Policies Towards Foreign Direct Investment

Although Fiji has a tradition of a strong judiciary system where contractual rights are generally upheld, the lack of independence of the judiciary and the lengthy legal process raise concerns about due process of law.

The Fiji government is reviewing its investment policies in order to improve efficiency in the approval processes of foreign investment proposals. Investment Fiji is responsible for the promotion, regulation, and control of foreign investment in the interest of national development. In addition to registering and assisting with the implementation of foreign investment projects, Investment Fiji hosts information seminars for visiting foreign business delegations and participates at investment missions overseas.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Foreign Investment Act (FIA) and the 2009 Foreign Investment Regulation regulate foreign investment in Fiji. All businesses with a foreign investment component in their ownership are required to register and obtain a Foreign Investment Registration Certificate (FIRC) from Investment Fiji. The Fiji government also removed the previous minimum investment requirement of USD 122,500 (FJD 250,000) to encourage greater foreign investment.

A number of investment activities are reserved for Fiji nationals or are subject to restrictions. There are 17 reserved activities wholly for Fiji citizens, mainly in the services sector, and eight restricted activities. Full listings of reserved and restricted areas can be found at http://www.investmentfiji.org.fj/pages.cfm/for-investors/doing-business-in-fiji/foreign-investment-act-foreign-investment-regulations.html .

Restricted activities in forestry, tobacco production, tourism (cultural heritage), real estate development, construction, earthmoving, and inter-island shipping or passenger service require minimum investments ranging from USD 0.24 – 2.45 million (FJD 0.5 – 5 million). Investment in the fisheries sector also requires a 30 percent local equity in the project.

Investment Fiji screens foreign investment proposals to ensure that the projects are in the interest of national development.

Other Investment Policy Reviews

Fiji did not undergo any third-party investment policy reviews in the past three years. In 2016, Fiji completed its second WTO trade policy review (https://www.wto.org/english/tratop_e/tpr_e/tp430_e.htm ) and was encouraged to submit its outstanding WTO notifications, in particular commitments under the Trade Facilitation Agreement (TFA). Fiji is reviewing its domestic processes to ratify the TFA. In 2015, the United Nations Conference on Trade and Development undertook a voluntary peer review of Fiji’s competition law and policy, available at http://unctad.org/en/PublicationsLibrary/ditcclp2015d5_en.pdf .

Business Facilitation

Investment Fiji is responsible for the promotion, regulation, and control of foreign investment in the interest of national development. Its Online Single Window Clearance System simplifies the registration process and enables online applications for a FIRC and payment of the requisite application fee of USD 1,335 (FJD 2,725). Information on the registration procedures, regulations, and registration requirements for foreign investment is available at the Investment Fiji website: http://www.investmentfiji.org.fj .

Investors need to meet the requirements listed under the Foreign Investment Act (FIA) and the 2009 Foreign Investment Regulation as well as ensure that the investment activity does not fall under the Reserved and Restricted Activities lists. The following documents must accompany the FIRC application: if a company is being listed as a shareholder, then a certified copy of the certificate of incorporation and name(s) of those associated with the shareholding company; if local equity contribution is required, a copy of the shareholders agreement and a copy of the declaration of shareholders, witnessed or certified by a Justice of the Peace, lawyer and/or chartered accountant; certified copies of the passport bio-data pages, together with recent color passport-size photos of all those associated with the business; a police clearance report from the country of residence in the last 12 months or more; and proof of company registration abroad (if applicable). A business plan including a budget/cash flow forecast of the project is required. The approval process for investment applications takes five working days.

Investors are also required to obtain the necessary permits and licenses from other relevant authorities and should be prepared for delays. The World Bank Doing Business 2018 survey estimated that it took 11 procedures and a total of 40 days to get a business registered. There are no special services or preferences to facilitate investment and business operations by micro, small and medium sized enterprises, or by women. The World Bank survey shows that the number of processes or the duration to acquire the necessary permits for businesses operated by men or women is the same.

Contact: The Chief Executive, Investment Fiji, P.O. Box 2303, Government Buildings, Suva; Telephone: (679) 3315 988; Fax: (679) 3301 783; Email: info@investmentfiji.org.fj; Website: http://www.investmentfiji.org.fj/ .

Outward Investment

The Reserve Bank of Fiji lifted its suspension of offshore investments by Fiji residents. However, the offshore investment allowance by Fiji residents is capped at USD 12,255 (FJD 25,000) per annum.

Fiji has double taxation agreements with Australia, Japan, Malaysia, New Zealand, Papua New Guinea, the Republic of Korea, Singapore, United Arab Emirates and the United Kingdom. Fiji has not entered into a bilateral investment treaty or a double taxation agreement with the United States.

Transparency of the Regulatory System

The lack of consultation with the private sector and other stakeholders on proposed laws and regulations remains an area of concern. The business community has complained that the government enacts new regulations with little prior notice or publicity. There is a perception among foreign investors of a lack of transparency in government procurement and approval processes. Some foreign investors considering investment in Fiji have encountered lengthy and costly bureaucratic delays, shuffling of permits among government ministries, inconsistent and changing procedures, lack of technical capacity, costly penalties due to the interpretation of tax regulations by the Fiji Revenue and Customs Service (FRCS), and slow decision-making. The Biosecurity Authority of Fiji (BAF) regulates all food and animal products entering Fiji and has stringent and costly point-of-origin inspection and quarantine requirements for foreign goods. Some importers have had import permits denied for categories of food or animal products which were previously allowed, with little or no explanation for the change.

Fiji’s constitution provides for public access to government information and for the correction or deletion of false or misleading information. Although the constitution requires that a freedom of information law be enacted, there is no such law yet. The parliamentary website (http://www.parliament.gov.fj/ ) is a centralized online location that publishes laws and regulations passed in parliament.

International Regulatory Considerations

Fiji has been a member of the WTO since January 1996. According to Fiji’s trade profile on the WTO website, there are no records of disputes. Fiji is reviewing its domestic processes to ratify the WTO’s Trade Facilitation Agreement.

Legal System and Judicial Independence

The legal system in Fiji developed from British law. Fiji maintains a judiciary consisting of a Supreme Court, a Court of Appeal, a High Court, and magistrate courts. The Supreme Court is the final court of appeal.

Both companies and individuals have recourse to legal treatment through the system of local and superior courts. A foreign investor theoretically has the right of recourse to the courts and tribunals of Fiji with respect to the settlement of disputes, but government decrees have been used to block foreign investors from legal recourse in investment takeovers, tax increases, or write-offs of interest to the government. In 2016, the government deported foreigners involved in business disputes or protests against governmental regulations without explanation, access to legal assistance, or opportunity to appeal.

Laws and Regulations on Foreign Direct Investment

The Foreign Investment Act (FIA) and the 2009 Foreign Investment Regulation regulate foreign investment in Fiji. All businesses with a foreign-investment component in their ownership are required to register and obtain a Foreign Investment Registration Certificate (FIRC) from Investment Fiji. Information on the registration procedures, regulations, and registration requirements for foreign investment is available at the Investment Fiji website: http://www.investmentfiji.org.fj . Amendments to the FIA also require that foreign investors seek approval prior to any changes in the ownership structure of the business, with penalties incurred for non-compliance.

Investment Fiji’s online Single Window Clearance System enables online business registration, application for a FIRC, and application fee payment. Information on the registration procedures, regulations, and registration requirements for foreign investment is available at the Investment Fiji website: http://www.investmentfiji.org.fj . However, the most up to date reporting requirements may not be available on the website.

Competition and Anti-Trust Laws

The Fiji Commerce Commission (FCC), established under the 2010 Commerce Commission Decree, regulates monopolies, promotes competition, and controls prices of selected hardware, basic food items, and utilities, in order to ensure a fair, competitive, and equitable market.

Expropriation and Compensation

Expropriation has not historically been a common phenomenon in Fiji. A foreign investor theoretically has the same right of recourse as a Fijian enterprise to the courts and other tribunals of Fiji to settle disputes. In practice, the government has acted to assert its interests with laws affecting foreign investors.

In 2013, the government amended the Foreign Investment Decree with provisions to permit the forfeiture of foreign investments as well as significant fines for breaches of compliance with foreign investment registration conditions.

Dispute Settlement

ICSID Convention and New York Convention

Fiji acceded to the New York Convention in September 2010. Fiji has been a member of the ICSID since September 1977. However, there are no legislative or other measures adopted to make the convention effective.

Investor-State Dispute Settlement

The government has sometimes opted to penalize foreign investors in lieu of dispute settlement. In 2010, a director of a major U.S. investor, Fiji Water, was deported. The same company was singularly targeted with an increased export tax to USD nine cents (FJD 18 cents) per liter of water in 2016. Other foreigners were deported in 2016 following payment disputes or protests against governmental regulations.

Past investment disputes have often focused on land issues, particularly in the mining, timber and tourism sectors. Such disputes have been resolved through labor-management dialogue, government intervention, referral to compulsory arbitration, or through the courts. In some instances, the investors have withdrawn from Fiji when a resolution could not be found. Fiji is a party to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States.

The World Bank Doing Business 2018 survey ranked Fiji 101 out of 190 on the efficiency of the judicial system to resolve a commercial dispute. According to the survey, Fiji required 34 procedures to enforce a contract and took 397 calendar days to complete procedures at a cost of 38.9 percent of the value of the claim.

International Commercial Arbitration and Foreign Courts

Fiji is a party to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. Fiji acceded to the New York Convention in September 2010. In 2017, Fiji enacted the International Arbitration Act to improve the framework governing international commercial arbitration. With the support from the United Nations Commission on International Trade Law (UNICTRAL), Fiji has adopted a version of the UNICTRAL model law on arbitration.

Bankruptcy Regulations

Fiji’s Companies Act 2015 has provisions relating to solvency and negative solvency. According to the 2018 World Bank Doing Business survey, in terms of resolving insolvency, Fiji was ranked 92 out of 190. The survey estimated that it took 1.8 years at a cost of ten percent of the estate to complete the process, with an estimated recovery rate of 46.2 percent of value.

Investment Incentives

In 2017, incentives to encourage investment in the setting up of electric vehicle charging stations include a seven year tax holiday, subsidies ranging from five to seven percent of the total capital outlay incurred in the development of charging stations for investments between USD 1.5-4.9 million (FJD 3-10 million), and loss carried forward for eight years.

Tourism incentives include tax-related investment allowances for approved expenditures on tourist boats/ships and approved building and expansion projects. The tourism incentive package provides a ten-year tax holiday for approved large tourism development projects with capital investments of more than USD 3.4 million (FJD seven million) to be completed within two years from the date when the provisional approval was granted. Filmmaking and audio-visual incentives include a 47 percent tax rebate on production costs spent in Fiji up to USD 12 million, which is a maximum allowable tax rebate of USD 5.64 million. There are various incentives to encourage investment in the agriculture, fisheries, and forestry industry including zero-rated fiscal duty on imported agricultural machineries, equipment and inputs, and specialized equipment and machinery for forestry and fisheries. The benefits, which can be up to a ten-year tax holiday, vary by industry and nature of the investment.

The income of any business setting up private hospitals with a minimum capital investment of USD 3.4 million (FJD seven million), is exempt from tax for a period of ten years. A 60 percent investment allowance applies for refurbishments, renovations and extensions with a minimum capital investment of USD 0.49 million (FJD one million). The income of any business setting up ancillary medical services such as pathology lab, MRI, or other diagnostics is exempt from tax for a period of four years with a minimum capital investment level of USD 0.98 million (FJD two million). A 60 percent investment allowance applies for refurbishments, renovations and extensions with a minimum capital investment of USD 245,102 (FJD 500,000). There is a duty concession (free fiscal duty, free import excise and free VAT) on medical, hospital, surgical, and dental goods that are used and imported by the business. Recipients of provisional approvals for setting up private hospitals should complete the project within two years from the date the provisional approval was granted. Losses on private hospitals may be carried forward for eight years.

Foreign Trade Zones/Free Ports/Trade Facilitation

The northern and selected maritime regions of Fiji have been declared Tax Free Regions (TFR) to encourage development in these isolated outposts. The specific areas include Vanua Levu, Rotuma, Kadavu, Levuka, Lomaiviti, and the Korovou-Tailevu area in the east of Viti Levu. Businesses established in these regions which meet the prescribed requirements enjoy a corporate tax holiday for up to 13 years and import duty exemption on raw materials, machinery, and equipment.

Performance and Data Localization Requirements

Many jobs are reserved for Fijian citizens, and work permit applications for expatriate employees may face delays or denials. Potential employers and employees should consult Fiji Immigration for further information prior to making any binding commitments as it can be difficult to secure employment visas for non-Fijians.

To support the implementation of newly approved investments, Investment Fiji established a monitoring system to assist companies in obtaining necessary approvals to commence operations. The investing firm must ensure that commercial production begins within 12 months for investments under USD 1.2 million (FJD 2.5 million) or within 18 months of the date of approval of the project for investments above USD 1.2 million (FJD 2.5 million).

The U.S. Embassy is unaware of any policies regulating data storage or requiring foreign IT providers to turn over source code or provide access to surveillance.

Real Property

Land tenure and usage in Fiji is a highly complex and sensitive issue. Fiji’s Land Sales Act of 2014 restricts ownership of freehold land inside a city or town council boundaries areas to Fijian citizens. There are exceptions to allow foreigners to purchase strata title land, which is defined as ownership in part of a property including multi-level apartments or subdivisions. Foreigners are still allowed to purchase, sell, or lease freehold land for industrial or commercial purposes, residential purposes within an integrated tourism development, or for the operation of a hotel licensed under the Hotel and Guest Houses Act. The Land Sales Act also requires foreign land owners who purchase approved land to build a dwelling valued at a minimum of USD 122,500 (FJD 250,000) on the land within two years, or face an annual tax of 20 percent of the land value (applied as ten percent every six months). Freehold land currently owned by a non-Fijian can pass to the owners’ heirs and will not be deemed a sale.

Foreign land owners criticized the government of Fiji for the speed at which the act was passed and the perceived lack of consultation with land owners and developers. The application of the Land Sales Act continues to create uncertainty among foreign investors. The Fiji government has yet to provide full clarification of the act, such as defining what constitutes an integrated tourism development. The limited capacity of construction and architecture firms, especially with the high demand for construction services following Cyclone Winston in 2016, makes it difficult to comply with the two-year time frame for building a dwelling before tax penalties set in.

According to the World Bank’s Doing Business Report, registering property took a total of 69 days and involved four main processes, including conducting title searches at the Titles Office, presenting transfer documents for stamping at the Stamp Duty office, obtaining tax clearance on capital gains tax, and settlement at the Registrar of Titles Office.

Ethnic Fijians communally hold approximately 87 percent of all land. Crown land owned by the government accounts for four percent while the remainder is freehold land, which private individuals or companies hold. All land owned by ethnic Fijians, commonly referred to as iTaukei land, is held in a statutory trust by the iTaukei Land Trust Board (TLTB) for the benefit of indigenous landholding units.

To improve access to land, the government established a land bank in the Ministry of Lands under the land use decree for the purpose of leasing land from indigenous landowning units (collections of households; under the indigenous communal landowning system, land is not owned by individuals) through the TLTB and subleasing the land to individual tenants for lease periods of up to 99 years.

The constitution includes other new provisions protecting land leases and land tenancies, but observers noted that the provisions had unintended consequences, including weakening the overall legal structure governing leases.

The availability of Crown land for leasing is usually advertised. This does not, however, preclude consideration given to individual applications in cases where land is required for special purposes. Government leases for industrial purposes can last up to 99 years with rents reassessed every ten years. TLTB leases for land nearer to urban locations are normally for 50-75 years. Annual rent is reassessed every five years. The maximum rent that can be levied in both cases is six percent of unimproved capital value. Leases also usually carry development conditions that require lessees to effect improvements within a specified time.

Apart from the requirements of the TLTB and Lands Department, town planning, conservation, and other requirements specified by central and local government authorities affect the use of land. Investors are urged to seek local legal advice in all transactions involving land.

Intellectual Property Rights

Fiji’s copyright laws are in conformity with World Trade Organization (WTO) Trade Related Aspects of Intellectual Property (TRIPS) provisions. Copyright laws adhere to international laws, and while there are provisions for companies to register a trademark or petition for a patent in Fiji through the Office of the Attorney General, trademark and patent laws are outdated. Furthermore, the enforcement of these laws remains inadequate. There is no protection for designs or trade secrets.

Illegal materials and reproductions of films, sound recordings, and computer programs are widely available throughout Fiji. The government is reviewing trademark and patent laws, but capacity is a challenge.

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

Capital Markets and Portfolio Investment

The capital market is regulated and supervised by the Reserve Bank of Fiji. Nineteen companies were listed on the Suva-based South Pacific Stock Exchange (SPSE) in 2017. At the end of 2017, market capitalization was USD 882 million (FJD 1.8 billion), an increase of 40.6 percent over 2016 values. To promote greater activity in the capital market, the government lowered corporate tax rates for listed companies to ten percent and exempted income earned from the trading of shares in the SPSE from income tax and capital gains tax.

Money and Banking System

Fiji has a well-developed banking system supervised by the Reserve Bank of Fiji (RBF). The RBF regulates the Fiji monetary and banking systems, manages the issuance of currency notes, administers exchange controls, and provides banking and other services to the government. In addition, it provides lender-of-last-resort facilities and regulates trading bank liquidity.

There are six trading banks with established operations in Fiji: ANZ Bank, Bank of Baroda, Bank of South Pacific, Bred Bank, Home Finance Corporation, and Westpac Banking Corporation. Non-banking financial institutions also provide financial assistance and borrowing facilities to the commercial community and to consumers. These institutions include the Fiji Development Bank, Credit Corporation, Merchant Finance, and insurance companies. The banking sector is well capitalized and as of December 2017, total assets of commercial banks amounted to USD 4.90 billion (FJD 9.99 billion).

Foreign Exchange and Remittances

Foreign Exchange Policies

The Reserve Bank of Fiji (RBF) relaxed a number of foreign exchange controls, including increasing delegated limits for commercial banks and authorizing foreign exchange dealers to process some payments in 2017. The Fiji dollar remains fully convertible. The Fiji dollar is pegged to a basket of currencies of Fiji’s principal trading partners, chiefly Australia, New Zealand, the United States, the European Union, and Japan.

Although no limits were placed on non-residents borrowing locally for some specified investment activities, the RBF placed a credit ceiling on lending by commercial banks to non-resident controlled business entities.

Remittance Policies

Tax compliance may restrict foreign investors’ repatriation of investment profits and capital. Prior clearance of withholding tax payments on profit and dividend remittances is required from the Fiji Revenue and Customs Service. Profit and dividend remittances above USD 0.49 million (FJD one million) per company per annum and large payments require RBF approval. Provided all required documentation is submitted, the processing time for remittance applications is approximately three working days.

Sovereign Wealth Funds

There is no sovereign wealth fund or asset management bureau in Fiji. The country’s pension fund scheme, the Fiji National Provident Fund, which manages and invests members’ retirement savings, accounts for a third of Fiji’s financial sector assets. The fund invests in equities, bonds, commercial paper, mortgages, real estate and various offshore investments.

State-owned enterprises (SOEs) in Fiji are concentrated in utilities and key services and industries including aerospace (Fiji Airways, Airports Fiji Limited); agribusiness (Fiji Pine Ltd); energy (Fiji Electricity Authority); food processing (Fiji Sugar Corporation, Pacific Fishing Company); information and communication (Amalgamated Telecom Holdings); and media (Fiji Broadcasting Corporation Ltd). There are ten Government Commercial Companies which operate commercially and are fully owned by the government, six Commercial Statutory Authorities (CSA) which have regulatory functions and charge nominal fees for their services, six Majority Owned Companies, and two Minority Owned Companies with some government equity. The SOEs that provide essential utilities, such as energy and water, also have social responsibility and non-commercial obligations.

Aside from the CSAs, SOEs do not exercise delegated governmental powers. SOEs benefit from economies of scale and may be favored in certain sectors. The Fiji Broadcasting Company Ltd (FBCL) is exempt from the Media Decree, which governs private media organizations and exposes private media to lawsuits. In some sectors, the government has pursued a policy of opening up or deregulating various sectors of the economy.

Privatization Program

To encourage more private sector participation, the government continues to support the partial divestment of shares in certain government companies as well as the sale of some of its assets in aviation infrastructure and energy. Foreign investors are increasingly participating in public-private sector partnership arrangements in the energy and maritime port sector. Information on these programs and opportunities is published in the local newspapers and the Ministry of Economy’s website (http://www.economy.gov.fj/ ).

Responsible Business Conduct (RBC) is increasingly promoted, with both multi-national companies and large local companies practicing RBC through charitable foundations. Major companies’ advertising often promotes the company’s social benefits or charity sponsorships. There is no official favoring of RBC-friendly businesses, and consumers tend to seek value for price. The government has included a social responsibility component for SOEs that provide essential utilities.

The law provides criminal penalties for corruption by officials, but the government does not implement the law effectively. The government established the Fiji Independent Commission Against Corruption (FICAC), which has broad powers of investigation. FICAC’s public service announcements encouraging citizens to report corrupt government activities have had some effect on systemic corruption. The media publishes articles on FICAC investigations into abuse of office, and anonymous blogs report on government corruption. However, Fiji’s relatively small population and limited circles of power often lead to personal relationships playing a major role in business and government decisions.

Resources to Report Corruption

Mr. George Langman
Deputy Commissioner
Fiji Independent Commission Against Corruption (FICAC)
P.O. Box 2335, Government Buildings, Suva, FIJI
(679) 3310290
info@ficac.org.fj

Dr. Joseph Veramu
Chair Person
Transparency International Fiji
72 Pratt Street, G.P.O Box 12642, Suva, FIJI
(679) 3304702
oa@transparencyfiji.org

The country returned to parliamentary democracy following general elections held in September 2014 after eight years of military rule. The Public Order (Amendment) Decree (POAD) restricts freedoms of speech, assembly, and movement. The POAD, media decree, and other restrictive decrees promulgated since the 2006 coup remain in force.

Although there have been human rights concerns in previous years, the possibility of civil disturbances is deemed to be fairly low.

The International Labor Organization (ILO) estimates that Fiji’s labor force in 2017 was estimated to be 376,842. Education is compulsory until age 17, with male and female students in Fiji achieving largely the same level of education. According to ILO estimates, the labor force participation rate was estimated at 37.4 percent in 2017. National unemployment in 2017 stood around 8.1 percent, although the rates for youth and women were higher, at 19.8 percent and 11.3 percent respectively.

Fiji continues to face acute labor shortages in a broad range of fields, including the medical, management, engineering, and financial sectors, and to a lesser extent, for competent trade-skilled people in the construction and tourism industries.

The Ministry of Employment, Productivity, and Industrial Relations has responsibility for the administration of labor laws and the encouragement of good labor relations. The Employment Relations (Amendment) Act of 2016 restored the 2007 Employment Relations Promulgation (ERP) as the primary basis for the right of workers to join trade unions.

Trade unions are independent of the government. The ERP prohibits forced labor, discrimination in employment based on ethnicity, gender, and other prohibited grounds, and stipulates equal remuneration for work of equal value. There are workplace safety laws and regulations, and safety standards apply equally to both citizens and foreign workers. The national minimum wage rate is USD 1.31 (FJD 2.68).

The U.S. Overseas Private Investment Corporation (OPIC) provides investment insurance in Fiji for qualified applicants, including political risk insurance and loans. The risks of currency convertibility are safeguarded under Fiji’s foreign exchange regulations. Fiji is not a member of the Multilateral Investment Guarantee Agency.

Table 3: Sources and Destination of FDI

Data not available.
Table 4: Sources of Portfolio Investment

Data not available.

U.S. Embassy Suva
158 Princes Road, Tamavua
P. O. Box 218
Suva, Fiji
(679) 3314466
commercialsuva@state.gov

Policies Toward Foreign Direct Investment

The government of the RMI publicly expresses interest in finding ways to increase foreign investment, but there are many structural impediments to foreign investment and economic progress, such as land rights, which are unlikely to be changed in the foreseeable future.

Foreign investment is governed through the Foreign Investment Business License (Amendment Act (2000)), which established the Registrar of Foreign Investment and details restrictions on foreign investments, mostly in certain small-scale retail and service businesses. However, this law is reportedly not consistently enforced, and foreign investors may enter partnership agreements with local Marshallese businesses. The Ministry of Resources and Development, Trade and Investment Division, administers the law in coordination with the Office of the Attorney General.

The RMI Cabinet can approve tailor-made investment incentives including tax and duty exemptions. Investors who invest a minimum of USD 1 million or provide employment and wages in excess of USD 150,000 annually to Marshallese citizens are exempt from paying gross revenue tax and import duties for a five-year period in certain sectors including offshore or deep-sea fishing. This focus on Cabinet decision-making together with a lack of transparency and consistency across all sectors contravenes international best practices.

Land issues and disputes concerning leases are subject to customary law governing land tenure, and proceedings can take a protracted time to resolve. Land cannot be purchased by investors; it can only be leased through customary practices.

Limits on Foreign Control and Right to Private Ownership and Establishment

Although the Marshall Islands generally encourages foreign investment, the Foreign Investment Business License (Amendment) Act established a National Reserved List, which restricts foreign investment in certain small-scale retail and service businesses. However, this law is not consistently enforced, and foreign investors may enter partnership agreements with local Marshallese businesses. Officially, foreign investment is prohibited in the following business ventures:

• Small scale agriculture and marine culture for local markets
• Bakeries and pastry shops
• Motor garages and fuel filling stations
• Land taxi operations, not including airport taxis used by hotels
• Rental of all types of motor vehicles
• Small retail shops with a quarterly turnover of less than USD 1,000 (including mobile retail shops and/or open-air vendors/take-outs)
• Laundromat and dry cleaning, other than service provided by hotels/motels
• Tailor/sewing shops
• Video rental
• Handicraft shops
• Delicatessens, Deli Shops, or Food take-out

Other Investment Policy Reviews

The newly formed Office of Commerce Investment and Tourism (OCIT) drafted an investment policy review in 2018 for the purpose of stimulating private sector economic activity that will increase employment, sustainable FDI, and boost the RMI economy. According to the OCIT 2018-2020 Business Plan, the office’s priorities include revising and updating the RMI Investment Policy, addressing and removing constraints to business in the RMI, and implementing 3-year targeted development strategies for projected private sector growth sectors (tourism, fisheries, and MSMEs), and marketing the RMI for commerce, tourism, and investment.

Business Facilitation

The government of the Marshall Islands created the Office of Commerce and Investment and Tourism (OCIT) to assist foreign investors. OCIT’s website has helpful information regarding investment and doing business in the Marshall Islands: http://www.investrmi.org. OCIT developed a one-stop-shop business registration process, but it is still largely a paper-based system. They hope to launch an online business registration website next year. There currently is no online website for registering a business in the Marshall Islands. This must be done in person. After a foreign investor receives an FIBL, detailed in the Laws and Regulations on DFI, the business owner must complete the following steps:

Check the uniqueness of the proposed company name with the Registrar of Corporations. This costs USD 100 and takes one day.

Have the company charters notarized. Notarization can be done at the Office of the Attorney General. It takes two days on average and costs USD 10.

Register the company with the Registrar of Corporations. This takes five days and costs USD 250. Limited Liability Companies need to file a Certificate of Formation and need to have LLC agreements detailing how the LLC will be operated, managed, and distributions divided.

Obtain an Employer Identification Number from the Marshallese Social Security Administration. This number will also serve as the company’s tax identification number. This process takes two days and costs USD 20.

Apply for a business license. The business owner needs to submit a company charter along with the business license. Business licenses are usually issued in seven days. Licensing fees vary depending on the type of business. Fees are as follows:

• Retail Business: USD 150
• Banks: USD 5,000
• Professional: USD 3,000
• Hotels: USD 500

The Ministry of Finance segments the business sector for tax purposes using annual gross revenue amounts, not number of employees. There are no other segmentations recognized by the Marshall Islands. There is a Small Business Development Center in Majuro.

Outward Investment

The RMI government does not actively promote, incentivize, or restrict outward investment.

The Marshall Islands does not have a bilateral investment treaty with any country.

Transparency of the Regulatory System

Regulatory and accounting systems are generally transparent and consistent with international norms. Bureaucratic procedures are generally transparent, although nepotism and customary hierarchal relationships can play a role in government actions. There are frequent accusations of official corruption across the RMI government. Proposed laws and regulations are available in draft form for public comment pursuant to the Administrative Procedures Act, Title 6 of the Marshall Islands Revised Code. Generally, tax, labor, environment, health and safety, and other laws and policies do not impede investment. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.

International Regulatory Considerations

The Marshall Islands is a member of the Pacific Islands Forum (PIF) which has a model regulatory and policy framework focused on competition, access and pricing, fair trading, and consumer protections. The RMI seeks to implement PIF-agreed standards domestically; however, the capacity for enforcement is weak.

Legal System and Judicial Independence

The Republic of the Marshall Islands has a responsive judiciary that consistently upholds the sanctity of contracts. The legal system in the Marshall Islands is patterned on common law proceedings as they exist in the United States. The country has a judicial branch composed of a Supreme Court, a High Court, a Traditional Rights Court, District Courts, and Community Courts. The Supreme Court is made up of one Chief Justice and two Associate Justices. The High Court consists of the Chief Justice and one Associate Justice. The Chief Justices are both U.S. Citizens serving 10-year terms. There are also three Traditional Rights Court judges, two District Court judges, and several Community Court judges serving the Marshall Islands. On certain occasions, as necessary, the Marshall Islands Judicial Service Commission recruits qualified judges on contract from the United States to serve with the Chief Justice on the Supreme Court and to temporarily fill vacancies on the High Court as there are few qualified and independent Marshallese who can fill these positions. The Traditional Rights Court deals with customary law and land disputes.

The Marshall Islands Courts are generally considered fair, without undue influence or interference. Marshall Islands Court rulings, legal codes, and public law can be found on their website: http://www.rmicourts.org/ .

Laws and Regulations on Foreign Direct Investment

All non-citizens wishing to invest in the Marshall Islands must obtain a Foreign Investment Business License (FIBL). The FIBL is obtained from the Registrar of Foreign Investment in the Ministry of Finance. In coordination with the Investment Promotion Unit at the Ministry of Resources and Development, the Ministry of Finance reviews the application and ensures that the business does not fall under the categories of the National Reserved List listed above. The application process usually takes 7-10 working days. The FIBL grants non-citizens the right to invest in the Marshall Islands, provided the investment remains within the scope of business activity for which the FIBL was granted.

The 2015 amendment to the Foreign Investment Business License Act requires all holders of FIBLs to maintain reliable and complete accounting records and records of ownership, and that all business records must be kept in such a way that they can be converted into written form at the request of an authorized inspector. These records must be retained for a period of five years.

Competition and Anti-Trust Laws

The Marshall Islands does not currently have any anti-trust legislation or agency which reviews transactions for competition-related concerns.

Expropriation and Compensation

All land is privately owned by Marshallese citizens through complex family lineages. Although the Government of the Marshall Islands may legally expropriate property under the country’s constitution, the government has only exercised this right on one occasion and only for a temporary period of time. Given the importance of private land ownership in customary law and practice, it is very unlikely that the government will exercise this right in the foreseeable future.

If a business activity is subsequently added to the reserved List, the Registrar of Foreign Investment may not cancel or revoke an existing Foreign Investment Business License if the investment has already commenced.

Dispute Settlement

ICSID Convention and New York Convention

The Marshall Islands has been a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 1958 New York Convention) since 2006, but is not a member of the International Center for Settlement of Investment Disputes (ICSID), nor does it have plans to become a member at this time.

Investor-State Dispute Settlement

There are no ongoing investment disputes involving the Government of the Republic of the Marshall Islands and foreign investors. There is a very limited record of foreign investment disputes in the Marshall Islands due to the small size of foreign investment in the country. The most common type of business disputes are with landowners over land use, and land rights issues, and as there is currently no official dispute resolution procedure, these are frequently resolved informally or only after protracted court proceedings. Domestic civil society has traditionally not been actively engaged in dispute resolution. The Marshall Islands Courts are generally considered fair, without undue influence or interference. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

The Republic of the Marshall Islands does not have any alternative dispute resolution (ADR) mechanisms or domestic arbitration bodies available as a means for setting disputes between two private parties. There is no known history of the RMI enforcing foreign commercial arbitral decisions.

Bankruptcy Regulations

There is no legal provision for bankruptcy in the Marshall Islands. There is a provision by which companies can elect to close themselves down, but there is no law through which creditors can apply to the court for liquidation and sale of assets of companies that are unable to pay their debts. It ranks 167 out of 190 for resolving insolvency in World Bank’s 2018 Doing Business Report.

Investment Incentives

The Republic of the Marshall Islands offers a range of investment incentives, many of which can be found at www.investmarshallislands.com .

The Marshall Islands offers tax and duty exemptions for investments in certain private sector industries. These investment incentives apply uniformly to both domestic and foreign investors through submission of a letter to the Minister of Finance. Tax incentives are specified by law, but have been rarely awarded, given the relative lack of large-scale investment.

All imports are subject to import duties, and the only current duty exemptions are for renewable and alternative energy items. Import duties are ad valorem rates on cost, insurance, and freight (CIF), and the number of tariff categories is small to facilitate administration. Goods in transit are exempt from the import tax, and the import tax on re-exported goods is refundable. The Marshall Islands has no taxes on exports.

Under the terms of the Compact of Free Association, as amended, all items grown, made or produced in the Marshall Islands are exempt from U.S. duties with the following exceptions:

• Watches, clocks, and timing apparatus provided for in Chapter 91, excluding heading 9113, of the Harmonized Tariff Schedule of the United States;
• Buttons (whether finished or not finished) provided for in items 9606.21.40 and 9606.29.20 of such schedule;
• Textile and apparel articles which are subject to textile agreements; and
• Footwear, handbags, luggage, flat goods, work gloves, and leather wearing apparel which were not eligible for the generalized system of preferences in the Trade Act of 1974.

Tuna in airtight containers exported to the U.S. is duty-free, provided it does not exceed 10 percent of total U.S. tuna consumption during the previous calendar year. The Compact also stipulates that U.S. products imported to the Marshall Islands receive Most-Favorable Nation status, and the country must consult with the U.S. should they enter into a Free Trade Agreement with another country or customs territory.

Investors who invest a minimum of USD 1 million or provide employment and wages in excess of USD 150,000 annually to Marshallese citizens are exempt from paying gross revenue tax for a five-year period in the following sectors:

• Off-shore or deep sea fishing
• Manufacturing for export, or for both export and local use
• Agriculture
• Hotel and resort facilities

Investors in seabed hard mineral mining are exempt from paying all taxes, duties, and other charges (except taxes on wages and salaries, individual income tax, and social security contributions). In return, investors are required to pay the Government of the Marshall Islands a share of net proceeds accruing from the investment in the form of royalties, production charge, or some combination thereof as agreed to between the government and investor.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no geographic foreign trade zones or free ports in the Marshall Islands.

Performance and Data Localization Requirements

The RMI government requires all investors employing non-resident workers to agree to:

• Cover the cost of repatriating non-resident workers to the place hired,
• Train one or more citizen workers to perform the work for which the non-resident worker is employed,
• Pay a levy of USD 0.25 per hour for every hour of work performed by non-resident worker, to be paid to the Resident Workers Training Account for the purposes of training citizen workers, and repatriating non-resident workers should the need arise.

This requirement is set and evaluated on a case by case basis, and is usually included as part of a whole package that also includes investment incentives such as favorable taxation statuses.

U.S. Citizens do not require a visa to enter the Marshall Islands, and may be employed in the Marshall Islands without obtaining a work permit or a visa. They must register as an alien with the Department of Immigration on an annual basis. Though use of local products is encouraged, the government does not follow “forced localization.”

The RMI does not currently have laws or regulations on domestic storage or localization requirements.

Real Property

Land rights are a highly complex and frequently contentious issue in the Marshall Islands. Land ownership is through family lineage and according to social class. Paramount Chiefs (Iroij) have title to entire islands or portions of islands within an atoll, clan elders (alaps) have title to several parcels of land under their Paramount Chiefs, and workers (dri-jerbal) have title to the parcel of land associated with their Paramount Chief on which they live. Each parcel of land is thus owned by at least three separate individual landowners, one each from the classes described above. Non-Marshallese may not purchase land, and land purchases by Marshallese are also very rare. Paramount Chiefs may grant land rights to others, though they retain their share of ownership in all circumstances.

Available land for development is scarce, particularly in the two major urban areas of Majuro and Ebeye. Non-citizen investors must negotiate lease agreements directly with customary groups of landowners. Land may be leased in perpetuity with many leases having a term of 50 years, and options for renewal. The Kwajalein land lease to the U.S. Government runs fifty years (to 2066) with an option to renew for another twenty years, for example. Mortgages against the title of land are not permitted, but commercial lease agreements and land lease payments may be used as collateral. There is limited written documentation of titles to land in the Marshall Islands, although local citizens generally know who controls each parcel of land on their particular atoll.

In 2003, the Government of the Marshall Islands established a Land Registration Authority to create a voluntary register of customary land and establish a legal framework for recording documents related to ownership rights. The Land Registration Authority has not achieved its objective of encouraging greater clarity and security of property rights in land. The continued lack of clear title creates uncertainty for investors and impedes lending. As a result, native-born Marshallese are disadvantaged, since they cannot mobilize their wealth (i.e., land) to finance business ventures. The government is exploring the possibility of acting as an intermediary between investors and landowners focusing on resort development.

In the World Bank’s Doing Business 2017 report, the Marshall Islands rank 187th out of 190 countries for registering property.

Intellectual Property Rights

The Marshall Islands is not a member of the World Trade Organization, the World Intellectual Property Organization (WIPO), or any other international agreement on intellectual property rights. There is inadequate protection for intellectual property, patents, copyrights, and trademarks. The only intellectual property-related legislation relates to locally produced music recordings, and it has never been enforced. The Marshall Islands are not listed on the USTR’s Special 301 Report, nor are they listed in the notorious market report. Pirated DVDs and CDs imported from off-island are readily available.

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/ .

Capital Markets and Portfolio Investment

There are no stock exchanges or financial regulatory institutions in the country.

Money and Banking System

There are currently two banks with branches in the Marshall Islands. The Bank of Guam is a publicly owned U.S. company with its headquarters in Guam. It complies with all U.S. regulations and is FDIC-insured. The Bank of the Marshall Islands is a privately-owned Marshallese company with headquarters in Majuro. There have been recent reports in the news that its correspondent banking relationship with First Hawaiian, Inc. is in jeopardy.

Foreign Exchange and Remittances

Foreign Exchange

The government does not impose any restrictions on converting or transferring funds associated with an investment. The Marshall Islands uses the U.S. dollar as its official currency, and there is no central bank. There are no official remittance policies and no restrictions on foreign exchange transactions. There have been no reported difficulties in obtaining foreign exchange as the vast majority of funds are denominated in U.S. dollars.

Remittance Policies

While the government encourages reinvestment of profits locally, there are no laws restricting repatriation of profits, dividends, or other investment capital acquired in the Marshall Islands. To comply with international money laundering commitments, cash transactions and transfers exceeding USD 10,000 are reported by the banks to the Banking Commission, which monitors this information and has the authority to investigate financial records when necessary. To date, however, the country has not successfully prosecuted any money laundering cases.

Sovereign Wealth Funds

The Marshall Islands has no sovereign wealth fund (SWF) or asset management bureau (AMB), but the Compact of Free Association established a Trust Fund for the Marshall Islands that is independently overseen by a committee composed of the United States, Taiwan, and Marshall Islands representatives.

Nearly all major industries are controlled by state-owned enterprises (SOEs). In the 2018-2020 OCIT Business Plan, the RMI government recognized the need for continued reforms at SOEs. The SOE sector, comprising 11 public enterprises, continues to underperform and to impose significant risks and burden on the fiscal system and economy. Relatively large government investments in SOEs have tended to lead to inefficient and high cost services, and large losses requiring annual government subsidies that have become a drain on the government budget. The US Department of the Interior’s Economic Review for FY 2016 records total levels of subsidies and capital transfers to the SOE sector at 10 percent of GDP with the sector making an average operating loss of USD 7.4 million over the FY2014 -FY2016 period and incurring average subsidies of USD 9.5 million. Major SOEs are: Air Marshall Islands; Kwajalein Atoll Joint Utility Resources; Majuro Atoll Waste Corporation; Marshall Islands Development Bank; Majuro Water and Sewer Company; Marshalls Energy Company; Marshall Islands Port Authority; Marshall Islands Shipping Corporation; Majuro Resort; Postal Services Authority; National Telecommunication Authority; and the Tobolar Copra Processing Plant. The Marshall Islands Marine Resource Authority (MIMRA) is the only SOE to be a net revenue provider for the Marshall Islands, but the audit cautioned that the long-term future support from the fisheries sector cannot be taken for granted. The Marshall Islands is not a member of the WTO.

In 2015 the Marshallese parliament passed the State-Owned Enterprises Act which set standards for the formation and operation of SOEs. The Act changed the way the boards of directors of SOEs are structured, and set minimum reporting requirements for the 11 SOEs. Boards must consist of at least three but no more than seven directors, only one of which can be a public official and that public official may not hold a term longer than three years after the Act goes into effect. A public official may not be selected as Chairman of the Board.

All SOEs are required to have their books independently audited as part of the government’s overall audit.

Privatization Program

There is no formal privatization program in the RMI, but the 2018-2020 OCIT Business Plan recognizes the need for SOE reform and privatization. OCIT states in the report that “implementing the new Plan will require some organizational change. This will include the following:

1. A private sector organization(s) is/are created that is representative of all the private business interests of the RMI.
2. All government departments support private sector led growth.
3. All SOEs allow private sector competition. This currently most especially applies to AMI, NTA, the Shipping Corporation and Tobolar.
4. Government regulatory capacity is developed to promote competition and prevent private monopolies being created.

Currently, foreign investors are allowed to purchase shares only in the National Telecommunications Authority, but foreign investors may not own a majority of shares. Bidding criteria are not readily available, and the process remains largely controlled by the national government.

The Marshall Islands has some basic worker protection laws, including a minimum wage and protections for foreign workers. With the exception of a few retail businesses, the banking sector, and the ship registry, there is little general awareness of corporate social responsibility or responsible business conduct among producers or consumers. Firms that pursue these objectives are viewed neither favorably nor unfavorably.

There are credible allegations and periodic prosecutions for misuse of government funds and abuse of public office for private gain. Government procurement and transfers appear most vulnerable to corruption, and personal relationships sometimes play a role in government decisions. Government officials at all levels are permitted to invest in and own private businesses without regard for conflict-of-interest considerations. Foreign aid has been abused and past audits report a number of financial irregularities connected to donor-funded activities. Bribery is a second-degree felony, whether to a domestic or foreign official. The Marshall Islands acceded to the UN Convention against Corruption in September 2011. Although there are frequent credible allegations of public corruption in the RMI, few high-ranking government officials are ever charged, prosecuted, or sentenced. Government officials caught up in corruption allegations are typically removed from one ministry and later put in a position of authority in a different ministry.

Domestic and international firms as well as NGOs have repeatedly identified corruption as a problem in the business environment and a major detractor for international firms exploring investment or business activities in the local market.

Resources to Report Corruption

Jonathan Kawakami
Assistant Attorney General
RMI Attorney General Office
PO Box 890
Majuro, Republic of the Marshall Islands 96960
Jonathan.kawakami@gmail.com
Tel: +692 625 3244
Fax: +692 625 5218

No international, regional, or local watchdog organizations operate in the country.

There have been no reported incidents involving politically motivated damage to projects or installations.

The RMI workforce is estimated at 10,895 people based on RMI FY16 economic statistics, of which only 39.39 percent work in the private sector. According to RMI FY16 statistics, the Marshall Islands has a 31 percent unemployment rate, and a significant portion of the population remains underemployed as well. Unemployment rates among youth and young adults could be as high as 50–60 percent. Official reported unemployment is 4.7 percent, however, by including all household production such as fishing or making handicrafts for personal consumption.

Under the Compact of Free Association, Marshallese citizens are entitled to live, attend school, and work in the United States visa-free as “nonimmigrant residents.” Accordingly, the pool of capable workers is limited, as many skilled and professional workers migrate to the U.S. for its higher wages and standards of living. Recruiting skilled foreign workers is time-consuming and expensive. Professional, medical, management, and other special labor skills are in high demand in the Marshall Islands.

Given the scarcity of resident qualified workers, the Marshall Islands allows investors to employ non-resident workers provided they agree to cover the cost of repatriation, that they hire and train at least one citizen to perform the same work, and pay a levy of USD 0.25 per hour for every hour of work performed by a non-resident worker, to be paid to the Resident Workers Training Account for the purposes of training citizen workers, and repatriating non-resident workers should the need arise. Non-citizen investors issued with a foreign investment business license are exempted from obtaining a work permit for themselves. Also, citizens of the United States, Federated States of Micronesia, and Palau do not require work permits to work in the Marshall Islands. Investors and nationals of these countries, however, are required to register with the Labor Office. The RMI government may also issue investors work permit exemptions if investors can demonstrate that their investments will provide substantial economic benefits to the country. Such exemptions are limited to export-oriented investments. Applications for such exemptions should be submitted to the Chief of Labor.

Foreign workers are generally hired on a contract basis with opportunities for annual renewals. The National Training Council provides training resources for Marshallese workers. While many consider the law discriminatory against foreign workers, employers are willing to pay the training fee in order to hire skilled labor, which is not widely available in the country. Some companies, particularly in fisheries, seeking to expand business and hire additional workers are limited by other infrastructure constraints, such as the lack of available land, water, and power.

There are no laws that require employers to pay a severance package when an employee is released from service, either due to firing or lay-offs. Arrangements for severance payments are generally made at the time of hire through terms in the hiring instrument. There is no employment insurance or any other social safety net programs for unemployed individuals.

There is no legislation concerning collective bargaining or trade union organization, although a bill has recently been introduced into the RMI Nitijela for debate. The country has a very limited history or culture of organized labor. The only union ever created in the country, the Teachers’ Union, was formed several years ago and is inactive. The Marshall Islands has been a member of the International Labor Organization (ILO) since 2007.

The U.S. Overseas Private Investment Corporation (OPIC) provides investment insurance, financing, and loan guarantees in the Marshall Islands for qualified investors. Because the Marshall Islands uses the U.S. dollar as its national currency, there are no convertibility risks. The Marshall Islands is not a member of the Multilateral Investment Guarantee Agency.

*Local GDP statistics from the Economic Policy, Planning and Statistics Office (EPPSO) which serves as an economic advisor to the Government of the Republic of the Marshall Islands. It is responsible for Policy & Strategy Development, Statistics & Analysis, and Performance Monitoring, Evaluation & Aid Co-ordination. EPPSO is directly responsible to the Office of the President.

Table 3: Sources and Destination of FDI

No detailed information is available on the IMF’s Coordinated Portfolio Investment Survey (CPIS) website and no information is available on outward direct investment from Burundi.

Table 4: Sources of Portfolio Investment

Data not available.

Daniel B. Dolan
Political, Economic, and Consular Officer
U.S. Embassy Majuro; Republic of the Marshall Islands
Tel: +692-247-4011 Ext. 2350
dolandb@state.gov
http://mh.usembassy.gov/
http://www.facebook.com/usembassymajuro 

Policies Toward Foreign Direct Investment

While the government of the FSM publicly expresses its intent to increase foreign investment, there are many structural impediments to doing so. These challenges, both regulatory and political, affect foreign investment and economic progress in general, and addressing them would require constitutional change that is unlikely in the foreseeable future. Many political leaders at both the state and national level are owners of the largest businesses on the islands and strongly oppose the required structural changes that would result in increased competition. The FSM scores in the lowest quintile in almost all measures and international indices of economic activity and the climate for doing business.

The country’s courts support contractual agreements, but enforcement of judicial decisions has been historically weak. Foreign firms doing business in the FSM have had difficulty in collecting debts owed by FSM governments, companies, and individuals, even after obtaining favorable judgments. For these reasons, the World Bank ranks the FSM very low in protecting minority investors and enforcing contracts, ranking 185th and 183rd, respectively, of 190 countries globally. U.S. companies and individuals considering doing business with parties in the FSM should exercise due diligence and negotiate minimal credit and payment arrangements that fully protect their interests.

Limits on Foreign Control and Right to Private Ownership and Establishment

All four of the FSM’s states have limits on foreign ownership of small- and medium-size businesses. Large projects are assessed by the government on a case-by-case basis. Each state requires a separate application for foreign investment permits. Foreign investment is strictly limited by local ownership requirements (51-60 percent) and residency requirements of more than five years. Financing through bank loans is not possible. Local small- and medium-size businesses are protected from foreign competition. Larger projects in a business sector already owned by public figures will face strong political opposition. Large and unrealistic development proposals have been received enthusiastically by politicians, but have not moved forward primarily due to land issues. FDI is screened at both the state and federal level.

Other Investment Policy Reviews

The FSM government has not undergone any third-party investment policy review conducted by United Nations Conference on Trade and Development (UNCTAD), World Trade Organization (WTO), or Organization of Economic Cooperation and Development (OECD).

Business Facilitation

Micronesia lacks a single window for online business registration or information portals providing comprehensive business registration information. The FSM Department of Resources and Development (R&D) maintains information on trade and investment at their website. It has been reported that obtaining licenses and permits in a timely manner may depend more on the relationship of the investor (or local legal counsel) with the official in charge, rather than any clear procedure or timeline. The World Bank’s 2017 Ease of Doing Business report ranks the FSM as 155th of 190 countries globally in terms of procedures to register a business.

Outward Investment

The FSM government does not promote, incentivize or restrict outward investment.

No bilateral investment agreement exists between the U.S. and the FSM. The 2003 Amended Compact of Free Association is the only applicable guidance, with additional information available online. Under this treaty, articles imported from the U.S. into the FSM are guaranteed to receive treatment that is no less favorable than any other foreign country. Articles exported from the FSM to the U.S. are duty exempt, with a few exceptions as listed in Article IV, Section 242 of the Compact.

Transparency of the Regulatory System

The FSM is not a signatory to any convention on transparency in international investment. Transparency of government actions depends more on personalities than on the law. Regulatory bodies sometimes involve themselves in issues beyond their jurisdiction. Conversely, other regulations are not uniformly enforced. It is often difficult to obtain public records, although some states and government organizations do require open meetings. In addition, government audits and statistical reports are not prepared promptly and current data is often unavailable.

One of the two websites that provided relatively recent (if not comprehensive) data and reports is no longer online after government reorganization. The website for the National Public Auditor (http://www.fsmopa.fm ) remains active and updated.

International Regulatory Considerations

The FSM is not a member of any regional economic block, nor is it a member of the WTO

Laws and Regulations on Foreign Direct Investment

No major laws or regulations regarding foreign investment have come out in the past year. A constitutional amendment allowing dual citizenship was voted on in March 2017, again failing to pass. The individual states directly regulate all foreign investment, except in the areas of deep ocean fishing, banking, insurance, air travel, and international shipping, which are regulated at the federal level. FSM national and state governments use a “traffic light” system to regulate businesses, with red for prohibited, amber for restricted, and green for unrestricted. Industry classifications in this system vary from state-to-state. Thus, a prospective investor planning to operate in more than one state must obtain separate permits in each state, and often follow different regulations as well.

The following are the regulations pertaining to restrictions by sector in each of the states:

FSM National

• Red: Arms manufacture, minting of currency, nuclear power, radioactive goods.
• Amber: Increased scrutiny before approval for non-traditional banking services and insurance.
• Green: Banking, fishing, air transport, international shipping.

Kosrae State

• Red: manufacture of toxic, biohazard materials, gambling, casinos, fishing using sodium/cyanide or compressed air. (Note: There is also currently a ban on all business transactions on Sundays in the capital town.)
• Amber: Real estate brokerage, non-ecology-based tourism, trade in reef fish, coral harvesting
• Green: Eco-tourism, export of local goods, professional services.

Pohnpei State

• Red: None presently defined, determined by board from amber candidates.
• Amber: Everything not classified as green.
• Green: Businesses with greater than 60 percent share owned by FSM citizens, initial capitalization of USD 250,000 or more, professional services with capitalization of USD 50,000 or more, and Special Investment Sector businesses with 51 percent FSM ownership in retail, trade, exploration, development, and extraction of land or marine based mineral resources or timber.

Chuuk State

• Red: Determined by the Director, none codified in law.
• Amber: Casinos, lotteries, industries that pollute the environment, destroy local culture and tradition, or deplete natural resources.
• Green: Eco-tourism, professional services, intra-state airline services, exports of local goods.

Yap State

• Red: Manufacture of toxic materials, weapons, ammunition, commercial export of reef fish, activities injurious to the health and welfare of the citizens of Yap.
• Amber: None at present.
• Green: All others.

Competition and Anti-Trust Laws

There is no law or agency governing competition in the FSM.

Expropriation and Compensation

The FSM Foreign Investment Act of 1997 guarantees that there will be no compulsory acquisition or expropriation of property of any foreign investment for which a Foreign Investment Permit has been issued, except for violation of laws and regulations and in certain extraordinary circumstances. Those extraordinary circumstances include cases in which such action would be consistent with existing FSM eminent domain law, when such action is necessary to serve overriding national interests, or when either the FSM Congress or the FSM Secretary of Resources and Development has initiated expropriation. There has been no history of expropriation involving foreign investors or U.S. companies.

Dispute Settlement

ICSID Convention and New York Convention

Since 1993, the FSM has been a member of the Convention on Settlement of Investment Disputes between States and Nationals of Other States (ICSID) but is not a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. To date, there have not been any ICSID cases.

Investor-State Dispute Settlement

The FSM is not a signatory to a treaty or investment agreement in which binding international arbitration of investment disputes is recognized. Disputes take years to resolve and still may not produce concrete results. Some cases have been on the docket, with no or little movement, for thirty years or more.

International Commercial Arbitration and Foreign Courts

There are no provisions under FSM Federal law for alternative dispute resolution. This is also true of the states, with the exception of Kosrae, where an alternative dispute resolution system has taken the place of a small claims court. Judgments from foreign jurisdictions are not enforceable in FSM courts.

Bankruptcy Regulations

A bankruptcy law has been in existence since 2005 but has been used only three times, generally to avoid taxes.

Investment Incentives

There are currently no government programs or incentives to attract foreign investment.

There is no government agency tasked with developing an industrial strategy; however, the FSM government has made recommendations for growth in all sectors without substantive measures to realize those goals. The telecommunications sector has recently opened up in order to meet the World Bank conditions for a new fiber optic cable project. The largest state-owned enterprise, the FSM Petroleum Corporation (FSMPC), is planning to expand into renewable energy technologies like solar power, and coconut oil for export.

Politicians call for expansion of the tourism sector, but have created no tax, licensing, or leasing incentives to encourage investment. Considering the remoteness of the FSM, land ownership prohibitions, business ownership restrictions, and the current lack of hotel facilities and tourism services, growth in the tourism sector is not likely to meet local expectations. In addition, recent data shows that growth has actually fallen in the areas of scuba diving, boating, and fishing. Disagreements over land issues caused the 2013 closure of the most successful hotel in Pohnpei. UNESCO adopted the significant archaeological site of Nan Madol as a World Heritage Site in 2016. Statistics are not yet available to determine whether this has had any positive effect on tourism.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no Foreign Trade Zones, Free Trade Zones, or Free Ports in the FSM.

Real Property

The most important impediments to FDI derive from land and contract issues. Foreign ownership of land is prohibited; most land is owned and passed on within the clan structure, leading to conflicting title claims, the need to negotiate leases with multiple parties, and the possibility of changes when the original senior lessor dies. Dual citizenship is illegal, so Micronesian citizens born in the U.S. are unable to inherit or own property. There is no system for land title insurance in any of the country’s four states. The combination of these factors ranked the FSM at 187th out of 190 countries globally in the World Bank’s Ease of Doing Business report’s assessment of registering property.

Foreign nationals, including corporations, cannot own real land but in some cases can own buildings or other structures.

Intellectual Property Rights

Micronesia is a member state of the World Intellectual Property Organization (WIPO). Micronesia acceded to the Berne Convention for the Protection of Literary and Artistic Works in 2003. The country is not listed on USTR’s 2018 Special 301 Report, nor is it listed in the Notorious Markets Report. The Embassy has not received complaints from U.S. firms regarding IPR issues. That being said, the only U.S. corporations currently operating in FSM are United Airlines and Matson Shipping. There are only three U.S. chains present in Micronesia: Ace Hardware, True Value Hardware, and NAPA auto parts. They are 100 percent locally-owned franchises.

Intellectual property rights (IPR) are only nominally protected by the government. While there is weak and out-of-date legislation, enforcement is virtually nonexistent. A small CD/DVD pirating market exists, but there are no records of seizures. U.S. corporations have taken out legal ads in the local paper to protect their trademarks, but the enforcement of IPR has not been tested yet.

For additional information about national laws and points of contact at local IP offices, please see the country profiles on the WIPO website (http://www.wipo.int/directory/en/ ).

Capital Markets and Portfolio Investment

There are no stock or commodities exchanges in the FSM.

Money and Banking System

The two commercial banks operating in the country, the Bank of Guam and the Bank of the FSM, can only make small, short-term unsecured loans. This is due to the prohibition of using land or business as collateral, difficulties inherent in collecting debts, and difficulties in identifying collateral that could be attached and sold in the event of default. The Bank of FSM is prohibited by its charter from investing in any securities that are not insured by the U.S. government, so the bulk of its holdings are U.S. Treasury bonds. The Bank of Guam operates as a deposit collector in the FSM, with most of its loans made in Guam.

The Bank of FSM is protected from takeover by a trigger from FDIC that will cancel their insurance status if foreign ownership exceeds 30 percent. Foreigners are not allowed to open accounts with the bank unless they can provide proof of local residence and work permits.

Since most businesses are family owned, there are no shares that could be acquired for mergers, acquisitions, or hostile takeovers. The FSM enacted a secured transaction law in 2005 and established a filing office in October 2006 primarily to serve the foreign corporate registration market.

Foreign Exchange and Remittances

Foreign Exchange Policies

The currency of the FSM is the U.S. dollar. The only two commercial banks operating in the country at present are the Bank of Guam and the Bank of the FSM, both of which are Federal Deposit Insurance Corporation (FDIC) insured.

Remittance Policies

There are no specific restrictions on repatriating profits from a business, except in the state of Chuuk, where an amount greater than USD 50,000 requires state approval.

Statistics on family-level and personal remittances are difficult to obtain, with various studies reporting figures ranging from USD 3 to USD 14 million per year entering the FSM. However, remittances travel freely into and out of the country. Micronesians working abroad and in the U.S. send money to their families in the FSM, while Filipino professionals and laborers working in FSM send money to their families in the Philippines.

According to the Financial Action Task Force (FATF), the FSM is listed as a “monitored” country, indicating that the risk of money laundering is low.

Sovereign Wealth Funds

The FSM has no sovereign wealth fund, but the government established a national trust fund modeled on the Compact Trust Fund to provide additional government income after 2023. That fund is managed by a commercial fund manager.

The FSM established state monopolies and maintains state owned enterprises (SOEs) in the areas of fuel distribution, telecommunications, and copra production. These companies are the FSM Petroleum Corporation (FSMPC), the FSM Telecommunications Corporation, and the FSM Coconut Development Authority, which was folded into the FSMPC in 2014. Legislation passed in 2016 opened the telecom market to private companies in order to qualify for World Bank funding for a submarine fiber optic cable to Yap and Palau. Other prominent SOEs include the National Fisheries Corporation, the FSM Development Bank, the College of Micronesia, and Caroline Islands Air, Inc.

FSM does not currently adhere to the convention on the Organization of Economic Cooperation and Development (OECD) guidelines on corporate governance of SOEs.

Privatization Program

There is currently no privatization program in the FSM.

There is little awareness or definition of responsible business conduct (RBC) in the FSM. However, most local businesses are small and generally responsive to the community in which they operate. The two U.S.-based companies in the FSM generally follow RBC principles. The host government does not promote RBC or factor it in evaluations for public contracts, nor does the country adhere to the convention on OECD guidelines for multinational enterprises

The FSM has laws prohibiting corruption and there are penalties for corrupt acts. The National Office of the Public Auditor, with support from the Department of Justice, has been the entity most active in anti-corruption activities. A number of senior ex-FSM Government officials have been convicted of corruption under the FSM Financial Management Act, usually involving procurement fraud. Corruption is not a predicate offense under the money laundering statute. Bribery is punishable by imprisonment for no more than ten years and disqualification from holding any position in government. Given that many FSM National, State, and Municipal Government officials also own businesses, there exists significant potential for conflicts of interest.

The U.S. Embassy is not aware of significant anti-corruption efforts. The degree to which government officials accept direct bribes is unknown; however, misuse and misappropriation of government funds is widespread. The FSM has not signed or ratified the UN Convention on Corruption, or the OECD Convention on Combating Bribery.

Resources to Report Corruption

The FSM has no government agency specifically assigned with responsibility for combatting corruption. The Public Auditor has highlighted irregularities, but with no enforcement capability. The Department of Justice activity in this area has been variable.

Joses Gallen
Attorney General, FSM Department of Justice
Palikir, Pohnpei
+691-320-2608
jrg.fsm@gmail.com

There are no non-governmental “watchdog” organizations in Micronesia that monitor corruption.

FSM enjoys a stable, democratic form of government, and has no history of civil or political strife. The islands became part of a UN Trust Territory under US administration following World War II. In 1979, the islands adopted a constitution, formally becoming the Federated States of Micronesia. Independence came in 1986 under a Compact of Free Association with the U.S., which was amended and renewed in 2004. Under this agreement, the U.S. Government guarantees the FSM’s external security.

The country’s last presidential elections were held in 2015, which brought Peter Christian, a former senator, to power. The next presidential elections are scheduled for 2019. The population’s main concerns relate to the high unemployment rate, depletion of marine resources from overfishing, and a reliance on foreign aid.

Wages in FSM are very low, with minimum wage laws for government employees in all states and the federal government. Only Pohnpei has a minimum wage for the private sector at USD 1.75 per hour. Employment in the public sector is preferred because the wages are significantly higher. The minimum hourly wage for employment with the national government is USD 2.34. The minimum hourly wage for government workers in the individual states is: Pohnpei USD 2.00, Chuuk USD 1.25, Kosrae USD 1.42, and Yap USD 1.60.

There is no law regulating hours of work (although a 40-hour workweek is standard practice), nor are there enforceable standards of occupational safety and health. While there is one federal regulation that requires employers to provide a safe workplace, neither the Department of Health nor the Environmental Protection Agency has enforcement capability, resulting in varying working conditions. There is no law for either the public or private sector that permits workers to remove themselves from dangerous work situations without jeopardizing their continued employment.

Skilled labor in FSM is limited, with few FSM citizens trained to perform tasks of any technical nature. Foreign workers, primarily Filipinos, are hired to fill roles requiring technical skills. The vast majority of doctors, nurses, accountants, lawyers, engineers, construction foremen, and heavy equipment operators are foreign.

The FSM has seen no collective bargaining or strikes. Unemployment is high, and workers are easily replaced. There is no child labor, except in small family businesses. Occupational safety and health standards are low.

In 1988, FSM signed a bilateral agreement with the Overseas Private Investment Cooperation (OPIC). However, Since FSM law does not allow foreign corporations to operate independently in its territory, there are currently no OPIC financing projects in Micronesia.

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available.

Anthony Alexander
Economic/Consular Officer
U.S. Embassy Kolonia
1286 US Embassy Place,
Kolonia, Pohnpei, FM
+691-320-2187

Policies Towards Foreign Direct Investment

The government actively seeks foreign direct investment. However, the 2011 Foreign Investment Regulations detail a significant number of restricted and semi-restricted sectors. There are no specific financial incentives extended to foreign investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

The 2011 Foreign Investment Regulations detail the significant number of restricted and semi-restricted sectors (as stated above).

Regulatory changes that occurred in 2010 created a new category of “semi-restricted” sectors. These sectors had been closed to foreign investors from the passage of the 1991 Foreign Investment Act through October 2010. Now, these formerly-restricted businesses can include foreign ownership, as long as a Palauan citizen also has an ownership interest. There are no minimum or maximum requirements for percentage ownership for the foreign investor, as long as the monetary and/or Palauan-employment minimums for all foreign investments are met (as discussed below). These semi-restricted businesses are as follows:

• handicraft and gift shops;
• bakeries;
• bar services;
• operations [selling] products being produced by wholly Palauan-owned manufacturing enterprise;
• equipment rentals for both land and water within the Republic, including equipment for purpose of tourism; and
• any such other businesses, as the Foreign Investment Board may determine.

Sectors not listed as either closed or semi-restricted are presumed to be open for foreign investment. The Foreign Investment Board may, however, amend the semi-restricted sector list for “any such other businesses as the Board may determine.”

Screening of FDI

The Foreign Investment Board must approve all foreign direct investment. In addition to the sector in which the investment will flow, the Board requires a statement of level of investment (in U.S. dollar amounts), the length of time the investment will be in Palau, the nationality of the investors, and the percent ownership of each investor. The Board sometimes requests additional documentation from investors if it has questions about the details of the investment. In general, the Board makes decisions in a timely manner.

Other Investment Policy Reviews

The government has not undertaken any investment policy review in the last three years.

Bilateral Investment Treaty

Palau has no bilateral investment protection agreements, and is not a member of any free trade associations. Palau is currently negotiating with both the Philippines on a bilateral cooperation agreement and the European Union on a free trade and economic agreement.

Bilateral Taxation Treaty

Palau does not have a bilateral taxation treaty with the United States.

Transparency of the Regulatory System

Regulatory and accounting systems are generally transparent and consistent with international norms. Proposed new regulations must go through a period of public comment before being adopted. Businesspeople in Palau do not report specific regulatory discrimination against foreign investors.

International Regulatory Considerations

Palau is not a member of the WTO.

Legal System and Judicial Independence

Palau has civil law based court system, which can be used to enforce contracts. Palau has a specialized Land Court for disputes arising from conflicting claims of land ownership. The Judiciary is independent from the Executive branch.

Laws and Regulations on Foreign Direct Investment

The 1991 Foreign Investment Act provides the approval-process guidance for foreign investment. In late 2010 the Government of Palau revised its implementing regulations, changing several key requirements in a bid to encourage more foreign investment. A broader reform of the investment law stalled in Palau’s bicameral National Congress, or Olbiil Era Kelulau (OEK). The new “Regulations Implementing the Foreign Investment Act, 28 Pnc Section 101 et seq,” were signed by President Johnson Toribiong on August 1, 2010, and went into effect on November 1, 2010.

The 2011 Foreign Investment Regulations detail the significant number of restricted and semi-restricted sectors. There are no specific financial incentives extended to foreign investors.

According to Palauan law, the following businesses are solely reserved for Palauan citizens:

“(i) wholesale or retail sale of goods; (ii) all land transportation including bus services, taxi services and car rentals; (iii) tour guides, fishing guides, diving guides and any other form of water transportation services; (iv) travel and tour agencies; and (v) commercial fishing for other than highly migratory species.”

While all of the businesses above are officially closed to foreign investment, there is a prevalent use of partnership companies in several categories, in which the foreign investor owns less than fifty percent. The retail sector, as well as travel- and tour-related businesses, currently has numerous foreign investors via such partnership companies.

Competition and Anti-Trust Laws

The Foreign Investment Board would review transactions for any competition-related concerns.

Expropriation and Compensation

The government of Palau has not demonstrated property-expropriation actions. The Palauan constitution provides for the right of the government to condemn land for national interest (“eminent domain”). There are no reported notable property-expropriation cases.

Dispute Settlement

There are no ongoing investment disputes involving the Government of Palau and foreign investors. There is currently no official “dispute resolution” procedure, apart from civil suits and other legal action. However, trained and licensed arbitrators exist.

ICSID Convention and New York Convention

Palau is not a member of the International Center for Settlement of Investment Disputes (ICSID).

Investor-State Dispute Settlement

Land disputes can take years to settle. Most other commercial disputes can be settled in months.

International Commercial Arbitration and Foreign Courts

Not applicable/information not available.

Bankruptcy Regulations

Palau has no bankruptcy law.

Investment Incentives

The Government of Palau does not offer incentives to domestic or foreign investors. Businesses in Palau must pay a straight 3 percent duty on all imported items, with no exemptions; duties are higher for alcohol and tobacco. There are no taxes on exports. Apart from two small Free Trade Zones located outside Koror, there are no “tax holidays” or other incentives offered to investors.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Free Trade Zone Act of 2003 established the Ngardmau Free Trade Zone Authority. Another “Tax Free Zone” was established in the state of Melekeok, covering a one mile radius around the Federal capitol building. These zones, still largely undeveloped, offer potential investors tax and other incentives, but ownership and labor rules are the same as elsewhere in Palau.

Performance and Data Localization Requirements

The Government of Palau does not apply performance requirements to domestic or foreign investors, though certain occupations, such as boat driver, must be filled by Palauans.

Per the reciprocity arrangements of the Compact of Free Association, U.S. citizens are exempt from the Government of Palau’s normal resident visa requirements. A visa is not required for U.S. citizens visiting Palau for one year or less, provided the visitor otherwise complies with applicable regulations, for example, on employment.

Palau has no policy forcing foreign investors to use domestic content in goods or technology, for foreign IT providers to turn over source code, provide access to surveillance backdoors into hardware and software, or turn over keys for encryption.

Other than the foreign-ownership restrictions for certain business sectors, there are no restrictions on private entities to engage in all forms of remunerative activity.

Real Property

Establishing secure land title may be complicated due to the complexity of the traditional land ownership system and occasional over-lapping claims. Banks offer mortgages, and the recording system is reliable. The Land Court has primary responsibility to adjudicate disputes over land ownership.

Intellectual Property Rights

Palau is not a member of the World Intellectual Property Organization (WIPO), the WTO, or any other organization or convention protecting intellectual property rights. Pirated DVDs imported from off-island are readily available. Palauan copyright law explicitly covers materials in which:

1. one or more of the authors is or was on the date of first publication a national or resident of the United Nations Trust Territory of the Pacific Islands, Palau District, or the Republic of Palau;
2. the work is or was initially published in the Republic of Palau;
3. the work is or was initially published in another country and also published in the Republic of Palau within 30 days thereafter, irrespective of the nationality or residence of the author;
4. the work is an audiovisual work, the author of which is a resident of Palau; or
5. the work is an architectural work erected in the Republic of Palau or is an artistic work incorporated into a building or other structure located in Palau.

Any copyright owner who is the bona fide owner of a copyright or the owner of a transferred copyright shall be subject to the same protections provided above, provided he or she registers the work or works with the Office of the Attorney General and pays the requisite fee. The Attorney General shall charge a fee of USD 200.00 per work registered, or USD 2,000.00 for ten or more works registered to the same owner. For persons or businesses registering 10 or more works, additional works may be added at no charge during the same calendar year.

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

Resources for Rights Holders

Embassy Contact
Jennifer J. Nehez
Mission Deputy
+680-587-2920
NehezJJ@state.gov

Country Resources

For a list or lawyers in Palau, please see: https://pw.usembassy.gov/u-s-citizen-services/attorneys.

Capital Markets and Portfolio Investment

Not applicable.

Money and Banking System

Palau has a strong banking sector with three FDIC–insured U.S. banks as the foundation: the Bank of Hawaii, the Bank of the Pacific, and the Bank of Guam. The IMF has also praised Palau’s healthy and efficient banking sector. Total assets of these banks exceed USD 125 million. There is no stock exchange in Palau.

Foreign Exchange and Remittances

Foreign Exchange

Other than best practices to review suspicious money transfers (e.g. money laundering), there are no restrictions on converting or transferring funds associated with an investment. Palau’s economy uses the U.S. dollar, so there are no issues in obtaining U.S. currency.

Remittance Policies

Palau collects a four percent remittance tax on money sent electronically out of Palau, for example, by Western Union, but this does not apply to money deposited in any of the three FDIC insured banks in Palau that is later withdrawn outside of Palau.

Sovereign Wealth Funds

Palau does not have a Sovereign Wealth Fund.

The state-owned enterprises in Palau include the utilities sector, telecommunications, and the national bank. Because of growing pressure on infrastructure and encouragement from the Asian Development Bank (ADB) and others, some of these companies may be wholly or partially privatized in the future. There is a state-managed giant clam farming company, but this is not a barrier to private clam-farming initiatives.

Privatization Program

Palau has no on-going privatization program.

Many businesses provide corporate donations to environmental and social Non-Governmental Organizations (NGOs), and /or engage in environmental corporate social responsibility programs to preserve Palau’s environment and wildlife. Most CSR activities are conducted via donation, partly attributable to the available tax deduction of up to 10 percent of a company’s Gross Revenue for donations to non-profit organizations. Apart from this tax incentive, there are few laws or regulations pertaining to CSR.

The Code of Ethics Act spells out what is illegal for government officials, and the Public Auditor and the Special Prosecutor hold them accountable for failure to observe the law.

Palau is currently the only one of the Micronesian nations to employ a Special Prosecutor. Special Prosecutors have successfully prosecuted a number of elected Federal and State officials, recovering substantial sums of money. Most corruption (proved and alleged) involves improper use of government funds or property, and/or fraudulent collaborations of various kinds. There have been several high profile prosecutions/resignations by public officials related to violations of Palau’s government ethics law. None involved alleged abuse targeting foreign investors. Government extortion or semi-extortion of private companies is virtually unknown.

Local media often reports on alleged corruption cases, and serves as an informal watchdog. Palau does not appear in Transparency International’s Index of Corruption. In a 2004 country report, however, Transparency International praised the fairness and professionalism of Palau’s judiciary. There are no formal anti-corruption NGOs or international watchdogs based in Palau.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Palau acceded to the United Nations Convention against Corruption (UNCAC) in March, 2009. It has been a member of the Asian Pacific Group on Money Laundering (APGML) since 2002.

Palau is not a member of the OECD Convention on Combating Bribery.

Resources to Report Corruption

Allegations of corruption can be reported to the Special Prosecutor through the Attorney General’s Office:
Ernestine Rengiil
Attorney General
+680-488-2481

Palau experienced some political violence in the 1980’s and early 1990’s, but has become increasingly stable and peaceful since then. The World Bank placed Palau in the 84th percentile in its 2015 rating of country political stability.

With an estimated total of 12,500 Palauan nationals in country (including non-working individuals, such as children and elderly) and 4,300 estimated foreign workers, foreign labor comprises a large proportion of Palau’s labor force. In July 2011, the U.S. Interior Department provided a grant to Palau for development of a comprehensive Labor Code.

In October 2013, Palau established the minimum wage for workers at USD 2.75/hour with USD 0.25 increases slated for future years until it reaches USD 3.50/hour in 2016, though certain categories of workers are exempted from the minimum wage. Business owners must pay a tax of USD 500 per foreign employee per year.

The Overseas Private Investment Corporation (OPIC) has had an investment incentive agreement with Palau since March 15, 2002. Palau is a member of the Multilateral Investment Guarantee Agency of the World Bank Group.

* Republic of Palau 2015 Statistical Yearbook

Table 3: Sources and Destination of FDI

IMF Coordinated Direct Investment Survey data are not available for Palau.
Table 4: Sources of Portfolio Investment

MF Coordinated Portfolio Investment Survey data are not available for Palau.

Economic Officer
P.O. Box 6028, Airai, Palau 96940
+680-587-2920
usembassykoror@palaunet.com

Policies Towards Foreign Direct Investment

The Government of Samoa welcomes business and investors. Samoa’s fertile soil, English-speaking and educated workforce, and tropical climate offer advantages to focused investors, though the country’s distance from major markets affects the cost of imports and exports. The main productive sectors of the economy are agriculture and tourism, and the economy depends heavily on overseas remittances.

For investors, Samoa offers a trained, productive and industrially adaptable work force that communicates well in English; competitive wage rates; free repatriation of capital and profits; well-developed, reasonably priced transport infrastructure, telecommunications, water supply, and electricity; industry incentive packages for Tourism and Manufacturing sectors; a stable financial environment with single-digit inflation, a balanced budget and international reserves; relatively low corporate & income taxes; and a pleasant and safe lifestyle.

All businesses in the greater Apia area have access to broadband and Wi-Fi, which is reasonably reliable and fast, but relatively expensive. In rural Upolu and on Savaii Island there is limited availability of high speed internet and Wi-Fi. However, Samoa recently completed the installation of a National Broadband Highway which will provide fiber optic data services and 4G LTE cellular data speeds to the entire country. 4G LTE data speeds are operative and commercially available to limited areas. 3G internet accessibility from cellular devices is currently available nationwide.

Samoa’s current connection to the internet is through the fiber optic ASH cable, which runs from American Samoa to Hawaii, with the SAS cable linking the two Samoas, and has an expected lifetime through 2020. Samoa recently finalized a connection to the Southern Cross Cable, the main existing trans-Pacific fiber optic link between Australia and the mainland United States. Internet Service Providers are currently in the process of transitioning to this cable.

Foreign Investors are permitted 100 percent ownership in all different sectors of industry with the exception of restricted activities below.

The following businesses are reserved for Samoan Citizens only:

• Bus transport services for the general public;
• Taxi transport services for the general public;
• Rental vehicles;
• Retailing;
• Saw milling; and
• Traditional elei garment designing and printing.

Please see Samoa’s Foreign Investment Act 2000 for a more detailed Restricted List: http://www.paclii.org/ws/legis/consol_act/fia2000219/ .

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign Investors are permitted 100 percent ownership in most sectors of the industry with the exception of conditions for restricted activities below:

• Automotive & Ground Transportation;
• Consumer Goods & Home Furnishings;
• Environmental Technologies;
• Textiles, Apparel & Sporting Goods.

Please see Samoa’s Foreign Investment Act 2000 for a more detailed Restricted List: http://www.paclii.org/ws/legis/consol_act/fia2000219/ .

Other Investment Policy Reviews

The IMF completed a financial sector assessment with Samoan authorities in 2015. Readouts from this visit can be found here: http://www.imf.org/external/country/WSM/ .

Samoa’s national investment policy statement can be found here: https://www.mcil.gov.ws/services/investment-promotion-and-industry-development/investment-promotion/ .

The Strategy for the Development of Samoa can be found here: http://www.mof.gov.ws/Services/Economy/EconomicPlanning/tabid/5618/Default.aspx .

Samoa’s Trade, Commerce, and Manufacturing Sector Plan 2012-2016 Volumes 1&2 are available here: http://www.mof.gov.ws/Services/Economy/SectorPlans/tabid/5811/Default.aspx .

Business Facilitation

The Ministry of Commerce, Industry and Labor (MCIL) administers Samoa’s foreign investment policy and regulations (https://www.mcil.gov.ws /). To open up a branch of an existing corporation in Samoa, one must register the company for about US USD 150. For a company to qualify as a “Samoan company,” the majority of share-holders must be Samoan. The fee to register an overseas company is about US USD 150. All businesses with foreign shareholdings must obtain and hold valid foreign investment registration certificates. The application fee is about US USD 50 and can be obtained by contacting MCIL. Certificates are valid until the business terminates activity. If a business does not commence activity within 2 years after a certificate is issued, the certificate becomes invalid. Upon approval of the FIC, the foreign investor is then required to apply for a business license before operating in Samoa. Fees range from US USD 100-USD 250, depending on the type of business.

Land has a special status in Samoa, as it does in most Pacific Island countries. Under the country’s land classification system, about 80 percent of all land is customary land, owned by villages, with the remainder either freehold (private) or government owned. The standard method for obtaining customary land, which cannot be bought or sold, is through long term leases that must be negotiated with the local communities. A typical lease for business use might be for 30 years, with the option of a further 30 years after that, but longer terms can be negotiated. It should be noted that customary land cannot be mortgaged, and thus cannot be used as collateral to raise capital or credit. Freehold land, mostly based in and around Apia can be bought, sold and mortgaged. Only Samoan citizens may buy freehold land, unless approval is obtained from Samoa’s Head of State.

The Foreign Investment Act 2000 is the preeminent legislation on foreign investment. http://www.paclii.org/ws/legis/consol_act/fia2000219/ .

Business Registration

• Step 1: Register your company and get a Foreign Investment Certificate at MCIL. https://www.businessregistries.gov.ws/ ;
  https://www.mcil.gov.ws/services/business-registration/foreign-investment-registration/ ;
• Step 2: Obtain a business license and register for VAGST and PAYE from the Ministry of Revenue.
• http://www.revenue.gov.ws/business-information-guides ;
• Step 3: Register with the National Provident Fund.
  http://npf.ws/empregistration;
• Step 4: Register with the Accident Compensation Board.
  https://www.acc.gov.ws/levy-registration/ .

This website explains all of these steps in more detail:  http://www.doingbusiness.org/data/exploreeconomies/samoa/starting-a-business/ .

Some parts of these registrations can be done online, but most, if not all, require payment in person.

MCIL has an Industry Development and Investment Promotion Division (IDIPD) with services available to all investors. https://www.mcil.gov.ws/services/investment-promotion-and-industry-development/ .

Samoa’s Ministry of Revenue only distinguishes between small/medium enterprises (less than USD 400K in annual turnover) and large enterprises (over USD 400K in annual turnover). Priority service is given to large enterprises.

Outward Investment

There is minimal outward investment from Samoa beyond several stationery and apparel stores having branches in New Zealand and American Samoa. The Government and economy is more focused on increasing exports of Samoan products. The Government does not appear to restrict investment abroad.

Pacific Islands Trade and Invest (https://pacifictradeinvest.com/about/ ) is a resource for companies looking to establish themselves overseas.

Samoa is not party to any bilateral investment or bilateral taxation treaties.

Since 2001 there has been in place an umbrella agreement, Pacific Agreement on Closer Economic Relations (PACER) which provides a framework for future development and trade between Pacific Island nations and Australia and New Zealand.

The South Pacific Regional Trade and Economic Co-operation Agreement (SPARTECA) entered into force in 1981. SPARTECA is a non-reciprocal trade agreement under which New Zealand and Australia offer duty-free and unrestricted access to virtually all products originating from developing Forum Island Countries (FICs) subject to Rules of Origin (ROO).

The Pacific Island Countries Trade Agreement (PICTA) entered into force in April 2003. PICTA is a free trade agreement amongst the 14 Forum Island Countries (FICs) excluding Australia and New Zealand. The aim is to remove tariff on most goods by 2021, excluding alcohol and tobacco related products. At present, eligible Samoan exports that meet the Rules of Origin (ROO) criteria are accorded preferential duties in Fiji, Cook Islands, Vanuatu, Solomon Islands, Niue and Tuvalu. The remaining FICs continue to progress their implementation of PICTA and have yet to announce their readiness to trade under PICTA.

PACER Plus, which builds on the existing SPARTECA and PACER agreements, concluded negotiations in April 2017 and was signed in June 2017. This multilateral agreement, intended to increase trade and economic integration between Australia, New Zealand and the participating Pacific Island countries, has been in negotiations since 2009. Fiji and Papua New Guinea did not sign the agreement noting they feel they can achieve a more favorable agreement bilaterally versus multilaterally.

The African, Caribbean and Pacific Group of States (ACP) – European Union (EU) Economic Partnership Agreements (EPA) has been in negations since 2004. PACP Ministers agreed that the EPA would be negotiated as a region with the goal of achieving a comprehensive and development-enhancing EPA that would bring benefits to all PACPS.

Please visit Samoa’s Ministry of Foreign Affairs and Trade website for more information: http://www.mfat.gov.ws/trade/trade-agreements/ .

Transparency of the Regulatory System

The Government uses transparent policies and effective laws to establish “clear rules of the game”. Accounting, legal and regulatory procedures are all consistent with international norms. According to the Samoa Institute of Accountants, businesses adhere to International Financial Reporting Standards (IFRS) and International Standards on Auditing and Quality Assurance.

Draft bills are made available through the parliamentary website, http://www.palemene.ws/new/parliament-business/bills/ , but are not made available for formal public comment.

The Office of the Regulator (OOTR) was established in 2006 under the Telecommunications Act 2005 to provide regulatory services for the telecommunications sector in Samoa. However, the Broadcasting and Postal Services Acts 2010 were recently approved by Parliament, which also provide regulatory framework for broadcasting and postal sectors in Samoa. These Acts require the Regulator to establish a fair, unbiased and ethical regime for implementing the objects of these Acts including licensing of telecommunications, broadcasting and postal services, promotion of new services and investment, consumer protection, prevention of anti-competitive activities by service providers, and management of the radio spectrum and national number plans. OOTR also approves the Electric Power Corporation’s Power Purchase Agreements with Independent Power Providers and reviews EPC’s Power Extension Plan.

International Regulatory Considerations

Samoa is a member of the Pacific Islands Forum, which is an 18-member inter-governmental organization that aims to enhance cooperation between the independent countries of the Pacific Ocean.

Samoa’s system of government is based on the Westminster Parliamentary system. Samoa’s Companies Act 2001 contains a modern regulatory regime based on New Zealand company law.

Legal System and Judicial Independence

The Samoan legal system has its foundations in English and Commonwealth statutory and common law. Various business structures utilized in common law are recognized: sole traders, partnerships, limited liability companies, joint ventures and trusts (including unit trusts). These structures are regulated by legislation including the Companies Act 2001, Partnership Act 1975, Trustee Act 1975 and Unit Trusts Act 2008. Samoa’s Companies Act 2001 contains a modern regulatory regime based on New Zealand company law. It allows the incorporation of a sole person company (ie. one person being both shareholder and director) and directors need not be resident in Samoa.

A Samoa incorporated private company is a separate legal entity and a corporation under Samoan law. It must file an annual return with the Registrar of Companies specifying details of directors, shareholders, registered office etc. There is no requirement for private companies to file annual financial reports with the Companies Registry nor are there any minimum capital requirements.

The judicial system is largely independent from the executive branch. The current executive branch wields a great deal of influence in all matters of the country.

Laws and Regulations on Foreign Direct Investment

The Ministry of Commerce, Industry and Labor administers Samoa’s foreign investment policy and regulations under the Foreign Investment Act 2000. All businesses with any foreign ownership require foreign investment approval by MCIL. (https://www.mcil.gov.ws/ ).

Competition and Anti-Trust Laws

The Ministry of Commerce, Industry, and Labor’s Fair Trading and Codex Alimentarius Division (FTCD) handles competition related concerns. The main pieces of legislation regarding competition are Fair Trading Act 1998, Consumer Information Act 1989, and Measures Ordinance 1960.

Expropriation and Compensation

Expropriation cases in Samoa are not common; however, there was one significant case that occurred in 2009 over land designated for a new six story government complex. A business signed a 20-year lease with the government in 2005 but was then asked to move in 2008 to make way for the new building. The business moved, but won a settlement in the Court of Appeals against the government for a much larger sum than the government initially offered the business for vacating the land.

Dispute Settlement

The Alternative Dispute Resolution Act of 2007 (amended 2013) outlines ADR procedures for both criminal and civil proceedings. Samoa has an Accredited Mediators of Samoa Association that was put in place to help resolve (largely commercial) disputes.

ICSID Convention and New York Convention

Samoa has been party to the ICSID since 1978. Samoa is not party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

The provisions of the Labour and Employment Relations Act 2013 have full effect in relation to disputes that involve foreign investors in Samoa. Foreign investors are subject to this Act.

The Alternative Dispute Resolution Act 2007 also provides alternative dispute resolution procedures where civil or criminal cases may arise.

International Commercial Arbitration and Foreign Courts

The provisions of the Arbitration Act 1976 shall have full effect in relation to disputes that involve foreign investors in Samoa. Subject to this Act and to any other law in Samoa, the Convention Settlement of Investment Disputes signed in Washington on 3rd February 1978 and ratified by Samoa on the 25th April 1978, shall have the force of law in Samoa. The Alternative Dispute Resolution Act 2007 also provides alternative dispute resolution procedures where civil or criminal cases may arise.

Bankruptcy Regulations

The Bankruptcy Act 1908 is in effect in Samoa. According to World Bank Doing Business 2016 survey, in terms of resolving insolvency, Samoa was ranked at 137 out of 190. The survey estimated that it took two years at a cost of 38 percent of the estate to complete the process, with an estimated recovery rate of 18.5 percent of value.

Investment Incentives

The Industry Development and Investment Promotion Division (IDIPD) under MCIL administers several schemes designed to provide assistance to businesses that produce for overseas and domestic markets, enhancing development of domestic businesses as well as property developers in the tourism industry, and also businesses in the private sector. Such schemes offer duty concessions on imported goods for the tourism and manufacturing industries and income tax exemptions for up to five years for hotel operators.

Research and Development

U.S. and foreign firms may participate in government financed or subsidized research and development programs as technical and in-country capacities are limited. However, as such programs are usually financed by foreign development partners and donors, any conditions and limitations may be dependent on the source of project financing.

Foreign Trade Zones/Free Ports/Trade Facilitation

Samoa does not have a Foreign Trade Zone.

Performance and Data Localization Requirements

In order to hire a non-Samoan citizen for a job, one must prove that the required skillset is not available through the local labor force. It is not an onerous task hire non-residents.

There is no forced localization in terms of goods or technology.

There is no forced localization of data other than the industry exceptions outlined in the Intellectual Property section below.

Real Property

Leasing of Land

In accordance with the Alienation of Customary Land Act 1965 and the Alienation of Freehold Land Act 1972, land may be leased for up to 30 years renewable once in the case of land leased or licensed for industrial purposes or a hotel and 20 years renewable once in the other cases.

Land holdings and ownership in Samoa fall into three (3) categories:

• Customary Land: These lands are not for sale but can be leased out to foreigners as well as locals. All leased lands in this category are registered with the Ministry of Natural Resource and Environment. In case of dispute, ownership is decided by the Ministry of Justice and Courts Administration.
• Public Land: The Ministry of Environment and Natural Resources administers the database of Government land available for lease. Applications for leasing of land should be submitted to the Chairman of the Samoa Land Board.
• Freehold Land: Freehold land cannot be sold or leased to someone who is not a citizen of Samoa, unless except with the proper consent of the Head of State of Samoa.

Intellectual Property Rights

Samoa has legislation protecting patents, utility models, designs and trademarks. Enforcement is moderate. Counterfeit products are available on the local market. Counterfeit home entertainment items are common as there is only one theater in Samoa to show legitimately distributed movies. There are no data available on counterfeit goods.

To protect and safeguard intellectual property in Samoa, the Government has passed the following laws:

• Copyrights Act 1998 – applies to work including books, pamphlets, articles, computer programs, speeches, lectures, musical works, audiovisual, works of architecture etc;
• Intellectual Property Act 2013 – for the registration and enforcement of rights of owners of Trademarks, Patents, Industrial designs, GI and Plant varieties.

Samoa is not on USTR’s Special 301 list or the Notorious Markets Report.

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

Capital Markets and Portfolio Investment

The capital market is regulated by the Central Bank of Samoa. Since January 1998, the Central Bank has implemented monetary policy by issuing its own Securities using market based techniques – commonly known as Open Market Operations (OMO). CBS Securities are the predominant monetary policy instrument, which is issued to influence the amount of liquidity in the financial system.

Capital Markets in Samoa are in their infancy with the Unit Trust of Samoa (UTOS) domestic market established in 2010, and no international stock exchange. More information on UTOS can be found in section 10.

Samoa has accepted the obligations of IMF Article VIII, Sections 2, 3, and 4, and maintains an exchange system that is free of restrictions on payments and transfers for current international transactions.

Money and Banking System

Samoa is well-served with banking and finance infrastructure. It has no less than four commercial banks, complimented by a dynamic development bank. The sector is ably regulated by the Central Bank of Samoa. The largest banks are regional operators ANZ and Westpac, which offer a wide range of services based upon electronic banking platforms. Although they service all markets, they tend to dominate the top-end, encompassing corporate, government and high net worth individuals. Samoa is still a cash-based society, however, and this has enabled two locally-owned entrants, the National Bank of Samoa and Samoa Commercial Bank, to each garner double-digit market share, despite entering the market quite recently.

With its International Finance Centre (SIFA)—the first Pacific center to be white-listed by the OECD—and a well-structured financial services sector, Samoa is well placed to service the needs of both local and offshore businesses.

The Government, through the Central Bank, has been largely resistant of blockchain technologies. Their skepticism is somewhat warranted with the discovery of several cryptocurrency schemes operating in the country widely believed internationally to be scams.

Foreign Exchange and Remittances

Foreign Exchange Policies

The Central Bank of Samoa (CBS) controls all foreign exchange transactions as well as matters relating to monetary stability and supply of money within the country. This includes international transactions, overseas transfer of funds and funding of imports, and registration of insurance companies. Repatriation of overseas capital and profits is normally permitted provided the original investment entered Samoa through the banking system or in an otherwise formally approved manner. Investors also have the freedom to repay principle and interest on foreign loans raised for the purpose of the investment and the freedom to pay fees to foreign parties for the use of intellectual property rights.

Transfers of currency are protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7 ).

Remittance Policies

Repatriation of capital and profit remittances on foreign capital is permitted, although it must be approved by the CBS based on submission of necessary documents, such as the following:

• Application letter explaining the request;
• Audited accounts relating to the profit remittance year(s) requested;
• A copy of the Authorized Directors’ Resolution approving the specified dividend payment; and
• A tax clearance certificate from the Ministry for Revenue.

Samoa’s Financial Intelligence Unit (FIU) within the Central Bank and the Ministry of Foreign Affairs and Trade do issue and provide to all financial institutions governed under the Money Laundering Prevention Act 2007.

Sovereign Wealth Funds

There is no sovereign wealth fund or asset management bureau in Samoa. The country has the Samoa National Provident Fund which manages and invests members’ savings for their retirement.

Private enterprises are allowed to compete with public enterprises under the same terms and conditions. Laws and rules do not offer preferential treatment to SOEs. State-owned enterprises are subject to budget constraints and these are enforced.

SOEs are active in the Energy, Water, Health, Tourism, Banking, Agriculture supplies, and Ports/Airports sectors. Laws do not provide for a leading role for SOEs or limit private enterprise activity in sectors in which SOEs operate. SOEs have government appointed boards, and operate with varying degrees of autonomy with respect to their governing Ministry.

SOEs follow a normal corporate structure with a board of directors and executive management. All SOEs have boards of directors who are appointed by a cabinet minister. Some SOEs have board seats allocated specifically to the heads of certain government ministries.

By law SOEs are required to present financials to their board of directors, shareholding Ministry and the National Auditor. Timely compliance, however, varies between SOEs.

Privatization Program

Major recent privatizations in Samoa were in broadcasting (2008) and telecommunications (2011), both resulting in significant gains in efficiency and benefits to both producer and consumer. The 2011 telecommunications privatization was to a foreign company.

Procedures for establishing all businesses are provided under existing legislation, including the Companies Amendment Act 2006, the Foreign Investment Amendment Act 2011, the Business License Act 1998, the Labour and Employment Relations Act 2013, the Central Bank Act and Guidelines, and the Health Ordinance 1959 (Part 11, 111 clause 13 & 15).

There is a general awareness of responsible business conduct (RBC) among both producers and consumers, and foreign and local enterprises to follow generally accepted RBC principles such as the OECD Guidelines for Multinational Enterprises. Firms that pursue RBC are viewed favorably but consumers generally prioritize value for money ahead of RBC claims.

The government fairly enforces domestic laws and protects human rights. The government encourages local enterprises to follow generally accepted RBC principals. A national contact point is not known.

There are no extractive industries in Samoa.

Samoa is not a signatory to the UN Anticorruption Convention or the OECD Convention on Combatting Bribery. Corruption has not been specifically identified as an obstacle to foreign investment. Both corruption and bribery are criminalized and prosecuted and the laws appear to be impartially applied.

The Office of the Ombudsman is charged with investigating official corruption. There are no international, non-governmental “watchdog” organizations represented locally, and the country was ranked 50 out of 175 on Transparency International’s Corruption Perceptions Index 2014.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:
Maiava Iulai Toma
Ombudsman
Samoa Office of the Ombudsman
Central Bank Building, Level 5, P. O. BOX 303 Apia, Samoa
(685) 25394
info@ombudsman.gov.ws

Contact at “watchdog” organization

UN Office on Drugs and Crime (UNDOC)
Bangkok, Thailand
+66 2 288 2100
fo.thailand@unodc.org

The parliamentary republic functions without political violence. The risk of civil disorder is low. There is no civil strife or insurrection. There are no significant border disputes at risk of military escalation.

The 2011 Census placed the total workforce at 48,000 people, with the unemployment rate at 5.7 percent, and 34 percent of the workforce engaged in subsistence living. Wages and salaries are comparatively low. Private sector minimum wage is roughly 92 US cents an hour.

Local skilled labor is available in sufficient quantities to undertake most types of building work, except for some specialized skills and supervisory-level manpower, which is recruited locally and from abroad. To hire foreign workers, one must provide MCIL and Samoan immigration with justification that the position cannot be filled locally. This process is viewed as fair and straightforward.

Samoan First Union, the country’s only private sector union, was officially launched in 2015. It is an extension of the New Zealand-based First Union. One of their major pushes is for a WST 3 (USD 1.20 USD) minimum wage.

Collective bargaining in the private sector is allowed, but not common in Samoa.

The Labor and Employment Relations Act 2013, the Occupational Safety and Health Regulations 2014, and the Labor and Employment Relations Regulations 2015 are the most current pieces of labor legislation, all of which meet core international standards.

More information can be found through Samoa’s Child Labor Report http://www.dol.gov/ilab/reports/child-labor/samoa.htm , and Human Rights Report http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper.

Overseas Private Investment Corporation (OPIC) insurance is available to investors in Samoa, and OPIC can provide political risk insurance, finance, direct loans, and loan guarantees. There is currently one proposed alternative energy project by a U.S. company that is OPIC funded.

The registry of insurance companies in Samoa is kept and maintained by the Central Bank of Samoa (CBS) and can be contacted for further insurance related matters.

*From the Samoa Bureau of Statistics GDP December 2017 Quarterly bulletin using an exchange rate of 1USD=2.5WST.
Table 3: Sources and Destination of FDI

Data not available.
Table 4: Sources of Portfolio Investment

Data not available.

Benjamin Harding
Program Assistant
U.S. Embassy, Beach Rd. Apia Samoa
(685)21631 x2231
hardingbw@state.gov

Policies Towards Foreign Direct Investment

As a relatively new country in Southeast Asia, Timor-Leste has made considerable effort to establish effective legislative, executive, and judicial institutions, draft laws and regulations, and build government personnel capacity. Despite instability and periods of violent upheaval in the early years of its independence, the political and social environment in Timor-Leste has been generally calm since 2008. In 2011, the government’s National Strategic Development Plan was approved unanimously by the National Parliament. The plan focuses on using petroleum revenues to support non-petroleum economic development and help the country to become a middle-income country by 2030. Peaceful presidential and parliamentary elections in 2017 and 2018 are indicative of the country’s political maturity and its readiness to focus on economic development issues. In November 2017, Timor-Leste successfully held its second international investment conference with a program intended to showcase Timor-Leste’s potential across a range of industries. During the conference, the government noted that international investment and business partnership are a key part of developing a diversified and sustainable economy in Timor-Leste.

The government, through its autonomous agency, the National Petroleum and Minerals Authority (ANPM), has contracted with foreign firms to explore and develop offshore oil and gas deposits. Taxes and royalties collected by the government and its agency are deposited in a sovereign petroleum fund, which held about USD 17.2 billion in January 2018. Government expenditures are mostly dependent on this fund. Besides the oil and gas sector, coffee exports, government spending, small-scale retail activities, and subsistence agriculture are the primary sources of employment and contributors to GDP. With a population of approximately 1.3 million, Timor-Leste has one of the world’s most rapidly growing populations, with sixty percent of the population under the age of 25 and a birth rate of 5.2. Timorese authorities are intent on expanding private sector economic activities to provide employment for new labor market entrants.

Timor-Leste is applying for full membership to the Association of Southeast Asian Nations (ASEAN) and served as President of the Community of Portuguese Speaking Countries from 2014-2016. The government views building these international ties as part of its effort to increase investment opportunities within the country. Timor-Leste is also pursuing trilateral economic cooperation opportunities with Indonesia and Australia to boost cross-country investment.

There are no laws or practices in the country that U.S. investors allege discriminate against foreign investors by prohibiting, limiting or conditioning foreign investment in a sector of the economy. Under the constitution, only citizens may own land. However, article fourteen of the Private Investment Law No.14/2011 states that foreigners can be granted the right to private property for investment and reinvestment projects subject to the limits set out in the Constitution and in legislation on land and commercial companies. A new land law, promulgated in 2017, does not address the prohibition on foreign ownership, and requires additional decree laws before the land law can be implemented.

TradeInvest Timor-Leste, I.P. is Timor-Leste’s investment and export promotion agency. The organization’s goal is to facilitate and support potential investors in Timor-Leste and assist foreign companies in identifying projects among the array of business opportunities that are emerging in Timor-Leste. TradeInvest is a one-stop-shop that provides services such as: licensing, taxes, investment opportunities, permits, tariffs, or linking importer with the right procedures. The agency’s official website is www.investtimor-leste.com .

As outlined in the government’s Strategic Development Plan, key investment areas are oil and gas, agro-industry, forestry and livestock, fisheries, tourism, energy, infrastructure, civil construction, and transportation. Information as to opportunities in the country has been disseminated both in domestic and international expositions and business and economic forums.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors may invest in any sector other than postal services, public communications, protected natural areas, and weapons production and distribution, as these are specifically reserved for the state. Investors are also prohibited from investing in sectors otherwise restricted by law (such as criminal activities).

Section 54 of Timor-Leste’s constitution grants the right of land ownership exclusively to Timorese nationals, either individuals or corporate entities; however, foreigners may conclude long-term (up to 50-year) leases. Although the government promulgated a land law in 2017, it still requires 18 – 22 pieces of complementary legislation before it can be implemented. Investors who wish to lease property must often sort through competing claims from the Portuguese colonial administration, the Indonesian occupation era, and the post-independence period.

TradeInvest, the government’s investment promotion agency, reviews foreign investment applications which are then presented to the Private Investment Commission for further study and evaluation. The Executive Director of TradeInvest chairs the Private Investment Commission, which is composed of directors general or equivalent from the relevant government ministries in the areas of taxation, customs, land and properties, economic activities of licensing, professional training, labor, immigration, building and housing, territorial planning and the environment. Other ad-hoc members may also be called upon to be present during the meeting.

The Private Investment Commission evaluates applications for foreign investment permits, verifying the following:

• Compliance of the application with requirements established in the National Development Plan, in the Procedural Regulation for Foreign Investment and other applicable legislation;
• Suitability, capacity, experience, and availability of financial resources necessary for implementation and operation of the proposed investment enterprise;
• Capacity, experience, and business or technical characteristics of the promoter or its managers in order to guarantee implementation and operation of the enterprise;
• Positive operational balance of the business, according to the project proposal;
• Environmental, infrastructural, and social implications which could condition the viability of the enterprise or that can result from its implementation;
• Guaranteeing availability of necessary land for installation and functioning of the investment enterprise;
• Ensuring consistency of the expected new jobs to be created in the short and medium term;
• Establishing interconnection with other economic sectors.

The documents required for investments include:

• TradeInvest application form
• Descriptive project summary (project briefs, technical plans)
• Identification of promoters, professional CV/Firm Corporate Capability
• Bank credentials (bank statement, bank reference)
• Business plan
• Documents of Land Ownership
• Lot location
• Budget for construction/remodeling
• Environmental Impact Assessment (Environmental Licensing)
• Criminal Records (Original/Certified copy)

TradeInvest can issue a certificate of investment to projects approved by the Private Investment Commission that are valued at less than USD 20 million. Investments of more than USD 20 million or that require more than 5 hectares of state land for tourism or 100 hectares of state land for agriculture, livestock, or forestry require approval from the Council of Ministers. Investors can also request a Special Investment Agreement, through TradeInvest, prior to submitting the project to the Council of Ministers for approval. According to the TradeInvest website, application fees are USD 500 for national investors and USD 2,000 for international investors, and investment decisions are issued within 30 days.

Other Investment Policy Reviews

Timor-Leste has not yet conducted any investment policy reviews through OECD, WTO, or UNCTAD. Timor-Leste was accepted as an observer to the WTO in 2016, and its Working Party for accession to the WTO was established in December 2016. The country is in the process of designing and adopting fiscal and economic reform that include new laws on private investment, export promotion, commercial companies, sanctions, taxation, and the value-added tax (VAT). Timor-Leste’s overall political stability has given opportunities for business to grow; however, a protracted political impasse, during which the country has been operating without a state budget, has reduced opportunities for government contracts in 2017 and 2018. The political impasse has affected many areas of the economy, including commerce, public services, and larger public works projects. Other than the oil and gas sector, investment opportunities exist in the service, tourism, agriculture, and infrastructure sectors. While the government is committed to improving its services in critical sectors, challenges remain. Bureaucratic inefficiency, infrastructure bottlenecks, a paucity of local financing options, the absence of a real property law and other essential legislation, a lack of commercial courts, uncertain implementation of government procedures, significant deficiencies in human capacity, and perceptions of malfeasance, conflicts of interest, and corruption are the notable challenges.

Business Facilitation

Timor-Leste’s Business Verification and Registration Service office (SERVE – Servico de Registo e Verificacao Empresarial) processes business registration and licensing in the country. SERVE was created in 2013 as one-stop-shop to make business registration faster and easier. The agency’s website is www.serve.gov.tl . Business registration and application processes are currently done by visiting the office in person. Getting a business license takes between one and five days. For companies involved in civil construction, food processing, or pharmaceutical industries, the agency works closely with relevant ministries, particularly the Ministry of Commerce, Industry and Environment, to facilitate business licenses.

Outward Investment

The government does not promote or incentivize outward investment, nor does it restrict it.

Timor-Leste and Portugal have signed an Agreement on Mutual Protection and Promotion of Investment. Timor-Leste signed a Bilateral Investment Treaty (BIT) with Germany in 2005 and with Qatar in 2012, but they have not entered into force. Timor-Leste does not have a BIT with the United States.

Timor-Leste does not have a bilateral taxation treaty with the United States.

Transparency of the Regulatory System

Timor-Leste’s regulatory system is still in its formative stages. The existing tax, labor, environment, health and safety, and other laws and policies do not present any obvious impediments to investment. However, property rights is an issue of concern for foreign investors and businesses. A comprehensive land law was promulgated in 2017, but requires additional decree law before it can be implemented.

In 2011 and 2012, the government issued a number of tax assessments on private firms (both foreign and domestic) stretching back several years, with compounded interest plus penalties. Several of the affected firms have contested these assessments. In February 2016, the government reached a negotiated settlement with one private firm on most of the outstanding assessments.

The Ministry of Finance launched an online Procurement Portal in 2011, intended to increase transparency by providing equal access to information on government tenders and procurement contracts. However, updates are inconsistent and not all tenders appear to be included in the site. In 2012, the government hired an internationally recognized firm to serve as its procurement agent for major projects but there are still concerns about nontransparent and unfair procurement practices. The Audit Chamber, under the Court of Appeals, is responsible for reviewing government procurements above a USD 5 million threshold. In 2016, the Audit Chamber rejected the government’s proposed USD 720 million contract with a large Korean company for a development on the south coast, on the basis of non-compliance with fundamental norms currently in place in Timor-Leste. The government appealed the decision, and the company withdrew from the process in June 2016 before a decision on the appeal.

In June 2013, with assistance from the International Finance Corporation, the government established the Business Registration and Verification Service (SERVE) as a one-stop business registration center for both foreign and domestic investors. SERVE is the government’s attempt to streamline the business registration process to less than five days from start to finish. Prior to the opening of SERVE, business operators had to visit three different government ministries to complete a process that could take upwards of one year. SERVE has registered over 20,000 businesses, approximately half of which are construction-related enterprises.

In addition to registering businesses, SERVE can also issue business licenses for what it determines to be low-risk undertakings. The Ministry of Commerce, Industry, and the Environment must issue business licenses for high-risk endeavors. Currently, both business registration and licensing are free. However, there are proposals to institute a small fee for business license renewals. The initial business license is valid for 12 months, with renewals also generally 12 months.

Parliament and parliamentary committees regularly hold hearings about and debates on proposed laws. For certain major legislation, the government holds limited public consultations or solicits public comment.

There are no known informal regulatory processes outside of the government. Regulations are adopted and implemented at the national level, and most oversight occurs in the capital, although some agencies have staff at the district level that monitor compliance. Regulations are published in the national journal in advance of their entry into force, although applicable information may be difficult to find for those entering the market.

International Regulatory Considerations

Timor-Leste has a pending application for full membership into the Association of Southeast Asian Nations (ASEAN) and served as President of the Community of Portuguese Speaking Countries from 2014-2016 and also part of Macau Economic Forum (between China and CPLP). The government views building these international ties as part of its effort to increase investment opportunities within the country. Timor-Leste is also pursuing trilateral economic cooperation with Indonesia and Australia to boost cross-country investment and exploring membership in the Commonwealth.

Reforms currently underway in Timor-Leste’s fiscal and economic systems aim to bring the country into compliance with ASEAN standards.

Timor-Leste was accepted as an observer to the WTO in 2016, and its Working Party for accession was established in December 2016.

Legal System and Judicial Independence

Timor-Leste has a civil law system influenced by the Portuguese law system. Indonesian law that was in force as of August 30, 1999 is applied as a subsidiary source of law for issues which have not yet been addressed in Timorese legislation, including the commercial code. The justice system — police, prosecutors, and courts — are still evolving and short-staffed. Until October 2014, when Timor-Leste’s Parliament voted to dismiss all foreign judges, prosecutors, and advisors from the judiciary, the government relied upon significant numbers of foreign experts and advisors to augment local resources. In the immediate wake of the dismissals, there was a significant backlog in cases, but observers note that backlog has lessened.

The Office of the Prosecutor General has continued to accumulate experience and capacity to establish and implement case management and other essential systems. The country has established courts of first instance and a court of appeal. However, courts currently operate only in four of the thirteen districts, and most cases at the local level are handled through customary law. Additional courts foreseen in the Constitution and legislation, such as specialized tax courts, have not yet been established. The U.S. Embassy is not aware of any major court cases testing the sanctity of contracts or enforcement of contracts that have been processed to conclusion; however, one U.S. oil company has successfully argued tax cases against the government in Dili District Court. The company came to a confidential negotiated settlement with the government in most of the remaining pending cases.

Laws and Regulations on Foreign Direct Investment

The Timorese legal system is based on a mix of Indonesian laws and regulations, acts passed by the United Nations Transitional Administration, and post-independence Timorese legislation, which is modeled on Portuguese civil law. The country is working on a review of its legislation to harmonize the system, but has yet to undergo a comprehensive overhaul of the overlapping yet disparate systems. Timor-Leste has two official languages, Tetun and Portuguese, and two working languages, Indonesian and English; all new legislation is enacted in Portuguese and is based on the civil law tradition.

The Private Investment Law (Law No.14/2011) specifies the conditions and incentives for both domestic and foreign investment and guarantees full equality before the law for international investors. Other major laws affecting incoming foreign investment include the Companies Code of 2004, the Commercial Registration Code, and the Taxation Act of 2008. In accordance with article 30 of the Private Investment Law, the Government of Timor-Leste announced the establishment of a Specialized Investment Agency, a one-stop-shop for investment and export promotion on January 5, 2015. The agency became TradeInvest Timor-Leste in November 2015. The agency has the responsibility to promote Timorese exports and investment opportunities in the country and to encourage domestic entrepreneurship. A new private investment policy, tax codes, and customs agencies are part of the ongoing fiscal reform effort that is designed to align Timorese legislation and regulation with best practices in ASEAN (under the ASEAN Comprehensive Investment Agreement) and under UNCTAD (United Nations Conference on Trade and Development).

Competition and Anti-Trust Laws

Timor-Leste does not have a competition or anti-trust law.

Expropriation and Compensation

Timor-Leste does not yet have a separate expropriation law. However, both Article 54 of the Constitution and the Private Investment Law permit the expropriation or requisition of private property in the public interest only if just proper compensation is paid to the investor. The Private Investment Law calls for the equal treatment of foreign and national investors in expropriation cases and prohibits nationalization policies or land policies that deliberately target the property of investors.

Before expropriation occurs, the affected occupants or claimants, if non-occupying, are given 30 days to leave the property and 10 days for filing cases at the local courts. If no claims are filed during the 10 days, the occupants should clear the property before being evicted. During the last five years, expropriation primarily affected urban squatters occupying state property. The government relocated significant numbers of residents for large development projects in Oecusse and Suai, while two known private investments in Dili have negotiated with the government to remove residents as part of the investment agreement.

Dispute Settlement

ICSID Convention and New York Convention

Timor-Leste is a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention). It is not a signatory party to the convention of the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Timor-Leste’s Court of Appeals must first recognize a foreign judgment or arbitral award in order for it to be enforced in the country.

Investor-State Dispute Settlement

Civil disputes are generally handled through the domestic court system, which is not properly equipped for the demands that are currently placed upon it. The Timorese justice system suffers from a shortage of qualified judges and attorneys, incomplete and piecemeal national legislation, and insufficient geographical coverage. New legislation is enacted in Portuguese, while many legislators, prosecutors, judges, attorneys, police officers, plaintiffs, and defendants do not speak the language. Legal professionals lack specialized technical expertise to address complicated commercial or tax cases. The country’s sole Legal Training Center focuses on developing competency in Portuguese language at the expense of technical legal expertise.

The government pursued international arbitration against at least one private company in a tax dispute. There were four cases filed against the company at Singapore Arbitration in 2014. After more than a year of process, both sides signed a negotiated agreement in February 2016 that resolved most of the pending cases.

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution is consistent with Timorese traditional justice systems, but there is no formal system yet in place. The Council of Ministers approved the Arbitration, Mediation, and Conciliation Law in December 2016 as part of the fiscal reform efforts, but the law has not yet received parliamentary approval.

The domestic court system is not properly equipped to handle commercial or tax disputes, and most legal professionals lack specialized expertise or training in these types of cases.

Bankruptcy Regulations

The Council of Ministers previously approved an insolvency law in March 2017, but parliament did not act on the law. In 2016, the World Bank ranked the country 169 of 169 in resolving insolvency.

Investment Incentives

The Government of Timor-Leste offers investment incentives, including tax credits and import duty exemptions, to both domestic and international investors. For domestic investments worth over USD 50,000, foreign investments of over USD 1.5 million, and joint foreign and national resident investments, where the national resident controls at least 75 percent of shares, of USD 750,000, investors benefit from a five-year exemption from income, sales, and service taxes, as well as exemptions of customs duties for goods and equipment used in the construction or management of the investment, and also guaranteed contract for up to 100 years (50 years to renovate plus another 50 years’ lease). The period of exemption is extended to eight years for investments in Rural Zones (outside of the cities of Dili and Baucau) and to ten years for investments in Peripheral Zones (the exclave of Oecusse and the island of Atauro). Even after these periods have expired, investors may deduct from their tax obligations up to 100 percent of the costs of constructing or repairing transportation infrastructure. The new private investment policy and taxation law that is currently under discussion will change this incentive structure, if adopted. Specific details of the changes envisioned are not yet public.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no foreign trade zones in Timor-Leste. Law No.3/2014 defines and regulates a free trade zone in the Oecusse exclave called the Special Zone for Social Market Economy (ZEESM). The ZEESM as stipulated in the law will prioritize activities of a socioeconomic nature to promote the quality of life and well-being of the community, namely:

• Development of commercial agriculture
• Creation of an ethical financial center
• Creation of a free trade zone
• Increased tourism
• Creation of a center for international studies and research on climate change
• Creation of a center of green research
• Implementation and development of industrial activities for export and import
• Other economic activities that add value to the region, as well as strengthen its international competitiveness

The government has approved a decree law on the development of Atauro (an island outside Dili) as part of ZEESM.

Performance and Data Localization Requirements

Some individual investment agreements and government contracts specify local content requirements. One such contract mandated 30 percent local employment, but the specific requirements vary depending on the agreement.

Timor-Leste’s current immigration laws permit workers to apply for work permits in-country after entry on a 30-day visa acquired at arrival. Timor-Leste has passed a new immigration and asylum law, which, once implemented, will change the visa structure and may streamline the process.

Real Property

The legal regime governing land and property ownership in Timor-Leste remains unclear and uncertain. The country does not yet have set processes to address the competing claims on land and properties arising from various occupancies during Portuguese, Indonesian, and post-independence eras. These uncertainties are compounded by a history of displacement, overlapping titles, and lack of legal clarity regarding land ownership. A 2010 World Bank report found that the resolution of land ownership disputes is often dominated by the use of customary norms and local or traditional authorities, especially outside of urban areas. A 2016 Asia Foundation studied found that 70 percent of occupants in Dili fear eviction within the next five years. This, combined with lack of a comprehensive land law, makes securing and protecting land titles or property rights a difficult task. However, the government is making some progress as it undertakes efforts to map properties and adjudicate conflicting claims. In 2017, Parliament passed a package of land laws intended to rectify the claims process. Under the law, claimants are expected to register their claims and claims will be decided in arbitration. Parliament must pass additional decree laws before the land law can be implemented, however. Timor-Leste does not allow for foreign ownership of land.

Intellectual Property Rights

Section 60 of Timor-Leste’s constitution provides for the protection of literary, scientific, and artistic work. In addition, Article 1223 of the country’s Civil Code stipulates a necessity of having specific regulation to protect authors of the property. However, legislators have yet to create specific regulations to codify or systematize domestic protection of intellectual property rights. Timor-Leste is not party to any international agreements on intellectual property rights. As a result, some international companies have resorted to printing cautionary notices in local newspapers in order to establish claims to their trademarks and patents. However, the dearth of domestic legislation in this area means that it is unclear the extent to which these practices afford any legal protection. In December 2017 the International Trademark Association (INTA) held a workshop to address copyright and trademark laws with Timor-Leste government officials. The U.S. Ambassador, embassy representatives, and the U.S. Department of Justice Resident Legal Advisor participated in the workshop.

Timor-Leste is not on USTR’s Special 301 Report and it is not 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/ .

Capital Markets and Portfolio Investment

Timor-Leste does not have a stock market and has limited credit and liquidity to facilitate investment. There are no known restrictions on portfolio investment.

Money and Banking System

There are five commercial banks operating in Timor-Leste: ANZ of Australia, Mandiri of Indonesia, BRI of Indonesia, BNU of Portugal, and a subsidized national bank, National Commercial Bank of Timor-Leste. Foreign citizens must have a tax identification number that demonstrates residency in Timor-Leste in order to maintain an individual bank account. According to Central Bank data, commercial banks’ credit to the private sector totaled USD 182.5 million as of December 2016. The overall non-performing loan rate was 15.2 percent in September 2016.

The Central Bank of Timor-Leste is the country’s monetary authority. It supervises the activities of commercial banks, money transfer operators, currency exchange offices, insurance companies, and other deposit-taking corporations, as well as serving as the operational manager of the country’s sovereign wealth Petroleum Fund. The bank also operates the clearing house for interbank payments and undertakes bank operations for the government and Timor-Leste’s public administration.

Foreign Exchange and Remittances

Foreign Exchange Policies

The U.S. dollar is the official currency of Timor-Leste. There are no official currency controls, although the Central Bank of Timor-Leste imposes reporting requirements for the importation or exportation of cash above USD 5,000 and requires explicit authorization for sums in excess of USD 10,000. The four foreign banks operating in Timor-Leste – Bank Mandiri, BRI, ANZ Bank, and Banco Nacional Ultramarino – may also impose reporting requirements for transactions above a certain amount in order to comply with home-country anti-money laundering regulations in addition to the requirements stipulated by the Central Bank. American citizens must have a tax identification number that demonstrates residency in Timor-Leste in order to maintain an individual bank account.

Remittance Policies

Timor-Leste does not have a specific policy governing remittances. The government facilitates Timorese going overseas in the UK, South Korea, and Australia for industrial and agricultural work but data on remittances is limited. In 2016, Timorese workers participating in bilateral workers’ programs in South Korea and Australia sent USD 9.89 million back to Timor-Leste.

Sovereign Wealth Funds

Established in 2005, the Petroleum Fund is Timor-Leste’s sovereign wealth fund. The Minister of Finance is responsible for its overall management and investment strategy. The Central Bank of Timor-Leste is responsible for its operational management, although the Minister of Finance has the authority to select a different operational manager. By law, all petroleum and related revenues must be paid into the Fund, with the balance of the Fund invested in international financial markets for the benefit of present and future generations of Timor-Leste’s citizens. The Fund’s receipts are invested in approximately 40 percent equities and 60 percent bonds, but the Petroleum Fund Law permits the investment of up to 50 percent of the Fund in equities, 10 percent of which may be in exotic investments. The Petroleum Fund publishes monthly, quarterly, and annual reports online. As of June 2018 Petroleum Fund assets stood at USD 16.85 billion. The law governing the Fund provides that there shall at all times be appointed an independent auditor, which shall be an internationally recognized accounting firm (most recently Deloitte Touche Tohmatsu). In February 2016, the Sovereign Wealth Institute rated the Petroleum Fund as an 8 out of a possible 10 points for transparency. The Petroleum Fund is the primary source of funding for the government budget, with a ceiling on annual withdrawals set by law at 3 percent of Timor-Leste’s total petroleum wealth (defined as the current Petroleum Fund balance plus the net present value of future petroleum receipts). Recent budgets have exceeded the annual ceiling with the approval of Parliament; however, budgets have rarely been fully executed, returning up to one-third of the budget to the government coffers.

In July 2010, Timor-Leste became the third country in the world and the first in Asia to be certified as compliant with the Extractive Industries Transparency Initiative (EITI), but was suspended in March 2017 because it did not submit required reports. EITI is a G-7 endorsed undertaking that involves a country’s government, extractive-sector companies, and civil society in ensuring transparency of relevant payments and revenues.

In 2008, Timor-Leste participated for the first time in the IMF-hosted international working group on sovereign wealth funds. The country follows the best practices of the Santiago Principles.

The Timorese government operates several state-owned enterprises (SOEs) across various sectors, including broadcasting, aviation, oil and gas, pharmaceuticals, and telecommunications. Several of the country’s most prominent SOEs include:

• The Government of Timor-Leste has shares in one private company, Timor Telecom, a telecommunications provider. It owns 20.6 percent, while Telecomunicacoes Publicas de Timor (TPT) owns 54 percent. In 2013, two private foreign companies began telecommunications operations, ending Timor Telecom’s monopoly of the fixed and mobile network. In exchange for the end of the monopoly, Timor Telecom acquired certain equipment procured by the government and will retain no-cost usage rights of some government-owned infrastructure and equipment until 2062.
• In mid-2011, the government established TimorGAP, E.P., a 100-percent state-owned petroleum company intended to partner with international firms in exploration and development of Timor-Leste’s petroleum resources and to provide downstream petroleum services. TimorGAP is supervised by the Minister of Petroleum, but is governed by an independent Board of Directors. Firms that partner with TimorGAP will receive preferential treatment in tenders for petroleum projects.
• In November 2008, the Timorese government transformed Timor-Leste’s Public Broadcasting Service, Radio Televisao de Timor-Leste (RTTL), into a state-owned enterprise known as RTTL. RTTL is wholly owned by the state under the supervision of the State Secretary of Social Communication, governed by an independent Board of Directors. In 2016, the government established an official news agency, TATOLI.
• In November 2005 (Government Decree No.8/2005), the government established ANATL, E.P., a state-owned company to administer the domestic airports in all aspects, including air navigation.
• The government also created SAMES, E.P. in April 2004 (Government Decree No. 2/2004), a public enterprise that imports, stores, and distributes medicines and medical products and equipment. In April 2015, government converted SAMES, E.P. into SAMES, I.P., an autonomous institution which operates under the tutelage and supervision of the Ministry of Health.

Several autonomous government agencies are active in the economy: the Institute of Equipment Management (IGE), the Dili Port Authority (APORTIL), and the National Aviation Authority (AACTL). Postal and communications services may shift from the Ministry of Transportation and Communications to autonomous agency status eventually. Timor-Leste Electricity Company (EDTL) has recently ceased to be an autonomous institution and currently operates under the direct supervision of the General Directorate for Electricity. Other autonomous and self-funded institutions are the National Petroleum and Mineral Authority (ANPM), which regulates the oil and gas sector, and a lottery operated by the Ministry of Tourism. A National Authority of Communication (ANC) under the Ministry of Transport and Telecommunication will eventually shift to become an autonomous and self-funded institution.

Timor-Leste has not adhered to the Organization of Economic Cooperation and Development (OECD) guidelines on Corporate Governance of SOEs. Line ministers supervise SOEs but independent boards of directors administer them. Senior management reports directly to a 5-7 member Board of Directors. Line ministers are responsible for nominating or dismissing the President of the Board of Directors with approval from the Council of Ministers.

Privatization Program

Timor-Leste does not have a privatization program.

Businesses are generally aware of expectations and standards for responsible business conduct, although regulation of those standards is inconsistent. The government monitors business compliance with labor and environmental regulations, although the capacity to do so is insufficient. The government does not appear to factor responsible business conduct policies into procurement decisions.

There have been no high-profile business-related instances of corporate impact on human rights. Civil society and other organizations are generally able to monitor and promote human rights, both related to corporate actions and otherwise, without undue interference from the government.

Timor-Leste is not an adherent to the OECD Guidelines for Multinational Enterprises. In July 2010, it became the third country in the world and the first in Asia to be certified as compliant with the Extractive Industries Transparency Initiative (EITI), but it was suspended in March 2017 for failing to submit its required 2014 report, although the EITI statement on the suspension recognized Timor-Leste’s consistent commitment to transparency. The criteria and procedures by which the national government awards natural resource contracts or licenses are specified in the 2005 Petroleum Act. The process actually used to award contracts is broadly consistent with the procedural requirements set by law or regulation. Once a contract or license is awarded, the government makes public the basic terms of the awards. The government publishes quarterly reports on its Petroleum Fund on the Central Bank website.

Transparency International ranks Timor-Leste at 91 out of 176 countries on its Corruption Perceptions Index in 2017, and the Government of Timor-Leste is continuing to take steps to combat corruption. In 2010, the Anti-Corruption Commission (CAC), an independent agency, opened its doors. That same year, the Office of the Prosecutor General also forwarded its first high-profile corruption case to the courts. Since then, the CAC has referred several cases to the Office of the Prosecutor General and has several ongoing investigations. In 2016, former Minister of Finance Emilia Pires and former Vice-Minister of Health Madalena Hanjam, were convicted of economic participation in business related to improper procurement of hospital beds. Both received prison sentences, which are suspended during the appeals process, although Pires was out of the country at the time and has not yet returned. Other corruption cases involving high-profile leaders, including the former President of the National Parliament, Vicente Guterres, have not proceeded due to claims of immunity. Business people operating in country report concerns about operational difficulties they ascribe to lower-level corruption with regard to bureaucratic processing in areas such as licensing, importation, and taxation.

The government is working to establish internal discipline and performance standards. In October 2017, the government established a new customs authority and adopted the revised Arusha Declaration towards integrity in customs.

Under Timorese law, bribery is a crime, punishable with up to four years of imprisonment. It is illegal to bribe a foreign official, although Timorese law would not apply to an attempted bribery of a foreign official overseas. Bribes cannot be deducted from taxes.

Timor-Leste has signed and ratified the UN Anticorruption Convention. However, Timor-Leste is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

Anti-Corruption Commission of Timor-Leste
Rua Sergio Vieira de Mello
Farol
Dili, Timor-Leste
Phone: +670 77305564; +670 77326597; or +670 77326599
Email: keixa@cac.tl

Contact at watchdog organizations:

La’o Hamutuk – Walk Together
PO Box 340, Bebora, Dili Timor-Leste
Phone: +670 3321040
Mobile: +670 77234330
Email: info@laohamutuk.org

Lalenok ba Ema Hotu (LABEH) – The Mirror for the People
Avenida Presidente Nicolao Lobato-Comoro-(in front of SDN.07-Malinamuc)
Comoro
Dili, Timor-Leste
Phone: +670 3331068
Email: gil.silva@labeh.org

Timor-Leste has emerged from a history of colonialism, occupation, and recent civil strife to the period of domestic calm that it now enjoys. After twenty-five years of occupation by Indonesia, under an agreement between the United Nations, former colonial power Portugal, and Indonesia, a popular consultation was held in August 30, 1999 to allow the Timorese to vote on whether to remain part of Indonesia or to become independent. The majority chose independence; Timorese militias opposed to the decision organized and, supported by the Indonesian military, commenced a campaign of retribution. Approximately 1,300 Timorese were killed and as many as 300,000 people were forcibly relocated into West Timor as refugees. The majority of the country’s infrastructure, including homes, irrigation systems, water supply systems, and schools, and nearly 100 percent of the country’s electrical grid were destroyed. On September 20, 1999, at the request of the Timorese government, Australia led a deployment of peacekeeping troops (the International Force for East Timor, INTERFET), which brought the violence to an end.

After almost three years of UN administration, Timor-Leste became a fully independent republic with a parliamentary form of government on May 20, 2002. UN peacekeepers departed in 2005, leaving a special political mission in its stead. In 2006, however, civil order collapsed due to domestic political struggles which led to armed conflict between the police and military. In late May 2006, the Government of Timor-Leste urgently requested police and military assistance from Australia, New Zealand, Malaysia, and Portugal. In August 2006, the UN Security Council passed Resolution 1704, creating the United Nations Integrated Mission in Timor-Leste (UNMIT). UNMIT’s mandate was to assist in restoring stability, rebuilding security sector institutions, supporting the Government of Timor-Leste to conduct the 2007 presidential and parliamentary elections, and achieving accountability for crimes against humanity and atrocities committed in 1999. An Australian-led International Stabilization Force (ISF) supported UNMIT’s mission. Timor-Leste held free, fair, and largely peaceful presidential and parliamentary elections in 2007. Nobel Peace Prize Laureate José Ramos-Horta assumed the Presidency, and former guerilla leader and outgoing president Xanana Gusmao became Prime Minister.

National elections for president and parliament in 2012 were peaceful, free, and fair. UNMIT and the ISF departed from Timor-Leste at the end of 2012. Following free, fair, and peaceful parliamentary elections in July 2017, Mari bin Amude Alkatiri became prime minister of a two-party coalition government. In a March 2017 presidential election, also judged as free and fair, voters elected Francisco Lu Olo Guterres. In contrast with previous years, elections were conducted without extensive support from the international community. Security forces maintained public order with no reported incidents of excessive use of force. Alkatiri’s government was not able to pass its program or budget. In January 2018, President Lu Olo dissolved parliament and called for early elections. The elections, which took place May 2018, were considered fair and transparent. A coalition of parties won a Parliamentary majority and Taur Matan Ruak became Prime Minister. As of September 2018, a standoff between the President and Prime Minister over cabinet appointments prevented the full cabinet from swearing in to office.

The shortage of skilled labor is a significant constraint on private sector growth in Timor-Leste. Business executives report difficulties identifying skilled tradespeople to undertake or manage new construction projects. Public and private sector employers consistently encounter problems locating managerial, clerical, and other office staff. There is a surplus of young, inexperienced, unskilled labor, with 15,000 new entrants into the labor market each year in an economy with an estimated total of 75,000 formal sector jobs. The government, donors, and employers place enormous emphasis on education and training in order to build local capacity. This policy is adopted not only to fill the skill gaps but also to meet local hiring requirements for foreign investors. According to a 2013 government report, 71 percent of the working population is employed in the informal sector.

The 2012 Labor Law put in place regulations for labor conditions, including a 44-hour work week, standard benefits such as leave and premium pay for overtime, and minimum standards of worker health and safety. In June 2012, the government set the minimum wage for full-time employment at USD 115 per month. Enforcement of labor laws is uneven, but increasing. Special economic zones are allowed to have different labor laws.

The government’s labor inspectorate identifies and remediates labor violations and holds violators accountable, investigates and prosecutes unfair labor practices, such as harassment and/or dismissal of union members; and investigates and prosecutes instances of forced and/or child labor. Most of the cases come from temporary labor agreements in the construction and service sectors.

As stipulated in labor code, workers have the right to strike. Workers must notify companies in advance of the planned strike, and most labor disputes are settled through the mediation and conciliation service and the labor arbitration council. Workers must present claims in writing to their employer and give the employer five days to respond prior to declaring a strike. If the employers do not respond within that timeframe or respond but the parties do not reach agreement within 20 days, the organization representing the workers must provide five days’ advance notice of a strike. The strikes can be stopped by the government if they disturb public order. Strikes against international companies have occurred, primarily over employment contracts and salary entitlements, but generally create limited disruption.

The Government of Timor-Leste has acceded to many of the major international labor and human rights conventions including:

• International Labor Organization (ILO) Convention No. 29 on Forced Labor
• ILO Convention No. 87 on Freedom of Association and Protection of the Right to Organize
• ILO Convention No. 98 on the Right to Organize and Collective Bargaining
• ILO Convention No. 182 on the Worst Forms of Child Labor
• International Covenant on Civil and Political Rights
• International Covenant on Economic, Social, and Cultural Rights

As of 2018, no new labor-related laws were enacted. However, the Secretary of State for Professional Training and Employment Policy (SEPFOPE) is planning to review some articles of the labor code, including possibly adjusting minimum wage to reflect the current market.

The Overseas Private Investment Corporation (OPIC) and the Government of Timor-Leste signed an Investment Incentive Agreement in 2002. OPIC is open for business in Timor-Leste and welcomes contact from potential U.S. investors (www.opic.gov ). Potential U.S. investors and exporters are encouraged to contact the U.S. Export Import bank (www.exim.gov ) and the United States Trade and Development Agency (www.ustda.gov ) as well.

Timor-Leste has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 2002. The International Finance Corporation (IFC) maintains an office in Timor-Leste, co-located with the World Bank Country Office in Dili.

*Host country: Ministry of Finance, Statistics Directorate

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available.

Tye Sundlee
Political and Economic Officer, United States Embassy
Av. De Portugal, Praia dos Coqueiros
Dili, Timor-Leste
Phone: +670 332-4684
Email: DiliEcon2@state.gov