Cyprus is the eastern-most member of the European Union (EU), situated at the crossroads of three continents – Europe, Africa, and Asia – and thus occupies a strategic place in the Eastern Mediterranean region.
The Republic of Cyprus (ROC) eagerly welcomes foreign direct investment (FDI). The ROC is a member of the eurozone. English is widely spoken. The legal system is based on UK common law. Legal and accounting services for foreign investors are highly developed. Invest Cyprus, an independent, government-funded entity, aggressively promotes investment in the traditional sectors of shipping, tourism, banking, and financial and professional services. Newer sectors for FDI include energy, film production, investment funds, education, research & development, information technology, and regional headquartering. The discovery of significant hydrocarbon deposits in Cyprus’s Exclusive Economic Zone (and in the surrounding Eastern Mediterranean region) has driven major new FDI by multinational companies in recent years.
The Government of the Republic of Cyprus is the only internationally recognized government on the island, but since 1974 the northern third of Cyprus has been administered by Turkish Cypriots. This area proclaimed itself the “Turkish Republic of Northern Cyprus” (“TRNC”) in 1983. The United States does not recognize the “TRNC” as a government, nor does any country other than Turkey. A substantial number of Turkish troops remain in the northern part of the island. A buffer zone, or “green line,” patrolled by the UN Peacekeeping Force in Cyprus (UNFICYP), separates the two parts. The Republic of Cyprus and the area administered by Turkish Cypriots are addressed separately below.
U.S. citizens can travel to the north / Turkish Cypriot area, but as of March 2021 COVID-19 restrictions have made transit between north and south difficult for non-residents. U.S. companies can invest in the north but should be aware of legal complications and risks due to the lack of international recognition, tensions between the two communities, and isolation of the north from the eurozone. Turkish Cypriot businesses are interested in working with American companies in the fields of agriculture, hospitality, renewable energy, and retail franchising. Significant Turkish aid and investment flows to the “TRNC.” A political settlement between the communities would be a powerful catalyst for island-wide Cypriot economic growth and prosperity.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Cyprus has a favorable attitude towards FDI and welcomes U.S. investors. There is no discrimination against U.S. investment; however, there are some ownership limitations and licensing restrictions set by law on non-EU investment in certain sectors, such as private land ownership, media, and construction (see Limits on Foreign Control, below). The ROC promotes FDI through a dedicated agency, Invest Cyprus, which is tasked with attracting FDI in the key economic sectors of shipping, education, real estate, tourism and hospitality, energy, investment funds, filming, and innovation and startups. Invest Cyprus is the first point of contact for investors, and provides detailed information on the legal, tax, and business regulatory framework. The ROC and Invest Cyprus also promote an ongoing dialogue with investors through a series of promotion seminars each year. The Cyprus Chamber of Commerce and Industry (CCCI) is a robust organization with country-specific bilateral chambers, including the American Chamber (AmCham Cyprus), that is dedicated to promoting FDI and serving the business interests of foreign companies and trade partners operating in Cyprus.
Cyprus Embassy Trade Center – New York
13 East 40th Street
New York, NY 10016
Phone: (212) 213-9100
Fax: (212) 213-9100
Website: https://www.cyprustradeny.org/
AREA ADMINISTERED BY TURKISH CYPRIOTS
Turkish Cypriots welcome FDI and are eager to attract investments, particularly those that will lead to the transfer of advanced technology and technical skills. Priority is also given to investments in export-oriented industries. There are no laws or practices that discriminate against FDI. The “Turkish Cypriot Investment Development Agency (YAGA)” provides investment consultancy services, guidance on the legal framework, sector specific advice and information about investor incentives.
Limits on Foreign Control and Right to Private Ownership and Establishment
REPUBLIC OF CYPRUS
The ROC does not currently have a mandatory foreign investment screening mechanism that grants approval to FDI other than sector-specific licenses granted by relevant ministries. Invest Cyprus does grant approvals for investment under the film production incentive scheme. Invest Cyprus often refers projects for review to other agencies.
The following restrictions apply to investing in the ROC:
Non-EU entities (persons and companies) may purchase only two real estate properties for private use (two holiday homes or a holiday home and a shop or office). This restriction does not apply if the investment property is purchased through a domestic Cypriot company or a corporation elsewhere in the EU. S. investment in such companies is welcome.
Non-EU entities cannot invest in the production, transfer, and provision of electrical energy. The Council of Ministers may refuse granting a license for investment in hydrocarbons prospecting, exploration, and exploitation to a third-country national or company if that third country does not allow similar investment by Cyprus or other EU member states. ROC hydrocarbon exploration is currently led by two U.S. companies.
Individual non-EU investors may not own more than five percent of a local television or radio station, and total non-EU ownership of any single local TV or radio station is restricted to a maximum of 25 percent.
The right to register as a building contractor in Cyprus is reserved for citizens of EU member states. Non-EU entities are not allowed to own a majority stake in a local construction company. Non-EU physical persons or legal entities may bid on specific construction projects but only after obtaining a special license by the Council of Ministers.
Non-EU entities cannot invest directly in private tertiary education institutions but may do so through ownership of Cypriot or EU companies.
The provision of healthcare services on the island is subject to certain restrictions, applying equally to all non-residents.
The Central Bank of Cyprus’s prior approval is necessary before any individual person or entity, whether Cypriot or foreign, can acquire more than 9.99 percent of a bank incorporated in Cyprus.
AREA ADMINISTERED BY TURKISH CYPRIOTS
According to the “Registrar of Companies Office,” all non-Turkish Cypriot ownership of construction companies is capped at 49 percent. Currently, the travel agency sector is closed to foreign investment. Registered foreign investors may buy property for investment purposes but are limited to one parcel or property. Foreign natural persons also have the option of forming private liability companies, and foreign investors can form mutual partnerships with one or more foreign or domestic investors.
Other Investment Policy Reviews
Nothing to report.
Business Facilitation
REPUBLIC OF CYPRUS
The Ministry of Energy, Commerce and Industry (MECI) provides a “One Stop Shop” business facilitation service, as per contact details below. The One-Stop-Shop offers assistance with the logistics of registering a business in Cyprus to all investors, regardless of origin and size. Additionally, since September 2020, MECI offers a Fast Track Business Activation mechanism to provide efficient business registration services to eligible foreign investors who want to establish a physical presence on the island. This program has already generated interest from abroad, attracting several firms in the technology, IT, and communications sectors. Eligibility criteria and benefits are described here:
MECI’s Department of the Registrar of Companies and Official Receiver (DRCOR) provides the following services: Registration of domestic and overseas companies, partnerships, and business names; bankruptcies and liquidations; and trademarks, patents, and intellectual property matters.
Domestic and foreign investors may establish any of the following legal entities or businesses in the ROC:
At the end of 2019, there were a total of 223,282 companies registered in the ROC, 12,781 of which had been registered in 2019 (for more statistics on company registrations, please see: https://www.companies.gov.cy/en/knowledgebase/statistics).
In addition to registering a business, foreign investors, like domestic business owners, are required to obtain all permits that may be necessary under Cypriot law. At a minimum, they must obtain residence and employment permits, register for social insurance, and register with the tax authorities for both income tax and Valued Added Tax (VAT). In order to use any building or premises for business, including commerce, industry, or any other income-earning activity, one also needs to obtain a municipal license. Additionally, town planning or building permits are required for building new offices or converting existing buildings. There are many sector-specific procedures. Information on all the above procedures is available online at: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/eke08_en/eke08_en?OpenDocument.
The World Bank’s 2020 Doing Business report (http://www.doingbusiness.org/rankings) ranked Cyprus 54th out of 190 countries for ease of doing business. Among the ten sub-categories that make up this index, Cyprus performed best in the areas of protecting minority investors (21/190) and paying taxes (29/190), and worst in the areas of enforcing contracts (142/190) and dealing with construction permits (125/190). Cyprus has recorded small gains in almost all subcategories since the 2019 report, with a substantial improvement in the area of paying taxes, achieving a small overall climb in its ranking since last year. Using another metric, in the Global Competitiveness Index, issued by the World Economic Forum, Cyprus maintained its ranking of 44th out of 141 countries in the 2019 edition. The two areas where Cyprus performed the worst in this report were in terms of its small market size and relatively low innovation capability.
The ROC follows the EU definition of micro-, small- and medium-sized enterprises (MSMEs), and foreign-owned MSMEs are free to take advantage of programs in Cyprus designed to help such companies, including the following:
Foreign investors can take advantage of the services and expertise of Invest Cyprus, an agency registered under the companies’ law and funded mainly by the state, dedicated to attracting investment.
Additionally, the Association of Large Investment Projects, under the Cyprus Chamber of Commerce and Industry, can provide useful information on large ongoing investment projects:
Association of Large Investment Projects
38 Grivas Dhigenis Ave. & 3 Deligiorgis Str.,
P.O.Box 21455
1509 Nicosia
Tel: +357 22889890
Fax: +357 22667593
Email: bigprojects@ccci.org.cy
Information available on the “Registrar of Companies’” website is available only in Turkish: http://www.rkmmd.gov.ct.tr/. An online registration process for domestic or foreign companies does not exist and registration needs to be completed in person.
The “YAGA” website ( https://yaga.gov.ct.tr/en-us/ provides explanations and guides in English on how to register a company in the area administrated by Turkish Cypriots.
As of August 2020, the “Registrar of Companies Office” statistics indicated there were 21,626 registered companies, of which 16,557 were Turkish Cypriot majority-owned limited liability companies; 433 foreign companies; and 493 offshore companies.
The area administered by Turkish Cypriots defines MSMEs as entities having fewer than 250 employees. There are several grant programs financed through Turkish aid and EU aid targeting MSMEs.
The Turkish Cypriot Chamber of Commerce (KTTO) publishes an annual Competitiveness Report on the Turkish Cypriot economy, based on the World Economic Forum’s methodology. KTTO’s 2019-2020 report ranked Northern Cyprus 107 among 141 economies, dropping eighteen places from its ranking in 2019.
For more information and requirements on establishing a company, obtaining licenses, and doing business visit:
The ROC does not restrict outward investment, other than in compliance with international obligations such as specific UN Security Council Resolutions. In terms of programs to encourage investment, businesses in Cyprus have access to several EU programs promoting entrepreneurship, such as the European Commission’s InvestEU Programme (2021-2027) aiming to support sustainable infrastructure, innovation and small businesses, or the Erasmus program for Young Entrepreneurs, in addition to the European Investment Bank’s guarantee facilities for SMEs for projects under USD 4.8 million (EUR 4 million)[1].
AREA ADMINISTERED BY TURKISH CYPRIOTS
Turkish Cypriot “officials” do not incentivize or promote outward investment. The Turkish Cypriot authorities do not restrict domestic investors.
[1] Converted at EUR 1 = USD 1.20 per the exchange rate March 5, 2021.
2. Bilateral Investment Agreements and Taxation Treaties
REPUBLIC OF CYPRUS
Cyprus is a party to 27 bilateral investment treaties (BITs) and 78 treaties with investment provisions (TIPs) all listed here:
As an EU member state, trade agreement talks are delegated to the European Commission.
The ROC does not have a BIT with the United States, but it does have a bilateral agreement relating to Investments Guarantees, which came into force in 1963 through the exchange of notes. This agreement is listed as item 16 in the ROC’s list of bilateral treaties between the ROC and the United States: http://www.olc.gov.cy/olc/olc.nsf/All/5127B9EF26EA434EC225847300280E1F?OpenDocument.
An agreement between the United States and the Republic of Cyprus on the Foreign Account Tax Compliance Act (FATCA) entered into full effect January 4, 2017.
Additionally, Cyprus has signed bilateral double tax treaties with 65 countries:
The “TRNC” is not an internationally recognized “government” and is not a party to any multilateral trade or investment instruments. The “TRNC” has bilateral investment and taxation agreements only with Turkey. Some of these agreements between Turkey and the “TRNC” include prevention of double taxation on income tax and loss of tax; trade and economic cooperation; investment; and economic and financial cooperation.
3. Legal Regime
Transparency of the Regulatory System
REPUBLIC OF CYPRUS
The ROC achieved a score of 4 out of 6 in the World Bank’s composite Global Indicators of Regulatory Governance score (based on data collected December 2015 to April 2016) designed to explore good regulatory practices in three core areas: publication of proposed regulations, consultation around their content, and the use of regulatory impact assessments. For more information, please see: http://rulemaking.worldbank.org/en/data/explorecountries/cyprus.
U.S. companies competing for ROC government tenders have noted concerns about opaque rules and possible bias by technical committees responsible for preparing specifications and reviewing tender submissions. Overall, however, procedures and regulations are transparent and applied in practice by the government without bias towards foreign investors. The ROC actively promotes good governance and transparency as part of its administrative reform action plan.
In line with the above plan and EU requirements, the ROC launched in 2016 the National Open Data Portal (www.data.gov.cy) to increase transparency in government services. Government agencies are now required to post publicly available information, data, records, on the entire spectrum of their activities. The number of data sets available through this portal has been growing rapidly in recent months, although much of it is in Greek only.
Most laws and regulations are published only in Greek and obtaining official English translations can be difficult, but expert analysis in English is generally available from local law and accounting firms when the regulation affects international investment or business activity. When passing new legislation or regulations, Cypriot authorities follow the EU acquis communautaire – the body of common rights and obligations that is binding on all EU members. A formal procedure of public notice and comment is not required in Cyprus, except for specific types of laws. In general, the ROC will seek stakeholder feedback directly. Draft legislation must be published in the Official Gazette before it is debated in the House to allow stakeholders an opportunity to submit comments. The ROC House of Representatives typically invites specific stakeholders to offer their feedback when debating bills. Draft regulations, on the other hand, need not be published in the Official Gazette prior to being approved.
In an effort to contribute to global tax transparency, the ROC has adopted the Standard of Automatic Exchange of Information developed by the Organization for Economic Co-Operation and Development (OECD) known as Common Reporting Standard (CRS). Since January 1, 2016, the ROC Tax Department requires all financial institutions to confirm their clients’ jurisdiction(s) of Tax Residence and Respective Tax Identification Number, if applicable. Additionally, the ROC has signed the U.S. Foreign Account Tax Compliance Act (FATCA), allowing Cypriot tax authorities to share information with U.S. counterparts.
Public finances and debt obligations are published as part of the annual budget process.
AREA ADMINISTERED BY TURKISH CYPRIOTS
The level of transparency for “lawmaking” and adoption of “regulations” in the “TRNC” lags behind U.S. and EU standards. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations. Draft legislation or regulations are made available for public comment for 21 days after the legislation is sent to “parliament.” Almost all legislation and regulations are published only in Turkish.
International Regulatory Considerations
REPUBLIC OF CYPRUS
As an EU member state since May 1, 2004, the Republic of Cyprus must ensure compliance with the acquis communautaire. The acquis is constantly evolving and comprises of Treaties, international agreements, legislation, declarations, resolutions, and other legal instruments. EU legislation, for its part, is subdivided into:
Regulations, which are directly applicable to member states and require no further action to have legal effect;
Directives, which are addressed to and are binding on member states, but the member state may choose the method by which to implement the directive. Generally, a member state must enact national legislation to comply with a directive;
Decisions, which are binding on those parties to whom they are addressed; and
Recommendations and opinions, which have no binding force.
When there is conflict between European law and the law of any member state, European law prevails; the norms of national law have to be set aside, under the principle of EU law primacy or supremacy. The ROC is often slow to transpose EU directives into local law, but transposition is generally consistent with EU intent when it happens.
AREA ADMINISTERED BY TURKISH CYPRIOTS
The entire island of Cyprus is considered EU territory, but the acquis communautaire is suspended in the areas administered by Turkish Cypriots and the north is not considered to be within the EU customs area.
Legal System and Judicial Independence
REPUBLIC OF CYPRUS
Cyprus is a common law jurisdiction and its legal system is based on English Common Law for both substantive and procedural matters. Cyprus inherited many elements of its legal system from the United Kingdom, including the presumption of innocence, the right to due process, the right to appeal, and the right to a fair public trial. Courts in Cyprus possess the necessary powers to enforce compliance by parties who fail to obey judgments and orders made against them. Public confidence in the integrity of the Cypriot legal system remains strong, although long delays in courts, and the perceived failure of the system collectively to punish those responsible for the island’s financial troubles in 2013 have tended to undermine this trust in recent years.
International disputes are resolved through litigation in Cypriot courts or by alternative dispute resolution methods such as mediation or arbitration. Businesses often complain of court gridlock and judgments on cases generally taking years to be issued, particularly for claims involving property foreclosure.
AREA ADMINISTERED BY TURKISH CYPRIOTS
Investors should note the EU’s acquis communautaire is suspended in the area administered by the Turkish Cypriots.
The “TRNC” is a common law jurisdiction. Judicial power other than the “Supreme Court” is exercised by the “Heavy Penalty Courts,” “District Courts,” and “Family Courts.” Turkish Cypriots inherited many elements of their legal system from the British colonial rule before 1960, including the right to appeal and the right to a fair public trial. There is a high level of public confidence in the judicial system in the area administrated by Turkish Cypriots. The judicial process is procedurally competent, fair, and reliable.
Foreign investors can make use of all the rights guaranteed to Turkish Cypriots. Commercial courts and alternative dispute resolution mechanisms are not available in the “TRNC.” The resolution of commercial or investment disputes through the “judicial system” can take several years. The Turkish Cypriot administration has trade and industry “law” and contractual “law.” The Turkish Cypriot administration has several trade and economic cooperation agreements with Turkey. For more information about “legislation,” visit https://yaga.gov.ct.tr/en-us/. Because the “TRNC” is not recognized internationally, “TRNC court” decisions and orders may be difficult to enforce outside of the area administered by Turkish Cypriots or Turkey.
Laws and Regulations on Foreign Direct Investment
REPUBLIC OF CYPRUS
For more information on laws affecting incoming foreign investment see:
Private property may, in exceptional instances, be expropriated for public purposes, in a non-discriminatory manner, and in accordance with established principles of international law and consistent with EU law, rights, and directives. The expropriation process entitles investors to proper compensation, whether through mutual agreement, arbitration, or the local courts. Foreign investors may claim damages resulting from an act of illegal expropriation by means other than litigation. Investors and lenders to expropriated entities receive compensation in the currency in which the investment was made. In the event of any delay in the payment of compensation, the Government is also liable for the payment of interest based on the prevailing six-month interest rate for the relevant currency. Like most other jurisdictions, the ROC is expected to complete the switch from the London Inter-Bank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) by the end of 2021.
Following a financial crisis in 2013, the ROC took extraordinary steps as part of the Memorandum of Understanding (MOU) between the Republic of Cyprus and international lenders (European Commission, European Central Bank, and the IMF – the “troika”). Depositors in two of the largest Cypriot banks were forced to take a “haircut” on almost half of their deposits exceeding insured limits. This action sparked 3,000 lawsuits against the ROC and the banks, but the European Court of Justice ruled that the MOU with the troika was not an unlawful act and dismissed actions for compensation. The ROC has not taken any similar extraordinary actions since.
AREA ADMINISTERED BY TURKISH CYPRIOTS
Private property may be expropriated for public purposes. The expropriation process entitles investors to proper compensation. Foreign investors may claim damages resulting from an act of illegal expropriation by means other than litigation.
In expropriation cases involving private owners, they are first notified, the property is then inspected, and, if an agreement is reached regarding the amount, then the owner is compensated. In cases where the owner declines the compensation package, the case relegated to local “courts” for a final decision.
Because the “TRNC” is not recognized internationally, “TRNC court” decisions and orders may be difficult to enforce outside of the area administered by Turkish Cypriots or Turkey.
Dispute Settlement
ICSID Convention and New York Convention
N/a
Investor-State Dispute Settlement
N/a
International Commercial Arbitration and Foreign Courts
N/a
ICSID Convention and New York Convention
N/a
Investor-State Dispute Settlement
N/a
International Commercial Arbitration and Foreign Courts
N/a
REPUBLIC OF CYPRUS
ICSID Convention and New York Convention
The ROC is a member state to the Convention on the International Centre for the Settlement of Investment Disputes (ICSID Convention), and a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
Investor-State Dispute Settlement
There have been no reports of investment disputes in Cyprus involving U.S. persons over the past 10 years, and there is no history of extrajudicial action against foreign investors. Local courts recognize and enforce foreign arbitral awards issued against the government.
International Commercial Arbitration and Foreign Courts
Cyprus offers several different means of Alternative Dispute Resolution (ADR), although, in practice, recourse to ADR is not common. The ROC Ministry of Justice and Public Order offers a publicly-available Register of Mediators for both commercial and civil disputes at: http://www.mjpo.gov.cy/mjpo/mjpo.nsf/All/093DD5FE0E4342E7C225861400498853?OpenDocument.
Some of the key mediators locally and abroad are the following:
EU citizens and businesses can also use SOLVIT, a free, online service, to resolve problems pertaining to internal EU market issues, like visa and residence rights, pension rights, and VAT refunds, within 10 weeks from the day the problem is reported: http://ec.europa.eu/solvit/what-is-solvit/.
Under the Arbitration Law of Cyprus, if the parties are unable to reach a settlement an arbitrator can be appointed. Arbitration rulings are fully enforceable, and the court may settle an arbitral award in the same way as a judgment. Mediation is not fully enforceable, unless the settlement agreement explicitly stipulates that the parties can apply to court for enforcement. The ROC honors the enforcement of foreign court judgments and foreign arbitration awards. Domestic legislation on binding international arbitration is modeled after internationally accepted regulations, such as the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, which the ROC adopted in 1985. The ROC’s bilateral investment treaties with several countries also include dispute settlement provisions (see Section 3, Bilateral Investment Agreements).
AREA ADMINISTERED BY TURKISH CYPRIOTS
Investor-State Dispute Settlement
Foreign investors can make use of all the rights guaranteed to Turkish Cypriots. Alternative dispute resolution mechanisms are not available in the “TRNC.” The resolution of commercial or investment disputes through the “judicial system” can take several years.
Because the “TRNC” is not recognized internationally, “TRNC court” decisions and orders may be difficult to enforce outside of the area administered by Turkish Cypriots or Turkey.
Bankruptcy Regulations
REPUBLIC OF CYPRUS
New insolvency legislation introduced in 2015 has helped overhaul bankruptcy procedures, with a view to resolve the island’s high levels of non-performing loans (NPLs). Bankruptcy procedures can be initiated by a creditor through compulsory liquidation or by the debtor through voluntary liquidation. The court can impose debt rescheduling, in cases where aggregate liabilities do not exceed USD 409,500 (EUR 350,000) and individuals with minimal assets and income may apply to the court via the Insolvency Service for a debt relief order of up to USD 29,250 (EUR 25,000). Discharge from bankruptcy is automatic after three years, provided all debtor assets are sold and the proceeds distributed to creditors. Fraudulent alienation of assets prior to bankruptcy and non-disclosure of assets draws criminal sanctions under the new legislation. Cypriot authorities are closely monitoring implementation of the new insolvency framework. Despite concerted efforts by Cypriot authorities and the banks NPLs remained stubbornly high at 28.5 percent of total loans at the end of 2019, compared to 30.3 percent a year earlier, although two major banks are in the process of selling significant NPL portfolios to investors.
In 2013, the “TRNC” passed a debt restructuring “law” aimed at providing incentives to restructure debts and NPLs separately. Turkish Cypriots also have a bankruptcy “law” that defines “collecting power;” conditions under which a creditor can file a bankruptcy application; and the debtor’s bankruptcy application, and agreement plans.
As of the end of the third quarter of 2020, NPLs increased by 34.3 percent, reaching 1.4 billion Turkish Lira (USD 20 million) compared to the same period of the previous year.
5. Protection of Property Rights
Real Property
REPUBLIC OF CYPRUS
EU nationals and companies domiciled in any EU country are not subject to any restrictions when buying property in the ROC. By contrast, Cypriot law imposes significant restrictions on direct foreign ownership of real estate by non-EU individuals. Non-EU persons and entities may purchase a maximum of two real estate properties for private use (defined as a holiday home built on land of up to 4,014 square meters; plus a second home or office of up to 250 square meters, or shop of up to 100 square meters). Exceptions can be made for projects requiring larger plots of land but are difficult to obtain and rarely granted. This restriction applies to non-EU citizens or non-EU companies. Foreign investment in Cypriot or EU companies is welcome, but a legal entity is deemed to be controlled by non-EU citizens if it meets any of the conditions listed below:
50 percent or more of its board members are non-EU citizens; or
50 percent or more of its share capital belongs to non-EU citizens; or
Control (50 percent or more) belongs to non-EU citizens; or
Either the company’s Memorandum or Articles of Association provides authority to a non-EU citizen securing the company’s activities are conducted based on his/her will during the real estate acquisition period. In the case that the authority is provided to two or more persons, a legal entity is considered to be controlled by non-EU citizens if 50 percent or more of the people granted such authority are non-EU citizens.
Legal requirements and procedures for acquiring and disposing of property in Cyprus are complex, but professional help from real estate agents and developers to ease the burden is readily available. The ROC Department of Lands and Surveys keeps excellent records and follows internationally accepted procedures. Non-residents are allowed to sell their property and transfer abroad the amount originally paid, plus interest or profits, without restriction.
Additionally, there are restrictions on investing in Turkish Cypriot property located in the ROC. The Turkish Cypriot Property Management Service (TCPMS), established in 1991, administers properties of Turkish Cypriots who are not ordinarily residents of the government-controlled area. This service acts as the temporary custodian for such properties until a comprehensive political settlement is reached. The TCPMS is mandated to administer properties under its custodianship “in the manner most beneficial for the owner.” Ownership of Turkish Cypriot properties cannot change (except for inheritance purposes) except in exceptional cases when this is deemed beneficial for the owner or necessary for the public interest.
Special Note: Investors are advised to consider the risks associated with investing in immovable property in the area administered by Turkish Cypriots. Potential investors are strongly advised to obtain independent legal advice prior to purchasing or leasing property there. Purchase or use of property in the area administered by Turkish Cypriots is a contentious issue in Cyprus, as per the following note posted on the Republic of Cyprus Ministry of Foreign Affairs website: http://www.mfa.gov.cy/mfa/properties/occupiedarea_properties.nsf/index_en/index_en?OpenDocument.
For property in the Turkish Cypriot-administered areas, only pre-1974 title deeds are uncontested. In response to the European Court of Human Rights’ (ECHR) 2005 ruling that Turkey’s “subordinate local authorities” in Cyprus had not provided an adequate local remedy for property disputes, Turkish Cypriot authorities established an Immovable Property Commission (IPC) to handle property claimed by Greek Cypriots. In a March 2010 ruling, the ECHR recognized the IPC as a domestic remedy, but the ROC does not consider the IPC to be a legitimate body. As of March 3, 2021, the IPC had received 6,804 applications, of which 1,224 have been concluded through friendly settlements, and 34 through formal hearings. For more information on IPC please visit http://www.tamk.gov.ct.tr/.
On January 19, 2010, the UK Court of Appeal enforced an earlier court decision taken in the ROC in support of a Greek Cypriot person’s trespassing claim (the Orams case – http://curia.europa.eu/juris/liste.jsf?language=en&num=C-420/07 and http://www.bailii.org/ew/cases/EWCA/Civ/2010/9.html), effectively voiding the transfers of Greek Cypriot property in the Turkish Cypriot-administered areas. This landmark decision also establishes precedent in cases where foreign investors purchasing disputed properties outside of the ROC-controlled area can be found liable for damages.
There are significant restrictions on the foreign ownership of real estate. A 2008 “law” requires non- “TRNC” residents to apply to the “Council of Ministers” for permission to purchase real estate, and non-residents are limited to a single small property. Foreigners can, however, own or control more real estate through a “TRNC” registered company.
Intellectual Property Rights
REPUBLIC OF CYPRUS
ROC intellectual property rights (IPR) law is harmonized with EU directives and the ROC is party to major international IPR instruments. The country promotes itself as a low-tax, high protection (i.e., EU standards) destination for IPR.
Cypriot law (Law 207(I) (2012)) places the burden of proof on the defendant in cases of IPR infringement. The law also allows the police to assess samples of pirated articles in lieu of the whole shipment and introduces the alternative for out-of-court settlement in some cases. Other important IPR laws include Law 103 (2007) on unfair commercial practices and Law 133(I) (2006) strengthening earlier legislation targeting copyright infringement. The Department of Customs and the Police confiscate thousands of counterfeit items every year, including articles of clothing, luggage, accessories, and pirated optical media.
For additional information about treaty obligations and points of contact at local IPR offices, please see WIPO’s country profiles at: http://www.wipo.int/directory/en/.
Primary responsibility for enforcing ROC IPR legislation rests with the Cyprus Police and the Department of Customs. The Competition and Consumer Protection Service of the Ministry of Energy, Commerce, and Industry (MECI) also plays a supportive role, while the Registrar of Companies and Official Receiver handles administration of patents and copyrights.
Resources for Rights Holders
Embassy point of contact:
George F. Demetriou
Economic Specialist
U.S. Embassy, Nicosia
Tel: +357-22-393361
Email: demetriougf@state.gov
For additional information about national laws and points of contact at local IPR offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
AREA ADMINISTERED BY TURKISH CYPRIOTS
Intellectual property rights are not adequately protected in the area administered by Turkish Cypriots. Related “laws” in this area are inadequate, antiquated, and there is a lack of enforcement. Infringing goods imported from Turkey and other countries are common.
8. Responsible Business Conduct
REPUBLIC OF CYPRUS
In recent years, responsible business conduct (RBC) awareness among both producers and consumers is growing in Cyprus. Leading foreign and domestic enterprises tend to follow generally accepted RBC principles, and firms pursuing these practices tend to be viewed more favorably by the public. The Cyprus Stock Exchange is among the entities imposing a responsible code of conduct among listed companies: https://www.cse.com.cy/en-GB/regulated-market/listing/corporate-governance/. Most professional associations also promote ethical business conduct among their members, including the Cyprus Bar Association, and the Institute of Certified Public Accountants of Cyprus.
The ROC does not specifically adhere to OECD Guidelines for Multinational Enterprises; however, multinationals are expected to follow generally accepted RBC principles. ROC authorities have made some initial soundings considering the possibility of eventually joining the Extractive Industries Transparency Initiative (EITI – www.eiti.org).
AREA ADMINISTERED BY TURKISH CYPRIOTS
RBC awareness has grown among both producers, consumers and business in the area administrated by Turkish Cypriots. Firms pursing these practices tend to be viewed favorably by the public.
Corruption continues to undermine growth and investment in the ROC, despite the existence of a strong-anti corruption framework. Ninety-five percent of Cypriots think the problem of corruption is widespread in their country, compared to an average of 71 percent in the EU, according to a Eurobarometer survey on corruption conducted by the European Commission in December 2019. In the same survey, 60 percent of Cypriots said they were personally affected by corruption in their daily life, compared to an average of just 26 across the EU. Perhaps even more alarmingly, a 69 percent majority of Cypriots said they thought the level corruption had increased in the past three years, against 42 percent in the EU, who thought the same for their countries. Cypriots put political parties at the top of their list of groups they thought perpetrated corruption (at 63 percent), followed by the healthcare system (59 percent), the police/customs (53 percent), and officials awarding public tenders (52 percent). The Eurobarometer survey for Cyprus can be accessed at: https://ec.europa.eu/cyprus/news/20200610_3_en. Corruption, both in the public and private sectors, constitutes a criminal offense. Under the Constitution, the Auditor General controls all government disbursements and receipts and has the right to inspect all accounts on behalf of the Republic, and fear of the Auditor General’s scrutiny is widespread. Government officials sometimes manage procurement efforts with greater concern for the Auditor General than for getting the best outcome for the taxpayer. Private sector concerns focus on the inertia in the system, as reflected in the Auditor General’s annual reports, listing hundreds of alleged incidents of corruption and mismanagement in public administration that usually remain unpunished or unrectified.
Transparency International, the global anti-corruption watchdog, ranked Cyprus 42nd out of 180 countries in its 2020 Corruption Perception Index. For reference, please see: https://www.transparency.org/country/CYP. Disagreements between the Berlin-based headquarters of Transparency International and its Cypriot division in 2017 led to the dis-accreditation of the latter in 2017 and the launch of a successor organization on the island called the Cyprus Integrity Forum (contact details follow).
GAN Integrity, a business anti-corruption portal with offices in the United States and Denmark, released a report on corruption in Cyprus April 2018 noting the following: “Although Cyprus is generally free from corruption, high-profile corruption cases in recent years have highlighted the presence of corruption risks in the Cypriot banking sector, public procurement, and land administration sector. Businesses may encounter demands for irregular payments, but the government has established a strong legal framework to combat corruption and generally implements it effectively. Bribery, facilitation payments and giving or receiving gifts are criminal offenses under Cypriot law. The government has a strong anti-corruption framework and has developed effective e-governance systems (the Point of Single Contact and the e-Government Gateway project) to assist businesses.” The report can be accessed at: https://www.ganintegrity.com/portal/country-profiles/cyprus/.
Cyprus cooperates closely with EU and other international authorities to fight corruption and provide mutual assistance in criminal investigations. Cyprus ratified the European Convention on Mutual Assistance in Criminal Matters. Cyprus also uses the foreign Tribunal Evidence Law, Chapter 12, to execute requests from other countries for obtaining evidence in Cyprus in criminal matters. Additionally, Cyprus is an active participant in the Council of Europe’s Multidisciplinary Group on Corruption. Cyprus signed and ratified the Criminal Law Convention on Corruption and has joined the Group of States against Corruption in the Council of Europe (GRECO). GRECO’s second compliance report on Cyprus, released November 17, 2020, is available at: https://www.coe.int/en/web/greco/evaluations/cyprus.
Corruption in the area administered by Turkish Cypriots continues to be a major problem, mainly in the public sector, allegedly involving politicians, political parties, and bureaucrats.
Given its small size and disputed status, international anti-corruption organizations do not evaluate conditions in the north.
According to a 2019 Corruptions Perception Report carried out by Turkish Cypriot researchers at the Friedrich Ebert Stiftung (FES), a non-profit foundation funded by the German Government, an overwhelming 84 percent of Turkish Cypriot business people believe that corruption is a serious problem in the “TRNC” and 74 per cent think that corruption increased in the previous 12 months (see http://library.fes.de/pdf-files/bueros/zypern/17405.pdf). According to the report, Northern Cyprus scored 40 on a scale from zero to 100, where zero signifies the worst levels of perceived corruption and 100 the most rule-abiding states, and marked northern Cyprus 85th place according to Transparency International’s Corruption Perceptions Index among 180 jurisdictions. Corruption, both in the public and private sectors, constitutes a criminal offense. The “Audit Office” controls all disbursements and receipts and has the right to inspect all accounts. In its annual report, this office identifies specific instances of mismanagement or deviation from proper procedures and anecdotal evidence suggests corruption and patronage continue to be a factor in the economy. For more information, visit http://sayistay.gov.ct.tr.
10. Political and Security Environment
REPUBLIC OF CYPRUS
There have been no incidents of politically-motivated damage to foreign projects and or installations since 1974. U.S. companies have not been the target of violence. There were numerous relatively peaceful protests against the ROC government following the financial crisis of March 2013 and in response to the forced conversion of deposits into equity. Since then, protests against additional austerity measures have been fairly calm.
AREA ADMINISTERED BY TURKISH CYPRIOTS
There have been no incidents of politically-motivated damage to foreign projects and or installations since 1974. U.S. companies have not been the target of violence. Protests and demonstrations, usually targeting the “government,” are commonplace. They are generally peaceful and well-regulated; however, some demonstrations result in scuffles with police or minor damage to buildings.
11. Labor Policies and Practices
REPUBLIC OF CYPRUS
As an EU country, Cyprus has robust labor standards, safeguarding the freedom of association and the right to organize and bargain collectively. The Department of Labor Inspection and other bodies effectively guard against forced labor, child labor, employment discrimination, and secure acceptable working conditions with respect to minimum wage, occupational safety and health, and hours of work. There are several social safety net programs, including unemployment insurance.
Prior to the COVID-19 pandemic, the rate of unemployment in the ROC had been declining steadily, dropping from 16.1 percent in 2014 to 8.1 percent in Q3 2020 – at par with the Eurozone area. According to Eurostat, Cyprus has a tertiary education attainment level of 36.3 percent of the total population – well above the EU average of 26.7 percent, and one of the highest in the EU. Many of these graduates are from UK and U.S. colleges and universities, resulting in an abundant supply of English-speaking staff. Cyprus’s total labor force was estimated at 402,000 persons in 2020, broken down as follows: services, 77.8 percent; industry and construction, 19.5 percent; and agriculture, 2.7 percent. More women are joining the labor force and their percentage participation has risen from 33.4 percent in 1980 to 47.6 percent today. For information about hiring local employees, contact the Ministry of Labor and Social Insurance: www.mlsi.gov.cy/dlr . Applications for work permits for non-EU workers must be submitted to the Civil Registry and Migration Department by the intended employer and should be accompanied by a work contract stamped by the Ministry of Labor and Social Insurance. This ministry must certify that there are no available or adequately qualified Cypriots to carry out the work in question. For more info, please see: https://www.cyprusvisa.eu/cyprus-work-permit.html.
Cypriot labor law differentiates between layoffs and firing on redundancy grounds. In order to be eligible for redundancy pay, an employee must have worked in the same position for more than two years and must be laid off either due to: (a) budget constraints leading the employer to abolish the position, or (b) inability on the part of the employee to keep up with technological advances. Employees laid off by their employer are entitled to a redundancy payment depending on their length of service. Redundancy payments are equivalent to between two and four weeks of pay per year of service depending on length of service for up to 25 years, with a maximum of 75 weeks of pay or USD 64,350 (EUR 55,000) per employee, whichever is greater. Redundancy payments come out of a government fund, supported with employer and employee contributions. In addition to redundancy pay, a handful of employers, including banks and SOEs, offer severance pay to their employees, although this is not common in the private sector.
Some employers hire temporary workers or employ staff on personal contract to avoid hiring unionized labor, often offering less than the going rate under collective agreements. Similarly, some employers hire employees for a year in order to benefit from a wage subsidy of up to USD 1,290 (EUR 1,100) per month by the Human Resources Development Authority and then dismiss them as soon as the subsidy expires.
International companies are not required by law to hire union labor, but investors should be aware Cyprus tends to have strong unions in several sectors. As of March 2020, the percentage of the labor force belonging to unions was unofficially estimated at approximately 50 percent, compared to the EU average of approximately 33 percent. The unions remain vocal opponents to privatizations and general austerity measures.
ROC public sector working hours are 07:30 – 15:00, Monday to Friday.
Cyprus imposes a minimum wage for certain professions as follows (unchanged since March 2016):
Clerks/secretaries, sales assistants, paramedical, live-in maids/domestic helpers, school assistants/child-caregivers: USD 1,044 (EUR 870) per month, rising to USD 1,108 (EUR 924) after six months’ employment.
Security guards: USD 5.88 (EUR 4.90) per hour, rising to USD 6.24 (EUR 5.20) after six months’ employment.
Cleaning personnel: USD 5.46 (EUR 4.55) per hour, rising to USD 5.81 (EUR 4.84) after six months’ employment. Non-EU, live-in domestic servants have a separate minimum wage, set at USD 552 (EUR 460) per month, plus their room and board.
For all other professions, there is no minimum wage and wages are set by the employer and employee. Collective bargaining agreements between trade unions and employers cover most sectors of the economy. Wages set in these agreements are typically significantly higher than the legislated minimum wage.
Under the EU single market, EU citizens benefit from the right to free movement of workers. Employers are required to seek work visas for third-country nationals from the Civil Registry and Migration Department. The ROC caps the number of third-country nationals a company may employ. Some companies have noted seeking visas for their third-country national staff can be lengthy and cumbersome. Third-country nationals may visit the following sites for visa information on Cyprus: http://www.mfa.gov.cy/mfa/mfa2016.nsf/All/0E03E0EE9B9833EAC2258022003F023B?OpenDocument and http://cyprusvisa.eu/.
According to the 2019-2020 Turkish Cypriot Competitiveness Report published by the Turkish Cypriot Chamber of Commerce, the greatest obstacles to doing business was insufficiently trained workforce.
Reliable labor statistics are often difficult to obtain. The “State Planning Office” (“SPO”) estimated the total employed in 2020 was 132,885. The labor force in the area administered by Turkish Cypriots has a high per capita level of university graduates, including many from U.S. and European universities, and offers an abundant supply of white-collar workers. The unemployment rate was 10.1 percent as of December 2020. Women accounted for approximately 44 percent of the labor force. Around 10 percent of private sector workers and more than 65 percent of “semi-public” and “public sector” workers belong to labor unions. Workers are allowed to form and become members of unions. As of February 2020, the minimum wage was USD 575 (4,400 Turkish Lira) per month.
Foreign persons are required to obtain work permits through their employer. Foreign entities may import their key personnel from abroad and are also permitted to hire trainees and part-time workers. A full-time work week is 40 hours for “public sector” employees.
Private sector employees can work up to 8 hours a day. After 8 hours, employees can continue to work up to 4 hours of overtime a day. Overtime during weekdays is paid at 110 percent of the base rate. On weekends and holidays, overtime is paid at 150 percent of the base rate. Employees cannot work on Sundays unless there is an emergency, or an approval by labor authorities.
Workers are able to exercise their right to bargain collectively, mainly in the public sector. “Public sector” and “semi-public sector” employees benefit from collective bargaining agreements. The “law” provides for collective bargaining.
According to authorities, the majority of foreign workers are from Turkey and work in the service (hotel, restaurant, catering) and construction sectors.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data
Year
Amount
Year
Amount
Host Country Gross Domestic Product (GDP) ($M USD)
Direct Investment from/in Counterpart Economy Data, 2019
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
Total Inward
$451.4
100%
Total Outward
$460.6
100%
Russian Federation
$118.3
26.2%
Russian Federation
$160.6
34.8%
Luxembourg
$70.3
15.6%
Bermuda
$56.3
12.2%
Jersey
$31.7
7.0%
British Virgin Islands
$37.2
8.1%
British Virgin Islands
$22.1
4.9%
Bahamas
$34.2
7.4%
Netherlands
$20.1
4.5%
United Kingdom
$16.2
3.5%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets, 2019
Top Five Partners (Millions, current US Dollars)
Total
Equity Securities
Total Debt Securities
All Countries
$29,644
100%
All Countries
$15,169
100%
All Countries
$14,475
100%
Russian Fed.
$9,196
31.0%
Russian Fed.
$8,585
56.6%
Luxembourg
$1,190
8.2%
Luxembourg
$2,585
8.7%
Ireland
$1,413
9.3%
Ireland
$1,142
7.9%
Ireland
$2,555
8.6%
Luxembourg
$1,395
9.2%
Netherlands
$769
5.3%
United States
$1,892
6.4%
United States
$1,154
7.6%
France
$742
5.1%
France
$905
3.0%
Jersey
$232
1.5%
United States
$738
5.1%
14. Contact for More Information
George F. Demetriou
Economic Specialist
U.S. Embassy
Metochiou & Ploutarchou Streets
2407 Engomi
Nicosia, Cyprus
Tel: +357-22-393361
Email: DemetriouGF@state.gov
Denmark
Executive Summary
Denmark is one of the world’s leading foreign investment destinations and ranks highly in indices measuring political, economic, and regulatory stability. It is a member of the European Union (EU), and Danish legislation and regulations conform to EU standards on virtually all issues. It maintains a fixed exchange rate policy, with the Danish Krone linked closely to the Euro. Denmark is a social welfare state with a thoroughly modern market economy heavily driven by trade in goods and services. Given that exports account for about 55 percent of GDP, the economic conditions of its major trading partners – the United States, Germany, Sweden, and the UK – have a substantial impact on Danish national accounts.
Denmark is a net exporter of food, fossil fuels, chemicals, and wind power, but its manufacturing sector depends on raw material imports. Within the EU, Denmark is among the strongest supporters of liberal trade policy. Transparency International regularly ranks Denmark as having among the world’s lowest levels of perceived public sector corruption.
Denmark’s underlying macroeconomic conditions are healthy, and the investment climate is sound. Denmark is strategically situated to link continental Europe with the Nordic and Baltic countries. Transport and communications infrastructures are efficient. Denmark is among world leaders in high-tech industries such as information technology, life sciences, clean energy technologies, and shipping.
Denmark initiated several compensation schemes to blunt the worst of the economic fallout from the COVID-19 pandemic. By mid-April 2021, Denmark has committed up to 28.8 percent of GDP, or DKK 670 billion (USD 103 billion), in liquidity measures through postponed tax payments, loans and guarantees, and provided fiscal stimulus worth DKK 135 billion (USD 20.7 billion), which the Ministry of Finance estimate sustained 80,000 jobs, about three percent of the workforce. The Danish economy suffered a contraction of 3.3 percent of GDP in 2020. A protracted recovery is likely, and some business leaders call for longer-term measures to stimulate inward investment and support the export sector.
The entrepreneurial climate, including female-led entrepreneurship, is robust.
New legislation establishing a Foreign Investment Screening mechanism to ensure critical infrastructure integrity goes into effect on July 1, 2021Implementing regulations were in development when this report was published. The legislation does not apply to Greenland or to the Faroe Islands.
Note: Additional information on the investment climates in the constituent parts of the Kingdom of Denmark, Greenland and the Faroe Islands, can be found at the end of this report.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
As a small country with an open economy, Denmark is highly dependent on foreign trade and investment. Exports comprise the most significant component (55 percent) of GDP. The Economist Intelligence Unit (EIU) ranks Denmark as the world’s second-most attractive business location after Singapore and the leading nation in the Nordic region. The EIU characterizes Denmark’s business environment as among the most attractive globally, reflecting an excellent infrastructure, a friendly policy towards private enterprise and competition, low bureaucracy, and a well-developed digital sector. Principal concerns include low productivity growth, a high personal tax burden, and limited competition in the retail sector. Overall, however, operating conditions for companies are broadly favorable. Denmark ranks highly in multiple categories, including its political and institutional environment, macroeconomic stability, foreign investment policy, private enterprise policy, financing, and infrastructure.
As of January 2021, the EIU rated Denmark an “AA” country on its Country Risk Service, with a stable outlook. Sovereign risk is rated “A,” and political risk “AAA.” Denmark ranked tenth out of 140 on the World Economic Forum’s 2019 Global Competitiveness Report, fourth on the World Bank’s 2020 Doing Business ranking, and seventh on the EIU 2020 Democracy Index. Denmark has an AAA rating from Standard & Poor’s, Moody’s, and Fitch Group. “Invest in Denmark,” an agency of the Ministry of Foreign Affairs and part of the Danish Trade Council, provides detailed information to potential investors. Invest in Denmark has prioritized six sectors in its strategy to attract foreign investment: Tech, Cleantech, Life Science, Food, Maritime, and Design & Innovation. The website for the agency is www.investindk.com.
Corporate tax records of all companies, associations, and foundations that pay taxes in Denmark were made public beginning in December 2012 and are updated annually. The corporate tax rate is 22 percent.
Limits on Foreign Control and Right to Private Ownership and Establishment
As an EU member state, Denmark is bound by EU rules on the free movement of goods, capital, persons, and certain services. Denmark welcomes foreign investment and does not distinguish between EU and other investors. There are no additional permits required by foreign investors, nor any reported bias against foreign companies from municipal or national authorities.
Denmark’s central and regional governments actively encourage foreign investment on a national-treatment basis, with relatively few foreign control limits. The Danish government has presented legislation to establish a foreign investment screening mechanism, which is expected to come into force on July 1, 2021.
A foreign or domestic private entity may freely establish, own, and dispose of a business enterprise in Denmark. The capital requirement for establishing a corporation (Aktieselskab A/S) or Limited Partnership (Partnerselskab P/S) is DKK 400,000 (approx. USD 61,000) and for establishing a private limited liability company (Anpartsselskab ApS) DKK 40,000 (approx. USD 6,100).
As of April 15, 2019, it is no longer possible to set up an “Entrepreneurial Company” (IVS). This company type, which required a starting capital of only DKK 1 (USD 0.15), was structured to allow entrepreneurs a cheap and straightforward way to incorporate with limited liability. Due to repeated instances of fraud and unintended use of the IVS, this vehicle was abolished within Denmark but is still available in Greenland. In 2019, the capital requirements to set up a Private Limited Company were lowered, which brought Denmark more in line with other Scandinavian countries. No restrictions apply regarding the residency of directors and managers.
Since October 2004, any private entity may establish a European public limited company (SE company) in Denmark. The legal framework of an SE company is subject to Danish corporate law, but it is possible to change the nationality of the company without liquidation and re-founding. An SE company must be registered at the Danish Business Authority if its official address is in Denmark. The minimum capital requirement is EUR 120,000 (approx. USD 137,000).
Danish professional certification and/or local Danish experience are required to provide professional services in Denmark. In some instances, Denmark may accept equivalent professional certification from other EU or Nordic countries on a reciprocal basis. EU-wide residency requirements apply to the provision of legal and accountancy services.
Ownership restrictions apply to the following sectors:
Oil and Gas: Requires 20 percent Danish government participation on a “non-carried interest” basis.
Defense: The Minister of Justice must approve foreign investment in defense companies doing business in Denmark if such investment exceeds 40 percent of the equity or more than 20 percent of the voting rights, or if the investment gives the foreign interest a controlling share. This approval is generally granted unless there are security or other foreign policy considerations weighing against approval.
Maritime Services: There are foreign (non-EU resident) ownership requirements on Danish-flagged vessels other than those owned by an enterprise incorporated in Denmark. Ships owned by Danish citizens, Danish partnerships, or Danish limited liability companies are eligible for registration in the Danish International Ships Register (DIS). Vessels owned by EU or European Economic Area (EEA) entities with a genuine, demonstrable link to Denmark are also eligible for registration. Foreign companies with a significant Danish interest can register a ship in the DIS.
Civil Aviation: For an airline to be established in Denmark, it must have majority ownership and be effectively controlled by an EU state or a national of an EU state, unless otherwise provided for through an international agreement to which the EU is a signatory.
Financial Services: Non-resident financial institutions may engage in securities trading on the Copenhagen Stock Exchange only through subsidiaries incorporated in Denmark.
Real Estate: Ownership of holiday homes, also known as summer houses, is restricted to Danish citizens. Such homes are generally located along the Danish coastline and may not be used as full-year residences. On a case-by-case basis, the Ministry of Justice may waive the citizenship requirement for those with close familial, linguistic, cultural, or other close connections to Denmark or the specific property. In general, EU and EEA citizens may purchase full-year residential property or real estate that supports self-employment without obtaining prior authorization from the Ministry of Justice. Companies domiciled in an EU or an EEA Member State that have set up or will set up subsidiaries or agencies or will provide services in Denmark may, in general, also purchase real property in Denmark without prior authorization. Non-EU/EEA citizens must obtain authorization from the Ministry of Justice to purchase real estate in Denmark, which is generally granted to those with permanent residence in Denmark or who have lived in Demark for a consecutive period of five years.
Other Investment Policy Reviews
The most recent United Nations Conference on Trade and Development (UNCTAD) review of Denmark occurred in March 2013 and is available here: unctad.org/en/PublicationsLibrary/webdiaeia2013d2_en.pdf. There is no specific mention of Denmark in the latest WTO Trade Policy Review of the European Union, revised in December 2019.
Denmark ranked first out of 180 in Transparency International’s 2020 Corruption Perceptions Index. It received a ranking of four out of 190 for “Ease of Doing Business” in the World Bank’s 2020 Doing Business Report, placing it first in Europe. In the World Economic Forum’s Global Competitiveness report for 2019, Denmark was ranked 10 out of 141 countries.
The World Intellectual Property Organization’s (WIPO) Global Innovation Index ranked Denmark 6 out of 131 in 2020.
Business Facilitation
The Danish Business Authority (DBA) is responsible for business registrations in Denmark. As a part of the Danish Business Authority, “Business in Denmark,” provides information on relevant Danish rules and online registrations to foreign companies in English. The Danish business registration website, www.virk.dk, is the principal digital tool for licensing and registering companies in Denmark and offers a business registration process that is clear and complete.
Registration of sole proprietorships and partnerships is free of charge. For other types of businesses, online registration costs DKK 670 (approx. USD 103). Registration by email or post costs DKK 2150 (approx. USD 329).
The process for establishing a new business is distinct from that of registration. The Ministry of Foreign Affairs’ “Invest in Denmark” program provides a step-by-step guide to establishing a business at www.investindk.com/-/media/invest-in-denmark/publications/business-conditions/investindk-fact-sheet-step-by-step-web.ashx, along with other relevant resources at . The services are free of charge and available to all investors, regardless of country of origin.www.investindk.com/Downloads. The services are free of charge and available to all investors, regardless of country of origin.
Processing time for establishing a new business varies depending on the chosen business entity. Establishing a Danish Limited Liability Company (ApS), for example, generally takes four to six weeks for a standard application. Establishing a sole proprietorship (Enkeltmandsvirksomhed) is more straightforward, with processing generally taking about one week.
Those providing temporary services in Denmark must provide their company details to the Registry of Foreign Service Providers (RUT). The website (www.virk.dk) provides English guidance on registering a service with RUT. A digital employee’s signature, referred to as a NemID, is required for those wishing to register a foreign company in Denmark. A CPR number (a 10-digit personal identification number) and valid ID are needed to obtain a NemID. Danish citizenship is not a requirement.
Denmark defines small enterprises as those with fewer than 50 employees. Annual revenue or the yearly balance sheet total must be lower than DKK 89 million (approx. USD 13.6 million) or DKK 44 million (approx. USD 6.7 million), respectively. Medium-sized enterprises cannot have more than 250 employees. Limits on annual revenue or the yearly balance sheet total are DKK 313 million (approx. USD 47.9 million) or DKK 156 million (approx. USD 23.9 million).
Outward Investment
Danish companies are not restricted from investing abroad, and Danish outward investment has exceeded inward investments for more than a decade.
3. Legal Regime
Transparency of the Regulatory System
Denmark’s judicial system is highly regarded and considered fair. Its legal system is independent of the government’s legislative branch and includes written and consistently applied commercial and bankruptcy laws. Secured interests in property are recognized and enforced. The World Economic Forum’s (WEF) 2019 Global Competitiveness Report ranked Denmark as the world’s tenth most competitive economy and fourth among EU member states, characterizing it as having among the best functioning and most transparent institutions in the world. Denmark ranks high on specific WEF indices related to macroeconomic stability (1st), labor market (3rd), business dynamism (3rd), institutions (7th), ICT adoption (9th), and skills (3rd).
To facilitate business administration, Denmark maintains only two “legislative days” per year—January 1 and July 1—as the only days when new laws and regulations affecting the business sector can come into effect. Danish laws and policies granting national treatment to foreign investments are designed to increase FDI in Denmark. Denmark consistently applies high standards to health, environment, safety, and labor laws. Danish corporate law is generally in conformity with current EU legislation. The legal, regulatory, and accounting systems are relatively transparent and follow international standards.
Bureaucratic procedures are streamlined and transparent; proposed laws and regulations are published in draft form for public comment. Public finances and debt obligations are transparent.
The Ministry of Taxation publishes and updates annually all companies’ corporate tax records. Greenland and the Faroe Islands retain autonomy for their respective tax policies.
The government uses transparent policies and effective laws to foster competition and establish “clear rules of the game,” consistent with international norms and applicable equally to Danish and foreign entities. The Danish Competition and Consumer Authority works to make markets well-functioning so that businesses compete efficiently on all parameters. The Authority is a government agency under the Danish Ministry of Industry, Business, and Financial Affairs. It enforces the Danish Competition Act. This Act, along with Danish consumer legislation, aims to promote efficient resource allocation in society, promote efficient competition, create a level playing field for enterprises, and protect consumers.
Publicly listed companies in Denmark must adhere to the Danish Financial Statements Act when preparing their annual reports. The accounting principles are International Accounting Standards (IAS), International Financial Reporting Standards (IFRS), and Danish Generally Accepted Accounting Principles (GAAP). Financial statements must be prepared annually. The Danish Financial Statements Act covers all businesses.
Private limited companies, public limited companies, and corporate funds are obliged to prepare financial statements under accounting classes determined by company size:
Small businesses (Class B): Less than an annual average of 50 full-time employees and total assets not exceeding DKK 44 million (USD 6.7 million) or net revenue not exceeding DKK 89 million (USD 13.6 million) during the fiscal year.
Medium-sized enterprises (Class C medium): Less than an annual average of 250 full-time employees and total assets not exceeding DKK 156 million (USD 23.9 million) or net revenue not exceeding DKK 313 million (USD 47.9 million) during the fiscal year.
Large companies (Class C large): Companies that are neither small nor medium companies.
According to the Danish Financial Statements Act, personally owned businesses, personally owned general partnerships (multiple owners), and general funds are characterized as Class A; there is no requirement to prepare financial statements unless the owner voluntarily chooses to do so.
All government draft proposed regulations are published at “Høringsportalen” (www.hoeringsportalen.dk) and are available for comment from interested parties. Following the comment period, the government may revise draft regulations before publication on the Danish Parliament’s website (www.ft.dk). Final regulations are published at www.lovtidende.dk and www.ft.dk. All ministries and agencies are required to publish proposed regulations. Denmark has a World Bank composite score of 4.75″ for the Global Indicators of Regulatory Governance, on a zero to five scale. Concerning governance, the World Bank suggests the following areas for improvement:
Affected parties cannot request reconsideration or appeal adopted regulations to the relevant administrative agency.
There is no existing requirement that regulations be periodically reviewed to see whether they should be revised or eliminated.
International Regulatory Considerations
Denmark adheres to the WTO Agreement on Trade-Related Investment Measures (TRIMs); no inconsistencies have been reported.
Legal System and Judicial Independence
Denmark’s decision-making power is divided into the legislative, executive, and judicial branches. The principles of separation of power and an independent judiciary help ensure democracy and Danish citizens’ legal rights. The district courts, the high courts, and the Supreme Court represent the Danish legal system’s three basic levels. The legal system also comprises other institutions with special functions, e.g., the Maritime and Commercial Court.
The government agency “Invest in Denmark” is part of the Danish Trade Council and is situated within the Ministry of Foreign Affairs. The agency provides detailed information to potential investors. The website for the agency is investindk.com. The Faroese government promotes Faroese trade and investment through its website faroeislands.fo/economy-business. For further information concerning Greenland’s investment potential, please see Greenland Holding at www.venture.gl or the Greenland Tourism & Business Council at visitgreenland.com.
As an EU member state, Denmark is bound by EU rules on the free movement of goods, capital, persons, and certain services. Denmark welcomes foreign investment and does not distinguish between EU and other investors. There are no additional permits required of foreign investors, nor any reported biases against foreign companies from municipal or national authorities.
The Danish government has presented legislation to establish a foreign investment screening mechanism, which is expected to enter into force on July 1, 2021. The screening mechanism would be in line with the EU investment screening framework encouraging member states to screen foreign investments in critical infrastructure and other sensitive sectors.
Competition and Anti-Trust Laws
The Danish Competition and Consumer Authority (CCA) reviews transactions for competition-related concerns. According to the Danish Competition Act, the CCA requires notification of mergers and takeovers if the aggregate annual revenue in Denmark of all undertakings involved is more than DKK 900 million (USD 137.7 million) and the aggregate yearly revenue in Denmark of each of at least two of the undertakings concerned is more than DKK 100 million (USD 15.3 million), or if the aggregate annual revenue in Denmark of at least one of the undertakings involved is more than DKK 3.8 billion (USD 581.5 million) and the aggregate yearly worldwide revenue of at least one of the other undertakings concerned is more than DKK 3.8 billion (581.5 million). When a merger results from the acquisition of parts of one or more undertakings, the calculation of the revenue referred to shall only comprise the share of the revenue of the seller or sellers that relates to the assets acquired. Merger control provisions are contained in Part Four of the Danish Competition Act and in the Executive Order on the Notification of Mergers. Revenue is calculated under the Executive Order on the Calculation of Turnover in the Competition Act.
A full notification of a merger must include the information and documents specified in the full notification form, Annex 1 – Information for Full Notification of Mergers. A simplified notification of a merger must include the information and documents specified in the simplified notification form, Annex 2 – Information for Simplified Notification of Mergers. From August 1, 2013, merger fees are payable for merger notifications submitted to the Competition and Consumer Authority. The fee for a simplified notification amounts to DKK 50,000 (USD 7,650). The fee for a full notification amounts to 0.015 percent of the aggregate annual turnover in Denmark of the undertakings involved; this fee is capped at DKK 1,500,000 (USD 230,000).
A merger or takeover is subject to approval by the CCA. Large-scale mergers also require approval from EU competition authorities.
Expropriation and Compensation
By law, private property can only be expropriated for public purposes, in a non-discriminatory manner, with reasonable compensation, and under established principles of international law. There have been no recent expropriations of significance in Denmark.
Dispute Settlement
ICSID Convention and New York Convention
There have been no significant investment disputes in Denmark in recent years. Denmark has been a member of the World Bank-based International Center for the Settlement of Investment Disputes (ICSID) since 1968. The ICSID Convention has been extended to include the Faroe Islands. Denmark is a party to the 1958 (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning local courts must enforce international arbitration awards that meet specific criteria. Subsequent Danish legislation makes international arbitration of investment disputes binding in Denmark. Denmark declared in 1976 that the New York Convention applies to the Faroe Islands and Greenland. Denmark is a party to the 1961 European Convention on International Commercial Arbitration and to the 1962 Agreement relating to the application of this Convention. Denmark adopted the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration in 1985.
Investor-State Dispute Settlement
N/A
International Commercial Arbitration and Foreign Courts
N/A
Bankruptcy Regulations
Monetary judgments under the bankruptcy law are made in freely convertible Danish Kroner. The bankruptcy law addresses creditors’ claims in the following order: (1) costs and debt accrued during the treatment of the bankruptcy; (2) costs, including the court tax, relating to attempts to find a solution other than bankruptcy; (3) wage claims and holiday pay; (4) excise taxes owed to the government; and (5) all other claims. In the World Bank’s 2020 Doing Business Report, Denmark ranks 6th in “resolving insolvency.”
5. Protection of Property Rights
Real Property
Property rights in Denmark are well protected by law and in practice. Real estate is chiefly financed through the well-established Danish mortgage bond credit system, the security of which compares to that of government bonds. To comply with the covered bond definition in the EU Capital Requirements Directive (CRD), the Danish mortgage banking regulation was amended effective July 1, 2007. With the amended Danish mortgage banking regulation, commercial banks now have the same opportunities as mortgage banks and ship-financing institutions to issue covered bonds. Only issuers that have been granted a license from the Danish Financial Supervisory Authority (FSA) are permitted to issue Danish covered bonds.
Secured interests in property are recognized and enforced in Denmark. All mortgage credits in real estate are recorded in local public registers of mortgages. Except for interests in cars and commercial ships, which are also publicly recorded, other property interests are generally unrecorded. The local public registers are a reliable system of recording security interests. Denmark is ranked 11th in the World Bank’s Doing Business 2020 Report for its ease of “registering property.” Denmark ranked 10th out of 129 countries in the Property Rights Alliance’s International Property Rights Index 2020, and 6th in its region.
Intellectual Property Rights
Intellectual property rights (IPR) in Denmark are well protected and enforced. Denmark has ratified and adheres to key international conventions and treaties concerning protection of IPR , including the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and several treaties administered by the World Intellectual Property Organization (WIPO), including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty (PCT), the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty.
For additional information about national laws and points of contact at local IPR offices, please see WIPO’s country profiles at www.wipo.int/directory/en.
A list of attorneys in Denmark known to accept foreign clients can be found at dk.usembassy.gov/u-s-citizen-services/attorneys. This list of attorneys and law firms is provided by the American Embassy as a convenience to U.S. citizens. It is not intended to be a comprehensive list of attorneys in Denmark, and the absence of an attorney from the list is in no way a reflection on competence. A complete list of attorneys in Denmark, Greenland, and the Faroe Islands may be found at the Danish Bar Association web site: www.advokatnoeglen.dk.
8. Responsible Business Conduct
As an OECD member, Denmark promotes, through the Danish Business Authority, the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. Denmark’s National Contact Point can be reached at: mneguidelines.oecd.org/National-Contact-Points-Website-Contact-Details.pdf
From January 1, 2016, the largest companies must account for their responsible business conduct, including with respect to human rights and to reducing the climate impact of the company’s activities. Additionally, target figures for the gender composition of the Board of Directors, as well as policies for increasing the proportion of the underrepresented gender at the company’s management levels, must be reported (Danish Financial Statements Act, sections 99a and 99b). From January 2018, the mandate also applies to medium-sized businesses (exempting small- and micro-companies).
The Danish Business Authority published a National Action Plan to advance Corporate Social Responsibility (CSR) and Responsible Business Conduct (RBC) in Denmark in 2012, covering the 2012 – 2015 period. It contained 42 initiatives focusing on business-driven CSR. In October 2019, the government launched a public hearing process to “investigate how reporting can be made more comparable and create more transparency for the benefit of society and the companies themselves. The purpose is to increase transparency about whether companies are living up to their corporate social responsibility, that sustainable companies have better access to investment and that companies experience a positive value from their CSR reporting.” The government received recommendations in October 2020 and is working on new initiatives. The government hosts www.csrkompasset.dk/ (English language version www.csrcompass.com/ ), a free online tool that can help companies implement responsible supply chain management. The tool is targeted at small and medium-sized production, trade, and service companies. The structure of the CSR Compass and its advice and guidelines are in line with national and international trends and best practice standards, including the UN Global Compact, OECD’s guidelines for multinational companies, Business for Social Responsibility (BSR), the Business Social Compliance Initiative (BSCI), the Danish Ethical Trading Initiative (DIEH), and the Danish Council on Corporate Social Responsibility’s guidelines for responsible supply chain management.
Denmark is a signatory of the Montreux Document on Private Military and Security Companies.
Denmark is perceived as the least corrupt country in the world according to the 2020 Corruption Perceptions Index by Transparency International, which has local representation in Denmark. The Ministry of Justice is responsible for combating corruption, which is covered under the Danish Penal Code. Penalties for violations range from fines to imprisonment of up to four years for a private individual’s involvement and up to six years for a public employee’s involvement. Since 1998, Danish businesses cannot claim a tax deduction for the cost of bribes paid to officials abroad.
Denmark is a signatory to the OECD Convention on Combating Bribery, the UN Anticorruption Convention, and a participating member of the OECD Working Group on Bribery. In the Working Group’s 2015 Phase 3 follow-up report on Denmark, the Working Group concluded “that Denmark has partially implemented most of its Phase 3 recommendations. However, concerns remain over Denmark’s enforcement of the foreign bribery offence.”
Resources to Report Corruption
Resources to which corruption may be reported:
The Danish State Prosecutor for Serious Economic and International Crime
Kampmannsgade, 11604 København V
Phone: +45 72 68 90 00
Fax: +45 45 15 01 19
Email: saoek@ankl.dk
Transparency International Danmark
c/o CBS
Dalgas Have 15, 2. sal, lokale 2c008
2000 Frederiksberg
The Secretariat is manned by Rosa Bisgaard and Oliver Kofod Nørgård, who can be reached at sekretariatet@transparency.dk
Contact at Embassy Copenhagen responsible for combating corruption:
Aaron Daviet
Political Officer
U.S. Department of State
Dag Hammarskjolds Alle 24, 2100 Copenhagen, Denmark
+45 3341 7100 CopenhagenICS@state.gov
10. Political and Security Environment
Denmark is a politically stable country. Incidents involving politically motivated damage to projects or installations are very rare. The EIU rates Denmark “AAA” for political risk.
11. Labor Policies and Practices
The Danish labor force is generally well-educated and efficient. English language skills are good, and English is considered a natural second language among a very high proportion of Danes. The labor market is stable and flexible. U.S. companies operating in Denmark have indicated that Danish rules on hiring and firing employees generally enable employers to adjust the workforce quickly to changing market conditions.
The Danish labor force amounted to approximately 2.86 million people at the end of 2020. Of these, 891,000 (Q4, 2019) are employed in the public sector. Denmark’s OECD-harmonized unemployment rate was 6.1 percent in February 2021, lower than the EU-27’s rate of 7.5 percent and OECD average of 6.66 percent.
The public sector in Denmark is large and accounts for about 25 percent of the labor force. The labor force participation rate for women is among the highest in the world. In 2019, 75.6 percent of working-age women participated in the labor force, and the employment rate was 72.9 percent. The working-age male labor force participation rate and employment rate were 79.2 percent and 76.7 percent, respectively.
The Danish labor force is highly organized, with approximately 75 percent belonging to a union. Labor disputes and strikes occur only sporadically. In general, private sector labor/ management relations are excellent, based on dialogue and consensus rather than confrontation. Working conditions are established through a complex system of legislation and organizational agreements, where most aspects of wage and working conditions are determined through collective bargaining rather than legislation.
The contractual work week for most wage earners is 37.5 hours. By law, employees are entitled to five weeks of paid annual leave. In practice, most of the labor force has the right to six weeks of paid annual leave, gained through other labor market agreements.
Denmark has well-functioning unemployment insurance and sick-pay schemes, self-financed or financed by the state. Maternity leave in Denmark is 52 weeks, 18 of which are reserved for the mother (four weeks prior to birth, 14 after) and two for the father, while the remainder may be divided between the parents as they see fit. Employers are obliged to pay salary for at least 14 weeks, while the government supports the rest of the leave. Forthcoming EU legislation will earmark eight of the 52 weeks’ leave to fathers. The legislation is expected to be enacted in member states before 2022.
Danish wages are high by international standards and have prompted the use of capital-intensive technologies in many sectors. Some investors report that the high average wage level is detrimental to Danish competitiveness. Although high wages and generous benefits, including time off, reduce competitiveness, high productivity and low direct costs to employers can result in per employee costs that are lower than in other industrialized countries. Nominal wages increased by 2.3 percent from Q4 2019 to Q4 2020, while inflation was 0.4 percent, enhancing real wage increases. Nominal wages were forecast to increase significantly annually towards 2022, but the current situation makes forecasts highly uncertain.
Generally, personal income tax rates in Denmark are among the highest in the world. However, foreign employees making more than an amount specified annually by the Danish Immigration Service and certain researchers may choose to be subject to a 27 percent income tax rate, plus a labor market contribution amounting to 32.84 percent income tax in the first seven years of working in Denmark. Certain conditions must be fulfilled for key employees to be eligible for the 27 percent tax rate: for example, since January 1, 2020, wages must total at least DKK 69,600 (USD 10,650) per month before the deduction of labor market contributions and after Danish labor market supplementary pension contributions. There are also limits based on an individual’s previous work history in the Danish labor market. Compared with the general Danish progressive income tax system, this is an attractive incentive. Further information can be obtained from Danish embassies or from the Danish Immigration Service (www.nyidanmark.dk).
Danish work permits are not required for citizens of EU countries. U.S. companies have reported that in general, work permits for foreign managerial staff may be readily obtained. However, permits for non-managerial workers from countries outside the EU and the Nordic countries are granted only if substantial professional or labor-related conditions warrant. Special rules detailed by the Danish Immigration Service in its “Positive List Scheme” apply to certain professional fields experiencing a shortage of qualified manpower. The list is updated twice annually. Foreigners who have been hired in the designated fields will be immediately eligible for residence and work permits. The minimum educational level required for a position on the Positive List is a Professional Bachelor’s degree, e.g., pedagogue. In some cases, a Danish authorization must be obtained. This is explicitly stated on the Positive List. (E.g., non-Danish trained doctors must be authorized by the Danish Patient Safety Authority.) Professions covered by the Positive List Scheme included engineers, scientists, doctors, nurses, IT specialists, marine biologists, lawyers, accountants and a wide range of other master’s or bachelor’s degree positions. As of 2021, the Pay Limit Scheme extends to positions with an annual pay of no less than DKK 445,000 (USD 68,100), regardless of the field or specific nature of the job. Persons who have been offered a highly paid job have particularly easy access to the Danish labor market through the Pay Limit Scheme. The length of work and residence permits granted under the Pay Limit Scheme depends on the length of the employment contract in Denmark. For permanent employment contracts, work permits are granted for an initial period of four years. After this period, the permit can be extended if the same job is held. There are several other schemes meant to make it easier for certified companies to bring employees with special skills or qualifications to Denmark. These schemes vary in duration and requirements.
Danish immigration law also allows issuance of residency permits of up to 18 months duration based on an individual evaluation, using a point system based on education, language skills and adaptability.
Denmark has ratified all eight ILO Core Conventions and been an ILO member since 1919.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Denmark
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data
Year
Amount
Year
Amount
Host Country Gross Domestic Product (GDP) ($M USD)
UNCTAD data available atunctad.org/topic/investment/world-investment-report
* Source for Host Country Data: Statistics Denmark ( www.dst.dk )
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
Total Inward
185,100
100%
Total Outward
283,461
100%
Sweden
26,300
14.2%
United States
37,351
13.2%
Netherlands
18,700
10.1%
United Kingdom
37,259
13.1%
Norway
18,200
9.8%
Sweden
36,493
12.9%
United Kingdom
18,100
9.8%
Germany
30,674
10.8%
United States
16,500
8.9%
Singapore
16,631
5.9%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total
Equity Securities
Total Debt Securities
All Countries
567,534
100%
All Countries
336,821
100%
All Countries
230,712
100%
United States
179,992
32%
United States
139,607
41%
Germany
52,776
23%
Germany
64,051
11%
Luxembourg
37,372
11%
United States
40,385
18%
Luxembourg
40,298
7%
Ireland
25,949
8%
Sweden
23,818
10%
Ireland
35,464
6%
United Kingdom
19,355
6%
France
11,276
5%
Sweden
32,168
6%
Japan
13,159
4%
Ireland
9,515
4%
14. Contact for More Information
Kristen Stolt
Economic Officer
U.S. Embassy Denmark
Dag Hammarskjölds Alle 24,
2100 Copenhagen, Denmark
Email: CopenhagenICS@state.gov
Estonia
Executive Summary
Estonia is a safe and dynamic country for investment, with a business climate very similar to the United States. As a member of the EU, the Government of Estonia (GOE) maintains liberal policies in order to attract investments and export-oriented companies. Creating favorable conditions for foreign direct investment (FDI) and openness to foreign trade has been the foundation of Estonia’s economic strategy. The overall freedom to conduct business in Estonia is well protected under a transparent regulatory environment.
Estonia is among the leading countries in Eastern and Central Europe regarding FDI per capita. At the end of 2020, Estonia had attracted in total USD 32 billion (stock) of investment, of which 30 percent was made into the financial sector, 18 percent into real estate, 13 percent into science and technology, and 11 percent into manufacturing. United States FDI stock in Estonia is USD 417 million, and Estonian FDI stock in United States totals USD 322 million.
Estonia’s government has not yet set limitations on foreign ownership, and foreign investors are treated on an equal footing with local investors. However, the government is currently developing a framework to screen incoming FDI, which could have some impact on foreign investments. There are no investment incentives available to foreign investors.
Foreign investors have not faced significant challenges with corruption, though Estonia has had some local cases.
The Estonian income tax system, with its flat rate of 20 percent, is considered one of the simplest tax regimes in the world. Deferral of corporate taxation payment shifts the time of taxation from the moment of earning the profits to that of their distribution. Undistributed profits are not subject to income taxation, regardless of whether these are reinvested or merely retained.
Estonia offers opportunities for businesses in a number of economic sectors like information and communication technology (ICT), green energy, wood processing, and biotechnology. Estonia has strong trade ties with Finland, Sweden, and Germany.
Estonia suffers a shortage of labor, both skilled and unskilled.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Estonia is currently open for FDI and foreign investors are treated on an equal footing with local investors, though the government is developing a screening mechanism to adhere to the EU Foreign Investment Screening Regulation (https://eur-lex.europa.eu/eli/reg/2019/452/oj) that entered into force on April 10, 2019. This new regulation is applicable from October 11, 2020 and creates an information-sharing mechanism between Member States and allows Member States and the European Commission to comment on foreign investments foreseen in other Member States.
The Estonian Investment Agency (EIA), a part of Enterprise Estonia, is a government agency promoting foreign investments in Estonia and assisting international companies in finding business opportunities in Estonia. EIA offers comprehensive, one-stop investment consultancy services, free of charge. The agency’s goal is to increase awareness of business opportunities in Estonia and promote the image of Estonia as an attractive country for investments. More info: http://www.investinestonia.com/en/estonian-investment-agency/about-the-agency
Limits on Foreign Control and Right to Private Ownership and Establishment
Estonia’s government has not set limitations on foreign ownership. Licenses are required for foreign investors to enter the following sectors: mining, energy, gas and water supply, railroad and transport, waterways, ports, dams and other water-related structures and telecommunications and communication networks. The Estonian Financial Supervision Authority issues licenses for foreign interests seeking to invest in or establish a bank. Additionally, the Estonian Competition Authority reviews transactions for anti-competition concerns. Government review and licensing have proven to be routine and non-discriminatory.
As a member of the EU, the Government of Estonia (GOE) maintains liberal policies in order to attract investment and export-oriented companies. Creating favorable conditions for FDI and openness to foreign trade has been the foundation of Estonia’s economic strategy. Existing requirements are not intended to restrict foreign ownership but rather to regulate it and establish clear ownership responsibilities.
Other Investment Policy Reviews
Since becoming a member of the EU, Estonia is included in WTO Trade Policy Reviews (TPRs) of the EU/EC. The fourteenth review of the trade policies and practices of the European Union took place in February 2020. Full report available here: WTO | Trade policy review -European Union (formerly EC) 2020.
Business Facilitation
The World Bank’s Ease of Doing Business report ranks Estonia in 18th place out of 190 countries on the ease of Starting a Business. Economic freedom, ease of doing business, per capita investments, low national debt, euro zone membership, and low corruption scores – all these factors play a role in fostering a good climate for business facilitation.
In Estonia there are two ways to register your business:
On July 1, 2014, an amended Taxation Act establishing the employment register entered into force, requiring all natural and legal employers to register the persons employed by them with the Estonian Tax and Customs Board. The company must register itself as a value-added taxpayer if the taxable turnover of the company, excluding imports of goods, exceeds EUR 40,000 as calculated from the beginning of the calendar year.
There are certain areas of activity (like construction, electrical works, fire safety, financial services, security services, etc.) in which business operation requires an additional registration in the Register of Economic Activities (MTR), but this can be done after registration of the company in the Commercial Register: https://mtr.mkm.ee/
Outward Investment
Estonia does not restrict domestic investors from investing abroad nor does it promote outward investment. Estonia companies have invested abroad about USD 10 billion, mostly into EU countries. The main sectors for outward investments are services, manufacturing, real estate and financial.
2. Bilateral Investment Agreements and Taxation Treaties
Estonian BITs with third countries are available at the following link:
A Bilateral Taxation Treaty with the U.S. came into force on January 1, 2000. The United States and Estonia signed a Foreign Account Tax Compliance Act (FATCA) agreement in April 2014.
The Government of Estonia has set transparent policies and effective laws to foster competition and establish “clear rules of the game.” Despite these measures, due to the small size of Estonia’s commercial community, instances of favoritism are not uncommon.
Accounting, legal, and regulatory procedures are transparent and consistent with international norms. Financial statements should be prepared in accordance with either:
accounting principles generally accepted in Estonia; or
International Financial Reporting Standards (IFRS) as adopted by the EU.
Listed companies and financial institutions are required to prepare financial statements in accordance with IFRS as adopted by the EU.
The Estonian Generally Accepted Accounting Principles (GAAP) are written by the Estonian Accounting Standards Board (EASB). Estonian GAAP, effective since 2013, is based on IFRS for Small and Medium-sized Entities (IFRS for SMEs) with limited differences from IFRS for SMEs with regard to accounting policies as well as disclosure requirements. More info: https://investinestonia.com/business-in-estonia/establishing-company/accounting-requirements/
The Minister of Justice has responsibility for promoting regulatory reform. The Legislative Quality Division of the Ministry of Justice provides an oversight and coordination function for Regulatory Impact Analysis (RIA) and evaluations with regards to primary legislation. For government strategies, EU negotiations and subordinate regulations, oversight responsibilities lie within the Government Office.
The government of Estonia has placed a strong focus on accessibility and transparency of regulatory policy by making use of online tools. There is an up-to-date database of all primary and subordinate regulations (https://www.riigiteataja.ee/en/) in an easily searchable format. An online information system tracks all legislative developments and makes available RIAs and documents of legislative intent (http://eelnoud.valitsus.ee/main). Estonia also established the website www.osale.ee, an interactive website of all ongoing consultations where every member of the public can submit comments and review comments made by others. Regulations are reviewed on the basis of scientific and data-driven assessments.
Estonia, an OECD member country, has committed at the highest political level to an explicit whole-of-government policy for regulatory quality and has established sufficient regulatory oversight. Estonia scores the same as the United States on the World Bank`s Global Indicators of Regulatory Governance on whether governments publish or consult with public about proposed regulations: http://rulemaking.worldbank.org/en/data/explorecountries/estonia Estonia’s widely-praised “e-governance” solutions and other bureaucratic procedures are generally far more streamlined and transparent than those of other countries in the region and are among the easiest to use globally. In addition, Estonia’s budget and debt obligations are widely and easily accessible to the general public on the Ministry of Finance website.
International Regulatory Considerations
Estonia is a member of the EU. An EU regulation is a legal act of the European Union that becomes immediately enforceable as law in all member states simultaneously. Regulations can be distinguished from directives which, at least in principle, need to be transposed into national law. Regulations can be adopted by means of a variety of legislative procedures depending on their subject matter. European Standards are under the responsibility of the European Standardization Organizations (CEN, CENELEC, ETSI) and can be used to support EU legislation and policies.
Estonia has been a member of WTO since November 13, 1999. Estonia is a signatory to the Trade Facilitation Agreement (TFA) since 2015.
Legal System and Judicial Independence
Estonia’s judiciary is independent and insulated from government influence. The legal system in Estonia is based on the Continental European civil law model and has been influenced by the German legal system. In contrast to common law countries, Estonia has detailed codifications.
Estonian law is divided into private and public law. Generally, private law consists of civil law and commercial law. Public law consists of international law, constitutional law, administrative law, criminal law, financial law, and procedural law.
Estonian arbitral tribunals can decide in cases of civil matters that have not previously been settled in court. More on Estonian court system: https://www.riigikohus.ee/en. Arbitration is usually employed because it is less time consuming and cheaper than court settlements. The following disputes can be settled in arbitral tribunals:
Estonia is part of the Continental European legal system (civil law system). The most important sources of law are legal instruments such as the Constitution, European Union law, international agreements and Acts and Regulations. Major laws affecting incoming foreign investment include the Commercial Code, Taxation Act, Income Tax Act, Value Added Tax Act, Social Tax Act, and Unemployment Insurance Payment Act. More information is available at https://www.riigiteataja.ee/en/. An overview of the investment-related regulations can be found here: http://www.investinestonia.com/en/investment-guide/legal-framework
Competition and Anti-Trust Laws
The Estonian Competition Authority reviews transactions for anti-competition concerns. Government review and licensing have proven to be routine and non-discriminatory.
Private property rights are observed in Estonia. The government has the right to expropriate for public interest related to policing the borders, public ports and airports, public streets and roads, supply to public water catchments, etc. Compensation is offered based on market value. Cases of expropriation are extremely rare in Estonia, and the Embassy is not aware of any expropriation cases involving discrimination against foreign owners.
Dispute Settlement
ICSID Convention and New York Convention
Estonia has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1992 and a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1993, meaning local courts are obliged to enforce international arbitration awards that meet certain criteria.
Investor-State Dispute Settlement
The Embassy is not aware of any claims under Estonia’s Bilateral Investment Treaty (BIT) with the United States. Investment disputes concerning U.S. or other foreign investors in Estonia are rare.
International Commercial Arbitration and Foreign Courts
Local courts recognize and enforce foreign arbitral awards. The Embassy is not aware of any investment disputes involving SOEs.
Bankruptcy Regulations
Bankruptcy is not criminalized in Estonia. Bankruptcy procedures in Estonia fall under the regulations of Bankruptcy Act that came into force in February 1997. The Estonian Bankruptcy Act focuses on the protection of the debtors and creditors’ rights. According to the Act, bankruptcy proceedings in Estonia can be compulsory, in which case a court will decide to commence the procedures for debt collection, or voluntarily by company reorganization. More info on bankruptcy procedures: http://www.lawyersestonia.com/bankruptcy-procedures-in-estonia
More info from World Bank’s Doing Business Report on Estonian ranking for ease of “resolving insolvency:” https://www.doingbusiness.org/en/data/exploreeconomies/estonia#DB_ri
5. Protection of Property Rights
Real Property
Secured interests in property are recognized and enforced. Mortgages are quite common for both residential and commercial property, and leasing as a means of financing is widespread and efficient.
The legal system protects and facilitates acquisition and disposition of all property rights, including land, buildings, and mortgages. As of October 1, 2011, land reform in Estonia was almost complete. Restitution and privatization of lands commenced in 1991, but in almost every municipality there remain several complicated cases to be settled. In total, less than 4 percent of the Estonian territory (waterbodies included) lacks a clear title.
Foreign individuals and companies are allowed to acquire real estate with the permission of the local authorities. There are legal restrictions on acquiring agricultural and woodland of 10 hectares or more, and permission from the county governor is needed. Foreign individuals are not allowed to acquire land located on smaller islands, or listed territories adjacent to the Russian border.
Property may be taken from the owner without the owner`s consent only in the public interest, pursuant to a procedure provided by law, and for fair and immediate compensation. Everyone whose property has been taken from them without consent has the right to bring an action in the courts to contest the taking of the property, the compensation, or the amount of the compensation.
Estonia maintains a robust intellectual property rights (IPR) regime. The quality of IPR protection in legal structures is strong, enforcement is good, and infringements and theft are uncommon. Estonia adheres to the World Intellectual Property Organization’s (WIPO’s) Berne Convention, the Rome Convention, the Geneva Convention, and the World Trade Organization’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Estonian legislation fully complies with EU directives granting protection to authors, performing artists, record producers, and broadcasting organizations. Equal protection against unauthorized use is provided via international conventions and treaties to foreign and Estonian authors.
Companies should recognize that IPR is protected differently in Estonia than in the United States, and U.S. trademark and patent registrations will not protect IPR in Estonia. Registration of patents and trademarks are on a first-in-time, first-in-right basis, so companies should consider applying for trademark and patent protection before selling products or services in the Estonian market. IPR are primarily a private right, and the U.S. government generally cannot enforce rights for private individuals in Estonia. It is the responsibility of the rights’ holders to register, protect, and enforce their rights where relevant, retaining their own counsel and advisors. Companies may wish to seek advice from local attorneys or IPR consultants.
Estonia is not included in USTR’s Special 301 Report or Notorious Markets List.
Estonian Customs tracks and reports periodically on seizures of counterfeit goods. In 2020, the Estonian Tax and Customs Board processed 408 cases involving counterfeit goods resulting in seizures of 14,500 items, primarily footwear, clothes, bags, toys, electronics. Most of the infringed goods were detected in mail, and the volume of goods seized by case was small. The biggest case involved seizure of 1,800 packages (one kilo) of hookah tobacco. In Estonia, IPR crimes are prosecuted.
For additional information about national laws and points of contact at local IPR offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/
8. Responsible Business Conduct
The majority of OECD Guidelines for Multinational Enterprises are incorporated into Estonian legislation. The non-profit organization, Responsible Business Forum in Estonia, aims to further corporate social responsibility (CSR) in Estonia, and is a partner in the CSR360 Global Partner Network. CSR360 (www.csr360gpn.org) is a network of independent organizations, which work as the interface of business and society to mobilize business towards socially responsible aims.
The Estonian Ministry of Economy and Communication works closely with CSR on educating private businesses and SOEs on responsible business conduct, recognizing best practices, and factoring RBC policies or practices into its procurement decisions. The American Chamber of Commerce in Estonia also maintains a Corporate Social Responsibility committee.
Government in general enforces the labor, human rights, employment rights, consumer protection, and environmental protection related laws effectively and these requirements cannot be waived to attract foreign investment. These laws apply also to the private security industry. Estonia has adhered to the OECD Guidelines for Multinational Enterprises since 2001. The National Contact Point can be accessed here:
Natural resource extraction related revenues, including mining licenses, are less than 0.6 percent of government budget revenues and less than 0.3 percent of the GDP. The revenues are reflected in the national budget.
Estonia has laws, regulations, and penalties to combat corruption, and while corruption is not unknown, it has generally not been reported to pose a major problem for foreign investors. Both offering and taking bribes are criminal offenses which can bring imprisonment of up to five years. While “payments” that exceed the services rendered are not unknown, and “conflict of interest” is not a well-understood issue, surveys of American and other non-Estonian businesses have shown the issue of corruption is not a serious concern.
In 2020, Transparency International (TI) ranked Estonia 17th out of 180 countries on its Corruption Perceptions Index.
Anti-corruption policy and implementation are coordinated by the Ministry of Justice and the strategy is implemented by all ministries and local governments. The Internal Security Service is effective in investigating corruption offences and criminal misconduct, leading to the conviction of several high-ranking state officials. Until recently corruption was most commonly associated with public sector activities. Recently the government-initiated efforts to educate private sector businesses about the risks of business-to-business corruption, for example within procurement activities.
Estonia cooperates in fighting corruption at the international level and is a member of GRECO (Group of States Against Corruption). Estonia is a party to both the Council of Europe (CoE) Criminal Law Convention on Corruption and the Civil Law Convention. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and accounting offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia.
More info on the corruption level in different sectors in Estonia can be found at: Estonia – Transparency.org
UN Anticorruption Convention, OECD Convention on Combatting Bribery
The UN Anticorruption Convention entered into force in Estonia in 2010. Estonia has been a full participant in the OECD Working Group on Bribery in International Business since 2004; the underlying Convention entered into force in Estonia in 2005. The Convention obligates Parties to criminalize bribery of foreign public officials in the conduct of international business.
The United States meets its international obligations under the OECD Anti-bribery Convention through the U.S. Foreign Corrupt Practices Act.
Resources to Report Corruption
Government agency contacts responsible for combating corruption:
+372 6123657 Central Criminal Police corruption hotline
Civil unrest generally is not a problem in Estonia, and there have been no incidents of terrorism. Public gatherings and demonstrations may occur on occasion in response to political issues, but these have proceeded, with very few exceptions, without incidence of violence in the past.
11. Labor Policies and Practices
Estonia has a small population – 1.31 million people. The average monthly Estonian salary at the end of 2020 was about USD 1,730. About 75 percent of the workforce is employed in the services sector. With an aging population and a negative birth rate, Estonia, like many other countries of Central and Eastern Europe, faces demographic challenges affecting its long-term supply of labor. Improving labor efficiency is a key focus for Estonia in the short-to-mid-term. At the end of 2020, the unemployment rate was 7.4 percent, higher than usual due to the COVID-19 crisis. More on the labor market: http://www.eestipank.ee/en/publications/series/labour-market-review
The Law of Obligations Act, the Individual Labor Dispute Resolution Act and the Occupational Health and Safety Act address employment and labor issues. Labor laws may not be waived in order to attract or retain investment. Labor laws are generally strict, and the principle of employee protection is applied in which the worker is considered the economically weaker party. Upon termination of an employment contract due to a lay-off, an employer must pay an employee compensation in the amount of one month’s average wage. In addition, an insurance benefit shall be paid to an employee by the Estonian Unemployment Insurance Fund depending on the length of service. More info: https://www.oecd.org/els/emp/Estonia.pdf
Trade union membership remains low compared to most countries in the EU. Estonia has ratified all eight ILO Core Conventions.
Estonian labor regulations on labor abuses, health and safety standards, labor disputes etc. are effectively monitored by the Estonian Labor Inspectorate: http://www.ti.ee/en/
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs
Estonia does not qualify for DFC programs as a high-income country.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical Source*
USG or International Statistical Source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data
Year
Amount
Year
Amount
Host Country Gross Domestic Product (GDP) ($M USD)
Reene Moschella, Economic/Commercial Specialist
United States Embassy
Kentmanni 20
15099 Tallinn, Estonia
Tel: 372 668 8100
Moschellar@state.gov
Georgia
Executive Summary
Georgia, located at the crossroads of Western Asia and Eastern Europe, is a small but open market that derives benefits from international trade, tourism, and transportation. While it is susceptible to global and regional shocks, the country has made sweeping economic reforms since 1991 that have produced a relatively well-functioning and stable market economy. Average growth rate was over 5 percent from 2005 through 2019, and its rankings improved impressively in global business, governance, corruption, and other indexes. Georgia ranks seventh in the 2020 World Bank’s Ease of Doing Business index, twelfth in the Heritage Foundations’ 2021 Economic Freedom Index, eighth in the Economic Freedom of the World of Frazer Institute, and 45th in Transparency International’s Corruption Perception Index. Fiscal and monetary policy are focused on low deficits, low inflation, and a floating real exchange rate, although the latter has been affected by regional developments, including sanctions on Russia, and other external factors, such as a stronger dollar.
The COVID-19 pandemic has reversed some of the past gains and has placed significant pressure on the domestic currency and local economy. Georgia’s economy contracted 6 percent in 2020 with particularly steep losses in the tourism sector. According to the World Bank’s assessment, Georgia “has a sound macroeconomic framework, an attractive business environment, and robust public financial management arrangements that are expected to support the post-COVID recovery. Georgia’s governance indicators typically exceed Europe and Central Asia and upper-middle-income country averages.”
The Georgian Government Program 2021-2024 Toward Building a European State, published in December 2020, outlines economic policy priorities to enable the country to quickly recover and return to its economic position in 2019-2020. It stresses the government’s commitment to property right protection and business-friendly policies, such as low taxes, but also pledges to invest in human capital and to strive for inclusive growth across the country. The program also emphasizes Georgia’s geographic potential as a trade and logistics hub along the New Silk Road linking Asia and Europe via the Caucasus.
Overall, business and investment conditions are sound. However, there is an increasing lack of confidence in the judicial sector’s ability to adjudicate commercial cases independently or in a timely, competent manner, with some business dispute cases languishing in the court system for years. Other companies complain of inefficient decision-making processes at the municipal level, shortcomings in the enforcement of intellectual property rights, lack of effective anti-trust policies, accusations of political meddling, selective enforcement of laws and regulations, including commercial laws, and difficulties resolving disputes over property rights. The Georgian government continues to work to address these issues, and despite these remaining challenges, Georgia ranks high in the region as a good place to do business.
The United States and Georgia work to increase bilateral trade and investment through a High-Level Dialogue on Trade and Investment and through the U.S.-Georgia Strategic Partnership Commission’s Economic, Energy, and Trade Working Group. Both countries signed a Bilateral Investment Treaty in 1994, and Georgia is eligible to export many products duty-free to the United States under the Generalized System of Preferences (GSP) program.
Georgia suffered considerable instability in the immediate post-Soviet period. After regaining independence in 1991, civil war and separatist conflicts flared up along the Russian border in the Georgian territories of Abkhazia and South Ossetia. In August 2008, tensions in the region of South Ossetia culminated in a brief war between Russia and Georgia. Russia invaded and occupied the Georgian territories of Abkhazia and South Ossetia. 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. Tensions still exist both inside the occupied territories and near the administrative boundary lines, but other parts of Georgia, including Tbilisi, are not directly affected.
Transit and logistics are priority sectors as Georgia seeks to benefit from increased East/West trade through the country. The Baku-Tbilisi-Kars railroad has boosted Georgia’s transit prospects and the government has looked for ways to enhance trade. In 2016, the government awarded the contract to build a new port in Anaklia to a group of international investors, including a U.S. company. However, the government terminated its contract with the group for the development of a deep-sea port in 2020. The investor group alleges government actions against the project let to financial difficulties and eventual contract termination. Despite the government’s claim that it remains committed to the construction of a deep-sea port in Anaklia, investors and local business leaders doubt that commitment. Separately, logistics and port management companies in Poti and Batumi have started development and expansion of both the Batumi and Poti Ports. In 2020, logistics companies will complete two new terminal projects and a third will be underway – a multimodal terminal in Batumi and new terminals and increased storage in Poti, currently the largest port in Georgia with plans to increase deep-water capacity.
1. Openness To, and Restrictions Upon, Foreign Investment
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). Enterprise Georgia also operated the website for foreign investors: www.investingeorgia.org.
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.
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 USD30) for a regular registration, GEL200 (USD60) for an expedited registration, plus GEL1 (bank processing 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.
3. Legal Regime
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.
Georgia has six types of taxes: Corporate profit tax (0% or 15%; no corporate income tax on retained and reinvested profit; profit tax applies only to distributed earnings), value added tax (VAT; 18%), property tax (up to 1%), personal income tax (20%), excise (on few selected goods), and Import tax (0%, 5% or 12%). 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 151,000) annual turnover, a fivefold increase from the previous GEL 100,000 (USD 30,000) 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 better-aligned regulations. The agreement is designed to introduce European standards gradually 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. The latest progress report, adopted by the European Parliament on September 17, 2020, confirmed Georgia’s continued progress on the implementation of the agreement.
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 several 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 problematic. Concerns regarding the integrity of the judicial appointment process and the capacity of the courts to deliver quality outcomes continue to affect investor confidence in the court system. OECD’s 2020 IPR notes the Georgian government’s efforts to strengthen the judiciary to improve the country’s business and investment environment under its Georgia 2020 strategy. However, the report highlights that “the existing framework for adjudication of civil disputes in Georgian courts nonetheless continues to suffer from several significant problems despite the reforms. Foremost of these are persisting concerns with the independence, accountability, and capacity of the High Council of Justice and the judiciary. Many investors perceive Georgia’s court processes as slow, inefficient, lacking in transparency, and hampered by a lack of technical expertise. All these issues affect public trust in the judicial system. They are among the most pressing concerns for investors in their assessments of the investment climate in Georgia.” The full OECD report is available here. https://www.oecd.org/countries/georgia/oecd-investment-policy-reviews-georgia-0d33d7b7-en.htm
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.
Information about the procedures and requirements during the investment process is available in English Language at the web-portal of Invest in Georgia, by Enterprise Georgia – https://investingeorgia.org/en/downloads/useful-guides
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). Competition Agency decisions can be appealed at court. Georgia has also signed several international agreements containing competition provisions, including the EU-Georgia Association Agreement. The DCFTA within the AA goes further than most FTAs, with the elimination of non-tariff barriers and regulatory alignment, as well as binding rules on investments and services.
In July 2020, Georgia adopted the Law of Georgia on the Introduction of Anti-dumping Measures in Trade that became effective January 1, 2021. The aim of the law is to protect local industry from price dumping on imports. The Law establishes the basic conditions and rules for the introduction of anti-dumping measures to be implemented when importing goods via the customs territory of Georgia.
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 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.
Georgia’s Law on Arbitration of 2010 provides for recognition and enforcement of arbitration awards rendered outside Georgia.
Investor-State Dispute Settlement
Georgia has signed bilateral investments treaties (BITs) with 32 countries including the United States. Georgia signed five more bilateral investment treaties with Japan, UAE, Kyrgyzstan, Turkey, and Egypt, but none have entered into force yet. 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 guaranteed under the U.S.–Georgia BIT.
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.
There were reports of lack of due process and respect for rule of law in a number of property rights cases.
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. However, as of the beginning of 2021, all of them were resolved through arbitral awards, out-of-court settlements, or a government decision.
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.
5. Protection of Property Rights
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.
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 thus 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.
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: it issues protective documents on invention, utility model, trademark, design, geographical indication and appellation of origin, new animal breeds and plant varieties, and ensures the deposit of copyrighted work. The Revenue Service, which is part of the Ministry of Finance, is responsible for enforcing the protection of IPR holders that are listed in the Register of Intellectual Property Subject-Matters of the relevant service. The Revenue Service is responsible for border control and can halt import or export of items based on the register data. After the registration procedure is completed, the Revenue Service is liable to suspend counterfeit goods. According to the Law, the goods may be suspended for no longer than 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 provides for the possibility of destruction of counterfeit goods based on a court decision.
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 IPR enforcement under the Interagency Coordination Council (Council) for IPR Enforcement, which is an efficient platform for government institutions to exchange their views on such issues. Georgia is improving enforcement, but some problems persist, including the widespread use of unlicensed software and the availability of pirated video and audio recordings and other unlicensed content 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 further improving domestic legislation and its harmonization with international standards, Sakpatenti has engaged in adjusting laws or amendments to existing legislation regulating intellectual property. For example, in 2020, Sakpatenti prepared two draft laws – “On Amendments to the Law of Georgia on Appellations of Origin of Goods and Geographical Indications” and “On Amendments to the Patent Law of Georgia” to harmonize Georgian legislation with that of the EU. The amendments to the appellations of origins law introduce new certification and state control mechanisms and increases the role of producers’ associations and unions in this regard, while the patent law amendments pave the way to ratification of the European Patent Organization’s (EPO) Validation Agreement, signed in 2019.
In 2020, the Investigation Service of the Ministry of Finance of Georgia filed 10 cases on violation of Articles 196, 197 and 210 of the Criminal Code of Georgia (Unlawful use of trademark (service marks) or other commercial designations). As a result, 640,012 items of counterfeit goods were seized, with a total value of GEL 204.189 (around $63,000). In addition, the Customs Department issued 101 orders on suspension of goods. Out of these, in 38 cases the rights holder and the owner of the goods agreed on destruction of the goods. The total value of the destroyed counterfeit goods on the bases of agreement between the rights holder and the owner, or by the court decision, or based on the respective measures was GEL 79,882 (around USD 25,000). In 2020, the Tax Monitoring Department of LEPL Revenue Service revealed 8 cases of trademark infringement, seizing 12,591 items of counterfeit goods worth GEL 29,942 (around USD 9,200).
Infringement of 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.
Georgia is not listed 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/.
8. Responsible Business Conduct
While the concept of Corporate Social Responsibility (CSR) is relatively new phenomenon 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 OECD completed a follow-up Investment Policy Review assessment in 2020 and noted Georgia’s significant strides (available: OECD Investment Policy Reviews: Georgia | en | 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 assisted 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’s civil society and workers associations are active in responding to human rights, labor rights, consumer protection, environmental protections, and other concerns as well as new laws and regulations that are intended to protect or have potential adversely to affect citizens.
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 ratified The Montreux Document on Private Military and Security Companies.
Georgia has laws, regulations, and penalties to combat corruption. Georgia criminalizes bribery under the Criminal Code of Georgia. Chapter XXXIX of the Criminal Code, titled as Official Misconduct, among other crime, covers many corruption-related offenses committed by public servants including bribery, abuse of official powers, accepting a prohibited gift, forgery of official documentation, etc. Senior public officials must file financial disclosure forms, which are publicly 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, correctional labor, house arrest, or prison sentence up to three years. In aggravated circumstances, when a bribe is given to commit an illegal act, the penalty is from four to seven years. When bribe-giving is committed by the organized group, the sentence is imprisonment from 5 to 8 years. Abuse of authority by public servants are criminal acts under Articles 332 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. The laws extend to family members of officials.
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 concluding that 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.
In April 2021, the Council of Europe’s Group of States Against Corruption (GRECO) released its Second Compliance Report of Fourth Evaluation Round on Georgia (dealing with Corruption prevention in respect of members of parliament, judges and prosecutors). The report says that since 2019 Georgia implemented two more, overall, seven, of 16 recommendations for preventing corruption among MPs, judges, and prosecutors. The Compliance Report said Georgia satisfactorily implemented measures to enforce objective criteria for the recruitment and promotion of prosecutors, also ensured further updates of the “Code of Ethics for Employees of the Prosecution Service of Georgia,” and introduced measures for enforcing the rules. Out of the nine outstanding recommendations, two remain unaddressed while seven have been partly implemented. The sixteen recommendations were adopted in 2016, in the Fourth Round Evaluation Report on Georgia by the CoE’s anti-corruption monitoring body.
Since 2003, Georgia has significantly improved its ranking in Transparency International’s (TI) Corruption Perceptions Index (CPI) report.
Transparency International (TI) ranked Georgia 45th out of 180 countries in the 2020 edition of its Corruption Perceptions Index (the same rank as Poland, 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. Giorgi Gochashvili, Head of Division of Criminal Prosecution of Corruption Crimes
Address: 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 Mrs. Nino Kvetenadze 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
10. Political and Security Environment
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 Georgian region of South Ossetia culminated in a brief war between Russia and Georgia. Russia invaded and occupied the Georgian territories of Abkhazia and South Ossetia. Russia continues to occupy these regions – nearly 20 percent of Georgia’s territory – 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. 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 (ABLs). 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 near 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 South Ossetia ABL. 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.
11. Labor Policies and Practices
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 20.4 percent in by the end of 2020. Georgia’s National Statistics Agency changed its methodology of calculating unemployment in 2020, and subsistence farmers are no longer categorized as employed. The change considerably increased the official unemployment rate. 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, employed 100 labor inspectors in 2020, increase from 25 in 2019. Additional 20 vacancies are yet 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 passed in September 2020 and came into force January 1, 2021, 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.
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 250 (USD 77). The average monthly salary across the economy in 2020 was GEL 1,227 (around USD 378). The minimum wage requirement for state sector employees is GEL115 (USD 35) 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 6.2) 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.
UNCTAD data available at https://unctad.org/topic/investment/
world-investment-report
* Source for Host Country Data: GeoStat (Georgia National Statistics Department)
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
Total Inward
Amount
100%
Total Outward
N/A
100%
Azerbaijan
4,032
20.9%
N/A
N/A
N/A
UK
2,476
12.8%
N/A
N/A
N/A
Netherlands
1,585
8.2%
N/A
N/A
N/A
Cyprus
1,226
6.4%
N/A
N/A
N/A
Turkey
1,212
6.3%
N/A
N/A
N/A
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment IMF Coordinated Portfolio Investment Survey data is not available for Georgia
14. Contact for More Information
United States Embassy, Political/Economic Section
29 Georgian-American Friendship Avenue, Tbilisi
Bill Sieber, Political/Economic Officer
+995-32-2-27-7000
Greece
Executive Summary
The Greek economy has come a long way since the age of the “Memoranda.” In early 2020, COVID-19 held the potential to permanently scar an economy that still suffered from legacy issues, including high debt and non-performing loans, limited credit growth, near zero capacity for fiscal expansion, and a hollowed-out healthcare system. While continuing its aggressive reform agenda, the Mitsotakis government rose to meet the pandemic challenge, as European institutions effectively welcomed Greek debt back into the Euro system, the IMF and EU evaluated the country’s public debt as sustainable, Moody’s upgraded Greek sovereign debt, the country began borrowing at historically low cost, and strategic investors returned, favorably considering Greece’s current and long-term value proposition. Meanwhile, over the past several years, our bilateral relationship has deepened significantly via our defense and strategic partnerships, and Greece ambitiously seeks now to bring our economic ties to similar, historic heights. Far from being the problem child of Europe or the international financial system, Greece is increasingly a source of solutions – not just in the fields of energy diplomacy and defense, but in high-tech innovation, healthcare, and green energy, lending prospects for solid economic growth and stability here and in the wider region.
The Mitsotakis government was elected in July 2019 on an aggressive investment and economic reform agenda which has plowed forward despite the pandemic. During its first nine months in power, Mitostakis’s team pushed market-friendly reforms and Parliament voted through dozens of economic-related bills, including a key investment law in October 2019, designed to cut red tape, help achieve full employment, and adopt best international practices – including by digitizing government services. GDP growth reached 1.9% in 2019, a major leap forward following a period that saw the loss of a quarter of the economy. Facing COVID-19 lockdowns, the economy contracted by 8.2% in 2020, according to the Hellenic Statistical Authority, although the contraction was one of the smallest in the eurozone.
Greece maintains a liquidity buffer, estimated at EUR 30 billion, but is intent on boosting its coffers as the economic fallout from the COVID-19 pandemic is larger than expected. So far untouched, the buffer should be sufficient to cover the country’s financing needs until at least the end of 2022, and the country’s leadership maintains its intention to reserve the European Stability Mechanism (ESM) tranche solely for sovereign debt interest payments. While capital controls were completely lifted in September 2019, Greece remains subject to enhanced supervision by Eurozone creditors.
Greece’s banking system, despite three recapitalizations as part of the August 2015 ESM agreement, remains saddled with the largest ratio of non-performing loans in the EU, which constrains the domestic financial sector’s ability to finance the national economy. As a result, businesses, particularly small and medium enterprises, still struggle to obtain domestic financing to support operations due to inflated risk premiums in the sector. To tackle the issue, and as a requirement of the agreement with the ESM, Greece has established a secondary market for its non-performing loans (NPLs). According to the Bank of Greece, non-performing loans (NPLs) came, on a solo basis, to EUR58.7 billion at end-September 2020, down by EUR9.8 billion from December 2019 and by EUR48.5 billion from their March 2016 peak. The NPL-to-total loan ratio remained high in September 2020 at 35.8%. It should be noted that the high percentage of performing loans benefiting from moratoria until December 31, 2020 contained the inflow of new NPLs. Non-performing private debt remains high, irrespective of the reduction in NPLs on bank balance sheets via transfer to non-bank entities. 2020 saw substantial reforms aimed at resolving the issue of NPLs. These involved the securitization of NPLs through the activation of the “Hercules” scheme and the enactment of Law No. 4738/2020 which improves several aspects of insolvency law. Nevertheless, NPLs will remain high, and considering that there will be a new inflow of NPLs due to the pandemic, other solutions complementary to the “Hercules” scheme need to be implemented. In addition to sales of securitized loan packages, the banks have exploited other ways to manage bad loans. For example, nearly all of Greece’s systemic banks employ loan servicing firms to manage non-performing exposures. Greece’s secondary market for NPL servicers now includes 24 companies including: Sepal (an Alpha Bank-Aktua joint venture), FPS (a Eurobank subsidiary), Pillarstone, Independent Portfolio Management, B2Kapital, UCI Hellas, Resolute Asset Management, Thea Artemis, PQH, Qquant Master Servicer, and DV01 Asset Management.
Greece’s return to economic growth has generated new investor interest in the country. Pfizer, Cisco, Deloitte, and Microsoft, to name a few, have all announced major investments in the past few years, due in part to improved protection of intellectual property rights and Greece’s delisting from the U.S. Trade Representatives Special 301 Watch List in 2020. In March 2021, Greece successfully raised EUR2.5 billion from its first 30-year bond sale in more than a decade, with the issue more than 10 times oversubscribed. The bond, which has so far received investor demand of more than EUR26.1 billion, will price at 150 basis points over the mid-swap level, resulting in a yield of 1.93%.
In January 2021, Fitch ratings agency upgraded Greece’s credit rating to BB and noted the country’s outlook as ‘stable’ due to the financial impact of COVID-19. On April 1, 2021, Moody’s improved its outlook of the Greek banking system from “stable” to “positive.” Standard & Poor’s affirmed its credit rating for Greece at BB-in October 2020 and also kept its outlook to “stable.” The European Central Bank (ECB) included Greek government bonds in its quantitative easing program, with EUR12 billion worth of Greek government debt earmarked for purchase under the ECB’s EUR750 billion Pandemic Emergency Purchase Program in 2020.
Although Greece has seen positive developments in the past few years, investors worry about where Greece will be once COVID-19 subsides. The Greek government has been given strong marks for its initial response in limiting the spread of the pandemic and has implemented several innovative digital reforms to its economy during COVID-19. The Bank of Greece, EU, IMF, and others estimated the Greek economy contracted by 10% in 2020. The tourism sector fared no better with a loss of EUR 13.9 billion. The unemployment rate was 15.47% in 2020, down from 16.9% at the end of 2019 as government pandemic support helped avoid extensive layoffs. (The unemployment rate was 19.3% in 2018, for comparison.) As 2021 progresses and the pandemic continues, the resiliency of the Greek economy will be tested, with uncertain impacts on the investment climate.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward Foreign Direct Investment
The Greek government continues to take steps to increase foreign investment, implementing economic reforms and taking steps to mitigate the impact of the pandemic. Greece completed its EU bailout program in 2018, allowing it to borrow once again at market rates, reflected in a rising economic sentiment since 2017. Heavy bureaucracy and a slow judicial system continue to create challenges for both foreign and domestic investors.
There are no laws or practices known to Post that discriminate against foreign investors. The country has investment promotion agencies to facilitate foreign investments, with “Enterprise Greece” as the official agency of the Greek state. Under the supervision of the Ministry of Foreign Affairs, Enterprise Greece is responsible for promoting investment in Greece and exports from Greece, and with making Greece more attractive as an international business partner. Enterprise Greece provides the full spectrum of services related to international business relationships and domestic business development for the international market, including an Investor Ombudsman program for investment projects exceeding EUR 2 million. The Ombudsman is available to assist with specific bureaucratic obstacles, delays, disputes, or other difficulties that impede an investment project.
The General Secretariat for Strategic and Private Investments streamlines the licensing procedure for strategic investments, aiming to make the process easier and more attractive to investors.
Greece has adopted the following EU definitions regarding micro, small, and medium size enterprises:
Micro Enterprises: Fewer than 10 employees and an annual turnover or balance sheet below EUR 2 million.
Small Enterprises: Fewer than 50 employees and an annual turnover or balance sheet below EUR 10 million.
Medium-Sized Enterprises: Fewer than 250 employees and annual turnover below EUR 50 million or balance sheet below EUR 43 million.
Numerous structural reforms, undertaken as part of the country’s 2015-2018 international bailout program as well as a part of the current New Democracy administration’s efforts to lower taxes and reduce bureaucracy, aim to welcome and facilitate foreign investment, and the government has publicly messaged its dedication to attracting foreign investment. The 2019 investment law simplified licensing procedures in order to facilitate investment. In December 2020, parliament passed a new law allowing non-residents who relocate their jobs to Greece to benefit from half their salary being free of income tax for up to seven years. The scheme is open to any type of job, any income level and complements other tax incentive schemes put in place, including a non-dom program for wealthy investors and a low flat tax rate for pensioners. The Trans Adriatic Pipeline (TAP) is another example of the government’s commitment in this area. In November 2015, the Greek government and TAP investors agreed on measures and began construction on the largest investment project since the start of the financial crisis. The pipeline began operations in December 2020 and in March 2021, TAP announced that a total of 1 billion cubic meters (bcm) of natural gas from Azerbaijan entered Europe via the Greek interconnection point of Kipoi. Law 4710/2020 gave a strong push for electro-mobility, with several incentives and subsidies to those interested in acquiring an electric vehicle. The law has paved the way for greater U.S. investment. For example, Tesla has installed the first pop-up stand along with three electric vehicle (EV) charges at a major Greek shopping mall, while Blink expanded its EV network in Greece. Additionally, there are directives that have eased the bureaucracy regarding renewable energy source (RES) projects, including establishing a deadline for the issuance of Environmental Terms Approvals (ETAs) of 120 days and limiting the environmental licensing stages to three stages instead of the previous six or seven stages required for companies to abide by.
In the past decade, the country underwent one of the most significant fiscal consolidations in modern history, with broad and deep cuts to public expenditures and significant increases in labor and social security tax rates, which have offset improved labor market competitiveness achieved through significant wage devaluation. While there has been notable progress, corruption and burdensome bureaucracy continue to create barriers to market entry for new firms, permitting incumbents to maintain oligopolies in different sectors, and creating scope for arbitrary decisions and rent seeking by public servants.
Limits on Foreign Control and Right to Private Ownership and Establishment
As a member of the EU and the European Monetary Union (the “Eurozone”), Greece is required to meet EU and eurozone investment regulations. Foreign and domestic private entities have the legal right to establish and own businesses in Greece; however, the country places restrictions on foreign equity ownership higher than those imposed on average in the other 17 high-income OECD economies, such as equity restrictions on airport operations and limits on foreign ownership in electricity and media. The government has undertaken EU-mandated reforms in its energy sector, opening much of it to foreign equity ownership. Restrictions exist on land purchases in border regions and on certain islands because of national security considerations. Foreign investors can buy or sell shares on the Athens Stock Exchange on the same basis as local investors. Greece does not maintain an investment screening mechanism.
Other Investment Policy Reviews
The government has not undergone an investment policy review by the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), or United Nations Committee on Trade and Development (UNCTAD) or worked with any other international institution to produce a public report on the general investment climate in the past three years. However, in July 2020, the OECD published a periodic economic survey describing the state of the economy and addressing foreign direct investment concerns, especially regarding needed reforms in the public sector and judicial system. In particular, the OECD report lauds the Ministry of Digital Governance’s progress in instituting digital and public administration reforms, and recommends continued effort in this area.
Business Facilitation
In 2020, Greece eased processes for starting a business by reducing the time to register a company and removing the requirement to obtain a tax clearance. Accessing industrial land in Greece is relatively quick, with only three weeks required to lease land from the government. Private land can be leased in 15 days. Arbitrating commercial disputes, however, can take almost a year. Establishing a limited liability company takes approximately four days with three procedures involved, including registering the business, making a company seal, and registering with the Unified Social Security Institution. Greece’s Ease of Doing Business score in 2020 is 96, for a rank of 11 for starting a business and rank of 79 overall. Greece is not one of the 37 countries listed on www.businessfacilitation.org.
Greece’s business registration entity GEMI (General Commercial Register) has the basic responsibility for digitizing and automating the registration and monitoring procedures of commercial enterprises. More information about GEMI can be found at http://www.businessportal.gr/home/index_en. The online business registration process is relatively clear, and although foreign companies can use it, the registration steps are currently available only in Greek. In general, a company must register with the business chamber, tax registry, social security, and local municipality. Business creation without a notary can be done for specific cases (small/personal businesses, etc.). For the establishment of larger companies, a notary is mandatory.
Outward Investment
The Greek government does not have any known outward investment incentive programs. Capital controls were eliminated in September 2019.
Enterprise Greece supports the international expansion of Greek companies. While no incentives are offered, Enterprise Greece has been supportive of Greek companies attending the U.S. Government’s Annual SelectUSA Investment Summit, which promotes inbound investment to the United States, and similar industry trade events internationally.
2. Bilateral Investment Agreements and Taxation Treaties
Greece and the United States signed the 1954 Treaty of Friendship, Commerce, and Navigation, which provides certain investment protection, such as acquisition and protection of property and impairment of legally acquired rights or interests. Enterprise Greece is now housed within the Economic Diplomacy and Extroversion Department of the Ministry of Foreign Affairs.
Greece has Bilateral Investment Treaties (BITs) with:
1
Albania
2
Algeria
3
Argentina*
4
Armenia
5
Azerbaijan
6
Bosnia and Herzegovina
7
Bulgaria
8
Chile
9
China
10
Congo*
11
Croatia
12
Cuba
13
Cyprus
14
Czech Republic
15
Egypt
16
Estonia
17
Georgia
18
Germany
19
Hungary
20
Iran
21
Jordan
22
Kazakhstan*
23
Korea
24
Kuwait*
25
Latvia
26
Lebanon
27
Lithuania
28
Mexico
29
Moldova
30
Montenegro
31
Morocco
32
Poland
33
Romania
34
Russian Federation
35
Serbia
36
Slovakia
37
Slovenia
38
South Africa
39
Syria
40
Tunisia
41
Turkey
42
Ukraine
43
United Arab Emirates
44
Uzbekistan
45
Viet Nam
*Signed, but not in force
Greece and the United States signed a Treaty for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income in 1950. As an EU member state, Greece does not have a bilateral Free Trade Agreement (FTA) with the United States but is a party to all U.S.-EU agreements. Greece reached an agreement in substance on November 30, 2014, on the terms of an intergovernmental agreement with the United States to implement the Foreign Account Tax Compliance Act (FATCA), which was signed January 2017.
3. Legal Regime
Transparency of the Regulatory System
As an EU member, Greece is required to have transparent policies and laws for fostering competition. Foreign companies consider the complexity of government regulations and procedures and their inconsistent implementation to be a significant impediment to investing and operating in Greece. Occasionally, foreign companies report cases where there are multiple laws governing the same issue, resulting in confusion over which law is applicable. Under its bailout programs, the Greek government committed to widespread reforms to simplify the legal framework for investment, including eliminating bureaucratic obstacles, redundancies, and undue regulations. The fast-track law, passed in December 2010, aimed to simplify the licensing and approval process for “strategic” investments, i.e. large-scale investments that will have a significant impact on the national economy. In 2013, Greece’s parliament passed Investment Law 4146/2013 to simplify the regulatory system and stimulate investment. This law provides additional incentives, beyond those in the fast-track law, available to domestic and foreign investors, dependent on the sector and the location of the investment.
Greece’s tax regime lacked stability during the economic crisis, presenting additional obstacles to investment, both foreign and domestic. Foreign firms are not subject to discrimination in taxation. Numerous changes to tax laws and regulations since the beginning of the economic crisis injected uncertainty into Greece’s tax regime. As part of Greece’s August 2015 bailout agreement, the government converted the Ministry of Finance’s Directorate-General for Public Revenue into a fully independent tax agency effective January 2017, with a broad mandate to increase collection and develop further reforms to the tax code aimed at reducing evasion and increasing the coverage of the Greek tax regime. The government makes continued efforts to combat tax evasion by increasing inspections and crosschecks among various authorities and by using more sophisticated methods to find undeclared income. Authorities held monthly lotteries offering taxpayers rewards of EUR 1,000 (USD 1,200) for using credit or debit cards, which are considered more financially transparent, in their daily transactions.
Foreign investment is not legally prohibited or otherwise restricted. Proposed laws and regulations are published in draft form for public comment before Parliament takes up consideration of the legislation. The laws in force are accessible on a unified website managed by the government and printed in an official gazette. Greece introduced International Financial Reporting Standards for listed companies in 2005 in accordance with EU directives. These rules improved the transparency and accountability of publicly traded companies.
International Regulatory Considerations
Citizens of other EU member state countries may work freely in Greece. Citizens of non-EU countries may work in Greece after receiving residence and work permits. There are no discriminatory or preferential export/import policies affecting foreign investors, as EU regulations govern import and export policy, and increasingly, many other aspects of investment policy in Greece.
Greece has been a World Trade Organization (WTO) member since January 1, 1995, and a member of the General Agreement on Tariffs and Trade (GATT) since March 1, 1950. Greece complies with WTO Trade-Related Investment Measures (TRIMs) requirements. There are no performance requirements for establishing, maintaining, or expanding an investment. Performance requirements may come into play, however, when an investor wants to take advantage of certain investment incentives offered by the government. Greece has not enacted measures that are inconsistent with TRIMs requirements, and the Embassy is not aware of any measures alleged to violate Greece’s WTO TRIMs obligations. Trade policy falls within the competence and jurisdiction of the European Commission Directorate General for Trade and is generally not subject to regulation by member state national authorities.
Legal System and Judicial Independence
Although Greece has an independent judiciary, the court system is an extremely time-consuming and unwieldy means for enforcing property and contractual rights. According to the “Enforcing Contracts Indicator” of the World Bank’s ‘Doing Business 2020” survey, Greece ranks 146 among 190 countries in terms of the speed of delivery of justice, requiring 1,711 days (more than four years) on average to resolve a dispute, compared to the OECD high-income countries’ average of 589.6 days. The government committed, as part of its three bailout packages, to reforms intended to expedite the processing of commercial cases through the court system. In July 2015, the government adopted significant reforms to the Code of Civil Procedure (Law 4335/2015). These reforms aimed to accelerate judicial proceedings in support of contract enforcement and investment climate stability and entered into force in January 2016. Foreign companies report, however, that Greek courts do not consistently provide fast and effective recourse. Problems with judicial corruption reportedly still exist. Commercial and contractual laws accord with international norms, and the judicial system remains independent of the executive branch.
Laws and Regulations on Foreign Direct Investment
In 2019 and 2020, Parliament passed several investment-related laws.
In December 2020, Parliament passed Law 4758/2020, which introduced amendments in the current tax legislation regarding special taxation of employment services and business activity income arising in Greece, earned by individuals who transfer their tax residence in Greece.
In October 2019, Parliament passed an economic development bill, Law 4635/2019, aimed at boosting economic recovery in the post-bailout era which entered into force in January 2020. The bill, called “Invest in Greece and other provisions,” simplifies processes for investors regarding environmental and urban planning regulations, speeding up bureaucratic processes. The bill also introduces changes to labor union alterations to encourage job creation and reforms the functioning of the General Commercial Registry.
Law 4605/2019 expands the types of investments that qualify an individual for a residence permit, allowing investments in intangible assets. In particular, capital contribution of at least EUR 400,000 in a real estate investment company, in a company registered in Greece, in a purchase of state bonds, corporate bonds, or shares, in a venture capital investment company, or in mutual funds, allows the investor and his or her family members a five-year residency permit in Greece.
Law 4608/2019 for strategic investments was approved in April 2019, creating a favorable investment climate by providing various privileges to investors such as tax exemptions and fast track licensing.
Investments in Greece operate under two main laws: the new Investment Law (4399/2016) that addresses small-scale investments and Law 4146/2013 that addresses strategic investments. In particular:
Law 4399/2016, entitled “Statutory framework to the establishment of Private Investments Aid Schemes for the regional and economic development of the country” was passed in June 2016. Its key objectives include the creation of new jobs, the increase of extroversion, the reindustrialization of the country, and the attraction of FDI. The law provides aids (as incentives) for companies that invest from EUR 50,000 (Social Cooperative Companies) up to EUR 500,000 (large sized companies) as well as tax breaks. The Greek government provides funds to cover part of the eligible expenses of the investment plan; the amount of the subsidy is determined based on the region and the business size. Qualified companies are exempt from paying income tax on their pre-tax profits for all their activities. There is a fixed corporate income tax rate and fast licensing procedures. Eligible economic activities are manufacturing, shipbuilding, transportation/infrastructure, tourism, and energy. More about this law can be found here: https://www.enterprisegreece.gov.gr/files/pdf/madrid2019/2-Investment-Incentives-Law.pdf.
– Law 4146/2013, entitled the “Creation of a Business-Friendly Environment for Strategic and Private Investments” is the other primary investment incentive law currently in force. The law aims to modernize and improve the institutional framework for private investments, raise liquidity, accelerate investment procedures, and increase transparency. It seeks to provide an efficient institutional framework for all investors and speed the approval processes for pending and approved investment projects. The law created a general directorate for private investments within the Ministry of Development and Investment and reduced the value of investments needed to be considered strategic. The law also provides tax exemptions and incentives to investors and allows foreign nationals from non-EU countries who buy property in Greece worth over EUR 250,000 ( USD 285,000) to obtain five-year renewable residence permits for themselves and their families. In March 2019, the Greek government brought a bill to parliament to expand eligibility criteria of the existing program.
Other investment laws include:
– Law 3908/2011, which provides incentives in the form of tax relief, grants, and allowances on investments, is gradually being phased out by Law 4146 (above).
– Law 3919/2011 aims to liberalize more than 150 currently regulated or closed-shop professions.
– Law 3982/2011 reduced the complexity of the licensing system for manufacturing activities and technical professions and modernized certain qualification and certification requirements to lower barriers to entry.
– Law 4014/2011 simplified the environmental licensing process.
– Law 3894/2010 (also known as fast track) allows Enterprise Greece to expedite licensing procedures for qualifying investments in the following sectors: industry, energy, tourism, transportation, telecommunications, health services, waste management, or high-end technology/innovation. To qualify, investments must meet one of the following conditions:
exceed EUR 100 million;
exceed EUR15 million in the industrial sector, operating in industrial zones;
exceed EUR 40 million and concurrently create at least 120 new jobs; or
create 150 new jobs, regardless of the monetary value of the investment.
– Law 3389/2005 introduced the use of public-private partnerships (PPP). This law aimed to facilitate PPPs in the service and construction sectors by creating a market-friendly regulatory environment.
– Law 3426/2005 completed Greece’s harmonization with EU Directive 2003/54/EC and provided for the gradual deregulation of the electricity market. Law 3175/2003 harmonized Greek legislation with the requirements of EU Directive 2003/54/EC on common rules for the internal electricity market. Law 2773/99 initially opened 34% of the Greek energy market, in compliance with EU Directive 96/92 concerning regulation of the internal electricity market. i
– Law 3427/2005, which amended Law 89/67, provides special tax treatment for offshore operations of foreign companies established in Greece. Special tax treatment is offered only to operations in countries that comply with OECD tax standards.
– Law 2364/95 and supporting amendments govern investment in the natural gas market in Greece.
– Law 2289/95, which amended Law 468/76, allows private (both foreign and domestic) participation in oil exploration and development.
– Law 2246/94 and supporting amendments opened Greece’s telecommunications market to foreign investment.
– Legislative Decree 2687 of 1953, in conjunction with Article 112 of the Constitution, gives approved foreign “productive investments” (primarily manufacturing and tourism enterprises) property rights, preferential tax treatment, and work permits for foreign managerial and technical staff. The Decree also provides a constitutional guarantee against unilateral changes in the terms of a foreign investor’s agreement with the government, but the guarantee does not cover changes in the tax regime.
Competition and Anti-Trust Laws
Under Articles 101-109 of the Treaty on the Functioning of the EU, the European Commission (EC), together with member state national competition authorities, directly enforces EU competition rules. The EC Directorate-General for Competition carries out this mandate in member states, including Greece. Greece’s competition policy authority rests with the Hellenic Competition Commission, in consultation with the Ministry of Economy. The Hellenic Competition Commission protects the proper functioning of the market and ensures the enforcement of the rules on competition. It acts as an independent authority and has administrative and financial autonomy.
Expropriation and Compensation
Private property may be expropriated for public purposes, but the law requires this be done in a nondiscriminatory manner and with prompt, adequate, and effective compensation. Due process and transparency are mandatory, and investors and lenders receive compensation in accordance with international norms. There have been no expropriation actions involving the real property of foreign investors in recent history, although legal proceedings over expropriation claims initiated, in one instance, over a decade ago, continue to work through the judicial system.
Dispute Settlement
ICSID Convention and New York Convention
Greece is a member of both the International Center for the Settlement of Investment Disputes (ICSID) and the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention).
Investor-State Dispute Settlement
Greece accepts binding international arbitration of investment disputes between foreign investors and the Greek government, and foreign firms have found satisfaction through arbitration. International arbitration and European Court of Justice judgments supersede local court decisions. The judicial system provides for civil court arbitration proceedings for investment and trade disputes. Although an investment agreement could be made subject to a foreign legal jurisdiction, this is not common, particularly if one of the contracting parties is the Greek government. Foreign court judgments are accepted and enforced, albeit slowly, by the local courts.
In an effort to create a more investor-friendly environment, the government established in 2017 an Investor’s Ombudsman service. The Ombudsman is authorized to mediate disputes that arise between investors and the government during the licensing procedure. Investors can employ the Ombudsman, housed within Enterprise Greece, with projects exceeding EUR 2 million in value. More info on the Ombudsman service can be found here: https://www.enterprisegreece.gov.gr/en/invest-in-greece/ombudsman
International Commercial Arbitration and Foreign Courts
The two main alternative dispute resolution mechanisms in Greece are domestic and international commercial arbitration or mediation. Domestic arbitration is governed under the Code of Civil Procedure (CCP), and mediation is governed under The Mediation Act, Law 3898/2010, modeled after the UNCITRAL Model Law. Greece recognizes foreign judgments under articles 323 and 780 of the CCP and articles 15-21 of Law 3858/2010.
Bankruptcy Regulations
Bankruptcy laws in Greece meet international norms. Under Greek bankruptcy law 3588/2007, private creditors receive compensation after claims from the government and insurance funds have been satisfied. Monetary judgments are usually made in euros unless explicitly stipulated otherwise. Greece has a reliable system of recording security interests in property. According to the World Bank’s 2020 Doing Business report, resolving insolvency in Greece takes 3.5 years on average and costs nine percent of the debtor’s estate, with the most likely outcome that the company will be sold piecemeal. Recovery rate is 32 cents on the dollar. Greece ranks 72 of 190 economies surveyed for ease of resolving insolvency in the Doing Business report (from 62 in 2019).
5. Protection of Property Rights
Real Property
Greek laws extend the protection of property rights to both foreign and Greek nationals, and the legal system protects and facilitates acquisition and disposition of all property rights.
Multiple layers of authority in Greece are involved in the issuance or approval of land use and zoning permits, creating disincentives to real property investment. Secured interests in property are movable and real, recognized and enforced. The concept of mortgage does exist in the market and can be recorded through the banks. The government is working to create a comprehensive electronic land registry which is expected to increase the transparency of real estate management. However, the land registry is behind schedule and is not expected to be completed until 2022, two years after its initial estimate of completion. Greece ranks 156 out of 190 countries for Ease of Registering Property in the World Bank’s Doing Business 2020 Report, down from 153 last year.
Foreign nationals can acquire real estate property in Greece, though they first need to be issued a tax authentication number. However, for the border areas, foreign nationals first require a license from the Greek state (Law 3978/2011). In another effort to boost investment, the government passed Law 4146/2013, which allows foreign nationals who buy property in Greece worth over EUR 250,000 ( USD 285,000) to obtain a five-year residence permit for themselves and their families. The “Golden Visa” program has been extended to buyers of various types of Greek securities, including stocks, bonds, and bank accounts, with a value of at least EUR 400,000. The permit can be extended for an additional five years and allows travel to other EU and Schengen countries without a visa.
Intellectual Property Rights
In April 2020, the U.S. Trade Representative (USTR) removed Greece from its Special 301 Watch List due to progress in addressing concerns regarding intellectual property rights (IPR) protection and enforcement. The widespread use of unlicensed software in the public sector in Greece had been of long-standing concern to rights holders. In December 2019, Greece took clear steps to address this matter by allocating over EUR 39 million for the purchase of software licenses. In December 2020, the agreement to purchase software licenses for government workers was finalized, and the rollout is proceeding well according to government and private sector contacts. In addition, the Committee for Notification of Copyright and Related Rights Infringement on the Internet has been taking steps to address enforcement in the online environment, and Greece introduced a new law imposing fines for possessing counterfeit products. In 2019, the Ministry of Culture developed legislation which would allow for dynamic blocking of domains, in order to improve even further the enforcement of IPR. Parliament passed the bill in 2020.
Greece tracks seizures of counterfeit goods; however, the Ministry of Finance, Coast Guard, and Customs Service all track their data separately. In 2019, the Hellenic Coast Guard arrested 143 people during 110 cases, seizing over 9 million counterfeit cigarettes, 10 vehicles, and over 1,300 pounds of tobacco, all representing EUR1.8 million in attempted tax evasion. The Ministry of Finance’s Economic and Financial Crimes Unit (SDOE) conducts investigations and seizures of counterfeit goods and products. In 2019, the SDOE seized almost 600,000 counterfeit and pirated products, down from 1.1 million in 2018. The Hellenic Customs Service also conducts inspections at exit and entry points into the EU, with over 20 million counterfeit products seized in 2019, the majority of which were cigarettes. Violators can be fined for their actions, and Law 3982/2022 provides police ex officio authority to confiscate and destroy counterfeit goods.
Greece is not currently included in USTR’s Notorious Markets List
Greece is a member of the World Intellectual Property Organization (WIPO) and party to the Paris Convention for the Protection of Industrial Property, the European Patent Convention, the Washington Patent Cooperation Treaty, and the Berne Copyright Convention. As a member of the EU, Greece has harmonized its IPR legislation with EU rules and regulations. The WTO-TRIPS Agreement was incorporated into Greek legislation in February 1995 (Law 2290/1995). The Greek government also signed and ratified the WIPO internet treaties and incorporated them into Greek legislation (Laws 3183 and 3184/2003) in 2003. Greece’s legal framework for copyright protection is found in Law 2121 of 1993 on copyrights and Law 2328 of 1995 on the media.
For additional information about treaty obligations and points of contact at local IPR offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
Resources for Rights Holders
Embassy Point of Contact: U.S. Embassy Athens Economic Section 91 Vas. Sofias Avenue, Athens, Greece 10160 Phone: +30-210-721-2951
Awareness of corporate social responsibility (CSR) including environmental, social, and governance issues, has been growing over the last decade among both producers and consumers in Greece. Several enterprises, particularly large ones, in many fields of production and services, have accepted and now promote CSR principles. Several non-profit business associations have emerged in the last few years (Hellenic Network for Corporate Social Responsibility, Global Sustain, etc.) to disseminate CSR values and to promote them in the business world and society more broadly. These groups’ members have incorporated programs that contribute to the sustainable economic development of the communities in which they operate; minimize the impacts of their activities on the environment and natural resources; create healthy and safe working conditions for their employees; provide equal opportunities for employment and professional development; and provide shareholders with satisfactory returns through responsible social and environmental management. Firms that pursue CSR in Greece enhance the public acceptance and respect that they enjoy. In 2014, the government drafted a National Action Plan for Corporate Social Responsibility for the 2014-2021 period. The main goal of the plan is to increase the number of companies that recognize and use CSR to formulate their strategies. Greece has encouraged adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. There are no alleged/reported human or labor rights concerns relating to CSR that foreign businesses should be aware of. Greece is not a member of the Extractive Industries Transparency Initiative. Greece signed the Montreux Document on Private Military and Security Companies in 2009. It has also been a supporter of the International Code of Conduct for Private Security Service Providers and is a participant in the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).
Greece saw a slight increase in perceptions of corruption, as it went up one place to 59 on Transparency International’s 2019 Corruption Perception Index, from 60 in 2019 and 67 in 2018. By contrast, the country had improved since 2012, partly due to mandatory structural reforms. Despite these structural improvements, burdensome bureaucracy is reportedly slowing the progress. Transparency International issued a report in 2018 criticizing the government for improper public procurement actions involving Greek government ministers and the recent appointment of the close advisor to the country’s prime minister to be the head of the Hellenic Competition Commission, which oversees the enforcement of anti-trust legislation. Transparency International released another report in October 2018, warning of the corruption risks posed by golden visa programs, mentioning Greece as a top issuer of golden visas. In Transparency International’s 2020 report, the organization outlined the costs directly stemming from the COVID-19 pandemic, including cases of foreign bribery occurring in the health care sector.
On March 19, 2015, the government passed Law 4320, which provides for the establishment of a General Secretariat for Combatting Corruption under the authority of a new Minister of State. Under Article 12 of the Law, this entity drafts a national anti-corruption strategy, with an emphasis on coordination between anti-corruption bodies within various ministries and agencies, including the Economic Police, the Financial and Economic Crime Unit (SDOE), the Ministries’ Internal Control Units, and the Health and Welfare Services Inspection Body. Based on Law 4320, two major anti-corruption bodies, the Inspectors-Controllers Body for Public Administration (SEEDD) and the Inspectors-Controllers Body for Public Works (SEDE), were moved under the jurisdiction of the General Secretariat for Combatting Corruption. A Minister of State for combatting corruption was appointed to the cabinet following the January 2015 elections and given oversight of government efforts to combat corruption and economic crimes. The minister drafted coordinated plans of action, monitored their implementation, and was given operational control of the Economic Crime division of the Hellenic Police, the SDOE, ministries’ internal control units, and the Health and Welfare Services’ inspection body. Following the September 2015 national elections, the government abolished the cabinet post of Minister of State for combatting corruption, and assigned those duties to a new alternate minister for combatting corruption in the Ministry of Justice, Transparency, and Human Rights.
Legislation passed on May 11, 2015, provides a wider range of disciplinary sanctions against state employees accused of misconduct or breach of duty, while eliminating the immediate suspension of an accused employee prior to the completion of legal proceedings. If found guilty, offenders could be deprived of wages for up to 12 months and forced to relinquish their right to regain a senior post for a period of one to five years. Certain offenders could also be fined from EUR3,000 to EUR100,000. The law requires income and asset disclosure by appointed and elected officials, including nonpublic sector employees, such as journalists and heads of state-funded NGOs. Several different agencies are mandated to monitor and verify disclosures, including the General Inspectorate for Public Administration, the police internal affairs bureau, the Piraeus appeals prosecutor, and an independent permanent parliamentary committee. Declarations are made publicly available. The law provides for administrative and criminal sanctions for noncompliance. Penalties range from two to ten years’ imprisonment and fines from EUR10,000 to EUR1 million. On August 7, 2019, Parliament passed legislation establishing a unified transparency authority by transferring the powers and responsibilities of public administration inspection services to an independent authority. In November 2019, laws addressing the bribery of officials were amended to include a specific definition of “public official” and to make active bribery of a public official a felony instead of a misdemeanor, punishable by a prison sentence of five to eight years (as opposed to three years). On November 17, 2020, the government established the Financial Prosecutor’s Office to deal with financial crime in the wake of public complaints about an investigation by the Corruption Prosecutor’s Office into a case involving the pharmaceutical company Novartis. The new office, headed by a senior prosecutor selected by the Supreme Judicial Council of the Supreme Court, included 16 prosecutors, and became operational in November 2020.
Bribery is a criminal act and the law provides severe penalties for infractions, although diligent implementation and haphazard or uneven enforcement of the law remains an issue. Historically, the problem has been most acute in government procurement, as political influence and other considerations are widely believed to play a significant role in the evaluation of bids. Corruption related to the health care system and political party funding are areas of concern, as is the “fragmented” anti-corruption apparatus. NGOs and other observers have expressed concern over perceived high levels of official corruption. Permanent and ad hoc government entities charged with combating corruption are understaffed and underfinanced. There is a widespread perception that there are high levels of corruption in the public sector and tax evasion in the private sector, and many Greeks view corruption as the main obstacle to economic recovery.
The Ministry of Justice prosecutes cases of bribery and corruption. In cases where politicians are involved, the Greek parliament can conduct investigations and/or lift parliamentary immunity to allow a special court action to proceed against the politician. A December 2014 law does not allow high ranking officials, including the prime minister, ministers, alternate, and deputy ministers, parliament deputies, European Parliament deputies, general and special secretaries, regional governors and vice governors, and mayors and deputy mayors to benefit from more lenient sentences in cases involving official bribes. In 2019, Parliament passed an amendment to Article 62 of the constitution, which limits parliamentary immunity to acts carried out in the course of parliamentary duties. In addition, Parliament amended Article 86 of the constitution, abolishing the statute of limitations for crimes committed by ministers and to disallow postponements for trials of ministers.
Greece is a signatory to the UN Anticorruption Convention, which it signed on December 10, 2003, and ratified September 17, 2008. As a signatory of the OECD Convention on Combating Bribery of Foreign Government Officials and all relevant EU-mandated anti-corruption agreements, the Greek government is committed in principle to penalizing those who commit bribery in Greece or abroad. The OECD Convention has been in effect since 1999. Greek accession to other relevant conventions or treaties:
Council of Europe Civil Law Convention on Corruption: Signed June 8, 2000. Ratified February 21, 2002. Entry into force: November 1, 2003.
Council of Europe Criminal Law Convention on Corruption: Signed January 27, 1999. Ratified July 10, 2007. Entry into force: November 1, 2007.
United Nations Convention against Transnational Organized Crime: Signed on December 13, 2000. Ratified January 11, 2011.
Resources to Report Corruption
Government Agency
Organization: The Inspectors-Controllers Body for Public Administration
Address: 60 Sygrou Avenue, 11742, Athens
Telephone number: +30-213-215-8800
Email address: seedd@seedd.gr
There have been no major terrorist incidents in Greece in recent years; however, domestic groups conduct intermittent small-scale attacks such as targeted package bombs, improvised explosive devices, and unsophisticated incendiary devices (Molotov cocktails) typically targeting properties of political figures, party offices, privately owned vehicles, ministries, police stations, and businesses. In addition, domestic anarchist groups often carry out small-scale attacks targeting government buildings and foreign missions. Bilateral counterterrorism cooperation with the Greek government remains strong, and support from the Greek security services with respect to the protection of American interests is excellent. Demonstrations and protests are commonplace in large cities in Greece. While most of these demonstrations and strikes are peaceful and small-scale, they often cause temporary disruption to essential services and traffic, and anarchist groups are known in some cases to attach themselves to other demonstrations to create mayhem.
The masterminds of Greece’s most notorious terrorist groups are currently imprisoned, including leaders of November 17 and Revolutionary Popular Struggle, active between the 1970s and 1990s and responsible for hundreds of attacks and murders. Greek authorities largely eliminated these groups in advance of the 2004 Olympic Games. Following the Olympics, a new wave of organizations emerged, including Revolutionary Struggle, Conspiracy of Fire Nuclei, and Sect of Revolutionaries, though authorities rounded up these groups in a wave of arrests between 2009 and 2011, and again in 2014.
Domestic terrorist groups include “OLA,” also known as the Group of Popular Fighters or Popular Fighters Group, which claimed responsibility for the December 2018 bomb outside a private television station and the December 2017 bomb outside an Athens courthouse. OLA also claimed responsibility for the November 2015 bomb attack at the offices of the Hellenic Federation of Enterprises, which caused extensive damage to the offices and surrounding buildings, the December 2014 attack on the Israeli embassy in Athens, which resulted in no injuries and minor damage to the building, and the attack on the German Ambassador’s residence in Athens in December 2013. OLA also claimed responsibility for an indirect fire attack on a Mercedes-Benz building on January 12, 2014, and an attack in January 2013 against the headquarters of the then-governing New Democracy party in Athens.
11. Labor Policies and Practices
There is an adequate supply of skilled, semi-skilled, and unskilled labor in Greece, although some highly technical skills may be lacking. Illegal immigrants predominate in the unskilled labor sector in many urban areas, and in rural areas predominately in agriculture. Greece provides residency permits to migrants for a variety of reasons, including work. In July 2015, Parliament adopted a law regulating the status of non-EU foreign nationals recruited to work in the country as seasonal workers. The law also reduces the minimum consecutive residency period in the country required for undocumented migrants to be eligible to apply for a residency permit from ten to seven years, such applications being judged on the applicant’s strong ties to the country. The same law outlines the requirements for setting work contracts, requires proof of adequate shelter for workers and imposes a EUR1,500 ( USD 1,620) fine for employers who do not do so, requires prepayment of at least one month’s worth of social security for each employee, provides basic labor rights to each worker, and prohibits employers from recruiting workers if found to have previously recruited workers through fraudulent means. The law also stipulates that daily wages for non-EU foreign seasonal workers cannot be less than that of an unqualified worker. The law grants seasonal non-EU foreign workers the same rights as citizens with respect to minimum age of employment, labor conditions, the right to association, unionism, collective bargaining, education and vocational training, employment consultation services, and the right to certain goods, services and benefits under conditions. The same law also provides that non-EU nationals who are victims of abusive conditions or labor accidents could be eligible to apply for a residency permit on humanitarian grounds.
Asylum-seekers are eligible to apply for a work permit once they complete their first asylum interview; however, the procedures for obtaining this permit were not widely understood by asylum-seekers, non-governmental organizations (NGOs), or government officials. As of February 2021, the Greek Asylum Service had 74,934 cases pending, with the backlog expected to be cleared before the end of 2021. Asylum services and receipt of applications were suspended from March 13-April 10, 2020, due to the COVID-19 pandemic. Recognized refugees are entitled to the same labor rights as Greek nationals. NGOs and government officials working in migrant sites reported that some asylum-seekers perform undeclared seasonal agricultural labor in rural areas.
In April 2019, Greece announced a wage subsidy scheme called “Rebrain Greece,” which provides 500 talented Greeks that moved abroad during the financial crisis with a EUR3,000 monthly salary if they return to Greece. The program hopes to reinvigorate high-skilled sectors of the economy. In December 2020, the Greek Parliament passed Law 4758 that involved a tax break for those foreign nationals who would transfer their tax residence to Greece. Digital nomads who choose to work in Greece can take advantage of a 50 percent tax break for their first seven years of residency.
Greece has ratified International Labor Organization (ILO) Core Conventions. Specific legislation provides for the right of association and the rights to strike, organize, and bargain collectively. Greek labor laws set a minimum age (15) and wage for employment, determine acceptable work conditions and minimum occupational health and safety standards, define working hours, limit overtime, and apply certain rules for the dismissal of personnel. There is a difference between national minimum wage in the private sector for unspecialized workers aged 25 or older and workers below 25 years of age. The latter receive 84 percent of the salary of those over 25. A May 2015 law amended the laws prohibiting strikes during national emergencies. The 2015 law explicitly prohibits the issuance of civil mobilization orders as a means of countering strike actions before or after their proclamation.
In 2017 parliament passed legislation providing for the temporary closure of businesses in cases where employers repeatedly violate the law concerning undeclared work or safety. Under the same law, employers are obliged to declare in advance their employees’ overtime or changes in their work schedules. The legislation also provided for social and welfare benefits to be granted to surrogate mothers, including protection from dismissal during pregnancy and after childbirth. Courts are required to examine complaints filed by employees against their employers for delayed payment within two months after their filing, and issue decisions within 30 days after the hearing.
The government sets restrictions on mass dismissals in private and public companies employing more than 20 workers. Dismissals exceeding in number the limits set by law require consultations through the Supreme Labor Council (with worker, employer, and government representatives participating), and government authorization. Based on a ministerial decision in February 2014, the government shifted competency for approving dismissals from the Minister of Labor to the Ministry’s Secretary General.
Greek law provides for the right of workers to form and join independent unions, conduct their activities without interference, and strike. The establishment of trade unions in enterprises with fewer than 20 workers is prohibited. In July 2016, Parliament passed a law allowing armed forces personnel to form unions, while explicitly prohibiting strikes and work stoppages by those unions. Police also have the right to organize and demonstrate but not to strike. On July 10, 2020, the parliament separately passed legislation requiring prior and timely announcements – in writing or via email – of demonstrations to the appropriate police or Coast Guard authorities. The laws also make protest organizers accountable for bodily harm or property damage if they do not follow the requirements.
Around 950 inspectors are authorized to conduct labor inspections, including labor inspectorate personnel and staff of the Ministry of Labor, Social Security, and Social Solidarity, the Social Insurance Fund, the Economic Crimes Division of the police, and the Independent Authority for Public Revenue. Despite government efforts to increase inspections for undeclared, under-declared, and unpaid work, trade unions and the media alleged that, due to insufficient inspectorate staffing, enforcement of labor standards was inadequate in the housekeeping services, tourism, and agricultural sectors. Enforcement was also lacking among small enterprises (employing 10 or fewer persons). According to the Union of Labor Health Inspectors, authorities conducted approximately 45,000 inspections related to issues of health and safety at work, and ordered fines amounting to 7 million euros ( USD 8.4 million) between 2015 and 2016.
Wage laws are not always enforced. Unions and media allege that some private businesses forced their employees to return part of their wages and mandatory seasonal bonuses, in cash, after being deposited in the bank. Several employees were reportedly registered as part-time workers but in essence worked additional hours without being paid. In other cases, employees were paid after months of delays and oftentimes with coupons and not in cash. Cases of employment for up to 30 consecutive days of work without weekends off were also reported. Such violations were mostly noted in the tourism, agriculture, and housekeeping services sectors.
On July 1, 2019, Greece introduced Law 4611/2019, requiring Greek employers to provide a lawful reason when terminating employees on indefinite-term contracts, to pay social security contributions on behalf of interns and apprentices, and introduced new health and safety requirements including use of motorcycles for employment purposes.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs
A delegation comprised of senior officials from the U.S. International Development Finance Corporation (DFC), EXIM, Departments of Commerce and Energy, and USAID visited Greece in September 2020 to explore potential investments in critical infrastructure deals, including the ports of Alexandroupoli and Kavala and the shipyard at Elefsina.
Full DFC insurance coverage for U.S. investment in Greece is currently available on an exceptional basis. DFC considers Greece a high-income country but is authorized to operate business in Greece if there are strong foreign policy reasons to proceed. OPIC, DFC’s predecessor and the Greek Export Credit Insurance Organization signed an agreement in April 1994 to exchange information relating to private investment, particularly in the Balkans. Other insurance programs offering coverage for investments in Greece include the German investment guarantee program HERMES, the French agency COFACE, the Swedish Export Credits Guarantee Board (EKN), the British Export Credits Guarantee Facility (ECGF), and the Austrian Kontrollbank (OKB). Greece became a member of the Multilateral Investment Guarantee Agency (MIGA) in 1989.
For the purposes of DFC currency inconvertibility insurance, currency inconvertibility is not an issue as Greece has been part of the eurozone since 2001.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Please note that the following tables include FDI statistics from three different sources, and therefore will not be identical. Table 2 uses BEA data when available, which measures the stock of FDI by the market value of the investment in the year the investment was made (often referred to as historical value). This approach tends to undervalue the present value of FDI stock because it does not account for inflation. BEA data is not available for all countries, particularly if only a few U.S. firms have direct investments in a country. In such cases, Table 2 uses other sources that typically measure FDI stock in current value (or historical values adjusted for inflation). Even when Table 2 uses BEA data, Table 3 uses the IMF’s Coordinated Direct Investment Survey (CDIS) to determine the top five sources of FDI in the country. The CDIS measures FDI stock in current value, which means that if the U.S. is one of the top five sources of inward investment, U.S. FDI into the country will be listed in this table. That value will come from the CDIS and therefore will not match the BEA data.
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data
Year
Amount
Year
Amount
Host Country Gross Domestic Product (GDP) ($M USD)
The results are consistent with host country data.
14. Contact for More Information
Carl Watson, Deputy Economic Counselor U.S. Embassy Athens, Leof. Vasilissis Sofias 91, Athina 115 21, Greece +30 210-720-2306 ATHENS-econ@state.gov
Japan
Executive Summary
Japan is the world’s third largest economy, the United States’ fourth largest trading partner, and, as of 2019, the top provider of foreign direct investment (FDI) in the United States. The Japanese government actively welcomes and solicits inward foreign investment and has set ambitious goals for increasing inbound FDI. Despite Japan’s wealth, high level of development, and general acceptance of foreign investment, however, inbound FDI stocks, as a share of GDP, are the lowest in the OECD.
Japan’s legal and regulatory climate is highly supportive of investors in many respects. Courts are independent, but attorney-client privilege does not exist in civil, criminal or administrative matters, with the exception of limited application in cartel anti-trust investigations. There is no right to have counsel present during criminal or administrative interviews. The country’s regulatory system is improving transparency and developing new regulations in line with international norms. Capital markets are deep and broadly available to foreign investors. Japan maintains strong protections for intellectual property rights with generally robust enforcement. The country remains a large, wealthy, and sophisticated market with world-class corporations, research facilities, and technologies. Nearly all foreign exchange transactions, including transfers of profits, dividends, royalties, repatriation of capital, and repayment of principal, are freely permitted. The sectors that have historically attracted the largest foreign direct investment in Japan are electrical machinery, finance, and insurance.
On the other hand, foreign investors in the Japanese market continue to face numerous challenges. A traditional aversion towards mergers and acquisitions within corporate Japan has inhibited foreign investment, and weak corporate governance, among other factors, has led to low returns on equity and cash hoarding among Japanese firms, although business practices are improving in both areas. Investors and business owners must also grapple with inflexible labor laws and a highly regimented labor recruitment system that can significantly increase the cost and difficulty of managing human resources. The Japanese government has recognized many of these challenges and is pursuing initiatives to improve investment conditions.
Levels of corruption in Japan are low, but deep relationships between firms and suppliers may limit competition in certain sectors and inhibit the entry of foreign firms into local markets.
Future improvement in Japan’s investment climate is largely contingent on the success of structural reforms to raise economic growth, and, in the near term, the implementation of COVID-19 recovery measures.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Direct inward investment into Japan by foreign investors has been open and free since amendment of the Foreign Exchange and Foreign Trade Act (FEFTA) in 1998. In general, the only requirement for foreign investors making investments in Japan is to submit an ex post facto report to the relevant ministries. The Act was amended in 2019, updating Japan’s foreign investment review regime. The legislation became effective in May 2020 and lowered the ownership threshold for pre-approval notification to the government for foreign investors from ten percent to one percent in industries that could pose risks to Japanese national security. There are waivers for certain categories of investors.
The Japanese Government explicitly promotes inward FDI and has established formal programs to attract it. In 2013, the government of Prime Minister Shinzo Abe announced its intention to double Japan’s inward FDI stock to JPY 35 trillion (USD 318 billion) by 2020 and reiterated that commitment in its revised Japan Revitalization Strategy issued in August 2016. At the end of 2019, Japan’s inward FDI stock was JPY 33.9 trillion (USD 310 billion), a 10.4 percent increase over the previous year. The Suga Administration’s interest in attracting FDI is one component of the government’s strategy to reform and revitalize the Japanese economy, which continues to face the long-term challenges of low growth, an aging population, and a shrinking workforce.
The government’s “FDI Promotion Council,” composed of government ministers and private sector advisors, releases recommendations on improving Japan’s FDI environment. In a May 2018 report ( http://www.invest-japan.go.jp/documents/pdf/support_program_en.pdf), the council decided to launch the Support Program for Regional Foreign Direct Investment in Japan, recommending that local governments formulate a plan to attract foreign companies to their regions.
The Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) are the lead agencies responsible for assisting foreign firms wishing to invest in Japan. METI and JETRO have together created a “one-stop shop” for foreign investors, providing a single Tokyo location—with language assistance—where those seeking to establish a company in Japan can process the necessary paperwork (details are available at http://www.jetro.go.jp/en/invest/ibsc/). Prefectural and city governments also have active programs to attract foreign investors, but they lack many of the financial tools U.S. states and municipalities use to attract investment.
Foreign investors seeking a presence in the Japanese market or seeking to acquire a Japanese firm through corporate takeovers may face additional challenges, many of which relate more to prevailing business practices rather than to government regulations, although this varies by sector. These challenges include an insular and consensual business culture that has traditionally resisted unsolicited mergers and acquisitions (M&A), especially when initiated by non-Japanese entities; a lack of multiple independent directors on many company boards (even though board composition is changing); exclusive supplier networks and alliances between business groups that can restrict competition from foreign firms and domestic newcomers; cultural and linguistic challenges; and labor practices that tend to inhibit labor mobility. Business leaders have communicated to the Embassy that regulatory and governmental barriers are more likely to exist in mature, heavily regulated sectors than in new industries.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic private enterprises have the right to establish and own business enterprises and engage in all forms of remunerative activity. Japan has gradually eliminated most formal restrictions governing FDI. One remaining restriction limits foreign ownership in Japan’s former land-line monopoly telephone operator, Nippon Telegraph and Telephone (NTT), to 33 percent. Japan’s Radio Law and separate Broadcasting Law also limit foreign investment in broadcasters to 20 percent, or 33 percent for broadcasters categorized as providers of broadcast infrastructure. Foreign ownership of Japanese companies invested in terrestrial broadcasters will be counted against these limits. These limits do not apply to communication satellite facility owners, program suppliers or cable television operators.
The Foreign Exchange and Foreign Trade Act, as amended, governs investment in sectors deemed to have national security or economic stability implications. If a foreign investor wants to acquire over one percent of the shares of a listed company in the sectors set out below, it must provide prior notification and obtain approval from the Ministry of Finance and the ministry that regulates the specific industry. Designated sectors include weapons manufacturers, nuclear power, agriculture, aerospace, forestry, petroleum, electric/gas/water utilities, telecommunications, and leather manufacturing. There are waivers for certain categories of investors.
U.S. investors, relative to other foreign investors, are not disadvantaged or singled out by any ownership or control mechanisms, sector restrictions, or investment screening mechanisms.
Other Investment Policy Reviews
The World Trade Organization (WTO) conducted its most recent review of Japan’s trade policies in November 2020 (available at directdoc.aspx (wto.org)).
The Japan External Trade Organization is Japan’s investment promotion and facilitation agency. JETRO operates six Invest Japan Business Support Centers (IBSCs) across Japan that provide consultation services on Japanese incorporation types, business registration, human resources, office establishment, and visa/residency issues. Through its website (https://www.jetro.go.jp/en/invest/setting_up/), the organization provides English-language information on Japanese business registration, visas, taxes, recruiting, labor regulations, and trademark/design systems and procedures in Japan. While registration of corporate names and addresses can be completed online, most business registration procedures must be completed in person. In addition, corporate seals and articles of incorporation of newly established companies must be verified by a notary, although there are indications of change underway. When he took office in September 2020, Prime Minister Suga called for reforms to eliminate use of seals and paper-based process along with establishment of a new Digital Agency as part of his policy agenda of digitizing the provision of government services.
According to the 2020 World Bank “Doing Business” Report, it takes eleven days to establish a local limited liability company in Japan. JETRO reports that establishing a branch office of a foreign company requires one month, while setting up a subsidiary company takes two months. While requirements vary according to the type of incorporation, a typical business must register with the Legal Affairs Bureau (Ministry of Justice), the Labor Standards Inspection Office (Ministry of Health, Labor, and Welfare), the Japan Pension Service, the district Public Employment Security Office, and the district tax bureau. JETRO operates a one-stop business support center in Tokyo so that foreign companies can complete all necessary legal and administrative procedures in one location. In 2017, JETRO launched an online business registration system that allows businesses to register company documents but not immigration documentation.
No laws exist to explicitly prevent discrimination against women and minorities regarding registering and establishing a business. Neither special assistance nor mechanisms exist to aid women or underrepresented minorities.
Outward Investment
The Japan Bank for International Cooperation (JBIC) provides a variety of support for outward Japanese foreign direct investment. Most such support comes in the form of “overseas investment loans,” which can be provided to Japanese companies (investors), overseas Japanese affiliates (including joint ventures), and foreign governments in support of projects with Japanese content, typically infrastructure projects. JBIC often supports outward FDI projects to develop or secure overseas resources that are of strategic importance to Japan, for example, construction of liquefied natural gas (LNG) export terminals to facilitate sales to Japan and third countries in Asia. More information is available at https://www.jbic.go.jp/en/index.html.
Nippon Export and Investment Insurance (NEXI) supports outward investment by providing exporters and investors insurance that protects them against risks and uncertainty in foreign countries that is not covered by private-sector insurers. Together, JBIC and NEXI act as Japan’s export credit agency.
Japan also employs specialized agencies and public-private partnerships to target outward investment in specific sectors. For example, the Fund Corporation for the Overseas Development of Japan’s Information and Communications Technology and Postal Services (JICT) supports overseas investment in global telecommunications, broadcasting, and postal businesses.
Similarly, the Japan Overseas Infrastructure Investment Corporation for Transport and Urban Development (JOIN) is a government-funded corporation to invest and participate in transport and urban development projects that involve Japanese companies. The fund specializes in overseas infrastructure investment projects such as high-speed rail, airports, and smart city projects with Japanese companies, banks, governments, and other institutions (e.g., JICA, JBIC, NEXI).
Finally, the Japan Oil, Gas and Metals National Corporation (JOGMEC) is a Japanese government entity administered by the Agency for Natural Resources and Energy under METI. JOGMEC provides equity capital and liability guarantees to Japanese companies for oil and natural gas exploration and production projects.
Japan places no restrictions on outbound investment.
2. Bilateral Investment Agreements and Taxation Treaties
The 1953 U.S.-Japan Treaty of Friendship, Commerce, and Navigation gives national treatment and most favored nation treatment to U.S. investments in Japan.
On January 1, 2021, the Japan-UK Comprehensive Economic Partnership Agreement entered into force, which includes a chapter on investment liberalization. The text of the agreement is available online ( https://www.mofa.go.jp/files/100111408.pdf ). In November 2020, Japan signed the Regional Comprehensive Economic Partnership (RCEP) with the ten ASEAN nations, Australia, China, the Republic of Korea, and New Zealand. RCEP also includes a chapter on investment. The text of the agreement is available online (https://rcepsec.org/legal-text/).
As of February 2021, Japan had concluded 35 bilateral investment treaties (BITs) (Argentina, Armenia, Bangladesh, Cambodia, China, Colombia, Egypt, Georgia, Hong Kong SAR, Iran, Iraq, Israel, Jordan, Kazakhstan, the Republic of Korea, Kuwait, Laos, Mongolia, Morocco, Mozambique, Myanmar, Pakistan, Papua New Guinea, Peru, Russia, Saudi Arabia, Sri Lanka, Turkey, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Vietnam, Oman, and Kenya). In addition, Japan has a trilateral investment agreement with China and the Republic of Korea. Japan also has 18 economic partnership agreements (EPA) that include investment chapters (with Singapore, ASEAN, Mexico, Malaysia, Philippines, Chile, Thailand, Brunei, Indonesia, Switzerland, Vietnam, India, Peru, Australia and Mongolia, the Comprehensive and Progressive Partnership for Trans-Pacific Partnership (CPTPP), UK and RCEP).
On February 1, 2019, the Japan – European Union Economic Partnership Agreement entered into force, which includes provisions related to investment. The text of the agreement is available online (http://trade.ec.europa.eu/doclib/press/index.cfm?id=1684&title=EU-Japan-Economic-Partnership-Agreement-texts-of-the-agreement). The Comprehensive and Progressive Agreement for Trans-Pacific Partnership went into effect on December 30, 2018. This agreement includes an investment chapter. The United States is not a signatory to this agreement. Japan is the current chair of the CPTPP commission, its second time since the agreement went into effect.
The United States and Japan have a double taxation treaty, which allows Japan to tax the business profits of a U.S. resident only to the extent that those profits are attributable to a permanent establishment in Japan. It also provides measures to mitigate double taxation. This permanent establishment provision, combined with Japan’s corporate tax rate that nears 30 percent, serves to encourage foreign and investment funds to keep their trading and investment operations offshore.
In January 2013, the United States and Japan signed a revision to the bilateral income tax treaty, to bring it into closer conformity with the current tax treaty policies of the United States and Japan. The revision went into effect in August 2019 after ratification by the U.S Congress.
Japan operates a highly centralized regulatory system in which national-level ministries and government organs play a dominant role. Regulators are generally sophisticated and there is little evidence of explicit discrimination against foreign firms. Most draft regulations and impact assessments are released for public comment before implementation and are accessible through a unified portal (http://www.e-gov.go.jp/). Law, regulations, and administrative procedures are generally available online in Japanese along with regular publication in an official gazette. The Japanese government also actively maintains a body of unofficial English translations of some Japanese laws (http://www.japaneselawtranslation.go.jp/).
Some members of the foreign business community in Japan continue to express concern that Japanese regulators do not seek sufficient formal input from industry stakeholders, instead relying on formal and informal connections between regulators and domestic firms to arrive at regulatory decisions. This may have the effect of disadvantaging foreign firms that lack the benefit of deep relationships with local regulators. The United States has encouraged the Japanese government to improve public notice and comment procedures to ensure consistency and transparency in rule-making, and to give fair consideration to comments received. The National Trade Estimate Report on Foreign Trade Barriers (NTE), issued by the Office of the U.S. Trade Representative (USTR), contains a description of Japan’s regulatory regime as it affects foreign exporters and investors.
International Regulatory Considerations
The Japanese Industrial Standards Committee (JISC), administered by the Ministry of Economy, Trade, and Industry, plays a central role in maintaining Japan Industrial Standards (JIS). JISC aims to align JIS with international standards. According to JISC, as of March 31, 2020, 58 percent of Japan’s standards were harmonized with their international counterparts. Nonetheless, Japan maintains a large number of Japan-specific standards that can complicate efforts to introduce new products to the country. Japan is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade (TBT) of proposed regulations.
Legal System and Judicial Independence
Japan is primarily a civil law country based on codified law. The Constitution and the five major legal codes (Civil, Civil Procedure, Commercial, Criminal, and Criminal Procedure) form the legal basis of the system. Japan has a fully independent judiciary and a consistently applied body of commercial law. An Intellectual Property High Court was established in 2005 to expedite trial proceedings in IP cases. Foreign judgments are recognized and enforced by Japanese courts under certain conditions.
Laws and Regulations on Foreign Direct Investment
Major laws affecting foreign direct investment into Japan include the Foreign Exchange and Foreign Trade Act, the Companies Act, and the Financial Instruments and Exchange Act. The Japanese government actively encourages FDI into Japan and has sought over the past decades to ease legal and administrative burdens on foreign investors, including with major reforms to the Companies Act in 2005 and the Financial Instruments and Exchange Act in 2008. The Japanese government amended the Foreign Exchange and Foreign Trade Act in 2019.
Competition and Antitrust Laws
The Japan Fair Trade Commission (JFTC) holds sole responsibility for enforcing Japanese competition and anti-trust law, although public prosecutors may file criminal charges related to a JFTC finding. In fiscal year 2019, the JFTC investigated 99 suspected Antimonopoly Act (AMA) violations and completed 81 investigations. During this same time period, the JFTC issued 11 cease and desist orders and issued a total of 69.2 billion yen (USD 659 million) surcharge payment orders to 37 companies. In 2019, an amendment to the AMA passed the Diet that granted the JFTC discretion to incentivize cooperation with investigations and adjust surcharges according to the nature and extent of the violation.
The JFTC also reviews proposed “business combinations” (i.e., mergers, acquisitions, increased shareholdings, etc.) to ensure that transactions do not “substantially … restrain competition in any particular field of trade.” In December 2019, amended merger guidelines and policies were put into force to “deal with business combinations in the digital market.” Data is given consideration as a competitive asset under these new guidelines along with the network effects characteristic of digital businesses. The JFTC has expanded authority to review merger cases, including “Non-Notifiable Cases,” when the transaction value is more than JPY40 billion (USD 370 million) and the merger is expected to affect domestic consumers. Further, the amended policies suggest that parties consult with the JFTC voluntarily when the transaction value exceeds JPY40 billion and when one or more of the following factors is met: (i) When an acquired company has an office in Japan and/or conducts research and development in Japan;
(i) When an acquired company has an office in Japan and/or conducts research and development in Japan; (ii) When an acquired company conducts sales activities targeting domestic consumers, such as developing marketing materials (website, brochures, etc.) in the Japanese language; or
(ii) When an acquired company conducts sales activities targeting domestic consumers, such as developing marketing materials (website, brochures, etc.) in the Japanese language; or (iii) When the total domestic sales of an acquired company exceed JPY100 million (USD 920,000)
(iii) When the total domestic sales of an acquired company exceed JPY100 million (USD 920,000)
Expropriation and Compensation
Since 1945, the Japanese government has not expropriated any enterprise, and the expropriation or nationalization of foreign investments in Japan is highly unlikely.
Dispute Settlement
ICSID Convention and New York Convention
Japan has been a member of the International Centre for the Settlement of Investment Disputes (ICSID Convention) since 1967 and is also a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).
Enforcement of arbitral awards in Japan are provided for in Japan’s Arbitration Law. Enforcement in other contracting states is also possible. The Supreme Court of Japan has denied the enforceability of awards for punitive damages, however. The Arbitration Law provides that an arbitral award (irrespective of whether or not the seat of arbitration is in Japan) has the same effect as a final and binding judgment. The Arbitration Law does not distinguish awards rendered in contracting states of the New York Convention and in non-contracting states.
Investor-State Dispute Settlement
International Commercial Arbitration and Foreign Courts
The Japan Commercial Arbitration Association (JCAA) is the sole permanent commercial arbitral institution in Japan. Japan’s Arbitration Law is based on the United Nations Commission on International Trade Law “Model Law on International Commercial Arbitration” (UNCITRAL Model Law). Local courts recognize and enforce foreign arbitral awards.
A wide range of Alternate Dispute Resolution (ADR) organizations also exist in Japan. The Ministry of Justice (MOJ) has responsibility for regulating and accrediting ADR groups. A Japanese-language list of accredited organizations is available on the MOJ website: http://www.moj.go.jp/KANBOU/ADR/index.html .
Bankruptcy Regulations
The World Bank 2020 “Doing Business” Report ranked Japan third worldwide for resolving insolvency. An insolvent company in Japan can face liquidation under the Bankruptcy Act or take one of four roads to reorganization: the Civil Rehabilitation Law; the Corporate Reorganization Law; corporate reorganization under the Commercial Code; or an out-of-court creditor agreement. The Civil Rehabilitation Law focuses on corporate restructuring in contrast to liquidation, provides stronger protection of debtor assets prior to the start of restructuring procedures, eases requirements for initiating restructuring procedures, simplifies and rationalizes procedures for the examination and determination of liabilities, and improves procedures for approval of rehabilitation plans.
Out-of-court settlements in Japan tend to save time and expense but can lack transparency. In practice, because 100 percent creditor consensus is required for out-of-court settlements and courts can sanction a reorganization plan with only a majority of creditors’ approval, the last stage of an out-of-court settlement is often a request for a judicial seal of approval.
There are three domestic credit reporting/ credit-monitoring agencies in Japan. They are not government-run. They are: Japan Credit Information Reference Center Corp. (JICC, https://www.jicc.co.jp/english/index.html ‘, member companies deal in consumer loans, finance, and credit); Credit Information Center (CIC, https://www.cic.co.jp/en/index.html , member companies deal in credit cards and credit); and Japan Bankers Association (JBA, https://www.zenginkyo.or.jp/pcic/ , member companies deal in banking and bank-issued credit cards). Credit card companies, such as Japan Credit Bureau (JCB), and large banks, such as Mitsubishi UFJ Financial Group (MUFG), also maintain independent databases to monitor and assess credit.
Per Japan’s Banking Act, data and scores from credit reports and credit monitoring databases must be used solely by financial institutions for financial lending purposes. This information is provided to credit card holders themselves through services provided by credit reporting/credit monitoring agencies. Increasingly, however, to get around the law, real estate companies partner with a “credit guarantee association” and encourage or effectively require tenants to use its services. According to a 2017 report from the Japan Property Management Association (JPMA), roughly 80 percent of renters in Japan used such a service. While financial institutions can share data to the databases and receive credit reports by joining the membership of a credit monitoring agency, the agencies themselves, as well as credit card companies and large banks, generally do not necessarily share data with each other. As such, consumer credit information is generally underutilized and vertically siloed.
A government-operated database, the Juminhyo or the “citizen documentation database,” is used for voter registration; confirmation of eligibility for national health insurance, national social security, and child allowances; and checks and registrations related to scholarships, welfare protection, stamp seals (signatures), and immunizations. The database is strictly confidential, government-controlled, and not shared with third parties or private companies.
For the credit rating of businesses, there are at least seven credit rating agencies (CRAs) in Japan, including Moody’s Japan, Standard & Poor’s Ratings Japan, Tokyo Shoko Research, and Teikoku Databank. See Section 9 for more information on business vetting in Japan.
5. Protection of Property Rights
Real Property
Secured interests in real property are recognized and enforced. Mortgages are a standard lien on real property and must be recorded to be enforceable. Japan has a reliable recording system. Property can be rented or leased but no sub-lease is legal without the owner’s consent. In the World Bank 2020 “Doing Business” Report, Japan ranks 43 out of 190 economies in the category of Ease of Registering Property. There are bureaucratic steps and fees associated with purchasing improved real property in Japan, even when it is already registered and has a clear title. The required documentation for property purchases can be burdensome. Additionally, it is common practice in Japan for property appraisal values to be lower than the actual sale value, increasing the deposit required of the purchaser, as the bank will provide financing only up to the appraisal value.
The Japanese Government is unsure of the titleholders to 4.1 million hectares of land in Japan, roughly 20 percent of all land and an area equivalent in size to the island of Kyushu. According to a think tank expert on land use, 25 percent of all the land in Japan is registered to people who are no longer alive or otherwise unreachable. In 2015, the Ministry of Land, Infrastructure, Transportation and Tourism (MLIT) found that, of 400 randomly selected tracts of land, 46 percent was registered more than 30 years ago, and 20 percent was registered more than 50 years ago. A similar survey by the Ministry of Agriculture, Forestry and Fisheries (MAFF) found that 20 percent of farmland had a deceased owner and had not been re-registered. The government appointed a group of experts to study the matter, and the Unknown Land Owners Problem Study Group announced the results in a midterm report on June 26, 2017, and in a final report on December 13, 2017 (http://www.kok.or.jp/project/fumei.html). It estimated that by 2040 the amount of land without titleholders will increase to 7.2 million hectares. There are a number of reasons beyond the administrative difficulties of a title transfer as to why land lacks a clear title holder. They include: population decline, especially in rural areas; the difficulty of locating heirs, particularly if there are multiple heirs or if the deceased had no children; and the cost of reregistering land under a new name due to tax costs. Virtually all the large banks, as well as some other private companies, offer loans to purchase property in Japan.
Intellectual Property Rights
Japan maintains a comprehensive and sophisticated intellectual property (IP) regime recognized as among the strongest in the world. In 2020, Japan ranked sixth out of 53 countries evaluated by the U.S. Chamber of Commerce on the strength of IP environments. The government has operated a dedicated “Intellectual Property High Court” to adjudicate IP-related cases since 2005, providing judges with enhanced access to technical experts and the ability to specialize in intellectual property law. However, certain shortcomings remain, notably in the transparency and predictability of its system for pricing on-patent pharmaceuticals. The discriminatory effect of healthcare reimbursement pricing measures implemented by the Japanese government continues to raise serious concerns about the ability of U.S. pharmaceutical companies to have full and fair opportunity to use and profit from their IP in the Japanese market. More generally, the weak deterrent effect of Japan’s relatively modest penalties for IP infringement remains a cause for concern.
U.S. Embassy Tokyo is aware of isolated claims of U.S. IP misappropriation by Japanese state-owned or affiliated entities and presumes, given the vast volume of bilateral trade, that additional cases across public and private sectors may exist. That said, the Japanese government has taken several steps in recent years to improve protection of trade secrets. Revisions to the Unfair Competition Prevention Act (UCPA) went into effect July 2019, which classifies the improper acquisition, disclosure, and use of specified protected data as an act of unfair competition, offering civil and criminal remedies to stakeholders. The revisions also extend the scope of unfair competition to include attempts to circumvent technological restriction measures. Japan has taken a leading role in promoting the expansion of IP rights in recent regional trade agreements, including:
RCEP: On November 15, 2020, Japan joined 10 ASEAN member states, plus Australia, China, New Zealand, and the Republic of Korea, in signing the Regional Comprehensive Economic Partnership. This regional trade agreement includes a comprehensive IP chapter, much of it repeating norms set out in TRIPS, but also offering unique protections for genetic resources, traditional knowledge, and folklore.
Japan-UK CEPA: The Japan-UK Comprehensive Economic Partnership Agreement signed on October 23, 2020, and in force beginning January 1, 2021, contains an IP chapter including provisions on copyrights, trademarks, geographical indications, industrial designs, patents, regulatory test data exclusivity, new plant varieties, trade secrets, domain names, and enforcement.
Japan-EU EPA: The Japan-EU Economic Partnership Agreement, which went into effect February 1, 2019, also includes a substantial IP chapter.
CPTPP: As part of its 2018 accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Japan passed several substantive amendments to its copyright law, including measures that extended the term of copyright protection and strengthened technological protection rules.
Japan’s Customs and Tariff Bureau publishes a yearly report on goods seizures, available online in English (http://www.customs.go.jp/mizugiwa/chiteki/pages/g_001_e.htm). Japan seized an estimated $121.2 million worth of IP-infringing goods in 2019, a decrease of 5.2 percent over 2018. In June 2020, the Customs and Tariff Bureau of the Ministry of Finance announced the “SMART Customs Initiative 2020,” which aims to utilize cutting-edge technologies such as AI to improve the sophistication and efficiency of its operations. For additional information about national laws and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/.
8. Responsible Business Conduct
Progress has been made through efforts by the Financial Services Agency (FSA) and Tokyo Stock Exchange (TSE) to introduce non-binding reforms through changes to Japan’s Companies Act in 2014 and adoption of a Corporate Governance Code (CSR) in 2015. Together with the Stewardship Code for institutional investors launched by the FSA in 2014, these initiatives have encouraged companies to put cash stockpiles to better use by increasing investment, raising dividends, and taking on more risk to boost Japan’s growth. Positive results of these efforts are evidenced by rising shareholder returns, unwinding of cross-shareholdings, and increasing numbers of independent board members. According to a TSE survey conducted in December 2018, 85.3 percent of companies had a compliance rate of 90 percent out of the 66 principles of the new code. As of May 2019, 93.6 percent of TSE listed firms have at least one independent director, according to TSE’s most recent White Paper on Corporate Governance. In December 2019, the Diet approved a revision of the Companies Act, which will enable companies to provide documents for shareholders’ meetings electronically. Listed companies will be obligated to have at least one outside director. The bill went into effect on March 1, 2021.
Following Stewardship Code revision in March 2020, TSE and FSA plan to revise the Corporate Governance Code in spring of 2021 to reflect the realignment of the TSE segmentations, which will be implemented in 2022. The revised guidelines are expected to require companies, to be listed in the “Prime Section,” a top-tier TSE section, to have more than one-third external directors. The guidelines are also expected to urge listed companies to have more diversity in mid-level and managerial posts, by hiring and training female and foreign workers. Awareness of corporate social responsibility (CSR) among both producers and consumers in Japan is high, and foreign and local enterprises generally follow accepted CSR principles. Business organizations also actively promote CSR. Japan encourages adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.
Japan’s penal code covers crimes of official corruption, and an individual convicted under these statutes is, depending on the nature of the crime, subject to prison sentences and possible fines. With respect to corporate officers who accept bribes, Japanese law also provides for company directors to be subject to fines and/or imprisonment, and some judgments have been rendered against company directors.
The direct exchange of cash for favors from government officials in Japan is extremely rare. However, the web of close relationships between Japanese companies, politicians, government organizations, and universities has been criticized for fostering an inwardly “cooperative”—or insular—business climate that is conducive to the awarding of contracts, positions, etc. within a tight circle of local players. This phenomenon manifests itself most frequently and seriously in Japan through the rigging of bids on government public works projects. However, instances of bid rigging appear to have decreased over the past decade. Alleged bid rigging between construction companies was discovered on the Tokyo-Nagoya-Osaka maglev high-speed rail project in 2017, and the case was prosecuted in March 2018.
Japan’s Act on Elimination and Prevention of Involvement in Bid-Rigging authorizes the Japan Fair Trade Commission to demand that central and local government commissioning agencies take corrective measures to prevent continued complicity of officials in bid rigging activities and to report such measures to the JFTC. The Act also contains provisions concerning disciplinary action against officials participating in bid rigging and compensation for overcharges when the officials caused damage to the government due to willful or grave negligence. Nevertheless, questions remain as to whether the Act’s disciplinary provisions are strong enough to ensure officials involved in illegal bid rigging are held accountable.
Japan has ratified the Organisation for Economic Co-Operation and Development (OECD) Anti-Bribery Convention, which bans bribing foreign government officials.
For vetting potential local investment partners, companies may review credit reports on foreign companies available from many private-sector sources, including, in the United States, Dun & Bradstreet and Graydon International. Additionally, a company may inquire about the International Company Profile (ICP), which is a background report on a specific foreign company that is prepared by commercial officers of the U.S. Commercial Service at the U.S. Embassy, Tokyo.
Political violence is rare in Japan. Acts of political violence involving U.S. business interests are virtually unknown.
11. Labor Policies and Practices
The Government of Japan has provided extensive and expanded employment subsidies to companies to encourage them to maintain employment during the COVID-19 pandemic. Despite the pandemic, worker shortages still remain in sectors such as construction, transportation, and nursing care. The unemployment rate as of December 2020 was 2.9 percent. The fact that Japan’s unemployment rate has risen so slowly during the pandemic is remarkable and likely due to the social contract between worker and employer in Japan, as well as the continued government subsidies. Traditionally, Japanese workers have been classified as either regular or non-regular employees. Companies recruit regular employees directly from schools or universities and provide an employment contract with no fixed duration, effectively guaranteeing them lifetime employment. Non-regular employees are hired for a fixed period. Companies have increasingly relied on such non-regular workers to fill short-term labor requirements and to reduce labor costs. The pandemic has particularly hurt non-regular workers whose employment was concentrated in hard-hit service sectors such as tourism, hospitality, restaurants, and entertainment.
Major employers and labor unions engage in collective bargaining in nearly every industry. Union members as of June 2020 made up 17.1 percent of employees (“koyo-sha”), up slightly compared to 2019 and an increase for the first time in 11 years, but still in decline from 25 percent of the workforce in 1990. The government provides benefits for workers laid off for economic reasons through a national employment insurance program. Some National Strategic Special Zones allow for special employment of foreign workers in certain fields, but those and all other foreign workers are still subject to the same national labor laws and standards as Japanese workers. Japan has comprehensive labor dispute resolution mechanisms, including labor tribunals, mediation, and civil lawsuits. A Labor Standards Bureau oversees the enforcement of labor standards through a national network of Labor Bureaus and Labor Standards Inspection Offices.
The number of foreign workers is rising, but at just over 1.72 million as of October 2020, they still represent a fraction of Japan’s 69-million-worker labor force. The Japanese government has made changes to labor and immigration laws to facilitate the entry of larger numbers of skilled foreign workers in selected sectors. A revision to the Immigration Control and Refugee Recognition Law in December 2018, implemented in April 2019, created the “Specified Skilled” worker program designed specifically for lower-skilled foreign workers. Prior to this change, Japan had never created a visa category for lower-skilled foreign workers and this law created two. Category 1 grants five-year residency to low-skilled workers who pass skills exams and meet Japanese language criteria and permits them to work in 14 designated industries identified by the Japanese government to be experiencing severe labor shortage. Category 2 is for skilled workers with more experience, granting them long-term residency and a path to long-term employment, but currently permitted only in a few designated industries.
The Japanese government also operates the Technical Intern Training Program (TITP). Originally intended as an international skills-transfer program for workers from developing countries, TITP is currently used to address immediate labor shortages in over 80 designated occupations , such as jobs in the construction, agriculture, fishery, and elderly nursing care industries. As noted previously, the 2018 Immigration Control Law revision enabled TITP beneficiaries with at least three years of experience to qualify to apply for the Category 1 status of the Specified Skilled worker program without any exams.
To address the labor shortage resulting from population decline and a rapidly aging society, Japan’s government has pursued measures to increase participation and retention of older workers and women in the labor force. A law that went into force in April 2013 requires companies to introduce employment systems allowing employees reaching retirement age (generally set at 60) to continue working until 65. The law was revised again in March 2020 and will enter into force in April 2021, asking companies to “make efforts” to secure employment for workers between 65 and 70. Since 2013, the government has committed to increasing women’s economic participation. The Women’s Empowerment Law passed in 2015 requires large companies to disclose statistics about the hiring and promotion of women and to adopt action plans to improve the numbers. The COVID-19 pandemic has, however, had a disproportionate effect on women in Japan. Women were more likely than men to occupy non-regular positions, work in industries hardest hit by the downturn, and face greater pressure to prioritize family over work. As a result, women have experienced reductions in working hours, departure from the labor force, or furloughs in greater numbers than men, erasing part of the rise in their workforce participation through 2019. The Government of Japan has acknowledged this impact on women’s economic participation and has convened a study group to consider solutions.
In May 2019, a package law that revised the Women’s Empowerment Law, expanded the reporting requirements to SMEs that employ at least 101 persons (starting in April 2022) and increasing the number of disclosure items for larger companies ( as of June 2020). The package law also included several labor law revisions requiring companies to take preventive measures for power and sexual harassment in the workplace.
In June 2018, the Diet passed the Workstyle Reform package. The three key provisions are: (1) the “white collar exemption,” which eliminates overtime for a small number of highly paid professionals; (2) a formal overtime cap of 100 hours/month or 720 hours/year, with imprisonment and/or fines for violators; and (3) new “equal-pay-for-equal-work” principles to reduce gaps between regular and non-regular employees.
Japan has ratified 49 International Labor Organization (ILO) Conventions (including six of the eight fundamental conventions). As part of its agreement in principle on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership Japan agreed to adopt the fundamental labor rights stated in the ILO Declaration including freedom of association and the recognition of the right to collective bargaining, the elimination of forced labor and employment discrimination, and the abolition of child labor. The CPTPP entered into force on December 30, 2018.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs
U.S. International Development Finance Corporation (DFC) insurance and finance programs are not available in Japan. However, U.S. companies seeking to invest in other foreign countries with Japanese partners may have access to DFC programs and benefit from cooperative memorandums that the DFC has signed with Japanese Government entities to fund projects in third countries.
Japan is a member of the Multilateral Investment Guarantee Agency (MIGA). Japan’s capital subscription to MIGA is the second largest, after the United States.
Other foreign governments have very limited involvement in Japan’s domestic infrastructure development, and most financing and insurance is managed domestically.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data
Year
Amount
Year
Amount
Host Country Gross Domestic Product (GDP) ($M USD)
* Source for Host Country Data: *2019 Nominal GDP data from “Annual Report on National Accounts for 2019”, Economic and Social Research Institute, Cabinet Office, Japanese Government. December, 2020. (Note: uses exchange rate of 109.01 Yen to 1 U.S. Dollar and Calendar Year Data)
The discrepancy between Japan’s accounting of U.S. FDI into Japan and U.S. accounting of that FDI can be attributed to methodological differences, specifically with regard to indirect investors, profits generated from reinvested earnings, and differing standards for which companies must report FDI.
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (IMF CDIS, 2019)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
Total Inward
220,785
100%
Total Outward
1,769,193
100%
United States
58,220
26%
United States
518,490
29%
France
34,805
16%
United Kingdom
163,594
9%
Singapore
23,428
11%
China
127,517
7%
Netherlands
18,966
9%
Netherlands
116,189
7%
Cayman Islands
17,448
8%
Singapore
81,874
5%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Portfolio Investment
Portfolio Investment Assets (IMF CPIS, 2019 end)
Top Five Partners (Millions, current US Dollars)
Total
Equity Securities
Total Debt Securities
All Countries
4,610,836
100%
All Countries
1,904,423
100%
All Countries
2,706,413
100%
United States
1,806,516
39%
Cayman Islands
735,339
39%
United States
1,186,071
44%
Cayman Islands
948,100
21%
United States
620,445
33%
France
257,881
10%
France
294,758
6%
Luxembourg
100,164
5%
Cayman Islands
212,761
8%
United Kingdom
175,336
4%
Ireland
50,507
3%
United Kingdom
127,514
5%
Australia
153,130
3%
United Kingdom
47,822
3%
Australia
125,861
5%
14. Contact for More Information
Jerome Ryan
Economic Section
U.S. Embassy Tokyo
1-10-5 Akasaka, Minato-ku,
Tokyo 107-8420
Japan
+81 03-3224-5485
ryanej@state.gov
Jordan
Executive Summary
Jordan is a Middle Eastern country centrally located on desert plateaus in southwest Asia and strategically positioned to serve as a regional business platform. Since King Abdullah II’s 1999 ascension to the throne, Jordan has taken steps to encourage foreign investment and to develop an outward-oriented, market-based, and globally competitive economy. Jordan is also uniquely poised as a platform to host investments focused on the reconstruction of Iraq and other projects in regional markets.
Jordan is committed to the promotion of investments as a key driver of economic growth and job creation, though in practice these policies face implementation challenges. The Government of Jordan offers a range of incentives to potential investors and has undertaken measures to review and enhance the economic, financial, and legal framework governing the investment process to take better advantage of available opportunities and spur growth through investment. However, despite improvement on the World Bank Ease of Doing Business report, doing business in Jordan is more difficult than elsewhere in the region.
Jordan’s economic growth has been limited for over a decade by exogenous shocks, starting with the Global Financial Crisis in 2008, followed by the Arab Spring in 2011 which resulted in interruptions of energy imports, the 2015 closure of Jordan’s borders with Iraq (reopened in August 2017 but still not flourishing) and Syria (partially re-opened in 2018), and an influx of Syrian refugees. Over this period, the government consistently ran large annual budget deficits but has been able to reduce the financing gap with loans, foreign assistance, and savings from economic reform measures enacted as part of an International Monetary Fund (IMF) Extended Fund Facility programs. On March 25, 2020, the IMF Board approved a $1.3 billion Extended Fund Facility program for Jordan centered on fiscal consolidation, increased revenue collection, targeted social spending, economic growth, and job creation.
After growing by two percent in 2019, Jordan’s economy contracted by 1.6 percent in 2020 according to Department of Statistics data, largely due to the COVID-19 pandemic. The IMF estimates it will grow at 2.0 percent in 2021, though this number could be revised down as the effects of the pandemic’s second wave continue. Early in the pandemic, the Government of Jordan implemented a set of measures to contain the spread of the virus, which entailed a strict curfew and lockdown of schools, colleges, and 75 percent of all economic activity. The economy gradually re-opened after the initial lockdowns, although evening and Friday curfews persisted through much of 2020 and into 2021. The IMF has released additional credit from a Rapid Financing Instrument to help Jordan manage its fiscal obligations during the pandemic.
Jordan introduced plans to mitigate the pandemic’s negative impact on the economy in both the short and medium terms. The Central Bank of Jordan (CBJ) injected JD 1.5 billion ($2.1 billion) to increase liquidity in the banking system. It also lowered the lending rate by 1.5 percent. The CBJ launched a JD 500 million ($706 million) loan guarantee program at competitive interest rates to help small and medium enterprises (SMEs) resume their operations and pay their operational costs; this loan guarantee program increased in March 2021 to JD 700 million ($988 million). The CBJ also raised credit ceilings for the tourism sector and encouraged banks to reschedule and defer loans for those affected by the crisis through the end of 2021.
King Abdullah II activated the National Defense Law on March 17, 2020. Since then, the Government of Jordan has enacted 25 defense orders which stipulate measures to offset the socioeconomic impact of COVID-related restrictions and protect the economy. (List of all Defense Orders on Prime Ministry’s website in Arabic). The government also announced measures to alleviate financial and operational burdens on businesses by postponing General Sales Tax (GST) payment and customs fees, reducing the cost of labor by exempting companies from paying social security retirement insurance for three months starting in March 2020, reducing energy costs for the industrial sector, reducing inspection rate of imported essential products, and halting judicial procedures on defaulting individuals/companies. The government issued Defense Order 6 which aims to protect employees’ rights and bans layoffs. It addressed employment conditions in the private sector, including required salary payments and temporary closure of entities/institutions largely hit by the pandemic.
The Social Security Corporation (SSC), in coordination with the government, initiated a number of programs to support workers in most affected sectors and their employers, including the relief program “Estidama,” launched in December 2020 to subsidize the salaries of workers in the sectors most affected by COVID.
Even while Jordan’s economy struggles, international metrics indicate Jordan’s investment regulatory environment is improving. Jordan was selected as one of the top three most improved business climates in the World Bank’s “Doing Business Report 2020,” jumping 29 places from 104 to 75. Jordan advanced 33 points in the simplified tax services index for implementing an electronic filing and payment system for labor taxes. In ease of getting credit, Jordan ranked on par with the United States and Australia. Despite this progress, many investors complain the business environment continues to be challenging due to excessive red tape, shifting interpretations of laws and regulations, difficulties starting and exiting businesses, and other factors.
The Jordanian Investment Law grants equal treatment to local and foreign investors and incentivizes investments in industry, agriculture, tourism, hospitals, transportation, energy, and water distribution. In December 2020, the government submitted amendments to address loopholes related to tax breaks; the proposal is now awaiting parliamentary approval. The ongoing process to rationalize the tax structure and close tax loopholes may reduce incentives offered to foreign investors.
In January 2020, the Jordan Investment Commission (JIC) implemented an investor grievances bylaw which enables investors to file complaints concerning decisions issued by government agencies. Jordan also endorsed a new Public Private Partnership Law in 2020 to support the government’s commitment to broadening the utilization of the public-private partnerships and encouraging the private sector to play a larger role in overall economic activity.
Despite the pandemic, Foreign Direct Investment dropped only by 1.8 percent to JD 390 million ($551 million, equivalent to 1.7 percent of GDP) in the first three quarters of 2020 compared to the same period in 2019.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Jordan is largely open to foreign investment, and the government is committed to supporting foreign investment. Foreign and local investors are treated equally under the law. The Jordan Investment Commission (JIC) is the body responsible for implementing the 2014 Investment Law and promoting new and existing investment in Jordan, through a range of measures to incentivize and facilitate investment procedures.
The Investment Law established an Investment Council, comprised of the Prime Minister, ministers with economic portfolios, and representatives from the private sector, to oversee the management and development of national investment policy and propose legislative and economic reforms to facilitate investment.
The Investment Law also identifies JIC as the focal point for investors, capable of expediting the provision of government services and providing investment incentives such as tax and customs exemptions. The President of the Commission and the administrative team supervise and approve investment-related matters within the guidelines set by the Investment Council and approved by the government.
JIC oversees an investment-dedicated “Investment Window” to provide information and technical assistance to investors, with a mandate to simplify registration and licensing procedures for investment projects that benefit from the Investment Law. In 2018, the Commission launched a “Follow-Up and After Care” section with an aim to remove obstacles facing investors and find appropriate solutions as part of the investment process.
In 2018, the government issued the “Code of Governance Practices of Policies and Legislative Instruments in Government Departments for the Year 2018.” It aims to increase legislative predictability and stability to ensure the confidence of citizens and the business sector. The government developed guidelines for a regulatory impact assessment, to be adopted and implemented across all government entities by 2021.
Limits on Foreign Control and Right to Private Ownership and Establishment
Investment and property laws allow domestic and foreign entities to establish businesses that engage in remunerative activities. Foreign companies may open regional and branch offices; branch offices may carry out full business activities and regional offices may serve as liaisons between head offices and Jordanian or regional clients. The Ministry of Industry, Trade and Supply’s Companies Control Department implements the government’s policy on the establishment of regional and branch offices.
Foreign nationals and firms are permitted to own or lease property in Jordan for investment purposes and are allowed one residence for personal use, provided that their home country permits reciprocal property ownership rights for Jordanians. Depending on the size and location of the property, the Land and Survey Department, the Ministry of Finance, and/or the Cabinet may need to approve foreign ownership of land and property, which must then be developed within five years of the date of approval.
In April 2019, the government amended its bylaw governing foreign ownership, expanding ownership percentage in some economic activities, while maintaining the following restrictions:
Foreigners are prohibited from wholly or partially owning investigation and security services, stone quarrying operations for construction purposes, customs clearance services, and bakeries of all kinds; and are prohibited from trading in weapons and fireworks. The Cabinet, however, may approve foreign ownership of projects in these sectors upon the recommendation of the Investment Council. To qualify for the exemption, projects must be categorized as being highly valuable to the national economy.
Foreigners are prohibited from wholly or partially owning investigation and security services, stone quarrying operations for construction purposes, customs clearance services, and bakeries of all kinds; and are prohibited from trading in weapons and fireworks. The Cabinet, however, may approve foreign ownership of projects in these sectors upon the recommendation of the Investment Council. To qualify for the exemption, projects must be categorized as being highly valuable to the national economy.
Investors are limited to 50 percent ownership in certain businesses and services, including retail and wholesale trading, engineering consultancy services, exchange houses apart from banks and financial services companies, maritime, air, and land transportation services, and related services.
Investors are limited to 50 percent ownership in certain businesses and services, including retail and wholesale trading, engineering consultancy services, exchange houses apart from banks and financial services companies, maritime, air, and land transportation services, and related services. • Foreign firms may not import goods without appointing an agent registered in Jordan; the agent may be a branch office or a wholly owned subsidiary of the foreign firm. The agent’s connection to the foreign company must be direct, without a sub-agent or intermediary. The Commercial Agents and Intermediaries Law No. 28/2001 governs contractual agreements between foreign firms and commercial agents. Private foreign entities, whether licensed under sole foreign ownership or as a joint venture, compete on an equal basis with local companies.
Foreign firms may not import goods without appointing an agent registered in Jordan; the agent may be a branch office or a wholly owned subsidiary of the foreign firm. The agent’s connection to the foreign company must be direct, without a sub-agent or intermediary. The Commercial Agents and Intermediaries Law No. 28/2001 governs contractual agreements between foreign firms and commercial agents. Private foreign entities, whether licensed under sole foreign ownership or as a joint venture, compete on an equal basis with local companies.
The bylaw authorizes the Council of Ministers, upon the recommendation of the Prime Minister, to grant a higher percentage ownership to non-Jordanian investors in any investment based on a certain criteria.
Under the U.S.-Jordan Bilateral Investment Treaty, U.S. investors are granted several exceptions and are accorded the same treatment as Jordanian nationals, allowing U.S. investors to maintain 100 percent ownership in some restricted businesses. The most up-to-date listing of limitations on investments is available in the FTA Annex 3.1 and may be found at http://www.ustr.gov/trade-agreements/free-trade-agreements/jordan-fta/final-text.
For national security purposes, foreign investors must undergo security screening through the Ministry of Interior, which can be finalized through the Commission’s “Investment Window” located at the Investment Commission or online https://www.jic.gov.jo/en/home-new/.
Other Investment Policy Reviews
Jordan has been a World Trade Organization (WTO) member since 2000. The WTO conducted Jordan’s second Trade Policy Review in November 2015.
In 2012, the United States and Jordan agreed to Statements of Principles for International Investment and for Information and Communication Technology Services, and a Trade and Investment Partnership Bilateral Action Plan, each of which is designed to increase transparency, openness, and governmental and private sector cooperation. The two parties also began discussions on a Customs Administration and Trade Facilitation Agreement. All current treaties and agreements in force between the United States and Jordan may be found here: https://www.state.gov/s/l/treaty/tif/.
Businesses in Jordan need to register with the Ministry of Industry, Trade, and Supply’s Companies Control Department, or the Chambers of Commerce or Industry depending on the type of business they conduct. Registration is required to open a bank account, obtain a tax identification number, and obtain a VAT number. New businesses also need to obtain a vocational license from the municipality, receive a health inspection, and register with the SSC. In November 2017, the government issued a decision to cancel all non-security related pre-approvals for registering a business and only require final approvals before starting operations.
JIC’s “Investment Window” at the Jordan Investment Commission (www.jic.gov.jo) serves as a comprehensive investment center for investors. The window provides services to local and foreign investors, particularly those in the agricultural, medical, tourism, industrial, ICT-Business Process Outsourcing (BPO), and energy sectors.
In 2017, the Commission further streamlined procedures to register and license investment projects in development zones: it introduced a Fast-Track Investment Window, which reduced the number of committee approvals from 23 to 13, and reduced registration procedures from 15 to 5. These changes reduced the typical time required to register in development zones from five days to one day. Additionally, the time period to grant exemptions under the investment law has been reduced from two weeks to one, and the time period to grant exemptions under the decisions of the Prime Minister from seven days to one.
Jordan has also adopted a single security approval to replace the 11 approvals previously required for new investors. The new approval covers registering and licensing the company, obtaining driving licenses for investors, possessing immovable property for the establishment of investment projects in the industrial and developing zones, in addition to granting residence permits to non-Jordanian investors and their family members. The commission has published a number of online guides, including the investor guide (https://www.jic.gov.jo/en/investor-guide/).
In 2018, the Companies Control Department has developed and launched a portal for online registration: http://www.ccd.gov.jo/. Foreign investors can access it to register new companies. However, e-signatures have not been implemented, so investors must sign documents using notary services in their countries.
In November 2019, under the Jordan Investment Commission (JIC), the government introduced several new services including the issuance and renewal investor IDs, issuance and renewal of IDs for investors’ family members, registration of institutions in development zones, first-time registration of individual institutions, changing the method of use, registration and renewal of subscriptions to the Amman Chamber of Commerce (ACC), amendments to subscriptions to the ACC, and issuance of environmental permits. The introduction of these electronic services reduced the time needed to grant or renew the investor identification card (required to facilitate various transactions) to one day. (https://www.jic.gov.jo/en/).
In December 2020, the Greater Amman Municipality (GAM) digitized thirteen of its licensing-related services, including vocational licensing and renewal.
In accordance with the Investor Grievances Bylaw No. 163 of 2019, the JIC established a unit to follow up on and address investor complaints, with the aim to resolve legal disputes outside of government the formal court proceedings and reduce related cost.
Jordan launched a National Single Window (NSW) for customs clearance. In 2020, all export and import custom declarations became electronic. This was supported by new regulations enforcing the use of electronic clearances.
The Ministry of Digital Economy and Entrepreneurship statistics said that total electronic transactions in 2020 reached 14 million, including services provided by institutions such as GAM, JIC, Tax Department, Ministry of Industry and Trade, and Jordan Customs. As of March 2021, the total number of available e-services is 404.
The 2020 World Bank Doing Business Report attributed Jordan’s rise to 75th globally to reforms regarding the legal rights of borrowers and lenders, the introduction of a unified legal framework for secured transactions, launching a notice-based collateral registry, improvements to the insolvency law, and implementation of an electronic filing and payment for labor taxes and other mandatory contributions. The number of payments that businesses need to file every year was also cut from twenty-three to nine. However, Jordan ranked 120 in starting a business, with 7.5 procedures and 12.5 days to complete the process.
Outward Investment
Jordan does not have a mechanism to specifically incentivize outward investment, nor does it restrict it.
3. Legal Regime
Transparency of the Regulatory System
Legal, regulatory and accounting policies, applicable to both domestic and foreign investors, are transparent and promote competition. The Jordanian Companies Law stipulates that all registered companies should maintain sound accounting records and present annual audited financial statements in accordance with internationally recognized accounting and auditing principles. According to the Jordanian Securities Commission (JSC) Law and Directives of disclosures, auditing, and accounting standards (1/1998), all entities subject to JSC’s supervision are required to apply International Financial Reporting Standards (IFRS).
In 2018, the government issued the “Code of Governance Practices of Policies and Legislative Instruments in Government Departments” to increase legislative predictability and the stability of legislative environment. A pilot project was initiated in 2018 that enforced online consultations for new business regulations across six major entities in preparation for the roll out of the regulatory impact assessment across all government entities by 2021. The Legislative and Opinion Bureau is developing a “Legislation Data Memorandum,” which all government entities submitting new regulations will be required to fill out. The memorandum will provide information on the type and details of consultations conducted with the public and private sector and proof that the parties impacted have been consulted. Currently, laws and regulations are usually published on the website of the Legislative and Opinion Bureau for public comment, in addition to executive branch consultations with the legislative branch and key stakeholders. The new steps are aimed at institutionalizing public-private sector consultations.
The government is gradually implementing policies to improve competition and foster transparency in implementation. These reforms aim to change an existing system influenced in the past by family affiliations and business ties. The Jordan Investment Commission (JIC), through its Fast-Track Investment Window, introduced a number of measures to streamline the investment process.
The commission issued and published a services and licensing guides outlining processes and fees, in addition to the incentives guide (https://www.jic.gov.jo/en/services-guide/). Guides are currently available in Arabic.
Jordan recognizes and accepts most U.S. standards and specifications. However, Jordan has occasionally required additional product standards for imports. Some of these measures have been viewed as barriers to trade, such as a 2014 restriction imposed on packaging sizes for poultry available for retail resale.
As a member country of the WTO, Jordan is obliged to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).
Jordan is a signatory of the WTO Trade Facilitation Agreement. Jordan had implemented 88.7 percent of its commitments. Jordan submitted its notifications for Category A before the agreement came into force, and is currently in the final review for categories B and C.
Legal System and Judicial Independence
Jordan has a mixed legal system based on civil law, sharia law (Islamic law), and customary law. The Constitution establishes the judiciary as one of three separate and independent branches of government. Jordanian commercial laws do not make a distinction between Jordanian and non-Jordanian investors. However, plaintiffs complain of judicial backlogs and subsequent delays in legal proceedings. In 2018, Jordan has introduced economic judicial chambers, established under the Amman First Instance Court and Amman Appeal Court under the provisions of the Law of Formation of the amended Courts No. 30 of 2017. These chambers specialize in the adjudication of certain commercial and investment disputes mentioned in Article 4 of the Courts Formation Law.
Laws and Regulations on Foreign Direct Investment
Jordan’s Investment Law governs local and foreign investment. The law consolidated three entities – the Jordan Investment Board, the Jordanian Development Zones Commission, and the Free Zones Corporation – into the Jordan Investment Commission. The law incorporates a statement of investors’ rights and a legal framework for the newly established Investment Window, which is located at the Investment Commission’s headquarters.
The commission issued and published services and licensing guides outlining processes and fees, in addition to other guides ( https://www.jic.gov.jo/en/publications/). The commission also issued a new bylaw that regulates non-Jordanian investments to allow larger foreign investors’ ownership in previously restricted areas.
In September 2017, Parliament passed the Monitoring and Inspection of Economic Activities Law No. 33/2017, and amendments to Jordan’s Companies Law No. 34/2017. This law governs the requirements to establish venture capital companies for the purpose of direct investment, or for creating funds, to contribute or invest in high-growth companies that are not listed in the stock market.
In 2018, Jordan passed the Insolvency Law, Movable Assets and Secured Lending Law and Bylaw, the Venture Capital Bylaw, and the Income Tax Law, along with bylaws to ensure proper implementation.
In October 2019, Jordan published an amended Social Security Law stipulating temporary changes to the social security contributions of newly registered entities that meet specific conditions, with an aim to support new companies and startups. The government also issued the Investor Grievance Bylaw and established a special unit to follow up on investors cases. As part of the government economic stimulus package announced in 2019, new investors are offered 10-year “incentive stability guarantees.” In January 2020, Jordan passed a new Public Private Partnership (PPP) law and established a PPP Unit to identify and study investment opportunities. The PPP Law introduced a comprehensive PPP framework and created a special fund to finance PPP Projects. The PPP unit reports to the Prime Minister and is authorized to provide technical assistance to the government by preparing feasibility studies and Financial Commitments Reports. The International Financing Corporation (IFC) and other donors are providing technical assistance programs to enhance the capacity and effectiveness of the PPP unit and framework.
There is no systematic or legal discrimination against foreign participation with respect to ownership and participation in Jordan’s major economic sectors other than the restrictions outlined in the governing regulations. In fact, many Jordanian businesses actively seek engagement with foreign partners to increase their competitiveness and access to other international markets. The government’s efforts have made Jordan’s official investment climate welcoming; however, U.S. investors have reported hidden costs, bureaucratic red tape, vague regulations, and unclear or conflicting jurisdictions.
Investment Window
Jordan Investment Commission
Telephone: +962 (6) 5608400/9 Ext: 120
P.O. Box 893
Amman 11821 Jordan
E-mail: info@jic.gov.jo
Competition and Antitrust Laws
Parliament passed amendments to Competition Law No. 33/2004 in 2011 to strengthen the local economic environment and attract foreign investment by providing incentives to improve market competitiveness, protect small and medium enterprises from restrictive anticompetitive practices, and give consumers access to high quality products at competitive prices. The Competition Directorate at the Ministry of Industry, Trade, and Supply conducts market research, examines complaints, and reports violators to the judicial system.
The investor grievance unit established in 2019 at the Jordan Investment Commission can also look into unfair competition cases filed by investors.
Expropriation and Compensation
Article 11 of the Jordanian Constitution stipulates that expropriations are prohibited unless specifically deemed to be in the public interest. In cases of expropriation, the law mandates provision of fair compensation to the investor in convertible currency.
Dispute Settlement
ICSID Convention and New York Convention
Since 1972, Jordan has been a contracting state to the International Centre for Settlement of Investment Disputes (ICSID Convention). Only a small number of cases between foreign investors and the Jordanian government have been brought before ICSID tribunals. Jordan is also a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention).
In January 2018, the Parliament passed amendments to Arbitration Law 2017, which aims to facilitate the use of arbitration as an alternative to dispute settlement procedures.
Investor-State Dispute Settlement
Under domestic law, foreign investors may seek third party arbitration as a means of settling disputes. Jordan abides by WTO dispute settlement mechanisms, and dispute settlement mechanisms under the U.S.-Jordan FTA are consistent with WTO commitments. Article IX of the United States-Jordan Bilateral Investment Treaty (BIT) establishes procedures for dispute settlements between Jordanians and U.S. persons.
Investment disputes are treated as any other commercial or civil dispute in the Jordanian judicial system. Investment agreements with the Jordanian government as a party generally contain a dispute resolution clause that would refer cases to arbitration in Jordan. On average, it takes three to four years for cases that go through the local court system to reach a verdict. Cases settled through arbitration take between 12 to 18 months. The main challenge in litigating cases is being able to conduct proper process of service upon all concerned parties. Another challenge is recently established Economic Chamber is still developing its expertise in complex commercial litigation.
Rulings by U.S. courts or other international arbitration committees can be upheld through the filing of an Enforcement of Ruling motion in a Jordanian court.
International Commercial Arbitration and Foreign Courts
In March 2018, King Abdullah II approved Arbitration Law No. 16, amending the 2001 law. The amendment introduced changes to the procedural framework of arbitrators seated in Jordan, which can be traced in the UNCITRAL model law. The amended law gives more authority to the Arbitral Tribunal and limits the role of the Court of Appeal.
Rulings by U.S. courts or other international arbitration committees can be upheld through the filing of an Enforcement of Ruling motion in a Jordanian court.
The Jordan Investment Commission (JIC) established an investor grievance mechanism in accordance with the Investor Grievance bylaw No. 163 of 2019, and Grievance Hearing regulation No. 1 of 2020. This mechanism allows investors to file complaints against government decisions outside of court system; complaints can be filed electronically through JIC’s website.
Bankruptcy Regulations
The Commercial Code, Civil Code, and Companies Law collectively govern bankruptcy and insolvency proceedings. In December 2017, the cabinet endorsed a bankruptcy bylaw which stipulates procedures for optional and compulsory liquidation, along with the mechanism, liquidation plan, and required documentation and reporting. In 2018, parliament passed the Insolvency Law, which allows individuals and companies to offset their financial position through a debt management plan. The law was designed to help the insolvent entity continue its economic activity, rather than directly resorting to bankruptcy, and regulates insolvency proceedings for foreign organizations according to international conventions ratified by Jordan. As of 2021, judges had dismissed almost all petitions for insolvency on technical grounds and no company has yet used the insolvency law successfully.
Defaulting on loans or issuing checks without adequate available balances is a crime in Jordan and may subject the offender to imprisonment under Jordan’s penal system. While Jordan is reexamining these laws, prison terms for debtors remains a legal practice in Jordan. Investors should conduct thorough due diligence on potential partners and avail themselves of local legal counsel in order to understand best business practices in Jordan and conform with local laws. The U.S. Commercial Service office of the Embassy of the United States in Amman can assist American businesses in these endeavors.
5. Protection of Property Rights
Real Property
The legal system reliably facilitates and protects the acquisition and disposition of property rights. Foreign ownership of land and assets is governed by the Leasing of Immovable Assets and Their Sale to Non-Jordanian and Judicial Persons Law No. 47/2006. Under Article 3 of the law, if the buyer’s country of residence has a reciprocal relationship with Jordan, foreign nationals are afforded the right of ownership of property within urban borders in Jordan for residential purposes. According to the law, foreign nationals may rent immovable assets for business or accommodation purposes, provided that the plot of land does not exceed 10 acres and the lease is for no more than three years in duration. Interest in real property is recognized and enforced once recorded in a legal registry.
Jordan approved an investment program that grants citizenship or permanent residency of non-Jordanians in February 2018. This program includes permanent residency for non-Jordanians who purchase properties worth a minimum of JOD 200,000 ($282,100) and hold the properties for 10 years.
A new Property law passed in 2019 consolidated 13 laws governing property ownership in one legislation and addressed issues such as zoning and the facilitation of ownership and leases for foreign investors.
All land plots in Jordan are titled and registered with the Jordanian Land and Survey Department; any land not titled as private property is considered government property.
According to the Ease of Doing Business report of 2020, Jordan ranked 78 out of 190 countries in “Registering Property.”
Intellectual Property Rights
Jordan has passed several laws in compliance with international commitments to protect intellectual property rights (IPR). Laws consistent with Trade Related Aspects of Intellectual Property Rights (TRIPS) now protect trade secrets, plant varieties, and semiconductor chip designs.
Copyrights are registered with the Ministry of Culture’s National Library Department and patents are registered with the Registrar of Patents and Trademarks at the Ministry of Industry and Trade.
Jordan is a signatory to the Patent Cooperation Treaty and the Madrid Protocol and amended its patent and trademark laws in 2007 to enable ratification of the agreements. Jordan is a signatory to World Intellectual Property Organization (WIPO) treaties on both copyrights and on performances and phonograms, and it has been developing updated laws for copyrights, trademark standards, and customs regulations to meet international standards. Jordanian firms are able to seek joint ventures and licensing agreements with multinational partners. In 2017, Jordan acceded to the Patent Cooperation Treaty (PCT); the treaty entered into force October 2017. The Ministry of Industry and Trade introduced an e-filing service in 2018 through https://ippd-eservice.mit.gov.jo/.
In 2017, Jordan acceded to the Patent Cooperation Treaty (PCT); the treaty entered into force October 2017. The Ministry of Industry and Trade introduced an e-filing service in 2018 through https://ippd-eservice.mit.gov.jo/.
Amendments to Article 41 of Customs Law No. 33 of 2018 granted more time for legal agents to file trademark violation complaints. Jordan’s record on IPR enforcement has improved in recent years, but more effective enforcement mechanisms and legal procedures are still needed. In particular, a large portion of pirated videos and software remain in the marketplace.
On January 1, 2020, Jordan issued a draft bylaw for the application of broader protections of intellectual property rights. The bylaw stipulates the procedures to be followed by customs officials at the border to ensure the protection of intellectual property rights. As of March 2021, the draft was still under review at the Legislative and Opinion Bureau. On December 1, 2020 the Ministry of Industry, Trade and Supply issued instructions allowing the public to view patent applications once the legal period specified in the law has lapsed.
On December 1, 2020 the Ministry of Industry, Trade and Supply issued instructions allowing the public to view patent applications once the legal period specified in the law has lapsed.
Since 2000, 6,234 violations of Jordan’s current copyright law have been referred to the judiciary, including 218 cases in 2019 and 15 cases 2020. The significant drop in cases between 2019 and 2020 is due to the COVID-19 pandemic, which necessitated closing courts several times during the year. In addition, the Customs Department issued 163 infringement notifications to trademark owners or their legal representatives and seized 1,159,828 pieces of merchandise due to the infringement of intellectual property rights.
Jordan is not listed in USTR’s Special 301 Report and the Notorious Markets Report.
Resources for Intellectual Property Rights Holders:
Peter Mehravari
Patent Attorney
Intellectual Property Attaché for the Middle East & North Africa
U.S. Embassy Abu Dhabi | U.S. Department of Commerce U.S. Patent & Trademark Office Tel: +965 2259 1455 Peter.Mehravari@trade.gov
For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
8. Responsible Business Conduct
There is general awareness of responsible business conduct among both manufacturers and consumers in Jordan, with many local and multinational companies voluntarily developing and adopting corporate social responsibility (CSR) programs. CSR efforts predominantly focus on improving infrastructure in adjoining communities or providing better access to educational opportunities.
The amended Companies Law of 2018 regulates the work of companies by applying the rules of corporate governance and enhancing the monitoring authorities of shareholders at public liability companies.
The government, enterprises, and NGOs are taking initiatives to incorporate responsible business conduct principles into their practices. The authorities developed a Corporate Governance Code based on the OECD Principles of Corporate Governance and ratified human rights conventions, but further steps are needed to guarantee respect for human rights by enterprises. The legal and institutional framework for employment and labor relations has been reinforced. Environmental impact assessments are conducted. With a view to promoting the OECD Guidelines for Multinational Enterprises and their observance by companies, Jordan revived its National Contact Point within the Jordan Investment Board.
The American Chamber of Commerce published in 2016 a framework code of conduct for the private sector, the Jordan Integrity and Anti-Corruption Commission (JIACC) approved and embedded as part of the governance chapter in the amended Companies Law. The Customs Department released and revised a Golden List Program, which encourages good corporate citizenship amongst trading companies and international best practice for trade across borders.
The government issues a monthly financial bulletin highlighting all revenues, including taxes and royalties paid by extractive industries. Jordan initiated discussions with the Extractive Industries Transparency Initiative (EITI), but it has not joined.
Jordan is a signatory of The Montreux Document on Private Military and Security Companies since 2009.
The use of family, business, and other personal connections to advance personal business interests is endemic and regarded by many Jordanians as part of the culture. However, surveys found between four and eight percent of Jordanians reported paying a bribe in the previous 12 months. In February 2021 King Abdullah directed the General Intelligence Directorate (GID) to transfer responsibility for confronting corruption to the Audit Bureau, judiciary, and other civilian institutions. In June 2020 the government began a campaign to combat tax evasion which involved tax authorities opening hundreds of investigations and raiding over a dozen firms. Authorities have opened public corruption cases against several former senior officials since 2019 , but no trials have been completed as of April 2021.
Jordan was the first Middle Eastern country to sign and ratify the United Nations Convention against Corruption (UNCAC) in 2005. In 2006, Jordan issued a code of conduct for the public sector, enacted an Illicit Gains Law, and Anti-Corruption Law. Jordanian law defines corruption as any act that violates official duties, all acts related to favoritism and nepotism that could deprive others from their legitimate rights, economic crimes, and misuse of power.
The Illicit Gains Law requires designated officials, their spouses, and minor children to file financial disclosures with the Integrity and Anti-Corruption Commission (IACC). Designated officials include the prime minister, cabinet members, members of parliament, senior government officials, as well as municipal-level council members and executives.
Jordan created the IACC in 2016 through a merger of the Bureau of the Ombudsman and the Anti-Corruption Commission. In 2019, Parliament amended the IACC Law granting the IACC more authority to access asset disclosure filings of officials exhibiting unexplained wealth. The amendment empowers the commission to request asset seizures, international travel bans, and suspension of officials under investigation for corruption. The amendment also increases the IACC’s administrative autonomy by enabling the commission to update its own regulations and protecting IACC board members and the chairperson from arbitrary dismissal.
In 2018, the government issued the Code of Governance Practices of Policies and Legislative Instruments in Government Departments, to improve the predictability of legal and regulatory framework governing the business environment.
A new Audit Bureau Law was enacted in 2018 to strengthen audit performance, capacity and independence in line with International Organization of Supreme Audit Institutions (INTOSAI) standards. Other related laws include the Penal/Criminal Code, Anti-Money Laundering Law, Right to Access Information Law, and the Economic Crimes Law.
(INTOSAI) standards. Other related laws include the Penal/Criminal Code, Anti-Money Laundering Law, Right to Access Information Law, and the Economic Crimes Law.
Jordan is not a party to the OECD Convention on Combatting Bribery.
Resources to Report Corruption
H.E. Mohannad Hijazi
Chairman
Jordan Integrity and Anti-Corruption Commission (JIACC)
P.O. Box 5000, Amman, 11953, Jordan
+962 6 550 3150
Abeer Mdanat
Executive Director
Rasheed Coalition
P.O. Box 582662, Amman, 111585, Jordan
+962 5 585 2528 amdanat@rasheedti.org
10. Political and Security Environment
The threat of terrorism remains high in Jordan. Transnational and indigenous terrorist groups have demonstrated the capability to plan and implement attacks in Jordan. Violent extremist groups in Syria and Iraq, including the Islamic State of Iraq and ash-Sham (ISIS), and al-Qa’ida, directly or indirectly have conducted or supported attacks in Jordan and continue to plot against local security forces, U.S. and Western interests and “soft” targets, such as high-profile public events, hotels, places of worship, restaurants, schools, and malls. Jordan’s prominent role in the Global Coalition to Defeat ISIS and its shared borders with Iraq and Syria increase the potential for future terrorist incidents.
Demonstrations occur frequently. They may take place in response to political or economic issues, on politically significant holidays, and during international events. In general, demonstrations remain peaceful. However, some have turned violent, even when intended to be peaceful, leading security officials to intervene. Visitors should consult current State Department public announcements at www.travel.state.gov before traveling to Jordan.
Visitors should consult current State Department public announcements at www.travel.state.gov before traveling to Jordan.
11. Labor Policies and Practices
According to the Department of Statistics Annual Report for 2020, the total population of Jordan is 10.8 million, of which 69 percent are Jordanians (7.4 million) and approximately 31 percent are non-Jordanians, including 1.3 million Syrian refugees. UNHCR has registered 663,507 Syrian refugees in Jordan.
Approximately 70 percent of the population is estimated to be under the age of 30. Literacy rates are 98.2 percent for men and 92.9 percent for women. Jordan has a generally well-educated labor force of about 2.8 million Jordanians. According to the Department of Statistics, official unemployment in 2020 reached 23.9 percent. Certain types of work are restricted to Jordanians only. Local labor requirements in development and free zones vary based on the type of economic activity. Some reports estimate the share of informal laborers in the workforce to be 41 percent.
The labor law does not require employers to include retirement plans in employment packages. However, if the employer agreed to provide retirement benefits when the worker was contracted, the employer must fulfill that commitment. In 2017, Jordan introduced amendments to the labor law regarding flexible work hours and the provision of daycare; the amendments were approved and published in the official gazette in May 2019. The amendments enhanced the work environment for employees, including a definition for flexible work hours, and provisions against gender wage discrimination. The law granted paternity leave for three days, tied the eligibility for daycare to the total number of employees’ children under the age of five (minimum 15 children from the age 0-4 years old), and exempts non-Jordanian children of Jordanian women from needing a work permit.
Labor unions serve primarily as intermediaries between workers and the Ministry of Labor (MOL) and may engage in collective bargaining on behalf of workers. The 17 recognized unions are all members of the General Federation of Jordanian Trade Unions. Estimates put union membership at less than 10 percent of the labor force. Additionally, there are 40 active professional associations, including many that have mandatory membership and 15 independent unions covering the rest of the professions and trades. According to official figures, about 30 percent of the total labor force, including government workers, belong to either a union or a professional association. In 2020, labor unions representing workers in garment, food, petrochemical and oil industries signed twenty different Collective Bargaining Agreements.
In February 2020, the Ministry of Labor increased the number of professions closed to non-Jordanians from 11 to 28. However, employers may request the Ministry of Labor review applications for foreign workers in restricted sectors if local expertise cannot be found; these requests have generally been approved. Local labor requirements in development and free zones vary based on the type of economic activity
The Jordanian Labor Law addresses layoffs, and requires ministerial notification and guarantee of legitimate and entitled benefits and severance, but also allows firing without prior notice on certain conditions. Companies with the appropriate justification may obtain permission from the Ministry of Labor (MOL) to reduce their staff as a result of business restructuring. The social security system provides up to six months of unemployment benefits for formally registered workers.
On March 2020, the King issued a royal decree enacting the Jordan National Defense Law to grant the Prime Minister wide powers to undertake all necessary measures to combat the COVID-19 outbreak in the Kingdom, including the temporary suspension of ordinary legislation.
Accordingly, the government issued Defense Order No. 1 March 19, 2020, which provided temporary amendments to the social security law to mitigate the pandemic’s impact on the private sector. It temporarily suspended the implementation of retirement insurance for private sector employees, bringing the total monthly contribution down to 5.25 percent of the employee’s wage (4.25 percent payable by the employer and 1 percent deducted from the employee) from the original contribution of 21.75 percent of the employee’s salary subject to deduction (14.25 percent payable by the employer and 7.5 percent deducted from the employee).
Defense Order No. 6 sets measures addressing employment conditions in the private sector, including required salary payments and temporary closure of entities/institutions largely hit by the pandemic. Defense Orders 9, 14, 15 and 25 mainly introduced economic programs, to sustain businesses and job stability.
Articles 120,121 and 122 of the Jordanian law introduces a mechanism for labor dispute resolution beginning with labor inspector mediation. If mediation fails, the Minister of Labor reviews the case, followed by the Conciliation Council, then finally by the Labor Court under the Magistrate and Penalty Court to resolve the case within seven days.
Three labor disputes haven taken place since 2019. Teachers went on strike in 2019 to demand a 50 percent pay raise. The government struck a deal with the teachers’ union which allowed for salary increases ranging from 35 percent to 70 percent. In April 2020, the government announced a freeze on public sector pay due to financial difficulties stemming from the COVID-19 pandemic. The teachers’ union responded by holding demonstrations to protest what it saw as the government’s failure to honor the 2019 agreement. The government responded to the protests by arresting a number of union leaders and ordering a two-year shutdown of the teachers’ union for alleged “criminal and corruption charges.” In November 2020, migrant workers in a garment factory in al Hassan Industrial Zone went on strike demanding a wage increase. Tensions eased when management offered to pay workers their annual productivity increase, normally paid in January, two months early.
Starting January 2021, Jordan increased minimum wage to JD 260 ($367) from its original level of JD 220 ($310). 12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data
Year
Amount
Year
Amount
Host Country Gross Domestic Product (GDP) ($M USD)
Located in the Baltic region of northeastern Europe, Latvia is a member of the EU, Eurozone, NATO, OECD, and the World Trade Organization (WTO). The Latvian government recognizes that, as a small country, it must attract foreign investment to foster economic growth, and thus has pursued liberal economic policies and developed infrastructure to position itself as a transportation and logistics hub. According to the 2020 World Bank’s Doing Business Report, Latvia is ranked 19th out of 190 countries in terms of ease of doing business, which is the same as the previous year. As a member of the European Union, Latvia applies EU laws and regulations, and, according to current legislation, foreign investors possess the same rights and obligations as local investors (with certain exceptions). Any foreign investor is entitled to establish and own a company in Latvia and has the opportunity to acquire a temporary residence permit.
Latvia provides several advantages to potential investors, including:
Regional hub: Despite ongoing tensions between Russia and the European Union and challenges of Covid-19 pandemic, Latvia remains a transportation and logistics bridge between West and East, providing strategic access to both the EU market and to Russia and Central Asia. Latvia’s three ice-free ports are connected to the country’s rail and road networks and to the largest international airport in the Baltic region (Riga International Airport). Latvia’s road network is connected to both European and Central Asian road networks. The railroads connect Latvia with the other Baltic States, Russia, and Belarus, with further connections extending into Central Asia and China.
Workforce: Latvia’s workforce is highly educated and multilingual, and its culture promotes hard work and dependability. Labor costs in Latvia are the fourth lowest (tied with Hungary) in the EU.
Competitive tax system: Latvia ranked second in the OECD’s 2020 International Tax Competitiveness Index Rankings. To further boost its competitiveness, the Latvian government has abolished taxes on reinvested profits and has established special incentives for foreign and domestic investment. There are five special economic zones (SEZs) in Latvia: Riga Free Port, Ventspils Free Port, Liepaja Special Economic Zone, Rezekne Special Economic Zone, and Latgale Special Economic Zone, which provide various tax benefits for investors. The Latgale Special Economic Zone covers a large part of Latgale, which is the most economically challenged region in Latvia, bordering Russia and Belarus.
Due to the COVID-19 pandemic, Latvia’s GDP contracted by 3.6 percent in 2020. However, this contraction was less severe than what most other Eurozone countries experienced during the crisis.
According to the government, growth in manufacturing and construction and increased government spending helped offset the decline in services caused by COVID-19-related restrictions in transport, tourism, and entertainment and leisure industries. The most competitive sectors in Latvia remain woodworking, metalworking, transportation, IT, green tech, healthcare, life science, food processing, and finance. Recent reports suggest that some of the most significant challenges investors encounter in Latvia are a shortage of available workforce, demography, quality of education, and a significant shadow economy.
The non-resident banking sector has come under increased regulatory scrutiny in recent years because of inadequate compliance with international AML standards. On August 23, 2018, MONEYVAL, a Council of Europe agency that assesses member states’ compliance with AML standards, issued a report that found Latvia deficient in several assessment categories. The Government of Latvia has continued its work to restore confidence in its financial institutions and has passed several pieces of reform legislation.
In late 2019 and early 2020, MONEYVAL and the Financial Action Task Force (FATF) concluded that Latvia had developed and implemented strong enough reforms for combating financial crimes to avoid increased monitoring via the so-called “grey list.” While it will continue enhanced monitoring under MONEYVAL to continue strengthening the system, Latvia became the first member state under the MONEYVAL review to successfully implement all 40 FATF recommendations.
Despite these advantages, some investors note a perceived lack of fairness and transparency with Latvian public procurements. Several companies, including foreign companies, have complained that bidding requirements are sometimes written with the assistance of potential contractors or couched in terms that exclude all but “preferred” contractors.
The chart below shows Latvia’s ranking on several prominent international measures of interest to potential investors.
*These figures significantly underestimate the value of U.S. investment in Latvia due to the fact that these do not account for investments by U.S. firms through their European subsidiaries.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Latvian government actively encourages foreign direct investment (FDI) and works with investors to improve the country’s business climate. Latvia has a dedicated investment promotion agency – Latvian Investment and Development Agency – to provide a full scope of investment services to prospective investors: https://www.liaa.gov.lv/en The Latvian government meets annually with the Foreign Investors Council in Latvia (FICIL), which represents large foreign companies and chambers of commerce, to improve the business environment and encourage foreign investment. The Prime Minister chairs the Coordination Council for Large and Strategically Important Investment Projects. In January 2021, FICIL published its Sentiment Index 2020 – a survey of current foreign investors’ assessments about the investment climate in Latvia. It is available at: https://www.ficil.lv/sentiment-index/ .
Limits on Foreign Control and Right to Private Ownership and Establishment
Latvian legislation, on the basis of national security concerns, requires governmental approval prior to transfers of significant ownership interests in the energy, telecommunications, and media sectors. The government is considering expanding this list of sectors. Detailed information is available here: https://investmentpolicy.unctad.org/country-navigator/118/latvia
With these limited exceptions, physical and legal persons who are citizens of Latvia or of other EU countries may freely purchase real property. In general, physical and legal persons who are citizens of non-EU countries (third-country nationals) may also freely purchase developed real property. However, third-country nationals may not directly purchase certain types of agricultural, forest, and undeveloped land. Such persons may acquire ownership interest in such land through a company registered in the Register of Enterprises of the Republic of Latvia, provided that more than 50 percent of the company is owned by: (a) Latvian citizens and/or Latvian governmental entities; and/or (b) physical or legal persons from countries with which Latvia signed and ratified an international agreement on the promotion and protection of investments on or before December 31, 1996; or for agreements concluded after this date, so long as such agreements provide for reciprocal rights to land acquisition. The United States and Latvia have such an agreement (a bilateral investment treaty in force since 1996). In addition, foreign investors can lease land without restriction for up to 99 years. The Law on Land Privatization in Rural Areas allows EU citizens to purchase Latvia’s agricultural land and forests. Other restrictions apply (to both Latvian citizens and foreigners) regarding the acquisition of land in Latvia’s border areas, Baltic Sea and Gulf of Riga dune areas, and other protected areas.
In May 2017, the President of Latvia promulgated the amendments to the Law on Land Privatization in Rural Areas to simplify and clarify the process for local farmers to purchase land. The law, however, also prohibits foreigners who are not permanently residing in Latvia from purchasing agricultural land and required that any person wishing to purchase agricultural land must speak Latvian and be able to present plans for the future use of the land for agricultural purposes in Latvian.
The Latvian constitution guarantees the right to private ownership. Both domestic and foreign private entities have the right to establish and own business enterprises and engage in all forms of commercial activity, except those expressly prohibited by law.
In 2020, Latvia ranked 19 out of 190 countries in the World Bank’s Ease of Doing Business Report. A new business can be registered in Latvia in one day. The Latvian Investment and Development Agency has prepared a guide on starting a business in Latvia: https://www.liaa.gov.lv/en/invest-latvia/business-guide/operating-environment
Using the European Commission definitions of micro, small, and medium enterprises (MSMEs), Latvia has established a special tax regime for microenterprises. Under the microenterprise tax, qualifying businesses (those employing up to five employees and with less than 25,000 euros in revenue) pay a single tax that covers social security contributions, personal income tax, and business risk tax for employees, and includes corporate income tax if the micro business taxpayer is a limited liability company. This special tax regime is available to foreign nationals. Changes introduced in 2021, including an increased microenterprise tax rate, now make the tax regime less attractive for most small companies. For additional details on the microenterprise tax, see: https://www.vid.gov.lv/en/node/57223
Outward Investment
The Latvian government does not incentivize outward investment nor restrict Latvians from investing overseas.
2. Bilateral Investment Agreements and Taxation Treaties
Latvia and the United States share a bilateral investment treaty that came into force in December 1996. Latvia has also concluded bilateral investment agreements with Armenia, Austria, Azerbaijan, Belarus, BLEU (Belgium-Luxembourg Economic Union), Bulgaria, Canada, China, Croatia, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Israel, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Lithuania, Moldova, Netherlands, Norway, Poland, Portugal, Romania, Singapore, Slovakia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, Uzbekistan, and Vietnam.
Latvia has concluded the Treaty on Avoidance of Double Taxation with the United States, which entered into force on December 30, 1999.
3. Legal Regime
Transparency of the Regulatory System
The Latvian government has amended its laws and regulatory procedures to bring Latvia’s legislation in compliance with the EU and WTO GPA requirements. Several legislative changes were aimed at increasing the transparency of the Latvian business environment and regulatory system. At the same time, the massive legislative changes carried out in a short period of time have led to some laws and regulations that could be subject to conflicting interpretations. The Latvian government has developed a good working relationship with the foreign business community (through FICIL) to streamline various bureaucratic procedures and to address legal and regulatory issues as they arise. Additional information on the regulatory system in Latvia is available here: http://rulemaking.worldbank.org/en/data/explorecountries/latvia
The public finance and debt obligations process is transparent. Detailed information on the national budget process is available on the Latvian Ministry of Finance’s website: https://www.fm.gov.lv/en/s/budget/.
International Regulatory Considerations
As an EU member, Latvia has incorporated European norms and standards into its regulatory system. As an EU member, Latvia is a signatory to the WTO Trade Facilitation Agreement. As a WTO member, Latvia has the duty to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade.
Legal System and Judicial Independence
Latvia has a three-tier court system comprising district (city) courts, regional courts, and the Supreme Court. In addition, the Constitutional Court reviews the compatibility of decrees and acts of the President of the Republic, the government, and local authorities with the constitution and the law. Unless otherwise stipulated by law, district courts are the courts of first instance in all civil, criminal, and administrative cases. Regional courts have appellate jurisdiction over district court cases and original jurisdiction for certain cases specified in the Civil Code, such as cases on the protection of patent rights, trademarks, and geographic indicators, as well as cases on the insolvency and liquidation of credit institutions. The Supreme Court is the highest-level court in Latvia and – depending on the origin of the case – has either de novo review of both factual and legal findings or, in instances where it is the second appellate court reviewing a case, cassation review of only legal findings.
City and regional courts are administered by the Ministry of Justice (www.tm.gov.lv), while the Supreme Court and Constitutional Court are independent.
Many observers have voiced concerns about the length of civil cases in Latvia, and the nature and opacity of judicial rulings have led some investors to question the fairness and impartiality of some judges. These concerns are not specific to foreign or local investors, however, and the court system is generally viewed as applying the law equally to the interests of foreign and local investors. Although the Ministry of Justice has enacted reforms designed to reduce the backlog of cases in the lower courts, improvements in the judicial system are still needed to accelerate the adjudication of cases, to strengthen the enforcement of court decisions, and to upgrade professional standards. The newly established Economic Affairs Court began operating on March 31. This is an effort by the government to accelerate and improve adjudication of economic and financial-related cases.
Competition-related concerns are supervised by the Competition Council. More information can be accessed at: http://www.kp.gov.lv/en
Expropriation and Compensation
Cases of arbitrary expropriation of private property by the Government of Latvia are extremely rare. Expropriation of foreign investment is possible in a very limited number of cases specified in the Law on the Alienation of Immovable Property Necessary for Public Needs: (https://likumi.lv/ta/en/en/id/220517-law-on-the-alienation-of-immovable-property-necessary-for-public-needs) If the owner of the property claimed by the government deems the compensation inadequate, he or she may challenge the government’s decision in a Latvian court.
Dispute Settlement
ICSID Convention and New York Convention
Latvia has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1997 and a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1992. Judgments of foreign arbitral courts that are made in accordance with either can therefore be enforced in Latvia. The Civil Procedure Law stipulates that the judgments of foreign non-arbitral courts can be enforced in Latvia.
Investor-State Dispute Settlement
There have been no claims by U.S. investors under the Bilateral Investment Treaty against Latvia.
On December 22, 2017, the ICSID ruled that Latvia had violated its bilateral investment treaty with Lithuania and ordered Latvia to pay $1.9 million to a Lithuanian energy company in a dispute over the nationalization of a heating and hot water supply system. According to a local law firm, this is the first decision on the merits in an ICSID case against the Republic of Latvia. More information is available here: https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/478/uab-v-latvia
International Commercial Arbitration and Foreign Courts
On January 1, 2015, the Law on Arbitration courts came into force to regulate the establishment and operation of local arbitration courts in Latvia. According to the information available in the register, there are 68 arbitration institutions registered in Latvia (https://www.ur.gov.lv/lv/registre/organizaciju/skirejtiesas/skirejtiesu-saraksts/). In most commercial agreements, parties opt to refer their disputes to arbitration rather than to the Latvian courts.
The Civil Procedure Law contains a section on arbitration courts. This section was drafted on the basis of the United Nations Commission on International Trade Law (UNCITRAL) model, thus providing full compliance with international standards. The law also governs the enforcement of rulings of foreign non-arbitral courts and foreign arbitrations. The full text of the law in English can be found here: https://likumi.lv/ta/en/id/50500-civil-procedure-law
Bankruptcy Regulations
There are two laws governing bankruptcy procedure: the Law on Insolvency and the Law on Credit Institutions (regulating bankruptcy procedures for banks and other financial sector companies).
The business community has expressed concerns over inefficiency and allegations of corruption in Latvia’s insolvency administration system. To tackle the issue, the Latvian government has partnered with the European Bank for Reconstruction and Development and in September 2019 launched a project “Support for Debt Restructuring in Latvia.” More information is available here: https://www.ebrd.com/news/2019/support-for-debt-restructuring-in-latvia-project-launched.html
To harmonize its legislation with EU and WTO requirements, Latvia has established a legal framework for the protection of intellectual property rights (IPR), including legislation to protect copyrights, trademarks, and patents. The Law on Copyrights strengthens the protection of software copyrights and neighboring rights. Foreign owners may seek redress for violation of their IPR through the appellation council at the Latvian Patent Office, as well as through private litigation. In copyright violation cases, aggrieved parties can request that the use of the pirated works be prohibited, pirated copies be destroyed, and that violators compensate them for losses (including lost profits). The criminal law stipulates penalties for copyright violations.
The United States has signed a Trade and Intellectual Property Rights Agreement with Latvia. Latvia is a member of the World Intellectual Property Organization (WIPO) and party to the Paris Convention, the Berne Convention, the Patent Cooperation Treaty (PCT), the WIPO Copyright Treaty, the WIPO Performances and Phonograms Treaty, and the Geneva Phonograms Convention. In addition, the Latvian government has amended all relevant laws and regulations to comply with the requirements of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to which Latvia acceded by joining the WTO.
The business community has occasionally raised concerns regarding the enforcement of IPR in Latvia. Digital piracy is still a concern in Latvia, as it is in much of Eastern and Central Europe. Latvian law enforcement authorities have the authority to investigate IPR infringement cases. The Government of Latvia is working to tackle online/digital piracy, and has drafted respective policy guidelines: https://www.iem.gov.lv/en/article/tackle-copyright-infringements-digital-environment-more-effectively
Latvia is not listed in USTR’s Special 301 Report or included in the Notorious Market List.
For additional information about national laws and points of contact at local IPR offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
Ms. Ilona Petersone
Director of Copyright Division, Ministry of Culture of the Republic of Latvia
+371 6733-0240 Ilona.Petersone@km.gov.lv
Contact at Industrial Property Offices:
Ms. Baiba Graube
Acting Director of the Patent Office of the Republic of Latvia
+371 670 99 600 valde@lrpv.lv
8. Responsible Business Conduct
Awareness of and implementation of due diligence principles of corporate social responsibility (CSR)/Responsible Business Conduct is developing among producers and consumers. Two of the most active promoters of CSR are the American Chamber of Commerce in Latvia and the Employers’ Confederation of Latvia. The Latvian Ministry of Welfare also promotes CSR. Several other initiatives promote CSR, such as the Institute for Corporate Sustainability and Responsibility (https://www.incsr.eu/), the Corporate Social Responsibility Platform (http://www.ksalatvija.lv/en), and the Human Development Award (http://www.cilvekaizaugsme.lv/home/).
Latvian law enforcement institutions, foreign business representatives, and non-governmental organizations have identified corruption and the perception of corruption as persistent problems in Latvia. According to the 2020 Corruption Perception Index by Transparency International, Latvia ranks 42nd out of 180 countries (in order from the lowest perceived level of public sector corruption to the highest).
To strengthen its anti-corruption programs, the Latvian government has adopted several laws and regulations, including the Law on Money Laundering and the Law on Conflicts of Interest. The Conflicts of Interest Law imposes restrictions and requirements on public officials and their relatives. Several provisions of the law deal with the previously widespread practice of holding several positions simultaneously, often in both the public and private sector. The law includes a comprehensive list of state and municipal jobs that cannot be combined with additional employment. Moreover, the law expanded the scope of the term state official to include members of boards and councils of companies with state or municipal capital exceeding 50 percent. Latvia became a member of the OECD Anti-Bribery Convention in 2014. In line with OECD recommendations, the government is working to strengthen anti-corruption enforcement and improve the functioning of its independent agency, the Anti-Corruption Bureau (KNAB).
Under Latvian law, it is a crime to offer, accept, or facilitate a bribe. Although the law stipulates heavy penalties for bribery, a limited number of government officials have been prosecuted and convicted of corruption to date. The law also provides the possibility of withdrawing charges against a person giving a bribe in cases where the bribe has been extorted, or in cases where the person voluntarily reports these incidents and actively assists the investigation. In addition, the Latvian government has adopted a whistleblower law that requires all government agencies and large companies to establish protocols to accept whistleblower complaints and protect whistleblowers from reprisals.
KNAB is the institution with primary responsibility for combating corruption and carrying out operational activities in response to suspected or alleged corruption. The Prosecutor General’s Office also plays an important role in fighting corruption.
KNAB has also established a Public Consultative Council to help increase public participation in implementing its anti-corruption policies, increasing public awareness, and strengthening connections between the agency and the public. More information is available here: https://www.knab.gov.lv/en/knab/consultative/public/.
There is a perceived lack of fairness and transparency in the public procurement process in Latvia. Several companies, including foreign companies, have complained that bidding requirements are sometimes written with the assistance of potential contractors or couched in terms that exclude all but preferred contractors.
A Cabinet of Ministers regulation provides for public access to government information, and the government generally provided citizens such access. There have been no reports the government has denied noncitizens or foreign media access to government information.
Resources to Report Corruption
Contact at government agency responsible for combating corruption:
Corruption Prevention and Combating Bureau
Citadeles iela 1, Riga, LV 1010, Latvia
+371 67356161 knab@knab.gov.lv
Contact at “watchdog” organization:
Delna (Latvian affiliate of Transparency International) Citadeles iela 8, Riga, LV-1010 +371 67285585 ti@delna.lv
10. Political and Security Environment
There have been no reports of political violence or politically motivated damage to foreign investors’ projects or installations. The likelihood of widespread civil disturbances is very low. While Latvia has experienced peaceful demonstrations related to internal political issues, there have been few incidents when these have devolved into crimes against property, such as breaking shop windows or damaging parked cars. U.S. citizens are cautioned to avoid any large public demonstrations since even peaceful demonstrations can turn confrontational. The Embassy provides periodic notices to U.S. citizens in Latvia, which can be found on the Embassy’s web site: https://lv.usembassy.gov/.
11. Labor Policies and Practices
The official rate of registered unemployment in January 2021, according to Eurostat, was 8.5 percent (https://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics). The Latvian State Employment Agency reported 8.2 percent unemployment at the end of February 2021. Unemployment is significantly higher in rural areas. A high percentage of the workforce has completed at least secondary or vocational education. Foreign managers praise the high degree of language skills, especially Russian and English, among Latvian workers. However, foreign managers have reported a shortage of mid- and senior-level managers with “Western” management skills.
Companies must keep wages above the legally specified minimum of 500 euros per month, as of January 2021. Union influence on the wage setting process is limited. Trade unions do not have significant influence on the labor market. Additional information on trade unions in Latvia is available here: http://www.worker-participation.eu/National-Industrial-Relations/Countries/Latvia.
One challenge employers have faced since Latvia joined the EU is that many skilled employees can find better employment opportunities in other EU countries. Unofficial statistics suggest that more than 240,000 people have moved from Latvia to other EU countries since May 1, 2004. Despite the fact that the macroeconomic situation has stabilized, skilled and unskilled workers continue to emigrate. The government is implementing a strategy to entice people who have left Latvia to return.
The Labor Law addresses discrimination issues, provides detailed provisions on the rights and obligations of employees’ representatives, and created the Conciliation Commission, a mechanism that can be used in the workplace to resolve labor disputes before going to arbitration. Victims of sexual harassment in the workplace can also submit a complaint to the Office of the Ombudsman and the State Labor Inspectorate.
Full-time employees in Latvia work 40 hours a week. Normally, there are five working days per week, but employers may schedule a sixth workday without offering premium pay. Employees are entitled to four calendar weeks of annual paid vacation per year. Employers are prohibited from entering into an employment contract with a foreign individual who does not have a valid work permit.
Latvia is a member of the International Labor Organization (ILO) and has ratified all eight ILO Core Conventions.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data
Year
Amount
Year
Amount
Host Country Gross Domestic Product (GDP) ($M USD)
The Republic of Malta is a small, strategically located country 60 miles south of Sicily and 180 miles north of Libya, astride some of the world’s busiest shipping lanes. A politically stable parliamentary republic with a free press, Malta is considered a safe, secure, and welcoming environment for American investors to do business.
Malta joined the European Union in 2004, the Schengen visa system in 2007, and the Eurozone in 2008. With a population of about 493,500 and a total area of only 122 square miles, it is the EU’s smallest country in geographic size. The economy is based on services, primarily shipping, banking, and financial services, professional, scientific, and technical activities, online gaming, and tourism. Manufacturing also plays a small but important role. Maltese and English are the official languages.
Given its central location in one of the world’s busiest trading regions, as well as its relatively small economy, Malta recognizes the important contribution that international trade and investment can provide to the generation of national wealth.
Malta registered GDP growth rate was one of the fastest within the European Union over the past decade. In 2019, real GDP growth reached the high rate of 4.4 percent. Malta’s unemployment rate stood at 3.2 percent in the fourth quarter of 2019. Thanks to its robust economic growth for much of the years in the last decade, the country is facing the current crises brought about by COVID-19 from a position of economic and fiscal strength.
The top three credit rating agencies rank Malta extremely well and predict the economic impact of the coronavirus will be less pronounced on the Maltese economy when compared to other EU neighboring countries. The current sovereign credit ratings are A-/A-2 with a stable outlook (S&P); A2 with a stable outlook (Moody’s); and A+ with a stable outlook (Fitch).
In 2013, the Government of Malta established the Individual Investor Program (IIP), which provides citizenship by naturalization to people (and their dependents) who are contributors to an individual investor program and who pay a fee of €650,000 (with an additional €25,000 for spouses or dependents under age 18 or €50,000 for dependents over age 18). IIP conditions include a €350,000 minimum for purchasing immovable property, or a €16,000 per year minimum for leasing immovable property (which must be retained for at least five years), and a €150,000 minimum for investment in stocks, bonds, or debentures.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Malta seeks foreign direct investment (FDI) to increase its rate of economic growth. Malta provides incentives to attract investment in high-tech manufacturing (including plastics, precision engineering, electronic components, automotive components, and health technologies such as pharmaceuticals manufacturing and biotechnology), information and communications technology (ICT), research and development (R&D), aerospace and aviation maintenance, education and training, registration of ships and aircrafts, transshipment and related service industries, finance services, and digital technologies, including artificial intelligence technologies, blockchain, innovative technologies, and digital gaming.
Malta’s comparative advantages include membership in the EU, Eurozone, and Schengen Zone; proximity to European and North African markets; excellent telecommunications and transport connections; a fair and transparent business environment; a highly skilled, English-speaking labor force; and competitive wage rates (though the cost of living is high, labor costs are relatively low compared with other EU countries). Malta also offers financial, tax, and other investment incentives to attract FDI. Foreign investment plays an integral part in the Government of Malta’s policies to reduce the role of the state in the economy and increase private sector activity. It will also play a key role in building Malta’s economic recovery post-pandemic as the country is in the process of shaping an economic strategy based on tangible niche market opportunities that will help it recover in the new economic and health conditions.
Malta Enterprise, a government organization that promotes FDI in Malta, provides information to prospective investors, processes applications for government investment incentives, and serves as a liaison between investors and other government entities. The organization offers an attractive investment package for U.S. and other investors.
There are currently no legal prohibitions against FDI-oriented sales in Malta’s domestic market; however, the country is in the process of setting up an FDI screening mechanism in line EU regulation 2019/452 establishing a framework for the screening of foreign direct investments into the Union. The government seeks, as a top priority, companies operating in the following fields:
High-end manufacturing (although virtually all manufacturing sectors are open to FDI);
Information and communications technology, including electronic components, and digital gaming;
Health technologies, medical equipment, pharmaceuticals, and emerging medical sectors (including medical cannabis);
Back office and regional support operations;
Digital technologies including blockchain, artificial intelligence, innovative technologies, e-sports, and fintech;
Knowledge-based service, including aerospace and defense (aviation maintenance), education and training, and research and development;
Logistics-based services, including marine technology, warehousing, and oil/gas services; and
Film industry (Malta has one of the few sets in the world for water/boating scenes).
Limits on Foreign Control and Right to Private Ownership and Establishment
Private foreign investors are free to make equity arrangements as they wish, from joint ventures to full equity ownership.
The Government of Malta recognizes the right to private ownership in theory and in practice. Private entities are free to establish, acquire, and dispose of interests in business enterprises and engage in all forms of remunerative activity. Many U.S. firms sell their products or services in Malta through licensing, franchise, or similar arrangements. The government generally allows foreign companies to operate in merchandising areas, especially if they operate a licensing, franchising, or similar agreement through a local representative.
It is the government’s stated policy not to allow public enterprises to operate at the expense of private entities. Some sectors, such as electricity generation, are also open to private sector participation. The government provides private enterprises with the same opportunities as public enterprises for access to markets and other business operations.
Other Investment Policy Reviews
The Government of Malta has not undergone any third-party investment policy reviews through a multilateral organization in the last three years.
Business Facilitation
The Maltese Commercial Code provides for the establishment of several types of business entities according to the needs of an individual investor when setting up a company in Malta. The following are the available structures:
Private limited liability companies;
Public limited liability companies;
General partnerships; and
Limited partnerships.
Foreign companies can also open subsidiaries or branch offices in Malta.
When setting up a Maltese private company, the minimum share capital amount accepted is €1,165 ($1,300). The minimum for a public company is approximately €46,600 ($51,670), of which 25 percent must be deposited prior to registration. In case of private companies with an authorized share capital exceeding the minimum requirements, only 20 percent of the amount must be deposited.
The maximum number of shareholders for limited liabilities companies is 50 and minimum is two (although a single-member company may also be registered under the Companies Act).
The following are the main steps required to set up a company in Malta:
Reserve a company name with the Maltese Business Registry;
Draft the company’s memorandum and articles of association;
Deposit the minimum share capital; and
File the application with the Malta Business Registry.
The documents to be filed with the Malta Registrar of Companies are:
The memorandum and articles of association;
A confirmation of the company name reservation;
The bank receipt confirming the share capital deposit; and
Passport copies of the shareholders, directors, and company secretary.
The Malta Business Registry (MBR) is responsible for the registration of new commercial partnerships, the registration of documents related to commercial partnership, the issuing of certified documentation including certificates of good-standing amongst others, the reservation of company names, the collection of registration and other fees, the publication of notices, and the imposition and collection of penalties. The Registry also conducts investigations of companies and maintains the company and partnership register.
The Memorandum must be presented to the MBR, which offers an online system allowing users to register a company and submit commonly used forms (including a bank receipt as proof of payment of the initial share capital). All the statutory forms and notices are available on the website free of charge. The MBR may also request that due diligence on the directors, shareholders, and/or beneficial owners be provided before proceeding with the incorporation. Upon incorporation, companies must pay a registration fee payable to the MBR according to the amount of share capital held by the company.
Once all the requirements above are satisfied, the MBR will normally carry out incorporation of a company within two to three working days. Once incorporation is complete, the MBR will publish a Certificate of Incorporation that will also display the company registration number.
The Government of Malta also offers a one-stop shop for businesses – Business First – that assists companies with all processing of services and information to establish a company. Business First brings more than 50 essential services from various government departments and entities under one roof. It assists all enterprises based in Malta, including micro enterprises, small and medium-sized enterprises (SMEs), larger companies, and foreign investors wishing to set up in the country.
TradeMalta, incorporated in 2014, is a public-private partnership between the government and the Chamber of Commerce to help Malta-based enterprises internationalize. TradeMalta is also the national organization tasked with marketing and coordinating both incoming and outgoing trade missions, promoting participation in international trade fairs, facilitating bilateral trade meetings, and researching new market opportunities. Although TradeMalta promotes outward investment and incentives for companies to seek international business, it does not provide financial incentives to set up FDI in other jurisdictions. This quasi-governmental organization is also tasked with maintaining business relationships with countries with whom Malta has a trading activity and dedicates its resources to identifying new markets, which are not considered as traditional trading partners. (For the past three years, it has targeted African countries for outgoing trade missions.)
The organization provides specialized training programs in international business development and marketing and administers incentive schemes and internationalization programs aimed at both novice and experienced exporters.
The government actively supports and promotes franchising, joint-ventures, and other forms of international business opportunities between Malta-based businesses and foreign companies.
2. Bilateral Investment Agreements and Taxation Treaties
In 2010, the United States signed a bilateral taxation agreement with Malta. Malta also benefits from treaties with investment provisions with ACP (African, Caribbean, and Pacific Group of States), Albania, Algeria, ANCOM (Andean Community), Armenia, ASEAN (Association of South-East Asian Nations), Azerbaijan, Bangladesh, Belarus, Bosnia and Herzegovina, Brazil,
CACM (Central American Common Market), Cambodia, Cameroon, Canada, CARICOM (Caribbean Community), Chile, China, Colombia, Côte d’Ivoire, Ecuador, EFTA (European Free Trade Association), Egypt, ESA (Eastern and Southern Africa), GCC (Gulf Cooperation Council), Georgia, India, Iraq, Israel, Jordan, Kazakhstan, Republic of Korea, Kyrgyzstan, Laos, Lebanon, Libya, Macao S.A.R., MERCOSUR (Mercado Común Sudamericano), Mexico, Moldova, Mongolia, Montenegro, Morocco, Nepal, North Macedonia, OCT (Overseas Countries and Territories), Pakistan, the Palestinian Territories, Paraguay, Peru, Russia, SADC (Southern African Development Community), Serbia, Singapore, South Africa, Sri Lanka, Tajikistan, Thailand, Tunisia, Turkey, Turkmenistan, Ukraine, Uruguay, Uzbekistan, Vietnam, and Yemen.
The United States has maintained a Commerce and Navigation Treaty with Malta since 1815, initially in its capacity as a British colony, and, upon Malta’s independence in 1964, on its own behalf. The primary aim of this agreement is to ensure non-discriminatory treatment for bilateral trade and investments. Malta has similar investor protection accords with Albania, Austria, Belgium/Luxembourg Economic Union, Bulgaria, China, Croatia, Cyprus, Czech Republic, Egypt, France, Germany, Italy, Kuwait, Libya, Montenegro, Netherlands, Serbia, Slovakia, Slovenia, Sweden, Switzerland, Tunisia, Turkey, and the United Kingdom.
There are currently no ongoing or upcoming changes to the taxation regime or ongoing systematic tax disputes between the government and foreign investors.
3. Legal Regime
Transparency of the Regulatory System
Malta has transparent and effective policies and regulations to foster competition. It has revised labor, safety, health, and other laws to conform to EU standards.
Stakeholder engagement is currently required for all subordinate regulations as part of the Regulatory Impact Assessment (RIA) process as well as for some primary laws in selected policy areas. Each online consultation is accompanied by a feedback report, summarizing the views of participants and providing feedback on the comments received. According to OECD 2019 report on Indicators of Regulatory Policy and Governance, the transparency of the Maltese regulatory framework could be further strengthened by making RIAs available for consultations with stakeholders by systematically engaging with stakeholders during the development of primary laws, specifically at an early stage, before a preferred regulatory decision has been identified.
International Regulatory Considerations
Malta’s regulatory system is derived from the acquis communautaire, the body of laws, rights, and obligations that are binding on all EU member states. Consequently, trade and investment relations with third countries are an EU responsibility under the Common Commercial Policy. However, with respect to investment, Malta does have some competence in certain investment areas. In particular, where the EU does not have or is not negotiating an investment protection agreement, Malta can hold or negotiate one unilaterally. Malta also maintains competence in the areas of transport and portfolio investment, as well as corporate taxation. Malta is currently working on taking the necessary steps to implement the EU-wide mechanism for cooperation on investment as required by the new EU framework for investment screening which entered into force on April 10, 2019. The Malta draft bill still needs to be considered and passed in parliament.
Malta became a WTO member on January 1, 1995. However, all draft technical regulations to the WTO Committee on Technical Barriers to Trade are now made at the EU level.
Malta ratified the Trade Facilitation Agreement on October 5, 2015 and is in full compliance with its implementation commitments.
Legal System and Judicial Independence
Malta’s Commercial Code regulates commercial activities and related legislation, such as the Banking Act, the Central Bank of Malta Act, and bankruptcy. In cases of bankruptcy, the court appoints a curator to liquidate the assets of the bankrupt company, organization, or individual, and distributes the proceeds among the creditors.
The Maltese judiciary is independent, and courts are divided into superior courts, presided over by judges, and inferior courts, presided over by magistrates. Inferior courts have jurisdiction over minor offenses of a criminal nature and small civil matters. The judiciary traditionally functions through the Criminal, Civil, and Constitutional courts. The First Hall of the Civil Court hears commercial cases. Malta has a Criminal Court of Appeal and a second Court of Appeal for all other matters. The Constitutional Court has jurisdiction to hear and determine questions and appeals on constitutional issues. There are also a number of administrative tribunals, such as the Industrial Tribunal, the Rent Regulation Board, the Sanction Monitoring Board, and the Board of Special Commissioners (for income tax purposes). Malta adopted the European Convention of Human Rights as part of its domestic law in 1987.
The Maltese judiciary has a long tradition of independence. Once appointed to the bench, judges and magistrates have fixed salaries that do not require annual approval. Judges cannot be dismissed, except by a two-thirds vote in the House of Representatives for proven misbehavior or the inability to exercise properly their function. The Maltese Constitution guarantees the separation of powers between the executive and the judiciary and a fair trial. In December 2018, the European Commission for Democracy through Law, known as the Venice Commission, issued an opinion on the constitutional arrangements, separation of powers, and independence of the judiciary and law enforcement bodies of Malta. The Commission recommended setting up an office of an independent Director of Public Prosecutions with security of tenure, being responsible for all public prosecutions, subject to judicial review. The opinion also recommended abolishing the possibility that judges can be dismissed by Parliament and suggested modifications to the system of the judicial appointments. Malta is currently in the process of implementing changes in accordance with the Venice Commission recommendation and has thus far has achieved successfully separated the previous dual roles of the Attorney General as both the public prosecutor and the state attorney.
Laws and Regulations on Foreign Direct Investment
Several laws govern foreign investment in Malta. The Income Tax Act of 1948 (as amended in 1994) establishes a single rate of taxation of 35 percent on income for limited liability companies in Malta. In certain qualifying cases, this rate can fall to five percent through a system of tax refunds on dividends paid. The Business Promotion Act authorizes the Government of Malta to allocate fiscal and other incentives to companies engaged in manufacturing (including software development), repair, or maintenance activities. The Malta Enterprise Act of 2003 enables Malta Enterprise to develop and administer incentives and other forms of support to liberalize and update legislation relevant to FDI. The Companies Act of 1995 regulates the creation of limited liability companies. The Companies Act also provides for the establishment of investment companies with variable share capital (SICAVS) and companies with share capital denominated in a foreign currency. The Malta Financial Services Authority Act of 1989 established the Malta Financial Services Authority (MFSA), which is responsible for the regulation of banking and investment services in Malta. The Investment Services Act of 1994 regulates investment services in the banking and insurance sectors. In 2018, Malta enacted three new acts related to blockchain. The Malta Digital Innovation Authority Act (MDIA) establishes the Authority that oversees and regulates innovative technologies, along with the Innovative Technology Arrangement and Services Act (ITAS) that regulates Innovative Technology Arrangements and Services, such as the software and coding used in digital ledger technology (DLT), smart contract, and related applications, together with the technical administration and review services. In 2018, the MFSA was entrusted with the Virtual Financial Assets Act (VFA) that regulates Initial Virtual Financial Assets Offerings and delineates their licensing requirements.
Competition and Anti-Trust Laws
Malta is a free-trade, open-economy country. The government does not approve or restrict any FDI, so long as it complies with EU and national regulations. Malta Enterprise reviews FDI before granting any incentives to a private entity or business. A due diligence process is carried out prior to approving greenfield investments. The MFSA undertakes the filings and regulatory screenings on financial investments.
The Office for Competition, currently housed within the Malta Competition and Consumer Affairs Authority (MCCAA), is the office tasked with protecting competition in Malta. The Maltese Competition Act is modelled on EU competition law. The latest amendments to the Competition Act in 2011 strengthened its deterrent effect by widening the decision-making powers of the Office for Competition and further aligned both the substantive and procedural rules with those existing under EU law.
In 2017, the Office for Competition reviewed plans for a merger between telecommunications companies Vodafone Malta and Melita. When the parties were unable to satisfy the MCCAA’s requirements, they terminated their plans to merge.
Expropriation and Compensation
The Government of Malta, in exceptional instances, expropriates private property for public purposes. In such cases, the government must take action in a non-discriminatory manner and in accordance with established principles of international law. Investors and lenders of expropriated property receive prompt, adequate, and effective compensation. In 1993, the government’s Property Division started accepting expropriation requests by public bodies only if the requests were accompanied by the compensation due to the landowners. In 2002, this practice was made law. As a result, the government may only expropriate private property if the presidential decree also includes a deposit for the compensation due. In recent years, the government has appropriated land mainly for the widening of roads; however, no particular sectors are at risk for expropriation or similar actions, and no laws force local ownership.
Dispute Settlement
ICSID Convention and New York Convention
Malta signed the Convention on the Settlement of Investment Disputes (ICSID) in 2002. Malta is also a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards (UNCITRAL).
Investor-State Dispute Settlement
There have been no significant investment disputes over the past few years involving U.S. or other foreign investors or contractors in Malta. In a limited number of cases, U.S. investors have identified difficulties in obtaining fair legal resolutions, especially in disputes with Maltese parties. Courts in Malta are slow in processing cases. Reforms to increase efficiency in the judicial system are part of an ongoing constitutional reform effort, including the recent progress Malta made on implementing the Venice Commission recommendations. In December 2019, the State Advocate Act came in effect, as part of the reform in the Maltese justiciary, which split the Attorney General’s (AG) dual government advisory and prosecutorial roles.
International Commercial Arbitration and Foreign Courts
Malta honors the enforcement of foreign court judgments and foreign arbitration awards. Bilateral investment treaties, which Malta has with several countries (see section 3, Bilateral Investment Agreements), provide for the acceptable methods of settling disputes connected with citizens of those countries.
Bankruptcy Regulations
The Companies Act and the Commercial Code Bankruptcy in Malta and the Set-off and Netting on Insolvency Act of 2003 regulate bankruptcy. The latter provides for the set-off and netting due to each party with respect to mutual credits, mutual debts, or other mutual dealings that are enforceable whether before or after bankruptcy or insolvency.
The Maltese insolvency law regime distinguishes between bankruptcies of a person and bankruptcies of a commercial partnership other than a company. When a company cannot pay its debts, it may initiate insolvency proceedings. In such a case, the court examines carefully whether the financial situation of the company justifies its insolvency or whether it could remain operational and continue to pay its debts.
Any officer of a company who, in the twelve months prior to the deemed date of dissolution, concealed assets or documents, disposed of assets, or otherwise acted in a fraudulent manner may be criminally liable. Separately, courts may find any such officers civilly liable for such acts and require them to pay back to the company any moneys due. The law also provides for proceedings in cases of wrongful trading by directors and fraudulent trading by any officer of the company.
The Malta Association of Credit Management, known as MACM, is a members-owned, not-for-profit organization, providing a central national organization for the promotion and protection of all credit interests pertaining to Maltese businesses. More information at: https://www.macm.org.mt/ .
5. Protection of Property Rights
Real Property
Property and contractual rights are enforced by means of (a) legal warning; (b) warrants of seizure; (c) warrants of prohibitory injunction; (d) warrants of impediments of departures (if proceedings fall within the jurisdiction of the Criminal Court); and (e) sale of property by court auction. The Code of Organization and Civil Procedures lays out procedures for registering and enforcing judgments of foreign courts. Rights and secured interests over immovable property must be publicly registered in order to be enforceable. The Government of Malta has occasionally been a party to international arbitrations and has abided by tribunal decisions.
The 2006 Maltese Securitization Act provides for a range of securitization transactions within its secure regulatory framework and offers various legal and international tax benefits. Malta permits the creation of securitization cell structures, allowing for multiple cells with clear segregation of assets and liabilities between each cell. Foreign investors typically use securitization for passporting funds, which allows a firm registered in the European Economic Area (EEA) to do business in any other EEA state without the need for further authorization from each country, and for investment within the EU. Investors typically use this system over the securitization of property.
According to latest data collected by the World Bank Doing Business report, registering property in Malta generally takes 17 days and costs 13.5 percent of the property value, and includes seven different procedures to legally transfer title on immovable property. Malta made the transfer of a property more expensive by introducing the new property transfer tax. The Property transfer tax (PTT) is the default transaction-based tax that affects transfers of any real right over immovable property from one party to another. It is calculated at the rate of 12% of the transfer value of the immovable property involved in a given transaction. Globally, Malta stands at 152 in the ranking of 190 economies on the ease of resolving insolvency.
Intellectual Property Rights
The Maltese legal system adequately protects and facilitates acquisition and disposition of intellectual property rights (IPR). In 2000, Malta implemented the pertinent provisions of the WTO’s Agreement on Trade-Related Aspects on Intellectual Property Rights (TRIPS). Malta has fully incorporated EU and WTO rules into national law. Additional information on EU-wide provisions on copyright, patents, trademarks, and designs can be found at: https://ec.europa.eu/growth/industry/intellectual-property/industrial-design/protection_en
In addition, Malta is a member of the World Intellectual Property Organization (WIPO), the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, and the Universal Copyright Convention (UCC).
Malta is not listed included in the U.S. Trade Representative’s (USTR’s) Special 301 Rreport nor in the USTR’s Notorious Market ReportList. The Association against Copyright Theft claims that Malta’s local laws do not include high enough minimum fines to deter vendors from selling pirated material. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at HYPERLINK “http://www.wipo.int/directory/en/” http://www.wipo.int/directory/en/.
Malta’s Commerce Department within the Ministry for the Economy, Investment, and Small Business is responsible for intellectual propertyIPR-related issues.
For additional information about national laws and points of contact at local IPR offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
Corporate social responsibility (CSR) has become more prevalent in Malta in recent years, as global concerns such as climate change have risen to the forefront and as the EU has raised expectations for its member states regarding CSR. An increasing number of companies in Malta recognize the importance of their role in society and the real benefits of adopting a proactive approach to CSR.
The Maltese government does not specifically request adherence to OECD Guidelines for Multinational Enterprises; however, it is expected that multinationals follow generally accepted CSR principles.
Under the Code of Good Corporate Governance Guidelines, issued by the Malta Financial Services Authority in 2006, boards should seek to adhere to accepted CSR principles in day-to-day management practices and work closely with “suppliers, customers, employees, and public authorities.” Although corporate governance guidelines are non-binding in nature, public interest companies should highlight the adherence to such corporate governance principles in their annual reports.
In line with recent amendments to the Companies Act, the directors’ report that accompanies the annual financial statements should include an analysis of both financial and non-financial key performance indicators relevant to the particular business, including information relating to environmental matters.
Maltese law provides criminal penalties for official corruption, and the government generally implements these laws effectively. The Malta Police and the Permanent Commission against Corruption are responsible for combating official corruption. Past news reports suggest a number of government corruption allegations; however, few have resulted in legal action or resignations.
Public sector corruption, including bribery of public officials, is not a significant challenge for U.S. firms operating in Malta. The Council of Europe’s Group of States against Corruption (GRECO) completed its fifth evaluation of Malta in the autumn of 2018 and its findings were published in September 2019. Following the four previous rounds of evaluation and a follow-up compliance review, Malta introduced a number of legislative measures to combat corruption and is currently in the process of introducing further measures to improve its financial oversight.
Malta has taken significant steps over the years to combat corruption, including the establishment in 2002 of the Financial Intelligence Analysis Unit (FIAU) to support domestic and international law enforcement investigative efforts. The Prevention of Money Laundering and Funding of Terrorism Regulations were transposed into Maltese law in July 2008, and conform to EU Directive 2005/60/EC (the Third Directive) and Directive 2006/70/EC. Malta transposed the Fourth Anti-Money Laundering Directive in December 2017 and, in April 2018, announced its first national Anti-Money Laundering and Countering the Funding of Terrorism (AML/CFT) Strategy.
The latest report by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) calls on Maltese authorities to strengthen their practical application of measures to combat money laundering and the financing of terrorism. MONEYVAL acknowledges that the authorities have demonstrated a broad understanding of the vulnerabilities within the system, but a number of important factors – notably predicate offences, financing of terrorism, legal persons and arrangements, and the development of new technologies and the use of cash – appear to be insufficiently analyzed or understood.
The report further notes that while Malta has a sound legal framework to fight the financing of terrorism, the report notes that few investigations have been conducted so far which have not resulted in any prosecutions or convictions. While noting recent progress, the report concludes that the actions undertaken by the authorities are not fully in line with the country’s exposure to possible terrorism financing risks. Based on the results of its evaluation, MONEYVAL decided to apply its enhanced follow-up procedure and invited Malta to report back in December 2020.
Local Laws: U.S. firms should familiarize themselves with local anti-corruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s Foreign Commercial Service (FCS) can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.
Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the FCS can provide services that may assist U.S. companies in conducting due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The FCS can be reached directly through its offices in major U.S. and foreign cities or through its website at www.trade.gov/cs . The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Department of Commerce’s Advocacy Center and Department of State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report a Trade Barrier” website at http://tcc.export.gov/Report_a_Barrier/index.asp .
Guidance on the U.S. Foreign Corrupt Practices Act (FCPA): The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of DOJ’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section website: http://www.justice.gov/criminal/fraud/fcpa . Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce website at https://ogc.commerce.gov/collection/office-chief-counsel-international-commerce .
Additional Anti-Corruption Resources:
Useful resources for individuals and companies regarding combating corruption in global markets include the following:
Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world. http://www.transparency.org/cpi2015.
TI also publishes Global Corruption Barometer that provides a systematic evaluation of the state of corruption around the world according to the different regions. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents, and an overview of the latest research findings on anti-corruption diagnostics and tools: https://www.transparency.org/en/gcb.
The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 212 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption: http://info.worldbank.org/governance/wgi/index.aspx#home.
The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. The latest reports are available at: http://reports.weforum.org/global-enabling-trade-report-2016/.
UN Anticorruption Convention, OECD Convention on Combatting Bribery:
Malta signed the UN Anticorruption Convention in 2005 and ratified it in 2008, but it has not signed the OECD Convention on Combatting Bribery.
Resources to Report Corruption
Contact at government agency or agencies that are responsible for combating corruption:
Malta Police Commissioner
St. Calcedonius Square
Floriana FRN 1530
+356-2122 4001 cmru.police@gov.mt
Mr. Charles Deguara
Auditor General of National Audit Office
Notre Dame Ravelin
Floriana FRN 1600
+356-2205 5555 nao.malta@gov.mt
Contact at watchdog organization:
Permanent Commission Against Corruption
Chateau De La Ville
Archbishop Street
Valletta VLT 2000
+356-2567 4309 Pcac.mjcl@gov.mt
10. Political and Security Environment
Malta is considered to have a safe political system and is secure relative to other countries in the region.
11. Labor Policies and Practices
Malta’s labor force at the end of 2019 stood at 258,064 (83.4 percent male). The country’s population is about 493,500, the smallest in the EU. For 2019, the national minimum monthly wage was $853 (€761.97). The estimated average gross annual salary of employees stood at $21,823 (€19,488); this amount refers to the basic salary and excludes extra payments such as overtime, bonuses, and allowances. In 2019, on a sectoral basis, the highest recorded average gross annual salary for employees was in financial and insurance activities. Social insurance contributions add ten percent to the wage bill, together with a 0.3 percent contribution to the government maternity fund. Free or subsidized meals, commuting allowances, and health insurance are the most common fringe benefits. In addition, employees are entitled to 25 days of annual leave and public holidays that fall on a weekday. National law establishes a minimum number of sick leave days.
Foreign companies that have invested in Malta have a high regard for the ability, productivity, and learning potential of Maltese workers, nearly all of whom speak English. In some industries, labor productivity is comparable to other countries in Western Europe. Maltese managers now run most of the foreign firms in Malta. Malta enjoys one of the lowest strike rates in Western Europe, and labor unrest is unlikely in the foreseeable future. The Government of Malta strictly adheres to the ILO convention protecting workers’ rights.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs
Although Malta, as a high-income country as defined by the World Bank, generally does not qualify for DFC support, energy infrastructure projects in Malta could qualify under the European Security and Energy Diversification Act. Malta’s leading trading partners (the United Kingdom, Germany, France, and Italy) offer risk insurance programs similar to DFC that likewise cover investments in Malta. Malta is a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data
Year
Amount
Year
Amount
Host Country Gross Domestic Product (GDP) ($B USD)
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
Total Inward
206,130
100%
Total Outward
69,786
100%
Germany
25,553
12%
Germany
11,963
17%
The Netherlands
23,666
11%
The Netherlands
8,789
13%
Ireland
14,882
7%
United Kingdom
5,214
7%
United Kingdom
14,136
7%
Ireland
4,939
7%
Canada
13,159
6%
Canada
4,560
7%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total
Equity Securities
Total Debt Securities
All Countries
132,198
100%
All Countries
113,885
100%
All Countries
18,313
100%
Germany
20,136
15%
Ireland
8,710
8%
France
1,331
7%
Netherlands
14,710
11%
Canada
7,437
7%
Canada
1,061
6%
United Kingdom
9,341
7%
Cayman Islands
2,992
3%
International Organizations
1,029
6%
Ireland
8,988
7%
France
2,142
2%
Australia
471
3%
Canada
8,498
6%
Australia
1,831
2%
Austria
318
2%
14. Contact for More Information
Maria Cassar
Economic and Commercial Specialist
U.S. Embassy, Malta
+356 2561 4120 maltabusiness@state.gov
Portugal
Executive Summary
Portugal’s economic recovery and pro-business policies increased market attractiveness in 2019, a positive year before the country was hard-hit by the COVID-19 pandemic in 2020. The country’s notable recovery since concluding an EU/IMF bailout adjustment program in 2014 culminated in a first-ever budget surplus in 2019. Portugal recovered its investment-grade sovereign bond ratings and now enjoys record-low financing costs. While the country continues to hold strong potential for U.S. investors, the Covid-19 pandemic has had a serious impact on the economy.
The Portuguese economy contracted by 7.6% in 2020, the most severe yearly drop since 1928. The pandemic also increased the already problematic public debt by over €20 billion to 133.7% of GDP in 2020, from 117.7% in 2019. As of early 2021, the government predicted a budget deficit of 7.3% in 2020 and 4.3% in 2021. However, the government was able to contain a significant rise in unemployment, which at 6.8% in 2020, was higher than the 2019 figure of 6.5%, but was well below the government’s October forecast of 8.7%, as the labor market showed resilience during the first year of the pandemic. However, in January 2021, the government imposed a second lockdown to counter spiking COVID-19 numbers that continued to impact the tourism, hospitality, and retail sectors. The depth of the pandemic’s impact on the banking and tourism sectors will depend largely on the length of global travel restrictions and retail closures.
Portugal will have a once-in-a-generation chance to boost its economic recovery, using around €14 billion in European Union (EU) grants expected to flow to state coffers between 2021 and 2026, to support its Recovery and Resilience Plan. The government is expected to allocate the funds in support of energy and digital transitions.
Before the pandemic, the services sector, particularly Portugal’s tourism industry, served as an engine of economic recovery, while textiles, footwear, and agriculture moved up the value chain and became more export-oriented over the last decade. The auto sector, together with heavy industry, technology, agriculture, construction, and energy remain influential clusters.
The banking sector faced considerable challenges in recent years, including the costly central bank-led bailing out of Banco Espírito Santo in 2014 and Banif in 2015 from the global financial crisis. Even so, banks regained momentum since, restructuring and strengthening capital structures to address the lingering stock of non-performing loans. They are now in the frontline of the Covid-19 economic shock, supporting pandemic-related credit lines and debt moratoria programs initiated by the government. While banks entered the pandemic in a relatively strong position, investors are particularly attentive to the potential aftershocks related to the end of the extraordinary bank credit moratorium introduced to temporarily shield borrowers. Portugal’s economy is fully integrated in the European Union. Portugal’s primary trading partners are Spain, France, Germany, the United Kingdom, and the United States.
Beyond Europe, Portugal maintains significant links with former colonies including Brazil, Angola, Mozambique, Cape Verde, and Guinea-Bissau.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The government of Portugal recognizes the importance of foreign investment and sees it as a driver of economic growth, with an overall positive attitude towards foreign direct investment (FDI). Portuguese law is based on a principle of non-discrimination, meaning foreign and domestic investors are subject to the same rules. Foreign investment is not subject to any special registration or notification to any authority, with exceptions for a few specific activities.
The Portuguese Agency for Foreign Investment and Commerce (AICEP) is the lead for promotion of trade and investment. AICEP is responsible for attracting FDI, global promotion of Portuguese brands, and export of goods and services. It is the primary point of contact for investors with projects over € 25 million or companies with a consolidated turnover of more than € 75 million. For foreign investments not meeting these thresholds, AICEP will make a preliminary analysis and direct the investor to assistance agencies such as the Institute of Support to Small- and Medium- Sized Enterprises and Innovation (IAPMEI), a public agency within the Ministry of Economy that provides technical support, or to AICEP Capital Global, which offers technology transfer, incubator programs, and venture capital support. AICEP does not favor specific sectors for investment promotion. It does, however, provide a “Prominent Clusters” guide on itswebsite, where it advocates investment in Portuguese companies by sector. Additionally, Portugal has introduced the website Simplex, designed to help navigate starting a business.
The Portuguese government maintains regular contact with investors through the Confederation of Portuguese Business (CIP), the Portuguese Commerce and Services Confederation (CCP), the Portuguese Chamber of Commerce and Industry (CCIP), among other industry associations.
Limits on Foreign Control and Right to Private Ownership and Establishment
There are no legal restrictions in Portugal on foreign investment. To establish a new business, foreign investors must follow the same rules as domestic investors, including mandatory registration and compliance with regulatory obligations for specific activities. There are no nationality requirements and no limitations on the repatriation of profits or dividends.
Non-resident shareholders must obtain a Portuguese taxpayer number for tax purposes. EU residents may obtain this number directly with the tax administration (in person or by means of an appointed proxy); non-EU residents must appoint a Portuguese resident representative to handle matters with tax authorities.
Portugal enacted a national security investment review framework in 2014, which gave the Council of Ministers authority to block specific foreign investment transactions that would compromise national security. Reviews can be triggered on national security grounds in strategic industries like energy, transportation, and communication. Investment reviews can be conducted in cases where the purchaser acquiring control is an individual or entity not registered in an EU member state. In such instances, the review process is overseen by the applicable Portuguese ministry according to the assets in question. Portugal has yet to activate its investment screening mechanism.
Portuguese government approval is required in the following sensitive sectors: defense, water management, public telecommunications, railways, maritime transportation, and air transport. Any economic activity that involves the exercise of public authority also requires government approval; private sector companies can operate in these areas only through a concession contract.
Portugal additionally limits foreign investment with respect to the production, transmission, and distribution of electricity, the production of gas, the pipeline transportation of fuels, wholesale services of electricity, retailing services of electricity and non-bottled gas, and services incidental to electricity and natural gas distribution. Concessions in the electricity and gas sectors are assigned only to companies with headquarters and effective management in Portugal.
Investors wishing to establish new credit institutions or finance companies, acquire a controlling interest in such financial firms, and/or establish a subsidiary must have authorization from the Bank of Portugal (for EU firms) or the Ministry of Finance (for non-EU firms). Non-EU insurance companies seeking to establish an agency in Portugal must post a special deposit and financial guarantee and must have been authorized for such activity by the Ministry of Finance for at least five years.
Other Investment Policy Reviews
Business Facilitation
To combat the perception of a cumbersome regulatory environment, the government has created a ‘cutting red tape’ the website Simplex (simplex.gov.pt) that details measures taken since 2005 to reduce bureaucracy, and the Empresa na Hora (“Business in an Hour”) program that facilitates company incorporation by citizens and non-citizens in less than 60 minutes. More information is available atEmpresa na Hora.
In 2007, the government established AICEP, a promotion agency for investment and foreign trade that also manages industrial parks and provides business location solutions for investors through its subsidiary AICEP Global Parques.
Established in 2012, Portugal’s “Golden Visa” program gives fast-track residence permits to foreign investors meeting certain conditions, including making capital transfers, job creation or real estate acquisitions. As of 2021, the government is planning to introduce changes to the “Golden Visa” program that includes restricting the purchase of real estate to regions in the interior, in the Azores and Madeira, a package of measures expected to kick-in in 2022. Between 2012 and 2020, Portugal issued 9,444 ‘Golden Visas’, representing €5.67 billion of investment, of which €5.1 billion went into real estate. Chinese nationals dominate the ‘Golden Visa’ issuance, with 5,672, followed by Brazilian nationals, with 994. Other measures implemented to help attract foreign investment include the easing of some labor regulations to increase workplace flexibility and EU-funded programs.
Portuguese citizens can alternatively register a business online through the “Citizen’s Portal” available at Portal do Cidadão. Companies must also register with the Directorate General for Economic Activity (DGAE), the Tax Authority (AT), and with the Social Security administration. The government’s standard for online business registration is a two to three day turnaround but the online registration process can take as little as one day.
Portugal defines an enterprise as micro-, small-, and medium-sized based on its headcount, annual turnover, or the size of its balance sheet. To qualify as a micro-enterprise, a company must have fewer than 10 employees and no more than €2 million in revenues or €2 million in assets. Small enterprises must have fewer than 50 employees and no more than €10 million in revenues or €10 million in assets. Medium-sized enterprises must have fewer than 250 employees and no more than €50 million in revenues or €43 million in assets. The Small- and Medium-Sized Enterprise (SME) Support Institute (IAPMEI) offers financing, training, and other services for SMEs based in Portugal.
More information on laws, procedures, registration requirements, and investment incentives for foreign investors in Portugal is available at AICEP’s website.
Outward Investment
The Portuguese government does not restrict domestic investors from investing abroad. On the contrary, it promotes outward investment through AICEP’s customer managers, export stores and its external commercial network that, in cooperation with the diplomatic and consular network, are operating in about 80 markets. AICEP provides support and advisory services on the best way of approaching foreign markets, identifying international business opportunities for Portuguese companies, particularly SMEs.
3. Legal Regime
Transparency of the Regulatory System
The government of Portugal employs transparent policies and effective laws to foster competition, and the legal system welcomes FDI on a non-discriminatory basis, establishing clear rules of the game. Legal, regulatory, and accounting systems are consistent with international norms. Public finances and debt obligations are transparent, with data regularly published by the Bank of Portugal, the IGCP debt management agency, and the Ministry of Finance. Regulations drafted by ministries or agencies must be approved by Parliament and, in some cases, by European authorities. All proposed regulations are subject to a 20 to 30 day public consultation period during which the proposed measure is published on the relevant ministry or regulator’s website. Only after ministries or regulatory agencies have conducted an impact assessment of the proposed regulation can the text be enacted and published. The process can be monitored and consulted at the official websites ofParliamentand of the Official Portuguese Republic Journal. Ministries or regulatory agencies report the results of the consultations through a consolidated response published on the website of the relevant ministry or regulator.
Rule-making and regulatory authorities exist across sectors including energy, telecommunications, securities markets, financial, and health. Regulations are enforced at the local level through district courts, on the national level through the Court of Auditors, and at the supra-national level through EU mechanisms including the European Court of Justice, the European Commission, and the European Central Bank. The OECD, theEuropean Commission, and the IMF also publish key regulatory actions and analysis. UTAO, the Parliamentary Technical Budget Support Unit, is a nonpartisan body composed of economic and legal experts that support parliamentary budget deliberations by providing the Budget Committee with quality analytical reports on the executive’s budget proposals. In addition, the Portuguese Public Finance Council conducts an independent assessment of the consistency, compliance with stated objectives, and sustainability of public finances, while promoting fiscal transparency.
The legal, regulatory, and accounting systems are transparent and consistent with international norms. Since 2005, all listed companies must comply with International Financial Reporting Standards as adopted by the European Union (“IFRS”), which closely parallels the U.S. GAAP-Generally Accepted Accounting Principles. Portugal’s Competition Authority enforces adherence to domestic competition and public procurement rules. The European Commission further ensures adhesion to EU administrative processes among its member states.
Public finances are generally deemed transparent, closely scrutinized by Eurostat and monitored by an independent technical budget support unit, UTAO, and the Supreme Audit Institution ‘Tribunal de Contas.’ Over the last decades, Portugal has also consolidated within the State accounts many state-owned enterprises, making budget analysis more accurate.
International Regulatory Considerations
Portugal has been a member of the EU since 1986, a member of the Schengen area since 1995, and joined the Eurozone in 1999. With the Treaty of Lisbon’s entry into force in 2009, trade policy and rules on foreign direct investment became exclusive EU competencies, as part of the bloc’s common commercial policy. The European Central Bank is the central bank for the euro and determines monetary policy for the 19 Eurozone member states, including Portugal. Portugal complies with EU directives regarding equal treatment of foreign and domestic investors. Portugal has been a member of the World Trade Organization since 1995.
Legal System and Judicial Independence
The Portuguese legal system is a civil law system, based on Roman law. The hierarchy among various sources of law is as follows: (i) Constitutional laws and amendments; (ii) the rules and principles of general or common international law and international agreements; (iii) ordinary laws enacted by Parliament; (iv) instruments having an effective equivalent to that of laws, including approved international conventions or decisions of the Constitutional Court; and (v) regulations used to supplement and implement laws. The country’s Commercial Company Law and Civil Code define Portugal’s legal treatment of corporations and contracts. Portugal has a Supreme Court and specialized family courts, labor courts, commercial courts, maritime courts, intellectual property courts, and competition courts. Regulations or enforcement actions are appealable, and are adjudicated in national Appellate Courts, with the possibility to appeal to the European Court of Justice. The judicial system is independent of the executive branch and the judicial process procedurally competent, fair, and reliable. Regulations and enforcement actions are appealable.
Laws and Regulations on Foreign Direct Investment
The Bank of Portugal defines FDI as “an act or contract that obtains or increases enduring economic links with an existing Portuguese institution or one to be formed.” A non-resident who invests in at least 10 percent of a resident company’s equity and participates in the company’s decision-making is considered a foreign direct investor. Current information on laws, procedures, registration requirements, and investment incentives for foreign investors in Portugal is available at AICEP’s website.
Competition and Antitrust Laws
The domestic agency that reviews transactions for competition-related concerns is the Portuguese Competition Authority and the international agency is the European Commission’s Directorate General for Competition. Portuguese law specifically prohibits collusion between companies to fix prices, limit supplies, share markets or sources of supply, discriminate in transactions, or force unrelated obligations on other parties. Similar prohibitions apply to any company or group with a dominant market position. The law also requires prior government notification of mergers or acquisitions that would give a company more than 30 percent market share in a sector, or mergers or acquisitions among entities that had total sales in excess of €150 million during the preceding financial year. The Competition Authority has 60 days to determine if the merger or acquisition can proceed. The European Commission may claim authority on cross-border competition issues or those involving entities large enough to have a significant EU market share.
Expropriation and Compensation
Under Portugal’s Expropriation Code, the government may expropriate property and its associated rights if it is deemed to support the public interest, and upon payment of prompt, adequate, and effective compensation. The code outlines criteria for calculating fair compensation based on market values. The decision to expropriate as well as the fairness of compensation can be challenged in national courts.
On July 2, 2020, the government of Portugal nationalized a 71.7% stake in energy company Efacec, controlled by Angola’s Isabel dos Santos, given its strategic importance for the economy, in a move aimed at ending legal uncertainty and facilitating the sale of her shares. The government is currently seeking investors interested in reprivatizing the company.
Dispute Settlement
ICSID Convention and New York Convention
Portugal has been a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention – also known as the Washington Convention) since 1965. Portugal has been a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since January 1995. Portugal’s national arbitration law No. 63-2011 of December 14, 2011 enforces awards under the 1958 New York Convention and the ICSID Convention.
Investor-State Dispute Settlement
Portugal has ratified the 1927 Geneva Convention on the Execution of Foreign Arbitral Awards, and in 2002 ratified the 1975 Inter-American Convention on International Commercial Arbitration.
Portugal’s Voluntary Arbitration Law, enacted in 2011, is based on the UNCITRAL Model Law, and applies to all arbitration proceedings in Portugal. The leading commercial arbitration institution is theArbitration Center of the Portuguese Chamber of Commerce and Industry.
The government promotes non-judicial dispute resolution through the Ministry of Justice’s Office for Alternative Dispute Resolution (GRAL), including conciliation, mediation or arbitration. Portuguese courts recognize and enforce foreign arbitral awards issued against the government. There have been no recent extrajudicial actions against foreign investors.
International Commercial Arbitration and Foreign Courts
Arbitration is the preferred alternative dispute resolution mechanism in Portugal. The country has a long-standing tradition of arbitration in administrative and contract disputes. It has also become the standard mechanism for resolving tax disputes between private citizens or companies and tax authorities, as well as in pharmaceutical patent disputes.
Portugal has four domestic arbitration bodies: 1) The Arbitration Center of the Portuguese Chamber of Commerce and Industry (CAC); 2) CONCORDIA (Centro de Conciliacao, Mediacao, de Conflictos de Arbritragem); 3) Arbitrare (Centro de Arbitragem para a Propriedade Industrial, Nomes de Dominio, Firmas e Denominacoes); and 4) the Instituto de Arbitragem Commercial do Porto. Each arbitration body has its own regulations, but all comply with the Portuguese Arbitration Law 63/11, which came into force in March 2012. The Arbitration Council of the Centre for Commercial Arbitration also follows New York Convention, Washington Convention, and Panama Convention guidelines. Arbitration Law 63/11 follows the standard established by the UNCITRAL Model Law, but is not an exact copy of that text.
Under the Portuguese Constitution, the Civil Code of Procedure (CCP) and the New York Convention, applied in Portugal since 1995, awards rendered in a foreign country must be recognized by the Portuguese courts before they can be enforced in Portugal. There is no legal authority in Portugal on the enforceability of foreign awards set aside at the seat of the arbitration. The CCP sets forth the legal regime applicable to all judicial procedures related to arbitration, including appointment of arbitrators, determination of arbitrators’ fees, challenge of arbitrators, appeal (where admissible), setting aside, enforcement (and opposition to enforcement) and recognition of foreign arbitral awards.
While Portugal’s judicial system has historically been considered relatively slow and inefficient, the country has taken several important steps, including simplifying land registry procedures and increasing the portfolio of online services.
Bankruptcy Regulations
Portugal’s Insolvency and Corporate Recovery Code defines insolvency as a debtor’s inability to meet his commitments as they fall due. Corporations are also considered insolvent when their liabilities clearly exceed their assets. A debtor, creditor or any person responsible for the debtor’s liabilities can initiate insolvency proceedings in a commercial court. The court assumes the key role of ensuring compliance with legal rules governing insolvency proceedings, with particular responsibility for ruling on the legality of insolvency and payment plans approved by creditors. After declaration of insolvency, creditors may submit their claims to the court-appointed insolvency administrator for a specific term set for this purpose, typically up to 30 days. Creditors must submit details regarding the amount, maturity, guarantees, and nature of their claims. Claims are ranked as follows: (i) claims over the insolvent’s estate, i.e. court fees related to insolvency proceedings; (ii) secured claims; (iii) privileged claims; (iv) common, unsecured claims; and (v) subordinated claims, including those of shareholders. Portugal ranks highly – 15th of 190 countries – in the World Bank’s Doing Business Index “Resolving Insolvency” measure.
5. Protection of Property Rights
Real Property
Portugal reliably enforces property rights and interests. The Portuguese Constitution ensures the right to private property and grants Parliament the power to establish rules on the renting of property, the determination of property in the public domain, and the rules of land management and urban planning. The Civil Code of 1967 provides the right to absolute and full ownership, which can be restricted by mortgage, liens, or other security interests. Additional laws have established or modified rules on time-sharing, condominiums, and land registration.
Property registration can be done online at Predial Online. According to the World Bank’s 2020 Doing Business Index, the number of days to process registration stood at 10 in 2020. Portugal ranked 35 out of 190 countries in the World Bank’s 2020 ease of registering property ranking. The cost to register a property remains slightly higher than average, at 7.3 percent of the property value. Foreign investors can directly own/purchase property freehold or leasehold, to build industrial and commercial premises or can purchase through a real estate company.
If legally purchased property is unoccupied, Portuguese law allows ownership to revert to other owners, including squatters, through an adverse domain process set out in Chapter VI of the Portuguese Civil Code (CCP), Article 1287.
Intellectual Property Rights
Intellectual property rights (IPR) infringement and theft are not common in Portugal. It is fairly easy for investors to register copyrights, industrial property, patents, and designs with Portugal’s Institute of Industrial Property (INPI) and the Inspectorate-General of Cultural Activities (IGAC). Intellectual property can be registered online for a small fee. For more details, consult: https://inpi.justica.gov.pt/Servicos and https://www.igac.gov.pt/.
The Portuguese government became party to the World Trade Organization’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and provisions of the General Agreement on Tariffs and Trade (GATT) in 2003. Portuguese legislation for the protection of IPR has been consistent with WTO rules and EU directives since 2004. The Arbitration Centre for Industrial Property, Domain Names, and Company Names (ARBITRARE) was established in 2009 to facilitate voluntary arbitration of IPR disputes in English or Portuguese, and in 2012, the government created an IPR court with two judges. In 2019, Portugal brought into force a new industrial property package of legislation, enhancing the protection of a wide range of IPR, including patents, geographical indications, trademarks and designs. See more at https://wipolex.wipo.int/en/members/profile/PT.
Portugal is a participant in the eMAGE and eMARKS projects, which provide multilingual access to databases of trademarks and industrial designs. Portugal’s Food and Economic Security Authority (ASAE), in partnership with other national law enforcement agencies, provides statistics on seizures of counterfeit goods at: https://www.asae.gov.pt/inspecao-fiscalizacao/resultados-operacionais.aspx.
Portugal is not included in the U.S. Trade Representative’s (USTR’s) Special 301 Report or Notorious Markets List.
For additional information about national laws and points of contact at local IPR offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
8. Responsible Business Conduct
There is strong awareness of responsible business conduct in Portugal and broad acceptance of the need to consider the community among the key stakeholders of any company. The Group of Reflection and Support for Business Citizenship (GRACE) was founded in 2000 by a group of companies, primarily multinational enterprises, to expand the role of the Portuguese business community in social development.
The Ministry of Economy and AICEP encourage foreign and local enterprises to observe the due diligence approach of the OECD Guidelines for Multinational Enterprises, and both agencies jointly comprise the National Contact Point (NCP) to provide good offices for mediating disputes that may arise regarding the Guidelines. The Portuguese Business Ethics Association (APEE) is dedicated to promoting corporate social responsibility and works in collaboration with the Ministry of Economy’s Directorate-General of Economic Activities. It promotes events like Social Responsibility Week and celebrates protocols and agreements with companies to ensure they follow responsible business conduct principles incorporated into the labor code.
Portugal’s Competition Authority both encourages and enforces competition rules, including ethical business practices. The Competition Authority operates aleniency programfor companies that self-identify lapses. There have not been any high profile, controversial instances of private sector impact on human rights. The Portuguese government enforces domestic laws effectively and fairly through the domestic courts system, and through the supra-national European Court of Human Rights. Within its constitution, Portugal states that constitutional precepts concerning fundamental rights must be interpreted and observed in harmony with the Universal Declaration of Human Rights.
The Portuguese legal and regulatory framework on corporate governance includes not only regulations and recommendations from the Portuguese Securities Market Commission (CMVM), but also specific legal provisions from the Portuguese Companies Code and the Portuguese Securities Code. CMVM promotes sound corporate governance for listed companies by setting out a group of recommendations and regulations on the standards of corporate governance. CMVM regulations are binding for listed companies.
Non-governmental organizations also promote awareness of environmental and good governance issues in business. These include Quercus Portugal, which publishes guidelines and organizes events to promote environmental responsibility in business practices, and Transparencia e Integridade Associacao Civica (TIAC), which produces reports on corruption on everything from soccer match-fixing to conflicts of interest in public and private enterprise. TIAC also allows whistle-blowers to anonymously submit reports of corruption through their website.
Portugal does not participate in the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights. The country’s two main umbrella unions, CGTP-Confederação Geral dos Trabalhadores Portugueses and UGT-União Geral dos Trabalhadores, also regularly denounce and combat non-compliant business practices, particularly related to labor rights violations.
There are no reports of serious human or labor rights concerns relating to responsible business conduct.
U.S. firms do not identify corruption as an obstacle to foreign direct investment. Portugal has made legislative strides toward further criminalizing corruption. The government’s Council for the Prevention of Corruption, formed in 2008, is an independent administrative body that works closely with the Court of Auditors to prevent corruption in public and private organizations that use public funds. Transparencia e Integridade Associacao Civica, the local affiliate of Transparency International, also actively publishes reports on corruption and supports would-be whistleblowers in Portugal.
In 2010, the country adopted a law criminalizing violation of urban planning rules and increasing transparency in political party funding. In 2015, Parliament unanimously approved a revision to existing anti-corruption laws that extended the statute of limitations for the crime of trading in influence to 15 years and criminalized embezzlement by employees of state-owned enterprises with a prison term of up to eight years. The laws extend to family members of officials and to political parties.
Despite being seen as generally aligned with the best international practices in terms of preventing and combating corruption, a June 2019 interim report by the Council of Europe’s Group of States against Corruption (GRECO) concluded that only one of the fifteen recommendations contained in GRECO´s Fourth Round Evaluation Report had been implemented satisfactorily or dealt in a satisfactory manner by Portugal at end-2019 in terms of compliance with GRECO anti-corruption recommendations addressed to lawmakers, judges and prosecutors.
Portugal has laws and regulations to counter conflict-of-interest in awarding contracts or government procurement.
The Portuguese government encourages (and in some cases requires) private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. Most private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials. As described above, the Competition Authority operates a leniency program for companies that self-identify infringements of competition rules, including ethical lapses.
Portugal has ratified and complies with both the UN Convention against Corruption and the OECD Anti-Bribery Convention.
Resources to Report Corruption
Council for the Prevention of Corruption
Avenida da Republica,
651050-189, Lisbon, Portugal
+351 21 794 5138
Email: cp-corrupcao@tcontas.pt
Contact at “watchdog” organization:
Transparency International –
Transparencia e Integridade Associacao Civica
Rua dos Fanqueiros,
65-3º A1100-226,
Lisbon, Portugal
+351 21 8873412
Email: secretariado@transparencia.pt
10. Political and Security Environment
Since the 1974 Carnation Revolution, Portugal has had a long history of peaceful social protest. Portugal experienced its largest political rally since its revolution in response to proposed budgetary measures in 2012. Public workers, including nurses, doctors, teachers, aviation professionals, and public transportation workers organized peaceful demonstrations periodically in protest of insufficient economic support, low salary levels, and other measures.
11. Labor Policies and Practices
Numerous labor reform packages aimed at improving productivity were implemented after the 2011 bailout, but overall low labor productivity remains a challenge. The annualized monthly minimum wage increased stands at €776.
After the difficulties of the eurozone debt crisis, when many Portuguese migrated out of the country along with some resident migrants, net-migration became positive again in 2017 and has strengthened since. The number of legal foreign residents in Portugal stands at around 589,000, the highest level since records started in 1976. The largest communities of workers come from Brazil, Cape Verde, Romania, Ukraine, UK, China, France, Italy, Angola, Guinea-Bissau, Nepal and India. The employment rate of foreign workers is similar to that of Portuguese nationals at around 75%. In the southern Algarve region, the tourism sector employs most of the migrant workers. Alentejo and the coastal regions of central Portugal, with their intensive agriculture sectors, hosts substantial Asian workers’ communities, namely from Bangladesh.
Employers are allowed to conduct collective dismissals linked to adverse market or economic conditions, or due to technological advancement, but must provide advance notice and severance pay. Depending on the seniority of each employee, an employer must provide between 15 to 75 days of advance notice, and pay severance ranging from 12 days’ to one month’s salary per year worked. Employees may challenge termination decisions before a Labor Court. Labor laws are uniformly applicable and enforced, including in Portugal’s foreign trade zone/free port in the Autonomous Region of Madeira.
Collective bargaining is common in Portugal’s banking, insurance, and public administration sectors. More information is available at the Directorate General for Labor Relations site.
Portugal has labor dispute resolution mechanisms in place through Labor Courts and Arbitration Centers. Labor strikes are more common than in the United States, but are nonviolent and of short duration. Labor laws are not waived in order to attract or retain investment.
Portugal is a member of the International Labor Organization (ILO), and has ratified all eight Fundamental Conventions as well as all four Governance (Priority) Conventions.
The Labor Code caps the work schedule at eight hours per day, and 40 hours per week. The public sector employee workweek, with certain exclusions, was capped at 35 hours in July 2016. Employees are entitled to at least 22 days of annual leave per year. Employers must pay employees a Christmas and vacation bonus, both equivalent to one month’s salary.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International
Source of Data: BEA; IMF;
Eurostat; UNCTAD, Other
Economic Data
Year
Amount
Year
Amount
Host Country Gross Domestic Product (GDP) (Million)