Policies Towards Foreign Direct Investment

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

According to the World Bank’s Investing Across Sectors indicators, among the 15 countries in Latin America and the Caribbean covered, Colombia is one of the economies most open to foreign equity ownership.  With the exception of TV broadcasting, all other sectors covered by the indicators are fully open to foreign capital participation.  Foreign ownership in TV broadcasting companies is limited to 40 percent.  Companies publishing newspapers can have up to 100 percent foreign capital investment; however, there is a requirement for the director or general manager to be a Colombian national.

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

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

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

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

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

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

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

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

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

Other Investment Policy Reviews

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

Business Facilitation

New businesses must register with the chamber of commerce of the city in which the company will reside.  Applicants also register using the Colombian tax authority’s portal at www.dian.gov.co to obtain a taxpayer ID (RUT).  Business founders must visit DIAN offices to obtain an electronic signature for company legal representatives. Also obtained through DIAN – in person or online – is an authorization for company invoices.  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 2020 “Doing Business” report, recent reforms made easier starting a business, trading across borders, and resolving insolvency.  While improving in the indexes, Colombia’s ranking to other countries still fell two positions to 67 due to greater improvements in some other countries.  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.

Transparency of the Regulatory System

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

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

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

Information on Colombia’s public finances and debt obligations is readily available and is published in a timely manner.

International Regulatory Considerations

OECD countries agreed on May 25, 2018, to invite Colombia as the 37^th member of the Organization.  With Law 1950 of January 8, 2019, President Duque ratified accession to the OECD and Colombia became the 37^th member of the Organization on April 28, 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 December 2017, the legislature ratified the WTO Trade Facilitation Agreement (TFA).  The TFA is now also pending Constitutional Court review before Colombia can deposit its letter of acceptance with the WTO.  Regionally, Colombia is a member of organizations such as the Inter-American Development Bank (IADB), the Andean Community of Nations (CAN), the Union of South American Nations (UNASUR), and the Pacific Alliance.

Legal System and Judicial Independence

Colombia has a comprehensive legal system.  Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community.  The judicial framework includes the Council of State, the Constitutional Court, the Supreme Court of Justice, and various departmental and district courts, which collectively are overseen administratively by the Superior Judicial Council.  The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch.  Colombia has a commercial code and other laws covering broad areas, including banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law.  Regulations and enforcement actions are appealable through the different stages of legal court processes in Colombia.

Laws and Regulations on Foreign Direct Investment

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

Competition and Anti-Trust 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, gig-economy platforms, 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.  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 similar to the judicial system in general, SIC investigations can be drawn-out and opaque.

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.  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 13 pending investment disputes in Colombia in 2020.  The pending cases include:

• A project management consultant contract with state-owned entity Refiería de Cartagena (Reficar) related to the refurbishment of an oil refinery. Claims arise out of a $2.4 billion liability imposed by the national comptroller general, with claimants contending they provided limited management consultancy services under contract with Reficar, the party responsible for the misconduct.
• Concession contract for Puerto Nuevo, with claims arising out of the building and maintenance of an access channel to the port.
• Investments in the construction of Meritage, a luxury real-estate development, with claims arising out of the government’s seizure of property from investors, resulting from claims prior investors used the property for criminal activity.
• Two separate shareholder claims related to the Colombian bank Granahorrar, which 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 the paramos, a range of high-altitude wetlands.
• Investment and mining rights in Sergovia and Marmato, with claims alleging the government failed to address civil strikes and other disruptions to the mining project caused by illegal artisanal miners and guerilla groups.
• 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 Electricaribe, an electricity provider.
• Ownership of a cellular communications subsidiary, with claims arising out of measures claimants contend prevented use or sale of assets after the termination of a concession contract.
• Interests in a gold mining concession, with claims arising out of the establishment of a national park that entailed cessation of a mining exploration and exploitation concession.

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 new 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 ranking in the enforcing contracts category of the report held at 177.

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

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

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

Investment Incentives

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

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

The Colombian government introduced a variety of incentives for specific sectors as part of the 2019 tax reform. Included 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.
• New theme parks, ecotourism and agrotourism enterprises, and boat docks put into operation through January 1, 2029 in smaller municipalities will also be taxed at nine percent for 20 years. The same facilities in municipalities greater than 200,000 population put into service until 2023 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.
• Income from river transportation services using low-draft vessels is tax free.

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 drawback and 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 and no customs value-added taxes or duties on raw material imports for use in the FTZ.  Each permanent FTZ must meet specific investment and direct job creation commitments, depending on their total assets, during the first three years.  Special FTZs are required to generate a certain number of direct jobs depending on the economic sector.

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, while operators are also exempted from some payroll taxes and surcharges.  In addition, infrastructure projects in the zones are 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, impose local employment requirements, or require excessively difficult visa, residency, or work permit requirements for investors.  Under the CTPA, Colombia grants substantial market access across its entire services sector.

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 and has issued a circular defining 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 requirements for security and privacy, and data storage companies have one year to register.  The SIC enforces the rules on local data storage within the country through audits/investigations and imposed sanctions.

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 2016 FARC peace accord, some eight million hectares of land – 14 percent of the country – had been abandoned or acquired illegally.  The Colombian government is working to title these plots and has started a formalization program for land restitution.

Intellectual Property Rights

In Colombia, the granting, registration, and administration of 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).

The Intersectoral Intellectual Property Commission (CIPI) serves as the interagency technical body for IPR issues, and at its annual meeting in 2019 discussed a new national policy for Intellectual Property to be drafted in 2020, progress toward ratifications of the Treaty of Marrakech and 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.   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 Special 301 report can be found at https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/april/ustr-releases-annual-special-301-report-intellectual-property-protection-and-review-notorious .

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 did not make progress in 2019 on an international agreement that it needs to sign: the International Union for the Protection of NewVarieties 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.  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.  A 2015 law increased penalties for those involved in running contraband, but more effective implementation is needed.  Key agencies do not have the requisite authorities or sufficient numbers of trained personnel to effectively inspect and seize merchandise and to investigate smugglers and counterfeiters.  Positive recent developments in enforcement include the seizure of 122 containers with footwear, clothing, toys, toiletries, medicines, textiles, and perishables worth more than USD 32 million between August 2018 and October 2019, and the dismantling of 78 criminal structures and prosecution of 436 people over the same period.  However, counterfeit goods remain widely available in Colombia’s “San Andresitos” markets.  Minister of Commerce, Industry and Trade Jose Manuel Restrepo established a high-level anti-contraband working group in 2018 that is chaired by the Customs Office and includes representatives of the Fiscal and Customs Police.  The group meets biweekly.

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 branch 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.  The fund can administer up to 30 percent of annual royalties from the extractives industry.  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.

Since 2015, the Government of Colombia has concentrated its industrial and commercial enterprises under the supervision of the Ministry of Finance.  According to the latest annual report issued in 2019, 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 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.  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 utilizing public-private partnerships (PPPs) as a means for securing and incentivizing 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 establishing a framework for public works projects.  Interpretations of the law (Ley 80) do not establish a liability cap on potential judgments and views company officials equal to those with fiscal oversight authority when it comes to criminally 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 2015, the Colombian government released its National Action Plan on Business and Human Rights, 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 CSR 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. 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. The Environmental Chapter of the CTPA requires Colombia to maintain and enforce environmental laws, protect biodiversity, and promote opportunities for public participation.
In parallel with its OECD accession, the Colombian government worked with the Organization in a series of assessments in order to develop the implementation 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 throughout the country. Colombia ratified the Minamata Convention on Mercury in 2018 and banned the use of mercury in mining. It will phase out mercury use from all other industries by 2023.

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 steps to dismantle illegal gold mining operations that are responsible for negative environmental, criminal, and human health impacts. 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.

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 96th out of 180 countries assessed, assigned it a score of 37/100, unchanged from four years earlier.  Among OECD member states, only Mexico ranked lower.  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.  Additionally, it has 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 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 chapter of Transparency International, Transparencia por Colombia: http://transparenciacolombia.org.co/
• The Presidential Secretariat of Transparency advises and assists the president to formulate and design public policy about transparency and anti-corruption. This office also coordinates the implementation of anti-corruption policies. http://wsp.presidencia.gov.co/secretaria-transparencia/Paginas/default.aspx/.

Security in Colombia has improved significantly over recent years.  Colombia experienced a significant decrease in terrorist activity, due in large part to a bilateral ceasefire between government forces and Colombia’s largest terrorist organization, the FARC.  On November 26, 2016, President Santos signed a peace agreement with the FARC to end half a century of confrontation.  Congressional approval of a peace accord between the government and the FARC on November 30, 2016 put in motion a six-month disarmament, demobilization, and reintegration process, which granted the FARC status as a legal political organization.  Security forces estimate 1,200 combatants (FARC dissidents) have chosen not to participate in the process.  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.  ELN attacks, alongside powerful narco-criminal group operations, are posing a threat to commercial activity and investment, especially in some rural zones where government control is weak.  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 high income inequality.  In 2019, the unemployment rate according to government figures was 10.5 percent, an increase over the 2018 rate of 9.7 percent, and one of the highest in Latin America.  According to DANE,  47.7 percent of the urban workforce was working in the informal economy at the end of 2019.  A new National Development Plan, signed into law in May 2019, aims to reduce informality by formalizing hourly work, reform the pension system, and expand social protection.  Colombia has made strong efforts to incorporate Venezuelan migrants into the formal economy.  Colombia has a wide range of skills in its workforce, including managerial-level employees who are often bilingual, but faces large skills gaps.

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 (i.e. hospitals).

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

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

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

• Section 7 of Colombia’s Human Rights Report

https://www.state.gov/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 

OPIC, the Overseas Private Investment Corporation and the predecessor to the Development Finance Corporation (DFC), made its first investment in Colombia in 1985.  DFC has 10 active projects and is exploring more, with its new charter allowing investment in non-U.S. companies and to make loans in local currency.  Priority segments for DFC are infrastructure, renewable energy, technology, and agriculture.  DFC’s largest project in Colombia is a USD 350 million Puerta de Hierro toll road connecting the port cities of Barranquilla and Cartagena with the country’s interior.  As of end 2019, DFC’s active investments in Colombia totaled nearly USD 1.1 billion.  Additional information can be found at www.dfc.gov .

* 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.

U.S. Embassy Bogota
Economic Section
Carrera 45 #22B-45
Bogota, Colombia
(571) 275-2000
BogotaECONShared@state.gov

Policies Towards Foreign Direct Investment

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

Other Investment Policy Reviews

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

In the same context, the OECD offers a number of recent publications relevant to investment policy, including “Digital Economy Policy in Costa Rica”, “Consumer Policy in Costa Rica”, and “Enhancing the Use of Competitive Tendering in Costa Rica’s Public Procurement System”: http://www.oecd.org/countries/costarica/ . As of April, 2020, Costa Rica has passed all relevant OECD committees and aims to receive the invitation to formally accede to the OECD in May, 2020.

The World Trade Organization WTO conducted its 2019 “Trade Policy Review” of Costa Rica in September of that year. Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries’ trade and related policies are examined and evaluated at regular intervals: https://www.wto.org/english/tratop_e/tpr_e/tp492_e.htm 

The United Nations Conference on Trade and Development UNCTAD produced in 2019 the report Overview of Economic and Trade Aspects of Fisheries and Seafood Sectors in Costa Rica: https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2583 

The United Nations Food and Agricultural Organization FAO published in 2018 the report “The successes and shortcoming of Costa Rica exports diversification policies”, focusing on agricultural products: http://www.fao.org/documents/card/en/c/18308EN .

Business Facilitation

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

Traditionally, the Costa Rican government’s small business promotion efforts have tended to focus on participation by women and underserved communities.  The women’s institute INAMU, vocational training institute INA, MEIC, and the export promotion agency PROCOMER through its supply chain initiative have all collaborated extensively to promote small and medium enterprise with an emphasis on women’s entrepreneurship. In 2020, INA began launching a network of centers to support small and medium-sized enterprises based upon the U.S. Small Business Development Center (SBDC) model.

The World Bank’s “Doing Business” evaluation for 2019, http://www.doingbusiness.org , states that business registration takes ten steps in 22.5 days. Notaries are a necessary part of the process and are required to use the Crearempresa portal when they create a company. Women do not face explicitly discriminatory treatment when establishing a business.

Outward Investment

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

Transparency of the Regulatory System

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

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

Costa Rica is a member of UNCTAD’s international network of transparent investment procedures (http://www.businessfacilitation.org ). Within that context, the Ministry of Economy compiled the various procedures needed to do business in Costa Rica: https://tramitescr.meic.go.cr/ . Accounting, legal, and regulatory procedures are transparent and consistent with international norms. The Costa Rican College of Public Accountants (Colegio de Contadores Publicos de Costa Rica -CCPA) is responsible for setting accounting standards for non-regulated companies in Costa Rica and adopted full International Financial Reporting Standards. For more, see the international federation of accountants IFAC: https://www.ifac.org/about-ifac/membership/country/costa-rica .

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

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

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

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

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

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

Costa Rica is transparent in reporting its public finances and debt obligations, including explicit and contingent liabilities. The Ministry of Finance provides monthly updates on public debt, generally on the 20th of the month, with the debt categorized as Central Government, Central Government and Non-Financial Sector, and Central Bank of Costa Rica: https://www.hacienda.go.cr/contenido/12519-informacion-de-la-deuda-publica 

The following chart covers contingent debt as of December 31, 2019: https://www.hacienda.go.cr/docs/5e27072cb4e07_12.19%20Resumen%20deuda%20contingente.xlsx 

The General Controller’s Office produced the following report on unregistered debt, summing to 1.27 percent of GDP: https://cgrfiles.cgr.go.cr/publico/docs_cgr/2019/SIGYD_D_2019015487.pdf 

International Regulatory Considerations

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

Legal System and Judicial Independence

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

The Costa Rican Judicial System is comprised of the civil, administrative, and criminal court structure.  The judicial system generally upholds contracts, but caution should be exercised when making investments in sectors reserved or protected by the Constitution or by laws for public operation. Furthermore, independent government agencies, including municipal governments, which grant construction permits, can issue permits or requirements that may contradict the decisions of other independent agencies, causing significant project delays.

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

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

Laws and Regulations on Foreign Direct Investment

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

Several public institutions are responsible for consumer protection as it relates to monopolistic and anti-competitive practices. The “Commission for the Promotion of Competition” (COPROCOM), an autonomous agency housed in the Ministry of Economy, Industry and Commerce, is charged with investigating and correcting anti-competitive behavior across the economy. SUTEL, the Telecommunications Superintendence, shares that responsibility with COPROCOM in the Telecommunications sector. Both agencies are charged with defense of competition, deregulation of economic activity, and consumer protection. COPROCOM has traditionally been underfunded and weak but under a law passed in 2019 gained greater regulatory independence and sufficient operating budget.

Expropriation and Compensation

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

Article 45 of Costa Rica’s Constitution stipulates that private property can be expropriated without proof that it is done for public interest. The 1995 Law 7495 on expropriations further stipulates that expropriations require full and prior payment. The law makes no distinction between foreigners and nationals. Provisions include: (a) return of the property to the original owner if it is not used for the intended purpose within ten years or, if the owner was compensated, right of first refusal to repurchase the property back at its current value; (b) detailed provisions for determination of a fair price and appeal of that determination on the part of the former owner; (c) provision that upon full deposit of the calculated amount the government may take possession of land despite the former owner’s dispute of the price; and (d) provisions providing for both local and international arbitration in the event of a dispute. The expropriations law was amended in 1998, 2006, and 2015 to clarify and expedite some procedures, including those necessary to expropriate land for the construction of new roads. (For full detail go to https://PGRweb.go.cr/SCIJ  – when reviewing the articles of the law go to the most recent version of each article.)

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

Investor-State Dispute Settlement

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

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

In some coastal areas of Costa Rica, there is a history of invasion and occupation of private property by squatters who are often organized and sometimes violent.  It is not uncommon for squatters to return to the parcels of land from which they were evicted, requiring expensive and potentially dangerous vigilance over the land.  Nevertheless, in recent years the Supreme Court has refused title to squatters on land already titled, thus removing some incentive for persistent squatters.

International Commercial Arbitration and Foreign Courts

The right to solve disputes through arbitration is guaranteed in the Costa Rican Constitution. For years, the practical application was regulated by the Civil Procedural Code, which made it ineffective with no arbitration cases until 1998, the year the local arbitration law #7727 was enacted. A 2011 law on International Commercial Arbitration (Law 8937), drafted from the UNCITRAL model law (version 2006), brought Costa Rica to a dual arbitration system, with two valid laws, one law for local arbitration and one for international arbitration. Under the local act, arbitration has to be conducted in Spanish and only attorneys admitted to the local Bar Association may be named as arbitrators.  All cases brought before an arbitration panel, under the rules of local arbitration centers, will normally be resolved within two months of the closing arguments hearing.  Parties can withdraw their case or reach an out-of-court settlement before the arbitral tribunal delivers an award.  If the award meets the review criteria, the losing party has the option to request that the Costa Rican Supreme Court examine the award, but only on procedural matters and never on the merits. Under the local Law for International Arbitration, proceedings may be held in English and foreign attorneys are authorized to serve as arbitrators. The following arbitration centers are in operation in Costa Rica:

• Centro de Conciliacion y Arbitraje. Costa Rican Chamber of Commerce (CCA)
• Centro de Resolución de Controversias. Costa Rican Association of Engineers and Architects
• Centro Internacional de Conciliacion y Arbitraje (CICA). Costa Rican American Chamber of Commerce (AMCHAM)
• Centro de Arbitraje y Mediacion/Centro Iberoamericano de Arbitraje (CAM). Costa Rican Bar Association.

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

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

U.S. companies cite the unpredictability of outcomes as a source of rising judicial insecurity in Costa Rica. The legal system is significantly backlogged, and civil suits may take several years from start to finish. Some U.S. firms and citizens satisfactorily resolved their cases through the courts, while others see proceedings drawn out over a decade without a final resolution.   A new civil procedural code implemented in October 2018 (Law #9342) was designed to accelerate judicial processes by emphasizing oral argument over the traditional written submissions, but processes are still slow. Commercial arbitration has consequently become an increasingly common dispute resolution mechanism.

Bankruptcy Regulations

The Costa Rican bankruptcy law, addressed in both the commercial code and the civil procedures code, is similar to corresponding U.S. law, according to local experts. Title V of the civil procedures code outlines creditors’ rights and the processes available to register outstanding credits, administer the liquidation of the bankrupt company’s assets, and pay creditors according to their preferential status. The Costa Rican system also allows for successive alternatives to full bankruptcy: “convenio preventivo” or arrangement with creditors; “administracion por intervencion” or administration through judicial intervention; “reorganizacion con intervencion judicial” or reorganization through judicial intervention; and finally bankruptcy. As in the United States, penal law will also apply to criminal malfeasance in some bankruptcy cases. In the World Bank’s “resolving insolvency” ranking within the 2019 “Doing Business” report, Costa Rica ranked #13 of 190 (http://www.doingbusiness.org/rankings ).

Investment Incentives

Four investment incentive programs operate in Costa Rica: the free trade zone system, an inward-processing regime, a duty drawback procedure, and the tourism development incentives regime. These incentives are available equally to foreign and domestic investors, and include tax holidays, training of specialized labor force, and facilitation of bureaucratic procedures. Costa Rica’s Foreign Trade Promotion Authority (PROCOMER) is in charge of the first three programs and companies may choose only one of the three. As of early 2020, 482 companies are in the free trade zone regime, 90 in the inward processing regime, and 10 in duty drawback.

The Costa Rican Tourism Board (ICT) administers the tourism incentives; through 2019 over 1,120 tourism firms are declared as such with access to incentives of various types depending on the firm’s operations (hotels, rent-a-car, travel agencies, airlines and aquatic transport). The free trade zone regime is based on the 1990 law #7210, updated in 2010 by law #8794 and attendant regulations, while inward processing and duty drawback derive from the General Customs Law #7557. Tourism incentives are based on the 1985 law #6990, most recently amended in 2001.

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

Foreign Trade Zones/Free Ports/Trade Facilitation

Individual companies are able to create industrial parks that qualify for free trade zone (FTZ) status by meeting specific criteria and applying for such status with PROCOMER. Companies in FTZs receive exemption from virtually all taxes for eight years and at a reduced rate for some years to follow. Established companies may be able to renew this exemption through additional investment. In addition to the tax benefits, companies operating in FTZs enjoy simplified investment, trade, and customs procedures, which provide a convenient way to avoid Costa Rica’s burdensome business licensing process. Call centers, logistics providers, and software developers are among the companies that may benefit from FTZ status but do not physically export goods. Such service providers have become increasingly important participants in the free trade zone regime. PROCOMER and CINDE are traditionally proactive in working with FTZ companies to streamline and improve law, regulation and procedures touching upon the FTZ regime. See their most recent study of the benefits of FTZ regime for the broader economy at www.procomer.com. (Search for “Balance de Las Zonas Francas 2014-2018”).

Performance and Data Localization Requirements

Costa Rica does not impose requirements that foreign investors transfer technology or proprietary business information or purchase a certain percentage of inputs from local sources. However, the Costa Rican agencies involved in investment and export promotion do explicitly focus on categories of foreign investor who are likely to encourage technology transfer, local supply chain development, employment of local residents, and cooperation with local universities. The export promotion agency PROCOMER operates an export linkages department focused on increasing the percentage of local content inputs used by large multinational enterprises.

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

Costa Rica does not require Costa Rican data to be stored on Costa Rican soil. Under law #8968 ‒ Personal Data Protection Law – and its corresponding regulation, companies must notify the Data Protection Agency (PRODHAB) of all existing databases from which personal information is sold or traded. Databases pay an annual registration fee.

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

Real Property

The laws governing investments in land, buildings, and mortgages are generally transparent. Secured interests in both chattel and real property are recognized and enforced. Mortgage and title recording are mandatory and the vast majority of land in Costa Rica has clear title. However, there are continuing problems of overlapping title to real property and fraudulent filings with the National Registry, the government entity that records property titles. Potential investors in Costa Rican real estate should also be aware that the right to use traditional paths is enshrined in law and can be used to obtain court-ordered easements on land bearing private title; disputes over easements are particularly common when access to a beach is an issue. Costa Rica is ranked 49th of 190 for ease of “registering property” within the World Bank 2019 Doing Business Report.

Foreigners are subject to the same land lease and acquisition laws and regulations as Costa Ricans with the exception of concessions within the Maritime Zone (Zona Maritima Terrestre – ZMT). Almost all beachfront is public property for a distance of 200 meters from the mean high tide line, with an exception for long-established port cities and a few beaches such as Jaco. The first 50 meters from the mean high tide line cannot be used for any reason by private parties. The next 150 meters, also owned by the state, is the Maritime Zone and can only be leased from the local municipalities or the Costa Rican Tourism Institute (ICT) for specified periods and particular uses, such as tourism installation or vacation homes. Concessions in this zone cannot be given to foreigners or foreign-owned companies.

Intellectual Property Rights

Costa Rica’s legal structure for protecting intellectual property rights (IPR) is quite strong, but enforcement is sporadic and does not always get the attention and resources required to be effective. As a result, IPR infringement occurs in both physical and online markets. While Costa Rica is not included in the Notorious Market List, it hadbeen listed in United States Trade Representative (USTR) Special 301 Report’s Watch List since 1995. However, the 2019 Special 301 Report noted the substantial progress made by Costa Rica and, as a result, USTR did not include Costa Rica in the 2020 report.

Costa Rica is a signatory of many major international agreements and conventions regarding intellectual property.  Building on the existent regulatory and legal framework, the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) required Costa Rica to strengthen and clarify its IPR regime further, with several new IPR laws added to the books in 2008.  Prior to that, the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) took effect in Costa Rica on January 1, 2000.  In 2002, Costa Rica ratified the World Intellectual Property Organization (WIPO)Performances and Phonograms Treaty and the WIPO Copyright Treaty More recently, in December 2019, Costa Rica approved the Beijing Treaty on Audiovisual Interpretations and Executions, though the National Assembly must now pass legislation to grant protections to audiovisual performers over their performances. In 2019, the Copyright Registry drafted legislative reforms currently pending with the National Assembly for the full implementation of the Marrakesh Treaty.

While online piracy remains a concern for the country, in February 2019, Costa Rica modified the existing regulation on internet service providers (ISPs) to shorten significantly the 45 days previously allowed for notice and takedown of pirated online content, creating an expeditious safe harbor system for ISPs in Costa Rica. To meet a longstanding CAFTA-DR requirement mandating government use of legal software, the National Registry launched LegalSoft, a new software program to track software licenses and renewal dates across 95 government institutions, in March 2020.

During 2019, the National Registry of Industrial Property announced implementation of TMview and DesignView, search tools that allow users to consult trademarks and industrial design data. Also, in 2019, the Directorate of Industrial Property and the Office of Invention Patents started a comprehensive review of current regulations with the goal of guaranteeing greater legal certainty on patents for invention.

The Costa Rican government does not release official statistics on the seizure of counterfeit goods, but the Chamber of Commerce compiles statistics from Costa Rican government sources: http://observatorio.co.cr/. In 2019, Costa Rica’s Economic Crimes Prosecutor investigated 71 IPR cases, down from the totals in 2018 and 2017 but roughly equal to 2016. As in years past, prosecutors ultimately dismissed several cases due to lack of interest, collaboration, and follow-up by the representatives of trademark rights holders.  The Costa Rican government publishes statistics on IPR criminal enforcement at http://www.comex.go.cr/estad percentC3 percentADsticas-y-estudios/otras-estad percentC3 percentADsticas/ .

For additional information about treaty obligations 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

Contact at the U.S. Embassy in Costa Rica:
Attention: Investment Climate Statement
Economics Section
Embassy San Jose, Costa Rica
2519-2000
SanJoseEcon@state.gov

Country/Economy resources:

• Costa Rican American Chamber of Commerce (AmCham): http://www.amcham.co.cr/
• The U.S. Embassy in Costa Rica (Consular Section) maintains an extensive list of legal service providers, including some firms engaged in intellectual property law.  This list does not represent an endorsement on the part of the U.S. government: http://costarica.usembassy.gov/attorney.html.
• The Department of Commerce also maintains a list of Business Service Providers that includes law firms specializing in IPR, under the Business Service Provider tab at: http://redirect.state.sbu/?url=www.export.gov/costarica .
• Observatory of Illicit Trade: http://observatorio.co.cr/ 

Capital Markets and Portfolio Investment

The Costa Rican government’s general attitude towards foreign portfolio investment is cautiously welcoming, seeking to facilitate the free flow of financial resources into the economy while minimizing the instability that might be caused by the sudden entry or exit of funds. The securities exchange (Bolsa Nacional de Valores) is small and is dominated by trading in bonds. Stock trading is of limited significance and involves less than 20 of the country’s larger companies, resulting in an illiquid secondary market. There is a small secondary market in commercial paper and repurchase agreements. The Costa Rican government has in recent years explicitly welcomed foreign institutional investors purchasing significant volumes of Costa Rican dollar-denominated government debt in the local market. The securities exchange regulator SUGEVAL is generally perceived to be effective.

Costa Rica accepted the obligations of IMF Article VIII, agreeing not to impose restrictions on payments and transfers for current international transactions or engage in discriminatory currency arrangements, except with IMF approval. There are no controls on capital flows in or out of Costa Rica or on portfolio investment in publicly-traded companies. From 2014 to 2018, law #9227 allowed the Central Bank to discourage short-term investments from overseas through taxes on interest and a special reserve requirement, but the Central Bank never used that law which was abrogated within the context of OECD-recommended reforms. Some capital flows are subject to a withholding tax (see section on Foreign Exchange and Remittances). Within Costa Rica, credit is largely allocated on market terms, although long-term capital is scarce. Favorable lending terms for USD-denominated loans compared to colon-denominated loans have made USD-denominated mortgage financing popular and common. Foreign investors are able to borrow in the local market; they are also free to borrow from abroad, although withholding tax may apply.

Money and Banking System

Costa Rica’s financial system boasts a relatively high financial inclusion rate, estimated by the Central Bank by June 2019 at 78 percent (the percentage of adults over the age of 15 holding a bank account). As part of an ongoing financial inclusion campaign, the Costa Rican government in early 2016 began allowing non-resident foreigners to open what are termed “simplified accounts” in Costa Rican financial institutions. Resident foreigners have full access to all banking services.

The banking sector is healthy. Non-performing loans have risen over the past year to 2.42 percent of total loans as of December 2019; the state-owned commercial banks had a higher 3.06 percent average. The country hosts a large number of smaller private banks, credit unions, and factoring houses, although the three state-owned banks are still dominant, accounting for just under 50 percent of the country’s financial system assets. Consolidated total assets of the country’s public commercial banks were approximately USD 27.5 billion in December 2019, while consolidated total assets of the eleven private commercial and cooperative banks were about USD 19 billion. Combined assets of all bank groups (public banks, private banks and others) were approximately USD 57.5 billion as of December 2019.

Costa Rica’s Central Bank performs the functions of a central bank while also providing support to the four autonomous financial superintendencies (Banking, Securities, Pensions and Insurance) under the supervision of the national council for the supervision of the financial system (CONASSIF). The Central Bank developed and operates the financial system’s transaction settlement mechanism “SINPE.” In addition to managing all transaction settlement between banks, SINPE allows all financial institutions to offer clients the opportunity to transfer money to and from accounts with any other account in the financial system. Such direct bank transfer has become a common means of payment in the country.

Foreign banks may establish operations in the country under the supervision of the banking regulator SUGEF and as such are subject to the same regulatory burden as locally owned banks. The Central Bank has a good reputation and has had no problem in maintaining sufficient correspondent relationships. Costa Rica is steadily improving its ability to ensure the efficacy of anti-money laundering and anti-terrorism finance and was removed from intensive monitoring by the Financial Action Task Force in 2017. The Costa Rican financial sector in broad terms appears to be satisfied to date with the available correspondent banking services.

Cyber currencies are currently legal in Costa Rica, but Costa Rica’s Central Bank has taken a cautious approach to them in general, warning Costa Ricans that such currencies do not enjoy any formal backing. The financial authorities have also noted that cyber currencies are a potential avenue for money laundering.

Foreign Exchange and Remittances

Foreign Exchange

No restrictions are imposed on expatriation of royalties or capital except when these rights are otherwise stipulated in contractual agreements with the government of Costa Rica. However, Costa Rican sourced rents and benefits remitted overseas, including royalties, are subject to a withholding tax (see below). When such remittances are paid to a parent company or related legal entity, transfer pricing rules and certain limitations apply.

There are no restrictions on receiving, holding, or transferring foreign exchange. There are no delays for foreign exchange, which is readily available at market clearing rates and readily transferable through the banking system. Dollar bonds and other dollar instruments may be traded legally. Euros are increasingly available in the market. Costa Rica has a floating exchange rate regime in which the Central Bank is ready to intervene, if necessary, to smooth any exchange rate volatility.

Remittance Policies

Costa Rica does not have restrictions on remittances of funds to any foreign country; however, all funds remitted are subject to applicable withholding taxes that are paid to the country’s tax administration.  The default level of withholding tax is 30 percent with royalties capped at 25 percent, dividends at 15 percent, professional services at 25 percent, transportation and communication services at 8.5 percent, and reinsurance at 5.5 percent (different withholding taxes also apply for other types of services).  By Costa Rican law, in order to pay dividends, procedures need to be followed that include being in business in the corresponding fiscal year and paying all applicable local taxes.  Those procedures for declaring dividends in effect put a timing restriction on them.  Withholding tax does not apply to payment of interest to multilateral and bilateral banks that promote economic and social growth, and companies located in free trade zones pay no dividend withholding tax.  Spain, Germany, and Mexico have double-taxation tax treaties with Costa Rica, lowering the withholding tax on dividends paid by companies from those countries.

Sovereign Wealth Funds

Costa Rica does not have a Sovereign Wealth Fund.

Costa Rica’s state-owned enterprises (SOEs) are commonly known by their abbreviated names. They include monopolies in petroleum-derived fuels (RECOPE), lottery (JPS), railroads (INCOFER), local production of ethanol (CNP/FANAL), water distribution (AyA), and electrical distribution (ICE, CNFL, JASEC, ESPH). SOEs have market dominance in insurance (INS), telecommunications (ICE, RACSA, JASEC, ESPH), and finance (BNCR, BCR, Banco Popular, BANHVI, INVU, INFOCOOP). They have significant market participation in parcel and mail delivery (Correos), and ports operation (INCOP and JAPDEVA). Six of those SOEs hold significant economic power with revenues exceeding 1 percent of GDP: ICE, RECOPE, INS, BNCR, BCR and Banco Popular. Audited returns for each SOE may be found on each company’s website, while basic revenue and costs for each SOE are available on the General Controller’s Office “Sistema de Planes y Presupuestos” https://www.cgr.go.cr/02-consultas/consulta-pp.html . The Costa Rican government does not currently hold minority stakes in commercial enterprises.

No Costa Rican state-owned enterprise currently requires continuous and substantial state subsidy to survive. Many SOEs turn a profit, which is allocated as dictated by law and boards of directors. Financial allocations to and earnings from SOEs may be found in the “Sistema de Informacion de Planes y Presupuestos (SIPP)” within the General Controller’s Office (CGR) site.

U.S. investors and their advocates cite some of the following ways in which Costa Rican SOEs competing in the domestic market receive non-market-based advantages because of their status as state-owned entities.

• Electricity generated privately must be distributed through the public entities (including rural electricity cooperatives not strictly classified as SOEs) and is limited to 30 percent of total electrical generation in the country: 15 percent to small privately-owned renewable energy plants and 15 percent to larger “build-operate-transfer” (BOT) operations.
• Telecoms and technology sector companies have called attention to the fact that government agencies often choose SOEs as their telecom services providers despite a full assortment of private-sector telecom companies. The information and telecommunications business chamber (CAMTIC) has been advocating for years against what its members feel to be unfair use by government entities of a provision (Article 2) in the public contracting law that allows noncompetitive award of contracts to public entities (also termed “direct purchase”) when functionaries of the awarding entity certify the award to be an efficient use of public funds. CAMTIC has compiled detailed statistics showing that while the yearly total dollar value of Costa Rican government direct purchases in the IT sector under Article 2 has dropped considerably from $226 million in 2017, to $72.5 million in 2018 and $27.5 million in 2019, the number of purchases has actually increased from 56 purchases in both 2017 and 2018 to 86 in 2019.
• The state-owned insurance provider National Insurance Institute (INS) has been adjusting to private sector competition since 2009 but in 2019 still registered 82 percent of total insurance premiums paid; 13 insurers are now registered with insurance regulator SUGESE: (https://www.sugese.fi.cr/SitePages/index.aspx ). Competitors point to unfair advantages enjoyed by the stateowned insurer INS, including a strong tendency among SOE’s to contract their insurance with INS.

Costa Rica is not a party to the WTO Government Procurement Agreement (GPA) although it is registered as an observer. Costa Rica strives to adhere to the OECD Guidelines on Corporate Governance for SOEs (www.oecd.org/daf/ca/oecdguidelinesoncorporategovernanceofstate-ownedenterprises.htm ).

Privatization Program

Costa Rica does not have a privatization program and the markets that have been opened to competition in recent decades – banking, telecommunications, insurance and Atlantic Coast container port operations – were opened without privatizing the corresponding state-owned enterprise(s). However, in response to the growing fiscal deficit, in February 2020 the Minister of Hacienda announced the government would investigate the privatization of the state liquor company (Fanal), as well as the International Bank of Costa Rica (Bicsa).

Corporations in Costa Rica, particularly those in the export and tourism sectors, generally enjoy a positive reputation within the country as engines of growth and practitioners of Responsible Business Conduct (RBC). The Costa Rica government actively highlights its role in attracting high-tech companies to Costa Rica; the strong RBC culture that many of those companies cultivate has become part of that winning package. Large multinational companies commonly pursue RBC goals in line with their corporate goals and have found it beneficial to publicize RBC orientation and activities in Costa Rica. Many smaller companies, particularly in the tourism sector, have integrated community outreach activities into their way of doing business. There is a general awareness of RBC among both producers and consumers in Costa Rica.

The Costa Rican government maintains and enforces laws with respect to labor and employment rights, consumer protection and environmental protection. Costa Rica has no mineral extraction industry with its accompanying issues. Costa Rica encourages foreign and local enterprises to follow generally accepted RBC principles such as the OECD Guidelines for Multinational Enterprises (MNE) and maintains a national contact point for OECD MNE guidelines within the Ministry of Foreign Trade (see http://www.oecd.org/investment/mne/ncps.htm ).

Some Costa Rican government agencies took the principles of public-private partnership to heart by working with private companies in addressing specific social issues.  For example, since 2003 the Foundation Paniamor (www.paniamordigital.org ) is the designated lead agency in Costa Rica guiding the network of 429 (through December 2019) tourism-related businesses which are signatories to the “Code of Conduct” an initiative of the Costa Rican Tourism Board (ICT). The purpose of this code is to organize and direct the private sector’s work against the sexual commercial exploitation of children and adolescents.

Costa Rica has laws, regulations, and penalties to combat corruption. Though the resources available to enforce those laws are limited, Costa Rica’s institutional framework is strong, such that those cases that are prosecuted are generally perceived as legitimate. Anti-corruption laws extend to family members of officials, contemplate conflict-of-interest in both procurement and contract award, and penalizes bribery by local businessmen of both local and foreign government officials. Public officials convicted of receiving bribes are subject to prison sentences up to ten years, according to the Costa Rican Criminal Code (Articles 347-360). Entrepreneurs may not deduct the costs of bribes or any other criminal activity as business expenses. In recent years, Costa Rica saw several publicized cases of firms prosecuted under the terms of the U.S. Foreign Corrupt Practices Act.

Costa Rica ratified the Inter-American Convention Against Corruption in 1997. This initiative of the OECD and the Organization of American States (OAS) obligates subscribing nations to implement criminal sanctions for corruption and implies a series of follow up actions: http://www.oas.org/juridico/english/cri.htm . Costa Rica also ratified the UN Anti-Corruption Convention in March 2007, has been a member of the Open Government Partnership (OGP) since 2012, and as of July 2017 is a party to the OECD Convention on Combatting Bribery of Foreign Public Officials.

The Costa Rican government has encouraged civil society interest in good governance, open government and fiscal transparency, with a number of NGO’s operating unimpeded in this space. While U.S. firms do not identify corruption as a major obstacle to doing business in Costa Rica, some have made allegations of corruption in the administration of public tenders and in approvals or timely processing of permits. Developers of tourism facilities periodically cite municipal-level corruption as a problem when attempting to gain a concession to build and operate in the restricted maritime zone.

Resources to Report Corruption

Contact within government Anti-Corruption Agency:

Name: Armando López Baltodano
Title: Procurador Director de la Area de la Etica Publica, PGR
Organization: Procuraduria General de la Republica (PGR)
Address: Avenida 2 y 6, Calle 13. San Jose, Costa Rica.
Telephone Number: 2243-8330, 2243-8321
Email Address: evelynhk@pgr.go.cr

Contact at “watchdog” organization:

Evelyn Villarreal F.
Asociación Costa Rica Íntegra
Tel:. (506) 8355 3762
Email 1: evelyn.villarreal@cr.transparency.org
Email 2: crintegra.vice@gmail.com

Since 1948, Costa Rica has not experienced significant domestic political violence. There are no indigenous or external movements likely to produce political or social instability. However, Costa Ricans occasionally follow a long tradition of blocking public roads for a few hours as a way of pressuring the government to address grievances; the traditional government response has been to react slowly, thus giving the grievances time to air. This practice on the part of peaceful protesters can cause logistical problems.

Crime increased in Costa Rica in recent decades and U.S. citizen visitors and residents are frequent victims.  While petty theft is the main problem, criminals show an increased tendency to use violence. Some crime in Costa Rica is associated with the illegal drug trade.  Please see the State Department’s Travel Advisory page for Costa Rica for the latest information- https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/costa-rica-travel-advisory.html

The Costa Rican labor force has high educational standards. The country boasts an extensive network of publicly-funded schools and universities while Costa Rica’s national vocational training institute (INA) and private sector groups provide technical and vocational training. The National Statistics Institute (INEC) reports that the labor force grew in 2019 including the female work force which registered a participation rate of 50 percent, although unemployment continued to increase. According to INEC, informal employment rose significantly from 44.9 percent of total employment in 2018 to 46.5 percent in December 2019 (approximately 1 million persons); 39.2 percent of the economically active population in the nonagricultural sector was in the informal economy. The overall unemployment rate was 12.4 percent in 2019 while youth unemployment (between 15 and 24) reached 34.1 percent that year.

The rapid growth of Costa Rica’s service, tourism, and technology sectors has stimulated demand for English-language speakers. Throughout 2019, President Alvarado continually emphasized the need for English language proficiency in the labor force to reactivate the economy. Several public and private institutions are also active in Costa Rica’s efforts to increase English proficiency, including the 60-year-old U.S.-Costa Rican binational center (the Centro Cultural Costarricense Norteamericano), which offers general and business English courses to as many as 5,000 students annually and receives U.S. government funding. The Peace Corps has a Teaching English as a Foreign Language program for teachers and students. While the presence of numerous multinational companies operating shared-services and call centers draws down the supply of speakers of fluent business and technical English, the pool of job candidates with English and technical skills in the Central Valley is sufficient to meet current demand. However, the current finite number of job candidates with these skills is a limiting factor on the ability of foreign and local businesses to expand operations.

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

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

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

Costa Rican law guarantees the right of workers to join labor unions of their choosing without prior authorization. Unions operate independently of government control and may form federations and confederations and affiliate internationally. Most unions are in the public sector, including in state-run enterprises. Collective bargaining agreements are common in the public sector. “Permanent committees of employees” informally represent employees in some enterprises of the private sector and directly negotiate with employers; these negotiations are expressed in “direct agreements,” which have a legal status. Based on 2019 statistics, 88.1 percent of government employees are union members as compared to 3 percent in the private sector. In 2019, the Labor Ministry reported 105 collective bargaining agreements, 73 with public sector entities and 32 within the private sector, covering 10.3 percent of the working population. The Ministry reported a total of 155 “direct agreements” in different sectors (agriculture, industry and transportation) during 2018. In May 2019, the Constitutional Chamber of the Supreme Court found that some concessions to the workers in the collective bargaining agreement between a government agency and its labor union were illegal and therefore repealed sections of the agreement.

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

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

The law provides for the right of workers to conduct legal strikes, but it prohibits strikes in public services considered essential (police, hospitals and ports). Strikes affecting the private sector are rare and do not pose a risk for investment.

Child and adolescent labor is uncommon in Costa Rica, and it occurs mainly in agriculture in the informal sector.    In 2019, Costa Rica continued to expand its Casas de la Alegria (Houses of Joy) program, run by the government and civil society, thereby providing an alternative to children joining their parents in the fields and working. Between 2011 and 2016, employment by minors under 15 fell by 76 percent from 34,494 to 8,071, or 1.1 percent of the population, according to Costa Rica’s Ministry of Labor reporting.

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

In October 2019, the Constitutional Chamber of the Supreme Court ruled in favor of most of the provisions in a proposed bill regulating strikes, including a prohibition on strikes by workers in ten essential public services and permission to employers to suspend pay to striking workers. (Note: On January 20, 2020, President Alvarado signed it into law). In September 2019, President Alvarado signed the work-from-home bill into law (Law 9738) which allows telecommuting as an alternative work arrangement for workers in the public and private sectors. The dual-technical education bill also became law in September (Law 9728). This law allows students to train in two learning environments (a technical institution and a training company), providing them comprehensive training and better transitioning into the labor market.

The Development Finance Corporation (DFC) offers both financing and insurance coverage against expropriation, war, revolution, insurrection, and inconvertibility for eligible U.S. investors in Costa Rica

In Costa Rica, DFC’s 2019 portfolio exposure totaled USD 123.3 million across 8 projects, mostly in the financial services to support lending to small and medium enterprise. Costa Rica is a member of the Multilateral Investment Guarantee Agency, a member of the World Bank group.

* Source for Host Country Data: Costa Rican Central Bank (BCCR). US FDI stock in Costa Rica is registered as $23,550.6 million, while CR FDI stock in the US is registered as $129.2 million.
* For 2019 GDP in dollars with National Accounts exchange rate, the Costa Rican Central Bank (BCCR) is “Host Country Statistical Source”.
*  For “Total Inbound Stock of FDI as percent host GDP”, source is UNCTAD as detailed above.

Costa Rica’s open and globally integrated economy receives FDI principally from the United States followed by Europe and Latin America. Costa Rica’s outward FDI is more regionally focused on its neighbors Nicaragua, Guatemala and Panama, with the United States and Colombia following. The source of this information on direct investment positions is the IMF’s Coordinated Direct Investment Survey (CDIS) site (http://data.imf.org/CDIS).

The source of the information above is the IMF’s Coordinated Portfolio Investment Survey http://data.imf.org/CPIS , “Reported Portfolio Investment Assets by Economy of NonResident Issuer: Total Portfolio Investment”, from June 2019.

Attention: Investment Climate Statement
Economics Section
Embassy San Jose, Costa Rica
2519-2000
SanJoseEcon@state.gov

Policies Towards Foreign Direct Investment

The Dominican economy presents both challenges and opportunities for foreign investors.  While the Dominican government promotes inward FDI and has established formal programs to attract it, lack of clear rules and uneven enforcement of existing rules complicates foreign investment.

The Dominican Republic provides tax incentives to investment in tourism, renewable energy, film production, Haiti-Dominican Republic border development, and the industrial sector.  The Dominican Republic is also a signatory of CAFTA-DR, which mandates non-discriminatory treatment, free transferability of funds, protection against expropriation, and procedures for the resolution of investment disputes.  However, some foreign investors indicate that the uneven enforcement of regulations and laws, or political interference in legal processes, creates difficulties for investment.

There are two main government agencies responsible for attracting foreign investment, the Export and Investment Center of the Dominican Republic (CEI-RD) and the National Council of Free Trade Zones for Export (CNZFE).  CEI-RD promotes foreign investment and aids prospective foreign investors with business registration, matching services and identification of investment opportunities.  CEI-RD also oversees “ProDominicana,” a branding and marketing program for the country launched in 2017 that promotes the DR as an investment destination and exporter.  CNZFE aids foreign companies looking to establish operations in the country’s 74 free trade zones for export outside Dominican territory.

There are a variety of business associations that promote dialogue between the government and private sector, including the Association of Foreign Investor Businesses (ASIEX).

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no general (statutory, de facto, or otherwise) limits on foreign ownership or control.  According to Law No. 98-03 and Regulation 214-04, an interested foreign investor must file an application form at the offices of CEI-RD within 180 calendar days from the date on which the foreign investment took place.  CEI-RD will then evaluate the application and issue the corresponding Certificate of Registration within 15 working days.

In order to set up a business in a free trade zone, a formal request must be made to the CNZFE, the entity responsible for issuing the operating licenses needed to be a free zone company or operator.  CNZFE assesses the application and determines its feasibility.  For more information on the procedure to apply for an operating license, visit the website of the CNZFE at http://www.cnzfe.gov.do.

The Dominican Republic does not maintain a formalized investment screening and approval mechanism for inbound foreign investment.

Other Investment Policy Reviews

The Dominican Republic has not been reviewed recently by multilateral organizations regarding investment policy.  The most recent reviews occurred in 2015.  This included a trade policy review by the World Trade Organization (WTO) and a follow-up review by the United Nations Conference on Trade and Development (UNCTAD) regarding its 2008 investment policy recommendations.

2008 UNCTAD – https://unctad.org/en/pages/PublicationArchive.aspx?publicationid=6343 

2015 WTO – https://www.wto.org/english/tratop_e/tpr_e/s319_e.pdf 

2015 UNCTAD – https://unctad.org/en/PublicationsLibrary/diaepcb2016d2_en.pdf 

Business Facilitation

In the World Bank’s report, “Doing Business,” the Dominican Republic’s overall ranking for ease of doing business fell from 102 in 2019 to 115 in 2020, reflecting stagnant performance in several of the indicator categories.  According to the report, starting a limited liability company (SRL by its Spanish acronym) in the Dominican Republic is a seven-step process that requires 16.5 days.  However, some businesses report the full incorporation process can take two or three times longer than the advertised process.

The Dominican Republic has a single-window registration website for SRL registration (https://www.formalizate.gob.do/) that offers a one-stop shop for registration needs.  Foreign companies may use the registration website.  However, this electronic method of registration is not widely used in practice and consultation with a local lawyer is recommended for company registrations.

Outward Investment

There are no legal or government restrictions on Dominican investment abroad, although the government does little to promote it.  Outbound foreign investment is significantly lower than inbound investment.  The largest recipient of Dominican outward investment is the United States.

Transparency of the Regulatory System

The national government manages all regulatory processes.  Information about regulations is often scattered among various ministry and agency websites and is sometimes only available through direct communication with officials.  It is advisable for U.S. investors to consult with local attorneys or advisors to assist with locating comprehensive regulatory information.

On the 2019 Global Innovations Index, the Dominican Republic’s overall rank remained flat (87) compared to 2018.  In sub-sections of the report, the Dominican Republic ranks 98 out of 129 for regulatory environment and 74 out of 129 for regulatory quality.  The World Economic Forum 2019 Global Competitiveness Report ranked the Dominican Republic 87 out of 141 countries with respect to the efficiency of the legal framework in challenging regulations, and 108 out of 141 regarding burden of government regulations.

The World Bank Global Indicators of Regulatory Governance report states that Dominican ministries and regulatory agencies do not publish lists of anticipated regulatory changes or proposals intended for adoption within a specific timeframe.  Law 200-04 requires regulatory agencies to give notice of proposed regulations in public consultations and mandates publication of the full text of draft regulations on a unified website: http://www.consultoria.gov.do/ .  Foreign investors, however, claim that these requirements are not always met in practice and many businesses note that the scope of the website content is not always adequate for investors or interested parties as not all relevant Dominican agencies provide content, and those that do often do not keep the content up to date.  U.S. businesses reported that some laws went into effect before agencies issued implementing regulations to guide the businesses on how to comply with requirements.

The process of public consultation is not uniform across government.  Some ministries and regulatory agencies solicit comments on proposed legislation from the public; however, public outreach is generally limited and depends on the responsible ministry or agency.  For example, businesses report that some ministries sometimes upload proposed regulations to their websites or post them in national newspapers, while others may form working groups with key public and private sector stakeholders participating in the drafting of proposed regulations.  Public comments received by the government are generally not publicly accessible.  Some ministries and agencies prepare consolidated reports on the results of a consultation for direct distribution to interested stakeholders.  Ministries and agencies do not conduct impact assessments of regulations or ex post reviews.  Affected parties cannot request reconsideration or appeal of adopted regulations.

The Dominican Institute of Certified Public Accountants (ICPARD) is the country’s legally recognized professional accounting organization and has authority to establish accounting standards in accordance with Law 479-08, which also declares (as amended by Law 31-11) financial statements should be prepared in accordance with generally accepted accounting standards nationally and internationally.  The ICPARD and the country’s Securities Superintendency require the use of International Financial Reporting Standards (IFRS) and IFRS for small and medium-sized entities (SMEs).

By law, the Office of Public Credit publishes on its website a quarterly report on the status of the non-financial public sector debt, which includes a wide array of information and statistics on public borrowing (www.creditopublico.gov.do/publicaciones/informes_trimestrales.htm).

In addition to the public debt addressed by the Office of Public Credit, the Central Bank maintains on its balance sheet nearly USD $12 billion in “quasi-fiscal” debt.  When consolidated with central government debt, the debt-to-GDP ratio is near 53 percent, and the debt service ratio is near 30 percent.

International Regulatory Considerations

Since 1995, the Dominican Republic has presented 280 notifications to the WTO Committee on Technical Barriers to Trade (TBT).  In recent years, the Dominican Republic has frequently changed technical requirements (e.g., for steel rebar imports and sanitary registrations, among others) and has failed to provide proper notification under the WTO TBT agreement and CAFTA-DR.

Legal System and Judicial Independence

The judicial branch is an independent branch of the Dominican government.  According to Article 69 of the Constitution, all persons, including foreigners, have the right to appear in court.  The basic concepts of the Dominican legal system and the forms of legal reasoning derive from French law.  The five basic French Codes (Civil, Civil Procedure, Commerce, Penal, and Criminal Procedure) were translated into Spanish and passed as legislation in 1884.  Some of these codes have since been amended and parts have been replaced.  Subsequent Dominican laws are not of French origin.

The World Economic Forum 2019 Global Competitiveness report ranked the Dominican Republic 123 out of 141 countries in judicial independence and 87 of 141 in the efficiency of the legal framework in settling disputes.  On the 2018 Global Innovations Index, the Dominican Republic ranked 91 out of 129 countries for rule of law.

There is a Commercial Code and a wide variety of laws governing business formation and activity.  The main laws governing commercial disputes are the Commercial Code; Law No. 479-08, the Commercial Societies Law; Law No. 3-02, concerning Business Registration; Commercial Arbitration Law No. 489-08; Law No. 141-15 concerning Restructuring and Liquidation of Business Entities; and Law No. 126-02, concerning e-Commerce and Digital Documents and Signatures.

Some investors complain of long wait times for a decision by the judiciary.  While Dominican law mandates overall time standards for the completion of key events in a civil case, these standards frequently are not met.  The World Bank’s 2020 Doing Business report noted that resolving complaints raised during the award and execution of a contract can take more than four years in the Dominican Republic, although some take longer.  Some investors have complained that the local court system is unreliable, is biased against them, and that special interests and powerful individuals are able to use the legal system in their favor.

While the law provides for an independent judiciary, businesses note the government does not respect judicial independence or impartiality, and improper influence on judicial decisions is widespread.  Several large U.S. firms cite the improper and disruptive use of lower court injunctions as a way for local distributors to obtain more beneficial settlements at the end of contract periods.  In order to engage effectively in the Dominican market, many U.S. companies seek local partners that are well-connected and understand the local business environment.

Laws and Regulations on Foreign Direct Investment

The legal framework supports foreign investment.  Article 221 of the Constitution declares that foreign investment shall receive the same treatment as domestic investment.  Foreign Investment Law (No. 16-95) states that unlimited foreign investment is permitted in all sectors, with a few exceptions for hazardous materials or materials linked to national security.

The Export and Investment Center of the Dominican Republic (CEI-RD) aims to be the one-stop-shop for investment information, registration, and investor after-care services.  CEI-RD maintains a user-friendly website for guidance on the government’s priority sectors for inward investment and on the range of investment incentives (http://cei-rd.gob.do/ ).

Competition and Anti-Trust Laws

The National Commission for the Defense of Competition (PRO-COMPETENCIA) has the power to review transactions for competition-related concerns.  Private sector contacts note, however, that strong public pressure is required for PRO-COMPETENCIA to act.

Expropriation and Compensation

The Dominican constitution permits the government’s exercise of eminent domain; however, it also mandates fair market compensation in advance of the use of seized land.  Nevertheless, there are many outstanding disputes between U.S. investors and the Dominican government concerning unpaid government contracts or expropriated property and businesses.  Property claims make up the majority of cases.  Most, but not all, expropriations have been used for infrastructure or commercial development.  Many claims remain unresolved for years.

Investors and lenders have reported that they typically do not receive prompt payment of fair market value for their losses.  They have complained of difficulties in the subsequent enforcement even in cases in which the Dominican courts, including the Supreme Court, have ordered compensation or when the government has recognized a claim.  In other cases, some indicate that lengthy delays in compensation payments are blamed on errors committed by government-contracted property assessors, slow processes to correct land title errors, a lack of budgeted funds, and other technical problems.  There are also cases of regulatory action that investors say could be viewed as indirect expropriation.  For example, they note that government decrees mandating atypical setbacks from roads or establishing new protected areas can deprive investors of their ability to use purchased land in the manner initially planned, substantially affecting the economic benefit sought from the investment.

Many companies report that the procedures to resolve expropriations lack transparency and, to a foreigner, may appear antiquated.  Government officials are rarely, if ever, held accountable for failing to pay a recognized claim or failing to pay in a timely manner.

Dispute Settlement

ICSID Convention and New York Convention

In 2000, the Dominican Republic signed the International Center for the Settlement of Investment Disputes (Washington Convention), however, the Dominican Congress did not ratify the agreement as required by the constitution.  In 2001, the Dominican Republic became a contracting state to the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).  The agreement entered into force by Congressional Resolution 178-01.

Investor-State Dispute Settlement

The Dominican Republic has entered into 11 bilateral investment treaties that are in force, most of which contain dispute resolution provisions that submit the parties to arbitration.

As a signatory to CAFTA-DR, the Dominican Republic is bound by the investment chapter of CAFTA-DR, which submits the Parties to arbitration under either the ICSID or the United Nations Commission on International Trade Law (UNCITRAL) rules. There have been three U.S. investor-state dispute cases filed against the Dominican Republic under CAFTA-DR.  One case was settled; in the other two, an arbitration panel found in favor of the government.  Dual nationals of the United States and Dominican Republic should be aware that their status as a Dominican national may interfere with their status as a “foreign” investor if they seek dispute settlement under CAFTA-DR provisions.  U.S. citizens who contemplate pursuing Dominican naturalization for the ease of doing business in the Dominican Republic should consult with an attorney about the risks that may be raised by a change in nationality with regard to accessing the dispute settlement protections provided under CAFTA-DR.

There are at least 27 U.S. investors who are involved in ongoing legal disputes with the Dominican government and parastatal firms involving payments, expropriations, contractual obligations, or regulatory obligations.  The investors range from large firms to private individuals and the disputes are at various levels of legal review.

International Commercial Arbitration and Foreign Courts

Law 489-08 on commercial arbitration governs the enforcement of arbitration awards, arbitral agreements, and arbitration proceedings in the Dominican Republic.  Per law 489-09, arbitration may be ad-hoc or institutional, meaning the parties may either agree on the rules of procedure applicable to their claim, or they may adopt the rules of a particular institution.  Fundamental aspects of the United Nations Commission on International Trade (UNCITRAL) model law are incorporated into Law 489-08.  In addition, Law 181-09 created an institutional procedure for the Alternative Dispute Resolution Center of the Chamber of Commerce Santo Domingo (http://www.camarasantodomingo.do/).

Foreign arbitral awards are enforceable in the Dominican Republic in accordance with Law 489-09 and applicable treaties, including the New York Convention.  U.S. investors complain that the judicial process is slow and that domestic claimants with political connections have an advantage.

Bankruptcy Regulations

Law 141-15 provides the legal framework for bankruptcy.  It allows a debtor company to continue to operate for up to five years during reorganization proceedings by staying legal proceedings.  It also authorizes specialized bankruptcy courts; contemplates the appointment of conciliators, verifiers, experts, and employee representatives; allows the debtor to contract for new debt which will have priority status in relation to other secured and unsecured claims; stipulates civil and criminal sanctions for non-compliance; and permits the possibility of coordinating cross-border proceedings based on recommendations of the UNCITRAL Model Law of 1997.  In March 2019, a specialized bankruptcy court was established in Santo Domingo. The national juridical school is still training specialized bankruptcy judges.

The Dominican Republic scores lower than the regional average and comparator economies on resolving insolvency on most international indices.

Investment Incentives

Investment incentives exist in various sectors of the economy, which are available to all investors, foreign and domestic.  Incentives typically take the form of preferential tax rates or exemptions, preferential interest rates or access to finance, or preferential customs treatment. Sectors where incentives exist include agriculture, construction, energy, film production, manufacturing, and tourism.

Foreign companies are not restricted in their access to foreign exchange.  There are no requirements that foreign equity be reduced over time or that technology be transferred according to defined terms.  The government imposes no conditions on foreign investors concerning location, local ownership, local content, or export requirements.

The Renewable Energy Incentives Law No. 57-07 provides some incentives to businesses developing renewable energy technologies.  Foreign investors praise the provisions of the law, but express frustration with approval and execution of potential renewable energy projects.

Special Zones for Border Development, created by Law No. 28-01, encourage development near the economically deprived Dominican Republic-Haiti border.  A range of incentives, largely in the form of tax exemptions for a maximum period of 20 years, are available to direct investments in manufacturing projects in the Zones.  These incentives include the exemption of income tax on the net taxable income of the projects, the exemption of sales tax, the exemption of import duties and tariffs and other related charges on imported equipment and machinery used exclusively in the industrial processes, as well as on imports of lubricants and fuels (except gasoline) used in the processes.

Incentives for manufacturing apply principally to production in free trade zones (discussed below) or for the manufacturing of textiles, clothing, and footwear specifically under Laws 84-99 and 56-07.  Additionally, Law 392-07 encourages industrial innovation with a series of incentives that include exemptions on taxes and tariffs related to the acquisition of materials and machinery and special tax treatment for approved companies.

Tourism is a particularly attractive area for investment and one the government encourages strongly.  Law 158-01 on Tourism Incentives, as amended by Law 195-13, and its regulations, grants wide-ranging tax exemptions, for fifteen years, to qualifying new projects by local or international investors.  The projects and businesses that qualify for these incentives are: (a) hotels and resorts; (b) facilities for conventions, fairs, festivals, shows and concerts; (c) amusement parks, ecological parks, and theme parks; (d) aquariums, restaurants, golf courses, and sports facilities; (e) port infrastructure for tourism, such as recreational ports and seaports; (f) utility infrastructure for the tourist industry such as aqueducts, treatment plants, environmental cleaning, and garbage and solid waste removal; (g) businesses engaged in the promotion of cruises with local ports of call; and (h) small and medium-sized tourism-related businesses such as shops or facilities for handicrafts, ornamental plants, tropical fish, and endemic reptiles.

For existing projects, hotels and resort-related investments that are five years or older are granted 100 percent exemptions from taxes and duties related to the acquisition of the equipment, materials and furnishings needed to renovate their premises.  In addition, hotels and resort-related investments that are fifteen years or older will receive the same benefits granted to new projects if the renovation or reconstruction involves 50 percent or more of the premises.

Finally, individuals and companies receive an income tax deduction for investing up to 20 percent of their annual profits in an approved tourist project.  The Tourism Promotion Council (CONFOTOUR) is the government agency in charge of reviewing and approving applications by investors for these exemptions, as well as supervising and enforcing all applicable regulations.  Once CONFOTOUR approves an application, the investor must start and continue work in the authorized project within a three-year period to avoid losing incentives.

The government does not currently have a practice of jointly financing foreign direct investment projects.  However, in some circumstances the government has authority to offer land or infrastructure as a method of attracting and supporting investment that meets government development goals.  In January 2020, the government announced a special development plan to encourage high-quality investment and infrastructure development in Pedernales and the southwest region of the country, with an emphasis on inclusive and sustainable development. Also, in February 2020, the government passed a law on public-private partnerships that may encourage high-quality infrastructure projects and help catalyze private sector-led economic growth, but implementation is still pending, and it is not yet clear whether it will apply to sectors other than infrastructure.  The Dominican government does not currently offer special incentives for foreign businesses investing in women-owned or women-led projects, but the country’s development goals prioritize support for small businesses, particularly women-owned businesses, and the government offers numerous programs through CEI-RD and the Ministry of Industry and Commerce to support women entrepreneurs.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Dominican Republic’s free trade zones (FTZs) are regulated by the Promotion of Free Zones Law (No. 8-90) of January 15, 1990, which promotes the establishment of new free zones and the development and growth of existing zones.  The law also provides for 100 percent exemption from all taxes, duties, charges, and fees affecting production and export activities in the zones. These incentives are for 20 years for zones located near the Dominican-Haitian border and 15 years for those located throughout the rest of the country.  The National Council of Export Free Trade Zones (CNZFE) is the official authority that regulates compliance with Law 8-90, on Free Trade Zones and is composed of representatives from the public and private sectors, chaired by the Minister of Industry and Commerce.  This body has the objective of delineating policies for the promotion and development of Free Zones, as well as approving applications for operating licenses, with discretionary authority to extend the time limits on these incentives. Products produced in FTZs can be sold on the Dominican market, however, relevant taxes apply.

In general, firms operating in the FTZs report fewer bureaucratic and legal problems than do firms operating outside the zones.  Foreign currency flows from the FTZs are handled via the free foreign exchange market.  Foreign and Dominican firms are afforded the same investment opportunities both by law and in practice.

According to CNZFE’s 2018 Statistical Report, the most recent available, 2018 exports from FTZs totaled $6.2 billion, comprising 3.3 percent of GDP.  There are 673 companies operating in a total of 74 FTZs.  Of the companies operating in FTZs, approximately 40 percent are from the United States.  Other major presences include companies registered in the Dominican Republic (22.4 percent), United Kingdom (8.2 percent), Canada (4.5 percent), and Germany (3.5 percent).  Companies registered in 38 other countries comprised the remaining investments.  The main productive sectors receiving investment include: medical and pharmaceutical products, tobacco and derivatives, textiles, services, agro-industrial products, footwear, and metals and plastics.

Exporters/investors seeking further information from the CNZFE may contact:

Consejo Nacional de Zonas Francas de Exportación
Leopoldo Navarro No. 61
Edif. San Rafael, piso no. 5
Santo Domingo, Dominican Republic
Phone: (809) 686-8077
Fax: (809) 686-8079
Website Address: http://www.cnzfe.gov.do 

Performance and Data Localization Requirements

The Dominican labor code establishes that 80 percent of the labor force of a foreign or national company, including free trade zone companies, be composed of Dominican nationals.  Senior management and boards of directors of foreign companies are exempt from this regulation.

The Dominican Republic does not have excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees.  The host government does not have a forced localization policy to compel foreign investors to use domestic content in goods or technology.

There are no performance requirements as there is no distinction between Dominican and foreign investment.  Investment incentives are applied uniformly to both domestic and foreign investors in accordance with World Trade Organization (WTO) requirements.  In addition, there are no requirements for foreign IT providers to turn over source code or provide access to encryption.

Law No. 172-13 on Comprehensive Protection of Personal Data restricts companies from freely transmitting customer or other business-related data inside the Dominican Republic or beyond the country’s borders.  Under this law, companies must obtain express written consent from individuals in order to transmit personal data unless an exception applies.  The Superintendency of Banks currently supervises and enforces these rules, but its jurisdiction generally covers banks, credit bureaus, and other financial institutions.  Industry representatives recommend updating this law to designate a national data protection authority that oversees other sectors.

Real Property

The Dominican Constitution guarantees the right to own private property and provides that the state shall promote the acquisition of property, especially titled real property.  All land must be registered under Dominican law, and that which is not registered is considered state land.  There are no restrictions or specific regulations on foreigners or non-resident owners of land.

Mortgages and liens exist in the Dominican Republic.  The Title Registry Office maintains a reliable system of recording titles, as well as a complementary registry of third-party rights, such as mortgages, liens, easements, and encumbrances.  A patchwork history of land titling systems and sometimes violent political change has complicated land titling in the Dominican Republic.  The country transitioned to a new system based on GPS coordinates in 2008 and has been working towards establishing clear titles, but industry sources estimate the proportion of clear titles remains around 35 percent of all land titles.  The government advises that investors are ultimately responsible for due diligence and recommends partnering with experienced attorneys to ensure that all documentation, ranging from title searches to surveys, have been properly verified and processed.

Property owners maintain ownership of legally purchased property even if it is unoccupied or occupied by squatters.  However, for land without a title (thereby state-owned), “adverse possession” can come into play, meaning squatters can acquire legal ownership of the land.

Land tenure insecurity persists, fueled by government land expropriations, institutional weaknesses, lack of effective law enforcement, and local community support for land invasions and squatting.  Some companies have reported that concessions granted by the government are subsequently interfered with or not respected and cite alleged political expediency or influence as reasons for such actions.  In some cases, holders of title certificates received little or no additional security.  Long-standing titling practices, such as issuing provisional titles that are never completed or providing title to land to multiple owners without requiring individualization of parcels, have created substantial ambiguity in property rights and undermined the reliability of land records.  Some of these practices have been curtailed in the last few years, but nonetheless undermine the reliability of existing land documentation.  In addition, the country has struggled to control fraud in the creation and registration of land titles, including illegal operations within the government agencies responsible for issuing titles.

According to the World Bank’s report Doing Business 2020, registering property in the Dominican Republic requires 6 steps, an average of 33 days, and payment of 3.37 percent of the land value as a registration fee.  In the 2020 report, the Dominican Republic rank for ease of registering property improved from 77 to 74 (out of 190 countries in ease of registering property).  In the last decade, the Dominican government received a $10 million USD Inter-American Development Bank (IDB) loan to modernize its property title registration process, address deficiencies and gaps in the land administration system, and strengthen land tenure security.  The project involved digitization of land records, decentralization of registries, establishment of a fund to compensate people for title errors, separation of the legal and administrative functions within the agency, and redefinition of the roles and responsibilities of judges and courts.

Intellectual Property Rights

Intellectual property rights (IPR) are issued by several IP authorities in the Dominican Republic.  The National Copyright Office (ONDA) issues copyrights, the National Office of Industrial Property (ONAPI) issues trademarks and patents, the Ministry of Public Health and Social Assistance (MISPAS) issues sanitary registrations required for marketing foods, pharmaceuticals, and health products, and the Directorate of International Trade (DICOEX) has jurisdiction over the implementation of geographical indications.  Despite strong IPR laws on the books and marginal operational improvements in recent years, the quality of decision-making at these IPR-issuing authorities is still inconsistent.

Enforcement is carried out by the Customs Authority (DGA), the National Police, the Special Office of the Attorney General for Matters of Health, the Special Office of the Attorney General for High Tech Crimes, and the National Copyright Office (ONDA).  However, due to the absence of an interagency mechanism, these institutions demonstrated varying levels of capacity and commitment.  The result is that enforcement remains weak as the government achieved little progress in addressing longstanding IPR issues such as the widespread cultural acceptance of signal piracy and counterfeit products.

Signal piracy has become the most common and flagrant IP infringement in the Dominican Republic, and it continues to become more widespread with the development of new technologies.  For example, many people modify Amazon Firesticks to gain illegal access to virtually unlimited content via internet protocol television (IPTV).  Businesses that provide services related to piracy often operate with impunity as ONDA rarely submits formal requests for the telecommunications regulator (INDOTEL) to cancel the licenses of those using pirated signals.  Similarly, the country’s Special Prosecutor for High Tech Crimes rarely pursues copyright infringement cases, instead focusing resources on cybercrimes.

Despite the efforts of the Special Office of the Attorney General for Matters of Health, illicit or counterfeit goods are also still widely available.  Counterfeit or smuggled alcohol and cigarettes are common because those items are taxed at a relatively high rate.  In certain shopping districts like La Duerte, Villa Consuelo, and Moca, it is easy to find counterfeit apparel, shoes, luxury handbags, pharmaceuticals, cosmetics, and electronics.  The availability of counterfeit goods in these shopping districts is common knowledge and law enforcement is unresponsive, reflecting the cultural acceptance of counterfeiting throughout the country.

Industry representatives also noted that the absence of specialized tribunals and weak technical capacity in the judicial system hinder prosecution of IP violations.  While a limited number of judges in the capital city of Santo Domingo possess the skills and experience to adjudicate IP disputes, judges outside of the capital have little or no understanding of IP legal issues.

In 2019, the Dominican Republic passed Law No. 17-19 on the Eradication of Illicit Trade, Smuggling, and Forgery of Regulated Goods, which increased prosecution of some IP violations.  This law prohibits the sale of pharmaceuticals, spirits, gasoline, and tobacco without official registration.  The law also allows prosecutors to pursue legal action in the absence of a plaintiff.

According to the Special Office of the Attorney General for Matters of Health, much of the increase in its counterfeit goods cases can be attributed to this new legislation.  In 2019, the number of counterfeit goods cases pursued by this office increased 76 percent and arrests increased 31 percent over 2018.

Since 2003, the U.S. Trade Representative (USTR) has designated the Dominican Republic as a Special 301 Watch List country for serious IPR deficiencies.  The country, however, is not listed in the notorious market 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 Dominican Stock Market, the Bolsa de Valores de la Republica Dominicana (BVRD), is one of the more active stock markets in the Caribbean region.  It is regulated by the Securities Market Law (No. 249-17) and supervised by the Securities Superintendency, which approves all public securities offerings.

The private sector has access to a variety of credit instruments.  Foreign investors are able to obtain credit on the local market but tend to prefer less expensive offshore sources.  The Central Bank regularly issues certificates of deposit, using an auction process to determine interest rates and maturities.

In recent years, the local stock market has continued to expand, in terms of the securities traded on the BVRD.  There are very few publicly traded companies on the exchange, as credit from financial institutions is widely available and many of the large Dominican companies are family-owned enterprises.  Most of the securities traded in the BVRD are fixed-income securities issued by the Dominican State.

Money and Banking System

The Dominican Republic hosts a robust banking sector.  According to the Global Partnership for Financial Inclusion, approximately 56 percent of Dominican adults have bank accounts.  While full-service bank branches tend to be in urban areas, several banks employ sub-agents to extend services in more rural areas.  Technology has also helped extend banking services more widely throughout the country.  The Dominican Republic’s financial sector is relatively stable, and the IMF declared the financial system largely satisfactory during 2019 Article IV consultations, citing a strengthened banking system as a driver of solid economic performance over the past decade.

The Dominican banking comprises 124 entities, as follows: 50 financial intermediation entities (including large commercial banks, savings and loans associations, financial intermediation public entities, credit corporations), 42 foreign exchange and remittance agents (specifically, 36 exchange brokers and 6 remittances and foreign exchange agents), and 32 trustees.  According to the latest available information (September 2019), total bank assets were $35.33 billion.  The three largest banks hold 68.3% of the total assets – Banreservas 28.56%, Banco Popular 23.84%, and BHD Leon 15.9%.

The Dominican Monetary and Banking system is regulated by the Monetary and Financial Law (No. 183-02), and overseen by the Monetary Board, the Central Bank, and the Banks Superintendency.  The mission of the Dominican Central Bank is to maintain the stability of prices, promote the strength and stability of the financial system, and ensure the proper functioning of payment systems.  The Banks Superintendency carries out the supervision of financial intermediation entities, in order to verify compliance by said entities with the provisions of the law.

Foreign banks may establish operations in the Dominican Republic, although it may require a special decree for the foreign financial institution to establish domicile in the country.  Foreign banks not domiciled in the Dominican Republic may establish representative offices in accordance with current regulations.  To operate, both local and foreign banks must obtain the prior authorization of the Monetary Board and must process it via the Banks Superintendency. Major U.S. banks have a commercial presence in the country, but most focus on corporate banking services as opposed to retail banking.  Some other foreign banks offer retail banking. There are no restrictions on foreigners opening bank accounts, although identification requirements do apply.

Foreign Exchange and Remittances

Foreign Exchange

The Dominican exchange system is a market with free convertibility of the peso.  Economic agents perform their transactions of foreign currencies under free market conditions.  There are generally no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

The Central Bank sets the exchange rates and practices a policy of managed float.  Some firms have had repeated difficulties obtaining dollars during periods of high demand.  Importers may obtain foreign currency directly from commercial banks and exchange agents.  The Central Bank participates in this market in pursuit of monetary policy objectives, buying or selling currencies and performing any other operation in the market to minimize volatility.

Remittance Policies

Decree No. 214-04 on the Registration of Foreign Investment in the Dominican Republic establishes the requirements for the registration of foreign investments, the remittance of profits, the repatriation of capital, and the requirements for the sale of foreign currency, among other issues related with investments.

Foreign investors can repatriate or remit both the profits obtained and the entire capital of the investment without prior authorization of the Central Bank. Article 5 of the aforementioned Decree 214-04 states that “the foreign investor, whose capital is registered with the CEI-RD, shall have the right to remit or repatriate it…”

Sovereign Wealth Funds

The Dominican government does not maintain a sovereign wealth fund.

State-Owned Enterprises (SOEs) in general do not have a significant presence in the economy, with most functions performed by privately-held firms.  Notable exceptions are in the electricity, banking, and refining sectors.  In the partially privatized electricity sector, private companies mainly provide the electricity generation, while the government handles the transmission and distribution phases via the Dominican Electric Transmission Company (ETED) and the Dominican Corporation of State Electrical Companies (CDEEE).  CDEEE is the largest SOE in terms of government expenditures.  However, the government participates in the generation phase, too (most notably in hydroelectric power) and one of the distribution companies is partially privatized.  In the financial sector, the state-owned BanReservas is the largest bank in the country, with a 32 percent market share by assets.  In the refining sector, the government is the majority owner of the only refinery in the country; Refinery Dominicana (Refidomsa) operates and manages the refinery, is the only importer of crude oil in the country, and is also the largest importer of refined fuels, with a 60 percent market share.

Law 10-04 requires the Chamber of Accounts to audit SOEs.  Audits are published in http://www.camaradecuentas.gob.do/index.php/auditorias-realizadas .  However, the available audits are dated several years ago.  In addition, all audits are available upon request according to freedom of information provisions.

Privatization Program

The government does not have any privatization programs.  A partial privatization of state-owned enterprises (SOEs) in the late 1990s resulted in foreign investors obtaining management control of former SOEs engaged in activities such as electricity generation, airport management, and sugarcane processing.

The government does not have an official position or policy on responsible business conduct, including corporate social responsibility (CSR).  Although there is not a local culture of CSR, large foreign companies normally have active CSR programs, as do some of the larger local business groups.  While most local firms do not follow OECD principles regarding CSR, the firms that do are viewed favorably, especially when their CSR programs are effectively publicized.

The Dominican Constitution states, “Everyone has the right to have quality goods and services, to objective, truthful and timely information about the content and characteristics of the products and services that they use and consume.”  To that end, the national consumer protection agency, Pro Consumidor, offers consumer advocacy services.

The country joined the Extractive Industries Transparency Initiative (EITI) as a candidate in 2016.  The government incorporates EITI standards into its mining transparency framework.  In 2019, EITI conducted a validation study of the Dominican Republic’s implementation of EITI standards.

The Dominican Republic has a legal framework that includes laws and regulations to combat corruption, and which provide criminal penalties for corruption by officials.  However, the government did not implement the law effectively, and officials frequently engaged in corrupt practices with impunity.  Enforcement of existing laws is often ineffective.  Individuals and NGOs noted the greatest hindrance to effective investigations was a lack of political will to prosecute individuals accused of corruption, particularly well-connected individuals or high-level politicians.  Government corruption remained a serious problem and a public grievance.

The Dominican Republic’s rank on the Transparency International Corruption Perception Index fell from 129 in 2018 to 137 in 2019 (out of 180 countries assessed).  The World Economic Forum’s 2019 Global Competitiveness report ranked the Dominican Republic as 110 of 141 countries for incidence of corruption.

In September 2019, the Dominican Supreme Court began a trial against six of the 14 defendants indicted in 2017 for alleged links to $92 million in bribes paid by the Brazilian construction company Odebrecht to obtain public works contracts.  A 2016 plea agreement between the U.S. Department of Justice and Odebrecht implicated high-level public officials in the Dominican Republic; the six current defendants include a senator, a lower house representative, a former senator, and a former minister of public works.  Civil society welcomed the trial as a step forward in the fight against corruption, but activists highlighted what they perceived as a lack of political will to investigate thoroughly the case, which involved the country’s political and economic elites.

U.S. companies identified corruption as a barrier to FDI and some firms reported being solicited by public officials for bribes.  It appears most pervasive in public procurement and the awarding of tenders or concessions, but complaints from U.S. investors indicate corruption occurs at all phases of investment.  At least one firm said it intended to back out of a competition for a public concession as a result of a solicitation from government officials.  U.S. companies also frequently cite the government’s slow response to the Odebrecht scandal as contributing to a culture of perceived impunity for high-level government officials, which fuels widespread acceptance and tolerance of corruption at all levels.  U.S. businesses operating in the Dominican Republic often need to take extensive measures to ensure compliance with the Foreign Corrupt Practices Act.

Civil society is engaged in anti-corruption campaigns.  Several non-governmental organizations are particularly active in transparency and anti-corruption, notably the Foundation for Institutionalization and Justice (FINJUS), Citizen Participation (Participacion Ciudadana), and the Dominican Alliance Against Corruption (ADOCCO).

The Dominican Republic signed and ratified the UN Anticorruption Convention.  The Dominican Republic is not a party to the OECD Convention on Combating Bribery.

Resources to Report Corruption

Procuraduría Especializada contra la Corrupción Administrativa (PEPCA)
Calle Hipólito Herrera Billini esq. Calle Juan B. Pérez,
Centro de los Heroes, Santo Domingo, República Dominicana
Telephone: (809) 533-3522
Fax: (809) 533-4098
Email: info@pepca.pgr.gob.do

Linea 311 (government service for filing complaints and denunciations)
Phone: 311 (from inside the country)
Website: http://www.311.gob.do/ 
Participación Ciudadana
Phone: 809 685 6200
Fax: 809 685 6631
Email: info@pciudadana.org

There is no recent history of widespread, politically motivated violence in the Dominican Republic.  In February and March of 2020, there were multiple, mostly-peaceful protests throughout the country over the Dominican electoral authority’s decision to suspend national municipal elections after widespread failure of its electronic voting system.  There are no examples of politically motivated damage to projects or installations in the last 10 years.  In polling, Dominicans consistently cite crime and violence as among the largest challenges affecting daily life.  The World Economic Forum 2019 Global Competitiveness Report ranked the Dominican Republic 118 out of 141 countries in overall security imposing costs on business and 97 of 141 in terms of organized crime imposing costs on businesses.

An ample labor supply is available, although there is a scarcity of skilled workers and technical supervisors.  Some labor shortages exist in professions requiring lengthy education or technical certification.  According to 2019 Dominican Central Bank data, the Dominican labor force consists of approximately 5 million workers.  The labor force participation rate is 65.3 percent; approximately 63 percent of the labor force works in services, 14.8 percent in government/administration, 10 percent in industry, and eight percent in agriculture, with the remaining four percent categorized as other work.  The labor force is divided roughly 50-50 between the formal and informal sectors of the economy.  In 2019, unemployment fell to 5.8 percent, with youth unemployment measured at 13.2 percent.  A 2017 survey by the National Statistics Office and UN Population Fund found that of the 334,092 Haitians age 10 or older living in the country, 67 percent were working in the formal and informal sectors of the economy.

The Dominican Labor Code establishes policies and procedures for many aspects of employer-employee relationships, ranging from hours of work and overtime and vacation pay to severance pay, causes for termination, and union registration.  The code applies equally to migrant workers, however, many irregular Haitian laborers and Dominicans of Haitian descent working in the construction and agricultural industries do not exercise their rights due to fear of being fired or deported.  The law requires that at least 80 percent of non-management workers of a company be Dominican nationals.  Exemptions and waivers are available and regularly granted.  The law provides for severance payments, which are due upon layoffs or firing without just cause.  The amount due is prorated based on length of employment.

Although the Labor Code provides for freedom to form unions and bargain collectively, it places several restrictions on these rights, which the International Labor Organization (ILO) considers excessive.  For example, it restricts trade union rights by requiring unions to represent 51 percent of the workers in an enterprise to bargain collectively.  In addition, the law prohibits strikes until mandatory mediation requirements have been met.  Formal requirements for a strike to be legal also include the support of an absolute majority of all company workers for the strike, written notification to the Ministry of Labor, and a 10-day waiting period following notification before proceeding with the strike.  Government workers and essential public service personnel, in theory, may not strike; however, healthcare workers protested and went on strike frequently in the second half of 2019 due to government failure to comply with the retirement law for doctors and nurses.

The law prohibits dismissal of employees for trade union membership or union activities.  In practice, however, the law is inconsistently enforced.  The majority of companies resist collective negotiating practices and union activities.  Companies reportedly fire workers for union activity and blacklist trade unionists, among other anti-union practices.  Workers frequently have to sign documents pledging to abstain from participating in union activities. Companies also create and support company-backed unions.  Formal strikes occur but are not common.

The law establishes a system of labor courts for dealing with disputes.  The process is often long, with cases pending for several years.  One exception is workplace injury cases, which typically conclude quickly – and often in the worker’s favor.  Both workers and companies report that mediation facilitated by the Ministry of Labor was the most rapid and effective method for resolving worker-company disputes.

Many of the major manufacturers in free trade zones have voluntary codes of conduct that include worker rights protection clauses generally aligned with the ILO Declaration on Fundamental Principles and Rights at Work; however, workers are not always aware of such codes or the principles they contain.  The Ministry of Labor monitors labor abuses, health, and safety standards in all worksites where an employer-employee relationship exists.  Labor inspectors can request remediation for violations, and if remediation is not undertaken, can refer offending employers to the public prosecutor for sanctions.

The Dominican Republic is an eligible country for DFC financing purposes and there are current DFC-funded programs operating in the country.  As an upper-middle income country, projects in the Dominican Republic must meet additional criteria to qualify for financing.  The project must be in the infrastructure sector, target women’s empowerment, have a substantial development impact, or have a U.S. nexus.   For example, a current project that began in 2019 provides two $10 million loan financing facilities to support lending to small- and medium-sized enterprises, with an emphasis on women-owned businesses.  Under a 1962 bilateral agreement, DFC funding for a project must also receive approval from the Dominican government.  In January 2019, the Dominican government and the DFC clarified the process for obtaining this approval in a bilateral letter.  The Dominican government is a party to the Multilateral Investment Guarantee Agency (MIGA).

* Source for Host Country Data: Central Bank of the Dominican Republic (BCRD).  The BCRD does not report investment stock positions.

Table 3: Sources and Destination of FDI

No information for the Dominican Republic is available on the IMF’s Coordinated Direct Investment Survey (CDIS) website.  According to the Dominican Central Bank (BCRD), total inward flows of FDI for 2019 were $3.01 billion.  The BCRD provides a breakdown of FDI to the Dominican Republic by individual source country for the top investing countries.   The five largest investing countries accounted for 82.3 percent of total inward FDI in 2019.  Neither World Bank nor Dominican sources break down FDI from the Dominican Republic to individual destination countries

* Source for Host Country Data: Central Bank of the Dominican Republic (BCRD), 2019 FDI inward flows.

Economic Officer
Embassy of the United States of America
Avenida República de Colombia #57
Santo Domingo, Dominican Republic
+1 (809) 567-7775
InvestmentDR@State.gov