelines on the activities of companies and the legal structure under which they may operate. The government adopted the law in 2008 to conform Albanian legislation to the EU’s Acquis Communitaire. The most common type of organization for foreign investors is a limited liability company.
The Law on Public Private Partnerships and Concessions establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects. According to the law, concession projects may be identified by central or local governments or through third party unsolicited proposals. To limit opportunities for corruption, the 2019 amendments prohibited unsolicited bids, beginning in July 2019, on all sectors except for works or services in ports, airports, generation and distribution of electricity, energy for heating, and production and distribution of natural gas. In addition, the 2019 amendments removed the zero to 10 percent bonus points for unsolicited proposals, which gave companies submitting unsolicited bids a competitive advantage over other contenders. Instead, if the party submitting the unsolicited proposal does not win the bid, it will be compensated by the winning company for the cost of the feasibility study, which in no case shall exceed 1 percent of the total cost of the project.
The Albanian Competition Authority http://www.caa.gov.al/?lng=en is the agency that reviews transactions for competition-related concerns. The Law on Protection of Competition governs incoming foreign investment whether through mergers, acquisitions, takeovers, or green-field investments, irrespective of industry or sector. In the case of share transfers in insurance, banking and non-banking financial industries, the Financial Supervisory Authority ( http://amf.gov.al/ ) and the Bank of Albania https://www.bankofalbania.org/ may require additional regulatory approvals. Transactions between parties outside Albania, including foreign-to-foreign transactions, are covered by the competition law, which states that its provisions apply to all activities, domestic or foreign, that directly or indirectly affect the Albanian market. Parties can appeal the decision of the CA to the Tirana First Instance Court within 30 days of receiving the notification. The appeal does not suspend the enforcement of the decision that authorize concentrations and the temporary measures.
The Albanian constitution guarantees the right of private property. According to Article 41, expropriation or limitation on the exercise of a property right can occur only if it serves the public interest and with fair compensation. During the post-communist period, expropriation has been limited to land for public interest, mainly infrastructure projects such as roads, energy infrastructure, water works, airports, and other facilities. Compensation has generally been reported as being below market value and owners have complained that the compensation process is slow, and unfair. Civil courts are responsible for resolving such complaints.
Changes in government can also affect foreign investments. Following the 2013 elections and peaceful transition of power, the new government revoked, or renegotiated numerous concession agreements, licenses, and contracts signed by the previous government with both domestic and international investors. This practice has occurred in other years as well.
There are many ongoing disputes regarding property confiscated during the communist regime. Identifying ownership is a longstanding problem in Albania that makes restitution for expropriated properties difficult. The restitution and compensation process started in 1993 but has been slow and marred by corruption. Many U.S. citizens of Albanian origin have been in engaged in long-running restitution disputes. Court cases go on for years without a final decision, causing many to refer their case to the European Court of Human Rights (ECHR) in Strasbourg, France. A significant number of applications are pending for consideration before the ECHR. Even after settlement in Strasbourg, enforcement remains slow.
To address the situation, the GOA approved new property compensation legislation in 2018 that aims to resolve pending claims for restitution and compensation. The 2018 law reduces the burden on the state budget by changing the cash compensation formula. The legislation presents three methods of compensation for confiscation claims: restitution; compensation of property with similarly valued land in a different location; or financial compensation. It also set a ten-year timeframe for completion of the process. In February 2020, the Albanian parliament approved a law “On the Finalization of the Transitory Process of Property Deeds in the Republic of Albania,” which aims to finalize land allocation and privatization processes contained in 14 various laws issued between 1991 and 2018.
The GOA has generally not engaged in expropriation actions against U.S. investments, companies, or representatives. There have been limited cases in which the government has revoked licenses, specifically in the mining and energy sectors, based on contract violation claims.
The Law on Strategic Investments, approved in 2015, empowers the government to expropriate private property for the development of private projects deemed special strategic projects. Despite the provision that the government would act when parties fail to reach an agreement, the clause is a source of controversy because it entitles the government to expropriate private property in the interest of another private party. The expropriation procedures are consistent with the law on the expropriation, and the cost for expropriation would be incurred by the strategic investor. The provision has yet to be exercised.
Albania maintains adequate bankruptcy legislation, though corrupt and inefficient bankruptcy court proceedings make it difficult for companies to reorganize or discharge debts through bankruptcy.
A 2016 law on bankruptcy aimed to close loopholes in the insolvency regime, decrease unnecessary market exit procedures, reduce fraud, and ease collateral recovery procedures. The Bankruptcy Law governs the reorganization or liquidation of insolvent businesses. It sets out non-discriminatory and mandatory rules for the repayment of the obligations by a debtor in a bankruptcy procedure. The law establishes statutory time limits for insolvency procedures, professional qualifications for insolvency administrators, and an Agency of Insolvency Supervision to regulate the profession of insolvency administrators.
Debtors and creditors can initiate a bankruptcy procedure and can file for either liquidation or reorganization. Bankruptcy proceedings may be invoked when the debtor is unable to pay the obligations at the maturity date or the value of its liabilities exceeds the value of the assets.
According to the provisions of the Bankruptcy Law, the initiation of bankruptcy proceedings suspends the enforcement of claims by all creditors against the debtor subject to bankruptcy. Creditors of all categories must submit their claims to the bankruptcy administrator. The Bankruptcy Law provides specific treatment for different categories, including secured creditors, preferred creditors, unsecured creditors, and final creditors whose claims would be paid after all other creditors were satisfied. The claims of the secured creditors are to be satisfied by the assets of the debtor, which secure such claims under security agreements. The claims of the unsecured creditors are to be paid out of the bankruptcy estate, excluding the assets used for payment of the secured creditors, following the priority ranking as outlined in the Albanian Civil Code.
Pursuant to the provisions of the Bankruptcy Law, creditors have the right to establish a creditors committee. The creditors committee is appointed by the Commercial Section Courts before the first meeting of the creditor assembly. The creditors committee represents the secured creditors, preferred creditors, and the unsecured creditors. The committee has the right (a) to support and supervise the activities of the insolvency administrator; (b) to request and receive information about the insolvency proceedings; (c) to inspect the books and records; and (d) to order an examination of the revenues and cash balances.
If the creditors and administrator agree that reorganization is the company’s best option, the bankruptcy administrator prepares a reorganization plan and submits it to the court for authorizing implementation.
According to the insolvency procedures, only creditors whose rights are affected by the proposed reorganization plan enjoy the right to vote, and the dissenting creditors in reorganization receive at least as much as what they would have obtained in a liquidation. Creditors are divided into classes for the purposes of voting on the reorganization plan and each class votes separately. Creditors of the same class are treated equally. The insolvency framework allows for the continuation of contracts supplying essential goods and services to the debtor, the rejection by the debtor of overly burdensome contracts, the avoidance of preferential or undervalued transactions, and the possibility of the debtor obtaining credit after commencement of insolvency proceedings. No priority is assigned to post-commencement over secured creditors. Post-commencement credit is assigned over ordinary unsecured creditors.
The creditor has the right to object to decisions accepting or rejecting creditors’ claims and to request information from the insolvency representative. The selection and appointment of insolvency representative does not require the approval of the creditor. In addition, the sale of substantial assets of the debtor does not require the approval of the creditor. According to the law on bankruptcy, foreign creditors have the same rights as domestic creditors with respect to the commencement of, and participation in, a bankruptcy proceeding. The claim is valued as of the date the insolvency proceeding is opened. Claims expressed in foreign currency are converted into Albanian currency according to the official exchange rate applicable to the place of payment at the time of the opening of the proceeding.
The Albanian Criminal Code contains several criminal offenses in bankruptcy, including (i) whether the bankruptcy was provoked intentionally; (ii) concealment of bankruptcy status; (iii) concealment of assets after bankruptcy; and (iv) failure to comply with the obligations arising under bankruptcy proceeding.
According to the World Bank’s 2020 Doing Business Report, Albania ranked 39th out of 190 countries in the insolvency index. A referenced analysis of resolving insolvency can be found at the following link:
Algeria’s state enterprise-dominated economy is challenging for U.S. businesses, but multiple sectors offer opportunities for long-term growth. The government is prioritizing investment in agriculture, information and communications technology, mining, hydrocarbons (both upstream and downstream), renewable energy, and healthcare.
Following his December 2019 election, President Abdelmadjid Tebboune launched a series of political reforms, which led to the adoption of a new constitution in December 2020 and the election of a new parliament in June 2021. Tebboune has declared his intention to focus on economic issues in 2022 and beyond.
In 2020, the government eliminated the so-called “51/49” restriction that required majority Algerian ownership of all new businesses, though it retained the requirement for “strategic sectors,” identified as energy, mining, defense, transportation infrastructure, and pharmaceuticals manufacturing (with the exception of innovative products). In the 2021 Finance Law, the government reinstated the 51/49 ownership requirement for any company importing items into Algeria with an intent to resell. The government passed a new hydrocarbons law in 2019, improving fiscal terms and contract flexibility in order to attract new international investors. The new law encourages major international oil companies to sign memorandums of understanding with the national hydrocarbons company, Sonatrach. Though the 43 regulatory texts enacting the legislation have not been formally finalized, the government is using the new law as the basis for negotiating new contracts with international oil companies. In recent years, the Algerian government took several steps, including establishing a standalone ministry dedicated to the pharmaceutical industry and issuing regulations to resolve several long-standing issues, to improve market access for U.S. pharmaceutical companies. The government is in the process of drafting and finalizing a new investment law. Algeria has established ambitious renewable energy adoption targets to reduce carbon emissions and reduce domestic consumption of natural gas.
Algeria’s economy is driven by hydrocarbons production, which historically accounts for 95 percent of export revenues and approximately 40 percent of government income. Following the significant drop in oil prices at the onset of the COVID-19 pandemic in March 2020, the government cut budgeted expenditures by 50 percent and significantly reduced investment in the energy sector. The implementation of broad-based import reductions coupled with a recovery in hydrocarbon prices in 2021 led to Algeria’s first trade surplus since 2014. Though successive government budgets have boosted state spending, Algeria continues to run a persistent budget deficit, which is projected to reach 20 percent of GDP in 2022. Despite a significant reduction in revenues, the historically debt-averse government continues to resist seeking foreign financing, preferring to attract foreign direct investment (FDI) to boost employment and replace imports with local production. Traditionally, Algeria has pursued protectionist policies to encourage the development of local industries. The import substitution policies it employs tend to generate regulatory uncertainty, supply shortages, increased prices, and a limited selection for consumer goods. The government depreciated the Algerian dinar approximately 5% in 2021 after a 10% depreciation in 2020 to conserve its foreign exchange reserves, contributing to significant food inflation.
The government has taken measures to minimize the economic impact of the COVID-19 pandemic, including delaying tax payments for small businesses, extending credit and restructuring loan payments, and decreasing banks’ reserve requirements. Though the government has lifted domestic COVID_19 related confinement measures, continued restrictions on international flight volumes complicate travel to Algeria for international investors.
Economic operators deal with a range of challenges, including complicated customs procedures, cumbersome bureaucracy, difficulties in monetary transfers, and price competition from international rivals particularly the People’s Republic of China, France, and Turkey. International firms operating in Algeria complain that laws and regulations are constantly shifting and applied unevenly, raising commercial risk for foreign investors. An ongoing anti-corruption campaign has increased weariness regarding large-scale investment projects and put a chill on bureaucratic decision making. Business contracts are subject to changing interpretation and revision of regulations, which has proved challenging to U.S. and international firms. Other drawbacks include limited regional integration, which hampers opportunities to rely on international supply chains.
1. Openness To, and Restrictions Upon, Foreign Investment
The Algerian economy is challenging yet potentially highly rewarding. While the Algerian government publicly welcomes FDI, a difficult business climate, an inconsistent regulatory environment, and sometimes contradictory government policies complicate foreign investment. There are business opportunities in nearly every sector, including agribusiness, consumer goods, conventional and renewable energy, healthcare, mining, pharmaceuticals, power, recycling, telecommunications, and transportation.
The urgency for Algeria to diversify its economy away from reliance on hydrocarbons has increased amid low and fluctuating oil prices since mid-2014, a youth population bulge, and increased domestic consumption of energy resources. The government reiterated its intention to diversify in its August 2020 plan to recover from the COVID-19 crisis. The government has sought to reduce the country’s persistent trade deficit through import substitution policies, currency depreciation, and import tariffs as it attempts to preserve rapidly diminishing foreign exchange reserves. On January 29, 2019, the government implemented tariffs, known as DAPs, between 30-200 percent on over 1,000 goods it assessed were destined for direct sale to consumers. In January 2022, the Ministry of Commerce said it would expand the number of items subject to DAPs to 2,600; it has yet to publish the new list of affected goods. Companies that set up local manufacturing operations can receive permission to import materials the government would not otherwise approve for import if the importer can show materials will be used in local production. Certain regulations explicitly favor local firms at the expense of foreign competitors, and frequent, unpredictable changes to business regulations have added to the uncertainty in the market.
There are two main agencies responsible for attracting foreign investment, the National Agency of Investment Development (ANDI) and the National Agency for the Valorization of Hydrocarbons (ALNAFT).
ANDI is the primary Algerian government agency tasked with recruiting and retaining foreign investment. ANDI runs branches in Algeria’s 58 states (wilayas) which are tasked with facilitating business registration, tax payments, and other administrative procedures for both domestic and foreign investors. U.S. companies report that the agency is understaffed and ineffective. Its “one-stop shops” only operate out of physical offices and do not maintain dialogue with investors after they have initiated an investment. The agency’s effectiveness is undercut by its lack of decision-making authority, particularly for industrial projects, which is exercised by the Ministry of Industry in general, the Minister of Industry specifically, and in many cases the Prime Minister. While the government operates an ombudsman’s office (Mediateur de la Republique), the office’s activities are not explicitly targeted toward investment retention.
ALNAFT is charged with attracting foreign investment to Algeria’s upstream oil and gas sector. In addition to organizing events marketing upstream opportunities to potential investors, the agency maintains a paid-access digital database with extensive technical information about Algeria’s hydrocarbons resources.
Establishing a presence in Algeria can take any of four basic forms: 1) a liaison office with no local partner requirement and no authority to perform commercial operations, 2) a branch office to execute a specific contract, with no obligation to have a local partner, allowing the parent company to conduct commercial activity (considered a resident Algerian entity without full legal authority), 3) a local company with 51 percent of capital held by a local company or shareholders, or 4) a foreign investor with up to 100% ownership in non-strategic sectors. A business can be incorporated as a joint stock company (JSC), a limited liability company (LLC), a limited partnership (LP), a limited partnership with shares (LPS), or an undeclared partnership. Groups and consortia are also used by foreign companies when partnering with other foreign companies or with local firms.
Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity. However, the 51/49 rule requires majority Algerian ownership in all projects involving foreign investments in the “strategic sectors” of energy, mining, defense, transportation infrastructure, and pharmaceuticals (with the exception of innovative products), as well as for importers of goods for resale in Algeria.
The 51/49 investment rule poses challenges for investors. For example, the requirement hampers market access for foreign small and medium-sized enterprises (SMEs), as they often do not have the human resources or financial capital to navigate complex legal and regulatory requirements. Large companies can find creative ways to work within the law, sometimes with the cooperation of local authorities who are more flexible with large investments that promise significant job creation and technology and equipment transfers. SMEs usually do not receive this same consideration. There are also allegations that Algerian partners sometimes refuse to invest the required funds in the company’s business, require non-contract funds to win contracts, and send unqualified workers to job sites. Manufacturers are also concerned about intellectual property rights (IPR), as foreign companies do not want to surrender control of their designs and patents. Several U.S. companies have reported they have policies that preclude them from investing overseas without maintaining a majority share, out of concerns for both IPR and financial control of the local venture, which thus prevent them from establishing businesses in Algeria.
Algerian government officials defended the 51/49 requirement as necessary to prevent capital flight, protect Algerian businesses, and provide foreign businesses with local expertise. For sectors where the requirement remains, officials contend a range of tailored measures can mitigate the effect of the 51/49 rule and allow the minority foreign shareholder to exercise other means of control. Some foreign investors use multiple local partners in the same venture, effectively reducing ownership of each individual local partner to enable the foreign partner to own the largest share.
The Algerian government does not officially screen FDI, though Algerian state enterprises have a “right of first refusal” on transfers of foreign holdings to foreign shareholders in identified strategic industries. Companies must notify the Council for State Participation (CPE) of these transfers. In addition, initial foreign investments remain subject to approvals from a host of ministries that cover the proposed project, most often the Ministries of Commerce, Health, Pharmaceutical Industry, Energy and Mines, Telecommunications and Post, and Industry. U.S. companies have reported that certain high-profile industrial proposals, such as for automotive assembly, are subject to informal approval by the Prime Minister. In 2017, the government instituted an Investments Review Council chaired by the Prime Minister for the purpose of “following up” on investments; in practice, the establishment of the council means FDI proposals are subject to additional government scrutiny. According to the 2016 Investment Law, projects registered through the ANDI deemed to have special interest for the national economy or high employment generating potential may be eligible for extensive investment advantages. For any project over 5 billion dinars (approximately USD 35 million) to benefit from these advantages, it must be approved by the Prime Minister-chaired National Investments Council (CNI). The CNI previously met regularly, though it is not clear how the agenda of projects considered at each meeting is determined. Critics allege the CNI is a non-transparent mechanism which could be subject to capture by vested interests. In 2020 the operations of the CNI and the CPE were temporarily suspended pending review by the former Ministry of Industry, and in November 2021 the Prime Minister reported that almost 2,500 projects are awaiting approval from the council once it resumes activities.
Algeria has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD) or the World Trade Organization (WTO). The last investment policy review by a third party was conducted by the United Nations Conference on Trade and Development (UNCTAD) in 2003 and published in 2004. Civil society organizations have not provided reviews of investment policy-related concerns.
Algeria offers an online information portal dedicated to business creation, www.jecreemonentreprise.dz, though the business registration website www.cnrc.org.dz is under maintenance and has been for more than two years. The Ministry of Commerce is currently developing a new electronic portal at https://cnrcinfo.cnrc.dz/qui-somme-nous/ . The websites provide information about several business registration steps applicable for registering certain kinds of businesses. Entrepreneurs report that additional information about requirements or regulation updates for business registration are available only in person at the various offices involved in the creation and registration process. The Ministry of Foreign Affairs also recently established an Information Bureau for the Promotion of Investments and Exports (BIPIE) to support Algerian diplomats working on economic issues abroad, as well as provide local points of contact for Algerian companies operating overseas.
Algeria does not restrict domestic investors from investing overseas, though the process for accessing foreign currency for such investments is heavily regulated. The exchange of Algerian dinars outside of Algerian territory is illegal, as is the carrying abroad of more than 10,000 dinars in cash at a time (approximately USD 72; see section 7 for more details on currency exchange restrictions).
Algeria’s National Agency to Promote External Trade (ALGEX), housed in the Ministry of Commerce, is the agency responsible for supporting Algerian businesses outside the hydrocarbons sector that want to export abroad. ALGEX controls a special promotion fund to promote exports, but the funds can only be accessed for limited purposes. For example, funds might be provided to pay for construction of a booth at a trade fair, but travel costs associated with getting to the fair – which can be expensive for overseas shows – would not be covered. The Algerian Company of Insurance and Guarantees to Exporters (CAGEX), also housed under the Ministry of Commerce, provides insurance to exporters. In 2003, Algeria established a National Consultative Council for Promotion of Exports (CCNCPE) that is supposed to meet annually. Algerian exporters claim difficulties working with ALGEX including long delays in obtaining support funds, and the lack of ALGEX offices overseas despite a 2003 law for their creation. The Bank of Algeria’s 2002 Money and Credit law allows Algerians to request the conversion of dinars to foreign currency in order to finance their export activities, but exporters must repatriate an equivalent amount to any funds spent abroad, for example money spent on marketing or other business costs incurred.
3. Legal Regime
The national government manages all regulatory processes. Legal and regulatory procedures, as written, are considered consistent with international norms, although the decision-making process is at times opaque.
Algeria implemented the Financial Accounting System (FAS) in 2010. Though legislation does not make explicit references, FAS appears to be based on International Accounting Standards Board and International Financial Reporting Standards (IFRS). Operators generally find accounting standards follow international norms, though they note that some particularly complex processes in IFRS have detailed explanations and instructions but are explained relatively briefly in FAS.
There is no mechanism for public comment on draft laws, regulations, or regulatory procedures. Copies of draft laws are generally not made publicly accessible before enactment, although the Ministry of Finance published drafts of the 2021 and 2022 Finance Laws in advance of consideration by Parliament. Government officials often give testimony to Parliament on draft legislation, and that testimony typically receives press coverage. Occasionally, copies of bills are leaked to the media. All laws and some regulations are published in the Official Gazette (www.joradp.dz ) in Arabic and French, but the database has only limited online search features and no summaries are published. Secondary legislation and/or administrative acts (known as “circulaires” or “directives”) often provide important details on how to implement laws and procedures. Administrative acts are generally written at the ministry level and not made public, though may be available if requested in person at a particular agency or ministry. Public tenders are often accompanied by a book of specifications only provided upon payment. The government does not specifically promote or require companies’ environmental, social, and governance (ESG) disclosure.
In some cases, authority over a matter may rest among multiple ministries, which may impose additional bureaucratic steps and the likelihood of either inaction or the issuance of conflicting regulations. The development of regulations occurs largely away from public view; internal discussions at or between ministries are not usually made public. In some instances, the only public interaction on regulations development is a press release from the official state press service at the conclusion of the process; in other cases, a press release is issued earlier. Regulatory enforcement mechanisms and agencies exist at some ministries, but they are usually understaffed, and enforcement remains weak.
The National Economic, Social, and Environmental Council (CNESE) studies the effects of Algerian government policies and regulations in economic, social, and environmental spheres. CNESE provides feedback on proposed legislation, but neither the feedback nor legislation are necessarily made public.
Information on external debt obligations up to fiscal year 2019 is publicly available online via the Central Bank’s quarterly statistical bulletin. The statistical bulletin describes external debt and not public debt, but the Ministry of Finance’s budget execution summaries reflect amalgamated debt totals. The Ministry of Finance is planning to create an electronic, consolidated database of internal and external debt information, and in 2019 published additional public debt information on its website. A 2017 amendment to the 2003 law on currency and credit covering non-conventional financing authorizes the Central Bank to purchase bonds directly from the Treasury for a period of up to five years. The Ministry of Finance indicated this would include purchasing debt from state enterprises, allowing the Central Bank to transfer money to the treasury, which would then provide the cash to, for example, state owned enterprises in exchange for their debt. In September 2019, the Prime Minister announced Algeria would no longer use non-conventional financing, although the Ministry of Finance stressed the program remains available until 2022. In 2021, the non-profit Cercle d’Action et de Réflexion pour l’Entreprise (CARE) launched an online dashboard compiling key economic figures published by various ministries within the Algerian government.
Algeria is not a member of any regional economic bloc or of the WTO. The structure of Algerian regulations largely follows European – specifically French – standards.
Algeria’s legal system is based on the French civil law tradition. The commercial law was established in 1975 and most recently updated in 2007 ( www.joradp.dz/TRV/FCom.pdf). The judiciary is nominally independent from the executive branch, but U.S. companies have reported allegations of political pressure exerted on the courts by the executive. Organizations representing lawyers and judges have protested during the past year against alleged executive branch interference in judicial independence. Regulation enforcement actions are adjudicated in the national courts system and are appealable. Algeria has a system of administrative tribunals for adjudicating disputes with the government, distinct from the courts that handle civil disputes and criminal cases. Decisions made under treaties or conventions to which Algeria is a signatory are binding and enforceable under Algerian law.
The 51/49 investment rule requires a majority Algerian ownership in “strategic sectors” as prescribed in the 2020 Complementary Finance Law (see section 2), as well as for importers of goods available for resale domestically as prescribed in the 2021 Finance Law. There are few other laws restricting foreign investment. In practice, the many regulatory and bureaucratic requirements for business operations provide officials avenues to informally advance political or protectionist policies. The investment law enacted in 2016 charged ANDI with creating four new branches to assist with business establishment and the management of investment incentives. ANDI’s website (www.andi.dz/index.php/en/investir-en-algerie ) lists the relevant laws, rules, procedures, and reporting requirements for investors. Much of the information lacks detail – particularly for the new incentives elaborated in the 2016 investments law – and refers prospective investors to ANDI’s physical “one-stop shops” located throughout the country.
There is an ongoing effort by the customs service, under the Ministry of Finance, to establish a new digital platform featuring one-stop shops for importers and exporters to streamline bureaucratic processes. The Ministry announced the service would begin in 2021, but the Ministry of Industry clarified in February 2022 that the one-stop shop would be set up with the approval of the new investment law.
The National Competition Council (www.conseil-concurrence.dz/) is responsible for reviewing both domestic and foreign competition-related concerns. Established in late 2013, it is housed under the Ministry of Commerce. Once the economic concentration of an enterprise exceeds 40 percent of a market’s sales or purchases, the Competition Council is authorized to investigate, though a 2008 directive from the Ministry of Commerce exempted economic operators working for “national economic progress” from this review.
The Algerian state can expropriate property under limited circumstances, with the state required to pay “just and equitable” compensation to the property owners. Expropriation of property is extremely rare, with no reported cases within the last 10 years. In late 2018, however, a government measure required farmers to comply with a new regulation altering the concession contracts of their land in a way that would cede more control to the government. Those who refused to switch contract type by December 31, 2018, lost the right to their land.
Algeria’s bankruptcy system is underdeveloped. While bankruptcy per se is not criminalized, management decisions (such as company spending, investment decisions, and even procedural mistakes) can be subject to criminal penalties including fines and incarceration, so decisions that lead to bankruptcy could be punishable under Algerian criminal law. However, bankruptcy cases rarely proceed to a full dissolution of assets. The Algerian government generally props up public companies on the verge of bankruptcy via cash infusions from the public banking system. According to the World Bank’s Doing Business report, debtors and creditors may file for both liquidation and reorganization.
Since the resignation of former President Abdelaziz Bouteflika in early 2019, the courts have given the government authority to put several companies in receivership and have appointed temporary heads to direct them following the arrests of their CEOs as part of a broad anti-corruption drive. The government has since nationalized some of the companies following the conviction of the owners.
Andorra is an independent principality with a population of about 79,000 and area of 181 square miles situated between France and Spain in the Pyrenees mountains. It uses the euro as its national currency. Andorra is a popular tourist destination visited by over 8 million people each year (pre-pandemic) who are drawn by outdoor activities like hiking and cycling in the summer and skiing and snowshoeing in the winter, as well as by its duty-free shopping of luxury products. Andorra’s economy is based on an interdependent network of trade, commerce, and tourism, which represent nearly 60% of the economy, followed by the financial sector. Andorra has also become a wealthy international commercial center because of its integrated banking sector and low taxes. As part of its effort to modernize its economy, Andorra has opened to foreign investment and engaged in other reforms, including advancing tax initiatives. Andorra is actively seeking to attract foreign investment and to become a center for entrepreneurs, talent, innovation, and knowledge.
The Andorran economy is undergoing a process of digitalization and diversification that accelerated due to the impact pandemic-related border closures had on its dominant tourist sector. In 2006, the Government began sweeping economic reforms. The Parliament approved three main regulations to complement the first phase of economic openness: the law of Companies (October 2007), the Law of Business Accounting (December 2007), and the Law of Foreign Investment (April 2008 and June 2012). From 2011 to 2017, the Parliament approved direct taxes in the form of a corporate tax, tax on economic activities, tax on income of non-residents, tax on capital gains, and personal income tax. Andorra joined the IMF in October 2020, providing it access to additional resources for managing its economy. Also, as part of the post-pandemic economic recovery plan, Andorra passed Horizon 23, a comprehensive roadmap backed by 80 million euros of public funds to accelerate economic diversification into sectors like fintech, sports tech, esports, and biotech. These regulations aim to establish a transparent, modern, and internationally comparable regulatory framework.
These reforms aim to attract investment and businesses that have the potential to boost Andorra’s economic development and diversification. Prior to 2008, Andorra limited foreign investment, worried that large foreign firms would have an oversized impact on its small economy. For example, previous regulations allowed non-citizens with less than 20 years residence in Andorra to own no more than 33 percent of a company. While foreigners may now own 100 percent of a trading enterprise or a holding company, the Government must approve the establishment of any private enterprise. The approval can take up to one month, which can be rejected if the proposal is found to negatively impact the environment, the public order, or the general interests of the principality.
Andorra is a microstate that accounts for .001 percent of global emissions and has demonstrated its ambition to the fight against climate change by establishing a national strategy that commits to reducing greenhouse gas emissions (GHG) by a minimum of 37 percent by 2030 and pursuing carbon neutrality by 2050. In addition to implementing an energy transition law, Andorra approved the Green Fund and a hydrocarbon tax to promote climate change mitigation and adaptation initiatives.
Andorra’s per capita income is above the European average and above the level of its neighbors. The country has developed a sophisticated infrastructure including a one-of-a-kind micro-fiber-optic network for the entire country that provides universal access for all households and companies. Andorra’s retail tradition is well known around Europe, thanks to more than 1,400 shops, the quality of their products, and competitive prices. Products taken out of the Principality are tax-free up to certain limits; the purchaser must declare those that exceed the allowance.
Table 1: Key Metrics and Rankings
Data not available
1. Openness To, and Restrictions Upon, Foreign Investment
Andorra has established an open framework for foreign investments, allowing non-residents to create companies in the country, open businesses, and invest in all kinds of assets.
The Foreign Investment Law came into force in July 2012, completely opening the economy to foreign investors. Since then, foreigners, whether resident or not, may own up to 100 percent of any Andorra-based company. The law also liberalizes restrictions on foreign professionals seeking to work in Andorra. Previously, a foreigner could only begin to practice in Andorra after twenty years of residency. Under the current regulations, any Andorran legal resident from a country that has a reciprocal standard can work in Andorra, although special working permits are required for specific professions.
The government of Andorra created Andorra Business (https://www.andorrabusiness.com), Andorra’s economic development and promotion office, to provide counseling services to both Andorran companies looking to grow and foreign investors wanting to start new businesses in Andorra. Andorra Business’ mission is to increase competitiveness, innovation, and the sustainability of the economy.
Andorra Business’ five key objectives are:
Promoting key sectors for the diversification of the economy.
Being a motor in the improvement of the public sector and microeconomic environment.
Attracting and supporting both foreign and local investment in key sectors.
Providing support to Andorran businesses to be more competitive on a National and International scale.
Creating favorable conditions for innovation and entrepreneurship, in both the public and private sectors, to create an environment for testing new innovations at the country level.
The Andorran Chamber of Commerce, Industry, and Services of Andorra (https://www.ccis.ad/) aims to promote and strengthen Andorra’s financial and business activity as well as provide services to foreign companies. The Chamber’s activities include organizing a census of commercial, industrial, and service activities; the protection of the general interests of commerce, industry, and services; promoting fair competition; and issuing certificates of origin and other commercial documents.
The Andorran Business Confederation (CEA) provides support to national companies to navigate within Andorra’s new legal, labor, and fiscal framework and facilitates companies’ international expansion projects. CEA also works to foster international investment into the country through its Iwand project, which provides information about Andorra’s economic and fiscal environment (www.cea.ad).
The Andorran legal framework has also adapted to international standards. The most relevant laws passed by Parliament to accompany the economic openness include the law of Companies (October 2007), the Law of Business Accounting (December 2007), and the Law of Foreign Investment (April 2008 and June 2012).
The OECD removed Andorra from its “tax haven list” in 2009 after the country signed the Paris Declaration, formally committing to sharing fiscal information outlined by the agreement. With the approval of the Law 19/2016, of November the 30th, on automatic exchange of information on tax matters, Andorra will exchange financial information with signatories of the “Common Reporting Standard” (CRS), developed by the G20 and approved by the OECD Council in July 2014.
From 2011 to 2019, the Parliament approved direct corporate, non-resident, capital gains, and personal income taxes. At 10 percent, well below the European average, Andorra’s corporate tax is more competitive than rates in neighboring Spain or France.
While foreigners may own 100 percent of a trading enterprise or a holding company, the Government must approve the establishment of any private enterprise. The approval can take up to one month and can be rejected if the proposal is found to negatively impact the environment, the public order, or the general interests of the principality.
On June 2021, the IMF released a report detailing Andorra’s macro-economic trends and investment climate. In the past five years the Organization for Economic Cooperation and Development (OECD), World Trade Organization (WTO), or the United Nations Conference on Trade and Development (UNCTAD) have not conducted an investment policy review. The government of Andorra, in responding to the economic downturn of COVID, released Horizon 23, an economic recovery roadmap to increase investment competitiveness
In the past five years, civil society organizations have not provided reviews of investment policy-related concerns.
Andorra established Andorra Business, a public/private agency, made up of several ministries, government agencies, associations, and organizations from the private sector. It aims to increase competitiveness, innovation, and sustainability. It provides counseling services to Andorran companies and potential foreign investors to facilitate investment and economic diversification.
Andorran regulations allow for two types of commercial companies: Limited Liability Company (Societat de Responsabilitat Limitada – SL), which has a minimum capital requirement of 3,000 euros; and Joint Stock Company (Societat Anonima – SA) which is normally required for multiple shareholders and has a minimum capital requirement of 60,000 euros.
The business establishment procedures and for share acquisitions or transfers are quite similar to those of other countries, requiring the filling of a simple application form, with the additional unique condition of the presentation of any prior investment authorization received in the country. This same procedure is applicable for incorporation, establishment, extension, branching, or other form of business expansion. Once the company is registered, the foreign investment is established, and the investor is required to deposit the share capital with an Andorran banking entity and proceed to public deed of incorporation before a notary.
The Government’s Andorra Business programs provide grants, counseling, and online resourced to small and medium size companies to foster competitiveness and facilitate internationalization.
The Andorran Chamber of Commerce (www.ccis.ad) helps companies search for business opportunities abroad and organizes, with the government, trade missions to explore international business exchanges.
3. Legal Regime
Andorra set out transparent policies and laws, which have significantly liberalized all economic sectors in Andorra. New foreign-owned businesses must be approved by the government and the process can take up to a month. Andorra is committed to a transparent process. Andorra has begun to relax labor and immigration standards; previously, foreign professionals had to establish 20 years of residency before being eligible to own 100 percent of their business in Andorra. This restriction has been lifted for nationals coming from countries that have reciprocal standards for Andorran citizens.
Following approval of the new Accounting Law in 2007, individuals carrying out business or professional activities, trading companies, and legal persons or entities with a profit purpose must file financial statements with the administration.
Although not a member of the European Union (EU), Andorra is a member of the European Customs Union and is subject to all EU free trade regulations and arrangements regarding industrial products. Concerning agriculture, the EU allows duty free importation of products originating in Andorra.
Andorra is negotiating a new association agreement with the European Union alongside Monaco and San Marino that will allow Andorrans to establish themselves in Europe and Andorran companies will be able to trade in the EU market.
Andorra holds observer status at the WTO, although it took steps in the past for full membership of the World Trade Organization (WTO). Andorra became the 190th member of the International Monetary Fund (IMF) in October 2020.
Andorra has a mixed legal system of civil and customary law with the influence of canon law. The judiciary is independent from the executive branch. The Supreme Court consists of a court president and eight judges, organized into civil, criminal, and administrative chambers. Four magistrates make up the Constitutional Court. The Tribunal of Judges and the Tribunal of the Courts are lower courts. Regulations and enforcement actions can be appealed in the national court system.
The Law on Foreign Investment (10/2012) entered into force in 2012, opening the country’s economy by removing the sectorial restrictions stipulated in the prior legislation. In this way, Andorra has positioned itself on equal terms with neighboring economies, enabling it to become more competitive for new sectors and enterprises. On March 2022, Andorra approved a sanctions package in line with EU sanctions against designated Russian and Belarusian individuals and entities.
Andorra Business is responsible for economic promotion and provides information on relevant laws, rules, procedures to set up a business in Andorra, as well as reporting requirements to investors. The organization also provides other services to facilitate foreign and local investments in strategic sectors.
The Law on Effective Competence and Consumer Protection (13/2013) protects investors against unfair practices. The Ministry of Economy is responsible for administering anti-trust laws and reviews transactions for both domestic and international competition-related concerns.
The Law of Expropriation (1993) allows the Government to expropriate private property for public purposes in accordance with international norms, including appropriate compensation. We know of no incidents of expropriation involving the U.S. entities in Andorra.
ICSID Convention and New York Convention
Andorra became a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards in September 2015, requiring Andorran courts to enforce financial awards. Andorra is not a member of the International Center for the Settlement of Investment Disputes (ICSID).
Investor-State Dispute Settlement
Andorran legislation establishes mechanisms to resolve disputes if they arise and its judicial system is transparent. The constitution guarantees an independent judiciary branch, overseen by a High Council of Justice. The prosecution system allows for successive appeals to higher courts. The European Court of Justice is the ultimate arbiter of unsettled appeals.
Contractual disputes between U.S. individuals or companies and Andorran entities are rare, but when they arise are handled appropriately. There have been no reported cases of U.S. investment disputes.
International Commercial Arbitration and Foreign Courts
Parties to a dispute can also resolve disputes contractually through arbitration. The Arbitration Court of the Principality of Andorra (TAPA) was established in July 2020 by the Chamber of Commerce, Industry and Services and the Andorran Bar Association in accordance with Law 16/2018. The main goal of this institution is to mediate both national and international business disputes to reach a fair settlement for both parties without having to go to court.
Andorra’s bankruptcy decree dates to 1969. Other laws from 2008 and 2014 complement the initial text and further protect workers’ rights to fair salaries and sets up mechanisms to monitor the implementation of judicial resolutions. Additionally, Law 8/2015 outlines urgent measures allowing Government intervention of the banking sector in a crisis.
The Angolan economy emerged from five straight years of recession with slight GDP growth of 0.7 percent in 2021, thanks primarily to growth in the non-oil sector. The government forecasts more substantial growth of 2.4 percent in 2022. The oil and gas sector remains the key source of government revenue despite declining oil production and the government should benefit from higher than budgeted oil prices in 2022. The growth in non-oil sectors such as manufacturing, agriculture, transportation will be bolstered by increased demand from the lifting of COVID restrictions in late 2021 and early 2022.
The Angolan government has maintained a reform agenda since the 2017 election of President Joao Lourenço. His administration has adopted measures to improve the business environment and make Angola more attractive for investment. Angola completed the IMF’s Extended Fund Facility in December 2021, demonstrating an ability to commit to and carry out difficult fiscal and macroeconomic reforms, despite the COVID-19 pandemic. The government received three credit rating upgrades between September 2021 and early 2022.
In addition to the Privatization Program (PROPRIV), revision of the Private Investment Law, and updated Public Procurement law, the government has taken steps to recover misappropriated state assets – the Attorney General’s Office claims just under $13 billion since 2018 – and to uproot corruption. Through the Private Investment and Export Promotion Agency (AIPEX), Angola seeks to connect foreign investors with opportunities across the private sector, with PROPRIV, and a wide range of available state-owned enterprises and other assets. The public procurement process has also become more transparent. Angola plans to present its candidacy to join the Extractive Industries Transparency Initiative in 2022 to increase transparency in the oil, gas, and mineral resource sectors.
Despite the government’s efforts to address corruption, its prevalence remains a key issue of concern for investors. Angola’s infrastructure requires substantial improvement; which the government is seeking to address by attracting investment public-private partnerships to improve and manage of ports, railroads, and key energy infrastructure. The justice system and other administrative processes remains bureaucratic and time-consuming. Unemployment (32.9 percent in the fourth quarter of 2021) and inflation (which reached 27 percent in 2021) remain high. There is limited technical training, English-speaking skills are generally low. Skilled labor levels are also low, though the government has attempted to address the issue through training and apprenticeship programs.
Overall FDI increased by $2.59 billion in 2020, the last full year of reporting, from 2019.
The government has committed to reaching 70 percent installed renewable energy by 2025 and has recognized the risks of climate change for Angola. To reach its renewable energy goal, the government has signed deals with U.S. companies on the installation of solar and hydro capacity worth hundreds of millions of dollars.
1. Openness To, and Restrictions Upon, Foreign Investment
Angola is actively seeking FDI to diversify capital inflows, boost economic growth, and diversify the country’s economy. Angola has maintained its privatization program (PROPRIV), started in 2019, despite the difficulty attracting investment during the COVID-19 pandemic. PROPRIV offers investment opportunities for foreign investment in state-owned enterprises and other publicly owned assets as the government seeks to liquidate its stake in assets across sectors such as transportation, telecommunications, and banking. Angola has also modernized its tendering process to make it more transparent. Despite the increased openness and concerted effort to attract foreign investors, Angola passed local content regulations for the oil sector in October 2020 restricting the concept of “national company” to companies fully owned by Angolan citizens, as opposed to a companies with at least 51 percent ownership by Angolan entities. The regulation has three regimes determining the types of services that must be contracted with local entities and which can be contracted with foreign entities. The local content regulations apply to all companies providing goods and services to oil sector as well as oil companies.
Angola’s trade and investment promotion agency AIPEX provides an online investment window platform for investors to register their investment proposals. AIPEX and the Institute of State Assets and Shares work together on roadshows to promote PROPRIV for foreign investors. AIPEX is also responsible for providing institutional support and monitoring investment project execution.
Foreign and domestic private entities can establish and own business enterprises with limitations on foreign entities holding the majority stake in companies in specific sectors. The 2018 Private Investment Law (PIL) establishes the general principles of private investment in Angola for domestic and foreign investors and applies to private investments of any value. Under the PIL, the acquisition of shares of an Angolan entity by a foreign investor is deemed to be a private investment operation. If the investor wishes to transfer funds abroad, the private investment project must be properly registered and executed, and appropriate taxes must be paid before transferring.
Majority foreign shareholding restrictions persist in specific industries such as the oil and gas sector (49 percent cap) and the maritime sector, specifically for shipping, due to their significance in the Angolan economy. Mining rights are granted to private investors by the national diamond company ENDIAMA. The PIL lifted restrictions on having Angolan partners for several strategic sectors such as he telecommunications, hospitality and tourism, transportation and logistics, and information technology.
At the government’s request, the last Investment Policy Review (IPR) of Angola’s business and economic environments was completed in 2019 by the United Nations Conference on Trade and Development (UNCTAD). The full report and policy recommendations are accessible at UNCTAD TPR. The WTO’s last IPR was more than five years ago; OECD has never conducted an IPR of Angola.
There are no recent policy recommendations by civil society organizations based on reviews of investment policy related concerns.
Presidential Decree No 167/20, of June 15, 2020, created the “Single Investment Window” (JanelaÚnica de Investimento, or JUI), which is aimed at simplifying the contact between the investor and all the public entities involved in the approval of foreign investment projects.
To incorporate a company, investors must obtain a certificate of availability of the corporate name from the Ministry of Justice and Human Rights; deposit share capital and show proof of deposit to a notary; submit a draft incorporation deed, articles of association, and shareholder documents. The company must then register with the Commercial Registrar to register the company’s incorporation in the Angola’s Official Gazette (Diário da República).
Angola is also negotiating with the EU on a Sustainable Investment Facilitation Agreement, the EU’s first bilateral agreement on investment facilitation. The sides have had two rounds of negotiations in June and December 2021. The agreement intends to simplify procedures and encourage e-governance and public-private dialogue, while diversifying Angola’s economy and helping small and medium sized enterprises invest. Its goal is to support Angola’s ability to attract and retain investment by improving the investment climate for foreign and local investors.
The Angolan government does not promote or incentivize outward investment, nor does it restrict Angolans from investing abroad. Investors are free to invest in any foreign jurisdiction.
Domestic investors often prefer to invest in Portuguese-speaking countries, with few investing in neighboring countries in Sub-Saharan Africa. The bulk of investment is in real estate, fashion, fashion accessories, and domestic goods.
Due to foreign exchange constraints, there has been very limited investment abroad by domestic investors.
3. Legal Regime
Angola’s regulatory system is complex, vague, and inconsistently enforced. In many sectors, no effective regulatory system exists due to a lack of institutional and human capacity. The banking system is slowly beginning to adhere to International Financial Reporting Standards (IFRS). SOEs are still far from practicing IFRS. The public does not participate in draft bills or regulations formulation, nor does a public online location exist where the public can access this information for comment or hold government representatives accountable for their actions. The Angolan Communications Institute (INACOM) is the regulatory authority for the telecommunications sector and regulates prices for telecommunications services such as mobile telephone, internet, and TV services, particularly in sectors without much competition. Revised energy-sector licensing regulations have permitted some purchase power agreements (PPA) participation.
Overall, Angola’s regulatory system does not conform to other international regulatory systems.
Angola became a member of the WTO in 1996. However, it is not party to the Plurilateral Agreements on Government Procurement, or the Trade in Civil Aircraft Agreement and it has not yet notified the WTO of its state-trading enterprises under Article XVII of the GATT. A government procurement management framework introduced in late 2010 stipulates a preference for goods produced in Angola and/or services provided by Angolan or Angola-based suppliers. Technical Barriers to Trade regimes are not coordinated. Angola conducts distinct bilateral negotiations with seven of the nine full members of the Community of Portuguese Language countries (CPLP), Cuba, and Russia and extends trade preferences to China due to previously negotiated credit facilitation terms, while attempting to encourage and protect local content.
Regulatory reviews are based on scientific, or data driven assessments or baseline surveys. Evaluations are based on data, but not made available for public comment.
The state reserves the right to have the final say in all regulatory matters and relies on sectorial regulatory bodies for supervision of institutional regulatory matters concerning investment. The Economic Commission of the Council of Ministers oversees investment regulations that affect the country’s economy including the ministries in charge. Other major regulatory bodies responsible for getting deals through include:
The National Petroleum, Gas and Biofuels Agency (ANPG) is the government regulatory and oversight body responsible for regulating oil exploration and production activities. On February 6, 2019, the parastatal oil company Sonangol launched ANPG through Presidential decree 49/19. The ANPG is the national concessionaire of hydrocarbons in Angola, authorized to conduct, execute, and ensure oil, gas, and biofuel operations run smoothly, a role previously held by state owned Sonangol. The ANPG must also ensure adherence to international standards and establish relationships with other international agencies and sector relevant organizations.
The Regulatory Institute of Electricity and Water Services (IRSEA) is the regulatory authority for renewable energies and enforcing powers of the electricity regulatory authority. Revised energy-sector licensing regulations have improved legal protection for investors to attract more private investment in electrical infrastructure, such as dams and hydro distribution stations.
The Angolan Communications Institute (INACOM) is the regulatory authority for the telecommunications sector including for prices for telecommunications services.
As of October 1, 2019, a 14 percent VAT regime came into force, replacing the existing 10 percent Consumption Tax. For The General Tax Administration (AGT) oversees tax operations and ensures taxpayer compliance. The new VAT tax regime aimed to boost domestic production and consumption and reduce the incidence of compound tax for businesses unable to recover the consumption tax. The government introduced a temporary reduction of the VAT in October 2021 for key items in the basic basket of goods to 7 percent. The temporary measure should run at least through 2022. Corporate taxpayers can be reimbursed for the VAT on the purchase of good and services, including imports.
There are no informal regulatory processes managed by nongovernmental organizations or private sector associations, and the government does not allow the public to engage in the formulation of legislation or to comment on draft bills. Procurement laws and regulations are unclear, little publicized, and not consistently enforced. Oversight mechanisms are weak, and no audits are required or performed to ensure internal controls are in place or administrative procedures are followed. Inefficient bureaucracy and possible corruption frequently lead to payment delays for goods delivered, resulting in an increase in the price the government must pay.
No regulatory reform enforcement mechanisms have been implemented since the last ICS report. The Diário da República (the Federal Register equivalent) publishes official regulatory action.
The Ministry of Finance’s Debt Management Unit has a portal with quarterly public debt reports, debt strategy, annual debt plan, bond reports, and other publications in Portuguese and in English for the quarterly reports and the debt plan, though it does not have regular reporting on contingent liabilities.
Regionally, Angola is a member of SADC and ECCAS, though it is not a member of SADC’s Free Trade Area or of the Economic and Monetary Community of Central Africa (CEMAC) the customs union associated with ECCAS. New regulations are generally developed in line with regulatory provisions set by AfCTA, SADC, and ECCAS. Standards for each organization can be found at their respective websites: AfCTA: https://au.int/en/cfta; SADC: SADC Standards and Quality Infrastructure; ECCAS: https://ceeac-eccas.org/en/#presentation
Angola is a WTO member but does not notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Technical Barriers to Trade (TBT) regimes are not coordinated and often trade regulations are passed and implemented without the due oversight of the WTO.
Angola’s legal system follows civil law tradition and is heavily influenced by Portuguese law, though customary law often prevailed in rural areas. Legislation is the primary source of law. Precedent is accepted but not binding as it is in common-law countries. The Angolan Constitution is at the top of the hierarchy of legislation and establishes the general principle of separation of powers between the judicial, executive, and legislative power. Primary judicial authority in Angola is vested in its courts, which have institutional weaknesses that include lack of independence from political influence in the decision-making process at times.
The Angolan justice system is slow, arduous, and often partial. Legal fees are high, and most businesses avoid taking commercial disputes to court in the country. The World Bank’s Doing Business 2020survey ranked Angola 186 out of 190 countries on contract enforcement, and estimated that commercial contract enforcement, measured by time elapsed between filing a complaint and receiving restitution, takes an average of 1,296 days, at an average cost of 44.4 percent of the claim.
Angola has commercial legislation that governs all contracts and commercial activities but no specialized court. On August 5, 2020, the Economic Council of Ministers approved the opening of the Court for Litigation on Commercial, Intellectual, and Industrial Property Matters, at the Luanda First Instance Court. With the introduction of this commercial court, the GRA hopes the business environment and trust in public institutions will improve. Prior to this arrangement, trade disputes were resolved by judges in the Courts of Common Pleas. The commercial legislation provides that before going to court, investors can challenge the decision under the terms of the administrative procedural rules, either through a complaint (to the entity responsible for the decision) or through an appeal (to the next level above the entity responsible for the decision). In the new system, investors will be able, in general, to appeal to civil and administrative courts. Investors exercising their right to appeal, however, should expect decisions to take months, or even years, in the case of court decisions.
Angola enacted a new Criminal Code and a new Criminal Procedure Code which entered into force on February 9, 2021, to better align the legal framework with internationally accepted principles and standards, with an emphasis on white-collar crimes and corruption. The legal reforms extend criminal liability for corruption offenses and other crimes to legal entities; provide for private sector corruption offenses to face similar fines and imprisonment to the punishments applicable to the public sector, and modernize and broaden the list of criminal offenses against the financial system. The legal system lacks resources and independence, limiting the effectiveness of the reforms.
There is a general right of appeal to the Court of First Instance against decisions from the primary courts. To enforce judgments/orders, a party must commence executive proceedings with the civil court. The main methods of enforcing judgments are:
Execution orders (to pay a sum of money by selling the debtor’s assets).
Seizure of assets from the party and
Provision of information on the whereabouts of assets.
The Civil Procedure Code also provides for ordinary and extraordinary appeals. Ordinary appeals consist of first appeals, review appeals, interlocutory appeals, and full court appeals, while extraordinary appeals consist of further appeals and third-party interventions. Generally, an appeal does not operate as a stay of the decision of the lower court unless expressly provided for as much in the Civil Procedure Code.
Angola’s legal system is becoming more favorable to FDI and has generally not allowed FDI in specific sectors such as military and security, activities of the Central Bank, and key infrastructure port and airport infrastructure. Under PROPRIV the government has encouraged FDI in ports and airports through management and operation tenders. Investment values exceeding $10 million require an investment contract that needs to be authorized by the Council of Ministers and signed by the President.
AIPEX, Angola’s investment and export promotion agency, maintains the JanelaÚnica do Investimento(Single Investment Window), which serves as Angola’s one-stop-shop for investment.
Mergers and acquisitions, including those which take place through the sale of state-owned assets, are reviewed by the Instituteof Asset Management and State Holdings (IGAPE) and competition related concerns receive oversight by the Competition Regulatory Authority (the “CRA”) which is also responsible for prosecuting offenses. Competition is also regulated by the Competition Act of 2018, which prohibits cartels and monopolistic behavior. A leniency regime was added in September 2020 to reduce fines for the first party to come forward under specific conditions.
CRA decisions are subject to appeal, though Angola does not have special courts of jurisdiction to deal with competition matters.
Angola’s Competition Act creates a formal merger control regime. Mergers are subject to prior notification to the CRA, and they must meet certain specified requirements. The thresholds requiring prior notification are the following:
the creation, acquisition, or reinforcement of a market share which is equal to or higher than 50 percent in the domestic market or a substantial part of it; or
the parties involved in the concentration exceeded a combined turnover in Angola of 3.5 billion Kwanzas in the preceding financial year; or
the creation, acquisition, or reinforcement of a market share which is equal to or higher than 30 percent, but less than 50 percent in the relevant domestic market or a substantial part of it, if two or more of the undertakings achieved more than 450 million Kwanzas individual turnover in the preceding financial year.
Mergers must not hamper competition and must be consistent with public interest considerations such as:
a particular economic sector or region.
the relevant employment levels.
the ability of small or historically disadvantaged enterprises to become competitive; or
the capability of the industry in Angola to compete internationally.
Under the revised Law of Expropriations by Public Utility (LEUP), which came into force in October 2021, real property and any associated rights can be expropriated for specific public purposes listed in the LEUP in exchange for fair and prompt compensation to be calculated pursuant to the act. Only property strictly indispensable to achieve the relevant public purpose can be expropriated. The LEUP does not apply to compulsory eviction, nationalization, confiscation, easements, re-homing, civil requisition, expropriation for private purpose, temporary occupation of buildings, destruction for public purpose and revocation of concessions. Save for the urgent expropriation instances specifically set forth in the act, the LEUP enshrines the primacy of acquisition through private-law mechanisms, providing for a negotiation process between the expropriating entity – national or local government – and the relevant citizen or private-law entity.
Despite the reforms, expropriation without compensation remains a common practice with idle or underdeveloped areas frequently reverting to the state with little or no compensation to the claimants who paid for the land, who in most cases allege unfair treatment and at times lack of due process.
Angola’s Law on Corporate Restructuring and Insolvency went into force on May 10, 2021, representing the first amendment to bankruptcy legislation since 1961. The law regulates the legal regime of extrajudicial and judicial recovery of the assets of natural and legal persons in economic distress or imminent insolvency, provided recovery is viable and the legal regime of insolvency proceedings of natural and legal persons. The law permits the conservation of national and foreign investment since investors know they have a legal remedy that has as its purpose the preservation of the company.
Antigua and Barbuda
Antigua and Barbuda is a member of the Organization of Eastern Caribbean States (OECS) and the Eastern Caribbean Currency Union (ECCU). According to Eastern Caribbean Central Bank (ECCB) statistics, Antigua and Barbuda’s 2021 estimated gross domestic product (GDP) was $1.47 billion (3.97 billion Eastern Caribbean dollars). This represents an approximate 5.3 percent growth from 2020. The ECCB forecasts 2022 growth at 4.7 percent.
Unanticipated spending on pandemic response measures, coupled with sharp declines in government revenues, forced the government to increase borrowing in 2020. As of December 2021, Antigua and Barbuda reported total public sector debt of $1.3 billion representing 89 percent of GDP. Unlike other Eastern Caribbean (EC) countries, Antigua and Barbuda did not have the resources to significantly increase spending on social support payments to vulnerable populations. Following several years of operating losses, the government became the sole source of financing for regional airline Leeward Islands Air Transport (LIAT) in mid-2020. Based in Antigua and Barbuda, LIAT was heavily overstaffed and therefore a major employer, but is now under the supervision of a bankruptcy trustee.
Antigua and Barbuda ranks 113th out of 190 countries rated in the 2020 World Bank Doing Business Report. The scores remain relatively unchanged from the 2019 report, though some improvements in the ease of starting a business were highlighted.
Through the Antigua and Barbuda Investment Authority (ABIA), the government encourages foreign direct investment, particularly in industries that create jobs and earn foreign exchange. The ABIA facilitates and supports foreign direct investment in the country and maintains an open dialogue with current and potential investors. All potential investors are afforded the same level of business facilitation services.
While the government welcomes all foreign direct investment, tourism and related services, manufacturing, agriculture and fisheries, information and communication technologies, business process outsourcing, financial services, health and wellness services, creative industries, education, yachting and marine services, real estate, and renewable energy have been identified by the government as priority investment areas.
There are no limits on foreign control of investment and ownership in Antigua and Barbuda. Foreign investors may hold up to 100 percent of an investment.
Antigua and Barbuda’s legal system is based on British common law. There is currently an unresolved dispute regarding the alleged expropriation of an American-owned property. For this reason, the U.S. government recommends continued caution when investing in real estate in Antigua and Barbuda.
In 2017, the government signed an intergovernmental agreement in observance of the U.S. Foreign Account Tax Compliance Act (FATCA), making it mandatory for banks in Antigua and Barbuda to report the banking information of U.S. citizens.
1. Openness To, and Restrictions Upon, Foreign Investment
The Government of Antigua and Barbuda encourages foreign direct investment, particularly in industries that create jobs, enhance economic activity, earn foreign currency, and have a positive impact on its citizens. Diversification of the economy remains a priority.
Through the ABIA, the government facilitates and supports foreign direct investment in the country and maintains an open dialogue with current and potential investors. All potential investors are afforded the same level of business facilitation services. ABIA offers complementary support services to investors exploring business opportunities, including facilitation of incentives and concessions, project monitoring, and general assistance. The government launched an additional website in early 2021 to serve as a “business hub for potential investors,” http://antiguabarbuda.com.
While the government welcomes all foreign direct investment, it has identified tourism and related services, manufacturing, agriculture and fisheries, information and communication technologies, business process outsourcing, financial services, health and wellness services, creative industries, education, yachting and marine services, real estate, and renewable energy as priority investment areas. Uncertainty about the trajectory of economic recovery of the tourism, commercial aviation, and cruise industries impacts the potential for projects in those sectors.
Local laws do not place any limits on foreign control of investment and ownership in Antigua and Barbuda. Foreign investors may hold up to 100 percent of an investment. Local and foreign entrepreneurs need approximately 40 days from start to finish to transfer the title on a piece of property. In 1995, the government established a permanent residency program to encourage high-net-worth individuals to establish residency in Antigua and Barbuda for up to three years. As residents, their income is free of local taxation. In 2020, the government established the Nomad Digital Residence Visa program in which eligible remote workers can apply for a two-year special resident authorization. Under this program, the visa holders are also exempt from paying local income taxes. These programs are separate from the Citizenship by Investment program.
The ABIA evaluates all foreign direct investment proposals applying for government incentives and provides intelligence, business facilitation, and investment promotion to establish and expand profitable business enterprises. The ABIA also advises the government on issues that are important to the private sector and potential investors to increase the international competitiveness of the local economy.
The government of Antigua and Barbuda treats foreign and local investors equally with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.
The OECS, of which Antigua and Barbuda is a member, has not conducted a World Trade Organization (WTO) trade policy review since 2014. There have also not been any investment policy reviews by civil society organizations in the past five years.
Established in 2006, the ABIA facilitates foreign direct investment in priority sectors and advises the government on the formation and implementation of policies and programs to attract investment. The ABIA provides business support services and market intelligence to all investors. It also offers an online guide that is useful for navigating the laws, rules, procedures, and registration requirements for foreign investors. The guide is available at https://www.theiguides.org/public-docs/guides/antiguabarbuda.
All potential investors applying for government incentives must submit their proposals for review by the ABIA to ensure the project is consistent with national interests and provides economic benefits to the country.
To register a business. the general practice is to retain a local attorney who prepares all the relevant incorporation documents. A business must register with the Intellectual Property and Commercial Office, the Inland Revenue Department, the Medical Benefits Scheme, the Social Security Scheme, and the Board of Education.
The Antigua and Barbuda Science Innovation Park (ABSIP) launched in 2019 to support and create business startup opportunities that will generate sustainable business enterprises. ABSIP provides business incubation and financing, access to business financing, branding, training, partnership establishment, and other services. ABSIP’s website is http://absip.gov.ag .
The Prime Minister’s Entrepreneurial Development Programme (EDP) supports the creation of micro and small businesses with the intent of increasing the Antiguan and Barbudan ownership share of the country’s economy. Priority sectors in which EDP grants loans are agriculture and agro-processing, manufacturing, information technology, e-business, and tourism.
Although the government of Antigua and Barbuda prioritizes investment return as a key component of its overall economic strategy, there are no formal mechanisms in place to achieve this. To sustain future economic growth, Antigua and Barbuda’s economy depends on significant foreign direct investment.
Local laws do not place any restrictions on domestic investors seeking to do business abroad. Local companies in Antigua and Barbuda are actively encouraged to take advantage of export opportunities specifically related to the country’s membership in the OECS Economic Union and the Caribbean Community Single Market and Economy (CSME).
3. Legal Regime
The government of Antigua and Barbuda publishes laws, regulations, administrative practices, and procedures of general application and judicial decisions that affect or pertain to investments or investors in the country. Where the government establishes policies that affect or pertain to investments or investors that are not expressed in laws and regulation or by other means, the national government has committed to make them publicly available.
Rulemaking and regulatory authority lie with the bicameral parliament of the government of Antigua and Barbuda. The House of Representatives has 19 members, 17 of whom are elected for a five-year term in single-seat constituencies, one of whom is an ex-officio member, and one of whom is Speaker. The Senate has 17 appointed members.
Respective line ministries develop relevant national laws and regulations, which are then drafted by the Ministry of Legal Affairs. Laws relating to the ABIA and the Citizenship by Investment program are the main laws relevant to foreign direct investment. This website contains the full text of laws already in force, as well as those Parliament is currently considering.
While some draft bills are not subject to public consideration, input from stakeholder groups may be considered. The government encourages stakeholder organizations to support and contribute to the legal development process by participating in technical committees and providing comments on drafts.
Accounting, legal, and regulatory procedures are generally transparent and consistent with international norms. The International Financial Accounting Standards, which stem from the General Accepted Accounting Principles, govern the accounting profession.
The constitution provides for the independent Office of the Ombudsman to guard against abuses of power by government officials. The Ombudsman is responsible for investigating complaints about acts or omissions by government officials that violate the rights of members of the public.
The ABIA has primary responsibility for investment supervision, and the Ministry of Finance, Corporate Governance and Public-Private Partnerships monitors investments to collect information for national statistics and reporting purposes. The ABIA can revoke an issued Investment Certificate if the holder fails to comply with certain stipulations detailed in the Investment Authority Act and its regulations.
Antigua and Barbuda’s membership in regional organizations, particularly the OECS and its Economic Union, commits the state to implement all appropriate measures to fulfill its various treaty obligations. The eight member states and territories of the ECCU tend to enact laws uniformly, though minor differences in implementation may exist. The enforcement mechanisms of these regulations include penalties and other sanctions.
The February 2022 Caribbean Financial Action Task Force (CFATF) Mutual Evaluation assessment found Antigua and Barbuda to be largely compliant.
The ECCB is the supervisory authority over financial institutions in Antigua and Barbuda registered under the Banking Act of 2015.
As a member of the OECS and the ECCU, Antigua and Barbuda subscribes to principles and policies outlined in the Revised Treaty of Basseterre. The relationship between national and regional systems is such that each participating member state is expected to coordinate and adopt, where possible, common national policies aimed at the progressive harmonization of relevant policies and systems across the region. Thus, Antigua and Barbuda is obligated to implement regionally developed regulations such as legislation passed under the authority of the OECS, unless it seeks specific concessions to do otherwise.
As a member of the WTO, Antigua and Barbuda is a signatory to the WTO Agreement on the Technical Barriers to Trade and is obligated to notify the Committee of any draft new and updated technical regulations. The Antigua and Barbuda Bureau of Standards is a statutory body that prepares and promulgates standards in relation to goods, services, processes, and practices. Antigua and Barbuda ratified the WTO Trade Facilitation Agreement (TFA) in 2017. The TFA is intended to improve the speed and efficiency of border procedures, facilitate trade costs reduction, and enhance participation in the global value chain. Antigua and Barbuda has implemented a number of TFA requirements, but it has also missed two implementation deadlines.
Antigua and Barbuda bases its legal system on the British common law system. The Attorney General, the Chief Justice of the Eastern Caribbean Supreme Court, junior judges, and magistrates administer justice. The Eastern Caribbean Supreme Court Act establishes the Supreme Court of Judicature, which consists of the High Court and the Eastern Caribbean Court of Appeal. The High Court hears criminal and civil matters and rules on constitutional law issues. Parties may appeal first to the Eastern Caribbean Supreme Court, an itinerant court that hears appeals from all OECS members. The final appellate authority is the Judicial Committee of the UK Privy Council.
The Caribbean Court of Justice (CCJ) has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas. Antigua and Barbuda is only subject to the original jurisdiction of the CCJ.
As a member of the WTO, Antigua and Barbuda is a party to the WTO Dispute Settlement Panel and Appellate Body which resolves disputes over WTO agreements. Courts of appropriate jurisdiction in both countries resolve private disputes. Antigua and Barbuda brought a case before the WTO against the United States concerning the cross-border supply of online gambling and betting services. The WTO ruled in favor of Antigua and Barbuda, but agreement on settlement terms remains outstanding.
The ABIA may grant concessions as specified in the Investment Authority Act Amended 2019. These concessions are listed on Antigua and Barbuda’s iGuide website. Investors must apply to ABIA to take advantage of these incentives.
Under the Citizenship by Investment program, foreign individuals can obtain citizenship in accordance with the Citizenship by Investment Act of 2013, which grants citizenship (without voting rights) to qualified investors. Applicants are required to undergo a due diligence process before citizenship can be granted. The minimum contribution for investors under the program is $100,000 (270,225 Eastern Caribbean dollars) to the National Development Fund for a family of up to four people and $125,000 (337,818 Eastern Caribbean dollars) for a family of five, with additional contributions of $15,000 (40,538 Eastern Caribbean dollars) per person for up to four additional family members. Individual applicants can also qualify for the program by buying real estate valued at $400,000 (1,081,020 Eastern Caribbean dollars) or more or making a business investment of $1.5 million (4,053,825 Eastern Caribbean dollars). Alternatively, at least two applicants can propose to make a joint investment in an approved business with a total investment of at least $5 million (13.5 million Eastern Caribbean dollars). Each investor must contribute at least $400,000 (1,081,020 Eastern Caribbean dollars) to the joint investment. Citizenship by investment investors must own real estate for a minimum of five years before selling it. A fourth option involves a contribution of $150,000 (405,383 Eastern Caribbean dollars) to the University of the West Indies (UWI) Fund for a family of six people, which entitles one member of the family to a one-year tuition-only scholarship at UWI’s Five Islands campus. All applicants must also pay relevant government and due diligence fees, and provide a full medical certificate, police certificate, and evidence of the source of funds.
Chapter 8 of the Revised Treaty of Chaguaramas outlines the competition policy applicable to CARICOM states. Member states are required to establish and maintain a national competition authority for implementing the rules of competition. CARICOM established a Caribbean Competition Commission (CCC) to rule on complaints of anti-competitive cross-border business conduct. CARICOM competition policy addresses anti-competitive business conduct such as collusion between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction, or distortion of competition within the Community, and actions by which an enterprise abuses its dominant position within the Community. Antigua and Barbuda does not have any legislation regulating competition. The OECS agreed to establish a regional competition body to handle competition matters within its single market. The draft OECS bill has been submitted to the Ministry of Legal Affairs for review.
According to the Investment Authority Act of 2006, investments in Antigua and Barbuda will not be nationalized, expropriated, or subject to indirect measures having an equivalent effect, except as necessary for the public good, in accordance with the due process of law, on a non-discriminatory basis, and accompanied by prompt, adequate, and effective compensation. Compensation in such cases is the fair market value of the expropriated investment immediately before the expropriation or the impending expropriation became public knowledge, whichever is earlier. Compensation includes interest from the date of dispossession of the expropriated property until the date of payment and is required to be paid without delay.
There is an unresolved dispute regarding the 2007 expropriation of an American-owned property. Following the expropriation, the owners initiated legal action to enforce their rights under Antigua and Barbuda’s Land Acquisition Act. A 2014 Privy Council court decision ordered the Government of Antigua and Barbuda to pay the former property owners $39.8 million in compensation. The government has only paid approximately $20 million as of June 2021, and the property owners have continued to pursue multiple legal remedies to compel the government to pay the outstanding balance. Antigua and Barbuda appealed a 2018 court decision in favor of the claimants; legal proceedings are ongoing. The government has not made any additional payments to the claimants since 2015. The claimants continue to pursue recourse in other jurisdictions and in Antigua and Barbuda, with the latest legal filings in 2020. The outstanding debt is currently $19.1 million with daily accruing interest. Because of Antigua and Barbuda’s failure to fully compensate the owners as required by its own laws, the U.S. government recommends continued caution when investing in real estate or any other venture in Antigua and Barbuda.
Under the Bankruptcy Act (1975), Antigua and Barbuda has a bankruptcy framework that grants certain rights to debtors and creditors. The full text of the legislation can be found on the government’s website.
Argentina presents investment and trade opportunities, particularly in agriculture, energy, health, infrastructure, information technology, and mining. However, economic uncertainty, interventionist policies, high inflation, and persistent economic stagnation have prevented the country from maximizing its potential. The economy fell into recession in 2018, the same year then-President Mauricio Macri signed a three-year $57 billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF). President Alberto Fernandez and Vice President Cristina Fernandez de Kirchner’s (CFK) took office on December 10, 2019, and reversed fiscal austerity measures, suspended the IMF program, and declared public debt levels unsustainable.
In September 2020, Argentina restructured $100 billion in foreign and locally issued sovereign debt owed to international and local private creditors. Together, these transactions provide short-term financial relief by clearing principal payments until 2024. Unable to access international capital markets, the government relied on Central Bank money printing to finance the deficit, further fueling inflation. Although Argentina’s economy rebounded 10.3 percent in 2021, offsetting a 10 percent decline in 2020, the economy remains below pre-recession levels. In 2021, the Argentine peso (official rate) depreciated 17 percent, inflation reached 50.9 percent, and the poverty rate reached 37.3 percent.
Even as the pandemic receded and economic activity rebounded, the government cited increased poverty and high inflation as reasons to continue, and even expand, price controls, capital controls, and foreign trade controls. Agricultural and food exports such as beef, soy, and flour were frequent targets for government intervention. Beginning in May 2021, the government introduced bans and other limits on beef exports to address increasing domestic prices. However, the government also implemented incentives for exporters and investors in other industries. It eliminated export taxes for specific businesses and industries, including small and medium sized enterprises; auto and automotive parts exports over 2020 volumes; and information technology service exports from companies enrolled in the knowledge-based economy promotion regime. There were also investment promotion incentives in key export sectors such as agriculture, forestry, hydrocarbons, manufacturing, and mining.
The high cost of capital affected the level of investments in developing renewable energy projects, despite the potential for both wind and solar power. In an effort to expand production of oil and natural gas, the current administration provides benefits to the fossil fuel industry that impact the cost-competitiveness of renewable energy technologies. The government has encouraged the use of biofuels and electric vehicles. A proposed Law for the Promotion of Sustainable Mobility includes incentives and 20-year timelines to promote the use of technologies with less environmental impact in transportation.
After the first COVID-19 case was confirmed in Argentina in March 2020, the country imposed a strict nationwide quarantine that became one of the longest in the world. Argentina reopened its borders to tourists and non-residents on November 21, 2021. Hotel and lodging, travel and tourism, and entertainment activities have reopened, although many businesses went bankrupt during the shutdown. Most of the pandemic-related economic relief measures were phased out during 2021.
Both domestic and foreign companies frequently point to a high and unpredictable tax burden and rigid labor laws as obstacles to further investment in Argentina. In 2021, Argentina ranked 73 out of 132 countries evaluated in the Global Innovation Index, which is an indicator of a country’s ability to innovate, based on the premise that innovation is a driver of a nation’s economic growth and prosperity. In the latest Transparency International Corruption Perceptions Index (CPI), Argentina ranked 96 out of 180 countries in 2021, dropping 18 places compared to 2020.
As a Southern Common Market (MERCOSUR) member, Argentina signed a free trade and investment agreement with the European Union (EU) in June 2019. Argentina has not yet ratified the agreement. During 2021 there was little progress on trade negotiations with South Korea, Singapore, and Canada. Argentina ratified the WTO Trade Facilitation Agreement on January 22, 2018. Argentina and the United States continue to expand bilateral commercial and economic cooperation to improve and facilitate public-private ties and communication on trade, investment, energy, and infrastructure issues, including market access and intellectual property rights. More than 265 U.S. companies operate in Argentina, and the United States continues to be the top investor in Argentina with more than USD $8.7 billion (stock) of foreign direct investment as of 2020.
1. Openness To, and Restrictions Upon, Foreign Investment
The Government of Argentina identified its top economic priorities for 2022 as reaching an agreement with the IMF to renegotiate the 2018 Stand-By Arrangement, controlling inflation, and continuing the post-pandemic economic recovery. When the Fernandez administration took office in late 2019, the Ministry of Foreign Affairs, International Trade, and Worship became the lead governmental entity for investment promotion. The Fernandez administration does not have a formal business roundtable or other dialogue established with international investors, although it does engage frequently with domestic and international companies.
Market regulations such as capital controls, trade restrictions, and price controls enhance economic distortion that hinders the investment climate in the country.
Foreign and domestic investors generally compete under the same conditions in Argentina. However, 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, and Argentine laws and regulations. The agency also helps small and medium- sized companies (SMEs) export their products, provides matchmaking services, and organizes roadshows and trade delegations. Upon the change of administration, the government placed the Agency under the direction of the Ministry of Foreign Affairs (MFA) to improve coordination between the Agency and Argentina´s foreign policy. The Under Secretary for Trade and Investment Promotion of the MFA works as a liaison between the Agency and provincial governments and regional organizations. The new administration also created the National Directorate for Investment Promotion under the Under Secretary for Trade and Investment Promotion, making the Directorate responsible for promoting Argentina as an investment destination. The Directorate´s mission also includes determining priority sectors and projects and helping Argentine companies expand internationally and/or attract international investment.
The agency’s web portal provides information on available services (https://www.inversionycomercio.org.ar/). The 23 provinces and the City of Buenos Aires also have their own provincial investment and trade promotion offices.
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 exceptions 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 limits 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 land 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 Government of Argentina 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 from25 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.
Argentina was last subject to an investment policy review by the OECD in 1997 and the fifth trade policy review by the WTO in September 2021 (https://www.wto.org/english/tratop_e/tpr_e/tp512_e.htm). The United Nations Conference on Trade and Development (UNCTAD) has not done an investment policy review of Argentina.
In 2019, stemming from the country’s deteriorating financial and economic situation, the Argentine government re-imposed capital controls on businesses and consumers, limiting their access to foreign exchange. The government continued to update and increase both capital controls and taxes on imports and exports throughout 2021, generating continued uncertainty in the business climate.
With the stated aim of keeping inflation under control and avoiding production shortages during the COVID-19 pandemic, the government increased market interventions in 2020, creating further market distortions that may deter investment. During 2021, bans and other limits on beef exports were introduced to address rising domestic prices. Argentina currently has s a consumer goods price control program, “PreciosCuidados,” a voluntary program established in 2014.The Argentine Congress also passed the Shelves Law (No. 27,545), which regulates the supply, display, and distribution of products on supermarket shelves and virtual stores. Key articles of the Law are still pending implementing regulations. Private companies expressed concern over the final regulatory framework of the Law, which could affect their production, distribution, and marketing business models.
In August 2020, the government issued an edict freezing prices for telecommunication services (mobile and land), cable and satellite TV, and internet services until December 2020, later extending the measure into 2021. Some telecommunication companies appealed through the courts and were granted protection from the edict. The health sector was also subject to limits on price increases. In February 2021, the Secretary of Trade took administrative action against major consumer firms and food producers for purportedly causing supermarket shortages by withholding production and limiting distribution. Companies are currently contesting this decision. In March 2021, the Secretary of Domestic Trade issued Resolution 237/2021 establishing a national registry to monitor the production levels, distribution, and sales of private companies. If companies fail to comply, they could be subject to fines or closure. Tighter import controls imposed by the Fernandez administration have affected the business plans of private companies that need imported inputs for production. The private sector noted increased discretion on the part of trade authorities responsible for both approving import licenses and obtaining access to the foreign exchange market to pay for imports.
The Ministry of Production eased bureaucratic hurdles for foreign trade through the creation of a Single Window for Foreign Trade (“VUCE” for its Spanish acronym) in 2016. 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). The Argentine government has not fully implemented the VUCE for use across the country.
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 list of products subject to non-automatic licensing has been modified several times since the beginning of the SIMI system. Due to the Covid-19 pandemic, the government reclassified goods needed to combat the health emergency previously subject to non-automatic import licenses to automatic import licenses. During 2021, the number of non-automatic import licenses did not significantly change, although obtaining dollars from the Argentine Central Bank to pay for imports was often difficult for importers. Approximately 1,500 tariff lines are currently subject to non-automatic licenses.
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 Simplificada) online within 24 hours of registration. However, in March 2020, the Fernandez administration annulled the 24-hour registration system. Industry groups said this hindered the entrepreneurship ecosystem by revoking one of the pillars of the Entrepreneurs’ Law.
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 Inspección General de Justicia). The IGJ website describes the registration process, and some portions can be completed online (https://www.argentina.gob.ar/justicia/igj/guia-de-tramites). 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.
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 Secretariat of Labor, within the Ministry of Labor, Employment, and Social Security.
The National Directorate for Investment Promotion under the Under Secretary for Trade and Investment Promotion at the MFA assists Argentine companies in expanding their business overseas, in coordination with the National Investment and Trade Promotion Agency. Argentina does not have any restrictions regarding domestic entities investing overseas, nor does it incentivize outward investment.
3. Legal Regime
The Secretary of Strategic Affairs under the Cabinet is in charge of transparency policies and the digitalization of bureaucratic processes as of December 2019.
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. The Constitution establishes a procedure that allows for citizens to draft or propose legislation, which is subject to Congressional and Executive approval before being passed into law.
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.
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 and Human Rights. Interested stakeholders can pursue judicial review of regulatory decisions.
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.
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 regulation may be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=306769.
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.
The Argentine government 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 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 severely limit 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 developed their own processes for public consultation by publishing drafts on their websites, directly distributing the draft to interested stakeholders for feedback, or holding public hearings.
The Argentine government also made an effort to improve citizens’ understanding of the budget, through the citizen’s budget “Presupuesto Ciudadano” website: https://www.economia.gob.ar/onp/presupuesto_ciudadano/seccion6.php. 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.
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.
The government of Argentina does not promote or require environmental, social, and governance (ESG) disclosures to facilitate transparency and/or help investors and consumers distinguish between high and low-quality investments.
Argentina is a founding member of MERCOSUR and has been a member of the Latin American Integration Association (ALADI for Asociación Latinoamericana de Integración) since 1980. Once any of the decision-making bodies within MERCOSUR agrees to apply a certain regulation, each of the member countries must incorporate it into its legislation according to its own legislative procedures. Once a regulation is incorporated in a MERCOSUR member’s legislation, the country must notify MERCOSUR headquarters.
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 submitted itself to an OECD regulatory policy review in March 2018, which was released in March 2019. The Fernandez administration has not actively pursued OECD accession. Argentina participates in all 23 OECD committees.
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 Pan-American 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.).
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 courts, 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.
According to the Argentine constitution, the judiciary is a separate and equal branch of government. In practice, there are continuous instances of political interference in the judicial process. Companies have complained that courts lack transparency and reliability, and that the Argentine government has used the judicial system to pressure the private sector. Media revelations of judicial impropriety and corruption feed public perception and undermine confidence in the judiciary.
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.
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.gob.ar).
The National Commission for the Defense of Competition and the Secretariat of Domestic Trade, both within the Ministry of Productive Development, 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 Competition Law (Law 27,442), which would have, among other things, established an independent competition agency and tribunal. 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. The Government of Argentina, however, has thus far not taken steps to establish the independent agency or tribunal. In February 2021, a bill introducing amendments to the Defense of Competition Law was passed by the Senate and is currently under study in the Lower House. The main changes are related to the removal of the “Clemency Program,” which encourages public reports of collusive and cartel activities, and the elimination of public hearings to appoint members of the Competition Office. The private sector has expressed concern over this bill, stating these changes are contrary to transparency standards embodied in the Law.
In September 2014, Argentina amended the 1974 National Supply Law to expand the ability of the government to regulate private enterprises by setting minimum and maximum prices and profit margins for goods and services at any stage of economic activity. Private companies may be subject to fines and temporary closure if the government determines they are not complying with the law. Although the law is still in effect, the U.S. Government has not received any reports of it being applied since December 2015. However, the Fernandez administration has expressed its potential use when resisted compliance with price control programs, even if the program was supposed to be voluntary.
In March 2020, the Government of Argentina enacted the Supermarket Shelves Law (Law 27,545) that states that any single manufacturer and its associated brands cannot occupy more than 30 percent of a retailer’s shelf space devoted to any one product category. The law’s proponents claim it will allow more space for domestic SME-produced products, encourage competition, and reduce shortages. U.S. companies have expressed concern over the pending regulations, seeking clarification about issues such as whether display space percentages would be considered per brand or per production company, as it could potentially affect a company’s production, distribution, and marketing business model.
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 expropriation 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 oil and gas company Repsol-YPF. Most of the litigation between the Government of Argentina and Repsol was settled in 2016. An American hedge fund still holds a claim against YPF and is in litigation in U.S. courts.
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.
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 7 cases involving U.S. or other foreign investors. Argentina currently has seven pending arbitration cases, three of them 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).
Panama 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.
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.
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 National Center of Debtors (Central de Deudores) compiles and publishes 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.
Over the past several years, Armenia has received consistently respectable rankings in international indices that review country business environments and investment climates. Projects representing significant U.S. investment are present in Armenia, most notably ContourGlobal’s Vorotan Hydroelectric Cascade and Lydian’s efforts to develop a major gold mine. U.S. investors in the banking, energy, pharmaceutical, information technology, and mining sectors, among others, have entered or acquired assets in Armenia. Armenia presents a variety of opportunities for investors, and the country’s legal framework and government policy aim to attract investment, but the investment climate is not without challenges. Obstacles include Armenia’s small market size, relative geographic isolation due to closed borders with Turkey and Azerbaijan, weaknesses in the rule of law and judiciary, and a legacy of corruption. Net foreign direct investment inflows are low. Armenia had commenced a robust recovery from a deep 2020 recession prior to the introduction of new sanctions against Russia. GDP growth reached five percent in 2021 and had been expected to continue to grow in 2022 by at least five percent. As a result of the war and sanctions imposed on Russia, Armenia’s 2022 GDP growth forecast is now just above one percent.
In May 2015, Armenia signed a Trade and Investment Framework Agreement with the United States. This agreement established a United States-Armenia Council on Trade and Investment to discuss bilateral trade and investment and related issues. Since 2015, Armenia has been a member of the Eurasian Economic Union, a customs union that brings Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia into a single integrated market. In November 2017, Armenia signed a Comprehensive and Enhanced Partnership Agreement with the European Union, which aimed in part to improve Armenia’s investment climate and business environment.
Armenia imposes few restrictions on foreign control and rights to private ownership and establishment. There are no restrictions on the rights of foreign nationals to acquire, establish, or dispose of business interests in Armenia. Business registration procedures are generally straightforward. According to foreign companies, otherwise sound regulations, policies, and laws are sometimes undermined by problems such as the lack of independence, capacity, or professionalism in key institutions, most critically the judiciary. Armenia does not limit the conversion and transfer of money or the repatriation of capital and earnings. The banking system in Armenia is sound and well-regulated, but investors note that the financial sector is not highly developed. The U.S.-Armenia Bilateral Investment Treaty provides U.S. investors with a variety of protections. Although Armenian legislation offers protection for intellectual property rights, enforcement efforts and recourse through the courts are in need of improvement.
Armenia experienced a dramatic change of government in 2018, when a democratically elected leader came to power on an anti-corruption platform after street protests toppled the old regime. Following the 2020 NK hostilities, in June 2021, the incumbent retained power in snap parliamentary election that met most international democracy standards. The government continues to push forth with economic and anti-corruption reforms that have improved the business climate. Overall, the competitive environment in Armenia is improving, but several businesses have reported that broader reforms across judicial, tax, customs, health, education, military, and law enforcement institutions will be necessary to shore up these gains.
Despite improvements in some areas that raise Armenia’s attractiveness as an investment destination, investors claim that numerous issues remain and must be addressed to ensure a transparent, fair, and predictable business climate. A number of investors have raised concerns about the quality of dialogue between the private sector and government. Investors have also flagged issues regarding government officials’ ability to resolve problems they face in an expeditious manner. An investment dispute in the country’s mining sector has attracted significant international attention and remains outstanding after several years.
1. Openness To, and Restrictions Upon, Foreign Investment
The government of Armenia officially welcomes foreign investment. The Ministry of Economy is the main government body responsible for the development of investment policy in Armenia. Armenia has achieved respectable rankings on some global indices measuring the country’s business climate. Armenia’s investment and trade policy is relatively open; foreign companies are entitled by law to the same treatment as Armenian companies. Armenia has strong human capital and a well-educated population, particularly in the science, technology, engineering, and mathematics fields, leading to significant investment in the high-tech and information technology sectors. Many international companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists and position within the Eurasian Economic Union (EAEU). However, many businesses have identified challenges with Armenia’s investment climate in terms of the country’s small market (with a population of less than three million), limited consumer buying power, relative geographic isolation due to closed borders with Turkey and Azerbaijan, and concerns related to weaknesses in the rule of law.
Following a peaceful revolution in 2018 fueled in large measure by popular frustration with endemic corruption, Armenia’s government launched a high-profile anti-corruption campaign. The fight against corruption needs to be institutionalized in the long term, especially in critical areas such as the judiciary, tax and customs operations, and health, education, military, and law enforcement sectors. Foreign investors remain concerned about the rule of law, equal treatment, and ethical conduct by government officials. U.S companies have reported that the investment climate is tainted by a failure to enforce intellectual property rights. There have been concerns regarding the lack of an independent and strong judiciary, which undermines the government’s assurances of equal treatment and transparency and reduces access to effective recourse in instances of investment or commercial disputes. Representatives of U.S. entities have raised concerns about the quality of stakeholder consultation by the government with the private sector and government responsiveness in addressing concerns among the business community.
Government officials have publicly responded to private sector concerns about perceptions of slow movement in the government bureaucracy as a function of needing to guard against corruption-related risks. The Armenian National Interests Fund and Investment Support Center (Enterprise Armenia) are responsible for attracting and facilitating foreign direct investment.
There are generally very few restrictions on foreign ownership or control of commercial enterprises. There are some restrictions on foreign ownership within the media and commercial aviation sectors. Local incorporation is required to obtain a license for the provision of auditing services.
The Armenian government does not maintain investment screening mechanisms in general, and for foreign direct investment, in particular. Government approval is required to take advantage of certain tax and customs privileges, and foreign investors are subject to the same requirements as domestic investors where regulatory approvals may be involved.
An Armenian ecological NGO recently published an article claiming that many mines in Armenia do not have corporate social responsibility obligations, which are required by law. However, it was unclear from the article if the mines in question were still actively operating.
Link to conflicts listed on Environmental Justice Atlas, under “basic data,” select country: https://ejatlas.org/
In 2019, the U.N. Conference on Trade and Development (UNCTAD) published its first investment policy review for Armenia. The World Trade Organization (WTO) published a Trade Policy Review for Armenia in 2018.
Companies can register electronically here. This single window service was launched in 2011 and allows individual entrepreneurs and companies to complete name reservation, business registration, and tax identification processes all at once. The application can be completed in one day. An electronic signature is needed in order to be able to register online. Foreign citizens can obtain an e-signature and more detailed information from the e-signature portal. In 2019, the government launched an e-regulations platform that provides a step-by-step guide for business and investment procedures. The platform is available at https://armenia.eregulations.org/. According to the latest estimates, it takes four days to complete the company registration process in Armenia.
The Armenian government does not restrict domestic investors from investing abroad.
3. Legal Regime
The Armenian government increasingly makes efforts to uses transparent policies and laws to foster competition. Some contacts have reported that over the last few years the Armenian government has pursued a more consistent execution of these laws and policies in an effort to improve market competition and remove informal barriers to market entry, especially for small- and medium-sized enterprises. Armenia’s legislation on the protection of competition has been improved with clarifications regarding key concepts. There have been some procedural improvements for delivering conclusions and notifications of potential anti-competitive behavior via electronic means. However, companies regard the efforts of the State Commission for the Protection of Economic Competition (SCPEC) alone as insufficient to ensure a level playing field. They indicate that improvements in other state institutions and authorities that support competition, like the courts, tax and customs, public procurement, and law enforcement, are necessary. Numerous studies observe a continuing lack of contestability in local markets, many of which are dominated by a few incumbents. Banking supervision is relatively well developed and largely consistent with the Basel Core Principles. The Central Bank of Armenia (CBA) is the primary regulator of the financial sector and exercises oversight over banking, securities, insurance, and pensions. Armenia has adopted IFRS as the accounting standard for enterprises. Data on Armenia’s public finances and debt obligations are broadly transparent, and the Ministry of Finance publishes periodic reports that are available online.
Safety and health requirements, many of them holdovers from the Soviet period, generally do not impede investment activities. Nevertheless, investors consider bureaucratic procedures to be sometimes burdensome, and discretionary decisions by individual officials may present opportunities for petty corruption. A unified online platform for publishing draft legislation was launched in March 2017. Proposed legislation is available for the public to view. Registered users can submit feedback and see a summary of comments on draft legislation. However, the time period devoted to public comments is often regarded as insufficient to solicit substantive feedback. The results of consultations have not been reported by the government in the past. The government maintains other portals, including http://www.e-gov.am and http://www.arlis.am, that make legislation and regulations available to the public. The governmental https://www.aipa.am/en/ portal is a comprehensive platform for a range of services including registering intellectual property, opening a company, or applying for a construction permit. It also provides links to key regulatory institutions and laws and regulations. The government does not require environmental and social disclosures to help investors and consumers distinguish between high- and low-quality investments. Some regulations that affect Armenia are developed within the Eurasian Economic Commission, the executive body for the EAEU.
Armenia is a member of the EAEU and adheres to relevant technical regulations. Armenia’s entry into CEPA will lead it to pursue harmonization efforts with the EU on a range of laws, regulations, and policies relevant to economic affairs. Armenia is also a member of the WTO, and the Armenian government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade. Armenia is a signatory to the Trade Facilitation Agreement and has already sent category “A”, “B,” and “C” notifications to the WTO.
Armenia has a hybrid legal system that includes elements of both civil and common law. Although Armenia is developing an international commercial code, the laws regarding commercial and contractual matters are currently set forth in the civil code. Thus, because Armenia lacks a commercial court, all disputes involving contracts, ownership of property, or other commercial matters are resolved by litigants in courts of general jurisdiction, which handle both civil and criminal cases. Judges that handle civil matters may be overwhelmed by the volume of cases before them and are frequently seen by the public as corrupt. Despite the ability of courts to use the precedential authority of the Court of Cassation and the European Court of Human Rights, many judges who specialize in civil cases do not do so, increasing the unpredictability of court decisions in the eyes of investors.
Businesses tend to perceive that many Armenian courts suffer from low levels of efficiency, independence, and professionalism, which drives a need to strengthen the judiciary. Very often in proceedings when additional forensic expertise is requested, the court may suspend a case until the forensic opinion is received, a process that can take several months. Businesses have noted that many judges at courts of general jurisdiction may be reluctant to make decisions without getting advice from higher court judges. Thus, the public opinion is that decisions may be influenced by factors other than the law and merits of individual cases. In general, the government honors judgments from both arbitration proceedings and Armenian national courts.
Due to the nature and complexity of commercial and contractual issues and the caseload of judges who specialize in civil cases, many matters involving investment or commercial disputes take months or years to work their way through the courts. In addition, businesses have complained of the inefficiencies and institutional corruption of the courts. Even though the Armenian constitution provides investors the tools to enforce awards and their property rights, investors claim that there is little predictability in what a court may do.
Basic legal provisions covering foreign investment are specified in the 1994 Law on Foreign Investment. Foreign companies are entitled by law to the same treatment as Armenian companies. A Law on Public-Private Partnership (PPP), adopted in 2019, establishes a framework for the government to attract investment for projects focused on infrastructure. In 2021, the Law on PPP has been amended to introduce clear criteria for PPP project selection by the Government, as well as enabled investors to apply to the government with PPP project proposals.
The Investment Support Center (Enterprise Armenia) is Armenia’s national authority for investment and export promotion. It provides information to foreign investors on Armenia’s business climate, investment opportunities, and legislation; supports investor visits; and serves as a liaison for government institutions. More information is available via the Investment Support Center’s website.
SCPEC reviews transactions for competition-related concerns. Relevant laws, regulations, commission decisions, and more information can be found on SCPEC’s website. Concentrations, including mergers, acquisitions of shares or assets, amalgamations, and incorporations, are subject to ex ante control by SCPEC in accordance with the law. Whenever a concentration gives rise to concerns about harm to competition, including the creation or strengthening of a dominant position, SCPEC can prohibit such a transaction or impose certain remedies. Armenia’s Law on Protection of Economic Competition has been amended several times in recent years to bring Armenia’s competition framework into alignment with EAEU and CEPA requirements. The law was changed in 2020 to improve SCPEC’s capabilities to investigate anti-competitive behavior, in collaboration with Armenia’s investigative bodies, whereas before SCPEC had to rely primarily on document studies and request information from other state bodies.
Amendments to the competition law made in 2021 strengthened SCPEC’s preventive measures by allowing private sector representatives to obtain SCPEC’s advisory opinion on market concentration risks prior to a planned transaction or activity (formerly available only to state bodies). The most recent changes to competition law also defined the order to conduct sectoral market studies to identify potential competition violations and enlarged the scope of market transactions that can be assessed as market concentrations.
Under Armenian law, foreign investment cannot be confiscated or expropriated except in extreme cases of natural or state emergency upon obtaining an order from a domestic court. According to the Armenian constitution, equivalent compensation is owed prior to expropriation.
According to the Law on Bankruptcy adopted in 2006, creditors and equity and contract holders (including foreign entities) have the right to participate and defend their interests in bankruptcy cases. Armenia decided with the passage of a new Judicial Code in 2018 to adopt a new, specialized bankruptcy court, which began operations in 2019. Creditors have the right to access all materials relevant to cases, submit claims to court, participate in meetings of creditors, and nominate candidates to administer cases. Monetary judgments are usually made in local currency. The Armenian Criminal Code defines penalties for false and deliberate bankruptcy, concealment of property or other assets of the bankrupt party, or other illegal activities during the bankruptcy process. UNCTAD observes that Armenia’s framework for bankruptcy procedures needs improvement, adding that insolvency cases are expensive and almost always result in liquidation. Armenia amended its bankruptcy law in December 2019 to reduce the cost of bankruptcy proceedings. In addition, premiums have been set for bankruptcy managers for submitting financial recovery plans, as well as for the recovery of a bankrupt person, with the aim of raising rates of financial recovery. In 2020, the debt threshold to launch bankruptcy proceedings was raised to grant companies a greater ability to pay off debts rather than having their assets frozen.
Australia is generally welcoming to foreign investment, which is widely considered to be an essential contributor to Australia’s economic growth and productivity. The United States is by far the largest source of foreign direct investment (FDI) for Australia. According to the U.S. Bureau of Economic Analysis, the stock of U.S. FDI totaled USD 170 billion in January 2020. The Australia-United States Free Trade Agreement, which entered into force in 2005, establishes higher thresholds for screening U.S. investment for most classes of direct investment. While welcoming toward FDI, Australia does apply a “national interest” test to qualifying investment through its Foreign Investment Review Board screening process.
Various changes to Australia’s foreign investment rules, primarily aimed at strengthening national security, have been made in recent years. This continued in 2020 with the passage of the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020, which broadens the classes of foreign investments that require screening, with a particular focus on defense and national security supply chains. All foreign investments in these industries now require screening, regardless of their value or national origin. The Foreign Investment Reform legislation commenced in January 2021. Despite the increased focus on foreign investment screening, the rejection rate for proposed investments has remained low and there have been no cases of investment from the United States having been rejected in recent years, although some U.S. companies have reported greater scrutiny of their investments in Australia.
In response to a perceived lack of fairness, the Australian government has tightened anti-tax avoidance legislation targeting multi-national corporations with operations in multiple tax jurisdictions. While some laws have been complementary to international efforts to address tax avoidance schemes and the use of low-tax countries or tax havens, Australia has also gone further than the international community in some areas.
Australia has increased funding for clean technology projects and both local and international companies can apply for grants to implement emission-saving equipment to their operations. Australia adopted a net-zero emissions target at the national level in November 2021 although made no change to its short-term goal of a 26-28 percent emission reduction by 2030 on 2005 levels. Australia’s eight states and territories have adopted both net-zero targets and a range of interim emission reduction targets set above the federal target. Various state incentive schemes may also be available to U.S. investors.
The Australian government is strongly focused on economic recovery from the COVID-driven recession Australia experienced in 2020, the country’s first in three decades. In addition to direct stimulus and business investment incentives, it has announced investment attraction incentives across a range of priority industries, including food and beverage manufacturing, medical products, clean energy, defense, space, and critical minerals processing. U.S. involvement and investment in these fields is welcomed.
1. Openness To, and Restrictions Upon, Foreign Investment
Australia is generally welcoming to foreign direct investment (FDI), with foreign investment widely considered to be an essential contributor to Australia’s economic growth. Other than certain required review and approval procedures for designated types of foreign investment described below, there are no laws that discriminate against foreign investors.
A number of investment promotion agencies operate in Australia. The Australian Trade Commission (often referred to as Austrade) is the Commonwealth Government’s national “gateway” agency to support investment into Australia. Austrade provides coordinated government assistance to promote, attract, and facilitate FDI, supports Australian companies to grow their business in international markets, and delivers advice to the Australian Government on its trade, tourism, international education and training, and investment policy agendas. Austrade operates through a number of international offices, with U.S. offices primarily focused on attracting foreign direct investment into Australia and promoting the Australian education sector in the United States. Austrade in the United States operates from offices in Boston, Chicago, Houston, New York, San Francisco, and Washington, DC. In addition, state and territory investment promotion agencies also support international investment at the state level and in key sectors.
Within Australia, foreign and domestic private entities may establish and own business enterprises and may engage in all forms of remunerative activity in accordance with national legislative and regulatory practices. See Section 4: Legal Regime – Laws and Regulations on Foreign Direct Investment below for information on Australia’s investment screening mechanism for inbound foreign investment.
Other than the screening process described in Section 4, there are few limits or restrictions on foreign investment in Australia. Foreign purchases of agricultural land greater than AUD 15 million (USD 11 million) are subject to screening. This threshold applies to the cumulative value of agricultural land owned by the foreign investor, including the proposed purchase. However, the agricultural land screening threshold does not affect investments made under the Australia-United States Free Trade Agreement (AUSFTA). The current threshold is AUD 1.25 billion (USD 925 million) for U.S. non-government investors. Investments made by U.S. non-government investors are subject to inclusion on the foreign ownership register of agricultural land and to Australian Tax Office (ATO) information gathering activities on new foreign investment.
The Foreign Investment Review Board (FIRB), which advises Australia’s Treasurer, may impose conditions when approving foreign investments. These conditions can be diverse and may include: retention of a minimum proportion of Australian directors; certain requirements on business activities, such as the requirement not to divest certain assets; and certain taxation requirements. Such conditions are in keeping with Australia’s policy of ensuring foreign investments are in the national interest.
Australia has not conducted an investment policy review in the last three years through either the OECD or UNCTAD system. The WTO reviewed Australia’s trade policies and practices in 2019, and the final report can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp496_e.htm.
The Australian Trade Commission compiles an annual “Why Australia Benchmark Report” that presents comparative data on investing in Australia in the areas of Growth, Innovation, Talent, Location, and Business. The report also compares Australia’s investment credentials with other countries and provides a general snapshot on Australia’s investment climate. The 2021 Benchmark Report can be found at: http://www.austrade.gov.au/International/Invest/Resources/Benchmark-Report.
Australia’s private sector frequently provides policy recommendations to the government, including as part of annual federal budget reviews and ad hoc policy reviews. In 2021 the American Chamber of Commerce in Australia published a report titled “The Opportunity is Now: Attracting U.S. Investors to Australia,” which provides a range of recommendations to government relating to Australia’s investment screening and general investment environment. The report is available via the following link: https://www.pwc.com.au/amcham-pwc-opportunity-is-now.html
Business registration in Australia is relatively straightforward and is facilitated through a number of government websites. The government’s business.gov.au website provides an online resource and is intended as a “whole-of-government” service providing essential information on planning, starting, and growing a business. Foreign entities intending to conduct business in Australia as a foreign company must be registered with the Australian Securities and Investments Commission (ASIC). As Australia’s corporate, markets, and financial services regulator, ASIC’s website provides information and guides on starting and managing a business or company in the country.
In registering a business, individuals and entities are required to register as a company with ASIC, which then gives the company an Australian Company Number, registers the company, and issues a Certificate of Registration. According to the World Bank “Starting a Business” indicator, registering a business in Australia takes two days, and Australia ranks 7th globally on this indicator.
Australia generally looks positively towards outward investment as a way to grow its economy. There are no restrictions on investing abroad. Austrade, Export Finance Australia (EFA), and various other government agencies offer assistance to Australian businesses looking to invest abroad, and some sector-specific export and investment programs exist. The United States is the top destination, by far, for Australian investment overseas.
3. Legal Regime
The Australian Government utilizes transparent policies and effective laws to foster national competition and is consultative in its policy making process. The government generally allows for public comment of draft legislation and publishes legislation once it enters into force. Details of the Australian government’s approach to regulation and regulatory impact analysis can be found on the Department of Prime Minister and Cabinet’s website: https://www.pmc.gov.au/regulation
Regulations drafted by Australian Government agencies must be accompanied by a Regulation Impact Statement when submitted to the final decision maker (which may be the Cabinet, a Minister, or another decision maker appointed by legislation.) All Regulation Impact Statements must first be approved by the Office of Best Practice Regulation (OBPR) which sits within the Department of Prime Minister and Cabinet, prior to being provided to the relevant decision maker. They are required to demonstrate the need for regulation, the alternative options available (including non-regulatory options), feedback from stakeholders, and a full cost-benefit analysis. Regulations are subsequently required to be reviewed periodically. All Regulation Impact Statements, second reading speeches, explanatory memoranda, and associated legislation are made publicly available on Government websites. Australia’s state and territory governments have similar processes when making new regulations.
The Australian Government has tended to prefer self-regulatory options where industry can demonstrate that the size of the risks are manageable and that there are mechanisms for industry to agree on, and comply with, self-regulatory options that will resolve the identified problem. This manifests in various ways across industries, including voluntary codes of conduct and similar agreements between industry players.
The Australian Government has recognized the impost of regulations and has undertaken a range of initiatives to reduce red tape. This has included specific red tape reduction targets for government agencies and various deregulatory groups within government agencies. In 2019, the Australian Government established a Deregulation Taskforce within its Treasury Department, stating its goal was to “drive improvements to the design, administration and effectiveness of the stock of government regulation to ensure it is fit for purpose.” The taskforce’s work is ongoing.
Australian accounting, legal, and regulatory procedures are transparent and consistent with international standards. Accounting standards are formulated by the Australian Accounting Standards Board (AASB), an Australian Government agency under the Australian Securities and Investments Commission Act 2001. Under that Act, the statutory functions of the AASB are to develop a conceptual framework for the purpose of evaluating proposed standards; make accounting standards under section 334 of the Corporations Act 2001, and advance and promote the main objects of Part 12 of the ASIC Act, which include reducing the cost of capital, enabling Australian entities to compete effectively overseas and maintaining investor confidence in the Australian economy. The Australian Government conducts regular reviews of proposed measures and legislative changes and holds public hearings into such matters.
Australian government financing arrangements are transparent and well governed. Legislation governing the type of financial arrangements the government and its agencies may enter into is publicly available and adhered to. Updates on the Government’s financial position are regularly posted on the Department of Finance and Treasury websites. Issuance of government debt is managed by the Australian Office of Financial Management, which holds regular tenders for the sale of government debt and the outcomes of these tenders are publicly available. The Australian Government also publishes and adheres to strict procurement guidelines. Australia formally joined the WTO Agreement on Government Procurement in 2019.
Environmental Social Governance (ESG) reporting is not currently mandated for companies in Australia. However, companies are required to disclose any information that shareholders may deem relevant in assessing the performance of value of the company and this may include ESG components. Companies are also increasingly disclosing ESG aspects of their operations in response to shareholder demands and in order to secure an advantage over competitors. Further, financial services companies are required to disclose their exposure to climate risk as part of their standard risk disclosures (see further detail here: https://asic.gov.au/about-asic/news-centre/speeches/corporate-governance-update-climate-change-risk-and-disclosure/)
Australia is a member of the WTO, G20, OECD, and the Asia-Pacific Economic Cooperation (APEC), and became the first Association of Southeast Nations (ASEAN) Dialogue Partner in 1974. While not a regional economic block, Australia’s free trade agreement with New Zealand provides for a high level of integration between the two economies with the ultimate goal of a single economic market. Details of Australia’s involvement in these international organizations can be found on the Department of Foreign Affairs and Trade’s website: https://www.dfat.gov.au/trade/organisations/Pages/wto-g20-oecd-apec
The Australian legal system is firmly grounded on the principles of equal treatment before the law, procedural fairness, judicial precedent, and the independence of the judiciary. Strong safeguards exist to ensure that people are not treated arbitrarily or unfairly by governments or officials. Property and contractual rights are enforced through the Australian court system, which is based on English Common Law. Australia’s judicial system is fully independent and separate from the executive branch of government.
Foreign investment in Australia is regulated by the Foreign Acquisitions and Takeovers Act 1975 and Australia’s Foreign Investment Policy. The Foreign Investment Review Board (FIRB) is a non-statutory body, comprising independent board members advised by a division within the Treasury Department, established to advise the Treasurer on Australia’s foreign investment policy and its administration. The FIRB screens potential foreign investments in Australia above threshold values, and based on advice from the FIRB the Treasurer may deny or place conditions on the approval of particular investments above that threshold on national interest grounds. In January 2021 new legislation, the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020, took effect. This legislation tightened Australia’s investment screening rules by introducing the concept of a “national security business” and “national security land,” the acquisition of which trigger a FIRB review. Further details on national security considerations, including the definitions of national security businesses, are available on the FIRB website: https://firb.gov.au/guidance-resources/guidance-notes/gn8.
The Australian Government applies a “national interest” consideration in reviewing foreign investment applications. “National interest” covers a broader set of considerations than national security alone and may include tax or competition implications of an investment. Further information on foreign investment screening, including screening thresholds for certain sectors and countries, can be found at FIRB’s website: https://firb.gov.au/. Under the AUSFTA agreement, all U.S. greenfield investments are exempt from FIRB screening.
The Australian Competition and Consumer Commission (ACCC) enforces the Competition and Consumer Act 2010 and a range of additional legislation, promotes competition, and fair trading, and regulates national infrastructure for the benefit of all Australians. The ACCC plays a key role in assessing mergers to determine whether they will lead to a substantial lessening of competition in any market. The ACCC also engages in consumer protection enforcement and has, in recent years, been given expanded responsibilities to monitor energy assets, the national gas market, and digital industries.
Private property can be expropriated for public purposes in accordance with Australia’s constitution and established principles of international law. Property owners are entitled to compensation based on “just terms” for expropriated property. There is little history of expropriation in Australia.
Bankruptcy is a legal status conferred under the Bankruptcy Act 1966 and operates in all of Australia’s states and territories. Only individuals can be made bankrupt, not businesses or companies. Where there is a partnership or person trading under a business name, it is the individual or individuals who make up that firm that are made bankrupt. Companies cannot become bankrupt under the Bankruptcy Act though similar provisions (called “administration and winding up”) exist under the Corporations Act 2001. Bankruptcy is not a criminal offense in Australia.
Creditor rights are established under the Bankruptcy Act 1966, the Corporations Act 2001, and the more recent Insolvency Law Reform Act 2016. The latter legislation commenced in two tranches over 2017 and aims to increase the efficiency of insolvency administrations, improve communications between parties, increase the corporate regulator’s oversight of the insolvency market, and “improve overall consumer confidence in the professionalism and competence of insolvency practitioners.” Under the combined legislation, creditors have the right to: request information during the administration process; give direction to a liquidator or trustee; appoint a liquidator to review the current appointee’s remuneration; and remove a liquidator and appoint a replacement.
The Australian parliament passed the Corporations Amendment (Corporation Insolvency Reforms) Act 2020 in December 2020. The legislation is a response to the economic impacts of the COVID-19 pandemic and is designed to both assist viable businesses remain solvent and simplify the liquidation process for insolvent businesses. The new insolvency process under this legislation came into effect in January 2021.
Australia ranks 20th globally on the World Bank’s Doing Business Report “resolving insolvency” measure.
Austria has a well-developed market economy that welcomes foreign direct investment, particularly in technology and R&D. The country benefits from a skilled labor force, and a high standard of living, with its capital, Vienna, consistently placing at the top of global quality-of-life rankings.
With more than 50 percent of its GDP derived from exports, Austria’s economy is closely tied to other EU economies, especially that of Germany, its largest trading partner. The United States is one of Austria’s top two-way trading partners, ranking fifth in overall trade according to provisional data from 2021. The economy features a large service sector and an advanced industrial sector specialized in high-quality component parts, especially for vehicles. The agricultural sector is small but highly developed.
The COVID-19 crisis deeply affected Austria’s economy, contributing to a GDP decrease of 6.7% in 2020 with the unemployment rate increasing to a peak of 5.4% at the end of 2020. Austria’s economy rebounded with 4.5% GDP growth in 2021 and unemployment lower than before the onset of the pandemic, but forecasters recently lowered expectations to 3.8% growth for 2022 due to instability stemming from Russia’s invasion of Ukraine. At the same time, Austria is experiencing a record number of vacancies, largely stemming from a shortage of skilled labor.
The country’s location between Western European industrialized nations and growth markets in Central, Eastern, and Southeastern Europe (CESEE) has led to a high degree of economic, social, and political integration with fellow European Union (EU) member states and the CESEE.
Some 220 U.S. companies have investments in Austria, represented by around 300 subsidiaries, and many have expanded their original investment over time. U.S. Foreign Direct Investment into Austria totaled approximately EUR 11.6 billion (USD 13.7 billion) in 2020, according to the Austrian National Bank, and U.S. companies support over 16,500 jobs in Austria. Austria offers a stable and attractive climate for foreign investors.
The most positive aspects of Austria’s investment climate include:
Relatively high political stability;
Harmonious labor-management relations and low incidence of labor unrest;
Highly skilled workforce;
High levels of productivity and international competitiveness;
Excellent quality of life for employees and high-quality health, telecommunications, and energy infrastructure.
Negative aspects of Austria’s investment climate include:
A high overall tax burden;
A large public sector and a complex regulatory system with extensive bureaucracy;
Low-to-moderate innovation dynamics;
Low levels of digitalization;
Low levels of private venture capital.
Key sectors that have historically attracted significant investment in Austria:
ICT and Electronics;
Key issues to watch:
Due to a strong reliance on Russian natural gas and the third-highest banking exposure to Russia among EU Member States, Austria could be one of the hardest countries hit by sanctions against Russia. Russia’s invasion of Ukraine and sanctions are expected to cause a 0.4-0.5% decrease in Austria’s GDP. However, the impact is likely to be greater if natural gas supplies are disrupted. Austria relies on Russian imports for approximately 80% of its natural gas demand.
At the same time, Austria’s export-oriented economy makes it particularly sensitive to events affecting trade, which could include potential setbacks in the pandemic, particularly during the winter months. The tourism sector, which, together with hotels and restaurants, accounts for 15 percent of the country’s GDP is still struggling, currently operating at two-thirds of its pre-crisis output levels. Many companies are also struggling to find skilled labor, which is hindering the economy from reaching its full output potential.
1. Openness To, and Restrictions Upon, Foreign Investment
The Austrian government welcomes foreign direct investment, particularly when such investments have the potential to create new jobs, support advanced technology fields, promote capital-intensive industries, and enhance links to research and development.
There are limited restrictions on foreign investment. American investors have not complained of discriminatory laws against foreign investors. Austria’s investment screening law, which requires government approval of transactions leading to 10 percent or more foreign ownership in sensitive sectors, has resulted in an increase in the number of investments screened, from less than three per year, to 50 completed screenings from July 2020 to July 2021, the first full year law has been in effect. The majority of these screenings (31 in total) were for U.S.-based investments. Please see the “Laws and Regulations on Foreign Investment” section below for further details on the law and its applications.
The corporate tax rate, a 25 percent flat tax, is above the EU average. The government is planning to reduce it to 24 percent in 2023 and 23 percent in 2024. U.S. citizens and investors have occasionally reported that it is difficult to establish and maintain banking services since the U.S.-Austria Foreign Account Tax Compliance Act (FATCA) Agreement went into force in 2014, as some Austrian banks have been reluctant to take on this reporting burden.
Potential investors should also be aware of Austria’s lengthy environmental impact assessments in their investment decision-making. Some sectors also suffer from heavy regulation that may affect certain investments. For example, the requirement that over 50 percent of energy providers must be publicly owned places a potential cap on investments in the energy sector. Strict liability and co-existence regulations in the agriculture sector restrict research and virtually outlaw the cultivation, marketing, or distribution of biotechnology crops. The mining and transportation sectors are also heavily regulated.
Austria’s national investment promotion organization, the Austrian Business Agency (ABA), is a useful first point of contact for foreign companies interested in establishing operations in Austria. It provides comprehensive information about Austria as a business location, identifies suitable sites for greenfield investments, and consults in setting up a company. ABA provides its services free of charge.
The Austrian Economic Chamber (WKO) and the American Chamber of Commerce in Austria (Amcham) are also good resources for foreign investors. Both conduct annual polls of their members to measure their satisfaction with the business climate, thus providing early warning to the government of problems identified by investors.
There is no principal limitation on establishing and owning a business in Austria. A local managing director must be appointed to any newly established enterprise. For non-EU citizens to establish and own a business, the Austrian Foreigner’s Law mandates a residence permit that includes the right to run a business. Many Austrian trades are regulated, and the right to run a business in regulated trade sectors is only granted when certain preconditions are met, such as certificates of competence, and recognition of foreign education.
There are limited restrictions on foreign ownership of private businesses. Austria’s investment screening law, requires an investment screening process to review potential foreign acquisitions of 25 percent or more of a company essential to the country’s infrastructure, lowering the threshold to 10 percent for sensitive sectors (see the “Laws and Regulations on Foreign Investment” section below for further details). In April 2019, the EU Regulation on establishing a framework for the screening of foreign direct investments into the Union entered into force. It creates a cooperation mechanism through which EU countries and the European Commission will exchange information and raise concerns related to specific investments which could potentially threaten the security of EU countries.
The American Chamber of Commerce (AmCham) commented on Austria’s strengthened investment screening law following implementation in 2020, that the two-month screening process takes too long and places an undue administrative burden on companies. The AmCham advocated for expedited screenings for proposed investments with no clear threat to national security. Business interest groups, such as the Austrian Economic Chamber and the Federation of Austrian Industries also commented during the legislation’s draft and review process that the strengthened screening measures would impose an undue administrative burden on businesses, the definition of sectors requiring screening was too wide, and the updated legislation would reduce the attractiveness of Austria as an investment location.
Austria generally ranked in the top 30 countries in the world in the past World Bank “Ease of Doing Business” reports, but starting a business takes time. The average time to set up a company is 21 days, while the average time in OECD high income countries is 9.2 days.
To register a new company or open a subsidiary in Austria, a company must first be listed on the Austrian Companies Register at a local court. The next step is to seek confirmation of registration from the Austrian Economic Chamber (WKO) establishing that the company is really a new business. The investor must then notarize the “declaration of establishment,” deposit a minimum capital requirement with an Austrian bank, register with the tax office, register with the district trade authority, register employees for social security, and register with the municipality where the business will be located. Finally, membership in the WKO is mandatory for all businesses in Austria.
For sole proprietorships, it is possible under certain conditions to use an online registration process via government websites in German to either found or register a company: https://www.usp.gv.at/Portal.Node/usp/public/content/gruendung/egruendung/269403.html, or www.gisa.gv.at/online-gewerbeanmeldung. It is advisable to seek information from ABA or the WKO before applying to register a firm.
The website of the ABA contains further details and contact information and is intended to serve as a first point of contact for foreign investors in Austria: https://investinaustria.at/en/starting-business/.
The Austrian government encourages outward investment. Advantage Austria, the “Austrian Foreign Trade Service,” is a special section of the WKO that promotes Austrian exports and also supports Austrian companies establishing an overseas presence. Advantage Austria operates five offices in the United States (Washington D.C., New York, Atlanta, Los Angeles, and San Francisco). Overall, it has about 100 trade offices in 70 countries across the world, reflecting Austria’s strong export focus and the important role the WKO plays. (https://www.wko.at/service/aussenwirtschaft/aussenwirtschaftscenter.html#heading_aussenwirtschaftscenter) The Ministry for Digital and Economic Affairs and the WKO run a joint program called “Go International,” providing services to Austrian companies that are considering investing for the first time in foreign countries. The program provides grants for market access costs and provides “soft subsidies,” such as counseling, legal advice, and marketing support.
3. Legal Regime
Austria’s legal, regulatory, and accounting systems are transparent and consistent with international norms. The government does not provide assistance in distinguishing between high- and low-quality investments, leaving this up to the market.
Federal ministries generally publish draft laws and regulations, including investment laws, for public comment prior to their adoption by Austria’s cabinet and/or Parliament. Relevant stakeholders such as the “Social Partners” (Economic Chamber, Agricultural Chamber, Labor Chamber, and Trade Union Association), the Federation of Industries, and research institutions are invited to provide comments and suggestions on draft laws and regulations, directly online, which may be taken into account before adoption of laws. These comments are publicly available. Austria’s nine provinces can also adopt laws relevant to investments; their review processes are generally less extensive, but local laws are less important for investments than federal laws. The judicial system is independent from the executive branch, helping ensure the government follows administrative processes. The government is required to follow administrative processes and its compliance is monitored by the courts, primarily the Court of Auditors. Individuals can file proceedings against the government in Austria’s courts, if the government did not act in accordance with the law. Similarly, the public prosecution service can file cases against the government.
Draft legislation by ministries (“Ministerialentwürfe”) and resulting government draft laws and parliamentary initiatives (“Regierungsvorlagen und Gesetzesinitiativen”) can be accessed through the website of the Austrian Parliament: https://www.parlament.gv.at/PAKT/ (all in German). The parliament also publishes a history of all law-making processes. All final Austrian laws can be accessed through a government database, partly in English: https://www.ris.bka.gv.at/defaultEn.aspx.
The effectiveness of regulations is not reviewed as a regular process, only on an as-needed basis. Austrian regulations governing accounting provide U.S. investors with internationally standardized financial information. In line with EU regulations, listed companies must prepare their consolidated financial statements according to the International Financial Reporting Standards (IAS/IFRS) system.
Public finances are transparent and easily accessible, through the Finance Ministry’s website, Austria’s Central Bank, and various economic research institutes. Overall, Austria has no legal restrictions, formally or informally, that discriminate against foreign investors.
Austria is a member of the EU. As such, its laws must comply with EU legislation and the country is therefore subject to European Court of Justice (ECJ) jurisdiction. Austria is a member of the WTO and largely follows WTO requirements. Austria has ratified the Trade Facilitation Agreement (TFA) but has not taken specific actions to implement it.
The Austrian legal system is based on Roman law. The constitution establishes a hierarchy, according to which each legislative act (law, regulation, decision, and fines) must have its legal basis in a higher legislative instrument. The full text of each legislative act is available online for reference. All final Austrian laws can be accessed through a government database, partly in English: https://www.ris.bka.gv.at/defaultEn.aspx.
Commercial matters fall within the competence of ordinary regional courts except in Vienna, which has a specialized Commercial Court. The Commercial Court also has nationwide competence for trademark, design, model, and patent matters. There is no special treatment of foreign investors, and the executive branch does not interfere in judicial matters.
The legal system provides an effective means for protecting property and contractual rights of nationals and foreigners. Sensitive cases must be reported to the Ministry of Justice, which can issue instructions for addressing them. Austria’s civil courts enforce property and contractual rights and do not discriminate against foreign investors. Austria allows for court decisions to be appealed, first to a Regional Court and in the last instance, to the Supreme Court.
Austria has restrictions on investments in industries designated as critical infrastructure, technology, resources, and industries with access to sensitive information and involved in freedom and plurality of the media. The government must approve any foreign acquisition of a 25 percent or higher stake in any companies that generally fall within these areas. The threshold is 10 percent for sensitive sectors, defined as military goods and technology, operators of critical energy or digital infrastructure and water, system operators charged with guarding Austria’s data sovereignty and R&D in medicine and pharmaceutical products. Additional screenings are required when an investor in the above categories plans to increase the stake above the thresholds of 25 percent or 50 percent. The investment screening review period generally takes 2 months. The number of filed applications has increased significantly since the law was implemented, from three per year to 50 completed screenings in the first 12 months after the updated investment screening law went into effect (from July 2020 to July 2021). None of the completed screenings were rejected, and two were approved with amendments to safeguard domestic supply of the product/service in question.
There is no discrimination against foreign investors, but businesses are required to follow numerous local regulations. Although there is no requirement for participation by Austrian citizens in ownership or management of a foreign firm, at least one manager must meet Austrian residency and other legal requirements. Expatriates may deduct certain expenses (costs associated with moving, maintaining a double residence, education of children) from Austrian-earned income.
The “Law to Support Investments in Municipalities” (published in the Federal Law Gazette, 74/2017, available online in German only on the federal legal information system www.ris.bka.gv.at), allows federal funding of up to 25 percent of the total investment amount of a project to “modernize” a municipality. The Austrian Business Agency serves as a central contact point for companies looking to invest in Austria. It does not serve as a one-stop-shop but can help answer any questions potential investors may have (https://investinaustria.at/en/).
Austria’s Antitrust Act (ATA) is in line with European Union antitrust regulations, which take precedence over national regulations in cases concerning Austria and other EU member states. The Austrian Antitrust Act prohibits cartels, anticompetitive practices, and the abuse of a dominant market position. The independent Federal Competition Authority (FCA) and the Federal Antitrust Prosecutor (FAP) are responsible for administering antitrust laws. The FCA can conduct investigations and request information from firms. The FAP is subject to instructions issued by the Justice Ministry and can bring actions before Austria’s Cartel Court. Additionally, the Commission on Competition may issue expert opinions on competition policy and give recommendations on notified mergers. The most recent amendment to the ATA was in 2017. This amendment facilitated enforcing private damage claims, strengthened merger control, and enabled appeals against verdicts from the Cartel Court.
Companies must inform the FCA of mergers and acquisitions (M&A). Special M&A regulations apply to media enterprises, such as a lower threshold above which the ATA applies, and the requirement that media diversity must be maintained. A cartel court is competent to rule on referrals from the FCA or the FCP. For violations of antitrust regulations, the cartel court can impose fines of up to the equivalent of 10 percent of a company’s annual worldwide sales. The independent energy regulator E-Control separately examines antitrust concerns in the energy sector but must also submit cases to the cartel court.
Austria’s Takeover Law applies to friendly and hostile takeovers of corporations headquartered in Austria and listed on the Vienna Stock Exchange. The law protects investors against unfair practices, since any shareholder obtaining a controlling stake in a corporation (30 percent or more in direct or indirect control of a company’s voting shares) must offer to buy out smaller shareholders at a defined fair market price. The law also includes provisions for shareholders who passively obtain a controlling stake in a company. The law prohibits defensive action to frustrate bids. The Shareholder Exclusion Act allows a primary shareholder with at least 90 percent of capital stock to force out minority shareholders. An independent takeover commission at the Vienna Stock Exchange oversees compliance with these laws. Austrian courts have also held that shareholders owe a duty of loyalty to each other and must consider the interests of fellow shareholders in good faith.
According to the European Convention on Human Rights and the Austrian Civil Code, property ownership is guaranteed in Austria. Expropriation of private property in Austria is rare and may be undertaken by federal or provincial government authorities only based on special legal authorization “in the public interest” in such instances as land use planning, and infrastructure project preparations. The government can initiate such a procedure only in the absence of any other alternatives for satisfying the public interest; when the action is exclusively in the public interest; and when the owner receives just compensation. For example, in 2017-18, the government expropriated Hitler’s birth house in order to prevent it from becoming a place of pilgrimage for neo-Nazis, paying the former owner EUR 1.5 million (USD 1.8 million) in compensation. The expropriation process is non-discriminatory toward foreigners, including U.S. firms. There is no indication that further expropriations will take place in the foreseeable future.
The Austrian Insolvency Act contains provisions for business reorganization and bankruptcy proceedings. Reorganization requires a restructuring plan and the debtor to be able to cover costs or advance some of the costs up to a maximum of EUR 4,000 (USD 4,720). The plan must offer creditors at least 20 percent of what is owed, payable within two years of the date the debtor’s obligation is determined. The plan must be approved by a majority of all creditors and a majority of creditors holding at least 50 percent of all claims.
If the restructuring plan is not accepted, a bankruptcy proceeding is begun. Bankruptcy proceedings take place in court upon application of the debtor or a creditor; the court appoints a receiver for winding down the business and distributing proceeds to the creditors. Bankruptcy is not criminalized, provided the affected person performed all his documentation and reporting obligations on time and in accordance with the law.
Austria’s major commercial association for the protection of creditors in cases of bankruptcy is the “KSV 1870 Group”, www.ksv.at, which also carries out credit assessments of all companies located in Austria. Other European-wide credit bureaus, particularly “CRIF” and “Bisnode”, also monitor the Austrian market.
The overall investment climate in Azerbaijan continues to improve, although significant challenges remain. Azerbaijan’s government has sought to attract foreign investment, undertake reforms to diversify its economy, and stimulate private sector-led growth. The Azerbaijani economy, however, remains heavily dependent on oil and gas output, which account for roughly 88 percent of export revenue and over half of the state budget. The economy of Azerbaijan grew 5.6% year-on-year in 2021, compared to a 4.3% contraction in the previous year. Both oil and gas (1.7%) and the non-oil and gas (7.2%) sectors of the economy expanded as the economy continued to recover from the pandemic. While the oil and gas sector has historically attracted the largest share of foreign investment, the Azerbaijani government has targeted four non-oil sectors to diversify the economy: agriculture, tourism, information and communications technology (ICT), and transportation/logistics. Measures taken in recent years to improve the business climate and reform the overall economy include eliminating redundant business license categories, empowering the popular “Azerbaijan Service and Assessment Network (ASAN)” government service centers with licensing authority, simplifying customs procedures, suspending certain business inspections, and reforming the tax regime.
Community spread of COVID-19 is occurring in Azerbaijan, and COVID-19 infections are present in all regions the country. The special quarantine regime was extended until May 1, 2022, according to a February 2022 decision by Azerbaijan’s Cabinet of Ministers. Masks are no longer required in outdoor spaces but remain obligatory indoors. In 2021, Azerbaijan allocated AZN 800.8 million (USD 471 million) from the state budget to support COVID-19 mitigation measures, including vaccine purchases, bonus payments to healthcare workers, and the operation of modular hospitals.
Despite substantial efforts to open the business environment, progress remains slow on structural reforms required to create a diversified and competitive private sector, and corruption remains a major challenge for firms operating in Azerbaijan. A small group of government-connected holding companies dominates the economy, intellectual property rights enforcement is improving but remains insufficient, and judicial transparency is lacking.
Under Azerbaijani law, foreign investments enjoy complete and unreserved legal protection and may not be nationalized or appropriated, except under specific circumstances. Private entities may freely establish, acquire, and dispose of interests in business enterprises. Foreign citizens, organizations, and enterprises may lease, but not own, land. Azerbaijan’s government has not shown any pattern of discriminating against U.S. persons or entities through illegal expropriation. The Bilateral Investment Treaty (BIT) between the United States and Azerbaijan provides U.S. investors with recourse to settle investment disputes using the International Center for the Settlement of Investment Disputes (ICSID). The average time needed to resolve international business disputes through domestic courts or alternative dispute resolution varies widely.
Following the release in November of a tripartite ceasefire declaration by Armenia, Azerbaijan, and Russia, which brought an end to the fall 2020 intensive fighting in the Nagorno-Karabakh conflict, the Azerbaijani government is seeking new investments in the territories around Nagorno-Karabakh that were previously under the control of Armenian-backed separatists. Azerbaijan’s 2022 budget includes an allocation of AZN 2.2 billion (USD 1.3 billion) for the restoration and reconstruction of these territories. These funds will be reportedly used to restore road infrastructure, electricity, gas, water, communications infrastructure, and the education and healthcare sectors, along with the restoration of cultural and historical monuments. The government is also pursuing green energy projects in this region. Reconstruction is expected to continue over the coming years, along with continued special budget allocations provided for rebuilding and resettling these territories. Demining these territories as part of reconstruction efforts remains a priority of the Azerbaijani government.
1. Openness To, and Restrictions Upon, Foreign Investment
The Azerbaijani government actively seeks foreign direct investment. Flows of foreign direct investment to Azerbaijan have risen steadily in recent years, primarily in the energy sector. Foreign investment in the government’s priority sectors for economic diversification (agriculture, transportation, tourism, and ICT) has thus far been limited.
Foreign investments enjoy complete and unreserved legal protection under the Law on the Protection of Foreign Investment, the Law on Investment Activity, and guarantees contained within international agreements and treaties. In accordance with these laws, Azerbaijan will treat foreign investors, including foreign partners in joint ventures, in a manner no less favorable than the treatment accorded to national investors. Azerbaijan’s Law on the Protection of Foreign Investments protects foreign investors against nationalization and requisition, except under specific circumstances. The Azerbaijani government has not shown any pattern of discriminating against U.S. persons or entities through illegal expropriation.
Azerbaijan’s primary body responsible for investment promotion is the Azerbaijan Export and Investment Promotion Agency (AzPromo). AzPromo is a joint public-private initiative, established by the Ministry of Economy and Industry in 2003 to foster the country’s economic development and diversification by attracting foreign investment into the non-oil sector and stimulating non-oil exports. A January 2018 decree called for new legislation, which has not yet been introduced, to ensure Azerbaijan conforms to international standards to protect foreign investor rights. The Azerbaijani government meets regularly with the American Chamber of Commerce (AmCham) to solicit the input from the business community, particularly as part of AmCham’s biennial white paper process. In June 2021, AmCham Azerbaijan organized a press conference for publicly presenting subsequent publication of its White Paper on observations and recommendations for improving Azerbaijan’s business climate. The 2021 White Paper covered issues in several fields, including taxation, customs procedures, finance, and information and communications technology.
Foreigners are allowed to register business entities by opening a fully owned subsidiary, acquiring shares of an existing company, or by creating a joint venture with a local partner. Foreign companies are also permitted to operate in Azerbaijan without creating a local legal entity by registering a representative or branch office with the tax authorities.
Foreigners are not permitted to own land in Azerbaijan but are permitted to lease land and own real estate. Under Azerbaijani laws, the state must retain a controlling stake in companies operating in the mining, oil and gas, satellite communication, and military arms sectors, limiting foreign or domestic private ownership to a 49 percent share of companies in these industries. Foreign ownership in the media sector is also strictly limited. Furthermore, a special license to conduct business is required for foreign or domestic companies operating in telecommunications, sea and air transportation, insurance, and other regulated industries. Azerbaijan does not screen inbound foreign investment, and U.S. investors are not specifically disadvantaged by any existing control mechanisms.
Azerbaijan has not conducted an Organization for Economic Cooperation and Development (OECD) investment policy review, a United Nations Conference on Trade and Development (UNCTAD) investment policy review, or a WTO Trade Policy Review.
Azerbaijani law requires all companies operating in the country to register with the tax authorities. Without formal registration, a company may not maintain a bank account or clear goods through customs. Registration takes approximately three days for commercial organizations. Companies may e-register at http://taxes.gov.az.
Azerbaijan does not actively promote or incentivize outward investment, though Azerbaijani entities, particularly the State Oil Company of Azerbaijan (SOCAR) and the State Oil Fund of Azerbaijan (SOFAZ), have invested in various countries, including the United States. SOFAZ investment is typically limited to real estate, precious metals, and low-yield government securities. SOCAR has invested heavily in oil and gas infrastructure and petrochemicals processing in Turkey and Georgia, as well as gas pipeline networks in Greece, Albania, and Italy as part of the Southern Gas Corridor that transports Azerbaijani gas to European markets. The government does not restrict domestic investors from investing overseas.
3. Legal Regime
Azerbaijan’s central government is the primary source of regulations relevant to foreign businesses. Azerbaijan’s regulatory system has improved in recent years, although enforcement is inconsistent, and decision-making remains opaque. Private sector associations do not play a significant role in regulatory processes. The draft legislation process typically does not include public consultations and draft legislation text is rarely made available for public comment. The government has in some cases engaged business organizations, such as AmCham, and consulting firms on various draft laws. The website of Azerbaijan’s National Parliament, http://meclis.gov.az/ lists all the country’s laws, but only in the Azerbaijani language.
Legal entities in Azerbaijan must adhere to the International Financial Reporting Standards (IFRS). These are only obligatory for large companies. Medium-sized companies can choose between reporting based on IFRS or IFRS-SME standards, which are specially designed for large and medium enterprises. Small and micro enterprises can choose between reporting based on IFRS, IFRS-SME, or simplified accounting procedures established by the Finance Ministry.
Several U.S. companies with operations and investments in Azerbaijan previously reported they had been subjected to repeated tax audits, requests for prepayment of taxes, and court-imposed fines for violations of the tax code. These allegations have markedly decreased since 2017.
On October 19, 2015, Azerbaijan suspended inspections of entrepreneurs for two years, but inspections still may occur if a complaint is lodged. This suspension was subsequently extended through January 1, 2023. Medicine quality and safety, taxes, customs, financial markets, food safety, fire safety, construction and safe usage of hazardous facilities, radioactive substances, and mining fields are not subject to this suspension order and are inspected for quality and safety.
The government has also simplified its licensing regime. All licenses are now issued with indefinite validity through ASAN service centers and must be issued within 10 days of application. The Economy Ministry also reduced the number of activities requiring a license from 60 to 32.
Azerbaijan has held observer status at the World Trade Organization (WTO) since 1997 but has not made significant progress toward joining the WTO for the past several years. A working party on Azerbaijan’s succession to the WTO was established on July 16, 1997 and Azerbaijan began negotiations with WTO members in 2004. The WTO Secretariat reports Azerbaijan is less than a quarter of the way to full membership. In 2016, Azerbaijan imposed higher tariffs on a number of imported goods, including agricultural products, to promote domestic production and reduce imports. In February 2020, Azerbaijani President Ilham Aliyev made public remarks outlining Azerbaijan’s “cautious” approach to the WTO, saying that “the time [had] not come” for Azerbaijan’s membership. Currently, Azerbaijan is negotiating bilateral market access with 19 economies.
Azerbaijan’s legal system is based on civil law. Disputes or disagreements arising between foreign investors and enterprises with foreign investment, Azerbaijani state bodies and/or enterprises, and other Azerbaijani legal entities, are to be settled in the Azerbaijani court system or, upon agreement between the parties, in a court of arbitration, including international arbitration bodies. The judiciary consists of the Constitutional Court of the Republic of Azerbaijan, the Supreme Court of the Republic of Azerbaijan, the appellate courts of the Republic of Azerbaijan, trial courts, and other specialized courts. Trial court judgments may be appealed in appellate courts and the judgments of appellate courts can be appealed in the Supreme Court. The Supreme Court is the highest court in the country. Under the Civil Procedure Code of Azerbaijan, appellate court judgments are published within three days of issuance or within ten days in exceptional circumstances. The Constitutional Court has the authority to review laws and court judgments for compliance with the constitution.
Businesses report problems with the reliability and independence of judicial processes in Azerbaijan. While the government promotes foreign investment and the law guarantees national treatment, in practice investment disputes can arise when a foreign investor or trader’s success threatens well-connected or favored local interests.
Foreign investment in Azerbaijan is regulated by a number of international treaties and agreements, as well as domestic legislation. These include the Bilateral Investment Treaty (BIT) between the United States and Azerbaijan, the Azerbaijan-European Commission Cooperation Agreement, the Law on Protection of Foreign Investment, the Law on Investment Activity, the Law on Investment Funds, the Law on Privatization of State Property, the Second Program for Privatization of State Property, and sector-specific legislation. Azerbaijani law permits foreign direct investment in any activity in which a national investor may also invest, unless otherwise prohibited (see “Limits on Foreign Control and Right to Private Ownership and Establishment” for further information).
A January 2018 Presidential decree called for drafting a new law on investment activities to conform to international standards. The decree also established mechanisms to protect investor rights and regulate damages, including lost profit caused to investors. The details of the proposed new law have not been publicized as of April 2022.
The State Service for Antimonopoly Policy and Consumer Protection under the Economy Ministry is responsible for implementing competition-related policy. The law on Antimonopoly Activity was amended in April 2016 to introduce regulations on price fixing and other anti-competitive behavior. Parliament began revising a new version of the Competition Code in late 2014, but it has not yet been adopted. Azerbaijan’s antimonopoly legislation does not constrain the size or scope of the handful of large holding companies that dominate the non-oil economy.
The Law on the Protection of Foreign Investments forbids nationalization and requisition of foreign investment, except under certain circumstances. Nationalization of property can occur when authorized by parliamentary resolution, although there have been no known cases of official nationalization or requisition against foreign firms in Azerbaijan. By a decision of the Cabinet of Ministers, requisition is possible in the event of natural disaster, an epidemic, or other extraordinary situation. In the event of nationalization or requisition, foreign investors are legally entitled to prompt, effective, and adequate compensation. Amendments made to Azerbaijan’s Constitution in September 2016 enabled authorities to expropriate private property when necessary for social justice and effective use of land. In one recent case U.S. citizen property owners were pressured by local authorities to relinquish property rights at rates perceived to be well below fair market value. The case has not yet been tested in the courts and the owners maintained their property, resisting government communications regarding an imminent takeover and indicating that the attempted expropriation was not being lawfully carried out under the terms of the Bilateral Investment Treaty or Azerbaijani law. The Azerbaijani government has not shown any pattern of discriminating against U.S. persons by way of direct expropriations.
Azerbaijan’s Bankruptcy Law applies only to legal entities and entrepreneurs, not to private individuals. Either a debtor facing insolvency or any creditor may initiate bankruptcy proceedings. In general, the legislation focuses on liquidation procedures. The bankruptcy law in Azerbaijan is underdeveloped, which restricts private sector economic development by deterring entrepreneurship. Amendments to Azerbaijan’s bankruptcy law adopted in 2017 extended the obligations of bankruptcy administrators and defined new rights for creditors.
The investment climate in the Kingdom of Bahrain is positive and relatively stable. Bahrain maintains a business-friendly attitude and liberal approach to attracting foreign investment and business.
In an economy dominated by state-owned enterprises (SOE), Bahrain aims to foster a greater role for the private sector to promote economic growth. Government of Bahrain (GOB) efforts focus on encouraging foreign direct investment (FDI) in the manufacturing, logistics, information and communications technology (ICT), financial services, tourism, health, and education sectors.
Bahrain’s total FDI stock reached BD 11.537 billion ($30.683 billion) in 2020. Annual FDI inflows dropped from BD 603 million ($1.6 billion) in 2018 to BD 355 million ($942 million) in 2019 and BD 333 million ($885 million) in 2020. The financial services, manufacturing, logistics, education, healthcare, real estate, tourism, and ICT sectors have attracted the majority of Bahrain’s FDI.
Bahrain’s economy saw a major recovery in 2021, following the slowdown of the COVID-19 pandemic, and the rise in global oil prices. In addition, the continuity of some key provisions from the BD 4.3 billion ($11.4 billion) financial relief package, that was launched in 2020 to help support businesses and individuals, helped boost Bahrain’s revenues and economic growth.
In November 2021, the government announced a new economic recovery plan focused on five pillars: (1) creating quality jobs for citizens; (2) streamlining commercial procedures to attract $2.5 billion in yearly FDI by 2025; (3) launching $30 billion in major strategic projects; (4) developing strategic priority sectors; and (5) achieving fiscal sustainability and economic stability, including by extending Bahrain’s Fiscal Balance Program to 2024. Since then, the government has released detailed development strategies for the industrial, tourism, financial services, oil and gas, telecommunications and logistics sectors and identified 22 signature infrastructure projects, including the creation of five new island cities, that will stimulate post-pandemic growth and drive the economic recovery plan. The government has not identified funding sources to finance these projects or its sector modernization strategies.
Bahrain’s Vision 2030 outlines measures to protect the natural environment, reduce carbon emissions, minimize pollution, and promote sustainable energy. Bahrain’s Sustainable Energy Authority (SEA), within the Ministry of Electricity and Water Affairs, designs energy efficiency policies and promotes renewable energy technologies that support Bahrain’s long-term climate action and environmental protection ambitions. Endorsed by Bahrain’s Cabinet and monitored by SEA, the National Energy Efficiency Action Plan (NEEAP) and the National Renewable Energy Action Plan (NREAP) set national energy efficiency and national renewable energy 2025 targets of 6 and 5 percent, respectively, with the NREAP target increasing to 10 percent by 2035.
To strengthen Bahrain’s position as a regional startup hub and to enhance its investment ecosystem, the GOB launched Bahrain FinTech Bay in 2018; issued new pro-business laws; and established several funds to encourage start-up investments including the $100 million Al Waha Fund of Funds and the Hope Fund to support startup growth. Since 2017, the Central Bank of Bahrain (CBB) has operated a financial technology regulatory sandbox to enable startups in Bahrain, including cryptocurrency and blockchain technologies, and regulate conventional and Sharia-compliant businesses.
The U.S.-Bahrain Bilateral Investment Treaty (BIT) entered into force in 2001 and protects U.S. investors in Bahrain by providing most-favored nation treatment and national treatment, the right to make financial transfers freely and without delay, international law standards for expropriation and compensation cases, and access to international arbitration.
Bahrain permits 100 percent foreign ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without Bahraini sponsors or local partners. In 2017, the GOB expanded the number of sectors in which foreigners are permitted to maintain 100 percent ownership in companies to include tourism services, sporting events production, mining and quarrying, real estate, water distribution, water transport operations, and crop cultivation and propagation. In May 2019, the GOB loosened foreign ownership restrictions in the oil and gas sector, allowing 100 percent foreign ownership in oil and gas extraction projects under certain conditions.
The U.S.-Bahrain Free Trade Agreement (FTA) entered into force in 2006. Under the FTA, Bahrain committed to world-class Intellectual Property Rights (IPR) protection.
Despite the GOB’s transparent, rules-based government procurement system, U.S. companies sometimes report operating at a disadvantage compared with other firms. Many ministries require firms to maintain a local commercial registration or pre-qualify prior to bidding on a local tender, often rendering firms with little or no prior experience in Bahrain ineligible to bid on major tenders.
In February 2022, Bahrain’s Ministry of Industry, Commerce, and Tourism broke ground on the United States Trade Zone (USTZ) to incentivize U.S. companies to build out full turnkey industrial manufacturing, logistics, and distribution facilities in Bahrain to access the wider GCC market.
1. Openness To, and Restrictions Upon, Foreign Investment
The GOB has a liberal approach to foreign investment and actively seeks to attract foreign investors and businesses. Increasing FDI is a top GOB priority. The GOB permits 100 percent foreign ownership of a business or branch office, without the need for a sponsor or local business partner. The GOB does not tax corporate income, personal income, wealth, capital gains, withholding or death/inheritance. There are no restrictions on repatriation of capital, profits or dividends, aside from income generated by companies in the oil and gas sector, where profits are taxable at the rate of 46 percent. Bahrain Economic Development Board (EDB), charged with promoting FDI in Bahrain, places particular emphasis on attracting FDI to the manufacturing, logistics, ICT, financial services, tourism, health, and education sectors. As a reflection of Bahrain’s openness to FDI, the EDB won the 2019 United Nations Top Investment Promotion Agency in the Middle East award for its role in attracting large-scale investments. U.S. investors have never alleged any legal or practical discrimination against them based on nationality.
In January 2021, the U.S. Commerce Secretary and the Bahraini Commerce Minister signed an MOU to establish the United States Trade Zone (USTZ) in Bahrain. Located near Bahrain’s critical port, aviation, and logistics facilities, the USTZ will enable U.S. companies to own and operate full turnkey industrial manufacturing, logistics, and distribution facilities in a unified commercial zone in order to access the wider GCC market. In February 2022, the Bahraini government allocated a small land plot and organized an expedited groundbreaking ceremony to formally open the USTZ to accommodate initial U.S. company interest. The Bahraini government must now tender out dredging and other construction services to reclaim land from the sea before building out the bulk of the USTZ’s infrastructure, which could take up to three years.
The GOB permits foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity. The GOB imposes only minimal limits on foreign control, and the right of ownership and establishment of a business. The Ministry of Industry, Commerce, and Tourism (MoICT) maintains a small list of business activities that are restricted to Bahraini ownership, including press and publications, Islamic pilgrimage, clearance offices – such as expeditors and document clearance companies — and workforce agencies. The U.S.-Bahrain FTA outlines all activities in which the two countries restrict foreign ownership.
U.S citizens may own and operate companies in Bahrain, though many such individuals choose to integrate influential local partners into the ownership structure to facilitate quicker resolution of bureaucratic issues such as labor permits, issuance of foreign visas, and access to industrial zones. The most common challenges faced by U.S firms are those related to bureaucratic government processes, lack of market information, customs clearance, and preregistration requirements to bid on local tenders.
The World Trade Organization (WTO) conducted a Trade Policy Review of Bahrain in November 2021.
Bahrain ranked 43 out of 190 countries on the World Bank’s overall Ease of Doing Business Indicator in 2020.
The CBB’s regulatory sandbox allows local and international FinTech firms and digitally focused financial institutions to test innovative solutions in a regulated environment, allowing successful firms to obtain licensing upon successful product application.
The MoICT operates the online commercial registration portal “Sijilat” (www.sijilat.bh) to facilitate the commercial registration process. Through Sijilat, local and foreign business owners can obtain a business license and requisite approvals from relevant ministries. The business registration process normally takes two to three weeks, from start to finish, but can take longer if a business requires specialized approvals. In practice, some business owners retain an attorney or clearing agent to assist them through the commercial registration process.
In addition to obtaining primary approval to register a company, most business owners must also obtain licenses from the following entities to operate their businesses:
Electricity and Water Authority
The Municipality in which their business will be located
Labour Market Regulatory Authority
General Organization for Social Insurance
National Bureau for Revenue (Mandatory if the business revenue exceeds BD 37,500)
To incentivize foreign investment in Bahrain’s targeted sectors and investment zones, the GOB provides industrial lands at reduced rental rates; customs duty exemptions for industrial and manufacturing projects, including imports of raw material, plant machinery equipment, and spare parts; and a five-year exemption of the “Bahrainization” recruitment restriction.
The GOB neither promotes nor incentivizes outward investment. The GOB does not restrict domestic investors from investing abroad.
3. Legal Regime
In 2018, the GOB issued a competition law, a personal data protection law, a bankruptcy law, and a health insurance law to enhance the country’s investment eco-system. The Law of Commerce (Legislative Decree No. 7, passed in 1987) addresses the concept of unfair competition and prohibits acts that would have a damaging effect on competition. Companies also are forbidden from undertaking practices detrimental to their competitors or from attracting the customers of their competitors through anti-competitive means. There is no official competition authority in Bahrain and the country has yet to institute comprehensive anti-monopoly laws or an independent anti-corruption agency.
Bahrain’s industrial sector is dominated by state-controlled companies such as Aluminum Bahrain (ALBA), Bahrain Petroleum Company (BAPCO), and Gulf Petrochemical Industries Company (GPIC). De facto monopolies also exist in some industries led by individuals or family-run businesses.
The GOB uses International Financial Reporting Standards (IFRS) as part of its implementation of Generally Accepted Accounting Principles (GAAP). IFRS are used by domestic listed and unlisted companies in their consolidated financial statements for external financial reporting.
Bahrain adopted International Accounting Standard 1 (IAS 1) in 1994 in the absence of other local standards. Non-listed banks and other business enterprises use IASs in the preparation of financial statements.
The 2001 Bahrain Commercial Companies Law requires each registered entity to produce a balance sheet, a profit-and-loss account and the director’s report for each financial year. All branches of foreign companies, limited liability companies and corporations, must submit annual audited financial statements to the Directorate of Commerce and Company Affairs at the MoICT, along with the company’s articles and /or articles of association.
Depending on the company’s business, financial statements may be subject to other regulatory agencies such as the Bahrain Monetary Agency (BMA) and the Bahrain Stock Exchange (banks and listed companies).
Bahrain encourages firms to adhere to both the International Financial Reporting Standards (IFRS) and Bahrain’s Code of Corporate Governance. Bahrain-based companies by and large remain in compliance with IAS-1 disclosure requirements.
There are no informal regulatory processes managed by non-governmental organizations or private sector associations.
According to the World Bank, the GOB does not have the legal obligation to publish the text of proposed regulations before their enactment but bills that are discussed by Parliament may be reported in the local news. The text of the proposed regulations is publicly available one day, two weeks or thirty days after it is published in the Official Gazette. Bahrain, therefore, ranks among the countries with low rule-making transparency.
Bahrain’s laws can be drafted or proposed by the Cabinet or originate in the bicameral National Assembly, comprised of an elected, lower house Council of Representatives (COR) and an appointed, upper house Consultative Council (“Shura”). The independent Legislation and Legal Opinion Commission drafts legislation based on the proposals. The King’s signature is required to ratify any laws following parliamentary approval; laws are in force once published in the Official Gazette. The King may issue royal orders and royal decrees that are immediately effective once issued. For matters deemed urgent, the King can also decree-laws when COR is in recess. These decree-laws must be approved by both chambers with no changes within a month of the COR resuming session, or they are considered null. GOB ministers and heads of agencies are authorized to issue regulations that pertain to the administration of their respective bodies.
Bahrain is a member of the GCC, which created a Unified Economic Agreement to expedite trade and the movement of people and goods within GCC borders. The GCC has also adopted several unified model laws, such as the GCC Trademark Law. Bahrain is a signatory to the Apostille Convention and is a member of the Permanent Court of Arbitration. It is a dualist state, therefore, international treaties are not directly incorporated into its law and must be approved by the National Assembly and ratified by the King.
Commercial regulations can be proposed by the EDB, MoICT, Cabinet, or COR. Draft regulations are debated within the COR and Shura Council. The Bahrain Chamber of Commerce and Industry board of directors may raise concerns over draft legislation at committee meetings or send written comments for review by Members of Parliament; bills are otherwise not available for public comment. The Cabinet issues final approval of regulations.
The e-Government portal and the Legislation and Legal Opinion Commission website list laws by category and date of issuance. Some laws are translated into English. The National Audit Office publishes results of its annual audits of government ministries and parastatals.
As a GCC member, Bahrain has agreed to enforce GCC standards and regulations where they exist, and not to create any domestic rules that contradict established GCC-wide standards and regulations. In certain cases, the GOB applies international standards where domestic or GCC standards have not been developed. Bahrain is a member of the WTO and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. Bahrain ratified the Trade Facilitation Agreement (TFA) in September 2016 through Law No. 17 of 2016.
Bahrain’s Constitution defines the Kingdom as a sovereign, independent, Arab Muslim State. Article 2 of the Constitution states that Islamic Sharia (Islamic law) is the main source of legislation; however, general matters and private transactions are governed mainly by laws derived from international law. Three types of courts are present in Bahrain: civil, criminal, and family (Sharia) courts. The civil court system consists of lower courts, courts of appeal, and the Court of Cassation – the highest appellate court in the Kingdom, hearing a variety of civil, criminal, and family cases. Civil courts deal with all administrative, commercial, and civil cases, as well as disputes related to the personal status of non-Muslims. Family courts deal primarily with personal status matters, such as marriage, divorce, custody, and inheritance.
High-ranking judges in Bahrain are often from prominent families but may be non-Bahraini citizens. On January 19, 2022, the king appointed nine English-speaking foreign judges and legal experts to the Court of Cassation, all of whom are commercial arbitration specialists. Bahraini law borrows elements from European or other Arab states’ legal codes.
Bahrain has a long-established framework of commercial law. English is widely used, and several well-known international (including U.S.) law firms, working in association with local partners, are authorized to practice law in Bahrain and provide expert legal services nationally and regionally. Fees are charged according to internationally accepted practices. Non-Bahraini lawyers can represent clients in Bahraini courts. In April 2007, the government permitted international law firms to be established in Bahrain. These firms provide services such as commercial and financial consultancy in legal matters.
Investors report general satisfaction with government cooperation and support. Foreign competitors have occasionally perceived that legal interpretation and application varied between Ministries and was influenced by prominent local business interests or the stature and connections of an investor’s local partner. Such departures from the consistent, transparent application of regulations and the law are uncommon.
The GOB is eager to develop its legal framework. The U.S. Department of Commerce’s Commercial Law Development Program (CLDP) has conducted training and capacity-building programs in Bahrain for years, in cooperation with the National Assembly; Ministry of Justice, Islamic Affairs, and Endowments; Supreme Judicial Council; Bahrain Chamber for Dispute Resolution; Judicial and Legal Studies Institute; and MoICT.
Judgments of foreign courts are recognized and enforceable under local courts. Article nine of the U.S.-Bahrain BIT outlines the disposition of U.S. investment cases within the Bahraini legal system. The most common investment-related concern in Bahrain has been the slow or incomplete application of the law. Although some international law and human rights monitoring organizations have collected anecdotal evidence pointing to a lack of transparency, the judicial process in civil courts is generally considered fair, and cases can be appealed.
The U.S.-Bahrain BIT provides benefits and protection to U.S. investors in Bahrain, such as most-favored nation and national treatment, the right to make financial transfers freely and immediately, the application of international legal standards for expropriation and compensation cases, and access to international arbitration. The BIT guarantees national treatment for U.S. investments across most sectors, with exceptions of a limited list of activities, including ownership of television, radio or other media, fisheries, real estate brokerages, and land transportation. Bahrain provides most-favored nation or national treatment status to U.S. investments in air transportation, the purchase or ownership of land, and the purchase or ownership of shares traded on the Bahrain Bourse.
The national treatment clause in the BIT ensures American firms interested in selling products exclusively in Bahrain are no longer required to appoint a commercial agent, though they may opt to do so. A commercial agent is any Bahraini party appointed by a foreign party to represent the foreign party’s product or service in Bahrain.
Bahrain generally permits 100 percent foreign ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without local sponsors or business partners. Wholly foreign-owned companies may be set up for regional distribution services and may operate within the domestic market provided they do not exclusively pursue domestic commercial sales. Private investment (foreign or Bahraini) in petroleum extraction is permitted.
Expatriates may own land in designated areas in Bahrain. Non-GCC nationals, including Americans, may own high-rise commercial and residential properties, as well as properties used for tourism, banking, financial and health projects, and training centers.
Bahrain issued Bankruptcy Law No. 22 in May 2018 governing corporate reorganization and insolvency. The law is based on U.S. Chapter 11 insolvency legislation and provides companies in financial difficulty with an opportunity to restructure under court supervision.
The GOB issued Competition Law No. 31 in July 2018 to prevent the formation of monopolies or the practice of anti-competitive behavior. This law makes it easier for new businesses to enter existing markets and compete with significant players.
MoICT’s Consumer Protection Directorate is responsible for ensuring that the law determining price controls is implemented and that violators are punished.
There have been no expropriations in recent years, and there are no cases in contention. The U.S.-Bahrain BIT protects U.S. investments by banning all expropriations (including “creeping” and “measures tantamount to”) except those for a public purpose. Such transactions must be carried out in a non-discriminatory manner, with due process, and prompt, adequate, effective compensation.
ICSID Convention and New York Convention
Bahrain uses multiple international and regional conventions to enhance its commercial arbitration legal framework. Bahrain is a party to the UNCITRAL Model Law on International Commercial Arbitration, the New York Convention, the International Centre for the Settlement of Investment Disputes (ICSID), and the GCC Convention for Execution of Judgments, among others. These conventions and international agreements established the foundation for the GCC Arbitration Centre, and the Bahrain Chamber for Disputes & Resolution (BCDR). Bahrain’s Constitution stipulates international conventions and treaties have the power of law.
Investor-State Dispute Settlement
Article 9 of The U.S.-Bahrain BIT provides for three dispute settlement options:
Submitting the dispute to a local court or administrative tribunals of the host country.
Invoking dispute-resolution procedures previously agreed upon by the foreign investor or company and the host country government; or,
Submitting the dispute for binding arbitration to the International Center for Settlement of Investment Disputes (ICSID) or, the Additional Facility of ICSID, or ad hoc arbitration using the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), or any other arbitral institution or rules agreed upon by both parties.
Bahrain Chamber for Dispute Resolution Court
The Bahrain Chamber for Dispute Resolution (BCDR) Court was established by Legislative Decree No. 30 of 2009. It operates in partnership with the American Arbitration Association (AAA). BCDR’s casework emanates from disputes brought before the BCDR Court and BCDR’s international arbitration wing, BCDR-AAA.
The BCDR Court administers disputes in excess of 500,000 Bahraini Dinars (approximately $1.3 million) in which at least one party is a financial institution licensed by the Central Bank of Bahrain, or the dispute is of an international commercial nature.
Since its establishment in 2010, BCDR has administered more than 350 cases under its jurisdiction as a court with monetary claims totaling over $6.2 billion.
In February 2022, the Minister of Justice clarified the use of travel bans against insolvent debtors (individuals and companies). The new Enforcement Law in Civil and Commercial Matters 22/2021 stated that the insolvent debtor must disclose any owned assets, within seven days from the beginning of the judicial proceedings. Companies can settle their debts within 21 days. The justice ministry said it would coordinate with debt collectors from the private sector to expedite the enforcement process.
BCDR-AAA International Arbitration Center
BCDR-AAA is an international arbitration center with jurisdiction over disputes with respect to which the parties have agreed in writing that the BCDR-AAA Arbitration Rules shall apply.
As of December 2020, BCDR-AAA registered 17 cases under its jurisdiction as an international arbitration center, one in 2013, one in 2015, three in 2016, five in 2017, two in 2019, and five in 2020. Of these cases, only seven are ongoing: one that was filed in 2017 and one filed in 2019, five that were filed in 2020. The remainder were awarded or settled.
Bahrain Chamber for Dispute Resolution
Suite 301, Park Plaza
Bldg. 247, Road 1704
P.O. Box 20006
Manama, Kingdom of Bahrain
Tel: + (973) 17-511-311
The United Nations Conference on Trade and Development (UNCTAD) reported that Bahrain faced its first known Investor-State Dispute Settlement (ISDS) claim in 2017. The case involved investor claims over the CBB’s 2016 move to close the Manama branch of Future Bank, a commercial bank whose shareholders included Iranian banks. Bahrain and Iran are party to a BIT. UNCTAD reported another investor-state dispute case involving Qatar Airways in 2020.
International Commercial Arbitration and Foreign Courts
Arbitration procedures are largely a contractual matter in Bahrain. Disputes historically have been referred to an arbitration body as specified in the contract, or to the local courts. In dealings with both local and foreign firms, Bahraini companies have increasingly included arbitration procedures in their contracts. Most commercial disputes are resolved privately without recourse to the courts or formal arbitration. Resolution under Bahraini law is generally specified in all contracts for the settlement of disputes that reach the stage of formal resolution but is optional in those designating the BCDR. Bahrain’s court system has adequately handled occasional lawsuits against individuals or companies for nonpayment of debts.
Bahrain Law No. 9 of 2015 promulgating the Arbitration Law (the “New Arbitration Law”) came into effect on August 9, 2015. The law provides that the UNCITRAL 1985 Model Law with its 2006 amendments on international commercial arbitration (the “UNCITRAL Law”) will apply to any arbitration, taking place in Bahrain or abroad, if the parties to the dispute agreed to be subject to the UNCITRAL Law.
The GCC Commercial Arbitration Center, established in 1995, serves as a regional specialized body providing arbitration services. It assists in resolving disputes among GCC countries or between other parties and GCC countries. The Center implements rules and regulations in line with accepted international practice. Thus far, few cases have been brought to arbitration. The Center conducts seminars, symposia, and workshops to help educate and update its members on any new arbitration-related matters.
The GOB enacted its original bankruptcy and insolvency law through Decree by Law No. 11 in 1987. In May 2018, the GOB issued and ratified Law No. 22, updating the original legislation. Modeled on U.S. Chapter 11 legislation, the law introduces reorganization whereby a company’s management may continue business operations during the administration of a case. The Bankruptcy Law also includes provisions for cross-border insolvency, and special insolvency provisions for small and medium-sized enterprises that were further amended in July 2020 and enhanced creditors rights and expediting liquidation proceedings. The Bahrain credit reference bureau, known as “BENEFIT,” is licensed by the CBB and operates as the credit monitoring authority in Bahrain.
As part of a wider effort to promote sustainability and transparency in Bahrain’s capital market, Bahrain’s national stock market, the Bahrain Bourse (BHB), announced in 2020 new Environmental Social & Governance (ESG) reporting guidelines for listed companies. The voluntary reporting guidance aims to assist listed companies to integrate ESG issues in their reporting cycle and better meet the demands of institutional investors for material ESG information. The ESG reporting guidance encourages listed companies to disclose a set of 32 ESG metrics and indicators in alignment with the recommendations of the Sustainable Stock Exchanges (SSE) initiative and the World Federation of Exchanges, Global Reporting Initiatives (GRI) standards, and the United Nations Sustainable Development Goals. The guidance explains the key regional and international drivers for adoption of ESG reporting, the importance of ESG reporting, the ways to report on ESG, and emphasizes Bahrain Bourse’s efforts in promoting sustainability.
Bangladesh is the most densely populated non-city-state country in the world, with the eighth largest population (over 165 million) within a territory the size of Iowa. Bangladesh is situated in the northeastern corner of the Indian subcontinent, sharing a 4,100 km border with India and a 247-kilometer border with Burma. With sustained economic growth over the past decade, a large, young, and hard-working workforce, strategic location between the large South and Southeast Asian markets, and vibrant private sector, Bangladesh will likely continue to attract increasing investment, despite severe economic headwinds created by the global outbreak of COVID-19.
Buoyed by a young workforce and a growing consumer base, Bangladesh has enjoyed consistent annual GDP growth of more than six percent over the past decade, with the exception of the COVID-induced economic slowdown in 2020. Much of this growth continues to be driven by the ready-made garment (RMG) industry, which exported $35.81 billion of apparel products in fiscal year (FY) 2021, second only to China, and continued remittance inflows, reaching a record $24.77 billion in FY 2021. (Note: The Bangladeshi fiscal year is from July 1 to June 30; fiscal year 2021 ended on June 30, 2021.) The country’s RMG exports increased more than 30 percent year-over-year in FY 2021 as the global demand for apparel products accelerated after the COVID shock.
The Government of Bangladesh (GOB) actively seeks foreign investment. Sectors with active investments from overseas include agribusiness, garment/textiles, leather/leather goods, light manufacturing, power and energy, electronics, light engineering, information and communications technology (ICT), plastic, healthcare, medical equipment, pharmaceutical, ship building, and infrastructure. The GOB offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.
Bangladesh’s Foreign Direct Investment (FDI) stock was $20.87 billion through the end of September 2021, with the United States being the top investing country with $4.1 billion in accumulated investments. Bangladesh received $2.56 billion FDI in 2020, according to data from the United Nations Conference on Trade and Development (UNCTAD). The rate of FDI inflows was only 0.77 percent of GDP, one of the lowest of rates in Asia.
Bangladesh has made gradual progress in reducing some constraints on investment, including taking steps to better ensure reliable electricity, but inadequate infrastructure, limited financing instruments, bureaucratic delays, lax enforcement of labor laws, and corruption continue to hinder foreign investment. Government efforts to improve the business environment in recent years show promise but implementation has yet to materialize. Slow adoption of alternative dispute resolution mechanisms and sluggish judicial processes impede the enforcement of contracts and the resolution of business disputes.
As a traditionally moderate, secular, peaceful, and stable country, Bangladesh experienced a decrease in terrorist activity in recent years, accompanied by an increase in terrorism-related investigations and arrests following the Holey Artisan Bakery terrorist attack in 2016. A December 2018 national election marred by irregularities, violence, and intimidation consolidated the power of Prime Minister Sheikh Hasina and her ruling party, the Awami League. This allowed the government to adopt legislation and policies diminishing space for the political opposition, undermining judicial independence, and threatening freedom of the media and NGOs. Bangladesh continues to host one of the world’s largest refugee populations. According to UN High Commission for Refugees, more than 923,000 Rohingya from Burma were in Bangladesh as of February 2022. This humanitarian crisis will likely require notable financial and political support until a return to Burma in a voluntary and sustainable manner is possible. International retail brands selling Bangladesh-made products and the international community continue to press the Government of Bangladesh to meaningfully address worker rights and factory safety problems in Bangladesh. With unprecedented support from the international community and the private sector, the Bangladesh garment sector has made significant progress on fire and structural safety. Critical work remains on safeguarding workers’ rights to freely associate and bargain collectively, including in Export Processing Zones (EPZs).
The Bangladeshi government has limited resources devoted to intellectual property rights (IPR) protection and counterfeit goods are readily available in Bangladesh. Government policies in the ICT sector are still under development. Current policies grant the government broad powers to intervene in that sector.
Capital markets in Bangladesh are still developing, and the financial sector is still highly dependent on banks.
1. Openness To, and Restrictions Upon, Foreign Investment
Bangladesh actively seeks foreign investment. Sectors with active investments from overseas include agribusiness, garment and textiles, leather and leather goods, light manufacturing, electronics, light engineering, energy and power, ICT, plastic, healthcare, medical equipment, pharmaceutical, ship building, and infrastructure. It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.
Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:
Arms and ammunition and other defense equipment and machinery.
Forest plantation and mechanized extraction within the bounds of reserved forests.
Production of nuclear energy.
Security printing (items such as currency, visa foils, and tax stamps).
The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with supervising and promoting private investment. The BIDA Act of 2016 approved the merger of the now-disbanded Board of Investment and the Privatization Committee. BIDA is directly supervised by the Prime Minister’s Office and the Executive Chairman of BIDA holds a rank equivalent to Senior Secretary, the highest rank within the civil service. BIDA performs the following functions:
Provides pre-investment counseling services.
Registers and approves private industrial projects.
Issues approval of branch/liaison/representative offices.
Issues work permits for foreign nationals.
Issues approval of royalty remittances, technical know-how, and technical assistance fees.
Facilitates import of capital machinery and raw materials.
Issues approvals of foreign loans and supplier credits.
Provides aftercare facilities.
BIDA’s website has aggregated information regarding Bangladesh investment policies, incentives, and ease of doing business indicators: http://bida.gov.bd/
In addition to BIDA, there are three other Investment Promotion Agencies (IPAs) responsible for promoting investments in their respective jurisdictions.
Bangladesh Export Processing Zone Authority (BEPZA) promotes investments in Export Processing Zones (EPZs). The first EPZ was established in the 1980s and there are currently eight EPZs in the country. Website:
Bangladesh Economic Zones Authority (BEZA) plans to establish approximately 100 Economic Zones (EZs) throughout the country over the next several years. Site selections for 97 EZs have been completed as of February 2022, of which 10 private EZs are already licensed and operational while development of several other public and private sector EZs are underway. While EPZs accommodate exporting companies only, EZs are open for both export- and domestic-oriented companies. Website:
Bangladesh Hi-Tech Park Authority (BHTPA) is responsible for attracting and facilitating investments in the high-tech parks Bangladesh is establishing across the country. Website:
Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Bangladesh allows private investment in power generation and natural gas exploration, but efforts to allow full foreign participation in petroleum marketing and gas distribution have stalled. Regulations in the area of telecommunication infrastructure currently include provisions for 60 percent foreign ownership (70 percent for tower sharing). In addition to the four sectors reserved for government investment, there are 17 controlled sectors that require prior clearance/ permission from the respective line ministries/authorities. These are:
Fishing in the deep sea.
Bank/financial institutions in the private sector.
Insurance companies in the private sector.
Generation, supply, and distribution of power in the private sector.
Exploration, extraction, and supply of natural gas/oil.
Exploration, extraction, and supply of coal.
Exploration, extraction, and supply of other mineral resources.
Crude oil refinery (recycling/refining of lube oil used as fuel).
Medium and large industries using natural gas/condensate and other minerals as raw material.
Telecommunications service (mobile/cellular and land phone).
Sea-bound ship transport.
Industries using heavy minerals accumulated from sea beaches.
While discrimination against foreign investors is not widespread, the government frequently promotes local industries, and some discriminatory policies and regulations exist. For example, the government closely controls approvals for imported medicines that compete with domestically manufactured pharmaceutical products and it has required majority local ownership of new shipping and insurance companies, albeit with exemptions for existing foreign-owned firms. In practical terms, foreign investors frequently find it necessary to have a local partner even though this requirement may not be statutorily defined. In certain strategic sectors, the GOB has placed unofficial barriers on foreign companies’ ability to divest from the country.
BIDA is responsible for screening, reviewing, and approving investments in Bangladesh, except for investments in EPZs, EZs, and High-Tech Parks, which are supervised by BEPZA, BEZA, and BHTPA respectively. Both foreign and domestic companies are required to obtain approval from relevant ministries and agencies with regulatory oversight. In certain sectors (e.g., healthcare), foreign companies may be required to obtain a No Objection Certificate (NOC) from the relevant ministry or agency stating the specific investment will not hinder local manufacturers and is in line with the guidelines of the ministry concerned. Since Bangladesh actively seeks foreign investments, instances where one of the Investment Promotion Agencies (IPAs) declines investment proposals are rare.
In February 2018, the Bangladesh Parliament passed the “One Stop Service Bill 2018,” which aims to streamline business and investment registration processes. The four IPAs – BIDA, BEPZA, BEZA, and BHTPA – are mandated to provide one-stop services (OSS) to local and foreign investors under their respective jurisdictions. Expected streamlined services include company registration, taxpayer’s identification number (TIN) and value added tax (VAT) registration, work permit issuance, power and utilities connections, capital and profit repatriation, and environment clearance. In 2019 Bangladesh made reforms in three key areas: starting a business, getting electricity, and getting credit. BIDA offers 56 services under its OSS as of February 2022and has a plan to expand to 154 services covering 35 agencies. The GOB is also planning to integrate the services of all four investment promotion agencies under a single online platform. Progress on realizing a comprehensive OSS for businesses has been slowed by bureaucratic delays and a lack of interagency coordination.
Companies can register their businesses at the Office of the Registrar of Joint Stock Companies and Firms (RJSC): www.roc.gov.bd. However, the online business registration process, while improving, can at times be unclear and inconsistent. Additionally, BIDA facilitates company registration services as part of its OSS, which is available at: https://bidaquickserv.org. BIDA also facilitates other services including office set-up approval, work permits for foreign employees, environmental clearance, outward remittance approval, and tax registration with National Board of Revenue. Other agencies with which a company must typically register are:
City Corporation – Trade License.
National Board of Revenue – Tax & VAT Registration.
Chief Inspector of Shops and Establishments – Employment of Workers Notification.
It takes approximately 20 days to start a business in the country according to the World Bank. The company registration process at the RJSC generally takes one or two days to complete. The process for trade licensing, tax registration, and VAT registration required as of 2021 seven days, one day, and one week respectively.
Outward foreign direct investment is generally restricted through the Foreign Exchange Regulation Act of 1947. As a result, the Bangladesh Bank plays a key role in limiting outbound investment. In September 2015, the government amended the Foreign Exchange Regulation Act of 1947 by adding a “conditional provision” that permits outbound investment for export-related enterprises. Private sector contacts note the few international investments approved by the Bangladesh Bank have been limited to large exporting companies with international experience. However, the government is considering an overseas investment guideline to allow outbound investment opportunities for local exporters and any company operating in the domestic market for 10 years. This will allow local companies and NGOs with outbound investments to enlist in foreign stock markets. However, Bangladesh’s total outbound investment in a single fiscal year would be capped at 5 percent of the central bank’s foreign exchange reserves for that fiscal year under the regulation being considered. Bangladesh Investment Development Authority (BIDA) has been working to formulate a workable policy regarding this since 2016.
3. Legal Regime
Since 1989, the government has gradually moved to decrease regulatory obstruction of private business. Various chambers of commerce have called for privatization and for a greater voice for the private sector in government decisions, but at the same time many chambers support protectionism and subsidies for their own industries. The result is policy and regulations which are often unclear, inconsistent, or little publicized. Registration and regulatory processes are frequently alleged by businesses to be used as rent-seeking opportunities. The major rule-making and regulatory authority exists at the national level under each Ministry with many final decisions being made at the top-most levels, including the Prime Minister’s Office (PMO). The PMO is actively engaged in directing policies, as well as foreign investment in government-controlled projects.
Bangladesh has made incremental progress in using information technology both to improve the transparency and efficiency of some government services and develop independent agencies to regulate the energy and telecommunicationsectors. Some investors cited government laws, regulations, and lack of implementation as impediments to investment. The government has historically limited opportunities for the private sector to comment on proposed regulations. In 2009, Bangladesh adopted the Right to Information Act providing for multilevel stakeholder consultations through workshops or media outreach. Although the consultation process exists, it is still weak and in need of further improvement.
The Environment Conservation Act 1995 (ECA ’95) as amended in 2010 and the Biodiversity Act of 2018 are the main acts governing environmental protection in Bangladesh. The ECA ’95 replaced the earlier environment pollution control ordinance of 1992 and provides the legal basis for Environment Conservation Rules, 1997 (ECR’97). The objective of the Biodiversity Act is equitable sharing of benefits arising out of the use of biological resources. The main objectives of ECA’95 are conservation of the natural environment, improvement of environmental standards, and control and mitigation of environmental pollution. According to the act, all industrial projects require before being undertaken an Environmental Clearance Certificate from the Director General. In issuing the certificate, the projects are classified into the following four categories – Green, Orange-A, Orange-B, and Red.
Environmental Clearance for the Green category is through a comparatively simple procedure. In the case of Orange-A, Orange-B and Red Categories, site clearance is mandatory at the beginning, then Environmental Impact Assessment approval and finally Environmental Clearance is issued. The Environment Clearance is to be renewed after three years for the Green category and one year for Orange-A, Orange-B and Red categories. Red Category projects require an Environmental Impact Statement prior to approval.
Ministries and regulatory agencies do not generally publish or solicit comments on draft proposed legislation or regulations. However, several government organizations, including the Bangladesh Bank (the central bank), Bangladesh Securities and Exchange Commission, BIDA, the Ministry of Commerce, and the Bangladesh Telecommunications Regulatory Commission have occasionally posted draft legislation and regulations online and solicited feedback from the business community. In some instances, parliamentary committees have also reached out to relevant stakeholders for input on draft legislation. The media continues to be the main information source for the public on many draft proposals. There is also no legal obligation to publish proposed regulations, consider alternatives to proposed regulation, or solicit comments from the general public.
The government printing office, The Bangladesh Government Press (http://www.dpp.gov.bd/bgpress/), publishes the “Bangladesh Gazette” every Thursday and Extraordinary Gazettes as and when needed. The Gazette provides official notice of government actions, including issuance of government rules and regulations and the transfer and promotion of government employees. Laws can also be accessed at http://bdlaws.minlaw.gov.bd/.
Bangladesh passed the Financial Reporting Act of 2015 which created the Financial Reporting Council in 2016 aimed at establishing transparency and accountability in the accounting and auditing system. The country follows Bangladesh Accounting Standards and Bangladesh Financial Reporting Standards, which are largely derived from International Accounting Standards and International Financial Reporting Standards. However, the quality of reporting varies widely. Internationally known firms have begun establishing local offices in Bangladesh and their presence is positively influencing the accounting norms in the country. Some firms can provide financial reports audited to international standards while others maintain unreliable (or multiple) sets of accounting records. Regulatory agencies do not conduct impact assessments for proposed regulations; consequently, regulations are often not reviewed based on data-driven assessments. Not all national budget documents are prepared according to internationally accepted standards.
The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) aims to integrate regional regulatory systems among Bangladesh, India, Burma, Sri Lanka, Thailand, Nepal, and Bhutan. However, efforts to advance regional cooperation measures have stalled in recent years and regulatory systems remain uncoordinated.
Local laws are based on the English common law system but most fall short of international standards. The country’s regulatory system remains weak and many of the laws and regulations are not enforced and standards are not maintained.
Bangladesh has been a member of the World Trade Organization (WTO) since 1995. WTO requires all signatories to the Agreement on Technical Barriers to Trade (TBT) to establish a National Inquiry Point and Notification Authority to gather and efficiently distribute trade-related regulatory, standards, and conformity assessment information to the WTO Member community. The Bangladesh Standards and Testing Institute (BSTI) has been working as the National Enquiry Point for the WTO-TBT Agreement since 2002. There is an internal committee on WTO affairs in BSTI and it participates in notifying WTO activities through the Ministry of Commerce and the Ministry of Industries.
Focal Point for TBT:
Mr. Md. Golam Baki,Deputy Director (Certification Marks), BSTI
Email: firstname.lastname@example.orgTel: +88-02-48116665Cell: +8801799828826, +8801712240702
Focal Point for other WTO related matters, except sanitary and phytosanitary systems:
Mr. Md. Hafizur Rahman,Director General, WTO Cell, Ministry of Commerce
Email: email@example.comTel: +880-2-9545383Cell: +88 0171 1861056
Mr. Mohammad Ileas Mia,Director-1, WTO Cell, Ministry of Commerce
Email: firstname.lastname@example.orgTel: +880-2-9540580Cell: +88 01786698321
Bangladesh is a common law-based jurisdiction. Many of the basic laws, such as the penal code, civil and criminal procedural codes, contract law, and company law are influenced by English common law. However, family laws, such as laws relating to marriage, dissolution of marriage, and inheritance are based on religious scripts and therefore differ among religious communities. The Bangladeshi legal system is based on a written constitution and the laws often take statutory forms that are enacted by the legislature and interpreted by the higher courts. Ordinarily, executive authorities and statutory corporations cannot make any law, but can make by-laws to the extent authorized by the legislature. Such subordinate legislation is known as rules or regulations and is also enforceable by the courts. However, as a common law system, the statutes are short and set out basic rights and responsibilities but are elaborated by the courts in the application and interpretation of those laws. The Bangladeshi judiciary acts through: (1) The Superior Judiciary, having appellate, revision, and original jurisdiction; and (2) The Sub-Ordinate Judiciary, having original jurisdiction.
Since 1971, Bangladesh has updated its legal system concerning company, banking, bankruptcy, and money loan court laws, and other commercial laws. An important impediment to investment in Bangladesh is its weak and slow legal system in which the enforceability of contracts is uncertain. The judicial system does not provide for interest to be charged in tort judgments, which means procedural delays carry no penalties. Bangladesh does not have a separate court or court division dedicated solely to commercial cases. The Joint District Judge court (a civil court) is responsible for enforcing contracts.
Some notable commercial laws include:
The Contract Act, 1872 (Act No. IX of 1930).
The Sale of Goods Act, 1930 (Act No. III of 1930).
The Partnership Act, 1932 (Act No. IX of 1932).
The Negotiable Instruments Act, 1881 (Act No. XXVI of 1881).
The Bankruptcy Act, 1997 (Act No. X of 1997).
The Arbitration Act, 2001 (Act No. I of 2001).
The judicial system of Bangladesh has never been completely independent from interference by the executive branch of the government. In a significant milestone, the government in 2007 separated the country’s judiciary from the executive but the executive retains strong influence over the judiciary through control of judicial appointments. Other pillars of the justice system, including the police, courts, and legal profession, are also closely aligned with the executive branch. In lower courts, corruption is widely perceived as a serious problem. Regulations or enforcement actions are appealable under the Appellate Division of the Supreme Court.
Major laws affecting foreign investment include: the Foreign Private Investment (Promotion and Protection) Act of 1980, the Bangladesh Export Processing Zones Authority Act of 1980, the Companies Act of 1994, the Telecommunications Act of 2001, and the Bangladesh Economic Zones Act of 2010.
Bangladesh industrial policy offers incentives for “green” (environmental) high-tech or “transformative” industries. It allows foreigners who invest $1 million or transfer $2 million to a recognized financial institution to apply for Bangladeshi citizenship. The GOB will provide financial and policy support for high-priority industries (those creating large-scale employment and earning substantial export revenue) and creative industries – architecture, arts and antiques, fashion design, film and video, interactive laser software, software, and computer and media programming. Specific importance is given to agriculture and food processing, RMG, ICT and software, pharmaceuticals, leather and leather products, and jute and jute goods.
In addition, Petrobangla, the state-owned oil and gas company, has modified its production sharing agreement contract for offshore gas exploration to include an option to export gas. In 2019, Parliament approved the Bangladesh Flag Vessels (Protection) Act 2019 with a provision to ensure Bangladeshi flagged vessels carry at least 50 percent of foreign cargo, up from 40 percent. In 2020, the Ministry of Commerce amended the digital commerce policy to allow fully foreign-owned e-commerce companies in Bangladesh and remove a previous joint venture requirement.
The One Stop Service (OSS) Act of 2018 mandated the four IPAs to provide OSS to local and foreign investors in their respective jurisdictions. The move aims to facilitate business services on behalf of multiple government agencies to improve ease of doing business. In 2020, BIDA issued time-bound rules to implement the Act of 2018. Although the IPAs have started to offer a few services under the OSS, corruption and excessive bureaucracy have held back the complete and effective roll out of the OSS. BIDA has a “one-stop” website that provides information on relevant laws, rules, procedures, and reporting requirements for investors at: http://www.bida.gov.bd/.
Aside from information on relevant business laws and licenses, the website includes information on Bangladesh’s investment climate, opportunities for businesses, potential sectors, and how to do business in Bangladesh. The website also has an eService Portal for Investors which provides services such as visa recommendations for foreign investors, approval/extension of work permits for expatriates, approval of foreign borrowing, and approval/renewal of branch/liaison and representative offices.
Bangladesh formed an independent agency in 2011 called the “Bangladesh Competition Commission (BCC)” under the Ministry of Commerce. Parliament then passed the Competition Act in 2012. However, the BCC has not received sufficient resources to operate effectively.
In 2018, the Bangladesh Telecommunication Regulatory Commission (BTRC) finalized Significant Market Power (SMP) regulations to promote competition in the industry. In 2019, BTRC declared the country’s largest telecom operator, Grameenphone (GP), the first SMP based on its revenue share of more than 50 percent and customer shares of about 47 percent. Since the declaration, the BTRC has attempted to impose restrictions on GP’s operations, which GP has challenged in the judicial system.
Since the Foreign Investment Act of 1980 banned nationalization or expropriation without adequate compensation, Bangladesh has not nationalized or expropriated property from foreign investors. In the years immediately following independence in 1971, widespread nationalization resulted in government ownership of more than 90 percent of fixed assets in the modern manufacturing sector, including the textile, jute and sugar industries and all banking and insurance interests, except those in foreign (but non-Pakistani) hands. However, the government has taken steps to privatize many of these industries since the late 1970s and the private sector has developed into a main driver of the country’s sustained economic growth.
Many laws affecting investment in Bangladesh are outdated. Bankruptcy laws, which apply mainly to individual insolvency, are sometimes disregarded in business cases because of the numerous falsified assets and uncollectible cross-indebtedness supporting insolvent banks and companies. A Bankruptcy Act was passed by Parliament in 1997 but has been ineffective in addressing these issues. Some bankruptcy cases fall under the Money Loan Court Act-2003 which has more stringent and timely procedures.
With a $4.4 billion economy, Barbados is the largest economy in the Eastern Caribbean. The shutdown of the tourism sector in 2020 due to the pandemic led to an 18 percent GDP contraction. The economy began to recover in 2021 with 1.4 percent growth, and the International Monetary Fund (IMF) forecasts 2022 growth at 8.5 percent. Unemployment was estimated at approximately 40 percent in the first quarter of 2021, representing a 30 percent increase from the same period last year.
The Government of Barbados entered a standby arrangement with the IMF in late 2018. The $290 million ($580 million Barbados dollars) Barbados Economic Recovery and Transformation (BERT) program aims to decrease the debt-to-GDP ratio, strengthen the balance of payments, and stimulate growth. While the government was on track to meet its IMF targets pre-pandemic, the program dampened income and spending power due to public sector layoffs, the introduction of new indirect taxes, and a decline in the construction sector. The impact of the pandemic required the IMF to adjust the program targets downwards several times. The IMF also approved additional lending into the program twice in 2020.
The country’s services sector continues to hold the largest growth potential, especially in the areas of international financial services, information technology, global education services, health, and cultural services. The gradual decline of the sugar industry has opened land for other agricultural uses. Investment opportunities exist in the areas of agricultural processing and alternative and renewable energy. Uncertainty about the trajectory of economic recovery of the tourism, commercial aviation, and cruise industries impacts the potential for projects in those sectors. The government has identified renewable energy and climate resilience projects as top priorities. In 2021, Barbados joined the Organization of Economic Cooperation and Development (OECD) framework seeking to harmonize global corporate minimum tax rates at 15 percent.
Barbados bases its legal system on the British common law system. It does not have a bilateral investment agreement with the United States, but it does have a double-taxation treaty and a tax information exchange agreement.
In 2015, Barbados signed an intergovernmental agreement in observance of the United States’ Foreign Account Tax Compliance Act (FATCA), making it mandatory for banks in Barbados to report the banking information of U.S. citizens.
1. Openness To, and Restrictions Upon, Foreign Investment
The Government of Barbados, through Invest Barbados, welcomes foreign direct investment with the stated goals of creating jobs, earning foreign exchange, transferring technology, enhancing skills, and contributing to economic growth. In 2021, the government announced plans to focus on encouraging foreign direct investment in renewable energy, manufacturing, technology, and biogenetic engineering.
According to Invest Barbados, Barbados encourages investment in the following key sectors: international financial services, information technology, and ship registration, as well as emerging sectors like financial technology, creative industries, agricultural processing, medical schools, medical tourism, and renewable energy. In the international financial services sector, the government maintains regulatory oversight via the Central Bank of Barbados to prevent money laundering and tax evasion.
Through Invest Barbados, the government facilitates domestic and foreign private investment. Invest Barbados’ mandate is to actively promote Barbados as a desirable investment location, to provide advice, and to assist prospective investors. Invest Barbados also provides customized support for investors to assist with the expansion and sustainability of the initial investment. It also serves as the primary liaison for existing investors. In 2021, the government announced plans to establish a Barbados Free Economic Zone to help attract foreign direct investment.
Investors interested in doing business in Barbados must register with the country’s Corporate Affairs and Intellectual Property Office (CAIPO). In 2021, the Government of Barbados fully digitized the registration process and all other services provided by CAIPO.
Local laws do not place any limits on foreign control in Barbados. Nationals and non-nationals may establish and own private enterprises and private property in Barbados. These rights extend to the acquisition and disposition of interests in private enterprises.
No industries are closed to private enterprise, although the government reserves the right not to allow certain investments. Some activities, such as telecommunications, utilities, broadcasting, franchises, banking, and insurance require a government license. There are no quotas or other restrictions on foreign ownership of a local enterprise or participation in a joint venture.
In 2012, the government introduced a special entry permit for high net-worth individuals who wish to reside in Barbados while working remotely. Individuals must have one of the following to apply: a net worth of USD five million, property valued above USD two million, and skills of critical need to the development of the country. Applicants must generally be 60 years or older although special provisions can be made for applicants under 60 years of age. The program is administered by the Barbados Immigration Department.
In 2020, the government introduced the Barbados Welcome Stamp visa program, which allows eligible remote workers to apply for special residency status for up to one year. Under this program, the visa holder is exempt from local income taxes. The visa holder can also apply for an extension of the visa with the repayment of applicable fees. The program is administered through the Ministry of Tourism and International Transport.
Barbados has not conducted a trade policy review in the last three years. No civil society organization has provided a review of investment policy-related concerns in the past five years.
Invest Barbados is the main investment promotion agency that attracts and facilitates foreign investment. Invest Barbados offers guidance and direction to new and established investors seeking to pursue investment opportunities in Barbados. The process is transparent and considers the size of capital investment as well as the economic impact of a proposed project.
Invest Barbados offers a website that is useful for navigating applicable laws, rules, procedures, and registration requirements for foreign investors. This is available at http://www.investbarbados.org. Invest Barbados’ iGuide website is an online guide that provides local and foreign investors with up-to-date information required to make certain investment decisions, including steps for setting up a business, opportunities for investment, labor and other business costs, and legal requirements, among other data. This is available at https://www.theiguides.org/public-docs/guides/barbados. The Corporate Affairs and Intellectual Property Office (CAIPO) maintains an online e-registry filing service for matters pertaining to the Corporate Registry. It is available to registered agents, who are usually attorneys. Information is available at www.caipo.gov.bb.
In general, when starting a business, companies retain an attorney to prepare relevant incorporation documents. The business must register with CAIPO, the Barbados Revenue Authority, the Customs and Excise Department, and any relevant sector-specific licensing agencies.
The Government of Barbados continues to facilitate programs and partnerships to assist entrepreneurs who are women and/or people with disabilities. The Government of Barbados remains committed to working with civil society and other organizations to meet the UN Sustainable Development Goals by 2030.
While no incentives are offered, Barbados generally encourages local companies to invest in other countries, particularly within the Caribbean region. The government actively encourages local companies in Barbados to take advantage of export opportunities related to the country’s membership in the Caribbean Community (CARICOM) and the Caribbean Single Market and Economy (CSME). The Barbados Investment Development Corporation provides market development support for domestic companies seeking to enhance their export potential.
3. Legal Regime
Barbados’ legal framework establishes clear rules for foreign and domestic investors regarding tax, labor, environmental, health, and safety concerns. These regulations are in accord with international standards. The Ministry of Finance, Economic Affairs, and Investment and Invest Barbados provide oversight aimed at ensuring the transparency of investment.
Rulemaking and regulatory authority rest with the bicameral parliament of the Government of Barbados. The House of Assembly consists of 30 members who are elected in single-seat constituencies. The Senate consists of 21 members who are appointed by the President. Responsibility for Senate appointments shifted in 2021 when Barbados removed the UK’s Queen Elizabeth as head of state and became a republic.
Foreign investment into Barbados is governed by a series of laws and implementing regulations. These laws and regulations are developed with the participation of relevant ministries, drafted by the Office of the Attorney General, and enforced by the relevant ministry or ministries.
Additional compliance supervision is delegated to specific agencies, by sector, as follows:
Banking and financial services – Central Bank of Barbados (CBB)
Insurance and non-banking financial services – Financial Services Commission (FSC)
International business – International Business Unit, Ministry of International Business and Industry
Business incorporation and intellectual property – CAIPO
The Ministry of Finance, Economic Affairs and Investment monitors investments to collect information for national statistics and reporting purposes.
All foreign businesses must be registered or incorporated through CAIPO and will be regulated by one of the other agencies depending on the nature of the business.
Although Barbados does not have formal legislation that guarantees access to information or freedom of expression, access to information is generally available. The government maintains a website and an information service to facilitate the dissemination of information such as government office directories and press releases. The government also maintains a parliamentary website at http://www.barbadosparliament.com where it posts legislation prior to parliamentary debate and live streams House sittings. The government budget is also available on this website.
Although some bills are not subject to public consultation, input from various stakeholder groups and agencies is enlisted during the initial drafting of legislation. Public awareness campaigns, through print and electronic media, are used to inform the public. Copies of regulations are circulated to stakeholders and are published in the Official Gazette after passage in parliament. The Official Gazette is available at https://gisbarbados.gov.bb/the-official-gazette.
Accounting, legal, and regulatory procedures are transparent. Publicly listed companies publish annual financial statements and changes in portfolio shareholdings, including share value. Service providers are required to adhere to international best practice standards including International Financial Reporting Standards, International Standards on Auditing, and International Public Sector Accounting Standards for government and public sector bodies.
They must also comply with the provisions of the Money Laundering and Financing of Terrorism Prevention and Control Act. Accounting professionals must engage in continuous professional development. The Corporate and Trust Service Providers Act regulates Barbados financial service providers. Failure to adhere to these laws and regulations may result in the revocation of
a company’s business license and/or cancellation of work permit(s). The most recent Caribbean Financial Action Task Force (CFATF) Mutual Evaluation assessment found Barbados to be largely compliant. The government does not promote or require companies’ environmental, social, and governance disclosures.
The Office of the Ombudsman is established by the constitution to guard against abuses of power by government officers in the performance of their duties. The Office of the Ombudsman aims to provide quality service in an impartial and expeditious manner when investigating complaints by Barbadian nationals or residents who consider the conduct of a government body or official unreasonable, improper, inadequate, or unjust.
The Office of the Auditor General is also established by the constitution and is regulated by the Financial Administration and Audit Act. The Auditor General is responsible for the audit and inspection of all public accounts of the Supreme Court, the Senate, the House of Assembly, all government ministries, government departments, government-controlled entities, and statutory bodies. The Office of the Auditor General’s annual reports can be found on the Barbados Parliament website.
The OECD recognized Barbados as largely compliant with international regulatory standards. Barbados is a signatory to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, the Multilateral Competent Authority Agreement, and the Multilateral Convention to Implement Tax Treaty Related Matters to Prevent Base Erosion and Profit Sharing.
The Barbados National Standards Institution (BNSI) oversees a laboratory complex housing metrology, textile, engineering, and chemistry/microbiology laboratories. The primary functions of the BSNI include the preparation, promotion, and implementation of standards in all sectors of the economy, including the promotion of quality systems, quality control, and certification.
The Standards Act (2006) and the Weights and Measures Act (1977) and Regulations (1985) govern the work of the BNSI. As a signatory to the World Trade Organization (WTO) Agreement to Technical Barriers to Trade, Barbados is obligated to harmonize all national standards through the BNSI to international norms to avoid creating technical barriers to trade.
Barbados ratified the WTO Trade Facilitation Agreement in 2018. The Agreement improves the speed and efficiency of border procedures, facilitates trade costs reduction, and enhances participation in the global value chain. In 2019 Barbados implemented the Automated System for Customs Data, which streamlined document compliance and inspections by port authorities. The government also increased issuance fees for certificates of origin, making trade more expensive.
Barbados’ legal system is based on the British common law. Modern corporate law is modeled on the Canadian Business Corporations Act. The Attorney General, the Chief Justice, junior judges, and magistrates administer justice in Barbados. The Supreme Court consists of the Court of Appeal and the High Court. The High Court hears criminal and civil (commercial) matters and makes determinations based on interpretation of the constitution.
The Caribbean Court of Justice (CCJ) is the regional judicial tribunal. The CCJ has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas (RTC). In 2005, Barbados became a full member of the CCJ, making the body its final court of appeal and original jurisdiction of the RTC.
The United States and Barbados are both parties to the WTO. The WTO Dispute Settlement Panel and Appellate Body resolve disputes over WTO agreements, while courts of appropriate jurisdiction in both countries resolve private disputes.
Invest Barbados’ foreign direct investment policy is to promote Barbados as a desirable investment location, to provide advice, and to assist prospective investors. The main laws concerning investment in Barbados are the Barbados International Business Promotion Act (2005), the Tourism Development Act (2005), and the Companies Act. There is also a framework of legislation that supports the jurisdiction as a global hub for business including insurance, shipping registration, and wealth management.
All proposals for investment concessions are reviewed by Invest Barbados to ensure proposed projects are consistent with the national interest and provide economic benefits to the country.
Invest Barbados provides complimentary “one-stop shop” facilitation services for investors to guide them through the investment process. It offers a website useful for navigating the laws, rules, procedures, and registration requirements for foreign investors: http://www.investbarbados.org.
Chapter 8 of the RTC outlines the competition policy applicable to CARICOM states. Member states are required to establish and maintain a national competition authority for facilitating the implementation of the rules of competition. At the CARICOM level, a regional Caribbean Competition Commission (CCC) applies the rules of competition. The CARICOM competition policy addresses anticompetitive business conduct such as agreements between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction, or distortion of competition within the Community and actions by which an enterprise abuses its dominant position within the Community. The Fair Competition Act codified the establishment of the Barbados Fair Trading Commission (FTC) in 2001. The FTC is responsible for the promotion and maintenance of fair competition participates in the CCC. The FTC regulates the principles, rates, and standards of service for public utilities and other regulated service providers. The Telecommunications Act regulates competition in the telecommunications sector.
The Barbados constitution and the Companies Act (Chap. 308) contain provisions permitting the government to acquire property for public use upon prompt payment of compensation at fair market value. U.S. Embassy Bridgetown is not aware of any outstanding expropriation claims or nationalization of foreign enterprises in Barbados.
Under the Bankruptcy and Insolvency Act (2002), Barbados has a bankruptcy framework that recognizes certain debtor and creditor rights. The act gives a potentially bankrupt company three options: bankruptcy (voluntary or involuntary), receivership, or reorganization of the company. The Companies Act provides for the insolvency and/or liquidation of a company incorporated under this act. In 2019, the Supreme Court of Judicature Act was amended to include the establishment of a commercial division in the High Court which will oversee proceedings connected to bankruptcy and insolvency.
1. Openness To, and Restrictions Upon, Foreign Investment
Attracting FDI is one of the government’s stated foreign policy priorities. Net inflows of FDI have been included in the list of government performance targets since December 2015. The GOB plans to attract a total of $5.5 billion net FDI in 2021-2025, largely through the China-Belarus “Great Stone” industrial park and Belarus’ six free economic zones.
The imposition of wide-ranging sanctions by the United States and many likeminded countries due to Belarus’ facilitation of the Russian invasion of Ukraine has made Belarus a less attractive destination for FDI. So, too, have the numerous restrictions and fees placed on investments from “unfriendly countries” by the GOB. An official decree signed by Lukashenka on March 14 provides for special fees for any early termination of contracts; prevents business partners from “unfriendly” countries from selling their shares in Belarusian joint stocks; increases taxation on any income of foreign partners, including dividends, royalties, and interests; and orders all debts to foreign partners be paid in Belarusian rubles.
Belarus does not have any specific requirements for foreigners wishing to establish a business. On paper, investors, whether Belarusian or foreign, receive legal protections and have the same right to conduct business operations in Belarus by incorporating legal entities. However, selective application of existing laws and practices often discriminate against the private sector, including foreign investors, regardless of the country of their origin.
Belarus’ investment promotion agency is the National Agency of Investments and Privatization (NAIP). The NAIP is tasked with representing the interests of Belarus as it seeks to attract FDI. The NAIP is a one-stop shop with services available to all investors, including: organizing fact-finding missions to Belarus; assisting with visa formalities; providing information on investment opportunities, special regimes and benefits, and procedures necessary for making investment decisions; selecting investment projects; and providing solutions and post-project support. NAIP has a 24/7 support hotline service via a Telegram channel and email account to help foreign investors address their problems and concerns in Belarus.
To maintain an ongoing dialogue with investors, Belarus has established the Foreign Investment Advisory Council (FIAC), chaired by the Prime Minister. FIAC activities include developing proposals to improve investment legislation; participating in examining corresponding regulatory and legal acts; and approaching government agencies for the purpose of adopting, repealing or modifying the regulatory and legal acts that restrict the rights of investors. FIAC includes the heads of government agencies and other state organizations subordinate to the GOB, as well as heads of international organizations and foreign companies and corporations. According to representatives of major foreign investors in Belarus, there were no reports of FIAC taking any meaningful effort to promote the FDI agenda in 2021 or 2022.
While the GOB claims foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity, in reality the GOB imposes limits on a case-by-case basis. The limits on foreign equity participation in Belarus in terms of the size of individual investments are above average for the 20 countries covered by the World Bank Group’s Investing Across Borders indicators for Eastern Europe and the Central Asia region. In particular, Belarus limits foreign equity ownership in service industries. Sectors such as fixed-line telecommunications services, electricity generation, transmission and distribution, and railway freight transportation are closed to foreign equity ownership. In addition, a comparatively large number of sectors are dominated by government monopolies, including, but not limited to, those mentioned above. These monopolies make it difficult for foreign companies to invest in Belarus. Finally, the government may restrict investments in the interests of national security (including environmental protection, historical, and cultural values), public order, morality protection, and public health, as well as rights and freedoms of people.
While Belarus has no formal national security investment screening mechanism, it retains significant elements of a Soviet-style command economy and screens investments through an informal and hierarchical process that escalates through the bureaucracy depending on the size of the investment or the size of incentives an investor seeks from the GOB. Lukashenka and his administration review and approve even multi-million-dollar foreign investments.
Additionally, Belarus’ Ministry of Antimonopoly Regulation and Trade is responsible for reviewing transactions for competition-related concerns (whether domestic or international).
Individuals and legal persons can apply for business registration via the web portal of the Single State Register ( http://egr.gov.by/egrn/index.jsp?language=en ) – a resource that includes all relevant information on establishing a business and provides a single window for securing all necessary clearances and permissions from municipal authorities, tax and social security administrations, etc. Business registration normally takes no more than one day.
Belarus has a regime allowing for a simplified taxation system for all foreign-owned businesses. Under the 2010 law on supporting small and medium-sized entrepreneurship Belarus defines enterprises as follows: Micro enterprises – fewer than 15 employees; Small enterprises – from 16 to 100 employees; Medium-sized enterprises – from 101 to 250 employees.
The government does not promote or incentivize outward investment, nor does it restrict domestic investors from investing abroad. According to government statistics, Belarusian businesses’ outward investments in January-June 2021 totaled USD 2.78 billion, of which FDI was 94 percent. The GOB classified investment data following this period and no further investment information is publicly available.
3. Legal Regime
According to Belarusian law, drafts of laws and regulations pertaining to investment and doing business are subject to public discussion, though authorities rarely pay heed to public views. The government alleges its policies are transparent, and the implementation of laws is consistent with international norms to foster competition and establish clear rules of the road. However, independent economic experts note that private sector businesses are often discriminated against in favor of public sector businesses. In particular, SOEs often receive government subsidies, benefits, and exemptions like cheaper loans and debt forgiveness that are generally unavailable to private sector companies unless such companies have close connections with Belarus’ ruling circles.
International Financial Reporting Standards (IFRS) have been a part of Belarus’ legislative framework since 2016. Public-interest entities, which include banks, insurance companies, and public corporations with subsidiary companies, are required to publish their financial statements, which comply with the IFRS. Such statements are subject to statutory audit. The IFRS in Belarus can be accessed at http://www.minfin.gov.by/ru/accounting/inter_standards/docs/
On March 24, 2022, the WTO announced it had suspended Belarus’ application to join the organization because of the GOB’s support for the Russian invasion of Ukraine. Belarus had been working to join the WTO since 1993.
Belarus is a member of the Eurasian Economic Union (EAEU); EAEU regulations and decisions supersede the national regulatory system.
Belarus has a civil law system with a legal separation of branches and institutions and with the main source of law being legal acts, not precedent. For example, Article 44 of Belarus’ Constitution guarantees the inviolability of property. Article 11 of the Civil Code officially safeguards property rights, but presidential edicts and decrees, controlled exclusively by Lukashenka, typically carry more force than legal acts adopted by the legislature. This weakens investor protections and incentives previously passed into law. There is sometimes a public comment process during drafting of legislation or presidential decrees, but the process is not transparent or sufficiently inclusive of investors’ concerns. Belarus has broadly codified commercial laws, but the laws contain inconsistencies and are not considered business friendly.
According to the 2021 Human Rights Report, “The constitution provides for an independent judiciary, but authorities did not respect judicial independence and impartiality. Observers believed corruption, inefficiency, and political interference with judicial decisions were widespread.” Businesses complain the authorities selectively enforce regulations and criminal laws and that cases are often politically motivated. At the February 2021 All Belarusian People’s Assembly, for example, Lukashenka announced he had ordered the closure of over 200 private businesses because of their “illegal support” for the political opposition.
Each of Belarus’ six regions and the capital city of Minsk have economic courts to address commercial and economic issues. In addition, the Supreme Court has a judicial panel on economic issues. In 2000, Belarus established a judicial panel to enforce intellectual property rights. Under the Labor Code, any claims of unfair labor practices are heard by regular civil courts or commissions on labor issues. However, the judiciary’s lack of independence from the executive branch prevents it from acting as a reliable and impartial mechanism for resolving disputes, whether labor, economic, political, commercial, or otherwise. According to Freedom House’s 2021 Nations in Transit report, for example, thousands of people were brutally repressed by Belarusian authorities following the fraudulent August 2020 presidential elections. No security officials were ever investigated for wrongdoing and none of the protestors who were prosecuted by the state received a fair trial.
Local economic court proceedings normally do not exceed two months. Court cases involving foreign persons are typically resolved within seven months unless an international agreement signed by Belarus dictates the resolution must take place sooner.
Foreign investment in Belarus is governed by the 2013 laws “On Investments” and “On Concessions,” the 2009 Presidential Decree No. 10 “On the Creation of Additional Conditions for Investment Activity in Belarus,” and other legislation as well as international and investment agreements signed and ratified by Belarus.
Issued in 2016, Presidential decree number 188 authorizes the Ministry of Antimonopoly Regulation and Trade to counteract monopolistic activities and promote market competition.
According to Article 12 of the Investment Code, neither party may expropriate or nationalize investments both directly and indirectly by means of measures similar to expropriation or nationalization, for other purposes than for the public benefit and on a nondiscriminatory basis; according to the appropriate legal procedure; and on conditions of compensation payment. However, Belarus has no law provisions that establish clear procedures for fair and timely compensation of an investor’s nationalized property. Belarus has signed 70 bilateral agreements on the mutual protection and encouragement of investments which include obligations regarding expropriation.
In 2021, there were no nationally-reported cases of nationalization, and there have been no instances of confiscation of business property as a penalty for violations of law. It should be noted, however, an official decree signed by Lukashenka on March 14 provides for special fees and penalties for businesses from “unfriendly” countries, including the United States, looking to leave the Belarusian market.
Belarus’ recent actions in response to Western sanctions indicate the government is prepared to violate its commitments under international agreements and domestic law. However, Belarus is party to the following dispute resolution mechanisms:
Belarus and the United States signed a Bilateral Investment Treaty (BIT), but entry into force is pending exchange of instruments of ratification. This is unlikely to take place in the near future given the breakdown of relations between the two countries over Belarus’ continued human rights abuses and support for Russia’s invasion of Ukraine. Most of the BITs concluded by Belarus include a provision on international investment arbitration as a mechanism for settling investor-State disputes and recognize the binding force of the awards issued by tribunals. Under Belarusian law, if an international treaty signed by Belarus establishes rules other than those established by local law, the rules of the international treaty prevail.
Since 2017, Belarus has faced three investment arbitration claims involving investors from the Netherlands and Russia. There were no known investment disputes between Belarusian government authorities and U.S. investors in 2021.
Judgments of foreign courts are accepted and enforced if there is a relevant international agreement signed by Belarus. Courts recognize and enforce foreign arbitral awards. The Belarusian Chamber of Commerce and Industry has an International Arbitration Court. The 2013 “Law on Mediation,” as well as codes of civil and economic procedures, established various alternative ways of addressing investment disputes.
Belarus’ 2012 bankruptcy law, related presidential edicts, and government resolutions are not always consistently applied. Additional legal acts, such as the Civil Code and Code of Economic Procedures, also include certain regulations on bankruptcy-related issues. Under the bankruptcy law, foreign creditors have the same rights as Belarusian creditors. Belarusian law criminalizes false and intentional insolvency as well as concealing insolvency. According to the World Bank’s 2020 Doing Business Index, Belarus was ranked 74 in Resolving Insolvency.
According to its most recent report, the Belgian central bank expects gross domestic product (GDP) to grow 2.6% in 2022 despite economic headwinds linked to global supply chain bottlenecks, spiking energy costs, and uncertainty related to COVID-19 and the Russian invasion of Ukraine. Experts project that Belgium’s growth rate will slow but remain above potential, dipping slightly to 2.4% in 2023 and further to 1.6% in 2024. The labor market remains strong as overall job numbers continue to increase, and analysts anticipate that the unemployment rate will decline steadily to 5.7% by 2024. The inflation rate will likely continue to increase, largely driven by rising energy prices. The Belgian central bank expects the rate to peak in 2022 at 4.9% and then decline as energy markets stabilize. Belgium’s budget deficit is projected to reach 6.3% of GDP for 2021 – down from a high of 9.1% in 2020 – and will likely remain above 4% of GDP through 2024. The level of government debt will hold steady, with most experts projecting 108.9% of GDP in 2021, 106.3% in 2022 and 107.5% in 2023.
Belgium is a major logistical hub and gateway to Europe, a position that helps drives its economic growth. Since June 2015, the Belgian government has undertaken a series of measures to reduce the tax burden on labor and to increase Belgium’s economic competitiveness and attractiveness to foreign investment. A July 2017 decision to lower the corporate tax rate from 35% to 25% further improved the investment climate. The current coalition government has not signaled any intention to revise this tax rate.
Belgium boasts an open market well connected to the major economies of the world. As a logistical gateway to Europe, host to major EU institutions, and a central location closely tied to the major European economies, Belgium is an attractive market and location for U.S. investors. Belgium is a highly developed, long-time economic partner of the United States that benefits from an extremely well-educated workforce, world-renowned research centers, and the infrastructure to support a broad range of economic activities
Belgium has a dynamic economy and attracts significant levels of investment in chemicals, petrochemicals, plastics and composites; environmental technologies; food processing and packaging; health technologies; information and communication; and textiles, apparel and sporting goods, among other sectors. In 2021, Belgian exports to the U.S. market totaled $27.7 billion, registering the United States as Belgium’s fourth largest export destination. Key exports included chemicals (37.6%), machinery and equipment (10.9%), and precious metals and stones (5.9%). In terms of imports, the United States ranked as Belgium’s fourth largest supplier of imports, with the value of imported goods totaling $27.6 billion in 2021. Key imports from the United States included chemicals (38.8%), machinery and equipment (11%), and plastics (10.7%).
1. Openness To, and Restrictions Upon, Foreign Investment
Belgium maintains an open economy, and its prosperity is highly dependent on international trade. Since WWII, making Belgium attractive to foreign investors has been the cornerstone of successive Belgian governments’ foreign and commercial policy. Competence over policies that weigh on the attractiveness of Belgium as a destination for foreign direct investment (FDI) lie predominantly with the federal government, which is responsible for developing domestic competition policy, wage setting policies, labor law, and most of the energy and fiscal policies. Attracting FDI, however, is the responsibility of Belgium’s three regional governments in Flanders, Wallonia, and the Brussels-Capital Region. Flanders Investment and Trade (FIT), Wallonia Foreign Trade and Investment Agency (AWEX) and Brussels Invest and Export (BIE) are the three investment promotion agencies responsible for attracting FDI to Belgium. One of their most visible activities is organizing the Royal Trade Missions, which are led by Princess Astrid (the king’s sister), as well as the economic part of the state visits by King Philippe. In June 2022, Princess Astrid plans to lead a Royal Trade Mission to Atlanta, New York City, and Boston with more than 500 participants. Neither the federal nor the regional governments currently maintain a formal dialogue with investors.
There are no laws in place that discriminate against foreign investors. [While U.S. companies continue to play key and long-standing roles in the development of the Belgian economy, a major U.S.-based multinational firm operating in the chemical cluster near the Port of Antwerp has raised concerns that Flemish government officials have unfairly regulated the company and subjected it to strict limitations not applied to other companies operating in the same sector and space. The firm and the Flemish government remain in regular contact to seek a fair and equitable solution; however, the perceived lack of regulatory certainty could lead to a reduction of industry investment and operations in Belgium if unresolved.
There are currently no limits on foreign ownership or control in Belgium, and there are no distinctions between Belgian and foreign companies when establishing or owning a business or setting up a remunerative activity.
Belgian authorities are, however, developing a national security-based investment screening law that will likely establish certain restrictions based on national security concerns. The draft law is not expected to be finalized and delivered to Parliament for vote before the end of 2022.
1. Deposit at least 20% of the initial capital with a Belgian credit institution and obtain a standard certification confirming that the amount is held in a blocked capital account;
2. Deposit a financial plan with a notary, and sign the deed of incorporation and the by-laws in the presence of a notary, who authenticates the documents and registers the deed of incorporation. The authentication act must be drawn up in French, Dutch, or German (Belgium’s three official languages); and
3. Register with one of the Registers of legal entities, VAT and social security at a centralized company docket and obtain a company number.
Based on the number of employees, the projected annual turnover, and the shareholder class, a company will qualify as a small or medium-sized enterprise (SME) according to the terms of the Promotion of Independent Enterprise Act of February 10, 1998. For a small or medium-sized enterprise, registration is possible once a certificate of competence has been obtained. The person in charge of the daily management of the company must prove his or her knowledge of business management with diplomas and/or practical experience.
A company is expected to allow trade union delegations when employing 20 or more full-time equivalents (FTEs).
The three Belgian regions each have their own investment promotion agency, whose services are available to all foreign investors.
Belgium does not actively promote outward investment. There are no restrictions for domestic investors to invest in certain countries, other than those that fall under UN or EU sanction regimes. In June 2022, the Belgian government plans to lead a Royal Trade Mission to Atlanta, New York City, and Boston with more than 500 participants. The mission will promote both Belgian investment into the United States and encourage foreign direct investment into Belgium.
3. Legal Regime
The Belgian government has adopted a generally transparent competition policy. The government has implemented tax, labor, health, safety, and other laws and policies to avoid distortions or impediments to the efficient mobilization and allocation of investment, comparable to those in other EU member states. While U.S. companies continue to play key and long-standing roles in the development of the Belgian economy, a major U.S.-based multinational firm operating in the chemical cluster near the Port of Antwerp has raised concerns that Flemish government officials have unfairly regulated the company and subjected it to strict limitations not applied to other companies operating in the same sector and space. The firm and the Flemish government remain in regular contact to seek a fair and equitable solution; however, the perceived lack of regulatory certainty could lead to a reduction of industry investment and operations in Belgium if unresolved.
Political competences in Belgium are shared between the federal government, the three regions – Flanders, Wallonia, and Brussels-Capital – and the French and German linguistic communities. (Note. Flanders merged the Flemish linguistic community into its regional government. End Note.) Notwithstanding the fact that the regions in Belgium are responsible for attracting foreign investors, most regulations impacting the business environment (taxes, labor market, energy) are controlled at the federal level. In contrast, environmental regulations are developed mostly at the regional level. A regulatory impact assessment (RIA) is mandatory for all primary and some subordinate legislation submitted to the Cabinet of Ministers at the federal level and is usually shared with social partners as a basis for consultation. Belgium publishes all its relevant legislation and administrative guidelines in an official Gazette, called Het Staatsblad/Le Moniteur Belge (https://www.ejustice.just.fgov.be/cgi/welcome.pl).
Recognizing the need to streamline administrative procedures in many areas, in 2015 the federal government set up a special task force to simplify official procedures. Traditionally, scientific studies or quantitative analysis conducted on the impact of regulations are made publicly available for comment. However, not all stakeholder comments received by regulators are made public.
Accounting standards are regulated by the Belgian law of January 30, 2001, and balance sheet and profit and loss statements are in line with international accounting norms. Cash flow positions and reporting changes in non-borrowed capital formation are not required. However, contrary to IAS/IFRS standards, Belgian accounting rules do require an extensive annual policy report.
Regarding Environmental, Social and Governance Impacts reporting (ESG), the EU’s Non-Financial Reporting Directive (NFRD) was transposed into Belgian law in 2017. The NFRD requires very large public interest entities (PIEs) to report environmental, social and employee, human rights, anti-bribery, and corruption information on an annual basis. On April 21, 2021, the European Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), which will update the NFRD. The CSRD aims to be applicable as of fiscal year 2023 and will significantly extend the scope of reporting requirements to all large companies and all companies listed on regulated markets (except listed micro-enterprises).
Regarding oversight or enforcement mechanisms to ensure governments follow administrative processes, local courts are expected to enforce foreign arbitral awards issued against the government. Recourse to the courts is available if necessary.
Public finances and debt obligations are generally transparent. Details on government budgets are available online, and the debt agency (https://www.debtagency.be/en) publishes all relevant data concerning government debt.
Belgium is a founding member of the EU, whose directives and regulations are enforced. On May 25, 2018, Belgium implemented the General Data Protection Regulation (GDPR) (EU) 2016/679, an EU regulation on data protection and privacy for all individuals within the European Union.
Through the European Union, Belgium is a member of the WTO, and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Belgium does not maintain any measures that are inconsistent with the Agreement on Trade-Related Investment Measures (TRIMs) obligations.
Belgium’s (civil) legal system is independent of the government and is a means for resolving commercial disputes or protecting property rights. Belgium has a wide-ranging codified law system since 1830. There are specialized commercial courts which apply the existing commercial and contractual laws. As in many countries, the Belgian courts labor under a growing caseload and ongoing budget cuts causing backlogs and delays. There are several levels of appeal.
Payments and transfers within Belgium and with foreign countries require no prior authorization. Transactions may be executed in euros as well as in other currencies.
Belgium has no debt-to-equity requirements. Dividends may be remitted freely except in cases in which distribution would reduce net assets to less than paid-up capital. No further withholding tax or other tax is due on repatriation of the original investment or on the profits of a branch, either during active operations or upon the closing of the branch.
Belgian authorities are currently developing a national security-based investment screening law that will likely establish certain restrictions based on national security concerns. The law likely will not be finalized and delivered to Parliament for a vote before the end of 2022.
There are three different regional Investment Authorities:
EU member states are responsible for competition and anti-trust regulations if there are cross-border dimensions. If cross-border effects are present, EU law applies, and European institutions are competent.
There are no outstanding expropriation or nationalization cases in Belgium with U.S. investors. There is no pattern of discrimination against foreign investment in Belgium.
When the Belgian government uses its eminent domain powers to acquire property compulsorily for a public purpose, current market value is paid to the property owners. Recourse to the courts is available if necessary. The only expropriations that occurred during the last decade were related to infrastructure projects such as port expansions, roads, and railroads.
Belgian bankruptcy law falls is under the jurisdiction of the commercial courts. The commercial court appoints a judge-auditor to preside over the bankruptcy proceeding and whose primary task is to supervise the management and liquidation of the bankrupt estate, in particular with respect to the claims of the employees. Belgian bankruptcy law recognizes several classes of preferred or secured creditors. A person who has been declared bankrupt may subsequently start a new business unless the person is found guilty of certain criminal offences that are directly related to the bankruptcy. The Business Continuity Act of 2009 provides the possibility for companies in financial difficulty to enter into a judicial reorganization. These proceedings are to some extent similar to Chapter 11 as the aim is to facilitate business recovery. In the World Bank’s 2020 Doing Business Index, Belgium ranks number 9 (out of 190) for the ease of resolving insolvency.
Belize has the smallest economy in Central America, with a gross domestic product (GDP) of US $1.3 billion in 2021, a 12.5 percent expansion over the previous year. Due to mounting fiscal pressures and a need to diversify and expand its economy, the Government of Belize (GoB) is open to, and actively seeks, foreign direct investment (FDI). However, the small population of the country (2021 estimate – 432,516 persons), high cost of doing business, high public debt, bureaucratic delays, often insufficient infrastructure, and corruption constitute investment challenges. The Central Bank of Belize projects the country’s GDP will likely expand 6.0 percent in 2022 while the IMF’s projects 6.5 percent growth, led by a rebound of activity in the construction, retail and wholesale trade, transport and communication, and tourism sectors.
Public debt declined from 133 percent of GDP in 2020 to 108 percent in 2021. This was in large part due to the Blue Bond Agreement, a successful marine protection and conservation-driven financial transaction. International reserves increased from US $348 million (3.8 months of imports) in 2020 to US $420 million (3.9 months of imports) in 2021, partly due to the IMF’s Special Drawing Rights (SDR) 25.6 million allocation, which the authorities are keeping as reserve. Belize’s government encourages FDI to relieve fiscal pressure and transform the economy. The Central Bank of Belize recorded increased inflows of FDI at US $152.25 million in 2021 and outflows at US $24.4 million in the same period. FDI inflows were concentrated primarily in real estate, construction, financial intermediation, and the hotel and restaurant industries.
Generally, Belize has no restrictions on foreign ownership and control of companies; however, foreign investments must be registered with the Central Bank of Belize and adhere to the Exchange Control Act and related regulations. The Government of Belize (GoB) made progress on the ease of doing business through trade license, stamp duty, exchange control, and land reforms to streamline business applications and related processes.
The banking system remains stable but fragile. Since January 2020, a domestic bank and an international bank each lost a correspondent banking relationship, a significant portion of the sector. In March 2022, the GoB lowered the business tax on the net interest income charged to banks and financial institutions to encourage lending in strategic foreign exchange earning sectors such as tourism, agriculture, and the Business Process Outsourcing (BPO) sectors.
There were incidents of property destruction at two American companies involved in sugar cane industry in the last year. In response, a prominent agro-productive organization wrote to the Government in January 2022 expressing concerns that the Belizean government’s failure to protect and support private sector investors in these instances led to damaging the investment climate and the Belizean economy.
Belize is categorized as a small island developing state (SIDS) that is highly vulnerable to the effects of climate change and is a relatively minor contributor to global greenhouse gas emissions. Belize’s updated National Determined Contributions (NDC) is nonetheless committed to developing a long-term strategy aligned with achieving net zero global emissions by 2050.
1. Openness To, and Restrictions Upon, Foreign Investment
Belize’s government encourages FDI to relieve fiscal pressure and transform the economy. In November 2021, the Government of Belize hosted its first national Investment Summit under the theme “Belize: Open for Business.” The Government of Belize also conducted trade missions to the United States to promote itself as an investment destination and credible export market. In April 2022, senior Belizean government representatives hosted a diaspora tour in the United States to encourage Belizean-Americans to invest in Belize. The estimated Belize diaspora is 300,000 persons. While the government is interested in attracting FDI, certain bureaucratic and regulatory requirements impede investment and growth.
Public debt declined from 133 percent of GDP in 2020 to 108 percent in 2021. This was in large part due to the Blue Bond Agreement, a successful marine protection and conservation-driven financial transaction. Under this deal, The Nature Conservancy (TNC) lent funds to Belize to buy back its Superbond (totaling US $553 million or 30 percent of GDP) at a discounted price of 55 cents per dollar. In exchange, Belize committed to increase expenditure on marine conservation until 2041 and to expand its Biodiversity Protection Zones to 30 percent by 2026.
There are no laws that explicitly discriminate against foreign investors. In practice, however, investors complain that lack of transparency, land insecurity, bureaucracy, delays, and corruption are factors that make it difficult to do business in Belize. U.S. firms have identified challenges in participating and competing in areas related to the bidding, procurement, and dispute settlement processes, in particular relating to State Owned Enterprises (SOEs).
The Belize Trade and Investment Development Service (BELTRAIDE; www.belizeinvest.org.bz) is the investment and export promotion agency. It promotes FDI through various incentive packages and identified priority sectors. Export-orientated businesses operating in less developed areas also receive preferential treatment. The Economic Development Council, https://edc.gov.bz, is a public-private sector advisory body established to advance public sector reforms, to promote private sector development and to inform policies for growth and development.
Belize acknowledges the right for foreign and domestic private entities to establish and own business enterprises and engage in remunerative activities. Foreign and domestic entities must first register their business before engaging in business. They must also register for the appropriate taxes, including business tax and general sales tax, as well as obtain a social security number and trade license.
Generally, Belize has no restrictions on foreign ownership and control of companies; however, foreign investments must be registered with the Central Bank of Belize and adhere to the Exchange Control Act and related regulations. To register a business name, foreigners must apply with a Belizean partner or someone with a permanent residence. Requirements differ based on the applicant’s residency status and whether the individual is seeking to establish a local or foreign currency account.
Foreign investments must be registered and obtain an “Approved Status” from the Central Bank to facilitate inflows and outflows of foreign currency and repatriate funds gained from profits, dividends, loan payments, and interest. The Exchange Control Regulation Act was amended in 2020 to relax the requirement for non-residents to obtain prior permission from the Central Bank to conduct transaction in securities and real estate. The amendment now requires for prior written notice to the Central Bank with full particulars of the transaction.
Some investment incentives show preference to Belizean-owned companies. For example, to qualify for a tour operator license, a business must be majority-owned by Belizeans or permanent residents of Belize (http://www.belizetourismboard.org). This qualification is negotiable, particularly where a tour operation would expand into a new sector of the market and does not result in competition with local operators. The government does not impose any intellectual property transfer requirements.
Foreign investors seeking to avail themselves of various incentives programs are required to adhere to screening guidelines outlined in the specific program. These may include updating their shareholders registry, obtaining requisite Central Bank of Belize approvals, and fulfilling performance requirements. Foreign investors undertaking large capital investments are also advised to adhere to environmental laws and regulations. The government requires developers to prepare an Environmental Impact Assessment (EIA) for certain projects. When purchasing land or planning to develop in or near an ecologically sensitive zone, the government recommends the EIA fully address any measures by the investor to mitigate environmental risks. The Department of Environment website, http://www.doe.gov.bz has more information on the Environmental Protection Act and other regulations, applications, and guidelines.
In the past three years, there has been no investment policy review of Belize by the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD). Belize concluded its third Trade Policy Review in the World Trade Organization (WTO) in 2017.
In the past five years, civil society organizations concerned with investment policy lobbied directly with government. As an example, the Belize Chamber of Commerce and Industry, the Belize Network of NGOs, and the opposition were represented on the National Oversight Committee during the height of the COVID- 19 pandemic.
BELTRAIDE (http://www.belizeinvest.org.bz ), a statutory body of the Government of Belize, operates as the country’s investment and export promotion agency. Its investment facilitation services are open to all investors, foreign and domestic. While there are support measures to advance greater inclusion of women and minorities in entrepreneurial initiatives and training, the business facilitation measures do not generally distinguish by gender or economic status.
The GoB made progress on the ease of doing business through trade license, stamp duty, exchange control, and land reforms to streamline business applications and related processes. Myriad government services are going digital. Business and personal income tax offices amalgamated into the Belize Tax Service which launched an online tax payment system. Belize’s Financial Inclusion Strategy also expands access of financial services to underserved populations. Businesses must register with the tax department and local government to pay business and general sales tax and obtain a trade license. An employer should also register employees for social security. Permission from the Central Bank is required for all overseas investments between residents and non-residents
Belize does not promote or incentivize outward investments. The government does not restrict domestic investors from investing abroad. However, the Central Bank places currency controls on investment abroad, with Central Bank approval required prior to foreign currency outflows.
3. Legal Regime
There are no reports of government policies, processes, or laws significantly distort or discriminate against foreign investors. Nonetheless, some investors have complained of systematic shortfalls such as unreliable land titles and bureaucratic delays or corruption, which hinder doing business in Belize. U.S. firms have also identified challenges in participating and competing in areas related to the bidding, procurement, and dispute settlement processes, particular to State Owned Enterprises (SOEs). There are no nongovernmental organizations (NGOs) or private sector associations that manage regulatory processes. NGOs and private sector associations do lobby on behalf of their members but have no statutory authority.
Regulatory authority exists both at the local and national levels with national laws and regulations being most relevant to foreign businesses. The cabinet dictates government policies that are enacted by the legislature and implemented by the various government authorities. Some quasi-governmental organizations are also mandated by law to manage specific regulatory processes, e.g., the Belize Tourism Board, BELTRAIDE, and the Belize Agricultural Health Authority. Regulations exist at the local level, primarily relating to property taxes and registering for trade licenses to operate businesses in the municipality.
Some supra-national organizations and regulatory structures exist. For example, some elements of international trade affecting U.S. businesses are affected by CARICOM treaties, as in the case of the export of sugar within CARICOM.
Accounting, legal, and regulatory systems are consistent with international norms. Publicly owned companies generally receive audits annually, and the reports are in accordance with International Financial Reporting Standards and International Standards on Auditing.
The government does not promote or require companies’ environmental, social and governance disclosure to facilitate transparency or help investors and consumers distinguish between high- and low-quality investments.
Draft bills or regulations are generally made available for public comment through a public consultation process. Once introduced in the House of Representatives, draft bills are sent to the relevant standing committee, which then meet and invite the public and interested persons to review, recommend changes, or object to draft laws prior to further debate. The mechanism for drafting bills, and enacting regulations and legislation generally applies across the board and includes investment laws and regulations. Public comments on draft legislation are not generally posted online nor made publicly available. In a few instances, laws are passed quickly without meaningful publication, public review, or public debate. The government does not generally disclose the basis on which it reviews regulations. Some government agencies make scientific studies publicly available.
Printed copies of the Belize Government Gazette contain proposed as well as enacted laws and regulations and are publicly available for a subscription fee. Additionally, enacted laws are published free of cost on the website of the National Assembly or Parliament, but there is a delay in updating the website.
Regulations and enforcement actions are appealable with regulatory decisions subject to judicial review. The Office of the Ombudsman also may investigate allegations of official wrongdoing but has no legal authority to bring judicial charges. Reports of wrongdoing are submitted to the affected ministry. Additionally, the Annual Report of the Ombudsman is presented to the National Assembly and is a publicly available document.
The offices for business and personal income tax amalgamated into the Belize Tax Service, which launched an online tax payment system in August 2021. The Companies Registries, along with the court system, are being digitized to facilitate e-filing of documents and online payment of fees. In March 2022, the government lowered business tax on the net interest income charged to banks and financial institutions with a view to incentivizing lending in strategic foreign exchange earning sectors and at the same time increased the tax on specific sectors to disincentivize personal and distribution loans. The amendments to the tax system will improve tax collection and a stem leakage. Other anticipated reforms are expected to improve the ease of doing business, provide greater transparency and stimulate economic growth with lending to foreign exchange earning sectors.
Information on public finance, both the government’s budget and its debt obligations (including explicit and contingent liabilities) are widely accessible to the public, with most documents available online. The budget documents do not include information on contingent or state-owned enterprise (SOE) debt unless the GoB guarantees or is paying these debts. Nonetheless, the audited annual reports of all major SOEs were publicly available on their websites. The Auditor General’s report on government spending, however, is often significantly delayed.
As a full member of the Caribbean Community (CARICOM), Belize’s foreign, economic and trade policies vis-a-vis non-member states are coordinated regionally. The country’s import tariffs are largely defined by CARICOM’s Common External Tariff.
Besides CARICOM, Belize is a member of the Central American Integration System (SICA) at a political level, but is not a part of the Secretariat of Central American Economic Integration (SIECA) that supports economic integration with Central America. Belize is also a member of the WTO and adheres to the Organization’s agreements and reporting system.
The Belize Bureau of Standards (BBS) is the national standards body responsible for preparing, promoting, and implementing standards for goods, services, and processes. The BBS operates in accordance with the WTO Agreement on Technical Barriers to Trade and the CARICOM Regional Organization for Standards and Quality. The BBS is also a member of the International Electrotechnical Commission (IEC), the International Organization for Standardization (ISO), and Codex Alimentarius.
As a former British colony, Belize follows the English Common Law legal system. The Belize Constitution is the supreme law and founded on the principle of a separation of powers with independence of the judiciary from the executive and legislative branches of government. Belize has a written Contract Act, but no specialized courts to deal with commercial disputes or cases.
The judicial system remains generally independent of the executive branch. Case law exists where the judiciary has ruled against the government, and its judgements are respected and authoritative. The highest appellate court exists outside of Belize at the Caribbean Court of Justice, providing a level of independence for the judiciary. The judiciary remains underfunded and understaffed resulting in frequent adjournments, delays, poor case-flow management and a backlog of cases. General information relating to Belize’s judicial and legal system, including links to Belize’s Constitution, Laws and judicial decisions are available at the Judiciary of Belize website www.belizejudiciary.org.
Businesses and citizens may appeal regulations and enforcement actions. Regulatory decisions are also subject to judicial review. Judgments by the Belize Supreme Court and the Court of Appeal are available at http://www.belizejudiciary.org.
The Caribbean Court of Justice has two jurisdictions, appellate and original, in relation to CARICOM Members States. In its appellate jurisdiction, the CCJ is the final court of appeal for both civil and criminal matters emanating from CARICOM Member States. In its original jurisdiction, this Court is responsible for interpreting and applying the Revised Treaty of Chaguaramas, the treaty establishing the Caribbean Community and CARICOM Single Market and Economy.
The country has an English Common Law legal system supplemented by local legislation and regulations. The legal system does not generally discriminate against foreign investment and there are no restrictions to foreign ownership. The Exchange Control Act and its subsidiary laws and regulations, however, provide the legal framework that applies to foreign ownership and control. Other laws stipulate that foreign investment can qualify for incentives; citizens have the right to private property; contracts are legally binding and enforceable, and regulations are subject to judicial review among other provisions favorable to foreign investment.
Major laws enacted or amended are generally available in the National Assembly’s website at www.nationalassembly.gov.bz. For the previous year, these include the Blue Bond Loan Act, 2021; Companies (Amendment) Act, 2021; Data Protection Act, 2021; Electronic Evidence Bill, 2021; Electronic Transactions Act, 2021; Electronic Transfer of Funds Crime Act, 2021; Immigration (Amendment) Act,, 2021; Patents (Amendment) Act, 2021; Public Sector Data Sharing Act, 2021; Securities Industry Act, 2021; Stamp Duties (Amendment) Act, 2021; Sugar Industry (Amendment) Act, 2021; Trademarks (Amendment) Act, 2021; Tax Administration and Procedures (Amendment) Act, 2021; Central Bank of Belize (Amendment) Act, 2022; and Income and Business Tax (Amendment) Act, 2022.
There is no “one-stop-shop” website for investment, and the laws, rules, procedures, and reporting requirements related to investors differ depending on the nature of the investment. BELTRAIDE provides advisory services for foreign investors relating to procedures for doing business in Belize and what incentives might be available to qualifying investors. Further information is available at the BELTRAIDE website: http://www.belizeinvest.org.bz
Belize does not have any laws governing competition, but there are attempts to limit outside competition in certain industries (such as food and agriculture) by levying high import duties and import licensing requirements.
The government used the right of eminent domain in several cases to expropriate private property, including land belonging to foreign investors. There were no new expropriation cases in 2021. However, claimants in previous cases of expropriation assert the GoB failed to honor agreements entered into by a previous administration. Belizean law requires that the government assess and compensate according to fair market value. Expropriation cases can take several years to settle and there are a few cases where compensation is still pending. Belize nationalized two companies in public-private partnership: Belize Electricity Limited and Belize Telemedia Limited. These actions were challenged in the courts and resolved in 2015 and 2017, respectively.
The Caribbean Court of Justice delivered a judgment relating to the Belmopan Land Development Corporation Limited (BLDCL) in January 2022, wherein it upheld the decision of the trial judge in favor of BLDCL. The case pertained to compensation owed by the government for 1,394 acres of land expropriated in 2013. After negotiations for market value failed, the matter was taken before local courts. The CCJ upheld the trial judge’s quantum of damages to BLDCL for just over US $8 million.
The Bankruptcy Act of Belize provides for bankruptcy filings. The Act provides for the establishment of receivership, trustees, adjudication, and seizures of the property of the bankrupt. The court may order the arrest of the debtor as well as the seizure of assets and documents in the event the debtor may flee or avoid payment to creditors. The Director of Public Prosecutions may institute proceedings for offenses related to the bankruptcy proceedings. The bankruptcy law generally outlines actions a creditor may take to recoup losses. Bankruptcy protections are not as comprehensive as U.S. bankruptcy law.
Benin transitioned to a democracy in 1990, enjoying a reputation for regular, peaceful, and, until recently, inclusive elections. In 2019 and 2021, the government held legislative and presidential elections, respectively, which were not fully inclusive nor competitive. Elections-related unrest in 2019 and 2021 resulted in several deaths. In April 2021, President Patrice Talon was re-elected for a second, and pursuant to Benin’s constitution, final five-year term.
Benin’s overall macroeconomic conditions were positive in 2020, though growth declined compared to previous years. According to the World Bank, GDP growth slowed from 6.9 percent in 2019 to 3.8 percent in 2020. Most of the slowdown in 2019 and 2020 was driven by the COVID-19 pandemic and Nigeria’s partial closure of its borders that lasted from August 2019 to December 2020. In December 2021, Benin’s National Assembly unanimously passed the Government of Benin (GOB) 2022 budget, which projects economic growth to accelerate to seven percent in 2022, higher than estimates from multilateral institutions. The IMF projection for growth in 2022 is 6.5 percent, and the African Development Bank projects a growth rate recovery from 4.8 in 2021 to 6.5 percent in 2022 if Covid-19 is brought under control. Port activity and the cotton sector are the largest drivers of economic growth. Telecommunications, agriculture, energy, cement production, and construction are other significant components of the economy. Benin also has a large informal sector. The country’s GDP is roughly 51 percent services, 26 percent agriculture, and 23 percent manufacturing.
In January 2022, the Talon administration released its second government action plan (French acronym-PAG) estimated at $20.6 billion. The PAG lists 342 projects (half of which are carried forward from the Talon administration’s first PAG covering 2016-2021) across 23 sectors. With the goals of strengthening the administration of justice, fostering a structural transformation of the economy, and improving living conditions, the projects are concentrated in infrastructure, agriculture and agribusiness, tourism, health, energy, telecomuncation, and education. The government estimates that full implementation of the PAG will result in the creation of 500,000 new jobs and a leap in national economic and social conditions. The government intended that 48 percent of the PAG be funded through public funds and the remainder through public-private partnerships (PPPs). Through the end of 2021 a limited number of public-private partnerships had been secured. Government critics allege that the Talon administration is using the PAG in part to channel resources and contracts to administration insiders.
Benin continues efforts to attract private investment in support of economic growth amidst reports of high-level corruption among government insiders and occasional failure to respect foreign investment contracts. The Investment and Exports Promotion Agency (APIEX) is a one-stop-shop for promoting new investments, business startups, and foreign trade. In 2020, APIEX worked with foreign companies to facilitate new investments, though some companies reported that the agency was under-resourced and hamstrung by bureaucratic red tape in other agencies and ministries. APIEX reported that business creation increased to 40,000 in 2020 from 13,000 in 2015. The construction of a Special Economic Zone, located at Glo-Djigbé, is also a major component of the second PAG. Located 30 miles north of Benin’s capital Cotonou, the Glo-Djigbé Industrial Zone (GDIZ) is currently in the works under the direction of Benin’s Industry Promotion and Investment Company (SIPI), a public private partnership. The GDIZ is structured such that the GOB owns a 35 percent stake in it with the the Mauritanian-Singaporean firm Arise Integrated International Platfoms (Arise-IIP) owning 65 percent. Glo-Djigbé seeks to transform numerous locally produced agricultural products and high-tech goods for export. Though no businesses have started operating in GDIZ yet, approximately 25 have signed contracts to begin operations there, including Oryx and JNP (both petroleum services); NKS (cashew processing), Groupe Aigle (cotton processing), and SIDDIH (pharmaceuticals). The GDIZ is expected to increase Benin’s GDP by $7 billion over the next decade and boost export revenues. The primary target markets will be the United States, the European Union, and other African countries. The GDIZ covers 1,640 hectares with 400 hectares being developed currently.
Benin’s second MCC power compact, valued at $391million entered into force in June 2017. This compact aims to strengthen the national power utility, attract private sector investment into solar power generation, and fund infrastructure investments in electricity distribution as well as off-grid electrification for poor and unserved households. It is also advancing policy reforms to bolster financing for the electricity sector and strengthen regulation and utility management. Through the compact MCC is expanding the capacity and increasing the reliability of Benin’s power grid in southern and northern Benin. As two thirds of Benin’s population does not have access to electricity, the compact also includes a significant off-grid electrification project via a clean energy grant facility that supports private sector investment in off-grid power systems. Benin’s second MCC compact follows its first compact (2006-2011) which modernized the Port of Cotonou and improved land administration, the justice sector, and access to credit.
1. Openness To, and Restrictions Upon, Foreign Investment
The Beninese government encourages foreign investment, which it views as critical for economic development and successful implementation of the $20.6 billion PAG. In 2021 alone, the GOB raised €1.5 billion on the international Eurobond market. APIEX is dedicated to increasing Beninese exports and foreign direct investment and reducing administrative barriers to doing business. APIEX serves as the single investment promotion center and conduit of information between foreign investors and the Beninese government. It is the technical body responsible for reviewing applications for approval under the Investment Code and the administrative authority for SEZs. The agency has significantly reduced processing times for registering new companies (from 15 days to one day) and issuing construction permits (from 90 to 30 days). In practice, APIEX faces capacity constraints, processing times can be longer than stated, and its website is often out of date and lacks information on the latest regulations and laws. The Investment Code, amended in 2020, establishes conditions, advantages, and rules applicable to domestic and foreign direct investment. Additional information on business startup is available at https://monentreprise.bj/ .
Beninese law guarantees the right to own and transfer private property. The court system enforces contracts, but the judicial process is inefficient and suffers from corruption. Enforcement of rulings is problematic. Most firms entering the market work with an established local partner and retain a competent Beninese attorney.
In 2015, the Beninese government conducted the most recent joint investment policy review (IPR), with the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), and the United Nations Conference on Trade and Development (UNCTAD). Further to a 2016 fact-finding mission, the UNCTAD Report on the Implementation of the IPR of Benin assesses progress in implementing the original recommendations of the IPR and highlights policy issues to be addressed in the investment climate. The full report may be found at: https://investmentpolicy.unctad.org/investment-policy-review/23/benin
In an effort to facilitate business travel and tourism, Benin implements a visa-free system for African nationals and an online e-visa system for other foreign nationals. The country is working to open four new trade offices abroad to enhance Benin’s international business opportunities. One is already underway in Shenzhen, China
Benin’s 2017 Property Code made property registration simpler and less expensive in order to boost the real estate market, improve access to credit, and reduce corruption in the registration process. The measures apply to real personal property, estate and mortgage taxes, and property purchase receipts. In order to register property, individuals and businesses must present a taxpayer identification number (registration for which is free). Land registration and property purchase certifications are free, but there is a fee for obtaining a property title. The GOB has announced that as of 2023 real personal property transactions cannot take place without producing a land title.
Benin Control is charged with expediting customs clearances and minimizing processing barriers to clearing cargo at the Port of Cotonou. Benin Control makes it possible to obtain cargo clearance within as little as 48 hours after its off-loading at the Port, though in practice this can take longer. The reinstitution of the cargo inspection and scanning program known as PVI, first tried in 2012, resumed operations at the Port in 2017. Under the PVI program, Benin Control scans between 30 and 45 randomly selected shipping containers per hour. Benin Control bills all containers exiting the Port– regardless of whether they are selected for scanning – at the rate of $60 (XOF 35,400) for a 20-foot container and $79 (XOF 47,200) for a 40-foot container (https://benincontrol.com/services/scanning).
The Beninese government has no policies or incentives in place to encourage Beninese businesspeople to invest abroad. The Beninese government does not restrict domestic investors from investing abroad.
3. Legal Regime
Benin is a member of UNCTAD’s international network of transparent investment procedures. Foreign and domestic investors can find detailed information on administrative procedures applicable to investment and income generating operations at https://unctad.org/news/how-un-helped-benin-become-worlds-fastest-place-start-business-mobile-phone, 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 bases justifying the procedures. There is no rule to prevent a monopoly over a particular business sector. The Benin Private Investment Council (http://www.cipb.bj/) is the only business-related think-tank or body that advocates for investors. Generally, draft bills are not available for public comment though promulgated laws are available at https://sgg.gouv.bj/documentheque/lois/. Individuals, including non-citizens, have the option to file appeals about or challenge enacted laws with the Constitutional Court.
Benin is a member of WAEMU and the Organization for the Harmonization of African Business Law (OHADA) and has adopted OHADA’s Universal Commercial Code (codified law) to manage commercial disputes and bankruptcies within member countries. Benin is also a member of OHADA’s Common Court of Justice and Arbitration and the International Center for the Settlement of Investment Disputes (ICSID). OHADA provisions govern bankruptcy. Debtors may file for reorganization only, and the creditors may file for liquidation only. Benin is a member of the WTO and notifies all draft technical regulations to the organization’s Committee on Technical Barriers to Trade (TBT).
Benin has a civil law system. The legal framework includes various legislative and regulatory texts covering family law, land law, labor law, criminal law, criminal procedure, and civil, commercial, social, and administrative proceedings. The Cotonou commercial court, created in 2017, enforces commercial laws and regulations. In 2018, Benin created an anti-terrorism, drugs, and economic crimes court (CRIET), which until recently lacked a mechanism for substantive appeal. The CRIET has convicted and sentenced numerous government detractors and political opponents, raising concerns about its independence. In February 2020, Benin created an appeals chamber within the CRIET. In general, judicial processes are slow, and challenges to the enforcement of court decisions are common. Magistrates and judges are appointed by the President of the Republic. Benin’s courts enforce rulings of foreign courts and international arbitration.
The Investment Code provides the legal framework for foreign direct investment. The Code establishes conditions, advantages, and rules applicable to domestic and foreign direct investment. The GOB websites https://benindoingbusiness.bj/and https://gdiz-benin.com/ make available online information on foreign direct investment regulations and procedures, though at times these websites may be out of date. Benin is a member of OHADA’s Common Court of Justice and Arbitration (CCJA) and the International Center for the Settlement of Investment Disputes (ICSID). Investors may include arbitration provisions in their contracts in order to avoid prolonged entanglements in the Beninese courts. The United Nations investment guide for Benin (https://www.theiguides.org/public-docs/guides/benin/) provides a general guide for foreign direct investment steps and procedures.
Benin’s legal framework does not address anti-trust or competition issues. The government does not have an agency or office that reviews transactions for competition-related concerns.
Local laws forbid the government from nationalizing private enterprises operating in Benin. In July 2020 West African hotel developer Teyliom International filed a request for arbitration with the World Bank International Center for Settlement of Investment Disputes (ICSID) in relation to the Beninese government’s expropriation of a hotel the company had been constructing in Cotonou. This arbitration case is currently pending at ICSID.
OHADA provisions govern bankruptcy. Debtors may file for reorganization only, and creditors may file for liquidation only.
In general, Bolivia is open to foreign direct investment (FDI). In 2021, gross FDI flows received reached USD 440 million, higher than in 2020 when Bolivia registered a significant divestment of USD 1,018 million. FDI flows were greatest in the sectors of hydrocarbons, manufacturing, industry, and commerce, together representing over 80 percent of the total. Additional sectors receiving some FDI included the transport sector, storage and communications, insurance companies, and real estate services.
The year 2021 was economically characterized as a rebound after the effects of the COVID-19 pandemic in 2020, in which Gross Domestic Product (GDP) fell by 8.9 percent, the largest contraction in over 50 years. The leading sectors were mining, construction, and transport, registering double digit growth rates. International financial institutions estimated GDP growth between 5-5.5 percent for 2021. Bolivia was the fastest growing economy in the continent from 2014-2016 and in the top three until the start of the pandemic.
Bolivia abrogated the Bilateral Investment Treaties (BIT) it had with the United States and several other countries in 2012. The Bolivian government claimed the abrogation was necessary for Bolivia to comply with the 2009 Constitution. Companies that invested under the U.S. – Bolivia BIT will be covered by its terms until June 10, 2022, but investments made after June 10, 2012, are not covered.
Notwithstanding the uncertain political situation, Bolivia’s investment climate has remained relatively steady over the past several years. Lack of legal security, corruption allegations, and unclear investment incentives are all impediments to investment in Bolivia. There is no significant FDI from the United States in Bolivia, and there are no initiatives designed to encourage U.S. investment specifically. Bolivia’s current macroeconomic stability, abundant natural resources, and strategic location in the heart of South America make it a prospective country for investment.
During the COVID-19 pandemic, the Bolivian government took several economic measures to support families, such as authorizing postponement in the payment of basic services (water, electricity, natural gas, telecommunications) and credit payment deferral for the private sector. These measures ended in 2021.
Bolivia’s Mother Earth Law stipulates climate change mitigation and adaptation. Bolivia last updated its Nationally Determined Contributions (NDC) for implementing the Paris Agreement in 2015. Bolivia does not have any regulatory “green” incentives for investment.
In 2021, the investment rate as a percentage of GDP (18 percent) was in line with regional averages. There has also been a shift from private to public investment. In recent years, private investment was particularly low because of the deterioration of the business environment. From 2006 to 2021, private investment, including local and foreign investment, averaged 7 percent of GDP. During the same period, public investment grew significantly, reaching an annual average of 12 percent of GDP.
FDI is highly concentrated in natural resources, especially hydrocarbons and mining, which account for nearly two-thirds of FDI in Bolivia. Since 2006, the net flow of FDI averaged 1.6 percent of GDP. Before 2006, it averaged around 6.7 percent of GDP.
1. Openness To, and Restrictions Upon, Foreign Investment
In general, Bolivia remains open to FDI. The 2014 Investment Law guarantees equal treatment for national and foreign firms. However, it also stipulates that public investment has priority over private investment (both national and foreign) and that the Bolivian government will determine which sectors require private investment.
Bolivia abrogated the BIT it signed with the United States in 2012. The government under former president Evo Morales claimed the abrogation was necessary for Bolivia to comply with the 2009 Constitution. Companies that invested under the U.S.–Bolivia BIT will be covered under its terms until June 10, 2022, but investments made after June 10, 2012, are not covered.
Pursuant to Article 320 of the 2009 Constitution, Bolivia no longer recognizes international arbitration forums for disputes involving the government. The parties also cannot settle the dispute in an international court.
Specifically, Article 320 of the Bolivian Constitution states:
Bolivian investment takes priority over foreign investment.
Every foreign investment will be subject to Bolivian jurisdiction, laws, and authorities, and no one may invoke a situation for exception, nor appeal to diplomatic claims to obtain more favorable treatment.
Economic relations with foreign states or enterprises shall be conducted under conditions of independence, mutual respect, and equity. More favorable conditions may not be granted to foreign states or enterprises than those established for Bolivians.
The state makes all decisions on internal economic policy and will not accept demands or conditions imposed on this policy by states, banks or Bolivian/foreign financial institutions, multilateral entities, or transnational enterprises.
Public policies will promote internal consumption of products made in Bolivia.
Article 262 of the Constitution states:
“The fifty kilometers from the border constitute the zone of border security. No foreign person, individual, or company may acquire property in this space, directly or indirectly, nor possess any property right in the waters, soil or subsoil, except in the case of state necessity declared by express law approved by two-thirds of the Plurinational Legislative Assembly. The property or the possession affected in case of non-compliance with this prohibition will pass to the benefit of the state, without any indemnity.”
The judicial system faces a huge backlog of cases, limited staffing, scarce resources. It is also believed to be influenced by political actors. Swift resolution of cases, either initiated by investors or against them, is unlikely. The Marcelo Quiroga Anti-Corruption law of 2010 makes companies and their signatories criminally liable for breach of contract with the government, and the law can be applied retroactively. Authorities can use this threat of criminal prosecution to force settlement of disputes. Commercial disputes can often lead to criminal charges, and cases are often processed slowly. See our Human Rights Report as background on the judicial system, labor rights, and other important issues.
Article 129 of the Bolivian Arbitration Law No. 708, established that all controversies and disputes that arise regarding investment in Bolivia will have to be addressed inside Bolivia under Bolivian laws. Consequently, international arbitration is not allowed for disputes involving the Bolivian government or state-owned enterprises (SOEs).
Bolivia does not have an investment promotion agency to facilitate foreign investment.
There is a right for foreign and domestic private entities to establish and own business enterprises and engage in remunerative activity.
Investors may judge that preferential treatment is being given to their Bolivian competitors, for example, in key sectors where private companies compete with state-owned enterprises. Additionally, foreign investment is not allowed in matters relating directly to national security.
The Constitution specifies that all hydrocarbon resources are the property of the Bolivian people and that the state will assume control over their exploration, exploitation, industrialization, transport, and marketing (Articles 348 and 351). Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) is an SOE that manages hydrocarbons transport and sales and is responsible for ensuring that the domestic market demand is satisfied at prices set by the hydrocarbons regulator before allowing any hydrocarbon exports. YPFB benefitted from government action in 2006 that required operators to turn over their production to YPFB and to sign new contracts that gave YPFB control over the distribution of gasoline, diesel, and liquid petroleum gas (LPG) to gas stations. The law allows YPFB to enter joint venture contracts with national or foreign individuals, and with companies wishing to exploit/trade hydrocarbons or their derivatives. For companies working in the industry, contracts are negotiated on a service-contract basis, and there are no restrictions on ownership percentages of the companies providing the services.
The Constitution (Article 366) specifies that every foreign enterprise that conducts activities in the hydrocarbons production chain will submit to the sovereignty of the state, and to the laws and authority of the state. No foreign court case or foreign jurisdiction will be recognized, and foreign investors may not invoke any exceptional situation for international arbitration, nor appeal to diplomatic claims.
According to the Constitution, no concessions or contracts may transfer the ownership of natural resources or other strategic industries to private interests. Instead, temporary authorizations to use these resources may be requested at the pertinent ministry (mining, water and environment, public works, etc.). The Bolivian government needs to renegotiate commercial agreements related to forestry, mining, telecommunications, electricity, and water services, to comply with these regulations.
The Telecommunications, Technology and Communications General Law from 2012 (Law 164, Article 28) stipulates that the licenses for radio broadcasts will not be given to foreign persons or entities. Further, in the case of broadcasting associations, the share of foreign investors cannot exceed 25 percent of the total investment, except in those cases approved by the state or by international treaties.
The Central Bank of Bolivia is responsible for registering all foreign investments. According to the 2014 Investment Law, any investment will be monitored by the relevant ministry for each sector. Each Ministry assesses industry compliance with the incentive objectives. To date, only the Ministry of Hydrocarbons and Energy proposed incentives that were enacted by Congress to incentivize the exploration and production of hydrocarbons.
Bolivia underwent a World Trade Organization (WTO) trade policy review in 2017. In his concluding remarks, the WTO Chair noted several WTO members raised challenges impacting investor confidence in Bolivia, due primarily to Bolivia’s abrogation of 22 BITs following the passage of its 2009 constitution. However, some WTO members also commended Bolivia for enacting a new investment promotion law in 2014 and a law on conciliation and arbitration, both of which increased legal certainty for investors, according to those members.
As of April 2022, the functions of FUNDEMPRESA, which used to register and certify new businesses, were turned over to the Servicio Plurinacional de Registro de Comercio (SEPREC). SEPREC is a public entity overseen by the Ministry of Productive Development and Plural Economy.
The steps to register a business are: (1) register and receive a certificate from SEPREC; (2) register with the Bolivian Internal Revenue Service (Servicio de Impuestos Nacionales) and receive a tax identification number; (3) register and receive authorization to operate from the municipal government in which the company will be established; (4) if the company has employees, it must register with the national health insurance service and the national retirement pension agency in order to contribute on the employees’ behalf; and (5) register with the Ministry of Labor (if the company has employees). The process takes about 30 days from start to finish. All steps are required, and there is no simplified business creation regime. A user can download the required forms from the website and fill them out online but then must either mail or deliver the completed forms to the relevant offices. The forms ask for a national identification card, but foreign users can enter their passport numbers instead. The registration process takes between 2-4 working days after all requirements are submitted.
Bolivia does not have a national investment screening mechanism.
The Bolivian government does not promote or incentivize outward investment. Nor does the government restrict domestic investors from investing abroad.
3. Legal Regime
Bolivia has no laws or policies that directly foster competition on a non-discriminatory basis. However, Article 66 of the Commercial Code (Law 14379, 1977) states that unfair competition, such as maintaining an import, production, or distribution monopoly, should be penalized according to criminal law. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations. Regulatory authority regarding investment exists solely at the national level in Bolivia. There are no subnational regulatory procedures.
The Commercial Code requires that all companies keep adequate accounting records and legal records for transparency. However, there is a large informal sector that does not follow these practices. Most accounting regulations follow international principles, but the regulations do not always conform to international standards. Large private companies and some government institutions, such as the Central Bank and the Banking Supervision Authority, have transparent and consistent accounting systems.
Formal bureaucratic procedures have been reported to be lengthy, difficult to manage and navigate, and sometimes debilitating. Many firms complain that a lack of administrative infrastructure, corruption, and political motives impede their ability to perform. The one exception has been when registering a new company in Bolivia.
There is no established public comment process allowing social, political, and economic interests to provide advice and comment on new laws and decrees. However, the government generally — but not always — discusses proposed laws with the relevant sector. The lack of laws to implement the 2009 Constitution creates legal discrepancies between constitutional guarantees and the dated policies currently enforced, and thus an uncertain investment climate.
Supreme Decree 71 in 2009 created a Business Auditing Authority (AEMP), which is tasked with regulating the business activities of public, private, mixed, or cooperative entities across all business sectors. AEMP’s decisions are legally reviewable through appeal. However, should an entity wish to file a second appeal, the ultimate decision-making responsibility rests with the Bolivian government ministry with jurisdiction over the economic sector in question. This has led to a perception that enforcement mechanisms are neither transparent nor independent.
Environmental regulations can slow projects due to the constitutional requirement of “prior consultation” for any projects that could affect local and indigenous communities. This has affected projects related to the exploitation of natural resources, both renewable and nonrenewable, as well as public works projects. Issuance of environmental licenses has been slow and subject to political influence and corruption.
In 2010, the new pension fund was enacted increasing companies’ contributions from 1.71 percent of payroll to 4.71 percent.
Bolivia is a full member of the Andean Community of Nations (CAN), which includes Colombia, Ecuador, and Peru. Bolivia is also in the process of joining the Southern Common Market (MERCOSUR) as a full (rather than associate) member. The CAN’s norms are considered supranational in character and have automatic application in the regional economic block’s member countries. The government does notify the WTO Committee on Technical Barriers to Trade regarding draft technical regulations.
Property and contractual rights are enforced in Bolivian courts under a civil law system, but some have complained that the legal process is time consuming and has been subject to political influence and corruption. Although many of its provisions have been modified and supplanted by more specific legislation, Bolivia’s Commercial Code continues to provide general guidance for commercial activities. The constitution has precedence over international law and treaties (Article 410) and stipulates that the state will be directly involved in resolving conflicts between employers and employees (Article 50). Corruption within the judiciary is pervasive. Regulatory and enforcement actions are appealable.
No major laws, regulations, or judicial decisions impacting foreign investment came out in the past year. There is no primary, central point-of-contact for investment that provides all the relevant information to investors.
Bolivia does not have a competition law, but cases related to unfair competition can be presented to AEMP. Article 314 of the 2009 Constitution prohibits private monopolies. Based on this article, in 2009 the Bolivian government created an office to supervise and control private companies (http://www.autoridadempresas.gob.bo/). Among its most important goals are:
regulating, promoting, and protecting free competition.
trade relations between traders; implementing control mechanisms, social projects, and voluntary corporate responsibility.
corporate restructuring, supervising, verifying, and monitoring companies with economic activities in the country in the field of commercial registration and seeking compliance with legal and financial development of its activities.
qualifying institutional management efficiency, timeliness, transparency, and social commitment to contribute to the achievement of corporate goals.
The Bolivian Constitution allows the central government or local governments to expropriate property for the public good or when the property does not fulfill a “social purpose” (Article 57). In the case of land, “Economic Social Purpose” (known as FES in Spanish) is understood as “sustainable land use to develop productive activities, according to its best use capacity, for the benefit of society, the collective interest and its owner.” The Bolivian government has no official definition of “collective interest” and makes decisions on a case-by-case basis. Noncompliance with the social function of land, tax evasion, or the holding of large acreage is cause for reversion, at which point the land passes to “the Bolivian people” (Article 401). In cases where the expropriation of land is deemed a necessity of the state or for the public good, just indemnification is required by law. However, in cases where there is non-compliance in fulfilling this “Economic Social Purpose,” the Bolivian government is not required to pay for the land and the land title reverts to the state.
The Constitution also gives workers the right to reactivate and reorganize companies that are in the process of bankruptcy, insolvency, or liquidation, or those closed in an unjust manner, into employee-owned cooperatives (Article 54). The mining code of 1997 (last updated in 2007) and hydrocarbons law of 2005 both outline procedures for expropriating land to develop underlying concessions.
The Bolivian government between 2006 and 2014, nationalized companies in the hydrocarbons sector, most of the electricity sector, some mining companies (including mines and a tin smelting plant), and a cement plant. To do so, the government forced private entities to sell shares to the government, often at below market prices. Some of the affected companies have cases pending with international arbitration bodies. All outsourcing, private contracts were canceled and assigned to public companies (such as airport administration and water provision).
Countries affected included the United States, France, the United Kingdom, Spain, Argentina, and Chile. Bolivian governments have previously nationalized private interests to appease social groups protesting.
The average time to complete bankruptcy procedures to close a business in Bolivia is 20 months. The Bolivian Commercial Code includes (Article 1654) three different categories of bankruptcy:
No Fault Bankruptcy – when the owner of the company is not directly responsible for its inability to pay its obligations.
At-Fault Bankruptcy – when the owner is guilty or liable due to the lack of due diligence to avoid harm to the company.
Bankruptcy due to Fraud – when the owner intentionally tries to cause harm to the company.
In general, the application of laws related to commercial disputes and bankruptcy has been perceived as inconsistent, and corruption charges are common. Foreign creditors often have little redress beyond Bolivian courts, and judgments are generally more favorable to local claimants than international ones. If a company declares bankruptcy, the company must pay employee benefits before other obligations. Workers have broad-ranging rights to recover pay and benefits from foreign firms in bankruptcy, and criminal actions can be taken against individuals the Bolivian government deems responsible for failure to pay in these matters.
No credit bureaus or credit monitoring authorities serve the Bolivian market.
In 2018, the Bolivian government enacted a new law (No. 1055) called the Creation of Social Enterprises. The law allows for employees of a company to assert ownership rights over companies under financial distress heading into bankruptcy. Passage of the law was controversial, with numerous business chambers asserting that the law could incentivize employees and labor unions to undermine the performance of companies in order to force bankruptcy and gain control of company assets.
Bosnia and Herzegovina
Bosnia and Herzegovina (BiH) is open to foreign investment, but to succeed, investors must overcome endemic corruption, complex legal/regulatory frameworks and government structures, non-transparent business procedures, insufficient protection of property rights, and a weak judicial system under the indue influence of ethno-nationalist parties and their patronage networks. Economic reforms to complete the transition from a socialist past to a market-oriented future have proceeded slowly and the country has a low level of foreign direct investment (FDI). According to the BiH Central Bank preliminary data, in the first nine months of 2021 FDI in BiH was USD 617 million, a 65% increase from the same period in 2020. In the World Bank’s 2020 Ease of Doing Business Report, BiH was among the least attractive business environments in Southeast Europe, with a ranking of 90 out of 190 global economies. (Note: Beginning in 2021, the World Bank discontinued the worldwide assessment in the Doing Business Report.) The World Bank 2020 report ranked BiH particularly low for its lengthy and arduous processes to start a new business and obtain construction permits. According to the World Bank estimates, real GDP is expected to grow 4 percent in 2021 after contracting 3.2 percent in 2020. The European Bank for Reconstruction and Development (EBRD) expects BiH’s GDP to grow by 4.5% in 2021. EBRD announced that BiH’s economic recovery has been stronger than expected mostly due to the recovery in external markets and strong expansion of domestic private consumption, backed by higher exports of goods and services. BiH is tied closely to global value chains as it primarily exports goods rather than services.
U.S. investment in BiH is low due to its small market size, relatively low income levels, distance from the United States, challenging business climate, and the lack of investment opportunities. Most U.S. companies in BiH are represented by small sales offices that are concentrated on selling U.S. goods and services, with minimal longer-term investments. U.S. companies with offices in BiH include major multinational companies and market leaders in their respective sectors, such as Coca-Cola, Microsoft, Cisco, Oracle, Pfizer, McDonalds, Marriott, Caterpillar, Johnson & Johnson, FedEx, UPS, Philip Morris, KPMG, PwC and others. Nonetheless, BiH offers business opportunities to well-prepared and persistent exporters and investors. Companies that overcome the challenges of establishing a presence in BiH often make a return on their investment over time. A major U.S. investment fund was able to enter the market with a regional investment in the telecom/cable sector in 2014 and exit its majority position in 2019 with a good return. There is an active international community, but lack of political will has stalled the many reform efforts that would improve the business climate as BiH pursues eventual European Union membership. The country is open to foreign investment and offers a liberal trade regime and its simplified tax structure is one of the lowest in the region (17 percent VAT and 10 percent flat income tax).
The complex institutional and territorial structure of BiH complicates the economic landscape of the country and may lead to further disruptions in Foreign Direct Investment. In July 2021, the Republika Srpska (RS) entity began a blockade of state institutions and in October 2021 began to take unconstitutional steps to return competencies to the entity-level government. This near-virtual decision-making blockade and attempts to withdraw the RS from state institutions and agencies have created questionsfor many investors and businesses. The duplicative nature of the proposed RS-based parallel institutions and agencies will complicate the investment landscape and create regulatory and legal confusion. While no new parallel RS agencies are yet operational, the RS has taken concrete legislative and regulatory steps to lay the groundwork for their full implementation in the near to mid-term. Investors should exercise all due diligence and take into account ongoing and potential Constitutional Court challenges and the fact these RS moves violate the Dayton Peace Agreement when deciding whether to conduct business with these nascent agencies or operate under constitutionally questionable legal frameworks established by the RS. The Federation of Bosnia and Herzegovina entity also has functionality issues, with 2018 election results yet unimplemented, and a legislative body that struggles to pass basic economic reforms. Potential investors are urged to read the legal reviews and statements of the High Representative to BiH.
BiH is pursuing World Trade Organization membership and hopes to join in the future. It is also richly endowed with natural resources, providing potential opportunities in energy (hydro, wind, solar, along with traditional thermal), agriculture, timber, and tourism. The best business opportunities for U.S. exporters to BiH include energy generation and transmission equipment, telecommunication and IT equipment and services, transport infrastructure and equipment, engineering and construction services, medical equipment, agricultural products, and raw materials and chemicals for industrial processing. In 2021, U.S. exports to BiH totaled USD 322 million, a 37 percent increase from 2020, and held around 3 percent share of total BiH imports. BiH exports to the United States in 2021 totaled USD 94 million, an increase of 135 percent from 2020. U.S. exports to BiH are primarily in the areas of raw materials for industrial processing, food and agricultural products, machinery and transport equipment, and mineral fuels.
1. Openness To, and Restrictions Upon, Foreign Investment
Bosnia and Herzegovina struggles to attract foreign investment. Complex labor and pension laws, the lack of a single economic space, and inadequate judicial and regulatory protections deter investment. Under the BiH constitution, established through the Dayton Accords that ended the 1990s war, Bosnia and Herzegovina (henceforth “the state”) is comprised of two “entities,” the Federation of BiH (the Federation) and the Republika Srpska (RS). A third, smaller area, the Brčko District, operates under a special status. The Federation includes ten cantons, each with its own government and responsibilities. There are also 143 municipalities in BiH: 63 in the RS and 80 in the Federation. As a result, BiH has a multi-tiered legal and regulatory framework that can be duplicative and contradictory, and is not conducive to attracting foreign investors.
Employers bear a heavy burden toward governments. They must contribute 69 percent on top of wages in the Federation and 52 percent in the RS to the health, unemployment, and pension systems. The labor and pension laws are also deterrents to investment, though both are being reformed to decrease burdens on employers. While corporate income taxes in the two entities and Brčko District are now harmonized at 10 percent, entity business registration requirements are not harmonized. The RS has its own registration requirements, which apply to the entire entity. Each of the Federation’s ten cantons has different business regulations and administrative procedures affecting companies. Simplifying and streamlining this framework is essential to improving the investment climate. EU reforms target changes that should improve the investment climate by clarifying and simplifying regulation and procedures while decreasing fees faced by businesses at the entity, canton, and municipal levels — but lack of political will has stalled even the most basic of reforms.
Generally, BiH’s legal framework does not discriminate against foreign investors. However, given the high level of corruption, foreign investors can be at a significant disadvantage in relation to entrenched local companies as well as some foreign investors, such as the People’s Republic of China, especially those with formal or informal backing by BiH’s various levels of government.
The Foreign Investment Promotion Agency (FIPA) is a state-level organization mandated by the Council of Ministers to facilitate and support FDI (www.fipa.gov.ba). FIPA provides data, analysis, and advice on the business and investment climate to foreign investors. All FIPA services are free of charge.
BiH does not maintain an ongoing, formal dialogue with foreign investors. Sporadically, high-ranking government officials give media statements inviting foreign investments in the energy, transportation, and agriculture industries; however, the announcements are rarely supported by tangible, commercially-viable investment opportunities.
According to the Law on the Policy of FDI, foreign investors are entitled to invest in any sector of the economy in the same form and under the same conditions as those defined for local residents. Exceptions include the defense industry and some areas of publishing and media where foreign ownership is restricted to 49 percent; and electric power transmission, which is closed to foreign investment. In practice, additional sectors are dominated by government monopolies (such as airport operation), or characterized by oligopolistic market structures (such as telecommunications and electricity generation), making it difficult for foreign investors to engage. There have been no significant privatizations of government-owned enterprises in the past few years.
In the past three years, the BiH government has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD); the World Trade Organization (WTO); or the United Nations Conference on Trade and Development (UNCTAD).
Establishing a business in BiH can be an extremely burdensome and time-consuming process for investors. The World Bank estimates there are an average of 13 procedures (actual number depends on the type of business), taking a total of 81 days, to register a new business in the capital city of Sarajevo. Registration in BiH can sometimes be expedited if companies retain a local lawyer to follow up at each step of the process. The RS established a one-stop shop for business registration in the entity. On paper, this dramatically reduced the time required to register a business in the RS, bringing the government-reported time to register a company down to an average of 7 to 14 days. Some businesses, however, report that in practice it can take significantly longer.
The entity, cantonal, and municipal levels of government each establish their own laws and regulations on business operations, creating redundant and inconsistent procedures that facilitate corruption. It is often difficult to understand all the laws and rules that might apply to certain business activities, given overlapping jurisdictions and the lack of a central information source. It is therefore critical that foreign investors obtain local assistance and advice. Investors in the Federation may register their business as a branch in the RS and vice versa.
The most common U.S. business presence found in BiH are representative offices. A representative office is not considered to be a legal entity and its activities are limited to market research, contract or investment preparations, technical cooperation, and similar business facilitation activities. The BiH Law on Foreign Trade Policy governs the establishment of a representative office. To open a representative office, a company must register with the Registry of Representative Offices, maintained by the BiH Ministry of Foreign Trade and Economic Affairs (MoFTER), and the appropriate entity’s ministry of trade.
Additional English-language information on the business registration process can be found at:
BiH Ministry of Foreign Trade & Economic Relations (MoFTER):
Ph: +387-33-220-093 www.mvteo.gov.ba
The government does not restrict domestic investors from investing abroad. There are no programs to promote or incentivize outward investment.
3. Legal Regime
The government has adequate laws to foster competition; however, due to corruption, laws are often not implemented transparently or efficiently. Additionally, political dysfunction results in lengthy delays in adapting and/or updating regulations necessary to implement legislation. The multitude of state, entity, cantonal (in the Federation only), and municipal administrations – each with the power to establish laws and/or regulations affecting business – creates a heavily bureaucratic, non-transparent system. Ministries and/or regulatory agencies are not typically obligated to publish the text of proposed regulations before they are enacted. Some local and international companies have expressed frustration with generally limited opportunities to provide input and influence/improve draft legislation that impacts the business community.
Foreign investors have criticized government and public procurement tenders for a lack of openness and transparency. Dispute resolution is also challenging as the judicial system moves slowly, often does not adhere to existing deadlines, and provides no recourse if the company in question re-registers under a different name.
In an effort to promote the growth of business in its entity, the Republika Srpska government created a RS one-stop-shop for business registration in 2013. This institution centralizes the process of registering a business, ostensibly making it easier, faster, and cheaper for new business owners to register their companies in the RS. The Federation’s announced plans to establish a one-stop-shop have long been delayed.
Businesses are subject to inspections from a number of entity and cantonal/municipal agencies, including the financial police, labor inspectorate, market inspectorate, sanitary inspectorate, health inspectorate, fire-fighting inspectorate, environmental inspectorate, institution for the protection of cultural monuments, tourism and food inspectorate, construction inspectorate, communal inspectorate, and veterinary inspectorate. Some investors have complained about non-transparent fees levied during inspections, changing rules and regulations, and an ineffective appeals process to protest these fines.
BiH is not a part of the EU, the WTO, nor a signatory to the Trade Facilitation Agreement (TFA).
BiH has an overloaded court system and it often takes many years for a case to be brought to trial. Moreover, commercial cases with subject matter that judges do not have experience adjudicating, such as intellectual property rights, are often left unresolved for lengthy periods of time. Most judges have little to no in-depth knowledge of adjudicating international commercial disputes and require training on applicable international treaties and laws. Regulations or enforcement actions can be appealed, and appeals are adjudicated in the national court system.
The U.S. government has provided training to judges, trustees, attorneys, and other stakeholders at the state and entity levels to assist in the development of bankruptcy and intellectual property laws. Those laws are now in effect at both the entity and state levels, but have not been fully implemented.
The state-level Law on the Policy of Foreign Direct Investment accords foreign investors the same rights as domestic investors and guarantees foreign investors national treatment, protection against nationalization/expropriation, and the right to dispose of profits and transfer funds. In practice, most business sectors in Bosnia and Herzegovina are fully open to foreign equity ownership. Notable exceptions to this general rule are select strategic sectors, such as defense; electric power transmission, which is closed to foreign investment; and some areas of publishing and media, where foreign ownership is restricted to 49 percent (see below). However, the sub-national governments — Federation of BiH, Republika Srpska — may decide to exempt companies from these restrictions.
According to legal amendments adopted in March 2015, foreign investors can own more than 49 percent of capital business entities dealing with media activities, such as publishing newspapers, magazines and other journals, publishing of periodical publications, production and distribution of television programs, privately owned broadcasting of radio and TV programs, and other forms of daily or periodic publications. The 2015 law maintains the restriction that foreign investors cannot own more than 49 percent of public television and radio services. It also sets conditions to enhance legal security and clarity for foreign direct investment flows. The Foreign Investment Promotion Agency maintains a list of laws relevant to investors on its website:
The complex legal environment in BiH underscores the utility of local legal representation for foreign investors. Attorneys in BiH have limited experience with respect to legal questions and the issues that arise in a market-oriented economy. However, local lawyers are quickly gaining experience in working with international organizations and companies operating in BiH. Companies’ in-house legal counsel should be prepared to oversee their in-country counsel, with explicit explanations and directions regarding objectives. The U.S. Embassy maintains a list of local lawyers willing to represent U.S. citizens and companies in BiH. The list can be accessed at https://ba.usembassy.gov/u-s-citizen-services/attorneys/
BiH has a Competition Council, designed to be an independent public institution to enforce anti-trust laws, prevent monopolies, and enhance private sector competition. The Council reviews and approves foreign investments in cases of mergers and acquisitions of local companies by foreign companies. The Competition Council consists of six members appointed for six-year terms of office with the possibility of one reappointment. The BiH Council of Ministers appoints three Competition Council members, the Federation Government appoints two members, and the RS Government appoints one member. From the six-member Competition Council, the BiH Council of Ministers affirms a president of the Council for a one-year term without the possibility of reappointment.
BiH investment law forbids expropriation of investments, except in the public interest. According to Article 16, “Foreign investment shall not be subject to any act of nationalization, expropriation, requisition, or measures that have similar effects, except where the public interest may require otherwise.” In such cases of public interest, expropriation of investments would be executed in accordance with applicable laws and regulations, be free from discrimination, and include payment of appropriate compensation. Neither the entity governments nor the state government have expropriated any foreign investments to date.
Both the Federation and Republika Srpska entities have Laws on Bankruptcy. However, bankruptcy proceedings are not resolved in a timely manner, and there is insufficient emphasis placed on companies’ rehabilitation and/or reorganization. The entities’ laws define the rights of creditors, equity shareholders, and holders of other financial contracts. Foreign contract holders enjoy the same rights as local contract holders. Bankruptcy is not criminalized. The U.S. government provided recent training to judges on international bankruptcy principles.
Botswana is a small country with a population of about 2.35 million (World Bank, 2020) and nestled between South Africa, Namibia, Zimbabwe and Zambia. Its central location in southern Africa enables it to serve as a gateway to the region. Botswana has historically enjoyed high economic growth rates and its export-driven economy is highly correlated with global economic trends. Development has been driven mainly by revenue from diamond mining, which has enabled Botswana to develop infrastructure and provide social welfare programs for vulnerable members of the population, and these programs will be maintained despite financial challenges in the current financial year, which runs from April 2022 to March 2023. The economic impact of the COVID-19 pandemic was significant as evidenced by an economic growth of negative 8.5 percent in 2020; economic growth was estimated to reach 9.7 percent in 2021. Unemployment also rose from 22.2 percent in the fourth quarter of 2019 (prior to the pandemic) to 26 percent in the fourth quarter of 2021. The fiscal impact of the pandemic has also been significant, resulting in large budget deficits of $1.4 billion in 2020 and $0.87 billion in 2021 compared to the $0.68 billion surplus that the government had forecasted for 2021 in its National Development Plan (NDP). In the first quarter of 2021, diamond revenues recovered, but international tourism revenues did not. In recent years, inflation has remained at the bottom end of the central bank’s three to six percent acceptable range; however, since the COVID-19 pandemic, inflation rose to a 13-year high of 10.6 percent in January 2022 and stayed at that level in February 2022. The World Bank classifies Botswana as an upper middle-income country based on its per capita income of $6,405 in 2020, although it declined from $7,203 in 2019.
Botswana is a stable, democratic country with an independent judiciary system. It maintains a sound macroeconomic environment, fiscal discipline, a well-capitalized banking system, and a crawling peg exchange rate system. In March 2021, Standard & Poor’s (S&P) maintained Botswana’s sovereign credit rating for long and short-term foreign and domestic currency bonds at “BBB+/A-2” with a negative outlook, which reflects the risks COVID-19 will continue to pose on Botswana’s economic and fiscal performance over the next 12 months. In November 2021, Moody’s revised its credit rating for Botswana from A2 to A3 with a stable outlook. These agencies’ ratings are highly influenced by Botswana’s continued dependence on diamonds, which contribute to at least a quarter of Botswana’s GDP and are susceptible to external shocks which places the country at a much higher risk. The diamond industry has however been experiencing a recovery, setting Botswana on a positive trajectory.
Botswana has minimal labor strife. The country has been cited in the 2020 Global Competitiveness Report as one of 30 countries out of 141 in which hiring of foreign labor has become significantly harder than it was in 2008. Botswana is a member state to both the International Centre for Settlement of Investment Disputes (ICSID) Convention and the 1958 New York Convention. Corruption in Botswana remains less pervasive than in other parts of Africa; nevertheless, foreign and national companies have noted increasing tender-related corruption. The Government of Botswana (GoB) created the Botswana Investment and Trade Centre (BITC) to assist foreign investors. Botswana offers low tax rates and has no foreign exchange controls. The BITC’s topline economic goals are to promote export-led growth, ensure efficient government spending and financing, build human capital, and to ensure the provision of appropriate infrastructure. GoB entities, including BITC, use these criteria to determine the level of support to give foreign investors. The GoB has committed to streamline business-related procedures, and remove bureaucratic impediments based on World Bank recommendations in a business reform roadmap. Under this framework, the GoB introduced electronic tax and customs processes in 2016 and 2017. The Companies and Intellectual Property Authority (CIPA) built and successfully integrated the Online Business Registration System (OBRS) with Botswana Unified Revenue Services (BURS) and the Immigration Office. OBRS is designed to reduce the business registration process by more than 10 days. On March 2022, Parliament passed the Intellectual Property Policy to leverage Botswana’s IP potential for inclusive and sustainable economic growth and development. The Public Procurement and Asset Disposal Board (PPADB) will from April 1, 2022, be transitioned to Public Procurement and Regulatory Authority (PPRA) and no longer adjudicate on government tenders. The GoB also established the Special Economic Zones Authority (SEZA) to streamline sector-targeted investment in Botswana’s different geographic areas. The Ministry of Investment, Trade & Industry (MITI) is developing a Trading Service Strategy to facilitate economic diversification and is also working on the African Continental Free Trade Area (AfCFTA) Implementation Strategy.
Due to COVID-19-related economic shortfalls, Botswana drew down heavily on its foreign exchange reserves and government savings. Sectors such as mining, tourism, trade, hotels and restaurants, construction, and manufacturing suffered significantly; however, rough diamond sales recovered somewhat in the second half of 2020. In April 2021, the government put in place several interventions to raise revenues including a Value Added Tax (VAT) increase from 12 percent to 14 percent, an increase on Withholding Tax on dividend income from 7.5 percent to 10 percent and increases in several fees and levies charged for government services (source: 2021, Budget Speech). The government moved swiftly to implement relevant statutory instruments to curb the likelihood of companies exploiting COVID-19 to collude to set exorbitant prices. The 2020 statutory instrument 61 regulated the prices of essential supplies and basic food commodities for the duration of the 18-month COVID-19 related state of emergency. Interventions like the Economic Recovery and Transformation Plan (ERTP) and the Reset Agenda augmented the short-term economic relief package that included wage subsidies, tax amnesties, waivers of certain levies due to government, loan guarantee schemes to support firms’ access to bank credit, and provision of food relief. The president’s Reset Agenda seeks to adjust some priorities in light of new and unexpected challenges and to find smarter ways to implement projects in a timely manner and within stipulated budgets. The ERTP aims to reinforce support already given to affected businesses and also to take advantage of opportunities that have emerged because of the pandemic such as digital services and e-commerce.
Botswana is committed to reducing greenhouse emissions to 15 percent by 2030 through renewable energy projects already underway and listed in the Integrated Resource Plan (IRP). Botswana also adopted a Climate Change Policy in 2021 which seeks to promote access to carbon markets, climate finance, and clean technologies.
1. Openness To, and Restrictions Upon, Foreign Investment
The GoB publicly emphasizes the importance of attracting Foreign Direct Investment (FDI) and drafted an investment facilitation law recommended by the 2014 Organization for Economic Co-operation and Development (OECD) Investment Review. While the draft was completed in 2016 with technical assistance from UNCTAD, it was never enacted. The draft is still under review and will be presented to Parliament for approval. The GoB has launched initiatives to promote economic activity and foreign investment in specific areas, such as establishing a diamond hub which brought more value-added businesses (i.e., cutting and polishing) into the country. Additional investment opportunities in Botswana include large water projects, electricity, transportation, telecommunication infrastructure projects, horticultural production, and agro processing. Economists have also noted Botswana’s considerable potential in the mining, mineral processing, beef, tourism, solar energy, and financial services sectors. BITC assists foreign investors with projects intended to diversify export revenue, create employment, and transfer skills to the citizens of Botswana. The High-Level Consultative Council (HLCC), chaired by the President, and an Exporter Roundtable organized by BITC and Botswana’s Exporters and Manufacturers Association (BEMA), are mechanisms employed by the GoB to focus on a healthy business environment for FDI.
Botswana’s 2003 Trade Act reserves licenses for citizens in 19 sectors, including general trading establishments, gas stations, liquor stores, supermarkets (excluding chain stores), bars (other than those associated with hotels), certain types of restaurants, boutiques, auctioneers, car washes, domestic cleaning services, curio shops, fresh produce vendors, funeral homes, hairdressers, various types of rental/hire services, laundromats, specific types of government construction projects under a certain dollar amount, certain activities related to road and railway construction and maintenance, and certain types of manufacturing activities including the production of furniture for schools, welding, and bricklaying. The law allows foreigners to participate in these sectors as minority joint venture partners in medium-sized businesses. Foreigners can hold the majority share if they obtain written approval from the trade minister. Foreign companies have access to about 46 trading licenses in different categories. It takes approximately five working days to obtain a license.
The Ministry of Investment, Trade, and Industry (MITI) administers the citizen participation initiative and takes an expansive interpretation of the term chain stores, so that it encompasses any store with more than one outlet. This broad interpretation has resulted in the need to apply exemptions to certain supermarkets, simple specialty operations, and general trading stores. These exceptions were generally granted prior to 2015 and many large general merchandise markets, restaurants, and grocery networks are owned by foreigners as a result. Since 2015, the GoB has denied some exception requests, but reports they have approved some based on localization agreements directly negotiated between the ministry and the applying company. These agreements reportedly include commitments to purchase supplies locally and capacity building for local workers and industry. BITC conducts due diligence on companies that are looking to invest in the country and the Directorate of Intelligence Services (DIS) handles background checks for national security.
Botswana underwent an ICT Policy Review and e-Commerce strategy review with UNCTAD and the report was released in October 2021 (https://unctad.org/system/files/official-document/dtlstict2021d4_en.pdf). Botswana sees this as a critical move to diversify the economy and position the country to be a bigger player in the global economy.
CIPA asserts that the company registration process can be completed in a day and is integrated with BURS which allows for a fast-tracked tax registration in 30 days. Additional work is required to open bank accounts and obtain necessary licenses and permits.
BITC (www.bitc.co.bw), the GoB’s integrated investment and trade promotion authority, was designed to serve as a one-stop shop to assist investors in setting up a business and finding a location for operation. BITC’s ability to streamline procedures varies based on GoB entity and bureaucratic requirements. BITC assesses investment projects on their ability to diversify the economy away from its continued dependence on diamond mining, contribute towards export-led growth, and job creation for and skills transfer to Batswana citizens. BITC also hosts the Botswana Trade Portal (https://www.botswanatradeportal.org.bw) that is designed to ease trade across borders. It is a single point of contact for all information relating to import and export to and from Botswana and represents relevant ministries and parastatals.
Botswana has several incentives and preferences for both citizen-owned and locally based companies. Foreign-owned companies can benefit from local procurement preferences which are usually required for government tenders. MITI instituted a program in 2015 to give locally based small companies a 15 percent preferential price margin in GoB procurement, with mid-sized companies receiving a 10 percent margin, and large companies a five percent margin. Under this policy, MITI defines small companies as having less than five million pula in annual revenue reflected in their financial statements, medium companies with five to 20 million pula in revenue, and large companies with revenues exceeding 20 million pula. The directive applies to 27 categories of goods and services ranging from textiles, chemicals, and food, as well as a broad range of consultancy services. The government can also offer up to 50 million pula in funding through the Citizen Entrepreneurial Development Agency (CEDA) to joint ventures between foreign and citizen owned companies.
For Companies Act registration purposes, enterprises are classified as: Micro Enterprises – fewer than six employees including the owner and an annual revenue below 60 thousand pula; Small Enterprises – fewer than 25 employees and an annual revenue between 60 thousand and 1.5 million pula; Medium Enterprises – fewer than 100 employees and annual revenue between 1.5 and 5 million pula; Large Enterprises – over 100 employees and an annual revenue of at least 5 million pula. This classification system permits foreigners to participate as minority shareholders in medium-sized enterprises in the 35 business sectors reserved for citizens.
The GoB neither promotes nor restricts outward investment.
3. Legal Regime
Bureaucratic procedures necessary to start and maintain a business tend to be transparent, though slow, and regulatory procedures can be cumbersome to navigate. In 2018, Botswana launched a Regulatory Impact Assessment Strategy to improve the regulatory environment, ensure legislation is necessary and cost effective, reduce administrative burdens imposed by the regulatory environment to businesses, and to improve transparency, consultation, and government accountability. Most complaints by foreign investors are about the inefficiency and/or unresponsiveness of mid- and low-level government bureaucrats. The GoB has introduced a Performance Management System to improve the service and accountability of its employees. Additionally, President Masisi presented a Reset Agenda in May 2021 and one of its priorities is to align government’s machinery to the presidential agenda. This will ensure transformation and improved service delivery in the public service by bringing significant reforms in all public institutions. Unfair business practices or conduct can be reported to the Competition Authority, which seeks to level the playing field for all business operators and foster a conducive environment for business. The GoB does not require companies’ environmental, social, and governance (ESG) disclosure to facilitate transparency and/or help investors and consumers to distinguish between high- and low-quality investments. However, Environmental Impact Assessments (EIA) are a requirement and taken very seriously when undertaking infrastructural developments projects. Bills in Botswana, including investment laws, go through a public consultation process and are available for public comment. Bills are also debated in Parliament sessions that are open to the public.
The Companies Act of 2004 requires all companies registered in Botswana to prepare annual financial statements on the basis of generally accepted accounting principles. It further requires every public company, including non-exempt private companies, to prepare their Financial Statement in accordance with the International Financial Reporting Standards.
The GoB’s procuring entity, Public Procurement and Asset Disposal Board (PPADB) has since April 1, 2022, transitioned to a regulatory authority, Public Procurement and Regulatory Authority (PPRA), under a new procurement act. The new act dictates for all government procurements to be adjudicated and awarded from the relevant procuring ministries/government entities. PPRA will play an oversight role, ensuring that all procurement processes are followed according to the new act. Further, PPRA will provide necessary and relevant training and capacity building to align the local procurement processes with international best practices. Prospective government contractors are still required to register with the PPRA. An independent body from the PPRA known as the Public Procurement Tribunal will be established to adjudicate on any disputes. The PPRA will use a national eProcurement system which will serve as an electronic end-to-end One Stop information and transaction portal for any public procurement. Since 2014, PPADB has partnered with the United States Trade and Development Agency’s (USTDA) Global Procurement Initiative in a shared commitment to utilize best-value determination procurement practices and to professionalize procurement. Through training, USTDA also assisted PPADB’s transition to PPRA.
The PPRA Act shall from time-to-time call for preferential procurement of citizen-owned contractors for works, service, and supplies. To be eligible for a specific reservation or preference the contractor is required to attach to the bidding package proof of eligibility from the issuing authority. Parliament enacted an Economic Inclusion Act to provide for the establishment of the office of the Coordinator of the Economic Empowerment office that will promote the effective participation of targeted citizens in the growth and development of the economy and facilitate enforcement of the economic empowerment initiatives. Targeted citizen according to this act means a citizen whose access to economic resources has been constrained by various factors as may be prescribed by the minister from time to time.
Health and safety laws, embodied in the Factories Act of 1973, provide basic protection for workers from unsafe working conditions. Minimum working conditions required on work premises include cleanliness of the premises, adequate ventilation and sanitation, sufficient lighting, and the provision of safety precautions. Health inspectors and the Botswana Bureau of Standards carry out periodic checks at both new and operating factories.
Botswana is a member of SACU and SADC. Neither has authority over member state national regulatory systems. Botswana is a member of the World Trade Organization (WTO) and notifies all draft technical regulations to the WTO’s Technical Barriers to Trade (TBT) Committee.
The Constitution provides for an independent judiciary system. Botswana’s legal system is based on Roman-Dutch law as influenced by English common law. This type of system exists with legislation, judicial decisions, and local customary law. The courts enforce commercial contracts, and the judicial system is widely regarded as being fair. Both foreign and domestic investors have equal access to the judicial system. Botswana does not have a dedicated commercial court. The Industrial Court, set up by the Trade Dispute Act of 2004, primarily addresses labor matters.
The GoB is planning to create a corps of commercially specialized judges within the civil court system. Under the new system, commercial cases will be overseen by these commercial judges to expedite handling and ensure relevant expertise. Botswana already has a specialized anti-corruption court that handles all corruption cases.
Some U.S. litigants have reported that the time to obtain and enforce a judgment in a commercial dispute is unreasonably long. The turnaround time for civil cases is approximately two years. To improve adjudications efficiency, the GoB has established a land tribunal, and industrial, small claims, and corruption courts. In the past several years, some dockets have improved, but progress has been uneven.
Local laws are accessible through the Botswana Attorney General’s Office website (www.elaws.gov.bw). It can take up to 24 months for a law, once passed, to appear on the website.
Under Botswana’s Company Act, foreigners who wish to operate a business are required to register, as well as obtain, the relevant licenses and permits as prescribed by the Trade Act of 2008.
Licenses are required for a wide spectrum of businesses, including banking, non-bank financial services, transportation, medical services, mining, energy provision, and alcohol sales. Although amendments to the Trade Act have eliminated the catchall miscellaneous business license category, investors have reported on local authorities insisting a business apply for a license even when it does not fall within the established categories. In addition, some businesses have observed the enforcement of licenses, as well as the time taken for inspections to comply with licensing requirements, varies widely across local government authorities.
Botswana has anti-trust legislation and policies to ensure appropriate and fair competition in business. Under the Competition Act, the Competition Authority (CA) monitors mergers and acquisitions. In 2019, the CA expanded its mandate by taking over the operations of the Consumer Protection Act from MITI and rebranded itself as the Competition and Consumer Authority (CCA). The CCA’s mandate is to prevent and rectify anti-competitive practices and protect the interests of consumers through the control of unfair business practices. During the year 2020/2021, the CCA engaged in the Financial Inclusion Program with other stakeholders. While the aim of the program is to reach out to populations that are excluded from financial services, the CCA’s participation ensures that consumers’ interests are taken into consideration, especially the interests of people in remote areas or with limited education.
On the competition side, the authority ramped up its public outreach using digital platforms and increased its engagement on public platforms, resulting in an increase in the number of complaints lodged online. The authority handled 41 mergers in 2020/21 financial year, a 26 percent decrease from 56 mergers handled in 2019/20. The decrease could be attributable to the 18-month COVID-19 related State of Emergency that started in March 2020, under which the authority temporarily suspended receipt of new mergers. The CCA investigated a total of 25 competition related cases with 15 of them being carried over from the previous financial year, while 10 were new cases and successfully closed off four cases; the remaining 21 cases are under investigation and have been carried over to the 2021/22 financial year. The CCA is empowered to reject mergers deemed not in the public interest. CCA interprets this power to mean that it can prohibit mergers that concentrate most shares in the hands of foreign investors. For consumer complaints, a total of 1,158 cases were lodged in the year under review with most complaints related to motor vehicles, motor parts and services (mostly involving grey imports) at 23.7 percent, followed by cellphones and accessories at 18.7 percent, electronic category at 16.2 percent, furniture complaints at 11.2 percent, and e-commerce transactions at 0.45 percent. A total of 1,267 of these complaints or 90.3 percent were resolved while 136 of these were still pending at the end of the financial year. During the 2020/21 financial year, the CCA also carried out a research study on cement as a policy advisory instrument to the Ministry of Investment, Trade and Industry (MITI) and will use the policy paper to shape the development of a cement sector in Botswana.
Section 8 of Botswana’s Constitution prohibits the nationalization of private property. The Constitution is currently under review and a committee has been set up to do consultations and gather public opinion across the country. The GoB has never pursued a forced nationalization policy and is highly unlikely to adopt one. The Acquisition of Property Act provides a process for any expropriation, including parameters to determine market value and receive compensation. The 2007 Amendment to the Electricity Supply Act allows the GoB to revoke an Independent Power Producer’s license and confiscate the operations, with compensation, for public interest purposes.
Botswana’s commercial and bankruptcy laws are comprehensive. Secured and unsecured creditors enjoy similar rights under bankruptcy proceedings as those they would enjoy in the United States.
Brazil is the second largest economy in the Western Hemisphere behind the United States, and the twelfth largest economy in the world (in nominal terms) according to the World Bank. The United Nations Conference on Trade and Development (UNCTAD) named Brazil the seventh largest destination for global foreign direct investment (FDI) flows in 2021 with inflows of $58 billion, an increase of 133percent in comparison to 2020 but still below pre-pandemic levels (in 2019, inflows totaled $65.8 billion). In recent years, Brazil has received more than half of South America’s total amount of incoming FDI, and the United States is a major foreign investor in Brazil. According to Brazilian Central Bank (BCB) measurements, U.S. stock was 24 percent ($123.9 billion) of all FDI in Brazil as of the end of 2020, the largest single-country stock by ultimate beneficial owner (UBO), while International Monetary Fund (IMF) measurements assessed the United States had the second largest single-country stock of FDI by UBO, representing 18.7 percent of all FDI in Brazil ($105 billion) and second only to the Netherlands’ 19.9 percent ($112.5 billion). The Government of Brazil (GoB) prioritized attracting private investment in its infrastructure and energy sectors during 2018 and 2019. The COVID-19 pandemic in 2020 delayed planned privatization efforts and despite government efforts to resume in 2021, economic and political conditions hampered the process.
The Brazilian economy resumed growth in 2017, ending the deepest and longest recession in Brazil’s modern history. However, after three years of modest recovery, Brazil entered a recession following the onset of the global coronavirus pandemic in 2020. The country’s Gross Domestic Product (GDP) increased 4.6 percent in 2021, in comparison to a 4.1 percent contraction in 2020. As of February 2022, analysts had forecasted 0.3 percent 2022 GDP growth. The unemployment rate was 11.1 percent at the end of 2021, with over one-quarter of the labor force unemployed or underutilized. The nominal budget deficit stood at 4.4 percent of GDP ($72.4 billion) in 2021, and is projected to rise to 6.8 percent by the end of 2022 according to Brazilian government estimates. Brazil’s debt-to-GDP ratio reached 89.4 percent in 2020 and fell to around 82 percent by the end of 2021. The National Treasury projections show the debt-to-GDP ratio rising to 86.7 percent by the end of 2022, while the Independent Financial Institution (IFI) of Brazil’s Senate projects an 84.8 percent debt-to-GDP ratio. The BCB increased its target for the benchmark Selic interest rate from 2 percent at the end of 2020 to 9.25 percent at the end of 2021, and 11.75 percent in March 2022. The BCB’s Monetary Committee (COPOM) anticipates raising the Selic rate to 12.25 percent before the end of 2022.
President Bolsonaro took office on January 1, 2019, and in that same year signed a much-needed pension system reform into law and made additional economic reforms a top priority. Bolsonaro and his economic team outlined an agenda of further reforms to simplify Brazil’s complex tax system and complicated code of labor laws in the country, but the legislative agenda in 2020 was largely consumed by the government’s response to the COVID-19 pandemic. In 2021, the Brazilian government passed a major forex regulatory framework and strengthened the Central Bank’s autonomy in executing its mandate. The government also passed a variety of new regulatory frameworks in transportation and energy sectors, including a major reform of the natural gas market. In addition, the government passed a law seeking to improve the ease of doing business as well as advance the privatization of its major state-owned enterprise Electrobras.
Brazil’s official investment promotion strategy prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors. Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are foreign investment restrictions in the health, mass media, telecommunications, aerospace, rural property, and maritime sectors. The Brazilian congress is considering legislation to liberalize restrictions on foreign ownership of rural property.
Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil. Foreign investors also cite concerns over poor existing infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.
1. Openness To, and Restrictions Upon, Foreign Investment
Brazil was the world’s seventh-largest destination for foreign direct investment (FDI) in 2019, with inflows of $58 billion, according to the United Nations Conference on Trade and Development (UNCTAD). The GoB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, mining, 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 in most sectors. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, and insurance sectors.
The Brazilian Trade and Investment Promotion Agency (APEX-Brasil) 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-Brasil 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-Brasil is: http://www.apexbrasil.com.br/en .
In 2016, the Ministry of Economy created the Direct Investments Ombudsman (OID) at the Board of Foreign Trade and Investments (CAMEX), to provide assistance to foreign investors through a single body for issues related to FDI in Brazil. This structure aims to help and eventually speed up foreign investments in Brazil, providing foreign and national investors with a simpler process for establishing new businesses and implementing additional investments in their current companies. Since 2019, the OID has acted as a “single window” of the Brazilian government for FDI. It supports and guides investors in their requests, recommending solutions to their complaints (Policy Advocacy) as well as proposing improvements to the legislation or administrative procedures to public agencies whenever necessary. The OID is responsible for receiving requests and inquiries on matters related to foreign investments, to be answered together with government agencies and entities (federal, state and municipal) involved in each case (Focal Points Network). This new structure provides a centralized support system to foreign investors, and must respond in a timely manner to investors’ requests.
A 1995 constitutional amendment (EC 6/1995) eliminated distinctions between foreign and local capital, ending favorable treatment (i.e. tax incentives, preference for winning bids) for companies using only local capital. However, constitutional law restricts foreign investment in healthcare (Law 8080/1990, altered by 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), and insurance (Law 11371/2006).
Brazil does not have a national security-based foreign investment screening process. Foreign investors in Brazil must electronically register their investment with the Central Bank of Brazil (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). Since the approval of the Doing Business Law in 2021, companies are no longer required to have an administrator residing in Brazil, but they must appoint a local proxy attorney to receive legal notifications. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM). Brazil does not have an investment screening mechanism based on national security interests. A bill was proposed in the Chamber of Deputies in 2020 (PL 2491) to change the parameters under which to review foreign investments could be reviewed, but the bill has not yet been analyzed by the necessary commissions.
To enter Brazil’s insurance and reinsurance market, U.S. companies must establish a subsidiary, enter a joint venture, acquire a local firm, or enter 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, but Santander is the only major wholly foreign-owned retail bank.
Since June 2019, foreign investors may own 100 percent of capital in Brazilian airline companies.
While 2015 and 2017 legislative and regulatory changes relaxed some restrictions on insurance and reinsurance, rules on preferential offers to local reinsurers remain unchanged. Foreign reinsurance firms must have a representational 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 maintain a solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch ratings of at least BBB-.
Foreign ownership of cable TV companies is allowed, and telecom companies may 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 must 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. In December 2020, the Senate approved a bill (PL 2963/2019; source: https://www25.senado.leg.br/web/atividade/materias/-/materia/136853) to ease restrictions on foreign land ownership and the Chamber of Deputies began to deliberate on the bill; however, the bill was shelved with no plans to advance it further after President Bolsonaro expressed concerns regarding the legislation.
Brazil is not yet a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but submitted its application for accession in May 2020. In February 2021, Brazil formalized its initial offer to start negotiations. The submission establishes a series of thresholds above which foreign sellers will be allowed to bid for procurements. Such thresholds vary for different procuring entities and types of procurements. The proposal also includes procurements by some states and municipalities (with restrictions) as well as state-owned enterprises, but it excludes certain sensitive categories, such as financial services, strategic health products, and specific information technologies. Brazil’s submission is currently under review with GPA members.
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 participating in Brazil’s public sector procurement to help these firms win government tenders. Nevertheless, foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts, and since October 2020 foreign companies are allowed to participate in bids without the need for an in-country corporate presence (although establishing such a presence is mandatory if the bid is successful). A revised Government Procurement Protocol of the trade bloc Mercosul (Mercosur in Spanish) signed in 2017 would entitle member nations Brazil, Argentina, Paraguay, and Uruguay to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers. However, none of the bloc’s members have ratified the protocol, so it has not entered into force. Despite the restrictions within Mercosul, in January 2022 Brazil and Chile entered into an agreement which includes government procurement.
The Organization for Economic Co-operation and Development’s (OECD) December 2021 Economic Forecast Summary of Brazil summarized that with the COVID-19 vaccination campaign accelerating throughout the year, economic activity underpinned by reduced private consumption and investment restarted as restrictions were lifted, and exports benefited from the global recovery, the robust demand for commodities, and a weak exchange rate. However, supply bottlenecks, lower purchasing power, higher interest rates, and policy uncertainty have slowed the pace of recovery. The labor market is experiencing a lag in recovering from the pandemic, and by the end of 2021 unemployment remained above pre-pandemic levels. The residual effect of the government’s significant fiscal stimulus spending in 2020 to reinvigorate the economy contributed to inflationary pressure, further compounded by constrained global supply chains pushing prices up. In response, the COPOM chose to incrementally increase its benchmark SELIC rate from 2 percent in March 2021 to 11.75 percent in March 2022. The COPOM announced that it would continue tightening its monetary policy in an effort to curb inflation and anchor expectations. Prospects for economic growth are weak for 2022 and 2023. The OECD recommended that Brazil strengthen and adhere to its fiscal rules to increase market confidence in establishing sustainable finances and exercising more efficient public spending to create fiscal space for growth-enhancing policies, along with developing a more inclusive social protection program.
The IMF’s 2021 Country Report No. 2021/217 (published in September 2021) for Brazil highlighted that its economic performance for the year had been better than expected, partly due to the government’s fiscal response to the pandemic which propelled the economy back to pre-pandemic levels for most sectors. In addition, the IMF noted a favorable economic momentum supported by booming trade and robust private sector credit growth. The IMF assessed that currency depreciation and a surge in commodity prices had led to headline inflation, and that expectations remained negative. The report noted Brazil’s lagging labor market, especially among youths, women, and Afro-Brazilians. The IMF also expressed concerns that emergency cash transfers (which expired in December 2021) were only a short-term solution, and recommended addressing poverty and inequality by strengthening a more permanent social safety net. The IMF concluded that near-term fiscal risks were low, but the high level of public debt continued to pose a medium-term risk. Restoring high and sustained growth, increasing employment, raising productivity, improving living standards, and reducing vulnerabilities would require longer-term policy efforts to eliminate bottlenecks and foster private sector-led investment.
The WTO’s 2017 Trade Policy Review of Brazil noted the country’s open stance towards foreign investment, but also pointed to the many sector-specific limitations (see above). The three reports listed below, with links to the reports, highlight the uncertainty regarding reform plans as the most significant political risk to the economy.
A company must register with the National Revenue Service (Receita Federal) 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 in Brazil. 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: https://www.gov.br/pt-br/servicos/inscrever-ou-atualizar-cadastro-nacional-de-pessoas-juridicas .
Brazil enacted its “Doing Business” law, which entered into force on August 26, 2021. The law simplified the process to open a business, sought to facilitate foreign trade by eliminating redundancy as well as further automating its trade processes, and expand the powers of minority shareholders in private companies.
Adopted in September 2019, the Economic Freedom Law 13.874 established the Economic Freedom Declaration of Rights and provides for free market guarantees. The law includes several provisions to simplify regulations and establish norms for the protection of free enterprise and free exercise of economic activity.
On August 20, 2021, the Brazilian government included the Foreign Trade Secretariat (SECEX) in the Brazilian Authorized Economic Operator Program (Programa OEA), run by Receita Federal (Internal Federal Revenue service), allowing Government of Brazil-designated OEA certified operators to maintain a low-level risk to achieve benefits in their foreign trade operations related to drawback suspension and exemption regimes.
Through the digital transformation initiative in Brazil, foreign companies can open branches via the internet. Since 2019, it has been easier for foreign businesspeople to request authorization from the Brazilian federal government. After filling out the registration, creating an account, and sending the necessary documentation, business entities can make the authorization request on the Brazilian government’s online portal through a legal representative. The electronic documents will then be analyzed by the Brazilian National Department of Business Registration and Integration (DREI) team. DREI will inform the applicant of any missing documentation via the portal and e-mail and give a 60-day period for the applicant to submit any additional information. The legal representative of the foreign company, or another third party who holds a power of attorney, may request registration through this link: https://acesso.gov.br/acesso/#/primeiro-acesso?clientDetails=eyJjbGllbnRVcmkiOiJodHRwczpcL1wvYWNlc3NvLmdvdi5iciIsImNsaWVudE5hbWUiOiJQb3J0YWwgZ292LmJyIiwiY2xpZW50VmVyaWZpZWRVc2VyIjp0cnVlfQ%3D%3D
The regulation of foreign companies opening businesses in Brazil is governed by article 1,134 of the Brazilian Civil Code and article 1 of DREI Normative Instruction 77/2020. English-language general guidelines to open a foreign company in Brazil are not yet available, but the Portuguese version is available at the following link:https://www.gov.br/economia/pt-br/assuntos/drei/empresas-estrangeiras .
provides investment measures, laws and treaties enacted by selected countries.
provides links to business registration sites worldwide.
Brazil does not restrict domestic investors from investing abroad. 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 a worthwhile destination for outbound investment. APEX-Brasil and SelectUSA (U.S. Department of Commerce) signed a memorandum of cooperation in February 2014 to promote bilateral investment.
Brazil incentivizes outward investment. APEX-Brasil organizes several initiatives aimed at promoting Brazilian investments abroad. The agency´s efforts include trade missions, business round tables, promoting the participation of Brazilian companies in major international trade fairs, and arranging technical visits for foreign buyers to Brazil as well as facilitating travel for decision-makers seeking to learn about the Brazilian market and performing other commercial activities designed to strengthen the country’s branding abroad.
The main sectors of Brazilian investments abroad are financial services and assets (totaling 62.9 percent of total investments abroad); oil and gas extraction (12 percent); and mineral metal extraction (6.5 percent). Including all sectors, Brazilian investments abroad totaled $448 billion in 2020. The regions that received the largest share of Brazilian outward investments are the Caribbean (43.3 percent), concentrated in the Cayman Islands, British Virgin Islands and Bahamas, and Europe (37.9 percent), primarily the Netherlands and Luxembourg.
Sales of cross-border mutual funds are only allowed to certain categories of investors, not to the general public. In 2020, international financial services companies active in Brazil submitted a proposal to Brazilian regulators to allow opening these mutual funds to the general public, and the Brazilian Securities and Exchange Commission is expected to approve their recommendation by June 2022. Discussions with regulators about increasing the share percentages that pension funds and insurers can invest abroad (currently 10 percent for pension funds, 20 percent for insurers, and 40 percent for qualified investors) are ongoing, along with discussions about tax deferral mechanisms to incentivize Brazilian investment abroad.
3. Legal Regime
According to the World Bank, it takes approximately 17 days to start a business in Brazil. Brazil is seeking to streamline the process and decrease the amount of time it takes to open a small- or medium-sized enterprise (SME) to only 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 Doing Business law (14.195/2021) included provisions to streamline the process, such as unifying federal, state and municipal registrations and eliminating requirements such as address analysis and pre-checking business names.
In 2020, the World Bank noted that Brazil’s lowest-ranked component in its Ease of Doing Business score was the annual administrative burden for a medium-sized business to comply with Brazilian tax codes with an average of 1,501 hours per year, a significant improvement from 2019’s 1,958 hour average but still much higher than the 160.7 hour average of OECD high-income countries. The total tax rate for a medium-sized business in Brazil is 65.1 percent of profits, compared to the average of 40.1 percent in OECD high-income countries. Business managers often complain of not being able to understand complex and sometimes contradictory tax regulations, despite having 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 processing of rebates for exported goods of the value-added tax collected by individual states (ICMS) favors local companies. 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 regulatory agency, which handles telecommunications as well as the licensing and assigning of radio spectrum bandwidth (the Brazilian FCC counterpart)
ANP, the National Petroleum Agency, which regulates oil and gas contracts and oversees auctions for oil and natural gas exploration and production
ANAC, Brazil’s civil aviation agency
IBAMA, Brazil’s environmental licensing and enforcement agency
ANEEL, Brazil’s electricity regulator that regulates Brazil’s power sector and oversees auctions for electricity transmission, generation, and distribution contracts
In addition to these federal regulatory agencies, Brazil has dozens of state- and municipal-level regulatory agencies.
The United States and Brazil conduct regular discussions on customs and trade facilitation, good regulatory practices, standards and conformity assessment, digital issues, and intellectual property protection. Discussions in all these areas occurred during the 19th plenary of the Commercial Dialogue which took place virtually in October 2021, and continue through ongoing regular exchanges at the working level between the U.S. Department of Commerce, Brazil’s Ministry of Economy, and other agencies and regulators throughout the year.
Regulatory agencies complete Regulatory Impact Analyses (RIAs) on a voluntary basis. The Brazilian congress passed Law 13.848 in June 2019 on Governance and Accountability (PLS 52/2013 in the Senate, and PL 6621/2016 in the Chamber). Among other provisions, the law makes RIAs mandatory for regulations that affect “the general interest.”
The Chamber of Deputies, the 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 opened an online “Transparency Portal” with data on funds transferred to and from federal, state, and city governments, as well as to and from foreign countries. It also includes information on civil servant salaries.
In December 2021, Brazil’s Securities and Exchange Commision (CMV) issued Resolution 59/2021, establishing the first transparency mechanism for environmental, social, and corporate governance (ESG) practices in the country. The goal of the change was to provide more comprehensive information to potential investors, therefore allowing the market environment to drive changes in business behavior. According to the resolution, starting in January 2023, listed companies will be required to inform the CVM whether they disclose information on ESG indicators and provide details on their reports, such as existence of independent audits, which indicators were used, and if UN Sustainable Development Goals (SDGs) have been considered. The new requirement will also include questions regarding the companies’ consideration of the Task Force on Climate Change-Related Financial Disclosures or other recognized entities’ recommendations, the existence of a gas emission inventory, and the role of management bodies in assessing climate-related risks. Regarding diversity issues, companies will be required to disclose information showing the diversity of the body of administrators and employees as well as salary disparities between executives and staff.
In 2022, the Department of State concluded in its annual 2021 Fiscal Transparency Report that Brazil had met minimum fiscal transparency requirements. The International Budget Partnership’s Open Budget Index ranked Brazil slightly ahead of the United States in terms of budget transparency in its most recent (2019) 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 publicly 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.
Brazil is a member of Mercosul – a South American trade bloc whose full members include Argentina, Paraguay, and Uruguay. Brazil routinely implements Mercosul common regulations.
Brazil is a member of the WTO and the government regularly notifies draft technical regulations, such as potential agricultural trade barriers, to the WTO Committee on Technical Barriers to Trade (TBT).
Brazil has a civil legal system with state and federal courts. 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 rulings for the rulings to be considered valid in Brazil. Among other considerations, the foreign judgment must not contradict any prior decisions by a Brazilian court in the same dispute. The Brazilian Civil Code regulates commercial disputes, although commercial cases involving maritime law follow an older Commercial Code which has been otherwise largely superseded. 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, and disputes or trials frequently take several 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.
In 2019, Brazil established a “one-stop shop” for international investors. The one-stop shop, the Direct Investments Ombudsman (DIO), is a ‘single window’ for investors provided by the Executive Secretariat of CAMEX. It is responsible for receiving requests and inquiries about investments, to be answered jointly with the public agency responsible for the matter (at the federal, state and municipal levels) involved in each case (the Network of Focal Points). This new structure allows for supporting the investor via a single governmental body in charge of responding to investor requests within a short time. Private investors have noted the single window is better than the previous system, but does not yet provide all the services of a true “one-stop shop” to facilitate international investment. The DIO’s website in English is: http://oid.economia.gov.br/en/menus/8
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 proposed mergers and acquisitions. CADE was reorganized in 2011 through Law 12529, combining the antitrust functions of the Ministry of Justice and the Ministry of Finance. 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 framework that directed the government to review mergers after they had already been completed. In October 2012, CADE performed Brazil’s first pre-merger review.
In 2021, CADE conducted 611 total formal investigations. It approved 165 merger and/or acquisition requests and did not reject any requests.
Article 5 of the Brazilian Constitution assures property rights of both Brazilians and foreigners that own property 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 at fair market value.
There are no signs that the current federal government is contemplating expropriation actions in Brazil against foreign interests. Brazilian courts have previously ruled in U.S. citizens’ favor for some claims regarding state-level land expropriations. However, as states have filed appeals of these decisions, the compensation process for foreign entities can be lengthy and have uncertain final outcomes.
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 of 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 Supreme Federal Court (STF) ruling established that the 1996 Brazilian Arbitration Act, permitting international arbitration subject to STJ 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.
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 amplifies Brazilian law 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.)
Brazil’s commercial code governs most aspects of commercial association, while the civil code governs professional services corporations. In December 2020, Brazil approved a new bankruptcy law (Law 14.112) which largely models the UNCITRAL Model Law on International Commercial Arbitration and addresses criticisms that its previous bankruptcy legislation favored holders of equity over holders of debt. The new law facilitates the judicial and extrajudicial resolution process between debtors and creditors and accelerates reorganization and liquidation processes. Both debtors and creditors are allowed to provide reorganization plans that would eliminate non-performing activities and sell-off assets, thus avoiding bankruptcy. The new law also establishes a framework for cross-border insolvencies that recognizes legal proceedings outside of Brazil.
Brunei is a small, energy-rich sultanate on the northern coast of Borneo in Southeast Asia. Brunei boasts a well-educated, largely English-speaking population, excellent infrastructure, and a government intent on attracting foreign investment and projects. In parallel with Brunei’s efforts to attract foreign investment and create an open and transparent investment regime, the country has taken steps to streamline the process for entrepreneurs and investors to establish businesses and has improved its protections for Intellectual Property Rights (IPR).
Despite ambitions to diversify, Brunei’s economy remains dependent on the income derived from sales of oil and gas, contributing about 50 percent to the country’s GDP. Substantial revenue from overseas investment supplements income from domestic hydrocarbon production. These two revenue streams provide a comfortable quality of life for Bruneians by regional standards. Citizens are not required to pay taxes and have access to free education through the university level, free medical care, and subsidized housing and car fuel.
Brunei has a stable political climate and is generally sheltered from natural disasters. Its central location in Southeast Asia, with good telecommunications and airline connections, business tax credits in specified sectors, and no income, sales, or export taxes, offers a welcoming climate for potential investors. Sectors offering U.S. business opportunities in Brunei include aerospace and defense, agribusiness, construction, petrochemicals, energy and mining, environmental technologies, food processing and packaging, franchising, health technologies, information and communication, digital finance, and services. Brunei has ambitious climate change goals, aspiring to lower greenhouse gas emissions by more than 50 percent and increase its share of renewable energy to 30 percent of total capacity by 2035.
Brunei continues to take a cautious approach against the COVID-19 pandemic despite having fully immunized 95 percent of the population. As of March 2022, although the country is not under lockdown, Brunei has not fully opened its borders to non-essential travel. Travelers entering the country are required to obtain permission from the Prime Minister’s Office.
In 2014, Brunei began implementing sections of its Sharia Penal Code (SPC) that expanded preexisting restrictions on activities such as alcohol consumption, eating in public during the fasting hours in the month of Ramadan, and indecent behavior, with possible punishments including fines and imprisonment. The SPC functions in parallel with Brunei’s common law-based civil penal code. The government commenced full implementation of the SPC in 2019, introducing the possibility of corporal and capital punishments including, under certain evidentiary circumstances, amputation for theft and death by stoning for offenses including sodomy, adultery, and blasphemy. Government officials emphasize that sentencing to the most severe punishments is highly improbable due to the very high standard of proof required for conviction under the SPC. While the SPC does not specifically address business-related matters, potential investors should be aware that the SPC generated global controversy when it was implemented due to its draconian punishments and inherent discrimination toward LGBT communities. The sultan declared a moratorium on the death penalty for sharia crimes in response to the outcry and there have been no recorded incidents of U.S. citizens or U.S. investments directly affected by sharia law.
1. Openness To, and Restrictions Upon, Foreign Investment
Brunei has an open economy favorable to foreign trade and FDI as the government continues its economic diversification efforts to limit its long reliance on oil and gas exports.
FDI is important to Brunei as it plays a key role in the country’s economic and technological development. Brunei encourages FDI in the domestic economy through various investment incentives offered by the Ministry of Finance and Economy.
Improving Brunei’s Ease of Doing Business status by upgrading the domestic business regulatory environment through a whole-of-nation approach has been a priority for the government. The World Bank Ease of Doing Business report indicated that Brunei ranked 66th overall out of 190 world economies in 2019. Brunei ranked first in the report’s “Getting Credit” category, tied with New Zealand, indicative of Brunei’s strong credit reporting mechanisms.
Brunei amended its laws to make it easier and quicker for entrepreneurs and investors to establish businesses. The Business License Act (Amendment) of 2016 exempts several business activities (eateries, boarding and lodging houses or other places of public resort; street vendors and stalls; motor vehicle dealers; petrol stations, including places for storing petrol and inflammable material; timber store and furniture factories; and retail shops and workshops) from needing to obtain a business license. The Miscellaneous License Act (Amendment) of 2015 reduced the wait times for new business registrants to start operations, with low-risk businesses like eateries and shops able to start operations immediately.
There is no restriction on foreign ownership of companies incorporated in Brunei. The Companies Act requires locally incorporated companies to have at least one of the two directors—or if more than two directors, at least two of them—to be residents of Brunei, but companies may request exceptions. The corporate income tax rate is the same whether the company is locally or foreign owned and managed.
All businesses in Brunei must be registered with the Registry of Companies and Business Names at the Ministry of Finance and Economy. Foreign investors can fully own incorporated companies, foreign company branches, or representative offices, but not sole proprietorships or partnerships. Brunei does maintain its right to screen investment to ensure that foreign investments do not contradict and cause negative impact to the overall National Development Plan and to the national interest.
More information on incorporation of companies can be found on the Ministry of Finance and Economy website.
As part of Brunei’s effort to attract foreign investment, the government established the Brunei Economic Development Board (BEDB) and Darussalam Enterprise (DARe) as facilitating agents under the Ministry of Finance and Economy. These organizations work together to smooth the process of obtaining permits, approvals, and licenses. Facilitating services are now consolidated into one government website.
BEDB is the government’s frontline agency that promotes and facilitates foreign investment into Brunei. BEDB is responsible for evaluating investment proposals, liaising with government agencies, and obtaining project approval from the government’s Foreign Direct Investment and Downstream Industry Committee.
A major share of outward investment is made by the government through its sovereign wealth funds, which are managed by the Brunei Investment Agency (BIA) under the Ministry of Finance and Economy. No data is available on the total investment amount due to a strict policy of secrecy. It is believed that the majority of sovereign wealth funds are invested in foreign portfolio investments and real estate. Despite the limited availability of public information regarding the amount, the funds are generally viewed positively and managed well by BIA.
3. Legal Regime
Brunei’s regulatory system has limited transparency, particularly in lawmaking processesand impact assessments. Each ministry is responsible for coordinating with the Attorney General’s Chambers to draft proposed legislation. Legislation does not receive broad review and little input is provided from outside of the originating ministry. The sultan has final authority to approve proposed legislation. Laws and regulations are readily accessible on the Attorney General’s Chambers website.
Brunei encourages environment, social, and governance (ESG) disclosure but does not mandate it.
Brunei is an active member of ASEAN, through which it has concluded FTAs with Australia & New Zealand, China, India, Japan and South Korea. Brunei became a WTO member in 1995 and a signatory to the General Agreement on Tariffs and Trade (GATT) in 1993.
Brunei’s constitution does not specifically provide for judicial independence, but in practice the court system operates without government interference. Brunei’s legal system includes two parallel systems: one based on common law and the other based on Islamic law. The common law judicial system is presided over by the Supreme Court, which comprises the Court of Appeal and the High Court.
Recognizing the importance of protecting investors’ rights and contract enforcement, Brunei established a Commercial Court in 2016.
In 2014, Brunei implemented the first phase of its Sharia Penal Code (SPC), which expanded existing restrictions on minor offenses—such as eating during Ramadan—that are punishable by fines or imprisonment. On April 3, 2019 Brunei commenced full implementation of the SPC, introducing the possibility of harsher punishments such as stoning to death for rape, adultery, or sodomy, and execution for apostasy, contempt of the Prophet Muhammad, or insult of the Quran. However, these forms of punishment require higher standards of proof than the common-law-based penal code (for example, four pious men must personally witness an act of fornication to support a sharia-based harsh sentence), placing them under a de facto moratorium. The sultan confirmed the moratorium in a 2019 public statement.
The basic legislation on investment includes the Investment Incentive Order 2001 and the Income Tax (As Amended) Order 2001. Investment Order 2001 supports economic development in strategically important industrial and economic enterprises and, through the Ministry of Finance and Economy, offers investment incentives through a favorable tax regime. Although Brunei does not have a stock exchange, the government is reportedly planning to establish a securities market.
Foreign ownership of companies is not restricted, although under the Companies Act, at least one of two directors of a locally incorporated company must be a resident of Brunei, unless granted an exemption from the appropriate authorities.
Brunei’s Competition Order, published in 2015 to promote and maintain fair and healthy competition to enhance market efficiency and consumer welfare, entered into force on January 1, 2020. The sultan also announced the establishment of the Competition Commission in 2017 to oversee and act on competition issues that include adjudicating anti-competitive cases and imposing penalties on companies that violate the Competition Order.
Brunei is a signatory to the 1987 ASEAN Agreement for the Promotion and Protection of Investments. There is no history of expropriation of foreign owned property in Brunei, but there have been cases of domestically owned private property being expropriated for infrastructure development. The government provided compensation in such cases and claimants were afforded due process.
In 2012, amendments to Brunei’s Bankruptcy Act increased the minimum threshold for a creditor to present a bankruptcy petition against a debtor from BND 500 to BND 10,000 (USD350 to USD7,060) and enabled an appointed bankruptcy trustee to direct the Controller of Immigration to impound and retain the debtor’s passport, certificate of identity, or travel document to prevent the debtor from leaving the country. The amendment also requires the debtor to deliver all property under the debtor’s possession to the trustee. Information about Brunei’s bankruptcy laws is available on the judiciary’s website.
Bulgaria is seen by many investors as an attractive low-cost investment destination, with government incentives for new investment. The country offers some of the least expensive labor in the European Union (EU) and low and flat corporate and income taxes. However, Bulgaria has the lowest labor productivity rate in the EU, and a rapidly shrinking population could exacerbate the trend.
In 2021 Bulgaria continued to suffer from the COVID-19 pandemic and related shutdowns, although the impact on the economy was less severe than in many other European countries. In 2021 the government updated the budget to include more public funding of COVID-related measures, such as increased pensions. Tourism, logistics, the service industries, and the automotive sector were particularly hard hit by the pandemic. The Bulgarian economy declined 4.4 percent in 2020, rebounded to 4.2 percent growth in 2021, and is projected to grow by 4.8 percent in 2022. This recovery is being driven by higher consumption and public investment funds. The war in Ukraine and rising energy and food prices, however, threaten these growth expectations.
Bulgaria is expected to receive EUR 6.2 billion over a six-year period (2021-2026) from the EU’s post-COVID recovery grant funds to improve its economy in areas such as green energy, digitalization, and private sector development.
The government expects to adopt the Euro in early 2024, after having joined the European Exchange Rate Mechanism (ERM II) in July 2020 and the EU’s Banking Union in October 2020. The adoption of the euro will eliminate currency risk and help reduce transaction costs with some of the country’s key European trading partners.
There are no legal limits on foreign ownership or control of firms. With some exceptions, foreign entities are given the same treatment as national firms and their investments are not screened or otherwise restricted. There is strong growth in software development, technical support, and business process outsourcing. The Information Technology (IT) and back-office outsourcing sectors have attracted a number of U.S. and European companies to Bulgaria, and many have established global and regional service centers in the country. The automotive sector has also attracted U.S. and foreign investors in recent years.
Foreign investors remain concerned about rule of law in Bulgaria. Along with endemic corruption, investors cite other problems impeding investment including difficulty obtaining needed permits, unpredictability due to frequent regulatory and legislative changes, sporadic attempts to negate long-term government contracts, and an inefficient judicial system. The new government coalition which came to power in December 2021 cited rule of law reform as its highest priority.
1. Openness To, and Restrictions Upon, Foreign Investment
There are no legal limits on foreign ownership or control of firms. With some exceptions, foreign entities are given the same treatment as national firms and their investments are not screened or otherwise restricted.
The Invest Bulgaria Agency (IBA), the government’s investment attraction body, provides information, administrative services, and incentive assessments to prospective foreign investors. Its website (www.investbg.government.bg/en) contains general information for foreign investors. IBA serves as a one-stop shop for foreign investors and certifies proposed investments for eligibility for administrative services.
There are no limits to foreign and domestic private entities establishing and owning businesses in Bulgaria. The Offshore Company Act lists 28 activities (including government procurement, natural resource exploitation, national park management, banking, insurance) in which companies registered in offshore jurisdictions with more than 10 percent foreign participation are banned from participating. The law, however, allows those companies to do business if the physical owners of the parent company are Bulgarian citizens and known to the public, if the parent company’s stock is publicly traded, or if the parent company is registered in a jurisdiction with which Bulgaria enjoys a bilateral tax treaty for the avoidance of double taxation (including the United States).
Bulgaria has no specific law or coordinated mechanism in place for screening individual foreign investments. A potential foreign investment can be scrutinized on the grounds of its potential national security risk or through the Law on the Measures against Money Laundering. As each ministry is responsible for screening investments within its purview, interagency coordination is lacking, and there are no common standards. As of April 2022, Bulgaria has not publicly reported any initiative on the introduction of a national investment screening mechanism.
There have been no recent Investment Policy Reviews of Bulgaria by multilateral economic organizations. An Investment Policy Review by the Organization for Economic Cooperation and Development (OECD) is planned for 2022. In January 2022 the OECD decided to open accession discussions with Bulgaria. A key milestone toward Bulgaria’s overarching OECD Action Plan was its having joined the Nuclear Energy Agency (NEA) in January 2021. In 2019, the OECD published reviews of Bulgaria’s healthcare sector and state-owned enterprises, and in January 2021 the OECD published an Economic Assessment in which it acknowledged the successful integration of Bulgarian manufacturing firms into global production chains and sound macroeconomic policies prior to the pandemic. At the same time the report highlighted as key policy challenges Bulgaria’s high income inequality, relative poverty, and an ageing and rapidly shrinking population. In February 2021 the OECD published a study of Bulgarian municipalities that acknowledged solid progress in local governance standards but also noted insufficient progress in bridging regional disparities.
Bulgaria typically supports small- and medium-sized business creation and development in conjunction with EU-funded innovation and competitiveness programs and with a special emphasis on export capacity. The state-owned Bulgarian Development Bank has committed to supporting small- and medium-sized businesses in Bulgaria, including through the post-COVID-19 recovery period. Typically, a new business is expected to register an account with the state social security agency and, in some cases, with the local municipality as well. Electronic company registration is available at: https://portal.registryagency.bg/commercial-register. Women receive equitable treatment to men, and the Bulgarian law does not discriminate against minorities doing business.
There is no government agency for outward investment promotion, and no restrictions exist for local businesses to invest abroad.
3. Legal Regime
In general, the regulatory environment in Bulgaria is characterized by complexity, lack of transparency, and arbitrary or weak enforcement. These factors create incentives for public corruption. Public procurement rules are at times tailored to match certain local business interests. Bulgarian law lists 38 operations subject to licensing. The law requires all regulations to be justified by defined need (in terms of national security, environmental protection, or personal and material rights of citizens), and prohibits restrictions merely incidental to the stated purposes of the regulation. The law also requires the regulating authority, or the member of Parliament sponsoring the draft law containing the regulation, to perform a cost-benefit analysis of any proposed regulation. This requirement, however, is often ignored when Parliament reviews draft bills. With few exceptions, all draft bills are made available for public comment, both on the central government website and the respective agency’s website, and interested parties are given 30 days to submit their opinions.
In addition, the law eliminates bureaucratic discretion in granting requests for routine economic activities and provides for silent consent (default judgement in favor of the requestor) when the government does not respond to a request in the allotted time. Local companies in which foreign partners have controlling interests may be requested to provide additional information or to meet additional mandatory requirements in order to engage in certain licensed activities, including production and export of arms and ammunition, banking and insurance, and the exploration, development, and exploitation of natural resources. The Bulgarian government licenses the export of dual-use goods and bans the export of all goods under international trade sanctions lists. The Bulgarian government’s budget is assessed as transparent and in accordance with international standards and principles. Central government debt and debt guarantees are published monthly, and debt obligations by individual state-owned enterprises (SOEs) are published every three months on the website of the Agency for Public Enterprises and Control.
The first and only Bulgarian think tank for sustainable finance and energy, the Green Finance & Energy Centre, was launched in March 2021 by the Bulgarian Stock Exchange (BSE) and the Independent Bulgarian Energy Exchange (IBEX), in partnership with the Ministries of Finance and Energy, the Financial Supervision Commission, and the Fund of Funds. The mission of the Green Centre includes raising business awareness and upgrading corporate governance codes with environmental and social responsibility provisions. Major banks and investors increasingly recognize the importance of sustainable finance and investment in supporting economic growth while reducing environmental degradation.
Bulgaria became a member of the World Trade Organization (WTO) in December 1996. Under the provisions of Article 207 of the Treaty on the Functioning of the European Union (Lisbon Treaty), common EU trade policies are exclusively the responsibility of the EU and the European Commission (EC), which coordinates them with the 27 member states. The EC negotiates in the WTO on behalf of the Member States and coordinates issues with them within the Trade Policy Committee of the Council of the EU. The United States supports EU measures to increase digital market competition through the EU’s future Digital Market Act.
Following systemic government-controlled prosecutions during Bulgaria’s communist era, the 1991 Constitution created an independent judicial branch comprised of judges, prosecutors, and magistrate-investigators. The system is governed by a 25-member Supreme Judicial Council (SJC), which is responsible for the selection and disciplining of magistrates; however, according to local and international observers its decisions have been opaque and politically influenced. Eleven of the SJC members are appointed by a supermajority in Parliament, a process often leading to behind-the-scenes distribution of seats to politically convenient candidates. All 1,500 prosecutors are administratively subordinate through their chiefs to the Prosecutor General, who is also a voting member of the SJC and as such has significant decision-making power over judicial selections. Numerous well documented media and civil society investigations in recent years have alleged nepotism, corruption, and undue political and business influence over prosecutions, including with the purpose to take over lucrative businesses. Prosecutors’ decisions to dismiss cases are not subject to review by a judge, and trials, especially in criminal cases, often take years to complete because of the inefficient procedures laid out in the criminal procedure code. Polls show a consistent lack of public confidence in the Prosecutor General and the courts.
There are three levels of courts. Bulgaria’s 113 regional courts exercise jurisdiction over civil and criminal cases. Above them, 28 district courts, including the Sofia City Court, serve as courts of appellate review for regional court decisions and have trial-level (first-instance) jurisdiction in serious criminal cases and in civil cases where claims exceed BGN 25,000 (USD 14,320), excluding alimony, labor disputes, and financial audit discrepancies, or in property cases where the property’s value exceeds BGN 50,000 (USD 28,640). Five appellate courts review the first-instance decisions of the district courts. The Supreme Court of Cassation is the court of last resort for criminal and civil appeals. There is a separate system of 28 specialized administrative courts which rule on the legality of local and national government decisions, with the Supreme Administrative Court serving as the court of final instance. The Constitutional Court, which is separate from the rest of the judiciary, issues final rulings on the compliance of laws with the Constitution.
Bulgaria’s legislation has been largely aligned with EU directives to provide adequate means of enforcing property and contractual rights. In practice, however, investors regularly complain about regulatory impediments, prosecutorial intervention in administrative cases, and inconsistent jurisprudence. Overall, the government’s handling of investment disputes has been slow, interagency coordination is poor, and intervention at the highest political level is often required.
The 2004 Investment Promotion Act stipulates equal treatment of foreign and domestic investors. The law encourages investment in manufacturing and high technology, knowledge intensive services, education, and human resource development. It creates investment incentives by helping investors purchase land, providing state financing for basic infrastructure, training new staff, and facilitating tax incentives and opportunities for public-private partnerships (PPPs) with the central and local governments. The most common form of PPPs are concessions, which include the lease of government property for private use for up to 35 years for a construction and service concession. The term of the concession may be extended by a maximum of one-third of the original term. In 2021, defense and security were excluded from concession-eligible sectors.
Foreign investors must comply with the 1991 Commercial Law, which regulates commercial and company enterprise law, and the 1951 Law on Obligations and Contracts, which regulates civil transactions.
The Invest Bulgaria Agency (IBA) is the government’s investment attraction body and serves as a one-stop-shop for foreign investors. It provides information, administrative services, and incentive assessments to prospective foreign investors.
The Commission for Protection of Competition (the “Commission”) oversees market competition and enforces the Law on the Protection of Competition (the “Competition Law”). The Competition Law, enacted in 2008, is intended to implement EU rules that promote competition. The law forbids monopolies, restrictive trade practices, abuse of market power, and certain forms of unfair competition. Monopolies can only be legally established in enumerated categories of strategic industries. In practice, the Competition Law has been applied inconsistently, and some of the Commission’s decisions are questionable and appear subject to political influence.
Private real property rights are legally protected by the Bulgarian Constitution. Only in the case where a public need cannot be met by other means may the Council of Ministers or a regional governor expropriate land, in which case the owner is compensated at fair market value. Expropriation actions by the Council of Ministers, by regional authorities, or by municipal mayor can be appealed at a local administrative court. In its Bilateral Investment Treaty (BIT) with the United States, Bulgaria committed to international arbitration to judge expropriation claims and other investment disputes.
The 1994 Commercial Law Chapter on Bankruptcy provides for reorganization or rehabilitation of a legal entity, maximizes asset recovery, and provides for fair and equal distribution among all creditors. The law applies to all commercial entities, except public monopolies or state-owned enterprises (SOEs). The 2015 Insurance Code regulates insurance company failures, while bank failures are regulated under the 2002 Bank Insolvency Act and the 2006 Credit Institutions Act. The 2014 bankruptcy of the country’s fourth-largest bank, Corporate Commercial Bank, was a test case that showed serious deficiencies in the process of recovery and preservation of bank assets during bankruptcy proceedings.
Non-performance of a financial obligation must be adjudicated before the bankruptcy court can determine whether the debtor is insolvent. There is a presumption of insolvency when the debtor is unable to perform an executable obligation under a commercial transaction or public debt or related commercial activities, has suspended all payments, or is able to pay only the claims of certain creditors. The debtor is deemed over-indebted if its assets are insufficient to cover its short-term monetary obligations.
Bankruptcy proceedings may be initiated on two grounds: the debtor’s insolvency, or the debtor’s excessive indebtedness. Under Part IV of the Commercial Law, debtors or creditors, including state authorities such as the National Revenue Agency, can initiate bankruptcy proceedings. The debtor must declare bankruptcy within 30 days of becoming insolvent or over-indebted. Bankruptcy proceedings supersede other court proceedings initiated against the debtor except for labor cases, enforcement proceedings, and cases related to receivables securitized by third parties’ property. Such cases may be initiated even after bankruptcy proceedings begin.
Creditors must declare to the trustee all debts owed to them within one month of the start of bankruptcy proceedings. The trustee then has seven days to compile a list of debts. A rehabilitation plan must be proposed within one month after publication of the list of debts in the Commercial Register. After creditors’ approval, the court endorses the rehabilitation plan, terminates the bankruptcy proceeding, and appoints a supervisory body for overseeing the implementation of the rehabilitation plan. The court must endorse the plan within seven days and put it forward to the creditors for approval. The creditors must convene to discuss the plan within a period of 45 days. The court may renew the bankruptcy proceedings if the debtor does not fulfill its obligations under the rehabilitation plan.
The Bulgarian National Bank may revoke the operating license of an insolvent bank when the bank’s own capital is negative, and the bank has not been restructured according to the procedure defined in Article 51 in the Law on the Recovery and Resolution of Credit Institutions and Investment Firms. The license of a bank may be withdrawn under the conditions set out in Article 36 of the Law on Credit Institutions.
On January 24, 2022, the Burkinabé military officers deposed the democratically-elected government of former President Roch Marc Christian Kabore, dissolved the government and national assembly, and suspended the constitution. The coup leader Lieutenant Colonel Paul-Henri Damiba assumed the role of president of Burkina Faso’s Transition Government. In February 2022, a transitional charter was signed by Transition President LTC Damiba laying out a three-year transition period before democratic elections could be held. Since then, a Transitional government and a Transition Legislative Assembly have been installed.
Burkina Faso is a landlocked country and the world’s seventh poorest country according to the 2020 UN Development Program (UNDP) Human Development Index, ranked at 182 out of 189 countries. Burkina Faso has an estimated population of 22 million inhabitants (as of June 2022) according to the United Nations, and the IMF estimates its growth domestic product (GDP) at US$ 19.62 billion. Burkina Faso’s economy rebounded in 2021 and grew at an estimated 8.5 percent, attributable to increases in gold exports and the services sector, according to the World Bank. The economy is forecasted to grow at 5.6 percent in 2022. The fiscal deficit stood at 5.5 percent of GDP in 2022, but could reach 6.6 percent of GDP in 2022 as a result of the multitude of challenges Burkina Faso faces, including security, humanitarian, food, and social, etc. Over 40 percent of the Burkinabe population live below the poverty line, and the country ranks 144th out of 157 countries in the World Bank’s Human Capital Index. Some 80 percent of the country’s population is engaged in agriculture—mostly subsistence—with only a small fraction directly involved in agribusiness. In 2020, as a response to the COVID-19 crisis, the Burkinabe government announced a series of socio-economic measures ranging from tax breaks to subsidies and food support to low-income families. The overall cost of the measures was estimated at US$656 million.
Overall, Burkina Faso welcomes foreign investment and actively seeks to attract foreign partners to aid in its development. It has partially put in place the legal and regulatory framework necessary to ensure that foreign investors are treated fairly, including setting up a venue for commercial disputes and streamlining the issuance of permits and company registration requirements. More progress is needed to diminish the dominance of state-owned firms in certain sectors and to enforce intellectual property protections.
Burkina Faso ranks 100th of 177 countries in the Heritage Foundation’s economic freedom report 2022 Economic Freedom Index. Among the 51 African countries in the report, Burkina Faso ranked 14th, improving its 21st position in the 2021 economic freedom report. Burkina Faso’s corruption perception score improved slightly from 40 in 2020 to 42 in 2021 and improved the country’s ranking from 86th to 78th of 180 countries.
The gold mining industry has boomed in the last decade, and the bulk of foreign investment is in the mining sector, mostly from Canadian firms. Moroccan, French and UAE companies control local subsidiaries in the telecommunications industry, while foreign investors are also active in sectors such as agriculture, transport and logistics, energy, and financial technology. There is a growing foreign investment interest in the security sector. In June 2015, a new mining code was approved to standardize contract terms and better regulate the sector. In 2018, the parliament adopted a new investment code that offers many advantages to foreign investors. This code offers a range of tax breaks and incentives to lure foreign investors, including exemptions from value-added tax (VAT) on certain equipment. Effective tax rates as a result are lower than the regional average, though the tax system is complex, and compliance can be burdensome. Opportunities for U.S. firms exist in many sectors, but including in agriculture and manufacturing
Burkina Faso remains committed to a market-based economy without barriers to trade. Over the last 15 years, the national power utility’s Société Nationale de l’Eléctricité du Burkina (SONABEL) customer base and energy demand ballooned. Between 2015 and 2021, SONABEL customer base grew by 64%. However, supply can only meet the demand in non-peak periods. Burkina Faso imports nearly 70 percent of its electricity from neighboring Ghana and Cote d’Ivoire and faces electricity reliability and affordability challenges. It also imports other energy products such as gasoline and gas through a network of foreign companies to meet local demand. the Millennium Challenge Corporation (MCC) suspended the US$ 500 million compact with the Government of Burkina Faso. The Compact aimed to unlock economic growth by strengthening electricity sector effectiveness, energy reliability cost-effectiveness, and grid development and access, creating a more favorable investment environment for firms in the energy sector and the wider economy and spurring further foreign direct investment in Burkina Faso.
1. Openness To, and Restrictions Upon, Foreign Investment
Following the 2020 reelection of former President Kabore for his second term, a new national socioeconomic development plan (PNDES-II, 2021-2025) was adopted to replace a previous plan (2016-2020). The plan covered four strategic goals: (1) the consolidation of resilience, security, social cohesion, and peace, (2) the deepening of institutional reforms and modernization of public administration, (3) improving sustainable human development, and (4) promoting high impact sectors of the economy and jobs. However, it remains unclear how PNDES II will be impacted by the January 24 coup d’état.
After overthrowing the government on January 24, 2022, LTC Paul-Henri Sandaogo Damiba met with the private sector on February 1 to allay the concerns of the business community and other investors. A Transitional legislative assembly, a transitional government and a transitional charter and agenda were adopted on March 1, 2022, for a 36-month transition that would lead to presidential and legislative elections. However, in an April 1 address to the nation, interim president LTC Damiba indicated that the 36-month transition timeline to democracy could be revised, should the security situation improve.
In a speech to the Transitional Legislative Assembly on April 04, 2022, Prime Minister (PM) Albert Ouedraogo laid out four major pillars or priorities for his government: (1) fighting terrorism and restoring territorial integrity, (2) Responding to the humanitarian crisis, (3) refoundation (or restoration) of the state and improving governance, (4) working towards national reconciliation and social cohesion. PM Ouedraogo indicated plans for a new development plan for the transition period that would incorporate major strategic projects from the PNDES II.
Article 8 of the investment code stipulates that there is to be no discrimination against foreign investors. For any foreign investor to benefit from the exemptions provided for by the investment code, it is required to submit a request to the General Directorate for the Promotion of the Private Sector.
Burkina Faso hosts a certain number of trade fairs and exhibitions to attract foreign investments. These initiatives encompass several sectors, including the bi-annual International Cotton and Textile Fair