Policies Towards Foreign Direct Investment

Direct inward investment into Japan by foreign investors has been open and free since amendment of the Foreign Exchange and Foreign Trade Act (FEFTA) in 1998. In general, the only requirement for foreign investors making investments in Japan is to submit an ex post facto report to the relevant ministries. The Act was amended in 2019, updating Japan’s foreign investment review regime.  The legislation became effective in May 2020 and lowered the ownership threshold for pre-approval notification to the government for foreign investors from ten percent to one percent in industries that could pose risks to Japanese national security. There are waivers for certain categories of investors.

The Japanese Government explicitly promotes inward FDI and has established formal programs to attract it. In 2013, the government of Prime Minister Shinzo Abe announced its intention to double Japan’s inward FDI stock to JPY 35 trillion (USD 318 billion) by 2020 and reiterated that commitment in its revised Japan Revitalization Strategy issued in August 2016. At the end of 2019, Japan’s inward FDI stock was JPY 33.9 trillion (USD 310 billion), a 10.4 percent increase over the previous year. The Suga Administration’s interest in attracting FDI is one component of the government’s strategy to reform and revitalize the Japanese economy, which continues to face the long-term challenges of low growth, an aging population, and a shrinking workforce.

The government’s “FDI Promotion Council,” composed of government ministers and private sector advisors, releases recommendations on improving Japan’s FDI environment. In a May 2018 report ( http://www.invest-japan.go.jp/documents/pdf/support_program_en.pdf ), the council decided to launch the Support Program for Regional Foreign Direct Investment in Japan, recommending that local governments formulate a plan to attract foreign companies to their regions.

The Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) are the lead agencies responsible for assisting foreign firms wishing to invest in Japan. METI and JETRO have together created a “one-stop shop” for foreign investors, providing a single Tokyo location—with language assistance—where those seeking to establish a company in Japan can process the necessary paperwork (details are available at http://www.jetro.go.jp/en/invest/ibsc/ ). Prefectural and city governments also have active programs to attract foreign investors, but they lack many of the financial tools U.S. states and municipalities use to attract investment.

Foreign investors seeking a presence in the Japanese market or seeking to acquire a Japanese firm through corporate takeovers may face additional challenges, many of which relate more to prevailing business practices rather than to government regulations, although this varies by sector. These challenges include an insular and consensual business culture that has traditionally resisted unsolicited mergers and acquisitions (M&A), especially when initiated by non-Japanese entities; a lack of multiple independent directors on many company boards (even though board composition is changing); exclusive supplier networks and alliances between business groups that can restrict competition from foreign firms and domestic newcomers; cultural and linguistic challenges; and labor practices that tend to inhibit labor mobility. Business leaders have communicated to the Embassy that regulatory and governmental barriers are more likely to exist in mature, heavily regulated sectors than in new industries.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private enterprises have the right to establish and own business enterprises and engage in all forms of remunerative activity. Japan has gradually eliminated most formal restrictions governing FDI. One remaining restriction limits foreign ownership in Japan’s former land-line monopoly telephone operator, Nippon Telegraph and Telephone (NTT), to 33 percent. Japan’s Radio Law and separate Broadcasting Law also limit foreign investment in broadcasters to 20 percent, or 33 percent for broadcasters categorized as providers of broadcast infrastructure. Foreign ownership of Japanese companies invested in terrestrial broadcasters will be counted against these limits. These limits do not apply to communication satellite facility owners, program suppliers or cable television operators.

The Foreign Exchange and Foreign Trade Act, as amended, governs investment in sectors deemed to have national security or economic stability implications. If a foreign investor wants to acquire over one percent of the shares of a listed company in the sectors set out below, it must provide prior notification and obtain approval from the Ministry of Finance and the ministry that regulates the specific industry. Designated sectors include weapons manufacturers, nuclear power, agriculture, aerospace, forestry, petroleum, electric/gas/water utilities, telecommunications, and leather manufacturing. There are waivers for certain categories of investors.

U.S. investors, relative to other foreign investors, are not disadvantaged or singled out by any ownership or control mechanisms, sector restrictions, or investment screening mechanisms.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducted its most recent review of Japan’s trade policies in November 2020 (available at directdoc.aspx (wto.org) ).

The OECD released its biennial Japan economic survey results on April 15, 2019 (available at http://www.oecd.org/japan/economic-survey-japan.htm ).

Business Facilitation

The Japan External Trade Organization is Japan’s investment promotion and facilitation agency. JETRO operates six Invest Japan Business Support Centers (IBSCs) across Japan that provide consultation services on Japanese incorporation types, business registration, human resources, office establishment, and visa/residency issues. Through its website ( https://www.jetro.go.jp/en/invest/setting_up/ ), the organization provides English-language information on Japanese business registration, visas, taxes, recruiting, labor regulations, and trademark/design systems and procedures in Japan. While registration of corporate names and addresses can be completed online, most business registration procedures must be completed in person. In addition, corporate seals and articles of incorporation of newly established companies must be verified by a notary, although there are indications of change underway. When he took office in September 2020, Prime Minister Suga called for reforms to eliminate use of seals and paper-based process along with establishment of a new Digital Agency as part of his policy agenda of digitizing the provision of government services.

According to the 2020 World Bank “Doing Business” Report, it takes eleven days to establish a local limited liability company in Japan. JETRO reports that establishing a branch office of a foreign company requires one month, while setting up a subsidiary company takes two months. While requirements vary according to the type of incorporation, a typical business must register with the Legal Affairs Bureau (Ministry of Justice), the Labor Standards Inspection Office (Ministry of Health, Labor, and Welfare), the Japan Pension Service, the district Public Employment Security Office, and the district tax bureau. JETRO operates a one-stop business support center in Tokyo so that foreign companies can complete all necessary legal and administrative procedures in one location. In 2017, JETRO launched an online business registration system that allows businesses to register company documents but not immigration documentation.

No laws exist to explicitly prevent discrimination against women and minorities regarding registering and establishing a business. Neither special assistance nor mechanisms exist to aid women or underrepresented minorities.

Outward Investment

The Japan Bank for International Cooperation (JBIC) provides a variety of support for outward Japanese foreign direct investment. Most such support comes in the form of “overseas investment loans,” which can be provided to Japanese companies (investors), overseas Japanese affiliates (including joint ventures), and foreign governments in support of projects with Japanese content, typically infrastructure projects. JBIC often supports outward FDI projects to develop or secure overseas resources that are of strategic importance to Japan, for example, construction of liquefied natural gas (LNG) export terminals to facilitate sales to Japan and third countries in Asia. More information is available at https://www.jbic.go.jp/en/index.html .

Nippon Export and Investment Insurance (NEXI) supports outward investment by providing exporters and investors insurance that protects them against risks and uncertainty in foreign countries that is not covered by private-sector insurers. Together, JBIC and NEXI act as Japan’s export credit agency.

Japan also employs specialized agencies and public-private partnerships to target outward investment in specific sectors.  For example, the Fund Corporation for the Overseas Development of Japan’s Information and Communications Technology and Postal Services (JICT) supports overseas investment in global telecommunications, broadcasting, and postal businesses.

Similarly, the Japan Overseas Infrastructure Investment Corporation for Transport and Urban Development (JOIN) is a government-funded corporation to invest and participate in transport and urban development projects that involve Japanese companies.  The fund specializes in overseas infrastructure investment projects such as high-speed rail, airports, and smart city projects with Japanese companies, banks, governments, and other institutions (e.g., JICA, JBIC, NEXI).

Finally, the Japan Oil, Gas and Metals National Corporation (JOGMEC) is a Japanese government entity administered by the Agency for Natural Resources and Energy under METI.  JOGMEC provides equity capital and liability guarantees to Japanese companies for oil and natural gas exploration and production projects.

Japan places no restrictions on outbound investment.

The 1953 U.S.-Japan Treaty of Friendship, Commerce, and Navigation gives national treatment and most favored nation treatment to U.S. investments in Japan.

On January 1, 2021, the Japan-UK Comprehensive Economic Partnership Agreement entered into force, which includes a chapter on investment liberalization. The text of the agreement is available online ( https://www.mofa.go.jp/files/100111408.pdf ). In November 2020, Japan signed the Regional Comprehensive Economic Partnership (RCEP) with the ten ASEAN nations, Australia, China, the Republic of Korea, and New Zealand. RCEP also includes a chapter on investment. The text of the agreement is available online (https://rcepsec.org/legal-text/).

As of February 2021, Japan had concluded 35 bilateral investment treaties (BITs) (Argentina, Armenia, Bangladesh, Cambodia, China, Colombia, Egypt, Georgia, Hong Kong SAR, Iran, Iraq, Israel, Jordan, Kazakhstan, the Republic of Korea, Kuwait, Laos, Mongolia, Morocco, Mozambique, Myanmar, Pakistan, Papua New Guinea, Peru, Russia, Saudi Arabia, Sri Lanka, Turkey, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Vietnam, Oman, and Kenya). In addition, Japan has a trilateral investment agreement with China and the Republic of Korea. Japan also has 18 economic partnership agreements (EPA) that include investment chapters (with Singapore, ASEAN, Mexico, Malaysia, Philippines, Chile, Thailand, Brunei, Indonesia, Switzerland, Vietnam, India, Peru, Australia and Mongolia, the Comprehensive and Progressive Partnership for Trans-Pacific Partnership (CPTPP), UK and RCEP).

On February 1, 2019, the Japan – European Union Economic Partnership Agreement entered into force, which includes provisions related to investment. The text of the agreement is available online ( http://trade.ec.europa.eu/doclib/press/index.cfm?id=1684&title=EU-Japan-Economic-Partnership-Agreement-texts-of-the-agreement ). The Comprehensive and Progressive Agreement for Trans-Pacific Partnership went into effect on December 30, 2018. This agreement includes an investment chapter. The United States is not a signatory to this agreement. Japan is the current chair of the CPTPP commission, its second time since the agreement went into effect.

The United States and Japan have a double taxation treaty, which allows Japan to tax the business profits of a U.S. resident only to the extent that those profits are attributable to a permanent establishment in Japan. It also provides measures to mitigate double taxation. This permanent establishment provision, combined with Japan’s corporate tax rate that nears 30 percent, serves to encourage foreign and investment funds to keep their trading and investment operations offshore.

In January 2013, the United States and Japan signed a revision to the bilateral income tax treaty, to bring it into closer conformity with the current tax treaty policies of the United States and Japan. The revision went into effect in August 2019 after ratification by the U.S Congress.

Japan has concluded 79 double taxation treaties that cover 142 countries and jurisdictions, as of February 1, 2021. More information is available from the Ministry of Finance: http://www.mof.go.jp/english/tax_policy/tax_conventions/international_182.htm .

Transparency of the Regulatory System

Japan operates a highly centralized regulatory system in which national-level ministries and government organs play a dominant role. Regulators are generally sophisticated and there is little evidence of explicit discrimination against foreign firms. Most draft regulations and impact assessments are released for public comment before implementation and are accessible through a unified portal ( http://www.e-gov.go.jp/ ). Law, regulations, and administrative procedures are generally available online in Japanese along with regular publication in an official gazette. The Japanese government also actively maintains a body of unofficial English translations of some Japanese laws ( http://www.japaneselawtranslation.go.jp/ ).

Some members of the foreign business community in Japan continue to express concern that Japanese regulators do not seek sufficient formal input from industry stakeholders, instead relying on formal and informal connections between regulators and domestic firms to arrive at regulatory decisions. This may have the effect of disadvantaging foreign firms that lack the benefit of deep relationships with local regulators. The United States has encouraged the Japanese government to improve public notice and comment procedures to ensure consistency and transparency in rule-making, and to give fair consideration to comments received. The National Trade Estimate Report on Foreign Trade Barriers (NTE), issued by the Office of the U.S. Trade Representative (USTR), contains a description of Japan’s regulatory regime as it affects foreign exporters and investors.

International Regulatory Considerations

The Japanese Industrial Standards Committee (JISC), administered by the Ministry of Economy, Trade, and Industry, plays a central role in maintaining Japan Industrial Standards (JIS). JISC aims to align JIS with international standards. According to JISC, as of March 31, 2020, 58 percent of Japan’s standards were harmonized with their international counterparts. Nonetheless, Japan maintains a large number of Japan-specific standards that can complicate efforts to introduce new products to the country. Japan is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade (TBT) of proposed regulations.

Legal System and Judicial Independence

Japan is primarily a civil law country based on codified law. The Constitution and the five major legal codes (Civil, Civil Procedure, Commercial, Criminal, and Criminal Procedure) form the legal basis of the system. Japan has a fully independent judiciary and a consistently applied body of commercial law. An Intellectual Property High Court was established in 2005 to expedite trial proceedings in IP cases. Foreign judgments are recognized and enforced by Japanese courts under certain conditions.

Laws and Regulations on Foreign Direct Investment

Major laws affecting foreign direct investment into Japan include the Foreign Exchange and Foreign Trade Act, the Companies Act, and the Financial Instruments and Exchange Act. The Japanese government actively encourages FDI into Japan and has sought over the past decades to ease legal and administrative burdens on foreign investors, including with major reforms to the Companies Act in 2005 and the Financial Instruments and Exchange Act in 2008. The Japanese government amended the Foreign Exchange and Foreign Trade Act in 2019.

Competition and Antitrust Laws

The Japan Fair Trade Commission (JFTC) holds sole responsibility for enforcing Japanese competition and anti-trust law, although public prosecutors may file criminal charges related to a JFTC finding. In fiscal year 2019, the JFTC investigated 99 suspected Antimonopoly Act (AMA) violations and completed 81 investigations. During this same time period, the JFTC issued 11 cease and desist orders and issued a total of 69.2 billion yen (USD 659 million) surcharge payment orders to 37 companies. In 2019, an amendment to the AMA passed the Diet that granted the JFTC discretion to incentivize cooperation with investigations and adjust surcharges according to the nature and extent of the violation.

The JFTC also reviews proposed “business combinations” (i.e., mergers, acquisitions, increased shareholdings, etc.) to ensure that transactions do not “substantially … restrain competition in any particular field of trade.” In December 2019, amended merger guidelines and policies were put into force to “deal with business combinations in the digital market.” Data is given consideration as a competitive asset under these new guidelines along with the network effects characteristic of digital businesses. The JFTC has expanded authority to review merger cases, including “Non-Notifiable Cases,” when the transaction value is more than JPY40 billion (USD 370 million) and the merger is expected to affect domestic consumers. Further, the amended policies suggest that parties consult with the JFTC voluntarily when the transaction value exceeds JPY40 billion and when one or more of the following factors is met: (i) When an acquired company has an office in Japan and/or conducts research and development in Japan;

(i) When an acquired company has an office in Japan and/or conducts research and development in Japan; (ii) When an acquired company conducts sales activities targeting domestic consumers, such as developing marketing materials (website, brochures, etc.) in the Japanese language; or

(ii) When an acquired company conducts sales activities targeting domestic consumers, such as developing marketing materials (website, brochures, etc.) in the Japanese language; or (iii) When the total domestic sales of an acquired company exceed JPY100 million (USD 920,000)

(iii) When the total domestic sales of an acquired company exceed JPY100 million (USD 920,000)

Expropriation and Compensation

Since 1945, the Japanese government has not expropriated any enterprise, and the expropriation or nationalization of foreign investments in Japan is highly unlikely.

Dispute Settlement

ICSID Convention and New York Convention

Japan has been a member of the International Centre for the Settlement of Investment Disputes (ICSID Convention) since 1967 and is also a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Enforcement of arbitral awards in Japan are provided for in Japan’s Arbitration Law. Enforcement in other contracting states is also possible. The Supreme Court of Japan has denied the enforceability of awards for punitive damages, however. The Arbitration Law provides that an arbitral award (irrespective of whether or not the seat of arbitration is in Japan) has the same effect as a final and binding judgment. The Arbitration Law does not distinguish awards rendered in contracting states of the New York Convention and in non-contracting states.

Investor-State Dispute Settlement

International Commercial Arbitration and Foreign Courts

The Japan Commercial Arbitration Association (JCAA) is the sole permanent commercial arbitral institution in Japan. Japan’s Arbitration Law is based on the United Nations Commission on International Trade Law “Model Law on International Commercial Arbitration” (UNCITRAL Model Law). Local courts recognize and enforce foreign arbitral awards.

A wide range of Alternate Dispute Resolution (ADR) organizations also exist in Japan. The Ministry of Justice (MOJ) has responsibility for regulating and accrediting ADR groups. A Japanese-language list of accredited organizations is available on the MOJ website: http://www.moj.go.jp/KANBOU/ADR/index.html .

Bankruptcy Regulations

The World Bank 2020 “Doing Business” Report ranked Japan third worldwide for resolving insolvency. An insolvent company in Japan can face liquidation under the Bankruptcy Act or take one of four roads to reorganization: the Civil Rehabilitation Law; the Corporate Reorganization Law; corporate reorganization under the Commercial Code; or an out-of-court creditor agreement. The Civil Rehabilitation Law focuses on corporate restructuring in contrast to liquidation, provides stronger protection of debtor assets prior to the start of restructuring procedures, eases requirements for initiating restructuring procedures, simplifies and rationalizes procedures for the examination and determination of liabilities, and improves procedures for approval of rehabilitation plans.

Out-of-court settlements in Japan tend to save time and expense but can lack transparency. In practice, because 100 percent creditor consensus is required for out-of-court settlements and courts can sanction a reorganization plan with only a majority of creditors’ approval, the last stage of an out-of-court settlement is often a request for a judicial seal of approval.

There are three domestic credit reporting/ credit-monitoring agencies in Japan. They are not government-run.  They are: Japan Credit Information Reference Center Corp. (JICC, https://www.jicc.co.jp/english/index.html ‘, member companies deal in consumer loans, finance, and credit); Credit Information Center (CIC, https://www.cic.co.jp/en/index.html , member companies deal in credit cards and credit); and Japan Bankers Association (JBA, https://www.zenginkyo.or.jp/pcic/ , member companies deal in banking and bank-issued credit cards). Credit card companies, such as Japan Credit Bureau (JCB), and large banks, such as Mitsubishi UFJ Financial Group (MUFG), also maintain independent databases to monitor and assess credit.

Per Japan’s Banking Act, data and scores from credit reports and credit monitoring databases must be used solely by financial institutions for financial lending purposes.  This information is provided to credit card holders themselves through services provided by credit reporting/credit monitoring agencies.   Increasingly, however, to get around the law, real estate companies partner with a “credit guarantee association” and encourage or effectively require tenants to use its services. According to a 2017 report from the Japan Property Management Association (JPMA), roughly 80 percent of renters in Japan used such a service. While financial institutions can share data to the databases and receive credit reports by joining the membership of a credit monitoring agency, the agencies themselves, as well as credit card companies and large banks, generally do not necessarily share data with each other.  As such, consumer credit information is generally underutilized and vertically siloed.

A government-operated database, the Juminhyo or the “citizen documentation database,” is used for voter registration; confirmation of eligibility for national health insurance, national social security, and child allowances; and checks and registrations related to scholarships, welfare protection, stamp seals (signatures), and immunizations. The database is strictly confidential, government-controlled, and not shared with third parties or private companies.

For the credit rating of businesses, there are at least seven credit rating agencies (CRAs) in Japan, including Moody’s Japan, Standard & Poor’s Ratings Japan, Tokyo Shoko Research, and Teikoku Databank. See Section 9 for more information on business vetting in Japan.

Investment Incentives

The Japan External Trade Organization (JETRO) maintains an English-language list of national and local investment incentives available to foreign investors on their website: https://www.jetro.go.jp/en/invest/incentive_programs/ .

Foreign Trade Zones/Free Ports/Trade Facilitation

Japan no longer has free-trade zones or free ports. Customs authorities allow the bonding of warehousing and processing facilities adjacent to ports on a case-by-case basis.

The National Strategic Special Zones Advisory Council chaired by the Prime Minister has established a total of ten National Strategic Special Zones (NSSZ) to implement selected deregulation measures intended to attract new investment and boost regional growth. Under the NSSZ framework, designated regions request regulatory exceptions from the central government in support of specific strategic goals defined in each zone’s “master plan,” which focuses on a potential growth area such as labor, education, technology, agriculture, or healthcare. Foreign-owned businesses receive equal treatment in the NSSZs; some measures aim specifically to ease customs and immigration restrictions for foreign investors, such as the “Startup Visa” adopted by the Fukuoka NSSZ.

The Japanese government has also sought to encourage investment in the Tohoku (northeast) region, which was devastated by the earthquake, tsunami, and nuclear “triple disaster” of March 11, 2011. Areas affected by the disaster have been included in a “Special Zone for Reconstruction” that features eased regulatory burdens, tax incentives, and financial support to encourage heightened participation in the region’s economic recovery.

A revision to add “advanced data technologies” as one of targeted growth areas for NSSZs, was approved by the Diet in May 2020 and went into effect on September 1, 2020. The revision will allow regions to create “Super City National Strategic Zones,” on the condition that the zone will provide advanced services to its citizens through utilizing artificial intelligence (AI), big data or other data linkage platforms. The Cabinet Office website cited remote schooling/healthcare, cashless payment services, and one-stop administrative services as examples of such projects. The Japanese government is accepting applications for “Super City Strategic Zone Project ” as well as requests for related regulatory reforms until April 16, 2021.

Performance and Data Localization Requirements

Japan does not maintain performance requirements or requirements for local management participation or local control in joint ventures.

Japan has no general restrictions on data storage. On January 1, 2020, the U.S.-Japan Digital Trade Agreement went into effect and specifically prohibits data localization measures that restrict where data can be stored and processed. These rules are extended to financial service suppliers, in circumstances where a financial regulator has the access to data needed to fulfill its regulatory and supervisory mandate.

Real Property

Secured interests in real property are recognized and enforced. Mortgages are a standard lien on real property and must be recorded to be enforceable. Japan has a reliable recording system. Property can be rented or leased but no sub-lease is legal without the owner’s consent. In the World Bank 2020 “Doing Business” Report, Japan ranks 43 out of 190 economies in the category of Ease of Registering Property. There are bureaucratic steps and fees associated with purchasing improved real property in Japan, even when it is already registered and has a clear title. The required documentation for property purchases can be burdensome. Additionally, it is common practice in Japan for property appraisal values to be lower than the actual sale value, increasing the deposit required of the purchaser, as the bank will provide financing only up to the appraisal value.

The Japanese Government is unsure of the titleholders to 4.1 million hectares of land in Japan, roughly 20 percent of all land and an area equivalent in size to the island of Kyushu. According to a think tank expert on land use, 25 percent of all the land in Japan is registered to people who are no longer alive or otherwise unreachable. In 2015, the Ministry of Land, Infrastructure, Transportation and Tourism (MLIT) found that, of 400 randomly selected tracts of land, 46 percent was registered more than 30 years ago, and 20 percent was registered more than 50 years ago. A similar survey by the Ministry of Agriculture, Forestry and Fisheries (MAFF) found that 20 percent of farmland had a deceased owner and had not been re-registered. The government appointed a group of experts to study the matter, and the Unknown Land Owners Problem Study Group announced the results in a midterm report on June 26, 2017, and in a final report on December 13, 2017 ( http://www.kok.or.jp/project/fumei.html ). It estimated that by 2040 the amount of land without titleholders will increase to 7.2 million hectares. There are a number of reasons beyond the administrative difficulties of a title transfer as to why land lacks a clear title holder. They include: population decline, especially in rural areas; the difficulty of locating heirs, particularly if there are multiple heirs or if the deceased had no children; and the cost of reregistering land under a new name due to tax costs. Virtually all the large banks, as well as some other private companies, offer loans to purchase property in Japan.

Intellectual Property Rights

Japan maintains a comprehensive and sophisticated intellectual property (IP) regime recognized as among the strongest in the world. In 2020, Japan ranked sixth out of 53 countries evaluated by the U.S. Chamber of Commerce on the strength of IP environments. The government has operated a dedicated “Intellectual Property High Court” to adjudicate IP-related cases since 2005, providing judges with enhanced access to technical experts and the ability to specialize in intellectual property law. However, certain shortcomings remain, notably in the transparency and predictability of its system for pricing on-patent pharmaceuticals. The discriminatory effect of healthcare reimbursement pricing measures implemented by the Japanese government continues to raise serious concerns about the ability of U.S. pharmaceutical companies to have full and fair opportunity to use and profit from their IP in the Japanese market. More generally, the weak deterrent effect of Japan’s relatively modest penalties for IP infringement remains a cause for concern.

U.S. Embassy Tokyo is aware of isolated claims of U.S. IP misappropriation by Japanese state-owned or affiliated entities and presumes, given the vast volume of bilateral trade, that additional cases across public and private sectors may exist. That said, the Japanese government has taken several steps in recent years to improve protection of trade secrets. Revisions to the Unfair Competition Prevention Act (UCPA) went into effect July 2019, which classifies the improper acquisition, disclosure, and use of specified protected data as an act of unfair competition, offering civil and criminal remedies to stakeholders. The revisions also extend the scope of unfair competition to include attempts to circumvent technological restriction measures. Japan has taken a leading role in promoting the expansion of IP rights in recent regional trade agreements, including:

• RCEP: On November 15, 2020, Japan joined 10 ASEAN member states, plus Australia, China, New Zealand, and the Republic of Korea, in signing the Regional Comprehensive Economic Partnership. This regional trade agreement includes a comprehensive IP chapter, much of it repeating norms set out in TRIPS, but also offering unique protections for genetic resources, traditional knowledge, and folklore.
• Japan-UK CEPA: The Japan-UK Comprehensive Economic Partnership Agreement signed on October 23, 2020, and in force beginning January 1, 2021, contains an IP chapter including provisions on copyrights, trademarks, geographical indications, industrial designs, patents, regulatory test data exclusivity, new plant varieties, trade secrets, domain names, and enforcement.
• Japan-EU EPA: The Japan-EU Economic Partnership Agreement, which went into effect February 1, 2019, also includes a substantial IP chapter.
• CPTPP: As part of its 2018 accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Japan passed several substantive amendments to its copyright law, including measures that extended the term of copyright protection and strengthened technological protection rules.

Japan’s Customs and Tariff Bureau publishes a yearly report on goods seizures, available online in English ( http://www.customs.go.jp/mizugiwa/chiteki/pages/g_001_e.htm ). Japan seized an estimated $121.2 million worth of IP-infringing goods in 2019, a decrease of 5.2 percent over 2018. In June 2020, the Customs and Tariff Bureau of the Ministry of Finance announced the “SMART Customs Initiative 2020,” which aims to utilize cutting-edge technologies such as AI to improve the sophistication and efficiency of its operations. For additional information about national laws and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

Japan maintains no formal restrictions on inward portfolio investment except for certain provisions covering national security. Foreign capital plays an important role in Japan’s financial markets, with foreign investors accounting for the majority of trading shares in the country’s stock market. Historically, many company managers and directors have resisted the actions of activist shareholders, especially foreign private equity funds, potentially limiting the attractiveness of Japan’s equity market to large-scale foreign portfolio investment, although there are signs of change. Some firms have taken steps to facilitate the exercise of shareholder rights by foreign investors, including the use of electronic proxy voting. The Tokyo Stock Exchange (TSE) maintains an Electronic Voting Platform for Foreign and Institutional Investors. All holdings of TSE-listed stocks are required to transfer paper stock certificates into electronic form.

The Japan Exchange Group (JPX) operates Japan’s two largest stock exchanges – in Tokyo and Osaka – with cash equity trading consolidated on the TSE since July 2013 and derivatives trading consolidated on the Osaka Exchange since March 2014.

In January 2014, the TSE and Nikkei launched the JPX Nikkei 400 Index. The index puts a premium on company performance, particularly return on equity (ROE). Companies included are determined by such factors as three-year average returns on equity, three-year accumulated operating profits and market capitalization, along with others such as the number of external board members. Inclusion in the index has become an unofficial “seal of approval” in corporate Japan, and many companies have taken steps, including undertaking share buybacks, to improve their ROE. The Bank of Japan has purchased JPX-Nikkei 400 exchange traded funds (ETFs) as part of its monetary operations, and Japan’s massive Government Pension Investment Fund (GPIF) has also invested in JPX-Nikkei 400 ETFs, putting an additional premium on membership in the index.

Japan does not restrict financial flows and accepts obligations under IMF Article VIII.

Credit is available via multiple instruments, both public and private, although access by foreigners often depends upon visa status and the type of investment.

Money and Banking System

Banking services are easily accessible throughout Japan; it is home to many of the world’s largest private commercial banks as well as an extensive network of regional and local banks. Most major international commercial banks are also present in Japan, and other quasi-governmental and non-governmental entities, such as the postal service and cooperative industry associations, also offer banking services. For example, the Japan Agriculture Union offers services through its bank (Norinchukin Bank) to members of the organization. Japan’s financial sector is generally acknowledged to be sound and resilient, with good capitalization and with a declining ratio of non-performing loans. While still healthy, most banks have experienced pressure on interest margins and profitability as a result of an extended period of low interest rates capped by the Bank of Japan’s introduction of a negative interest rate policy in 2016.

The country’s three largest private commercial banks, often collectively referred to as the “megabanks,” are Mitsubishi UFJ Financial, Mizuho Financial, and Sumitomo Mitsui Financial. Collectively, they hold assets approaching close to USD 8 trillion at 2020 year end. Japan’s third largest bank by assets – with more than USD 2 trillion – is Japan Post Bank, a financial subsidiary of the Japan Post Group that is still majority state-owned, 56.9 percent as of September 2020. Japan Post Bank offers services via 23,831 Japan Post office branches, at which Japan Post Bank services can be conducted, as well as Japan Post’s network of about 32,000 ATMs nationwide.

A large number of foreign banks operate in Japan offering both banking and other financial services. Like their domestic counterparts, foreign banks are regulated by the Japan Financial Services Agency (FSA). According to the IMF, there have been no observations of reduced or lost correspondent banking relationships in Japan. There are 518 correspondent financial institutions that have current accounts at the country’s central bank (including 123 main banks; 11 trust banks; 50 foreign banks; and 247 credit unions).

Foreigners wishing to establish bank accounts must show a passport, visa, and foreigner residence card; temporary visitors may not open bank accounts in Japan. Other requirements (e.g., evidence of utility registration and payment, Japanese-style signature seal, etc.) may vary according to institution. Language may be a barrier to obtaining services at some institutions; foreigners who do not speak Japanese should research in advance which banks are more likely to offer bilingual services.

Japanese regulators are encouraging “open banking” interactions between financial institutions and third-party developers of financial technology applications through application programming interfaces (“APIs”) when customers “opt-in” to share their information.  As a result of the government having set a target to have 80 banks adopt API standards by 2020, more than 100 subject banks reportedly have done so  Many of the largest banks are participating in various proofs of concept using blockchain technology.  While commercial banks have not yet formally adopted blockchain-powered systems for fund settlement, they are actively exploring options, and the largest banks have announced intentions to produce their own virtual currencies at some point.  The Bank of Japan is researching blockchain and its applications for national accounts and established a “Fintech Center” to lead this effort.  The main banking regulator, the Japan Financial Services Agency also encourages innovation with financial technologies, including sponsoring an annual conference on “fintech” in Japan.  In April 2017, amendments to the Act on Settlements of Funds went into effect, permitting the use of virtual currencies as a form of payment in Japan, but virtual currency is still not considered legal tender (e.g., commercial vendors may opt to accept virtual currencies for transactional payments, though virtual currency cannot be used as payment for taxes owed to the government).  The law also requires the registration of virtual currency exchange businesses.  There are currently 27-registered virtual currency exchanges in Japan. In 2017, Japan accounted for approximately half of the world’s trades of Bitcoin, the most prevalent blockchain currency (digital decentralized cryptographic currency).

Foreign Exchange and Remittances

Foreign Exchange

Generally, all foreign exchange transactions to and from Japan—including transfers of profits and dividends, interest, royalties and fees, repatriation of capital, and repayment of principal—are freely permitted. Japan maintains an ex-post facto notification system for foreign exchange transactions that prohibits specified transactions, including certain foreign direct investments (e.g., from countries under international sanctions) or others that are listed in the appendix of the Foreign Exchange and Foreign Trade Act.

Japan has a floating exchange rate and has not intervened in the foreign exchange markets since November 2011. It has joined statements of the G-7 and G-20 affirming that countries would not target exchange rates for competitive purposes.

Remittance Policies

Investment remittances are freely permitted.

Sovereign Wealth Funds

Japan does not operate a sovereign wealth fund.

Japan has privatized most former state-owned enterprises (SOEs). Under the Postal Privatization Law, privatization of Japan Post group started in October 2007 by turning the public corporation into stock companies. The stock sale of the Japan Post Holdings Co. and its two financial subsidiaries, Japan Post Insurance (JPI) and Japan Post Bank (JPB), began in November 2015 with an IPO that sold 11 percent of available shares in each of the three entities. The postal service subsidiary, Japan Post Co., remains a wholly owned subsidiary of JPH. The Japanese government conducted an additional public offering of stock in September 2017, reducing the government ownership in the holding company to approximately 57 percent. There were no additional offerings of the stock in the bank, but there was an offering in the insurance subsidiary in April 2019. JPH currently owns 88.99 percent of the banking subsidiary and 64.48 percent of the insurance subsidiary. Follow-on sales of shares in the three companies will take place over time, as the Postal Privatization Law requires the government to sell a majority share (up to two-thirds of all shares) in JPH, and JPH to sell all shares of JPB and JPI, as soon as possible. The government planned to implement the third sale of its JPH share holdings in 2019 but did not do so due to sluggish share performance.

These offerings mark the final stage of Japan Post privatization begun under former Prime Minister Junichiro Koizumi more than a decade ago and respond to long-standing criticism from commercial banks and insurers—both foreign and Japanese—that their government-owned Japan Post rivals have an unfair advantage.

While there has been significant progress since 2013 with regard to private suppliers’ access to the postal insurance network, the U.S. government has continued to raise concerns about the preferential treatment given to Japan Post and some quasi-governmental entities compared to private sector competitors and the impact of these advantages on the ability of private companies to compete on a level playing field. A full description of U.S. government concerns with regard to the insurance sector and efforts to address these concerns is available in the annual United States Trade Representative’s National Trade Estimate on Foreign Trade Barriers report for Japan.

Privatization Program

In sectors previously dominated by state-owned enterprises but now privatized, such as transportation, telecommunications, and package delivery, U.S. businesses report that Japanese firms sometimes receive favorable treatment in the form of improved market access and government cooperation.

Deregulation of Japan’s power sector took a step forward in April 2016 with the full liberalization of the retail electricity sector. This change has led to increased competition from new entrants. While the generation and transmission of electricity remain mostly in the hands of the legacy power utilities, new electricity retailers reached a 20- percent market share of the total volume of electricity sold as of January 2021. Japan implemented the third phase of its power sector reforms in April 2020 by requiring vertically integrated regional monopolies to “legally unbundle” the electricity transmission and distribution portions of their businesses from the power generation and retailing portions. The transmission and distribution businesses retain ownership of, and operational control over, the power grid in their regional service territories. In addition, many of the former vertically integrated regional monopolies created electricity retailers to compete in the fully deregulated retail market.

American energy companies have reported increased opportunities in this sector, but also report that the regional power utilities have advantages over new entrants with regard to understanding the regulatory regime, securing sufficient low-cost generation in the wholesale market, and accessing infrastructure. For example, while a wholesale market allows new retailers to buy electricity for sale to customers, legacy utilities, which control most of the generation, sell very little power into that market. This limits the supply and increases the cost of electricity that new retailers can sell to consumers. While the liquidity of the wholesale electricity market has increased in recent years, new entrants — including American companies — report that they have few other options for cost-effectively securing the electricity they need to meet their supply obligations. These market dynamics were exacerbated in January 2021, when high electricity demand and constrained LNG supply during a cold spell led to record-high wholesale electricity prices over the course of several days. In addition, as the large power utilities still control transmission and distribution lines, new entrants in power generation are not able to compete due to limited access to power grids.

More information on the power sector from the Japanese Government can be obtained at: http://www.enecho.meti.go.jp/en/category/electricity_and_gas/electric/electricity_liberalization/what/ 

Progress has been made through efforts by the Financial Services Agency (FSA) and Tokyo Stock Exchange (TSE) to introduce non-binding reforms through changes to Japan’s Companies Act in 2014 and adoption of a Corporate Governance Code (CSR) in 2015. Together with the Stewardship Code for institutional investors launched by the FSA in 2014, these initiatives have encouraged companies to put cash stockpiles to better use by increasing investment, raising dividends, and taking on more risk to boost Japan’s growth. Positive results of these efforts are evidenced by rising shareholder returns, unwinding of cross-shareholdings, and increasing numbers of independent board members.  According to a TSE survey conducted in December 2018, 85.3 percent of companies had a compliance rate of 90 percent out of the 66 principles of the new code. As of May 2019,  93.6 percent of TSE listed firms  have at least one independent director, according to TSE’s most recent White Paper on Corporate Governance. In December 2019, the Diet approved a revision of the Companies Act, which will enable companies to provide documents for shareholders’ meetings electronically. Listed companies will be obligated to have at least one outside director. The bill went into effect on March 1, 2021.

Following Stewardship Code revision in March 2020, TSE and FSA plan to revise the Corporate Governance Code in spring of 2021 to reflect the realignment of the TSE segmentations, which will be implemented in 2022. The revised guidelines are expected to require companies, to be listed in the “Prime Section,” a top-tier TSE section, to have more than one-third external directors. The guidelines are also expected to urge listed companies to have more diversity in mid-level and managerial posts, by hiring and training female and foreign workers. Awareness of corporate social responsibility (CSR) among both producers and consumers in Japan is high, and foreign and local enterprises generally follow accepted CSR principles. Business organizations also actively promote CSR. Japan encourages adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.

Additional Resources 

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
• North Korea Sanctions & Enforcement Actions Advisory

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor.
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Japan’s penal code covers crimes of official corruption, and an individual convicted under these statutes is, depending on the nature of the crime, subject to prison sentences and possible fines. With respect to corporate officers who accept bribes, Japanese law also provides for company directors to be subject to fines and/or imprisonment, and some judgments have been rendered against company directors.

The direct exchange of cash for favors from government officials in Japan is extremely rare. However, the web of close relationships between Japanese companies, politicians, government organizations, and universities has been criticized for fostering an inwardly “cooperative”—or insular—business climate that is conducive to the awarding of contracts, positions, etc. within a tight circle of local players. This phenomenon manifests itself most frequently and seriously in Japan through the rigging of bids on government public works projects. However, instances of bid rigging appear to have decreased over the past decade. Alleged bid rigging between construction companies was discovered on the Tokyo-Nagoya-Osaka maglev high-speed rail project in 2017, and the case was prosecuted in March 2018.

Japan’s Act on Elimination and Prevention of Involvement in Bid-Rigging authorizes the Japan Fair Trade Commission to demand that central and local government commissioning agencies take corrective measures to prevent continued complicity of officials in bid rigging activities and to report such measures to the JFTC. The Act also contains provisions concerning disciplinary action against officials participating in bid rigging and compensation for overcharges when the officials caused damage to the government due to willful or grave negligence. Nevertheless, questions remain as to whether the Act’s disciplinary provisions are strong enough to ensure officials involved in illegal bid rigging are held accountable.

Japan has ratified the Organisation for Economic Co-Operation and Development (OECD) Anti-Bribery Convention, which bans bribing foreign government officials.

For vetting potential local investment partners, companies may review credit reports on foreign companies available from many private-sector sources, including, in the United States, Dun & Bradstreet and Graydon International.  Additionally, a company may inquire about the International Company Profile (ICP), which is a background report on a specific foreign company that is prepared by commercial officers of the U.S. Commercial Service at the U.S. Embassy, Tokyo.

Resources to Report Corruption

Businesses or individuals may contact the Japan Fair Trade Commission (JFTC), with contact details at: http://www.jftc.go.jp/en/about_jftc/contact_us.html .

Political violence is rare in Japan. Acts of political violence involving U.S. business interests are virtually unknown.

The Government of Japan has provided extensive and expanded employment subsidies to companies to encourage them to maintain employment during the COVID-19 pandemic. Despite the pandemic, worker shortages still remain in sectors such as construction, transportation, and nursing care. The unemployment rate as of December 2020 was 2.9 percent. The fact that Japan’s unemployment rate has risen so slowly during the pandemic is remarkable and likely due to the social contract between worker and employer in Japan, as well as the continued government subsidies. Traditionally, Japanese workers have been classified as either regular or non-regular employees. Companies recruit regular employees directly from schools or universities and provide an employment contract with no fixed duration, effectively guaranteeing them lifetime employment. Non-regular employees are hired for a fixed period. Companies have increasingly relied on such non-regular workers to fill short-term labor requirements and to reduce labor costs. The pandemic has particularly hurt non-regular workers whose employment was concentrated in hard-hit service sectors such as tourism, hospitality, restaurants, and entertainment.

Major employers and labor unions engage in collective bargaining in nearly every industry. Union members as of June 2020 made up 17.1 percent of employees (“koyo-sha”), up slightly compared to 2019 and an increase for the first time in 11 years, but still in decline from 25 percent of the workforce in 1990. The government provides benefits for workers laid off for economic reasons through a national employment insurance program. Some National Strategic Special Zones allow for special employment of foreign workers in certain fields, but those and all other foreign workers are still subject to the same national labor laws and standards as Japanese workers. Japan has comprehensive labor dispute resolution mechanisms, including labor tribunals, mediation, and civil lawsuits. A Labor Standards Bureau oversees the enforcement of labor standards through a national network of Labor Bureaus and Labor Standards Inspection Offices.

The number of foreign workers is rising, but at just over 1.72 million as of October 2020, they still represent a fraction of Japan’s 69-million-worker labor force. The Japanese government has made changes to labor and immigration laws to facilitate the entry of larger numbers of skilled foreign workers in selected sectors. A revision to the Immigration Control and Refugee Recognition Law in December 2018, implemented in April 2019, created the “Specified Skilled” worker program designed specifically for lower-skilled foreign workers. Prior to this change, Japan had never created a visa category for lower-skilled foreign workers and this law created two. Category 1 grants five-year residency to low-skilled workers who pass skills exams and meet Japanese language criteria and permits them to work in 14 designated industries identified by the Japanese government to be experiencing severe labor shortage. Category 2 is for skilled workers with more experience, granting them long-term residency and a path to long-term employment, but currently permitted only in a few designated industries.

The Japanese government also operates the Technical Intern Training Program (TITP). Originally intended as an international skills-transfer program for workers from developing countries, TITP is currently used to address immediate labor shortages in over 80 designated occupations , such as jobs in the construction, agriculture, fishery, and elderly nursing care industries. As noted previously, the 2018 Immigration Control Law revision enabled TITP beneficiaries with at least three years of experience to qualify to apply for the Category 1 status of the Specified Skilled worker program without any exams.

To address the labor shortage resulting from population decline and a rapidly aging society, Japan’s government has pursued measures to increase participation and retention of older workers and women in the labor force. A law that went into force in April 2013 requires companies to introduce employment systems allowing employees reaching retirement age (generally set at 60) to continue working until 65. The law was revised again in March 2020 and will enter into force in April 2021, asking companies to “make efforts” to secure employment for workers between 65 and 70. Since 2013, the government has committed to increasing women’s economic participation. The Women’s Empowerment Law passed in 2015 requires large companies to disclose statistics about the hiring and promotion of women and to adopt action plans to improve the numbers. The COVID-19 pandemic has, however, had a disproportionate effect on women in Japan. Women were more likely than men to occupy non-regular positions, work in industries hardest hit by the downturn, and face greater pressure to prioritize family over work. As a result, women have experienced reductions in working hours, departure from the labor force, or furloughs in greater numbers than men, erasing part of the rise in their workforce participation through 2019. The Government of Japan has acknowledged this impact on women’s economic participation and has convened a study group to consider solutions.

In May 2019, a package law that revised the Women’s Empowerment Law, expanded the reporting requirements to SMEs that employ at least 101 persons (starting in April 2022) and increasing the number of disclosure items for larger companies ( as of June 2020). The package law also included several labor law revisions requiring companies to take preventive measures for power and sexual harassment in the workplace.

In June 2018, the Diet passed the Workstyle Reform package.  The three key provisions are:  (1) the “white collar exemption,” which eliminates overtime for a small number of highly paid professionals; (2) a formal overtime cap of 100 hours/month or 720 hours/year, with imprisonment and/or fines for violators; and (3) new “equal-pay-for-equal-work” principles to reduce gaps between regular and non-regular employees.

Japan has ratified 49 International Labor Organization (ILO) Conventions (including six of the eight fundamental conventions). As part of its agreement in principle on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership Japan agreed to adopt the fundamental labor rights stated in the ILO Declaration including freedom of association and the recognition of the right to collective bargaining, the elimination of forced labor and employment discrimination, and the abolition of child labor. The CPTPP entered into force on December 30, 2018.

U.S. International Development Finance Corporation (DFC) insurance and finance programs are not available in Japan. However, U.S. companies seeking to invest in other foreign countries with Japanese partners may have access to DFC programs and benefit from cooperative memorandums that the DFC has signed with Japanese Government entities to fund projects in third countries.

Japan is a member of the Multilateral Investment Guarantee Agency (MIGA). Japan’s capital subscription to MIGA is the second largest, after the United States.

Other foreign governments have very limited involvement in Japan’s domestic infrastructure development, and most financing and insurance is managed domestically.

* Source for Host Country Data: *2019 Nominal GDP data from “Annual Report on National Accounts for 2019”, Economic and Social Research Institute, Cabinet Office, Japanese Government.  December, 2020. (Note: uses exchange rate of 109.01 Yen to 1 U.S. Dollar and Calendar Year Data)

The discrepancy between Japan’s accounting of U.S. FDI into Japan and U.S. accounting of that FDI can be attributed to methodological differences, specifically with regard to indirect investors, profits generated from reinvested earnings, and differing standards for which companies must report FDI. 

Jerome Ryan
Economic Section
U.S. Embassy Tokyo
1-10-5 Akasaka, Minato-ku,
Tokyo 107-8420
Japan
+81 03-3224-5485
ryanej@state.gov

Policies Towards Foreign Direct Investment

Jordan is largely open to foreign investment, and the government is committed to supporting foreign investment. Foreign and local investors are treated equally under the law. The Jordan Investment Commission (JIC) is the body responsible for implementing the 2014 Investment Law and promoting new and existing investment in Jordan, through a range of measures to incentivize and facilitate investment procedures.

The Investment Law established an Investment Council, comprised of the Prime Minister, ministers with economic portfolios, and representatives from the private sector, to oversee the management and development of national investment policy and propose legislative and economic reforms to facilitate investment.

The Investment Law also identifies JIC as the focal point for investors, capable of expediting the provision of government services and providing investment incentives such as tax and customs exemptions. The President of the Commission and the administrative team supervise and approve investment-related matters within the guidelines set by the Investment Council and approved by the government.

JIC oversees an investment-dedicated “Investment Window” to provide information and technical assistance to investors, with a mandate to simplify registration and licensing procedures for investment projects that benefit from the Investment Law. In 2018, the Commission launched a “Follow-Up and After Care” section with an aim to remove obstacles facing investors and find appropriate solutions as part of the investment process.

In 2018, the government issued the “Code of Governance Practices of Policies and Legislative Instruments in Government Departments for the Year 2018.” It aims to increase legislative predictability and stability to ensure the confidence of citizens and the business sector. The government developed guidelines for a regulatory impact assessment, to be adopted and implemented across all government entities by 2021.

Limits on Foreign Control and Right to Private Ownership and Establishment

Investment and property laws allow domestic and foreign entities to establish businesses that engage in remunerative activities.  Foreign companies may open regional and branch offices; branch offices may carry out full business activities and regional offices may serve as liaisons between head offices and Jordanian or regional clients.  The Ministry of Industry, Trade and Supply’s Companies Control Department implements the government’s policy on the establishment of regional and branch offices.

Foreign nationals and firms are permitted to own or lease property in Jordan for investment purposes and are allowed one residence for personal use, provided that their home country permits reciprocal property ownership rights for Jordanians.  Depending on the size and location of the property, the Land and Survey Department, the Ministry of Finance, and/or the Cabinet may need to approve foreign ownership of land and property, which must then be developed within five years of the date of approval.

In April 2019, the government amended its bylaw governing foreign ownership, expanding ownership percentage in some economic activities, while maintaining the following restrictions:

• Foreigners are prohibited from wholly or partially owning investigation and security services, stone quarrying operations for construction purposes, customs clearance services, and bakeries of all kinds; and are prohibited from trading in weapons and fireworks.  The Cabinet, however, may approve foreign ownership of projects in these sectors upon the recommendation of the Investment Council.  To qualify for the exemption, projects must be categorized as being highly valuable to the national economy.
• Foreigners are prohibited from wholly or partially owning investigation and security services, stone quarrying operations for construction purposes, customs clearance services, and bakeries of all kinds; and are prohibited from trading in weapons and fireworks.  The Cabinet, however, may approve foreign ownership of projects in these sectors upon the recommendation of the Investment Council.  To qualify for the exemption, projects must be categorized as being highly valuable to the national economy.
• Investors are limited to 50 percent ownership in certain businesses and services, including retail and wholesale trading, engineering consultancy services, exchange houses apart from banks and financial services companies, maritime, air, and land transportation services, and related services.
• Investors are limited to 50 percent ownership in certain businesses and services, including retail and wholesale trading, engineering consultancy services, exchange houses apart from banks and financial services companies, maritime, air, and land transportation services, and related services. • Foreign firms may not import goods without appointing an agent registered in Jordan; the agent may be a branch office or a wholly owned subsidiary of the foreign firm.  The agent’s connection to the foreign company must be direct, without a sub-agent or intermediary.  The Commercial Agents and Intermediaries Law No. 28/2001 governs contractual agreements between foreign firms and commercial agents.  Private foreign entities, whether licensed under sole foreign ownership or as a joint venture, compete on an equal basis with local companies.
• Foreign firms may not import goods without appointing an agent registered in Jordan; the agent may be a branch office or a wholly owned subsidiary of the foreign firm.  The agent’s connection to the foreign company must be direct, without a sub-agent or intermediary.  The Commercial Agents and Intermediaries Law No. 28/2001 governs contractual agreements between foreign firms and commercial agents.  Private foreign entities, whether licensed under sole foreign ownership or as a joint venture, compete on an equal basis with local companies.

The bylaw authorizes the Council of Ministers, upon the recommendation of the Prime Minister, to grant a higher percentage ownership to non-Jordanian investors in any investment based on a certain criteria.

Under the U.S.-Jordan Bilateral Investment Treaty, U.S. investors are granted several exceptions and are accorded the same treatment as Jordanian nationals, allowing U.S. investors to maintain 100 percent ownership in some restricted businesses. The most up-to-date listing of limitations on investments is available in the FTA Annex 3.1 and may be found at http://www.ustr.gov/trade-agreements/free-trade-agreements/jordan-fta/final-text.

For national security purposes, foreign investors must undergo security screening through the Ministry of Interior, which can be finalized through the Commission’s “Investment Window” located at the Investment Commission or online https://www.jic.gov.jo/en/home-new/.

Other Investment Policy Reviews

Jordan has been a World Trade Organization (WTO) member since 2000. The WTO conducted Jordan’s second  Trade Policy Review  in November 2015.

In 2012, the United States and Jordan agreed to Statements of Principles for International Investment and for Information and Communication Technology Services, and a Trade and Investment Partnership Bilateral Action Plan, each of which is designed to increase transparency, openness, and governmental and private sector cooperation. The two parties also began discussions on a Customs Administration and Trade Facilitation Agreement.  All current treaties and agreements in force between the United States and Jordan may be found here:  https://www.state.gov/s/l/treaty/tif/.

As a follow-up to OECD’s Investment Policy Review of Jordan and Jordan’s adherence to the OECD Declaration on International Investment and Multinational Enterprises in 2013, the MENA-OECD competitiveness program issued a report in 2018 entitled “Enhancing the legal framework for sustainable investment: Lessons from Jordan”( http://www.oecd.org/mena/competitiveness/Enhancing-the-Legal-Framework-for-Sustainable-Investment-Lessons-from-Jorden.pdf ).

Business Facilitation

Businesses in Jordan need to register with the Ministry of Industry, Trade, and Supply’s Companies Control Department, or the Chambers of Commerce or Industry depending on the type of business they conduct. Registration is required to open a bank account, obtain a tax identification number, and obtain a VAT number. New businesses also need to obtain a vocational license from the municipality, receive a health inspection, and register with the SSC.  In November 2017, the government issued a decision to cancel all non-security related pre-approvals for registering a business and only require final approvals before starting operations.

JIC’s “Investment Window” at the Jordan Investment Commission ( www.jic.gov.jo ) serves as a comprehensive investment center for investors.  The window provides services to local and foreign investors, particularly those in the agricultural, medical, tourism, industrial, ICT-Business Process Outsourcing (BPO), and energy sectors.

In 2017, the Commission further streamlined procedures to register and license investment projects in development zones: it introduced a Fast-Track Investment Window, which reduced the number of committee approvals from 23 to 13, and reduced registration procedures from 15 to 5.  These changes reduced the typical time required to register in development zones from five days to one day.  Additionally, the time period to grant exemptions under the investment law has been reduced from two weeks to one, and the time period to grant exemptions under the decisions of the Prime Minister from seven days to one.

Jordan has also adopted a single security approval to replace the 11 approvals previously required for new investors.  The new approval covers registering and licensing the company, obtaining driving licenses for investors, possessing immovable property for the establishment of investment projects in the industrial and developing zones, in addition to granting residence permits to non-Jordanian investors and their family members. The commission has published a number of online guides, including the investor guide ( https://www.jic.gov.jo/en/investor-guide/ ).

In 2018, the Companies Control Department has developed and launched a portal for online registration:  http://www.ccd.gov.jo/ . Foreign investors can access it to register new companies. However, e-signatures have not been implemented, so investors must sign documents using notary services in their countries.

In November 2019, under the Jordan Investment Commission (JIC), the government introduced several new services including the issuance and renewal investor IDs, issuance and renewal of IDs for investors’ family members, registration of institutions in development zones, first-time registration of individual institutions, changing the method of use, registration and renewal of subscriptions to the Amman Chamber of Commerce (ACC), amendments to subscriptions to the ACC, and issuance of environmental permits. The introduction of these electronic services reduced the time needed to grant or renew the investor identification card (required to facilitate various transactions) to one day. ( https://www.jic.gov.jo/en/ ).

In December 2020, the Greater Amman Municipality (GAM) digitized thirteen of its licensing-related services, including vocational licensing and renewal.

In accordance with the Investor Grievances Bylaw No. 163 of 2019, the JIC established a unit to follow up on and address investor complaints, with the aim to resolve legal disputes outside of government the formal court proceedings and reduce related cost.

Jordan launched a National Single Window (NSW) for customs clearance. In 2020, all export and import custom declarations became electronic. This was supported by new regulations enforcing the use of electronic clearances.

The Ministry of Digital Economy and Entrepreneurship statistics said that total electronic transactions in 2020 reached 14 million, including services provided by institutions such as GAM, JIC, Tax Department, Ministry of Industry and Trade, and Jordan Customs. As of March 2021, the total number of available e-services is 404.

The 2020 World Bank Doing Business Report attributed Jordan’s rise to 75th globally to reforms regarding the legal rights of borrowers and lenders, the introduction of a unified legal framework for secured transactions, launching a notice-based collateral registry, improvements to the insolvency law, and implementation of an electronic filing and payment for labor taxes and other mandatory contributions.  The number of payments that businesses need to file every year was also cut from twenty-three to nine. However, Jordan ranked 120 in starting a business, with 7.5 procedures and 12.5 days to complete the process.

Outward Investment

Jordan does not have a mechanism to specifically incentivize outward investment, nor does it restrict it.

Transparency of the Regulatory System

Legal, regulatory and accounting policies, applicable to both domestic and foreign investors, are transparent and promote competition.  The Jordanian Companies Law stipulates that all registered companies should maintain sound accounting records and present annual audited financial statements in accordance with internationally recognized accounting and auditing principles. According to the Jordanian Securities Commission (JSC) Law and Directives of disclosures, auditing, and accounting standards (1/1998), all entities subject to JSC’s supervision are required to apply International Financial Reporting Standards (IFRS).

In 2018, the government issued the “Code of Governance Practices of Policies and Legislative Instruments in Government Departments” to increase legislative predictability and the stability of legislative environment. A pilot project was initiated in 2018 that enforced online consultations for new business regulations across six major entities in preparation for the roll out of the regulatory impact assessment across all government entities by 2021. The Legislative and Opinion Bureau is developing a “Legislation Data Memorandum,” which all government entities submitting new regulations will be required to fill out. The memorandum will provide information on the type and details of consultations conducted with the public and private sector and proof that the parties impacted have been consulted. Currently, laws and regulations are usually published on the website of the Legislative and Opinion Bureau for public comment, in addition to executive branch consultations with the legislative branch and key stakeholders. The new steps are aimed at institutionalizing public-private sector consultations.

The government is gradually implementing policies to improve competition and foster transparency in implementation.  These reforms aim to change an existing system influenced in the past by family affiliations and business ties.  The Jordan Investment Commission (JIC), through its Fast-Track Investment Window, introduced a number of measures to streamline the investment process.

The commission issued and published a services and licensing guides outlining processes and fees, in addition to the incentives guide ( https://www.jic.gov.jo/en/services-guide/ ). Guides are currently available in Arabic.

Jordan is committed to its fiscal transparency policy; therefore the Ministry of Finance (MoF) publishes a monthly “General Government Finance Bulletin” and that includes detailed information on government’s debt obligations. ( www.mof.gov.jo/Portals/0/Mof_content/النشرات والبيانات المالية/نشرة مالية الحكومة/2016/Arabic PDF December 2016.pdf  ).

International Regulatory Considerations

Jordan recognizes and accepts most U.S. standards and specifications.  However, Jordan has occasionally required additional product standards for imports.  Some of these measures have been viewed as barriers to trade, such as a 2014 restriction imposed on packaging sizes for poultry available for retail resale.

As a member country of the WTO, Jordan is obliged to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Jordan is a signatory of the WTO Trade Facilitation Agreement.  Jordan had implemented 88.7 percent of its commitments.  Jordan submitted its notifications for Category A before the agreement came into force, and is currently in the final review for categories B and C.

Legal System and Judicial Independence

Jordan has a mixed legal system based on civil law, sharia law (Islamic law), and customary law.  The Constitution establishes the judiciary as one of three separate and independent branches of government.  Jordanian commercial laws do not make a distinction between Jordanian and non-Jordanian investors.  However, plaintiffs complain of judicial backlogs and subsequent delays in legal proceedings. In 2018, Jordan has introduced economic judicial chambers, established under the Amman First Instance Court and Amman Appeal Court under the provisions of the Law of Formation of the amended Courts No. 30 of 2017.  These chambers specialize in the adjudication of certain commercial and investment disputes mentioned in Article 4 of the Courts Formation Law.

Laws and Regulations on Foreign Direct Investment

Jordan’s Investment Law governs local and foreign investment.  The law consolidated three entities – the Jordan Investment Board, the Jordanian Development Zones Commission, and the Free Zones Corporation – into the Jordan Investment Commission.  The law incorporates a statement of investors’ rights and a legal framework for the newly established Investment Window, which is located at the Investment Commission’s headquarters.

The commission issued and published services and licensing guides outlining processes and fees, in addition to other guides (  https://www.jic.gov.jo/en/publications/ ).  The commission also issued a new bylaw that regulates non-Jordanian investments to allow larger foreign investors’ ownership in previously restricted areas.

In September 2017, Parliament passed the Monitoring and Inspection of Economic Activities Law No. 33/2017, and amendments to Jordan’s Companies Law No. 34/2017. This law governs the requirements to establish venture capital companies for the purpose of direct investment, or for creating funds, to contribute or invest in high-growth companies that are not listed in the stock market.

In 2018, Jordan passed the Insolvency Law, Movable Assets and Secured Lending Law and Bylaw, the Venture Capital Bylaw, and the Income Tax Law, along with bylaws to ensure proper implementation.

In October 2019, Jordan published an amended Social Security Law stipulating temporary changes to the social security contributions of newly registered entities that meet specific conditions, with an aim to support new companies and startups.  The government also issued the Investor Grievance Bylaw and established a special unit to follow up on investors cases. As part of the government economic stimulus package announced in 2019, new investors are offered 10-year “incentive stability guarantees.” In January 2020, Jordan passed a new Public Private Partnership (PPP) law and established a PPP Unit to identify and study investment opportunities.  The PPP Law introduced a comprehensive PPP framework and created a special fund to finance PPP Projects.  The PPP unit reports to the Prime Minister and is authorized to provide technical assistance to the government by preparing feasibility studies and Financial Commitments Reports. The International Financing Corporation (IFC) and other donors are providing technical assistance programs to enhance the capacity and effectiveness of the PPP unit and framework.

There is no systematic or legal discrimination against foreign participation with respect to ownership and participation in Jordan’s major economic sectors other than the restrictions outlined in the governing regulations.  In fact, many Jordanian businesses actively seek engagement with foreign partners to increase their competitiveness and access to other international markets.  The government’s efforts have made Jordan’s official investment climate welcoming; however, U.S. investors have reported hidden costs, bureaucratic red tape, vague regulations, and unclear or conflicting jurisdictions.

Most economic regulations are available on the Jordan Investment Commission website ( https://www.jic.gov.jo/ar/investment-regulations-2/ ), or on the Ministry of Industry and Trade and Supply website (https://www.mit.gov.jo/Default/AR). All regulations are published in the Official Gazette ( http://pm.gov.jo/newspaper ) or the Legislative and Opinion Bureau ( http://www.lob.jo/ ).

For further details please contact:

Investment Window
Jordan Investment Commission
Telephone: +962 (6) 5608400/9 Ext: 120
P.O. Box 893
Amman 11821 Jordan
E-mail: info@jic.gov.jo

Competition and Antitrust Laws

Parliament passed amendments to Competition Law No. 33/2004 in 2011 to strengthen the local economic environment and attract foreign investment by providing incentives to improve market competitiveness, protect small and medium enterprises from restrictive anticompetitive practices, and give consumers access to high quality products at competitive prices.  The Competition Directorate at the Ministry of Industry, Trade, and Supply conducts market research, examines complaints, and reports violators to the judicial system.

The investor grievance unit established in 2019 at the Jordan Investment Commission can also look into unfair competition cases filed by investors.

Expropriation and Compensation

Article 11 of the Jordanian Constitution stipulates that expropriations are prohibited unless specifically deemed to be in the public interest.  In cases of expropriation, the law mandates provision of fair compensation to the investor in convertible currency.

Dispute Settlement

ICSID Convention and New York Convention

Since 1972, Jordan has been a contracting state to the International Centre for Settlement of Investment Disputes (ICSID Convention).  Only a small number of cases between foreign investors and the Jordanian government have been brought before ICSID tribunals.  Jordan is also a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention).

In January 2018, the Parliament passed amendments to Arbitration Law 2017, which aims to facilitate the use of arbitration as an alternative to dispute settlement procedures.

Investor-State Dispute Settlement

Under domestic law, foreign investors may seek third party arbitration as a means of settling disputes. Jordan abides by WTO dispute settlement mechanisms, and dispute settlement mechanisms under the U.S.-Jordan FTA are consistent with WTO commitments.  Article IX of the United States-Jordan Bilateral Investment Treaty (BIT) establishes procedures for dispute settlements between Jordanians and U.S. persons.

Investment disputes are treated as any other commercial or civil dispute in the Jordanian judicial system.  Investment agreements with the Jordanian government as a party generally contain a dispute resolution clause that would refer cases to arbitration in Jordan.  On average, it takes three to four years for cases that go through the local court system to reach a verdict.  Cases settled through arbitration take between 12 to 18 months.  The main challenge in litigating cases is being able to conduct proper process of service upon all concerned parties. Another challenge is recently established Economic Chamber is still developing its expertise in complex commercial litigation.

Rulings by U.S. courts or other international arbitration committees can be upheld through the filing of an Enforcement of Ruling motion in a Jordanian court.

International Commercial Arbitration and Foreign Courts

In March 2018, King Abdullah II approved Arbitration Law No. 16, amending the 2001 law.  The amendment introduced changes to the procedural framework of arbitrators seated in Jordan, which can be traced in the UNCITRAL model law.  The amended law gives more authority to the Arbitral Tribunal and limits the role of the Court of Appeal.

Rulings by U.S. courts or other international arbitration committees can be upheld through the filing of an Enforcement of Ruling motion in a Jordanian court.

The Jordan Investment Commission (JIC) established an investor grievance mechanism in accordance with the Investor Grievance bylaw No. 163 of 2019, and Grievance Hearing regulation No. 1 of 2020. This mechanism allows investors to file complaints against government decisions outside of court system; complaints can be filed electronically through JIC’s website.

Bankruptcy Regulations

The Commercial Code, Civil Code, and Companies Law collectively govern bankruptcy and insolvency proceedings.  In December 2017, the cabinet endorsed a bankruptcy bylaw which stipulates procedures for optional and compulsory liquidation, along with the mechanism, liquidation plan, and required documentation and reporting.  In 2018, parliament passed the Insolvency Law, which allows individuals and companies to offset their financial position through a debt management plan.  The law was designed to help the insolvent entity continue its economic activity, rather than directly resorting to bankruptcy, and regulates insolvency proceedings for foreign organizations according to international conventions ratified by Jordan.  As of 2021, judges had dismissed almost all petitions for insolvency on technical grounds and no company has yet used the insolvency law successfully.

Defaulting on loans or issuing checks without adequate available balances is a crime in Jordan and may subject the offender to imprisonment under Jordan’s penal system.  While Jordan is reexamining these laws, prison terms for debtors remains a legal practice in Jordan.  Investors should conduct thorough due diligence on potential partners and avail themselves of local legal counsel in order to understand best business practices in Jordan and conform with local laws.  The U.S. Commercial Service office of the Embassy of the United States in Amman can assist American businesses in these endeavors.

Investment Incentives

Under Investment Law No. 30/2014, the Council of Ministers, upon the recommendation of the Investment Council, may offer investment incentives in accordance with the law and governing regulations for projects outside the Development and Free Zones.  The Investment Council and Investment Commission can also offer certain exemptions for projects in the following sectors:

1. Agriculture and livestock

2. Hospitals and specialized medical centers

3. Hotel and touristic facilities

4. Tourism-related entertainment and recreation

5. Contact and communication centers

6. Scientific research centers and medical laboratories

7. Technical and media production

Such incentives include customs exemptions, refunding of the general tax for production inputs, and no sales tax.  JIC can provide investors with further information on these exemptions ( https://www.jic.gov.jo/en/incentives-outside-the-dz-and-fz/ ). Automatic exemptions are also granted for specific services whether purchased locally or imported.  The Income and Sales Tax Department will refund the general tax levied within 30 days from submitting a written request in accordance with the terms and conditions determined by the Regulations Governing Investment Incentives (Number 33 of 2015).

A number of non-automatic exemptions are granted for production requirements and fixed assets used in industrial or handicrafts activities.  Such exemptions are subject to administrative procedures and approvals obtained from the Jordan Investment Commission Technical Committee and are governed by the previously referenced regulation.

Article 8-A of the 2014 Investment Law allows the cabinet to grant additional advantages, exemptions, or incentives to any economic activities in the Kingdom.  Under this article, the cabinet granted additional incentives to the ICT, tourism, and transport sectors in 2016, as published in the Official Gazette.

Net profits generated from most exports were exempt from income tax until December 2018. The new Income Tax Law No. 38 (2018) imposed taxes on income generated from exports, in accordance with WTO agreements.

In October 2019, the government announced an economic stimulus package granting direct incentives to investors in industrial and commercial sectors, offering cash incentives for companies that replace foreign laborers with Jordanian staff, and covering health insurance for employees and their families.

As the government implements reforms under the IMF Extended Fund Facility program and its own pro-growth reform agenda, several U.S. investors have reported the government has sought to reduce or eliminate incentives, guarantees, and/or tax exemptions previously expected.

Foreign Trade Zones/Free Ports/Trade Facilitation

The country is divided into three development areas:  Zones A, B, and C. Investments in Zone C, the least developed areas of Jordan, receive the highest level of incentives while those in Zone A receive the lowest level. All agricultural, maritime, transport and railway investments are classified as Zone C, irrespective of location. Hotel and tourism-related projects along the Dead Sea, leisure and recreational compounds, and convention and exhibition centers receive Zone A designations. Qualifying Industrial Zones (QIZs) are zoned according to their geographical location unless granted an exemption. The three-zone classification scheme does not apply to nature reserves and environmental protection areas.

Jordan’s Investment Law No. 30 of 2014 merged the Development and Free Zones Commission (DFZC) into the newly formed Jordan Investment Commission, an independent governmental body responsible for creating, regulating, and monitoring Jordan’s free trade zones, industrial estates, and development zones. The development areas are the King Hussein Bin Talal Development Area (KHBTDA) in Mafraq, the Ma’an Development Area, the Irbid Development Area (IDA), the Dead Sea Development Zone, the Jabal Ajloun Development Zone, and the King Hussein Business Park Development Zone. The Investment Law assigns the Jordan Industrial Estates Corporation (JIEC) and the Development and Free Zones Corporation (DFZC) as main developers of industrial estates and development and free zones, under the supervision of the investment commission.

As part of Jordan’s efforts to foster economic development and enhance its investment climate, the government has created nine industrial estates in Amman, Irbid, Karak, Mafraq, Madaba , Tafileh, Salt and Aqaba, in addition to several privately-run industrial parks, including al-Mushatta, al-Tajamouat, al-Dulayl, Cyber City, al-Qastal, Jordan Gateway, and al-Hallabat. These estates provide basic infrastructure for a wide variety of manufacturing activities, reducing the cost of utilities and providing cost-effective land and buildings. Investors in the estates continue to receive incentives until their contracts expire, and receive various additional exemptions, such as a two-year exemption on income and social services taxes, complete exemptions from building and land taxes, and exemptions or reductions on most municipalities’ fees.

Besides the six public free zones in Zarqa, Sahab, Karak, Karama, Mowaqaar, and Queen Alia Airport, Jordan has over 37 designated private free zones administered by private companies under the DFZC’s supervision. The free zones are outside of the jurisdiction of Jordan Customs and provide a duty and tax-free environment for the storage of goods transiting Jordan.

Jordan launched a new solar park in Ma’an development zone and announced plans to establish two new industrial parks in Zarqa and Jerash.

Under the Investment Law, establishments operating within development zones are subject to a unified tax rate of 5 percent.  However, Income Tax Law No. 38 of 2018 modified the tax rates applicable to entities operating in the Development Zones depending on the source of the income; industrial activities with a local value-added of at least 30 percent are subject to 5 percent income tax rate, while other projects and activities are subject to 10 percent.

The Investment Law also grants entities registered in the free zones a tax exemption on any activity conducted within the borders of the free zones, the export of goods and services outside the Kingdom, and associated transit trade.  Profits earned on activities pertaining to the sale, disposal, or importation of goods and services within the borders of the free zones are subject to tax based on the normal income tax rates applicable to each entity, depending on its status (corporation or individual).

The Aqaba Special Economic Zone (ASEZA) is an independent economic zone not governed by the Investment Commission or the articles in the Investment Law governing investments in free zones or development zones. It offers special tax exemptions, a flat five percent income tax, and facilitates customs handling at Aqaba Port.  In recent years, ASEZA has attracted projects, mainly in hotel and property development sectors, valued at over $8 billion.  The government continues to implement development projects aimed at attracting commerce and tourism through the Port of Aqaba.  The Aqaba New Port project became operational in 2018 and reached design capacity in 2019.  The new port, 20 kilometers south of the previous port, added four new terminals and expanded general ship berthing and marine services, in addition to adding dedicated terminals for grain silos, liquefied natural gas, phosphates, and propane.

Investors, foreign or domestic, face specific requirements in trade, services, and industrial projects in free zones. Industrial projects must be related to one of the following industries: • New industries that depend on advanced technology;

• New industries that depend on advanced technology; • Industries that require locally available raw material and/or locally manufactured parts;

• Industries that require locally available raw material and/or locally manufactured parts; • Industries that complement domestic industries;

• Industries that complement domestic industries; • Industries that enhance labor skills and promote technical know-how; or,

• Industries that enhance labor skills and promote technical know-how; or, • Industries that provide consumer goods and that contribute to reducing market dependency on imported goods.

• Industries that provide consumer goods and that contribute to reducing market dependency on imported goods.

In 2021, the government introduced a number of tax legislations to address gaps and loopholes in the current regime to prevent tax leakages and ensure transparency and fairness; including legislation on economic substance, transfer pricing, and to bring the Aqaba Special Economic Zone (ASEZA) under the national control for tax and customs administration.

For further details, please visit: • Jordan Investment Commission (http://www.jic.gov.jo/)

• Jordan Investment Commission (http://www.jic.gov.jo/) • Jordan Industrial Estate Corporation (http://www.jiec.com)

• Jordan Industrial Estate Corporation (http://www.jiec.com) • Aqaba Special Economic Zone (http://www.aqabazone.com/)

• Aqaba Special Economic Zone (http://www.aqabazone.com/)

Performance and Data Localization Requirements

Jordan has a well-educated and trained labor force of 2.5 million people, of which approximately 700,000 are registered foreign workers.  Unregistered foreign workers may be nearly double this number.  Most foreign laborers are employed in construction, agriculture, and domestic housekeeping sectors.  Approximately 70,000 also work in the QIZs as textile workers.

The Ministry of Labor regulates foreign worker licensing, licensing fees, prohibited sectors, and employer liability. Along with the Ministry of Interior, the Ministry of Labor is responsible for approving the hiring of professional foreign workers by private businesses.

Official unemployment reached 23.4 percent at the end of 2020, leading the Ministry of Labor to announce new labor regulations aimed at creating jobs for Jordanian youth through the reduction of foreign labor by 2024. The regulations stipulate increases in permit fees for non-Jordanians and closure of certain jobs to foreign employment altogether.

In February 2020, the Ministry of Labor increased the number of professions closed to foreign workers from 11 to 28.  However, employers may request the Ministry of Labor review applications for foreign workers in restricted sectors if local expertise cannot be found; these requests have generally been approved. The government issued Industrial Sector Tax Incentives Bylaw No.18 granting tax incentives to industries that employ certain percentages of Jordanians, with additional incentives to those who hire Jordanian women and people with disabilities. The bylaw also extends tax incentives to small and medium enterprises based on certain conditions. Beneficiaries of the bylaw are industries whose finished products contain at least 30 percent local content. The tax rate (after incentives) has a floor of 10 percent for pharmaceuticals and garment industries, and 14 percent for other industries.

Jordan does not have requirements for foreign IT providers to turn over source code or provide access to surveillance.

In 2020, the Ministry of Digital Economy and Entrepreneurship submitted a draft for the personal Data Protection Law, which supports Jordan’s digitization efforts. The Council of Ministers approved the law and sent it to the Legislative and Opinion Bureau for review. Jordan does not have a modern data protection law. The Criminal Law, Cybercrime Law, and Telecommunication Law offer partial protection of personal data.

Real Property

The legal system reliably facilitates and protects the acquisition and disposition of property rights.  Foreign ownership of land and assets is governed by the Leasing of Immovable Assets and Their Sale to Non-Jordanian and Judicial Persons Law No. 47/2006. Under Article 3 of the law, if the buyer’s country of residence has a reciprocal relationship with Jordan, foreign nationals are afforded the right of ownership of property within urban borders in Jordan for residential purposes. According to the law, foreign nationals may rent immovable assets for business or accommodation purposes, provided that the plot of land does not exceed 10 acres and the lease is for no more than three years in duration. Interest in real property is recognized and enforced once recorded in a legal registry.

Jordan approved an investment program that grants citizenship or permanent residency of non-Jordanians in February 2018. This program includes permanent residency for non-Jordanians who purchase properties worth a minimum of JOD 200,000 ($282,100) and hold the properties for 10 years.

A new Property law passed in 2019 consolidated 13 laws governing property ownership in one legislation and addressed issues such as zoning and the facilitation of ownership and leases for foreign investors.

All land plots in Jordan are titled and registered with the Jordanian Land and Survey Department; any land not titled as private property is considered government property.

According to the Ease of Doing Business report of 2020, Jordan ranked 78 out of 190 countries in “Registering Property.”

Intellectual Property Rights

Jordan has passed several laws in compliance with international commitments to protect intellectual property rights (IPR). Laws consistent with Trade Related Aspects of Intellectual Property Rights (TRIPS) now protect trade secrets, plant varieties, and semiconductor chip designs.

Copyrights are registered with the Ministry of Culture’s National Library Department and patents are registered with the Registrar of Patents and Trademarks at the Ministry of Industry and Trade.

Jordan is a signatory to the Patent Cooperation Treaty and the Madrid Protocol and amended its patent and trademark laws in 2007 to enable ratification of the agreements. Jordan is a signatory to World Intellectual Property Organization (WIPO) treaties on both copyrights and on performances and phonograms, and it has been developing updated laws for copyrights, trademark standards, and customs regulations to meet international standards. Jordanian firms are able to seek joint ventures and licensing agreements with multinational partners.  In 2017, Jordan acceded to the Patent Cooperation Treaty (PCT); the treaty entered into force October 2017. The Ministry of Industry and Trade introduced an e-filing service in 2018 through  https://ippd-eservice.mit.gov.jo/.

In 2017, Jordan acceded to the Patent Cooperation Treaty (PCT); the treaty entered into force October 2017. The Ministry of Industry and Trade introduced an e-filing service in 2018 through  https://ippd-eservice.mit.gov.jo/.

Amendments to Article 41 of Customs Law No. 33 of 2018 granted more time for legal agents to file trademark violation complaints.  Jordan’s record on IPR enforcement has improved in recent years, but more effective enforcement mechanisms and legal procedures are still needed. In particular, a large portion of pirated videos and software remain in the marketplace.

On January 1, 2020, Jordan issued a draft bylaw for the application of broader protections of intellectual property rights.  The bylaw stipulates the procedures to be followed by customs officials at the border to ensure the protection of intellectual property rights.  As of March 2021, the draft was still under review at the Legislative and Opinion Bureau.  On December 1, 2020 the Ministry of Industry, Trade and Supply issued instructions allowing the public to view patent applications once the legal period specified in the law has lapsed.

On December 1, 2020 the Ministry of Industry, Trade and Supply issued instructions allowing the public to view patent applications once the legal period specified in the law has lapsed.

Since 2000, 6,234 violations of Jordan’s current copyright law have been referred to the judiciary, including 218 cases in 2019 and 15 cases 2020.  The significant drop in cases between 2019 and 2020 is due to the COVID-19 pandemic, which necessitated closing courts several times during the year.  In addition, the Customs Department issued 163 infringement notifications to trademark owners or their legal representatives and seized 1,159,828 pieces of merchandise due to the infringement of intellectual property rights.

Jordan is not listed in USTR’s Special 301 Report and the Notorious Markets Report.

Resources for Intellectual Property Rights Holders:

Peter Mehravari

Patent Attorney

Intellectual Property Attaché for the Middle East & North Africa

U.S. Embassy Abu Dhabi | U.S. Department of Commerce U.S. Patent & Trademark Office Tel: +965 2259 1455 Peter.Mehravari@trade.gov 

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

Capital Markets and Portfolio Investment

There are three key capital market institutions: the Jordan Securities Commission (JSC), the Amman Stock Exchange (ASE), and the Securities Depository Center (SDC). The ASE launched an Internet Trading Service in 2010, providing an opportunity for investors to engage in securities trading independent of geographic location.

Jordan’s stock market is one of the most open among its regional competitors, with no cap on foreign ownership. As of March 2021, non-Jordanian ownership in companies listed on the ASE represented 50.7 percent of the total market value (32 percent Arab investors and 18.7 percent non-Arab investors). Non-Jordanian ownership in the financial sector was 52.8 percent, 19.3 percent in the services sector and 63.1 percent in the industrial sector.

In spite of recent reforms and technological advances, the ASE suffers from intermittent liquidity problems and low trading activity. The financial market peaked in 2007-2008, with average trading volumes topping $118 million per day. Following the global economic downturn, the market declined precipitously, with market capitalization falling from a record high of $41 billion in 2007 to $21 billion as of Dec 31, 2019 and dropped further to $18.2 billion in 2020 due to the pandemic.

The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Credit is allocated on market terms.  The private sector has access to a limited variety of credit instruments relative to countries with more developed capital markets.

Money and Banking System

Jordan has 25 banks, including commercial banks, Islamic banks, and foreign bank branches.  Jordan does not distinguish between investment banks and commercial banks.  Concentration in the banking sector has decreased in over the past decade; the assets of the largest five banks accounted for 54.6 percent of licensed banks’ total assets at the end of 2019.  Licensed banks’ total assets reached JD 51.2 billion ($72 billion) at the end of 2019.  Banking sector assets grew by 5.6 percent in the first eleven months of 2020 to reach JD 56.5 billion ($79 billion). The banking system is capably supervised by the CBJ, which publishes an annual Financial Stability Report.  (  https://www.cbj.gov.jo/EchoBusv3.0/SystemAssets/PDFs/EN/JFSRE2019Final_23-11-2020.pdf )

Banks continue to be profitable and well-capitalized with deposits being the primary funding base.  Liquidity and capital adequacy indicators remain strong largely due to the banks’ conservative and risk averse approach, and due to strict regulations on lending, particularly mortgage lending.  Non-performing loan ratios have increased slightly and are expected to increase further in 2021 as a result of COVID-19.  Jordan’s rate of non-performing loans, as a percentage of all bank loans, was 4.9 percent at the end of 2018, reached 5 percent by the end of 2019, and increased to 5.4 in the first six months of 2020.

Jordan has historically had low banking penetration. The CBJ launched a Financial Inclusion Strategy in 2018 to increase access to the formal banking sector. Following the first iteration of the strategy, 42 percent of people in Jordan above the age of 15 had bank accounts, up from 33 percent previously.

Banking Law No. 28 of 2000 does not discriminate between local and foreign banks, however capital requirements differ. The minimum capital requirements for foreign banks are JD 50 million ($70.6 million), and JD 100 million ($141 million) for local banks.  The law also protects depositors’ interests, diminishes money market risk, guards against the concentration of lending, and includes articles on electronic banking practices and anti-money laundering. The CBJ set up an independent Deposit Insurance Corporation (DIC) in 2000 that insures deposits up to JOD 50,000 ($71,000). The DIC also acts as the liquidator of banks as directed by the CBJ.

Foreigners are allowed to open bank accounts with a valid passport and a Jordanian residence permit.

In January 2017, the CBJ established the Jordan Payments and Clearing Company, with an aim to establish and develop digital retail and micro payments along with the investment in innovative technology and digital financial services.  The CBJ actively supports technology and is running JoMoPay, a mobile payment system and provides regulatory support to a privately-operated electronic bill payment service eFAWATEER.com.

Foreign Exchange and Remittances

Foreign Exchange

The CBJ supervises and licenses all currency exchange businesses. These entities are exempt from paying commissions on exchange transactions and therefore enjoy a competitive edge over banks.

The Jordanian Dinar (JD or JOD) is fully convertible for all commercial and capital transactions. Since 1995, the JD has been pegged to the U.S. dollar at an exchange rate of JD 1 to USD 1.41.

Other notable foreign exchange regulations include:

• Non-residents are allowed to open bank accounts in foreign currencies. These accounts are exempted from all transfer-related commission fees charged by the CBJ.
• Banks are permitted to purchase unlimited amounts of foreign currency from their clients in exchange for JODs on a forward basis. Banks are permitted to sell foreign currencies in exchange for JODs on a forward basis for the purpose of covering the value of imports.
• There is no restriction on the amount of foreign currency that residents may hold in bank accounts, and there is no ceiling on the amount residents may transfer abroad. Banks do not require prior CBJ approval for a transfer of funds, including investment-related transfers.
• Jordanian law entitles foreigners to remit abroad all returns, profits, and proceeds arising from the liquidation of investment projects. Non-Jordanian workers are permitted to transfer their salaries and compensation abroad.

Remittance Policies

Jordanian law entitles foreigners to remit abroad all returns, profits, and proceeds arising from the liquidation of investment projects. Non-Jordanian workers are permitted to transfer their salaries and compensation abroad.

Sovereign Wealth Funds

Jordan does not have a sovereign wealth fund.

A number of state-owned enterprises (SOEs) exist in Jordan.  Twenty-two SOEs of different sizes and mandates are fully owned by the government.  Wholly owned SOEs employ around 11,000 individuals, with assets exceeding $8 billion. The Government has more the 50 percent ownership in six companies, employing around 4,000 individuals, with total assets of $1.3 billion.

Most of the operational SOEs are small in terms of the size of operations, assets, number of employees, and income. The largest SOEs are: National Electrical Power Company (NEPCO), Samra Electric Power Company, the Yarmouk Water Company, and Aqaba Development Corporation (ADC).

Jordan’s economy is private sector led, accounting for 71 percent of GDP and 75 percent of net cumulative investment. SOEs in Jordan exercise delegated governmental powers and operating in fields that are not yet open for investment, such as managing the transmission and distribution of electrical power and water.  Other activities include logistics, mining, storage and inventory management of strategic products, in addition to economic development activities.  The government supports these companies as necessary, for example, the government has issued and guaranteed Treasury bonds for NEPCO since 2011 to ensure continuous power supply for the country.

SOEs generally compete on largely equal terms with private enterprises with respect to access to markets, credit, and other business operations.  The law does not provide preferential treatment to SOEs, and they are held accountable by their Board of Directors, typically chaired by the sector-relevant Minister and the Audit Bureau.

The government, enterprises and NGOs are progressively taking initiatives to incorporate Responsible Business Conduct into their practices.

Jordan is not a party to the Government Procurement Agreement.

Privatization Program

Over the last twenty years, the Jordanian government has engaged in a wide-scale privatization program, including in the telecom, energy, and transportation sectors.  The few remaining government assets not privatized, including Jordan Silos and Supply Company, have elicited little private sector interest.

In 2020, Jordan adopted a new Public Private Partnership Law to support the government’s commitment to broadening the utilization of public-private sector partnerships (PPPs) and encouraging the private sector to play a larger role in the economy.  The law does not limit PPPs to certain sectors, or nationalities.  A PPP unit housed at the Prime Ministry supports the government in identifying and prioritizing projects, provides funding resources to cover pre-feasibility and feasibility studies, and oversees tendering processes. The PPP unit interacts with private sector and potential investors through promotional activities, market sounding exercises, and to discuss proposals. Communication during the bidding phase is strictly governed by the PPPs bylaw in line with international best practices. Once a contract is awarded, line ministries or entities will take over as main POCs for projects and their implementation. The PPP higher council will handle investors’ grievances throughout the project’s lifecycle. The unit has already identified a list of potential PPP projects in several sectors: water, energy, transport, tourism, education, health, environment, and ICT.

There is general awareness of responsible business conduct among both manufacturers and consumers in Jordan, with many local and multinational companies voluntarily developing and adopting corporate social responsibility (CSR) programs. CSR efforts predominantly focus on improving infrastructure in adjoining communities or providing better access to educational opportunities.

The amended Companies Law of 2018 regulates the work of companies by applying the rules of corporate governance and enhancing the monitoring authorities of shareholders at public liability companies.

The government, enterprises, and NGOs are taking initiatives to incorporate responsible business conduct principles into their practices. The authorities developed a Corporate Governance Code based on the OECD Principles of Corporate Governance and ratified human rights conventions, but further steps are needed to guarantee respect for human rights by enterprises. The legal and institutional framework for employment and labor relations has been reinforced. Environmental impact assessments are conducted. With a view to promoting the OECD Guidelines for Multinational Enterprises and their observance by companies, Jordan revived its National Contact Point within the Jordan Investment Board.

The American Chamber of Commerce published in 2016 a framework code of conduct for the private sector, the Jordan Integrity and Anti-Corruption Commission (JIACC) approved and embedded as part of the governance chapter in the amended Companies Law. The Customs Department released and revised a Golden List Program, which encourages good corporate citizenship amongst trading companies and international best practice for trade across borders.

The government issues a monthly financial bulletin highlighting all revenues, including taxes and royalties paid by extractive industries. Jordan initiated discussions with the Extractive Industries Transparency Initiative (EITI), but it has not joined.

Jordan is a signatory of The Montreux Document on Private Military and Security Companies since 2009.

Additional Resources

Department of State

• Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);
• Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-report/);
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;
• North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf).

Department of Labor

• Findings on the Worst forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings );
• List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods);
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;
• Comply Chain (https://www.dol.gov/ilab/complychain/).

The use of family, business, and other personal connections to advance personal business interests is endemic and regarded by many Jordanians as part of the culture. However, surveys found between four and eight percent of Jordanians reported paying a bribe in the previous 12 months. In February 2021 King Abdullah directed the General Intelligence Directorate (GID) to transfer responsibility for confronting corruption to the Audit Bureau, judiciary, and other civilian institutions. In June 2020 the government began a campaign to combat tax evasion which involved tax authorities opening hundreds of investigations and raiding over a dozen firms. Authorities have opened public corruption cases against several former senior officials since 2019 , but no trials have been completed as of April 2021.

Jordan was the first Middle Eastern country to sign and ratify the United Nations Convention against Corruption (UNCAC) in 2005. In 2006, Jordan issued a code of conduct for the public sector, enacted an Illicit Gains Law, and Anti-Corruption Law. Jordanian law defines corruption as any act that violates official duties, all acts related to favoritism and nepotism that could deprive others from their legitimate rights, economic crimes, and misuse of power.

The Illicit Gains Law requires designated officials, their spouses, and minor children to file financial disclosures with the Integrity and Anti-Corruption Commission (IACC). Designated officials include the prime minister, cabinet members, members of parliament, senior government officials, as well as municipal-level council members and executives.

Jordan created the IACC in 2016 through a merger of the Bureau of the Ombudsman and the Anti-Corruption Commission. In 2019, Parliament amended the IACC Law granting the IACC more authority to access asset disclosure filings of officials exhibiting unexplained wealth. The amendment empowers the commission to request asset seizures, international travel bans, and suspension of officials under investigation for corruption. The amendment also increases the IACC’s administrative autonomy by enabling the commission to update its own regulations and protecting IACC board members and the chairperson from arbitrary dismissal.

In 2018, the government issued the Code of Governance Practices of Policies and Legislative Instruments in Government Departments, to improve the predictability of legal and regulatory framework governing the business environment.

A new Audit Bureau Law was enacted in 2018 to strengthen audit performance, capacity and independence in line with International Organization of Supreme Audit Institutions (INTOSAI) standards. Other related laws include the Penal/Criminal Code, Anti-Money Laundering Law, Right to Access Information Law, and the Economic Crimes Law.

(INTOSAI) standards. Other related laws include the Penal/Criminal Code, Anti-Money Laundering Law, Right to Access Information Law, and the Economic Crimes Law.

Jordan is not a party to the OECD Convention on Combatting Bribery.

Resources to Report Corruption

H.E. Mohannad Hijazi
Chairman
Jordan Integrity and Anti-Corruption Commission (JIACC)
P.O. Box 5000, Amman, 11953, Jordan
+962 6 550 3150

Abeer Mdanat
Executive Director
Rasheed Coalition
P.O. Box 582662, Amman, 111585, Jordan
+962 5 585 2528
amdanat@rasheedti.org 

The threat of terrorism remains high in Jordan. Transnational and indigenous terrorist groups have demonstrated the capability to plan and implement attacks in Jordan. Violent extremist groups in Syria and Iraq, including the Islamic State of Iraq and ash-Sham (ISIS), and al-Qa’ida, directly or indirectly have conducted or supported attacks in Jordan and continue to plot against local security forces, U.S. and Western interests and “soft” targets, such as high-profile public events, hotels, places of worship, restaurants, schools, and malls. Jordan’s prominent role in the Global Coalition to Defeat ISIS and its shared borders with Iraq and Syria increase the potential for future terrorist incidents.

Demonstrations occur frequently. They may take place in response to political or economic issues, on politically significant holidays, and during international events. In general, demonstrations remain peaceful. However, some have turned violent, even when intended to be peaceful, leading security officials to intervene. Visitors should consult current State Department public announcements at  www.travel.state.gov before traveling to Jordan.

Visitors should consult current State Department public announcements at  www.travel.state.gov before traveling to Jordan.

According to the Department of Statistics Annual Report for 2020, the total population of Jordan is 10.8 million, of which 69 percent are Jordanians (7.4 million) and approximately 31 percent are non-Jordanians, including 1.3 million Syrian refugees.  UNHCR has registered 663,507 Syrian refugees in Jordan.

Approximately 70 percent of the population is estimated to be under the age of 30.  Literacy rates are 98.2 percent for men and 92.9 percent for women. Jordan has a generally well-educated labor force of about 2.8 million Jordanians.  According to the Department of Statistics, official unemployment in 2020 reached 23.9 percent.  Certain types of work are restricted to Jordanians only.  Local labor requirements in development and free zones vary based on the type of economic activity. Some reports estimate the share of informal laborers in the workforce to be 41 percent.

The labor law does not require employers to include retirement plans in employment packages.  However, if the employer agreed to provide retirement benefits when the worker was contracted, the employer must fulfill that commitment.  In 2017, Jordan introduced amendments to the labor law regarding flexible work hours and the provision of daycare; the amendments were approved and published in the official gazette in May 2019. The amendments enhanced the work environment for employees, including a definition for flexible work hours, and provisions against gender wage discrimination. The law granted paternity leave for three days, tied the eligibility for daycare to the total number of employees’ children under the age of five (minimum 15 children from the age 0-4 years old), and exempts non-Jordanian children of Jordanian women from needing a work permit.

Labor unions serve primarily as intermediaries between workers and the Ministry of Labor (MOL) and may engage in collective bargaining on behalf of workers. The 17 recognized unions are all members of the General Federation of Jordanian Trade Unions. Estimates put union membership at less than 10 percent of the labor force.  Additionally, there are 40 active professional associations, including many that have mandatory membership and 15 independent unions covering the rest of the professions and trades. According to official figures, about 30 percent of the total labor force, including government workers, belong to either a union or a professional association. In 2020, labor unions representing workers in garment, food, petrochemical and oil industries signed twenty different Collective Bargaining Agreements.

In February 2020, the Ministry of Labor increased the number of professions closed to non-Jordanians from 11 to 28.  However, employers may request the Ministry of Labor review applications for foreign workers in restricted sectors if local expertise cannot be found; these requests have generally been approved. Local labor requirements in development and free zones vary based on the type of economic activity

The Jordanian Labor Law addresses layoffs, and requires ministerial notification and guarantee of legitimate and entitled benefits and severance, but also allows firing without prior notice on certain conditions. Companies with the appropriate justification may obtain permission from the Ministry of Labor (MOL) to reduce their staff as a result of business restructuring. The social security system provides up to six months of unemployment benefits for formally registered workers.

On March 2020, the King issued a royal decree enacting the Jordan National Defense Law to grant the Prime Minister wide powers to undertake all necessary measures to combat the COVID-19 outbreak in the Kingdom, including the temporary suspension of ordinary legislation.

Accordingly, the government issued Defense Order No. 1 March 19, 2020, which provided temporary amendments to the social security law to mitigate the pandemic’s impact on the private sector. It temporarily suspended the implementation of retirement insurance for private sector employees, bringing the total monthly contribution down to 5.25 percent of the employee’s wage (4.25 percent payable by the employer and 1 percent deducted from the employee) from the original contribution of 21.75 percent of the employee’s salary subject to deduction (14.25 percent payable by the employer and 7.5 percent deducted from the employee).

Defense Order No. 6 sets measures addressing employment conditions in the private sector, including required salary payments and temporary closure of entities/institutions largely hit by the pandemic. Defense Orders 9, 14, 15 and 25 mainly introduced economic programs, to sustain businesses and job stability.

Articles 120,121 and 122 of the Jordanian law introduces a mechanism for labor dispute resolution beginning with labor inspector mediation. If mediation fails, the Minister of Labor reviews the case, followed by the Conciliation Council, then finally by the Labor Court under the Magistrate and Penalty Court to resolve the case within seven days.

Three labor disputes haven taken place since 2019. Teachers went on strike in 2019 to demand a 50 percent pay raise.  The government struck a deal with the teachers’ union which allowed for salary increases ranging from 35 percent to 70 percent. In April 2020, the government announced a freeze on public sector pay due to financial difficulties stemming from the COVID-19 pandemic. The teachers’ union responded by holding demonstrations to protest what it saw as the government’s failure to honor the 2019 agreement.  The government responded to the protests by arresting a number of union leaders and ordering a two-year shutdown of the teachers’ union for alleged “criminal and corruption charges.” In November 2020, migrant workers in a garment factory in al Hassan Industrial Zone went on strike demanding a wage increase.  Tensions eased when management offered to pay workers their annual productivity increase, normally paid in January, two months early. 

Starting January 2021, Jordan increased minimum wage to JD 260 ($367) from its original level of JD 220 ($310). 12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs

* Source for Host Country Data:  N/A

“0” reflects amounts rounded to +/- USD 500,000.
The Central Bank of Jordan does not collect or provide FDI data disaggregated by source.

*Aggregated number for 2020.

Shaden al-Majali
Senior Economic Specialist  +962 6 590 6317
+962 6 590 6317
Majalisa@state.gov

Policies Towards Foreign Direct Investment

Mexico is open to foreign direct investment (FDI) in the vast majority of economic sectors and has consistently been one of the largest emerging market recipients of FDI.  Mexico’s proximity to the United States and preferential access to the U.S. market, macroeconomic stability, large domestic market, growing consumer base, and increasingly skilled yet cheap labor combine to attract foreign investors.  The COVID-19 economic crisis showed how linked North American supply chains are and highlighted new opportunities for partnership and investment.  Still, recent policy and regulatory changes have created doubts about the investment climate, particularly in the energy and the formal employment pensions management sectors.

Historically, the United States has been one of the largest sources of FDI in Mexico.  According to Mexico’s Secretariat of Economy, FDI flows for 2020 totaled USD 29.1 billion, a decrease of 11.7 percent compared to the preliminary information for 2019 (USD 32.9 billion), and a 14.7 percent decline compared to revised numbers.  The Secretariat cited COVID’s impact on global economic activity as the main reason for the decline.  From January to December 2020, 22 percent of FDI came from new investment.  New investment in 2020 (USD 6.4 billion) was only approximately half of the new investments received in 2019 (USD 12.8 billion), and 55.4 percent came from capital reinvestment while 24.9 percent from parent company accounts.  The automotive, aerospace, telecommunications, financial services, and electronics sectors typically receive large amounts of FDI.

Most foreign investment flows to northern states near the U.S. border, where most maquiladoras (export-oriented manufacturing and assembly plants) are located, or to Mexico City and the nearby “El Bajio” (e.g. Guanajuato, Queretaro, etc.) region.  In the past, foreign investors have overlooked Mexico’s southern states, although the administration is focused on attracting investment to the region, including through large infrastructure projects such as the Maya Train, the Dos Bocas refinery, and the trans-isthmus rail project.

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

The administration has integrated components of the government’s investment agency into other ministries and offices.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

Reforms in the energy, power generation, telecommunications, and retail fuel sales sectors have liberalized access for foreign investors.  While reforms have not led to the privatization of state-owned enterprises such as Pemex or the Federal Electricity Commission (CFE), they have allowed private firms to participate.  Still, the Lopez Obrador administration has made significant regulatory and policy changes that favor Pemex and CFE over private participants.  The changes have led private companies to file lawsuits in Mexican courts and several are considering international arbitration.

Hydrocarbons:  Private companies participate in hydrocarbon exploration and extraction activities through contracts with the government under four categories:  competitive contracts, joint ventures, profit sharing agreements, and license contracts.  All contracts must include a clause stating subsoil hydrocarbons are owned by the State.  The government has held nine auctions allowing private companies to bid on exploration and development rights to oil and gas resources in blocks around the country.  Between 2015 and 2018, Mexico auctioned more than 100 land, shallow, and deep-water blocks with significant interest from international oil companies.  The administration has since postponed further auctions but committed to respecting the existing contracts awarded under the previous administration.  Still, foreign players were discouraged when Pemex sought to take operatorship of a major shallow water oil discovery made by a U.S. company-led consortium.  The private consortium had invested more than USD 200 million in making the discovery and the outcome of this dispute has yet to be decided.

Telecommunications:  Mexican law states telecommunications and broadcasting activities are public services and the government will at all times maintain ownership of the radio spectrum.  In January 2021, President Lopez Obrador proposed incorporating the independent Federal Telecommunication Institute (IFT) into the Secretariat of Communications and Transportation (SCT), in an attempt to save government funds and avoid duplication.  Non-governmental organizations and private sector companies said such a move would potentially violate the USMCA, which mandates signatories to maintain independent telecommunications regulators.  As of March 2021, the proposal remains pending.  Mexico’s Secretary of Economy Tatiana Clouthier underscored in public statements that President López Obrador is committed to respecting Mexico’s obligations under the USMCA, including maintaining an autonomous telecommunications regulator.

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

The USMCA, which entered into force July 1, 2020, maintained several NAFTA provisions, granting U.S. and Canadian investors national and most-favored-nation treatment in setting up operations or acquiring firms in Mexico.  Exceptions exist for investments restricted under the USMCA.  Currently, the United States, Canada, and Mexico have the right to settle any legacy disputes or claims under NAFTA through international arbitration for a sunset period of three years following the end of NAFTA.  Only the United States and Mexico are party to an international arbitration agreement under the USMCA, though access is restricted as the USMCA distinguishes between investors with covered government contracts and those without.  Most U.S. companies investing in Mexico will have access to fewer remedies under the USMCA than under NAFTA, as they will have to meet certain criteria to qualify for arbitration.  Local Mexican governments must also accord national treatment to investors from USMCA countries.

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

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

Other Investment Policy Reviews

There has not been an update to the World Trade Organization’s (WTO) trade policy review of Mexico since June 2017 covering the period to year-end 2016.

Business Facilitation

According to the World Bank, on average registering a foreign-owned company in Mexico requires 11 procedures and 31 days.  Mexico ranked 60 out of 190 countries in the World Bank’s ease of doing business report in 2020.  In 2016, then-President Pena Nieto signed a law creating a new category of simplified businesses called Sociedad for Acciones Simplificadas (SAS).  Owners of SASs are supposed to be able to register a new company online in 24 hours.  Still, it can take between 66 and 90 days to start a new business in Mexico, according to the World Bank.  The Government of Mexico maintains a business registration website:  www.tuempresa.gob.mx.  Companies operating in Mexico must register with the tax authority (Servicio de Administration y Tributaria or SAT), the Secretariat of the Economy, and the Public Registry.  Additionally, companies engaging in international trade must register with the Registry of Importers, while foreign-owned companies must register with the National Registry of Foreign Investments.

Since October 2019, SAT has launched dozens of tax audits against major international and domestic corporations, resulting in hundreds of millions of dollars in new tax assessments, penalties, and late fees.  Multinational and Mexican firms have reported audits based on diverse aspects of the tax code, including adjustments on tax payments made, waivers received, and deductions reported during the Enrique Peña Nieto administration.

Changes to ten-digit tariff lines conducted by the Secretariat of Economy in 2020 created trade disruptions with many shipments held at the border, stemming from lack of clear communication between government agencies that resulted in different interpretation by SAT.

Outward Investment

Various offices at the Secretariat of Economy and the Secretariat of Foreign Affairs handle promoting Mexican outward investment and assistance to Mexican firms acquiring or establishing joint ventures with foreign firms.  Mexico does not restrict domestic investors from investing abroad.

Bilateral Investment Treaties

The USMCA entered into force on July 1, 2020, containing an investment chapter.

Mexico has signed 13 FTAs covering 50 countries and 32 Reciprocal Investment Promotion and Protection Agreements covering 33 countries.  Mexico is a member of Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force December 30, 2018.  Mexico currently has 29 Bilateral Investment Treaties in force.  Mexico and the European Union finalized a FTA in May 2020, but it still must undergo legal scrub and translation.  Mexico and the United Kingdom (UK) also signed an agreement to continue trading under existing terms following the UK’s exit from the European Union in December 2020.

Bilateral Taxation Treaties

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

In 2019, the administration approved a value-added tax (VAT) on digital services.  Since June 30, 2020, foreign digital companies are required to register with SAT and to collect VAT on the majority of goods and services customers purchase online and remit the VAT and sales reports to SAT.  SAT is authorized to block a foreign digital company’s internet protocol (IP) address in Mexico for non-compliance with tax requirements until the company complies.  The administration also introduced a series of fiscal measures in 2019 to combat tax evasion and fraud.

Transparency of the Regulatory System

The National Commission on Regulatory Improvement (CONAMER), within the Secretariat of Economy, is the agency responsible for streamlining federal and sub-national regulation and reducing the regulatory burden on business.  Mexican law requires secretariats and regulatory agencies to conduct impact assessments of proposed regulations.  Assessments are made available for public comment via CONAMER’s website:  https://www.gob.mx/conamer.  The official gazette of state and federal laws currently in force in Mexico is publicly available via:  http://www.ordenjuridico.gob.mx/.  Mexican law provides for a 20-day public consultation period for most proposed regulations.  Any interested stakeholder has the opportunity to comment on draft regulations and the supporting justification, including regulatory impact assessments.  Certain measures are not subject to a mandatory public consultation period.  These include measures concerning taxation, responsibilities of public servants, the public prosecutor’s office executing its constitutional functions, and the Secretariats of National Defense (SEDENA) and the Navy (SEMAR).

The National Quality Infrastructure Program (PNIC) is the official document used to plan, inform, and coordinate standardization activities, both public and private.  The PNIC is published annually by the Secretariat of Economy in Mexico’s Official Gazette.  The PNIC describes Mexico’s plans for new voluntary standards (Normas Mexicanas; NMXs) and mandatory technical regulations (Normas Oficiales Mexicanas; NOMs) as well as proposed changes to existing standards and technical regulations.  Interested stakeholders have the opportunity to request the creation, modification, or cancelation of NMXs and NOMs as well as participate in the working groups that develop and modify these standards and technical regulations.  Mexico’s antitrust agency, the Federal Commission for Economic Competition (COFECE), plays a key role protecting, promoting, and ensuring a competitive free market in Mexico as well as protecting consumers.  COFECE is responsible for eliminating barriers both to competition and free market entry across the economy (except for the telecommunications sector, which is governed by its own competition authority) and for identifying and regulating access to essential production inputs.

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

Mexico has seen a shift in the public procurement process since the onset of the COVID-19 pandemic.  Government entities are increasingly awarding contracts either as direct awards or by invitation-only procurements.  In addition, there have been recent tenders that favor European standards over North American standards.

International Regulatory Considerations

Generally speaking, the Mexican government has established legal, regulatory, and accounting  systems that are transparent and consistent with international norms.  Still, the Lopez Obrador administration has eroded the autonomy and publicly questioned the value of specific antitrust and energy regulators and has proposed dissolving some of them in order to cut costs.  Furthermore, corruption continues to affect equal enforcement of some regulations.  The Lopez Obrador administration rolled out an ambitious plan to centralize government procurement in an effort to root out corruption and generate efficiencies.  The administration estimated it could save up to USD 25 billion annually by consolidating government purchases in the Secretariat of Finance.  Still, the expedited rollout and lack of planning for supply chain contingencies led to several sole-source purchases.  The Mexican government’s budget is published online and readily available.  The Bank of Mexico also publishes and maintains data about the country’s finances and debt obligations.

Investors are increasingly concerned the administration is undermining confidence in the “rules of the game,” particularly in the energy sector, by weakening the political autonomy of COFECE, CNH, and CRE.  Still, COFECE has successfully challenged regulatory changes in the electricity sector that favor state-owned enterprises over maintaining competitive prices for the consumer.  The administration has appointed five of seven CRE commissioners over the Senate’s objections, which voted twice to reject the nominees in part due to concerns their appointments would erode the CRE’s autonomy.  The administration’s budget cuts resulted in significant layoffs, which has reportedly hampered agencies’ ability to carry out their work, a key factor in investment decisions.  The independence of the CRE and CNH was further undermined by a memo from the government to both bodies instructing them to use their regulatory powers to favor state-owned Pemex and CFE.

Legal System and Judicial Independence

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

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

The judicial branch and Prosecutor General’s office (FGR) are constitutionally independent from each other and the executive.  The Prosecutor General is nominated by the president and approved by a two-thirds majority in the Senate for a nine-year term, effectively de-coupling the Prosecutor General from the political cycle of elections every six years.  With the historic 2019 labor reform, Mexico also created an independent labor court system run by the judicial branch (formerly this was an executive branch function).  The labor courts are being brought on line in a phased process by state with the final phase completed on May 1, 2022.

Laws and Regulations on Foreign Direct Investment

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

Competition and Antitrust Laws

Mexico has two constitutionally autonomous regulators to govern matters of competition – the Federal Telecommunications Institute (IFT) and the Federal Commission for Economic Competition (COFECE).  IFT governs broadcasting and telecommunications, while COFECE regulates all other sectors.  For more information on competition issues in Mexico, please visit COFECE’s bilingual website at: www.cofece.mx.  As mentioned above, Lopez Obrador has publicly questioned the value of COFECE and his party unsucessfully introduced a proposal last year which would have dramatically reduced its resources and merged COFECE and other regulators into a less-independent structure.  COFECE requires a quorum of at least three commissioners in order to act and currently has four out of seven commissioner seats filled.  The current chairwoman of the agency’s term as chair will expire in September, which raises questions about whether leadership will change and whether, given the hostility to the agency, the president will nominate new commissioners.

Expropriation and Compensation

USMCA (and NAFTA) contain clauses stating Mexico may not directly nor indirectly expropriate property, except for public purpose and on a non-discriminatory basis.  Expropriations are governed by international law and require rapid fair market value compensation, including accrued interest.  Investors have the right to international arbitration. The USMCA contains an annex regarding U.S.-Mexico investment disputes and those related to covered government contracts.

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

The USMCA covers investor-state dispute settlement (ISDS) between the United States and Mexico in chapter 31.  Canada is not party to USMCA ISDS provisions as access to dispute resolution will be possible under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (the “CPTPP”).  U.S. and Mexican investors will have access to a very similar regime under the USMCA available under NAFTA.  Foreign investors who are “part[ies] to a covered government contract” and belong to five “covered sectors”: (i) oil and gas; (ii) power generation; (iii) telecommunications; (iv) transportation; and (v) infrastructure will have access to ISDS per USMCA provisions but only after first defending their claims in local courts before initiating arbitration. A less favorable regime will apply to all other foreign investors under the USMCA, who can only access the USMCA’s ISDS system to enforce a limited number of claims and must first defend their claims in local courts before initiating arbitration.  Investors will be able to file new NAFTA claims before July 1, 2023, provided that the dispute arises out of investments made when NAFTA was still in force and remained “in existence” on July 1, 2020.

Since NAFTA’s inception, there have been 13 cases filed against Mexico by U.S. and Canadian investors who allege expropriation and/or other violations of Mexico’s NAFTA obligations.  For more details on the cases, please visit: https://icsid.worldbank.org/en/Pages/cases/searchcases.aspx

International Commercial Arbitration and Foreign Courts

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

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

Bankruptcy Regulations

Mexico’s Reorganization and Bankruptcy Law (Ley de Concursos Mercantiles) governs bankruptcy and insolvency.  Congress approved modifications in 2014 to shorten procedural filing times and convey greater juridical certainty to all parties, including creditors.  Declaring bankruptcy is legal in Mexico and it may be granted to a private citizen, a business, or an individual business partner.  Debtors, creditors, or the Attorney General can file a bankruptcy claim.  Mexico ranked 33 out of 190 countries for resolving insolvency in the World Bank’s 2020 Doing Business report.  The average bankruptcy filing takes 1.8 years to be resolved and recovers 63.9 cents per USD, which compares favorably to average recovery in Latin America and the Caribbean of just 31.2 cents per USD.  The “Buró de Crédito” is Mexico’s main credit bureau.  More information on credit reports and ratings can be found at:  http://www.burodecredito.com.mx/ .

Investment Incentives

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

Foreign Trade Zones/Free Ports/Trade Facilitation

The administration renewed until December 31, 2024 a program launched in January 2019 that established a border economic zone (BEZ) in 43 municipalities in six northern border states within 15.5 miles from the U.S. border.  The BEZ program entails: 1) a fiscal stimulus decree reducing the Value Added Tax (VAT) from 16 percent to 8 percent and the Income Tax (ISR) from 30 percent to 20 percent; 2) a minimum wage increase to MXN 176.72 (USD 8.75) per day; and 3) the gradual harmonization of gasoline, diesel, natural gas, and electricity rates with neighboring U.S. states.  The purpose of the BEZ program was to boost investment, promote productivity, and create more jobs in the region.  Sectors excluded from the preferential ISR rate include financial institutions, the agricultural sector, and export manufacturing companies (maquilas).

On December 30, 2020, President Lopez Obrador launched a similar program for 22 municipalities in Mexico’s southern states of Campeche, Tabasco, and Chiapas, reducing the  VAT from 16 to 8 percent and ISR from 30 to 20 percent and harmonizing excise taxes on fuel with neighboring states in Central America.  Chetumal in Quintana Roo will also enjoy duty-free status.  The benefits extend from January 1, 2021 to December 31, 2024.

Performance and Data Localization Requirements

Mexican labor law requires at least 90 percent of a company’s employees be Mexican nationals.  Employers can hire foreign workers in specialized positions as long as foreigners do not exceed 10 percent of all workers in that specialized category.  Mexico does not follow a “forced localization” policy—foreign investors are not required by law to use domestic content in goods or technology.  However, investors intending to produce goods in Mexico for export to the United States should take note of the rules of origin prescriptions contained within USMCA if they wish to benefit from USMCA treatment.  Chapter four of the USMCA introduce new rules of origin and labor content rules, which entered into force on July 1, 2020.

In 2020, the Mexican central bank (Bank of Mexico or Banxico) and the National Banking and Securities Commissions (CNBV – Mexico’s principal bank regulator) drafted regulations mandating the largest financial technology companies operating in Mexico to either host data on a back-up server outside of the United States—if their primary is in the United States—or in physical servers in Mexico.  The draft regulations remain pending public comment and the financial services industry is concerned they could violate provisions of the USMCA financial services chapter prohibiting data localization.

Other Industrial Policy Aspects

Mexico’s government is increasingly choosing its military for the construction and management of economic infrastructure.  In the past two years, the government entrusted the Army (SEDENA) with building the new airport in Mexico City, and sections 6, 7, and part of section 5 of the Maya Train railway project in Yucatan state.  The government announced plans to give to the Navy (SEMAR) the rights for construction, management, and operations of the Trans-Isthmic Train project to connect the ports of Coatzacoalcos in Veracruz state with the Salina Cruz port in Oaxaca state.  The government is also in the process of transferring responsibilities for managing land and sea ports from the Secretariat of Communications and Transportation (SCT) to SEDENA and SEMAR respectively.

Real Property

Mexico ranked 105 out of 190 countries for ease of registering property in the World Bank’s 2020 Doing Business report, falling two places from its 2019 report.  Article 27 of the Mexican Constitution guarantees the inviolable right to private property.  Expropriation can only occur for public use and with due compensation.  Mexico has four categories of land tenure:  private ownership, communal tenure (ejido), publicly owned, and ineligible for sale or transfer.

Mexico prohibits foreigners from acquiring title to residential real estate in so-called “restricted zones” within 50 kilometers (approximately 30 miles) of the nation’s coast and 100 kilometers (approximately 60 miles) of the borders.  “Restricted zones” cover roughly 40 percent of Mexico’s territory.  Foreigners may acquire the effective use of residential property in “restricted zones” through the establishment of an extendable trust (fideicomiso) arranged through a Mexican financial institution.  Under this trust, the foreign investor obtains all property use rights, including the right to develop, sell, and transfer the property.  Real estate investors should be careful in performing due diligence to ensure that there are no other claimants to the property being purchased.  In some cases, fideicomiso arrangements have led to legal challenges.  U.S.-issued title insurance is available in Mexico and U.S. title insurers operate here.

Additionally, U.S. lending institutions have begun issuing mortgages to U.S. citizens purchasing real estate in Mexico.  The Public Register for Business and Property (Registro Publico de la Propiedad y de Comercio) maintains publicly available information online regarding land ownership, liens, mortgages, restrictions, etc.

Tenants and squatters are protected under Mexican law.  Property owners who encounter problems with tenants or squatters are advised to seek professional legal advice, as the legal process of eviction is complex.

Mexico has a nascent but growing financial securitization market for real estate and infrastructure investments, which investors can access via the purchase/sale of Fideicomisos de Infraestructura y Bienes Raíces (FIBRAs) and Certificates of Capital Development (CKDs) listed on Mexico’s BMV stock exchange.

Intellectual Property Rights

Intellectual Property Rights (IPR) in Mexico are covered by the the Mexican Federal Law for Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial) and the Federal Copyright Law (Ley Federal del Derecho de Autor).  Responsibility for the protection of IPR is spread across several government authorities.  The Prosecutor General’s Office (Fiscalia General de la Republica or FGR) oversees a specialized unit that prosecutes intellectual property (IP)  crimes.  The Mexican Institute of Industrial Property (IMPI), the equivalent to the U.S. Patent and Trademark Office, administers patent and trademark registrations, and handles administrative enforcement cases of IPR infringement.  The National Institute of Copyright (INDAUTOR) handles copyright registrations and mediates certain types of copyright disputes, while the Federal Commission for the Prevention from Sanitary Risks (COFEPRIS) regulates pharmaceuticals, medical devices, and processed foods.  The Mexican Customs Service’s mandate includes ensuring illegal goods do not cross Mexico’s borders.

The process for trademark registration in Mexico normally takes six to eight months.  The registration process begins by filing an application with IMPI, which is published in the Official Gazette.  IMPI first undertakes a formalities examination, followed by a substantive examination to determine if the application and supporting documentation fulfills the requirements established by law and regulation to grant the trademark registration.  Once the determination is made, IMPI then publishes the registration in the Official Gazette.  A trademark registration in Mexico is valid for 10 years from the date of registration and is renewable for 10-year periods.  Any party can challenge a trademark registration through an opposition system, or post-grant through a cancellation proceeding.  IMPI employs the following administrative procedures:  nullity, expiration, opposition, cancellation, trademark, patent and copyright infringement.  Once IMPI issues a decision, the affected party may challenge it through an internal reconsideration process or go directly to the Specialized IP Court for a nullity trial.  An aggrieved party can then file an appeal with a Federal Appeal Court based on the Specialized IP Court’s decision.  In cases with an identifiable constitutional challenge, the plaintiff may file an appeal before the Supreme Court.

To improve efficiency, in 2020 IMPI partnered with the United States Patent and Trademark Office (USPTO) to launch the Parallel Patent Grant (PPG) initiative.  Under this new work-sharing arrangement, IMPI will expedite the grant of a Mexican patent for businesses and individuals already granted a corresponding U.S. patent.  This arrangement allows for the efficient reutilization of USPTO work by IMPI.  The USPTO also has a Patent Prosecution Highway (PPH) agreement with IMPI.  Under the PPH, an applicant receiving a ruling from either IMPI or the USPTO that at least one claim in an application is patentable may request that the other office expedite examination of the corresponding application.  The PPH leverages fast-track patent examination procedures already available in both offices to allow applicants in both countries to obtain corresponding patents faster and more efficiently.

Mexico has undertaken significant legislative reform over the past year to comply with the USMCA.  The Mexican Federal Law for Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial) went into effect November 5, 2020.  The decree issuing this law was published in the Official Gazette on July 1, 2020, in response to the USMCA and the CPTPP.  This new law replaced the Mexican Industrial Property Law (Ley de la Propiedad Industrial), substantially strengthening IPR across a variety of disciplines.  Mexico amended its Federal Copyright Law and its Federal Criminal Code to comply with the USMCA.  The amendments went into effect July 2, 2020.  These amendments should significantly strengthen copyright law in Mexico.  Still, there are concerns that constitutional challenges filed against notice and takedown provisions as well as TPMs in the amendments may weaken these. provisions.

Still, Mexico has widespread commercial-scale infringement that results in significant losses to Mexican, U.S., and other IPR owners.  There are many issues that have made it difficult to improve IPR enforcement in Mexico, including legislative loopholes; lack of coordination between federal, state, and municipal authorities; a cumbersome and lengthy judicial process; relatively widespread acceptance of piracy and counterfeiting, and lack of resources dedicated to enforcement.  In addition, the involvement of transnational criminal organizations (TCOs), which control the piracy and counterfeiting markets in parts of Mexico and engage in trade-based money laundering by importing counterfeit goods, continue to impede federal government efforts to improve IPR enforcement.  TCO involvement has further illustrated the link between IPR crimes and illicit trafficking of other contraband, including arms and drugs.

Mexico remained on the Watch List in the 2021 Special 301 report published by the U.S. Trade Representative (USTR).  Obstacles to U.S. trade include the wide availability of pirated and counterfeit goods in both physical and virtual notorious markets.  The  for Piracy and Counterfeiting listed several Mexican markets:  Tepito in Mexico City, La Pulga Rio in Monterrey, and Mercado San Juan de Dios in Guadalajara.  Mexico is a signatory to numerous international IP treaties, including the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights.

Resources for Rights Holders

Intellectual Property Rights Attaché for Mexico, Central America and the Caribbean
U.S. Trade Center Liverpool No. 31 Col. Juárez
C.P. 06600 Mexico City
Tel: (52) 55 5080 2189

National Institute of Copyright (INDAUTOR)
Puebla No. 143
Col. Roma, Del. Cuauhtémoc
06700 México, D.F.
Tel: (52) 55 3601 8270
Fax: (52) 55 3601 8214
Web: http://www.indautor.gob.mx/

Mexican Institute of Industrial Property (IMPI)
Periférico Sur No. 3106
Piso 9, Col. Jardines del Pedregal
Mexico, D.F., C.P. 01900
Tel: (52 55) 56 24 04 01 / 04
(52 55) 53 34 07 00
Fax: (52 55) 56 24 04 06
Web: http://www.impi.gob.mx/

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

Capital Markets and Portfolio Investment

The Mexican government is generally open to foreign portfolio investments, and foreign investors trade actively in various public and private asset classes.  Foreign entities may freely invest in federal government securities.  The Foreign Investment Law establishes foreign investors may hold 100 percent of the capital stock of any Mexican corporation or partnership, except in those few areas expressly subject to limitations under that law.  Foreign investors may also purchase non-voting shares through mutual funds, trusts, offshore funds, and American Depositary Receipts.

They also have the right to buy directly limited or nonvoting shares as well as free subscription shares, or “B” shares, which carry voting rights.  Foreigners may purchase an interest in “A” shares, which are normally reserved for Mexican citizens, through a neutral fund operated by one of Mexico’s six development banks.  Finally, Mexico offers federal, state, and local governments bonds that are rated by international credit rating agencies.  The market for these securities has expanded rapidly in past years and foreign investors hold a significant stake of total federal issuances.  However, foreigners are limited in their ability to purchase sub-sovereign state and municipal debt.  Liquidity across asset classes is relatively deep.

Mexico established a fiscally transparent trust structure known as a FICAP in 2006 to allow venture and private equity funds to incorporate locally.  The Securities Market Law (Ley de Mercado de Valores) established the creation of three special investment vehicles which can provide more corporate and economic rights to shareholders than a normal corporation.  These categories are: (1) Investment Promotion Corporation (Sociedad Anonima de Promotora de Inversion or SAPI); (2) Stock Exchange Investment Promotion Corporation (Sociedad Anonima Promotora de Inversion Bursatil or SAPIB); and (3) Stock Exchange Corporation (Sociedad Anonima Bursatil or SAB).  Mexico also has a growing real estate investment trust market, locally referred to as Fideicomisos de Infraestructura y Bienes Raíces (FIBRAS) as well as FIBRAS-E, which allow for investment in non-real estate investment projects.  FIBRAS are regulated under Articles 187 and 188 of Mexican Federal Income Tax Law.

Money and Banking System

Financial sector reforms signed into law in 2014 have improved regulation and supervision of financial intermediaries and have fostered greater competition between financial services providers.  While access to financial services – particularly personal credit for formal sector workers – has expanded in the past four years, bank and credit penetration in Mexico remains low compared to OECD and emerging market peers.  Coupled with sound macroeconomic fundamentals, reforms have created a positive environment for the financial sector and capital markets.  According to the National Banking and Stock Commission (CNBV), the banking system remains healthy and well capitalized.  Non-performing loans have fallen 60 percent since 2001 and now account for 2.1 percent of all loans.

Mexico’s banking sector is heavily concentrated and majority foreign-owned:  the seven largest banks control 85 percent of system assets and foreign-owned institutions control 70 percent of total assets.  The USMCA maintains national treatment guarantees.  U.S. securities firms and investment funds, acting through local subsidiaries, have the right to engage in the full range of activities permitted in Mexico.

The Bank of Mexico (Banxico), Mexico’s central bank, maintains independence in operations and management by constitutional mandate.  Its main function is to provide domestic currency to the Mexican economy and to safeguard the Mexican Peso’s purchasing power by gearing monetary policy toward meeting a 3 percent inflation target over the medium term.

Mexico’s Financial Technology (FinTech) law came into effect in March 2018 and administration released secondary regulations in 2019, creating a broad rubric for the development and regulation of innovative financial technologies.  The law covers both cryptocurrencies and a regulatory “sandbox” for start-ups to test the viability of products, placing Mexico among the FinTech policy vanguard.  The reforms have already attracted significant investment to lending fintech companies and mobile payment companies.  Six fintechs have been authorized to operate in the Mexican market and CNBV is reviewing other applications.

Foreign Exchange and Remittances

Foreign Exchange

The Government of Mexico maintains a free-floating exchange rate.

Mexico maintains open conversion and transfer policies.  In general, capital and investment transactions, remittance of profits, dividends, royalties, technical service fees, and travel expenses are handled at market-determined exchange rates.  Mexican Peso (MXN)/USD exchange is available on same day, 24- and 48-hour settlement bases.  In order to prevent money-laundering transactions, Mexico imposes limits on USD cash deposits.  Businesses in designated border and tourism zones may deposit more than USD 14,000 per month subject to reporting rules and providing justification for their need to conduct USD cash transactions.  Individual account holders are subject to a USD 4,000 per month USD cash deposit limit.  In 2016, Banxico launched a central clearing house to allow for USD clearing services wholly within Mexico to improve clearing services for domestic companies with USD income.

Remittance Policies

There have been no recent changes in Mexico’s remittance policies.  Mexico continues to maintain open conversion and transfer policies.

Sovereign Wealth Funds

The Mexican Petroleum Fund for Stability and Development (FMP) was created as part of 2013 budgetary reforms.  Housed in Banxico, the fund distributes oil revenues to the national budget and a long-term savings account.  The FMP incorporates the Santiago Principles for transparency, placing it among the most transparent Sovereign Wealth Funds in the world.  Both Banxico and Mexico’s Supreme Federal Auditor regularly audit the fund.  Mexico is also a member of the International Working Group of Sovereign Wealth Funds.  The Fund received  MXN 197.3 billion (approximately USD 9.9 billion) in income in 2020.  The FMP is required to publish quarterly and annual reports, which can be found at www.fmped.org.mx .

There are two main SOEs in Mexico, both in the energy sector.  Pemex operates the hydrocarbons (oil and gas) sector, which includes upstream, mid-stream, and downstream operations.  Pemex historically contributed one-third of the Mexican government’s budget but falling output and global oil prices alongside improved revenue collection from other sources have diminished this amount over the past decade to about 8 percent.  The Federal Electricity Commission (CFE) operates the electricity sector.  While the Mexican government maintains state ownership, the latest constitutional reforms granted Pemex and CFE management and budget autonomy and greater flexibility to engage in private contracting.

Pemex

As a result of Mexico’s historic energy reform, the private sector is now able to compete with Pemex or enter into competitive contracts, joint ventures, profit sharing agreements, and license contracts with Pemex for hydrocarbon exploration and extraction.  Liberalization of the retail fuel sales market, which Mexico completed in 2017, created significant opportunities for foreign businesses.  Given Pemex frequently raises debt in international markets, its financial statements are regularly audited.  The Natural Resource Governance Institute considers Pemex to be the second most transparent state-owned oil company after Norway’s Statoil.  Pemex’s ten-person Board of Directors contains five government ministers and five independent councilors.  The administration has identified increasing Pemex’s oil, natural gas, and refined fuels production as its chief priority for Mexico’s hydrocarbon sector.

CFE

Changes to the Mexican constitution in 2013 and 2014 opened power generation and commercial supply to the private sector, allowing companies to compete with CFE.  Mexico has held three long-term power auctions since the reforms, in which over 40 contracts were awarded for 7,451 megawatts of energy supply and clean energy certificates.  CFE will remain the sole provider of distribution services and will own all distribution assets.  The 2014 energy reform separated CFE from the National Energy Control Center (CENACE), which now controls the national wholesale electricity market and ensures non-discriminatory access to the grid for competitors.  Still, legal and regulatory changes adopted by the Mexican government attempt to modify the rules governing the electricity dispatch order to favor CFE.  Dozens of private companies and non-governmental organizations have successfully sought injunctions against the measures, which they argue discriminate against private participants in the electricity sector.  Independent power generators were authorized to operate in 1992 but were required to sell their output to CFE or use it to self-supply.  Those legacy self-supply contracts have recently come under criticism with an electricity reform law giving the government the ability to cancel contracts it deems fraudulent.  Under the reform, private power generators may now install and manage interconnections with CFE’s existing state-owned distribution infrastructure.  The reform also requires the government to implement a National Program for the Sustainable Use of Energy as a transition strategy to encourage clean technology and fuel development and reduce pollutant emissions.  The administration has identified increasing CFE-owned power generation as its top priority for the utility, breaking from the firm’s recent practice of contracting private firms to build, own, and operate generation facilities.  CFE forced several foreign and domestic companies to renegotiate previously executed gas supply contracts, which raised significant concerns among investors about contract sanctity.

The main non-market-based advantage CFE and Pemex receive vis-a-vis private businesses in Mexico is related to access to capital.  In addition to receiving direct budget support from the Secretariat of Finance, both entities also receive implicit credit guarantees from the federal government.  As such, both are able to borrow funds on public markets at below the market rate their corporate risk profiles would normally suggest.  In addition to budgetary support, the CRE and SENER have delayed or halted necessary permits for new private sector gas stations, fuel terminals, and power plants, providing an additional non-market-based advantage to CFE and Pemex.

Privatization Program

Mexico’s 2014 energy reforms liberalized access to these sectors but did not privatize state-owned enterprises.

Mexico’s private and public sectors have worked to promote and develop corporate social responsibility (CSR) during the past decade.  CSR in Mexico began as a philanthropic effort.  It has evolved gradually to a more holistic approach, trying to match international standards such as the OECD Guidelines for Multinational Enterprises and the United Nations Global Compact.

Responsible business conduct reporting has made progress in the last few years with more companies developing a corporate responsibility strategy.  The government has also made an effort to implement CSR in state-owned companies such as Pemex, which has published corporate responsibility reports since 1999.  Recognizing the importance of CSR issues, the Mexican Stock Exchange (Bolsa Mexicana de Valores) launched a sustainable companies index, which allows investors to specifically invest in those companies deemed to meet internationally accepted criteria for good corporate governance.

In October 2017, Mexico became the 53rd member of the Extractive Industries Transparency Initiative (EITI), which represents an important milestone in its Pemex effort to establish transparency and public trust in its energy sector.

Additional Resources

Department of State

• Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);
• Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-report/);
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;
• North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf).

Department of Labor

• Findings on the Worst forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings);
• List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods);
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;
• Comply Chain (https://www.dol.gov/ilab/complychain/).

Corruption exists in many forms in Mexican government and society, including corruption in the public sector (e.g., demand for bribes or kickbacks by government officials) and private sector (e.g., fraud, falsifying claims, etc.), as well as conflict of interest issues, which are not well defined in the Mexican legal framework.

Complicity of government and law enforcement officials with criminal elements is a significant concern.  Collaboration of government actors with criminal organizations (often due to intimidation and threats) poses serious challenges for the rule of law.  Some of the most common reports of official corruption involve government officials stealing from public coffers or demanding bribes in exchange for awarding public contracts.  The current administration supported anti-corruption reforms (detailed below) and judicial proceedings in several high-profile corruption cases, including former governors.  However, Mexican civil society asserts that the government must take more effective and frequent action to address corruption.

Mexico adopted a constitutional reform in 2014 to transform the current Office of the Attorney General into an Independent Prosecutor General’s office in order to shore up its independence.  President Lopez Obrador’s choice for Prosecutor General was confirmed by the Mexican Senate January 18, 2019.  In 2015, Mexico passed a constitutional reform creating the National Anti-Corruption System (SNA) with an anti-corruption prosecutor and a citizens’ participation committee to oversee efforts.  The system is designed to provide a comprehensive framework for the prevention, investigation, and prosecution of corruption cases, including delineating acts of corruption considered criminal acts under the law.  The legal framework establishes a basis for holding private actors and private firms legally liable for acts of corruption involving public officials and encourages private firms to develop internal codes of conduct.  The implementation status of the mandatory state-level anti-corruption legislation varies.

The new laws mandate a redesign of the Secretariat of Public Administration to give it additional auditing and investigative functions and capacities in combatting public sector corruption.  Congress approved legislation to change economic institutions, assigning new responsibilities and in some instances creating new entities.  Reforms to the federal government’s structure included the creation of a General Coordination of Development Programs to manage the newly created federal state coordinators (“superdelegates”) in charge of federal programs in each state.  The law also created the Secretariat of Public Security and Citizen Protection, and significantly expanded the power of the president’s Legal Advisory Office (Consejería Jurídica) to name and remove each federal agency’s legal advisor and clear all executive branch legal reforms before their submission to Congress.  The law eliminated financial units from ministries, with the exception of the Secretariat of Finance, the army (SEDENA), and the navy (SEMAR), and transferred control of contracting offices in other ministries to the Hacienda.  Separately, the law replaced the previous Secretariat of Social Development (SEDESOL) with a Welfare Secretariat in charge of coordinating social policies, including those developed by other agencies such as health, education, and culture.  The Labor Secretariat gained additional tools to foster collective bargaining, union democracy, and to meet International Labor Organization (ILO) obligations.

Mexico ratified the OECD Convention on Combating Bribery and passed its implementing legislation in May 1999.  The legislation includes provisions making it a criminal offense to bribe foreign officials. Mexico is also a party to the Organization of American States (OAS) Convention against Corruption and has signed and ratified the United Nations Convention against Corruption.  The government has enacted or proposed strict laws attacking corruption and bribery, with average penalties of five to 10 years in prison.

Mexico is a member of the Open Government Partnership and enacted a Transparency and Access to Public Information Act in 2015, which revised the existing legal framework to expand national access to information.  Transparency in public administration at the federal level improved noticeably but expanding access to information at the state and local level has been slow.  According to Transparency International’s 2020 Corruption Perception Index, Mexico ranked 124 of 180 nations.  Civil society organizations focused on fighting corruption are increasingly influential at the federal level but are few in number and less powerful at the state and local levels.

Business representatives, including from U.S. firms, believe public funds are often diverted to private companies and individuals due to corruption and perceive favoritism to be widespread among government procurement officials.  The GAN Business Anti-Corruption Portal states compliance with procurement regulations by state bodies in Mexico is unreliable and that corruption is extensive, despite laws covering conflicts of interest, competitive bidding, and company blacklisting procedures.

The U.S. Embassy has engaged in a broad-based effort to work with Mexican agencies and civil society organizations in developing mechanisms to fight corruption and increase transparency and fair play in government procurement.  Efforts with specific business impact include government procurement best practices training and technical assistance under the U.S. Trade and Development Agency’s Global Procurement Initiative.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Mexico ratified the UN Convention Against Corruption in 2004.  It ratified the OECD Anti-Bribery Convention in 1999.

Resources to Report Corruption

Contact at government agency:

Secretariat of Public Administration
Miguel Laurent 235, Mexico City
52-55-2000-1060

Contact at “watchdog” organization:

Transparencia Mexicana
Dulce Olivia 73, Mexico City
52-55-5659-4714
Email: info@tm.org.mx

Mass demonstrations are common in the larger metropolitan areas and in the southern Mexican states of Guerrero and Oaxaca.  While political violence is rare, drug and organized crime-related violence has increased significantly in recent years.  Political violence is also likely to accelerate in the run-up to the June 2021 elections as criminal actors seek to promote election of their preferred candidates.  The national homicide rate remained stable at 29 homicides per 100,000 residents, although the number of homicides fell slightly from 35,618 to 35,498.  For complete security information, please see the Safety and Security section in the Consular Country Information page at https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Mexico.html.  Conditions vary widely by state.  For a state-by-state assessment please see the Consular Travel Advisory at https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/mexico-travel-advisory.html.

Companies have reported general security concerns remain an issue for those looking to invest in the country.  The American Chamber of Commerce in Mexico estimates in a biannual report that security expenses cost business as much as 5 percent of their operating budgets.  Many companies choose to take extra precautions for the protection of their executives.  They also report increasing security costs for shipments of goods.  The Overseas Security Advisory Council (OSAC) monitors and reports on regional security for U.S. businesses operating overseas.  OSAC constituency is available to any U.S.-owned, not-for-profit organization, or any enterprise incorporated in the United States (parent company, not subsidiaries or divisions) doing business overseas (https://www.osac.gov/Country/Mexico/Detail ).

Mexico’s 54.1. percent rate of informality remains higher than countries with similar GDP per capita levels.  High informality, defined as those working in unregistered firms or without social security protection, distorts labor market dynamics, contributes to persistent wage depression, drags overall productivity, and slows economic growth.  In the formal economy, there exist large labor shortages due to a system that incentivizes informality.  Manufacturing companies, particularly along the U.S.-Mexico border and in the states of Aguascalientes, Guanajuato, Jalisco, and Querétaro, report labor shortages and an inability to retain staff due to wages sometimes being less that what can be earned in the informal economy.  These shortages are particularly acute for skilled workers and engineers.

On May 1, 2019, Lopez Obrador signed into law a sweeping reform of Mexico’s labor law, implementing a constitutional change and focusing on the labor justice system.  The reform replaces tripartite dispute resolution entities (Conciliation and Arbitration Boards) with independent judicial bodies and conciliation centers.  In terms of labor dispute resolution mechanisms, the Conciliation and Arbitration Boards (CABs) previously adjudicated all individual and collective labor conflicts.  Under the reform, collective bargaining agreements will now be adjudicated by federal labor conciliation centers and federal labor courts.

Labor experts predict the labor reform will result in a greater level of labor action stemming from more inter-union and intra-union competition.  The Secretariat of Labor, working closely with Mexico’s federal judiciary, as well as state governments and courts, created an ambitious state-by-state implementation agenda for the reforms, which started November 18, 2020, and will end May 1, 2022.  On November 18, 2020 the first phase of the labor reform implementation began in eight states:  Durango, State of Mexico, San Luis Potosi, Zacatecas, Campeche, Chiapas, Tabasco, and Hidalgo.  On December 11, 2020 the Secretariat of Labor commenced preparations for the second phase in 14 additional states beginning in October 2021.  Further details on labor reform implementation can be found at: www.reformalaboral.stps.gob.mx

Mexico’s labor relations system has been widely criticized as skewed to represent the interests of employers and the government at the expense of workers.  Mexico’s legal framework governing collective bargaining created the possibility of negotiation and registration of initial collective bargaining agreements without the support or knowledge of the covered workers.  These agreements are commonly known as protection contracts and constitute a gap in practice with international labor standards regarding freedom of association.  The percentage of the economy covered by collective bargaining agreements is between five and 10 percent, of which more than half are believed to be protection contracts.  As of March 23, 2021, 600 collective bargaining contracts have been legitimized, according to the Secretariat of Labor.

The reform requires all collective bargaining agreements must now be submitted to a free, fair, and secret vote every two years with the objective of getting existing protectionist contracts voted out.  The increasingly permissive political and legal environment for independent unions is already changing the way established unions manage disputes with employers, prompting more authentic collective bargaining.  As independent unions compete with corporatist unions to represent worker interests, workers are likely to be further emboldened in demanding higher wages.

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

* data from the IMF’s Coordinated Direct Investment Survey

* data from the IMF’s Coordinated Portfolio Investment Survey (CPIS)

William Ayala
Economic Officer
AyalaWM@State.gov
U.S. Embassy Mexico City

Policies Towards Foreign Direct Investment

There are no laws or practices that discriminate or are alleged to discriminate against foreign investors, including and especially U.S. investors, by prohibiting, limiting, or conditioning foreign investment in a sector of the economy (either at the pre-establishment (market access) or post-establishment phase of investment).  Until the mid-1980s, Sweden’s approach to direct investment from abroad was quite restrictive and governed by a complex system of laws and regulations.  Sweden’s entry into the European Union (EU) in 1995 largely eliminated all restrictions.  Restrictions to investment remain in the defense and other sensitive sectors, as addressed in the next section “Limits on Foreign Control and Right to Private Ownership and Establishment.”

The Swedish Government recognizes the need to further improve the business climate for entrepreneurs, education, and the flow of research from lab to market.  Swedish authorities have implemented a number of reforms to improve the business regulatory environment and to attract more foreign investment.  In addition, Sweden is implementing an EU investment screening regulation (EU Foreign Investment Screening Mechanism – adopted in March 2019), and plans to announce a national investment screening mechanism by the end of 2020 or early 2021.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are very few restrictions on where and how foreign enterprises can invest, and there are no equity caps, mandatory joint-venture requirements, or other measures designed to limit foreign ownership or market access.  However, Sweden does maintain some limitations in a select number of situations:

• Accountancy: Investment in the accountancy sector by non-EU-residents cannot exceed 25 percent.
• Legal services: Investment in a corporation or partnership carrying out the activities of an “advokat,” a lawyer, cannot be done by non-EU residents.
• Air transport: Foreign enterprises may be restricted from access to international air routes unless bilateral intergovernmental agreements provide otherwise.
• Air transport: Cabotage is reserved to national airlines.
• Maritime transport: Cabotage is reserved to vessels flying the national flag.
• Defense: Restrictions apply to foreign ownership of companies involved in the defense industry and other sensitive areas.
• On January 1, 2020, Sweden enacted new regulations giving Swedish armed forces and security services authority to deny or revoke operating licenses to mobile radio providers that threaten national security.

Swedish company law provides various ways a business can be organized.  The main difference between these forms is whether the founder must own capital and to what extent the founder is personally liable for the company’s debt.  The Swedish Act (1992:160) on Foreign Branches applies to foreign companies operating through a branch and also to people residing abroad who run a business in Sweden.  A branch must have a president who resides within the European Economic Area (EEA).  All business enterprises in Sweden (including branches) are required to register at the Swedish Companies Registration Office, Bolagsverket.  An invention or trademark must be registered in Sweden in order to obtain legal protection.  A bank from a non-EEA country needs special permission from the Financial Supervisory Authority, Finansinspektionen,  to establish a branch in Sweden.  Sweden also adheres to EU regulations on investment screening and approval mechanisms for inbound foreign investment.

Other Investment Policy Reviews

Sweden has in the past three years not undergone an investment policy review by the World Trade Organization (WTO), or the United Nations Committee on Trade and Development (UNCTAD), or the Organization for Economic Cooperation and Development (OECD).

Business Facilitation

Business Sweden’s Swedish Trade and Invest Council is the investment promotion agency tasked with facilitating business.  The services of the agency are available to all investors.

All forms of business enterprise, except for sole traders, have to be registered with the Swedish Companies Registration Office, Bolagsverket, before starting operations.  Sole traders may apply for registration in order to be given exclusive rights to the name in the county where they will be operating.  Online applications to register an enterprise can be made at https://www.bolagsverket.se/en and is open to foreign companies.  The process of registering an enterprise is clear and can take a few days or up to a few weeks, depending on the complexity and form of the business enterprise.  All business enterprises, including sole traders, need also to be registered with the Swedish Tax Agency, Skatteverket, before starting operations.  Relevant information and guides can be found at http://www.skatteverket.se.  Depending on the nature of business, companies may need to register with the Environmental Protection Agency, Naturvårdsverket, or, if real estate is involved, the county authorities.  Non-EU/EEA citizens need a residence permit, obtained from the Swedish Board of Migration, Migrationsverket, in order to start up and/or run a business.  A compilation of  Swedish government agencies  that work with registering, starting, running, expanding and/or closing a business can be found at http://www.verksamt.se.

Outward Investment

The Government of Sweden has commissioned the Swedish Exports Credit Guarantee Board (EKN) to promote Swedish exports and the internationalization of Swedish companies.  EKN insures exporting companies and banks against non-payment in export transactions, thereby reducing risk and encouraging the expansion of operations.  As part of its export strategy presented in 2015, the Swedish Government has also launched Team Sweden to promote Swedish exports and investment.  Team Sweden is tasked with making export market entry clear and simple for Swedish companies and consists of a common network for all public initiatives to support exports and internationalization.

The Government does not generally restrict domestic investors from investing abroad.  The only exceptions are related to matters of national security and national defense; the Inspectorate of Strategic Products (ISP) is tasked with control and compliance regarding the sale and export of defense equipment and dual-use products.  ISP is also the National Authority for the Chemical Weapons Convention and handles cases concerning targeted sanctions.

Sweden has concluded investment protection agreements with the following countries:

Albania, Algeria, Argentina, Armenia, Belarus, Bulgaria, Chile, China, Cote d’Ivoire, Croatia, Czech Republic, Ecuador, Egypt, Estonia, Ethiopia, Georgia, Guatemala, Hong Kong, Hungary, India, Indonesia, Iran, Kazakhstan, Kuwait, Kyrgyzstan, Laos, Latvia, Lebanon, Lithuania, Macedonia, Madagascar, Malaysia, Malta, Mauritius, Mexico, Mongolia, Morocco, Mozambique, Nicaragua (signed but not in force), Nigeria, Oman, Pakistan, Panama, Peru, Philippines, Poland, Republic of Korea, Romania, Russian Federation, Saudi Arabia, Senegal, Serbia, Slovakia, South Africa, Sri Lanka, Tanzania, Thailand, Tunisia, Turkey, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, Vietnam, Yemen, and Zimbabwe (signed but not in force). Sweden does not have a bilateral investment treaty with the United States.

Sweden is a member of the EU.  The EU manages trade relations with third countries in the form of trade agreements.  A list of concluded free trade agreements can be found here: http://www.consilium.europa.eu/en/policies/trade-policy/trade-agreements/

BITs with third countries are available at the following link: http://investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu

Sweden is a member of the European Union. On May 5, 2020 the European Union member states agreed to terminate all intra-EU BITs. The European Union has 56 Treaties with Investment Provisions (TIPs) in force. They are available at the following link: https://investmentpolicy.unctad.org/international-investment-agreements/groupings/28/eu-european-union-

Sweden and the United States signed a bilateral taxation treaty in 1994, which was amended in 2005.  More information is available at https://www.irs.gov/businesses/international-businesses/sweden-tax-treaty-documents

Sweden has concluded treaties of double taxation avoidance with the following countries:  Albania, Argentina, Australia, Austria, Bangladesh, Barbados, Belgium, Belarus, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Bulgaria, Canada, Chile, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Faeroe Islands, Finland, France, Gambia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Kenya, Korea, Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mauritius, Mexico, Montenegro, Namibia, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Switzerland, Taiwan, Tanzania, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United Kingdom, United States, Venezuela, Vietnam, Zambia, and Zimbabwe.

Transparency of the Regulatory System

As an EU member, Sweden has altered its legislation to comply with the EU’s stringent rules on competition.  The country has made extensive changes in its laws and regulations to harmonize with EU practices, all to avoid distortions in, or impediments to the efficient mobilization and allocation of investment.  The institutions of the European Union are publicly committed to transparent regulatory processes.  The European Commission has the sole right of initiative for EU regulations and publishes extensive, descriptive information on many of its activities.  More information can be found at: http://ec.europa.eu/atwork/decision-making/index_en.htm;
http://ec.europa.eu/smart-regulation/index_en.htm.

There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.  Nongovernmental organizations and private sector associations may submit comments to government draft bills.  The submitted comments are made public in the public consultation process.

Rule-making and regulatory authority on a national level exists formally in the legislative branch, the Riksdag.  As a member of the EU, a growing proportion of legislation and regulation stem from the EU.  These laws apply in some case directly as national law or are put before the Riksdag to be enacted as national law.  The executive branch, the Government of Sweden, and its various agencies draft laws and regulations that are put before the Riksdag and are adopted on a national level when they enter into force.  Municipalities may draft regulations that are within their spheres of competence.  These regulations apply at the respective municipality only and may vary between municipalities.

Draft bills and regulations, which include investment laws, are made available for public comment through a public consultation process, along the lines of U.S. federal notice and comment procedures.  Current and newly adopted legislation can be found at the Swedish Parliament’s homepage and in the various government agencies dealing with the relevant regulation: http://www.riksdagen.se/sv/dokument-lagar/.  Key regulatory actions are published at Lagrummet: https://lagrummet.se/.  Lagrummet serves as the official site for information on Swedish legislation and provides information on legislation in the public domain, all statutes currently in force, and information on impending legislation.  “Post och Inrikes Tidningar” serves in certain aspects a similar role as the Federal Register in the U.S., through which public notifications are published.  The proclamations of “Post och Inrikes Tidningar” can be found at the Swedish Companies Registration Office (Bolagsverket): https://poit.bolagsverket.se/poit/PublikPoitIn.do.

The judicial branch and various agencies are tasked with regulation oversight and/or regulation enforcement.  The Swedish Parliamentary Ombudsmen, known as the Justitieombuds-männen (JO), are tasked to make sure that public authority complies with the law and follows administrative processes.  They also investigate complaints from the general public.

Regulations are reviewed on the basis of scientific and/or data-driven assessments.  The principle of public access to official documents, offentlighetsprincipen, governs the availability of the results of studies that are conducted by government entities and furthermore to comments made by government entities.  The principle provides the Swedish public with the right to study public documents as specified in the Freedom of the Press Act.

The status of Sweden’s public finances is available at Statistics Sweden, Sweden official statistics agency: https://www.scb.se/en/finding-statistics/statistics-by-subject-area/public-finances/.

The status of Sweden’s national debt is available at the Swedish National Debt Office (Riksgälden): https://www.riksgalden.se/en/statistics/statistics-regarding-swedens-central-government-debt/.

International Regulatory Considerations

As an EU-member, Sweden complies with EU-legislation in shaping its national regulations.

If a national law, norm, or standard is found to be in conflict with EU-law, then the national law is altered to be in compliance with EU-law.  Sweden adheres to the practices of WTO and coordinates its actions in regard to WTO with other EU-member countries as the EU-countries have a common trade policy.

Legal System and Judicial Independence

Sweden’s legal system is based on the civil law tradition, common to Europe, and founded on classical Roman law, but has been further influenced by the German interpretation of this tradition.  Swedish legislation and Swedish agencies provide guidance on whether regulations or enforcement actions are appealable and adjudicated in the national court system.  Swedish courts are independent and free of influence from other branches of government, including the executive.  Sweden has a written commercial law and contractual law and there are specialized courts, such as commercial and civil courts.  The Swedish courts are divided into:

• Courts of general jurisdiction (the District Courts, the Courts of Appeal, and the Supreme Court) which have jurisdiction with respect to civil and criminal cases;
• Administrative courts (County Administrative Courts, Administrative Courts of Appeal, and the Supreme Administrative Court) which have jurisdiction with respect to issues of public law, including taxation;
• Specialist courts for disputes within certain legal areas such as labor law, environmental law and market regulation.

Sweden is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Law; foreign awards may be enforced in Sweden regardless of which foreign country the arbitral proceedings took place.  The main source of arbitration law in Sweden is the Swedish Arbitration Act, which contains both procedural and substantive regulations.  Sweden is a party to the Lugano and the Brussels Conventions, and, by its membership of the EU, Sweden is also bound by the Brussels Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.  An arbitral award is considered final and is not subject to substantive review by Swedish courts.  However, arbitral awards may be challenged for reasons set out in the Arbitration Act.  An award may, for example, be set aside after a challenge because of procedural errors, which are likely to have influenced the outcome.

Laws and Regulations on Foreign Direct Investment

During the 1990s, Sweden undertook significant deregulation of its markets.  In a number of areas, including the electricity and telecommunication markets, Sweden has been on the leading edge of reform, resulting in more efficient sectors and lower prices.  Nevertheless, a number of practical impediments to direct investments remain.  These include a fairly extensive, though non-discriminatory, system of permits and authorizations needed to engage in many activities and the dominance of a few very large players in certain sectors, such as construction and food wholesaling.  Foreign banks, insurance companies, brokerage firms, and cooperative mortgage institutions are permitted to establish branches in Sweden on equal terms with domestic firms, although a permit is required.  Swedes and foreigners alike may acquire shares in any company listed on NASDAQ OMX.

Sweden’s taxation structure is straightforward and corporate tax levels are low.  In 2013, Sweden lowered its corporate tax from 26.3 percent to 22 percent in nominal terms and lowered it again to 21.4 percent in 2019.  The effective rate can be even lower as companies have the option of making deductible annual appropriations to a tax allocation reserve of up to 25 percent of their pretax profit for the year.  Companies can make pre-tax allocations to untaxed reserves, which are subject to tax only when utilized.  Certain amounts of untaxed reserves may be used to cover losses.  Due to tax exemptions on capital gains and dividends, as well as other competitive tax rules such as low effective corporate tax rates, deductible interest costs for tax purposes, no withholding tax on interest, no stamp duty or capital duties on share capital, and an extensive double tax treaty network, Sweden is among Europe’s most favorable jurisdictions for holding companies.  Unlisted shares are always tax-exempt, meaning there is no qualification time or minimum holding of votes or capital.  Listed shares are exempt if the holding represents at least 10 percent of the voting rights (or is contingent on the holder’s business) and the shares are held for at least one year. As part of a COVID-19 stimulus package, the government lowered the payroll tax for persons aged 19-23 from 31.42 percent to 19.73 percent.

Personal income taxes are among the highest in the world.  Since public finances have improved due to extensive consolidation packages to reduce deficits, the government has been able to reduce tax pressure as a percentage of GDP.  Though well below the national average in the EU area, public debt, as a share of GDP, rose to approximately 40 percent as a result of the enactment of several fiscal stimulus packages which aimed to boost the economy in the COVID-19 pandemic.  Significant tax increases in the near future remain unlikely.  One particular focus of the Swedish government has been tax reductions to encourage employers to hire the long-term unemployed.

Dividends paid by foreign subsidiaries in Sweden to their parent company are not subject to Swedish taxation.  Dividends distributed to other foreign shareholders are subject to a 30 percent withholding tax under domestic law, unless dividends are exempt or taxed at a lower rate under a tax treaty.  Tax liability may also be eliminated under the EU Parent Subsidiary Directive.  Profits of a Swedish branch of a foreign company may be remitted abroad without being subject to any other tax than the regular corporate income tax.  There is no exit taxation and no specific rules regarding taxation of stock options received before a move to Sweden.  Instead, cases of double taxation are solved by applying tax treaties and cover not only moves within the EU but all countries, including the United States.

For detailed tax guidance, see the Swedish Tax Administration’s website (in English): http://www.skatteverket.se/servicelankar/otherlanguages/inenglish.4.12815e4f14a62bc048f4edc.html

There is no primary or “one-stop-shop” website that provides relevant laws, rules, procedures, and reporting requirements for investors.  Business Sweden, Sweden’s official trade and investment organization, is the investment promotion agency tasked with developing business in Sweden.  The services of the agency are available to all investors.

Competition and Antitrust Laws

As an EU member, Sweden has altered its legislation to comply with the EU’s stringent rules on competition.  The competition law rules are contained in the Swedish Competition Act (2008:579), which entered into force in November 2008.  The fundamental antitrust provisions have been the same since 1993.  The Swedish Competition Authority (SCA) is the main enforcement authority of the Swedish Competition Act.  The agency adheres to transparent norms and procedures, which are made available on its homepage: https://www.konkurrensverket.se/en/omossmeny/about-us/uppgifter.  SCA decisions can be appealed to the administrative courts.  This can be done by submitting a written appeal to the Swedish Competition Authority within three weeks from the day the applicant received the SCA’s initial decision.

Expropriation and Compensation

Private property is only expropriated for public purposes, in a non-discriminatory manner, with fair compensation, and in accordance with established principles of international law.

Dispute Settlement

ICSID Convention and New York Convention

Sweden is a member of the World Bank-based International Center for the Settlement of Investment Disputes (ICSID) and includes ICSID arbitration of investment disputes in many of its bilateral investment treaties (BITs).  Sweden is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Law.

Investor-State Dispute Settlement

There have been no major disputes over investment in Sweden in recent years.  There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Swedish arbitration law is advanced and in line with current best practice of international arbitration.  The main source of arbitration law in Sweden is the Swedish Arbitration Act, which contains both procedural and substantive regulations. A revised version of the Swedish Arbitration Act (SAA) entered into force on March 1, 2019. The revised SAA intends to preserve Sweden’s position among Europe’s leading seats for international arbitration proceedings.

Sweden is a party to the Lugano and the Brussels Conventions and by its membership of the EU Sweden is bound by the Brussels Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.  An arbitral award is considered final and is not subject to substantive review by Swedish courts.  However, arbitral awards may be challenged for reasons set out in the Arbitration Act.  An award may, for example, be set aside after challenge because of procedural errors, which are likely to have influenced the outcome.  The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) has administered arbitrations under the UNCITRAL Arbitration Rules for many years, usually acting as the Appointing Authority.  Parties to a dispute may adopt the Procedures by agreement before or after the dispute has arisen.

The SCC maintains different versions of the Procedures depending on which version of the UNCITRAL Arbitration Rules applies to the arbitration agreement in question (1976 or 2010 versions).

Bankruptcy Regulations

The Swedish legislation on bankruptcy is found in a number of laws that came into force in different periods of time and to serve different purposes.  The main laws on insolvency are the Bankruptcy Act (1987:672) and the Company Reorganization Act (1996:764), but the Preferential Rights of Creditors Act (1970:979), the Salary Guarantee Act (1992:497), and the Companies Act (1975:1385) are equally important.  In 2010, Sweden strengthened its secured transactions system through changes to the Rights of Priority Act that give secured creditors’ claims priority in cases of debtor default outside bankruptcy.  According to data collected by the World Bank’s 2020 Doing Business Report, resolving insolvency takes two years on average and costs nine percent of the debtor’s estate, with the most likely outcome being that the company will be sold as a going concern.  The average recovery rate is 78 cents on the dollar.  Globally, Sweden ranked 17 of 190 economies on the ease of resolving insolvency in the Doing Business 2020 report.

Investment Incentives

The Swedish government offers certain incentives to set up a business in targeted depressed areas.  Loans are available on favorable terms from the Swedish Agency for Economic and Regional Growth, Tillväxtverket, and from regional development funds.  A range of regional support programs, including location and employment grants, low rent industrial parks, and economic free zones are available.  Regional development support is concentrated in the lightly populated northern two-thirds of the country.  In addition, EU grant and subsidy programs are generally available only for nationals and companies registered in the EU, usually on a national treatment basis. The Swedish government does not have a practice of issuing guarantees or jointly financing direct investment projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Sweden has foreign trade zones with bonded warehouses in the ports of Stockholm, Gothenburg, Malmö, and Jönköping.  Goods may be stored indefinitely in these zones without customs clearance, but they may not be consumed or sold on a retail basis.  Permission may be granted to use these goods as materials for industrial operations within a free trade zone.  The same tax and labor laws apply to foreign trade zones as to other workplaces in Sweden.

Performance and Data Localization Requirements

As an EU Member State, Sweden adheres to the EU’s General Data Protection Directive (GDPR) (95/46/EC) which spells out strict rules concerning the processing of personal data.  Businesses must tell consumers that they are collecting data, what they intend to use it for, and to whom it will be disclosed.  Data subjects must be given the opportunity to object to the processing of their personal details and to opt-out of having them used for direct marketing purposes.  This opt-out should be available at the time of collection and at any point thereafter.  GDPR entered into force on May 18, 2018 – and it is a Regulation, i.e. directly applicable in member states.

The EU-U.S. Privacy Shield Frameworks were designed by the U.S. Government (Department of Commerce) and the European Commission to provide companies on both sides of the Atlantic with a mechanism to comply with data protection requirements when transferring personal data from the European Union to the United States in support of transatlantic commerce. The European Court of Justice (ECJ) in a July 16 ruling in the Schrems II case invalidated the legal basis for the U.S. Department of Commerce-managed EU-U.S. Privacy Shield framework (“Privacy Shield”) and imposed substantial burdens on parties using standard contractual clauses (SCCs).  Subsequent guidance from the European Data Protection Board (EDPB) threatens to impose additional obstacles to use of the SCCs to transfer personal data to the United States.  The United States continues to engage the European Commission to develop a new Privacy Shield mechanism and to ensure SCCs can be used for data transfers to the United States. For further information and guidance on the Privacy Shield Framework, please see: https://www.commerce.gov/privacyshield.

The Swedish Authority for Privacy Protection, Integritetsskyddsmyndigheteten, works to prevent encroachment upon privacy through information and by issuing directives and codes of statutes.  Integritetsskyddsmyndigheteten (IMY) also handles complaints and carries out inspections.  By examining government bills, IMY ensures that new laws and ordinances protect personal data in an adequate manner.  Further guidance and information is available in English on their website at https://www.imy.se/other-lang/in-english/. There are no measurements that prevent or unduly impede companies from freely transmitting customer or other business-related data outside Sweden’s territory.  Sweden imposes no performance requirements on presumptive foreign investors.

In general, there is no government policy that requires the hiring of nationals.  There is no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees.  Sweden does not follow “forced localization,” the policy in which foreign investors must use domestic content in goods or technology and there are no requirements for foreign IT providers to turn over source code and/or provide access to encryption.

Various municipal-level agencies and business associations have targeted U.S. cloud service providers in Sweden.  These entities have claimed that any information processed by a U.S. cloud provider is subject to U.S. government scrutiny through the CLOUD Act, limiting customers’ privacy.  This perception has adversely impacted U.S. cloud service providers’ sales in Sweden and given local cloud service firms an uneven advantage in the market.  In addition, this perception has spurred a two-year, government project to examine the options for the development of a Swedish government cloud, effectively halting U.S. cloud service sales as customers await the investigation’s outcome.  However, due to the COVID-19 pandemic, the government’s exploration project has been delayed. The final project report is expected to be released on October 15, 2021.  The first part of the report was published on January 15, 2021.

Real Property

Swedish law generally provides for adequate protection of real property.  Mortgages and liens exist, and the recording system is reliable.  Almost all land has clear title and unoccupied property ownership cannot revert to other owners.  Financial mechanisms are available in Sweden for securitization of properties for lending purposes and have been in use since the early 1990s.  Nordic banks account for the vast majority of secured lending transactions.  The Swedish Financial Supervisory Authority, Finansinpektionen, can provide further information regarding the regulations involved with securitization of properties at https://www.fi.se/en/.

Intellectual Property Rights

As a member of the European Union, Sweden adheres to a series of multilateral conventions on industrial, intellectual, and commercial property.

Patents:  Protection in all areas of technology may be obtained for 20 years.  Sweden is a party to the Patent Cooperation Treaty and the European Patent Convention of 1973; both entered into force in 1978.

Copyrights:  Sweden is a signatory to various multilateral conventions on the protection of copyrights, including the Berne Convention of 1971, the Rome Convention of 1961, and the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  Swedish copyright law protects computer programs and databases.  Between 2005-2008, Sweden gained notoriety as a safe haven for internet piracy due to rapid internet connection speeds, a lag in implementing EU Directives, and weak enforcement efforts.  In 2009, however, Sweden implemented the EU’s Intellectual Property Rights Enforcement Directive (IPRED) 2004/48/EC and increased its enforcement against internet piracy.  The last few years also saw the conviction of the operators behind the Pirate Bay.org, a notorious BitTorrent tracker for illegal file sharing, and an increase in legal file sharing.  Legislative measures combined with added resources for enforcement and the emergence of successful legal alternatives have all contributed to a substantial increase in music and film distribution by legal means since 2010.  In 2016, Sweden set up a Specialist Court for IPR-related cases, to further increase efficiency by pooling specialist competence. In 2020, severe copyright infringement was added to the criminal code, giving police and prosecutors additional enforcement tools, and increasing the maximum penalty for such crimes to six years imprisonment.

Trademarks:  Sweden protects trademarks under a specific trademark act (1960:644) and is a signatory to the 1989 Madrid Protocol.

Trade secrets:  Proprietary information is protected under Sweden’s patent and copyright laws unless acquired by a government ministry or authority, in which case it may be made available to the public on demand.

Designs:  Sweden is a party to the Paris Convention and the Locarno Agreement and designs are protected by the Swedish Design Protection Act, as well as the Council Regulation on Registered and Unregistered Designs.  Protection under the act lasts for renewable terms of one, or several five-year periods with a maximum protection of 25 years.

Sweden is not included in USTR’s Special 301 Report or Notorious Markets List.

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

Capital Markets and Portfolio Investment

Credit is allocated on market terms and is made available to foreign investors in a non-discriminatory fashion.  The private sector has access to a variety of credit instruments.  Legal, regulatory, and accounting systems are transparent and consistent with international norms.  NASDAQ-OMX is a modern, open, and active forum for domestic and foreign portfolio investment.  It is Sweden’s official stock exchange and operates under specific legislation.  Furthermore, the Swedish government is neutral toward portfolio investment and Sweden has a fully capable regulatory system that encourages and facilitates portfolio investments.

Money and Banking System

Several foreign banks, including Citibank, have established branch offices in Sweden, and several niche banks have started to compete in the retail bank market.  The three largest Swedish banks are Skandinaviska Enskilda Banken (SEB), Svenska Handelsbanken, and Swedbank.  Nordea is the largest foreign bank and largest bank in Sweden, while Danske Bank is the second largest foreign bank and the fifth largest bank in Sweden.  A deposit insurance system was introduced in 1996, whereby individuals received protection of up to SEK 250,000 (USD 29,250) of their deposits in case of bank insolvency.  On December 31, 2010, the maximum compensation was raised to the SEK equivalent of 100,000 euro.

The banks’ activities are supervised by the Swedish Financial Supervisory Authority, Finansinspektionen, http://www.fi.se, to ensure that standards are met.  Swedish banks’ financial statements meet international standards and are audited by internationally recognized auditors only.  The Swedish Bankers’ Association, http://www.bankforeningen.se, represents banks and financial institutions in Sweden.  The association works closely with regulators and policy makers in Sweden and Europe.  Sweden is not part of the Eurozone; however, Swedish commercial banks offer euro-denominated accounts and payment services.

On July 1, 2014, Sweden signed the Foreign Account Tax Compliance Act (FATCA) agreement with the U.S. Financial institutions in Sweden are now obligated to submit information in accordance with FATCA to the Swedish Tax Agency.  In February 2015, the Swedish Parliament decided on new laws and regulations needed to implement FATCA.  The Parliamentary decision means the government’s proposals in Bill 2014/15:41 were adopted, including for example, the introductions of:

• a new law on the identification of reportable accounts with respect to the agreement;
• changes to tax procedure act;
• new legislation on the exchange of information with respect to the agreement; and
• consequential amendments to the Income Tax Act and other laws.

The provisions entered into force on April 1, 2015.  For full text of Bill 2014/15:41, please see http://www.regeringen.se/contentassets/bd8cf7f897364944b35f5f30c099bc0c/genomforande-av-avtal-mellan-sveriges-regering-och-amerikas-forenta-staters-regering-for-att-forbattra-internationell-efterlevnad-av-skatteregler-och-for-att-genomfora-fatca-prop.-20141541.

Foreign banks or branches offering financial services must have an authorization from the Swedish Financial Supervisory Authority, Finansinpektionen, to conduct operations.  As part of the authorization application process, FI reviews the firm’s capital situation, business plan, owners, and management.  Parts of the firm’s daily operations may also require authorization from FI.  The applicable regulatory code can be found at http://www.fi.se/en/our-registers/search-fffs/2009/20093/.

There are no reported losses of correspondent banking relationships in the past three years and there are no current correspondent banking relationships that are in jeopardy.  Foreigners have the right to open an account in a bank in Sweden provided he/she can identify him/herself and the bank conducts an identity check.  The bank cannot require the person to have a Swedish personal identity number or an address in Sweden.

Foreign Exchange and Remittances

Foreign Exchange

Sweden adheres to a floating exchange rate regime and the national currency rate fluctuates.

Remittance Policies

Sweden does not impose any restrictions on remittances of profits, proceeds from the liquidation of an investment, or royalty and license fee payments.  A subsidiary or branch may transfer fees to a parent company outside of Sweden for management services, research expenditures, etc.  Funds associated with any form of investment can be freely converted into any world currency.  In general, yields on invested funds, such as dividends and interest receipts, may be freely transferred.  A foreign-owned firm may also raise foreign currency loans both from its parent corporation and credit institutions abroad.  There are no recent changes or plans to change investment remittance policies.  There are no time limitations on remittances.

Sovereign Wealth Funds

Sweden does not maintain a sovereign wealth fund or similar entity.

The Swedish state is Sweden’s largest corporate owner and employer.  Forty-six companies are entirely or partially state-owned, of which two are listed on the Stockholm stock exchange, and have government representatives on their boards.  Approximately 129,000 people are employed by these companies, including associated companies.  Sectors, which feature State-Owned Enterprises (SOEs), include energy/power generation, forestry, mining, finance, telecom, postal services, gambling, and retail liquor sales.  These companies operate under the same laws as private companies, although the government appoints board members, reflecting government ownership.  Like private companies, SOEs have appointed boards of directors, and the government is constitutionally prevented from direct involvement in the company’s operations.  Like private companies, SOE’s publish their annual reports, which are subject to independent audit.  Private enterprises compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations.  Moreover, Sweden is party to the General Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).  Swedish SOEs adhere to the OECD Guidelines on Corporate Governance for SOEs. Further information regarding the Swedish SOEs can be found here: http://www.regeringen.se/regeringens-politik/bolag-med-statligt-agande/.

Privatization Program

The current Sweden’s Government, voted into office in September 2014 and returned to office after the most recent general elections in 2018, has a mandate to divest or liquidate its holdings in Bilprovningen (Swedish Motor-Vehicle Inspection Company), Bostadsgaranti, Lernia, Orio (formerly Saab Automobile Parts), SAS, and Svensk Exportkredit (SEK).  If the Government of Sweden decides to divest or liquidate holdings, then a public bidding process would be implemented.

There is widespread awareness of responsible business conduct (RBC) among both producers and consumers in Sweden.  All businesses are expected to comply with local laws and regulations, and to observe the international norms and principles for human rights, labor protection, sustainable development, and anti-corruption.  Firms that pursue RBC are viewed favorably, often publicizing their adherence to generally accepted RBC principles such as those contained in OECD Guidelines for Multinational Enterprises.  Volvo Trucks, for example, has collaborated with USAID in pursuing RBC efforts outside of Sweden.  The Swedish National Contact Point for the OECD Guidelines can be found at:  https://www.regeringen.se/regeringens-politik/handel-och-investeringsframjande/nationella-kontaktpunkten/.  The Government of Sweden has adopted a platform for sustainable business, the term it uses for efforts related to RBC/CSR:
https://www.government.se/49b750/contentassets/539615aa3b334f3cbedb80a2b56a22cb/sustainable-business—a-platform-for-swedish-action.

Sweden effectively and fairly enforces domestic laws in relation to human rights, labor rights, consumer protection, environmental protections, and other laws/regulations intended to protect individuals from adverse business impacts.  There are no alleged/reported human or labor rights concerns relating to RBC that foreign businesses should be aware of, as for example, alleged instances of forced and/or child labor in domestic supply chains, forced evictions of indigenous peoples, or arrests of and violence against environmental defenders.

Sweden has put in place corporate governance, accounting, and executive compensation standards to protect shareholders.  Sweden is a member of the Extractive Industries Transparency Initiative (EITI).

Sweden is one of seventeen states that have finalized The Montreux Document on Private Military and Security Companies. It is a supporter of and participant in International Code of Conduct for Private Security Service Providers’ Association (ICoCA).

Additional Resources 

Department of State

• Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);
• Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-report/);
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;
• North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf).

Department of Labor

• Findings on the Worst forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings);
• List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods);
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;
• Comply Chain (https://www.dol.gov/ilab/complychain/).

Investors have an extremely low likelihood of encountering corruption in Sweden.  While there have been cases of domestic corruption at the municipal level, most companies have high anti-corruption standards, and an investor would not typically be put in the position of having to pay a bribe to conduct business.

There are cases of Swedish companies operating overseas that have been charged with bribing foreign officials; however, these cases are relatively rare.  Although Sweden has comprehensive laws against corruption, and ratified the 1997 OECD Anti-bribery Convention, in June of 2012, the OECD Anti-Bribery Working Group has given an unfavorable review of Swedish compliance to the dictates of that Convention.  The group faulted Sweden for not having a single conviction of a Swedish company for bribery in the last eight years, for having unreasonably low fines, and for not re-framing their legal system so that a corporation could be charged with a crime.  Swedish officials object to the review, claiming that lack of convictions is not proof of prosecutorial indifference, but rather indicative of high standards of ethics in Swedish companies.  Over the last four years, two high-profile cases have involved Swedish companies. Telia Company’s operations in Uzbekistan received considerable public attention and cost the CEO and other senior officials their jobs.  Telia Company was in the process of divesting its operations in Uzbekistan following a probe by the U.S. Department of Justice (DOJ) pertaining to illegal payments.  In September 2017, Telia Company reached an agreement to pay $965.8 million to settle U.S. and European criminal and civil charges that the company had paid bribes to win business in Uzbekistan.  In December 2019, Ericsson reached an agreement with the Department of Justice to pay more than $1 billion to resolve a foreign corrupt practices case which involved bribing government officials, falsifying books and records, and failing to implement reasonable internal accounting controls.  The resolutions covered criminal conduct in Djibouti, China, Vietnam, Indonesia, and Kuwait. Ericsson also entered into a three-year Deferred Prosecution Agreement (DPA) with the DOJ. As part of this resolution, Ericsson agreed to engage an independent compliance monitor for three years. The monitor’s main responsibilities include reviewing Ericsson’s compliance with the terms of the settlement and evaluating Ericsson’s progress in implementing and operating its enhanced compliance program and accompanying controls as well as providing recommendations for improvements.

Sweden does not have a specific agency devoted exclusively to anti-corruption, but a number of agencies cooperate together.  A list of Sweden’s Public and Private Anti-Corruption Initiatives can be found at https://www.ganintegrity.com/portal/country-profiles/sweden.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Sweden has signed and ratified the UN Anticorruption Convention (see list of signatories at http://www.unodc.org/unodc/en/treaties/CAC/signatories.html).

Sweden is party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (see list of signatories and their implementation reports at http://www.oecd.org/daf/anti-bribery/countryreportsontheimplementationoftheoecdanti-briberyconvention.htm).

Resources to Report Corruption

The National Anti-Corruption Group at the Swedish Police, Nationella anti-korruptionsgruppen, handles the investigation of corruption offenses and is engaged in prevention efforts.  Corruption claims can be reported to the Group by calling +46 114 14.

Watchdog organization:

Transparency International Sweden
Telephone: + 46 (0)72 74 45 558
E-mail address: info@transparency.se
www.transparency.se

Sweden is politically stable and no changes are expected.

Sweden’s labor force of 5.5 million is disciplined, well educated, and highly skilled.  Approximately 68 percent of the Swedish labor force is unionized, although membership is declining.  Swedish unions have helped to implement business restructuring to remain competitive, and strongly favor employee education and technical advancements.  Management- labor cooperation is generally excellent and non-confrontational.  The National Mediation Office, which mediates labor disputes in Sweden, reported in its summary findings for 2020 that no working day was lost due to a strike in Sweden in 2020.

Foreign/migrant workers are covered by Swedish and EU labor laws.  Labor laws are not waived in order to attract or retain investment.  In general, there is no government policy that requires the hiring of nationals.

Sweden has a Co-determination at Work Act, which provides for labor representation on the boards of corporate directors once a company has reached more than 25 employees.  This law also requires management to negotiate with the appropriate union, or unions prior to implementing certain major changes in company activities.  It calls for a company to furnish information on many aspects of its economic status to labor representatives.  Labor and management usually find this system works to their mutual benefit.  The Co-determination at Work Act and the Employment Protection Act together set the rules for the adjustment employment to respond to fluctuating market conditions.  Severances and layoffs are based on seniority and are conducted in consultation with unions.  Unemployment insurance and other social safety net programs are available for workers laid off for economic reasons.  Government-sponsored training programs to facilitate the transition for unemployed persons into areas reporting labor shortages are available, but their scope is targeted.

The cost of doing business in Sweden is generally comparable to most OECD countries, though some country-specific cost advantages are present.  Overall salary costs have become increasingly competitive due to relatively modest wage increases over the last decade and a favorable exchange rate.  This development is even more pronounced for highly qualified personnel and researchers.

There is no fixed minimum wage by legislation.  Instead, wages are set by collective bargaining by sector.  The traditionally low-wage differential has increased in recent years as a result of increased wage setting flexibility at the company level.  Still, Swedish unskilled employees are relatively well paid, while well-educated Swedish employees are relatively less well paid compared to those in competitor countries.  The average increases in real wages in recent years have been high by historical standards, in large due to price stability.  Even so, nominal wages in recent years have been slightly above those in competitor countries, about 2 percent annually.  Employers must pay social security fees of about 31.5 percent.  The fee consists of statutory contributions for pensions, health insurance, and other social benefits.

Sweden has ratified most International Labor Organization (ILO) conventions dealing with worker’s rights, freedom of association, collective bargaining, and the major working conditions and occupational safety and health conventions.  More information on Sweden’s labor agreements and legislation in English can be found on the Swedish Trade Union Confederation’s website at http://www.lo.se/english/startpage.  There are no new labor related laws or regulations enacted during the last year, as well as any pending draft bills.

Sweden is a member of the European Union (EU).  The EU impacts Sweden’s trade relationship with the United States in that the EU has a common trade policy for all member countries.

* Source for Host Country Data: Statistics Sweden (SCB).

Economic Unit
U.S. Embassy Stockholm
Dag Hammarskjölds Väg 31
115 89 Stockholm, Sweden
+46 (0)8 783 5309 
StockholmICS@state.gov

U.S. Commercial Service
U.S. Embassy Stockholm
Dag Hammarskjölds Väg 31
115 89 Stockholm, Sweden
www.export.gov/sweden
office.stockholm@trade.gov