The Dominican Republic, an upper middle-income country, enjoyed stable, consistent growth in a relatively diversified economy in 2019, as it has over the past decade. Foreign direct investment (FDI) provides a key source of foreign exchange for the Dominican economy, and the Dominican Republic is one of the main recipients of FDI in the Caribbean and Central America. The government actively courts FDI with generous tax exemptions and other incentives to attract businesses to the country. Historically, the tourism, real estate, telecommunications, free trade zones, mining, and financing sectors are the largest FDI recipients. In January 2020, the government announced a special incentive plan to promote high-quality investment in tourism and infrastructure in the southwest region and, in February 2020, it passed a Public Private Partnership law to catalyze private sector-led economic growth. The government’s Digital Republic program aims to create more opportunities in the digital economy for students and small businesses and ease some business operation restrictions.
Besides financial incentives, the country’s membership in the Central America Free Trade Agreement-Dominican Republic (CAFTA-DR) is one of the greatest advantages for foreign investors. Observers credit the agreement with increasing competition, improving the rule of law, and expanding access to quality products in the Dominican Republic. The United States remains the single largest investor in the Dominican Republic. CAFTA-DR includes protections for member state foreign investors, including mechanisms for dispute resolution.
Despite a stable macroeconomic situation, international indicators of the Dominican Republic’s competitiveness and transparency weakened over the past year. Foreign investors report numerous systemic problems in the Dominican Republic and cite a lack of clear, standardized rules by which to compete and a lack of enforcement of existing rules. Complaints include allegations of widespread corruption; requests for bribes; delays in government payments; weak intellectual property rights enforcement; bureaucratic hurdles; slow and sometimes locally biased judicial and administrative processes, and non-standard procedures in customs valuation and classification of imports. Weak land tenure laws and government expropriations without due compensation continue to be a problem. The public perceives administrative and judicial decision-making to be inconsistent, opaque, and overly time-consuming. Corruption and poor implementation of existing laws are widely discussed as key investor grievances.
A large public corruption scandal from 2017 continues to spark calls for institutional change and was reinvigorated by new related allegations published in June 2019 in an International Consortium of Investigative Journalists report. U.S. businesses operating in the Dominican Republic often need to take extensive measures to ensure compliance with the Foreign Corrupt Practices Act. Many U.S. firms and investors have expressed concerns that corruption in the government, including in the judiciary, continues to constrain successful investment in the Dominican Republic.
President Danilo Medina’s July 2019 decision not to contend for re-election ensured 2020 will be a year of transition for the Dominican Republic. The investment climate in the coming years will largely depend on whether the new government chooses to implement reforms necessary to promote competitiveness and transparency, rein in expanding public debt, and bring corrupt public officials to justice.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Dominican economy presents both challenges and opportunities for foreign investors. While the Dominican government promotes inward FDI and has established formal programs to attract it, lack of clear rules and uneven enforcement of existing rules complicates foreign investment.
The Dominican Republic provides tax incentives to investment in tourism, renewable energy, film production, Haiti-Dominican Republic border development, and the industrial sector. The Dominican Republic is also a signatory of CAFTA-DR, which mandates non-discriminatory treatment, free transferability of funds, protection against expropriation, and procedures for the resolution of investment disputes. However, some foreign investors indicate that the uneven enforcement of regulations and laws, or political interference in legal processes, creates difficulties for investment.
There are two main government agencies responsible for attracting foreign investment, the Export and Investment Center of the Dominican Republic (CEI-RD) and the National Council of Free Trade Zones for Export (CNZFE). CEI-RD promotes foreign investment and aids prospective foreign investors with business registration, matching services and identification of investment opportunities. CEI-RD also oversees “ProDominicana,” a branding and marketing program for the country launched in 2017 that promotes the DR as an investment destination and exporter. CNZFE aids foreign companies looking to establish operations in the country’s 74 free trade zones for export outside Dominican territory.
There are a variety of business associations that promote dialogue between the government and private sector, including the Association of Foreign Investor Businesses (ASIEX).
Limits on Foreign Control and Right to Private Ownership and Establishment
There are no general (statutory, de facto, or otherwise) limits on foreign ownership or control. According to Law No. 98-03 and Regulation 214-04, an interested foreign investor must file an application form at the offices of CEI-RD within 180 calendar days from the date on which the foreign investment took place. CEI-RD will then evaluate the application and issue the corresponding Certificate of Registration within 15 working days.
In order to set up a business in a free trade zone, a formal request must be made to the CNZFE, the entity responsible for issuing the operating licenses needed to be a free zone company or operator. CNZFE assesses the application and determines its feasibility. For more information on the procedure to apply for an operating license, visit the website of the CNZFE at http://www.cnzfe.gov.do.
The Dominican Republic does not maintain a formalized investment screening and approval mechanism for inbound foreign investment.
Other Investment Policy Reviews
The Dominican Republic has not been reviewed recently by multilateral organizations regarding investment policy. The most recent reviews occurred in 2015. This included a trade policy review by the World Trade Organization (WTO) and a follow-up review by the United Nations Conference on Trade and Development (UNCTAD) regarding its 2008 investment policy recommendations.
In the World Bank’s report, “Doing Business,” the Dominican Republic’s overall ranking for ease of doing business fell from 102 in 2019 to 115 in 2020, reflecting stagnant performance in several of the indicator categories. According to the report, starting a limited liability company (SRL by its Spanish acronym) in the Dominican Republic is a seven-step process that requires 16.5 days. However, some businesses report the full incorporation process can take two or three times longer than the advertised process.
The Dominican Republic has a single-window registration website for SRL registration (https://www.formalizate.gob.do/) that offers a one-stop shop for registration needs. Foreign companies may use the registration website. However, this electronic method of registration is not widely used in practice and consultation with a local lawyer is recommended for company registrations.
There are no legal or government restrictions on Dominican investment abroad, although the government does little to promote it. Outbound foreign investment is significantly lower than inbound investment. The largest recipient of Dominican outward investment is the United States.
3. Legal Regime
Transparency of the Regulatory System
The national government manages all regulatory processes. Information about regulations is often scattered among various ministry and agency websites and is sometimes only available through direct communication with officials. It is advisable for U.S. investors to consult with local attorneys or advisors to assist with locating comprehensive regulatory information.
On the 2019 Global Innovations Index, the Dominican Republic’s overall rank remained flat (87) compared to 2018. In sub-sections of the report, the Dominican Republic ranks 98 out of 129 for regulatory environment and 74 out of 129 for regulatory quality. The World Economic Forum 2019 Global Competitiveness Report ranked the Dominican Republic 87 out of 141 countries with respect to the efficiency of the legal framework in challenging regulations, and 108 out of 141 regarding burden of government regulations.
The World Bank Global Indicators of Regulatory Governance report states that Dominican ministries and regulatory agencies do not publish lists of anticipated regulatory changes or proposals intended for adoption within a specific timeframe. Law 200-04 requires regulatory agencies to give notice of proposed regulations in public consultations and mandates publication of the full text of draft regulations on a unified website: http://www.consultoria.gov.do/. Foreign investors, however, claim that these requirements are not always met in practice and many businesses note that the scope of the website content is not always adequate for investors or interested parties as not all relevant Dominican agencies provide content, and those that do often do not keep the content up to date. U.S. businesses reported that some laws went into effect before agencies issued implementing regulations to guide the businesses on how to comply with requirements.
The process of public consultation is not uniform across government. Some ministries and regulatory agencies solicit comments on proposed legislation from the public; however, public outreach is generally limited and depends on the responsible ministry or agency. For example, businesses report that some ministries sometimes upload proposed regulations to their websites or post them in national newspapers, while others may form working groups with key public and private sector stakeholders participating in the drafting of proposed regulations. Public comments received by the government are generally not publicly accessible. Some ministries and agencies prepare consolidated reports on the results of a consultation for direct distribution to interested stakeholders. Ministries and agencies do not conduct impact assessments of regulations or ex post reviews. Affected parties cannot request reconsideration or appeal of adopted regulations.
The Dominican Institute of Certified Public Accountants (ICPARD) is the country’s legally recognized professional accounting organization and has authority to establish accounting standards in accordance with Law 479-08, which also declares (as amended by Law 31-11) financial statements should be prepared in accordance with generally accepted accounting standards nationally and internationally. The ICPARD and the country’s Securities Superintendency require the use of International Financial Reporting Standards (IFRS) and IFRS for small and medium-sized entities (SMEs).
By law, the Office of Public Credit publishes on its website a quarterly report on the status of the non-financial public sector debt, which includes a wide array of information and statistics on public borrowing (www.creditopublico.gov.do/publicaciones/informes_trimestrales.htm).
In addition to the public debt addressed by the Office of Public Credit, the Central Bank maintains on its balance sheet nearly USD $12 billion in “quasi-fiscal” debt. When consolidated with central government debt, the debt-to-GDP ratio is near 53 percent, and the debt service ratio is near 30 percent.
International Regulatory Considerations
Since 1995, the Dominican Republic has presented 280 notifications to the WTO Committee on Technical Barriers to Trade (TBT). In recent years, the Dominican Republic has frequently changed technical requirements (e.g., for steel rebar imports and sanitary registrations, among others) and has failed to provide proper notification under the WTO TBT agreement and CAFTA-DR.
Legal System and Judicial Independence
The judicial branch is an independent branch of the Dominican government. According to Article 69 of the Constitution, all persons, including foreigners, have the right to appear in court. The basic concepts of the Dominican legal system and the forms of legal reasoning derive from French law. The five basic French Codes (Civil, Civil Procedure, Commerce, Penal, and Criminal Procedure) were translated into Spanish and passed as legislation in 1884. Some of these codes have since been amended and parts have been replaced. Subsequent Dominican laws are not of French origin.
The World Economic Forum 2019 Global Competitiveness report ranked the Dominican Republic 123 out of 141 countries in judicial independence and 87 of 141 in the efficiency of the legal framework in settling disputes. On the 2018 Global Innovations Index, the Dominican Republic ranked 91 out of 129 countries for rule of law.
There is a Commercial Code and a wide variety of laws governing business formation and activity. The main laws governing commercial disputes are the Commercial Code; Law No. 479-08, the Commercial Societies Law; Law No. 3-02, concerning Business Registration; Commercial Arbitration Law No. 489-08; Law No. 141-15 concerning Restructuring and Liquidation of Business Entities; and Law No. 126-02, concerning e-Commerce and Digital Documents and Signatures.
Some investors complain of long wait times for a decision by the judiciary. While Dominican law mandates overall time standards for the completion of key events in a civil case, these standards frequently are not met. The World Bank’s 2020 Doing Business report noted that resolving complaints raised during the award and execution of a contract can take more than four years in the Dominican Republic, although some take longer. Some investors have complained that the local court system is unreliable, is biased against them, and that special interests and powerful individuals are able to use the legal system in their favor.
While the law provides for an independent judiciary, businesses note the government does not respect judicial independence or impartiality, and improper influence on judicial decisions is widespread. Several large U.S. firms cite the improper and disruptive use of lower court injunctions as a way for local distributors to obtain more beneficial settlements at the end of contract periods. In order to engage effectively in the Dominican market, many U.S. companies seek local partners that are well-connected and understand the local business environment.
Laws and Regulations on Foreign Direct Investment
The legal framework supports foreign investment. Article 221 of the Constitution declares that foreign investment shall receive the same treatment as domestic investment. Foreign Investment Law (No. 16-95) states that unlimited foreign investment is permitted in all sectors, with a few exceptions for hazardous materials or materials linked to national security.
The Export and Investment Center of the Dominican Republic (CEI-RD) aims to be the one-stop-shop for investment information, registration, and investor after-care services. CEI-RD maintains a user-friendly website for guidance on the government’s priority sectors for inward investment and on the range of investment incentives (http://cei-rd.gob.do/).
Competition and Anti-Trust Laws
The National Commission for the Defense of Competition (PRO-COMPETENCIA) has the power to review transactions for competition-related concerns. Private sector contacts note, however, that strong public pressure is required for PRO-COMPETENCIA to act.
Expropriation and Compensation
The Dominican constitution permits the government’s exercise of eminent domain; however, it also mandates fair market compensation in advance of the use of seized land. Nevertheless, there are many outstanding disputes between U.S. investors and the Dominican government concerning unpaid government contracts or expropriated property and businesses. Property claims make up the majority of cases. Most, but not all, expropriations have been used for infrastructure or commercial development. Many claims remain unresolved for years.
Investors and lenders have reported that they typically do not receive prompt payment of fair market value for their losses. They have complained of difficulties in the subsequent enforcement even in cases in which the Dominican courts, including the Supreme Court, have ordered compensation or when the government has recognized a claim. In other cases, some indicate that lengthy delays in compensation payments are blamed on errors committed by government-contracted property assessors, slow processes to correct land title errors, a lack of budgeted funds, and other technical problems. There are also cases of regulatory action that investors say could be viewed as indirect expropriation. For example, they note that government decrees mandating atypical setbacks from roads or establishing new protected areas can deprive investors of their ability to use purchased land in the manner initially planned, substantially affecting the economic benefit sought from the investment.
Many companies report that the procedures to resolve expropriations lack transparency and, to a foreigner, may appear antiquated. Government officials are rarely, if ever, held accountable for failing to pay a recognized claim or failing to pay in a timely manner.
ICSID Convention and New York Convention
In 2000, the Dominican Republic signed the International Center for the Settlement of Investment Disputes (Washington Convention), however, the Dominican Congress did not ratify the agreement as required by the constitution. In 2001, the Dominican Republic became a contracting state to the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The agreement entered into force by Congressional Resolution 178-01.
Investor-State Dispute Settlement
The Dominican Republic has entered into 11 bilateral investment treaties that are in force, most of which contain dispute resolution provisions that submit the parties to arbitration.
As a signatory to CAFTA-DR, the Dominican Republic is bound by the investment chapter of CAFTA-DR, which submits the Parties to arbitration under either the ICSID or the United Nations Commission on International Trade Law (UNCITRAL) rules. There have been three U.S. investor-state dispute cases filed against the Dominican Republic under CAFTA-DR. One case was settled; in the other two, an arbitration panel found in favor of the government. Dual nationals of the United States and Dominican Republic should be aware that their status as a Dominican national may interfere with their status as a “foreign” investor if they seek dispute settlement under CAFTA-DR provisions. U.S. citizens who contemplate pursuing Dominican naturalization for the ease of doing business in the Dominican Republic should consult with an attorney about the risks that may be raised by a change in nationality with regard to accessing the dispute settlement protections provided under CAFTA-DR.
There are at least 27 U.S. investors who are involved in ongoing legal disputes with the Dominican government and parastatal firms involving payments, expropriations, contractual obligations, or regulatory obligations. The investors range from large firms to private individuals and the disputes are at various levels of legal review.
International Commercial Arbitration and Foreign Courts
Law 489-08 on commercial arbitration governs the enforcement of arbitration awards, arbitral agreements, and arbitration proceedings in the Dominican Republic. Per law 489-09, arbitration may be ad-hoc or institutional, meaning the parties may either agree on the rules of procedure applicable to their claim, or they may adopt the rules of a particular institution. Fundamental aspects of the United Nations Commission on International Trade (UNCITRAL) model law are incorporated into Law 489-08. In addition, Law 181-09 created an institutional procedure for the Alternative Dispute Resolution Center of the Chamber of Commerce Santo Domingo (http://www.camarasantodomingo.do/).
Foreign arbitral awards are enforceable in the Dominican Republic in accordance with Law 489-09 and applicable treaties, including the New York Convention. U.S. investors complain that the judicial process is slow and that domestic claimants with political connections have an advantage.
Law 141-15 provides the legal framework for bankruptcy. It allows a debtor company to continue to operate for up to five years during reorganization proceedings by staying legal proceedings. It also authorizes specialized bankruptcy courts; contemplates the appointment of conciliators, verifiers, experts, and employee representatives; allows the debtor to contract for new debt which will have priority status in relation to other secured and unsecured claims; stipulates civil and criminal sanctions for non-compliance; and permits the possibility of coordinating cross-border proceedings based on recommendations of the UNCITRAL Model Law of 1997. In March 2019, a specialized bankruptcy court was established in Santo Domingo. The national juridical school is still training specialized bankruptcy judges.
The Dominican Republic scores lower than the regional average and comparator economies on resolving insolvency on most international indices.
4. Industrial Policies
Investment incentives exist in various sectors of the economy, which are available to all investors, foreign and domestic. Incentives typically take the form of preferential tax rates or exemptions, preferential interest rates or access to finance, or preferential customs treatment. Sectors where incentives exist include agriculture, construction, energy, film production, manufacturing, and tourism.
Foreign companies are not restricted in their access to foreign exchange. There are no requirements that foreign equity be reduced over time or that technology be transferred according to defined terms. The government imposes no conditions on foreign investors concerning location, local ownership, local content, or export requirements.
The Renewable Energy Incentives Law No. 57-07 provides some incentives to businesses developing renewable energy technologies. Foreign investors praise the provisions of the law, but express frustration with approval and execution of potential renewable energy projects.
Special Zones for Border Development, created by Law No. 28-01, encourage development near the economically deprived Dominican Republic-Haiti border. A range of incentives, largely in the form of tax exemptions for a maximum period of 20 years, are available to direct investments in manufacturing projects in the Zones. These incentives include the exemption of income tax on the net taxable income of the projects, the exemption of sales tax, the exemption of import duties and tariffs and other related charges on imported equipment and machinery used exclusively in the industrial processes, as well as on imports of lubricants and fuels (except gasoline) used in the processes.
Incentives for manufacturing apply principally to production in free trade zones (discussed below) or for the manufacturing of textiles, clothing, and footwear specifically under Laws 84-99 and 56-07. Additionally, Law 392-07 encourages industrial innovation with a series of incentives that include exemptions on taxes and tariffs related to the acquisition of materials and machinery and special tax treatment for approved companies.
Tourism is a particularly attractive area for investment and one the government encourages strongly. Law 158-01 on Tourism Incentives, as amended by Law 195-13, and its regulations, grants wide-ranging tax exemptions, for fifteen years, to qualifying new projects by local or international investors. The projects and businesses that qualify for these incentives are: (a) hotels and resorts; (b) facilities for conventions, fairs, festivals, shows and concerts; (c) amusement parks, ecological parks, and theme parks; (d) aquariums, restaurants, golf courses, and sports facilities; (e) port infrastructure for tourism, such as recreational ports and seaports; (f) utility infrastructure for the tourist industry such as aqueducts, treatment plants, environmental cleaning, and garbage and solid waste removal; (g) businesses engaged in the promotion of cruises with local ports of call; and (h) small and medium-sized tourism-related businesses such as shops or facilities for handicrafts, ornamental plants, tropical fish, and endemic reptiles.
For existing projects, hotels and resort-related investments that are five years or older are granted 100 percent exemptions from taxes and duties related to the acquisition of the equipment, materials and furnishings needed to renovate their premises. In addition, hotels and resort-related investments that are fifteen years or older will receive the same benefits granted to new projects if the renovation or reconstruction involves 50 percent or more of the premises.
Finally, individuals and companies receive an income tax deduction for investing up to 20 percent of their annual profits in an approved tourist project. The Tourism Promotion Council (CONFOTOUR) is the government agency in charge of reviewing and approving applications by investors for these exemptions, as well as supervising and enforcing all applicable regulations. Once CONFOTOUR approves an application, the investor must start and continue work in the authorized project within a three-year period to avoid losing incentives.
The government does not currently have a practice of jointly financing foreign direct investment projects. However, in some circumstances the government has authority to offer land or infrastructure as a method of attracting and supporting investment that meets government development goals. In January 2020, the government announced a special development plan to encourage high-quality investment and infrastructure development in Pedernales and the southwest region of the country, with an emphasis on inclusive and sustainable development. Also, in February 2020, the government passed a law on public-private partnerships that may encourage high-quality infrastructure projects and help catalyze private sector-led economic growth, but implementation is still pending, and it is not yet clear whether it will apply to sectors other than infrastructure. The Dominican government does not currently offer special incentives for foreign businesses investing in women-owned or women-led projects, but the country’s development goals prioritize support for small businesses, particularly women-owned businesses, and the government offers numerous programs through CEI-RD and the Ministry of Industry and Commerce to support women entrepreneurs.
Foreign Trade Zones/Free Ports/Trade Facilitation
The Dominican Republic’s free trade zones (FTZs) are regulated by the Promotion of Free Zones Law (No. 8-90) of January 15, 1990, which promotes the establishment of new free zones and the development and growth of existing zones. The law also provides for 100 percent exemption from all taxes, duties, charges, and fees affecting production and export activities in the zones. These incentives are for 20 years for zones located near the Dominican-Haitian border and 15 years for those located throughout the rest of the country. The National Council of Export Free Trade Zones (CNZFE) is the official authority that regulates compliance with Law 8-90, on Free Trade Zones and is composed of representatives from the public and private sectors, chaired by the Minister of Industry and Commerce. This body has the objective of delineating policies for the promotion and development of Free Zones, as well as approving applications for operating licenses, with discretionary authority to extend the time limits on these incentives. Products produced in FTZs can be sold on the Dominican market, however, relevant taxes apply.
In general, firms operating in the FTZs report fewer bureaucratic and legal problems than do firms operating outside the zones. Foreign currency flows from the FTZs are handled via the free foreign exchange market. Foreign and Dominican firms are afforded the same investment opportunities both by law and in practice.
According to CNZFE’s 2018 Statistical Report, the most recent available, 2018 exports from FTZs totaled $6.2 billion, comprising 3.3 percent of GDP. There are 673 companies operating in a total of 74 FTZs. Of the companies operating in FTZs, approximately 40 percent are from the United States. Other major presences include companies registered in the Dominican Republic (22.4 percent), United Kingdom (8.2 percent), Canada (4.5 percent), and Germany (3.5 percent). Companies registered in 38 other countries comprised the remaining investments. The main productive sectors receiving investment include: medical and pharmaceutical products, tobacco and derivatives, textiles, services, agro-industrial products, footwear, and metals and plastics.
Exporters/investors seeking further information from the CNZFE may contact:
Consejo Nacional de Zonas Francas de Exportación
Leopoldo Navarro No. 61
Edif. San Rafael, piso no. 5
Santo Domingo, Dominican Republic
Phone: (809) 686-8077
Fax: (809) 686-8079
Website Address: http://www.cnzfe.gov.do
Performance and Data Localization Requirements
The Dominican labor code establishes that 80 percent of the labor force of a foreign or national company, including free trade zone companies, be composed of Dominican nationals. Senior management and boards of directors of foreign companies are exempt from this regulation.
The Dominican Republic does not have excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees. The host government does not have a forced localization policy to compel foreign investors to use domestic content in goods or technology.
There are no performance requirements as there is no distinction between Dominican and foreign investment. Investment incentives are applied uniformly to both domestic and foreign investors in accordance with World Trade Organization (WTO) requirements. In addition, there are no requirements for foreign IT providers to turn over source code or provide access to encryption.
Law No. 172-13 on Comprehensive Protection of Personal Data restricts companies from freely transmitting customer or other business-related data inside the Dominican Republic or beyond the country’s borders. Under this law, companies must obtain express written consent from individuals in order to transmit personal data unless an exception applies. The Superintendency of Banks currently supervises and enforces these rules, but its jurisdiction generally covers banks, credit bureaus, and other financial institutions. Industry representatives recommend updating this law to designate a national data protection authority that oversees other sectors.
8. Responsible Business Conduct
The government does not have an official position or policy on responsible business conduct, including corporate social responsibility (CSR). Although there is not a local culture of CSR, large foreign companies normally have active CSR programs, as do some of the larger local business groups. While most local firms do not follow OECD principles regarding CSR, the firms that do are viewed favorably, especially when their CSR programs are effectively publicized.
The Dominican Constitution states, “Everyone has the right to have quality goods and services, to objective, truthful and timely information about the content and characteristics of the products and services that they use and consume.” To that end, the national consumer protection agency, Pro Consumidor, offers consumer advocacy services.
The country joined the Extractive Industries Transparency Initiative (EITI) as a candidate in 2016. The government incorporates EITI standards into its mining transparency framework. In 2019, EITI conducted a validation study of the Dominican Republic’s implementation of EITI standards.
The Dominican Republic has a legal framework that includes laws and regulations to combat corruption, and which provide criminal penalties for corruption by officials. However, the government did not implement the law effectively, and officials frequently engaged in corrupt practices with impunity. Enforcement of existing laws is often ineffective. Individuals and NGOs noted the greatest hindrance to effective investigations was a lack of political will to prosecute individuals accused of corruption, particularly well-connected individuals or high-level politicians. Government corruption remained a serious problem and a public grievance.
The Dominican Republic’s rank on the Transparency International Corruption Perception Index fell from 129 in 2018 to 137 in 2019 (out of 180 countries assessed). The World Economic Forum’s 2019 Global Competitiveness report ranked the Dominican Republic as 110 of 141 countries for incidence of corruption.
In September 2019, the Dominican Supreme Court began a trial against six of the 14 defendants indicted in 2017 for alleged links to $92 million in bribes paid by the Brazilian construction company Odebrecht to obtain public works contracts. A 2016 plea agreement between the U.S. Department of Justice and Odebrecht implicated high-level public officials in the Dominican Republic; the six current defendants include a senator, a lower house representative, a former senator, and a former minister of public works. Civil society welcomed the trial as a step forward in the fight against corruption, but activists highlighted what they perceived as a lack of political will to investigate thoroughly the case, which involved the country’s political and economic elites.
U.S. companies identified corruption as a barrier to FDI and some firms reported being solicited by public officials for bribes. It appears most pervasive in public procurement and the awarding of tenders or concessions, but complaints from U.S. investors indicate corruption occurs at all phases of investment. At least one firm said it intended to back out of a competition for a public concession as a result of a solicitation from government officials. U.S. companies also frequently cite the government’s slow response to the Odebrecht scandal as contributing to a culture of perceived impunity for high-level government officials, which fuels widespread acceptance and tolerance of corruption at all levels. U.S. businesses operating in the Dominican Republic often need to take extensive measures to ensure compliance with the Foreign Corrupt Practices Act.
Civil society is engaged in anti-corruption campaigns. Several non-governmental organizations are particularly active in transparency and anti-corruption, notably the Foundation for Institutionalization and Justice (FINJUS), Citizen Participation (Participacion Ciudadana), and the Dominican Alliance Against Corruption (ADOCCO).
The Dominican Republic signed and ratified the UN Anticorruption Convention. The Dominican Republic is not a party to the OECD Convention on Combating Bribery.
Resources to Report Corruption
Procuraduría Especializada contra la Corrupción Administrativa (PEPCA)
Calle Hipólito Herrera Billini esq. Calle Juan B. Pérez,
Centro de los Heroes, Santo Domingo, República Dominicana
Telephone: (809) 533-3522
Fax: (809) 533-4098
Linea 311 (government service for filing complaints and denunciations)
Phone: 311 (from inside the country)
Phone: 809 685 6200
Fax: 809 685 6631
10. Political and Security Environment
There is no recent history of widespread, politically motivated violence in the Dominican Republic. In February and March of 2020, there were multiple, mostly-peaceful protests throughout the country over the Dominican electoral authority’s decision to suspend national municipal elections after widespread failure of its electronic voting system. There are no examples of politically motivated damage to projects or installations in the last 10 years. In polling, Dominicans consistently cite crime and violence as among the largest challenges affecting daily life. The World Economic Forum 2019 Global Competitiveness Report ranked the Dominican Republic 118 out of 141 countries in overall security imposing costs on business and 97 of 141 in terms of organized crime imposing costs on businesses.
11. Labor Policies and Practices
An ample labor supply is available, although there is a scarcity of skilled workers and technical supervisors. Some labor shortages exist in professions requiring lengthy education or technical certification. According to 2019 Dominican Central Bank data, the Dominican labor force consists of approximately 5 million workers. The labor force participation rate is 65.3 percent; approximately 63 percent of the labor force works in services, 14.8 percent in government/administration, 10 percent in industry, and eight percent in agriculture, with the remaining four percent categorized as other work. The labor force is divided roughly 50-50 between the formal and informal sectors of the economy. In 2019, unemployment fell to 5.8 percent, with youth unemployment measured at 13.2 percent. A 2017 survey by the National Statistics Office and UN Population Fund found that of the 334,092 Haitians age 10 or older living in the country, 67 percent were working in the formal and informal sectors of the economy.
The Dominican Labor Code establishes policies and procedures for many aspects of employer-employee relationships, ranging from hours of work and overtime and vacation pay to severance pay, causes for termination, and union registration. The code applies equally to migrant workers, however, many irregular Haitian laborers and Dominicans of Haitian descent working in the construction and agricultural industries do not exercise their rights due to fear of being fired or deported. The law requires that at least 80 percent of non-management workers of a company be Dominican nationals. Exemptions and waivers are available and regularly granted. The law provides for severance payments, which are due upon layoffs or firing without just cause. The amount due is prorated based on length of employment.
Although the Labor Code provides for freedom to form unions and bargain collectively, it places several restrictions on these rights, which the International Labor Organization (ILO) considers excessive. For example, it restricts trade union rights by requiring unions to represent 51 percent of the workers in an enterprise to bargain collectively. In addition, the law prohibits strikes until mandatory mediation requirements have been met. Formal requirements for a strike to be legal also include the support of an absolute majority of all company workers for the strike, written notification to the Ministry of Labor, and a 10-day waiting period following notification before proceeding with the strike. Government workers and essential public service personnel, in theory, may not strike; however, healthcare workers protested and went on strike frequently in the second half of 2019 due to government failure to comply with the retirement law for doctors and nurses.
The law prohibits dismissal of employees for trade union membership or union activities. In practice, however, the law is inconsistently enforced. The majority of companies resist collective negotiating practices and union activities. Companies reportedly fire workers for union activity and blacklist trade unionists, among other anti-union practices. Workers frequently have to sign documents pledging to abstain from participating in union activities. Companies also create and support company-backed unions. Formal strikes occur but are not common.
The law establishes a system of labor courts for dealing with disputes. The process is often long, with cases pending for several years. One exception is workplace injury cases, which typically conclude quickly – and often in the worker’s favor. Both workers and companies report that mediation facilitated by the Ministry of Labor was the most rapid and effective method for resolving worker-company disputes.
Many of the major manufacturers in free trade zones have voluntary codes of conduct that include worker rights protection clauses generally aligned with the ILO Declaration on Fundamental Principles and Rights at Work; however, workers are not always aware of such codes or the principles they contain. The Ministry of Labor monitors labor abuses, health, and safety standards in all worksites where an employer-employee relationship exists. Labor inspectors can request remediation for violations, and if remediation is not undertaken, can refer offending employers to the public prosecutor for sanctions.
Morocco enjoys political stability, a geographically strategic location, and robust infrastructure, which have contributed to its emergence as a regional manufacturing and export base for international companies. Morocco actively encourages and facilitates foreign investment, particularly in export sectors like manufacturing – through dynamic macro-economic policies, trade liberalization, investment incentives, and structural reforms. Morocco’s overarching economic development plan seeks to transform the country into a regional business hub by leveraging its unique status as a multilingual, cosmopolitan nation situated at the tri-regional focal point of Sub-Saharan Africa, the Middle East, and Europe. The Government of Morocco implements strategies aimed at boosting employment, attracting foreign investment, and raising performance and output in key revenue-earning sectors, such as the automotive and aerospace industries. Morocco is increasingly investing in energy, boasting the world’s largest concentrated solar power facility with storage near Ouarzazate.
According to the United Nations Conference on Trade and Development’s (UNCTAD) 2019 World Investment Report, Morocco attracts the fourth-most foreign direct investment (FDI) in Africa, rising from $2.7 billion in 2017 to $3.6 billion in 2018. Morocco continues to orient itself as the “gateway to Africa” for international investors following Morocco’s return to the African Union in January 2017 and the launch of the African Continental Free Trade Area (CFTA) in March 2018. In June 2019, Morocco opened an extension of the Tangier-Med commercial shipping port, making it the largest in the Mediterranean and the largest in Africa. Tangier is connected to Morocco’s political capital in Rabat and commercial hub in Casablanca by Africa’s first high-speed train service. Morocco continues to climb in the World Bank’s Doing Business index, rising to 53rd place in 2020. Despite the significant improvements in its business environment and infrastructure, high rates of unemployment (particularly for youth), weak intellectual property rights (IPR) protections, inefficient government bureaucracy, and the slow pace of regulatory reform remain challenges.
Morocco has ratified 71 bilateral investment treaties for the promotion and protection of investments and 60 economic agreements– including with the United States and most EU nations– that aim to eliminate the double taxation of income or gains. Morocco is the only country on the African continent with a Free Trade Agreement (FTA) with the United States, eliminating tariffs on more than 95 percent of qualifying consumer and industrial goods. The Government of Morocco plans to phase out tariffs for some products through 2030. The FTA supports Morocco’s goals to develop as a regional financial and trade hub, providing opportunities for the localization of services and the finishing and re-export of goods to markets in Africa, Europe, and the Middle East. Since the U.S.-Morocco FTA came into effect bilateral trade in goods has grown nearly five-fold. The U.S. and Moroccan governments work closely to increase trade and investment through high-level consultations, bilateral dialogue, and the annual U.S.-Morocco Trade and Investment Forum, which provides a platform to strengthen business-to-business ties.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Morocco actively encourages foreign investment through macro-economic policies, trade liberalization, structural reforms, infrastructure improvements, and incentives for investors. Law 18-95 of October 1995, constituting the Investment Charter, is the foundational Moroccan text governing investment and applies to both domestic and foreign investment (direct and portfolio). Morocco’s 2014 Industrial Acceleration Plan (PAI), a new approach to industrial development based on establishing “ecosystems” that integrate value chains and supplier relationships between large companies and small and medium-sized enterprises (SMEs), has guided Ministry of Industry policy for the last six years. The Ministry of Industry announced a second PAI to run from 2021-2025. Moroccan legislation governing FDI applies equally to Moroccan and foreign legal entities, with the exception of certain protected sectors.
Morocco’s Investment and Export Development Agency (AMDIE) is the national agency responsible for the development and promotion of investments and exports. Following reform to the governance of the country’s Regional Investment Centers (CRIs) in 2019, each of the 12 regions is empowered to lead their own investment promotion efforts. The CRI websites aggregate relevant information for interested investors and include investment maps, procedures for creating a business, production costs, applicable laws and regulations, and general business climate information, among other investment services. The websites vary by region, with some functioning better than others. AMDIE and the 12 CRIs work together throughout the phases of investment at the national and regional level. For example, AMDIE and the CRIs coordinate contact between investors and partners. Regional investment commissions examine investment applications and send recommendations to AMDIE.
Further information about Morocco’s investment laws and procedures is available on AMDIE’s website or through the individual websites of each of the CRIs. For information on agricultural investments, visit the Agricultural Development Agency (ADA) website or the National Agency for the Development of Aquaculture (ANDA) website.
When Morocco acceded to the OECD Declaration on International Investment and Multinational Enterprises in November 2009, Morocco guaranteed national treatment of foreign investors (i.e., according equal treatment for both foreign and national investors in like circumstances). The only exception to this national treatment of foreign investors is in those sectors closed to foreign investment (noted below), which Morocco delineated upon accession to the Declaration. Per a Moroccan notice published in 2014, the lead agency on adherence to the Declaration is AMDIE.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic private entities may establish and own business enterprises, barring certain restrictions by sector. While the U.S. Mission is unaware of economy-wide limits on foreign ownership, Morocco places a 49 percent cap on foreign investment in air and maritime transport companies and maritime fisheries. Morocco prohibits foreigners from owning agricultural land, though they can lease it for up to 99 years. The Moroccan government holds a monopoly on phosphate extraction through the 95 percent state-owned Office Cherifien des Phosphates (OCP). The Moroccan state also has a discretionary right to limit all foreign majority stakes in the capital of large national banks but apparently has never exercised that right. In the oil and gas sector, the National Agency for Hydrocarbons and Mines (ONHYM) retains a compulsory share of 25 percent of any exploration license or development permit. The Moroccan Central Bank (Bank Al-Maghrib) may use regulatory discretion in issuing authorizations for the establishment of domestic and foreign-owned banks. As established in the 1995 Investment Charter, there is no requirement for prior approval of FDI, and formalities related to investing in Morocco do not pose a meaningful barrier to investment. The U.S. Mission is not aware of instances in which the Moroccan government refused foreign investors for national security, economic, or other national policy reasons. The U.S. Mission is unaware of any U.S. investors disadvantaged or singled out by ownership or control mechanisms, sector restrictions, or investment screening mechanisms, relative to other foreign investors.
Other Investment Policy Reviews
The last third-party investment policy review of Morocco was the World Trade Organization (WTO) 2016 Trade Policy Review (TPR), which found that the trade reforms implemented since the prior TPR in 2009 contributed to the economy’s continued growth by stimulating competition in domestic markets, encouraging innovation, creating new jobs, and contributing to growth diversification.
In the World Bank’s 2020 Doing Business Report, Morocco ranks 53 out of 190 economies, rising seven places since the 2019 report. Since 2012, Morocco has implemented reforms that facilitate business registration, such as eliminating the need to file a declaration of business incorporation with the Ministry of Labor, reducing company registration fees, and eliminating minimum capital requirements for limited liability companies. Morocco maintains a business registration website that is accessible through the various Regional Investment Centers (CRI – Centre Regional d’Investissement). The business registration process is generally streamlined and fully digital.
Foreign companies may utilize the online business registration mechanism. Foreign companies, with the exception of French companies, are required to provide an apostilled Arabic translated copy of their articles of association and an extract of the registry of commerce in its country of origin. Moreover, foreign companies must report the incorporation of the subsidiary a posteriori to the Foreign Exchange Office (Office de Changes) to facilitate repatriation of funds abroad such as profits and dividends. According to the World Bank, the process of registering a business in Morocco takes an average of nine days, significantly less than the Middle East and North Africa regional average of 20 days. Morocco does not require that the business owner deposit any paid-in minimum capital.
On January 21, 2019, law 88-17 on the electronic creation of businesses was published, but the implementation texts have not yet been adopted and published, meaning the new process is not yet operational. The new system will eventually allow for the creation of businesses online via an electronic platform managed by the Moroccan Office of Industrial and Commercial Property (OMPIC). Once launched, all procedures related to the creation, registration, and publication of company data will be carried out via this platform. A separate (yet-to-be-issued) decree will determine the list of documents required during the electronic business creation process. A new national commission will monitor the implementation of the procedures.
The business facilitation mechanisms provide for equitable treatment of women and underrepresented minorities in the economy. Notably, according to the World Bank, the length of time and cost to register a new business is equal for men and women in Morocco. The U.S. Mission is unaware of any official assistance provided to women and underrepresented minorities through the business registration mechanisms. In cooperation with the Moroccan government, civil society, and the private sector, there have been several initiatives aimed at improving gender quality in the workplace and access to the workplace for foreign migrants, particularly those from sub-Saharan Africa.
The Government of Morocco prioritizes investment in Africa. The African Development Bank ranks Morocco as the second biggest African investor in Sub-Saharan Africa, after South Africa, with up to 85 percent of Moroccan FDI going to the region. Morocco is the largest African investor in West Africa. The U.S. Mission is not aware of a standalone outward investment promotion agency, though AMDIE’s mission includes supporting Moroccan exporters and investors seeking to invest outside of Morocco. Nor is the U.S. Mission aware of any restrictions for domestic investors attempting to invest abroad. However, under the Moroccan investment code, repatriation of funds is limited to “convertible” Moroccan Dirham accounts. Morocco’s Foreign Exchange Office (“Office des Changes,” OC) implemented several changes for 2020 that slightly liberalize the country’s foreign exchange regulations. Moroccans going abroad for tourism can now exchange up to $4,700 in foreign currency per year, with the possibility to attain further allowances indexed to their income tax filings. Business travelers can also obtain larger amounts of foreign currency, provided their company has properly filed and paid corporate income taxes. Another new provision permits banks to use foreign currency accounts to finance investments in Morocco’s Industrial Acceleration Zones.
2. Bilateral Investment Agreements and Taxation Treaties
Morocco has signed bilateral investment treaties (BITs) with 71 countries, of which 50 are in force. Morocco’s most recent BIT, signed in January of 2020, is with Japan.
Morocco has also signed a quadrilateral FTA with Tunisia, Egypt, Lebanon, and Jordan, an FTA with Turkey, an FTA with the United Arab Emirates, the European FTA with Iceland, Liechtenstein, and Norway, and the Greater Arab Free Trade Area agreement (which eliminates certain tariffs among 15 Middle East and North African countries). The Association Agreement (AA) between the EU and Morocco came into force in 2000, creating a free trade zone in 2012 that liberalized two-way trade in goods. The EU and Morocco developed the AA further through an agreement on trade in agricultural, agro-food, and fisheries products, and a protocol establishing a bilateral dispute settlement mechanism, all of which entered into force in 2012. However, the legal standing of the agreement’s rules of origin, particularly for fisheries, has come into question in recent years with both sides seeking to resolve the issue. Following an initial stay on the EU-Morocco agricultural agreement issued by the European Court of Justice in 2016, the European Parliament formally adopted an amended agreement in January 2019. In 2008, Morocco was the first country in the southern Mediterranean region to be granted “advanced status” by the EU, which promotes closer economic integration by reducing non-tariff barriers, liberalizing the trade in services, ensuring the protection of investments, and standardizing regulations in several commercial and economic areas.
On March 3, 2018, Morocco signed an agreement, along with 43 other African states, forming the African Continental Free Trade Area (CFTA) establishing a market of over 1.2 billion people, with a combined gross product of over $3 trillion. The CFTA is a flagship project of Agenda 2063, the African Union’s (AU) long-term vision for an integrated, prosperous, and peaceful Africa. The agreement entered into force in May 2019 following ratification by 22 member states. While continent-wide trade under the agreement is expected to begin in July 2020, as of February 2020, Morocco has not deposited its instruments of ratification to the AU.
Morocco is a constitutional monarchy with an elected parliament and a mixed legal system of civil law based primarily on French law, with some influences from Islamic law. Legislative acts are subject to judicial review by the Constitutional Court excluding royal decrees (Dahirs) issued by the King, which have the force of law. Legislative power in Morocco is vested in both the government and the two chambers of Parliament, the Chamber of Representatives (Majlis Al-Nuwab) and the Chamber of Councilors (Majlis Al Mustashareen). The principal sources of commercial legislation in Morocco are the Code of Obligations and Contracts of 1913 and Law No. 15-95 establishing the Commercial Code. The Competition Council and the National Authority for Detecting, Preventing, and Fighting Corruption (INPPLC) have responsibility for improving public governance and advocating for further market liberalization. All levels of regulations exist (local, state, national, and supra-national). The most relevant regulations for foreign businesses depend on the sector in question. Ministries develop their own regulations and draft laws, including those related to investment, through their administrative departments, with approval by the respective minister. Each regulation and draft law is made available for public comment. Key regulatory actions are published in their entirety in Arabic and usually French in the official bulletin on the website of the General Secretariat of the Government. Once published, the law is final. Public enterprises and establishments can adopt their own specific regulations provided they comply with regulations regarding competition and transparency.
Morocco’s regulatory enforcement mechanisms depend on the sector in question, and enforcement is legally reviewable. The National Telecommunications Regulatory Agency (ANRT), for example, created in February 1998 under Law No. 24-96, is the public body responsible for the control and regulation of the telecommunications sector. The agency regulates telecommunications by participating in the development of the legislative and regulatory framework. Morocco does not have specific regulatory impact assessment guidelines, nor are impact assessments required by law. Morocco does not have a specialized government body tasked with reviewing and monitoring regulatory impact assessments conducted by other individual agencies or government bodies.
The U.S. Mission is not aware of any informal regulatory processes managed by nongovernmental organizations or private sector associations. The Moroccan Ministry of Finance posts quarterly statistics (compiled in accordance with IMF recommendations) on public finance and debt on their website. A report on public debt is published on the Ministry of Economy and Finance’s website and is used as part of the budget bill formulation and voting processes. Fiscal year 2020 debt report was published October 11, 2019.
International Regulatory Considerations
Morocco joined the WTO in January 1995 and reports technical regulations that could affect trade with other member countries to the WTO. Morocco is a signatory to the Trade Facilitation Agreement and has a 91.2 percent implementation rate of TFA requirements. European standards are widely referenced in Morocco’s regulatory system. In some cases, U.S. or international standards, guidelines, and recommendations are also accepted.
Legal System and Judicial Independence
The Moroccan legal system is a hybrid of civil law (French system) and some Islamic law, regulated by the Decree of Obligations and Contracts of 1913 as amended, the 1996 Code of Commerce, and Law No. 53-95 on Commercial Courts. These courts also have sole competence to entertain industrial property disputes, as provided for in Law No. 17-97 on the Protection of Industrial Property, irrespective of the legal status of the parties. According to the European Bank for Reconstruction and Development’s 2015 Morocco Commercial Law Assessment Report, Royal Decree No. 1-97-65 (1997) established commercial court jurisdiction over commercial cases including insolvency. Although this led to some improvement in the handling of commercial disputes, the lack of training for judges on general commercial matters remains a key challenge to effective commercial dispute resolution in the country. In general, litigation procedures are time consuming and resource-intensive, and there is no legal requirement with respect to case publishing. Disputes may be brought before one of eight Commercial Courts (located in Rabat, Casablanca, Fes, Tangier, Marrakech, Agadir, Oujda, and Meknes), and one of three Commercial Courts of Appeal (located in Casablanca, Fes, and Marrakech). There are other special courts such as the Military and Administrative Courts. Title VII of the Constitution provides that the judiciary shall be independent from the legislative and executive branches of government. The 2011 Constitution also authorized the creation of the Supreme Judicial Council, headed by the King, which has the authority to hire, dismiss, and promote judges. Enforcement actions are appealable at the Courts of Appeal, which hear appeals against decisions from the court of first instance.
Laws and Regulations on Foreign Direct Investment
The principal sources of commercial legislation in Morocco are the 1913 Royal Decree of Obligations and Contracts, as amended; Law No. 18-95 that established the 1995 Investment Charter; the 1996 Code of Commerce; and Law No. 53-95 on Commercial Courts. These courts have sole competence to hear industrial property disputes, as provided for in Law No. 17-97 on the Protection of Industrial Property, irrespective of the legal status of the parties. Morocco’s CRIs and AMDIE provide users with various investment related information on key sectors, procedural information, calls for tenders, and resources for business creation. Their websites are infrequently updated.
Competition and Anti-Trust Laws
Morocco’s Competition Law No. 06-99 on Free Pricing and Competition (June 2000) outlines the authority of the Competition Council as an independent executive body with investigatory powers. Together with the INPPLC, the Competition Council is one of the main actors charged with improving public governance and advocating for further market liberalization. Law No. 20-13, adopted on August 7, 2014, amended the powers of the Competition Council to bring them in line with the 2011 Constitution. The Competition Council’s responsibilities include making decisions on anti-competition practices and controlling concentrations, with powers of investigation and sanction; providing opinions in official consultations by government authorities; and publishing reviews and studies on the state of competition. After four years of delays, the Moroccan Government nominated and approved all members of the Competition Council in December of 2018.
The Competition Council is investigating years of alleged collusion by oil distribution companies, releasing an incriminating preliminary report in 2019. The case includes investigations into two foreign-owned firms: Vivo Energy, an affiliate of the British-Dutch company Royal Dutch Shell, and Total Maroc, a subsidiary of the French multinational Total. Also in 2019, the council released a report outlining barriers to entry that protect established fuel distribution companies like Vivo and Total Maroc, to the detriment of consumers.
In February 2020, the Moroccan telecommunications regulator, National Telecommunications Regulatory Agency (ANRT), issued a $340 million fine against Maroc Telecom for abusing its dominant position in the market. Maroc Telecom is majority owned by Etisalat, based in the United Arab Emirates (UAE), and is minority owned by the Moroccan government. ANRT ruled in favor of rival telecoms operator INWI, which is majority-owned by Morocco’s royal holding company, and is minority-owned by Kuwait’s sovereign wealth fund and a private Kuwaiti company, which had filed the complaint with ANRT.
Expropriation and Compensation
Expropriation may only occur in the public interest for public use by a state entity, although in the past, private entities that are public service “concessionaires” mixed economy companies, or general interest companies have also been granted expropriation rights. Article 3 of Law No. 7-81 (May 1982) on expropriation, the associated Royal Decree of May 6, 1982, and Decree No. 2-82-328 of April 16, 1983 regulate government authority to expropriate property. The process of expropriation has two phases: in the administrative phase, the State declares public interest in expropriating specific land and verifies ownership, titles, and appraised value of the land. If the State and owner are able to come to agreement on the value, the expropriation is complete. If the owner appeals, the judicial phase begins, whereby the property is taken, a judge oversees the transfer of the property, and payment compensation is made to the owner based on the judgment. The U.S. Mission is not aware of any recent, confirmed instances of private property being expropriated for other than public purposes (eminent domain), or in a manner that is discriminatory or not in accordance with established principles of international law.
ICSID Convention and New York Convention
Morocco is a member of the International Center for Settlement of Investment Disputes (ICSID) and signed its convention in June 1967. Morocco is a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Law No. 08-05 provides for enforcement of awards made under these conventions.
Investor-State Dispute Settlement
Morocco is signatory to over 60 bilateral treaties recognizing binding international arbitration of trade disputes, including one with the United States. Law No. 08-05 established a system of conventional arbitration and mediation, while allowing parties to apply the Code of Civil Procedure in their dispute resolution. Foreign investors commonly rely on international arbitration to resolve contractual disputes. Commercial courts recognize and enforce foreign arbitration awards. Generally, investor rights are backed by a transparent, impartial procedure for dispute settlement. There have been no claims brought by foreign investors under the investment chapter of the U.S.-Morocco Free Trade Agreement since it came into effect in 2006. The U.S. Mission is not aware of any investment disputes over the last year involving U.S. investors.
Morocco officially recognizes foreign arbitration awards issued against the government. Domestic arbitration awards are also enforceable subject to an enforcement order issued by the President of the Commercial Court, who verifies that no elements of the award violate public order or the defense rights of the parties. As Morocco is a member of the New York Convention, international awards are also enforceable in accordance with the provisions of the convention. Morocco is also a member of the Washington Convention for the International Centre for Settlement of Investment Disputes (ICSID), and as such agrees to enforce and uphold ICSID arbitral awards. The U.S. Mission is not aware of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
Morocco has a national commission on Alternative Dispute Resolution (ADR) with a mandate to regulate mediation training centers and develop mediator certification systems. Morocco seeks to position itself as a regional center for arbitration in Africa, but the capacity of local courts remains a limiting factor. The Moroccan government established the Center of Arbitration and Mediation in Rabat and the Casablanca International Mediation and Arbitration Center (CIMAC). The U.S. Mission is not aware of any investment disputes involving state owned enterprises (SOEs).
Morocco’s bankruptcy law is based on French law. Commercial courts have jurisdiction over all cases related to insolvency, as set forth in Royal Decree No. 1-97-65 (1997). The Commercial Court in the debtor’s place of business holds jurisdiction in insolvency cases. The law gives secured debtors priority claim on assets and proceeds over unsecured debtors, who in turn have priority over equity shareholders. Bankruptcy is not criminalized. The World Bank’s 2020 Doing Business report ranked Morocco 73 out of 190 economies in “Resolving Insolvency”. The GOM revised the national insolvency code in March of 2018.
4. Industrial Policies
As set out in the Investment Code (Section 2.4), Morocco offers incentives designed to encourage foreign and local investment. Morocco’s Investment Charter gives the same benefits to all investors regardless of the industry in which they operate (except agriculture and phosphates, which remain outside the scope of the Charter). With respect to agricultural incentives, Morocco launched the Plan Maroc Vert (Green Morocco Plan) in 2008 to improve the competitiveness of the agribusiness industry. This plan offers technical and financial support to federations in the citrus and olive sectors to boost agribusiness value chains.
Morocco has several free zones offering companies incentives such as tax breaks, subsidies, and reduced customs duties. Free zones aim to attract investment by companies seeking to export
products from Morocco. As part of a government-wide strategy to strengthen its position as an African financial hub, Morocco offers incentives for firms that locate their regional headquarters in Morocco at Casablanca Finance City (CFC), Morocco’s flagship financial and business hub launched in 2010. For details on CFC eligibility, see CFC’s website. Morocco is on the European Union’s tax “grey list” for pursuing a harmful tax policy based on the tax advantages offered to export companies, companies operating in free zones, and CFC. In response to EU pressure and the desire to avoid negative consequences for investment, Morocco’s 2020 budget law transforms the country’s free zones into “Industrial Acceleration Zones” with a 15 percent corporate tax rate following an initial five years of exemption, compared to a previous corporate tax rate of 8.75 percent over 20 years. Similarly, companies holding CFC status will be taxed 15 percent both on their local and export activities as of 2021, after a five-year tax exoneration. The new measures adopted pertain to both Moroccan and foreign companies already established in these zones.
The Moroccan government launched its “investment reform plan” in 2016 to create a favorable environment for the private sector to drive growth. The plan includes the adoption of investment incentives to support the industrial ecosystem, tax and customs advantages to support investors and new investment projects, import duty exemptions, and a value added tax (VAT) exemption. AMDIE’s website has more details on investment incentives, but generally these incentives are based on sectoral priorities (i.e. aerospace). Morocco does not issue guarantees or jointly finance FDI projects, except for some public-private partnerships in fields such as utilities.
The Moroccan Government offers several guarantee funds and sources of financing for investment projects to both Moroccan and foreign investors. For example, the Caisse Centrale de Garantie (CCG), a public finance institution offers co-financing, equity financing, and guarantees.
Beyond tax exemptions granted under ordinary law, Moroccan regulations provide specific advantages for investors with investment agreements or contracts with the Moroccan Government provided that they meet the required criteria. These advantages include: subsidies for certain expenses related to investment through the Industrial Development and Investment Fund, subsidies of certain expenses for the promotion of investment in specific industrial sectors and the development of new technologies through the Hassan II Fund for Economic and Social Development, exemption from customs duties within the framework of Article 7.I of the Finance Law n°12/98, and exemption from the Value Added Tax (VAT) on imports and domestic sales.
More information on specific incentives can be found at the Invest in Morocco website.
Foreign Trade Zones/Free Ports/Trade Facilitation
The government maintains several “free zones” in which companies enjoy lower tax rates in exchange for an obligation to export at least 85 percent of their production. In some cases, the government provides generous incentives for companies to locate production facilities in the country. The Moroccan government also offers a VAT exemption for investors using and importing equipment goods, materials, and tools needed to achieve investment projects whose value is at least $20 million. This incentive lasts for a period of 36 months from the start of the business. Due in part to an ongoing dispute with the European Union, the 2020 budget law will transform the country’s free zones into “Industrial Acceleration Zones” with a corporate tax of 15 percent after an initial five years of tax exemption. Previously, companies in free zones paid a corporate tax rate of 8.75 percent.
Performance and Data Localization Requirements
The Moroccan government views foreign investment as an important vehicle for creating local employment. Visa issuance for foreign employees is contingent upon a company’s inability to find a qualified local employee for a specific position and can only be issued after the company has verified the unavailability of such an employee with the National Agency for the Promotion of Employment and Competency (ANAPEC). If these conditions are met, the Moroccan government allows the hiring of foreign employees, including for senior management. The process for obtaining and renewing visas and work permits can be onerous and may take up to six months, except for CFC members, where the processing time is reportedly one week.
The government does not require the use of domestic content in goods or technologies. The WTO Trade Related Investment Measures’ (TRIMs) database does not indicate any reported Moroccan measures that are inconsistent with TRIMs requirements. Though not required, tenders in some industries, including solar energy, are written with targets for local content percentages. Both performance requirements and investment incentives are uniformly applied to both domestic and foreign investors depending on the size of the investment.
The Moroccan Data Protection Act (Act 09-08) stipulates that data controllers may only transfer data if a foreign nation ensures an adequate level of protection of privacy and fundamental rights and freedoms of individuals with regard to the treatment of their personal data. Morocco’s National Data Protection Commission (CNDP) defines the exceptions according to Moroccan law. Local regulation requires the release of source code for certain telecommunications hardware products. However, the U.S. Mission is not aware of any Moroccan government requirement that foreign IT companies should provide surveillance or backdoor access to their source-code or systems.
8. Responsible Business Conduct
Responsible business conduct (RBC) has gained strength in the broader business community in tandem with Morocco’s economic expansion and stability. The Moroccan government does not have any regulations requiring companies to practice RBC nor does it give any preference to such companies. However, companies generally inform Moroccan authorities of their planned RBC involvement. Morocco joined the UN Global Compact network in 2006. The Compact provides support to companies that affirm their commitment to social responsibility. In 2016, the Ministry of Employment and Social Affairs launched an annual gender equality prize to highlight Moroccan companies that promote women in the workforce. While there is no legislation mandating specific levels of RBC, foreign firms and some local enterprises follow generally accepted principles, such as the OECD RBC guidelines for multinational companies. NGOs and Morocco’s active civil society are also taking an increasingly active role in monitoring corporations’ RBC performance. Morocco does not currently participate in the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights, though it has held some consultations aimed at eventually joining EITI. No domestic transparency measures exist that require disclosure of payments made to governments. There have not been any cases of high-profile instances of private sector impact on human rights in the recent past.
In the 2019 Corruption Perceptions Index published by Transparency International (TI), Morocco declined one point from the previous year (from 40 to 41) and moved down seven spots in the rankings (from 73rd to 80th out of 180 countries). According to the State Department’s 2019 Country Report on Human Rights Practices, Moroccan law provides criminal penalties for corruption by officials, but the government generally did not implement the law effectively. Officials sometimes engaged in corrupt practices with impunity. There were reports of government corruption in the executive, judicial, and legislative branches during the year.
According to the Global Corruption Barometer Africa 2019 report published in July 2019, 53 percent of Moroccans surveyed think corruption increased in the previous 12 months, 31 percent of public services users paid a bribe in the previous 12 months, and 74 percent believe the government is doing a bad job in tackling corruption.
The 2011 constitution mandated the creation of a national anti-corruption entity. Morocco formally adopted the National Authority for Probity, Prevention, and Fighting Corruption (INPLCC) through a law published in 2015. The INPLCC did not come into operation until late 2018 when its board was appointed by King Mohammed VI, although a weaker predecessor organization continued in existence until that time. The INPLCC is tasked with initiating, coordinating, and overseeing the implementation of policies for the prevention and fight against corruption, as well as gathering and disseminating information on the issue. Additionally, Morocco’s anti-corruption efforts include enhancing the transparency of public tenders and implementation of a requirement that senior government officials submit financial disclosure statements at the start and end of their government service, although their family members are not required to make such disclosures. Few public officials submitted such disclosures, and there are no effective penalties for failing to comply. Morocco does not have conflict of interest legislation. In 2018, thanks to the passage of an Access to Information (AI) law, Morocco joined the Open Government Partnership, a multilateral effort to make governments more transparent.
Although the Moroccan government does not require that private companies establish internal codes of conduct, the Moroccan Institute of Directors (IMA) was established in June 2009 with the goal of bringing together individuals, companies, and institutions willing to promote corporate governance and conduct. IMA published the four Moroccan Codes of Good Corporate Governance Practices. Some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials. Morocco signed the UN Convention against Corruption in 2007 and hosted the States Parties to the Convention’s Fourth Session in 2011. However, Morocco does not provide any formal protections to NGOs involved in investigating corruption. Although the U.S. Mission is not aware of cases involving corruption with regard to customs or taxation issues, American businesses report encountering unexpected delays and requests for documentation that is not required under the FTA or standardized shipping norms.
Resources to Report Corruption
Organization: National Authority for Probity, Prevention, and Fighting Corruption
Address: Avenue Annakhil, Immeuble High Tech, Hall B, 3eme etage, Hay Ryad-Rabat
Telephone number: +212-5 37 57 86 60
Email address: email@example.com
Fax: +2125 37 71 16 73
Morocco does not have a significant history of politically motivated violence or civil disturbance. There has not been any damage to projects and/or installations, which has had a continuing impact on the investment environment. Demonstrations occur in Morocco and usually center on political, social, or labor issues. They can attract thousands of people in major city centers, but most have been peaceful and orderly.
11. Labor Policies and Practices
In the Moroccan labor market, many Moroccan university graduates cannot find jobs commensurate with their education and training, and employers report insufficient skilled candidates. The educational system does not prioritize STEM literacy and industrial skills and many graduates are unprepared to meet contemporary job market demands. In 2011, the Moroccan government restructured its employment promotion agency, the National Agency for Promotion of Employment and Skills (ANAPEC), in order to assist new university graduates prepare for and find work in the private sector that requires specialized skills. The Bureau of Professional Training and Job Promotion (OFPPT), Morocco’s main public provider for professional training, also launched the Specialized Institute for Aeronautics and Airport Logistics (ISMALA) in Casablanca in 2013 to offer technical training in aeronautical maintenance. According to official figures released by the government planning agency, unemployment was 10 percent in 2019, with youth (ages 15-24) unemployment hovering around 40 percent in some urban areas. The World Bank and other international institutions estimate that actual unemployment – and underemployment – rates may be higher.
The Government of Morocco pursues a strategy to increase the number of students in vocational and professional training programs. The government opened 27 such training centers between 2015 and 2018 and nearly doubled the number of students receiving scholarships for training between 2017 and 2018. The government announced that the number of scholarships granted to vocational trainees increased by 177 percent between 2018 and 2019. In 2018, the Government of Morocco launched a National Plan for Job Promotion, created after three years of collaboration with government partners involved in employment policy, to support job creation, strengthen the job market, and consolidate regional resources devoted to job promotion. This plan promotes entrepreneurship – especially in the context of regionalization outside the Casablanca-Rabat corridor – to boost youth employment.
Pursuing a forward-leaning migration policy, the Moroccan government has regularized the status of over 50,000 sub-Saharans migrants since 2014. Regularization provides these migrants with legal access to employment, employment services, and education and vocation training. The majority of sub-Saharan migrants who benefitted from the regularization program work in call centers and education institutes, if they have strong French or English skills, or domestic work and construction.
According to section VI of the labor law, employers in the commercial, industrial, agricultural, and forestry sectors with ten or more employees must communicate a dismissal decision to the employee’s union representatives, where applicable, at least one month prior to dismissal. The employer must also provide grounds for dismissal, the number of employees concerned, and the amount of time intended to undertake termination. With regards to severance pay (article 52 of the labor law), the employee bound by an indefinite employment contract is entitled to compensation in case of dismissal after six months of work in the same company regardless of the mode of remuneration and frequency of payment and wages. The labor law differentiates between layoffs for economic reasons and firing. In case of serious misconduct, the employee may be dismissed without notice or compensation or payment of damages. The employee must file an application with the National Social Security Funds (CNSS) agency of his or her choice, within a period not exceeding 60 days from the date of loss of employment. During this period, the employee shall be entitled to medical benefits, family allowances, and possibly pension entitlements. Labor law is applicable in all sectors of employment; there are no specific labor laws to foreign trade zones or other sectors. More information is available from the Moroccan Ministry of Foreign Affairs Economic Diplomacy unit.
Morocco has roughly 20 collective bargaining agreements in the following sectors: Telecommunications, automotive industry, refining industry, road transport, fish canning industry, aircraft cable factories, collection of domestic waste, ceramics, naval construction and repair, paper industry, communication and information technology, land transport, and banks. The sectoral agreements that exist to date are in the banking, energy, printing, chemicals, ports, and agricultural sectors. According to the State Department’s Country Report on Human Rights Practices, the Moroccan constitution grants workers the right to form and join unions, strike, and bargain collectively, with some restrictions (S 396-429 Labor Code Act 1999, No. 65/99). The law prohibits certain categories of government employees, including members of the armed forces, police, and some members of the judiciary, from forming and joining unions and from conducting strikes. The law allows several independent unions to exist but requires 35 percent of the total employee base to be associated with a union for the union to be representative and engage in collective bargaining. The government generally respected freedom of association and the right to collective bargaining. Employers limited the scope of collective bargaining, frequently setting wages unilaterally for the majority of unionized and nonunionized workers. Domestic NGOs reported that employers often used temporary contracts to discourage employees from affiliating with or organizing unions. Legally, unions can negotiate with the government on national-level labor issues.
Labor disputes (S 549-581 Labor Code Act 1999, No. 65/99) are common, and in some cases, they result in employers failing to implement collective bargaining agreements and withholding wages. Trade unions complain that the government sometimes uses Article 288 of the penal code to prosecute workers for striking and to suppress strikes. Labor inspectors are tasked with mediation of labor disputes. In general, strikes occur in heavily unionized sectors such as education and government services, and such strikes can lead to disruptions in government services but usually remain peaceful. In July 2016, the Moroccan government passed the Domestic Worker Law and the long-debated pension reform bill; the former entered into force in 2018. The new pension reform legislation is expected to keep Morocco’s largest pension fund, the Caisse Marocaine de Retraites (CMR), solvent until 2028, with an increase in the retirement age from 60 to 63 by 2024, and adjustments in contributions and future allocations.
Chapter 16 of the U.S.-Morocco Free Trade Agreement (FTA) addresses labor issues and commits both parties to respecting international labor standards.