Policies Towards Foreign Direct Investment

Cambodia has a liberal foreign investment regime and actively courts FDI. The primary law governing investment is the 1994 Law on Investment. The government permits 100 percent foreign ownership of companies in most sectors. In a handful of sectors, such as cigarette manufacturing, movie production, rice milling, and gemstone mining and processing, foreign investment is subject to local equity participation or prior authorization from authorities.  While there is little or no official legal discrimination against foreign investors, some foreign businesses report disadvantages vis-a-vis Cambodian or other foreign rivals that engage in acts of corruption or tax evasion or take advantage of Cambodia’s weak regulatory environment.

The Council for the Development of Cambodia (CDC) is the principal government agency responsible for providing incentives to stimulate investment. Investors are required to submit an investment proposal to either the CDC or the Provincial-Municipal Investment Sub-committee to obtain a Qualified Investment Project (QIP) status depending on capital level and location of the investment question.  QIPs are then eligible for specific investment incentives.

The CDC also serves as the secretariat to Cambodia’s Government-Private Sector Forum (G-PSF), a public-private consultation mechanism that facilitates dialogue within and among 10 government/private sector working groups. More information about investment and investment incentives in Cambodia may be found at: www.cambodiainvestment.gov.kh.

Cambodia has created special economic zones (SEZs) to further facilitate foreign investment. As of April 2021, there are 23 SEZs in Cambodia.  These zones provide companies with access to land, infrastructure, and services to facilitate the set-up and operation of businesses. Services provided include utilities, tax services, customs clearance, and other administrative services designed to support import-export processes. Cambodia offers incentives to projects within the SEZs such as tax holidays, zero rate VAT, and import duty exemptions for raw materials, machinery, and equipment. The primary authority responsible for Cambodia’s SEZs is the Cambodia Special Economic Zone Board (CSEZB). The largest of its SEZs is in Sihanoukville and hosts primarily Chinese companies.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are few limitations on foreign control and ownership of business enterprises in Cambodia. Foreign investors may own 100 percent of investment projects except in the sectors mentioned Section 1. According to Cambodia’s 2003 Amended Law on Investment and related sub-decrees, there are no limitations based on shareholder nationality or discrimination against foreign investors except in relation to investments in property or state-owned enterprises. For property, both the Law on Investment and the 2003 Amended Law state that the majority of interest in land must be held by one or more Cambodian citizens.  For state-owned enterprises, the Law on Public Enterprise provides that the Cambodian government must directly or indirectly hold more than 51 percent of the capital or the right to vote in state-owned enterprises.

Another limitation concerns the employment of foreigners in Cambodia. A QIP allows employers to obtain visas and work permits for foreign citizens as skilled workers, but the employer may be required to prove to the Ministry of Labor and Vocational Training that the skillset is not available in Cambodia. The Cambodian Bar has periodically taken actions to restrict or impede the work of foreign lawyers or foreign law firms in the country.

Other Investment Policy Reviews

The OECD conducted an Investment Policy Review of Cambodia in 2018. The report may be found at this  link .

The World Trade Organization (WTO) last reviewed Cambodia’s trade policies in 2017; the first review was done in 2011.  The 2017 report can be found at this link .

Business Facilitation

All businesses are required to register with the Ministry of Commerce (MOC) and the General Department of Taxation (GDT).  Registration with MOC is possible through an online business registration portal ( link ) that allows all existing and new businesses to register.  Depending on the types of business activity, new businesses may also be required to register with other relevant ministries.  For example, travel agencies must also register with the Ministry of Tourism, and private universities must also register with the Ministry of Education, Youth, and Sport.  The GDT also has an online portal for tax registration and other services, which can be located here .

The World Bank’s 2020 Ease of Doing Business Report ranks Cambodia 144 of 190 countries globally for the ease of starting a business. The report notes that it takes nine separate procedures and three months or more to complete all business, tax, and employment registration processes.

Outward Investment

There are no restrictions on Cambodian citizens investing abroad. Some Cambodian companies have invested in neighboring countries – notably, Thailand, Laos, and Myanmar.

Transparency of the Regulatory System

In general, Cambodia’s regulatory system, while improving, still lacks transparency. This is the result of the lack of legislation and the limited capacity of key institutions, which is further exacerbated by a weak court system. Investors often complain that the decisions of Cambodian regulatory agencies are inconsistent, arbitrary, or influenced by corruption. For example, in May 2016, in what was perceived as a populist move, the government set caps on retail fuel prices, with little consultation with petroleum companies.  In April 2017, the National Bank of Cambodia introduced an interest rate cap on loans provided by the microfinance industry with no consultation with relevant stakeholders. More recently, investors have regularly expressed concern over draft legislation that has not been subject to stakeholder consultations.

Cambodian ministries and regulatory agencies are not legally obligated to publish the text of proposed regulations before their enactment. Draft regulations are only selectively and inconsistently available for public consultation with relevant non-governmental organizations (NGOs), private sector, or other parties before their enactment. Approved or passed laws are available on websites of some ministries but are not always up to date. The Council of Jurists, the government body that reviews laws and regulations, publishes a list of updated laws and regulations on its website.

International Regulatory Considerations

As a member of ASEAN since 1999, Cambodia is required to comply with certain rules and regulations regarding free trade agreements with the 10 ASEAN member states. These include tariff-free importation of information and communication technology (ICT) equipment, harmonizing custom coding, harmonizing the medical device market, as well as compliance with tax regulations on multi-activity businesses, among others.

As a WTO member, Cambodia has both drafted and modified laws and regulations to comply with WTO rules. Relevant laws and regulations are notified to the WTO legal committee only after their adoption. A list of Cambodian legal updates in compliance with the WTO is described in the above section regarding Investment Policy Reviews.

Legal System and Judicial Independence

Although the Cambodian Constitution calls for an independent judiciary, both local and foreign businesses report problems with inconsistent judicial rulings, corruption, and difficulty enforcing judgments. For these reasons, many commercial disputes are resolved through negotiations facilitated by the Ministry of Commerce, the Council for the Development of Cambodia, the Cambodian Chamber of Commerce, and other institutions. Foreign investors often build into their contracts clauses that dictate that investment disputes must be resolved in a third country, such as Singapore.

The Cambodian legal system is primarily based on French civil law. Under the 1993 Constitution, the King is the head of state and the elected Prime Minister is the head of government. Legislative power is vested in a bicameral parliament, while the judiciary makes up the third branch of government. Contractual enforcement is governed by Decree Number 38 D Referring to Contract and Other Liabilities. More information on this decree can be found at this link .

Laws and Regulations on Foreign Direct Investment

Cambodia’s 1994 Law on Investment created an investment licensing system to regulate the approval process for FDI and provide incentives to potential investors. In 2003, the government amended the law to simplify licensing and increase transparency (Amended Law on Investment). Sub-decree No. 111 (2005) lays out detailed procedures for registering a QIP, which is entitled to certain taxation incentives, with the CDC and provincial/municipal investment subcommittees.

Information about investment and investment incentives in Cambodia may be found on the CDC’s website .

Competition and Anti-Trust Laws

A draft antitrust and competition law is reportedly near completion. Once enacted, it will be enforced by Cambodia’s Import-Export Inspection and Fraud Repression Directorate-General (CAMCONTROL). Cambodia enacted a Law on Consumer Protection in November 2019, but it has not been fully implemented as of April 2021.

Expropriation and Compensation

Land rights are a contentious issue in Cambodia, complicated by the fact that most property holders do not have legal documentation of their ownership because of the policies and social upheaval during Khmer Rouge era in the 1970s. Numerous cases have been reported of influential individuals or groups acquiring land titles or concessions through political and/or financial connections and then using force to displace communities to make way for commercial enterprises.

In late 2009, the National Assembly approved the Law on Expropriation, which sets broad guidelines on land-taking procedures for public interest purposes. It defines public interest activities to include construction, rehabilitation, preservation, or expansion of infrastructure  projects, and development of buildings for national defense and civil security. These provisions include construction of border crossing posts, facilities for research and exploitation of natural resources, and oil pipeline and gas networks. Property can also be expropriated for natural disasters and emergencies, as determined by the government. Legal procedures regarding compensation and appeals are expected to be established in a forthcoming sub-decree, which is under internal discussion within the technical team of the Ministry of Economy and Finance.

The government has shown willingness to use tax issues for political purposes. For instance, in 2017, a U.S.-owned independent newspaper had its bank account frozen purportedly for failure to pay taxes. It is believed that, while the company may have had some tax liability, the action taken by the General Department of Taxation, notably an inflated tax assessment, was politically motivated and intended to halt operations. These actions took place at the same time the government took steps to reduce the role of press and independent media in the country as part of a wider anti-democratic crackdown.

Dispute Settlement

ICSID Convention and New York Convention

Cambodia has been a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) since 2005. Cambodia is also a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) since 1960.

Investor-State Dispute Settlement

International arbitration is available for Cambodian commercial disputes. In March 2014, the Supreme Court of Cambodia upheld the decision of the Cambodian Court of Appeal, which had ruled in favor of the recognition and enforcement of an arbitral award issued by the Korean Commercial Arbitration Board of Seoul, South Korea. Cambodia became a member of the World Bank’s International Center for Settlement of Investment Disputes in January 2005.  In 2009, the International Center approved a U.S. investor’s request for arbitration in a case against the Cambodian government, and in 2013, the tribunal rendered an award in favor of Cambodia.

International Commercial Arbitration and Foreign Courts

Commercial disputes can also be resolved through the National Commercial Arbitration Center (NCAC), Cambodia’s first alternative dispute resolution mechanism, which was officially launched in March 2013. Arbitral awards issued by foreign arbitrations are admissible in the Cambodian court system. An example can be drawn from its recognition and enforcement of the arbitral award issued by the Korean Commercial Arbitration Board in 2014.

Bankruptcy Regulations

Cambodia’s 2007 Law on Insolvency was intended to provide collective, orderly, and fair satisfaction of creditor claims from debtor properties and, where appropriate, the rehabilitation of the debtor’s business. The law applies to the assets of all businesspeople and legal entities in Cambodia. The World Bank’s 2020 Doing Business Report ranks Cambodia 82 out of 190 countries in terms of the “ease of resolving insolvency.”

In 2012, Credit Bureau Cambodia (CBC) was established in an effort to create a more transparent credit market in the country. CBC’s main role is to provide credit scores to banks and financial institutions and to improve access to credit information.

Investment Incentives

Cambodia’s Law on Investment and Amended Law on Investment offers varying types of investment incentives for projects that meet specified criteria. Investors seeking an incentive – for examples, incentives as part of a QIP – must submit an application to the CDC. Investors who wish to apply are required to pay an application fee of KHR 7 million (approximately USD1,750), which covers securing necessary approvals, authorizations, licenses, or registrations from all relevant ministries and entities, including stamp duties. The CDC is required to seek approval from the Council of Ministers for investment proposals that involve capital of USD50 million or more, politically sensitive issues, the exploration and exploitation of mineral or natural resources, or infrastructure concessions. The CDC is also required to seek approval for investment proposals that will have a negative impact on the environment or the government’s long-term strategy.

QIPs are entitled to receive different incentives such as corporate tax holidays; special depreciation allowances; and import tax exemptions on production equipment, construction materials, and production inputs used to produce exports. Investment projects located in designated special promotion zones or export-processing zones are also entitled to the same incentives. Industry-specific investment incentives, such as three-year profit tax exemptions, may be available in the agriculture and agro-industry sectors. More information about the criteria and investment areas eligible for incentives can be found at the following link .

Foreign Trade Zones/Free Ports/Trade Facilitation

To facilitate the country’s development, the Cambodian government has shown great interest in increasing exports via geographically defined special economic zones (SEZs).  Cambodia is currently drafting a law on Special Economic Zones, which is now undergoing technical review within the CDC. There are currently 23 special SEZs, which are located in Phnom Penh, Koh Kong, Kandal, Kampot, Sihanoukville, and the borders of Thailand and Vietnam. The main investment sectors in these zones include garments, shoes, bicycles, food processing, auto parts, motorcycle assembly, and electrical equipment manufacturing.

Real Property

Mortgages exist in Cambodia and Cambodian banks often require certificates of property ownership as collateral before approving loans. The mortgage recordation system, which is handled by private banks, is generally considered reliable.

Cambodia’s 2001 Land Law provides a framework for real property security and a system for recording titles and ownership. Land titles issued prior to the end of the Khmer Rouge regime (1975-79) are not recognized due to the severe dislocations that occurred during that period. The government is making efforts to accelerate the issuance of land titles, but in practice, the titling system is cumbersome, expensive, and subject to corruption. Most property owners lack documentation proving ownership. Even where title records exist, recognition of legal titles to land has not been uniform, and there are reports of court cases in which judges have sought additional proof of ownership.

Foreigners are constitutionally forbidden to own land in Cambodia; however, the 2001 Land Law allows long and short-term leases to foreigners. Cambodia also allows foreign ownership in multi-story buildings, such as condominiums, from the second floor up.  Cambodia was ranked 129 out of 190 economies for ease of registering property in the 2020 World Bank Doing Business Report.

Intellectual Property Rights

Infringement of intellectual property rights (IPR) is prevalent in Cambodia. Counterfeit apparel, footwear, cigarettes, alcohol, pharmaceuticals, and consumer goods, and pirated software, music, and books are some of the examples of IPR-infringing goods found in the country.

Though Cambodia is not a major center for the production or export of counterfeit or pirated materials, local businesses report that the problem is growing because of the lack of enforcement. To date, Cambodia has not been listed by the Office of the U.S. Trade Representative (USTR) in its annual Special 301 Report, which identifies trade barriers to U.S. companies due to the IPR environment.

Cambodia has enacted several laws pursuant to its WTO commitments on intellectual property, including the Law on Marks, Trade Names and Acts of Unfair Competition (2002); the Law on Copyrights and Related Rights (2003); the Law on Patents, Utility Models and Industrial Designs (2003); the Law on Management of Seed and Plant Breeder’s Rights (2008); the Law on Geographical Indications (2014); and the Law on Compulsory Licensing for Public Health (2018).

Cambodia has been a member of WIPO since 1995 and has acceded to several international IPR protocols, including the Paris Convention (1998), the Madrid Protocol (2015), the WIPO Patent Cooperation Treaty (2016), The Hague Agreement Concerning the International Registration of Industrial Design (2017), and the Lisbon Agreement on Appellations of Origin and Geographical Indications (2018).

To combat the trade in counterfeit goods, the Cambodian Counter Counterfeit Committee (CCCC) was established in 2014 under the Ministry of Interior to investigate claims, seize illegal goods, and prosecute counterfeiters. The Economic Police, Customs, the Cambodia Import-Export Inspection and Fraud Repression Directorate General, and the Ministry of Commerce also have IPR enforcement responsibilities; however, the division of responsibility among each agency is not clearly defined. This causes confusion to rights owners and muddles the overall IPR environment.  Though there has been an increase in the number of seizures of counterfeit goods in recent years, in general such actions are not taken unless a formal complaint is made.

In October 2020, the U.S. Patent and Trademark Office concluded a memorandum of understanding (MOU) with Cambodia on accelerated patent recognition, creating a simplified procedure for U.S. patents to be registered in Cambodia.

For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at this link .

Capital Markets and Portfolio Investment

In a move designed to address the need for capital markets in Cambodia, the Cambodia Securities Exchange (CSX) was founded in 2011 and started trading in 2012. Though the CSX is one of the world’s smallest securities markets, it has taken steps to increase the number of listed companies, including attracting SMEs. At the end of 2020, market capitalization stood at USD2.5 billion and the average daily trading value averages USD150,000. The CSX currently has seven listed companies: the Phnom Penh Water Supply Authority; Taiwanese garment manufacturer Grand Twins International; the Phnom Penh Autonomous Port; the Sihanoukville Autonomous Port; Phnom Penh SEZ Plc; ACLEDA Bank; and Pestech Plc.

In September 2017, the National Bank of Cambodia (NBC) adopted a regulation on Conditions for Banking and Financial Institutions to be listed on the Cambodia Securities Exchange. The regulation sets additional requirements for banks and financial institutions that intend to issue securities to the public. This includes prior approval from the NBC and minimum equity of KHR 60 billion (approximately USD15 million).

Cambodia’s bond market is at the beginning stages of development. The regulatory framework for corporate bonds was bolstered in 2017 through the publication of several regulations covering public offering of debt securities, the accreditation of bondholders’ representatives, and the accreditation of credit rating agencies. The country’s first corporate bond was issued in 2018 by Hattha Kaksekar Limited. Four additional companies have since been added to the bond market: LOLC (Cambodia) Plc.; Advanced Bank of Asia Limited; Phnom Penh Commercial Bank Plc; and RMA (Cambodia) Plc. RMA, which issued its bonds in early 2020, was the first non-bank financial institution to be listed.  There is currently no sovereign bond market, but the government has stated its intention of making government securities available to investors by 2022.

Money and Banking System

The NBC regulates the operations of banking systems in Cambodia. Foreign banks and branches are freely allowed to register and operate in the country. There are 44 commercial banks, 14 specialized banks (set up to finance specific turn-key projects such as real estate development), 74 licensed microfinance institutions (MFIs), and seven licensed microfinance deposit taking institutions in Cambodia. The NBC has also granted licenses to 12 financial leasing companies and one credit bureau company to improve transparency and credit risk management and encourage lending to small- and medium-sized enterprise customers.

Prior to the COVID-19 pandemic, Cambodia’s banking sector experienced strong growth. The banking sector’s assets, including those of MFIs, rose 21.4 percent year-over-year in 2018 to 139.7 trillion riel (USD34.9 billion), while credit grew 24.3 percent to 81.7 trillion riel (USD20.4 billion). Loans and deposits grew 18.3 percent and 24.5 percent respectively, which resulted in a decrease of the loan-to-deposit ration from 114 percent to 110 percent. The ratio of non-performing loans was measured at 1.6 percent in 2019.

The government does not use the regulation of capital markets to restrict foreign investment. Banks have been free to set their own interest rates since 1995, and increased competition  between local institutions has led to a gradual lowering of interest rates from year to year.  However, in April 2017, at the direction of Prime Minister Hun Sen, the NBC capped interest rates on loans offered by MFIs at 18 percent per annum. The move was designed to protect borrowers, many of whom are poor and uneducated, from excessive interest rates.

In March 2016, the NBC doubled the minimum capital reserve requirement for banks to USD75 million for commercial banks and USD15 million for specialized banks. Based on the new regulations, deposit-taking microfinance institutions now have a USD30 million reserve requirement, while traditional microfinance institutions have a USD1.5 million reserve requirement.

In March 2020, the NBC issued several regulations to ensure liquidity and promote lending amid the COVID-19 pandemic. They include: (1) delaying the implementation of Conservation Capital Buffer (CCB) for financial institutions; (2) reducing the minimum interest rate of Liquidity-Providing Collateralized Operations (LPCO); (3) reducing the interest rates of Negotiable Certificate of Deposit (NCD); (4) reducing the reserve requirement rate (RRR) from 8 percent (KHR) and 12.5 percent (USD) to 7 percent (KHR and USD) for 6 months starting from April 2020; and (5) reducing the liquidity coverage ratio.  The NBC also requested financial institutions to delay dividend payouts in order to preserve financial sector liquidity. The government has also encouraged banks to continue restructuring loans to help avoid defaults. In late 2020, the government announced that businesses in the garment and footwear, tourism, and aviation sectors would continue to receive tax incentives in 2021. In addition, financial institutions’ borrowings from both local and foreign sources will benefit from reduced tax withholdings in 2021.

Financial technology (Fintech) in Cambodia is still at early stage of development. Available technologies include mobile payments, QR codes, and e-wallet accounts for domestic and cross-border payments and transfers. In 2012, the NBC launched retail payments for cheques and credit remittances. A “Fast and Secure Transfer” (FAST) payment system was introduced in 2016 to facilitate instant fund transfers. The Cambodian Shared Switch (CSS) system was launched in October 2017 to facilitate the access to network automated teller machines (ATMs) and point of sale (POS) machines.

In February 2019, the Financial Action Task Force (FATF), an international intergovernmental organization whose purpose is to develop policies to combat money laundering, cited Cambodia for being “deficient” with regard to its anti-money laundering and countering financing of terrorism (AML/CFT) controls and policies and included Cambodia on its “grey list.”  The government committed to working with FATF to address these deficiencies through a jointly developed action plan, although progress to date has not been sufficient and Cambodia remains on the grey list in 2021. Should Cambodia not take appropriate action, FATF could move it to the “black list,” which could negatively impact the cost of capital as well as the banking sector’s ability to access international capital markets.

Foreign Exchange and Remittances

Foreign Exchange

Though Cambodia has its own currency, the riel (denoted as KHR), U.S. dollars are in wide circulation in Cambodia and remain the primary currency for most large transactions. There are no restrictions on the conversion of capital for investors.

Cambodia’s 1997 Law on Foreign Exchange states that there shall be no restrictions on foreign exchange operations through authorized banks. Authorized banks are required, however, to report the amount of any transfer equaling or exceeding USD100,000 to the NBC on a regular basis.

Loans and borrowings, including trade credits, are freely contracted between residents and nonresidents, provided that loan disbursements and repayments are made through an authorized intermediary. There are no restrictions on the establishment of foreign currency bank accounts in Cambodia for residents.

The exchange rate between the riel and the U.S. dollar is governed by a managed float and has been stable at around one U.S. dollar to KHR 4,000 for the past several years.  Daily fluctuations of the exchange rate are low, typically under three percent.  The Cambodian government has taken steps to increase general usage of the riel, including phasing out in June 2020 the circulation of small-denominated U.S. dollar bills; however, the country’s economy remains largely dollarized.

Remittance Policies

Article 11 of Cambodia’s 2003 Amended Law on Investment states that QIPs can freely remit abroad foreign currencies purchased through authorized banks for the discharge of financial obligations incurred in connection with investments. These financial obligations include payment for imports and repayment of principal and interest on international loans; payment of royalties and management fees; remittance of profits; and repatriation of invested capital in case of dissolution.

Sovereign Wealth Funds

Cambodia does not have a sovereign wealth fund.

Cambodia currently has 15 state-owned enterprises (SOEs):  Electricite du Cambodge; Sihanoukville Autonomous Port; Telecom Cambodia; Cambodia Shipping Agency; Cambodia Postal Services; Rural Development Bank; Green Trade Company; Printing House; Siem Reap Water Supply Authority; Construction and Public Work Lab; Phnom Penh Water Supply Authority; Phnom Penh Autonomous Port; Kampuchea Ry Insurance; Cambodia Life Insurance; and the Cambodia Securities Exchange.

In accordance with the Law on General Stature of Public Enterprises, there are two types of commercial SOEs in Cambodia: one that is 100 percent owned by the state; and another that is a joint-venture in which a majority of capital is owned by the state and a minority is owned by private investors.

Each SOE is under the supervision of a line ministry or government institution and is overseen by a board of directors drawn from among senior government officials. Private enterprises are generally allowed to compete with state-owned enterprises under equal terms and conditions.  SOEs are also subject to the same taxes and value-added tax rebate policies as private-sector enterprises. SOEs are covered under the law on public procurement, which was promulgated in January 2012, and their financial reports are audited by the appropriate line ministry, the Ministry of Economy and Finance, and the National Audit Authority.

Privatization Program

There are no ongoing privatization programs, nor has the government announced any plans to privatize existing SOEs.

There is a small, but growing awareness of responsible business conduct (RBC) and corporate social responsibility (CSR) among businesses in Cambodia despite the fact that the government does not have explicit policies to promote them. RBC and CSR programs are most commonly found at larger and multinational companies in the country. U.S. companies, for example, have implemented a wide range of CSR activities to promote skills training, the environment, general health and well-being, and financial education. These programs have been warmly received by both the public and the government.

A number of economic land concessions in Cambodia have led to high profile land rights cases. The Cambodian government has recognized the problem, but in general, has not effectively and fairly resolved land rights claims. The Cambodian government does not have a national contact point for Organization for Economic Cooperation and Development (OECD) multinational enterprises guidelines and does not participate in the Extractive Industries Transparency Initiative.

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.

Corruption remains a significant issue in Cambodia. In its Global Competitiveness Report 2019, the World Economic Forum ranked Cambodia 134th out of 141 countries for incidence of corruption. Transparency International’s 2020 Corruption Perception index ranked Cambodia 160 of 180 countries globally, the lowest ranking among ASEAN member states.

Those engaged in business have identified corruption, particularly within the judiciary, customs services, and tax authorities, as one of the greatest deterrents to investment in Cambodia. Foreign investors from countries that overlook or encourage bribery have significant advantages over foreign investors from countries that criminalize such activity.

Cambodia adopted an Anti-Corruption Law in 2010 to combat corruption by criminalizing bribery, abuse of office, extortion, facilitation payments, and accepting bribes in the form of  donations or promises. Under the law, all civil servants must also declare their financial assets to the government every two years. Cambodia’s Anti-Corruption Unit (ACU), established the same year, has investigative powers and a mandate to provide education and training to government institutions and the public on anti-corruption compliance. Since its formation, the ACU has launched a few high-profile prosecutions against public officials, including members of the police and judiciary, and has tackled the issue of ghost workers in the government, in which salaries are collected for non-existent employees.

The ACU, in collaboration with the private sector, has also established guidelines encouraging companies to create internal codes of conduct prohibiting bribery and corrupt practices. Companies can sign an MOU with the ACU pledging to operate corruption-free and to cooperate on anti-corruption efforts. Since the program started in 2015, more than 80 private companies have signed an MOU with the ACU. In 2018, the ACU completed a first draft of a code of conduct for public officials, which has not yet been finalized.

Despite the passage of the Anti-Corruption Law and creation of the ACU, enforcement remains weak. Local and foreign businesses report that they must often make informal payments to expedite business transactions. Since 2013, Cambodia has published the official fees for public services, but the practice of paying additional fees remains common.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Cambodia ratified the UN Convention against Corruption in 2007 and endorsed the Action Plan of the Asian Development Bank / OECD Anti-Corruption Initiative for Asia and the Pacific in 2003. Cambodia is not a party to the OECD Convention on Combating Bribery.

Resources to Report Corruption

Om Yentieng President, Anti-Corruption Unit
No. 54, Preah Norodom Blvd, Sangkat Phsar Thmey 3, Khan Daun Penh, Phnom Penh
Telephone: +855-23-223-954
Email: info@acu.gov.kh

Transparency International Cambodia  #13 Street 554, Phnom Penh
Telephone: +855-23-214430
Email: info@ticambodia.org  10. Political and Security Environment

Foreign companies have been the targets of violent protests in the past, such as the 2003 anti-Thai riots against the Embassy of Thailand and Thai-owned commercial establishments. There were reports that Vietnamese-owned establishments were looted during a January 2014 labor protest. Authorities have also used force, including truncheons, electric cattle prods, fire hoses, and even gunfire, to disperse protestors. Incidents of violence directed at businesses, however, are rare. The Embassy is unaware of any incidents of political violence directed at U.S. or other non-regional interests.

Nevertheless, political tensions remain. After relatively competitive communal elections in June 2017, where Cambodia’s opposition party won 43 percent of available seats, the government banned the opposition party and imprisoned its leader on charges of treason. With no meaningful opposition, the Cambodian People’s Party (CPP) swept the 2018 national elections, winning all 125 parliamentary seats. The government has also taken steps to limit free speech and stifle independent media, including forcing independent news outlets and radio stations to cease operations. While there are few overt signs the country is growing less secure today, the possibility for insecurity exists going forward, particularly if COVID-driven economic problems persist and if a large percentage of the population remains disenfranchised.  11. Labor Policies and Practices

The COVID-19 pandemic has had a significant impact on Cambodia’s labor sector. In particular, Cambodia’s garment and manufacturing sector, which is heavily reliant on global supply chains for inputs and on demand from the United States and Europe, experienced severe disruptions due to COVID-19. The Asian Development Bank estimates that roughly half of Cambodia’s approximately 1 million factory workers experienced some period of furlough in 2020. In addition, approximately 126,000 of Cambodia’s 1.3 million migrant workers returned from abroad (mostly from Thailand) due to COVID-related job losses.

Cambodia’s labor force numbers about 10 million people. A small number of Vietnamese and Thai migrant workers are employed in Cambodia, and – prior to the pandemic – Chinese-run infrastructure and other businesses imported an increasing number of Chinese laborers, who typically earn more than their Cambodian counterparts.

Given the severe disruption to the Cambodian education system and loss of skilled Cambodians during the 1975-1979 Khmer Rouge period, there are few Cambodian workers with higher education or specialized skills. Around 65 percent of the population is under the age of 30. The United Nations estimates that around 300,000 new job seekers enter the labor market each year. The agricultural sector employs about 40 percent of the labor force. Some 37 percent of the non-agricultural workforce, or 2.2 million workers, are in the informal economy.

Cambodia’s 2016 Trade Union Law (TUL) erects barriers to freedom of association and the rights to organize and bargain freely. The ILO has stated publicly that the law could hinder Cambodia’s obligations to international labor conventions 87 and 98. To address those concerns, Cambodia passed an amended TUL in early 2020, but the amended law does not fully address ILO, NGO, and union concerns about the law’s curbs on freedom of association. In addition, Cambodia has only implemented and enforced a minimum wage in the export garment and footwear sectors.

Unresolved labor disputes are mediated first on the shop-room floor, after which they are brought to the Ministry of Labor and Vocational Training. If reconciliation fails, then the cases may be brought to the Arbitration Council, an independent state body that interprets labor regulations in collective disputes, such as when multiple employees are dismissed. Since the 2016 Trade Union Law went into force, Arbitration Council cases have decreased from over 30 per month to fewer than five, although that number began to increase again in 2019 due to regulatory changes.  12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

There has been a surge in FDI inflows to Cambodia in recent years. Though FDI goes primarily to infrastructure, including commercial and residential real estate projects, it has also recently favored investments in manufacturing and agro-processing. Cambodia reports its FDI at USD4.1 billion in 2020 in terms of fixed assets and registered capital.

Investment into Cambodia is dominated by China, and the level of investment from China has surged especially the last five years. Cambodia reports that its stock of FDI from China reached USD19.5 billion by the end of 2020. Other major sources of FDIs in Cambodia include the United Kingdom (USD4 billion), Malaysia (USD4.4 billion), and Korea (USD5.4 billion), through 2020.

* Source for Host Country Data: The Council for the Development of Cambodia (CDC) provides official government data on investment in Cambodia, but not all data is published online. See: www.cambodiainvestment.gov.kh/why-invest-in-cambodia/investment-enviroment/investment-trend.html 

Data retrieved from IMF’s Coordinated Direct Investment Survey database presents a much different picture of FDI into Cambodia as compared to that provided by the Cambodian government. For example, the Council for Development of Cambodia reports USD38.5 billion stock FDI in term of fixed asset through year-end 2018, while the IMF reports only USD23 billion.

FDI has historically played an essential role in China’s economic development. Chinese government officials have prioritized promoting relatively friendly FDI policies promising market access expansion and non-discriminatory, “national treatment” for foreign enterprises through general improvements to the business environment.  They also have made efforts to strengthen China’s regulatory framework to enhance broader market-based competition.

In 2020, China issued an updated nationwide “negative list” that made some modest openings to foreign investment, most notably in the financial sector, and promised future improvements to the investment climate through the implementation of China’s new FIL.  MOFCOM reported FDI flows grew by 4.5 percent year-on-year, reaching USD144 billion.  In 2020, U.S. businesses expressed concern over China’s COVID-19 restrictive travel restrictions, excessive cyber security and personal data-related requirements, increased emphasis on the role of CCP cells in foreign enterprises, and an unreliable legal system.  See the following: HYPERLINK “https://www.amchamchina.org/white_paper/2020-american-business-in-china-white-paper/” t “_blank” American Chamber of Commerce China 2020 American Business in China White Paper

• American Chamber of Commerce China 2020 American Business in China White Paper
• American Chamber of Commerce China 2020 Business Climate Survey

Limits on Foreign Control and Right to Private Ownership and Establishment

Entry into the Chinese market is regulated by the country’s “negative lists,” which identify the sectors in which foreign investment is restricted or prohibited, and a catalogue for encouraged foreign investment, which identifies the sectors in which the government encourages investment.

• (the “FTZ Negative List”) used in China’s 20 FTZs and one free trade port.
• (̈the “Nationwide Negative List”) came into effect on June 23, 2020.
•  released on December 27, 2020.  The PRC uses this list to encourage FDI inflows to key sectors, in particular semiconductors and other high-tech industries, to help China achieve MIC 2025 objectives.
• The “Encouraged list” is subdivided into a cross-sector nationwide catalogue and a separate catalogue for western and central regions, China’s least developed regions.

MOFCOM and NDRC also released on September 16 the annual  Market Access Negative List  to guide FDI. This negative list – unlike the previous lists that apply only to foreign investors – defines prohibitions and restrictions for all investors, foreign and domestic.  Launched in 2016, this list highlights what economic sectors are only open to state-owned investors.  In restricted industries, foreign investors face equity caps or joint venture requirements to ensure control is maintained by a Chinese national and enterprise.  Due to these requirements, foreign investors often feel compelled to enter into partnerships that require transfer of technology in order to participate in China’s market.  Foreign investors report fearing government retaliation if they publicly raise instances of technology coercion.

Below are a few examples of industries where these sorts of investment restrictions apply:

• Preschool to higher education institutes require a Chinese partner with a dominant role.
• Establishment of medical institutions require a Chinese JV partner.

Examples of foreign investment sectors requiring Chinese control include:

• Selective breeding and seed production for new varieties of wheat and corn.
• Basic telecommunication services and radio/television market research.

The 2020 negative lists made minor modifications to some industries, reducing the number of restrictions and prohibitions from 40 to 33 in the nationwide negative list, and from 37 to 30 in China’s pilot FTZs. Notable changes included openings in the services sector, yet most of these openings had previously been announced in 2019. In the service sector, the lists codified the removal of equity caps in financial services, eliminated requirements for investing in water and sewage systems for any city of half a million residents or fewer, and scrapped the ban on foreign investment in air traffic control.  While U.S. businesses welcomed market openings, foreign investors remained underwhelmed and disappointed by Chinese government’s lack of ambition and refusal to provide more significant liberalization.  Foreign investors noted these announced measures occurred mainly in industries that domestic Chinese companies already dominate.

Other Investment Policy Reviews

China is not a member of the Organization for Economic Co-Operation and Development (OECD), but the OECD Council established a country program of dialogue and co-operation with China in October 1995.  The OECD completed its most recent investment policy review for China in 2008 and published an update in 2013.

China’s 2001 accession to the World Trade Organization (WTO) boosted China’s economic growth and advanced its legal and governmental reforms.  The WTO completed its most recent investment trade review for China in 2018, highlighting that China remains a major destination for FDI inflows and a key market for multinational companies.

In 2020, China improved its rating in the World Bank’s Ease of Doing Business Survey to 31st place out of 190 economies.  This was partly due to regulatory reforms that helped streamline some business processes. This ranking does not account, however, for major challenges U.S. businesses face in China like IPR violations and market access.  Moreover, China’s ranking is based on data limited only to the business environments in Beijing and Shanghai.    HYPERLINK “https://www.doingbusiness.org/en/rankings?region=east-asia-and-pacific” t “_blank” World Bank Ease of Doing Business

• World Bank Ease of Doing Business

Created in 2018, the State Administration for Market Regulation (SAMR) is now responsible for business registration processes.  Under SAMR’s registration system, investors in sectors outside of the Foreign Negative List are required to report when they (1) establish a Foreign Invested Enterprise (FIE); (2) establish a representative office in China; (3) acquire stocks, shares, assets or other similar equity of a domestic Chinese company; (4) re-invest and establish subsidiaries in China; and (5) invest in new projects.  While an improvement relative to previous requirements for similar activities to require regulatory approval, foreign companies still complain about continued challenges when setting up a business relative to their Chinese competitors. Many companies offer consulting, legal, and accounting services for establishing operations in China. Investors should review their options carefully with an experienced advisor before investing.

 Outward Investment

Since 2001, China has pursued a “going-out” investment policy.  At first, the PRC mainly encouraged SOEs to invest overseas but in recent years, China’s overseas investments have diversified with both state and private enterprises investing in nearly all industries and economic sectors.  While China remains a major global investor, total outbound direct investment (ODI) flows fell 4.3 percent year-on-year in 2019 to USD136.9 billion, according to 2019 Statistical Bulletin of China’s Outward Foreign Director Investment .

The Chinese government also created “encouraged,” “restricted,” and “prohibited” outbound investment categories to suppress significant capital outflow pressure in 2016 and to guide Chinese investors into “more” strategic sectors. While the Sensitive Industrial-Specified Catalogue of 2018  restricted Chinese outbound investment in sectors like property, cinemas, sports teams and non-entity investment platforms, they encouraged outbound investment in sectors that supported China’s industrial policy by acquiring advanced manufacturing and high-tech assets.  Chinese firms involved in MIC 2025 sectors often receive preferential government financing and subsidies for outbound investment.  The guidance also encourages investments that promoted China’s Belt and Road Initiative (BRI), which seeks to create cooperation agreements with other countries via infrastructure investment, construction projects, etc.

Transparency of the Regulatory System

One of China’s WTO accession commitments was to establish an official journal dedicated to the publication of laws, regulations, and other measures pertaining to or affecting trade in goods, services, trade related aspects of intellectual property rights (TRIPS), and the control of foreign exchange.  Despite mandatory 30-day public comment periods, Chinese ministries continue to post only some draft administrative regulations and departmental rules online, often with a public comment period of less than 30 days. As part of the Phase One Agreement, China committed to providing at least 45 days for public comment on all proposed laws, regulations, and other measures implementing the Phase One Agreement. While China has made some progress, U.S. businesses operating in China consistently cite arbitrary legal enforcement and the lack of regulatory transparency among the top challenges of doing business in China.

In China’s state-dominated economic system, the relationships are often blurred between the CCP, the Chinese government, Chinese business (state- and private-owned), and other Chinese stakeholders.  Foreign-invested enterprises (FIEs) perceive that China prioritizes political goals, industrial policies, and a desire to protect social stability at the expense of foreign investors, fairness, and the rule of law.  The World Bank   Global Indicators of Regulatory Governance gave China a composite score of 1.75 out 5 points, attributing China’s relatively low score to stakeholders not having easily accessible and updated laws and regulations; the lack of impact assessments conducted prior to issuing new laws; and other concerns about transparency.

For accounting standards, Chinese companies use the Chinese Accounting Standards for Business Enterprises (ASBE) for all financial reporting within mainland China. Companies listed overseas or in Hong Kong may choose to use ASBE, the International Financial Reporting Standards, or Hong Kong Financial Reporting Standards.

International Regulatory Considerations

As part of its WTO accession agreement, China agreed to notify the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations.  However, China continues to issue draft technical regulations without proper notification to the TBT Committee.

Legal System and Judicial Independence

The Chinese legal system borrows heavily from continental European legal systems, but with “Chinese characteristics.”  The rules governing commercial activities are found in various laws, regulations, administrative rules, and Supreme People’s Court (SPC) judicial interpretations, among other sources. While China does not have specialized commercial courts, it has created specialized courts and tribunals for the hearing of intellectual property disputes (IP), including in Beijing, Guangzhou, Shanghai, and Hainan.  In 2020, the original IP Courts continued to be popular destinations for both Chinese and foreign-related IP civil and administrative litigation, with the IP court in Shanghai experiencing a year-on-year increase of above 100 percent. China’s constitution and laws, however, are clear that Chinese courts cannot exercise power independent of the Party.  Further, in practice, influential businesses, local governments, and regulators routinely influence courts.  U.S. companies may hesitate in challenging administrative decisions or bringing commercial disputes before local courts due to perceptions of futility or fear of government retaliation.

Laws and Regulations on Foreign Direct Investment

China’s new investment law, the FIL, came into force on January 1, 2020, replacing China’s previous foreign investment framework. The FIL provides a five-year transition period for foreign enterprises established under previous foreign investment laws, after which all foreign enterprises will be subject to the same domestic laws as Chinese companies, such as the Company Law. The FIL standardized the regulatory regimes for foreign investment by including the negative list management system, a foreign investment information reporting system, and a foreign investment security review system all under one document. The FIL also seeks to address foreign investors complaints by explicitly banning forced technology transfers, promising better IPR, and the establishment of a complaint mechanism for investors to report administrative abuses. However, foreign investors remain concerned that the FIL and its implementing regulations provide Chinese ministries and local officials significant regulatory discretion, including the ability to retaliate against foreign companies.

In December 2020, China also issued a revised investment screening mechanism under the Rules on Security Reviews on Foreign Investments without any period for public comment or prior consultation with the business community. Foreign investors complained that China’s new rules on investment screening were expansive in scope, lacked an investment threshold to trigger a review, and included green field investments – unlike most other countries. Moreover, new guidance on Neutralizing Extra-Territorial Application of Unjustified Foreign Legislation Measures, a measure often compared to “blocking statutes” from other markets, added to foreign investors’ concerns over the legal challenges they would face in trying to abide by both their host-country’s regulations and China’s. Foreign investors complained that market access in China was increasingly undermined by national security-related legislation. In 2020, the State Council and various central and local government agencies issued over 1000 substantive administrative regulations and departmental/local rules on foreign investment. While not comprehensive, a list of published and official Chinese laws and regulations is available here .

FDI Requirements for Investment Approvals

Foreign investments in industries and economic sectors that are not explicitly restricted on China’s negative lists do not require MOFCOM pre-approval.  However, investors have complained that in practice, investing in an industry not on the negative list does not guarantee a foreign investor “national treatment,” or treatment no less favorable than treatment accorded to a similarly situated domestic investor.  Foreign investors must still comply with other steps and approvals such as receiving land rights, business licenses, and other necessary permits.  When a foreign investment needs ratification from the NDRC or a local development and reform commission, that administrative body is in charge of assessing the project’s compliance with a panoply of Chinese laws and regulations.  In some cases, NDRC also solicits the opinions of relevant Chinese industrial regulators and consulting agencies acting on behalf of Chinese domestic firms, creating potential conflicts of interest disadvantageous to foreign firms.

The Anti-Monopoly Bureau of the SAMR enforces China’s Anti-Monopoly Law (AML) and oversees competition issues at the central and provincial levels.  The agency reviews mergers and acquisitions, and investigates cartel and other anticompetitive agreements, abuse of a dominant market position, and abuse of administrative powers by government agencies.  SAMR also oversees the Fair Competition Review System (FCRS), which requires government agencies to conduct a review prior to issuing new and revising existing laws, regulations, and guidelines to ensure such measures do not inhibit competition. SAMR issues implementation guidelines and antitrust provisions to fill in gaps in the AML, address new trends in China’s market, and help foster transparency in enforcement. Generally, SAMR has sought public comment on proposed measures, although comment periods are sometimes less than 30 days.

In January 2020, SAMR published draft amendments to the AML for comment, which included, among other changes, stepped-up fines for AML violations and specified the factors to consider in determining whether an undertaking in the Internet sector has a dominant market position, when investigating the undertaking for abuse of market dominance. SAMR also issued four sets of AML guidelines. These guidelines addressed leniency in horizontal monopoly agreements, undertakings’ commitments to resolve Anti-Monopoly cases, the application of AML to the automobile industry, and the application of the AML to intellectual property rights. In February 2021, SAMR published (after public comment) the “Antitrust Guidelines for the Platform Economy.” The Guidelines address monopolistic behaviors of online platforms operating in China, most notably exclusionary agreements and abuses of a dominant market position. Contacts predicted the Guidelines would lead to an uptick in SAMR investigations of online platform behavior, particularly around M&A and variable interest entities.

Foreign companies have expressed concern that the government uses AML enforcement in support of China’s industrial policies, such as promoting national champions, particularly for companies operating in strategic sectors.  The AML explicitly protects the lawful operations of government monopolies in industries that affect the national economy or national security.  U.S. companies have expressed concerns that in SAMR’s consultations with other Chinese agencies when reviewing M&A transactions, those agencies raise concerns not related to antitrust enforcement in order to block, delay, or force transacting parties to comply with preconditions, including technology transfer, in order to receive approval.

Expropriation and Compensation

Chinese law prohibits nationalization of FIEs, except under vaguely specified “special circumstances” where there is a national security or public interest need. Chinese law requires fair compensation for an expropriated foreign investment but does not detail the method used to assess the value of the investment.  The Department of State is not aware of any cases since 1979 in which China has expropriated a U.S. investment, although the Department has notified Congress through the annual 527 Investment Dispute Report of several cases of concern.

Dispute Settlement

ICSID Convention and New York Convention

China is a contracting state to the Convention on the Settlement of Investment Disputes (ICSID Convention) and has ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).  Chinese legislation that provides for enforcement of foreign arbitral awards related to these two Conventions includes the Arbitration Law, the Civil Procedure Law, and other laws with similar provisions that have embraced many of the fundamental principles of the United Nations Commission on International Trade Law’s Model Law on International Commercial Arbitration.

Investor-State Dispute Settlement (ISDS)

Initially, China was disinclined to accept ISDS as a method to resolve investment disputes based on its suspicions of international law and arbitration, as well as its emphasis on state sovereignty. China’s early BITs, such as the 1982 China–Sweden BIT, only included state–state dispute settlement. As China has become a capital exporter under its initiative of “Going Global” and infrastructure investments under BRI, its views on ISDS have shifted to allow foreign investors with unobstructed access to international arbitration to resolve any investment dispute that cannot be amicably settled within six months. Chinese investors did not use ISDS mechanisms until 2007, and the first known ISDS case against China was initiated in 2011 by Malaysian investors. China submitted a proposal on ISDS reform to the United Nations Commission on International Trade Law (UNCITRAL) Working Group III in 2019. Under the proposal, China reaffirmed its commitment to ISDS as an important mechanism for resolving investor-state disputes under public international law. However, it suggested various pathways for ISDS reform, including supporting the study of a permanent appellate body.

International Commercial Arbitration and Foreign Courts

Chinese officials typically urge private parties to resolve commercial disputes through informal mediation.  If formal mediation is necessary, Chinese parties and the authorities typically prefer arbitration to litigation.  Many contract disputes require arbitration by the Beijing-based China International Economic and Trade Arbitration Commission (CIETAC).  Established by the State Council in 1956 under the auspices of the China Council for the Promotion of International Trade (CCPIT), CIETAC is China’s most widely utilized arbitral body for foreign-related disputes.  Some foreign parties have obtained favorable rulings from CIETAC, while others have questioned CIETAC’s fairness and effectiveness.  Besides CIETAC, there are also provincial and municipal arbitration commissions.  A foreign party may also seek arbitration in some instances from an offshore commission.  Foreign companies often encounter challenges in enforcing arbitration decisions issued by Chinese and foreign arbitration bodies.  In these instances, foreign investors may appeal to higher courts.  The Chinese government and judicial bodies do not maintain a public record of investment disputes.  The SPC maintains an annual count of the number of cases involving foreigners but does not provide details about the cases.

In 2018, the SPC established the China International Commercial Court (CICC) to adjudicate international commercial cases, especially cases related to BRI. The CICC has established three locations in Shenzhen, Xi’an, and Suzhou. As of June 2020, the courts have accepted a total of 213 international commercial cases, with most cases filed in Suzhou. Despite its international orientation, CIIC’s 16 judges are all PRC citizens and Mandarin Chinese is the court’s working language. Parties to a dispute before the CICC can only be represented by Chinese law-qualified lawyers, as foreign lawyers do not have a right of audience in Chinese courts; and unlike other international courts, foreign judges are not permitted to be part of the proceedings. Judgments of the CICC, given it is a part of the SPC, cannot be appealed from, but are subject to possible “retrial” under the Civil Procedure Law.

China has bilateral agreements with 27 countries on the recognition and enforcement of foreign court judgments, but not with the United States. Under Chinese law, local courts must prioritize the Party’s needs, China’s laws and other regulatory measures above foreign court judgments.

Bankruptcy Regulations

China introduced formal bankruptcy laws in 2007, under the Enterprise Bankruptcy Law (EBL), which applies to all companies incorporated under Chinese laws and subject to Chinese regulations.  After a decade of heavy borrowing, China’s growth has slowed and forced the government to make needed bankruptcy reforms. China now has more than 90 U.S.-style specialized bankruptcy courts. In 2020 the government added new courts in Nanjing, Suzhou, Jinan, Qingdao and Xiamen.  Court-appointed administrators – law firms and accounting firms that help verify claims, organize creditors’ meetings, list, and sell assets online – look to handle more cases and process them faster.  China’s SPC recorded over 19,000 liquidation and bankruptcy cases in 2019, double the number of cases in 2017.  National data is unavailable for 2020, but local courts have released some information that suggest an over 40 percent increase in liquidation and bankruptcy cases in cities such as Shanghai and Shandong. While Chinese authorities are taking steps to address mounting corporate debt and are gradually allowing some companies to fail, companies generally avoid pursing bankruptcy because of the potential for local government interference and fear of losing control over the bankruptcy outcome. According to experts, Chinese courts not only lack the resources and capacity to handle bankruptcy cases, but bankruptcy administrators, clerks, and judges lack relevant experience.

In May 2020, China released the Civil Code, one of the most important set of contract and property rights rules that will have a direct impact to upcoming amendments to China’s bankruptcy laws, especially the EBL. The National People’s Congress (NPC) has listed amendments to the EBL as the top work priority for 2021. In August 2020, Shenzhen released the Personal Bankruptcy Regulations of Shenzhen Special Economic Zone, to take effect on March 1, 2021. This is China’s first regulation on personal bankruptcy.

Investment Incentives

To attract foreign investment, different provinces and municipalities offer preferential packages like a temporary reduction in taxes, import/export duties, land use, research and development subsidies, and funding for initial startups.  Often, these packages stipulate that foreign investors must meet certain benchmarks for exports, local content, technology transfer, and other requirements.  However, many economic sectors that China deems sensitive due to broadly defined national or economic security concerns remain closed to foreign investment.

Foreign Trade Zones/Free Ports/Trade Facilitation

In 2013, the State Council announced the Shanghai pilot FTZ to provide open and high-standard trade and investment services to foreign companies. China gradually scaled up its FTZ pilot program to a total of 20 FTZs and one Free Trade Port.  China’s FTZs are in: Shanghai, Tianjin, Guangdong, Fujian, Chongqing, Hainan, Henan, Hubei, Liaoning, Shaanxi, Sichuan, Zhejiang, Jiangsu, Shandong, Hebei, Heilongjiang, Guangxi, Yunnan provinces, Beijing, Shanghai FTZ Lingang Special Area and Hainan Free Trade Port.  The goal of China’s FTZs/FTP is to provide a trial ground for trade and investment liberalization measures and to introduce service sector reforms, especially in financial services, that China expects to eventually introduce in other parts of the domestic economy. The FTZs promise foreign investors “national treatment” investment in industries and sectors not listed on China’s negative lists.  However, the 2020 FTZ negative list lacked substantive changes, and many foreign firms report that in practice, the degree of liberalization in FTZs is comparable to opportunities in other parts of China.

As part of China’s WTO accession agreement, the PRC government promised to revise its foreign investment laws to eliminate sections that imposed on foreign investors requirements for export performance, local content, balanced foreign exchange through trade, technology transfer, and research and development as a prerequisite to enter China’s market.  In practice, China has not completely lived up to these promises.  Some U.S. businesses report that local officials and regulators sometimes only accept investments with “voluntary” performance requirements or technology transfer that help develop certain domestic industries and support the local job market.

Moreover, China’s evolving cybersecurity and personal data protection regime includes onerous restrictions on firms that generate or process data in China, such as requirements for certain firms to store data in China.  Restrictions exist on the transfer of certain personal information of Chinese citizens outside of China. These restrictions have prompted many firms to review how their networks manage, store, and process data, in some cases necessitating changes to business models and reduplicative infrastructure.

Real Property

The Chinese state owns all urban land, and only the state can issue long-term land leases to individuals and companies, including foreigners, subject to many restrictions.  Chinese property law stipulates that residential property rights renew automatically, while commercial and industrial grants renew if it does not conflict with other public interest claims. Several foreign investors have reported revocation of land use rights so that Chinese developers could pursue government-designated building projects.  Investors often complain about insufficient compensation in these cases.  In rural China, the registration system suffers from unclear ownership lines and disputed border claims, often at the expense of local farmers whom village leaders exclude in favor of “handshake deals” with commercial interests.  China’s Securities Law defines debtor and guarantor rights, including rights to mortgage certain types of property and other tangible assets, including long-term leases.  Chinese law does not prohibit foreigners from buying non-performing debt, but it must be acquired through state-owned asset management firms, and it is difficult to liquidate.

Intellectual Property Rights

China remained on the USTR Special 301 Report Priority Watch List in 2020 and was subject to continued Section 306 monitoring. Multiple Chinese physical and online markets were included in the 2020 USTR Review of Notorious Markets for Counterfeiting and Piracy. Of note, in 2020, China did take significant steps toward addressing long-standing U.S. concerns on a wide range of IP issues, from patents, to trademarks, to copyrights and trade secrets. The reforms addressed the granting and protection of IP rights as well as their enforcement, and included changes made in support of the Phase One Trade Agreement. In April 2020, China National Intellectual Property Administration (CNIPA) issued the 2020-2021 Plan for Implementing the Opinions on Strengthening IP Protection which contained 133 specific “steps” that CNIPA and other Chinese government entities intended to take in 2020 and 2021 – to strengthen IP protection and implement China’s IP-related commitments under Phase One. The 2020-2021 Implementing Plan, together with the work plans of the SPC’s and IP-related administrative organs, portended a year of aggressive IP reforms in China. The Chinese legislative, administrative, and judicial organs issued over 60 new and amended measures related to IP protection and enforcement, in both draft and final form, including amendments to core IP laws, such as the Copyright Law, the Patent Law, and the Criminal Law. Updates also included administrative measures addressing trademark and patent protection and enforcement, as well as enforcement of copyright and trade secrets.

Despite these reforms, IP rights remain subject to Chinese government policy objectives, which appear to have intensified in 2020. For U.S. companies in China, infringement remained both rampant and a low-risk “business strategy” for bad-faith actors. Further enforcement and regulatory authorities continue to signal to U.S. rights holders that application of China’s IP system remains subject to the discretion of the PRC government and its policy goals. High-level remarks by PRC leader Xi Jinping and senior leaders signaled China’s commitment to cracking down on IP infringement in the years ahead. However, they also reflected China’s vision of the IP system as an important tool for eliminating foreign ownership of critical technology and ensuring national security. While on paper China’s IP protection and enforcement mechanisms have inched closer to near parity with other foreign markets, in practice, fair, transparent, and non-discriminatory treatment will very likely continue to be denied to U.S. rights holders whose IP ownership and exploitation impede PRC industrial policy goals.

For detailed information on China’s environment for IPR protection and enforcement, please see the following reports:

Capital Markets and Portfolio Investment

China’s leadership has stated that it seeks to build a modern, highly developed, and multi-tiered capital market.  Since their founding over three decades ago, the Shanghai and Shenzhen Exchanges, combined, are ranked the third largest stock market in the world with over USD11 trillion in assets, according to statistics from World Federation of Exchanges.  China’s bond market has similarly expanded significantly to become the second largest worldwide, totaling approximately USD17 trillion.  In 2020, China fulfilled its promises to open certain financial sectors such as securities, asset management, and life insurance. Direct investment by private equity and venture capital firms has increased but has also faced setbacks due to China’s capital controls, which obfuscate the repatriation of returns. As of 2020, 54 sovereign entities and private sector firms, including BMW and Xiaomi Corporation, have since issued roughly USD41 billion in “Panda Bonds,” Chinese renminbi (RMB)-denominated debt issued by foreign entities in China.  China’s private sector can also access credit via bank loans, bond issuance, trust products, and wealth management. However, the vast majority of bank credit is disbursed to state-owned firms, largely due to distortions in China’s banking sector that have incentivized lending to state-affiliated entities over their private sector counterparts.  China has been an IMF Article VIII member since 1996 and generally refrains from restrictions on payments and transfers for current international transactions.  However, the government has used administrative and preferential policies to encourage credit allocation towards national priorities, such as infrastructure investments.

Money and Banking System

China’s monetary policy is run by the People’s Bank of China (PBOC), China’s central bank.  The PBOC has traditionally deployed various policy tools, such as open market operations, reserve requirement ratios, benchmark rates and medium-term lending facilities, to control credit growth.  The PBOC had previously also set quotas on how much banks could lend but ended the practice in 1998.  As part of its efforts to shift towards a more market-based system, the PBOC announced in 2019 that it will reform its one-year loan prime rate (LPR), which would serve as an anchor reference for other loans.  The one-year LPR is based on the interest rate that 18 banks offer to their best customers and serves as the benchmark for rates provided for other loans.  In 2020, the PBOC requested financial institutions to shift towards use of the one-year LPR for their outstanding floating-rate loan contracts from March to August. Despite these measures to move towards more market-based lending, China’s financial regulators still influence the volume and destination of Chinese bank loans through “window guidance” – unofficial directives delivered verbally – as well as through mandated lending targets for key economic groups, such as small and medium sized enterprises. In 2020, the China Banking and Insurance Regulatory Commission (CBIRC) also began issuing laws to regulate online lending by banks including internet companies such as Ant Financial and Tencent, which had previously not been subject to banking regulations.

The CBIRC oversees China’s 4,607 lending institutions, about USD49 trillion in total assets.  China’s “Big Five” – Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, and Industrial and Commercial Bank of China – dominate the sector and are largely stable, but over the past year, China has experienced regional pockets of banking stress, especially among smaller lenders.  Reflecting the level of weakness among these banks, in November 2020, the PBOC announced in “China Financial Stability Report 2020” that 12.4 percent of the 4400 banking financial institutions received a “fail” rating (high risk) following an industry-wide review in 2019.  The assessment deemed 378 firms, all small and medium sized rural financial institutions, “extremely risky.”  The official rate of non-performing loans among China’s banks is relatively low: 1.92 percent as of the end of 2020.  However, analysts believed the actual figure may be significantly higher.  Bank loans continue to provide the majority of credit options (reportedly around 60.2 percent in 2020) for Chinese companies, although other sources of capital, such as corporate bonds, equity financing, and private equity are quickly expanding in scope, reach, and sophistication in China.

As part of a broad campaign to reduce debt and financial risk, Chinese regulators have implemented measures to rein in the rapid growth of China’s “shadow banking” sector, which includes wealth management and trust products.  These measures have achieved positive results. In December 2020, CBIRC published the first “Shadow Banking Report,” and claimed that the size of China’s shadow banking had shrunk sharply since 2017 when China started tightening the sector. By the end of 2019, the size of China’s shadow banking by broad measurement dropped to 84.8 trillion yuan from the peak of 100.4 trillion yuan in early 2017. Shadow banking to GDP ratio had also dropped to 86 percent at the end of 2019, yet the report did not provide statistics beyond 2019. Foreign owned banks can now establish wholly-owned banks and branches in China, however, onerous licensing requirements and an industry dominated by local players, have limited foreign banks market penetration. Foreigners are eligible to open a bank account in China but are required to present a passport and/or Chinese government issued identification.

Foreign Exchange and Remittances

Foreign Exchange

While the central bank’s official position is that companies with proper documentation should be able to freely conduct business, in practice, companies have reported challenges and delays in obtaining approvals for foreign currency transactions by sub-national regulatory branches. Chinese authorities instituted strict capital control measures in 2016, when China recorded a surge in capital flight.  China has since announced that it would gradually reduce those controls, but market analysts expect they would be re-imposed if capital outflows accelerate again. Chinese foreign exchange rules cap the maximum amount of RMB individuals are allowed to convert into other currencies at approximately USD50,000 each year and restrict them from directly transferring RMB abroad without prior approval from the State Administration of Foreign Exchange (SAFE).  SAFE has not reduced the USD50,000 quota, but during periods of higher-than-normal capital outflows, banks are reportedly instructed by SAFE to increase scrutiny over individuals’ requests for foreign currency and to require additional paperwork clarifying the intended use of the funds, with the intent of slowing capital outflows. China’s exchange rate regime is managed within a band that allows the currency to rise or fall by 2 percent per day from the “reference rate” set each morning.

Remittance Policies

According to China’s FIL, as of January 1, 2020, funds associated with any forms of investment, including profits, capital gains, returns from asset disposal, IPR loyalties, compensation, and liquidation proceeds, may be freely converted into any world currency for remittance. Based on the “2020 Guidance for Foreign Exchange Business under the Current Account” released by SAFE in August, firms do not need any supportive documents or proof that it is under USD50,000. For remittances over USD50,000, firms need to submit supportive documents and taxation records.  Under Chinese law, FIEs do not need pre-approval to open foreign exchange accounts and are allowed to retain income as foreign exchange or convert it into RMB without quota requirements. The remittance of profits and dividends by FIEs is not subject to time limitations, but FIEs need to submit a series of documents to designated banks for review and approval.  The review period is not fixed and is frequently completed within one or two working days of the submission of complete documents.  For remittance of interest and principal on private foreign debt, firms must submit an application, a foreign debt agreement, and the notice on repayment of the principal and interest.  Banks will then check if the repayment volume is within the repayable principal.  There are no specific rules on the remittance of royalties and management fees. Based on guidance for remittance of royalties and management fees, firms shall submit relevant contracts and invoice.  In October 2020, SAFE cut the reserve requirement for foreign currency transactions from 20 percent to zero, reducing the cost of foreign currency transactions as well as easing Renminbi appreciation pressure.

Sovereign Wealth Funds

China officially has only one sovereign wealth fund (SWF), the China Investment Corporation (CIC), which was launched in 2007 to help diversify China’s foreign exchange reserves. CIC is ranked the second largest SWF by total assets by Sovereign Wealth Fund Institute (SWFI). With USD200 billion in initial registered capital, CIC manages over USD1.04 trillion in assets as of 2020 and invests on a 10-year time horizon.  CIC has since evolved into three subsidiaries:

• CIC International was established in September 2011 with a mandate to invest in and manage overseas assets.  It conducts public market equity and bond investments, hedge fund, real estate, private equity, and minority investments as a financial investor.
• CIC Capital was incorporated in January 2015 with a mandate to specialize in making direct investments to enhance CIC’s investments in long-term assets.
• Central Huijin makes equity investments in Chinese state-owned financial institutions.

China also operates other funds that function in part like sovereign wealth funds, including: China’s National Social Security Fund, with an estimated USD372 billion in assets; the China-Africa Development Fund (solely funded by the China Development Bank), with an estimated USD10 billion in assets; the SAFE Investment Company, with an estimated USD417.8 billion in assets; and China’s state-owned Silk Road Fund, established in December 2014 with USD40 billion in assets to foster investment in BRI partner countries.  Chinese state-run funds do not report the percentage of their assets that are invested domestically.  However, Chinese state-run funds follow the voluntary code of good practices known as the Santiago Principles and participate in the IMF-hosted International Working Group on SWFs. While CIC affirms that they do not have any formal government guidance to invest funds consistent with industrial policies or designated projects, CIC is still expected to pursue government objectives.

China has approximately 150,000 wholly-owned SOEs, of which 50,000 are owned by the central government, and the remainder by local or provincial governments.  SOEs, both central and local, account for 30 to 40 percent of total gross domestic product (GDP) and about 20 percent of China’s total employment.  Non-financial SOE assets totaled roughly USD30 trillion.  SOEs can be found in all sectors of the economy, from tourism to heavy industries.  State funds are spread throughout the economy and the state may also be the majority or controlling shareholder in an ostensibly private enterprise.  China’s leading SOEs benefit from preferential government policies aimed at developing bigger and stronger “national champions.” SOEs enjoy favored access to essential economic inputs (land, hydrocarbons, finance, telecoms, and electricity) and exercise considerable power in markets like steel and minerals.  SOEs have long enjoyed preferential access to credit and the ability to issue publicly traded equity and debt.  A comprehensive, published list of all Chinese SOEs does not exist.

PRC officials have indicated China intends to utilize OECD guidelines to improve the SOEs independence and professionalism, including relying on Boards of Directors that are free from political influence.  Other recent reforms have included salary caps, limits on employee benefits, and attempts to create stock incentive programs for managers who have produced mixed results.  However, analysts believe minor reforms will be ineffective if SOE administration and government policy remain intertwined, and Chinese officials make minimal progress in primarily changing the regulation and business conduct of SOEs.  SOEs continue to hold dominant shares in their respective industries, regardless of whether they are strategic, which may further restrain private investment in the economy.  Among central SOEs managed by the State-owned Assets Supervision and Administration Commission (SASAC), senior management positions are mainly filled by senior party members who report directly to the CCP, and double as the company’s party secretary.  SOE executives often outrank regulators in the CCP rank structure, which minimizes the effectiveness of regulators in implementing reforms.  The lack of management independence and the controlling ownership interest of the state make SOEs de facto arms of the government, subject to government direction and interference.  SOEs are rarely the defendant in legal disputes, and when they are, they almost always prevail.  U.S. companies often complain about the lack of transparency and objectivity in commercial disputes with SOEs.

Privatization Program

Since 2013, the PRC government has periodically announced reforms to SOEs that included selling SOE shares to outside investors or a mixed ownership model, in which private companies invest in SOEs and outside managers are hired.  The government has tried these approaches to improve SOE management structures, emphasize the use of financial benchmarks, and gradually infuse private capital into some sectors traditionally monopolized by SOEs like energy, finance, and telecommunications.  In practice, however, reforms have been gradual, as the PRC government has struggled to implement its SOE reform vision and often preferred to utilize a SOE consolidation approach.  Recently, Xi and other senior leaders have increasingly focused reform efforts on strengthening the role of the state as an investor or owner of capital, instead of the old SOE model in which the state was more directly involved in managing operations.

Additional Resources

Department of State

Department of Labor

Since 2016, China established an RBC platform but general awareness of RBC standards (including environmental, social, and governance issues) is a relatively new concept, especially for companies that exclusively operate in China’s domestic market.  Chinese laws that regulate business conduct use voluntary compliance, are often limited in scope, and are frequently cast aside when other economic priorities supersede RBC priorities.  In addition, China lacks mature and independent non-governmental organizations (NGOs), investment funds, independent worker unions, and other business associations that promote RBC, further contributing to the general lack of awareness.  The Foreign NGO Law remains a concern for U.S. organizations, including those looking to promote RBC and corporate social responsibility (CSR) best practices, due to restrictions the Law places on their operations in China.  For U.S. investors looking to partner with a Chinese firm or expand operations, finding partners that meet internationally recognized standards in areas like labor rights, environmental protection, and manufacturing best practices can be a significant challenge.  However, the Chinese government has placed greater emphasis on protecting the environment and elevating sustainability as a key priority, resulting in more Chinese companies adding environmental concerns to their CSR initiatives.  As part of these efforts, Chinese ministries have signed several memoranda of understanding with international organizations such as the OECD to cooperate on RBC initiatives.

Since 2012, China has undergone a large-scale anti-corruption campaign, with investigations reaching into all sectors of the government, military, and economy.  CCP General Secretary Xi labeled endemic corruption an “existential threat” to the very survival of the Party.  In 2018, the CCP restructured its Central Commission for Discipline Inspection (CCDI) to become a state organ, calling the new body the National Supervisory Commission-Central Commission for Discipline Inspection (NSC-CCDI). The NSC-CCDI wields the power to investigate any public official.  From 2012 to 2020, the NSC-CCDI claimed it investigated 3.4 million cases. In 2020, the NSC-CCDI investigated 618,000 cases and disciplined 522,000 individuals, of whom 41 were at or above the provincial or ministerial level. Since 2014, the PRC’s overseas fugitive-hunting campaign, called “Operation Skynet,” has led to the capture of more than 8,350 fugitives suspected of corruption who were living in other countries, including over 2,200 CCP members and government employees. In most cases, the PRC did not notify host countries of these operations.  In 2020, the government reported apprehending 1,421 alleged fugitives and recovering approximately USD457 million through this program.

In June 2020 the CCP passed a law on Administrative Discipline for Public Officials, continuing their effort to strengthen supervision over individuals working in the public sector. The law further enumerates targeted illicit activities such as bribery and misuse of public funds or assets for personal gain. The CCP also issued Amendment 11 to the Criminal Law, which increased the maximum punishment for acts of corruption committed by private entities to life imprisonment, from the previous maximum of 15-year imprisonment. Anecdotal information suggests the PRC’s anti-corruption crackdown is inconsistently and discretionarily applied, raising concerns among foreign companies in China.  For example, to fight rampant commercial corruption in the medical/pharmaceutical sector, the PRC’s health authority issued “blacklists” of firms and agents involved in commercial bribery, including several foreign companies. While central government leadership has welcomed increased public participation in reporting suspected corruption at lower levels, direct criticism of central government leadership or policies remains off-limits and is seen as an existential threat to China’s political and social stability.  China ratified the United Nations Convention against Corruption in 2005 and participates in the Asia-Pacific Economic Cooperation (APEC) and OECD anti-corruption initiatives. China has not signed the OECD Convention on Combating Bribery, although Chinese officials have expressed interest in participating in the OECD Working Group on Bribery meetings as an observer.

Resources to Report Corruption

The following government organization receives public reports of corruption:   Anti-Corruption Reporting Center of the CCP Central Commission for Discipline Inspection and the Ministry of Supervision, Telephone Number:  +86 10 12388.   10. Political and Security Environment

Foreign companies operating in China face a low risk of political violence.  However, the ongoing PRC crackdown on virtually all opposition voices in Hong Kong and continued attempts by PRC organs to intimidate Hong Kong’s judges threatens the judicial independence of Hong Kong’s courts – a fundamental pillar for Hong Kong’s status as an international hub for investment into and out of China.  The CCP also punished companies that expressed support for Hong Kong protesters – most notably, a Chinese boycott of the U.S. National Basketball Association after one team’s general manager expressed his personal view supporting Hong Kong protesters. Apart from Hong Kong, the PRC government has also previously encouraged protests or boycotts of products from countries like the United States, South Korea, Japan, Norway, Canada, and the Philippines, in retaliation for unrelated policy decisions such as the boycott campaigns against Korean retailer Lotte in 2016 and 2017 in response to the South Korean government’s decision to deploy the Terminal High Altitude Area Defense (THAAD); and the PRC’s retaliation against Canadian companies and citizens for Canada’s arrest of Huawei’s Chief Financial Officer Meng Wanzhou. PRC authorities also have broad authority to prohibit travelers from leaving China and have imposed “exit bans” to compel U.S. citizens to resolve business disputes, force settlement of court orders, or facilitate PRC investigations. U.S. citizens, including children, not directly involved in legal proceedings or wrongdoing have also been subject to lengthy exit bans in order to compel family members or colleagues to cooperate with Chinese courts or investigations. Exit bans are often issued without notification to the foreign citizen or without clear legal recourse to appeal the exit ban decision.     11. Labor Policies and Practices

For U.S. companies operating in China, finding, developing, and retaining domestic talent at the management and skilled technical staff levels remain challenging for foreign firms, especially as labor costs, including salaries and inputs continue to rise. Foreign companies also complain of difficulty navigating China’s labor and social insurance laws, including local implementation guidelines. Compounding the complexity, due to ineffective enforcement of labor laws, Chinese domestic employers often hire local employees without contracts, putting foreign firms at a disadvantage.  Without written contracts, workers struggle to prove employment, thus losing basic protections such as severance if terminated.  The All-China Federation of Trade Unions (ACFTU) is the only union recognized under PRC law.  Establishing independent trade unions is illegal.  The law allows for “collective bargaining,” but in practice, focuses solely on collective wage negotiations.  The Trade Union Law gives the ACFTU, a CCP organ chaired by a member of the Politburo, control over all union organizations and activities, including enterprise-level unions.  ACFTU enterprise unions require employers to pay mandatory fees, often through the local tax bureau, equaling a negotiated minimum of 0.5 percent to a standard two percent of total payroll.  While labor laws do not protect the right to strike, “spontaneous” worker protests and work stoppages occur.  Official forums for mediation, arbitration, and other similar mechanisms of alternative dispute resolution often are ineffective in resolving labor disputes.  Even when an arbitration award or legal judgment is obtained, getting local authorities to enforce judgments is problematic.

The PRC has not ratified the International Labor Organization conventions on freedom of association, collective bargaining, or forced labor, but it has ratified conventions prohibiting child labor and employment discrimination. Uyghurs and members of other minority groups are subjected to forced labor in Xinjiang and throughout China via PRC government-facilitated labor transfer programs. In 2020, the U.S. government took additional actions to prevent the importation of products produced by forced labor into the United States, including by issuing a Xinjiang supply chain business advisory that outlined the legal, economic, and reputational risks of forced labor exposure in China-based supply chains. The U.S. Customs and Border Protection bureau issued multiple Withhold Release Orders  barring importation into the United States of products produced in Xinjiang, which were determined to be produced with prison or forced labor in violation of U.S. import laws.  The Commerce Department added Chinese commercial and government entities to its Entity List for their complicity in human rights abuses and the Department of Treasury sanctioned the Xinjiang Production and Construction Corps to hold human rights abusers accountable in Xinjiang. Some PRC firms continued to employ North Korean workers in violation of UN Security Council sanctions.

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

* Source for Host Country Data:

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Policies Toward Foreign Direct Investment  

The Greek government continues to take steps to increase foreign investment, implementing economic reforms and taking steps to mitigate the impact of the pandemic.  Greece completed its EU bailout program in 2018, allowing it to borrow once again at market rates, reflected in a rising economic sentiment since 2017.  Heavy bureaucracy and a slow judicial system continue to create challenges for both foreign and domestic investors.    

There are no laws or practices known to Post that discriminate against foreign investors.  The country has investment promotion agencies to facilitate foreign investments, with “Enterprise Greece” as the official agency of the Greek state.  Under the supervision of the Ministry of Foreign Affairs, Enterprise Greece is responsible for promoting investment in Greece and exports from Greece, and with making Greece more attractive as an international business partner.  Enterprise Greece provides the full spectrum of services related to international business relationships and domestic business development for the international market, including an Investor Ombudsman program for investment projects exceeding EUR 2 million.  The Ombudsman is available to assist with specific bureaucratic obstacles, delays, disputes, or other difficulties that impede an investment project.  

The General Secretariat for Strategic and Private Investments streamlines the licensing procedure for strategic investments, aiming to make the process easier and more attractive to investors. 

Greece has adopted the following EU definitions regarding micro, small, and medium size enterprises:  

• Micro Enterprises:  Fewer than 10 employees and an annual turnover or balance sheet below EUR 2 million. 
• Small Enterprises:  Fewer than 50 employees and an annual turnover or balance sheet below EUR 10 million. 
• Medium-Sized Enterprises:  Fewer than 250 employees and annual turnover below EUR 50 million or balance sheet below  EUR 43 million. 

Numerous structural reforms, undertaken as part of the country’s 2015-2018 international bailout program as well as a part of the current New Democracy administration’s efforts to lower taxes and reduce bureaucracy, aim to welcome and facilitate foreign investment, and the government has publicly messaged its dedication to attracting foreign investment.   The 2019 investment law simplified licensing procedures in order to facilitate investment.  In December 2020, parliament passed a new law allowing non-residents who relocate their jobs to Greece to benefit from half their salary being free of income tax for up to seven years.  The scheme is open to any type of job, any income level and complements other tax incentive schemes put in place, including a non-dom program for wealthy investors and a low flat tax rate for pensioners.  The Trans Adriatic Pipeline (TAP) is another example of the government’s commitment in this area.  In November 2015, the Greek government and TAP investors agreed on measures and began construction on the largest investment project since the start of the financial crisis.  The pipeline began operations in December 2020 and in March 2021, TAP announced that a total of 1 billion cubic meters (bcm) of natural gas from Azerbaijan entered Europe via the Greek interconnection point of Kipoi.  Law 4710/2020 gave a strong push for electro-mobility, with several incentives and subsidies to those interested in acquiring an electric vehicle. The law has paved the way for greater U.S. investment.  For example, Tesla has installed the first pop-up stand along with three electric vehicle (EV) charges at a major Greek shopping mall, while Blink expanded its EV network in Greece.  Additionally, there are directives that have eased the bureaucracy regarding renewable energy source (RES) projects, including establishing a deadline for the issuance of Environmental Terms Approvals (ETAs) of 120 days and limiting the environmental licensing stages to three stages instead of the previous six or seven stages required for companies to abide by.

In the past decade, the country underwent one of the most significant fiscal consolidations in modern history, with broad and deep cuts to public expenditures and significant increases in labor and social security tax rates, which have offset improved labor market competitiveness achieved through significant wage devaluation.  While there has been notable progress, corruption and burdensome bureaucracy continue to create barriers to market entry for new firms, permitting incumbents to maintain oligopolies in different sectors, and creating scope for arbitrary decisions and rent seeking by public servants.  

Limits on Foreign Control and Right to Private Ownership and Establishment  

As a member of the EU and the European Monetary Union (the “Eurozone”), Greece is required to meet EU and eurozone investment regulations.  Foreign and domestic private entities have the legal right to establish and own businesses in Greece; however, the country places restrictions on foreign equity ownership higher than those imposed on average in the other 17 high-income OECD economies, such as equity restrictions on airport operations and limits on foreign ownership in electricity and media.  The government has undertaken EU-mandated reforms in its energy sector, opening much of it to foreign equity ownership.  Restrictions exist on land purchases in border regions and on certain islands because of national security considerations.  Foreign investors can buy or sell shares on the Athens Stock Exchange on the same basis as local investors.  Greece does not maintain an investment screening mechanism.  

Other Investment Policy Reviews 

The government has not undergone an investment policy review by the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), or United Nations Committee on Trade and Development (UNCTAD) or worked with any other international institution to produce a public report on the general investment climate in the past three years.  However, in July 2020, the OECD published a periodic economic survey describing the state of the economy and addressing foreign direct investment concerns, especially regarding needed reforms in the public sector and judicial system.   In particular, the OECD report lauds the Ministry of Digital Governance’s progress in instituting digital and public administration reforms, and recommends continued effort in this area. 

Business Facilitation  

In 2020, Greece eased processes for starting a business by reducing the time to register a company and removing the requirement to obtain a tax clearance.  Accessing industrial land in Greece is relatively quick, with only three weeks required to lease land from the government.  Private land can be leased in 15 days.  Arbitrating commercial disputes, however, can take almost a year.  Establishing a limited liability company takes approximately four days with three procedures involved, including registering the business, making a company seal, and registering with the Unified Social Security Institution.  Greece’s Ease of Doing Business score in 2020 is 96, for a rank of 11 for starting a business and rank of 79 overall.  Greece is not one of the 37 countries listed on www.businessfacilitation.org.  

Greece’s business registration entity GEMI (General Commercial Register) has the basic responsibility for digitizing and automating the registration and monitoring procedures of commercial enterprises.  More information about GEMI can be found at http://www.businessportal.gr/home/index_en.  The online business registration process is relatively clear, and although foreign companies can use it, the registration steps are currently available only in Greek.  In general, a company must register with the business chamber, tax registry, social security, and local municipality.  Business creation without a notary can be done for specific cases (small/personal businesses, etc.).  For the establishment of larger companies, a notary is mandatory. 

Outward Investment 

The Greek government does not have any known outward investment incentive programs.  Capital controls were eliminated in September 2019.

Enterprise Greece supports the international expansion of Greek companies.  While no incentives are offered, Enterprise Greece has been supportive of Greek companies attending the U.S. Government’s Annual SelectUSA Investment Summit, which promotes inbound investment to the United States, and similar industry trade events internationally. 

Greece and the United States signed the 1954 Treaty of Friendship, Commerce, and Navigation, which provides certain investment protection, such as acquisition and protection of property and impairment of legally acquired rights or interests.  Enterprise Greece is now housed within the Economic Diplomacy and Extroversion Department of the Ministry of Foreign Affairs.       

Greece has Bilateral Investment Treaties (BITs) with: 

*Signed, but not in force   

Greece and the United States signed a Treaty for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income in 1950.  As an EU member state, Greece does not have a bilateral Free Trade Agreement (FTA) with the United States but is a party to all U.S.-EU agreements.  Greece reached an agreement in substance on November 30, 2014, on the terms of an intergovernmental agreement with the United States to implement the Foreign Account Tax Compliance Act (FATCA), which was signed January 2017. 

Transparency of the Regulatory System 

As an EU member, Greece is required to have transparent policies and laws for fostering competition.  Foreign companies consider the complexity of government regulations and procedures and their inconsistent implementation to be a significant impediment to investing and operating in Greece.  Occasionally, foreign companies report cases where there are multiple laws governing the same issue, resulting in confusion over which law is applicable.  Under its bailout programs, the Greek government committed to widespread reforms to simplify the legal framework for investment, including eliminating bureaucratic obstacles, redundancies, and undue regulations.  The fast-track law, passed in December 2010, aimed to simplify the licensing and approval process for “strategic” investments, i.e. large-scale investments that will have a significant impact on the national economy.  In 2013, Greece’s parliament passed Investment Law 4146/2013 to simplify the regulatory system and stimulate investment.  This law provides additional incentives, beyond those in the fast-track law, available to domestic and foreign investors, dependent on the sector and the location of the investment.

Greece’s tax regime lacked stability during the economic crisis, presenting additional obstacles to investment, both foreign and domestic.  Foreign firms are not subject to discrimination in taxation.  Numerous changes to tax laws and regulations since the beginning of the economic crisis injected uncertainty into Greece’s tax regime.  As part of Greece’s August 2015 bailout agreement, the government converted the Ministry of Finance’s Directorate-General for Public Revenue into a fully independent tax agency effective January 2017, with a broad mandate to increase collection and develop further reforms to the tax code aimed at reducing evasion and increasing the coverage of the Greek tax regime.  The government makes continued efforts to combat tax evasion by increasing inspections and crosschecks among various authorities and by using more sophisticated methods to find undeclared income.  Authorities held monthly lotteries offering taxpayers rewards of EUR 1,000 (USD 1,200) for using credit or debit cards, which are considered more financially transparent, in their daily transactions.

Foreign investment is not legally prohibited or otherwise restricted.  Proposed laws and regulations are published in draft form for public comment before Parliament takes up consideration of the legislation.  The laws in force are accessible on a unified website managed by the government and printed in an official gazette.  Greece introduced International Financial Reporting Standards for listed companies in 2005 in accordance with EU directives.  These rules improved the transparency and accountability of publicly traded companies.

International Regulatory Considerations

Citizens of other EU member state countries may work freely in Greece.  Citizens of non-EU countries may work in Greece after receiving residence and work permits.  There are no discriminatory or preferential export/import policies affecting foreign investors, as EU regulations govern import and export policy, and increasingly, many other aspects of investment policy in Greece.

Greece has been a World Trade Organization (WTO) member since January 1, 1995, and a member of the General Agreement on Tariffs and Trade (GATT) since March 1, 1950.  Greece complies with WTO Trade-Related Investment Measures (TRIMs) requirements.  There are no performance requirements for establishing, maintaining, or expanding an investment.  Performance requirements may come into play, however, when an investor wants to take advantage of certain investment incentives offered by the government.  Greece has not enacted measures that are inconsistent with TRIMs requirements, and the Embassy is not aware of any measures alleged to violate Greece’s WTO TRIMs obligations.  Trade policy falls within the competence and jurisdiction of the European Commission Directorate General for Trade and is generally not subject to regulation by member state national authorities.

Legal System and Judicial Independence

Although Greece has an independent judiciary, the court system is an extremely time-consuming and unwieldy means for enforcing property and contractual rights.  According to the “Enforcing Contracts Indicator” of the World Bank’s ‘Doing Business 2020” survey, Greece ranks 146 among 190 countries in terms of the speed of delivery of justice, requiring 1,711 days (more than four years) on average to resolve a dispute, compared to the OECD high-income countries’ average of 589.6 days.  The government committed, as part of its three bailout packages, to reforms intended to expedite the processing of commercial cases through the court system.  In July 2015, the government adopted significant reforms to the Code of Civil Procedure (Law 4335/2015).  These reforms aimed to accelerate judicial proceedings in support of contract enforcement and investment climate stability and entered into force in January 2016.  Foreign companies report, however, that Greek courts do not consistently provide fast and effective recourse.  Problems with judicial corruption reportedly still exist.  Commercial and contractual laws accord with international norms, and the judicial system remains independent of the executive branch.

Laws and Regulations on Foreign Direct Investment

In 2019 and 2020, Parliament passed several investment-related laws.

In December 2020, Parliament passed Law 4758/2020, which introduced amendments in the current tax legislation regarding special taxation of employment services and business activity income arising in Greece, earned by individuals who transfer their tax residence in Greece.

In October 2019, Parliament passed an economic development bill, Law 4635/2019, aimed at boosting economic recovery in the post-bailout era which entered into force in January 2020.  The bill, called “Invest in Greece and other provisions,” simplifies processes for investors regarding environmental and urban planning regulations, speeding up bureaucratic processes.  The bill also introduces changes to labor union alterations to encourage job creation and reforms the functioning of the General Commercial Registry.

Law 4605/2019 expands the types of investments that qualify an individual for a residence permit, allowing investments in intangible assets.  In particular, capital contribution of at least  EUR 400,000 in a real estate investment company, in a company registered in Greece, in a purchase of state bonds, corporate bonds, or shares, in a venture capital investment company, or in mutual funds, allows the investor and his or her family members a five-year residency permit in Greece.

Law 4608/2019 for strategic investments was approved in April 2019, creating a favorable investment climate by providing various privileges to investors such as tax exemptions and fast track licensing.

Investments in Greece operate under two main laws:  the new Investment Law (4399/2016) that addresses small-scale investments and Law 4146/2013 that addresses strategic investments.  In particular:

Law 4399/2016, entitled “Statutory framework to the establishment of Private Investments Aid Schemes for the regional and economic development of the country” was passed in June 2016.  Its key objectives include the creation of new jobs, the increase of extroversion, the reindustrialization of the country, and the attraction of FDI.  The law provides aids (as incentives) for companies that invest from  EUR 50,000 (Social Cooperative Companies) up to  EUR 500,000 (large sized companies) as well as tax breaks.  The Greek government provides funds to cover part of the eligible expenses of the investment plan; the amount of the subsidy is determined based on the region and the business size.  Qualified companies are exempt from paying income tax on their pre-tax profits for all their activities.  There is a fixed corporate income tax rate and fast licensing procedures.  Eligible economic activities are manufacturing, shipbuilding, transportation/infrastructure, tourism, and energy.  More about this law can be found here: https://www.enterprisegreece.gov.gr/files/pdf/madrid2019/2-Investment-Incentives-Law.pdf.

– Law 4146/2013, entitled the “Creation of a Business-Friendly Environment for Strategic and Private Investments” is the other primary investment incentive law currently in force.  The law aims to modernize and improve the institutional framework for private investments, raise liquidity, accelerate investment procedures, and increase transparency.  It seeks to provide an efficient institutional framework for all investors and speed the approval processes for pending and approved investment projects.  The law created a general directorate for private investments within the Ministry of Development and Investment and reduced the value of investments needed to be considered strategic.  The law also provides tax exemptions and incentives to investors and allows foreign nationals from non-EU countries who buy property in Greece worth over  EUR 250,000 ( USD 285,000) to obtain five-year renewable residence permits for themselves and their families.  In March 2019, the Greek government brought a bill to parliament to expand eligibility criteria of the existing program.

Other investment laws include:

– Law 3908/2011, which provides incentives in the form of tax relief, grants, and allowances on investments, is gradually being phased out by Law 4146 (above).

– Law 3919/2011 aims to liberalize more than 150 currently regulated or closed-shop professions.

– Law 3982/2011 reduced the complexity of the licensing system for manufacturing activities and technical professions and modernized certain qualification and certification requirements to lower barriers to entry.

– Law 4014/2011 simplified the environmental licensing process.

– Law 3894/2010 (also known as fast track) allows Enterprise Greece to expedite licensing procedures for qualifying investments in the following sectors: industry, energy, tourism, transportation, telecommunications, health services, waste management, or high-end technology/innovation.  To qualify, investments must meet one of the following conditions:

• exceed  EUR 100 million;

• exceed  EUR15 million in the industrial sector, operating in industrial zones;
• exceed EUR 40 million and concurrently create at least 120 new jobs; or
• create 150 new jobs, regardless of the monetary value of the investment.

More about fast track licensing of strategic investments can be found online at https://www.enterprisegreece.gov.gr/en/invest-in-greece/strategic-investments

– Law 3389/2005 introduced the use of public-private partnerships (PPP).  This law aimed to facilitate PPPs in the service and construction sectors by creating a market-friendly regulatory environment.

–  Law 3426/2005 completed Greece’s harmonization with EU Directive 2003/54/EC and provided for the gradual deregulation of the electricity market.  Law 3175/2003 harmonized Greek legislation with the requirements of EU Directive 2003/54/EC on common rules for the internal electricity market.  Law 2773/99 initially opened 34% of the Greek energy market, in compliance with EU Directive 96/92 concerning regulation of the internal electricity market. i

– Law 3427/2005, which amended Law 89/67, provides special tax treatment for offshore operations of foreign companies established in Greece.  Special tax treatment is offered only to operations in countries that comply with OECD tax standards.

– Law 2364/95 and supporting amendments govern investment in the natural gas market in Greece.

– Law 2289/95, which amended Law 468/76, allows private (both foreign and domestic) participation in oil exploration and development.

– Law 2246/94 and supporting amendments opened Greece’s telecommunications market to foreign investment.

– Legislative Decree 2687 of 1953, in conjunction with Article 112 of the Constitution, gives approved foreign “productive investments” (primarily manufacturing and tourism enterprises) property rights, preferential tax treatment, and work permits for foreign managerial and technical staff.  The Decree also provides a constitutional guarantee against unilateral changes in the terms of a foreign investor’s agreement with the government, but the guarantee does not cover changes in the tax regime.

Competition and Anti-Trust Laws

Under Articles 101-109 of the Treaty on the Functioning of the EU, the European Commission (EC), together with member state national competition authorities, directly enforces EU competition rules.  The EC Directorate-General for Competition carries out this mandate in member states, including Greece.  Greece’s competition policy authority rests with the Hellenic Competition Commission, in consultation with the Ministry of Economy.  The Hellenic Competition Commission protects the proper functioning of the market and ensures the enforcement of the rules on competition.  It acts as an independent authority and has administrative and financial autonomy.

Expropriation and Compensation

Private property may be expropriated for public purposes, but the law requires this be done in a nondiscriminatory manner and with prompt, adequate, and effective compensation.  Due process and transparency are mandatory, and investors and lenders receive compensation in accordance with international norms.  There have been no expropriation actions involving the real property of foreign investors in recent history, although legal proceedings over expropriation claims initiated, in one instance, over a decade ago, continue to work through the judicial system.

Dispute Settlement

ICSID Convention and New York Convention

Greece is a member of both the International Center for the Settlement of Investment Disputes (ICSID) and the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention).

Investor-State Dispute Settlement

Greece accepts binding international arbitration of investment disputes between foreign investors and the Greek government, and foreign firms have found satisfaction through arbitration.  International arbitration and European Court of Justice judgments supersede local court decisions.  The judicial system provides for civil court arbitration proceedings for investment and trade disputes.  Although an investment agreement could be made subject to a foreign legal jurisdiction, this is not common, particularly if one of the contracting parties is the Greek government.  Foreign court judgments are accepted and enforced, albeit slowly, by the local courts.

In an effort to create a more investor-friendly environment, the government established in 2017 an Investor’s Ombudsman service.  The Ombudsman is authorized to mediate disputes that arise between investors and the government during the licensing procedure.  Investors can employ the Ombudsman, housed within Enterprise Greece, with projects exceeding  EUR 2 million in value.  More info on the Ombudsman service can be found here: https://www.enterprisegreece.gov.gr/en/invest-in-greece/ombudsman

International Commercial Arbitration and Foreign Courts

The two main alternative dispute resolution mechanisms in Greece are domestic and international commercial arbitration or mediation.  Domestic arbitration is governed under the Code of Civil Procedure (CCP), and mediation is governed under The Mediation Act, Law 3898/2010, modeled after the UNCITRAL Model Law.  Greece recognizes foreign judgments under articles 323 and 780 of the CCP and articles 15-21 of Law 3858/2010.

Bankruptcy Regulations

Bankruptcy laws in Greece meet international norms.  Under Greek bankruptcy law 3588/2007, private creditors receive compensation after claims from the government and insurance funds have been satisfied.  Monetary judgments are usually made in euros unless explicitly stipulated otherwise.  Greece has a reliable system of recording security interests in property.  According to the World Bank’s 2020 Doing Business report, resolving insolvency in Greece takes 3.5 years on average and costs nine percent of the debtor’s estate, with the most likely outcome that the company will be sold piecemeal.  Recovery rate is 32 cents on the dollar.  Greece ranks 72 of 190 economies surveyed for ease of resolving insolvency in the Doing Business report (from 62 in 2019).

Investment Incentives  

Investment incentives are available on an equal basis for both foreign and domestic investors in productive enterprises.  The investment laws in Greece aim to increase liquidity, accelerate investment processes, and ensure transparency.  They provide an efficient institutional framework for all investors and speed the approval process for pending investment projects.  The basic investment incentives Law 4146/2013, “Creation of a Development Friendly Environment for Strategic and Private Investments,” aims to improve the institutional and legal framework to attract private investment.  Separately, Law 3908/2011 (which replaced Law 3299/2004) provides incentives in the form of tax relief, cash grants, leasing subsidies, and soft loans on qualifying investments in all economic sectors with some exceptions.    

In evaluating applications for tax and other financial incentives for investment, Greek authorities consider several criteria, including the viability of the planned investment; the expected impact on the economy and regional development (job creation, export orientation, local content use, energy conservation, environmental protection); the use of innovative technology; and the creditworthiness and capacity of the investor.  Progress assessments are conducted on projects receiving incentives, and companies that fail to implement projects as planned may be forced to give up incentives initially granted to them.  All information transmitted to the government for the approval process is to be treated confidentially by law.  

Investment categories are:  

1. General Entrepreneurship
2.  Regional Cohesion 
3. Technological development 
4. Youth Entrepreneurship (18-40 years old) 
5. Large Investment Plans (above EUR50 million) 
6. Integrated, Multi-Annual Business Plans 
7. Partnership & Networking

The entire application and evaluation process shall not exceed six months (more information can be found at https://www.ependyseis.gr).  

Foreign Trade Zones/Free Ports/Trade Facilitation 

Greece has four free-trade zones, located at the Piraeus, Thessaloniki, Heraklion, and Platigiali Astakos Etoloakarnias port areas.  Greek and foreign-owned firms enjoy the same advantages in these zones.  Goods of foreign origin may be brought into these zones without payment of customs duties or other taxes and may remain free of all duties and taxes if subsequently transshipped or re-exported.  Similarly, documents pertaining to the receipt, storage, or transfer of goods within the zones are free from stamp taxes.  Handling operations are carried out according to EU regulations 2504/1988 and 2562/1990.  Transit goods may be held in the zones free of bond.  These zones also may be used for repackaging, sorting, and re-labeling operations.  Assembly and manufacture of goods are carried out on a small scale in the Thessaloniki Free Zone.  Storage time is unlimited, as long as warehouse rents are paid every six months. 

Performance and Data Localization Requirements 

The Greek government does not follow a policy of forced localization or mandate local employment designed to require foreign investors to use domestic content in goods or technology, with the exception of economic development requirements in many defense contracts (see Research and Development, below).  Some foreign investors partner with local companies or hire local staff/experts, however, as a way to facilitate their entry into the market.  In 2019, the government enacted a new amendment to the Greek tourism legislation, which obligates tour operators from third countries who do not own a travel agency in Greece to collaborate with a local travel agency established in the country to be able to conduct its business locally.  The government is not taking steps to force foreign investors to keep a specific amount of the data they collect and store within Greek national borders. 

Research and Development 

Offset agreements, co-production, and technology transfers are commonplace in Greece’s procurement of defense items.  Although the most recent Greek defense procurement law eliminated offset requirements, there are some remaining ongoing active offset contracts, as well as expired offset contracts with U.S. firms that are potentially subject to non-performance penalties.  Defense procurements are still subject to economic development requirements, which are, in effect, similar to offsets.  In 2014, the government committed to resolving offset contract disputes in a way that would satisfy both parties and avoid the imposition of penalties or fines.   

In general, U.S. and other foreign firms may participate in government-financed and/or subsidized research and development programs.  Foreign investors do not face discriminatory or other formal inhibiting requirements.  However, many potential and actual foreign investors assert the complexity of Greek regulations, the need to deal with many layers of bureaucracy, and the involvement of multiple government agencies all discourage investment.

Real Property 

Greek laws extend the protection of property rights to both foreign and Greek nationals, and the legal system protects and facilitates acquisition and disposition of all property rights. 

Multiple layers of authority in Greece are involved in the issuance or approval of land use and zoning permits, creating disincentives to real property investment.  Secured interests in property are movable and real, recognized and enforced.  The concept of mortgage does exist in the market and can be recorded through the banks.  The government is working to create a comprehensive electronic land registry which is expected to increase the transparency of real estate management.  However, the land registry is behind schedule and is not expected to be completed until 2022, two years after its initial estimate of completion.  Greece ranks 156 out of 190 countries for Ease of Registering Property in the World Bank’s Doing Business 2020 Report, down from 153 last year. 

Foreign nationals can acquire real estate property in Greece, though they first need to be issued a tax authentication number.  However, for the border areas, foreign nationals first require a license from the Greek state (Law 3978/2011).  In another effort to boost investment, the government passed Law 4146/2013, which allows foreign nationals who buy property in Greece worth over  EUR 250,000 ( USD 285,000) to obtain a five-year residence permit for themselves and their families.  The “Golden Visa” program has been extended to buyers of various types of Greek securities, including stocks, bonds, and bank accounts, with a value of at least  EUR 400,000.  The permit can be extended for an additional five years and allows travel to other EU and Schengen countries without a visa. 

Intellectual Property Rights 

In April  2020, the U.S. Trade Representative (USTR) removed Greece from its Special 301 Watch List due to progress in addressing concerns regarding intellectual property rights (IPR) protection and enforcement.  The widespread use of unlicensed software in the public sector in Greece had been of long-standing concern to rights holders.  In December 2019, Greece took clear steps to address this matter by allocating over  EUR 39 million for the purchase of software licenses.  In December 2020, the agreement to purchase software licenses for government workers was finalized, and the rollout is proceeding well according to government and private sector contacts.  In addition, the Committee for Notification of Copyright and Related Rights Infringement on the Internet has been taking steps to address enforcement in the online environment, and Greece introduced a new law imposing fines for possessing counterfeit products.  In 2019, the Ministry of Culture developed legislation which would allow for dynamic blocking of domains, in order to improve even further the enforcement of IPR.  Parliament passed the bill in 2020. 

Greece tracks seizures of counterfeit goods; however, the Ministry of Finance, Coast Guard, and Customs Service all track their data separately.  In 2019, the Hellenic Coast Guard arrested 143 people during 110 cases, seizing over 9 million counterfeit cigarettes, 10 vehicles, and over 1,300 pounds of tobacco, all representing  EUR1.8 million in attempted tax evasion.  The Ministry of Finance’s Economic and Financial Crimes Unit (SDOE) conducts investigations and seizures of counterfeit goods and products.  In 2019, the SDOE seized almost 600,000 counterfeit and pirated products, down from 1.1 million in 2018.  The Hellenic Customs Service also conducts inspections at exit and entry points into the EU, with over 20 million counterfeit products seized in 2019, the majority of which were cigarettes.  Violators can be fined for their actions, and Law 3982/2022 provides police ex officio authority to confiscate and destroy counterfeit goods. 

Greece is not currently included in USTR’s Notorious Markets List 

Greece is a member of the World Intellectual Property Organization (WIPO) and party to the Paris Convention for the Protection of Industrial Property, the European Patent Convention, the Washington Patent Cooperation Treaty, and the Berne Copyright Convention.  As a member of the EU, Greece has harmonized its IPR legislation with EU rules and regulations.  The WTO-TRIPS Agreement was incorporated into Greek legislation in February 1995 (Law 2290/1995).  The Greek government also signed and ratified the WIPO internet treaties and incorporated them into Greek legislation (Laws 3183 and 3184/2003) in 2003.  Greece’s legal framework for copyright protection is found in Law 2121 of 1993 on copyrights and Law 2328 of 1995 on the media. 

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

Resources for Rights Holders 

Embassy Point of Contact: 
U.S. Embassy Athens 
Economic Section 
91 Vas. Sofias Avenue, Athens, Greece 10160 
Phone:  +30-210-721-2951 

Athens-ECON@state.gov

 A list of local attorneys is available at gr.usembassy.gov/u-s-citizen-services/attorneys/ 

 American-Hellenic Chamber of Commerce  
109-111 Messoghion Avenue, Politia Business Center 
Athens, Greece 11526 
Phone: +30-210-699-3559, Fax: +30-210-698-5686 

Email: info@amcham.gr 
Web Site: www.amcham.gr 

Capital Markets and Portfolio Investment

Following EU regulations, Greece is open to foreign portfolio investment.  Law 3371/2005 sets an effective legal framework to encourage and facilitate portfolio investment.  Law 3283/2004 incorporates the European Council’s Directive 2001/107, setting the legal framework for the operation of mutual funds.  The Bank of Greece complies with its IMF Article VIII obligations and does not generally impose restrictions on payments.  Transfers for current international transactions are allowed but are subject to specific conditions for approval.  The lack of liquidity in the Athens Stock Exchange along with the challenging economic environment have hindered the allocation of credit but is accessible to foreign investors on the local market, who also have access to a variety of credit instruments.

Money and Banking System

Greece’s banking system will not be generally considered “healthy” and able to allocate funding to domestic firms that need it the most until its major banks adequately deal with the large amounts of non-performing loans (NPLs) on their balance sheets.

In November 2015, following an Asset Quality Review and Stress Test conducted by the ECB as a requirement of the 2015 ESM agreement, a third recapitalization of Greece’s four systemic banks (National Bank of Greece, Piraeus Bank, Alpha Bank, and Eurobank) took place.  The recapitalization concluded with the banks remaining in private hands, after raising  EUR6.5 billion from foreign investors, mostly hedge funds.  In September 2020, the ratio of NPLs decreased to 35.8%, down from 40.6% in December 2019.  Banks estimate that about 20% of non-performing exposures (NPEs) are owned by so-called “strategic defaulters” – borrowers who refrain from paying their debts to lenders to take advantage of the laws enacted during the financial crisis to protect borrowers from foreclosure or creditors’ collection even though they are able to pay their obligations.

Developing an effective NPL reduction strategy has been among the most difficult challenges for the Greek economy.  Greek banks’ NPL ratio, at 35.8%, remains the highest in the eurozone, well over the European average of around 3%.  Under the terms of the ESM agreement, Greece remains obliged to create an NPL market through which the loans could, over time, be sold or transferred for servicing purposes to foreign investors.  The Bank of Greece has licensed more than ten servicers, and the sale and securitization environment for non-performing loans continues to mature, with all of Greece’s systemic banks having conducted portfolio sales of secured and unsecured loan tranches since mid-2017.  The potential sale and/or transfer of Greek NPLs continues to receive interest by many Greek and foreign companies and funds, signaling a viable market.  The Greek state operates an auction platform for collateral and foreclosed assets, although the bulk of auctions still conclude with the selling bank as the purchaser of the assets.  The government introduced its “Hercules” asset protection scheme in late 2019, providing guarantees to banks as an incentive to securitize EUR 30 billion more in NPLs.  The plan offloads bad debt by wrapping it into asset backed securities via special purpose vehicles that will purchase the NPLs.  The sales are financed by notes issued by the special purpose vehicles with a government guarantee for senior tranches, thereby limiting the risk to the Greek state.  Since all four systemic banks have availed themselves of the plan, the Greek government submitted an official request for an extension of the Hercules scheme on March 16, 2021 that will permit banks to further reduce non-performing loans (NPLs) in 2021 and 2022.

Poor asset quality inhibits banks’ ability to provide systemic financing, although the situation is slowly improving.  The annual growth rate of total deposits increased to 8.5% in 2020.   Deposits increased by roughly EUR 9 billion over 2019, up from around EUR 200 billion in early 2019, a significant improvement from the crisis years, when deposits shrunk from their highest level of EUR237 billion in September 2009 to around EUR123 billion in September 2017.  Greece’s systemic banks held the following assets at the end of 2020:  Piraeus Bank, EUR71.6 billion; National Bank of Greece, EUR64.3 billion; Alpha Bank, EUR70 billion; and Eurobank, EUR67.7 billion.

Few U.S. financial institutions have a retail presence in Greece.  In September 2014, Alpha Bank acquired the retail operations of Citibank, including Diners Club.  Bank of America serves only companies and some special classes of pensioners.

There are a limited number of cross-shareholding arrangements among Greek businesses.  To date, the objective of such arrangements has not been to restrict foreign investment.  The same applies to hostile takeovers, a practice which has been recently introduced in the Greek market.  The government actively encourages foreign portfolio investment.

Greece has a reasonably efficient capital market that offers the private sector a wide variety of credit instruments.  Credit is allocated on market terms prevailing in the eurozone and credit is equally accessible by Greek and foreign investors.  An independent regulatory body, the Hellenic Capital Market Commission, supervises brokerage firms, investment firms, mutual fund management companies, portfolio investment companies, real estate investment trusts, financial intermediation firms, clearing houses and their administrators (e.g. the Athens Stock Exchange), and investor indemnity and transaction security schemes (e.g. the Common Guarantee Fund and the Supplementary Fund), and also encourages and facilitates portfolio investments.

Owner-registered bonds and shares are traded on the Athens Stock Exchange (ASE).  It is mandatory in Greece for the shares of banking, insurance, and public utility companies to be registered.  Greek corporations listed on the ASE that are also state contractors are required to have all their shares registered.

Greece has not announced that it intends to implement or allow the implementation of blockchain technologies in its banking transactions.

Foreign Exchange and Remittances

Foreign Exchange

Greece’s foreign exchange market adheres to EU rules on the free movement of capital.  Although the government imposed capital controls in 2015, at the height of the crisis, on September 1, 2019, all capital controls were removed.  Greece is a member of the eurozone, which employs a freely floating exchange rate.  Greece is not engaged in currency manipulation for the purpose of gaining a competitive advantage.

Remittance Policies

On September 1, 2019, all capital controls were removed.

Sovereign Wealth Funds

There are no sovereign wealth funds in Greece.  Public pension funds may invest up to 20% of their reserves in state or corporate bonds.

Greek state-owned enterprises (SOEs) are active in utilities, transportation, energy, media, health, and the defense industry.  There is no official website with a list of SOEs.

Bank of Greece: partially-owned (Greek state shares cannot exceed 35%); over 1,800 employees; governed by a Governor appointed by the government

Public Gas Corporation of Greece (DEPA): majority-owned by Greek state (65%); Net income EUR131 million in 2016; Total assets EUR3.1 billion in 2016; governed by Ministry of Development; Government is in the process of splitting the company and privatizing its infrastructure and commercial operations.

Hellenic Aerospace Industry: wholly-owned; Total assets EUR932.5 million in 2014; Net income EUR13.7 million in 2014; over 1,300 employees

Hellenic Financial Stability Fund: governed by General Council and Executive Board

Hellenic Post: majority-owned (90% by Greek state); Net income EUR15.5 million in 2017

Hellenic Vehicle Organization: majority-owned (51% owned by Greek state); around 400 employees; Total assets around EUR69 million; governed by Board of Directors

Water Supply and Sewerage Company (EYDAP): majority-owned (34% by Greek state); governed by Board of Directors

Public Power Corporation: majority-owned (51% by Greek state); Total assets EUR14.1 billion in 2018; over 16,700 employees

Most Greek SOEs are structured under the auspices of the Hellenic Corporation for Assets and Participations (HCAP), an independent holding company for state assets mandated by Greece’s 2015 bailout and formally launched in 2016.  HCAP’s supervisory board is independent from the Greek state and is appointed in part by Greece’s creditor institutions.  Some SOEs are still supervised by the Finance Ministry’s Special Secretariat for Public Enterprises and Organizations, established by Law 3429/2005.  Private companies previously were not allowed to enter the market in sectors where the SOE functioned as a monopoly, such as water, sewage, or urban transportation.  However, several of these SOEs are planned for privatization as a requirement of the country’s bailout programs, intended to liberalize markets and raise revenues for the state.

Official government statements on privatization since 2015 have sometimes led to confusion among investors.  Some senior officials have declared their opposition to previously approved privatization projects, while other officials have maintained the stance that the government remains committed to the sale of SOEs.  The current government has expressed its commitment and is moving forward with privatizations, including DEPA and some of the port assets.  Under the bailout agreement, Greece has moved forward with the deregulation of the electricity market, adopting the Target Model in November 2020.  In sectors opened to private investment, such as the telecommunications market, private enterprises compete with public enterprises under the same nominal terms and conditions with respect to access to markets, credit, and other business operations, such as licenses and supplies.  Some private sector competitors to SOEs report the government has provided preferential treatment to SOEs in obtaining licenses and leases.  The government actively seeks to end many of these state monopolies and introduce private competition as part of its overall reform of the Greek economy.  Greece – as a member of the EU – participates in the Government Procurement Agreement within the framework of the WTO.  SOEs purchase goods and services from private sector and foreign firms through public tenders.  SOEs are subject to budget constraints, with salary cuts imposed in the past few years on public sector jobs.

Privatization Program

The Hellenic Republic Asset Development Fund (HRADF, or TAIPED in Greek), an independent non-governmental privatization fund, was established in 2011 under Greece’s bailout program to manage the sale or concession of major government assets, to raise substantial state revenue, and to bring in new technology and expertise for the commercial development of these assets.  These include listed and unlisted state-owned companies, infrastructure, and commercially valuable buildings and land.  Foreign and domestic investor participation in the privatization program has generally not been subject to restrictions, although the economic environment during the crisis and subsequent pandemic has challenged the domestic private sector’s ability to raise funds to purchase firms slated for privatization.

The August 2015 ESM bailout agreement required Greece to consolidate the HRADF, the Hellenic Financial Stability Fund (HFSF), the Public Properties Company (ETAD), and a new entity that will manage other state-owned enterprises (SOEs) into the Hellenic Corporation of Assets and Participations (or HCAP), formed by Law 4389/2016.  In March 2017, HCAP received short- and long-term guidelines from the Minister of Finance, and in September 2017, it received strategic guidelines from the Greek state (HCAP’s sole shareholder).

Privatizations are subject to a public bidding process, which is easy to understand, non-discriminatory, and transparent.  Notable privatizations recently completed include the transfer of the 66% of Greece’s gas transmission system operator DESFA to Senfluga Energy Infrastructure Holdings, the sale of 67% of the shares of Thessaloniki Port Authority, the sale of the remaining 5% of the largest telecommunications provider shares to Deutsche Telecom, and rolling stock maintenance and railroad availability services company Rosco.

In February 2019, the government concluded the 20-year extension of the concession agreement of the Athens International Airport, worth EUR1.4 billion euros, and received nine expressions of interest in January 2020 for a 30% stake.  The extension allowed for launch of the tender for the sale of the 30% stake in the airport. In January 2020, the Hellenic Republic Asset Development Fund (HRADF) shortlisted nine parties (from 10 that have originally expressed interest) that were qualified for the next phase of the tender; the binding offers. However, with the arrival of the pandemic in Greece (February-March 2020), and the dramatic drop in the airport operations/revenues, the HRADF has decided to freeze the whole process indefinitely.  In January 2020, the government of Greece launched the legal procedures necessary for privatization of ten regional ports, including Heraklion, Elefsina, and Alexandroupolis, which will be privatized through either partial concession deals or full management schemes.  In January 2021, the European Commission gave the Ministry of Infrastructure and Transportation the approval to proceed with the construction of a road network linking the town of Trikala with the main Egnatia Motorway.  In July 2020, the HRDF proceeded with two tenders for the privatization of the ports of Alexandroupoli and Kavala, that were deemed as more mature projects. In October of the same year six parties (in total) have expressed interest for both ports. In March 2021, the HRADF announced that five parties have been qualified for the binding offers phase of the tenders including two US companies (Quintana Infrastructure & Development, and Black Summit Financial Group).  The project is budgeted at EUR442 million and is expected to promote the energy, economic and tourism development of Central Greece, Thessaly, and Western Macedonia. In March 2020, the commercial operations of DEPA received nine non-binding bids for its sale of a 65% stake.  Hellenic Petroleum maintains the other 35%.  The Public Power Corporation continues to consider the partial privatization of its power distribution operator.  Finally, the Hellenic Gaming Commission awarded a casino operating license to Mohegan Gaming & Entertainment and its Greek partner GEK Terna in January 2020 for an EUR8 billion euro project to develop Athens’ former airport site at Hellinkon into a multi-purpose complex.  The project is expected to begin construction in 2022 after the required permits are issued.

Awareness of corporate social responsibility (CSR) including environmental, social, and governance issues, has been growing over the last decade among both producers and consumers in Greece.  Several enterprises, particularly large ones, in many fields of production and services, have accepted and now promote CSR principles.  Several non-profit business associations have emerged in the last few years (Hellenic Network for Corporate Social Responsibility, Global Sustain, etc.) to disseminate CSR values and to promote them in the business world and society more broadly.  These groups’ members have incorporated programs that contribute to the sustainable economic development of the communities in which they operate; minimize the impacts of their activities on the environment and natural resources; create healthy and safe working conditions for their employees; provide equal opportunities for employment and professional development; and provide shareholders with satisfactory returns through responsible social and environmental management.  Firms that pursue CSR in Greece enhance the public acceptance and respect that they enjoy.  In 2014, the government drafted a National Action Plan for Corporate Social Responsibility for the 2014-2021 period.  The main goal of the plan is to increase the number of companies that recognize and use CSR to formulate their strategies.  Greece has encouraged adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.  There are no alleged/reported human or labor rights concerns relating to CSR that foreign businesses should be aware of.  Greece is not a member of the Extractive Industries Transparency Initiative.  Greece signed the Montreux Document on Private Military and Security Companies in 2009.  It has also been a supporter of the International Code of Conduct for Private Security Service Providers and is a participant in the 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/).

Greece saw a slight increase in perceptions of corruption, as it went up one place to 59 on Transparency International’s 2019 Corruption Perception Index, from 60 in 2019 and 67 in 2018.  By contrast, the country had improved since 2012, partly due to mandatory structural reforms.  Despite these structural improvements, burdensome bureaucracy is reportedly slowing the progress.  Transparency International issued a report in 2018 criticizing the government for improper public procurement actions involving Greek government ministers and the recent appointment of the close advisor to the country’s prime minister to be the head of the Hellenic Competition Commission, which oversees the enforcement of anti-trust legislation.  Transparency International released another report in October 2018, warning of the corruption risks posed by golden visa programs, mentioning Greece as a top issuer of golden visas.  In Transparency International’s 2020 report, the organization outlined the costs directly stemming from the COVID-19 pandemic, including cases of foreign bribery occurring in the health care sector.

On March 19, 2015, the government passed Law 4320, which provides for the establishment of a General Secretariat for Combatting Corruption under the authority of a new Minister of State.  Under Article 12 of the Law, this entity drafts a national anti-corruption strategy, with an emphasis on coordination between anti-corruption bodies within various ministries and agencies, including the Economic Police, the Financial and Economic Crime Unit (SDOE), the Ministries’ Internal Control Units, and the Health and Welfare Services Inspection Body.  Based on Law 4320, two major anti-corruption bodies, the Inspectors-Controllers Body for Public Administration (SEEDD) and the Inspectors-Controllers Body for Public Works (SEDE), were moved under the jurisdiction of the General Secretariat for Combatting Corruption.  A Minister of State for combatting corruption was appointed to the cabinet following the January 2015 elections and given oversight of government efforts to combat corruption and economic crimes.  The minister drafted coordinated plans of action, monitored their implementation, and was given operational control of the Economic Crime division of the Hellenic Police, the SDOE, ministries’ internal control units, and the Health and Welfare Services’ inspection body.  Following the September 2015 national elections, the government abolished the cabinet post of Minister of State for combatting corruption, and  assigned those duties to a new alternate minister for combatting corruption in the Ministry of Justice, Transparency, and Human Rights.

Legislation passed on May 11, 2015, provides a wider range of disciplinary sanctions against state employees accused of misconduct or breach of duty, while eliminating the immediate suspension of an accused employee prior to the completion of legal proceedings.  If found guilty, offenders could be deprived of wages for up to 12 months and forced to relinquish their right to regain a senior post for a period of one to five years.  Certain offenders could also be fined from EUR3,000 to EUR100,000.  The law requires income and asset disclosure by appointed and elected officials, including nonpublic sector employees, such as journalists and heads of state-funded NGOs.  Several different agencies are mandated to monitor and verify disclosures, including the General Inspectorate for Public Administration, the police internal affairs bureau, the Piraeus appeals prosecutor, and an independent permanent parliamentary committee.  Declarations are made publicly available.  The law provides for administrative and criminal sanctions for noncompliance. Penalties range from two to ten years’ imprisonment and fines from EUR10,000 to EUR1 million.  On August 7, 2019, Parliament passed legislation establishing a unified transparency authority by transferring the powers and responsibilities of public administration inspection services to an independent authority.  In November 2019, laws addressing the bribery of officials were amended to include a specific definition of “public official” and to make active bribery of a public official a felony instead of a misdemeanor, punishable by a prison sentence of five to eight years (as opposed to three years).  On November 17, 2020, the government established the Financial Prosecutor’s Office to deal with financial crime in the wake of public complaints about an investigation by the Corruption Prosecutor’s Office into a case involving the pharmaceutical company Novartis.  The new office, headed by a senior prosecutor selected by the Supreme Judicial Council of the Supreme Court, included 16 prosecutors, and became operational in November 2020.

Bribery is a criminal act and the law provides severe penalties for infractions, although diligent implementation and haphazard or uneven enforcement of the law remains an issue.  Historically, the problem has been most acute in government procurement, as political influence and other considerations are widely believed to play a significant role in the evaluation of bids.  Corruption related to the health care system and political party funding are areas of concern, as is the “fragmented” anti-corruption apparatus.  NGOs and other observers have expressed concern over perceived high levels of official corruption.  Permanent and ad hoc government entities charged with combating corruption are understaffed and underfinanced. There is a widespread perception that there are high levels of corruption in the public sector and tax evasion in the private sector, and many Greeks view corruption as the main obstacle to economic recovery.

The Ministry of Justice prosecutes cases of bribery and corruption.  In cases where politicians are involved, the Greek parliament can conduct investigations and/or lift parliamentary immunity to allow a special court action to proceed against the politician.  A December 2014 law does not allow high ranking officials, including the prime minister, ministers, alternate, and deputy ministers, parliament deputies, European Parliament deputies, general and special secretaries, regional governors and vice governors, and mayors and deputy mayors to benefit from more lenient sentences in cases involving official bribes.  In 2019, Parliament passed an amendment to Article 62 of the constitution, which limits parliamentary immunity to acts carried out in the course of parliamentary duties.  In addition, Parliament amended Article 86 of the constitution, abolishing the statute of limitations for crimes committed by ministers and to disallow postponements for trials of ministers.

Greece is a signatory to the UN Anticorruption Convention, which it signed on December 10, 2003, and ratified September 17, 2008.  As a signatory of the OECD Convention on Combating Bribery of Foreign Government Officials and all relevant EU-mandated anti-corruption agreements, the Greek government is committed in principle to penalizing those who commit bribery in Greece or abroad.  The OECD Convention has been in effect since 1999.  Greek accession to other relevant conventions or treaties:

• Council of Europe Civil Law Convention on Corruption: Signed June 8, 2000.  Ratified February 21, 2002.  Entry into force: November 1, 2003.
• Council of Europe Criminal Law Convention on Corruption: Signed January 27, 1999.  Ratified July 10, 2007.  Entry into force: November 1, 2007.
• United Nations Convention against Transnational Organized Crime: Signed on December 13, 2000.  Ratified January 11, 2011.

Resources to Report Corruption

Government Agency

Organization: The Inspectors-Controllers Body for Public Administration
Address: 60 Sygrou Avenue, 11742, Athens
Telephone number: +30-213-215-8800
Email address: seedd@seedd.gr

Watchdog Organization

Organization:  Transparency International Greece
Address:  Solomou 54, 4th floor, 10682 Athens
Telephone number: +30-210-722-4940
Email address: tihellas@otenet.gr

There have been no major terrorist incidents in Greece in recent years; however, domestic groups conduct intermittent small-scale attacks such as targeted package bombs, improvised explosive devices, and unsophisticated incendiary devices (Molotov cocktails) typically targeting properties of political figures, party offices, privately owned vehicles, ministries, police stations, and businesses. In addition, domestic anarchist groups often carry out small-scale attacks targeting government buildings and foreign missions.  Bilateral counterterrorism cooperation with the Greek government remains strong, and support from the Greek security services with respect to the protection of American interests is excellent.  Demonstrations and protests are commonplace in large cities in Greece. While most of these demonstrations and strikes are peaceful and small-scale, they often cause temporary disruption to essential services and traffic, and anarchist groups are known in some cases to attach themselves to other demonstrations to create mayhem.

The masterminds of Greece’s most notorious terrorist groups are currently imprisoned, including leaders of November 17 and Revolutionary Popular Struggle, active between the 1970s and 1990s and responsible for hundreds of attacks and murders.  Greek authorities largely eliminated these groups in advance of the 2004 Olympic Games.  Following the Olympics, a new wave of organizations emerged, including Revolutionary Struggle, Conspiracy of Fire Nuclei, and Sect of Revolutionaries, though authorities rounded up these groups in a wave of arrests between 2009 and 2011, and again in 2014.

Domestic terrorist groups include “OLA,” also known as the Group of Popular Fighters or Popular Fighters Group, which claimed responsibility for the December 2018 bomb outside a private television station and the December 2017 bomb outside an Athens courthouse.  OLA also claimed responsibility for the November 2015 bomb attack at the offices of the Hellenic Federation of Enterprises, which caused extensive damage to the offices and surrounding buildings, the December 2014 attack on the Israeli embassy in Athens, which resulted in no injuries and minor damage to the building, and the attack on the German Ambassador’s residence in Athens in December 2013.  OLA also claimed responsibility for an indirect fire attack on a Mercedes-Benz building on January 12, 2014, and an attack in January 2013 against the headquarters of the then-governing New Democracy party in Athens.

There is an adequate supply of skilled, semi-skilled, and unskilled labor in Greece, although some highly technical skills may be lacking.  Illegal immigrants predominate in the unskilled labor sector in many urban areas, and in rural areas predominately in agriculture.  Greece provides residency permits to migrants for a variety of reasons, including work.  In July 2015, Parliament adopted a law regulating the status of non-EU foreign nationals recruited to work in the country as seasonal workers.  The law also reduces the minimum consecutive residency period in the country required for undocumented migrants to be eligible to apply for a residency permit from ten to seven years, such applications being judged on the applicant’s strong ties to the country.  The same law outlines the requirements for setting work contracts, requires proof of adequate shelter for workers and imposes a EUR1,500 ( USD 1,620) fine for employers who do not do so, requires prepayment of at least one month’s worth of social security for each employee, provides basic labor rights to each worker, and prohibits employers from recruiting workers if found to have previously recruited workers through fraudulent means.  The law also stipulates that daily wages for non-EU foreign seasonal workers cannot be less than that of an unqualified worker.  The law grants seasonal non-EU foreign workers the same rights as citizens with respect to minimum age of employment, labor conditions, the right to association, unionism, collective bargaining, education and vocational training, employment consultation services, and the right to certain goods, services and benefits under conditions.  The same law also provides that non-EU nationals who are victims of abusive conditions or labor accidents could be eligible to apply for a residency permit on humanitarian grounds.

Asylum-seekers are eligible to apply for a work permit once they complete their first asylum interview; however, the procedures for obtaining this permit were not widely understood by asylum-seekers, non-governmental organizations (NGOs), or government officials.  As of February 2021, the Greek Asylum Service had 74,934 cases pending, with the backlog expected to be cleared before the end of 2021.  Asylum services and receipt of applications were suspended from March 13-April 10, 2020, due to the COVID-19 pandemic.  Recognized refugees are entitled to the same labor rights as Greek nationals.  NGOs and government officials working in migrant sites reported that some asylum-seekers perform undeclared seasonal agricultural labor in rural areas.

In April 2019, Greece announced a wage subsidy scheme called “Rebrain Greece,” which provides 500 talented Greeks that moved abroad during the financial crisis with a EUR3,000 monthly salary if they return to Greece.  The program hopes to reinvigorate high-skilled sectors of the economy.  In December 2020, the Greek Parliament passed Law 4758 that involved a tax break for those foreign nationals who would transfer their tax residence to Greece.  Digital nomads who choose to work in Greece can take advantage of a 50 percent tax break for their first seven years of residency.

Greece has ratified International Labor Organization (ILO) Core Conventions.  Specific legislation provides for the right of association and the rights to strike, organize, and bargain collectively.  Greek labor laws set a minimum age (15) and wage for employment, determine acceptable work conditions and minimum occupational health and safety standards, define working hours, limit overtime, and apply certain rules for the dismissal of personnel.  There is a difference between national minimum wage in the private sector for unspecialized workers aged 25 or older and workers below 25 years of age.  The latter receive 84 percent of the salary of those over 25.  A May 2015 law amended the laws prohibiting strikes during national emergencies.  The 2015 law explicitly prohibits the issuance of civil mobilization orders as a means of countering strike actions before or after their proclamation.

In 2017 parliament passed legislation providing for the temporary closure of businesses in cases where employers repeatedly violate the law concerning undeclared work or safety.  Under the same law, employers are obliged to declare in advance their employees’ overtime or changes in their work schedules.  The legislation also provided for social and welfare benefits to be granted to surrogate mothers, including protection from dismissal during pregnancy and after childbirth.  Courts are required to examine complaints filed by employees against their employers for delayed payment within two months after their filing, and issue decisions within 30 days after the hearing.

The government sets restrictions on mass dismissals in private and public companies employing more than 20 workers.  Dismissals exceeding in number the limits set by law require consultations through the Supreme Labor Council (with worker, employer, and government representatives participating), and government authorization.  Based on a ministerial decision in February 2014, the government shifted competency for approving dismissals from the Minister of Labor to the Ministry’s Secretary General.

Greek law provides for the right of workers to form and join independent unions, conduct their activities without interference, and strike.  The establishment of trade unions in enterprises with fewer than 20 workers is prohibited.  In July 2016, Parliament passed a law allowing armed forces personnel to form unions, while explicitly prohibiting strikes and work stoppages by those unions.  Police also have the right to organize and demonstrate but not to strike.  On July 10, 2020, the parliament separately passed legislation requiring prior and timely announcements – in writing or via email – of demonstrations to the appropriate police or Coast Guard authorities.  The laws also make protest organizers accountable for bodily harm or property damage if they do not follow the requirements.

Around 950 inspectors are authorized to conduct labor inspections, including labor inspectorate personnel and staff of the Ministry of Labor, Social Security, and Social Solidarity, the Social Insurance Fund, the Economic Crimes Division of the police, and the Independent Authority for Public Revenue.  Despite government efforts to increase inspections for undeclared, under-declared, and unpaid work, trade unions and the media alleged that, due to insufficient inspectorate staffing, enforcement of labor standards was inadequate in the housekeeping services, tourism, and agricultural sectors.  Enforcement was also lacking among small enterprises (employing 10 or fewer persons).  According to the Union of Labor Health Inspectors, authorities conducted approximately 45,000 inspections related to issues of health and safety at work, and ordered fines amounting to 7 million euros ( USD 8.4 million) between 2015 and 2016.

Wage laws are not always enforced.  Unions and media allege that some private businesses forced their employees to return part of their wages and mandatory seasonal bonuses, in cash, after being deposited in the bank.  Several employees were reportedly registered as part-time workers but in essence worked additional hours without being paid.  In other cases, employees were paid after months of delays and oftentimes with coupons and not in cash.  Cases of employment for up to 30 consecutive days of work without weekends off were also reported.  Such violations were mostly noted in the tourism, agriculture, and housekeeping services sectors.

On July 1, 2019, Greece introduced Law 4611/2019, requiring Greek employers to provide a lawful reason when terminating employees on indefinite-term contracts, to pay social security contributions on behalf of interns and apprentices, and introduced new health and safety requirements including use of motorcycles for employment purposes.

Please note that the following tables include FDI statistics from three different sources, and therefore will not be identical.  Table 2 uses BEA data when available, which measures the stock of FDI by the market value of the investment in the year the investment was made (often referred to as historical value).  This approach tends to undervalue the present value of FDI stock because it does not account for inflation.  BEA data is not available for all countries, particularly if only a few U.S. firms have direct investments in a country.  In such cases, Table 2 uses other sources that typically measure FDI stock in current value (or historical values adjusted for inflation).  Even when Table 2 uses BEA data, Table 3 uses the IMF’s Coordinated Direct Investment Survey (CDIS) to determine the top five sources of FDI in the country.  The CDIS measures FDI stock in current value, which means that if the U.S. is one of the top five sources of inward investment, U.S. FDI into the country will be listed in this table.  That value will come from the CDIS and therefore will not match the BEA data.

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

* Source for Host Country Data: https://www.bankofgreece.gr/en/statistics/external-sector/direct-investment/direct-investment—stocks

Table 3: Sources and Destination of FDI

The results are consistent with host country data found here: https://www.bankofgreece.gr/en/statistics/external-sector/direct-investment/direct-investment—stocks

Table 4: Sources of Portfolio Investment

The results are consistent with host country data.

Policies Towards Foreign Direct Investment

Hong Kong is the world’s second-largest recipient of foreign direct investment (FDI), according to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2020, with a significant amount bound for mainland China.  The HKG’s InvestHK encourages inward investment, offering free advice and services to support companies from the planning stage through to the launch and expansion of their business.  U.S. and other foreign firms can participate in government financed and subsidized research and development programs on a national treatment basis.  Hong Kong does not discriminate against foreign investors by prohibiting, limiting, or conditioning foreign investment in a sector of the economy.

Capital gains are not taxed, nor are there withholding taxes on dividends and royalties.  Profits can be freely converted and remitted.  Foreign-owned and Hong Kong-owned company profits are taxed at the same rate – 16.5 percent.  The tax rate on the first USD 255,000 profit for all companies is currently 8.25 percent.  No preferential or discriminatory export and import policies affect foreign investors.  Domestic industries receive no direct subsidies.  Foreign investments face no disincentives, such as quotas, bonds, deposits, or other similar regulations.

According to HKG statistics, 3,983 overseas companies had regional operations registered in Hong Kong in 2020.  The United States has the largest number with 690.  Hong Kong is working to attract more start-ups as it works to develop its technology sector, and about 26 percent of start-ups in Hong Kong come from overseas.

Hong Kong’s Business Facilitation Advisory Committee is a platform for the HKG to consult the private sector on regulatory proposals and implementation of new or proposed regulations.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors can invest in any business and own up to 100 percent of equity.  Like domestic private entities, foreign investors have the right to engage in all forms of remunerative activity.

The HKG owns virtually all land in Hong Kong, which the HKG administers by granting long-term leases without transferring title.  Foreign residents claim that a 15 percent Buyer’s Stamp Duty on all non-permanent-resident and corporate buyers discriminates against them.

The main exceptions to the HKG’s open foreign investment policy are:

Broadcasting – Voting control of free-to-air television stations by non-residents is limited to 49 percent.  There are also residency requirements for the directors of broadcasting companies.

Legal Services – Foreign lawyers at foreign law firms may only practice the law of their jurisdiction.  Foreign law firms may become “local” firms after satisfying certain residency and other requirements.  Localized firms may thereafter hire local attorneys but must do so on a 1:1 basis with foreign lawyers.  Foreign law firms can also form associations with local law firms.

Other Investment Policy Reviews

Hong Kong last conducted the Trade Policy Review in 2018 through the World Trade Organization (WTO).  https://www.wto.org/english/tratop_e/tpr_e/g380_e.pdf

Business Facilitation

The Efficiency Office under the Innovation and Technology Bureau is responsible for business facilitation initiatives aimed at improving the business regulatory environment of Hong Kong.

The e-Registry (https://www.eregistry.gov.hk/icris-ext/apps/por01a/index) is a convenient and integrated online platform provided by the Companies Registry and the Inland Revenue Department for applying for company incorporation and business registration.  Applicants, for incorporation of local companies or for registration of non-Hong Kong companies, must first register for a free user account, presenting an original identification document or a certified true copy of the identification document.  The Companies Registry normally issues the Business Registration Certificate and the Certificate of Incorporation on the same day for applications for company incorporation.  For applications for registration of a non-Hong Kong company, it issues the Business Registration Certificate and the Certificate of Registration two weeks after submission.

Outward Investment

As a free market economy, Hong Kong does not promote or incentivize outward investment, nor restrict domestic investors from investing abroad.  Mainland China and British Virgin Islands were the top two destinations for Hong Kong’s outward investments in 2019 (based on most recent data available).

Hong Kong has bilateral investment agreements with Australia, Austria, the Belgium-Luxembourg Economic Union, Canada, Chile, Denmark, Finland, France, Germany, Italy, Japan, South Korea, Kuwait, the Netherlands, New Zealand, Sweden, Switzerland, Thailand, the United Arab Emirates, the United Kingdom, and the Association of Southeast Asian Nations (ASEAN).  It has concluded but not yet signed agreements with Bahrain, Myanmar, and Maldives.  Hong Kong has also signed an investment agreement with Mexico, but it is not yet in force.  The HKG is currently negotiating agreements with Iran, Turkey, and Russia.  All such agreements are based on a model text approved by mainland China through the Sino-British Joint Liaison Group.  U.S. firms are generally not at a competitive or legal disadvantage.

Hong Kong has a free trade agreement (FTA) with mainland China, the Closer Economic Partnership Arrangement (CEPA), which provides tariff-free export to mainland China of Hong Kong-origin goods and preferential access for specific services.  CEPA has gradually expanded since its signing in 2003.  Under the CEPA framework, Hong Kong enjoys liberalized trade in services using a “negative list” covering 134 service sectors for Hong Kong and grants national treatment to Hong Kong’s 62 service industries.  Hong Kong also enjoys most-favored nation treatment, with liberalization measures included in FTAs signed by mainland China and other countries automatically extended to Hong Kong.  Hong Kong and mainland China have also signed an investment agreement and an economic and technical cooperation agreement.  The investment agreement includes provision of national treatment and non-services investment using a negative list approach.

Hong Kong also has FTAs with New Zealand, member states of the European Free Trade Association, Chile, Macau, ASEAN, Georgia, the Maldives, and Australia.  These agreements are consistent with the provisions of the WTO.  Hong Kong is exploring FTAs with the Pacific Alliance (Chile, Colombia, Mexico, and Peru) and the United Kingdom.  Hong Kong is keenly interested in joining the Regional Comprehensive Economic Partnership.

The United States does not have a bilateral treaty on the avoidance of double taxation with Hong Kong, but has a Tax Information Exchange Agreement and an Inter-Government Agreement on the Foreign Account Tax Compliance Act with Hong Kong.  As of April 2020, the HKG had Comprehensive Avoidance of Double Taxation Agreements (CDTAs) with 43 tax jurisdictions, and negotiations with 14 tax jurisdictions are underway.  The HKG targets to bring the total number of CDTAs to 50 by the end of 2022.  In September 2018, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters signed by mainland China entered into force for Hong Kong.  Effective January 2021, the number of reportable jurisdictions increased from 75 to 126.

Under the President’s Executive Order on Hong Kong Normalization, which directs the suspension or elimination of special and preferential treatment for Hong Kong, the United States notified the Hong Kong authorities in August 2020 of its suspension of the Reciprocal Tax Exemptions on Income Derived from the International Operation of Ships Agreement.

Transparency of the Regulatory System

Hong Kong’s regulations and policies typically strive to avoid distortions or impediments to the efficient mobilization and allocation of capital and to encourage competition.  Bureaucratic procedures and “red tape” are usually transparent and held to a minimum.

In amending or making any legislation, including investment laws, the HKG conducts a three-month public consultation on the issue concerned which then informs the drafting of the bill.  Lawmakers then discuss draft bills and vote.  Hong Kong’s legal, regulatory, and accounting systems are transparent and consistent with international norms.

Gazette is the official publication of the HKG.  This website https://www.gld.gov.hk/egazette/english/whatsnew/whatsnew.html is the centralized online location where laws, regulations, draft bills, notices, and tenders are published.  All public comments received by the HKG are published at the websites of relevant policy bureaus.

The Office of the Ombudsman, established in 1989 by the Ombudsman Ordinance, is Hong Kong’s independent watchdog of public governance.

Public finances are regulated by clear laws and regulations.  The Basic Law prescribes that authorities strive to achieve a fiscal balance and avoid deficits.  There is a clear commitment by the HKG to publish fiscal information under the Audit Ordinance and the Public Finance Ordinance, which prescribe deadlines for the publication of annual accounts and require the submission of annual spending estimates to the Legislative Council (LegCo).  There are few contingent liabilities of the HKG, with details of these items published about seven months after the release of the fiscal budget.  In addition, LegCo members have a responsibility to enhance budgetary transparency by urging government officials to explain the government’s rationale for the allocation of resources.  All LegCo meetings are open to the public so that the government’s responses are available to the general public.

On March 29, 2021, the Hong Kong Financial Services and Treasury Bureau submitted to Hong Kong’s Legislative Council plans to restrict the public from accessing certain information about executives in the Company Registry.  If passed, companies will be allowed immediately to withhold information on the residential addresses and identification numbers of directors and secretaries.  Corporate governance and financial experts warned that the proposal could enable fraud and further hurt the city’s status as a transparent financial hub.   Media organizations criticized the plan for undermining transparency and freedom of information.

International Regulatory Considerations

Hong Kong is an independent member of the WTO and Asia-Pacific Economic Co-operation (APEC), adopting international norms.  It notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade and was the first WTO member to ratify the Trade Facilitation Agreement (TFA).  Hong Kong has achieved a 100 percent rate of implementation commitments.

Legal System and Judicial Independence

Hong Kong’s common law system is based on the United Kingdom’s, and judges are appointed by the Chief Executive on the recommendation of the Judicial Officers Recommendation Commission.  Regulations or enforcement actions are appealable, and they are adjudicated in the court system.

Hong Kong’s commercial law covers a wide range of issues related to doing business.  Most of Hong Kong’s contract law is found in the reported decisions of the courts in Hong Kong and other common law jurisdictions.

The imposition of the NSL and pressure from the PRC authorities raised serious concerns about the longevity of Hong Kong’s judicial independence.  The NSL authorizes the mainland China judicial system, which lacks judicial independence and has a 99 percent conviction rate, to take over any national security-related case at the request of the Hong Kong government or the Office of Safeguarding National Security.  Under the NSL, the Hong Kong Chief Executive is required to establish a list of judges to handle all cases concerning national security-related offenses.  Although Hong Kong’s judiciary selects the specific judge(s) who will hear any individual case, some commentators argued that this unprecedented involvement of the Chief Executive weakens Hong Kong’s judicial independence.

Media outlets controlled by the PRC central government in both Hong Kong and mainland China repeatedly accused Hong Kong judges of bias following the acquittals of protesters accused of rioting and other crimes.  Some Hong Kong and PRC central government officials questioned the existence of the “separation of powers” in Hong Kong, including some statements that judicial independence is not enshrined in Hong Kong law and that judges should follow “guidance” from the government.

Laws and Regulations on Foreign Direct Investment

Hong Kong’s extensive body of commercial and company law generally follows that of the United Kingdom, including the common law and rules of equity.  Most statutory law is made locally.  The local court system, which is independent of the government, provides for effective enforcement of contracts, dispute settlement, and protection of rights.  Foreign and domestic companies register under the same rules and are subject to the same set of business regulations.

The Hong Kong Code on Takeovers and Mergers (1981) sets out general principles for acceptable standards of commercial behavior.

The Companies Ordinance (Chapter 622) applies to Hong Kong-incorporated companies and contains the statutory provisions governing compulsory acquisitions.  For companies incorporated in jurisdictions other than Hong Kong, relevant local company laws apply.  The Companies Ordinance requires companies to retain accurate and up to date information about significant controllers.

The Securities and Futures Ordinance (Chapter 571) contains provisions requiring shareholders to disclose interests in securities in listed companies and provides listed companies with the power to investigate ownership of interests in its shares.  It regulates the disclosure of inside information by listed companies and restricts insider dealing and other market misconduct.

Competition and Antitrust Laws

The independent Competition Commission (CC) investigates anti-competitive conduct that prevents, restricts, or distorts competition in Hong Kong.  In December 2020, the CC filed Hong Kong’s first abuse of substantial market power case in the Competition Tribunal against Linde HKO and its Germany-based parent company Linde GmbH for leveraging substantial market power in the production and supply of medical oxygen, medical nitrous oxide, Entonox, and medical air to maintain a stranglehold over the downstream maintenance market.

Expropriation and Compensation

The U.S. Consulate General is not aware of any expropriations in the recent past.  Expropriation of private property in Hong Kong may occur if it is clearly in the public interest and only for well-defined purposes such as implementation of public works projects.  Expropriations are to be conducted through negotiations, and in a non-discriminatory manner in accordance with established principles of international law.  Investors in and lenders to expropriated entities are to receive prompt, adequate, and effective compensation.  If agreement cannot be reached on the amount payable, either party can refer the claim to the Land Tribunal.

Dispute Settlement

ICSID Convention and New York Convention

The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) apply to Hong Kong.  Hong Kong’s Arbitration Ordinance provides for enforcement of awards under the 1958 New York Convention.

Investor-State Dispute Settlement

The U.S. Consulate General is not aware of any investor-state disputes in recent years involving U.S. or other foreign investors or contractors and the HKG.  Private investment disputes are normally handled in the courts or via private mediation.  Alternatively, disputes may be referred to the Hong Kong International Arbitration Center.

International Commercial Arbitration and Foreign Courts

The HKG accepts international arbitration of investment disputes between itself and investors and has adopted the United Nations Commission on International Trade Law model law for domestic and international commercial arbitration.  It has a Memorandum of Understanding with mainland China modelled on the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) for reciprocal enforcement of arbitral awards.

Under Hong Kong’s Arbitration Ordinance emergency relief granted by an emergency arbitrator before the establishment of an arbitral tribunal, whether inside or outside Hong Kong, is enforceable.  The Arbitration Ordinance stipulates that all disputes over intellectual property rights may be resolved by arbitration.

The Mediation Ordinance details the rights and obligations of participants in mediation, especially related to confidentiality and admissibility of mediation communications in evidence.

Third party funding for arbitration and mediation came into force on February 1, 2019.

Foreign judgments in civil and commercial matters may be enforced in Hong Kong by common law or under the Foreign Judgments (Reciprocal Enforcement) Ordinance, which facilitates reciprocal recognition and enforcement of judgments based on reciprocity.  A judgment originating from a jurisdiction that does not recognize a Hong Kong judgment may still be recognized and enforced by the Hong Kong courts, provided that all the relevant requirements of common law are met.  However, a judgment will not be enforced in Hong Kong if it can be shown that either the judgment or its enforcement is contrary to Hong Kong’s public policy.

In January 2019, Hong Kong and mainland China signed a new Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the mainland and of Hong Kong to facilitate enforcement of judgments in the two jurisdictions.  The arrangement, which as of February 2021 is still pending implementing legislation, will cover the following key features: contractual and tortious disputes in general; commercial contracts, joint venture disputes, and outsourcing contracts; intellectual property rights, matrimonial or family matters; and judgments related to civil damages awarded in criminal cases.

Bankruptcy Regulations

Hong Kong’s Bankruptcy Ordinance provides the legal framework to enable i) a creditor to file a bankruptcy petition with the court against an individual, firm, or partner of a firm who owes him/her money; and ii) a debtor who is unable to repay his/her debts to file a bankruptcy petition against himself/herself with the court.  Bankruptcy offenses are subject to criminal liability.

The Companies (Winding Up and Miscellaneous Provisions) Ordinance aims to improve and modernize the corporate winding-up regime by increasing creditor protection and further enhancing the integrity of the winding-up process.

The Commercial Credit Reference Agency collates information about the indebtedness and credit history of SMEs and makes such information available to members of the Hong Kong Association of Banks and the Hong Kong Association of Deposit Taking Companies.

Hong Kong’s average duration of bankruptcy proceedings is just under ten months, ranking 45th in the world for resolving insolvency, according to the World Bank’s Doing Business 2020 rankings.

Investment Incentives

Hong Kong imposes no export performance or local content requirements as a condition for establishing, maintaining, or expanding a foreign investment.  There are no requirements that Hong Kong residents own shares, that foreign equity is reduced over time, or that technology is transferred on certain terms.  The HKG does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.

The HKG allows a deduction on interest paid to overseas-associated corporations and provides an 8.25 percent concessionary tax rate derived by a qualifying corporate treasury center.

The HKG offers an effective tax rate of around three to four percent to attract aircraft leasing companies to develop business in Hong Kong.

The HKG has set up multiple programs to assist enterprises in securing trade finance and business capital, expanding markets, and enhancing overall competitiveness.  These support measures are available to any enterprise in Hong Kong, irrespective of origin.

Hong Kong-registered companies with a significant proportion of their research, design, development, production, management, or general business activities located in Hong Kong are eligible to apply to the Innovation and Technology Fund (ITF), which provides financial support for research and development (R&D) activities in Hong Kong.  Hong Kong Science & Technology Parks (Science Park) and Cyberport are HKG-owned enterprises providing subsidized rent and financial support through incubation programs to early-stage startups.

The HKG offers additional tax deductions for domestic expenditure on R&D incurred by firms.  Firms enjoy a 300 percent tax deduction for the first HKD 2 million (USD 255,000) qualifying R&D expenditure and a 200 percent deduction for the remainder.  Since 2017, the Financial Secretary has announced over HKD 120 billion (USD 15.3 billion) in funding to support innovation and technology development in Hong Kong.  These funds are largely directed at supporting and adding programs through the ITF, Science Park, and Cyberport.

In February 2009, HKD 20 billion (USD 2.6 billion) was  earmarked for the Research Endowment Fund, which provides research grants to academics and universities.  In February 2018, another HKD 10 billion (USD 1.3 billion) was set aside to provide financial incentives to foreign universities to partner with Hong Kong universities and establish joint research projects housed in two research clusters in Science Park, one specializing in artificial intelligence and robotics and the other specializing in biotechnology.  In February 2018, another HKD 20 billion (USD 2.6 billion) was appropriated to begin construction on a second, larger Science Park, located on the border with Shenzhen, which is intended to provide a much larger number of subsidized-rent facilities for R&D which are also expected to have special rules allowing mainland residents to work onsite without satisfying normal immigration procedures.

The Technology Talent Admission Scheme provides a fast-track arrangement for eligible technology companies/institutes to admit overseas and mainland technology talent to undertake R&D for them in the areas of biotechnology, artificial intelligence, cybersecurity, robotics, data analytics, financial technologies, and material science are eligible for application.  The Postdoctoral Hub Program provides funding support to recipients of the ITF, as well as incubatees and tenants of Science Park and Cyberport, to recruit up to two postdoctoral talents for R&D. Applicants must have a doctoral degree in a science, technology, engineering, and mathematics-related discipline from either a local university or a well-recognized non-local institution.

In July 2020, the HKG launched a USD 256.4 million Re-industrialization Funding Scheme to subsidize manufacturers, on a matching basis, setting up smart production lines in Hong Kong.

The Pilot Bond Grant Scheme launched by the Hong Kong Monetary Authority (HKMA) in May 2018 is aimed at improving Hong Kong’s competitiveness in the international bond market by enhanced tax concessions for qualifying debt instruments.  The HKG supports first-time issues with a grant of up to 50 percent of the eligible issuance expenses, with a cap of HKD 2.5 million (USD 320,500) for issues with a credit rating from a credit rating agency recognized by the Hong Kong Monetary Authority (HKMA), or a cap of HKD 1.25 million (USD 160,200) for issues that do not have a credit rating and where neither the issuer nor the issue’s guarantor have a credit rating.

In October 2020, the HKG launched a USD 38 million pilot subsidy scheme to encourage the logistics industry to enhance productivity through the application of technology.

Starting from December 2020, a USD 25.6 million Green Tech Fund (GTF) is open for applications.  The GTF provides funding supports to R&D projects which can help Hong Kong decarbonize and enhance environmental protection.  The amount of funding for each project ranges from USD 320,500 to USD 3.9 million, and each project may last up to five years.

In February 2021, the HKG announced a proposal to strengthen Hong Kong’s position as an asset management center.  The HKG planned to introduce in the second quarter of 2021 new legislation to facilitate the re-domicile of foreign investment funds to Hong Kong for registration as Open-ended Fund Companies (OFCs).  The HKG would provide subsidies to cover 70 percent of the expenses (capped at HKD 1 million or USD 125,000) paid to local professional service providers for OFCs set up in or re-domiciled to Hong Kong in the coming three years.

In February 2021, the HKG announced it would consolidate the Pilot Bond Grant Scheme and the Green Bond Grant Scheme into a Green and Sustainable Finance Grant Scheme to subsidize eligible bond issuers and loan borrowers to cover their expenses on bond issuance and external review services.

Foreign Trade Zones/Free Ports/Trade Facilitation

Hong Kong, a free port without foreign trade zones, has modern and efficient infrastructure making it a regional trade, finance, and services center.  Rapid growth has placed severe demands on that infrastructure, necessitating plans for major new investments in transportation and shipping facilities, including a planned expansion of container terminal facilities, additional roadway and railway networks, major residential/commercial developments, community facilities, and environmental protection projects.  Construction on a third runway at Hong Kong International Airport is scheduled for completion by 2023.

Hong Kong and mainland China have a Free Trade Agreement Transshipment Facilitation Scheme that enables mainland-bound consignments passing through Hong Kong to enjoy tariff reductions in the mainland.  The arrangement covers goods traded between mainland China and its trading partners, including ASEAN members, Australia, Bangladesh, Chile, Costa Rica, Iceland, India, New Zealand, Pakistan, Peru, South Korea, Sri Lanka, Switzerland, and Taiwan.

The HKG launched in December 2018 phase one of the Trade Single Window (TSW) to provide a one-stop electronic platform for submitting ten types of trade documents, promoting cross-border customs cooperation, and expediting trade declaration and customs clearance.  Phase two is expected to be implemented in 2023.

The latest version of CEPA has established principles of trade facilitation, including simplifying customs procedures, enhancing transparency, and strengthening cooperation.

Performance and Data Localization Requirements

The HKG does not mandate local employment or performance requirements.  It does not follow a forced localization policy making foreign investors use domestic content in goods or technology.

Foreign nationals normally need a visa to live or work in Hong Kong.  Short-term visitors are permitted to conduct business negotiations and sign contracts while on a visitor’s visa or entry permit.  Companies employing people from overseas must show that a prospective employee has special skills, knowledge, or experience not readily available in Hong Kong.

Hong Kong allows free and uncensored flow of information, though the imposition of the NSL created certain limits on freedom of expression and content, especially those that may be viewed as politically-sensitive such as advocating for Hong Kong’s independence from mainland China.  The freedom and privacy of communication is enshrined in Basic Law Article 30.  The HKG has no requirements for foreign IT providers to turn over source code and does not interfere with data center operations.  However, the NSL introduced a heightened risk of PRC and Hong Kong authorities using expanded legal authorities to collect data from businesses and individuals in Hong Kong for actions that may violate “national security.” For more information, please refer to the Hong Kong business advisory released jointly by the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security on July 16, 2021.

The NSL grants Hong Kong police broad authorities to conduct wiretaps or electronic surveillance without warrants in national security-related cases.  The NSL also empowers police to conduct searches, including of electronic devices, for evidence in national security cases.  Police can also require Internet service providers to provide or delete information relevant to these cases.  In January 2021, the organizer of an online platform alleged that local Internet providers have made the site inaccessible for users in Hong Kong following requests from the Hong Kong government.  One ISP subsequently confirmed that they it blocked a website “in compliance with the requirement issued under the National Security Law.”

Hong Kong does not currently restrict transfer of personal data outside the SAR, but the dormant Section 33 the Personal Data (Privacy) Ordinance would prohibit such transfers unless the personal data owner consents or other specified conditions are met.  The Privacy Commissioner is authorized to bring Section 33 into effect at any time, but it has been dormant since 1995.

In January 2020, the HKG introduced a discussion paper to the LegCo and proposed certain changes to the Personal Data (Privacy) Ordinance with the aim of strengthening data protection in Hong Kong.  One of the amendments proposed was to require data users to formulate a clear data retention policy which specified a retention period for the personal data collected.  Feedback from the LegCo on this discussion paper formed the basis of further consultations with stakeholders and more concrete legislative amendment proposals.  There is no indication on the timeline of any legislative amendments to the Ordinance.

In December 2020, Hong Kong’s Securities and Futures Commission (SFC) required licensed corporations in Hong Kong to seek the SFC’s approval before using the following for storing regulatory records: 1) premises controlled exclusively by an external data storage provider(s) located inside or outside Hong Kong, such as cloud service providers like Google Cloud, Microsoft Azure or Amazon AWS; or 2) server(s) for data storage at data centers located inside or outside Hong Kong.

Real Property

The Basic Law ensures protection of leaseholders’ rights in long-term leases that are the basis of the SAR’s real property system.  The Basic Law also protects the lawful traditional rights and interests of the indigenous inhabitants of the New Territories.  The real estate sector, one of Hong Kong’s pillar industries, is equipped with a sound banking mortgage system.  HK ranked 51st for ease of registering property, according to the World Bank’s Doing Business 2020 rankings.

Land transactions in Hong Kong operate on a deeds registration system governed by the Land Registration Ordinance.  The Land Titles Ordinance provides greater certainty on land title and simplifies the conveyancing process.

Intellectual Property Rights

Hong Kong generally provides strong intellectual property rights (IPR) protection and enforcement and for the most part has instituted an IP regime consistent with international standards.  Hong Kong has effective IPR enforcement capacity, and a judicial system that supports enforcement efforts with an effective public outreach program that discourages IPR-infringing activities.   Despite the robustness of Hong Kong’s IP system, challenges remain, particularly in copyright infringement and effective enforcement against the heavy, bi-directional flow of counterfeit goods.

Hong Kong’s commercial and company laws provide for effective enforcement of contracts and protection of corporate rights.  Hong Kong has filed its notice of compliance with the Trade-Related Aspects of Intellectual Property Rights (TRIPs) requirements of the WTO.  The Intellectual Property Department, which includes the Trademarks and Patents Registries, is the focal point for the development of Hong Kong’s IP regime.  The Customs and Excise Department (CED) is the sole enforcement agency for intellectual property rights (IPR).  Hong Kong has acceded to the Paris Convention for the Protection of Industrial Property, the Bern Convention for the Protection of Literary and Artistic Works, and the Geneva and Paris Universal Copyright Conventions.  Hong Kong also continues to participate in the World Intellectual Property Organization as part of mainland China’s delegation; the HKG has seconded an officer from CED to INTERPOL in Lyon, France to further collaborate on IPR enforcement.

The HKG devotes significant resources to IPR enforcement.  Hong Kong courts have imposed longer jail terms than in the past for violations of Hong Kong’s Copyright Ordinance.  CED works closely with foreign customs agencies and the World Customs Organization to share best practices and to identify, disrupt, and dismantle criminal organizations engaging in IP theft that operate in multiple countries.  The government has conducted public education efforts to encourage respect for IPR.  Pirated and counterfeit products remain available on a small scale at the retail level throughout Hong Kong.

Other IPR challenges include end-use piracy of software and textbooks, internet peer-to-peer downloading, and the illicit importation and transshipment of pirated and counterfeit goods from mainland China and other places in Asia.  Hong Kong authorities have taken steps to address these challenges by strengthening collaboration with mainland Chinese authorities, prosecuting end-use software piracy, and monitoring suspect shipments at points of entry.  It has also established a task force to monitor and crack down on internet-based peer-to-peer piracy.

The Drug Office of Hong Kong imposes a drug registration requirement that requires applicants for new drug registrations to make a non-infringement patent declaration.  The Copyright Ordinance protects any original copyrighted work created or published anywhere in the world and criminalizes copying and distribution of protected works .  The Ordinance also provides rental rights for sound recordings, computer programs, films, and comic books and includes enhanced penalty provisions and other legal tools to facilitate enforcement.  The law defines possession of an infringing copy of computer programs, movies, TV dramas, and musical recordings (including visual and sound recordings) for use in business as an offense but provides no criminal liability for other categories of works.  In June 2020, an amendment bill to implement the Marrakesh Treaty came into effect.

The HKG has consulted unsuccessfully with internet service providers and content user representatives on a voluntary framework for IPR protection in the digital environment.  It has also failed to pass amendments to the Copyright Ordinance that would enhance copyright protection against online piracy.  As of February 2021, the Infringing Website List Scheme (IWLS) established by the Hong Kong Creative Industries Association to clamp down on websites that display pirated content reportedly included 137 infringing websites in the portal.  In addition, 27 HKG agencies have been assigned with an individual password for checking with the IWLS before placing digital advertisements and tenders.

The Patent Ordinance allows for granting an independent patent in Hong Kong based on patents granted by the United Kingdom and mainland China.  Patents granted in Hong Kong are independent and capable of being tested for validity, rectified, amended, revoked, and enforced in Hong Kong courts.  Hong Kong’s Original Grant Patent system, which came into operation in December 2019, takes into account the patent systems generally established in regional and international patent treaties, while maintaining the re-registration system for the granting of standard patents.

The Registered Design Ordinance is modeled on the EU design registration system.  To be registered, a design must be new, and the system requires no substantive examination.  The initial period of five years protection is extendable for four periods of five years each, up to 25 years.

Hong Kong’s trademark law is TRIPS-compatible and allows for registration of trademarks relating to services.  All trademark registrations originally filed in Hong Kong are valid for seven years and renewable for 14-year periods.  Proprietors of trademarks registered elsewhere must apply anew and satisfy all requirements of Hong Kong law.  When evidence of use is required, such use must have occurred in Hong Kong.  In June 2020, Hong Kong implemented the Madrid Protocol.  The HKG will liaise with mainland China to seek application of the Madrid Protocol to Hong Kong beginning in 2022.

Hong Kong has no specific ordinance to cover trade secrets; however, the government has a duty under the Trade Descriptions Ordinance to protect information from being disclosed to other parties.  The Trade Descriptions Ordinance prohibits false trade descriptions, forged trademarks, and misstatements regarding goods and services supplied during trade.

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 no impediments to the free flow of financial resources.  Non-interventionist economic policies, complete freedom of capital movement, and a well-understood regulatory and legal environment make Hong Kong a regional and international financial center.  It has one of the most active foreign exchange markets in Asia.

Assets and wealth managed in Hong Kong posted a record high of USD 3.7 trillion in 2019 (the latest figure available), with two-thirds of that coming from overseas investors.  To enhance the competitiveness of Hong Kong’s fund industry, OFCs as well as onshore and offshore funds are offered a profits tax exemption.

The HKMA’s Infrastructure Financing Facilitation Office (IFFO) provides a platform for pooling the efforts of investors, banks, and the financial sector to offer comprehensive financial services for infrastructure projects in emerging markets.  IFFO is an advisory partner of the World Bank Group’s Global Infrastructure Facility.

Under the Insurance Companies Ordinance, insurance companies are authorized by the Insurance Authority to transact business in Hong Kong.  As of February 2021, there were 165 authorized insurance companies in Hong Kong, 70 of them foreign or mainland Chinese companies.

The Hong Kong Stock Exchange’s total market capitalization surged by 24.0 percent to USD 6.1 trillion in 2020, with 2,538 listed firms at year-end.  Hong Kong Exchanges and Clearing Limited, a listed company, operates the stock and futures exchanges.  The Securities and Futures Commission (SFC), an independent statutory body outside the civil service, has licensing and supervisory powers to ensure the integrity of markets and protection of investors.

No discriminatory legal constraints exist for foreign securities firms establishing operations in Hong Kong via branching, acquisition, or subsidiaries.  Rules governing operations are the same for all firms.  No laws or regulations specifically authorize private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control.

In 2020, a total of 291 Chinese enterprises had “H” share listings on the stock exchange, with combined market capitalization of USD 906 billion.  The Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects allow individual investors to cross trade Hong Kong and mainland stocks.  In December 2018, the ETF Connect, which was planned to allow international and mainland investors to trade in exchange-traded fund products listed in Hong Kong, Shanghai, and Shenzhen, was put on hold indefinitely due to “technical issues.” However, China approved two cross-listings of ETFs between Shanghai Stock exchange and the Tokyo Stock Exchange in June 2019, and between Shenzhen Stock Exchange and Hong Kong Stock Exchange in October 2020.

By the end of 2020, 50 mainland mutual funds and 29 Hong Kong mutual funds were allowed to be distributed in each other’s markets through the mainland-Hong Kong Mutual Recognition of Funds scheme. Hong Kong also has mutual recognition of funds programs with Switzerland, Thailand, Ireland, France, the United Kingdom, and Luxembourg.

Hong Kong has developed its debt market with the Exchange Fund bills and notes program.  Hong Kong Dollar debt stood at USD 292 billion by the end of 2020.  As of November 2020, RMB 1,203.5 billion (USD 180.5 billion) of offshore RMB bonds were issued in Hong Kong.  Multinational enterprises, including McDonald’s and Caterpillar, have also issued debt.  The Bond Connect, a mutual market access scheme, allows investors from mainland China and overseas to trade in each other’s respective bond markets through a financial infrastructure linkage in Hong Kong.  In the first eight months of 2020, the Northbound trading of Bond Connect accounted for 52 percent of foreign investors’ total turnover in the China Interbank Bond Market.  In December 2020, the HKMA and the People’s Bank of China (PBoC) set up a working group to drive the initiative of Southbound trading, with the target of launching it within 2021.

In June 2020, the PBoC, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, the HKMA and the Monetary Authority of Macau announced that they decided to implement a cross-boundary Wealth Management Connect pilot scheme in the Greater Bay Area (GBA), an initiative to economically integrate Hong Kong and Macau with nine cities in Guangdong Province.  Under the scheme, residents in the GBA can carry out cross-boundary investment in wealth management products distributed by banks in the GBA.  These authorities are still working on the implementation details for the scheme.

In December 2020, the SFC concluded its consultation on proposed customer due diligence requirements for OFCs.  The new requirements will enhance the anti-money laundering and counter-financing of terrorism measures with respect to OFCs and better align the requirements for different investment vehicles for funds in Hong Kong.  Upon the completion of the legislative process, the new requirements will come into effect after a six-month transition period.

In February 2021, the HKG announced it would issue green bonds regularly and expand the scale of the Government Green Bond Program to USD 22.5 billion within the next five years.

The HKG requires workers and employers to contribute to retirement funds under the Mandatory Provident Fund (MPF) scheme.  Contributions are expected to channel roughly USD five billion annually into various investment vehicles.  By September of 2020, the net asset values of MPF funds amounted to USD 131 billion.

Money and Banking System

Hong Kong has a three-tier system of deposit-taking institutions: licensed banks (161), restricted license banks (17), and deposit-taking companies (12).  HSBC is Hong Kong’s largest banking group.  With its majority-owned subsidiary Hang Seng Bank, HSBC controls more than 50.9 percent of Hong Kong Dollar (HKD) deposits.  The Bank of China (Hong Kong) is the second-largest banking group, with 15.4 percent of HKD deposits throughout 200 branches.  In total, the five largest banks in Hong Kong had more than USD 2 trillion in total assets at the end of 2019.  Thirty-five U.S. “authorized financial institutions” operate in Hong Kong, and most banks in Hong Kong maintain U.S. correspondent relationships.  Full implementation of the Basel III capital, liquidity, and disclosure requirements completed in 2019.

Credit in Hong Kong is allocated on market terms and is available to foreign investors on a non-discriminatory basis.  The private sector has access to the full spectrum of credit instruments as provided by Hong Kong’s banking and financial system.  Legal, regulatory, and accounting systems are transparent and consistent with international norms.  The HKMA, the de facto central bank, is responsible for maintaining the stability of the banking system and managing the Exchange Fund that backs Hong Kong’s currency.  Real Time Gross Settlement helps minimize risks in the payment system and brings Hong Kong in line with international standards.

Banks in Hong Kong have in recent years strengthened anti-money laundering and counterterrorist financing controls, including the adoption of more stringent customer due diligence (CDD) process for existing and new customers.  The HKMA stressed that “CDD measures adopted by banks must be proportionate to the risk level and banks are not required to implement overly stringent CDD processes.”

In November 2020, the HKG launched a three-month public consultation on its proposed amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.  Among other proposed changes, the HKG suggested introducing a licensing regime for virtual asset services providers and a two-tier registration regime for precious assets dealers.  The HKG will analyze feedback from the public before introducing a draft bill to the LegCo.

The NSL granted police authority to freeze assets related to national security-related crimes.  In October 2020, the HKMA advised banks in Hong Kong to report any transactions suspected of violating the NSL, following the same procedures as for money laundering.  Hong Kong authorities reportedly asked financial institutions to freeze bank accounts of former lawmakers, civil society groups, and other political targets who appear to be under investigation for their pro-democracy activities.

The HKMA welcomes the establishment of virtual banks, which are subject to the same set of supervisory principles and requirements applicable to conventional banks.  The HKMA has granted eight virtual banking licenses by the end of January 2021.

The HKMA’s Fintech Facilitation Office (FFO) aims to promote Hong Kong as a fintech hub in Asia.  FFO has launched the faster payment system to enable bank customers to make cross-bank/e-wallet payments easily and created a blockchain-based trade finance platform to reduce errors and risks of fraud.  The HKMA has signed nine fintech co-operation agreements with the regulatory authorities of Brazil, Dubai, France, Poland, Singapore, Switzerland, Thailand, the United Arab Emirates, and the United Kingdom.

Foreign Exchange and Remittances

Foreign Exchange

Conversion and inward/outward transfers of funds are not restricted.  The HKD is a freely convertible currency linked via de facto currency board to the U.S. dollar.  The exchange rate is allowed to fluctuate in a narrow band between HKD 7.75 – HKD 7.85 = USD 1.

Remittance Policies

There are no recent changes to or plans to change investment remittance policies.  Hong Kong has no restrictions on the remittance of profits and dividends derived from investment, nor reporting requirements on cross-border remittances.  Foreign investors bring capital into Hong Kong and remit it through the open exchange market.

Hong Kong has anti-money laundering (AML) legislation allowing the tracing and confiscation of proceeds derived from drug-trafficking and organized crime.  Hong Kong has an anti-terrorism law that allows authorities to freeze funds and financial assets belonging to terrorists.  Travelers arriving in Hong Kong with currency or bearer negotiable instruments (CBNIs) exceeding HKD 120,000 (USD 15,385) must make a written declaration to the CED.  For a large quantity of CBNIs imported or exported in a cargo consignment, an advanced electronic declaration must be made to the CED.

Sovereign Wealth Funds

The Future Fund, Hong Kong’s wealth fund, was established in 2016 with an endowment of USD 28.2 billion.  The fund seeks higher returns through long-term investments and adopts a “passive” role as a portfolio investor.  About half of the Future Fund has been deployed in alternative assets, mainly global private equity and overseas real estate, over a three-year period.  The rest is placed with the Exchange Fund’s Investment Portfolio, which follows the Santiago Principles, for an initial ten-year period.  In February 2020, the HKG announced that it will deploy 10 percent of the Future Fund to establish a new portfolio, which is called the Hong Kong Growth Portfolio (HKGP), focusing on domestic investments to lift the city’s competitiveness in financial services, commerce, aviation, logistics and innovation.  Between December 2020 and January 2021, the HKMA conducted a market survey to better understand the profiles of private equity firms with interest to become a general partner for the HKGP.

Hong Kong has several major HKG-owned enterprises classified as “statutory bodies.” Hong Kong is party to the Government Procurement Agreement (GPA) within the framework of WTO.  Annex 3 of the GPA lists as statutory bodies the Housing Authority, the Hospital Authority, the Airport Authority, the Mass Transit Railway Corporation Limited, and the Kowloon-Canton Railway Corporation, which procure in accordance with the agreement.

The HKG provides more than half the population with subsidized housing, along with most hospital and education services from childhood through the university level.  The government also owns major business enterprises, including the stock exchange, railway, and airport.

Conflicts occasionally arise between the government’s roles as owner and policymaker.  Industry observers have recommended that the government establish a separate entity to coordinate its ownership of government-held enterprises and initiate a transparent process of nomination to the boards of government-affiliated entities.  Other recommendations from the private sector include establishing a clear separation between industrial policy and the government’s ownership function and minimizing exemptions of government-affiliated enterprises from general laws.

The Competition Law exempts all but six of the statutory bodies from the law’s purview.  While the government’s private sector ownership interests do not materially impede competition in Hong Kong’s most important economic sectors, industry representatives have encouraged the government to adhere more closely to the Guidelines on Corporate Governance of State-owned Enterprises of the Organization for Economic Cooperation and Development (OECD).

Privatization Program

All major utilities in Hong Kong, except water, are owned and operated by private enterprises, usually under an agreement framework by which the HKG regulates each utility’s management.

The Hong Kong Stock Exchange adopts a higher standard of disclosure – ‘comply or explain’ – about its environmental key performance indicators for listed companies.  Results of a consultation process to review its environmental, social, and governance (ESG) reporting guidelines indicate strong support for enhancing the ESG reporting framework.  It has implemented proposals from the consultation process since July 2020.  Because Hong Kong is not a member of the OECD, OECD Guidelines for Multinational Enterprises are not applicable to Hong Kong companies.  The HKG, however, commends enterprises for fulfilling their social responsibility.  Hong Kong is not a signatory of the Montreux Document on Private Military and Security Companies.  Under the Security Bureau, the Security and Guarding Services Industry Authority is responsible for formulating issuing criteria and conditions for security company licenses and security personnel permits and determining applications for security company licenses.

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 ) and;
• 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/).

Mainland China ratified the United Nations Convention Against Corruption in January 2006, and it was extended to Hong Kong in February 2006.  The Independent Commission Against Corruption (ICAC) is responsible for combating corruption and has helped Hong Kong develop a track record for combating corruption.  U.S. firms have not identified corruption as an obstacle to FDI.  A bribe to a foreign official is a criminal act, as is the giving or accepting of bribes, for both private individuals and government employees.  Offenses are punishable by imprisonment and large fines.

The Hong Kong Ethics Development Center (HKEDC), established by the ICAC, promotes business and professional ethics to sustain a level-playing field in Hong Kong.  The International Good Practice Guidance – Defining and Developing an Effective Code of Conduct for Organizations of the Professional Accountants in Business Committee published by the International Federation of Accountants (IFAC) and is in use with the permission of IFAC.

Resources to Report Corruption

Simon Peh, Commissioner
Independent Commission Against Corruption
303 Java Road, North Point, Hong Kong
+852-2826-3111
Email: com-office@icac.org.hk

Beijing’s imposition of the National Security Law (NSL) on June 30, 2020 has introduced heightened uncertainties for companies operating in Hong Kong.  As a result, U.S. citizens traveling through or residing in Hong Kong may be subject to increased levels of surveillance, as well as arbitrary enforcement of laws and detention for purposes other than maintaining law and order.

As of March 2021, police have carried out at least 100 arrests of opposition politicians and activists under the NSL, including one U.S. citizen, in an effort to suppress all pro-democracy views and political activity in the city.  Police have also reportedly issued arrest warrants under the NSL for approximately thirty individuals residing abroad, including U.S. citizens.  Since June 2019, police have arrested over 10,000 people on various charges in connection with largely peaceful protests against government policies.

Please see the July 16, 2021 business advisory issued by the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security.

The Department of State assesses that Hong Kong does not maintain a sufficient degree of autonomy under the “one country, two systems” framework to justify continued special treatment by the United States for bilateral agreements and programs per the Hong Kong Policy Act.  As a result of Hong Kong’s lack of autonomy from China, the Department of Commerce ended Hong Kong’s treatment as a separate trade entity from China, including the removal of many of Department of Commerce’s License Exceptions.  U.S. Customs and Borders Protection (CBP) requires goods produced in Hong Kong to be marked to show China, rather than Hong Kong, as their country of origin.  This requirement took effect November 9, 2020.  It does not affect country of origin determinations for purposes of assessing ordinary duties or temporary or additional duties.  Hong Kong has requested World Trade Organization dispute consultations to examine the issue.  As of March 2021, the Department of Treasury has sanctioned 35 former and current Hong Kong and mainland Chinese government officials and 44 Chinese-military companies identified by the Department of Defense.

The PRC government does not recognize dual nationality.  In January 2021, the Hong Kong government moved to enforce existing provisions of the Nationality Law of the People’s Republic of China in place since 1997, effectively ending its longstanding recognition of dual citizenship in Hong Kong.  The action ended consular access to two detained U.S. citizens as of March 2021 and potentially removed consular protection from about half of the estimated 85,000 U.S. citizens in Hong Kong.  U.S.-PRC, U.S.-Hong Kong and U.S. citizens of Chinese heritage may be subject to additional scrutiny and harassment, and the PRC government may prevent the U.S. Embassy or U.S. Consulate from providing consular services.

Hong Kong financial regulators have conducted outreach to stress the importance of robust anti-money laundering (AML) controls and highlight potential criminal sanctions implications for failure to fulfill legal obligations under local AML laws.  However, Hong Kong has a low number of prosecutions and convictions compared to the number of cases investigated.

Under the President’s Executive Order on Hong Kong Normalization, which directs the suspension or elimination of special and preferential treatment for Hong Kong, the United States notified the Hong Kong authorities in August 2020 of its suspension of the Surrender of Fugitive Offenders Agreement and the Transfer of Sentenced Persons Agreement.  The Reciprocal Tax Exemptions on Income Derived from the International Operation of Ships Agreement was also suspended.  In response, the Hong Kong government suspended the Agreement Between the Government of the United States of America and the Government of Hong Kong on Mutual Legal Assistance in Criminal Affairs, which entered into force in 2000.

Hong Kong’s unemployment rate stood at 6.6 percent in the fourth quarter of 2020, with the unemployment rate of youth aged 15-19 rising to 17.6 percent.  In 2020, skilled personnel working as administrators, managers, professionals, and associate professionals accounted for 40.6 percent of the total working population.  At the end of 2019, there were about 399,320 foreign domestic helpers working in Hong Kong.  In 2020, about 8,842 foreign professionals came to work in the city, more than 10,089 fewer than the previous year.  The Employees Retraining Board provides skills re-training for local employees.  To address a shortage of highly skilled technical and financial professionals, the HKG seeks to attract qualified foreign and mainland Chinese workers.

The Employment Ordinance (EO) and the Employees’ Compensation Ordinance prohibit the termination of employment in certain circumstances: 1) Any pregnant employee who has at least four weeks’ service and who has served notice of her pregnancy; 2) Any employee who is on paid statutory sick leave and; 3) Any employee who gives evidence or information in connection with the enforcement of the EO or relating to any accident at work, cooperates in any investigation of his employer, is involved in trade union activity, or serves jury duty may not be dismissed because of those circumstances. Breach of these prohibitions is a criminal offense.

According to the EO, someone employed under a continuous contract for not less than 24 months is eligible for severance payment if: 1) dismissed by reason of redundancy; 2) under a fixed term employment contract that expires without being renewed due to redundancy; or 3) laid off.

Unemployment benefits are income- and asset-tested on an individual basis if living alone; if living with other family members, the total income and assets of all family members are taken into consideration for eligibility.  Recipients must be between the ages of 15-59, capable of work, and actively seeking full-time employment.

Parties in a labor dispute can consult the free and voluntary conciliation service offered by the Labor Department (LD).  A conciliation officer appointed by the LD will help parties reach a contractually binding settlement.  If there is no settlement, parties can start proceedings with the Labor Tribunal (LT), which can then be raised to the Court of First Instance and finally the Court of Appeal for leave to appeal.  The Court of Appeal can grant leave only if the case concerns a question of law of general public importance.

Local law provides for the rights of association and of workers to establish and join organizations of their own choosing.  The government does not discourage or impede the formation of unions.  As of 2019, Hong Kong’s 866 registered unions had 923,239 members, a participation rate of about 25.7 percent.  In 2020, 491 new worker unions formed to improve chances of winning seats in the legislature.  Hong Kong’s labor legislation is in line with international laws.  Hong Kong has implemented 41 conventions of the International Labor Organization in full and 18 others with modifications.  Workers who allege discrimination against unions have the right to a hearing by the Labor Relations Tribunal.  Legislation protects the right to strike.  Collective bargaining is not protected by Hong Kong law; there is no obligation to engage in it; and it is not widely used.  For more information on labor regulations in Hong Kong, please visit the following website: http://www.labour.gov.hk/eng/legislat/contentA.htm (Chapter 57 “Employment Ordinance”).

The LT has the power to make an order for reinstatement or re-engagement without securing the employer’s approval if it deems an employee has been unreasonably and unlawfully dismissed.  If the employer does not reinstate or re-engage the employee as required by the order, the employer must pay to the employee a sum amounting to three times the employee’s average monthly wages up to USD 9,300.  The employer commits an offense if he/she willfully and without reasonable excuse fails to pay the additional sum.

Starting from January 2019, male employees are entitled to five days’ paternity leave (increased from three days).

Starting from December 2020,  the statutory maternity leave increases to 14 weeks from ten weeks.

Effective May 1, 2019, the statutory minimum hourly wage rate increases from USD 4.4 to USD 4.8.

In February 2020, about 2,500 medical workers of the Hospital Authority took part in an industrial action, demanding the HKG close its border to mainland China to prevent the spread of  COVID-19.  They ended the strike a few days later without getting their demands realized.

* Source for Host Country Data: Hong Kong Census and Statistics Department 

Policies Towards Foreign Direct Investment

Promoting inward FDI has been an important policy goal for the Taiwan authorities because of Taiwan’s self-imposed public debt ceiling limiting public spending and its low levels of private investment. Despite the global economic recession caused by the COVID-19 pandemic, Taiwan’s domestic private investment continued to rise by 5.0 percent in 2020 due to increased reshoring investment by overseas Taiwan companies since late 2018. Taiwan has pursued various measures to attract FDI from both foreign companies and Taiwan firms operating overseas. A network of science and industrial parks, technology industrial zones, and free trade zones aim to expand trade and investment opportunities by granting tax incentives, tariff exemptions, low-interest loans, and other favorable terms. Incentives tend to be more prevalent for investment in the manufacturing sector.

In January 2019, Taiwan launched a reshoring incentive program to attract Taiwan firms operating in the PRC to return to Taiwan and has received favorable responses from Information Communication Technology (ICT) manufacturers. The Ministry of Economic Affairs (MOEA) Department of Investment Services (DOIS) Invest in Taiwan Center serves as Taiwan’s investment promotion agency and provides streamlined procedures for foreign investors, including single-window services and employee recruitment. For investments over New Taiwan Dollar (NTD) 500 million (USD 17.6 million), authorities will assign a dedicated project manager to the investment process. DOIS services are available to all foreign investors. The Centre’s website contains an online investment aid system (https://investtaiwan.nat.gov.tw/smartIndexPage?lang=eng) to help investors retrieve all the required application forms based on various investment criteria and types. Taiwan also passed the Foreign Talent Retention Act to attract foreign professionals with a relaxed visa and work permit issuance process and tax incentives. In the past two years, over 2000 foreigners have received the Taiwan Employment Gold Card, which is a government initiative to attract highly skilled foreign talent to Taiwan (https://goldcard.nat.gov.tw/en/). The MOEA is drafting a proposed amendment to the Statute for Investment by Foreign Nationals, which would replace the existing pre-approval investment review process with an ex-post reporting mechanism and strengthen screening of investment in industries of national security concerns.

Taiwan maintains a negative list of industries closed to foreign investment because the authorities assert relate to national security and environmental protection, including public utilities, power distribution, natural gas, postal service, telecommunications, mass media, and air and sea transportation. These sectors constitute less than one percent of the production value of Taiwan’s manufacturing sector and less than five percent of the services sector. Railway transport, freight transport by small trucks, pesticide manufactures, real estate development, brokerage, leasing, and trading are open to foreign investment. The negative list of investment sectors, last updated in February 2018, is available at http://www.moeaic.gov.tw/download-file.jsp?do=BP&id=ZYi4SMROrBA=.

The Taiwan authorities have been actively promoting the “5+2 Innovative Industries” and six strategic industries development program to accelerate industrial transformation that would boost domestic demand and external market expansion. Target industries include smart machinery, biomedicine, IoT, green energy, national defense, advanced agriculture, circular economy, and semiconductors, among other key sectors. Taiwan authorities also offer subsidies for the research and development expenses for Taiwan-foreign partnership projects. The central authorities take a cautious approach to approving foreign investment in innovative industries that utilize new and potentially disruptive business models, such as the sharing economy.

The American Chamber of Commerce in Taiwan (AmCham Taiwan) meets regularly with Taiwan agencies such as the National Development Council (NDC) to promote the resolution of concerns highlighted in the AmCham Taiwan’s annual White Paper. The authorities also regularly meet with other foreign business groups. Some U.S. investors have expressed concerns about a lack of transparency, consistency, and predictability in the investment review process, particularly regarding private equity investment transactions. Current guidelines on foreign investment state that those private equity investors seeking to acquire companies in “important industries” must provide, for example, a detailed description of the investor’s long-term operational commitment, relisting choices, and the investment’s impact on competition within the sector. U.S. investors have claimed to experience lengthy review periods for private equity transactions and redundant inquiries from the MOEA Investment Commission and its constituent agencies. Some report that public hearings convened by Taiwan regulatory agencies about specific private equity transactions have appeared to advance opposition to private equity rather than foster transparent dialogue. Private equity transactions and other previously approved investments have, in the past, attracted Legislative Yuan scrutiny, including committee-level resolutions opposing specific transactions.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign entities are entitled to establish and own business enterprises and engage in all forms of remunerative activity as local firms unless otherwise specified in relevant regulations. Taiwan sets foreign ownership limits in certain industries, such as a 60 percent limit on foreign ownership of wireless and fixed-line telecommunications firms, including a direct foreign investment limit of 49 percent in that sector. State-controlled Chunghwa Telecom, which controls 97 percent of the fixed-line telecom market, maintains a 49 percent limit on direct foreign investment and a 55 percent limit on overall foreign investment, including indirect ownership. There is a 20 percent limit on foreign direct investment in cable television broadcasting services, and foreign ownership of up to 60 percent is allowed through indirect investment via a Taiwan entity. In practice, however, this kind of investment is subject to heightened regulatory and political scrutiny. In addition, there is a foreign ownership limit of 49.99 percent for satellite television broadcasting services and piped distribution of natural gas and a 49 percent limit for high-speed rail services. The foreign ownership cap on airport ground services firms, air-catering companies, aviation transportation businesses (airlines), and general aviation businesses (commercial helicopters and business jet planes) is less than 50 percent, with a separate limit of 25 percent for any single foreign investor. Foreign investment in Taiwan-flagged merchant shipping services is limited to 50 percent for Taiwan shipping companies operating international routes.

Taiwan has opened more than two-thirds of its aggregate industrial categories to PRC investors, with 97 percent of manufacturing sub-sectors and 51 percent of construction and services sub-sectors open to PRC capital. PRC nationals are prohibited from serving as chief executive officer in a Taiwan company, although a PRC board member may retain management control rights. The Taiwan authorities regard PRC investment in media or advanced technology sectors, such as semiconductors, as a national security concern. The Cross-Strait Agreement on Trade in Services and the Cross-Strait Agreement on Avoidance of Double Taxation and Enhancement of Tax Cooperation were signed in 2013 and 2015, respectively, but have not taken effect. Negotiations on the Agreement on Trade in Goods halted in 2016.

The Investment Commission screens applications for FDI, mergers, and acquisitions. Taiwan authorities claim that 95 percent of investments not subject to the negative list and, with capital less than NTD 500 million (USD 17.6 million), obtain approval at the Investment Commission staff level within two to four days. Investments between NTD 500 million (USD 17.6 million) and NTD 1.5 billion (USD 53 million) in capital take three to five days to screen. The approval authority for these types of transactions rests with the Investment Commission’s executive secretary. For investment in restricted industries, in cases where the investment amount or capital increase exceeds NTD 1.5 billion, or for mergers, acquisitions, and spin-offs, screening takes 10 to 20 days and includes review by relevant supervisory ministries. Final approval rests with the Investment Commission’s executive secretary. Screening for foreign investments involving cross-border mergers and acquisitions or other special situations takes 20-30 days, as these transactions require interagency review and deliberation at the Investment Commission’s monthly meeting.

The screening process provides Taiwan’s regulatory agencies opportunities to attach conditions to investments to mitigate concerns about ownership, structure, or other factors. Screening may also include an assessment of the impact of proposed investments on a sector’s competitive landscape and protection of the rights of local shareholders and employees. Screening is also used to detect investments with unclear funding sources, especially PRC-sourced capital. To ensure monitoring of PRC-sourced investment in line with Taiwan law and public sentiment, Taiwan’s National Security Bureau has participated in every PRC-related investment review meeting regardless of the size of the investment. Blocked deals in recent years have reflected the authorities’ increased focus on national security concerns beyond the negative-list industries. The proposed revisions to the principal investment statute would, if passed, allow the authorities to apply political, social, and cultural sensitivity considerations in their investment review process.

Foreign investors must submit an application form containing the funding plan, business operation plan, entity registration, and documents certifying the inward remittance of investment funds. Applicants and their agents must provide a signed declaration certifying that any PRC investors in a proposed transaction do not hold more than a 30 percent ownership stake and do not retain managerial control of the company. When an investment fails review, an investor may re-apply when the reason for the denial no longer exists. Foreign investors may also petition the regulatory agency that denied approval or may appeal to the Administrative Court.

Other Investment Policy Reviews

Taiwan has been a member of the World Trade Organization (WTO) since 2002. In September 2018, the WTO conducted the fourth review of the trade policies and practices of Taiwan. Related reports and documents are available at: https://www.wto.org/english/tratop_e/tpr_e/tp477_crc_e.htm

Business Facilitation

MOEA has taken steps to improve the business registration process and has been finalizing amendments to the Company Act to make business registration more efficient. Since 2014, the application review period for company registration has been shortened to two days. Applications for a taxpayer identification number, labor insurance (for companies with five or more employees), national health insurance, and pension plans can be processed at the same time and granted decisions within five to seven business days. Since January 1, 2017, foreign investors’ company registration applications are processed by the MOEA’s Central Region Office.

In recent years, the Taiwan authorities revised rules to improve the business climate for startups. To develop Taiwan into a startup hub in Asia, Taiwan authorities launched an entrepreneur visa program allowing foreign entrepreneurs to remain in Taiwan if they meet one of the following requirements: raise at least NTD 2 million (USD 70,400) in funding; hold patent rights or a professional skills certificate; operate in an incubator or innovation park in Taiwan; win prominent startup or design competitions; or receive grants from Taiwan authorities. Starting from 2019, startup entrepreneurs can use intellectual property (IP) as collateral to obtain bank loans, which applies to foreign investors. In September 2020, the Taiwan authorities proposed a new draft amendment to relax the criteria to attract more foreign professionals working in Taiwan.

By the end of 2020, nearly 2,000 people had obtained the Employment Gold Card, which includes a residency permit for the applicant and his/her immediate relatives (parents, spouse, children), a work permit for three years, an alien resident certificate, and a re-entry permit. More than 30 percent of the recipients were Americans. The Employment Gold Card policy helped alleviate recruiting companies’ liability in work permit applications and associated administrative expenditures.

Further details about business registration process can be found in Invest Taiwan Center’s business one-stop service request website at http://onestop.nat.gov.tw/oss/web/Show/engWorkFlow.do

The Investment Commission website lists the rules, regulations, and required forms for seeking foreign investment approval: https://www.moeaic.gov.tw/businessPub.view?lang=en&op_id_one=1

Approval from the Investment Commission is required for foreign investors before proceeding with business registration. After receiving an approval letter from the Investment Commission, an investor can apply for capital verification and then file an application for a corporate name and proceed with business registration. The new company must register with the Bureau of Labor Insurance and the Bureau of National Health Insurance before recruiting and hiring employees.

For the manufacturing, construction, and mining industries, the MOEA defines small and medium-sized enterprises (SMEs) as companies with less than NTD 80 million (USD 2.8 million) of paid-in capital and fewer than 200 employees. For all other industries, SMEs are defined as having less than NTD 100 million (USD 3.5 million) of paid-in capital and fewer than 100 employees. Taiwan runs a Small and Medium Enterprise Credit Guarantee Fund to help SMEs obtain financing from local banks. Firms established by foreigners in Taiwan may receive a guarantee from the Fund. Taiwan’s National Development Fund has set aside NTD 10 billion (USD 350 million) to invest in SMEs.

Outward Investment

The PRC used to be the top destination for Taiwan companies’ overseas investment given the low cost of factors of production there, such as wages and land. With rising trade tensions between the United States and the PRC starting in 2018, the Taiwan authorities have intensified their efforts to assist Taiwan firms to diversify production by either relocating back home or to other markets, including in Southeast Asia. The Tsai administration launched the New Southbound Policy to enhance Taiwan’s economic connection with 18 countries in Southeast Asia, South Asia, and the Pacific. In 2020, Taiwan companies’ investment in the 18 countries totaled USD 2.8 billion. The Taiwan authorities seek investment agreements with these countries to incentivize Taiwan firms’ investment in those markets. Invest in Taiwan provides consultation and loan guarantee services to Taiwan firms operating overseas. Taiwan’s financial regulators have urged Taiwan banks to expand their presence in Southeast Asian economies either by setting up branches or acquiring subsidiaries.

According to the Act Governing Relations between the People of the Taiwan Area and the Mainland Area, all Taiwan individuals, juridical persons, organizations, or other institutions must obtain approval from the Investment Commission to invest in or have any technology-oriented cooperation with the PRC. The Taiwan authorities maintain a negative list for Taiwan firms’ investment and have special rules governing technology cooperation in the PRC. The Taiwan authorities, Taiwan companies, and foreign investors in Taiwan are increasingly vigilant about the threat of IP theft and illegal talent poaching in key strategic industries, such as the semiconductor industry.

Transparency of the Regulatory System

Taiwan generally maintains transparent regulatory and accounting systems that conform to international standards. Publicly listed Taiwan companies have fully adopted International Financial Reporting Standards (IFRS) since 2015 and adopted IFRS 16 in January 2019. Taiwan’s Financial Supervisory Commission has affirmed that Taiwan will begin implementing IFRS 17 in January 2026. Ministries generally originate business-related draft legislation and submit it to the Executive Yuan for review. Following approval by the Executive Yuan, draft legislation is forwarded to the Legislative Yuan for consideration. Legislators can also propose legislation. While the cabinet-level agencies are the primary contact windows for foreign investors before entry, foreign investors also need to abide by local government rules, including those related to transportation services and environmental protection, among others.

Draft laws, rules, and orders are published on The Executive Yuan Gazette Online for public comment. On December 25, 2015, the Taiwan authorities first instituted a 14-day public comment period for new rules but extended it to no less than 60 days beginning December 29, 2016. All draft regulations and laws are required to be available for public comment and advanced notice unless they meet specific criteria allowing a shorter window. While welcomed by the U.S. business community, the 60-day comment period is not uniformly applied. Draft laws and regulations of interest to foreign investors are regularly shared with foreign chambers of commerce for their comments. For the ongoing amendment to the Statute for Investment by Foreign Nationals, the authorities held several regional public hearings and professional consultation meetings before finalizing its draft for the Executive Yuan review.

These announcements are also available for public comment on the NDC’s public policy open discussion forum at https://join.gov.tw/index. Foreign chambers of commerce and Taiwan business groups’ comments on proposed laws and regulations, and Taiwan ministries’ replies, are posted publicly on the NDC website. In October 2017, the NDC launched a separate policy discussion forum specifically for startups, which can be found online at http://law.ndc.gov.tw/, serving as the central platform to harmonize regulatory requirements governing innovative businesses and startups operation.

The Executive Yuan Legal Affairs Committee oversees the enforcement of regulations. Ministries are responsible for enforcement, impact analysis, draft amendments to existing laws, and petitions to laws pursuant to their respective authorities. Impact assessments may be completed by in-house or private researchers. To enhance Taiwan’s regulatory coherence in the wake of regional economic integration initiatives, the NDC in August 2017 released a Regulatory Impact Analysis Operational Manual as a practical guideline for central government agencies.

Taiwan regularly discloses government finance data to the public, including all debts incurred by all levels of government. Past information is also retrievable in a well-maintained fiscal database. Taiwan’s national statistics agency also publishes contingent debt information each year.

International Regulatory Considerations

Taiwan is not a member of any regional economic agreements but is a full member of international economic organizations such as the WTO, APEC, ADB, and Egmont Group. Although Taiwan is not a member of many international organizations, it voluntarily adheres to or adopts international norms, including in the area of finance, such as IFRS. MOEA in July 2014 notified other Taiwan agencies of the requirement to notify the WTO of all draft regulations covered by the WTO’s Agreement on Technical Barriers to Trade and the Agreement on Sanitary and Phytosanitary Measures. Taiwan is a signatory to the Trade Facilitation Agreement (TFA) and has met some of the customs facilitation requirements specified in the TFA, such as single-window customs services and preview of the origin. In January 2018, citing tax parity for domestic retailers and the risk of fraud, Taiwan lowered the de minimis threshold from NTD 3,000 (USD 150) to NTD 2,000 (USD 70), an approach regarded as contrary to facilitating customs clearance and trade, especially for small- and medium-sized U.S. businesses. NDC is in the process of drafting a proposed amendment to the Personal Information Protection Act and related regulations to meet the European Union’s General Data Protection Regulation (GDPR) standards and obtain adequacy status.

Legal System and Judicial Independence

Taiwan has a codified system of law. In addition to the specialized courts, Taiwan has a three-tiered court system composed of the District Courts, the High Courts, and the Supreme Court. The Compulsory Enforcement Act provides a legal basis for enforcing the ownership of property. Taiwan does not have discrete commercial or contract laws. Various laws regulate businesses and specific industries, such as the Company Law, the Commercial Registration Law, the Business Registration Law, and the Commercial Accounting Law. Taiwan’s Civil Code provides the basis for enforcing contracts.

Taiwan’s court system is generally viewed as independent and free from overt interference by other branches of government. Taiwan established its Intellectual Property Court in July 2008 in response to the need for a more centralized and professional litigation system for IPR disputes. There are also specialized labor courts at every level of the court system to deal with labor disputes. Foreign court judgments are final and binding and enforced on a reciprocal basis. Companies can appeal regulatory decisions in the court system.

Laws and Regulations on Foreign Direct Investment

Regulations governing FDI principally derive from the Statute for Investment by Foreign Nationals and the Statute for Investment by Overseas Chinese. These two laws permit foreign investors to transact either in foreign currency or the NTD. The laws specify that foreign-invested enterprises must receive the same regulatory treatment accorded to local firms. Foreign companies may invest in state-owned firms undergoing privatization and are eligible to participate in publicly financed R&D programs.

Amendments the Legislative Yuan passed in June 2015 to the Merger and Acquisition Act clarified investment review criteria for mergers and acquisition transactions. The Investment Commission is drafting amendments to the Statute for Investment by Foreign Nationals to simplify the investment review process. Included is an amendment that would replace a pre-investment approval requirement with a post-investment reporting system for investments under a USD 1 million threshold, which many stakeholders consider too low. Ex–ante approval would still be required for investments in restricted industries and those exceeding the threshold. The new proposal would also allow the authorities to impose various penalties for violations of the law. Guidance that previously required special consideration of the impact of a private equity fund’s investment has been folded into the set of general evaluation criteria for foreign investment in important industries. The MOEA in November 2016 released a supplementary document to clarify required certification for different types of investment applications. This document, which was last revised in 2018 and in Chinese only, can be found at http://www.moeaic.gov.tw/download-file.jsp?do=BP&id=5dRl9fU97Fk=

In December 2020, Taiwan authorities amended the Regulations Governing the Approval of PRC Investment in Taiwan to ensure the complex structure of foreign investments by investors from the PRC do not circumvent the investment control through any indirect investment structure. The new PRC investment rules introduced stricter criteria for identifying PRC investment through third-area intermediary, expanded the scope of investment subject to the authorities’ approval, and forbid PRC investment with any political or military affiliation.

All foreign investment-related regulations, application forms, and explanatory information can be found on the Investment Commission’s website, at http://run.moeaic.gov.tw/MOEAIC-WEB-SRC/OfimDownloadE.aspx

The Invest in Taiwan Portal also provides other relevant legal information of interest to foreign investors, such as labor, entry and exit regulations, at https://investtaiwan.nat.gov.tw/showPageeng1031003?lang=eng&search=1031003

Competition and Antitrust Laws

Taiwan’s Fair Trade Act was enacted in 1992. Taiwan’s Fair Trade Commission (TFTC) examines business practices that might impede fair competition. Parties may appeal a TFTC decision directly to the High Administrative Court. After the High Administrative Court issues its opinion, either party may file an appeal to the Supreme Administrative Court, which will only review decisions to determine if the lower court failed to apply the law.

Expropriation and Compensation

According to Taiwan law, the authorities may expropriate property whenever it is deemed necessary for the public interest, such as for national defense, public works, and urban renewal projects. The U.S. government is not aware of any recent cases of nationalization or expropriation of foreign-invested assets in Taiwan. There are no reports of indirect expropriation or any official actions tantamount to expropriation. Under Taiwan law, no venture with 45 percent or more foreign investment may be nationalized, as long as the 45 percent capital contribution ratio remains unchanged for 20 years after establishing the foreign business. Taiwan law requires fair compensation must be paid within a reasonable period when the authorities expropriate constitutionally protected private property for public use.

Dispute Settlement

ICSID Convention and New York Convention

In part due to its unique political status, Taiwan is neither a member of the International Centre for the Settlement of Investment Disputes (ICSID) nor a signatory to the 1966 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). It also is not a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Investor-State Dispute Settlement

Foreign investment disputes with the Taiwan authorities are rare. Taiwan resolves disputes according to its domestic laws and based on national treatment or investment guarantee agreements. Taiwan has entered into bilateral investment agreements with Singapore, Thailand, Malaysia, India, and Vietnam. Taiwan does not have an investment agreement with the United States. Taiwan’s bilateral investment agreements serve to promote and protect foreign investments. DOIS is not aware of investment disputes involving U.S. investors, although there have been reports of disputes between U.S. investors and their local Taiwan partners.

International Commercial Arbitration and Foreign Courts

Parties to a dispute may pursue mediation by a court, a town or city mediation committee, and/or the Public Procurement Commission. Mediation is generally non-binding unless parties agree otherwise. Civil mediation approved by a court has the same power as a binding ruling under civil litigation. The Judicial Yuan has been promoting alternative dispute resolution, one of its judiciary reform goals. Arbitration associations in Taiwan include the Chinese Arbitration Association, Taiwan Construction Arbitration Association, Labor Dispute Arbitration Association, and Chinese Construction Industry Arbitration Association in Taiwan.

A court order on recognition and enforcement must be obtained before a foreign arbitral award can be enforced in Taiwan. Any foreign arbitral award may be enforceable in Taiwan, provided that it meets the requirements of Taiwan’s Arbitration Act. In November 2015, the Legislative Yuan amended the Arbitration Act to stipulate that a foreign arbitral award, after a court has granted an application for recognition, shall be binding on the parties and have the same force as a final judgment of a court, and is enforceable. Taiwan referred to the United Nations Commission on International Trade Law (UNCITRAL) model law when the Arbitration Act was revised in 1998.

Bankruptcy Regulations

Taiwan has a bankruptcy law that guarantees creditors the right to share a bankrupt debtor’s assets on a proportional basis. Secured interests in property are recognized and enforced through a registration system. Bankruptcy is not criminalized in Taiwan. Corporate bankruptcy is generally governed by the Company Act and the Bankruptcy Act, while the Consumer Debt Resolution Act governs personal bankruptcy. The quasi-public Joint Credit Information Center is the only credit-reporting agency in Taiwan. In 2020, there were 200 rulings on bankruptcy petitions.

Investment Incentives

The Statute for Industrial Innovation provides the legal basis for offering tax credits for companies’ R&D expenditures. MOEA also operates several R&D subsidy programs. MOEA’s target industries for investment are IoT (including Asia Silicon Valley-related investments), smart machinery, biotechnology and biopharmaceuticals, green energy, national defense, the circular economy, and agriculture. Investors can receive tax incentives for investing in free trade zones, public construction, and biotechnology or biopharmaceuticals. Investment support from the central authorities may be available for priority projects. Industrial zones, export processing zones, science parks, and local governments offer various subsidies, financing, and tax deductions. Investors may receive low-interest loans or subsidies for participating in industrial R&D and industry revitalization programs. R&D tax credits, equivalent to 15 percent of total R&D expenditures, are available only to companies who file corporate income taxes in Taiwan. The Act for the Recruitment and Employment of Foreign Professionals passed in October 2017 and took effect in 2018 offers relaxed visa requirements and high-earner tax deductions to foreign professionals. For a detailed list of investment incentives programs, please refer to the Invest in Taiwan website at https://investtaiwan.nat.gov.tw/showPage?lang=eng&search=1031001 In promotion of Taiwan’s green energy industry, Taiwan authorities are considering a national guarantee mechanism to facilitate financing green energy investment.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are seven free trade/free port zones: Anping, Kaohsiung, Keelung, Suao, Taichung, Taipei, and Taoyuan International Airport. The authorities have relaxed restrictions on the movement of merchandise, capital, and personnel into and out of these zones. As part of a broader restructuring and to increase the competitiveness of Taiwan’s ports, the Ministry of Transportation and Communication established the Taiwan International Ports Corporation (TIPC) in 2012 to manage commercial activities of Taiwan’s ports and free trade zones. TIPC facilitates cooperation with foreign shipping operations and related businesses. In addition to preferential tariffs and fees, the foreign labor ceiling for manufacturers in the free ports zones is 40 percent. Kaohsiung Port also serves as a London Metal Exchange (LME) delivery port of primary aluminum, aluminum alloy, copper, lead, nickel, tin, and zinc.

Performance and Data Localization Requirements

Taiwan does not mandate local employment, but the authorities have incentivized foreign companies to hire more local staff with preferential measures, such as in the mutual fund industry. Except for restricted industries on the negative list, there is no restriction on foreigners taking roles in senior management or on boards of directors. Foreign investors have long expressed concerns over difficulties in recruiting skilled executives and professionals. The Act for the Recruitment and Employment of Foreign Professionals, which took effect in 2018 aims to attract foreign professionals through simplified policies regarding work, visa, and residence and increased benefits on retirement, insurance, and tax obligations.

With one prominent counterexample, Taiwan does not mandate any forced localization or performance requirements and does not ask software firms to disclose their source code. In this counterexample, the National Communications Commission prohibited a local telecom carrier from contracting a PRC cloud services company due to concerns over personal data protection. Positive examples of data mobility include new businesses such as Uber and Food Panda and mobile payment firms like Apple Pay, all of which freely transmit data cross-border. The authorities may, subject to strict legal proceedings based on Personal Data Protection Act to examine financial crime data from services providers. In September 2019, the Taiwan Financial Supervisory Commission amended rules to allow banks to store data on overseas cloud servers, as long as Taiwan regulators can obtain information for such operations and maintain the right to execute on-site examinations.

Real Property

Property interests are enforced in Taiwan, and it maintains a reliable recording system for mortgages and liens. Taiwan law protects the land use rights of indigenous peoples. Taiwan’s Land Act stipulated that forests, fisheries, hunting grounds, salt fields, mineral deposits, water sources, and lands lying within fortified and military areas and those adjacent to national frontiers may not be transferred or leased to foreigners. Based on the Ministry of Interior’s (MOI) Operational Regulations for Foreigners to Acquire Land Rights in Taiwan, foreigners coming from countries that provide Taiwan residents the same land rights will be allowed to acquire or set the same rights in Taiwan. In May 2015, the Cadastral Clearance Act was passed to promote better land registration management. As in other investment categories, Taiwan has specific regulations governing property acquisition by PRC investors.

Intellectual Property Rights

Taiwan has established a Patent Act, Trademark Act, Copyright Act, and Trade Secrets Act, and instituted the pharmaceutical patent linkage system in mid-2019. The Intellectual Property Rights Protection Corps of the Criminal Investigation Brigade (CIB), National Police Administration (NPA), receives IP infringing reporting through a toll-free direct line of 0800-016-597; and email: 0800016597@iprp.spsh.gov.tw. IP infringement cases will be investigated and prosecuted through the Ministry of Justice and be judged by District Courts and the specialized IP Court. Violators of trademark or copyright cases could receive criminal penalties of up to three years; trade secrets cases are subject to penalties of up to 10 years.

Taiwan is a member of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) of the WTO and the Intellectual Property Rights Experts’ Group (IPEG) of the Asia-Pacific Economic Cooperation (APEC). In addition, Taiwan harmonizes its IPR regulations as much as possible with that from international IP treaties and conventions, including the Paris Convention for the Protection of Industrial Property, The Hague Agreement Concerning the International Registration of Industrial Designs, the European Patent Convention (EPC), the Patent Cooperation Treaty (PCT), and the Bern Convention.

To prepare for joining the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (CPTPP) in the future, Taiwan has proposed separate draft amendments of the Trademark Act, Patent Act, and Copyright Act. Proposed changes would comply with related rules in CPTPP in which the Trademark Act amendment draft adds criminal punishment on counterfeit labeling, the Patent Act draft grants new-drug patent holder the rights to file infringement litigation, and the Copyright Act draft grants competent authorities legal power to prosecute major copyright infringements without compliant. Those amendments are pending the Executive Yuan’s review.

The Trade Secrets Act amendment, enacted in January 2020, allows a foreign juristic person to file a complaint to initiate prosecution or ia civil suit against alleged trade secrets misappropriation. Additionally, this amendment contains provisions that allowa prosecutor to issue confidentiality orders during investigation proceedings. A person violating a confidentiality order may be sentenced to up to three years and/or be fined up to USD 35,000 (NTD 1 million). Taiwan also passed an amendment to the National Intelligence Work Act in 2019 to allow Taiwan’s intelligence agencies to conduct investigations on persons who illegally obtain trade secrets on behalf of foreign countries. Taiwan’s emphasis on improving its trade secrets protection regime has resulted in not only amendments to the Trade Secrets Act but also a significant judicial ruling in favor of a U.S.-based investor over a local firm in a high-profile trade secrets theft case.

Taiwan is not listed on the USTR’s Special 301 Report.

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

Taiwan authorities welcome foreign portfolio investment in the Taiwan Stock Exchange (TWSE) and Taipei Stock Exchange, with foreign investment accounting for approximately 45 percent of TWSE capitalization in 2020. Taiwan allows the establishment of offshore banking, securities, and insurance units to attract a broader investor base. The Financial Supervisory Commission (FSC) utilizes a negative list approach to regulating local banks’ overseas business not involving the conversion of the NTD.

Taiwan’s capital market is mature and active. At the end of 2020, 948 companies were listed on the TWSE, with a total market trading volume of USD 157.4 billion (including transactions of stocks, Taiwan Depository Receipts, exchange-traded funds, and warrants). Foreign portfolio investors are not subject to a foreign ownership ceiling, except in certain restricted companies, and are not subject to any ceiling on portfolio investment. The turnover ratio in the TWSE rose to 126 percent in 2020 as the TWSE Capitalization Weighted Stock Index (TAIEX) soared 23 percent in 2020. Payments and transfers resulting from international trade activities are fully liberalized in Taiwan. A wide range of credit instruments, all allocated on market terms, is available to domestic- and foreign-invested firms alike.

Money and Banking System

Taiwan’s banking sector is healthy, tightly regulated, and competitive, with 36 banks servicing the market. The sector’s non-performing loan ratio has remained below 1 percent since 2010, with a sector average of 0.24 in September 2020. Capital-adequacy ratios (CAR) are generally high, and several of Taiwan’s leading commercial lenders are government-controlled, enjoying implicit state guarantees. The sector as a whole had a CAR of 14.1 percent as of September 2020, far above the Basel III regulatory minimum of 10.5 percent required by 2019. Taiwan banks’ liquidity coverage ratio, which was required by Basel III to reach 100 percent by 2019, averaged 132.6 percent in September 2020. Taiwan’s banking system is primarily deposit-funded and has limited exposure to global financial, wholesale markets. Regulators have encouraged local banks to expand to overseas markets, especially in Southeast Asia, and minimize exposure in the PRC. Taiwan Central Bank statistics show that Taiwan banks’ PRC net exposure on an ultimate risk basis was USD 49.8 billion in the third quarter of 2020, trailing the United States’ USD 94.2 billion. Taiwan’s largest bank in terms of assets is the wholly state-owned Bank of Taiwan, which had USD 186.2 billion of assets as of December 2020. Taiwan’s eight state-controlled banks (excluding the Taiwan Export and Import Bank) jointly held nearly USD 912 billion, or 48 percent of the banking sector’s total assets.

The Taiwan Central Bank operates as an independent agency and state-owned company under the Executive Yuan, free from political interference. The Central Bank’s mandates are to maintain financial stability, develop Taiwan’s banking business, guard the stability of the NTD’s external and internal value, and promote economic growth within the scope of the three aforementioned goals.

Foreign Exchange and Remittances

Foreign Exchange

Foreign banks are allowed to operate in Taiwan as branches and foreign-owned subsidiaries, but financial regulators require foreign bank branches to limit their customer base to large corporate clients. As a measure to promote the asset management business in Taiwan, since May 2015, foreigners holding a valid visa entering Taiwan have been allowed to open an NTD account with local banks with passports and an ID number issued by the immigration office. These requirements replaced the previous dual-identification (passport and resident card) requirements. Please refer to the Taiwan Bankers’ Association’s webpage: https://www.ba.org.tw/PublicInformation/BusinessDetail/10?returnurl=%2Ffor detailed information regarding various types of bank services (credit card, loans, etc.) for foreigners in Taiwan.

There are few restrictions in place in Taiwan on converting or transferring direct investment funds. Foreign investors with approved investments can readily obtain foreign exchange from designated banks. The remittance of capital invested in Taiwan must be reported in advance to the Investment Commission, but the Commission’s approval is not required. Funds can be freely converted into major world currencies for remittance, but to retain funds in Taiwan, they must be held in currency denominations offered by banks. In addition to commonly used U.S. dollar, euro, and Japanese yen-denominated deposit accounts, most Taiwan banks offer up to 15 foreign currency denominations. The exchange rate is based on the market rate offered by each bank. The NTD fluctuates under a managed float system.

Remittance Policies

There are no restrictions on remittances deriving from approved direct investment and portfolio investment. Prior approval is not required if the cumulative amount of inward or outward remittances does not exceed the annual limit of USD 5 million for an individual or USD 50 million for a corporate entity. Declared earnings, capital gains, dividends, royalties, management fees, and other returns on investment may be repatriated at any time. For large transactions requiring the exchange of NTD into foreign currency that could potentially disrupt Taiwan’s foreign exchange market, the Taiwan Central Bank may require the transaction to be scheduled over several days. According to law firms servicing foreign investors, there is no written guideline on the size of such transactions but amounts more than USD 100 million may be affected. Capital movements arising from trade in merchandise and services, as well as from debt servicing, are not restricted. No prior approval is required to move foreign currency funds not involving conversion between NTD and foreign currency.

Sovereign Wealth Funds

Taiwan does not have a sovereign wealth fund, although the American business community has advocated for one. Taiwania Capital Management Company, a partially government-funded investment company, was established in October 2017 to promote investment in innovative and other target industries. In December 2018, Taiwania raised USD 350 million for two funds investing in IoT and biotech industries.

According to the NDC, 17 SOEs with stakes by the central authorities exceeding 50 percent, including official agencies such as the Taiwan Central Bank. Please refer to the list of all central government, majority–owned SOEs available online at https://ws.ndc.gov.tw/Download.ashx?u=LzAwMS9hZG1pbmlzdHJhdG9yLzEwL3JlbGZpbGUvMC8xMjk1LzM3NGExNjVjLWM5MzAtNDYxZS1iYjViLTA3ODkzYjNlNWVhMi5kb2M%3d&n=M2ZjMzZmMDItZjVjOC00ZjU2LThiMTctZmM3Y2EzMTE1MDRhLmRvYw%3d%3d&icon=..doc Some of these SOEs are large in scale and exert significant influence in their industries, especially monopolies such as Taiwan Power (Taipower) and Taiwan Water. MOEA has stated that Taipower’s privatization will not occur in the near future but plans to restructure it as a new holding company under Electricity Industry Act revisions passed in January 2017 that will gradually liberalize power generation and distribution. CPC Corporation (formerly China Petroleum Corporation) controls over 70 percent of Taiwan’s gasoline retail market. The most recent privatization took place in August 2014, when the Aerospace Industrial Development Corporation (AIDC) was successfully privatized through a public listing on the TWSE. Taiwan authorities retain control over some SOEs that were privatized, including managing appointments to boards of directors. These enterprises include Chunghwa Telecom, China Steel, China Airlines, Taiwan Fertilizer, Taiwan Salt, CSBC Corporation (shipbuilding), Yang Ming Marine Transport Corp., and eight public banks.

In 2019 (latest data available), the 17 SOEs together had a net income of NTD 325 billion (USD 11.2 billion), down 7 percent from the NTD 350 billion (USD 12.1 billion) in 2018. The SOEs’ average return on equities continued to decline from a recent peak of 11.13 percent in 2015 to 8.73 percent in 2019. These 17 SOEs employed a total of 120,198 workers.

Taiwan has not adopted the OECD Guidelines on Corporate Governance for SOEs. In Taiwan, SOEs are defined as public enterprises in which the government owns more than 50 percent of shares. Public enterprises with less than a 50 percent government stake are not subject to Legislative Yuan supervision. Still, authorities may retain managerial control through senior management appointments, which may change with each administration. Public enterprises owned by local governments exist primarily in the public transportation sector, such as regional bus and subway services. Each SOE operates under the supervising ministry’s authority, and government-appointed directors should hold more than one-fifth of an SOE’s board seats. The Executive Yuan, the Ministry of Finance, and MOEA have criteria for selecting individuals for senior management positions. Each SOE has a board of directors, and some SOEs have independent directors and union representatives sitting on the board.

Taiwan acceded to the WTO’s Agreement on Government Procurement (GPA) in 2009. Taiwan’s central and local government entities, and SOEs are now all covered by the GPA. Except for state monopolies, SOEs compete directly with private companies. SOEs’ purchases of goods or services are regulated by the Government Procurement Act and are open to private and foreign companies via public tender. Private companies in Taiwan have the same access to financing as SOEs. Taiwan banks are generally willing to extend loans to enterprises meeting credit requirements. SOEs are subject to the same tax obligations as private enterprises and are regulated by the Fair Trade Act as private enterprises. The Legislative Yuan reviews SOEs’ budgets each year.

Privatization Program

There are no privatization programs in progress. Taiwan’s most recent privatization of AIDC in 2014 included the imposition of a foreign ownership ceiling of 10 percent due to the sensitive nature of the defense sector. In August 2017, Taiwan authorities identified CPC Corporation, Taipower Company, and Taiwan Sugar as their next privatization targets. Following the passage of the Electricity Industry Act amendments in January 2017, the authorities planned to submit a Taipower privatization plan within six to nine years after successfully separating Taipower’s power distribution/sales business from its power generation business.

The Taiwan public has high expectations for and is sensitive to responsible business conduct (RBC), in part due to concerns about such issues as food safety and environmental pollution. Taiwan authorities actively promote RBC. MOEA and the FSC have issued guidelines on ethical standards and internal control mechanisms to urge businesses to take responsibility for the impact of their activities on the environment, consumers, employees, and communities. MOEA maintains an online newsletter to publicize best practices and raise awareness of the latest RBC-related developments in Taiwan and abroad. The Taiwan Stock Exchange conducts an annual review of the corporate governance performance of all publicly listed companies.

Taiwan authorities place a high priority on addressing and promoting socially responsible investment. Taiwan authorities mandated that publicly listed companies with more than NTD 5 billion (USD 180 million) in capital and firms in sectors with direct impact on consumers, such as food processing, restaurants, chemicals, and financial services, etc., prepare annual social responsibility reports. More than 500 of the TWSE’s 907 listed companies have issued annual social responsibility reports, and nearly half of the reports are prepared voluntarily. To promote more profit-sharing with employees, Taiwan’s Securities and Futures Act mandates that all publicly listed companies establish a compensation committee. In November 2018, the Act was amended to require all publicly listed companies to disclose average employee compensation and wage adjustment information. In December 2017, Taiwan Index Plus, an indexing subsidiary under the TWSE, together with FTSE Russel launched the FTSE4Good TIP Taiwan ESG Index, which helps investors integrate environmental, social and governance (ESG) considerations into their portfolios. Taiwan Depository & Clearing Corporation, a government-run securities depository of Taiwan, in 2020 launched Taiwan ESG Dashboard to encourage sustainable investing and enhance companies’ performance on ESG issues. Taiwan is ranked the fourth among 12 Asian markets in the Corporate Governance Watch 2020 report, behind only Australia, Hong Kong, and Singapore. There are also independent NGOs and business associations promoting or monitoring RBC in Taiwan.

In response to food safety and environmental protection problems, Taiwan authorities have imposed stricter monetary penalties on violators and launched a registration platform for food industry suppliers to track food ingredients used in the industry’s production chain. Taiwan authorities encourage Taiwan firms to adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, and many Taiwan–listed companies have voluntarily enclosed conflict minerals free statement in their annual social responsibility reports. In 2020, 26 Taiwan companies were included in the Dow Jones Sustainability World Index. Taiwan does not participate in the Extractive Industries Transparency Initiative.

Taiwan has a private security industry. Taiwan is not a signatory of The Montreux Document on Private Military and Security Companies, nor a participant in the 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/ ).

Resources to Report Corruption
Agency Against Corruption and Northern Investigation Office
No.166, Bo’ai Rd., Zhongzheng Dist.,, Taipei
Anti-corruption Hotline opens 24 hrs: +886-0800-286-586 https://www.aac.moj.gov.tw/7170/278724/
https://www.aac.moj.gov.tw/7170/278724/
TI Chinese Taipei, TICT https://www.transparency.org/en/countries/taiwan 
https://www.transparency.org/en/countries/taiwan  http://www.tict.org.tw/
http://www.tict.org.tw/
Wang Shen-jieh
Specialist
TI Chinese Taipei

M513, No.111 Mu-Cha Road, Section 1

Taipei, Taiwan 11645

Tel: +886-2-2236-2204

Email: tict@tict.org.tw

Taiwan has implemented laws, regulations, and penalties to combat corruption, including in public procurement. The Act on Property Declaration by Public Servants mandates annual property declaration for senior public services officials and their immediate family members. In 2020, the Control Yuan found 44 violations found and imposed a total of USD 397,000 in fines. The Corruption Punishment Statute and Criminal Code contain specific penalties for corrupt activities, including maximum jail sentences of life in prison and a maximum fine of up to NTD 100 million (USD 3.5 million). Laws provide for increased penalties for public officials who fail to explain the origins of suspicious assets or property. The Government Procurement Act and the Act on Recusal of Public Servants Due to Conflict of Interest both forbid incumbent and former procurement personnel and their relatives from engaging in related procurement activities. Although not a UN member, Taiwan voluntarily adheres to the UN Convention against Corruption and published its first country report in March 2018.

Guidance titled Ethical Corporate Management Best Practice Principles for all publicly listed companies was revised in November 2014. It asks publicly listed companies to establish an internal code of conduct and corruption-prevention measures for activities undertaken with government employees, politicians, and other private sector stakeholders. The Ministry of Justice is drafting a Whistle Blowers Protection Act to effectively combat illegal behaviors in both government agencies and the private sector. The Anti-money Laundering Act implemented June 2017 requires the mandatory reporting of financial transactions by individuals listed in the Standards for Determining the Scope of Politically Exposed Persons Entrusted with Prominent Public Function, Their Family Members and Close Associates, and by the first-degree lineal relatives by blood or by marriage; siblings, spouse and his/her siblings, and the domestic partner equivalent to a spouse of these politically exposed individuals. The U.S. government is not aware of cases where bribes have been solicited for foreign investment approval. 10. Political and Security Environment

Taiwan is a young and vibrant multi-party democracy. The transitions of power in both local and presidential elections have been peaceful and orderly. There are no recent examples of politically motivated damage to foreign investment. 11. Labor Policies and Practices

Affected by the global pandemic, Taiwan’s unemployment rate in 2020 edged up to 3.85 percent, while the unemployment rate for people aged between 15 and 24 years slightly decreased from 11.9 percent in 2019 to 11.6 percent in 2020. Ministry of Interior (MOI) data show that 52.8 percent of Taiwan’s population aged above 15 years is at least college-educated. An official labor force survey indicated that atypical  employment had hit 799,000 in 2020, accounting for 7 percent of employment.

The size of Taiwan’s labor force is decreasing as the society ages. Taiwan transitioned from an “aging society” to an “aged society” in 2018. In 2020, 15.8 percent of its population were 65 years old or above, up from 10.6 percent in 2009. Taiwan’s total fertility rate, already one of the lowest in the world, dipped to 0.99 in 2020, marking the first time it went under one. As of December 2020, there were 709,123 foreign laborers in Taiwan, of which 457,276 worked in the industrial sector. The Labor Standard Act and the Act of Gender Equality in Employment are universally applied to both domestic and foreign workers, with the exception that foreign domestic helpers are not covered by the Labor Standard Act.

Taiwan Ministry of Labor (MOL) data indicated that while labor shortage rates remained stable at around 3 percent in the manufacturing industry, the rates have been increasing over the past few years in service industries such as food and accommodation, information and communication, arts and entertainment, recreation, and real estate activities. Industry groups have long claimed that a lack of blue-collar workers is one of the major issues facing manufacturers operating in Taiwan and have urged the authorities to increase the ceiling on foreign workers. Taiwan authorities lifted the foreign worker ceiling for specific industries to attract Taiwan businesses to relocate back to Taiwan. However, the foreign worker ceiling across the board remained at 40 percent of total employees. Taiwan businesses consistently urge authorities to ease work visa requirements to recruit foreign professionals, especially the skilled white-collar labor in the information technology sector. However, Taiwan’s low wage growth compared with neighboring economies poses a challenge for talent recruitment and retention. Taiwan issued 36,852 working permits to foreign professionals in 2020, 22.4 percent of whom were from Japan, followed by 14.2 percent from Malaysia, and 10.3 percent from the United States. Twenty-three (23.0) percent of foreign professionals work in the manufacturing industry. Taiwan authorities sponsor training and certificate programs for college graduates to increase the talent pool for the manufacturing industry.

Private companies are not subject to rules requiring the hiring of nationals. Employers may institute unpaid leave with employees’ consent but must notify the labor authorities and continue to make health insurance, labor insurance, and pension contributions. Due to the global pandemic, 31,816 employees suffered from unpaid leave in 2020. Taiwan provides unemployment relief based on the Employment Insurance Law, vocational training allowances for jobless persons, and employment subsidies to encourage hiring. Labor laws are not waived to attract or retain investment.

Labor unions have become more active in Taiwan over the past decade, and the Collective Agreement Act outlines the negotiation mechanism for collective bargaining to protect labor’s interests in the negotiations. The majority of labor unions exist in the manufacturing sector. The number of effective collective bargaining agreements increased from 772 in 2019 to 821 in 2020, mainly due to increased agreements with corporate unions. The authorities provide financial incentives to enterprise unions to encourage negotiation of “collective agreements” with employers that detail their employees’ immediate labor rights and entitlements. Taiwan has labor dispute resolution mechanisms in operation at all levels of labor. The number of dispute cases filed rose slightly from 22,643 in 2019 to 27,670 in 2020, with disputes over wages accounting for more than 41 percent of total dispute cases. Taiwan also introduced an arbitration mechanism in 2011 to preempt disputes through a professional and neutral mediation system.

Labor relations in Taiwan are generally harmonious. Although Taiwan is not a member of the International Labor Organization (ILO), it adheres to ILO conventions to protect workers’ rights. Taiwan law, including related regulations and statutory instruments, protects the right to join independent unions, conduct legal strikes, and bargain collectively. Taiwan’s labor authorities have announced the increasing frequency and coverage of labor inspections. Since 2019, government incentives for business growth and industrial development have incorporated the labor inspection record as a core evaluating item for the applying entities. Violating employers will not be eligible for tax reduction or grants. A new Labor Incident Act took effect in January 2020 mandates the establishment of special labor courts, which would help improve labor right through accelerated dispute resolution and reduced financial cost for labor filing employment lawsuits.

The Tsai administration has made improving labor welfare one of its core priorities. The administration has consistently raised the minimum monthly wage since 2017, bringing it up to NTD 24,000 (USD 850) in 2021. it reached NTD 24,000 (USD 850). In March 2018, Taiwan amended the Labor Standard Act to address the foreign investor community’s concerns over rules governing rest days, overtime work, and overtime pay. In December 2019, the Middle-aged and Elderly Employment Promotion Act was passed to promote employment opportunities for employees above 45 years of age. However, the effective implementation date has yet to be announced. In January 2020, a new Labor Incident Act was enacted to consolidate the labor elements in various laws. It stipulates clear definitions of labor disputes and establishes the “Labor Professional Court” in the judicial system to handle all labor cases. It further clarifies that the employers, not the laborers, are obliged to provide the burden of proof in wage and hour disputes.

No strikes were initiated/conducted in 2020 due to the serious economic impact of the global pandemic.

Link to the U.S. Department of State Human Rights Report on Taiwan: https://www.state.gov/reports/2020-country-reports-on-human-rights-practices/taiwan/ 12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs

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

* Source for Host Country Data: GDP: Directorate General of Budget, Accounting, and Statistics; FDI: Investment Commission, Ministry of Economic Affairs

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available. 14. Contact for More Information

Policies Towards Foreign Direct Investment

Americans planning to invest in Thailand are advised to obtain qualified legal advice. Thai business regulations are governed predominantly by criminal, not civil, law. Foreigners are rarely jailed for improper business activities, yet violations of business regulations can carry heavy criminal penalties. Thailand has an independent judiciary and government authorities are generally not permitted to interfere in the court system once a case is in process.

Thailand continues to generally welcome investment from all countries and seeks to avoid dependence on any one country as a source of investment. However, the FBA prescribes a wide range of business that may not be conducted by foreigners without additional licenses or exemptions. The term “foreigner” includes Thai-registered companies in which half or more of the capital is held by non-Thai individuals and foreign-registered companies. Although the FBA prohibits majority foreign ownership in many sectors, U.S. investors registered under the United States-Thailand Treaty of Amity and Economic Relations (AER) are exempt. Nevertheless, the AER’s privileges do not extend to U.S. investments in the following areas: communications; transportation; fiduciary functions; banking involving depository functions; the exploitation of land or other natural resources; domestic trade in indigenous agricultural products; and the practice of professions reserved for Thai nationals.

The Board of Investment (BOI) assists Thai and foreign investors to establish and conduct businesses in targeted economic sectors by offering both tax and non-tax incentives. In recent years Thailand has taken steps to reform its business regulations and has improved processes and reduced time required to start a business from 29 days to 6 days. Thailand has steadily improved its ranking in the World Bank’s Doing Business Report in the last several years and now occupies the 21st position out of 190 countries in the 2019 ranking, trailing only Singapore (2) and Malaysia (12) in the ASEAN bloc. Thai officials routinely make themselves available to investors through discussions with foreign chambers of commerce.

Limits on Foreign Control and Right to Private Ownership and Establishment

Various Thai laws set forth foreign-ownership restrictions in certain sectors. These restrictions primarily concern services such as banking, insurance, and telecommunications. The FBA details the types of business activities reserved for Thai nationals. Foreign investment in those businesses must comprise less than 50 percent of share capital, unless specially permitted or otherwise exempt.

The following three lists detail FBA-restricted businesses for foreigners.

List 1.  This contains activities non-nationals are prohibited from engaging in, including: newspaper and radio broadcasting stations and businesses; agricultural businesses; forestry and timber processing from a natural forest; fishery in Thai territorial waters and specific economic zones; extraction of Thai medicinal herbs; trading and auctioning of antique objects or objects of historical value from Thailand; making or casting of Buddha images and monk alms bowls; and land trading.

List 2. This contains activities related to national safety or security, arts and culture, traditional industries, folk handicrafts, natural resources, and the environment. Restrictions apply to the production, distribution and maintenance of firearms and armaments; domestic transportation by land, water, and air; trading of Thai antiques or art objects; mining, including rock blasting and rock crushing; and timber processing for production of furniture and utensils. A foreign majority-owned company can engage in List 2 activities if Thai nationals or legal persons hold not less than 40 percent of the total shares and the number of Thai directors is not less than two-fifths of the total number of directors. Foreign companies also require prior approval and a license from the Council of Ministers (Cabinet).

List 3. Restricted businesses in this list include accounting, legal, architectural, and engineering services; retail and wholesale; advertising businesses; hotels; guided touring; selling food and beverages; and other service-sector businesses. A foreign company can engage in List 3 activities if a majority of the limited company’s shares are held by Thai nationals. Any company with a majority of foreign shareholders (more than 50 percent) cannot engage in List 3 activities unless it receives an exception from the Ministry of Commerce under its Foreign Business License (FBL) application.

Aside from these general categories, Thailand does not maintain a national security screening mechanism for investment, and investors can receive additional incentives/privileges if they invest in priority areas, such as high-technology industries. Investors should contact the Board of Investment [https://www.boi.go.th/index.php?page=index] for the latest information on specific investment incentives.

The U.S.-Thai Treaty of Amity and Economic Relations allows approved businesses to engage in FBA restricted businesses detailed above in Lists 1, 2, and 3. However, the Treaty does not exempt U.S. investments from restrictions applicable to: owning land; fiduciary functions; banking involving depository functions; inland communications & transportation; exploitation of land and other natural resources; and domestic trade in agricultural products.

To operate restricted businesses as defined by the FBA’s List 2 and 3, non-Thai entities must obtain a foreign business license. These licenses are approved by the Council of Ministers (Cabinet) and/or Director-General of the MOC’s Department of Business Development, depending on the business category.

Every year, the MOC reviews business categories on the three FBA lists. Businesses no longer subject to restrictions include regional office services and contractual services provided to government bodies and state-owned enterprises. In an effort to further reduce obstacles to foreign investment, four business types under List 3, otherwise supervised by specific acts, were removed from the restricted list in 2019 and 2020. Those businesses include telecommunication services for license type 1 (telecommunication business operator without its own network for services); financial centers; aviation/aircraft maintenance; and software development.

American investors who wish to take majority shares or wholly own businesses under FBA’s Annex 3 list may apply for benefits under the U.S.-Thai Treaty of Amity. https://2016.export.gov/thailand/treaty/index.asp#P5_233 

The U.S. Commercial Service, U.S. Embassy Bangkok is responsible for issuing a certification letter to confirm that a U.S. company is qualified to apply for benefits under the Treaty of Amity. The applicant must first obtain documents verifying that the company has been registered in compliance with Thai law. Upon receipt of the required documents, the U.S. Commercial Service office will then certify to the Foreign Administration Division, Department of Business Development, Ministry of Commerce (MOC) that the applicant is seeking to register an American-owned and managed company or that the applicant is an American citizen and is therefore entitled to national treatment under the provisions of the Treaty. For more information on how to apply for benefits under the Treaty of Amity, please e-mail ktantisa@trade.gov.

Other Investment Policy Reviews

The World Trade Organization conducted a Trade Policy Review of Thailand in November 2020 (https://www.wto.org/english/tratop_e/tpr_e/tp500_e.htm). The Organization for Economic Cooperation and Development (OECD) concluded its Investment Policy Review for Thailand in January 2021 (https://www.oecd-ilibrary.org/sites/c4eeee1c-en/index.html?itemId=/content/publication/c4eeee1c-en).

Business Facilitation

The MOC’s Department of Business Development (DBD) is generally responsible for business registration. Registration can be performed online or manually. Registration documentation must be submitted in the Thai language. Many foreign entities hire a local law firm or consulting firm to handle their applications. Firms engaging in production activities also must register with the Ministry of Industry and the Ministry of Labor and Social Development.

A company is required to have registered capital of two million Thai baht per foreign employee in order to obtain work permits. Additionally, foreign companies may have no more than 20% foreign employees on staff. Companies that have obtained special BOI investment incentives may be exempted from this requirement. Foreign employees must enter the country on a non-immigrant visa and then submit work permit applications directly to the Department of Labor. Application processing takes approximately one week. For more information on Thailand visas, please refer to http://www.mfa.go.th/main/en/services/4908/15388-Non-Immigrant-Visa- percent22B percent22-for-Business-and.html.

In February 2018, the Thai government launched a Smart Visa program for investors in targeted industries and foreigners with expertise in specialized technologies. Under this program, foreigners can be granted a maximum four-year visa to work in Thailand without having to obtain a work permit or re-entry permit. Other relaxed immigration rules include having visa holders report to the Bureau of Immigration just once per year (instead of every 90 days) and providing the visa holder’s spouse and children many of the same privileges as the primary visa holder. More information is available online at https://smart-visa.boi.go.th/home_detail/general_information.php and by telephone at +662-209-1100 ext. 1109-1110.

Outward Investment

In 2020, Thai companies continued to expand and invest overseas despite the pandemic. These investments primarily target neighboring ASEAN countries, China, the United States, and Europe. A relatively strong domestic currency, rising cash holdings, and subdued domestic growth prospects are helping to drive outward investment. The baht depreciated over 4 percent against the dollar in Q1 2021. Faced with the effects of the pandemic, the government may prioritize domestic investment to stimulate the economy.

Previously, food, ago-industry, energy, and chemical sectors accounted for the main share of outward flows. Purchasing shares, developing partnerships, and making acquisitions help Thai investors acquire technologies for parent companies and expand supply chains in international markets. Thai corporate laws allow outbound investments to be made by an independent affiliate (foreign company), a branch of a Thai legal entity, or by any Thai company in the case of financial investments abroad. BOI and the MOC’s Department of International Trade Promotion (DITP) share responsibility for promoting outward investment. BOI focuses on outward investment in ASEAN (especially Cambodia, Laos, Myanmar, and Vietnam) and emerging economies. DITP covers smaller markets.

The 1966 U.S.-Thai Treaty of Amity and Economic Relations allows U.S. citizens and U.S. majority-owned businesses to engage in business on the same basis as Thai companies (national treatment). The Treaty exempts qualified companies from most of the foreign investment restrictions imposed by Thailand’s Foreign Business Act (FBA). As described above, the Treaty does not exempt U.S. investments from restrictions applicable to owning land; fiduciary functions; banking involving depository functions; inland communications & transportation; exploitation of land and other natural resources; and domestic trade in agricultural products.

In October 2002, the United States and Thailand signed a bilateral Trade and Investment Framework Agreement (TIFA). The TIFA established a regular government-to-government forum to discuss bilateral trade and investment issues. These have included intellectual property rights, customs, market-access barriers, and other areas of mutual concern.

Thailand has bilateral investment treaties with Argentina, Bahrain, Bangladesh, Belgium-Luxembourg Economic Union, Bulgaria, Cambodia, Canada, China, Croatia, Czech Republic, Egypt, Finland, Germany, Hong Kong, Hungary, Indonesia, Israel, Jordan, Democratic People’s Republic of Korea, Republic of Korea, Lao People’s Democratic Republic, Myanmar, Netherlands, Peru, Philippines, Poland, Romania, Russian Federation (signed, not in force), Slovenia, Sri Lanka, Sweden, Switzerland, Taiwan, Tajikistan (signed, not in force), Turkey, United Arab Emirates, United Kingdom, Vietnam, and Zimbabwe (signed, not in force).

Thailand has free trade agreements (FTAs) with Australia, New Zealand, China, Japan, India, South Korea, Peru, Chili, and Hong Kong. As of 2020, Thailand is pursuing FTA discussions with the European Union, Turkey, Pakistan, and the United Kingdom. Thailand belongs to the 10-member Association of Southeast Asian Nations (ASEAN), a regional free-trade and economic bloc comprising a total population of 600 million. ASEAN has free trade agreements with Australia, New Zealand, China, India, Korea, and Hong Kong. ASEAN also has a comprehensive economic partnership with Japan and is pursuing FTA discussions with the EU, Pakistan, and Canada.

Thailand’s Parliament approved ratification of the Regional Comprehensive Economic Partnership (RCEP), a free-trade bloc of 15 Indo-Pacific nations expected to take effect in 2021. Thailand has expressed interest in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force on December 30, 2018. In April 2020, however, Thailand shelved plans to negotiate near-term accession in the wake of the coronavirus pandemic. In February 2021 Thailand’s International Economic Policy Committee announced it will review the findings of a nine-month internal study on the costs and benefits of CPTPP membership.

Thailand and the United States concluded a bilateral tax treaty in 1996. The United States and Thailand signed an Intergovernmental Agreement (IGA) on the Foreign Account Tax Compliance Act (FATCA) in 2016. The IGA will enter into force once all steps have been completed by both sides for ratification.

Transparency of the Regulatory System

Generally, Thai regulations are readily available to the public. Foreign investors have, on occasion, expressed frustration that draft regulations are not made public until they are finalized. Comments that stakeholders submit on draft regulations are not always taken into consideration. Non-governmental organizations report; however, the Thai government actively consults them on policy, especially in the health sector and on intellectual property issues. In other areas, such as digital and cybersecurity laws, the Thai government has taken stakeholders’ comments into account and amended draft laws accordingly.

U.S. businesses have repeatedly expressed concerns about Thailand’s customs regime. Complaints center on lack of transparency, the significant discretionary authority exercised by Customs Department officials, and a system of giving rewards to officials and non-officials for seized goods based on a percentage of their sales price. Specifically, the U.S. government and private sector have expressed concern about inconsistent application of Thailand’s transaction valuation methodology and the Customs Department’s repeated use of arbitrary values. Thailand’s latest Customs Act, which entered into force on November 13, 2017, is a moderate step forward. The Act removed the Customs Department Director General’s discretion to increase the customs value of imports. I t also reduced the percentage of remuneration awarded to officials and non-officials from 55 percent to 40 percent of the sale price of seized goods (or of the fine amount) with an overall limit of five million baht (USD160,000). While a welcome development, reduction of this remuneration is insufficient to remove the personal incentives given Customs officials to seize goods nor to address the conflicts of interest the system entails. Thai Customs is expected to announce new revisions to the Customs Act in 2021.

Consistent and predictable enforcement of government regulations remains problematic. In 2017, the Thai government launched a “regulatory guillotine” initiative to cut down on red tape, licenses, and permits. The policy focused on reducing and amending outdated regulations in order to improve Thailand’s ranking on the World Bank “Ease of Doing Business” report. The regulatory guillotine project has helped improve Thailand’s ranking and, although making slow progress, is still underway.

Gratuity payments to civil servants responsible for regulatory oversight and enforcement remain a common practice despite stringent gift bans at some government agencies. Firms that refuse to make such payments can be placed at a competitive disadvantage to other firms that do engage in such practices.

The Royal Thai Government Gazette (www.ratchakitcha.soc.go.th) is Thailand’s public journal of the country’s centralized online location of laws, as well as regulation notifications.

International Regulatory Considerations

Thailand is a member of the World Trade Organization (WTO) and notifies most draft technical regulations to the Technical Barriers to Trade (TBT) Committee and the Sanitary and Phytosanitary Measures Committee. However, Thailand does not always follow WTO and other international standard-setting norms or guidance but prefers to set its own standards in many cases. In October 2015, the country ratified the WTO Trade Facilitation Agreement, which came into effect in February 2017.

Legal System and Judicial Independence

Thailand’s legal system is primarily based on the civil law system with a strong common law influence. Thailand has an independent judiciary that is generally effective in enforcing property and contractual rights. Most commercial and contractual disputes are generally governed by the Civil and Commercial Codes. The legal process is slow in practice and monetary compensation is based on actual damage that resulted directly from the wrongful act. Decisions of foreign courts are not accepted or enforceable in Thai courts.

There are three levels to the judicial system in Thailand: The Court of First Instance, which handles most matters at inception; the Court of Appeals; and the Supreme Court. There are also specialized courts, such as the Labor Court, Family Court, Tax Court, the Central Intellectual Property and International Trade Court, and the Bankruptcy Court.

The Specialized Appeal Court handles appeals from specialized courts. The Supreme Court has discretion whether to take a case that has been decided by the Specialized Appeal Court. If the Supreme Court decides not to take up a case, the Specialized Appeal Court decision stands.

Laws and Regulations on Foreign Direct Investment

The Foreign Business Act or FBA (described in detail above) governs most investment activity by non-Thai nationals. Other key laws governing foreign investment are the Alien Employment Act (1978) and the Investment Promotion Act (1977). However, as explained above, many U.S. businesses enjoy investment benefits through the U.S.-Thailand Treaty of Amity and Economic Relations (often referred to as the ‘Treaty of Amity’), which was established to promote friendly relations between the two nations. Pursuant to the Treaty, American nationals are entitled to certain exceptions to the FBA restrictions.

Pertaining to the services sector, the 2008 Financial Institutions Business Act unified the legal framework and strengthened the Bank of Thailand’s (the country’s central bank) supervisory and enforcement powers. The Act allows the Bank of Thailand to raise foreign ownership limits for existing local banks from 25 percent to 49 percent on a case-by-case basis. The Minister of Finance can authorize foreign ownership exceeding 49 percent if recommended by the central bank. Details are available at  https://www.bot.or.th/English/AboutBOT/LawsAndRegulations/SiteAssets/Law_E24_Institution_Sep2011.pdf.

Apart from acquiring shares of existing (traditional) local banks, foreign banks can enter the Thai banking system by obtaining new licenses. The Ministry of Finance issues such licenses, following a consultation process with the Bank of Thailand. The Thai central bank is currently studying new licenses for digital-only banks, a tool meant to enhance financial inclusion and keep pace with consumer needs in the digital age. Digital-only banks can operate at a lower cost and offer different services than traditional banks.

The 2008 Life Insurance Act and the 2008 Non-Life Insurance Act apply a 25 percent cap on foreign ownership of insurance companies. Foreign boards of directors’ membership is also limited to 25 percent. However, in January 2016 the Office of the Insurance Commission (OIC), the primary insurance industry regulator, notified that Thai life or non-life insurance companies wishing to exceed these limits may apply to the OIC for approval. Any foreign national wishing to hold more than 10 percent of the voting shares in an insurance company must seek OIC approval. With approval, a foreign national can acquire up to 49 percent of the voting shares. Finally, the Finance Minister, with OIC’s positive recommendation, has discretion to permit greater than 49 percent foreign ownership and/or a majority of foreign directors, when the operation of the insurance company may cause loss to insured parties or to the public. OIC launched an insurtech sandbox in 2017 to allow industry to test new products. While OIC has not issued a new insurance license in the past 20 years, OIC is now contemplating issuing new virtual licenses for entrants wishing to sell insurance digitally without an intermediary, and digital licenses for existing insurers wishing to switch to digital sales only. Full details have not yet been announced.

The Board of Investment offers qualified investors several benefits and provides information to facilitate a smoother investment process in Thailand. Information on the BOI’s “One Start One Stop” investment center can be found at  http://osos.boi.go.th. A physical office is located on the 18th floor of Chamchuri Square on Rama 4/Phayathai Road in Bangkok.

Competition and Antitrust Laws

Thailand updated the Trade Competition Act on October 5, 2017. The updated Act covers all business activities, except state-owned enterprises exempted by law or cabinet resolution; specific activities related to national security, public benefit, common interest and public utility; cooperatives, agricultural and cooperative groups; government agencies; and other enterprises exempted by the law. The Act broadens the definition of a business operator to include affiliates and group companies, and broadens the liability of directors and management, subjecting them to criminal and administrative sanctions if their actions (or omissions) resulted in violations. The Act also provides details about penalties in cases involving administrative court or criminal court actions. The amended Act has been noted as an improvement over the prior legislation and a step towards Thailand’s adoption of international standards in this area.

The Office of Trade Competition Commission (OTCC) is an independent agency and the main enforcer of the Trade Competition Act B.E. 2560 (2018). The OTCC is comprised of seven members nominated by a selection committee and endorsed by the Cabinet. The Commission has the following responsibilities: advises the government on issuance of relevant regulations; ensures fair and free trade practices; investigates cases and complaints of unfair trade; and pursues criminal and disciplinary actions against those found guilty of unfair trade practices stipulated in the law. The law focuses on the following areas: unlawful exercise of market dominance; mergers or collusion that could lead to monopoly; unfair competition and restricting competition; and unfair trade practices. In November 2020, OTCC approved conglomerate Charoen Pokphand’s (CP Group) USD 10 billion acquisition of retail giant Tesco Lotus. Academics and consumer groups claim this merger would allow CP Group to hold more than 80 percent market share of Thailand’s wholesale and retail sector in some provinces, which would be non-compliant with the Trade Competition Act that aims to prevent any operator from holding more than 50 percent of the market share in any sector.

The Thai government, through the Central Commission on Price of Goods and Services, has the legal authority to control prices or set de facto price ceilings for selected goods and services, including staple agricultural products and feed ingredients (such as, pork, cooking oil, wheat flour, feed wheat, distiller’s dried grains with solubles (DDGs), and feed quality barley), liquefied petroleum gas, medicines, and sound recordings. In February 2020, the government added surgical masks, polypropylene (spunbond) for surgical mask production, alcohol for hand sanitizer, and wastepaper or recycled paper to the price-controlled products list. The controlled list is reviewed at least annually, but the price-control review mechanisms are non-transparent. In practice, Thailand’s government influences prices in the local market through its control of state monopoly suppliers of products and services, such as in the petroleum, oil, and gas industry sectors.

Expropriation and Compensation

Thai laws provide guarantees regarding protection from expropriation without compensation and non-discrimination for some, but not all, investors. Thailand’s Constitution provides protection from expropriation without fair compensation and requires the government to pass a specific, tailored expropriation law if the expropriation is required for the purpose of public utilities, national defense, acquisition of national resources, or for other public interests. The Investment Promotion Act also guarantees the government shall not nationalize the operations and assets of BOI-promoted investors.

The Expropriation of Immovable Property Act (EIP), most recently amended in 2019, applies to all property owners, whether foreign or domestic nationals. The Act provides a framework and clear procedures for expropriation; sets forth detailed provision and measures for compensation of landowners, lessees and other persons that may be affected by an expropriation; and recognizes the right to appeal decisions to Thai courts. The 2019 EIP requires the government to return land that was expropriated but has not been used back to the original property owners. However, the EIP and Investment Promotion Act do not protect against indirect expropriation and do not distinguish between compensable and non-compensable forms of indirect expropriation.

Thailand has a well-established system for land rights that is generally upheld in practice, but the legislation governing land tenure still significantly restricts foreigners’ rights to acquire land.

Dispute Settlement

ICSID Convention and New York Convention

Thailand is a signatory to the New York Convention, which means that investors can enforce arbitral awards in any other signatory country. Thailand signed the Convention on the Settlement of Investment Disputes in 1985 but has not ratified it. Therefore, most foreign investors covered under Thailand’s treaties with investor-state dispute settlement (ISDS) provisions that are limited to ICSID arbitration have not been able to bring ISDS claims against Thailand under these treaties.

Investor-State Dispute Settlement

Thailand is party to bilateral investment treaties with 46 nations. Two treaties – with the Netherlands and United States (Treaty of Amity) – do not include binding dispute resolution provisions. This means that investors covered under these treaties are unable to pursue international arbitration proceedings against the Thai government without first obtaining the government’s consent. There have been two notable cases of investor-state disputes in the last fifteen years, neither of which involved U.S. companies. The first case involved a concession agreement for a construction project filed under the Germany-Thailand bilateral investment treaty. In the second case, Thailand is engaged in a dispute over the government’s invocation of special powers to shut down a gold mine in early 2017.

International Commercial Arbitration and Foreign Courts

Thailand’s Arbitration Act of 2002, modeled in part after the UNCITRAL Model Law, governs domestic and international arbitration proceedings. The Act states that “in cases where an arbitral award was made in a foreign country, the award shall be enforced by the competent court only if it is subject to an international convention, treaty, or agreement to which Thailand is a party.” Any arbitral award between parties subject to the New York Convention should thus be enforced. The following organizations provide arbitration services in Thailand: the Thai Arbitration Institute of the Alternative Dispute Resolution Office; Office of the Judiciary; and the Office of the Arbitration Tribunal of the Board of Trade of Thailand. In addition, the semi-public Thai Arbitration Center offers mediation and arbitration for civil and commercial disputes. An amendment to the Arbitration Act that allows foreign arbitrators to take part in cases involving foreign parties came into force on April 15, 2019. Under very limited circumstances, a court can set aside an arbitration award.

Bankruptcy Regulations

Thailand’s bankruptcy law is modeled after that of the United States. The law authorizes restructuring proceedings that require trained judges who specialize in bankruptcy matters to preside. According to the law, bankruptcy is defined as a state in which courts permit the distribution of assets belonging to a debtor among the creditors within the parameters of the law. Thailand’s bankruptcy law allows for corporate restructuring similar to U.S. Chapter 11 and does not criminalize bankruptcy. The law also distinguishes between secured and unsecured claims, with the former prioritized. While bankruptcy is under consideration, creditors can request the following ex parte applications from the Bankruptcy Court: an examination by the receiver of all the debtor’s assets and/or that the debtor attend questioning on the existence of assets; a requirement that the debtor provide satisfactory security to the court; and immediate seizure of the debtor’s assets and/or evidence in order to prevent the loss or destruction of such items.

The law stipulates that all applications for repayment must be made within one month after the Bankruptcy Court publishes the appointment of an official receiver. If a creditor eligible for repayment does not apply within this period, the creditor forfeits his/her right to receive payment or the court may cancel the order to reorganize the business. If any person opposes a filing, the receiver shall investigate the matter and approve, partially approve, or dismiss the application. Any objections to the orders issued by the receiver may be filed with the court within 14 days after learning of the issued order.

Within bankruptcy proceedings, it is also possible to undertake a “composition” in order to avoid a long and protracted process. A composition takes place when a debtor expresses in writing a desire to settle his/her debts, either partially or in any other manner, within seven days of submitting an explanation of matters related to the bankruptcy or during a time period prescribed by the receiver. After the proposal for a composition has been submitted, the receiver calls for a meeting among creditors to consider whether or not to accept the proposal. If the proposal is accepted, the court will approve the composition in order to legally execute the proposal; however, it will only do so if the proposal includes clear provisions for the repayment of debts. Despite these laws, some U.S. businesses complain that Thailand’s bankruptcy courts in practice can slow legislative processes to the detriment of outside firms seeking to acquire assets liquidated in bankruptcy processes.

The National Credit Bureau of Thailand (NCB) provides the financial services industry with information on consumers and businesses. The NCB is required to provide the financial services sector with payment history information from utility companies, retailers and merchants, and trade creditors.

Investment Incentives

The Board of Investment:

The Board of Investment offers investment incentives to qualified domestic and foreign investors. To upgrade the country’s technological capacity, the BOI presently gives more weight to applications in high-tech, innovative, and sustainable industries. These include digital technology, “smart agriculture” and biotechnology, aviation and logistics, automation and robotics, medical and wellness tourism, and other high-value services.

The most significant privileges offered by the BOI for promoted projects include: corporate income tax exemptions; tariff reductions or exemptions on imports of machinery used in the investment; tariff-free treatment on imported raw materials used in production for export.

• corporate income tax exemptions; tariff reductions or exemptions on imports of machinery used in the investment; tariff-free treatment on imported raw materials used in production for export.
• permission to own land; permission to bring foreign experts; and visa and work permit facilitation.

Investment projects with a significant R&D, innovation, or human resource development component may be eligible for additional grants and incentives. Moreover, grants are provided to support targeted technology development under the Competitive Enhancement Act. BOI offers a one-stop service to expedite multiple business processes for investors.

For additional information, contact the Office of Board of Investment on 555 Vibhavadi-Rangsit Road, Chatuchak, Bangkok 10900 and telephone at +662-553-8111 or website at www.boi.go.th.

Office of the Eastern Economic Corridor:

Thailand’s flagship investment zone, the “Eastern Economic Corridor (EEC),” spans the provinces of Chachoengsao, Chonburi, and Rayong (5,129 square miles). The EEC leverages the developed infrastructure networks of the adjacent Eastern Seaboard industrial area, Thailand’s primary investment destination for more than 30 years. The Thai government foresees the EEC as a primary investment and infrastructure hub in ASEAN and a gateway to east and south Asia. Among the EEC development projects are smart cities; an innovation district (EECi); a digital park (EECd); an aerotropolis (EEC-A); a medical hub (EECmd); and other state-of-the-art facilities. The EEC is targeting twelve key industries:

• Next-generation automotive
• Intelligent electronics
• Advanced agriculture and biotechnology
• Food processing
• Tourism
• Advance robotics and automation
• Integrated aviation industry
• Medical hub and total healthcare services
• Biofuels and biochemicals
• Digital technology
• Defense industry
• Human resource development

The EEC Act authorized investment incentives and privileges. Investors can obtain long-term land leases of 99 years (with an initial lease of up to 50 years and a renewal of up to 49 years). The EEC Act shortens the public-private partnership approval process to approximately nine months.

The BOI works in cooperation with the EEC Office. BOI offers corporate income tax exemptions of up to 13 years for strategic projects in the EEC area. Foreign executives and experts who work in targeted industries in the EEC are subject to a maximum personal income tax rate of 17 percent.

For additional information, contact the Eastern Economic Corridor Office at 25th floor, CAT Tower, 72 Soi Wat Maungkhae, Charoenkrung Road, Bangrak, Bangkok 10500, telephone at +662-033-8000 and website at: https://eng.eeco.or.th/en.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Industrial Estate Authority of Thailand (IEAT), a state-enterprise under the Ministry of Industry, develops suitable locations to accommodate industrial properties. IEAT has an established network of industrial estates in Thailand, including Laem Chabang Industrial Estate in Chonburi Province and Map Ta Phut Industrial Estate in Rayong Province in Thailand’s eastern seaboard region, a common location for foreign-owned factories due to its proximity to seaport facilities and Bangkok. Foreign-owned firms generally have the same investment opportunities in the industrial zones as Thai entities. While the IEAT Act requires that in the case of foreign-owned firms, the IEAT Committee must consider and approve the amount of space/land bought or leased in industrial estates, in practice, there is no record of disapproval for requested land. Private developers are heavily involved in the development of these estates.

The IEAT currently operates 14 estates, plus 45 more in conjunction with the private sector, in 16 provinces nationwide. Private-sector developers independently operate over 50 industrial estates, most of which have received promotion privileges from the Board of Investment. Amata Industrial Estate and WHA Industrial Development are Thailand’s leading private industrial estate developers. Most major foreign manufacturing investors, including U.S. manufacturers, are located in these two companies’ industrial estates and in the eastern seaboard region.

The IEAT has established 12 special IEAT “free trade zones” reserved for industries manufacturing exclusively for export. Businesses may import raw materials into, and export finished products from, these zones free of duty (including value added tax). These zones are located within industrial estates and many have customs facilities to speed processing. The free trade zones are located in Chonburi, Lampun, Pichit, Songkhla, Samut Prakarn, Bangkok (at Lad Krabang), Ayuddhya, and Chachoengsao. In addition to these zones, factory owners may apply for permission to establish a bonded warehouse within their premises to which raw materials, used exclusively in the production of products for export, may be imported duty-free.

The Thai government also established Special Economic Zones (SEZs) in ten provinces bordering neighboring countries: Tak, Nong Khai, Mukdahan, Sa Kaeo, Trad, Narathiwat, Chiang Rai, Nakhon Phanom, Songkhla, and Kanchanaburi. Business sectors and industries that can benefit from tax and non-tax incentives offered in the SEZs include logistics; warehouses near border areas; distribution; services; labor-intensive factories; and manufacturers using raw materials from neighboring countries. These SEZs support Thai government goals for closer economic ties with neighboring countries and allow investors to tap into abundant migrant labor; however, these SEZs have proven less attractive to overseas investors due to their remote locations far from Bangkok and other major cities.

In 2019, Thai Customs implemented three measures to improve trade and customs processing efficiency: Pre-Arrival Processing (PAP); an “e-Bill Payment” electronic payment system; and an e-Customs system that waives the use of paper customs declaration copies. The measures comply with the World Trade Organizations (WTO) Trade Facilitation Agreement (TFA), adopted in February 2016, which requires WTO members to adopt procedures for pre-arrival processing for imports and to authorize electronic submission of customs documents, where appropriate. The measures have also improved Thailand’s ranking in the World Bank’s “Doing Business: Trading Across Borders 2020” index.

Performance and Data Localization Requirements

The Thai government does not have specific laws or policies regarding performance or data localization requirements. Foreign investors are not required to use domestic content in goods or technology, but the Thai government has encouraged such an approach through domestic preferences in government procurement proceedings. In March 2021, Thailand announced the “Made in Thailand” initiative, which will direct government agencies to procure at least 60 percent of their goods from local producers.

There are currently no requirements for foreign IT providers to localize their data, turn over source code, or provide access to surveillance. However, the Thai government in 2019 passed new laws and regulations on cybersecurity and personal data protection that have raised concerns about Thai authorities’ broad power to potentially demand confidential and sensitive information. IT operators and analysts have expressed concern with private companies’ legal protections, ability to appeal, or ability to limit such access. IT providers have expressed concern that the new laws might place unreasonable burdens on them and have introduced new uncertainties in the technology sector. As of April 2021, the government is still in the process of considering and implementing regulations to enforce laws on Cyber Security and Personal Data Protection. Thailand has implemented a requirement that all debit transactions processed by a domestic debit card network must use a proprietary chip.

Real Property

Property rights are guaranteed by the Constitution. While the government provides fair compensation in instances of expropriation, Thai policy generally does not permit foreigners to own land. There have been instances, however, of granting such permission to foreigners under certain laws or ministerial regulations for residential, business, or religious purposes. Foreign ownership of condominiums and buildings is permitted under certain laws. Foreigners can freely lease land. Relevant articles of the Civil and Commercial Codes do not distinguish between foreign and Thai nationals in the exercise of lease rights. Secured interests in property, such as mortgage and pledge, are recognized and enforced. Unoccupied property legally owned by foreigners or Thais may be subject to adverse possession by squatters who stay on that property for at least 10 years.

Intellectual Property Rights

Thailand remained on the Special 301 Watch List in 2020 although its single physical market listed in the Notorious Markets Report dropped off in 2020. USTR highlights Thailand’s absence of accession to major international IP treaties, the unauthorized activities of collective management organizations, online piracy from streaming devices and applications, the use of unauthorized software in the public and private sectors, and a continued backlog in pharmaceutical patent applications as the main challenges confronting the country’s protection of intellectual property rights.

The National Committee on Intellectual Property Policy sets Thailand’s overall Intellectual Property (IP) policy. The National Committee is chaired by the Prime Minister with two Deputy Prime Ministers as vice chairs while 18 heads of government agencies serve as committee members. In 2017, this Committee approved a 20-year IP Roadmap to reform the country’s IP system. The Department of Intellectual Property (DIP) is responsible for IP-related administration, including registration and recording of IP rights and coordination of IP enforcement activities. DIP also acts as the secretary of the National Committee on Intellectual Property Policy.

Thailand has a robust legal and enforcement regime for IP rights. Thailand is a member of the Patent Cooperation Treaty (PCT). Thailand’s patent regime generally provides protection for most new inventions. The process of patent examination through issuance of patents is slow, taking on average six to eight years. The patenting process may take longer for certain technology sectors such as pharmaceuticals and biotechnology. Thailand protects trademarks, traditional marks, and sound marks. As a member of the “Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks” (Madrid Protocol), Thailand allows trademark owners to apply for trademark registrations in Thailand directly at DIP or through international applications under the Madrid Protocol. DIP historically takes 10 to 14 months to register a trademark. As Thailand is a member of the “Berne Convention,” copyright works are protected automatically. However, copyright owners may record their works with DIP to establish proof of ownership. Thailand joined the Marrakesh Treaty to Facilitate Access to Published Works for Persons Who Are Blind, Visually Impaired or Otherwise Print Disabled in January 2019. Thailand’s Geographical Indications (GI) Act has been in force since April 2004. Thailand protects GIs, which identify goods by their specific geographical origins. The geographical origins identified by a GI must be directly attributable to the reputation, qualities, or characteristics of the good. In Thailand, a registered trademark does not prevent a similar geographical name to be registered as a GI.

As of March 2021, Thailand remained in the process of amending its Patent Act to streamline the patent registration process, to reduce patent backlog and pendency, and to help prepare for accession to the Hague Agreement Concerning the International Registration of Industrial Designs. Furthermore, Thailand has increased the number of examiners to reduce the patent backlog. Thailand is also amending its Copyright Act to prepare for accession to the WIPO Internet Treaties. To address the use of unlicensed software in the public sector, Thailand adopted guidelines in November 2020 on the government acquisition of legitimate software. DIP recently adopted a new system of voluntary registration of copyright (collective management) agents to curb illegal activities of rogue agents. To register, an agent must meet certain qualifications and undergo prescribed training. The roster of registered agents along with associated licensed copyrights is available on the DIP website. Thailand also organized an MOU in January 2021 between internet platforms, DIP, and rightsholders, to streamline the process of removing IP-infringing and counterfeit goods from the country’s most popular online marketplaces.

Thailand maintains a database on seizures of counterfeit goods that is updated monthly (https://www.ipthailand.go.th/en/statistics). In 2020, the Royal Thai Police conducted 1,685 raids and seized 330,607 items, the Department of Special Investigation conducted four raids on trademark violations resulting in 512,621 items being seized, and the Customs Department had 1,541 seizures that stopped 52,517,596 IP-infringing items from entering Thailand.

Thailand’s Central Intellectual Property and International Trade Court (CIPIT) is the court of first instance that has the jurisdiction over both civil and criminal intellectual property cases and the appeals from DIP administrative decisions. The Court of Appeal for Specialized Cases hears appeals from the CIPIT.

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

Capital Markets and Portfolio Investment

The Thai government maintains a regulatory framework that broadly encourages and facilitates portfolio investment. The Stock Exchange of Thailand, the country’s national stock market, was established under the Securities Exchange of Thailand Act B.E. 2535 in 1992. There is sufficient liquidity in the markets to allow investors to enter and exit sizeable positions. Government policies generally do not restrict the free flow of financial resources to support product and factor markets. The Bank of Thailand, the country’s central bank, has respected IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Credit is generally allocated on market terms rather than by “direct lending.” Foreign investors are not restricted from borrowing on the local market. In theory, the private sector has access to a wide variety of credit instruments, ranging from fixed term lending to overdraft protection to bills of exchange and bonds. However, the private debt market is not well developed. Most corporate financing, whether for short-term working capital needs, trade financing, or project financing, requires borrowing from commercial banks or other financial institutions.

Money and Banking System

Thailand’s banking sector, with 15 domestic commercial banks, is sound and well-capitalized. As of December 2020, the non-performing loan rate was low (around 3.25 percent industry wide), and banks were well prepared to handle a forecast rise in the NPL rate in 2021 due to the pandemic. The ratio of capital funds/risk-weighted assets (capital adequacy) was high (20.1 percent). Thailand’s largest commercial bank is Bangkok Bank, with assets totaling USD 100 billion as of December 2020. The combined assets of the five largest commercial banks totaled USD 492.6 billion, or 70.82 percent of the total assets of the Thai banking system, at the end of 2020.

In general, Thai commercial banks provide the following services: accepting deposits from the public; granting credit; buying and selling foreign currencies; and buying and selling bills of exchange (including discounting or re-discounting, accepting, and guaranteeing bills of exchange). Commercial banks also provide credit guarantees, payment, remittance and financial instruments for risk management. Such instruments include interest-rate derivatives and foreign-exchange derivatives. Additional business to support capital market development, such as debt and equity instruments, is allowed. A commercial bank may also provide other services, such as bank assurance and e-banking.

Thailand’s central bank is the Bank of Thailand (BOT), which is headed by a Governor appointed for a five-year term. The BOT serves the following functions: prints and issues banknotes and other security documents; promotes monetary stability and formulates monetary policies; manages the BOT’s assets; provides banking facilities to the government; acts as the registrar of government bonds; provides banking facilities for financial institutions; establishes or supports the payment system; supervises financial institutions manages the country’s foreign exchange rate under the foreign exchange system; and determines the makeup of assets in the foreign exchange reserve.

Apart from the 15 domestic commercial banks, there are currently 11 registered foreign bank branches, including three American banks (Citibank, Bank of America, and JP Morgan Chase), and four foreign bank subsidiaries operating in Thailand. To set up a bank branch or a subsidiary in Thailand, a foreign commercial bank must obtain approval from the Ministry of Finance and the BOT. Foreign commercial bank branches are limited to three service points (branches/ATMs) and foreign commercial bank subsidiaries are limited to 40 service points (branches and off-premise ATMs) per subsidiary. Newly established foreign bank branches are required to have minimum capital funds of 125 million baht (USD 3.99 million at 2020 average exchange rates) invested in government or state enterprise securities, or directly deposited with the Bank of Thailand. The number of expatriate management personnel is limited to six people at full branches, although Thai authorities frequently grant exceptions on a case-by-case basis.

Non-residents can open and maintain foreign currency accounts without deposit and withdrawal ceilings. Non-residents can also open and maintain Thai baht accounts; however, in an effort to curb the strong baht, the Bank of Thailand capped non-resident Thai deposits to 200 million baht across all domestic bank accounts. However, in January 2021, the Bank of Thailand began allowing non-resident companies greater flexibility to conduct baht transactions with domestic financial institutions under the non-resident qualified company scheme. Participating non-financial firms which trade and invest directly in Thailand are allowed to manage currency risks related to the baht without having to provide proof of underlying baht holdings for each transaction. This will allow firms to manage baht liquidity more flexibly without being subject to the end-of-day outstanding limit of 200 million baht for non-resident accounts. Withdrawals are freely permitted. Since mid-2017, the BOT has allowed commercial banks and payment service providers to introduce new financial services technologies under its “Regulatory Sandbox” guidelines. Recently introduced technologies under this scheme include standardized QR codes for payments, blockchain funds transfers, electronic letters of guarantee, and biometrics.

Thailand’s alternative financial services include cooperatives, micro-saving groups, the state village funds, and informal money lenders. The latter provide basic but expensive financial services to households, mostly in rural areas. These alternative financial services, with the exception of informal money lenders, are regulated by the government.

Foreign Exchange and Remittances

Foreign Exchange

There are no limitations placed on foreign investors for converting, transferring, or repatriating funds associated with an investment; however, supporting documentation is required. Any person who brings Thai baht currency or foreign currency in or out of Thailand in an aggregate amount exceeding USD 15,000 or the equivalent must declare the currency at a Customs checkpoint. Investment funds are allowed to be freely converted into any currency.

The exchange rate is generally determined by market fundamentals but is carefully scrutinized by the BOT under a managed float system. During periods of excessive capital inflows/outflows (i.e., exchange rate speculation), the central bank has stepped in to prevent extreme movements in the currency and to reduce the duration and extent of the exchange rate’s deviation from a targeted equilibrium.

Remittance Policies

Thailand imposes no limitations on the inflow or outflow of funds for remittances of profits or revenue for direct and portfolio investments. There are no time limitations on remittances.

Sovereign Wealth Funds

Thailand does not have a sovereign wealth fund and the Bank of Thailand is not pursuing the creation of such a fund. However, the International Monetary Fund has urged Thailand to create a sovereign wealth fund due to its large accumulated foreign exchange reserves. As of December 2020, Thailand had the world’s 13th largest foreign exchange reserves at USD 258.1 billion.

Thailand’s 52 state-owned enterprises (SOEs) have total assets of USD 523.5 billion and a combined gross income of USD 159.3 billion (end of 2019 figures, latest available). In 2020, they employed 249,400 people, or 0.65 percent of the Thai labor force. Thailand’s SOEs operate primarily in-service delivery, in particular in the energy, telecommunications, transportation, and financial sectors. More information about SOEs is available at the website of the State Enterprise Policy Office (SEPO) under the Ministry of Finance at www.sepo.go.th .

A 15-member State Enterprises Policy Commission, or “superboard,” oversees operations of the country’s 52 SOEs. In May 2019, the Development of Supervision and Management of State-Owned Enterprise Act B.E. 2562 (2019) went into effect. The law aims to reform SOEs and ensure transparent management decisions. The Thai government generally defines SOEs as special agencies established by law for a particular purpose that are 100 percent owned by the government (through the Ministry of Finance as a primary shareholder). The government recognizes a second category of “limited liability companies/public companies” in which the government owns 50 percent or more of the shares. Of the 52 total SOEs, 42 are wholly owned and 10 are majority-owned. Three are publicly listed on the Stock Exchange of Thailand: Airports of Thailand Public Company Limited, PTT Public Company Limited, and MCOT Public Company Limited. By regulation, at least one-third of SOE boards must be comprised of independent directors.

Private enterprises can compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives in most sectors, but there are some exceptions, such as fixed-line operations in the telecommunications sector.

While SEPO officials aspire to adhere to the OECD Guidelines on Corporate Governance for SOEs no level playing field exists between SOEs and private sector enterprises, which are often disadvantaged in competing with Thai SOEs for contracts.

Generally, SOE senior management reports directly to a line minister and to SEPO. Corporate board seats are typically allocated to senior government officials or politically affiliated individuals.

The 1999 State Enterprise Corporatization Act provides a framework for conversion of SOEs into stock companies. Corporatization is viewed as an intermediate step toward eventual privatization. (Note: “corporatization” describes the process by which an SOE adjusts its internal structure to resemble a publicly traded enterprise; “privatization” denotes that a majority of the SOE’s shares is sold to the public; and “partial privatization” refers to a situation in which less than half of a company’s shares are sold to the public.) Foreign investors are allowed to participate in privatizations, but restrictions are applied in certain sectors, as regulated by the FBA and the Act on Standards Qualifications for Directors and Employees of State Enterprises of 1975, as amended. However, privatizations have been on hold since 2006 largely due to strong opposition from labor unions.

A 15-member State Enterprises Policy Commission, or “superboard,” oversees operations of the country’s 56 SOEs. In May 2019, the Development of Supervision and Management of State-Owned Enterprise Act B.E. 2562 (2019) went into effect. The law aims to reform SOEs and ensure transparent management decisions; however, privatization is not part of this process.

The Thai government has committed to implement the UN Guiding Principles on Business and Human Rights (UNGP). Thailand has two national plans for responsible business conduct. The 4th National Human Rights Plan (2019-2022) sets a framework on human rights for government agencies, the private sector, and civil society to reduce the incidence of human rights violations.

In October 2019 Thailand’s Cabinet adopted the country’s first National Action Plan on Business and Human Rights (NAP on BHR), based on UNGP. The NAP aims to prevent adverse effects of business operations on human rights. The plan identifies four priority areas: 1) labor; 2) community, land, natural resources, and environment; 3) human rights defenders; and 4) cross border investment and multinational enterprises. The Department of Rights and Liberties Protection at the Ministry of Justice is the lead agency. The Global Compact Network of Thailand opened a Business and Human Right Academy in 2020 to raise awareness in the private sector.

There are several local NGOs that promote and monitor responsible business conduct. Most such NGOs operate without hindrance, though a few have experienced intimidation as a result of their work. International NGOs continue to call on the Thai government and Thai companies to act more responsibly with respect to human and labor rights.

Thailand has not ratified the Montreux Document on Private Military and Service Companies.

In March 2020 the Thai Labor Minister signed an MOU with 13 private industry associations for prevention and elimination of child labor and forced labor in sectors including shrimp-farming, sugarcane, fisheries, and garments – all sectors identified as high risk in the U.S. Department of Labor’s TDA report.

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.

Transparency International’s Corruption Perceptions Index ranked Thailand 104th out of 180 countries with a score of 36 out of 100 in 2020 (zero is highly corrupt). According to some studies, bribery and corruption are still problematic. Despite increased usage of electronic systems, government officers still wield discretion in the granting of licenses and other government approvals, which creates opportunities for corruption. U.S. executives with experience in Thailand often advise new-to-market companies that it is far easier to avoid corrupt transactions from the beginning than to stop such practices once a company has been identified as willing to operate in this fashion. American firms that comply with the strict guidelines of the Foreign Corrupt Practices Act (FCPA) are able to compete successfully in Thailand. U.S. businesses say that publicly affirming the need to comply with the FCPA helps to shield their companies from pressure to pay bribes.

Thailand has a legal framework and a range of institutions to counter corruption. The Organic Law to Counter Corruption criminalizes corrupt practices of public officials and corporations, including active and passive bribery of public officials. The anti-corruption laws extend to family members of officials and to political parties.

Thai procurement regulations prohibit collusion amongst bidders. If an examination confirms allegations or suspicions of collusion among bidders, the names of those applicants must be removed from the list of competitors.

Thailand adopted its first national government procurement law in December 2016. Based on UNCITRAL model laws and the WTO Agreement on Government Procurement, the law applies to all government agencies, local authorities, and state-owned enterprises, and aims to improve transparency. Officials who violate the law are subject to 1-10 years imprisonment and/or a fine from Thai baht 20,000 (approximately USD 615) to Thai baht 200,000 (approximately USD 6,150).

Since 2010, the Thai Institute of Directors has built an anti-corruption coalition of Thailand’s largest businesses. Coalition members sign a Collective Action Against Corruption Declaration and pledge to take tangible, measurable steps to reduce corruption-related risks identified by third party certification. The Center for International Private Enterprise equipped the Thai Institute of Directors and its coalition partners with an array of tools for training and collective action.

Established in 2011, the Anti-Corruption Organization of Thailand (ACT) aims to encourage the government to create laws to combat corruption. ACT has 54 member organizations drawn from the private, public, and academic sectors. Their signature program is the “Integrity Pact,” run in cooperation with the Comptroller General Department of the Ministry of Finance, and based on a tool promoted by Transparency International. The program forbids bribes from signatory members in bidding for government contacts and assigns independent ACT observers to monitor public infrastructure projects for signs of collusion. Member agencies and companies must adhere to strict transparency rules by disclosing and making easily available to the public all relevant bidding information, such as the terms of reference and the cost of the project.

Thailand is a party to the UN Anti-Corruption Convention, but not the OECD Anti-Bribery Convention. Thailand’s Witness Protection Act offers protection (to include police protection) to witnesses, including NGO employees, who are eligible for special protection measures in anti-corruption cases.

Resources to Report Corruption

International Affairs Strategy Specialist
Office of the National Anti-Corruption Commission
361 Nonthaburi Road, Thasaai District, Amphur Muang Nonthaburi 11000, Thailand
Tel: +662-528-4800
Email:  TACC@nacc.go.th 

Dr. Mana Nimitmongkol
Secretary General
Anti-Corruption Organization of Thailand (ACT)
44 Srijulsup Tower, 16th floor, Phatumwan, Bangkok 10330
Tel: +662-613-8863
Email:  mana2020@yahoo.com

Periodic street protests against the government occurred throughout 2020, though they were generally peaceful and did not result in property damage.

Violence related to an ongoing ethno-nationalist insurgency in Thailand’s southernmost provinces has claimed more than 7,000 lives since 2004. Although the number of deaths and violent incidents has decreased year-over-year, efforts to end the insurgency have so far been unsuccessful. The government is currently engaged in preliminary talks with the leading insurgent group. Almost all attacks have occurred in the three southernmost provinces of the country.

In 2020, 39.45 million people were in Thailand’s formal labor pool, comprising 59.6 percent of the total population. Thailand’s official unemployment rates stood at 1.5 percent at the end of 2020, significantly more than 1.0 percent the previous year. Unemployment among youth (15-24 years old) is around 5.4 percent, while the rate is only 1.1 percent for adults over 25 years old. Well over half the labor force (53.7 percent) earns income in the informal sector, including through self-employment and family labor, which limits their access to social welfare programs. The National Statistical Office show COVID-19 negatively affected the labor force’s working hours; many people although still employed, work less hours and receive less pay.

The Thai government is actively seeking to address shortages of both skilled and unskilled workers through education reform and various worker-training incentive programs. Low birth rates, an aging population, and a skills mismatch, are exacerbating labor shortages in many sectors. Despite provision of 15 years of free universal education, Thailand continues to suffer from a skills mismatch that impedes innovation and economic growth. Thailand has a shortage of high-skill workers such as researchers, engineers, and managers, as well as technicians and vocational workers.

Regional income inequality and labor shortages, particularly in labor-intensive manufacturing, construction, hospitality, and service sectors, have attracted millions of migrant workers, mostly from neighboring Burma, Cambodia, and Laos. In 2019, the International Organization for Migration estimated Thailand hosted 4.9 million migrant workers, or 10 percent of country’s labor force. Nearly 200,000 workers returned to their home countries due to the COVID-19 pandemic. Although an increasing number of migrant laborers are documented, many continue to work illegally. At the end of 2020, approximately 2.5 million migrant workers had registered with the Ministry of Labor.

Employers may dismiss workers provided the employer pays severance. Where an employer temporarily suspends business, in part or in whole, the employer must pay the employee at least 75 percent of his or her daily wages throughout the suspension period.

Among wage and salary workers, 3.4 percent are unionized and only 34 out of 77 provinces have labor unions. Thai law allows private-sector workers to form and join trade unions of their choosing without prior authorization, to bargain collectively, and to conduct legal strikes, although these rights come with some restrictions. Noncitizen migrant workers, whether registered or undocumented, do not have the right to form unions or serve as union officials. Migrants can join unions organized and led by Thai citizens.

In 2020, the Department of Labor Protection and Welfare issued a ministerial regulation on occupational safety, health and working environment for diving work; the regulation sets a minimum age of 18. The Department is in the process of drafting a regulation on fishery worker protection. Additional information on migrant workers issues and rights can be found in the U.S. Trafficking in Persons Report, as well as the Labor Rights chapter of the U.S. Human Rights report.

* Source for Host Country Data: Bank of Thailand (http://bot.or.th/)

Policies Toward Foreign Direct Investment

Since Vietnam embarked on economic reforms in 1986 to transition to a market-based economy, the government has welcomed FDI, recognizing it as a key component of Vietnam’s high rate of economic growth over the last two decades. Foreign investments continue to play a crucial role in the economy: according to Vietnam’s General Statistics Office (GSO), Vietnam exported USD 281 billion in goods in 2020, of which 72 percent came from projects utilizing FDI.

The Politburo issued Resolution 55 in 2019 to increase Vietnam’s attractiveness to foreign investment. This Resolution aims to attract USD 50 billion in new foreign investment by 2030. In 2020, the government revised laws on investment and enterprise, in addition to passing the Public Private Partnership Law, to further the goals of this Resolution. The revisions encourage high-quality investments, use and development of advanced technologies, and environmental protection mechanisms.

While Vietnam’s revised Investment Law says the government must treat foreign and domestic investors equally, foreign investors have complained about having to cross extra hurdles to get ordinary government approvals. The government continues to have foreign ownership limits (FOLs) in industries Vietnam considers important to national security. In January 2020, the government removed FOLs on companies in the eWallet sector and reformed electronic payments procedures for foreign firms. Some U.S. investors report that these changes have provided more regulatory certainty, which has, in turn, instilled greater confidence as they consider long-term investments in Vietnam.U.S. investors continue to cite concerns about confusing tax regulations and retroactive changes to laws – including tax rates, tax policies, and preferential treatment of state-owned enterprises (SOEs). In 2020, members of the American Chamber of Commerce (AmCham) in Hanoi noted that fair, transparent, stable, and effective legal frameworks would help Vietnam better attract U.S. investment.

The Ministry of Planning and Investment (MPI) is the country’s national agency charged with promoting and facilitating foreign investment; most provinces and cities also have local equivalents. MPI and local investment promotion offices provide information and explain regulations and policies to foreign investors. They also inform the Prime Minister and National Assembly on trends in foreign investment. However, U.S. investors should still consult lawyers and/or other experts regarding issues on regulations that are unclear.

The Prime Minister, along with other senior leaders, has stated that Vietnam prioritizes both investment retention and ongoing dialogue with foreign investors. Vietnam’s senior leaders often meet with foreign governments and private-sector representatives to emphasize Vietnam’s attractiveness as an FDI destination. The semiannual Vietnam Business Forum includes meetings between foreign investors and Vietnamese government officials; the U.S.-ASEAN Business Council (USABC), AmCham, and other U.S. associations also host multiple yearly missions for their U.S. company members, which allow direct engagement with senior government officials. Foreign investors in Vietnam have reported that these meetings and dialogues have helped address obstacles.

Limits on Foreign Control and Right to Private Ownership and Establishment

Both foreign and domestic private entities have the right to establish and own business enterprises in Vietnam and engage in most forms of legal remunerative activity in non-regulated sectors.

Vietnam has some statutory restrictions on foreign investment, including FOLs or requirements for joint partnerships, projects in banking, network infrastructure services, non-infrastructure telecommunication services, transportation, energy, and defense. By law, the Prime Minister can waive these FOLs on a case-by-case basis. In practice, however, when the government has removed or eased FOLs, it has done so for the whole industry sector rather than for a specific investment.

MPI plays a key role with respect to investment screening. All FDI projects require approval by the provincial People’s Committee in which the project would be located. By law, large-scale FDI projects must also obtain the approval of the National Assembly before investment can proceed. MPI’s approval process includes an assessment of the investor’s legal status and financial strength; the project’s compatibility with the government’s long- and short-term goals for economic development and government revenue; the investor’s technological expertise; environmental protection; and plans for land use and land clearance compensation, if applicable. The government can, and sometimes does, stop certain foreign investments if it deems the investment harmful to Vietnam’s national security.

The following FDI projects also require the Prime Minister’s approval: airports; grade 1 seaports (seaports the government classifies as strategic); casinos; oil and gas exploration, production, and refining; telecommunications/network infrastructure; forestry projects; publishing; and projects that need approval from more than one province. In the period between this year’s Investment Climate Statement and last year’s, the government removed the requirement that the Prime Minister needs to approve investments over USD 271 million or investments in the tobacco industry.

Other Investment Policy Reviews

Recent third-party investment policy reviews include the World Bank’s Review from 2020: https://openknowledge.worldbank.org/handle/10986/33598 

https://openknowledge.worldbank.org/handle/10986/33598 

And OECD’s 2018 Review: https://www.oecd.org/countries/vietnam/oecd-investment-policy-reviews-viet-nam-2017-9789264282957-en.htm 

https://www.oecd.org/countries/vietnam/oecd-investment-policy-reviews-viet-nam-2017-9789264282957-en.htm 

UNCTAD released a report in 2009: https://unctad.org/webflyer/investment-policy-review-viet-nam 

https://unctad.org/webflyer/investment-policy-review-viet-nam 

Business Facilitation

The World Bank’s 2020 Ease of Doing Business Index ranked Vietnam 70 of 190 economies. The World Bank reported that in some factors Vietnam lags behind other Southeast Asian countries. For example, it takes businesses 384 hours to pay taxes in Vietnam compared with 64 in Singapore, 174 in Malaysia, and 191 in Indonesia.

In May 2021, USAID and the Vietnam Chamber of Commerce and Industry (VCCI) released the Provincial Competitiveness Index (PCI) 2020 Report, which examined trends in economic governance: http://eng.pcivietnam.org/ . This annual report provides an independent, unbiased view on the provincial business environment by surveying over 8,500 domestic private firms on a variety of business issues. Overall, Vietnam’s median PCI score improved, reflecting the government’s efforts to improve economic governance and the quality of infrastructure, as well as a decline in the prevalence of corruption (bribes).

Outward Investment

The government does not have a clear mechanism to promote or incentivize outward investment, nor does it have regulations restricting domestic investors from investing abroad. Vietnam does not release periodical statistics on outward investment, but reported that by the end of 2019 total outward FDI investment from Vietnam was USD 21 billion in more than 1,300 projects in 78 countries. Laos received the most outward FDI, with USD 5 billion, followed by Russia and Cambodia with USD 2.8 billion and USD 2.7 billion, respectively. SOEs like PetroVietnam, Viettel, and SOCB are Vietnam’s largest sources of outward FDI, and have invested more than USD 13 billion in outward FDI, per media reports.

Transparency of the Regulatory System

U.S. companies continue to report that they face frequent and significant challenges with inconsistent regulatory interpretation, irregular enforcement, and an unclear legal framework. AmCham members have consistently voiced concerns that Vietnam lacks a fair legal system for investments, which affects U.S. companies’ ability to do business in Vietnam. The 2020 PCI report documented companies’ difficulties dealing with land, taxes, and social insurance issues, but also found improvements in procedures related to business administration and anti-corruption.

Accounting systems are inconsistent with international norms, and this increases transaction costs for investors. The government had previously said it intended to have most companies transition to International Financial Reporting Standards (IFRS) by 2020. Unable to meet this target, the Ministry of Finance in March 2020 extended the deadline to 2025.

In Vietnam, the National Assembly passes laws, which serve as the highest form of legal direction, but often lack specifics. Ministries provide draft laws to the National Assembly. The Prime Minister issues decrees, which provide guidance on implementation. Individual ministries issue circulars, which provide guidance on how a ministry will administer a law or decree.

After implementing ministries have cleared a particular law to send the law to the National Assembly, the government posts the law for a 60-day comment period. However, in practice, the public comment period is sometimes truncated. Foreign governments, NGOs, and private-sector companies can, and do, comment during this period, after which the ministry may redraft the law. Upon completion of the revisions, the ministry submits the legislation to the Office of the Government (OOG) for approval, including the Prime Minister’s signature, and the legislation moves to the National Assembly for committee review. During this process, the National Assembly can send the legislation back to the originating ministry for further changes. The Communist Party of Vietnam’s Politburo reserves the right to review special or controversial laws.

In practice, drafting ministries often lack the resources needed to conduct adequate data-driven assessments. Ministries are supposed to conduct policy impact assessments that holistically consider all factors before drafting a law, but the quality of these assessments varies.

The Ministry of Justice (MOJ) is in charge of ensuring that government ministries and agencies follow administrative procedures. The MOJ has a Regulatory Management Department, which oversees and reviews legal documents after they are issued to ensure compliance with the legal system. The Law on the Promulgation of Legal Normative Documents requires all legal documents and agreements to be published online and open for comments for 60 days, and to be published in the Official Gazette before implementation.

Business associations and various chambers of commerce regularly comment on draft laws and regulations. However, when issuing more detailed implementing guidelines, government entities sometimes issue circulars with little advance warning and without public notification, resulting in little opportunity for comment by affected parties. In several cases, authorities allowed comments for the first draft only and did not provide subsequent draft versions to the public. The centralized location where key regulatory actions are published can be found here:   http://vbpl.vn/  .

While general information is publicly available, Vietnam’s public finances and debt obligations (including explicit and contingent liabilities) are not transparent. The National Assembly set a statutory limit for public debt at 65 percent of nominal GDP, and, according to official figures, Vietnam’s public debt to GDP ratio in late 2020 was 55.3 percent – down from 56 percent the previous year. However, the official public-debt figures exclude the debt of certain large SOEs. This poses a risk to Vietnam’s public finances, as the government is liable for the debts of these companies. Vietnam could improve its fiscal transparency by making its executive budget proposal, including budgetary and debt expenses, widely and easily accessible to the general public long before the National Assembly enacts the budget, ensuring greater transparency of off-budget accounts, and by publicizing the criteria by which the government awards contracts and licenses for natural resource extraction.

International Regulatory Considerations

Vietnam is a member of ASEAN, a 10-member regional organization working to advance economic integration through cooperation in economic, social, cultural, technical, scientific and administrative fields. Within ASEAN, the ASEAN Economic Community (AEC) has the goal of establishing a single market across ASEAN nations (similar to the EU’s common market), but member states have not made significant progress. To date, AEC’s greatest success has been in reducing tariffs on most products traded within the bloc.

Vietnam is also a member of the Asia-Pacific Economic Cooperation (APEC), an inter-governmental forum for 21 member economies in the Pacific Rim that promotes free trade throughout the Asia-Pacific region. APEC aims to facilitate business among member states through trade facilitation programming, senior-level leaders’ meetings, and regular dialogue. However, APEC is a non-binding forum. ASEAN and APEC membership has not resulted in Vietnam incorporating international standards, especially when compared with the EU or North America.

Vietnam is a party to the WTO’s Trade Facilitation Agreement (TFA) and has been implementing the TFA’s Category A provisions. Vietnam submitted its Category B and Category C implementation timelines on August 2, 2018. According to these timelines, Vietnam will fully implement the Category B and C provisions by the end of 2023 and 2024, respectively.

Legal System and Judicial Independence

Vietnam’s legal system mixes indigenous, French, and Soviet-inspired civil legal traditions. Vietnam generally follows an operational understanding of the rule of law that is consistent with its top-down, one-party political structure and traditionally inquisitorial judicial system.

The hierarchy of the country’s courts is: 1) the Supreme People’s Court; 2) the High People’s Court; 3) Provincial People’s Courts; 4) District People’s Courts, and 5) Military Courts. The People’s Courts operate in five divisions: criminal, civil, administrative, economic, and labor. The Supreme People’s Procuracy is responsible for prosecuting criminal activities as well as supervising judicial activities.

Vietnam lacks an independent judiciary and separation of powers among Vietnam’s branches of government. For example, Vietnam’s Chief Justice is also a member of the Communist Party’s Central Committee. According to Transparency International, there is significant risk of corruption in judicial rulings. Low judicial salaries engender corruption; nearly one-fifth of surveyed Vietnamese households that have been to court declared that they had paid bribes at least once. Many businesses therefore avoid Vietnamese courts as much as possible.

The judicial system continues to face additional problems: for example, many judges and arbitrators lack adequate legal training and are appointed through personal or political contacts with party leaders or based on their political views. Regulations or enforcement actions are appealable, and appeals are adjudicated in the national court system. Through a separate legal mechanism, individuals and companies can file complaints against enforcement actions under the Law on Complaints.

The 2005 Commercial Law regulates commercial contracts between businesses. Specific regulations prescribe specific forms of contracts, depending on the nature of the deals. If a contract does not contain a dispute-resolution clause, courts will have jurisdiction over a dispute. Vietnamese law allows dispute-resolution clauses in commercial contracts explicitly through the Law on Commercial Arbitration. The law follows the United Nations Commission on International Trade Law (UNCITRAL) model law as an international standard for procedural rules.

Vietnamese courts will only consider recognition of civil judgments issued by courts in countries that have entered into agreements on recognition of judgments with Vietnam or on a reciprocal basis. However, with the exception of France, these treaties only cover non-commercial judgments.

Laws and Regulations on Foreign Direct Investment

The legal system includes provisions to promote foreign investment. Vietnam uses a “negative list” approach to approve foreign investment, meaning foreign businesses are allowed to operate in all areas except for six prohibited sectors – from which domestic businesses are also prohibited. These include illicit drugs, wildlife trade, prostitution, human trafficking, human cloning, and debt collection services.

The law also requires that foreign and domestic investors be treated equally in cases of nationalization and confiscation. However, foreign investors are subject to different business-licensing processes and restrictions, and companies registered in Vietnam that have majority foreign ownership are subject to foreign-investor business-license procedures.

The new Labor Code, which came into effect January 1, 2021, provides greater flexibility in contract termination, allows employees to work more overtime hours, increases the retirement age, and adds flexibility in labor contracts.

The Investment Law, revised in June 2020, stipulated Vietnam would encourage FDI, through incentives, in university education, pollution mitigation, and certain medical research. Public Private Partnership Law, passed in June 2020 lists transportation, electricity grid and power plants, irrigation, water supply and treatment, waste treatment, health care, education and IT infrastructure as prioritized sectors for FDI and private public partnerships.

Vietnam has a “one-stop-shop” website for investment that provides relevant laws, rules, procedures, and reporting requirements for investors:  https://vietnam.eregulations.org/  

Competition and Antitrust Laws

In 2018, Vietnam passed a new Law on Competition, which came into effect on July 1, 2019, replacing Vietnam’s Law on Competition of 2004. The Law includes punishments – such as fines – for those who violate the law. The government has not prosecuted any person or entity under this law since it came into effect, though there were prosecutions under the old law in the early 2000s. The law does not appear to have affected foreign investment. On March 24, 2020, Decree 35, the second decree to implement the Law on Competition, came into effect. Decree 35 addresses issues on anti-competitive agreements, abuse of dominance, and merger control. For merger control, the decree replaces the single market share threshold for when parties must notify a merger with an approach that puts forward four alternative benchmarks based on the value of assets, transaction value, revenue, and market share. The decree also provides details on merger filing assessment.

Expropriation and Compensation

Under the law, the government of Vietnam can only expropriate investors’ property in cases of emergency, disaster, defense, or national interest, and the government is required to compensate investors if it expropriates property. Under the U.S.-Vietnam Bilateral Trade Agreement, Vietnam must apply international standards of treatment in any case of expropriation or nationalization of U.S. investor assets, which includes acting in a non-discriminatory manner with due process of law and with prompt, adequate, and effective compensation. The U.S. Mission in Vietnam is unaware of any current expropriation cases involving U.S. firms.

Dispute Settlement

ICSID Convention and New York Convention

Vietnam has not acceded to the International Center for Settlement of Investment Disputes (ICSID) Convention but is a member of UN Commission on International Trade Laws for the period 2019-2025. MPI has submitted a proposal to the government to join the ICSID, but the government has not moved forward on it. Vietnam is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), meaning that Vietnam courts should recognize foreign arbitral awards rendered by a recognized international arbitration institution without a review of cases’ merits.

Investor-State Dispute Settlement

Vietnam has signed 67 bilateral investment treaties, is party to 26 treaties with investment provisions, and is a member of 15 free trade agreements in force. Some of these include provisions for Investor-State Dispute Settlement. As a signatory to the New York Convention, Vietnam is required to recognize and enforce foreign arbitral awards within its jurisdiction, with few exceptions. Technically, foreign and domestic arbitral awards are legally enforceable in Vietnam; however, foreign investors in Vietnam generally prefer international arbitration for predictability. Vietnam courts may reject foreign arbitral awards if the award is contrary to the basic principles of domestic laws. The new Investment law provides that only Vietnam arbitration and courts can solve disputes between investors and government authorities, while investors can select foreign or mutually agreed arbitrations to solve their disputes.

According to UNCTAD, over the last 10 years, there were two dispute cases against the Vietnamese government involving U.S. companies.  The courts decided in favor of the government in one case, and the parties decided to discontinue the other.  The government is currently in two pending, active disputes (with the UK and South Korea). More details are available at  https://investmentpolicy.unctad.org/investment-dispute-settlement/country/229/viet-nam.

International Commercial Arbitration and Foreign Courts

With an underdeveloped legal system, Vietnam’s courts are often ineffective in settling commercial disputes. Negotiation between concerned parties or arbitration are the most common means of dispute resolution. Since the Law on Arbitration does not allow a foreign investor to refer an investment dispute to a court in a foreign jurisdiction, Vietnamese judges cannot apply foreign laws to a case before them, and foreign lawyers cannot represent plaintiffs in a court of law. The Law on Commercial Arbitration of 2010 permits foreign arbitration centers to establish branches or representative offices (although none have done so).

There are no readily available statistics on how often domestic courts rule in favor of SOEs. In general, the court system in Vietnam works slowly. International arbitration awards, when enforced, may take years from original judgment to payment. Many foreign companies, due to concerns related to time, costs, and potential for bribery, have reported that they have turned to international arbitration or have asked influential individuals to weigh in.

Bankruptcy Regulations

Under the 2014 Bankruptcy Law, bankruptcy is not criminalized unless it relates to another crime. The law defines insolvency as a condition in which an enterprise is more than three months overdue in meeting its payment obligations. The law also provides provisions allowing creditors to commence bankruptcy proceedings against an enterprise and procedures for credit institutions to file for bankruptcy. According to the World Bank’s 2020 Ease of Doing Business Report, Vietnam ranked 122 out of 190 for resolving insolvency. The report noted that it still takes, on average, five years to conclude a bankruptcy case in Vietnam. The Credit Information Center of the State Bank of Vietnam provides credit information services for foreign investors concerned about the potential for bankruptcy with a Vietnamese partner.

Investment Incentives

Foreign investors are exempt from import duties on goods imported for their own use that cannot be procured locally, including machinery; vehicles; components and spare parts for machinery and equipment; raw materials; inputs for manufacturing; and construction materials. Remote and mountainous provinces and special industrial zones are allowed to provide additional tax breaks and other incentives to prospective investors.

Investment incentives, including lower corporate income tax rates, exemption of some import tariffs, or favorable land rental rates, are available in the following sectors: advanced technology; research and development; new materials; energy; clean energy; renewable energy; energy saving products; automobiles; software; waste treatment and management; and primary or vocational education.

The government rarely issues guarantees for financing FDI projects; when it does so, it is usually because the project links to a national security priority. Joint financing with the government occurs when a foreign entity partners with an SOE. The government’s reluctance to guarantee projects reflects its desire to stay below a statutory 65 percent public debt-to-GDP ratio cap, and a desire to avoid incurring liabilities from projects that would not be economically viable without the guarantee. This has delayed approval of many large-scale FDI projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Vietnam has prioritized efforts to establish and develop foreign trade zones (FTZs) over the last decade. Vietnam currently has more than 350 industrial zones (IZs) and export processing zones (EPZs). Many foreign investors report that it is easier to implement projects in IZs because they do not have to be involved in site clearance and infrastructure construction. Enterprises in FTZs pay no duties when importing raw materials if they export the finished products. Customs warehouse companies in FTZs can provide transportation services and act as distributors for the goods deposited.

Additional services relating to customs declaration, appraisal, insurance, reprocessing, or packaging require the approval of the provincial customs office. In practice, the time involved for clearance and delivery of goods by provincial custom officials can be lengthy and unpredictable. Companies operating in economic zones are entitled to more tax reductions as measures to incentivize investments.

Performance and Data Localization Requirements

Vietnamese law states that employers can only recruit foreign nationals for high-skilled positions such as manager, managing director, expert, or technical worker. Local companies must also justify that their efforts to hire suitable local employees were unsuccessful before recruiting foreigners, and local authorities and/or the national government must approve these justifications in writing. This does not apply to board members elected by shareholders or capital contributors.

The government has implemented entry suspension and quarantine regulations for foreigners since March 2020, as a measure to contain COVID-19. Vietnam’s borders are closed for all foreign nationals with only few exceptions for diplomatic, experts, and special cases determined by the government. Foreign nationals travelling to Vietnam are subject to testing, quarantine, and lockdowns with little or no advance notice.

On June 17, 2020, the National Assembly passed the Law on Investment (LOI) 2020, which prescribes market entry conditions for foreign investors, particularly in “conditional” sectors. All investors, foreign or domestics, must obtain formal approval, in the form of business licenses or other certifications, to satisfy “necessary conditions for reasons of national defense, security or order, social safety, social morality, and health of the community.” These sectors are listed in Appendix IV (“List of Conditional Investments and Businesses”) of the Law.

LOI 2020 includes two conditions for foreign investors investing in or acquiring capital/share in a Vietnamese company:

• The investment must not compromise national defense and security of Vietnam; and
• The investment must comply with the conditions relating to the use of islands, border areas, and coastal areas in accordance with the applicable laws.

The LOI does not define “national defense and security.”

On January 1, 2019, the Law on Cybersecurity (LOCS) came into effect, requiring cross-border services providers to store data of Vietnamese users in Vietnam – despite sustained international and domestic opposition to the regulation. The July 2019 draft of the LOCS implementing decree by the Ministry of Public Security (MPS) sparked concerns among foreign digital services firms regarding the draft decree’s provisions on data localization and local presence for a broad range of services in the Internet economy – from cloud computing to email. Provisions of the LOCS require firms to provide unencrypted user information upon request by law enforcement. However, application of this requirement hinges on issuance of the implementing Decree, which is still pending as of April 2021.

In September 2020, MPS released a revised LOCS decree draft, which requires all local companies to comply with data localization requirements and forces foreign services providers to localize their data and establish local presence when they violate Vietnamese laws and fail to cooperate with MPS to address violations. U.S. companies complain that the data localization regulations are impractical, and if implemented, would be unnecessarily burdensome.

The 2019 Law on Tax Administration, which came into force July 1, 2020, requires foreign entities that employ digital platforms without a permanent physical presence in Vietnam to register as tax-paying entities in Vietnam. The Ministry of Finance released a draft circular with guidance on implementation of the Law in March 2021, and is working to revise the law based on stakeholder comments, as of April 2021. American companies have expressed concerns that the original draft circular included unnecessarily complex and unclear regulations of Corporate Income Tax (CIT) and Value Added Tax (VAT) collections, and does not address areas that overlap with Vietnam’s international tax treaties already in force.

In early 2020, the Ministry of Public Security (MPS) released a draft outline of the Personal Data Protection Decree (PDPD) and published the first full draft in February 2021 for public comment with an expected effective date of December 1, 2021. Industry and human rights activists have major concerns about data localization provision for personal data, including requirements for local presence, licensing, and registration procedures. If implemented as written, the regulations of cross-border transfer of personal data would affect a wide range of companies.

The Ministry of Information and Communication (MIC) released a draft of Decree 72 on Internet Services and Information Content Online for public comment on April 19, 2020. Foreign companies reported concerns regarding the draft Decree provisions on mandatory licensing requirements; tightened regulations on social media companies; compulsory content review; and policies requiring responses to government takedown requests within 24 to 48 hours. The draft Decree requires local Internet service providers to terminate services for companies that fail to cooperate with the new regulations. The revised decree is scheduled to go into effect in late 2021. The Ministry of Public Security has applied the broadest possible definition of “data,” in the decree, which could threaten some activities of U.S. payment and financial services companies.

MIC is also revising Decree 06 on Management, Provision and Utilization of Radio and Television Services, which applies specifically to streaming services. The first draft, released August 2019, required onerous licensing procedures, local-presence requirements, local-content quotas, content preapproval, compulsory translation, and local advertising agents that are inconsistent with Vietnam’s commitments under the World Trade Organization (WTO). The latest, December 2020, draft continues to include licensing requirements for cross-border over-the-top (OTT) services providers and pre-check content censorship.

Real Property

The State collectively owns and manages all land in Vietnam, and therefore neither foreigners nor Vietnamese nationals can own land. However, the government grants land-use and building rights, often to individuals. According to the Ministry of National Resources and Environment (MONRE), as of September 2018 – the most recent time period in which the government has made figures available – the government has issued land-use rights certificates for 96.9 percent of land in Vietnam. If land is not used according to the land-use rights certificate or if it is unoccupied, it reverts to the government. If investors do not use land leased within 12 consecutive months or delay land use by 24 months from the original investment schedule, the government is entitled to reclaim the land. Investors can seek an extension of delay but not for more than 24 months. Vietnam is building a national land-registration database, and some localities have already digitized their land records.

State protection of property rights are still evolving, and the law does not clearly demarcate circumstances in which the government would use eminent domain. Under the Housing Law and Real Estate Business Law of November 2014, the government can take land if it deems it necessary for socio-economic development in the public or national interest if the Prime Minister, the National Assembly, or the Provincial People’s Council approves such action. However, the law loosely defines “socio-economic development.”

Disputes over land rights continue to be a significant driver of social protests in Vietnam. Foreign investors also may be exposed to land disputes through merger and acquisition activities when they buy into a local company or implement large-scale infrastructure projects.

Foreign investors can lease land for renewable periods of 50 years, and up to 70 years in some underdeveloped areas. This allows titleholders to conduct property transactions, including mortgages on property. Some investors have encountered difficulties amending investment licenses to expand operations onto land adjoining existing facilities. Investors also note that local authorities may seek to increase requirements for land-use rights when current rights must be renewed, particularly when the investment in question competes with Vietnamese companies.

Intellectual Property Rights

Vietnam does not have a strong record on protecting and enforcing intellectual property (IP). Lack of coordination among ministries and agencies responsible for enforcement is a primary obstacle, and capacity constraints related to enforcement persist, in part, due to a lack of resources and IP expertise. Vietnam continues to rely heavily on administrative enforcement actions, which have consistently failed to deter widespread counterfeiting and piracy.

There were some positive developments in 2020-2021, such as the issuance of a national IP strategy, public awareness campaigns and training activities, and reported improvements on border enforcement in some parts of the country. Overall, however,IP enforcement continues to be a challenge.

The United States is closely monitoring and engaging with the Vietnamese government in the ongoing implementation of amendments to the 2015 Penal Code, particularly with respect to criminal enforcement of IP violations. Counterfeit goods are widely available online and in physical markets. In addition, issues continue to persist with online piracy (including the use of piracy devices and applications to access unauthorized audiovisual content), book piracy, lack of effective criminal measures for cable and satellite signal theft, and both private and public-sector software piracy..

Vietnam’s system for protecting against the unfair commercial use and unauthorized disclosure of undisclosed tests or other data generated to obtain marketing approval for pharmaceutical products needs further clarification.  The United States is monitoring the implementation of IP provisions of the CPTPP, which the National Assembly ratified in November 2018, and the EVFTA, which Vietnam’s National Assembly ratified in June 2020. The EVFTA grandfathered prior users of certain cheese terms from the restrictions in the geographical indications provisions of the EVFTA, and it is important that Vietnam ensure market access for prior users of those terms who were in the Vietnamese market before the grandfathering date of January 1, 2017.

In its international agreements, Vietnam committed to strengthen its IP regime and is in the process of drafting implementing legislation and other measures in a number of IP-related areas, including in preparation for acceding to the World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Performances and Phonograms Treaty.  In September 2019, Vietnam acceded to the Hague Agreement Concerning the International Registration of Industrial Designs, and the United States will monitor implementation of that agreement.

The United States, through the U.S.-Vietnam Trade and Investment Framework Agreement (TIFA) and other bilateral fora, continues to urge Vietnam to address IP issues and to provide interested stakeholders with meaningful opportunities for input as it proceeds with these reforms. The United States and Vietnam signed a Customs Mutual Assistance Agreement in December 2019, which will facilitate bilateral cooperation in IP enforcement.

In 2020, the Intellectual Property Office of Vietnam (IP Vietnam) reported receiving 119,986 IP applications of all types (down 0.7 percent from 2019), of which 76,072 were registered for industrial property rights (up 1.7 percent from 2019). IP Vietnam reported granting 4,591 patents in 2020 (up 63 percent from 2019). Industrial designs registrations reached 2,054 in 2020 (down 5.4 percent from 2019). In total, IP Vietnam granted more than 47,168 protection titles for industrial property, out of 76,072 applications in 2020 (up 15.6 percent from 2019). The General Department of Market Management in 2020 detected 7,442 cases relating to counterfeit goods on physical and online markets, copyright and IP violations, imposing fines of USD 5 million. The Copyright Office of Vietnam received and settled 12 copyright petitions and five requests for copyright assessment in 2020. In 2020, the Ministry of Culture, Sports, and Tourism’s Inspector General carried out inspections for software licensing compliance, resulting in total fines of USD 23,000. For more information, please see the following reports from the U.S. Trade Representative:

• Special 301 Report:  https://ustr.gov/sites/default/files/2020_Special_301_Report.pdf
• Notorious Markets Report: https://ustr.gov/sites/default/files/2020_Special_301_Report.pdf
• For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at .

Capital Markets and Portfolio Investment

The government generally encourages foreign portfolio investment. The country has two stock markets: the Ho Chi Minh City Stock Exchange (HOSE), which lists publicly traded companies, and the Hanoi Stock Exchange, which lists bonds and derivatives. The Law on Securities, which came into effect January 1, 2021, states that Vietnam Exchange, a parent company to both exchanges, with board members appointed by the government, will manage trading operations. Vietnam also has a market for unlisted public companies (UPCOM) at the Hanoi Securities Center.

Although Vietnam welcomes portfolio investment, the country sometimes has difficulty in attracting such investment. Morgan Stanley Capital International (MSCI) classifies Vietnam as a Frontier Market, which precludes some of the world’s biggest asset managers from investing in its stock markets.

Vietnam did not meet its goal to be considered an “emerging market” in 2020, and pushed back the timeline to 2025. Foreign investors often face difficulties in making portfolio investments because of cumbersome bureaucratic procedures. Furthermore, in the first three months of 2021, surges in trading frequently crashed the HOSE’s decades-old technology platform, resulting in investor frustration.

There is enough liquidity in the markets to enter and maintain sizable positions. Combined market capitalization at the end of 2020 was approximately USD 230 billion, equal to 84 percent of Vietnam’s GDP, with the HOSE accounting for USD 177 billion, the Hanoi Exchange USD 9 billion, and the UPCOM USD 43 billion. Bond market capitalization reached over USD 50 billion in 2019, the majority of which were government bonds held by domestic commercial banks.

Vietnam complies with International Monetary Fund (IMF) Article VIII. The government notified the IMF that it accepted the obligations of Article VIII, Sections 2, 3, and 4, effective November 8, 2005.

Local banks generally allocate credit on market terms, but the banking sector is not as sophisticated or capitalized as those in advanced economies. Foreign investors can acquire credit in the local market, but both foreign and domestic firms often seek foreign financing since domestic banks do not have sufficient capital at appropriate interest rate levels for a significant number of FDI projects.

Money and Banking System

Vietnam’s banking sector has been stable since recovering from the 2008 global recession. Nevertheless, the State Bank of Vietnam (SBV), Vietnam’s central bank, estimated in 2019 that 55 percent of Vietnam’s population is underbanked or lacks bank accounts due to a preference for cash, distrust in commercial banking, limited geographical distribution of banks, and a lack of financial acumen. The World Bank’s Global Findex Database 2017 (the most recent available) estimated that only 31 percent of Vietnamese over the age of 15 had an account at a financial institution or through a mobile money provider.

The COVID-19 pandemic increased strains on the financial system as an increasing number of debtors were unable to make loan payments. Slow credit growth, together with increases in debtors’ inability to pay back loans, squeezed bank profits in 2020. At the end of 2020, the SBV reported that the percentage of non-performing loans (NPLs) in the banking sector was 2.14 percent, up from 1.9 percent at the end of 2019.

By the end of 2020, per SBV, the banking sector’s estimated total assets stood at USD 572 billion, of which USD 236 billion belonged to seven state-owned and majority state-owned commercial banks – accounting for 41 percent of total assets in the sector. Though classified as joint-stock (private) commercial banks, the Bank of Investment and Development Bank (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) all are majority-owned by SBV. In addition, the SBV holds 100 percent of Agribank, Global Petro Commercial Bank (GPBank), Construction Bank (CBBank), and Oceanbank.

Currently, the total foreign ownership limit (FOL) in a Vietnamese bank is 30 percent, with a 5 percent limit for non-strategic individual investors, a 15 percent limit for non-strategic institutional investors, and a 20 percent limit for strategic institutional partners.

The U.S. Mission in Vietnam did not find any evidence that a Vietnamese bank had lost a correspondent banking relationship in the past three years; there is also no evidence that a correspondent banking relationship is currently in jeopardy.

Foreign Exchange and Remittances

Foreign Exchange

There are no legal restrictions on foreign investors converting and repatriating earnings or investment capital from Vietnam. A foreign investor can convert and repatriate earnings provided the investor has the supporting documents required by law proving they have completed financial obligations. The SBV sets the interbank lending rate and announces a daily interbank reference exchange rate. SBV determines the latter based on the previous day’s average interbank exchange rates, while considering movements in the currencies of Vietnam’s major trading and investment partners. The government generally keeps the exchange rate at a stable level compared to major world currencies.

Remittance Policies

Vietnam mandates that in-country transactions must be made in the local currency – Vietnamese dong (VND). The government allows foreign businesses to remit lawful profits, capital contributions, and other legal investment earnings via authorized institutions that handle foreign currency transactions. Although foreign companies can remit profits legally, sometimes these companies find bureaucratic difficulties, as they are required to provide supporting documentation (audited financial statements, import/foreign-service procurement contracts, proof of tax obligation fulfillment, etc.). SBV also requires foreign investors to submit notification of profit remittance abroad to tax authorities at least seven working days prior to the remittance; otherwise there is no waiting period to remit an investment return.

The inflow of foreign currency into Vietnam is less constrained. There are no recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.

Sovereign Wealth Funds

Vietnam does not have a sovereign wealth fund.

The 2020 Enterprises Law, which came into effect January 1, 2021, defines an SOE as an enterprise that is more than 50 percent owned by the government. Vietnam does not officially publish a list of SOEs.

In 2018, the government created the Commission for State Capital Management at Enterprises (CMSC) to manage SOEs with increased transparency and accountability. The CMSC’s goals include accelerating privatization in a transparent manner, promoting public listings of SOEs, and transparency in overall financial management of SOEs.

SOEs do not operate on a level playing field with domestic or foreign enterprises and continue to benefit from preferential access to resources such as land, capital, and political largesse. Third-party market analysts note that a significant number of SOEs have extensive liabilities, including pensions owed, real estate holdings in areas not related to the SOE’s ostensible remit, and a lack of transparency with respect to operations and financing.

Privatization Program

Vietnam officially started privatizing SOEs in 1998. The process has been slow because privatization typically transfers only a small share of an SOE (two to three percent) to the private sector, and investors have had concerns about the financial health of many companies. Additionally, the government has inadequate regulations with respect to privatization procedures.

Companies are required to publish their corporate social responsibility activities, corporate governance work, information of related parties and transactions, and compensation of management. Companies must also announce extraordinary circumstances, such as changes to management, dissolution, or establishment of subsidiaries, within 36 hours of the event.

Most multinational companies implement Corporate Social Responsibility (CSR) programs that contribute to improving the business environment in Vietnam, and awareness of CSR programs is increasing among large domestic companies. The VCCI conducts CSR training and highlights corporate engagement on a dedicated website ( http://www.csr-vietnam.eu/  ) in partnership with the UN.

AmCham also has a CSR group that organizes events and activities to raise awareness of social issues. Non-governmental organizations collaborate with government bodies, such as VCCI and the Ministry of Labor, Invalids, and Social Affairs (MOLISA), to promote business practices in Vietnam in line with international norms and standards.

Vietnam is not a part of the Extractive Industries Transparency Initiative.

Overall, the government has not defined responsible business conduct (RBC), nor has it established a national plan or agenda for RBC. The government has yet to establish a national point of contact or ombudsman for stakeholders to get information or raise concerns regarding RBC. The new Labor Code, which came into effect January 1, 2021, recognizes the right of employees to establish their own representative organizations, allows employees to unilaterally terminate labor contract without reason, and extends legal protection to non-written contract employees. For a detailed description of regulations on worker/labor rights in Vietnam, see the Department of State’s Human Rights Report ( https://www.state.gov/reports/2018-country-reports-on-human-rights-practices/vietnam/).

Vietnam’s Law on Consumer Protection is designed to protect consumers, but in practice the law is ineffective. A consumer who has a complaint on a product or service can petition the Association for Consumer Protection (ACP) or district governments. ACP is a non-governmental, volunteer organization that lacks law enforcement or legal power, and local governments are typically unresponsive to consumer complaints. The Vietnamese government has not focused on consumer protection over the last several years.

Vietnam allows foreign companies to work in private security. Vietnam has not ratified the Montreux Documents, is not a supporter of the International Code of Conduct or Private Security Service Providers, and is not a participant in the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).

Vietnamese legislation clearly specifies businesses’ responsibilities regarding environmental protection. The revised 2020 Environmental Protection Law, which will come into effect on January 1, 2022, states that environmental protection is the responsibility and obligation of all organizations, institutions, communities, households, and individuals.

The Penal Code, revised in 2017, includes a chapter with 12 articles regulating different types of environmental crimes. In accordance with the Penal Code, penalties for infractions carry a maximum of 15 years in prison and a fine equivalent to USD 650,000. However, enforcement remains a problem. To date, no complaint or request for compensation due to damages caused by pollution or other environmental violations has ever been successfully resolved in court due to difficulties in identifying the level of damages and proving the relationship between violators and damages.

In the past several years, there have been high-profile, controversial instances of private sector impact on human rights – particularly over the revocation of land for real estate development projects. Government suppression of these protests ranged from intimidation and harassment via the media (including social media) to imprisonment. There are numerous examples of government-supported forces beating protestors, journalists, and activists covering land issues. Victims have reported they are unable to press claims against their attackers.

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 ().

Vietnam has laws to combat corruption by public officials, and they extend to all citizens. Corruption is due, in large part, to low levels of transparency, accountability, and media freedom, as well as poor remuneration for government officials and inadequate systems for holding officials accountable. Competition among agencies for control over businesses and investments has created overlapping jurisdictions and bureaucratic procedures that, in turn, create opportunities for corruption.

The government has tasked various agencies to deal with corruption, including the Central Steering Committee for Anti-Corruption (chaired by the Communist Party of Vietnam General Secretary), the Government Inspectorate, and line ministries and agencies. Formed in 2007, the Central Steering Committee for Anti-Corruption has been under the purview of the CPV Central Commission of Internal Affairs since February 2013. The National Assembly provides oversight on the operations of government ministries. Civil society organizations have encouraged the government to establish a single independent agency with oversight and enforcement authority to ensure enforcement of anti-corruption laws.

Resource to Report Corruption

Contact at government agency responsible for combating corruption:

Mr. Phan Dinh TracChairman, Communist Party Central Committee Internal Affairs4 Nguyen Canh Chan; +84 0804-3557Contact at NGO:Ms. Nguyen Thi Kieu VienExecutive Director, Towards TransparencyTransparency International National Contact in VietnamFloor 4, No 37 Lane 35, Cat Linh street, Dong Da, Hanoi, Vietnam; +84-24-37153532Fax: +84-24-37153443; kieuvien@towardstransparency.vn 

Vietnam is a unitary single-party state, and its political and security environment is largely stable. Protests and civil unrest are rare, though there are occasional demonstrations against perceived or real social, environmental, labor, and political injustices.

In August 2019, online commentators expressed outrage over the slow government response to an industrial fire in Hanoi that released unknown amounts of mercury. Other localized protests in 2019 and early 2020 broke out over alleged illegal dumping in waterways and on public land, and the perceived government attempts to cover up potential risks to local communities.

Citizens sometimes protest actions of the People’s Republic of China (PRC), usually online. For example, in June 2019, when PRC Coast Guard vessels harassed the operations of Russian oil company Rosneft in Block 06-01, Vietnam’s highest-producing natural gas field, Vietnamese citizens protested via Facebook and, in a few instances, in public.

In April 2016, after the Formosa Steel plant discharged toxic pollutants into the ocean and caused a large number of fish deaths, affected fishermen and residents in central Vietnam began a series of regular protests against the company and the government’s lack of response to the disaster. Protests continued into 2017 in multiple cities until security forces largely suppressed the unrest. Many activists who helped organize or document these protests were subsequently arrested and imprisoned.

Vietnam’s new Labor Code came into effect on January 1, 2021. The CPTPP and the EVFTA have helped advance labor reform in Vietnam. In June 2020, EVFTA helped push Vietnam to ratify International Labor Organization (ILO) Convention 105 – on the abolition of forced labor – which will come into force July 14, 2021. EVFTA also requires Vietnam to ratify Convention 87, on freedom of association and protection of the right to organize, by 2023. Although Vietnam has made some progress on labor issues in recent years, including, in theory, allowing the formation of independent unions, the sole union that has any real authority is the state-controlled Vietnam General Confederation of Labor. Workers will not be able to form independent unions, legally, until the Ministry of Labor, Invalids, and Social Affairs (MOLISA) issues guidance on implementation of the Labor Code.

According to Vietnam’s General Statistics Office (GSO), in 2020 there were 54.6 million people participating in the formal labor force in Vietnam out of over 74 million people aged 15 and above. The labor force is relatively young, with workers 15-39 years of age accounting for half of the total labor force.

Estimates on the size of the informal economy differ widely. The IMF states 40 percent of Vietnam’s laborers work on the informal economy; the World Bank puts the figure at 55 percent; the ILO puts the figure as high as 79 percent if agricultural households are included. Vietnam’s GSO stated that among 53.4 million employed people, 20.3 million people worked in the informal economy.

An employer is permitted to lay off employees due to technological changes, organizational changes (in cases of a merger, consolidation, or cessation of operation of one or more departments), when the employer faces economic difficulties, or when the employees are harassing others at work. There are no waivers on labor requirements to attract foreign investment. COVID-19 increased the number of layoffs in the Vietnamese economy. In March and April 2020, and again in September 2020, the government provided cash payments and supplemental cash for companies, to help pay salaries for workers and offer unemployment insurance.

The constitution affords the right of association and the right to demonstrate. The 2019 Labor Code, which came into effect on January 1, 2021, allows workers to establish and join independent unions of their choice. However, the relevant governmental agencies are still drafting the implementing decrees on procedures to establish and join independent unions, and to determine the level of autonomy independent unions will have in administering their affairs.

Labor dispute resolution mechanisms vary depending on the situation. Individual labor disputes and rights-based collective labor disputes must go through a defined process that includes labor conciliation, labor arbitration, and a court hearing.

Vietnam has been a member of the ILO since 1992, and has ratified six of the core ILO labor conventions (Conventions 100 and 111 on discrimination, Conventions 138 and 182 on child labor, Convention 29 on forced labor, and Convention 98 on rights to organize and collective bargaining). While the constitution and law prohibit forced or compulsory labor, Vietnam has not ratified Convention 105 on forced labor as a means of political coercion and discrimination and Convention 87 on freedom of association and protection of the rights to organize.

* General Statistics Office (GSO)

Table 3: Sources and Destination of FDI

Data not available.