Policies Towards Foreign Direct Investment

At present, there are no general limits on foreign ownership or control of firms, nor is there screening or restricting of foreign investment in Bulgaria.  However, while Bulgaria generally affords national treatment to foreign investors, there are reports of discrimination against U.S. investors by government officials.  Two major U.S. investors in Bulgaria have been subjected to open criticism by government officials as “American” companies responsible for high energy costs in Bulgaria.  The government continues to threaten to have the companies’ long-term contracts abrogated. In another case, a U.S. company has faced bureaucratic hurdles in its efforts to compete in the energy sector with a monopolistic state-owned Russian incumbent.  More often, investors cite general problems with corruption, rule of law, frequently changing legislation, and uneven law enforcement. Transparency International’s (TI) Corruption Perception Index for 2018 ranked Bulgaria 77th out of 180 surveyed countries, down six places from last year’s 71st, and scoring 42 on a 100-point scale, well below the EU average of 66.  The Invest Bulgaria Agency (IBA), the government’s investment promotion body, provides information, administrative services, and incentive assessments to prospective foreign investors. Its website http://www.investbg.government.bg/en   contains general information for foreign investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

With a few exceptions, there are no limits for foreign and domestic private entities to establish and own a business in Bulgaria. The Offshore Company Act lists 28 activities (including government procurement, natural resource exploitation, national park management, banking, insurance) banned for companies registered in offshore jurisdictions, with more than 10 percent foreign participation. The law, however, allows those companies to do business if the physical owners of the parent company are Bulgarian citizens and known to the public, if the parent company’s stock is publicly traded, or if the parent company is registered in a jurisdiction with which Bulgaria enjoys a treaty for the avoidance of double taxation (including the United States).  Despite the EU creation of a national security investment review framework, Bulgaria currently has no specific law or established mechanism in place for screening individual foreign investments for potential national security risks. Nonetheless, investments can be scrutinized on an ad hoc basis or through the Law on the Measures against Money Laundering.

Other Investment Policy Reviews

Reviews of Bulgaria’s investment climate by the Organization for Economic Cooperation and Development (OECD) can be found at this website: https://www.oecd.org/development/bulgaria-strengthens-its-co-operation-with-the-oecd-via-an-action-plan.htm   

The United Nations Conference on Trade and Development (UNCTAD) has this report: https://unctadstat.unctad.org/CountryProfile/GeneralProfile/en-GB/100/index.html   

Business Facilitation

Bulgaria typically supports small and medium business creation and development in conjunction with EU-funded innovation and competitiveness programs and with a special emphasis on export promotion and small- and medium-sized enterprise (SME) development. Typically, a new business is expected to register an account with the state social security agency and, in some cases, with the local municipality as well.  Electronic company registration is available at: https://public.brra.bg/Internal/Registration.ra?0   . Women receive equitable treatment to men, and the Bulgarian law protects minorities from discrimination.

Bulgaria ranked overall 59th (out of 190 surveyed economies worldwide) in the World Bank’s 2019 Doing Business report; 99th in Starting a New Business, and 147th place in the ‘Getting Electricity’ category. 

Outward Investment

There is no government agency for outward investment promotion; no restrictions exist for any local business to invest abroad.

Transparency of the Regulatory System

In general, the regulatory environment in Bulgaria is characterized by complexity, lack of transparency, and arbitrary or weak enforcement.  These factors create incentives for public corruption. Bulgarian law lists 38 operations subject to licensing. The law requires all regulations to be justified by defined need (in terms of national security, environmental protection, or personal and material rights of citizens), and prohibits restrictions merely incidental to the stated purposes of the regulation.  The law also requires the regulating authority to perform a cost-benefit analysis of any proposed regulation. This requirement, however, is often ignored when Parliament reviews draft bills. With few exceptions, all draft bills are made available for public comment, both on the central government website and the relevant agency’s website, and interested parties are given 30 days to submit their opinions.  The government maintains a web platform, www.strategy.bg  , on which it posts draft legislation. 

In addition, the law eliminates bureaucratic discretion in granting requests for routine economic activities, and provides for silent consent when the government does not respond to a request in the allotted time.  Local companies in which foreign partners have controlling interests may be requested to provide additional information or to meet additional mandatory requirements in order to engage in certain licensed activities, including production and export of arms and ammunition, banking and insurance, and the exploration, development, and exploitation of natural resources.  Bulgarian government licenses exports of dual-use goods and bans the export all goods under international trade sanctions lists. The Bulgarian government’s budget is assessed as transparent and in accordance with international standards and principles. Data on government debt is publicly available but data on the debt accrued by state-owned companies is not. 

International Regulatory Considerations

Bulgaria became a member of the World Trade Organization in December 1996.  Under the provisions of Article 207 of the Treaty on the Functioning of the European Union (Lisbon Treaty), common EU trade policies are exclusively the competence of the EU and the European Commission, which coordinates them with the 27 member states. 

Legal System and Judicial Independence

The 1991 Constitution serves as the foundation of the legal system and creates an independent judicial branch comprised of judges, prosecutors, and investigators.  The judiciary continues to be the least trusted institution in the country, with widespread allegations of corruption and undue political and business influence. The busiest courts in Sofia suffer from serious backlogs, limited resources, and inefficient procedures that hamper the swift and fair administration of justice.

There are three levels of courts.  Bulgaria’s 113 regional courts exercise jurisdiction over civil and criminal cases.  Above them, 29 district courts (including the Sofia City Court and the Specialized Court for Organized Crime and High Level Corruption) serve as courts of appellate review for regional court decisions and have trial-level (first-instance) jurisdiction in serious criminal cases and in civil cases where claims exceed BGN 25,000 (USD 14,500), excluding alimony, labor disputes, and financial audit discrepancies, or in property cases where the property’s value exceeds BGN 50,000 (USD 29,000).  Six appellate courts review the first-instance decisions of the district courts. The Supreme Court of Cassation is the court of last resort for criminal and civil appeals. 

There is a separate system of 28 specialized administrative courts that rule on the legality of local and national government decisions, with the Supreme Administrative Court serving as the court of final instance.

The Constitutional Court, which is separate from the rest of the judiciary, issues final rulings on the compliance of laws with the Constitution.

Bulgaria has adequate means of enforcing property and contractual rights under local legislation. In practice, however, the government’s handling of investment disputes has been slow, and intervention at the highest level is often required.  Investors sometimes perceive that jurisprudence is inconsistent, and that national legislation is used to deter competition by foreign investors.

Laws and Regulations on Foreign Direct Investment

The 2004 Investment Promotion Act stipulates equal treatment of foreign and domestic investors.  The law encourages investment in manufacturing and high technology, as well as in education and human resource development.  It creates incentives by helping investors purchase land, providing state financing for basic infrastructure and training new staff, and facilitating tax incentives and opportunities for public-private partnerships (PPPs) with the central and local government.  The most common PPPs are in the form of concessions, which include the lease of government property for private use for up to 35 years.

Foreign investors must comply with the 1991 Commercial Code, which regulates commercial and company law, and the 1951 Law on Obligations and Contracts, which regulates civil transactions.

InvestBulgaria’s official web site http://www.investbg.government.bg/en   is a useful source of information on Bulgaria’s economy, investment law, and statistics for prospective foreign investors.

Competition and Anti-Trust Laws

The Commission for Protection of Competition (the “Commission”) oversees market competition and enforces the Law on the Protection of Competition (the “Competition Law”). The Competition Law, enacted in 2008, is intended to implement EU rules that promote competition.  Monopolies can only be established in enumerated categories of strategic industries.  The law forbids restrictive trade practices, abuse of market power, and certain forms of unfair competition.   In practice, the Competition Law has been applied inconsistently, and the Competition Commission has been seen as lacking impartiality.

Expropriation and Compensation

Private real property rights are legally protected by the Bulgarian Constitution. Only in the case where a public need cannot be met by other means, the Council of Ministers or a regional governor may expropriate land, provided that the owner is compensated at fair market value. Expropriation actions by the Council of Ministers or by regional authorities can be appealed at a local administrative court. The U.S.-Bulgaria Bilateral Investment Treaty (BIT) commits both parties to prompt, adequate, and effective compensation in the event of expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Bulgaria is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) and the 1961 European Convention on International Commercial Arbitration.  Bulgaria is a member of the World Bank-based International Centre for the Settlement of Investment Disputes (ICSID).

Investor-State Dispute Settlement

Bulgaria accepts binding international arbitration in disputes with foreign investors.  Arbitral awards, both foreign and domestic, are enforced through the judicial system. The party must petition the Sofia City Court for a writ of execution and then execute the award according to the general framework for execution of judgments.  Foreclosure proceedings may also be initiated.

International Commercial Arbitration and Foreign Courts

There are more than 20 arbitration institutions in Bulgaria, with the Arbitration Court of the Bulgarian Chamber of Commerce and Industry (BCCI) being the oldest.  Bulgarian law instructs courts to act on civil litigation cases within three months after a claim is filed. In practice, however, dispute settlement can take several months and up to a few years.

Bankruptcy Regulations

The 1994 Commercial Code Chapter on Bankruptcy provides for reorganization or rehabilitation of a legal entity, maximizes asset recovery, and provides for fair and equal distribution among all creditors.  The law applies to all commercial entities, except public monopolies or state-owned enterprises (SOEs). The 2015 Insurance Code regulates insurance company failures, while bank failures are regulated under the 2002 Bank Insolvency Act and the 2006 Credit Institutions Act. The 2014 bankruptcy of the country’s fourth-largest bank, Corporate Commercial bank, was a test case that showed serious deficiencies in the process of recovery and preservation of bank assets during bankruptcy proceedings.

Non-performance of a financial obligation must be adjudicated before the bankruptcy court can determine whether the debtor is insolvent.  There is a presumption of insolvency when the debtor is unable to perform an executable obligation under a commercial transaction or public debt or related commercial activities, has suspended all payments, or is able to pay only the claims of certain creditors.  The debtor is deemed over-indebted if its assets are insufficient to cover its short-term monetary obligations.

Bankruptcy proceedings may be initiated on two grounds:  the debtor’s insolvency, or the debtor’s excessive indebtedness.  Under Part IV of the Commercial Code, debtors or creditors, including state authorities such as the National Revenue Agency, can initiate bankruptcy proceedings.  The debtor must declare bankruptcy within 30 days of becoming insolvent or over-indebted. Bankruptcy proceedings supersede other court proceedings initiated against the debtor except for labor cases, enforcement proceedings, and cases related to receivables securitized by third parties’ property.  Such cases may be initiated even after bankruptcy proceedings begin.

Creditors must declare to the trustee all debts owed to them within one month of the start of bankruptcy proceedings.  The trustee then has seven days to compile a list of debts. A rehabilitation plan must be proposed within one month after publication of the list of debts in the Commercial Register.  After creditors’ approval, the court endorses the rehabilitation plan, terminates the bankruptcy proceeding, and appoints a supervisory body for overseeing the implementation of the rehabilitation plan.  The court must endorse the plan within seven days and put it forward to the creditors for approval. The creditors must convene to discuss the plan within a period of 45 days. The court may renew the bankruptcy proceedings if the debtor does not fulfill its obligations under the rehabilitation plan.

The Bulgarian National Bank may revoke the operating license of an insolvent bank when the bank’s own capital is negative and the bank has not been restructured according to the procedure defined in Article 51 in the Law on the Recovery and Resolution of Credit Institutions and Investment Firms.  In the World Bank’s 2019 Doing Business Report, Bulgaria ranked 59th for ease of “resolving insolvency,” ahead of three EU peers (Luxembourg, Greece, and Malta).

Investment Incentives

The 2004 Investment Promotion Act (revised in 2018) stipulates equal treatment of foreign and domestic investors. The law encourages investment in manufacturing, services, and high technology, education, and human resource development via a range of incentives, which include: helping investors purchase municipal or state-owned land without tender, providing state financing for basic infrastructure and for training new staff, and reimbursing the employer’s portion of social security payments. The law also provides tax incentives and fast-track administrative procedures for public-private partnerships.  The government policy for investment promotion excludes a number of sectors classified as ‘strategic’ for national security purposes.

Investment projects deemed particularly important for the economy and meet the legal requirement for a minimum investment commitment in the amount of EUR 10 to 50 million and for creating 50 to 150 new jobs are classified as priority projects.  The exact amount of the required investment depends on the level of economic activity expected to be generated. Priority investors may receive incentives such as below-market prices when acquiring property rights (full or limited) on central or municipal government property, government grants for research and development (R&D) and education projects, and institutional support for establishing PPPs.

Additional incentives include a two-year valued-added tax (VAT) exemption on equipment imports for investment projects over EUR 2.5 million, provided the project will be implemented within a two-year period and create at least 20 new jobs.  Corporate income tax exemption can also be granted for manufacturing projects, with no minimum investment requirement, that are implemented in high unemployment areas and create at least 10 jobs.

The government does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

The role of Free Trade Zones vastly diminished following Bulgaria’s full integration into the EU single market in 2007.  At the same time, EU integration encouraged local authorities to seek partnerships with the private sector and provide resources (i.e., land, infrastructure, etc.) for the development of industrial zones and technological parks.  Located favorably on one of the main highways, the Trakia Economic Zone just outside of Plovdiv, the largest in Bulgaria, consists of two industrial parks, two industrial zones, one high tech park and one agribusiness park.  In addition, the state-owned National Industrial Zones Company currently operates fully functioning industrial zones in Sofia, Burgas, Vidin, Ruse, Svilengrad and Varna.  The NIZC assists investors in these economic zones with established infrastructure, location, and transport logistics.   The common thread among all these economic zones is that they are either located in regions with plenty of available labor, in economically disadvantaged regions where the government provides special investment incentives, or are at important cross border points.  The high-technology Sofia Tech Park has joined efforts with the Bulgarian Academy of Sciences and several local universities to create innovation clusters expected to become the largest R&D center and high-tech incubator in Bulgaria.

Performance and Data Localization Requirements

Bulgaria generally does not impose export performance or local content requirements as a condition for establishing, maintaining, or expanding an investment.  However, non-EU workers cannot exceed 35 percent of the total workforce to be considered Bulgarian small- and medium-sized enterprises, or 20 percent in firms classified as large.  Employment visas and work permits are required for most expatriate personnel from non-EU countries. Many U.S. companies have experienced difficulties in the past obtaining work permits for their non-Bulgarian, non-EU employees.  In 2017 the government simplified procedures and shortened issuance time for work visas for non-EU workers. 

There are no requirements for foreign IT providers to turn over source code or provide access to surveillance, nor are there mechanisms used to enforce any rules on maintaining a certain amount of data storage within Bulgaria. 

Real Property

Bulgaria assigned the rights of land use back to its original owners in early 1990s.  Restrictions still exist on ownership of agricultural land by non-EU citizens. Companies whose shareholders are registered offshore are banned from acquiring or owning Bulgarian agricultural land.

Mortgages are recorded centrally with the Bulgarian Registry Agency.   In the World Bank’s 2019 Doing Business report, Bulgaria placed 67th out of 190 countries in the category of registering property http://www.doingbusiness.org/en/rankings  

Intellectual Property Rights

Bulgarian patent law has been harmonized with EU law for patents and utility model patent protection.  However, in patent procedures, there are reports of conflicts of interest and delays in decision-making and informing patent holders.  These issues, coupled with a lack of accountability of the Bulgarian Patent Office, have weakened patent protection in the country.

Bulgaria is a member of the Convention on Granting of European Patents (European Patent Convention) and a contracting state of the European Patent Office (EPO).  Bulgaria has also signed the London agreement for facilitating the validation process but has yet to amend its own law accordingly. Bulgaria is also part of the Patent Cooperation Treaty (PCT).  Bulgaria grants the right to exclusive use of inventions for 20 years from the date of patent application, subject to payment of annual fees, which range from BGN 50 (USD 29) to BGN 1,700 (USD 987), depending on the time remaining before the patent expires. Supplementary protection certificates (SPCs) are also an available protection option.  Innovations can also be protected as utility models (small inventions). They are registered without novelty examination. The term of validity of a utility model registration is four years from the date of filing with the Patent Office. It may be extended by two consecutive three-year periods, but the total term of validity may not exceed 10 years.  There is no accessible database for registered and valid patent and utility models in Bulgaria.

Under Bulgarian law, new and original industrial designs can be granted certificates from the Patent Office and entered in the state register. The registration does not require examination by the Patent Office for novelty or originality. The term of protection is 10 years, renewable for up to 25 years. Bulgaria is a contracting state of the Hague Agreement Concerning the International Deposit of Industrial Designs.

Compulsory licensing (allowing competitors to enter the market despite a valid patent) may be ordered under certain conditions, including failure to execute the patent. Disputes arising from the creation, protection, or use of inventions and utility models can be settled under administrative, civil, or arbitration procedures.

Pursuant to the 1996 Protection of New Plant Varieties and Animal Breeds Act, the Patent Office can issue a certificate protecting new plant varieties and animal breeds for between 25 and 30 years. Responding to long-standing industry concerns, the Bulgarian government included in its Drug Law a provision to provide data exclusivity (i.e., protection of confidential data submitted to the government to obtain approval to market pharmaceutical products).

Bulgaria is a member of the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration.  Bulgaria enforces EU legislation for protecting geographical indications (GIs) and Traditional Specialties Guaranteed (TSG).

Trademarks, service marks, and rights to geographic indications are only protected pursuant to registration with the Bulgarian Patent Office or an international registration (under the Madrid Agreement and the Madrid protocol) designating Bulgaria; protection does not arise merely from use in commerce.  A trademark is normally granted within ten months of filing a complete application. Refusals can be appealed to the Disputes Department of the Patent Office. Decisions of this department can be appealed to the Sofia Administrative Court within three months of the decision. The right of exclusive use of a trademark is granted for ten years from the date of submitting the application. Extension requests must be filed during the final year of validity and can be renewed up to six months after expiration.  Protection may be terminated at third-party request if a trademark is not used for a five-year period.

Trademark infringement is a significant problem in Bulgaria for U.S. cigarette and apparel producers, and smaller-scale infringement affects other U.S. products.  Bulgarian legislation provides for criminal, civil, and administrative remedies against trademark violation. Bulgaria has implemented simplified border control procedures for the destruction of seized fake goods without civil or criminal trial.  In addition to civil penalties prescribed by the Trademarks and Geographical Indications Act (TGIA), the Criminal Code prohibits use of a third person’s trademark without the proprietor’s consent. In practice, criminal convictions for trademark and copyright infringement are rare and sentencing tends to be lenient.  Legal entities cannot be held liable under the Criminal Code.

The 1993 Copyright Act defines copyrightable work as any work of literature, art, or science, which is the result of creative activity, including: literary works, publications and computer programs; musical works; stage productions; films and other audiovisual works; fine arts, including applied art, design and folk artistic crafts; architectural works and spatial development plans; photographic works; and works created in a manner similar to photographic works.  Under Bulgarian law, translations and reprocessing of existing works and folklore works, periodicals, encyclopedias, collections, anthologies, bibliographies, databases that include two or more works or materials, are also eligible for copyright protection. The law allows rights holders to form organizations for collective management of rights.

In 2018, Bulgaria was taken off USTR’s Special 301 Watch List after demonstrating improvement in its IP law enforcement.  In 2019 Bulgaria remained off the list for a second consecutive year.

Bulgaria is not formally listed in the 2018 Out-of-Cycle Review of Notorious Markets but is mentioned as a possible location for a popular torrent site allegedly infringing the U.S. content industry’s copyrights.  Online and broadcast piracy remains a challenging copyright enforcement issue in Bulgaria.

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

Policies Towards Foreign Direct Investment

The Czech government actively seeks to attract foreign investment via policies that make the country an attractive destination for companies to locate, operate, and expand.  Act No. 72/2000 allows the Czech government to give investment incentives to investors who make new investments or expand their existing investments in the country. CzechInvest, the government investment promotion agency that operates under the Ministry of Industry and Trade, negotiates on behalf of the Czech government with foreign investors.  In addition, CzechInvest provides: assistance during implementation of investment projects, consulting services for foreign investors entering the Czech market, support for suppliers, and assistance for the development of innovative start-up firms. There are no laws or practices that discriminate against foreign investors.

The Czech Republic is a recipient of substantial foreign direct investment (FDI).  Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD 156 billion at the end of 2017, compared to USD 121.9 billion in 2016.  The increased activity of foreign investors reflects the solid state of the Czech economy and recovery in Europe. Of these, CzechInvest negotiated 106 new investment projects by foreign investors in the Czech Republic in 2017, worth USD 2.9 billion.

As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from the EU.  In 2018, 84.1 percent of Czech exports went to fellow EU member states, with 65.5 percent of this volume shipped to the EU and 32.4 percent to Germany, the Czech Republic’s largest trading partner according to the Czech Statistical Office.  The global economic crisis pulled the Czech Republic into its longest historical recession and highlighted its sensitivity to economic developments in the EU. Since emerging from recession in 2013, the economy has enjoyed some of the highest GDP growth rates of the European Union.  GDP growth reached 4.4 percent in 2017 and 2.9 percent in 2018. Growth estimates are smaller for 2019 at 2.6 percent, given uncertainty surrounding Brexit and the possibility of increasing international trade tariffs. Some experts predict a hard Brexit could cost the Czech economy 1.1 percent of GDP and 40,000 jobs.

The Czech Republic has no plans to adopt the EUR and instead has taken a delayed approach to adopting the Eurozone’s common currency.  Economic difficulties in the Eurozone during the global downturn weakened public support for the country’s adoption of the EUR, as did the Greek crisis, and the current government opposes setting a target date for accession.

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

While there have been many success stories involving American and other foreign investors, a handful have experienced problems, mainly in heavily regulated sectors of the economy, such as media.  The slow pace of the courts is often compounded by judges’ lack of familiarity with commercial or intellectual property law.

Both foreign and domestic businesses voice concerns about corruption.  Other long-term economic challenges include dealing with an aging population and diversifying the economy away from an over-reliance on manufacturing and shared services toward a more high-tech, services-based, knowledge economy.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

The government does not differentiate between foreign investors from different countries.

In response to the European Commission’s September 2017 investment screening proposal, the Czech Republic is currently in the process of drafting legislation to create a mechanism to screen foreign investments for national security concerns.  The legislation would require government review before foreign investments in sensitive sectors like defense and critical infrastructure. Investments in certain other sectors could also require review within five years of a transaction if new advancements in technology mean foreign ownership could pose a national security risk.

The U.S.-Czech Bilateral Investment Treaty contains specific guarantees of national treatment and Most Favored Nation treatment for U.S. investors in all areas of the economy other than insurance and real estate (see the section on the Bilateral Investment Treaty below).  U.S. investors are not disadvantaged or singled out by the Czech government.

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment policy reviews through a multilateral organization.

Business Facilitation

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

The time required to start a business was 25 days in 2018, which is slightly above the world average of 20.1 days.  The Czech Republic’s Business Register is publicly accessible and provides details on business entities. An application for an entry into the Business Register can be submitted in a hard copy, via a direct entry by a public notary, or electronically, subject to meeting online registration criteria requirements.  The Business Register is publically available at: https://or.justice.cz/ias/ui/rejstrik  .  The Czech Republic’s Trade Register is an online information system that collects and provides information on entities facilitating small trade and craft-oriented business activities, as specifically determined by related legislation.  It is available online at: http://www.rzp.cz/eng/index.html  .

Outward Investment

The volume of outward investment is lower than incoming FDI.  According to the latest data from the Czech National Bank, outward Czech outward investments amounted only to USD 32.4 billion in 2017, compared to inward investments of USD 156 billion.  However, outward investment activity has increased 78 percent since 2014. According to the Export Guarantee and Insurance Corporation (EGAP), Czech companies increasingly invest abroad to get closer to their customers, save on transport costs, and shorten delivery times.  The Czech government does not incentivize outward investment. As part of EU sanctions, there is a total ban on EU investment in North Korea as of 2017.

Transparency of the Regulatory System

Tax, labor, environment, health and safety, and other laws generally do not distort or impede investment.  Policy frameworks are consistent with a market economy. Fair market competition is overseen by the Office for the Protection of Competition (UOHS) (http://www.uohs.cz/en/homepage.html  ).  UOHS is a central administrative body entirely independent in its decision-making practice.  The office is mandated to create conditions for support and protection of competition and to supervise public procurement and state aid.

All laws and regulations in the Czech Republic are published before they enter into force.  Opportunities for prior consultation on pending regulations exist, and all interested parties, including foreign entities, can participate.  A biannual governmental plan of legislative and non-legislative work is available online, along with information on draft laws and regulations (often only in the Czech language).  Business associations, consumer groups, and other non-governmental organizations, including the American Chamber of Commerce, can submit comments on laws and regulations. Laws on auditing, accounting, and bankruptcy are in force.  These laws include the use of international accounting standards (IAS) for consolidated corporate groups. According to the latest Open Budget Survey, the Czech Republic scores 61 out of 100 countries in terms of public financial transparency.  The Czech government provides the public with substantial budget information, and the legislature adequately oversees the planning and implementation of the budget cycle. However, the survey recommends that the government include comparisons between borrowing estimates and actual results in the Year-End Report.

International Regulatory Considerations

Membership in the EU requires the Czech Republic to adopt EU laws and regulations, including rulings by the European Court of Justice (ECJ).

Czechoslovakia (the predecessor to the Czech Republic) was a founding member of the GATT in 1947, and a member of the World Trade Organization (WTO).  Since the country’s entry into the EU in 2004, the European Commission – an independent body representing all EU members –oversees Czech interests in the WTO.

Legal System and Judicial Independence

The Czech Commercial Code and Civil Code are largely based on the German legal system, which follows a continental legal system where the principle areas of law and procedures are codified.  The commercial code details rules pertaining to legal entities and is analogous to corporate law in the United States. The civil code deals primarily with contractual relationships among parties.

The Czech Civil Code, Act. No. 89/2012 Coll. and the Act on Business Corporations, Act No. 90/2012 Coll. (Corporations Act) govern business and investment activities.  The Act on Business Corporations introduced substantial changes to Czech corporate law such as supervision over the performance of a company’s management team, decision-making process, and remuneration and damage liability.  Detailed provisions for mergers and time limits on decisions by the authorities on registration of companies are covered, as well as protection of creditors and minority shareholders.

The judiciary is independent, but decisions may vary from court to court.  The reason for diverse legislative approaches may well be the fact that the new civil code did not only rewrite the system, but also introduced new terminology.  Consequently, the two substantive laws, the Penal Code and the Civil Code, have been adopted without a new procedural law to explain how the laws should be applied, which would allow courts to proceed according to clearly outlined jurisdictional guidelines.  Regulations and enforcement actions are appealable and the judicial process is procedurally competent, fair, and reliable.

Laws and Regulations on Foreign Direct Investment

The Foreign Direct Investment agenda is governed by the Civil Code and by the Act on Business Corporations.

The Czech Ministry of Industry and Trade maintains a “doing business” website at http://www.businessinfo.cz/en/   which aids foreign companies in establishing and managing a foreign-owned business in the Czech Republic, including navigating the legal requirements, licensing, and operating in the EU market.

Competition and Anti-Trust Laws

The Office for the Protection of Competition (UOHS) is the central authority responsible for creating conditions that favor and protect competition.  UOHS also supervises public procurement and monitors state aid programs. UOHS is led by a chairperson who is appointed by the president of the Czech Republic for a six-year term.

Expropriation and Compensation

Government acquisition of property is done only for public purposes in a non-discriminatory manner and in full compliance with international law.  The process of tracing the history of property and land acquisition by potential investors can be complex and time-consuming, but it is necessary to ensure clear title.  Investors participating in privatization of state-owned companies are protected from restitution claims through a binding contract with the government.

Dispute Settlement

ICSID Convention and New York Convention

The Czech Republic is a signatory and contracting state to the Convention on the Settlement of Investment Disputes between States and Nations of Other States (ICSID Convention).  It also has ratified the convention on the Recognition and Enforcement of Arbitral Awards (New York Convention of 1958), which obligates local courts to enforce a foreign arbitral award if it meets the legal criteria.

Investor-State Dispute Settlement

In 1993, the Czech Republic became a member state to the ICSID Convention.  The 1993 U.S.-Czech Bilateral Investment Treaty contains provisions regarding the settling of disputes through international arbitration.  In the past 10 years, 30 investment disputes have involved a foreign investor. Of these, 17 have been resolved, 16 where the court ruled in favor of the Czech Republic and one where the parties settled out of court.

International Commercial Arbitration and Foreign Courts

Mediation is an option in nearly every area of law including family law, commercial law, and criminal law.  Mediators can be contracted between the parties to the dispute and found through such sources as the Czech Mediators Association, the Czech Bar Association, or the Union for Arbitration and Mediation Procedures of the Czech Republic.  A number of other non-governmental organizations (NGOs) and entities work in the area of mediation. Directive 2008/52/EC allows those involved in a dispute to request that a written agreement arising from mediation be made enforceable.  The results of mediation may be taken into account by the public prosecutor and the court in their decision in a given case. The local courts recognize and enforce foreign arbitral awards issued against the government.

Bankruptcy Regulations

A significant amendment to the bankruptcy law came into force on June 1, 2017.  The amendment includes provisions prohibiting insolvency tourism, restriction of voting rights of the creditors from the debtor’s group, provisions against “bullying” insolvency petitions, and stricter rules for documenting the existence of a claim when filing a creditor’s insolvency petitions.  It also sets penalties for bankruptcy administrators of up to CZK5 million (USD 200,000) for serious administrative violations such as failure to state the address of the bankruptcy administrator where the administrator actually executes his activities. Moving up 10 spots from 2018, the Czech Republic ranked fifteenth in the 2019 edition of the World Bank’s Doing Business Report for ease of resolving insolvency.

The Czech Republic offers incentives to foreign and domestic firms that invest in the manufacturing sector, technology and research and development centers (R&D), and business support centers.  Incentives are funded from the Czech Republic’s national budget as well as from European Union Structural Funds.  The government provides investment incentives in the form of corporate income tax relief for 10 years, cash grants for job creation up to USD 13,000 per job, cash grants for training up to 50 percent of training costs, and cash grants for the purchase of fixed assets up to 10 percent of eligible costs. In 2019, an amendment to the legislation on investment incentives (Act No. 72/2000 Coll.) will likely go into effect.  The amendment will shift incentives from support for all types of investment towards support for investments that require higher-level, technical and R&D support.

The government does not have a common practice of issuing guarantees or jointly financing foreign direct investment projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Both Czech and EU laws permit foreign investors involved in joint ventures to take advantage of commercial or industrial customs-free zones into which goods may be imported and later exported without depositing customs duty.  Free trade zone treatment means duties need to be paid only in the event that the goods brought into the free trade zone are introduced into the local economy. Since the Czech Republic became part of the single customs territory of the European Community and now offers various exemptions on customs tariffs, the original tariff-driven use of these free trade zones has declined.  While there were some instances of abuse of customs-free zones for tax evasion purposes, new Customs Act No. 242/2016 Coll. now precludes this practice by repealing a clause on exemption from value added taxation in customs-free zones.

Performance and Data Localization Requirements

The Czech Republic abides by EU law governing data localization and performance.  That being said, within the EU, the Czech Republic is highly critical of data localization policies.  On December 2, 2016, it published a joint statement alongside 13 other countries stressing the importance of the free flow of data within Europe.

The host government does not mandate local employment.  There are no government-imposed conditions on permission to invest.  The host government does not follow “forced localization.”

The visa process for non-EU foreign investors and their employees is time consuming and slow, but the requirements are the same for domestic, EU, and non-EU companies.  Worker mobility is currently a difficult issue for all companies operating in the Czech Republic due to the extremely low unemployment rate.

Real estate (land and buildings) located in the Czech Republic must be registered in the Cadastral Register under the Cadastral Office.  The Cadastral Register contains information on plots of land and buildings, housing units and non-residential premises, liens, and other information and is publicly available online in Czech only at:  https://nahlizenidokn.cuzk.cz/  .  Transfer of ownership title to real estate (e.g., sale and purchase agreement) is effective from the date of execution of a written agreement and registration of the transfer of the ownership title in the Cadastral Register.  The Czech Republic ranked 33rd for ease of registering property in the 2019 World Bank’s Doing Business Index.

There is a negligible proportion of land that does not have clear title.  If property legally purchased is unoccupied, property ownership does not revert to squatters.

Intellectual Property Rights

The Czech Republic is a signatory to the Bern, Paris, and Universal Copyright Conventions.  In 2001, the government ratified the World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Treaty on Performances and Phonograms.  Domestic legislation protects all intellectual property rights, including patents, copyrights, trademarks, industrial designs, and utility models. Amendments to the trademark law and the copyright law have brought Czech law into compliance with relevant EU directives and WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) requirements.  The Customs Administration of the Czech Republic and the Czech Commercial Inspection have legal authority to seize counterfeit goods. The Criminal Code, which came into effect January 1, 2010, increased maximum penalties for trademark, industrial rights, and copyright violations from two to eight years. Information on seizures of counterfeit goods and cases of IPR infringement are tracked by the Customs Administration.  Information is available in Czech at https://www.celnisprava.cz/cz/statistiky/Stranky/dusevni-vlastnictvi.aspx  .

IPR violations at markets on the borders of Germany and Austria were once an issue of great concern, but since 2008 Czech authorities have made substantial efforts against physical markets and have adopted an acceptable legal framework for IPR protection.  In recognition of this fact, USTR removed the Czech Republic from the Special 301 Watch List in 2011. While online piracy is a growing concern, the legal framework for IPR protection has been tested and proven successful in punishing infringers. The Czech Republic is not listed in the Notorious Markets Report.

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

Policies Towards Foreign Direct Investment

Germany has an open and welcoming attitude towards FDI.  The 1956 U.S.-Federal Republic of Germany Treaty of Friendship, Commerce and Navigation affords U.S. investors national treatment and provides for the free movement of capital between the United States and Germany. As an OECD member, Germany adheres to the OECD National Treatment Instrument and the OECD Codes of Liberalization of Capital Movements and of Invisible Operations.  The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for the Federal Ministry for Economic Affairs and Energy to review acquisitions of domestic companies by foreign buyers, to assess whether these transactions pose a risk to the public order or national security (for example, when the investment pertains to critical infrastructure).  For many decades, Germany has experienced significant inbound investment, which is widely recognized as a considerable contributor to Germany’s growth and prosperity. The German government and industry actively encourage foreign investment. U.S. investment continues to account for a significant share of Germany’s FDI. The investment-related challenges foreign companies face are generally the same as for domestic firms, for example, high marginal income tax rates and labor laws that complicate hiring and dismissals.

Limits on Foreign Control and Right to Private Ownership and Establishment

Under German law, a foreign-owned company registered in the Federal Republic of Germany as a GmbH (limited liability company) or an AG (joint stock company) is treated the same as a German-owned company.  There are no special nationality requirements for directors or shareholders.

However, Germany does prohibit the foreign provision of employee placement services, such as providing temporary office support, domestic help, or executive search services.

While Germany’s Foreign Economic Law permits national security screening of inbound direct investment in individual transactions, in practice no investments have been blocked to date.  Growing Chinese investment activities and acquisitions of German businesses in recent years – including of Mittelstand (mid-sized) industrial market leaders – led German authorities to amend domestic investment screening provisions in 2017, clarifying their scope and giving authorities more time to conduct reviews.  The government further lowered the threshold for the screening of acquisitions in critical infrastructure and sensitive sectors in 2018, to 10 percent of voting rights of a German company. The amendment also added media companies to the list of sensitive sectors to which the lower threshold applies, to prevent foreign actors from engaging in disinformation.  In a prominent case in 2016, the German government withdrew its approval and announced a re-examination of the acquisition of German semi-conductor producer Aixtron by China’s Fujian Grand Chip Investment Fund based on national security concerns.

Other Investment Policy Reviews

The World Bank Group’s “Doing Business 2019” and Economist Intelligence Unit both provide additional information on Germany investment climate.  The American Chamber of Commerce in Germany publishes results of an annual survey of U.S. investors in Germany on business and investment sentiment (“AmCham Germany Transatlantic Business Barometer”).

Business Facilitation

Before engaging in commercial activities, companies and business operators must register in public directories, the two most significant of which are the commercial register (Handelsregister) and the trade office register (Gewerberegister).

Applications for registration at the commercial register, which is publically available under www.handelsregister.de  , are electronically filed in publicly certified form through a notary.  The commercial register provides information about all relevant relationships between merchants and commercial companies, including names of partners and managing directors, capital stock, liability limitations, and insolvency proceedings.  Registration costs vary depending on the size of the company.

Germany Trade and Invest (GTAI), the country’s economic development agency, can assist in the registration processes (https://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/Establishing-a-company/business-registration.html  ) and advise investors, including micro-, small-, and medium-sized enterprises (MSMEs), on how to obtain incentives.

In the EU, MSMEs are defined as follows:

• Micro-enterprises:  less than 10 employees and less than €2 million annual turnover or less than €2 million in balance sheet total.
• Small-enterprises:  less than 50 employees and less than €10 million annual turnover or less than €10 million in balance sheet total.
• Medium-sized enterprises:  less than 250 employees and less than €50 million annual turnover or less than €43 million in balance sheet total.

Outward Investment

The Federal Government provides guarantees for investments by German-based companies in developing and emerging economies and countries in transition in order to insure them against political risks.  In order to receive guarantees, the investment must have adequate legal protection in the host country. The Federal Government does not insure against commercial risks.

Transparency of the Regulatory System

Germany has transparent and effective laws and policies to promote competition, including antitrust laws.  The legal, regulatory and accounting systems are complex but transparent and consistent with international norms.

Formally, the public consultation by the federal government is regulated by the Joint Rules of Procedure, which specify that ministries must consult early and extensively with a range of stakeholders on all new legislative proposals.  In practice, laws and regulations in Germany are routinely published in draft, and public comments are solicited. According to the Joint Procedural Rules, ministries should consult the concerned industries’ associations (rather than single companies), consumer organizations, environmental, and other NGOs.  The consultation period generally takes two to eight weeks.

The German Institute for Standardization (DIN) is open to foreign members.

International Regulatory Considerations

As a member of the European Union, Germany must observe and implement directives and regulations adopted by the EU.  EU regulations are binding and enter into force as immediately applicable law. Directives, on the other hand, constitute a type of framework law that is to be implemented by the Member States in their respective legislative processes, which is regularly observed in Germany.

EU Member States must implement directives within a specified period of time.  Should a deadline not be met, the Member State may suffer the initiation of an infringement procedure, which could result in high fines.  Germany has a set of rules that prescribe how to break down any payment of fines devolving on the Federal Government and the federal states (Länder).  Both bear part of the costs depending on their responsibility within legislation and the respective part they played in non-compliance.

The federal states have a say over European affairs through the Bundesrat (upper chamber of parliament).  The Federal Government is required to instruct the Bundesrat at an early stage on all EU plans that are relevant for the federal states.

The federal government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT) through the Federal Ministry of Economic Affairs and Energy.

Legal System and Judicial Independence

German law is both predictable and reliable.  Companies can effectively enforce property and contractual rights.  Germany’s well-established enforcement laws and official enforcement services ensure that investors can assert their rights.  German courts are fully available to foreign investors in an investment dispute.

The judicial system is independent, and the federal government does not interfere in the court system.  The legislature sets the systemic and structural parameters, while lawyers and civil law notaries use the law to shape and organize specific situations.  Judges are highly competent. International studies and empirical data have attested that Germany offers an efficient court system committed to due process and the rule of law.

In Germany, most important legal issues and matters are governed by comprehensive legislation in the form of statutes, codes and regulations.  Primary legislation in the area of business law includes:

• the Civil Code (Bürgerliches Gesetzbuch, abbreviated as BGB), which contains general rules on the formation, performance and enforcement of contracts and on the basic types of contractual agreements for legal transactions between private entities;
• the Commercial Code (Handelsgesetzbuch, abbreviated as HGB), which contains special rules concerning transactions among businesses and commercial partnerships;
• the Private Limited Companies Act (GmbH-Gesetz) and the Public Limited Companies Act (Aktiengesetz), covering the two most common corporate structures in Germany – the ‘GmbH’ and the ‘Aktiengesellschaft’; and
• the Act on Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, abbreviated as UWG), which prohibits misleading advertising and unfair business practices.

Germany has specialized courts for administrative law, labor law, social law, and finance and tax law.  In 2019, the first German district court for civil matters (in Frankfurt) introduced the possibility to hear international trade disputes in English.  Other federal states are currently discussing plans to introduce these specialized chambers as well. The Federal Patent Court hears cases on patents, trademarks, and utility rights which are related to decisions by the German Patent and Trademarks Office.  Both the German Patent Office (Deutsches Patentamt) and the European Patent Office are headquartered in Munich.

Laws and Regulations on Foreign Direct Investment

The Federal Ministry for Economic Affairs and Energy may review acquisitions of domestic companies by foreign buyers in cases where investors seek to acquire at least 25 percent of the voting rights to assess whether these transactions pose a risk to the public order or national security of the Federal Republic of Germany.  In the case of acquisitions of critical infrastructure and companies in sensitive sectors, the threshold for triggering an investment review by the government is 10 percent. The Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance provide the legal basis for screening investments. To our knowledge, the Federal Ministry for Economic Affairs and Energy had not prohibited any acquisitions as of April 2019.

There is no requirement for investors to obtain approval for any acquisition, but they must notify the Federal Ministry for Economic Affairs and Energy if the target company operates critical infrastructure.  In that case, or if the company provides services related to critical infrastructure or is a media company, the threshold for initiating an investment review is the acquisition of at least 10 percent of voting rights.  The Federal Ministry for Economic Affairs and Energy may launch a review within three months after obtaining knowledge of the acquisition; the review must be concluded within four months after receipt of the full set of relevant documents.  An investor may also request a binding certificate of non-objection from the Federal Ministry for Economic Affairs and Energy in advance of the planned acquisition to obtain legal certainty at an early stage. If the Federal Ministry for Economic Affairs and Energy does not open an in-depth review within two months from the receipt of the request, the certificate shall be deemed as granted.

Special rules apply for the acquisition of companies that operate in sensitive security areas, including defense and IT security.  In contrast to the cross-sectoral rules, the sensitive acquisitions must be notified in written form including basic information of the planned acquisition, the buyer, the domestic company that is subject of the acquisition and the respective fields of business.  The Federal Ministry for Economic Affairs and Energy may open a formal review procedure within three months after receiving notification, or the acquisition shall be deemed as approved. If a review procedure is opened, the buyer is required to submit further documents.  The acquisition may be restricted or prohibited within three months after the full set of documents has been submitted.

The German government amended domestic investment screening provisions, effective June 2017, clarifying the scope for review and giving the government more time to conduct reviews, in reaction to an increasing number of acquisitions of German companies by foreign investors, particularly from China.  The amended provisions provide a clearer definition of sectors in which foreign investment can pose a “threat to public order and security,” including operators of critical infrastructure, developers of software to run critical infrastructure, telecommunications operators or companies involved in telecom surveillance, cloud computing network operators and service providers, and telematics companies.  All non-EU entities are now required to notify Federal Ministry for Economic Affairs and Energy in writing of any acquisition of or significant investment in a German company active in the above sectors. The new rules also extend the time to assess a cross-sector foreign investment from two to four months, and for investments in sensitive sectors, from one to three months, and introduce the possibility of retroactively initiating assessments for a period of five years after the conclusion of an acquisition. Indirect acquisitions such as those through a Germany- or EU-based affiliate company are now also explicitly subject to the new rules.  In 2018, the government further lowered the threshold for the screening of investments, allowing authorities to screen acquisitions by foreign entities of at least 10 percent of voting rights of German companies that operate critical infrastructure (down from 25 percent), as well as companies providing services related to critical infrastructure. The amendment also added media companies to the list of sensitive businesses to which the lower threshold applies, to prevent foreign actors to engage in disinformation.

Any decisions resulting from review procedures are subject to judicial review by the administrative courts.  The German Economic Development Agency (GTAI) provides extensive information for investors, including about the legal framework, labor-related issues and incentive programs, on their website: http://www.gtai.de/GTAI/Navigation/EN/Invest/investment-guide.html.

Competition and Anti-Trust Laws

German government ensures competition on a level playing field on the basis of two main legal codes:

The Law against Limiting Competition is the legal basis for the fight against cartels, merger control, and monitoring abuse.  State and Federal cartel authorities are in charge of enforcing anti-trust law. In exceptional cases, the Minister for Economics and Energy can provide a permit under specific conditions.  The last case was a merger of two retailers (Kaisers/Tengelmann and Edeka) to which a ministerial permit was granted in March 2016. A July 2017 amendment to the Cartel Law expanded the reach of the Federal Cartel Authority (FCA) to include internet and data-based business models; as a result, the FCA investigated Facebook’s data collection practices regarding potential abuse of market power.  A February 2019 decision affirming abuse by the FCA has been challenged by Facebook at a regional court.  In November 2018, the FCA initiated an investigation of Amazon over potential abuse of market power; a decision was pending as of April 2019.

The Law against Unfair Competition (amended last in 2016) can be invoked in regional courts.

Expropriation and Compensation

German law provides that private property can be expropriated for public purposes only in a non-discriminatory manner and in accordance with established principles of constitutional and international law.  There is due process and transparency of purpose, and investors and lenders to expropriated entities receive prompt, adequate, and effective compensation.

The Berlin state government is currently reviewing a petition for a referendum submitted by a citizens’ initiative which calls for the expropriation of residential apartments owned by large corporations.  At least one party in the governing coalition officially supports the proposal, whereas the others remain undecided. Certain long-running expropriation cases date back to the Nazi and communist regimes. During the 2008-9 global financial crisis, the parliament adopted a law allowing emergency expropriation if the insolvency of a bank would endanger the financial system, but the measure expired without having been used.

Dispute Settlement

ICSID Convention and New York Convention

Germany is a member of both the International Center for the Settlement of Investment Disputes (ICSID) and New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning local courts must enforce international arbitration awards under certain conditions.

Investor-State Dispute Settlement

Investment disputes involving U.S. or other foreign investors in Germany are extremely rare. According to the UNCTAD database of treaty-based investor dispute settlement cases, Germany has been challenged a handful of times, none of which involved U.S. investors.  

International Commercial Arbitration and Foreign Courts

Germany has a domestic arbitration body called the German Institution for Dispute Settlement. ”Book 10” of the German Code of Civil Procedure addresses arbitration proceedings. The International Chamber of Commerce has an office in Berlin. In addition, chambers of commerce and industry offer arbitration services.

Bankruptcy Regulations

German insolvency law, as enshrined in the Insolvency Code, supports and promotes restructuring.  If a business or the owner of a business becomes insolvent, or a business is over-indebted, insolvency proceedings can be initiated by filing for insolvency; legal persons are obliged to do so.  Insolvency itself is not a crime, but deliberately late filing for insolvency is.

Under a regular insolvency procedure, the insolvent business is generally broken up in order to release as much money as possible through the sale of individual items or rights or parts of the company.  Proceeds can then be paid out to the creditors in the insolvency proceedings. The distribution of the monies to the creditors follows the detailed instructions of the Insolvency Code.

Equal treatment of creditors is enshrined in the Insolvency Code.  Some creditors have the right to claim property back. Post-adjudication preferred creditors are served out of insolvency assets during the insolvency procedure.  Ordinary creditors are served on the basis of quotas from the remaining insolvency assets. Secondary creditors, including shareholder loans, are only served if insolvency assets remain after all others have been served.  Germany ranks fourth in the global ranking of “Resolving Insolvency” in the World Bank’s Doing Business Report, with a recovery rate of 80.4 cents on the dollar.

Investment Incentives

Federal and state investment incentives – including investment grants, labor-related and R&D incentives, public loans, and public guarantees – are available to domestic and foreign investors alike.  Different incentives can be combined. In general, foreign and German investors have to meet the same criteria for eligibility.

Germany Trade & Invest, Germany’s federal economic development agency, provides comprehensive information on incentives in English at:  www.gtai.com/incentives-programs  .

Foreign Trade Zones/Free Ports/Trade Facilitation

There are currently two free ports in Germany operating under EU law:  Bremerhaven and Cuxhaven. The duty-free zones within the ports also permit value-added processing and manufacturing for EU-external markets, albeit with certain requirements.  All are open to both domestic and foreign entities. In recent years, falling tariffs and the progressive enlargement of the EU have eroded much of the utility and attractiveness of duty-free zones.

Performance and Data Localization Requirements

In general, there are no requirements for local sourcing, export percentage, or local or national ownership.  In some cases, however, there may be performance requirements tied to the incentive, such as creation of jobs or maintaining a certain level of employment for a prescribed length of time.

U.S. companies can generally obtain the visas and work permits required to do business in Germany.  U.S. Citizens may apply for work and residential permits from within Germany. Germany Trade & Invest offers detailed information online at www.gtai.com/coming-to-germany  .

There are no localization requirements for data storage in Germany.  However, in recent years German and European cloud providers have sought to market the domestic location of their servers as a competitive advantage.

Real Property

The German Government adheres to a policy of national treatment, which considers property owned by foreigners as fully protected under German law.  In Germany, mortgages approvals are based on recognized and reliable collateral. Secured interests in property, both chattel and real, are recognized and enforced.  According to the World Bank’s Doing Business Report, it takes an average of 52 days to register property in Germany.

The German Land Register Act dates back to 1897 and was last amended in 2017.  The land register mirrors private real property rights and provides information on the legal relationship of the estate.  It documents the owner, rights of third persons, liabilities and restrictions and how these rights relate to each other. Any change in property of real estate must be registered in the land registry to make the contract effective.  Land titles are now maintained in an electronic database and can be consulted by persons with a legitimate interest.

Intellectual Property Rights

Germany has a robust regime to protect intellectual property (IP) rights.  Legal structures are strong and enforcement is good. Nonetheless, internet piracy and counterfeit goods remain an issue, and specific infringing websites are included in the 2018 Notorious Markets List.  Germany has been a member of the World Intellectual Property Organization (WIPO) since 1970. The German Central Customs Authority annually publishes statistics on customs seizures of counterfeit and pirated goods.  The statistics for 2018 can be found under: https://www.zoll.de/SharedDocs/Broschueren/DE/Die-Zollverwaltung/jahresstatistik_2018.html?nn=287024  .  

Germany is also a party to the major international intellectual property protection agreements: the Bern Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention, the Patent Cooperation Treaty, the Brussels Satellite Convention, the Treaty of Rome on Neighboring Rights, and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  Many of the latest developments in German IP law are derived from European legislation with the objective to make applications less burdensome and allow for European IP protection.

The following types of protection are available:

Copyrights:  National treatment is also granted to foreign copyright holders, including remuneration for private recordings.  Under the World Trade Organization (WTO) TRIPS Agreement, Germany also grants legal protection for U.S. performing artists against the commercial distribution of unauthorized live recordings in Germany.  Germany signed the World Intellectual Property Organization (WIPO)_Copyright Treaty and ratified it in 2003. Most rights holder organizations regard German authorities’ enforcement of intellectual property protections as effective.  In 2008, Germany implemented the EU enforcement directive with a national bill, thereby strengthening the privileges of rights holders and allowing for improved enforcement action.

Trademarks:  Foreigners may register trademarks subject to exactly the same terms as German nationals at the German Patent and Trade Mark Office.  Protection is valid for a period of ten years and can be extended in ten-year periods.

Patents:  Foreigners may register patents subject to the same terms as German nationals at the German Patent and Trade Mark Office.  Patents are granted for technical inventions which are new, involve an inventive step, and are industrially applicable. However, applicants having neither a domicile nor an establishment in Germany must appoint a patent attorney in Germany as a representative filing the patent application.  The documents must be submitted in German or with a translation into German. The duration of a patent is 20 years, beginning on the day following the invention patent application. Patent applicants can request accelerated examination when filing the application provided that the patent application was previously filed at the U.S. patent authority and that at least one claim had been determined to be allowable. There are a number of differences in patent law that a qualified patent attorney can explain to U.S. patent applicants.

Trade Secrets: Both technical and commercial trade secrets are protected in Germany by the Law Against Unfair Competition.  According to the law, the illegal passing of trade secrets to third parties – including the attempt to do so – for reasons related to competition, self-interest, the benefit of a third party, or with the intent to harm the business owner, is punishable with prison sentences of up to three years or a monetary fine.  In severe cases, including commercial-scale theft and those that involve passing trade secrets to foreign countries, courts can impose prison sentences of up to five years or a monetary fine.

U.S. grants of IP rights are valid in the United States only.  U.S. IPR owners should note that the EU operates on a “first-to-file” principle and not on the “first-inventor-to-file” principle, used in the United States.  It is possible to register for trademark and design protection nationally in Germany or with the European Union Trade Mark and/or Registered Community Design. These provide protection for industrial design or trademark in the entire EU market.  Both national trademarks and European Community Trade Marks (CTMs) can be applied for from the U.S. Patent and Trademark Office as part of an international trademark registration system (http://www.uspto.gov  ), or the applicant may apply directly for those trademarks from the European Union Intellectual Property Office (EUIPO) at https://euipo.europa.eu/ohimportal/en/home  .

For patents, the situation is slightly different but protection can still be gained via the U.S. Patent and Trademark Office (USPTO).  Although there is not yet a single EU-wide patent system, the European Patent Office (EPO) does grant individual European patents for the contracting states to the European Patent Convention (EPC), which entered into force in 1977.  The 38 contracting states include the entire EU membership and several additional European countries. As an alternative to filing patents for European protection with the USPTO, the EPO provides a convenient single point to file a patent in as many of these countries as an applicant would like: https://www.epo.org/index.html.

In addition, German law offers the possibility to register designs and utility models.

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/.

Country resources:

For additional information about how to protect intellectual property in Germany, please see Germany Trade & Invest website at http://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/The-legal-framework/patents-licensing-trade-marks.html  .

Statistics on the seizure of counterfeit goods are available through the German Customs Authority (Zoll):

https://www.zoll.de/SharedDocs/Broschueren/DE/Die-Zollverwaltung/jahresstatistik_2018.html?nn=287024  

Investors can identify IP lawyers in AmCham Germany’s Online Services Directory: https://www.amcham.de/services/overview/member-services/address-services-directory/   (under “legal references” select “intellectual property.”)

Businesses can also join the Anti-counterfeiting Association (APM)

http://www.markenpiraterie-apm.de/index.php?article_id=1&clang=1   or the Association for the  Enforcement of Copyrights (GVU) http://www.gvu.de  .

Policies Towards Foreign Direct Investment

Italy welcomes foreign direct investment (FDI).  As a European Union (EU) member state, Italy is bound by the Union’s treaties and laws.  Under the EU treaties with the United States, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.  

EU and Italian antitrust laws provide Italian authorities with the right to review mergers and acquisitions for market dominance.  In addition, the Italian government may block mergers and acquisitions involving foreign firms under the “Golden Power” law if the transactions appear to raise national security concerns.  This law was enacted in 2012 and further implemented with decrees in 2015, 2017, and 2019.  The Golden Power law allows the Government of Italy (GOI) to block foreign acquisition of companies operating in strategic sectors (identified as defense/national security, energy, transportation, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology).  On March 26, 2019 the GOI issued a decree expanding the Golden Power authority to cover the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology.  Per Italian law, Parliament must confirm the decree within 60 days. The GOI’s Golden Power authority always applies in cases involving the sectors above in which the potential purchaser is a non-EU company; it is extended to EU companies if the target of the acquisition is involved in defense/national security activities.  In this respect, the GOI has a say regarding the ownership of private companies as well as ones in which the government has a stake. This law replaced the “Golden Share” which the GOI previously held in former state-owned firms that were partially privatized in the 1990s and 2000s. The law also allows the State to maintain oversight over entire strategic sectors as opposed to individual companies, and by replacing the Golden Share legislation, has enabled Italy to address accusations the Golden Shares violated European treaties.   An interagency group led by the Prime Minister’s office reviews acquisition applications and prepares the dossiers/ recommendations for the Council of Ministers’ decision.   

According to the latest figures available from the Italian Trade Agency (ITA), foreign investors own significant shares of 12,768 Italian companies.  These companies employed 1,211,872 workers with overall sales of EUR 573.6 billion. ITA operates under the umbrella of the Italian Ministry of Economic Development.

The Italian Trade Agency (ITA) operates Invest in Italy: http://www.investinitaly.com/en/.   The Foreign Investments Attraction Department is a dedicated unit of ITA for facilitating the establishment and the development of foreign companies in Italy.  As of April 2019, ITA maintained a presence in 65 countries to assist foreign investors.  

Invitalia is the national agency for inward investment and economic development, owned by the Italian Ministry of Economy and Finance.  The agency focuses on strategic sectors for development and employment.  It places an emphasis on southern Italy, where investment and development lag in comparison to the rest of the country.  Invitalia finances projects both large and small, targeting entrepreneurs with concrete development plans, especially in innovative and high-added-value sectors.  For more information, see https://www.invitalia.it/eng  .  The Ministry of Economic Development also has a program to attract innovative investments: https://www.mise.gov.it  

Italy’s main business association (Confindustria) also provides assistance to companies in Italy: https://www.confindustria.it/en  

Limits on Foreign Control and Right to Private Ownership and Establishment

Under EU treaties and OECD obligations, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.  

EU and Italian antitrust laws provide Italian national local authorities with the right to review mergers and acquisitions over a certain financial threshold.  The Italian government may block mergers and acquisitions involving foreign firms if national security concerns are raised or on the principle of reciprocity if the government of the foreign firm applies discriminatory measures against Italian firms.  Foreign investors in the defense or aircraft manufacturing sectors are more likely to encounter resistance from the many ministries involved in reviewing foreign acquisitions.  

Italy maintains a formal national security screening process for inbound foreign investment in the sectors of defense/national security, transportation, energy, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology under its “Golden Power” legislation, and where there may be market concentration (antitrust) issues.  Italy’s Golden Power legislation was expanded on March 26, 2019 to include the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology. (Per Italian law Parliament must confirm the law within 60 days for it to remain in force.) To our knowledge, U.S. investors have not been disadvantaged relative to other foreign investors under the mechanisms described above.

Other Investment Policy Reviews

An OECD Economic Survey was published for Italy in April 2019.  https://www.oecd.org/economy/surveys/Italy-2019-OECD-economic-survey-overview.pdf 

Business Facilitation

Italy has a business registration website, available in Italian and English, administered through the Union of Italian Chambers of Commerce: http://www.registroimprese.it.    The online business registration process is clear and complete.  Foreign companies may use the online process. Before registering a company online, applicants must obtain a certified e-mail address and digital signature, a process that may take up to five days.  A notary is required to certify the documentation. The precise steps required for the registration process depend on the type of business being registered. The minimum capital requirement also varies by type of business.  Generally, companies must obtain a value-added tax account number (partita IVA) from the Italian Revenue Agency, register with the social security agency Istituto Nazionale della Previdenza Sociale (INPS), verify adequate capital and insurance coverage with the Italian workers’ compensation agency Istituto Nazionale per L’Assicurazione contro gli Infortuni sul Lavoro (INAIL), and notify the regional office of the Ministry of Labor.  According to the World Bank Doing Business Index 2018, Italy is ranked 67 out of 190 countries in terms of the ease of starting a business: it takes six procedures and six days to start a business in Italy.  Additional licenses may be required, depending on the type of business to be conducted.

Invitalia and the Italian Trade Agency’s Foreign Direct Investment Unit assist those wanting to set up a new business in Italy.  Many Italian localities also have one-stop shops to serve as a single point of contact for potential investors and provide advice in obtaining necessary licenses and authorizations.  These services are available to all investors.

Outward Investment

Italy neither promotes, restricts, or incentivizes outward investment nor restricts domestic investors from investing abroad.

Transparency of the Regulatory System

Regulatory authority exists at the national, regional, and municipal level.  All applicable regulations could potentially be relevant for foreign investors.  Regulations are developed at the national level by the GOI and individual ministries, as well as independent regulatory authorities.  Regional and municipal authorities issue regulations at the sub-national level.  Draft regulations may be posted for public comment, but there is generally no requirement to do so. Final national-level regulations are in general published in the Gazzetta Ufficiale (and only become effective upon publication).  Regulatory agencies may publish summaries of received comments.  No major regulatory reform was undertaken in 2018.  Aggrieved parties may challenge regulations in court.  Public finances and debt obligations are transparent and are publicly available through banking channels such as the Bank of Italy.

International Regulatory Considerations

Italy is a member of the European Union (EU).  EU directives are brought into force in Italy through implementing national legislation.  In some areas, EU procedures require member states to notify the European Commission (EC) before implementing national-level regulations.  Italy has on occasion failed to notify the EC and/or WTO of draft regulations in a timely way. For example, in 2017 Italy adopted Country of Origin Labelling requirements for a range of products including rice, wheat used to make pasta, and certain tomato-based products.  Italy’s Economic Development Minister and Agriculture Minister publicly stated these measures would support the “Made in Italy” brand and make Italian products more competitive. Though the requirements were widely regarded as a Technical Barrier to Trade (TBT), Italy failed to notify the WTO in advance of implementing these regulations.  Italy is a signatory to the WTO’s Trade Facilitation Agreement (TFA) and has implemented all developed-country obligations.

Legal System and Judicial Independence

Italian law is based on Roman law and on French Napoleonic Code law.  The Italian judicial system consists of a series of courts and a body of judges employed as civil servants.  The system is unified; every court is part of the national network. Though notoriously slow, the Italian civil legal system meets the generally recognized principles of international law, with provisions for enforcing property and contractual rights.  Italy has a written and consistently applied commercial and bankruptcy law. Foreign investors in Italy can choose among different means of alternate dispute resolution (ADR), including legally binding arbitration, though use of ADR remains rare. The GOI has over recent years introduced justice reforms to reduce the backlog of civil cases and speed newly filed cases to conclusion.  These reforms also included a new emphasis on ADR and methods to make collecting judgments easier.

Regulations can be appealed in the court system.  

Laws and Regulations on Foreign Direct Investment

Italy is bound by EU laws on FDI.

Competition and Anti-Trust Laws

The Italian Competition Authority (AGCM) is responsible for reviewing transactions for competition-related concerns.  AGCM may examine transactions that restrict competition in Italy as well as in the broader EU market. As a member of the EU, Italy is also subject to interventions by the European Commission Competition Directorate (DG COMP).

Expropriation and Compensation

The Italian Constitution permits expropriation of private property for “public purposes,” defined as essential services or measures indispensable for the national economy, with fair and timely compensation.  Expropriations have been minimal.

Dispute Settlement

ICSID Convention and New York Convention

Italy is a member state of the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID convention).  Italy has signed and ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).  Italian civil law (Section 839) provides for and governs the enforcement of foreign arbitration awards in Italy;

Italian law recognizes and enforces foreign court judgments.   

Investor-State Dispute Settlement

Italy is a contracting state to the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (entered into force on 28 April 1971).

Italy has had very few investment disputes involving a U.S. person in the last 10 years.  The U.S. Embassy identified less than five such active disputes at the time of the drafting of this report.  No cases have been terminated or resolved; all remain pending. Italy does not have a history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Italy is a party to the following international treaties relating to arbitration:

• The 1927 Geneva Convention on The Execution of Foreign Arbitral Awards (entered into force on 12 February 1931);
• The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (entered into force on 1 May 1969); and
• The 1961 European Convention on International Commercial Arbitration (entered into force on 1 November 1970).

Italy’s Code of Civil Procedure (Book IV, Title VIII, Sections 806-840) governs arbitration, including the recognition of foreign arbitration awards.  Italian law is not based on the UNCITRAL Model Law; however, many of the principles of the Model Law are present in Italian law. Parties are free to choose from a variety of Alternative Dispute Resolution methods, including mediation, arbitration, and lawyer-assisted negotiation.

Bankruptcy Regulations

Italy’s bankruptcy regulations are somewhat analogous to U.S. Chapter 11 restructuring, and allow firms and their creditors to reach a solution without declaring bankruptcy.  In recent years, the judiciary’s role in bankruptcy proceedings has been reduced in an attempt to simplify and expedite proceedings. In 2015, the Italian parliament passed a package of changes to the bankruptcy law, including measures to ease access to interim credit for bankrupt companies and to restructure debts.  Additional changes were approved in 2017 (juridical liquidation, early warning, simplified process, arrangement with creditors, insolvency of affiliated companies as a group, and reorganization of indebtedness rules). The measures aim to reduce the number of bankruptcies, limit the impact on the local economy, and facilitate the settlement of corporate disputes outside of the court system.  The reform follows on the 2015 reform of insolvency procedures. The legislative “implementation decree” for the 2017 bankruptcy reform was issued in early 2019. In the World Bank’s Doing Business Report 2018, Italy ranks 22 out of 190 economies in the category of Ease of Resolving Insolvency.

Investment Incentives

The GOI offers modest incentives to encourage private sector investment in targeted sectors (e.g., innovative companies) and economically depressed regions, particularly in southern Italy. The incentives are available to eligible foreign investors as well.  Incentives include grants, low-interest loans, deductions and tax credits. Some incentive programs have a cost cap, which may prevent otherwise eligible companies from receiving the incentive benefits once the cap is reached. The GOI applies cost caps on a non-discriminatory basis, typically based on the order that applications were filed.  The government does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.

Italy provides an incentive for investments by SMEs in new machinery and capital equipment (“New Sabatini Law”), available to eligible companies regardless of nationality.  This investment incentive provides financing, subject to an annual cost cap. Sector-specific investment incentives are also available in targeted sectors.

In January 2018, the GOI also provided “super amortization” and “hyper amortization” (essentially, generous tax deductions) on investments in special areas of the economy.  Of these only “hyper amortization” was renewed in the 2019 budget law. The GOI is considering reintroducing the “super amortization” by decree law in the second half of 2019 in order to stimulate investment.  The GOI has not yet renewed the broader “Industry 4.0” initiative launched by the previous government in 2017 to improve the Italian industrial sector’s competitiveness through a combination of policy measures and research and infrastructure funding.

The Italian tax system does not generally discriminate between foreign and domestic investors, though a digital services tax approved in principle by the Parliament in December 2018, but not yet implemented, would primarily impact U.S. companies.  The corporate income tax (IRES) rate is 24 percent. In addition, companies may be subject to a regional tax on productive activities (IRAP) at a 3.9 percent rate. The World Bank estimates Italy’s total tax rate as a percent of commercial profits at 53.1 percent in 2018, higher than the OECD high-income average of 39.8 percent.  

Several U.S. multinationals have sought U.S. Embassy assistance in dealing with Italy’s tax enforcement, with some expressing concerns that the Italian Revenue Agency unfairly targeted large companies.  According to the companies, Italian tax investigations may focus on corporate accounting practices deemed legitimate in other EU Member States, creating inconsistencies and uncertainty.

Foreign Trade Zones/Free Ports/Trade Facilitation

The main free trade zone in Italy is located in Trieste, in the northeast.  The goods may undergo transformation free of any customs restraints. An absolute exemption is granted from any duties on products coming from a third country and re-exported to a non-EU country.  Legislation to create other FTZs in Genoa and Naples exists, but has yet to be implemented. A free trade zone operated in Venice for a period but is currently being restructured.

Italy’s “Decree for the South” law (Law 91 of 2017) foresees eight Special Economic Zones (ZES – Zone Economica Speciale) managed by port authorities in Italy’s less-developed south and islands (the regions of Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia and Sicily).  Investors will be able to access up to EUR 50 million in tax breaks, hiring incentives, reduced bureaucracy, and reimbursement of the IRAP regional business tax, covered by national allotments of EUR 250 million for 2019 and 2020.  The GOI announced plans to increase the allotment by another EUR 300 million, but the increase has not passed into law yet. The Region of Campania approved the strategic plan for implementing the law on March 28, 2018, but the plan still awaits final approval from the Chamber of Deputies to become operational. The Naples ZES will encompass over 54 million square meters of land in the ports of Naples, Salerno and Castellamare di Stabia, as well as industrial areas and transport hubs in 37 cities and towns in Campania.  Incentives are not automatic, as investments will be approved by local government bodies in a procedure governed by the Port Authority of the Central Tyrrhenian Sea.  The Campania Region forecasts that the ZES will create and/or save between 15 and 30 thousand jobs. A proposed ZES encompassing the port cities of Bari and Brindisi on the Adriatic is expected to finish the approval procedure in 2019, followed by a ZES planned around the transshipment port of Gioia Tauro in Calabria and the other five zones: eastern Sicily (Augusta, Catania, and Siracusa), western Sicily (Palermo), Sardinia (Cagliari), ZES Ionica (Taranto in Puglia and the region of Basilicata), and a ZES to be shared between the ports in Abruzzo and Molise.

A special free trade zone was established in late 2015 in the areas within the Emilia-Romagna region that were hit by a May 2012 earthquake and by a January 2014 flood.  The measure aimed to assist the recovery of these areas through tax exemptions amounting to EUR 39.6 million for the years 2015 and 2016 for small enterprises headquartered in these areas.

Currently, goods of foreign origin may be brought into Italy without payment of taxes or duties, as long as the material is to be used in the production or assembly of a product that will be exported.  The free-trade zone law also allows a company of any nationality to employ workers of the same nationality under that country’s labor laws and social security systems.

Performance and Data Localization Requirements

Italy does not mandate local employment.  Non-EU nationals who would like to establish a business in Italy must have a valid residency permit or be nationals of a country with reciprocal arrangements, such as a bilateral investment agreement, as described at: https://www.esteri.it/mae/en/servizi/stranieri/  .

Work permits and visas are readily available and do not inhibit the mobility of foreign investors.  As a member of the Schengen Area, Italy typically allows short-term visits (up to 90 days) without a visa.  The Italian Ministry of Foreign Affairs has specific information about visa requirements: http://vistoperitalia.esteri.it/home/en  .

As a member of the EU, Italy does not follow forced localization policies in which foreign investors must use domestic content in goods or technology.  Italy does not have enforcement procedures for investment performance requirements. Italy does not require local data storage. Companies transmitting customer or other business-related data within or outside of the EU must comply with relevant EU privacy regulations.

Real Property

According to the World Bank, Italy ranks 23 worldwide out of 190 economies for the ease of registering property.  Real property registration takes an average of 16 days, requires four procedures, and costs an average of 4.4 percent of the value of the property.  Real property rights are enforced in Italian courts. Mortgages and judgment liens against property exist in Italy and the recording system is reliable.  Although Italy does not publish official statistics on property with titling issues, Post estimates that less than 10 percent of the land in Italy does not have clear title.  Italian law includes provisions whereby peaceful and uninterrupted possession of real property for a period of 20 years can, under certain circumstances, allow the occupying party to take title to a property.

Intellectual Property Rights

Italy was removed from the USTR’s Special 301 Watch List in 2014 after the Italian Communications Authority’s (AGCOM’s) issuance of a new regulation to combat digital copyright theft.  The regulation created a process by which rights holders can report online infringements to AGCOM, which can then block access to domestic and international sites hosting infringing content.  This negated the need for lengthy litigation, which had been required previously. The system was further strengthened in 2018, when authorities adopted new measures to prevent previously blocked websites from becoming accessible again under different domain names.

Authorities also continue to pursue trademark violations.  In 2017, the last year for which statistics are available, customs and the tax police jointly seized almost 32 million counterfeit items (excluding food and beverages, tobacco, and medical products), worth almost EUR 295 million.

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/  .

Policies Towards Foreign Direct Investment

Mexico is open to foreign direct investment (FDI) in the vast majority of economic sectors and has consistently been one of the largest emerging market recipients of FDI.  Mexico’s macroeconomic stability, large domestic market, growing consumer base, rising skilled labor pool, welcoming business climate, and proximity to the United States all help attract foreign investors.

Historically, the United States has been one of the largest sources of FDI in Mexico.  According to Mexico’s Secretariat of Economy, FDI flows to Mexico from the United States totaled USD 12.3 billion in 2018, nearly 39 percent of all inflows to Mexico (USD 31.6 billion).  The automotive, aerospace, telecommunications, financial services, and electronics sectors typically receive large amounts of FDI. Most foreign investment flows to northern states near the U.S. border, where most maquiladoras (export-oriented manufacturing and assembly plants) are located, or to Mexico City and the nearby “El Bajio” (e.g. Guanajuato, Queretaro, etc.) region.  In the past, foreign investors have overlooked Mexico’s southern states, although that may change if the new administration’s focus on attracting investment to the region gain traction.

The 1993 Foreign Investment Law, last updated in March 2017, governs foreign investment in Mexico.  The law is consistent with the foreign investment chapter of NAFTA. It provides national treatment, eliminates performance requirements for most foreign investment projects, and liberalizes criteria for automatic approval of foreign investment.  The Foreign Investment Law provides details on which business sectors are open to foreign investors and to what extent. Mexico is also a party to several Organization for Economic Cooperation and Development (OECD) agreements covering foreign investment, notably the Codes of Liberalization of Capital Movements and the National Treatment Instrument.

The new administration stopped funding ProMexico, the government’s investment promotion agency, and is integrating its components into other ministries and offices.  PROMTEL, the government agency charged with encouraging investment in the telecom sector, is expected to continue operations with a more limited mandate. Its first director and four other senior staff recently left the agency.  In April 2019, the government sent robust participation to the 11th CEO Dialogue and Business Summit for Investment in Mexico sponsored by the U.S. Chamber of Commerce and its Mexican equivalent, CCE. Cabinet-level officials conveyed the Mexican government’s economic development and investment priorities to dozens of CEOs and business leaders.

Limits on Foreign Control and Right to Private Ownership and Establishment

Mexico reserves certain sectors, in whole or in part, for the State including:  petroleum and other hydrocarbons; control of the national electric system, radioactive materials, telegraphic and postal services; nuclear energy generation; coinage and printing of money; and control, supervision, and surveillance of ports of entry.  Certain professional and technical services, development banks, and the land transportation of passengers, tourists, and cargo (not including courier and parcel services) are reserved entirely for Mexican nationals. See section six for restrictions on foreign ownership of certain real estate.

Reforms in the energy, power generation, telecommunications, and retail fuel sales sectors have liberalized access for foreign investors.  While reforms have not led to the privatization of state-owned enterprises such as Pemex or the Federal Electricity Commission (CFE), they have allowed private firms to participate.

Hydrocarbons:  Private companies participate in hydrocarbon exploration and extraction activities through contracts with the government under four categories:  competitive contracts, joint ventures, profit sharing agreements, and license contracts. All contracts must include a clause stating subsoil hydrocarbons are owned by the State.  The government has held four separate bid sessions allowing private companies to bid on exploration and development of oil and gas resources in blocks around the country. In 2017, Mexico successfully auctioned 70 land, shallow, and deep water blocks with significant interest from international oil companies.  The Lopez Obrador administration decided to suspend all future auctions until 2022.

Telecommunications:  Mexican law states telecommunications and broadcasting activities are public services and the government will at all times maintain ownership of the radio spectrum.

Aviation:  The Foreign Investment Law limited foreign ownership of national air transportation to 25 percent until March 2017, when the limit was increased to 49 percent.

Under existing NAFTA provisions, U.S. and Canadian investors receive national and most-favored-nation treatment in setting up operations or acquiring firms in Mexico.  Exceptions exist for investments restricted under NAFTA. Currently, the United States, Canada, and Mexico have the right to settle any dispute or claim under NAFTA through international arbitration.  Local Mexican governments must also accord national treatment to investors from NAFTA countries.

Approximately 95 percent of all foreign investment transactions do not require government approval.  Foreign investments that require government authorization and do not exceed USD 165 million are automatically approved, unless the proposed investment is in a legally reserved sector.

The National Foreign Investment Commission under the Secretariat of the Economy is the government authority that determines whether an investment in restricted sectors may move forward.  The Commission has 45 business days after submission of an investment request to make a decision. Criteria for approval include employment and training considerations, and contributions to technology, productivity, and competitiveness.  The Commission may reject applications to acquire Mexican companies for national security reasons. The Secretariat of Foreign Relations (SRE) must issue a permit for foreigners to establish or change the nature of Mexican companies.

Other Investment Policy Reviews

The World Trade Organization (WTO) completed a trade policy review of Mexico in February 2017 covering the period to year-end 2016.  The review noted the positive contributions of reforms implemented 2013-2016 and cited Mexico’s development of “Digital Windows” for clearing customs procedures as a significant new development since the last review.

The full review can be accessed via:  https://www.wto.org/english/tratop_e/tpr_e/tp452_e.htm  .

Business Facilitation

According to the World Bank, on average registering a foreign-owned company in Mexico requires 11 procedures and 31 days.  In 2016, then-President Pena Nieto signed a law creating a new category of simplified businesses called Sociedad for Acciones Simplificadas (SAS).  Owners of SASs will be able to register a new company online in 24 hours.  The Government of Mexico maintains a business registration website:  www.tuempresa.gob.mx  .  Companies operating in Mexico must register with the tax authority (Servicio de Administration y Tributaria or SAT), the Secretariat of the Economy, and the Public Registry.  Additionally, companies engaging in international trade must register with the Registry of Importers, while foreign-owned companies must register with the National Registry of Foreign Investments.

Outward Investment

In the past, ProMexico was responsible for promoting Mexican outward investment and provided assistance to Mexican firms acquiring or establishing joint ventures with foreign firms, participating in international tenders, and establishing franchise operations, among other services.  Various offices at the Secretariat of Economy and the Secretariat of Foreign Affairs now handle these issues. Mexico does not restrict domestic investors from investing abroad.

International Regulatory Considerations

Generally speaking, the Mexican government has established legal, regulatory, and accounting systems that are transparent and consistent with international norms.  Still, the Lopez Obrador administration has publicly questioned the value of specific anti-trust and energy regulators. Furthermore, corruption continues to affect equal enforcement of some regulations.  The Lopez Obrador administration has an ambitious plan to centralize government procurement in an effort to root out corruption and generate efficiencies.  The administration estimates it can save up to USD 25 billion annually by consolidating government purchases in the Mexican Secretariat of Finance (Hacienda).  Under the current decentralized process, more than 70 percent of government contracts are sole-sourced, interagency consolidated purchases are uncommon, and the entire process is susceptible to corruption.  The Mexican government’s budget is published online and readily available.  The Bank of Mexico also publishes and maintains data about the country’s finances and debt obligations.

The Federal Commission on Regulatory Improvement (COFEMER), within the Secretariat of Economy, is the agency responsible for streamlining federal and sub-national regulation and reducing the regulatory burden on business.  Mexican law requires Secretariats and regulatory agencies to conduct impact assessments of proposed regulations. Assessments are made available for public comment via COFEMER’s website: www.cofemer.gob.mx  .  The official gazette of state and federal laws currently in force in Mexico is publicly available via:  http://www.ordenjuridico.gob.mx/  .

Mexico’s antitrust agency, the Federal Commission for Economic Competition (COFECE), plays a key role protecting, promoting, and ensuring a competitive free market in Mexico.  COFECE is responsible for eliminating barriers both to competition and free market entry across the economy (except for the telecommunications sector, which is governed by its own competition authority) and for identifying and regulating access to essential production inputs.

In addition to COFECE, the Energy Regulatory Commission (CRE) and National Hydrocarbon Commission (CNH) are both technically-oriented independent agencies that play important roles in regulating the energy and hydrocarbons sectors.  CRE regulates national electricity generation, coverage, distribution, and commercialization, as well as the transportation, distribution, and storage of oil, gas, and biofuels. CNH supervises and regulates oil and gas exploration and production and issues oil and gas upstream (exploration/production) concessions.

Investors are increasingly concerned the administration is undermining confidence in the “rules of the game,” particularly in the energy sector, by weakening the political autonomy of COFECE, CNH, and CRE.  The administration appointed four of seven CRE commissioners over the Senate’s objections, which voted twice to reject the nominees in part due to concerns their appointments would erode the CRE’s political autonomy.  The administration’s budget cuts resulted in significant layoffs, which has reportedly hampered the agencies’ ability to carry out its work, a key factor in investment decisions.

The Secretariat of Public Administration has made considerable strides in improving transparency in government, including government contracting and involvement of the private sector in enhancing transparency and fighting corruption.  The Mexican government has established four internet sites to increase transparency of government processes and to establish guidelines for the conduct of government officials: (1) Normateca (http://normatecainterna.sep.gob.mx  ) provides information on government regulations; (2) Compranet (https://compranet.funcionpublica.gob.mx  ) displays federal government procurement actions on-line; (3) Tramitanet (www.tramitanetmexico.com  ) permits electronic processing of transactions within the bureaucracy; and (4) Declaranet (https://declaranet.gob.mx/  ) allows federal employees to file income taxes online.

Legal System and Judicial Independence

Since the Spanish conquest in the 1500s, Mexico has had an inquisitorial system adopted from Europe in which proceedings were largely carried out in writing and sealed from public view.  Mexico amended its Constitution in 2008 to facilitate change to an oral accusatorial criminal justice system to better combat corruption, encourage transparency and efficiency, while ensuring respect for the fundamental rights of both the victim and the accused.  An ensuing National Code of Criminal Procedure passed in 2014, and is applicable to all 32 states. The national procedural code is coupled with each state’s criminal code to provide the legal framework for the new accusatorial system, which allows for oral, public trials with the right of the defendant to face his/her accuser and challenge evidence presented against him/her, right to counsel, due process and other guarantees.  Mexico fully adopted the new accusatorial criminal justice system at the state and federal levels in June 2016.

Mexico’s Commercial Code, which dates back to 1889, was most recently updated in 2014.  All commercial activities must abide by this code and other applicable mercantile laws, including commercial contracts and commercial dispute settlement measures.  Mexico has multiple specialized courts regarding fiscal, labor, economic competition, broadcasting, telecommunications, and agrarian law.

The judicial branch is nominally independent from the executive.  Following a reform passed in February 2014, the Attorney General’s Office (Procuraduria General de la Republica or PGR) became autonomous of the executive branch, as the Prosecutor General’s Office (Fiscalia General de la Republica or FGR).  The Mexican Senate confirmed Mexico’s first Fiscal on January 18, 2019.  The Fiscal will serve a nine-year term, intended to insulate his office from the executive branch, whose members serve six-year terms.

Laws and Regulations on Foreign Direct Investment

Mexico’s Foreign Investment Law sets the rules governing foreign investment into the country.  The National Commission for Foreign Investments, formed by several cabinet-level ministries including Interior (SEGOB), Foreign Relations (SRE), Finance (Hacienda), Economy (SE), and Social Development (SEDESOL), establishes the criteria for administering investment rules.

Competition and Anti-Trust Laws

Mexico has two constitutionally autonomous regulators to govern matters of competition – the Federal Telecommunications Institute (IFT) and the Federal Commission for Economic Competition (COFECE).  IFT governs broadcasting and telecommunications, while COFECE regulates all other sectors. For more information on competition issues in Mexico, please visit COFECE’s bilingual website at: www.cofece.mx  .

Expropriation and Compensation

Mexico may not expropriate property under NAFTA, except for public purpose and on a non-discriminatory basis.  Expropriations are governed by international law and require rapid fair market value compensation, including accrued interest.  Investors have the right to international arbitration for violations of this or any other rights included in the investment chapter of NAFTA.

Dispute Settlement

ICSID Convention and New York Convention

Mexico ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) in 1971 and has codified this into domestic law.  Mexico is also a signatory to the Inter-American Convention on International Commercial Arbitration (1975 Panama Convention) and the 1933 Montevideo Convention on the Rights and Duties of States.  Mexico is not a member of the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention), even though many of the investment agreements signed by Mexico include ICSID arbitration as a dispute settlement option.

Investor-State Dispute Settlement

Chapters 11, 19, and 20 of the existing NAFTA cover international dispute resolution.  Chapter 11 allows a NAFTA Party investor to seek monetary damages for violations of its provisions.  Investors may initiate arbitration against the NAFTA Party under the rules of the United Nations Commission on International Trade Law (UNCITRAL Model Law) or through the ICSID Convention.  A NAFTA investor may also choose to use the domestic court system to litigate their case. The USMCA contains revisions to these chapters, but will not enter into force until all three countries have ratified the agreement.

Since NAFTA’s inception, there have been 17 cases filed against Mexico by U.S. and Canadian investors who allege expropriation and/or other violations of Mexico’s NAFTA obligations.  Details of the cases can be found at: https://www.state.gov/s/l/c3742.htm.

International Commercial Arbitration and Foreign Courts

The Arbitration Center of Mexico (CAM) is a specialized, private institution administering commercial arbitration as an alternative dispute resolution mechanism.  The average duration of an arbitration process conducted by CAM is 14 months. The Commercial Code dictates an arbitral award, regardless of the country where it originated, must be recognized as binding.  The award must be enforced after a formal written petition is presented to a judge.

The internal laws of both Pemex and CFE state all national disputes of any nature will have to be resolved by federal courts.  State-owned Enterprises (SOEs) and their productive subsidiaries may opt for alternative dispute settlement mechanisms under applicable commercial legislation and international treaties of which Mexico is a signatory.  When contracts are executed in a foreign country, Pemex and CFE have the option to follow procedures governed by non-Mexican law, to use foreign courts, or to participate in arbitration.

Bankruptcy Regulations

Mexico’s Reorganization and Bankruptcy Law (Ley de Concursos Mercantiles) governs bankruptcy and insolvency.  Congress approved modifications in 2014 in order to shorten procedural filing times and convey greater juridical certainty to all parties, including creditors.  Declaring bankruptcy is legal in Mexico and it may be granted to a private citizen, a business, or an individual business partner. Debtors, creditors, or the Attorney General can file a bankruptcy claim.  Mexico ranked 32 out of 190 countries for resolving insolvency in the World Bank’s 2019 Doing Business report. The average bankruptcy filing takes 1.8 years to be resolved and recovers 64.7 cents per USD, which compares favorably to average recovery in Latin America and the Caribbean of just 30.9 cents per USD.  “Buró de Crédito” is Mexico’s main credit bureau.  More information on credit reports and ratings can be found at:  http://www.burodecredito.com.mx/  .

Investment Incentives

Land grants or discounts, tax deductions, and technology, innovation, and workforce development funding are commonly used incentives.  Additional federal foreign trade incentives include: (1) IMMEX: a promotion which allows manufacturing sector companies to temporarily import inputs without paying general import tax and value added tax; (2) Import tax rebates on goods incorporated into products destined for export; and (3) Sectoral promotion programs allowing for preferential ad-valorem tariffs on imports of selected inputs.  Industries typically receiving sectoral promotion benefits are footwear, mining, chemicals, steel, textiles, apparel, and electronics.

Foreign Trade Zones/Free Ports/Trade Facilitation

The new administration launched a two-year program in January 2019 that established a border economic zone (BEZ) in 43 municipalities in six northern border states within 15.5 miles from the U.S. border.  The BEZ program entails: 1) a fiscal stimulus decree reducing the Value Added Tax (VAT) from 16 percent to 8 percent and the Income Tax (ISR) from 30 percent to 20 percent, 2) a minimum wage increase to MXN 176.72 (USD 8.75) per day, and 3) the gradual harmonization of gasoline, diesel, natural gas, and electricity rates with neighboring U.S. states.  The purpose of the BEZ program is to boost investment, promote productivity, and create more jobs in the region.  Interested businesses or individuals must apply to the government’s “Beneficiary Registry” by March 31 demonstrating income from border business activities comprise at least 90 percent of total income.  The company headquarters or branch must be located in the border region for at least 18 months prior to the application.  Sectors excluded from the preferential ISR rate include financial institutions, the agricultural sector, and export manufacturing companies (maquilas).

Separately, the administration announced plans to review and possibly end the Special Economic Zones (SEZs) program throughout the country.

Performance and Data Localization Requirements

Mexican labor law requires at least 90 percent of a company’s employees be Mexican nationals.  Employers can hire foreign workers in specialized positions as long as foreigners do not exceed 10 percent of all workers in that specialized category.  Mexico does not follow a “forced localization” policy—foreign investors are not required by law to use domestic content in goods or technology. However, investors intending to produce goods in Mexico for export to the United States should take note of the rules of origin prescriptions contained within NAFTA if they wish to benefit from NAFTA treatment.

Mexico does not have any policy of forced localization for data storage, nor must foreign information technology (IT) providers turn over source code or provide backdoors into hardware or software.  Within the constraints of the Federal Law on the Protection of Personal Data, Mexico does not impede companies from freely transmitting customer or other business-related data outside the country.

Real Property

Mexico ranked 103 out of 190 countries for ease of registering property in the World Bank’s 2019 Doing Business report, falling four places from its 2018 report.  Article 27 of the Mexican Constitution guarantees the inviolable right to private property. Expropriation can only occur for public use and with due compensation.  Mexico has four categories of land tenure: private ownership, communal tenure (ejido), publicly owned, and ineligible for sale or transfer.

Mexico prohibits foreigners from acquiring title to residential real estate in so-called “restricted zones” within 50 kilometers (approximately 30 miles) of the nation’s coast and 100 kilometers (approximately 60 miles) of the borders.  “Restricted zones” cover roughly 40 percent of Mexico’s territory. Foreigners may acquire the effective use of residential property in “restricted zones” through the establishment of an extendable trust (fideicomiso) arranged through a Mexican financial institution.  Under this trust, the foreign investor obtains all property use rights, including the right to develop, sell, and transfer the property.  Real estate investors should be careful in performing due diligence to ensure that there are no other claimants to the property being purchased.  In some cases, fideicomiso arrangements have led to legal challenges.  U.S.-issued title insurance is available in Mexico and U.S. title insurers operate here.

Additionally, U.S. lending institutions have begun issuing mortgages to U.S. citizens purchasing real estate in Mexico.  The Public Register for Business and Property (Registro Publico de la Propiedad y de Comercio) maintains publicly available information online regarding land ownership, liens, mortgages, restrictions, etc.

Tenants and squatters are protected under Mexican law.  Property owners who encounter problems with tenants or squatters are advised to seek professional legal advice, as the legal process of eviction is complex.

Mexico has a nascent but growing financial securitization market for real estate and infrastructure investments, which investors can access via the purchase/sale of Fideocomisos de Infraestructura y Bienes Raíces (FIBRAs) and Certificates of Capital Development (CKDs) listed on Mexico’s BMV stock exchange.

Intellectual Property Rights

Intellectual Property Rights in Mexico are covered by the Industrial Property Law (Ley de la Propiedad Industrial) and the Federal Copyright Law (Ley Federal del Derecho de Autor).  Responsibility for the protection of IPR is spread across several government authorities.  The Office of the Attorney General (PGR) oversees a specialized unit that prosecutes IPR crimes.  The Mexican Institute of Industrial Property (IMPI), the equivalent to the U.S. Patent and Trademark Office, administers patent and trademark registrations, and handles administrative enforcement cases of IPR infringement.  The National Institute of Copyright (INDAUTOR) handles copyright registrations and mediates certain types of copyright disputes, while the Federal Commission for the Prevention from Sanitary Risks (COFEPRIS) regulates pharmaceuticals, medical devices, and processed foods.  The Mexican Customs Service’s mandate includes ensuring illegal goods do not cross Mexico’s borders.

The process for trademark registration in Mexico normally takes six to eight months.  The registration process begins by filing an application with IMPI, which is published in the Official Gazette.  IMPI first undertakes a formalities examination, followed by a substantive examination to determine if the application and supporting documentation fulfills the requirements established by law and regulation to grant the trademark registration.  Once the determination is made, IMPI then publishes the registration in the Official Gazette. A trademark registration in Mexico is valid for 10 years from the filing date, and is renewable for 10-year periods. Any party can challenge a trademark registration through the new opposition system, or post-grant through a cancellation proceeding.  IMPI employs the following administrative procedures: nullity, expiration, opposition, cancellation, trademark, patent and copyright (trade-based) infringement. Once IMPI issues a decision, the affected party may challenge it through an internal reconsideration process or go directly to the Specialized IP Court for a nullity trial. An aggrieved party can then file an appeal with a Federal Appeal Court based on the Specialized IP Court’s decision.  In cases with an identifiable constitutional challenge, the plaintiff may file an appeal before the Supreme Court of Justice.

The USPTO has a Patent Prosecution Highway (PPH) agreement with IMPI.  Under the PPH, an applicant receiving a ruling from either IMPI or the USPTO that at least one claim in an application is patentable may request that the other office expedite examination of the corresponding application.  The PPH leverages fast-track patent examination procedures already available in both offices to allow applicants in both countries to obtain corresponding patents faster and more efficiently. The PPH permits USPTO and IMPI to benefit from work previously done by the other office, which reduces the examination workload and improves patent quality.

Mexico is plagued by widespread commercial-scale infringement that results in significant losses to Mexican, U.S., and other IPR owners.  There are many issues that have made it difficult to improve IPR enforcement in Mexico, including legislative loopholes; lack of coordination between federal, state, and municipal authorities; a cumbersome and lengthy judicial process; and widespread cultural acceptance of piracy and counterfeiting.  In addition, the involvement of transnational criminal organizations (TCOs), which control the piracy and counterfeiting markets in parts of Mexico, continue to impede federal government efforts to improve IPR enforcement. TCO involvement has further illustrated the link between IPR crimes and illicit trafficking of other contraband, including arms and drugs.

Mexico remained on the Watch List in the 2019 Special 301 report.  Obstacles to U.S. trade include the wide availability of pirated and counterfeit goods in both physical and virtual notorious markets.  The 2018 USTR Out-Of-Cycle Review of Notorious Markets listed two Mexican markets: Tepito in Mexico City and San Juan de Dios in Guadalajara.

Mexico is a signatory to numerous international IP treaties, including the Paris Convention for the Protection of Industrial Property, the Bern Convention for the Protection of Literary and Artistic Works, and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights.

Resources for Rights Holders

• Intellectual Property Rights Attaché for Mexico, Central America and the Caribbean

U.S. Trade Center
Liverpool No. 31 Col. Juárez
C.P. 06600 Mexico City
Tel: (52) 55 5080 2189

• National Institute of Copyright (INDAUTOR)

Puebla No. 143
Col. Roma, Del. Cuauhtémoc
06700 México, D.F.
Tel: (52) 55 3601 8270
Fax: (52) 55 3601 8214
Web: http://www.indautor.gob.mx/  

• Mexican Institute of Industrial Property (IMPI)

Periférico Sur No. 3106
Piso 9, Col. Jardines del Pedregal
Mexico, D.F., C.P. 01900
Tel: (52 55) 56 24 04 01 / 04
(52 55) 53 34 07 00
Fax: (52 55) 56 24 04 06
Web: http://www.impi.gob.mx/  

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/  .

Policies Towards Foreign Direct Investment

Poland welcomes foreign investment as a source of capital, growth, and jobs, and as a vehicle for technology transfer, research and development (R&D), and integration into global supply chains.  The government’s Strategy for Responsible Development identifies key goals for attracting investment, including improving the investment climate, a stable macroeconomic and regulatory environment, and high-quality corporate governance, including in state-controlled companies.  By the end of 2017, according to IMF and National Bank of Poland data, Poland attracted around USD 239 billion (cumulative) in foreign direct investment (FDI), principally from Western Europe and the United States. In 2017, reinvested profits dominated the net inflow of FDI to Poland.  The greatest reinvestment of profits occurred in services and manufacturing, reflecting the change of Poland’s economy to a more service-oriented and less capital-intensive structure.

Foreign companies generally enjoy unrestricted access to the Polish market.  However, Polish law limits foreign ownership of companies in selected strategic sectors, and limits acquisition of real estate, especially agricultural and forest land.  Additionally, the current government has expressed a desire to increase the percentage of domestic ownership in some industries such as banking and retail which have large holdings by foreign companies, and has employed sectoral taxes and other measures to advance this aim.  In March 2018, Sunday trading ban legislation went into effect, which is gradually phasing out Sunday retail commerce in Poland, especially for large retailers. In 2019, stores may operate an average of one Sunday a month, and in 2020 a total ban will be in effect (with the exception of seven Sundays).  Polish authorities have publicly favored introducing a digital services tax. Since no draft has been released, the details of such a tax are unknown, but it would affect mainly foreign digital companies.

There is a variety of Polish agencies involved in investment promotion:

• The Ministry of Entrepreneurship and Technology has two departments involved in investment promotion and facilitation: the Investment Development and the Trade and International Relations Departments.  The Deputy Minister supervising the Investment Development Department was appointed in 2019 to be ombudsman for foreign investors. https://www.gov.pl/web/przedsiebiorczosc-technologia/  
• The Ministry of Foreign Affairs (MFA) promotes Poland’s foreign relations including economic relations, and along with the Polish Chamber of Commerce (KIG), organizes missions of Polish firms abroad and hosts foreign trade missions to Poland.   https://www.msz.gov.pl/  ; https://kig.pl/  
• The Polish Investment and Trade Agency (PAIH) is the main institution responsible for promotion and facilitation of foreign investment. The agency is responsible for promoting Polish exports, for inward foreign investment and for Polish investments abroad. The agency operates as part of the Polish Development Fund, which integrates government development agencies.  PAIH coordinates all operational instruments, such as commercial diplomatic missions, commercial fairs and programs dedicated to specific markets and sectors. The Agency has opened offices abroad including in the United States (San Francisco and Washington, D.C, Los Angeles, Chicago, Houston and New York. PAIH’s services are available to all investors. https://www.paih.gov.pl/en  
• The Polish Chamber of Commerce in the United States (POLCHAM USA), located in Washington, D.C., promotes the strengthening of economic and trade relationships between the United States and Poland.  It is an independent, non-profit organization. https://polchamusa.org/  

Limits on Foreign Control and Right to Private Ownership and Establishment

Poland allows both foreign and domestic entities to establish and own business enterprises and engage in most forms of remunerative activity per the Entrepreneurs’ Law which went into effect on April 30, 2018.  Forms of business activity are described in the Commercial Companies Code. Poland does place limits on foreign ownership and foreign equity for a limited number of sectors. Polish law limits non-EU citizens to 49 percent ownership of a company’s capital shares in the air transport, radio and television broadcasting, and airport and seaport operations sectors.  Licenses and concessions for defense production and management of seaports are granted on the basis of national treatment for investors from OECD countries.

Pursuant to the Broadcasting Law, a television broadcasting company may only receive a license if the voting share of foreign owners does not exceed 49 percent and if the majority of the members of the management and supervisory boards are Polish citizens and hold permanent residence in Poland.  In January 2017, a team comprised of officials from the Ministry of Culture and National Heritage, the National Broadcasting Council (KRRiT) and the Office of Competition and Consumer Protection (UOKiK) was created in order to review and tighten restrictions on large media, and limit foreign ownership of the media.  While no legislation has been introduced, there is concern that possible future proposals may limit foreign ownership of media sector.

In the insurance sector, at least two management board members, including the chair, must speak Polish.  The Law on Freedom of Economic Activity (LFEA) requires companies to obtain government concessions, licenses, or permits to conduct business in certain sectors, such as broadcasting, aviation, energy, weapons/military equipment, mining, and private security services.  The LFEA also requires a permit from the Ministry of Entrepreneurship and Technology for certain major capital transactions (i.e., to establish a company when a wholly or partially Polish-owned enterprise has contributed in-kind to a company with foreign ownership by incorporating liabilities in equity, contributing assets, receivables, etc.).  A detailed description of business activities that require concessions and licenses can be found here: https://www.paih.gov.pl/publications/how_to_do_business_in_Poland

Polish law restricts foreign investment in certain land and real estate.  Land usage types such as technology and industrial parks, business and logistic centers, transport, housing plots, farmland in special economic zones, household gardens and plots up to two hectares are exempt from agricultural land purchase restrictions.  Since May 2016, foreign citizens from European Economic Area member states, Iceland, Liechtenstein, and Norway, as well as Switzerland, do not need permission to purchase any type of real estate including agricultural land. Investors from outside of the EEA or Switzerland need to obtain a permit from the Ministry of Internal Affairs and Administration (with the consent of the Defense and Agriculture Ministries), pursuant to the Act on Acquisition of Real Estate by Foreigners, prior to the acquisition of real estate or shares which give control of a company holding or leasing real estate.  The permit is valid for two years from the day of issuance, and the ministry can issue a preliminary document valid for one year. Permits may be refused for reasons of social policy or public security. The exceptions to this rule include purchases of an apartment or garage, up to 0.4 hectares of undeveloped urban land, and “other cases provided for by law” (generally: proving a particularly close connection with Poland). Laws to restrict farmland and forest purchases came into force April 30, 2016, and are addressed in more detail in Section 6: Real Property.

Since September 2015 the Act on the Control of Certain Investments has provided for the national security-related screening of acquisitions in high-risk sectors including: energy generation and distribution; petroleum production, processing and distribution; telecommunications; media and mining; and manufacturing and trade of explosives, weapons and ammunition.  Poland maintains a list of strategic companies that can be amended at any time, but is updated at least once a year, usually in January. The national security review mechanism does not appear to constitute a de facto barrier for investment, and does not unduly target U.S. investment.  According to the Act, prior to the acquisition of shares of strategic companies (including the acquisition of proprietary interests in entities and/or their enterprises) the purchaser must notify the controlling government body and receive approval.  The obligation to inform the controlling government body applies to transactions involving the acquisition of a “material stake” in companies subject to special protection. The Act stipulates that failure to notify carries a fine of up to PLN 100,000,000 (approx. USD 25,575,542) or a penalty of imprisonment between six months and five years (or both penalties together) for a person acting on behalf of a legal person or organizational unit that acquires a material stake without prior notification.

The Polish government has drafted an amendment to extend the list of state companies with restrictions on selling shares and to increase the powers of the Prime Minister in the area of state property management.  The companies slated for additional restrictions are pipeline operator PERN, postal service Poczta Polska, aviation group PGL, railway system  PKP and the Special Purpose Vehicle in charge of building Poland’s planned central airport.  The amendment also sanctions possible mergers of such entities.

Other Investment Policy Reviews

The 2018 OECD Economic Survey of Poland can be found here:

http://www.oecd.org/eco/surveys/economic-survey-poland.htm  

Additionally, the OECD Working Group on Bribery has provided recommendations on the implementation of the OECD Anti-Bribery Convention in Poland:  http://www.oecd.org/daf/anti-bribery/poland-oecdanti-briberyconvention.htm  

In March 2018, the OECD published a Rural Policy Review on Poland.  According to this review, Poland has seen impressive growth in recent years, and yet regional disparities in economic and social outcomes remain large by OECD standards.  The review is available at: http://www.oecd.org/poland/oecd-rural-policy-reviews-poland-2018-9789264289925-en.htm  

Business Facilitation

The Polish government has continued to implement reforms aimed at improving the investment climate with a special focus on the SME sector and innovations.  In 2016-18, Poland reformed its R&D tax incentives with new regulations and changes encouraging wider use of the R&D tax breaks. As of January 1, 2019, a new mechanism reducing the tax rate on income derived from intellectual property rights (IP Box) was introduced.  Please see Section 5 of this report for more information.

A package of five laws referred to as the “Business Constitution”—intended to facilitate the operation of small domestic enterprises—was gradually introduced in 2018.  The main principle of the Business Constitution is the presumption of innocence of business owners in dealings with the government.

Poland made enforcing contracts easier by introducing an automated system to assign cases to judges randomly.  Despite these reforms and others, some investors have expressed serious concerns regarding over-regulation, over-burdened courts and prosecutors, and overly-burdensome bureaucratic processes.  The way tax audits are performed has changed considerably. For instance, in many cases the appeal against the findings of an audit now must be lodged with the authority that issued the initial finding rather than a higher authority or third party.

In Poland, business activity may be conducted in forms of a sole proprietor, civil law partnership, as well as commercial partnerships and companies regulated in provisions of the Commercial Partnerships and Companies Code.  Sole proprietor and civil law partnerships are registered in the Central Registration and Information on Business (CEIDG), which is housed by the Ministry of Entrepreneurship and Technology: 

https://prod.ceidg.gov.pl/CEIDG.CMS.ENGINE/?D;f124ce8a-3e72-4588-8380-63e8ad33621f  

Commercial companies are classified as partnerships (registered partnership, professional partnership, limited partnership, and limited joint-stock partnership) and companies (limited liability company and joint-stock company).  A partnership or company is registered in the National Court Register (KRS) and kept by the competent district court for the registered office of the established partnership or company. Local corporate lawyers report that starting a business remains costly in terms of time and money, though KRS registration in the National Court Register averages less than two weeks according to the Ministry of Justice and four weeks according to the World Bank’s 2019 Doing Business Report.  A 2018 law introduced a new type of company—PSA (Prosta Spółka Akcyjna – Simple Joint Stock Company).  PSAs are meant to facilitate start-ups with simpler and cheaper registration procedures. The minimum initial capitalization is 1 PLN (approx. USD 0.26) while other types of registration require 5,000 PLN (approx. USD 1,315) or 50,000 PLN (approx. USD 13,158).  A PSA has a board of directors, which merges the responsibilities of a management board and a supervisory board. The provision for PSA will enter into force in March 2020.

New provisions of the Public Procurement Law (“PPL”) transposing provisions of EU directives coordinating the rules of public procurement came into force on October 18, 2018.  These regulations apply to proceedings concerning contracts with a value equal to or exceeding the EU thresholds.

Polish lawmakers are gradually digitalizing the services of the KRS.   The first change, which entered into force on March 15, 2018, was the obligation to file financial statements with the Repository of Financial Documents via the Ministry of Finance website.  There is also a new requirement for representatives and shareholders of companies to submit statements on their addresses. A requirement to file financial statements exclusively in electronic form entered into force on October 1, 2018, and, beginning in  March 2020, all applications will have to be filed with the commercial register electronically. A certified e-signature may be obtained from one of the commercial e-signature providers listed on the following website: https://www.nccert.pl/  

• General information, National Court Register (KRS): https://ms.gov.pl/en/national-registers/national-court-register/general-information-on-the-national-court-register/  
• Forms in English, National Court Register (KRS): https://ms.gov.pl/en/national-registers/national-court-register/application-forms-used-in-krs/  ;
• Electronic KRS access: https://ms.gov.pl/en/national-registers/national-court-register/electronic-access-to-the-national-court-register/  

Agencies that a business will need to file with in order to register in the KRS:

• Central Statistical Office to obtain a business identification number (REGON) for civil-law partnership http://bip.stat.gov.pl/en/regon/subjects-and-data-included-in-the-register/ 
• ZUS – Social Insurance Agency
  http://www.zus.pl/pl/pue/rejestracja 
• Ministry of Finance
  http://www.mf.gov.pl/web/bip/wyniki-wyszukiwania/?q=business percent20registration  

Both registers are available in English and foreign companies may use them.

Poland’s Single Point of Contact site for business registration and information is: https://www.biznes.gov.pl/en/  and an online guide to choose a type of business registration is: https://www.biznes.gov.pl/poradnik/-/scenariusz/REJESTRACJA_DZIALALNOSCI_GOSPODARCZEJ  

Outward Investment

The Polish Agency for Investment and Trade (PAIH) under the umbrella of the Polish Development Fund, plays a key role in promoting Polish investment abroad.  More information on PFR can be found in Section 7 and at its website: https://pfr.pl/  

The Minister of Foreign Affairs and the Minister of Entrepreneurship and Technology have   significantly reformed Poland’s economic diplomacy. The Polish Information and Foreign Investment Agency (PAIiIZ) was reformed in February 2017 to be the Polish Agency for Investment and Trade (PAIH).  Trade and Investment Promotion Sections in embassies and consulates around the world have been replaced by PAIH offices. These 70 offices worldwide constitute a global network and include six in the United States.  

PAIH offices offer a range of services to include: finding potential partners for Polish manufacturers/exporters; providing information on business opportunities; assisting in the organization of business trips and study tours; and assisting in initiating first contacts between interested local importers, distributors or wholesalers and Polish manufacturers or service providers.  The Agency implements pro-export projects such as the Polish Tech Bridges dedicated to expansion of innovative Polish SMEs.  PAIH has a number of investment/export-oriented government programs specially developed to promote Polish companies abroad such as Go China, Go India, Go Africa, Go ASEAN and Go Arctic.  Vietnam and Iran are also priority investment and export destinations for Poland, though trade with Iran has dropped off since the re-imposition of U.S. sanctions. Poland is a founding member of the Asian Infrastructure Investment Bank (AIIB).  Poland co-founded and actively supports the Three Seas Initiative, which seeks to improve north-south connections in road, energy and telecom infrastructure in 12 countries on NATO’s and the EU’s eastern flank. . PAIH is responsible for the promotion of Poland at the EXPO Dubai 2020. 

The national development bank BGK (Bank Gospodarstwa Krajowego) offers support for goods with a Polish component and depending on the credit can be a minimum of 30-40 percent of net contract revenue.  BGK offers a number of short-term credit instruments like documentary letters of credit for post-financing. BGK offers direct credit for importers to purchase investment goods and services. The Export Credit Insurance Corporation KUKE insures the BGK-issued credit, including for companies from countries with higher trade risk.

Transparency of the Regulatory System

The Polish Constitution contains a number of provisions related to administrative law and procedures.  It states administrative bodies have a duty to observe and comply with the law of Poland. The Code of Administrative Procedures (CAP) states rules and principles concerning participation and involvement of citizens in processes affecting them, the giving of reasons for decision, and forms of appeal and review.

As a member of the EU, Poland complies with EU directives by harmonizing rules or translating them into national legislation.  Rule-making and regulatory authority exists at the central, regional, and municipal levels. Various ministries are engaged in rule-making that affects foreign business, such as pharmaceutical reimbursement at the Ministry of Health or incentives for R&D at the Ministry of Entrepreneurship and Technology.  Regional and municipal level governments can levy certain taxes and affect foreign investors through permitting and zoning.

Polish accounting standards do not differ significantly from international standards.  Major international accounting firms provide services in Poland. In cases where there is no national accounting standard, the appropriate International Accounting Standard may be applied.  However, investors have complained of regulatory unpredictability and high levels of administrative red tape. Foreign and domestic investors must comply with a variety of laws concerning taxation, labor practices, health and safety, and the environment.  Complaints about these laws, especially the tax system, center on frequent changes, lack of clarity, and strict penalties for minor errors.

Poland has improved its regulatory policy system over the last years.  The government introduced a central online system to provide access to the general public to regulatory impact assessment (RIA) and other documents sent for consultation to selected groups such as trade unions and business.  Proposed laws and regulations are published in draft form for public comment, and ministries must conduct public consultations. Poland follows OECD recognized good regulatory practices, but investors say the lack of regulations governing the role of stakeholders in the legislative process is a problem.  Participation in public consultations and the window for comments are often limited.

New guidelines for RIA, consultation and ex post evaluation were adopted under the Better Regulation Program in 2015, providing more detailed guidance and stronger emphasis on public consultation.  Like many countries, Poland faces challenges to fully implement its regulatory policy requirements and to ensure that RIA and consultation comments are used to improve decision making.  The OECD suggests Poland extend its online public consultation system and consider using instruments such as green papers more systematically for early-stage consultation to identify options for addressing a policy problem.  OECD considers steps taken to introduce ex post evaluation of regulations encouraging.

Bills can be submitted to the parliament for debate as “citizen’s bills” if authors can collect 100,000 signatures.  NGOs and private sector associations most often take advantage of this avenue. Parliamentary bills can also be submitted by a group of parliamentarians, a mechanism that bypasses public consultation and which both domestic and foreign investors have criticized.  Changes to the government’s rules of procedure introduced in June 2016 reduced the requirements for RIA for preparations of new legislation.

Administrative authorities are subject to oversight by courts and other bodies (e.g., Supreme Audit Chamber – NIK), the Office of the Human Rights Ombudsman, special commissions and agencies, inspectorates, the Prosecutor and parliamentary committees.  Polish Parliamentary committees utilize a distinct system to examine and instruct ministries and administrative agency heads. Committees’ oversight of administrative matters consists of: reports on state budgets implementation and preparation of new budgets, citizens’ complaints, and reports from the external audit agency (NIK) reports.  In addition, courts and prosecutors’ offices sometimes bring cases to parliament’s attention. The Ombudsman’s institution works relatively well in Poland. Polish citizens have a right to complain and to put forward grievances before administrative bodies. Proposed legislation can be tracked on the Prime Minister’s webpage, http://legislacja.rcl.gov.pl/   and Parliament’s webpage: http://www.sejm.gov.pl/Sejm8.nsf/proces.xsp  

Poland has consistently met or exceeded the Department of State’s minimum requirements for fiscal transparency: https://www.state.gov/e/eb/ifd/oma/fiscaltransparency/273700.htm.  Poland’s budget and information on debt obligations were widely and easily accessible to the general public, including online.  The budget was substantially complete and considered generally reliable. Poland’s supreme audit institution (NIK) audited the government’s accounts and made its reports publicly available, including online.  The budget structure and classifications are complex and the Polish authorities agree more work is needed to address deficiencies in the process of budgetary planning and procedures. State budget encompasses only part of the public finances sector.  In 2018, Poland continued its work to reform the budgetary process to increase the effectiveness and efficiency of spending and to simplify the budget structure. The completion of the first stage of these efforts is expected by the end of 2019.

International Regulatory Considerations  

Since Poland’s EU accession (May 2004) Poland has been transposing European legislation and reforming its regulations in compliance with the EU system.  Poland sometimes disagrees with EU regulations related to renewable energy and emissions due to its important domestic coal industry.

In 2018, Poland saw significant increases in wholesale electricity prices due largely to an increase in the price of coal and EU emissions permits.  The government’s initial plans of proposing a new law to protect household consumers from rising electricity prices put it at odds with the European Commission (EC) for the lack of notification of what amounted to state aid measures before they took effect.  The Polish energy market regulator (URE) also criticized the proposed bill for household power bills not reflecting the market rate and claimed the proposed law threatened URE’s independence.

Poland participates in the process of creation of European norms.  There is strong encouragement for non-governmental organizations, such as environmental and consumer groups, to actively participate in European standardization.  In areas not covered by the European normalization the Polish Committee for Standardization (PKN) introduces norms identical with international norms i.e., PN-ISO and PN-IEC.  PKN actively cooperates with international and European standards organizations and with standards bodies from other countries. PKN is a member-founder of International Organization for Standardization (ISO) and a member of International Electro-technical Commission (IEC) since 1923.

PKN also cooperates with ASTM International (American Society for Testing and Materials) (ASTM) International and the World Trade Organization’s WTO Agreement on Technical Barriers to Trade (WTO/TBT).  Poland has been a member of WTO since July 1, 1995, and was a member of GATT since October 18, 1967. All EU member states are WTO members, as is the EU in its own right. While the member states coordinate their position in Brussels and Geneva, the European Commission alone speaks for the EU and its members in almost all WTO affairs.  PKN runs the WTO/TBT National Information Point in order to apply the provisions of the Agreement on Technical Barriers to Trade with respect to information exchange concerning national standardization.

Useful Links:

http://ec.europa.eu/growth/single-market/european-standards/harmonised-standards/  

http://eur-lex.europa.eu/oj/direct-access.html?locale=en  )

Legal System and Judicial Independence

During the year the government continued to implement and introduce new measures related to the judiciary that drew strong criticism from some legal experts, NGOs, and international organizations.  Some observers have criticized in particular the introduction of an extraordinary appeal mechanism in the recently enacted Supreme Court Law, which they believe could affect economic interests, in that final judgments issued since 1997 could be challenged and overturned in whole or in part over the next three years, including some long-standing judgments on which economic actors have relied.  As of February 6, 2019, the Justice Minister has submitted five extraordinary complaints to the Chamber. The first complaints are to be reviewed on April 3.

In December 2017, the European Commission triggered a disciplinary proceeding under Article 7 of the Lisbon Treaty for what it considered “systemic threats” to the independence of the Polish courts.  The key concerns focused on the Polish government’s ability to remove up to 40 percent of the Supreme Court’s judges and the justice minister’s power to discipline judges. Separately, the Commission has sought redress through the European Court of Justice.

In April and May 2018, the Polish President signed into law amendments to the common courts law, the National Judiciary Council law, and the 2017 amendments to the Supreme Court law in response to the December 2017 European Commission rule of law recommendation and infringement procedure. In December 2017, the European Commission triggered a disciplinary proceeding under Article 7 of the Lisbon Treaty for what  the Commission considered determined to be “systemic threats” to the independence of the Polish courts. The key concerns focused on the Polish government’s ability to remove up to 40 percent of the Supreme Court’s judges and the justice minister’s power to discipline judges. Separately, the Commission has sought redress through the European Court of Justice. The Polish government has countered that its reforms do not infringe judicial independence and are intended to make court operations more efficient and transparent.

On July 2, 2018, the European Commission launched an infringement procedure against Poland two days before provisions of the revised Supreme Court law lowering the mandatory retirement age for judges went into effect (affecting 27 of the 74 Supreme Court justices at that time).  On August 2, 2018, the Polish Supreme Court ruled to suspend further implementation of the mandatory retirement age provisions of the amended Supreme Court law, and requested that the European Court of Justice rule on whether these provisions comply with EU law. The Polish President Andrzej Duda refused to acknowledge the Supreme Court’s suspension of the mandatory retirement provisions. On September 24, the European Commission referred the country’s amended Supreme Court law to the European Court of Justice (ECJ), stating “the Polish law on the Supreme Court is incompatible with EU law as it undermines the principle of judicial independence, including the “irremovability” of judges.”  The European Commission asked the ECJ to review the law and order interim measures to restore the Supreme Court to its composition before the revised law was implemented. In September and October, the president continued to implement the amended Supreme Court law by appointing judges to the newly created disciplinary and extraordinary appeals chambers and to positions vacated by voluntarily retired judges. Some judicial experts, NGOs, and international organizations saw the Polish President’s appointments as an attempt to preempt any adverse ruling by the ECJ. On October 19, the ECJ issued an interim injunction requiring the government to reinstate those judges who had been retired under the amended law.  On November 19, the government submitted legislation to automatically reappoint all justices retired under the Supreme Court law to fulfill the ECJ’s interim measures, and President Duda signed the legislation into law on December 17. By the end of 2018, the ECJ had not announced a date for considering the European Commission’s case against Poland’s Supreme Court law.

The Polish legal system is code-based and prosecutorial.  The main source of the country’s law is the Constitution of 1997.  The legal system is a mix of Continental civil law (Napoleonic) and remnants of communist legal theory.  Poland accepts the obligatory jurisdiction of the International Court of Justice (ICJ), but with reservations.  In civil and commercial matters first instance courts sit in single-judge panels, while courts handling appeals sit in three-judge panels.  District Courts (Sad Rejonowy) handle the majority of disputes in the first instance. When the value of a dispute exceeds a certain amount or the subject matter requires more expertise (such as in intellectual property right matters), Circuit Courts (Sad Okregowy) serve as first instance courts.  Circuit Courts also handle appeals from District Court verdicts. Courts of Appeal (Sad Apelacyjny) handle appeals from verdicts of Circuit Courts as well as generally supervise the courts in their region.

The Polish judicial system generally upholds the sanctity of contracts.  Foreign court judgements, under the Polish Civil Procedure Code and European Community regulation, can be recognized.  However, there are many foreign court judgments which Polish courts do not accept or accept partially. One of the reasons for delays in the recognition of judgments of foreign courts is an insufficient number of judges with specialized expertise.  Generally, foreign firms are wary of the slow and over-burdened Polish court system, preferring other means to defend their rights. Contracts involving foreign parties often include a clause specifying that disputes will be resolved in a third-country court or through offshore arbitration (More detail in Section 4, Dispute Settlement)

Laws and Regulations on Foreign Direct Investment

Foreign nationals can expect to obtain impartial proceedings in legal matters.  Polish is the official language and must be used in all legal proceedings. It is possible to obtain an interpreter.  The basic legal framework for establishing and operating companies in Poland, including companies with foreign investors, is found in the Commercial Companies Code.  The Code provides for establishment of joint-stock companies, limited liability companies, or partnerships (e.g., limited joint-stock partnerships, professional partnerships).  These corporate forms are available to foreign investors who come from an EU or European Free Trade Association (EFTA) member state or from a country that offers reciprocity to Polish enterprises, including the United States.

With few exceptions, foreign investors are guaranteed national treatment.  Companies that establish an EU subsidiary after May 1, 2004, and conduct, or plan to commence business operations in Poland must observe all EU regulations.  However, in some cases they may not be able to benefit from all privileges afforded to EU companies. Foreign investors without permanent residence and the right to work in Poland may be restricted from participating in day-to-day operations of a company.  Parties can freely determine the content of contracts within the limits of European contract law. All parties must agree on essential terms, including the price and the subject matter of the contract. Written agreements, although not always mandatory, may enable an investor to avoid future disputes.  Civil Code is the law applicable to contracts.

Useful websites (in English) to help navigate laws, rules, procedures and reporting requirements for foreign investors:

• Polish Investment and Trade Agency: https://www.paih.gov.pl/en  
• Polish Financial Supervision Authority (KNF): https://www.knf.gov.pl/en/  
• Office of Competition and Consumer Protection (UOKIK): https://uokik.gov.pl/legal_regulations.php  
• https://www.biznes.gov.pl/en/przedsiebiorcy/  

Competition and Anti-Trust Laws

Poland has a high level of nominal convergence with the EU on competition policy in accordance with Articles 101 and 102 of the Lisbon Treaty.  Poland’s Office of Competition and Consumer Protection (UOKiK) is well within EU norms for structure and functioning, with the exception that the Prime Minister both appoints and dismisses the head of UOKiK.  This is set to change to be in line with EU norms in 2019 with implementation of EU directive 2019/1.

All multinational companies must notify UOKiK of a proposed merger if any party to it has subsidiaries, distribution networks or permanent sales in Poland.  

Examples of competition reviews can be found at:

• https://www.uokik.gov.pl/news.php?news_id=13882   (wood industry cartel)
• https://www.uokik.gov.pl/news.php?news_id=14182   (UPC)
• https://www.uokik.gov.pl/news.php?news_id=14184   (Smithfield)
• https://decyzje.uokik.gov.pl/bp/dec_prez.nsf  

In 2015, the President of UOKiK was granted the power to impose significant  fines on people in management positions in companies that violate the prohibition of anticompetitive agreements.  The recently adopted amendment to the law governing UOKiK’s operation, which entered into force on December 15, 2018, provides for a similar power to impose significant fines on the management of companies in the case of violations of consumer rights.  The maximum fine that can be imposed on a manager may amount to PLN 2 million (approx. USD 526,000) and, in the case of managers in the financial sector, up to PLN 5 million (approx. USD 1.32 million).

Expropriation and Compensation

Article 21 of the Polish Constitution states: “expropriation is admissible only for public purposes and upon equitable compensation.”  The Law on Land Management and Expropriation of Real Estate states that property may be expropriated only in accordance with statutory provisions such as construction of public works, national security considerations, or other specified cases of public interest.  The government must pay full compensation at market value for expropriated property.  Acquiring land for road construction investment and recently also for the Central Airport and the Vistula Spit projects has been liberalized and simplified to accelerate property acquisition, particularly through a special legislative act.  Most acquisitions for road construction are resolved without problems.  However, there have been a few cases in which inability to reach agreement on remuneration has resulted in disputes.  Post is not aware of any recent expropriation actions against U.S. investors, companies, or representatives.  

Dispute Settlement

ICSID Convention and New York Convention

Poland is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington Convention).  Poland is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Poland is party to the following international agreements on dispute resolution, with the Ministry of Finance acting as the government’s representative: The 1923 Geneva Protocol on Arbitration Clauses; The 1961 Geneva European Convention on International Trade Arbitration; The 1972 Moscow Convention on Arbitration Resolution of Civil Law Disputes in Economic and Scientific Cooperation Claims under the U.S.-Poland Bilateral Investment Treaty (BIT) (with further amendments).

The UNCTAD database   lists four cases involving a U.S. party.  The majority of Poland’s investment disputes are with other EU member states.  According to the UNCTAD database, over the last decade, there have been some 19 known disputes with other foreign investors.

There is no distinction in law between domestic and international arbitration.  The law only distinguishes between foreign and domestic arbitral awards for the purpose of their recognition and enforcement.  The decisions of arbitration entities are not automatically enforceable in Poland, but must be confirmed and upheld in a Polish court.  Under Polish Civil Code, local courts accept and enforce the judgments of foreign courts, however, in practice; the acceptance of foreign court decisions varies.  Investors say the timely process of energy policy consolidation has made the legal, regulatory and investment environment for the energy sector uncertain in terms of how the Polish judicial system deals with questions and disputes around energy investments by foreign investors, and in foreign investor interactions with state owned or affiliated energy enterprises.

A Civil Procedures Code amendment in January 2016 implements internationally recognized arbitration standards, and creates an arbitration-friendly legal regime in Poland.  The amendment applies to arbitral proceedings initiated on or after January 1, 2016, and introduced one-instance proceedings to repeal an arbitration award (instead of two-instance proceedings).  This change encourages mediation and arbitration to solve commercial disputes and aims to strengthen expeditious procedure. The Courts of Appeal (instead of District Courts) handle complaints. In cases of foreign arbitral awards, the court of appeal is the only instance.  In certain cases it is possible to file a cassation (or extraordinary) appeal with the Supreme Court of the Republic of Poland. In the case of a domestic arbitral award, it will be possible to file an appeal to a different panel of the Court of Appeal.

International Commercial Arbitration and Foreign Courts

Poland does not have an arbitration law, but provisions in the Polish Code of Civil Procedures of 1964, as amended,  is based to a large extent on UNCITRAL Model Law. Under the Code of Civil Procedure, an arbitration agreement must be concluded in writing.  Commercial contracts between Polish and foreign companies often contain an arbitration clause. Arbitration tribunals operate through the Polish Chamber of Commerce, and other sector-specific organizations.  A permanent court of arbitration also functions at the business organization Confederation Lewiatan in Warsaw and at the General Counsel to the Republic of Poland (GCRP). GCRP took over arbitral cases from external counsels in 2017 and began representing state-owned commercial companies in litigation and arbitration matters for amounts in dispute over 5 million zloty (approx. USD 1.5 million).  The list of these entities includes major Polish state-owned enterprises in the airline, energy, banking, chemical, insurance, military, oil and rail industries as well as other entities such as museums, state-owned media, and universities.

In 2018, the Court of Arbitration at the Polish Chamber of Commerce in Warsaw, the biggest permanent arbitration court in Poland, adjusted its arbitration rules to the latest international standards, implementing new provisions on expedited procedure. In recent years, numerous efforts have been made to increase use of of arbitration in Poland.  Polish state courts generally respect the wide autonomy of arbitration courts and show little inclination to interfere with their decisions as to the merits of the case. The arbitral awards are likely to be set aside only in rare cases. As a rule, in post-arbitral proceedings, Polish courts do not address the merits of the cases decided by the arbitration  courts. An arbitration-friendly approach is also visible in other aspects, such as in the broad interpretation of arbitration clauses.

On April 3, 2018, the Polish Supreme Court introduced a new legal instrument into the Polish legal field: an extraordinary complaint.  Although this new instrument does not refer directly to arbitration proceedings, it may be applied to any procedures before Polish state courts, including post-arbitration proceedings (see Section 3 for more details).

Bankruptcy Regulations

Poland’s bankruptcy law has undergone significant change and modernization in recent years.  There is now a bankruptcy law and a separate, distinct restructuring law. Poland ranks 25 for ease of resolving insolvency in the World Bank’s Doing Business report 2019.  Bankruptcy in Poland is criminalized if a company’s management does not file a petition to declare bankruptcy when a company becomes illiquid for an extended period of time, or if a company ceases to pay its liabilities.  https://www.paih.gov.pl/polish_law/bankruptcy_law_and_restructuring_proceedings  

Poland’s Plan for Responsible Development identifies eight industries for development and incentives: aviation, defense, automotive parts manufacturing, ship building, information technology, chemical, furniture manufacturing and food processing.  The full text of the plan can be found at this link: https://www.miir.gov.pl/strony/strategia-na-rzecz-odpowiedzialnego-rozwoju/plan-na-rzecz-odpowiedzialnego-rozwoju/  .  Poland encourages energy sector development through its energy policy, outlined in the November 2018 published draft report “Polish Energy Policy to 2040.”   While the strategy has not yet been finalized, the government has generally followed the directions of development in the policy. The draft policy can be found at:   http://www.me.gov.pl/Energetyka/Polityka+energetyczna  . The draft policy  foresees a primary role for fossil fuels until 2040 as well as  strong growth in electricity production. The construction of the first nuclear plant is planned by 2033, until then coal is to remain the main fuel for electricity generation.  The draft policy foresees a large potential for the development of offshore wind power generation, but the policy remains skeptical of onshore wind. . Poland plans to adopt a  National Energy and Climate Plan by the end of 2019, in line with the EU Regulation on the Governance of the Energy and Climate Action.

Investment Incentives

A company investing in Poland, either foreign or domestic, may receive assistance from the Polish government.  Foreign investors have the potential to access certain incentives such as: income tax and real estate tax exemptions; investment grants of up to 50 percent of investment costs (70 percent for small and medium-sized enterprises); grants for research and development; grants for other activities such as environmental protection, training, logistics, or use of renewable energy sources.

Large priority sector investments may qualify for the “Program for Supporting Investment of Considerable Importance for the Polish Economy for 2011-2020” which provides grants to large investments that create jobs in sectors including automotive, electronics, aviation, biotechnology, R&D, agriculture and food processing, and services (finance, information and communication, professional business services). Companies can learn more at: https://www.miir.gov.pl/strony/zadania/wsparcie-przedsiebiorczosci/program-wspierania-inwestycji-o-istotnym-znaczeniu-dla-gospodarki-polskiej-na-lata-2011-2023/  

The Polish Investment Zone (PSI), the new system of tax incentives for investors replacing the previous system of special economic zones (SEZ), was launched September 5, 2018.  Under the new law on the “Polish Investment Zone,” companies can apply for a corporate income tax (CIT) exemption for a new investment to be placed anywhere in Poland. The CIT exemption is calculated based on the value of the investment multiplied by the percentage of the public aid amount allocated for a given region based on its level of development (set percentage).  The CIT exemption is for 10-15 years, depending on the location of the investment. Special treatment is available for investment in new business services and research and development. A point system determines eligibility for the incentives.

The deadline for utilizing available tax credits from the previous SEZ system is the end of 2026 (previously 2020).  The new regulations also contain important changes for entities already operating in SEZs, even if they do not plan new investment projects.  This includes the possibility of losing the right to tax incentives in the event of fraud or tax evasion. Investors should consider carefully the potential benefits of the CIT exemption in assessing new investments or expansion of existing investments in Poland.

More information on government financial support:

• https://www.paih.gov.pl/why_poland/investment_incentives  
• http://www.mpit.gov.pl/strony/zadania/wsparcie-przedsiebiorczosci/o-wsparciu-przedsiebiorczosci/  
• https://www.miir.gov.pl/strony/zadania/  

The Polish government is seeking to increase Poland’s economic competitiveness by shifting toward a knowledge-based economy.  The government has targeted public and private sector investment in research and development (R&D) to increase to 1.7 percent of GDP by 2020.  During 2014 – 20 Poland will receive approximately USD 88.85 billion in EU Structural and Cohesion funds dedicated to R&D. Businesses may also take advantage of the EU primary research funding program, Horizon 2020.

More information:

• Ministry of Investment and Economic Development:
  https://www.miir.gov.pl/strony/zadania/fundusze-europejskie/  
• Ministry of Entrepreneurship and Technology:
  https://www.mpit.gov.pl/strony/zadania/reindustrializacja-gospodarki/  
• Ministry of Science and Higher Education:
  http://www.nauka.gov.pl/horyzont-2020/  

The Second Law on Innovation (commonly referred to as the “Big Law on Innovation”) entered into force on January 1, 2018.  Some of its provisions include:

1. Tax credits for R&D raising the level of tax benefits up to 100 percent for both personal costs and for SMEs and large companies (raised from 50 percent in 2017),
2. The extension of the catalog of eligible costs of non-durable materials,
3. Clarification of labor costs and expert opinions as well as consulting services,
4. Extension of the partial exemption from double taxation of limited partnerships and joint-stock limited companies (for the period of 2016-2023) This is an important incentive for potential investors because it gives startups better access to financing from venture capital funds,
5. Enabling the use of concessions by companies also benefiting from incentives in Special Economic Zones,
6. A tax credit of 150 percent for enterprises with Research and Development Center (RDC) status.  The enterprises with this status can also benefit from additional eligible deductions (depreciation of buildings, places and expert reports made by entities other than research units – up to 10 percent of revenues).

As of January 1, 2019, the Innovation Box or IP Box reduces the tax rate applicable to an income derived from IP rights to 5 percent.  Taxpayers applying the IP Box shall be entitled to benefit from the tax preference until a given right expires (in case of a patented invention – 20 years).  In order to benefit from the program, taxpayers will be obliged to separately account for the relevant income. Foreign investors may take advantage of this benefit as long as the relevant IP is registered in Poland.  

The Polish government does not issue sovereign guarantees for FDI projects.  Co-financing may be possible for partnering on large FDI projects, such as the planned central airport project or a possible nuclear project.  For example, the state-owned Polish Development Fund (along with Singaporean and Australian partners) plans to purchase 30 percent of the soon-to-be-expanded Gdansk Deepwater Container Terminal.

Foreign Trade Zones/Free Ports/Trade Facilitation

Foreign-owned firms have the same opportunities as Polish firms to benefit from foreign trade zones (FTZs), free ports, and special economic zones.  The 2004 Customs Law regulates operation of FTZs in Poland. The Minister of Finance and the Minister of Investment and Development establish duty-free zones.  The Ministers designate the zone’s managing authorities, usually provincial governors who issue operating permits to interested companies for a given zone.

Most activity in FTZs involves storage, packaging, and repackaging.  As of March 2018, there were seven FTZs: Gliwice, near Poland’s southern border; Terespol, near Poland’s border with Belarus; Mszczonow, near Warsaw; Warsaw’s Frederic Chopin International Airport; Szczecin; Swinoujscie; and Gdansk.  Duty-free shops are available only for travelers to non-EU countries.

There are fourteen bonded warehouses:  Bydgoszcz-Biale Blota; Krakow-Balice; Wroclaw-Strachowice; Katowice-Pyrzowice; Gdansk-Trojmiasto; Lodz; Braniewo; Poznan-Lawica; Rzeszow-Jasionka, Warszawa-Modlin, Lublin, Szczecin-Goleniow; Radom, Olsztyn-Mazury. Commercial companies can operate bonded warehouses.  Customs and storage facilities must operate pursuant to custom authorities’ permission. Only legal persons established in the EU can receive authorization to operate a customs warehouse.

Performance and Data Localization Requirements

Poland has no policy of “forced localization” designed to force foreign investors to use domestic content in goods or technology.  Investment incentives apply equally to foreign and domestic firms. Over 40 percent of firms in Special Economic Zones are Polish. There is little data on localization requirements in Poland and there are no requirements for foreign information technology (IT) providers to turn over source code and/or provide access to surveillance (backdoors into hardware and software or turn over keys for encryption).  Exceptions exist in sectors where data are important for national security such as critical telecommunications infrastructure and in gambling. The cross-border transfer rules in Poland are reasonable and follow international best practices, although some companies have criticized registration requirements as cumbersome. In Poland, the Telecommunications Law (Act of 16 July 2004 – (unified text, Journal of Laws 2018, item 1954) includes data retention provisions.  The data retention period is 12 months.

In the telecommunication sector, the Office of Electronic Communication (UKE) ensures telecommunication operators fulfill their obligations.  In radio and television, National Broadcasting Council (KRRiT) acts as the regulator. Polish regulations protect an individual’s personal data that are collected in Poland regardless of where the data are physically stored.  The Personal Data Protection Office (UODO) enforces personal data regulation.

Post is not aware of excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees, though investors regularly note long processing times due to understaffing at regional employment offices.  Generally, Poland does not mandate local employment, but there are a few regulations that place de facto restrictions e.g. a certain number of board members of insurance companies must speak Polish.

Polish law limits non-EU citizens to 49 percent ownership of a company’s capital shares in the air transport, radio and television broadcasting, sectors as well as airport and seaport operations.  There are also legal limits on foreign ownership of farm and forest lands as outlined in Section 2 of this report under Limits on Foreign Control and Right to Private Ownership and Establishment.  Pursuant to the Broadcasting Law, a TV broadcasting company may only receive a license if the voting share of its foreign owners does not exceed 49 percent and if they hold permanent residence in Poland.  In the insurance sector, at least two members of management boards, including the chair, must speak Polish.

Real Property

Poland recognizes and enforces secured interests in property, movable and real.  The concept of a mortgage exists in Poland, and there is a recognized system of recording such secured interests. There are two types of publicly available land registers in Poland: the land and mortgage register (ksiegi wieczyste), the purpose of which is to register titles to land and encumbrances thereon, and the land and buildings register (ewidencja gruntow i budynkow), whose function is more technical as it contains information concerning physical features of the land, class of land and its use.  Generally, real estate in Poland is registered and legal title can be identified on the basis of entries in the land and mortgage registers which are maintained by relevant district courts.  Each register is accessible to the public and excerpts are available on application, subject to a nominal fee. The registers are available online.

Poland has a non-discriminatory legal system accessible to foreign investors that protects and facilitates acquisition and disposition of all property rights, including land, buildings, and mortgages.  However, foreigners (both individuals and entities) must obtain a permit to acquire property (See Section 1 Limits on Foreign Control and Right to Private Ownership and Establishment). Many investors, foreign and domestic, complain the judicial system is slow in adjudicating property rights cases.  Under the Polish Civil Code, a contract to buy real property must be made in the form of a notary deed. Foreign companies and individuals may lease real property in Poland without having to obtain a permit.

Widespread nationalization of property during and after World War II has complicated the ability to establish clear title to land in Poland, especially in major municipalities.  While the Polish government has an administrative system for reviewing claims for the restitution of communal property, former individual property owners must file and pursue claims in the Polish court system in order to receive restitution.  There is no general statute of limitations regarding the filing or litigation of private property restitution claims, but there are exceptions for specific cases. For example, in cases involving the communist-era nationalization of Warsaw under the Bierut Decree, there were claims deadlines that have now passed, and under current law, those who did not meet the deadlines would no longer be able to make a claim for either restitution or compensation.  During 2017, Warsaw city authorities began implementing a 2015 law that critics stated might extinguish potential claims by private individuals of public properties seized during the Second World War or the communist era if no one comes forward to pursue a restitution claim within six months after publication of the affected property. Any potential claimants who come forward will have an additional three months to establish their claim after the initial six-month period.  The city began publishing lists in February 2017, and is expected to continue to publish similar property cases going forward.  The city’s website contains further information on these cases and the process to pursue a claim: http://bip.warszawa.pl/Menu_podmiotowe/biura_urzedu/SD/ogloszenia/default.htm?page=1  . 

It is sometimes difficult to establish clear title to properties.  There are no comprehensive estimates of land without clear title in Poland.

On October 11, 2017, the Ministry of Justice announced comprehensive private property restitution draft legislation that would block any physical return of former properties, provide compensation of 20-25 percent of the property’s value at the time of taking in cash or government bonds, and set a one-year claims filing period.  The legislation drew intense media coverage and public scrutiny, and critics argued the legislation would exclude potential foreign claimants, many of whom are Holocaust survivors or their heirs.  As of March 2019, the Justice Ministry had not submitted the draft legislation to the Council of Ministers (cabinet) for review and approval. 

The agricultural land law bans sale of Agricultural Property Agency (APA) (state-owned) farmland for five years.  The impact of the five-year ban is not significant, as at present more than 90 percent of all agricultural land is already privately owned.  State-owned farm land will be available only under long-term lease for farmers who want to enlarge their farms, to a maximum of 300 hectares (new and old land combined size).  Foreigners can (and do) lease agricultural land. The agricultural land law also imposed restrictions on the sale of privately owned farm land, and gives the APA preemptive right to purchase in case of land sales by a private owner.  Official statistics on the impact of the new law on prices and turnover of land is not available. Recently, the government announced plans to loosen these regulations. The Law on Forest Land similarly prevents Polish and foreign investors from purchasing privately-held forests and gives state-owned forestry agency (Lasy Panstwowe) preemptive right to buy privately-held forests, though the government may be considering relaxing some restrictions.

Intellectual Property Rights

The Polish intellectual property rights (IPR) law is stricter than European Commission directives require.  Enforcement is good and improving across all IP types.  Physical piracy (e.g., optical discs) is not a problem in Poland.  However, online piracy continues to be widespread, despite progress in enforcement, and a popular cyberlocker platform in Poland is listed on the 2018 Notorious Markets List.  Poland does not appear in the USTR’s Special 301 Report.

Polish law requires a rights holder to start the prosecution process.  In Poland, authors’ and creators’ organizations and associations track violations and present motions to prosecutors.  Rights holders express concern that penalties for digital IPR infringement are not high enough to deter violators.  In an effort to address these concerns, the Polish government established a national IPR strategy for 2015-17. 

A new act passed on June 15, 2018, which implements EU Directive 2014/26/EU on the collective management of copyright and related rights and the granting of multi-territorial licenses regarding rights to music for online use on the internal market.  The purpose of the bill is comprehensive regulation of the activities of collective management organizations in Poland. It will replace the existing provisions in this area, ex. chapters 12 and 12 (1) of the Copyright and Related Rights Act. Additional harmonization with existing regulations, such as the Act on the Protection of Databases and the Act on Copyright and Related Rights, is to be carried out in 2019.  On March 11, 2019, the Polish President signed amendments to the Act on Industrial Property Law (“IPL”). Many adjustments resulted from the implementation of EU Trademark Directive 2015/2436. The amendments entered into force on March 12, 2019. IPL introduced, inter alia, the abandonment of the graphical representation requirement, introduction of a new mechanism for trademark protection renewals, extended licensee’s rights, as well as remedies against counterfeit goods in transit and against infringing preparatory acts.  The changes provide new tools to fight against infringements of trademark protection rights.

New tax incentives for intellectual property known collectively as “IP Box” or “Innovation Box” were included in the November 2018 tax amendment.  See Section 4 Investment Incentives.  

Polish customs tracks seizures of counterfeit goods but failed to provide this information for the reporting period.  

General information on copyright in Poland: http://www.copyright.gov.pl/pages/main-page/copyright-in-poland/general-information.php  

Polish Patent Office: http://www.uprp.pl/o-urzedzie/Lead03,14,56,1,index,pl,text/  

Ministry of Digitalization: https://www.gov.pl/cyfryzacja/co-robimy  

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/details.jsp?country_code=PL  

Policies Towards Foreign Direct Investment

Romania actively seeks foreign direct investment, and offers a market of around 19 million consumers, a relatively well-educated workforce at competitive wages, a strategic location, and abundant natural resources.  To date, favored areas for U.S. investment include IT and telecommunications, energy, services, manufacturing – especially in the automotive sector, consumer products, and banking. InvestRomania is the government’s lead agency for promoting and facilitating foreign investment in Romania.  InvestRomania offers assistance and advisory services free of charge to foreign investors and international companies for project implementation and opening new offices or manufacturing facilities.

Romania’s accession to the European Union (EU) on January 1, 2007 has helped solidify institutional reform.  Conversely, legislative and regulatory unpredictability, as well as weak public administration, continue to negatively impact the investment climate.  As in any foreign country, prospective U.S. investors should exercise careful due diligence, including consultation with competent legal counsel, when considering an investment in Romania.  Allegedly, in past cases, governments in Romania have allowed political interests or budgetary imperatives to supersede accepted business practices in harmful ways to investor interests.

The energy sector has suffered from recent changes.  In 2018, offshore companies benefited from a streamlined permitting process, but were hit with a windfall profit tax that previously applied only to onshore production.  Additionally, in February 2018 the reference price for natural gas royalties was changed from the Romanian market price to the Vienna Central European Gas Hub (CEGH) price, resulting in a significant increase in royalties.  Energy producers have expressed concern about additional regulatory requirements in EO114, which caps the price of wholesale natural gas, among other modifications. Business associations, including the American Chamber of Commerce in Romania (AmCham), the Foreign Investor Council (FIC), and the Coalition for Romania’s Development, have criticized EO114’s new taxes and how it reverses natural gas market liberalization.

Investments involving public authorities can be more complicated than investments or joint ventures with private Romanian companies.  Some allegations cite that large deals involving the government – particularly public-private partnerships and privatizations of key SOEs – can be stymied by vested political and economic interests, or delayed due to a lack of coordination between government ministries.

In May 2018, the Public-Private Partnership (PPP) Law was revised through emergency ordinance (EO) and responsibility for PPPs of national interest was shifted to the National Strategy and Prognosis Commission.  PPPs of regional or local interest are governed by local authorities. The initiative of implementing a project through a PPP lies exclusively with the public partner. The contribution of the public partner can be in cash, provided the public contribution complies with state aid rules and with public finance legislation.  The public partner can cover costs for stages prior to project implementation, including feasibility studies, and can assume payment obligations or provide guarantees to the project company. According to the PPP law, the public partner initiates the PPP project and awards it according to public procurement rules. Implementation of the PPP legislation will be of considerable interest to investors over the next few years.  The EO is subject to parliamentary review.

In April 2018, the Foreign Investors Council (FIC) issued an open letter to the government and Parliament underscoring business climate uncertainty from the government’s failure to finalize EO 79.  In 2017, EO 79 shifted the burden of mandatory payroll deductions for pensions, healthcare, and income taxes from employers to employees. Parliament has yet to confirm or modify the law, leaving employers uncertain.  To avoid reductions in employee net pay, many companies voluntarily increased salaries to offset employee losses. Other companies, wary of further possible changes, offered monthly bonuses rather than formally amending contracts.

As an example of changes to the taxation regime and ongoing systemic tax disputes between the government and foreign investors, the Ministry of Health (MOH) announced February 2018 an increase in “the clawback tax” for Q4 2017, from 19.42 percent to 23.45 percent.  Pharmaceutical companies pay the clawback tax on all sales of drugs reimbursed through the public health system. The MOH calculates the tax to recover the cost for reimbursed drug sales in the previous quarter that exceed its budget. The pharmaceutical industry, both generic and innovative, immediately decried the tax increase.  Industry sees itself as financing the growth in drug consumption in Romania while the MOH’s budget has remained flat since 2011. The International Innovative Pharmaceutical Producers Association (ARPIM) issued a press release noting that from 2013-2017, pharmaceuticals paid USD 1.75 billion in clawback taxes, exceeding one year of the MOH’s annual budget for drugs in the public health system.  Since implementation of the clawback tax in 2009, the pharmaceutical industry has suggested numerous solutions to address the lack of predictability and transparency in the National Health Insurance House’s computations, but the GOR has shown no interest in increasing government spending for medicine to reduce the tax burden on private companies.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities are free to establish and own business enterprises, and to engage in all forms of remunerative activity.  Romanian legislation and regulation provide national treatment for foreign investors, guarantee free access to domestic markets, and allow foreign investors to participate in privatizations.  There is no limit on foreign participation in commercial enterprises. Foreign investors are entitled to establish wholly foreign-owned enterprises in Romania (although joint ventures are more typical), and to convert and repatriate 100 percent of after-tax profits.

Romania has taken established legal parameters to resolve contract disputes expeditiously.  Mergers and acquisitions are subject to review by the Competition Council. According to the Competition Law, the Competition Council notifies Romania’s Supreme Defense Council regarding any merger or acquisition of stocks or assets which could impact national security.  The Supreme Defense Council then reviews these referred mergers and acquisitions for potential threats to national security. To date, the Supreme Defense Council has not blocked any merger or acquisition. The Romanian capital account was fully liberalized in 2006, prior to gaining EU membership in 2007.  Foreign firms are allowed to participate in the management and administration of the investment, as well as to assign their contractual obligations and rights to other Romanian or foreign investors.

Other Investment Policy Reviews

Romania has not undergone any third-party investment policy reviews through multilateral organizations in over ten years.  The Heritage Foundation’s 2019 Economic Freedom Report indicates that secured interests in private property are recognized.  The Report also notes declines in judicial effectiveness and investment freedom, which outweigh improvements in property rights, the tax burden, and government spending.  The Report identifies labor shortages and political instability as the greatest economic risks.

According to the World Bank, economic growth rates have increased, but the benefits have not been felt by all Romanians.  Progress on implementing reforms and improving the business environment has been uneven. The World Bank’s 2019 Doing Business Report and Doing Business in the European Union Report indicates that Romania ranks below the EU average in the ease of starting a business, dealing with construction permits and setting up utility services.  Starting a business was made more cumbersome by introducing fiscal risk assessment criteria for value-added tax applications, thereby increasing the time required to register as a value-added taxpayer. Numerous international bodies including the European Commission, the Group of States Against Corruption, the Venice Commission, and Transparency International have expressed concern about what has been seen as an attempt to roll-back anti-corruption efforts and called on the Romanian government to focus on strengthening anti-corruption efforts, including introducing stronger corporate ethics standards and implementing existing anti-corruption legislation.  No substantive progress has been made in these areas.

Business Facilitation

The National Trade Registry has an online service available in Romanian at https://portal.onrc.ro/ONRCPortalWeb/ONRCPortal.portal  .  Romania has a foreign trade department within the Ministry of Business Climate, Trade, and Entrepreneurship and an investment promotion department in the Ministry of Economy.  InvestRomania is the government’s lead agency for promoting and facilitating foreign investment in Romania. InvestRomania offers assistance and advisory services free of charge to foreign investors and international companies for project implementation and opening new offices or manufacturing facilities.  More information is available at http://www.investromania.gov.ro/web/  .

According to the World Bank, it takes 6 procedures and 35 days to establish a foreign-owned limited liability company (LLC) in Romania, compared to the regional average for Europe and Central Asia of 5 procedures and 13 days.  In addition to the procedures required of a domestic company, a foreign parent company establishing a subsidiary in Romania must authenticate and translate its documents abroad. Foreign companies do not need to seek an investment approval.  The Trade Registry judge must hold a public hearing on the company’s application for registration within 5 days of submission of the required documentation. The registration documents can be submitted, and the status of the registration request monitored, online.

Companies in Romania are free to open and maintain bank accounts in any foreign currency, although, in practice, Romanian banks offer services only in certain hard currencies including: Euros, U.S. dollars, Swiss francs and Romanian Leu.  The minimum capital requirement for domestic and foreign LLCs is RON 200 (USD 47). Areas for improvement include making all registration documents available to download online in English. Currently only some are available online, and they are only in Romanian.

Romania defines microenterprises as having less than nine employees, small enterprises as having less than 50 employees, and medium sized enterprises as having less than 250 employees.  Regardless of ownership, microenterprises and SMEs enjoy “de minimis” and other state aid schemes from EU funds or from the state budget. Business facilitation mechanisms provide for equitable treatment of women in the economy.  According to the World Bank Doing Business Report, women are able to register a LLC with the same amount of time, cost, and number of procedures as men.

Outward Investment

There are no restrictions on outward investment.  There are no incentives for outward investment.

Transparency of the Regulatory System

Romanian law requires consultations with stakeholders, including the private sector, and a 30-day comment period on legislation or regulation affecting the business environment (the “Sunshine Law”).  Some draft pieces of legislation pending with the government are available in Romanian at http://www.sgg.ro/acte-normative/  .  Proposed items for cabinet meetings are not always publicized in advance or in full.  As a general rule, the agenda of cabinet meetings should include links to the draft pieces of legislation (government decisions, ordinances, emergency ordinances, or memoranda) slated for government decision.  Legislation pending with the parliament is available at http://www.cdep.ro/pls/proiecte/upl_pck.home for the Chamber of Deputies and at https://www.senat.ro/legis/lista.aspx   for the Senate.  The Chamber of Deputies is the decision-making body for economic legislation.  Regulatory impact assessments are often missing, and Romanian authorities do not publish the comments they receive as part of the public consultation process.

Foreign investors point to the excessive time required to secure necessary zoning permits, environmental approvals, property titles, licenses, and utility hook-ups.  In January 2018, the Public Consultation Ministry was downgraded to a directorate within the Ministry of Labor and Social Justice. Except for occasional mentions in the Single Registry of Transparency of Interests (RUTI), the Ministry has had no recorded activity.  The ruling coalition has now installed its third Prime Minister in fourteen months, which has resulted in frequent changes to government leadership, including cabinet members, mid-level officials and associated staff, and changes to some agencies’ jurisdictions. This lack of both personnel and institutional stability has raised concern among the business community.

Public comments received by regulators are not made public.  The Sunshine Law (Law 52/2003 on Transparency in Public Administration) requires public authorities to allow the public to comment on draft legislation and sets the general timeframe for stakeholders to provide input.  However, there is no penalty or sanction if the public authority does not follow the Sunshine Law’s public consultation timelines. There have been cases when the public authorities have set deadlines much shorter than the standards set forth in the law.  There were no transparency enforcement regulatory reforms announced or implemented in 2018.

International Regulatory Considerations

As an EU member state, Romanian legislation is largely driven by the EU acquis, the body of EU legislation.  European Commission (EC) regulations are directly applicable, while implementation of directives at the national level is done through the national legislation.  Romania’s regulatory system incorporates European standards. Romania has been a World Trade Organization (WTO) member since January 1995 and a member of the General Agreement on Tariffs and Trade (GATT) since November 1971.  Romania is a member of the EU since 2007. Technical regulation notifications submitted by the EU are valid for all Member States. The EU signed the Trade Facilitation Agreement (TFA) in October 2015. Romania has implemented all TFA requirements.

Legal System and Judicial Independence

Romania recognizes property and contractual rights, but enforcement through the judicial process can be lengthy, costly, and difficult.  Foreign companies engaged in trade or investment in Romania often express concern about the Romanian courts’ lack of expertise in commercial issues.  There are no specialized commercial courts, but there are specialized civil courts. Judges generally have limited experience in the functioning of a market economy, international business methods, intellectual property rights, or the application of Romanian commercial and competition laws.  As stipulated in the Constitution, the judicial system is independent from the executive branch and generally considered procedurally competent, fair, and reliable. Affected parties can challenge regulations and enforcement actions in court. Such challenges are adjudicated in the national court system.

Inconsistency and a lack of predictability in the jurisprudence of the courts or in the interpretation of the laws remains a major concern for foreign and domestic investors and for wider society.  Even when court judgments are favorable, enforcement of judgments is inconsistent and can lead to lengthy appeals. Failure to implement court orders or cases where the public administration unjustifiably challenges court decisions constitute obstacles to the binding nature of court decisions.

Mediation as a tool to resolve disputes is gradually becoming more common in Romania, and a certifying body, the Mediation Council, sets standards and practices.  The professional association, the Union of Mediation Centers in Romania, is the umbrella organization for mediators throughout the county. Court-sanctioned and private mediation is available at recognized mediation centers in every county seat.

There is no legal mechanism for court-ordered mediation in Romania, but judges can encourage litigants to use mediation to resolve their cases.  If litigants opt for mediation, they must present their proposed resolution to the judge upon completion of the mediation process. The judge must then approve the agreement.

Laws and Regulations on Foreign Direct Investment

Romania became a member of the European Union on January 1, 2007.  The country has worked assiduously to create an EU-compatible legal framework consistent with a market economy and investment promotion.  Nevertheless, implementation of these laws and regulations is often reported to be delayed or inconsistent, and lack of legislative predictability undermines Romania’s appeal as an investment destination.

Romania’s legal framework for foreign investment is encompassed within a substantial body of law largely enacted in the late 1990s.  It is subject to frequent revision. Major changes to the Civil Code were enacted in October 2011 including replacing the Commercial Code, consolidating provisions applicable to companies and contracts into a single piece of legislation, and harmonizing Romanian legislation with international practices.  The Civil Procedure Code, which provides detailed procedural guidance for implementing the new Civil Code, came into force in February 2013.

In 2010, Romania passed a judicial reform law with the objective of improving the speed and efficiency of judicial processes, including provisions to reduce delays between hearings.  The Mediation Law, revised in October 2012, provides alternative dispute resolution options. The new Criminal Code, that includes provisions applicable to the economic felonies, came into effect in February 2014.  In 2018, Parliamentary leaders announced plans to amend both. The 2003 Fiscal Code and Fiscal Procedure Code, amended several times since their passage, was revised in January 2019. Fiscal legislation is revised frequently, according to some, oftentimes without due consideration of data-driven assessment of the economic impact.

Given the state of flux of legal developments, investors are strongly encouraged to engage local counsel to navigate the various laws, decrees, and regulations, as several pieces of investor-relevant legislation have been challenged in both local courts and the Constitutional Court.  There have been few hostile take-over attempts reported in Romania. Romanian law has not focused on limiting potential mergers or acquisitions. There are no Romanian laws prohibiting or restricting private firms’ free association with foreign investors.

Competition and Anti-Trust Laws

Romania has extensively revised its competition legislation, bringing it closer to the EU Acquis Communautaire and best corporate practices.  A new law on unfair competition came into effect in August 2014. Companies with a market share below 40 percent are no longer considered to have a dominant market position, thus avoiding a full investigation by the Romanian Competition Council (RCC) of new agreements, saving considerable time and money for all parties involved.  Resale price maintenance and market and client sharing are still prohibited, regardless of the size of either party’s market share. The authorization fee for mergers or takeovers ranges between EUR 10,000 (USD 11,230) and EUR 50,000 (USD 56,150). The Fiscal Procedure Code requires companies that challenge an RCC ruling to front a deposit while awaiting a court decision on the merits of the complaint.

Romania’s Public Procurement Directives outline general procurements of goods and equipment, utilities procurement (“sectorial procurement”), works and services concessions, and remedies and appeals.  An extensive body of secondary and tertiary legislation accompanies the four laws. Separate legislation governs defense and security procurements. In a positive move, this new body of legislation moved away from the previous approach of using lowest price as the only public procurement selection criterion.  Under the new laws, an authority can use price, cost, quality-price ratio, or quality-cost ratio. The new laws also allow bidders to provide a simple form (the European Single Procurement Document) in order to participate in the award procedures. Only the winner must later submit full documentation.

The public procurement laws stipulate that challenges regarding procedure or an award can be filed with the National Complaint Council (NCC) or the courts.  Disputes regarding execution, amendment, or termination of public procurement contracts can be subject to arbitration. The new laws also stipulate that a bidder has to notify the contracting authority before challenging either the award or procedure.  Not fulfilling this notification requirement results in the NCC or court rejecting the challenge.

The March 2019 EU Country Report for Romania notes that the share of negotiated public procurement procedures without prior publication was among the highest in the EU: 21 percent in 2018, up from 17 percent in 2017.  Approximately 34 percent of contracts awarded by public institutions in 2018 were single bids, down from 40 percent in 2017. This raised concerns among businesses about corruption in public procurement, which reduces competition and decreases efficiency of public spending.  The ongoing transition to a new e-procurement system, have laid the foundation for more transparency in the procurement process. EO 46 passed in May 2018 and Government Decision (GD) 502 passed in July 2018 created the legal framework for a National Centralized Procurement Office.  The European Semester report recommends that, before expanding centralized procurement to more complex products, Romania should solidify experience in the procurement of simple products subject to demand aggregation.

Expropriation and Compensation

The law on direct investment includes a guarantee against nationalization and expropriation or other equivalent actions.  The law allows investors to select the court or arbitration body of their choice to settle disputes. Several cases involving investment property nationalized during the Communist era remain unresolved.  In doing due diligence, prospective investors should ensure that a thorough title search is done to ensure there are no pending restitution claims against the land or assets.

Dispute Settlement

ICSID Convention and New York Convention

Romania is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  Romania is also a party to the European Convention on International Commercial Arbitration concluded in Geneva in 1961 and is a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID).  Romania’s 1975 Decree 62 provides for legal enforcement of awards under the ICSID Convention.

Investor-State Dispute Settlement

Romania is a signatory to the New York Convention, the European Convention on International Commercial Arbitration (Geneva), and the Settlement of Investment Disputes between States and Nationals of Other States (ICSID).  There have been 15 ICSID cases in total against Romania. Three of them involved U.S. investors. The arbitral tribunal ruled in favor of Romania in two of them. Five investor-state arbitration cases against Romania are currently pending with the International Center for Settlement of Investment Disputes (ICSID).  Local courts recognize and enforce foreign arbitral awards against the government. There is no history of extrajudicial action against investors.

International Commercial Arbitration and Foreign Courts

Romania increasingly recognizes the importance of investor-state dispute settlement and has provided assurances that the rule of law will be enforced.  Many agreements involving international companies and Romanian counterparts provide for the resolution of disputes through third-party arbitration. Local courts recognize and enforce foreign arbitral awards and judgments of foreign courts.  There are no statistics on the percentage of cases in which Romanian courts ruled against state-owned enterprises (SOEs).

Romanian law and practice recognize applications to other internationally-known arbitration institutions, such as the International Chamber of Commerce (ICC) Paris Court of Arbitration and the United Nations Commission on International Trade Law (UNCITRAL).  Romania has an International Commerce Arbitration Court administered by the Chamber of Commerce and Industry of Romania. Additionally, in November 2016, the American Chamber of Commerce in Romania (AmCham Romania) established the Bucharest International Arbitration Court (BIAC).  This new arbitration center focuses on business and commercial disputes involving foreign investors and multinationals active in Romania.

According to the World Bank 2019 Doing Business report, it takes on average 512 days to enforce a contract, from the moment the plaintiff files the lawsuit until actual payment.  Associated costs can total around 26 percent of the claim. Arbitration awards are enforceable through Romanian courts under circumstances similar to those in other European countries, although legal proceedings can be protracted.

Bankruptcy Regulations

Romania’s bankruptcy law contains provisions for liquidation and reorganization that are generally consistent with Western legal standards.  These laws usually emphasize enterprise restructuring and job preservation. To mitigate the time and financial cost of bankruptcies, Romanian legislation provides for administrative liquidation as an alternative to bankruptcy.  Nonetheless, investors and creditors have complained that liquidators sometimes lack the incentive to expedite liquidation proceedings and that, in some cases, their decisions have served vested outside interests. Both state-owned and private companies tend to opt for judicial reorganization to avoid bankruptcy.

In December 2009, the debt settlement mechanism Company Voluntary Agreements (CVAs) was introduced as a means for creditors and debtors to establish partial debt service schedules without resorting to bankruptcy proceedings.  The global economic crisis did, however, prompt Romania to shorten insolvency proceedings in 2011.

According to the World Bank’s Doing Business report, resolving insolvency in Romania takes 3.3 years on average, compared to 2.3 years in Europe and Central Asia, and costs 10.5 percent of the debtor’s estate, with the most likely outcome being a piecemeal sale of the company.  The average recovery rate is 35.8 cents on the dollar. Globally, Romania ranks 52nd of 190 economies on the ease of resolving insolvency.

Investment Incentives

Currently, customs and tax incentives are available to investors in six free trade zones.  State aid is available for investments in free trade zones under EU regional development assistance rules.  In 2018, the government amended the state aid program for large investments instituted under GD 807/2014, lowering the investment threshold to EUR 1 million and moving away from the calls for applications approach.  Investors can apply at any time, and applications are reviewed on a first-come first-served basis. As of December 31, 2018, of the 62 applications submitted in 2018, 19 were approved, 30 had been rejected, and the rest were under review.  Large companies may receive aid of up to 50 percent of their eligible costs. The ceiling is 35 percent in the counties of Ilfov, Timis, Arad, Caras Severin, and Hunedoara while in Bucharest the ceiling is 10 percent. The ceiling for small and medium-sized enterprises (SMEs) is 10 percent higher than permissible aid for large companies, and for the smallest category of companies, the ceiling is 20 percentage points higher.  Prospective investors are advised to thoroughly investigate and verify the status of state incentives.

In 2007, Romania adopted EU regulations on regional investment aid, and instituted state aid schemes for large investments, SMEs, and job creation.  Both Romanian and EU state aid regulations aim to limit state aid in any form, such as direct state subsidies, debt rescheduling schemes, debt for equity swaps, or discounted land prices.  The EC must be notified of, and approve, GOR state aid that exceeds the pre-approved monetary threshold for the corresponding category of aid. To benefit from the remaining state aid schemes, the applicant must secure financing that is separate from any public support for at least 25 percent of the eligible costs, either through his own resources or through external financing, and must document this financing in strict accordance with Ministry of Finance guidelines.  Amendments made in 2010 to the state aid scheme for regional projects score applications based not only on the economics of the project, but also on the GDP per capita and unemployment rate for the county of intended investment. When granting state aid, the Ministry of Finance requires that the state revenues through taxes equals the state aid granted. Numerous foreign and American firms have successfully applied for and received Romanian State Aid.

The renewable energy support through Green Certificate System, part of the Renewable Energy Law, provided incentives for certain types of renewable energy.  The support is not available for renewable energy investments made after January 1, 2017, but investors that qualified under the support system can trade certificates until 2032.  The Green Certificates are traded in parallel with the energy produced. Although the Green Certificates are intended to provide an additional source of revenue for renewable energy producers, repeated revisions to the support system including deferring release of the certificates, and lowering the mandatory green certificate quota that consumers and suppliers have to acquire have created instability in the renewables investment climate.  Energy intensive industrial consumers receive exemptions from acquiring green certificates. In March 2017, the government revised the renewable energy support legislation. The changes include extending the validity of tradable green certificates to allow trading until 2032 and requires green certificates trading to be done anonymously, with the intention of balancing the market for all green certificates sellers.

As an EU member state, Romania must receive EC approval for any state aid it grants that is not covered by the EU’s block exemption regulations.  The Romanian Competition Council acts as a clearinghouse for the exchange of information between the Romanian authorities and the EC. The failure of state aid grantors to notify the EC properly of aid associated with privatizations has resulted in the Commission launching formal investigations into several privatizations.  Investors should ensure that the government entities with which they work fully understand and fulfill their duty to notify competition authorities. Investors may wish to consult with EU and Romanian competition authorities in advance, to ensure a proper understanding of notification requirements.

Companies operating in Romania can also apply for aid under EU-funded programs that are co-financed by Romania.  When planning a project, prospective applicants must bear in mind that the project cannot start before the financing agreement is finalized; the application, selection, and negotiation process can be lengthy.  Applicants also must secure financing for non-eligible expenses and for their co-financing of the eligible expenses. Finally, reimbursement of eligible expenses – which must be financed upfront by the investor – is often very slow.  Procurements financed by EU-funded programs above a certain monetary threshold must comply with public procurement legislation. In an effort to increase the rate of EU funds absorption, Romania has amended regulations to allow applicants to use the assets financed under EU-funded programs as collateral.  Allegedly, understaffing and a lack of expertise on the part of GOR management entities, cumbersome procedures, and applicants’ difficulty obtaining private financing still remain significant obstacles to improved EU funds absorption and project implementation by Romania.

Foreign Trade Zones/Free Ports/Trade Facilitation

Free Trade Zones (FTZs) received legal authority in Romania in 1992.  General provisions include unrestricted entry and re-export of goods, and exemption from customs duties.  The law further permits the leasing or transfer of buildings or land for terms of up to 50 years to corporations or natural persons, regardless of nationality.  Foreign-owned firms have the same investment opportunities as Romanian entities in FTZs.

Currently there are six FTZs, primarily located on the Danube River or close to the Black Sea: Sulina, Constanta-Sud Agigea, Galati, Braila, Curtici-Arad, and Giurgiu.  The administrator of each FTZ is responsible for all commercial activities performed within the zone. FTZs are under the authority of the Ministry of Transportation.

Performance and Data Localization Requirements

The government generally does not mandate local employment.  The notable exception is the Offshore Law (Law 256/2018), which requires that at least 25 percent of the employees of offshore titleholders have to be Romanian citizens with fiscal residence in Romania.  There are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors or their employees. There are no government-imposed conditions on permission to invest.  The government does not require investors to establish or maintain data storage in Romania. Romania neither follows nor is there legislation requiring a “forced localization” policy for goods, technology or data. Romania does not have requirements for foreign IT providers to turn over source code or provide access for government surveillance.  Romania’s Constitutional Court has twice ruled such specific legislative drafts are unconstitutional. There are no measures that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the country. There are no performance requirements imposed as a condition for establishing, maintaining or expanding an investment.

Real Property

The Romanian Constitution, adopted in December 1991 and revised in 2003, guarantees the right to ownership of private property.  Mineral and airspace rights, and similar rights, are excluded from private ownership. Under the revised Constitution, foreign citizens can gain land ownership through inheritance.  With EU accession, citizens of EU member states can own land in Romania, subject to reciprocity in their home country.

Companies owning foreign capital may acquire land or property needed to fulfill or develop company goals.  If the company is dissolved or liquidated, the land must be sold within one year of closure, and may only be sold to a buyer(s) with the legal right to purchase such assets.  Investors can purchase shares in agricultural companies that lease land in the public domain from the State Land Agency.

The 2006 legislation that regulates the establishment of specialized mortgage banks also makes possible a secondary mortgage market, by regulating mortgage bond issuance mechanisms.  Mortgage loans are offered by commercial banks, specialized mortgage banks, and non-bank mortgage credit institutions. Romania’s mortgage market is now almost entirely private. The state-owned National Savings Bank, CEC Bank, also offers mortgage loans.  Since 2000, Romania has had in place the Electronic Archives of Security Interests in Movable Property (AEGRM) that represents the national recording system for the priority of mortgages structured by entities and assets, ensuring the filing of transactions regarding mortgages, assimilated operations, or other collateral provided by the law, as well as their advertising.  Most urban land has clear title, and the National Cadaster Agency (NCA) is slowly working to identify property owners and register land titles. According to the National Cadaster Plan, 2023 is the deadline for full registration of lands and buildings in the registry. According to NCA data, 12.5 million (31 percent) of the estimated real estate assets (land and buildings) were registered in the cadaster registry as of March 2019.

Romania has made marginal improvement in implementing digital records of real estate assets, including land.  The 2019 World Bank Doing Business report ranks Romania 44 for the ease of registering property. The cadaster property registry is far from complete, and the lack of accurate and complete information for land ownership continues to be a challenge for private investors ‎and SOEs alike.

Intellectual Property Rights

Romania remains on the U.S. Trade Representative (USTR) Special 301 Watch List in 2019.  It also hosts illicit infringing websites that are included in the 2018 Notorious Markets List.  As elsewhere in the EU, Internet piracy – both Torrent site peer-to-peer (P2P) file sharing and business-to-consumer piracy – remains the top intellectual property rights (IPR) concern.  Despite the low priority placed on IPR enforcement at the policy level, cooperation between law enforcement authorities, including prosecutors and police officers, and intellectual property-based private industry continues at the working level.  This has led to innovative approaches to prosecuting IPR crimes within this constrained legal and fiscal environment: in order to increase the odds of IPR cases advancing in court, law enforcement authorities, when appropriate, are bundling related charges of fraud, tax evasion, embezzlement, and organized crime activity alongside IPR violations.  Not only has this increased the odds of IPR cases going to court, it also strengthens the evidence of “social harm” stemming from IPR violations, as a lack of social harm was often previously cited as a reason for dismissing IPR cases.

Romania’s Customs Authority reported the seizure of approximately 703,221 pieces of counterfeited goods in 2018 compared to 1.4 million pieces of counterfeit goods in 2017 and 1.52 million pieces in 2016.  The declining trend continues at an accelerated pace, in line with growing purchasing power and demand for genuine physical goods. Sweets, cigarettes, clothing, and footwear accounted for the majority of those seizures.  The amount of seized pharmaceuticals had fallen from 370 pieces in 2016 to zero in 2017 and 2018. According to both the National Customs Authority and the national police, the vast majority of counterfeit goods seized in Romania originate in China.

Romania is a signatory to international conventions concerning IPR, including the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and has enacted legislation to protect patents, trademarks, and copyrights.  Romania has signed the Internet Convention to protect online authorship. While Romania’s IPR legal framework is generally good, enforcement remains weak and ineffective, especially in the area of internet piracy. The once-flagrant trade of retail pirated goods has largely been eliminated, but unlicensed use of software and personal use of pirated audio-video products remains high.  While Romania has passed broad IPR protection enforcement provisions, as required by the WTO, judicial enforcement remains lax.

Romania is on the Special 301 Watch List primarily due to weak enforcement efforts against online copyright piracy.  Customs officers have ex-officio powers and so can seize counterfeit goods and, after the rights holder inspects the goods and drafts a declaration, destroy them.  The government is responsible for paying for the storage and destruction of the counterfeit goods. Counterfeit goods are not prevalent in the local market.

Patents

Romania is a party to the Paris Convention for the Protection of Industrial Property and subscribes to all of its amendments.  Romanian patent legislation generally meets international standards, with foreign investors accorded equal treatment with Romanian citizens under the law.  Patents are valid for 20 years. Romania has been a party to the European Patent Protection Convention since 2002. Patent registration can be filed online.  Since 2014, Romania has also enforced a distinct law regulating employee inventions. The right to file a patent belongs to the employer for up to two years following the departure of the employee.

Trademarks

In 1998, Romania passed a trademark and geographic indications law, which was amended in 2010 to make it fully consistent with equivalent EU legislation.  Romania is a signatory to the Madrid Agreement relating to the international registration of trademarks and the Geneva Treaty on Trademarks. Trademark registrations are valid for ten years from the date of application and renewable.  Since 2014, trademark registrations can be filed online. In 2007, Romania ratified the Singapore Treaty on the Law of Trademarks.

Copyrights

Romania is a member of the Bern Convention on Copyrights.  The Romanian Parliament has ratified the latest versions of the Bern and Rome Conventions.  The Romanian Copyright Office (ORDA) was established in 1996 and promotes and monitors copyright legislation.  The General Prosecutor’s Office (GPO) provides national coordination of IPR enforcement, but copyright law enforcement remains a low priority for Romanian prosecutors and judges.  Many magistrates still tend to view copyright piracy as a “victimless crime” and this attitude has resulted in weak enforcement of copyright law. Due to the popularity of downloading pirated content, copyright infringement of music and film is widespread throughout Romania.

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/ .

Slovakia is one of the most open economies in the EU.  The government’s overall attitude toward foreign direct investment (FDI) is positive, and the government does not limit or discriminate against foreign investors.  FDI plays an important role in the country’s economy, with major foreign investments in manufacturing and industry, banking, information and communication technologies (ICT), and Business Service Centers, where U.S. companies have a significant presence.

Slovakia’s assets, including skilled labor, EU and Eurozone membership, and location at the crossroads of Europe, have attracted a significant U.S. commercial presence, including Hewlett-Packard, Cisco, IBM, Dell, AT&T, Oracle, Accenture, Whirlpool, Adient, Amazon, GlobalLogic, and U.S. Steel.

The government supports foreign investors and offers investment incentives based on specific criteria, usually delivered in the form of tax allowances, or grants to support employment, regional development, and training.  The Act on Regional Investment Aid (57/2018) specifies eligibility criteria. Section four of this report covers investment incentives in more detail.

According to the National Bank of Slovakia, in 2017, inward FDI flows to Slovakia reached EUR 2 billion, and inward FDI stock was EUR 46.5 billion.  EU member states are the largest foreign investors in Slovakia, including the Netherlands, Austria, the Czech Republic, Luxemburg, and Germany. South Korea remains an important investor among non-EU countries, given its importance in global automotive supply chains.

Improving the business climate is an inter-agency effort involving a number of state institutions and other actors.  The Ministry of Economy coordinates efforts to improve the business environment, innovation intensity, and support for least-developed regions.  Within the Ministry of Economy, the Slovak Investment and Trade Development Agency (SARIO) is responsible for identifying and advising potential investors on the Slovak political, business, and investment climate.  The National Investment Plan 2018-2030, drafted by the Deputy Prime Minister’s Office for Investments and Digitalization, focuses on investment programs in the areas of green economy, including transport, ICT, energy, green infrastructure, waste management, climate change mitigation, R&D and innovation, healthcare, and education.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity in Slovakia (Commercial Code, 98/1991   Coll.).  Businesses can contract directly with foreign entities.  Private enterprises are free to establish, acquire, and dispose of business interests, but must pay all Slovak obligations of liquidated companies before transferring any remaining funds out of Slovakia.  Non-residents from the EU and OECD member countries can acquire real estate for commercial purposes.

Slovakia has no formal performance requirements for establishing, maintaining, or expanding foreign investments.  Large-scale privatizations are possible via direct sale or public auction.

The Slovak government treats foreign entities established in Slovakia in the same manner as domestic entities, and foreign entities face no impediments in participating in R&D programs financed and/or subsidized by the Slovak government.  R&D spending is 100 percent tax deductible, set to increase to 150 percent in 2019, and 200 percent in 2020. According to the OECD, total R&D investment in 2016 represented just 0.8 percent of GDP (compared to the OECD average of 2.3 percent).  A large percentage of R&D spending is financed though EU funds, and private R&D intensity remains low at 0.4 percent of GDP. The European Commission continues to criticize the persistent lack of transparency in allocating EU funds.

The Slovak government holds stakes in a number of energy companies.  It has historically been less open to private investment in energy assets that it considers to be in the national security interest, and has even expressed interest in increasing state ownership of some key energy assets.  There are no domestic ownership requirements for telecommunications and broadcast licenses. The Act on Civil Air Transport (143/1998 Coll.) sets out rules for foreign operators seeking to operate in Slovakia.

There are no formal requirements to approve FDI, though the Government ultimately approves investment incentives.  If investment incentives apply, the Economy Ministry manages the associated legislative process. The Act on Regional Investment Aid (57/2018) specifies eligibility requirements.

Please consult the following websites for more information:

Office of Deputy Prime Minister:  https://www.vicepremier.gov.sk/index.html  

R&D Tax-Deductible:  https://superodpocet.sk/  

Other Investment Policy Reviews

The OECD produced a 2019 Economic Forecast Summary for Slovakia: http://www.oecd.org/economy/surveys/Slovak-Republic-2019-OECD-economic-survey-overview.pdf 

The European Commission published its regular Country Report – Slovakia 2019, addressing various aspects of the Slovak economy:  https://ec.europa.eu/info/sites/info/files/file_import/2019-european-semester-country-report-slovakia_en_0.pdf 

The World Trade Organization’s data on Slovakia is available here: https://www.wto.org/english/thewto_e/countries_e/slovak_republic_e.htm  

Business Facilitation

According to the World Bank’s Doing Business 2019 report, Slovakia ranks 127th out of 190 countries surveyed on the ease of starting a business (down from 83rd in the 2018 edition).  It takes around 26.5 days to start a business in Slovakia (versus 12.5 days in 2018), and involves eight procedures.  Slovak officials commented that the drop in ranking was due to a lack of consideration of all relevant country specific indicators and did not indicate a deterioration in the business climate.

The Central Government Portal “slovensko.sk” provides useful information on e-Government services in the area of starting and running a business, citizenship, justice, registering vehicles, social security, etc.  Checklists of procedures necessary for registrations, applications for permits, etc., are currently available on websites of individual institutions, and the Economy Ministry is working on streamlining the information into one common platform.

Please consult the following websites for more information:

• Central Government Portal:  https://www.slovensko.sk/en/title/  
• Commercial Register:  http://www.orsr.sk/Default.asp?lan=en  
• Slovak Business Agency:  http://www.sbagency.sk/en/national-business-center#.WrzvnNtMS9I  
• Slovak Investment and Trade Development Agency:  https://www.sario.sk/en  
• World Bank Doing Business 2019:
  http://www.doingbusiness.org/content/dam/
  doingBusiness/media/Profiles/Regional/DB2019/EU.pdf 
  http://www.doingbusiness.org/en/reports/subnational-reports/eu-croatia-czechrepublic-portugal-slovakia  

Outward Investment

Several state agencies share responsibilities for supporting investment (inward and outward) and trade.  SARIO is officially responsible for export facilitation and attracting investment. The Slovak Export-Import Bank (EXIM BANKA) supports exports and outward investments with financial instruments to reduce risks related to insurance, credit, guarantee, and financial activities; it assists both large companies and small- and medium-sized enterprises (SMEs), and is the only institution in Slovakia authorized to provide export and outward investment-related government assistance.  The Ministry for Foreign and European Affairs runs a Business Center that provides services in the area of export and investment opportunities. Slovakia’s diplomatic missions, the Ministry of Finance’s Slovak Guarantee and Development Bank, and the Deputy Prime Minister’s Office for Investments and Digitalization also play a role in facilitating external economic relations.

The majority of Slovak exports go to fellow EU countries.  Slovak companies have made limited outward foreign direct investments.

Transparency of the Regulatory System

Slovakia still struggles with a lack of transparency in the regulatory processes in several industries.  The business community has registered concerns that a number of regulatory bodies are not fully impartial and that their decisions can be unpredictable.  A frequently changing and complex legislative environment is often cited as a business obstacle for both local and global companies, and the long-term predictability of regulations affecting the business and legal environment is uncertain.

The Legislative and Information Portal of the Ministry of Justice, Slov-Lex, is a publicly accessible centralized online portal for laws and regulations, including information about inter-agency and public review processes.  Draft bills proposed by ministries through a standard legislative procedure are available for public comment through the portal; however, the public is often granted little time to comment on draft legislature, and there is no obligation to react to comments prior to final submission to the cabinet.  Additionally, MPs or parliamentary groups can propose draft bills outside the standard participatory legislative procedure, which has no rules guaranteeing opportunities for public comment, thus rendering the legislative process less predictable and less transparent. Recent examples of MP proposals becoming laws without due stakeholder consultations include: an obligation for employers in companies with more than 49 employees to pay up to EUR 275 per year for holiday vouchers for domestic vacations, and a special levy on retail stores (2.5 percent of net turnover) selectively targeting large chains selling foodstuffs (which has been blocked by the European Commission since its introduction in January 2019).  Parliament also passed a Constitutional law introducing a retirement age ceiling – the original law linked retirement age to life expectancy – of 64 years for men and around 62 years (with the exact age based on the number of children) for women. Businesses and economic think tanks have criticized these measures for hindering the predictability of legislative and regulatory frameworks.

The Economy Ministry’s Better Regulation Strategy – Regulatory Impact Assessment 2020 (RIA) aims to further improve the business environment, reduce bureaucratic burdens, and improve the quality of laws and regulations by providing a more transparent and open legislative process.  Slight improvements have been noted by the Economy Ministry in terms of decreasing the volume of legislation with negative impacts on the business climate, but the goal is to expand interagency cooperation and coordination. One of the ways to improve the certainty of the legislative framework is the Prime Minister’s initiative for laws and regulations affecting the business climate to come into effect on the first day of either January or July of a given year.

Regulations are not reviewed on the basis of scientific data assessments.  At their discretion, analytical institutes at some ministries (mostly under the value-for-money umbrella) produce data-driven assessments of state policies or big investment projects.  However, projects for assessment are selected by the institutes or by the ministries and they are not publicly available for comment. Assessments are often published once completed.

The Commercial Code (98/1991   Coll.) and the Act on Protection of Economic Competition (136/2001 Coll.) govern competition policy in Slovakia.  A 2018 amendment of the Commercial Code introduced stronger provisions to prevent speculative mergers.  As an EU member state, Slovakia has transposed numerous pieces of relevant EU legislation. The Anti-Monopoly Office, a part of the EU’s European Competition Network (ECN), is an independent state administrative body responsible for ensuring competition, including in state aid.

The Office for Public Procurement supervises and administers public procurement.  Public procurement legislation is frequently amended, and challenges remain to fair competition and eradicating corruption.  The October 2018 amendment to the Act on Public Procurement (343/2015 Coll.) has significantly increased the threshold for low-value tenders, thus eliminating some previous obligations to procure through public competition (public procurement for below-limit contracts is governed by a different regime than the one applicable to above-limit contracts).  The business community has expressed concerns that this measure could reduce transparency. On the other hand, under new leadership, the Public Procurement Office has made efforts to increase transparency in communication with stakeholders, as well as in its own supervisory activities. The European Commission noted some progress in modernizing, simplifying, and increasing efficiency in public procurement procedures in the 2019 Slovakia Country Report.

Slovakia’s fiscal transparency is generally good.  Budget proposals, enacted budgets, and closing statements are substantially complete and publicly available.  The Ministry of Finance publishes monthly reviews of budget execution, which provide a clear overview of public revenues and expenditures broken down by source and type.  Public debt management information is an integral part of the Public Administration budget, including volume, total cost, debt service, structure, financing, forecast, risk assessments, etc.  Annex 6 of the Public Administration budget is dedicated to describing the Debt Management Strategy.

Please consult the following websites for more information:

• Legislative and Information Portal Slov-Lex:  https://www.slov-lex.sk/domov    (Note: all legal acts and regulations mentioned throughout this report can be found on this portal.)
• World Bank:  http://rulemaking.worldbank.org/en/data/explorecountries/slovak-republic  
• Anti-Monopoly Office of the Slovak Republic: http://www.antimon.gov.sk/antimonopoly-office-slovak-republic/  
• Office for Public Procurement:  https://www.uvo.gov.sk/  
• Ministry of Finance:  https://www.finance.gov.sk/sk/financie/verejne-financie/rozpocet-verejnej-spravy/  
• The European Commission published its regular Country Report – Slovakia 2019:  https://ec.europa.eu/info/sites/info/files/file_import/2019-european-semester-country-report-slovakia_en_0.pdf 

International Regulatory Considerations

Slovakia is an EU Member State, thus, EU legislation and standards fully apply in Slovakia.  The national regulatory system is enforced in areas not governed by EU regulatory mechanisms.  Slovakia is a WTO member, and the government notifies technical regulations to the WTO Committee on Technical Barriers to Trade.  The Trade Facilitation Agreement (TFA) is an EU competence; the EU approved in 2015 a Protocol of Amendment to insert the WTO TFA into Annex 1A of the WTO Agreement.

Please consult the following websites for more information:

• WTO: https://www.wto.org/english/thewto_e/countries_e/slovak_republic_e.htm  

Legal System and Judicial Independence

Slovakia is a civil law country.  The Slovak judicial system is comprised of the Constitutional Court and general courts, including the Specialized Criminal Court and the Supreme Court.  General courts decide civil, commercial, and criminal matters, and review the legality of decisions by administrative bodies. The Specialized Criminal Court focuses on cases involving corruption, organized crime, serious crimes like premeditated murder, crimes committed by senior public officials, and crimes related to extremism, such as hate crimes.  Enforcement actions are appealable, and are adjudicated in the national court system. The right to appeal against regulations is limited to some state institutions and selected public officials.

The Slovak Constitution and the European Convention of Human Rights guarantee property rights.  Slovakia has a written Commercial Code including contract law in the civil and commercial sectors.  The basic framework for investment protection and dispute resolution between Slovakia and the U.S. is outlined in the 1992 U.S.-Slovakia Bilateral Investment Treaty.

Court judgments by EU member states are recognized and enforced in compliance with existing EU Regulations.  Third country judgments are governed by bilateral treaties or by the Act on International Private Law. Contracts are enforced through litigation or arbitration – a largely applied form of alternative dispute resolution.

Laws guarantee judicial independence, however, in practice, public perception of judicial independence is among the lowest in the EU.  Some judicial nominations and personnel selections appear to be strongly influenced by political considerations. Despite recent improvements, the justice system remains relatively slow and inefficient, and judges remain divided on the need for reform.  Some judges have been suspected of manipulating the case assignment system, and critics suggest verdicts lack predictability and are often poorly justified. As a result, investors generally prefer international arbitration to resolution in the national court system.

Laws and Regulations on Foreign Direct Investment

The Economy Ministry’s Slovak Investment and Trade Development Agency (SARIO) is a specialized government agency in charge of attracting foreign investments to Slovakia, and serves as a multifaceted resource for foreign investors.  The Slovak Business Agency (SBA) runs a National Business Center (NBC) in Bratislava and several other cities; it provides a one-stop shop with information and services for starting and establishing businesses. Startups can use a simplified procedure to register their company in order to facilitate entry of potential investors.  The Interior Ministry operates Client Centers around the country where many formal procedures for both natural persons (to distinguish from legal entities) and companies can be done under one roof.

The Act Against Bureaucracy, valid as of September 2018, aims to reduce the bureaucratic burden for companies and private individuals as a part of continuing e-Government efforts.  The act is based on the “once is enough” philosophy, obliging state agencies to share information and use digital communication rather than requiring multiple filings of the same information with different government entities.

In February 2019, the government approved a third anti-bureaucracy package drafted by the Ministry of Economy.  This resolution resulted from a stakeholder discussion and contained 36 concrete measures, including sector-specific, as well as generally applicable tools.  These measures aim at further simplifying business registration, streamlining processes through e-Government, and improving the overall business climate.

Slovakia ranked 42nd out of 190 countries in the World Bank’s Doing Business 2019 ranking, and 41st out of 140 in the 2018 World Economic Forum’s Global Competitiveness Index.

Please consult the following websites for more information:

• Ministry of Economy:  https://www.mhsr.sk/podnikatelske-prostredie  
• Slovak Business Agency:  http://www.sbagency.sk/en/national-business-center#.WrzvnNtMS9I  
• Slovak Investment and Trade Development Agency:  http://www.sario.sk  
• Central Public Administration Portal:  https://www.slovensko.sk/en/title/  
• Interior Ministry: https://www.minv.sk/?klientske-centrum-bratislava  

Competition and Anti-Trust Laws

The Anti-Monopoly Office of the Slovak Republic is an independent body charged with the protection of economic competition.  The Office intervenes in cases of cartels, abuse of a dominant position, vertical agreements, and controls compliance of mergers with antitrust law.  The key antitrust legislation regarding fair competition is the Competition Law (136/2001 Coll.).

Slovakia complies with EU competition policy.

Please consult the following website for more information:

• The Anti-Monopoly Office: http://www.antimon.gov.sk/2066-en/cases-in-slovak/  

Expropriation and Compensation

The Slovak Constitution guarantees the right to property.  There is an array of legal acts stipulating property rights.  The right to the Act on Expropriation of Land and Buildings (282/2015 Coll.) mandates that expropriation must only occur to the extent necessary, be in the public interest, provide appropriate compensation, and shall only occur when the goal of expropriation cannot be achieved through agreement or other means.

In the past, significant expropriation efforts included the government’s plan – currently on hold – to revert to a single-payer healthcare system and to expropriate two private health insurance companies.  Expropriation most often occurs in the construction of road or industrial infrastructure.

Dispute Settlement

ICSID Convention and New York Convention

Slovakia is a contracting state to the International Centre for Settling International Disputes (ICSID) and the World Bank’s Commercial Arbitration Tribunal (established under the 1966 Washington Convention).  Slovakia is a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitrage Awards, which obligates Slovakia to accept binding international arbitration. The Finance Ministry leads on bilateral investment treaty matters, and manages and represents Slovakia in international arbitration.  Investment contracts with foreign investors in Slovakia are covered by respective ministries depending on the sector, in most cases by the Ministry of Economy.

Investor-State Dispute Settlement

The basic framework for investment protection and dispute resolution between Slovakia and the United States is governed by the 1992 U.S. – Slovakia Bilateral Investment Treaty.

To date, nine known cases of international arbitration have concluded.  There are currently two ongoing international arbitration cases.

The legal system generally enforces property and contractual rights, but decisions may take years, thus limiting the courts’ relevance in dispute resolution.  According to the World Bank Doing Business 2019 report, Slovakia ranked 47th out of 190 countries in the “enforcing contracts” indicator, with a 775-day average for enforcing contracts (up from 538 days in 2016).  The report notes that Slovakia made enforcing contracts easier by implementing electronic processing services. Slovak courts recognize and enforce foreign judgments, subject to the same delays.  Although the commercial code generally appears to be applied consistently, the business community continues to cite a lack of legislation protecting creditor rights, corruption, political influence, lengthy procedures, and weak enforcement of court rulings as persisting problems.  U.S. and other investors privately described instances of multi-million dollar losses that were settled out of court because of doubts about the court system’s ability to offer a credible legal remedy.

International Commercial Arbitration and Foreign Courts

There are two acts applicable to alternative dispute resolution in Slovakia – the Act on Mediation (420/2004 Coll.) and the Act on Arbitration (244/2002 Coll.).  In addition, the Slovak Chamber of Commerce and Industry (SOPK) has a court of arbitration for alternative dispute resolution, and has a number of bilateral cooperation agreements with Chambers of Commerce or similar institutions abroad.

Local courts in Slovakia recognize and enforce foreign arbitral awards, subject to delays that limit the courts’ relevance in dispute resolution.

Please consult the following websites for more information:

• U.S.- Slovakia Bilateral Investment Treaty:  http://2001-2009.state.gov/documents/organization/43587.pdf 
• Finance Ministry – International Arbitrations:  https://www.finance.gov.sk/sk/financie/statne-vykaznictvo/medzinarodna-ochrana-investicii/arbitrazne-spory/  
• Slovak Chamber of Commerce: http://web.sopk.sk/view.php?cisloclanku=900001  

Bankruptcy Regulations

The Law on Bankruptcy and Restructuring (377/2016 Coll.) governs bankruptcy issues.  The law allows companies to undergo court-protected restructuring and both individuals and companies to discharge their debts through bankruptcy.  The International Monetary Fund credited the Act for speeding up processing, strengthening creditor rights, reducing discretion by bankruptcy judges, and randomizing the allocation of cases to judges to reduce potential corruption.  The Act contains provisions to prevent preferential treatment for creditors over company shareholders, measures limiting space for arbitrariness in bankruptcy administrators’ conduct, and stricter liability rules for those responsible for initiating bankruptcy proceedings, as well as new provisions on related parties valid as of January 2019.  The Commercial Code also contains provisions on bankruptcy and restructuring, and its 2018 amendment introduced stronger provisions to prevent speculative mergers, including in cases of ongoing bankruptcy.

Slovakia ranked 42nd out of 190 in the World Bank’s Doing Business 2019 ranking of the ease of resolving insolvency, with an average of four years for resolving insolvency.

Please consult the following websites for more information:

• Slovak Banking Credit Bureau:  http://www.sbcb.sk/  
• Non-Banking Credit Bureau:  http://www.nbcb.sk/  
• Justice Ministry:  https://www.justice.gov.sk/Stranky/Sudy/Zoznam-dlznikov.aspx?OrgZlozka=MSSR_AN4100  
• Insolvency Register:  https://ru.justice.sk/ru-verejnost-web/pages/home.xhtml  
• Dlznik.sk:  https://dlznik.zoznam.sk/  
• Central Register of Debtors: http://www.registerdlznikov.sk/verejny-registr-dluzniku.htm  

Investment Incentives

Eligibility for investment incentives is defined in the Act on Regional Investment Aid (57/2018 Coll.).  Investors are encouraged to implement projects in less-developed regions, and to invest in high value-added activities.  The Economy Ministry manages and coordinates investment aid with other relevant agencies.

Investment incentives are available to foreign and domestic investors for projects in sectors including industrial production, technology centers, and shared service centers.  The incentives are provided as tax relief, cash grants (which can be viewed as joint financing of FDI projects), contributions for newly created jobs, and transfer of state/municipal property at a discounted price.  Eligible costs include acquisition of land, acquisition and construction of buildings, acquisition of technology equipment and machinery, as well as intangible assets (i.e. licenses, patents, etc.), and wages of new employees for a period of two years.

Apart from investment aid, the Economy Ministry also runs projects eligible for support from EU funds, with a particular focus on research and innovation; the Economy Ministry also offers innovation vouchers and special loans through its Investment Fund, as well as support for industrial clusters.  Other ministries run EU-supported projects in their respective areas of expertise (i.e. agriculture, environment, infrastructure, R&D, etc.).

State aid granted by the Slovak government must comply with valid EU regulations.  The Anti-Monopoly Office of the Slovak Republic is the coordinating body for state aid granted by individual ministries, as per the Act on State Aid (358/2015 Coll.), and there is a dedicated state aid web portal (link below).

Please consult the following websites for more information:

• Investment Aid:  https://www.sario.sk/en/invest/investment-incentives  
• State Aid:  http://www.statnapomoc.sk/  
• Deputy Prime Minister for Investment and Digitalization: https://www.vicepremier.gov.sk/index.html  

Foreign Trade Zones/Free Ports/Trade Facilitation

Slovakia eliminated all foreign trade zones and free ports in 2006.

Performance and Data Localization Requirements

There are no special requirements for foreign IT providers to turn over their source code or to provide access to encrypted documents.  However, according to the Act on Electronic Communications (351/2011 Coll.), entities providing public networks or public services that use coding, compression, encryption, or other form of concealing signal transfer must, at their own expense, provide information obtained through wire-tapping and network traffic recording or monitoring to relevant authorities.  Slovakia implemented the EU General Data Protection Regulation (GDPR) regulating data protection and privacy. There are no mechanisms in place enforcing rules on local data storage. Slovakia follows the EU regulation on the free flow of data 2017/0228 (COD) that abolishes data localization requirements within the EU while ensuring access rights to competent authorities for regulatory control.  The relevant authority for data localization is the Deputy Prime Minister’s Office for Investments and Digitalization.

In April 2018, the Cybersecurity Act (69/2018) came into force.  The bill, prepared by the National Security Authority (NBU), transposes the EU Directive on Security of Network and Information Systems (NIS Directive).  The Act addresses system security, incident response, and reporting requirements with minimal regulation of the private sector. It proposes housing a Computer Security Incident Response Team (CSIRT) at every ministry relying heavily on ICT.  Along with the NBU, the main public stakeholders for cybersecurity are located in the Deputy Prime Minister’s Office for Investments and Digitalization.

Slovakia does not mandate local employment, follow “forced localization,” or impose conditions on permissions to invest.  Conditions for employing foreigners from non-EU countries were somewhat eased in 2018 (more details in Chapter 11 on Labor Policies).

Foreign entities have equal access to investment incentives on a case-by-case basis, as per the Act on Regional Investment Aid (57/2018 Coll.).  For more details on eligible projects, please see the section on Investment Incentives. The decision on investment aid may be cancelled based on provisions stipulated in the Act, and these requirements apply to domestic and foreign recipients of investment aid equally.  Along with investment incentives, other tools to support investment, including EU structural funds or other schemes, are motivational tools and every investor can freely decide whether to apply for them or not; as such, any procedures linked to these tools should not be perceived as investment performance requirements per se.

The Alien Police Department (APD) issues temporary and long-term residence permits.  The legislative framework on residence and adjacent permits is specified in the Act on Residency of Foreign Nationals (404/2011 Coll. and successive amendments, last amended in 2018 as 108/2018 Coll.).  Although foreign nationals have criticized the process of obtaining residency permits as difficult and time-consuming, Slovak authorities have made significant concessions to expedite this process for American citizens.  This has included accepting expired FBI background checks, accepting applications at the Slovak Embassy in Washington, D.C. prior to departure for Slovakia, and adopting suggested new wording on their APD and embassy sites to clear up common misconceptions.  The U.S. Embassy’s Consular Section has reported a significant drop in the number of Americans looking for help with this issue since the implementation of these changes. However, even with these welcome changes, there are still problems with authorities not being consistent in their recommendations or enforcement of regulations.  The regulations themselves, however, do not differ significantly from those of other EU countries.

Please consult the following websites for more information:

• Alien Police Department at Interior Ministry:  https://www.minv.sk/?residence-of-an-foreigner
• Migration Information Center:  https://www.mic.iom.sk/en/doing-business/general-information.html  
• Foreign Affairs Ministry: https://www.mzv.sk/web/en/consular_info/residence_of_foreigners_in_territory_of_slovakia  .
• Central Office of Labor, Social Affairs and Family:  http://www.upsvar.sk/sluzby-zamestnanosti/zamestnavanie-cudzincov.html?page_id=272197  
• Deputy Prime Minister’s Office for Investments and Digitalization of Society: https://www.vicepremier.gov.sk/sekcie/investicie/o-sekcii-riadenia-investicii/index.html  

Real Property

The mortgage market in Slovakia is growing rapidly, and a reliable system of record keeping exists.  In 2018, the National Bank of Slovakia introduced measures to cool down the mortgage market by introducing strict assessments and limiting the size of the mortgage.  Secured interests in property and contractual rights are recognized and enforced.

Even though the Cadastral office records that less than 10 percent of the land in Slovakia lacks a clear title, there are rare instances when the property owner is unknown.  This is a result of unclear record keeping dating back to the 20th century and the communist era.  In such cases, real estate titles can take significant amounts of time to determine.  Legal decisions may take years, thus limiting the utility of the court system for dispute resolution.

There are currently 8.4 million parcels, 4.4 million recorded owners of land, and 100 million co-owning relations.  On average, one parcel has 11.93 co-owners, and one owner has an average of 22.74 parcels. To address this issue, the Agriculture Ministry started land ownership reform in early 2019 to consolidate parcels and simplify ownership records in the cadaster database.  A dedicated web portal makes it possible to verify information about land and property ownership.

The complex and obsolete Construction Act is currently under review, with the aim to better respond to the current environment.

In November 2018, the Slovak Constitutional Court ruled against a Law on Agricultural Land Ownership (140/2014 Coll.) which limited the sale of land to foreigners by requiring at least three years of previous agricultural business activity and 10 years of residency in Slovakia.  Since 2018, the maximum lease period decreased from 25 to 15 years.

Squatting is illegal in Slovakia, and ownership of unoccupied property will not revert to squatters or other parties unless they are entitled to own the land.

Slovakia fell two places to ninth out of 190 countries in the World Bank’s 2019 Doing Business “registering property” indicator, averaging 16.5 days to register a property.

Please consult the following websites for more information:

• Cadastral portal on land and property ownership:  http://www.katasterportal.sk/kapor/  

Intellectual Property Rights

Slovak law protects patents, copyrights, trademarks and service marks, trade secrets, and semiconductor chip design.  The protection of intellectual property rights (IPR) falls under the jurisdiction of two agencies. The Industrial Property Office is responsible for most areas, including patents, while the Culture Ministry is responsible for copyrights, including software.

Slovakia adheres to major intellectual property agreements including the Bern Convention for Protection of Literary and Artistic Works, the Paris Convention for Protection of Industrial Property, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and numerous other international agreements on design classification, registration of goods, appellations of origin, patents, etc.  The Industrial Property Office of the Slovak Republic is the central government body overseeing industrial property protection. The Financial Administration (under the Finance Ministry) deals with customs and adjacent IPR, including the fight against counterfeit goods.

No major IP related laws were passed in 2018.  Slovakia is not listed in the United States Trade Representative (USTR) Notorious Markets List.  Slovakia was taken off the USTR Special 301 Watch List in 2006 in large part due to significant progress that the government had made in addressing concerns related to the protection of pharmaceutical patents in Slovakia.

There were 1,363 suspected breaches of IPR in 2017 (for goods imported from third countries, especially textiles and shoes), with the value of seized counterfeit goods down 42 percent from 2016, to around EUR 1.5 million.

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/  .

Please consult the following websites for more information:

• Ministry of Culture, Copyright Act: http://www.culture.gov.sk/extdoc/5831/Zakon_185_2015_Autorsky percent20zakon  
• Intellectual Property: https://www.dusevnevlastnictvo.gov.sk/web/guest  
• Industrial Property Office:  http://www.upv.sk/?introduction  
• Financial Administration:  https://www.financnasprava.sk/en/homepage  
• Financial Administration Annual Report for 2017:  https://www.financnasprava.sk/_img/pfsedit/Dokumenty_PFS/
  Financna_sprava/Vyrocne_spravy/2018.03.26_VS_2017.pdf 
• American Chamber of Commerce in the Slovak Republic:
• http://www.amcham.sk/home  

Policies Towards Foreign Direct Investment

Foreign direct investment (FDI) has played a significant role in modernizing the Spanish economy during the past 40 years. Attracted by Spain’s large domestic market, export possibilities, and growth potential, foreign companies set up operations in large numbers. Spain’s automotive industry is mostly foreign-owned. Multinationals control half of the food production companies, one-third of chemical firms, and two-thirds of the cement sector. Several foreign investment funds acquired networks from Spanish banks, and foreign firms control about one-third of the insurance market.

The Government of Spain recognizes the value of foreign investment. Spain offers investment opportunities in sectors and activities with significant added value. There have not been any major changes in Spain’s regulations for investment and foreign exchange under the current Spanish Socialist Workers Party (PSOE) administration, which took office in June 2018. Spanish law permits 100 percent foreign ownership in investments (limits apply regarding audio-visual broadcast licenses; see next section), and capital movements are completely liberalized. Due to its degree of openness and the favorable legal framework for foreign investment, Spain has received significant foreign investments in knowledge-intensive activities in the past few years. New FDI into Spain increased by 31.6 percent in 2018 according to Spain’s Industry, Trade, and Tourism Ministry data, continuing the growing path of gross FDI flow into Spain that began significantly in 2014. In 2018, 19.2 percent of total gross investments were investments in new facilities or the expansion of productive capacity, while 59 percent of gross investments were in acquisitions of existing companies. In 2018 the United States had a gross direct investment in Spain of EUR 984 million, accounting for 2.1 percent of total investment and representing a decrease of 52 percent compared to 2017. U.S. FDI stock in Spain stayed relatively steady between 2013 (USD 33.9 billion) to 2017 (USD 33.1 billion).

Limits on Foreign Control and Right to Private Ownership and Establishment

Spain has a favorable legal framework for foreign investors. Spain has adapted its foreign investment rules to a system of general liberalization, without distinguishing between EU residents and non-EU residents. Law 18/1992 of July 1, which established rules on foreign investments in Spain, provides a specific regime for non-EU persons investing in certain sectors: national defense-related activities, gambling, television, radio, and air transportation. For EU residents, the only sectors with a specific regime are the manufacture and trade of weapons or national defense-related activities. For non-EU companies, the Spanish government restricts individual ownership of audio-visual broadcasting licenses to 25 percent. Specifically, Spanish law permits non-EU companies to own a maximum of 25 percent of a company holding a digital terrestrial television broadcasting license; and for two or more non-EU companies to own a maximum of 50 percent in aggregate. In addition, under Spanish law a reciprocity principle applies (art. 25.4 General Audiovisual Law). The home country of the (non-EU) foreign company must have foreign ownership laws that permit a Spanish company to make the same transaction.

Spain is one of the 14 countries of the 28 EU member states that has established mechanisms to evaluate the possible risks of direct foreign investments. The cornerstone on which the control system is structured is the probable impact “on security and public order” of the arrival of foreign capital into Spain. Critical sectors include energy, transport, communications, technology, defense, and data processing and storage, among others.

The Spanish Constitution and Spanish law establish clear rights to private ownership, and foreign firms receive the same legal treatment as Spanish companies. There is no discrimination against public or private firms with respect to local access to markets, credit, licenses, and supplies.

Other Investment Policy Reviews

Spain is a signatory to the convention on the Organization for Economic Co-operation and Development (OECD). Spain is also a member of the World Trade Organization (WTO) and the United Nations Conference on Trade and Development (UNCTAD). Spain has not conducted Investment Policy Reviews with these three organizations within the past three years.

Business Facilitation

For setting up a company in Spain, the two basic requirements include incorporation before a Public Notary and filing with the Mercantile Register (Registro Mercantil). The public deed of incorporation of the company must be submitted. It can be submitted electronically by the Public Notary. The Central Mercantile Register is an official institution that provides access to companies’ information supplied by the Regional Mercantile Registers after January 1, 1990. Any national or foreign company can use it but must also be registered and pay taxes and fees. According to the World Bank’s Doing Business report, the process to start a business in Spain should take about two weeks.

“Invest in Spain” is the Spanish investment promotion agency to facilitate foreign investment. Services are available to all investors.

Useful web sites:

• Companies register: http://www.rmc.es/Home.aspx 
• Companies register for the Madrid region: https://www.rmercantilmadrid.com/RMM/Home/Index.aspx 
• More information on the Mercantile Registry: http://www.rmc.es/ 
• Investment promotion agency: http://www.investinspain.org/invest/es/cabecera/faq-s/establecimiento-de-una-empresa/index.html 

Outward Investment

Among the financial instruments approved by the Spanish Government to provide official support for the internationalization of Spanish enterprise are the Foreign Investment Fund (FIEX), the Fund for Foreign Investment by Small and Medium-sized Enterprises (FONPYME), the Enterprise Internationalization Fund (FIEM), and the Fund for Investment in the tourism sector (FINTUR). The Spanish Government also offers financing lines for investment in the electronics, information technology and communications, energy (renewables), and infrastructure concessions sectors.

Transparency of the Regulatory System

On December 2014, the Spanish government launched a transparency website that makes over 500,000 details of public interest freely accessible to all citizens. The website offers details about the central government, public institutions such as the Royal House, the Parliament, the Constitutional Court, the Judicial Power, Ombudsman, the Audit Court, the Central Bank, and the Economic and Social Council, and other organisms such as the European Commission. http://transparencia.gob.es/transparencia/en/transparencia_Home/index.html . Regional and local authorities have developed their own transparency portals and related legislation.

International Regulatory Considerations

Spain modernized its commercial laws and regulations following its 1986 entry into the EU. Its local regulatory framework compares favorably with other major European countries. Bureaucratic procedures have been streamlined and much red tape has been eliminated, although permitting and licensing processes still result in significant delays. The efficacy of regulation at the regional level is uneven. The Market Unity Guarantee Act 20/2013 was adopted in December 2013 with the goal of rationalizing the regulatory framework for economic activities in order to facilitate the free flow of goods and services throughout Spain. It also reinforced coordination among competent authorities and introduced a mechanism to rapidly resolve operators’ problems. With a license from only one of Spain’s 17 regional governments, companies are able to operate throughout the Spanish territory, rather than needing to requests licenses from each region. The measures are designed to reduce business operating costs, improve competitiveness, and attract foreign investment.

Legal System and Judicial Independence

The Spanish judiciary has a well-established tradition of supporting and facilitating the enforcement of both foreign judgments and awards. In fact, the recognition and enforcement of foreign judgments is so well entrenched in the judicial system, that it has not been subject to any relevant modifications (save those imposed by international conventions) since the late nineteenth century, underscoring the strength of the system. For a foreign judgment to be enforced in Spain, an order declaring it is enforceable or exequatur is necessary. Once the exequatur is granted, enforcement itself is quite fast, provided that the assets are identified. Attachment of the assets will be immediate and time for realization will depend on the type of assets. First instance courts are competent for the enforcement of foreign rulings.

Local legislation establishes mechanisms to resolve disputes if they arise. The judicial system is open and transparent, although sometimes slow-moving. Judges are in charge of prosecution and criminal investigation, which permits greater independence. The Spanish prosecution system allows for successive appeals to a higher Court of Justice. The European Court of Justice can hear the final appeal. In addition, the Government of Spain abides by rulings of the International Court of Justice at The Hague.

The number of civil claims has grown significantly over the past decade, due in part to litigation stemming from Spain’s financial crisis, resulting in an increased openness to alternative dispute resolution mechanisms. Although ordinary proceedings are relatively straightforward, due to the significant number of cases within each court, getting to trial can take years. Domestic court decisions are subject to appeal, and the average time taken for a final judgment to be issued by the Court of Appeal can be anywhere from months to years. After this, the decision may still be subject to appeal to the Supreme Court (although the grounds for this appeal are very limited) and this court generally takes between two to three years to issue a decision. Due to the uncertainty surrounding the duration of appeals, disputes involving large companies or significant amounts of money tend to be resolved through arbitration.

Laws and Regulations on Foreign Direct Investment

In 2015, changes to the Personal Income Tax Law affected the transfer of investments outside of Spain by creating a tax on unrealized gains from investment. Spanish tax residents who have resided in Spain for at least 10 out of the previous 15 years are subject to a tax of 19-23 percent if they relocate their holdings or investments outside of Spain—if the market value of the shares held exceeds EUR 4 million or if the individual holds shares of 25 percent or more in a venture whose market value exceeds EUR 1 million.

Some U.S. and other foreign companies operating in Spain say they are disadvantaged by the Tax Administration’s (AEAT) interpretation of Spanish legislation designed to attract foreign investment. In the past several years, AEAT has investigated and disallowed deductions based on operational restructuring at the European level involving a number of U.S.-owned Spanish holding companies for foreign assets (Empresas de Tenencia de Valores Extranjeros or ETVEs), claiming the companies are committing “an abuse of law.” This situation disadvantages FDI in Spain; as a result, many U.S. companies channel their Spanish investments and operations through third countries.

In April 1999, the adoption of royal decree 664/1999 eliminated requirements for government authorization in investments except for those activities directly related to national defense, such as arms production. The decree abolished previous authorization requirements on investments in other sectors deemed to be of strategic interest, such as telecommunications and transportation. It also removed all forms of portfolio investment authorization and established free movement of capital into Spain as well as out of the country. As a result, Spanish law conforms to multi-disciplinary EU Directive 88/361, which prohibits all restrictions of capital movements between Member States as well as between Member States and other countries. The Directive also classifies investors according to residence rather than nationality.

Registration requirements are straightforward and apply equally to foreign and domestic investments. They aim to verify the purpose of the investment and do not block any investment. On September 1, 2016, a new Resolution of the Directorate General for International Trade and Investments at the Ministry of Economy, Industry and Competitiveness came into force. This established new forms for declaration of foreign investments before the Investment Registry, which oblige the investor(s) to declare foreign participation in the company.

Useful websites:

• Legislation: http://www.comercio.gob.es/es-ES/inversiones-exteriores/normativa/Paginas/normativa-textos-legales.aspx 
• Statement of Foreign Investments (Instructions for filing the forms): http://www.comercio.gob.es/en/inversiones-exteriores/declaracion-inversiones-exteriores/Pages/declaracion-inversiones-exteriores.aspx 
• Residency program for investors and entrepreneurs: http://www.comercio.gob.es/en/inversiones-exteriores/programa-residencia-inversores-emprendedores/Pages/default.aspx 
• International Sanctions: http://www.comercio.gob.es/en/inversiones-exteriores/sanciones-internacionales/Pages/sanciones-internacionales.aspx 
• International Agreements: http://www.comercio.gob.es/es-ES/inversiones-exteriores/acuerdos-internacionales/Paginas/acuerdos-internacionales.aspx 
• Statistics: http://www.comercio.gob.es/es-ES/inversiones-exteriores/estadisticas/Paginas/Estad percentC3 percentADsticas-de-Inversiones-Exteriores-DataInvex.aspx 
• Investor Support Center: http://www.comercio.mineco.es/es-ES/inversiones-exteriores/centro-asistencia-inversor-exportador/Paginas/solicitar-apoyo-a-traves-del-cai.aspx 
• National Contact Point for Guidelines: http://www.comercio.mineco.es/es-ES/inversiones-exteriores/punto-nacional-contacto-lineas-directrices/Paginas/El_PNC.aspx 
• Attracting Foreign Investment: http://www.comercio.mineco.es/es-ES/inversiones-exteriores/atraccion-inversiones-extranjeras/Paginas/detalle-atraccion-inversiones-extranjeras.aspx 
• Invest in Spain (investment promotion agency): http://www.investinspain.org/invest/en/index.html 
• Investment aid and incentives in Spain:https://guidetobusinessinspain.com/en/ 

Competition and Anti-Trust Laws

The parliament passed Act 3/2013 on June 4, 2013, by which the entities that regulated energy (CNE), telecoms (CMT), and competition (CNC) merged into a new entity—the National Securities Market and Competition Commission (CNMC). The law attributes practically all of the functions entrusted to the National Competition Commission under the Competition Act 15/2007, of July 3, 2007 (LDC), to the CNMC.

Expropriation and Compensation

Spanish legislation has set up a series of safeguards to prevent the nationalization or expropriation of foreign investments. Since its economic crisis, Spain has altered its renewables policy several times, creating a high degree of regulatory uncertainty and resulting in losses to U.S. companies’ earnings and investments. In December 2012, the government enacted a comprehensive energy sector reform plan in an effort to address a EUR 30 billion energy tariff deficit caused by user rates that were insufficient to cover system costs. In February 2014, Spain’s government announced its plan to cut subsidies for renewable-energy producers, a move that producers decried as a dramatic change to the business environment in which they made their initial investment decisions. Additional reforms in 2014 negatively affected U.S. investors in the solar power sector, with some companies arguing that the legal changes were tantamount to indirect expropriation. As a result of these energy reforms, Spain accumulated more than 30 lawsuits, totaling about EUR 7.6 billion in claims. Spain now faces an array of related international claims for solar photovoltaic and other renewable energy projects. Two international panels have ordered the Government of Spain to compensate companies for losses due to cuts in renewable energy support. In May 2017, the World Bank’s International Center for the Settlement of Investment Disputes (ICSID) arbitration panel ordered the Spanish government to pay 128 million euros to solar thermal investors, and in February 2018, a Swedish arbitration panel awarded a Luxembourg-based investment firm 53 million euros on a similar energy investment case.

Spain registered four new cases with ICSID in 2018, (three of them are related to renewable energy, and one to shares and bonds), and one on February 2019, bringing its total of pending cases to 32 (as of February 2019). By way of comparison, Venezuela has 19 pending cases in ICSID.

Dispute Settlement

ICSID Convention and New York Convention

Spain is a member state to the International Centre for the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and a signatory to the 1958 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Therefore, the recognition and enforcement of awards is straightforward and implies the same guarantees and practicalities sought by the New York Convention and arbitration practitioners worldwide, with the additional advantage of the existence of a court specialized only in arbitration issues.

Investor-State Dispute Settlement

Contractual disputes between U.S persons and Spanish entities are handled accordingly. U.S. citizens seeking to execute American court judgments within Spain must follow the Exequatur procedure established by Spanish law.

International Commercial Arbitration and Foreign Courts

Law 11/2011 of May 2011 (amending Law 60/2003 of December 2003) on Arbitration applies to national and international arbitration conducted in Spanish territory and aims to promote alternative dispute resolution (ADR) methods, particularly arbitration. The Arbitration Act says that the Civil Court and Criminal Court of Justice are competent to recognize foreign arbitral awards. The Spanish Arbitration Act is based on the UNCITRAL Model law.

There are two main arbitration institutions in Spain, the Court of Arbitration of the Official Chamber of Commerce of Madrid (CAM), and the Civil and Commercial Arbitration Court of Madrid (CIMA). Both institutions have modern and flexible rules that facilitate successful arbitration outcomes. The number of cases–both domestic and international– handled by both institutions, has been rapidly increasing over the past years. In particular, proceedings in the CAM are resolved swiftly, allowing the parties to obtain an award in as few as six months. In December 2017, the Chamber of Commerce of Spain, the Chamber of Commerce of Madrid, and the Civil and Commercial Court of Arbitration Court of Madrid signed a memorandum of understanding (MOU) to unify their arbitration activities and to create a unified Arbitration Court to administer international arbitrations. The MOU will create a commission that will settle the bases of this unified international court. In addition, the new institution’s primary objectives will be the resolution of conflicts related to Latin America, under the principles of autonomy, independence, and transparency. Another arbitration organization in Spain is the Barcelona Court of Arbitration (TAB), which offers services in the field of dispute resolution through arbitration or other similar mechanisms such as conciliation.

Bankruptcy Regulations

Spain has a fair and transparent bankruptcy regime. Bankruptcy proceedings are governed by the Bankruptcy Law of 2003, which entered into force on September 1, 2004, and applies to both individuals and companies. The main objective of the law was to ensure the collection of debts by creditors, to promote consensus between the parties by requiring an agreement between debtor and creditor, and for companies, to enable their survival and continuity, if possible. However, given the law’s requirement for agreement between debtor and creditor—primarily banks, many of which refused to negotiate debt reductions—relatively few companies and individuals were able to declare bankruptcy, even at the height of Spain’s economic crisis. To address the issue, in 2014, the government approved a reform of the bankruptcy law to promote Spain’s economic recovery by establishing mediation mechanisms. These reforms—nicknamed the Second Chance Law—aimed to avoid the bankruptcy of viable companies and to preserve jobs by facilitating refinancing agreements through debt write-off, capitalization, and rescheduling. However, even with the new legislation, declaring bankruptcy remains much less prevalent in Spain than in other parts of the world.

Investment Incentives

A range of investment incentives exist in Spain, and they vary according to the authorities granting incentives and the type and purpose of the incentives. The national government provides financial aid and tax benefits for activities pursued in certain industries that are considered priority industries (e.g., mining, technological development, research and development, etc.), given these industries’ potential effect on the nation’s overall economy. Regional governments also provide similar incentives for most of these industries. Financial aid includes both nonrefundable subsidies and interest relief on loans obtained by beneficiaries—or combinations of the two.

The European Union:

Since Spain is a European Union (EU) Member State, potential investors are able to access European aid programs, which provide further incentives for investing in Spain.

The EU provides incentives primarily to projects that focus on economically depressed regions or that benefit the EU as a whole.

The European Investment Bank (EIB) provides guarantees, microfinance, equity investment, and global loans for small and medium enterprises (SMEs) as well as individual loans focused on innovation and skills, energy, and strategic infrastructure. Projects aiming to extend and modernize infrastructure in the health and education sectors may also qualify for EIB support.

The European Investment Fund (EIF) provides venture capital to small and medium-sized enterprises, particularly new firms and technology-oriented businesses, via financial intermediaries. It also provides guarantees to financial institutions (such as banks) to cover their loans to SMEs. The EIF does not grant loans or subsidies to businesses, nor does it invest directly in any firms. Instead, it works through banks and other financial intermediaries. It uses either its own funds or those entrusted to it by the EIB or the EU.

The European Structural and Investment Funds (ESI Funds) include the Funds under the Cohesion Policy (Structural Funds (ERDF and ESF) and the Cohesion Fund), which contribute to enhancing economic, social and territorial cohesion. Most autonomous regions of Spain qualify for structural funds under the EU’s 2014-2020 budget (EUR 454 billion). Investments under the European Regional Development Fund (ERDF) are concentrated in four key priority areas: innovation and research, the digital agenda, support for small and medium-sized enterprises (SMEs) and the low-carbon economy, depending on the category of region. The European Social Fund (ESF)’s Cohesion Fund provides funding for programs aiming to reduce economic and social disparities and to promote sustainable development.

EU financial incentives are routed through major Spanish financial institutions, such as the Instituto de Credito Oficial (ICO) and Banco Bilbao-Vizcaya Argentaria (BBVA); EU financial incentives must also be applied for through the financial intermediary.

The Central Government:

Spain’s central government provides numerous financial incentives for foreign investment, which are designed to complement European Union financing. The Ministry of Economy and Competitiveness (MINECO) assists businesses seeking investment opportunities through the Directorate General for International Trade and Investments and the Directorate General for Innovation and Competitiveness. These Directorates provide support to foreign investors in both the pre- and post-investment phases. Most grants seek to promote the development of select economic sectors; however, while these sectoral subsidies are often preferential, they are not exclusive.

A comprehensive list of incentive programs is available at the website: www.investinspain.org  

Using this tool, companies can access up-to-date information regarding grants available for investment projects. Users can also sign up for the automatic alert system, which provides customized updates as suitable grants or subsidies are published. Applications for these incentives should be made directly with the relevant government agency.

Spain provides some support to SMEs through a national program designed to strengthen innovative business groups and networks and boost their competitiveness. In 2013, Spain passed the “Law of Entrepreneurs,” which established an entrepreneur visa for investors and entrepreneurs. Entrepreneurs may apply for the visa with a business plan that has been approved by the Spanish Commercial Office. Entrepreneurs must also demonstrate the intent to develop the project in Spain for at least one year. Investors who purchase at least EUR 2 million in Spanish bonds or acquire at least EUR 1 million in shares of Spanish companies or Spanish banks deposits may also apply. Foreigners who acquire real estate with an investment value of at least EUR 500,000 are also eligible.

The central government provides financial aid and tax benefits for certain industries that it considers priority sectors given their potential growth resultant effect on the nation’s overall economy. Such activities include, for example: new industrial plants, increases in production capacity, relocations that industries undertake to boost competitiveness, new infrastructure projects, and the extension of projects, which are already mature. Preferred sectors are transportation, energy and environment, and social infrastructure and services. Furthermore, priority activities also include those involving Research &Development (R&D) and innovation—including the acquisition, upgrade and maintenance of scientific-technological equipment for R&D activities, private technology centers, and private centers of innovation support. Regional governments also offer similar incentives for most of these industries. Financial aid includes both nonrefundable subsidies and interest relief on loans obtained by the beneficiaries—or combinations of the two. Companies are classified according to size, which can be a limiting factor in accessing certain types of public aid. According to the current usage, the term “micro” company refers to those employing 0-9 employees, with a turnover of less than EUR 2 million, and with a EUR 2 million limit for total assets. A “small” company has 10-49 employees, a turnover below EUR 10 million, and total assets below EUR 10 million. “Medium” enterprises 50-249 employees, annual turnover not exceeding EUR 50 million, and total assets less than EUR 43 million.

The state-owned financial institution (Instituto de Credito Oficial, ICO), which is attached to the Ministry of Economy and Competitiveness, has the status of State Financial Agency. Its mission is to promote economic activities that contribute to economic growth and development as well as the improved distribution of wealth within Spain. As part of this mission, the ICO seeks to foster the growth of small- and medium-sized companies, to encourage technological innovation and renewable energy projects, and to provide financial relief to those affected by natural disasters. The ICO’s direct financing programs are aimed at financing large-scale investment projects in strategic sectors in Spain, backing large-scale investments by Spanish companies abroad, and supporting projects which are economically, financially, technologically and commercially sound and involve a Spanish interest. The maximum amount that can be applied for is EUR 12.5 million.

Other official bodies that grant aid and incentives:

• Ministry of Finance
• MINCORUR – Ministry of Industry, Trade, and Tourism
• ENISA – National Innovation Company S.A. (under MINCOTUR)
• AXIS ICO Group (under MINECO)
• INVEST IN SPAIN (under MINCOTUR)
• RED.ES (under MINECO)
• IDAE – Institute for Energy Diversification and Saving (under MITECO)
• CERSA – Spanish Guarantee Company S.A. (under MINCOTUR)
• CDTI – Center for Industrial Technological Development (under Ministry of Science, Innovation and Universities)
• Tripartite Foundation for training in employment (under Ministry of Employment and Social Security)
• CESGAR – Spanish Confederation of Mutual Guarantee Companies

The Regional Governments:

Spain’s 17 regional governments, known as autonomous communities, provide additional incentives for investments in their region. Many are similar to the incentives offered by the central government and the EU, but they are not all compatible. Additionally, some autonomous community governments grant investment incentives in areas not covered by state legislation but which are included in EU regional financial aid maps. Royal Decree 899/2007, of July 6 2007, sets out the different types of areas that are entitled to receive aid, along with their ceilings. Each area’s specific aspects and requirements (economic sectors, investments which can be subsidized, and conditions) are set out in the Royal Decrees determining the different areas. Most are granted on an annual basis.

Generally, the regional governments are responsible for the management of each type of investment. This provides a benefit to investors as each autonomous community has a specific interest in attracting investment that enhances its economy. No investment project can receive other financial aid if the amount of the aid granted exceeds the maximum limits on aid stipulated for each approved investment in the legislation defining the eligible areas. Therefore, the subsidy received is compatible with other aid, provided that the sum of all the aid obtained does not exceed the limit established by the legislation of demarcation and EU rules do not preclude the provision of funding (i.e., due to incompatibilities between Structural Funds).

Incentives from national, regional, or municipal governments and the European Union are granted to Spanish and foreign companies alike without discrimination.

Municipalities:

Municipal corporations offer incentives for direct investment by facilitating infrastructure needs, granting licenses, and allowing for the operation and transaction of permits, although these have been reduced significantly due to budget constraints. Municipalities such as Madrid also offer varied support services for potential foreign investors. Local economic development agencies often provide free advice on the local business environment and relevant laws, administrative support, and connections to human capital in order to facilitate the establishment of new businesses. Spain recently made starting a business easier by eliminating the requirement to obtain a municipal license before starting operations and by improving the efficiency of the commercial registry.

Research and Development

Incentives from national, regional or municipal governments and the European Union are granted to Spanish and foreign companies alike without discrimination. The most notable incentives include those aimed at fostering innovation, technological improvement (TI), and research and development (R&D) projects, which have been priorities of the Spanish government in recent years. The Science, Technology and Innovation Law 14/2011, of June 1, 2011, establishes the legal framework for promoting scientific and technical research, experimental development, and innovation in Spain. On February 2013 the Council of Ministers approved, in a combined document, “the Spanish Strategy for Science and Technology and for Innovation” for the 2013-2020 period, the essential purpose of which is to promote the scientific, technological, and business leadership of the country as a whole and to increase the innovation capacities of the Spanish company and the Spanish economy. The beneficiaries may be: individuals, public research agencies, public and private universities, other public R&D centers, public and private health entities and institutions related to or assisted by the National Health System, certified health research institutes, public and private non-profit entities (foundations and associations) engaging in R&D activities, enterprises (including SMEs), state technological centers, state technological and innovation support centers, business groupings or associations (joint ventures, economic interest groupings, industry-wide business associations), innovative business groupings and technological platforms, and organizations supporting technological transfer and technological and scientific dissemination and disclosure.

The aid can take the form of subsidies, loans, venture capital instruments, and other instruments (tax guarantees and incentives).

In 2013, the European Commission implemented Horizon 2020, the largest-ever EU research and innovation program with nearly EUR 80 billion of funding available from 2014 – 2020. The goal of the program is to attract additional private investment to promote breakthroughs and discoveries and take new ideas from the laboratory to the market. Horizon 2020 is open to all EU Member States and seeks to promote public and private collaboration in delivering innovation. EU Members States are eligible for funding on international collaborations; however, Horizon 2020 expressly prohibits funding on international collaboration with advanced economies outside of the EU.

Foreign Trade Zones/Free Ports/Trade Facilitation

Both the mainland and islands (and most Spanish airports and seaports) have numerous free trade zones where manufacturing, processing, sorting, packaging, exhibiting, sampling, and other commercial operations may be undertaken free of any Spanish duties or taxes. Spain’s seven free zone ports are located in Vigo, Cadiz, Barcelona, Santander, Seville, Tenerife, and the Canary Islands—all of which fall under the EU Customs Union, permitting the free circulation of goods within the EU. The entire province of the Canary Islands is a Special Economic Zone (SEZ), offering fiscal benefits that include a reduced corporate tax rate, a reduced Value-Added Tax (VAT) rate, and exemptions for transfer taxes and stamp duties. The Spanish territories of Ceuta and Melilla also offer unique tax incentives; they do not impose a VAT but instead tax imports, production, and services at a reduced rate. Spanish customs legislation also allows companies to have their own free trade areas. Duties and taxes are payable only on those items imported for use in Spain. These companies must abide by Spanish labor laws.

Performance and Data Localization Requirements

Spain does not have performance and localization requirements for investors.

The Spanish Data Protection Agency and the Spanish Police request data from companies, although the companies may refuse unless required by court order.

Real Property

There are generally no restrictions on foreign ownership of real estate. The buyer must fill out a Declaration to the Foreign Investment Register form before buying the property if the funds for the purchase come from a country or territory considered to be a tax haven. The declaration lasts six months. Foreign individuals require an identification card for foreigners (NIE for individuals). Other foreign legal persons require an identification card known as a CIF. Apart from money laundering regulations, no special restrictions or limitations apply to foreign mortgage guarantees and loans.

The Land Register provides evidence of title. The registration system is rigid, formalistic, and functions efficiently. It provides legal certainty to all parties involved in a transaction. Public or private acts that affect the property are included in the land register. The Property Registry is responsible for managing the Land Register. A right or title recorded in the registry prevails over any other right or title. Certain administrative concessions (licenses for individuals to use or develop publicly-owned property for a particular purpose) may also be registered. Anyone who can prove a legitimate interest in the information contained in the register may access the register. It is not possible to make changes to the ownership of the real estate by electronic means. The transfer of real estate or the grant of rights over property should be executed by public deed in front of a notary before being registered with the Land Registry. A registered title includes the plot of land and the buildings attached to the land. Each plot constitutes a registered property. Each registered property is a legal object and has its own separate entry in the registry in which all related data is registered. There are rules that determine whether a parcel of land, a building, farm, spring or other type of property has a separate entry in the registry system.

Lenders generally use mortgages as security. Mortgages are made by public deed and registered at the land registry. Once registered, the mortgage takes priority over the interest of any third party. Anyone with a legitimate interest in a property can find out whether it is mortgaged by consulting the register. Sale and leaseback is another form of real estate financing that has been used by some Spanish financial institutions. These institutions raised finance through the sale of their offices to their clients and subsequently leased them back. The institution raised funds and their clients received a stream of rental income.

Intellectual Property Rights

Spanish law protects intellectual property rights; enforcement is carried out at the administrative and judicial levels. Intellectual property protection has improved in recent years and is generally effective. However, several municipalities struggle to curb the sale of counterfeit apparel. Spanish patent, copyright, and trademark laws all approximate or exceed European Union levels of intellectual property protection. Spain is a party to the Paris Convention, Bern Convention, the Madrid Accord on Trademarks and the Universal Copyright Conventions.

Copyrights

Spanish law extends copyright protection to all literary, artistic, or scientific creations, including computer software. Spain has ratified the World Intellectual Property Organization’s (WIPO) Copyright Treaty (WCT) and the WIPO Phonograms and Performances Treaty (WPPT)—the so-called Internet treaties. In 2006, Spain passed legislation implementing the EU Copyright Term Directive, thereby also making the Internet treaties part of Spanish law. However, the Internet remains a problematic area in terms of respect for intellectual property rights in Spain.

Since its removal from the United States Trade Representative (USTR) Special 301 Watch List in 2012, Spain has undertaken extensive, multi-year reform measures to strengthen its framework for intellectual property rights (IPR) protections. The latest legislative changes to the 1996 Law on Intellectual Property, in force as of March 3, 2019, streamline anti-piracy and anti-counterfeit measures. As a result, Spain now has a stronger legal framework and corresponding criminal procedures to address IPR violations.

Patents

Spanish authorities published a new Patents Law in 2015 (Law 24/2015). It entered into force on April 1, 2017. A non-renewable 20-year period for working patents is available if the patent is used within the first three years. Spain permits both product and process patents. The European Parliament approved regulations to establish a single patent for the European Union (EU) in December 2012. Spain and Italy decided to opt out, however, due to discrepancies with the patent’s linguistic regime (English, French, and German). A special court will be created to resolve disputes arising from the 25 country signatories. Companies or individuals who want to protect their innovations throughout the EU will have to request a patent in three places – in Munich, the headquarters of the European Patent Office, in Spain, and in Italy (compared to the need to do so in 28 different countries currently) – and will be exposed to litigation in many other jurisdictions. Patents will be issued in English, French, or German, although applications may be presented in any official EU language, along with a summary in one of the three aforementioned languages. Although the regulations entered into force on January 20, 2013, the Patent Package will not enter into force until Germany, France, and 10 other Member States have ratified the Agreement on a Unified Patent Court. As of April 2019, 12 countries have ratified the agreement, which will enter into force upon ratification by Germany and the United Kingdom.

Pharmaceutical companies have reported that Spain’s lack of patent harmonization with the majority of European Union Member States has left holders of pharmaceutical process patents with weaker patent protection than required by the World Trade Organization (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. The Spanish government has amended the penal code to stipulate that patent infringers will receive one to three years imprisonment for infringing on protected plant varieties for commercial or agricultural purposes.

Trademarks

Despite high-profile, high-impact raids in 2016 to halt physical sales of counterfeit goods, storefronts selling counterfeit goods have reopened and sales have rebounded. Spanish National Police note that the removal of IP from the EUROPOL Strategic Plan will diminish attention to IP crime in Spain. Purchase and sale of counterfeit items—particularly apparel and accessories on offer by street vendors in tourist areas of major cities and beach towns—noticeably increased over the course of 2018. Spain is listed on USTR’s 2018 Notorious Markets List with specific mention to the Els Limits de La Jonquera market in Girona and tourism centers in Barcelona and Madrid which sell counterfeit goods. Audiences in Spain also stream illegally produced movie and television content. The government has committed to developing a national action plan to combat the problem, which requires coordination with national, regional, and local authorities.

Spanish authorities published a new Trademark law in 2001 (Law 17/2001), which came into effect in July 2002. The Spanish Office of Patents and Trademarks oversees protection for national trademarks. Trademarks registered in the Industrial Property Registry receive protection for a 10-year period from the date of application, which may be renewed. Protection is not granted for generic names, geographic names, those that violate Spanish customs or other inappropriate trademarks. In March 2015, the Spanish parliament passed a reform of the penal code that entered into force in July 2015 (Ley Organica 1/2015). The revised penal code removed the condition that certain intellectual property rights crimes related to the sale of counterfeit items meet a threshold of EUR 400 in order to merit prosecution and changed the procedure for destruction of counterfeit items seized by law enforcement. Counterfeit items may be destroyed once an official report has been made regarding the items, unless a judge formally requests that the items be retained.

The Spanish Tax Agency releases statistics on seizures of counterfeit goods sporadically via its website. In 2017—the most recent data available—Spain confiscated 3.1 million counterfeit products in nearly 3,000 operations.

Businesses may seek a trademark valid throughout the European Union. The Office for Harmonization in the Internal Market (OHIM) for the registration of community trademarks in the European Union started its operations in 1996. Its headquarters are located in Alicante:

Office for Harmonization in the Internal Market (Trade Marks and Designs)
Avenida de Europa, 4
E-03008 Alicante
Tel: (34) 96-513-9100
http://oami.europa.eu/ows/rw/pages/OHIM/contact.en.do  

The World International Property Organization (WIPO, headquartered in Geneva) oversees an international system of registration. Applicants must designate the countries where they wish to obtain protection. However, this system only applies to U.S. firms with an establishment in a country that is a party of the Agreement or the Protocol.

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/ .

Policies Towards Foreign Direct Investment

The UK encourages foreign direct investment.  With a few exceptions, the government does not discriminate between nationals and foreign individuals in the formation and operation of private companies.  The Department for International Trade actively promotes direct foreign investment, and prepares market information for a variety of industries. U.S. companies establishing British subsidiaries generally encounter no special nationality requirements on directors or shareholders. Once established in the UK, foreign-owned companies are treated no differently from UK firms.   The British Government is a strong defender of the rights of any British-registered company, irrespective of its nationality of ownership.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign ownership is limited in only a few national security-sensitive companies, such as Rolls Royce (aerospace) and BAE Systems (aircraft and defense).  No individual foreign shareholder may own more than 15 percent of these companies. Theoretically, the government can block the acquisition of manufacturing assets from abroad by invoking the Industry Act 1975, but it has never done so in practice.  Investments in energy and power generation require environmental approvals. Certain service activities (like radio and land-based television broadcasting) are subject to licensing. The Enterprise Act of 2002 extends powers to the UK government to intervene in mergers and acquisitions which might give rise to national security implications and into which they would not otherwise be able to intervene.

The UK requires that at least one director of any company registered in the UK must be ordinarily resident in the UK.  The UK, as a member of the Organization for Economic Cooperation and Development (OECD), subscribes to the OECD Codes of Liberalization, committed to minimizing limits on foreign investment.

While the UK does not have a formalized investment review body to assess the suitability of foreign investments in national security sensitive areas, an ad hoc investment review process does exist and is led by the relevant government ministry with regulatory responsibility for the sector in question (e.g., the Department for Business, Energy, and Industrial Strategy who would have responsibility for review of investments in the energy sector).  To date, U.S. companies have not been the target of these ad hoc reviews. The UK is currently considering revisions to its national security review process related to foreign direct investment. (https://www.gov.uk/government/consultations/national-security-and-infrastructure-investment-review ).

The Government has proposed to amend the turnover threshold and share of supply tests within the Enterprise Act 2002. This is to allow the Government to examine and potentially intervene in mergers that currently fall outside the thresholds in two areas: (i) the dual use and military use sector, (ii) parts of the advanced technology sector. For these areas only, the Government proposes to lower the turnover threshold from £70 million (USD 92 million) to £1 million (USD 1.3 million) and remove the current requirement for the merger to increase the share of supply to or over 25 percent.

Other Investment Policy Reviews

The Economist’s “Intelligence Unit”, World Bank Group’s “Doing Business 2018”, and the OECD’s “Economic Forecast Summary (May 2019) have current investment policy reports for the United Kingdom:

• http://country.eiu.com/united-kingdom 
• http://www.doingbusiness.org/data/exploreeconomies/united-kingdom/ 
• http://www.oecd.org/economy/united-kingdom-economic-forecast-summary.htm 

Business Facilitation

The UK government seeks to facilitate investment by offering overseas companies access to widely integrated markets.  Proactive policies encourage international investment through administrative efficiency in order to promote innovation and achieve sustainable growth.  The online business registration process is clearly defined, though some types of company cannot register as an overseas firm in the UK, including partnerships and unincorporated bodies. Registration as an overseas company is only required when it has some degree of physical presence in the UK.  After registering a business with the UK government body, named Companies House, overseas firms must register to pay corporation tax within three months. The process of setting up a business in the UK requires as few as thirteen days, compared to the European average of 32 days, which puts the country in first place in Europe and sixth place in the world for ease of establishing a business.  As of April 2016, companies have to declare their Persons of Significant Control (PSC’s).  This change in policy recognizes that individuals other than named directors can have significant influence on a company’s activity and that this information should be transparent.  More information is available at this link: https://www.gov.uk/government/publications/guidance-to-the-people-with-significant-control-requirements-for-companies-and-limited-liability-partnerships .  Companies House maintains a free, publicly searchable directory, available at this link: https://www.gov.uk/get-information-about-a-company .  

The UK offers a welcoming environment to foreign investors, with foreign equity ownership restrictions in only a limited number of sectors covered by the Investing Across Sectors indicators.  As in all other EU member countries, foreign equity ownership in the air transportation sector is limited to 49 percent for investors from outside of the European Economic Area (EEA). Furthermore, the Industry Act (1975) enables the UK government to prohibit transfer to foreign owners of 30 percent or more of important UK manufacturing businesses, if such a transfer would be contrary to the interests of the country.  While these provisions have never been used in practice, they are still included in the Investing Across Sectors indicators, as these strictly measure ownership restrictions defined in the laws.

• https://invest.great.gov.uk/int/ 
• https://www.gov.uk/government/organisations/department-for-international-trade 
• https://www.gov.uk/set-up-business 
• https://www.gov.uk/topic/company-registration-filing/starting-company 
• http://www.doingbusiness.org/data/exploreeconomies/united-kingdom/starting-a-business 

Special Section on the British Overseas Territories and Crown Dependencies

The British Overseas Territories (BOTs) comprise Anguilla, British Antarctic Territory, Bermuda, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Falkland Islands, Gibraltar, Montserrat, Pitcairn Islands, St. Helena, Ascension and Tristan da Cunha, Turks and Caicos Islands, South Georgia and South Sandwich Islands, and Sovereign Base Areas on Cyprus.  The BOTs retain a substantial measure of responsibility for their own affairs. Local self-government is usually provided by an Executive Council and elected legislature. Governors or Commissioners are appointed by the Crown on the advice of the British Foreign Secretary, and retain responsibility for external affairs, defense, and internal security. However, the UK imposed direct rule on the Turks and Caicos Islands in August 2009 after an inquiry found evidence of corruption and incompetence.  Its Premier was removed and its constitution was suspended. The UK restored Home Rule following elections in November 2012.

Many of the territories are now broadly self-sufficient.  However, the UK’s Department for International Development (DFID) maintains development assistance programs in St. Helena, Montserrat, and Pitcairn.  This includes budgetary aid to meet the islands’ essential needs and development assistance to help encourage economic growth and social development in order to promote economic self-sustainability.  In addition, all other BOTs receive small levels of assistance through “cross-territory” programs for issues such as environmental protection, disaster prevention, HIV/AIDS and child protection. The UK also lends to the BOTs as needed, up to a pre-set limit, but assumes no liability for them if they encounter financial difficulty.

Seven of the BOTs have financial centers:  Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat, and the Turks and Caicos Islands.  These Territories have committed to the OECD’s Common Reporting Standard (CRS) for the automatic exchange of taxpayer financial account information.  They are already exchanging information with the UK, and began exchanging information with other jurisdictions under the CRS from September 2017. 

The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes has rated Anguilla as “partially compliant” with the internationally agreed tax standard.  Although Anguilla sought to upgrade its rating in 2017, it still remains at “partially compliant” as of April 2019. The Global Forum has rated the other six territories as “largely compliant.”  Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar and the Turks and Caicos Islands have also committed in reciprocal bilateral arrangements with the UK to hold beneficial ownership information in central registers or similarly effective systems, and to provide UK law enforcement authorities with near real-time access to this information.  These arrangements came into effect in June 2017. 

Anguilla:  Anguilla is a neutral tax jurisdiction.  There are no income, capital gains, estate, profit or other forms of direct taxation on either individuals or corporations, for residents or non-residents of the jurisdiction.  The territory has no exchange rate controls. Non-Anguillan nationals may purchase property, but the transfer of land to an alien includes a 12.5 percent tax.

British Virgin Islands:  The government of the British Virgin Islands welcomes foreign direct investment and offers a series of incentive packages aimed at reducing the cost of doing business on the islands.  This includes relief from corporation tax payments over specific periods but companies must pay an initial registration fee and an annual license fee to the BVI Financial Services Commission.  Crown land grants are not available to non-British Virgin Islanders, but private land can be leased or purchased following the approval of an Alien Land Holding License. Stamp duty is imposed on transfer of real estate and the transfer of shares in a BVI company owning real estate in the BVI at a rate of 4 percent for belongers and 12 percent for non-belongers.  There is no corporate income tax, capital gains tax, branch tax, or withholding tax for companies incorporated under the BVI Business Companies Act. Payroll tax is imposed on every employer and self-employed person who conducts business in BVI. The tax is paid at a graduated rate depending upon the size of the employer. The current rates are 10 percent for small employers (those which have a payroll of less than USD 150,000, a turnover of less than USD 300,000 and fewer than 7 employees) and 14 percent for larger employers. Eight percent of the total remuneration is deducted from the employee, the remainder of the liability is met by the employer. The first USD 10,000 of remuneration is free from payroll tax.

Cayman Islands:  There are no direct taxes in the Cayman Islands.  In most districts, the government charges stamp duty of 7.5 percent on the value of real estate at sale; however, certain districts, including Seven Mile Beach, are subject to a rate of nine percent.  There is a one percent fee payable on mortgages of less than KYD 300,000, and one and a half percent on mortgages of KYD 300,000 or higher. There are no controls on the foreign ownership of property and land.  Investors can receive import duty waivers on equipment, building materials, machinery, manufacturing materials, and other tools.

Falkland Islands:  Companies located in the Falkland Islands are charged corporation tax at 21 percent on the first GBP one million and 26 percent for all amounts in excess of GBP one million.  The individual income tax rate is 21 percent for earnings below USD 15,694 (GBP 12,000) and 26 percent above this level.

Gibraltar:  The government of Gibraltar encourages foreign investment.  Gibraltar has a buoyant economy with a stable currency and few restrictions on moving capital or repatriating dividends.  The corporate income tax rate is 20 percent for utility, energy, and fuel supply companies, and 10 percent for all other companies.  There are no capital or sales taxes. Gibraltar is currently a part of the EU and receives EU funding for projects that improve the territory’s economic development.

Montserrat:  The government of Montserrat welcomes new private foreign investment.  Foreign investors are permitted to acquire real estate, subject to the acquisition of an Alien Land Holding license which carries a fee of five percent of the purchase price.  The government also imposes stamp and transfer fees of 2.6 percent of the property value on all real estate transactions. Foreign investment in Montserrat is subject to the same taxation rules as local investment, and is eligible for tax holidays and other incentives.  Montserrat has preferential trade agreements with the United States, Canada, and Australia. The government allows 100 percent foreign ownership of businesses but the administration of public utilities remains wholly in the public sector.

St. Helena:  The island of St. Helena is open to foreign investment and welcomes expressions of interest from companies wanting to invest.  Its government is able to offer tax based incentives which will be considered on the merits of each project – particularly tourism projects.  All applications are processed by Enterprise St. Helena, the business development agency.

Pitcairn Islands:  The Pitcairn Islands have approximately 50 residents, with a workforce of approximately 29 employed in 10 full-time equivalent roles.  The territory does not have an airstrip or safe harbor. Residents exist on fishing, subsistence farming, and handcrafts.

The Turks and Caicos Islands:  The islands operate an “open arms” investment policy.  Through the policy, the government commits to a streamlined business licensing system, a responsive immigration policy to give investment security, access to government-owned land under long-term leases, and a variety of duty concessions to qualified investors.  The islands have a “no tax” status, but property purchasers must pay a stamp duty on purchases over USD 25,000. Depending on the island, the stamp duty rate may be up to 6.5 percent for purchases up to USD 250,000, eight percent for purchases USD 250,001 to USD 500,000, and 10 percent for purchases over USD500,000.

The Crown Dependencies:

The Crown Dependencies are the Bailiwick of Jersey, the Bailiwick of Guernsey and the Isle of Man.  The Crown Dependencies are not part of the UK but are self-governing dependencies of the Crown. They have their own directly elected legislative assemblies, administrative, fiscal and legal systems and their own courts of law. The Crown Dependencies are not represented in the UK Parliament.

Jersey’s standard rate of corporate tax is zero percent.  The exceptions to this standard rate are financial service companies, which are taxed at 10 percent, utility companies, which are taxed at 20 percent, and income specifically derived from Jersey property rentals or Jersey property development, taxed at 20 percent. VAT is not applicable in Jersey as it is not part of the EU VAT tax area.

Guernsey has a zero percent rate of corporate tax.  Some exceptions include some specific banking activities, taxed at 10 percent, utility companies, which are taxed at 20 percent, Guernsey residents’ assessable income is taxed at 20 percent, and income derived from land and buildings is taxed at 20 percent

The Isle of Man’s corporate standard tax is zero percent.  The exceptions to this standard rate are income received from banking business, which is taxed at 10 percent and income received from land and property in the Isle of Man which is taxed at 20 percent. In addition, a 10 percent tax rate also applies to companies who carry on a retail business in the Isle of Man and have taxable income in excess of £500,000 from that business.  VAT is applicable in the Isle of Man as it is part of the EU customs territory.

This tax data is current as of April 2019.  

Outward Investment

The UK is one of the largest outward investors in the world, often protected through Bilateral Investment Treaties (BITs), which have been concluded with many countries.  The UK’s international investment position abroad (outward investment) increased from GBP 1,696.5 billion in 2017 to GBP 1,713.3 billion in 2018. By the end of 2018 the UK’s stock of outward FDI was GBP 1,713 billion, a 52 rise percent since 2002.  The main destination for UK outward FDI is the United States, which accounted for approximately 23 percent of UK outward FDI stocks at the end of 2017. Other key destinations include the Netherlands, Luxembourg, France, and Ireland which, together with the United States, account for a little under half of the UK’s outward FDI stock.

Europe and the Americas remain the dominant areas for British FDI positions abroad, accounting for 16 of the top 20 destinations for total UK outward FDI.  The UK’s international investment position within the Americas was GBP 401.9 billion in 2017. This is the third largest recorded value in the time series since 2006 for the Americas.  The United States, at GBP 329.3 billion, continued to be the largest destination for UK international investment positions abroad within the Americas in 2017.

Transparency of the Regulatory System

U.S. exporters and investors generally find little difference between the United States and UK in the conduct of business.  The regulatory system provides clear and transparent guidelines for commercial engagement. Common law prevails in the UK as the basis for commercial transactions, and the International Commercial Terms (INCOTERMS) of the International Chambers of Commerce are accepted definitions of trading terms.  For accounting standards and audit provisions, firms in the UK currently use the International Financial Reporting Standards (IFRS) set by the International Accounting Standards Board (IASB) and approved by the European Commission. The UK’s Accounting Standards Board provides guidance to firms on accounting standards and works with the IASB on international standards.

Statutory authority over prices and competition in various industries is given to independent regulators, for example Ofcom, Ofwat, Ofgem, the Office of Fair Trading (OFT), the Rail Regulator, and the Prudential Regulatory Authority (PRA).  The PRA was created out of the dissolution of the Financial Services Authority (FSA) in 2013. The PRA reports to the Financial Policy Committee (FPC) in the Bank of England. The PRA is responsible for supervising the safety and soundness of individual financial firms, while the FPC takes a systemic view of the financial system and provides macro-prudential regulation and policy actions.  The Consumer and Markets Authority (CMA) acts as a single integrated regulator focused on conduct in financial markets. The Financial Conduct Authority (FCA) is a regulatory enforcement mechanism designed to address financial and market misconduct through legally reviewable processes. These regulators work to protect the interests of consumers while ensuring that the markets they regulate are functioning efficiently.  Most laws and regulations are published in draft for public comment prior to implementation. The FCA maintains a free, publicly searchable register of their filings on regulated corporations and individuals here: https://register.fca.org.uk/ .

The UK government publishes regulatory actions, including draft text and executive summaries, on the Department for Business, Energy & Industrial Strategy webpage listed below.  The current policy requires the repeal of two regulations for any new one in order to make the business environment more competitive.

The primary difference between the regulatory environment in the UK and the United States is that so long as the UK is a member of the European Union, it is mandated to comply with and enforce EU regulations and directives.  The U.S. government has expressed concerns about the degree of transparency and accountability in the EU regulatory process. The extent to which the UK will deviate from the EU regulatory regime after the UK withdraws from the EU is unknown at this time.

• https://www.gov.uk/government/policies/business-regulation 
• https://www.gov.uk/government/organisations/regulatory-delivery 

International Regulatory Considerations

The UK’s withdrawal from the EU may result in an extended period of regulatory uncertainty across the economy as the UK determines the extent to which it will maintain and enforce the current EU regulatory regime or deviate towards new regulations in any particular sector .  The UK is an independent member of the WTO, and actively seeks to comply with all its WTO obligations.

Legal System and Judicial Independence

The UK is a common law country.  UK business contracts are legally enforceable in the UK, but not in the United States or other foreign jurisdictions.  International disputes are resolved through litigation in the UK Courts or by arbitration, mediation, or some other alternative dispute resolution (ADR) method.  The UK has a long history of applying the rule of law to business disputes. The current judicial process remains procedurally competent, fair, and reliable, which helps position London as an international center for dispute resolution with over 10,000 cases filed per annum.

Laws and Regulations on Foreign Direct Investment

There is no specific statute governing or restricting foreign investment in the UK.  The procedure for establishing a company in the UK is identical for British and foreign investors.  No approval mechanisms exist for foreign investment, apart from the ad hoc national security process outlined in Section 1.  Foreigners may freely establish or purchase enterprises in the UK, with a few limited exceptions, and acquire land or buildings.  The UK is currently reviewing its procedures and considering new rules for restricting foreign investment in those sectors of the economy with higher risk for adversely impacting national security.   

The practice of multinational enterprises structuring operations to minimize taxes, referred to as ‘tax avoidance’ in the UK, has been a controversial political issue and subject to investigations by the UK Parliament and EU authorities.  Both foreign and UK firms remain subject to the same tax laws. Foreign investors may have access to certain EU and UK regional grants and incentives designed to attract industry to areas of high unemployment.

In 2015, the UK flattened its structure of corporate tax rates.  The UK currently taxes corporations at a flat rate of 19 percent, with marginal tax relief granted for companies with profits falling between USD 391,000 (GBP 300,000) and 1.96 million (GBP 1.5 million).  Tax deductions are allowed for expenditure and depreciation of assets used for trade purposes. These include machinery, plant, industrial buildings, and assets used for research and development. A special rate of 20 percent is given to unit trusts and open-ended investment companies.  There are different Corporation Tax rates for companies that make profits from oil extraction or oil rights in the UK or UK continental shelf. These are known as ‘ring fence’ companies. Small ‘ring fence’ companies are taxed at a rate of 19 percent for profits up to USD 391,000 (GBP 300,000), and 30 percent for profits over USD 391,000 (GBP 300,000).

UK citizens also make mandatory payments of about 12 percent of income into the National Insurance system, which funds social security and retirement benefits.  The UK requires non-domiciled residents of the UK to either pay tax on their worldwide income or the tax on the relevant part of their remitted foreign income being brought into the UK.  If they have been resident in the UK for seven tax years of the previous nine, and they choose to pay tax only on their remitted earnings, they may be subject to an additional charge of USD 39,141 (GBP 30,000).  If they have been resident in the UK for 12 of the last 14 tax years, they may be subject to an additional charge of USD 78,282 (GBP 60,000).

The Scottish Parliament has the legal power to increase or decrease the basic income tax rate in Scotland, currently 20 percent, by a maximum of three percentage points.  The Scottish Government has been opposed to increasing tax rates, mainly because any financial advantage gained by an increase in taxes would be offset by the need to establish a new administrative body to manage the new revenue.

For guidance on laws and procedures relevant to foreign investment in the UK, follow the link below:

https://www.gov.uk/government/collections/investment-in-the-uk-guidance-for-overseas-businesses 

All USD conversions based on spot exchange rate as of April 08, 2019.

Competition and Anti-Trust Laws

UK competition law contains both British and European elements.  The Competition Act 1998 and the Enterprise Act 2002 are the most important statutes for cases with a purely national dimension.  However, if the impact of a business’ conduct crosses borders, EU law applies. Section 60 of the Competition Act 1998 provides that UK rules are to be applied in line with European jurisprudence.

The Companies Act of 1985, administered by the Department for Business, Entrepreneurship, Innovation and Skills (BEIS), governs ownership and operation of private companies.  The Companies Act of 2006 replaced the 1985 Act, simplifying existing rules.

BEIS uses a transparent code of practice that is fully in accord with EU merger control regulations, in evaluating bids and mergers for possible referral to the Competition Commission.  The Competition Act of 1998 strengthened competition law and enhanced the enforcement powers of the Office of Fair Trading (OFT). Prohibitions under the act relate to competition-restricting agreements and abusive behavior by entities in dominant market positions.  The Enterprise Act of 2002 established the OFT as an independent statutory body with a Board, and gives it a greater role in ensuring that markets work well. Also, in accordance with EU law, if deemed in the public interest, transactions in the media or that raise national security concerns may be reviewed by the Secretary of State of BEIS.

In 2014, the Competition Commission and the OFT merged into a single Non Departmental Government Body: the Competition and Markets Authority.  This new body is responsible for investigating mergers that could restrict competition, conducting market studies and investigations where there may be competition problems, investigating breaches of EU and UK prohibitions, initiating criminal proceedings against individuals who commit cartel offenses, and enforcing consumer protection legislation.  This body is unlikely to alter UK competition policy.

UK competition law has three main tasks: 1) prohibiting agreements or practices that restrict free trading and competition between business entities (this includes in particular the repression of cartels); 2) banning abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position (practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal and many others); and 3) supervising the mergers and acquisitions of large corporations, including some joint ventures.  Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to “remedies” such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing.

The Competition and Markets Authority (CMA) is the primary regulatory body for competition law enforcement.  It was created through the merger of the Office of Fair Trading (OFT) with the Competition Commission through the Enterprise and Regulatory Reform Act 2013.  Competition law is closely connected with law on deregulation of access to markets, state aids and subsidies, the privatization of state owned assets, and the establishment of independent sector regulators.

Although the OFT and the Competition Commission have general review authority, specific “watchdog” agencies such as Ofgem (the electricity and gas markets regulation authority), Ofcom (the communications regulation authority), and Ofwat (the water services regulation authority) are also charged with seeing how the operation of those specific markets work.

Expropriation and Compensation

The OECD, of which the UK is a member, states that when a government expropriates property, compensation should be timely, adequate and effective.  In the UK, the right to fair compensation and due process is uncontested and is reflected in all international investment agreements. Expropriation of corporate assets or the nationalization of industry requires a special act of Parliament.  A number of key UK banks became subject to full or part-nationalization from early 2008 as a response to the global financial crisis and banking collapse. The first bank to become nationalized was Northern Rock in February 2008, and by March 2009 the UK Treasury had taken a 65 percent stake in Lloyds Banking Group and a 68 percent stake in the Royal Bank of Scotland (RBS).  In the event of nationalization, the British government follows customary international law by providing prompt, adequate, and effective compensation.

Dispute Settlement

As a member of the World Bank-based International Center for Settlement of Investment Disputes (ICSID), the UK accepts binding international arbitration between foreign investors and the State.  As a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the UK provides local enforcement on arbitration judgments decided in other signatory countries.

London is a thriving center for the resolution of international disputes through arbitration under a variety of procedural rules such as those of the London Court of International Arbitration, the International Chamber of Commerce, the Stockholm Chamber of Commerce, the American Arbitration Association International Centre for Dispute Resolution, and others.  Many of these arbitrations involve parties with no connection to the jurisdiction, but who are drawn to the jurisdiction because they perceive it to be a fair, neutral venue with an arbitration law and courts that support efficient resolution of disputes. They also choose London-based arbitration because of the general prevalence of the English language and law in international commerce.  A wide range of contractual and non-contractual claims can be referred to arbitration in this jurisdiction including disputes involving intellectual property rights, competition, and statutory claims. There are no restrictions on foreign nationals acting as arbitration counsel or arbitrators in this jurisdiction. There are few restrictions on foreign lawyers practicing in the jurisdiction as evidenced by the fact that over 200 foreign law firms have offices in London.

ICSID Convention and New York Convention

The UK is a member of the International Center for Settlement of Investment Disputes (ICSID) and a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  The latter convention has territorial application to Gibraltar (September 24, 1975), Hong Kong (January 21, 1977), Isle of Man (February 22, 1979), Bermuda (November 14, 1979), Belize and Cayman Islands (November 26, 1980), Guernsey (April 19, 1985), Bailiwick of Jersey (May 28, 2002), and British Virgin Islands (February 24, 2014).

The United Kingdom has consciously elected not to follow the UNCITRAL Model Law on International Commercial Arbitration.  Enforcement of an arbitral award in the UK is dependent upon where the award was granted. The process for enforcement in any particular case is dependent upon the seat of arbitration and the arbitration rules that apply.  Arbitral awards in the UK can be enforced under a number of different regimes, namely: The Arbitration Act 1996, The New York Convention, The Geneva Convention 1927, The Administration of Justice Act 1920 and the Foreign Judgments (Reciprocal Enforcement) Act 1933, and Common Law.

The Arbitration Act 1996 governs all arbitrations seated in England, Wales and Northern Ireland, both domestic and international. The full text of the Arbitration Act can be found here: http://www.legislation.gov.uk/ukpga/1996/23/data.pdf .

The Arbitration Act is heavily influenced by the UNCITRAL Model Law, but it has some important differences.  For example, the Arbitration Act covers both domestic and international arbitration; the document containing the parties’ arbitration agreement need not be signed; an English court is only able to stay its own proceedings and cannot refer a matter to arbitration; the default provisions in the Arbitration Act require the appointment of a sole arbitrator as opposed to three arbitrators; a party retains the power to treat its party-nominated arbitrator as the sole arbitrator in the event that the other party fails to make an appointment (where the parties’ agreement provides that each party is required to appoint an arbitrator); there is no time limit on a party’s opposition to the appointment of an arbitrator; parties must expressly opt out of most of the provisions of the Arbitration Act which confer default procedural powers on the arbitrators; and there are no strict rules governing the exchange of pleadings.  Section 66 of the Arbitration Act applies to all domestic and foreign arbitral awards. Sections 100 to 103 of the Arbitration Act provide for enforcement of arbitral awards under the New York Convention 1958. Section 99 of the Arbitration Act provides for the enforcement of arbitral awards made in certain countries under the Geneva Convention 1927.

Under Section 66 of the Arbitration Act, the court’s permission is required for an international arbitral award to be enforced in the UK.  Once the court has given permission, judgment may be entered in terms of the arbitral award and enforced in the same manner as a court judgment or order.  Permission will not be granted by the court if the party against whom enforcement is sought can show that (a) the tribunal lacked substantive jurisdiction and (b) the right to raise such an objection has not been lost.

The length of arbitral proceedings can vary greatly.  If the parties have a relatively straightforward dispute, cooperate, and adopt a fast track procedure, arbitration can be concluded within months or even weeks.  In a substantial international arbitration involving complex facts, many witnesses and experts and post-hearing briefs, the arbitration could take many years. A reasonably substantial international arbitration will likely take between one and two years.

There are two alternative procedures that can be followed in order to enforce an award.  The first is to seek leave of the court for permission to enforce. The second is to begin an action on the award, seeking the same relief from the court as set out in the tribunal’s award.  Enforcement of an award made in the jurisdiction may be opposed by challenging the award. However, the court also may refuse to enforce an award that is unclear, does not specify an amount, or offends public policy.  Enforcement of a foreign award may be opposed on any of the limited grounds set out in the New York Convention. A stay may be granted for a limited time pending a challenge to the order for enforcement. The court will consider the likelihood of success and whether enforcement of the award will be made more or less difficult as a result of the stay.  Conditions that might be imposed on granting the stay include such matters as paying a sum into court. Where multiple awards are to be rendered, the court may give permission for the tribunal to continue hearing other matters, especially where there may be a long delay between awards. UK courts have a good record of enforcing arbitral awards, which they will enforce in the same way that they would enforce an order or judgment of a court.  At the time of writing, there are no examples of the English courts enforcing awards which were set aside by the courts at the place of arbitration.

Most awards are complied with voluntarily.  If the party against whom the award was made fails to comply, the party seeking enforcement can apply to the court.  The length of time it takes to enforce an award which complies with the requirements of the New York Convention will depend on whether there are complex objections to enforcement which require the court to investigate the facts of the case.  If a case raises complex issues of public importance the case could be appealed to the Court of Appeal and then to the Supreme Court. This process could take around two years. If no complex objections are raised, the party seeking enforcement can apply to the court using a summary procedure that is fast and efficient.  There are time limits relating to the enforcement of the award. Failure to comply with an award is treated as a breach of the arbitration agreement. An action on the award must be brought within six years of the failure to comply with the award or 12 years if the arbitration agreement was made under seal. If the award does not specify a time for compliance, a court will imply a term of reasonableness.

Bankruptcy Regulations

The UK has strong bankruptcy protections going back to the Bankruptcy Act of 1542, and in modern days both individual bankruptcy and corporate insolvency are regulated in the UK primarily by the Insolvency Act 1986 and the Insolvency Rules 1986, regulated through determinations in UK courts.  The World Bank’s Doing Business report Ranks the UK 14/189 for ease of resolving insolvency.

Regarding individual bankruptcy law, the court will oblige a bankrupt individual to sell assets to pay dividends to creditors.  A bankrupt person must inform future creditors about the bankrupt status and may not act as the director of a company during the period of bankruptcy.  Bankruptcy is not criminalized in the UK, and the Enterprise Act of 2002 dictates that for England and Wales, bankruptcy will not normally last longer than 12 months.  At the end of the bankrupt period, the individual is normally no longer held liable for bankruptcy debts unless the individual is determined to be culpable for his or her own insolvency, in which case the bankruptcy period can last up to fifteen years.

For corporations declaring insolvency, UK insolvency law seeks to equitably distribute losses between creditors, employees, the community, and other stakeholders in an effort to rescue the company.  Liability is limited to the amount of the investment. If a company cannot be rescued, it is liquidated and assets are sold to pay debts to creditors, including foreign investors.

Investment Incentives

The UK offers a range of incentives for companies of any nationality locating in depressed regions of the country, as long as the investment generates employment.  DIT works with its partner organizations in the devolved administrations – Scottish Development International, the Welsh Government and Invest Northern Ireland – and with London and Partners and Local Enterprise Partnerships (LEPs) throughout England, to promote each region’s particular strengths and expertise to overseas investors.

Local authorities in England and Wales also have power under the Local Government and Housing Act of 1989 to promote the economic development of their areas through a variety of assistance schemes, including the provision of grants, loan capital, property, or other financial benefit.  Separate legislation, granting similar powers to local authorities, applies to Scotland and Northern Ireland. Where available, both domestic and overseas investors may also be eligible for loans from the European Investment Bank.

Foreign Trade Zones/Free Ports/Trade Facilitation

The cargo ports and freight transportation ports at Liverpool, Prestwick, Sheerness, Southampton, and Tilbury used for cargo storage and consolidation are designated as Free Trade Zones.  No activities that add value to commodities are permitted within the Free Trade Zones, which are reserved for bonded storage, cargo consolidation, and reconfiguration of non-EU goods. The Free Trade Zones offer little benefit to U.S. exporters or investors, or any other non-EU exporters or investors.  Questions remain as to the UK’s use of Free Trade Zones in a post-Brexit environment.

Performance and Data Localization Requirements

As of May 2018, companies operating in the UK comply with the EU General Data Protection Regulation (GDPR).  The UK presently intends to transpose the requirements of the GDPR into UK domestic law after the UK withdraws from the EU.  The potential impact of the UK leaving the EU on the free flow of data between the EU and the UK, and the UK and United States is unknown.     

The UK does not follow “forced localization” and does not require foreign IT firms to turn over source code.  The Investigatory Powers Act became law in November 2016 addressing encryption and government surveillance. It permitted the broadening of capabilities for data retention and the investigatory powers of the state related to data.

The UK Government does not mandate local employment, though at least one director of any company registered in the UK must be ordinarily resident in the UK.

Immigration policy is in the midst of sweeping reforms in the UK. Freedom of movement between the UK and EU member states is likely to soon come to an end and the government is looking at a post-Brexit system that will favour high-skilled migrants. New immigration rules (HC1888) that came into effect on April 6, 2012 have wide-ranging implications for foreign employees, primarily affecting businesses looking to sponsor migrants under Tier 2 as well as migrants looking to apply for settlement in the UK.  In particular, the UK Government has introduced a 12-month cooling off period for Tier 2 (General) applications similar to the one that is currently in place for Tier 2 (Intra-company transfer). The effect of this is that, while those who enter the UK under Tier 2 (General) to work for one company will be able to apply in-country under Tier 2 (General) to work for another company, if they leave the UK, they will not be able to apply to re-enter the UK under a fresh Tier 2 (General) permission until twelve months after their previous Tier 2 (General) permission has expired.

These provisions represent a significant tightening of the Tier 2 requirements.  One of the consequences is that, where an individual is sent to the UK on assignment under Tier 2 (Intracompany transfer), and the sponsoring company subsequently wishes to hire them permanently in the UK, they will not be able to apply either to remain in the UK under Tier 2 (General) or leave the UK and submit a Tier 2 (General) application overseas.

This change will mean that employers will have to carefully consider the long-term plans for all assignees that they send to the UK and whether Tier 2 (Intracompany transfer) is the most appropriate category. This is because, if the assignee is subsequently required in the UK on a long-term basis, it will not be possible for them to make a new application under Tier 2 (General) until at least twelve months after their Tier 2 (Intra-company transfer) permission has expired.

Real Property

The UK has robust real property laws stemming from legislation including the Law of Property Act 1925, the Settled Land Act 1925, the Land Charges Act 1972, the Trusts of Land and Appointment of Trustees Act 1996, and the Land Registration Act 2002.

Interests in property are well enforced, and mortgages and liens have been recorded reliably since the Land Registry Act of 1862.  The Land Registry is the government database where all land ownership and transaction data are held for England and Wales, and it is reliably accessible online, here: https://www.gov.uk/search-property-information-land-registry .  Scotland has its own Registers of Scotland, while Northern Ireland operates land registration through the Land and Property Services.

Long-term physical presence on non-residential property without their permission is not typically considered a crime in the UK.  Police take action if squatters commit other crimes when entering or staying in a property. A long-term squatter on otherwise unoccupied land can become the registered owner of property that they have occupied without the owner’s permission through an adverse possession process.

Intellectual Property Rights

The UK legal system provides a high level of protection for intellectual property rights (IPR). Enforcement mechanisms are comparable to those available in the United States.  The UK is a member of the World Intellectual Property Organization (WIPO). The UK is also a member of the major intellectual property protection agreements: the Bern Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention, the Patent Cooperation Treaty, and the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  The UK has signed and, through implementing various EU Directives, enshrined into UK law the WIPO Copyright Treaty (WCT) and WIPO Performance and Phonograms Treaty (WPPT), known as the internet treaties.

The Intellectual Property Office (IPO) is the official UK government body responsible for IPR including patents, designs, trademarks and copyright.  The IPO website contains comprehensive information on UK law and practice in these areas.

https://www.gov.uk/government/organisations/intellectual-property-office 

The British government tracks and reports seizures of counterfeit goods and regards the production and subsequent sale as a criminal act.  The Intellectual Property Crime Report for 2017/18 highlights the incidence of IPC and the harm caused to the UK economy, showing that almost 4 percent of all UK imports in 2013 were counterfeit, worth £9.3 billion (USD 12 billion). They estimate this equates to around 60,000 jobs being lost and almost £4 billion (USD 5.2 billion) in lost tax revenue.

The Special 301 Report is an annual, congressionally-mandated review of the global state of IPR protection and enforcement.  It is conducted by the Office of the U.S. Trade Representative to identify countries with commercial environments possibly harmful to intellectual property.  The UK is not on the list, nor is it included on the Notorious Markets List

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/