Policies Towards Foreign Direct Investment

The Government of Argentina has identified its top economic priorities for 2021 as resolving its debt situation with the IMF, controlling inflation, responding to the COVID-19 pandemic by providing financial aid to the most vulnerable sectors of society. When the Fernandez administration took office in late 2019, the Ministry of Foreign Affairs, International Trade, and Worship became the lead governmental entity for investment promotion.  The Fernandez administration does not have a formal business roundtable or other dialogue established with international investors, although it does engage with domestic and international companies.

Market regulations such as capital controls, trade restrictions, and price controls enhance economic distortion that hinders the investment climate in the country.

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

Argentina has a National Investment and Trade Promotion Agency that provides information and consultation services to investors and traders on economic and financial conditions, investment opportunities, and Argentine laws and regulations. The agency also provides matchmaking services and organizes roadshows and trade delegations. Upon the change of administration, the government placed the Agency under the direction of the Ministry of Foreign Affairs (MFA) to improve coordination between the Agency and Argentina´s foreign policy. The Under Secretary for Trade and Investment Promotion of the MFA works as a liaison between the Agency and provincial governments and regional organizations. The new administration also created the National Directorate for Investment Promotion under the Under Secretary for Trade and Investment Promotion, making the Directorate responsible for promoting Argentina as an investment destination. The Directorate´s mission also includes determining priority sectors and projects and helping Argentine companies expand internationally and/or attract international investment.

The agency’s web portal provides information on available services ( https://www.inversionycomercio.org.ar/ ). The 23 provinces and the City of Buenos Aires also have their own provincial investment and trade promotion offices.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

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

Other Investment Policy Reviews

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

Business Facilitation

In 2019, stemming from the country’s deteriorating financial and economic situation, the Argentine government re-imposed capital controls on business and consumers, limiting their access to foreign exchange.  Strict capital controls and increases in taxes on exports and imports the Argentine government instituted at the end of 2019 have generated uncertainty in the business climate.

With the stated aim of keeping inflation under control and avoiding production shortages during the COVID-19 pandemic, the government increased market interventions in 2020, creating further market distortions that may deter investment. Argentina currently has two consumer goods price control programs, “Precios Cuidados,” a voluntary program established in 2014, and “Precios Máximos,” an emergency program established in March 2020. The Argentine Congress also passed the Shelves Law (No. 27,545), which regulates the supply, display, and distribution of products on supermarket shelves and virtual stores. Key articles of the Law are still pending implementing regulations. Private companies expressed concern over the final regulatory framework of the Law, which could affect their production, distribution, and marketing business model.

In August 2020, the government issued an edict freezing prices for telecommunication services (mobile and land), cable and satellite TV, and internet services until December 2020, later extending the measure into 2021. In Argentina’s high inflation environment, companies sought a 20 to 25 percent increase, however, the regulator allowed the telecom sector a five percent rate increase as of January 2021. The health sector was also subject to limits on price increases. In February 2021, the Secretary of Trade took administrative action against major consumer firms and food producers for purportedly causing supermarket shortages by withholding production and limiting distribution. Companies are currently contesting this decision. In March 2021, the Secretary of Domestic Trade issued Resolution 237/2021 establishing a national registry to monitor the production levels, distribution, and sales of private companies. If companies fail to comply, they could be subject to fines or closure. Tighter import controls imposed by the Fernandez administration have affected the business plans of private companies that need imported inputs for production. The private sector noted increased discretion on the part of trade authorities responsible for approving import licenses.

The Ministry of Production eased bureaucratic hurdles for foreign trade through the creation of a Single Window for Foreign Trade (“VUCE” for its Spanish acronym) in 2016. The VUCE centralizes the administration of all required paperwork for the import, export, and transit of goods (e.g., certificates, permits, licenses, and other authorizations and documents). The Argentine government has not fully implemented the VUCE for use across the country. Argentina subjects imports to automatic or non-automatic licenses that are managed through the Comprehensive Import Monitoring System (SIMI, or Sistema Integral de Monitoreo de Importaciones), established in December 2015 by the National Tax Agency (AFIP by its Spanish acronym) through Resolutions 5/2015 and 3823/2015. The SIMI system requires importers to submit detailed information electronically about goods to be imported into Argentina. Once the information is submitted, the relevant Argentine government agencies can review the application through the VUCE and make any observations or request additional information. The list of products subject to non-automatic licensing has been modified several times since the beginning of the SIMI system. Due to the Covid-19 pandemic, the government reclassified goods needed to combat the health emergency previously subject to non-automatic import licenses to automatic import licenses. Approximately 1,500 tariff lines are currently subject to non-automatic licenses.

The Argentine Congress approved an Entrepreneurs’ Law in March 2017, which allows for the creation of a simplified joint-stock company (SAS, or Sociedad por Acciones Simplificada) online within 24 hours of registration. However, in March 2020, the Fernandez administration annulled the 24-hour registration system. Industry groups said this hindered the entrepreneurship ecosystem by revoking one of the pillars of the Entrepreneurs´ Law.

In December 2020, the government issued the regulatory framework for the Knowledge Based-Economy Law, which was passed in October 2020. The Law establishes tax benefits for entrepreneurs until December 2029. The complete list of activities included in the tax benefit can be found at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do;jsessionid=56625A2FC5152F34ECE583158D581896?id=346218 .

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

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

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

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

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

The Ministry of Productive Development offers attendance-based courses and online training for businesses. The training menu can be viewed at: https://www.argentina.gob.ar/produccion/capacitacion .

Outward Investment

The National Directorate for Investment Promotion under the Under Secretary for Trade and Investment Promotion at the MFA assists Argentine companies in expanding their business overseas, in coordination with the National Investment and Trade Promotion Agency. Argentina does not have any restrictions regarding domestic entities investing overseas, nor does it incentivize outward investment.

Transparency of the Regulatory System

The Secretary of Strategic Affairs under the Cabinet is in charge of transparency policies and the digitalization of bureaucratic processes as of December 2019.

Argentine government authorities and a number of quasi-independent regulatory entities can issue regulations and norms within their mandates. There are no informal regulatory processes managed by non-governmental organizations or private sector associations. Rulemaking has traditionally been a top-down process in Argentina, unlike in the United States where industry organizations often lead in the development of standards and technical regulations.  The Constitution establishes a procedure that allows for citizens to draft or propose legislation, which is subject to Congressional and Executive approval before being passed into law.

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

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

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

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

http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=306769 .

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

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

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

Some ministries and agencies developed their own processes for public consultation by publishing drafts on their websites, directly distributing the draft to interested stakeholders for feedback, or holding public hearings.

In November 2017, the Government of Argentina launched a new website to communicate how the government spends public funds in a user-friendly format ( https://www.argentina.gob.ar/economia/transparencia/presupuesto ).

The Argentine government also made an effort to improve citizens’ understanding of the budget, through the citizen’s budget “Presupuesto Ciudadano” website: https://www.economia.gob.ar/onp/presupuesto_ciudadano/seccion6.php . The initiative aligns with the Global Initiative for Fiscal Transparency (GIFT) and UN Resolution 67/218 on promoting transparency, participation, and accountability in fiscal policy.

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

International Regulatory Considerations

Argentina is a founding member of MERCOSUR and has been a member of the Latin American Integration Association (ALADI for Asociación Latinoamericana de Integración) since 1980.  Once any of the decision-making bodies within MERCOSUR agrees on applying a certain regulation, each of the member countries has to incorporate it into its legislation according to its own legislative procedures. Once a regulation is incorporated in a MERCOSUR member’s legislation, the country has to notify MERCOSUR headquarters.

Argentina has been a member of the WTO since 1995, and it ratified the Trade Facilitation Agreement in January 2018. Argentina notifies technical regulations, but not proposed drafts, to the WTO Committee on Technical Barriers to Trade.  Argentina submitted itself to an OECD regulatory policy review in March 2018, which was released in March 2019.  The Fernandez administration has not actively pursued OECD accession.  Argentina participates in all 23 OECD committees.

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

Legal System and Judicial Independence

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

According to the Argentine constitution, the judiciary is a separate and equal branch of government. In practice, there are continuous instances of political interference in the judicial process. Companies have complained that courts lack transparency and reliability, and that the Argentine government has used the judicial system to pressure the private sector. Media revelations of judicial impropriety and corruption feed public perception and undermine confidence in the judiciary.

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

Laws and Regulations on Foreign Direct Investment

According to the Foreign Direct Investment Law 21,382 and Decree 1853/93, foreign investors may invest in Argentina without prior governmental approval, under the same conditions as investors domiciled within the country. Foreign investors are free to enter into mergers, acquisitions, greenfield investments, or joint ventures. Foreign firms may also participate in publicly-financed research and development programs on a national treatment basis. Incoming foreign currency must be identified by the participating bank to the Central Bank of Argentina (www.bcra.gob.ar).

All foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law No. 19,550) and the rules issued by the commercial regulatory agencies. Decree 27/2018 amended Law 19,550 to eliminate regulatory barriers and reduce bureaucratic burdens, expedite and simplify processes in the public domain, and deploy existing technological tools to better focus on transparency. Full text of the decree can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/305000-309999/305736/norma.htm.  All other laws and norms concerning commercial entities are established in the Argentina Civil and Commercial Code, which can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/235000-239999/235975/norma.htm 

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

Ministry of Productive Development ( https://www.argentina.gob.ar/produccion )

Ministry of Economy ( https://www.argentina.gob.ar/economia )

The Central Bank of the Argentine Republic ( http://www.bcra.gob.ar/ )

The National Securities Exchange Commission (https://www.argentina.gob.ar/cnv)

The National Investment and Trade Promotion Agency (https://www.inversionycomercio.org.ar/)

Investors can download Argentina’s investor guide through this link: ( https://drive.google.com/file/d/0B-086VB27JBjN0x0NmM4Y09GODA/view )

Competition and Antitrust Laws

The National Commission for the Defense of Competition and the Secretariat of Domestic Trade, both within the Ministry of Productive Development, have enforcement authority of the Competition Law (Law 25,156). The law aims to promote a culture of competition in all sectors of the national economy. In May 2018, the Argentine Congress approved a new Defense of Competition Law (Law 27,442), which would have, among other things, established an independent competition agency and tribunal. The new law incorporates anti-competitive conduct regulations and a leniency program to facilitate cartel investigation. The full text of the law can be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=310241 . The Government of Argentina, however, has thus far not taken steps to establish the independent agency or tribunal. In February 2021, a bill introducing amendments to the Defense of Competition Law was passed by the Senate and is currently under study in the Lower House. The main changes are related to the removal of the “Clemency Program,” which encourages public reports of collusive and cartel activities, and the elimination of public hearings to appoint members of the Competition Office. The private sector has expressed concern over this bill, stating these changes are contrary to transparency standards embodied in the Law.

In September 2014, Argentina amended the 1974 National Supply Law to expand the ability of the government to regulate private enterprises by setting minimum and maximum prices and profit margins for goods and services at any stage of economic activity. Private companies may be subject to fines and temporary closure if the government determines they are not complying with the law. Although the law is still in effect, the U.S. Government has not received any reports of it being applied since December 2015.  However, the Fernandez administration has expressed its potential use in response to the COVID-19 pandemic.

In March 2020, the Government of Argentina enacted the Supermarket Shelves Law (Law 27,545) that states that any single manufacturer and its associated brands cannot occupy more than 30 percent of a retailer’s shelf space devoted to any one product category.  The law’s proponents claim it will allow more space for domestic SME-produced products, encourage competition, and reduce shortages. U.S. companies have expressed concern over the pending regulations, seeking clarification about issues such as whether display space percentages would be considered per brand or per production company, as it could potentially affect a company’s production, distribution, and marketing business model.

Expropriation and Compensation

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

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

In May 2012, the Fernandez de Kirchner administration nationalized oil and gas company Repsol-YPF. Most of the litigation between the Government of Argentina and Repsol was settled in 2016.  An American hedge fund still holds a claim against YPF and is in litigation in U.S. courts.

Dispute Settlement

ICSID Convention and New York Convention

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

There is neither specific domestic legislation providing for enforcement under the 1958 New York Convention nor legislation for the enforcement of awards under the ICSID Convention. Companies that seek recourse through Argentine courts may not simultaneously pursue recourse through international arbitration.

Investor-State Dispute Settlement

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

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

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

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

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

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

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

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

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

International Commercial Arbitration and Foreign Courts

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

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

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

Bankruptcy Regulations

Argentina’s bankruptcy law was codified in 1995 in Law 24,522. The full text can be found at: http://www.infoleg.gov.ar/infolegInternet/anexos/25000-29999/25379/texact.htm .

Under the law, debtors are generally able to begin insolvency proceedings when they are no longer able to pay their debts as they mature. Debtors may file for both liquidation and reorganization. Creditors may file for insolvency of the debtor for liquidation only. The insolvency framework does not require approval by the creditors for the selection or appointment of the insolvency representative or for the sale of substantial assets of the debtor. The insolvency framework does not provide rights to the creditor to request information from the insolvency representative, but the creditor has the right to object to decisions by the debtor to accept or reject creditors’ claims. Bankruptcy is not criminalized; however, convictions for fraudulent bankruptcy can carry two to six years of prison time.

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

The World Bank’s 2020 Doing Business Report ranked Argentina 111 out of 190 countries for the effectiveness of its insolvency law, remaining unchanged compared to 2019 ranking. The report notes that it takes an average of 2.4 years and 16.5 percent of the estate to resolve bankruptcy in Argentina.

Investment Incentives

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

The Argentine government offers a number of investment promotion programs at the federal, provincial, and municipal levels to attract investment to specific economic sectors such as capital assets and infrastructure, innovation and technological development, and energy, with no discrimination between national or foreign-owned enterprises. Some of the investment promotion programs require investments within a specific region or locality, industry, or economic activity. Some programs offer refunds on Value-Added Tax (VAT) or other tax incentives for local production of capital goods. The Investment and International Trade Promotion Agency provides cost-free assessment and information to investors to facilitate operations in the country. Argentina’s investment promotion programs and regimes can be found at: https://www.inversionycomercio.org.ar/es/inversores , https://www.investargentina.org.ar/, and https://www.argentina.gob.ar/produccion .

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

Due to the Covid-19 pandemic, the Ministry of Productive Development launched several financial assistance programs for small and medium-sized enterprises (SMEs) affected by the pandemic. More information can be found at: https://www.argentina.gob.ar/produccion/medidas-pymes-covid .

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

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

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

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

Performance and Data Localization Requirements

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

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

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

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

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

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

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

Argentina establishes percentages of local content in the production process for manufacturers of mobile and cellular radio communication equipment operating in Tierra del Fuego province.  Resolution 66/2018 maintains the local content requirement for products such as technical manuals, packaging, and labeling. The percentage of local content required ranges from 10 percent to 100 percent depending on the process or item. In cases where local supply is insufficient to meet local content requirements, companies may apply for an exemption that is subject to review every six months. A detailed description of local content percentage requirements can be found at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do;jsessionid=0CA1B74C2D7EC353E66F1CC6CFD8B41D?id=255494 .

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

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

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

Real Property

Secured interests in property, including mortgages, are recognized in Argentina. Such interests can be easily and effectively registered. They also can be readily bought and sold. Argentina manages a national registry of real estate ownership (Registro de la Propiedad Inmueble) at http://www.dnrpi.jus.gov.ar/ . No data is available on the percent of all land that does not have clear title. There are no specific regulations regarding land lease and acquisition of residential and commercial real estate by foreign investors. Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes the restrictions of foreign ownership on rural and productive lands, including water bodies. Foreign ownership is also restricted on land located near borders.

Legal claims may be brought to evict persons unlawfully occupying real property, even if the property is unoccupied by the lawful owner. However, these legal proceedings can be quite lengthy, and until the legal proceedings are complete, evicting squatters is problematic. The title and actual conditions of real property interests under consideration should be carefully reviewed before acquisition.

Argentine Law 26.160 prevents the eviction and confiscation of land traditionally occupied by indigenous communities in Argentina or encumbered with an indigenous land claim. Indigenous land claims can be found in the land registry. Enforcement is carried out by the National Institute of Indigenous Affairs, under the Ministry of Justice and Human Rights.

Intellectual Property Rights

The Government of Argentina adheres to some treaties and international agreements on intellectual property (IP) and belongs to the World Intellectual Property Organization and the World Trade Organization. The Argentine Congress ratified the Uruguay Round agreements, including the provisions on intellectual property, in Law 24425 in 1995.

The U.S. Trade Representative (USTR) 2021 Special 301 Report listed Argentina on the Priority Watch List. Trading partners on the Priority Watch List present the most significant concerns regarding inadequate or ineffective IP protection or enforcement or actions that otherwise limit market access for persons relying on IP protection. For a complete version of the 2020 Report, see: https://ustr.gov/sites/default/files/2020_Special_301_Report.pdf .

Argentina continues to present long-standing and well-known challenges to intellectual property (IP)-intensive industries, including those from the United States.  A key deficiency in the legal framework for patents is the unduly broad limitations on patent eligible subject matter.  Pursuant to a highly problematic 2012 Joint Resolution establishing guidelines for the examination of patents, Argentina rejects patent applications for categories of pharmaceutical inventions that are eligible for patentability in other jurisdictions, including in the United States.  Additionally, to be patentable, Argentina requires that processes for the manufacture of active compounds disclosed in a specification be reproducible and applicable on an industrial scale.  Stakeholders assert that Resolution 283/2015, introduced in September 2015, also limits the ability to patent biotechnological innovations based on living matter and natural substances.  These measures have interfered with the ability of companies investing in Argentina to protect their IP and may be inconsistent with international norms.

Another ongoing challenge to the innovative agricultural chemical and pharmaceutical sectors is inadequate protection against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for products in those sectors.  Finally, Argentina struggles with a substantial backlog of patent applications resulting in long delays for innovators seeking patent protection in the market.  Government-wide hiring restrictions that remain in place, going back to a hiring freeze in 2018, have resulted in a limited number of patent examiners.  Argentina did not extend the Patent Prosecution Highway signed between the National Institute of Industrial Property’s (INPI) and the U.S. Patent and Trademark Office, which expired in March 2020.

Enforcement of IP rights in Argentina continues to be a challenge, and stakeholders report widespread unfair competition from sellers of counterfeit and pirated goods and services.  La Salada in Buenos Aires remains the largest counterfeit market in Latin America and is cited in USTR’s 2020 Review of Notorious Markets for Piracy and Counterfeiting.  Argentine police generally do not take ex officio actions, prosecutions can stall and languish in excessive formalities, and, when a criminal case does reach final judgment, criminal infringers rarely receive deterrent sentences. Hard goods counterfeiting and optical disc piracy are widespread, and online piracy continues to grow due to nearly nonexistent criminal enforcement against such piracy.  As a result, IP enforcement online in Argentina consists mainly of right holders trying to convince Argentine internet service providers to agree to take down specific infringing works, as well as attempting to seek injunctions in civil cases, both of which can be time-consuming and ineffective.  Right holders also cite widespread use of unlicensed software by Argentine private enterprises and the government.

Argentina made limited progress in IP protection and enforcement in a year marked by a severe economic recession aggravated by the consequences of the confinement measures taken to mitigate the COVID-19 pandemic.  The pressing economic situation led to an increase of counterfeit products sales in informal markets once the confinement measures were relaxed in the second semester of 2020. Online sales of counterfeit products, especially apparel and footwear spiked amidst the pandemic. The Argentine Confederation of Small and Medium-Sized Enterprises noted an increase of national production of counterfeit sportswear. Flight and border crossing restrictions applied during the COVID-19 health emergency prevented purchases of counterfeit products from China, Paraguay and Bolivia.

INPI began accepting electronic filing of patent, trademark, and industrial designs applications in 2018. During 2020, the agency successfully transitioned to an all-electronic filing system.  Argentina continued to improve procedures for trademarks, with INPI reducing the time for a trademark opposition from an average of 3.5 years to one year.  On trademarks, the law provides for a fast-track option that reduces the time to register a trademark to four months.

Argentina formally created the Federal Committee to Fight Against Contraband, Falsification of Trademarks, and Designations, formalizing the work on trademark counterfeiting under the National Anti-Piracy Initiative launched in 2017.  In November 2020, Argentina and the United States held a virtual bilateral meeting under the Innovation and Creativity Forum for Economic Development, part of the U.S.-Argentina Trade and Investment Framework Agreement, to continue discussions and collaboration on IP topics of mutual interest.  The United States intends to monitor all the outstanding issues for progress and urges Argentina to continue its efforts to create a more attractive environment for investment and innovation.

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

Capital Markets and Portfolio Investment

The Argentine Constitution sets as a general principle that foreign investors have the same status and the same rights as local investors. Foreign investors have free access to domestic and international financing.

Argentina’s economic recession began in 2018 and deepened further in 2019 after the presidential primary election. To slow the outflow of dollars from its reserves, in September 2019 the Argentine Central Bank introduced tight capital controls prohibiting transfers and payments that are likely in conflict with IMF Article VIII and tightened them thereafter. The Argentine government also implemented price controls and trade restrictions. In December 2019, the Fernandez administration passed an economic emergency law that created new taxes, increased export duties, and delegated broad powers to the Executive Branch, with the objectives of increasing social spending for the most vulnerable populations and negotiating revised terms for Argentina’s sovereign debt. These measures deteriorated the investment climate for local and foreign investors.

In April 2020, the government issued a decree postponing debt payments (both interest and principal) of dollar-denominated debt issued under local law until December 31, 2020. In May 2020, Argentina recorded its ninth sovereign default.

The government of Argentina restructured international law bonds for $65 billion and domestic law bonds for $42 billion in September 2020 bringing financial relief of $37.7 billion over the period 2020-2030. In August 2020, the government of Argentina formally notified the International Monetary Fund (IMF) of its intent to renegotiate $45 billion due to the Fund from the 2018 Stand-By Arrangement starting in 2021.

The Argentine Securities and Exchange Commission (CNV or Comisión Nacional de Valores) is the federal agency that regulates securities markets offerings. Securities and accounting standards are transparent and consistent with international norms. Foreign investors have access to a variety of options on the local market to obtain credit. Nevertheless, the domestic credit market is small – credit is 16 percent of GDP, according to the World Bank. To mitigate the recessionary impact of the COVID-19 crisis, the government introduced low-cost lending credit lines (carrying negative real interest rates), and the Central Bank reduced banks’ minimum reserve requirements to encourage banks to expand credit, particularly to SMEs. The Buenos Aires Stock Exchange is the organization responsible for the operation of Argentina’s primary stock exchange, located in Buenos Aires city. The most important index of the Buenos Aires Stock Exchange is the MERVAL (Mercado de Valores).

U.S. banks, securities firms, and investment funds are well-represented in Argentina and are dynamic players in local capital markets. In 2003, the government began requiring foreign banks to disclose to the public the nature and extent to which their foreign parent banks guarantee their branches or subsidiaries in Argentina.

Money and Banking System

Argentina has a relatively sound banking sector based on diversified revenues, well-contained operating costs, and a high liquidity level. Argentina’s banking sector has been resilient in the face of a multi-year economic contraction. Supported by government measures during the COVID-19 pandemic, credit to the private sector in local currency (for both corporations and individuals) increased 10 percent in real terms in 2020. Non-performing private sector loans constitute less than four percent of banks’ portfolios. However, the performance of the financial system has largely been driven by a series of temporary counter-cyclical measures, namely subsidized government-backed loans for small businesses. The banking sector is well positioned due to macro and micro-prudential policies introduced since 2002 that have helped to reduce asset-liability mismatches. The sector is highly liquid and its exposure to the public sector is modest, while its provisions for bad debts are adequate.

Private banks have total assets of approximately ARS 6.1 billion (USD $65 billion). Total financial system assets are approximately ARS 9.9 billion (USD $105 billion). The Central Bank of Argentina acts as the country’s financial agent and is the main regulatory body for the banking system.

Foreign banks and branches can establish operations in Argentina. They are subject to the same regulation as local banks. Argentina’s Central Bank has many correspondent banking relationships, none of which are known to have been lost in the past three years.

In November 2020, the Central Bank launched a new payment system, “Transfers 3.0,” seeking to reduce the use of cash. This system will boost digital payments and further financial inclusion in Argentina, expanding the reach of instant transfers to build an open and universal digital payment ecosystem.

The Central Bank has enacted a resolution recognizing cryptocurrencies and requiring that they comply with local banking and tax laws. No implementing regulations have been adopted. Block chain developers report that several companies in the financial services sector are exploring or considering using block chain-based programs externally and are using some such programs internally.

Foreign Exchange and Remittances

Foreign Exchange

Beginning in September 2019 and throughout 2020, the Argentine government and Central Bank issued a series of decrees and norms regulating and restricting access to foreign exchange markets.

As of October 2019, the Central Bank (Notice A6815) limits cash withdrawals made abroad with local debit cards to foreign currency bank accounts owned by the client in Argentina. Pursuant to Notice A6823, cash advances made abroad from local credit cards are limited to a maximum of USD $50 per transaction.

As of September 2020, and pursuant to Notice A7106, Argentine individuals can purchase no more than USD $200 per month on a rolling monthly basis. However, purchases abroad with credit and debit cards will be deducted from the USD $200 per month quota. While no limit on credit/debit card purchases is imposed, if the monthly expenses surpass the USD $200 limit, the deduction will be carried over to subsequent months until the amount acquired is completed. Also, the regulation prohibits individual recipients of government assistance programs and high-ranking federal government officials from purchasing foreign exchange. Purchases above the USD $200 limit require Central Bank approval. Pursuant to Public Emergency Law 27,541, issued December 23, 2019, all dollar purchases and individual expenses incurred abroad, in person or online, including international online purchases from Argentina, paid with credit or debit cards will be subject to a 30 percent tax. Pursuant to AFIP Resolution 4815 a 35 percent withholding tax in advance of the payment of income and/or wealth tax is also applied.

Non-Argentine residents are required to obtain prior Central Bank approval to purchase more than USD $100 per month, except for certain bilateral or international organizations, institutions and agencies, diplomatic representation, and foreign tribunals.

Companies and individuals need to obtain prior clearance from the Central Bank before transferring funds abroad. In the case of individuals, if transfers are made from their own foreign currency accounts in Argentina to their own accounts abroad, they do not need to obtain Central Bank approval.

Per Notice A6869 issued by the Central Bank in January 2020, companies will be able to repatriate dividends without Central Bank authorization equivalent to a maximum of 30 percent of new foreign direct investment made by the company in the country. To promote foreign direct investment the Central Bank announced in October 2020 (Notice A7123) that it will allow free access to the official foreign exchange market to repatriate investments as long as the capital contribution was transferred and sold in Argentine Pesos through the foreign exchange market as of October 2, 2020 and the repatriation takes place at least two years after the transfer and settlement of those funds.

Exporters of goods are required to transfer the proceeds from exports to Argentina and settle in pesos in the foreign currency market. Exporters must settle according to the following terms: exporters with affiliates (irrespective of the type of good exported) and exporters of certain goods (including cereals, seeds, minerals, and precious metals, among others) must convert their foreign currency proceeds to pesos within 15 days (or 30 days for some products) after the issuance of the permit for shipment; other exporters have 180 days to settle in pesos. Despite these deadlines, exporters must transfer the funds to Argentina and settle in pesos within five business days from the actual collection of funds. Argentine residents are required to transfer to Argentina and settle in pesos the proceeds from services exports rendered to non-Argentine residents that are paid in foreign currency either in Argentina or abroad, within five business days from collection of funds.

Payment of imports of goods and services from third parties and affiliates require Central Bank approval if the company needs to purchase foreign currency. Since May 2020, the Central Bank requires importers to submit an affidavit stating that the total amount of payments associated with the import of goods made during the year (including the payment that is being requested). The total amount of payments for importation of goods should also include the payments for amortizations of lines of credit and/or commercial guarantees.

In September 2020, the Central Bank limited companies’ ability to purchase foreign currency to cancel any external financial debt (including other intercompany debt) and dollar denominated local securities offerings. Companies were granted access to foreign currency for up to 40 percent of the principal amount coming due from October 15, 2020 to December 31, 2020. For the remaining 60 percent of the debt, companies had to file a refinancing plan with the Central Bank. In February 2021, the Central Bank extended the regulation to include debt maturing up to December 31, 2021. Indebtedness with international organizations or their associated agencies or guaranteed by them and indebtedness granted by official credit agencies or guaranteed by them are exempted from this restriction.

The Central Bank (Notice A7001) prohibited access to the foreign exchange market to pay for external indebtedness, imports of goods and services, and saving purposes for individuals and companies that have made sales of securities with settlement in foreign currency or transfers of these to foreign depositary entities within the last 90 days. They also should not make any of these transactions for the following 90 days.

Pre-cancellation of debt coming due abroad in more than three business days requires Central Bank approval to purchase dollars.

Per Resolution 36,162 of October 2011, locally registered insurance companies are mandated to maintain all investments and cash equivalents in the country. The Central Bank limits banks’ dollar-denominated asset holdings to 5 percent of their net worth.

In January 2020, the Central Bank presented its monetary policy framework showing that monetary and financial policies will be subject to the government’s objective of addressing current social and economic challenges. In particular, the Central Bank acknowledged that it would continue to provide direct financial support to the government (in foreign and domestic currency) as external credit markets remain closed. The Central Bank determined that a managed exchange rate is a valid instrument to avoid sharp fluctuations in relative prices, international competitiveness, and income distribution. The Central Bank also noted the exchange rate policy should also facilitate the preemptive accumulation of international reserves.

Remittance Policies

In response to the economic crisis in Argentina, the government introduced capital controls in September 2019 and tightened them in 2020.  Under these restrictions, companies in Argentina (including local affiliates of foreign parent companies) must obtain prior approval from the Central Bank to access the foreign exchange market to purchase foreign currency and to transfer funds abroad for the payment of dividends and profits.  In January 2020, the Central Bank amended the regime for the payment of dividends abroad to non-residents. The new regime allows companies to access the foreign exchange market to transfer profits and dividends abroad without prior authorization of the Central Bank, provided the following conditions are met:

1. Profits and dividends are be declared in closed and audited financial statements.
2. The dividends in foreign currency should not exceed the dividends determined by the shareholders’ meeting in local currency.
3. The total amount of dividends to be transferred cannot exceed 30 percent of the amount of new capital contributions made by non-residents into local companies since January 2020.
4. The resident entity must be in compliance with filing the Central Bank Survey of External Assets and Liabilities.

Sovereign Wealth Funds

The Argentine government does not maintain a Sovereign Wealth Fund.

The Argentine government has state-owned enterprises (SOEs) or significant stakes in mixed-capital companies in the following sectors: civil commercial aviation, water and sanitation, oil and gas, electricity generation, transport, paper production, satellite, banking, railway, shipyard, and aircraft ground handling services.

By Argentine law, a company is considered a public enterprise if the state owns 100 percent of the company’s shares. The state has majority control over a company if the state owns 51 percent of the company’s shares. The state has minority participation in a company if the state owns less than 51 percent of the company’s shares. Laws regulating SOEs and enterprises with state participation can be found at http://www.saij.gob.ar/13653-nacional-regimen-empresas-estado-lns0001871-1955-03-23/123456789-0abc-defg-g17-81000scanyel .

Through the government’s social security agency (ANSES), the Argentine government owns stakes ranging from one to 31 percent in 46 publicly listed companies. U.S. investors also own shares in some of these companies. As part of the ANSES takeover of Argentina’s private pension system in 2008, the government agreed to commit itself to being a passive investor in the companies and limit the exercise of its voting rights to 5 percent, regardless of the equity stake the social security agency owned. A list of such enterprises can be found at: http://fgs.anses.gob.ar/participacion .

State-owned enterprises purchase and supply goods and services from the private sector and foreign firms. Private enterprises may compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives. Private enterprises also have access to financing terms and conditions similar to SOEs. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors. SOEs are not currently subject to firm budget constraints under the law and have been subsidized by the central government in the past. Between 2016 and 2019, the Government of Argentina reduced subsidies in the energy, water, and transportation sectors. However, in 2019 the Government postponed its subsidy reduction program and redesigned it several times, citing pressing macroeconomic issues. During 2020 subsidies increased to maintain a tariff freeze on public services given the COVID-19 pandemic. The 2021 budget targets a reduction in subsidies in an effort to contain spending. Argentina does not have regulations that differentiate treatment of SOEs and private enterprises. Argentina has observer status under the WTO Agreement on Government Procurement and, as such, SOEs are subject to the conditions of Argentina’s observance.

Argentina does not have a specified ownership policy, guideline or governance code for how the government exercises ownership of SOEs. The country generally adheres to the OECD Guidelines on Corporate Governance of SOEs. The practices for SOEs are mainly in compliance with the policies and practices for transparency and accountability in the OECD Guidelines. In 2018, the OECD released a report evaluating the corporate governance framework for the Argentine SOE sector relative to the OECD Guidelines, which can be viewed here: http://www.oecd.org/countries/argentina/oecd-review-corporate-governance-soe-argentina.htm .

Argentina does not have a centralized ownership entity that exercises ownership rights for each of the SOEs. The general rule in Argentina is that requirements that apply to all listed companies also apply to publicly-listed SOEs.

Privatization Program

The current administration has not developed a privatization program.

There is an increasing awareness of corporate social responsibility (CSR) and responsible business conduct (RBC) among both producers and consumers in Argentina. RBC and CSR practices are welcomed by beneficiary communities throughout Argentina. There are many institutes that promote RBC and CSR in Argentina, the most prominent being the Argentine Institute for Business Social Responsibility ( http://www.iarse.org/ ), which has been working in the country for more than 18 years and includes among its members many of the most important companies in Argentina.

Argentina is a member of the United Nation’s Global Compact. Established in April 2004, the Global Compact Network Argentina is a business-led network with a multi-stakeholder governing body elected for two-year terms by active participants. The network is supported by the United Nations Development Program (UNDP) Argentina in close collaboration with other UN Agencies. The Global Compact Network Argentina is the most important RBC/CSR initiative in the country with a presence in more than 20 provinces. More information on the initiative can be found at: http://pactoglobal.org.ar .

Foreign and local enterprises tend to follow generally accepted CSR/RBC principles. Argentina subscribed to the Declaration on the OECD Guidelines for Multinational Enterprises in April 1997.

Many provinces, such as Mendoza and Neuquén, have or are in the process of enacting a provincial CSR/RBC law. There have been many previously unsuccessful attempts to pass a CSR/RBC law. Distrust over the State’s role in private companies had been the main concern for legislators opposed to these bills.

In February 2019, the Argentine government joined the Extractive Industries Transparency Initiative (EITI).  Argentina published its first report in 2020 ( https://eiti.org/document/argentina-2018-eiti-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.

Argentina’s legal system incorporates several measures to address public sector corruption. The foundational law is the 1999 Public Ethics Law (Law 25,188), the full text of which can be found at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=60847 . A March 2019 report by the OECD’s Directorate for Public Governance underscored, however, that the law is heterogeneously implemented across branches of the government and that the legislative branch has not designated an application authority, approved an implementing regulation, or specified sanctions. It also noted that Argentina has a regulation on lobbying, but that it only applies to the executive branch, and only requires officials to disclose meetings with lobbyists. With regards to political parties, the report noted anonymous campaign donations are banned, but 90 percent of all donations in Argentina are made in cash, making it impossible to identify donors. Furthermore, the existing regulations have insufficient controls and sanctions, and leave gaps with provincial regulations that could be exploited.

Within the executive branch, the government institutions tasked with combatting corruption include the Anti-Corruption Office (ACO), the National Auditor General, and the General Comptroller’s Office. Public officials are subject to financial disclosure laws, and the Ministry of Justice’s ACO is responsible for analyzing and investigating federal executive branch officials based on their financial disclosure forms—which require the disclosure of assets directly owned by immediate family members. The ACO is also responsible for investigating corruption within the federal executive branch or in matters involving federal funds, except for funds transferred to the provinces. While the ACO does not have authority to independently prosecute cases, it can refer cases to other agencies or serve as the plaintiff and request that a judge initiate a case.

Argentina enacted a new Corporate Criminal Liability Law in November 2017 following the advice of the OECD to comply with its Anti-Bribery Convention. The full text of Law 27,401 can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/295000-299999/296846/norma.htm  . The new law entered into force in early 2018. It extends anti-bribery criminal sanctions to corporations, whereas previously they only applied to individuals; expands the definition of prohibited conduct, including illegal enrichment of public officials; and allows Argentina to hold Argentines responsible for foreign bribery. Sanctions include fines and blacklisting from public contracts. Argentina also enacted an express prohibition on the tax deductibility of bribes.

Official corruption remains a serious challenge in Argentina. In its March 2017 report, the OECD expressed concern about Argentina’s enforcement of foreign bribery laws, inefficiencies in the judicial system, politicization and perceived lack of independence at the Attorney General’s Office, and lack of training and awareness for judges and prosecutors. According to the World Bank’s worldwide governance indicators, corruption remains an area of concern in Argentina. In the latest Transparency International Corruption Perceptions Index (CPI), Argentina ranked 78 out of 180 countries in 2020, dropping 12 places compared to 2019. Allegations of corruption in provincial as well as federal courts remained frequent. Few Argentine companies have implemented anti-foreign bribery measures beyond limited codes of ethics.

In September 2016, Congress passed a law on public access to information. The law explicitly applies to all three branches of the federal government, the public justice offices, and entities such as businesses, political parties, universities, and trade associations that receive public funding. It requires these institutions to respond to citizen requests for public information within 15 days, with an additional 15-day extension available for “exceptional” circumstances. Sanctions apply for noncompliance. As mandated by the law, the executive branch created the Agency for Access to Public Information in 2017, an autonomous office that oversees access to information. In early 2016, the Argentine government reaffirmed its commitment to the Open Government Partnership (OGP), became a founding member of the Global Anti-Corruption Coalition, and reengaged the OECD Working Group on Bribery.

Argentina is a party to the Organization of American States’ Inter-American Convention against Corruption. It ratified in 2001 the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention). Argentina also signed and ratified the UN Convention against Corruption (UNCAC) and participates in UNCAC’s Conference of State Parties. Argentina also participates in the Mechanism for Follow-up on the Implementation of the Inter-American Convention against Corruption (MESICIC).

Since Argentina became a party to the OECD Anti-Bribery Convention, allegations of Argentine individuals or companies bribing foreign officials have surfaced. A March 2017 report by the OECD Working Group on Bribery indicated there were 13 known foreign bribery allegations involving Argentine companies and individuals as of that date. According to the report, Argentine authorities investigated and closed some of the allegations and declined to investigate others. The authorities determined some allegations did not involve foreign bribery but rather other offenses. Several such allegations remained under investigation.

Resources to Report Corruption

Felix Pablo Crous
Director
Government of Argentina Anti-Corruption Office
Oficina Anticorrupción, 25 de Mayo 544, C1002ABL, Ciudad Autónoma de Buenos Aires.
Phone: +54 11 5300 4100
Email:  anticorrupcion@jus.gov.ar  and http://denuncias.anticorrupcion.gob.ar/ 

Poder Ciudadano (Local Transparency International Affiliate)
Piedras 547, C1070AAK, Ciudad Autónoma de Buenos Aires
Phone: +54 11 4331 4925 ext. 225
Fax: +54 11 4331 4925
Email: comunicaciones@poderciudadano.org 
Website: http://www.poderciudadano.org 

Demonstrations are common in metropolitan Buenos Aires and in other major cities and rural areas. Nevertheless, political violence is not widely considered a hindrance to the investment climate in Argentina.

Protesters regularly block streets, highways, and major intersections, causing traffic jams and delaying travel. While demonstrations are usually non-violent, individuals sometimes seek confrontation with the police and vandalize private property. Groups occasionally protest in front of the U.S. Embassy or U.S.-affiliated businesses. In February 2016, the Ministry of Security approved a National Anti-Street Pickets Protocol that provides guidelines to prevent the blockage of major streets and public facilities during demonstrations. However, this protocol did not often apply to venues within the City of Buenos Aires (CABA), which fall under the city’s jurisdiction. The CABA government often did not enforce security protocols against illegal demonstrations.

In December 2017, while Congress had called an extraordinary session to address the retirement system reforms, several demonstrations against the bill turned violent, causing structural damage to public and private property, injuries to 162 people (including 88 policemen), and arrests of 60 people. The demonstrations ultimately dissipated, and the government passed the bill.

Union disputes and politicized worker movements are common in CABA and the Provinces. In 2019 and early 2020, foreign-owned diamond mining companies in Neuquén were targeted by work stoppages and insider attacks in failed attempts to intimidate and force employers to increase salaries and benefits. These protesters were seemingly allowed to act without fear of response from local police forces, even after direct requests for assistance had been made. The companies believe the unions and protesters feel emboldened by the government’s stance towards Western companies and were forced to shut down operations for weeks in December 2019 and January 2020, in fear of the safety of their personnel at the local headquarters.

Argentine workers are among the most highly-educated and skilled in Latin America. Foreign investors often cite Argentina’s skilled workforce as a key factor in their decision to invest in Argentina. Argentina has relatively high social security, health, and other labor taxes, however, high labor costs are among foreign investors’ most often cited operational challenges. The unemployment rate reached 11 percent in 2020, according to official statistics. The government estimated unemployment for workers below 29 years old as more than double the national rate. Exacerbated by the COVID-19 pandemic, analysts estimate informality stands between 20 to 40 percent.

During 2020, the Argentine government implemented measures to alleviate the impact of the COVID-19 pandemic on the economy and employment. The government introduced measures to stimulate the economy and employment through public works and price limits; to protect workers in the workplace by promoting telework and offering leave for workers; and to support jobs and worker income by prohibiting employers from terminating employment. The government also facilitated social dialogue between the private sector and unions. The government has postponed implementation of Argentina’s ambitious Teleworking Contracts Regime, Law 27555, passed by Congress on July 30, 2020 and ratified by President Fernandez on August 14, 2020. This law provides the legal framework for teleworking in employment settings that allow it. However, it is so restrictive that many businesses have said that it deters telework.

Labor laws are comparatively protective of workers in Argentina, and investors cite labor-related litigation as an important factor increasing labor costs in Argentina. For example, one of the first measures passed by President Fernandez after he took office was Decree 34/2019 which established that employees dismissed without cause have the right to double the legal severance payment, the measure was extended until December 31, 2021 through Decree 39/2021. There are no special laws or exemptions from regular labor laws in the Foreign Trade Zones. Organized labor plays an important role in labor-management relations and in Argentine politics. Under Argentine law, the Ministry of Labor recognizes one union per sector per geographic unit (e.g., nationwide, a single province, or a major city) with the right to negotiate a collective bargaining agreement for that sector and geographic area. Roughly 40 percent of Argentina’s formal workforce is unionized. The Ministry of Labor ratifies collective bargaining agreements. Collective bargaining agreements cover workers in a given sector and geographic area whether they are union members or not, so roughly 70 percent of the workforce was covered by an agreement. While negotiations between unions and industry are generally independent, the Ministry of Labor often serves as a mediator. Argentine law also offers recourse to mediation and arbitration of labor disputes.

During 2020, the Ministry of Labor registered 840 labor and collective bargaining agreements. These agreements covered approximately 5.1 million workers. As a result of the COVID-19 pandemic, a large number of the agreements focused on the inability of workers to come to their workplace due to social distancing measures and the inability of employers to terminate employment during the crisis.

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

The Fernandez government does not intend to pursue a broad labor reform bill, preferring instead to allow firms and workers to negotiate any adjustments to labor conditions through the collective bargaining process. The Ministry of Labor has indicated interest in proposing a “gig economy” bill (ley de plataformas) that would extend basic labor rights to, e.g., delivery workers coordinated through information technology applications. Labor-related demonstrations in Argentina occurred periodically in 2019, due to the pandemic, most Argentines’ outside activities were limited throughout 2020 which also limited demonstrations. Reasons for strikes include job losses, high taxes, loss of purchasing power, and wage negotiations. Labor demonstrations may involve tens of thousands of protestors. Past demonstrations have essentially closed sections of a city for a few hours or impeded traffic.

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

The minimum age for employment is 16. Children between the ages of 16 and 18 may work in a limited number of job categories and for limited hours if they have completed compulsory schooling, which normally ends at age 18. The law requires employers to provide adequate care for workers’ children during work hours to discourage child labor. The Department of Labor’s 2019 Worst Form of Child Labor for Argentina can be accessed here: https://www.dol.gov/agencies/ilab/resources/reports/child-labor/argentina 

The Department of State’s 2019 Human Rights Report for Argentina can be accessed here: https://www.state.gov/reports/2019-country-reports-on-human-rights-practices/argentina/

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

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

* Source for Host Country Data:

Economic Section
U.S. Embassy Buenos Aires
Avenida Colombia 4300
(C1425GMN)
Buenos Aires, Argentina
+54-11-5777-474
ECONBA@state.gov

Policies Towards Foreign Direct Investment

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

ProColombia is the Colombian government entity that promotes international tourism, foreign investment, and non-traditional exports. ProColombia assists foreign companies that wish to enter the Colombian market by addressing specific needs, such as identifying contacts in the public and private sectors, organizing visit agendas, and accompanying companies during visits to Colombia. All services are free of charge and confidential. Priority sectors include business process outsourcing, software and IT services, cosmetics, health services, automotive manufacturing, textiles, graphic communications, and electric energy. ProColombia’s “Invest in Colombia” web portal offers detailed information about opportunities in agribusiness, manufacturing, and services in Colombia (www.investincolombia.com.co/sectors ). The Duque administration – including senior leaders at the Presidency, ProColombia, and the Ministry of Commerce, Industry, and Trade – continue to stress Colombia’s openness to foreign investors and aggressively market Colombia as an investment destination.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

According to the Colombian constitution and foreign investment regulations, foreign investment in Colombia receives the same treatment as an investment made by Colombian nationals. Foreign investment is permitted in all sectors, except in activities related to defense, national security, and toxic waste handling and disposal. There are no performance requirements explicitly applicable to the entry and establishment of foreign investment in Colombia.

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

Media: Only Colombian nationals or legally constituted entities may provide radio or subscription-based television services. For National Open Television and Nationwide Private Television Operators, only Colombian nationals or legal entities may be granted concessions to provide television services. Foreign investment in national television is limited to a maximum of 40 percent ownership of an operator.

Accounting, Auditing, and Data Processing: To practice in Colombia, providers of accounting services must register with the Central Accountants Board and have uninterrupted domicile in Colombia for at least three years prior to registry. A legal commercial presence is required to provide data processing and information services in Colombia.

Banking: Foreign investors may own 100 percent of financial institutions in Colombia, but are required to obtain approval from the Financial Superintendent before making a direct investment of ten percent or more in any one entity. Foreign banks must establish a local commercial presence and comply with the same capital and other requirements as local financial institutions. Every investment of foreign capital in portfolios must be through a Colombian administrator company, including brokerage firms, trust companies, and investment management companies.

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

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

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

Other Investment Policy Reviews

The WTO most recently reviewed Colombia’s trade policy in June 2018. https://www.wto.org/english/tratop_e/tpr_e/tp472_e.htm 

Business Facilitation

New businesses must register with the chamber of commerce of the city in which the company will reside. Applicants also register using the Colombian tax authority’s (DIAN) portal at: www.dian.gov.co  to obtain a taxpayer ID (RUT). Business founders must visit DIAN offices to obtain an electronic signature for company legal representatives, and obtain – in-person or online – an authorization for company invoices from DIAN. In 2019, Colombia made starting a business a step easier by lifting a requirement of opening a local bank account to obtain invoice authorization. Companies must submit a unified electronic form to self-assess and pay social security and payroll contributions to the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), the Colombian Family Welfare Institute (Instituto Colombiano de Bienestar Familiar, or ICBF), and the Family Compensation Fund (Caja de Compensación Familiar). After that, companies must register employees for public health coverage, affiliate the company to a public or private pension fund, affiliate the company and employees to an administrator of professional risks, and affiliate employees with a severance fund.

According to the World Bank’s “Doing Business 2020” report, recent reforms simplified starting a business, trading across borders, and resolving insolvency. According to the report, starting a company in Colombia requires seven procedures and takes an average of 10 days. Information on starting a company can be found at http://www.ccb.org.co/en/Creating-a-company/Company-start-up/Step-by-step-company-creation ; https://investincolombia.com.co/how-to-invest.html ; and http://www.dian.gov.co .

Outward Investment

Colombia does not incentivize outward investment nor does it restrict domestic investors from investing abroad.

Bilateral Investment Treaties and Free Trade Agreements: Colombia has free trade agreements or treaties with investment provisions with the United States, the European Union, the European Free Trade Association, MERCOSUR, CARICOM, Bolivia, Canada, Chile, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, Israel, Mexico, Panama, Peru, the Republic of Korea, and Venezuela. Colombia has signed a trade agreement with the United Kingdom, but it is not yet in effect. Trade agreement negotiations are underway with Australia, Japan, New Zealand, and Singapore. Additionally, Colombia has stand-alone bilateral investment treaties with China, France, India, Japan, Peru, Singapore, Spain, Switzerland, Turkey, and the United Kingdom.

Bilateral Taxation Treaties: Colombia has active Agreements for the Elimination of Double Taxation in Income Tax Matters with the Andean Community of Nations, Canada, Chile, the Czech Republic, India, Mexico, Portugal, the Republic of Korea, Spain, Switzerland, and the United Kingdom. It has signed but not yet implemented additional treaties with France, Italy, Japan, and the United Arab Emirates, is currently negotiating agreements with Germany and the Netherlands, and has expressed interest in renewing negotiations with the United States. It has Agreements to Eliminate the Double Taxation of Air and Maritime Navigation Companies with Argentina, Brazil, Chile, Germany, Italy, Panama, the United States, and Venezuela.

Transparency of the Regulatory System

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

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

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

International Regulatory Considerations

Colombia became the 37th member of the OECD in April 2020. Colombia is part of the World Trade Organization (WTO). The government generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. In August 2020, Colombia fully joined the WTO Trade Facilitation Agreement (TFA). Regionally, Colombia is a member of organizations such as the Inter-American Development Bank (IADB), the Pacific Alliance, and the Andean Community of Nations (CAN).

Legal System and Judicial Independence

Colombia has a comprehensive, civil law-based legal system. Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community. The judicial framework includes the Council of State, the Constitutional Court, the Supreme Court of Justice, and various departmental and district courts, which collectively are overseen administratively by the Superior Judicial Council. The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch. Regulations and enforcement actions are appealable through the different stages of legal court processes in Colombia. The judicial system in general remains hampered by time-consuming bureaucratic requirements.

Laws and Regulations on Foreign Direct Investment

Colombia has a comprehensive legal framework for business and FDI that incorporates binding norms resulting from its membership in the Andean Community of Nations and the WTO, as well as other free trade agreements and bilateral investment treaties.

Colombia’s official investment portal explains procedures and relevant laws for those wishing to invest (see https://investincolombia.com.co/en/how-to-invest).

Competition and Antitrust Laws

The Superintendence of Industry and Commerce (SIC), Colombia’s independent national competition authority, monitors and protects free economic competition, consumer rights, compliance with legal requirements and regulations, and protection of personal data. It also manages the national chambers of commerce. The SIC has been strengthened in recent years with the addition of personnel, including economists and lawyers. The SIC has recently investigated companies, including U.S.-based technology firms and Colombian banks, for failing to protect customer data. Other investigations include those related to pharmaceutical pricing, “business cartelization” among companies supplying public entities, and misleading advertising by a major brewing company. One U.S. gig-economy platform was temporarily barred from operating in Colombia in early 2020, although other similarly-situated companies remained; a court overturned the prohibition on appeal. U.S. companies have expressed concern about limited ability to appeal SIC orders and the SIC’s increasing reliance on orders to remedy perceived problems. Other U.S. companies have noted that SIC investigations can be drawn-out and opaque, similar to the judicial system in general.

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

There were several pending investment disputes in Colombia in 2020, including:

• A project management consultant contract with a state-owned entity related to the refurbishment of an oil refinery. Claims arise out of a $2.4 billion liability imposed by the national comptroller general.
• Two separate shareholder claims related to a Colombian bank that Colombia put under new management and ultimately seized in 1998.
• Three separate claims related to ownership and mining rights related to the Constitutional Court’s decision to ban mining in a range of high-altitude wetlands.
• Ownership of a mobile communications subsidiary, with claims arising out of the government’s order that certain assets revert to State control on expiration of a concession.
• Majority shareholder claims arising out of the government’s decision to seize and liquidate an electricity provider.

According to the Doing Business 2020 report, the time from the moment a plaintiff files a lawsuit until actual payment and enforcement of the contract averages 1,288 days. Traditionally, most court proceedings are carried out in writing and only the evidence-gathering stage is carried out through hearings, including witness depositions, site inspections, and cross-examinations. The government has accelerated proceedings and reduced the backlog of court cases by allowing more verbal public hearings and creating alternative court mechanisms. The Code of General Procedure that entered into force in 2014 also establishes oral proceedings that are carried out in two hearings, and there are now penalties for failure to reach a ruling in the time limit set by the law. Enforcement of an arbitral award can take between six months and one and a half years; a regular judicial process can take up to seven years for private parties and upwards of 15 years in conflicts with the State. Thus, arbitration results are cheaper and much more efficient. According to the Doing Business report, Colombia has made enforcing contracts easier by simplifying and speeding up the proceedings for commercial disputes. In 2020, Colombia’s global ranking in the enforcing contracts category of the report held at 177.

International Commercial Arbitration and Foreign Courts

Foreign judgments are recognized and enforced in Colombia once an application is submitted to the Civil Chamber of the Supreme Court. In 2012, Colombia approved the use of the arbitration process via adoption of new legislation (Law 1563) based on the UNCITRAL Model Law. The statute stipulates that arbitral awards are governed by both domestic law as well as international conventions (New York Convention, Panama Convention, etc.). This has made the enforcement of arbitral awards easier for all parties involved. Arbitration in Colombia is completely independent from judiciary proceedings, and, once arbitration has begun, the only competent authority is the arbitration tribunal itself. The CTPA protects U.S. investments by requiring a transparent and binding international arbitration mechanism and allowing investor-state arbitration for breaches of investment agreements if certain parameters are met. The judicial system is notoriously slow, leading many foreign companies to include international arbitration clauses in their contracts.

Bankruptcy Regulations

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

Restructuring proceedings aim to protect the debtors from bankruptcy. Once reorganization has begun, creditors cannot use collection proceedings to collect on debts owed prior to the beginning of the reorganization proceedings. All existing creditors at the moment of the reorganization are recognized during the proceedings if they present their credit. Foreign creditors, equity shareholders (including foreign equity shareholders), and holders of other financial contracts (including foreign contract holders) are recognized during the proceeding. Established creditors are guaranteed a vote in the final decision. According to the Doing Business 2020 report Colombia is ranked 32nd for resolving insolvency and it takes an average of 1.7 years – the same as OECD high-income countries – to resolve insolvency; the average time in Latin America is 2.9 years.

Investment Incentives

The Colombian government offers investment incentives such as income tax exemptions and deductions in specific priority sectors, including the so-called “orange economy” (creative industries), agriculture, and entrepreneurship. In 2020, the government announced additional incentive schemes that aim to attract large investments exceeding $350 million and create at least 250 local jobs, facilitate COVID-19 recovery, and generate investments in former conflict municipalities. Investment incentives through free trade agreements between Colombia and other nations include national treatment and most-favored-nation treatment of investors; establishment of liability standards assumed by countries regarding the other nation’s investors, including the minimum standard of treatment and establishment of rules for investor compensation from expropriation; establishment of rules for transfer of capital relating to investment; and specific tax treatment.

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

The Colombian government introduced a variety of incentives for specific sectors as part of the 2019 tax reform. Among the incentives are:

• Income from hotels built, renovated, or extended through January 1, 2029 in municipalities of less than 200,000 inhabitants will be taxed at nine percent for 20 years. The same facilities in larger municipalities will be taxed at nine percent for 10 years.
• Income normally taxed at 33 percent that is invested in agricultural projects or orange (creative) economy initiatives will be tax free.
• Income from the sale of electric power generated by wind, biomass, solar, geothermal, or tidal movement will be tax free, provided carbon dioxide emission certificates are sold in accordance with the Kyoto Protocol and 50 percent of the income from the certificate sale is invested in social projects benefiting the region where the power was generated.

Foreign investors can participate without discrimination in government-subsidized research programs, and most Colombian government research has been conducted with foreign institutions. Investments or grants to technological research and development projects are fully tax deductible in the year the investment was made. R&D incentives include Value-Added Tax (VAT) exemptions for imported equipment or materials used in scientific, technology, or innovation projects, and qualified investments may receive tax credits.

In a tax reform passed in 2016, the Colombian government created two tax incentives to support investment in the 344 municipalities most affected by the armed conflict (ZOMAC). Small and microbusinesses that invest in ZOMACs and meet a series of other criteria will be exempt from paying any taxes through 2021, pay 25 percent of the general rate through 2024, and 50 percent through 2027. Medium and large-sized businesses will pay 50 percent of their normal taxes through 2021 and 75 percent through 2024. The second component is entitled “works for taxes” (“Obras por Impuestos”), a program through which the private sector can directly fund social investments and infrastructure projects in lieu of paying taxes.

Foreign Trade Zones/Free Ports/Trade Facilitation

To attract foreign investment and promote the importation of capital goods, the Colombian government uses a number of duty deferral programs. One example is free trade zones (FTZs). While DIAN oversees requests to establish FTZs, the Colombian government is not involved in their operations. Benefits under the FTZ regime include a single 20 percent tax rate (compared to 31 percent normally) and no customs value-added taxes or duties on raw material imports for use in the FTZ. Each FTZ must meet specific investment and direct job creation commitments, depending on their total assets, during the first three years.

Colombia also has initiated Special Economic Zones for Exports in the municipalities of Buenaventura, Cucuta, Valledupar, and Ipiales in order to encourage investment. These zones receive the same import benefits of FTZs, and operators are exempt from some payroll taxes and surcharges. Infrastructure projects in the zones are also exempt from some income taxes.

Performance and Data Localization Requirements

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

The SIC, under the Deputy Office for Personal Data Protection, is the Data Protection Authority (DPA) and has the legal mandate to ensure proper data protection. It has defined adequate data protection and responsibilities with respect to international data transfers. The SIC requires data storage facilities that hold personal data to comply with government security and privacy requirements, and data storage companies have one year to register. The SIC enforces the rules on local data storage within the country through audits/investigations and imposed sanctions.

Software and hardware are protected by IPR. There is no obligation to submit source code for registered software.

Real Property

The 1991 Constitution explicitly protects individual rights against state actions and upholds the right to private property. Secured interests in real property, and to a lesser degree movable property, are recognized and generally enforced after the property is properly registered. In terms of protecting third-party purchasers, existing law is inadequate. The concepts of a mortgage, trust, deed, and other types of liens exist, as does a reliable system of recording such secured interests. Deeds, however, present some legal risk due to the prevalence of transactions that have never been registered with the Public Instruments Registry. According to a survey made shortly before the signing of the FARC peace accord, some eight million hectares of land – 14 percent of the country – had been abandoned or acquired illegally. The government is working to title these plots and has started a formalization program for land restitution. The 2020 Doing Business report ranked Colombia 62nd for ease of registering property.

Intellectual Property Rights

In Colombia, the granting, registration, and administration of intellectual property rights (IPR) are carried out by four primary government entities. The SIC acts as the Colombian patent and trademark office. The Colombian Agricultural Institute (ICA) is in charge of issuing plant variety protections and data protections for agricultural products. The Ministry of Interior administers copyrights through the National Copyright Directorate (DNDA). The Ministry of Health and Social Protection handles data protection for products registered through the National Food and Drug Institute (INVIMA). Primary responsibility for enforcement resides with the Fiscalia General de la Republica (FGR), the Tax and Customs Authority (DIAN), and the Fiscal and Customs Police (POLFA).

The Intersectoral Intellectual Property Commission (CIPI) serves as the interagency technical body for IPR issues. Colombia aims to ratify the Treaty of Marrakesh in 2021, and CIPI has also mentioned progress toward ratification of the Beijing Treaty, the reactivation and update of the Anti-Piracy Agreement for Colombia, and the possible accession of Colombia to the Hague System on Industrial Designs. The last comprehensive interagency policy for IPR issues (Conpes 3533) was issued by the National Planning Department in 2008; the pandemic delayed its planned 2020 publication of a new national policy for IPR. Colombia is subject to Andean Community Decision 486 on trade secret protection, which is fully implemented domestically by the Unfair Competition Law of 1996.

Colombia provides a 20-year protection period for patents, a 10-year term for industrial designs, and 20- or 15-year protection for new plant varieties, depending on the species. Colombia has been on the U.S. Trade Representative’s Special 301 Watch List every year since 1991, and in 2019 was upgraded from “Priority Watch List” to “Watch List” status.

The CTPA improved standards for the protection and enforcement of a broad range of IPR. Improvements include state-of-the-art protections for digital products such as software, music, text, and videos; stronger protection for U.S. patents, trademarks, and test data; and prevention of piracy and counterfeiting by criminalizing end-use piracy. However, Colombia has outstanding CTPA commitments related to IPR. Colombian officials continue discussing with the United States draft legislation regulating internet service providers on issues such as compulsory takedown of online content and the protection of intermediaries with “safe harbor” provisions for unintentional copyright infringement. The legislation has not yet been introduced to Congress. Colombia has not yet signed the International Union for the Protection of New Varieties of Plants (UPOV 91). Colombia maintains that the existing Andean Community Decision 345 is in effect and equivalent to UPOV 91, but this is not an interpretation shared by the United States. On Colombia’s request, UPOV conducted a review and identified a non-conformity that Colombia asserts are addressed by two decrees, 2468 and 2687. Colombia is a member of the Inter-American Convention for Trademark and Commercial Protection.

Colombia reformed its copyright law under Decree 1915 of July 2018. The bill extends the term of copyright protection, imposes civil liability for circumvention of technological protection measures, and strengthens enforcement of copyright and related rights. On July 31, 2019 the Colombian Constitutional Court issued ruling C-345-19 that recognizes the constitutionality of statutory damages for copyright infringement.

Colombia’s success combating counterfeiting and IPR violations, and enforcement in the digital space, remains limited.  In March 2021, Colombia’s National Copyright Directorate (DNDA) imposed an order requiring internet providers to block IP addresses used to transmit pirated digital content, the first such order in Colombia.  Industry advocates called this an important precedent for combatting IP theft. A 2015 law increased penalties for those involved in running contraband, but more effective implementation is needed. Colombian authorities coordinate with the United States on investigations, but key agencies often do not have the requisite authorities or sufficient numbers of trained personnel to effectively inspect and seize merchandise and to investigate smugglers and counterfeiters. Despite high-profile seizures of counterfeit goods, such goods remain widely available in Colombia’s “San Andresitos” markets. No Colombian markets are listed in the U.S. Trade Representative’s (USTR) Review of Notorious Markets for Counterfeiting and Piracy.

U.S. stakeholders continue to raise concerns about Colombia’s regulation of the pharmaceutical sector, where regulatory barriers, a focus by the government on cost containment over health outcomes, delays in processing pharmaceutical registrations at INVIMA, and Congressional proposals to limit pharmaceutical IP restrict market entry and reduce the attractiveness of Colombia as a place to invest and do business.

Colombia is on the Watch List in USTR’s 2021 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

The Colombian Securities Exchange (BVC after its acronym in Spanish) is the main forum for trading and securities transactions in Colombia. The BVC is a private company listed on the stock market. The BVC, as a multi-product and multi-market exchange, offers trading platforms for the stock market, along with fixed income and standard derivatives. The BVC also provides listing services for issuers.

Foreign investors can participate in capital markets by negotiating and acquiring shares, bonds, and other securities listed by the Foreign Investment Statute. These activities must be conducted by a local administrator, such as trust companies or Financial Superintendence-authorized stock brokerage firms. Direct and portfolio foreign investments must be registered with the Central Bank. Foreigners can establish a bank account in Colombia as long as they have a valid visa and Colombian government identification.

The market has sufficient liquidity for investors to enter and exit sizeable positions. The central bank respects IMF Article VIII and does not restrict payments and transfers for current international transactions. The financial sector in Colombia offers credit to nationals and foreigners that comply with the requisite legal requirements.

Money and Banking System

In 2005, Colombia consolidated supervision of all aspects of the banking, financial, securities, and insurance sectors under the Financial Superintendence. Colombia has an effective regulatory system that encourages portfolio investment, and the country’s financial system is strong by regional standards. Commercial banks are the principal source of long-term corporate and project finance in Colombia. Loans rarely have a maturity in excess of five years. Unofficial private lenders play a major role in meeting the working capital needs of small and medium-sized companies. Only the largest of Colombia’s companies participate in the local stock or bond markets, with the majority meeting their financing needs either through the banking system, by reinvesting their profits, or through credit from suppliers.

Colombia’s central bank is charged with managing inflation and unemployment through monetary policy. Foreign banks are allowed to establish operations in the country, and must set up a Colombian subsidiary in order to do so. The Colombian central bank has a variety of correspondent banks abroad.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on transferring funds associated with FDI. Foreign investment into Colombia must be registered with the central bank in order to secure the right to repatriate capital and profits. Direct and portfolio investments are considered registered when the exchange declaration for operations channeled through the official exchange market is presented, with few exceptions. The official exchange rate is determined by the central bank. The rate is based on the free market flow of the previous day. Colombia does not manipulate its currency to gain competitive advantages.

Remittance Policies

The government permits full remittance of all net profits regardless of the type or amount of investment. Foreign investments must be channeled through the foreign exchange market and registered with the central bank’s foreign exchange office within one year in order for those investments to be repatriated or reinvested. There are no restrictions on the repatriation of revenues generated from the sale or closure of a business, reduction of investment, or transfer of a portfolio. Colombian law authorizes the government to restrict remittances in the event that international reserves fall below three months’ worth of imports. International reserves have remained well above this threshold for decades.

Sovereign Wealth Funds

In 2012, Colombia began operating a sovereign wealth fund called the Savings and Stabilization Fund (FAE), which is administered by the central bank with the objective of promoting savings and economic stability in the country. Colombia is not a member of the International Forum of Sovereign Wealth Funds. The fund can administer up to 30 percent of annual royalties from the extractives industry. Its primary investments are in fixed securities, sovereign and quasi-sovereign debt (both domestic and international), and corporate securities, with just eight percent invested in stocks. The government transfers royalties not dedicated to the fund to other internal funds to boost national economic productivity through strategic projects, technological investments, and innovation. In 2020, the government authorized up to 80 percent of the FAE’s USD 3.9 billion in assets to be lent to the Fund for the Mitigation of Emergencies (FOME) created in response to the pandemic.

Since 2015, the Government of Colombia has concentrated its industrial and commercial enterprises under the supervision of the Ministry of Finance. According to Ministry’s 2019 annual report, the number of state-owned companies is 105, with a combined value of USD 20 billion. The government is the majority shareholder of 39 companies and a minority shareholder in the remaining 66. Among the most notable companies with a government stake are Ecopetrol (Colombia’s majority state-owned and privately-run oil company), ISA (electricity distribution), Banco Agrario de Colombia, Bancoldex, and Satena (regional airline). SOEs competing in the Colombian market do not receive non-market-based advantages from the government. The Ministry of Finance normally updates their annual report on SOEs every June.

Privatization Program

Colombia has privatized state-owned enterprises under article 60 of the Constitution and Law Number 226 of 1995.  This law stipulates that the sale of government holdings in an enterprise should be offered to two groups:  first to cooperatives and workers’ associations of the enterprise, then to the general public.  During the first phase, special terms and credits have to be granted, and in the second phase, foreign investors may participate along with the general public.  A series of privatizations planned for 2020 were postponed to 2021 due to the pandemic.  The government views stimulating private-sector investment in roads, ports, electricity, and gas infrastructure as a high priority.  The government is increasingly turning to concessions and using public-private partnerships (PPPs) to secure and incentivize infrastructure development.

In order to attract investment and promote PPPs, Colombian modified infrastructure regulations to clarify provisions for frequently-cited obstacles to participate in PPPs, including environmental licensing, land acquisition, and the displacement of public utilities.  The law puts in place a civil procedure that facilitates land expropriation during court cases, allows for expedited environmental licensing, and clarifies that the cost to move or replace public utilities affected by infrastructure projects falls to private companies.  However, infrastructure development companies considering bidding on tenders have raised concerns about unacceptable levels of risk that result from a law (Ley 80) establishing a framework for public works projects.  Interpretations of Ley 80 do not establish a liability cap on potential judgments and view company officials equal to those with fiscal oversight authority when it comes to criminal liability for misfeasance.

Municipal enterprises operate many public utilities and infrastructure services.  These municipal enterprises have engaged private sector investment through concessions.  There are several successful concessions involving roads.  These kinds of partnerships have helped promote reforms and create a more attractive environment for private, national, and foreign investment.

In 2020, the Colombian government released its second National Action Plan on Business and Human Rights for the period 2020-2022, which responds to the UN Guiding Principles on Business and Human Rights and the OECD’s Guidelines for Multinational Enterprises. Colombia also adheres to the corporate social responsibility (CSR) principles outlined in the OECD Guidelines for Multinational Enterprises. CSR cuts across many industries and Colombia encourages public and private enterprises to follow OECD CSR guidelines. Beneficiaries of CSR programs include students, children, populations vulnerable to Colombia’s armed conflict, victims of violence, and the environment. Larger companies structure their CSR programs in accordance with accepted international principles. Companies in Colombia have been recognized on an international level for their CSR initiatives, including by the State Department.

Overall, Colombia has adequate environmental laws, is proactive at the federal level in enacting environmental protections, and does not waive labor or environmental regulations to attract investors. Colombian law also has provisions requiring consultations with indigenous communities before many large projects. However, the Colombian government struggles with enforcement, particularly in more remote areas. Geography, lack of infrastructure, and lack of state presence all play a role, as does a general shortage of resources in national and regional institutions. Environmental defenders face threats from narcotics traffickers, paramilitaries, and other illegal armed groups, particularly in areas with limited state presence. The Environmental Chapter of the CTPA requires Colombia to maintain and enforce environmental laws, protect biodiversity, and promote opportunities for public participation. Colombia participates in the Extractive Industries Transparency Initiative (EITI).

In parallel with its OECD accession, the Colombian government worked with the OECD in a series of assessments in order to develop and implement the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, especially related to gold mining. The Colombian government faces challenges in formalizing illegal gold mining operations. Colombia ratified the Minamata Convention on Mercury in 2018 and banned the use of mercury in mining. It has committed to phase out mercury use from all other industries by 2023. Colombia is still determining how to enforce laws to achieve this goal.

Buyers, sellers, traders, and refiners of gold may wish to conduct additional due diligence as part of their risk management regimes to account for the influx of illegally-mined Colombian gold into existing supply chains. Throughout the country, Colombian authorities have taken some steps to dismantle illegal gold mining operations that are responsible for negative environmental, criminal, and human health impacts, and often employ forced labor. The Colombian government has focused its efforts on transnational criminal elements involved in the production, laundering, and sale of illegally-mined gold, and the fraudulent documentation that is used to obscure the origin of illegally-mined gold. Colombia is actively pursuing new policies, proposing new legislation, and changing mechanisms to enforce laws against illegal gold mining.

Colombia has not signed the Montreux Document. In 2020, its National Organization for Accreditation (ONAC) and Institute for Technical Standards and Certification (ICONTEC) began ISO 18788 compliance certification processes for private security companies.

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, and the perception of it, is a serious obstacle for companies operating or planning to invest in Colombia. Analyses of the business environment, such as the WEF Global Competitiveness Index, consistently cite corruption as a problematic factor, along with high tax rates, inadequate infrastructure, and inefficient government bureaucracy. Transparency International’s latest “Corruption Perceptions Index” ranked Colombia 92nd out of 180 countries assessed and assigned it a score of 39/100, a slight improvement from the year prior. Customs, taxation, and public works contracts are commonly-cited areas where corruption exists.

Colombia has adopted the OECD Convention on Combating Bribery of Foreign Public Officials and is a member of the OECD Anti-Bribery Committee. It also passed a domestic anti-bribery law in 2016. It has signed and ratified the UN Anticorruption Convention and adopted the OAS Convention against Corruption. The CTPA protects the integrity of procurement practices and criminalizes both offering and soliciting bribes to/from public officials. It requires both countries to make all laws, regulations, and procedures regarding any matter under the CTPA publicly available. Both countries must also establish procedures for reviews and appeals by any entities affected by actions, rulings, measures, or procedures under the CTPA.

Resources to Report Corruption

Useful resources and contact information for those concerned about combating corruption in Colombia include the following:

• The Transparency and Anti-Corruption Observatory is an interactive tool of the Colombian government aimed at promoting transparency and combating corruption available at http://www.anticorrupcion.gov.co/ 
• The Transparency and Anti-Corruption Observatory is an interactive tool of the Colombian government aimed at promoting transparency and combating corruption available at http://www.anticorrupcion.gov.co/  • The National Civil Commission for Fighting Corruption, or Comisión Nacional Ciudadana para la Lucha Contra la Corrupción (CNCLCC), was established by Law 1474 of 2011 to give civil society a forum to discuss and propose policies and actions to fight corruption in the country. Transparencia por Colombia is the technical secretariat of the commission. http://ciudadanoscontralacorrupcion.org/es/inicio 
• The National Civil Commission for Fighting Corruption, or Comisión Nacional Ciudadana para la Lucha Contra la Corrupción (CNCLCC), was established by Law 1474 of 2011 to give civil society a forum to discuss and propose policies and actions to fight corruption in the country. Transparencia por Colombia is the technical secretariat of the commission. http://ciudadanoscontralacorrupcion.org/es/inicio 
• The Presidential Secretariat of Transparency advises and assists the president to formulate, design, and coordinate the implementation of public policy about transparency and anti-corruption. http://wsp.presidencia.gov.co/secretaria-transparencia/Paginas/default.aspx/ 

Government Agency:
Secretary of Transparency
Calle 7 No.6-54, Bogota (+57)1 562 9300
contacto@presidencia.gov.co

Watchdog Organization:
Transparencia Por Colombia (local chapter of Transparency International)
Cra. 45A No. 93 – 61, Barrio La Castellana, Bogota
(+57)1 610 0822
comunicaciones@transparenciacolombia.org.co

Security in Colombia has improved significantly over recent years, most notably in large urban centers. Terrorist attacks and powerful narco-criminal group operations pose a threat to commercial activity and investment in some rural zones where government control is weak. In 2016, Colombia signed a peace agreement with the FARC to end half a century of confrontation. Congressional approval of that peace accord put in motion a disarmament, demobilization, and reintegration process, which granted the FARC status as a legal political organization and took over 13,000 combatants off the battlefield. Currently the peace negotiations with the National Liberation Army (ELN), which began in 2017, are suspended. This terrorist group continues a low-cost, high-impact asymmetric insurgency, including an attack on the Colombian police academy in 2019 that killed 22 cadets. The ELN often focuses attacks on oil pipelines, mines, roads, and electricity towers to disrupt economic activity and pressure the government. The ELN also extorts businesses in their areas of operation, kidnaps personnel, and destroys property of entities that refuse to pay for protection.

An OECD economic survey of Colombia was published in October 2019. The report mentions progress on labor market reforms, but cites a weakening of the labor market given decelerating economic growth, stalled progress on labor force participation, and persistently high income inequality. At the end of 2020, 49.2 percent of the urban workforce was working in the informal economy. The overall unemployment rate at that time was 17.3 percent. Both figures represent deteriorations due to the economic shock of the COVID-19 pandemic. Colombia has a wide range of skills in its workforce, including managerial-level employees who are often bilingual, but faces large skills gaps. Colombia has made strong efforts to incorporate Venezuelan migrants into the formal economy, most notably the February 2021 announcement of ten-year Temporary Protected Status for the country’s estimated 1.8 million Venezuelan migrants.

Labor rights in Colombia are set forth in its Constitution, the Labor Code, the Procedural Code of Labor and Social Security, sector-specific legislation, and ratified international conventions, which are incorporated into national legislation. Colombia’s Constitution guarantees freedom of association and provides for collective bargaining and the right to strike (with some exceptions). It also addresses forced labor, child labor, trafficking, discrimination, protections for women and children in the workplace, minimum wages, working hours, skills training, and social security. Colombia has ratified all eight of the International Labor Organization’s (ILO’s) fundamental labor conventions, and all are in force. Colombia has also ratified conventions related to hours of work, occupational health and safety, and minimum wage.

The 1991 Constitution protects the right to constitute labor unions. Pursuant to Colombia’s labor law, any group of 25 or more workers, regardless of whether they are employees of the same company or not, may form a labor union. Employees of companies with fewer than 25 employees may affiliate themselves with other labor unions. Colombia has a low trade union density (9.5 percent). Where unions are present, multiple affiliation sometimes poses challenges for collective bargaining. The largest and most influential unions are composed mostly of public-sector employees, particularly of the majority state-owned oil company and the state-run education sector. Only 6.2 percent of all salaried workers are covered by collective bargaining agreements (CBAs), according to the OECD. The Ministry of Labor has expressed commitment to working on decrees to incentivize sectoral collective bargaining and to strengthen union representation within companies and regulate strikes in the essential public services sector. Strikes, when held in accordance with the law, are recognized as legal instruments to obtain better working conditions, and employers are prohibited from using strike-breakers at any time during the course of a strike. After 60 days of strike action, the parties are subject to compulsory arbitration. Strikes are prohibited in certain “essential public services,” as defined by law, although Colombia has been criticized for having an overly-broad interpretation of “essential.”

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

Reputational risks to investors come with a lack of effective and systematic enforcement of labor law, especially in rural sectors. Homicides of unionists (social leaders) remain a concern. In January 2017, the U.S. Department of Labor issued a public report of review in response to a submission filed under Chapter 17 (the Labor Chapter) of the CTPA by the American Federation of Labor and Congress of Industrial Organizations and five Colombian workers’ organizations that alleged failures on the part of the government to protect labor rights in line with CTPA commitments. In January 2018, the Department of Labor published the first periodic review of progress to address issues identified in the submission report. For additional information on labor law enforcement see:

• Section 7 of Colombia’s Human Rights Report https://www.state.gov/j/drl/rls/hrrpt
• Department of Labor Findings on the Worst Forms of Child Labor https://www.dol.gov/agencies/ilab/resources/reports/child-labor/colombia
• Lists of Goods Produced with Child or Forced Labor  https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods

*Data from the Colombian Statistics Departments, DANE, (https://www.dane.gov.co/) and the Colombian central bank (http://www.banrep.gov.co). Note: U.S. FDI reported by Banco de la Republica is not historically adjusted.

Table 3: Sources and Destination of FDI

Colombian data is not available from the IMF’s coordinated direct investment survey.

U.S. Embassy Bogota
Economic Section
Carrera 45 #22B-45, Bogota, Colombia
(+57)1 275-2000
BogotaECONShared@state.gov 

Policies Towards Foreign Direct Investment

Ecuador is open to FDI in most sectors. The 2008 Constitution established that the state reserves the right to manage strategic sectors through state-owned or -controlled companies. The sectors identified are energy, telecommunications, non-renewable natural resources, transportation, hydrocarbon refining, water, biodiversity, and genetic patrimony (i.e. flora, fauna and ancestral knowledge). Although in recent years Ecuador took steps to attract FDI, its overall investment climate remains challenging as economic, commercial, and investment policies are subject to frequent change. From January to September 2020 (latest information available), FDI flows to Ecuador amounted to USD 897 million, 45 percent more than 2019 levels (USD 619 million) but still 36 percent lower than 2018 levels (USD 1.4 billion). FDI continues to be lower compared to other countries in the region.

There are no laws or practices that discriminate against foreign investors, but the legal complexity resulting from the inconsistent application and interpretation of existing laws and regulations increases the risks and costs of doing business in Ecuador. Under the prior Correa administration, disputes involving U.S. companies were politicized, especially in sensitive areas such as the energy sector. This resulted in several high-profile international investment dispute cases, with companies awarded damages in international arbitral rulings against Ecuador in the last few years. In addition, several cases are pending final arbitral rulings.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities are allowed to establish and own business enterprises and engage in all forms of remunerative activity, with limitations in strategic sectors as enumerated in the Constitution. There are no investment screening mechanisms for inbound investment, and the Ecuadorian government actively seeks international investors. One hundred percent foreign equity ownership is allowed.

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

Other Investment Policy Reviews

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

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

Business Facilitation

In 2018, Ecuador folded ProEcuador (https://www.proecuador.gob.ec/), the entity that is responsible for promoting economic development through exports, imports, and investment in Ecuador, into the Ministry of Production, Foreign Trade, Investments and Fisheries (MPCIEP). ProEcuador is now a Vice Ministry within MPCIEP and has 27 offices in 23 countries, including three in the United States. Ecuador is ranked 129th out of 190 countries in the World Bank’s Ease of Doing Business report for 2020, with particularly low rankings for Starting a Business (177), Resolving Insolvency (160), and Paying Taxes (147).

A newly created company will at a minimum be required to register with the Superintendence of Companies, Securities, and Insurance (http://www.supercias.gob.ec/), the municipal government, the Internal Revenue Service, and the Social Security Institute. The registry with the Superintendence of Companies is a completely online process as of April 2019. The incorporation of companies in Ecuador grew almost eight percent in 2020 (10,800 new companies), propelled by the introduction of the simplified joint-stock company (SAS). The SAS came into effect in May 2020 following the enactment of the Organic Law on Entrepreneurship and Innovation.

Outward Investment

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

In February 2017, voters passed a government-backed referendum prohibiting elected officials and public servants from having financial dealings in tax havens and other suspect jurisdictions. The list includes several U.S. states and territories that do not have state income taxes. The prohibition entered into force in September 2017.

The United States and Ecuador signed the Protocol on Trade Rules and Transparency in December 2020 under the Ecuador-U.S. Trade and Investment Council Agreement (TIC). The agreement updates the TIC with new annexes in four areas: Trade Facilitation and Customs Administration, Good Regulatory Practices, Anti-Corruption, and SMEs. The Protocol awaits legislative ratification (as of April 2021).

Transparency of the Regulatory System

While there is a focus within the Moreno administration to improve transparency and government accountability, progress has been slow. Economic, commercial, and investment policies are subject to frequent changes and can increase the risks and costs of doing business in Ecuador. National and municipal level regulations can conflict with each other. Regulatory agencies are not required to publish proposed regulations before enactment, and rulemaking bodies are not required to solicit public comments on proposed regulations, although there has been some movement toward public consultative processes. Government ministries generally consult with relevant national actors when drafting regulations, but not always and not broadly.

The Government of Ecuador publishes regulatory actions in the Official Registry and posts them online at https://www.registroficial.gob.ec/ . Publicly listed companies generally adhere to International Financial Reporting Standards (IFRS). While there are some transparency enforcement mechanisms within the government, they tend to be weak and rarely enforced.

There are no identified informal regulatory processes led by private sector associations or nongovernmental organizations.

International Regulatory Considerations

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

Legal System and Judicial Independence

Ecuador has a civil codified legal system. Systemic weakness in the judicial system and its susceptibility to political and economic pressures constitute challenges faced by U.S. companies investing in Ecuador. While Ecuador updated its Commercial Code in May 2019, enforcement of contract rights, equal treatment under the law, intellectual property protections, and unstable regulatory regimes continue to be concerns for foreign investors.

Laws and Regulations on Foreign Direct Investment

Ecuador does not have laws specifically on FDI, but several have effects on overall investment. The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, includes provisions to improve tax stability and lower the income tax rate in the mining sector. The Organic Law of Incentives for Public-Private Associations and Foreign Investment from 2015 includes provisions to improve legal stability, reduce red tape, and exempt public private partnerships from paying income and capital exit taxes under certain conditions. The Productive Development Law of 2018 enumerates tax incentives for new investments and investments in rural or border areas. ProEcuador’s website https://www.proecuador.gob.ec/  provides a guide for investors in English and Spanish and highlights the procedures to register a company, types of incentives for investors, and relevant taxes related to investing in Ecuador.

Competition and Antitrust Laws

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

Expropriation and Compensation

The Constitution establishes that the state is responsible for managing the use and access to land, while recognizing and guaranteeing the right to private property. It also provides for the redistribution of land if it has not been in active use for more than two years.

The Article 101 of the 2015 Telecommunications Law grants permission for the occupation or expropriation of private property for telecommunication network installation provided there are no other economically viable alternatives. Service providers must assume costs associated with the property’s expropriation or occupation.

Dispute Settlement

ICSID Convention and New York Convention

Ecuador withdrew from the International Centre for the Settlement of Investment Disputes (ICSID Convention) in 2010. Ecuador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). The 2018 Productive Development Law clarifies the permissibility of international investor-state arbitration under the 2008 constitution and includes provisions permitting arbitration at venues within Latin America.

Investor-State Dispute Settlement

Ecuador’s National Assembly voted on May 3, 2017 to terminate 12 of its bilateral investment treaties, including its agreement with the United States. The Government of Ecuador notified the U.S. government of its withdrawal from the BIT on May 18, 2017, with the effective date of May 18, 2018. The treaty further specifies that all U.S. investments in place at the date of termination enjoy the protections of the treaty for the subsequent 10 years. There have been numerous claims against Ecuador under the BIT that have gone to international arbitration. There are two active cases awaiting a final decision.

International Commercial Arbitration and Foreign Courts

Several U.S. companies operating in Ecuador, most notably in the petroleum sector, have filed for international arbitration due to investment claims. The Government of Ecuador in the past treated these disputes as a political issue, speaking negatively about investors involved in these cases. Payment of arbitration awards generally takes longer than a year, although the Government of Ecuador has paid all final awards. Ecuador’s 2008 Constitution limited investor-state arbitration to regional arbitration entities and was the primary driver of the 2017 termination of BITs.

Bankruptcy Regulations

Ecuador is ranked 160 out of 190 in the category of Ease of Resolving Insolvency in the World Bank’s 2020 Ease of Doing Business Report. With the goal of protecting consumers and preventing a real estate bubble, the National Assembly approved in June 2012 a law that allows homeowners to default on their first home and car loan without penalty if they forfeit the asset. The provisions do not apply to homes with a market value of more than 500 times the basic monthly salary (currently USD 200,000) or vehicles worth more than 100 times the basic monthly salary (currently USD 40,000).

In cases of foreclosure, the average time for banks to collect on debts is 5.3 years, usually taking 4.5 years for courts to approve the initiation of foreclosures. After the appointment and acceptance of an auctioneer, it takes about six months for the auction to take place. World Bank’s Doing Business Report estimates that foreclosure proceedings result in costs equal to about 18 percent of the value of the estate in question, and a recovery rate of 18.3 cents on the dollar.

Investment Incentives

In August 2018, the National Assembly approved the Productive Development Law that provides income tax exemptions and VAT exemptions to attract investments, good for 12 years in all areas except the cities of Quito and Guayaquil, where it is 8 years, and border regions, where it is 20 years. In December 2015, Ecuador’s National Assembly approved a Public-Private Partnership law intended to attract investment. The law offers incentives, including the reduction of the income tax, value added tax, and capital exit tax, for investors in certain projects. It designates Latin American arbitration bodies as the dispute resolution mechanism. The law came into effect upon publication in the Official Registry on December 18, 2015. The Organic Law of Production Incentives and Tax Fraud Prevention, which took effect on December 30, 2014, provides tax incentives related to depreciation calculations and income tax rates, which could benefit some foreign investors. The Ecuadorian government is moving toward a Public-Private Partnership model to attract investments particularly in the energy and transportation sectors but does not yet offer sovereign guarantees or joint finance on those projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

Nationally the government does not mandate local employment. However, the Organic Law of the Amazon, approved by the National Assembly on May 21, 2018, mandates that any company, national or foreign, operating within the area covered by the law (the Amazon Basin) must hire at least 70 percent of their staff locally, unless they cannot find qualified labor from that area. The 2015 Organic Law for the Special Regime of the Galapagos (LOREG) and its regulations enacted in April 2017 include the mandatory hiring of local residents. The law stipulates non-residents can be hired only if companies demonstrate there are no local candidates with the required skill set.

There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption. Companies can currently transmit data freely into and out of Ecuador, and there are no requirements to store data within the country. The National Assembly is considering a draft data protection bill that may include high fines for data protection infractions, prior consent for cross-border data transfer, and parental consent requirements.

On October 11, 2016, Ecuador’s National Assembly passed the Code of the Social Economy of Knowledge, Creativity, and Innovation, covering a wide range of intellectual property matters. Article 148 of the Code establishes that agencies must give preference to open-source software with content developed in Ecuador when procuring software for government use. Executive Decree 1073 of June 2020 mandated an order of preference when procuring software for the government: 1) Open-Source; 2) Ecuadorian-Developed; 3) Software with Some Ecuadorian Content; and 4) Internationally-Developed.

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

Real Property

Ecuador ranks 73rd out of 190 in the 2019 World Bank’s Doing Business Report’s category for Ease of Registering Property. Foreign citizens are allowed to own land. Mortgages are available and the recording system is generally reliable.

Intellectual Property Rights

Enforcement against intellectual property infringement remains a problem in Ecuador.

In April 2016, the United States Trade Representative (USTR) moved Ecuador from Priority Watch List to Watch List in its annual Special 301 Report on intellectual property, and Ecuador has remained on the Watch List since then. In December 2020, SENADI issued implementing regulations for the Code of Knowledge, Creativity, and Innovation Social Economy (Ingenuity Code) – the legislation that covers intellectual property rights. Nonetheless, SENADI has limited enforcement capacity and remains hampered by a lack of funding and personnel due to budget cuts. The Ingenuity Code itself also requires reform to address several gaps limiting effective IP enforcement.

Piracy of computer software and counterfeit activity in brand name apparel is widespread, and enforcement is weak. Pirated CDs and DVDs are readily available on many streets and in shopping malls, and copyright enforcement remains a significant problem. The Bahia Market in Guayaquil is mentioned in USTR’s 2020 Review of Notorious Markets for Piracy and Counterfeiting. A lack of ex-officio authority for the Ecuadorian Customs Service limits its scope of action to seize IPR infringing products, and there have been few enforcement actions to protect IPR. SENADI was established in January 1999 to handle patent, trademark, and copyright registrations. SENADI reports information on its activities on its website at http://www.propiedadintelectual.gob.ec/ .

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

Capital Markets and Portfolio Investment

The 2014 Law to Strengthen and Optimize Business Partnerships and Stock Markets created the Securities Market Regulation Board to oversee the stock markets. Investment options on the Quito and Guayaquil stock exchanges are very limited. Sufficient liquidity to enter and exit sizeable positions does not exist in the local markets. The five percent currency exit tax also inhibits free flow of financial resources into the product and factor markets. Foreigners are able to access credit on the local market, but interest rates are high and the number of credit instruments is limited.

Money and Banking System

Ecuador is a dollarized economy, and its banking sector is healthy. According to the Ecuadorian Central Bank’s Access to the Financial System Report, approximately 59 percent of the adult (over 15 years old) population (6.9 million people) has access to a bank account. Ecuador’s banks hold in total USD 47.9 billion in assets, with the largest banks being Banco Pichincha with about USD 12.2 billion in assets, Banco del Pacifico with about USD 6.9 billion, Banco de Guayaquil with about USD 5.7 billion, and Produbanco with about USD 5.4 billion. The Banking Association (ASOBANCA) estimates 2.7 percent of loans are non-performing. Foreigners require residency to open checking accounts in Ecuador.

Ecuador’s Superintendence of Banks regulates the financial sector. Between 2012 and 2013, the financial sector was the target of numerous new restrictions. By 2012, most banks had sold off their brokerage firms, mutual funds, and insurance companies to comply with Constitutional changes following a May 2010 referendum. The amendment to Article 312 of the Constitution required banks and their senior managers and shareholders with more than six percent equity in financial entities to divest entirely from any interest in all non-financial companies by July 2012. These provisions were incorporated into the Anti-Monopoly Law passed in September 2011.

The Organic Monetary and Financial Code, published in the Official Registry September 12, 2014, created a five-person Monetary and Financial Policy and Regulation Board of presidential appointees to regulate the banking sector. The law gives the Monetary and Financial Policy and Regulation Board the ability to prioritize certain sectors for lending from private banks. The Code also established that finance companies had to become banks, merge, or close their operations by 2017. Of the 10 finance companies in Ecuador, two became banks, six closed their operations or are in the process of closing, and two were absorbed by other financial institutions. There are 24 private banks in Ecuador as of December 2020.

Electronic currency appeared in 2014 with the approval of the Organic Monetary and Financial Code, which established the exclusive management of the system by Ecuador’s Central Bank. In 2017, with the approval of the Law for the Reactivation of the Economy, Strengthening of Dollarization and Modernization of Financial Management, electronic currency management was transferred to private banks. The Central Bank issued Regulation 29 in July 2012 requiring all financial transfers (inflows and outflows) to be channeled through the Central Bank’s accounts. In principle, the regulation increases monetary authorities’ oversight and prevents banks from netting their inflows and outflows to avoid paying the five percent currency exit tax.

Foreign Exchange and Remittances

Foreign Exchange

Ecuador adopted the U.S. dollar as the official currency in 2000. Foreign investors may remit 100 percent of net profits and capital, subject to a five percent currency exit tax. There are no restrictions placed on foreign investors in transferring or repatriating funds associated with an investment.

Remittance Policies

Resolution 107-2015-F from Ecuador’s Monetary and Finance Board issued in July 2015 exempted some payments to foreign lenders from the capital exit tax. Among other requirements, the duration of the loan must be more than 360 days, the loan must be registered with the Central Bank, and the resources must be destined for specific purposes, such as to fund small businesses or social housing.

The Financial Action Task Force (FATF) announced October 23, 2015 that it had removed Ecuador from the list of countries with strategic deficiencies in anti-money laundering and countering the financing of terrorism (AML/CFT) regimes. Ecuador will undergo its next FATF mutual evaluation in 2021.

Sovereign Wealth Funds

The Government of Ecuador does not maintain a Sovereign Wealth Fund (SWF). Approved in July 2020, Ecuador’s Public Finance Law (COPLAFIP) established a Fiscal Stabilization Fund to invest excess revenues from extractive industries and hedge against oil and metal price fluctuations.

Article 66 of the 2008 Constitution guarantees the right to pursue economic activities in a manner that is socially and environmentally responsible. NGOs such as the Institute of Corporate Social Responsibility and the Ecuadorian Consortium for Social Responsibility promote responsible business conduct. Many Ecuadorian companies have programs to further responsible business conduct within their organizations. The Energy Ministry announced Ecuador’s adherence to the Extractive Industries Transparency Initiative (EITI) in October 2020 and set up a multi-stakeholder group to develop an EITI work plan.

Ecuadorian law prohibits all forms of forced or compulsory labor, including all forms of labor exploitation and child labor. Article 42 of the labor code establishes that all companies engaged in global or domestic supply chains are required by law to pay minimum wage, ensure eight-hour workdays, and pay into social security. The Ministry of Labor’s Directorate for Control and Inspections is the authority that enforces the law. Ecuador currently has four products included on the Department of Labor’s Bureau of International Labor Affairs list of goods which it has reason to believe are produced by child labor or forced labor in violation of international standards, as required under the Trafficking Victims Protection Reauthorization Act (TVPRA) of 2005. These include the exploitation of child labor in the production of bananas, bricks, flowers, and gold.

Ecuador’s flower production consortium, in coordination with the International Labor Organization and the Ministry of Labor (MoL), undertook a series of efforts to eliminate child labor from flower farms in 2020. The MoL reported that labor inspections of large flower farms in 2020 in Pichincha province did not find instances of child labor. This positive outcome is largely because these farms are part of the Business Network for a Free Child Labor Ecuador and are committed to the elimination of child labor. In contrast, Ecuadorian media in 2020 covered child labor violations at abaca fiber (Manila hemp) plantations run by a Japanese subsidiary company. According to media reports, the Ombudsman’s office and MoL carried out inspections from 2017 to 2020 at the company’s 32 plantations and fined the company over $150,000 including for child labor violations. The MoL said in a 2019 report that it had found child labor, inhumane working conditions, labor risks, and work accidents at the company plantations.

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 is a serious problem in Ecuador, and one that the Moreno administration is confronting. Numerous cases of corruption have recently been tried, resulting in convictions of high-level officials, including former President Correa, former Vice President Jorge Glas, and former Vice President Maria Alejandra Vicuña, among others. U.S. companies have cited corruption as an obstacle to investment, with concerns related specifically to non-transparent public tenders, dispute resolution, and payment of arbitration awards.

Ecuadorian law provides criminal penalties for corruption by public officials, but the government has not implemented the law effectively, and officials have engaged in corrupt practices. Ecuador ranked 92 out of 180 countries surveyed for Transparency International’s 2020 Perceptions of Corruption Index and received a score of 39 out of 100. High-profile cases of alleged official corruption involving an Equadorian state-owned petroleum company and a Brazilian construction firm illustrate the significant challenges that confront Ecuador with regards to corruption. The Ecuadorian National Assembly approved anti-corruption legislation in December 2020. The legislation, which reforms the Comprehensive Organic Penal Code, creates new criminal acts including circumvention of public procurement procedures, acts of corruption in the private sector, and obstruction of justice. It also includes 11 provisions reforming the laws governing the public procurement system and the Comptroller General’s Office.

Illicit payments for official favors and theft of public funds reportedly take place frequently. Dispute settlement procedures are complicated by the lack of transparency and inefficiency in the judicial system. Offering or accepting a bribe is illegal and punishable by imprisonment for up to five years. The Comptroller General is responsible for the oversight of public funds, and there are frequent investigations and occasional prosecutions for irregularities.

Ecuador ratified the UN Anticorruption Convention in September 2005. Ecuador is not a signatory to the OECD Convention on Combating Bribery. The 2008 Constitution created the Commission for Citizen Participation and Social Control (CPCCS), tasked with preventing and combating corruption, among other responsibilities. The 2018 national referendum converted the CPCCS from an appointed to a popularly-elected body. In December 2008, President Correa issued a decree that created the National Secretariat for Transparency (SNTG) to investigate and denounce acts of corruption in the public sector. The SNTG became an undersecretariat and was merged with the National Secretariat of Public Administration June 2013. President Moreno established the Anticorruption Secretariat within the Presidency in February 2019 but disbanded it in May 2020 for allegedly intervening in corruption investigations conducted by the Office of the Attorney General. The CPCCS can receive complaints and conduct investigations into alleged acts of corruption. Responsibility for prosecution remains with the Office of the Attorney General.

Resources to Report Corruption

Alleged acts of corruption can be reported by dialing 159 within Ecuador. The CPCCS also maintains a web portal for reporting alleged acts of corruption: http://www.cpccs.gob.ec . The Attorney General’s Office actively pursues corruption cases and receives reports of corruption as well.

Widespread public protests in 1997, 2000, and 2005 contributed to the removal of three elected presidents before the end of their terms. Large-scale but peaceful demonstrations against the Correa government occurred in June 2015. Some indigenous communities opposed to natural resource development have blocked access by petroleum and mining companies. Opposition to the government’s decision to remove fuel subsidies led to nationwide violent protests in October 2019. The protests paralyzed the country for 11 days, causing significant property damage, including to petroleum and telecommunications infrastructure. A dialogue between the government and indigenous protest leaders, mediated by the United Nations and the Catholic Church, led to the government’s decision to restore the fuel subsidies. Security along the northern border with Colombia deteriorated significantly in late 2017 and early 2018, when dissident Revolutionary Armed Forces of Colombia groups attacked police and military units and kidnapped civilians, resulting in several deaths. Military and police increased their presence in the zone, and violence in the northern border area calmed in 2019, although illicit activities continue. Violence related to drug-trafficking organizations increased in 2020 and 2021, particularly in Ecuador’s port cities.

While Ecuador’s Statistics Institute shows 66 percent workforce participation, and an unemployment rate of 5.7 percent, the official underemployment rate is 22.3 percent, and it is estimated that 47.3 percent of workers are in the informal sector. Semi-skilled and unskilled workers are relatively abundant at low wages. The supply of available workers is high due to layoffs in sectors affected by Ecuador’s flat economic growth since 2014. The COVID-19 economic crisis is estimated to have resulted in the loss of 230,000 jobs in the formal sector in 2020. In addition, first Colombian and now Venezuelan migrants have added to the informal labor pool. The National Wages Council and Ministry of Labor Relations set minimum compensation levels for private sector employees annually. The minimum basic monthly salary for 2020 is USD 400 per month.

Ecuador’s Production Code requires workers be paid a dignified wage, defined as an amount that would enable a family of four with 1.6 wage earners to be able to afford basic necessities. Ecuador’s Statistics Institute (INEC) determines the cost and the products that are considered basic necessities. In February 2021, the monthly cost of basic necessities was USD 712.07, while the official family wage level is at USD 746.67. As of January 2021, INEC estimated 34.0 percent of workers had adequate employment. INEC defines adequate employment as earning at least the minimum basic salary working 40 hours per week.

Ecuador’s National Assembly approved in June 2020 limited labor reforms in an emergency law (Humanitarian Law) valid for two years to address the economic impacts of COVID-19. These reforms allowed for the reduction of working hours up to 50 percent and salary up to 45 percent; ability to modify a labor contract with mutual agreement between employer and employee; new temporary contracts for new investments that can be changed to permanent contracts at the end of the temporary period; and layoffs without severance payments only when the company closes entirely.

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

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

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

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

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

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

Source: Central Bank of Ecuador – September 2020 data. The Central Bank publishes FDI calculated as net flows only. The Central Bank does not publish Outward Direct Investment statistics, nor is there information available on the IMF’s CDIS website.

Post contact for this report at Embassy Quito is Georgina Scarlata at scarlatagm@state.gov .

Policies Towards Foreign Direct Investment

Panama depends heavily on foreign investment and has worked to make the investment process attractive and simple.  With few exceptions, the Government of Panama makes no distinction between domestic and foreign companies for investment purposes.  Panama benefits from stable and consistent economic policies, a dollarized economy, and a government that consistently supports trade and open markets and encourages foreign direct investment.

Prior to the pandemic, Panama had the highest level of Foreign Direct investment (FDI) in Central America.  Through the Multinational Headquarters Law (SEM), the Multinational Manufacturing Services Law (EMMA), and a Private Public Partnership framework, Panama offers tax breaks and other incentives to attract investment.  The Ministry of Commerce and Industry (MICI) is responsible for overseeing foreign investment, prepares an annual foreign investment promotion strategy, and provides services required by investors to expedite investments and project development.  MICI, in cooperation with the Minister Counselor for Investment, facilitates the initial investment process and provides integration assistance once a company is established in Panama.

Panama’s Attraction of Investment and Promotion of Exports (PROPANAMÁ) program, which operates under the auspices of the Ministry of Foreign Affairs (MFA), provides investors with information, expedites specific projects, leads investment-seeking missions abroad, and supports foreign investment missions to Panama.  In some cases, other government offices work with investors to ensure that regulations and requirements for land use, employment, special investment incentives, business licensing, and other conditions are met.  The Government of Panama (GoP) proposed a bill in February 2021 to make PROPANAMÁ an independent agency with its own budget (http://propanama.mire.gob.pa/sobre-propanama).

In 2020, the United States ran a $5.1 billion trade surplus in goods with Panama.  Both countries have signed a Trade Promotion Agreement (TPA) that entered into force in October 2012.  The U.S.-Panama TPA has significantly liberalized trade in goods and services, including financial services.  The TPA also includes sections on customs administration and trade facilitation, sanitary and phytosanitary measures, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, and labor and environmental protections.

Panama is one of the few economies in Latin American that is predominantly services-based. Services represent nearly 80 percent of Panama’s GDP.  The TPA has improved U.S. firms’ access to Panama’s services sector and gives U.S. investors better access than other WTO members under the General Agreement on Trade in Services.  All services sectors are covered under the TPA, except where Panama has made specific exceptions.  Under the agreement, Panama has provided improved access to sectors like express delivery and granted new access in certain areas that had previously been reserved for Panamanian nationals. In addition, Panama is a full participant in the WTO Information Technology Agreement.

Panama passed a Private Public Partnership (PPP) law in 2019 and published regulations for the program in 2020, as an incentive for private investment, social development, and job creation. The law is a first-level legal framework that orders and formalizes how the private sector can invest in public projects, thereby expanding the State’s options to meet social needs.  Panama’s 2021 budget included funding to implement PPP projects.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Panamanian government imposes some limitations on foreign ownership in the retail and media sectors, in which, in most cases, owners must be Panamanian. However, foreign investors can continue to use franchise arrangements to own retail within the confines of Panamanian law (under the TPA, direct U.S. ownership of consumer retail is allowed in limited circumstances). There are also limits on the number of foreign workers in some foreign investment structures.

In addition to limitations on ownership, more than 200 professions are reserved for Panamanian nationals. Medical practitioners, lawyers, engineers, accountants, and customs brokers must be Panamanian citizens. Furthermore, the Panamanian government instituted a regulation that ride share platforms must use drivers who possess commercial licenses, which are available only to Panamanians.

With the exceptions of retail trade, the media, and many professions, foreign and domestic entities have the right to establish, own, and dispose of business interests in virtually all forms of remunerative activity, and the Panamanian government does not screen inbound investment. Foreigners do not need to be legally resident or physically present in Panama to establish corporations or obtain local operating licenses for a foreign corporation. Business visas (and even citizenship) are readily obtainable for significant investors.

Other Investment Policy Reviews

Panama has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization in the past three years. Panama does not have a formal investment screening mechanism, but the government monitors large foreign investments, especially in the energy sector.

Business Facilitation

Procedures regarding how to register foreign and domestic businesses, as well as how to obtain a notice of operation, can be found on the Ministry of Commerce and Industry’s website (https://www.panamaemprende.gob.pa/), where one may register a foreign company, create a branch of a registered business, or register as an individual trader from any part of the world. Corporate applicants must submit notarized documents to the Mercantile Division of the Public Registry, the Ministry of Commerce and Industry, and the Social Security Institute. Panamanian government statistics show that applications from foreign businesses typically take between one to six days to process.

The process for online business registration is clear and available to foreign companies. Panama is ranked 51 out of 190 countries for ease of starting a business and 88 out of 190 for protecting minority investors, according to the 2019 World Bank’s Doing Business Report: https://www.doingbusiness.org/en/data/exploretopics/starting-a-business#close

Other agencies where companies typically register are:

Tax administration: https://dgi.mef.gob.pa/
Corporations, property, mortgage: https://www.rp.gob.pa
Social security: http://www.css.gob.pa|
Municipalities: https://mupa.gob.pa

Outward Investment

Panama does not promote or incentivize outward investment, but neither does it restrict domestic investors from investing abroad.

Transparency of the Regulatory System

In 2012, Panama modified its securities law to regulate brokers, fund managers, and matters related to the securities industry. The Superintendency of the Securities Market is generally considered a transparent, competent, and effective regulator. Panama is a full signatory to the International Organization of Securities Commissions (IOSCO).

Panama has five regulatory agencies, four that supervise the activities of financial entities (banking, securities, insurance, and “designated non-financial businesses and professions (DNFBPs)” and a fifth that oversees credit unions. Each of the regulators regularly publishes on their websites detailed policies, laws, and sector reports, as well as information regarding fines and sanctions. Panama’s banking regulator began publishing fines and sanctions in late 2016. The securities and insurance regulators have published fines and sanctions since 2010. Law 23 of 2015 created the regulator for DNFBPs, which began publishing fines and sanctions in 2018. In January 2020, the regulator for DNFBPs was granted independence and superintendency status similar to that of the banking regulator. Post is not aware of any informal regulatory processes managed by nongovernmental organizations or private sector associations.

Relevant ministries or regulators oversee and enforce administrative and regulatory processes. Any administrative errors or omissions committed by public servants can be challenged and taken to the Supreme Court for a final ruling. Regulatory bodies can impose sanctions and fines which are made public and can be appealed.

Laws are developed in the National Assembly. A proposed bill is discussed in three rounds, edited as needed, and approved or rejected. The President then has 30 days to approve or veto a bill the Assembly has passed. If the President vetoes the bill, it can be returned to the National Assembly for changes or sent to the Supreme Court to rule on its constitutionality. If the bill was vetoed for reasons of unconstitutionality, and the Supreme Court finds it constitutional, the President must sign the bill. Regulations are created by agencies and other governmental bodies but they can be modified or overridden by higher authorities.

In general, draft bills, including those for laws and regulations on investment, are made available on the National Assembly’s website and can be introduced for discussion at the bill’s first hearing. All bills and approved legislation are published in the Official Gazette in full and summary form and can also be found on the National Assembly’s website: https://www.asamblea.gob.pa/buscador-de-gacetas.

Accounting, legal, and regulatory procedures in Panama are based on standards set by the International Financial Reporting Standards (IFRS) Foundation, including financial reporting standards for small and medium-sized enterprises (SMEs). Panama is a member of UNCTAD’s international network of transparent investment procedures. Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations, including the number of steps, the names and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing times, and legal bases justifying the procedures.

Information on public finances and debt is published on the Ministry of Economy and Finance’s website under the directorate of public finance, but it is not consistently updated: https://fpublico.mef.gob.pa/en.

International Regulatory Considerations

Panama is part of the Central American Customs Union (CACU), the regional economic block for Central American countries. Panama has adopted many of the Central American Technical Regulations (RTCA) for intra-regional trade in goods. Panama applies the RTCA to goods imported from any CACU member and updates Panama’s regulations to be consistent with RTCA. However, Panama has not yet adopted some important RTCA regulations, such as for processed food labeling.

The United States and Panama signed an agreement regarding “Sanitary and Phytosanitary Measures and Technical Standards Affecting Trade in Agricultural Products,” which entered into force on December 20, 2006. The application of this agreement supersedes the RTCA for U.S. food and feed products imported into Panama.

A 2006 law established the Panamanian Food Safety Authority (AUPSA) to issue science-based sanitary and phytosanitary (SPS) import policies for food and feed products entering Panama. Since 2019, AUPSA and other government entities have implemented or proposed measures that restrict market access. These measures have also increased AUPSA’s ability to limit the import of certain agricultural goods. The Panamanian Government, for example, has issued regulations on onions and withheld approval of genetically-modified foods, limiting market access and resulting in the loss of millions in potential investment. In March 2021, President Cortizo signed a new bill that eliminated AUPSA and replaced it with the Panamanian Food Agency (APA). The APA intends to improve efficiency for agro-exports and industrial food processes, as well as increase market access.

Historically, Panama has referenced or incorporated international norms and standards into its regulatory system, including the Agreements of the World Trade Organization (WTO), Codex Alimentarius, the World Organization for Animal Health (OIE), the International Plant Protection Convention, the World Intellectual Property Organization, the World Customs Organization, and others. Also, Panama has incorporated into its national regulations many U.S. Food and Drug Administration regulations, such as the Pasteurized Milk Ordinance.

Panama, as a member of the WTO, notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). However, in the last four years it has ignored comments on its regulations offered by other WTO members, including but not limited to the United States.

Legal System and Judicial Independence

When ruling on cases, judges rely on the Constitution and direct sources of law such as codes, regulations, and statutes. In 2016, Panama transitioned from an inquisitorial to an accusatory justice system, with the goal of simplifying and expediting criminal cases. Fundamental procedural rights in civil cases are broadly similar to those available in U.S. civil courts, although some notice and discovery rights, particularly in administrative matters, may be less extensive than in the United States. Judicial pleadings are not always a matter of public record, nor are processes always transparent.

Panama has a legal framework governing commercial and contractual issues and has specialized commercial courts. Contractual disputes are normally handled in civil court or through arbitration, unless criminal activity is involved. Some U.S. firms have reported inconsistent, unfair, and/or biased treatment from Panamanian courts. The judicial system’s capacity to resolve contractual and property disputes is often weak, hampered by a lack of technological tools and susceptibility to corruption. The World Economic Forum’s 2019 Global Competitiveness Report rated Panama’s judicial independence at 129 of 137 countries.

The Panamanian judicial system suffers from significant budget shortfalls that continue to affect all areas of the system. The transition to the accusatory system faces challenges in funding for personnel, infrastructure, and operational requirements, while addressing a significant backlog of cases initiated under the previous inquisitorial system. The judiciary still struggles with lack of independence, a legacy of an often-politicized system for appointing judges, prosecutors, and other officials. Under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges, and only the Supreme Court may initiate investigations against members of the National Assembly, which has led to charges of a de facto “non-aggression pact” between the two branches.

Regulations and enforcement actions can be appealed through the legal system from Municipal Judges, to Circuit Judges, to Superior Judges, and ultimately to the Supreme Court.

Laws and Regulations on Foreign Direct Investment

Panama has different laws governing investment incentives, depending on the activity, including its newest law intended to draw manufacturing investment, the 2020 Multinational Manufacturing Services Law (EMMA). In addition, it has a Multinational Headquarters Law (SEM), a Tourism Law, an Investment Stability Law, and miscellaneous laws associated with particular sectors, including the film industry, call centers, certain industrial activities, and agricultural exports. In addition, laws may differ in special economic zones, including the Colon Free Zone, the Panama Pacifico Special Economic Area, and the City of Knowledge.

Government policy and law treat Panamanian and foreign investors equally with respect to access to credit. Panamanian interest rates closely follow international rates (i.e., the U.S. federal funds rate, the London Interbank Offered Rate, etc.), plus a country-risk premium.

The Ministries of Tourism, Public Works, and Commerce and Industry, as well as the Minister Counselor for Investment, promote foreign investment. However, some U.S. companies have reported difficulty navigating the Panamanian business environment, especially in the tourism, branding, imports, and infrastructure development sectors. Although individual ministers have been responsive to U.S. companies, fundamental problems such as judicial uncertainty are more difficult to address. U.S. companies have complained about several ministries’ failure to make timely payments for services rendered, without official explanation for the delays. U.S. Embassy Panama is aware of tens of millions of dollars in overdue payments that the Panamanian government owes to U.S. companies.

Some private companies, including multinational corporations, have issued bonds in the local securities market. Companies rarely issue stock on the local market and, when they do, often issue shares without voting rights. Investor demand is generally limited because of the small pool of qualified investors. While some Panamanians may hold overlapping interests in various businesses, there is no established practice of cross-shareholding or stable shareholder arrangements designed to restrict foreign investment through mergers and acquisitions.

The Ministry of Commerce and Industry’s website lists information about laws, transparency, legal frameworks, and regulatory bodies.

https://www.mici.gob.pa/direccion-general-de-servicios-al-inversionista/marco-legal-direccion-general-de-servicios-al-inversionista

Competition and Antitrust Laws

Panama’s Consumer Protection and Anti-Trust Agency, established by Law 45 on October 31, 2007, and modified by Law 29 of June 2008, reviews transactions for competition-related concerns and serves as a consumer protection agency.

Expropriation and Compensation

Panamanian law recognizes the concept of eminent domain, but it is exercised only occasionally, for example, to build infrastructure projects such as highways and the metro commuter train. In general, compensation for affected parties is fair. However, in at least one instance a U.S. company has expressed concern about not being compensated at fair market value after the government revoked a concession. There have been no cases of claimants citing a lack of due process regarding eminent domain.

Dispute Settlement

ICSID Convention and New York Convention

Panama is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards).

Investor-State Dispute Settlement

Panama is a signatory to several agreements and Bilateral Investment Treaties (BITs) in which binding international arbitration of investment disputes is recognized. Panama has a total of 11 Free Trade Agreements (FTA), including with Singapore, Peru, Central America, Mexico, South Korea, and Israel, as well as the Trade Promotion Agreement (TPA) with the United States. Panama also has more than 20 BITs with different countries around the world, such as Germany, Italy, the Netherlands, Qatar, Sweden, Switzerland, and the United Kingdom, among others. Panama also has a BIT with the United States. There have been four claims by U.S. investors under these agreements under the ICSID.

Resolving commercial and investment disputes in Panama can be a lengthy and complex process. Despite protections built into the U.S.-Panamanian trade agreement, investors have struggled to resolve investment issues in court and have often reverted to arbitration. There are frequent claims of bias and favoritism in the judicial system and complaints about inadequate titling, inconsistent regulations, and a lack of trained officials outside the capital.

There have been allegations that politically connected businesses have received preferential treatment in court decisions and that judges have “slow-rolled” dockets for years without taking action. Panamanian law firms often suggest writing binding arbitration clauses into all commercial contracts. Local courts recognize and enforce foreign arbitration awards issued against the government. Post is not aware of any extrajudicial actions against foreign investors.

International Commercial Arbitration and Foreign Courts

The Panamanian government accepts binding international arbitration of disputes with foreign investors. Private entities are increasingly reaching out for Alternative Dispute Resolution (ADR) in Panama, primarily due to a lack of confidence in the national judicial system and the attractiveness of a quick turnaround for the settlement of disputes. Two organizations handle most arbitration cases in Panama: the Chamber of Commerce of Panama and the International Chamber of Commerce, via their affiliations with the Panamanian Center for Conflict Resolution and Arbitration (Centro de Conciliación y Arbitraje de Panamá (CeCAP)).

Panama is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as well as to the similar 1975 Panama OAS Convention. Panama became a member of the International Center for the Settlement of Investment Disputes (ICSID) in 1996. Panama adopted the UNCITRAL model arbitration law as amended in 2006. Law 131 of 2013 regulates national and international commercial arbitrations in Panama.

Bankruptcy Regulations

The World Bank 2020 Doing Business Indicator currently ranks Panama 113 out of 190 jurisdictions for resolving insolvency because of a slow court system and the complexity of the bankruptcy process. Panama adopted a new insolvency law (similar to a bankruptcy law) in 2016, but the Doing Business Indicator ranking has not identified material improvement for this metric. The Panamanian Government has proposed a bill that would significantly improve bankruptcy proceedings. As of the writing of this report the bill was awaiting the President’s signature.

Investment Incentives

Panama provides Industrial Promotion Certificates (IPCs) to incentivize industrial development in high-value-added sectors. Targeted sectors include research and development, management and quality assurance systems, environmental management, utilities, and human resources. Approved IPC’s provide up to 35 percent in tax reimbursements and preferential import tariffs of 3 percent. Panama does not have a practice of issuing guarantees or jointly financing FDI projects.

Law 1 (2017) modified Law 28 (1995) by exempting exports from income tax, and exempting from import duty machinery for companies that export 100 percent of their products. Producers that sell any portion of their products in the domestic market pay only a three percent import tariff on machinery and supplies.

Law 41, the Special Regime for the Establishment and Operation of Multinational Company Headquarters (SEM), was enacted in 2007 to encourage multinational investment in Panama.  The law focuses on administrative back office operations, such as payroll, accounting, and other functions. Any company that is licensed under SEM will automatically qualify for MSM.

The GoP enacted Law 159 on Manufacturing Services for Multinational Companies (EMMA) in 2020 as a special incentive law to attract Foreign Direct Investment in manufacturing, remanufacturing, maintenance and product repair, assembly, logistics services, and refurbishing. The EMMA law is a complement to the SEM law and offers tax and employee incentives, reducing import duties and fees for equipment and supplies used in the manufacturing process, to companies that qualify.

In 2012, Panama introduced a tourism incentive law to promote foreign investment in tourism and the hospitality industry. The incentives are available outside the district of Panama to companies registered through the National Tourism Registry of the Panama Tourism Authority (ATP) and provide tax incentives and exemptions on real estate, imported good, construction materials, appliances, furniture, and equipment. Panama further modified the law in 2019 to provide additional tax credits for new projects and extensions on existing projects. These tax credits must be used within ten years from the start of a project.

Foreign Trade Zones/Free Ports/Trade Facilitation

Panama is home to the Colon Free Trade Zone, the Panama Pacifico Special Economic Zone, and 18 other “free zones,” 12 active and six in development. The Colon Free Trade Zone has more than 2,500 businesses, the Panama Pacifico Special Economic Zone has more than 345 businesses, and the remaining free zones host 126 companies in total. These zones provide special tax and other incentives for manufacturers, back office operations, and call centers. Additionally, the Colon Free Zone offers companies preferential tax and duty rates that are levied in exchange for basic user fees and a five percent dividend tax (or two percent of net profits if there are no dividends). Banks and individuals in Panama pay no tax on interest or other income earned outside Panama. No taxes are withheld on savings or fixed time deposits in Panama. Individual depositors do not pay taxes on time deposits. Free zones offer tax-free status, special immigration privileges, and license and customs exemptions to manufacturers who locate within them. Investment incentives offered by the Panamanian government apply equally to Panamanian and foreign investors.

Performance and Data Localization Requirements

There are no legal performance requirements such as minimum export percentages, significant requirements of local equity interest, or mandatory technology transfers. There are no requirements that host country nationals be chosen to serve in roles of senior management or on boards of directors. There are no established general requirements that foreign investors invest in local companies, purchase goods or services from local vendors, or invest in research and development (R&D) or other facilities. Depending on the sector, companies may be required to have 85-90 percent Panamanian employees. There are exceptions to this policy, but the government must approve these on a case-by-case basis. Fields dominated by strong unions, such as construction, have opposed issuing work permits to foreign laborers and some investors have struggled to fully staff large projects. Visas are available and the procedures to obtain work permits are generally not considered onerous.

As part of its effort to become a hub for finance, logistics, and communications, Panama has endeavored to become a data storage center. According to the Panamanian Authority for Government Innovation (AIG, http://www.innovacion.gob.pa/noticia/2834), most of these firms offer services to banking and telephone companies in Central America and the Caribbean. Panama boasts exceptional international connectivity, with seven undersea fiber optic cables and an eighth currently under construction.

Panama’s data protection law (Law 81, March 26, 2019) established the principles, rights, obligations, and procedures that regulate the protection of personal data. The National Authority for Transparency and Access to Information oversees the law’s enforcement, which began in March 2021. The National Authority for Government Innovation is working closely with large private sector companies to draft specific data protection regulations. The personal privacy of communications and documents is provided for in the Panamanian Constitution as a fundamental right (Political Constitution, article 29). The Constitution also provides for a right to keep personal data confidential (article 44). The Criminal Code imposes an obligation on businesses to maintain the confidentiality of information stored in databases or elsewhere and establishes several crimes for the misuse of such information (Criminal Code, articles 164, 283, 284, 285, 286). Panama’s electronic commerce legislation also states that providers of electronic document storage must guarantee the protection, reliability, and proper use of information and data stored on behalf of their customers (Law 51, July 22, 2008, article 55).

Real Property

Mortgages and liens are widely used in both rural and urban areas and the recording system is reliable. There are no specific regulations regarding land leasing or acquisition by foreign and/or non-resident investors.

A large portion of land in Panama, especially outside of Panama City, is not titled. A system of rights of possession exists, but there are multiple instances where such rights have been successfully challenged. The World Bank’s Doing Business 2020 report (http://www.doingbusiness.org/data/exploreeconomies/panama) notes that Panama is ranked 87 out of 190 countries on the Registering Property indicator and ranks 141st in enforcing contracts. Panama enacted Law 80 (2009) to address the lack of titled land in certain parts of the country; however, the law does not address deficiencies in government administration or the judicial system. In 2010, the National Assembly approved the creation of the National Land Management Authority (ANATI) to administer land titling; however, investors have complained about ANATI’s capabilities and lengthy adjudication timelines. ANATI has attempted to clean up some titling issues and sought international assistance to modernize.

The judicial system’s capacity to resolve contractual and property disputes is generally considered weak and susceptible to corruption, as illustrated by the most recent World Economic Forum’s Global Competitiveness Report 2019 (http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf), which ranks Panama’s judicial independence as 129 out of 141 countries. Americans should exercise greater due diligence in purchasing Panamanian real estate than they would in purchasing real estate in the United States. Engaging a reputable attorney and a licensed real estate broker is strongly recommended.

If legally purchased property is unoccupied, property ownership can revert to other owners (squatters) after 15 years of living on or working the land, although the parties must go to court to resolve ownership.

Intellectual Property Rights

Panama has an adequate and effective domestic legal framework to protect and enforce intellectual property rights (IPR). The legal structure is strong, enforcement is generally good, and infringement on rights and theft is uncommon. There were no new laws or regulations proposed or enacted in the past year, although Customs is in the process of modifying its contraband legislation. The U.S.-Panama TPA improved standards for the protection and enforcement of a broad range of IPR, including patents; trademarks; undisclosed tests and data required to obtain marketing approval for pharmaceutical and agricultural chemical products; and digital copyright products such as software, music, books, and videos. To implement the requirements of the TPA, Panama passed Law 62 of 2012  on industrial property and Law 64 of 2012  on copyrights. Law 64 also extended copyright protection to the life of the author plus 70 years, mandates the use of legal software in government agencies, and protects against the theft of encrypted satellite signals and the manufacturing or sale of tools to steal signals.

Panama is a member of the Paris Convention for the Protection of Industrial Property. Panama’s Industrial Property Law (Law 35 of 1996) provides 20 years of patent protection from the date of filing, or 15 years from the filing of pharmaceutical patents. Panama has expressed interest in participating in the Patent Protection Highway with the U.S. Patent and Trademark Office (USPTO). Law 35, amended by Law 61 of 2012, also provides trademark protection, simplified the registration of trademarks, and allows for renewals for 10-year periods. The law grants ex-officio authority to government agencies to conduct investigations and seize suspected counterfeit materials. Decree 123 of 1996 and Decree 79 of 1997 specify the procedures that National Customs Authority (ANA) and Colon Free Zone officials must follow to investigate and confiscate merchandise. In 1997, ANA created a special office for IPR enforcement; in 1998, the Colon Free Zone followed suit.

The Government of Panama is making efforts to strengthen the enforcement of IPR. A Committee for Intellectual Property (CIPI), comprising representatives from five government agencies (the Colon Free Zone, the Offices of Industrial Property and Copyright under the

Ministry of Commerce and Industry (MICI), the Customs Administration (ANA), and the Attorney General), under the leadership of the MICI, is responsible for the development of intellectual property policy. Since 1997, two district courts and one superior tribunal have exclusive jurisdiction of antitrust, patent, trademark, and copyright cases. Since January 2003, a specific prosecutor with national authority over IPR cases has consolidated and simplified the prosecution of such cases. Law 1 of 2004 added crimes against IPR as a predicate offense for money laundering, and Law 14 establishes a 5 to 12-year prison term.

Various Panamanian entities track and report on seizures of counterfeit goods, but there is no single repository or website that consolidates this information. Panama’s Public Ministry has a Specialized Prosecutors Office dedicated to IPR violations, but there have so far been no criminal prosecutions for IPR violations. Panama executes search warrants on businesses that trade in counterfeit goods, but such items are usually seized administratively without criminal prosecutions.

Panama is not included in the United States Trade Representative (USTR) 2021 Special 301 Report. According to USTR’s 2020 Review of Notorious Markets for Counterfeiting and Piracy, a hosting provider reportedly operating from Panama supports sites offering IPR-infringing content.

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/.

Resources for Rights Holders

Embassy point of contact:

Colombia Primola
Economic Specialist
PrimolaCE@state.gov

Local lawyers list: https://pa.usembassy.gov/u-s-citizen-services/attorneys/

Capital Markets and Portfolio Investment

Panama has a stock market with an effective regulatory system developed to support foreign investment. Article 44 of the constitution guarantees the protection of private ownership of real property and private investments. Some private companies, including multinational corporations, have issued bonds in the local securities market. Companies rarely issue stock on the local market and, when they do, often issue shares without voting rights. Investor demand is generally limited because of the small pool of qualified investors. While some Panamanians may hold overlapping interests in various businesses, there is no established practice of cross-shareholding or stable shareholder arrangements designed to restrict foreign investment through mergers and acquisitions. Panama has agreed to IMF Article VIII and pledged not to impose restrictions on payments and transfers for current international transactions.

In 2012, Panama modified its securities law to regulate brokers, fund managers, and matters related to the securities industry. The Commission structure was modified to follow the successful Banking Law model and now consists of a superintendent and a board of directors. The Superintendency of the Securities Market is generally considered a competent and effective regulator. Panama is a full signatory to the International Organization of Securities Commissions (IOSCO).

Government policy and law with respect to access to credit treat Panamanian and foreign investors equally. Panamanian interest rates closely follow international rates (i.e., the U.S. federal funds rate, the London Interbank Offered Rate, etc.), plus a country-risk premium.

Money and Banking System

Panama’s banking sector is developed and highly regulated and there are no restrictions on a foreigner’s ability to establish a bank account. Foreigners are required to present a passport and taxpayer identification number and an affidavit indicating that the inflow and outflow of money meets the tax obligations of the beneficiary’s tax residence. The adoption of financial technology in Panama is nascent, but there are several initiatives underway to modernize processes.

Some U.S. citizens and entities have had difficulty meeting the high documentary threshold for establishing the legitimacy of their activities both inside and outside Panama. Banking officials counter such complaints by citing the need to comply with international financial transparency standards. Several of Panama’s largest banks have gone so far as to refuse to establish banking relationships with whole sectors of the economy, such as casinos and e-commerce, in order to avoid all possible associated risks. Regulatory issues have made it difficult for some private U.S. citizens to open bank accounts in Panama, leaving some legitimate businesses without access to banking services in Panama. Panama has no central bank.

The banking sector is highly dependent on the operating environment in Panama, but it is generally well-positioned to withstand shocks. The banking sector could be impacted if Panama’s sovereign debt rating continues to fall. In early 2021, Fitch downgraded four private banks and one state-owned bank, based primarily on concerns about Panama’s pandemic-related weakening of public finances. As of this writing, three banks have been downgraded to non-investment grade. Approximately 4.7 percent of total banking sector assets are estimated to be non-performing. The four largest banks have total assets of $54.5 billion, which represents 47.07 percent of the National Banking System.

Panama’s 2008 Banking Law regulates the country’s financial sector. The law concentrates regulatory authority in the hands of a well-financed Banking Superintendent (https://www.superbancos.gob.pa/).

Traditional bank lending from the well-developed banking sector is relatively efficient and is the most common source of financing for both domestic and foreign investors, offering the private sector a variety of credit instruments. The free flow of capital is actively supported by the government and is viewed as essential to Panama’s 68 banks (2 official banks, 39 domestic banks, 17 international banks, and 10 bank representational offices).

Foreign banks can operate in Panama and are subject to the same regulatory regime as domestic banks. Panama has not lost any correspondent banking relationships in the last three years.

There are no restrictions on, nor practical measures to prevent, hostile foreign investor takeovers, nor are there regulatory provisions authorizing limitations on foreign participation or control, or other practices that restrict foreign participation. There are no government or private sector rules that prevent foreign participation in industry standards-setting consortia. Financing for consumers is relatively open for mortgages, credit cards, and personal loans, even to those earning modest incomes.

Panama’s strategic geographic location, dollarized economy, status as a regional financial, trade, and logistics hub, and favorable corporate and tax laws make it an attractive destination for money launderers. Money laundered in Panama is believed to come in large part from the proceeds of drug trafficking. Tax evasion, bank fraud, and corruption are also believed to be major sources of illicit funds in Panama. Criminals have been accused of laundering money through shell companies and via bulk cash smuggling and trade at airports and seaports, and in active free trade zones.

In 2015, Panama strengthened its legal framework, amended its criminal code, harmonized legislation with international standards, and passed a law on anti-money laundering/combating the financing of terrorism (AML/CFT). Panama also approved Law 18 (2015), which severely restricts the use of bearer shares; companies still using them must appoint a custodian and maintain strict controls over their use. In addition, Panama passed Law 70 (2019), which criminalizes tax evasion and defines it as a money laundering predicate offense.

In June 2019, the Financial Action Task Force (FATF) added Panama to its grey list of jurisdictions subject to ongoing monitoring due to strategic AML/CFT deficiencies. FATF cited Panama’s lack of “positive, tangible progress” in measures of effectiveness. Panama agreed to an Action Plan in four major areas: 1) risk, policy, and coordination; 2) supervision; 3) legal persons and arrangements; and 4) money laundering investigation and prosecution. The Action Plan outlined concrete measures that were to be completed in stages by May and September 2020. Due to the COVID-19 pandemic, FATF granted Panama two extensions, pushing the deadline to January 2021. At its plenary in February 2021, FATF left Panama on the grey list and noted its progress so far, but also pointed to Action Plan items that still need to be addressed.

Panama is only beginning to accurately track criminal prosecutions and convictions related to money laundering and tax evasion. Law enforcement needs more tools and training to conduct long-term, complex financial investigations, including undercover operations. The criminal justice system remains at risk for corruption. However, Panama has made progress in assessing high-risk sectors, improving inter-ministerial cooperation, and passing (though not yet implementing) a law on beneficial ownership. Additionally, the GoP and the United States recently signed an MOU to provide training to combat money laundering and corruption, through judicial investigations, prosecutions, and convictions.

Foreign Exchange and Remittances

Foreign Exchange

Panama’s official currency is the U.S. Dollar.

Remittance Policies

Panama has customer due diligence, bulk cash, and suspicious transaction reporting requirements for money service providers (MSB), including 18 remittance companies. Post is not aware of any time limits or waiting periods for remittances. In 2017, the Bank Superintendent assumed oversight of AML/CFT compliance for MSBs. The Ministry of Commerce and Industry (MICI) grants operating licenses for remittance companies under Law 48 (2003). There have not been any changes to the remittance policies in 2020.

Sovereign Wealth Funds

Panama started a sovereign wealth fund, called the Panama Savings Fund (FAP), in 2012 with an initial capitalization of $1.3 billion. The fund follows the Santiago Principles and is a member of the International Forum of Sovereign Wealth Funds. The law mandates that from 2015 onward contributions to the National Treasury from the Panama Canal Authority in excess of 3.5 percent of GDP must be deposited into the Fund. In October 2018, the rule for accumulation of the savings was modified to require  that when contributions from the Canal exceed 2.5 percent of GDP, half the surplus must go to national savings. At the end of 2020 the fund had $1.38 billion in equity, compared to $1.39 billion at the end of 2019, with less than 3 percent invested domestically. Panama withdrew $105 million from the FAP in 2020 for pandemic relief.  The fund had a gross income of $96 million in 2020.

Panama has 16 non-financial State-Owned Enterprises (SOE) and 8 financial SOEs that are included in the budget and broken down by enterprise. Each SOE has a Board of Directors with Ministerial participation. SOEs are required to send a report to the Ministry of Economy and Finance, the Comptroller General’s Office, and the Budget Committee of the National Assembly within the first ten days of each month showing their budget implementation. The reports detail income, expenses, investments, public debt, cash flow, administrative management, management indicators, programmatic achievements, and workload. SOEs are also required to submit quarterly financial statements. SOEs are audited by the Comptroller General’s Office.

The National Electricity Transmission Company (ETESA) is an example of an SOE in the energy sector, and Tocumen Airport and the National Highway Company (ENA) are SOEs in the transportation sector. Financial allocations and earnings from SOEs are publicly available at the Official Digital Gazette (http://www.gacetaoficial.gob.pa/). There is a website under construction that will consolidate information on SOEs: https://panamagov.org/organo-ejecutivo/empresas-publicas/#.

Privatization Program

Panama’s privatization framework law does not distinguish between foreign and domestic investor participation in prospective privatizations. The law calls for pre-screening of potential investors or bidders in certain cases to establish technical capability, but nationality and Panamanian participation are not criteria. The Government of Panama undertook a series of privatizations in the mid-1990s, including most of the country’s electricity generation and distribution, its ports, and its telecommunications sector. There are presently no privatization plans for any major state-owned enterprise.

Panama maintains strict domestic laws relating to labor and employment rights and environmental protection. While enforcement of these laws is not always stringent, major construction projects are required to complete environmental assessments, guarantee worker protections, and comply with government standards for environmental stewardship.

The ILO program “Responsible Business Conduct in Latin America and the Caribbean” is active in Panama and has partnered with the National Council of Private Enterprise (CoNEP) to host events on gender equality. Panama does not yet have a State National Action Plan on Business and Human Rights.

In February 2012, Panama adopted ISO 26000 to guide businesses in the development of corporate social responsibility (CSR) platforms. In addition, business groups, including the Association of Panamanian Business Executives (APEDE) and the American Chamber of Commerce (AmCham), are active in encouraging and rewarding good CSR practices. Since 2009, the AmCham has given an annual award to recognize member companies for their positive impact on their local communities and environment.

Panama has two goods on the U.S. Department of Labor’s (DOL) “List of Goods Produced by Child Labor or Forced Labor”: melons and coffee. DOL removed sugarcane from the list in 2019. Child labor is also prevalent among street vendors and other informal occupations.

There have been several disputes over the resettlement of indigenous populations to make room for hydroelectric projects, such as at Barro Blanco and currently in Bocas del Toro. The government mediates in such cases to ensure that private companies are complying with the terms of resettlement agreements. An indigenous population in Bocas del Toro province is currently dissatisfied with the terms of a resettlement agreement and occasionally holds protests that close down the access road to a hydroelectric dam.

Despite human resource constraints, Panama enforces its labor and environmental laws effectively relative to the region and conducts inspections in a methodical and equitable manner. Panama encourages adherence to the OECD’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and supports the Kimberley Process. Panama is not a government sponsor of either the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights.

The National Council of Organized Workers (CONATO) and the National Confederation of Trade Union Unity (CONUSI) are the most active labor organizations advocating for worker rights in the private sector. They enjoy access to and dialogue with key decisionmakers. CONATO is currently participating in a nationwide dialogue to defend the sustainability of the workers retirement fund. CONUSI is focused on labor rights in the construction sector.

Panama is a signatory of the Montreux Document on Private Military and Security Companies. Panama follows the standards set by the International Standards Organization (ISO) and certifies security companies in quality management and security principles consistent with ISO standards.

Additional Resources

Department of State

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

Department of Labor

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

Corruption is among Panama’s most significant challenges. Panama ranked 111 out of 180 countries in the 2020 Transparency International Corruption Perceptions Index (CPI), with its CPI Index score falling from 39 in 2015 to 35 in 2020. High-profile alleged procurement irregularities in 2020, including several related to pandemic response, contributed to public skepticism of government transparency. U.S. investors allege that corruption is present in the private sector and at all levels of the Panamanian government. Purchase managers and import/export businesses have been known to overbill or skim percentages off purchase orders, while judges, mayors, members of the National Assembly, and local representatives have reportedly accepted payments for facilitating land titling and favorable court rulings. The Foreign Corrupt Practice Act (FCPA) precludes U.S. companies from engaging in bribery or other similar activities, and U.S. companies look carefully at levels of corruption before investing or bidding on government contracts.

The process to apply for permits and titles can be opaque, and civil servants have been known to ask for payments at each step of the approval process. The land titling process has been troublesome for many U.S. companies, some of which have waited decades for cases to be resolved. U.S. investors in Panama also complain about a lack of transparency in government procurement. The parameters of government tenders often change during the bidding process, creating confusion and the perception that the government tailors tenders to specific companies. Panama passed legislation in 2019 to modernize its procurement system and address some of these concerns.

Panama’s government lacks strong systemic checks and balances that incentivize accountability. All citizens are bound by anti-corruption laws; however, under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges, and only the Supreme Court may initiate investigations against members of the National Assembly, which has led to charges of a de facto “non-aggression pact” between the branches. Another key component of the judicial sector, the Public Ministry (Department of Justice), has struggled with a historical susceptibility to political influence.

In late 2016, Brazilian construction firm Odebrecht admitted to paying $59 million in bribes to win Panamanian contracts worth at least $175 million between 2010 and 2014. Odebrecht’s admission was confined to bribes paid during the Martinelli administration; however, former President Juan Carlos Varela (2014-2019) is also under investigation on charges of corruption related to Odebrecht. The scandal’s full reach  is still undetermined, and Odebrecht’s activities in Panama continue, including construction on a second metro line and an expansion of Tocumen airport.

Panama has anti-corruption mechanisms in place, including whistleblower and witness protection programs and conflict-of-interest rules. However, public perception is that anti-corruption laws are weak and not applied rigorously, and that government enforcement bodies and the courts are not effective in pursuing and prosecuting those accused of corruption. The lack of a strong professionalized career civil service in Panama’s public sector has also hindered systemic change. The fight against corruption is hampered by the government’s refusal to dismantle Panama’s dictatorship-era libel and contempt laws, which can be used to punish whistleblowers. Acts of corruption are seldom prosecuted and perpetrators are almost never jailed.

Under President Cortizo, Panama has taken some measures to improve the business climate and encourage transparency. These include a new public-private partnership (APP) law that covers construction, maintenance, and operations projects valued at more than $10 million. The law is designed to implement checks and balances and eliminate discretion in contracting, a positive

step that will increase transparency and create a level playing field for investors. In addition, the public procurement law that was approved in May 2020 is aimed at improving bidding processes so that no tenders can be “made to order”.

Panama ratified the UN’s Anti-Corruption Convention in 2005 and the Organization of American States’ Inter-American Convention Against Corruption in 1998. However, there is a perception that Panama should more effectively implement both conventions.

Resources to Report Corruption

ELSA FERNÁNDEZ AGUILAR
National Director
Autoridad Nacional de Transparencia y Acceso a la Informacion (ANTAI)
Ave. del Prado, Edificio 713, Balboa, Ancon, Panama, República de Panama
(507) 527-9270
efernandez@antai.gob.pa
www.antai.gob.pa

Olga de Obaldia
Executive Director
Fundacion Para el Desarrollo y Libertad Ciudadana (Panama’s TI Chapter)
Urbanización Nuevo Paitilla. Calle 59E. Dúplex Nº 25. Ciudad de Panamá. PANAMÁ
(507) 2234120
odeobaldia@libertadciudadana.org

Panama is a peaceful and stable democracy. On rare occasions, large-scale protests can turn violent and disrupt commercial activity in affected areas. Mining and energy projects have been sensitive issues, especially those that involve development in designated indigenous areas called Comarcas. One U.S. company has reported not only protests  and obstruction of access to one of its facilities, but expensive acts of vandalism against its property. The unrest is related to disagreements over compensation for affected community members. The GoP has attempted to settle the dispute, but without complete success..

In May 2019, Panama held national elections that international observers agreed were free and fair. The transition to the new government was smooth. Panama’s Constitution provides for the right of peaceful assembly, and the government respects this right. No authorization is needed for outdoor assembly, although prior notification for administrative purposes is required. Unions, student groups, employee associations, elected officials, and unaffiliated groups frequently attempt to impede traffic and disrupt commerce in order to force the government or private businesses to agree to their demands.

Strife between rival gangs and turf battles in the narcotraffic trade led to a rising homicide rate through the first seven months of 2020, although early indications suggest the wave of gang homicides is receding. The 2020 homicide rate of 11.62 per 100,000 people is still among the lowest in Central America. Crimes other than homicides and cattle rustling were significantly lower in 2020, most likely due to pandemic-related movement restrictions and increased police presence to enforce the restrictions.

According to official surveys carried out in October 2020, Panama’s unemployment rate was 18.5 percent, a significant increase from 7 percent in 2019 and an obvious consequence of the 2020 COVID-19 economic crisis. Panama’s non-agricultural labor force is nearly 1.6 million people, and around 53 percent of workers are employed in the informal sector (an increase from 45 percent in 2019). The rate of informal labor is higher in indigenous communities, including the Comarcas of Kuna Yala, Embera, and Ngabe Bugle, where 83 percent of jobs are informal.

There is a shortage of skilled workers in accounting, information technology, and specialized construction, and also a dearth of English-speaking workers. Panama spends approximately 13 percent of its budget, or 3 percent of GDP, on education. While Panama has one of the highest minimum wages in the hemisphere, the 2018-2019 World Economic Forum Global Competitiveness Report ranked Panama 89 out of 141 countries for the skillsets of university graduates.

The government’s labor code remains highly restrictive. The Panamanian Labor Code, Chapter 1, Article 17, establishes that foreign workers can constitute only 10 percent of a company’s workforce, or up to 15 percent if those employees have a specialized skill. By law, businesses can only exceed these caps for a defined period and with prior approval from the Ministry of Labor.

Several sectors, including the Panama Canal Authority, the Colon Free Zone, and export processing zones/call centers, are covered by their own labor regimes. Employers outside these zones, such as those in the tourism sector, have called for greater flexibility, easier termination of workers, and the elimination of many constraints on productivity-based pay. The Panamanian government has issued waivers to regulations on an ad hoc basis to address employers’ demands, but there is no consistent standard for obtaining such waivers.

While most public-sector employees can strike and organize professional associations, they cannot organize unions. Private sector unions are required to register with the Ministry of Labor. If the Ministry does not respond to a private-sector union registration application within 15 calendar days, the union automatically gains legal recognition, provided the request was submitted directly, with all the documentation required by law. There are unions in many sectors, but less than 15 percent of the workforce is organized. The most politically active and influential union is in the construction industry.

The Ministry of Labor’s Board of Appeals and Conciliation has authority to resolve certain labor disagreements, such as internal union disputes, enforcement of the minimum wage, and some dismissal issues. The law allows arbitration by mutual consent, at the request of the employee or the ministry, and in the case of a collective dispute in a privately held public utility. It allows either party to appeal if arbitration is mandated during a collective dispute in a public-service company. The Board of Appeals and Conciliation has exclusive competency for disputes related to domestic employees, some dismissal issues, and claims of less than $1,500.

The Ministry of the Presidency’s Conciliation Board hears and resolves complaints by public-sector workers. The Board refers complaints that it fails to resolve to an arbitration panel, which consists of representatives from the employer, the professional association, and a third member chosen by the first two. If the dispute cannot be resolved, it is referred to a tribunal under the Board. Observers, however, have noted that the Ministry of the Presidency has not yet designated the tribunal judges. The alternative to the Board is the civil court system.

Severance payments to workers upon termination are significant in Panama. These take the place of unemployment insurance, which does not exist in Panama. During the COVID-19 pandemic, employers have been permitted to furlough workers for longer than normally permitted, without paying severance. Law 201 of February 2021 requires companies that have been permitted to re-open to begin reinstating employees’ contracts in phases over a period of eight months; according to the law, no extensions will be granted beyond November 2021. If an employer opts to terminate a contract instead, it can extend severance payments over a period of eight months. The law also requires businesses to pay maternity leave to workers on suspended contracts. These are temporary measures for 2021, after which time furloughs are expected to return to a maximum period of four months.

* Source for Host Country Data: https://www.contraloria.gob.pa/assets/informe-del-contralor-2019.pdf
https://www.inec.gob.pa/archivos/P053342420201202152627Cuadro%2001.pdf

Panama reports its GDP numbers as compared to a benchmark of $21.296 million from 2007. The 2019 figures from the table are measured from this benchmark and correspond to a 3 percent increase from 2018.

Table 3: Sources and Destination of FDI

Outward Direct Investment data is not available. No countries designated as tax havens are sources of inward FDI.

Table 4: Sources of Portfolio Investment

The data is from June 2020.

Kenneth Delvalle
Commercial Assistant
U.S. Embassy, Commercial Section
Building 783, Basilio Lakas Street, Clayton
507-317-5000
Kenneth.Delvalle@trade.gov
www.trade.gov