Policies Towards Foreign Direct Investment

Cabo Verde seeks both domestic and foreign investment to drive the country’s economic growth, and it focuses on tourism, transportation services, renewable energy, and export-oriented industries. The government increasingly promotes a market-oriented economic model in which all investors, regardless of their nationality, have the same rights and are subject to the same duties and obligations under the law. The current administration, elected in 2016, has been investing in administrative decentralization, reduction of the state’s role in the economy, and the empowerment of the private sector, all with a view to improving the business climate to attract investments. In addition, the government plans to reform and require efficiency of its State-Owned Enterprises (SOEs) through a privatization, concession, and public-private partnership agenda. Due to the COVID-19 pandemic, the Minister of Finance announced in April that the government would temporarily suspend implementation of the agenda.

Cabo Verde is pursuing a dynamic economic strategy to encourage investment in the country in a wide variety of fields. It has a clearly defined strategy for attracting investors, international financial institutions, banks, insurance companies, venture capital companies, bilateral partners, and all those interested in investing in the country in tourism, transportation, energy, technology, industry, and services, and other areas. In 2018 and 2019 the government organized a series of international investment forums, including in Boston. These events served as venues for Cabo Verde to disseminate the measures it is taking to realize its sustainable development ambitions and opportunities to develop new partnerships with international donors and investors. The government plans to hold additional conferences after travel restrictions caused by the COVID-19 pandemic are lifted.

The Cabo Verdean National Assembly approved a bill that creates tax benefits for foreign citizens who decide to buy a second home in Cabo Verde and grants permanent residence to all foreigners whose investment exceeds 180 million escudos ($2 million). In January, the National Assembly approved a law that establishes conditions for investment in the country by Cabo Verdean emigrants, including fiscal incentives. The law also establishes the framework for the establishment of a one-stop-shop for emigrants and special conditions to acquire specific banking products. The objective of the law is to capture foreign investment and improve the business environment of the country.

Cabo Verde TradeInvest (CVTI), the agency responsible for large-scale investment promotion, is the one-stop-shop for foreign investors. An investor can express interest, attach the necessary documents for formalizing a project, and monitor all the project approval stages through CVTI. The investment approval process has been expedited with the revision of the external investment code. Although bureaucratic procedures have been simplified in a number of cases, there is still room for improvement. Through CVTI, the government maintains a dialogue with investors using personalized meetings, round tables, conferences, and workshops.

Services provided for the investor:

• Help in formalizing an expression of interest and uploading project documents into CVTI’s platform
• Monitoring of the investment process using a monitoring code
• Facilitation of the payment of certificate issuance fee

CVTI also provides the investor/exporter support with the following services:

• Information about the country’s trade agreements and benefits (AGOA, ECOWAS, and others)
• Market information
• Organization of and participation in exhibitions, fairs, congresses, conferences, seminars or other events in the field of exports of goods and services in the country
• Contacts with other state institutions, providing or promoting partnerships, etc.

CVTI offers an After-Care service aimed at supporting investors after they obtain their Investment Registration Certificate and implement their investment project. CVTI assists investors in their implementation process, in resolving bureaucratic issues in conjunction with other public institutions, and in establishing reinvestment and export processes such as:

• Obtaining operating authorization and licensing
• Obtaining tax and customs incentives
• Obtaining work permits for foreign workers
• Obtaining visas for company workers
• Assistance with obtaining housing for foreign workers
• Assistance with registering workers with social security
• Assistance to investors and their families in the process of settling in the country
• Assistance with obtaining premises for company offices
• Introduction to service providers, such as banks, lawyers, accountants, estate agents
• Export assistance

For 2020, CVTI planned the installation of an investment portal (in Portuguese BUI – Balcao Unico de Investimento) to digitally handle all investment processes and bring more transparency and efficiency to small, medium and large investment projects. It is expected that many planned investment projects (CVTI was planning on approving 74 in 2020, mostly on the tourism sector) will be delayed due to the effects of the COVID-19 pandemic.

For investments of less than $500,000, ProEmpresa and the Casa do Cidadao provide similar services for investors. ProEmpresa, whose role is to promote micro, small and medium businesses, and investments, is currently focusing on helping existing companies survive the economic crisis caused by the pandemic.

Limits on Foreign Control and Right to Private Ownership and Establishment

The country is investment friendly. Foreign investors, regardless of their nationality, have the same rights and are subject to the same duties and obligations as Cabo Verdeans under the laws of Cabo Verde.

CVTI leads the approval of the investment project, which should also be registered at the Central Bank of Cabo Verde.

Other Investment Policy Reviews

No reviews have taken place under Organization for Economic Cooperation and Development (OECD). The first review of the trade policies and practices of Cabo Verde under the World Trade Organization (WTO) took place on October 6 and 8, 2015.

During 2018, the United Nations Conference on Trade and Development (UNCTAD) conducted an Investment Policy Review (IPR) at the request of the government of Cabo Verde. The IPR analyzed the legal and regulatory framework for investment. The report contains strategic analysis on how Cabo Verde can utilize FDI in the tourism sector to leverage -sustainable development. https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2248 

In April, UNCTAD warned of the particularly negative effects that COVID-19-related reductions in tourism would have on small island developing states (SIDS), including Cabo Verde.  UNCTAD projected that, among the group of SIDS, Cabo Verde’s GDP would be the sixth most negatively affected, with a GDP contraction that could reach 12 percent in 2020, considerably more pessimistic than other expectations.  The country’s dependency on tourism, an 89 percent public debt relative to GDP (Note: This estimate is considerably lower than Cabo Verde’s internal calculations of an anticipated 132 percent public debt to GDP ratio.) and foreign currency reserves used to pay imports for a five-month buffer, places Cabo Verde as one of the most affected Lusophone countries.  UNCTAD estimates that Cabo Verde will need $131 million in financial aid.  UNCTAD cites the World Tourism Organization’s fear of a 20 to 30 percent contraction in tourism in 2020, and admits that this is likely a conservative estimate for countries dependent on tourism.  UNCTAD also notes that, according to the Tourist and Travel World Council, during previous global economic shocks, tourism destinations took an average of 19 months to recover.  UNCTAD urges financial institutions and donors to create access to no-interest funds and suspend debt payments until these countries can comply with their external obligations.

Business Facilitation

In an effort to improve the investment climate and reduce the government’s approval time for investment projects, the government established a maximum period of 15 days for analysis and attribution of Tourist Utility status and 30 days for approval of investment and export projects.

Cabo Verde has adopted measures to facilitate and stimulate business activity, including lowering the maximum personal income tax (IRPS) one-percentage point to 24 percent, and easing the Special Scheme for Micro and Small Businesses. The legislation has undertaken some new tax benefit measures, i.e., the elimination of double taxation, the release from payment in installments for taxpayers who had negative results or began their activity in the previous year, and the elimination of the obligation to pay the minimum installment.

The tax benefit package aimed to provide easier access to benefits. It reduced to 500 million escudos ($4.8 million) the investment level required to obtain contractual benefits and reduced the requirements on number of jobs created and expansion into new strategic sectors of the 50 percent investment credit. It also extended to 15 years the period for deduction of investment credit.

Laws commit the government to paying its bills within 45 days; the law further commits the government to paying interest on late payments. These measures were adopted to ensure predictability in the payment of the state’s obligations to companies. The National Assembly approved a law that limits public debt to less than 60 percent of GDP.

The 2020 State Budget includes benefits to attract private-sector investment, structured training opportunities aligned with market needs, and improvements in the business environment.  The budget supports Cabo Verde’s PEDS 2017-2021 as it continues to prioritize security, privatization of SOEs, and FDI.

Registering a company is straightforward. In 2008, the concept of business-in-one-day was introduced to expedite the establishment of companies (Decree-Law 9/2008). The Commercial Registry Department (Casa do Cidadao), is a one-stop-shop where a company can be created and registered in less than a day. The overall business environment has become more efficient. The process for launching a business is now more streamlined, and licensing requirements are less burdensome.

Websites with information on business registration procedures are available at https://portondinosilhas.gov.cv/  and http://caboverde.eregulations.org/show-list.asp?l=pt&mid=1 .

Step-by-step information on procedures, time, and cost involved in starting a company can be found at http://www.doingbusiness.org/data/exploreeconomies/cabo-verde/starting-a-business/ .

As the agency in charge for the promotion and facilitation of investment in Cabo Verde, CVTI is the first point of contact for foreign investment in Cabo Verde. It offers an Electronic Platform, “One-Stop-Shop for Investments,” which is important for the promotion, settlement, and monitoring of investments in the country. The platform aims to increase the efficiency and effectiveness of the investment processes, improving understanding and communication between CVTI, its customers, other stakeholders, public and private entities, and project developers of domestic and foreign investments. The “One-Stop-Shop” offers a single platform containing all the necessary services.

All information pertaining to investing in Cabo Verde can be found on CVTI’s website, including Cabo Verde’s Investment Law, the Code of Fiscal Benefits, and the Contractual Tax Benefits-Incentives http://www.cvtradeinvest.com/en/ . The platform is helping to de-bureaucratize the investment process, ensuring that the process is completed within a maximum period of 75 days.

Outward Investment

Capital Markets and Portfolio Investment

Limited capital market and portfolio investment opportunities exist in Cabo Verde. The Cabo Verdean stock market, Bolsa de Valores de Cabo Verde (BVC), is fully operational. It has been most active in the issuance of bonds. Foreign investors must open a bank account with a local bank in Cabo Verde before buying stocks or bonds from BVC.

The regulatory system does not stop the free flow of financial resources. Foreign interests may access credit under the same market conditions as locals. However, foreign investors typically bring capital into the country.

Money and Banking System

Cabo Verde has a small but relatively sound, efficient, and well-managed financial sector supervised and regulated by the Central Bank of Cabo Verde (BCV). BCV is responsible for regulation of the sector and has demonstrated itself as a reliable and stable entity.

The onshore segment is composed of seven banks:

• Banco Comercial do Atlantico
• Caixa Economica de Cabo Verde
• Banco Interatlantico
• Banco Cabo-Verdiano de Negocios
• Banco Angolano de Investimentos
• Ecobank-Cabo Verde
• Banco Internacional de Cabo Verde

Banks have branches in all inhabited islands; the islands are also served by an extensive network of ATMs and widely available point-of-sale (POS) machines. Debit cards, credit cards, and prepaid Visa cards are available through all banks. International credit cards are seldom accepted except on the major tourist destination islands of Sal and Boa Vista.

Establishing a bank account is easy. The client must provide proper identification and obtain a taxpayer number from the Casa do Cidadao. The process is independent of nationality and takes approximately 10 minutes. Bank credit is available to foreign investors under the same conditions as for national investors. The private sector has access to some credit instruments such as loans, letters of credit, and lines of credit. Local and foreign investors complain about the lack of commercial products for accessing credit. The legal guidelines for accounting systems are clear and consistent with international norms.

According to data from BCV, since 2012 more than 90 percent of the Cabo Verdean population has been serviced by banks, following a long positive trend. The seven on-shore banks in the market are embracing technological innovation. They are becoming more dynamic and attractive, contributing to the revolution in the banking industry, with significant impacts on the services traditionally offered by banks. Internet-based tools and services in the banking sector continue to grow in Cabo Verde, gaining an increasing importance and changing the model of the client-bank relationship of the past. New ICT products allow customers to make certain decisions without the constraints of working-hours and through the internet.

Overall, the banking sector is still relatively small and offers a limited supply of financial products. It is relatively well-managed and exhibits stable performance indicators. Credit risk is mainly controlled through a limited exposure and strict compliance with prudent ratios. In March 2017, shortly after a political transition, the BCV took strong and adequate actions that prevented contagion of the sector and reinforced the authority of the banking watchdog institutions when Novo Banco’s non-compliance threatened Cabo Verde’s banking sector. There are four offshore banks registered in Cabo Verde, but a December 2019 law terminated their existing licenses and is in the process of helping them convert or liquidate.

Banking represents more than 80 percent of the assets of the entire Cabo Verdean financial system.

There are only two insurance companies, and BCV operates the capital market. According to BCV, the banking sector plays a key role in capturing important resources to finance the economy. Although smaller banks have been progressively gaining market share from the seven existing banks, two are systemically relevant: Banco Comercial do Atlantico (BCA) and Caixa Economica de Cabo Verde (CECV). In 2017, these two banks held 67.3 percent of the market share in credit and 71.8 percent in deposits.

Banking, insurance, and securities market regulations comply with international regulations and meet international best practices. Foreign investors have the same access to credit in the local market. Foreign investors, however, are often discouraged by the high interest rates. Credit above certain values may dictate partnerships with more than one bank, and sometimes requires a foreign bank’s participation. Both local and foreign investors complain about the lack of commercial products to support investment and about banks’ high-risk adversity.

New legislation approved by the government in December 2019 and by the National Assembly in January, terminated the issuance of restricted licenses for offshore operations, calling for generic licenses and operations with resident clients. BCV subsequently informed that banks with a restricted license (offshore), serving non-residents will have to adjust to the new requirements. Otherwise, BCV will revoke their authorizations and enforce administrative liquidations. After the legislation is published in the official register, offshore banks have one year to complete the transition.

Foreign Exchange and Remittances

Foreign Exchange

Foreign investors have the right to convert their investment to any other freely convertible currency and transfer all their income. The government gives foreign investors important guarantees, such as privately managed foreign currency accounts, which can be credited from abroad or from other foreign accounts in Cabo Verde. In addition, it allows undisputed repatriation of dividends, profits, and capital from foreign investment operations. To receive these benefits, the investor has to qualify for foreign investor status through the government’s investment agency, CVTI.

Regulatory legislation specifies that for a company’s first five years of operation, its dividends may be freely expatriated without tax and that for the next fifteen years dividends may be expatriated with a flat tax rate of 10 percent. Incentives for outward investment in developing countries are not included in the legislation, but they have been provided on an ad hoc basis.

Cabo Verde’s exchange-rate fluctuation risk is low as the escudo has been pegged at the rate of 110.27 escudos per euro since 1999. This fixed exchange rate arrangement is under the Credit Facility Contract, granted to Cabo Verde by Portugal and managed by a joint Cabo Verdean and Portuguese body named the Commission on the Agreement for Exchange Cooperation (Comissao do Acordo de Cooperaçao Cambial – COMACC).

Both residents and non-residents may hold foreign exchange accounts, subject to government approval and regulations. Most payments and transfers have been liberalized. Cabo Verde is looking at the possibility of formally introducing the use of the euro in the local economy. The euro is already accepted as form of payment in the most tourist islands and in main hotels and restaurants of the country.

In June 2018, the government completely liberalized foreign exchange operations in Cabo Verde, allowing the free movement of money overseas.

Remittance Policies

Current law permits a foreign investor to request transfer loan repayment, revenue/profits, and capital gains overseas from the BCV within 30, 60, and 90 days, respectively.

Sovereign Wealth Funds

Cabo Verde has no sovereign wealth fund but is in the process of proposing a sovereign wealth fund law. A fund will be created once the law is approved and all conditions are in place.

Starting in the mid-1990s, Cabo Verde implemented a series of reforms that have transformed a centrally-planned economy into a market-oriented economy. The number of major SOEs to be privatized and where the state owns the majority of the capital has decreased from 40 in the 1990s to five today (ENAPOR, ASA, EMPROFAC, ELECTRA, and CABENAVE).

Government interference in SOEs in Cabo Verde is relatively minor. With the exception of certain industries which remain protected (e.g., freight handling at the airport, port authority, importation of pharmaceutical products, and distribution of electricity), private and SOEs compete freely and without major government interference. In these liberalized markets, both private and SOEs have the same access to credit, markets, and business opportunities. SOEs in Cabo Verde are most active in the transportation sector. They are generally managed by a board of directors which is nominated by the minister in charge of the respective sector. These boards of directors have between three and five members. SOEs are generally evaluated based on their economic or financial performance. All SOEs are required to produce annual reports and must submit their books to independent auditors. Allegations about the qualifications of the CEOs of SOEs abound; many purport to believe that the importance of political connections outweighs the importance of technical qualifications in leadership of these behemoths. Even though not all directors are politically appointed, they must maintain the confidence and support of the government.

Cabo Verde is not a party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO). It tries to adhere to the OECD’s guidelines on Corporate Governance. In general, there is fair competition between SOEs and private sector enterprises, except in the transportation and utilities sectors.

Privatization Program

Privatization comes either through private sector sales or through liquidation. Cabo Verde Airlines, two main utility companies, Electra (electricity and water), Cabo Verde Telecom, three banks, and the main state-owned entities in the tourism sector have all been sold off. All privatization or liquidation processes ran smoothly with the exception of Electra, which reverted to government ownership. The decision to repossess Electra resulted from a breach of contract with the Portuguese investor. Consensual agreement was reached during the negotiations.

The government sold its shares of fuel company Empresa Nacional de Combustiveis (ENACOL) and local bank Banco Comercial do Atlantico (BCA) via the stock exchange. The long-struggling national airline, Cabo Verde Airlines, has been privatized after years of bloated payrolls, non-performance, and growing costs to the government.

On March 1, 2019, Cabo Verde and Icelandair signed a deal transferring 51 percent ownership of Cabo Verde Airlines (CVA, formerly known as TACV) to Loftleidir Cabo Verde (LCV). The state progressively divested itself of its holdings in the company: 10 percent of its equity was made available to former CVA employees and the diaspora community (with a 15 percent discount rate), and the remaining 39 percent of the shares are expected to be made available to national and international investors in 2020. Per the terms of the contract, LCV will not be able to sell its shares for a five-year period without prior government consent. After five years, the government will retain pre-emption rights.

On hold due to the COVID-19 crisis are the privatizations or concessions for the management of the national Port and Airport authorities (ENAPOR and ASA, respectively), and the pharmaceutical company EMPROFAC. The government had hoped to conclude the ASA and ENAPOR privatization processes in 2020.

This privatization agenda is aligned with the PEDS 2017 – 2021, looking at privatizations and concessions as tools to bring new dynamics to the economy, through new business and investment opportunities to national and international private sector. The government hopes to align its progress with the UN’s Sustainable Development Goals to private sector-driven investment rather than international aid or cooperation. It has selected seven big sectors – transportation, tourism, the blue economy, ICT, agriculture, logistics, and energy – as the major drivers. As the bid for private sector investment advances, the government hopes these key sectors will see reduced fiscal and budgetary risks and improved performance; it should also diminish the role of certain SOEs and the presence of the government in the economy.

Both foreign and national investors can participate in the public bidding process, which is transparent and non-discriminatory but fraught with complications as the people in charge become familiar with the process.

In 2019, Cabo Verde ranked 41st on Transparency International’s Corruption Perception Index; it was third among African states, following Botswana and Seychelles. Cabo Verde is considered the second-best democracy in Africa and ranks third in good governance in Africa per the Mo Ibrahim Index.

Cabo Verde has signed and ratified the UN Anticorruption Convention. Corruption is a crime punishable by law. Giving or accepting a bribe is a criminal act and conviction could result in up to eight years in prison. To combat corruption effectively, the Cabo Verdean government established the High Authority against Corruption, and the National Assembly has added three additional prosecutors to enforce the law. Other institutions active in combating corruption include the Judicial Police, the Prosecuting Counsel, and the courts. Although periodically there have been rumors of alleged corruption, corruption or the bribery of political officials and/or public servants is not a significant concern in Cabo Verde.

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

Luis Jose Tavares Landim
Attorney General
Procuradoria Geral da Republica
CP 268 Praia – Cabo Verde
Tel +238 261 1665

Contact at international organizations:

Cristina Andrade
Senior National Coordinator
UNODC – United Nations Office on Drugs and Crime
Av OUA, ASA
Praia – Cabo Verde
Phone: +238 260 9644
E-mail: cristina.andrade@unodc.org

Political and Economic Section
U.S. Embassy
R. Abilio Macedo 6
Phone: +238 2608925
Praia_PolEcon@State.gov

Cabo Verde is considered a free country by the Freedom House Index. In 2019 Freedom House gave Cabo Verde a score of 92 of a possible 100 points. Its greatest strengths are its political and social stability, both of which are reinforced by its economic stability. Cabo Verde has a tradition of peaceful political transition in its 44 years of independence, and it promotes and defends these values in many international fora. There have never been political, social, or religious conflicts resulting in violence.

Policies Towards Foreign Direct Investment 

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

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

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

Cambodia has created special economic zones (SEZs) to further facilitate foreign investment; as of February 2020, there are 23 SEZs in Cambodia. These zones provide companies with access to land, infrastructure, and services to facilitate the set-up and operation of businesses. Services provided include: utilities, tax services, customs clearance, and other administrative services designed to support import-export processes. Projects within the SEZs are also offered incentives such as tax holidays, zero rate VAT, and import duty exemptions for raw materials, machinery and equipment. The primary authority responsible for Cambodia’s SEZs is the Cambodia Special Economic Zone Board (CSEZB). The largest of its SEZs is located in Sihanoukville and hosts primarily Chinese companies.

Limits on Foreign Control and Right to Private Ownership and Establishment 

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

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

employer may be required to prove to the Ministry of Labor and Vocational Training that the skillset is not available in Cambodia. The Cambodian Bar has periodically taken actions to restrict or impede the work of foreign lawyers or foreign law firms in the country.

Other Investment Policy Reviews 

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

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

Business Facilitation 

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

The World Bank’s 2020 Ease of Doing Business Report ranks Cambodia 187 of 190 countries globally for the ease of starting a business. The report notes that it takes nine separate procedures and three months or more to complete all business, tax, and employment registration processes.

Outward Investment 

There are no restrictions on Cambodian citizens investing abroad. A number of Cambodian companies have invested in neighboring countries – notably, Thailand, Laos and Myanmar – in various sectors.

Capital Markets and Portfolio Investment 

In a move designed to address the need for capital markets in Cambodia, the Cambodia Securities Exchange (CSX) was founded in 2011 and started trading in 2012. Though the CSX is one of the world’s smallest securities markets, it has taken steps to increase the number of listed companies, including attracting SMEs. It currently has five listed companies, including the Phnom Penh Water Supply Authority, Taiwanese garment manufacturer Grand Twins International, the Sihanoukville Autonomous Port, Phnom Penh SEZ Plc, and Sihanoukville Autonomous Port.

In September 2017, the National Bank of Cambodia (NBC) adopted a Prakas on Conditions for Banking and Financial Institutions to be listed on the Cambodia Securities Exchange. The Prakas sets additional requirements for banks and financial institutions that intend to issue securities to the public. This includes prior approval from the NBC and minimum equity of KHR 60 billion (approximately $15 million).

Cambodia’s bond market is at the beginning stages of development. The regulatory framework for corporate bonds was bolstered in 2017 through the publication of the Prakas on Public Offering of Debt Securities, the Prakas on Accreditation of Bondholders Representative, and the Prakas on Accreditation of Credit Rating Agency. The country’s first corporate bond was issued in 2018 by Hattha Kaksekar Limited. Four additional companies have since been added to the bond market: LOLC (Cambodia) Plc., Advanced Bank of Asia Limited, Phnom Penh Commercial Bank Plc, and RMA (Cambodia) Plc. RMA, which issued its bonds in early 2020, was the first non-bank financial institution to be listed. There is currently no sovereign bond market, but the government has stated its intention of making government securities available to investors by 2022.

Money and Banking System 

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

Prior to the COVID-19 pandemic, Cambodia’s banking sector experienced strong growth. The banking sector’s assets, including those of MFIs, rose 21.4 percent year-over-year in 2018 to 139.7 trillion riel ($34.9 billion), while credit grew 24.3 percent to 81.7 trillion riel ($20.4 billion). Loans and deposits grew 18.3 percent and 24.5 percent respectively, which resulted in a decrease of the loan-to-deposit ration from 114 percent to 110 percent. The ratio of non-performing loans remained steady at 2.4 percent in 2017.

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

In March 2016, the NBC doubled the minimum capital reserve requirement for banks to $75 million for commercial banks and $15 million for specialized banks. Based on the new regulations, deposit-taking microfinance institutions now have a $30 million reserve requirement, while traditional microfinance institutions have a $1.5 million reserve requirement.

In March 2020, the National Bank of Cambodia (NBC) issued several regulations to ensure liquidity and promote lending amid the outbreak of COVID-19. They include: (1) delaying the implementation of Conservation Capital Buffer (CCB) for financial institutions; (2) reducing the minimum interest rate of Liquidity-Providing Collateralized Operations (LPCO); (3) reducing the interest rates of Negotiable Certificate of Deposit (NCD); (4) reducing the reserve requirement rate (RRR) from 8 percent (KHR) and 12.5 percent (USD) to 7 percent (KHR and USD) for 6 months starting from April, 2020; and (5) reducing the liquidity coverage ratio.

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

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

Foreign Exchange and Remittances 

Foreign Exchange 

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

Cambodia’s 1997 Law on Foreign Exchange states that there shall be no restrictions on foreign exchange operations through authorized banks. Authorized banks are required, however, to report the amount of any transfer equaling or exceeding $100,000 to the NBC on a regular basis.

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

The exchange rate between the riel and U.S. dollar is governed by a managed float and has been stable at around one U.S. dollar to KHR 4,000 for the past several years. Daily fluctuations of the exchange rate are low, typically under three percent. In the past several years, the Cambodian government has taken steps to increase general usage of the riel but, as noted above, the country’s economy remains largely dollarized.

Remittance Policies 

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

Sovereign Wealth Funds 

Cambodia does not have a sovereign wealth fund.

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

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

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

Privatization Program 

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

Corruption remains a significant issue in Cambodia for investors, and is a widespread practice. An increase in foreign investment from investors willing to engage in corrupt practices, combined with sometimes opaque official and unofficial investment processes, has served to facilitate an overall rise in corruption, already at high levels. In its Global Competitiveness Report 2019, the World Economic Forum ranked Cambodia 134th out of 141 countries for incidence of corruption. Transparency International’s 2019 Corruption Perception index ranked Cambodia 162 of 180 countries globally, the lowest ranking among ASEAN member states.

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

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

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

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

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

UN Anticorruption Convention, OECD Convention on Combatting Bribery

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

Resources to Report Corruption 

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

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

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

Nevertheless, political tensions remain. After relatively competitive communal elections in June 2017, where Cambodia’s opposition party won nearly 50 percent of available seats, the government took steps to strengthen its grip on power and eliminated meaningful political activity. In September 2017, the head of the country’s leading opposition party was arrested and charged with treason, and in November 2017, the same opposition party was banned. In July 2018, Prime Minister Hun Sen won a landslide victory, and his ruling party swept all 125 parliamentary seats, in a national election that was criticized by the United States as being neither free nor fair. The government has also taken steps to limit free speech and stifle independent media, including forcing independent news outlets and radio stations to cease operations. While there are few overt signs the country is growing less secure today, the possibility for insecurity exists going forward, particularly if a large percentage of the population remains disenfranchised.

Policies Towards Foreign Direct Investment

The government of Cameroon has stated that it considers FDI an important pillar of its development strategy.  Many Cameroonian institutions have bodies that work to attract FDI, with mixed results.  Parliament, the Executive Branch, and donors have sought to improve framework laws and regulations to attract investors.  In presenting the 2020 budget at the National Assembly, the Prime Minister emphasized the government’s commitment to increasing FDI, though few reforms have been passed.

By law, the government does not prohibit or limit foreign investors, whether in the ability to establish an investment (market access) or to operate in the market.  Investors interested in Cameroon can enter any sector of the economy provided they comply with regulations.  Though not official policy, tax authorities tend to target foreign companies for increased scrutiny.

The Cameroon Investment Agency (IPA) was launched in 2010.  IPA implements government policies to promote and facilitate all forms of direct investment in Cameroon. It examines investment proposals, assists with visa applications for foreign investors, and helps in the accreditation of companies.  IPA can enable access to related public facilities, simplify administrative procedures, and guide investors through the legal compliance processes.  IPA also offers incentives and can reward investors with additional support if they meet certain employment and export requirements.

The state agency helps companies launch their business projects.  As of the first quarter of 2020, the IPA has signed 89 conventions with private enterprises.  Companies must commit to creating local jobs.

Business lobby groups such as GICAM and Enterprise Cameroon maintain a dialogue with the government through the Cameroon Business Forum, a platform supported by government and donors.  For the past three years, the American Chamber of Commerce has not been invited to participate in the Forum.  GICAM, which is comprised of mostly local businesses, was increasingly critical of the government in 2019.

Limits on Foreign Control and Right to Private Ownership and Establishment

Despite an active government presence in most sectors of the economy, private entities – both domestic and foreign – can create and own businesses that engage in all forms of legal remunerative activities.  They can also enter into joint ventures and public-private partnerships with the government.  There are no general economy-wide (statutory, de facto, or otherwise) limits on foreign ownership or control.

Cameroon has no laws or regulations that prescribe outright prohibition on investment, equity caps, mandatory domestic joint venture partners, licensing restrictions, or mandatory Intellectual Property/technology transfer requirements.  Cameroon has a screening process, which is applicable to all domestic and foreign investments.  This screening process ensures that investors meet the criteria, such as employment and export quantities, to qualify for private investment incentives.

Other Investment Policy Reviews

OECD and UNCTAD have not conducted an investment policy review for Cameroon.  The WTO performed an IPR in 2013 for the Economic and Monetary Community of Central Africa (CEMAC).  In the report, the WTO criticized CEMAC countries for not doing enough to encourage trade between each other, promoting state-owned monopolies, and relying on price controls.

In June 2017, Cameroon signed a three-year Extended Credit Facility agreement with the IMF.  The program included structural reforms to accelerate and consolidate growth and control spending.  Under the terms of the agreement, the IMF has conducted five policy reviews.  Copies of the reviews can be found on the IMF website:

• First Review 
• Second Review 
• Third Review 
• Fourth Review 
• Fifth Review 

The IMF expressed satisfaction on the progress of the implementation of reforms while urging the country to implement stronger measures on budget transparency and improvement of the business climate.  In the area of public expenditure, the World Bank published a review  in late 2018.  The review examines public expenditure data over a period of 10 years with the objective of assisting Cameroon in the restoration of fiscal stability.

Business Facilitation

According to the World Bank’s Investing Across Borders Report, it takes 14 procedures and 82 days to establish a foreign-owned limited liability company in Douala.  This process is lengthier and more complex than regional and global averages.  While only two additional steps are required of foreign companies compared to domestic ones, these steps add an additional 48 days to the overall establishment process.  A declaration of foreign investment to the Ministry of Finance is mandatory 30 days prior to the beginning of the establishment process.  In addition, if the company wants to engage in international trade, registration in the importers’ file is required to obtain an automated customs systems number (Système Douanier Automatisé, or “sydonia”).  This number facilitates the entry and exit of goods produced by the company.  The authentication of the parent company’s documentation abroad is required only to establish a subsidiary.  Foreign-owned resident companies that wish to maintain foreign currency bank accounts in Douala must obtain prior approval.  The Minister of Finance issues such authorization, which is subject to approval from the Bank of Central African States as per Section 24 of the exchange control regulations.  This approval takes on average 38 days to obtain.  There is a minimum paid-in capital requirement of CFA 1,000,000 (~USD 1,700) for establishing LLCs.

In April 2016, with the support of the United Nations Conference on Trade and Development and the European Union, Cameroon launched an online business registration website called mybusiness.cm .  The platform simplifies the business creation process and amplifies entrepreneurship promotion policies.  The site presents real time data on business creation.

Outward Investment

The Cameroonian government does not promote or incentivize outward investment nor does it  restrict domestic investors from investing abroad.

Capital Markets and Portfolio Investment

The Cameroonian government is open to portfolio investment. With the encouragement of the International Monetary Fund and the regional Central Bank, Cameroon and other members of the CEMAC region have designed policies that facilitate the free flow of financial resources into the product and factor markets.

The Financial Markets Commission (CMF) of Cameroon physically merged with the Libreville-based Central African Financial Market Supervisory Board (CONSUMAF) in February 2019. CEMAC heads of state mandated the regional Central Bank to conduct additional mergers (regulations and regulators, stock exchanges trading and listing, central depositories, settlement banks) by 30 June 2019.  The project has suffered delays but remain on course to turn the Douala Stock Exchange (DSX) into a regional stock exchange for six countries.  The DSX has struggled to win the support of private enterprises and currently has three stock and five bonds listed.  Private enterprises are wary of the oversized role that Cameroonian government, which generally suffers from many dysfunctions, are playing in the administration of the exchange.

Cameroon’s financial sector is underdeveloped, and government policies have limited bearing on the free flow of financial resources into the product and factor markets.  Foreign investors can get credit on the local market, and the private sector has access to a variety of credit instruments.  Cameroon is connected to the international banking payment system.

CEMAC’s central bank, known by its French acronym BEAC, works with the International Monetary Fund on monetary policies and fiscal reform. BEAC respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.   Despite generally respecting Article VIII, BEAC has instituted several restrictions on payments in an effort to boost foreign exchange reserves.  Throughout much of 2019, financial institutions and importers complained of a backlog of requests for foreign exchange.  BEAC is currently negotiating with several international oil companies about repatriation of revenues before external payments.  While the situation has improved over the last six months, investors should be aware that timely repatriation of profits may be a stumbling block.

Money and Banking System

Less than 15 percent of Cameroonians have access to formal banking services.  The Cameroonian government has often spoken of increasing access, but no coherent policy or action has been taken to alleviate the problem.  Mobile money, introduced by local and international telecom providers, is the closest tool to banking services that most Cameroonians can access.

The banking sector is generally healthy.  Large, international commercial banks do most of the lending.  One local bank, Afriland, operates in multiple other countries.  Most smaller banks deal in small loans of short duration.  Retail banking is not common.  According to the World Bank, non-performing loans were 10.31 percent of total bank loans in 2016.  The Cameroonian government does not keep statistics on non-performing assets.  Cameroon’s largest banks are:

1st Afriland First Bank (USD 3 billion)

2nd: Societe Generale Cameroon (USD 2.5 billion)

3rd -Banque Internationale Du Cameroun Pour L’epargne Et Le Credit (USD 2.1 billion)

4th EcoBank (USD 1.4 billion)

5th BGFI Bank Cameroon (USD 918 million)

6th Union Bank of Africa Cameroon (USD 811 million)

(Source: Jeune Afrique, December 2019)

Cameroon is part of the six-member Economic and Monetary Community of Central Africa (CEMAC), which maintains a central bank, known by its French acronym, BEAC.  The current governor of BEAC is Abbas Mahamat Tolli (from Chad).

Foreign banks are allowed to establish operations in Cameroon.  Most notably, Citi and Standard Chartered have operated in Cameroon for more than 20 years.  They are subject to the same regulations as locally developed banks.  Post is unaware of any lost correspondent banking relationships within the past three years.

There are no restrictions on foreigners establishing bank accounts, credit instruments, business financing or other such transactions.

Foreign Exchange and Remittances

Foreign Exchange

In 2019, BEAC tightened regulations on foreign exchange as reserves plummeted in the aftermath of the 2014 oil shock. The IMF estimates that the volume of foreign exchange assets illegally held outside the CEMAC zone by local firms and institutions at five trillion CFA (USD 8.3 billion). This is about the same amount of foreign reserves in CEMAC countries’ current account on June 30, 2019. While tightening the rules did not mean legal restrictions, each request for a foreign exchange transaction required a “dossier” that would include various documents.  The documents required vary based on the type of transaction to demonstrate the “legitimacy” of the planned purchase in foreign exchange that BEAC would approve.  The formal list of required documents from BEAC includes a significant number of required supporting documents.

The IMF has stated that forex transactions of less than one million U.S. dollars only require approval by local BEAC representatives in each country and should take place in a matter of days.  Forex transactions exceeding one million USD require approval from BEAC headquarters in Yaoundé and should occur in no more than 48 hours.  Banks and other financial institutions complain that requests are often rejected on minor technical grounds.  In practice, approved requests often take more than two weeks to process.

As of May 2020, BEAC is requiring international oil companies to repatriate all proceeds from the sale of oil and gas and then submit an application in order to receive dollars or euros.  Several Ministers of Finance and/or Energy in CEMAC countries have assured oil companies that they do not need to comply with the regulation, creating uncertainty for the operators.

In theory, funds associated with any form of investment can be freely converted into any world currency , but the current BEAC restrictions are causing currency conversion concerns at financial institutions and oil companies.

The Central African CFA Franc is the currency of six independent states in Central Africa: Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, and Gabon.  It is administered by the BEAC and is currently pegged at roughly 656 CFA to one Euro.

Remittance Policies

Apart from the tightening of foreign exchange rules in 2019, post is unaware of any recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.

There are no time limitations on transactions beyond the classic banking transactions timeline.   BEAC regulates remittances policies and banking transactions.  Foreign investors can remit through convertible and negotiable instruments through legal channels recognized by BEAC, subject to the recent issues mentioned above.

Sovereign Wealth Funds

Cameroon does not have a sovereign wealth fund.

Cameroon has at least 200 SOEs.  Roughly 70 percent of SOEs are profit-oriented, though most are a net negative on government finances.  Some provide public services.  Many SOEs are so dominant in their markets that they act as de facto regulators, specifically in telecommunications and media.  The Government of Cameroon has over 130 state-owned companies in which it has majority ownership, and which operate in key sectors of the economy including agribusiness, energy, and mining.  SOEs are also present in real estate, transportation, services, information & communication, finance, and travel.

In 2017, the National Assembly voted into law a new regulation to govern SOEs.  The stated objective is to improve the services offered and the competitiveness of public companies, in line with the development objectives of the country.  Some of the innovations of this law include the diversification of the investment universe of SOEs, modern control through reporting requirements, and compliance with modern governance principles.  As of 2020, it does not appear that any of these objectives have been completed.

SOEs competing in the domestic market receive non-market based advantages from the Cameroonian government.  They receive taxpayer subsidies, and in many markets, serve as de facto regulators.  They also have a history of accumulating unpaid tax arrears while at the same time benefitting from preferential access to land and to public funds through State interventions.

The Supreme Audit Chamber of Cameroon indicates in its yearly reports that SOEs are not financially transparent.  Only about 22 percent of these structures publish financial accounts.  Other reports have highlighted corruption cases involving managers of SOEs and unveiled inefficiencies, severe dysfunctions, and opacity of the management of SOEs.  These problems are exacerbated by the fact that over the past years, the government has not imposed any performance targets, productivity requirements, and quality of service standards nor any significant budget constraints on SOEs.  The governing boards and senior executive teams are political appointees and connected individuals.  The SOEs have means to avoid tax burdens levied on private enterprises, receive specialized consideration for subsidies, and enhanced operating budgets, and obtain generally preferential treatment from the government (including courts).

Privatization Program

Cameroon enacted major privatization policies in the 1990s and early 2000s with the encouragement of international donors such as the International Monetary Fund and the World Bank.  The process has been stalled for over a decade, but market pressures continue to mount for additional privatization efforts.  We estimate that 30 companies have undergone some form of privatization since 2004.  The government has openly discussed privatization of the national airline, telecommunications company, the oil sector, and agribusinesses, but little has occurred.

In general privatization appears to be on hold.  The government favors Public Private Partnerships or some variations of outsourcing of/contractual management, with the State retaining some ownership of assets or of the business, rather than outright privatization.  In some cases, the State also prefers to take participation in ventures, such as mining companies, rather than creating a state-owned company.  Yet, in at least one case, the government has appeared to be reversing privatization.  This is the case for the country’s water provider, CAMWATER.  Until 2019, the government had outsourced distribution to a private operator. In April 2019, the State regained control of infrastructure management, distribution and commercialization of potable water throughout the country, and there are no indications that this situation will change in 2020.

Foreign investors can and do participate in the privatization programs.  According to some analysts, of the 30 State-owned companies were privatized before 2004, foreign bidders won the majority (22).  For example, British private equity firm owns the controlling share in ENEO, the country’s electricity monopoly.

The public bidding on tender offers is transparent.  They are advertised in the media, but the actual process of awarding contracts may still be tainted by corruption, particularly on large projects.  The listing of public tenders in the Cameroon Tribune newspaper and publication of which firms received the contract do not guarantee a fully transparent process of awards.

Corruption is punishable under sections 134 and 134 (a) of the Pena1 Code of Cameroon.   Despite these rules, corruption remains endemic in the country.  In 2019, Cameroon ranked 153 (of 180 countries) in Transparency International’s Corruption Perception Index.  Arrests of high-ranking officials for corruption are widely viewed as political.

Anti-corruption laws are applicable to all citizens and institutions throughout the national territory. If Cameroon has laws or regulations to counter conflict-of-interest in awarding contracts or government procurement, Post is unaware of them.  U.S. firms indicate that corruption is most pervasive in government procurement, award of licenses or concessions, transfers, performance requirements, dispute settlement, regulatory system, customs, and taxation.

The National Anti-corruption Commission (CONAC) recently began encouraging private companies to establish internal codes of conduct and ethics committees to review practices.  Post is unaware of how many companies have instituted either program.  Bribery of government officials remains common.  While some companies use internal controls to detect and prevent such bribery, Post is unaware of how widespread these internal controls are.

Cameroon is signatory to the United Nations and the African Union anti-corruption initiatives, but the international initiatives have practical limited effects on the enforcement of laws in the country.  Post is unaware of any NGO’s involvement in investigating corruption.  The government prefers the state-controlled anti-corruption commission, CONAC, to investigate potential cases. U.S. firms indicate that corruption is most pervasive in government procurement, award of licenses or concessions, transfers, performance requirements, dispute settlement, regulatory system, customs, and taxation.

Resources to Report Corruption

NAME:  Rev. Dieudonné MASSI GAMS
TITLE:  Chairman
ORGANIZATION:  National Anti-Corruption Commission
ADDRESS:  B.P. 33200 Yaoundé Cameroon
TELEPHONE NUMBER:  (+237) 22 20 37 32
EMAIL ADDRESS: www.conac-cameroun.net
infos@conac-cameroun.net

NAME:  Barrister Charles NGUINI
TITLE:  Country Representative
ORGANIZATION:  Transparency International Cameroon
ADDRESS:  Nouvelle route Bastos, rue 1.839,  BP : 4562 Yaoundé
TELEPHONE NUMBER:  (+237) 33 15 63 78
EMAIL ADDRESS: transparency@ti-cameroon.org

Cameroon faces several security challenges.  An armed secessionist uprising is entering its fourth year in the English speaking Southwest and Northwest Regions.  Boko Haram and ISIS-West Africa are resurgent in the Far North Region.  In the Adamoua and East Regions, a wave of kidnappings and the presence of refugees from the Central African Republic has led to increased military presence.  Terrorists and secessionist alike have targeted economic assets in order to affect political change.  The country is growing increasingly more politicized and insecure.

In the Anglophone regions, secessionists leaders have claimed responsibility on social media, for the arsons that destroyed hospitals, schools, bridges and roads. Secessionists have also posted videos of executions and beheading on the internet while also claiming several kidnappings for ransom. Human rights organizations have accused soldiers for burning down houses in many villages. In the Far North of Cameroon, Boko Haram fighters have looted villages and cattle and also kidnapped and abused women.  Consequently, several infrastructures projects have grounded to a halt.

Cameroon is growing increasingly insecure.  While the government has made platitudes toward resolving the Anglophone crisis, little of note has actually been done.  Security forces are stretched thin, allowing Boko Haram and ISIS-West Africa to maintain a footprint in the country’s Far North Region.  Political dissent is immediately stamped out.

Policies Towards Foreign Direct Investment

Canada and the United States have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, its proximity to the U.S. market, its highly skilled work force, and abundant resources. As of 2018, the United States had a stock of US$401 billion of foreign direct investment (FDI) in Canada. U.S. FDI stock in Canada represents 46 percent of Canada’s total investment. Canada’s FDI stock in the United States totaled US$511 billion.

Canada, the United States, and Mexico signed a modernized and rebalanced NAFTA agreement – the United States-Mexico-Canada Agreement (USMCA) – on November 30, 2018 and a protocol of amendment to the USMCA on December 10, 2019. President Trump signed legislation implementing the USMCA on January 29, 2020. The agreement will come into force after the completion of the domestic ratification processes by each individual member of the agreement, likely in 2020. The agreement updates NAFTA’s provisions with respect to investment protection rules and investor-state dispute settlement procedures to better reflect U.S. priorities related to foreign investment. All Parties to the agreement have agreed to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.

Invest in Canada is Canada’s investment attraction and promotion agency. It provides information and advice on doing business in Canada, strategic market intelligence on specific industries, site visits, as well as introductions to provincial, territorial, and local investment promotion agencies who can help companies access local opportunities, networks, and programs.

Limits on Foreign Control and Right to Private Ownership and Establishment

U.S. FDI in Canada is subject to the provisions of the Investment Canada Act (ICA), the World Trade Organization (WTO), and the 1994 North American Free Trade Agreement (NAFTA). Chapter 11 of NAFTA contains provisions such as “national treatment” designed to protect cross-border investors and facilitate the settlement of investment disputes. NAFTA does not exempt U.S. investors from review under the ICA, which has guided foreign investment policy in Canada since its implementation in 1985. The ICA provides for review of large acquisitions by non-Canadian investors and includes the requirement that these investments be of “net benefit” to Canada. The ICA also has provisions for the review of investments on national security grounds. The Canadian government has blocked investments on a few occasions.

The Canadian government announced April 18 enhanced scrutiny of certain foreign investments under the ICA, which will apply until the economy recovers from the effects of the COVID-19 pandemic. While all investments will continue to be examined on their own merits, the Government will scrutinize with particular attention foreign direct investments of any value in Canadian businesses that are related to public health or involved in the supply of critical goods and services to Canadians. The Government will also subject all foreign investments by state-owned investors, or investors with close ties to foreign governments, to enhanced scrutiny under the Investment Canada Act.

Although foreign investment is a key component of Canada’s economic growth contributing 1.9 percent to GDP, restrictions remain in key sectors. Under the Telecommunications Act, Canada maintains a 46.7 percent limit on foreign ownership of voting shares for a Canadian telecom services provider. However, a 2012 amendment exempts foreign telecom carriers with less than 10 percent market share from ownership restrictions in an attempt to increase competition in the sector. In May 2018, Canada eased its foreign ownership restrictions in the aviation sector, which increased foreign ownership limits of Canadian commercial airlines to 49 percent from 25 percent. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of “net benefit” to Canada. Canada is open to investment in the financial sector, but barriers remain in retail banking.

Other Investment Policy Reviews

The World Trade Organization conducted a trade policy review of Canada in 2019. The report is available at: https://www.wto.org/english/tratop_e/tpr_e/tp489_e.htm .

Business Facilitation

Canada ranks third out of 190 countries in the World Bank’s Doing Business survey on starting a business. The Canadian government has a business registration page available at: https://www.canada.ca/en/services/business/start/register-with-gov.html?it=government/registering-your-business/&it=eng/page/2730/ . Corporations must incorporate either through the federal or provincial government, apply for a federal business number and corporation income tax account from the Canada Revenue Agency, register as an extra-provincial or extra-territorial corporation in all other Canadian jurisdictions where you plan to do business, and apply for any permits and licenses the business may need. In some cases, registration for these accounts is streamlined (a business can receive its business number, tax accounts, and provincial registrations as part of the incorporation process); however, this is not true for all provinces and territories.

Outward Investment

Canada’s trade diversification strategy promotes trade and investment opportunities, primarily through export promotion and negotiation of free trade agreements, which generally have investment chapters.

Capital Markets and Portfolio Investment

Canada’s capital markets are open, accessible, and without onerous regulatory requirements. Foreign investors are able to get credit in the local market. Canada has several securities markets, the largest of which is the Toronto Stock Exchange, and there is sufficient liquidity in the markets to enter and exit sizeable positions. The World Economic Forum ranked Canada’s banking system as the second “most sound” in the world in 2018. Among other factors, Canadian banking stability is linked to high capitalization rates that are well above the norms set by the Bank for International Settlements. The Canadian government and Bank of Canada do not place restrictions on payments and transfers for current international transactions.

Money and Banking System

The Canadian banking industry is dominated by six major domestic banks, but includes a total of 36 domestic banks, 18 foreign bank subsidiaries, 28 full-service foreign bank branches and four foreign bank lending branches operating in Canada. The six largest banks manage close to US$4 trillion in assets. Many large international banks have a presence in Canada through a subsidiary, representative office, or branch of the parent bank. Ninety-nine percent of Canadians have an account with a financial institution.

Foreign financial firms interested in investing submit their applications to the Office of the Superintendent of Financial Institutions (OSFI) for approval by the Finance Minister. U.S. firms are present in all three sectors, but play secondary roles. U.S. and other foreign banks have long been able to establish banking subsidiaries in Canada, but no U.S. banks have retail banking operations in Canada. Several U.S. financial institutions have established branches in Canada, chiefly targeting commercial lending, investment banking, and niche markets such as credit card issuance. Foreigners may be able to open bank accounts in Canada with proper identification and would need to visit the financial institution in person.

The Bank of Canada is the nation’s central bank. Its principal role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act. The Bank’s four main areas of responsibility are monetary policy, promoting a safe, sound, and efficient financial system, issuing and distributing currency, and being the fiscal agent for Canada.

Foreign Exchange and Remittances

Foreign Exchange

The Canadian dollar is a free floating currency with no restrictions on its transfer or conversion.

Remittance Policies

The Canadian dollar is fully convertible and the central bank does not place time restrictions on remittances.

Sovereign Wealth Funds

Canada does not have a sovereign wealth fund, but the province of Alberta has the Heritage Savings Trust Fund established to manage the province’s share of petroleum royalties. The fund’s net financial assets were US$13.5 billion on December 31, 2019. It is invested in a globally diversified portfolio of public and private equity, fixed income, and real assets. The fund follows the voluntary code of good practices known as the “Santiago Principles” and participates in the IMF-hosted International Working Group of SWFs. Forty-eight percent of the Heritage Fund is currently held in equity investments, eight percent of which are Canadian equities.

Canada has more than 30 state-owned enterprises (SOEs) at the federal level, with the majority of assets held by three federal crown corporations: Export Development Canada, Farm Credit Canada, and Business Development Bank of Canada. Canada also has more than 90 SOEs at the provincial level that contribute to a variety of sectors including finance; power, electricity and utilities; and transportation. The Treasury Board Secretariat provides an annual report to Parliament regarding the governance and performance of Canada’s federal crown corporations and other corporate interests.

The Canadian government lists SOEs as “Government Business Enterprises” (GBE). A list is available at http://www.osfi-bsif.gc.ca/Eng/fi-if/rtn-rlv/fr-rf/dti-id/Pages/GBE.aspx and includes both federal and provincial enterprises.

There are no restrictions on the ability of private enterprises to compete with SOEs. The functions of most Canadian crown corporations have limited appeal to the private sector. The activities of some SOEs such as VIA Rail and Canada Post do overlap with private enterprise. As such, they are subject to the rules of the Competition Act to prevent abuse of dominance and other anti-competitive practices. Foreign investors are also able to challenge SOEs under the NAFTA and WTO.

Privatization Program

Federal and provincial privatizations are considered on a case-by-case basis, and there are no overall limitations with regard to foreign ownership. As an example, the federal Ministry of Transport did not impose any limitations in the 1995 privatization of Canadian National Railway, whose majority shareholders are now U.S. persons.

On an international scale, corruption in Canada is low and similar to that found in the United States. In general, the type of due diligence that would be required in the United States to avoid corrupt practices would be appropriate in Canada. Canada is a party to the UN Convention Against Corruption. Canada is a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, as well as the Inter-American Convention Against Corruption.

Canada’s Criminal Code prohibits corruption, bribery, influence peddling, extortion, and abuse of office. The 1998 Corruption of Foreign Public Officials Act prohibits individuals and businesses from bribing foreign government officials to obtain influence and prohibits destruction or falsification of books and records to conceal corrupt payments. The law has extended jurisdiction that permits Canadian courts to prosecute corruption committed by companies and individuals abroad. Canada’s anti-corruption legislation is vigorously enforced, and companies and officials guilty of violating Canadian law are being effectively investigated, prosecuted, and convicted of corruption-related crimes. In March 2014, Public Works and Government Services Canada (now Public Services and Procurement Canada, or PSPC) revised its Integrity Framework for government procurement to ban companies or their foreign affiliates for 10 years from winning government contracts if they have been convicted of corruption. In August 2015, the Canadian government revised the framework to allow suppliers to apply to have their ineligibility reduced to five years where the causes of conduct are addressed and no longer penalizes a supplier for the actions of an affiliate in which it had no involvement. PSPC has a Code of Conduct for Procurement, which counters conflict-of-interest in awarding contracts. Canadian firms operating abroad must declare whether they or an affiliate are under charge or have been convicted under Canada’s anti-corruption laws during the past five years in order to receive help from the Trade Commissioner Service. U.S. firms have not identified corruption as an obstacle to FDI in Canada.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Mario Dion
Conflict of Interest and Ethics Commissioner (for appointed and elected officials, House of Commons)
Office of the Conflict of Interest and Ethics Commissioner
Parliament of Canada
66 Slater Street, 22nd Floor
Ottawa, Ontario (Mailing address)

Office of the Conflict of Interest and Ethics Commissioner
Parliament of Canada
Centre Block, P.O. Box 16
Ottawa, Ontario
K1A 0A6

Pierre Legault
Office of the Senate Ethics Officer (for appointed Senators)
Thomas D’Arcy McGee Building
Parliament of Canada
90 Sparks St., Room 526
Ottawa, ON K1P 5B4

Political violence occurs in Canada to about the same extent as it does in the United States.

Policies Towards Foreign Direct Investment

The GOC’s policies towards foreign direct investment (FDI) are generally positive. Chad’s laws and regulations encourage FDI, and there are few formal restrictions on foreign trade and investment. Under Chadian law, foreign and domestic entities may establish and own business enterprises.

The National Investment Charter of 2008 permits full foreign ownership of companies in Chad. The only limit on foreign control is on ownership of companies deemed related to national security. The National Investment Charter guarantees both foreign companies and individuals equal standing with Chadian companies and individuals in the privatization process. In principle, tenders for foreign investment in state-owned enterprises (SOEs) and for government contracts are conducted through open international bid procedures. The National Investment Charter also offers incentives to certain foreign companies establishing significant operations in Chad, including up to five years of tax-exempt status.

Chad’s National Agency for Investment and Exports (ANIE, Agence Nationale des Investissements et des Exports), an agency of the Ministry of Industrial and Commercial Development & Private Sector Promotion, facilitates foreign investment. ANIE’s mandate is to contribute to the creation of a business environment that meets international standing, promote investment and exports, support the development of SMEs, and inform GOC decision makers about economic policy. ANIE acts as a one-stop shop for new investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign ownership or control. There are no sector-specific restrictions that discriminate against market access for U.S. or other foreign investors, and no de facto anti-foreign discriminatory practices.

Other Investment Policy Reviews

UNCTAD published a French-language Investment Policy Review https://investmentpolicy.unctad.org/publications/1212/investment-policy-review-of-chad  on Chad in July 2019.

The World Trade Organization (WTO) published a joint trade policy review (https://www.wto.org/english/tratop_e/tpr_e/tp385_e.htm  ) for Chad, Cameroon, Republic of Congo, Gabon, and Central African Republic in 2013, and a standalone trade policy review (https://www.wto.org/english/tratop_e/tpr_e/tp275_e.htm  ) for Chad in 2007.

The OECD has not published any investment policy reviews of Chad.

Business Facilitation

Foreign businesses interested in investing in or establishing an office in Chad should contact ANIE, which offers a one-stop shop for filing the legal forms needed to start a business. The process officially takes 72 hours and is the most important legal requirement for investment. ANIE’s website (www.anie-tchad.com ) provides additional information. Online business registration is not yet available via the Global Enterprise Registration web site (www.GER.co ) or the Business Facilitation Program (www.businessfacilitation.org ).

In 2019, the World Bank ranked Chad 182 out of 190 countries for ease of starting a business, which included factors beyond registration such as permitting and access to office space, energy, and capital. Article 31 of the 2020 Finance Law requires companies to provide a reimbursable deposit of up to 0.5 percent of expected annual revenue to the GOC to complete registration.

Contracts are tailored to each investment and often include additional incentives and concessions, such as permissions to import labor or agreements to work with specific local suppliers. Some contracts are confidential. Occasionally, government ministries attempt to change the terms of contracts or apply new laws broadly, even to companies that have pre-existing agreements that exempt them. Chad’s judicial system is weak, and rulings, including those relating to contract disputes, are susceptible to government interference. There is limited capacity within the judiciary to address commercial issues, including contract disputes. Parties usually settle disputes directly or through arbitration provided by the Chamber of Commerce, Industry, Agriculture, Mining, and Crafts (CCIAMA) or through an outside entity, such as the International Chamber of Commerce (ICC) in Paris.

Outward Investment

The GOC does not offer any programs or incentives encouraging outward investment. The GOC does not restrict domestic investors from investing abroad.

Capital Markets and Portfolio Investment

Chad’s financial system is underdeveloped. There are no capital markets or money markets in Chad. A limited number of financial instruments are available to the private sector, including letters of credit, short- and medium-term loans, foreign exchange services, and long-term savings instruments.

Commercial banks offer credit on market terms, often at rates of 12 to 25 percent for short-term loans. Access to credit is available but is prohibitively expensive for most Chadians in the private sector. Medium-term loans are difficult to obtain, as lending criteria are rigid. Most large businesses maintain accounts with foreign banks and borrow money outside of Chad. There are ATMs in some major hotels, N’Djamena airport, and in most neighborhoods of N’Djamena, and in major cities.

Chad does not have a stock market and has no effective regulatory system to encourage or facilitate portfolio investments. A small regional stock exchange, known as the Central African Stock Exchange, in Libreville, Gabon, was established by CEMAC countries in 2006. Cameroon, a CEMAC member, launched its own market in 2005. Both exchanges are poorly capitalized.

Money and Banking System

Chad’s banking sector is small and continues to streamline lending practices and reduce the volume of bad debt. The Chadian banking rate is even lower than the average rate in the CEMAC sub-region estimated at 12 percent, due to the lack of means to afford a bank account and the lack of culture aimed at popularizing the banking system. Chad’s four largest banks have been privatized. The former Banque Internationale pour l’Afrique au Tchad (BIAT) became a part of Togo-based Ecobank; the former Banque Tchadienne de Credit et de Depôt was re-organized as the Societe Generale Tchad; the former Financial Bank became part of Togo-based Orabank; and the former Banque de Developpement du Tchad (BDT) was reorganized as Commercial Bank Tchad (CBT), in partnership with Cameroon-based Commercial Bank of Cameroon. There are two Libyan banks in Chad, BCC (formerly Banque Libyenne) and Banque Sahelo-Saharienne pour l’Investissement et le Commerce (BSCIC), along with one Nigerian bank (UBA, United Bank for Africa). In 2018, the GOC funded a new bank Banque de l’Habitat du Tchad (BHT) with the GOC as majority shareholder with 50 percent of the shares and two public companies, the National Social Insurance Fund (CNPS) and the Chadian Petroleum Company (SHT), each holding 25 percent.

Chad, as a CEMAC member, shares a central bank with Cameroon, Central African Republic, Republic of Congo, Equatorial Guinea, and Gabon – the Central African Economic Bank (BEAC, Banque des Etats de l’Afrique Centrale), headquartered in Yaounde, Cameroon.

Foreigners must establish legal residency in order to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

The government does not restrict converting funds associated with an investment (including remittances of investment capital, earnings, loan repayments, lease payments, royalties) into a freely usable currency at legal market-clearing rates. There are currently no restrictions on repatriating these funds, although there are some limits associated with transferring funds. BEAC proposals for currency export restrictions to improve current account balances and reduce corruption opportunities remain under discussion, with foreign investors requiring large capital expenditures requesting exemptions from new regulations. Individuals transferring funds exceeding 1,000 USD must document the source and purpose of the transfer with the local sending bank. Transactions of 10,000 USD or more for individuals and 50,000 USD or more for companies are automatically notified to the COBAC. Companies and individuals transferring more than 800,000 USD out of Chad need BEAC authorization to do so. Authorization may take up to three working days. To request authorization for a transfer, companies and individuals must submit contact information for the sender and recipient, a delivery timetable, and proof of the sender’s identity. Approvals are routine, although the Central Bank has occasionally temporarily restricted capital outflows. There were no reports of other capital outflow restrictions in 2019. Businesses can obtain advance approval for regular money transfers.

Chad is a member of the African Financial Community (CFA) and uses the Central African CFA Franc (FCFA) as its currency. The FCFA is pegged to the Euro at a fixed rate of one Euro to 655.957 FCFA exactly (100 FCFA = 0.152449 Euro). In 2019, the CFA/USD exchange rate fluctuated between 571 and 602 FCFA as a function of the performance of the USD against the Euro. There are no restrictions on obtaining foreign exchange.

Remittance Policies

There are no recent changes to or plans to change investment remittance policies. There are no time limitations on remittances, dividends, returns on investment, interest, and principal on private foreign debt, lease payments, royalties, or management fees.

Chad does not engage in currency manipulation.

Chad is a member state of the Action Group against Money Laundering in Central Africa (GABAC), which is in the process of becoming a Financial Action Task Force (FATF)-style regional body. On the national level, the National Financial Investigation Agency (ANIF) has implemented GABAC recommendations to prevent money laundering and terrorist financing.

Sovereign Wealth Funds

The GOC does not currently maintain a Sovereign Wealth Fund.

All Chadian SOEs operate under the umbrella of government ministries. SOE senior management reports to the minister responsible for the relevant sector, as well as a board of directors and an executive board. The President of the Republic appoints SOE boards of directors, executive boards, and CEOs. The boards of directors give general directives over the year, while the executive boards manage general guidelines set by the boards of directors. Some executive directors consult with their respective ministries before making business decisions.

The GOC operates SOEs in a number of sectors, including Energy and Mining; Agriculture, Construction, Building and Heavy Equipment, Information and Communication, in water supply and cement production. The percentage SOEs allocate to research and development (R&D) is unknown.

There were no reports of discriminatory action taken by SOEs against the interests of foreign investors in 2019, and some foreign companies operated in direct competition with SOEs. Chad’s Public Tender Code (PTC) provides preferential treatment for domestic competitors, including SOEs.

SOEs are not subject to the same tax burden and tax rebate policies as their private sector competitors and are often afforded material advantages such as preferential access to land and raw materials. SOEs receive government subsidies under the national budget; however, in practice they do not respect the budget. State and company funds are often commingled.

Chad is not a party to the Agreement on Government Procurement within the framework of the WTO. Chadian practices are not consistent with the OECD Guidelines on Corporate Governance for SOEs.

Privatization Program

Foreign investors are permitted and encouraged to participate in the privatization process. There is a public, non-discriminatory bidding process. Having a local contact in Chad to assist with the bidding process is important. To combat corruption, the GOC has recently hired private international companies to oversee the bidding process for government tenders. Despite the GOC’s willingness to privatize loss-making SOEs, there remain several obstacles to privatization.

The Chamber of Commerce submitted a ‘white paper’ (livre blanc) in 2018 with recommendations for the GOC to facilitate and simplify private sector operations, including establishing a Business Observatory and a Presidential Council, which would implement the over 70 recommendations to improve the investment climate in Chad. The Presidential Council was inaugurated in late 2019.

Chad is considering privatization in the following sectors:

• Information & Communication (SOTEL Tchad)
• Food Processing & Packaging (the Société Tchadienne de Jus de Fruit (STJF), which produces fruit juice in Doba; and the Société Moderne de Abattoires (SMA), a slaughterhouse and meat packaging company in Farcha)

Foreign investors should also be aware that corruption remains common in Chad. Corruption in Chad remains a significant deterrent to U.S. investment. Corruption is most pervasive in government procurement, award of licenses or concessions, dispute settlement, regulation enforcement, customs, and taxation.

Chad is not a signatory country of the UN Convention Against Corruption (UNCAC). Chad is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“the OECD Anti-Bribery Convention”).

There is an independent Court of Auditors (Cour des Comptes), equivalent to a supreme audit institution (SAI), to enhance independent oversight of government decisions, although its members are nominated by presidential decree. Concurrently, the GOC created a General Inspectorate for State Control within the Presidency to oversee government accountability. No reports have been published, however. In addition to these bodies, the National Assembly’s Finance Committee carries out verifications of the GOC’s annual financial statement. No audits have been made publicly available during the reporting period.

A February 2000 anti-corruption law stipulates penalties for corrupt practices. The law does not single out family members and political parties. As in other developing countries, low salaries for most civil servants, judicial employees and law enforcement officials, coupled with a weak state system and a culture of rent seeking, have contributed to corruption.

The Ministry of Finance and Budget set up a toll-free number (700) to fight corruption and embezzlement. According to the Minister of Finance and Budget, the toll-free number 700 allows each economic operator or any other individual to alert the Inspectorate General of Finance to denounce any unscrupulous agent who seeks to be corrupted in the context of the issue of administrative paper or the payment of a tax. There are no specific laws to counter conflict of interest. The GOC does not require private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials.

A prominent local NGO, the Center for Studies and Research on Governance, Extractive Industries and Sustainable Development (CERGIED), formerly GRAMP-TC (Groupe Alternatif de Recherche et de Monitoring de Petrole – Tchad), tracks government expenditures of oil revenue. There are no indications that anti-corruption laws are enforced differently on foreign investors than on Chadian citizens. There is no specific protection for NGOs involved in investigating corruption.

Corruption is an obstacle to FDI. It is most pervasive in government procurement, award of licenses or concessions, transfers, performance requirements, dispute settlement, regulatory system and customs or taxation.

Resources to Report Corruption

Government agency contact responsible for combating corruption:

Inspection Generale d’Etat
Ministry of Finance and Budget toll free number 700 (inside Chad)
Presidence de la Republique
Ndjamena, Chad
+235 22 51 51 39 / 22 51 44 37

Contact at watchdog organizations:

Gilbert Maoundonodji
Coordinator
CERGIED (formerly GRAMP –TC)
BP 4021, N’Djamena, Chad
+235 6058 2016 / 9317 7678
infos@cergied.org / secretariat@cergied.org / https://cergied.org/ 

Chad has enjoyed political stability since 2008. There have been no reported incidents in recent years involving politically motivated damage to projects and/or installations, including during the 2008 disturbances. President Deby is completing his fifth elected presidential term and is eligible to participate in the next presidential elections, scheduled for April 2021. Socio-economic conditions occasionally spark demonstrations and protests against the Government. In many cases, the Government either denied permits for demonstrations or suppressed them using tear gas, arresting participants and organizers. Extended periods of reduced oil revenues add to socioeconomic stress. The spread of the COVID-19 pandemic strains Chad’s limited medical infrastructure and disrupts trade routes with neighboring countries and international air travel.

Regional violent extremist organizations threaten Chadian and Western interests. Boko Haram’s violence has choked off vital trade routes with Nigeria and the road between N’Djamena and Douala, Cameroon, the principal port serving Chad. This has increased costs for imports and decreased exports due to border closures. Violent extremist organizations may threaten foreign investments along the Lake Chad Basin.

For up-to-date information on political and security conditions in Chad, please refer to the Consular Affairs Bureau’s Travel Warning and Country Specific Information at http://www.travel.state.gov. The Embassy encourages all U.S. Citizens visiting Chad to register with the Embassy upon arrival or online via the STEP program.

U.S. businesses and organizations in Chad are welcome to inquire at the Embassy about joining the Overseas Security Advisory Committee (OSAC).

Policies Towards Foreign Direct Investment

For nearly four decades, promoting FDI has been an essential part of the Chilean government’s national development strategy. The country’s market-oriented economic policy creates significant opportunities for foreign investors to participate. Laws and practices are not discriminatory against foreign investors, who receive treatment similar to Chilean nationals. While Chile’s business climate is generally straightforward and transparent, the permitting process of infrastructure, mining, and energy projects has become increasingly contentious, especially regarding politically sensitive environmental impact assessments and indigenous consultations.

InvestChile is the government agency in charge of facilitating the entry and retention of FDI into Chile. It provides services related: to investment attraction (information about investment opportunities); pre-investment (sector-specific advisory services, including legal); landing (access to certificates, funds and networks), and after-care (including assistance for exporting and re-investment).

Regarding government-investor dialogue, in May 2018, the Ministry of Economy created the Sustainable Projects Management Office (GPS). This new agency provides support to investment projects, both domestic and foreign, serving as a first point of contact with the government and coordinating with different agencies in charge of evaluating investment projects.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors have access to all productive activities, except for the domestic maritime freight sector, in which there is a cap on foreign ownership of companies of 49 percent. Maritime transportation between Chilean ports is open since 2019 to foreign cruise vessels of more than 400 passengers capacity. Some international reciprocity restrictions exist for fishing.

Most enterprises in Chile may be 100 percent owned by foreigners. Chile only restricts the right to private ownership or establishment in what it defines as certain “strategic” sectors, such as nuclear energy and mining. The Constitution establishes the “absolute, exclusive, inalienable and permanent domain” of the Chilean state over all mineral, hydrocarbon, and fossil fuel deposits within Chilean territory. However, Chilean law allows the government to grant concession rights to individuals and companies for exploration and exploitation activities, and to assign contracts to private investors, without discrimination against foreign investors.

FDI is subject to pro forma screening by InvestChile. Businesses in general do not consider these screening mechanisms barriers to investment because approval procedures are expeditious and investments are usually approved.

Other Investment Policy Reviews

The World Trade Organization (WTO) has not conducted a Trade Policy Review for Chile since June 2015 (available here: https://www.wto.org/english/tratop_e/tpr_e/tp415_e.htm). The Organization for Economic Co-operation and Development (OECD) has not conducted an Investment Policy Review for Chile since 1997, and the country is not part of the countries covered to date by the United Nations Conference on Trade and Development’s (UNCTAD) Investment Policy Reviews.

Business Facilitation

The Chilean government took significant steps towards business facilitation during the last decade, including the use of digital means to start up a new company. On 7 June 2019, Chile’s Ministry of Economy launched the Unified System for Permits (SUPER), a new online platform intended to simplify and speed up the process of obtaining permits for investment projects. The platform aims at creating a single-window system, bringing together 182 license and permit procedures, previously spread across 29 different public institutions. The new online platform will allow users to access all required documentation, start online procedures, check application status and receive online updates on its progress.

According to the World Bank, Chile has one of the shortest and smoothest processes among Latin American and Caribbean countries -11 procedures and 29 days – to establish a foreign-owned limited liability company (LLC). Chile made starting a business easier in 2019 by enabling online registration of closed corporations. Drafting statutes of a company and obtaining an authorization number can be done online at the platform https://www.registrodeempresasysociedades.cl/. Electronic signature and invoicing allow foreign investors to register a company, obtain a tax payer ID number and get legal receipts, invoices, credit and debit notes, and accountant registries. A company needs typically to register with Chile’s Internal Revenue Service, obtain a business license from a municipality, and register either with the Institute of Occupational Safety (public) or with one of three private nonprofit entities that provide work-related accident insurance, which is mandatory for employers. In addition to the steps required of a domestic company, a foreign company establishing a subsidiary in Chile must authenticate the parent company’s documents abroad and register the incoming capital with the Central Bank. This procedure, established under Chapter XIV of the Foreign Exchange Regulations, requires a notice of conversion of foreign currency into Chilean pesos when the investment exceeds $10,000. The registration process at the Registry of Commerce of Santiago is available online.

Outward Investment

The Government of Chile does not have an active policy of promotion or incentives for outward investment, nor does it impose restrictions on it.

Capital Markets and Portfolio Investment

Chile’s authorities are committed to developing capital markets and keeping them open to foreign portfolio investors. Foreign firms offer services in Chile in areas such as financial information, data processing, financial advisory services, portfolio management, voluntary saving plans and pension funds. Under the U.S.-Chile FTA, Chile opened up significantly its insurance sector, with very limited exceptions. The Santiago Stock Exchange is Chile’s dominant stock exchange, and the third largest in Latin America. However, when compared to other OECD countries, it does not rank high in terms of market liquidity.

Existing policies facilitate the free flow of financial resources into Chile’s product and factor markets and adjustment to external shocks in a commodity-dependent economy. Chile has accepted the obligations of Article VIII (sections 2, 3 and 4) and maintains a free floating exchange rate system, free of restrictions on the making of payments and transfers for current international transactions. Credit is allocated on market terms and its various instruments are available to foreigners. The Central Bank reserves the right to restrict foreign investors’ access to internal credit if a credit shortage exists. To date, this authority has not been exercised.

Money and Banking System

Nearly one fourth of Chileans have a credit card from a bank and nearly one third have a non-bank credit card, but less than 20 percent have a checking account. However, financial inclusion is higher than banking penetration: a large number of lower-income Chilean residents have a CuentaRut, which is a commission-free card with an electronic account available for all, launched by the state-owned Banco Estado, also the largest provider of microcredit in Chile.

The Chilean banking system is healthy and competitive, and many Chilean banks already meet Basel III standards, which are part of a reform to the General Banking Law which was enacted in January 2019 (Basel III standards will be introduced gradually over the next several years). Capital adequacy ratio of the system is above 13 percent as of October 2019 and remains robust even when including discounts due to market and/or operational risks. Non-performing loans are below 2 percent when measured by the standard 90 days past due criterion.

The Chilean banking system’s total assets, as of March 2020, amounted to USD 386.6 billion, according to the Superintendence of Banks and Financial Institutions. The largest 6 banks account for 88 percent of the total banking system assets (Banco Santander-Chile, Banco de Credito e Inversiones, Banco de Chile, Banco Estado, Scotiabank Chile and Itaú-Corpbanca). Chile’s Central Bank conducts the country’s monetary policy, is constitutionally autonomous from the government, and is not subject to regulation by the Superintendence of Banks.

Foreign banks have an important presence in Chile, with 3 out of the 6 largest banks of the system. Out of 18 banks currently in Chile, 5 are foreign owned but legally established banks in Chile and 4 are branches of foreign banks. Both categories are subject to the requirements set out under the Chilean banking law. There are also 21 representative offices of foreign banks in Chile. There are no reports of correspondent banking relationships withdrawal in Chile.

In order to open a bank account in Chile, a foreigner must present his/her Chilean ID Card or passport, Chilean tax ID number, proof of address, proof of income/solvency, photo, and fingerprints.

Foreign Exchange and Remittances

Foreign Exchange

Law 20.848, which regulates FDI (described in section 1), prohibits arbitrary discrimination against foreign investors and guarantees access to the formal foreign exchange market, as well as the free remittance of capital and profits generated by investments. There are no other restrictions or limitations placed on foreign investors for the conversion, transfer or remittance of funds associated with an investment.

Investors, importers, and others are guaranteed access to foreign exchange in the official inter-bank currency market without restriction. The Central Bank of Chile (CBC) reserves the right to deny access to the inter-bank currency market for royalty payments in excess of five percent of sales. The same restriction applies to payments for the use of patents that exceed five percent of sales. In such cases, firms would have access to the informal market. The Chilean tax service reserves the right to prevent royalties of over five percent of sales from being counted as expenses for domestic tax purposes.

Chile has a free floating (flexible) exchange rate system. Exchange rates of foreign currencies are fully determined by the market. The CBC reserves the right to intervene under exceptional circumstances to correct significant deviations of the currency from its fundamentals. This authority was used in 2019 following an unusual 20.5 percent depreciation of the Chilean peso (CLP) after six weeks of civil unrest, an unprecedented circumstance that triggered a similarly unusual USD20 billion intervention (half of the CBC foreign currency reserves) announced on November 28. In the near term, this intervention successfully arrested the currency slide (between December 2-11, the CLP appreciated 10.2 percent against the U.S. dollar) but left the CBC with less room to respond to the subsequent impact of the COVID-19 pandemic on Chile’s currency.

Remittance Policies

Remittances of profits generated by investments are allowed at any time after tax obligations are fulfilled; remittances of capital can be made after one year following the date of entry into the country. In practice, this permanency requirement does not constitute a restriction for productive investment, because projects normally need more than one year to mature. Under the investment chapter of the U.S.–Chile FTA, the parties must allow free transfer and without delay of covered investments into and out of its territory. These include transfers of profits, royalties, sales proceeds, and other remittances related to the investment. However, for certain types of short-term capital flows this chapter allows Chile to impose transfer restrictions for up to 12 months as long as those restrictions do not substantially impede transfers. If restrictions are found to impede transfers substantially, damages accrue from the date of the initiation of the measure. In practice, these restrictions have not been applied in the last two decades.

Sovereign Wealth Funds

The Government of Chile maintains two sovereign wealth funds (SWFs) built with savings from years with fiscal surpluses. The Economic and Social Stabilization Fund (FEES) was established in 2007 and was valued at USD 12.3 billion as of March 2020. The purpose of the FEES is to fund public debt payments and temporary deficit spending, in order to keep a countercyclical fiscal policy. The Pensions Reserve Fund (FRP) was built up in 2006 and amounted to USD 9.9 billion as of March 2020. The purpose of the FRP is to anticipate future needs of payments to those eligible to receive pensions, but whose contributions to the private pension system fall below a minimum threshold.

Chile is a member of the International Working Group of Sovereign Wealth Funds (IWG) and adheres to the Santiago Principles.

Chile’s government policy is to invest SWFs entirely abroad into instruments denominated in foreign currencies, including sovereign bonds and related instruments, corporate and high-yield bonds, mortgage backed securities from U.S. agencies, and stocks.

Chile had 28 state-owned enterprises (SOEs) in operation as of 2018. They are all commercial companies. Twenty-five SOEs are not listed and are fully owned by the government. The remaining three are majority government owned. Ten Chilean SOEs operate in the port management sector; seven in the services sector, three in the defense sector, three in the mining sector –including CODELCO, the world’s largest copper producer and; ENAP, an oil and gas company-, two in transportation, one in the water sector, one is a TV station, and one is a state-owned bank (Banco Estado). The state also holds a minority stake in four water companies as a result of a privatization process. In 2018, total assets of SOEs amounted to USD 72.5 billion, while their total net income was USD 255.8 million. SOEs employed 51,749 people in 2018.

Twenty SOEs in Chile fall under the supervision of the Public Enterprises System, a state holding in charge of overseeing SOE governance. The rest -including the largest SOEs such as CODELCO, ENAP and Banco Estado- have their own governance and report to government ministries. Allocation of seats on the boards of Chilean SOEs is determined by the SEP, as described above, or outlined by the laws that regulate them. In CODELCO’s corporate governance, there is a mix between seats appointed by recommendation from an independent high-level civil service committee, and seats allocated by political authorities in the government.

A list of SOEs made by the Budget Directorate, including their financial management information, is available in the following link: http://www.dipres.gob.cl/599/w3-propertyvalue-20890.html.

In general, Chilean SOEs work under hard budget constraints and compete under the same regulatory and tax frameworks as private firms. The exception is ENAP, which is the only company allowed to refine oil in Chile. As an OECD member, Chile adheres to the OECD Guidelines on Corporate Governance for SOEs.

Privatization Program

Chile does not have a privatization program in place.

Chile applies, in a non-discriminatory manner, various laws to combat corruption of public officials, including the 2009 Transparency Law that mandated disclosure of public information related to all areas of government and created an autonomous Transparency Council in charge of overseeing its application. Subsequent amendments expanded the number of public trust positions required to release financial disclosure, mandated disclosure in greater detail, and allowed for stronger penalties for noncompliance.

In March 2020, the Piñera administration proposed new legislation aimed at combatting corruption, as well as economic and electoral crimes. The four new pieces of legislation, part of the Piñera administration’s “anti-abuse agenda” launched in December 2019 in response to societal demands to increase penalties for white-collar crimes, seeks to strengthen enforcement and increase penalties for collusion among firms; increase penalties for insider trading; provide protections for whistleblowers seeking to expose state corruption; and expand the statute of limitations for electoral crimes.

Anti-corruption laws, and in particular mandatory asset disclosure, do extend to family members of officials. Political parties are subject to laws that limit campaign financing and require transparency in party governance and contributions to parties and campaigns.

Regarding government procurement, the website of ChileCompra (central public procurement agency) allows users to anonymously report irregularities in procurement. There is a decree that defines sanctions for public officials who do not adequately justify direct contracts.

The Corporate Criminal Liability Law provides that corporate entities can have their compliance programs certified. Chile’s Securities and Insurance Superintendence (SVS) authorizes a group of local firms to review companies’ compliance programs and certify them as sufficient. Certifying firms are listed on the SVS website.

Private companies have increasingly incorporated internal control measures, as well as ethics committees as part of their corporate governance, and compliance management sections. Additionally, Chile Transparente (Chilean branch of Transparency International) developed a Corruption Prevention System to provide assistance to private firms to facilitate their compliance with the Corporate Criminal Liability Law.

Chile signed and ratified the Organization of American States (OAS) Convention against Corruption. The country also ratified the UN Anticorruption Convention on September 13, 2006. Chile is also an active member of the Open Government Partnership (OGP) and, as an OECD member, adopted the OECD Anti-Bribery Convention.

NGO’s that investigate corruption operate in a free and adequately protected manner.

U.S. firms have not identified corruption as an obstacle to FDI.

Resources to Report Corruption

Andrea Ruiz Rojas
Director General
Consejo para la Transparencia
Morande 360 piso 7
T: (+56)-(2)-2495-2000
rferrada@consejotransparencia.cl
contacto@consejotransparencia.cl

Alberto Precht
Executive Director
Chile Transparente (Chile branch of Transparency International)
Perez Valenzuela 1687, piso 1, Providencia, Santiago, Chile
T: (+56)-(2)-2236-4507
chiletransparente@chiletransparente.cl

Renata Avila
Executive Director
Ciudadania Inteligente
Holanda 895, Providencia, Santiago, Chile
T: (+56)-(2)-2419-2770

Daniel Garcia
Executive Director
Espacio Publico
Santa Lucía 188, piso 7, Santiago, Chile
T: (+56)-(9)-6258-3871
contacto@espaciopublico.cl

Observatorio Anticorrupción (Run by Espacio Publico and Ciudadania Inteligente) https://observatorioanticorrupcion.cl/

Jeannette von Wolfersdorff
Executive Director
Observatorio Fiscal (focused on public spending)
Don Carlos 2983, Oficina 3, Las Condes, Santiago, Chile
T: (+56)-(2)-2457-2975
contacto@observatoriofiscal.cl

In October 2019, widespread civil unrest broke out in Chile in response to perceived systemic economic inequality. The unrest had a significant impact on Chile’s economy and some U.S. businesses operating in Chile. Protesters targeted metro stations, police stations, banks, pharmacies, and installations associated with pension funds. Pursuant to a political accord in response to the civil unrest, Chile plans to hold a plebiscite in October 2020 on whether or not to draft a new constitution. If Chileans vote to draft a new constitution, the process to create and ratify it would take until at least mid-2022. Uncertainty over what changes could be made to Chile’s political and regulatory environment could negatively impact investor confidence. The coronavirus pandemic and government measures in response to it have led to a large reduction of vandalism and attacks on businesses.

Prior to 2019, there were generally few incidents of politically motivated attacks on investment projects or installations, with the exception of the southern Araucania region and its neighboring Arauco province in the southwest of Bio-Bio region. This area, home to nearly half a million indigenous inhabitants, has seen a growing trend of politically motivated violence. Land claims and conflicts with forestry companies are the main grievances underneath the radicalization of a relatively small number of indigenous Mapuche communities, which has led to the rise of organized groups that pursue their demands by violent means. Incidents include arson attacks on churches, farms, forestry plantations, and forestry contractors’ machinery and vehicles, as well as occupation of private lands, resulting in over a half-dozen deaths (including some by police forces), injuries, and damage to property. In 2018, the government announced special measures and policies towards the Araucania region. However, the indigenous issue has been further politicized due to anger among landowners, forestry transport contractors, and farmers affected by violence, as well as the illegal killing of a young Mapuche activist by special police forces in 2018 and the controversy over accusations of fraud by the police during the investigation of indigenous organized groups.

Since 2007, Chile has experienced a number of small-scale attacks with explosive and incendiary devices, targeting mostly banks, police stations, and public spaces throughout Santiago, including ATM’s, metro stations, universities and churches. Anarchist groups often claim responsibility for these acts, as they also have been involved in incidents during student and labor protests. In January 2017, an eco-terrorist group claimed responsibility for a parcel bomb that detonated at the home of the chairman of the board of Chilean state-owned mining giant CODELCO. The same group detonated bombs of similar characteristics during 2019 at a bus stop in downtown Santiago, causing five injuries, and at a police station in the Santiago metro area, wounding 8 police officers. They also sent letter bombs to a former Interior Minister and the president of the Metro at their offices, both of which were defused by police. One suspect was arrested in 2019 and the investigation of the crimes is ongoing at the time of this report.

On occasions, illegal activity by striking workers resulted in damage to corporate property or a disruption of operations. Some firms have publicly expressed concern that during a contentious strike, law enforcement has appeared to be reluctant to protect private property.

Chilean civil society is active and demonstrations occur frequently. Although the vast majority of demonstrations are peaceful, on occasion protestors have veered off pre-approved routes. This tendency has increased since widespread civil unrest began in October 2019. In a few instances, criminal elements have taken advantage of civil society protests to loot stores along the protest route and have clashed with the police. Demonstrations on March 29, the Day of the Young Combatant, and September 11, the anniversary of the 1973 coup against the government of President Salvador Allende, have in the past resulted in damage to property.

Policies Towards Foreign Direct Investment

China continues to be one of the largest recipients of global FDI due to a relatively high economic growth rate and an expanding consumer base that demands diverse, high-quality products.  FDI has historically played an essential role in China’s economic development.  However, due to recent stagnant FDI growth and gaps in China’s domestic technology and labor capabilities, Chinese government officials have prioritized promoting relatively friendly FDI policies promising market access expansion and non-discriminatory, “national treatment” for foreign enterprises through general improvements to the business environment.  They also have made efforts to strengthen China’s regulatory framework to enhance broader market-based competition.

In 2019, China issued an updated nationwide “negative list” that made some modest openings to foreign investment, most notably in the financial sector, and promised future improvements to the investment climate through the implementation of China’s new FIL.  MOFCOM reported that FDI flows to China grew by 5.8 percent year-on-year in 2019, reaching USD137 billion.  In 2019, U.S. businesses expressed concern over China’s weak protection and enforcement of intellectual property rights (IPR); corruption; discriminatory and non-transparent anti-monopoly enforcement that forces foreign companies to license technology at below-market prices; excessive cyber security and personal data-related requirements; increased emphasis on the role of CCP cells in foreign enterprises, and an unreliable legal system lacking in both transparency and the rule of law.

• American Chamber of Commerce China 2019 American Business in China White Paper 
• American Chamber of Commerce China 2019 Business Climate Survey 
• S.-China Business Council’s 2019 China Business Environment Member Survey 

China seeks to support inbound FDI through the “Invest in China” website, where MOFCOM publishes laws, statistics, and other relevant information about investing in China.  Further, each province has a provincial-level investment promotion agency that operates under the guidance of local-level commerce departments.  See:  MOFCOM’s Investment Promotion Website 

Limits on Foreign Control and Right to Private Ownership and Establishment

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

• The Special Administrative Measures for Foreign Investment Access (̈the “Nationwide Negative List”);
• The Special Administrative Measures for Foreign Investment Access to Pilot Free Trade Zones (the “FTZ Negative List”) used in China’s 18 FTZs
• The Industry Catalogue for Encouraged Foreign Investment (also known as the “FIC”).   The central government has used the FIC to encourage FDI inflows to key sectors – in particular semiconductors and other high-tech industries that would help China achieve MIC 2025 objectives.  The FIC is subdivided into a cross-sector nationwide catalogue and a separate catalogue for western and central regions, China’s least developed regions.

In addition to the above lists, MOFCOM and NDRC also release the annual Market Access Negative List  to guide investments.  This negative list – unlike the nationwide negative list that applies only to foreign investors – defines prohibitions and restrictions for all investors, foreign and domestic.  Launched in 2016, this negative list attempted to unify guidance on allowable investments previously found in piecemeal laws and regulations.  This list also highlights what economic sectors are only open to state-owned investors.

In restricted industries, foreign investors face equity caps or joint venture requirements to ensure control is maintained by a Chinese national and enterprise.  These requirements are often used to compel foreign investors to transfer technology in order to participate in China’s market.  Foreign companies have reported these dictates and decisions are often made behind closed doors and are thus difficult to attribute as official Chinese government policy.  Foreign investors report fearing government retaliation if they publicly raise instances of technology coercion.

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

• Preschool, general high school, and higher education institutes require a Chinese partner.
• Establishment of medical institutions also require a Chinese JV partner.

Examples of foreign investment sectors requiring Chinese control include:

• Selective breeding and seed production for new varieties of wheat and corn.
• Basic telecommunication services.
• Radio and television listenership and viewership market research.

Examples of foreign investment equity caps include:

• 50 percent in automobile manufacturing (except special and new energy vehicles);
• 50 percent in value-added telecom services (except e-commerce domestic multiparty communications, storage and forwarding, call center services);
• 50 percent in manufacturing of commercial and passenger vehicles.

The 2019 editions of the nationwide and FTZ negative lists and the FIC for foreign investment came into effect July 30, 2019.  The central government updated the Market Access Negative List in October 2019.  The 2019 foreign investment negative lists made minor modifications to some industries, reducing the number of restrictions and prohibitions from 48 to 40 in the nationwide negative list, and from 45 to 37 in China’s pilot FTZs.  Notable changes included openings in the oil and gas sector, telecommunications, and shipping of marine products.  On July 2, 2019, Premier Li Keqiang announced new openings in the financial sector, including lifting foreign equity caps for futures by January 2020, fund management by April, and securities by December.  While U.S. businesses welcomed market openings, many foreign investors remained underwhelmed and disappointed by Chinese government’s lack of ambition and refusal to provide more significant liberalization.  Foreign investors noted these announced measures occurred mainly in industries that domestic Chinese companies already dominate.

Other Investment Policy Reviews

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

• OECD 2008 Report 
• OECD 2013 Update 

China’s 2001 accession to the World Trade Organization (WTO) boosted China’s economic growth and advanced its legal and governmental reforms.  The WTO completed its most recent investment trade review for China in 2018, highlighting that China remains a major destination for FDI inflows, especially in real estate, leasing and business services, and wholesale and retail trade.

• WTO Investment Trade Review for China 
• International Monetary Fund (IMF) information on China 
• FDI Statistics from MOFCOM 

Business Facilitation

In 2019, China climbed more than 40 spots in the World Bank’s Ease of Doing Business Survey to 31st place out of 190 economies.  This was partly due to regulatory reforms that helped streamline some business processes, including improvements to addressing delays in construction permits and resolving insolvency.  This ranking does not account for major challenges U.S. businesses face in China like IPR violations and forced technology transfer.  Moreover, China’s ranking is based on data limited only to the business environments in Beijing and Shanghai.

• World Bank Ease of Doing Business 

Created in 2018, the State Administration for Market Regulation (SAMR) is now responsible for business registration processes.  The State Council established a new website in English, which is more user-friendly than SAMR’s website, to assist foreign investors looking to do business in China.  In December 2019, China also launched a Chinese-language nationwide government service platform on the State Council’s official website.  The platform connected 40 central government agencies with 31 provincial governments, providing information on licensing and project approvals by specific agencies.  The central government published the website under its “improving the business climate” reform agenda, claiming that the website consolidates information and offers cross-regional government online services.

• The State Council Information on Doing Business in China 
• Nationwide Government Service Platform 

Foreign companies still complain about continued challenges when setting up a business relative to their Chinese competitors.  Numerous companies offer consulting, legal, and accounting services for establishing wholly foreign-owned enterprises, partnership enterprises, joint ventures, and representative offices in China.  Investors should review their options carefully with an experienced advisor before choosing a corporate entity or investment vehicle.

Outward Investment

Since 2001, China has pursued a “going-out” investment policy.  At first, the Chinese government mainly encouraged SOEs to secure natural resources and facilitate market access for Chinese exports.  In recent years, China’s overseas investments have diversified with both state and private enterprises investing in nearly all industries and economic sectors.  While China remains a major global investor, total outbound direct investment (ODI) flows fell 8.2 percent year-on-year in 2019 to USD110.6 billion, according to MOFCOM data.

In order to suppress significant capital outflow pressure, the Chinese government created “encouraged,” “restricted,” and “prohibited” outbound investment categories in 2016 to guide Chinese investors, especially in Europe and the United States.  While the guidelines restricted Chinese outbound investment in sectors like property, hotels, cinemas, entertainment, and sports teams, they encouraged outbound investment in sectors that supported Chinese industrial policy by acquiring advanced manufacturing and high-tech assets.  Chinese firms involved in MIC 2025 targeted sectors often receive preferential government financing, subsidies, and access to an opaque network of investors to promote and provide incentives for outbound investment.  The guidance also encourages investments that promote China’s One Belt One Road (OBOR) initiative, which seeks to create connectivity and cooperation agreements between China and dozens of countries via infrastructure investment, construction projects, real estate, etc.

Capital Markets and Portfolio Investment

China’s leadership has stated that it seeks to build a modern, highly-developed, and multi-tiered capital market.  Since their founding over three decades ago, the Shanghai and Shenzhen Exchanges, combined, are ranked the second largest stock market in the world with over USD5 trillion in assets.  China’s bond market has similarly expanded significantly to become the third largest worldwide, totaling approximately USD13 trillion.  Direct investment by private equity and venture capital firms has increased significantly, but has faced setbacks due to China’s capital controls, which complicate the repatriation of returns.  In December 2019, the State Council and China’s banking and securities regulatory authorities issued a set of measures that would remove in 2020 foreign ownership caps in select segments of China’s financial sector.  Specifically, foreign investors can wholly own insurance and futures firms as of January 1, asset management companies as of April 1, and securities firms as of December 1, 2020.

China has been an IMF Article VIII member since 1996 and generally refrains from restrictions on payments and transfers for current international transactions.  However, the government has used administrative and preferential policies to encourage credit allocation towards national priorities, such as infrastructure investments.  As of 2019, over 40 sovereign entities and private sector firms, including Daimler and Standard Chartered HK, have since issued roughly USD48 billion in “Panda Bonds,” Chinese renminbi (RMB)-denominated debt issued by foreign entities in China.  China’s private sector can also access credit via bank loans, bond issuance, and wealth management and trust products.  However, the vast majority of bank credit is disbursed to state-owned firms, largely due to distortions in China’s banking sector that have incentivized lending to state-affiliated entities over their private sector counterparts.

The Monetary and Banking System

China’s monetary policy is run by the People’s Bank of China (PBOC), China’s central bank.  The PBOC has traditionally deployed various policy tools, such as open market operations, reserve requirement ratios, benchmark rates and medium-term lending facilities, to control credit growth.  The PBOC had previously also set quotas on how much banks could lend, but abandoned the practice in 1998.  As part of its efforts to shift towards a more market-based system, the PBOC announced in 2019 that it will reform its one-year loan prime rate (LPR), which will serve as an anchor reference for Chinese lenders.  The LPR is based on the interest rate for one-year loans that 18 banks offer their best customers.  Despite these measures to move towards more market-based lending, China’s financial regulators still influence the volume and destination of Chinese bank loans through “window guidance” – unofficial directives delivered verbally – as well as through mandated lending targets for key economic groups, such as small and medium sized enterprises.

The China Banking and Insurance Regulatory Commission (CBIRC) oversees China’s roughly 4,000 lending institutions.  At the end of the first quarter of 2019, Chinese banks’ total assets reached RMB 276 trillion (USD40 trillion).  China’s “Big Five” – Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, and Industrial and Commercial Bank of China – dominate the sector and are largely stable, but over the past year, China has experienced regional pockets of banking stress, especially among smaller lenders.  Reflecting the level of weakness among these banks, in November 2019, the PBOC announced that about one in 10 of China’s banks received a “fail” rating following an industry-wide review.  The assessment deemed 420 firms, all rural financial institutions, “extremely risky.”  The official rate of non-performing loans among China’s banks is relatively low: below two percent as of the end of 2019.  However, analysts believe the actual figure may be significantly higher.  Bank loans continue to provide the majority of credit options (reportedly around 66 percent in 2019) for Chinese companies, although other sources of capital, such as corporate bonds, equity financing, and private equity are quickly expanding their scope, reach, and sophistication in China.  In December 2019, the Coronavirus (COVID-19) pandemic emerged in Wuhan, China.  In response, the PBOC established a variety of programs to stimulate the economy, including a re-lending scheme of USD4.28 billion and a special credit line of USD50 billion for policy banks.  In addition, the Ministry of Industry and Information Technologies established a list of companies vital to COVID-19 efforts, which would be eligible to receive additional loans and subsidies from the Ministry of Finance.

As part of a broad campaign to reduce debt and financial risk, Chinese regulators over the last several years have implemented measures to rein in the rapid growth of China’s “shadow banking” sector, which includes wealth management and trust products.  These measures have achieved positive results: the share of trust loans, entrusted loans, and undiscounted bankers’ acceptances dropped a total of seven percent in 2019 as a share of total social financing (TSF) – a broad measure of available credit in China.  TSF’s share of corporate bonds jumped from a negative 2.31 percent in 2017 to 12.7 percent in 2019.  In October 2019, the CBIRC announced that foreign owned banks will be allowed to establish wholly-owned banks and branches in China.  However, analysts noted there are often licenses and other procedures that can drag out the process in this sector, which is already dominated by local players.  Nearly all of China’s major banks have correspondent banking relationships with foreign banks, including the Bank of China, which has correspondent banking relationships with more than 1,600 institutions in 179 countries and regions.  Foreigners are eligible to open a bank account in China, but are required to present a passport and/or Chinese government issued identification.

Foreign Exchange and Remittances

Foreign Exchange

While the central bank’s official position is that companies with proper documentation should be able to freely conduct business, in practice, companies have reported challenges and delays in obtaining approvals for foreign currency transactions by sub-national regulatory branches.  Chinese authorities instituted strict capital control measures in 2016, when China recorded a surge in capital flight that reduced its foreign currency reserves by about USD1 trillion, stabilizing to around USD3 trillion today.  China has since announced that it will gradually reduce those controls, but market analysts expect they would be re-imposed if capital outflows accelerate again.  Chinese foreign exchange rules cap the maximum amount of RMB individuals are allowed to convert into other currencies at approximately USD50,000 each year and restrict them from directly transferring RMB abroad without prior approval from the State Administration of Foreign Exchange (SAFE).  In 2017, authorities further restricted overseas currency withdrawals by banning sales of life insurance products and capping credit card withdrawals at USD5,000 per transaction.  SAFE has not reduced the USD50,000 quota, but during periods of higher than normal capital outflows, banks are reportedly instructed by SAFE to increase scrutiny over individuals’ requests for foreign currency and to require additional paperwork clarifying the intended use of the funds, with the express intent of slowing capital outflows.

China’s exchange rate regime is managed within a band that allows the currency to rise or fall by 2 percent per day from the “reference rate” set each morning.  In August 2019, the U.S. Treasury Department designated China a “currency manipulator,” given China’s large-scale interventions in the foreign exchange market.  Treasury removed this designation in January 2020.

Remittance Policies

According to China’s FIL, as of January 1, 2020, funds associated with any forms of investment, including investment, profits, capital gains, returns from asset disposal, IPR loyalties, compensation, and liquidation proceeds, may be freely converted into any world currency for remittance.  Under Chinese law, FIEs do not need pre-approval to open foreign exchange accounts and are allowed to retain income as foreign exchange or to convert it into RMB without quota requirements.  The remittance of profits and dividends by FIEs is not subject to time limitations, but FIEs need to submit a series of documents to designated banks for review and approval.  The review period is not fixed and is frequently completed within one or two working days of the submission of complete documents.  For remittance of interest and principal on private foreign debt, firms must submit an application form, a foreign debt agreement, and the notice on repayment of the principal and interest.  Banks will then check if the repayment volume is within the repayable principal.  There are no specific rules on the remittance of royalties and management fees.  In August 2018, SAFE raised the reserve requirement for foreign currency transactions from zero to 20 percent, significantly increasing the cost of foreign currency transactions.

Sovereign Wealth Funds

China officially has only one sovereign wealth fund (SWF), the China Investment Corporation (CIC), which was launched to help diversify China’s foreign exchange reserves.  Established in 2007 with USD200 billion in initial registered capital, CIC currently manages over USD940 billion in assets as of the close of 2018 and invests on a 10-year time horizon.  CIC has since evolved into three subsidiaries:

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

CIC publishes an annual report containing information on its structure, investments, and returns.  CIC invests in diverse sectors, including financial services, consumer products, information technology, high-end manufacturing, healthcare, energy, telecommunications, and utilities.  China also operates other funds that function in part like sovereign wealth funds, including:  China’s National Social Security Fund, with an estimated USD325 billion in assets; the China-Africa Development Fund (solely funded by the China Development Bank), with an estimated USD10 billion in assets; the SAFE Investment Company, with an estimated USD417.8 billion in assets; and China’s state-owned Silk Road Fund, established in December 2014 with USD40 billion in assets to foster investment in OBOR partner countries.  Chinese state-run funds do not report the percentage of their assets that are invested domestically.  However, Chinese state-run funds follow the voluntary code of good practices known as the Santiago Principles and participate in the IMF-hosted International Working Group on SWFs.  The Chinese government does not have any formal policies specifying that CIC invest funds consistent with industrial policies or in government-designated projects, although CIC is expected to pursue government objectives.  CIC generally adopts a “passive” role as a portfolio investor.

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

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

Privatization Program

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

Since Xi’s rise to power in 2012, China has undergone an intensive and large-scale anti-corruption campaign, with investigations reaching into all sectors of the government, military, and economy.  Xi labeled endemic corruption an “existential threat” to the very survival of the CCP.  Since then, each CCP annual plenum has touched on judicial, administrative, and CCP discipline reforms needed to root out corruption.  In 2018, the CCP amended the constitution to enable the CCP’s Central Commission for Discipline Inspection (CCDI) to become a state organ, calling the new body the National Supervisory Commission-Central Commission for Discipline Inspection (NSC-CCDI). The NSC-CCDI wields the power to investigate any public official and those involved in corrupt officials’ dealings.  From 2012 to 2019, the NSC-CCDI claimed it investigated 2.78 million cases – more than the total of the preceding 10 years.  In 2019 alone, the NSC-CCDI investigated 619,000 cases and disciplined approximately 587,000 individuals, of whom 45 were officials at or above the provincial or ministerial level.  The PRC’s overseas fugitive-hunting campaign, called “Operation Skynet,” has led to the capture of more than 7,500 fugitives suspected of corruption who were living in other countries.  The PRC did not notify host countries of these operations.  In 2019 alone, NSC-CCDI reported apprehending 2,041 alleged fugitives suspected of official crimes, including 860 corrupt officials, as well as recovering about USD797.5 million in stolen money.

Anecdotal information suggests the PRC’s anti-corruption crackdown is inconsistently and discretionarily applied, raising concerns among foreign companies in China.  For example, to fight rampant commercial corruption in the medical/pharmaceutical sector, the PRC’s health authority issued “black lists” of firms and agents involved in commercial bribery, including several foreign companies.  Anecdotal information suggests many PRC officials responsible for approving foreign investment projects, as well as some routine business transactions, delayed approvals so as not to arouse corruption suspicions, making it increasingly difficult to conduct normal commercial activity.  While central government leadership has welcomed increased public participation in reporting suspected corruption at lower levels, direct criticism of central government leadership or policies remains off-limits and is seen as an existential threat to China’s political and social stability.

China ratified the United Nations Convention against Corruption in 2005 and participates in the Asia-Pacific Economic Cooperation (APEC) and OECD anti-corruption initiatives.  China has not signed the OECD Convention on Combating Bribery, although Chinese officials have expressed interest in participating in the OECD Working Group on Bribery meetings as an observer.

Resources to Report Corruption

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

Foreign companies operating in China face a low risk of political violence.  However, protests in Hong Kong in 2019 exposed foreign investors to political risk due to Hong Kong’s role as an international hub for investment into and out of China.  The CCP also punished companies that expressed support for Hong Kong protesters — most notably, a Chinese boycott of the U.S. National Basketball Association after one team’s general manager expressed his personal view supporting the Hong Kong protesters.  In the past, the PRC government has also encouraged protests or boycotts of products from countries like the United States, South Korea, Japan, Norway, Canada, and the Philippines, in retaliation for unrelated policy decisions.  Examples of politically motivated economic retaliation against foreign firms include boycott campaigns against Korean retailer Lotte in 2016 and 2017 in retaliation for the South Korean government’s decision to deploy the Terminal High Altitude Area Defense (THAAD) to the Korean Peninsula; and the PRC’s retaliation against Canadian companies and citizens for Canada’s arrest of Huawei Chief Financial Officer Meng Wanzhou.

PRC authorities also have broad authority to prohibit travelers from leaving China (known as an “exit ban”) and have imposed exit bans to compel U.S. citizens to resolve business disputes, force settlement of court orders, or facilitate government investigations.  Individuals not directly involved in legal proceedings or suspected of wrongdoing have also been subject to lengthy exit bans in order to compel family members or colleagues to cooperate with Chinese courts or investigations.  Exit bans are often issued without notification to the foreign citizen or without clear legal recourse to appeal the exit ban decision.

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.

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.

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.

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.

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).

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

Policies Towards Foreign Direct Investment

The government actively encourages Foreign Direct Investment (FDI) and is committed to doubling it over the next several years.  Foreign companies are free to invest and list on the regional stock exchange Bourse Regionale des Valeurs Mobilieres (BRVM), which is based in Abidjan and covers the eight countries of the West African Economic and Monetary Union (WAEMU).  WAEMU members are part of the Regional Council for Savings and Investment, a regional securities regulatory body.

In most sectors, there are no laws that limit foreign investment.  There are restrictions on foreign investment in the health sector, law and accounting firms, and travel agencies.  There are regulations designed to control land speculation in urban areas, but they do not prevent foreigners from owning land.  Freehold land tenure in rural areas is difficult to negotiate, however, and can inhibit foreign investment.  Land tenure disputes exist all over the country owing to the lack of formal private land ownership in most areas.  Companies that wish to purchase land must have the property surveyed before obtaining title.  Surveying is tightly controlled by a small oligopoly of companies and can often cost more than the value of the parcel of land.  Most businesses, including agribusinesses and forestry companies, circumvent the complicated land purchase process by acquiring long-term leases instead.

The Ivoirian government’s investment promotion agency, the Center for the Promotion of Investment in Côte d’Ivoire (CEPICI), promotes and attracts national and foreign investment.  Its services are available to all investors, provided through a one-stop shop intended to facilitate business creation, operation, and expansion.  CEPICI ensures that investors receive incentives outlined in the investment code, and facilitates access to industrial land.  More information is available at http://www.cepici.gouv.ci/ .

Côte d’Ivoire maintains an ongoing dialogue with investors through various business networks and platforms, such as CEPICI, the Ivoirian Chamber of Commerce (CCI-CI), the association of large enterprises (CGECI), and the bankers’ association.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors generally have access to all forms of remunerative activity on terms equal to those enjoyed by Ivoirians.  The government encourages foreign investment, including state-owned and public firms that the government is privatizing, although in most cases the state reserves an equity stake in the new company.

There are no general, economy-wide limits on foreign ownership or control, and few sector-specific restrictions.  There are no laws specifically directing private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control in those firms, and no such practices have been reported.

Banks and insurance companies are subject to licensing requirements, but there are no restrictions designed to limit foreign ownership or to limit establishment of subsidiaries of foreign companies in this sector.  Investments in health, law and accounting, and travel agencies are subject to prior approval and require appropriate licenses and association with an Ivoirian partner.  The Ivoirian government has, on a case-by-case basis, mandated using local providers, hiring local employees, or arranging for eventual transfer to local control.

The government does not have an official policy to screen investments and its overall economic and industrial strategy does not discriminate against foreign-owned firms.  There are indications in some instances of preferential treatment for firms from countries with longstanding commercial ties to Côte d’Ivoire.

Other Investment Policy Reviews

Côte d’Ivoire has not conducted an investment policy review (IPR) through the OECD.  The WTO last conducted a Trade Policy Review in July 2012 and it can be found at https://www.wto.org/english/tratop_e/tpr_e/tp366_e.htm .

UNCTAD does not provide an IPR report for Côte d’Ivoire, though there are statistics on FDI in the UNCTAD country profile at https://unctadstat.unctad.org/countryprofile/generalprofile/en-gb/384/index.html .

The Government of Côte d’Ivoire provides information about sector policies and business opportunities in publicly available reports.  More information can be found at: http://www.cepici.gouv.ci/en/  or at: www.gcpnd.gouv.ci/ .

Business Facilitation

To improve the business environment, and as part of its successful efforts to secure a Compact with the Millennium Challenge Corporation, the government completed a series of reforms using the World Bank’s Ease of Doing Business Index as a reference.  These included:  accelerating the business creation process to 24 hours and issuing construction permits within 26 days, establishing a one-stop shop for external trade, and establishing a single tax-declaration form.  In 2019, Côte d’Ivoire improved its Doing Business ranking from 122^nd  to 110^th place.

Côte d’Ivoire’s online information portal containing all documents dedicated to business creation and registration (https://cotedivoire.eregulations.org/ ) is managed by CEPICI.  All the necessary documentation for registration is available online.  The one-stop shop for business registration takes 24 hours and has all the agencies under a single roof, giving a simplified approach to business creation.  Foreign investors have noted the one-stop shop has been very successful in speeding up registration.

Women have equal access to the registration process, and there have not been any reports of discrimination in that regard.

Outward Investment

Côte d’Ivoire does not promote or incentivize outward investment.  

The government does not restrict domestic investors from investing abroad.

Capital Markets and Portfolio Investment

Government policies generally encourage foreign portfolio investment.

The Regional Stock Exchange (BRVM) is located in Abidjan and the BRVM lists companies from the eight countries of the WAEMU.  The existing regulatory system effectively facilitates portfolio investment through the West African Central Bank (BCEAO) and the Regional Council for Savings Investments (CREPMF).  There is sufficient liquidity in the markets to enter and exit sizeable positions.

Government policies allow the free flow of financial resources into the product and factor markets.

The BCEAO respects IMF Article VIII on payment and transfers for current international transactions.

Credit allocation is based on market terms and has increased to support the private sector and economic growth, specifically for large businesses.  Foreign investors can acquire credit on the local market.

Money and Banking System

As of May 2020, there were 27 commercial banks and two credit institutions in Côte d’Ivoire.  Banks are expanding their national networks, especially in the secondary cities outside Abidjan, as domestic investment has increased up-country.  The total number of bank branches has more than doubled from 324 in 2010 to 694 branches in 2018 (latest data available).  Alternative financial services available include mobile money and microfinance for bill payments and transfers.  Many Ivoirians prefer mobile money over banking, but mobile money does not yet offer the same breadth of financial services as banks.

Most Ivoirian banks are compliant with the BCEAO’s minimum capital requirements.  Some public banks have large numbers of nonperforming loans.  The government is restructuring and privatizing the commercial banking sector in order to remove low performers from government accounts.

The estimated total assets of the five largest banks are around USD 10 billion and account for 49 percent of bank assets.

The BCEAO is common to the eight member states of the WAEMU and manages banking regulations.

Foreign banks are allowed to operate in Côte d’Ivoire; at least one has been in Côte d’Ivoire for decades.  They are subject to the WAEMU Banking Commission’s prudential measures and regulations.  Côte d’Ivoire did not lose any correspondent banking relationships in the past three years.  No known correspondent banking relationships are in jeopardy.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on the transfer or repatriation of capital and income earned, or on investments financed with convertible foreign currency.  Once an investment is established and documented, the government regularly approves the remittances of dividends and/or repatriation of capital.  The same holds true for requests for other sorts of transactions (e.g. imports, licenses, and royalty fees).

Funds associated with investments funded with convertible currency are freely convertible into any world currency.

Côte d’Ivoire is a member of the WAEMU, which uses the West African Franc (XOF), also called the CFA.  The French Treasury holds the international reserves of WAEMU member states and supports the fixed exchange rate of 655.956 CFA to the Euro.  In December 2019, the Ivoirian President as chairman of WAEMU announced the forthcoming transition from the CFA to another common regional currency to be called the Eco; details about the timeline or modalities of the change have not yet been published.

Remittance Policies

There are no recent changes or plans to change investment remittance policies.

There are no time limitations on remittances.  Total personal remittances received by Ivoirians were about USD 335 million in 2019 or 0.7 percent of GDP.

Sovereign Wealth Funds

Côte d’Ivoire does not have a sovereign wealth fund.

Companies owned or controlled by the state are subject to national laws and the tax code.  The Ivoirian government still holds substantial interests in many firms, including the refinery SIR (49 percent), the public transport firm (60 percent), the national television station RTI (98 percent), the national lottery (80 percent), the national airline Air Côte d’Ivoire (58 percent), and the land management agency Agence de Gestion Fonciere AGEF (35 percent).  Total assets of State-Owned Enterprises (SOEs) were USD 796 million and total net income of SOEs was USD 116 million in 2018 (latest figures).  Of the 82 SOEs, 28 are wholly government owned, 12 are majority owned, seven are with a blocking minority, and 35 are minority shares.  Each SOE has an independent board.  The government has begun the process of divestiture for some SOEs (see next section).  The Ivoirian government is an active participant in the banking, agri-business, mining, and telecom industries.

The published list of SOEs is available at https://dgpe.gouv.ci/index.php?p=portefeuille_etat 

SOEs competing in the domestic market do not receive non-market based advantages from the government.  They are subject to the same tax burdens and policies as private companies.

Côte d’Ivoire does not adhere to OECD guidelines for SOE corporate governance (it is not a member of OECD).

Privatization Program

The government began a program in 2013 – not yet completed – to privatize a quarter of public enterprises, including: approximately 15 public or semi-public enterprises, banks, and USD 232 million of investments the government holds in Industrial Promotion Services (IPS)-Aga Khan Foundation projects.  The government has completed privatization of the Societe Ivoirienne de Banque (now Attijariwafa-bank), the sugar company Sucrivoire, and the cotton firm Compagnie Ivoirienne de pour le Developpement du Textile (Ivoirian Company for Textile Development).  At the urging of the IMF, the government is privatizing Versus Bank, NSIA Bank, and the housing finance bank BHCI.

Contracts for participation in this program are competed through a French-language public tendering process, for which foreign investors are encouraged to submit bids.  No website on privatizations exists.

Corruption is a concern for businesses.  In 2013, the Ivoirian government issued Executive Order number 2013-660 related to the prevention and the fight against corruption.  The High Authority for Good Governance covers corruption issues and requires that all public officials submit asset declarations at the beginning and end of their tenures in office.  The country’s financial intelligence office, CENTIF, has broad authority to investigate suspicious financial transactions, including those of government officials.  Despite the establishment of these bodies and credible allegations of widespread corruption, there have been few charges filed, and few prosecutions and judgments against prominent people for corruption.  The former Prime Minister Guillaume Soro, now an opposition presidential candidate, was convicted of embezzlement and sentenced to 20 years in prison on April 28, 2020.  The domestic business community generally assesses that these watchdog agencies lack the power and/or will to actively combat corruption.

Anti-corruption laws extend to family members of officials and to political parties.

The country’s Code of Public Procurement No. 259 and the associated WAEMU directives cover conflicts-of-interest in awarding contracts or government procurement.

Under the Ivoirian Penal Code, a bribe by a local company to a foreign official is a criminal act.

Some private companies use compliance programs or measures to prevent bribery of government officials.  U.S. firms underscore to their Ivoirian counterparts that they are subject to the Foreign Corrupt Practices Act (FCPA).

Côte d’Ivoire ratified the UN Anti-Corruption Convention, but the country is not a signatory to the OECD Anti-Bribery Convention (which is open to non-OECD members).  In 2016, Côte d’Ivoire joined the Partnership on Illicit Finance, which obliges it to develop an action plan to combat corruption.

There are no special protections for NGOs involved in investigating corruption.

Corruption in many forms is deeply ingrained in public and private sector practices and remains a serious impediment to investment and economic growth in Côte d’Ivoire.  Many companies cite corruption as the most significant obstacle to investment in Côte d’Ivoire.  It has the greatest impact on judicial proceedings, contract awards, customs, and tax issues.  Lack of transparency and failure to follow the government’s own tender procedures in the awarding of contracts lead businesses to conclude bribery was involved.  Businesses have reported encountering corruption at every level of the civil service, with some judges appearing to base their decisions on bribes.  Clearance of goods at the ports often requires substantial “commissions,” and the Embassy has heard anecdotal accounts of customs agents rescinding valuations that were declared by other customs colleagues in an effort to extract bribes from customers.  The demand for bribes can mean that containers stay at the Port of Abidjan for months, incurring substantial demurrage charges, despite having the paperwork in order.

No local industry or non-profit groups offer services for vetting potential local investment partners.

Resources to Report Corruption

These contacts at agencies are responsible for combating corruption:

Inspector General of Finance
(Brigade de Lutte Contre la Corruption)
Lassina Sylla
Inspector General
TELEPHONE: +225 20212000/2252 9797
FAX: +225 20211082/2252 9798
HOTLINE: +225 8000 0380
http://www.igf.finances.gouv.ci/ 
info@igf.finances.gouv.ci

High Authority for Good Governance
(Haute Autorite pour la Bonne Gouvernance)
N’Golo Coulibaly
President
TELEPHONE: +225 22479 5000
FAX: +225 2247 8261

Police Anti-Racketeering Unit
(Unite de Lutte Contre le Racket –ULCR)
Alain Oura
Unit Commander
TELEPHONE: +225 2244 9256
info@ulcr.ci

President Alassane Ouattara was elected to a second term in 2015.  In 2016, the country adopted a new constitution, creating the position of Vice-President, and a Senate, which first convened in April 2018.  During and/or after recent elections, such as in 2010 and 2018, demonstrations and protests by political parties were common and occasionally led to vandalism and clashes with security forces.  Unions also engage in protests that sometimes become violent.  The lack of consensus on the composition of the country’s independent electoral commission, the contentious reform of its electoral code, and the exclusion of key opposition figures from the presidential race have aggravated political divides within the country.

Côte d’Ivoire’s security situation has significantly improved since its 2010-2011 post-electoral violence.  In early 2017, some Ivoirian soldiers mutinied, demanding payment of bonuses.  The government responded by largely acceding to their demands and pledging to improve living and working conditions for armed and security forces, which it has steadily done over the ensuing years.  Côte d’Ivoire suffered a terrorist attack in March 2016 in the popular tourist town of Grand Bassam.  Al-Qaeda in the Islamic Maghreb claimed responsibility for the attack and continues to pose a major terrorism risk to the region.  Côte d’Ivoire continues to improve its domestic security approach and international cooperation to combat the increasing terrorism/extremist threat emanating from the Sahel over the past years.

Policies Towards Foreign Direct Investment

Croatia is generally open to foreign investment and the Croatian government continues to make efforts, through financial incentives, to attract foreign investors.  All investors, both foreign and domestic, are guaranteed equal treatment by law, with a handful of exceptions described below.  However, bureaucratic and political barriers remain.  Investors agree that an unpredictable regulatory framework, lack of transparency, judicial inefficiencies, lengthy administrative procedures, lack of structural reforms, and unresolved property ownership issues weigh heavily upon the investment climate.

Croatia is partnered with the World Bank on the “Croatia Business Environment Reform” project which intends to help Croatia implement various business reforms. The Ministry of Economy, Entrepreneurship and Crafts Directorate for Investment, Industry and Innovation assists investors.  For more information, see: http://investcroatia.gov.hr/ .  The Strategic Investment Act fast-tracks and streamlines bureaucratic processes for large projects valued at USD 10.7 million or more on the investor’s behalf.  Various business groups, including the American Chamber of Commerce, Foreign Investors’ Council, and the Croatian Employers’ Association, are in dialogue with the government about ways to make doing business easier and to keep investment retention as a priority.

Limits on Foreign Control and Right to Private Ownership and Establishment

Croatian law allows for all entities, both foreign and domestic, to establish and own businesses and to engage in all forms of remunerative activities.  Article 49 of the Constitution states all entrepreneurs have equal legal status.  However, the Croatian government restricts foreign ownership or control of services for a handful of national security-sensitive sectors:  inland waterways transport, maritime transport, rail transport, air to ground handling, freight-forwarding, publishing, education, and ski instruction.  Apart from these, the only blocks to market access involve professional licensing requirements (architect, auditor, engineer, lawyer, and veterinarian, etc), about which detailed information can be found at http://psc.hr/en/sectoral-requirements/ .  Over 90 percent of the banking sector is foreign-owned.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) published an investment climate review for Croatia in June 2019:

https://www.oecd.org/publications/oecd-investment-policy-reviews-croatia-2019-2bf079ba-en.htm 

The World Bank Group published a “Doing Business” Economic Profile of Croatia in 2019: https://www.doingbusiness.org/content/dam/doingBusiness/country/c/croatia/HRV.pdf 

Business Facilitation

The Croatian government offers two e-government options for on-line business registration, www.hitro.hr  and start.gov.hr , both of which provide 24-hour access.  Start.gov.hr provides complete business registration for a limited liability company (d.o.o.), simple limited company (j.d.o.o.) or company, without any need to physically enter a public administration office.  The procedure guarantees a short turnaround on requests and provides deadlines by which the company can expect to be registered.  The Start.gov.hr procedure eliminates fees for public notaries, proxies, seals and stamps, and reduces court registration fees by 50 percent.  Hitro.hr also provides on-line services but maintains offices in 60 Croatian cities and towns for those who want to register their business in person.

In 2019, the Global Enterprise Registration website (www.GER.co ) rated Croatia’s business registration process 4 out of 10, while the 2020 World Bank Ease of Doing Business report ranks Croatia as 114 out of 190 countries in this category.  The government pledged to improve conditions for business registration.  In 2019, the government adopted legislation relieving the service sector of various fees, licensing requirements, and prohibitions for companies in legal services, energy certification, architecture, accounting, tourism, pharmaceutics, and physical therapy.  Croatia’s business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.

The United Nations Conference on Trade and Development (UNCTAD)  provides an outline of investment facilitation proposals at https://investmentpolicy.unctad.org/country-navigator/53/croatia .

Outward Investment

Croatian foreign direct investment totals approximately USD 23.1 million in the United States, according to Croatian National Bank figures.  The government does not promote or incentivize outward investment.  Croatia has no restrictions on domestic investors who wish to invest abroad.

Capital Markets and Portfolio Investment

Croatia’s securities and financial markets are open equally to domestic and foreign investment. Foreign residents may open non-resident accounts and may do business both domestically and abroad.  Specifically, Article 24 of the Foreign Currency Act states that non-residents may subscribe, pay in, purchase, or sell securities in Croatia in accordance with regulations governing securities transactions.  Non-residents and residents are afforded the same treatment in spending and borrowing.  These and other non-resident financial activities regarding securities are covered by the Foreign Currency Act, available on the central bank website (www.hnb.hr).

Securities are traded on the Zagreb Stock Exchange (ZSE), established in 1991.  Regulations that govern activity and participation in the ZSE can be found (in English) at: http://zse.hr/default.aspx?id=97 .  There are three tiers of securities traded on the ZSE.  The Capital Markets Act regulates all aspects of securities and investment services, and defines the responsibilities of the Croatian Financial Services Supervisory Agency (HANFA). The Capital Market Act was amended in 2019 and went into force on February 22, 2020.  The amendments include the increase from USD 5.4 million to USD 8.7 million for mandatory publication of share prospectus, changes to administrative obligations, and a decrease in fees for issuing securities.  These amendments also give HANFA more authority over corporate management of those companies listed on the capital market.  All legislation associated with the Capital Market act can be found (in English) at: http://www.hanfa.hr/regulations/capital-market/ .

There is sufficient liquidity in the markets to enter and exit sizeable positions.  There are no policies that hinder the free flow of financial resources.  There are no restrictions on international payments or transfers.  As such, Croatia is in accordance with IMF Article VIII.  The private sector, both domestic and foreign owned, enjoys open access to credit and a variety of credit instruments on the local market, on market terms.

Money and Banking System

The banking sector is now overwhelmingly privatized, consolidated, highly developed, competitive, and increasing the diversity of products available to businesses (foreign and domestic) and consumers.  French, German, Italian or Austrian companies own over 90 percent of Croatia’s banks. In 2016, Addiko Bank became the first U.S. bank registered in Croatia by taking over all of Hypo Bank’s holdings in Croatia.  The banking sector suffered no long-term consequences during the 2008 global banking crisis.  More than 90 percent of total banking sector assets are foreign-owned.  As of December 2019, there were 20 commercial banks and three savings banks, with assets totaling USD 65.11 billion.  The largest bank in Croatia is Italian-owned Zagrebacka Banka, with assets of USD 17.8 billion, for a market share of 27.3 percent of total banking assets in Croatia. The second-largest is Italian-owned Privredna Banka Zagreb, with USD 13.2 billion, or 20.3 percent of total banking assets.  The third largest is Austrian Erste Bank, with assets of USD 9.7 billion, with a 14.893 percent market share in Croatia.  The country has a central bank system and all information regarding the Croatian National Bank can be found at http://www.hnb.hr/ .

Non-residents are able to open bank accounts without restrictions or delays.  The Croatian government has not introduced or announced any current intention to introduce block chain technologies in banking transactions.

Foreign Exchange and Remittances

The Croatian Constitution guarantees the free transfer, conversion, and repatriation of profits and invested capital for foreign investments. Article VI of the U.S.-Croatia Bilateral Investment Treaty (BIT) additionally establishes protection for American investors from government exchange controls. The BIT obliges both countries to permit all transfers relating to a covered investment to be made freely and without delay into and out of each other’s territory.  Transfers of currency are additionally protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7).

The Croatian Foreign Exchange Act permits foreigners to maintain foreign currency accounts and to make external payments.  The Foreign Exchange Act also defines foreign direct investment (FDI) in a manner that includes use of retained earnings for new investments/acquisitions, but excludes financial investments made by institutional investors such as insurance, pension and investment funds.  The law also allows Croatian entities and individuals to invest abroad.  Funds associated with any form of investment can be freely converted into any world currency.

The exchange rate is determined by the Croatian National Bank through “managed floating.”  The National Bank intervenes in the foreign exchange market to ensure the Euro-Croatian kuna rate remains stable as an explicit and longstanding policy.  The exchange rate of the Croatian kuna, while floating and not pegged freely, is more tightly linked to the euro than the U.S. dollar.  Any risk of currency devaluation or significant depreciation is generally low.

Remittance Policies

No limitations exist, either temporal or by volume, on remittances.  The U.S. Embassy in Zagreb has not received any complaints from American companies regarding transfers and remittances.

Sovereign Wealth Funds

Croatia does not own any sovereign wealth funds.

There are currently a total of 58 state-owned enterprises (SOEs) that are either wholly state-owned or in which the state has a majority stake.  The SOEs are managed through the Ministry of State Owned Property or the Center for Restructuring and Sale (CERP).  In 2018, the government established an official list of 39 “special state interest” SOEs overseen by the Ministry of State Owned Property, including 19 wholly state-owned, 19 majority state-owned companies, and one with less than 50 percent ownership.  CERP oversees the other 19 SOEs, of which 11 are wholly state-owned and eight are majority state-owned.

These SOEs cover a range of sectors including infrastructure, energy, real estate, finance, transportation, and utilities.  The latest figures available, from 2018, show that SOEs employ a total of 69,509 people and have net revenues totaling USD 9.6 billion and assets of USD 44.7 billion.  The government appoints the members of SOE management and supervisory boards, making the companies very susceptible to political influence.

CERP also oversees 347 companies; of these, the state owns from 10 to 49 percent of 77 companies, and under 10 percent of the remaining 251 companies.  By statute, CERP must divest the state from these companies.  Lists of SOEs are published on the websites of the Ministry of State Owned Assets at https://imovina.gov.hr/  and on CERP’s website at http://www.cerp.hr/ .

County and city level governments have majority ownership in approximately 500 companies, mostly utilities; however, exact data is not available.  The 2020 European Union Country Report for Croatia assesses that Croatia made slow progress in selling off holdings in non-strategic companies, and its targets are not ambitious.  The European Commission and the European Bank for Reconstruction and Development (EBRD) continue to provide support to Croatia through the Structural Reform Support Programme  (https://ec.europa.eu/info/funding-tenders/funding-opportunities/funding-programmes/overview-funding-programmes/structural-reform-support-programme-srsp_en ) for strengthening the functioning of state-owned enterprises.  The EC notes that this project created an early warning system to allow Croatian authorities to “identify when a state-owned enterprise is having financial difficulties and to prepare and implement plans to improve financial and operational performance.”  The EC concluded “this reform will make state-owned enterprises more resilient and allow the State to act as an informed and active owner.”

The International Monetary Fund (IMF) Staff Concluding Statement of the 2019 IMF Article IV Mission from December 2019 concluded that “management and performance needs to continue on the path of more modernization, so that enterprises in core areas support the productivity of the economy.”

A new Corporate Governance Code went into force in October of 2019 and is available at https://zse.hr/userdocsimages/legal/2019/ZSE_Kodeks_ENG_02.pdf.  Croatia is not a member of the OECD, but adheres to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas.

Privatization Program

Croatia continues to slowly pursue privatization of SOEs through the Ministry of State Owned Assets and the Center for Reconstruction and Sales.  There are no restrictions against foreigners participating in privatization tenders.  The banking sector, telecommunications, and Croatia’s largest pharmaceutical company were purchased by foreign investors when Croatia initiated its privatization process in the late 1990’s.  The bidding process is public and terms often clearly defined in tender documentation, however, problems with bureaucracy and timely judicial remedies can significantly slow progress for projects.  There is no privatization timeline; however, the government views privatization as a means to reduce the budget deficit and increase output.  The Ministry of State Owned Assets passed a new plan for Management of Sate Owned Property in 2020, which can be found only in Croatian at: https://imovina.gov.hr/UserDocsImages//dokumenti/Izvjesca//Godišnji%20plan%20upravljanja%20državnom%20imovinom%20za%202020.%20godinu.pdf-2020.pdf .

All tenders are published internationally and there are no restrictions on foreign investor participation in privatization.  The bidding process is public.  Tenders are in Croatian and can be found at https://imovina.gov.hr/vijesti/8 .

Croatia has a suitable legal framework, including regulations and penalties, to combat corruption.  The Criminal Code and the Criminal Procedure Act define the tools available to the investigative authorities to fight corruption.  The criminal code also provides for asset seizure and forfeiture.  In terms of a corruption case, it is assumed that all of a defendant’s property was acquired through criminal offences unless the defendant can prove the legal origin of the assets in question.  Financial gain in such cases is also confiscated if it is in possession of a third party (e.g. spouse, relatives, or family members) and was not acquired in good faith.  Croatian laws and provisions regarding corruption apply equally to domestic and foreign investors, to public officials, their family members and political parties.  The Croatian Criminal Code covers such acts as trading in influence, abuse of official functions, bribery in the private sector, embezzlement of private property, money laundering, concealment and obstruction of justice.  The Act on the Office for the Suppression of Corruption and Organized crime provides broad authority to prosecute tax fraud linked to organized crime and corruption cases.

The Law on Public Procurement is entirely harmonized with EU legislation and prescribes transparency and fairness for all public procurement activities.  Government officials use public speeches to encourage ethical business.  The Croatian Chamber of Economy created a Code of Business Ethics which it encourages all companies in Croatia to abide by, but it is not mandatory. The Code can be found at:  https://www.hgk.hr/documents/kodeksposlovneetikehrweb581354cae65c8.pdf .

Additional laws for the suppression of corruption include: the State Attorney’s Office Act; the Public Procurement Act; the Act on Procedure for Forfeiture of Assets Attained Through Criminal Acts and Misdemeanors; the Budget Act; the Conflict of Interest Prevention Act; the Corporate Criminal Liability Act; the Money Laundering Prevention Act; the Witness Protection Act; the Personal Data Protection Act; the Right to Access Information Act; the Act on Public Services; the Code of Conduct for Public Officials; and the Code of Conduct for Judges.  The Labor Act contains whistleblower protections, which as yet remain unproven.

Croatia has not signed but has requested to join the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, but it is a member and currently chairs the Group of States Against Corruption (GRECO), a peer monitoring organization that allows members to assess anticorruption efforts on a continuing basis.  Croatia has been a member of INTERPOL since 1992.  Croatia cooperates regionally through the Southeast European Co-operative Initiative (SECI), the Southeast Europe Police Chiefs Association (SEPCA), and the Regional Anti-Corruption Initiative (RAI).  Croatia is a member of Eurojust, the EU’s Judicial Cooperation Unit, and is a signatory to the UN Convention Against Corruption.

Croatian legislation provides protection for NGOs involved in investigating or drawing attention to corruption.  GONG, a non-partisan citizens’ organization founded in 1997, which also acts as a government watchdog, monitors election processes, educates citizens about their rights and duties, encourages communication between citizens and their elected representatives, promotes transparency within public services, manages public advocacy campaigns, and assists citizens in self-organizing initiatives.  The Partnership for Social Development is another nongovernmental organization active in Croatia dealing with the suppression of corruption.

Historically, the business community has identified corruption in healthcare, public procurement, and construction, and continues to raise it as an obstacle to FDI.  During the years ahead of EU accession, Croatia invested considerable efforts in establishing a wide-ranging legal and institutional anti-corruption framework.  The Strategy for Combatting Corruption from 2015-2020 is currently being implemented, and the Ministry of Justice published an action plan in April 2019 for 2019-2020 to complement it.  Croatian prosecutors have secured corruption convictions against a number of high-level former government officials, former ministers, other high-ranking officials, and senior managers from state-owned enterprises, although many such convictions have later been overturned.

Resources to Report Corruption

The State Prosecutor’s Office for the Suppression of Corruption and Organized Crime (USKOK) is tasked with directing police investigations and prosecuting cases.  USKOK is headquartered in Zagreb, with offices in Split, Rijeka and Osijek.  In addition, the National Police Office for the Suppression of Corruption and Organized Crime (PN-USKOK) conducts corruption-related investigations and is based in the same cities.  Specialized criminal judges are situated in the four largest county courts in Croatia, again in Zagreb, Rijeka, Split, and Osijek, and are responsible for adjudicating corruption and organized crime cases.  The cases receive high priority in the justice system, but still encounter excessive delays.  The Ministry of Interior, the Office for Suppression of Money Laundering, the Tax Administration, and the Anti-Corruption Sector of the Ministry of Justice, all have a proactive role in combating and preventing corruption.  GONG is a civil society organization founded in 1997 to encourage citizens to actively participate in the political process.

Contact information below:

Office of the State Attorney of the Republic of Croatia
Gajeva 30, 10000 Zagreb, Republic of Croatia
+385 1 4591 855
tajnistvo.dorh@dorh.hr

Office for the Suppression of Corruption and Organized Crime
Gajeva 30a, 10000 Zagreb, Republic of Croatia
+385 1 4591 874
tajnistvo@uskok.dorh.hr

GONG
Trg Bana Josipa Jelacica 15/IV, 10000 Zagreb, Republic of Croatia
+385 1 4825 444
gong@gong.hr

The risk of political violence in Croatia is low.  Following the breakup of Yugoslavia and the subsequent wars in the region, Croatia has emerged as a stable, democratic country and is a member of NATO and the EU.  Relations with neighboring countries are generally fair and improving, although some disagreements regarding border demarcation and residual war-related issues persist.

Policies Towards Foreign Direct Investment

REPUBLIC OF CYPRUS

The ROC has a favorable attitude towards FDI and welcomes U.S. investors.  There is no discrimination against U.S. investment; however there are some ownership limitations and licensing restrictions set by law on non-EU investment in certain sectors, such as private land ownership, media, and construction (see Limits on Foreign Control, below).  The ROC promotes FDI through a dedicated agency, Invest Cyprus, which is tasked with attracting FDI in the key economic sectors of shipping, education, real estate, tourism and hospitality, energy, investment funds, filming, and innovation and startups.  Invest Cyprus is the first point of contact for investors, and provides detailed information on the legal, tax, and business regulatory framework.  The ROC and Invest Cyprus also promote an ongoing dialogue with investors through a series of promotion seminars each year.  The Cyprus Chamber of Commerce and Industry (CCCI) is a robust organization with country-specific bilateral chambers, including the American Chamber (AmCham Cyprus), that is dedicated to promoting FDI and serving the business interests of foreign companies and trade partners operating in Cyprus.

For more information:

Invest Cyprus
9 Makariou III Avenue
Severis Building, 4^th Floor
1965 Nicosia, Cyprus
Tel: +357 22 441133
Fax: +357 22 441134
Email: info@investcyprus.org.cy
Website: https://www.investcyprus.org.cy

Cyprus Embassy Trade Center – New York
13 East 40^th Street
New York, NY 10016
Phone: (212) 213-9100
Fax: (212) 213-9100
Website: https://www.cyprustradeny.org/

AREA ADMINISTERED BY TURKISH CYPRIOTS

Turkish Cypriots welcome FDI and are eager to attract investments, particularly those that will lead to the transfer of advanced technology and technical skills.  Priority is also given to investments in export-oriented industries.  There are no laws or practices that discriminate against FDI.  The “Turkish Cypriot Investment Development Agency (YAGA)” provides investment consultancy services, guidance on the legal framework, sector specific advice and information about investor incentives.

“Turkish Cypriot Development Agency” (“YAGA”)
Tel: +90 392 – 22 82317
Website: http://www.investinnorthcyprus.org

Limits on Foreign Control and Right to Private Ownership and Establishment

REPUBLIC OF CYPRUS

The ROC does not currently have a mandatory foreign investment screening mechanism that grants approval to FDI other than sector-specific licenses granted by relevant ministries.  Invest Cyprus does grant approvals for investment under the film production incentive scheme.  Invest Cyprus often refers projects for review to other agencies.  The ROC’s investment-based residency and citizenship program is regulated by law, with interagency approvals of citizenship after a due diligence check on the citizenship applicant.

The following restrictions apply to investing in the ROC:

• Non-EU entities (persons and companies) may purchase only two real estate properties for private use (two holiday homes or a holiday home and a shop or office). This restriction does not apply if the investment property is purchased through a domestic Cypriot company or a corporation elsewhere in the EU.  S. investment in such companies is welcome.
• Non-EU entities cannot invest in the production, transfer, and provision of electrical energy. The Council of Ministers may refuse granting a license for investment in hydrocarbons prospecting, exploration, and exploitation to a third-country national or company if that third country does not allow similar investment by Cyprus or other EU member states.  ROC hydrocarbon exploration is currently led by two U.S. companies.
• Individual non-EU investors may not own more than five percent of a local television or radio station, and total non-EU ownership of any single local TV or radio station is restricted to a maximum of 25 percent.
• The right to register as a building contractor in Cyprus is reserved for citizens of EU member states. Non-EU entities are not allowed to own a majority stake in a local construction company.  Non-EU physical persons or legal entities may bid on specific construction projects but only after obtaining a special license by the Council of Ministers.
• Non-EU entities cannot invest directly in private tertiary education institutions but may do so through ownership of Cypriot or EU companies.
• The provision of healthcare services on the island is subject to certain restrictions, applying equally to all non-residents.
• The Central Bank of Cyprus’s prior approval is necessary before any individual person or entity, whether Cypriot or foreign, can acquire more than 9.99 percent of a bank incorporated in Cyprus.

AREA ADMINISTERED BY TURKISH CYPRIOTS

According to the “Registrar of Companies Office,” all non-Turkish Cypriot ownership of construction companies is capped at 49 percent.  Currently, the travel agency sector is closed to foreign investment.  Registered foreign investors may buy property for investment purposes but are limited to one parcel or property.  Foreign natural persons also have the option of forming private liability companies, and foreign investors can form mutual partnerships with one or more foreign or domestic investors.

Other Investment Policy Reviews

Nothing to report.

Business Facilitation

REPUBLIC OF CYPRUS

The Ministry of Energy, Commerce and Industry (MECI) provides a “One Stop Shop” business facilitation service.  The One-Stop-Shop offers assistance with the logistics of registering a business in Cyprus to all investors, regardless of origin and size.  MECI’s Department of the Registrar of Companies and Official Receiver (DRCOR) provides the following services: Registration of domestic and overseas companies, partnerships, and business names; bankruptcies and liquidations; and trademarks, patents, and intellectual property matters.

One-Stop-Shop & Point of Single Contact
Ministry of  Energy, Commerce, and Industry (MECI)
13-15 Andreas Araouzos
1421 Nicosia, Cyprus
Tel. +357 22 409318 or 321
Fax: +357 22 409432
Email 1: onestopshop@mcit.gov.cy
Email 2: psccyprus@mcit.gov.cy
Website: www.businessincyprus.gov.cy

Domestic and foreign investors may establish any of the following legal entities or businesses in the ROC:

• Companies (private or public);
• General or limited partnerships;
• Business/trade name;
• European Company (SE); and
• Branches of overseas companies.

The registration process takes approximately two working days and involves completing an application for approval/change of name, followed by the steps outlined in the following link: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/All/A2E29870C32D7F17C2257857002E18C9?OpenDocument.

At the end of 2019, there were a total of 223,282 companies registered in the ROC, 12,781 of which had been registered in 2019 (for more statistics on company registrations, please see: https://www.companies.gov.cy/en/knowledgebase/statistics).

In addition to registering a business, foreign investors, like domestic business owners, are required to obtain all permits that may be necessary under Cypriot law.  At a minimum, they must obtain residence and employment permits, register for social insurance, and register with the tax authorities for both income tax and Valued Added Tax (VAT).  In order to use any building or premises for business, including commerce, industry, or any other income-earning activity, one also needs to obtain a municipal license.  Additionally, town planning or building permits are required for building new offices or converting existing buildings.  There are many sector-specific procedures.  Information on all of the above procedures is available online at: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/eke08_en/eke08_en?OpenDocument.

The World Bank’s 2020 Doing Business report (http://www.doingbusiness.org/rankings) ranked Cyprus 54th out of 190 countries for ease of doing business.  Among the ten sub-categories that make up this index, Cyprus performed best in the areas of protecting minority investors (21/190) and paying taxes (29/190), and worst in the areas of enforcing contracts (142/190) and dealing with construction permits (125/190).  Cyprus has recorded small gains in almost all subcategories since the 2019 report, with a substantial improvement in the area of paying taxes, achieving a small overall climb in its ranking since last year.  Using another metric, in the Global Competitiveness Index, issued by the World Economic Forum, Cyprus maintained its ranking of 44^th out of 141 countries in the 2019 edition.  The two areas where Cyprus performed the worst in this report were in terms of its small market size and relatively low innovation capability.

The ROC follows the EU definition of micro-, small- and medium-sized enterprises (MSMEs), and foreign-owned MSMEs are free to take advantage of programs in Cyprus designed to help such companies, including the following:

• Eurostars Cyprus:  http://www.fundingprogrammesportal.gov.cy/easyconsole.cfm/page/programme/fsId/18/lang/en;
• EBRD Small Firm Competitiveness Program: http://www.ebrd.com/cs/Satellite?c=Content&cid=1395266780410&d=Mobile&pagename=EBRD%2FContent%2FContentLayout.

Foreign investors can take advantage of the services and expertise of Invest Cyprus, an agency registered under the companies’ law and funded mainly by the state, dedicated to attracting investment.

Invest Cyprus
9A Makarios III Ave
Severis Bldg., 4th Flr.
1065 Nicosia
Tel. +357-22-441133
Fax: +357-22-441134
Email: info@investcyprus.org.cy
Website: http://www.investcyprus.org.cy/

AREA ADMINISTERED BY TURKISH CYPRIOTS

Information available on the “Registrar of Companies’” website is available only in Turkish: http://www.rkmmd.gov.ct.tr/.  An online registration process for domestic or foreign companies does not exist and registration needs to be completed in person.

The “YAGA” website (http://www.yaga.gov.ct.tr/) provides explanations and guides in English on how to register a company in the area administrated by Turkish Cypriots.

As of August 2020, the “Registrar of Companies Office” statistics indicated there were 21,626 registered companies, of which 16,557 were Turkish Cypriot majority-owned limited liability companies; 433 foreign companies; and 493 offshore companies.

The area administered by Turkish Cypriots defines MSMEs as entities having fewer than 250 employees.  There are several grant programs financed through Turkish aid and EU aid targeting MSMEs.

The Turkish Cypriot Chamber of Commerce (KTTO) publishes an annual Competitiveness Report on the Turkish Cypriot economy, based on the World Economic Forum’s methodology.  KTTO’s 2018-2019 report ranked northern Cyprus 89 among 140 economies, dropping twenty places from its ranking in 2017.

For more information and requirements on establishing a company, obtaining licenses, and doing business visit:

“Turkish Cypriot Development Agency” (“YAGA”)
Tel: +90 392 – 22 82317
Website: http://www.yaga.gov.ct.tr/

Turkish Cypriot Chamber of Commerce (KTTO)
https://www.ktto.net/en/
Tel: +90 392 – 228 37 60 / 228 36 45
Fax: +90 392 – 227 07 82

Outward Investment

REPUBLIC OF CYPRUS

The ROC does not restrict outward investment, other than in compliance with international obligations such as specific UN Security Council Resolutions.  In terms of programs to encourage investment, businesses in Cyprus have access to several EU programs promoting entrepreneurship, such as the European Commission’s InvestEU Programme (2021-2027) aiming to support sustainable infrastructure, innovation and small businesses, or the Erasmus program for Young Entrepreneurs, in addition to the European Investment Bank’s guarantee facilities for SMEs for projects under $4.7 million (€4 million).

AREA ADMINISTERED BY TURKISH CYPRIOTS

Turkish Cypriot “officials” do not incentivize or promote outward investment.  The Turkish Cypriot authorities do not restrict domestic investors.

Capital Markets and Portfolio Investment

REPUBLIC OF CYPRUS

The Cyprus Stock Exchange (CSE), launched in 1996, is one of the EU’s smallest stock exchanges, with a capitalization of $3.5 billion (€3.0 billion) as of March 2020.  The CSE and the Athens Stock Exchange (ASE) have operated from a joint trading platform since 2006, allowing capital to move more freely from one exchange to the other, even though both exchanges retain their autonomy and independence.  The joint platform has increased capital available to Cypriot firms and improved the CSE’s liquidity, although its small size remains a constraint.  The private sector has access to a variety of credit instruments, which has been enhanced through the operation of private venture capital firms.  Credit is allocated on market terms to foreign and local investors alike.  Foreign investors may acquire up to 100 percent of the share capital of Cypriot companies listed on the CSE with the notable exception of companies in the banking sector.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There is no stock exchange in the area administrated by Turkish Cypriots and no foreign portfolio investment.  Foreign investors are able to get credit from the local market, provided they have established domestic legal presence, majority-owned (at least 51 percent) by domestic companies or persons.

Money and Banking System

REPUBLIC OF CYPRUS

At the end of June 2020, the value of total deposits in ROC banks was $55.9 billion (€47.8 billion), and the value of total loans was $37.7 billion (€32.2 billion).  More details on local monetary and financial statistics are available at: https://www.centralbank.cy/en/publications/monetary-and-financial-statistics/year-2020.  Currently, there are seven local banks in Cyprus offering a full range of retail and corporate banking services – the largest two of which are the Bank of Cyprus and Hellenic Bank – plus another two dozen or so subsidiaries or branches of foreign banks offering more specialized services.  The full list of authorized credit institutions in Cyprus is available on the Central bank of Cyprus website: https://www.centralbank.cy/en/licensing-supervision/banks/register-of-credit-institutions-operating-in-cyprus.

The banking sector has made significant progress since the 2013 financial crisis resulted in numerous bankruptcies, consolidation, and a “haircut” of uninsured deposits.  The island’s two largest banks – Bank of Cyprus and Hellenic – are now adequately capitalized and have returned to profitability.  However, the profitability of the banking sector as a whole is challenged by low interest margins, a high level of liquidity, and a still elevated volume of NPLs.  NPLs in Cyprus are the second-highest in the EU at 28.5 percent of total loans at the end of 2019, compared to 30.3 percent a year earlier, albeit considerably lower than in 2014, when they reached 47.8 percent.  Banks continue striving to reduce NPLs further, either by selling off portfolios of NPLs or using recently amended insolvency and foreclosure frameworks.  The economic impacts of the COVID-19 pandemic and political pressure to protect citizens under current extraordinary circumstances makes reducing NPLs difficult at this time.

Cyprus has a central bank – the Central Bank of Cyprus – which forms part of the European Central Bank.  Foreign banks or branches are allowed to establish operations in Cyprus.  They are subject to Central Bank of Cyprus supervision, just like domestic banks.  Citibank, Bank of New York, and HSBC currently provide U.S. dollar correspondent banking services to ROC banks.

Opening a personal or corporate bank account in Cyprus is straightforward, requiring routine documents.  But because of a history of money-laundering concerns, banks now carefully scrutinize these documents and can conduct extensive due diligence checks on sources of wealth and income.  A local bank account is not necessary for personal household expenses.  Opening a corporate bank account is mandatory when registering a company in Cyprus.

Cyprus has taken steps since 2018 to address recognized regulatory shortcomings in combatting illicit finance in its international banking and financial services sector, tightening controls over non-resident shell companies and bank accounts.  Cyprus’ first National Risk Assessment (NRA) of money laundering and terrorist financing, released publicly November 30, 2018, is available at: http://mof.gov.cy/en/press-office/announcements/national-risk-assessment-of-money-laundering-and-terrorist-financing-risks-cyprus.  Cyprus is a member of the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body.  Its most recent mutual evaluation report of the Cypriot banking sector, released February 2, 2020, can be found at: https://www.coe.int/en/web/moneyval/-/cyprus-should-pursue-money-laundering-from-criminal-proceeds-generated-outside-of-the-country-more-aggressively.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The “Central Bank” oversees and regulates local, foreign, and private banks.  In addition to the “Central Bank” and the “Development Bank”, there are 21 banks in the area administrated by Turkish Cypriots, of which 16 are Turkish Cypriot-owned banks, and five are branch banks from Turkey.  Banks are required to follow “know-your-customer” (KYC) and AML “laws,” which are regulated by the “Ministry of Economy and Energy,” and supervised by the “Central Bank,” but AML practices do not meet international standards.  Due to non-recognition issues, Turkish Cypriot banks do not qualify for a SWIFT number to facilitate international transactions.  All international transfers depend on routing through Turkish banks.  The total number of deposits was approximately $4.29 billion (3,300 billion Turkish Lira) as of December 2019.  The “Central Bank” claimed 96.7 percent liquidity, assessing this as sufficient to withstand a crisis.  NPLs reached $165 million (1.266 billion Turkish Lira) as of December 2019.

More information is available at the “Central Bank” website: http://www.kktcmerkezbankasi.org/.

Foreign Exchange and Remittances

Foreign Exchange

REPUBLIC OF CYPRUS

The ROC is a member of the Eurozone.  The Eurozone has no restrictions on the transfer or conversion of its currency, and the exchange rate is freely determined in the foreign exchange market.  There is no difficulty in obtaining foreign exchange.  Since the 2008 global financial crisis, the European Commission has pursued several initiatives aimed at creating a safer and sounder financial sector, known as the Banking Union.  These initiatives, which include stronger prudential requirements for banks, improved depositor protection and rules for managing failing banks, form a single rulebook for all financial actors in the member states of the EU.  For more info, please refer to: http://ec.europa.eu/finance/general-policy/banking-union/index_en.htm.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The “TRNC” has a separate financial system from the ROC, linked closely with that of Turkey.  The Turkish Lira is the main currency in use, although the Euro, U.S. dollar, and British pound are commonly accepted.  The vast majority of business borrowing is derived from domestic and Turkish sources.

A devaluation of the Turkish Lira against foreign exchange rates (or the opposite) has a strong effect on the economy of the area administered by Turkish Cypriots.  Wages across sectors are generally paid in Turkish Lira, but almost all real estate, rents, electronic goods, vehicles, and other expensive products are valued in foreign currency.  Banks in the Turkish Cypriot administered areas provide lower interest rates for Euro or British pound loans than for Turkish Lira loans.  Foreign investors are authorized to repatriate all proceeds from their investments and business.

Banks are free to keep foreign currency, act as intermediary in import and export transactions, accept foreign currency savings, engage in purchase and sale of foreign currency, and give foreign currency loans.  All international correspondent banking services must route through Turkish banks.

Remittance Policies

REPUBLIC OF CYPRUS

There are no restrictions or delays on investment remittances or the inflow or outflow of profits.  Remittances may be moved through the regular banking system or through licensed Payment Institutions (PIs) or Electronic Money Institutions (EMIs), also regulated by the Central Bank of Cyprus.  The ROC’s first national risk assessment (NRA) of money laundering and terrorist financing, released publicly November 30, 2018, is available at: http://mof.gov.cy/en/press-office/announcements/national-risk-assessment-of-money-laundering-and-terrorist-financing-risks-cyprus.

The Central Bank of Cyprus maintains two public registers, listing both PIs and EMIs, whether authorized by the Central Bank of Cyprus or authorized in other EU Member States with the right of freedom to provide services in the ROC.

The two relevant CBC registers are:

Register of Licensed Payment Institutions: https://www.centralbank.cy/en/licensing-supervision/payment-institutions/licensing-and-supervision-of-payment-institutions

Register of Electronic Money Institutions: https://www.centralbank.cy/en/licensing-supervision/electronic-money-institutions/licensing-and-supervision-of-electronic-money-institutions

Sovereign Wealth Funds

REPUBLIC OF CYPRUS

The Parliament passed legislation March 1, 2019 providing for the establishment of a National Investment Fund (NIF) to manage future offshore hydrocarbons and other natural resources revenue.  Section 29 of the NIF Law specifies that the Corporation to be set up shall invest the Fund in a diversified manner with a view to maximizing risk-adjusted financial returns and in a manner consistent with the portfolio management by a prudent institutional investor.  The Fund is precluded from investing in securities issued by a Cypriot issuer (including the state) or in real estate located in Cyprus.  This provision safeguards against the possibility of speculative development catering to the Fund and political interference favoring domestic investments for purposes other than the best interests of the Fund and the Cypriot people as a whole.  Additionally, Section 30 of the law provides that the fund cannot invest, directly or indirectly, to acquire more than five percent of any one company or legal entity. The fund is not yet operational. Regulations for the NIF are being drafted and will require legislative approval, and it will be several years before there are any revenues generated from the ROC’s hydrocarbon assets.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There is no established sovereign wealth fund.

REPUBLIC OF CYPRUS

The ROC maintains exclusive or majority-owned stakes in more than 40 SOEs and is making slow progress towards privatizing some of them (see sections on Privatization and OECD Guidelines on Corporate Governance of SOEs).  There is no comprehensive list of all SOEs available but the most significant are the following:

• Electricity Authority of Cyprus (EAC)
• Cyprus Telecommunications Authority (CyTA)
• Cyprus Sports Organization
• Cyprus Ports Authority
• Cyprus Broadcasting Corporation (CyBC)
• Cyprus Theatrical Organization
• Cyprus Agricultural Payments Organization

These SOEs operate in a competitive environment (domestically and internationally) and are increasingly responsive to market conditions.  The state-owned EAC monopoly on electricity generation and distribution ended in 2014, although competition remains difficult given the small market size and delays in implementing new market rules.  As an EU Member State, Cyprus is a party to the WTO Government Procurement Agreement (GPA).

OECD Guidelines on Corporate Governance are not mandatory for ROC SOEs, although some of the larger SOEs have started adopting elements of corporate governance best practices in their operating procedures.  Each of the SOEs is subject to dedicated legislation.  Most are governed by a board of directors, typically appointed by the government at the start of its term, and for the duration of its term in office.  SOE board chairs are typically technocrats, affiliated with the ruling party.  Representatives of labor unions and minority shareholders contribute to decision making.  Although they enjoy a fair amount of independence, they report to the relevant minister.  SOEs are required by law to publish annual reports and submit their books to the Auditor General.

AREA ADMINISTERED BY TURKISH CYPRIOTS

In the area administrated by Turkish Cypriots, there are several “state-owned enterprises” and “semi-state-owned enterprises,” usually common utilities and essential services.

In the Turkish Cypriot administered area, the below-listed institutions are known as “public economic enterprises” (POEs), “semi-public enterprises” and “public institutions,” which aim to provide common utilities and essential services.

Some of these organizations include:

• Turkish Cypriot Electricity Board (KIBTEK);
• BRTK – State Television and Radio Broadcasting Corporation;
• Cyprus Turkish News Agency;
• Turkish Cypriot Milk Industry;
• Cypruvex Ltd. – Citrus Facility;
• EMU – Eastern Mediterranean Foundation Board;
• Agricultural Products Corporation;
• Turkish Cypriot Tobacco Products Corporation;
• Turkish Cypriot Alcoholic Products LTD;
• Coastal Safety and Salvage Services LTD; and
• Turkish Cypriot Development Bank.

Privatization Program

REPUBLIC OF CYPRUS

The ROC has made limited progress towards privatizations, despite earlier commitments to international creditors in 2013 to raise $1.6 billion (€1.4 billion) from privatizations by 2018.  In July 2017, opposition parties passed legislation abolishing the Privatizations Unit, an independent body established March 2014.  A bill providing the transfer of Cyprus Telecommunications Authority (CyTA) commercial activities to a private legal entity, with the government retaining majority ownership, has been pending since March 2018.  In December 2015, under the threat of strikes, the government reversed earlier plans to privatize the Electricity Authority of Cyprus (EAC), although it is still pushing ahead with unbundling the EAC’s generation and transmission operations into separate legal entities.

Despite these setbacks, the current administration remains committed to pursuing privatizations in piecemeal fashion.  On August 3, 2020, the ROC announced an agreement with a Cyprus-Israeli consortium for a $1.2 billion (€1.0 billion) Larnaca marina and port privatization project and related mixed-use development.  The government also continues efforts to sell the state lottery, find long-term investors to lease state-owned properties in the Troodos area, and forge a strategic plan on how to handle the Cyprus Stock Exchange.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The airport at Ercan and K-Pet Petroleum Corporation have been converted into public-private partnerships.  The concept of privatization continues to be controversial in the Turkish Cypriot community.

In March 2015, Turkish Cypriot authorities signed a public-private partnership agreement with Turkey regarding the management and operation of the water obtained from an underwater pipeline funded by Turkey.  Within the area administrated by Turkish Cypriots, there has also been discussion about privatizing the electricity authority “KIBTEK”, Turkish Cypriot telecommunications operations, and the seaports.

REPUBLIC OF CYPRUS

Corruption continues to undermine growth and investment in the ROC, despite the existence of a strong-anti corruption framework.  Ninety-five percent of Cypriots think the problem of corruption is widespread in their country, compared to an average of 71 percent in the EU28, according to a Eurobarometer survey on corruption conducted by the European Commission in December 2019.  In the same survey, 60 percent of Cypriots said they were personally affected by corruption in their daily life, compared to an average of just 26 across the EU.  Perhaps even more alarmingly, a 69 percent majority of Cypriots said they thought the level corruption had increased in the past three years, against 42 percent in the EU, who thought the same for their countries.  Cypriots put political parties at the top of their list of groups they thought perpetrated corruption (at 63 percent), followed by the healthcare system (59 percent), the police/customs (53 percent), and officials awarding public tenders (52 percent).  The Eurobarometer survey for Cyprus can be accessed at:  https://ec.europa.eu/cyprus/news/20200610_3_en.  Corruption, both in the public and private sectors, constitutes a criminal offense.  Under the Constitution, the Auditor General controls all government disbursements and receipts and has the right to inspect all accounts on behalf of the Republic, and fear of the Auditor General’s scrutiny is widespread.  Government officials sometimes manage procurement efforts with greater concern for the Auditor General than for getting the best outcome for the taxpayer.  Private sector concerns focus on the inertia in the system, as reflected in the Auditor General’s annual reports, listing hundreds of alleged incidents of corruption and mismanagement in public administration that usually remain unpunished or unrectified.

Transparency International, the global anti-corruption watchdog, ranked Cyprus 41st out of 180 countries in its 2019 Corruption Perception Index.  For reference, please see: https://www.transparency.org/country/CYP.  Disagreements between the Berlin-based headquarters of Transparency International and its Cypriot division in 2017 led to the dis-accreditation of the latter in 2017 and the launch of a successor organization on the island called the Cyprus Integrity Forum (contact details follow).

GAN Integrity, a business anti-corruption portal with offices in the United States and Denmark, released a report on corruption in Cyprus April 2018 noting the following:  “Although Cyprus is generally free from corruption, high-profile corruption cases in recent years have highlighted the presence of corruption risks in the Cypriot banking sector, public procurement, and land administration sector.  Businesses may encounter demands for irregular payments, but the government has established a strong legal framework to combat corruption and generally implements it effectively.  Bribery, facilitation payments and giving or receiving gifts are criminal offenses under Cypriot law.  The government has a strong anti-corruption framework and has developed effective e-governance systems (the Point of Single Contact and the e-Government Gateway project) to assist businesses.”  The report can be accessed at:  https://www.business-anti-corruption.com/country-profiles/cyprus/

Cyprus cooperates closely with EU and other international authorities to fight corruption and provide mutual assistance in criminal investigations.  Cyprus ratified the European Convention on Mutual Assistance in Criminal Matters.  Cyprus also uses the foreign Tribunal Evidence Law, Chapter 12, to execute requests from other countries for obtaining evidence in Cyprus in criminal matters.  Additionally, Cyprus is an active participant in the Council of Europe’s Multidisciplinary Group on Corruption.  Cyprus signed and ratified the Criminal Law Convention on Corruption and has joined the Group of States against Corruption in the Council of Europe (GRECO).  GRECO’s most recent report on Cyprus is available at: https://www.coe.int/en/web/greco/evaluations/cyprus.

Cyprus is also a member of the UN Anticorruption Convention (http://www.unodc.org/unodc/en/treaties/CAC/signatories.html) but it is not a member of the OECD Convention on Combatting Bribery (http://www.oecd.org/daf/anti-bribery/countryreportsontheimplementationoftheoecdanti-briberyconvention.htm).

Resources to Report Corruption

Government agencies responsible for combating corruption:

Financial Crime Unit
Cyprus Police Headquarters
Athalassa
1478 Nicosia
Tel. +357-22-808080
E-mail: fcu@police.gov.cy
Website: www.police.gov.cy

Unit for Combating Money Laundering (MOKAS)
7 Pericleous Str.
2020 Strovolos
Tel. +357-22-446004
E-mail: mokas@mokas.law.gov.cy
Website: http://www.law.gov.cy/law/mokas/mokas.nsf/index_en/index_en?OpenDocument

Auditor General of the Republic
6 Deligiorgi Str.
1406 Nicosia
Tel. +357-22-401300
E-mail: omichaelides@audit.gov.cy
Website: www.audit.gov.cy

Anti-corruption NGO:

Cyprus Integrity Forum (CIF)
38 Grivas Dhigenis Avenue & 3 Deligiorgis Street
POBox 21455
1509 Nicosia
+357 22 025772
F. +357 22 025773
E-mail: info@cyprusintegrityforum.org
Website: http://cyprusintegrityforum.org/

AREA ADMINISTERED BY TURKISH CYPRIOTS

Corruption in the area administered by Turkish Cypriots continues to be a major problem, mainly in the public sector, allegedly involving politicians, political parties, and bureaucrats.

Given its small size and disputed status, international anti-corruption organizations do not evaluate conditions in the north.

According to a 2018 Corruptions Perception Report carried out by Turkish Cypriot researchers at the Friedrich Ebert Stiftung (FES), a non-profit foundation funded by the German Government, an overwhelming 89 percent of Turkish Cypriot business people believe that bribery and corruption is widespread in the area administrated by Turkish Cypriots. According to the report, northern Cyprus scored 37 on a scale from zero to 100, where zero signifies the worst levels of perceived corruption and 100 the most rule-abiding states, and marked northern Cyprus 93rd place according to Transparency International’s Corruption Perceptions Index among 180 countries. Corruption, both in the public and private sectors, constitutes a criminal offense.  The “Audit Office” controls all disbursements and receipts and has the right to inspect all accounts.  In its annual report, this office identifies specific instances of mismanagement or deviation from proper procedures and anecdotal evidence suggests corruption and patronage continue to be a factor in the economy.  For more information, visit http://sayistay.gov.ct.tr.

REPUBLIC OF CYPRUS

There have been no incidents of politically-motivated damage to foreign projects and or installations since 1974.  U.S. companies have not been the target of violence.  There were numerous relatively peaceful protests against the ROC government following the financial crisis of March 2013 and in response to the forced conversion of deposits into equity.  Since then, protests against additional austerity measures have been fairly calm.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There have been no incidents of politically-motivated damage to foreign projects and or installations since 1974.  U.S. companies have not been the target of violence.  Protests and demonstrations, usually targeting the “government,” are commonplace.  They are generally peaceful and well-regulated; however, some demonstrations result in scuffles with police or minor damage to buildings.

Policies Towards Foreign Direct Investment

The Czech government actively seeks to attract foreign investment via policies that make the country a competitive destination for companies to locate, operate, and expand.  In 2019, the government made significant changes to the investment incentives law, eliminating incentives for investments targeting low-skilled labor growth.  The amended legislation (amended Act No. 72/2000 Coll.), which went into effect September 6, 2019, restricted incentive payments to primarily high value-added investments that focus on R&D and create jobs for university graduates.  The new statue also established more favorable rules for technological investments in sectors such as aerospace, information and communication technology, life sciences, nanotechnology, and advanced segments of the automotive industry.  Through these changes the government seeks to raise the country’s standard of living.

CzechInvest, the government investment promotion agency that operates under the Ministry of Industry and Trade (MOIT), negotiates on behalf of the Czech government with foreign investors.  In addition, CzechInvest provides assistance during implementation of investment projects, consulting services for foreign investors entering the Czech market, support for suppliers, and assistance for the development of innovative start-up firms.  There are no laws or practices that discriminate against foreign investors.

The Czech Republic is a recipient of substantial FDI.  Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD164 billion at the end of 2018, compared to USD156 billion in 2017.   CzechInvest negotiated 82 new investment projects by foreign investors in 2018, worth USD1.4 billion.

As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from EU partners.  In 2019, 83.6 percent of Czech exports went to fellow EU member states, with 51.8 percent of this volume shipped to the EU and 32.4 percent to the Czech Republic’s largest trading partner, Germany, according to the Czech Statistical Office.  Since emerging from recession in 2013, the economy had enjoyed some of the highest GDP growth rates of the European Union until the recent COIVD-19 outbreak.  GDP growth reached 3 percent in 2018 and 2.4 percent in 2019.  Due to the economic impact of COVID-19, the government predicts a 2020 GDP decline of 5.6 percent, while the International Monetary Fund predicts a 6.5 percent contraction.

The Czech Republic has no plans to adopt the euro as it believes having its own currency and independent monetary policy is helpful to manage an economic crisis like the current one caused by the COVID-19 pandemic.

The slow pace of legislative and judicial reforms has posed obstacles to investment, competitiveness, and company restructuring.  The Czech government has harmonized its laws with EU legislation and the acquis communautaire.  This effort involved positive reforms of the judicial system, civil administration, financial markets regulation, protection and enforcement of intellectual property rights, and in many other areas important to investors.

While there have been many success stories involving American and other foreign investors, a handful have experienced problems, mainly in heavily regulated sectors of the economy, such as media.   Both foreign and domestic businesses voice concerns about corruption.

Long-term economic challenges include dealing with an aging population and diversifying the economy away from an over-reliance on manufacturing and shared services toward a more high-tech, services-based, knowledge economy.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign individuals or entities can operate a business under the same conditions as Czechs.  Some areas, such as banking, financial services, insurance, or defense equipment have certain limitations or registration requirements, and foreign entities need to register their permanent branches in the Czech Commercial Register.  Some professionals, such as architects, physicians, lawyers, auditors, and tax advisors, must register for membership in the appropriate professional chamber.  In general, licensing and membership requirements apply equally to foreign and domestic professionals.

As of early 2012, U.S. and other non-EU nationals can purchase real property, including agricultural land, in the Czech Republic without restrictions.  Czech legal entities, including 100 percent foreign-owned subsidiaries, may own real estate without any limitations.  The right of foreign and domestic private entities to establish and own business enterprises is guaranteed by law.  Enterprises are permitted to engage in any legal activity with the previously noted limitations in sensitive sectors.  Laws on auditing, accounting, and bankruptcy are in force, including the use of international accounting standards (IAS).

In response to the European Commission’s September 2017 investment screening directive, the Czech government has prepared foreign investment screening legislation.  The bill is pending debate and approval by both houses of Parliament.  If passed as drafted, the law would allow the government to screen inbound foreign direct investment from non-EU entities to protect national security.

The proposed law introduces two regimes for screening investments.  The first regime applies to “critical sectors” and requires government approval prior to investment.  “Critical sector” investments include entities that carry out manufacturing, R&D, or maintain military equipment; entities that manage or administer critical infrastructure information systems, communication systems, or other core services; and entities that develop or manufacture goods in Annex IV of Council Regulation (EC) No. 428/2009, which sets up a regime for the control of exporting, transferring, brokering, and transiting dual-use items.  The second regime applies to remaining sectors and does not require advance government approval.  However, investments within the second regime can still be subject to screening if the government determines they pose a potential security risk.  The government has the authority to review transactions prior to and up to five years after investment.  Additionally, entities that hold a nation-wide radio or television broadcasting license or periodical publishers with a minimum average print circulation of 100,000 print copies per day require prior consultation with the government.

Other Investment Policy Reviews

The OECD last conducted an economic survey of  the government in 2018.

Business Facilitation

Individuals must complete a number of bureaucratic requirements to set up a business or operate as a freelancer or contractor.  The MOIT provides an electronic guide on obtaining a business license, presenting step-by-step assistance, including links to related legislation and statistical data, and specifying authorities with whom to work (such as business registration, tax administration, social security, and municipal authorities), available at: https://www.mpo.cz/en/business/licensed-trades/guide-to-licensed-trades/ .  MOIT has also established regional information points to provide consultancy services related to doing business in the Czech Republic and EU.  A list of contact points is available at:  https://www.businessinfo.cz/en/starting-a-business/starting-up-points-of-single-contact-psc/addresses-points-of-single-contact-psc/ .

The average time required to start a business is25 days accprdomg tp the World Bank’s ‘Doing Business’ Index.  The Czech Republic’s Business Register is publicly accessible and provides details on business entities like legal addresses and major executives.  An application for an entry into the Business Register can be submitted in a hard copy, via a direct entry by a public notary, or electronically, subject to meeting online registration criteria requirements.  The Business Register is publicly available at:  https://or.justice.cz/ias/ui/rejstrik .  The Czech Republic’s Trade Register is an online information system that collects and provides information on entities facilitating small trade and craft-oriented business activities, as specifically determined by related legislation.  It is available online at:  http://www.rzp.cz/eng/index.html .

Outward Investment

The volume of outward investment is lower than incoming FDI.  According to the latest data from the Czech National Bank, Czech outward investments amounted only to USD41 billion in 2018, compared to inward investments of USD164 billion.  However, according to the Export Guarantee and Insurance Corporation (EGAP), Czech companies increasingly invest abroad to get closer to their customers, save on transport costs, and shorten delivery times.  The Czech government does not incentivize outward investment.  As part of EU sanctions, there is a total ban on EU investment in North Korea as of 2017.

Capital Markets and Portfolio Investment

The Czech Republic is open to portfolio investment.  The Prague Stock Exchange (PSE) is small, with only 16 listed companies.  The overall trade volume of stocks decreased from CZK142.55 billion (USD5.7 billion) in 2018 to CZK108.78 billion (USD4.4 billion) in 2019, with an average daily trading volume of CZK435.12 million (USD17.5 million).

In March 2007, the PSE created the Prague Energy Exchange (PXE) to trade electricity in the Czech Republic and Slovakia and, later, Hungary, Poland, and Romania.  PXE’s goal is to increase liquidity in the electricity market and create a standardized platform for trading energy.  Following a June 2017 merger of PXE’s trading platform with German power exchange EEX, the PXE benefited from both an increased number of traders and increased trade volume.

The Czech National Bank, as the financial market supervisory authority, sets rules to safeguard the stability of the banking sector, capital markets, and insurance and pension scheme industries, and systematically regulates, supervises and, where appropriate, issues penalties for non-compliance with these rules.

The Central Credit Register (CCR) is an information system that pools information on the credit commitments of individual entrepreneurs and legal entities, facilitating the efficient exchange of information between CCR participants.  CCR participants consist of all banks and branches of foreign banks operating in the Czech Republic, as well as other individuals included in a special law.

As an EU member country, the local market provides credits and credit instruments on market terms that are available to foreign investors.

The Czech Republic respects IMF Article VIII.

Money and Banking System

Large domestic banks belong to European banking groups.  Most operate conservatively and concentrate almost exclusively on the domestic Czech market.  Czech banks remain healthy.  Results of regular banking sector stress tests, as conducted by the Czech National Bank, repeatedly confirm the outstanding state of the Czech banking sector which is deemed resistant to potential shocks.  Results of the most recent stress test conducted by the Czech National Bank are available at https://www.cnb.cz/en/financial-stability/stress-testing/banking-sector/ .  As of February 29, 2020, the total assets of commercial banks stood at CZK8.2 billion (approximately USD342 billion), according to the Czech National Bank.  Foreign investors have access to bank credit on the local market, and credit is generally allocated on market terms.

The Czech National Bank has 10 correspondent banking relationships, for example JP Morgan Chase Bank in New York and the Royal Bank of Canada in Toronto.  The Czech Republic has not lost any correspondent banking relationships in the past three years, and there are no relationships in jeopardy.

Foreign Exchange and Remittances

Foreign Exchange Policies

The CZK is fully convertible.  As of April 2017, the Czech National Bank no longer pegs the CZK to the euro, and the CZK floats freely.  The Czech National Bank supervises the foreign exchange market and its compliance with foreign exchange regulations.  The law permits conversion into any currency.

Remittance Policies

All international transfers of investment-related profits and royalties can be carried out freely.  The U.S.-Czech Bilateral Investment Treaty guarantees repatriation of earnings from U.S. investments in the Czech Republic.  However, a 15 percent withholding tax is charged on repatriation of profits from the Czech Republic.  This tax is reduced under the terms of applicable double taxation treaties.  There are no administrative obstacles for removing capital.  The average delay for remitting investment returns meets the international standard of three working days.

Sovereign Wealth Funds

The Czech government does not operate a sovereign wealth fund.

The Ministry of Finance administers ownership rights of state-owned enterprises (SOEs).  SOEs are structured as joint-stock companies, state enterprises, national enterprises, limited liability companies, and limited partnerships.  SOEs are owned by the individual ministries but are managed according to their business organizational structure as defined by law and are required to publish an annual report, disclose their accounting books, and submit to an independent audit.  Potential conflicts of interest are covered by existing Act No. 159/2006 on Conflicts of Interest, and newly adopted Act No. 14/2017 on Amendments to the Act on Conflict of Interest.  Legislation on the civil service, which took effect January 1, 2015, established measures to prevent political influence over public administration, including operation of SOEs.

Private enterprises are generally allowed to compete with public enterprises under the same terms and conditions with respect to access to markets, credit, government contracts and other business operations.  SOEs purchase or supply goods or services from private sector and foreign firms.  SOEs are subject to the same domestic accounting standards, rules, and taxation policies as their private competitors, and are not given any material advantages compared to private entities.  State-owned or majority state-owned companies are present in several (strategic) fields, including the energy, postal service, information and communication, and transport sectors.

The Czech Republic has 52 wholly owned SOEs and three majority owned SOEs (excluding those in liquidation).  Wholly owned SOEs employ roughly 78,000 people and own more than USD 6.3 billion in assets.  A list of all companies with some percentage of state ownership is available in Czech at:  https://www.komora.cz/legislation/167-19-strategie-vlastnicke-politiky-statu-t-20-12-2019/ .

As an OECD member, the Czech Republic promotes the OECD Principles of Corporate Governance and the affiliated Guidelines on Corporate Governance for SOEs.  SOEs are subject to the same legislation as private enterprises regarding their commercial activities.

Privatization Program

As a result of several waves of privatization of formerly SOEs since 1989, the vast majority of the Czech economy is now in private hands.  Privatizations have generally been open to foreign investors.  In fact, most major SOEs were privatized with foreign participation.  The government evaluates all investment offers for SOEs.  Many complainants have alleged non-transparent or unfair practices in connection with past privatizations.  No privatization program is currently underway.

Current law criminalizes both payment and receipt of bribes, regardless of the perpetrator’s nationality.  Prison sentences for bribery or abuse of power can be as high as 12 years for officials.  There have been several successful cases prosecuting corruption, though some experts have noted proceedings can be lengthy and subject to delays.  A 2016 police reform merged the special Organized Crime Police Unit (UOOZ) and the Unit for Combating Corruption and Serious Financial Criminality (UOKFK) into a new body called the National Center for Organized Crime (NCOZ).  NCOZ is now primarily responsible for investigating high-level corruption cases, however some experts have raised concerns about cumbersome procedural requirements.  Anti-corruption laws authorize seizures of proceeds or instruments of crime and apply equally to Czech and foreign investors.

Czech law obliges legislators, members of the cabinet, and other selected public officials to declare their assets annually.  Summarized declarations are available online and complete declarations are available upon request from the Ministry of Justice.  The Ministry of Justice can impose penalties of up to CZK50,000 (approximately USD2,000) for non-compliance.  The law also requires judges, prosecutors and directors of research institutions to disclose their assets, however their declarations are not publicly available for security reasons.

In addition to the financial disclosure law, Czech laws regulate political parties financing, public procurements, and the register of public contracts.  The law on the register of public contracts requires all national, regional, and local authorities as well as private companies to make publicly available all newly concluded contracts (including subsidies and repayable financial assistance) valued at CZK50,000 (USD2,400) or more within 30 days; noncompliance renders contracts null and void.  Additionally, as of November 2019, major state-owned companies are required to publish all contracts, except in limited circumstances.  The Registry of Contracts has a website in Czech only at:  https://smlouvy.gov.cz/ .

Public procurement law requires every contracting authority to post winning contracts on its website within 15 working days of signing.  Subject to limited exceptions, the law mandates more than one bidder for all public procurements and requires bidders to disclose their ownership structure prior to bidding.  The public procurement law also addresses conflict-of-interest issues related to government procurements, however the European Commission and the latest Council of Europe GRECO evaluation report have criticized the Czech conflict-of-interest legislation.  In a 2019 interim report, GRECO deemed Czech anti-corruption efforts as globally unsatisfactory, noting the government had only implemented one out of 14 recommendations.  In addition to conflict-of-interest concerns, the report underscored the Czech government must still regulate lobbying, transparency in the work of parliamentary committees and subcommittees, and selection and dismissal procedures for judicial officials.

New legislation went into effect in January 2020 prohibiting political candidates or close acquaintances from filling supervisory board positions in state-owned companies.  The law stipulates that candidates for these positions must be selected in a clear, transparent process that prioritizes technical expertise and is reviewed by an advisory committee.  Separately, the government recommends companies maintain internal codes of conduct that, among other things, prohibit bribery of public officials.  Many companies have adopted such codes.

The government ratified the OECD Anti-Bribery Convention in 2000 and the UN Convention against Corruption in 2014.  According to the 2017 OECD Phase 4 Evaluation Report, the Czech Republic should take steps to improve enforcement of its foreign bribery laws, enhance efforts to detect, investigate, and prosecute foreign bribes, increase protections for whistleblowers, and better implement the criminal liability of the legal entities law.

Several NGOs such as Frank Bold, Transparency International, and Anticorruption Endowment receive corruption reports online.  The reports most frequently involve minor offenses, such as attempts to bribe police officers or other public officials to receive benefits or avoid liability.  While there is not a specific law to protect NGOs involved in investigating corruption, NGO activities are protected under the Charter of Fundamental Rights and Freedom that protects civil society and free speech.  .

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

Conflict of Interest and Anti-Corruption Department
Anti-Corruption Unit
Ministry of Justice of the Czech Republic
Vyšehradská 16
12800 Prague 2
www.justice.cz
+420 221 997 595
korupce@msp.justice.cz

Contact at “watchdog” organizations:

David Ondracka
Director
Transparency International Czech Republic
Sokolovska 260/143
+420-224 240 895-7
ondracka@transparency.cz
www.transparency.cz

Frank Bold
Udolni 33, Brno
tel: +420 545 231 975
info@frankbold.org
www.frankbold.org

Anticorruption Endowment
Nadacni Fond Proti Korupci
Revoluční 8, building A, 5th floor, 110 00 Praha 1
+420 226 209 047
info@nfpk.cz
www.nfpk.cz

The risk of political violence in the Czech Republic is extremely low.  Two historic political changes – the Velvet Revolution, which ended the communist era in 1989, and the division of Czechoslovakia into the Czech Republic and Slovakia in 1993 – occurred without loss of life or significant violence.  The political institutions underpinning parliamentary democracy generally function smoothly.  Elections have resulted in orderly and peaceful changes of government.

The DRC remains a challenging environment in which to conduct business.  The accession of Felix Tshisekdi to the Presidency in January 2019 and his announcement of his interest in attracting more international investment, particularly from the United States, have raised hopes the DRC government (GDRC) can impose and follow through on policies more favorable to foreign direct investment.  To encourage U.S. visitors, in January 2020 the GDRC lowered the price of a single-entry visa to USD 100 and a three month multiple-entry visa to USD 160.  The DRC’s rich endowment of natural resources, large population and generally open trading system provide significant potential opportunities for U.S. investors.

Current investment regulations prohibit foreign investors from engaging in informal small retail commerce and ban foreign majority-ownership of agricultural concerns.  Investors have expressed concern that the ban on foreign agricultural ownership will stifle any attempts to kick-start the agrarian sector.

The official investment agency, the National Agency for Investment Promotion (ANAPI), provides investment facilitation services for initial investments over USD 200,000, and is mandated to simplify the investment process, make procedures more transparent, assist new foreign investors, and improve the image of the DRC as an investment destination.

There are several public and private sector forums which speak to the government on the investment climate in specific sectors.  In December 2019 President Tshisekedi created the business climate cell (CCA) to listen and develop ways to improve the business climate.  The CCA in June 2020 presented a roadmap for reform.  The public-private Financial and Technical Partners (PTF) mining group represents the different countries with significant mining investments in the DRC.  The Federation of Congolese Enterprises (FEC) has a dialogue on business interests with the government.

Limits on Foreign Control and Right to Private Ownership and Establishment

In general, there are no limits on foreigners owning a business or engaging in all forms of remunerative activity, with the exceptions of small commerce and owning more than 49 percent of an agribusiness.  Many investors note that in practice the GDRC requires foreign investors to hire local agents and participate in a joint venture with the government or local partners.

In response to private sector complaints, in June 2020 the GDRC repealed a law on subcontracting in the private sector that restricted using foreign entities.

The government promulgated a new mining code in 2018 which increased royalty rates from two to ten percent, raised tax rates on “strategic” metals, and imposed a surcharge on “super profits” of mining companies.  The government unilaterally removed a stability clause contained in the previous mining code protecting investors from any new fees or taxes for ten years.  Removal of the stability clause may deter future investment in the mining sector.  The Tshisekedi government has indicated that it is willing to reopen discussions on the new mining code.

The government does not maintain an organization to screen inbound investment.  The Presidency and the ministries serve this purpose de facto.

Other Investment Policy Reviews

The DRC has not undergone a World Trade Organization (WTO), Organization for Economic Cooperation and Development (OECD), or a United Nations Conference on Trade and Development (UNCTAD) Investment Policy Review in the last three years.  Cities with high custom clearance traffic use Sydonia, which is an advanced software system for custom administrations in compliance with ASYCUDA.  (ASYCUDA is a large technical assistance software program recommended by UNCTAD for custom clearance management.)

Business Facilitation

Since 2013, the GDRC has operated a “one-stop shop” (https://www.guichetunique.cd/ ) that brings together all the government entities involved in the registration of a company in the DRC.  The registration process now officially takes three days, but in practice it can take much longer.  Some businesses have reported that the Guichet Unique has considerably shortened and simplified the overall process of business registration.

Outward Investment

The GDRC does not prohibit outward investment, nor does it particularly promote it.  There are no current government restrictions preventing domestic investors from investing abroad, and there are no current blacklisted countries with which domestic investors are precluded from doing business.

Capital Market and Portfolio Investment

Portfolio investment is nonexistent in the DRC and there is no domestic stock market.  A small number of private equity firms are actively investing in the mining industry.  The institutional investor base is not well developed, with only an insurance company and a state pension fund as participants.  There is no market for derivatives in the country.  Cross-shareholding and stable shareholding arrangements are also not common.  Credit is allocated on market terms, but there are occasional complaints about unfair privileges extended to certain investors in profitable sectors such as mining and telecommunications.

Although reforms have been initiated, the Congolese financial system remains small, heavily dollarized, characterized by fragile balance sheets, and cumbersome to use.  Further reforms are needed to strengthen the financial system, support its expansion, and spur economic growth.  Inadequate risk-based controls, weak enforcement of regulations, low profitability, and excessive reliance on demand deposit undermine the shock resilience of the financial system.

The Central Bank of Congo (BCC)  refrains from payments and transfers on current international transactions.  The DRC’s capital market remains underdeveloped and consists mainly of the issuance of treasury bonds.  In 2019, the BCC issued its first domestic bond in 24 years, which was oversubscribed.  Most of the buyers were local Congolese banks.

It is possible for foreign firms to borrow from local banks, but their options are limited.  Maturities for loans are usually limited to 3-6 months, and interest rates are typically around 16-21 percent.  The inconsistency of the legal system, the often-cumbersome business climate, and the difficulty in obtaining inter-bank financing discourages banks from providing long-term loans.  There are limited possibilities to finance major projects in the domestic currency, the Congolese franc (CDF).

Money and Banking system

The Congolese financial system is improving but it remains fragile.  The BCC controls monetary policy and regulates the banking system.  Banks are concentrated primarily in Kinshasa, Kongo Central, North and South Kivu, and Haut Katanga provinces.  Banking rate penetration is roughly 7 percent or about 4.1 million accounts, which places the country among the most under-banked nations in the world.  Mobile banking has the potential to greatly increase banking customers as an estimated 35 million Congolese use mobile phones.

There is no debt market.  The financial health of DRC banks is fragile, reflecting high operating costs and exchange rates.  The situation improved in 2019 as deposits have increased.  Fees charged by banks are a major source of revenue.

The financial system is mostly banking-based with aggregate asset holdings estimated at USD 5.1 billion.  Among  the five largest banks, four are local and one is controlled by foreign holdings.  The five largest banks hold almost 65 percent of bank deposits and more than 60 percent of total banks assets, about USD 3.1 billion.  There are no statistics on non-performing loans, as many banks only record the balance due instead of the total amount of their non-performing loans.

There is one correspondent bank, Citigroup.  All foreign banks accredited by the BCC are considered Congolese banks with foreign capital and fall under the provisions and regulations covering the credit institutions’ activities in the DRC  There are no restrictions on foreigners establishing an account in a DRC bank.

Foreign Exchange and Remittance

Foreign Exchange

The international transfer of funds is permitted when channeled through local commercial banks.  On average, bank declaration requirements and payments for international transfers take less than one week to complete.  The Central Bank is responsible for regulating foreign exchange and trade.  The only currency restriction imposed on travelers is a USD 10,000 limit on the amount an individual can carry when entering or leaving the DRC.

The GDRC requires the BCC to license exporters and importers.  The DRC’s informal foreign exchange market is large and unregulated and offers exchange rates slightly more favorable than the official rate.  BCC regulations set the Congolese franc (CDF) as the main currency in all transactions within the DRC, required for the payment of fees in education, medical care, water and electricity consumption, residential rents, and national taxes.  Exceptions to this rule occur where both parties involved and the appropriate monetary officials agree to use another currency.

Remittance Policies

There are no legal restrictions on converting or transferring funds.  Exchange regulations require a 60 day waiting period for in-country foreigners to remit income.  Foreign investors may remit through parallel markets when they are legally established and recognized by the Central Bank.

Sovereign Wealth Funds

The DRC does not have any reported Sovereign Wealth Funds, though the 2018 Mining Code discusses a Future Fund that is to be capitalized by a percentage of mining revenues.

There are 20 DRC state-owned enterprises (SOEs) operating in the mining, transportation, energy, telecommunications, finance, and hospitality sectors.  In the past, Congolese SOEs have stifled competition and have been unable to provide reliable electricity, transportation, and other important services over which they have monopolies.  Some SOEs and other Congolese parastatal organizations are in poor financial and operational state due to indebtedness and the mismanagement of resources and employees.  The list of SOEs can be found at: http://www.leganet.cd/Legislation/Droit percent20Public/EPub/d.09.12.24.04.09.htm .

There is limited reporting on the assets of SOEs and other parastatal enterprises, making valuation difficult.  DRC law does not grant SOEs an advantage over private companies in bidding for government contracts or obtaining preferential access to land and raw materials.  The government is often accused of favoring SOEs over private companies in contracting and bidding.

The DRC is not a party to the WTO’s procurement agreement (GPA), but nominally adheres to the OECD guidelines on Corporate Governance for SOEs.  The DRC is a Participating Country in the Southern Africa SOE network, with the Ministry of Portfolio and the Steering Committee for SOE reforms designated as Regularly Participating Institutions.

Privatization Program

The DRC has no official privatization program.

The Tshisekedi government has used public prosecutions of high-level officials and the creation of an anti-corruption unit to improve the DRC’s reputation on corruption.  DRC’s 2018 Corruption Perception Index score—161 out of 180—underlines the endemic and deep roots of corruption in the country.  The DRC constitution includes laws intended to fight corruption and bribery by all citizens, including public officials.  Anti-corruption laws extend to family members and political parties.  Private companies have applied their own controls to limit corruption, and have in the past been more effective at controlling it.

In March 2020, President Tshisekedi created the National Agency to Fight Corruption.  In June 2020, the National Assembly began discussing the law on the creation, organization, and  function of the Agency.  The National Assembly forwarded the proposal to the Political, Administrative, and Judiciary Commission for analysis prior to a vote.  Currently corruption investigations are ongoing for three Managing Directors of SOEs.  In June, the court convicted Tshisekedi’s former Chief of Staff of embezzlement and public corruption, and sentenced him to 20 years in prison.

The DRC is a signatory to the UN Anticorruption Convention, but not to the OECD Convention on Combating Bribery.  The DRC ratified a protocol agreement with the Southern African Development Community (SADC) on Fighting Corruption.  NGOs such as the group “The Congo is Not for Sale,” have an important role in revealing corrupt practices, and the law protects NGOs in a whistleblower role.

U.S. firms see corruption as one of the main hurdles to investment in the DRC, particularly in the awarding of concessions, government procurement, and taxation treatment.

The Agency in charge of fighting corruption in the DRC is:

Agence de Prévention et de Lutte contre la Corruption (APLC)
Ghislain Kikangala, Coordinator
Tel: +243 893 302 819

In January 2019, Felix Tshisekedi became President in the DRC’s first peaceful transition of power, ushering a period of relative political stability.  The December 2018 elections were the result of international, including U.S pressure, as well as a long period of mediation involving the Catholic Church, the government, and the opposition.  Maintaining public support for the Tshisekedi government will ultimately require the administration to deliver on the campaign slogan of “the people first.”

The security situation continues to be a concern.  Thousands of members of armed groups have been disarming and turning themselves in to the United Nations’ DRC peacekeeping operation (MONUSCO) and the GDRC since President Tshisekedi’s election, according to international observers.  Most of the defections have taken place in eastern and central DRC.  International statistics indicate that over 140 armed groups continue to operate in 17 of the DRC’s 26 provinces, primarily in the east of the country.  The ISIS-affiliated Allied Democratic Forces (ADF) rebel group in eastern DRC is one of the country’s most notorious and intractable armed groups, and its members have shown no interest in demobilizing.  Armed groups previously interfered with the effort to eradicate the Ebola outbreak in eastern DRC, but interference decreased and the eastern outbreak was declared over on June 25.  President Tshisekedi appears cognizant of the important role security plays in attracting foreign investment, and has encouraged the Congolese army to work with MONUSCO to eliminate armed groups.

US citizens and interests are not being specifically targeted by armed groups, but can easily fall victim to violence or kidnapping by being in the wrong place at the wrong time.  The Armed Conflict Location and Event Dataset tracks political violence in developing countries, including the DRC, http://www.acleddata.com/.  Kivu Security Tracker (www.kivusecurity.org) is another database for information on attacks in eastern DRC.   In addition, the Department of State continues to advise travelers to review the Embassy’s travel advisory: https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/DemocraticRepublicoftheCongoDRC.html

Policies Towards Foreign Direct Investment

A small country with an open economy, Denmark is highly dependent on foreign trade, with exports comprising the largest component (55 percent) of GDP. Danish trade and investment policies are liberal. In general, investment policies are forward-looking, aimed at fostering and developing businesses, especially in high-growth sectors. The Economist Intelligence Unit (EIU) ranks it as the world’s second-most attractive business location after Singapore, and the leading nation in the region. The EIU characterizes Denmark’s business environment as among the most attractive in the world, reflecting an excellent infrastructure, a friendly policy towards private enterprise and competition, low bureaucracy and a well-developed digital sector.

Principal concerns include low productivity growth, a high personal tax burden and limited competition in a small group of industries. Overall, however, operating conditions for companies should remain broadly favorable. Denmark scores top marks in various categories, including the political and institutional environment, macroeconomic stability, foreign investment policy, private enterprise policy, financing, and infrastructure.

As of January 2020, the EIU rated Denmark an “AA” country on its Country Risk Service, with a stable outlook. Sovereign risk rated “AA,” and political risk “AAA.” Denmark ranked tenth out of 140 on the World Economic Forum’s 2019 Global Competitiveness Report, fourth on the World Bank’s 2020 Doing Business ranking, and seventh on the EIU 2019 Democracy Index. “The Big Three” credit rating agencies Standard & Poor’s, Moody’s, and Fitch Group all score Denmark AAA. “Invest in Denmark,” an agency of the Ministry of Foreign Affairs and part of the Danish Trade Council, provides detailed information to potential investors. The website for the agency is www.investindk.com .

“Invest in Denmark,” an agency of the Ministry of Foreign Affairs and part of the Danish Trade Council, provides detailed information to potential investors. The website for the agency is www.investindk.com .

Corporate tax records of all companies, associations and foundations that pay taxes in Denmark were made public beginning in December 2012 and are updated annually. The corporate tax rate is 22 percent.

Limits on Foreign Control and Right to Private Ownership and Establishment

As an EU member state, Denmark is bound by EU rules on free movement of goods, capital, persons and certain services. Denmark welcomes foreign investment and does not distinguish between EU and other investors. There are no additional permits required by foreign investors, nor any reported bias against foreign companies from municipal or national authorities.

Denmark’s central and regional governments actively encourage foreign investment on a national-treatment basis, with relatively few limits on foreign control. A foreign or domestic private entity may freely establish, own, and dispose of a business enterprise in Denmark. The capital requirement for establishing a corporation (A/S) or Limited Partnership (P/S) is DKK 400,000 (approx. USD 60,000) and for establishing a private limited liability company (ApS) DKK 40,000 (approx. USD 6,000).

As of 15 April 2019, it is no longer possible to set up an “Entrepreneurial Company” (IVS). The company type was intended to allow entrepreneurs a cheap and simple way to incorporate with limited liability, with a starting capital of only DKK1 (USD 0.16). Due to repeated instances of fraud and unintended use of the IVS, this vehicle was abolished within Denmark, but is still available in Greenland. In 2019, the capital requirements to set up a Private Limited Company were lowered, bringing Denmark more in line with other Scandinavian countries, and to ensure it will continue to be cheap and simple to establish limited liability companies in Denmark. No restrictions apply regarding the residency of directors and managers.

Since October 2004, any private entity may establish a European public limited company (SE company) in Denmark. The legal framework of an SE company is subject to Danish corporate law, but it is possible to change the nationality of the company without liquidation and re-founding. An SE company must be registered at the Danish Business Authority if the official address of the company is in Denmark. The minimum capital requirement is EUR 120,000 (approx. USD 131,000).

Danish professional certification and/or local Danish experience are required to provide professional services in Denmark. In some instances, Denmark may accept an equivalent professional certification from other EU or Nordic countries on a reciprocal basis. EU-wide residency requirements apply to the provision of legal and accountancy services.

Ownership restrictions are applied in the following sectors:

• Hydrocarbon exploration: Requires 20 percent Danish government participation on a “non-carried interest” basis.

• Defense materials: The law governing foreign ownership of Danish defense companies (L538 of May 26, 2010) stipulates that the Minister of Justice has to approve foreign ownership of more than 40 percent of the equity or more than 20 percent of the voting rights, or if foreign interests gain a controlling share in a defense company doing business in Denmark. This approval is generally granted unless there are security or other foreign policy considerations weighing against approval.

• Maritime: There are foreign (non-EU resident) ownership requirements on Danish-flagged vessels other than those owned by an enterprise incorporated in Denmark. Ships owned by Danish citizens, Danish partnerships or Danish limited liability companies are eligible for registration in the Danish International Ships Register (DIS). Ships owned by EU or European Economic Area (EEA) entities with a genuine link to Denmark are also eligible for registration, and foreign companies with a significant Danish interest can register a ship in the DIS.

• Aviation: For an airline to be established in Denmark it must have majority ownership and be effectively controlled by an EU state or a national of an EU state, unless otherwise provided for through an international agreement to which the EU is a signatory.

• Securities Trading: Non-resident financial institutions may engage in securities trading on the Copenhagen Stock Exchange only through subsidiaries incorporated in Denmark.

• Real Estate: Purchases of designated vacation properties, or ‘summer houses’, are restricted to citizens of Denmark. Such properties, located in municipally designated ‘summer house area’ zones, typically coastlines, may not be inhabited year-round. EU citizens and companies from EU member states can purchase any type of real estate, except vacation properties, without prior authorization from the authorities. Companies and individuals from non-EU countries that have been present/resident in Denmark for at least five years in total and are currently resident in Denmark can also purchase real estate, except vacation properties, without prior authorization. Non-EU companies or individuals that do not meet these requirements can only purchase real estate with the permission of the Danish Ministry of Justice. Permission is freely given to people with a Danish residency permit, except for purchases of vacation properties.

Other Investment Policy Reviews

The most recent UNCTAD review of Denmark occurred in March 2013, available here: http://unctad.org/en/PublicationsLibrary/webdiaeia2013d2_en.pdf . There is no specific mention of Denmark in the latest WTO Trade Policy Review of the European Union, revised in December 2019.

The EU Commission’s European Semester documents for Denmark are available here: https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester/european-semester-your-country/denmark_en  while a 2015 private sector investment and taxation review by Deloitte can be found here: http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-denmarkguide-2015.pdf .

here: http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-denmarkguide-2015.pdf .

Denmark ranked first out of 180 in Transparency International’s 2019 Corruption Perceptions Index. It received a ranking of 4 out of 190 for “Ease of Doing Business” in the World Bank’s 2020 Doing Business Report, placing it first in Europe. In the World Economic Forum’s Global Competitiveness report for 2019, Denmark was ranked 10 out of 141 countries.

The World Intellectual Property Organization’s (WIPO) Global Innovation Index ranked Denmark 7 out of 129 in 2019.

Business Facilitation

The Danish Business Authority (DBA) is responsible for business registrations in Denmark. As a part of the Danish Business Authority, “Business in Denmark” provides information on relevant Danish rules and online registrations to foreign companies in English. The Danish business registration website is www.virk.dk . It is the main digital tool for licensing and registering companies in Denmark and offers a business registration process that is clear and complete.

Registration of sole proprietorships and partnerships is free of charge, while there is a fee for registration of other business types: DKK 670 (USD 100) if the registration is done digitally and DKK 2150 (USD 323) if the registration form is sent by e-mail or post.

The process for establishing a new business is distinct from that of registration. The Ministry of Foreign Affairs “Invest in Denmark” program provides a step-by-step guide to establishing a business at https://investindk.com/-/media/invest-in-denmark/publications/business-conditions/investindk-fact-sheet-step-by-step-web.ashx, along with other relevant resources which can be found here: www.investindk.com/Downloads . The services are free of charge and available to all investors, regardless of country of origin.

Processing time for establishing a new business varies depending on the chosen business entity. Establishing a Danish Limited Liability Company (Anpartsselskab – ApS), for example, generally takes four to six weeks for a standard application. Establishing a sole proprietorship (Enkeltmandsvirksomhed) is simpler, with processing generally taking about one week.

Those providing temporary services in Denmark must provide their company details to the Registry of Foreign Service Providers (RUT). The website (www.virk.dk ) provides English guidance on how to register a service with RUT. A digital employee’s signature, referred to as a NemID, is required for those wishing to register a foreign company in Denmark. A CPR number (a 10-digit personal identification number) and valid ID are needed to obtain a NemID. Danish citizenship is not a requirement.

In the Danish Financial Statements Act no. 1580 of 10 January 2015 section 7(2), small enterprises are defined as enterprises with fewer than 50 employees and whose annual turnover does not exceed DKK 89 million (approx. USD 13.3 million) or annual balance sheet total does not exceed DKK 44 million (approx. USD 6.6 million). Medium-sized enterprises are defined as enterprises with fewer than 250 employees and either have an annual turnover that does not exceed DKK 313 million (approx. USD 46.9 million) or annual balance sheet total does not exceed DKK 156 million (approx. USD 23.4 million).

Outward Investment

Danish companies are not restricted from investing abroad, and Danish outward investment has exceeded inward investments for more than a decade.

Capital Markets and Portfolio Investment

Denmark has fully liberalized foreign exchange flows, including those for direct and portfolio investment purposes. Credit is allocated on market terms and freely available. Denmark adheres to its IMF Article VIII obligations. The Danish banking system is under the regulatory oversight of the Financial Supervisory Authority. Differentiated voting rights – A and B stocks – are used to some extent, and several Danish companies are controlled by foundations, which can restrict potential hostile takeovers, including foreign takeovers.

The Danish stock market functions efficiently. In 2005, the Copenhagen Stock Exchange became part of the integrated Nordic and Baltic marketplace, OMX Exchanges, which is headquartered in Stockholm. Besides Stockholm and Copenhagen, OMX also includes the stock exchanges in Helsinki, Tallinn, Riga and Vilnius. In order to increase the access to capital for primarily small companies, the OMX in December 2005 opened a Nordic alternative marketplace – “First North” – in Denmark. In February 2008, the exchanges were acquired by the NASDAQ-OMX Group. In the World Economic Forum 2019 report, Denmark ranks 11th out of 141 on the metric “Financial System”.

The Danish stock market is divided into four different branches/indexes. The C25 index contains the 25 most valuable companies in Denmark. Other large companies with a market value exceeding USD 1.1 billion (EUR 1 billion) are in the group of “Large Cap,” companies with a market value between USD 170 million (EU 150 million) and USD 1.1 billion belong to the “Mid Cap” segment, while companies with a market value smaller than USD 170 million belong to “Small Cap” group.

Money and Banking System

The major Danish banks are rated by international agencies, and their creditworthiness is rated as high by international standards. The European Central Bank and the Danish National Bank reported that Denmark’s major banks have passed stress tests by considerable margins.

Denmark’s banking sector is relatively large; based on the ratio of consolidated banking assets to GDP, the sector is three times bigger than the national economy. Before 2020, the total of Danish shares valued DKK 3,190 billion, (USD 778 billion) and were owned 51.3 percent by foreign owners and 48.7 percent by Danish owners, including 12.5 percent held by households and 5,4 percent by the government. The assets of the three largest Danish banks – Danske Bank, Nordea Bank Danmark, and Jyske Bank – constitute approximately 75 percent of the total assets in the Danish banking sector.

Denmark’s biggest systemically important bank, Danske Bank, with assets that are roughly 1 1/2 times Denmark’s total GDP, is under criminal investigation in several jurisdictions amid accusations an Estonian branch became a European hub for money launderers from Russia. The bank has admitted that a significant part of about EUR 200 billion (USD 230 billion) that flowed through the non-resident portfolio of its tiny Estonian branch between 2007 and 2015 could have illicit origins. The scandal has led to significant tightening of financial regulation, including increasing penalties by up to 700 percent and increased funding for the Financial Supervisory Authority.

The primary goal of the Central Bank (Nationalbanken) is to keep the peg of the Danish currency to the Euro – with allowed fluctuations of 2.25 percent. It also functions as the general lender to Danish commercial banks and controls the money supply in the economy.

As occurred in many countries, Danish banks experienced significant turbulence in 2008 – 2009. The Danish Parliament subsequently passed a series of measures to establish a “safety net” program, provide government lending to financial institutions in need of capital to uphold their solvency requirements, and ensure the orderly winding down of failed banks. The Parliament passed an additional measure, the fourth Bank Package, in August 2011, which sought to identify systemically important financial institutions, ensure the liquidity of banks which assume control of a troubled bank, support banks acquiring troubled banks by allowing them to write off obligations of the troubled bank to the government, and change the funding mechanism for the sector-funded guarantee fund to a premiums-based, pay-as-you-go system. According to the Danish Government, Bank Package 4 provides mechanisms for a sector solution to troubled banks without senior debt holder losses but does not supersede earlier legislation. As such, senior debt holder losses are still a possibility in the event of a bank failure.

On October 10, 2013, the Danish Minister for Business and Growth concluded a political agreement with broad political support which, based on the most recent financial statements, identified specific financial institutions as “systemically important” (SIFI). The SIFI in Denmark at the end of 2019 were Danske Bank A/S, Nykredit Realkredit A/S, Jyske Bank A/S, Nordea Kredit Realkredit A/S, Sydbank A/S, Spar Nord Bank A/S and DLR Kredit A/S. These were identified based on three quantitative measures: 1) a balance sheet to GDP ratio above 6.5 percent; 2) market share of lending in Denmark above 5 percent; or 3) market share of deposits in Denmark above 3 percent. If an institution is above the requirement of any one of the three measures, it will be considered systemically important and must adhere to the stricter requirements on capitalization, liquidity and resolution. The Faroese SIFI are P/F BankNordik, Betri Banki P/F and Norðoya Sparikassi, while Grønlandsbanken is the only SIFI in Greenland.

Experts expect a revision of the Danish system of troubled financial institution resolution mechanisms in connection with a decision to join the EU Banking Union. The national payment system, “Nets” was sold to a consortium consisting of Advent International Corp., Bain Capital LLC, and Danish pension fund ATP in March 2014 for DKK 17 billion (USD 2.58 billion). Nets went public with an IPO late 2016.

Foreign Exchange and Remittances

Foreign Exchange

Exchange rate conversions throughout this document are based on the 2019 average exchange rate where Danish Kroner (DKK) 6.6703 = 1 USD (USD)

There are no restrictions on converting or transferring funds associated with an investment into or out of Denmark. Policies in place are intended to facilitate the free flow of capital and to support the flow of resources in the product and services markets. Foreign investors can obtain credit in the local market at normal market terms, and a wide range of credit instruments is available.

Denmark has not adopted the Euro currency. The country meets the EU’s economic convergence criteria for membership and can join if it wishes to do so. Denmark conducts a fixed exchange rate policy with the Danish Krone linked closely to the Euro within the framework of ERM II. The Danish Krone (DKK; plural: Kroner, in English, “the Crown”) has a fluctuation band of +/- 2.25 percent of the central rate of DKK 746.038 per 100 Euro. The Danish Government supports inclusion in a European Banking Union, as long as it can be harmonized with the Danish Euro opt-out and there is a guarantee that the Danish mortgage finance system will be allowed to continue in its present form.

The Danish political reservation concerning Euro participation can only be abolished by national referendum, and Danish voters have twice (in 1992 and 2000) voted it down. The government has stated that in principle it supports adopting the Euro, but no referendum is expected for the foreseeable future. Regular polling on this issue shows a majority of public opinion remains in favor of keeping the Krone. According to the Stability and Growth Pact, a Euro country’s debt to GDP ratio cannot exceed 60 percent and budget deficit to GDP ratio cannot exceed 3 percent. Denmark’s debt to GDP ratio was 33.2 percent by the end of 2019, down from 33.9 percent in 2018. Denmark ran a budget surplus of 3.7 percent in 2019 and of 0.7 percent in 2018, well within Stability & Growth Pact parameters.

Sovereign Wealth Funds

Denmark maintains no sovereign wealth funds.

Denmark is party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO). State owned entities (SOEs) hold dominant positions in rail, energy, utility and broadcast media in Denmark. Large scale public procurement must go through public tender in accordance with EU legislation. Competition from SOEs is not considered a barrier to foreign investment in Denmark. As an OECD member, Denmark promotes and upholds the OECD Corporate Governance Principals and subsidiary SOE Guidelines.

Privatization Program

Denmark has no current plans to privatize its SOEs.

Denmark is perceived as the least corrupt country in the world according to the 2019 Corruption Perceptions Index by Transparency International, which has local representation in Denmark. The Ministry of Justice is responsible for combating corruption, which is covered under the Danish Penal Code. Penalties for violations range from fines to imprisonment of up to four years for a private individual’s involvement and up to six years for a public employee’s involvement. Since 1998, Danish businesses cannot claim a tax deduction for the cost of bribes paid to officials abroad.

Denmark is a signatory to the OECD Convention on Combating Bribery, the UN Anticorruption Convention, and a participating member of the OECD Working Group on Bribery. In the Working Group’s 2015 Phase 3 follow-up report on Denmark, the Working Group concluded “that Denmark has partially implemented most of its Phase 3 recommendations. However, concerns remain over Denmark’s enforcement of the foreign bribery offence.”

Resources to Report Corruption

Resources to which corruption may be reported:

The Danish State Prosecutor for Serious Economic and International Crime,
Kampmannsgade 1
1604 København V.
Phone: +45 72 68 90 00
Fax: +45 45 15 01 19
Email: saoek@ankl.dk

Ministry of Foreign Affairs of Denmark’s development assistance agency DANIDA to report any knowledge of corruption within DANIDA projects or among staff or DANIDA partners.

http://um.dk/en/danida-en/about-danida/Danida-transparency/anti-corruption/report-corruption/ 

“Watchdog” organization:

Transparency International Danmark
c/o CBS
Dalgas Have 15, 2. sal, lokale 2c008
2000 Frederiksberg

The Secretariat is manned by Julian Bøje Ekberg and Rosa Bisgaard who can be reached at sekretariatet@transparency.dk

Contact at Embassy Copenhagen responsible for combating corruption:

Aaron Daviet
Political Officer
U.S. Department of State
Dag Hammarskjolds Alle 24, 2100 Copenhagen, Denmark
+45 3341 7100
CopenhagenICS@state.gov

Denmark is a politically stable country. Incidents involving politically motivated damage to projects or installations are very rare. This is reflected in the EIU’s “AAA” rating of Denmark in terms of political risk.

Policies Towards Foreign Direct Investment

Djibouti’s laws encourage FDI, with state-run media providing favorable coverage of projects funded by foreign entities. The government sees FDI as a driving force behind Djibouti’s economic growth. Faced with high unemployment rates of over 39%, FDI is expected to generate jobs.

There are no laws, practices, or mechanisms that discriminate against foreign investors. Navigating the bureaucracy, however, can be complicated. Certain sectors, most notably public utilities, are state-owned and are not open to investors. The state-owned company Djibouti Electricity (EDD) had a monopoly on electricity production for decades, however in July 2015, the Djiboutian government approved a bill liberalizing the production of electricity. The energy sector is now open to competition through Power Purchase Agreements, however EDD retains all rights to the transmission and distribution of electricity. The liberalization of production has been a positive step in promoting private investment in the energy sector.

Djibouti’s National Investment Promotion Agency (NIPA), created in 2001 under the Ministry of Finance, promotes private-sector investment, facilitates investment operations, and works to modernize the country’s regulatory framework. NIPA assists foreign and domestic investors by disseminating information and streamlining administrative procedures. In March 2017, NIPA’s one-stop-shop was officially inaugurated. The NIPA is the main coordinator of the one-stop-shop which houses several agencies. NIPA has identified several priority sectors for investment, including infrastructure and renewable energy.

A new Minister of Investment position was created in 2016 to further attract and reach out to potential investors. The Minister reports directly to the presidency.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have equal rights in establishing and owning business enterprises and engaging in all forms of remunerative activity. Furthermore, foreign investors are not required by law to have a local partner except in the insurance industry, and there, only if the company is registered as a local company and not a branch of an existing foreign company. There is no established screening process for FDI; it is encouraged and given favorable tax status. Specific terms are negotiated on a case-by-case basis. Many companies therefore have a unique status created by agreement with varying preferences and advantages.

Other Investment Policy Reviews

N/A

Business Facilitation

The government of Djibouti has facilitated the registration of business by reducing the capital needed for investment, simplifying the formalities needed to register with the Intellectual Property office, and simplifying certain tax procedures. The most important result is the finalization of a one-stop shop, managed by NIPA. The one-stop-shop brings together all the agencies with which a company must register.

Typically, a company registers with the following offices: Djibouti Office of Intellectual Property, Tax office, and the Social Security office. Online registration is not possible; the normal registration process takes 14 days, according to the World Bank. In Djibouti, new businesses must have every document notarized to begin operations. Djibouti ranked 112 out of 190 countries in the World Bank 2020 Ease of Doing Business report.

Outward Investment

The government neither promotes nor restricts outward investment.

Capital Markets and Portfolio Investment

In recent years, Djibouti has relied heavily on foreign investment, and the government is open and receptive to foreign investors. Portfolio investment in Djibouti is primarily done through private equity. Some multinational companies with investments in Djibouti are publicly traded. Investments in Djibouti are inherently illiquid for that reason, and the purchase or sale of any sizeable investment in Djibouti affects the market accordingly. Djibouti does not have its own stock market. Existing policies facilitate the free flow of financial resources into the product and factor markets.

Credit is allocated on market terms, and foreign companies do not face discrimination in obtaining it. Generally, however, only well-established businesses obtain bank credit, as the cost of credit is high. Credit is available to the private sector, whether foreign or domestic. Where credit is not available, it is primarily due to the associated risk and not structural factors.

Money and Banking System

Three large banks – Bank of Africa (BOA), Bank for Commerce and Industry – Mer Rouge (BCI-MR), and CAC bank dominate Djibouti’s banking sector. While these three banks account for the majority share of deposits in-country, there are 12 total banks, all established in the last fourteen years. Two of the new banks closed in the last eight years —WARKA Bank from Iraq and Shura Bank from Egypt. In 2011 a new banking law went into effect, fixing the minimum capital requirement for financial institutions at DJF 1 billion (USD 5,651,250) and extended the scope of the law to include financial auxiliaries, such as money transfer agencies and Islamic financial institutions. Two additional banks, Commercial Bank of Djibouti and Silkroad Bank were established in 2015 and 2017 respectively, bringing the total number of banks operating in Djibouti to 12. Bank of China was established in 2019, however the Commercial Bank of Djibouti is in the process of ceasing its activities so the number of banks in operation remains at twelve.

The banking sector suffers from a lack of consistent supervision but it has been improving. Non-performing loans decreased from 18.06% in 2018 to 16.26% in 2019. The total assets of the economy’s five largest banks were estimated to be USD 2.148 billion in 2019. The country has a Central Bank, which is in charge of delivering licenses to banks and supervising them.

Foreign banks or branches are allowed to establish operations in the country. They are subject to the same regulations as local banks. Djibouti has not announced that it intends to implement or allow the implementation of blockchain technologies in its banking transactions. Some banks have begun to provide mobile and e-banking services.

Foreign Exchange and Remittances

Foreign Exchange

Djibouti has no foreign exchange restrictions. Businesses are free to repatriate profits. There are no limitations on converting or transferring funds, or on the inflow and outflow of cash. The Djibouti franc, which has been pegged to the U.S. dollar since 1949, is stable. The fixed exchange rate is 177.71 Djibouti francs to the U.S. dollar. Funds can be transferred by using banks or international money transfer companies such as Western Union which are both monitored by the Central Bank.

Remittance Policies

There are no recent changes or plans to change investment remittance policies. There are no time limitations on remittances. The government does not issue bonds on the open market, and cash-like instruments are not in common use in Djibouti, so direct currency transfers are the only practical method of remitting profits.

Sovereign Wealth Funds

In mid-2020 the Djiboutian Government announced the creation of a Sovereign Wealth Fund. According to a government statement, the state-owned fund will target investments locally and in neighboring countries in the Horn of Africa. It will focus on industries including telecommunications, technology, energy and logistics. The fund will act as a long-term investor and is required to reinvest the entire net profits of its activity. The government aims to fund it to $1.5 billion within ten years.

Wholly-owned SOEs control telecommunications, water, and electricity distribution in Djibouti. Major print, television, and radio outlets are also state-run. Additionally, Djibouti’s ports, airport, and free zones are managed by an SOE. There is a state-owned national airline that is wholly managed by the ports and free zones authority. SOEs are required by law to publish an annual report. The Court of Auditors is charged with auditing SOEs, but they have not yet released assets, income, employment, or other details about the SOEs. There is no publicly available list of SOEs.

State-run services, such as municipal garbage collection and real estate, do not hold legal monopolies, but are afforded material advantages by the government (e.g., government-backed loan guarantees for the real estate sector). Djibouti is not party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).

In order to exercise ownership in SOEs, the government uses several laws and decrees, most of which were promulgated in the 1990s. The established practices are not consistent with OECD guidelines. No centralized ownership entity exists. SOE senior management reports directly to the relevant line ministry. There is also an independent board of directors whose members are chosen from other ministries.

Privatization Program

A few SOEs have been privatized such as a milk factory several years ago and a water bottling plant in 2015. No particular sector is targeted. The bidding process is not clear and transparent, which makes the participation of foreign investors difficult.

Djibouti has several laws to combat corruption by public officials. These laws were either passed by the government or contained in the Penal Code. However, there have been no records of cases to combat corruption by public officials. Corruption laws are extended to all family members of officials and across political parties, but they have not been applied in a non-discriminatory manner. Djibouti does not have laws or regulations to counter conflict-of-interest in awarding contracts or government procurement.

Djibouti is a party to the United Nations Convention against Corruption. There are two government entities responsible for investigating corruption and enforcing the regulations. The State General Inspection (SGI) is tasked with ensuring human and material resources in the public sector are properly utilized. The Court of Auditors is mandated to verify and audit all public establishments for transparency and accountability, and to implement necessary legal sanctions. Both institutions are mandated to produce annual corruption reports. Despite the legal mandates, both institutions lack the authority to push for meaningful reform. The newly-created National Commission for Anti-Corruption is also mandated to enforce the laws on combatting corruption and provide safe haven for whistleblowers. This Commission launched a program in March 2018 to urge high-ranking government officials to publicly declare all of their assets. However, its effectiveness has not been proven so far. The contracting code and other laws passed by Djibouti contain provisions to counter conflict-of-interest contracts or government procurement.

According to a law passed in 2013, the government requires private and public companies to establish internal codes of conduct that prevent and prohibit bribery of public officials. However, these codes have not been implemented. Likewise, the government requirement that private companies use internal controls, ethics, and compliance to detect and prevent bribery of government officials is not enforced. Djibouti is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Djibouti is a signatory country of the UN Convention against Corruption.

U.S. firms have not specifically noted corruption as an obstacle to foreign direct investment in Djibouti, but there were allegations of foreign companies having to meet requirements such as renting houses of high dignitaries or hiring certain employees as a condition of receiving government procurement contracts. In addition, one company reported harassment of employees by local competitors. Prosecution and punishment for corruption is rare.

Resources to Report Corruption

Contact at government agency responsible for combating corruption is listed below:

Fatouma Mahamoud Abdillahi
President
Commission Nationale Independante pour la Prevention et de Lutte Contre la Corruption
Plateau du Serpent+253 21 35 16 03
anticorruption@intnet.dj

No “watchdog” organization is present in Djibouti.

Djibouti has seen only very limited episodes of political violence over the last two decades. In the last ten years, there have been no known incidents of political violence leading to damage to foreign investments. Both the ruling coalition party and the recognized opposition parties favor foreign direct investment into Djibouti and local attitudes towards foreigners are positive.

Djibouti was recently awarded the International Peace Award by the journal Jeune Afrique for its secure environment, despite being surrounded by countries facing instability. According to data acquired by the Armed Conflict Location and Event Data Project, Djibouti’s instances of violence and disordered has significantly declined in the past three years.

Policies Towards Foreign Direct Investment

The government of Dominica strongly encourages foreign direct investment (FDI), particularly in industries that create jobs, earn foreign currency, and have a positive impact on local citizens.

Through the Invest Dominica Authority (IDA), the government instituted a number of investment incentives for businesses considering locating in Dominica. Government policies provide liberal tax holidays, duty-free import of equipment and materials, exemption from value added tax on some capital investments, and withholding tax exemptions on dividends, interest payments, and some external payments and income. The IDA additionally provides support to approved citizenship by investment (CBI) projects.

The government has prioritized investment in certain sectors, such as hotel accommodation, including eco-lodges and boutique hotels, nature and adventure tourism services, marina and yachting sector development, fine dining restaurants, and information and technology services, particularly business processing operations. Other sectors include film, music, and video production, agro-processing, manufacturing, bulk water export and bottled water operations, medical and nursing schools, health and wellness tourism, geothermal and biomass industries, biodiversity, aquaculture, and English language training services. The government has signaled that it is also willing to consider additional sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign control in Dominica. Foreign investment in Dominica is not subject to any restrictions, and foreign investors are entitled to receive the same treatment as nationals of Dominica. Foreign investors are entitled to hold up to 100 percent of their investment. The only restriction is the requirement to obtain an Alien Landholders License for foreign investors seeking to purchase property for residential or commercial purposes. Local enterprises generally welcome joint ventures with foreign investors in order to access technology, expertise, markets, and capital.

Other Investment Policy Reviews

The OECS, of which Dominica is a member, has not conducted a trade policy review since 2014.

Business Facilitation

The IDA is Dominica’s main business facilitation unit. It facilitates FDI into priority sectors and advises the government on the formation and implementation of policies and programs to attract investment in Dominica. The IDA provides business support services and market intelligence to all investors. It offers an online tool useful for navigating laws, rules, procedures, and registration requirements for foreign investors. Its website is http://investdominica.com .

All potential investors applying for government incentives must submit their proposals for review by the IDA to ensure the project is consistent with the national interest and provides economic benefits to the country.

The Companies and Intellectual Property Office (CIPO) maintains an e-filing portal for most of its services, including company registration on its website. However, this only allows for the preliminary processing of applications prior to the investor physically making a payment at the Supreme Court office. Investors are advised to seek the advice of a local attorney prior to starting the process. Further information is available at http://www.cipo.gov.dm .

According to the World Bank’s Doing Business Report for 2020, Dominica ranks 71st out of 190 countries in the ease of starting a business. It takes five procedures and about 12 days to complete the process. The general practice is to retain an attorney who prepares all the relevant incorporation documents. A business must register with CIPO, the Tax Authority, and the Social Services Institute.

The government of Dominica continues to support the growth of women-led businesses. The government supports equitable treatment and support of women in the private sector through non-discriminatory processes for business registration, fiscal incentives, investment opportunities, and quality assessments.

Outward Investment

There is no restriction on domestic investors seeking to do business abroad. Local companies in Dominica are actively encouraged to take advantage of export opportunities specifically related to the country’s membership in the OECS Economic Union and the Caribbean Community Single Market and Economy (CSME), which enhance the competitiveness of the local and regional private sectors across traditional and emerging high-potential markets.

Capital Markets and Portfolio Investment

Dominica is a member of the ECCU. As such, it is a member of the Eastern Caribbean Securities Exchange (ECSE) and the Regional Government Securities Market. The ECSE is a regional securities market established by the ECCB and licensed under the Securities Act of 2001, a uniform regional body of legislation governing the buying and selling of financial products for the eight member territories. In 2019, the ECSE listed 149 securities, comprising 128 sovereign debt instruments, 13 equities, and eight corporate bonds. Market capitalization stood at $1.8 billion, a significant decrease from 2018. This decrease was primarily due to the delisting of CIBC FirstCaribbean International Bank Ltd., which previously accounted for 79.2 percent of total capitalization. Dominica is open to portfolio investment.

Dominica has accepted the obligations of Article VIII of the International Monetary Fund (IMF) Agreement, Sections 2, 3, and 4 and maintains an exchange system free of restrictions on making payments and transfers for current international transactions. Dominica does not normally grant foreign tax credits except in the case of taxes paid in a British Commonwealth country that grants similar relief for Dominica taxes or where an applicable tax treaty provides a credit. The private sector has access to credit on the local market through loans, purchases of non-equity securities, and trade credits and other accounts receivable that establish a claim for repayment.

Money and Banking System

The eight participating governments of the ECCU have passed the Eastern Caribbean Central Bank Agreement Act. The Act provides for the establishment of the ECCB, its management and administration, its currency, relations with financial institutions, relations with the participating governments, foreign exchange operations, external reserves, and other related matters. Dominica is a signatory to this agreement and the ECCB controls Dominica’s currency and regulates its domestic banks.

The Banking Act is a harmonized piece of legislation across the ECCU. The Minister of Finance usually acts in consultation with, and on the recommendation of, the ECCB with respect to those areas of responsibility within the Minister of Finance’s portfolio.

Domestic and foreign banks can establish operations in Dominica. The Banking Act requires all commercial banks and other institutions to be licensed in order to conduct any banking business. The ECCB regulates financial institutions. As part of ongoing supervision, licensed financial institutions are required to submit monthly, quarterly, and annual performance reports to the ECCB. In its latest annual report, the ECCB listed the commercial banking sector in Dominica as stable. Assets of commercial banks totaled $781.2 million in 2019, an 11 percent decrease from the previous year due primarily to contraction in the net foreign asset position. The reserve requirement for commercial banks was six percent of deposit liabilities.

Dominica is well served by bank and non-financial institutions. There are minimal alternative financial services. Some citizens still participate in informal community group lending.

The Caribbean region has witnessed a withdrawal of correspondent banking services by the U.S. and European banks. CARICOM remains committed to engaging with key stakeholders on the issue and appointed a Committee of Ministers of Finance on Correspondent Banking to monitor the issue.

In March 2019, the ECCB launched an 18-month financial technology pilot to launch a Digital Eastern Caribbean dollar (DXCD) with its partner, Barbados-based Bitt Inc. The ECCB will work closely with Bitt to develop, deploy, and test technology focusing on data management, compliance, and transaction monitoring systems for know your customer, anti-money laundering, and combating the financing of terrorism. The goal of the pilot is to improve the risk profile of the ECCU and mitigate against the trend of de-risking by the region’s correspondent banking partners. The pilot will also focus on developing a secure, resilient digital payment and settlement platform with embedded regional and global compliance. The digital Eastern Caribbean currency will operate alongside physical Eastern Caribbean currency. The ECCB will issue the DXCD to licensed bank and non-bank financial institutions on a private blockchain platform. DXCD is expected to launch mid-2020.

Foreign Exchange and Remittances

Foreign Exchange

Dominica is a member of the ECCU and the ECCB. The currency of exchange is the Eastern Caribbean dollar (denoted as XCD). As a member of the OECS, Dominica has a fully liberalized foreign exchange system. The XCD has been pegged to the United States dollar at a rate of 2.7 to $1.00 since 1976. As a result, the XCD does not fluctuate, creating a stable currency environment for trade and investment in Dominica.

Remittance Policies

Companies registered in Dominica have the right to repatriate all capital, royalties, dividends, and profits free of all taxes or any other charges on foreign exchange transactions. There are no restrictions on the repatriation of dividends for totally foreign-owned firms. However, a mixed foreign-domestic company may repatriate profits to the extent of its foreign participation.

As a member of the OECS, there are no exchange controls in Dominica and the invoicing of foreign trade transactions are allowed in any currency. Importers are not required to make prior deposits in local funds and export proceedings do not have to be surrendered to government authorities or to authorized banks. There are no controls on transfers of funds. Dominica is a member of the Caribbean Financial Action Task Force. (CFATF).

Sovereign Wealth Funds

Neither the government of Dominica, nor the ECCB, of which Dominica is a member, maintains a sovereign wealth fund.

State-owned enterprises (SOEs) in Dominica work in partnership with ministries, or under their remit to carry out certain specific ministerial responsibilities. There are currently 20 SOEs in Dominica operating in areas such as tourism, investment services, broadcasting and media, solid waste management, and agriculture. There is no published list of these SOEs. They are all wholly-owned government entities. Each is headed by a board of directors to which senior management reports. The SOE sector is affected by financial sustainability challenges, with resources insufficient to cover capital replacement. The debt of SOEs contributed 12 percent of GDP to the stock of public sector debt in 2016, mostly concentrated in financial public entities.

Privatization Program

Dominica does not currently have a targeted privatization program.

The law provides criminal penalties for official corruption, and the government generally implements these laws effectively. According to civil society sources and members of the political opposition, officials sometimes engage in corrupt practices with impunity. Civil society groups staged a protest alleging the government had misappropriated $370 million (1 billion Eastern Caribbean dollars) in revenues from the CBI program. A 2019 al-Jazeera video documented allegations of government officials selling diplomatic passports. The government denied both allegations. Dominica acceded to the United Nations Convention Against Corruption in 2010. The country is party to the Inter-American Convention against Corruption.

The Integrity in Public Office Act, 2003 and the Integrity in Public Office (Amendment) Act 2015 require government officials to account annually for their income, assets, and gifts. All offenses under the act, including the late filing of declarations, are criminalized. The Integrity Commission was established and functions under this Act. The Integrity Commission’s mandate and decisions can be found at http://www.integritycommission.gov.dm . Generally, the Integrity Commission reports on late submissions and on inappropriately completed forms, but does not share financial disclosures of officials with the Office of the Director of Public Prosecutions. Additionally, the Integrity Commission has not updated documents on its website since 2015.

The Director of Public Prosecutions is responsible for prosecuting corruption offenses, but it lacks adequate personnel and resources to handle complicated money laundering and public corruption cases.

Resources to Report Corruption

Dermot Southwell
Chairman, Integrity Commission
Cross Street, Roseau, Dominica
Tel: 1-767-266-3436
Email: integritycommission@dominica.gov.dm

Dominica held parliamentary elections in December 2019. Voting was held under heightened security following weeks of protests and legal challenges seeking electoral reform. The protests were led by the United Workers’ Party, which lost the election in a landslide to the ruling Dominica Labour Party.

Dominica’s economy has been strongly affected by the COVID-19 crisis. The IMF has projected that Dominica’s GDP will fall by 4.7 percent in 2020. In April 2020, the government of Dominica began work on an economic stimulus proposal. ECCU member financial institutions agreed to facilitate loan moratoriums or deferments for a period of six months, along with waivers of fees and charges for customers. The World Bank provided $6.6 million to Dominica to provide immediate funding to enhance health system capacity and strengthen food security.

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.

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 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.

Policies Towards Foreign Direct Investment

Under the concept of “one country, two systems,” Macau enjoys a high degree of autonomy in economic matters, and its economic system is to remain unchanged until at least 2049. The GOM maintains a transparent, non-discriminatory, and free-market economy. Macau has separate membership in the World Trade Organization (WTO) from that of mainland China.

There are no restrictions placed on foreign investment in Macau as there are no special rules governing foreign investment. Both overseas and domestic firms register under the same set and are subject to the same regulations on business, such as the Commercial Code (Decree 40/99/M).

Macau is heavily dependent on the gaming sector and tourism. The GOM aims to diversify Macau’s economy by attracting foreign investment and is committed to maintaining an investor-friendly environment. Corporate taxes are low, with a tax rate of 12 percent for companies whose net profits exceed MOP 300,000 (USD 37,500). For net profits less than USD 37,500, the tax ranges from three percent to 12 percent. The top personal tax rate is 12 percent. The tax rate of casino concessionaries is 35 percent on gross gaming revenue, plus a four percent contribution for culture, infrastructure, tourism, and a social security fund.

In 2002, the GOM ended a long-standing gaming monopoly, awarding two gaming concessions to consortia with U.S. interests. This opening has encouraged substantial U.S. investment in casinos and hotels and has spurred rapid economic growth. Macau is attempting to position itself to be a regional center for incentive travel, conventions, and tourism. In March 2019, the GOM extended for two years the gaming licenses of SJM (a locally-owned company) and MGM China (a joint venture with investment from U.S.-owned MGM Resorts International that holds a sub-concession from SJM), that were set to expire in 2020. The concessions of all six of Macau’s gambling concessionaires and sub-concessionaires are now set to expire in 2022. The GOM is currently drafting a bill to guide the gaming concession retendering process.

The Macau Trade and Investment Promotion Institute (IPIM) is the GOM agency responsible for promoting trade and investment activities. IPIM provides one-stop services, including notary service, for business registration, and it applies legal and administrative procedures to all local and foreign individuals or organizations interested in setting up a company in Macau.

Macau maintains an ongoing dialogue with investors through various business networks and platforms, such as the IPIM, the Macau Chamber of Commerce, AmCham Macau, and the Macau Association of Banks.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign firms and individuals are free to establish companies, branches, and representative offices without discrimination or undue regulation in Macau. There are no restrictions on the ownership of such establishments. Company directors are not required to be citizens of, or resident in, Macau, except for the following three professional services which impose residency requirements:

Education – an individual applying to establish a school must have a Certificate of Identity or have the right to reside in Macau. The principal of a school must be a Macau resident.

Newspapers and magazines – applicants must first apply for business registration and register with the Government Information Bureau as an organization or an individual. The publisher of a newspaper or magazine must be a Macau resident or have the right to reside in Macau.

Legal services – lawyers from foreign jurisdictions who seek to practice Macau law must first obtain residency in Macau. Foreign lawyers must also pass an examination before they can register with the Lawyer’s Association, a self-regulatory body. The examination is given in Chinese or Portuguese. After passing the examination, foreign lawyers are required to serve an 18-month internship before they are able to practice law in Macau.

Other Investment Policy Reviews

Macau last conducted the WTO Trade Policy Review in May 2013. https://www.wto.org/english/tratop_e/tpr_e/g281_e.pdf

Business Facilitation

Macau provides a favorable business and investment environment for enterprises and investors. The IPIM helps foreign investors in registering a company and liaising with the involved agencies for entry into the Macau market. The business registration process takes less than 10 working days. http://www.ipim.gov.mo/en/services/one-stop-service/handle-company-registration-procedures/ .

Outward Investment

Macau, as a free market economy, does not promote or incentivize outward investment, nor does it restrict domestic investors from investing abroad. Hong Kong and mainland China were the top two destinations for Macau’s outward investments in 2018.

Capital Markets and Portfolio Investment

Macau allows free flows of financial resources. Foreign investors can obtain credit in the local financial market. The GOM is stepping up its efforts to develop finance leasing businesses and exploring opportunities to establish a system for trade credit insurance in order to take a greater role in promoting cooperation between companies from Portuguese-speaking countries.

Since 2010, the People’s Bank of China (PBoC) has provided cross-border settlement of funds for Macau residents and institutions involved in transactions for RMB bonds issued in Hong Kong. Macau residents and institutions can purchase or sell, through Macau RMB participating banks, RMB bonds issued in Hong Kong and Macau. The Macau RMB Real Time Gross Settlements (RMB RTGS) System came into operation in March 2016 to provide real-time settlement services for RMB remittances and interbank transfer of RMB funds. The RMB RTGS System is intended to improve risk management and clearing efficiency of RMB funds and foster Macau’s development into an RMB clearing platform for trade settlement between China and Portuguese-speaking countries. In December 2019, the PBoC canceled an existing quota of RMB 20,000 exchanged in Macau for each individual transaction.

Macau has no stock market, but Macau companies can seek a listing in Hong Kong’s stock market. Macau and Hong Kong financial regulatory authorities cooperate on issues of mutual concern. Under the Macau Insurance Ordinance, the MMA authorizes and monitors insurance companies. There are 11 life insurance companies and 13 non-life insurance companies in Macau. Total gross premium income from insurance services amounted to USD 2.7 billion in the third quarter of 2019.

In October 2018, the Legislative Assembly took steps to tackle cross-border tax evasion. Offshore institutions in Macau, including credit institutions, insurers, underwriters, and offshore trust management companies, will be abolished by the end of 2020. Decree 9/2012, in effect since October 2012, stipulates that banks must compensate depositors up to a maximum of MOP 500,000 (USD 62,500) in case of a bank failure. To finance the deposit protection scheme, the GOM has injected MOP 150 million (USD 18.75 million) into the deposit protection fund, with banks paying an annual contribution of 0.05 percent of the amount of protected deposits held.

Money and Banking System

The MMA functions as a de facto central bank. It is responsible for maintaining the stability of Macau’s financial system and for managing its currency reserves and foreign assets. At present, there are thirty-one financial institutions in Macau, including 12 local banks and 19 branches of banks incorporated outside Macau. There is also a finance company with restrictive banking activities, two financial leasing companies and a non-bank credit institution dedicated to the issuance and management of electronic money stored value card services. In addition, there are 11 moneychangers, two cash remittance companies, two financial intermediaries, six exchange counters, and one representative office of a financial institution. The BoC and Industrial and Commercial Bank of China (ICBC) are the two largest banks in Macau, with total assets of USD 79.8 billion and USD 33.9 billion, respectively. Banks with capital originally from mainland China and Portugal had a combined market share of about 86 percent of total deposits in the banking system at the end of 2016. Total deposits amounted to USD 83.8 billion by the end of 2019. In the fourth quarter of 2019, banks in Macau maintained a capital adequacy ratio of 14.2 percent, well above the minimum eight percent recommended by the Bank for International Settlements. Accounting systems in Macau are consistent with international norms.

The MMA prohibits the city’s financial institutions, banks and payment services from providing services to businesses issuing virtual currencies or tokens.

Foreign Exchange and Remittances

Foreign Exchange

Profits and other funds associated with an investment, including investment capital, earnings, loan repayments, lease payments, and capital gains, can be freely converted and remitted. The domestic currency, Macau Official Pataca (MOP), is pegged to the Hong Kong Dollar at 1.03 and indirectly to the U.S. Dollar at an exchange rate of approximately MOP 7.99 = USD 1. The MMA is committed to exchange rate stability through maintenance of the peg to the Hong Kong Dollar.

Although Macau imposes no restrictions on capital flows or foreign exchange operations, exporters are required to convert 40 percent of foreign currency earnings into MOP. This legal requirement does not apply to tourism services.

Remittance Policies

There are no recent changes to or plans to change investment remittance policies. Macau does not restrict the remittance of profits and dividends derived from investment, nor does it require reporting on cross-border remittances. Foreign investors can bring capital into Macau and remit it freely.

A Memorandum of Understanding on AML actions between MMA and PBoC, increased information exchanges between the two parties, as well as cooperation on onsite inspections of casino operations. Furthermore, Macau’s terrorist asset-freezing law, which is based on United Nations (UN) Security Council resolutions, requires travelers entering or leaving with cash or other negotiable monetary instruments valued at MOP 120,000 (USD 15,000) or more to sign a declaration form and submit it to the Macau Customs Service.

In December 2019, the PBoC increased a daily limit set on the amount of RMB-denominated funds sent by Macau residents to personal accounts held in mainland China from RMB 50,000 to RMB 80,000.

Sovereign Wealth Funds

The International Monetary Fund (IMF) suggested in July 2014 that the GOM invest its large fiscal reserves through a fund modeled on sovereign wealth funds to protect the city’s economy from economic downturns. In November 2015, the GOM decided to establish such a fund, called the MSAR Investment and Development Fund (MIDF), through a substantial allocation from the city’s ample fiscal reserves. However, the GOM in 2019 withdrew a draft bill that proposed the use of USD 7.5 billion to seed the MIDF over public concerns about the government’s supervisory capability. The MMA said it will conduct a consultation in mid-2020 to help the public better understand the regulations and operations of the fund.

Macau does not have state-owned enterprises (SOEs). Several economic sectors – including cable television, telecommunications, electricity, and airport/port management, are run by private companies under concession contracts from the GOM. The GOM holds a small percentage of shares (ranging from one to 10 percent) in these government-affiliated enterprises. The government set out in its Commercial Code the basic elements of a competition policy with regard to commercial practices that can distort the proper functioning of markets. Court cases related to anti-competitive behavior remain rare.

Privatization Program

The GOM has given no indication in recent years that it has plans for a privatization program.

Mainland China extended in February 2006 the United Nations Convention Against Corruption to Macau. Macau has laws to combat corruption by public officials and the private sector. Anti-corruption laws are applied in a non-discriminatory manner and effectively enforced. One provision stipulates that anyone who offers a bribe to foreign public officials (including officials from mainland China, Hong Kong, and Taiwan) and officials of public international organizations in exchange for a trade deal could receive a jail term of up to three years or fines.

The CCAC is a member of the International Association of Anti-Corruption Authorities and a member of the Anti-Corruption Action Plan for Asia and the Pacific. The CCAC’s guidelines on prevention and repression of corruption in the private sector and a booklet Corruption Prevention Tips for Private Companies provide rules of conduct that private companies must observe. In January 2019, the GOM completed a public consultation on public procurement in order to create a legal framework through which the GOM will seek to promote an efficient and transparent regime. The GOM expected that a draft bill will be ready in the second half of 2020.

Resources to Report Corruption

CHAN Tsz King, Commissioner
Commission Against Corruption
105, Avenida Xian Xing Hai, 17/F, Centro Golden Dragon, Macau
+853- 2832-6300
ccac@ccac.org.mo

Macau is politically stable. The U.S. Consulate General is not aware of any incidents in recent years involving politically motivated damage to projects or installations.