Bangladesh actively seeks foreign investment. Sectors with active investments from overseas include agribusiness, garment and textiles, leather and leather goods, light manufacturing, electronics, light engineering, energy and power, ICT, plastic, healthcare, medical equipment, pharmaceutical, ship building, and infrastructure. It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:

• Arms and ammunition and other defense equipment and machinery.
• Forest plantation and mechanized extraction within the bounds of reserved forests.
• Production of nuclear energy.
• Security printing (items such as currency, visa foils, and tax stamps).

The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with supervising and promoting private investment. The BIDA Act of 2016 approved the merger of the now-disbanded Board of Investment and the Privatization Committee. BIDA is directly supervised by the Prime Minister’s Office and the Executive Chairman of BIDA holds a rank equivalent to Senior Secretary, the highest rank within the civil service. BIDA performs the following functions:

• Provides pre-investment counseling services.
• Registers and approves private industrial projects.
• Issues approval of branch/liaison/representative offices.
• Issues work permits for foreign nationals.
• Issues approval of royalty remittances, technical know-how, and technical assistance fees.
• Facilitates import of capital machinery and raw materials.
• Issues approvals of foreign loans and supplier credits.
• Provides aftercare facilities.

BIDA’s website has aggregated information regarding Bangladesh investment policies, incentives, and ease of doing business indicators: http://bida.gov.bd/ 

In addition to BIDA, there are three other Investment Promotion Agencies (IPAs) responsible for promoting investments in their respective jurisdictions.

• Bangladesh Export Processing Zone Authority (BEPZA) promotes investments in Export Processing Zones (EPZs). The first EPZ was established in the 1980s and there are currently eight EPZs in the country. Website:
• Bangladesh Economic Zones Authority (BEZA) plans to establish approximately 100 Economic Zones (EZs) throughout the country over the next several years. Site selections for 97 EZs have been completed as of February 2022, of which 10 private EZs are already licensed and operational while development of several other public and private sector EZs are underway. While EPZs accommodate exporting companies only, EZs are open for both export- and domestic-oriented companies. Website:
• Bangladesh Hi-Tech Park Authority (BHTPA) is responsible for attracting and facilitating investments in the high-tech parks Bangladesh is establishing across the country. Website:

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Bangladesh allows private investment in power generation and natural gas exploration, but efforts to allow full foreign participation in petroleum marketing and gas distribution have stalled. Regulations in the area of telecommunication infrastructure currently include provisions for 60 percent foreign ownership (70 percent for tower sharing). In addition to the four sectors reserved for government investment, there are 17 controlled sectors that require prior clearance/ permission from the respective line ministries/authorities. These are:

• Fishing in the deep sea.
• Bank/financial institutions in the private sector.
• Insurance companies in the private sector.
• Generation, supply, and distribution of power in the private sector.
• Exploration, extraction, and supply of natural gas/oil.
• Exploration, extraction, and supply of coal.
• Exploration, extraction, and supply of other mineral resources.
• Large-scale infrastructure projects (e.g., elevated expressway, monorail, economic zone, inland container depot/container freight station).
• Crude oil refinery (recycling/refining of lube oil used as fuel).
• Medium and large industries using natural gas/condensate and other minerals as raw material.
• Telecommunications service (mobile/cellular and land phone).
• Satellite channels.
• Cargo/passenger aviation.
• Sea-bound ship transport.
• Seaports/deep seaports.
• VOIP/IP telephone.
• Industries using heavy minerals accumulated from sea beaches.

While discrimination against foreign investors is not widespread, the government frequently promotes local industries, and some discriminatory policies and regulations exist. For example, the government closely controls approvals for imported medicines that compete with domestically manufactured pharmaceutical products and it has required majority local ownership of new shipping and insurance companies, albeit with exemptions for existing foreign-owned firms. In practical terms, foreign investors frequently find it necessary to have a local partner even though this requirement may not be statutorily defined. In certain strategic sectors, the GOB has placed unofficial barriers on foreign companies’ ability to divest from the country.

BIDA is responsible for screening, reviewing, and approving investments in Bangladesh, except for investments in EPZs, EZs, and High-Tech Parks, which are supervised by BEPZA, BEZA, and BHTPA respectively. Both foreign and domestic companies are required to obtain approval from relevant ministries and agencies with regulatory oversight. In certain sectors (e.g., healthcare), foreign companies may be required to obtain a No Objection Certificate (NOC) from the relevant ministry or agency stating the specific investment will not hinder local manufacturers and is in line with the guidelines of the ministry concerned. Since Bangladesh actively seeks foreign investments, instances where one of the Investment Promotion Agencies (IPAs) declines investment proposals are rare.

In 2013 Bangladesh completed an investment policy review (IPR) with the United Nations Conference on Trade and Development (UNCTAD):  https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=756  

A Trade Policy Review was done by the World Trade Organization in April 2019 and can be found at:  https://www.wto.org/english/tratop_e/tpr_e/tp485_e.htm   

In February 2018, the Bangladesh Parliament passed the “One Stop Service Bill 2018,” which aims to streamline business and investment registration processes. The four IPAs – BIDA, BEPZA, BEZA, and BHTPA – are mandated to provide one-stop services (OSS) to local and foreign investors under their respective jurisdictions. Expected streamlined services include company registration, taxpayer’s identification number (TIN) and value added tax (VAT) registration, work permit issuance, power and utilities connections, capital and profit repatriation, and environment clearance. In 2019 Bangladesh made reforms in three key areas: starting a business, getting electricity, and getting credit. BIDA offers 56 services under its OSS as of February 2022and has a plan to expand to 154 services covering 35 agencies. The GOB is also planning to integrate the services of all four investment promotion agencies under a single online platform. Progress on realizing a comprehensive OSS for businesses has been slowed by bureaucratic delays and a lack of interagency coordination.

Companies can register their businesses at the Office of the Registrar of Joint Stock Companies and Firms (RJSC): www.roc.gov.bd . However, the online business registration process, while improving, can at times be unclear and inconsistent. Additionally, BIDA facilitates company registration services as part of its OSS, which is available at:  https://bidaquickserv.org . BIDA also facilitates other services including office set-up approval, work permits for foreign employees, environmental clearance, outward remittance approval, and tax registration with National Board of Revenue. Other agencies with which a company must typically register are:

• City Corporation – Trade License.
• National Board of Revenue – Tax & VAT Registration.
• Chief Inspector of Shops and Establishments – Employment of Workers Notification.

It takes approximately 20 days to start a business in the country according to the World Bank. The company registration process at the RJSC generally takes one or two days to complete. The process for trade licensing, tax registration, and VAT registration required as of 2021 seven days, one day, and one week respectively.

Outward foreign direct investment is generally restricted through the Foreign Exchange Regulation Act of 1947. As a result, the Bangladesh Bank plays a key role in limiting outbound investment. In September 2015, the government amended the Foreign Exchange Regulation Act of 1947 by adding a “conditional provision” that permits outbound investment for export-related enterprises. Private sector contacts note the few international investments approved by the Bangladesh Bank have been limited to large exporting companies with international experience. However, the government is considering an overseas investment guideline to allow outbound investment opportunities for local exporters and any company operating in the domestic market for 10 years. This will allow local companies and NGOs with outbound investments to enlist in foreign stock markets. However, Bangladesh’s total outbound investment in a single fiscal year would be capped at 5 percent of the central bank’s foreign exchange reserves for that fiscal year under the regulation being considered. Bangladesh Investment Development Authority (BIDA) has been working to formulate a workable policy regarding this since 2016.

Since 1989, the government has gradually moved to decrease regulatory obstruction of private business. Various chambers of commerce have called for privatization and for a greater voice for the private sector in government decisions, but at the same time many chambers support protectionism and subsidies for their own industries. The result is policy and regulations which are often unclear, inconsistent, or little publicized. Registration and regulatory processes are frequently alleged by businesses to be used as rent-seeking opportunities. The major rule-making and regulatory authority exists at the national level under each Ministry with many final decisions being made at the top-most levels, including the Prime Minister’s Office (PMO). The PMO is actively engaged in directing policies, as well as foreign investment in government-controlled projects.

Bangladesh has made incremental progress in using information technology both to improve the transparency and efficiency of some government services and develop independent agencies to regulate the energy and telecommunication sectors. Some investors cited government laws, regulations, and lack of implementation as impediments to investment. The government has historically limited opportunities for the private sector to comment on proposed regulations. In 2009, Bangladesh adopted the Right to Information Act providing for multilevel stakeholder consultations through workshops or media outreach. Although the consultation process exists, it is still weak and in need of further improvement.

The Environment Conservation Act 1995 (ECA ’95) as amended in 2010 and the Biodiversity Act of 2018 are the main acts governing environmental protection in Bangladesh. The ECA ’95 replaced the earlier environment pollution control ordinance of 1992 and provides the legal basis for Environment Conservation Rules, 1997 (ECR’97). The objective of the Biodiversity Act is equitable sharing of benefits arising out of the use of biological resources. The main objectives of ECA’95 are conservation of the natural environment, improvement of environmental standards, and control and mitigation of environmental pollution. According to the act, all industrial projects require before being undertaken an Environmental Clearance Certificate from the Director General. In issuing the certificate, the projects are classified into the following four categories – Green, Orange-A, Orange-B, and Red.

Environmental Clearance for the Green category is through a comparatively simple procedure. In the case of Orange-A, Orange-B and Red Categories, site clearance is mandatory at the beginning, then Environmental Impact Assessment approval and finally Environmental Clearance is issued. The Environment Clearance is to be renewed after three years for the Green category and one year for Orange-A, Orange-B and Red categories. Red Category projects require an Environmental Impact Statement prior to approval.

Ministries and regulatory agencies do not generally publish or solicit comments on draft proposed legislation or regulations. However, several government organizations, including the Bangladesh Bank (the central bank), Bangladesh Securities and Exchange Commission, BIDA, the Ministry of Commerce, and the Bangladesh Telecommunications Regulatory Commission have occasionally posted draft legislation and regulations online and solicited feedback from the business community. In some instances, parliamentary committees have also reached out to relevant stakeholders for input on draft legislation. The media continues to be the main information source for the public on many draft proposals. There is also no legal obligation to publish proposed regulations, consider alternatives to proposed regulation, or solicit comments from the general public.

The government printing office, The Bangladesh Government Press ( http://www.dpp.gov.bd/bgpress/ ), publishes the “Bangladesh Gazette” every Thursday and Extraordinary Gazettes as and when needed. The Gazette provides official notice of government actions, including issuance of government rules and regulations and the transfer and promotion of government employees. Laws can also be accessed at  http://bdlaws.minlaw.gov.bd/ .

Bangladesh passed the Financial Reporting Act of 2015 which created the Financial Reporting Council in 2016 aimed at establishing transparency and accountability in the accounting and auditing system. The country follows Bangladesh Accounting Standards and Bangladesh Financial Reporting Standards, which are largely derived from International Accounting Standards and International Financial Reporting Standards. However, the quality of reporting varies widely. Internationally known firms have begun establishing local offices in Bangladesh and their presence is positively influencing the accounting norms in the country. Some firms can provide financial reports audited to international standards while others maintain unreliable (or multiple) sets of accounting records. Regulatory agencies do not conduct impact assessments for proposed regulations; consequently, regulations are often not reviewed based on data-driven assessments. Not all national budget documents are prepared according to internationally accepted standards.

The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) aims to integrate regional regulatory systems among Bangladesh, India, Burma, Sri Lanka, Thailand, Nepal, and Bhutan. However, efforts to advance regional cooperation measures have stalled in recent years and regulatory systems remain uncoordinated.

Local laws are based on the English common law system but most fall short of international standards. The country’s regulatory system remains weak and many of the laws and regulations are not enforced and standards are not maintained.

Bangladesh has been a member of the World Trade Organization (WTO) since 1995. WTO requires all signatories to the Agreement on Technical Barriers to Trade (TBT) to establish a National Inquiry Point and Notification Authority to gather and efficiently distribute trade-related regulatory, standards, and conformity assessment information to the WTO Member community. The Bangladesh Standards and Testing Institute (BSTI) has been working as the National Enquiry Point for the WTO-TBT Agreement since 2002. There is an internal committee on WTO affairs in BSTI and it participates in notifying WTO activities through the Ministry of Commerce and the Ministry of Industries.

General Contact for WTO-TBT National Enquiry Point:
Email: bsti_std@bangla.net;  bsti_ad@bangla.net 
Website:  http://www.bsti.gov.bd/  

Focal Point for TBT:
Mr. Md. Golam Baki,Deputy Director (Certification Marks), BSTI
Email: bakibsti@gmail.comTel: +88-02-48116665Cell: +8801799828826, +8801712240702

Focal Point for other WTO related matters, except sanitary and phytosanitary systems:
Mr. Md. Hafizur Rahman,Director General, WTO Cell, Ministry of Commerce
Email: dg.wto@mincom.gov.bdTel: +880-2-9545383Cell: +88 0171 1861056

Mr. Mohammad Ileas Mia,Director-1, WTO Cell, Ministry of Commerce
Email: director1.wto@mincom.gov.bdTel: +880-2-9540580Cell: +88 01786698321

Bangladesh is a common law-based jurisdiction. Many of the basic laws, such as the penal code, civil and criminal procedural codes, contract law, and company law are influenced by English common law. However, family laws, such as laws relating to marriage, dissolution of marriage, and inheritance are based on religious scripts and therefore differ among religious communities. The Bangladeshi legal system is based on a written constitution and the laws often take statutory forms that are enacted by the legislature and interpreted by the higher courts. Ordinarily, executive authorities and statutory corporations cannot make any law, but can make by-laws to the extent authorized by the legislature. Such subordinate legislation is known as rules or regulations and is also enforceable by the courts. However, as a common law system, the statutes are short and set out basic rights and responsibilities but are elaborated by the courts in the application and interpretation of those laws. The Bangladeshi judiciary acts through: (1) The Superior Judiciary, having appellate, revision, and original jurisdiction; and (2) The Sub-Ordinate Judiciary, having original jurisdiction.

Since 1971, Bangladesh has updated its legal system concerning company, banking, bankruptcy, and money loan court laws, and other commercial laws. An important impediment to investment in Bangladesh is its weak and slow legal system in which the enforceability of contracts is uncertain. The judicial system does not provide for interest to be charged in tort judgments, which means procedural delays carry no penalties. Bangladesh does not have a separate court or court division dedicated solely to commercial cases. The Joint District Judge court (a civil court) is responsible for enforcing contracts.

Some notable commercial laws include:

• The Contract Act, 1872 (Act No. IX of 1930).
• The Sale of Goods Act, 1930 (Act No. III of 1930).
• The Partnership Act, 1932 (Act No. IX of 1932).
• The Negotiable Instruments Act, 1881 (Act No. XXVI of 1881).
• The Bankruptcy Act, 1997 (Act No. X of 1997).
• The Arbitration Act, 2001 (Act No. I of 2001).

The judicial system of Bangladesh has never been completely independent from interference by the executive branch of the government. In a significant milestone, the government in 2007 separated the country’s judiciary from the executive but the executive retains strong influence over the judiciary through control of judicial appointments. Other pillars of the justice system, including the police, courts, and legal profession, are also closely aligned with the executive branch. In lower courts, corruption is widely perceived as a serious problem. Regulations or enforcement actions are appealable under the Appellate Division of the Supreme Court.

Major laws affecting foreign investment include: the Foreign Private Investment (Promotion and Protection) Act of 1980, the Bangladesh Export Processing Zones Authority Act of 1980, the Companies Act of 1994, the Telecommunications Act of 2001, and the Bangladesh Economic Zones Act of 2010.

Bangladesh industrial policy offers incentives for “green” (environmental) high-tech or “transformative” industries. It allows foreigners who invest $1 million or transfer $2 million to a recognized financial institution to apply for Bangladeshi citizenship. The GOB will provide financial and policy support for high-priority industries (those creating large-scale employment and earning substantial export revenue) and creative industries – architecture, arts and antiques, fashion design, film and video, interactive laser software, software, and computer and media programming. Specific importance is given to agriculture and food processing, RMG, ICT and software, pharmaceuticals, leather and leather products, and jute and jute goods.

In addition, Petrobangla, the state-owned oil and gas company, has modified its production sharing agreement contract for offshore gas exploration to include an option to export gas. In 2019, Parliament approved the Bangladesh Flag Vessels (Protection) Act 2019 with a provision to ensure Bangladeshi flagged vessels carry at least 50 percent of foreign cargo, up from 40 percent. In 2020, the Ministry of Commerce amended the digital commerce policy to allow fully foreign-owned e-commerce companies in Bangladesh and remove a previous joint venture requirement.

The One Stop Service (OSS) Act of 2018 mandated the four IPAs to provide OSS to local and foreign investors in their respective jurisdictions. The move aims to facilitate business services on behalf of multiple government agencies to improve ease of doing business. In 2020, BIDA issued time-bound rules to implement the Act of 2018. Although the IPAs have started to offer a few services under the OSS, corruption and excessive bureaucracy have held back the complete and effective roll out of the OSS. BIDA has a “one-stop” website that provides information on relevant laws, rules, procedures, and reporting requirements for investors at:  http://www.bida.gov.bd/ .

Aside from information on relevant business laws and licenses, the website includes information on Bangladesh’s investment climate, opportunities for businesses, potential sectors, and how to do business in Bangladesh. The website also has an eService Portal for Investors which provides services such as visa recommendations for foreign investors, approval/extension of work permits for expatriates, approval of foreign borrowing, and approval/renewal of branch/liaison and representative offices.

Bangladesh formed an independent agency in 2011 called the “Bangladesh Competition Commission (BCC)” under the Ministry of Commerce. Parliament then passed the Competition Act in 2012. However, the BCC has not received sufficient resources to operate effectively.

In 2018, the Bangladesh Telecommunication Regulatory Commission (BTRC) finalized Significant Market Power (SMP) regulations to promote competition in the industry. In 2019, BTRC declared the country’s largest telecom operator, Grameenphone (GP), the first SMP based on its revenue share of more than 50 percent and customer shares of about 47 percent. Since the declaration, the BTRC has attempted to impose restrictions on GP’s operations, which GP has challenged in the judicial system.

Since the Foreign Investment Act of 1980 banned nationalization or expropriation without adequate compensation, Bangladesh has not nationalized or expropriated property from foreign investors. In the years immediately following independence in 1971, widespread nationalization resulted in government ownership of more than 90 percent of fixed assets in the modern manufacturing sector, including the textile, jute and sugar industries and all banking and insurance interests, except those in foreign (but non-Pakistani) hands. However, the government has taken steps to privatize many of these industries since the late 1970s and the private sector has developed into a main driver of the country’s sustained economic growth.

Many laws affecting investment in Bangladesh are outdated. Bankruptcy laws, which apply mainly to individual insolvency, are sometimes disregarded in business cases because of the numerous falsified assets and uncollectible cross-indebtedness supporting insolvent banks and companies. A Bankruptcy Act was passed by Parliament in 1997 but has been ineffective in addressing these issues. Some bankruptcy cases fall under the Money Loan Court Act-2003 which has more stringent and timely procedures.

Current regulations permit a tax holiday for designated “thrust” (strategic) sectors and infrastructure projects established between July 1, 2019 and June 30, 2024. The thrust sectors enjoy tax exemptions graduated from 90 percent to 20 percent over a period of five to ten years depending on the zone where the business is established. Industries set up in Export Processing Zones (EPZs) and Special Economic Zones (SEZs) are also eligible for tax holidays. Details of fiscal and non-fiscal incentives are available on the following websites:

BIDA: http://bida.gov.bd/?page_id=146 

BEPZA: https://www.bepza.gov.bd/content/incentives-facilities 

BEZA: https://www.beza.gov.bd/investing-in-zones/incentive-package/ 

Strategic sectors eligible for tax exemptions include: certain pharmaceuticals, automobile manufacturing, contraceptives, rubber latex, chemicals or dyes, certain electronics, bicycles, fertilizer, biotechnology, commercial boilers, certain brickmaking technologies, compressors, computer hardware, home appliances, insecticides, pesticides, petrochemicals, fruit and vegetable processing, textile machinery, tissue grafting, tire manufacturing industries, agricultural machineries, furniture, leather and leather goods, cell phones, plastic recycling, and toy manufacturing.

Eligible physical infrastructure projects are allowed tax exemptions graduated from 90 percent to 20 percent over a period of 10 years. Physical infrastructure projects eligible for exemptions include deep seaports, elevated expressways, road overpasses, toll roads and bridges, EPZs, gas pipelines, information technology parks, industrial waste and water treatment facilities, liquefied natural gas (LNG) terminals, electricity transmission, rapid transit projects, renewable energy projects, and ports.

Independent non-coal fired power plants (IPPs) commencing production after January 1, 2015 are granted a 100 percent tax exemption for five years, a 50 percent exemption for years six to eight, and a 25 percent exemption for years nine to 10. For new coal-fired IPPs commencing production before June 30, 2023 (provided operators contracted with the government before June 30, 2020), the tax exemption rate is 100 percent for the first 15 years of operations. For power projects, import duties are waived for imports of capital machinery and spare parts.

The valued-added tax (VAT) rate on exports is zero. For companies exporting only, duties are waived on imports of capital machinery and spare parts. For companies primarily exporting (80 percent of production and above), an import duty rate of 1 percent is charged for imports of capital machinery and spare parts identified and listed in notifications to relevant regulators. Import duties are also waived for EPZ industries and other export-oriented industries for imports of raw materials consumed in production.

The GOB provides special incentives to encourage non-resident Bangladeshis to invest in the country. Incentives include the ability to buy newly issued shares and debentures in Bangladeshi companies. Further, non-resident Bangladeshis can maintain foreign currency deposits in Non-resident Foreign Currency Deposit (NFCD) accounts.

In the past several years, U.S. companies have experienced difficulties securing the investment incentives initially offered by Bangladesh. Several companies have reported instances where infrastructure guarantees (ranging from electricity to gas connections) are not fully delivered or tax exemptions are delayed, either temporarily or indefinitely. These challenges are not specific to U.S. or foreign companies and reflect broader challenges in the business environment.

Bangladesh government does not provide any specific incentives for businesses owned by women.

In 2020, the Government of Bangladesh established that all power generation companies will enjoy full tax exemption with the exception of coal-based generation. This incentive will be available to all power generation companies who start operation before December 31, 2022. The government is seeking to increase use of renewable energy and has offered incentives such as tax breaks for net-metered solar rooftop installation.

Under the Bangladesh Export Processing Zones Authority Act of 1980, the government established the first EPZ in Chattogram in 1983. Additional EPZs now operate in Dhaka (Savar), Mongla, Ishwardi, Cumilla, Uttara, Karnaphuli (Chattogram), and Adamjee (Dhaka). Korean investors are also operating a separate and private EPZ in Chattogram.

Joint ventures, wholly foreign-owned investments, and wholly Bangladeshi-owned companies are all permitted to operate and enjoy equal treatment in the EPZs.

In 2010, Bangladesh enacted the Special Economic Zone Act allowing for the creation of privately owned SEZs to produce for export and domestic markets. The SEZs provide special fiscal and non-fiscal incentives to domestic and foreign investors in designated underdeveloped areas throughout Bangladesh.

Although land, whether for purchase or lease, is often critical for investment and as security against loans, antiquated real property laws and poor record-keeping systems can complicate land and property transactions. Instruments take effect from the date of execution, not the date of registration, so a bona fide purchaser can often be uncertain of title. Land registration records have been historically prone to competing claims. Land disputes are common, and both U.S. companies and citizens have filed complaints about fraudulent land sales. For example, sellers fraudulently claiming ownership have transferred land to good faith purchasers while the actual owners were living outside of Bangladesh. In other instances, U.S.-Bangladeshi dual citizens have purchased land from legitimate owners only to have third parties make fraudulent claims of title to extort settlement compensation. A 2015 study by leading Bangladeshi think tank Policy Research Institute (PRI) revealed one in seven households in the country faced land disputes. Bangladesh ranks 184 among 190 countries for ease of registering property in the World Bank’s Doing Business 2020 Report.

While property owners can obtain mortgages, parties generally avoid registering mortgages, liens, and encumbrances due to the high cost of stamp duties (i.e., transaction taxes based on property value) and other charges. There are also concerns that non-registered mortgages are often unenforceable.

Article 42 of the Bangladesh Constitution guarantees a right to property for all citizens, but property rights are often not protected due to a weak judicial system. The Transfer of Property Act of 1882  and the Registration Act of 1908  are the two main laws regulating transfer of property in Bangladesh but these laws have no specific provisions covering foreign and/or non-resident investors. Currently, foreigners and non-residents can incorporate a company with the Registrar of Joint Stock Companies and Firms. The company would be considered a local entity and would be able to buy land in its name.

Intellectual property rights (IPR) and rights enforcement is not a priority for the Government of Bangladesh and it has not invested heavily in IPR protection. As a result, counterfeit goods are readily available in Bangladesh, and a significant portion of business software is pirated. Several U.S. firms, including fast-moving consumer goods manufacturers, film studios, pharmaceutical products, apparel goods, and software firms, have reported systematic violations of their IPRs. Investors note police are willing to investigate counterfeit goods producers when informed but are unlikely to initiate independent investigations.

The Government of Bangladesh has recently taken steps to develop its IP system. In February 2021, the Cabinet gave its final approval of a draft Bangladesh Patents Bill and in-principal approval of a draft Bangladesh Industry-Designs Bill to replace the Patents and Designs Act 1911. The bills aim to make necessary updates to existing regulations and improve IPR in Bangladesh. However, as of March 2022 the potential impact of the bills remains uncertain because the government had yet to make the drafts public for stakeholder review. The bills require approval by the Parliament before going into effect. A National IP policy was developed in 2018 but has not been fully implemented. Public awareness of IPR is slowly growing through efforts from industry associations like the Intellectual Property Rights Association of Bangladesh, AMCHAM, Bangladesh, and REACT. Bangladesh is a member of the World Intellectual Property Organization (WIPO) and acceded to the Paris Convention on Intellectual Property in 1991.

Bangladesh has slowly made progress toward bringing its legislative framework into compliance with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The government enacted a Copyright Law in 2000 (amended in 2005), a Trademarks Act in 2009, and a Geographical Indication of Goods (Registration and Protection) Act in 2013, in addition to the recent action on bills replacing the Patents and Designs Act.

Several government agencies are empowered to act against counterfeiting, including the National Board of Revenue (NBR), Customs, Mobile Courts, the Rapid Action Battalion (RAB), and the Bangladesh Police. However, enforcement agencies do not have appropriate resources nor are given the appropriate attention or priority to execute complaints filed by IP right holders. Accordingly, enforcement actions such as raids and seizures have become costly, time-consuming, and often nonproductive. In a positive development, in December 2019, the National Board of Revenue implemented the Intellectual Property Rights of Receipts of Imports: Rules of Implementation 2018. The rules intend to help stakeholders, though the bond requirement, for taking any enforcement action is a concern for the stakeholders. As per Rule 5 of the Intellectual Property Rights (Imported Goods) Enforcement Rules,2007, Industry is required to execute a specific bond of an amount equal to 110 percent of the value of the goods and furnish security in the form of a Bank Guarantee of an amount equal to 25 percent of the bond value within three days from date of confiscation of the goods. It is an issue as it is challenging to get all internal approval and get the bond executed within three days. Secondly, the bond is on hold until the case is disposed of, and thirdly it isn’t easy to do the valuation of a product.

The Department of National Consumer Rights Protection (DNCRP) is charged with tracking and reporting on counterfeit goods, and the NBR/Customs tracks counterfeit goods seizures at ports of entry. However, reports are not publicly available.

Resources for Intellectual Property Rights Holders:

John Cabeca
Intellectual Property Counselor for South Asia
U.S. Patent and Trademark Office
Foreign Commercial Service
email: john.cabeca@trade.gov
website: https://www.uspto.gov/ip-policy/ip-attache-program
tel: +91-11-2347-2000

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 in Bangladesh are still developing, and the financial sector remains highly dependent on bank lending. Current regulatory infrastructure inhibits the development of a tradeable bond market.

Bangladesh is home to the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE), both of which are regulated by the Bangladesh Securities and Exchange Commission (BSEC), a statutory body formed in 1993 and attached to the Ministry of Finance. The DSE market capitalization stood at $64.8 billion at the end of January 2022, rising 16.3 percent year-over-year as stock prices rose amid speculative behavior and increased liquidity due to relaxed monetary policy.

Although the Bangladeshi government has a positive attitude toward foreign portfolio investors, participation in the exchanges remains low due to what is still limited liquidity for shares and the lack of publicly available and reliable company information. The DSE has attracted some foreign portfolio investors to the country’s capital market. However, the volume of foreign investment in Bangladesh remains a small fraction of total market capitalization. As a result, foreign portfolio investment has had limited influence on market trends and Bangladesh’s capital markets have been largely insulated from the volatility of international financial markets. Bangladeshi markets continue to rely primarily on domestic investors.

In 2019, BSEC undertook a number of initiatives to launch derivatives products, allow short selling, and invigorate the bond market. To this end, BSEC introduced three rules: Exchange Traded Derivatives Rules 2019, Short-Sale Rules 2019, and Investment Sukuk Rules 2019. Other recent, notable BSEC initiatives include forming a central clearing and settlement company – the Central Counterparty Bangladesh Limited (CCBL) – and promoting private equity and venture capital firms under the 2015 Alternative Investment Rules. In 2013, BSEC became a full signatory of the International Organization of Securities Commissions (IOSCO) Memorandum of Understanding.

BSEC has taken steps to improve regulatory oversight, including installing a modern surveillance system, the “Instant Market Watch,” providing real time connectivity with exchanges and depository institutions. As a result, the market abuse detection capabilities of BSEC have improved significantly. A mandatory Corporate Governance Code for listed companies was introduced in 2012 but the overall quality of corporate governance remains substandard. Demutualization of both the DSE and CSE was completed in 2013 to separate ownership of the exchanges from trading rights. A majority of the members of the Demutualization Board, including the Chairman, are independent directors. Apart from this, a separate tribunal has been established to resolve capital market-related criminal cases expeditiously. However, both domestic and foreign investor confidence on the stock exchanges’ governance standards remains low.

The Demutualization Act 2013 also directed DSE to pursue a strategic investor who would acquire a 25 percent stake in the bourse. Through a bidding process DSE selected a consortium of the Shenzhen and Shanghai stock exchanges in China as its strategic partner, with the consortium buying the 25 percent share of DSE for taka 9.47 billion ($112.7 million).

According to the International Monetary Fund (IMF), Bangladesh is an Article VIII member and maintains restrictions on the unapproved exchange, conversion, and/or transfer of proceeds of international transactions into non-resident taka-denominated accounts. Since 2015, authorities have relaxed restrictions by allowing some debits of balances in such accounts for outward remittances, but there is currently no established timetable for the complete removal of the restrictions.

The Bangladesh Bank (BB) acts as the central bank of Bangladesh. It was established through the enactment of the Bangladesh Bank Order of 1972. General supervision and strategic direction of the BB has been entrusted to a nine-member Board of Directors, which is headed by the BB Governor. A list of the bank’s departments and branches is on its website: https://www.bb.org.bd/aboutus/dept/depts.php .

According to the BB, four types of banks operate in the formal financial system: State Owned Commercial Banks (SOCBs), Specialized Banks, Private Commercial Banks (PCBs), and Foreign Commercial Banks (FCBs). Some 61 “scheduled” banks in Bangladesh operate under the control and supervision of the central bank as per the Bangladesh Bank Order of 1972. The scheduled banks, include six SOCBs, three specialized government banks established for specific objectives such as agricultural or industrial development or expatriates’ welfare, 43 PCBs, and nine FCBs as of February 2021. The scheduled banks are licensed to operate under the Bank Company Act of 1991 (Amended 2013). There are also five non-scheduled banks in Bangladesh, including Nobel Prize recipient Grameen Bank, established for special and definite objectives and operating under legislation enacted to meet those objectives.

Currently, 34 non-bank financial institutions (FIs) are operating in Bangladesh. They are regulated under the Financial Institution Act, 1993 and controlled by the BB. Of these, two are fully government-owned, one is a subsidiary of a state-owned commercial bank, and the rest are private financial institutions. Major sources of funds for these financial institutions are term deposits (at least three months’ tenure), credit facilities from banks and other financial institutions, and call money, as well as bonds and securitization.

Unlike banks, FIs are prohibited from:

• Issuing checks, pay-orders, or demand drafts.
• Receiving demand deposits.
• Involvement in foreign exchange financing.

Microfinance institutions (MFIs) remain the dominant players in rural financial markets. The Microcredit Regulatory Authority (MRA), the primary regulator of this sector, oversees 746 licensed microfinance institutions as of October 2021, excluding Grameen Bank which is governed under a separate law. In 2020, the MRA-listed microfinance institutions had 33.3 million members while Grameen Bank had an additional 9.3 million members.

The banking sector has had a mixed record of performance over the past several years. Industry experts have reported a rise in risky assets because of poor governance as well as the economic fallout of the COVID-19 pandemic. Total domestic credit stood at 50.4 percent of gross domestic product at end of November 2021. The state-owned Sonali Bank is the largest bank in the country while Islami Bank Bangladesh and Standard Chartered Bangladesh are the largest local private and foreign banks respectively. The gross non-performing loan (NPL) ratio was 8.1 percent at the end of September 2021, down from 8.9 percent in September 2020. However, the decline in the NPLs was primarily caused by regulatory forbearance rather than actual reduction of stressed loans. At 20.1 percent SCBs had the highest NPL ratio, followed by 11.4 percent of Specialized Banks, 5.5 percent of PCBs, and4.1 percent of FCBs as of September 2021.

In 2017, the BB issued a circular warning citizens and financial institutions about the risks associated with cryptocurrencies. The circular noted that using cryptocurrencies may violate existing money laundering and terrorist financing regulations and cautioned users may incur financial losses. The BB issued similar warnings against cryptocurrencies in 2014.

Foreign investors may open temporary bank accounts called Non-Resident Taka Accounts (NRTA) in the proposed company name without prior approval from the BB to receive incoming capital remittances and encashment certificates. Once the proposed company is registered, it can open a new account to transfer capital from the NRTA account. Branch, representative, or liaison offices of foreign companies can open bank accounts to receive initial suspense payments from headquarters without opening NRTA accounts. In 2019, the BB relaxed regulations on the types of bank branches foreigners could use to open NRTAs, removing a previous requirement limiting use of NRTA’s solely to Authorized Dealers (ADs).

In 2015, the Bangladesh Finance Ministry announced it was exploring establishing a sovereign wealth fund in which to invest a portion of Bangladesh’s foreign currency reserves. In 2017, the Cabinet initially approved a $10 billion “Bangladesh Sovereign Wealth Fund,” (BSWF) to be created with funds from excess foreign exchange reserves but the plan was subsequently scrapped by the Finance Ministry.

The business community is increasingly aware of and engaged in responsible business conduct (RBC) activities with multinational firms leading the way. While many firms in Bangladesh fall short on RBC activities and instead often focus on philanthropic giving, some of the leading local conglomerates have begun to incorporate increasingly rigorous environmental and safety standards in their workplaces. U.S. companies present in Bangladesh maintain diverse RBC activities. Consumers in Bangladesh are generally less aware of RBC, and consumers and shareholders exert little pressure on companies to engage in RBC activities.

While many international firms are aware of OECD guidelines and international best practices concerning RBC, many local firms have limited familiarity with international standards. There are currently two RBC NGOs active in Bangladesh:

• CSR Bangladesh:
• CSR Centre Bangladesh:

Along with the Bangladesh Enterprise Institute, the CSR Centre is the joint focal point for the United Nations Global Compact (UNGC) and its corporate social responsibility principles in Bangladesh. The UN Global Compact is the world’s largest corporate citizenship and sustainability initiative. The Centre is a member of a regional RBC platform called the South Asian Network on Sustainability and Responsibility, with members including Bangladesh, Afghanistan, India, Nepal, and Pakistan.

While several NGOs have proposed National Corporate Social Responsibility Guidelines, the government has yet to adopt any such standards for RBC. As a result, the government encourages enterprises to follow generally accepted RBC principles but does not mandate any specific guidelines.

Bangladesh has natural resources, but it has not joined the Extractive Industries Transparency Initiative (EITI). The country does not adhere to the Voluntary Principles on Security and Human Rights.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Bangladesh is one of the most climate-vulnerable countries in the world. The government established the Bangladesh Climate Change Strategy and Action Plan (BCCSAP) to address the adverse effects of climate change. In this plan, 44 programs under six thematic areas were identified. The Bangladesh Climate Change Trust Fund (BCCTF) was created in 2010 from the Government’s own revenue sources to combat climate change impacts as well as to implement the BCCSAP. The BCCTF has funded $449.3M in approximately 800 projects to implement key aspects of the BCCSAP. Taking into account the challenges of environment, environment and biodiversity conservation and management, the government has finalized the National Environment Policy 2018 and published it in 2019 with the aim of developing the overall environmental conservation management of the country. The Department of Environment, under the Ministry of Environment, Forest and Climate Change, has adopted a “blue-economy” action plan to conserve marine environment, prevent marine pollution, ensure environmental management, and conserve marine and coastal biodiversity while ensuring marine resource extraction and mainstream development activities.

Bangladesh aims to reach 30 percent renewable energy by 2030 and at least 40 percent by 2041. Bangladesh launched the Mujib Climate Prosperity Plan (MCPP) in November 2021. The MCPP is built on the foundation of the Eighth Five Year Plan (2021-2025) and shifts Bangladesh’s trajectory from one of vulnerability to resilience and then prosperity. The plan highlights engagement with domestic implementation partners including the Public Private Partnership (PPP) Authority and the Bangladesh Investment Development Authority (BIDA). The MCPP expects investment opportunities of approximately $80 billion in resilient projects in energy, water, transport, supply chains and value chains. Optimized finance structures to attract FDI and mobilize domestic private sector capital include the use of public private partnerships as a key solution to climate investment with the PPP Authority. The Bangladesh Bank can use different tools to incentivize investment in low-carbon and climate-resilient infrastructure.

The MCPP further outlines opportunities for technology-transfer partnerships and building manufacturing capacity in Bangladesh including in areas such as green hydrogen, solar, electric vehicles, modernized power grid and other resilient infrastructure.

According to a BloombergNEF’s Climatescope report, in 2021 Bangladesh ranked 24 among 109 countries as an emerging attractive market for energy transition investment. Bangladesh ranks 69th in the MIT Technology Review’s Green Future Index. The overall ranking shows the performance of the economies relative to each other and aggregates scores generated across the following five pillars: carbon emissions, energy transition, green society, clean innovation and climate policy. In the Global Green Growth Institute’s Global Green Growth Index, Bangladesh Ranked 18th among 33 Asian countries. This index measures sustainability targets for four green growth dimensions – efficient and sustainable resource use, natural capital protection, green economic opportunities, and social inclusion.

Corruption remains a serious impediment to investment and economic growth in Bangladesh. While the government has established legislation to combat bribery, embezzlement, and other forms of corruption, enforcement is inconsistent. The Anti-Corruption Commission (ACC) is the main institutional anti-corruption watchdog. With amendments to the Money Laundering Prevention Act, the ACC is no longer the sole authority to probe money-laundering offenses. Although it still has primary authority for bribery and corruption, other agencies will now investigate related offenses, including:

• The Bangladesh Police (Criminal Investigation Department) – Most predicate offenses.
• The National Board of Revenue – VAT, taxation, and customs offenses.
• The Department of Narcotics Control – drug related offenses.

The current Awami League-led government has publicly underscored its commitment to fighting corruption and reaffirmed the need for a strong ACC, but opposition parties claim the ACC is used by the government to harass political opponents. Efforts to ease public procurement rules and a recent constitutional amendment diminishing the independence of the ACC may undermine institutional safeguards against corruption. Bangladesh is a party to the UN Anticorruption Convention but has not joined the OECD Convention on Combating Bribery of Public Officials. Corruption is common in public procurement, tax and customs collection, and among regulatory authorities. Corruption, including bribery, raises the costs and risks of doing business. By some estimates, off-the-record payments by firms may result in an annual reduction of two to three percent of GDP. Corruption has a corrosive impact on the broader business climate market and opportunities for U.S. companies in Bangladesh. It also deters investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

Mohammad Moinuddin AbdullahChairmanAnti-Corruption Commission, Bangladesh1, Segun Bagicha, Dhaka 1000+88-02-8333350 chairman@acc.org.bd 

Contact at “watchdog” organization:

Mr. Iftekharuzzaman
Executive Director
Transparency International Bangladesh (TIB)
MIDAS Centre (Level 4 & 5), House-5, Road-16 (New) 27 (Old)
Dhanmondi, Dhaka -1209+880 2 912 4788 / 4789 / 4792
edtib@ti-bangladesh.org, info@ti-bangladesh.org, advocacy@ti-bangladesh.org

Prime Minister Hasina’s ruling Awami League party won 289 parliamentary seats out of 300 in a December 30, 2018 election marred by wide-spread vote-rigging, ballot-box stuffing and intimidation. Intimidation, harassment, and violence during the pre-election period made it difficult for many opposition candidates and their supporters to meet, hold rallies, and/or campaign freely. The clashes between rival political parties and general strikes that previously characterized the political environment in Bangladesh have become far less frequent in the wake of the Awami League’s increasing dominance and crackdown on dissent. Many civil society groups have expressed concern about the trend toward a one-party state and the marginalization of all political opposition groups.

Americans are advised to exercise increased caution due to crime and terrorism when traveling to Bangladesh. Travel in some areas have higher risks. For further information, see the State Department’s travel website for the  Worldwide Caution,  Travel Advisories, and  Bangladesh Country Specific Information.

Bangladesh’s comparative advantage in cheap labor for manufacturing is partially offset by lower productivity due to poor skills development, inefficient management, pervasive corruption, and inadequate infrastructure.  According to the 2016-2017 Labor Force Survey, 85 percent of the Bangladeshi labor force is employed in the informal economy.  Bangladeshi workers have a strong reputation for hard work, entrepreneurial spirit, and a positive and optimistic attitude.  With an average age of 26 years, the country boasts one of the largest and youngest labor forces in the world.  However, training is not well aligned with labor demand. Bangladesh’s labor laws specify acceptable employment conditions, working hours, minimum wage levels, leave policies, health and sanitary conditions, and compensation for injured workers.  Freedom of association and the right to join unions are guaranteed in the constitution.  In practice, however, compliance and enforcement of labor laws are weak, and companies frequently discourage or prevent formation of worker-led labor unions, preferring pro-factory management unions. In a notable exception to the national labor law, Export Processing Zones (EPZs) do not allow trade unions and heavily restrict other labor activity normally permitted under the broader Bangladesh Labor Act. The EPZ labor law does allow worker welfare associations, to which 74 percent of workers belong, according to the government.

Since two back-to-back tragedies killed over 1,250 workers – the Tazreen Fashions fire in 2012 and the Rana Plaza collapse in 2013 – Bangladesh made significant progress in garment factory fire and structural safety remediation, thanks mostly to two Western brand-led initiatives, the Alliance for Bangladesh Worker Safety (Alliance), comprised of North American brands, and the Accord on Fire and Building Safety in Bangladesh (Accord), which was formed by European brands. Major accidents and workplace deaths in the garment sector dropped precipitously as a result – only four workers died in 2021.  Monitoring and remediation of RMG factories exporting to non-Western countries was overseen by the government, with assistance from the International Labor Organization (ILO) under the National Initiative.  By 2021, fewer than half the factories under the National Initiative had completed initial remediation of safety issues, and both the Alliance and Accord had closed their Bangladesh operations.  North American brands continued to monitor manufacturers’ safety maintenance and training through a new organization, Nirapon. The Accord, under High Court order, transitioned its staff and operations to the newly formed RMG Sustainability Council (RSC), overseen by a board consisting of manufacturers, brands, and worker representatives.  The government has announced plans to form an Industrial Safety Unit to oversee factory safety in National Initiative garment factories as well as all manufacturing. On July 8, 2021, a devastating fire at the Hashem Foods Factory Ltd took the lives of 54 workers including 19 children. In the wake of the fire on July 15, the Prime Minister’s Office announced the formation of a 24-member national committee led by the Bangladesh Investment Development Authority (BIDA) and headed by the Prime Minister’s Private Sector Advisor Salman Rahman. The committee prioritized 32 industrial sectors considering their propensity for and likelihood of accidents. BIDA announced in December 2021 it would produce a sector-wide report after analyzing the inspection data and will take steps to enforce workplace safety compliance in the non-export sectors.

The U.S. government suspended Bangladesh’s access to the U.S. Generalized System of Preferences (GSP) over labor rights violations following a six-year formal review conducted by the U.S. Trade Representative. The decision, announced in 2013 in the months following the Rana Plaza collapse, was accompanied by a 16-point GSP Action Plan to help start Bangladesh’s path to reinstatement of the trade benefits.  While some progress was made in the intervening years, several key issues have not been adequately addressed.  Despite revisions intended to make Bangladesh more compliant with international labor standards, the Bangladesh Labor Act (BLA) and EPZ Labor Act (ELA) still restrict the freedom of association and formation of unions and maintain separate administrative systems for workers inside and outside of export processing zones.

Under the current BLA, legally registered unions are entitled to submit charters of demands and bargain collectively with employers, but this has rarely occurred in practice.  The government counts nearly 1,000 registered trade unions, but labor leaders estimate there are fewer than 100 active trade unions in the country’s dominant sector, RMG, and only 30 to 40 are capable enough to negotiate with owners.  The law provides criminal penalties for conducting unfair labor practices such as retaliation against union members for exercising their legal rights, but charges are rarely brought against employers and the labor courts have a large backlog of cases.  Labor organizations reported most workers did not exercise their rights to form unions, attend meetings, or bargain collectively due to fear of reprisal.  From January to December 2021, a total of 6 workers died and 163 were injured due to police interference and about 137 of them belonged to the garment sector.  The garment sector is reeling from the skilled labor crisis and missing opportunities to secure new orders from eager buyers coming to Bangladesh to procure garments after COVID-19-related factory closures in Vietnam, Cambodia, and Burma.  The local apparel industry has long courted buyers who historically have sourced from other countries to buy from Bangladesh producers.  However, in 2020, at the peak of Covid-19, Bangladesh apparel industries furloughed around 357,000 workers; following lockdown restrictions, the sector re-hired just a handful of the workers.  Some of those furloughed returned to their villages and others switched to new professions.  Industry groups are focusing on developing automation technologies and processes to boost productivity and increase production capacity.

The labor law differentiates between layoffs and terminations; no severance is paid if a worker is fired for misconduct.  In the case of downsizing or “retrenchment,” workers must be notified and paid 30 days’ wages for each year of service.  The law requires factories and establishments to notify Bangladesh’s Department of Inspection for Factories and Establishments a week prior to temporarily laying off workers due to a shortage of work or material.  Laid off workers are entitled to their full housing allowance.  For the first 45 days, they are also entitled to half their basic wages, then 25 percent thereafter.  Workers who were employed for less than one year are not eligible for compensation during a layoff.  However, the press and trade unions report employers not only fail to pay workers their severance or benefits, but also their regular wages.  In 2021 alone, workers and organizers staged 172 labor protests in the garment sector over back wages, factory layoffs, and demands to reopen closed factories.  No unemployment insurance or other social safety net programs exist, although the government had begun discussing how to establish them with the help of development partners and brands.  In early 2022, the Government of Bangladesh announced a universal pension scheme from fiscal year (FY) 2022-23.

The government does not consistently and effectively enforce applicable labor laws.  For example, the law establishes mechanisms for conciliation, arbitration, and dispute resolution by a labor court and workers in a collective bargaining union have the right to strike in the event of a failure to reach a settlement.  In practice, few strikers followed the cumbersome and time-consuming legal requirements for settlements and strikes or walkouts often occur spontaneously.  The government was partnered with the ILO to introduce a dispute settlement system within its Department of Labor.

The BLA guarantees workers the right to conduct lawful strikes, but with many limitations.  For example, the government may prohibit a strike deemed to pose a “serious hardship to the community” and may terminate any strike lasting more than 30 days.  The BLA also prohibits strikes at factories in the first three years of commercial production, and at factories controlled by foreign investors.

The U.S. government funds efforts to improve occupational safety and health alongside labor rights in the readymade garment sector in partnership with other international partners, civil society, businesses, and the Bangladeshi government.  The United States works with other governments and the International Labor Organization (ILO) to discuss and assist with additional labor reforms needed to fully comply with international labor conventions.  In early 2021, the government submitted a draft action plan to the EU and ILO describing how it planned to bring its laws and practices into compliance with international labor standards over time.  In February 2022, the government submitted the progress report to ILO and the report will be discussed in the ILO Governing Body on March 21.  The U.S. government is closely monitoring the development and implementation of the plan to ensure it sufficiently addresses long-standing recommendations.

*Host Country Source:  Bangladesh Bank, Bangladesh Bureau of Statistics

Economic/Commercial Section
Embassy of the United States of America
Madani Avenue, BaridharaDhaka — 1212
Tel: +880 2 5566-2000
Email: USTC-Dhaka@state.gov 

Brazil was the world’s seventh-largest destination for foreign direct investment (FDI) in 2019, with inflows of $58 billion, according to the United Nations Conference on Trade and Development (UNCTAD). The GoB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, mining, and transportation infrastructure sectors – to introduce greater innovation into Brazil’s economy and to generate economic growth. GoB investment incentives include tax exemptions and low-cost financing with no distinction made between domestic and foreign investors in most sectors. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, and insurance sectors.

The Brazilian Trade and Investment Promotion Agency (APEX-Brasil) plays a leading role in attracting FDI to Brazil by working to identify business opportunities, promoting strategic events, and lending support to foreign investors willing to allocate resources to Brazil. APEX-Brasil is not a “one-stop shop” for foreign investors, but the agency can assist in all steps of the investor’s decision-making process, to include identifying and contacting potential industry segments, sector and market analyses, and general guidelines on legal and fiscal issues. Their services are free of charge. The website for APEX-Brasil is: http://www.apexbrasil.com.br/en . 

In 2016, the Ministry of Economy created the Direct Investments Ombudsman (OID) at the Board of Foreign Trade and Investments (CAMEX), to provide assistance to foreign investors through a single body for issues related to FDI in Brazil. This structure aims to help and eventually speed up foreign investments in Brazil, providing foreign and national investors with a simpler process for establishing new businesses and implementing additional investments in their current companies. Since 2019, the OID has acted as a “single window” of the Brazilian government for FDI. It supports and guides investors in their requests, recommending solutions to their complaints (Policy Advocacy) as well as proposing improvements to the legislation or administrative procedures to public agencies whenever necessary. The OID is responsible for receiving requests and inquiries on matters related to foreign investments, to be answered together with government agencies and entities (federal, state and municipal) involved in each case (Focal Points Network). This new structure provides a centralized support system to foreign investors, and must respond in a timely manner to investors’ requests.

A 1995 constitutional amendment (EC 6/1995) eliminated distinctions between foreign and local capital, ending favorable treatment (i.e. tax incentives, preference for winning bids) for companies using only local capital. However, constitutional law restricts foreign investment in healthcare (Law 8080/1990, altered by 13097/2015), mass media (Law 10610/2002), telecommunications (Law 12485/2011), aerospace (Law 7565/1986 a, Decree 6834/2009, updated by Law 12970/2014, Law 13133/2015, and Law 13319/2016), rural property (Law 5709/1971), maritime (Law 9432/1997, Decree 2256/1997), and insurance (Law 11371/2006).

Brazil does not have a national security-based foreign investment screening process. Foreign investors in Brazil must electronically register their investment with the Central Bank of Brazil (BCB) within 30 days of the inflow of resources to Brazil. In cases of investments involving royalties and technology transfer, investors must register with Brazil’s patent office, the National Institute of Industrial Property (INPI). Since the approval of the Doing Business Law in 2021, companies are no longer required to have an administrator residing in Brazil, but they must appoint a local proxy attorney to receive legal notifications. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM). Brazil does not have an investment screening mechanism based on national security interests. A bill was proposed in the Chamber of Deputies in 2020 (PL 2491) to change the parameters under which to review foreign investments could be reviewed, but the bill has not yet been analyzed by the necessary commissions.

To enter Brazil’s insurance and reinsurance market, U.S. companies must establish a subsidiary, enter a joint venture, acquire a local firm, or enter a partnership with a local company. The BCB reviews banking license applications on a case-by-case basis. Foreign interests own or control 20 of the top 50 banks in Brazil, but Santander is the only major wholly foreign-owned retail bank.

Since June 2019, foreign investors may own 100 percent of capital in Brazilian airline companies.

While 2015 and 2017 legislative and regulatory changes relaxed some restrictions on insurance and reinsurance, rules on preferential offers to local reinsurers remain unchanged. Foreign reinsurance firms must have a representational office in Brazil to qualify as an admitted reinsurer. Insurance and reinsurance companies must maintain an active registration with Brazil’s insurance regulator, the Superintendence of Private Insurance (SUSEP), and maintain a solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch ratings of at least BBB-.

Foreign ownership of cable TV companies is allowed, and telecom companies may offer television packages with their service. Content quotas require every channel to air at least three and a half hours per week of Brazilian programming during primetime. Additionally, one-third of all channels included in any TV package must be Brazilian.

The National Land Reform and Settlement Institute administers the purchase and lease of Brazilian agricultural land by foreigners. Under the applicable rules, the area of agricultural land bought or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal district. Additionally, no more than 10 percent of agricultural land in any given municipal district may be owned or leased by foreign nationals from the same country. The law also states that prior consent is needed for purchase of land in areas considered indispensable to national security and for land along the border. The rules also make it necessary to obtain congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding. In December 2020, the Senate approved a bill (PL 2963/2019; source: https://www25.senado.leg.br/web/atividade/materias/-/materia/136853 ) to ease restrictions on foreign land ownership and the Chamber of Deputies began to deliberate on the bill; however, the bill was shelved with no plans to advance it further after President Bolsonaro expressed concerns regarding the legislation.

Brazil is not yet a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but submitted its application for accession in May 2020. In February 2021, Brazil formalized its initial offer to start negotiations.  The submission establishes a series of thresholds above which foreign sellers will be allowed to bid for procurements. Such thresholds vary for different procuring entities and types of procurements. The proposal also includes procurements by some states and municipalities (with restrictions) as well as state-owned enterprises, but it excludes certain sensitive categories, such as financial services, strategic health products, and specific information technologies. Brazil’s submission is currently under review with GPA members.

By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable. Additionally, U.S. and other foreign firms may only bid to provide technical services when there are no qualified Brazilian firms. U.S. companies need to enter into partnerships with local firms or have operations in Brazil in order to be eligible for “margins of preference” offered to domestic firms participating in Brazil’s public sector procurement to help these firms win government tenders. Nevertheless, foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts, and since October 2020 foreign companies are allowed to participate in bids without the need for an in-country corporate presence (although establishing such a presence is mandatory if the bid is successful). A revised Government Procurement Protocol of the trade bloc Mercosul (Mercosur in Spanish) signed in 2017 would entitle member nations Brazil, Argentina, Paraguay, and Uruguay to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers. However, none of the bloc’s members have ratified the protocol, so it has not entered into force. Despite the restrictions within Mercosul, in January 2022 Brazil and Chile entered into an agreement which includes government procurement.

The Organization for Economic Co-operation and Development’s (OECD) December 2021 Economic Forecast Summary of Brazil summarized that with the COVID-19 vaccination campaign accelerating throughout the year, economic activity underpinned by reduced private consumption and investment restarted as restrictions were lifted, and exports benefited from the global recovery, the robust demand for commodities, and a weak exchange rate. However, supply bottlenecks, lower purchasing power, higher interest rates, and policy uncertainty have slowed the pace of recovery. The labor market is experiencing a lag in recovering from the pandemic, and by the end of 2021 unemployment remained above pre-pandemic levels. The residual effect of the government’s significant fiscal stimulus spending in 2020 to reinvigorate the economy contributed to inflationary pressure, further compounded by constrained global supply chains pushing prices up. In response, the COPOM chose to incrementally increase its benchmark SELIC rate from 2 percent in March 2021 to 11.75 percent in March 2022. The COPOM announced that it would continue tightening its monetary policy in an effort to curb inflation and anchor expectations. Prospects for economic growth are weak for 2022 and 2023. The OECD recommended that Brazil strengthen and adhere to its fiscal rules to increase market confidence in establishing sustainable finances and exercising more efficient public spending to create fiscal space for growth-enhancing policies, along with developing a more inclusive social protection program.

The IMF’s 2021 Country Report No. 2021/217 (published in September 2021) for Brazil highlighted that its economic performance for the year had been better than expected, partly due to the government’s fiscal response to the pandemic which propelled the economy back to pre-pandemic levels for most sectors. In addition, the IMF noted a favorable economic momentum supported by booming trade and robust private sector credit growth. The IMF assessed that currency depreciation and a surge in commodity prices had led to headline inflation, and that expectations remained negative. The report noted Brazil’s lagging labor market, especially among youths, women, and Afro-Brazilians. The IMF also expressed concerns that emergency cash transfers (which expired in December 2021) were only a short-term solution, and recommended addressing poverty and inequality by strengthening a more permanent social safety net. The IMF concluded that near-term fiscal risks were low, but the high level of public debt continued to pose a medium-term risk. Restoring high and sustained growth, increasing employment, raising productivity, improving living standards, and reducing vulnerabilities would require longer-term policy efforts to eliminate bottlenecks and foster private sector-led investment.

The WTO’s 2017 Trade Policy Review of Brazil noted the country’s open stance towards foreign investment, but also pointed to the many sector-specific limitations (see above). The three reports listed below, with links to the reports, highlight the uncertainty regarding reform plans as the most significant political risk to the economy.

1. OECD Report:
2. IMF Report:
3. WTO Report:

A company must register with the National Revenue Service (Receita Federal) to obtain a business license and be placed on the National Registry of Legal Entities (CNPJ). Brazil’s Export Promotion and Investment Agency (APEX) has a mandate to facilitate foreign investment in Brazil. The agency’s services are available to all investors, foreign and domestic. Foreign companies interested in investing in Brazil have access to many benefits and tax incentives granted by the Brazilian government at the municipal, state, and federal levels. Most incentives target specific sectors, amounts invested, and job generation. Brazil’s business registration website can be found at: https://www.gov.br/pt-br/servicos/inscrever-ou-atualizar-cadastro-nacional-de-pessoas-juridicas  .

Brazil enacted its “Doing Business” law, which entered into force on August 26, 2021. The law simplified the process to open a business, sought to facilitate foreign trade by eliminating redundancy as well as further automating its trade processes, and expand the powers of minority shareholders in private companies.

Adopted in September 2019, the Economic Freedom Law 13.874 established the Economic Freedom Declaration of Rights and provides for free market guarantees. The law includes several provisions to simplify regulations and establish norms for the protection of free enterprise and free exercise of economic activity.

On August 20, 2021, the Brazilian government included the Foreign Trade Secretariat (SECEX) in the Brazilian Authorized Economic Operator Program (Programa OEA), run by Receita Federal (Internal Federal Revenue service), allowing Government of Brazil-designated OEA certified operators to maintain a low-level risk to achieve benefits in their foreign trade operations related to drawback suspension and exemption regimes.

Through the digital transformation initiative in Brazil, foreign companies can open branches via the internet. Since 2019, it has been easier for foreign businesspeople to request authorization from the Brazilian federal government. After filling out the registration, creating an account, and sending the necessary documentation, business entities can make the authorization request on the Brazilian government’s online portal through a legal representative. The electronic documents will then be analyzed by the Brazilian National Department of Business Registration and Integration (DREI) team. DREI will inform the applicant of any missing documentation via the portal and e-mail and give a 60-day period for the applicant to submit any additional information. The legal representative of the foreign company, or another third party who holds a power of attorney, may request registration through this link: https://acesso.gov.br/acesso/#/primeiro-acesso?clientDetails=eyJjbGllbnRVcmkiOiJodHRwczpcL1wvYWNlc3NvLmdvdi5iciIsImNsaWVudE5hbWUiOiJQb3J0YWwgZ292LmJyIiwiY2xpZW50VmVyaWZpZWRVc2VyIjp0cnVlfQ%3D%3D    

The regulation of foreign companies opening businesses in Brazil is governed by article 1,134 of the Brazilian Civil Code and article 1 of DREI Normative Instruction 77/2020. English-language general guidelines to open a foreign company in Brazil are not yet available, but the Portuguese version is available at the following link: https://www.gov.br/economia/pt-br/assuntos/drei/empresas-estrangeiras  .

For foreign companies that will be a partner or shareholder of a Brazilian national company, the governing regulation is DREI Normative Instruction 81/2020 (https://www.in.gov.br/en/web/dou/-/instrucao-normativa-n-81-de-10-de-junho-de-2020-261499054 ). The contact information of the DREI is drei@economia.gov.br and +55 (61) 2020-2302.

References:

1. provides investment measures, laws and treaties enacted by selected countries.
2. provides links to business registration sites worldwide.

Brazil does not restrict domestic investors from investing abroad. APEX-Brasil supports Brazilian companies’ efforts to invest abroad under its “internationalization program”: http://www.apexbrasil.com.br/como-a-apex-brasil-pode-ajudar-na-internacionalizacao-de-sua-empresa  . APEX-Brasil frequently highlights the United States as a worthwhile destination for outbound investment. APEX-Brasil and SelectUSA (U.S. Department of Commerce) signed a memorandum of cooperation in February 2014 to promote bilateral investment.

Brazil incentivizes outward investment. APEX-Brasil organizes several initiatives aimed at promoting Brazilian investments abroad. The agency´s efforts include trade missions, business round tables, promoting the participation of Brazilian companies in major international trade fairs, and arranging technical visits for foreign buyers to Brazil as well as facilitating travel for decision-makers seeking to learn about the Brazilian market and performing other commercial activities designed to strengthen the country’s branding abroad.

The main sectors of Brazilian investments abroad are financial services and assets (totaling 62.9 percent of total investments abroad); oil and gas extraction (12 percent); and mineral metal extraction (6.5 percent). Including all sectors, Brazilian investments abroad totaled $448 billion in 2020. The regions that received the largest share of Brazilian outward investments are the Caribbean (43.3 percent), concentrated in the Cayman Islands, British Virgin Islands and Bahamas, and Europe (37.9 percent), primarily the Netherlands and Luxembourg.

Regulations on investments abroad are outlined in BCB Ordinance 3,689/2013 (foreign capital in Brazil and Brazilian capital abroad): https://www.bcb.gov.br/pre/normativos/busca/downloadNormativo.asp?arquivo=/Lists/Normativos/Attachments/48812/Circ_3689_v1_O.pdf

Sales of cross-border mutual funds are only allowed to certain categories of investors, not to the general public. In 2020, international financial services companies active in Brazil submitted a proposal to Brazilian regulators to allow opening these mutual funds to the general public, and the Brazilian Securities and Exchange Commission is expected to approve their recommendation by June 2022. Discussions with regulators about increasing the share percentages that pension funds and insurers can invest abroad (currently 10 percent for pension funds, 20 percent for insurers, and 40 percent for qualified investors) are ongoing, along with discussions about tax deferral mechanisms to incentivize Brazilian investment abroad.

According to the World Bank, it takes approximately 17 days to start a business in Brazil. Brazil is seeking to streamline the process and decrease the amount of time it takes to open a small- or medium-sized enterprise (SME) to only five days through its RedeSimples Program. Similarly, the government has reduced regulatory compliance burdens for SMEs through the continued use of the SIMPLES program, which simplifies the collection of up to eight federal, state, and municipal-level taxes into one single payment. The Doing Business law (14.195/2021) included provisions to streamline the process, such as unifying federal, state and municipal registrations and eliminating requirements such as address analysis and pre-checking business names.

In 2020, the World Bank noted that Brazil’s lowest-ranked component in its Ease of Doing Business score was the annual administrative burden for a medium-sized business to comply with Brazilian tax codes with an average of 1,501 hours per year, a significant improvement from 2019’s 1,958 hour average but still much higher than the 160.7 hour average of OECD high-income countries. The total tax rate for a medium-sized business in Brazil is 65.1 percent of profits, compared to the average of 40.1 percent in OECD high-income countries. Business managers often complain of not being able to understand complex and sometimes contradictory tax regulations, despite having large local tax and accounting departments in their companies.

Tax regulations, while burdensome and numerous, do not generally differentiate between foreign and domestic firms. However, some investors complain that in certain instances the processing of rebates for exported goods of the value-added tax collected by individual states (ICMS) favors local companies. Exporters in many states report difficulty receiving their ICMS rebates when their goods are exported. Taxes on commercial and financial transactions are particularly burdensome, and businesses complain that these taxes hinder the international competitiveness of Brazilian-made products.

Of Brazil’s ten federal regulatory agencies, the most prominent include:

1. ANVISA, the Brazilian counterpart to the U.S. Food and Drug Administration, which has regulatory authority over the production and marketing of food, drugs, and medical devices
2. ANATEL, the country’s telecommunications regulatory agency, which handles telecommunications as well as the licensing and assigning of radio spectrum bandwidth (the Brazilian FCC counterpart)
3. ANP, the National Petroleum Agency, which regulates oil and gas contracts and oversees auctions for oil and natural gas exploration and production
4. ANAC, Brazil’s civil aviation agency
5. IBAMA, Brazil’s environmental licensing and enforcement agency
6. ANEEL, Brazil’s electricity regulator that regulates Brazil’s power sector and oversees auctions for electricity transmission, generation, and distribution contracts

In addition to these federal regulatory agencies, Brazil has dozens of state- and municipal-level regulatory agencies.

The United States and Brazil conduct regular discussions on customs and trade facilitation, good regulatory practices, standards and conformity assessment, digital issues, and intellectual property protection. Discussions in all these areas occurred during the 19th plenary of the Commercial Dialogue which took place virtually in October 2021, and continue through ongoing regular exchanges at the working level between the U.S. Department of Commerce, Brazil’s Ministry of Economy, and other agencies and regulators throughout the year.

Regulatory agencies complete Regulatory Impact Analyses (RIAs) on a voluntary basis. The Brazilian congress passed Law 13.848 in June 2019 on Governance and Accountability (PLS 52/2013 in the Senate, and PL 6621/2016 in the Chamber). Among other provisions, the law makes RIAs mandatory for regulations that affect “the general interest.”

The Chamber of Deputies, the Federal Senate, and the Office of the Presidency maintain websites providing public access to both approved and proposed federal legislation. Brazil is seeking to improve its public comment and stakeholder input process. In 2004, the GoB opened an online “Transparency Portal” with data on funds transferred to and from federal, state, and city governments, as well as to and from foreign countries. It also includes information on civil servant salaries.

In December 2021, Brazil’s Securities and Exchange Commision (CMV) issued Resolution 59/2021, establishing the first transparency mechanism for environmental, social, and corporate governance (ESG) practices in the country. The goal of the change was to provide more comprehensive information to potential investors, therefore allowing the market environment to drive changes in business behavior. According to the resolution, starting in January 2023, listed companies will be required to inform the CVM whether they disclose information on ESG indicators and provide details on their reports, such as existence of independent audits, which indicators were used, and if UN Sustainable Development Goals (SDGs) have been considered. The new requirement will also include questions regarding the companies’ consideration of the Task Force on Climate Change-Related Financial Disclosures or other recognized entities’ recommendations, the existence of a gas emission inventory, and the role of management bodies in assessing climate-related risks. Regarding diversity issues, companies will be required to disclose information showing the diversity of the body of administrators and employees as well as salary disparities between executives and staff.

In 2022, the Department of State concluded in its annual 2021 Fiscal Transparency Report that Brazil had met minimum fiscal transparency requirements. The International Budget Partnership’s Open Budget Index ranked Brazil slightly ahead of the United States in terms of budget transparency in its most recent (2019) index. The Brazilian government demonstrates adequate fiscal transparency in managing its federal accounts, although there is room for improvement in terms of completeness of federal budget documentation. Brazil’s budget documents are publicly available, widely accessible, and sufficiently detailed. They provide a relatively full picture of the GoB’s planned expenditures and revenue streams. The information in publicly available budget documents is considered credible and reasonably accurate.

Brazil is a member of Mercosul – a South American trade bloc whose full members include Argentina, Paraguay, and Uruguay. Brazil routinely implements Mercosul common regulations.

Brazil is a member of the WTO and the government regularly notifies draft technical regulations, such as potential agricultural trade barriers, to the WTO Committee on Technical Barriers to Trade (TBT).

Brazil has a civil legal system with state and federal courts. Investors can seek to enforce contracts through the court system or via mediation, although both processes can be lengthy. The Brazilian Superior Court of Justice (STJ) must accept foreign contract enforcement rulings for the rulings to be considered valid in Brazil. Among other considerations, the foreign judgment must not contradict any prior decisions by a Brazilian court in the same dispute. The Brazilian Civil Code regulates commercial disputes, although commercial cases involving maritime law follow an older Commercial Code which has been otherwise largely superseded. Federal judges hear most disputes in which one of the parties is the Brazilian State, and also, rule on lawsuits between a foreign state or international organization and a municipality or a person residing in Brazil.

The judicial system is generally independent. The Supreme Federal Court (STF), charged with constitutional cases, frequently rules on politically sensitive issues. State court judges and federal level judges below the STF are career officials selected through a meritocratic examination process. The judicial system is backlogged, and disputes or trials frequently take several years to arrive at a final resolution, including all available appeals. Regulations and enforcement actions can be litigated in the court system, which contains mechanisms for appeal depending upon the level at which the case is filed. The STF is the ultimate court of appeal on constitutional grounds; the STJ is the ultimate court of appeal for cases not involving constitutional issues.

In 2019, Brazil established a “one-stop shop” for international investors. The one-stop shop, the Direct Investments Ombudsman (DIO), is a ‘single window’ for investors provided by the Executive Secretariat of CAMEX. It is responsible for receiving requests and inquiries about investments, to be answered jointly with the public agency responsible for the matter (at the federal, state and municipal levels) involved in each case (the Network of Focal Points). This new structure allows for supporting the investor via a single governmental body in charge of responding to investor requests within a short time. Private investors have noted the single window is better than the previous system, but does not yet provide all the services of a true “one-stop shop” to facilitate international investment. The DIO’s website in English is: http://oid.economia.gov.br/en/menus/8  

The Administrative Council for Economic Defense (CADE), which falls under the purview of the Ministry of Justice, is responsible for enforcing competition laws, consumer protection, and carrying out regulatory reviews of proposed mergers and acquisitions. CADE was reorganized in 2011 through Law 12529, combining the antitrust functions of the Ministry of Justice and the Ministry of Finance. The law brought Brazil in line with U.S. and European merger review practices and allows CADE to perform pre-merger reviews, in contrast to the prior legal framework that directed the government to review mergers after they had already been completed. In October 2012, CADE performed Brazil’s first pre-merger review.

In 2021, CADE conducted 611 total formal investigations. It approved 165 merger and/or acquisition requests and did not reject any requests.

Article 5 of the Brazilian Constitution assures property rights of both Brazilians and foreigners that own property in Brazil. The Constitution does not address nationalization or expropriation. Decree-Law 3365 allows the government to exercise eminent domain under certain criteria that include, but are not limited to, national security, public transportation, safety, health, and urbanization projects. In cases of eminent domain, the government compensates owners at fair market value.

There are no signs that the current federal government is contemplating expropriation actions in Brazil against foreign interests. Brazilian courts have previously ruled in U.S. citizens’ favor for some claims regarding state-level land expropriations. However, as states have filed appeals of these decisions, the compensation process for foreign entities can be lengthy and have uncertain final outcomes.

ICSID Convention and New York Convention

In 2002, Brazil ratified the 1958 Convention on the Recognition and Enforcement of Foreign Arbitration Awards. Brazil is not a member of the World Bank’s International Center for the Settlement of Investment Disputes (ICSID). Brazil joined the United Nations Commission on International Trade Law (UNCITRAL) in 2010, and its membership will expire in 2022.

Investor-State Dispute Settlement

Article 34 of the 1996 Brazilian Arbitration Act (Law 9307) defines a foreign arbitration judgment as any judgment rendered outside of the national territory. The law established that the Superior Court of Justice (STJ) must ratify foreign arbitration awards. Law 9307, updated by Law 13129/2015, also stipulates that a foreign arbitration award will be recognized or executed in Brazil in conformity with the international agreements ratified by the country and, in their absence, with domestic law. A 2001 Brazilian Supreme Federal Court (STF) ruling established that the 1996 Brazilian Arbitration Act, permitting international arbitration subject to STJ ratification of arbitration decisions, does not violate the federal constitution’s provision that “the law shall not exclude any injury or threat to a right from the consideration of the Judicial Power.”

Contract disputes in Brazil can be lengthy and complex. Brazil has both a federal and a state court system, and jurisprudence is based on civil code and contract law. Federal judges hear most disputes in which one of the parties is the State and rule on lawsuits between a foreign State or international organization and a municipality or a person residing in Brazil. Five regional federal courts hear appeals of federal judges’ decisions.

International Commercial Arbitration and Foreign Courts

Brazil ratified the 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention) and the 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitration Awards (Montevideo Convention). Law 9307/1996 amplifies Brazilian law on arbitration and provides guidance on governing principles and rights of participating parties. Brazil developed a new Cooperation and Facilitation Investment Agreement (CFIA) model in 2015 (https://concordia.itamaraty.gov.br/  ), but it does not include ISDS mechanisms. (See sections on bilateral investment agreements and responsible business conduct.)

Brazil’s commercial code governs most aspects of commercial association, while the civil code governs professional services corporations. In December 2020, Brazil approved a new bankruptcy law (Law 14.112) which largely models the UNCITRAL Model Law on International Commercial Arbitration and addresses criticisms that its previous bankruptcy legislation favored holders of equity over holders of debt. The new law facilitates the judicial and extrajudicial resolution process between debtors and creditors and accelerates reorganization and liquidation processes. Both debtors and creditors are allowed to provide reorganization plans that would eliminate non-performing activities and sell-off assets, thus avoiding bankruptcy. The new law also establishes a framework for cross-border insolvencies that recognizes legal proceedings outside of Brazil.

The GoB extends tax benefits for investments in less-developed parts of the country, including the Northeast and the Amazon regions, with equal application to foreign and domestic investors. These incentives were successful in attracting major foreign plants to areas like the Manaus Free Trade Zone in Amazonas State, but most foreign investment remains concentrated in the more industrialized southeastern states in Brazil.

Individual states seek to attract private investment by offering tax benefits and infrastructure support to companies, negotiated on a case-by-case basis. Competition among states to attract employment-generating investment leads some states to challenge such tax benefits as beggar-thy-neighbor fiscal competition.

While local private sector banks are beginning to offer longer credit terms, the state-owned National Economic and Social Development Bank (BNDES) is the traditional Brazilian source of long-term credit as well as export credits. BNDES provides foreign- and domestically-owned companies operating in Brazil financing for the manufacturing and marketing of capital goods and primary infrastructure projects. BNDES provides much of its financing at subsidized interest rates. As part of implementing a fiscal tightening policy, in December 2014 the GoB announced its intention to scale back the expansionary activities of BNDES and ended direct treasury support to the bank. Law 13.483, from September 2017, created a new Long-Term Lending Rate (TLP) for BNDES. On January 1, 2018, BNDES began phasing in the TLP to replace the prior subsidized loan rates. After a five-year phase in period, the TLP will float with the market and reflect a premium over Brazil’s five-year bond yield (which incorporates inflation). Although the GoB plans to reduce BNDES’s role further as it continues to promote the development of long-term private capital markets, BNDES will continue to play a large role, particularly in concession financing, such as Rio de Janeiro’s water and sanitation privatization projects, in which BNDES can finance up to 65 percent of direct investments.

BNDES also established the Finame low carbon program, which provides financing for the acquisition and sale of solar and wind energy generation systems, solar heaters, buses and trucks that are either electric hybrids or powered exclusively by biofuel, and other machines and equipment with higher energy efficiency rates or that contribute to the reduction of greenhouse gas emissions. The program allows for the financing of up to 100 percent of the investment on energy efficient products with payment terms of up to ten years with a two-year grace period, however, the products must be new, manufactured in Brazil, and accredited by the Finame program. Financing conditions are defined with BNDES’s financial partners, which currently include seven commercial banks.

In December 2018, Brazil approved a new auto sector incentive package – Rota 2030 – providing exemptions from Industrial Product Tax (IPI) for research and development (R&D) spending. Rota 2030 replaced the Inovar-Auto program, which was found to violate WTO rules. Rota 2030 increases standards for energy efficiency, structural performance, and the availability of assistive technologies; provides exemptions for investments in R&D and manufacturing process automation; incentivizes the use of biofuels; and funds technical training and professional qualification in the mobility and logistics sectors. To qualify for the tax incentives, businesses must meet conditions including demonstrating profit, investing a minimum amount of funds in R&D, and not having any outstanding tax liabilities.

Brazil’s Special Regime for the Reinstatement of Taxes for Exporters, or Reintegra Program, provides a tax subsidy of two percent of the value of goods exported.

Brazil provides tax reductions and exemptions on many domestically-produced information and communication technology (ICT) and digital goods that qualify for status under the Basic Production Process (PPB). The PPB is product-specific and stipulates which stages of the manufacturing process must be carried out in Brazil in order for an ICT product to be considered produced in Brazil. Brazil’s Internet for All program, launched in 2018, aims to ensure broadband internet to all municipalities by offering tax incentives to operators in rural municipalities.

Law 12.598/2012 offers tax incentives to firms in the defense sector. The law’s principal aspects are to: 1) establish special rules for the acquisition, contract, and development of defense products and systems; 2) establish incentives for the development of the strategic defense industry sector by creating the Special Tax Regime for the Defense Industry (RETID); and 3) provide access to financing programs, projects, and actions related to Strategic Defense Products (PED).

In April 2020, the Brazilian Defense and Security Industry Association (ABIMDE) requested the Minister of Defense to consider implementing improvements to Law 12.598 by allowing all its members to: 1) have access to special bidding terms (TLE) for defense and security materials; and 2) automatically utilize their RETID status, rather than being required to individually apply to the Ministry of Defense for certification, per the current process. However, as of March 2022 the Ministry of Defense is still reviewing the proposed improvements to the law.

A RETID beneficiary, known as a Strategic Defense Company (EED), is accredited by the Ministry of Defense. An EED is a legal entity that produces or develops parts, tools, and components to be used in the production or development of defense assets. It can also be a legal entity that provides services used as inputs in the production or development of defense goods. RETID benefits include sale price credit and tax rate reduction for the manufacturing supply chain, including taxes on imported components. Additionally, RETID provides exemption from certain federal taxes on the purchase of materials for the manufacture of defense products and services provided by EEDs.

The federal government grants tax benefits to certain free trade zones. Most of these free trade zones aim to attract investment to the country’s relatively underdeveloped North and Northeast regions. The most prominent of these is the Manaus Free Trade Zone, in Amazonas State, which has attracted significant foreign investment, including from U.S. companies. Constitutional amendment 83/2014 extended the status of Manaus Free Trade Zone until the year 2073.

The GoB maintains a variety of localization barriers to trade in response to the weak competitiveness of its domestic tech industry. These include:

1. Tax incentives for locally-sourced information and communication technology (ICT) goods and equipment (Law 8248/1991, amended by Law 13.969/2019 and Decree 87/2013)
2. Government procurement preferences for local ICT hardware and software (2014 Decrees 8184, 8185, 8186, 8194, and 2013 Decree 7903); and the CERTICS Decree 8186, which aims to certify that software programs are the result of development and technological innovation in Brazil

In 2019, Brazil adopted the New Informatic Law which revised the tax and incentives regime for the ICT sector. The regime is aligned with the requirements of the World Trade Organization (WTO), following complaints from Japan and the European Union that numerous Brazilian tax programs favored domestic products in contravention of WTO rules.

The New Informatic Law provides tax incentives to ICT goods manufacturers that invest in research, development, and innovation (RD&I) in Brazil. To receive the incentives, the companies must meet a minimum nationalization requirement for production, but the nationalization content is reduced commensurate with increasing local RD&I investment. At least 60 percent of the production process is required to take place in Brazil to ensure eligibility.

The Institutional Security Cabinet (GSI) (an executive branch body that advises the presidency on security affairs) mandated the localization of all government data stored in the cloud during a review of cloud computing services contracted by the Brazilian government in Ordinance No. 9 (previously NC 14), issued in March 2018. While it does allow the use of cloud computing for non-classified information, it imposes a data localization requirement on all use of cloud computing by the Brazil government.

Investors in certain sectors in Brazil must adhere to the country’s regulated prices, which fall into one of two groups: prices regulated at the federal level by a federal company or agency, and prices set by sub-national governments (states or municipalities). Regulated prices managed at the federal level include telephone services, certain refined oil and gas products (such as bottled cooking gas), electricity, and healthcare plans. Regulated prices controlled by sub-national governments include water and sewage fees, and most fees for public transportation such as local bus and rail services. For firms employing three or more people, Brazilian nationals must constitute at least two-thirds of all employees and receive at least two-thirds of total payroll, according to Labor Law Articles 352 to 354. This calculation excludes foreign specialists in fields where Brazilians are unavailable. There is a draft bill in congress (PL 2456/2019) to remove the mandatory requirement for national employment; however, the bill would maintain preferential treatment for companies that continue to employ a majority of Brazilian nationals.

Decree 7174/2010, which regulates the procurement of information technology goods and services, requires federal agencies and parastatal entities to give preferential treatment to domestically produced computer products and goods or services with technology developed in Brazil based on a complicated price/technology matrix.

Brazil’s Marco Civil, the framework law governing internet user rights and company responsibilities, states that data collected or processed in Brazil must respect Brazilian law, even if the data is subsequently stored outside of the country. Penalties for non-compliance could include fines of up to 10 percent of gross Brazilian revenues and/or the suspension or prohibition of related operations. Under the law, internet connection and application providers must retain access logs for specified periods of time or face sanctions. Brazil’s General Law for Protection of Personal Data (LGPD) went into effect in August 2020. The LGPD governs the processing and transfer of the personal data of subjects in Brazil by people or entities, regardless of the type of processing, the country where the data is located, or the headquarters of the entity processing the data. It also established a National Data Protection Authority (ANPD) to administer the law’s provisions, responsible for oversight and sanctions (which will go into effect August 2021) which can total up to R$50 million (approximately $10 million) per infringement.

Brazil has a system in place for mortgage registration, but implementation is uneven and there is no standardized contract. Foreign individuals or foreign-owned companies can purchase real estate property in Brazil. Foreign buyers frequently arrange alternative financing in their own countries, where interest rates may be more attractive. Law 9514/1997 helped to boost the mortgage industry by establishing a legal framework for a secondary market in mortgages and streamlining the foreclosure process, but the mortgage market in Brazil is still underdeveloped, and foreigners may have difficulty obtaining local financing. Large U.S. real estate firms are, nonetheless, expanding their portfolios in Brazil.

Intellectual property (IP) rights holders in Brazil continue to face challenges. Brazil has remained on the “Watch List” of the U.S. Trade Representative’s (USTR) Special 301 Report since 2017. The U.S. Government has long-standing concerns about Brazil’s enforcement regime and specific problems like the excessively high rates of online piracy. Brazil has one physical market located in São Paulo that is listed on USTR’s 2021 Review of Notorious Markets for Counterfeiting and Piracy. The Rua 25 de Março area is identified in the review as a distribution center for counterfeit and pirated goods throughout São Paulo. Government officials continue to take enforcement actions in this region, and authorities have used these enforcement actions as a basis to take civil measures against some of the other stores that have been identified for selling counterfeit goods in the area. According to the National Forum Against Piracy, contraband, pirated, counterfeit, and stolen goods cost Brazil approximately $54 billion in 2020. (https://www.fncp.org.br/areas-de-atuacao.html#combate-ao-mercado-ilegal  ) (Yearly average currency exchange rate: 1 USD = 5.3 BRL)

For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization (WIPO)’s country profiles: http://www.wipo.int/directory/en .  Additional information is also available from the USPTO IP Attaché in Brazil: https://www.uspto.gov/ip-policy/ip-attache-program/regions/brazil .

The Brazil Central Bank (BCB) in October 2016 implemented a sustained monetary easing cycle, lowering the Special Settlement and Custody System (Selic) baseline reference rate from a high of 14 percent in October 2016 to a record-low 2 percent by the end of 2020. The downward trend was reversed by an increase to 2.75 percent in March 2021 and reached 10.75 percent in February 2022. Brazil’s banking sector projects that the Selic will reach 12.25 percent by the end of 2022. Inflation for 2021 ended at an annualized 10.06 percent, above the target of 4 percent plus/minus 1.5 percent. The BCB’s Monetary Policy Committee (COPOM) set the BCB’s inflation target at 3.5 percent for 2022 and .25 percent in 2023 (plus/minus 1.5 percent), but as of February 2022 the BCB estimates that inflation will reach 5.4 percent in 2022, above the target again. As of mid-March 2022, Brazil’s annual inflation rate is at 10.75 percent. Brazil’s muddled fiscal policy and heavy public debt burden factor into most analysts’ forecasts that the “neutral” policy rate will remain higher than target rates among Brazil’s emerging-market peers (around five percent) over the reporting period.

According to the BCB, in 2021 the ratio of public debt to GDP reached 81.1 percent, compared to a record 89.4 percent in 2020. Analysts project that the debt/GDP ratio may rise to around 85 percent by the end of 2023.

The role of the state in credit markets grew steadily beginning in 2008, but showed a reduction in 2020 due to the pandemic. As of January 2022, public banks accounted for about 50 percent of total loans to the private sector (compared to 48.9 percent in 2018). Directed lending (that is, to meet mandated sectoral targets) also rose, and accounts for almost half of total lending. Brazil is paring back public bank lending and trying to expand a market for long-term private capital.

While local private sector banks are beginning to offer longer credit terms, state-owned development bank BNDES is a traditional source of long-term credit in Brazil. BNDES also offers export financing. Approvals of new financing by BNDES decreased 4 percent in 2021 from 2020, with the infrastructure sector receiving the majority of new capital.

The sole stock market in Brazil is B3 (Brasil, Bolsa, Balcão), created through the 2008 merger of the São Paulo Stock Exchange (Bovespa) with the Brazilian Mercantile & Futures Exchange (BM&F), forming the fourth-largest exchange in the Western hemisphere, after the NYSE, NASDAQ, and Canadian TSX Group exchanges. In 2020, there were 463 companies traded on the B3 exchange. The B3’s broadest index, the Ibovespa, decreased 11.93 percent in valuation during 2021, due to economic uncertainties related to rising and persistent inflation, particularly in the second half of the year. Foreign investors, both institutional and individuals, can directly invest in equities, securities, and derivatives; however, they are limited to trading those investments only on established markets.

Wholly-owned subsidiaries of multinational accounting firms, including the major U.S. firms, are present in Brazil. Auditors are personally liable for the accuracy of accounting statements prepared for banks.

The Brazilian financial sector is large and sophisticated. Banks lend at market rates that remain relatively high compared to other emerging economies. Reasons cited by industry observers include high taxation, repayment risk, concern over inconsistent judicial enforcement of contracts, high mandatory reserve requirements, and administrative overhead, as well as persistently high real (net of inflation) interest rates. According to BCB data collected for 2020, the average rate offered by Brazilian banks to non-financial corporations was 11.7 percent.

The banking sector in Brazil is highly concentrated, with BCB data indicating that the five largest commercial banks (excluding brokerages) account for approximately 82 percent of the commercial banking credit market totaling $800 billion by the end of 2020. Three of the five largest banks by assets in the country, Banco do Brasil, Caixa Econômica Federal, and BNDES, are partially or completely federally-owned. Large private banking institutions focus their lending on Brazil’s largest firms, while small- and medium-sized banks primarily serve small- and medium-sized companies. Citibank sold its consumer business to Itaú Bank in 2016, but maintains its commercial banking interests in Brazil. It is currently the only U.S. bank operating in the country. Increasing competitiveness in the financial sector, including in the emerging fintech space, is a vital part of the Brazilian government’s strategy to improve access to and the affordability of financial services in Brazil.

On November 16, 2020, the BCB launched its instant payment system called “PIX”. PIX is a 24/7 system that offers transfers of any value for people-people (P2P), people-business (P2B), business-people (B2P), business-business (B2B), and government-government (G2G). Brazilian customers in 2021 overwhelmingly embraced PIX, particularly for P2P transfers (which are free), replacing both cash payments and legacy bank electronic transfers which charged relatively high fees and could only take place during business hours.

In February 2021, the BCB implemented the first two of four phases of its Open Banking Initiative in an effort to open Brazil’s insulated banking system dominated by relatively few players. The first phase required Brazilian financial institutions to facilitate digitized access to their customer service channels, products, and services related to demand deposit or savings accounts, payment accounts, and credit operations. The second phase of the initiative expanded sharing customer data across a widening scope of bank products including loans. The other two phases, which are scheduled to go into effect in 2022, seek to include sharing customer data on foreign exchange, investments, and pension funds. The BCB expects that increased access to customer information will allow other financial institutions, including competitor banks and fintechs, to offer better and cheaper banking services to incumbent banks’ clients, thereby breaking up the dominance of the six large, incumbent banking institutions.

In recent years, the BCB has strengthened bank audits, implemented more stringent internal control requirements, and tightened capital adequacy rules to reflect risk more accurately. It also established loan classification and provisioning requirements. These measures apply to private and publicly owned banks alike. In December 2020, Moody’s upgraded a collection of 28 Brazilian banks and their affiliates to stable from negative after the agency had lowered the outlook on the Brazilian system in April 2020 due to economic difficulties. As of March 2021, the rating remained as stable. The Brazilian Securities Commission (CVM) independently regulates the stock exchanges, brokers, distributors, pension funds, mutual funds, and leasing companies, assessing penalties in instances of insider trading.

To open an account with a Brazilian bank, foreign account holders must present a permanent or temporary resident visa, a national tax identification number (CPF) issued by the Brazilian government, either a valid passport or identity card for foreigners (CIE), proof of domicile, and proof of income. On average, this process from application to account opening can take more than three months.

Foreign Exchange

Brazil’s foreign exchange market remains small. The latest Triennial Survey by the Bank for International Settlements conducted in December 2019 showed that the net daily turnover on Brazil’s market for OTC foreign exchange transactions (spot transactions, outright forwards, foreign-exchange swaps, currency swaps, and currency options) was $18.8 billion, down from $19.7 billion in 2016. This was equivalent to around 0.22 percent of the global market in 2019, down from 0.3 percent in 2016.

On December 29, 2021, Brazil approved a new Foreign Exchange Regulatory framework, to go into effect in December 2022, which replaces more than 40 separate regulations with a single law and eases foreign investments in the Brazilian market incentivizing increased foreign investment and assisting Brazilian businesses in integrating into global value chains. The new law aims to streamline currency exchange operations and authorizes more enterprises, including fintechs and small businesses, to conduct operations in foreign currencies bypassing retail banks and increasing their competitiveness. In addition, the law expands the list of qualifying activities transacted in foreign-currency denominated accounts (previously restricted only to import/export firms and for loans in which the debtor or creditor was based outside Brazil).

Brazil’s banking system has adequate capitalization and has traditionally been highly profitable, reflecting high interest rate spreads and fees. According to an October 2021 Central Bank Financial Stability Report, the banking system remains solid, with growing capitalization indices, and continues to rebuild its capital base. All institutions are able to meet the minimum prudential requirements, and solvency does not pose a risk to financial stability. Stress testing demonstrated that the banking system has adequate loss-absorption capacity in all simulated scenarios.

There are few restrictions on converting or transferring funds associated with a foreign investment in Brazil. Foreign investors may freely convert Brazilian currency in the unified foreign exchange market, where buy-sell rates are determined by market forces. All foreign exchange transactions, including identifying data, must be reported to the BCB. Foreign exchange transactions on the current account are fully liberalized.

The BCB must approve all incoming foreign loans. In most cases, loans are automatically approved unless loan costs are determined to be “incompatible with normal market conditions and practices.” In such cases, the BCB may request additional information regarding the transaction. Loans obtained abroad do not require advance approval by the BCB, provided the Brazilian recipient is not a government entity. Loans to government entities require prior approval from the Brazilian senate as well as from the Economic Ministry’s Treasury Secretariat, and must be registered with the BCB.

Interest and amortization payments specified in a loan contract can be made without additional approval from the BCB. Early payments can also be made without additional approvals if the contract includes a provision for them. Otherwise, early payment requires notification to the BCB to ensure accurate records of Brazil’s stock of debt.

Remittance Policies

Brazilian Federal Revenue Service regulates withholding taxes (IRRF) applicable to earnings and capital gains realized by individuals and legal entities residing or domiciled outside Brazil. Upon registering investments with the BCB, foreign investors are able to remit dividends, capital (including capital gains), and, if applicable, royalties. Investors must register remittances with the BCB. Dividends cannot exceed corporate profits. Investors may carry out remittance transactions at any bank by documenting the source of the transaction (evidence of profit or sale of assets) and showing payment of applicable taxes.

Under Law 13.259/2016 passed in March 2016, capital gain remittances are subject to a 15 to 22.5 percent income withholding tax, with the exception of capital gains and interest payments on tax-exempt domestically issued Brazilian bonds. The capital gains marginal tax rates are 15 percent for up to $1,000,000 in gains; 17.5 percent for $1,000,000 to $10,000,000 in gains; 20 percent for $10,000,000 to $60,000,000 in gains; and 22.5 percent for more than $60,000,000 in gains.

Repatriation of a foreign investor’s initial investment is also exempt from income tax under Law 4131/1962. Lease payments are assessed a 15 percent withholding tax. Remittances related to technology transfers are not subject to the tax on credit, foreign exchange, and insurance, although they are subject to a 15 percent withholding tax and an extra 10 percent Contribution for Intervening in Economic Domain (CIDE) tax.

Brazil had a sovereign fund from 2008 – 2018, when it was abolished, and the money was used to repay foreign debt.

Most state-owned and private sector corporations of any significant size in Brazil pursue corporate social responsibility (CSR) activities. Brazil’s new CFIAs (see sections on bilateral investment agreements and dispute settlement) contain CSR provisions. Some corporations use CSR programs to meet local content requirements, particularly in information technology manufacturing. Many corporations support local education, health, and other programs in the communities where they have a presence. Brazilian consumers, especially the local residents where a corporation has or is planning a local presence, generally expect CSR activity. Corporate officials frequently meet with community members prior to building a new facility to review the types of local services the corporation will commit to providing. Foreign and local enterprises in Brazil often advance United Nations Development Program (UNDP) Sustainable Development Goals (SDGs) as part of their CSR activity, and will cite their local contributions to SDGs, such as universal primary education and environmental sustainability. Brazilian prosecutors and civil society can be very proactive in bringing cases against companies for failure to implement the requirements of the environmental licenses for their investments and operations. National and international nongovernmental organizations monitor corporate activities for perceived threats to Brazil’s biodiversity and tropical forests and can mount strong campaigns against alleged misdeeds. A common challenge for foreign businesses, especially as it relates to child and forced labor, is a lack of transparency in supply chains.

The U.S. diplomatic mission in Brazil supports U.S. business CSR activities through the +Unidos Group (Mais Unidos), a group of multinational companies established in Brazil, which support public and private CSR alliances in Brazil. Additional information can be found at: www.maisunidos.org  

Additional Resources

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain

Climate Issues

Brazil is the world’s 12th largest greenhouse gas emitter. At COP 26 in November 2021, Brazil committed to achieving net zero emissions by 2050, ten years ahead of its previous commitment, ending illegal deforestation by 2028, and announced a plan to implement a Brazilian carbon market in 2022. However, rates of illegal deforestation continue to rise from a 2012 low; in 2021, illegal deforestation increased by 22 percent from the previous year. Private sector operators, especially in the agricultural sector, are concerned that consumer reaction to environmental issues in Brazil, especially deforestation in the Amazon Basin, could result in the boycott of Brazilian exports and a loss of market share. Such boycotts have already occurred in some supermarket chains in Europe.

Brazil established a National Policy on Climate Change in 2009 for climate change mitigation, adaptation, and consolidation of a low carbon economy. During COP 26 in Glasgow, Brazil published guidelines to update its national climate strategy, focusing on consolidating various initiatives to develop a low carbon economy. The strategy includes goals such as eliminating illegal deforestation, restoring forests, a “National Green Growth Plan,” and financing directed at developing a green economy.

In biodiversity, the Brazilian Ministry of the Environment coordinates and supports actions aimed at identifying species of native fauna and flora, monitoring and evaluating the conservation status of an increasingly significant portion of these species. To ensure the conservation of native species, the Ministry creates development models that encourage the sustainable use of biodiversity, along the lines of what is encouraged under the Convention on Biological Diversity and the International Treaty on Plant Genetic Resources for Food and Agriculture.

In October 2021, the government launched the National Green Growth Program. The Program uses new resources from the BRICS Development Bank for forest conservation projects, the rational use of natural resources, and the generation of green jobs. The new program will have national and international resources, public and private, reimbursable and non-reimbursable impact funds and risk investments. The plan focuses on six areas: renewable energy, sustainable agriculture, low-emission industry, basic sanitation, waste treatment, and ecotourism. At the program launch, the Brazilian Ministry of Environment stated that the federal government has a total credit line of 411 billion reais ($82.2 million) allocated for green projects. However, critics argue that the program is just a repackaging of several initiatives that already existed in the government, claiming that of the 400 billion reais planned, only 12 billion ($2.4 million, 3 percent of the total) were new funds.

At COP 26, Brazil signed the Global Methane Pledge to reduce global methane emissions by 30 percent by 2030. In February 2022, the Ministry of Environment announced that it would soon present a “Methane Zero” plan that would incentivize biomethane capture/production from landfills, sugar cane waste, and dairy barns; however, as of March 2022 the plan has not been announced.

The government expects active participation from the private sector through contributions to the Ministry of Environment’s projects. For example, the “Adopt-a-Park” program was established to gather resources for the conservation of national parks and is directed at national and foreign companies or individuals that are interested in contributing to environmental protection in Brazil. Through the program, resources are invested by the adopter in services such as remote monitoring, wildland firefighting and prevention, actions against illegal deforestation, and recovery of degraded areas.

In 2019, Brazil launched the National Biofuels Policy (RenovaBio) to comply with its Paris Agreement commitments by promoting the expansion of biofuels in the energy matrix and the reduction of greenhouse gas emissions. The policy established annual national decarbonization targets for the fuel sector, divided into mandatory individual targets for fuel distributors. To comply with the targets, fuel distributors purchase Decarbonization Credits (CBIO), a financial asset tradable on the stock exchange since 2020 derived from the certification of the biofuel production process and that corresponds to one ton of carbon dioxide. According to the Brazilian government, the program reached 85 percent of its targets in 2021, preventing the emission of 24 million tons of greenhouse gases and trading $212 million-worth of CBIOs in the stock market.

Brazil has laws, regulations, and penalties to combat corruption, but enforcement activities against corruption are inconsistent. Several bills to revise the country’s regulation of the lobbying/government relations industry have been pending before Congress for years. Bribery is illegal, and a bribe by a Brazilian-based company to a foreign government official can result in criminal penalties for individuals and administrative penalties for companies, including fines and potential disqualification from government contracts. A company cannot deduct a bribe to a foreign official from its taxes. While federal government authorities generally investigate allegations of corruption, there are inconsistencies in the level of enforcement among individual states. Corruption is problematic in business dealings with some authorities, particularly at the municipal level. U.S. companies operating in Brazil are subject to the U.S. Foreign Corrupt Practices Act (FCPA).

Brazil signed the UN Convention against Corruption in 2003 and ratified it in 2005. Brazil is a signatory to the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery. It was one of the founders, along with the United States, of the intergovernmental Open Government Partnership, which seeks to help governments increase transparency.

In 1996, Brazil signed the Inter-American Convention Against Corruption (IACAC), developed within the Organization of American States (OAS). It was incorporated in Brazil by Legislative Decree 152 and went into force in 2002.

In 2020, Brazil ranked 96th out of 180 countries in Transparency International’s Corruption Perceptions Index. The full report can be found at: https://www.transparency.org/en/cpi/2021 

From 2014-2021, the complex federal criminal investigation known as Operação Lava Jato (Operation Carwash) investigated and prosecuted a complex web of public sector corruption, contract fraud, money laundering, and tax evasion stemming from systematic overcharging for government contracts, particularly at parastatal oil company Petrobras. The investigation led to the arrests and convictions of Petrobras executives, oil industry suppliers, executives from Brazil’s largest construction companies, money launderers, former politicians, and political party operators. Appeals of convictions and sentences continue to work their way through the Brazilian court system. On December 25, 2019, Brazilian President Jair Bolsonaro signed a packet of anti-crime legislation into law, which included several anti-corruption measures. The new measures include regulation of immunity agreements – information provided by a subject in exchange for reduced sentence – which were widely used during Operation Carwash. The legislation also strengthens Brazil’s whistleblower mechanisms, permitting anonymous information about crimes against the public administration and related offenses. Operation Carwash was dissolved in February 2021. In March 2021, the OECD established a working group to monitor anticorruption efforts in Brazil.

In December 2016, Brazilian construction conglomerate Odebrecht and its chemical manufacturing arm Braskem agreed to pay the largest FCPA penalty in U.S. history and plead guilty to charges filed in the United States, Brazil, and Switzerland that alleged the companies paid hundreds of millions of dollars in bribes to government officials around the world. The U.S. Department of Justice case stemmed directly from the Lava Jato investigation and focused on violations of the anti-bribery provisions of the FCPA. Details on the case can be found at: https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve  

In January 2018, Petrobras settled a class-action lawsuit with investors in U.S. federal court for $3 billion, which was one of the largest securities class action settlements in U.S. history. The investors alleged that Petrobras officials accepted bribes and made decisions that had a negative impact on Petrobras’ share value. In September 2018, the U.S. Department of Justice announced that Petrobras would pay a fine of $853.2 million to settle charges that former executives and directors violated the FCPA through fraudulent accounting used to conceal bribe payments from investors and regulators.

In October 2020, Brazilian meatpacking and animal protein company JBS reached two settlements in the United States to pay fines to settle charges of corruption. The company is part of the J&F Group, which was also a part of the settlements. The group agreed to pay over $155 million in fines for violations of U.S. laws due to misconduct by J&F and failure to maintain accounting records by JBS. Lava Jato investigations also resulted in the arrest of several JBS executives who also signed plea bargains in the 2020 settlements.

Resources to Report Corruption

Secretaria de Cooperação Internacional – Ministério Público Federal

SAF Sul Quadra 04 Conjunto C Bloco “B” Sala 509/512

pgr-internacional@mpf.mp.br 
stpc.dpc@cgu.gov.br 
https://www.gov.br/cgu/pt-br/anticorrupcao 

Transparência BrasilR. Bela Cintra, 409; Sao Paulo, Brasil+55 (11) 3259-6986http://www.transparencia.org.br/contato

Strikes and demonstrations occasionally occur in urban areas and may cause temporary disruption to public transportation. Brazil has over 41,000 murders annually, with low rates of murder investigation case completions and convictions.

Non-violent pro- and anti-government demonstrations have occurred periodically in recent years.

Although U.S. citizens usually are not targeted during such events, U.S. citizens traveling or residing in Brazil are advised to take common-sense precautions and avoid any large gatherings or any other event where crowds have congregated to demonstrate or protest. For the latest U.S. State Department guidance on travel in Brazil, please consult www.travel.state.gov.

The Brazilian labor market is composed of approximately 107.8 million workers, including employed (95.7 million) and unemployed (12 million). Among employed workers, 38.95 million (40.7 percent) work in the informal sector. Brazil had an unemployment rate of 11.1 percent in the last quarter of 2021, although that rate was more than double (22.8 percent) for workers ages 18-24. Low-skilled employment dominates Brazil’s labor market. The nearly 40 million workers in the informal sector do not receive the full benefits that formal workers enjoy under Brazil’s labor and social welfare system. The informal market represents approximately 16.8 percent of Brazil’s GDP. In 2021, employees’ average monthly income reached the lowest level in recorded history, at R$ 2,587 ($488).

Since 2012, women have on average been unemployed at a higher rate than their male counterparts, a scenario worsened by the pandemic. Between 2012 and 2019, the difference in average employment rates between men and women was 3.3 percentage points. In 2020, the average rate difference reached 4.5 percentage points and in 2021, 5.8 percentage points. In the last quarter of 2021, the Brazilian men’s unemployment rate was 9 percent, while the women’s unemployment rate was 13.9 percent. This discrepancy in employment rates is also traditionally observed for people of color in Brazil: while unemployment rates for whites is 9 percent (below the national average), blacks and mixed-race unemployment rates are significantly higher, at 13.6 percent and 12.6 percent respectively.

Foreign workers made up less than one percent of the overall labor force, but the arrival of more than 305,000 economic migrants and refugees from Venezuela since 2016 has led to large local concentrations of foreign workers in the border state of Roraima and the city of Manaus. Since April 2018, the Brazilian government, through Operation Welcome’s voluntary interiorization strategy, has relocated more than 68,000 Venezuelans from the northern border region to cities with more economic opportunities. Migrant workers within Brazil play a significant role in the agricultural sector.

Workers in the formal sector contribute to the Time of Service Guarantee Fund (FGTS) the amount of one month’s salary over the course of a year. If a company terminates an employee, the employee can access the full amount of their FGTS contributions, or if the employee leaves voluntarily they are entitled to 20 percent of their contributions. Brazil’s labor code guarantees formal sector workers 30 days of annual leave and severance pay in the case of dismissal without cause. Unemployment insurance also exists for laid-off workers, equal to the country’s minimum salary (or more depending on previous income levels) for six months. The government does not waive any labor laws to attract investment.

Collective bargaining is common, and there are 17,630 labor unions operating in Brazil in 2022. Labor unions, especially in sectors such as metalworking and banking, are well organized in advocating for wages and working conditions. In some sectors, federal regulations mandate collective bargaining negotiations across the entire industry. A new labor law in November 2017 ended mandatory union contributions, which has reduced union finances by as much as 90 percent according to the Inter-Union Department of Statistics and Socio-economic Studies (DIEESE). According to the Brazilian Institute of Geography and Statistics (IBGE), the share of unionized workers dropped to 11.2 percent of the workforce in 2019. The Ministry of Labor reported 7,854 collective bargaining agreements in 2021, an increase compared to the 6,118 agreements reported in 2020. Employer federations also play a significant role in both public policy and labor relations. Each state has its own federations of industry and commerce, which report respectively to the National Confederation of Industry (CNI), headquartered in Brasilia, and the National Confederation of Commerce (CNC), headquartered in Rio de Janeiro.

Brazil has a dedicated system of labor courts that are charged with resolving routine cases involving unfair dismissal, working conditions, salary disputes, and other grievances. Labor courts have the power to impose an agreement on employers and unions if negotiations break down and either side appeals to the court system. As a result, labor courts routinely are called upon to determine wages and working conditions in various industries across the country. The labor courts system has millions of pending legal cases on its docket, although the number of new filings has decreased since November 2017 labor law reforms.

Strikes occur periodically, particularly among public sector unions. A strike organized by truckers’ unions protesting increased fuel prices paralyzed the Brazilian economy in May 2018 and led to billions of dollars in losses to the economy. Trucker strikes in 2021, however, had more limited impact.

Brazil has ratified 98 International Labor Organization (ILO) conventions and is party to the UN Convention on the Rights of the Child and major ILO conventions concerning the prohibition of child labor, forced labor, and discrimination. For the past four years (2018-2021), the Department of Labor, in its annual publication “Findings on the Worst forms of Child Labor,” has recognized Brazil for its moderate advancement in efforts to eliminate the worst forms of child labor. On July 28, 2021, President Jair Bolsonaro re-established the Ministry of Labor and Welfare as a separate ministry, reversing its January 2019 merger into the Ministry of Economy. In 2021, the GoB inspected 443 properties, resulting in the rescue of 1,937 victims of forced labor. Additionally, in 2020 GoB officials removed 810 child workers from situations of child labor, compared to 1,040 children in 2019.

FDI has played an essential role in China’s economic development. Though the PRC remains a relatively restrictive environment for foreign investors, PRC government officials tout openness to FDI, promising market access expansion and non-discriminatory, “national treatment” for foreign enterprises through improvements to the business environment.  They also have made efforts to strengthen China’s regulatory framework to enhance market-based competition.

MOFCOM reported FDI flows grew by about 15 percent year-on-year, reaching USD 173 billion, however, foreign businesses continue to express concerns over China’s pandemic restrictions.  In 2021, U.S. businesses’ concerns with China’s COVID-19 restrictive travel restrictions were at the top of the agenda, along with concerns over PRC’s excessive cyber security and data-related requirements, preferential treatment for domestic companies – including state-owned enterprises – under various industrial policies, preference for domestic technologies and products in the procurement process, an opaque regulatory system, and inconsistent application of laws protecting intellectual property rights (IPR). U.S.-China geopolitical tensions were also cited as a significant concern. See the following:

• American Chamber of Commerce China 2021 American Business in China White Paper 
• American Chamber of Commerce China 2021 Business Climate Survey
• U.S.-China Business Council’s 2021 China Business Environment Member Survey

China’s International Investment Promotion Agency (CIPA), under MOFCOM, oversees attracting foreign investment and promoting China’s overseas investment. Duties include implementing overseas investment policy; guiding domestic sub-national and international investment promotion agencies; promoting investment in industrial parks at the national, subnational, and cross-border level; organizing trainings in China and abroad for overseas investment projects; and, engaging international and multilateral economic organizations, foreign investment promotion agencies, chambers of commerce, and business associations. The agency has offices worldwide, including CIPA Europe in Hungary, CIPA Germany, and a representative office in the Hague to promote investment in the Benelux area. CIPA maintains an “Invest in China” website which lists laws, regulations, and rules relevant to foreign investors. The China Association of Enterprises with Foreign Investments (CAEFI) is a non-profit organization overseen by MOFCOM. The association and corresponding provincial institutions have hotlines to receive foreign investor complaints.

Entry into China’s market is regulated by the country’s “negative lists,” which identify the sectors in which foreign investment is restricted or prohibited, and a catalogue for encouraged foreign investment, which identifies the sectors and locations (often less developed regions) in which the government encourages investment.

• The Special Administrative Measures for Foreign Investment Access to Pilot Free Trade Zones (the “FTZ Negative List”) applies to China’s 20 FTZs and one free trade port. 
• The Special Administrative Measures for Foreign Investment Access (̈the “Nationwide Negative List”) came into effect on January 1, 2022.
• The Industry Catalogue for Encouraged Foreign Investment (released December 27, 2020) encourages FDI inflows to key sectors, in particular semiconductors and other high-tech industries.
• The Industrial Catalogue for Encouraged Foreign Investment in Western Region.  The “encouraged list” is subdivided into a cross-sector nationwide catalogue and a separate catalogue for western and central regions, China’s least developed regions. 

In restricted industries, foreign investors face equity caps or JV requirements to ensure control by a PRC national and enterprise.  Due to these requirements, foreign investors that wish to participate in China’s market must enter partnerships, which sometimes require transfer of technology. However, even in “open” sectors, a variety of factors, including ability to access local government officials and preferences, enhanced ability to impact local rules and standards, perceptions of better understanding of the PRC market, and access to procurement opportunities, led many foreign companies to rely on the JV structure to operate in the PRC market.

Below are a few examples of industries where investment restrictions apply:

• Preschool to higher education institutes require a PRC partner with a dominant role.
• Establishment of clinical trials for new drugs require a PRC partner who holds the IPR tied to data drawn from the clinical research.

Examples of foreign investment sectors requiring PRC majority stake include:

• Radio/television market survey.
• Basic telecommunication services outside free trade zones.

The 2021 negative lists made minor modifications to some industries, reducing the number of restrictions and prohibitions from 33 to 31 in the nationwide negative list, and from 30 to 27 in China’s pilot FTZs. Notable changes included openings in the automotive and satellite television broadcasting manufacturing sectors. Sectors that remain closed to foreign investment include rare earths, film production and distribution, and tobacco products.  However, the government continues to constrain foreign investors in a myriad of ways beyond caps on ownerships. For instance, in the pharmaceutical sector, while JV requirements were eliminated in the 1990s, foreign companies must partner with local PRC institutions for clinical trials. Other requirements that place undue burden on foreign investors include but are not limited to: applying higher standards for quality-related testing, prohibitions on foreign parties in JVs conducting certain business activities, challenges in obtaining licenses and permits, mandatory intellectual property sharing related to certain biological material, and other implicit and explicit downstream regulatory approval barriers.

The negative list regulating pilot FTZ zones will lift all barriers to foreign investment in all manufacturing sectors, widen foreign investor access to some service sectors, and allow foreign investment into the radio and TV-based market research sector.  For the market research sector, caveats include a 33 percent foreign investor ownership cap and PRC citizenship requirements for legal representatives. While U.S. businesses welcomed market openings, foreign investors remained underwhelmed by the PRC’s lack of ambition and refusal to provide more significant liberalization.  Foreign investors noted the automotive sector openings were inconsequential since the more lucrative electric vehicle (EV) sector was opened to foreign investors in 2018, whereas the conventional auto sector is saturated. Foreign investors cited this was in line with the government announcing liberalization mainly in industries that domestic PRC companies already dominate.

In addition to the PRC’s system for managing foreign investments, MOFCOM and NDRC also maintain a system for managing which segments of the economy are open to non-state-owned investors. The most recent Market Access Negative List  was issued on December 10, 2020.

The Measures for Security Reviews on Foreign Investments  came into effect January 18, 2021, revising the PRC’s framework for vetting foreign investments that could affect national security. The NDRC and the Ministry of Commerce will administer the new measures which establish a mechanism for reviewing investment activities across a range of sectors perceived to implicate PRC national security, including agriculture, energy and resources, cultural products, and more.

China is not a member of the Organization for Economic Co-Operation and Development (OECD), but the OECD Council established a country program of dialogue and co-operation with China in October 1995. The OECD completed its most recent investment policy review for China in 2022.

• OECD 2022 Report 

China’s 2001 accession to the World Trade Organization (WTO) boosted its economic growth and advanced its legal and governmental reforms.  The WTO completed its most recent trade policy review for China in 2021, highlighting FDI grew at a slower pace than in previous periods but remains a major driver of global growth and a key market for multinational companies.

• WTO Trade Policy Review for China
• USTR 2021 Report to Congress on China’s WTO Compliance
• International Monetary Fund (IMF) information on China 

Created in 2018, the State Administration for Market Regulation (SAMR) is responsible for business registration processes.  Under SAMR’s registration system, parties are required to report when they (1) establish a Foreign Invested Enterprise (FIE); (2) establish a representative office in China; (3) acquire stocks, shares, assets or other similar equity of a domestic China-based company; (4) re-invest and establish subsidiaries in China; and (5) invest in new projects.  Foreign companies still report challenges setting up a business relative to their PRC competitors. Many companies offer consulting, legal, and accounting services for establishing operations in China. Investors should review their options carefully with an experienced advisor before investing.

• Invest in China
• The State Council Information on Doing Business in China  
• Filing a Complaint as a Foreign Company
• Nationwide Government Service Platform  

Since 2001, China has pursued a “going-out” investment policy.  At first, the PRC encouraged SOEs to invest overseas, but in recent years, China’s overseas investments have diversified with both state and private enterprises investing in nearly all industries and economic sectors.  China remains a major global investor and in 2021, total outbound direct investment (ODI) increased for the first time in four years to reach $153.7 billion, a 12 percent increase year-on-year, according to the 2020 Statistical Bulletin of China’s Outward Foreign Direct Investment .

China’s government created “encouraged,” “restricted,” and “prohibited” outbound investment categories to suppress significant capital outflow pressure in 2016 and to guide PRC investors to more “strategic sectors.” The Sensitive Industrial-Specified Catalogue of 2018  further restricted outbound investment in sectors like property, cinemas, sports teams, and non-entity investment platforms and encouraged outbound investment in sectors that supported PRC national objectives by acquiring advanced manufacturing and high-tech assets.  PRC firms involved in sectors cited as priorities in the Strategic Emerging Industries, New Infrastructure Initiative, and MIC 2025 often receive preferential government financing and subsidies for outbound investment.

In 2006, the PRC established the Qualified (QDII) program to channel domestic funds into offshore assets through financial institutions. While the quota tied to this program has fluctuated over the years based on capital flight concerns, in 2021 the State Administration of Foreign Exchange (SAFE) approved new quotas for 17 institutions under the program to allow a potential $147.3 billion in outbound investment.

In 2013, the PRC government established a pilot program allowing global asset management companies more opportunities to raise RMB-denominated funds from high net-worth PRC-based individuals and institutional investors to invest overseas. These programs include the Qualified Domestic Limited Partnership (QDLP) pilot program and the Shenzhen-specific Qualified Domestic Investment Entity (QDIE) program. In 2021, the China Securities Regulatory Commission (CSRC) and SAFE expanded the pilot areas to at least seven jurisdictions and quotas for the QDLP to $10 billion, respectively. In April, the Shenzhen Financial Regulatory Bureau amended the Administrative Measures of Shenzhen for Implementation of the Pilot Program for Overseas Investment by Qualified Domestic Investors (“Shenzhen QDIE Measures”) to include investments in the securities market that aligns it with the QLDP program.

One of China’s WTO accession commitments was to establish an official journal dedicated to the publication of laws, regulations, and other measures pertaining to or affecting trade in goods, services, trade related aspects of IPR (TRIPS), and the control of foreign exchange. Despite mandatory 30-day public comment periods, PRC ministries continue to post only some draft administrative regulations and departmental rules online, often with a public comment period of less than 30 days. As part of the Phase One Agreement, China committed to providing at least 45 days for public comment on all proposed laws, regulations, and other measures implementing the Phase One Agreement. While China has made some progress, U.S. businesses operating in China consistently cite arbitrary legal enforcement and the lack of regulatory transparency among the top challenges of doing business in China.

In China’s state-dominated economic system, the relationships between the CCP, the PRC government, PRC business (state- and private-owned), and other PRC stakeholders are blurred. Foreign-invested enterprises (FIEs) perceive that China prioritizes political goals, industrial policies, and a desire to protect social stability at the expense of foreign investors, fairness, and the rule of law. The World Bank Global Indicators of Regulatory Governance gave China a composite score of 1.75 out 5 points, attributing China’s relatively low score to stakeholders not having easily accessible and updated laws and regulations; the lack of impact assessments conducted prior to issuing new laws; and other concerns about transparency.

For accounting standards, PRC companies use the Chinese Accounting Standards for Business Enterprises (ASBE) for all financial reporting within mainland China. Companies listed overseas or in Hong Kong may choose to use ASBE, the International Financial Reporting Standards, or Hong Kong Financial Reporting Standards.

While the government of China made many policy announcements in 2021 that will provide impetus to ESG reporting, stock exchanges on mainland China (not including Hong Kong) have not made ESG reporting mandatory. For instance, currently eighteen  PRC companies are signatories to the UN Principles for Responsible Investment. While the PRC government did announce its green finance taxonomy known as China’s “Catalogue of Green Bond Supported Projects”, experts cited the taxonomy lacks mandatory reporting and verification. On November 4, the People’s Bank of China and the European Commission also jointly launched a sustainable finance taxonomy to create comparable standards on green finance products. Mainland ESG efforts were also primarily focused on environmental and social impact-related, and less so on governance-related reporting. China’s goal to peak carbon emissions before 2030 and reach carbon neutrality by 2060 will drive reporting on decarbonization plans and targets and could increase alignment with international standards such as those outlined in the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. The PRC government also incorporated non-mandatory ESG-like principles into overseas development initiatives such as its signature Belt and Road Initiative (BRI) via its Guiding Opinions on Promoting Green Belt and Road Construction. For instance, the PRC adopted the Green Investment Principles (GIP) for greening investment for BRI projects; under this initiative members – including major PRC policy banks funding BRI projects – are expected to provide their first TCFD disclosure by 2023. Obstacles contacts cited include a shortage of quality data and ESG professionals, such as third-party auditors which are required to support evidence based ESG reporting.

In December, MEE issued new disclosure rules  requiring five types of domestic entities to disclose environmental information on an annual basis, effective February 8, 2022. The rules will apply only to listed companies and bond issuers that were subject to environmental penalties the previous year and other MEE-identified entities, including those that discharged high levels of pollutants. Entities must disclose information on environmental management, pollution generation, carbon emissions, and contingency planning for environmental emergencies. These same companies and bond issuers must also disclose climate change and environmental protection information related to investment and financing transactions.

On June 28, the CSRC issued final amendments requiring listed companies disclose environmental penalties and encouraging carbon emissions disclosures. It also issued guidelines on the format and content of annual reports and half-year reports of listed companies, requiring them to set up a separate “Section 5 Environmental and Social Responsibility” to encourage carbon emission reduction related disclosure. In May, the Ministry of Ecology and Environment (MEE) issued a plan  for strengthening environmental disclosure requirements by 2025. Most contacts assessed investors are the key drivers of increased ESG disclosures.

As part of its WTO accession agreement, China agreed to notify the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations. However, China continues to issue draft technical regulations without proper notification to the TBT Committee.

The PRC is also a member of the Regional Comprehensive Economic Partnership (RCEP), which entered into force on January 1, 2022. Although RCEP has some elements of a regional economic bloc, many of its regulatory provisions (for example on data flow) are weakened by national security exemptions.

On September 16, China submitted a written application to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) to New Zealand (the depositary of the agreement). The PRC would face challenges in addressing obligations related to SOEs, labor rights, digital trade, and increased transparency.

China’s legal system borrows heavily from continental European legal systems, but with “Chinese characteristics.” The rules governing commercial activities are found in various laws, regulations, departmental rules, and Supreme People’s Court (SPC) judicial interpretations, among other sources. While China does not have specialized commercial courts, it has created specialized courts and tribunals for the hearing of intellectual property disputes (IP), including in Beijing, Guangzhou, Shanghai, and Hainan.  The PRC’s constitution and laws are clear that PRC courts cannot exercise power independent of the Party. Further, in practice, influential businesses, local governments, and regulators routinely influence courts. Outside of the IP space, U.S. companies often hesitate in challenging administrative decisions or bringing commercial disputes before local courts due to perceptions of futility or fear of government retaliation.

The PRC’s new foreign investment law, the FIL, came into force on January 1, 2020, replacing the previous foreign investment framework. The FIL provides a five-year transition period for foreign enterprises established under previous foreign investment laws, after which all foreign enterprises will be subject to the same domestic laws as PRC companies, such as the Company Law. The FIL standardized the regulatory regimes for foreign investment by including the negative list management system, a foreign investment information reporting system, and a foreign investment security review system all under one document. The FIL also seeks to address foreign investors complaints by explicitly banning forced technology transfers, promising better IPR, and the establishment of a complaint mechanism for investors to report administrative abuses. However, foreign investors remain concerned that the FIL and its implementing regulations provide PRC ministries and local officials significant regulatory discretion, including the ability to retaliate against foreign companies.

The December 2020 revised investment screening mechanism under the Measures on Security Reviews on Foreign Investments (briefly discussed above) came into effect January 18 without any period for public comment or prior consultation with the business community. Foreign investors complained China’s new rules on investment screening were expansive in scope, lacked an investment threshold to trigger a review, and included green field investments – unlike most other countries. Moreover, new guidance on Neutralizing Extra-Territorial Application of Unjustified Foreign Legislation Measures, a measure often compared to “blocking statutes” from other markets, added to foreign investors’ concerns over the legal challenges they would face in trying to abide by both their host-country’s regulations and China’s. Foreign investors complained that market access in China was increasingly undermined by national security-related legislation. While not comprehensive, a list of official PRC laws and regulations is here .

On June 10, the Standing Committee of the NPC adopted the Law of the People’s Republic of China on Countering Foreign Sanctions (“Anti-Foreign Sanctions Law” or AFSL). The AFSL gives the government explicit authority to impose countermeasures related to visas, deportation, and asset freezing against individuals or organizations that broadly endanger China’s “sovereignty, security, or development interests.” The law also calls for Chinese citizens and organizations harmed by foreign “sanctions” to pursue damages via PRC civil courts.

On October 13, MOF issued a circular prohibiting discrimination against foreign-invested enterprises (FIEs) in government procurement for products “produced in China.” The circular required that suppliers not be restricted based on ownership, organization, equity structure, investor country, or product brand, to ensure fair competition between domestic and foreign companies. The circular also required the abolition of regulations and practices violating the circular by the end of November, including the establishment of alternative databases and qualification databases. This circular may have been intended to address the issuance of Document No. 551 in May by MOF and the Ministry of Industry and Information Technology (MIIT) (without publishing on official websites), titled “Auditing guidelines for government procurement of imported products,” outlining local content requirements for hundreds of items, many of which are medical devices, including X-ray machines and magnetic resonance imaging equipment. It is unclear whether Document 551 will be rescinded or revised based on this circular. Additionally, the circular applies only to FIEs and does not provide fair treatment for imported products from companies overseas. While the circular does state FIEs should be afforded equal treatment, the circular does not address concerns about localization pressures created by Document 551. Further, the circular provides no guidance on what constitutes a “domestic product” and does not address treatment of products manufactured in China that incorporate content from other jurisdictions, key concerns for a wide range of U.S. firms.

In November 2021, the PRC government announced transformation of the Anti-Monopoly Bureau of the SAMR, renaming it the National Anti-Monopoly Bureau, adding three new departments, and doubled staffing. The National Anti-Monopoly Bureau enforces China’s Anti-Monopoly Law (AML) and oversees competition issues at the central and provincial levels.  The bureau reviews mergers and acquisitions, and investigates cartel and other anticompetitive agreements, abuse of a dominant market positions, including those related to IP, and abuse of administrative powers by government agencies. The bureau also oversees the Fair Competition Review System (FCRS), which requires government agencies to conduct a review prior to issuing new and revising administrative regulations, rules, and guidelines to ensure such measures do not inhibit competition. SAMR issues implementation guidelines to fill in gaps in the AML, address new trends in China’s market, and help foster transparency in enforcement. Generally, SAMR has sought public comment on proposed measures, although comment periods are sometimes less than 30 days.

In October 2021, SAMR issued draft amendments to the AML for public comment. Revisions to the AML are expected to be finalized in 2022 and likely will include changes such as stepped-up fines for AML violations and specification of the factors to consider in determining whether an undertaking in the internet sector has abused a dominant market position. In February 2021, SAMR published (after public comment) the “Antitrust Guidelines for the Platform Economy.” The Guidelines address monopolistic behaviors of online platforms operating in China.

Foreign companies have long expressed concern that the government uses AML enforcement in support of China’s industrial policies, such as promoting national champions, particularly for companies operating in strategic sectors. The AML explicitly protects the lawful operations of government authorized monopolies in industries that affect the national economy or national security. U.S. companies expressed concerns that in SAMR’s consultations with other PRC agencies when reviewing M&A transactions, those agencies raise concerns not related to competition concerns to block, delay, or force transacting parties to comply with preconditions – including technology transfer – to receive approval.

China’s law prohibits nationalization of FIEs, except under vaguely specified “special circumstances” where there is a national security or public interest need. PRC law requires fair compensation for an expropriated foreign investment but does not detail the method used to assess the value of the investment.  The Department of State is not aware of any cases since 1979 in which China has expropriated a U.S. investment, although the Department has notified Congress through the annual 527 Investment Dispute Report of several cases of concern.

The PRC introduced bankruptcy laws in 2007, under the Enterprise Bankruptcy Law (EBL), which applies to all companies incorporated under PRC laws and subject to PRC regulations. In May 2020, the PRC released the Civil Code, contract and property rights rules. Despite the NPC listing amendments to the EBL as a top work priority for 2021, the NPC has not released the amendments to the public. Court-appointed administrators – law firms and accounting firms that help verify claims, organize creditors’ meetings, list, and sell assets online – look to handle more cases and process them faster.  As of 2021 official statements cited 5,060 institutional administrators and 703 individual administrators.

On August 18, the Law Enforcement Inspection Team of the Standing Committee of the NPC was submitted its report on the enforcement of enterprise bankruptcy to the 30th meeting of the Standing Committee of the Thirteenth NPC for deliberation. While the report is unavailable publicly, the Supreme People’s Court (SPC) website issued a press release  noting the report found that from 2007 to 2020, courts at all levels nationwide accepted 59,604 bankruptcy cases, and concluded 48,045 bankruptcy cases (in 2020 there were 24,438 liquidation and bankruptcy cases). Of the total liquidation and bankruptcy cases recorded in that same period, 90 percent involved private enterprises. The announcement also cited the allocation of additional resources, including future establishment of at least 14 bankruptcy tribunals and 100 Liquidation & Bankruptcy Divisions and specialized collegial panels to handle bankruptcy cases. As of August 2021, bankruptcy cases are handled by 417 bankruptcy judges, 28 high people’s courts, and 284 intermediate people’s courts.

In 2021 the government added a new court in Haikou. National data is unavailable for 2021, but local courts have released some information that suggest a nearly 10 percent increase in liquidation and bankruptcy cases in Jiangxi province and about a 66 percent increase in Guangzhou, the capital city of Guangdong province. While PRC authorities are taking steps to address corporate debt and are gradually allowing some companies to fail, companies generally avoid pursing bankruptcy because of the potential for local government interference and fear of losing control over the outcome. According to the SPC, 2.899 million enterprises closed business in 2020, of which only 0.1 percent or 3,908 closed because of bankruptcy.

In August 2020, Shenzhen released the Personal Bankruptcy Regulations of Shenzhen Special Economic Zone, to take effect on March 1, 2021. This is the PRC’s first regulation on personal bankruptcy. On July 19, the Shenzhen Intermediate People’s Court of Guangdong Province, China served a ruling on Liang Wenjin approving his personal bankruptcy reorganization plan. This was the first personal bankruptcy case closed by Shenzhen Court since the implementation of the Personal Bankruptcy Regulations of Shenzhen Special Economic Zone and is the first personal bankruptcy reorganization case in China.

The Personal Bankruptcy Regulations is China’s first set of rules on personal bankruptcy, which formally establishes the personal bankruptcy system in China for the first time. At present, the Personal Bankruptcy Regulations is only applicable in Shenzhen. Numerous other localities have also begun experimenting with legal remedies for personal insolvency, in part to deter debtors from taking extreme measures to address debt.

To attract foreign investment, different provinces and municipalities offer preferential packages like a temporary reduction in taxes and/or import/export duties, reduced costs for land use, research and development subsidies, and funding for initial startups. Often, these packages stipulate that foreign investors must meet certain benchmarks for exports, local content, technology transfer, or other requirements. However, many economic sectors that China deems sensitive due to broadly defined national or economic security concerns remain closed to foreign investment.

As part of efforts to attract green investment, China and the EU issued a green investment taxonomy on the sidelines of the 26th U.N. Climate Change Conference of the Parties (COP26) on November 4. The International Platform on Sustainable Finance (IPSF) Taxonomy Working Group issued the Common Ground Taxonomy- Climate Change Mitigation (CGT) to accelerate cross-border sustainability-focused investments and scale up the mobilization of green capital internationally. The CGT listed 80 economic activities across six industries as sustainable, including: (1) agriculture, forestry and fishing; manufacturing; (2) electricity, gas, steam and air conditioning supply; (3) construction; (4) water supply, and sewage, waste management and remediation activities; as well as (6) transportation and storage. The taxonomy includes criteria for calculating a project’s contribution to mitigating climate change. This taxonomy was the result of consultations held between the EU and China over the two years to conduct analyses between China’s “Catalogue of Green Bond Supported Projects” and the “EU Taxonomy Climate Delegated Act.” Green finance contacts reported the CGT would likely promote the issuance of cross-border green investment products and lower or avoid the cost of double certification. Environmental NGO contacts, however, noted the CGT was focused on climate change mitigation, without taking into consideration the principle of “do no significant harm.” The CGT is not legally binding for either the EU or China and is not formally endorsed by other members of the IPSF. Please see climate issues section for additional information on government incentives towards attracting green investment.

In 2013, the State Council announced the Shanghai pilot FTZ to provide open and high-standard trade and investment services to foreign companies. China gradually scaled up its FTZ pilot program to a total of 20 FTZs and one Free Trade Port (FTP), which are in all or parts of Fujian, Guangdong, Guangxi, Hainan (FTZ and FTP), Hebei, Heilongjiang, Henan, Hubei, Jiangsu, Liaoning, Shaanxi, Shandong, Sichuan, Yunnan, and Zhejiang provinces; Beijing, Chongqing, Shanghai, and Tianjin municipalities. The goal of China’s FTZs/FTP is to provide a trial ground for trade and investment liberalization measures and to introduce service sector reforms, especially in financial services, that China expects to eventually introduce in other parts of the domestic economy. The FTZs promise foreign investors “national treatment” investment in industries and sectors not listed on China’s negative lists.

Special Economic Zones (SEZs) in China include: Shantou, Shenzhen, Zhuhai, (Guangdong Province); Xiamen (Fujian Province) Hainan Province; Shanghai Pudong New Area; and Tianjin Binhai New Area.

In 2021, the PRC formulated the first negative list in the field of cross-border trade in services, effective in Hainan Free Trade Port. Separately, the PRC government has shortened the negative list for foreign investment in Pilot Free Trade Zones. In 2021, the seventh revision to the free trade zone negative list reduced close off sectors from 30 items to 27 items. Please see above section on negative lists for more details.

The government of China owns all urban land and only the state can issue long-term land leases to individuals and companies, including foreigners, subject to many restrictions. China’s property law stipulates that residential property rights renew automatically, while commercial and industrial grants renew if it does not conflict with other public interest claims. Several foreign investors have reported revocation of land use rights so that PRC developers could pursue government-designated building projects. Investors often complain about insufficient compensation in these cases. In rural China, the registration system suffers from unclear ownership lines and disputed border claims, often at the expense of local farmers whom village leaders exclude in favor of “handshake deals” with commercial interests. China’s Securities Law defines debtor and guarantor rights, including rights to mortgage certain types of property and other tangible assets, including long-term leases. PRC law does not prohibit foreigners from buying non-performing debt, but it must be acquired through state-owned asset management firms, and it is difficult to liquidate.

The PRC remained on the USTR Special 301 Report Priority Watch List in 2022 and was subject to continued Section 306 monitoring. Multiple PRC-based physical and online markets were included in the 2021 USTR Review of Notorious Markets for Counterfeiting and Piracy. Of note, in 2021, the PRC government took steps toward addressing long-standing U.S. concerns on a wide range of IP issues, from patents to trademarks to copyrights and trade secrets. The reforms addressed the granting and protection of IP rights as well as their enforcement, and included changes made in support of the Phase One Trade Agreement. In September 2021, the CCP Central Committee and State Council jointly issued the “Outline for Building a Strong Intellectual Property Nation (2021-2035).” The Outline was China’s second long-term plan to promote IP development since the 2008 National IP Strategy Outline, and provided a high-level framework and specific goals for reforms of China’s entire IP ecosystem, including mechanisms to incentivize the creation and utilization of IP, as well as the systems and mechanisms for protecting and enforcing it. The State Council in October issued the “National 14th Five-year Plan IP Protection and Utilization Plan” which provided a list of IP-related tasks to achieve during 2021-2025. The Plan called for expedited revisions to the Patent Law, Trademark Law, Copyright Law, Anti-Monopoly Law, Science and Technology Advancement Law, and e-Commerce law, and to strengthen legislation in areas such as geographical indicators and trade secrets. In 2021, China’s IP progress also included the implementation of a judicial interpretation related to punitive damages on IP infringements, the gradual elimination of subsidies linked to patent applications, and administrative measures addressing trademark and patent protection and enforcement, as well as enforcement of copyright and trade secrets.

Despite these reforms, IP rights remain subject to Chinese government policy objectives, which appear to have intensified in 2021. For U.S. companies in China, infringement remained both rampant and a low-risk “business strategy” for bad-faith actors. Further, enforcement and regulatory authorities continue to signal to U.S. rights holders that application of China’s IP system remains subject to the discretion of the PRC government and its policy goals. High-level remarks by PRC leader Xi Jinping and senior leaders signaled China’s commitment to cracking down on IP infringement in the years ahead. However, they also reflected China’s vision of the IP system as an important tool for limiting foreign ownership and control of critical technology and ensuring national security. While on paper China’s IP protection and enforcement mechanisms have inched closer to near parity with other foreign markets, in practice, fair, transparent, and non-discriminatory treatment will very likely continue to be denied to U.S. rights holders whose IP ownership and exploitation impede PRC economic development and national security goals.

For detailed information on China’s environment for IPR protection and enforcement, please see the following reports: 

• U.S.-China Phase One Agreement   
• USTR Section 301 Report on China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation    
• USTR 2021 Special 301 Report (see section on China)   
• USTR’s 2021 National Trade Estimate Report on Foreign Trade Barriers in China (see section on China)   
• USTR’s 2021 Report to Congress on China’s WTO Compliance
• USTR’s 2021 Notorious Market Report (see China) 

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/. 

China’s leadership has stated that it seeks to build a modern, highly developed, and multi-tiered capital market. Since their founding over three decades ago, the Shanghai and Shenzhen Exchanges, combined, are ranked the third largest stock market in the world with over USD 12.2 trillion in assets. China’s bond market has similarly expanded significantly to become the second largest worldwide, totaling approximately USD 18.6 trillion. In 2021, China took steps to open certain financial sectors such as mutual funds, securities, and asset management, but multinational companies still report barriers to entering the PRC insurance markets. As an example, in September, Black Rock was the first firm given approval to sell mutual funds to PRC nationals as the first wholly foreign owned mutual fund. Direct investment by private equity and venture capital firms increased but also faced setbacks due to China’s capital controls, which obfuscate the repatriation of returns. Though the PRC is taking steps to liberalize its capital markets, PRC companies that seek overseas investment have historically tended to list in the United States or Hong Kong; PRC and U.S. regulations on exchanges and geopolitics may begin to impact this trend. As of 2021, 24 sovereign entities and private sector firms, including the Asian Development Bank, Hungary, and BMW, have since issued RMB 106.5 billion yuan, roughly USD 16.7 billion, in 72 “Panda Bonds,” Chinese renminbi (RMB)-denominated debt issued by foreign entities in China. China’s private sector can also access credit via bank loans, bond issuance, trust products, and wealth management products. However, most bank credit flows to state-owned firms, largely due to distortions in China’s banking sector that have incentivized lending to state-affiliated entities over their private sector counterparts.  China has been an IMF Article VIII member since 1996 and generally refrains from restrictions on payments and transfers for current international transactions. However, the government has used administrative and preferential policies to encourage credit allocation towards national priorities, such as infrastructure investments and industrial policy.

The PRC’s monetary policy is run by the PBOC, the PRC’s central bank. The PBOC has traditionally deployed various policy tools, such as open market operations, reserve requirement ratios, benchmark rates and medium-term lending facilities, to control credit growth. The PBOC had previously also set quotas on how much banks could lend but ended the practice in 1998. As part of its efforts to shift towards a more market-based system, the PBOC announced in 2019 that it will reform its one-year loan prime rate (LPR), which would serve as an anchor reference for other loans. The one-year LPR is based on the interest rate that 18 banks offer to their best customers and serves as the benchmark for rates provided for other loans. In 2020, the PBOC requested financial institutions to shift towards use of the one-year LPR for their outstanding floating-rate loan contracts from March to August. Despite these measures to move towards more market-based lending, the PRC’s financial regulators still influence the volume and destination of PRC bank loans through “window guidance” – unofficial directives delivered verbally – as well as through mandated lending targets for key economic groups, such as small and medium sized enterprises. In 2020, the China Banking and Insurance Regulatory Commission (CBIRC) also began issuing laws to regulate online lending by banks including internet companies such as Ant Financial and Tencent, which had previously not been subject to banking regulations. In 2021, PBOC and CBIRC issued circulars emphasizing the need to emphasize and encourage financial stability among real estate developers.

The CBIRC oversees the PRC’s 4,607 lending institutions, about USD 54 trillion in total assets. China’s “Big Five” – Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, and Industrial and Commercial Bank of China – dominate the sector and are largely stable, but has experienced regional banking stress, especially among smaller lenders. Reflecting the level of weakness among these banks, in September 2021, the PBOC announced in “China Financial Stability Report 2020” that 422 or 9.6 percent of the 4,400 banking financial institutions received a “fail” rating (high risk) following an industry-wide review in in the second quarter of 2021. The assessment deemed 393 firms, all small and medium sized rural financial institutions, “extremely risky.” The official rate of non-performing loans among China’s banks is relatively low: 1.7 percent as of the end of 2021. However, analysts believed the actual figure may be significantly higher. Bank loans continue to provide most credit options (reportedly around 63.6 percent in 2021) for Chinese companies, although other sources of capital, such as corporate bonds, equity financing, and private equity are quickly expanding in scope, reach, and sophistication in China.

As part of a broad campaign to reduce debt and financial risk, Chinese regulators have implemented measures to rein in the rapid growth of China’s “shadow banking” sector, which includes wealth management and trust products. These measures have achieved positive results. In December 2020, CBIRC published the first “Shadow Banking Report,” and claimed that the size of China’s shadow banking had shrunk sharply since 2017 when China started tightening the sector. By the end of 2019, the size of China’s shadow banking by broad measurement dropped to 84.8 trillion yuan from the peak of 100.4 trillion yuan in early 2017. PBOC estimated in January 2021 that the outstanding balance of China’s shadow banking was around RMB 32 trillion yuan at the end of 2020. Alternatively, Moody’s estimated that China’s shadow banking by broad measurement dropped to RMB 57.8 trillion yuan in the first half of 2021 and shadow banking to GDP ratio dropped to 52.9 percent from 58.3 percent at the end of 2020. Foreign owned banks can now establish wholly owned banks and branches in China, however, onerous licensing requirements and an industry dominated by local players, have limited foreign banks market penetration. Foreigners are eligible to open a bank account in China but are required to present a passport and/or Chinese government issued identification.

China officially has only one sovereign wealth fund (SWF), the China Investment Corporation (CIC), which was launched in 2007 to help diversify China’s foreign exchange reserves. Overall, information and updates on CIC and other funds that function like SWFs was difficult to procure. CIC is ranked the second largest SWF by total assets by Sovereign Wealth Fund Institute (SWFI). With USD 200 billion in initial registered capital, CIC manages over USD 1.2 trillion in assets as of 2021 and invests on a 10-year time horizon. In 2021, CIC reported that during the 2020 period it increased its information technology-related holdings while cutting holdings of overseas equities and bonds. CIC has two overseas branches, CIC International (Hong Kong) Co., Ltd. and CIC Representative Office in New York. CIC has since evolved into three subsidiaries:

• CIC International was established in September 2011 with a mandate to invest in and manage overseas assets.  It conducts public market equity and bond investments, hedge fund, real estate, private equity, and minority investments as a financial investor.
• CIC Capital was incorporated in January 2015 with a mandate to specialize in making direct investments to enhance CIC’s investments in long-term assets.
• Central Huijin makes equity investments in China’s state-owned financial institutions.

China also operates other funds that function in part like sovereign wealth funds, including: China’s National Social Security Fund, with an estimated USD 450 billion in assets in 2021; the China-Africa Development Fund (solely funded by the China Development Bank), with an estimated USD 10 billion in assets (2020); the SAFE Investment Company, with an estimated USD 417.8 billion in assets; and China’s state-owned Silk Road Fund, established in December 2014 with USD 40 billion in assets to foster investment in BRI countries. China’s state-run funds do not report the percentage of assets invested domestically. However, China’s state-run funds follow the voluntary code of good practices known as the Santiago Principles and participate in the IMF-hosted International Working Group on SWFs. While CIC affirms they do not have formal government guidance to invest funds consistent with industrial policies or designated projects, CIC is expected to pursue government objectives.

China has approximately 150,000 wholly-owned SOEs, of which 50,000 are owned by the central government, and the remainder by local or provincial governments.  SOEs account for 30 to 40 percent of total gross domestic product (GDP) and about 20 percent of China’s total employment. Non-financial SOE assets totaled roughly USD 30 trillion. SOEs can be found in all sectors of the economy, from tourism to heavy industries.  State funds are spread throughout the economy and the state may also be the majority or controlling shareholder in an ostensibly private enterprise. China’s leading SOEs benefit from preferential government policies aimed at developing bigger and stronger “national champions.” SOEs enjoy preferential access to essential economic inputs (land, hydrocarbons, finance, telecoms, and electricity) and exercise considerable power in markets like steel and minerals.  SOEs also have long enjoyed preferential access to credit and the ability to issue publicly traded equity and debt.  A comprehensive, published list of all PRC SOEs does not exist.

PRC officials have indicated China intends to utilize OECD guidelines to improve the SOEs independence and professionalism, including relying on Boards of Directors that are free from political influence.  However, analysts believe minor reforms will be ineffective if SOE administration and government policy remain intertwined, and PRC officials make minimal progress in primarily changing the regulation and business conduct of SOEs.  SOEs continue to hold dominant shares in their respective industries, regardless of whether they are strategic, which may further restrain private investment in the economy.  Among central SOEs managed by the State-owned Assets Supervision and Administration Commission (SASAC), senior management positions are mainly filled by senior party members who report directly to the CCP, and double as the company’s party secretary.  SOE executives often outrank regulators in the CCP rank structure, which minimizes the effectiveness of regulators in implementing reforms.  While SOEs typically pursue commercial objectives, the lack of management independence and the controlling ownership interest of the state make SOEs de facto arms of the government, subject to government direction and interference.  SOEs are rarely the defendant in legal disputes, and when they are, they almost always prevail.  U.S. companies often complain about the lack of transparency and objectivity in commercial disputes with SOEs.

Since 2013, the PRC government has periodically announced reforms to SOEs that included selling SOE shares to outside investors or a mixed ownership model, in which private companies invest in SOEs and outside managers are hired.  The government has tried these approaches to improve SOE management structures, emphasize the use of financial benchmarks, and gradually infuse private capital into some sectors traditionally monopolized by SOEs like energy, finance, and telecommunications. For instance, during an August 25 press conference, State-owned Assets Supervision and Administration Commission (SASAC) officials announced that in the second half of the year central SOE reform would focus on the advanced manufacturing and technology innovation sectors. As part of these efforts, they claimed SASAC would ensure mergers and acquisitions removed redundancies, stabilize industrial supply chains, withdraw from non-competitive businesses, and streamline management structures. In practice, however, reforms have been gradual, as the PRC government has struggled to implement its SOE reform vision and often preferred to utilize a SOE consolidation approach.  Recently, Xi and other senior leaders have increasingly focused reform efforts on strengthening the role of the state as an investor or owner of capital, instead of the old SOE model in which the state was more directly involved in managing operations.

SASAC issued a circular on November 20, 2020, directing tighter control over central SOEs overseas properties held by individuals on behalf of SOEs. The circular aims to prevent leakage of SOE assets held by individuals and SOE overseas variable interest entities (VIEs). According to the circular, properties held by individuals should be approved by central SOEs and filed with SASAC.

In Northeast China, privatization efforts at provincial and municipal SEOs remains low, as private capital makes cautious decisions in making investment to local debt-ridden and inefficient SOEs. On the other hand, local SOEs prefer to pursue mergers and acquisitions with central SOEs to avoid being accused of losing state assets. There is no available information on whether foreign investors could participate in privatization programs.

Since 2012, China has undergone a large-scale anti-corruption campaign, with investigations reaching into all sectors of the government, military, and economy. CCP General Secretary Xi labeled endemic corruption an “existential threat” to the very survival of the Party.  In 2018, the CCP restructured its Central Commission for Discipline Inspection (CCDI) to become a state organ, calling the new body the National Supervisory Commission-Central Commission for Discipline Inspection (NSC-CCDI). The NSC-CCDI wields the power to investigate any public official.  From 2012 to 2021, the NSC-CCDI claimed it investigated roughly four million cases. In the first three quarters of 2021, the NSC-CCDI investigated 470,000 cases and disciplined 414,000 individuals, of whom 22 were at or above the provincial or ministerial level. Since 2014, the PRC’s overseas fugitive-hunting campaign, called “Operation Skynet,” has led to the capture of more than 9,500 fugitives suspected of corruption who were living in other countries, including over 2,200 CCP members and government employees. In most cases, the PRC did not notify host countries of these operations. In 2021, the government reported apprehending 1,273 alleged fugitives and recovering approximately USD 2.64 billion through this program.

In March 2021, the CCP Amendment 11 to the Criminal Law, which increased the maximum punishment for acts of corruption committed by private entities to life imprisonment, from the previous maximum of 15-year imprisonment, took effect. In June 2020 the CCP passed a law on Administrative Discipline for Public Officials, continuing efforts to strengthen supervision over individuals working in the public sector. The law enumerates targeted illicit activities such as bribery and misuse of public funds or assets for personal gain. Anecdotal information suggests anti-corruption measures are applied inconsistently and discretionarily.  For example, to fight commercial corruption in the medical sector, the health authorities issued “blacklists” of firms and agents involved in commercial bribery, including several foreign companies. While central government leadership has welcomed increased public participation in reporting suspected corruption at lower levels, direct criticism of central leadership or policies remains off-limits and is seen as an existential threat to China’s political and social stability. China ratified the United Nations Convention against Corruption in 2005 and participates in the Asia-Pacific Economic Cooperation (APEC) and OECD anti-corruption initiatives. China has not signed the OECD Convention on Combating Bribery, although PRC officials have expressed interest in participating in the OECD Working Group on Bribery as an observer. Corruption Investigations are led by government entities, and civil society has a limited scope in investigating corruption beyond reporting suspected corruption to central authorities.

Liaoning set up a provincial watchdog, known as the “Liaoning Business Environment Development Department” to inspect government disciplines and provide a mechanism for the public to report corruption and misbehaviors through a “government service platform.” In 2021, Liaoning reported handling 8,091 cases and recovering approximately USD 290 million in ill-gotten gains by government agencies and SOEs through this program.

The following government organization receives public reports of corruption:

Anti-Corruption Reporting Center of the CCP Central Commission for Discipline Inspection and the Ministry of Supervision, Telephone Number:  +86 10 12388.

Foreign companies operating in China face a growing risk of political violence, most recently due to U.S.-China political tensions. PRC authorities have broad authority to prohibit travelers from leaving China and have imposed “exit bans” to compel U.S. citizens to resolve business disputes, force settlement of court orders, or facilitate PRC investigations. U.S. citizens, including children, not directly involved in legal proceedings or wrongdoing have also been subject to lengthy exit bans to compel family members or colleagues to cooperate with Chinese courts or investigations. Exit bans are often issued without notification to the foreign citizen or without clear legal recourse to appeal the exit ban decision. A 2020 independent report presented evidence that since 2018, more than 570,000 Uyghurs were implicated in forced labor picking cotton. There was also reporting that Xinjiang’s polysilicon and solar panel industries are connected to forced labor. In 2021, PRC citizens, with the encouragement of the PRC government, boycotted companies that put out statements on social media affirming they do not use Xinjiang cotton in their supply chain. Some landlords forced companies to close retail outlets during this boycott due to fears of being associated with boycotted companies. The ongoing PRC crackdown on virtually all opposition voices in Hong Kong and continued attempts by PRC organs to intimidate Hong Kong’s judges threatens the judicial independence of Hong Kong’s courts – a fundamental pillar for Hong Kong’s status as an international hub for investment into and out of China.  Apart from Hong Kong, the PRC government has also previously encouraged protests or boycotts of products from countries like the United States, the Republic of Korea (ROK), Japan, Norway, Canada, and the Philippines, in retaliation for unrelated policy decisions such as the boycott campaigns against Korean retailer Lotte in 2016 and 2017 in response to the ROK government’s decision to deploy the Terminal High Altitude Area Defense (THAAD); and the PRC’s retaliation against Canadian companies and citizens for Canada’s arrest of Huawei’s Chief Financial Officer Meng Wanzhou.

For U.S. companies operating in China, finding, developing, and retaining domestic talent at the management and skilled technical staff levels remain challenging for foreign firms, especially as labor costs, including salaries and inputs continue to rise. COVID-19 control and related travel measures have also made it difficult to recruit or retain foreign staff. Foreign companies also complain of difficulty navigating China’s labor and social insurance laws, including local implementation guidelines. Compounding the complexity, due to ineffective enforcement of labor laws and high mandatory social insurance contributions, many PRC domestic employers and employees will not sign formal employment contracts, putting foreign firms at a disadvantage. The All-China Federation of Trade Unions (ACFTU) is the only union recognized under PRC law.  Establishing independent trade unions is illegal.  The law allows for “collective bargaining,” but in practice, focuses solely on collective wage negotiations.  The Trade Union Law gives the ACFTU, a CCP organ chaired by a Politburo member, control over all union organizations and activities, including enterprise-level unions.  ACFTU enterprise unions require employers to pay mandatory fees, often through the local tax bureau, equaling a negotiated minimum of 0.5 percent to a standard two percent of total payroll.  While labor laws do not protect the right to strike, “spontaneous” protests and work stoppages occur.  Official forums for mediation, arbitration, and other mechanisms of alternative dispute resolution often are ineffective in resolving labor disputes.  Even when an arbitration award or legal judgment is obtained, getting local authorities to enforce judgments is problematic.

The PRC has not ratified the International Labor Organization (ILO) conventions on freedom of association, collective bargaining, or forced labor, but it has ratified conventions prohibiting child labor and employment discrimination. Uyghurs and members of other minority groups are subjected to forced labor in Xinjiang and throughout China via PRC government-facilitated labor transfer programs.

In 2021, the U.S government updated its business advisory on risks for businesses and individuals with exposure to entities engaged in forced labor and other human rights abuses linked to Xinjiang. This update highlights the extent of the PRC’s state-sponsored forced labor and surveillance taking place amid its ongoing genocide and crimes against humanity in Xinjiang. The Advisory stresses that businesses and individuals that do not exit supply chains, ventures, and/or investments connected to Xinjiang could run a high risk of violating U.S. law. In fiscal year 2021, CBP issued four Withhold Release Orders  (WROs) against PRC goods produced with forced labor. The Commerce Department added PRC commercial and government entities to its Entity List for their complicity in human rights abuses and the Department of Treasury sanctioned Wang Junzheng, the Secretary of the Party Committee of the Xinjiang Production and Construction Corps (XPCC) and Chen Mingguo, Director of the Xinjiang Public Security Bureau (XPSB) to hold human rights abusers accountable in Xinjiang. In June 2021, the U.S. Department of Labor added polysilicon for China to an update of the List of Goods Produced by Child Labor or Forced Labor. The Department of Labor has listed 18 goods as produced by forced labor in China. Some PRC firms continued to employ North Korean workers in violation of UN Security Council sanctions. Pursuant to UN Security Council resolution (UNSCR) 2397, all DPRK nationals earning income, subject to limited exceptions, were required to have been repatriated to the DPRK by 22 December 2019.

* Source for Host Country Data: National Bureau of Statistics 

Table 4: Sources of Portfolio Investment
Data not available.

Hong Kong is the world’s third-largest recipient of foreign direct investment (FDI), according to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2021, with a significant amount bound for mainland China. The HKG’s InvestHK department encourages inward investment, offering free advice and services to support companies from the planning stage through to the launch and expansion of their business. U.S. and other foreign firms can participate in government financed and subsidized research and development programs on a national treatment basis. Hong Kong does not discriminate against foreign investors by prohibiting, limiting, or conditioning foreign investment in a sector of the economy.

Capital gains are not taxed, nor are there withholding taxes on dividends and royalties. Profits can be freely converted and remitted. Foreign-owned and Hong Kong-owned company profits are taxed at the same rate – 16.5 percent. The tax rate on the first USD 255,000 profit for all companies is currently 8.25 percent. No preferential or discriminatory export and import policies affect foreign investors. Domestic industries receive no direct subsidies. Foreign investments face no disincentives, such as quotas, bonds, deposits, or other similar regulations.

According to HKG statistics, 3,940 overseas companies had regional operations registered in Hong Kong as of June 1, 2021. The United States has the largest number with 664. Hong Kong is working to attract more start-ups as it develops its technology sector, and about 28 percent of start-ups in Hong Kong come from overseas. Hong Kong’s Business Facilitation Advisory Committee is a platform for the HKG to consult the private sector on regulatory proposals and implementation of new or proposed regulations. Foreign investors can invest in any business and own up to 100 percent of equity. Like domestic private entities, foreign investors have the right to engage in all forms of remunerative activity.

The HKG owns virtually all land in Hong Kong, which the HKG administers by granting long-term leases without transferring title. Foreign residents claim that a fifteen percent Buyer’s Stamp Duty on all non-permanent-resident and corporate buyers discriminates against them. The main exceptions to the HKG’s open foreign investment policy are:

Broadcasting – Voting control of free-to-air television stations by non-residents is limited to 49 percent. There are also residency requirements for the directors of broadcasting companies.

Legal Services – Foreign-qualified lawyers may only practice the law of their home jurisdiction, provided the firm they are working for is licensed in Hong Kong to work in those jurisdictions. Foreign law firms may become “local” firms after satisfying certain residency and other requirements. Localized firms may thereafter hire local attorneys and must maintain at least a 1:1 ratio of local attorneys to registered-foreign lawyers, without exception. Foreign law firms can also form associations with local law firms.

Hong Kong last conducted the Trade Policy Review in 2018 through the World Trade Organization (WTO). https://www.wto.org/english/tratop_e/tpr_e/g380_e.pdf

The Efficiency Office under the Innovation and Technology Bureau is responsible for business facilitation initiatives aimed at improving the business regulatory environment of Hong Kong. The e-Registry (https://www.eregistry.gov.hk/icris-ext/apps/por01a/index) is a convenient and integrated online platform provided by the Companies Registry and the Inland Revenue Department for applying for company incorporation and business registration. Applicants, for incorporation of local companies or for registration of non-Hong Kong companies, must first register for a free user account, presenting an original identification document or a certified true copy of the identification document. The Companies Registry normally issues the Business Registration Certificate and the Certificate of Incorporation on the same day for applications for company incorporation. For applications for registration of a non-Hong Kong company, it issues the Business Registration Certificate and the Certificate of Registration two weeks after submission.

Hong Kong’s Companies Registry permits public inspection of company information such as the full identification number of company directors and secretaries and their residential addresses. This information is currently available on a paid basis. Starting October 24, 2022, the HKG will restrict public access to this information, citing a need to balance privacy protections and transparency. Those approved by the HKG as “specified persons” will continue to have unrestricted access to the Companies Registries. The ability to apply for status as a “specified person” is largely limited to those working in finance, law, and compliance. Government transparency advocates assert the changes will limit the free flow of information and facilitate fraud, corruption, and other business malfeasance.

As a free market economy, Hong Kong does not promote or incentivize outward investment, nor does it restrict domestic investors from investing abroad. Mainland China and the British Virgin Islands were the top two destinations for Hong Kong’s outward investments in 2020 (based on most recent data available).

Hong Kong’s regulations and policies typically strive to avoid distortions or impediments to the efficient mobilization and allocation of capital and to encourage competition. Bureaucratic procedures and “red tape” are usually transparent and held to a minimum. To make or amend any legislation, including investment laws, the HKG conducts a three-month public consultation on the issue concerned, which then informs the drafting of the bill. Lawmakers then discuss draft bills and vote. Hong Kong’s regulatory and accounting systems are transparent and consistent with international norms. Rule of law risks that were formerly limited to mainland China are now increasingly a concern in Hong Kong.

Gazette is the official publication of the HKG. This website https://www.gld.gov.hk/egazette/english/whatsnew/whatsnew.html is the centralized online location where laws, regulations, draft bills, notices, and tenders are published.

All public comments received by the HKG are published at the websites of relevant policy bureaus. The Office of the Ombudsman, established in 1989 by the Ombudsman Ordinance, is Hong Kong’s independent watchdog of public governance.

Public finances are regulated by clear laws and regulations. The Basic Law prescribes that authorities strive to achieve a fiscal balance and avoid deficits. There is a clear commitment by the HKG to publish fiscal information under the Audit Ordinance and the Public Finance Ordinance, which prescribe deadlines for the publication of annual accounts and require the submission of annual spending estimates to the Legislative Council (LegCo), Hong Kong’s legislature. There are few contingent liabilities of the HKG, with details of these items published about seven months after the release of the fiscal budget. In addition, LegCo members have a responsibility to enhance budgetary transparency by urging government officials to explain the government’s rationale for the allocation of resources. All LegCo meetings are open to the public, so the government’s responses are available to the general public. However, the HKG maintains a special fund for “national security expenditures” that is not subject to public scrutiny. In February 2021, the HKG’s annual budget allocated HKD 8 billion (approximately USD 1 billion) to this fund, and the HKG refused to provide information on how this money would be spent.

On June 18, 2021, a subsidiary legislation was gazetted to implement the changes authorized under the Companies Ordinance. The new changes will gradually restrict the public from accessing certain information about executives in the Company Registry (CR) over three phases. Phase one starts on August 23, 2021 and allows new companies to have the option to withhold the usual residential addresses (URA) of directors and the full identification numbers (IDN) of directors and company secretaries from public inspection in hardcopy. Phase two starts on October 24, 2022 and will automatically swap out the URA and IDN of directors and company secretaries in the online CR with correspondence addresses and partial IDNs for public inspection. Phase three starts December 27, 2023 and allows all registered companies to retroactively apply to the CR to replace the URA and IDN of directors and company secretaries with their correspondence addresses and partial IDNs in hardcopy. “Specified persons” could apply to the CR for access to the protected information of directors and other persons.

Hong Kong’s Securities and Futures Commission issued a revised guideline in June 2021 requiring asset managers to disclose more information regarding their methodology for environment, sustainability, governance (ESG) funds, including the ESG focus, ESG investment strategy, expected proportion of ESG investment, any reference benchmark, and related risks. It also requires an ESG fund to conduct periodic assessment, at least annually, to assess how the fund has attained its ESG focus. To enhance transparency of ESG funds in Hong Kong, a central database of all SFC-authorized ESG funds is accessible through the SFC’s website.

Hong Kong is an independent member of the WTO and Asia-Pacific Economic Co-operation (APEC). It notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade and was the first WTO member to ratify the Trade Facilitation Agreement (TFA). Hong Kong has achieved a 100 percent rate of implementation commitments.

While Hong Kong is not a member of the Organization of Economic Cooperation and Development (OECD), it is a participant of the OECD’s Trade Committee and the Committee on Financial Markets. The HKG is in the process of implementing the OECD’s new minimum global corporate tax initiative, Base Erosion and Profit Shifting (BEPS 2.0).

Hong Kong’s common law system is based on the United Kingdom’s, and judges are appointed by the Chief Executive on the recommendation of the Judicial Officers Recommendation Commission. Regulations or enforcement actions are appealable, and they are adjudicated in the court system. In March 2020 two sitting UK judges resigned from the Hong Kong Court of Final Appeal, with the UK government citing a systematic erosion of liberty and democracy that made it untenable for those judges to sit on Hong Kong’s leading court.

Hong Kong’s commercial law covers a wide range of issues related to doing business. Most of Hong Kong’s contract law is found in the reported decisions of the courts in Hong Kong and other common law jurisdictions.

The imposition of the NSL and pressure from mainland China authorities raised serious concerns about the state of Hong Kong’s judicial independence. The NSL authorizes the mainland China judicial system, which lacks judicial independence and has a 99 percent conviction rate, to take over any national security-related case at the request of the HKG or the Office of Safeguarding National Security. Under the NSL, the Chief Executive is required to establish a list of judges to handle all cases concerning national security-related offenses. Legal scholars argued that this unprecedented involvement of the Chief Executive weakens Hong Kong’s judicial independence.

Media outlets controlled by the PRC central government in both Hong Kong and mainland China repeatedly accused Hong Kong judges of bias following the acquittals of protesters accused of rioting and other crimes. Some Hong Kong and PRC central government officials questioned the existence of the “separation of powers” in Hong Kong, including some statements that judicial independence is not enshrined in Hong Kong law and that judges should follow “guidance” from the government.

Hong Kong’s extensive body of commercial and company law generally follows that of the United Kingdom, including the common law and rules of equity. Most statutory law is made locally. The local court system provides for effective enforcement of contracts, dispute settlement, and protection of rights. Foreign and domestic companies register under the same rules and are subject to the same set of business regulations.

The Hong Kong Code on Takeovers and Mergers (1981) sets out general principles for acceptable standards of commercial behavior. The Companies Ordinance (Chapter 622) applies to Hong Kong-incorporated companies and contains the statutory provisions governing compulsory acquisitions. For companies incorporated in jurisdictions other than Hong Kong, relevant local company laws apply. The Companies Ordinance requires companies to retain accurate and up to date information about significant controllers.

The Securities and Futures Ordinance (Chapter 571) contains provisions requiring shareholders to disclose interests in securities in listed companies and provides listed companies with the power to investigate ownership of interests in its shares. It regulates the disclosure of inside information by listed companies and restricts insider dealing and other market misconduct.

The independent Competition Commission (CC) investigates anti-competitive conduct that prevents, restricts, or distorts competition in Hong Kong. In November 2021, the CC filed a case in the Competition Tribunal against three undertakings for participating in cartel conduct regarding the sale of inserters in Hong Kong.

The U.S. Consulate General is not aware of any expropriations in the recent past. Expropriation of private property in Hong Kong may occur if it is clearly in the public interest and only for well-defined purposes such as implementation of public works projects. Expropriations are to be conducted through negotiations, and in a non-discriminatory manner in accordance with established principles of international law. Investors in and lenders to expropriated entities are to receive prompt, adequate, and effective compensation. If agreement cannot be reached on the amount payable, either party can refer the claim to the Land Tribunal.

Hong Kong’s Bankruptcy Ordinance provides the legal framework to enable: i) a creditor to file a bankruptcy petition with the court against an individual, firm, or partner of a firm who owes him/her money; and ii) a debtor who is unable to repay his/her debts to file a bankruptcy petition against himself/herself with the court. Bankruptcy offenses are subject to criminal liability.

The Companies (Winding Up and Miscellaneous Provisions) Ordinance aims to improve and modernize the corporate winding-up regime by increasing creditor protection and further enhancing the integrity of the winding-up process.

The Commercial Credit Reference Agency collates information about the indebtedness and credit history of SMEs and makes such information available to members of the Hong Kong Association of Banks and the Hong Kong Association of Deposit Taking Companies. Hong Kong’s average duration of bankruptcy proceedings is just under ten months.

The HKG does not have a practice of issuing guarantees or jointly financing foreign direct investment projects. Hong Kong imposes no export performance or local content requirements as a condition for establishing, maintaining, or expanding a foreign investment. There are no requirements currently that Hong Kong residents own shares, that foreign equity is reduced over time, or that technology is transferred on certain terms.

However, the PRC’s 14th Five-Year Plan through 2025 with long-range objectives to 2035 does lay out a plan for Hong Kong to become an international innovation and technology hub, to become better integrated into the overall development of the Mainland, and to encourage deeper co-operation between the Mainland and Hong Kong related to innovation and technology. Closer alignment between the Hong Kong and mainland authorities on policies related to investment, innovation, and technology is expected.

The HKG offers an effective tax rate of around three to four percent to attract aircraft leasing companies to develop business in Hong Kong. To attract more maritime businesses to establish a presence in Hong Kong, the HKG also offers tax exemption or a reduced profit tax rate of 8.25 percent to eligible ship leasing and maritime insurance companies. The HKG allows a deduction on interest paid to overseas associated corporations and provides an 8.25 percent concessionary tax rate derived by a qualifying corporate treasury center.

Hong Kong-registered companies with a significant proportion of their research, design, development, production, management, or general business activities located in Hong Kong are eligible to apply to the Innovation and Technology Fund (ITF), which provides financial support for research and development (R&D) activities in Hong Kong. Hong Kong Science & Technology Parks (Science Park) and Cyberport are HKG-owned enterprises providing subsidized rent and financial support through incubation programs to early-stage startups.

The HKG offers additional tax deductions for domestic expenditure on R&D incurred by firms. Firms enjoy a 300 percent tax deduction for the first HKD 2 million (USD 255,000) qualifying R&D expenditure and a 200 percent deduction for the remainder. Since 2017, the Financial Secretary has announced over HKD 130 billion (USD 16.7 billion) in funding to support innovation and technology development in Hong Kong. These funds are largely directed at supporting and adding programs through the ITF, the Science Park, and Cyberport.

In September 2021, the Securities and Futures (Amendment) Bill 2021 and Limited Partnership Fund and Business Registration Legislation (Amendment) Bill 2021 were passed to facilitate the re-domicile of foreign investment funds to Hong Kong for registration as Open-ended Fund Companies (OFCs) or Limited Partnership Funds (LPFs). To strengthen Hong Kong’s position as an asset management center, the HKG announced in March 2022 a proposal to provide tax concessions for the eligible family investment management entities managed by single‑family offices. Subject to certain conditions, the entities would be exempted from Hong Kong profits tax for its profits derived from certain qualifying transactions and incidental transactions.

In May2021, the HKG launched the Green and Sustainable Finance Grant Scheme to subsidize eligible bond issuers and loan borrowers to cover their expenses on bond issuance and external review services.

Hong Kong, a free port without foreign trade zones, has modern and efficient infrastructure making it a regional trade, finance, and services center. Rapid growth has placed severe demands on that infrastructure, necessitating plans for major new investments in transportation and shipping facilities, including a planned expansion of container terminal facilities, additional roadway and railway networks, major residential/commercial developments, community facilities, and environmental protection projects. Construction on a third runway at Hong Kong International Airport was completed in September 2021.

Hong Kong and mainland China have a Free Trade Agreement Transshipment Facilitation Scheme that enables mainland-bound consignments passing through Hong Kong to enjoy tariff reductions in the Mainland. The arrangement covers goods traded between mainland China and its trading partners, including ASEAN members, Australia, Bangladesh, Chile, Costa Rica, Georgia, Iceland, India, Japan, Mongolia, Mauritius, New Zealand, Pakistan, Peru, South Korea, Sri Lanka, Switzerland, and Taiwan.

The HKG launched in December 2018 phase one of the Trade Single Window (TSW) to provide a one-stop electronic platform for submitting ten types of trade documents, promoting cross-border customs cooperation, and expediting trade declaration and customs clearance. Phase two is expected to be implemented in 2023. The latest version of the Closer Economic Partnership Arrangement (CEPA), has established principles of trade facilitation, including simplifying customs procedures, enhancing transparency, and strengthening cooperation.

The HKG does not mandate local employment or performance requirements. It does not follow a forced localization policy making foreign investors use domestic content in goods or technology.

Foreign nationals normally need a visa to live or work in Hong Kong. Short-term visitors are permitted to conduct business negotiations and sign contracts while on a visitor’s visa or entry permit. Companies employing people from overseas must show that a prospective employee has special skills, knowledge, or experience not readily available in Hong Kong.

Hong Kong generally allows free and uncensored flow of information, though the imposition of the NSL and subsequent Hong Kong legislation created certain limits on free expression, especially that which may be viewed as critical of the HKG or the mainland government. Thus, while Hong Kong authorities did not generally disrupt open access to the internet, there were numerous reports that the Hong Kong police, exercising powers granted by the NSL, required internet providers to block access to certain websites.

The freedom and privacy of communication is enshrined in Basic Law Article 30. The HKG has no requirements for foreign IT providers to turn over source code and does not interfere with data center operations. However, the NSL introduced a heightened risk of Mainland and Hong Kong authorities using expanded legal authorities to collect data from businesses and individuals in Hong Kong for actions that may violate “national security.” For more information, please refer to the Hong Kong business advisory released jointly by the Department of State, together with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security on July 16, 2021.

The NSL grants Hong Kong police broad authorities to conduct wiretaps or electronic surveillance without warrants in national security-related cases. The NSL also empowers police to conduct searches, including of electronic devices, for evidence in national security cases. Police can also require Internet Service Providers (ISPs) to provide or delete information relevant to these cases. In January 2021, the organizer of an online platform alleged that local Internet providers have made the site inaccessible for users in Hong Kong following requests from the Hong Kong government. One ISP subsequently confirmed that it blocked a website “in compliance with the requirement issued under the National Security Law.” In July 2021, Hong Kong police sent a letter to an Israel-based web hosting company demanding that the company remove a website and claiming that the website contained messages “likely to constitute offenses endangering national security.” In March 2022, Hong Kong police sent a letter to a UK-based human rights organization ordering the organization to remove its website within 72 hours or face potential fines and/or imprisonment under the NSL.

Hong Kong does not currently restrict transfer of personal data outside the SAR, but Section 33 the Personal Data (Privacy) Ordinance would prohibit such transfers unless the personal data owner consents or other specified conditions are met. The Privacy Commissioner is authorized to bring Section 33 into effect at any time, but it has been dormant since 1995. The PRC’s Personal Information Protection Law (PIPL) does not apply to data for Hong Kong-based operations, and companies that wish to transfer mainland data that falls under the PIPL to Hong Kong would be required to undergo a PRC cybersecurity review.

In October 2021, the HKG amended the Personal Data (Privacy) Ordinance to introduce new provisions to combat doxxing acts and empower the Privacy Commissioner for Personal Data (PCPD) to carry out criminal investigations and institute prosecution towards doxxing-related offenses, including potentially against online platforms and service providers. The PCPD made its first arrest in December 2021 under this new legislation in which a suspect was arrested and accused of disclosing the victim’s personal details on an online platform.

In December 2020, Hong Kong’s Securities and Futures Commission (SFC) required licensed corporations in Hong Kong to seek the SFC’s approval before using the following for storing regulatory records: 1) premises controlled exclusively by an external data storage provider(s) located inside or outside Hong Kong, such as cloud service providers like Google Cloud, Microsoft Azure, or Amazon AWS; or 2) server(s) for data storage at data centers located inside or outside Hong Kong.

The Basic Law ensures protection of leaseholders’ rights in long-term leases that are the basis of the SAR’s real property system. The Basic Law also protects the lawful traditional rights and interests of the indigenous inhabitants of the New Territories. The real estate sector, one of Hong Kong’s pillar industries, is equipped with a sound banking mortgage system.

Land transactions in Hong Kong operate on a deeds registration system governed by the Land Registration Ordinance. The Land Titles Ordinance provides greater certainty on land title and simplifies the conveyancing process.

Hong Kong generally provides strong intellectual property rights (IPR) protection and enforcement. Hong Kong has effective IPR enforcement capacity, and a judicial system that supports enforcement efforts with a public outreach program that discourages IPR-infringing activities. Despite the robustness of Hong Kong’s IP system, challenges remain, particularly in connection with copyright infringement and effective enforcement against the heavy, bi-directional flow of counterfeit goods.

Hong Kong’s commercial and company laws provide for effective enforcement of contracts and protection of corporate rights. H The Intellectual Property Department, which includes the Trademarks and Patents Registries, is the focal point for the development of Hong Kong’s IP regime. The Customs and Excise Department (CED) is the sole enforcement agency for intellectual property rights (IPR). The Paris Convention for the Protection of Industrial Property, the Bern Convention for the Protection of Literary and Artistic Works, and the Universal Copyright Convention are applicable to Hong Kong. Hong Kong also continues to participate in the World Intellectual Property Organization as part of mainland China’s delegation. The HKG has seconded an officer from CED to INTERPOL in Lyon, France to further collaborate on IPR enforcement.

The HKG devotes substantial resources to IPR enforcement. CED works with foreign customs agencies and the World Customs Organization to share best practices and to identify, disrupt, and dismantle criminal organizations engaging in IP theft that operate in multiple countries. The government has conducted public education efforts to encourage respect for IPR. Pirated and counterfeit products remain available on a small scale at the retail level throughout Hong Kong.

Other IPR challenges include end-use piracy of software and textbooks, internet peer-to-peer downloading, illegal streaming, and the illicit importation and transshipment of pirated and counterfeit goods from mainland China and other places in Asia. Hong Kong authorities have taken steps to address these challenges by strengthening collaboration with mainland Chinese authorities, prosecuting end-use software piracy, and monitoring suspect shipments at points of entry. It has also established a task force to monitor and crack down on internet-based peer-to-peer piracy.

The Drug Office of Hong Kong imposes a drug registration requirement that requires applicants for new drug registrations to make a non-infringement patent declaration. The Copyright Ordinance protects any original copyrighted work created or published anywhere in the world and criminalizes unauthorized copying and distribution of protected works. The Ordinance also provides rental rights for sound recordings, computer programs, films, and comic books, and includes enhanced penalty provisions and other legal tools to facilitate enforcement. The law defines possession of an infringing copy of computer programs, movies, TV dramas, and musical recordings (including visual and sound recordings) for use in business as an offense but provides no criminal liability for other categories of works. In June 2020, Hong Kong passed legislation to implement the Marrakesh Treaty.

In November 2021, HKG launched a three-month public consultation on the proposal to update the Copyright Ordinance. The proposal is based on the 2014 Copyright (Amendment) Bill, which was shelved in 2016 amid opposition by pan-democratic Legislative Council (LegCo) members. The proposal covered five key areas to modernize the copyright regime, such as giving copyright owners a “technology-neutral exclusive communication right” and providing new copyrights exemptions for three purposes, including “parody, satire, caricature and pastiche; commenting on current events; and quotation of copyright works”. The three-month consultation ended in February 2022. The HKG released a summary of the public consultation process on April 19, 2022 stating that they will proceed with submitting the 2014 Copyright (Amendment) Bill, with minimal changes, to LegCo with the first half of 2022.

The Patent Ordinance allows for issuing a patent in Hong Kong based on patents issued by the United Kingdom and mainland China known as a “re-registration” system. Patents issued in Hong Kong have no effect in mainland China and vice versa. Patents issued in Hong Kong are capable of being tested for validity, rectified, amended, revoked, and enforced in Hong Kong courts. Hong Kong’s Original Grant Patent (OGP) system, which enables applicants to file patent applications directly in Hong Kong without having to go through the re-registration process, came into operation in December 2019. The OGP system co-exists with the re-registration system for the granting of patents, allowing applicants flexibility while applying for patent protections in Hong Kong. In June 2021, Hong Kong granted its first‑ever standard patent by original grant. As of end‑May 2021, the IPD received a total of 426 OGP applications, with 67 percent from non‑local Hong Kong residents.

The Registered Design Ordinance is modeled on the EU design registration system. To be registered, a design must be new, and the system requires no substantive examination. The initial period of five years protection is extendable for four periods of five years each, up to 25 years.

Hong Kong’s trademark law allows for registration of trademarks relating to services. All trademark registrations originally filed in Hong Kong are valid for seven years and renewable for fourteen-year periods. Owners of trademarks registered elsewhere must apply in Hong Kong and satisfy all requirements of Hong Kong law. When evidence of use is required, such use must have occurred in Hong Kong. In June 2020, Hong Kong amended its Trade Marks Ordinance to provide a basis for the application of the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (Madrid Protocol). The HKG is expected to implement the Madrid Protocol in 2023 at the earliest.

Hong Kong has no specific ordinance to cover trade secrets; however, the government has a duty under its Trade Descriptions Ordinance to protect information from being disclosed to other parties. The Trade Descriptions Ordinance prohibits false trade descriptions, forged trademarks, and misstatements regarding goods and services supplied during trade.

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/ .

There are no impediments to the free flow of financial resources. Non-interventionist economic policies, complete freedom of capital movement, and a well-understood regulatory and legal environment make Hong Kong a regional and international financial center. It has one of the most active foreign exchange markets in Asia.

Assets and wealth managed in Hong Kong amounted to USD 4.5 trillion in 2020 (the latest figure available), with almost two-thirds of that coming from overseas investors. To enhance the competitiveness of Hong Kong’s fund industry, OFCs as well as onshore and offshore funds are offered a profits tax exemption.

The Hong Kong Monetary Authority’s (HKMA) Infrastructure Financing Facilitation Office (IFFO) provides a platform for pooling the efforts of investors, banks, and the financial sector to offer comprehensive financial services for infrastructure projects in emerging markets. IFFO is an advisory partner of the World Bank Group’s Global Infrastructure Facility.

Under the Insurance Companies Ordinance, insurance companies are authorized by the Insurance Authority to transact business in Hong Kong. As of January 2022, there were 163 authorized insurance companies in Hong Kong; 67 of them were foreign or mainland Chinese companies.

The Hong Kong Stock Exchange’s total market capitalization dropped by eleven percent to USD 5.4 trillion in 2021, with 2,572 listed firms at year-end. Hong Kong Exchanges and Clearing Limited, a listed company, operates the stock and futures exchanges. The Securities and Futures Commission (SFC), an independent statutory body outside the civil service, has licensing and supervisory powers to ensure the integrity of markets and protection of investors.

No discriminatory legal constraints exist for foreign securities firms establishing operations in Hong Kong via branching, acquisition, or subsidiaries. Rules governing operations are the same for all firms. No laws or regulations specifically authorize private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control.

In 2021, 1,368 mainland companies were listed in Hong Kong, including a total of 296 “H” share listings on the stock exchange, with total market capitalization of around USD 4.3 trillion, or 79 percent of the market total. The Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects allow individual investors to cross trade Hong Kong and mainland stocks.

Cross-boundary Wealth Management Connect launched in September 2021 in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), which aims to integrate Hong Kong, Macau, and nine cities in the Mainland’s Guangdong Province together. The GBA, which still lacks major details, faces many challenges that are likely to stall its success, including coordinating three disparate legal systems, three different currencies, and removing barriers to the movement of capital and people. The Wealth Connect scheme will enable residents in GBA to carry out cross-boundary investment in wealth management products distributed by banks in the area.

Under the Mainland-Hong Kong Mutual Recognition of Funds scheme, eligible mainland and Hong Kong mutual funds were allowed to be distributed in each other’s market. Hong Kong also has mutual recognition of funds programs with Switzerland, Thailand, Ireland, France, the United Kingdom, and Luxembourg.

Hong Kong has developed its debt market with the Exchange Fund bills and notes program. Outstanding Hong Kong Dollar debt stood at USD 155 billion by the end of 2021. The Bond Connect, a mutual market access scheme, allows investors from mainland China and overseas to trade in each other’s respective bond markets through a financial infrastructure linkage in Hong Kong. As of December 2021, northbound trading under Bond Connect has attracted 78 out of the top 100 global asset management companies, and 3,233 international investors from 35 jurisdictions. Southbound trading under Bond Connect was launched in September 2021 to enable mainland institutional investors to invest in offshore bonds through the Hong Kong bond market.

In September 2021, the SFC revised its anti-money laundering (AML) and counter-financing of terrorism guidelines. The updated guidelines require financial institutions to apply additional due diligence and risk mitigation measures for cross-border correspondent relationships in the securities sector, such as determining through publicly available information whether the respondent institution has been subject to targeted financial sanctions or regulatory actions and obtaining senior management’s approval before establishing cross-border correspondent relationships. The guidelines also prohibit financial institutions from establishing or continuing a cross-border correspondent relationship with a shell financial institution.

In February 2021, the HKG announced it would issue green bonds regularly and expand the scale of the Government Green Bond Program to USD 22.5 billion within the next five years. In November 2021, the HKG issued USD 3 billion worth of U.S.- and euro- denominated green bonds and its inaugural offering of renminbi-denominated bonds. In February 2022, the HKG also announced that it would issue about USD 800 million worth of retail green bonds for the first time, with proceeds from the sale used for sustainable projects in the city.

The HKG requires workers and employers to contribute to retirement funds under the Mandatory Provident Fund (MPF) scheme. Contributions are expected to channel roughly USD five billion annually into various investment vehicles. By December of 2021, the net asset values of MPF funds amounted to USD 152 billion.

A new listing regime for special purpose acquisition companies (SPACs) took effect on January 1, 2022 to provide an alternative to the traditional initial public offering (IPO) route. Under the city’s listing regime, a SPAC is required to raise IPO funds of a minimum of USD 130 million, and the trading of SPAC securities is restricted to professional and institutional investors only. Aquila Acquisition Corp, a SPAC backed by the asset management arm of mainland Chinese brokerage CMB International, made its trading debut on March 18, 2022. As of March 2022, the Hong Kong Stock Exchange has accepted a total of eleven SPAC applications.

Hong Kong has a three-tier system of deposit-taking institutions: licensed banks (159), restricted license banks (15), and deposit-taking companies (12). HSBC is Hong Kong’s largest banking group. With its majority-owned subsidiary Hang Seng Bank, HSBC controls more than 52.9 percent of total assets of banks in Hong Kong, followed by the Bank of China (Hong Kong), with 14.9 percent of total assets throughout 190 branches. In total, the five largest banks in Hong Kong had more than USD 2 trillion in total assets at the end of 2020. Full implementation of the Basel III capital, liquidity, and disclosure requirements was completed in 2019.

Hong Kong is a burgeoning cryptocurrency and digital asset hub in Asia. Cryptocurrency exchanges remain minimally regulated, despite a largescale crackdown in the Mainland. HKMA has announced plans to increase oversight of the market in an effort to combat scams and reduce volatility. In January 2022, HKMA announced plans for new crypto regulations, including guidelines for payment with stablecoins, investor protection policies, and digital asset authorities for licensed financial institutions.

Credit in Hong Kong is allocated on market terms and is available to foreign investors on a non-discriminatory basis. The private sector has access to the full spectrum of credit instruments as provided by Hong Kong’s banking and financial system. Legal, regulatory, and accounting systems are transparent and consistent with international norms. The HKMA, the de facto central bank, is responsible for maintaining the stability of the banking system and managing the Exchange Fund that backs Hong Kong’s currency. Real Time Gross Settlement helps minimize risks in the payment system and brings Hong Kong in line with international standards.

Banks in Hong Kong have in recent years strengthened anti-money laundering and counterterrorist financing controls, including the adoption of more stringent customer due diligence (CDD) process for existing and new customers. The HKMA stressed that “CDD measures adopted by banks must be proportionate to the risk level and banks are not required to implement overly stringent CDD processes.”

In May 2021, the HKG concluded a three-month consultation on legislative proposals to enhance Hong Kong’s anti-money laundering and counter-terrorist financing regime through the introduction of a licensing requirement for virtual asset services providers and a registration system for dealers in precious metals and stones. The government has yet to introduce a bill into the Legislative Council, as of end February 2022.

The NSL granted police the authority to freeze assets related to national security-related crimes. In June 2021 Hong Kong authorities froze the assets of flagship pro-democracy newspaper Apple Daily, which was subsequently forced to close. The HKMA advised banks in Hong Kong to report any transactions suspected of violating the NSL, following the same procedures as for money laundering. Hong Kong authorities reportedly asked financial institutions to freeze the bank accounts of media companies, former lawmakers, civil society groups, and other political targets who appear to be under investigation for their pro-democracy activities. Banks are also advised to disclose related property of clients who are found in breach of the NSL, according to the October 2021 guideline developed by the Hong Kong Association of Banks.

The HKMA welcomes the establishment of virtual banks, which are subject to the same set of supervisory principles and requirements applicable to conventional banks. The HKMA granted eight virtual banking licenses by the end of February 2022.

The HKMA’s Fintech Facilitation Office (FFO) aims to promote Hong Kong as a fintech hub in Asia. FFO has launched the faster payment system to enable bank customers to make cross-bank/e-wallet payments easily and created a blockchain-based trade finance platform to reduce errors and risks of fraud. The HKMA has signed nine fintech co-operation agreements with the regulatory authorities of Brazil, France, Poland, Singapore, Switzerland, Thailand, the United Arab Emirates, and the United Kingdom.

The Future Fund, Hong Kong’s wealth fund, was established in 2016 with an endowment of USD 28.2 billion. The fund seeks higher returns through long-term investments and adopts a “passive” role as a portfolio investor. About half of the Future Fund has been deployed in alternative assets, mainly global private equity and overseas real estate, over a three-year period. The rest is placed with the Exchange Fund’s Investment Portfolio, which follows the Santiago Principles, for an initial ten-year period. In February 2020, the HKG announced that it will deploy 10 percent of the Future Fund to establish a new portfolio, which is called the Hong Kong Growth Portfolio (HKGP), focusing on domestic investments to lift the city’s competitiveness in financial services, commerce, aviation, logistics and innovation. Announced in February 2022, the HKG will inject HK$10 billion (USD 1.3 billion) to the HKGP, of which half will be used to set up the Strategic Tech Fund, and the other half will be used to set up a GBA Investment Fund.

Hong Kong has several major HKG-owned enterprises classified as “statutory bodies.” Hong Kong is party to the Government Procurement Agreement (GPA) within the WTO framework. Annex 3 of the GPA lists as statutory bodies the Housing Authority, the Hospital Authority, the Airport Authority, the Mass Transit Railway Corporation Limited, and the Kowloon-Canton Railway Corporation, which procure in accordance with the agreement.

The HKG provides more than half the population with subsidized housing, along with most hospital and education services from childhood through the university level. The government also owns major business enterprises, including the stock exchange, railway, and airport.

Conflicts occasionally arise between the government’s roles as owner and policymaker. Industry observers have recommended that the government establish a separate entity to coordinate its ownership of government-held enterprises and initiate a transparent process of nomination to the boards of government-affiliated entities. Other recommendations from the private sector include establishing a clear separation between industrial policy and the government’s ownership function and minimizing exemptions of government-affiliated enterprises from general laws.

The Competition Law exempts all but six of the statutory bodies from the law’s purview. While the government’s private sector ownership interests do not materially impede competition in Hong Kong’s most important economic sectors, industry representatives have encouraged the government to adhere more closely to the Guidelines on Corporate Governance of State-owned Enterprises of the Organization for Economic Cooperation and Development (OECD).

All major utilities in Hong Kong, except water, are owned and operated by private enterprises, usually under an agreement framework by which the HKG regulates each utility’s management.

The Hong Kong Stock Exchange adopts a higher standard of disclosure – ‘comply or explain’ – about its environmental key performance indicators for listed companies. Results of a consultation process to review its ESG reporting guidelines indicate strong support for enhancing the ESG reporting framework. It has implemented proposals from the consultation process since July 2020. Hong Kong is not a signatory of the Montreux Document on Private Military and Security Companies. Under the Security Bureau, the Security and Guarding Services Industry Authority is responsible for formulating issuing criteria and conditions for security company licenses and security personnel permits and determining applications for security company licenses.

In October 2021, the HKG announced its Climate Action Plan 2050, outlining strategies and targets for combating climate change and achieving carbon neutrality by 2050. Major decarbonization strategies cover four key areas, including net-zero electricity generation by ceasing the use of coal for daily electricity generation and increasing the share of renewable energy in the fuel mix for electricity generation to 15 percent, energy savings and green buildings, green transport, and waste reduction. The HKG will devote about USD 31 billion to take forward various measures on climate change mitigation and adaptation in the next 15 to 20 years.

The HKG has prioritized becoming a regional green finance hub and has introduced a number of initiatives over the last year to promote green finance, including mandating climate-related disclosures aligned with the Task Force on Climate-related Financial Disclosures recommendations by 2025, conducting the first climate stress test for the banking sector, and expanding the HKG’s Green Bond Program. Additionally, the HKG has announced it is exploring options to develop Hong Kong as a regional carbon trading hub.

The government offers several financial incentives to promote the adoption of electric vehicles (EVs) and to enhance EV charging infrastructure to attain zero vehicular emissions before 2050. The HKG extended the first registration tax concession period for EVs to March 31, 2024 and continues to allow enterprises to claim full profits tax deduction for their capital expenditure on the procurements of EVs in the first year. Gross floor area concessions were also granted to encourage developers to install more EV charging-enabled infrastructure in residential and commercial buildings.

In December 2020, a USD 25.6 million Green Tech Fund (GTF) began accepting applications. The GTF provides funding support to R&D projects which can help Hong Kong decarbonize and enhance environmental protection. Announced in February 2022, the HKG will inject an additional of USD 25.6 million to the GTF. A total of fourteen projects have been approved since the GTF was launched, and most of them are initiated by universities in Hong Kong.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Mainland China ratified the United Nations Convention Against Corruption in January 2006, and it was extended to Hong Kong in February 2006. The Independent Commission Against Corruption (ICAC) is responsible for combating corruption and has helped Hong Kong develop a track record for combating corruption. U.S. firms have not identified corruption as an obstacle to FDI. A bribe to a foreign official is a criminal act, as is the giving or accepting of bribes, for both private individuals and government employees. Offenses are punishable by imprisonment and large fines.

The Hong Kong Ethics Development Center (HKEDC), established by the ICAC, promotes business and professional ethics to sustain a level-playing field in Hong Kong. The International Good Practice Guidance – Defining and Developing an Effective Code of Conduct for Organizations of the Professional Accountants in Business Committee published by the International Federation of Accountants (IFAC) and is in use with the permission of IFAC.

Simon Peh, Commissioner
Independent Commission Against Corruption
303 Java Road, North Point, Hong Kong
+852-2826-3111
Email: com-office@icac.org.hk 

Beijing’s imposition of the National Security Law (NSL) on June 30, 2020 has introduced heightened uncertainties for companies operating in Hong Kong. As a result, U.S. citizens traveling through or residing in Hong Kong may be subject to increased levels of surveillance, as well as arbitrary enforcement of laws and detention for purposes other than maintaining law and order.

As of March 2022, police have carried out at least 160 arrests of opposition politicians and activists for alleged “national security” offenses, including one U.S. citizen, in an effort to suppress pro-democracy views and political activity in the city. Police have also reportedly issued arrest warrants under the NSL for at least thirty individuals residing abroad, including U.S. citizens. Since June 2019, police have arrested over 10,000 people on various charges in connection with largely peaceful protests against government policies.

Please see the July 16, 2021 business advisory issued by the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security, for a facts-based analysis of the risks for companies operating in Hong Kong.

As a result of Hong Kong’s decreased autonomy from China, the Department of Commerce removed many of the Department of Commerce’s License Exceptions. U.S. Customs and Borders Protection (CBP) requires goods produced in Hong Kong to be marked to show China, rather than Hong Kong, as their country of origin. This requirement took effect November 9, 2020. It does not affect country of origin determinations for purposes of assessing ordinary duties or temporary or additional duties. Hong Kong has requested World Trade Organization dispute consultations to examine the issue. As of March 2022, the Department of Treasury has sanctioned 42 Hong Kong and PRC officials for their role in undermining Hong Kong’s high-degree of autonomy as guaranteed by the Sino-British Joint Declaration.

The PRC government does not recognize dual nationality. In January 2021, the HKG moved to enforce existing provisions of the Nationality Law of the People’s Republic of China in place since 1997, effectively ending its longstanding recognition of dual citizenship in Hong Kong. The action ended consular access to two detained U.S. citizens as of March 2021 and potentially removed our ability to provide fulsome consular assistance to about half of the estimated 85,000 U.S. citizens then residing in Hong Kong. U.S.-PRC, U.S.-Hong Kong and U.S. citizens of Chinese heritage may be subject to additional scrutiny and harassment, and the mainland government may prevent the U.S. Embassy or U.S. consulate from providing consular services.

Hong Kong financial regulators have conducted outreach to stress the importance of robust anti-money laundering (AML) controls and highlight potential criminal sanctions implications for failure to fulfill legal obligations under local AML laws. However, Hong Kong has a low number of prosecutions and convictions compared to the number of cases investigated.

Under the President’s Executive Order on Hong Kong Normalization, the United States notified the Hong Kong authorities in August 2020 of its suspension of the Agreement between the Government of the United States of America and the Government of Hong Kong for the Surrender of Fugitive Offenders and termination of the Agreement between the Government of the United States of America and the Government of Hong Kong for the Transfer of Sentenced Persons. The United States also gave notice of its termination of the Agreement Concerning Tax Exemptions from the Income Derived from the International Operation of Ships. In response, the HKG notified the United States of its purported suspension of the Agreement Between the Government of the United States of America and the Government of Hong Kong on Mutual Legal Assistance in Criminal Matters.

Hong Kong’s unemployment rate stood at 3.9 percent in the fourth quarter of 2021. The labor participation rate for men was 65 percent, while that for women was 54 percent. In 2021, skilled personnel working as administrators, managers, professionals, and associate professionals accounted for about 40 percent of the total working population. At the end of 2021, there were about 321,900 foreign domestic helpers, overwhelmingly women, working in Hong Kong. In 2021, about 13,800 foreign professionals, including 1,129 from the United States, came to work in the city under the city’s General Employment Policy, a five percent year-on-year decrease. The Employees Retraining Board provides skills re-training for local employees. To address a shortage of highly skilled technical and financial professionals, the HKG seeks to attract qualified foreign and mainland Chinese workers.

The Employment Ordinance (EO) and the Employees’ Compensation Ordinance prohibit the termination of employment in certain circumstances: 1) Any pregnant employee who has at least four weeks’ service and who has served notice of her pregnancy; 2) Any employee who is on paid statutory sick leave and; 3) Any employee who gives evidence or information in connection with the enforcement of the EO or relating to any accident at work, cooperates in any investigation of his employer, is involved in trade union activity, or serves jury duty may not be dismissed because of those circumstances. Breach of these prohibitions is a criminal offense.

According to the EO, someone employed under a continuous contract for not less than 24 months is eligible for severance payment if: 1) dismissed by reason of redundancy; 2) under a fixed term employment contract that expires without being renewed due to redundancy; or 3) laid off.

Unemployment benefits are income- and asset-tested on an individual basis if living alone; if living with other family members, the total income and assets of all family members are taken into consideration for eligibility. Recipients must be between the ages of 15-59, capable of work, and actively seeking full-time employment.

Parties in a labor dispute can consult the free and voluntary conciliation service offered by the Labor Department (LD). A conciliation officer appointed by the LD will help parties reach a contractually binding settlement. If there is no settlement, parties can start proceedings with the Labor Tribunal (LT), which can then be raised to the Court of First Instance, and finally the Court of Appeal for leave to appeal. The Court of Appeal can grant leave only if the case concerns a question of law of general public importance.

Local law provides for the rights of association and of workers to establish and join organizations of their own choosing, but the HKG took repeated actions that contrary to the principle of union independence. As of 2020, Hong Kong’s 1,355 registered employee unions had 907,839 members, a participation rate of about 25.6 percent. In 2021, however, threats and pressure from HKG and mainland officials, as well as from mainland-supported media outlets, led many unions and their confederations to disband. This included the Hong Kong Professional Teachers’ Union, Hong Kong’s largest union, as well as the Hong Kong Confederation of Trade Unions, which included more than 80 unions from a variety of trades and had more than 100,000 members.

Hong Kong’s labor legislation is in line with its international law obligations. Hong Kong has implemented 41 conventions of the International Labor Organization in full, and 18 others with modifications. Workers who allege discrimination against unions have the right to a hearing by the Labor Relations Tribunal. Legislation protects the right to strike. Collective bargaining is not protected by Hong Kong law; there is no obligation to engage in it; and it is not widely used. For more information on labor regulations in Hong Kong, please visit the following website: http://www.labour.gov.hk/eng/legislat/contentA.htm (Chapter 57 “Employment Ordinance”).

The LT has the power to make an order for reinstatement or re-engagement without securing the employer’s approval if it deems an employee has been unreasonably and unlawfully dismissed. If the employer does not reinstate or re-engage the employee as required by the order, the employer must pay to the employee a sum amounting to three times the employee’s average monthly wages up to USD 9,300. The employer commits an offense if he/she willfully and without reasonable excuse fails to pay the additional sum.

Recent changes to benefits and minimum wage are detailed as follows; as of January 2019, male employees are entitled to five days’ paternity leave (increased from three days). Effective May 2019, the statutory minimum hourly wage rate increased from USD 4.4 to USD 4.8. As of December 2020, the statutory maternity leave increased to fourteen weeks from ten weeks.

In November 2021, about 300 couriers working for a food delivery company engaged in a two-day strike, demanding increases in pay and work conditions. The strike ended after the company pledged to increase workers’ pay and make changes to the way it treated workers.

In February 2022, the HKG amended the EO to address issues arising from the city’s COVID measures. The amendment stipulates that employees’ absence from work for the purpose of complying with the government’s COVID restrictions under the Prevention & Control of Disease Ordinance will be deemed as sickness days under the Employment Ordinance. Laying off an employee for complying with government’s COVID restriction would be an unreasonable dismissal. In addition, the amendment allows an employer to dismiss an employee for non-compliance with the vaccination requirement or failure to produce proof of having been vaccinated, by any of the COVID vaccines recognized by HKG, after the employer requests proof after a specified period of time.

* Source for Host Country Data: Hong Kong Census and Statistics Department 

Eveline Tseng, Consul, Economic Affairs
U.S. Consulate General Hong Kong and Macau
26 Garden Road, Central

Changes in India’s foreign investment rules are notified in two different ways: (1) Press Notes issued by the Department for Promotion of Industry and Internal Trade (DPIIT) for most sectors, and (2) legislative action for insurance, pension funds, and state-owned enterprises in the coal sector. FDI proposals in sensitive sectors will, however, require the additional approval of the Home Ministry.

The DPIIT, under the Ministry of Commerce and Industry, is the lead investment agency, responsible for the formulation of FDI policy and the facilitation of FDI inflows. It compiles all policies related to India’s FDI regime into a single document that is updated every year. This updated policy compilation can be accessed at: http://dipp.nic.in/foreign-direct–investment/foreign–direct–investment-policy.  The DPIIT disseminates information about India’s investment climate and, through the Foreign Investment Implementation Authority (FIIA), plays an active role in resolving foreign investors’ project implementation problems. The DPIIT oftentimes consults with lead ministries and stakeholders. However, there have been specific incidences where some relevant stakeholders reported being left out of consultations.

In most sectors, foreign and domestic private entities can establish and own businesses and engage in remunerative activities. However, there are sectors of the economy where the government continues to retain equity limits for foreign capital as well as management and control restrictions. For example, India caps FDI in the Insurance Sector at 74 percent and mandates that insurance companies retain “Indian management and control.” Similarly, India allows up to 100 percent FDI in domestic airlines but has yet to clarify governing substantial ownership and effective control (SOEC) rules. A list of investment caps is accessible in the DPIIT’s consolidated FDI circular at: https://dpiit.gov.in/foreign-direct-investment/foreign-direct-investment-policy .

The Indian Government has continued to liberalize FDI policies across sectors. Notable changes during 2021 included:

Increasing the FDI cap for the insurance sector to 74 percent from 49 percent, albeit while retaining an “Indian management and control” requirement.

Increased the FDI cap for the pensions sector to 74 percent from 49 percent. The rider of “Indian management and control” is applicable in the pension sector.

Eliminated the FDI cap in the telecom sector. 100 percent FDI allowed for insurance intermediaries.

Eliminated the FDI cap for insurance intermediaries and state-run oil companies.

Increased the FDI cap for defense manufacturing units to 74 percent from 49 percent and up to 100 percent if the investment is approved under the Government Route review process.

Since the abolition of the Foreign Investment Promotion Board (FIPB) in 2017, FDI screening has been progressively liberalized and decentralized. All FDI into India must complete either an “Automatic Route” or “Government Route” review process. FDI in most sectors fall under the Automatic Route, which simply requires a foreign investor to notify India’s central bank, the Reserve Bank of India (RBI), and comply with relevant domestic laws and regulations for that sector. In contrast, investments in specified sensitive sectors – such as defense – require review under the Government Route to obtain the prior approval of the ministry with jurisdiction over the relevant sector along with the concurrence of the DPIIT.

In 2020, India issued Press Note 3 requiring all proposed FDI by nonresident entities located in (or having “beneficial owners” in) countries that share a land border with India to obtain prior approval via the Government Route. This screening requirement applies regardless of the size of the proposed investment or relevant sector. The rule primarily impacted the People’s Republic of China, whose companies had more FDI in India, but other neighboring countries affected include Pakistan, Bangladesh, Nepal, Myanmar, and Bhutan.

A. Third-party investment policy reviews

https://www.oecd.org/economy/india-economic-snapshot/ 

https://www.worldbank.org/en/country/india/overview 

https://www.wto.org/english/tratop_e/tpr_e/tp503_e.htm 

B. Civil society organization reviews of investment policy-related concerns

https://www.ncaer.org/publication_details.php?pID=370 

https://www.orfonline.org/research/jailed-for-doing-business/ 

The DPIIT is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector. The DPIIT also is responsible for the overall industrial policy and facilitating and increasing FDI flows to the country.

However, Invest India  is the government’s lead investment promotion and facilitation agency and is managed in partnership with the DPIIT, state governments, and business chambers. Invest India works with investors through their investment lifecycle to provide support with market entry strategies, deep dive industry analysis, partner search, and policy advocacy as required. Businesses can register online through the Ministry of Corporate Affairs (MCA) website: http://www.mca.gov.in/ .

To fast-track the regulatory approval process, particularly for major projects, the government created the digital multi-modal Pro-Active Governance and Timely Implementation (PRAGATI) initiative in 2015. The Prime Minister personally monitors the PRAGATI process, to ensure government entities meet project deadlines. As of September 2021, the Prime Minister had chaired 38 PRAGATI meetings with 297 projects, worth around $200 billion, approved and cleared. In 2014, the government also formed an inter-ministerial committee, led by the DPIIT, to track investment proposals requiring inter-ministerial approvals. Business and government sources report this committee meets informally on an ad hoc basis as they receive reports from companies and business chambers seeking assistance with stalled projects.

According to data from the Ministry of Commerce’s India Brand Equity Foundation (IBEF), outbound investment from India has both increased and changed which countries and sectors it targets. During the last ten years, Overseas Investment Destination (OID) shifted away from resource-rich countries, such as Australia, UAE, and Sudan, toward countries providing higher tax benefits, such as Mauritius, Singapore, the British Virgin Islands, and the Netherlands. Indian firms invest overseas primarily through mergers and acquisitions (M&A) to get direct access to newer and more extensive markets and better technologies and increasingly achieve a global reach. According to RBI data, outward investment from India in 2021 totaled around $29 billion compared with around $30 billion the previous year. The RBI’s recorded total of outward investment includes equity capital, loans, and issuance of guarantees.

Policies pertaining to foreign investments are framed by the DPIIT, and implementation is undertaken by lead federal ministries and sub-national counterparts. Some government policies are written in a way that can be discriminatory to foreign investors or favor domestic industry. For example, India bars foreign investors from engaging in multi-brand retail, which also limits foreign e-Commerce investors to a “market-place model.” On most occasions major rules are framed after thorough discussions by government authorities and require the approval of the cabinet and, in some cases, the Parliament as well. However, in some instances the rules have been enacted without any consultative process.

The Indian Accounting Standards were issued under the supervision and control of the Accounting Standards Board, a committee under the Institute of Chartered Accountants of India (ICAI), and has government, academic, and professional representatives. The Indian Accounting Standards are named and numbered in the same way as the corresponding International Financial Reporting Standards. The National Advisory Committee on Accounting Standards recommends these standards to the MCA, which all listed companies must then adopt. These can be accessed at: https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/accounting-standards.html 

India is a member of the South Asia Association for Regional Cooperation (SAARC), an eight- member regional block in South Asia. India’s regulatory systems are aligned with SAARC’s economic agreements, visa regimes, and investment rules. Dispute resolution in India has been through tribunals, which are quasi-judicial bodies. India has been a member of the WTO since 1995, and generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade; however, at times there are delays in publishing the notifications. The Governments of India and the United States cooperate in areas such as standards, trade facilitation, competition, and antidumping practices.

India adopted its legal system from English law and the basic principles of the Common Law as applied in the UK are largely prevalent in India. However, foreign companies need to adjust for Indian law when negotiating and drafting contracts in India to ensure adequate protection in case of breach of contract. The Indian judiciary provides for an integrated system of courts to administer both central and state laws. The judicial system includes the Supreme Court as the highest national court, as well as a High Court in each state or a group of states which covers a hierarchy of subordinate courts. Article 141 of the Constitution of India provides that a decision declared by the Supreme Court shall be binding on all courts within the territory of India. Apart from courts, tribunals are also vested with judicial or quasi-judicial powers by special statutes to decide controversies or disputes relating to specified areas.

Courts have maintained that the independence of the judiciary is a basic feature of the Constitution, which provides the judiciary institutional independence from the executive and legislative branches.

The government has a policy framework on FDI, which is updated every year and formally notified as the Consolidated FDI Policy ( https://dpiit.gov.in/foreign-direct-investment/foreign-direct-investment-policy ). The DPIIT issues policy pronouncements on FDI through the Consolidated FDI Policy Circular, Press Notes, and press releases that are also notified by the Ministry of Finance as amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 under the Foreign Exchange Management Act (FEMA), 1999. These notifications take effect from the date of issuance of the Press Notes/Press Releases, unless specified otherwise therein. In case of any conflict, the relevant Notification under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 will prevail. The payment of inward remittance and reporting requirements are stipulated under the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 issued by the RBI.

The government has introduced “Make in India” and “Self-Reliant India” programs that include investment policies designed to promote domestic manufacturing and attract foreign investment. The “Digital India” program aims to open new avenues for the growth of the information technology sector. The “Start-up India” program creates incentives to enable start-ups to become commercially viable and grow. The “Smart Cities” program creates new avenues for industrial technological investment opportunities in select urban areas.

The central government has successfully established independent and effective regulators in telecommunications, banking, securities, insurance, and pensions. India’s antitrust body, the Competition Commission of India (CCI) reviews cases against cartelization and abuse of dominance and is a well-regarded regulator. The CCI’s investigations wing is required to seek the approval of the local chief metropolitan magistrate for any search and seizure operations. The CCI conducts capacity-building programs for government officials and businesses.

Tax experts confirm that India does not have domestic expropriation laws in place. The Indian Parliament on August 6, 2021, repealed a 2012 law that authorized retroactive taxation. In first proposing the repeal on August 5, Finance Minister Nirmala Sitharaman committed the government to refund the disputed amounts from outstanding cases under the old law. The Indian government has been divesting from state owned enterprises (SOEs) since 1991. In February 2021, the Finance Minister detailed an ambitious program to privatize roughly $24 billion in state owned enterprises as part of the FY 2021-22 (March 31-April 1) budget.

India made resolving contract disputes and insolvency easier with the enactment of the Insolvency and Bankruptcy Code (IBC) in 2016. The World Bank noted that the IBC introduced the option of insolvency resolution for commercial entities as an alternative to liquidation or other mechanisms of debt enforcement, reshaping the way insolvent companies can restore their financial well-being or are liquidated. The IBC created effective tools for creditors to successfully negotiate and receive payments. As a result, the overall recovery rate for creditors jumped from 26.5 to 71.6 cents on the dollar, and the time required for resolving insolvency also was reduced from 4.3 years to 1.6 years. India is now, by far, one of the best performers in South Asia in resolving insolvency and does better than the average for OECD high-income economies in terms of the recovery rate, time taken, and cost of proceedings.

India enacted the Arbitration and Conciliation Act in 1996, based on the United Nations Commission on International Trade Law (UNCITRAL) model to align its adjudication of commercial contract dispute resolution mechanisms with global standards. The government established the International Center for Alternative Dispute Resolution (ICADR) as an autonomous organization under the Ministry of Law and Justice to promote the settlement of domestic and international disputes through alternate dispute resolution. The World Bank has also funded ICADR to conduct training for mediators in commercial dispute settlement.

Judgments of foreign courts have been enforced under multilateral conventions, including the Geneva Convention. India is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). However, Indian firms are known to file lawsuits in domestic courts to delay paying an arbitral award. Several cases are currently pending, the oldest of which dates to 1983. In 2021, Amazon received an interim award against Future Retail from the Singapore International Arbitration Centre. However, Future Retail has refused to accept the findings and initiated litigation in Indian courts. India is not a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

The Permanent Court of Arbitration (PCA) at The Hague and the Indian Law Ministry agreed in 2007 to establish a regional PCA office in New Delhi, although this remains pending. The office would provide an arbitration forum to match the facilities offered at The Hague but at a lower cost.

In November 2009, the Department of Revenue’s Central Board of Direct Taxes established eight dispute resolution panels across the country to settle the transfer-pricing tax disputes of domestic and foreign companies. In 2016 the government approved amendments that would allow Commercial Courts, Commercial Divisions, and Commercial Appellate Divisions of the High Courts Act to establish specialized commercial divisions within domestic courts to settle long-pending commercial disputes.

Since formal dispute resolution is expensive and time consuming, many businesses choose methods, including ADR, for resolving disputes. The most used ADRs are arbitration and mediation. India has enacted the Arbitration and Conciliation Act based on the UNCITRAL Model Law. In cases that involve constitutional or criminal law, traditional litigation remains necessary.

The introduction and implementation of the IBC in 2016 overhauled of the previous framework for insolvency with much-needed reforms. The IBC created a uniform and comprehensive creditor-driven insolvency resolution process that encompasses all companies, partnerships, and individuals (other than financial firms). According to the World Bank, the time required for resolving insolvency was reduced significantly from 4.3 years to 1.6 years after implementation of the IBC. The law, however, does not provide for U.S. style Chapter 11 bankruptcy provisions.

In August 2016, the Indian Parliament passed amendments to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, and the Debt Recovery Tribunals Act. These amendments targeted helping banks and financial institutions recover loans more effectively, encouraging the establishment of more asset reconstruction companies (ARCs), and revamping debt recovery tribunals. The Finance Minister announced in her February 2021 budget speech to Parliament plans to establish the National Asset Reconstruction Company Limited (NARCL), or “bad bank” to resolve large cases of corporate stress. In October 2021, the RBI approved the license to set up the NARCL.

On May 10, 2021, the Securities and Exchange Board of India (SEBI) issued a circular to introduce new environment, social, and governance (ESG) reporting requirements for the top 1,000 listed companies by market capitalization. According to this circular, new disclosure will be made in the format of the Business Responsibility and Sustainability Report (BRSR), which is a notable departure from SEBI’s existing Business Responsibility Report and a significant step toward bringing sustainability reporting up to existing financial reporting standards. BRSR reporting will be voluntary for FY 2021-22 and mandatory from FY 2022-23 for the top 1,000 listed companies by market capitalization. This is to provide companies subject to these requirements with sufficient time to adapt to the new requirements.

The regulatory environment in terms of foreign investment has been eased to make it investor friendly. The measures taken by the government opened new sectors for foreign direct investment, increased the investment limit of existing sectors, and simplified other conditions of the FDI policy. The government also adopted production linked incentives to promote manufacturing in pharmaceuticals, automobiles, textiles, electronics, and other sectors. Details can be accessed at- https://www.investindia.gov.in/production-linked-incentives-schemes-india 

The government established several foreign trade zone initiatives to encourage export-oriented production. These include Special Economic Zones (SEZs), Export Processing Zones (EPZs), Software Technology Parks (STPs), and Export Oriented Units (EOUs). According to the Ministry of Commerce and Industry, as of February 2022, 425 SEZ’s have been approved and 376 SEZs were operational with 5,604 operating units. The SEZs are treated as foreign territory, and businesses operating within the zones are not subject to customs regulations, FDI equity caps, or industrial licensing requirements and enjoy tax holidays and other tax breaks. Since 2018, the Indian government also announced guidelines for the establishment of the National Industrial and Manufacturing Zones (NIMZs), envisaged as integrated industrial townships to be managed by a special purpose vehicle and led by a government official. So far, three NIMZs have received “final approval” and 13 more have received “in-principal approval.” In addition, eight investment regions along the Delhi-Mumbai Industrial Corridor (DIMC) have also been established as NIMZs. EPZs are industrial parks with incentives for foreign investors in export-oriented businesses. STPs are special zones with similar incentives for software exports. EOUs are industrial companies, established anywhere in India, that export their entire production and are granted duty-free import of intermediate goods; income tax holidays; exemption from excise tax on capital goods, components, and raw materials; and a waiver on sales taxes. These initiatives are governed by separate rules and granted different benefits, details of which can be found at: http://www.sezindia.nic.in,  

https://www.stpi.in/  

http://www.fisme.org.in/export_schemes/DOCS/B- 

1/EXPORT%20ORIENTED%20UNIT%20SCHEME.pdf and http://www.makeinindia.com/home. 

The Indian government does issue guarantees to investments but only for strategic industries.

The government has an ambitious target of installing 500 gigawatts of renewable energy (RE) by 2030 and has introduced several schemes and policies  supporting clean energy deployment. State governments used to provide feed-in tariffs during the initial stages of RE development. However, with the RE sector becoming competitive, the scheme was discontinued in 2016. Most projects now are awarded through a Tariff Based Competitive Bidding Process . The Ministry of New & Renewable Energy (MNRE) provides ‘ Must Run ’ status to RE projects. MNRE offers Production Linked Incentives (PLI) under the National Program on High Efficiency Solar PV Modules. The PLI scheme was initially offered for just under $617 million and was oversubscribed. Under the FY 2022-23 budget, it was expanded by another $2.6 billion. The Ministry of Heavy Industry (MHI) launched the National Electric Mobility Mission to provide a roadmap for the faster adoption of electric vehicles. Can be accessed at https://policy.asiapacificenergy.org/sites/default/files/National%20Electric%20Mobility%20Mission%20Plan%202020.pdf . MHI also launched a PLI scheme National Program on Advance Chemistry Cell (ACC) Battery Storage  to promote battery manufacturing. The Department of Science & Technology leads Carbon Capture Utilization & Storage (CCUS)  efforts to enable near-zero CO2 emissions from power plants and carbon-intensive industries with the program limited to R&D and pilots. The Bureau of Energy Efficiency (BEE) leads the National Mission on Enhanced Energy Efficiency  and manages several programs promoting Energy Efficiency  across sectors, including buildings, E-Mobility, fuel efficiency for heavy duty vehicles and passenger cars, demand side management, standards, and labelling and certification. The National Hydrogen Mission was launched in August 2021, with the aim to meeting Climate targets and making India a green hydrogen hub. Carbon Capture Utilization & Storage (CCUS)  efforts to enable near-zero CO2 emissions from power plants and carbon-intensive industries with the program limited to R&D and pilots. The Bureau of Energy Efficiency (BEE) leads the National Mission on Enhanced Energy Efficiency  and manages several programs promoting Energy Efficiency  across sectors, including buildings, E-Mobility, fuel efficiency for heavy duty vehicles and passenger cars, demand side management, standards, and labelling and certification. The National Hydrogen Mission was launched in August 2021, with the aim to meeting Climate targets and making India a green hydrogen hub.

Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India. The government and SOEs give a 20 percent price preference to vendors utilizing more than 50 percent local content. However, PMA for government procurement limits access to the most cost effective and advanced ICT products available. In December 2014, PMA guidelines were revised and reflect the following updates:

1. Current guidelines emphasize that the promotion of domestic manufacturing is the objective of PMA, while the original premise focused on the linkages between equipment procurement and national security.
2. Current guidelines on PMA implementation are limited to hardware procurement only. Former guidelines were applicable to both products and services.
3. Current guidelines widen the pool of eligible PMA bidders, to include authorized distributors, sole selling agents, authorized dealers, or authorized supply houses of the domestic manufacturers of electronic products, in addition to OEMs, provided they comply with the following terms:
   1. The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.
   2. The bidder shall furnish the affidavit of self-certification issued by the domestic manufacturer to the procuring agency declaring that the electronic product is domestically manufactured in terms of the domestic value addition prescribed.
   3. It shall be the responsibility of the bidder to furnish other requisite documents required to be issued by the domestic manufacturer to the procuring agency as per the policy.
4. The current guidelines establish a ceiling on fees linked with the compliance procedure. There would be a complaint fee of roughly $3,000, or one percent of the value of the domestically manufactured electronic product being procured, subject to a maximum of about $7,500, whichever is higher.In January 2017, the Ministry of Electronics & Information Technology (MeitY) issued a draft notification under the PMA policy, stating a preference for domestically manufactured servers in government procurement. A current list of PMA guidelines, notified products, and tendering templates can be found on MeitY’s website: http://meity.gov.in/esdm/pma 

In April 2018, the RBI, announced, without prior stakeholder consultation, that all payment system providers must store their Indian transaction data only in India. The RBI mandate went into effect on October 15, 2018, despite repeated requests by industry and U.S. officials for a delay to allow for more consultations. In July 2019, the RBI, again without prior stakeholder consultation, retroactively expanded the scope of its 2018 data localization requirement to include banks, creating potential liabilities going back to late 2018. The RBI policy overwhelmingly and disproportionately has affected U.S. banks and investors, who depend on the free flow of data to both achieve economies of scale and to protect customers by providing global real-time monitoring and analysis of fraud trends and cybersecurity. In 2021, the RBI banned American Express, Diners Club, and Mastercard from issuing new cards for non-compliance with the data localization rule. In November 2021, the RBI deemed Diners Club compliant and permitted them to resume issuing new cards, but the ban on Mastercard and American Express continues.

In addition to the RBI data localization directive for payments companies and banks, the government formally introduced its draft Personal Data Protection Bill (PDPB) in December 2019 which has remained pending in Parliament. The PDPB would require “explicit consent” as a condition for the cross-border transfer of sensitive personal data, requiring users to fill out separate forms for each company that held their data. Additionally, Section 33 of the bill would require a copy of all “sensitive personal data” and “critical personal data” to be stored in India, potentially creating redundant local data storage. The localization of all “sensitive personal data” being processed in India could directly impact IT exports. In the current draft no clear criteria for the classification of “critical personal data” has been included. The PDPB also would grant wide authority for a newly created Data Protection Authority to define terms, develop regulations, or otherwise provide specifics on key aspects of the bill after it becomes a law. The implementation of a New Information Technology Rule through Intermediary Guidelines and a Digital Media Ethics Code added further uncertainty to how existing rules will interact with the PDPB and how non-personal data will be handled.

In India, a registered sales deed does not confer title of land ownership and is merely a record of the sales transaction that only confers presumptive ownership and can still be disputed. Instead, the title is established through a chain of historical transfer documents that originate from the land’s original established owner. Accordingly, before purchasing land, buyers should examine all the documents that establish title from the original owner. Many owners, particularly in urban areas, do not have access to the necessary chain of documents. This increases uncertainty and risks in land transactions.

Several cities, including Delhi, Kolkata, Mumbai, and Chennai, have grown according to a master plan registered with the central government’s Ministry of Urban Development. Property rights are generally well-enforced in such places, and district magistrates – normally senior local government officials – notify land and property registrations. Banks and financial institutions provide mortgages and liens against such registered property.

In other urban areas, and in areas where illegal settlements have been established, titling often remains unclear. The government launched the National Land Records Modernization Program (NLRMP) in 2008 to clarify land records and provide landholders with legal titles. The program requires the government to survey an area of approximately 2.16 million square miles, including over 430 million rural households, 55 million urban households, and 430 million land records. Initially scheduled for completion in 2016, the program is now scheduled to conclude in 2021.

Although land title falls under the jurisdiction of state governments, both the Indian Parliament and state legislatures can make laws governing “acquisition and requisitioning of property.” Land acquisition in India is governed by the Land Acquisition Act (2013), which entered into force in 2014, and continues to be a complicated process due to the lack of an effective legal framework. Land sales require adequate compensation, resettlement of displaced citizens, and 70 percent approval from landowners. The displacement of poorer citizens is politically challenging for local governments.

Foreign and domestic private entities are permitted to establish and own businesses in trading companies, subsidiaries, joint ventures, branch offices, project offices, and liaison offices, subject to certain sector-specific restrictions. The government does not permit FDI in real estate, other than company property used to conduct business and for the development of most types of new commercial and residential properties. Foreign Institutional Investors (FIIs) can invest in initial public offerings (IPOs) of companies engaged in real estate. They can also participate in pre-IPO placements undertaken by real estate companies without regard to FDI restrictions.

Businesses that intend to build facilities on land they own are also required to take the following steps: 1) register the land and seek land use permission if the industry is located outside an industrially zoned area; 2) obtain environmental site approval; 3) seek authorization for electricity and financing; and 4) obtain appropriate approvals for construction plans from the respective state and municipal authorities. Promoters must also obtain industry-specific environmental approvals in compliance with the Water and Air Pollution Control Acts. Petrochemical complexes, petroleum refineries, thermal power plants, bulk drug makers, and manufacturers of fertilizers, dyes, and paper, among others, must also obtain clearance from the Ministry of Environment and Forests.

The Real Estate Act, 2016 aims to protect the rights and interests of consumers and promote uniformity and standardization of business practices and transactions in the real estate sector. Details are available at: http://mohua.gov.in/cms/TheRealEstateAct2016.php 

The Foreign Exchange Management Regulations and the Foreign Exchange Management Act set forth the rules that allow foreign entities to own immoveable property in India and convert foreign currencies for the purposes of investing in India. These regulations can be found at: https://www.rbi.org.in/scripts/Fema.aspx . Foreign investors operating under the Automatic Route are allowed the same rights as an Indian citizen for the purchase of immovable property in India in connection with an approved business activity.

Traditional land use rights, including communal rights to forests, pastures, and agricultural land, are protected according to various laws, depending on the land category and community residing on it. Relevant legislation includes the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act 2006, the Tribal Rights Act, and the Tribal Land Act.

India remained on the Priority Watch List in the USTR Office’s 2022 Special 301 Report due to concerns over weak intellectual property (IP) protection and enforcement. The 2022 Review of Notorious Markets for Counterfeiting and Piracy includes physical and online marketplaces located in or connected to India.

In the field of copyright, procedural hurdles, cumbersome policies, and ineffective enforcement continue to remain concerns. In February 2019, the Cinematograph (Amendment) Bill, 2019, which would criminalize illicit camcording of films, was tabled in the Parliament and remains pending. In June 2021, the Ministry of Information and Broadcasting sought public comments on the Draft Cinematograph (Amendment) Bill, 2021. While the draft Bill proposes to enhance the penalties against piracy envisaged in the earlier 2019 bill, it also creates new concerns for the right holders by exempting all exceptions to copyright infringement covered by Section 52 of the India Copyright Act. The expansive granting of licenses under Chapter VI of the Indian Copyright Act and overly broad exceptions for certain uses have raised concerns regarding the strength of copyright protection and complicated the market for music licensing. In April 2021, India abolished the Intellectual Property Appellate Board (IPAB) and transferred its duties to the High Courts and Commercial Courts, creating uncertainties throughout the IP landscape, including raising concerns regarding the efficient adjudication of contentious IP matters. In addition, the abolishment left open how certain IP royalties will be set, collected, and distributed across the country.

In August 2021, the DPIIT issued a notice requesting stakeholder comments on the recommendation of the July 2021 Department Related Parliamentary Standing Committee on Commerce (DRPSCC) Report to amend Section 31D of the Indian Copyright Act to extend statutory licensing to “internet or digital broadcasters.” The recommendation broadens the scope of statutory licensing to encompass not only radio and television broadcasting, but also online transmissions, despite a High Court ruling earlier in 2019 that held that statutory broadcast licensing does not include online transmissions. If implemented to permit statutory licensing for interactive transmissions, the DRPSCC Report’s recommendation would not only have severe implications for rights holders who make their content available online, but also raise serious concerns about India’s compliance with relevant international obligations.

In the field of patents, the potential threat of compulsory licenses and patent revocations, and the narrow patentability criteria under the Indian Patents Act, burden companies across industry sectors. Patent applications continue to face expensive and time consuming pre- and post-grant oppositions and excessive reporting requirements. In October 2020, India issued a revised “Statement of Working of Patents” (Form 27), required annually by patentees. While some stakeholders have welcomed the revised version of Form 27, concerns remain as to whether the requirement and its associated penalties suppress innovation, and whether Indian authorities will treat as confidential the sensitive business information that parties are required to disclose on the form.

India has made some progress on certain administrative decisions in past years, upholding patent rights, and developing specific tools and remedies to support the rights of a patent holder. Nonetheless, concerns remain over revocations and other challenges to patents, especially patents for agriculture, biotechnology, and pharmaceutical products. In addition to India’s application of its compulsory licensing law, the Indian Supreme Court in 2013 interpreted Section 3(d) of India’s Patent Law, as creating a “second tier of qualifying standards for patenting chemical substances and pharmaceuticals.”

India currently lacks an effective system for protecting against unfair commercial use, as well as unauthorized disclosure, of undisclosed tests or other data generated to obtain marketing approval for pharmaceutical and agricultural products. Investors have raised concerns with respect to allegedly infringing pharmaceuticals being marketed without advance notice or adequate time or opportunity for parties to achieve early resolution of potential IP disputes.

U.S. and Indian companies have advocated for eliminating gaps in India’s trade secrets regime, such as through the adoption of legislation that would specifically address the protection of trade secrets. While India’s National Intellectual Property Rights Policy called in 2016 for trade secrets to serve as an “important area of study for future policy development,” this work has not yet been prioritized.

India issued a revised Manual of Patent Office Practice and Procedure in November 2019 that requires patent examiners to look to the World Intellectual Property Organization’s Centralized Access to Search and Examination (CASE) system and Digital Access Service (DAS) to find prior art and other information filed by patent applicants in other jurisdictions.

Other recent developments include India’s steps toward reducing delays and examination backlogs for patent and trademark applications. In addition, India actively promotes IP awareness and commercialization throughout India through the Cell for IPR Promotion and Management (CIPAM), a professional body under the aegis of the DPIIT, and through the Innovation Cell of the Ministry of Education. Following the IPAB’s abolition in July 2021, the Delhi High Court created an Intellectual Property Division (IPD) to deal with all matters related to Intellectual Property Rights (IPR), including those previously covered by the IPAB.

In July 2021, DRPSCC issued a report on “Review of the Intellectual Property Rights Regime in India” that is largely based on a premise that stronger protection and enforcement of IP would lead to better economic and social development in the country. The report makes many positive recommendations and emphasizes that India’s IP regime should comply with “International agreements, rules and norms” and be compatible with other nations and foreign entities. Some of the DRPSCC’s recommendations are problematic and raise serious concern from the perspective of U.S. innovators and creators, such as those relating to statutory licensing for “internet or digital broadcasters” under copyright law, and compulsory licensing under patent law.

Resources for Intellectual Property Rights Holders:

John Cabeca
Intellectual Property Counselor for South Asia
U.S. Patent and Trademark Office
Foreign Commercial Service
email: john.cabeca@trade.gov
website: https://www.uspto.gov/ip-policy/ip-attache-program 
tel: +91-11-2347-2000

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/ .

Indian stocks experienced significant losses at the start of 2021, stemming from the effects of the COVID-19 pandemic on the economy. By midyear, markets began to recover, with India’s stock benchmarks reaching record highs and becoming among the top performers globally. Indian companies raised a combined $15.57 billion through 121 IPOs in 2021, the highest amount ever raised in a single calendar year compared with the previous high of $8.4 billion in 2017.

Foreign investment inflows drove markets higher through February 2021. However, these investments began exiting the market when faced with the potential for faster-than-expected withdrawal of monetary stimulus and the Delta variant of COVID-19. Domestic institutional investors compensated outflows of foreign investment through significant investment in Indian stocks. Foreign investors’ net investment in 2021 was about $7 billion, significantly lower than the $14.5 billion in 2020 and $19 billion in 2019. Domestic investors put about $12.5 billion in 2021 into Indian domestic equity markets. Indian investors opened 27.4 million new stock trading accounts in 2021, up from 10.5 million accounts opened in 2020.

The SEBI is considered one of the most progressive and well-run of India’s regulatory bodies.  The SEBI regulates India’s securities markets, including enforcement activities and is India’s direct counterpart to the U.S. Securities and Exchange Commission (SEC).  The Board oversees seven exchanges: BSE Ltd. (formerly the Bombay Stock Exchange), the National Stock Exchange (NSE), the Metropolitan Stock Exchange, the Calcutta Stock Exchange, the Multi Commodity Exchange (MCX), the National Commodity & Derivatives Exchange Limited, and the Indian Commodity Exchange.

Foreign venture capital investors (FVCIs) must register with the SEBI to invest in Indian firms. They can also set up domestic asset management companies to manage funds. All such investments are allowed under the automatic route, subject to SEBI and RBI regulations, as well as FDI policy. FVCIs can invest in many sectors, including software, information technology, pharmaceuticals and drugs, biotechnology, nanotechnology, biofuels, agriculture, and infrastructure.

Companies incorporated outside India can raise capital in India’s capital markets through the issuance of Indian Depository Receipts (IDRs) based on SEBI guidelines. Standard Chartered Bank, a British bank was the only foreign entity to list in India but delisted in June 2020. Experts attribute the lack of interest in IDRs to initial entry barriers, lack of clarity on conversion of the IDRs holdings into overseas shares, lack of tax clarity, and the regulator’s failure to popularize the product.

External commercial borrowing (ECB), or direct lending to Indian entities by foreign institutions, is allowed if it conforms to parameters such as minimum maturity; permitted and non-permitted end-uses; maximum all-in-cost ceiling as prescribed by the RBI; funds are used for outward FDI or for domestic investment in industry, infrastructure, hotels, hospitals, software, self-help groups or microfinance activities, or to buy shares in the disinvestment of public sector entities. The rules are published by the RBI: https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11510 

According to RBI data, ECB by corporations and non-banking financial companies reached $38.8 billion in 2021. Companies have been increasingly tapping overseas markets for funds to take advantage of low interest rates in global markets. On December 8, 2021, the RBI announced a switch in calculation of interest rates for ECB and trade credits from the London Interbank Offered Rate (LIBOR) to alternative reference rates (ARRs).

The RBI has taken several steps in the past few years to bring the activities of the offshore Indian rupee (INR) market in Non-Deliverable Forwards (NDF) onshore, with the goal of deepening domestic markets, enhancing downstream benefits, and obviating the need for an NDF market. FPIs with access to currency futures or the exchange-traded currency options market can hedge onshore currency risks in India and may directly trade in corporate bonds.

The RBI allowed banks to freely offer foreign exchange quotes to non-resident Indians. The RBI has stated that trading on INR derivatives would be allowed and settled in foreign currencies in International Financial Services Centers (IFSCs). In June 2020, the RBI allowed foreign branches of Indian banks and branches located in IFSCs to participate in the NDF. With the INR trading volume in the offshore market higher than the onshore market, the RBI felt the need to limit the impact of the NDF market and curb volatility in the movement of the INR. In August 2021, the RBI released a working paper  discussing the influence of offshore markets on onshore markets.

The International Financial Services Centre at Gujarat International Financial Tech-City (GIFT City) is being developed to compete with global financial hubs. In January 2016, BSE Ltd. was the first exchange to start operations there. The NSE, domestic banks, and foreign banks have also started IFSC banking units in GIFT city. As part of its FY 2021-22 budget proposal, the government recommended establishing an international arbitration center in GIFT City to help facilitate faster resolution of commercial disputes, akin to the operation of the Singapore International Arbitration Centre (SIAC) or London Commercial Arbitration Centre (LCAC).

The public sector remains predominant in the banking sector, with public sector banks (PSBs) accounting for about 66 percent of total banking sector assets. However, the share of public banks in total loans and advances has fallen sharply in the last five years (from 70.84 percent in FY 2015-16 to 58.68 percent in FY 2021-22), primarily driven by stressed balance sheets and non-performing loans. In recent years, several new licenses were granted to private financial entities, including two new universal bank licenses and 10 small finance bank licenses. The government announced plans in 2021 to privatize two PSBs. This followed Indian authorities consolidating 10 public sector banks into four in 2019, which reduced the total number of PSBs from 18 to 12. However, the government has yet to introduce the necessary legislation needed to privatize PSBs. Although most large PSBs are listed on exchanges, the government’s stakes in these banks often exceeds the 51 percent legal minimum. Aside from the large number of state-owned banks, directed lending and mandatory holdings of government paper are key facets of the banking sector. The RBI requires commercial banks and foreign banks with more than 20 branches to allocate 40 percent of their loans to priority sectors which include agriculture, small and medium enterprises, export-oriented companies, and social infrastructure. Additionally, all banks are required to invest 18 percent of their net demand and time liabilities in government securities.

PSBs continue to face two significant hurdles: capital constraints and poor asset quality. As of September 2021, gross non-performing loans represented 6.9 percent of total loans in the banking system, with the PSBs having a larger share of 8.8 percent of their loan portfolio. The government announced its intention to set up the NARCL and India Debt Resolution Company Limited (IDRCL) to take over legacy stressed assets from bank balance sheets. With the IBC in place, banks are making progress in non-performing asset recognition and resolution.

To address asset quality challenges faced by public sector banks, the government has injected $32 billion into public sector banks in recent years. The capitalization largely aimed to address the capital inadequacy of public sector banks and marginally provide for growth capital. Bank mergers and capital raising from the market, improved public sector banks’ total capital adequacy ratio (CAR) from 13.5 percent in September 2020 to 16.6 percent in September 2021.

Women’s lack of sufficient access to finance remained a major impediment to women’s entrepreneurship and participation in the workforce. According to experts, women are more likely than men to lack financial awareness, confidence to approach a financial institution, or possess adequate collateral, often leaving them vulnerable to poor terms of finance. Despite legal protections against discrimination, some banks reportedly remained unwelcoming toward women as customers. International Finance Corporation (IFC) analysts have described Indian women-led Micro, Small, and Medium Enterprises (MSME) as a large but untapped market that has a total finance requirement of $29 billion (72 percent for working capital). However, 70 percent of this demand remained unmet, creating a shortfall of $20 billion.

The government-affiliated think tank NITI-Aayog provides information on networking, mentorship, and financing to more than 25,000 members via its Women Entrepreneurship Platform (WEP), launched in March 2018. The government’s financial inclusion scheme Pradhan Mantri Jan Dhan Yojana (PMJDY) provides universal access to banking facilities with at least one basic banking account for every adult, financial literacy, access to credit, insurance, and pension. As of March 2, 2022, 249 million women comprised 55 percent of the program’s 448 million beneficiaries. In 2015, the government started the Micro Units Development and Refinance Agency Ltd. (MUDRA), which supports the development of micro-enterprises. The initiative encourages women’s participation and offers collateral-free loans of around $15,000 to non-corporate, non-farm small and micro enterprises. As of October 29, 2021, 215 million loans have been extended to women borrowers.

In FY 2016, the Indian government established the National Infrastructure Investment Fund (NIIF), India’s first sovereign wealth fund, to promote investments in the infrastructure sector. The government agreed to contribute $3 billion to the fund, with an additional $3 billion raised from the private sector primarily from foreign sovereign wealth funds, multilateral agencies, endowment funds, pension funds, insurers, and foreign central banks. Currently, the NIIF manages over $4.3 billion in assets through its funds: Master Fund, Fund of Funds, and Strategic Opportunities Fund. The NIIF Master Fund is focused on investing in core infrastructure sectors including transportation, energy, and urban infrastructure.

The government owns or controls interests in key sectors with significant economic impact, including infrastructure, oil, gas, mining, and manufacturing. The Department of Public Enterprises ( http://dpe.gov.in ) controls and formulates all the policies pertaining to SOEs, and is headed by a minister to whom the senior management reports. The Comptroller and Auditor General audits the SOEs. The government has taken several steps to improve the performance of SOEs, also called Central Public Sector Enterprises (CPSEs), including improvements to corporate governance. This was necessary as the government planned to disinvest its stake from these entities.

According to the Public Enterprise Survey 2019-20, as of March 2020 there were 366 CPSEs, of which 256 are operational with a total turnover of $328 billion. The report revealed that 96 CPSEs were incurring losses and 14 units are under liquidation.

Foreign investment is allowed in CPSEs in all sectors. The Master List of CPSEs can be accessed at http://www.bsepsu.com/list-cpse.asp . While the CPSEs face the same tax burden as the private sector, they receive streamlined licensing that private sector enterprises do not on issues such as procurement of land.

The government has not generally privatized its assets but instead adopted a gradual disinvestment policy that dilutes government stakes in SOEs without sacrificing control. However as announced in the FY 2021-22 budget, the government has recommitted to the process of privatization of loss-making SOEs with an ambitious disinvestment target of $24 billion. In addition to completing the privatization of national carrier Air India in early 2022, the government has prioritized privatizing the Bharat Petroleum Corporation Limited and reducing its shares in the state-owned Life Insurance Corporation (LIC). Details about the privatization program can be accessed at the Ministry of Finance site for Disinvestment ( https://dipam.gov.in/ ).

FIIs can participate in these disinvestment programs. Earlier limits for foreign investors were 24 percent of the paid-up capital of the Indian company and 10 percent for non-resident Indians and persons of Indian origin. The limit is 20 percent of the paid-up capital in the case of public sector banks. There is no bidding process. The shares of the SOEs being disinvested are sold in the open market.

Among Indian companies there is a general awareness of standards for responsible business conduct. The MCA administers the Companies Act of 2013 and is responsible for regulating the corporate sector in accordance with the law. The MCA is also responsible for protecting the interests of consumers by ensuring competitive markets. The Companies Act of 2013 also established the framework for India’s corporate social responsibility (CSR) laws, mandating that companies spend an average of two percent of their average net profit of the preceding three fiscal years. While the CSR obligations are mandated by law, non-government organizations (NGOs) in India also track CSR activities and provide recommendations in some cases for effective use of CSR funds. According to the MCA website, in FY 2020-21, 8,633 companies spent $2.72 billion on more than 25,000 CSR projects across India.

The MCA released the National Guidelines on Responsible Business Conduct, 2018 (NGRBC) on March 13, 2019, to improve the 2011 National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business. The NGRBC aligned with the United Nations Guiding Principles on Business & Human Rights (UNGPs).

India does not adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. There are provisions to promote responsible business conduct throughout the supply chain.

India is neither a member of Extractive Industries Transparency Initiative (EITI), nor a member of the Voluntary Principles on Security and Human Rights.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

The Government of India launched the National Action Plan on Climate Change (NAPCC) on June 30, 2008, outlining eight “National Missions: on climate change. These include:

1. National Solar Mission
2. National Mission for Enhanced Energy Efficiency
3. National Mission on Sustainable Habitat
4. National Water Mission
5. National Mission for Sustaining the Himalayan Eco-system
6. National Mission for a Green India
7. National Mission for Sustainable Agriculture
8. National Mission on Strategic Knowledge for Climate Change

In addition, India has the Biological Diversity Act 2002 that focuses on the conservation of biological resources, managing its sustainable use, and enabling the fair and equitable sharing of benefits arising out of the use and knowledge of biological resources with the local communities. The Act has a three-tier structure to regulate access to biological resources:

The National Biodiversity Authority (NBA)

The State Biodiversity Boards (SBBs)

The Biodiversity Management Committees (BMCs) (at local level)

India does not yet have a system of ecosystem services, but the government is currently discussing within its interagency and with outside stakeholders the value of developing a strategy for ecosystem services.

During the CoP 26 in Glasgow, Prime Minister Modi announced that India planned to reach net-zero carbon emissions by 2070. The government is now developing a strategy and a detailed plan to achieve that goal.

The government has regulatory systems in place that include pollution standards, biodiversity off-sets through compensatory forestation, and a forest policy and wildlife management plans with numerous national parks and wildlife sanctuaries that protect forests and biodiversity. At CoP 26 Prime Minister Modi called for making LIFE – Lifestyle for Environment – a global movement that advances sustainable lifestyles as a part of addressing the climate crisis.

While there is no sustainable public procurement law in India, the General Financial Rules (GFR) 2017 contain provisions that allow purchasing authorities to include environmental criteria when making procurements. Ministry of Finance procurement manuals also emphasize this ability. Various public sector entities and some government departments have started considering environmental and energy efficiency criteria in their procurement decisions. In addition, the government constituted a taskforce on sustainable public procurement in 2018 with the mandate to:

Review international best practices in Sustainable Public Procurement (SPP)

Identify the current status of SPP in India across Government organizations

Prepare a draft Sustainable Procurement Action Plan

Recommend an initial set of product/service categories (along with their specifications) where SPP can be implemented

However, the government has not yet developed a sustainable procurement action plan or policy mandating sustainable public procurement.

India is a signatory to the United Nation’s Conventions Against Corruption and is a member of the G20 Working Group against corruption. India, with a score of 40, ranked 86 among 180 countries in Transparency International’s 2020 Corruption Perception Index.

Corruption is addressed by the following laws: The Companies Act, 2013; the Prevention of Money Laundering Act, 2002; the Prevention of Corruption Act, 1988; the Code of Criminal Procedures, 1973; the Indian Contract Act, 1872; and the Indian Penal Code of 1860. Anti- corruption laws amended since 2004 have granted additional powers to vigilance departments in government ministries at the central and state levels and elevated the Central Vigilance Commission (CVC) to be a statutory body. In addition, the Comptroller and Auditor General is charged with performing audits on public-private-partnership contracts in the infrastructure sector based on allegations of revenue loss to the exchequer.

Other statutes approved by parliament to tackle corruption include:

The Benami Transactions (Prohibition) Amendment Act of 2016

The Real Estate (Regulation and Development) Act, 2016, enacted in 2017

The Whistleblower Protection Act, 2011 was passed in 2014 but has yet to be operationalized

The Companies Act, 2013 established rules related to corruption in the private sector by mandating mechanisms for the protection of whistleblowers, industry codes of conduct, and the appointment of independent directors to company boards. However, the government has not established any monitoring mechanism, and it is unclear the extent to which these protections have been instituted. No legislation focuses particularly on the protection of NGOs working on corruption issues, though the Whistleblowers Protection Act, 2011 may afford some protection once implemented.

In 2013, Parliament enacted the Lokpal and Lokayuktas Act, which created a national anti- corruption ombudsman and required states to create state-level ombudsmen within one year of the law’s passage. A national ombudsman was appointed in March 2019.

India is a signatory to the United Nations Conventions against Corruption and is a member of the G20 Working Group against Corruption. India is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The Indian chapter of Transparency International was closed in 2019.

Matt Ingeneri
Economic Growth Unit Chief
U.S. Embassy New Delhi
Shantipath, Chanakyapuri New Delhi
+91 11 2419 8000 ingeneripm@state.gov 

Mr. Suresh Patel
Central Vigilance Commissioner
Satarkta Bhavan , Block-A
GPO Complex, INA New Delhi – 110 023
Ph: +91-11- 24651020
www.cvc.gov.in 

India is a multiparty, federal, parliamentary democracy with a bicameral legislature. The president, elected by an electoral college composed of the state assemblies and parliament, is the head of state, and the prime minister is the head of government. National parliamentary elections are held every five years. Under the constitution, the country’s 28 states and eight union territories have a high degree of autonomy and have primary responsibility for law and order. Electors chose President Ram Nath Kovind in 2017 to serve a five-year term. Following the May 2019 national elections, Prime Minister Modi’s Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA) received a larger majority in the lower house of Parliament, or Lok Sabha, than it had won in the 2014 elections and returned Modi for a second term as prime minister. Observers considered the parliamentary elections, which included more than 600 million voters, to be free and fair, although there were reports of isolated instances of violence.

Although there are more than 20 million unionized workers in India, unions still represent less than five percent of the total work force. Most of these unions are linked to political parties. Unions are typically strong in state-owned enterprises. A majority of the unionized work force can be found in the railroads, port and dock, banking, and insurance sectors. According to provisional figures from the Ministry of Labor and Employment (MOLE), over 672,000 workdays were lost to strikes and lockouts during 2021. Nonetheless, the International Labor Organization and International Monetary Fund both estimate India’s informal economy accounts for over 80 percent of overall employment. Labor unrest occurs throughout India, though the reasons and affected sectors vary widely. Most reported labor problems are the result of workplace disagreements over pay, working conditions, and union representation.

To reduce the number and complexity of India’s previous 29 national labor statutes, address statutory contradictions, improve compliance, and improve labor rights protections by shifting businesses and workers into the formal economy, the parliament consolidated and reformed India’s national labor laws, beginning with passage of the Code on Wages in 2019. During 2020, the parliament passed the Industrial Relations Code; the Occupational Safety, Health and Working Conditions Code; and the Code on Social Security. These laws’ reforms expanded minimum wage and social security coverage to informal sector workers in agriculture and the growing gig economy, raised the threshold for small and medium sized enterprise exemptions from 100 to 300 employees to foster growth of medium sized enterprises and move workers into the formal economy, expanded the authorized use of contract labor, and gave employers greater hiring and firing flexibility. Details of the laws can be accessed at https://labour.gov.in/labour-law-reforms . The new labor laws require adoption by India’s states for full implementation, which remains ongoing.

The Maternity Benefits Act, 1961, as amended in 2017, mandates 26 weeks of paid maternity leave for women. The Act also mandates for all industrial establishments employing 50 or more workers to have a creche for babies to enable nursing mothers to feed the child up to four times in a day.

The Child Labor Act, 1986 establishes a minimum age of 14 years for work and 18 years as the minimum age for hazardous work. The Bonded Labor Act, 1976 prohibits the use of bonded/forced labor.

There are no reliable unemployment statistics for India due to the informal nature of most employment. During the COVID-19 pandemic experts claimed the unemployment rate spiraled as people in the informal sector lost their jobs. The Centre for Monitoring Indian Economy (CMIE) reported that the average unemployment in October-December period of 2021 was around 7.54 percent.

Matt Ingeneri
Economic Growth Unit Chief
U.S. Embassy New Delhi
Shantipath, Chanakyapuri
New Delhi
+91 11 2419 8000
ingeneripm@state.gov

Indonesia is an attractive destination for foreign direct investment (FDI) due to its relatively young demographics, strong domestic demand, stable political situation, abundant natural resources, and well-regarded macroeconomic policy. Indonesian government officials often state that they welcome increased FDI, aiming to create jobs, spur economic growth, and court foreign investors, notably focusing on infrastructure development, export-oriented manufacturing, mining refinery industries, and green investment. To further improve the investment climate, the government issued the Omnibus Law on Job Creation (Law No. 1/2020) in October 2020 to amend dozens of prevailing laws deemed to hamper investment. It introduced a risk-based approach for business licensing, simplified environmental requirements and building certificates, tax reforms to ease doing business, more flexible labor regulations, and the establishment of the priority investment list. It also streamlined the business licensing process at the regional level. At the same time, investors cite concerns over restrictive technical regulations, policy inconsistency, bureaucratic inefficiency, lack of infrastructure, sanctity of contract issues, and corruption.

The Ministry of Investment / Investment Coordinating Board (BKPM) serves as an investment promotion agency, a regulatory body, and the agency in charge of approving planned investments in Indonesia. As such, it is the first point of contact for foreign investors, particularly in manufacturing, industrial, and non-financial services sectors. In August 2021, BKPM launched the Risk-Based Online Single Submission (OSS), an integrated online system that streamlines almost all business licensing and permitting processes (except in the oil and gas, and financial sectors).  Under the OSS, businesses deemed lower risk will face fewer administrative requirements to obtain permits and licenses. The GOI abolished building permit requirements and relaxed environmental licenses, which the government deemed were major sources of corruption in the business licensing process. The OSS system intends to streamline permit issuance, but integrating overlapping authorities across ministries into one system, both at the national and subnational level, remains challenging. The Omnibus Law on Job Creation requires local governments to integrate their license systems into the OSS. The law allows the central government to take over local governments’ authority if local governments are not performing. The government has provided investment incentives particularly for “priority” sectors (please see the section on Industrial Policies).

As part of the implementation of the Omnibus Law on Job Creation, the Indonesian government enacted Presidential Regulation No. 10/2021 to introduce a significant liberalization of foreign investment in Indonesia, repealing the 2016 Negative List of Investment (DNI). In contrast to the previous regulation, the new investment list sets a default principle that all business sectors are open for investment unless stipulated otherwise. It details the seven sectors that are closed to investment, explains that public services and defense are reserved for the central government, and outlines four categories of sectors that are open to investment: priority investment sectors that are eligible for incentives; sectors that are reserved for micro, small, and medium enterprises (MSMEs) and cooperatives or open to foreign investors who cooperate with them; sectors that are open with certain requirements (i.e., with caps on foreign ownership or special permit requirements); and sectors that are fully open for foreign investment. Although hundreds of sectors that were previously closed or subject to foreign ownership caps are in theory open to 100 percent foreign investment, in practice technical and sectoral regulations may stipulate different or conflicting requirements that still need to be resolved.

In total, 245 business fields listed in the new Investment Priorities List, or DPI, are eligible for fiscal and non-fiscal incentives, notably pioneer industries, export-oriented manufacturing, capital intensive industries, national infrastructure projects, digital economy, labor-intensive industries, as well as research and development activities. Restrictions on foreign ownership in telecommunications and information technology (e.g., internet providers, fixed telecommunication providers, mobile network providers), construction services, oil and gas support services, electricity, distribution, plantations, and transportation were removed. Healthcare services including hospitals/clinics, wholesale of pharmaceutical raw materials, and finished drug manufacturing are fully open for foreign investment, which was previously capped in certain percentages. The regulation also reduced the number of business fields that are subject to certain requirements to only 46 sectors. Domestic sea transportation and postal services are allowed up to 49 percent of foreign ownership, while press, including magazines and newspapers, and broadcasting sectors are open up to 49 percent and 20 percent, respectively, but only for business expansion or capital increases. Small plantations, industry related to special cultural heritage, and low technology industries or industries with capital less than IDR10 billion (USD 700,000) are reserved for MSMEs and cooperatives. Foreign investors in partnership with MSMEs and cooperatives can invest in certain designated areas. The new investment list shortened the number of restricted sectors from 20 to 7 categories including cannabis, gambling, fishing of endangered species, coral extraction, alcohol, industries using ozone-depleting materials, and chemical weapons. In addition, while education investment is still subject to the Education Law, Government Regulation No. 40/2021 permits education and health investment as business activities in special economic zones.

In 2016, Bank Indonesia (BI) issued Regulation No. 18/2016 on the implementation of payment

transaction processing. The regulation governs all companies providing the following services: principal, issuer, acquirer, clearing, final settlement operator, and operator of funds transfer. The BI Regulation capped foreign ownership of payments companies at 20 percent, though it contained a grandfathering provision. BI’s Regulation No. 19/2017 on the National Payment Gateway (NPG) subsequently imposed a 20 percent foreign equity cap on all companies engaging in domestic debit switching transactions. Firms wishing to continue executing domestic debit transactions are obligated to sign partnership agreements with one of Indonesia’s four NPG switching companies. In December 2020, BI issued umbrella Regulation No. 22/23/2020 on the Payment System, which implements BI’s 2025 Payment System Blueprint and introduces a risk-based categorization and licensing system. The regulation entered into force on July 1, 2021. It allows 85 percent foreign ownership of non-bank payment services providers, although at least 51 percent of shares with voting rights must be owned by Indonesians, and foreign investors may only hold 49 percent of voting shares. The 20 percent foreign equity cap remains in place for payment system infrastructure operators who handle clearing and settlement services, and a grandfathering provision remains in effect for existing licensed payment companies. U.S. payment systems companies have stated that the new regulations could further limit access to Indonesia’s financial services market. Prior regulations required authorization, clearing, and settlement to be processed onshore. The new regulations add initiation of a payment as an onshore processing requirement. The regulations do not specify requirements by product. While the regulations provide for offshore processing if certain requirements are met, it is subject to BI approval.

OJK Regulation No. 12/POJK.03/2021, issued in August 2021, increased the foreign equity cap for commercial banks to 99 percent subject to OJK evaluation and approval, and foreign entities should meet requirements as follows: be committed to support the development of the Indonesian economy; obtain recommendations from the supervisory authority of the country of origin; and have a rating of at least 1 level above the lowest investment rating for bank financial institutions, 2 levels above the lowest investment rating for nonbank financial institutions, and 3 levels above the lowest investment rating for legal entities that are not financial institutions. This new regulation does not repeal the regulations listed in POJK 56 of 2016 article 2 and article 6 paragraph 1, stating that foreign entities may own shares of a bank representing more than 40 percent of the Bank’s capital subject to the approval of the Financial Services Authority (OJK). Foreigners may purchase equity in state-owned firms through initial public offerings and the secondary market. Capital investments in publicly listed companies through the stock exchange are generally not subject to the limitation of foreign ownership as stipulated in Presidential Regulation No. 10/2021.

Government Regulation 14/2018 (Regulation 14) on foreign ownership in insurance companies set the maximum threshold for foreign equity ownership of an Indonesian insurance company to 80 percent but exempted insurance companies with existing foreign ownership levels that exceed 80 percent. Subsequently, the government issued Government Regulation 3/2020 to strengthen the grandfathering provisions of Regulation 14 by allowing foreign investors to inject capital and maintain their existing capital share, repealing the obligation under Regulation 14 for a local shareholder to make a corresponding 20 percent capital injection in the event of a capital increase. In June 2020, OJK issued Regulation 39/2020, which provides for the phased elimination of the domestic cession requirements for purchase of reinsurance from companies domiciled in a country with whom Indonesia has a bilateral agreement. The regulation also phased out the requirement for domestic reinsurance obligations for simple risks by the end of 2020, and for non-simple risks in 2022.

Indonesia’s vast natural resources have attracted significant foreign investment and continue to offer significant prospects. However, some companies report that a variety of government regulations have made doing business in the resources sector increasingly difficult, and Indonesia now ranks 69th of 78 jurisdictions in the Fraser Institute’s 2020 Mining Policy Perception Index. In 2012, Indonesia banned the export of raw minerals, dramatically increased the divestment requirements for foreign mining companies, and required major mining companies to renegotiate their contracts of work with the government. The full export ban did not come into effect until January 2017, when the government also issued new regulations allowing exports of copper concentrate and other specified minerals, while imposing onerous requirements.

Of note for foreign investors, provisions of the regulations require that to export mineral ores, companies with contracts of work must convert to mining business licenses – and be subject to prevailing regulations – and must commit to build smelters within the next five years. Also, foreign-owned mining companies must gradually divest 51 percent of shares to Indonesian interests over ten years, with the price of divested shares determined based on a “fair market value” determination that does not consider existing reserves. In January 2020, the government banned the export of nickel ore for all mining companies, foreign and domestic, in the hopes of encouraging construction of domestic nickel smelters. In March 2021, the Ministry of Energy and Natural Resources issued a Ministerial Decision to allow mining business licenses holders who have not reached smelter development targets to continue exporting raw mineral ores under certain conditions. The 2020 Mining Law returned the authority to issue mining licenses to the central government. Local governments only retain authority to issue small scale mining permits.

In December 2020, the Ministry of Energy and Natural Resources issued Ministerial Decision No. 255.K/30/MEM/2020 that mandates coal mining companies fulfill 25 percent of its production for Domestic Market Obligation (DMO) and set the maximum price of coal for domestic power generation at $70/ton. In January 2022, the government of Indonesia banned exports of coal for all mining companies due to low DMO fulfillment, leading to the risk of power blackouts. The government has lifted the coal export ban and imposed stricter control to allow exports only for coal mining companies that have fulfilled DMO requirements.

The latest World Trade Organization (WTO) Investment Policy Review of Indonesia was conducted in February 2021 and can be found on the WTO website: directdoc.aspx (wto.org) 

The last OECD Investment Policy Review of Indonesia, conducted in 2020, can be found on the OECD website:

https://www.oecd.org/investment/oecd-investment-policy-reviews-indonesia-2020-b56512da-en.htm 

The 2021 UNCTAD Report on ASEAN Investment can be found here: http://investasean.asean.org/files/upload/ASEAN%20Investment%20Report%202020-2021.pdf

Business and Human Rights Resource Center’s Reports:

• Report on Human Rights Impact Assessment for Japanese Business Investmnt in Indonesia:
• Investigation Into Deforestation at An Indonesian Company:

Global Witness country-specific reports can be accessed here:

https://www.globalwitness.org/en/campaigns/environmental-activists/indonesia-palm-oil-traders-are-failing-land-and-environmental-defenders/ 

List of conflicts related to environmental and human rights involving companies investing in Indonesia can be seen on Environmental Justice can be accessed here: https: https://ejatlas.org/ 

In order to conduct business in Indonesia, foreign investors must be incorporated as a foreign-owned limited liability company (PMA) through the Ministry of Law and Human Rights. Once incorporated, a PMA must fulfill business licensing requirements through the OSS system. In February 2021, the Indonesian government issued Government Regulation No. 5/2021, introducing a risk-based approach and streamlined business licensing process for almost all sectors. The regulation classifies business activities into categories of low, medium, and high risk, which will further determine business licensing requirements for each investment. Low-risk business activities only require a business identity number (NIB) to start commercial and production activities. An NIB also serves as the import identification number, customs access identifier, halal guarantee statement (for low risk), and environmental management and monitoring capability statement letter (for low risk). Medium-risk sectors must obtain an NIB and a standard certification.

Under the regulation, a standard certificate for medium-low risk is a self-declared statement that certain business standards were fulfilled, while a standard certificate for medium-high risk must be verified by the relevant government agency. High-risk sectors must apply for full business licenses, including an environmental impact assessment (AMDAL). A business license remains valid while the business operates in compliance with Indonesian laws and regulations. A grandfather clause applies to existing businesses that have obtained business licenses. Guidance on the business application process through the Risk-Based OSS can be found at https://oss.go.id/panduan.  The OSS system is an online portal which allows foreign investors to apply for and track the status of licenses and other services online. Foreign investors are generally prohibited from investing in MSMEs in Indonesia, although Presidential Regulation No. 10/2021 opened some opportunities for partnerships in farming, two- and three-wheeled vehicles, automotive spare parts, medical devices, ship repair, health laboratories, and jewelry/precious metals.

According to Presidential Instruction 7/2019, the Ministry of Investment/BKPM is responsible for issuing “investment licenses” (the term used to encompass both NIB and other business licenses) that have been delegated from all relevant ministries and government institutions to foreign entities through the OSS system. BKPM has also been tasked to review policies deemed unfavorable for investors. While the OSS’s goal is to help streamline investment approvals, investments in the mining, oil and gas, and financial sectors still require licenses from related ministries and authorities. Certain tax and land permits, among others, typically must be obtained from local government authorities. Though Indonesian companies are only required to obtain one approval at the local level, businesses report that foreign companies must often seek additional approvals to establish a business. Government Regulation No. 6/2021 requires local governments to integrate their business licenses system into the Risk-Based OSS system and standardize services through a service-level agreement between the central and local governments.

Indonesia’s outward investment is limited, as domestic investors tend to focus on the large domestic market. BKPM is responsible for promoting and facilitating outward investment, to include providing information about investment opportunities in other countries. BKPM also uses its investment and trade promotion centers abroad to match Indonesian companies with potential investment opportunities. The government neither restricts nor provides incentives for outward private sector investment. The Ministry of State-Owned Enterprises (SOEs) encourages Indonesian SOEs through the SOE Go Global Program to increase their investment abroad, aiming to improve Indonesia’s supply chain and establish demand for Indonesian exports in strategic markets. According to the United Nation Conference on Trade and Development (UNCTAD), Indonesia recorded USD 4.5 billion outward direct investments in 2020, increasing 33.3 percent.

Indonesia currently has 26 bilateral investment agreements in force. In 2014, Indonesia began to abrogate its existing BITs by allowing the agreements to expire. However, Indonesia ratified a new BIT with Singapore in March 2021, marking the first investment treaty signed and entered into force after years of review. Indonesia reportedly developed a new model BIT which is currently reflected in the investment chapter of newly signed trade agreements. A detailed list of Indonesia’s investment agreements can be found at https://investmentpolicy.unctad.org/international-investment-agreements/countries/97/indonesia .

Indonesia is a member of the Association of Southeast Asian Nations (ASEAN). In November 2020, 10 ASEAN Member States and five additional countries (Australia, China, Japan, Korea and New Zealand) signed the Regional Comprehensive Economic Partnership (RCEP), representing around 30 percent of the world’s gross domestic product and population. RCEP encompasses trade in goods, services, investment, economic and technical cooperation, intellectual property rights, competition, dispute settlement, e-commerce, SMEs, and government procurement.

Indonesia is actively engaged in bilateral FTA negotiations. Indonesia recently signed trade agreements with Australia, Chile, Mozambique, the European Free Trade Association (Iceland, Liechtenstein, Norway, and Switzerland), and South Korea. Indonesia is currently negotiating Bilateral Trade Agreements with the European Union, United Arab Emirates, Canada, and other countries.

The United States and Indonesia signed a Trade and Investment Framework Agreement (TIFA) on July 16, 1996. This Agreement is the primary mechanism for discussions of trade and investment issues between the United States and Indonesia. The two countries also signed the Convention between the Government of the Republic of Indonesia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income in Jakarta on July 11, 1988.  This was amended with a Protocol, signed on July 24, 1996. There is no double taxation of personal income.

Indonesia is a member of the OECD Inclusive Framework on Based Erosion and Profit Shifting. The government is party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax.

Indonesia continues to bring its legal, regulatory, and accounting systems into compliance with international norms and agreements, but foreign investors have indicated they still encounter challenges in comparison to domestic investors and have criticized the current regulatory system for its failure to establish clear and transparent rules for all actors. Certain laws and policies establish sectors that are either fully off-limits to foreign investors or are subject to substantive conditions. To improve the investment climate and create jobs, Indonesia overhauled more than 70 laws and thousands of regulations through the enactment of the Omnibus Law on Job Creation. In November 2021, Indonesia’s Constitutional Court ruled the Omnibus Law on Job Creation was conditionally unconstitutional due to its non-alignment with the standard formulation of laws and regulations, specifically that the law did not have the appropriate public participation during its formulation and deliberation process. The court ordered government officials to amend the procedural flaws in the law within two years and that no new implementing regulations for the Omnibus Law should be issued, although implementing regulations that had already been issued up to the date of the court ruling remain in force.

U.S. businesses cite regulatory uncertainty and a lack of transparency as two significant factors hindering operations. U.S. companies note that regulatory consultation in Indonesia is inconsistent, despite the existence of Law No. 12/2011 on the Development of Laws and Regulations and implementation of Government Regulation No. 87/204, which states that the community is entitled to provide oral or written input into draft laws and regulations. The law also sets out procedures for revoking regulations and introduces requirements for academic studies as a basis for formulating laws and regulations. Nevertheless, the absence of a formal consultation mechanism has been reported to lead to different interpretations among policy makers of what is required. Laws and regulations are often vague and require substantial interpretation by the implementers, leading to business uncertainty and rent-seeking opportunities.

Decentralization has introduced another layer of bureaucracy and red tape for firms to navigate. In 2016, the Jokowi administration repealed 3,143 regional bylaws that overlapped with other regulations and impeded the ease of doing business. However, a 2017 Constitutional Court ruling limited the Ministry of Home Affairs’ authority to revoke local regulations and allowed local governments to appeal the central government’s decision. The Ministry continues to play a consultative function in the regulation drafting stage, providing input to standardize regional bylaws with national laws. The Omnibus Law on Job Creation provided a legal framework to streamline regulations. It establishes the norms, standards, procedures, criteria (NSPK) and performance requirements in administering government affairs for both the central and local governments. Law No. 11/2020 aims to harmonize licensing requirements at the central and regional levels. Under that law and its implementing regulations, the central government has the authority to take over regional business licensing if local governments do not meet performance requirements. Local governments must also obtain recommendations from the Ministries of Home Affairs and Finance prior to implementing local tax regulations.

In 2017, Presidential Instruction No. 7/2017 was enacted to improve coordination among ministries in the policy-making process. The regulation requires lead ministries to coordinate with their respective coordinating ministry before issuing a regulation. The regulation also requires ministries to conduct a regulatory impact analysis and provide an opportunity for public consultation. The presidential instruction did not address the frequent lack of coordination between the central and local governments. The Omnibus Law on Job Creation enhanced the predictability of trade policy by moving the authority to issue trade regulations from the ministry-level (Ministry of Trade regulation) to the cabinet-level (government regulation).

Indonesia ratified the Kyoto Protocol in 2014 and the 2015 Paring Agreement in 2019 and issued Presidential Regulation 59/2017 on the implementation of the SDGs to support reforms in tackling issued related environment, social, and governance, and climate changes. The government made reforms to attract green investment, among others, through the issuance of the Omnibus Law on Job Creation. The Indonesian Financial Services Authority (OJK) has been actively promoting sustainable financing by developing a sustainable finance roadmap, establishing a task force for sustainable finance in financial sectors, and developing green bonds regulations. The Minister of Finance issued the first green sukuk (Islamic bonds) in February 2018.

As an ASEAN member, Indonesia has successfully implemented regional initiatives, including the real-time movement of electronic import documents through the ASEAN Single Window, which reduces shipping costs, speeds customs clearance, and limits corruption opportunities. Indonesia has also ratified the ASEAN Comprehensive Investment Agreement (ACIA), ASEAN Framework Agreement on Services (AFAS), and the ASEAN Mutual Recognition Arrangement and committed to ratify the Regional Comprehensive Economic Partnership.

Notwithstanding the progress made in certain areas, the often-lengthy process of aligning national legislation has caused delays in implementation. The complexity of interagency coordination and/or a shortage of technical capacity are among the challenges being reported.

Indonesia joined the WTO in 1995. Indonesia’s National Standards Body (BSN) is the primary government agency to notify draft regulations to the WTO concerning technical barriers to trade (TBT) and sanitary and phytosanitary standards (SPS); however, in practice, notification is inconsistent. In December 2017, Indonesia ratified the WTO Trade Facilitation Agreement (TFA). Indonesia has met 88.7 percent of its commitments to the TFA provisions to date, including publication of information, consultations, advance rulings, detention and test procedures, goods clearance, import/export formalities, and goods transit.

Indonesia is a Contracting Party to the Aircraft Protocol to the Convention of International Interests in Mobile Equipment (Cape Town Convention). However, foreign investors bringing aircraft to Indonesia to serve the general aviation sector have faced difficulty utilizing Cape Town Convention provisions to recover aircraft leased to Indonesian companies. Foreign owners of leased aircraft that have become the subject of contractual lease disputes with Indonesian lessees have been unable to recover their aircraft in certain circumstances.

Indonesia’s legal system is based on civil law. The court system consists of District Courts (primary courts of original jurisdiction), High Courts (courts of appeal), and the Supreme Court (the court of last resort). Indonesia also has a Constitutional Court. The Constitutional Court has the same legal standing as the Supreme Court, and its role is to review the constitutionality of legislation. Both the Supreme and Constitutional Courts have authority to conduct judicial review.

Corruption continues to plague Indonesia’s judiciary, with graft investigations involving senior judges and court staff. Many businesses note that the judiciary is susceptible to influence from outside parties. Certain companies have claimed that the court system often does not provide the necessary recourse for resolving property and contractual disputes and that cases that would be adjudicated in civil courts in other jurisdictions sometimes result in criminal charges in Indonesia.

Judges are not bound by precedent and many laws are open to various interpretations. A lack of clear land titles has plagued Indonesia for decades, although land acquisition law No. 2/2012 includes legal mechanisms designed to resolve some past land ownership issues. The Omnibus Law on Job Creation also created a land bank to facilitate land acquisition for priority investment projects. In January 2022, President Jokowi established a task force to formulate land use policy and conduct mapping of land use on mining, plantation, and forestry activities, and provide recommendations to the Ministry of Investment on revocation of land permits that are not being utilized. Government Regulation No. 27/2017 provided incentives for upstream energy development and regulates recoverable costs from production sharing contracts. Indonesia has also required mining companies to renegotiate their contracts of work to include higher royalties, more divestment to local partners, more local content, and domestic processing of mineral ore.

Indonesia’s commercial code, grounded in colonial Dutch law, has been updated to include provisions on bankruptcy, intellectual property rights, incorporation and dissolution of businesses, banking, and capital markets. Application of the commercial code, including the bankruptcy provisions, remains uneven, in large part due to corruption and training deficits for judges and lawyers.

FDI in Indonesia is regulated by Law No. 25/2007 (the Investment Law) which was amended by the Omnibus Law of Job Creation. Under the law, any form of FDI in Indonesia must be in the form of a limited liability company with minimum capital of IDR 10 billion (USD 700,000), excluding land and building and with the foreign investor holding shares in the company. The Omnibus Law on Job Creation allows foreign investors to invest below IDR 10 billion in technology-based startups in special economic zones. The Law also introduces several provisions to simplify business licensing requirements, reforms rigid labor laws, introduces tax reforms to support ease of doing business, and establishes the Indonesian Investment Authority (INA) to facilitate direct investment. In addition, the government repealed the 2016 Negative Investment List through the issuance of Presidential Regulation No. 10/2021, introducing major reforms that removed restrictions on foreign ownership in hundreds of sectors that were previously closed or subject to foreign ownership caps. Several sectors remain closed to investment or are otherwise restricted. Presidential Regulation No. 10/2021 contains a grandfather clause that clarifies that existing investments will not be affected unless treatment under the new regulation is more favorable or the investment has special rights under a bilateral agreement. The Indonesian government also expanded business activities in special economic zones to include education and health. (See section on limits on foreign control regarding the new list of investments.)  The website of the Indonesia Investment Coordinating Board (BKPM) provides information on investment requirements and procedures:   https://nswi.bkpm.go.id/guide.   Indonesia mandates reporting obligations for all foreign investors through the OSS system as stipulated in BKPM Regulation No. 6/2020. (See section two for Indonesia’s procedures for licensing foreign investment.)

The Indonesian Competition Authority (KPPU) implements and enforces the 1999 Indonesia Competition Law. The KPPU reviews agreements, business practices and mergers that may be deemed anti-competitive, advises the government on policies that may affect competition, and issues guidelines relating to the Competition Law. Strategic sectors such as food, finance, banking, energy, infrastructure, health, and education are the KPPU’s priorities. The Omnibus Law on Job Creation and its implementing regulation, Government Regulation No. 44/2021, removes criminal sanctions and the cap on administrative fines, which was set at a maximum of IDR 25 billion (USD 1.7 million) under the previous regulation. Appeals of KPPU decisions must be processed through the commercial court.

Indonesia’s political leadership has long championed economic nationalism, particularly concerning mineral and oil and gas reserves. According to Law No. 25/2007 (the Investment Law), the Indonesian government is barred from nationalizing or expropriating an investor’s property rights, unless provided by law. If the Indonesian government nationalizes or expropriates an investors’ property rights, it must provide market value compensation.

Presidential Regulation No. 77/2020 on Government Use of Patent and the Ministry of Law and Human Rights (MLHR) Regulation No. 30/2019 on Compulsory Licenses (CL) enables patent right expropriation in cases deemed in the interest of national security or due to a national emergency. Presidential Regulation No. 77/2020 allows a GOI agency or Ministry to request expropriation, while MLHR Regulation No. 30/2019 allows an individual or private party to request a CL. GOI issued Presidential decrees number 100 and number 101 in November 2021 announcing government use of the Remdesivir and Favipiravir Patents to secure needed COVID-19 drugs supply. This decree will remain in effect for three years, extendable until the end of the global Covid-19 pandemic and requires the assigned company to compensate Remdesivir and Favirapir patent holders one percent of its net annual sales.

Indonesia seeks to facilitate investment through fiscal incentives, non-fiscal incentives, and other benefits. Fiscal incentives are in the form of tax holidays, tax allowances, and exemptions of import duties for capital goods and raw materials for investment. Presidential Regulation No. 10/2021 on investment establishes 245 priority fields that are eligible for tax and other incentives, such as facilitated licensing and land use, to encourage investment in those sectors. The Omnibus Law on Job Creation offers a variety of tax incentives, including eliminating income tax on dividends earned in Indonesia and on certain income, including dividends earned abroad, if they are invested in Indonesia. The Law also exempts dozens of goods and services from value added tax (VAT). The provisions in the Omnibus Law on Job Creation complement several regulations in Law No. 2/2020, which was issued earlier in 2020. Law No. 2 cut the corporate income tax rate, lowering it to 22 percent for 2020 and 2021, and to 20 percent for 2022. However, the Tax Harmonization Law No. 7/2021 reversed this tax cut, keeping corporate income tax for 2022 at 22 percent. In addition, a company can claim a further 3 percent reduction if it is publicly listed, with a total number of shares traded on an Indonesian stock exchange of at least 40 percent. A zero import duty for incompletely knocked down battery-based electronic vehicles came into effect on February 22, 2022 under MOF regulation No. 13/2022. This regulation aims to make Indonesia a production base and export hub of electric motor vehicles. The government is also reportedly preparing incentives to encourage the development of renewable energy and mining down streaming industries as part of the implementation Government Regulation 96/2021 concerning the Implementation of Mineral and Coal Mining Business Activities. However, there is no issued policy yet on these incentives. Investment incentives are outlined at  https://www.investindonesia.go.id/cn/invest-with-us/faq .

To cope with soaring demand and to improve domestic production of medical devices and supplies amid the COVID-19 pandemic, the government through BKPM Regulation No. 86/2020 streamlined licensing requirements for manufacturers of pharmaceuticals and medical devices. The Ministry of Health also accelerated product registration and certification for medical devices and household health supplies. Moreover, the Ministry of Trade issued Regulation 28/2020 to relax import requirements for certain medical-related products.

The Ministry of Finance (MOF) issued Regulation No. 92/2021 to accelerate the provision of fiscal facilities on the import of goods needed for the handling of COVID-19 such as oxygen, laboratory test kits and reagents, virus transfer, medicines, medical equipment and personal protective equipment and Regulation 188/2020 to provide exemptions of import duties and taxes on the import of COVID-19 vaccines. Indonesia’s Customs Authority also implemented a “rush handling policy” to speed up the vaccine import process. MOF Regulation 20/2021 and its amendments were issued to increase motor vehicle sales to support the post-pandemic economic recovery by reformulating the sales tax on luxury goods, specifically motor vehicles. Under Regulation 141/2021, MOF reformulated the sales tax for luxury motor vehicles based on efficiency levels and emissions levels, which aimed to reduce emissions from motor vehicles and to encourage the use of energy-efficient and environmentally friendly motor vehicles.

Indonesia offers numerous incentives to foreign and domestic companies that operate in special economic and trade zones throughout Indonesia. The largest zone is the free trade zone (FTZ) island of Batam, Bintan, and Karimun, located just south of Singapore. The Omnibus Law on Job Creation and its implementing regulation, Government Regulation No. 41/2021 strengthened and unified the three islands (Batam, Bintan, and Karimun) into one integrated Free Trade Zone for the next 25 years to create an international logistics hub to support the industrial, trade, maritime, and tourism sectors. Investors in FTZs are exempted from import duty, income tax, VAT, and sales tax on imported capital goods, equipment, and raw materials. Fees are assessed on the portion of production destined for the domestic market which is “exported” to Indonesia, in which case fees are owed only on that portion. Foreign companies are allowed up to 100 percent ownership of companies in FTZs. Companies operating in FTZs may lend machinery and equipment to subcontractors located outside the zone for two years.

Indonesia also has numerous Special Economic Zones (SEZs), regulated under Law No. 39/2009, Government Regulation No. 1/2020 on SEZ management, and Government Regulation No. 12/2020 on SEZ facilities. These benefits include reduction of corporate income taxes (depending on the size of the investment), luxury tax, customs duty and excise, and expedited or simplified administrative processes for import/export, expatriate employment, immigration, and licensing. Under the Omnibus Law on Job Creation, foreign technology start-up investments located within SEZs are exempt from the minimum investment threshold of IDR 10 billion (USD 700,000), excluding land and buildings. There are minimal export processing requirements within the SEZs. New business activities in the education and health sectors (for which licensing services remain under the central government’s authority) will be allocated by zones and determined by the administrator of the SEZ. The Law lifted limits of imported goods into SEZs but maintained restrictions on specific banned goods in accompanying laws and regulations. It also introduced new tax facilities and incentives for taxpayers in SEZs. As of March 2022, Indonesia has identified twelve SEZs in manufacturing and tourism centers that are operational and six under construction.

Indonesian law also provides for several other types of zones that enjoy special tax and administrative benefits. Among these are Industrial Zones/Industrial Estates (Kawasan Industri), bonded stockpiling areas (Tempat Penimbunan Berikat), and Integrated Economic Development Zones (Kawasan Pengembangan Ekonomi Terpadu). Indonesia is home to 135 industrial estates that host thousands of industrial and manufacturing companies. Ministry of Finance Regulation No. 105/2016 provides several different tax and customs accommodations available to companies operating out of an industrial estate, including corporate income tax reductions, tax allowances, VAT exemptions, and import duty exemptions depending on the type of industrial estate. Bonded stockpile areas include bonded warehouses, bonded zones, bonded exhibition spaces, duty free shops, bonded auction places, bonded recycling areas, and bonded logistics centers.

Companies operating in these areas enjoy concessions in the form of exemption from certain import taxes, luxury goods taxes, and value-added taxes, based on a variety of criteria for each type of location. Most recently, bonded logistics centers (BLCs) were introduced to allow for larger stockpiles, longer temporary storage (up to three years), and a greater number of activities in a single area. The Ministry of Finance issued Regulation No. 28/2018, providing additional guidance on the types of BLCs and shortening approval for BLC applications. By October 2019, Indonesia had designated 106 BLCs in 159 locations, with plans to approve more in eastern Indonesia. In 2021, the Ministry of Finance and the Directorate General for Customs and Excise (DGCE) updated regulations (MOF Regulation No. 65/2021 and DGCE Regulation No. 9/2021) to streamline the licensing process for bonded zones. Together the two regulations are intended to reduce processing times and the number of licenses required to open a bonded zone.

Shipments from FTZs and SEZs to other places in the Indonesia customs area are treated similarly to exports and are subject to taxes and duties. Bonded zones have a domestic sales quota of 50 percent of the initial realization amount on export, sales to other bonded zones, sales to free trade zones, and sales to other economic areas (unless otherwise authorized by the Indonesian government). Sales to other special economic regions are only allowed for further processing to become capital goods, and to companies with a license from the economic area organizer for the goods relevant to their business.

Indonesia expects foreign investors to contribute to the training and development of Indonesian nationals, allowing the transfer of skills and technology required for their effective participation in the foreign companies’ management. Generally, a company can hire foreigners only for positions that the government has deemed open to non-Indonesians. Employers must have training programs aimed at replacing foreign workers with Indonesians. If a direct investment enterprise wants to employ foreigners, the enterprise should submit an Expatriate Placement Plan (RPTKA) to the Ministry of Manpower.

Indonesia recently made significant changes to its foreign worker regulations. Government Regulation No. 34/2021, an implementing regulation of the Omnibus Law on Job Creation, on the utilization of foreign workers stipulates specific documents required for the RPTKA and introduces different types of RPTKA for temporary works (e.g. film production, audits, quality control, inspection and installation of machinery), employment for work under six months, employment that does not require payment to the Foreign Worker Utilization Compensation Fund (DKPTKA), and employment in SEZs. Under the regulation, an RPTKA is not required for commissioners or executives. Foreigners working in technology-based startups are also exempted from the RPTKA requirement in the first three months. Expatriates can use an endorsed RPTKA to apply with the immigration office in their place of domicile for a Limited Stay Visa or Semi-Permanent Residence Visa (VITAS/VBS). Expatriates receive a Limited Stay Permit (KITAS) and a blue book, valid for up to two years and renewable for up to two extensions without leaving the country. While a technical recommendation from a relevant ministry is no longer required, ministries may still establish technical competencies or qualifications for certain jobs or prohibit the use of foreign workers for specific positions, by informing and obtaining approval from the Ministry of Manpower. Foreign workers who plan to work longer than six months in Indonesia must apply for employee social security and/or insurance.

Government Regulation No. 34/2021 outlines the types of businesses that can employ foreign workers, sets requirements to obtain health insurance for expatriate employees, requires companies to appoint local “companion” employees for the transfer of technology and skill development, and requires employers to facilitate Indonesian language training for foreign workers. Any expatriate who holds a work and residence permit must contribute USD 1,200 per year to the DKPTKA for local manpower training at regional manpower offices. Ministry of Manpower Decree No. 228/2019 details the number of jobs open for foreign workers across 18 sectors, ranging from construction, transportation, education, telecommunications, and professionals. Foreign workers must obtain approval from the Manpower Minister or designated officials to apply for positions not listed in the decree. Some U.S. firms report difficulty in renewing KITASs (residency cards/IDs) for their foreign executives.

Indonesia notified the WTO of its compliance with Trade-Related Investment Measures (TRIMS) on August 26, 1998. The 2007 Investment Law states that Indonesia shall provide the same treatment to both domestic and foreign investors originating from any country. Nevertheless, the government pursues policies to promote local manufacturing that could be inconsistent with TRIMS requirements, such as linking import approvals to investment pledges or requiring local content targets in some sectors.

In 2019, Indonesia issued Government Regulation No. 71/2019 to replace Regulation No. 82/2012, further detailed in Ministry of Communication and Information Technology (MCIT) Regulation No. 5/2020, which classifies electronic system operators (ESO) into two categories:  public and private. Public ESOs are either a state institution or an institution assigned by a state institution but not a financial sector regulator or supervisory authority. Private ESOs are individuals, businesses and communities that operate electronic systems. Public ESOs must manage, process, and store their data in Indonesia, unless the storage technology is not available locally. Private ESOs have the option to choose where they will manage, process, and store their data. However, if private ESOs decide to process data outside of Indonesia, they must provide access to their systems and data for government supervision and law enforcement purposes. For private financial sector ESOs, Government Regulation 71/2019 provides that such firms are “further regulated” by Indonesia’s financial sector supervisory authorities regarding the private sector’s ESO systems, data processing, and data storage. MCIT Regulation No. 10/2021 requires private sector operator to register within six months period after the effective implementation of risk-based business licensing through the OSS system. The policy has not been implemented as MCIT is still waiting for an official statement from BKPM on the operational of the Risk-Based OSS system. MCIT also issued Regulation 13/2021 in October, requiring a minimum of 35 percent local content requirement (LCR) for 4G and 5G device distributed and used in Indonesia starting in mid-April 202, while previously it was set at 30 percent.

Additionally, to implement Government Regulation 71/2019, the Financial Services Authority (OJK) issued Regulation No. 13/2020 that became effective March 31, 2020. It is an amendment to Regulation No. 38/2016, which allows banks to operate their electronic data processing systems and disaster recovery centers outside of Indonesia, provided that the system receives approval from OJK. OJK issued Regulation 4/2021, effective on March 9, 2021, which allows some non-bank financial institution data to be transferred and stored outside of Indonesia subject to OJK approval. Unless approved by OJK, data centers and disaster recovery centers must be in Indonesia. Certain core banking data and non-bank financial institution’s core systems must also be stored onshore/within Indonesia. OJK will evaluate whether offshore data arrangements could diminish its supervisory efficiency or negatively affect the bank’s performance, and if the data center complies with Indonesia’s laws and regulations. Data may be mirrored or placed in offshore systems, subject to OJK approval, such as for global integrated analysis, global risk management analysis with headquarters, and integrated anti-money laundering and terrorist financing analysis.

The Basic Agrarian Law of 1960, the predominant body of law governing land rights, recognizes the right of private ownership and provides varying degrees of land rights for Indonesian citizens, foreign nationals, Indonesian corporations, foreign corporations, and other legal entities. Indonesia’s 1945 Constitution states that all natural resources are owned by the government for the benefit of the people. This principle was augmented by the passage of Land Acquisition Law No. 2/2012, which was amended by the Omnibus Law on Job Creation (Law No. 11/2020), that enshrined the concept of eminent domain and established mechanisms for fair market value compensation and appeals. The National Land Agency registers property under Government Regulation No. 18/2021, though the Ministry of Environment and Forestry (KLHK) administers all “forest land.”  The regulation introduced e-registration to cut bureaucracy and minimize land disputes. Registration is not conclusive evidence of ownership, but rather strong evidence of such. It allows foreigners domiciled in Indonesia to have housing property with land under a “right to use” status for a maximum of 30 years, with extensions available for up to 20 additional years, as well as a “right to own” status for apartments located in special economic zones, free trade zones, and industrial areas. The Omnibus Law on Job Creation aims to reduce uncertainty around the roles of the central and local governments, including around spatial planning and environmental and social impact assessments (AMDALs), by simplifying the licensing process through implementation of a risk-based approach. The Omnibus Law also created a land bank to facilitate land acquisition for priority investment projects.

Indonesia remains on the priority watch list in the U.S. Trade Representative’s (USTR) Special 301 Report due to the lack of adequate and effective IP protection and enforcement. Indonesia’s patent law continues to raise serious concerns, including patentability criteria and compulsory licensing. Indonesia is amending the Patent Law, in addition to the amendment made through the Omnibus Law and hopes for the amendment deliberation to start in 2022. Counterfeiting and piracy are pervasive, IP enforcement remains weak, and there are continued market access restrictions for IP-intensive industries. According to U.S. stakeholders, Indonesia’s failure to protect intellectual property and enforce IP rights laws has resulted in high levels of physical and online piracy. Local industry associations have reported large amounts of pirated films, music, and software in circulation in Indonesia in recent years, causing potentially billions of dollars in losses. Indonesian physical markets, such as Mangga Dua Market, and online markets Tokopedia and Bukalapak, were included in USTR’s Notorious Markets List in 2021.

The Omnibus Law on Job Creation amended key articles in Patent Law No. 13/2016 and the Trademark and Geographical Indications Law No. 20/2016. While Patent Law amendments require the patent holder to exercise their patented invention locally within 36 months after the patent is granted, the new amendments provide flexibility to IP holders to meet local “working” requirements. The new law also revokes a provision requiring patent holders to support technology transfer, investment, and employment in local manufacturing as a condition of patent protection. The law reduces the processing time required for simple patent applications from 12 months to 6 months.

In January 2020, Indonesia ratified the Marrakesh Treaty through Presidential Regulation No. 1/2020 to facilitate access to public works for persons who are blind, visually impaired, or otherwise print-disabled. Indonesia also ratified the Beijing Treaty on IPR protection for audiovisual performances to protect actors through Presidential Regulation No. 21/2020. Indonesia deposited its instrument of accession to the Madrid Protocol with the World Intellectual Property Organization (WIPO) in 2017 and issued implementing regulations in 2018. Under the new rules, applicants desiring international mark protection under the Madrid Protocol must first register their application with DGIP and be Indonesian citizens, domiciled in Indonesia, or have clear industrial or commercial interests in Indonesia. Although the Trademark Law of 2016 expanded recognition of non-traditional marks, Indonesia still does not recognize certification marks. In response to stakeholder concerns over a lack of consistency in the treatment of internationally well-known trademarks, the Supreme Court issued Circular Letter 1/2017, which advised Indonesian judges to recognize cancellation claims for well-known international trademarks with no time limit stipulation.

Ministry of Finance (MOF) Regulation No. 6/2019 grants the Directorate General of Customs and Excise (DGCE) legal authority to hold shipments believed to contain imitation goods for up to two days, pending inspection. Under Regulation No. 6/2019, rights holders are notified by DGCE (through a recordation system) when an incoming shipment is suspected of containing infringing products. If the inspection reveals an infringement, the rights holder has four days to file a court injunction to request a shipment suspension. Rights holders are required to provide a refundable monetary guarantee of IDR 100 million (USD 6,600) when they file a claim with the court. If the court sides with the rights holder, then the guarantee money will be returned to the applicant. DGCE intercepted three suspected infringement product imports in 2020 by using this recordation system, as only 17 trademarks and two copyrights are registered in the recordation system. Despite business stakeholder concerns, the GOI retains a requirement that only companies with offices domiciled in Indonesia may use the recordation system.

Trademark, Patent, and Copyright legislation require a rights-holder complaint for investigation. DGIP and BPOM investigators lack the authority to make arrests so must rely on police cooperation for any enforcement action. DGIP created an IP Enforcement Task Force in late 2021 to include DGIP, the Indonesian National Policy (INP) Criminal Investigation Agency, DGCE, MCIT, and BPOM. The Task Force is more focused on IP Enforcement and is promising but has not fully ramped up its efforts and more time is needed to evaluate its long-term effectiveness.

Additional information regarding treaty obligations and points of contact at local IP offices, can be found at the World Intellectual Property Organization (WIPO) country profile website:

http://www.wipo.int/directory/en/  . For a list of local lawyers, see:  https://id.usembassy.gov/attorneys.

The Indonesia Stock Exchange (IDX) index has 766 listed companies as of December 2021 with a daily trading volume of USD 922.2 million and market capitalization of USD 571 billion (IDR 8,284 trillion). Over the past six years, there has been a 45.9 percent increase in the number listed companies, but the IDX is dominated by its top 50 listed companies, which represent 69.2 percent of the market cap. There were 54 initial public offerings in 2021 – three more than in 2020. During the fourth quarter of 2021, domestic entities conducted 75 percent of total IDX stock trades.

Government treasury bonds are the most liquid bonds offered by Indonesia. Corporate bonds are less liquid due to less public knowledge of the product and the shallowness of the market. The government issues sukuk (Islamic treasury notes) as part of its effort to diversify Islamic debt instruments and increase their liquidity and issued the first in Southeast Asia Sustainable Development Goals (SDG) bond to fund projects that benefit communities and the environment. This SDG bond was issued in the global capital market, denominated in Euros, and listed in the Singapore and Frankfurt Stock Exchanges. Indonesia’s sovereign debt as of February 2022 was rated as BBB by Standard and Poor’s, BBB by Fitch Ratings and Baa2 by Moody’s. Foreigners held 19 percent of government bonds in January 2022

OJK began overseeing capital markets and non-banking institutions in 2013, replacing the Capital Market and Financial Institution Supervisory Board. In 2014, OJK also assumed BI’s supervisory role over commercial banks. Foreigners have access to the Indonesian capital markets and are a major source of portfolio investment. Indonesia respects International Monetary Fund (IMF) Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Although there is some concern regarding the operations of the many small and medium sized family-owned banks, the banking system is generally considered sound, with banks enjoying some of the widest net interest margins in the region. As of December 2021, commercial banks had IDR 9,913.6 trillion (USD 683 billion) in total assets, with a capital adequacy ratio of 25.67 percent. Outstanding loans grew by 4.4 percent in 2021, a significant improvement from the 2,4 percent contraction in 2020, due to the COVID-19 pandemic. Gross non-performing loans (NPL) in December 2021 decreased to 3 percent from 3.06 percent the previous year. NPL rates were partly mitigated through a loan restructuring program implemented by OJK as part of the COVID-19 recovery efforts.

The Financial Services Authority (OJK) issued a regulation on credit restructuring in 2020 to support businesses hit by the pandemic and maintain financial stability, which was extended until March 2023 to prepare banks and debtors for a “soft landing” and give banks time to adequately provision for potential loan losses. The amount of credit restructured under this policy declined from IDR 830.5 trillion (USD 57.2 billion) in 2020 to IDR 693.6 trillion (USD 47.8 billion) in 2021. Most of the loans were restructured by extending the maturity, delaying payments, or reducing the interest rate, which provided borrowers with temporary liquidity relief. Loans at risk, a broader measure of potential troubled loans than the NPL ratio, decreased from 23.4 percent at the end of 2020 to 19.5 percent in December 2021.

OJK Regulation No. 56/03/2016 limits bank ownership to no more than 40 percent by any single shareholder, applicable to foreign and domestic shareholders. This does not apply to foreign bank branches in Indonesia. Foreign banks may establish branches if the foreign bank is ranked among the top 200 global banks by assets. A special operating license is required from OJK to establish a foreign branch. The OJK granted an exception in 2015 for foreign banks buying two small banks and merging them. To establish a representative office, a foreign bank must be ranked in the top 300 global banks by assets. OJK regulation No. 12/POJK.03/2021, issued in August 2021, increased the foreign equity cap for commercial banks to 99 percent, subject to OJK evaluation and approval.

On March 16, 2020, OJK issued Regulation No. 12/POJK.03/2020 on commercial bank consolidation. The regulation aimed to strengthen the structure and competitiveness of the national banking industry by increasing bank capital and encouraging consolidation of banks in Indonesia. This regulation increased minimum core capital requirements for commercial banks and Capital Equivalency Maintained Asset requirements for foreign banks with branch offices by least IDR 3 trillion (USD 209 million), by December 31, 2022.

In 2015, OJK eased rules for foreigners to open a bank account in Indonesia. Foreigners can open a bank account with a balance between USD 2,000-50,000 with just their passport. For accounts greater than USD 50,000, foreigners must show a supporting document such as a reference letter from a bank in the foreigner’s country of origin, a local domicile address, a spousal identity document, copies of a contract for a local residence, and/or credit/debit statements.

Growing digitalization of banking services, spurred on by innovative payment technologies in the financial technology (fintech) sector, complements the conventional banking sector. Peer-to-peer (P2P) lending companies and e-payment services have grown rapidly over the past decade. Indonesian policymakers are hopeful that these fintech services can reach underserved or unbanked populations and micro, small, and medium-sized enterprises (MSMEs). In October 2021, OJK launched a Digital Banking transformation blueprint providing the agency’s policy vision for digital banking that consist of 5 elements: 1) data protection, transfer, and governance, 2) technology governance, architecture, emerging technology, 3) IT risk management, outsourcing, and cybersecurity, 4) platform sharing and cooperation of financial/non-financial institutions, and 5) institutional capacity, culture, leadership, and talent management.

OJK Regulation 77/2016 on peer-to-peer (P2P) lending introduces various guidelines, obligations, and restrictions for P2P lending services, and the organization of P2P lending service providers. This regulation caps foreign ownership of P2P services at 85 percent and mandates data localization. Nonbank financial service suppliers may do business in Indonesia as a joint venture or be partially owned by foreign investors but cannot operate in Indonesia as a branch or subsidiary of a foreign entity. Indonesia issued a moratorium on October 2021 for peer-to-peer (P2P) lending licenses to combat illegal platforms. Under OJK Regulation 13/2018, financial technology companies must register with OJK and implement a regulatory sandbox to test new services and business models. As of December 2021, total fintech lending reached USD 20.4 billion in loan disbursements, with USD 2 billion outstanding, while payment transactions using e-money in 2021 grew by 49.06 percent y-o-y to USD 21.06 billion. The value of digital banking transactions increased by 45.6 percent y-o-y to USD 2.7 trillion. According to OJK data, only 39 percent of the population currently use digital banking, therefore significant growth potential remains.

The government places no restrictions or time limitations on investment remittances. However, certain reporting requirements exist. Banks should adopt Know Your Customer (KYC) principles to carefully identify customers’ profile to match transactions. Indonesia does not engage in currency manipulation.

As of 2015, Indonesia is no longer subject to the intergovernmental Financial Action Task Force (FATF) monitoring process under its on-going global Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) compliance process. It continues to work with the Asia/Pacific Group on Money Laundering (APG) to further strengthen its AML/CTF regime. In 2018, Indonesia was granted observer status by FATF, a necessary milestone toward becoming a full FATF member.

The Indonesian Investment Authority (INA), also known as the sovereign wealth fund, was legally established by the 2020 Omnibus Law on Job Creation. INA’s supervisory board and board of directors were selected through competitive processes and announced in January and February 2021. The government initially capitalized INA with USD 2 billion through injections from the state budget and added another USD 4.04 billion from the state budget in October 2021. INA aims to attract foreign equity and invest that capital in long-term Indonesian assets to improve the value of the assets through enhanced management. According to Indonesian government officials, the fund will consist of a master portfolio with sector-specific sub-funds, such as infrastructure, oil and gas, health, tourism, and digital technologies.

INA reportedly inked MoUs with several parties such as with Caisse de dépôt et placement du Québec (CDPQ), APG Asset Management (APG), and the Abu Dhabi Investment Authority (ADIA) on May 2021, to establish Indonesia’s first infrastructure investment platform; with state-owed energy/oil company Pertamina on May 19, to carry out investment cooperation in the energy sector; and with BP Jamsostek on May 24, to carry out investment activity cooperation. INA partnered with state-owned airport operator Angkasa Pura II to accelerate Jakarta’s Soekarno-Hatta airport expansion on October 28; partnered with Dubai Ports (DP) World on October 29 to invest USD 7.5 billion into Indonesian seaport facilities; and made an agreement with the Abu Dhabi growth fund (ADG) on November 25, to invest up to USD 10 billion in Indonesia.

Indonesia had 114 state-owned enterprises (SOEs) and 28 subsidiaries divided into 12 sectors, as of December 2019. By February 2022 that number had been reduced to 41 SOEs divided into 12 sectors mainly through consolidation or merger, although a small number of SOEs have also been liquidated due to ineffectiveness. As of December 2021, 28 were listed on the Indonesian stock exchange. Two SOEs plan IPOs in 2022, namely PT Pertamina Geothermal Energy and PT ASDP Indonesia Ferry (Persero). SOEs make up 55 percent of the economy.

In 2017, Indonesia announced the creation of a mining holding company, PT Inalum. In 2020, three state owned sharia banks were merged. In January 2022, Minister of SOEs, Erick Thohir, stated that in total, nine SOE holding companies will be formed by 2024, including pharmaceutical, insurance, survey services, food industry, manufacturing industry, defense state-owned holdings, the media industry, port services, and transportation and tourism services holding.

Several of this holding companies have already been formed, including pharmaceutical holding (Lead by PT Bio Farma, formed in early 2020), Indonesia battery holding (formed on March 26, 2021), Port Service Holding (a merger of PT Pelindo I to Pelindo IV, formed on October 1, 2021), Indonesia Financial Group (IFG) as an insurance holding formed in October 2020, Holding of SOE hotels (Wika as the lead of the holding, formed in December 2020), Ultra Micro Holding (BRI, Pegadaian and PNM, formed Sept 13, 2021), ID Food or Holding of food SOEs (lead by PT Rajawali Nusantara Indonesia, formed on January 7), Injourney as a tourism holding company (PT Aviasi Pariwisata Indonesia, formed on January 13), and Defend ID as the defense industry holding (with Len Industry as the lead of the holding, formed on March 2).

Since his appointment by President Jokowi in November 2019, Minister of SOEs Erick Thohir has underscored the need to reform SOEs in line with President Jokowi’s second-term economic agenda. Thohir has noted the need to liquidate underperforming SOEs, ensure that SOEs improve their efficiency by focusing on core business operations, and introduce better corporate governance principles. Thohir has spoken publicly about his intent to push SOEs to undertake initial public offerings (IPOs) on the Indonesian Stock Exchange. He also encourages SOEs to increase outbound investment to support Indonesia’s supply chain in strategic markets, including through acquisition of cattle farms, phosphate mines, and salt mines.

Information regarding SOEs can be found at the SOE Ministry website ( http://www.bumn.go.id/  ) (Indonesian language only).

There are also an unknown number of SOEs owned by regional or local governments. SOEs are present in almost all sectors/industries including banking (finance), tourism (travel), agriculture, forestry, mining, construction, fishing, energy, and telecommunications (information and communications).

Indonesia is not a party to the WTO’s Government Procurement Agreement. Private enterprises can compete with SOEs under the same terms and conditions with respect to access to markets, credit, and other business operations. However, many sectors report that SOEs receive strong preference for government projects. SOEs purchase some goods and services from the private sector and foreign firms. SOEs publish an annual report and are audited by the Supreme Audit Agency (BPK), the Financial and Development Supervisory Agency (BPKP), and external and internal auditors.

While some state-owned enterprises have offered shares on the stock market, Indonesia does not have an active privatization program. The government capitalized Indonesia Investment Authority (INA) with USD 4 billion in state-owned assets to attract equity investments in those assets, which may eventually be sold to investors or listed on the stock market.

Indonesian businesses are required to undertake responsible business conduct (RBC) activities under Law No. 40/2007 concerning Limited Liability Companies. In addition, sectoral laws and regulations have further specific provisions on RBC. Indonesian companies tend to focus on corporate social responsibility (CSR) programs offering community and economic development, and educational projects and programs. This is at least in part caused by the fact that such projects are often required as part of the environmental impact permits (AMDAL) of resource extraction companies, and those companies face domestic and international scrutiny of their operations. Because a large proportion of resource extraction activity occurs in remote and rural areas where government services are reported to be limited or absent, these companies face very high community expectations to provide such services themselves. Despite significant investments – especially by large multinational firms – in CSR projects, businesses have noted that there is limited general awareness of those projects, even among government regulators and officials. Yet, lack of regulations, oversight and enforcement measures deter stakeholders’ from more consistently adhering to environment, social, and governance standards (ESG).

The government does not have an overarching strategy to encourage or enforce RBC but regulates each area through the relevant laws (environment, labor, corruption, etc.). Some companies report that these laws are not always enforced evenly. In 2017, the National Commission on Human Rights launched a National Action Plan on Business and Human Rights in Indonesia, based on the UN Guiding Principles on Business and Human Rights.

OJK regulates corporate governance issues, but the regulations and enforcement are not yet up to international standards for shareholder protection.

Indonesia does not adhere to the OECD Guidelines for Multinational Enterprises, and the government is not known to have encouraged adherence to those guidelines. Many companies claim that the government does not encourage adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas or any other supply chain management due diligence guidance. Indonesia is an active member of the Extractive Industries Transparency Initiative (EITI). As part of EITI requirement, payment made to governments in the extractive industries are disclosed through a system database managed by the Ministry of Energy and Mineral Resources (ESDM) as it continues to improve data and information transparency.

President Jokowi was elected on a strong good-governance platform, but his performance on this remains inconsistent. Corruption remains a serious problem in the view of many, including some U.S. companies. The Indonesian government has issued detailed directions on combating corruption in targeted ministries and agencies, and the 2018 release of the updated and streamlined National Anti-Corruption Strategy mandates corruption prevention efforts across the government in three focus areas (licenses, state finances, and law enforcement reform). The Corruption Eradication Commission (KPK) was established in 2002 as the lead government agency to investigate and prosecute corruption. KPK is one of the most trusted and respected institutions in Indonesia. The KPK has taken steps to encourage companies to establish effective internal controls, ethics, and compliance programs to detect and prevent bribery of public officials. By law, the KPK is authorized to conduct investigations, file indictments, and prosecute corruption cases involving law enforcement officers, government executives, or other parties connected to corrupt acts committed by those entities; attracting the “attention and the dismay” of the general public; and/or involving a loss to the state of at least IDR 1 billion (approximately USD 66,000). The government began prosecuting companies that engage in public corruption under new corporate criminal liability guidance issued in a 2016 Supreme Court regulation, with the first conviction of a corporate entity in January 2019. Giving or accepting a bribe is a criminal act, with possible fines ranging from USD 3,850 to USD 77,000 and imprisonment up to a maximum of 20 years to life, depending on the severity of the charge. Presidential decree No. 13/2018 issued in March 2018 clarifies the definition of beneficial ownership and outlines annual reporting requirements and sanctions for non-compliance.

Indonesia’s ranking in Transparency International’s Corruption Perceptions Index in 2021 rose to 96 out of 180 countries surveyed, compared to 102 out of 180 countries in 2020. Indonesia’s score of public corruption in the country, according to Transparency International, rose to 38 in 2020 from 37 in 2020 (scale of 0/very corrupt to 100/very clean). Indonesia ranks below neighboring Timor Leste, Malaysia, and Brunei.

Corruption reportedly remains pervasive despite laws to combat it.  In September 2019, the Indonesia House of Representatives (DPR) passed Law No. 19/2019 on the Corruption Eradication Commission (KPK) which revised the KPK’s original charter, reducing the Commission’s independence and limiting its ability to pursue corruption investigations without political interference. The current KPK Commissioner has stated that KPK’s main role will no longer be prosecution, but education and prevention. Although there have been some notable successful prosecutions including against members of the President’s cabinet, the 2019 changes to the KPK have led to a significant decline in investigations and prosecutions.

Indonesia ratified the UN Convention against Corruption in September 2006. However, Indonesia is not yet compliant with key components of the convention, including provisions on foreign bribery. Indonesia has not yet acceded to the OECD Anti-Bribery Convention but attends meetings of the OECD Anti-Corruption Working Group. Several civil society organizations function as vocal and competent corruption watchdogs, including Transparency International Indonesia and Indonesia Corruption Watch.

Resources to Report Corruption

Komisi Pemberantasan Korupsi (Anti-Corruption Commission)
Jln. Kuningan Persada Kav 4, SetiabudiJakarta Selatan 12950
Email:  informasi@kpk.go.id 

Indonesia Corruption Watch
Jl. Kalibata Timur IV/D
No. 6 Jakarta Selatan 12740
Tel: +6221.7901885 or +6221.7994015
Email:  info@antikorupsi.org 

As in other democracies, politically motivated demonstrations occasionally occur throughout Indonesia, but are not a major or ongoing concern for most foreign investors. Since the Bali bombings in 2002 that killed over 200 people, and other follow-on high-profile attacks on western targets Indonesian authorities have aggressively continued to pursue terrorist cells throughout the country, disrupting multiple aspirational plots. Despite these successes, violent extremist networks, terrorist cells, and lone wolf-style ISIS sympathizers have conducted small-scale attacks against law enforcement, government, and non-Muslim places of worship with little or no warning.

Foreign investors in Papua face unique challenges. Indonesian security forces occasionally conduct operations against small armed separatist groups, including the Free Papua Movement, a group that is most active in the central highlands region. Low-intensity communal, tribal, and political conflict also exists in Papua and has caused deaths and injuries. Anti-government protests have resulted in deaths and injuries, and violence has been committed against employees and contractors of at least one large corporation there, including the death of a New Zealand citizen in an attack on March 30, 2020, as well as armed groups seizing aircraft and temporarily holding pilots and passenger’s hostage. Additionally, racially-motivated attacks against ethnic Papuans in East Java province led to violence in Papua and West Papua in late 2019, including riots in Wamena, Papua that left dozens dead and thousands more displaced. Continued attacks and counter attacks between security personnel and local armed groups have exacerbated the region’s issues with internally displaced persons.

Travelers to Indonesia can visit the U.S. Department of State travel advisory website for the latest information and travel resources:

https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Indonesia.html.

Companies have reported that the labor market faces several structural barriers, including skills shortages and lagging productivity, restrictions on the use of contract workers, and complicated labor laws. Recent significant increases in the minimum wage for many provinces have made unskilled and semi-skilled labor more costly. In the bellwether Jakarta area, the Governor set the 2022 minimum wage to IDR 4,641,854 ($324.56), compared to the central government’s IDR 4,453,935 ($311.42), a move opposed by the Ministry of Manpower and private companies. Unions staged frequent, largely peaceful protests across Indonesia in 2021 demanding the government increase the minimum wage, decrease the price for basic needs, and stop companies from outsourcing and employing foreign workers.

The 2020 Omnibus Law on Job Creation introduced labor reforms, intended to attract investors, boost economic growth and create jobs. The Law aims to make the labor market more flexible to encourage job creation and more formal sector employment, as over half of Indonesia’s workers are in the informal sector. Restrictions on the types of work that can be outsourced were lifted and a new working hours arrangement was established to accommodate jobs in the digital economy era. The Law abolished sectoral minimum wages and reformulated the calculation of minimum wage at the provincial and regency/city level based on economic growth or inflation variables. A new unemployment benefit is now officially part of the public safety net for workers, and severance pay requirements were reduced. The business community’s initial reactions to the law were cautiously optimistic, while labor unions, student groups, and religious organizations staged strikes and protests against the law’s labor reforms. Labor unions cite the loss of limits on temporary employment contracts and expansion of outsourcing flexibility as concerns.

Indonesia’s Constitutional Court ruled November 2021 that the passing of the Omnibus Law on Job Creation (No. 11/2020 ) was unconstitutional due to the opaqueness of the process by which the law was created and the fact that proposed revisions were not fully shared with the public. The court ordered lawmakers to revise the law within two years. The Omnibus Law, a key pillar for President Jokowi’s reform agenda intended to facilitate investment and create a friendlier business environment, has been the source of controversy among labor and environmental stakeholders, who assert that the law stripped away labor and environmental protections. Some green NGOs described the court’s decision as a “small win” for the environmental NGO community. Parts of the law already enacted via implementing regulations are still considered constitutionally valid during the two-year grace period set by the court though many of the law’s implementing regulations have not yet been released. The ruling stipulates that the government should not issue new regulations of a strategic nature related to the law until improvements are made to the current law.

Until the onset of the COVID-19 pandemic, unemployment had remained steady at 4.38 percent. As of August 2021, Statistics Indonesia recorded that the unemployment rate jumped to 6.49 percent, or 9.1 million people, lower than the same period in 2020 which reached 7.07 percent or 9.77 million people. Meanwhile the number of workers who were furloughed or worked in shorter working hours due to COVID-19 was much higher.

Employers note that the skills provided by the education system is lower than that of neighboring countries, and successive Labor Ministers have listed improved vocational training as a top priority. Labor contracts are relatively straightforward to negotiate but are subject to renegotiation, despite the existence of written agreements. Local courts often side with citizens in labor disputes, contracts notwithstanding. On the other hand, some foreign investors view Indonesia’s labor regulatory framework, respect for freedom of association, and the right to unionize as an advantage to investing in the country. Expert local human resources advice is essential for U.S. companies doing business in Indonesia, even those only opening representative offices.

Labor unions are independent of the government; about 7.6 percent of the workforce is unionized. The law, with some restrictions, protects the rights of workers to join independent unions, conduct legal strikes, and bargain collectively. Indonesia has ratified all eight of the core ILO conventions underpinning internationally accepted labor norms. The Ministry of Manpower maintains an inspectorate to monitor labor norms, but enforcement is stronger in the formal sector. A revised Social Security Law, which took effect in 2014, requires all formal sector workers to participate. Subject to a wage ceiling, employers must contribute an amount equal to 4 percent of workers’ salaries to this plan. In 2015, Indonesia established the Social Security Organizing Body of Employment (BPJS-Employment), a national agency to support workers in the event of work accident, death, retirement, or old age.

Additional information on child labor, trafficking in persons, and human rights in Indonesia can be found online through the following references:

Child Labor Report:  https://www.dol.gov/agencies/ilab/resources/reports/child-labor/indonesia  .

Trafficking in Persons Report: https://www.state.gov/reports/2020-trafficking-in-persons-report/indonesia/

Human Rights Report:  https://www.state.gov/reports/2020-country-reports-on-human-rights-practices/indonesia/

*Indonesia Investment Coordinating Board (BKPM), January 2022

There is a discrepancy between U.S. FDI recorded by BKPM and BEA due to differing methodologies. While BEA recorded transactions in balance of payments, BKPM relies on company realization reports. BKPM also excludes investments in oil and gas, non-bank financial institutions, and insurance.

Source: IMF Coordinated Direct Investment Survey, 2020 for inward and outward investment data.

Source: IMF Coordinated Portfolio Investment Survey, 2020. Sources of portfolio investment are not tax havens.

The Bank of Indonesia published comparable data.

Marc CookEconomic Section
U.S. Embassy Jakarta
+62-21-50831000
BusinessIndonesia@state.gov

Israel is open to foreign investment and the government actively encourages and supports the inflow of foreign capital.

The Israeli Ministry of Economy and Industry’s ‘Invest in Israel’ office serves as the government’s investment promotion agency facilitating foreign investment. ‘Invest in Israel’ offers a wide range of services including guidance on Israeli laws, regulations, taxes, incentives, and costs, and facilitation of business connections with peer companies and industry leaders for new investors. ‘Invest in Israel’ also organizes familiarization tours for potential investors and employs a team of advisors for each region of the world.

The Israeli legal system protects the rights of both foreign and domestic entities to establish and own business enterprises, as well as the right to engage in remunerative activity. Private enterprises are free to establish, acquire, and dispose of interests in business enterprises. As part of ongoing privatization efforts, the Israeli government encourages foreign investment in privatizing government-owned entities.

Israel’s policies aim to equalize competition between private and public enterprises, although the existence of monopolies and oligopolies in several sectors, including communications infrastructure, food manufacturing and marketing, and some manufacturing segments, stifles competition. In the case of designated monopolies, defined as entities that supply more than 50 percent of the market, the government controls prices.

Israel established a centralized investment screening (approval) mechanism for certain inbound foreign investments in October 2019. Investments in regulated industries (e.g., banking and insurance) require approval by the relevant regulator. Investments in certain sectors may require a government license. Other regulations may apply, usually on a national treatment basis.

The World Trade Organization (WTO) conducted its fifth and latest trade policy review of Israel in July 2018. In the past three years, the Israeli government has not conducted any investment policy reviews through the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD). The OECD concluded an Economic Survey of Israel in 2020, which can be found here: https://www.oecd.org/economy/israel-economic-snapshot/ 

The Israeli government is fairly open and receptive to companies wishing to register businesses in Israel. The business registration process in Israel is relatively clear and straightforward. Four procedures are required to register a standard private limited company and take 12 days to complete, on average, according to the Israeli Ministry of Finance. The foreign investor must obtain company registration documents through a recognized attorney with the Israeli Ministry of Justice and obtain a tax identification number for company taxation and for value added taxes from the Israeli Ministry of Finance. The cost to register a company averages around USD 1,000 depending on attorney and legal fees.

The Israeli Ministry of Economy and Industry’s “Invest in Israel” website provides useful information for companies interested in starting a business or investing in Israel. The website is http://www.investinisrael.gov.il/Pages/default.aspx .

The Israel Export and International Cooperation Institute is an Israeli government agency operating independently, under the Ministry of Economy, that helps facilitate trade and business opportunities between Israeli and foreign companies. More information on their activities is available at https://www.export.gov.il/en .

In general, there are no restrictions on Israeli investors seeking to invest abroad. However, investing abroad may be restricted on national security grounds or in certain countries or sectors where the Israeli government deems such investment is not in the national interest.

Israel promotes open governance and has joined the International Open Government Partnership. The government’s policy is to pursue the goals of transparency and active reporting to the public, public participation, and accountability.

Israel’s regulatory system is transparent. Ministries and regulatory agencies give notice of proposed regulations to the public on a government web site: http://www.knesset.gov.il . The texts of proposed regulations are also published (in Hebrew) on this web site. The government requests comments from the public about proposed regulations. However, the government occasionally issues new or revised regulations without prior comment periods.

Israel is a signatory to the WTO Agreement on Government Procurement (GPA), which covers most Israeli government entities and government-owned corporations. Most of the country’s open international public tenders are published in the local press. U.S. companies have won government tenders, notably in the energy and communications sectors. However, government-owned corporations make extensive use of selective tendering procedures. In addition, the lack of transparency in the public procurement process discourages U.S. companies from participating in major projects and disadvantages those that choose to compete. Enforcement of the public procurement laws and regulations is not consistent.

Israel is a member of UNCTAD’s international network of transparent investment procedures. ( http://unctad.org/en/pages/home.aspx  ). Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal basis justifying the procedures.

The Israeli Securities Authority released a recommendation in April 2021 calling for all public companies to publish annual environmental, social, and governance (ESG) reports based on international standards. In May 2021, the Bank of Israel required banks to note in the annual reports the material environmental, social and governance aspects integrated into their targets, and to note concisely the main principles established by the banking corporation for promoting these issues. The Israeli Capital, Insurance, and Savings Authority, which regulates financial services in the insurance and pension funds industries, also required institutional investors to publish ESG reports.

Israel is not a member of any major economic bloc but maintains strong economic relations with several such blocs.

Israeli regulatory bodies in the Ministry of Economy (Standards Institute of Israel), Ministry of Health (Food Control Services), and the Ministry of Agriculture (Veterinary Services and the Plant Protection Service) often adopt standards developed by European standards organizations. Israel’s adoption of European standards rather than international may add costs for some U.S. exports to Israel.

Israel became a member of the WTO in 1995. The Ministry of Economy and Industry’s Standardization Administration is responsible for notifying the WTO Committee on Technical Barriers to Trade, and regularly does so.

Israel has a written and consistently applied commercial law based on the British Companies Act of 1948, as amended. The judiciary is independent, but businesses complain about the length of time required to obtain judgments. The Supreme Court is an appellate court that also functions as the High Court of Justice. Israel does not employ a jury system.

There are few restrictions on foreign investors, except in defense and other national security industries. Foreign investors are welcome to participate in Israel’s privatization program.

Israeli courts exercise authority in cases within the jurisdiction of Israel. However, if an agreement between involved parties contains an exclusively foreign jurisdiction, the Israeli courts will generally decline to exercise their authority.

Israel’s Ministry of Economy sponsors the web site “Invest in Israel” at www.investinisrael.gov.il 

The Investment Promotion Center of the Ministry of Economy seeks to encourage investment in Israel. The center stresses Israel’s high marks in innovation, entrepreneurship, and Israel’s creative, skilled, and ambitious workforce. The center also promotes Israel’s strong ties to the United States and Europe.

Israel adopted its comprehensive competition law in 1988. Israel created the Israel Competition Authority (originally called the Israel Antitrust Authority) in 1994 to enforce the competition law.

There have been no known expropriations of U.S.-owned businesses in Israel. Israeli law requires adequate payment, with interest from the day of expropriation until final payment, in cases of expropriation.

Israel has established and well-regarded bankruptcy measures in place. Israeli Bankruptcy Law has several layers, some rooted in Common Law, when Palestine was under the British mandate in 1917-1948. Bankruptcy Law in Israel is based on the 1980 Bankruptcy Ordinance, the 1985 Bankruptcy Regulations, and the 2018 Law for Insolvency and Economic Recovery.

The State of Israel encourages both local and foreign investment by offering a wide range of incentives and benefits to investors in industry, tourism, and real estate. The Law for Encouragement of Capital Investment and the Law for the Encouragement of Industrial Research and Design include grants and tax benefits for potential investors. Israel’s Ministry of Economy places a priority on investments in hi-tech companies and R&D activities. The Ministry of Economy’s Small and Medium Business Agency offers special loan programs for Arab women. Israel also offers tax benefits for new immigrants and Israeli citizens returning from residing abroad, including exemption from capital gains taxes on the sale of assets located outside of Israel.

Most investment incentives available to Israeli citizens are also available to foreign investors. Israel’s Encouragement of Capital Investments Law, 5719-1959, outlines Israel’s investment incentive programs. The Israel Investment Center (IIC) coordinates the country’s investment incentive programs.

For complete information, potential investors should contact:

Investment Promotion Center
Ministry of Economy
5 Bank of Israel Street,
Jerusalem 91036
Tel: +972-2-666-2607
Website: www.investinisrael.gov.il
E-mail: investinisrael@economy.gov.il 

Israel Investment Center
Ministry of Economy
5 Bank of Israel Street,
Jerusalem 91036 490
http://economy.gov.il/English/About/Units/Pages/IsraelInvestmentCenter.aspx
Tel: +972-2-666-2828
Fax: +972-2-666-2905

Israel has bilateral Qualifying Industrial Zone (QIZ) Agreements with Egypt and Jordan. The QIZ initiative allows Egypt and Jordan to export products to the United States duty-free, as long as these products contain inputs from Israel (8 percent in the Israel-Jordan QIZ agreement, 10.5 percent in the Israel-Egypt QIZ agreement). Products manufactured in QIZs must comply with strict rules of origin. More information is available at the Israeli Ministry of Economy’s Foreign Trade Administration website: https://www.gov.il/en/departments/Units/foreign_trade 

Israel has one free trade zone, the Red Sea port city of Eilat.

There are no universal performance requirements on investments, but “offset” requirements are often included in sales contracts with the government. There are no limits to private foreign ownership of Israeli firms. Israel’s visa and residency requirements are transparent. The Israeli government does not impose preferential policies on exports by foreign investors.

Israel has a modern legal system based on British common law that provides effective means for enforcing property and contractual rights. Courts are independent. Israeli civil procedures provide that local courts may accept judgments of foreign courts. The Israeli judicial system recognizes and enforces secured interests in property. A reliable system of recording such secured interests exists. The Israeli Land Administration, which manages land in Israel on behalf of the government, registers property transactions. Registering or obtaining land rights is a cumbersome process.

The Intellectual Property Law Division and the Israel Patent Office (ILPO), both within the Ministry of Justice, are the principal government authorities overseeing the legal protection and enforcement of intellectual property rights (IPR) in Israel. IPR protection in Israel has undergone many changes in recent decades as the Israeli economy has rapidly transformed into a knowledge-based economy.

In recent years, Israel revised its IPR legal framework several times to comply with newly signed international treaties. Israel took stronger, more comprehensive steps towards protecting IPR, and the government acknowledges that IPR theft costs rights holders millions of dollars per year, reducing tax revenues and slowing economic growth.

Israel was removed from the U.S. Trade Representative’s Special 301 Report Watch List in 2014.

Israel’s Knesset approved Amendment No. 5 to Israel’s Copyright Law of 2007 on January 1, 2019. The amendment aims to establish measures to combat copyright infringement on the internet while preserving the balance among copyright owners, internet users, and the free flow of information and free speech.

The 2018 New Designs Law brought Israel into compliance with The Hague System for International Registration of Industrial designs.

Nevertheless, the United States remains concerned with the limitations of Israel’s copyright legislation, particularly related to digital copyright matters, and with Israel’s interpretation of its commitment to protect data derived from pharmaceutical testing conducted in anticipation of the future marketing of biological products, also known as biologics.

The United States continues to urge Israel to strengthen and improve its IPR enforcement regime. Israel lacks specialized courts, common in other countries with advanced IPR regimes. General civil or administrative courts in Israel typically adjudicate IPR cases.

IPR theft, including trade secret misappropriation, can be common and relatively sophisticated in Israel. The European Commission “closely monitors” IP enforcement in Israel. The EC cites inadequate protection of innovative pharmaceutical products and end-user software piracy as the main issues with IPR enforcement in Israel.

Israel is a member of the WTO and the World Intellectual Property Organization (WIPO). It is a signatory to the Berne Convention for the Protection of Literary and Artistic Works, the Universal Copyright Convention, the Paris Convention for the Protection of Industrial Property, and the Patent Cooperation Treaty.

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/ .

The Israeli government is supportive of foreign portfolio investment. The Tel Aviv Stock Exchange (TASE) is Israel’s only public stock exchange.

Financial institutions in Israel allocate credit on market terms. Various credit instruments are available to the private sector and foreign investors can receive credit on the local market. Legal, regulatory, and accounting systems are transparent and conform to international norms, although the prevalence of inflation-adjusted accounting means there are differences from U.S. accounting principles.

In the case of publicly traded firms where ownership is widely dispersed, the practice of “cross-shareholding” and “stable shareholder” arrangements to prevent mergers and acquisitions is common, but not directed at preventing foreign investment. Israeli law prevents foreign investment by individuals or businesses from “enemy states,” currently limited to Iran, Syria, and Lebanon.

The Bank of Israel (BOI) is Israel’s central bank and regulates all banking activity and monetary policy. In general, Israel has a healthy banking system that offers most of the same services as the U.S. banking system. Fees for normal banking transactions are significantly higher in Israel than in the United States and some services do not meet U.S. standards. There are 12 commercial banks and four foreign banks operating in Israel, according to the BOI. Bank Leumi and Bank Hapoalim, the two largest banks, dominate Israel’s banking sector, collectively controlling nearly 60 percent of Israel’s credit market. The State of Israel holds 6 percent of Bank Leumi’s shares; all of Israel’s other banks are fully private.

Israel passed legislation to establish the Israel Citizens’ Fund, a sovereign wealth fund managed by the BOI, in 2014. The law establishing the fund states that it will begin operating a month after the state’s tax revenues from natural gas exceed USD 307 million (1 billion NIS), which the Ministry of Finance expects will occur in late 2022.

Israel established the Government Companies Authority (GCA) as an auxiliary unit of the Ministry of Finance following the passage of the 1975 Government Companies Law. It is the administrative agency for state-owned companies in charge of supervision, privatization, and implementation of structural changes. The Israeli state only provides support for commercial SOEs in exceptional cases. The GCA leads the recruitment process for SOE board members. Board appointments are subject to the approval of a committee, which confirms whether candidates meet the minimum board member criteria set forth by law.

The GCA oversees some 100 commercial and noncommercial companies, government subsidiaries, and companies under mixed government-private ownership. Among these companies are some of the biggest and most complex in the Israeli economy, such as the Israel Electric Corporation, Israel Aerospace Industries, Rafael Advanced Defense Systems, Israel Postal Company, Mekorot Israel National Water Company, Israel Natural Gas Lines, the Ashdod, Haifa, and Eilat Port Companies, Israel Railways, Petroleum and Energy Infrastructures and the Israel National Roads Company. The GCA does not publish a publicly available list of SOEs.

Israel is party to the Government Procurement Agreement (GPA) of the World Trade Organization.

Israel’s inter-ministerial privatization committee approved plans in January 2020 to sell off the Port of Haifa, Israel’s largest shipping hub. The privatization process is underway now. The incoming owner will be required to invest approximately USD 280 million (1 billion NIS) in the port, including the cost of upgrading infrastructure and financing the layoff of an estimated 200 workers. The government of Israel has ongoing plans to fully privatize Israel Post, which currently has 20 percent of its shares publicly listed.

There is awareness of responsible business conduct among enterprises and civil society in Israel. Israel adheres to the OECD Guidelines for Multinational Enterprises. Israel is not a member of the Extractive Industries Transparency Initiative.

Israel’s National Contact Point sits in the Responsible Business Conduct unit in the OECD Department of the Foreign Trade Administration in the Ministry of Economy and Industry. An advisory committee, including representatives from the Ministries of Economy, Finance, Foreign Affairs, Justice, and the Environment, assist the National Contact Point. The National Contact Point also works in cooperation with the Manufacturer’s Association of Israel, workers’ organizations, and civil society to promote awareness of the guidelines.

Israel is not a signatory of the Montreux Document on Private Military and Security Companies. One Israeli company, RS Logistical Solutions Ltd, is a member of the International Code of Conduct for Private Security Service Providers’ Association.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Israel significantly strengthened greenhouse gas reduction targets during 2021 but does not yet have a national climate strategy, nor has it identified specific expectations for private sector contributions to reaching these targets. There are no binding policies to implement Prime Minister Bennett’s 2021 announcement that Israel will achieve net-zero carbon emissions by 2050. Public procurement policies are subject to environmental regulations and often require environmental impact assessments. The government does not explicitly consider environmental and green growth considerations such as resource efficiency, pollution abatement, or climate resilience in awarding procurement contracts.

Bribery and other forms of corruption are illegal under several Israeli laws and Civil Service regulations. Israel is a signatory to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions. Israel ranks 36 out of 175 countries in Transparency International’s 2021 Corruption Perceptions Index, dropping one place from its 2020 ranking. Several Israeli NGOs focus on public sector ethics in Israel and Transparency International has a local chapter.

The Israeli National Police, state comptroller, Attorney General, and Accountant General are responsible for combating official corruption. These entities operate effectively and independently and are sufficiently resourced. NGOs that focus on anticorruption efforts operate freely without government interference.

Ministry of Justice
Office of the Director General
29 Salah a-Din Street Jerusalem
+972 73-392 5665
mancal@justice.gov.il 

Transparency International Israel Tel Aviv University, Faculty of Management
+972 3 640 9176
Shvil@TI-Israel.org 

For the latest safety and security information regarding Israel and the current travel advisory level, see the Travel Advisory for Israel, the West Bank, and Gaza. ( https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/israel-west-bank-and-gaza-travel-advisory.html).

The security situation remains complex in Israel and the West Bank, and can change quickly depending on the political environment, recent events, and geographic location. Terrorist groups and lone-wolf terrorists continue plotting possible attacks in Israel, the West Bank, and Gaza. Terrorists may attack with little or no warning, targeting tourist locations, transportation hubs, markets, shopping malls, and government facilities. Hamas, a U.S. government-designated foreign terrorist organization, controls security in Gaza, making it particularly dangerous and volatile.

Central Bureau of Statistics data from February 2022 indicate there are 4.1 million people active in the Israeli labor force, with a 3.9 percent unemployment rate. According to OECD data from 2020, 47 percent of Israelis aged between 25 and 34 years have a tertiary education. Many university students specialize in fields with high industrial R&D potential, including engineering, computer science, mathematics, physical sciences, and medicine. According to the Investment Promotion Center, there are more than 145 scientists out of every 10,000 workers in Israel, one of the highest rates in the world. The rapid growth of Israel’s high-tech sector in the late 1990s increased the demand for workers with specialized skills. Tech sector executives report a significant shortage of qualified labor for the sector given its size and continuing growth.

The national labor federation, the Histadrut, organizes about 17 percent of all Israeli workers. Collective bargaining negotiations in the public sector take place between the Histadrut and representatives of the Ministry of Finance. The number of strikes has declined significantly as the public sector has gotten smaller. However, strikes remain a common and viable negotiating tactic in difficult negotiations.

Israel strictly observes the Friday afternoon to Saturday afternoon Jewish Sabbath and special permits must be obtained from the government authorizing Sabbath employment. At the age of 18, most Israelis are required to perform 2-3 years of national service in the military or in select civilian institutions. Until their mid-40s, many Israeli males are required to perform about a month of military reserve duty annually, during which time they receive compensation from national insurance companies.

The size of Israel’s informal economy is estimated to be 20.8 percent which represents approximately $97 billion at GDP PPP levels, according to OECD estimates. Black market lending is common in Israel’s Arab neighborhoods with some “money change” shops servings as fronts for such illegal businesses. According to the Israel Democracy Institute, a national reform program aims to address the trend of large segments of the workforce in Israel working under temporary contracts that offer minimal job security, weak social protections, and dwindling economic security.

Daniel Devries
Economic Officer
U.S. Embassy Jerusalem – Tel Aviv Branch Office
DevriesDJ@state.gov

Singapore maintains a heavily trade-dependent economy characterized by an open investment regime, with some licensing restrictions in the financial services, professional services, and media sectors. The government was committed to maintaining a free market, but also actively plans Singapore’s economic development, including through a network of state wholly owned and majority-owned enterprises (SOEs). As of April, the top three Singapore-listed SOEs (DBS, Singtel, CapitaLand Investment Limited) accounted for 15.6 percent of the Singapore Exchange (SGX) capitalization. Some observers have criticized the dominant role of SOEs in the domestic economy, arguing that they have displaced or suppressed private sector entrepreneurship and investment.

Singapore’s legal framework and public policies are generally favorable toward foreign investors. Foreign investors are not required to enter joint ventures or cede management control to local interests, and local and foreign investors are subject to the same basic laws. Apart from regulatory requirements in some sectors (see also: Limits on National Treatment and Other Restrictions), eligibility for various incentive schemes depends on investment proposals meeting the criteria set by relevant government agencies. Singapore places no restrictions on reinvestment or repatriation of earnings or capital. The judicial system, which includes international arbitration and mediation centers and a commercial court, upholds the sanctity of contracts, and decisions are generally considered to be transparent and effectively enforced.

The Economic Development Board (EDB) is the lead promotion agency that facilitates foreign investment into Singapore ( https://www.edb.gov.sg ). EDB undertakes investment promotion and industry development and works with foreign and local businesses by providing information and facilitating introductions and access to government incentives for local and international investments. The government maintains close engagement with investors through EDB, which provides feedback to other government agencies to ensure that infrastructure and public services remain efficient and cost competitive. EDB maintains 18 international offices, including in Chicago, Houston, New York, San Francisco, and Washington D.C.

Exceptions to Singapore’s general openness to foreign investment exist in sectors considered critical to national security, including telecommunications, broadcasting, domestic news media, financial services, legal and accounting services, ports, airports, and property ownership. Under Singaporean law, articles of incorporation may include shareholding limits that restrict ownership in such entities by foreign persons.

Since 2000, the Singapore telecommunications market has been fully liberalized. This move has allowed foreign and domestic companies seeking to provide facilities-based (e.g., fixed line or mobile networks) or services-based (e.g., local and international calls and data services over leased networks) telecommunications services to apply for licenses to operate and deploy telecommunication systems and services. Singapore Telecommunications (Singtel) – majority owned by Temasek, a state-owned investment company with the Ministry of Finance as its sole shareholder – faces competition in all market segments. However, its main competitors, M1 and StarHub, are also SOEs. In April 2019, Australian company TPG Telecom began providing telecommunications services.  Approximately 30 mobile virtual network operator services (MVNOs) have also entered the market. The four Singapore telecommunications companies compete primarily on MVNO partnerships and voice and data plans.

As of April, Singapore had 76 facilities-based operators offering telecommunications services. Since 2007, Singtel has been exempted from dominant licensee obligations for the residential and commercial portions of the retail international telephone services. Singtel is also exempted from dominant licensee obligations for wholesale international telephone services, international managed data, international intellectual property transit, leased satellite bandwidth (including VSAT, DVB-IP, satellite TV Downlink, and Satellite IPLC), terrestrial international private leased circuit, and backhaul services. The Infocomm Media Development Authority (IMDA) granted Singtel’s exemption after assessing the market for these services had effective competition. IMDA operates as both the regulatory agency and the investment promotion agency for the country’s telecommunications sector. IMDA conducts public consultations on major policy reviews and provides decisions on policy changes to relevant companies.

To facilitate the 5th generation mobile network (5G) technology and service trials, IMDA waived frequency fees for companies interested in conducting 5G trials for equipment testing, research, and assessment of commercial potential. In April 2020, IMDA granted rights to build nationwide 5G networks to Singtel and a joint venture between StarHub and M1. In December 2021, IMDA also extended license and granted rights for TPG Telecom to build 5G networks. IMDA announced a goal of full 5G coverage by the end of 2025.  These three companies, along with TPG Telecom, are also now permitted to launch smaller, specialized 5G networks to support specialized applications, such as manufacturing and port operations.  Singapore’s government did not hold a traditional spectrum auction, instead charging a moderate, flat fee to operate the networks and evaluating proposals from the MVNOs based on their ability to provide effective coverage, meet regulatory requirements, invest significant financial resources, and address cybersecurity and network resilience concerns. The announcement emphasized the importance of the winning MVNOs using multiple vendors, to ensure security and resilience.  Singapore has committed to being one of the first countries to make 5G services broadly available, and its tightly managed 5G-rollout process continues apace, despite COVID-19.  The government views this as a necessity for a country that prides itself on innovation, even as these private firms worry that the commercial potential does not yet justify the extensive upfront investment necessary to develop new networks.

The local free-to-air broadcasting, cable, and newspaper sectors are effectively closed to foreign firms. Section 44 of the Broadcasting Act restricts foreign equity ownership of companies broadcasting in Singapore to 49 percent or less, although the act does allow for exceptions. Individuals cannot hold shares that would make up more than 5 percent of the total votes in a broadcasting company without the government’s prior approval. The Newspaper and Printing Presses Act restricts equity ownership (local or foreign) of newspaper companies to less than 5 percent per shareholder and requires that directors be Singaporean citizens. Newspaper companies must issue two classes of shares, ordinary and management, with the latter available only to Singaporean citizens or corporations approved by the government. Holders of management shares have an effective veto over selected board decisions.

Singapore regulates content across all major media outlets through IMDA. The government controls the distribution, importation, and sale of media sources and has curtailed or banned the circulation of some foreign publications. Singapore’s leaders have also brought defamation suits against foreign publishers and local government critics, which have resulted in the foreign publishers issuing apologies and paying damages. Several dozen publications remain prohibited under the Undesirable Publications Act, which restricts the import, sale, and circulation of publications that the government considers contrary to public interest. Examples include pornographic magazines, publications by banned religious groups, and publications containing extremist religious views. Following a routine review in 2015, IMDA’s predecessor, the Media Development Authority, lifted a ban on 240 publications, ranging from decades-old anti-colonial and communist material to adult interest content.

Singaporeans generally face few restrictions on the internet, which is readily accessible. The government, however, subjected all internet content to similar rules and standards as traditional media, as defined by the IMDA’s Internet Code of Practice. Internet service providers are required to ensure that content complies with the code. The IMDA licenses the internet service providers through which local users are required to route their internet connections. However, the IMDA has blocked various websites containing objectionable material, such as pornography and racist and religious-hatred sites. Online news websites that report regularly on Singapore and have a significant reach are individually licensed, which requires adherence to requirements to remove prohibited content within 24 hours of notification from IMDA. Some view this regulation as a way to censor online critics of the government, and in September 2021 IMDA suspended the license of alternative news website The Online Citizen with immediate effect for allegedly failing to declare its sources of funding.

In April 2019, the government introduced legislation in parliament to counter “deliberate online falsehoods.” The legislation, called the Protection from Online Falsehoods and Manipulation Act (POFMA) entered into force on October 2, 2019, requires online platforms to publish correction notifications or remove online information that government ministers classify as factually false or misleading, and which they deem likely to threaten national security, diminish public confidence in the government, incite feelings of ill will between people, or influence an election. Non-compliance is punishable by fines and/or imprisonment and the government can use stricter measures such as disabling access to end-users in Singapore and forcing online platforms to disallow persons in question from using its services in Singapore. Opposition politicians, bloggers, alternative news websites, and as of recent posts about COVID-19 have been the target of the majority of POFMA cases thus far and many of them used U.S. social media platforms. Besides those individuals, U.S. social media companies were issued most POFMA correction orders and complied with them. U.S. media and social media sites continue to operate in Singapore, but a few major players have ceased running political ads after the government announced that it would impose penalties on sites or individuals that spread “misinformation,” as determined by the government.  On January 31, 2020, the Singaporean government temporary lifted the exemption of social media platforms, search engines and Internet intermediaries from complying with POFMA, with the goal of combatting false information on the evolving COVID-19 situation.

In September, the Ministry of Home Affairs introduced the Foreign Interference (Countermeasures) Act (FICA) to strengthen the country’s ability to “prevent, detect, and disrupt foreign interference” in domestic politics conducted through hostile information campaigns and the use of local proxies. The bill was passed in October 2021 and expanded the government’s powers and tools to control “foreign influence,” but has yet to take effect. Under FICA, the minister for home affairs could compel internet and social media service providers to disclose information, remove online content, block user accounts, and take “countermeasures” against “politically significant persons” who are or are suspected of working on behalf of or receiving funding from “foreign political organizations” and “foreign principals.” While the government provided assurances that “legitimate business activities” would not be targeted by the legislation, opposition parties, foreign businesses, and civil society groups expressed concerns about the law’s expansion of executive powers and potential impacts on the rights to freedom of expression, association, participation in public affairs, and privacy.

Mediacorp TV is the only free-to-air TV broadcaster and is 100 percent owned by the government via Temasek Holdings (Temasek). Mediacorp reported that its free-to-air channels are viewed weekly by 80 percent of residents. Local pay-TV providers are StarHub and Singtel, which are both partially owned by Temasek or its subsidiaries. Local free-to-air radio broadcasters are Mediacorp Radio Singapore (owned by Temasek Holdings), SPH Radio (owned by SPH Media Limited), and So Drama! Entertainment (owned by the Ministry of Defense). BBC World Services is the only foreign free-to-air radio broadcaster in Singapore.

To rectify the high degree of content fragmentation in the Singaporean pay-TV market and shift the focus of competition from an exclusivity-centric strategy to other aspects such as service differentiation and competitive packaging, the IMDA implemented cross-carriage measures in 2011, requiring pay-TV companies designated by IMDA to be Receiving Qualified Licensees (RQL) – currently Singtel and StarHub – to cross-carry content subject to exclusive carriage provisions. Correspondingly, Supplying Qualified Licensees (SQLs) with an exclusive contract for a channel are required to carry that content on other RQL pay-TV companies. In February 2019, the IMDA proposed to continue the current cross-carriage measures. The Motion Picture Association (MPA) has expressed concern this measure restricts copyright exclusivity. Content providers consider the measures an unnecessary interference in a competitive market that denies content holders the ability to negotiate freely in the marketplace, and an interference with their ability to manage and protect their intellectual property. More common content is now available across the different pay-TV platforms, and the operators are beginning to differentiate themselves by originating their own content, offering subscribed content online via personal and tablet computers, and delivering content via fiber networks.

Streaming services have entered the market, which MPA has found leads to a significant reduction in intellectual property infringements.  StarHub and Singtel have both partnered with multiple content providers, including U.S. companies, to provide streaming content in Singapore and around the region.

The Monetary Authority of Singapore (MAS) regulates all banking activities as provided for under the Banking Act. Singapore maintains legal distinctions between foreign and local banks and the type of license (i.e., full service, wholesale, and offshore banks) held by foreign commercial banks. As of April, 30 foreign full-service licensees and 97 wholesale banks operated in Singapore. An additional 21 merchant banks were licensed to conduct corporate finance, investment banking, and other fee-based activities. Offshore and wholesale banks are not allowed to operate Singapore dollar retail banking activities. Only full banks and “Qualifying Full Banks” (QFBs) can operate Singapore dollar retail banking activities but are subject to restrictions on their number of places of business, ATMs, and ATM networks. Additional QFB licenses may be granted to a subset of full banks, which provide greater branching privileges and greater access to the retail market than other full banks. As of April, there were 10 banks operating QFB licenses. China Construction Bank received the most recent QFB award in December 2020.

Following a series of public consultations conducted by MAS over a three-year period, the Banking Act 2020 came into operation on February 14, 2020. The amendments include, among other things, the removal of the Domestic Banking Unit (DBU) and Asian Currency Unit (ACU) divide, consolidation of the regulatory framework of merchant banks, expansion of the grounds for revoking bank licenses and strengthening oversight of banks’ outsourcing arrangements. Newly granted digital banking licenses under foreign ownership apply only to wholesale transactions.

The government initiated a banking liberalization program in 1999 to ease restrictions on foreign banks and has supplemented this with phased-in provisions under the USSFTA, including removal of a 40 percent ceiling on foreign ownership of local banks and a 20 percent aggregate foreign shareholding limit on finance companies. The minister in charge of MAS must approve the merger or takeover of a local bank or financial holding company, as well as the acquisition of voting shares in such institutions above specific thresholds of 5, 12, or 20 percent of shareholdings.

Although Singapore’s government has lifted the formal ceilings on foreign ownership of local banks and finance companies, the approval for controllers of local banks ensures that this control rests with individuals or groups whose interests are aligned with the long-term interests of the Singapore economy and Singapore’s national interests. Of the 30 full-service licenses granted to foreign banks, three have gone to U.S. banks (Bank of America, Citibank, JP Morgan Chase Bank). U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, only one U.S.-licensed full-service banks has obtained QFB status (Citibank). U.S. and foreign full-service banks with QFB status can freely relocate existing branches and share ATMs among themselves. They can also provide electronic funds transfer and point-of-sale debit services and accept services related to Singapore’s compulsory pension fund. In 2007, Singapore lifted the quota on new licenses for U.S. wholesale banks.

Locally and non-locally incorporated subsidiaries of U.S. full-service banks with QFB status can apply for access to local ATM networks. However, no U.S. bank has come to a commercial agreement to gain such access. Despite liberalization, U.S. and other foreign banks in the domestic retail-banking sector still face barriers. Under the enhanced QFB program launched in 2012, MAS requires QFBs it deems systemically significant to incorporate locally. If those locally incorporated entities are deemed “significantly rooted” in Singapore, with a majority of Singaporean or permanent resident members, Singapore may grant approval for an additional 25 places of business, of which up to ten may be branches. Local retail banks do not face similar constraints on customer service locations or access to the local ATM network. As noted above, U.S. banks are not subject to quotas on service locations under the terms of the USSFTA.

Credit card holders from U.S. banks incorporated in Singapore cannot access their accounts through the local ATM networks. They are also unable to access their accounts for cash withdrawals, transfers, or bill payments at ATMs operated by banks other than those operated by their own bank or at foreign banks’ shared ATM network. Nevertheless, full-service foreign banks have made significant inroads in other retail banking areas, with substantial market share in products like credit cards and personal and housing loans.

In January 2019, MAS announced the passage of the Payment Services Bill after soliciting public feedback. The bill requires more payment services such as digital payment tokens, dealing in virtual currency, and merchant acquisition, to be licensed and regulated by MAS. In order to reduce the risk of misuse for illicit purposes, the new law also limits the amount of funds that can be held in or transferred out of a personal payment account (e.g., mobile wallets) in a year. Regulations are tailored to the type of activity performed and addresses issues related to terrorism financing, money laundering, and cyber risks. In December 2020, MAS granted four digital bank licenses: two to Sea Limited and a Grab/Singtel consortium for full retail banking and two to Ant Group and the Greenland consortium (a China-based conglomerate).

Singapore has no trading restrictions on foreign-owned stockbrokers. There is no cap on the aggregate investment by foreigners regarding the paid-up capital of dealers that are members of the SGX. Direct registration of foreign mutual funds is allowed provided MAS approves the prospectus and the fund. The USSFTA relaxed conditions foreign asset managers must meet in order to offer products under the government-managed compulsory pension fund (Central Provident Fund Investment Scheme).

The Legal Services Regulatory Authority (LSRA) under the Ministry of Law oversees the regulation, licensing, and compliance of all law practice entities and the registration of foreign lawyers in Singapore. Foreign law firms with a licensed Foreign Law Practice (FLP) may offer the full range of legal services in foreign law and international law, but cannot practice Singapore law except in the context of international commercial arbitration. U.S. and foreign attorneys are allowed to represent parties in arbitration without the need for a Singaporean attorney to be present. To offer Singapore law, FLPs require either a Qualifying Foreign Law Practice (QFLP) license, a Joint Law Venture (JLV) with a Singapore Law Practice (SLP), or a Formal Law Alliance (FLA) with a SLP. The vast majority of Singapore’s 130 foreign law firms operate FLPs, while QFLPs and JLVs each number in the single digits.

The QFLP licenses allow foreign law firms to practice in permitted areas of Singapore law, which excludes constitutional and administrative law, conveyancing, criminal law, family law, succession law, and trust law. As of December 2020, there are nine QFLPs in Singapore, including five U.S. firms. In January 2019, the Ministry of Law announced the deferral to 2020 of the decision to renew the licenses of five QFLPs, which were set to expire in 2019, so the government can better assess their contribution to Singapore along with the other four firms whose licenses were also extended to 2020. Decisions on the renewal considers the firms’ quantitative and qualitative performance, such as the value of work that the Singapore office will generate, the extent to which the Singapore office will function as the firm’s headquarter for the region, the firm’s contributions to Singapore, and the firm’s proposal for the new license period.

A JLV is a collaboration between a FLP and SLP, which may be constituted as a partnership or company. The director of legal services in the LSRA will consider all the relevant circumstances including the proposed structure and its overall suitability to achieve the objectives for which JLVs are permitted to be established. There is no clear indication on the percentage of shares that each JLV partner may hold in the JLV.

Law degrees from designated U.S., British, Australian, and New Zealand universities are recognized for purposes of admission to practice law in Singapore. Under the USSFTA, Singapore recognizes law degrees from Harvard University, Columbia University, New York University, and the University of Michigan. Singapore will admit to the Singapore Bar law school graduates of those designated universities who are Singapore citizens or permanent residents, and ranked among the top 70 percent of their graduating class or have obtained lower-second class honors (under the British system).

Engineering and architectural firms can be 100 percent foreign owned. Engineers and architects are required to register with the Professional Engineers Board and the Board of Architects, respectively, to practice in Singapore. All applicants (both local and foreign) must have at least four years of practical experience in engineering, of which two are acquired in Singapore. Alternatively, students can attend two years of practical training in architectural works and pass written and/or oral examinations set by the respective board.

Many major international accounting firms operate in Singapore. Registration as a public accountant under the Accountants Act is required to provide public accountancy services (i.e., the audit and reporting on financial statements and other acts that are required by any written law to be done by a public accountant) in Singapore, although registration as a public accountant is not required to provide other accountancy services, such as bookkeeping, accounting, taxation, and corporate advisory work. All accounting entities that provide public accountancy services must be approved under the Accountants Act and their supply of public accountancy services in Singapore must be under the control and management of partners or directors who are public accountants ordinarily resident in Singapore. In addition, if the accounting entity firm has two partners or directors, at least one of them must be a public accountant. If the business entity has more than two accounting partners or directors, two-thirds of the partners or directors must be public accountants.

Singapore further liberalized its gas market with the amendment of the Gas Act and implementation of a Gas Network Code in 2008, which were designed to give gas retailers and importers direct access to the onshore gas pipeline infrastructure. However, key parts of the local gas market, such as town gas retailing and gas transportation through pipelines remain controlled by incumbent Singaporean firms. Singapore has sought to grow its supply of liquefied natural gas (LNG), and BG Singapore Gas Marketing Pte Ltd (acquired by Royal Dutch Shell in February 2016) was appointed in 2008 as the first aggregator with an exclusive franchise to import LNG to be sold in its re-gasified form in Singapore. In October 2017, Shell Eastern Trading Pte Ltd and Pavilion Gase Pte Ltd were awarded import licenses to market up to 1 million tons per annum or for three years, whichever occurs first. This also marked the conclusion of the first exclusive franchise awarded to BG Singapore Gas Marketing Pte Ltd.

Beginning in November 2018 and concluding in May 2019, Singapore launched an open electricity market (OEM). Previously, Singapore Power was the only electricity retailer. As of October 2019, 40 percent of resident consumers had switched to a new electricity retailer and were saving between 20 and 30 percent on their monthly bills.  During the second half of 2020, the government significantly reduced tariffs for household consumption and encouraged consumer OEM adoption. To participate in OEM, licensed retailers must satisfy additional credit, technical, and financial requirements set by Energy Market Authority in order to sell electricity to households and small businesses. There are two types of electricity retailers: Market Participant Retailers (MPRs) and Non-Market Participant Retailers (NMPRs). MPRs have to be registered with the Energy Market Company (EMC) to purchase electricity from the National Electricity Market of Singapore (NEMS) to sell to contestable consumers. NMPRs need not register with EMC to participate in the NEMS since they will purchase electricity indirectly from the NEMS through the Market Support Services Licensee (MSSL). As of April 2020, there were 12 retailers in the market, including foreign and local entities.   In 2021, a number of the electricity retailers withdrew from selling electricity due to high natural gas prices globally, resulting in unfavorable market conditions.

Foreign and local entities may readily establish, operate, and dispose of their own enterprises in Singapore subject to certain requirements. A foreigner who wants to incorporate a company in Singapore is required to appoint a local resident director; foreigners may continue to reside outside of Singapore. Foreigners who wish to incorporate a company and be present in Singapore to manage its operations are strongly advised to seek approval from the Ministry of Manpower (MOM) before incorporation. Except for representative offices (where foreign firms maintain a local representative but do not conduct commercial transactions in Singapore) there are no restrictions on carrying out remunerative activities. As of October 2017, foreign companies may seek to transfer their place of registration and be registered as companies limited by shares in Singapore under Part XA (Transfer of Registration) of the Companies Act ( https://sso.agc.gov.sg/Act/CoA1967 ). Such transferred foreign companies are subject to the same requirements as locally incorporated companies.

All businesses in Singapore must be registered with the Accounting and Corporate Regulatory Authority (ACRA). Foreign investors can operate their businesses in one of the following forms: sole proprietorship, partnership, limited partnership, limited liability partnership, incorporated company, foreign company branch or representative office. Stricter disclosure requirements were passed in March 2017 requiring foreign company branches registered in Singapore to maintain public registers of their members. All companies incorporated in Singapore, foreign companies, and limited liability partnerships registered in Singapore are also required to maintain beneficial ownership in the form of a register of controllers (generally individuals or legal entities with more than 25 percent interest or control of the companies and foreign companies) aimed at preventing money laundering.

While there is currently no cross-sectional screening process for foreign investments, investors are required to seek approval from specific sector regulators for investments in certain firms. These sectors include energy, telecommunications, broadcasting, the domestic news media, financial services, legal services, public accounting services, ports and airports, and property ownership. Under Singapore law, Articles of Incorporation may include shareholding limits that restrict ownership in corporations by foreign persons.

Singapore does not maintain a formalized investment screening mechanism for inbound foreign investment. There are no reports of U.S. investors being especially disadvantaged or singled out relative to other foreign investors.

Singapore underwent a trade policy review with the World Trade Organization (WTO) in July 2016, after which no major policy recommendations were raised. ( https://www.wto.org/english/thewto_e/countries_e/singapore_e.htm )

The OECD and UN Industrial Development Organization (UNIDO) released a joint report in February 2019 on the ASEAN-OECD Investment Program. The program aims to foster dialogue and experience sharing between OECD countries and Southeast Asian economies on issues relating to the business and investment climate. The program is implemented through regional policy dialogue, country investment policy reviews, and training seminars. ( http://www.oecd.org/investment/countryreviews.htm )

The OECD released a Transfer Pricing Country Profile for Singapore in February. The profiles focus on countries’ domestic legislation regarding key transfer pricing principles, including the arm’s length principle, transfer pricing methods, comparability analysis, intangible property, intra-group services, cost contribution agreements, transfer pricing documentation, administrative approaches to avoiding and resolving disputes, safe harbors, and other implementation measures. ( https://www.oecd.org/tax/transfer-pricing/transfer-pricing-country-profile-singapore.pdf )

The OECD released a peer review report in March 2018 on Singapore’s implementation of internationally agreed tax standards under Action Plan 14 of the base erosion and profit shifting (BEPS) project. Action 14 strengthens the effectiveness and efficiency of the mutual agreement procedure, a cross-border tax dispute resolution mechanism. ( http://www.oecd.org/corruption-integrity/reports/singapore-2018-peer-review-report-transparency-exchange-information-aci.html )

As of June 2021, the UN Conference on Trade and Development (UNCTAD) World Investment Report assessed how Singapore fared during the global COVID-19 pandemic and subsequent recovery. (https://unctad.org/system/files/official-document/wir2021_en.pdf)

Singapore’s online business registration process is clear and efficient and allows foreign companies to register branches. All businesses must be registered with ACRA through Bizfile, its online registration and information retrieval portal ( https://www.bizfile.gov.sg/),  including any individual, firm or corporation that carries out business for a foreign company. Applications are typically processed immediately after the application fee is paid, but could take between 14 to 60 days, if the application is referred to another agency for approval or review. The process of establishing a foreign-owned limited liability company in Singapore is among the fastest in the world.

ACRA ( www.acra.gov.sg ) provides a single window for business registration. Additional regulatory approvals (e.g., licensing or visa requirements) are obtained via individual applications to the respective ministries or statutory boards. Further information and business support on registering a branch of a foreign company is available through the EDB ( https://www.edb.gov.sg/en/how-we-help/setting-up.html ) and GuideMeSingapore, a corporate services firm Hawskford ( https://www.guidemesingapore.com /).

Foreign companies may lease or buy privately or publicly held land in Singapore, though there are some restrictions on foreign property ownership. Foreign companies are free to open and maintain bank accounts in foreign currency. There is no minimum paid-in capital requirement, but at least one subscriber share must be issued for valid consideration at incorporation.

Business facilitation processes provide for fair and equal treatment of women and minorities, and there are no mechanisms that provide special assistance to women and minorities.

Singapore places no restrictions on domestic investors investing abroad. The government promotes outward investment through Enterprise Singapore, a statutory board under the Ministry of Trade and Industry. It provides market information, business contacts, and financial assistance and grants for internationalizing companies. While it has a global reach and runs overseas centers in major cities across the world, a large share of its overseas centers are located in major trading and investment partners and regional markets like China, India, the United States, and ASEAN.

In May 2021, DBS Bank (DBS), SGX, Standard Chartered and Temasek started a joint venture to establish a global exchange and marketplace for high-quality carbon credits, called Climate Impact X (CIX).

In March, SGX and OCBC established a low-carbon index to analyze the top 50 free-float market capitalization companies based on fossil fuel engagement in an effort to improve sustainable financing. This index plans to exclude companies with high involvement in the fossil fuel sector.

The government establishes clear rules that foster competition. The USSFTA enhances transparency by requiring regulatory authorities to consult with interested parties before issuing regulations, and to provide advance notice and comment periods for proposed rules, as well as to publish all regulations. Singapore’s legal, regulatory, and accounting systems are transparent and consistent with international norms.

Rule-making authority is vested in the parliament to pass laws that determine the regulatory scope, purpose, rights, and powers of the regulator and the legal framework for the industry. Regulatory authority is vested in government ministries or in statutory boards, which are organizations that have been given autonomy to perform an operational function by legal statutes passed as acts of parliament, and report to a specific ministry. Local laws give regulatory bodies wide discretion to modify regulations and impose new conditions, but in practice agencies use this positively to adapt incentives or other services on a case-by-case basis to meet the needs of foreign as well as domestic companies. Acts of parliament also confer certain powers on a minister or other similar persons or authorities to make rules or regulations in order to put the act into practice; these rules are known as subsidiary legislation.  National-level regulations are the most relevant for foreign businesses. Singapore has no local or state regulatory layers.

Before a ministry instructs the Attorney-General’s Chambers (AGC) to draft a new bill or make an amendment to a bill, the ministry has to seek in-principle approval from the cabinet for the proposed bill. The AGC legislation division advises and helps vet or draft bills in conjunction with policymakers from relevant ministries.  Public and private consultations are often requested for proposed draft legislative amendments. Thereafter, the cabinet’s approval is required before the bill can be introduced in parliament.  All bills passed by parliament (with some exceptions) must be forwarded to the Presidential Council for Minority Rights for scrutiny, and thereafter presented to the president for assent. Only after the president has assented to the bill does it become law.

While ministries or regulatory agencies do conduct internal impact assessments of proposed regulations, there are no criteria used for determining which proposed regulations are subjected to an impact assessment, and there are no specific regulatory impact assessment guidelines. There is no independent agency tasked with reviewing and monitoring regulatory impact assessments and distributing findings to the public. The Ministry of Finance publishes a biennial Singapore Public Sector Outcomes Review ( http://www.mof.gov.sg/Resources/Singapore-Public-Sector-Outcomes-Review-SPOR ), focusing on broad outcomes and indicators rather than policy evaluation. Results of scientific studies or quantitative analysis conducted in review of policies and regulations are not made publicly available.

Industry self-regulation occurs in several areas, including advertising and corporate governance.  Advertising Standards Authority of Singapore (ASAS) ( https://asas.org.sg/ ), an advisory council under the Consumers Association of Singapore, administers the Singapore Code of Advertising Practice, which focuses on ensuring that advertisements are legal, decent, and truthful. Listed companies are required under the SGX Listing Rules to describe in their annual reports their corporate governance practices with specific reference to the principles and provisions of the Code. Listed companies must comply with the principles of the code, and, if their practices vary from any provisions of the code, they must note the reason for the variation and explain how the practices they have adopted are consistent with the intent of the relevant principle. The SGX plays the role of a self-regulatory organization (SRO) in listings, market surveillance, and member supervision to uphold the integrity of the market and ensure participants’ adherence to trading and clearing rules. There have been no reports of discriminatory practices aimed at foreign investors.

Singapore’s legal and accounting procedures are transparent and consistent with international norms and rank similar to the United States in international comparisons according to the World Justice Project ( http://worldjusticeproject.org/rule-of-law-index ). The prescribed accounting standards for Singapore-incorporated companies applying to be listed in the public market are known as Singapore Financial Reporting Standards (SFRS(I)), which are identical to those of the International Accounting Standards Board (IASB). Non-listed Singapore-incorporated companies can voluntarily apply for SFRS(I). Otherwise, they are required to comply with Singapore Financial Reporting Standards (SFRS), which are also aligned with those of IASB. For the use of foreign accounting standards, the companies are required to seek approval of the Accounting and Corporate Regulatory Authority (ACRA).

For foreign companies with primary listings on the Singapore Exchange, the SGX Listing Rules allow the use of alternative standards such as International Financial Reporting Standards (IFRS) or the U.S. Generally Accepted Accounting Principles (U.S. GAAP).  Accounts prepared in accordance with IFRS or U.S. GAAP need not be reconciled to SFRS(1). Companies with secondary listings on the Singapore Exchange need only reconcile their accounts to SFRS(I), IFRS, or U.S. GAAP.

Notices of proposed legislation to be considered by parliament are published, including the text of the laws, the dates of the readings, and whether or not the laws eventually pass. The government has established a centralized Internet portal ( www.reach.gov.sg ) to solicit feedback on selected draft legislation and regulations, a process that is being used with increasing frequency. There is no stipulated consultative period.  Results of consultations are usually consolidated and published on relevant websites. As noted in the “Openness to Foreign Investment” section, some U.S. companies, in particular in the telecommunications and media sectors, are concerned about the government’s lack of transparency in its regulatory and rule-making process.  However, many U.S. firms report they have opportunities to weigh in on pending legislation that affects their industries.  These mechanisms also apply to investment laws and regulations.

The Parliament of Singapore website ( https://www.parliament.gov.sg/parliamentary-business/bills-introduced ) publishes a database of all bills introduced, read, and passed in parliament in chronological order as of 2006. The contents are the actual draft texts of the proposed legislation/legislative amendments. All statutes are also publicly available in the Singapore Statutes Online website ( https://sso.agc.gov.sg ). However, there is no centralized online location where key regulatory actions are published. Regulatory actions are published separately on websites of Statutory Boards.

Enforcement of regulatory offences is governed by both acts of parliament and subsidiary legislation. Enforcement powers of government statutory bodies are typically enshrined in the act of parliament constituting that statutory body. There is accountability to parliament for enforcement action through question time, where members of parliament may raise questions with the ministers on their respective ministries’ responsibilities.

Singapore’s judicial system and courts serve as the oversight mechanism in respect of executive action (such as the enforcement of regulatory offences) and dispense justice based on law. The Supreme Court, which is made up of the Court of Appeal and the High Court, hears both civil and criminal matters. The chief justice heads the judiciary. The president appoints the chief justice, the judges of appeal and the judges of the High Court if she, acting at her discretion, concurs with the advice of the prime minister.

No systemic regulatory reforms or enforcement reforms relevant to foreign investors were announced in 2021. The Monetary Authority of Singapore focuses enforcement efforts on timely disclosure of corporate information, business conduct of financial advisors, compliance with anti-money laundering/combatting the financing of terrorism requirements, deterring stock market abuse, and insider trading. In March 2019, MAS published its inaugural Enforcement Report detailing enforcement measures and publishes recent enforcement actions on its website ( https://www.mas.gov.sg/regulation/enforcement/enforcement-actions ).

Singapore was the 2018 chair of ASEAN. ASEAN is working towards the 2025 ASEAN Economic Community (AEC) Blueprint aimed at achieving a single market and production base, with a free flow of goods, services, and investment within the region. While ASEAN is working towards regulatory harmonization, there are no regional regulatory systems in place; instead, ASEAN agreements and regulations are enacted through each ASEAN Member State’s domestic regulatory system.

The WTO’s 2016 trade policy review notes that Singapore’s guiding principle for standardization is to align national standards with international standards, and Singapore is an elected member of the International Organization of Standardization (ISO) and International Electrotechnical Commission (IEC) Councils. Singapore encourages the direct use of international standards whenever possible. Singapore standards (SS) are developed when there is no appropriate international standard equivalent, or when there is a need to customize standards to meet domestic requirements. At the end of 2015, Singapore had a stock of 553 SS, about 40 percent of which were references to international standards. Enterprise Singapore, the Singapore Food Agency, and the Ministry of Trade and Industry are the three national enquiry points under the TBT Agreement. There are no known reports of omissions in reporting to TBT.

A non-exhaustive list of major international norms and standards referenced or incorporated into the country’s regulatory systems include Base Erosion and Profit Shifting (BEPS) project, Common Reporting Standards (CRS), Basel III, EU Dual-Use Export Control Regulation, Exchange of Information on Request, 27 International Labor Organization (ILO) conventions on labor rights and governance, UN conventions, and WTO agreements.

Singapore is signatory to the WTO Trade Facilitation Agreement (TFA). The WTO reports that Singapore has fully implemented the TFA ( https://www.tfadatabase.org/members/singapore ).

Singapore’s legal system has its roots in English common law and practice and is enforced by courts of law. The current judicial process is procedurally competent, fair, and reliable. In the 2021 Rule of Law Index  by World Justice Project, it is ranked 17th in the world overall, third on order and security, fourth on regulatory enforcement, third in absence of corruption, eighth on civil justice, seventh on criminal justice, 32nd on constraints on government powers, 34th on open government, and 38th on fundamental rights. The judicial system remains independent of the executive branch and the executive does not interfere in judiciary matters.

Singapore strives to promote an efficient, business-friendly regulatory environment. Tax, labor, banking and finance, industrial health and safety, arbitration, wage, and training rules and regulations are formulated and reviewed with the interests of both foreign investors and local enterprises in mind. Starting in 2005, a Rules Review Panel, comprising senior civil servants, began overseeing a review of all rules and regulations; this process will be repeated every five years. A Pro-Enterprise Panel of high-level public sector and private sector representatives examines feedback from businesses on regulatory issues and provides recommendations to the government. (https://www.mti.gov.sg/PEP/About)

The Cybersecurity Act, which entered into force in August 2018, establishes a comprehensive regulatory framework for cybersecurity. The act provides the Commissioner of Cyber Security with powers to investigate, prevent, and assess the potential impact of cyber security incidents and threats in Singapore.  These can include requiring persons and organizations to provide requested information, requiring the owner of a computer system to take any action to assist with cyber investigations, directing organizations to remediate cyber incidents, authorizing officers to enter premises, installing software, and taking possession of computer systems to prevent serious cyber-attacks in the event of severe threat. The act also establishes a framework for the designation and regulation of critical information infrastructure (CII). Requirements for CII owners include a mandatory incident reporting regime, regular audits and risk assessments, and participation in national cyber security stress tests. In addition, the act will establish a regulatory regime for cyber security service providers and required licensing for penetration testing and managed security operations center (SOC) monitoring services. U.S. business chambers have expressed concern about the effects of licensing and regularly burdens on compliance costs, insufficient checks and balances on the investigatory powers of the authorities, and the absence of a multidirectional cyber threat sharing framework that includes protections from liability. Under the law, additional measures, such as the Cybersecurity Labelling Scheme (October 2021), continue to be introduced.  Authorities stress that, “in view of the need to strike a good balance between industry development and cybersecurity needs, the licensing framework will take a light-touch approach.”

The Competition and Consumer Commission of Singapore (CCCS) is a statutory board under the Ministry of Trade and Industry and is tasked with administering and enforcing the Competition Act. The act contains provisions on anti-competitive agreements, decisions, and practices; abuse of dominance; enforcement and appeals process; and mergers and acquisitions. The Competition Act was enacted in 2004 in accordance with U.S-Singapore USSFTA commitments, which contains specific conduct guarantees to ensure that Singapore’s government linked companies (GLC) will operate on a commercial and non-discriminatory basis towards U.S. firms. GLCs with substantial revenues or assets are also subject to enhanced transparency requirements under the FTA. A 2018 addition to the act gives the CCCS additional administrative power to protect consumers against unfair trade practices.

Singapore has not expropriated foreign-owned property and has no laws that force foreign investors to transfer ownership to local interests. Singapore has signed investment promotion and protection agreements with a wide range of countries. These agreements mutually protect nationals or companies of either country against certain non-commercial risks, such as expropriation and nationalization and remain in effect unless otherwise terminated. The USSFTA contains strong investor protection provisions relating to expropriation of private property and the need to follow due process; provisions are in place for an owner to receive compensation based on fair market value. No disputes are pending.

Singapore has bankruptcy laws allowing both debtors and creditors to file a bankruptcy claim. While Singapore performed well in recovery rate and time of recovery following bankruptcies, the country did not score well on cost of proceedings or insolvency frameworks. In particular, the insolvency framework does not require approval by the creditors for sale of substantial assets of the debtor or approval by the creditors for selection or appointment of the insolvency representative.

Singapore has made several reforms to enhance corporate rescue and restructuring processes, including features from Chapter 11 of the U.S. Bankruptcy Code. Amendments to the Companies Act, which came into force in May 2017, include additional disclosure requirements by debtors, rescue financing provisions, provisions to facilitate the approval of pre-packaged restructurings, increased debtor protections, and cram-down provisions that will allow a scheme to be approved by the court even if a class of creditors oppose the scheme, provided the dissenting class of creditors are not unfairly prejudiced by the scheme.

The Insolvency, Restructuring and Dissolution Act passed in 2018 and entered into force in July 2020. It updates the insolvency legislation and introduces a significant number of new provisions, particularly with respect to corporate insolvency. It mandates licensing, qualifications, standards, and disciplinary measures for insolvency practitioners. It also includes standalone voidable transaction provisions for corporate insolvency and, a new wrongful trading provision. The act allows “out of court” commencement of judicial management, permits judicial managers to assign the proceeds of certain insolvency related claims, restricts the operation of contractual “ipso facto clauses” upon the commencement of certain restructuring and insolvency procedures, and modifies the operation of the scheme of arrangement cross class “cram down” power. Authorities continue to seek public consultations of subsidiary legislation to be drafted under the act.

Two MAS-recognized consumer credit bureaus operate in Singapore: the Credit Bureau (Singapore) Pte Ltd and Experian Credit Bureau Singapore Pte Ltd. U.S. industry advocates enhancements to Singapore’s credit bureau system, in particular, adoption of an open admission system for all lenders, including non-banks. Bankruptcy is not criminalized in Singapore. https://www.acra.gov.sg/CA_2017/ 

In 2021, the government announced a plan to deploy 60,000 Electric Vehicle (EV) charging points by 2030. The government anticipates 20,000 EVs will be located within private premises, while the remaining 40,000 will be in public parking areas. As part of this initiative, the government started the Vehicle Common Charger Grant to provide up to approximately $2,750 per charger for installations in non-commercial private developments that are accessible to the public.

The Energy Market Authority (EMA) released the “Charting the Energy Transition to 2050” report in March, which set out three decarbonization scenarios for Singapore’s power sector. The government planned to utilize public-private partnerships to develop low carbon hydrogen, geothermal, solar, and nuclear technologies in addition to electricity imports to reach net-zero carbon emissions by or around 2050.

The EDB is the lead investment promotion agency facilitating foreign investment into Singapore https://www.edb.gov.sg . The EDB undertakes investment promotion and industry development, and works with international businesses, both foreign and local, by providing information, connection to partners, and access to government incentives for their investments. The Agency for Science, Technology, and Research (A*STAR) is Singapore’s lead public sector agency focused on economic-oriented research to advance scientific discovery and innovative technology https://www.a-star.edu.sg . The National Research Foundation (NRF) provides competitive grants for applied research through an integrated grant management system https://researchgrant.gov.sg/pages/index.aspx . Various government agencies (including Intellectual Property Office of Singapore, NRF, and EDB) provide venture capital co-funding for startups and commercialization of intellectual property.

Singapore has nine free-trade zones (FTZs) in five geographical areas operated by three FTZ authorities. The FTZs may be used for storage and repackaging of import and export cargo, and goods transiting Singapore for subsequent re-export. Manufacturing is not carried out within the zones. Foreign and local firms have equal access to the FTZ facilities.

Performance requirements are applied uniformly and systematically to both domestic and foreign investors. Singapore has no forced localization policy requiring domestic content in goods or technology. The government does not require investors to purchase from local sources or specify a percentage of output for export. There are no rules forcing the transfer of technology. There are no requirements for foreign information technology providers to turn over source code and/or provide access to encryption. The industry regulator is the IMDA.

In May 2020, Singapore tightened requirements for hiring foreign workers, including raising minimum salary thresholds and additional enforcement of penalties for employers not giving “fair consideration” to local applicants before hiring foreign workers. Personal data matters are independently overseen by the Personal Data Protection Commission, which administers and enforces the Personal Data Protection Act (PDPA) of 2012. The PDPA governs the collection, use, and disclosure of personal data by the private sector and covers both electronic and non-electronic data. Singapore continues to review the PDPA to ensure that it keeps pace with the evolving needs of businesses and individuals in a digital economy such as introducing an enhanced framework for the collection, use, and disclosure of personal data and a mandatory data breach notification regime.

Singapore does not have a data localization policy. Singapore participates in various regional and international frameworks that promote interoperability and harmonization of rules to facilitate cross-border data flows. The ASEAN Framework on Digital Data Governance (FDFG) is one example. Under FDFG, Singapore will focus on developing model contractual clauses and certification for cross border data flows within the ASEAN region. Another is Singapore’s participation in the APEC Cross-Border Privacy Rules (CBPR) and Privacy Recognition for Processors systems, to facilitate data transfers for certified organizations across APEC economies.

Property rights and interests are enforced in Singapore. Residents have access to mortgages and liens, with reliable recording of properties.

Foreigners are not allowed to purchase public housing in Singapore, and prior approval from the Singapore Land Authority is required to purchase landed residential property and residential land for development. Foreigners can purchase non-landed, private sector housing (e.g., condominiums or any unit within a building) without the need to obtain prior approval. However, they are not allowed to acquire all the apartments or units in a development without prior approval. These restrictions also apply to foreign companies.

There are no restrictions on foreign ownership of industrial and commercial real estate. Since July 2018, foreigners who purchase homes in Singapore are required to pay an additional effective 20 percent tax on top of standard buyer’s taxes. However, U.S. citizens are accorded national treatment under the FTA, meaning only second and subsequent purchases of residential property will be subject to 12 and 15 percent additional duties, equivalent to Singaporean citizens.

The availability of covered bond legislation under MAS Notice 648 has provided an incentive for Singapore financial institutions to issue covered bonds. Under Notice 648, only a bank incorporated in Singapore may issue covered bonds. The three main Singapore banks: DBS, OCBC, and UOB, all have in place covered bond programs, with the issues offered to private investors. In 2020, MAS increased the asset encumbrance limit of a locally incorporated bank’s total assets from four percent to 10 percent. The banking industry has made suggestions to allow the use of covered bonds in repossession transactions with the central bank. http://www.mas.gov.sg/regulations/notices/notice-648 

Singapore maintains one of the strongest intellectual property rights regimes in Asia. The chief executive of Singapore’s Intellectual Property Office was elected director general of the World Intellectual Property Organization (WIPO) in April 2020. Singapore is the global hub for patent filing activity and innovation.

Effective January 1, 2020, all patent applications must be fully examined by the Intellectual Property Office of Singapore to ensure that any foreign-granted patents fully satisfy Singapore’s patentability criteria. The Registered Designs (Amendment) Act broadens the scope of registered designs to include virtual designs and color as a design feature and will stipulate the default owner of designs to be the designer of a commissioned design, rather than the commissioning party.

The USSFTA ensures that government agencies will not grant regulatory approvals to patent- infringing products, but Singapore does allow parallel imports. Under the Patents Act, with regards to pharmaceutical products, the patent owner has the right to bring an action to stop an importer of “grey market goods” from importing the patent owner’s patented product, provided that the product has not previously been sold or distributed in Singapore, the importation results in a breach of contract between the proprietor of the patent and any person licensed by the proprietor of the patent to distribute the product outside Singapore and the importer has knowledge of such.

The USSFTA ensures protection of test data and trade secrets submitted to the government for regulatory approval purposes. Disclosure of such information is prohibited. Such data may not be used for approval of the same or similar products without the consent of the party who submitted the data for a period of five years from the date of approval of the pharmaceutical product and 10 years from the date of approval of an agricultural chemical. Singapore has no specific legislation concerning protection of trade secrets. Instead, it protects investors’ commercially valuable proprietary information under common law by the Law of Confidence as well as legislation such as the Penal Code (e.g., theft) and the Computer Misuse Act (e.g., unauthorized access to a computer system to download information). U.S. industry has expressed concern that this provision is inadequate.

As a WTO member, Singapore is party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). It is a signatory to other international intellectual property rights agreements, including the Paris Convention, the Berne Convention, the Patent Cooperation Treaty, the Madrid Protocol, and the Budapest Treaty. The WIPO Secretariat opened a regional office in Singapore in 2005. ( http://www.wipo.int/about-wipo/en/offices/singapore/)  Amendments to the Trademark Act, which were passed in January 2007, fulfilled Singapore’s obligations in WIPO’s revised Singapore Treaty on the Law of Trademarks.

Singapore ranked 11th out of 55 in the world in the 2022 U.S. Chamber of Commerce’s International Intellectual Property (IP) Index. The index noted that Singapore’s key strengths include an advanced national IP framework and efforts to accelerate research, patent examination, and grants. The index also lauded Singapore as a global leader in patent protection and online copyright enforcement. Despite a decrease in estimated software piracy from 35 percent in 2009 to 27 percent in 2021, the index noted that piracy levels remain high for a developed, high-income economy. Lack of transparency and data on customs seizures of IP-infringing goods is also noted as a key area of weakness.

Singapore does not publicly report the statistics on seizures of counterfeit goods and does not rate highly on enforcement of physical counterfeit goods, online sales of counterfeit goods, or digital online piracy, according to the 2018 U.S. Chamber of Commerce’s International IP Index. Singapore is not listed in USTR’s 2021 Special 301 Report, but Shopee, a Singapore-headquartered e-commerce company, is named in USTR’s 2021 Review of Notorious Markets. On the trade of counterfeit and pirated goods, stakeholders also continue to report dissatisfaction with enforcement in Singapore, including concerns about the lack of coordination between Singapore’s Customs authorities and the Singapore Police Force’s IPR Branch. For additional information about national laws and points of contact at local IP offices, see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

The government takes a favorable stance towards foreign portfolio investment and fixed asset investments. While it welcomes capital market investments, the government has introduced macro-prudential policies aimed at reducing foreign speculative inflows in the real estate sector since 2009. The government promotes Singapore’s position as an asset and wealth management center, and assets under management grew 17 percent in 2020 to $3.3 trillion (4.7 trillion Singapore dollars (SGD)), according to MAS’s Singapore Asset Management Survey 2020.

The government facilitates the free flow of financial resources into product and factor markets, and the SGX is Singapore’s stock market. An effective regulatory system exists to encourage and facilitate portfolio investment. Credit is allocated on market terms and foreign investors can access credit, U.S. dollars, Singapore dollars (SGD), and other foreign currencies on the local market. The private sector has access to a variety of credit instruments through banks operating in Singapore. The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Singapore’s banking system is sound and well regulated by MAS, and the country serves as a financial hub for the region. Banks have a very high domestic penetration rate, and according to World Bank Financial Inclusion indicators, over 97 percent of persons held a financial account in 2017 (latest year available). Local Singapore banks saw net profits rise some 40 percent in 2021. Banks are statutorily prohibited from engaging in non-financial business. Banks can hold 10 percent or less in non-financial companies as an “equity portfolio investment.” The non-performing loans ratio (NPL ratio) of Singapore’s banking system was 3 percent in the third quarter of 2021.

Foreign banks require licenses to operate in the country. The tiered license system for Merchant, Offshore, Wholesale, Full Banks, and Qualifying Full Banks (QFBs) subject banks to further prudential safeguards in return for offering a greater range of services. U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, U.S.-licensed full-service banks that are also QFBs have been able to operate at an unlimited number of locations (branches or off-premises ATMs) versus 25 for non-U.S. full service foreign banks with QFB status.

Under the OECD Common Reporting Standards (CRS), which has been in effect since January 2017, Singapore-based financial institutions – depository institutions such as banks, specified insurance companies, investment entities, and custodial institutions – are required to: 1) establish the tax residency status of all their account holders; 2) collect and retain CRS information for all non-Singapore tax residents in the case of new accounts; and 3) report to tax authorities the financial account information of account holders who are tax residents of jurisdictions with which Singapore has a Competent Authority Agreement to exchange the information.

U.S. financial regulations do not restrict foreign banks’ ability to hold accounts for U.S. citizens. U.S. citizens are encouraged to alert the nearest U.S. Embassy of any practices they encounter with regard to the provision of financial services.

Fintech investments in Singapore rose from $2.48 million in 2020 to $3.94 billion in 2021. To strengthen Singapore’s position as a global Fintech hub, MAS has created a dedicated Fintech Office as a one-stop virtual entity for all Fintech-related matters to enable experimentation and promote an open-API (Application Programming Interfaces) in the financial industry. Investment in payments start-ups accounted for about 40 percent of all funds. Singapore has more than 50 innovation labs established by global financial institutions and technology companies.

MAS also aims to be a regional leader in blockchain technologies and has worked to position Singapore as a financial technology center. MAS and the Association of Banks in Singapore are prototyping the use of distributed ledger technology for inter-bank clearing and settlement of payments and securities. Following a five-year collaborative project to understand the technology, a test network launched to facilitate collaboration in the cross-border blockchain ecosystem. Technical specifications for the functionalities and connectivity interfaces of the prototype network are publicly available. ( https://www.mas.gov.sg/schemes-and-initiatives/Project-Ubin ).

Alternative financial services include retail and corporate non-bank lending via finance companies, cooperative societies, and pawnshops; and burgeoning financial technology-based services across a wide range of sectors including: crowdfunding, initial coin offerings, and payment services and remittance. In January 2020, the Payment Services Bill went into effect, which will require all cryptocurrency service providers to be licensed with the intent to provide more user protection. Smaller payment firms will receive a different classification from larger institutions and will be less heavily regulated. Key infrastructure supporting Singapore’s financial market include interbank (MEP), Foreign exchange (CLS, CAPS), retail (SGDCCS, USDCCS, CTS, IBG, ATM, FAST, NETS, EFTPOS), securities (MEPS+-SGS, CDP, SGX-DC) and derivatives settlements (SGX-DC, APS) ( https://www.mas.gov.sg/regulation/payments/payment-systems ).

The government has three key investment entities: GIC Private Limited (GIC) is the sovereign wealth fund in Singapore that manages the government’s substantial foreign investments, fiscal, and foreign reserves, with the stated objective to achieve long-term returns and preserve the international purchasing power of the reserves. Temasek is a holding company wholly owned by the Ministry of Finance with investments in Singapore and abroad. MAS, as the central bank of Singapore, manages the Official Foreign Reserves, and a significant proportion of its portfolio is invested in liquid financial market instruments.

GIC does not publish the size of the funds under management, but some industry observers estimate its managed assets may exceed $600 billion. GIC does not invest domestically, but manages Singapore’s international investments, which are generally passive (non-controlling) investments in publicly traded entities. The United States is its top investment destination, accounting for 34 percent of GIC’s portfolio as of March 2021, while Asia (excluding Japan) accounts for 26 percent, the Eurozone 9 percent, Japan 8 percent, and UK 5 percent. Investments in the United States are diversified and include industrial and commercial properties, student housing, power transmission companies, and financial, retail and business services. GIC is a member of the International Forum of Sovereign Wealth Funds. Although not required by law, GIC has published an annual report since 2008.

Temasek began as a holding company for Singapore’s state-owned enterprises, now GLCs, but has since branched out to other asset classes and often holds significant stake in companies. As of March 2021, Temasek’s portfolio value reached $267 billion, and its asset exposure to Singapore is 24 percent; 40 percent in the rest of Asia, and 20 percent in Americas. According to the Temasek Charter, Temasek delivers sustainable value over the long term for its stakeholders. Temasek has published a Temasek Review annually since 2004. The statements only provide consolidated financial statements, which aggregate all of Temasek and its subsidiaries into a single financial report. A major international audit firm audits Temasek Group’s annual statutory financial statements. GIC and Temasek uphold the Santiago Principles for sovereign investments.

Other investing entities of government funds include EDB Investments Pte Ltd, Singapore’s Housing Development Board, and other government statutory boards with funding decisions driven by goals emanating from the central government.

Singapore has an extensive network of full and partial state-owned enterprises (SOEs) held under the umbrella of Temasek Holdings, a holding company with the Ministry of Finance as its sole shareholder. Singapore SOEs play a substantial role in the domestic economy, especially in strategically important sectors including telecommunications, media, healthcare, public transportation, defense, port, gas, electricity grid, and airport operations. In addition, the SOEs are also present in many other sectors of the economy, including banking, subway, airline, consumer/lifestyle, commodities trading, oil and gas engineering, postal services, infrastructure, and real estate.

The government emphasizes that government-linked entities operate on an equal basis with both local and foreign businesses without exception. There is no published list of SOEs.

Temasek’s annual report notes that its portfolio companies are guided and managed by their respective boards and management, and Temasek does not direct their business decisions or operations. However, as a substantial shareholder, corporate governance within government linked companies typically are guided or influenced by policies developed by Temasek. There are differences in corporate governance disclosures and practices across the GLCs, and GLC boards are allowed to determine their own governance practices, with Temasek advisors occasionally meeting with the companies to make recommendations. GLC board seats are not specifically allocated to government officials, although it “leverages on its networks to suggest qualified individuals for consideration by the respective boards,” and leaders formerly from the armed forces or civil service are often represented on boards and fill senior management positions. Temasek exercises its shareholder rights to influence the strategic directions of its companies but does not get involved in the day-to-day business and commercial decisions of its firms and subsidiaries.

GLCs operate on a commercial basis and compete on an equal basis with private businesses, both local and foreign. Singapore officials highlight that the government does not interfere with the operations of GLCs or grant them special privileges, preferential treatment, or hidden subsidies, asserting that GLCs are subject to the same regulatory regime and discipline of the market as private sector companies. However, observers have been critical of cases where GLCs have entered into new lines of business or where government agencies have “corporatized” certain government functions, in both circumstances entering into competition with already existing private businesses. Some private sector companies have said they encountered unfair business practices and opaque bidding processes that appeared to favor incumbent, government-linked firms. In addition, they note that the GLC’s institutional relationships with the government give them natural advantages in terms of access to cheaper funding and opportunities to shape the economic policy agenda in ways that benefit their companies.

The USSFTA contains specific conduct guarantees to ensure that GLCs will operate on a commercial and non-discriminatory basis towards U.S. firms. GLCs with substantial revenues or assets are also subject to enhanced transparency requirements under the USSFTA. In accordance with its USSFTA commitments, Singapore enacted the Competition Act in 2004 and established the Competition Commission of Singapore in January 2005. The Competition Act contains provisions on anti-competitive agreements, decisions, and practices, abuse of dominance, enforcement and appeals process, and mergers and acquisitions.

The government has privatized GLCs in multiple sectors and has not publicly announced further privatization plans, but is likely to retain controlling stakes in strategically important sectors, including telecommunications, media, public transportation, defense, port, gas, electricity grid, and airport operations. The Energy Market Authority is extending the liberalization of the retail market from commercial and industrial consumers with an average monthly electricity consumption of at least 2,000 kWh to households and smaller businesses. The Electricity Act and the Code of Conduct for Retail Electricity Licensees govern licensing and standards for electricity retail companies.

The awareness and implementation of corporate social responsibility (CSR) in Singapore has been increasing since the formation of the Global Compact Network Singapore (GCNS) under the UN Global Compact network, with the goals of encouraging companies to adopt sustainability principles related to human and labor rights, environmental conservation, and anti-corruption. GCNS facilitates exchanges, conducts research, and provides training in Singapore to build capacity in areas including sustainability reporting, supply chain management, ISO 26000, and measuring and reporting carbon emissions.

A 2019 World Wildlife Fund (WWF) survey showed a lack of transparency by Singapore companies in disclosing palm oil sources. However, there is growing awareness and the Southeast Asia Alliance for Sustainable Palm Oil has received additional pledges in by companies to adhere to standards for palm oil sourcing set by the Roundtable for Sustainable Palm Oil (RSPO). A group of food and beverage, retail, and hospitality companies announced in January 2019 what the WWF calls “the most impactful business response to-date on plastics.” The pact, initiated by WWF and supported by the National Environment Agency, is a commitment to significantly reduce plastic production and usage by 2030.

In June 2016, the SGX introduced mandatory, comply-or-explain, sustainability reporting requirements for all listed companies, including material environmental, social and governance practices, from the financial year ending December 31, 2017 onwards. The Singapore Environmental Council operates a green labeling scheme, which endorses environmentally friendly products, numbering over 3,000 from 2729 countries. The Association of Banks in Singapore has issued voluntary guidelines to banks in Singapore last updated in July 2018 encouraging them to adopt sustainable lending practices, including the integration of environmental, social and governance (ESG) principles into their lending and business practices. Singapore-based banks are listed in a 2018 Market Forces report as major lenders in regional coal financing.

Singapore has not developed a National Action Plan on business and human rights, but promotes responsible business practices, and encourages foreign and local enterprises to follow generally accepted CSR principles. The government does not explicitly factor responsible business conduct (RBC) policies into its procurement decisions.

The host government effectively and fairly enforces domestic laws with regard to human rights, labor rights, consumer protection, environmental protections, and other laws/regulations intended to protect individuals from adverse business impacts. The private sector’s impact on migrant workers and their rights, and domestic migrant workers in particular (due to the latter’s exemption from the Employment Act which stipulates the rights of workers), remains an area of advocacy by civil society groups. The government has taken incremental steps to improve the channels of redress and enforcement of migrant workers’ rights; however, key concerns about legislative protections remain unaddressed for domestic migrant workers. The government generally encourages businesses to comply with international standards. However, there are no specific mentions of the host government encouraging adherence to the OECD Due Diligence Guidance, or supply chain due diligence measures.

The Companies Act principally governs companies in Singapore. Key areas of corporate governance covered under the act include separation of ownership from management, fiduciary duties of directors, shareholder remedies, and capital maintenance rules. Limited liability partnerships are governed by the Limited Liability Partnerships Act. Certain provisions in other statutes such as the Securities and Futures Act are also relevant to listed companies. Listed companies are required under the Singapore Exchange Listing Rules to describe in their annual reports their corporate governance practices with specific reference to the principles and provisions of the Code of Corporate Governance (“Code”). Listed companies must comply with the principles of the Code and if their practices vary from any provision in the Code, they must explain the variation and demonstrate the variation is consistent with the relevant principle. The revised Code of Corporate Governance will impact Annual Reports covering financial years from January 1, 2019 onward. The revised code encourages board renewal, strengthens director independence, increases transparency of remuneration practices, enhances board diversity, and encourages communication with all stakeholders. MAS also established an independent Corporate Governance Advisory Committee (CGAC) to advocated good corporate governance practices in February 2019. The CGAC monitors companies’ implementation of the code and advises regulators on corporate governance issues.

There are independent NGOs promoting and monitoring RBC. Those monitoring or advocating around RBC are generally able to do their work freely within most areas. However, labor unions are tightly controlled and legal rights to strike are granted with restrictions under the Trade Disputes Act.

Singapore has no oil, gas, or mineral resources and is not a member of the Extractive Industries Transparency Initiative. A small sector in Singapore processes rare minerals and complies with responsible supply chains and conflict mineral principles. Under the Anti-Money Laundering and Countering Financing of Terrorism framework, it is a requirement for corporate service providers to develop and implement internal policies, procedures, and controls to comply with Financial Action Task Force recommendations on combating of money laundering and terrorism financing.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Singapore plans to reach net-zero by or around mid-century but faces alternative energy diversification challenges in setting 2050 net-zero carbon emission targets. Singapore’s national climate strategy focuses on increased sustainability, carbon emissions reductions, fostering job and investment opportunities, and increasing climate resilience and food security https://www.greenplan.gov.sg/ . According to the National Climate Change Secretariat, the government plans to spend approximately $750 million from 2019 to 2023 to support Singaporean companies become more energy efficient and improve competitiveness. A link to national mitigation strategies can be found here. https://www.nccs.gov.sg/faqs/mitigation-action/ 

The Energy Conservation Act requires large industry and transportation sector companies that consume more than 15 gigawatt-hours (or 54 terajoules) of energy per year to appoint an energy manager, monitor and report energy usage, submit plans for energy efficiency improvements to appropriate agencies, conduct energy assessments periodically to identify improvement opportunities, implement structured energy management systems, and ensure new or retrofitted energy intensive facilities are designed to be energy efficient.

Singapore actively enforces its strong anti-corruption laws, and corruption is not cited as a concern for foreign investors. Transparency International’s 2021 Corruption Perception Index ranks Singapore fourth of 180 countries globally, the highest-ranking Asian country. The Prevention of Corruption Act (PCA), and the Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act provide the legal basis for government action by the Corrupt Practices Investigation Bureau (CPIB), which is the only agency authorized under the PCA to investigate corruption offences and other related offences. These laws cover acts of corruption within Singapore as well as those committed by Singaporeans abroad. The anti-corruption laws extend to family members of officials, and to political parties. The CPIB is effective and non-discriminatory. Singapore is generally perceived to be one of the least corrupt countries in the world, and corruption is not identified as an obstacle to FDI in Singapore. Recent corporate fraud scandals, particularly in the commodity trading sector, have been publicly, swiftly, and firmly reprimanded by the government. Singapore is a signatory to the UN Anticorruption Convention, but not the OECD Anti-Bribery Convention.

Contact at government agency or agencies are responsible for combating corruption:

Corrupt Practices Investigation Bureau
2 Lengkok Bahru, Singapore 159047
+65 6270 0141
info@cpib.gov.sg

Contact at a “watchdog” organization:

Transparency International
Alt-Moabit 96
10559 Berlin, Germany
+49 30 3438 200

Singapore’s political environment is stable and there is no recent history of incidents involving politically motivated damage to foreign investments in Singapore. The ruling People’s Action Party (PAP) has dominated Singapore’s parliamentary government since 1959 and currently controls 83 of the 92 regularly contested parliamentary seats. Singaporean opposition Workers’ Party, which currently holds nine regularly contested parliamentary seats, does not usually espouse views that are radically different from mainstream public opinion. The opposition Progress Singapore Party, which is represented in parliament since 2020 after winning two additional parliamentary seats reserved to the best performing losing candidates, advocates for more protectionist policies.

In December 2021, Singapore’s labor market totaled 3.64 million workers; this includes about 1.24 million foreigners, of whom about 84 percent are basic skilled or semi-skilled workers. The overall unemployment rate was 2.3 percent as of January. Local labor laws allow for relatively free hiring and firing practices. Either party can terminate employment by giving the other party the required notice. The Ministry of Manpower (MOM) must approve employment of foreigners. In 2020, females had an employment rate of 73.2 percent compared to males of 87.9 percent. Females accounted for 46.3 percent of the resident labor force as of June 2020. The Council for Board Diversity reported that as of December 2021, women’s representation on boards of the largest 100 companies listed on the Singapore Exchange increased over the previous year to 18.9 percent. Representation of women also increased on statutory boards to 29.7 percent but declined slightly on registered NGOs and charities to 28.4 percent. Singapore’s adjusted gender pay gap was 6 percent as of the most recent data in 2018 but occupational segregation continued.

Since 2011, the government has introduced policy measures to support productivity increases coupled with reduced dependence on foreign labor. In Budget 2019, MOM announced a decrease in the foreign worker quota ceiling from 40 percent to 38 percent on January 1, 2020 and to 35 percent on January 1. The quota reduction does not apply to those on Employment Passes (EPs) which are high skilled workers making above $39,750 per year. In Budget 2020, the foreign worker quota was cut further for mid-skilled (“S Pass”) workers in construction, marine shipyards, and the process sectors from 20 to 18 percent by January 1, 2021. The quota will be further reduced to 15 percent on January 1, 2023. Singapore’s labor force increased marginally with the partial reopening of borders after easing of COVID-19 restrictions but is expected to face significant demographic headwinds from an aging population and low birth rates, alongside restrictions on foreign workers. Singapore’s local workforce growth is slowing, heading for stagnation over the next 10 years.

To address concerns over an aging and shrinking workforce, MOM has expanded its training and grant programs. The government included a number of individual and company subsidies for existing and new programs in the latest budget, as well as an unprecedented number of supplementary budgets during the initial COVID-19 outbreak in 2020. An example of an existing program is SkillsFuture, a government initiative managed by SkillsFuture Singapore (SSG), a statutory board under the Ministry of Education, designed to provide all Singaporeans with enhanced opportunities and skills-capacity building. SSG also administers the Singapore Workforce Skills Qualifications, a national credential system that trains, develops, assesses, and certifies skills and competencies for the workforce.

All foreigners must have a valid work pass before they can start work in Singapore, with EPs (for professionals, managers, and executives), S Pass (for mid-level skilled staff), and Work Permits (for semi-skilled workers), among the most widely issued. Workers need to have a job with minimum fixed monthly salary and acceptable qualifications to be eligible for the EP and S Pass. MOM has increased minimum salaries multiple times, restricting the ability of some companies to hire foreign workers, including spouses of employment pass holders. From September 2023, it will be raised to $3,500 for new EP applicants ($3,850 for those in the financial services sector) and $2,100 for new S Pass applicants ($2,450 for those in the financial services sector). The government further regulates the inflow of foreign workers through the Foreign Worker Levy (FWL) and the Dependency Ratio Ceiling (DRC). The DRC is the maximum permitted ratio of foreign workers to the total workforce that a company can hire and serves as a quota on the hiring of foreign workers. The DRC varies across sectors. It was announced in Budget 2022 that the DRC will be reduced from 87.5 percent to 83.3 percent from January 2024. Employers of S Pass and Work Permit holders are required to pay a monthly FWL to the government. The FWL varies according to the skills, qualifications, and experience of their employees. The FWL is set on a sector-by-sector basis and is subject to annual revisions. FWLs have been progressively increased for most sectors since 2012.

MOM requires employers to consider Singaporeans before hiring skilled professional foreigners. The Fair Consideration Framework (FCF), implemented in August 2014, affects employers who apply for EPs, the work pass for foreign professionals working in professional, manager, and executive (PME) posts. Companies have noted inconsistent and increasingly burdensome documentation requirements and excessive qualification criteria to approve EP applications. Under the rules, firms making new EP applications must first advertise the job vacancy in a new jobs bank administered by Workforce Singapore (WSG), http://www.mycareersfuture.gov.sg  for at least 28 days. The jobs bank is free for use by companies and job seekers and the job advertisement must be open to all, including Singaporeans. Employers are encouraged to keep records of their interview process as proof that they have done due diligence in trying to look for a Singaporean worker. If an EP is still needed, the employer will have to make a statutory declaration that a job advertisement on http://www.mycareersfuture.gov.sg had been made.

Consistent with Singapore’s WTO obligations, intra-corporate transfers (ICT) are allowed for managers, executives, and specialists who had worked for at least one year in the firm before being posted to Singapore. ICT would still be required to meet all EP criteria, but the requirement for an advertisement on http://www.mycareersfuture.gov.sg would be waived. In April 2016, MOM outlined measures to refine the work pass applications process, looking not only at the qualifications of individuals, but at company-related factors. Companies found not to have a “healthy Singaporean core, lacking a demonstrated commitment to developing a Singaporean core, and not found to be “relevant” to Singapore’s economy and society, will be labeled “triple weak” and put on a watch list. Companies unable to demonstrate progress may have work pass privileges suspended after a period of scrutiny. Since 2016, MOM has placed approximately 1,200 companies on its FCF Watchlist. The Tripartite Alliance for Fair and Progressive Employment Practices have worked with 260 companies to be successfully removed from the watchlist.

The Employment Act covers all employees under a contract of service, and under the act, employees who have served the company for at least two years are eligible for retrenchment benefits, and the amount of compensation depends on the contract of service or what is agreed collectively. Employers have to abide by notice periods in the employment contract before termination and stipulated minimum periods in the Employment Act in the absence of a notice period previously agreed upon, or provide salary in lieu of notice. Dismissal on grounds of wrongful conduct by the employee is differentiated from retrenchments in the labor laws and is exempted from the above requirements. Employers must notify MOM of retrenchments within five working days after they notify the affected employees to enable the relevant agencies to help affected employees find alternative employment and/or identify relevant training to enhance employability. Singapore does not provide unemployment benefits, but provides training and job matching services to retrenched workers. Labor laws are not waived in order to attract or retain investment in Singapore. There are no additional or different labor law provisions in free trade zones.

Collective bargaining is a normal part of labor-management relations in all sectors. Almost all unions are affiliated with the National Trades Union Congress (NTUC), the sole national federation of trade unions in Singapore, which has a close relationship with the PAP ruling party and the government. The current NTUC secretary-general is also a former minister in the Prime Minister’s Office. As of June, the NTUC had more than 1 million members. Given that nearly all unions are NTUC affiliates, the NTUC has almost exclusive authority to exercise collective bargaining power on behalf of employees. Union members may not reject collective agreements negotiated between their union representatives and an employer. Although transfers and layoffs are excluded from the scope of collective bargaining, employers consult with unions on both problems, and the Taskforce for Responsible Retrenchment and Employment Facilitation issues guidelines calling for early notification to unions of layoffs. Data on coverage of collective bargaining agreements is not publicly available. The Industrial Relations Act (IRA) regulates collective bargaining. The Industrial Arbitration Courts must certify any collective bargaining agreement before it is deemed in effect and can deny certification on public interest grounds. Additionally, the IRA restricts the scope of issues over which workers may bargain, excluding bargaining on hiring, transfer, promotion, dismissal, or reinstatement of workers.

Most labor disagreements are resolved through conciliation and mediation by MOM. Since April 2017, the Tripartite Alliance for Dispute Management (TADM) under MOM provides advisory and mediation services, including mediation for salary and employment disputes. Where the conciliation process is not successful, the disputing parties may submit their dispute to the IAC for arbitration. Depending on the nature of the dispute, the court may be constituted either by the president of the IAC and a member of the Employer and Employee Panels, or by the president alone. The Employment Claims Tribunals (ECT) was established under the Employment Claims Act (2016). To bring a claim before the ECT, parties must first register their claims at the TADM for mediation. Mediation at TADM is compulsory. Only disputes which remain unresolved after mediation at TADM may be referred to the ECT.

The ECT hears statutory salary-related claims, contractual salary-related claims, dismissal claims from employees, and claims for salary in lieu of notice of termination by all employers. There is a limit of $21,200 on claims for cases with TADM mediation, and $14,100 for all other claims. In March 2019, MOM announced that 85 percent of salary claims had been resolved by TADM between April 2017 and December 2018. Salary-related disputes that are not resolved by mediation are covered by the Employment Claims Tribunals under the State Courts. Industrial disputes may also submit their case be referred to the tripartite Industrial Arbitration Court (IAC). The IAC composed has two panels: an employee panel and a management panel. For a majority of dispute hearings, a court is constituted comprising the president of the IAC and a member each from the employee and employer panels’ representatives and chaired by a judge. In some situations, the law provides for compulsory arbitration. The court must certify collective agreements before they go into effect. The court may refuse certification at its discretion on the ground of public interest.

The legal framework in Singapore provides for some restrictions in the registration of trade unions, labor union autonomy and administration, the right to strike, who may serve as union officers or employees, and collective bargaining. Under the Trade Union Act (TUA), every trade union must register with the Registrar of Trade Unions, which has broad discretion to grant, deny, or cancel union registration. The TUA limits the objectives for which unions can spend their funds, including for contributions to a political party or for political purposes, and allows the registrar to inspect accounts and funds “at any reasonable time.” Legal rights to strike are granted with restrictions under TUA. The law requires the majority of affected unionized workers to vote in favor of a strike by secret ballot, as opposed to the majority of those participating in the vote. Strikes cannot be conducted for any reason apart from a dispute in the trade or industry in which the strikers are employed, and it is illegal to conduct a strike if it is “designed or calculated to coerce the government either directly or by inflicting hardship on the community.” Workers in “essential services” are required to give 14 days’ notice to an employer before conducting a strike. Although workers, other than those employed in the three essential services of water, gas, and electricity, may strike, no workers did so since 1986 with the exception of a strike by bus drivers in 2012, but NTUC threatened to strike over concerns in a retrenchment process in July 2020. The law also restricts the right of uniformed personnel and government employees to organize, although the president may grant exemptions. Foreigners and those with criminal convictions generally may not hold union office or become employees of unions, but the ministry may grant exemptions.

The Employment Act, which prohibits all forms of forced or compulsory labor and the Prevention of Human Trafficking Act (PHTA), strengthens labor trafficking victim protection, and governs labor protections. Other acts protecting the rights of workers include the Workplace Safety and Health Act and Employment of Foreign Manpower Act. Labor laws set the standard legal workweek at 44 hours, with one rest day each week, and establish a framework for workplaces to comply with occupational safety and health standards, with regular inspections designed to enforce the standards. MOM effectively enforces laws and regulations establishing working conditions and comprehensive occupational safety and health (OSH) laws and implements enforcement procedures and promoted educational and training programs to reduce the frequency of job-related accidents. Changes to the Employment Act took effect on April 1, 2019, including for extension of core provisions to managers and executives, increasing the monthly salary cap, transferring adjudication of wrongful dismissal claims from MOM to the ECT, and increasing flexibility in compensating employees working during public holidays (for more detail see https://www.mom.gov.sg/employment-practices/employment-act . All workers, except for public servants, domestic workers and seafarers are covered by the Employment Act, and additional time-based provisions for more vulnerable employees.

Singapore has no across the board minimum wage law, although there are some exceptions in certain low-skill industries. Generally, the government follows a policy of allowing free market forces to determine wage levels. In specific sectors where wages have stagnated and market practices such as outsourcing reduce incentive to upskill workers and limit their bargaining power, the government has implemented Progressive Wage Models to uplift wages. These are currently implemented in the cleaning, security, elevator maintenance, and landscape sectors and have been raised progressively. The National Wage Council (NWC), a tripartite body comprising representatives from the government, employers, and unions, recommends non-binding wage adjustments on an annual basis. The NWC recommendations apply to all employees in both domestic and foreign firms, and across the private and public sectors. While the NWC wage guidelines are not mandatory, they are published under the Employment Act and form the basis of wage negotiations between unions and management. The NWC recommendations apply to all employees in both domestic and foreign law firms, and across the public and private sectors. The level of implementation is generally higher among unionized companies compared to non-unionized companies.

MOM and the Ministry of Home Affairs are responsible for combating labor trafficking and improving working conditions for workers, and generally enforce anti-trafficking legislation, although some workers in low-wage and unskilled sectors are vulnerable to labor exploitation and abuse. PHTA sets out harsh penalties (including up to nine strokes of the cane and 15 years’ imprisonment) for those found guilty of trafficking, including forced labor, or abetting such activities. The government developed a mechanism for referral of potential trafficking-in-persons activities, to the interagency taskforce, co-chaired by the Ministry of Home Affairs and the Ministry of Manpower. Some observers note that the country’s employer sponsorship system made legal migrant workers vulnerable to forced labor, because their abilities to change employers without the consent of the current employer are limited. MOM effectively enforces laws and regulations pertaining to child labor. Penalties for employers that violated child labor laws were subject to fines and/or imprisonment, depending on the violation. Government officials assert that child labor is not a significant issue. The incidence of children in formal employment is low, and almost no abuses are reported.

The USSFTA includes a chapter on labor protections. The labor chapter contains a statement of shared commitment by each party that the principles and rights set forth in Article 17.7 of the ILO Declaration on Fundamental Principles and Rights at Work and its follow-up are recognized and protected by domestic law, and each party shall strive to ensure it does not derogate protections afforded in domestic labor law as an encouragement for trade or investment purposes. The chapter includes the establishment of a labor cooperation mechanism, which promotes the exchange of information on ways to improve labor law and practice, and the advancement of effective implementation.

See the U.S. State Department Human Rights Report as well as the U.S. State Department’s Trafficking in Persons Report.

Under the 1966 Investment Guarantee Agreement with Singapore, the Overseas Private Investment Corporation (OPIC) (Now the Development Finance Corporation) offers insurance to U.S. investors in Singapore against currency inconvertibility, expropriation, and losses arising from war. Singapore became a member of the Multilateral Investment Guarantee Agency (MIGA) in 1998. In March 2019, Singapore and the United States signed an MOU aimed at strengthening collaboration between the infrastructure agency of Singapore, Infrastructure Asia, and OPIC. Under the agreement, both countries will work together on information sharing, deal facilitation, and capacity building initiatives in sectors of mutual interest such as energy, natural resource management, water, waste, transportation, and urban development. The aim is to enhance Singapore-based and U.S. companies’ access to project opportunities, while building on Singapore’s role as an infrastructure hub in Asia.

Singapore’s domestic public infrastructure projects are funded primarily via Singapore government reserves or capital markets, reducing the scope for direct project financing subsidies by foreign governments.

* Source for Host Country Data: https://www.singstat.gov.sg/ 

Aw Wen Hao
Economic Specialist
U.S. Embassy
27 Napier Road
Singapore 258508
+65 9069-8592
AwWH@state.gov

The ROK government welcomes foreign investment.  In a February 2022 meeting with foreign business leaders, President Moon Jae-in emphasized the ROK’s status as a stable investment destination and promised to increase tax incentives for foreign firms, especially companies working on strategic technologies, such as semiconductors, batteries, and vaccines.  The ROK government plans to spend $40 million on supporting foreign businesses that make an investment in fields related to stable supply chains and carbon neutrality and another $26 million to support foreign investors finding plant locations.  Hurdles for foreign investors in the ROK include regulatory opacity, inconsistent interpretation of regulations, unanticipated regulatory changes, underdeveloped corporate governance, rigid labor policies, Korea-specific consumer protection measures, and the political influence of large conglomerates, known as chaebol.

The 1998 Foreign Investment Promotion Act (FIPA) is the principal law pertaining to foreign investment in the ROK.  FIPA and related regulations categorize business activities as open, conditionally- or partly-restricted, or closed to foreign investment.  FIPA also includes:

• Simplified procedures to apply to invest in the ROK;
• Expanded tax incentives for high-technology investments;
• Reduced rental fees and lengthened lease durations for government land (including local government land);
• Increased central government support for local FDI incentives;
• Creation of “Invest KOREA,” a one-stop investment promotion center within the Korea Trade-Investment Promotion Agency (KOTRA) to assist foreign investors; and
• Establishment of a Foreign Investment Ombudsman to assist foreign investors.

The ROK National Assembly website provides a list of laws pertaining to foreigners, including FIPA, in English ( http://korea.assembly.go.kr/res/low_03_list.jsp?boardid=1000000037 ).

The Korea Trade-Investment Promotion Agency (KOTRA) facilitates foreign investment through its Invest KOREA office (also on the web at  http://investkorea.org ).  For investments exceeding 100 million won (about USD 83,577), KOTRA helps investors establish domestically-incorporated foreign-invested companies.  KOTRA and the Ministry of Trade, Industry and Energy (MOTIE) organize a yearly Foreign Investment Week to attract investment to South Korea.  In February 2022, President Moon met with executives of foreign-invested firms in the ROK and encouraged them to expand their investments, noting the stable environment the ROK provided for businesses throughout the pandemic.  The ROK’s key official responsible for FDI promotion and retention is the Foreign Investment Ombudsman.  The position is commissioned by the ROK President and heads a grievance resolution body that collects and analyzes concerns from foreign firms; coordinates reforms with relevant administrative agencies; and proposes new policies to promote foreign investment.  More information on the Ombudsman can be found at  http://ombudsman.kotra.or.kr/eng/index.do .

Foreign and domestic private entities can establish and own business enterprises and engage in remunerative activity across many sectors of the economy. However, under the Foreign Exchange Transaction Act (FETA), restrictions on foreign ownership remain for 30 industrial sectors, including three that are closed to foreign investment (see below). Relevant ministries must approve investments in conditionally- or partially-restricted sectors. Most applications are processed within five days; cases that require consultation with more than one ministry can take 25 days or longer. The ROK’s procurement processes comply with the World Trade Organization (WTO) Government Procurement Agreement.

The following is a list of restricted sectors for foreign investment. Figures in parentheses generally denote the Korean Industrial Classification Code, while those for air transport industries are based on the Civil Aeronautics Laws:

Completely Closed

• Nuclear power generation (35111)
• Radio broadcasting (60100)
• Television broadcasting (60210)

Restricted Sectors (no more than 25 percent foreign equity)

• News agency activities (63910)

Restricted Sectors (less than 30 percent foreign equity)

• Newspaper publication, daily (58121) (Note: Other newspapers with the same industry code 58121 are restricted to less than 50 percent foreign equity.)
• Hydroelectric power generation (35112)
• Thermal power generation (35113)
• Solar power generation (35114)
• Other power generation (35119)

Restricted Sectors (no more than 49 percent foreign equity)

• Newspaper publication, non-daily (58121) (Note: Daily newspapers with the same industry code 58121 are restricted to less than 30 percent foreign equity.)
• Television program/content distribution (60221)
• Cable networks (60222)
• Satellite and other broadcasting (60229)
• Wired telephone and other telecommunications (61210)
• Mobile telephone and other telecommunications (61220)
• Other telecommunications (61299)

Restricted Sectors (no more than 50 percent foreign equity)

• Farming of beef cattle (01212)
• Transmission/distribution of electricity (35120)
• Sale of electricity (35130)
• Wholesale of meat (46313)
• Coastal water passenger transport (50121)
• Coastal water freight transport (50122)
• International air transport (51)
• Domestic air transport (51)
• Small air transport (51)
• Publishing of magazines and periodicals (58122)

Open but Separately Regulated under Relevant Laws

• Growing of cereal crops and other food crops, except rice and barley (01110)
• Other inorganic chemistry production, except fuel for nuclear power generation (20129)
• Other nonferrous metals refining, smelting, and alloying (24219)
• Domestic commercial banking, except special banking areas (64121)
• Radioactive waste collection, transportation, and disposal, except radioactive waste management (38240)

The Special Act to Protect National Strategic Industries will take effect from August 4, 2022, which will require stricter investment screening on foreign investments into companies with national core and strategic technologies as prescribed in the National Core Technology list. The Ministry of Trade, Industry and Energy (MOTIE) is currently drafting the implementation regulations.

The WTO conducted its eighth Trade Policy Review of the ROK in October 2021. The Review does not contain any explicit policy recommendations. It can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp514_e.htm 

The ROK has not undergone investment policy reviews from the OECD or United Nations Conference on Trade and Development (UNCTAD) within the past three years.

The Korea International Trade Association (KITA) published a report on September 3, 2018 on foreign direct investment in the ROK and its impact on exports. It can be found at:

https://www.kita.net/cmmrcInfo/internationalTradeStudies/researchReport/focusBriefDetail.do?pageIndex=4&no=1842&classification=7&searchReqType=detail&pcRadio=7&searchClassification=7&searchStartDate=&searchEndDate=&searchCondition=TITLE&searchKeyword=&continent_nm=&continent_cd=&country_nm=&country_cd=&sector_nm=&sector_cd=&itemCd_nm=&itemCd_cd=&searchOpenYn= 

Registering a business remains a complex process that varies according to the type of business, and requires interaction with KOTRA, court registries, and tax offices. Foreign corporations can enter the market by establishing a local corporation, local branch, or liaison office. The establishment of local corporations by a foreign individual or corporation is regulated by the Foreign Investment Promotion Act (FIPA) and the Commercial Act; the latter recognizes five types of companies, of which stock companies with multiple shareholders are the most common. Although registration can be filed online, there is no centralized online location to complete the process. For small- and medium-sized enterprises (SMEs) and micro-enterprises, the online business registration process takes approximately three to four days and is completed through Korean language websites. Registrations can be completed via the Smart Biz website, https://www.startbiz.go.kr/ . The UN’s Global Enterprise Registration (GER), which evaluates whether a country’s online registration process is clear and complete, awarded Smart Biz 5.5 of 10 possible points and suggested improvements in registering limited liability companies. The Invest KOREA information portal received 2 of 10 points. The Korea Commission for Corporate Partnership and the Ministry of Gender Equality and Family ( http://www.mogef.go.kr/ ) are charged with improving the business environment for minorities and women. (Note: President-elect Yoon, who takes office on May 10, 2022, pledged during the campaign to abolish the Ministry of Gender Equality and Family (MOGEF).)

The ROK does not restrict outward investment. The ROK has several institutions to assist small business and middle-market firms with such investments.

• KOTRA has an Outbound Investment Support Office that provides counseling to ROK firms and holds regular investment information sessions.
• The ASEAN-Korea Centre, which is primarily funded by the ROK government, provides counseling and business introduction services to Korean SMEs considering investments in the Association of Southeast Asian Nations (ASEAN) region.
• The Defense Acquisition Program Administration opened an office in 2019 to advise Korean defense SMEs on exporting unrestricted defense articles.

As of March 2022, the ROK has 18 FTAs in force, encompassing trade with 58 countries including the United States, and 93 bilateral investment treaties. The ROK has signed (but not ratified) additional FTAs with Indonesia, Israel, and Cambodia. Negotiations for a bilateral FTA with the Philippines have concluded, but the agreement is not yet signed. Ongoing FTA negotiations include a ROK-China-Japan trilateral FTA, and bilateral FTAs with Ecuador, Mercado Común del Sur (Mercosur), Russia, Uzbekistan, and Malaysia. Negotiations are also in-progress to expand the ROK-China FTA services and investment chapter and to enhance existing FTAs with ASEAN, India, and Chile. The ROK also agreed to begin FTA negotiations with the Eurasian Economic Union (Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan) and the Pacific Alliance (Mexico, Peru, Columbia, and Chile). Separately, the ROK signed a digital trade agreement with Singapore in 2021, and started accession negotiations for the Digital Economy Partnership Agreement (DEPA). The ROK is taking steps to apply to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and held a public hearing in March 2022.

As of March 2022, the ROK had signed bilateral tax agreements with 94 countries. The ROK National Tax Service has a special unit dedicated to processing Advance Pricing Agreement and Mutual Agreement Procedure requests from North America, Europe, and Australia, as timely processing of these requests has historically been a frequent subject of disputes. The U.S.-ROK bilateral income tax treaty entered into force in 1979. A complete list of countries and economies with which South Korea has concluded bilateral investment protection agreements, such as BITs and FTAs with investment chapters, is available at http://www.mofa.go.kr/www/wpge/m_3834/contents.do  and http://investmentpolicyhub.unctad.org/IIA .

The ROK is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting and is party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax.

Despite formal tax agreements and dispute resolution mechanisms, U.S. investors have raised concerns about discrimination and lack of transparency in tax investigations by ROK authorities.

ROK regulatory transparency has improved, due in part to Korea’s membership in the WTO and negotiated FTAs. However, the foreign business community continues to face numerous rules and regulations unique to the ROK. National Assembly legislation on environmental protection or the promotion of SMEs, while broadly targeting big businesses, has created new trade barriers that disadvantage foreign companies. Also, some laws and regulations lack sufficient detail and are subject to differing interpretations by government regulatory officials. In other cases, ministries issue non-legally binding guidelines on implementation of regulations, yet these become the bases for legal decisions in ROK courts. Regulatory authorities also issue oral or internal guidelines or other legally-enforceable dictates that prove burdensome for foreign firms. Intermittent ROK government deregulation plans to eliminate oral guidelines or impose the same level of regulatory review as written regulations have not led to concrete changes. Despite KORUS FTA provisions designed to address transparency issues, they remain persistent and prominent.

The ROK constitution allows both the legislative and executive branches to introduce bills. Ministries draft subordinate statutes (presidential decrees, ministerial decrees, and administrative rules), which largely govern the procedural matters addressed by the respective laws. Administrative agencies shape policies and draft bills on matters within their respective jurisdictions. Drafting ministries must clearly define policy goals and complete regulatory impact assessments (RIAs). When a ministry drafts a regulation, it must consult with other relevant ministries before it releases the regulation for public comment. The constitution also allows local governments to exercise self-rule legislative authority to draft ordinances and rules within the scope of federal acts and subordinate statutes. The enactment of laws and their subordinate statutes, ranging from the drafting of bills to their promulgation, must follow formal ROK legislative procedures in accordance with the Regulation on Legislative Process enacted by the Ministry of Government Legislation. Since 2011, all publicly listed companies must follow International Financial Reporting Standards (IFRS, or K-IFRS in the ROK). The Korea Accounting Standards Board facilitates ROK government endorsement and adoption of IFRS and sets accounting standards for companies not subject to IFRS. According to the Administrative Procedures Act, authorities proposing laws and regulations (acts, presidential decrees, or ministerial decrees) must seek public comments at least 40 days prior to their promulgation. Regulations are sometimes promulgated after only the minimum required comment period and with minimal consultation with industry.

The Official Gazette and the websites of relevant ministries and the National Assembly simultaneously post the Korean language text of draft acts and regulations, accompanied by executive summaries, for a 40-day comment period. Comments are not made public, and firms may struggle to translate complex documentation, analyze, and respond adequately before the expiration of this period. After the comment period, the Ministry of Government Legislation reviews the laws and regulations to ensure they conform to the constitution and monitors government adherence to the Regulation on Legislative Process. While the Regulatory Reform Committee (RRC), under the executive branch, reviews all laws and regulations to minimize government intervention in the economy and to abolish all economic regulations that fall short of international standards or hamper national competitiveness, the committee has been less active in recent years.

In January 2019, Korea introduced a “regulatory sandbox” program intended to reduce the regulatory burden on companies that seek to test innovative ideas, products, and services. Depending on the business sector in which a particular proposal falls, either MOTIE, the Ministry of Science and ICT, or the Financial Services Commission manages the program. The program is open to Korean companies and foreign companies with Korean branch offices. Websites and applications are only available in Korean. The business community has welcomed this effort by regulators to spur innovation.

The ROK government has taken major steps to promote the environmental, social, and governance (ESG) practices of companies in the past year with the goal to require ESG disclosure for all listed companies with total assets valued at 2 trillion won (about $1.7billion) or more by 2025, and all listed companies by 2030. In December 2021, Korea’s Financial Services Commission and the Korea Exchange launched a an ESG information platform for listed companies ( http://esg.krx.co.kr/ ). Korea’s National Pension Service also plans to invest half of its assets into ESG companies by the end of 2022.

The ROK government enforces regulations through penalties (fines, enforcing corrective measures, or criminal charges) in the case of violations of the law. The government’s enforcement actions can be challenged through an appeal process or administrative litigation. The CEOs of local branches can be held legally responsible for all actions of their company and at times have been arrested, charged for company infractions, and placed under travel bans while awaiting or undergoing court procedures. Foreign CEOs have cited this as a significant burden to their business operations in Korea. For large companies with over 5 trillion won of local assets (about $4.2 billion), the ROK Government may designate a single person or entity (for example, the largest subsidiary) to be subject to additional regulatory scrutiny and potential liability for company actions. Industry contacts have indicated the Korea Fair Trade Commission (KFTC) is considering making such designations for foreigners or entities based outside of the ROK.

The ROK’s public finances and debt obligations are generally transparent, with the exception of state-owned enterprise debt.

The ROK has revised local regulations to implement commitments under international treaties and trade agreements. Treaties duly concluded and promulgated in accordance with the constitution and the generally recognized rules of international law are accorded the same standing as domestic laws. ROK officials consistently express intent to harmonize standards with global norms by benchmarking the United States and the EU. The U.S., U.K., and Australian governments exchange regulatory reform best practices with the ROK government to encourage local regulators to employ more regulatory analytics, increase transparency, and improve compliance with international standards; however, unique local rules and regulations continue to pose difficulties for foreign companies operating in the ROK. The ROK is a member of the WTO and notifies the Committee on Technical Barriers to Trade of all draft technical regulations. The ROK is also a signatory of the Trade Facilitation Agreement (TFA). The ROK amended the ministerial decree of the Customs Act in 2015, creating a committee charged with implementing the TFA. The ROK is a global leader of modernized and streamlined procedures for transportation and customs clearance. Industry sources report the Korea Customs Service enforces rules of origin issues largely in compliance with ROK obligations under its free trade agreements.

The ROK legal system is based on civil law. Subdivisions within the district and high courts govern commercial activities and bankruptcies and enforce property and contractual rights with monetary judgments, usually levied in the domestic currency. The ROK has a written commercial law, and matters regarding contracts are covered by the Civil Act. There are also three specialized courts in the ROK: patent, family, and administrative courts. The ROK court system is independent and not subject to government interference in cases that may affect foreign investors. Foreign court judgments, with the exception of foreign arbitral rulings that meet certain conditions, are not enforceable in the ROK. Rulings by district courts can be appealed to higher courts and to the Supreme Court. There is no principle of stare decisis or precedent. The Constitutional Court rules on constitutional issues and is comprised of nine justices who are appointed by the President.

The ROK has a transparent legal system with a strong rule-of-law tradition and an independent judiciary. FIPA is the principal basic law pertaining to foreign investment in the ROK. The Invest KOREA website ( http://investkorea.org ) provides information on relevant laws, rules, and procedures for foreign investment in the ROK.

Laws and regulations enacted within the past year include:

• On April 6, 2021, an amended Labor Standards Act (LSA) took effect. The amendments modify certain restrictions on allowable work hours for employees and add certain health and safety requirements for overtime labor.
• On January 26, 2021, the Serious Accidents Punishment Act (SAPA) was enacted. The law entered into force for businesses with 50 or more employees on January 27, 2022. The Act holds CEOs personally accountable for workplace accidents and occupational illnesses. It also expands the scope of obligations for worker protections and strengthens penalties for violations.
• In August 2021, the ROK became the first country in the world to pass legislation banning digital platform operators from requiring app developers to use the platforms’ in-app payment systems. The law entered into force on March 15, 2022.

Key pending/proposed laws and regulations as of March 2022 include:

• The 2011 Personal Information Protection Act imposed stringent requirements on service providers seeking to transfer customers’ personal data outside Korea. In September 2021, the Personal Information Protection Commission submitted a proposed amendment to increase the fines to three percent of a company’s total global revenue. The proposed amendment would also grant the Personal Information Protection Committee the authority to suspend a company’s cross border data transfers in the case of a significant violation.
• As of March 2022, there are several proposed bills in the National Assembly seeking to mandate global over-the-top (OTT) providers pay network usage fees to Korean internet service providers.

The Korea Fair Trade Commission (KFTC) reviews and regulates competition and consumer safety matters under the Monopoly Regulation and Fair Trade Act (MRFTA). The amended MRFTA, which came into effect in December 2021, includes strengthened provisions on information exchange between companies, cartel law enforcement, and administrative fine levels.

KFTC has a broad mandate that includes promoting competition, strengthening consumer rights, and creating a suitable environment for SMEs. In addition to investigating corporate and financial restructuring, the KFTC can levy sizeable administrative fines and issue corrective measures for violations of law and for failure to cooperate with investigators. Decisions by KFTC are subject to appeal in Korean courts. As part of KORUS implementation, KFTC instituted a “consent decree” process in 2014, whereby firms can settle disputes with KFTC without resorting to the court system.

Over the last several years, a number of U.S. firms have raised concerns that KFTC targets foreign companies with aggressive enforcement. An amendment to the MRFTA in September 2020 improved the administrative decision-making process by the KFTC, including permitting access to confidential business information, limited to outside legal counsel, in order to protect possible trade secrets.

The ROK follows generally-accepted principles of international law with respect to expropriation. ROK law protects foreign-invested enterprise property from expropriation or requisition. Private property can be expropriated for public purposes such as urban redevelopment, new industrial complexes, or constructing roads, and claimants are afforded due process and compensation. Private property expropriation in the ROK for public use is generally conducted in a non-discriminatory manner, with claimants compensated at or above market value. Embassy Seoul is aware of one case in which a U.S. investor filed an investor-state dispute lawsuit in 2018 against the ROK government, claiming that the government had violated the KORUS FTA in expropriating the investor’s land. The case was dismissed in the ROK judicial system on jurisdictional grounds in September 2019. The ROK government allotted USD 26 billion in its 2022 budget for land expropriation – a 36 percent decrease from the previous year.

The Debtor Rehabilitation and Bankruptcy Act (DRBA) stipulates that bankruptcy is a court-managed liquidation procedure where both domestic and foreign entities are afforded equal treatment. The procedure commences after a filing by a debtor, creditor, or a group of creditors, and determination by the court that a company is bankrupt. The court designates a Custodial Committee to take an accounting of the debtor’s assets, claims, and contracts. The Custodial Committee may grant voting rights among creditors. Shareholders and contract holders may retain their rights and responsibilities based on shareholdings and contract terms. Debtors may be subject to arrest once a bankruptcy petition has been filed, even if the debtor has not been declared bankrupt. Individuals found guilty of negligent or false bankruptcy are subject to criminal penalties. The Seoul Bankruptcy Court (SBC) has nationwide jurisdiction to hear major bankruptcy or rehabilitation cases and to provide effective, specialized, and consistent guidance in bankruptcy proceedings. Any Korean company with debt equal to or above KRW 50 billion (about USD 41.8 million) and/or 300 or more creditors may file for bankruptcy rehabilitation with the SBC. Thirteen local district courts continue to oversee smaller bankruptcy cases in areas outside Seoul.

The ROK government provides the following general incentives for foreign investors:

• Cash incentives for qualified foreign investments in free trade zones, foreign investment zones, free economic zones, industrial complexes, and similar facilities;
• Tax and cash incentives for the creation and expansion of workplaces for high-tech businesses, factories, and research and development centers;
• Reduced rent for land and site preparation;
• Grants for establishment of community facilities for foreigners;
• Reduced rent for state or public property; and
• Preferential financial support for investing in major infrastructure projects.

Additionally, the ROK government provides incentives for investments that would increase ROK-based production of materials, parts, and equipment in six critical industrial sectors: semiconductors, displays, automobiles, electronics, machinery, and chemicals. The Seoul Metropolitan government provides separate support for SMEs, high-technology businesses, and the biomedical industry.

Note that corporate tax exemption for foreign direct investment is limited to firms registered by the end of 2018. The ROK government does not issue guarantees or jointly finance foreign direct investment projects.

The Renewable Portfolio Standard (RPS) is the key mechanism that the ROK government has put in place to promote renewable energy projects since 2012, replacing the feed-in tariffs (FITs) scheme. Under the RPS, state-run generation companies (GENCOs) and independent power producers (IPPs) that generate over 500MW are required to generate a certain percentage of electricity from renewable sources. The RPS mandate is set at 10 percent in 2022 and expected to rise over time. GENCOs and IPPs which cannot meet the quota must purchase renewable energy certificates (RECs) to fill the gap. The government imposes multipliers for RECs to help compensate power operators’ expenses and adjusts multipliers every three years to promote specific renewable energy technologies and sources. The ROK re-introduced “Korean FITs” in 2018 to encourage small scale solar power projects by providing a 20-year contract with GENCOs at a fixed price.

To promote low-carbon transport and fuels, the ROK offers interest subsidies for loans for eco-friendly vehicle and component manufacturers, charging station operators, eco-friendly vehicle purchasing companies, companies shifting to eco-friendly vehicle fleets, and eco-friendly vehicle recycling companies. The government also provides tax benefits (excise tax, acquisition tax, education tax) and subsidies for buyers of electric cars, fuel cell electric vehicles, and hybrid vehicles under the Act on Promotion of Development and Distribution of Environmentally Friendly Automobiles.

The Ministry of Economy and Finance (MOEF) administers tax and other incentives to stimulate advanced technology transfer and investment in high-technology services. There are three types of special areas for foreign investment – Free Economic Zones, Free Investment Zones, and Tariff-Free Zones – where favorable tax incentives and other support for investors are available. The ROK aims to attract more foreign investment by promoting its nine Free Economic Zones: Incheon (near Incheon airport); Busan/Jinhae (in South Gyeongsang Province); Gwangyang Bay (in South Gyeongsang Province); Gyeonggi (in Gyeonggi Province); Daegu/Gyeongbuk (in North Gyeongsang Province); East Coast (in Donghae and Gangneung); Gwangju (in South Jeolla Province); Ulsan; and Chungbuk (in North Chungcheong Province). Additional information is available at http://www.fez.go.kr/global/en/index.do . There are also 26 Foreign Investment Zones designated by local governments to accommodate industrial sites for foreign investors. Special considerations for foreign investors vary among these zones. In addition, there are four foreign-exclusive industrial complexes in Gyeonggi Province designed to provide inexpensive land, with the national and local governments providing assistance for leasing or selling in the sites at discounted rates.

There are no ROK requirements that firms hire local workers. Foreigners planning to work during their stay in the ROK are required by law to apply for a visa. Sponsoring employers file work permits and visa applications. Hiring firms are required to confirm that prospective employees of foreign nationality have a valid work permit prior to making a job offer. Once approved, the Ministry of Justice will issue a Certificate of Confirmation of Visa Issuance (CCVI) to the foreign worker. The worker submits this certificate with the relevant visa application forms to the ROK embassy or consulate in the applicant’s country of residence. Work visas are usually valid for one year, and issuance generally takes two to four weeks. Changing a tourist visa to a work visa is not possible within the ROK; applicants for work visas must submit their applications to an ROK embassy or consulate. The ROK has not imposed performance requirements on new foreign investment since 1992; there are no performance requirements regarding local content, local jobs, R&D activity, or domestic shares in the company’s capital. Other conditions to invest in the ROK are elaborated in FIPA.

Recent ROK-specific security regulations on the use of cloud computing by public services (broadly defined) effectively exclude U.S. firms from offering cloud services in the ROK. In January 2016, the ROK government announced guidelines requiring Cloud Security Assurance Program (CSAP) Certification for cloud computing services for ROK government agencies or public institutions; the IT Security Certification Center requires disclosure of source code as part of CSAP Certification. Along with data localization provisions, this effectively blocks U.S. or other international cloud service providers from participating in the Korean public cloud market.

Furthermore, restrictive ROK data privacy law governs any companies that collect, use, transfer, outsource, or process personal information. The Personal Information Protection Act (PIPA) imposes strict conditions on transferring personal information out of the country, requiring data controllers to obtain each end-user’s consent to transfer personal information out of the ROK. In the case of overseas transfer of personal information for the purpose of Information and Communications Technology (ICT) outsourcing, the data controller may forgo obtaining each individual’s consent if the data controller discloses in its privacy policy certain information about the overseas transfer, including the purpose and destination of the overseas transfer; similar requirements apply to transfer of personal information of end-users to a third party within the ROK. The Financial Services Commission took steps to overturn regulations that prohibit financial companies in the ROK from transferring customers’ personal information and related financial transaction data overseas without consumer written consent, but have not specified under what circumstances data can be sent and to which overseas entities. As such, this financial transaction data still cannot be outsourced to overseas ICT vendors, and financial companies in the ROK must store customer financial transaction data locally in the ROK. The Financial Services Commission sets Korea’s financial policies and directs the Financial Supervisory Service in the enforcement of those policies. The ROK government and legislature are considering further restrictions on the use of personal information.

Property rights and interests are enforced under the Civil Act. The Alien Land Acquisition Act (amended in 1998) extends to non-resident foreigners and foreign corporations the same rights as Koreans in land purchase and use. The Real Estate Investment Trust (REIT) Act supports indirect investments in real estate and restructuring of corporations. The REIT Act allows investors to invest funds through an asset management company and in real property such as office buildings, business parks, shopping malls, hotels, and serviced apartments. Property rights are enforced, and there is a reliable system for registering mortgages and liens, managed by the courts. Legally purchased property cannot revert to other owners. Squatters may have limited rights to cultivation of unoccupied land.

Four ROK ministries share responsibility for protection and enforcement of intellectual property rights (IPR): The Ministry of Culture, Sports and Tourism (MCST); the Korea Copyright Protection Agency (KCOPA); the Korean Intellectual Property Office (KIPO); and the Korea Customs Service (KCS). Since being removed from USTR’s Special 301 Watch List in 2009, the ROK has become a regional leader of legal IPR frameworks and enforcement of IPR.

The Ministry of Culture, Sports and Tourism announced in January 2021 a plan to fully revise the Copyright Act to reflect a move toward online platforms. The Copyright Act revision has subsequently stalled in the National Assembly, and industry sources assess it has little chance of moving forward in its present form. The amendments aim to implement a system of extended collective licensing, remuneration management, adoption of rights of publicity, updated concepts of digital transmission, and data mining for promotion of machine learning and big data analysis.

Industry sources have expressed overall satisfaction with the ROK legal framework, calling the ROK a model for IPR protection in Asia. In July 2019, an amendment to the Unfair Competition Prevention and Trade Secret Protection Act entered into force with the following broad effects: Reduced requirements for secrecy by information owners, broadened scope of what constitutes “theft,” and increased statutory punishments for trade secret theft. KIPO suspended 16,846 online transactions in 2021, up from 10,446 cases in 2020, and closed 451 illegal online shopping malls in 2021, up from 394 in 2020. Since April 2019, KIPO has operated an “online monitoring team” comprised of private citizens to report online sales of counterfeit goods. The team identified 171,606 cases in 2021, up from 126,542 in 2020. KCS handled 87 border enforcement cases in 2021 for goods worth an estimated USD 188 million. Trademark enforcement accounted for over 86 percent of cases, mostly for counterfeit watches, handbags, and apparel. KCS also promoted IPR protection by posting public service announcements on public transportation and social media.

Some industry sources have expressed concern the ROK’s low prosecution-to-indictment ratio in IPR violation cases, light sentencing standards, and low punitive damage assessments may not sufficiently deter infringement activity. Stakeholders continue to express concern about Korea’s pharmaceutical reimbursement policy, specifically that it is not conducted in a fair and transparent manner that fully recognizes the value of innovation.

The ROK was not listed in the 2021 Special 301 Report, nor were any ROK-based physical or online markets included in the 2020 Notorious Markets List. For additional information about national laws and points of contact at local intellectual property offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/ .

The ROK has an effective regulatory system that encourages portfolio investment. The Korea Exchange (KRX) is comprised of a stock exchange, futures market, and stock market following the 2005 merger of the Korea Stock Exchange, Korea Futures Exchange, and Korean Securities Dealers Automated Quotations (KOSDAQ) stock markets. It is tracked by the Korea Composite Stock Price Index (KOSPI). There is sufficient liquidity in the market to enter and exit sizeable positions. At the end of February 2022, over 2,496 companies were listed with a combined market capitalization of USD 21 trillion. The ROK government uses various incentives, such as tax breaks, to facilitate the free flow of financial resources into the product and factor markets. The ROK does not restrict payments and transfers for current international transactions, in accordance with the general obligations of member states under International Monetary Fund (IMF) Article VIII. Credit is allocated on market terms. The private sector has access to a variety of credit instruments. While non-resident foreigners can issue bonds in South Korean won, they are otherwise unable to borrow money in local currency. Foreign portfolio investors enjoy open access to the ROK stock market. Aggregate foreign investment ceilings were abolished in 1998, and foreign investors owned 36.7 percent of benchmark KOSPI stocks and 9.9 percent of the KOSDAQ as of February 2022. Foreign portfolio investment decreased slightly over the past year. Foreign investors owned 32.4 percent of benchmark stocks and 9.4 percent of listed bonds, according to the Korea Exchange. U.S. investors represent 40.4 percent of total foreign holdings, which has been increasing gradually over the last three years. The ROK Financial Services Commission in March 2020 banned the short-selling of stocks to stabilize stock price volatility during the COVID-19 pandemic. The ban partially expired only for short-selling stocks from companies included in the KOSPI 200 and KOSDAQ 150 in May 2021. The ban on short-selling stock from other companies is set to expire in May 2022.

Financial sector reforms enacted to increase transparency and promote investor confidence are often cited as a reason for the ROK’s rapid rebound from the 2008 global financial crisis. Since 1998, the ROK government has recapitalized its banks and non-bank financial institutions, closed or merged weak financial institutions, resolved many non-performing assets, introduced internationally accepted risk assessment methods and accounting standards for banks, forced depositors and investors to assume appropriate levels of risk, and taken steps to help end the policy-directed lending of the past. These reforms addressed the weak supervision and poor lending practices in the Korean banking system that helped cause and exacerbate the 1997-1998 Asian financial crisis. The ROK banking sector is healthy overall, with a low non-performing loan ratio of 0.5 percent at the end of 2021, dropping 0.14 percentage points from the prior year. Korean commercial banks held more than USD 2.7 trillion in total assets at the end of 2021. Foreign commercial banks or branches can establish local operations, which would be subject to oversight by ROK financial regulators. The ROK has not lost any correspondent banking relationships in the past three years, nor are any relationships in jeopardy. There are no legal restrictions on a foreigner’s ability to establish a bank account in the ROK; however, commercial banks may refuse to accept foreign nationals as customers unless they show local residency or identification documents. The Bank of Korea (BOK) is the central bank.

The Korea Investment Corporation (KIC) is a wholly government-owned sovereign wealth fund established in July 2005 under the KIC Act. KIC’s steering committee is comprised of its Chief Executive Officer, the Minister of Economy and Finance, the Bank of Korea Governor, and six private sector members appointed by the ROK President. KIC is on the Public Institutions Management Act (PIMA) list. The KIC Act mandates that KIC manage assets entrusted by the ROK government and central bank; the KIC generally adopts a passive role as a portfolio investor. The corporation’s assets under management stood at USD 201 billion at the end of August 2021. KIC is required by law to publish an annual report, submit its books to the steering committee for review, and follow all domestic accounting standards and rules. It follows the Santiago Principles and participates in the IMF-hosted International Working Group on Sovereign Wealth Funds. The KIC does not invest in domestic assets, aside from a one-time USD 23 million investment into a domestic real estate fund in January 2015.

Many ROK state-owned enterprises (SOEs) continue to exert significant control over the economy. There are 36 SOEs active in the energy, real estate, and infrastructure (i.e., railroad and highway construction) sectors. The legal system has traditionally ensured a role for SOEs as sectoral leaders, but in recent years, the ROK has sought to attract more private participation in the real estate and construction sectors. SOEs are currently subject to the same regulations and tax policies as private sector competitors and do not have preferential access to government contracts, resources, or financing. The ROK is party to the WTO Government Procurement Agreement; a list of SOEs subject to WTO government procurement provisions is available in Annex 3 of Appendix I to the Government Procurement Agreement (GPA). The state-owned Korea Land and Housing Corporation enjoys privileged status on state-owned real estate projects, notably housing. The court system functions independently and gives equal treatment to SOEs and private enterprises. The ROK government does not provide official market share data for SOEs. It requires each entity to disclose financial information, number of employees, and average compensation figures. The PIMA gives the Ministry of Economy and Finance oversight authority over many SOEs, mainly pertaining to administration and human resource management. However, there is no singular government entity that exercises ownership rights over SOEs. SOEs subject to PIMA must report to a cabinet minister. Alternatively, the ROK President or relevant cabinet minister appoints a CEO or director, often from among senior government officials. PIMA explicitly obligates SOEs to consult with government officials on budget, compensation, and key management decisions (e.g., pricing policy for energy and public utilities). For other issues, government officials informally require either prior consultation or subsequent notification of SOE decisions. Market analysts generally acknowledge the de facto independence of SOEs listed on local security markets, such as the Industrial Bank of Korea and Korea Electric Power Corporation; otherwise, SOEs are regarded either as fully-guaranteed by the government or as parts of the government. The ROK adheres to the OECD Guidelines for Multinational Enterprises and reports significant changes in the regulatory framework for SOEs to the OECD. A list of South Korean SOEs is available in Korean at: http://www.alio.go.kr/home.html . The ROK government does not confer advantages on SOEs competing in the domestic market. Although the state-owned Korea Development Bank may enjoy lower financing costs because of a governmental guarantee, this does not appear to have a major effect on U.S. retail banks operating in Korea.

Privatization of government-owned assets has historically faced protests by labor unions and professional associations, and has sometimes suffered a lack of interested buyers. No state-owned enterprises were privatized between 2002 and November 2016. In December 2016, the ROK sold part of its stake in Woori Bank, recouping USD 2.1 billion. As of March 2021, the government holds a 17.25 percent stake in Woori Bank. Most analysts do not expect significant movement toward privatization in the near future. Foreign investors may participate in privatization programs if they comply with ownership restrictions stipulated for the 30 industrial sectors indicated in the FETA (see Section 1: Openness To, and Restrictions Upon, Foreign Investment). These programs have a public bidding process that is clear, non-discriminatory, and transparent.

Awareness of the economic and social value of responsible business conduct and corporate social responsibility (CSR) continues to grow in the ROK. The Korea Corporate Governance Service, founded in 2002 by entities including the Korea Exchange and the Korea Listed Companies Association, encourages companies to voluntarily improve their corporate governance practices. Since 2011, its annual assessments have included guidelines and CSR reviews, including of corporate environmental responsibility. The United Nations Global Compact (UNGC) Network Korea, established in 2007, actively promotes corporate involvement in the UN Public Private Partnership for Sustainable Development Goals 2016-2030. UNGC is focused on human rights, anti-corruption, labor standards, and the environment, with 275 ROK companies listed as UNGC members as of March 2022. Government subsidies and tax reductions for social enterprises have contributed to an increase in the number of organizations tackling social issues related to unemployment, the environment, and low-income populations. The ROK government promotes the OECD Guidelines for Multinational Enterprises online via seminars and by publishing and distributing promotional materials. To enhance implementation, the ROK government established a National Action Plan overseen by the Ministry of Justice’s International Human Rights Division, designated a National Contact Point (NCP), and assigned the Korean Commercial Arbitration Board (KCAB) as the NCP Secretariat. The KCAB handled 405 cases in 2020 with a total claim amount over USD 468 million.

The Ministry of Employment and Labor (MOEL), the Korea Consumer Agency, and the Ministry of Environment impartially enforce ROK laws in the labor, consumer protection, and the environment. The National Human Rights Commission makes non-binding recommendations regarding human rights but only reviews discrimination and harassment cases involving private firms. Shareholder rights are protected by the Act on External Audit of Stock Companies under the jurisdiction of the Financial Services Commission, the Act on Monopoly Regulation and Fair Trade under the jurisdiction of the KFTC, and the Commercial Act under the jurisdiction of the Ministry of Justice. The Commercial Act was revised in December 2020 to better protect minority shareholders. Other organizations involved in responsible business conduct include the ROK office of the Trade Union Advisory Committee to the OECD, the Korea Human Rights Foundation, and the Korean House for International Solidarity. The Korea Sustainability Investing Forum (KOSIF) was established in 2007 to promote and expand socially responsible investment and CSR. Through regular fora, seminars, and publications, KOSIF provides educational opportunities, conducts research to establish a culture of socially responsible investment in the ROK, and supports relevant legislative processes.

The ROK has no regulations to prevent conflict minerals from entering supply chains; however, MOTIE supports companies’ voluntary adherence to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. ROK companies are obligated to follow regulations on conflict minerals by export destination countries. The Korea International Trade Association and private sector firms provide consulting services to companies seeking to comply with conflict-free regulations. The ROK is not a member of the Extractive Industries Transparency Initiative. It has participated in the Kimberly Process since 2012. The ROK government is taking measures to guarantee transparency through the Mining Act, Overseas Resources Development Business Act, and other relevant laws on taxation, environment, labor, and bribery, as well as through the OECD Guidelines for Multinational Enterprises. The ROK is not a signatory to international agreements on private military or security industries, and the ROK’s small security sector focuses primarily on commercial contracts.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

The ROK aims to achieve net-zero greenhouse gas emissions by 2050, and in November 2021, the Moon administration strengthened Korea’s 2030 Nationally Determined Contribution (NDC), aiming to reduce emissions by 40 percent from 2018 levels. In September 2021, the ROK enacted the Framework Act on Carbon Neutral and Green Growth to Respond to the Climate Crisis becoming the 14th country in the world to legislate a carbon target. The Act includes a comprehensive set of provisions such as establishing a National Carbon Neutral Green Growth Master Plan, policies for greenhouse gas reduction and climate change adaptation across numerous sectors, and policies to promote green growth to foster green industries and a green economy. The government also introduced its “2050 Carbon Neutral Strategy” in December 2020, providing a variety of carbon-neutral social and technological development and policy measures to achieve net-zero emissions

Authorities have indicated the forthcoming National Carbon Neutral Green Growth Master Plan will present reduction goals and measures by sector. Meanwhile, the 2030 target represents an intermediate step towards carbon neutrality and is driving efforts to change cultural practices, including through incentives for individuals for carbon-neutral practices such as renting zero emission cars.

The government indicated that it plans to establish and operate an integrated information management system for biodiversity and ecosystems, which will aid in investigating the impact of climate change. Additionally, the government introduced an ecosystem service payment system which incentivizes the voluntary protection of ecosystems by raising awareness and compensating local residents for conservation practices. The government designated new ecological protected areas as well as other effective area-based conservation measures (OECMs).

Public procurement policies take into account green growth goals. For example, it is compulsory for public institutions to purchase products deemed green barring certain exceptions. Additionally, as of 2020, all new public buildings with a gross floor area (GFA) of 1,000 square-meters or larger are to be designed as net-zero buildings.

In an effort to combat corruption, the ROK has introduced systematic measures to prevent the illegal accumulation of wealth by civil servants. The 1983 Public Service Ethics Act requires high-ranking officials to disclose personal assets, financial transactions, and gifts received during their terms of office. The Act on Anti-Corruption and the Establishment and Operation of the Anti-Corruption and Civil Rights Commission of 2008 (previously called the “Anti-Corruption Act”) concerns reporting of corruption allegations, protection of whistleblowers, and training and public awareness to prevent corruption; the act also establishes national anti-corruption initiatives through the Anti-Corruption and Civil Rights Commission (ACRC). Implementation is behind schedule, according to Transparency International, which ranked the ROK 32 out of 180 countries and territories in its 2021 Corruption Perception Index with a score of 62 out of 100 (with 100 being the best score). The Department of State’s 2020 ROK Human Rights Report highlighted allegations of corruption levied against former Minister of Justice Cho Kuk and his relatives in October 2020. Former ROK presidents Park Geun-hye and Lee Myung-bak were found guilty in separate corruption trials in 2018; the ROK Supreme Court upheld both verdicts in January 2021 and October 2020, respectively. Park received a pardon on December 31, 2021. Political corruption at the highest levels of elected office has occurred despite more recent efforts by the ROK legislature to pass and enact anti-corruption laws such as the Act on Prohibition of Illegal Requests and Bribes, also known as the Kim Young-ran Act, in March 2015. This law came into effect on September 28, 2016, and institutes strict limits on the value of gifts that can be given to public officials, lawmakers, reporters, and private school teachers. It also extends to spouses of such persons. The Act on the Protection of Public Interest Whistleblowers is designed to protect whistleblowers in the private sector and equally extends to reports on foreign bribery; the law also establishes an ACRC-operated reporting center.

A 2014 ferry disaster that resulted in the deaths of 304 passengers brought to public attention collusion between government regulators and regulated industries. Investigators determined that companies associated with the vessel had used insider knowledge and government contacts to skirt legal requirements by hiring recently-retired government officials. In response, the ROK government tightened regulations for hiring former government officials. This reform expanded the number of sectors restricted from employing former government officials, extended the employment ban from two to three years, and increased scrutiny of retired officials employed in fields associated with their former duties.

Most companies maintain an internal audit function to detect and prevent corruption. The Board of Audit and Inspection, which monitors government expenditures, and the Public Service Ethics Committee, which monitors civil servants’ financial activities and disclosures are official agencies responsible for combating government corruption. The ACRC focuses on preventing corruption by assessing the transparency of public institutions, protecting and rewarding whistleblowers, training public officials, raising public awareness, and improving policies and systems. The Act on the Prevention of Corruption and the Establishment and Management of the Anti-Corruption and Civil Rights Commission, along with and the Protection of Public Interest Reporters Act, protects nongovernment organizations and civil society groups reporting cases of corruption to government authorities. In April 2018, laws were updated to allow individuals filing allegations of corruption to report cases through attorneys without disclosing their identities to the courts. In July 2021, the ACRC announced that the revised Anti-Corruption Rights Act, which allows not only whistleblowers but also respondents to confirm facts, will take effect to solve the issues of infringement of rights and interests. Violations of these legal protections can result in fines or prison sentences. U.S. firms have not identified corruption as an obstacle to FDI. The ROK ratified the UN Convention against Corruption in 2008. It is also a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and a member of the Asia-Pacific Economic Cooperation Anti-Corruption and Transparency Working Group. The ROK Financial Intelligence Unit cooperates with U.S. and UN efforts to disrupt sources of terrorist financing. Transparency International has maintained a national chapter in the ROK since 1999.

Anti-Corruption and Civil Rights Commission
Government Complex-Sejong (7-dong), 20, Doum 5-ro, Sejong-si 339-012
Tel: +82-44-200-7151 (International Relations Division)
Fax: +82-44-200-7916
Email: acrc@korea.kr

Contact at a “watchdog” organization:

Transparency International Korea
#1006 Pierson Building, 42, Saemunan-ro, Jongno-gu, Seoul 110-761
Tel: +82-2-717-6211
Fax: +82-2-717-6210
Email: ti@ti.or.kr
http://www.transparency-korea.org/

Enshrined by the 1953 Mutual Defense Treaty, the U.S.-ROK alliance has supported the security and stability of the Korean Peninsula and broader region for nearly seven decades. At their May 2021 summit, President Biden and President Moon upgraded our countries’ relationship to a comprehensive partnership – an acknowledgment of the alliance’s evolution from its security-based origins to a future-oriented, multi-pillared relationship. The ROK’s elevation to one of the world’s top ten economies in 2021 and aspirations to build its “Global Korea” brand herald a new era in U.S.-ROK relations, especially as we seek overlap and coordination on our international economic policies.

The ROK and the Democratic People’s Republic of Korea (DPRK) remain separated by the world’s most heavily fortified border. After a flurry of diplomatic engagement in 2018-2019, including three inter-Korean summits and two U.S.-DPRK summits, engagement between the ROK and the DPRK has stagnated as North Korea shut its borders in January 2020 in response to the pandemic and resumed its missile testing in 2021.

The ROK’s relations with Japan remained strained in 2021, primarily due to the ROK Supreme Court’s 2018 decisions directing Japanese companies to compensate South Koreans subjected to forced labor during World War II, including the court-directed seizure of defendant company assets, as well as Japan’s subsequent tightening of export controls against the ROK in 2019. This prompted consumer boycotts in the ROK against Japanese goods in July 2019, causing a significant drop in local sales for certain products, including beer and automobiles, as well as at certain Japanese retail chains.

The ROK does not have a history of political violence directed against foreign investors. There have not been reports of politically-motivated threats of damage to foreign-invested projects or foreign-affiliated installations of any sort, nor of any incidents that might be interpreted as having targeted foreign investments. Labor violence unrelated to the issue of foreign ownership, however, has occurred in foreign-owned facilities in the past. There have also been protests in the past directed at U.S. economic, political, and military interests (e.g., beef imports in 2008 or the deployment of the Terminal High Altitude Area Defense system in 2017 with protests continuing into 2022). The ROK is a modern democracy with active public political participation, and well-organized political demonstrations are common. For example, large-scale rallies were a regular occurrence throughout former President Park Geun-hye’s impeachment proceedings in 2016 and 2017. The protests were peaceful and orderly.

Upon taking office in May 2017, President Moon Jae-in declared himself the “Jobs President,” and his administration has introduced a number of employment-related reforms since then. In an attempt to reduce the ROK’s notoriously long working hours, the Moon administration introduced a mandatory 52-hour workweek regulation in July 2018. Domestic and foreign companies, however, expressed concern that the measure added further rigidity to the ROK’s already inflexible labor market. President-elect Yoon Suk-yeol has pledged to ease the 52-hour workweek cap for certain labor-intensive sectors. According to Statistics Korea ( http://kostat.go.kr/portal/eng/index.action ), there were approximately 28 million economically active people in the ROK as of February 2022, with an employment rate (OECD standard) of approximately 60 percent. The overall unemployment rate of 3.4 percent in February 2022 is much less than the 6.9 percent unemployment rate of youth aged 15-29. The ROK’s female labor force participation rate was 53 percent in 2020. According to the OECD, Korea’s gender wage gap in 2020 stood at 31.5 percent, sharply above the OECD average 12.5 percent. The country has two major national labor federations. As of December 2021, the Federation of Korean Trade Unions (FKTU) had about 1.3 million members, and the Korean Confederation of Trade Unions (KCTU) had just over one million members. FKTU and KCTU are affiliated with the International Trade Union Confederation. Most of FKTU’s constituent unions maintain affiliations with international union federations.

The minimum wage is reviewed annually. Labor and business set the minimum wage for 2022 at KRW 9,160 (approximately USD 7.7 per hour), a 5 percent increase from 2021. According to Statistics Korea, non-regular workers received 62.8 percent of the wages of regular workers in 2020. Non-regular workers on contracts stipulating monthly pay received KRW 1.73 million per month (about USD 1,445) while regular workers paid monthly received KRW 3.36 million (about USD 2,808).

For regular, full-time employees, the law provides for employment insurance, national medical insurance, industrial accident compensation insurance, and participation in the national pension system through employers or employer subsidies. Non-regular workers, such as temporary and contracted employees, are not guaranteed the same benefits. Regarding severance pay for regular workers, ROK law does not distinguish between firing versus laying off an employee for economic reasons. Employers’ reliance on non-regular workers is partially explained by cost savings associated with dismissing regular full-time employees and re-hiring non-regular workers. In 2004, the ROK implemented a “guest worker” program known as the Employment Permit System (EPS) to help protect the rights of foreign workers. The EPS allows employers to legally employ a certain number of foreign workers from 16 countries, including the Philippines, Indonesia, and Vietnam, with which the ROK maintains bilateral labor agreements. In 2021, the ROK’s annual quota stood at 52,000 migrant workers. At the end of 2021, approximately 16,073 foreigners were working under the EPS in the manufacturing, construction, agriculture, livestock, service, and fishing industries.

Legally, unions operate autonomously from the government and employers, although national labor federations comprised of various industry-specific unions receive annual government subsidies. The ratio of organized labor to the entire population of wage earners at the end of 2020 was 14.2 percent. ROK trade union participation is lower than the latest-available OECD average of 16 percent in 2019. More information is available at http://stats.oecd.org/ . Labor organizations are free to organize in export processing zones (EPZs), but foreign companies operating in EPZs are exempt from some labor regulations. Exemptions include provisions that mandate paid leave, require companies with more than 50 employees to recruit persons with disabilities for at least two percent of their workforce, and restrict large companies from participating in certain business categories. Foreign companies operating in Free Economic Zones have greater flexibility to employ “non-regular” workers in a wider range of sectors for extended contractual periods. ROK law affords workers the right of free association and allows public servants and private workers to organize unions. The Trade Union and Labor Relations Adjustment Act provides for the right to collective bargaining and action, and allows workers to exercise these rights in practice. In 2021 during a period of COVID-19 social distancing restrictions which included caps on the size of public gatherings, some labor leaders were arrested when demonstrations exceeded those limits.

The National Labor Relations Commission is the primary government body responsible for labor dispute resolution. It offers arbitration and mediation services in response to dispute resolution requests submitted by employees, employers, or both parties together. Labor inspectors from the Ministry of Employment and Labor also have certain legal authorities to participate in labor dispute settlement. The Korea Workers’ Compensation and Welfare Service handles labor disputes resulting from industrial accidents or disasters. In June 2018, the ROK President established the Economic, Social and Labor Council to serve as an advisory group on economic and labor issues. The Act on the Protection of Fixed-Term and Part-Time Workers prohibits discrimination against non-regular workers and requires firms to convert non-regular workers employed longer than two years to permanent status. The two-year rule went into effect for all businesses on July 1, 2009. Both the labor and business sectors have complained that the two-year conversion law forced many businesses to limit the contract terms of non-regular workers to two years and incur additional costs with the entry of new contract employees every two years. More information can be found in the Department of State’s Report on Human Rights Practices for 2020: https://www.state.gov/reports/2020-country-reports-on-human-rights-practices/south-korea/.

Economic Officer, U.S. Embassy Seoul
188 Sejong-daero, Sejongno, Jongno-gu, Seoul, South Korea 110-710
Tel: +82 2-397-4114
SeoulECONContacts@state.gov 

Thailand continues to generally welcome investment from all countries and seeks to avoid dependence on any one country as a source of investment. However, the Foreign Business Act (FBA) prescribes a wide range of business that may not be conducted by foreigners without additional licenses or exemptions. The term “foreigner” includes Thai-registered companies in which half or more of the capital is held by non-Thai individuals and foreign-registered companies. Although the FBA prohibits majority foreign ownership in many sectors, U.S. investors registered under the United States-Thailand Treaty of Amity and Economic Relations (AER) are exempt. Nevertheless, the AER’s privileges do not extend to U.S. investments in the following areas: communications; transportation; fiduciary functions; banking involving depository functions; the exploitation of land or other natural resources; domestic trade in indigenous agricultural products; and the practice of professions reserved for Thai nationals.

The Board of Investment (BOI) assists Thai and foreign investors to establish and conduct businesses in targeted economic sectors by offering both tax and non-tax incentives. In recent years, Thailand has taken steps to reform its business regulations and has improved processes and reduced time required to start a business from 29 days to 6 days. Thailand has steadily improved its ranking in the World Bank’s Doing Business Report in the last several years and was 21 out of 190 countries in the 2020 ranking, trailing only Singapore (2) and Malaysia (12) in the ASEAN bloc. Thai officials routinely make themselves available to investors through discussions with foreign chambers of commerce.

U.S. entities planning to invest in Thailand are advised to obtain qualified legal advice. Thai business regulations are governed predominantly by criminal, not civil, law. Foreigners are rarely jailed for improper business activities, yet violations of business regulations can carry heavy criminal penalties. Thailand has an independent judiciary and government authorities are generally not permitted to interfere in the court system once a case is in process.

Various Thai laws set forth foreign-ownership restrictions in certain sectors. These restrictions primarily concern services such as banking, insurance, and telecommunications. The FBA details the types of business activities reserved for Thai nationals. Foreign investment in those businesses must comprise less than 50 percent of share capital, unless specially permitted or otherwise exempt.

The following three lists detail FBA-restricted businesses for foreigners.

List 1. This contains activities non-nationals are prohibited from engaging in, including newspaper and radio broadcasting stations and businesses; agricultural businesses; forestry and timber processing from a natural forest; fishery in Thai territorial waters and specific economic zones; extraction of Thai medicinal herbs; trading and auctioning of antique objects or objects of historical value from Thailand; making or casting of Buddha images and monk alms bowls; and land trading.

List 2. This contains activities related to national safety or security, arts and culture, traditional industries, folk handicrafts, natural resources, and the environment. Restrictions apply to the production, distribution and maintenance of firearms and armaments; domestic transportation by land, water, and air; trading of Thai antiques or art objects; mining, including rock blasting and rock crushing; and timber processing for production of furniture and utensils. A foreign majority-owned company can engage in List 2 activities if Thai nationals or legal persons hold not less than 40 percent of the total shares and the number of Thai directors is not less than two-fifths of the total number of directors. Foreign companies also require prior approval and a license from the Council of Ministers (Cabinet).

List 3. Restricted businesses in this list include accounting, legal, architectural, and engineering services; retail and wholesale; advertising businesses; hotels; guided touring; selling food and beverages; and other service-sector businesses. A foreign company can engage in List 3 activities if a majority of the limited company’s shares are held by Thai nationals. Any company with a majority of foreign shareholders (more than 50 percent) cannot engage in List 3 activities unless it receives an exception from the Ministry of Commerce (MOC) under its Foreign Business License (FBL) application.

Aside from these general categories, Thailand does not maintain a national security screening mechanism for investment, and investors can receive additional incentives/privileges if they invest in priority areas, such as high-technology industries. Investors should contact the Board of Investment [ https://www.boi.go.th/index.php?page=index ] for the latest information on specific investment incentives.

The U.S.-Thai Treaty of Amity and Economic Relations allows approved businesses to engage in some FBA restricted sectors; however, the Treaty does not exempt U.S. investments from restrictions applicable to: owning land; fiduciary functions; banking involving depository functions; inland communications & transportation; exploitation of land and other natural resources; and domestic trade in agricultural products.

To operate restricted businesses as defined by the FBA’s List 2 and 3, non-Thai entities must obtain a foreign business license. These licenses are approved by the Council of Ministers (Cabinet) and/or Director-General of the MOC’s Department of Business Development, depending on the business category.

Every year, the MOC reviews business categories restricted by the FBA. In 2022, the MOC announced it plans to remove four additional businesses – banking, bank branches, life insurance and non-life insurance – from List 3 by the end of the year.

American investors who wish to take majority shares or wholly own businesses under the FBA may apply for benefits under the U.S.-Thai Treaty of Amity. https://2016.export.gov/thailand/treaty/index.asp#P5_233 

The U.S. Commercial Service, U.S. Embassy Bangkok is responsible for issuing a certification letter to confirm that a U.S. company is qualified to apply for benefits under the Treaty of Amity. The applicant must first obtain documents verifying that the company has been registered in compliance with Thai law. Upon receipt of the required documents, the U.S. Commercial Service office will then certify to the Foreign Administration Division, Department of Business Development, Ministry of Commerce (MOC) that the applicant is seeking to register an American-owned and managed company or that the applicant is an American citizen and is therefore entitled to national treatment under the provisions of the Treaty. For more information on how to apply for benefits under the Treaty of Amity, please e-mail ktantisa@trade.gov .

The World Trade Organization conducted a Trade Policy Review of Thailand in November 2020 ( https://www.wto.org/english/tratop_e/tpr_e/tp500_e.htm ). The Organization for Economic Cooperation and Development (OECD) concluded its Investment Policy Review for Thailand in January 2021 ( https://www.oecd-ilibrary.org/sites/c4eeee1c-en/index.html?itemId=/content/publication/c4eeee1c-en ).

The MOC’s Department of Business Development (DBD) is generally responsible for business registration. Registration can be performed online or manually. Registration documentation must be submitted in the Thai language. Many foreign entities hire a local law firm or consulting firm to handle their applications. Firms engaging in production activities also must register with the Ministry of Industry and the Ministry of Labor (MOL).

A company is required to have registered capital of two million Thai baht per foreign employee in order to obtain work permits. Additionally, foreign companies may have no more than 20 percent foreign employees on staff. Companies that have obtained special BOI investment incentives may be exempted from this requirement. Foreign employees must enter Thailand on a non-immigrant visa and then submit work permit applications directly to the MOL’s Department of Employment. Work permit application processing takes approximately one week. For more information on Thailand visas, please refer to https://www.thaiembassy.com/thailand/work-permit-requirements

In February 2018, the Thai government launched a Smart Visa program for investors in targeted industries and foreigners with expertise in specialized technologies. Under this program, foreigners can be granted a maximum four-year visa to work in Thailand without having to obtain a work permit or re-entry permit. Other relaxed immigration rules include having visa holders report to the Bureau of Immigration just once per year (instead of every 90 days) and providing the visa holder’s spouse and children many of the same privileges as the primary visa holder. More information is available online at https://smart-visa.boi.go.th/home_detail/general_information.php .

Outward investment from Thailand has increased rapidly in recent years and Thailand has become one of the largest outward investors in ASEAN. During 2020 and 2021, Thai companies continued to expand and invest overseas despite the pandemic. These investments primarily target neighboring ASEAN countries, China, the United States, and Europe. A relatively stable domestic currency, rising cash holdings, and subdued domestic growth prospects are driving outward investment. Faced with the effects of the pandemic, the government may prioritize domestic investment to stimulate the economy.

Previously, food, agro-industry, energy, and chemical sectors accounted for the main share of outward flows. Purchasing shares, developing partnerships, and making acquisitions help Thai investors acquire technologies for parent companies and expand supply chains in international markets. Thai corporate laws allow outbound investments to be made by an independent affiliate (foreign company), a branch of a Thai legal entity, or by any Thai company in the case of financial investments abroad. BOI and the MOC’s Department of International Trade Promotion (DITP) share responsibility for promoting outward investment. BOI focuses on outward investment in ASEAN (especially Cambodia, Laos, Myanmar, and Vietnam) and emerging economies. DITP covers smaller markets.

Generally, Thai regulations are readily available for public review. Foreign investors have, on occasion, expressed frustration that some draft sub-regulations are not made public until they are finalized. Comments stakeholders submit on draft regulations are not always taken into consideration. Non-governmental organizations report; however, the Thai government actively consults them on policy, especially in the health sector and on intellectual property issues. In other areas, such as digital and cybersecurity laws, the Thai government has taken stakeholders’ comments into account and amended draft laws accordingly.

U.S. businesses have repeatedly expressed concerns about Thailand’s customs regime. Complaints center on lack of transparency, the significant discretionary authority exercised by Customs Department officials, and a system of giving rewards to officials and non-officials for seized goods based on a percentage of the value of the goods. Specifically, the U.S. government and private sector have expressed concern about inconsistent application of Thailand’s transaction valuation methodology and the Customs Department’s repeated use of arbitrary values. Thailand’s latest Customs Act, which entered into force on November 13, 2017, was a moderate step forward. The Act removed the Customs Department Director General’s discretion to increase the Customs value of imports. It also reduced the percentage of remuneration awarded to officials and non-officials from 55 percent to 40 percent of the sale price of seized goods (or of the fine amount) with an overall limit of five million baht ($160,000). The 2017 changes, however, have not fully satisfied those concerned that Customs officials problematic incentives to manufacture violations under the system.

The Thai Constitution requires the government to assess the environmental impact of a wide range of undertakings, including by holding a public hearing of relevant stakeholders. The Ministry of Natural Resources and Environment (MONRE) is responsible for determining which projects, activities, or actions are required to have an environmental impact assessment report and for prescribing the regulations, methods, procedures, and guidelines in preparing an environmental impact assessment report. Additional information can be found here: http://www.onep.go.th/eia/.

Inconsistent and unpredictable enforcement of government regulations remains problematic. In 2017, the Thai government launched a “regulatory guillotine” initiative to cut down on red tape, licenses, and permits. The initiative focused on reducing and amending outdated regulations in order to improve Thailand’s ranking on the World Bank “Ease of Doing Business” report. The regulatory guillotine project is still underway and making slow progress.

Gratuity payments to civil servants responsible for regulatory oversight and enforcement remain a common practice despite stringent gift bans at some government agencies. Firms that refuse to make such payments can be placed at a competitive disadvantage to other firms that do engage in such practices.

The Royal Thai Government Gazette ( www.ratchakitcha.soc.go.th ) is Thailand’s public journal of the country’s centralized online location of laws, as well as regulation notifications.

Thailand is a member of the World Trade Organization (WTO) and notifies most draft technical regulations to the Technical Barriers to Trade (TBT) Committee and the Sanitary and Phytosanitary Measures Committee. However, Thailand does not always follow WTO and other international standard-setting norms or guidance (e.g., Codex Alimentarius maximum residue limits for pesticides on food) but prefers to set its own standards in some cases.

Thailand’s legal system is primarily based on the civil law system with strong common law influence. Thailand has an independent judiciary that is generally effective in enforcing property and contractual rights. Most commercial and contractual disputes are generally governed by the Civil and Commercial Codes. The legal process is slow in practice and monetary compensation is based on actual damage that resulted directly from the wrongful act. Decisions of foreign courts are not accepted or enforceable in Thai courts. Most legal cases in Thailand will be under the jurisdiction of the Courts of Justice; however, there are also specialized courts that handle specific or technical problems: the Labor Court, the Intellectual Property and International Trade Court, the Bankruptcy Court, the Tax Court, and the Juvenile and Family Courts. Thailand also established the Criminal Court for Corruption and Misconduct Case to specifically handle corruption cases.

The Foreign Business Act or FBA (described in detail above) governs most investment activity by non-Thai nationals. Other key laws governing foreign investment are the Alien Employment Act (1978) and the Investment Promotion Act (1977). However, as explained above, many U.S. businesses enjoy investment benefits through the U.S.-Thailand Treaty of Amity and Economic Relations (often referred to as the ‘Treaty of Amity’), which was established to promote friendly relations between the two nations. Pursuant to the Treaty, American nationals are entitled to certain exceptions to the FBA restrictions.

Pertaining to the services sector, the 2008 Financial Institutions Business Act unified the legal framework and strengthened the Bank of Thailand’s (the country’s central bank) supervisory and enforcement powers. The Act allows the Bank of Thailand (BOT) to raise foreign ownership limits for existing local banks from 25 percent to 49 percent on a case-by-case basis. The Minister of Finance can authorize foreign ownership exceeding 49 percent if recommended by the central bank. Details are available at  https://www.bot.or.th/English/AboutBOT/LawsAndRegulations/SiteAssets/Law_E24_Institution_Sep2011.pdf .

In addition to acquiring shares of existing (traditional) local banks, foreign banks can enter the Thai banking system by obtaining new licenses. The Ministry of Finance issues such licenses, following consultations with the BOT. The BOT is currently preparing rules for establishing virtual banks or digital-only banks (no physical branches), a tool meant to enhance financial inclusion and keep pace with consumer needs in the digital age. Digital-only banks can operate at a lower cost and offer different services than traditional banks. The guidelines are expected to be released by mid-2022.

The 2008 Life Insurance Act and the 2008 Non-Life Insurance Act apply a 25 percent cap on foreign ownership of insurance companies. Foreign membership on boards of directors is also limited to 25 percent. However, in January 2016 the Office of the Insurance Commission (OIC), the primary insurance industry regulator, announced that Thai life and non-life insurance companies wishing to exceed these limits could apply to the OIC for approval. Any foreign national wishing to hold more than 10 percent of the voting shares in an insurance company must seek OIC approval. With approval, a foreign national can acquire up to 49 percent of the voting shares. Finally, the Finance Minister, with OIC’s positive recommendation, has discretion to permit greater than 49 percent foreign ownership and/or a majority of foreign directors, if the operation of the insurance company may cause loss to insured parties or to the public. While OIC has not issued a new insurance license in the past 20 years, OIC is now contemplating issuing new virtual licenses for firms to sell insurance digitally without an intermediary. Full details have not yet been announced.

The Board of Investment offers qualified investors several benefits and provides information to facilitate a smoother investment process in Thailand. Information on the BOI’s “One Start One Stop” investment center can be found at http://osos.boi.go.th .

Thailand’s Trade Competition Act covers all business activities, except state-owned enterprises exempted by law or cabinet resolution; specific activities related to national security, public benefit, common interest and public utility; cooperatives, agricultural and cooperative groups; government agencies; and other enterprises exempted by the law. The Act’s definition of a business operator includes affiliates and group companies, and subjects directors and management to criminal and administrative sanctions if their actions (or omissions) resulted in violations. The Act also provides details about penalties in cases involving administrative court or criminal court actions.

The Office of Trade Competition Commission (OTCC) is an independent agency and the main enforcer of the Trade Competition Act (2018). The Commission advises the government on issuance of relevant regulations; ensures fair and free trade practices; investigates cases and complaints of unfair trade; and pursues criminal and disciplinary actions against those found guilty of unfair trade practices stipulated in the law. The law focuses on the following areas: unlawful exercise of market dominance; mergers or collusion that could lead to monopoly; unfair competition and restricting competition; and unfair trade practices.

The Thai government, through the Ministry of Commerce’s Central Commission on Price of Goods and Services, has the legal authority to control prices or set de facto price ceilings for selected goods and services, including staple agricultural products and feed ingredients (such as, pork, cooking oil, wheat flour, feed wheat, distiller’s dried grains with solubles (DDGs), and feed quality barley), liquefied petroleum gas, medicines, and sound recordings. In 2022, there are 56 goods and services under the price-controlled products list, which can be found here . The controlled list is reviewed at least annually, but the price-control review mechanisms are non-transparent. In practice, Thailand’s government influences prices in the local market through its control of state monopoly suppliers of products and services, such as in the petroleum, oil, and gas industry sectors.

Thailand’s Constitution provides protection from expropriation without fair compensation and requires the government to pass a specific, tailored expropriation law if the expropriation is required for the purpose of public utilities, national defense, acquisition of national resources, or for other public interests. The Investment Promotion Act also guarantees the government shall not nationalize the operations and assets of BOI-promoted investors.

The Expropriation of Immovable Property Act (EIP), most recently amended in 2019, applies to all property owners, whether foreign or domestic nationals. The Act provides a framework and clear procedures for expropriation; sets forth detailed provision and measures for compensation of landowners, lessees and other persons that may be affected by an expropriation; and recognizes the right to appeal decisions to Thai courts. However, the EIP and Investment Promotion Act do not protect against indirect expropriation and do not distinguish between compensable and non-compensable forms of indirect expropriation.

Thailand has a well-established system for land rights that is generally upheld in practice, but the legislation governing land tenure still significantly restricts foreigners’ rights to acquire land.

Thailand’s bankruptcy law is modeled after the United States. The Thai Bankruptcy Act (1940) authorizes restructuring proceedings that require trained judges who specialize in bankruptcy matters to preside. Thailand’s bankruptcy law allows for corporate restructuring similar to U.S. Chapter 11 and does not criminalize bankruptcy. The law also distinguishes between secured and unsecured claims, with the former prioritized.

Within bankruptcy proceedings, it is also possible to undertake a “composition” in order to avoid a long and protracted process. A composition takes place when a debtor expresses in writing a desire to settle his/her debts, either partially or in any other manner, within seven days of submitting an explanation of matters related to the bankruptcy or during a time period prescribed by the receiver. Despite these laws, some U.S. businesses complain that Thailand’s bankruptcy courts in practice can slow processes to the detriment of outside firms seeking to acquire assets liquidated in bankruptcy processes.

The National Credit Bureau of Thailand (NCB) provides the financial services industry with information on consumers and businesses. The NCB is required to provide the financial services sector with payment history information from utility companies, retailers and merchants, and trade creditors.

The Board of Investment:

The Board of Investment (BOI) offers investment incentives to qualified domestic and foreign investors. To upgrade Thailand’s technological capacity, the BOI presently gives more weight to applications in high-tech, innovative, and sustainable industries. These include digital technology, “smart agriculture” and biotechnology, aviation and logistics, automation and robotics, medical and wellness tourism, and other high-value services.

The most significant privileges offered by the BOI for promoted projects include:

• corporate income tax exemptions; tariff reductions or exemptions on imports of machinery used in the investment; tariff-free treatment on imported raw materials used in production for export.
• permission to own land; permission to bring foreign experts; and visa and work permit facilitation.

The Thai government is developing a National Energy Plan which will supersede the current Alternative Energy Development Plan that sets a 20 percent target for renewable energy by 2037 and has established a special committee, under supervision of the Deputy Prime Minister and Minister of Energy, to support increased investment in clean energy, electric vehicles, and related industries. In support of these policies, electricity producers can access tax and non-tax incentives from Thailand’s BOI. The tax incentives include a corporate income tax holiday of six or eight years, depending on the type of power production used in electricity generation. Tax incentives also include custom duty exemptions for the import of new equipment.

Thailand also has a feed-in-tariff (FiT) program and additional tax and investment incentives to meet the 20 percent renewable energy electricity supply target by 2037. The FiT program, launched in 2015, replaced the previously offered “adder” scheme. With declining investment costs across various renewable energy technologies, especially solar and onshore wind installation, in 2015, the government moved to competitive bidding with FiT set as the ceiling price.

In February 2022, Thailand joined the U.S.-led Clean Energy Demand Initiative, in which the Thai government agreed to pursue policies that will increase access to alternative energy for the private sector. Electric vehicles are another key focus area for the Thai government. In 2022, the Thai government approved a suite of measures to increase foreign investment in EVs, including a range of tax incentives, subsidies, and other mechanisms.

Investment projects with a significant R&D, innovation, or human resource development component may be eligible for additional grants and incentives. Moreover, grants are provided to support targeted technology development under the Competitive Enhancement Act. BOI offers a one-stop service to expedite multiple business processes for investors.

For additional information, contact the Office of Board of Investment (662-553-8111 or website at www.boi.go.th.)

Office of the Eastern Economic Corridor:

Thailand’s flagship investment zone, the “Eastern Economic Corridor (EEC),” spans the provinces of Chachoengsao, Chonburi, and Rayong (5,129 square miles). The EEC leverages the developed infrastructure networks of the adjacent Eastern Seaboard industrial area, Thailand’s primary investment destination for more than 30 years. The Thai government’s goal is to develop the EEC as a primary investment and infrastructure hub in ASEAN and a gateway to east and south Asia. Among the EEC development projects are smart cities; an innovation district (EECi); a digital park (EECd); an aerotropolis (EEC-A); a medical hub (EECmd); and other state-of-the-art facilities. The EEC is targeting twelve key industries:

• Next-generation automotive
• Intelligent electronics
• Advanced agriculture and biotechnology
• Food processing
• Tourism
• Advance robotics and automation
• Integrated aviation industry
• Medical hub and total healthcare services
• Biofuels and biochemicals
• Digital technology
• Defense industry
• Human resource development

The EEC Act authorized investment incentives and privileges. Investors can obtain long-term land leases of 99 years (with an initial lease of up to 50 years and a renewal of up to 49 years). The EEC Act shortens the public-private partnership approval process to approximately nine months.

The BOI works in cooperation with the EEC Office. BOI offers corporate income tax exemptions of up to 13 years for strategic projects in the EEC area. Foreign executives and experts who work in targeted industries in the EEC are subject to a maximum personal income tax rate of 15-17 percent.

For additional information, contact the Eastern Economic Corridor Office (662-033-8000 and website at https://eng.eeco.or.th/en).

The Industrial Estate Authority of Thailand (IEAT), a state-enterprise under the Ministry of Industry, develops suitable locations to accommodate industrial properties. IEAT has an established network of industrial estates in Thailand, including Laem Chabang Industrial Estate in Chonburi Province and Map Ta Phut Industrial Estate in Rayong Province in Thailand’s eastern seaboard region, a common location for foreign-owned factories due to its proximity to seaport facilities and Bangkok. Foreign-owned firms generally have the same investment opportunities in the industrial zones as Thai entities. Although the IEAT is required to consider and approve the amount of space/land bought or leased by foreign-owned firms in industrial estates, there is no record of disapproval for requested land. Private developers are heavily involved in the development of these estates.

The IEAT currently operates 15 estates, plus 50 more in conjunction with the private sector, in 16 provinces nationwide. Private-sector developers independently operate over 50 industrial estates, most of which have received promotion privileges from the Board of Investment. Amata Industrial Estate and WHA Industrial Development are Thailand’s leading private industrial estate developers. Most major foreign manufacturing investors, including U.S. manufacturers, are located in these two companies’ industrial estates and in the eastern seaboard region.

Thailand Free Trade Zones have two main types – General Industrial Zone (either under private-sector or the IEAT) and Special Economic Zones. The IEAT has established 12 special IEAT “free trade zones” reserved for industries manufacturing exclusively for export. Businesses may import raw materials into, and export finished products from, these zones free of duty (including value added tax). These zones are located within industrial estates, and many have customs facilities to speed processing. In addition to these zones, factory owners can apply for permission to establish a bonded warehouse within their premises to which raw materials, used exclusively in the production of products for export, may be imported duty-free.

Thai Customs Act also allows the Customs Director General to grant permits for companies to establish “free zones” for industries and sectors deemed beneficial to the country. Goods imports and exports through free zones are exempt from customs duties, and import duties are also waived for machinery, equipment, tools, appliances, and components necessary for the operation of the business or assembly, installation, or operation of the equipment. To date, there are established free zones at Don Muang Airport, Suvarnabhumi Airport, U-Tapao Airport, Special Economic Development Zone, and in the Eastern Economic Corridor.

The Thai government also established Special Economic Zones (SEZs) in ten provinces bordering neighboring countries. Business sectors and industries that can benefit from tax and non-tax incentives offered in the SEZs include: logistics; warehouses near border areas; distribution; services; labor-intensive factories; and manufacturers using raw materials from neighboring countries. These SEZs support Thai government goals for closer economic ties with neighboring countries and allow investors to tap into abundant migrant labor; however, these SEZs have proven less attractive to overseas investors due to their remote locations far from Bangkok and other major cities.

Thai Customs implemented various measures to improve trade and customs processing: Pre-Arrival Processing (PAP); an “e-Bill Payment” electronic payment system; and an e-Customs system, National Single Window System (NSW) that reduces the use of paper and enhance single stop service in the custom process. The measures comply with the World Trade Organizations (WTO) Trade Facilitation Agreement (TFA), which requires WTO members to adopt procedures for pre-arrival processing for imports and to authorize electronic submission of customs documents, where appropriate. The NSW was also developed in conjunction with the ASEAN Single Window, which is a regional initiative that will connect and integrate NSW of ASEAN member States to expedite cargo clearance and enable electronic exchange of border-trade related documents. The measures have also improved Thailand’s ranking in the World Bank’s “Doing Business: Trading Across Borders 2020” index.

The Thai government does not have specific laws or policies regarding performance or data localization requirements. Foreign investors are not required to use domestic content in goods or technology, but the Thai government has encouraged such an approach through domestic preferences in government procurement proceedings. In March 2021, Thailand announced the “Made in Thailand” initiative, which will direct government agencies to procure at least 60 percent of their goods from local producers.

There are currently no requirements for foreign IT providers to localize their data, turn over source code, or provide access to surveillance. However, the Thai government in 2019 passed new laws and regulations on cybersecurity and personal data protection that have raised concerns about Thai authorities’ broad power to potentially demand confidential and sensitive information. IT operators and analysts have expressed concern with private companies’ legal protections, ability to appeal, or ability to limit such access. IT providers have expressed concern that the new laws might place unreasonable burdens on them and have introduced new uncertainties in the technology sector.

In 2021, the National Cybersecurity Agency (NCSA) published implementing  regulations for the CSA that define critical information infrastructure (CII) and establish a national coordination center to monitor and resolve cyber threats. The seven sectors classified as CII are national security, essential government services, banking and finance, information technology and telecommunication, transportation and logistics, public utilities (electricity, petroleum and natural gas, water utilities), and health. Legal experts have raised concerns that the implementing regulations lack clear CII criteria and will grant sector regulators broad authority to classify additional essential services to be CII, creating uncertainty for businesses in those sectors. In addition, there are concerns that the law gives NCSA broad powers to enter premises and to monitor, test, freeze, or seize computers without sufficient protections or opportunities to appeal, and that cybersecurity awareness and systems to prevent cyberattacks at public sector organizations remain weak and outdated. While the laws on Personal Data Protection remain unaffected as the government is still in the process of considering the implementing regulations. Thailand has implemented a requirement that all debit transactions processed by a domestic debit card network must use a proprietary chip.

Property rights are guaranteed by the Thai Constitution. While the government provides fair compensation in instances of expropriation, Thai policy generally does not permit foreigners to own land. There have been instances, however, of granting such permission to foreigners under certain laws or ministerial regulations for residential, business, or religious purposes. Foreign ownership of condominiums and buildings is permitted under certain laws. Foreigners can freely lease land. Relevant articles of the Civil and Commercial Codes do not distinguish between foreign and Thai nationals in the exercise of lease rights. Secured interests in property, such as mortgage and pledge, are recognized and enforced. Unoccupied property legally owned by foreigners or Thais may be subject to adverse possession by squatters who stay on that property for at least 10 years.

The National Committee on Intellectual Property Policy sets Thailand’s overall Intellectual Property (IP) policy. The National Committee is chaired by the Prime Minister with two Deputy Prime Ministers as vice chairs while 18 heads of government agencies serve as committee members. In 2017, this Committee approved a 20-year IP Roadmap to reform the country’s IP system. The Department of Intellectual Property (DIP) is responsible for IP-related administration, including registration and recording of IP rights and coordination of IP enforcement activities. DIP also acts as the secretary of the National Committee on Intellectual Property Policy.

Thailand has a robust legal and enforcement regime for IP rights. Thailand is a member of the Patent Cooperation Treaty (PCT). Thailand’s patent regime generally provides protection for most new inventions. The process of patent examination through issuance of patents is slow, taking on average six to eight years. The patent approval process, particularly for non-pharmaceutical products, has been significantly reduced to one year from 5 to 6 years prior to 2020 as the DIP increased substantial number of patent examiners and streamlined the process. However, the patenting process may take longer for certain technology sectors such as pharmaceuticals and biotechnology.

Thailand protects trademarks, traditional marks, and sound marks. As a member of the “Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks” (Madrid Protocol), Thailand allows trademark owners to apply for trademark registrations in Thailand directly at DIP or through international applications under the Madrid Protocol. DIP historically takes 10 to 14 months to register a trademark. As Thailand is a member of the “Berne Convention,” copyright works are protected automatically. However, copyright owners may record their works with DIP to establish proof of ownership. Thailand joined the Marrakesh Treaty to Facilitate Access to Published Works for Persons Who Are Blind, Visually Impaired or Otherwise Print Disabled in January 2019. Thailand’s Geographical Indications (GI) Act has been in force since April 2004. Thailand protects GIs, which identify goods by their specific geographical origins. The geographical origins identified by a GI must be directly attributable to the reputation, qualities, or characteristics of the good. In Thailand, a registered trademark does not prevent a similar geographical name to be registered as a GI.

As of March 2022, Thailand remained in the process of amending its Patent Act to streamline the patent registration process, to reduce patent backlog and pendency, and to help prepare for accession to the Hague Agreement Concerning the International Registration of Industrial Designs. Furthermore, Thailand has increased the number of examiners to reduce the patent backlog. The February 2022 amendment of the Copyright Act will enhance mechanisms to protect copyrights in the digital environment and prepare Thailand for accession to the WIPO copyright treaty (WCT); it will enter into force on August 23. The amendment expanded the term of protection for photographic works, adopted liability exemptions for Internet Service Providers (ISPs), and added criminal offences for circumventing of technological protection measures (TPMs).

DIP adopted voluntary registration of copyright (collective management) agents and Code of Conduct (CoC) for Collective Management Organizations (CMOs) to curb illegal activities of rogue agents and fine-tune the regulations to conform with international standards. To register, an agent must meet certain qualifications and undergo prescribed training. The roster of registered agents along with associated licensed copyrights and a list of CMOs that comply with the COC are available on the DIP website. The Central Committee on Goods and Service also issued the new implementing regulation requiring the CMOs to update music and copyright fees (including song name, songwriter, right-owner, copyright fee, copyright expiration date) on its website. Thailand also organized an MOU in January 2021 between internet platforms, DIP, and rightsholders, to streamline the process of removing IP-infringing and counterfeit goods from the country’s most popular online marketplaces. Regular meetings with the signatories were held and signatory e-commerce platforms have set up channels for receiving reports on sales of IPR-infringing goods in accordance with the MOU.

Thailand maintains a database on seizures of counterfeit goods ( https://www.ipthailand.go.th/en/ipr-enforcement-operation.html ). In 2021, the Royal Thai Police conducted 1,381 raids and seized 854,716 items, the Department of Special Investigation conducted four raids on trademark violations resulting in 2,922,630 items being seized, and the Customs Department had 1,869 seizures that stopped 1,347,022 IP-infringing items from entering Thailand.

Thailand’s Central Intellectual Property and International Trade Court (CIPIT) is the court of first instance with jurisdiction over both civil and criminal intellectual property cases and the appeals from DIP administrative decisions. The Court of Appeal for Specialized Cases hears appeals from the CIPIT. According to data from Thailand’s Intellectual Property and International Trade Court, the number of IP criminal cases filed at the court significantly dropped compared to previous years while the IP civil cases slightly declined. This trend has encouraged rights-owners to file civil cases in addition to criminal cases, which is in line with the government’s data.

Thailand remained on the Special 301 Watch List in 2021. USTR highlights Thailand not being a party to major international IP treaties, the unauthorized activities of collective management organizations, online piracy from streaming devices and applications, the use of unauthorized software in the public and private sectors, and a continued backlog in pharmaceutical patent applications as the main challenges confronting the country’s protection of intellectual property rights.

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

The Thai government maintains a regulatory framework that broadly encourages and facilitates portfolio investment. The Stock Exchange of Thailand, the country’s national stock market, was established under the Securities Exchange of Thailand Act in 1992. There is sufficient liquidity in the markets to allow investors to enter and exit sizeable positions. Government policies generally do not restrict the free flow of financial resources to support product and factor markets. The Bank of Thailand, the country’s central bank, has respected IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Credit is generally allocated on market terms rather than by “direct lending.” Foreign investors are not restricted from borrowing on the local market. In theory, the private sector has access to a wide variety of credit instruments, ranging from fixed term lending to overdraft protection to bills of exchange and bonds. However, the private debt market is not well developed. Most corporate financing, whether for short-term working capital needs, trade financing, or project financing, requires borrowing from commercial banks or other financial institutions.

Thailand’s banking sector, with 15 domestic commercial banks, is sound and well-capitalized. As of December 2021, the gross non-performing loan rate was low (around 2.97 percent industry wide), and banks were well prepared to handle a forecast rise in the NPL rate in 2021 due to the pandemic. The ratio of capital funds/risk-weighted assets (capital adequacy) was high (19.9 percent). Thailand’s largest commercial bank is Bangkok Bank, with assets totaling USD 112 billion as of December 2021. The combined assets of the five largest commercial banks totaled USD 494 billion, or 71.9 percent of the total assets of the Thai banking system, at the end of 2021.

In general, Thai commercial banks provide the following services: accepting deposits from the public; granting credit; buying and selling foreign currencies; and buying and selling bills of exchange (including discounting or re-discounting, accepting, and guaranteeing bills of exchange). Commercial banks also provide credit guarantees, payments, remittances and financial instruments for risk management. Such instruments include interest-rate derivatives and foreign-exchange derivatives. Additional business activities to support capital market development, such as debt and equity instruments, are allowed. A commercial bank may also provide other services, such as bank assurance and e-banking.

Thailand’s central bank is the Bank of Thailand (BOT), which is headed by a Governor appointed for a five-year term. The BOT serves the following functions: prints and issues banknotes and other security documents; promotes monetary stability and formulates monetary policies; manages the BOT’s assets; provides banking facilities to the government; acts as the registrar of government bonds; provides banking facilities for financial institutions; establishes or supports the payment system; supervises financial institutions; manages the country’s foreign exchange rate under the foreign exchange system; and determines the makeup of assets in the foreign exchange reserve.

Apart from the 15 domestic commercial banks, there are currently 11 registered foreign bank branches, including three American banks (Citibank, Bank of America, and JP Morgan Chase), and four foreign bank subsidiaries operating in Thailand. To set up a bank branch or a subsidiary in Thailand, a foreign commercial bank must obtain approval from the Ministry of Finance and the BOT. Foreign commercial bank branches are limited to three service points (branches/ATMs) and foreign commercial bank subsidiaries are limited to 40 service points (branches and off-premises ATMs) per subsidiary. Newly established foreign bank branches are required to have minimum capital funds of 125 million baht (USD 3.8 million at 2021 average exchange rates) invested in government or state enterprise securities, or directly deposited with the Bank of Thailand. The number of expatriate management personnel is limited to six people at full branches, although Thai authorities frequently grant exceptions on a case-by-case basis.

Non-residents can open and maintain foreign currency accounts without deposit and withdrawal ceilings. Non-residents can also open and maintain Thai baht accounts; however, in an effort to curb the strong baht, the Bank of Thailand capped non-resident Thai deposits at 200 million baht across all domestic bank accounts. However, in January 2021, the Bank of Thailand began allowing non-resident companies greater flexibility to conduct baht transactions with domestic financial institutions under the non-resident qualified company scheme. Participating non-financial firms that trade and invest directly in Thailand are allowed to manage currency risks related to the baht without having to provide proof of underlying baht holdings for each transaction. This will allow firms to manage baht liquidity more flexibly without being subject to the end-of-day outstanding limit of 200 million baht for non-resident accounts. Withdrawals are freely permitted. Since mid-2017, the BOT has allowed commercial banks and payment service providers to introduce new financial services technologies under its “Regulatory Sandbox” guidelines. Recently introduced technologies under this scheme include standardized QR codes for payments, blockchain funds transfers, electronic letters of guarantee, and biometrics.

Thailand’s alternative financial services include cooperatives, micro-saving groups, the state village funds, and informal money lenders. The latter provide basic but expensive financial services to households, mostly in rural areas. These alternative financial services, with the exception of informal money lenders, are regulated by the government.

Thailand does not have a sovereign wealth fund and the Bank of Thailand is not pursuing the creation of such a fund. However, the International Monetary Fund has urged Thailand to create a sovereign wealth fund due to its large accumulated foreign exchange reserves. As of December 2021, Thailand had the world’s 14th largest foreign exchange reserves at USD 246 billion.

Thailand’s 52 state-owned enterprises (SOEs) have total assets of USD 448 billion and a combined gross income of USD 131 billion (end of 2021 figures, latest available). In 2021, they employed 255,397 people, or 0.65 percent of the Thai labor force. Thailand’s SOEs operate primarily in service delivery, in particular in the energy, telecommunications, transportation, and financial sectors. More information about SOEs is available at the website of the State Enterprise Policy Office (SEPO) under the Ministry of Finance at www.sepo.go.th .

A 15-member State Enterprises Policy Commission, or “superboard,” oversees operations of the country’s 52 SOEs. In May 2019, the Development of Supervision and Management of State-Owned Enterprise Act (2019) went into effect with the goal to reform SOEs and ensure transparent management decisions. The Thai government generally defines SOEs as special agencies established by law for a particular purpose that are 100 percent owned by the government (through the Ministry of Finance as a primary shareholder). The government recognizes a second category of “limited liability companies/public companies” in which the government owns 50 percent or more of the shares. Of the 52 total SOEs, 42 are wholly-owned and 10 are majority-owned. Three SOEs are publicly listed on the Stock Exchange of Thailand: Airports of Thailand Public Company Limited, PTT Public Company Limited, and MCOT Public Company Limited. By regulation, at least one-third of SOE boards must be comprised of independent directors.

Private enterprises can compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives in most sectors, but there are some exceptions, such as fixed-line operations in the telecommunications sector.

While SEPO officials aspire to adhere to the OECD Guidelines on Corporate Governance for SOEs, there is not a level playing field between SOEs and private sector enterprises, which are often disadvantaged in competing with Thai SOEs for contracts.

Generally, SOE senior management reports directly to a cabinet minister and to SEPO. Corporate board seats are typically allocated to senior government officials or politically affiliated individuals.

The 1999 State Enterprise Corporatization Act provides a framework for conversion of SOEs into stock companies. Corporatization is viewed as an intermediate step toward eventual privatization. [Note: “Corporatization” describes the process by which an SOE adjusts its internal structure to resemble a publicly traded enterprise; “privatization” denotes that a majority of the SOE’s shares is sold to the public; and “partial privatization” is when less than half of a company’s shares are sold to the public.] Foreign investors are allowed to participate in privatizations, but restrictions are applied in certain sectors, as regulated by the FBA and the Act on Standards Qualifications for Directors and Employees of State Enterprises of 1975, as amended. However, privatization efforts have been on hold since 2006 largely due to strong opposition from labor unions.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Thailand is among the top 10 countries most vulnerable to climate change and the world’s 20th largest emitter of greenhouse gases.  At the 2021 United Nations Climate Change Conference (COP 26), Prime Minister Prayut Chan-o-cha announced that the country will reduce greenhouse gas emissions by 40 percent in 2030, achieve carbon neutrality by 2050, and become greenhouse gas neutral by 2065.  In line with these ambitious goals, Thailand is in the process of updating its Nationally Determined Contribution (NDC) and other related plans, which as of this writing are expected to be announced before COP 27 in November 2022.

Thailand is also drafting a new Climate Change Act that will help ensure stronger interagency coordination among authorities and solidify Thailand’s Climate Change Master Plan, which will be revised every five years.  Other notable components of the draft law include establishment of a greenhouse gas emissions database, reporting requirements for government and private sector entities (along with penalties for non-compliance), and guidelines for use of the Thailand Environment Fund.

Clean energy technology is featured prominently in Thailand’s climate landscape, since the energy sector is currently the main source of greenhouse gas emissions.  The Thai government is actively pursuing foreign investment related to clean energy, electric vehicles, and related industries. Thailand is currently developing a National Energy Plan that will further increase the 2037 target of renewable energy from 20 percent in order to meet the new climate goals and align energy production with the government’s “Bio-Circular Green Economy” model.  Private sector investment is a key driver of success.

The Thai government has established a special committee, under supervision of the Deputy Prime Minister and Minister of Energy, to support increased investment in this area.  In support of these policies, electricity producers can access tax and non-tax incentives from Thailand’s Board of Investment (BOI).  The tax incentives include a corporate income tax holiday of six or eight years, depending on the type of power production used in electricity generation.  Tax incentives also include custom duty exemptions for the import of new equipment.  Thailand also has a feed-in-tariff (FiT) program and additional tax and investment incentives through the BOI. The FiT is designed to accelerate growth in renewable energy investment by offering a guaranteed, above-market price for long-term power purchase agreements (20 – 25 years).  The FiT is currently offered for solar, solar with energy storage, wind, biomass, biogas, and waste-to-energy power production.

In February 2022, Thailand joined the U.S.-led Clean Energy Demand Initiative, in which the Thai government agreed to pursue policies that will increase access to alternative energy for the private sector.  Electric vehicles are another key focus area for the Thai government and its “30@30” policy aims to have 30 percent of domestic vehicle production be electric vehicles by 2030.  To achieve this, the Thai government in 2022 approved a suite of measures to increase foreign investment in electric vehicles, including a range of tax incentives, subsidies, and other mechanisms.

Transparency International’s Corruption Perceptions Index ranked Thailand 110th out of 180 countries with a score of 35 out of 100 in 2021 (zero is highly corrupt). Bribery and corruption are still problematic. Despite increased usage of electronic systems, government officers still wield discretion in the granting of licenses and other government approvals, which creates opportunities for corruption. U.S. executives with experience in Thailand often advise new-to-market companies to avoid corrupt transactions from the beginning rather than to stop such practices once a company has been identified as willing to operate in this fashion. American firms that comply with the strict guidelines of the Foreign Corrupt Practices Act (FCPA) are able to compete successfully in Thailand. U.S. businesses say that publicly affirming the need to comply with the FCPA helps to shield their companies from pressure to pay bribes.

Thailand has a legal framework and a range of institutions to counter corruption. The Organic Law to Counter Corruption criminalizes corrupt practices of public officials and corporations, including active and passive bribery of public officials. The anti-corruption laws extend to family members of officials and to political parties.

As of February 2022, the Thai government is working on an Anti-SLAPP law (strategic lawsuit against public participation) proposed by the Thai National Anti-Corruption Commission. The new law provides a legal definition of SLAPP lawsuits as cases where the plaintiff intends to “suppress public participation in defense of the public interest in good faith” or has the purposed of intimidation, suppressing information, negotiating, or ending litigation” and empowers law enforcement to file Anti-SLAPP charges in court.

Thai procurement regulations prohibit collusion among bidders. If an examination confirms allegations or suspicions of collusion among bidders, the names of those applicants must be removed from the list of competitors.

Thailand adopted its first national government procurement law in December 2016. Based on UNCITRAL model laws and the WTO Agreement on Government Procurement, the law applies to all government agencies, local authorities, and state-owned enterprises, and aims to improve transparency. Officials who violate the law are subject to 1-10 years imprisonment and/or a fine from Thai baht 20,000 (approximately USD 615) to Thai baht 200,000 (approximately USD 6,150).

Since 2010, the Thai Institute of Directors has built an anti-corruption coalition of Thailand’s largest businesses. Coalition members sign a Collective Action Against Corruption Declaration and pledge to take tangible, measurable steps to reduce corruption-related risks identified by third party certification. The Center for International Private Enterprise equipped the Thai Institute of Directors and its coalition partners with an array of tools for training and collective action.

Established in 2011, the Anti-Corruption Organization of Thailand (ACT) aims to encourage the government to create laws to combat corruption. ACT has 54 member organizations drawn from the private, public, and academic sectors. ACT’s signature program is the “Integrity Pact,” run in cooperation with the Comptroller General Department of the Ministry of Finance and based on a tool promoted by Transparency International. The program forbids bribes from signatory members in bidding for government contacts and assigns independent ACT observers to monitor public infrastructure projects for signs of collusion. Member agencies and companies must adhere to strict transparency rules by disclosing and making easily available to the public all relevant bidding information, such as the terms of reference and the cost of the project.

Thailand is a party to the UN Anti-Corruption Convention, but not the OECD Anti-Bribery Convention.

Thailand’s Witness Protection Act offers protection (to include police protection) to witnesses, including NGO employees, who are eligible for special protection measures in anti-corruption cases.

International Affairs Strategy Specialist
Office of the National Anti-Corruption Commission
361 Nonthaburi Road, Thasaai District, Amphur Muang Nonthaburi 11000, Thailand
Tel: +662-528-4800
Email:  TACC@nacc.go.th 

Dr. Mana Nimitmongkol
Secretary General
Anti-Corruption Organization of Thailand (ACT)
44 Srijulsup Tower, 16th floor, Phatumwan, Bangkok 10330
Tel: +662-613-8863
Email:  mana2020@yahoo.com 

Street clashes between anti-government protesters and police occurred regularly in a major Bangkok intersection in the early months of 2021. Several protesters were injured by rubber bullets, two of whom later died.

Violence related to an ongoing ethno-nationalist insurgency in Thailand’s southernmost provinces has claimed more than 7,000 lives since 2004. Although the number of deaths and violent incidents has decreased in recent years, efforts to end the insurgency have so far been unsuccessful. The government is currently engaged in preliminary talks with the leading insurgent group. Almost all attacks have occurred in the three southernmost provinces of the country.

In 2021, 38.6 million people were in Thailand’s formal labor pool, comprising 66 percent of the total population. Thailand’s official unemployment rate stood at 1.6 percent at the end of 2021, interestingly, workers with university degrees have the highest unemployment rate compared with other groups. The working hours in the private sector are still below the pre-Covid era with the average working hours of 45.6 hours per week.

The Thai government is actively seeking to address shortages of both skilled and unskilled workers through education reform and various worker-training incentive programs. Low birth rates, an aging population, and skill mismatch, are exacerbating labor shortage problems in many sectors. Despite provision of 15 years of free education for every child in Thailand, Thailand continues to suffer from a skills mismatch that impedes innovation and economic growth. Thailand also has a shortage of high-skill workers such as researchers, engineers, and managers, as well as technicians and vocational workers. The statistics from the Office of the National Economic and Social Development Board show that 49.3 percent of new graduates are in the fields of business and social science.  

Regional income inequality and labor shortages, particularly in labor-intensive manufacturing, construction, hospitality, and service sectors, have attracted millions of migrant workers, mostly from neighboring Burma, Cambodia, and Laos. At the end of 2021, there were more than two million migrant workers registered with the Ministry of Labor.

Employers may dismiss workers provided the employer pays severance. When an employer temporarily suspends business, in part or in whole, the employer must pay the employee at least 75 percent of his or her daily wages throughout the suspension period.

At the end of 2021, there were a total of 1,432 labor unions in Thailand with 364 of them located in Bangkok. Thai law allows private-sector workers to form and join trade unions of their choosing without prior authorization, to bargain collectively, and to conduct legal strikes, although these rights come with some restrictions. Noncitizen migrant workers, whether registered or undocumented, do not have the right to form unions or serve as union officials. Migrants can join unions organized and led by Thai citizens.

In 2020, the Department of Labor Protection and Welfare issued a ministerial regulation on occupational safety, health and working environment for diving work; the regulation sets a minimum age of 18. In March 2022, the Ministry of Labor issued a regulation regarding the Protection of Fishery Workers to provide additional protection for the workers’ rights in this industry. Additional information on migrant workers issues and rights can be found in the U.S. Trafficking in Persons Report, as well as the Labor Rights chapter of the U.S. Human Rights report.

* Source for Host Country Data: Bank of Thailand (http://bot.or.th/)

U.S. Embassy Bangkok
Economic Section
BangkokEconSection@state.gov 

Turkey acknowledges that it needs to attract significant new foreign direct investment (FDI) to meet its ambitious development goals. As a result, Turkey has one of the most liberal legal regimes for FDI among Organization for Economic Cooperation and Development (OECD) members. According to the Central Bank of Turkey’s balance of payments data, Turkey attracted a total of USD 7.59 billion of FDI in 2021, almost USD 1.8 billion higher than 2020’s USD 5.79 billion. The figures demonstrate that Turkey needs to take steps to stabilize its macroeconomic fundamentals, in addition to improve enforcement of international trade rules, ensure the transparency and timely execution of judicial awards, increase engagement with foreign investors on policy issues, and to implement consistent monetary and fiscal economic policies to promote strong, sustainable, and balanced growth. Turkey also needs to take other political measures to increase stability and predictability for investors. A stable banking sector, tight fiscal controls, efforts to reduce the size of the informal economy, increased labor market flexibility, improved labor skills, and continued privatization of state-owned enterprises would, if pursued, have the potential to improve the investment environment in Turkey.

Most sectors open to Turkish private investment are also opened to foreign participation and investment. All investors, regardless of nationality, face similar challenges: macroeconomic instability, excessive bureaucracy, a slow judicial system, relatively high and inconsistently applied taxes, and frequent changes in the legal and regulatory environment. Structural reforms that would create a more transparent, equal, fair, and modern investment and business environment remain stalled. Venture capital and angel investing are still relatively new in Turkey.

Turkey does not screen, review, or approve FDI specifically. However, the government has established regulatory and supervisory authorities to regulate different types of markets. Important regulators in Turkey include the Competition Authority; the Excessive Pricing Evaluation Board; Energy Market Regulation Authority; Banking Regulation and Supervision Authority; Information and Communication Technologies Authority; Tobacco, Tobacco Products and Alcoholic Beverages Market Regulation Board; Privatization Administration; Public Procurement Authority; Radio and Television Supreme Council; and Public Oversight, Accounting, and Auditing Standards Authority. Screening mechanisms are executed to maintain fair competition and for other economic benefits. If an investment fails a review, possible outcomes can vary from a notice to remedy, which allows for a specific period to correct the problem, to penalty fees. The Turkish judicial system allows for appeals of any administrative decision, including tax courts that deal with tax disputes.

There are no general limits on foreign ownership or control. However, there is increasing pressure in some sectors for foreign investors to partner with local companies and transfer technology, and some discriminatory barriers to foreign entrants, based on “anti-competitive practices,” especially in the information and communication technology (ICT) sector and the pharmaceuticals sector. In many areas, Turkey’s regulatory environment is business friendly. Investors can establish a business in Turkey irrespective of nationality or place of residence. There are no sector-specific restrictions that discriminate against foreign investor access, which are prohibited by World Trade Organization (WTO) regulations.

The OECD published an Environmental Performance Review for Turkey in February 2019, noting the country was the fastest growing among OECD members, and an Economic Survey of Turkey in 2021, which noted that investor confidence in policy predictability could not be consolidated, and risk premium and exchange rate volatility remained very high. The OECD survey which includes details on policy recommendations can be found at: https://www.oecd.org/turkey/oecd-environmental-performance-reviews-turkey-2019-9789264309753-en.htm 

Turkey’s most recent investment policy review through the World Trade Organization (WTO) was conducted in March 2016. Turkey has cooperated with the World Bank to produce several reports on the general investment climate that can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp431_e.htm 

The International Investors Association (YASED)’s members represent 85 percent of all FDI in Turkey. YASED has a working group structure to support the demands of investors and targets common themes to express investors’ perspectives and concerns to the government to shape the policymaking processes. YASED’s publications can be found at: https://www.yased.org.tr/reports 

The Presidency of the Republic of Turkey Investment Office is the official organization for promoting Turkey’s sectoral investment opportunities to the global business community and assisting investors before, during, and after their entry into Turkey. Its website is clear and easy to use, with information about legislation and company establishment. https://www.invest.gov.tr/en/pages/home-page.aspx

The conditions for foreign investors setting up a business and transferring shares are the same as those applied to local investors. International investors may establish any form of company set out in the Turkish Commercial Code (TCC), which offers a corporate governance approach that meets international standards, fosters private equity and public offering activities, creates transparency in managing operations, and aligns the Turkish business environment with EU legislation as well as with the EU accession process.

Turkey defines micro, small, and medium-sized enterprises according to Decision No. 2022/5315 of the Official Gazette dated March 17, 2022:

1. Micro-sized enterprises: fewer than 10 employees and less than or equal to 5 million Turkish lira in net annual sales or financial statement.
2. Small-sized enterprises: fewer than 50 employees and less than or equal to 50 million Turkish lira in net annual sales or financial statement.
3. Medium-sized enterprises: fewer than 250 employees and less than or equal to 250 million Turkish lira in net annual sales or financial statement.

The government promotes outward investment via investment promotion agencies and other platforms. It does not restrict domestic investors from investing abroad.

The GOT has adopted policies and laws that, in principle, should foster competition and transparency. The GOT makes its budgetary spending reports available online. Copies of draft bills are generally made available to the public by posting them to the websites of the relevant ministry, Parliament, or Official Gazette. Foreign companies in several sectors; however, claim that regulations are applied in a nontransparent manner. Public tender decisions and regulatory updates can be opaque and politically driven.

Accounting, legal, and regulatory procedures appear to be consistent with international norms, including standards set forth by the International Financial Reporting Standards (IFRS), the EU, and the OECD. Publicly traded companies adhere to international accounting standards and are audited by well-respected international firms. Turkey is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and is party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax.

In 2021, Turkey’s Office of the Presidency partnered with the United Nations Development Program (UNDP) to assess the Impact Investing Ecosystem in Turkey and the Sustainable Development Goal (SDG) Investor Map Turkey. These efforts provided preliminary steps towards environmental, social, and governance (ESG) regulations. Turkey’s Capital Markets Board (CMB) amended its Corporate Governance Communique on Turkey’s Sustainability Principles Compliance Framework for publicly traded companies in 2020. The Framework offers publicly traded companies an opportunity to take their social, environmental, and governance impact seriously, beyond shareholders’ demands. There is no standard ESG legal framework but the GOT recommends that all companies operating in Turkey proactively adopt EGT standards.

Turkey is a candidate for EU membership; however, the accession process has stalled, with the opening of new chapters put on hold. Some, though not all, Turkish regulations have been harmonized with the EU, and the country has adopted many European regulatory norms and standards. Turkey is a member of the WTO, though it does not notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Turkey’s legal system is based on civil law, provides means for enforcing property and contractual rights, and has written commercial and bankruptcy laws. Turkey’s court system is overburdened, which sometimes results in slow decisions and judges lacking sufficient time to consider complex issues. Judgments of foreign courts, under certain circumstances, need to be upheld by local courts before they are accepted and enforced. Recent developments reinforce the Turkish judicial system’s need to undertake significant reforms to adopt fair, democratic, and unbiased standards. The government is currently implementing a series of judicial reform packages introduced since 2019, but Amnesty International noted the reforms “fail to bring Turkey’s laws in line with human rights law and standards, and rather tinker at the edges of a system marked by the deepening erosion of independence of the judiciary.” The judiciary remains subject to influence, particularly from the executive branch, and faces significant challenges that limit judicial independence. The judicial reform strategy’s nine priorities are: protecting and improving rights and freedoms, improving judicial independence, objectivity and transparency, improving both the quality and quantity of human resources, increasing performance and productivity, enabling the right of defense to be used effectively, making justice more approachable, increasing the effectiveness of the penal justice system, simplifying civil justice and administrative procedures, and popularizing alternative mediation methods.

Turkey’s investment legislation is simple and complies with international standards, offering equal treatment for all investors. The New Turkish Commercial Code No. 6102 (“New TCC”) was published in February , 2011. The backbone of the investment legislation is made up of the Encouragement of Investments and Employment Law No. 5084, Foreign Direct Investments Law No. 4875, international treaties, and various laws and related sub-regulations on the promotion of sectorial investments. Regulations related to mergers and acquisitions include: the Turkish Code of Obligations: Article 202 and Article 203; the Turkish Commercial Code: Articles 134-158; the Execution and Bankruptcy Law: Article 280; the Law on the Procedures for the Collection of Public Receivables: Article 30; and the Law on Competition: Article 7.

https://www.invest.gov.tr/en/ 

The Competition Authority is the sole authority on competition issues in Turkey and handles private sector transactions. Public institutions are exempt from its authority. The Constitutional Court can overrule the Competition Authority’s finding of innocence in a competition case. There have been some cases of Turkish courts blocking foreign company operations based on competition concerns, with a few investigations into foreign companies initiated. Such cases can take over a year to resolve, during which time the companies can be prohibited from doing business in Turkey, which benefits their (local) competitors.

The Government of Turkey established a related board, called the Excessive Pricing Evaluation Board, in 2019 and under the authority of the Ministry of Trade. As inflation has increased, exacerbated by the economic impacts of the COVID-19 pandemic, some private sector contacts note a marked increase in the frequency and aggressiveness of audits by the board. The board reportedly uses a “secret comparable,” whereby a product’s price is compared against that of another company whose name is not revealed. In 2021, an increasingly active Competition Authority of Turkey (RK) has stepped up its investigations with the purported intent of protecting consumers from anticompetitive behavior and price gouging. On October 29, 2022, RK fined five supermarkets and one supplier a combined USD 283 million for violating antitrust regulations.

Under the U.S.-Turkey Bilateral Investment Treaty (BIT), expropriation can only occur in accordance with due process of law, can only be for a public purpose, and must be non-discriminatory. Compensation must be prompt, adequate, and effective. The GOT occasionally expropriates private real property for public works or for state industrial projects. The GOT agency expropriating the property negotiates the purchase price. If the owners of the property do not agree with the proposed price, they are able to challenge the expropriation in court and ask for additional compensation. There are no known outstanding expropriation or nationalization cases for U.S. firms. Although there is not a pattern of discrimination against U.S. firms, the GOT has aggressively targeted businesses, banks, media outlets, and mining and energy companies with alleged ties to the so-called “Fethullah Terrorist Organization (FETO)” and/or the July 2016 attempted coup, including the expropriation of over 1,100 private companies worth more than USD 11 billion.

ICSID Convention and New York Convention

Turkey is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and is a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Foreign arbitral awards will be enforced if the country of origin of the award is a New York Convention state, if the dispute is commercial under Turkish law, and if none of the grounds under Article V of the New York Convention are proved by the opposing party.

Investor-State Dispute Settlement

U.S. investors generally have full access to Turkey’s local courts and the ability to take the government directly to international binding arbitration if a breach of the U.S.-Turkey Bilateral Investment Treaty has occurred.

International Commercial Arbitration and Foreign Courts

Turkey adopted the International Arbitration Law, based on the United Nations Commission on International Trade Law (UNCITRAL) model law, in 2001. Local courts accept binding international arbitration of investment disputes between foreign investors and the state. In practice, however, Turkish courts have sometimes failed to uphold international arbitration awards involving private companies and have favored Turkish firms. There are two main arbitration bodies in Turkey: the Union of Chambers and Commodity Exchanges of Turkey (www.tobb.org.tr ) and the Istanbul Chamber of Commerce Arbitration and Mediation Center (www.itotam.com/en ). Most commercial disputes can be settled through arbitration, including disputes regarding public services. Parties decide the arbitration procedure, set the arbitration rules, and select the language of the proceedings. The Istanbul Arbitration Center was established in October 2015 as an independent, neutral, and impartial institution to mediate both domestic and international disputes through fast-track arbitration, emergency arbitrator, and appointments for ad hoc procedures. Its decisions are binding and subject to international enforcement (www.istac.org.tr/en ).

As of January 2019, some commercial disputes may be subject to mandatory mediation; if the parties are unable to resolve the dispute through mediation, the case moves to a trial.

Turkey criminalizes bankruptcy and has a bankruptcy law based on the Execution and Bankruptcy Code No. 2004 (the “EBL”), published in t 1932, and numbered 2128.

Turkey’s investment incentives program consists of four main pillars: the General Investment Incentive Scheme, Regional Investment Incentive Scheme, Priority Investment Incentive Scheme, and the Strategic Investment Incentive Scheme. These incentives can provide corporate tax reductions; customs duty exemptions; value added tax (VAT) exemption and VAT refunds; support with the employer’s share social security premiums; income tax withholding allowances; land allocation; and interest rate support for investment loans. The incentive schemes are updated almost every year by the Ministry of Industry and Technology, and the Presidency of the Republic of Turkey Investment Office publishes these offerings on their websites.

https://www.invest.gov.tr/en/ 

https://www.invest.gov.tr/en/library/publications/lists/investpublications/guide-to-state-incentives-for-investments-in-turkey.pdf

Renewable energy investments

Investments in electrical power generation from biomass, solar energy, hydroelectric energy, geothermal energy, and wind energy are supported within the framework of the general incentive system and can receive VAT and customs tax exemptions. Green investments can also receive investment support under Turkey’s Priority Investment Scheme.

Project-Based Investment Incentives

There is a special category of investment incentives that is tailored for projects that will serve the country’s current or future critical needs such as security of supply, reduction of foreign dependency, realization of technological transformation, innovation, and R&D-intensive and high-value-added solutions. Incentives for these types of projects are screened by the Ministry of Industry and Technology and approved by presidential decree.

There are no restrictions on foreign firms operating in any of Turkey’s 18 free zones. The zones are open to a wide range of activities, including manufacturing, storage, packaging, trading, banking, and insurance. Foreign products enter and leave the free zones without imposition of customs or duties if they are exported to third country markets. Income generated in the zones is exempt from corporate and individual income taxation and from the value-added tax, but firms are required to make social security contributions for their employees. Additionally, standardization regulations in Turkey do not apply to the activities in the free zones, unless the products are imported into Turkey. Sales to the Turkish domestic market are allowed with goods and revenues transported from the zones into Turkey subject to all relevant import regulations.

Taxpayers who possessed an operating license as of February 6, 2004, do not have to pay income or corporate tax on their earnings in free zones for the duration of their license. Earnings based on the sale of goods manufactured in free zones are exempt from income and corporate tax until the end of the year in which Turkey becomes a member of the European Union. Earnings secured in a free zone under corporate tax immunity and paid as dividends to real person shareholders in Turkey, or to real person or legal-entity shareholders abroad, are subject to 15 percent withholding tax.

https://www.ticaret.gov.tr/serbest-bolgeler 

The government mandates a local employment ratio of five Turkish citizens per foreign worker. These schemes do not apply equally to senior management and boards of directors, but their numbers are included in the overall local employment calculations. Foreign legal firms are forbidden from working in Turkey except as consultants; they cannot directly represent clients and must partner with a local law firm. There are no onerous visa, residence, work permits or similar requirements inhibiting mobility of foreign investors and their employees. There are no known government-imposed conditions on permissions to invest.

Recent laws targeting the Information and Communication Technology (ICT) sector have increased regulations on data, social media, online marketing, online broadcasting, tax collection, and payment platforms. ICT and other companies report GOT pressure to localize data, which it views as a precursor to greater GOT access to user information and source code. Law No. 6493 on Payment and Security Systems, Payment Services, and e-money Institutions, also requires financial institutions to establish servers in Turkey to localize data. The Turkish Banking Regulation and Supervision Agency (BDDK) is the authority that issues business licenses if companies localize their IT systems in Turkey and keep the original data (not copies) in Turkey. Regulations on data localization, internet content, and taxation/licensing have resulted in the departure of several U.S. tech companies from the Turkish market and have chilled investment by other possible entrants to the e-commerce and e-payments sectors. The laws potentially affect all companies that collect private user data, such as payment information provided online for a consumer purchase.

Turkey enacted the Personal Data Protection Law in April 2016. The law regulates all operations performed upon personal data including obtaining, recording, storage, and transfer to third parties or abroad. For all data previously processed before the law went into effect, there was a two-year transition period. After two years, all data had to be compliant with new legislation requirements, erased, or anonymized. All businesses are urged to assess how they currently collect and store data to determine vulnerabilities and risks regarding legal obligations. The law created the Data Protection Authority (KVKK), which is charged with monitoring and enforcing corporate data use.

There are no performance requirements imposed as a condition for establishing, maintaining, or expanding investment in Turkey. GOT requirements for disclosure of proprietary information as part of the regulatory approval process are consistent with internationally accepted practices, though some companies, especially in the pharmaceutical sector, worry about data protection during the regulatory review process. Enterprises with foreign capital must send their activity report submitted to shareholders, their auditor’s report, and their balance sheets to the Ministry of Trade, Free Zones, Overseas Investment and Services Directorate, annually by May. Turkey grants most rights, incentives, exemptions, and privileges available to national businesses to foreign business on a most-favored-nation (MFN) basis. U.S. and other foreign firms can participate in government-financed and/or subsidized research and development programs on a national treatment basis.

Offsets are an important aspect of Turkey’s military procurement, and increasingly in other sectors, and such guidelines have been modified to encourage direct investment and technology transfer. The GOT targets the energy, transportation, medical devices, and telecom sectors for the usage of offsets. In February 2014, Parliament passed legislation requiring the Ministry of Science, Industry, and Technology, currently named the Ministry of Industry and Technology, to establish a framework to incorporate civilian offsets into large government procurement contracts. The Ministry of Health (MOH) established an office to examine how offsets could be incorporated into new contracts. The law suggests that for public contracts above USD 5 million, companies must invest up to 50 percent of contract value in Turkey and “add value” to the sector. In general, labor, health, and safety laws do not distort or impede investment, although legal restrictions on discharging employees may provide a disincentive to labor-intensive activity in the formal economy.

Secured interests in property, both movable and real, are generally recognized and enforced, and there is a reliable system of recording such security interests. For example, real estate is registered with a land registry office. Turkey’s legal system protects and facilitates acquisition and disposal of property rights, including land, buildings, and mortgages, although some parties have complained that the courts are slow to render decisions and are susceptible to external influence. However, following the July 2016 coup attempt, the GOT confiscated over 1,100 companies as well as significant real estate holdings for alleged terrorist ties. Although the seizures did not directly impact many foreign firms, it nonetheless raises investor concerns about private property protections.

The Ministry of Environment and Urbanization enacted a law on title-deed registration in 2012 removing the previous requirement that foreign purchasers of real estate in Turkey had to be in partnership with a Turkish individual or company that owns at least a 50-percent share in the property, meaning foreigners can now own their own land. The law is also much more flexible in allowing international companies to purchase real property. The law also increases the upper limit on real estate purchases by foreign individuals to 30 hectares and allows further increases up to 60 hectares with permission from the Council of Ministers. As of March 2020, a valuation report, based upon real market value, must be prepared for real estate sales transactions involving buyers that are foreign citizens. To ensure that land has a clear title, interested parties may inquire through the General Directorate of Land Registry and Cadaster.

www.tkgm.gov.tr 

Turkey continues to implement its intellectual property rights (IPR) law, the Industrial Property Code No. 6769, which entered into force in 2017. The law brings together a series of “decrees” into a single, unified, modernized legal structure. It also greatly increases the capacity of the country’s patent office (TurkPatent) and improves the framework for commercialization and technology transfer. Turkey is a member of the World Intellectual Property Organization (WIPO) and party to many of its treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty.

However, while legislative frameworks are improving, IPR enforcement remains lackluster. Turkey remains on USTR’s Special 301 Watch List for 2022. Concerns remain about policies requiring local production of pharmaceuticals, inadequate protection of test data, and a lack of transparency in national pricing and reimbursement. IPR enforcement suffers from a lack of awareness and training among judges and officers, as well as a lack of prioritization relative to terrorism and other concerns. Law enforcement officers do not have ex-officio authority to seize and destroy counterfeit goods, which are prevalent in the local markets. Software piracy is also high.

Additionally, the practice of issuing search-and-seizure warrants varies considerably. IPR courts and specialized IPR judges only exist in major cities. Outside these areas, an application for a search warrant must be filed at a regular criminal court (Courts of Peace) and/or with a regular prosecutor. The Courts of Peace are very reluctant to issue search warrants. Although, by law, “reasonable doubt” is adequate grounds for issuing a search-and-seizure order, judges often set additional requirements, including supporting documentation, photographs, and even witness testimony, which risk exposing companies’ intelligence sources. In some regions, Courts of Peace judges rarely grant search warrants, for example in popular tourist destinations. Overall, according to some investors, it is difficult to protect IPR and general enforcement is deteriorating. 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 .

The Turkish Government encourages and offers an effective regulatory system to facilitate portfolio investment. Since the start of 2020, a currency crisis that has been exacerbated by the COVID-19 pandemic, and high levels of dollarization have raised liquidity concerns among some commentators. Existing policies facilitate the free flow of financial resources into product and factor markets. The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions. Credit is generally allocated on market terms, though the GOT has increased low- and no-interest loans for certain parties, and pressured state-owned banks to increase their lending, especially for stimulating economic growth and public projects. Foreign investors can get credit on the local market. The private sector has access to a variety of credit instruments.

The Turkish Government adopted a framework Capital Markets Law in 2012, aimed at bringing greater corporate accountability, protection of minority-shareholders, and financial statement transparency. Turkish capital markets in 2020 drew growing interest from domestic investors, according to data from the Central Registry Agency (MKK). In 2021, the number of local real investors reached 2.3 million, up an average of 65,200 per month, with the total portfolio value reaching USD 22.2 billion.

The Turkish banking sector remains relatively healthy. The estimated total assets of the country’s largest banks were as follows at the end of 2021: Ziraat Bankasi A.S. – USD 102.69 billion, Turkiye Vakiflar Bankasi – USD 77.08 billion, Halk Bankasi – USD 67.49 billion, Is Bankasi – USD 69.44 billion, Garanti Bankasi– USD 56.78 billion, Yapi ve Kredi Bankasi – USD 58.51 billion, Akbank – USD 57.15 billion. According to the Turkish Banking Regulation and Supervision Agency (BDDK), the share of non-performing loans in the sector was approximately 3.15 percent at the end of 2021, though there appears to have been some regulatory forbearance during the COVID pandemic. The only requirements for a foreigner to open a bank account in Turkey are a passport copy and either an identification number from the Ministry of Foreign Affairs or a Turkish tax identification number.

The BDDK monitors and supervises Turkey’s banks. The BDDK is headed by a board whose seven members are appointed for six-year terms. Bank deposits are protected by an independent deposit insurance agency, the Savings Deposit Insurance Fund (TMSF). Because of historically high local borrowing costs and short repayment periods, foreign and local firms frequently seek credit from international markets to finance their activities. Foreign banks are allowed to establish operations in the country.

Foreign Exchange

Turkish law guarantees the free transfer of profits, fees, and royalties, and repatriation of capital. This guarantee is reflected in Turkey’s 1990 Bilateral Investment Treaty (BIT) with the United States, which mandates unrestricted and prompt transfer in a freely usable currency at a legal market-clearing rate for all investment-related funds. There is little difficulty in obtaining foreign exchange in Turkey, and there are no foreign-exchange restrictions. Throughout 2021, the GOT continued to encourage businesses to conduct trade in lira. An amendment to the Decision on the Protection of the Value of the Turkish Currency was made with Presidential Decree No. 85 in September 2018 wherein the GOT tightened restrictions on Turkey-based businesses conducting numerous types of transactions using foreign currencies or indexed to foreign currencies. The Turkish Ministry of Treasury and Finance may grant exceptions, however. Funds associated with any form of investment can be freely converted into any world currency. A limit on banks’ currency swap, forward and option transactions with non-resident partners at 10 percent of their capital since September 2020. In November 2020, the limit for swaps, forward and option transactions where banks pay Turkish lira at maturity was raised to up to 30 percent, depending on their remaining maturities. Turkey took a variety of such measures to prop up the Turkish lira, including the mandatory surrender and repatriation requirements on FX export proceeds; generally, within 180 days and at least 80 percent had to be surrendered to a local bank in exchange for Turkish liras. In January 2020, the surrender requirement was dropped, but the repatriation requirement remained. However, in January 2022 the Central Bank of the Republic of Turkey (CBRT) announced it would buy 25 percent of all euro, dollar, or British Pound-denominated export income from exporters.

There is no limit on the amount of foreign currency that may be brought into Turkey, but not more than 25,000 Turkish lira or 10,000 euros worth of foreign currency may be taken out without declaration. Although the Turkish lira is fully convertible, most international transactions are denominated in U.S. dollars or euros due to their universal acceptance. Banks deal in foreign exchange and do borrow and lend in foreign currencies. While for the most part foreign exchange is freely traded and widely available, a May 2019 government decree imposed a settlement delay for FX purchases by individuals of more than USD 100,000; there is also a 0.2 percent tax on FX purchases. The settlement delay provision was repealed in December of 2020. Foreign investors are free to convert and repatriate their Turkish lira profits.

The exchange rate was heavily managed by the CBRT with a “dirty float” regime until November 2020, when a new central bank governor assumed responsibility. After several months of increased policy rates, tight monetary policy, and a more stable Turkish lira, the governor was fired, because of which the lira quickly depreciated by 10 percent. Macroeconomic policy has remained largely unpredictable since then.

Remittance Policies

In Turkey, there have been no recent changes or plans to change investment remittance policies. Waiting periods for dividends, return on investment, interest and principal on private foreign debt, lease payments, royalties, and management fees do not exceed 60 days. There are no limitations on the inflow or outflow of funds for remittances of profits or revenue.

The GOT announced the creation of a sovereign wealth fund (called the Turkey Wealth Fund, or TVF) in August 2016. Unlike traditional sovereign wealth funds, the controversial fund consists of shares of state-owned enterprises (SOEs) and is designed to serve as collateral for raising foreign financing. However, the TVF has not launched any major projects since its inception. Several leading SOEs, such as natural gas distributor BOTAS, Turkish Airlines, and Ziraat Bank have been transferred to the TVF, which in 2020 became the largest shareholder in domestic telecommunications firm Turkcell. Critics worry management of the fund is opaque and politicized. The fund’s consolidated financial statements are available on its website (https://www.tvf.com.tr/en/investor-relations/reports ), although independent audits are not made publicly available. Firms within the fund’s portfolio appear to have increased their debt loads substantially since 2016. International ratings agencies consider the fund a quasi-sovereign. The fund was already exempt from many provisions of domestic commercial law and new legislation adopted April 16, 2020, granted it further exemptions from the Capital Markets Law and Turkish Commercial Code, while also allowing it to take ownership of distressed firms in strategic sectors. Turkey issued government debt securities worth USD 4.16 billion in April 2019 to support its state banks and TVF injected 21 billion Turkish Lira of additional capital in May 2020 into three public banks engaged in COVID-19 measures (Ziraat, Halkbank and Vakifbank).

In Turkey, responsible business conduct (RBC) is gaining traction. Reforms carried out as part of the EU harmonization process have had a positive effect on laws governing Turkish associations, especially non-governmental organizations (NGOs). However, recent democratic backsliding has reversed some of these gains, and there has been increasing pressure on civil society since the coup attempt.

Turkey has a National Contact Point (NCP), or central coordinating office, to assist companies in their efforts to adopt a due-diligence approach to responsible conduct. The NCP performs informative activities for the introduction of the Economic Cooperation and Development Organization (OECD)’s Guidelines for Multinational Enterprises and finalize the applications of alleged violations regarding the implementation of the Guidelines in an impartial, predictable, and fair manner and in accordance with the principles and standards included in the Guidelines. The Ministry of Industry and Technology’s General Directorate of Incentive Implementation and Foreign Investments is designated as the NCP of Turkey to promote the Guidelines, to examine and resolve complaints.Contact Information for the NCP:

Dr. Mehmet Yurdal ŞahinDirector General of Incentive Implementation and Foreign InvestmentMinistry of Industry and Technology turkeyncp@sanayi.gov.tr  Tel: +90 312 201 6702

NGOs and business associations are active in the economic sector; the Turkish Union of Chambers and Commodity Exchanges (TOBB) and the Turkish Industrialists’ and Businessmen’s Association (TÜSIAD) issue regular reports and studies, and hold events aimed at encouraging Turkish companies to become involved in policy issues. In addition to influencing the political process, these two NGOs also assist their members with civic engagement. The Business Council for Sustainable Development Turkey (http://www.skdturkiye.org/en ) and the Corporate Social Responsibility Association in Turkey (www.csrturkey.org ), founded in 2005, are two NGOs devoted exclusively to issues of responsible business conduct. The Turkish Ethical Values Center Foundation, the Private Sector Volunteers Association (www.osgd.org ) and the Third Sector Foundation of Turkey (www.tusev.org.tr ) also play an important role.

Additional Resources

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain

Climate Issues

Turkey has a Climate Change Action Plan 2011-2023, which can be found at https://webdosya.csb.gov.tr/db/iklim/editordosya/iklim_degisikligi_stratejisi_EN(2).pdf . In addition, the GOT signed the Paris Agreement in 2015 and ratified it on October 6, 2021. Turkey has registered its first non-binding Nationally Determined Contributions (NDCs) within the UN Framework Convention on Climate Change (UNFCCC). The NDC targets announced a 21 percent reduction target in greenhouse gases by 2030. Turkey is on its way to becoming a green energy leader, with 52 percent of installed electricity capacity from renewables and official goals to increase this number, but still lacks a plan to phase out coal power generation. In February 2022, the GOT held its first Climate Council. Coal currently accounts for over 30 percent of Turkey’s electricity production. The EU is Turkey’s biggest external market, and Turkish exporters will be subject to the EU’s carbon border tax, which could be as high as USD 1.8 billion annually, according to the Turkish Industry and Business Association. In August 2021, Turkey adopted a “Green Deal Action Plan” to comply with the European Green Deal. Turkey lacks an emissions trading system.

Corruption remains a concern, a reality reflected in Turkey’s sliding score in recent years in Transparency International’s annual Corruption Perceptions Index, where it ranked 96 of 180 countries and territories around the world in 2021. Government mechanisms to investigate and punish alleged abuse and corruption by state officials remained inadequate, and impunity remained a problem. Though independent in principle, the judiciary remained subject to government, and particularly executive branch, interference, including with respect to the investigation and prosecution of major corruption cases. (See the Department of State’s annual Country Reports on Human Rights Practices for more details: https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/). Turkey is a participant in regional anti-corruption initiatives such as the G20 Anti-Corruption working group. The Presidential State Supervisory Council is responsible for combating corruption.

Public procurement reforms were designed in Turkey to make procurement more transparent and less susceptible to political interference, including through the establishment of an independent public procurement board with the power to void contracts. Critics claim that government officials have continued to award large contracts to firms friendly with the ruling Justice and Development Party (AKP), especially for large public construction projects.

Turkish legislation prohibits bribery, but enforcement is uneven. Turkey’s Criminal Code makes it unlawful to promise or to give any advantage to foreign government officials in exchange for their assistance in providing improper advantage in the conduct of international business. The Financial Action Task Force (“FATF”) placed Turkey in October 2021 onto its list of countries subject to increased monitoring. Turkey was added alongside 22 other jurisdictions, for strategic deficiencies in its regime to counter money laundering, terrorist financing, and proliferation financing.

The provisions of the criminal law regarding bribing of foreign government officials are consistent with the provisions of the Foreign Corrupt Practices Act of 1977 of the United States (FCPA). There are, however, several differences between Turkish law and the FCPA. For example, there is no exception under Turkish law for payments to facilitate or expedite performance of a “routine governmental action” in terms of the FCPA. Another difference is that the FCPA does not provide for punishment by imprisonment, while Turkish law provides for punishment by imprisonment from 4 to 12 years. The Presidential State Supervisory Council, which advises the Corruption Investigations Committee, is responsible for investigating major corruption cases brought to its attention by the Committee. Nearly every state agency has its own inspector corps responsible for investigating internal corruption. The Parliament can establish investigative commissions to examine corruption allegations concerning cabinet ministers; a majority vote is needed to send these cases to the Supreme Court for further action.

Turkey ratified the OECD Convention on Combating Bribery of Public Officials and passed implementing legislation in 2003 to make bribing foreign, as well as domestic, officials illegal. In 2006, Turkey’s Parliament ratified the UN Convention against Corruption.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Organization: Presidential State Supervisory Council
Address: Beştepe Mahallesi, Alparslan Türkeş Caddesi, Devlet Denetleme Kurulu, Yenimahalle
Telephone number: Phone: +90 312 470 25 00
Fax: +90 312 470 13 03

Name: Seref Malkoc
Title: Chief Ombudsman
Organization: The Ombudsman Institution
Address: Kavaklidere Mah. Zeytin Dali Caddesi No:4 Cankaya ANKARA
Telephone number: +90 312 465 22 00
Email address: iletisim@ombudsman.gov.tr 

The period between 2015 and 2016 was one of the more violent times in Turkey since the 1970s. However, since January 2017, Turkey has experienced historically low levels of violence even when compared to past periods of calm, and the country has greatly ramped up internal security measures. Turkey can experience politically motivated violence, generally at the level of aggression against opposition politicians and political parties. A July 2016 attempted coup resulted in the death of more than 240 people and injured over 2,100 others. Since the July 2015 collapse of the cessation of hostilities between the government and the terrorist Kurdistan Workers’ Party (PKK), along with sister organizations like the Kurdistan Freedom Hawks (TAK), have regularly targeted security forces, with civilians often getting injured or killed by PKK and TAK attacks. (Both the PKK and TAK have been designated as terrorist organizations by the United States.)

Other U.S.-designated terrorist organizations such as the Islamic State of Iraq and Greater Syria (ISIS) and the leftist Revolutionary People’s Liberation Party/Front (DHKP/C) are present in Turkey and have conducted attacks in 2013, 2015, 2016, and early 2017. The indigenous Marxist-Leninist insurgent group, DHKP/C, for example, which was established in the 1970s and designated a terrorist organization by the U.S. in 1997, is responsible for several attacks against the U.S. Embassy in Ankara and the U.S. Consulate General Istanbul in recent years, including a suicide bombing at the embassy in 2013 that killed one local employee. The DHKP/C has stated its intention to commit further attacks against the United States, NATO, and Turkey. Still, widespread internal security measures, especially following the failed July 2016 coup attempt, seem to have hobbled its success. In addition, violent extremists associated with ISIS and other groups transited Turkey enroute to Syria in the past, though increased scrutiny by government officials and a general emphasis on increased security – including a newly constructed 911 km wall along Turkey’s border with Syria – has significantly curtailed this access route, especially when compared to the earlier years of the conflict.

There have been past instances of violence against religious missionaries and others perceived as proselytizing for a non-Islamic religion in Turkey, though none in recent years. On past occasions, perpetrators have threatened and assaulted Christian and Jewish individuals, groups, and places of worship, many of which receive specially assigned police protection, both for institutions and leadership. Anti-Semitic discourse periodically features in both popular rhetoric and public media, and evangelizing activities by foreigners tend to be viewed suspiciously by the country’s security apparatus. However, government officials support religious freedom as policy and points to Turkey’s religious minorities as a sign of the country’s diversity. Religious minority figures periodically meet with the country’s president and other senior members of national political leadership.

Turkey has a population of 84.7 million, with 22.4 percent under the age of 14 as of 2021. Ninety-three percent of the population lives in urban areas. Official figures put the labor force at 30.9 million in December 2020. Approximately one-fifth of the labor force works in agriculture (17.6 percent) while another fifth works in industrial sectors (20.5 percent). The country retains a significant informal sector at 30.6 percent. In 2021, the official unemployment rate stayed at 12 percent, with 22.6 percent unemployment among those 15-24 years old. Turkey provides twelve years of free, compulsory education to children of both sexes in state schools. Authorities continue to grapple with facilitating legal employment for working-age Syrians, a major subset of the 3.6 million displaced Syrian men, women, and children—unknown numbers of which were working informally.

Women constitute more than half of Turkey’s population, but their labor participation rate stands at 34.5 percent, while male labor participation is 71.8 percent. While most women remain out of the labor market, many are working in the informal economy, which presents unfavorable working conditions that are far from the four pillars of decent work definition of the International Labor Organization (ILO). The EU Delegation, various UN organizations, World Bank, the European Bank for Reconstruction and Development (EBRD), and other international financial institutions (IFIs) in Turkey are working together with multiple stakeholders including the GOT and its related public institutions, on projects related to women. Some provide entrepreneurship funds and vocational-education support, and some initiatives advocate for heightened expectations of local and foreign investors and loan recipients to including a female labor workforce agenda into their business proposals.

Turkey has an abundance of unskilled and semi-skilled labor, and vocational training schools exist at the high school level. There remains a shortage of high-tech workers. Individual high-tech firms, both local and foreign owned, typically conduct their own training programs. Within the scope of employment mobilization, the Ministry of Family, Labor, and Social Services, Turkish Employment Agency (ISKUR) and Turkey Union of Chambers and Commodity Exchanges (TOBB) has launched the Vocational Education and Skills Development Cooperation Protocol (MEGIP). Turkey has also undertaken a significant expansion of university programs, building dozens of new colleges and universities over the last decade.

The use of subcontracted workers for jobs not temporary in nature remained common, including by firms executing contracts for the state. Generally ineligible for equal benefits or collective bargaining rights, subcontracted workers—often hired via revolving contracts of less than a year duration— remained vulnerable to sudden termination by employers and, in some cases, poor working conditions. Employers typically utilized subcontracted workers to minimize salary/benefit expenditures and, according to critics, to prevent unionization of employees.

The law provides for the right of workers to form and join independent unions, bargain collectively, and conduct legal strikes. A minimum of seven workers is required to establish a trade union without prior approval. To become a bargaining agent, a union must represent 40 percent of the employees at a given work site and one percent of all workers in that industry. Certain public employees, such as senior officials, magistrates, members of the armed forces, and police, cannot form unions. Nonunionized workers, such as migrant seasonal agricultural laborers, domestic servants, and those in the informal economy, are also not covered by collective bargaining laws.

Unionization rates generally remain low. Independent labor unions—distinct from their government-friendly counterpart unions—reported that employers continued to use threats, violence, and layoffs in unionized workplaces across sectors. Service-sector union organizers report that private sector employers sometimes ignore the law and dismiss workers to discourage union activity. Turkish law provides for the right to strike but prohibits strikes by public workers engaged in safeguarding life and property and by workers in the coal mining and petroleum industries, hospitals and funeral industries, urban transportation, and national defense. The law explicitly allows the government to deny the right to strike for any situation it determines a threat to national security. Turkey has labor-dispute resolution mechanisms, including the Supreme Arbitration Board, which addresses disputes between employers and employees pursuant to collective bargaining agreements. Labor courts function effectively and relatively efficiently. Appeals, however, can last for years. If a court rules that an employer unfairly dismissed a worker and should either reinstate or compensate him or her, the employer generally pays compensation to the employee along with a fine.

Turkey has ratified key International Labor Organization (ILO) conventions protecting workers’ rights, including conventions on Freedom of Association and Protection of the Right to Organize; Rights to Organize and to Bargain Collectively; Abolition of Forced Labor; Minimum Age; Occupational Health and Safety; Termination of Employment; and Elimination of the Worst Forms of Child Labor. Implementation of a number of these, including ILO Convention 87 (Convention Concerning Freedom of Association and Protection of the Right to Organize) and Convention 98 (Convention Concerning the Application of the Principles of the Right to Organize and to Bargain Collectively), remained uneven. Implementation of legislation related to workplace health and safety likewise remained uneven. Child labor continued, including in its worst forms and particularly in the seasonal agricultural sector, despite ongoing government efforts to address the issue. See the Department of State’s annual Country Reports on Human Rights Practices for more details on Turkey’s labor sector and the challenges it continues to face.

The IMF’s Coordinated Direct Investment Survey (CDIS) data is not consistent with Turkey’s data as reported by the Central Bank of the Republic of Turkey, which can be found at: https://www.tcmb.gov.tr/wps/wcm/connect/TR/TCMB+TR/Main+Menu/Istatistikler/Odemeler+Dengesi+ve+Ilgili+Istatistikler/Uluslararasi+Yatirim+Pozisyonu/

IMF’s Coordinated Direct Investment Survey (CDIS) data available at: http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482331048410

Economic Specialist
American Embassy Ankara
110 Atatürk Blvd.
Kavaklıdere, 06100 Ankara – Turkey
Phone: +90 (312) 455-5555
Email: Ankara-ECON-MB@state.gov

FDI continues to play a key role in upholding the country’s economy. Vietnam Customs reported that FDI companies exported $247 billion worth of goods in 2021, representing 73.6 percent of total exports, a 21.1 percent increase over 2020. The government, at both central and municipal levels, actively seeks to welcome FDI.

The Politburo issued Resolution 55 in 2019 to increase Vietnam’s attractiveness to foreign investment. This Resolution aims to attract $50 billion in new foreign investment by 2030. In 2020, the government revised laws on investment and enterprise, in addition to passing the Public Private Partnership Law, to further the goals of this Resolution. The revisions encourage high-quality investments, use and development of advanced technologies, and environmental protection mechanisms.

While Vietnam’s revised Law of Investment says the government must treat foreign and domestic investors equally, foreign investors have complained about having to cross extra hurdles to get ordinary government approvals. The government continues to have foreign ownership limits (FOLs) in industries Vietnam considers important to national security. In January 2020, the government removed FOLs on companies in the electronic payment sector and reformed electronic payments procedures for foreign firms. Some U.S. investors report that these changes have provided more regulatory certainty, which has, in turn, instilled greater confidence as they consider long-term investments in Vietnam. U.S. investors continue to cite concerns about confusing tax regulations and retroactive changes to laws – including tax rates, tax policies, and preferential treatment of state-owned enterprises (SOEs). U.S. companies also reported facing difficulties in extending/renewing investment certificates – citing prolonged periods of non-responsiveness from government agencies. In 2021, a survey by the American Chamber of Commerce (AmCham) in Hanoi listed the need for “administrative reforms that streamline regulations and promote transparency” as the top key element of a roadmap for a sustainable growth in Vietnam.

The Ministry of Planning and Investment (MPI) is the country’s national agency charged with promoting and facilitating foreign investment; most provinces and cities also have local equivalents. MPI and local investment promotion offices provide information and explain regulations and policies to foreign investors. They also inform the Prime Minister and National Assembly on trends in foreign investment. However, U.S. investors should still consult legal counsel and/or other experts regarding issues on regulations that are unclear.

Vietnam’s senior leaders often meet with foreign governments and private-sector representatives to emphasize Vietnam’s attractiveness as an FDI destination. The semiannual Vietnam Business Forum includes meetings between foreign investors and Vietnamese government officials. The U.S.-ASEAN Business Council (USABC), AmCham, and other U.S. associations also host multiple yearly missions for their U.S. company members, which allow direct engagement with senior government officials. Foreign investors in Vietnam have reported that these meetings and dialogues have helped address obstacles.

Both foreign and domestic private entities have the right to establish and own business enterprises in Vietnam and engage in most forms of legal remunerative activity in non-regulated sectors.

Vietnam has some statutory restrictions on foreign investment, including FOLs or requirements for joint partnerships, projects in banking, network infrastructure services, non-infrastructure telecommunication services, transportation, energy, and defense. The new Decree 31/2021/ND-CP dated 26 March 2021 provides a list of 25 business lines in which foreigners are prohibited to invest and 59 other business lines subjected to market access requirements. By law, the Prime Minister can waive these FOLs on a case-by-case basis. In practice, however, when the government has removed or eased FOLs, it has done so for the whole industry sector rather than for a specific investment.

MPI plays a key role with respect to investment screening. All FDI projects required approval by the People’s Committee in the province in which the project would be located. By law, large-scale FDI projects must also obtained the approval of the National Assembly before investment can proceed. MPI’s approval process includes an assessment of the investor’s legal status and financial strength; the project’s compatibility with the government’s long- and short-term goals for economic development and government revenue; the investor’s technological expertise; environmental protection; and plans for land use and land clearance compensation, if applicable. The government can, and sometimes does, stop certain foreign investments if it deems the investment harmful to Vietnam’s national security.

The following FDI projects also require the Prime Minister’s approval: airports; grade 1 seaports (seaports the government classifies as strategic); casinos; oil and gas exploration, production, and refining; telecommunications/network infrastructure; forestry projects; publishing; and projects that need approval from more than one province. In 2021, the government removed the requirement that the Prime Minister needs to approve investments over $271 million or investments in the tobacco industry.

Recent third-party investment policy reviews include:
WTO’s 2021 Trade Policy Review  
World Bank’s Review from 2020  
OECD’s 2018 Review  
UNCTAD Investment Policy Review  

The Government of Vietnam has several initiatives in progress to implement administrative reforms, such as building e-Government platforms and single window services. In May 2021, USAID and the Vietnam Chamber of Commerce and Industry (VCCI) released the Provincial Competitiveness Index (PCI) 2020 Report, which examined trends in economic governance. This annual report provides an independent, unbiased view on the provincial business environment by surveying over 8,500 domestic private firms on a variety of business issues. Overall, Vietnam’s median PCI score improved, reflecting the government’s efforts to improve economic governance and the quality of infrastructure, as well as a decline in the prevalence of corruption.

Vietnam’s nationwide business registration site is here. In addition, as a member of the UNCTAD international network of transparent investment procedures, information on Vietnam’s investment regulations can be found online (Vietnam Investment Regulations Website). The website provides information for foreign and national investors on administrative procedures applicable to investment and income generating operations, including the number of steps, name, and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal and regulatory citations for seven major provinces.

The government does not have a clear mechanism to promote or incentivize outward investment, nor does it have regulations restricting domestic investors from investing abroad. According to a preliminary report from the General Statistics Office, Vietnam invested $819 million in 134 projects abroad in 2020. By the end of 2020, total outward FDI investment from Vietnam was $21 billion in more than 1,400 projects in 78 countries. Laos received the most outward FDI, with $5 billion, followed by Russia and Cambodia with $2.8 billion and $2.7 billion, respectively. The main sectors of outward investment for Vietnam are mining, agriculture, forestry and fisheries, telecommunication, and energy.

U.S. companies continue to report that they face frequent and significant challenges with inconsistent regulatory interpretation, irregular enforcement, and an unclear legal framework. AmCham members have consistently voiced concerns that Vietnam lacks a fair legal system for investments, which affects U.S. companies’ ability to do business in Vietnam. The 2020 PCI report documented companies’ difficulties dealing with land, taxes, and social insurance issues, but also found improvements in procedures related to business administration and anti-corruption.

Accounting systems are inconsistent with international norms, and this increases transaction costs for investors. The government had previously said it intended to have most companies transition to International Financial Reporting Standards (IFRS) by 2020. Unable to meet this target, the Ministry of Finance in March 2020 extended the deadline to 2025.

In Vietnam, the National Assembly passes laws, which serve as the highest form of legal direction, but often lack specifics. Ministries provide draft laws to the National Assembly. The Prime Minister issues decrees, which provide guidance on implementation. Individual ministries issue circulars, which provide guidance on how a ministry will administer a law or decree.

After implementing ministries have cleared a particular law to send the law to the National Assembly, the government posts the law for a 60-day comment period. However, in practice, the public comment period is sometimes truncated. Foreign governments, NGOs, and private-sector companies can, and do, comment during this period, after which the ministry may redraft the law. Upon completion of the revisions, the ministry submits the legislation to the Office of the Government (OOG) for approval, including the Prime Minister’s signature, and the legislation moves to the National Assembly for committee review. During this process, the National Assembly can send the legislation back to the originating ministry for further changes. The Communist Party of Vietnam’s Politburo reserves the right to review special or controversial laws.

In practice, drafting ministries often lack the resources needed to conduct adequate data-driven assessments. Ministries are supposed to conduct policy impact assessments that holistically consider all factors before drafting a law, but the quality of these assessments varies.

The Ministry of Justice (MOJ) oversees administrative procedures for government ministries and agencies. The MOJ has a Regulatory Management Department, which oversees and reviews legal documents after they are issued to ensure compliance with the legal system. The Law on the Promulgation of Legal Normative Documents requires all legal documents and agreements to be published online and open for comments for 60 days, and to be published in the Official Gazette before implementation.

Business associations and various chambers of commerce regularly comment on draft laws and regulations. However, when issuing more detailed implementing guidelines, government entities sometimes issue circulars with little advance warning and without public notification, resulting in little opportunity for comment by affected parties. In several cases, authorities allowed comments for the first draft only and did not provide subsequent draft versions to the public. The centralized location where key regulatory actions are published can be found here .

The Ministry of Finance has provisions laws instructing public companies to produce an annual report disclosing their environmental, social and corporate governance policies. In 2016, the State Securities Commission of Vietnam, in cooperation with the International Finance Corporation, published an Environmental and Social Disclosure Guide which encourages independent external assurance. While almost all public companies in Vietnam now perform an environmental and social impact assessment when investing in a new project, many see this exercise as merely procedural.

While general information is publicly available, Vietnam’s public finances and debt obligations (including explicit and contingent liabilities) are not transparent. The National Assembly set a statutory limit for public debt at 65 percent of nominal GDP, and, according to official figures, Vietnam’s public debt to GDP ratio at the end of 2021 was 43.7 percent – down from 53.3 percent the previous year. However, the official public-debt figures exclude the debt of certain large SOEs. This poses a risk to Vietnam’s public finances, as the government is liable for the debts of these companies. Vietnam could improve its fiscal transparency by making its executive budget proposal, including budgetary and debt expenses, widely and easily accessible to the general public long before the National Assembly enacts the budget, ensuring greater transparency of off-budget accounts, and by publicizing the criteria by which the government awards contracts and licenses for natural resource extraction.

Vietnam’s legal system mixes indigenous, French, and Soviet-inspired civil legal traditions. Vietnam generally follows an operational understanding of the rule of law that is consistent with its top-down, one-party political structure and traditionally inquisitorial judicial system, though in recent years the country has begun gradually introducing elements of an adversarial system.

The hierarchy of the country’s courts is: 1) the Supreme People’s Court; 2) the High People’s Court; 3) Provincial People’s Courts; 4) District People’s Courts, and 5) Military Courts. The People’s Courts operate in five divisions: criminal, civil, administrative, economic, and labor. The Supreme People’s Procuracy is responsible for prosecuting criminal activities as well as supervising judicial activities.

Vietnam lacks an independent judiciary and separation of powers among Vietnam’s branches of government. For example, Vietnam’s Chief Justice is also a member of the Communist Party’s Central Committee. According to Transparency International, there is significant risk of corruption in judicial rulings. Low judicial salaries engender corruption; nearly one-fifth of surveyed Vietnamese households that have been to court declared that they had paid bribes at least once. Many businesses therefore avoid Vietnamese courts as much as possible.

The judicial system continues to face additional problems: for example, many judges and arbitrators lack adequate legal training and are appointed through personal or political contacts with party leaders or based on their political views. Regulations or enforcement actions are appealable, and appeals are adjudicated in the national court system. Through a separate legal mechanism, individuals and companies can file complaints against enforcement actions under the Law on Complaints.

The 2005 Commercial Law regulates commercial contracts between businesses. Specific regulations prescribe specific forms of contracts, depending on the nature of the deals. If a contract does not contain a dispute-resolution clause, courts will have jurisdiction over a dispute. Vietnamese law allows dispute-resolution clauses in commercial contracts explicitly through the Law on Commercial Arbitration. The law follows the United Nations Commission on International Trade Law (UNCITRAL) model law as an international standard for procedural rules.

Vietnamese courts will only consider recognition of civil judgments issued by courts in countries that have entered into agreements on recognition of judgments with Vietnam or on a reciprocal basis. However, with the exception of France, these treaties only cover non-commercial judgments.

The legal system includes provisions to promote foreign investment. Vietnam uses a “negative list” approach to approve foreign investment, meaning foreign businesses are allowed to operate in all areas except for six prohibited sectors – from which domestic businesses are also prohibited. These include illicit drugs, wildlife trade, prostitution, human trafficking, human cloning, and debt collection services.

The law also requires that foreign and domestic investors be treated equally in cases of nationalization and confiscation. However, foreign investors are subject to different business-licensing processes and restrictions, and companies registered in Vietnam that have majority foreign ownership are subject to foreign-investor business-license procedures.

The Ministry of Planning and Investment enacted Circular No. 02/2022/TT-BKHĐT, which came into effect on April 1, 2022, guiding the supervision and investment assessments of foreign investment activities in Vietnam, providing a common template. It also examines the implementation of financial obligations towards the State; the execution of legal provisions on labor, foreign exchange control, environment, land, construction, fire prevention and fighting and other specialized legal regulations; the financial situation of the foreign-invested economic organization; and other provisions related to the implementation of investment projects.

The 2019 Labor Code, which came into effect January 1, 2021, provides greater flexibility in contract termination, allows employees to work more overtime hours, increases the retirement age, and adds flexibility in labor contracts.

The Law on Investment, revised in June 2020, stipulated that Vietnam would encourage FDI through financial incentives in the areas of university education, pollution mitigation, and certain medical research. The Public Private Partnership Law, passed in June 2020, lists transportation, electricity grid and power plants, irrigation, water supply and treatment, waste treatment, health care, education, and IT infrastructure as prioritized sectors for FDI and public-private partnerships.

Vietnam has a “one-stop-shop” website for investment that provides relevant laws, rules, procedures, and reporting requirements for investors.

The Vietnam Competition and Consumer Authority (“VCCA”) of MOIT reviews transactions subject to complaints for competition-related concerns. In 2021, VCCA reported that 125 merger control notifications, most of which related to real estate, have been submitted since 2019. Thirty percent of cases notified involved offshore transactions. The VCCA clarified that the Vietnam merger control regime seeks to regulate only relevant transactions that may have an anticompetitive impact on Vietnamese markets, especially those that enable enterprises to hold a dominant or monopoly position and heighten the risk of an abuse of dominance.

Under the law, the government of Vietnam can only expropriate investors’ property in cases of emergency, disaster, defense, or national interest, and the government is required to compensate investors if it expropriates property. Under the U.S.-Vietnam Bilateral Trade Agreement, Vietnam must apply international standards of treatment in any case of expropriation or nationalization of U.S. investor assets, which includes acting in a non-discriminatory manner with due process of law and with prompt, adequate, and effective compensation. The U.S. Mission in Vietnam is unaware of any current expropriation cases involving U.S. firms.

Under the 2014 Bankruptcy Law, bankruptcy is not criminalized unless it relates to another crime. The law defines insolvency as a condition in which an enterprise is more than three months overdue in meeting its payment obligations. The law also provides provisions allowing creditors to commence bankruptcy proceedings against an enterprise and procedures for credit institutions to file for bankruptcy. According to the World Bank’s 2020 Ease of Doing Business Report, Vietnam ranked 122 out of 190 for resolving insolvency. The report noted that it still takes five years on average to conclude a bankruptcy case in Vietnam. The Credit Information Center of the State Bank of Vietnam provides credit information services for foreign investors concerned about the potential for bankruptcy with a Vietnamese partner.

Foreign investors are exempt from import duties on goods imported for their own use that cannot be procured locally, including machinery; vehicles; components and spare parts for machinery and equipment; raw materials; inputs for manufacturing; and construction materials. Remote and mountainous provinces and special industrial zones are allowed to provide additional tax breaks and other incentives to prospective investors.

Investment incentives, including lower corporate income tax rates, exemption of some import tariffs, or favorable land rental rates, are available in the following sectors: advanced technology; research and development; new materials; energy; clean energy; renewable energy; energy saving products; automobiles; software; waste treatment and management; and primary or vocational education.

The government rarely issues guarantees for financing FDI projects; when it does so, it is usually because the project links to a national security priority. Joint financing with the government occurs when a foreign entity partners with an SOE. The government’s reluctance to guarantee projects reflects its desire to stay below a statutory 65 percent public debt-to-GDP ratio cap, and a desire to avoid incurring liabilities from projects that would not be economically viable without the guarantee. This has delayed approval of many large-scale FDI projects.

Vietnam’s Ministry of Industry and Trade (MOIT) is seeking to implement a Direct Power Purchase Agreement (DPPA) pilot scheme which, for the first time, will enable renewable energy generators to directly sell clean electricity to private-sector customers. Under current electricity regulations in Vietnam, Electricity Vietnam (EVN) has a statutory monopoly over the transmission, distribution, wholesale, and retail of electricity and is also the sole off taker in the market. The pilot scheme is expected to run from 2022 to 2024 and support Vietnam’s transition in the liberalization of Vietnam’s wholesale and retail electricity markets. It is anticipated that DPPAs will be introduced into the market on a permanent basis from 2025 onwards.

Vietnam has prioritized efforts to establish and develop different kinds of foreign trade zones (FTZs) over the last decade. Industrial Zones (IZs) are dedicated areas for industrial activities; Export Processing Zones (EPZs) are specific kind of IZ, focused on export-oriented production and activities.  Vietnam currently has more than 350 IZs and EPZs. Many foreign investors report that it is easier to implement projects in IZs than in other types of zoned land because they do not have to be involved in site clearance and infrastructure construction. Enterprises in FTZs pay no duties when importing raw materials if they export the finished products. Customs warehouse companies in FTZs can provide transportation services and act as distributors for the goods deposited.

Additional services relating to customs declaration, appraisal, insurance, reprocessing, or packaging require the approval of the provincial customs office. In practice, the time involved for clearance and delivery of goods by provincial custom officials can be lengthy and unpredictable. Companies operating in economic zones are entitled to more tax reductions as measures to incentivize investments.

According to the Law on Investment (LOI) 2020, Article 11 “Guarantees for business investment activities,” the State cannot require investors to:

• Give priority to purchase or use of domestic goods/services; or only purchase or use goods/services provided by domestic producers/service providers;
• Achieve a certain export target; restrict the quantity, value, types of goods/services that are exported or domestically produced/provided;
• Import a quantity/value of goods that is equivalent to the quantity/value of goods exported; or balance foreign currencies earned from export to meet import demands;
• Reach a certain rate of import substitution;
• Reach a certain level/value of domestic research and development;
• Provide goods/service at a particular location in Vietnam or overseas; and
• Have the headquarters situated at a location requested by a competent authority.

There are additional market entry requirements and limitations for investments in “conditional” sectors listed in Appendix IV of the LOI. As of March 2022, MPI and respective ministries and regulatory agencies are working to specify detailed conditions for each sector. All investors, foreign or domestic, must obtain formal approval, in the form of business licenses or other certifications, to satisfy “necessary conditions for reasons of national defense, security or order, social safety, social morality, and health of the community.”

In addition, the LOI 2020 also introduces the regulation of sectors “with market entry restrictions,” including: (i) Percentage ownership limits; (ii) Restrictions on the form of investment; (iii) Restrictions on the scope of business and investment activities; (iv) Financial capacity of the investors and partners; and (v) Other conditions under international treaties and Vietnamese law. As of March 2022, MPI is drafting additional guidance to specify conditions for each sector.

In addition to market access conditions, the LOI 2020 adds two additional conditions for foreign investors investing in or acquiring capital/share in a Vietnamese company as follows:

• The investment must not compromise national defense and security of Vietnam; and
• The investment must comply with the conditions relating to the use of sea-lands, borderlands, and coastal lands in accordance with the applicable laws.

The term “national defense and security” is not defined under the LOI 2020; this ambiguity gives regulatory agencies considerable flexibility to restrict investment activities in sensitive sectors or locations. Future investment projects could also be ratified based on other laws, National Assembly Resolution, Ordinance, National Assembly Standing Committee’s Resolution, Government Decree and international treaties, which has been creating complexity and volatility in Vietnam’s business investment.

For existing investment projects, the extension of the investment term will not be granted to any project using outdated technology, having any potential negative impact on the environment, or involving any exploitation of natural resources.

On January 1, 2019, the Law on Cybersecurity (LOCS) came into effect, requiring cross-border services to store data of Vietnamese users in Vietnam and establish local presence, despite sustained international and domestic opposition to the regulation. The government committed to consider comments from the U.S. government, companies, and trade associations and promised to consult with the U.S. government before finalization. In September 2020, the Ministry of Public Security (MPS) released a partial draft Decree to guide the implementation of the LOCS, which requires foreign services providers to localize their data and establish local presence only when they violate Vietnamese laws and fail to cooperate with MPS to address their violations. However, local companies must comply with data localization requirements, which would cause unnecessary burdens for local companies and foreign business partners. The draft Decree is also expected to prescribe procedures for law enforcement to handle digital evidence, which may include source code and/or access to encryption, to serve criminal investigation. As of March 2022 the latest version of the draft Decree is reportedly with the Office of the Government for the Prime Minister’s approval.

In early 2020, the MPS released a draft outline of the Personal Data Protection Decree (PDPD) and then published the first full draft in February 2021 for public comment. Industry and human rights activists have major concerns about data localization provision for personal data, including requirements for local presence, licensing, and registration procedures. If implemented as written, the heavy-handed regulations of cross-border transfer of personal data would affect a wide range of Internet companies. In February 2022, Deputy Prime Minister Vu Duc Dam announced that the GVN sent the draft Decree to National Assembly, specifically to the National Assembly Standing Committee, for further review. The Prime Minister set out the deadline of May 2022 for the approval of the Decree and also tasked the MPS to start developing a new Law on Data Privacy.

The State collectively owns and manages all land in Vietnam, and therefore neither foreigners nor Vietnamese nationals can own land. However, the government grants land-use and building rights, often to individuals. According to the Ministry of National Resources and Environment (MONRE), as of September 2018 – the most recent time period in which the government has made figures available – the government has issued land-use rights certificates for 96.9 percent of land in Vietnam. If land is not used according to the land-use rights certificate or if it is unoccupied, it reverts to the government. If investors do not use land leased within 12 consecutive months or delay land use by 24 months from the original investment schedule, the government is entitled to reclaim the land. Investors can seek an extension of delay but not for more than 24 months. Vietnam is building a national land-registration database, and some localities have already digitized their land records.

State protection of property rights are still evolving, and the law does not clearly demarcate circumstances in which the government would use eminent domain. Under the Housing Law and Real Estate Business Law of November 2014, the government can take land if it deems it necessary for socio-economic development in the public or national interest if the Prime Minister, the National Assembly, or the Provincial People’s Council approves such action. However, the law loosely defines “socio-economic development.”

Disputes over land rights continue to be a significant driver of social protests in Vietnam. Foreign investors also may be exposed to land disputes through merger and acquisition activities when they buy into a local company or implement large-scale infrastructure projects.

Foreign investors can lease land for renewable periods of 50 years, and up to 70 years in some underdeveloped areas. This allows titleholders to conduct property transactions, including mortgages on property. Some investors have encountered difficulties amending investment licenses to expand operations onto land adjoining existing facilities. Investors also note that local authorities may seek to increase requirements for land-use rights when current rights must be renewed, particularly when the investment in question competes with Vietnamese companies.

Vietnam does not have a strong record on protecting and enforcing intellectual property (IP). Fractured authority and lack of coordination among ministries and agencies responsible for enforcement are the primary obstacles, and capacity constraints related to enforcement persist, in part, due to a lack of resources and IP expertise. Vietnam has no specialized IP courts and judges, thus continuing to rely heavily on administrative enforcement actions, which have consistently failed to deter widespread counterfeiting and piracy.

There were some positive developments in 2020-2021, such as the issuance of a national IP strategy, public awareness campaigns and training activities, and reported improvements on border enforcement in some parts of the country. The 2005 IP Law is currently under revision with amendments planned to be passed in May 2022. It is expected that the law would bring Vietnam’s IP regulations in line with its commitments under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA). However, IP enforcement continues to be a challenge.

The United States is closely monitoring and engaging with the Vietnamese government in the ongoing implementation of amendments to the Penal Code, particularly with respect to criminal enforcement of IP violations. Counterfeit goods are widely available online and in physical markets. In addition, issues persist with online piracy (including the use of piracy devices and applications to access unauthorized audiovisual content), book piracy, lack of effective criminal measures for cable and satellite signal theft, and both private and public-sector software piracy.

Vietnam’s system for protecting against the unfair commercial use and unauthorized disclosure of undisclosed tests or other data generated to obtain marketing approval for pharmaceutical products needs further clarification. The United States is monitoring the implementation of IP provisions of the CPTPP, and the EVFTA. The EVFTA grandfathered prior users of certain cheese terms from the restrictions in the geographical indications provisions of the EVFTA, and it is important that Vietnam ensure market access for prior users of those terms who were in the Vietnamese market before the grandfathering date of January 1, 2017.

In its international agreements, Vietnam committed to strengthen its IP regime and is in the process of drafting implementing legislation and other measures in a number of IP-related areas, including in preparation for acceding to the World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Performances and Phonograms Treaty. In September 2019, Vietnam acceded to the Hague Agreement Concerning the International Registration of Industrial Designs, and the United States will monitor implementation of that agreement.

The United States, through the U.S.-Vietnam Trade and Investment Framework Agreement (TIFA) and other bilateral fora, continues to urge Vietnam to address IP issues and to provide interested stakeholders with meaningful opportunities for input as it proceeds with these reforms. The United States and Vietnam signed a Customs Mutual Assistance Agreement in December 2019, which will facilitate bilateral cooperation in IP enforcement.

For more information, please see the following reports from the U.S. Trade Representative:

• Special 301 Report
• Notorious Markets Report

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles .

The government generally encourages foreign portfolio investment. The country has two stock markets: the Ho Chi Minh City Stock Exchange (HOSE), which lists publicly traded companies, and the Hanoi Stock Exchange, which lists bonds and derivatives. The Law on Securities, which came into effect January 1, 2021, states that Vietnam Exchange, a parent company to both exchanges, with board members appointed by the government, will manage trading operations. Vietnam also has a market for unlisted public companies (UPCOM) at the Hanoi Securities Center.

Although Vietnam welcomes portfolio investment, the country sometimes has difficulty in attracting such investment. Morgan Stanley Capital International (MSCI) classifies Vietnam as a Frontier Market, which precludes some of the world’s biggest asset managers from investing in its stock markets.

Vietnam did not meet its goal to be considered an “emerging market” in 2020 and pushed back the timeline to 2025. Foreign investors often face difficulties in making portfolio investments because of cumbersome bureaucratic procedures. Furthermore, in the first three months of 2021, surges in trading frequently crashed the HOSE’s decades-old technology platform, resulting in investor frustration. Vietnam put into place the HOSE’s interim trading platform in July 2021, provided by FPT Corporation – Vietnam’s largest information technology service company – that has addressed HOSE’s overload issues while awaiting the new trading system purchased from the South Korean Exchange (KRX). The new system is expected to begin official operations in late 2022 and meet the requirements for Vietnam’s stock trading, including market information, market surveillance, clearing, settlement and depository and registration.

There is enough liquidity in the markets to enter and maintain sizable positions. Combined market capitalization at the end of 2021 was approximately $334 billion, equal to 92 percent of Vietnam’s GDP, with the HOSE accounting for $250 billion, the Hanoi Exchange $21 billion, and the UPCOM $60 billion. Bond market capitalization reached over $64 billion in 2021, the majority of which were government bonds held by domestic commercial banks.

Vietnam complies with International Monetary Fund (IMF) Article VIII. The government notified the IMF that it accepted the obligations of Article VIII, Sections 2, 3, and 4, effective November 8, 2005.

Local banks generally allocate credit on market terms, but the banking sector is not as sophisticated or capitalized as those in advanced economies. Foreign investors can acquire credit in the local market, but both foreign and domestic firms often seek foreign financing since domestic banks do not have sufficient capital at appropriate interest rate levels for a significant number of FDI projects.

Vietnam’s banking sector has been stable since recovering from the 2008 global recession. Nevertheless, the State Bank of Vietnam (SBV), Vietnam’s central bank, estimated in 2020 that 30 percent of Vietnam’s population is underbanked or lacks bank accounts due to a preference for cash, distrust in commercial banking, limited geographical distribution of banks, and a lack of financial acumen. The World Bank’s Global Findex Database 2017 (the most recent available) estimated that only 31 percent of Vietnamese over the age of 15 had an account at a financial institution or through a mobile money provider.

The COVID-19 pandemic increased strains on the financial system as an increasing number of debtors were unable to make loan payments. However, low capital cost, together with credit growth rally, increased bank profits in 2021 by 25 percent compared to 2020. At the end of 2021, the SBV reported that the percentage of non-performing loans (NPLs) in the banking sector was 1.9 percent, up from 1.7 percent at the end of 2020.

By the end of 2021, per SBV, the banking sector’s estimated total assets stood at $651 billion, of which $268 billion belonged to seven state-owned and majority state-owned commercial banks – accounting for 41 percent of total assets in the sector. Though classified as joint-stock (private) commercial banks, the Bank of Investment and Development Bank (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) all are majority-owned by SBV. In addition, the SBV holds 100 percent of Agribank, Global Petro Commercial Bank (GPBank), Construction Bank (CBBank), and Oceanbank.

Currently, the total foreign ownership limit (FOL) in a Vietnamese bank is 30 percent, with a 5 percent limit for non-strategic individual investors, a 15 percent limit for non-strategic institutional investors, and a 20 percent limit for strategic institutional partners.

The U.S. Mission in Vietnam did not find any evidence that a Vietnamese bank had lost a correspondent banking relationship in the past three years; there is also no evidence that a correspondent banking relationship is currently in jeopardy.

Vietnam does not have a sovereign wealth fund.

The 2020 Enterprises Law, which came into effect January 1, 2021, defines an SOE as an enterprise that is more than 50 percent owned by the government. Vietnam does not officially publish a list of SOEs.

In 2018, the government created the Commission for State Capital Management at Enterprises (CMSC) to manage SOEs with increased transparency and accountability. The CMSC’s goals include accelerating privatization in a transparent manner, promoting public listings of SOEs, and transparency in overall financial management of SOEs.

SOEs do not operate on a level playing field with domestic or foreign enterprises and continue to benefit from preferential access to resources such as land, capital, and political largesse. Third-party market analysts note that a significant number of SOEs have extensive liabilities, including pensions owed, real estate holdings in areas not related to the SOE’s ostensible remit, and a lack of transparency with respect to operations and financing.

Vietnam officially started privatizing SOEs in 1998. The process has been slow because privatization typically transfers only a small share of an SOE (two to three percent) to the private sector, and investors have had concerns about the financial health of many companies. Additionally, the government has inadequate regulations with respect to privatization procedures.

Companies are required to publish their corporate social responsibility activities, corporate governance work, information of related parties and transactions, and compensation of management. Companies must also announce extraordinary circumstances, such as changes to management, dissolution, or establishment of subsidiaries, within 36 hours of the event.

Most multinational companies implement Corporate Social Responsibility (CSR) programs that contribute to improving the business environment in Vietnam, and awareness of CSR programs is increasing among large domestic companies. The VCCI conducts CSR training and highlights corporate engagement on a dedicated website  in partnership with the UN.

AmCham also has a CSR group that organizes events and activities to raise awareness of social issues. Non-governmental organizations collaborate with government bodies, such as VCCI and the Ministry of Labor, Invalids, and Social Affairs (MOLISA), to promote business practices in Vietnam in line with international norms and standards.

The Extractive Industries Transparency Initiative was introduced to Vietnam many years ago but the government has not officially participated in it. Overall, the government has not defined responsible business conduct (RBC), nor has it established a national plan or agenda for RBC. The government has yet to establish a national point of contact or ombudsman for stakeholders to get information or raise concerns regarding RBC. The new Labor Code, which came into effect January 1, 2021, recognizes the right of employees to establish their own representative organizations, allows employees to unilaterally terminate labor contracts without reason, and extends legal protection to non-written contract employees. For a detailed description of regulations on worker/labor rights in Vietnam, see the Department of State’s 2020 Human Rights Report.

Vietnam participates in the OECD Southeast Asia Regional Program since its launch in 2014 and has cooperated in several policy reviews with the OECD, notably Investment Policy Reviews (2009 and 2018), Clean Energy Finance (2021), and the Vietnam Economic Review (forthcoming). Vietnam also participates in the OECD-Southeast Asia Corporate Governance Initiative. Engagement with businesses will include activities in the agriculture (with a focus on seafood), garment and footwear sectors, and building resilient supply chains. Vietnam doesn’t have any domestic measures requiring supply chain due diligence for companies that source minerals that may originate from conflict-affected areas.

Vietnam’s Law on Consumer Protection is largely ineffective, according to industry experts. A consumer who has a complaint on a product or service can petition the Association for Consumer Protection (ACP) or district governments. ACP is a non-governmental, volunteer organization that lacks law enforcement or legal power, and local governments are typically unresponsive to consumer complaints. The Vietnamese government has not focused on consumer protection over the last several years.

Vietnam allows foreign companies to work in private security. Vietnam has not ratified the Montreux Documents, is not a supporter of the International Code of Conduct or Private Security Service Providers and is not a participant in the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).

Vietnamese legislation clearly specifies businesses’ responsibilities regarding environmental protection. The revised 2020 Environmental Protection Law, which came into effect on January 1, 2022, states that environmental protection is the responsibility and obligation of all organizations, institutions, communities, households, and individuals. The law also specifies that manufacturers bear two responsibilities, including responsibility for waste recycling and responsibility for waste treatment.

The Penal Code, revised in 2017, includes a chapter with 12 articles regulating different types of environmental crimes. In accordance with the Penal Code, penalties for infractions carry a maximum of 15 years in prison and a fine equivalent to $650,000. However, enforcement remains a problem. To date, no complaint or request for compensation due to damages caused by pollution or other environmental violations has ever been successfully resolved in court due to difficulties in identifying the level of damages and proving the relationship between violators and damages.

In the past several years, there have been high-profile, controversial instances of impacts on human rights by commercial activities – particularly over the revocation of land for real estate development projects. Government suppression of these protests ranged from intimidation and harassment via the media (including social media) to imprisonment. There are numerous examples of government-supported forces beating protestors, journalists, and activists covering land issues. Victims have reported they are unable to press claims against their attackers.

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

At COP 26, the Prime Minister announced Vietnam’s commitment to net zero emissions by 2050. Right after the event, Vietnam established a National Steering Committee on Implementation of COP 26 Commitments headed by the Prime Minister. The Prime Minister has requested all relevant ministries to study and develop programs to fulfill Vietnam’s commitments. Vietnam issued a climate change strategy in 2011 that will be valid through 2030, with “a vision” to 2050, and it has reviewed implementation for the 2011-2020 period. Vietnam is revising the strategy to achieve the net zero commitment, with the new version expected to be released by the end of 2022. The country is also updating its Nationally Determined Contributions in line with its net zero emission commitment.

On October 1, 2021, Vietnam issued its National Strategy on Green Growth in the 2021-2030 Period, with a Vision to 2050. The strategy sets specific goals on GHG reductions and tasks various Ministries to develop specific plans and strategies. The strategy also targets at a 35 per cent green procurement proportion of the total public procurement.

On February 7, 2022, Vietnam approved the National Biodiversity Strategy for the 2021-2030 period. Vietnam will increase the size of its protected and restored natural eco-systems under the new strategy, aiming to conserve and use biodiversity as a sustainable response to the effects of climate change.

The New Decree 08/ND-CP issued in January 2022 regulating in details the implementation of the 2020 Environment Protection Law has specified three groups of environmental businesses that will be qualified for incentives, including businesses involved in the waste collection, treatment, re-use or recycling; businesses manufacturing or supplying technologies, equipment, products and services serving the environmental protection and non-business operations related to the environmental protection such as application of best technologies earlier than regulated, installation of waste water, air quality monitoring systems earlier than scheduled. The incentives listed under the Decree include investment capital support from Environmental Protection Funds, Vietnam Development Fund, preferential terms for taxes, fees and charges, and land support.

Vietnam has laws to combat corruption by public officials, and they extend to all citizens. Communist Party of Vietnam General Secretary Nguyen Phu Trong has made fighting corruption a key focus of his administration, and the CPV regularly issues lists of Party and other government officials that have been disciplined or prosecuted. Trong recently expanded the campaign to include “anti-negativity,” described loosely as acts that can cause public anger or reputational harm to the CPV. Nevertheless, corruption remains rife. Corruption is due, in large part, to low levels of transparency, accountability, and media freedom, as well as poor remuneration for government officials and inadequate systems for holding officials accountable. Competition among agencies for control over businesses and investments has created overlapping jurisdictions and bureaucratic procedures that, in turn, create opportunities for corruption.

The government has tasked various agencies to deal with corruption, including the Central Steering Committee for Anti-Corruption (chaired by the General Secretary Trong), the Government Inspectorate, and line ministries and agencies. Formed in 2007, the Central Steering Committee for Anti-Corruption has been under the purview of the CPV Central Commission of Internal Affairs since February 2013. The National Assembly provides oversight on the operations of government ministries. Civil society organizations have encouraged the government to establish a single independent agency with oversight and enforcement authority to ensure enforcement of anti-corruption laws.

Contact at the government agency or agencies that are responsible for combating corruption:
Mr. Phan Dinh Trac
Chairman of Communist Party Central Committee Internal Affairs
4 Nguyen Canh Chan, Ba Dinh, Hanoi
Tel: +84 0804-3557

Contact at a watchdog organization:
Ms. Nguyen Thi Kieu Vien
Executive Director ,Towards Transparency International National
Floor 4, No 37 Lane 35, Cat Linh Street, Dong Da, Hanoi, Vietnam
Tel: +84-24-37153532
Fax: +84-24-37153443
Email: kieuvien@towardstransparency.vn 

Vietnam is a unitary single-party state, and its political and security environment is largely stable. Protests and civil unrest are rare, though there are occasional demonstrations against perceived or real social, environmental, labor, and political injustices.

In August 2019, online commentators expressed outrage over the slow government response to an industrial fire in Hanoi that released unknown amounts of mercury. Other localized protests in 2019 and early 2020 broke out over alleged illegal dumping in waterways and on public land, and the perceived government attempts to cover up potential risks to local communities.

Citizens sometimes protest actions of the People’s Republic of China (PRC), usually online. For example, in June 2019, when PRC Coast Guard vessels harassed the operations of Russian oil company Rosneft in Block 06-01, Vietnam’s highest-producing natural gas field, Vietnamese citizens protested via Facebook and, in a few instances, in public.

In April 2016, after the Formosa Steel plant discharged toxic pollutants into the ocean and killed a large number of fish, affected fishermen and residents in central Vietnam began a series of regular protests against the company and the government’s lack of response to the disaster. Protests continued into 2017 in multiple cities until security forces largely suppressed the unrest. Many activists who helped organize or document these protests were subsequently arrested and imprisoned.

Although Vietnam has made some progress on labor issues in recent years, including, in theory, allowing the formation of independent unions, the sole union that has any real authority is the state-controlled Vietnam General Confederation of Labor (VGCL). Workers will not be able to form independent unions legally until the Ministry of Labor, Invalids, and Social Affairs (MOLISA) issues guidance on implementation of the 2019 Labor Code, including decrees on procedures to establish and join independent unions, and to determine the level of autonomy independent unions will have in administering their affairs. MOLISA expects to issue this guidance in 2022.

Vietnam has been a member of the International Labor Organization (ILO) since 1992 and has ratified seven of the core ILO labor conventions (Conventions 100 and 111 on discrimination, Conventions 138 and 182 on child labor, Conventions 29 and 105 on forced labor, and Convention 98 on rights to organize and collective bargaining). In June 2020 Vietnam ratified ILO Convention 105 – on the abolition of forced labor – which came into force July 14, 2021. The EVFTA also requires Vietnam to ratify Convention 87, on freedom of association and protection of the right to organize, by 2023.

Labor dispute resolution mechanisms vary depending on situations. Individual labor disputes and rights-based collective labor disputes must go through a defined process that includes labor conciliation, labor arbitration, and a court hearing. Only interest-based collective labor disputes may legally be pursued via demonstration, and only after undergoing through conciliation and arbitration. However, in practice strikes organized by ad hoc groups at individual facilities are not uncommon, and are usually resolved through negotiation with management. In 2021 there were 105 strikes nationwide, 20 fewer than in 2020 as reported by VGCL.

According to Vietnam’s General Statistics Office (GSO), in 2021 there were 50.7 million people participating in the formal labor force in Vietnam out of over 74.9 million people aged 15 and above, around 1.4 million lower than 2020. The labor force is relatively young, with workers 15-39 years of age accounting for half of the total labor force. 61.6 percent of women in the working age participate to the labor force in comparison to 74.3 percent of men in the working age while 65.3 percent of people in the working age in the urban areas participate in the labor force in comparison to 69.3 percent in the rural areas.

Estimates on the size of the informal economy differ widely. The IMF states 40 percent of Vietnam’s laborers work on the informal economy; the World Bank puts the figure at 55 percent; the ILO puts the figure as high as 79 percent if agricultural households are included. Vietnam’s GSO stated that among 53.4 million employed people, 20.3 million people worked in the informal economy.

An employer is permitted to dismiss employees due to technological changes, organizational changes (in cases of a merger, consolidation, or cessation of operation of one or more departments), when the employer faces economic difficulties, or for disruptive behavior in the workplace. There are no waivers on labor requirements to attract foreign investment.

Economic Section
U.S. Embassy
7 Lang Ha, Ba Dinh, Hanoi, Vietnam
+84-24-3850-5000
InvestmentClimateVN@state.gov