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Hungary

Executive Summary

With a population of 9.7 million, Hungary has an open economy and GDP of approximately $61 billion.  Hungary has been a member of the European Union (EU) since 2004, and fellow member states are its most important trade and investment partners in addition to the United States. Foreign direct investment (FDI) from Asian sources has increased in the past decade, accounting for about five percent of the total FDI stock in 2019 and over a third of new foreign direct investment in 2020 Macroeconomic indicators were generally strong before the COVID-19 pandemic, with GDP growing by 4.9 percent in 2019. In 2020, however, Hungary’s GDP decreased by 5.1 percent. As the Government of Hungary (GOH) increased spending to support the economy and other priorities, the 2020 budget deficit reached approximately nine percent of GDP, which pushed up public debt to over 80 percent of GDP. Ratings agencies in 2020 maintained Hungary’s sovereign debt at BBB, two notches above investment grade, with a stable outlook. In 2020, the Finance Ministry forecasted 5 to 5.5 percent economic growth and a 6.5 percent budget deficit for 2021.

Hungary’s central location in Europe and high-quality infrastructure have made it an attractive destination for Foreign Direct Investment (FDI).  Between 1989 and 2019, Hungary received approximately $97.8 billion in FDI, mainly in the banking, automotive, software development, and life sciences sectors.  The EU accounts for 89 percent of all in-bound FDI. The United States is the largest non-EU investor. The GOH actively encourages investments in manufacturing and sectors promising high added value and/or employment, including research and development, defense, and service centers.  To promote investment, the GOH lowered the corporate tax rate to nine percent in 2017, among the lowest rates in the EU. Hungary’s Value-Added Tax (VAT), however, is the highest in Europe at 27 percent.

Despite these advantages, Hungary’s regional economic competitiveness has declined in recent years.  Since early 2016, multinationals have identified shortages of qualified labor, specifically technicians and engineers, as the largest obstacle to investment in Hungary.  In certain industries, such as finance, energy, telecommunication, pharmaceuticals, and retail, unpredictable sector-specific tax and regulatory policies have favored national and government-linked companies.  Additionally, persistent corruption and cronyism continue to plague the public sector. According to Transparency International’s (TI) 2020 Corruption Perceptions Index, Hungary placed 69th worldwide and tied with two other countries for 25th place out of 27 EU member states.  In 2016, the GOH withdrew from the Open Government Partnership (OGP), a transparency-focused international organization, after refusing to address the organization’s concerns about transparency and good governance. Both foreign and domestic investors report pressure to sell their businesses to government-affiliated investors.  Those who refuse to sell claim they face increased tax audits or spurious regulatory and court challenges.

Analysts remain concerned that the GOH may intervene in certain priority sectors to unfairly promote domestic ownership at the expense of foreign investors.  In September 2016, Prime Minister (PM) Viktor Orban announced that at least half of the banking, media, energy, and retail sectors should be in Hungarian hands. Observers note that through various tax changes the GOH has pushed several foreign-owned banks out of Hungary. The GOH has claimed it has increased Hungarian ownership in the banking sector to close to 60 percent, up from 40 percent in 2010.  In the energy sector, foreign-owned companies’ share of total revenue fell from 70 percent in 2010 to below 50 percent by the end of 2019. Foreign media ownership also has decreased drastically in recent years as GOH-aligned businesses have consolidated control of Hungary’s media landscape. The number of media outlets owned by GOH allies increased from around 30 in 2015 to nearly 500 in 2018.  In November 2018, the owners of 476 pro-GOH media outlets, constituting between 80 and 90 percent of all media, donated those outlets to the Central European Press and Media Foundation (KESMA) run by individuals with ties to the ruling Fidesz party.

As part of its COVID-19 pandemic response, the Parliament passed state of emergency (SOE) legislation in March and November 2020 that gave the GOH broad authority to bypass Parliament and govern by decree. The first SOE law did not have a sunset clause and remained in effect until June 2020 when the GOH repealed it. The GOH passed a second SOE law in November, this time for a 90-day period. Following the expiration of the 90-day term, the Parliament extended the SOE for another 90 days in February 2021. As part of the emergency measures, the GOH also extended measures for national security screening of foreign investments from December 31, 2020, until June 30, 2021, and may further extend this deadline.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 69 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 52 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 35 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 6,114 USD Amount https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 16,500USD amount http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Hungary maintains an open economy and its high-quality infrastructure and central location in Europe attract foreign investment. The GOH actively promotes Hungary to attract FDI, in manufacturing and export-oriented sectors. According to some reports, however, government policies have resulted in some foreign investors selling their stakes to the government or state-owned enterprises in other sectors, including banking and energy.  In 2019, net annual FDI amounted to $5.2 billion, and total gross FDI totaled $97.8 billion.

As a bloc, the EU accounts for approximately 89 percent of all FDI in Hungary in terms of direct investors, and 62 percent in terms of ultimate controlling parent investor.  In terms of ultimate investor – i.e., country of origin – the United States was the second largest investor after Germany in 2019. In terms of direct investor location, Germany was the largest investor, followed by the Netherlands, Austria, Luxembourg, and then the United States. The majority of U.S. investment falls within the automotive, software development, and life sciences sectors.  Approximately 450 U.S. companies maintain a presence in Hungary. According to Hungarian Investment Promotion Agency (HIPA) data, U.S. foreign direct investment produced more jobs in Hungary in 2020 than investment from any other country.

Total, cumulative FDI from Asian sources has approximately doubled since 2010, accounting for over five percent of total FDI stock in 2019. South Korea made several major new investments in the manufacturing sector in 2019. According to HIPA, South Korea, Japan, China, India, and other Asian countries accounted for about 40 percent of the value of new foreign investment projects in Hungary in 2020.

The GOH has implemented a number of tax changes to increase Hungary’s regional competitiveness and attract investment, including a reduction of the personal income tax rate to 15 percent in 2016, the corporate income tax rate to 9 percent in 2017, and the gradual reduction of the employer-paid welfare contribution from 27 percent in 2016 to 15.5 percent in 2020.  As of 2016, the GOH streamlined the National Tax and Customs authority (NAV) procedure to offer fast-track VAT refunds to customers categorized as “low-risk.”

Many foreign companies have expressed displeasure with the unpredictability of Hungary’s tax regime, its retroactive nature, slow response times, and the volume of legal and tax changes.  According to the European Commission (EC), a series of progressively-tiered taxes implemented in 2014 disproportionately penalized foreign businesses in the telecommunications, tobacco, retail, media, and advertisement industries, while simultaneously favoring Hungarian companies.  Following EC infringement procedures, the GOH phased out most discriminatory tax rates by 2015 and replaced them with flat taxes. Another 2014 law required retail companies with over $53 million in annual sales to close if they report two consecutive years of losses.  Retail businesses claimed the GOH specifically set the threshold to target large foreign retail chains.  The EC likewise determined that the law was discriminatory and launched an infringement procedure in 2016, leading the GOH to repeal the law in November 2018.

In 2017, the GOH passed a regulation that gives the government preemptive rights to purchase real estate in World Heritage areas.  The rule has been used to block the purchase of real estate by foreign investors in the most desirable areas of Budapest. In April 2020, during the COVID-19 pandemic, the GOH issued a decree that levied sector-specific taxes on the banking and retail sectors to fund crisis economic support. This progressive tax on retail grocery outlets is structured such that it applies mainly to large foreign retail firms.

In April 2020, during the COVID-19 pandemic, the GOH issued a decree that levied sector-specific taxes on the banking and retail sectors to fund crisis economic support. This progressive tax on retail grocery outlets is structured such that it applies mainly to large foreign retail firms.

The GOH publicly declared its intention to reduce foreign ownership in the banking sector in 2012. Accordingly, various GOH initiatives have reduced foreign ownership from about 70 percent in 2008 to 40.5 percent by the end of 2020. These initiatives included a 2010 bank tax; a 2012 financial transaction tax levied on all cash withdrawals; and regulations enacted between 2012-2015 that obligated banks to retroactively compensate borrowers for interest rate increases on foreign currency-denominated mortgage loans, even though these increases were spelled out in the original contracts with customers and had been permitted by Hungarian law.

While the pharmaceutical industry is competitive and profitable in Hungary, multinational enterprises complain of numerous financial and procedural obstacles, including high taxes on pharmaceutical products and operations, prescription directives that limit a doctor’s choice of drugs, and obscure tender procedures that negatively affect the competitiveness of certain drugs.  Pharmaceutical firms have also taken issue with GOH policies to weigh the cost of pharmaceutical procurement as heavily as efficacy when issuing tenders for public procurement.

The Hungarian Investment Promotion Agency (HIPA), under the authority of the Ministry of Foreign Affairs and Trade, encourages and supports inbound FDI.  HIPA offers company and sector-specific consultancy, recommends locations for investment, acts as a mediator between large international companies and Hungarian firms to facilitate supplier relationships, organizes supplier training, and maintains active contact with trade associations.  Its services are available to all investors. For more information, see:  https://hipa.hu/main .

Foreign investors generally report a productive dialogue with the government, both individually and through business organizations.  The American Chamber of Commerce (AmCham) enjoys an ongoing high-level dialogue with the GOH and the government has adopted many AmCham policy recommendations in recent years.  In 2017, the government established a Competitiveness Council, now chaired by the Minister of Finance, which includes representatives from multinationals, chambers of commerce, and other stakeholders, to increase Hungary’s competitiveness.  Many U.S. and foreign investors have signed MOUs with the GOH to facilitate one-on-one discussions and resolutions to any pending issues. The GOH has regularly consulted foreign businesses and business associations as it has developed economic support measures during the pandemic. For more information, see:  https://kormany.hu/kulgazdasagi-es-kulugyminiszterium/strategiai-partnersegi-megallapodasok  and  https://www.amcham.hu/ .

The U.S.-Hungary Business Council (USHBC) – a private, non-profit organization established in 2016 – aims to facilitate and maintain dialogue between American corporate executives and top government leaders on the U.S.-Hungary commercial relationship.  The majority of significant U.S. investors in Hungary have joined USHBC, which hosts roundtables, policy conferences, briefings, and other major events featuring senior U.S. and Hungarian officials, academics, and business leaders. For more information, see:  https://www.us-hungarybusinesscouncil.com/ .

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign ownership is permitted with the exception of some “strategic” sectors including farmland and defense-related industries, which require special government permits.  As part of its economic measures during the COVID-19 pandemic, the GOH passed a decree which requires foreign investors to seek approval for foreign investments in Hungary.

Foreign law firms and auditing companies must sign a cooperation agreement with a Hungarian company to provide services on Hungarian legal or auditing issues. According to the Land Law, only private Hungarian citizens or EU citizens resident in Hungary with a minimum of three years of experience working in agriculture or holding a degree in an agricultural discipline can purchase farmland.  Eligible individuals are limited to purchasing 300 hectares (741 acres). All others may only lease farmland. Non-EU citizens and legal entities are not allowed to purchase agricultural land. All farmland purchases must be approved by a local land committee and Hungarian authorities, and local farmers and young farmers must be offered a right of first refusal before a new non-local farmer is allowed to purchase the land.  For legal entities and those who do not fulfill the above requirements , the law allows the lease of farmland up to 1200 hectares for a maximum of 20 years. The GOH has invalidated any pre-existing leasing contract provisions that guaranteed the lessee the first option to purchase, provoking criticism from Austrian farmers. Austria has reported the change to the European Commission, which initiated an infringement procedure against Hungary in 2014.  In March 2018, the European Court of Justice ruled that the termination of land use contracts violated EU rules, opening the way for EU citizens who lost their land use rights to sue the GOH for damages. In 2015, the EC launched another – still ongoing – infringement procedure against Hungary concerning its restrictions on acquisitions of farmland.

The GOH passed a national security law on investment screening in 2018 that requires foreign investors seeking to acquire more than a 25-percent stake in a Hungarian company in certain sensitive sectors (defense, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments) to seek approval from the Interior Ministry.  The Ministry has up to 60 days to issue an opinion and can only deny the investment if it determines that the investment is designed to conceal an activity other than normal economic activity. In 2020, as part of the measures to mitigate the economic effects of the COVID-19 pandemic, the GOH passed an additional regulation requiring foreign investors to seek approval from the Ministry of Innovation and Technology (MIT) for greenfield or expansion of existing investments.

On April 6, Hungary’s Ministry of Interior (MOI) blocked an Austria’s Vienna Insurance Group from buying Dutch insurer Aegon’s Hungarian subsidiary, scuttling a four-country acquisition. The GOH granted the specific power to block this type of sale to the MOI in November 2020 under emergency COVID-related legislation, just one day before the parties agreed to the sale, after months of open negotiations.

Other Investment Policy Reviews

Hungary has not had any third-party investment policy reviews in the last three years.

Business Facilitation

In 2006, Hungary joined the EU initiative to create a European network of “point of single contact” through which existing businesses and potential investors can access all information on the business and legal environment, as well as connect to Hungary’s investment promotion agency.  In recent years, the government has strengthened investor relations, signed strategic agreements with key investors, and established a National Competitiveness Council to formulate measures to increase Hungary’s economic competitiveness.

The registration of business enterprises is compulsory in Hungary.  Firms must contract an attorney and register online with the Court of Registration.  Registry courts must process applications to register limited liability and joint-enterprise companies within 15 workdays, but the process usually does not take more than three workdays.  If the Court fails to act within the given timeframe, the new company is automatically registered. If the company chooses to use a template corporate charter, registration can be completed in a one-day fast track procedure.  Registry courts provide company information to the Tax Authority (NAV), eliminating the need for separate registration. The Court maintains a computerized registry and electronic filing system and provides public access to company information.  The minimum capital requirement for a limited-liability company is HUF 3,000,000 ($10,800); for private limited companies HUF 5,000,000 ($17,900), and for public limited companies HUF 20,000,000 ($71,400). Foreign individuals or companies can establish businesses in Hungary without restrictions.

Further information on business registration and the business registry can be obtained at the GOH’s information website for businesses:  http://eugo.gov.hu/starting-business-hungary  or at the Ministry of Justice’s Company Information Service:  https://ceginformaciosszolgalat.kormany.hu/elektronikus-cegeljaras , and the Tax Authority https://en.nav.gov.hu/taxation/registration/specific_rules.html .

Hungarian business facilitation mechanisms provide equitable treatment for women. They offer no special preference or assistance for them in establishing a company.

Outward Investment

The stock of total Hungarian investment abroad amounted to $36.8 billion in 2019.  Outward investment is mainly in manufacturing, pharmaceuticals, services, finance and insurance, and science and technology.  There is no restriction in place for domestic investors to invest abroad. The GOH announced in early 2019 that it would like to increase Hungarian investment abroad and it is considering incentives to promote such investment.

3. Legal Regime

Transparency of the Regulatory System

Generally, legal, regulatory, and accounting systems are consistent with international and EU standards.  However, some executives in Hungarian subsidiaries of U.S. companies express concerns about a lack of transparency in the GOH’s policy-making process and an uneven playing field in public tendering.  In recent years, there has been an uptick in the number of companies, including major U.S. multinational franchises and foreign owners of major infrastructure, reporting pressure to sell their businesses to government-affiliated investors.  Those that refuse to sell report an increase in tax audits, fines, and spurious regulatory challenges and court cases. SMEs increasingly report a desire to either remain small (and therefore “under the radar” of these government-affiliated investors) or relocate their businesses outside of Hungary.

For foreign investors, the most relevant regulations stem from EU directives and the laws passed by Parliament to implement them.  Laws in Parliament can be found on Parliament’s website (https://www.parlament.hu/en/web/house-of-the-national-assembly).  Legislation, once passed, is published in a legal gazette and available online at  www.magyarkozlony.hu .  The GOH can issue decrees, which also have national scope, but they cannot be contrary to laws enacted by Parliament.  Local municipalities can create local decrees, limited to the local jurisdiction.

As a result of the COVID-19 crisis, in March 2020, the Parliament passed a bill that established an indefinite state of emergency (SOE) in Hungary, allowing the GOH to govern by decree without parliamentary approval. The GOH used this decree to levy new sector-specific taxes, to take control of a Hungarian company that had been in an ownership dispute with the GOH, and to reallocate competencies and tax collection duties from an opposition-led municipality to a county-level body led by the ruling Fidesz party. The GOH did not include a sunset clause for the SOE – which resulted in criticism from foreign governments and domestic opposition parties – but repealed it in June 2020. During the second wave of the epidemic , the GOH passed separate SOE legislation with a 90-day sunset clause in November 2020 and extended it for another 90 days in February 2021. Interested investors are encouraged to contact Embassy points of contact for the most up-to-date information.

Hungarian financial reporting standards are in line with the International Accounting Standards and the EU Fourth and Seventh Directives.  The accounting law requires all businesses to prepare consolidated financial statements on an annual basis in accordance with international financial standards.

The GOH rarely invites interested parties to comment on draft legislation.  Civil society organizations have complained about a loophole in the current law that allows individual Members of Parliament to submit legislation and amendments without public consultation.  The average deadline for submitting public comment is often very short, usually less than one week. The Act on Legislation and the Law Soliciting Public Opinion, both passed by Parliament in 2010, govern the public consultation process.  The laws require the GOH to publish draft laws on its webpage and to give adequate time for all interested parties to give an opinion on the draft. However, implementation is not uniform and the GOH often fails to solicit public comments on proposed legislation.

The legislation process – including key regulatory actions related to laws – are published on the Parliament’s webpage.  Explanations attached to draft bills include a short summary on the aim of the legislation, but regulators only occasionally release public comments.

Regulatory enforcement mechanisms include the county and district level government offices, whose decisions can be challenged at county-level courts.  The court system generally provides efficient oversight of the GOH’s administrative processes.

The GOH does not review regulations on the basis of formal scientific or data-driven assessments, but some NGOs and academics do.  A 2017 study by Corruption Research Center Budapest (CRCB) found that in the 2010-2013 period the annual average number of new laws passed by Parliament increased, while the average time spent debating new laws in Parliament decreased significantly.  Their analysis assessed that the accelerating lawmaking process in Hungary in the 2010-2013 period had negative effects on the stability of the legal environment and the overall quality of legislation.

Hungary’s budget was widely accessible to the general public, including online through the Parliament and Finance Ministry websites and the Legal Gazette.  The government made budget documents, including the executive budget proposal, the enacted budget, and the end-of-year report publicly available within a reasonable period of time.  Modifications to a current budget, which in 2020 were quite substantial because of the pandemic, are not consolidated with the initial budget law and do not include economic analysis of the effects of those modifications. Information on debt obligations was publicly available, including online through the Hungarian Central Bank ( https://www.mnb.hu/en ) and Hungarian State Debt Manager’s (https://akk.hu/ ) websites.

International Regulatory Considerations

As an EU Member State, all EU regulations are directly applicable in Hungary, even without further domestic measures.  If a Hungarian law is contrary to EU legislation, the EU rule takes precedence. As a whole, labor, environment, health, and safety laws are consistent with EU regulations.  Hungary follows EU foreign trade and investment policy, and all trade regulations follow EU legislation. Hungary participates in the WTO as an EU Member State.

Legal System and Judicial Independence

The Hungarian legal system is based on continental European (German-French and Roman law) traditions.  Contracts are enforced by ordinary courts or – if stipulated by contract – arbitration centers. Investors in Hungary can agree with their partners to turn to Hungarian or foreign arbitration courts.

Apart from these arbitration centers, there are no specialized courts for commercial cases; ordinary courts are entitled to judge any kind of civil case.  The Civil Code of 2013 applies to civil contracts.

The Hungarian judicial system includes four tiers: district courts (formerly referred to as local courts); courts of justice (formerly referred to as county courts); courts of appeal; and the Curia (the Hungarian Supreme Court).  Hungary also has a Constitutional Court that reviews cases involving the constitutionality of laws and court rulings. Following Parliament’s passage of a bill on changes in the court system in December 2019, in April 2020 public administration and labor courts were dissolved, and first-level public administration and labor cases were transferred to county-level courts of justice. Although the current COVID-19 SOE law does not cover the court system, the GOH issued a decree in March 2020 on the operation of the courts to protect the health of court employees and customers. According to guidelines issued by the National Judicial Office in November 2020, individual access to court buildings is limited; those participating in court sessions need to follow social distancing rules and wear masks; and clients are encouraged to submit documents in electronic form.

Although the GOH has criticized court decisions on several occasions, ordinary courts are considered to generally operate independently under largely fair and reliable judicial procedures.  Recently, an increasing number of current and former judges have raised concerns about growing GOH influence over the court system and intimidation of judges by court administration. The European Commission’s 2020 Rule of Law Report, issued in September 2020, cited judicial independence in Hungary as a source of concern. Most business complaints about the court system pertain to the lengthy proceedings rather than the fairness of the verdicts.  The GOH has said it hopes to improve the speed and efficiency of court proceedings with an updated Civil Procedure Code that entered into force in January 2018.

Regulations and law enforcement actions pertaining to investors are appealable at ordinary courts or at the Constitutional Court.

Laws and Regulations on Foreign Direct Investment

Hungarian law protects property and investment.  The Hungarian state may expropriate property only in exceptional cases where there is a public interest; any such expropriations must be carried out in a lawful way, and the GOH is obliged to make immediate and full restitution for any expropriated property, without additional stipulations or conditions.

The GOH passed a national secuirty law on investment screening in 2018 that requires foreign investors seeking to acquire more than a 25 percent stake in a Hungarian company in certain “sensitive sectors” (defense, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments) to seek approval from the Interior Ministry.  (Please see above section on limits on foreign control for more details).

There is no primary website or “one-stop shop” which compiles all relevant laws, rules, procedures, and reporting requirements for investors.  The Hungarian Investment Promotion Agency (HIPA), however, facilitates establishment of businesses and provides guidance on relevant legislation.

Competition and Antitrust Laws

The Hungarian Competition Authority, tasked with safeguarding the public interest, enforces the provisions of the Hungarian Competition Act.  Since EU accession in 2004, EU competition law also binds Hungary. The Competition Authority is empowered to investigate suspected violations of competition law, order changes to practices, and levy fines and penalties.  According to the Authority, since 2010 the number of competition cases has decreased, but they have become more complex. Out of more than 60 cases over the past year, only a few minor cases pertained to U.S.-owned companies.  Hungarian law does not consider conflict of interest to be a criminal offense. Citing evidence of conflict of interest and irregularities, the European Anti-Fraud Office (OLAF) recommended opening a criminal investigation into a high-profile USD 50 million EU-funded public procurement project, but Hungarian authorities declined to prosecute the case.

Expropriation and Compensation

Hungary’s Constitution provides protection against uncompensated expropriation, nationalization, and any other arbitrary action by the GOH except in cases of threat to national security.  In such cases, immediate and full compensation is to be provided to the owner. There are no known expropriation cases where the GOH has discriminated against U.S. investments, companies, or representatives.  There have been some complaints from other foreign investors within the past several years that expropriations have been improperly executed, without proper remuneration. Parties involved in these cases turned to the domestic legal system for dispute settlement.

There is no recent history of official GOH expropriations, but many critics raised concerns that the 2014 tobacco and advertising taxes were an indirect expropriation attempt because they disproportionately targeted foreign firms with the apparent intent to force them to seek a buy-out from a domestic firm.  The GOH reversed these taxes in response to a 2015 European Commission injunction. Increasing reports of the use of government regulatory and tax agencies to pressure businesses to sell to government-affiliated investors has also raised concerns.

Dispute Settlement

ICSID Convention and New York Convention

Hungary is a signatory to the International Centre for the Settlement of Investment Disputes (ICSID Convention), proclaimed in Hungary by Law 27 of 1978.  Hungary also is a signatory to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention), proclaimed in Hungary by Law 25 of 1962. There is not specific legislation providing for enforcement other than the two domestic laws proclaiming the New York and ICSID Conventions.  According to Law 71 of 1994, an arbitration court decision is equally binding to that of a court ruling.

Investor-State Dispute Settlement

Hungary is signatory to the 1965 Washington Convention establishing the International Centre for Settlement of Investment Disputes (ICSID) and to UN’s 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  Under the New York Convention, Hungary recognizes and enforces rulings of the International Chamber of Commerce’s International Court of Arbitration.

Hungary shares no Bilateral Investment Treaty or Free Trade Agreement with the United States.  Since 2000 Hungary has been the respondent in some 16 known investor-State arbitration claims , although none of these involve U.S. investors.

Local courts recognize and enforce foreign arbitral awards against the GOH.

International Commercial Arbitration and Foreign Courts

In the last few years, parties have increasingly turned to mediation as a means to settle disputes without engaging in lengthy court procedures.  Law 71 of 1994 on domestic arbitration procedures is based on the UNCITRAL model law.

Investment dispute settlement clauses are frequently included in investment contract between the foreign enterprise and GOH.  Hungarian law allows the parties to set the jurisdiction of any courts or arbitration centers. The parties can also agree to set up an ad hoc arbitration court.  The law also allows investors to agree on settling investment disputes by turning to foreign arbitration centers, such as the International Centre for Settlement of Investment Disputes (ICSID), UNCITRAL’s Permanent Court of Arbitration (PCA), or the Vienna International Arbitral Centre.  In Hungary, foreign parties can turn to the Hungarian Chamber of Commerce and Industry arbitration court, which has its own rules of proceedings ( https://mkik.hu/en/court-of-arbitration ) and in financial issues to the Financial and Capital Market’s arbitration court. Local courts recognize and enforce foreign or domestic arbitral awards.  An arbitral ruling may only be annulled in limited cases, and under special conditions.

Domestic courts do not favor State-owned enterprises (SOEs) disproportionately.  Investors can expect a fair trial even if SOEs are involved and in case of an unfavorable ruling, may elevate the case to the European Court of Justice (ECJ).  Investors do not generally complain about non-transparent or discriminatory court procedures.

Bankruptcy Regulations

The Act on Bankruptcy Procedures, Liquidation Procedures, and Final Settlement of 1991, covers all commercial entities with the exception of banks (which have their own regulatory statutes), trusts, and State-owned enterprises, and brought Hungarian legislation in line with EU regulations.  Debtors can initiate bankruptcy proceedings only if they have not sought bankruptcy protection within the previous three years. Within 90 days of seeking bankruptcy protection, the debtor must call a settlement conference to which all creditors are invited. Majority consent of the creditors present is required for all settlements.  If agreement is not reached, the court can order liquidation. The Bankruptcy Act establishes the following priorities of claims to be paid: 1) liquidation costs; 2) secured debts; 3) claims of the individuals; 4) social security and tax obligations; 5) all other debts. Creditors may request the court to appoint a trustee to perform an independent financial examination.  The trustee has the right to challenge, based on conflict of interest, any contract concluded within 12 months preceding the bankruptcy.

The debtor, the creditors, the administrator, or the Criminal Court may file liquidation procedures with the court.  Once a petition is filed, regardless of who filed it, the Court notifies the debtor by sending a copy of the petition.  The debtor has eight days to acknowledge insolvency. If the insolvency is acknowledged, the company declares if any respite for the settlement of debts is requested.  Failure to respond results in the presumption of insolvency. Upon request, the Court may allow up to of 30 days for the debtor to settle the debt.

If the Court finds the debtor insolvent, it appoints a liquidator.  Transparency International (TI) has raised concerns about the transparency of the liquidation process because a company may not know that a creditor is filing a liquidation petition until after the fact.  TI also criticized the lack of accountability of liquidator companies and what it considers unusually short deadlines in the process. The EU has also criticized the Hungarian system as being creditor-unfriendly, since bankruptcy proceedings typically only recover 44 cents on the dollar, compared to the OECD average of 71 cents on the dollar.

Bankruptcy in itself is not criminalized, unless it is made in a fraudulent way, deliberately, and in bad faith to prevent the payment of debts.

Law 122 of 2011 obliges banks and credit institutions to establish and maintain the Central Credit Information System to assess creditworthiness of businesses and individuals to facilitate prudent lending ( http://www.bisz.hu ).

4. Industrial Policies

Investment Incentives

Hungary has a well-developed incentive system for investors, the cornerstone of which is a special incentive package for investments over a certain value (typically over EUR 10 million or $11 million).  The incentives are designed to benefit investors who establish manufacturing facilities, logistics facilities, regional service centers, R&D facilities, and bioenergy facilities, or those who make tourism industry investments.  Incentive packages may consist of cash subsidies, development tax allowances, training subsidies, and job creation subsidies. The incentive system is compliant with EU regulations on competition and state aid and is administered by the Hungarian Investment Promotion Agency (HIPA) and managed by the Ministry of Innovation and Technology (MIT) and the Ministry of Foreign Affairs and Trade (MFAT). The government provides non-refundable subsidies to foreign investments in less developed areas and certain sectors including research and development, innovation, and high-tech manufacturing, based on case-by-case government decisions. In 2020, the GOH extended additional incentives or support to foreign investments as part of its economic response to the pandemic. For more information please see: https://hipa.hu/tovabbi-kedvezo-modositasok-a-vissza-nem-teritendo-tamogatasi-rendszerben .

Foreign Trade Zones/Free Ports/Trade Facilitation

Foreign trade zones were eliminated as a result of EU accession.

Performance and Data Localization Requirements

Hungary does not mandate the hiring of local employees. The number of work permits issued for third-country nationals is limited by law, but in recent years, this limit was well above the actual number of registered third-country employees.  Residency and work permits are issued by the Immigration Office and the local labor offices.

As of 2019, for investments in certain strategic sectors including the military, intelligence, public utilities, financial services, and electronic information systems, the Ministry of Interior issues investment permits, and in other key sectors, the Ministry for Innovation and Technology.  There are no laws in place requiring the fulfilment of special labor force related conditions to get investment permits. However, in certain cases, the GOH has established retention of workforce as a condition to award state grants to investors.

Hungary has no forced data localization policy.  Foreign IT providers do not need to turn over source code or provide access to encryption.  Hungary follows EU rules on transfer of personal data outside the economy. Storage of personal data is regulated by a data protection law and falls under the authority of a Data Protection Ombudsman.

There are no general performance requirements for investors in Hungary.  However, investors may receive government subsidies in the event they meet certain performance criteria, such as job creation or investment minimums, which are available to all enterprises registered in Hungary and are applied on a systematic basis.  To comply with EU rules, the GOH no longer grants tax holidays based on investment volume. There is no requirement that investors must purchase from local sources, but the EU Rule of Origin applies. Investors are not required to disclose proprietary information to the GOH as part of the regulatory process.

Hungary, as an EU Member State, follows the General Data Protection Regulation (GDPR) on transmitting data outside of the EU and local data storage requirements.  The National Authority for Data Protection and Freedom of Information is responsible for enforcing GDPR rules.

5. Protection of Property Rights

Real Property

Hungary maintains a reliable land registry, which provides public information for anyone on the ownership, mortgage, and usufruct rights of a real estate or land parcel.  Secured interests in property (mortgages), both moveable and real, are recognized and enforced but there is no title insurance in Hungary.

According to the Land Law of 2013, only private Hungarian citizens or EU citizens resident in Hungary with a minimum of three years of experience in agriculture, or holding a degree in an agricultural field, can purchase farmland.  The law allows the lease of farmland up to 1200 hectares for a maximum of 20 years. There is no restriction for purchase or lease of non-farmland properties.

Hungarian law allows acquisitive prescription for unoccupied real property if the user of the property occupies it continuously for at least 15 years.

According to the World Bank’s Ease of Doing Business Report, in 2020, Hungary ranked 29th in the world on the ease of registering property. Real estate and land purchase contracts must be countersigned by an attorney registered in Hungary.

Intellectual Property Rights

Hungary has an adequate legal structure for protecting intellectual property rights (IPR), although it lacks deterrent-level sentences for civil and criminal IPR infringement cases.  There has been no new major IPR legislation passed over the last year. According to some representatives of the pharmaceutical and software industries, enforcement could be improved if the Prosecutor General’s Office were to establish specialized IPR units.  The most common IPR violations in Hungary include the sale of imported counterfeit goods, including pharmaceuticals and Internet-based piracy. Most counterfeit goods sold in Hungary are of Chinese origin.

Hungary acceded to the European Patent Convention in 2003 and has accordingly amended the Hungarian Patent Act.  Hungary is a party to the World Trade Organization’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and many other major international IPR agreements, including some administered by the World Intellectual Property Organization (WIPO), such as the Berne Convention, the Paris Convention, the WIPO Copyright Treaty, and the WIPO Performance and Phonograms Treaty.  As an EU Member State, Hungary is required to implement EU Directives and so is party to the EU Information Society Directive and EU Enforcement Directive, among others.

The United States and Hungary signed a Comprehensive Bilateral Intellectual Property Rights Agreement in 1993 that addresses copyright, trademarks, and patent protection.

In 2010, the U.S. Patent and Trademark Office (USPTO) and the Hungarian Intellectual Property Office (HIPO) launched a pilot program to facilitate patent recognition between the United States and Hungary.  Due to the pilot’s success, in 2012 the USPTO and HIPO signed a Memorandum of Understanding to further streamline and expedite bilateral patent recognition. More details about this Patent Processing Highway (PPH) program can be found on HIPO’s website at  www.hipo.gov.hu/English/szabadalom/pph/ .

Hungary is not included in the U.S. Trade Representative’s (USTR’s) Special 301 Report or the Notorious Markets List.

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

Resources for Rights Holders

Embassy Point of Contact for IPR issues:

Christopher Hallett
Economic Officer
HallettCJ@state.gov

6. Financial Sector

Capital Markets and Portfolio Investment

The Hungarian financial system offers a full range of financial services with an advanced information technology infrastructure.  The Hungarian Forint (HUF) has been fully convertible since 2001, and both Hungarian financial market and capital market transactions are fully liberalized.  The Capital Markets Act of 2001 sets out rules on securities issues, including the conversion and marketing of securities. As of 2007, separate regulations were passed on the activities of investment service providers and commodities brokers (2007), on Investment Fund Managing Companies (2011), as well as on Collective Investments (2014), providing more sophisticated legislation than those in the Capital Markets Act.  These changes aimed to create a regulatory environment where free and available equity easily matches with the best investment opportunities. The 2016 modification of the Civil Code removed remaining obstacles to promote collection of public investments in the course of establishing a public limited company.

The  Budapest Stock Exchange (BSE)  re-opened in 1990 as the first post-communist stock exchange in the Central and Eastern European region.  Since 2010, the BSE has been a member of the Central and Eastern Europe (CEE) Stock Exchange Group. In 2013, the internationally recognized trading platform Xetra replaced the previous trading system.  Currently, the BSE has 40 members and 62 issuers. The issued securities are typically shares, investment notes, certificates, corporate bonds, mortgage bonds, government bonds, treasury bills, and derivatives.  In 2021, the BSE had a market capitalization of $28.3 billion, and the average monthly equity turnover volume amounted to $2.1 billion. The most traded shares are OTP Bank, Gedeon Richter, MOL, Magyar Telekom, and Masterplast

Financial resources flow freely into the product and factor markets.  In line with IMF rules, international currency transactions are not limited and are accessible both in domestic or foreign currencies. Individuals can hold bank accounts in either domestic or foreign currencies and conduct transactions in foreign currency. Since March 2020, commercial banks introduced real time bank transfers for domestic currency transactions.

Commercial banks provide credit to both Hungarian and foreign investors at market terms.  Credit instruments include long-term and short-term liquidity loans. All banks publish total credit costs, which includes interest rates as well as other costs or fees.

Money and Banking System

There are no rules preventing a foreigner or foreign firm from opening a bank account in Hungary.  Valid personal documents (i.e., a passport) are needed and as of 2015, when the Foreign Account Tax Compliance Act (FATCA) came into force, also a declaration of whether the individual is a U.S. citizen.  Banks have not discriminated against U.S. citizens in opening bank accounts based on FATCA.

The Hungarian banking system has strengthened over the past few years, and the capital position of banks is generally adequate even in the challenging economic environment created by COVID-19.  Following several years of deleveraging after the 2008 crisis, the banking system is mainly deposit funded. The penetration of the banking system decreased slightly in 2019 due to a relatively high GDP growth rate. The sector’s total assets amounted to 92.6 percent of GDP.

The Hungarian banking system is healthy and banks have a stable capital position.  The loan-to-deposit ratio has been gradually decreasing from its 160 percent peak in 2009 after the financial crisis to 85 percent in 2015, and has been fluctuating between this value and a 92.4 percent peak in 2019. In spring 2020, during the first wave of the COVID-19 in Hungary, it reached 91.6 percent but decreased to 81.7 percent by the end of the year. The liquidity cover ratio was 160 percent in the first wave of COVID-19, then climbed to 220.8 percent by the end of the year. In response to the COVID-19 crisis, the Central Bank restructured and expanded its monetary policy tools to provide liquidity to the financial sector through currency swaps, fixed-rate loans, and exemptions from minimum reserve requirements. The Central Bank also introduced instruments to influence short- and long-term term yields. It offered low-interest loans through commercial banks to the SME sector and launched a government securities purchase program on the secondary market.

The ratio of non-performing loans (NPLs) has been gradually decreasing from a high of 18 percent in 2013 to 4.1 percent in 2019 as a result of portfolio cleaning, the improving economic environment, and increased lending.  In the first wave of the pandemic the NPL ratio increased slightly, but by the end of the year it continued the decreasing trend and fell to 3.6 percent. The banking sector became profitable after several years of losses between 2010 and 2015, reaching a return on equity (ROE) record high of 16.8 percent in 2017. Since then, ROE has gradually decreased, to 12.3 percent by the end of 2019 and more steeply during the COVID-19 pandemic to 6.5 percent in December 2020, which is still slightly higher than the EU average. The banking sector’s total assets exceeded 90 percent of GDP in 2020, of which 64 percent were held by five banks. The largest bank in Hungary is OTP Bank, which is mostly Hungarian-owned and controls 25 percent of the market, with about $29 billion in assets.

Hungary has a modern two-tier financial system and a developed financial sector, although there have been some reports that regulatory issues have arisen as a result of the Central Bank’s (MNB) 2013 absorption of the Hungarian Financial Supervisory Authority (PSZAF), which had been the financial sector regulatory body.  Between 2000 and 2013, the PSZAF served as a consolidated financial supervisor, regulating all financial and securities markets. PSZAF, in conjunction with the MNB, managed a strong two-pillar system of control over the financial sector, producing stability in the market, effective regulation, and a system of checks and balances.  In 2013, the MNB absorbed the PSZAF and over the past few years has efficiently strengthened its supervisory role over the financial sector and established a customer protection system.

In accordance with the GOH’s stated goal of reducing foreign ownership in the financial sector, the proportion of foreign banks’ total assets in the financial sector decreased to about 40 percent in 2019, down from a peak of 70 percent before the 2008-2009 financial crisis. Foreign banks are subject to central bank uniform regulations and prudential measures, which are applied to Hungary’s entire financial market without discrimination. On March 2, 2020, MNB launched an immediate e-transfer system up to a maximum of HUF 10 million (about $32,000) for domestic transactions in HUF. Commercial banks have extensive direct correspondent banking relationships and are capable of transferring domestic or foreign currencies to most banks outside of Hungary.  Since 2018, however, the cashing of U.S. checks is no longer possible. No loss or jeopardy of correspondent banking relations has been reported.

Recent regulations restrict foreign currency loans to only those that earn income in foreign currency, in an effort to eliminate the risk of exchange rate fluctuations.  Foreign investors continue to have equal – if not better – access to credit on the global market, with the exception of special GOH credit concessions such as small business loans.

Foreign Exchange and Remittances

Foreign Exchange

The Hungarian forint (HUF) has been convertible for essentially all business transactions since January 1, 1996, and foreign currencies are freely available in all banks and exchange booths.  Hungary complies with all OECD convertibility requirements and IMF Article VIII. Act XCIII of 2001 on Foreign Exchange Liberalization lifted all remaining foreign exchange restrictions and allowed free movement of capital in line with EU regulations.

According to Hungary’s EU accession agreement, it must eventually adopt the Euro once it meets the relevant criteria. The GOH has not set a specific target date even though Hungary meets most of the necessary fiscal and financial criteria.  According to the Ministry of Finance, Hungary’s economic performance should mirror the Eurozone average more closely before adapting the Euro.

Short-term portfolio transactions, hedging, short, and long-term credit transactions, financial securities, assignments and acknowledgment of debt may be carried out without any limitation or declaration.  While the Forint remains the legal tender in Hungary, parties may settle financial obligations in a foreign currency. Many Hungarians took out mortgages denominated in foreign currency prior to the global financial crisis, and suffered when the Forint depreciated against the Swiss Franc and the Euro.  Despite strong pressure, the Hungarian Supreme Court ruled that there is nothing inherently illegal or unconstitutional in loan agreements that are foreign currency denominated, upholding existing contract law. New consumer loans, however, are denominated in Forints only, unless the debtor receives regular income in a foreign currency.

Market forces determine the value of the Hungarian Forint. Analysts note that the MNB’s consistently low interest rates have contributed to a nearly 30 percent decline in the value of the of the Forint against the Euro since 2010.

Remittance Policies

There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs. The timeframes for remittances are in line with the financial sector’s normal timeframes (generally less than 30 days), depending on the destination of the transfer and on whether corresponding banks are easily found.

Sovereign Wealth Funds

Hungary does not maintain a sovereign wealth fund.

7. State-Owned Enterprises

In the 1990s, there was considerable privatization of former State-owned enterprises (SOEs), primarily in strategic sectors such as energy and transportation.  Since 2010, the GOH has reversed this trend by making new investments in machinery production and the energy and telecommunications sectors, resulting in an increase of the number of SOEs.

As of 2020, there are more than 200 SOEs.  The state holds majority ownership in more than half of them.  In addition, there are a large number of municipality-owned companies.  SOEs are particularly active in the energy and utility sectors, banking, transportation, forestry, and postal services. SOEs have independent boards, but in practice, all strategic decisions require government approval.

Major SOEs include the National Asset Management Company (MNV), Magyar Posta, state energy company MVM, Hungarian State Railways (MAV), state gambling monopoly Szerencsejatek, National Infrastructure Development Company (NIF), car manufacturer RABA, and state-owned banks Exim bank, Hungarian Development Bank (MFB), Takarekbank, and Budapest Bank.  The GOH has a five percent direct stake in hydrocarbon company MOL, and 20 percent of the company is owned by two higher education foundations closely affiliated with the GOH.

A 2011 law on national assets lists the SOEs of strategic importance, which are to be kept in state ownership ( https://net.jogtar.hu/jr/gen/hjegy_doc.cgi?docid=a1100196.tv ); as of March 2021 there were 62 such companies.  There is no officially published, complete list of SOEs, but the State Asset Manager MNV has a list of companies under its control on its webpage.  The list does not cover all publicly owned companies:  http://mnv.hu/felso_menu/tarsasagi_portfolio/mnvportfolio .

In principle, the same rules apply to SOEs as to privately owned companies in most cases, but in practice, some companies report that SOEs often enjoy preferential treatment from certain authorities.  According to many businesses, since mid-2012, the GOH has made it more difficult for foreign-owned energy companies to operate in the Hungarian market. The GOH has publicly stated its interest in nationalizing some private energy firms.  In 2013, the GOH purchased E.ON’s wholesale and gas storage divisions and RWE’s retail gas company, Fogaz. In 2014 and 2015, the GOH acquired other energy companies. By the end of 2016, state-owned Fogaz became the only remaining retail gas utility provider in Hungary.  Press reports indicate the GOH intends to take over the electricity and heating retail markets as well.

Hungary adheres to OECD Guidelines on Corporate Governance as well as to EU rules on SOEs.  The Hungarian National Asset Management Company is the state asset manager.

According to a 2015 study conducted by Transparency International (TI) Hungary, SOEs scored 61 points on a scale of 100 with regard to meeting transparency obligations in terms of data published on their websites, integrity, codes of ethics, and internal control systems.  TI noted that although there was a considerable improvement compared to the previous survey in 2013, none of the SOEs reviewed during their study was in full compliance with transparency and disclosure requirements as mandated by Hungarian law.

In a July 2018 State Audit Office (SAO) report on the monitoring of 62 SOEs, the SAO said that the investigated enterprises’ integrity and compliance regulations have improved over the past years and their current transparency and integrity level is satisfactory.  The report added that the auditing and asset management of SOEs could still be improved, and that owners should investigate SOEs more often than the current practice. An April 2020 SAO report investigated the integrity of 19 state-owned and municipality owned companies and found that the overwhelming majority of the companies had serious deficiencies in integrity measures protecting against corruption.

Privatization Program

In the 1990s, the privatization of state-owned enterprises (SOEs), including the energy sector, manufacturing, food processing, and chemical industries, ushered in a significant period of change.  As most SOEs have already been privatized, that trend has reversed since 2010 as the state has taken more ownership or de facto control in certain sectors, including energy and public utilities.

8. Responsible Business Conduct

Hungary encourages multinational firms to follow the OECD Guidelines for Multinational Enterprises, which promotes a due diligence approach to responsible business conduct (RBC).  The government has established a National Contact Point (NCP) in the Ministry of Finance for stakeholders to obtain information or raise concerns in the context of RBC. The Hungarian NCP has organized events to promote OECD guidelines among the business community, trade unions, government agencies, and NGOs.  Members of the Hungarian NCP include representatives of the Ministries of Finance, Foreign Affairs and Trade, Innovation and Technology, and Agriculture. The Hungarian NCP submits annual reports to the OECD Investment Commission. For more information, see:  http://oecd.kormany.hu/a-magyar-nemzeti-kapcsolattarto-pont .

In recent years, the Hungarian NCP has organized several conferences, the last one in January 2020, to promote RBC and OECD guidelines. It announced in 2017 its intention to formulate a new National Action Plan on Businesses and Human Rights.  According to the first National Corporate Social Responsibility (CSR) Action Plan formulated in 2015, key RBC priorities of the GOH included the employment of discriminated, disadvantaged, and disabled groups, environmental protection, and the expansion of sustainable economy.  The Hungarian Public Relations Association, CSR Hungary, and other NGOs are involved in elaborating the second National Action Plan. The Hungarian NCP reviews complaints from trade unions against multinational companies’ subsidiaries operating in Hungary and coordinates with relevant NPCs of the multinational company’s home country. RBC does not typically play a role in GOH procurement decisions, although the 2015 Public Procurement Act integrates concepts of CSR, responsible business conduct, and good practice.

Several NGOs and business associations promote RBC and CSR.  The one with the most members, CSR Hungary Forum – created in 2006 – established an annual award and trademark in 2008 to recognize business CSR efforts; others include the Hungarian Public Relations Association, “Kovet.”

According to a 2018 survey conducted by CSR Hungary, 60 percent of businesses have a CSR policy and 44 percent of businesses attribute a CSR orientation to increased competitiveness.  However, only about 34 percent of multinational and SOEs and 9 percent of SMEs report formally formulating a CSR action plan. According to Nielsen Global Omnibus research, over 60 percent of Hungary’s adult population prefers companies committed to CSR, exceeding the 54 percent average in the EU.

In 2017, Hungary’s independent agencies for labor rights protection, consumer protection, cultural heritage protection, and environment protection were merged into relevant ministries and county-level government offices.  Environmental NGOs criticized the transformation of the system and warned about the lack of independent agencies.

Additional Resources

Department of State

Department of Labor

9. Corruption

The Hungarian Ministry of Justice and the Ministry of Interior are responsible for combating corruption.  There is a growing legal framework in place to support their efforts. Hungary is a party to the UN Anticorruption Convention and the OECD Anti-Bribery Convention and has incorporated their provisions into the penal code, as well as subsequent OECD and EU requirements on the prevention of bribery.  Parliament passed the Strasbourg Criminal Law Convention on Corruption of 2002 and the Strasbourg Civil Code Convention on Corruption of 2004. Hungary is a member of GRECO (Group of States against Corruption), an organization established by members of Council of Europe to monitor the observance of their standards for fighting corruption.  GRECO’s reports on evaluation and compliance are confidential unless the Member State authorizes the publication of its report.  For several years, the GOH has kept confidential GRECO’s most recent compliance report on prevention of corruption with respect to members of parliament, judges, and prosecutors, and a report on transparency of party financing.

Following calls from the opposition, NGOs, and other GRECO Member States, and a March 2019 visit by senior GRECO officials to Budapest, the GOH agreed to publish the reports in August 2019. The reports revealed that Hungary failed to meet 13 out of 18 recommendations issued by GRECO in 2015; assessed that Hungary’s level of compliance with the recommendations was “globally unsatisfactory”; and concluded that the country would therefore remain subject to GRECO’s non-compliance procedure. The compliance report on transparency of party financing noted some progress, but added that “the overall picture is disappointing.” A November 2020 GRECO report came to the same conclusion, adding that Hungary had made no progress since the prior year on implementing anticorruption recommendations for MPs, judges, and prosecutors.

In December 2016, the GOH withdrew its membership in the international anti-corruption organization the Open Government Partnership (OGP).  Following a letter of concern by transparency watchdogs to OGP’s Steering Committee in summer 2015, OGP launched an investigation into Hungary and issued a critical report.  The OGP admonished the GOH for its harassment of NGOs and urged it to take steps to restore transparency and to ensure a positive operating environment for civil society. The GOH — only the second Member State to be reprimanded by the organization — rejected the OGP report conclusions and withdrew from the organization.

In recent years, the GOH has amplified its attacks on NGOs – including transparency watchdogs – accusing them of acting as foreign agents and criticizing them for allegedly working against Hungarian interests.  Observers assess that this anti-NGO rhetoric endangered the continued operation of anti-corruption NGOs crucial to promoting transparency and good governance in Hungary. In 2017, Parliament passed legislation that many civil society activists criticized for placing undue restrictions on NGOs, including compelling organizations to register as “foreign-funded” if they receive funding from international sources. In a June 2020 ruling the European Court of Justice found the legislation in conflict with EU law.  In July 2018, the GOH passed legislation that criminalizes many activities primarily conducted by international NGOs that assist migrants and asylum seekers.  Although the legislation does not directly target transparency NGOs, transparency experts claim the GOH could use the overly broad definitions in the legislation to target virtually any NGO in Hungary.

Transparency International (TI) is active in Hungary.  TI’s 2020 Corruption Perceptions Index rated Hungary 69 out of 180 countries.  Among the 27 EU members, Hungary was tied for last place with two other member states. TI has noted that state institutions responsible for supervising public organizations were headed by people loyal to the ruling party, limiting their ability to serve as a check on the actions of the GOH.  TI and other watchdogs note that data on public spending remains problematically difficult to access since the GOH amended the Act on Freedom of Information in 2013 and 2015. Moreover, according to watchdogs and investigative journalists, the GOH, state agencies, and SOEs are increasingly reluctant to answer questions related to public spending, resulting in lengthy court procedures to receive answers to questions.  Even if the court orders the release of data, by the time it happens, the data has lost significance and has a weaker impact, watchdogs warn. In some cases, even when ordered to provide information, state agencies and SOEs release data in nearly unusable or undecipherable formats.

U.S. firms – along with other investors – identify corruption as a significant problem in Hungary.  According to the World Economic Forum’s 2017 Global Competitiveness Report, businesses considered corruption as the second most important obstacle to making a successful business in Hungary.

State corruption is also high on the list of EC concerns with Hungary.  The EC Anti-Fraud Office (OLAF) has found high levels of fraud in EU-funded projects in Hungary and has levied fines and withheld development funds on several occasions.  Over the past few years, the EC has suspended payments of EU funds several times due to irregularities in Hungary’s procurement system.

TI and other anti-corruption watchdogs have highlighted EU-funded development projects as the largest source of corruption in Hungary.  A TI study found indications of corruption and overpricing in up to 90 percent of EU-funded projects. A 2016 study by Corruption Research Center Budapest (CRCB) based on public procurement data from 2009-2015 revealed that the massive influx of EU funds reduced competition and increased levels of corruption risk and overpricing in public procurements.  According to the study, EU-funded tenders performed poorly with regard to corruption risks, competitive intensity, and transparency, compared with Hungarian-funded tenders. EU funds in Hungary contribute to a system of political favoritism and fuel crony capitalism, the study concluded. CRCB reports from April and May 2020 found – after analyzing more than 240,000 public procurement contracts from 2005-2020 – that companies owned by individuals with links to senior government officials enjoy preferential treatment in public tenders and face less competition than other companies. The studies also revealed that the share of single-bidder public procurement contracts was over 40 percent in 2020, and that the corruption risk reached its highest level since 2005.

Hungary has legislation in place to combat corruption.  Giving or accepting a bribe is a criminal offense, as is an official’s failure to report such an incident.  Penalties can include confiscation of assets, imprisonment, or both. Since Hungary’s entry into the EU, legal entities can also be prosecuted.  Legislation prohibits members of parliament from serving as executives of state-owned enterprises. An extensive list of public officials and many of their family members are required to make annual declarations of assets, but there is no specified penalty for making an incomplete or inaccurate declaration.  It is common for prominent politicians to be forced to amend declarations of assets following revelations in the press of omission of ownership or part-ownership of real estate and other assets in asset declarations. Politicians are not penalized for these omissions.

Transparency advocates claim that Hungarian law enforcement authorities are often reluctant to prosecute cases with links to high-level politicians.  For example, they reported that, in November 2018, Hungarian authorities dropped the investigation into $50 million in EU-funded public lighting tenders won by a firm co-owned by a relative of the prime minister, despite concerns raised by OLAF, the European Anti-Fraud Office, about evidence of conflict of interest and irregularities involving the deal. According to media reports, OLAF concluded that at least some of the tenders were won due to what it considered organized criminal activity. The European Commission’s September 2020 Rule of Law Report states that although the prosecution office has launched a limited number of corruption-related investigations against Members of the European Parliament from the ruling Fidesz party, there has been no prosecution of high-level officials in recent years.

Annual asset declarations for the family members of public officials are not public and only parliamentary committees can look into them if there is a specified suspicion of fraud.  Transparency watchdogs warn that this makes the system of asset declarations inefficient and easy to circumvent as politicians can hide assets and revenues in their family members’ names.

The Public Procurement Act of 2015 initially included broad conflict of interest rules on excluding family members of GOH officials from participating in public tenders, but Parliament later amended the law to exclude only family members living in the same household.  While considered in line with the overarching EU directive, the law still leaves room for subjective evaluations of bid proposals and tender specifications to be tailored to favored companies.

While public procurement legislation is in place and complies with EU requirements, private companies and watchdog NGOs expressed concerns about pervasive corruption and favoritism in public procurements in Hungary.  According to their criticism, public procurements in practice lack transparency and accountability and are characterized by uneven implementation of anti-corruption laws. Additionally, transparency NGOs calculate that government-allied firms have won a disproportionate percentage of public procurement awards.  The business community and foreign governments share many of these concerns.  Multinational firms have complained that competing in public procurements presents unacceptable levels of corruption and compliance risk.  A 2019 European Commission study found that Hungary had the second-highest rate (40 percent) of one-bidder EU funded procurement contracts in the European Union.  In addition, observers have raised concerns about the appointments of Fidesz party loyalists to head quasi-independent institutions such as the Competition Authority, the Media Council, and the State Audit Office. Because it is generally understood that companies without political connections are unlikely to win public procurement contracts, many firms lacking such connections do not bid or compete against politically-connected companies.

The GOH does not require private companies to establish internal codes of conduct.

Generally, larger private companies and multinationals operating in Hungary have internal codes of ethics, compliance programs, or other controls, but their efficacy is not uniform.

Resources to Report Corruption

GOH Office Responsible for Combatting Corruption:

National Protective Service
General Director Zoltan Bolcsik
Phone: +36 1 433 9711
Fax: +36 1 433 9751
E-mail:  nvsz@nvsz.police.hu 

Transparency International Hungary
1055 Budapest
Falk Miksa utca 30. 4/2
Phone: +36 1 269 9534
Fax: +36 1 269 9535
E-mail:  info@transparency.hu 

10. Political and Security Environment

The security environment is relatively stable.  Politically motivated violence or civil disturbance is rare.  Violent crime is low, with street crimes the most frequently reported crimes in the country. Political violence is not common in Hungary.  The transition from communist authoritarianism to capitalist democracy was negotiated and peaceful, and free elections have been held consistently since 1990.

11. Labor Policies and Practices

Hungary’s civilian labor force of 4.5 million is highly-educated and skilled.  Literacy exceeds 98 percent and about two-thirds of the work force has completed secondary, technical, or vocational education.  Hungary’s record low 3.3 percent unemployment rate at the end of 2019 increased to 4.3 percent early 2021 as a result of the pandemic, but it is lower than the EU average of 7.3 percent.  Hungary’s employment rate for the population aged 15-64 years was 70.2 percent in 2020, higher than the EU average of 67.8 percent. Hungary is particularly strong in engineering, medicine, economics, and science training, although emigration of Hungarians from these sectors to other EU member states has increased in recent years. In the first wave of the COVID-19 pandemic, out-migration temporarily declined but resumed during the second half of 2020.

Multinationals increasingly cite a skilled labor shortage as their biggest challenge in Hungary and note that Hungarian vocational institutions and universities need to adapt more quickly to changes in the market place.  An increasing number of young people are attending U.S.- and European-affiliated business schools in Hungary. Foreign language skills, especially in English and German, are becoming more widespread, yet Hungary still has the lowest level of foreign language proficiency in the EU.  According to 2018 data, only 37 percent of working-age Hungarians speak at least one foreign language, while the EU average is 66 percent.

As the rate of unemployment has declined, certain sectors have begun to face shortages of skilled and highly educated employees.  As Hungarians increasingly seek work abroad, shortages of highly educated and skilled labor are negatively affecting growth in certain regions and industries.  In addition, declining OECD Program of International Student Assessment (PISA) scores may signal that the workforce is losing its ability to learn new skills and adapt to changing market conditions. The government is attempting to address labor shortage by increasing the minimum wage, offering retraining programs t, incentivizing employment of young mothers and pensioners by lowering employer-paid welfare contributions, and reforming the education and vocational training system.  Shortages of skilled workers, particularly in the IT, financial, and manufacturing sectors, are more acute in the northwest and central regions of the country. In the eastern half of the country, unemployment levels are above average, even though the cost of labor is lower. Wages in Hungary are still significantly lower than those in Western Europe, despite the recent increase in minimum wage. Average Hungarian labor productivity is lower than the EU average, but exceeds that of other Central and Eastern European economies.

In 2016, the government, trade unions, and employer representatives signed a three-year agreement to increase the minimum wage for unskilled and skilled workers. The deal also included a more than 50-percent cut in the business tax for large companies from 19 percent to 9 percent as of 2017, as well as gradually lowering the payroll tax from 21.5 percent in 2016 by 2 percent each year, down to 15.5 percent as of July 2020, to offset increasing labor costs. In subsequent years the parties signed annual minimum wage agreements which increased the minimum wage by 8 percent in 2020 and by 3.6 percent in 2021. The GOH also facilitates the employment of workers from neighboring countries, primarily ethnic Hungarian minority communities in those countries. The GOH requires hiring of nationals in certain strategic sectors and some areas of public administration.

Labor law stipulates a severance payment in case of lay-off, as well as under certain conditions for an employee terminating a work contract.  The government pays unemployment benefits for three months and offers the services of local employment offices. The GOH did not extend this benefit beyond the normal three months during the pandemic. Labor laws are uniform and there are no waivers available to attract or retain investment.  Collective bargaining is increasingly common in large companies, education, public transport, retail, and medical services.

The 2012 changes to the Labor Law transferred some collective bargaining rights from trade unions to work councils.  (Although work councils have a similar mission to those of labor unions, each firm has its own work council, and thus lacks the collective reach of an industry-wide trade union.)  Hungary’s trade union membership rate is below 10 percent, while the EU average is 25 percent. About 20 percent of businesses have a collective bargaining agreement on labor conditions and benefits, well below the EU average of about 80 percent. During the COVID-19 pandemic the government passed regulations that allow businesses to unilaterally terminate collective bargaining agreements, which led to a few strikes, which have been resolved by negotiations. Beginning in 2021, the GOH decreased state support to trade unions and implemented budget changes to allows discretional funding to each trade union, which replaced the previously uniform system. Hungary has ratified all eight International Labor Organization (ILO) core conventions.

Labor dispute resolution includes mediation as well as court procedures.  Employees, however, typically agree with employers outside court or mediation procedures. In 2019, a six-day strike at Audi Hungary was resolved with an agreement between employers and employees for a 15- to 20-percent wage increase.  The success of this high-profile strike has led to a series of short-term strikes, or threats of strikes, at other companies. The majority of these strikes have been resolved quickly with wage increase concessions from management and changes in overtime payment and conditions.  All recent strikes have been peaceful and complied with Hungarian labor laws.

Hungary has been a member of the ILO since 1955.  Hungary’s labor law and practice are in line with international labor standards.  Discussions between the ILO and the GOH are ongoing on certain provisions of the 2012 modification of Hungary’s labor law, including the freedom of expression, registration of trade unions, and minimum level of public service in case of strike.

Hungary passed amendments to its Labor Code in December 2018 that increased the amount of overtime an employer can request and gives employers up to three years to reconcile and pay for overtime.  These highly unpopular changes led to a series of large protests throughout Hungary and currently are being reviewed by the European Commission. In 2020, as a part of its COVID-19 economic response plan, the government decreed that employers can implement flexible working hours and a 24-month working time frame to calculate overtime without prior agreement from the employee or union. Local labor organizations complained that the move rolled back hard-won concessions from the 2018 labor reform and that certain businesses abuse overtime possibilities to compensate for shutdowns during the COVID-19 pandemic.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $163,475 2019 $163,469 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $5,684 2019 $6,114 BEA data available at https://apps.bea.gov/international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2019 $2,032 2019 $91 BEA data available at
https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 61% 2019 60% UNCTAD data available at
https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html 
  

* Source for Host Country Data: 2021 Hungarian National Bank, www.mnb.hu   

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 182,689 100% Total Outward 132,235 100%
Canada 29,677 16.2% Switzerland 53,045 40.1%
Cayman Islands 21,996 12% United States 15,726 11.9%
Netherlands #3 18761 10.3% Uruguay 10,216 7.7%
Germany 17,176 9.4% Netherlands 6,274 4.7%
Luxemburg 15,991 8.8% Ireland 4,658 3.5%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 13,989 100% All Countries 9,232 100% All Countries 4,758 100%
Luxembourg 4,013 28.7% Luxembourg 3,327 36% Luxembourg 686 14.4%
United States 1,939 13.9% United States 1,752 19% Austria 333 7%
Austria 973 7% Austria 640 6.9% Slovak Rep. 291 6.1%
Germany 674 4.8% Belgium 612 6.6% Czech Rep. 268 5.6%
Belgium 615 4.4% Germany 546 5.9% Poland 240 5.1%

14. Contact for More Information

U.S. Embassy Political and Economic Section
Szabadsag Ter 12
1054 Budapest, Hungary
BUDEcon@State.gov
+36 1 475 4400

Ireland

Executive Summary

The COVID-19 crisis has already had a serious impact on Ireland’s economy and will continue to do so in 2021. Since March 2020, the Irish government has implemented varying degrees of lockdown measures in response to the COVID-19 pandemic, including restrictions to close non-essential businesses and services for extended periods of time. Ireland’s official unemployment rate has remained around five percent (currently at 5.8 percent as of January 2021) due to the unprecedented pandemic related assistance programs to businesses and workers furloughed due to COVID-19. Due to the high number of individuals receiving pandemic wage subsidies, the official unemployment rate is still roughly five percent, much lower than what the Irish government expects without these programs. Including workers furloughed by the pandemic, the real unemployment rate has fluctuated in line with the three separate nationwide lockdowns in 2020 and 2021, increasing the unofficial unemployment rate to average at an estimated high of 20 percent. Despite the prolonged difficulties, Ireland’s economic projections remain positive and the strongest among the Eurozone countries with three percent economic growth in 2020. This is due to continued growth in exports by technology, pharmaceutical, and other large multinational companies headquartered in Ireland. The government is hopeful its emergency measures will help businesses and its once-sound economy to quickly return from its COVID-19 enforced hibernation.

The Irish government actively promotes foreign direct investment (FDI) and has had considerable success in attracting U.S. investment, in particular. There are over 900 U.S. subsidiaries in Ireland operating primarily in the following sectors: chemicals, bio-pharmaceuticals and medical devices, computer hardware and software, internet and digital media; electronics, and financial services.

One of Ireland’s many attractive features as an FDI destination is its 12.5 percent corporate tax (in place since 2003). Firms also choose Ireland for the quality and flexibility of the English-speaking workforce; the availability of a multilingual labor force; cooperative labor relations; political stability; and pro-business government policies and regulators. Additional positive features include a transparent judicial system; transportation links; proximity to the United States and Europe; and Ireland’s geographic location making it well placed in time zones to support investment in Asia and the Americas. Ireland benefits from its membership of the European Union (EU) and a barrier-free access to a market of almost 500 million consumers. In addition, the clustering of existing successful industries has created an ecosystem attractive to new firms. The United Kingdom’s (UK) departure from the EU, or Brexit, on January 1, 2021, leaves Ireland as the only remaining English-speaking country in the EU and may make Ireland even more attractive as a destination for FDI.

The Irish government treats all firms incorporated in Ireland on an equal basis. Ireland’s judicial system is transparent and upholds the sanctity of contracts, as well as laws affecting foreign investment. Conversely, Ireland’s ability to attract investment are often marred by: relatively high labor and operating costs (such as for energy); skilled-labor shortages; Eurozone-risk; a sometimes-deficient infrastructure (such as in transportation, housing, energy and broadband Internet); uncertainty in EU policies on some regulatory matters; and absolute price levels among the highest in Europe.

A formal national security screening process for foreign investment in line with the EU framework is still being developed. At present, investors looking to receive government grants or assistance through one of the four state agencies responsible for promoting foreign investment in Ireland are often required to meet certain employment and investment criteria.

Ireland uses the euro as its national currency and enjoys full current and capital account liberalization.

The government recognizes and enforces secured interests in property, both chattel and real estate. Ireland is a member of the World Intellectual Property Organization (WIPO) and a party to the International Convention for the Protection of Intellectual Property.

Several state-owned enterprises (SOEs) operate in Ireland in the energy, broadcasting, and transportation sectors. All of Ireland’s SOEs are open to competition for market share.

While Ireland has no bilateral investment treaties, the United States and Ireland have shared a Friendship, Commerce, and Navigation Treaty since 1950 that provides for national treatment of U.S. investors. The two countries have also shared a Tax Treaty since 1998, supplemented in December 2012 with an agreement to improve international tax compliance and to implement the U.S. Foreign Account Tax Compliance Act (FATCA).

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 20 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 24 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 15 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $354,940 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $64,000 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Irish government actively promotes FDI, a strategy that has fueled economic growth since the mid-1990s. The principal goal of Ireland’s investment promotion has been employment creation, especially in technology-intensive and high-skill industries. More recently, the government has focused on Ireland’s international competitiveness by encouraging foreign-owned companies to enhance research and development (R&D) activities and to deliver higher-value goods and services.

U.S. companies in particular are attracted to Ireland as an exporting sales and support platform to the EU market of almost 500 million consumers and other global markets. Ireland is a successful FDI destination for many reasons, including a low corporate tax rate of 12.5 percent for all domestic and foreign firms; a well-educated, English-speaking workforce; the availability of a multilingual labor force; cooperative labor relations; political stability; and pro-business government policies and regulators. Ireland also benefits from a transparent judicial system; good transportation links; proximity to the United States and Europe, and the drawing power of existing companies operating successfully in Ireland (a so-called “clustering” effect).

The stock of American FDI in Ireland stood at USD 355 billion in 2019, more than the U.S. total for China, India, Russia, Brazil, and South Africa (the so-called BRICS countries) combined. There are approximately 900 U.S. subsidiaries currently in Ireland employing roughly 180,000 people and supporting work for another 128,000. This figure represents a significant proportion of the 2.31 million people employed in Ireland. U.S. firms operate primarily in the following sectors: chemicals, bio-pharmaceuticals and medical devices, computer hardware and software, internet and digital media; electronics, and financial services.

U.S. investment has been particularly important to the growth and modernization of Irish industry over the past thirty years, providing new technology, export capabilities, management and manufacturing best practices, and employment opportunities. Ireland has more recently become an important R&D center for U.S. firms in Europe, and a magnet for U.S. internet and digital media investment. Industry leaders like Google, Amazon, eBay, PayPal, Facebook, Twitter, LinkedIn, Electronic Arts and cybersecurity firms like Tenable, Forcepoint, AT&T Cybersecurity, McAfee use Ireland as the hub or important part of their respective European, and sometimes Middle Eastern, African, and/or Indian operations.

Factors that challenge Ireland’s ability to attract investment include relatively high labor and operating costs (such as for energy); sporadic skilled-labor shortages; the fall-out from the COVID-19 pandemic; and sometimes-deficient infrastructure (such as in transportation, energy and broadband quality). Ireland also suffers from housing and high-quality office space shortages; and absolute price levels that are among the highest in Europe. The American Chamber of Commerce in Ireland has called for greater attention to a “skills gap” in the supply of Irish graduates to the high technology sector. It also has asserted that relatively high personal income tax rates can make attracting talent from abroad difficult.

In 2013, Ireland became the first country in the Eurozone to exit a financial bailout program from the EU, European Central Bank, and International Monetary Fund (EU/ECB/IMF, or so-called Troika). Compliance with the terms of the Troika program came at a substantial economic cost with gross domestic product (GDP) stagnation and austerity measures, while dealing with high unemployment (which hit 15 percent). Strong economic progress followed through government-backed initiatives to attract investment and stimulate job creation and employment. This helped economic recovery and Ireland’s economy was the one of the fastest growing economies in the Eurozone area annually to 2019. As a result, unemployment levels fell dramatically and by the end of 2019 reached 4.7 percent. In addition, the Irish government has successfully returned to international sovereign debt markets and successful treasury bonds sales, at low interest rates, exemplify renewed international confidence in Ireland’s economic progress. Despite the prolonged difficulties caused by the COVID-19 pandemic, Ireland’s economic performance continued to be the best in the Eurozone in 2020 with an estimated three percent growth, achieved on the back of strong exports from the food, pharmaceutical and med-tech sectors.

Brexit and its Implications for Ireland

The UK’s exit from the EU (Brexit) on January 1, 2021, leaves Ireland as the only remaining English-speaking country in the bloc. The UK is now a non-EU member that shares a land border with Ireland. . The December 2020 agreement dictates the future trading relationship between the UK and the EU and will likely have an affect on Ireland’s economic performance. The agreement allows for tariff-free Ireland – Great Britain (England, Scotland and Wales) trade but comes with increased customs procedures. Existing Ireland – Northern Ireland trade continues unimpeded. While some disruption has been noticed in the supply chain of retail and agricultural sectors (due to their traditional use of the UK “land-bridge” to move products to and from the EU), Irish companies have generally been able to find alternate routes (i.e., using ferries from Ireland directly to continental Europe, though this has raised costs in some sectors.

With Brexit, Ireland has lost a close EU ally on policy matters, particularly free trade and business friendly open markets. Ireland continues to be heavily dependent on the UK as an export market and source especially for food products, and the full effect of Brexit may yet hit sectors such as food and agri-business with disruptions to supply chains and increased red-tape. Irish trade with its EU colleagues has already seen a dramatic switch to direct shipping rather than using Great Britain as a land-bridge for trucking products. A number of UK-based firms (including U.S. firms) have moved headquarters or opened subsidiary offices in Ireland to facilitate ease of business with other EU countries. The Irish Department of Finance and the Central Bank of Ireland (CBI) have estimated Brexit will cut Ireland’s economic growth modestly in the near term but such models are complicated with the ongoing COVID-19 pandemic.

Industrial Promotion

Six government departments and organizations have responsibility to promote investment into Ireland by foreign companies:

  • The Industrial Development Authority of Ireland (IDA Ireland) has overall responsibility for promoting and facilitating FDI in all areas of the country. IDA Ireland is also responsible for attracting foreign financial and insurance firms to Dublin’s International Financial Services Center (IFSC). IDA Ireland maintains seven U.S. offices (in New York, NY; Boston, MA; Chicago, IL; Mountain View, CA; Irvine, CA; Atlanta, GA; and Austin, TX), as well as offices throughout Europe and Asia.
  • Enterprise Ireland (EI) promotes joint ventures and strategic alliances between indigenous and foreign companies. The agency assists entrepreneurs establish in Ireland and also assists foreign firms that wish to establish food and drink manufacturing operations in Ireland. EI has six existing offices in the United States (Austin, TX; Boston, MA; Chicago, IL; New York, NY; San Francisco, CA; and Seattle, WA and has offices in Europe, South America, the Middle East, and Asia.
  • Shannon Group (formerly the Shannon Free Airport Development Company) promotes FDI in the Shannon Free Zone (SFZ) and owns properties in the Shannon region as potential green-field investment sites. Since 2006, the responsibility for investment by Irish firms in the Shannon region has passed to Enterprise Ireland while IDA Ireland remains responsible for FDI in the region.
  • Udaras na Gaeltachta (Udaras) has responsibility for economic development in those areas of Ireland where the predominant language is Irish, and works with IDA Ireland to promote overseas investment in these regions.
  • Department of Foreign Affairs (DFA) has responsibility for economic messaging and supporting the country’s trade promotion agenda as well as diaspora engagement to attract investment.
  • Department of Enterprise, Trade and Employment (DETE) supports the creation of jobs by promoting the development of a competitive business environment where enterprises can operate with high standards and grow in sustainable markets.

Limits on Foreign Control and Right to Private Ownership and Establishment

Irish law allows foreign corporations (registered under the Companies Act 2014 or previous legislation and known locally as a public limited company, or plc for short) to conduct business in Ireland. Any company incorporated abroad that establishes a branch in Ireland must file certain papers with the Companies Registration Office (CRO). A foreign corporation with a branch in Ireland has the same standing in Irish law for purposes of contracts, etc., as a domestic company incorporated in Ireland. Private businesses are not competitively disadvantaged to public enterprises with respect to access to markets, credit, and other business operations.

No barriers exist to participation by foreign entities in the purchase of state-owned Irish companies. Residents of Ireland may, however, be given priority in share allocations over all other investors. There are no recent example of this, but Irish residents received priority in share allocations in the 1998-sale of the state-owned telecommunications company Eircom. The government privatized the national airline Aer Lingus through a stock market flotation in 2005, but chose to retain about a one-quarter stake. At that time, U.S. investors purchased shares in the sale. The International Airlines Group (IAG) purchased the government’s remaining stake in the airline in 2015, and subsequently took an overall controlling interest which it continues to hold.

Citizens of countries other than Ireland and EU member states can acquire land for private residential or industrial purposes. In the past, all non-EU nationals needed written consent from the Department of Agriculture, Food and the Marine before acquiring an interest in land zoned for agricultural use but these limitations no longer exist. There are many equine stud farms and racing facilities owned by foreign nationals. No restrictions exist on the acquisition of urban land.

Ireland does not yet have formal investment screening legislation in place but is in the process of drafting the legislation which is expected to be enacted in 2021. (The bill was delayed due to the government’s efforts to respond to the COVID-19 pandemic.) As a member of the EU, Ireland is required to implement any common EU investment screening regulations or directives such as the EU Framework.

Other Investment Policy Reviews

The Economist Intelligence Unit and World Bank’s Doing Business 2020 provide current information on Ireland’s investment policies.

Business Facilitation

All firms must register with the Companies Registration Office (CRO online at www.cro.ie). The CRO, as well as registering companies, can also register a business/trading name, a non-Ireland based foreign company (external company), or a limited partnership. Any firm or company registered under the Companies Act 2014 becomes a body corporate as and from the date mentioned in its certificate of incorporation. The CRO website permits online data submission. Firms must submit a signed paper copy of this online application to the CRO, unless the applicant company has already registered with www.revenue.ie (the website of Ireland’s tax collecting authority, the Office of the Revenue Commissioners).

The Ireland pages in the following links gives the most up-to-date information:

https://www.doingbusiness.org/en/data/exploretopics/starting-a-business#close  and https://investmentpolicy.unctad.org/country-navigator/102/ireland 

Outward Investment

Enterprise Ireland assists Irish firms in developing partnerships with foreign firms mainly to develop and grow indigenous firms.

3. Legal Regime

Transparency of the Regulatory System

Ireland’s judicial system is transparent and upholds the sanctity of contracts, as well as laws affecting foreign investment. These laws include:

  • The Companies Act 2014, which contains the basic requirements for incorporation in Ireland;
  • The 2004 Finance Act, which introduced tax incentives to encourage firms to set up headquarters in Ireland and to conduct R&D;
  • The Mergers, Takeovers and Monopolies Control Act of 1978, which sets out rules governing mergers and takeovers by foreign and domestic companies;
  • The Competition (Amendment) Act of 1996, which amends and extends the Competition Act of 1991 and the Mergers and Takeovers (Control) Acts of 1978 and 1987, and sets out the rules governing competitive behavior; and,
  • The Industrial Development Act (1993), which outlines the functions of IDA Ireland.

The Companies Act (2014), with more than 1,400 sections and 17 Schedules, is the largest-ever Irish statute. The Act consolidated and reformed all Irish company law for the first time in over 50 years.

In addition, numerous laws and regulations pertain to employment, social security, environmental protection and taxation, with many of these keyed to EU regulations and directives.

International Regulatory Considerations

Ireland has been a member of the EU since 1973. As a member, it incorporates all EU legislation into national legislation and applies all EU regulatory standards and rules. Ireland is a member of the World Trade Organization (WTO) and follows all WTO procedures.

Legal System and Judicial Independence

Ireland’s legal system is common law. Courts , are presided over by judges appointed by the President of Ireland (on the advice of the government). The Commercial Court is a designated court of the High Court which deals with commercial disagreements between businesses where the value of the claim is at least €1 ($1.2) million. The Commercial Court also oversees cases on intellectual property rights, including trademarks and trade secrets.

Laws and Regulations on Foreign Direct Investment

Ireland treats all firms incorporated in Ireland on an equal basis. With only a few exceptions, no constraints prevent foreign individuals or entities from ownership or participation in private firms/corporations. The most significant of these exceptions is that, in common with other EU countries, Irish airlines must be at least 50 percent owned by EU residents to have full access to the single European aviation market. Citizens of countries other than Ireland and EU member states can acquire land for private residential or industrial purposes.

One of Ireland’s many attractive features as an FDI destination is its low corporate tax rate. Since 2003, the headline corporate tax rate is 12.5 percent, among the lowest in the EU.

In 2014, the government announced firms would no longer be able to incorporate in Ireland without also being tax resident. Prior to this, firms could incorporate in Ireland and be tax resident elsewhere, making use of a tax avoidance arrangement colloquially known as the “Double Irish” to reduce tax liabilities.

The Irish government has indicated it will adhere to future decisions reached through the OECD’s Base Erosion and Profit Sharing (BEPS) negotiations and ratified the BEPS Multilateral Instrument in January 2019. The government implemented a Knowledge Development Box (KDB), effective 2016, which is consistent with OECD guidelines. The KDB allows for the application of a tax rate of 6.25 percent on profits arising to certain intellectual property assets that are the result of qualifying research and development activities carried out in Ireland.

Competition and Antitrust Laws

The Competition and Consumer Protection Commission (CCPC) is an independent statutory body with a dual mandate to enforce competition and consumer protection law in Ireland. The CPCC was established in 2014, following the amalgamation of the National Consumer Agency and the Competition Authority. The CPCC enforces Irish and EU competition law in Ireland. It has the power to conduct investigations and can take civil or criminal enforcement action if it finds evidence of breaches of competition law.

The Competition Act of 2002, subsequently amended and extended by the Competition Act 2006, mandates the enforcement power of the CCPC. The Act introduced criminal liability for anti-competitive practices, increased corporate liability for violations, and outlined available defenses. Most tax, labor, environment, health and safety, and other laws are compatible with EU regulations, and they do not adversely affect investment. The government publishes proposed drafts of laws and regulations to solicit public comment, including those by foreign firms and their representative trade associations. Bureaucratic procedures are transparent and reasonably efficient, in line with the general pro-business approach of the government.

The Irish Takeover Panel Act of 1997 gives the ‘Irish Takeover Panel’ responsibility for monitoring and supervising takeovers and other relevant corporate transactions. The minority squeeze-out provisions in the legislation, allows a bidder who holds 80 percent of the shares of the target firm (or 90 percent for firms with securities on a regulated market) to compel the remaining minority shareholders to sell their shares. There are no reports that the Irish Takeover Panel Act has prevented foreign takeovers, and, in fact, there have been several high-profile foreign takeovers of Irish companies in the banking and telecommunications sectors in the past. Although not recent, Babcock & Brown (an Australian investment firm) acquired the former national telephone company, Eircom in 2006 which it subsequently sold to Singapore Technologies Telemedia in 2009.

The EU Directive on Takeovers provides a framework of common principles for cross-border takeover bids, creates a level playing field for shareholders, and establishes disclosure obligations throughout the EU. Irish legislation fully implemented the Directive in 2006, though the Irish Takeover Panel Act 1997 had already incorporated many of its principles.

Companies must notify the CCPC of mergers over a certain financial threshold for review as required by the Competition Act 2002, as amended (Competition Act).

Expropriation and Compensation

The government normally expropriates private property only for public purposes in a non-discriminatory manner and in accordance with established principles of international law. The government condemns private property in accordance with recognized principles of due process.

The Irish courts provide a system of judicial review and appeal where there are disputes brought by owners of private property subject to a government action.

Dispute Settlement

There is no specific domestic body for handling investment disputes apart from the judicial system. The Irish Constitution, legislation, and common law form the basis for the Irish legal system. DETE has primary responsibility for drafting and enforcing company law. The judiciary is independent, and litigants are entitled to trial by jury in commercial disputes.

ICSID Convention and New York Convention

Ireland is a member of the International Center for the Settlement of Investment Disputes (ICSID) and a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning local courts must enforce international arbitration awards under appropriate circumstances.

Some U.S. business representatives have occasionally called into question the transparency of Irish government tenders. According to some U.S. firms, lengthy procedural decisions often delay the procurement tender process. Unsuccessful bidders have expressed concerns over difficulties receiving information on the rationale behind the tender outcome. In addition, some successful bidders have experienced delays in finalizing contracts, commencing work on major projects, obtaining accurate project data, and receiving compensation for work completed, including through conciliation and arbitration processes. Some successful bidders have also subsequently found that the original tenders may not have accurately described conditions on the ground.

Bankruptcy Regulations

The Companies Act 2014 is the most important body of law dealing with commercial and bankruptcy law, which Irish courts consistently apply. Irish company bankruptcy legislation gives creditors a strong degree of protection. Ireland is ranked 18 (of 190) for ease of resolving insolvencies in World Bank’s Doing Business Report 2019.

4. Industrial Policies

Investment Incentives

Three Irish organizations – IDA Ireland, EI, and Udaras – have regulatory authority for administering grant aid to investors for capital equipment, land, buildings, training, and R&D. Foreign and domestic business enterprises seeking grant aid from these organizations must submit detailed investment proposals. These proposals typically include information on fixed assets (capital), labor, and technology/R&D components, and establish targets using criteria such as sales, profitability, exports, and employment. The submitted information is business confidential, and each investment proposal is subject to an economic appraisal before support is offered or denied.

Ireland’s investment agencies and foreign investors jointly establish employment creation targets, which usually serve as the basis for performance requirements. The agencies only pay grant aid after the foreign investors have attained externally audited performance targets. Grant-aid agreements generally have a repayment term of five years after the date on which the last installment is paid. Parent companies of the investor generally must also guarantee repayment of the government grant if the grant-aided company closes before an agreed period of time elapses, normally ten years after the grant was paid. There are no requirements foreign investors must procure locally, or allow nationals to own shares.

The current EU Regional Aid Guidelines (RAGs), due to expire in 2020, were prolonged until the end of 2021. The RAGs govern the maximum grant-aid the Irish government can provide to firms/businesses which are graded based on their location. The differences in the various aid ceilings reflect the relative development status of business/infrastructure in regions outside the greater Dublin area.

Investors are generally free, subject to planning permission, to choose the location of their investment, however IDA Ireland has actively encouraged investment in regions outside Dublin since the 1990s. Investment regionalization became government policy in 2001. IDA Ireland set out its plan to secure 800 investments and generate 50,000 new jobs by 2025 in its Driving Recovery and Sustainable Growth 2021 – 2024 strategy. IDA Ireland’s goal is to locate over 50 percent of all new FDI investments outside the two main urban centers of Dublin and Cork, and has developed regional hubs to facilitate clusters of activity around the country. IDA Ireland has in the past supported construction of business parks in counties Galway and Louth, to encourage biotechnology sector activity in those counties.

There are no restrictions on participation by foreign firms in government-financed and/or -subsidized R&D programs on a national basis. In fact, the government strongly encourages and incentivizes (via a partial tax break) foreign companies to conduct R&D as part of its national strategy to build a more knowledge-intensive, innovation-based economy. Science Foundation Ireland (SFI), the state science agency, has been responsible for administering Ireland’s R&D funding since 2000. Under its current strategy, SFI is investing over USD 200 million annually in R&D activities. SFI targets leading researchers in Ireland and overseas to promote the development of biotechnology, information and communications technology; and energy. SFI has specific research centers of excellence – hubs that draw researchers from all of Ireland’s universities together for research on specific themes.

The U.S.-Ireland Research and Development Partnership (UIRDP), launched in 2006, is a unique initiative involving funding agencies across three jurisdictions: the United States, Ireland, and Northern Ireland (NI). Under the program, a ‘single-proposal, single-review’ mechanism is facilitated by the National Science Foundation and National Institutes of Health in the United States, which accept submissions from tri-jurisdictional (U.S., Ireland, and NI) teams for existing funding programs. All proposals submitted under the auspices of UIRDP must have significant research involvement from researchers in all three jurisdictions. In 2015, the UIRDP program topics expanded to include agricultural research; and in 2019 cybersecurity research was also incorporated as a topic.

A key aspect of government support is a tax credit on the cost of eligible research, development, and innovation (RDI) activity; and on buildings used for RDI activity. A tax credit of 25 percent is subject to certain conditions and is available for R&D activities carried out in a wide variety of science and technology areas such as software development, engineering, food and beverage production, medical devices, pharmaceuticals, financial services, agriculture and horticulture. A number of U.S. firms have already used these tax credits to build and operate R&D facilities.

The Irish government’s Knowledge Development Box (KDB), introduced in 2016, also offers a lower tax rate for certain R&D activities carried out in Ireland.

Foreign Trade Zones/Free Ports/Trade Facilitation

The government established Shannon duty-free Processing Zone under legislation in 1957. Firms operating in the area were at the time entitled to a number of taxation and duty-free benefits not available elsewhere in Ireland. Nowadays, all firms in Ireland are treated equally and the Shannon Free Zone (SFZ) as it is now called, continues to operate albeit without any additional tax benefits.

All firms operating in the SFZ area have the same investment opportunities and tax incentives as indigenous Irish companies. More than 150 companies operate within the 254-hectare business park. U.S. companies are located in SFZ include: Benex (Becton Dickinson), Connor-Winfield, Digital River, Enterasys Networks, Extrude Hone, GE Capital Aviation Services, GE Money, Sensing, Genworth Financial, Intel, Illinois Tool Works, Kwik-Lok, Lawrence Laboratories (Bristol Myers Squibb), Le Bas International, Magellan Aviation Services, Maidenform, Melcut Cutting Tools (SGS Carbide Tools), Mentor Graphics, Phoenix American Financial Services, RSA Security, Shannon Engine Support (CFM International), SPS International/Hi-Life Tools (Precision Castparts Corp), Sykes Enterprises, Symantec, Travelsavers Corp, Viking Pump, Western Well Tool, Xerox, and Zimmer Biomet.

The Shannon Group currently operates the SFZ, as well as Shannon Airport.

Performance and Data Localization Requirements

Visa, residence, and work permit procedures for foreign investors are non-discriminatory and, for U.S. citizens (as investors or employees), generally liberal. No restrictions exist on the numbers of, and duration of employment for, foreign managers brought in to supervise foreign investment projects, though all work permits must be renewed annually. There are no discriminatory export policies or import policies affecting foreign investors.

Data Storage

The government does force localization nor does it require foreign information technology providers to turn over source code and/or provide access to surveillance (e.g., backdoors into hardware and software, or encryption keys). There are no rules on maintaining minimum amounts of data storage in Ireland. Many U.S. firms already operate, and are planning for additional, data centers in Ireland

5. Protection of Property Rights

Real Property

The government recognizes and enforces secured interests in property, both chattel and real estate. The Department of Justice and Equality (DJE) administers a reliable system of recording such security interests through the Property Registration Authority (PRA) and Registry of Deeds. The PRA registers a person’s interest in property on a public register. All property buyers must since 2010 register their acquisition with the PRA.

Ireland also operates a document registration system through the Registry of Deeds in which deeds (as distinct from titles) may be registered, priority obtained, and third parties placed on notice of the existence of documents of title. An efficient, non-discriminatory legal system is accessible to foreign investors to protect and facilitate acquisition and disposition of all property rights

Ireland ranks 26 (of 190) in the latest World Bank’s Doing Business Index for registering property.

Intellectual Property Rights

Ireland 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.

Legislation enacted in 2000 brought Irish intellectual property rights (IPR) law into compliance with Ireland’s obligations under the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. The legislation gave Ireland one of the most comprehensive legal frameworks for IPR protection in Europe. It also addressed several TRIPs inconsistencies in prior Irish copyright law that had concerned foreign investors, including the absence of a rental right for sound recordings, the lack of an anti-bootlegging provision, and low criminal penalties that failed to deter piracy. The legislation provides for stronger penalties on both the civil and criminal sides, but it does not include minimum mandatory sentencing for IPR violations. As part of this comprehensive legislation, revisions were also made to non-TRIPS conforming sections of Irish patent law.

Specifically, the IPR legislation addressed two outstanding concerns of many foreign investors in the previous legislation:

  • The compulsory licensing provisions of the previous 1992 Patent Law were inconsistent with the “working” requirement prohibition of TRIPs Articles 27.1 and the general compulsory licensing provisions of Article 31; and,
  • Applications processed after December 20, 1991 did not previously conform to the non-discrimination requirement of TRIPs Article 27.1.

The government continues to crack down on the sale of illegal cigarettes smuggled into the country by international and local organized criminal groups. High taxation on tobacco products makes illegal trade in counterfeit and untaxed cigarettes highly lucrative. Ireland became the first European country, and fourth globally, to enact legislation on plain packaging for tobacco products via The Public Health (Standardized Packaging of Tobacco) Act in 2015. In practice, all tobacco packaging is devoid of branding, and health warnings cover nearly the entire box with only the producer/product name otherwise visible. The legislation has been in force since September 2018.

The Irish government has transcribed the 2012 EU Copyright and Related Rights Regulations into law. This legislation makes it possible for copyright holders to seek court injunctions against firms, such as internet service providers (ISPs) or social networks, whose systems host copyright-infringing material. Irish courts ensure any remedy provided will uphold the freedom of ISPs to conduct their business. The legislation ensures that the government cannot mandate any ISP to carry out monitoring of information. The legislation also ensures that measures implemented are “fair and proportionate” and not “unnecessarily complicated or costly.” The law also states that the Courts must respect the fundamental rights of ISP customers, including the customers’ right to protection of personal data and the freedom to receive or impart information.

The government enacted the Copyright and Other Intellectual Property Law Provisions Act in 2019. The legislation improves provision for copyright and other IPR protection in the digital era, and its enables rights holders to better enforce their IPR in the courts.

DETE is expected to issue draft legislation implementing the EU’s 2019 Copyright Directive in the near future, having held four consultations in 2019 and with June 2021 as the implementation deadline. Some parts of the Irish Copyright and Other Intellectual Property Law Provisions Act, enacted in 2019, already reflect aspects of the 2019 EU Copyright Directive, but it does not make specific reference to the Directive itself and further implementation is, therefore, required.

Ireland is the main European, Middle East and Africa (EMEA) headquarters for many global technology companies, and while the government says it is fully committed to the intentions of the 2019 EU Copyright Directive, it says it is also conscious of the need to strike the right balance in doing so.

Ireland is not included on the U.S. Trade Representative’s (USTR’s) Special 301 Report or the Notorious Markets List.

For additional information about Ireland’s legislation and IP points of contact, please see WIPO’s country profiles at https://www.wipo.int/directory/en/details.jsp?country_code=IE 

6. Financial Sector

Capital Markets and Portfolio Investment

Capital markets and portfolio investments operate freely with no discrimination between Irish and foreign firms. In some instances, development authorities and commercial banks facilitate loan packages to foreign firms with favorable credit terms. All loans are offered on market terms. There was limited credit available, especially to small and medium-sized enterprises (SMEs), after the financial crisis of 2008. Bank balance sheets have since improved with lending levels increasing as the health of the economy improved. The government established the Strategic Banking Corporation of Ireland (SBCI) to ensure SMEs had access to credit available at market terms. Irish legal, regulatory, and accounting systems are transparent and consistent with international norms and provide a secure environment for portfolio investment. The current capital gains tax rate is 33 percent (since December 2012).

Euronext, an EU-based grouping of stock exchange operators in 2018 acquired and operates the Irish Stock Exchange (ISE), now known as Euronext Dublin.

Money and Banking System

The Irish banking sector, like many worldwide, came under intense pressure in 2007 and 2008 following the collapse of Ireland’s construction industry and the end of Ireland’s property boom. A number of Ireland’s financial lenders were severely under-capitalized and required government bailouts to survive. The government, fearing a flight of private investments, introduced temporary guarantees (still in operation) to personal depositors in 2008 to ensure that deposits remained in Ireland. Anglo Irish Bank (Anglo), a bank heavily involved in construction and property lending, failed and was resolved by the government. The government subsequently took majority stakes in several other lenders, effectively nationalized two banks and acquired a significant proportion of a third. The National Asset Management Agency (NAMA), established in 2009, acquired most of the property-related loan books of the Irish banks (including Anglo) at a fraction of their book value.

The government, with its increased exposure to bank debts and a rising budget deficit, had difficulty in placing sovereign debt on international bond markets following the economic crash of 2008. Ireland had to seek assistance from the Troika (International Monetary Fund (IMF), EU and European Central Bank (ECB)) in November 2010. A rescue package of EUR 85 ($110) billion with EUR 67.5 ($88) billion of this provided by the Troika was agreed to cover government deficits and costs related to the bank recapitalizations.

The government then took effective control of Allied Irish Bank (AIB), following a further recapitalization by the end of 2010. The government took into state control, and then resolved, two building societies, Irish Nationwide Building Society and Educational Building Society. The government helped re-capitalize Irish Life and Permanent (the banking portion of which was spun off and now operates under the name Permanent TSB) and the Bank of Ireland (BOI).

Irish banks were forced to deleverage their non-core assets in line with Troika bailout program recommendations and were effectively limited to service domestic banking demand. BOI succeeded in remaining non-nationalized by realizing capital from the sale of non-essential portfolios and by imposing some targeted burden sharing with some of its bondholders. The government sold just over 28 percent of its shareholding in AIB Bank in July 2017, but it still retains the remainder of the shareholding.

Soon after it exited the Troika program in 2013, Ireland re-entered sovereign debt markets. International financing rates continued to fall to record lows for Irish debt, and Ireland was able to fully repay all of it’s IMF loans by securing bond sales at less expensive rates. Ireland also paid off some bilateral loans extended to it by Denmark and Sweden ahead of schedule in 2017. Currently, Ireland is placing its debt at very low, and sometimes negative, interest rates.

Ireland’s retail banking sector rebounded from the crisis and is now healthy and well capitalized in line with ECB rules on bank capitalizations. The stock of non-performing loans on bank balance sheets remains high; and banks continue to divest themselves of these loans through bundle sales to investors. Ulster Bank, part of the UK-based NatWest Banking group and Ireland’s third largest retail bank, announced its withdrawal from retail banking in Ireland, in early 2021. Ulster Bank, which has not yet set its date for full departure, is expected to sell its loan books to other financial institutions including to Ireland’s remaining retail banks

The Central Bank of Ireland (CBI) is responsible for both central banking and financial regulation. The CBI is a member of the European System of Central Banks (ESCB), whose primary objective is to maintain price stability in the euro area.

There are a large number of U.S. banks with operations in Ireland, many of whom are located in Dublin’s International Financial Services Center (IFSC) Dublin. The IFSC originally functioned somewhat like a business park for financial services firms. U.S. banks located in Ireland provide a range of financial services to clients in Europe and worldwide. Among these firms are State Street, Citigroup, Merrill Lynch, Wells Fargo, JP Morgan, and Northern Trust. The regulation of the international banks operating throughout Ireland falls under the jurisdiction of the CBI.

Ireland is part of the Eurozone, and therefore does not have an independent monetary policy. The ECB formulates and implements monetary policy for the Eurozone and the CBI implements that policy at the national level. The Governor of the CBI is a member of the ECB’s Governing Council and has an equal say as other ECB governors in the formulation of Eurozone monetary and interest rate policy. The CBI also issues euro currency in Ireland, acts as manager of the official external reserves of gold and foreign currency, conducts research and analysis on economic and financial matters, oversees the domestic payment and settlement systems, and manages investment assets on behalf of the State.

Foreign Exchange and Remittances

Foreign Exchange

Ireland uses the euro as its national currency and enjoys full current and capital account liberalization. Foreign exchange is easily available at market rates. Ireland is a member of the Financial Action Task Force (FATF).

Remittance Policies

There are no restrictions or significant reported delays in the conversion or repatriation of investment capital, earnings, interest, or royalties, nor are there any announced plans to change remittance policies. Likewise, there are no limitations on the import of capital into Ireland.

Sovereign Wealth Funds

The National Treasury Management Agency (NTMA) is the asset management bureau of the government. NTMA is responsible for day-to-day funding for government operations normally through the sale of sovereign debt worldwide. NTMA is also responsible for investing Irish government funds, such as the national pension funds, in financial instruments worldwide.

Ireland suspended issuing sovereign debt upon entering the Troika bailout program in 2010 but has been successfully placing Irish debt since Ireland’s 2013 exit from the Troika program,

The NTMA also has oversight of the National Asset Management Agency (NAMA), the agency established to take on, and dispose of, the property-related loan books of Ireland’s bailed-out banks.

The Ireland Strategic Investment Fund (ISIF) established in 2014 has the statutory mandate to invest on a commercial basis to support economic activity and employment in Ireland. The dual objective mandate of the ISIF – investment return and economic impact –requires all of its investments to generate returns as well as having a positive (i.e. job-creating) economic impact in Ireland. The ISIF assisted a number of small and medium sized enterprises during Ireland’s economic revival.

7. State-Owned Enterprises

There are a number of SOEs in Ireland operating in the energy, broadcasting, and transportation sectors.

Eirgrid is the SOE with responsibility of managing and operating the electricity grid on the island of Ireland. (Eirgrid has a sister company SONI in Northern Ireland). There are two energy SOEs – Electric Ireland (for electricity) and Ervia, formerly Bord Gáis Eireann, (for natural gas). Raidió Teilifís Éireann (RTE) operates the national broadcasting (radio and television) service while Córas Iompair Éireann (CIE) provides bus and train transportation throughout the country.

The government privatized both Eircom (the national telecommunication service) and Aer Lingus (the national airline). CIE remains wholly owned by the government. Irish Water (which operates as a subsidiary of Ervia) began operations in 2013 to serve as the state-owned entity delivering water services (previously delivered by local authorities) to homes and businesses. New residential water charges (previously funded from general government revenue) were introduced by Irish Water in 2015 and subsequently suspended in 2016. Irish Water continues to deliver water services with the cost of domestic water supplies paid by the government.

All of Ireland’s SOEs are open to competition for market share and can, as in the case of Electric Ireland and Ervia, compete with one another. The SOEs do not discriminate against, or place unfair burdens on, foreign investors or foreign-owned investments. There has been a statutory transfer of responsibility for the regulatory functions for the energy sector from the government to the Commission for Regulation of Utilities. This statutory body is required to not discriminate unfairly between participants in the sector, while protecting the end-user.

SOEs generally pay their own way, finance their operations and fund further expansion through profits generated from their own operations. Some SOEs pay an annual dividend to the government. A board of directors usually governs a SOE with some of these directors appointed by the government.

Privatization Program

Ireland does not have a formal privatization program but the government agreed in 2010, as part of the Troika program, to privatize some of its state-owned and semi-state owned enterprises. The government nominated but has not yet sold some non-strategic elements of Ervia (formerly Bord Gais Eireann, the gas supply company). The government indicated that it may sell the electricity generating arm of Electric Ireland, an electricity supply company, but has not yet done so.

8. Responsible Business Conduct

A growing awareness of corporate social responsibility (CSR) in Ireland is mainly driven by a number of independent organizations and multinational corporations. According to “Business in the Community–Ireland,” an organization at the forefront of promoting CSR in Ireland, many of the participant firms believe CSR-oriented policies can play a major role in rebuilding Ireland’s corporate reputation. Companies advertise their participation in such programs as the Fairtrade Certification Mark. The American Chamber of Commerce in Ireland has also released its own report documenting the widespread CSR efforts of American affiliate firms in the country.

The government promotes responsible business conduct in Ireland. Its national action plan “Towards Responsible Business – Ireland’s National Plan on Corporate Social Responsibility 2017- 2020″ aims to support businesses in Ireland to create sustainable jobs; embed responsible practices in the marketplace; embrace diversity and promote responsible workplaces; and encourage enterprises to consider their businesses’ impacts on the environment. It gives effect to the UN Guiding Principles on Business and Human Rights and sets out the Irish government’s commitments to promoting responsible business practice at home and overseas.

Ireland, as an adherent to the OECD Guidelines for Multinational Enterprises, established a National Contact Point (NCP) responsible for promoting CSR/RBC and facilitating mediation when complaints arise regarding a company not observing the Guidelines. Contact information for the NCP is: https://enterprise.gov.ie/en/What-We-Do/Trade-Investment/OECD-Guidelines-NCP/ 

Additional Resources

Department of State

Department of Labor

9. Corruption

Corruption is not a serious problem for foreign investors in Ireland. The principal Irish legislation relating to anti-bribery and corruption is the Criminal Justice (Corruption Offences) Act of 2018. The Act consolidates all previous legislation for the prevention of corruption. The legislation makes it illegal for Irish public servants to accept bribes. The Ethics in Public Office Act, 1995, provides for the written annual disclosure of interests of people holding public office or employment.

The law on corruption in Ireland gives effect in domestic law to the OECD Anti-Bribery Convention and other conventions concerning criminal corruption and corruption involving officials of the European Union and officials of EU member states. Irish legislation ensures there are strong penalties in place with prison terms of up to ten years and an ‘unlimited’ fine, for those found guilty of offenses under the Act, including convictions of bribery of foreign public officials by Irish nationals and companies that takes place outside of Ireland.

Irish police (An Garda Siochana, or Garda) investigate all allegations of corruption. The Director of Public Prosecutions is responsible for preparing files for prosecution, on detection of sufficient evidence of criminal activity. The government has, in the past, convicted a small number of public officials for corruption and/or bribery. In 1996, Ireland established the Criminal Asset Bureau (CAB), an independent body responsible for seizing illegally acquired assets. CAB has the powers to focus on the illegally acquired assets of criminals involved in organized crime by identifying criminally acquired assets of persons, and taking the appropriate action to deny such people of these assets. Any CAB action is primarily taken through the application of the Proceeds of Crime Act, 1996 legislation. Ireland is a member of the Camden Asset Recovery Inter-Agency Network (CARIN).

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Ireland signed the UN Convention on Corruption in December 2003 and ratified it in 2011. Ireland is also a participating member of the OECD Working Group on Bribery.

Resources to Report Corruption

Government agency responsible for combating corruption:

Department of Justice and Equality, Crime and Security Directorate
94 St. Stephen’s Green
Dublin 2
Telephone: + 353 1 602-8202
E-mail: info@justice.ie 
Website: www.justice.ie 

Contact at Transparency International:

John Devitt
Chief Executive
Transparency International
Floor 2
69 Middle Abbey St
Dublin 2
Telephone: +353 1 554 3938
E-mail: Admin@transparency.ie 

10. Political and Security Environment

There has been no significant spillover of violence from Northern Ireland since the ceasefires of 1994 and the signing and implementation of the Good Friday Agreement (GFA) in 1998. The cessation of violence in Northern Ireland led to increased business investment and confidence in Northern Ireland which also benefited Ireland. The GFA designated funding to develop cross-border cooperation on R&D collaboration, create energy and transportation infrastructure linkages, and for joint trade missions participation. No violence related to the situation in Northern Ireland has been specifically directed at U.S. citizens or firms located in Ireland.

Other Acts of Political Violence

There have been some incidents of criminal terrorism and gangland violence attributed to cross-border groups believed to be involved in the black market. There is considerable Garda and Police Service Northern Ireland (PSNI) cooperation to stem any illegal activity.

There have been no recent incidents involving politically motivated damage to foreign investment projects and/or installations in Ireland. There were some instances of damage to U.S. military assets transiting Shannon Airport in 2003 and later in 2011 by a small number of Irish citizens opposed to wars in Iraq and Afghanistan. In 2017, two anti-war activists defaced a U.S. aircraft with graffiti. The Garda arrested two peace protesters as they attempted to gain illegal access to Shannon airport runways in 2019. Other than these incidences of anti-military acts, there have been no acts against U.S. firms or private interests in Ireland.

11. Labor Policies and Practices

Ireland’s population reached 4.98 million in April 2020 an increase of 55,900 on 2019 levels. Net migration in the year to April 2020 was 28,900 persons. The total number of persons employed at the end of 2019 was 2.36 million but this contracted to 2.31 by the end of 2020 following the onset of the COVID-19 pandemic. Employment opportunities continue to attract inward migrations particularly for employees with language skills. Ireland’s unemployment rate peaked at 15.1 percent in early 2012 following the 2008 collapse of Ireland’s construction industry. In the following years employment levels rebounded, the unemployment rate improved and by February 2020 had fallen to 5.0 percent (which for Ireland is considered near full-employment levels).

The onset of the COVID-19 pandemic brought with it three lockdowns of the economy (in April, October and December 2020) with maximum restrictions on movements and a sharp rise in the numbers receiving temporary government employment supports. Temporary government unemployment supports (pandemic unemployment payments) were put in place to keep employees linked to their employers to assist in a rapid return to operations following the lockdowns. The COVID-19 adjusted unemployment rate for Ireland stood at 24.8 percent (with an underlying unemployment rate of 5.8 percent) in February 2021. The Central Bank of Ireland forecasts Ireland’s unemployment rate will average of 9.3 percent in 2021 before declining to 7.8 percent in 2022 contingent on the full re-opening of the economy and a successful vaccination roll-out.

Average hourly labor costs in Ireland increased by 5.5 percent in 2020. During 2020, average industrial earnings increased by 5.4 percent to 964 euro (USD 1,101) per week. The government mandated minimum wage rate was increased by 0.10 euro to 10.20 euro ($12.50) per hour from January 2021, with lower rates set for younger and less experienced workers.

The government regulates the Irish labor force less than governments in most continental EU countries. The workforce has a high degree of flexibility, mobility, and education. There is relative gender balance in the workforce, with 1,245,200 males and 1,061,000 females employed in 2020. The gender balance reflects a societal change and government support that facilitated a surge in female employment from the mid-1980s. There are no restrictions on the hiring of non-national labor, and many firms, especially in the technology sector, hire young professionals with a diverse range of language and technology skills.

Ireland, since the mid-1990’s, is an attractive destination for foreign investment due to the availability of a young, highly educated workforce. The removal of tuition fees for third-level (university) education in 1995 resulted in a rapid increase of third-level qualified graduates. While tuition fees are paid by the government, students must still pay registration fees, currently capped at 3,000 euro ($ 3,675) per academic year. The availability of highly educated and qualified potential employees in Ireland is an attractive feature for employers looking to locate in the EU and has been a significant factor in attracting the already large number of multinational companies located in Ireland. Over 60 percent of new third-level students in Ireland undertake business, engineering, computer science, or science courses. The focus of government strategy has shifted to upgrading skills and increasing the number of workers in technology-intensive, high-value sectors to ensure the availability of an educated workforce.

The onset of the COVID-19 pandemic introduced mass teleworking to Ireland. The huge change in work practice came almost overnight and despite the immense change, workers and their employers seem to have adapted well. Key to Ireland’s teleworking success was the access to good broadband services. Adequate broadband is already available in most urban areas while the government’s national broadband plan to bring high speed broadband to all areas is still rolling out. It is likely that these plans may be accelerated to get earlier delivery of broadband services in more rural parts of the island.

The Irish system of industrial relations is voluntary. Employers and employees generally agree on pay levels and conditions of employment through collective bargaining. There are generally good industrial relationships and very few industrial disputes. There were just seven labor disputes in 2020 down from nine in 2019. (Note: Pandemic measure are likely to have affected the number of disputes in 2020. End note). A series of agreements between the government and public service labor unions in place since 2010 have in general reduced public service labor disputes.

Employers typically resist trade union demands for mandatory trade/labor union recognition in the workplace. While the Irish Constitution guarantees the right of citizens to form associations and unions, Irish law also affirms the right of employers to withhold union recognition and to deal with employees on an individual basis. One quarter of all workers are unionized but there is much higher participation by public sector workers in unions. The government estimates up to 80 percent of workers in foreign-owned firms do not belong to unions. This may reflect more attractive pay, benefits, and conditions by these employers compared with domestic firms. DBEI explicitly addressed the country’s collective bargaining rights through an amendment of existing legislation in the Industrial Relations (Amendment) Act 2015.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

U.S. and foreign companies with major foreign direct investments in Ireland include: Abbott, AdRoll, Adobe, Alcatel-Lucent/Bell Labs, Aldi, Alexion, Allianz, Analog Devices, AOL, Apple, Aramark, Avolon, AWS, Axa, BAM, Bank of America Merrill Lynch, Biotrin, BNY Mellon, Boots, Boston Scientific, BT, Citi, Coca Cola, Consensys, DellEMC, Dropbox, eBay, Eli Lilly,  Ericsson, Etsy, Facebook, Fidelity, Generali, Gilead, Google, GSK, Heineken, HPE, Huawei, Hubspot, IBM, Indeed, Intel, Johnson & Johnson, JP Morgan, Kellogg’s, Lidl, Liebherr, LinkedIn, Mastercard, Microsoft, Merit Medical, MSD (Merck Sharp & Dohme), Northern Trust, Oracle, PayPal, Pfizer, Qualtrics, Quantcast, Regeneron, Salesforce.com, Sanofi, SAP, ServiceSource, Servier, Siemens, State Street, Stream Global Services, Tesco, Teva, Twitter, UnitedHealth Group, United Technologies Research Centre, Vodafone, Waters, Wuxi Biologics, Yahoo!, Zeus, and Zurich.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $406,681 2019 $406,681 Eurostat
https://ec.europa.eu/eurostat 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: 
U.S. FDI in partner country ($M USD, stock positions) 2019 $354,940 BEA
Host country’s FDI in the United States ($M USD, stock positions) 2019 $343,538 BEA
Total inbound stock of FDI as % host GDP 2019 20.2% UNCTAD     

Note:  Host country’s FDI inbound and outbound data is not shown as it relates to 2018

*Source for Host Country Data: Central Statistics Office (www.cso.ie)

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 1,152.371 100% Total Outward 1,085,924 100%
United States 248,888 21% Luxembourg 472,418 44%
Bermuda 197,855 17% United States 140,077 13%
Netherlands 101,017  9% United Kingdom 108,392 10%
Switzerland 98,356  9% Netherlands 66,429  6%
Luxembourg 77,777  7% Bermuda 52,293  5%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 3,820,372 100% All Countries 1,563,928 100% All Countries 2,256,444 100%
United States 1,198,777 31% United States 579,573 37% United States 619,203 27%
UK 780,126 20% UK 178,595 11% UK 601,531 27%
France 221,546 6% Luxembourg 114,016 7% France 171,849 8%
Germany 150,597 4% Japan 79,379 5% Germany 99,121 4%
Japan 129,518 3% Cayman Islands 71,568 5% Netherlands 95,774 4%

14. Contact for More Information

Peter Lee
Economic Affairs Chief
American Embassy, Dublin, Ireland
Telephone: +353-1-630 6274 / Cell Phone: +353-87-623-1201
Email: LeePH@state.gov 

Michael Hanley
Economic Specialist
American Embassy, Dublin, Ireland
Telephone: +353-1-630-6254 / Cell Phone: +353-86-014-4040
Email: HanleyMJ@state.gov 

Finola Cunningham
Senior Commercial Representative
Foreign Commercial Service
American Embassy, Dublin, Ireland
Telephone: +353-1-237-5849 / Cell Phone: +353-87-258-7740
Email: Finola.cunningham@trade.gov 

Luxembourg

Executive Summary

Luxembourg, the only Grand Duchy in the world, is a landlocked country in northwestern Europe surrounded by Belgium, France, and Germany. Despite its small landmass and small population (634,700), Luxembourg is the second-wealthiest country in the world when measured on a Gross Domestic Product (GDP) per capita basis.

Since 2002, the Luxembourg Government has proactively implemented policies and programs to support economic diversification and to attract foreign direct investment. The Government focused on key innovative industries that showed promise for supporting economic growth: logistics, information, and communications technology (ICT), health technologies including biotechnology and biomedical research; clean energy technologies, and most recently, space technology and financial services technologies. With the COVID-19 pandemic, the health-tech sector has become a priority sector to attract to Luxembourg.

Luxembourg’s economy proved resilient during the COVID-19 pandemic, as 2020 GDP only contracted by 1.3 percent, with a projected growth rate of 4 percent for 2021. Luxembourg fared much better than the 2020 EU rate of contraction of 6.4 percent. This resilience is due to a well-performing financial sector which managed to quickly revert to telework and only suffered limited effects of the pandemic. The Government of Luxembourg also provided a major economic stimulus package of 11 billion euros ($13 billion), equivalent to 18.5 percent of Luxembourg GDP, which helped stabilize the economy. This package includes direct subsidies and compensatory payments to companies, state-guaranteed loans, deferral of taxes, and social security contributions. The Government of Luxembourg borrowed a total of 5 billion euros ($6 billion) at negative interest rates due to the Grand Duchy’s Triple A credit rating.

Unemployment rose from 5.4 to 6.3 percent in 2020, a limited increase due to the generalization of a part-time employment reimbursement scheme by the State, which allows workers to keep their jobs while receiving 80 percent of their salary while having to stay at home. This measure cost the State of Luxembourg 1.3 billion euros in 2020.

Luxembourg remains a financial powerhouse thanks to the exponential growth of the investment fund sector through the launch and development of cross-border funds (UCITS) in the 1990s. Luxembourg is the world’s second largest investment fund asset domicile, after only the United States, with nearly $6 trillion of assets in custody in financial institutions.

  • Luxembourg is consistently ranked as one of the world’s most open and transparent economies and has no restrictions on foreign ownership. It is also consistently ranked as one of the world’s most competitive and least-corrupt economies.
  • Luxembourg ranks as the world’s safest city in the Mercer city index.
  • Over the past decade, Luxembourg has adopted major fiscal reforms to counter money-laundering, terrorist-financing, and tax evasion.
  • The Government of Luxembourg actively supports the development of new sectors to diversify the country’s economy, given the dominance of the financial sector. Target sectors include space, logistics, and information technology, including financial technology and biomedicine.
  • Luxembourg launched its SpaceResources.lu initiative in 2016 and, in 2017, announced a fund offering financial support for the space resources industry. More than 50 companies dedicated to space initiatives are now active in Luxembourg. Luxembourg added an additional space fund in early 2020 to further bolster its status as a space startup nation.
  • Luxembourg has positioned itself as “the gateway to Europe” to establish European company headquarter operations by virtue of its central European location and advanced road, railway, and air connectivity. Due to uncertainties related to Brexit, 50 insurers, asset managers and banking institutions have decided to re-locate their EU headquarters to Luxembourg or transfer a significant part of their activity to the country.
  • Luxembourg is actively seeking logistics companies to expand the new logistics hub at Luxembourg Airport, home to Cargolux, Europe’s largest all cargo airline. Inaugurated in 2017, the Luxembourg Intermodal Terminal (LIT) is ideally positioned as an international hub for the consolidation of multimodal transport flows across Europe and beyond.
  • Luxembourg is also seeking ICT companies to use the existing high-security, state-of-the-art datacenters, affording high-speed internet connectivity to major international data hubs. Luxembourg has set up a high-performance computer which will be part of the EU’s high-performance computer network called EURO HPC. Through various initiatives, Luxembourg seeks to attract financial technology companies to make Luxembourg home.
Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 9 of 175 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 72 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 18 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 766,099 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 USD 73,910 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Luxembourg offers a public policy framework and political stability, which remain highly attractive for foreign investors, particularly for U.S. investors, given the focus on growth sectors and the historically strong bilateral relationship between the two countries. The government has increased its outreach toward companies looking to expand in Europe. Luxembourg is in the process of implementing the EU standards for the screening of foreign investment but missed the Fall 2020 implementation deadline.

In 2017, Luxembourg’s Deputy Prime Minister and Minister of the Economy and Foreign Trade, Etienne Schneider, unveiled a strategy to promote economic growth focusing on attracting FDI and supporting companies’ moving into other markets. The Luxembourg “Let’s Make It Happen” campaign, developed by the state Trade and Investment Board, focuses on five key objectives:

  • Improving Luxembourg-based companies’ access to international markets
  • Attracting FDI in a “targeted, service-oriented” way
  • Strengthening the country’s international “economic-promotion network”
  • Improving Luxembourg’s image as a “smart location” for high-performance business and industry
  • Ensuring the coherence of economic promotion efforts

There is no overall economic or industrial strategy that has discriminatory effects on foreign investors, either at a market-access or post-establishment phase of investment. Luxembourg strives to attract and retain foreign investors with its unique model of “easy-access to decision-makers” and its known ability to “act swiftly.”

The Trade and Investment Board has taken the lead in investment promotion and includes representatives from the ministries of Economy, Higher Education and Research, Finance, Foreign and European Affairs, and State. Public-private trade associations such as FEDIL (Business Federation of Luxembourg, the main employers’ trade association), the Luxembourg Chamber of Commerce, and the Chamber of Skilled Trades and Crafts, as well as Luxinnovation, are also represented.

The Board is working in cooperation with Luxembourg embassies and trade and investment offices worldwide, as well as economic and commercial attachés, honorary consuls, and foreign trade advisers, to attract FDI and retain investors. In 2016, the Ministry of the Economy expanded the role of Luxinnovation to incorporate promotion of Luxembourg abroad and to attract FDI into the country. Luxinnovation is a public private partnership agency that carries out business intelligence to target relevant investors and regions and also provides a soft-landing service for investors as they arrive in Luxembourg. The Covid-19 pandemic has led investor outreach efforts to be carried out virtually, and travel restrictions have led investors to prefer virtual meetings before traveling to the country.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is a right for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity. There are no limits on foreign ownership/control or sector-specific restrictions.

General screening of foreign investment exists in line with that of domestic investment, with routine and non-discriminatory screening mechanisms. There are no major sectors/matters in Luxembourg in which foreign investors are denied national (domestic) treatment.

Other Investment Policy Reviews

The World Bank’s Doing Business 2019 Economy Profile provides additional detail on Luxembourg’s investment climate.

Luxembourg is included in Trade Policy Reviews (TPRs) of the EU/EC; see the TPR gateway for explanations and background.

Business Facilitation

In terms of the United Nations Conference on Trade and Development (UNCTAD) Global Action Menu for Investment Facilitation, Luxembourg’s business facilitation efforts are aligned with most of the recommended action points. Over the past decade, Luxembourg has been furthering accessibility and transparency in investment policies and regulations, as well as procedures relevant to investors. Luxembourg ranks 76th in the World Bank’s starting a business ranking, indicating it takes 16.5 days to set up a business in the country.

The Government has improved the efficiency of investment administrative procedures, notably in the context of the overall “Digitization” movement to offer a multitude of government services online or electronically. This has led to the time it takes to start a business being reduced by 2-3 months.

The Government provides a website in multiple languages, including English, that explains the business registration process: http://www.guichet.public.lu/en . A new business must register with the Registry of Commerce (Registre du Commerce: http://www.lbr.lu.) Foreign companies can use the site (after translating from the original French language), but it is best to consult with a local lawyer or fiduciary to complete the overall process. It is necessary to engage a notary to submit the company’s by-laws for registration.

In 2017, the Government reduced the required minimum capitalization of a new company from 12,500 euro to just 1 euro (symbolic), to encourage start-up creation. Between January 2017 and January 2018, over 680 such simplified limited liability companies (Société à responsabilité limitée simplifiée SARL-S) have registered. According to the Luxembourgish Chamber of Commerce, one client out of three has requested information on SARL-S.

After receiving a certificate from the Registry of Commerce, companies are required by law to register with and pay annual dues to the Luxembourg Chamber of Commerce, as well as the Social Security Administration, the Tax Administration (Administration des Contributions Directes) and the Value-Added-Tax Authority (TVA = taxe à la valeur ajoutée). The company will receive an official registration number reflecting the date of inception of the entity, and this number will be used in all business transactions and correspondence with administrative authorities.

The House of Entrepreneurship (HOA), opened in 2016 within the Luxembourg Chamber of Commerce, also provides guidance on the entire registration and creation process of a business. HOA receives over 10,000 enquiries per year by entrepreneurs interested in setting up a business in the country. The organization plays a key role during the COVID-19 pandemic, as it serves as a point of contact and information for businesses looking to apply for Government aid.

The Ministry of Economy continues to support networks and associations acting in favor of female entrepreneurship. The Law of December 15, 2016 incorporated the principle of equal salaries in the Grand Duchy’s legislation, which makes illegal any difference in the salaries paid to men and women carrying out the same task or work of equal value.

In general, the most promising instruments are outside the jurisdiction of the Ministry of Economy but are critical. For example, there has been an increase in the number of childcare centers close to business districts which helps dual career families.

Outward Investment

The same government services website listed above, http://www.guichet.public.lu/en , includes an “International Trade” tab which provides guidance on outward investment by Luxembourgish companies on various topics, including intra-EU trade and services; import, export, and transit; licensing; and transport. The Luxembourg Government promotes outward investment via the Trade and Investment Board, which functions as a promotion entity for both inward and outward investment.

The “Let’s Make It Happen” initiative, among its many missions, is working to facilitate access to international markets for Luxembourgish companies and to strengthen Luxembourg’s international economic promotion network. Luxembourg does not restrict domestic investors from investing abroad.

Luxembourg also has a public export credit agency, the Office du Ducroire to help companies engage in export and outward investment through funding and export insurance.

In 2019, the Office du Ducroire has insured over 500 million dollars of new transactions and has paid over 2 million dollars of financial support for exports.

2. Bilateral Investment Agreements and Taxation Treaties

The United States and Luxembourg have shared a Friendship, Establishment, and Navigation Treaty since 1963, which assures national treatment and other investor protections. In 2019, the U.S. Senate ratified the Convention between the United States and the Grand Duchy for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital. Luxembourg and the United States also have an aviation treaty.

In addition to its open trade with other member states of the European Union, and free-trade agreements between the EU and other countries, Luxembourg also signed bilateral agreements with the following countries:

Albania, Algeria, Argentina, Armenia, Azerbaijan, Bahrain, Bangladesh, Barbados, Belarus, Benin, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Bulgaria, Burkina Faso, Burundi, Cameroon, Chile, China, Colombia, Comoros, Congo (Democratic Republic of the), Costa Rica, Cote d’Ivoire, Croatia, Cuba, Cyprus, Czech Republic, Egypt, El Salvador, Estonia, Ethiopia, Gabon, Georgia, Guatemala, Hong Kong, Hungary, India, Iran, Kazakhstan, Korea (Republic of), Kuwait, Kyrgyzstan, Latvia, Lebanon, Liberia, Libya, Lithuania, Macedonia, Madagascar, Malaysia, Malta, Mauritania, Mauritius, Mexico, Moldova, Mongolia, Montenegro, Morocco, Mozambique, Nicaragua, Oman, Pakistan, Panama, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Russia, Rwanda, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Sri Lanka, Sudan, Tajikistan, Thailand, Togo, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, Vietnam, Yemen, and Zambia.

Links to the treaty texts can be found at http://investmentpolicyhub.unctad.org/IIA/CountryBits/122 

Luxembourg is a member of the Multilateral Investment Guarantee Agency (MIGA).Luxembourg has a bilateral taxation agreement with the United States, which was amended to upgrade to OECD information exchange standards on bank accounts in 2009. This update to the Treaty was ratified in 2019 by both countries and came into effect in September 2019. In 2014, the bilateral agreement on FATCA allowed Luxembourg to comply with the U.S. reporting requirements to the IRS by financial institutions with U.S. citizen clients or “U.S. Person” clients. The law came into effect in 2015.

There are no other taxation issues of concern to U.S. investors.

3. Legal Regime

Transparency of the Regulatory System

The Government of Luxembourg uses transparent policies and effective laws to foster competition and establish clear ground rules on a non-discriminatory basis. The legal system is quite welcoming with respect to FDI, and legal, regulatory, and accounting systems are transparent and consistent with international norms. With the exception of the mandatory membership in the Luxembourg Chamber of Commerce, there are no informal regulatory processes managed by non-governmental organizations or private sector associations. In addition to the Government, the Luxembourg Institute of Regulation, a public agency, proposes regulatory policies.

As confirmed by the World Bank report on Global Indicators of Regulatory Governance, the Luxembourg Government develops anticipated and publishes forward looking regulatory plans – a public list of anticipated regulatory changes and proposals intended to be adopted and implemented. These plans are available to the public, as the texts of proposed legislation are published before Parliamentary debate and voting. In addition, plans and proposed legislation is subject to review by the State Council and the Grand Duke.

Draft texts are published on a unified website where all proposed regulations are published and directly distributed to interested stakeholders. While the ministries do not have a legal obligation to publish the text of proposed regulations before their enactment, the entire text of the proposed draft law is published. ( www.legilux.lu )

In addition, the Government solicits comments on proposed laws and regulations from the public. The comments are received on the same website (www.legilux.lu), through public meetings, and through targeted outreach to stakeholders, such as business associations.

The law requires that the rulemaking body solicit comments on proposed regulations. The consultation period is typically three months, and the Government reports on the results of the consultation in the form of a consolidated response on the same website. The official journal Mémorial publishes the final text of laws, both online and in print.

Proposed legislation also includes a factsheet on the impact on public finances. The Luxembourg Government is transparent with its public finances and debt obligations through the annual budget procedure that requires Parliamentary approval. The Government also communicates on issuances of new State borrowing.

International Regulatory Considerations

Luxembourg is a member state of the EU and routinely transposes EU directives and regulations into domestic law. Luxembourg has been a World Trade Organization (WTO) member since 1995 and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Luxembourg ratified the TFA on October 5, 2015 and has an implementation rate of 100 percent.

Legal System and Judicial Independence

Luxembourg is a  parliamentary   representative democracy  headed by a  constitutional monarch . The Constitution of 1868 provides for a flexible separation of powers between the executive and the parliament, with the judiciary watching over proper application of laws.

The Grand Duchy has a written commercial/contractual law. Magistrates’ courts deal with cases of lesser importance in civil and commercial matters and under the urgent procedure in the field of law enforcement.

The  district courts , of which there are three, adjudicate civil and commercial matters for all cases not specifically attributed by law to any other court. The current judicial process is considered procedurally competent, fair, and reliable, albeit notably slow (The judicial sector observes all public-school holiday periods). Regulation and enforcement actions are appealable, and they are adjudicated in the national court system.

Laws and Regulations on Foreign Direct Investment

Luxembourg has assimilated the laws of neighboring countries according to the nature of the laws: German tax law, French civil law, and Belgian commercial law (written and consistently applied). As previously mentioned, the website for doing business is: www.guichet.public.lu, and the new one-stop-shop for setting up a business is the House of Entrepreneurship within the Luxembourg Chamber of Commerce (www.houseofentrepreneurship.lu).

Competition and Antitrust Laws

The Competition Inspectorate, a department within the Ministry of the Economy, oversees investigating competition cases.

Expropriation and Compensation

The laws governing expropriation of property are quite complex, and the process can be arduous and lengthy, depending on the property. The Ministry of the Interior, along with the Ministry of Justice, sets forth the specific regulations according to each type of case.

There have been no known expropriations in the recent past or policy shifts which would indicate such actions soon. There are no tendencies by the Luxembourg Government to discriminate against U.S. investments, companies, or representatives in expropriation.

Instances of indirect expropriation or governmental action tantamount to expropriation, such as confiscatory tax regimes, that might warrant special investigation, are non-existent.

Dispute Settlement

ICSID Convention and New York Convention

Luxembourg is a member state to the International Center for Settlement of Investment Disputes (ICSID Convention). Luxembourg is a signatory of the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Investment disputes involving U.S. or other foreign investors in Luxembourg are extremely uncommon. There are no known claims by or disputes with a U.S. person or foreign investors.

The Luxembourg Chamber of Commerce and the Mediation Center offer the services of domestic dispute settlement and, on an international level, with the International Chamber of Commerce. There have been no known investment disputes over the past few years involving U.S. or other foreign investors or contractors in Luxembourg.

Within the WTO, there are no known dispute settlement cases involving Luxembourg either as a complainant, respondent, or third-party entity.

International Commercial Arbitration and Foreign Courts

The Government accepts international arbitration of investment disputes between foreign investors and the state, and the courts recognize and enforce foreign arbitral awards. International arbitration is accepted as a means for settling investment disputes among private parties, and there is a domestic arbitration body within the host economy, the Centre de Médiation (Mediation Center). Luxembourg is a member state to the International Centre for Settlement of Investment Disputes (ICSID) Convention.

As investment disputes are practically non-existent, there is no information available concerning the duration of a resolution in the local courts.

Bankruptcy Regulations

Luxembourg has assimilated the laws of neighboring countries according to the nature of the laws: German tax law, French civil law, and Belgian commercial law (written and consistently applied). Judgments of foreign courts are accepted and enforced by the local courts, and Luxembourg does have a written and consistently applied bankruptcy law, which is based on European Union-wide legislation. Monetary settlements are usually made in local currency (euro). Bankruptcy is not criminalized.

Luxembourg ranks 34 in “Resolving Insolvency” in the World Bank’s 2019 Doing Business Report.

At the end of 2020, the Luxembourg banking sector comprised 128 credit institutions from 29 different countries. Under Luxembourg law, two types of licenses are possible for the credit institutions: the Universal Banking License, and the Mortgage Bonds Banking License.

The Ministry of Finance grants credit institutions operating out of the Grand Duchy an operating license. Since the entry into force of the Single Supervisory Mechanism on November 4, 2014, credit institutions are subjected to the control of the European Central Bank, either directly or indirectly through Luxembourg’s financial sector supervisory authority, the CSSF. The supervision by the ECB/CSSF extends equally to activities performed by these undertakings in another Member State of the EU, whether by means of the establishment of a branch or by free provision of services.

4. Industrial Policies

Investment Incentives

Luxembourg is considered to be a very attractive tax location for conducting business: low effective corporate tax rates of 18 percent (with an adjusted rate of 15 percent for entities with annual taxable income less than 25,000 euro); the lowest VAT (value-added tax) rate in Europe (at 17 percent); and a variety of tax incentives, including investment tax credits, new business tax credit, subsidies for film productions, venture capital investment certificates, small business incentives, regional and national incentives, research and development incentives, and environmental incentives. The investment incentives are provided within the limitations of the EU rules on State aid, which were relaxed by the EU because of the Covid-19 pandemic. Luxembourg has taken full advantage by raising the aid ceiling for investment aid for projects focusing on digitization, sustainability, and the circular economy. Until recently, the European Court of Justice has been increasingly stringent on individual tax treatment, including a ruling specific to Luxembourg and its tax treatment of Apple. During 2020, the ECJ deemed to relax its approach in a case involving Amazon. The full impact of these decisions and their impact on judicial review of these arrangements has yet to be fully determined.

U.S. and foreign firms can participate in government/authority-financed and subsidized research and development programs.

Foreign Trade Zones/Free Ports/Trade Facilitation

Luxembourg opened a free-trade zone called Le Freeport in 2014, which was built and integrated into the cargo logistics center at Luxembourg Airport. This zone, modeled after other successful customs warehousing in premier trade regions such as Geneva and Singapore, allows the warehousing and handling of high-value merchandise (art, cars, wines) in a secure location free of fiscal obligations (no Value-Added-Tax (VAT) or import duties to be paid as long as the goods remain on the premises). Taxation only occurs when the articles leave the zone as imports into the country of consumption (or if a bottle of wine is opened at Le Freeport, it is also subject to taxation).

Performance and Data Localization Requirements

The host Government does not mandate local employment. The Government has attempted to improve the work visa process in past years, because of input from companies, embassies, and visa applicants. If the application is in order, a work visa should normally take only two months to clear. The difficulty in obtaining a Residence permit is on par with other western European countries once the applicant has provided all pertinent information to the authorities and the local district of residence.

These incentives are applied uniformly to both domestic and foreign investors. Data storage has been greatly enhanced via new state-of-the-art data centers, built by the government as part of the long-term massive ICT infrastructure development plan which includes replacing old transmission lines with fiber-optic cable across the country. The data centers have served to optimize international connectivity to large hubs such as Paris, Amsterdam, and Frankfurt, and have attracted major ICT and e-commerce players, such as Amazon and PayPal, which located their EU headquarters in Luxembourg. The centers are rated at the highest security level for data storage.

Enforcement on the respect of data storage rules, such as the EU GDPR, rests with the Luxembourg data protection regulator CNPD.

5. Protection of Property Rights

Real Property

Secured interests in property in Luxembourg, both movable and real, are recognized and enforced through intellectual property rights (IPR) and community laws. The legal system that protects and facilitates acquisition and disposition of all property rights, such as land and buildings, is based on a land register, called cadastre in French, where each parcel of property is documented in terms of ownership and duration. There is adherence to key international agreements on iIPR, as well as adequate protection for patents, copyrights, trademarks, and trade secrets.

Luxembourg ranks 31 out of 190 countries in the World Bank’s 2019 Doing Business Report for ease of registering property.

Luxembourg law allows the securitization of many types of assets, risks, revenues, and activities. It makes securitization accessible to all types of investors (institutional or individual), which means that securitization can easily facilitate the financing of a company or the management of personal or family wealth. An extremely wide range of assets can be securitized: securities, loans, subordinated or non-subordinated bonds, risks linked to debt (commercial and other), moveable and immovable property (whether tangible or not).

Under Luxembourg law, a securitization vehicle can be constituted either as a company or a fund. Securitization companies can benefit from EU directives and double tax treaties. Securitization organizations that continually issue transferable assets for the public must be approved and supervised by the financial sector supervisory authority, the Commission de Surveillance du Secteur Financier (CSSF).

Intellectual Property Rights

Trademarks, designs, patents, and copyrights are the principal forms of intellectual property rights (IPR) available to companies and individuals. Luxembourg has been proactive in developing its IPR standards and participates in all the major IPR treaties and conventions, including:

  • Berne Convention
  • Patent Cooperation Treaty (PCT)
  • Paris Convention
  • Patent Law Treaty (PLT)
  • Madrid Agreement and Protocol

The country is a signatory of the European Patent Convention, created by the European Patent Office (EPO), and a member state of the World Intellectual Property Organization (WIPO).

Adequate steps have also been taken to implement and enforce the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The regulation stipulating the measures to prohibit the release for free circulation, export, re-export, or entry for the suspension of counterfeit and pirated goods states that the competent authority to receive applications must be a customs authority. In Luxembourg, this is the Litigation and Research Department (Division des Contentieux et Recherches) of the Directorate of Customs and Excise (Direction des Douanes et Accises). Customs officers have every right to seize (but not necessarily destroy) goods. Most cases are related to customs declaration abuses by the owner (importing products above the maximum allowable amount for tax-free treatment within the EU), and not counterfeit goods.

The merits of a counterfeit goods case are decided by judicial proceedings; thus, the ordinary law courts are responsible for deciding whether there are grounds for a case. A few provisions within the agreement deal with different IPR and allow for the possibility of confiscating, or even destroying, counterfeit goods and the tools or implements used for their production.

The Luxembourg customs authorities may impose measures for a period of six months, which may be renewed at the request of the rights holder. The customs office tracks the seizures of counterfeit goods, notably at Luxembourg Airport, but this is a small part of customs work. There are no public statistics on such seizures.

The main rules of civil procedure are contained in the Luxembourg Code of Civil Procedure and in the Administration of Justice Act. In the absence of specific rules concerning material and local jurisdiction for certain IPR, ordinary law applies.

In an effort to become the prime location for Europe’s knowledge-based and digital economy, Luxembourg implemented a new IPR tax regime in 2008, providing for a very competitive tax rate (first 8%, then down to 3%) applicable to a broad range of IPR income generated by taxpayers. However, due to pressure from the EU Commission in Brussels to disallow specific member state fiscal advantages, the IPR fiscal regime in Luxembourg was no longer offered as of 2016, and assets are now subject to the standard VAT rate of 17%.

In March 2018, the Luxembourg Government voted to approve the legislative measures necessary to bring Luxembourg’s new IPR regime into force with effect from January 1, 2018. The new regime is fully consistent with all recommendations made by the OECD’s Forum on Harmful Tax Practices, including those set out in the OECD/G20 BEPS Project Action 5 Final Report published in October 2015.

Under the new regime, eligible net income from qualifying IPR assets benefits from an 80% exemption from income taxes. Consequently, a corporate taxpayer based in Luxembourg City with eligible net income was taxed on such income at an overall (i.e., corporate income taxes plus municipal business tax) effective tax rate of 5.202% in the 2018 tax year.

IPR assets qualifying for the new regime also benefit from a full exemption from Luxembourg’s net wealth tax. Luxembourg is not included in the USTR’s 2021 Special 301 Report or 2020 Notorious Markets List.

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

6. Financial Sector

Capital Markets and Portfolio Investment

Luxembourg government policies, which reflect the European Union’s free movement of capital framework, facilitate the free flow of financial resources to support the product and factor markets. Credit is allocated on market terms, and foreign investors can get credit on the local market, thanks to the sophisticated and extremely developed international financial sector, depending on the banks’ individual lending policies.

Since the financial crisis and tighter regulation through EU central banking authority and stability mechanisms, banks had become more selective in their lending practices pre-COVID. The private sector has access to a variety of credit instruments, including those issued by the National Public Investment Agency (SNCI), and there is an effective regulatory system established to encourage and facilitate portfolio investment.

Luxembourg continues to be recognized as a model of fighting money-laundering activities within its banking system through the enactment of strict regulations and monitoring of fund sources. Indeed, the number of enforcements reflects the degree to which the government remains committed to fighting money-laundering. The country has its own stock market, a sub-set of which was rebranded in 2016 as a “green exchange” to promote securities (primarily bonds in Luxembourg) reflecting ecologically sound investments.

Money and Banking System

Luxembourg’s banking system is sound and strong, having been shored up following the global financial crisis by emergency investments by the Government of Luxembourg in BGL BNP Paribas (formerly Banque Generale du Luxembourg and then Fortis) and in Banque Internationale a Luxembourg (BIL), formerly Dexia, in 2008.

At the end of 2020, 128 credit institutions were operating, with total assets of EUR 851 billion during the first quarter of 2020 (USD 1,018 billion), and approximately 26,000 employees.

Luxembourg has a central bank, Banque Centrale de Luxembourg. Foreign banks can establish operations, subject to the same regulations as Luxembourgish banks.

Due to the U.S. FATCA law, local retail bank Raiffeisen bank still refuses U.S. citizens as clients. However, two banks have offered to serve U.S. citizen customers: BIL and the State Bank and Savings Bank (Banque et Caisse d’Epargne de l’Etat).

On February 21, 2018, the Luxembourg House of Financial Technology (LHoFT) signed a Memorandum of Understanding (MoU) with the European FinTech platform, B-Hive, based in Brussels, and the Dutch Blockchain Coalition, that will favor collaboration in the field of distributed ledger technology, otherwise known as blockchain. The MoU confirms mutual interest and defines the fields of collaboration, among other things, on how blockchain technology can benefit society and business in general or on how they can help define international and/or European standards for distributed ledger technology.

The Ministry of Finance is tracking developments very closely in the field of virtual currencies and has said it will adapt its legislation in accordance with the results of ongoing European and international studies. Luxembourg places virtual currencies under the legal regime of payment companies. The CSSF continues close supervision and oversight of virtual currencies.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on converting or transferring funds associated with an investment (including remittances of investment capital, earnings, loan repayments, lease payments) into a freely usable currency and at a legal market-clearing rate. Luxembourg was a proponent of the euro currency and adopted it immediately at inception in 1999 (as part of the “Eurozone” of EU member states adopting the euro to replace their former domestic currencies.) The European Central Bank is the authority in charge of the euro currency. Pre COVID, Luxembourg has taken steps to move toward a “cash-less” system and the COVID-19 pandemic further accelerated the move towards an increasingly “cash-less” economy.

Remittance Policies

There have not been any recent changes to remittance policies with respect to access to foreign exchange for investment remittances. There is no difficulty in obtaining foreign exchange, which has been freely traded since the 1960s, and the Luxembourg stock market trades in forty different currencies, so is truly international and expanding rapidly.

The average delay period currently in effect for remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties and management fees through normal, legal channels is approximately 24 hours. Investors can remit through a legal parallel market including one utilizing cash and convertible negotiable instruments (such as dollar-denominated host government bonds issued in lieu of immediate payments in dollars). There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs.

Sovereign Wealth Funds

Luxembourg created a sovereign wealth fund in 2014. The fund is under the auspices of the Ministry of Finance and operates with 234 million euros of assets. Until the fund reaches 250 million euros of assets, it operates a conservative investment policy, with a portfolio of 57% of bonds, 40% of stocks and 3% of liquidities. The sovereign wealth fund only invests outside of Luxembourg and is audited by an independent audit company.

7. State-Owned Enterprises

The most prominent state-owned enterprise (SOE) in Luxembourg is POST (formerly P&T, postal and telecommunications), whose sole shareholder is the government of Luxembourg and whose board of directors is composed of civil servants. POST responded to the competition created by new players in the market (Orange, Proximus) by transforming itself from a passive utility company into a commercial enterprise, recruiting from the corporate sector, and improving consumer products and services. POST also publishes an annual report and communicates in a similar manner to a private company.

Another sector in which SOEs have been very active is the energy sector (electric and gas utilities), which is now liberalized as well. Anyone can become a provider or distributor (via networks) of electricity and gas. The former state electricity utility, Cegedel, was absorbed into a private company, Encevo, along with a nearby German utility and the former state gas utility, with an independent board of directors. Creos, the new distribution network for energy, is jointly held by the government and private shareholders.

Finally, an important market which appears to have barriers to entry is freight air transport, due to the dominance of the majority state-owned Cargolux. It is the largest consumer of U.S. production in Luxembourg in terms of value, owing to their all-Boeing fleet of 30 747-freighter aircraft (including 14 of the new-generation 747-8F, of which Cargolux was a launch customer). It received a capital increase from the Luxembourg government in return for a larger share ownership of the company.

China has invested in Cargolux, with a Chinese regional fund currently holding approximately one-third of the shares. Cargolux has aggressively expanded in China.

Private enterprises can compete with public enterprises in Luxembourg under the same terms and conditions in all respects. All markets are now open or have been liberalized via EU directives to encourage market competition over monopolistic entities. There is a national regulator (National Institute of Regulation), which sets forth regulations and standards for economic sectors, mostly derived from EU directives transposed into local law. While markets continue to open, the government has maintained a large enough stake in critical sectors such as energy, to ensure national security.

OECD Guidelines on Corporate Governance of SOEs

Luxembourg is an OECD member with established practices consistent with OECD guidelines as far as SOEs are concerned. There is no centralized ownership entity that exercises ownership rights for each of the SOEs.

In general, if the government has a share in an enterprise, they will receive board of directors’ seats on a comparable basis to other shareholders and in proportion to their share, with no formal management reporting directly to a line minister.

The court processes are transparent and non-discriminatory.

Privatization Program

Foreign investors can participate equally in ongoing privatization programs, and the bidding process is transparent with no barriers erected against foreign investors at the time of the initial investment or after the investment is made. Moreover, there are no laws or regulations specifically authorizing private firms to adopt articles of incorporation or association, which limit or prohibit foreign investment, participation, or control. There are no other practices by private firms to force local ownership or restrict foreign investment, participation in, or control of domestic enterprises. There has been no evidence to suggest that potential conflicts of interest exist. Government officials sitting on boards of directors do not appear to have impacted freedom of investment in the private sector.

8. Responsible Business Conduct

There is a heightened awareness of responsible business conduct in Luxembourg, whether it is in the corporate sector or among the consuming public. In financial matters, a desire to avoid inclusion on the OECD’s tax haven grey list has driven a push for greater transparency. While Luxembourg has always taken a lead role in ecological matters, including stringent trash sorting and mandatory recycling procedures, the global discussion on climate change, pushed to the forefront by the Paris Agreement on Climate Change (COP 21) and pressure from the EU in terms of concrete goals and directives, has made green finance a high priority.

In 2016, Luxembourg Stock Exchange (LuxSE) created the Luxembourg Green Exchange (LGX), the world’s first stock exchange to deal with securities related to climate change. It currently lists over $320 billion of green bonds. LGX is a dedicated platform for issuers and investors focused on green instruments. With over 750 securities denominated in 32 countries, this represents a 50% global market share for green bonds. In its offer, LuxSE helps issuers market their green securities by generating awareness for their green projects.

There have been no controversial instances of corporate impact on human rights in Luxembourg.

There are also independent NGOs, worker organizations/unions, and business trade associations promoting and monitoring RBC. These organizations can do their work freely and often directly integrated into the review, oversight, and supervisory process.

Luxembourg has not only implemented EU directives concerning emissions reduction, but also set forth major new energy policies to promote clean energies and energy conservation in consumer households.

In 2010, the energy pass became compulsory for existing dwellings (houses and residences) that change owners or tenants and for accommodations that undergo substantial installation transformation ( www.myenergy.lu ).

Starting in 2017, the government offered subsidies for zero-emissions vehicles as part of the tax reform. Starting in 2018, the government offered subsidies for hybrid plug-in electric vehicles (PHEV) owned by private customers, and zero emission (100 percent electric) vehicles owned by companies, as part of the tax reform. The government also adopted measures to make all public transportation free.

There are no systemic labor or human rights concerns relating to RBC, with the government encouraging companies to respect human rights and pleading for a duty-of-care principle at the international level. In June 2018, the government adopted the country’s first National Action Plan to Implement the UN Guiding Principles on Business and Human Rights, an initiative welcomed by civil society actors for educating the private sector on its responsibilities but criticized for failing to introduce a binding legal framework. In Luxembourg, there have been very few cases of labor exploitation and labor trafficking, with many of them occurring in the catering and construction sectors. Given the high bar of evidence for trafficking crimes and the fact that many victims travel to Luxembourg by their own means, perpetrators were often sentenced for the employment and/or exploitation of illegal workers and benefited from a suspended sentence if first-time offenders.

Luxembourg signed the Montreux Document on Private Military and Security Companies in 2013

Additional Resources 

Department of State

Department of Labor

9. Corruption

Regulations are enforced by the strong but flexible Financial Sector Surveillance Commission (CSSF, which is equivalent to the U.S. Securities and Exchange Commission). U.S. firms have not identified corruption as an obstacle to FDI in Luxembourg. There are no known areas or sectors where corruption is pervasive, whether in Government procurement, transfers, performance requirements, dispute settlement, regulatory system, or taxation.

Giving or accepting a bribe, including between a local company and a public official, is a criminal act subject to the penal code. Recently, a mayor was implicated in abusing his office for personal purposes. Senior Government officials take anti-corruption efforts seriously. International, regional, or local nongovernmental watchdog organizations do not operate in the country, given the low risk.

Luxembourg has laws, regulations, and penalties to combat corruption effectively, and they are enforced impartially with no disproportionate attention to foreign investors or any other group. The country ranks very favorably on the World Bank’s corruption index.

Luxembourg has made anti-money laundering and suppression of terrorism financing a priority, given its status as a leading world financial center. The government has taken the lead in freezing bank accounts suspected to be connected to terrorist networks, and since 2004 extended the law against money-laundering and terrorist financing to additional professional groups (including auditors, accountants, attorneys, and notaries).

On February 14, 2018, a new law implementing a substantial part of the fourth anti-money laundering (AML) directive was published in the Official Journal of Luxembourg. The law entered into force on February 18, 2018. Local police, responsible for combating corruption, also work closely with neighboring countries’ law enforcement officials, as well as with Interpol and Europol.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Luxembourg signed and ratified the UN Anticorruption Convention (signed December 2003 and ratified in November 2007).

Luxembourg is a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

Resources to Report Corruption

The contacts at government agency or agencies are responsible for combating corruption are:

Director of Criminal and Judicial Affairs

Ministry of Justice
13 rue Erasme
L-1468 Luxembourg
Telephone: +352 247 84537 info@mj.etat.lu
info@mj.etat.lu

Contact at “watchdog” organization

D. Goedert
Section Chief
Financial Sector Surveillance Commission (CSSF)
283, route d’Arlon L-1150 Luxembourg
+352 26 251 2217
compta@cssf.lu / audit@cssf.lu

10. Political and Security Environment

Luxembourg has consistently ranked among the most politically stable and overall safest countries in the world. There have been no recent serious incidents involving politically motivated damage to projects or installations. The environment is not growing more politicized such that civil disturbances would be likely.

Of note: many of the demonstrations which do occur in Luxembourg are not aimed at the Grand Duchy, but rather at the EU offices located within Luxembourg (for example, the European Court of Justice and periodic European ministerial meetings). There are no known nascent insurrections, belligerent neighbors, or other politically motivated activities.

In response to the George Floyd murder in the United States, there was a protest of approximately 1,500 people outside the Embassy. It was peaceful and without incident. There have only been small and peaceful demonstrations during the COVID-19 pandemic, mainly from restaurant and bar owners protesting the closure of their business and the hardship it creates.

11. Labor Policies and Practices

Luxembourg boasts a very stable, diverse, multilingual, and qualified labor market, benefiting from the approximately 207,000 industrial and service employees (known as “cross-border” workers) who come to work in Luxembourg on a daily basis from neighboring Belgium, France, and Germany. Foreign (non-Luxembourger) workers are treated by Luxembourg the same as nationals, including free COVID testing. Work permit constraints have been somewhat relaxed for non-EU applicants (including Americans), particularly for qualified persons for skilled positions.

Foreign investors often cite Luxembourg’s labor relations as a primary reason for locating in the Grand Duchy. Unemployment in Luxembourg has risen from 5.4 percent to 6.3 percent because of the COVID-19 pandemic.

Most industrial workers are organized by unions, linked to one of the major political parties. Luxembourg is proud of the system of representatives of business, unions, and Government participating in a tripartite process in the conduct of major labor negotiations, which serves to avoid strikes, common in neighboring France and Germany.

Luxembourg has a strong trade relationship with the United States. Every employee working in Luxembourg, whether a resident, European, or a third-country national, is subject to the provisions of labor law. Most active laws and regulations regarding work and employment in Luxembourg are incorporated in the Labor Code. The Inspectorate of Labor and Mines has responsibility for working conditions and protection of workers in the exercise of their professional activity (apart from civil servants).

Collective bargaining agreements are common in the public and private sectors. The country has a labor dispute resolution mechanism in place called office de la conciliation (conciliation office).

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $76,199 2019 $71,105 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $730,521 2019 $766,099 BEA data available at https://apps.bea.gov/international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2019 $515,444 2019 $297,052 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 4,898% 2019 4,850% UNCTAD data available at

https://unctad.org/topic/investment/world-investment-report 

* Source for Host Country Data: Luxembourg Statistics office STATEC (www.statec.lu)

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 3,495,262 100% Total Outward 4,359,923 100%
United States 690,827 19.8% The Netherlands 717,063 16.4%
United Kingdom 491,529 14% United Kingdom 704,537 16.1%
Ireland 440,658 12.6% United States 487,437 11.2%
The Netherlands 352,118 10% Switzerland 455,737 10.4%
Canada 161,209 4.6% Ireland 408,067 9.3%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 4,936,288 100% All Countries 2,238,677 100% All Countries 2,697,611 100%
United States 1,381,487 28% United States 659,836 29% United States 721,651 27%
France 450,061 9% Germany 176,159 8% France 278,500 10%
United Kingdom 378,052 8% France 171,561 8% United Kingdom 264,727 10%
Germany 375,674 8% Ireland 160,111 7% Germany 199,515 7%
The Netherlands 222,005 4% Cayman Islands 133,251 6% The Netherlands 151,687 6%

14. Contact for More Information

Economic Specialist
U.S. Embassy Luxembourg
22 Boulevard Emmanuel Servais
L-2535 Luxembourg, LUXEMBOURG
+352-46-01-23-53
luxembourgpolecon@state.gov 

Malta

Executive Summary

The Republic of Malta is a small, strategically located country 60 miles south of Sicily and 180 miles north of Libya, astride some of the world’s busiest shipping lanes. A politically stable parliamentary republic with a free press, Malta is considered a safe, secure, and welcoming environment for American investors to do business.

Malta joined the European Union in 2004, the Schengen visa system in 2007, and the Eurozone in 2008. With a population of about 493,500 and a total area of only 122 square miles, it is the EU’s smallest country in geographic size. The economy is based on services, primarily shipping, banking, and financial services, professional, scientific, and technical activities, online gaming, and tourism. Manufacturing also plays a small but important role. Maltese and English are the official languages.

Given its central location in one of the world’s busiest trading regions, as well as its relatively small economy, Malta recognizes the important contribution that international trade and investment can provide to the generation of national wealth.

Malta registered GDP growth rate was one of the fastest within the European Union over the past decade. In 2019, real GDP growth reached the high rate of 4.4 percent. Malta’s unemployment rate stood at 3.2 percent in the fourth quarter of 2019. Thanks to its robust economic growth for much of the years in the last decade, the country is facing the current crises brought about by COVID-19 from a position of economic and fiscal strength.

The top three credit rating agencies rank Malta extremely well and predict the economic impact of the coronavirus will be less pronounced on the Maltese economy when compared to other EU neighboring countries. The current sovereign credit ratings are A-/A-2 with a stable outlook (S&P); A2 with a stable outlook (Moody’s); and A+ with a stable outlook (Fitch).

In 2013, the Government of Malta established the Individual Investor Program (IIP), which provides citizenship by naturalization to people (and their dependents) who are contributors to an individual investor program and who pay a fee of €650,000 (with an additional €25,000 for spouses or dependents under age 18 or €50,000 for dependents over age 18). IIP conditions include a €350,000 minimum for purchasing immovable property, or a €16,000 per year minimum for leasing immovable property (which must be retained for at least five years), and a €150,000 minimum for investment in stocks, bonds, or debentures.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 50 of 183 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 88 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 27 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in Malta ($M USD, historical stock positions) 2018 USD 620 million http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2018 USD 26,480 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Malta seeks foreign direct investment (FDI) to increase its rate of economic growth. Malta provides incentives to attract investment in high-tech manufacturing (including plastics, precision engineering, electronic components, automotive components, and health technologies such as pharmaceuticals manufacturing and biotechnology), information and communications technology (ICT), research and development (R&D), aerospace and aviation maintenance, education and training, registration of ships and aircrafts, transshipment and related service industries, finance services, and digital technologies, including artificial intelligence technologies, blockchain, innovative technologies, and digital gaming.

Malta’s comparative advantages include membership in the EU, Eurozone, and Schengen Zone; proximity to European and North African markets; excellent telecommunications and transport connections; a fair and transparent business environment; a highly skilled, English-speaking labor force; and competitive wage rates (though the cost of living is high, labor costs are relatively low compared with other EU countries). Malta also offers financial, tax, and other investment incentives to attract FDI. Foreign investment plays an integral part in the Government of Malta’s policies to reduce the role of the state in the economy and increase private sector activity. It will also play a key role in building Malta’s economic recovery post-pandemic as the country is in the process of shaping an economic strategy based on tangible niche market opportunities that will help it recover in the new economic and health conditions.

Malta Enterprise, a government organization that promotes FDI in Malta, provides information to prospective investors, processes applications for government investment incentives, and serves as a liaison between investors and other government entities. The organization offers an attractive investment package for U.S. and other investors.

There are currently no legal prohibitions against FDI-oriented sales in Malta’s domestic market; however, the country is in the process of setting up an FDI screening mechanism in line EU regulation 2019/452 establishing a framework for the screening of foreign direct investments into the Union. The government seeks, as a top priority, companies operating in the following fields:

  • High-end manufacturing (although virtually all manufacturing sectors are open to FDI);
  • Information and communications technology, including electronic components, and digital gaming;
  • Health technologies, medical equipment, pharmaceuticals, and emerging medical sectors (including medical cannabis);
  • Back office and regional support operations;
  • Digital technologies including blockchain, artificial intelligence, innovative technologies, e-sports, and fintech;
  • Knowledge-based service, including aerospace and defense (aviation maintenance), education and training, and research and development;
  • Logistics-based services, including marine technology, warehousing, and oil/gas services; and
  • Film industry (Malta has one of the few sets in the world for water/boating scenes).

Limits on Foreign Control and Right to Private Ownership and Establishment

Private foreign investors are free to make equity arrangements as they wish, from joint ventures to full equity ownership.

The Government of Malta recognizes the right to private ownership in theory and in practice. Private entities are free to establish, acquire, and dispose of interests in business enterprises and engage in all forms of remunerative activity. Many U.S. firms sell their products or services in Malta through licensing, franchise, or similar arrangements. The government generally allows foreign companies to operate in merchandising areas, especially if they operate a licensing, franchising, or similar agreement through a local representative.

It is the government’s stated policy not to allow public enterprises to operate at the expense of private entities. Some sectors, such as electricity generation, are also open to private sector participation. The government provides private enterprises with the same opportunities as public enterprises for access to markets and other business operations.

Other Investment Policy Reviews

The Government of Malta has not undergone any third-party investment policy reviews through a multilateral organization in the last three years.

Business Facilitation

The Maltese Commercial Code provides for the establishment of several types of business entities according to the needs of an individual investor when setting up a company in Malta. The following are the available structures:

  • Private limited liability companies;
  • Public limited liability companies;
  • General partnerships; and
  • Limited partnerships.

Foreign companies can also open subsidiaries or branch offices in Malta.

When setting up a Maltese private company, the minimum share capital amount accepted is €1,165 ($1,300). The minimum for a public company is approximately €46,600 ($51,670), of which 25 percent must be deposited prior to registration. In case of private companies with an authorized share capital exceeding the minimum requirements, only 20 percent of the amount must be deposited.

The maximum number of shareholders for limited liabilities companies is 50 and minimum is two (although a single-member company may also be registered under the Companies Act).

The following are the main steps required to set up a company in Malta:

  • Reserve a company name with the Maltese Business Registry;
  • Draft the company’s memorandum and articles of association;
  • Deposit the minimum share capital; and
  • File the application with the Malta Business Registry.

The documents to be filed with the Malta Registrar of Companies are:

  • The memorandum and articles of association;
  • A confirmation of the company name reservation;
  • The bank receipt confirming the share capital deposit; and
  • Passport copies of the shareholders, directors, and company secretary.

The Malta Business Registry (MBR) is responsible for the registration of new commercial partnerships, the registration of documents related to commercial partnership, the issuing of certified documentation including certificates of good-standing amongst others, the reservation of company names, the collection of registration and other fees, the publication of notices, and the imposition and collection of penalties. The Registry also conducts investigations of companies and maintains the company and partnership register.

The Memorandum must be presented to the MBR, which offers an online system allowing users to register a company and submit commonly used forms (including a bank receipt as proof of payment of the initial share capital). All the statutory forms and notices are available on the website free of charge. The MBR may also request that due diligence on the directors, shareholders, and/or beneficial owners be provided before proceeding with the incorporation. Upon incorporation, companies must pay a registration fee payable to the MBR according to the amount of share capital held by the company.

Once all the requirements above are satisfied, the MBR will normally carry out incorporation of a company within two to three working days. Once incorporation is complete, the MBR will publish a Certificate of Incorporation that will also display the company registration number.

MBR website: https://mbr.mt/ 

The Government of Malta also offers a one-stop shop for businesses – Business First – that assists companies with all processing of services and information to establish a company. Business First brings more than 50 essential services from various government departments and entities under one roof. It assists all enterprises based in Malta, including micro enterprises, small and medium-sized enterprises (SMEs), larger companies, and foreign investors wishing to set up in the country.

Business First website: https://businessfirst.com.mt/ 

Outward Investment

TradeMalta, incorporated in 2014, is a public-private partnership between the government and the Chamber of Commerce to help Malta-based enterprises internationalize. TradeMalta is also the national organization tasked with marketing and coordinating both incoming and outgoing trade missions, promoting participation in international trade fairs, facilitating bilateral trade meetings, and researching new market opportunities. Although TradeMalta promotes outward investment and incentives for companies to seek international business, it does not provide financial incentives to set up FDI in other jurisdictions. This quasi-governmental organization is also tasked with maintaining business relationships with countries with whom Malta has a trading activity and dedicates its resources to identifying new markets, which are not considered as traditional trading partners. (For the past three years, it has targeted African countries for outgoing trade missions.)

The organization provides specialized training programs in international business development and marketing and administers incentive schemes and internationalization programs aimed at both novice and experienced exporters.

The government actively supports and promotes franchising, joint-ventures, and other forms of international business opportunities between Malta-based businesses and foreign companies.

2. Bilateral Investment Agreements and Taxation Treaties

In 2010, the United States signed a bilateral taxation agreement with Malta. Malta also benefits from treaties with investment provisions with ACP (African, Caribbean, and Pacific Group of States), Albania, Algeria, ANCOM (Andean Community), Armenia, ASEAN (Association of South-East Asian Nations), Azerbaijan, Bangladesh, Belarus, Bosnia and Herzegovina, Brazil,

CACM (Central American Common Market), Cambodia, Cameroon, Canada, CARICOM (Caribbean Community), Chile, China, Colombia, Côte d’Ivoire, Ecuador, EFTA (European Free Trade Association), Egypt, ESA (Eastern and Southern Africa), GCC (Gulf Cooperation Council), Georgia, India, Iraq, Israel, Jordan, Kazakhstan, Republic of Korea, Kyrgyzstan, Laos, Lebanon, Libya, Macao S.A.R., MERCOSUR (Mercado Común Sudamericano), Mexico, Moldova, Mongolia, Montenegro, Morocco, Nepal, North Macedonia, OCT (Overseas Countries and Territories), Pakistan, the Palestinian Territories, Paraguay, Peru, Russia, SADC (Southern African Development Community), Serbia, Singapore, South Africa, Sri Lanka, Tajikistan, Thailand, Tunisia, Turkey, Turkmenistan, Ukraine, Uruguay, Uzbekistan, Vietnam, and Yemen.

The United States has maintained a Commerce and Navigation Treaty with Malta since 1815, initially in its capacity as a British colony, and, upon Malta’s independence in 1964, on its own behalf. The primary aim of this agreement is to ensure non-discriminatory treatment for bilateral trade and investments. Malta has similar investor protection accords with Albania, Austria, Belgium/Luxembourg Economic Union, Bulgaria, China, Croatia, Cyprus, Czech Republic, Egypt, France, Germany, Italy, Kuwait, Libya, Montenegro, Netherlands, Serbia, Slovakia, Slovenia, Sweden, Switzerland, Tunisia, Turkey, and the United Kingdom.

There are currently no ongoing or upcoming changes to the taxation regime or ongoing systematic tax disputes between the government and foreign investors.

3. Legal Regime

Transparency of the Regulatory System

Malta has transparent and effective policies and regulations to foster competition. It has revised labor, safety, health, and other laws to conform to EU standards.

Stakeholder engagement is currently required for all subordinate regulations as part of the Regulatory Impact Assessment (RIA) process as well as for some primary laws in selected policy areas. Each online consultation is accompanied by a feedback report, summarizing the views of participants and providing feedback on the comments received. According to OECD 2019 report on Indicators of Regulatory Policy and Governance, the transparency of the Maltese regulatory framework could be further strengthened by making RIAs available for consultations with stakeholders by systematically engaging with stakeholders during the development of primary laws, specifically at an early stage, before a preferred regulatory decision has been identified.

International Regulatory Considerations

Malta’s regulatory system is derived from the acquis communautaire, the body of laws, rights, and obligations that are binding on all EU member states. Consequently, trade and investment relations with third countries are an EU responsibility under the Common Commercial Policy. However, with respect to investment, Malta does have some competence in certain investment areas. In particular, where the EU does not have or is not negotiating an investment protection agreement, Malta can hold or negotiate one unilaterally. Malta also maintains competence in the areas of transport and portfolio investment, as well as corporate taxation. Malta is currently working on taking the necessary steps to implement the EU-wide mechanism for cooperation on investment as required by the new EU framework for investment screening which entered into force on April 10, 2019. The Malta draft bill still needs to be considered and passed in parliament.

Malta became a WTO member on January 1, 1995. However, all draft technical regulations to the WTO Committee on Technical Barriers to Trade are now made at the EU level.

Malta ratified the Trade Facilitation Agreement on October 5, 2015 and is in full compliance with its implementation commitments.

Legal System and Judicial Independence

Malta’s Commercial Code regulates commercial activities and related legislation, such as the Banking Act, the Central Bank of Malta Act, and bankruptcy. In cases of bankruptcy, the court appoints a curator to liquidate the assets of the bankrupt company, organization, or individual, and distributes the proceeds among the creditors.

The Maltese judiciary is independent, and courts are divided into superior courts, presided over by judges, and inferior courts, presided over by magistrates. Inferior courts have jurisdiction over minor offenses of a criminal nature and small civil matters. The judiciary traditionally functions through the Criminal, Civil, and Constitutional courts. The First Hall of the Civil Court hears commercial cases. Malta has a Criminal Court of Appeal and a second Court of Appeal for all other matters. The Constitutional Court has jurisdiction to hear and determine questions and appeals on constitutional issues. There are also a number of administrative tribunals, such as the Industrial Tribunal, the Rent Regulation Board, the Sanction Monitoring Board, and the Board of Special Commissioners (for income tax purposes). Malta adopted the European Convention of Human Rights as part of its domestic law in 1987.

The Maltese judiciary has a long tradition of independence. Once appointed to the bench, judges and magistrates have fixed salaries that do not require annual approval. Judges cannot be dismissed, except by a two-thirds vote in the House of Representatives for proven misbehavior or the inability to exercise properly their function. The Maltese Constitution guarantees the separation of powers between the executive and the judiciary and a fair trial. In December 2018, the European Commission for Democracy through Law, known as the Venice Commission, issued an opinion on the constitutional arrangements, separation of powers, and independence of the judiciary and law enforcement bodies of Malta. The Commission recommended setting up an office of an independent Director of Public Prosecutions with security of tenure, being responsible for all public prosecutions, subject to judicial review. The opinion also recommended abolishing the possibility that judges can be dismissed by Parliament and suggested modifications to the system of the judicial appointments. Malta is currently in the process of implementing changes in accordance with the Venice Commission recommendation and has thus far has achieved successfully separated the previous dual roles of the Attorney General as both the public prosecutor and the state attorney.

Laws and Regulations on Foreign Direct Investment

Several laws govern foreign investment in Malta. The Income Tax Act of 1948 (as amended in 1994) establishes a single rate of taxation of 35 percent on income for limited liability companies in Malta. In certain qualifying cases, this rate can fall to five percent through a system of tax refunds on dividends paid. The Business Promotion Act authorizes the Government of Malta to allocate fiscal and other incentives to companies engaged in manufacturing (including software development), repair, or maintenance activities. The Malta Enterprise Act of 2003 enables Malta Enterprise to develop and administer incentives and other forms of support to liberalize and update legislation relevant to FDI. The Companies Act of 1995 regulates the creation of limited liability companies. The Companies Act also provides for the establishment of investment companies with variable share capital (SICAVS) and companies with share capital denominated in a foreign currency. The Malta Financial Services Authority Act of 1989 established the Malta Financial Services Authority (MFSA), which is responsible for the regulation of banking and investment services in Malta. The Investment Services Act of 1994 regulates investment services in the banking and insurance sectors. In 2018, Malta enacted three new acts related to blockchain. The Malta Digital Innovation Authority Act (MDIA) establishes the Authority that oversees and regulates innovative technologies, along with the Innovative Technology Arrangement and Services Act (ITAS) that regulates Innovative Technology Arrangements and Services, such as the software and coding used in digital ledger technology (DLT), smart contract, and related applications, together with the technical administration and review services. In 2018, the MFSA was entrusted with the Virtual Financial Assets Act (VFA) that regulates Initial Virtual Financial Assets Offerings and delineates their licensing requirements.

Competition and Anti-Trust Laws

Malta is a free-trade, open-economy country. The government does not approve or restrict any FDI, so long as it complies with EU and national regulations. Malta Enterprise reviews FDI before granting any incentives to a private entity or business. A due diligence process is carried out prior to approving greenfield investments. The MFSA undertakes the filings and regulatory screenings on financial investments.

The Office for Competition, currently housed within the Malta Competition and Consumer Affairs Authority (MCCAA), is the office tasked with protecting competition in Malta. The Maltese Competition Act is modelled on EU competition law. The latest amendments to the Competition Act in 2011 strengthened its deterrent effect by widening the decision-making powers of the Office for Competition and further aligned both the substantive and procedural rules with those existing under EU law.

In 2017, the Office for Competition reviewed plans for a merger between telecommunications companies Vodafone Malta and Melita. When the parties were unable to satisfy the MCCAA’s requirements, they terminated their plans to merge.

Expropriation and Compensation

The Government of Malta, in exceptional instances, expropriates private property for public purposes. In such cases, the government must take action in a non-discriminatory manner and in accordance with established principles of international law. Investors and lenders of expropriated property receive prompt, adequate, and effective compensation. In 1993, the government’s Property Division started accepting expropriation requests by public bodies only if the requests were accompanied by the compensation due to the landowners. In 2002, this practice was made law. As a result, the government may only expropriate private property if the presidential decree also includes a deposit for the compensation due. In recent years, the government has appropriated land mainly for the widening of roads; however, no particular sectors are at risk for expropriation or similar actions, and no laws force local ownership.

Dispute Settlement

ICSID Convention and New York Convention

Malta signed the Convention on the Settlement of Investment Disputes (ICSID) in 2002. Malta is also a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards (UNCITRAL).

Investor-State Dispute Settlement

There have been no significant investment disputes over the past few years involving U.S. or other foreign investors or contractors in Malta. In a limited number of cases, U.S. investors have identified difficulties in obtaining fair legal resolutions, especially in disputes with Maltese parties. Courts in Malta are slow in processing cases. Reforms to increase efficiency in the judicial system are part of an ongoing constitutional reform effort, including the recent progress Malta made on implementing the Venice Commission recommendations. In December 2019, the State Advocate Act came in effect, as part of the reform in the Maltese justiciary, which split the Attorney General’s (AG) dual government advisory and prosecutorial roles.

International Commercial Arbitration and Foreign Courts

Malta honors the enforcement of foreign court judgments and foreign arbitration awards. Bilateral investment treaties, which Malta has with several countries (see section 3, Bilateral Investment Agreements), provide for the acceptable methods of settling disputes connected with citizens of those countries.

Bankruptcy Regulations

The Companies Act and the Commercial Code Bankruptcy in Malta and the Set-off and Netting on Insolvency Act of 2003 regulate bankruptcy. The latter provides for the set-off and netting due to each party with respect to mutual credits, mutual debts, or other mutual dealings that are enforceable whether before or after bankruptcy or insolvency.

The Maltese insolvency law regime distinguishes between bankruptcies of a person and bankruptcies of a commercial partnership other than a company. When a company cannot pay its debts, it may initiate insolvency proceedings. In such a case, the court examines carefully whether the financial situation of the company justifies its insolvency or whether it could remain operational and continue to pay its debts.

Any officer of a company who, in the twelve months prior to the deemed date of dissolution, concealed assets or documents, disposed of assets, or otherwise acted in a fraudulent manner may be criminally liable. Separately, courts may find any such officers civilly liable for such acts and require them to pay back to the company any moneys due. The law also provides for proceedings in cases of wrongful trading by directors and fraudulent trading by any officer of the company.

The Malta Association of Credit Management, known as MACM, is a members-owned, not-for-profit organization, providing a central national organization for the promotion and protection of all credit interests pertaining to Maltese businesses. More information at: https://www.macm.org.mt/ .

4. Industrial Policies

Investment Incentives

The Government of Malta offers several investment incentives to attract FDI. All investment incentives are specified by law and cannot be made available in an ad hoc manner. However, the way in which incentives are designed allows the opportunity to offer relatively tailor-made solutions, even though treatment of domestic and non-Maltese investors is identical. There are no stated requirements that a foreign investor should transfer technology, employ Maltese nationals, or reduce shareholding interest over time. These factors might, however, influence Malta Enterprise’s decision regarding a firm’s application for assistance. Malta Enterprise monitors compliance with any conditions set by the government as a condition of government assistance. Investors are not required to disclose proprietary information.

Investment Tax Credits: Companies in a targeted sector are entitled to a tax credit calculated as follows:

  • As a percentage of qualifying capital expenditure (currently granting 10 percent for a large enterprise, 20 percent for a medium enterprise, and 30 percent for a small to micro enterprise; or
  • As a percentage of the wage cost for the first 24 months of a newly created job (currently, 15 percent for a large enterprise; 25 percent for a medium enterprise, and 35 percent for a small and micro enterprise).

Access to Finance:

  • Soft Loans: Malta Enterprise supports enterprise though loans at low interest rates for partial financing of investments in qualifying expenditure.
  • Loan Guarantees: Malta Enterprise may guarantee bank loans taken by a company to finance acquisition of additional assets to be employed in the company’s business.
  • Loan Interest Subsidies: Malta Enterprise may subsidize the rate of interest payable on bank loans. Loan interest subsidies are not in addition to loan guarantees and applicable to loans provided by banks or other financial institutions.
  • Micro Guarantee Scheme: Malta Enterprise aims to accelerate the growth of enterprises by facilitating access to debt finance for smaller business undertakings.

Employment and Training: Malta’s employment corporation JobsPlus, formerly known as ETC, supports enterprises in recruiting new employees and training their staff.

SME Development: Incentives through the Micro Invest Scheme assist SMEs in investing, innovating and expanding, or developing their operations. The Ministry for the Economy, Investment and Small Business can also facilitate access to newly developed crowd-funding platforms.

Enterprise Support: Malta Enterprise provides assistance to businesses to support development of international competitiveness, improve processes, and network with other businesses. Trade Malta, Malta’s export and trade promotion agency, offers support for trade promotion activities focused on exports.

Research and Development: Malta Enterprise offers incentives to support and encourage businesses to engage in industrial research and experimental development, including exploitation of intellectual property through the licensing of patented knowledge.

COVID-19 measures: The government announced several measures as part of financial packages to help the Maltese economy during the COVID-19 outbreak. The financial aid packages mainly aimed to protect jobs and businesses by injecting liquidity into the market through measures including subsidies for partial payment of salaries, deferring certain tax deadlines, and guarantees allowing banks to continue offering loans, grant moratoria, and low interest rates for customers. It has also introduced schemes to encourage teleworking for companies and an RDI fund for COVID-19 related projects.

More information on incentives offered by Malta Enterprise can be found at: https://www.maltaenterprise.com/support  and https://covid19.maltaenterprise.com/ 

Other Tax Benefits:

The Government of Malta offers generous incentives to trading and financial companies registered with the Malta Financial Services Authority. Legislative changes in 1994 removed the distinction between offshore and onshore companies, so all companies in Malta are subject to a 35 percent tax rate on profits. However, the fact that the Maltese tax system is a full imputation system – and the only one remaining in the EU – means that a tax paid by a company will essentially remain a prepaid tax on behalf of the tax liability of the shareholders. Shareholders then are entitled to claim a tax refund, which may be equivalent to roughly 85 percent (in the case of trading income) of the tax paid at the corporate level. Companies operating within the Malta Freeport, a customs-free zone, may also benefit from reduced rates of taxation and investment tax credits.

Research and Development

The Government of Malta offers specific incentives for companies to engage in industrial research and development (see “Investment Incentives” section above). The government does not differentiate between U.S. or foreign firms and local firms regarding participation in incentive programs.

U.S. companies also can partner with local firms to participate in Horizon 2020, the EU Framework program for funding research and innovation. Horizon 2020 will run until the end of 2020 and has a budget of €80 billion.

Foreign Trade Zones/Free Ports/Trade Facilitation

Malta’s Freeport container port offers modern transshipment facilities, storage, assembling and processing operations, as well as an oil terminal and bunkering facilities. Following a corporate restructuring from 1998 through 2001, Malta established a distinction between authority and operator of the Freeport. Malta Freeport Corporation Ltd. (“Malta Freeport Authority”) fulfils the role of landlord and authority, whereas Malta Freeport Terminals Ltd. (“Malta Freeport”) carries out the role of operator. Malta Freeport Terminals Ltd. is the single operating company of the warehousing facilities and two container terminals , handling container vessels at 20,000 TEU and larger. In October 2004, the Government of Malta granted a 30-year concession for operation and development of Malta Freeport Terminals CMA CGM, which transferred it half of shares in Malta Freeport Terminals Ltd. to the Yilidirim Group of Turkey in November 2011, and sold a 49% interest in port operator Terminal Link to China Merchant Holdings (International) Company Ltd. in June 2013.

For a company to carry out business within the Freeport zone, Malta Freeport Authority must grant it a license, and its operations must complement the Freeport’s activities. Through the utilization of these facilities, clients can engage in an extensive range of handling operations, including cargo consolidation, break-bulk, storage, re-packing, re-labelling and onward shipping. Malta Freeport also offers assembly and processing options in accordance with the Malta Freeports Act. The operator must ensure that it does not label goods that have been processed in the Freeport with Malta as their country of origin, unless their identity has been substantially transformed within the zone. Companies operating within the Freeport benefit from reduced tax rates, as well as investment tax credits without customs interventions.

Malta Freeport offers round-the-clock industrial storage operations supported by a highly developed, customized infrastructure, as well as extensive transport networks, which link Malta to various important markets on a regular basis, including port connections in North America, Central America, and South America. Warehousing facilities lie only six kilometers from the island’s international airport, offering excellent opportunities for sea and air links stretching worldwide. In late 2016, the government issued a call for expressions of interest for the development of a logistics hub – government still has not published a final decision on this call. The aim of the project is to attract local or international operators to submit their proposals for the concession of the design, construction, financing, operation, and maintenance of an international logistics center on 45,000 square meters of land in Ħal Far. The Government of Malta’s vision is to have a strategic hub for international trade, serving as a Free Zone or as a Custom Warehouse.

Performance and Data Localization Requirements

Currently, no performance requirements exist, other than the goals that the investors link to applications for assistance with Malta Enterprise. Foreign investors can repatriate or reinvest profits without restriction and take disputes before the International Center for the Settlement of Investment Disputes (ICSID).

The government does not require foreign investors to establish or maintain data storage in Malta. However, the Malta Gaming Authority (MGA), the independent regulatory body responsible for the governance of all gaming activities, does require gaming companies to hold their data in Malta.

Foreign IT providers incorporated in Malta that process personal data in the context of the activities of an establishment, qualifying as data controllers within the Data Protection Act, fall within the jurisdiction of the Office of the Data Protection Commissioner. The Data Protection Commissioner stated there has never been an instance where, during an investigation, the Commissioner has requested access to source code or to encryption functions.

Any transfer of personal data by a controller established in Malta to a third country that does not ensure an adequate level of data protection is subject to the authorization of the Data Protection Commissioner as required by the Data Protection Act. In an attempt to facilitate and harmonize the implementation of this requirement, the European Commission adopted model clauses (Standard Contractual Clauses and Binding Corporate Rules – the latter used for sharing of personal data within a group of companies) which controllers may use for this purpose. No authorization is required for transfers made to EU Member States, members of the EEA, third countries which are, from time to time, recognized by the European Commission to have an adequate level of protection, and to companies that are certified under the EU-U.S. Privacy Shield. Furthermore, any personal data shared (rather than transferred) between data controllers in Malta must rely on a legal basis.

The European Union’s General Data Protection Regulation (GDPR), enacted in 2016, entered into force on May 25, 2018. The GDPR, which succeeds the Data Protection Directive of 1995, aims to protect EU citizens’ personal data, harmonize data privacy laws across the EU, and provide for better coordination among EU Member State data protection authorities. U.S. companies wishing to operate in Malta or to do business with Maltese individuals or entities should ensure compliance with the regulation.

Data controllers processing personal data are subject to the rules emanating from the General Data Protection Regulation (GDPR). These rules must be observed to ensure that the processing activities are carried out fairly and lawfully and with respect to the data subjects’ fundamental rights and freedoms. The competent authority in Malta that regulates and monitors observance with this law is the Office of the Information and Data Protection Commissioner.

5. Protection of Property Rights

Real Property

Property and contractual rights are enforced by means of (a) legal warning; (b) warrants of seizure; (c) warrants of prohibitory injunction; (d) warrants of impediments of departures (if proceedings fall within the jurisdiction of the Criminal Court); and (e) sale of property by court auction. The Code of Organization and Civil Procedures lays out procedures for registering and enforcing judgments of foreign courts. Rights and secured interests over immovable property must be publicly registered in order to be enforceable. The Government of Malta has occasionally been a party to international arbitrations and has abided by tribunal decisions.

The 2006 Maltese Securitization Act provides for a range of securitization transactions within its secure regulatory framework and offers various legal and international tax benefits. Malta permits the creation of securitization cell structures, allowing for multiple cells with clear segregation of assets and liabilities between each cell. Foreign investors typically use securitization for passporting funds, which allows a firm registered in the European Economic Area (EEA) to do business in any other EEA state without the need for further authorization from each country, and for investment within the EU. Investors typically use this system over the securitization of property.

According to latest data collected by the World Bank Doing Business report, registering property in Malta generally takes 17 days and costs 13.5 percent of the property value, and includes seven different procedures to legally transfer title on immovable property. Malta made the transfer of a property more expensive by introducing the new property transfer tax. The Property transfer tax (PTT) is the default transaction-based tax that affects transfers of any real right over immovable property from one party to another. It is calculated at the rate of 12% of the transfer value of the immovable property involved in a given transaction. Globally, Malta stands at 152 in the ranking of 190 economies on the ease of resolving insolvency.

Intellectual Property Rights

The Maltese legal system adequately protects and facilitates acquisition and disposition of intellectual property rights (IPR). In 2000, Malta implemented the pertinent provisions of the WTO’s Agreement on Trade-Related Aspects on Intellectual Property Rights (TRIPS). Malta has fully incorporated EU and WTO rules into national law. Additional information on EU-wide provisions on copyright, patents, trademarks, and designs can be found at: https://ec.europa.eu/growth/industry/intellectual-property/industrial-design/protection_en 

https://ec.europa.eu/growth/industry/intellectual-property/industrial-design/protection_en 

In addition, Malta is a member of the World Intellectual Property Organization (WIPO), the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, and the Universal Copyright Convention (UCC).

Malta is not listed included in the U.S. Trade Representative’s (USTR’s) Special 301 Rreport nor in the USTR’s Notorious Market ReportList. The Association against Copyright Theft claims that Malta’s local laws do not include high enough minimum fines to deter vendors from selling pirated material. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at HYPERLINK “http://www.wipo.int/directory/en/” http://www.wipo.int/directory/en/.

Malta’s Commerce Department within the Ministry for the Economy, Investment, and Small Business is responsible for intellectual propertyIPR-related issues.

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

Commerce Department
Tel: +356 2122 6688
Email: commerce@gov.mt
Website: http://commerce.gov.mt/en/Pages/Contact-Details.aspx 
Address: Commerce Department, Lascaris Bastion, Valletta, VLT 1933, Malta

6. Financial Sector

Capital Markets and Portfolio Investment

Malta’s Stock Exchange was established in 1993. In 2002, the Financial Markets Act effectively replaced the Malta Stock Exchange Act of 1990 as the law regulating the operations and setup of the Malta Stock Exchange. This legislation divested the Malta Stock Exchange of its regulatory functions and transferred these functions to the Malta Financial Services Authority (MFSA). The Financial Markets Act also set up a Listing Authority, which is responsible for granting “Admissibility to Listing” to companies seeking to have their securities listed on the Exchange.

To date, the few companies publicly listed on the Malta Stock Exchange have not faced the threat of hostile takeovers. Malta has no laws or regulations authorizing firms to adopt articles of incorporation/association that would limit foreign investment, participation, or control. Legal, regulatory, and accounting systems are transparent and consistent with international norms; several U.S. auditing firms have local offices.

Money and Banking System

The Maltese banking system is considered sound. In recent years, local commercial banks expanded the scope of their lending portfolios. Capital is available from both public and private sources; both foreign and local companies can obtain capital from local lending facilities. Commercial banks and their subsidiaries can provide loans at commercial interest rates. It is possible for new investors to negotiate soft loans from the government covering up to 75 percent of the projected capital outlay.

No U.S. bank has a branch in Malta. BNF and HSBC Malta currently maintain direct correspondent banking relationships with U.S. banks. Some local banks act as correspondents of several U.S. banks via other EU banks, though such a relationship often results in higher transaction costs.

The majority of banks have stopped opening accounts for companies that do not operate in Malta, those that operate in the electronic gaming sector, and those operating in the cryptocurrency sector. The few banks that still offer these services have tightened their due diligence processes, resulting in long delays to open accounts.

Malta takes pride in being the first country to propose a legal framework for the creation of an Authority to regulate Blockchain, Artificial Intelligence, and Internet of Things (IOT) devices. In 2018, Government enacted three legislations that provide a regulatory framework on Distributed Ledger Technology, issuers of Initial Coin Offerings (ICOs), and related service providers dealing in virtual currencies, which currently fall outside the scope of a legislative and regulatory regime.

Foreign Exchange and Remittances

Foreign Exchange

As long as investors present the appropriate documents to the Central Bank of Malta, there are no limitations on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported raw materials. There are no significant delays in converting investment returns to foreign currency after presentation of the necessary documents. Maltese regulations and practices affecting remittances of investment capital and earnings have been streamlined, as several foreign exchange controls were relaxed to conform to EU directives. Malta joined the Eurozone in January 2008.

Remittance Policies

A company incorporated under the laws of Malta is considered ordinarily resident and domiciled in Malta. Companies which are ordinarily resident and domiciled in Malta are subject to tax on their worldwide income. A company not incorporated in Malta, but managed and controlled in Malta, is subject to tax on a remittance basis on its foreign-sourced income.

Companies subject to tax on a remittance basis are taxed on:

  • Income and capital gains deemed to arise in Malta
  • Income deemed arise outside Malta and remitted to Malta

Companies subject to the remittance basis are not taxed on:

  • Income deemed to arise outside Malta which is not remitted to Malta
  • Capital gains arising outside Malta

Companies which are not incorporated in Malta are considered to be resident in Malta when their management and control is shifted to Malta.

Malta does not allow the application of the remittance basis of taxation to individuals who are either (a) domiciled but not ordinarily resident or (b) ordinarily resident but not domiciled in Malta, whose spouse is both ordinarily resident and domiciled in Malta. In this regard, such individuals will now become taxable on their worldwide income and capital gains, irrespective of receipt/remittance of such income to Malta not domiciled in Malta.

Sovereign Wealth Funds

Malta has recently established the National Development and Social Fund (NDSF) to manage and administer receipts from the country’s Individual Investor Programme. Since inception through October 2019, it raised a total of €544 million ($593 million). The Sovereign Wealth Fund Institute ranked Malta’s NDSF the 71st world’s largest sovereign wealth fund. The fund receives 70 percent of its contributions from the country’s citizenship program. It has future charitable commitments of €56 million and, funds will also be funneled into the economy to help soften the economic crises brought about by the COVID-19 pandemic. The mission of the NDSF is to contribute towards, promote, and support major projects and initiatives of national importance and public interest. These initiatives and projects are intended to develop and improve the economy, public services, and the general well-being of present and future generations.

7. State-Owned Enterprises

The Malta Investment Management Company Limited (MIMCOL) was established in 1988 to manage, restructure, and selectively divest the Government of Malta from state-owned enterprises (SOEs). MIMCOL also promotes private sector investment using cost-effective business practices across various SOEs. MIMCOL created strategies leading to the dissolution of SOEs with limited commercial prospects, as well as the profitable spin-off of non-core operations with commercial potential. MIMCOL’s focus then turned to SOEs deemed of strategic national value, but whose inefficient operations were reflective of a lack of competition. Eventually, MIMCOL prepared most SOEs for privatization and sold them off. Today, MIMCOL’s role has evolved into specialized assignments, such as strategic reviews of the management and operations of important parastatal companies and corporations operating in various sectors.MIMCOL’s sister company Malta Government Investments (MGI) holds a portfolio of 17 companies (excluding companies falling under the responsibility of other ministries and investments held directly by the government). This portfolio is not well defined. Most government investments are held by either the Board of Trustees within the Ministry for the Economy, Investment, and Small Business, or by Malta Government Investments Limited (MGI) as an agent for the Government of Malta.

Privatization Program

In recent years, the Maltese government has privatized a number of state-controlled firms, including the country’s largest bank, the postal service, shipyards, energy generation plants, and the wireless telecommunications industry. Although no plans exist to privatize Air Malta, the national airline, the Government of Malta was considering options for a strategic minority partner, though these plans are currently on hold. Ryanair also operates a subsidiary airline called Malta Air that incorporated its 61 Ryanair routes to and from Malta. The Ryanair fleet will register with the Malta Aviation Authority.

In 2015, the Government of Malta set up Projects Malta and Projects Plus Ltd to coordinate and facilitate public private partnerships between government ministries and the private sector. The government welcomes private investors, Maltese and non-Maltese, in privatization projects. It affords foreign investors equal treatment with domestic investors and sets few limitations on their operations. The government recently finalized its first international public-private partnership in the healthcare industry. Foreign investors can repatriate or reinvest profits without restriction and take disputes before the International Center for the Settlement of Investment Disputes (ICSID).

8. Responsible Business Conduct

Corporate social responsibility (CSR) has become more prevalent in Malta in recent years, as global concerns such as climate change have risen to the forefront and as the EU has raised expectations for its member states regarding CSR. An increasing number of companies in Malta recognize the importance of their role in society and the real benefits of adopting a proactive approach to CSR.

The Maltese government does not specifically request adherence to OECD Guidelines for Multinational Enterprises; however, it is expected that multinationals follow generally accepted CSR principles.

Under the Code of Good Corporate Governance Guidelines, issued by the Malta Financial Services Authority in 2006, boards should seek to adhere to accepted CSR principles in day-to-day management practices and work closely with “suppliers, customers, employees, and public authorities.” Although corporate governance guidelines are non-binding in nature, public interest companies should highlight the adherence to such corporate governance principles in their annual reports.

In line with recent amendments to the Companies Act, the directors’ report that accompanies the annual financial statements should include an analysis of both financial and non-financial key performance indicators relevant to the particular business, including information relating to environmental matters.

Additional Resources 

Department of State

Department of Labor

9. Corruption

Maltese law provides criminal penalties for official corruption, and the government generally implements these laws effectively. The Malta Police and the Permanent Commission against Corruption are responsible for combating official corruption. Past news reports suggest a number of government corruption allegations; however, few have resulted in legal action or resignations.

Public sector corruption, including bribery of public officials, is not a significant challenge for U.S. firms operating in Malta. The Council of Europe’s Group of States against Corruption (GRECO) completed its fifth evaluation of Malta in the autumn of 2018 and its findings were published in September 2019. Following the four previous rounds of evaluation and a follow-up compliance review, Malta introduced a number of legislative measures to combat corruption and is currently in the process of introducing further measures to improve its financial oversight.

Malta has taken significant steps over the years to combat corruption, including the establishment in 2002 of the Financial Intelligence Analysis Unit (FIAU) to support domestic and international law enforcement investigative efforts. The Prevention of Money Laundering and Funding of Terrorism Regulations were transposed into Maltese law in July 2008, and conform to EU Directive 2005/60/EC (the Third Directive) and Directive 2006/70/EC. Malta transposed the Fourth Anti-Money Laundering Directive in December 2017 and, in April 2018, announced its first national Anti-Money Laundering and Countering the Funding of Terrorism (AML/CFT) Strategy.

The latest report by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) calls on Maltese authorities to strengthen their practical application of measures to combat money laundering and the financing of terrorism. MONEYVAL acknowledges that the authorities have demonstrated a broad understanding of the vulnerabilities within the system, but a number of important factors – notably predicate offences, financing of terrorism, legal persons and arrangements, and the development of new technologies and the use of cash – appear to be insufficiently analyzed or understood.

The report further notes that while Malta has a sound legal framework to fight the financing of terrorism, the report notes that few investigations have been conducted so far which have not resulted in any prosecutions or convictions. While noting recent progress, the report concludes that the actions undertaken by the authorities are not fully in line with the country’s exposure to possible terrorism financing risks. Based on the results of its evaluation, MONEYVAL decided to apply its enhanced follow-up procedure and invited Malta to report back in December 2020.

The latest MONEVAL report is available at https://rm.coe.int/moneyval-2019-5-5th-round-mer-malta/16809737c0 

Local Laws: U.S. firms should familiarize themselves with local anti-corruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s Foreign Commercial Service (FCS) can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the FCS can provide services that may assist U.S. companies in conducting due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The FCS can be reached directly through its offices in major U.S. and foreign cities or through its website at www.trade.gov/cs . The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Department of Commerce’s Advocacy Center and Department of State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report a Trade Barrier” website at http://tcc.export.gov/Report_a_Barrier/index.asp .

Guidance on the U.S. Foreign Corrupt Practices Act (FCPA): The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of DOJ’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section website: http://www.justice.gov/criminal/fraud/fcpa . Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce website at https://ogc.commerce.gov/collection/office-chief-counsel-international-commerce .

Additional Anti-Corruption Resources:

Useful resources for individuals and companies regarding combating corruption in global markets include the following:

  • Information about the OECD Anti-Bribery Convention, including links to national implementing legislation, good practice guidance and country monitoring reports, is available at: http://www.oecd.org/daf/anti-bribery/oecdantibriberyconvention.htm.
  • Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world. http://www.transparency.org/cpi2015.
  • TI also publishes Global Corruption Barometer that provides a systematic evaluation of the state of corruption around the world according to the different regions. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents, and an overview of the latest research findings on anti-corruption diagnostics and tools: https://www.transparency.org/en/gcb.
  • The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 212 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption: http://info.worldbank.org/governance/wgi/index.aspx#home.
  • The World Bank Business Environment and Enterprise Performance Surveys are available at http://www.enterprisesurveys.org/.
  • The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. The latest reports are available at: http://reports.weforum.org/global-enabling-trade-report-2016/.
  • Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/.

UN Anticorruption Convention, OECD Convention on Combatting Bribery:

Malta signed the UN Anticorruption Convention in 2005 and ratified it in 2008, but it has not signed the OECD Convention on Combatting Bribery.

Resources to Report Corruption

Contact at government agency or agencies that are responsible for combating corruption:

Malta Police Commissioner
St. Calcedonius Square
Floriana FRN 1530
+356-2122 4001
cmru.police@gov.mt 

Mr. Charles Deguara
Auditor General of National Audit Office
Notre Dame Ravelin
Floriana FRN 1600
+356-2205 5555
nao.malta@gov.mt 

Contact at watchdog organization:

Permanent Commission Against Corruption
Chateau De La Ville
Archbishop Street
Valletta VLT 2000
+356-2567 4309
Pcac.mjcl@gov.mt 

10. Political and Security Environment

Malta is considered to have a safe political system and is secure relative to other countries in the region.

11. Labor Policies and Practices

Malta’s labor force at the end of 2019 stood at 258,064 (83.4 percent male). The country’s population is about 493,500, the smallest in the EU. For 2019, the national minimum monthly wage was $853 (€761.97). The estimated average gross annual salary of employees stood at $21,823 (€19,488); this amount refers to the basic salary and excludes extra payments such as overtime, bonuses, and allowances. In 2019, on a sectoral basis, the highest recorded average gross annual salary for employees was in financial and insurance activities. Social insurance contributions add ten percent to the wage bill, together with a 0.3 percent contribution to the government maternity fund. Free or subsidized meals, commuting allowances, and health insurance are the most common fringe benefits. In addition, employees are entitled to 25 days of annual leave and public holidays that fall on a weekday. National law establishes a minimum number of sick leave days.

Foreign companies that have invested in Malta have a high regard for the ability, productivity, and learning potential of Maltese workers, nearly all of whom speak English. In some industries, labor productivity is comparable to other countries in Western Europe. Maltese managers now run most of the foreign firms in Malta. Malta enjoys one of the lowest strike rates in Western Europe, and labor unrest is unlikely in the foreseeable future. The Government of Malta strictly adheres to the ILO convention protecting workers’ rights.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs

Although Malta, as a high-income country as defined by the World Bank, generally does not qualify for DFC support, energy infrastructure projects in Malta could qualify under the European Security and Energy Diversification Act. Malta’s leading trading partners (the United Kingdom, Germany, France, and Italy) offer risk insurance programs similar to DFC that likewise cover investments in Malta. Malta is a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($B USD) 2019 $14.79 2019 $14.989 http://www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in Malta ($M USD, stock positions) 2019 $2,422 2019 $579 BEA data available at
https://www.bea.gov/
international/di1usdbal
Malta’s FDI in the United States ($M USD, stock positions) 2018 $826 2018 $1,549 BEA data available at
https://www.bea.gov/
international/di1fdibal
Total inbound stock of FDI as % Malta’s GDP 2019 1,382.1% 2019 1,319.4% https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx

* Source for Host Country Data: Malta National Statistics Office

** Exchange rates: $1 = €0.893 (2019 figures); $1 = €0.848 (2018 figures)

Table 3: Sources and Destination of FDI 
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 206,130 100% Total Outward 69,786 100%
Germany 25,553 12% Germany 11,963 17%
The Netherlands 23,666 11% The Netherlands 8,789 13%
Ireland 14,882 7% United Kingdom 5,214 7%
United Kingdom 14,136 7% Ireland 4,939 7%
Canada 13,159 6% Canada 4,560 7%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 132,198 100% All Countries 113,885 100% All Countries 18,313 100%
Germany 20,136 15% Ireland 8,710 8% France 1,331 7%
Netherlands 14,710 11% Canada 7,437 7% Canada 1,061 6%
United Kingdom 9,341 7% Cayman Islands 2,992 3% International Organizations 1,029 6%
Ireland 8,988 7% France 2,142 2% Australia 471 3%
Canada 8,498 6% Australia 1,831 2% Austria 318 2%

14. Contact for More Information

Maria Cassar
Economic and Commercial Specialist
U.S. Embassy, Malta
+356 2561 4120
maltabusiness@state.gov