Policies Towards Foreign Direct Investment

Georgia is open to foreign investment. Legislation establishes favorable conditions for foreign investment, but not preferential treatment for foreign investors. The Law on Promotion and Guarantee of Investment Activity protects foreign investors from subsequent legislation that alters the condition of their investments for a period of ten years. Investment promotion authority is vested in the Investment Division of Enterprise Georgia, a legal entity of public law under the Ministry of Economic and Sustainable Development. The Investment Division’s primary role is to attract, promote, and develop foreign direct investment in Georgia. For this purpose, it acts as the moderator between foreign investors and the Georgian government, ensures access to updated information, provides a means of communication with government bodies, and serves as a “one-stop-shop” to support investors throughout the investment process. (http://www.enterprisegeorgia.gov.ge/en/about ).

To enhance relations with investors, in 2015 Georgia’s then-Prime Minister created an Investors Council, an independent advisory body aimed at promoting dialogue among the private business community, international organizations, donors, and the Georgian government for the development of a favorable, non-discriminatory, transparent, and fair business and investment climate in Georgia (http://ics.ge ). The Business Ombudsman, who is a member of the Investors Council, is another tool for protecting investors’ rights in Georgia (http://businessombudsman.ge ).

Limits on Foreign Control and Right to Private Ownership and Establishment

Georgia does not have an established interagency process to screen foreign investment, but relevant ministries or agencies may have the right to review investments for national security concerns in certain circumstances, as outlined below. Foreign investors have participated in most major privatizations of state-owned property. Transparency of privatization has been an issue at times. No law or regulation authorizes private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control. Cross-shareholder or stable-shareholder arrangements are not used by private firms in Georgia. Georgian legislation does not protect private firms from takeovers. There are no regulations authorizing private firms to restrict foreign partners’ investment activity or limit foreign partners’ ability to gain control over domestic enterprises.

There are no specific licensing requirements for foreign investment other than those that apply to all companies. The government requires licenses for activities that affect public health, national security, and the financial sector: weapons and explosives production, narcotics, poisonous and pharmaceutical substances, exploration and exploitation of renewable or non-renewable substances, exploitation of natural resource deposits, establishment of casinos and gambling houses and the organization of games and lotteries, banking, insurance, securities trading, wireless communication services, and the establishment of radio and television channels. The law requires the state to retain a controlling interest in air traffic control, shipping traffic control, railroad control systems, defense and weapons industries, and nuclear energy. For investment projects requiring licenses or permits, the relevant government ministries and agencies have the right to review the project for national security concerns.  By law, the government has 30 days to make a decision on licenses, and if the licensing authority does not state a reasonable ground for rejection within that period, the government must approve the license or permit for issuance. Per Georgian law, it is illegal to undertake any type of economic activity in Abkhazia or South Ossetia if such activities require permits, licenses, or registration in accordance with Georgian legislation. Laws also ban mineral exploration, money transfers, and international transit via Abkhazia or South Ossetia. Only the state may issue currency, banknotes, and certificates for goods made from precious metals, import narcotics for medical purposes, and produce control systems for the energy sector.

Other Investment Policy Reviews

In January 2016, the World Trade Organization (WTO) concluded its second Trade Policy Review of Georgia. In this review, WTO members reiterated their approval of Georgia’s broadly open, transparent, and predictable trade and investment regimes. Members noted that, during the review period, Georgia undertook an impressive range of reform initiatives aimed at streamlining, liberalizing, and simplifying trade regulations and their implementation. The review lauded Georgia’s trade openness and its commitment to the multilateral system through its responsible contribution to the work of the WTO.

WTO members commended Georgia for ratifying the WTO’s Trade Facilitation Agreement and the related notification to the WTO of Category A, B and C commitments. Members also noted that Georgia was an observer to the Government Procurement Agreement and was assessing the prospects for joining the Agreement. Members welcomed the announcement that Georgia was considering joining the expanded Information Technology Agreement, which would constitute a significant step forward for attracting further investment. See more at: https://www.wto.org/english/tratop_e/tpr_e/tp428_crc_e.htm 

Business Facilitation

Registering a business in Georgia is relatively quick and streamlined, and Georgia ranks second in registering property among countries assessed in the World Bank’s 2020 Doing Business Report. Registration takes one day to complete through Georgia’s single window registration process. The National Agency of Public Registry (NAPR) (www.napr.gov.ge  – webpage is in Georgian only), located in Public Service Halls (PSH) under the Ministry of Justice of Georgia, carries out company registration. The web page of the PSH (http://www.psh.gov.ge/main/page/2/85 ) outlines procedures and requirements for business registration in English. For registration purposes, the law does not require a document verifying the amount or existence of charter capital. A company is not required to complete a separate tax registration as the initial registration includes both the revenue service and national business registration. The following information is required to register a business in Georgia: bio data for the founder and principal officers, articles of incorporation, and the company’s area of business activity. Other required documents depend on the type of entity to be established.

To register a business, the potential owner must first pay the registration fee, register the company with the Entrepreneurial Register, and obtain an identification number and certificate of state and tax registration. Registration fees are: GEL100 (around USD35) for regular registration, GEL200 (USD70) for expedited registration, plus GEL1 (bank fees). Second, the owner must open a bank account (free).

Georgia’s business facilitation mechanism provides for equitable treatment of women and men. There are a variety of state-run and donor-supported projects that aim to promote women entrepreneurs through specific training or other programs, including access to financing and business training.

Outward Investment

The Georgian government does not have any specific policy on promoting or restricting domestic investors from investing abroad and Georgia’s outward investment is insignificant.

Transparency of the Regulatory System

Georgia’s legal, regulatory, and accounting systems are transparent and consistent with international norms, and the Georgian government has committed to achieving even greater transparency and simplicity of regulations for these systems.

In Georgia, the lawmaking process involves Parliament (drafting and consideration) and the President (signing). Under Georgia’s constitution, the following subjects have the right to initiate legislation: the President, the government, members of Parliament, a committee, faction, the representative bodies of the Autonomous Republics of Abkhazia and Adjara, and groups of at least 30,000 voters.

A subject who does not have the right to launch a legislative initiative does, however, have the right to submit a “legislative proposal,” which should be a well-reasoned address to Parliament advocating for the adoption of a new law or of changes/amendments to existing legislation. According to Article 150 of the Law on Parliament, the following can submit a legislative proposal: citizens of Georgia, state bodies (except the establishments of the executive branch of government), the representative and executive bodies of local self-government, political and public unions registered in Georgia according to the established rule, and other legal entities.

There are no informal regulatory processes managed by nongovernmental organizations or private sector associations, except their entitlement for participating in the law-making process prescribed by the above law.

Publicly listed companies are required to prepare financial statements in accordance with IFRS – International Financial Reporting Standards.

Draft bills or regulations are available for public comment. NGOs, professional associations, and business chambers actively participate in public hearings on legislation.

The government publishes laws and regulations in Georgian in the official online legislative herald gazette, the Legislative Messenger, ‘Matsne’ (www.matsne.gov.ge ). Another online tool to research Georgian legislation is www.codex.ge , or the webpage of the Parliament of Georgia, www.parliament.ge .

General oversight of the executive branch is vested in the parliament. The new Constitution, which entered into force in December 2018, and subsequently adopted new Parliamentary Rules and Procedures aim to strengthen Parliament’s oversight role. Under its strengthened role, public officials are obliged to respond to Parliament’s questions and government institutions submit annual reports. However, local watchdog organizations continue to raise concern that one party controls all branches of government, undermining checks and balances. Independent agencies, such as the State Audit Office, the Ombudsman’s office, including the Business Ombudsman, and business associations also provide an oversight function. Georgia maintains an active civil society that frequently reports on government activities.

Information on Georgia’s state budget and debt obligations was widely and easily accessible to the general public, including online, and considered generally reliable. Georgia’s State Audit Service reviewed the government’s accounts and made its reports publicly available. The International Monetary Fund (IMF) reported in its Regional Economic Outlook  on the Middle East, North Africa, Afghanistan, and Pakistan, published in October 2019, that Georgia had successfully implemented fiscal reforms. The report states, “Fiscal transparency, measured by the Open Budget Index, has improved markedly. Tax revenues rose and the efficiency of revenue collection has been higher than among peers….The adoption of flexible fiscal rules helped foster fiscal discipline, limited the rise in public debt, and reduced volatility of government expenditure.”

Georgia has six types of taxes: corporate profit, value added, property, income, excise, and dividend. The tax on corporate profits is 15 percent. However, in January 2017, the government adopted a corporate profit tax scheme that exempts undistributed, reinvested, or retained corporate profits from income taxation. Georgia’s value added tax (VAT) rate is 18 percent, tax on personal income is 20 percent, and dividend income tax is five percent. There are no dividend or capital gains taxes for publicly traded equities (a free float in excess of 25 percent). Georgia imposes excise taxes on cigarettes, alcohol, fuel, and mobile telecommunication. Most goods, except for some agricultural products, have no import tariffs. For goods with tariffs, the rates are five or 12 percent, unless excluded by an FTA.

Detailed information on the types and rates of taxes applicable to businesses and individuals, as well as a payment calendar, is available on the webpage  of Georgia’s Revenue Service.

In 2019, the Georgian government introduced new regulations to simplify the tax regime and streamline processes for small businesses. The new legislation decreased turnover tax from five percent to one percent for small businesses and defined small business as those with less than GEL 500,000 (USD 185 thousand) annual turnover, a fivefold increase from the previous GEL 100,000 (USD 31 thousand) threshold. In addition, the new regulations allow small businesses to pay taxes by the end of month, instead of requiring advance payments. For medium and large businesses, the reform introduced an automatic system of VAT returns and activated a special system whereby entrepreneurs can pay VAT returns in five to seven business days by filling out an electronic application.

Enterprise Georgia, a state agency under the Ministry of Economic and Sustainable Development, operates the Business Service Center in Tbilisi, which provides domestic and foreign businesses with information on doing business in Georgia. The Business Service Center facilitates an online chat tool for interested individuals (http://www.enterprisegeorgia.gov.ge/en/SERVICE-CENTER ). Additionally, the Investor’s Council provides an opportunity for the private sector to discuss legislative reforms, economic development plans, and actions to spur economic growth with the government. Different commercial chambers, such as the American Chamber of Commerce (www.amcham.ge ), International Chamber of Commerce (www.icc.ge ), Business Association of Georgia (www.bag.ge ), Georgian Chamber of Commerce and Industry (www.gcci.ge ), and EU-Georgia Business Council (http://eugbc.net ) remain important tools for facilitating ongoing dialogue between domestic and foreign business communities and the government.

International accounting standards are binding for joint stock companies, banks, insurance companies, companies operating in the insurance field, limited liability companies, limited partnerships, joint liability companies, and cooperatives. Private companies are required to perform accounting and financial reporting in accordance with international accounting standards. Sole entrepreneurs, small businesses, and non-commercial legal entities perform accounting and financial reporting according to simplified interim standards approved by the Parliamentary Accounting Commission. Shortcomings in the use of international accounting standards persist, and qualified accounting personnel are in short supply.

The Law of Georgia on Free Trade and Competition provides for the establishment of an independent structure, the Competition Agency, to exercise effective state supervision over a free, fair, and competitive market environment. Nonetheless, certain companies have dominant positions in pharmaceutical, petroleum, and other sectors.

Public finances and debt obligations are transparent, and Georgia’s budget and information on debt obligations were widely and easily accessible to the public through government websites including the Ministry of Finance’s site (www.mof.gov.ge ). Georgia’s State Audit Office (www.sao.ge ) reviews the government’s accounts and makes its reports publicly available.

International Regulatory Considerations

Georgia’s Association Agreement of 2014 with the European Union introduced a preferential trade regime, the DCFTA, which increased market access between the EU and Georgia based on having better-aligned regulations. The agreement is designed to introduce gradually European standards in all spheres of Georgia’s economy and sectoral policy: infrastructure, energy, the environment, agriculture, tourism, technological development, employment and social policy, health protection, education, culture, civil society, and regional development. It also provides for the approximation of Georgian laws with nearly 300 separate European legislative acts.

The DCFTA should promote a gradual approximation with European standards for food safety, establish a transparent and stable business environment in Georgia, increase Georgia’s potential to attract investment, introduce innovative approaches and new technologies, stimulate economic growth, and support the country’s economic development.

Georgia has been a WTO member since 2000 and consistently meets requirements and obligations included in the Agreement on Trade Related Investment Measures (TRIM). Since WTO accession, Georgia has not introduced any Technical Barriers to Trade. In January 2016, Georgia ratified the WTO Trade Facilitation Agreement (TFA).

Legal System and Judicial Independence

Georgia’s legal system is based on civil law and the country has a three-tier court system. The first tier consists of 25 trial courts throughout the country that hear criminal, civil, and administrative cases. Two appellate courts, Tbilisi Appeal Court (East Georgia) and Kutaisi Appeal Court (West Georgia), represent the second tier. The Supreme Court of Georgia occupies the third, or the highest, instance and acts as the highest appellate court. In addition, there is a separate Constitutional Court for arbitrating constitutional disputes between branches of government and ruling on individual claims concerning human rights violations stemming from the Constitution.

Georgia does not have an integrated commercial code. There are a number of different laws and codes (Tax Code, Law on Entrepreneurs, and Law on Insolvency) that regulate commercial activity in Georgia. There are no specialized courts, such as a commercial court, to handle commercial disputes. The Ministry of Justice’s Public Service Halls provide property registration.

The independence of Georgia’s judiciary and political inference in the judicial system remain concerns. Freedom House’s 2018 Freedom in the World Report stated that “despite ongoing judicial reforms, executive and legislative interference in the courts remains a substantial problem, as does corruption and a lack of transparency and professionalism surrounding judicial proceedings.” In addition, delays in adjudicating cases and backlogs in Georgian courts remain problematic. International experts are providing Georgian officials with assistance aimed at improving judicial efficiency. The recommendations in the fourth wave of judicial reforms passed in 2019 included legislative changes, streamlining case management, increasing the number of matters resolved by non-judges, improved data exchanges, and implementing balanced caseload.

Regulations and enforcement actions are appealable and are adjudicated in the national court system.

Laws and Regulations on Foreign Direct Investment

The U.S.-Georgia Bilateral Investment Treaty (BIT) guarantees U.S. investors national treatment and most favored nation treatment. Exceptions to national treatment have been carved out for Georgia in certain sectors, such as maritime fisheries, air and maritime transport and related activities, ownership of broadcast, common carrier, or aeronautical radio stations, communications satellites, government-supported loans, guarantees, and insurance, and landing of submarine cables.

Georgia’s legal system is based on civil law. Legislation governing foreign investment includes the Constitution, the Civil Code, the Tax Code, and the Customs Code. Other relevant legislation includes the Law on Entrepreneurs, the Law on Promotion and Guarantee of Investment Activity, the Bankruptcy Law, the Law on Courts and General Jurisdiction, the Law on Limitation of Monopolistic Activity, the Accounting Law, and the Securities Market Law.

Ownership and privatization of property is governed by the following acts: the Civil Code, the Law on Ownership of Agricultural Land, the Law on Private Ownership of Non-Agricultural Land, the Law on Management of State-Owned Non-Agricultural Land, and the Law on Privatization of State Property. Property rights in extractive industries are governed by the Law on Concessions, the Law on Deposits, and the Law on Oil and Gas. Intellectual property rights are protected under the Civil Code and the Law on Patents and Trademarks. Financial sector legislation includes the Law on Commercial Banks, the Law on National Banks, and the Law on Insurance Activities.

There is no one-stop-shop website for investment that provides relevant laws in English.

Competition and Anti-Trust Laws

The Georgian Law “On Free Trade and Competition” of 2005 that governs competition is in line with the Georgian Constitution and international agreements.

The agency in charge of reviewing transactions for competition-related concerns is the Competition Agency, an independent legal entity of public law, subordinated to the Prime Minister of Georgia. The agency aims to promote market liberalization, free trade, and competition (www.competition.ge ). Georgia has also signed a number of international agreements containing competition provisions, including the EU-Georgia Association Agreement. The DCFTA within the AA goes further than most FTAs, with elimination of non-tariff barriers and regulatory alignment, as well as binding rules on investments and services.

Expropriation and Compensation

The Georgian Constitution protects property ownership rights, including ownership, acquisition, disposal, and inheritance of property. Foreign citizens living in Georgia possess rights and obligations equal to those of the citizens of Georgia, with the exception of certain property rights (see Section 5). The Constitution allows restriction or revocation of property rights only in cases of extreme public necessity, and then only as allowed by law.

The Law on Procedures for Forfeiture of Property for Public Needs establishes the rules for expropriation in Georgia. The law allows expropriation for certain enumerated public needs, establishes a mechanism for valuation and payment of compensation, and provides for court review of the valuation at the option of any party. The Georgian Law on Investment allows expropriation of foreign investments only with appropriate compensation. Amendments to the Law on Procedures for Forfeiture of Property for Public Needs allow payment of compensation with property of equal value as well as money. Compensation includes all expenses associated with the valuation and delivery of expropriated property. Compensation must be paid without delay and must include both the value of the expropriated property as well as the loss suffered by the foreign investor as a result of expropriation. The foreign investor has a right to review an expropriation in a Georgian court. In 2007, Parliament passed a law generally prohibiting the government from contesting the privatization of real estate sold by the government before August 2007. The law is not applicable, however, to certain enumerated properties.

The U.S.-Georgia BIT permits expropriation of covered investments only for a public purpose, in a non-discriminatory manner, upon payment of prompt, adequate and effective compensation, and in accordance with due process of law and general principles of fair treatment.

Expropriation disputes are not common in Georgia, although under the previous government (before 2012), reputable NGOs raised cases of illegal revocation of historic ownership rights in Svaneti, Anaklia, Gonio, and Black Sea-adjacent territories. Under the previous government there were cases of property transfers that lacked transparency and allegedly were implemented under coercion.

Dispute Settlement

ICSID Convention and New York Convention

Since 1992, Georgia has been a member of the International Centre for Settlement of Investment Disputes (ICSID Convention) and a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). As a result of these international obligations, Georgia is bound to accept international arbitration and recognize arbitral awards. The Ministry of Justice oversees the government’s interests in arbitrations between the state and private investors.

Investor-State Dispute Settlement

Georgia has signed bilateral investments treaties (BITs) with 32 countries  including the United States. Georgian investment law allows disputes between a foreign investor and a government body to be resolved in Georgian courts or at ICSID, unless a different method of dispute settlement is agreed upon between the parties. If the dispute cannot be heard at ICSID, the foreign investor can also submit the dispute to ad-hoc international arbitration under United Nations Commission for International Trade Law (UNCITRAL model law) rules. The right to use ICSID or UNCITRAL model law is provided for under the U.S.–Georgia BIT.

There were reports of lack of due process and respect for rule of law in a number of property rights cases. NGOs also reported several cases in which groups claimed the government improperly used taxes on property to pressure organizations.

Although the constitution and law provide for an independent judiciary, there remain indications of interference in judicial independence and impartiality. Judges are vulnerable to political pressure from within and outside of the judiciary.

Disputes over property rights at times have undermined confidence in the impartiality of the Georgian judicial system and rule of law, and by extension, Georgia’s investment climate. The government identified judicial reform as one of its top priorities, and Parliament has passed a series of reforms aimed at strengthening judicial independence. While reforms have improved the independence of the judiciary, politically sensitive cases are still vulnerable to political pressure. The High Council of Justice is currently dominated by a group of anti-reform judges. Civil society asserts this group applies pressure on judges in politically sensitive cases. The government recently adopted additional judicial reforms focused on improving judicial discipline rules and regulating the operations of the High School of Justice and High Council of Justice.

Over the past 10 years, there have been over a dozen investment disputes involving U.S. citizens. As of 2019, five of those disputes were still ongoing, while the rest were resolved through arbitral awards or out-of-court settlements.

Local courts recognize and enforce foreign arbitral awards issued against the government.

There is no substantial history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Georgia’s arbitration law went into force on January 1, 2010. Georgia has enacted legislation based on the UNCITRAL Model Law. Domestic private arbitration firms, such as the International Arbitration Center (www.giec.ge ), operate in dispute resolution between two private parties.

Bankruptcy Regulations

The Law of Georgia on Insolvency Proceedings regulates rehabilitation and bankruptcy. The law defines two types of creditors: secured and non-secured. Creditors can file a court claim for opening an insolvency proceeding, given certain conditions are satisfied (conditions vary, depending on the outstanding debt amount and the delayed days of repayment).

Creditor meetings are held in court and chaired by a judge. The creditor meeting can decide several issues, including the appointment of a supervisor of the bankruptcy or rehabilitation proceedings, and the appointment of a member of the facilitation council.

Secured creditors: Secured creditors must make unanimous decisions on approving a debtor’s new debts, the encumbrance of the debtor’s property, and suretyship. If there are no secured creditors, the creditor’s meeting is authorized to make the same decisions. The secured creditors, in a creditor’s meeting, may suspend enforcement of the material conditions of the agreement with the bankruptcy or rehabilitation supervisor or on the definition of the terms of the rehabilitation. After the debtor’s property is sold on auction, secured creditors have first priority for being repaid. All secured creditors must approve the rehabilitation plan and plan amendments. New equity investment in the debtor’s company is only possible if there are prior consents from all secured creditors and the rehabilitation supervisor.

Non-secured creditors: Non-secured creditors are satisfied only after all secured creditors are satisfied (unless otherwise agreed by all creditors unanimously). Non-secured creditors do not have voting rights for the rehabilitation plan approval.

The priority system shall not apply to creditors whose claim is secured by financial collateral.

Foreign creditors: The law provides additional time for foreign creditors to file claims. Creditors may file claims to the court and request to declare the agreements made by the insolvent debtor voidable and/or request reimbursement of damages, if such agreements inflicted damages to the creditor.

The Law of Georgia on Insolvency Proceedings only incurs criminal liabilities in cases where the debtor does not provide information about its obligations, assets, financial situation and activities, or ongoing disputes in which the debtor is involved; or provides such information with intentional delay, or provides falsified information.

The Debt Registry of the National Agency of the Public Register is Georgia’s credit monitoring authority.

According to the World Bank’s 2020 Doing Business Report , Georgia’s score of 40.5 in the category of Resolving Insolvency is above the regional average, and the Law of Georgia on Insolvency Proceedings entered into force in 2017 made insolvency proceedings more accessible for debtors and creditors, improved provisions on treatment of contracts during insolvency, and granted creditors greater participation in important decisions during the proceedings. According to the Law on Insolvency Proceedings, it should take no more than 225 days to complete liquidation proceedings. However, in practice, it often takes two years to complete the process because parties do not always comply with statutory deadlines.

Investment Incentives

The Georgian government has created several tools to support investment in the country’s economy. The JSC Partnership Fund is a state-owned investment fund, established in 2011. The fund owns the largest Georgian state-owned enterprises operating in the transportation, energy, and infrastructure sectors. The Fund’s main objective is to promote domestic and foreign investment in Georgia by providing co-financing (equity, mezzanine, etc.) in projects at their initial stage of development, with a focus on tourism, manufacturing, energy, and agriculture. (www.fund.ge )

In 2013, the government launched the Georgian Co-Investment Fund (GCF) to promote foreign and domestic investments. According to the government, the GCF is a six billion USD private investment fund with a mandate of providing investors with unique access, through a private equity structure, to opportunities in Georgia’s fastest growing industries and sectors. (www.gcfund.ge )

The government’s “Produce in Georgia” program is another tool for jointly financing foreign investment under which investors establish limited liability companies in Georgia. The program aims to develop and support entrepreneurship, encourage creation of new enterprises, and increase export potential and investment in the country. Coordinated by the Ministry of Economy and Sustainable Development through its Entrepreneurship Development Agency, National Agency of State Property, and Technology and Innovation Agency of Georgia, the project provides access to finance, access to real property, and technical assistant to entrepreneurs

For more information please visit: http://enterprisegeorgia.gov.ge/en/home 

The National Agency of State Property is in charge of the Physical Infrastructure Transfer Component, i.e., the free-of-charge transfer of government-owned real property to an entrepreneur under certain investment obligations.

Low labor costs contribute to the attractiveness of Georgia as a foreign investment destination. Georgia is also increasingly recognized as a regional transportation hub that links Asia and Europe. Georgia’s free trade regimes provide easy access for companies to export goods produced in Georgia to foreign markets. In some cases, foreign investors can benefit from these agreements by producing goods that target these markets.

In October 2018, Georgia’s Prime Minister introduced the concept of electronic residency, allowing citizens of 34 countries to register their companies electronically and open bank accounts in Georgia while not having a physical presence in the country.

Foreign Trade Zones/Free Ports/Trade Facilitation

In June 2007, the Parliament of Georgia adopted the Law on Free Industrial Zones, which defines the form and function of free industrial/economic zones. Financial operations in such zones may be performed in any currency. Foreign companies operating in free industrial zones are exempt from taxes on profit, property, and VAT. Currently, there are four free industrial zones (FIZ) in Georgia:

Poti Free Industrial Zone (FIZ): This is the first free industrial zone in the Caucasus region, established in 2008. UAE-based RAK Investment Authority (Rakia) initially developed the zone, but in 2017, CEFC China Energy Company Limited purchased 75 percent of shares, and the Georgian government holds the remaining 25 percent. Poti FIZ, a 300-hectare area, benefits from its close proximity to the Poti Sea Port. www.potifreezone.ge .

A 27-hectare plot in Kutaisi is home to the Egyptian company Fresh Electric, which constructed a kitchen appliances factory in 2009. The company has committed to building about one dozen textile, ceramics, and home appliances factories in the zone, and announced its intention to invest over USD two billion.

Chinese private corporation “Hualing Group,” based in Urumqi, China, developed another FIZ in Kutaisi in 2015. This FIZ is a 36-hectare area that houses businesses focused on sales of wood, furniture, stone, building materials, pharmaceuticals, auto spare parts, electric vehicles, and beverages: www.hualingfiz.ge .

The Tbilisi Free Zone (TFZ) in Tbilisi occupies 17 hectares divided into 28 plots. TFZ has access to the main cargo transportation highway, Tbilisi International Airport (30 km), and the Tbilisi city center (17 km). For more information, visit: https://www.tfz.ge/en/510/ .

Performance and Data Localization Requirements

Performance requirements are not a condition of establishing, maintaining, or expanding an investment, but the government has imposed requirements on a case-by-case basis in some privatizations of large state assets, such as commitments to maintain employment levels or to make additional investments within a specified period of time. Performance requirements such as the scope and time limit on licenses to extract natural resources or production sharing agreements have triggered complaints from some companies that transactions lacked transparency. The U.S.-Georgia BIT prohibits certain performance requirements.

Georgia’s Law on Promotion and Guarantees of Investment Activity prohibits setting the required minimum number of Georgian citizens to be elected or appointed in leading bodies of enterprises.

The government does not follow a forced localization policy though recent legislative changes have created difficulties in acquiring residence permits for foreign employees working for VAT exempt entities. The government is aware of this oversight and Parliament plans to address this issue summer 2020. Foreign investors have no obligation to use domestic content in goods or technology. In addition, there are no requirements for foreign IT providers to turn over source codes and/or provide access to surveillance.

Customer- and business-related data transfer is not restricted in Georgia, neither within nor outside the country, unless it concerns personal or national security matters, which are protected by the law.

The Data Exchange Agency (DEA), under the Ministry of Justice, coordinates e-governance development, data exchange infrastructure, unified governmental networks, informational and communication standards, and cybersecurity policy. The DEA requires any company managing critical data to implement a number of security protocols to protect that information (www.dea.gov.ge ).

Real Property

Georgia ranks high in the World Bank’s Doing Business 2020 report in general, but especially in the category of “registering property.” Processes to register property are streamlined, transparent, and take one day to process at Public Service Halls.

In June 2017, the Parliament adopted a legislative amendment that placed a moratorium on the sale of agricultural land to foreign citizens and stateless persons. Under the amendment, foreigners, legal entities registered abroad, and legal entities registered by foreigners in Georgia were not able to purchase agricultural land in Georgia. Furthermore, the new Constitution that came into force in December 2018 determined that agricultural land can only be owned by the state, self-governing entities, citizens of Georgia, or a group of Georgian citizens. The Constitution also states that exclusions may be specified in organic law, which requires votes from at least two-thirds of Parliament to pass. Parliament is considering a draft law that would provide an exception to the constitutional ban.

Mortgages and liens are registered through the public registry and information can be obtained from the webpage www.napr.gov.ge .

The government has taken multiple steps to regulate land titling, including facilitating simplified procedures, free registration campaigns, and mediation services. The National Public Registration Agency reported that from August 2016 through February 2019, 300 thousand hectares of land were registered under the land reform project, increasing the share of titled land to 45 percent. Unclear or unregistered titling bears the potential to hamper investment projects.

Property ownership cannot revert to other owners when legally purchased property stays unoccupied.

Intellectual Property Rights

Georgia acceded to the World Trade Organization (WTO) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in 2000. The Ministry of Economy and Sustainable Development is responsible for WTO compliance. Georgia is a member of the World Intellectual Property Organization (WIPO) and is party to the Berne Convention, the Paris Convention, the Patent Cooperation Treaty (PCT), the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. The legal framework for protection of intellectual property rights (IPR) in Georgia is approximated to international standards. Six laws regulate IPR in Georgia: the Law on Patents, the Law on Trademarks, the Law on Copyrights and Neighboring Rights, the Law on Appellation of Origin and Geographic Indication of Goods, the Law on Topographies of Integrated Circuits, and the Law on IP-Related Border Measures. Georgian law now provides protection for works of literature, art, science, and sound recordings for 50 years.

The National Intellectual Property Center of Georgia (Sakpatenti) provides legal protection for IPR in Georgia since it issues protective documents on invention, utility models, trademarks, design rights, geographical indications and appellation of origin, new animal breeds and plant varieties, and ensures the deposit of copyrighted works. The Revenue Service, which is part of the Ministry of Finance, is responsible for enforcing the IPR of holders listed in the Register of Intellectual Property Subject-Matters of the relevant service. The Revenue Service is also responsible for border control and can halt the import or export of items suspected of being counterfeit based on the register data. According to the Law, goods may be held for 10 working days, which may be extended by the Revenue Service for another 10 working days. The Law of Georgia on Border Measures Related to Intellectual Property allows for the destruction of counterfeit goods pending a court decision.

Infringement of IPR, including industrial property rights, copyrights, performers’ rights, rights of makers of databases, trademarks, or other illegal use of commercial indications can incur civil, criminal, and administrative penalties. Depending on the type and extent of the violation, penalties include fines, corrective labor, social work, or imprisonment.

Sakpatenti is an active and engaged partner of the United States in educating the public on IPR issues. Sakpatenti coordinates the government’s approach to the enforcement of IPR under the Interagency Coordination Council (Council) for IPR Enforcement. The Council is an efficient platform for government institutions to exchange their views on IPR enforcement issues. Georgia is improving its enforcement of IPR, but some problems persist, including the widespread use of unlicensed software and the availability of pirated video and audio recordings and other unlicensed content available online. The U.S. government Commercial Law Development Program continues to provide assistance to Sakpatenti and other government entities to build capacity to deal with IPR-related issues effectively.

With the aim of improving domestic legislation and harmonizing it with international standards, Sakpatenti has engaged in proposing amendments to existing legislation regulating IPR. For example, Sakpatenti continues work on the draft law “On Appellations of Origin and Geographical Indications of Goods” in the framework of an EU-funded Twinning Project on “Establishing Efficient Protection and Control System of Geographical Indications (GIs) in Georgia.” The proposed legislative amendments address the state-controlled mechanism for the registration of appellations of origin and geographical indications, , obligation to use registered appellations of origin or geographical indications, define legal mechanisms to protect appellations of origin and geographical indications against infringement, and procedural specification for conducting substantive examinations of applications for appellations of origin and geographical indications.

In 2019, the Investigation Service of the Ministry of Finance of Georgia initiated 12 cases based on of Article 196 of the Criminal Code of Georgia governing unlawful use of trademark (service marks) or other commercial designations, six of which were initiated ex officio. As a result of these actions, the Georgian government seized 36,907 items of counterfeit goods worth approximately USD 53,000. Also in 2019, the Customs Department of Georgia issued 140 suspension orders on various goods entering Georgia, allowing them to confirm the legitimacy of the goods. In 102 cases, the rights holder and the purchaser of the goods agreed to destroy the infringing items. In 10 cases, the rights holder filed a lawsuit in court, and in the remaining cases the Customs Department was unable to prove the goods were counterfeit and so released the goods. The total value of the destroyed goods was around USD 51,000.

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

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

Capital Markets and Portfolio Investment

The National Bank of Georgia regulates the securities market. All market participants submit their reports in line with international standards. All listed companies must make public filings, which are then uploaded to the National Bank’s website, allowing investors to evaluate a company’s financial standing. The Georgian securities market includes the following licensed participants: a Stock Exchange, a Central Securities Depository, nine brokerage companies, and six registrars.

The Georgian Stock Exchange (GSE) is the only organized securities market in Georgia. Designed and established with the help of USAID and operating under a legal framework drafted with the assistance of American experts, the GSE complies with global best practices in securities trading and offers an efficient investment facility to both local and foreign investors. The GSE’s automated trading system can accommodate thousands of securities that can be traded by brokers from workstations on the GSE floor or remotely from their offices: https://gse.ge/en/ 

No law or regulation authorizes private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation or control. Cross-shareholder or stable-shareholder arrangements are not used by private firms in Georgia. Georgian legislation does not protect private firms from takeovers. There are no regulations authorizing private firms to restrict the investment activity of foreign partners or to limit the ability of foreign partners to gain control over domestic enterprises.

The government and Central Bank (National Bank of Georgia) respect IMF Article VIII and do not impose any restrictions on payments and transfers in current international transactions.

Credit from commercial banks is available to foreign investors as well as domestic clients, although interest rates are high. Banks continue offering business, consumer, and mortgage loans.

The government adopted a new law in 2018 that introduced an accumulative pension scheme, which became effective on January 1, 2019. The pension scheme is mandatory for legally employed people under 40. For the self-employed and those above the age of 40, enrolment in the program is voluntary. The pension savings system applies to Georgian citizens, foreign citizens living in Georgia with permanent residency in the country, and stateless persons who are employed or self-employed and receive an income.

The government expects that that the new system will boost domestic capital market, as the pension funds will be invested within Georgia. The Pension Agency of Georgia made its first large scale investment in March 2020, when it invested 560 million GEL (around USD 200 million) in deposit certificates of high-rated Georgian commercial banks.

Money and Banking System

Banking is one of the fastest growing sectors in the Georgian economy. The banking sector is well-regulated and capitalized despite regional and global challenges faced in many neighboring countries. As of March 1, 2020, Georgia’s banking sector consists of 15 commercial banks, including 14 foreign-controlled banks, with 154 commercial bank branches and 830 service centers throughout the country. In January 2019, Georgian commercial banks held GEL 46.2 billion (around USD 15.5 billion) in total assets. As of early 2020, there were 17 insurance companies and 45 microfinance (MFI) organizations operating in Georgia. MFIs held GEL 500 million (USD155.5 million) in total assets as of January 1, 2020. Two Georgian banks are listed on the London Stock Exchange: TBC Bank (listed in 2014) and the Bank of Georgia (2006).

The National Bank of Georgia (NBG) is Georgia’s central bank, as defined by the Constitution. The rights and obligations of the NBG as the central bank, the principles of its activity, and the guarantee of its independence are defined in the Organic Law of Georgia on the National Bank of Georgia. The National Bank supervises the financial sector to facilitate the financial stability and transparency of the financial system, as well as to protect the rights of the sector’s consumers and investors. Through the Financial Monitoring Service of Georgia, a separate legal entity, the NBG undertakes measures against illicit income legalization and terrorism financing. In addition, the NBG is the government’s banker and fiscal agent. (www.nbg.gov.ge ).

The International Finance Corporation (IFC), the European Bank for Reconstruction and Development (EBRD), the U.S. International Development Finance Corporation (DFC), the Asian Development Bank (ABD), and other international development agencies have a variety of lending programs making credit available to large and small businesses in Georgia. Georgia’s two largest banks – TBC and Bank of Georgia – have correspondent banking relationships with the United States through Citibank, N.A.

Georgia does not restrict foreigners from establishing a bank account in Georgia.

Foreign Exchange and Remittances

Foreign Exchange

Georgian law guarantees the right of an investor to convert and repatriate income after payment of all required taxes. The investor is also entitled to convert and repatriate any compensation received for expropriated property. Georgia has accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement, effective as of December 20, 1996, to refrain from imposing restrictions on payments and transfers for current international transactions and from engaging in discriminatory currency arrangements or multiple currency practices without IMF approval. Parliament’s 2011 adoption of the Act of Economic Freedom further reinforced this provision.

Under the U.S.-Georgia BIT, the Georgian government guarantees that all money transfers relating to a covered investment by a U.S. investor can be made freely and without delay into and out of Georgia.

Foreign investors have the right to hold foreign currency accounts with authorized local banks. The sole legal tender in Georgia is the lari (GEL), which is traded on the Tbilisi Interbank Currency Exchange and in the foreign exchange bureau market.

The GEL’s official exchange rate is calculated based on transactions secured on the Interbank Foreign Exchange Market. Interbank trading with foreign currencies is organized via an international trading system (Bloomberg). Taking into consideration secured transactions, the weighted average exchange rate of the GEL against the USD is calculated and announced as the official exchange rate for the following day. The official exchange rate of the GEL against other foreign currencies is determined according to the rate on international markets or the issuer country’s domestic interbank currency market on the basis of cross-currency exchange rates. The cross-currency rates are acquired from the Reuters and Bloomberg information systems, and the corresponding webpages of central banks. The information is automatically received, calculated, and disseminated from these systems.

Georgia has a floating exchange rate. The National Bank of Georgia does not intend to peg the exchange rate and does not generally intervene in the foreign exchange market, except under certain circumstances when the GEL’s fluctuation has a high magnitude, such as during the COVID-19 pandemic.

Remittance Policies

There are no restrictions, limitations, or delays involved remittances from overseas. Several Georgian banks participate in the SWIFT and Western Union interbank communication networks. Businesses report that it takes a maximum of three days for money transferred abroad from Georgia to reach a beneficiary’s account, unless otherwise provided by a customer’s order. There is no indication that remittance policies will be altered in the future. Travelers must declare at the border currency and securities in their possession valued at more than GEL 30,000 (around USD10,000).

Sovereign Wealth Funds

Georgia does not have a Sovereign Wealth Fund.

After the fall of the Soviet Union, the Georgian government privatized most state-owned enterprises (SOEs). At the end of 2013, Georgian Railways, Georgian Oil and Gas Corporation (GOGC), Georgian State Electrosystem (GSE), Electricity System Commercial Operator (ESCO), and Enguri Hydropower plant were the major remaining SOEs. Of these companies, only Georgian Railways is a major market player. The energy-related companies largely implement the government’s energy policies and help manage the electricity market. There are also a number of Legal Entities of Public Law (LEPLs), independent bodies that carry out government functions, such as the Public Service Halls.

During 2012, Georgian Railways, GOGC, GSE, and ESCO’s assets were placed under the Partnership Fund, a state-run fund to facilitate foreign investment into new projects. In addition, the fund controls 25 percent of shares in the TELASI Electricity Distribution Company. The fund has stated its intention to sell those shares but has not yet done so. (www.fund.ge)

Despite state ownership, SOEs act under the general terms of the Entrepreneurial Law. Georgian Railway and GOGC have supervisory boards, while GSE and ESCO do not. The SOEs’ individual charters describe their procedures and policies. Georgia encourages its SOEs to adhere to the OECD’s Guidelines on Corporate Governance for SOEs.

The senior management of SOEs report to Supervisory Boards where they exist (GRW, GOGC); in other cases they report to the line ministries. Governmental officials can be on the supervisory board of the SOEs, and the Partnership Fund has five key governmental officials on its board. SOEs explicitly are not obligated to consult with government officials before making business decisions, but informal consultations take place depending on the scale and importance of the issue.

To ensure the transparency and accountability of state business decisions and operations, SOEs have regular outside audits and publish annual reports. SOEs with more than 50 percent state ownership are obliged to follow the State Procurement Law and make procurements via public tender. The Partnership Fund, GRW and GOGC are subject to valuation by international rating agencies. There is no legal requirement for SOEs to publish annual report or to submit their books for independent audit, but this is done in practiced. In addition, GRW and GOGC are Eurobond issuer companies and therefore are required to publish reports. SOEs are subject to the same domestic accounting standards and rules. These standards are comparable to international financial reporting standards. No SOEs exercise delegated governmental powers.

Privatization Program

Georgia’s government has privatized most large SOEs. Successful privatization projects include major assets in energy generation and distribution, telecommunications, water utilities, port facilities, and real estate sectors. A list of entities available to be privatized can be found on the following website: www.privatization.ge. However, the government does not maintain a comprehensive website listing all privatization offers. The ministries covering the relevant sector of the economy handles the privatization information. Foreign investors are welcome to participate in privatization programs. Further information is also available at a website maintained by the American Chamber of Commerce in Georgia at: www.amcham.ge .

In 2019, the government offered mining deposits for privatization in addition to other state-owned assets through the 100 Investment Offers for Business  initiative. Within the initiative, the government selected mineral resource deposits from various regions to sell at e-auctions . The mineral deposits include gold and copper-polymetallic, ore, bentonite clay, volcanic slag, peat, diatomite, tuff breccia, zeolite-containing tuff, basalt, marble, limestone, underground fresh water, and carbonated mineral water. Mining license prices vary and depend on the type of mineral resource and its price.

While the concept of Corporate Social Responsibility (CSR) is not highly developed in Georgia, it is growing. Most large companies engage in charity projects and public outreach as part of their marketing strategy. The American Chamber of Commerce in Georgia has a Corporate CSR committee that works with member companies on CSR issues. The Global Compact, a worldwide group of UN agencies, private businesses, and civil society groups promoting responsible corporate citizenship, is active in Georgia. The Eurasia Partnership Foundation launched a program on corporate social investment to promote greater private company engagement in addressing Georgia’s development needs.

The Georgian government undertook an OECD CSR policy review in 2016 based on the OECD Policy Framework for Investment. The report states that Georgia engages regularly with the OECD. Georgia participates in the OECD Eurasia Competitiveness Program, which works with countries in the region to unleash their economic and employment potential. Georgia participates in the OECD Anti-Corruption Network for Eastern Europe and Central Asia, which provides a regional forum for promotion of anti-corruption activities, exchange of information on best practices, and donor coordination. Georgia is a member of the Task Force for the Implementation of the Environmental Action Program (EAP Task Force), which aims to address the heavy environmental legacy of the Soviet development model. Additionally, the Support for Improvement in Governance and Management (SIGMA) program, a joint initiative of the EU and the OECD, has provided assistance to Georgia since 2008, to strengthen public governance systems and public administration capacities. Georgia participates in the OECD Committee on Fiscal Affairs’ Base Erosion and Profit Sharing (BEPS) Project.

Georgia is not a party to the Extractive Industries Transparency Initiative (EITI) and/or Voluntary Principles on Security and Human Rights despite extractive manganese, gold, and copper ore industries operating in Georgia. Among the local tools promoting CSR principles and policies in such industries are commercial chambers, the Public Defender’s office, the Business Ombudsman under the Prime Minister’s Office, sectoral trade unions, and Georgia’s Trade Union Confederation (GTUC).

Georgia has laws, regulations, and penalties to combat corruption. Georgia criminalizes bribery under Articles 332-342 of the Criminal Code. Senior public officials must file financial disclosure forms, which are available online, and Georgian legislation provides for the civil forfeiture of undocumented assets of public officials who are charged with corruption-related offenses. Penalties for accepting a bribe start at six years in prison and can extend to 15 years, depending on the circumstances. Penalties for giving a bribe can include a fine, a minimum prison sentence of two years, or both. In aggravated circumstances, when a bribe is given to commit an illegal act, the penalty is from four to seven years. Abuse of authority and exceeding authority by public servants are criminal acts under Articles 332 and 333 of the criminal code and carry a maximum penalty of eight years imprisonment. The definition of a public official includes foreign public officials and employees of international organizations and courts. White collar crimes, such as bribery, fall under the investigative jurisdiction of the Prosecutor’s Office.

Georgia is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Georgia has, however, ratified the UN Convention against Corruption. Georgia cooperates with the Group of States against Corruption (GRECO) and the OECD’s Anti-Corruption Network for Transition Economies (ACN).

Following its assessment of Georgia in June 2016, the OECD released a report in September 2016 that concluded Georgia had achieved remarkable progress in eliminating petty corruption in public administration and should now focus on combating high-level and complex corruption. The report commends Georgia’s mechanism for monitoring and evaluating the implementation of its Anti-Corruption Strategy and Action Plan, as well as the role given to civil society in this process. It also welcomes the adoption of a new Law on Civil Service and recommends that the remaining legislation to implement civil service reforms is adopted without delay. The report notes that the Civil Service Bureau and Human Resources units in state entities should be strengthened to ensure the implementation of the required reforms. The report highlights Georgia’s good track record in prosecuting corruption crimes and in using modern methods to confiscate criminal proceeds. It recommends that Georgia increase enforcement of corporate liability and the prosecution of foreign bribery to address the perception of corruption among local government officials. The full report is available at: http://www.oecd.org/corruption/anti-bribery/Georgia-Round-4-Monitoring-Report-ENG.pdf .

Since 2003, Georgia has significantly improved its ranking in Transparency International’s (TI) Corruption Perceptions Index (CPI) report.

Transparency International (TI) ranked Georgia 44th out of 180 countries in the 2019 edition  of its Corruption Perceptions Index (the same rank as Costa Rica, the Czech Republic, and Latvia).

While Georgia has been successful in fighting visible, low-level corruption, Georgia remains vulnerable to what Transparency International calls “elite” corruption: high-level officials exploiting legal loopholes for personal enrichment, status, or retribution. Although the evidence is mostly anecdotal, this form of corruption, or the perception of its existence, has the potential to erode public and investor confidence in Georgia’s institutions and the investment environment. Corruption remains a potential problem in public procurement processes, public administration practices, and the judicial system due to unclear laws and ethical standards.

Resources to Report Corruption

Government agencies responsible for combating corruption:

Anti-Corruption Agency at the State Security Service of Georgia
Address: 72, Vazha Pshavela Ave.
Tel: +995-32-241-20-28

Prosecutor’s Office of Georgia
Mr. Gocha Gochashvili,
Head of Division of Criminal Prosecution of Corruption CrimesAddress: 24, Gorgasali Street, Tbilisi
Tel: +995-32-240-52-52
Email: ggochashvili@pog.gov.ge

Ministry of Justice of Georgia
Secretariat of the Anti-Corruption Council
Address: 24, Gorgasali Street, Tbilisi
Tel: +995-32-240-58-04
Email: ACCouncil@justice.gov.ge

Business Ombudsman’s Office
Mr. Mikheil Daushvili, Ombudsman
Address: 7, Ingorokva street
Hotline: +995 32 2 282828
Email: ask@businessombudsman.ge

Non-governmental organization:
Ms. Eka Gigauri
Director
Transparency International
26, Rustaveli Ave, 0108, Tbilisi, Georgia
Telephone: +995-32-292-14-03
ekag@transparency.ge

The United States established diplomatic relations with Georgia in 1992, following Georgia’s independence from the Soviet Union in 1991. Since independence, Georgia has made impressive progress fighting corruption, developing modern state institutions, and enhancing global security. The United States is committed to helping Georgia deepen Euro-Atlantic ties and strengthen its democratic institutions.

In August 2008, tensions in the region of South Ossetia culminated in a brief war between Georgia and Russia. Russia invaded and occupied areas of undisputed Georgian territory. Russia continues to occupy these Georgian regions, and the central government in Tbilisi does not have effective control over these areas. The United States supports Georgia’s sovereignty and territorial integrity within its internationally recognized borders and does not recognize the Abkhazia and South Ossetia regions of Georgia as independent. While South Ossetia and Abkhazia – which Russian troops and border guards have long occupied without Georgia’s consent – have declared independence, only Russia, Nauru, Nicaragua, Syria, and Venezuela recognize them as independent states. Tensions still exist both inside the occupied territories and near the administrative boundary lines (ABL). A Russian military build-up along the South Ossetia ABL dramatically escalated tensions in August 2019. In addition, Russian “border” guards regularly patrol the ABLs and have increasingly detained people trying to cross the ABLs. A number of attacks, criminal incidents, and kidnappings have occurred in and around the ABLs as well. While none of the activity has been anti-American in nature, there is a high risk of travelers finding themselves in a wrong place/wrong time situation. In addition, unexploded ordnance from previous conflicts poses a danger near the ABL of South Ossetia. However, other parts of Georgia, including Tbilisi, are not directly affected.

Per Georgian law, it is illegal to undertake any type of economic activity in Abkhazia or South Ossetia if such activities require permits, licenses, or registration in accordance with Georgian legislation. Laws also ban mineral exploration, money transfers, and international transit via Abkhazia or South Ossetia.

Violent street protests are uncommon, but there were significant clashes in June 2019 when protesters attempted to enter Parliament. Hundreds were injured, including some who suffered severe eye injuries due to police use of rubber bullets. Generally, police have fulfilled their duty to maintain order even in cases of unannounced protests.

Georgia offers skilled and unskilled labor at attractive costs compared not only to Western European and American standards, but also to Eastern European standards. Skilled labor availability in the engineering field remains underdeveloped. The official unemployment rate was 11.6 percent in 2019, according to State Department of Statistics, but actual unemployment is considerably higher given significant underemployment in the working population, especially in rural regions where subsistence farmers are considered employed for statistical purposes and job creation has remained a particular challenge. Some investment agreements between the Georgian government and private parties have included mandates for the contracting of local labor for positions below the management or executive level.

Georgia’s Labor Code defines the minimum age for employment (16), standard work hours (40 per week), and annual leave (24 calendar days). The law allows for other wage and hour issues to be agreed between the employer and employee. The amendments to the Labor Code in July 2013 defined the grounds for termination and severance pay for an employee at the time of termination, including the payment term. An employer is obliged to give compensation of not less than one month’s salary to an employee within thirty (30) days. Additionally, an employer is obliged to give the dismissed employee a written description of the grounds for termination within seven days after an employee’s request. The Labor Code also prescribes rules for paying overtime labor (over 40 hours), which must be paid at an increased hourly rate.

The Labor Code specifies essential terms for labor contracts, including: the starting date and the duration of labor relations, working hours and holiday time, location of workplace, position and type of work, amount of salary and its payment, overtime work and its payment, the duration of paid and unpaid vacation and leave, and rules for granting leave. The code states that the duration of a business day for an underage person (ages 16 to 18) should not exceed 36 hours per week. Regulations prohibit interference in union activities and discrimination of an employee due to union membership. The Labor Code amendments mandate the government to reestablish a labor inspectorate to ensure adherence to labor safety standards. The labor inspection program under the Ministry of Labor, Health, and Social Affairs, employs 25 labor inspectors, although in 2019 the government increased the number of inspectors to 100 to deal with increasing demand, and the vacancies are still to be filled. In 2018, Parliament passed the Occupational Safety, and Health (OSH) Law, that gave the government power to make unannounced inspections in some circumstances in companies operating among “hard, harmful, hazardous, and increased danger” occupations. Subsequent amendments that entered into force in September 2019 allowed unannounced inspections across all sectors of the economy. Employees are entitled to up to 183 days (six months) of paid maternity leave, which can last up to 24 months when combined with unpaid leave. The state subsidizes leave taken for pregnancy, childbirth, childcare, and adoption of a newborn. An employer and employee may agree on additional compensation. The Labor Code permits non-competition clauses in contracts; this provision may remain in force even after the termination of employment.

Employees are entitled to up to 183 days (six months) of paid maternity leave, which can last up to 24 months when combined with unpaid leave. The state subsidizes leave taken for pregnancy, childbirth, childcare, and adoption of a newborn. An employer and employee may agree on additional compensation. The Labor Code permits non-competition clauses in contracts; this provision may remain in force even after the termination of employment.

The government adopted a new law in 2018 establishing an accumulative pension scheme, which came into effect as of January 1, 2019. The pension is mandatory for legally employed persons under 40, while for the self-employed and those above the age of 40 enrollment in the program is voluntary. Each employee, employer, and the government must each make a contribution of two percent of the employee’s gross income to an individual retirement account. As for the self-employed, they will make a deposit of four percent of their income, and the state will match another two per cent. Employees pay a flat 20 percent income tax. The state social security system provides a modest pension and maternity benefits. The minimum monthly pension is GEL 220 (USD 73). The average monthly salary across the economy in 2019 was GEL 1,217 (around USD 420). The minimum wage requirement for state sector employees is GEL115 (USD 40) per month. Legislation on the official minimum wage in the private sector has not changed since the early 1990s and stands at GEL 20 (USD 7) per month, but is not applied in practice and is not being used for reference.

The law generally provides for the right of most workers, including government employees, to form and join independent unions, to legally strike, and to bargain collectively. Employers are not obliged, however, to engage in collective bargaining, even if a trade union or a group of employees wishes to do so. While strikes are not limited in length, the law limits lockouts to 90 days. A court may determine the legality of a strike, and violators of strike rules can face up to two years in prison. Although the law prohibits employers from discriminating against union members or union-organizing activities in general terms, it does not explicitly require reinstatement of workers dismissed for union activity. Certain categories of workers related to “human life and health,” as defined by the government, were not allowed to strike. The International Labor Organization noted the government’s list of such services included some it did not believe constituted essential services directly related to human life and health. Workers generally exercised their right to strike in accordance with the law.

Georgia has ratified some ILO conventions, including the Forced Labor Convention of 1930, the Paid Holiday Convention of 1936, the Anti-Discrimination (Employment and Occupation) Convention of 1951, the Human Resources Development Convention of 1975, the Right to Organize and Collective Bargaining Convention of 1949, the Equal Remuneration Convention of 1951, the Abolition of Forced Labor Convention of 1957, the Employment Policy Convention of 1964, and the Minimum Age Convention of 1973.

Information on labor related issues is also available in the State Department’s annual reports: Human Right Report: http://georgia.usembassy.gov/officialreports/hrr.html. Child Labor Report: http://www.dol.gov/ilab/reports/child-labor/georgia.htm .

Since 1993, the Overseas Private Investment Corporation (OPIC), predecessor of the DFC, committed over USD 600 million in financing and political risk insurance for more than 60 projects in Georgia. DFC investment in Georgia has focused on the following sectors: credit for small and medium-sized enterprises, and projects in the infrastructure, franchising, education, manufacturing, tourism, agriculture, and health care sectors. Examples of 2019 of projects include a USD 50 million loan to finance the development, construction, and operation of a multifunctional general cargo, dry bulk, and container port terminal at Pace Terminal in Poti port, and a USD 15 million loan to Liberty Bank to upgrade Liberty Bank’s infrastructure, including the roll-out of approximately 500 ATMs, to help make formal financial services more accessible for SMEs and underbanked populations.

* Source for Host Country Data: GeoStat (Georgia National Statistics Department)

Source: IMF

The IMF data on Direct Investment are inconsistent with Georgia’s Statistic Agency’s published data for 2018. The IMF report does not include two countries listed in Georgia’s published data for 2018, the United States and China, in fourth and fifth place, respectively.

Table 4: Sources of Portfolio Investment
Data not available.

United States Embassy, Political/Economic Section
29 Georgian-American Friendship Avenue, Tbilisi
Mackenzie Rowe, Economic Unit Chief +995-32-2-27-7000
RoweML2@state.gov

Policies Towards Foreign Direct Investment

The Tajik government is consistent in its calls for greater U.S. investment. Despite this, Tajikistan has traditionally courted state-led investment and external loans from larger regional neighbors, including China, Russia, and, to a lesser extent, Iran.  In 2019, Chinese foreign investment rose six percent to USD 62.3 million, accounting for almost 76 percent of the USD 346 million of 2019 foreign direct investment (FDI).  Russia (USD 33.1 million) was the second largest source of FDI last year, followed by the United Kingdom (USD 13.9 million), and Turkey (USD 13.5 million).  Following increased outreach to Gulf States, Qatar has invested USD 384.5 million in a high-rise luxury apartment complex and the region’s largest mosque and is investigating opportunities in banking and infrastructure.

Tajikistan’s Investment Law (Article 7) guarantees equal rights for both local and foreign investors.  According to this law, foreigners can invest by jointly owning shares in existing companies with other Tajik companies or Tajik citizens; by creating fully foreign-owned companies; or by concluding agreements with legal entities or citizens of Tajikistan that provide for other forms of foreign investment activity.  Foreign firms may acquire assets, including shares and other securities, as well as land leasing and mineral usage rights.  Foreign firms may also exercise all property rights to which they are entitled, either independently or shared with other Tajik companies and citizens of Tajikistan.  Most of Tajikistan’s current international agreements provide most-favored-nation status.

Tajikistan’s legal code does not discriminate against foreign investors by prohibiting, limiting, or conditioning foreign investment.  To receive permission and licenses for operation, however, a foreign investor must navigate a complicated, cumbersome, and often corrupt bureaucratic system.

Several Tajik government agencies are responsible for investment promotion, but they frequently have competing interests.  The Committee on Investments and State Property Management (https://www.investcom.tj/ ) facilitates FDI.  In addition, state-owned enterprise Tajinvest under the Committee on Investments and State Property Management is responsible for attracting investment into Tajikistan https://www.tajinvest.tj .

Tajikistan has established several formal mechanisms to maintain open channels of communication with existing and potential investors.  With donor support, the government established a Consultative Council on the Improvement of the Investment Climate in 2007.  This annual council provides a formal venue for dialogue with donors, international financial institutions, and members of the private sector (http://investmentcouncil.tj/en ).  In January 2015, the government established a National Entrepreneurship Day, annually celebrated in October.  Nevertheless, investors continue to claim that many of their complaints to the government go unheeded.

Limits on Foreign Control and Right to Private Ownership and Establishment

Tajikistan’s legislation provides a right for all forms of foreign and domestic ownership to establish business enterprises and engage in remunerative activity.  There are no limits on foreign ownership or control of firms and no sector-specific restrictions that discriminate against market access.  Local law considers all land and subsoil resources to belong exclusively to the state, although initial efforts to establish a private land market are underway.

Tajikistan’s legislation allows for 100 percent foreign ownership of local companies.  In the context of jointly-owned companies, local partners generally seek to possess a controlling share (51 percent or more) at the initial stage of business development and in some cases may seek to increase their stake over time.

All sectors of Tajikistan’s economy are open to foreign participation with the exception of aviation, defense, security, and law enforcement, which require special government permission for the operation of such types of businesses or services.  Tajikistan does not restrict foreign investment; it does not mandate local stakeholder equity positions or local partnership.  In some cases, the government requires specific licenses.  There are no mandatory IP/technology transfer requirements.

Tajikistan’s government maintains an investment screening mechanism for inbound foreign investments involving government interests, including investments into Free Economic Zones, issuing approval or rejection statements in particular for investments requiring government financial support or state guarantees.  The Committee on Investments and State Property Management is responsible for filing and coordinating foreign investment project proposals as they pass through the review pipeline.  The government takes particular interest in determining whether the proposed project may impact the county’s national security and/or economic performance.

Investors must submit their proposals for screening to all relevant government agencies.  This process can be lengthy and cumbersome.  The Committee on Investments and State Property Management circulates the investor’s proposal among the relevant government offices and ministries with instructions to review and then provide a formal opinion.  If a ministry objects to the proposed investment activity, it submits an official note to the Committee on Investments and State Property Management.

Screening proposals often involve background checks on the company, the person(s) representing the company, and identification of a financial source to comply with anti-money laundering regulations.  U.S. businesses have not identified screening mechanisms as a barrier to investment.

The purpose of the investment screening process is to ensure that a proposed project does not violate Tajik laws.  The review process could reject the proposal and the Tajik government may flag it as “incomplete.”  Applicants may appeal the government’s decision by submitting a claim to the Tajik Economic Court.

Other Investment Policy Reviews

The United Nations Conference on Trade and Development (UNCTAD) presented a draft Investment Policy Review of Tajikistan in November 2015 to stakeholders from the government, local and international private sector, and civil society and development partners.  The final report was published on August 10, 2016 (http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1596 )

Tajikistan has not conducted a WTO Trade Policy Review, and a WTO Trade Policy Review scheduled for 2020 has yet to take place.

Some international and local consulting companies in the recent years produced ratings, guides and reports on investment and business in Tajikistan:

2019 Moodys Rating:   https://www.moodys.com/credit-ratings/Tajikistan-Government-of-credit-rating-806356895 

2017 RSM Guide to Doing Business: (https://www.rsm.global/tajikistan/insights/corporate-literature/guide-doing-business-tajikistan 

2017 Tajik Chamber of Commerce: http://tpp.tj/business-guide2017/rus/content_rus.html 

2016 Deloitte Investment and Tax Guide (https://www2.deloitte.com/kz/en/pages/tajikistan/articles/doing-business-tajikistan.html )

Business Facilitation

Although the Tajik government has simplified the business registration process by adopting a single-window registration system, that process still requires significant legal and human resources, government connections, and time.  The Tax Committee is the primary agency responsible for business registration (www.andoz.tj ).  In addition to obtaining the state registration through a single-window, a company must also register with the Social Protection Agency (www.nafaka.tj ); Statistics Agency under the President of Tajikistan (www.stat.tj ); Ministry of Labor, Migration, and Employment (www.mehnat.tj ); Sanitary-Epidemiological Service at the Ministry of Health (www.moh.tj ); as well as with local authorities, municipal services, and other agencies.  According to the country’s regulations, registering a business should take less than five business days; in reality, it may take several days or even months due to the inappropriate or illegal actions of registering agencies.  The Tajik government must notarize all businesses.

The Committee on Investments and State Property Management is the key agency that collects information and project proposals from investors.  However, numerous other agencies are involved in the investment coordination process, making it cumbersome.

According to the Tajik Tax Code, there are three types of enterprises:  1. Small-scale businesses with turnover up to USD 100,000 during a 12 months period.  2. Medium-scale businesses with annual turnover from USD 100,000 to USD 2.5 million, and 3. Large-scale companies from USD 2.5 million annual turnover.  The international donor community, in coordination with the government, funds a number of projects that stimulate development of small and medium enterprises in Tajikistan.

Outward Investment

The Tajik government does not promote outward investments.  Private companies from Tajikistan have invested in Kazakhstan, Uzbekistan, Kyrgyzstan, Turkey, Russia, the United Kingdom, the United States, and the UAE, primarily in trade, food processing, real estate, and business development. The Tajik government does not restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Tajikistan’s regulatory system lacks transparency.  Executive documents – presidential decrees, laws, government orders, instructions, ministerial memos, and regulations – are often inaccessible to the public.  Businesspeople and investors must purchase access to Adliya, a commercial legal database, to obtain updated legal and regulatory information.  Each ministry has its own set of unpublished regulations and these may contradict the laws and/or regulations of other ministries.

The Tajik government rarely publishes proposed laws and regulations in draft form for public comment.  Although the Tajik government solicited public comment on the 2013 Tax Code, it did not modify the draft law based on the input received. The World Bank is assisting the government with ongoing tax reform, and the government will provide for a period of public comment before the finalization of a draft tax code.

TajikStandard, the government agency responsible for certifying goods and services, calibrating and accrediting testing laboratories, and supervising compliance with state standards, lacks experts and appropriate equipment.  TajikStandard does not publish its fees for licenses and certificates, or its regulatory requirements.

The World Bank funded Public Financial Management Modernization Project helps the Ministry of Finance adopt International Public Sector Accounting Standards (IPSAS).  National energy utility company Barqi-Tojik, Dushanbe municipality water and sewage, utility Dushanbevodokanal, and the national rural water utility Khojagii Manziliyu Kommunali received World Bank assistance to fully adopt and apply International Financial Reporting Standards (IFRS).  The 2011 Accounting Law requires all Public Interest Entities, including major State-Owned Enterprises, to apply International Financial Reporting Standards (IFRS), but the transition period continues.

The Tajik central government is the highest rule-making and regulatory authority.  On a case-by-case basis, the central government will delegate some regulatory functions to regional or district levels.

The Office of General Prosecutor, Anti-Corruption Agency, the Tax Committee, and the State National Security Committee oversee government and administrative procedures.

The Tajik government did not announce any regulatory system and enforcement reforms in 2019.  Government agencies submit proposed draft regulations to government commissions. Once cleared, draft regulations receive final review by the relevant ministries and the Executive Office of President.

Legally, the public has the right to review and monitor the enforcement process.  In practice, however, Tajikistan does not regularly enforce regulations.  The Tajik government does not review regulations based on scientific or data-driven assessments.  Tajikistan archives its laws, regulations, and policies at www.mmk.tj .

Although the government has taken steps to improve its fiscal transparency, publicly-available budget documents fall short of internationally-accepted standards. International assessments recommend that Tajikistan breakdown data by ministry and include information about debt held by State-Owned Enterprises.

International Regulatory Considerations

Tajikistan is a member of the CIS (Commonwealth of Independent States).  Government officials claim they are still studying the prospect of membership in the Eurasian Economic Union.

The regulatory system that governs Tajikistan’s cotton sector incorporate CIS and U.S. technical norms.  Tajikistan is a WTO member and must notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

Tajikistan has a civil legal system.  The parties to a contract can seek enforcement by submitting their claims to Tajikistan’s Economic Court.  Tajikistan has written laws on commercial activities and contracts.  Tajikistan’s economic courts review economic/commercial disputes.

Legally, the judicial system is independent.  In practice, the executive branch interferes in judiciary matters.  The current judicial process is neither fair nor reliable.  Outcomes tend to favor the government’s executive branch.

Legally, regulation and enforcement actions are appealable, and the national court system adjudicates appeals.  In practice, national courts typically carry out executive preferences, leaving business and commercial interests vulnerable to government interference.

Laws and Regulations on Foreign Direct Investment

Several government websites provide information on laws/regulations:

• Presidency – www.president.tj 
• Parliament – www.parlament.tj/ru 
• Government media – www.jumhuriyat.tj 
• Tax Committee – www.andoz.tj 
• Ministry of Finance – www.minfin.tj 
• National Bank of Tajikistan – www.nbt.tj 

The Tajik government regulates investments through a number of laws, inter alia, the Law on Investment Agreement, Law on Concessions, Law on Resources, Law on Legal Status of Foreigners, Law on Free Economic Zones, Law on Investments, Concept of State Policy on Investments and Protection of Investments, Law on Natural Resources Tenders, and Law on Privatization of Housing.  The government also established the New Coordination Council of Inspection Agencies.  According to the proposed draft decree, an initial risk assessment will now guide all inspections.  Historically, inspections lack justification and are a means to extract fines and revenue from the private sector.

The government’s Action Plan for the Improvement of Investment Climate of the Industrial Sector, Support of Production Entrepreneurship, and Development of National Production for 2016-2018 was approved July 27, 2016 and extended to 2020.

The Tajik government does not offer a “one-stop-shop” website for investment that provides relevant laws, rules, procedures, and reporting requirements for investors.

Competition and Anti-Trust Laws

The Antimonopoly Service (http://www.ams.tj ) is responsible for regulating prices for products of monopolistic enterprises, preventing and eliminating monopolistic activity, and monitoring potential monopolistic abuse and unfair competition.

Expropriation and Compensation

The Tajik government can legally expropriate property under the terms of Tajikistan’s Law on Investments, Law on Privatization, civil code, and criminal code.  The laws authorize expropriation if the Tajik government identifies procedural violations in privatizations of state-owned assets or determines a property has been used for anti-government or criminal activities, as defined in the criminal code.  Under the Law on Joint Stock Companies, the government may request that a court cancel the private purchase of shares in SOEs if it determines that there was a violation to the procedure within the original sale.

Tajikistan has a history of expropriating land because the properties involved were illegally privatized following Tajikistan’s independence.  Following an investigation by government anti-corruption, anti-monopoly, and other law enforcement agencies, the Committee for Investments and State Property Management can issue a finding that the asset was illegally privatized, and request that the Tajik court system order its return to government control.  Domestic law requires owners be reimbursed for expropriated property, but the amount of the compensation is usually well below the property’s fair market value.

In several cases, Tajik officials have used government regulatory agencies to pressure businesses and individuals into ceding properties and business assets.  The Tajik government has not shown any pattern of discrimination against U.S. persons by way of illegal expropriation.  All privately owned operations are vulnerable to expropriation actions.

The Tajik government may threaten to impose inflated and baseless taxation charges on companies, and use this as leverage to negotiate the transfer of some share of a company to the government.  In cases of expropriations, claimants and others have generally had no access to due process.

Dispute Settlement

ICSID Convention and New York Convention

Tajikistan is not a member state of the International Centre for the Settlement of Investment Disputes (ICSID) Convention.

Tajikistan became the 147th country to sign and ratify the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).  Tajikistan acceded to the Convention on August 14, 2012, and it entered into force on November 12, 2012 – 90 days after depositing the signed text at the UN and in accordance with Article XII (2) of the Convention.

Nonetheless, Tajik courts have overturned arbitral awards in favor of connected officials. Tajikistan signed the Convention with a number of reservations regarding types of arbitration agreements and decisions that Tajikistan can recognize and implement.

One of the reservations established that Tajikistan does not apply the provisions of the Convention to disputes with immovable property; Norway had previously established a similar reservation. Another reservation established that Tajikistan apply the Convention only to disagreements and decisions “arising after the entry into force of the Convention and to decisions made in the territories of third countries.”

Investor-State Dispute Settlement

In 2011, Tajikistan joined the Cape Town Convention on International Interests and Mobile Equipment.  The Cape Town Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, together usually referred to as the Cape Town Treaty, is an international treaty intended to standardize transactions involving movable property, particularly aircraft and aircraft engines.  The treaty creates international standards for registration of ownership, security interests (liens), leases, and conditional sales contracts, and various legal remedies for default in financing agreements, including repossession and the effect of a particular states’ bankruptcy laws.

Disputes involving foreign investors have primarily centered on the implementation of tax incentives.  In the last ten years, numerous foreign investors have reported difficulty utilizing promised value-added tax exemptions on imported items to Embassy officials.  Tajik procedures require businesses to submit in January of the calendar year a list of goods to be imported, the exemption then expires at the end of December in that same year.

It takes an average of 430 days to obtain a resolution on a commercial dispute/contract enforcement proceeding in Tajikistan:  40 for filing and service, 120 for trial and judgment, and 270 for enforcement of the decision.

International Commercial Arbitration and Foreign Courts

Tajik law recognizes the role of local courts in dispute resolution and arbitration but in reality there is no reputable arbitration institution for resolving disputes domestically among individuals and businesses.  In practice, however, these courts are primarily used to resolve disputes over agricultural plot demarcations as part of the land reform process, and do not serve as venues to resolve non-agricultural commercial disputes.

Tajikistan has signed bilateral agreements with several countries on arbitration and investment disputes, but local domestic courts do not always properly enforce or recognize awards.

Bankruptcy Regulations

Under Tajikistan’s Law on Bankruptcy (2003), both creditors and debtors may file for an insolvent firm’s liquidation.  The debtor may reject overly burdensome contracts, and choose whether to continue contracts supplying essential goods or services, or avoid preferential or undervalued transactions.  The law does not provide for the possibility of the debtor obtaining credit after the commencement of insolvency proceedings.  Creditors have the right to demand the debtor return creditors’ property if that property was assigned to the debtor less than four months prior to the institution of bankruptcy proceedings.  Tajik law does not criminalize bankruptcy.

Investment Incentives

According to statements by President Rahmon, there are 240 tax, regulatory, and legal incentives for businesses.  According to IFC Business Regulation and Investment Policy project, there are 97 incentives for investments.  In practice, businesses and investors cannot access or utilize most of these incentives.

The Tajik government has officially expressed an interest in attracting FDI but has taken little practical action to do so.  In recent years the Tajik government has issued state guarantees for joint projects, principally with Chinese investments. In 2016, Tajikistan’s government approved an ambitious National Development Strategy 2016-2030, which highlights the critical role of private sector investment.  According to this strategy, the Tajik government plans to attract as much as USD 55 billion in FDI by 2030.  Given the country’s business and tax environment, however, this plan appears to be more aspirational than realistic.  The Committee on Investments and State Property Management’s website lists government-promoted investment opportunities (https://www.investcom.tj/ ).

Foreign Trade Zones/Free Ports/Trade Facilitation

The Tajik government has established five Free Economic Zones (http://www.fez.tj ) which offer reduced taxes and customs fees to both foreign and domestic businesses.  To be eligible for preferential tax treatment, manufacturing companies must invest a minimum of USD 500,000, trading companies USD 50,000, and service and consulting companies USD 10,000.  The newest Free Economic Zone was created in March, 2019, in Kulob.

Performance and Data Localization Requirements

Although the government does not practice forced data localization, there are opaque workforce requirements. According to the Tajik Law on Investment Agreements, the President sets an annual foreign labor quota at the national level and individual companies negotiate company quotas for foreign labor with the Ministry of Labor.  New investments negotiate five-year labor quotas and renegotiate annually once the five-year period ends.

In June 2015, the Minister of Labor, Migration and Employment announced that for large-scale projects implemented in Tajikistan, which are signed between the Tajik government and either a company registered in another country or a government of another country, at least 80 percent of the workforce must be locally hired.  Depending on the qualifications of the local labor force, Tajik authorities may increase this requirement to 90 percent.

Tajik legislation permits foreigners to hold senior management and directorial positions.  It is possible to obtain visas and residence/work permits, but applicants are required to provide documentary support, and most permits cannot exceed one year.  According to Article 3 of government resolution #529, foreign worker permission procedures, investors and depositors with more than USD 500,000 in investments do not require work permits for one year from the date of state registration.  Relevant ministries must review and approve all investment proposals.

The Tajik government requires all telecommunication service providers to install surveillance equipment.  Russia provides the equipment and technology as a part of the Collective Security Treaty Organization agreement.  Since 2017, Tajikistan’s Telecommunication agency sends all internet traffic through its unified communication center.

The government does not impede the transmission of customer or other business-related data outside the economy/country’s territory unless the data violates anti-terrorist and anti-extremist laws and policies.

Real Property

The Tajik government uses a cadaster system to record, protect, and facilitate acquisition and disposition of property, but it needs improvement.  Even when secured interests in property do exist, enforcement remains an issue.  Investors should be aware that establishing title might be a more involved process than in Western countries because title histories can be difficult to find.

Since 2007, the U.S. government has provided significant, sustained, and focused support to the Tajik government on market-driven land reforms.  Most recently, Tajikistan’s Land Market Development Activity (LMDA), a USD 9.7 million project, successfully launched “one-stop shops” for land registration throughout Khatlon, cutting wait times in half.  The activity also supports the launch of a new automated registration system designed to centralize records, streamline procedures, and further simplify land registration.  In 2019 the activity facilitated Tajikistan’s first land auction and the government has since conducted several other land auctions. The Tajik government is replicating the one-stop-shop model throughout the country and has established a training center for Land Registration Department employees.

The government passed mortgage legislation in March 2008 that allows parties to use immovable property as collateral.  The government also adopted revised land code amendments in August 2012.

According to domestic law, all land belongs exclusively to the state; individuals or entities may be granted first or second-tier land-use rights.  The government restricts foreigners’ first-tier land-use rights to 50 years, while Tajik individuals and entities may have indefinite first-tier land-use rights.  Foreigners may request second-tier land-use rights from the government similar to the first-tier rights of Tajik individuals and entities, for periods of up to 50 years.  Tajik first-tier land-use rights holders may also grant foreigners lease agreements for up to 20 years.  Ownership of rural land-use rights can be particularly opaque, since many nominally privatized former collective farms continue to operate as a single entity.  Many of the new owners do not know where their land is and do not exercise their property rights.

Officially, Tajik authorities clearly demarcate land by title and affiliation to state-ownership or for private use.

Tajik law does not allow the sale of land.  All land is the property of the state.  If leaseholders do not use land in accordance with the purpose of the lease, then authorities can revert it to other owners.

Intellectual Property Rights

Tajikistan is a signatory to several international conventions that protect intellectual property rights (IPR), including the World International Property Organization (WIPO) Convention.  Tajikistan has signed 17 WIPO administered treaties.

The Tajik government is actively working to improve IPR protection. President Rahmon’s 2018 decree mandating that the government use licensed software led to the September 2019 creation of an interagency working group — chaired by the Ministry of Economic Development and Trade, with participation from the Ministries of Foreign Affairs, Internal Affairs, and Culture, as well as the Customs Service and the Department for the Protection of State Secrets — to develop processes to enforce IPR.  Additionally, the working group proposed amendments to several IPR-related laws and has a presidential mandate to report progress on its 2020 Action Plan to the Deputy Prime Minister.

Notwithstanding the gains Tajikistan has made in the past couple years, numerous challenges remain.  Tajikistan is a party to many international IPR agreements, and IP protection provisions exist in the Constitution as well as the country’s criminal and civil codes.  Despite these protections, infringement is widespread and enforcement remains weak.

The government lacks the technical capacity to effectively protect patents, copyrights, trademarks, and other intellectual property.  The Ministry of Economic Development and Trade, the Ministry of Interior, and the Ministry of Culture have regulatory authority.  The IPR Unit at the Ministry of Interior was established in 2006 and reorganized in 2011 under the new Unit to Combat IP Crimes.  Article 156 of the criminal code allows for seizures of counterfeit goods.  For the first time since 2012, the Ministry of Internal Affairs shared information about enforcement actions with the Embassy.

At present, IP does not represent a sizeable portion of the Tajik economy, although over 90 percent of software and other media products sold in Tajikistan are unlicensed copies, and many “brand name” consumer goods are counterfeit.

The Tajik government has limited human, technical, and financial resources to monitor the implementation of TRIPS.  It has adopted several laws within the TRIPS framework:   – Law of the Republic of Tajikistan on Trademarks and Service Marks

• Law of the Republic of Tajikistan on Trademarks and Service Marks
• Law of the Republic of Tajikistan on Inventions
• Law of the Republic of Tajikistan on Copyrights and Related Rights
• Law of the Republic of Tajikistan on Industrial Designs
• Law of the Republic of Tajikistan on Geographical Indications
• Law of the Republic of Tajikistan on the Legal Protection of Topographies Integrated Circuits
• Law of the Republic of Tajikistan on Secret Inventions
• Law of the Republic of Tajikistan on the Protection of Plant Varieties
• Law of the Republic of Tajikistan on Competition and Restriction of Monopolistic Activity on Commodity Markets.

All other IPR related laws, regulations, and treaties in Tajikistan are accessible here:

• http://www.ncpi.tj/index.php/ru/pravila/zakony 
• http://www.wipo.int/wipolex/en/profile.jsp?code=TJ 

As part of its WTO accession process, Tajikistan amended Article 441 of its customs code to provide ex officio authority to its customs officers to seize and destroy counterfeit goods.  The Department on Disclosing and Seizing of Counterfeit Products within the Customs Service of Tajikistan has the responsibility to detect IPR-related violations. Currently, the Customs Service has only three IPR products registered in its customs registry.  Tajikistan’s Law on Quality and Safety of Products requires IPR violators to pay all expenses for storage, transportation, and destruction of counterfeit goods.

To register a patent or trademark with the National Center for Patents and Information (NCPI), applicants must submit an application with all relevant information on the IP and pay a fee.  The NCPI (www.ncpi.tj ) will search its records for conflicts and, if none is found, register the IP within 30 days from the time the application is received.  In general, the issuance of a trademark might take four to seven months, while obtaining a patent for an invention could take up to two years.

Tajikistan was removed from the USTR Special 301 Watch List in 2019 and is not included in the Notorious Markets List.

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

Resources for Rights Holders

U.S. Embassy Economic Section
Dushanbe-ICS@state.gov

American Chamber of Commerce in Tajikistan
+992 (93) 577 23 23
+992 (93) 577 29 29
Director@amcham.tj
Info@amcham.tj

Public list of local lawyers: https://tj.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/

Capital Markets and Portfolio Investment

Foreign portfolio investment is not a priority for the Tajik government.  Tajikistan lacks a securities market.  According to government statistics, portfolio investment in Tajikistan totaled USD 502.5 million at the end of 2019.  This includes the USD 500 million Eurobond the National Bank of Tajikistan issued in September 2017.  The National Bank of Tajikistan has made efforts to develop a system to encourage and facilitate portfolio investments, including credit rating mechanisms implemented by Moody’s and S&P.  Apart from these initial steps, however, Tajikistan has not established policies to facilitate the free flow of financial resources into product and factor markets.

Tajikistan does not place any restrictions on payments and transfers for current international transactions, per IMF Article VIII.  It regards transfers from all international sources as revenue, however, and taxes them accordingly.

Commercial banks apply market terms for credits, but are also under considerable pressure by governing elites and their family and friends to provide favorable loans for commercially questionable projects.

The private sector offers access to several different credit instruments.  Foreign investors can get credit on the local market, but those operating in Tajikistan avoid local credit because of comparatively high interest rates.

Money and Banking System

According to the latest National Bank of Tajikistan report from December 2019, 75 credit institutions, including 17 banks, including one Islamic bank, 22 microcredit deposit organizations, six microcredit organizations, and 30 microcredit funds, function in Tajikistan.  Tajikistan has 328 bank branches, a 4 percent reduction since 2018. Although the National Bank of Tajikistan reports 26.1 percent of commercial loans are non-performing, other estimates range as high as 60 percent.

Tajikistan’s banking system has still not recovered from the 2015 financial crisis.  AgroInvestBank and TojikSodirotbank, two of Tajikistan’s largest, are in fact collapsed banks awaiting liquidation.  Tajikistan’s banking sector has assets of USD 2.2724 billion as of December 2019, which is USD 130 million more than in 2018.  Total liabilities in 2019 were unchanged from 2018, reaching USD 1.6 billion.  The National Bank of Tajikistan is the country’s central bank (www.nbt.tj ).  Foreign banks can establish operations but are subject to National Bank of Tajikistan regulations.  United States commercial banks discontinued correspondent banking relations with Tajik commercial banks in 2012.

To establish a bank account, foreigners must submit a letter of application, a passport copy, and Tajik government-issued taxpayer identification number.

Foreign Exchange and Remittances

Foreign Exchange

Tajikistan places no legal limits on commercial or non-commercial money transfers, and investors may freely convert funds associated with any form of investment into any world currency.  However, businesses often find it difficult to conduct large currency transactions due to the limited amount of foreign currency available on the domestic financial market.  Investors are free to import currency, but once they deposit it in a Tajik bank account it may be difficult to withdraw.

In December 2015, the National Bank of Tajikistan reorganized foreign currency operations and shut down all private foreign exchange offices in Tajikistan.  Since that time, only commercial bank exchange offices may exchange money and transactions require customers to register with an identity document. In December 2019, the National Bank of Tajikistan launched a national money transfer center that centralizes the receipt of all remittances from abroad.

The government’s policy supports a stable exchange rate but remains susceptible to changes in the Russian ruble. As global oil markets caused the Russian ruble to devaluate in March 2020, the National Bank adjusted the official rate from TJS 9.68 per U.S. dollar to TJS 10.2 per U.S. dollar, a 5.4 percent depreciation. Defending the somoni’s rate to the dollar puts pressure on Tajikistan’s foreign currency and gold reserves, leaving the government with little capacity for systematic currency interventions.

Remittance Policies

The National Bank of Tajikistan mandated that commercial banks disburse remittances in local currency since early 2016.  There are no official time or quantity limitations on the inflow or outflow of funds for remittances.  Tajikistan’s tax code classifies all inflows as revenue and taxes them accordingly; however, the Tajik government does not tax remittances from labor migrants.

Sovereign Wealth Funds

Tajikistan does not have a sovereign wealth fund.  The country does have a “Special Economic Reforms Fund,” but, according to official statistics, it is empty.

World Bank and IMF reports indicate there are 920 state-owned enterprises (SOEs) (up from 583 in 2004) which 24 percent of the labor force, use 50 percent of all available credit, and account for 17 percent of the country’s economic output.

SOEs are active in travel, transportation, energy, mining, metal manufacturing/products, food processing/packaging, agriculture, construction, heavy equipment, services, finance, and information and communication sectors.  The government divested itself of smaller SOEs in successive waves of privatization, but retained ownership of the largest Soviet-era enterprises and any sector deemed to be a natural monopoly.

The government appoints directors and boards to SOEs but the absence of clear governance and internal control procedures means the government retains full control.  Tajik SOEs do not adhere to the Organisation for Economic Co-operation and Development (OECD) Guidelines on Corporate Governance for SOEs.  When SOEs are involved in investment disputes, it is highly likely that domestic courts will find in the SOE’s favor.  Court processes are generally non-transparent and discriminatory.

The Committee for Investments and State Property Management maintains a database of all SOEs in Tajikistan, but does not make this information publicly available.

Major SOEs include:

• Travel: Tajik Air, Dushanbe International Airport, Kulob Airport, Qurghonteppa Airport, Khujand Airport, and Tajik Air Navigation;
• Automotive & Ground Transportation: Tajik Railways;
• Energy & Mining: Barqi Tojik, TajikTransGas, Oil, Gas, and Coal, and VostokRedMet;
• Metal Manufacturing & Products: Tajik Aluminum Holding Company (TALCO), and several TALCO subsidiary companies;
• Agricultural, Construction, Building & Heavy Equipment: Tajik Cement; Food Processing & Packaging: Konservniy Combinat Isfara;
• Services: Dushanbe Water and Sewer, Vodokanal Khujand, and ZhKX (water utility company);
• Finance: AmonatBonk (state savings bank), TajikSarmoyaguzor (state investments), TajikSugurta (state insurance);
• Information and Communication: Tajik Telecom, Tajik Postal Service, and TeleRadioCom

In sectors that are open to private sector and foreign competition, SOEs receive a larger percentage of government contracts/business than their private sector competitors.  In practice, private companies cannot compete successfully with SOEs unless they have good government connections.

SOEs purchase goods and services from, and supply them to, private sector and foreign firms through the Tajik government’s tender process.  Tajikistan has undertaken a commitment, as part of its WTO accession protocol, to initiate accession to the Government Procurement Agreement (GPA).  At present, however, GPA does not cover Tajik SOEs.

Per government policy, private enterprises cannot compete with SOEs under the same terms and conditions with respect to market share (since the government continually increases the role and number of SOEs in any market), products/services, and incentives.  Private enterprises do not have the same access to financing as SOEs as most lending from state-owned banks is politically directed.

Local tax law makes SOEs subject to the same tax burden and tax rebate policies as their private sector competitors, but the Tajik government favors SOEs and regularly writes off tax arrears for SOEs.

Privatization Program

The Tajik government conducted privatization on an ad-hoc basis in the 1990s, and then again in the early 2000s.  Following a World Bank recommendation, the government has begun a plan to split national electrical utility Barqi-Tojik into three public/private partnerships, responsible for generation, transmission, and distribution but progress has been slow.

Foreign investors are able to participate in Tajikistan’s privatization programs.

There is a public bidding process, but the privatization process is not transparent.  Privatized properties have been subject to re-nationalization, often because Tajik authorities claim on illegal privatization process.

In January, 2020 Tajikistan’s lower house of parliament approved amendments to the state privatization law that remove the Roghun energy project and TALCO aluminum company from the list of state facilities precluded from foreign investment.

The Tajik government officially protects consumer rights through its Law on Consumer Protection.  Citizens may file lawsuits against violators of consumer rights with the court system.  Tajikistan’s state labor union is responsible for safeguarding labor and employment rights.  In practice, no enforcement is in place.  The Tajik government does not fairly enforce domestic law to protect individuals from adverse business impacts.

The Tajik government lacks corporate governance, accounting, or executive compensation standards to protect shareholders.  The Tajik government does not encourage public disclosure of these issues or enforce corporate governance practices.

There are no independent NGOs, investment funds, worker organizations/unions, or business associations in Tajikistan that promote or monitor responsible business conduct.

The Tajik government does not encourage adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.

In February 2020, the Extractive Industries Transparency Initiative (EITI) recognized significant progress implementing the EITI Standard in Tajikistan and lifted the country’s suspension, which had been in place since 2016.

Tajikistan has enacted anti-corruption legislation, but enforcement is politically-motivated, and generally ineffective in combating corruption of public officials.  Tajikistan’s parliament approved new amendments to the criminal code in February 2016.  Now, individuals convicted of crimes related to bribery may be released in return for payment of fines (roughly USD 25 for each day they would have served in prison had they been convicted under the previous criminal code).

Tajikistan’s anti-corruption laws officially extend to family members of officials and political parties.  Tajikistan’s laws provide conditions to counter conflict of interest in awarding contracts.

The Tajik government does not require private companies to establish internal codes of conduct that prohibit bribery of public officials.  Private companies do not use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.

Tajikistan became a signatory to the UN’s Anticorruption Convention in 2006.  Tajikistan is not a party to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

Tajik authorities do not provide protection to NGOs involved in investigating corruption.

U.S. firms have identified corruption as an obstacle to investment and have reported instances of corruption in government procurement, award of licenses and concessions, dispute settlements, regulations, customs, and taxation.

Resources to Report Corruption

Sulaimon Sultonzoda Said, Head
The Agency for State Financial Control and Fight with Corruption
78 Rudaki Avenue, Dushanbe
992 37 221-48-10; 992 27 234-3052
info@anticorruption.tj; agenti@anticorruption.tj

(The agency requests that contact be made via a form on their website – www.anticorruption.tj)

Contact at a “watchdog” organization (international, regional, local or nongovernmental organization operating in the country/economy that monitors corruption, such as Transparency International):

United Nations Development Program
39 Aini Street, Dushanbe
+992 44 600-56-00
registry.tj@undp.org

Tajikistan’s civil war lasted from 1992 to 1997 and resulted in the deaths of 50,000 people. Apart from a minor uprising in September 2015, however, political violence following the end of the civil war has been rare.

Tajikistan is governed by an authoritarian ruler who has consolidated power by silencing opposition voices and ending multi-party democracy.  As part of its security efforts, the Tajik government has placed numerous restrictions on religious, media, and civil freedoms.

The state, as an extension of the regime, furthers the interests of the ruling elite, often to the detriment of the business community.  Democratic reform is viewed by many elites as a threat to important political and financial interests.

Government institutions are often unwilling or unable to protect human rights, the judiciary is not independent, and the court system does not present Tajiks with a fair or effective forum in which to seek protection.  Law enforcement institutions often overuse their authority to monitor, question or detain a wide spectrum of individuals, and the State Committee on National Security (GKNB) exercises a wide degree of influence in all aspects of government.

As of November 2019, the official unemployment rate in Tajikistan was 2.1 percent, but this does not include the roughly one million citizens (12.5 percent of the population) that seasonally migrate in search of work in other countries – primarily to Russia.

According to information provided by the Ministry of Labor, Migration, and Employment, Tajikistan’s labor force is comprised of 5.2 million workers.  Due to demographic growth, the World Bank estimates that demand for jobs exceeds job growth by a ratio of two to one.

Unskilled labor is widely available, but skilled labor is in short supply, since many Tajiks with marketable skills choose to emigrate due to limited domestic employment opportunities.  Corruption in secondary schools and universities means degrees may not accurately reflect an applicant’s level of professional training or competency.

Due to its weak education system, Tajikistan’s domestic labor force is generally becoming less skilled, and is ill equipped to provide international standards of customer service and management.  Foreign businesses and NGOs report difficulty recruiting qualified staff for their organizations in all specialties.

The Ministry of Labor, Migration and Employment announced a plan to expand its network of training centers at which Tajik workers can become more marketable.  The curriculum at these centers is primarily focused on the migrant community, offering training in English, Russian, culture, and history.  It also provides certification of a worker’s existing skills, and short-term vocational training as welders, electricians, tractor operators, textile workers, and confectioners.

Article 36 of Tajikistan’s labor code gives employers the right to change workers’ contracts (remuneration, hours, responsibilities, etc.) due to fluctuating market conditions.  If the worker does not accept the amended contract, the employer may terminate the worker, but the worker can claim a severance payment equivalent to two months’ salary.

Tajikistan’s labor code does not include any provisions for waiving labor regulations to attract or retain investments, but the Tajik government has waived the 70 percent requirement for the employment of Tajik workers in some cases.

There are no special regulations regarding treatment of labor in Tajikistan’s four free economic zones.

The labor market favors employers.  Although the majority of workers are technically unionized, most are not aware of their rights, and few unions effectively advocate for workers’ rights.  The Tajik government controls unions.  The national trade union federation has not had many disputes with the government.  Tajikistan has no formal labor dispute resolution mechanisms.  Although collective bargaining can occur, it is rare. During 2019, there were no significant labor strikes in Tajikistan.

Tajikistan’s labor code regulates employer-employee relations.  The domestic labor code includes reference to international labor standards but employers may frequently violate or misinterpret procedures.

There are opportunities for the Development Finance Corporation to work in Tajikistan. The Overseas Private Investment Corporation (OPIC) has supported a potato chip factory, an expansion at the University of Central Asia, and consulting companies.

Tajikistan signed an investment incentive agreement with the United States in 1992, with provisions for issuing investment insurance, loans, and guarantees administered by OPIC.

* Source for Host Country Data: National Bank and State Statistics Agency

Table 4: Sources of Portfolio Investment
Data not available.

Jason Monks
Economic Officer
109A I. Somoni
+992 37 2292504
MonksJJ@state.gov