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Argentina

Executive Summary

Argentina presents significant investment and trade opportunities, particularly in infrastructure, health, agriculture, information technology, energy, and mining. In 2018, President Mauricio Macri continued to reform the market-distorting economic policies of his immediate predecessors. Since entering office in December 2015, the Macri administration has taken steps to reduce bureaucratic hurdles in business creation, enacted some tax reforms, courted foreign direct investment, and attempted to implement labor reforms through sector-specific agreements with unions. However, Argentina’s economic recession coupled with the political stagnation of an election year have reduced the Macri administration’s ability to enact pro-business reforms and have choked international investment to Argentina.

In 2018, Argentina´s economy suffered from stagnant economic growth, high unemployment, and soaring inflation: economic activity fell 2.6 percent and annual inflation rate reached 47.6 percent by the end of year. This deteriorating macroeconomic situation prevented the Macri administration from implementing structural reforms that could address some of the drivers of the stagflation: high tax rates, high labor costs, access to financing, cumbersome bureaucracy, and outdated infrastructure. In September 2018, Argentina established a new export tax on most goods through December 31, 2020, and in January 2019, began applying a similar tax of 12 percent on most exports of services. To account for fluctuations in the exchange rate, the export tax on these goods and services may not exceed four pesos per dollar exported. Except for the case of the energy sector, the government has been unsuccessful in its attempts to curb the power of labor unions and enact the reforms required to attract international investors.

The Macri administration has been successful in re-establishing the country as a world player. Argentina assumed the G-20 Presidency on December 1, 2017, and hosted over 45 G-20 meetings in 2018, culminating with the Leaders’ Summit in Buenos Aires. The country also held the Financial Action Task Force (FATF) presidency for 2017-2018 and served as host of the WTO Ministerial in 2017.

In 2018, Argentina moved up eight places in the Competitiveness Ranking of the World Economic Forum (WEF), which measures how productively a country uses its available resources, to 81 out of 140 countries, and 10 out of the 21 countries in the Latin American and Caribbean region. Argentina is courting an EU-MERCOSUR trade agreement and is increasing engagement with the Organization for Economic Cooperation and Development (OECD) with the goal of an invitation for accession this year. Argentina ratified the WTO Trade Facilitation Agreement on January 22, 2018. Argentina and the United States continue to expand bilateral commercial and economic cooperation, specifically through the Trade and Investment Framework Agreement (TIFA), the Commercial Dialogue, the Framework to Strengthen Infrastructure Investment and Energy Cooperation, and the Digital Economy Working Group, in order to improve and facilitate public-private ties and communication on trade and investment issues, including market access and intellectual property rights. More than 300 U.S. companies operate in Argentina, and the United States continues to be the top investor in Argentina with more than USD $14.9 billion (stock) of foreign direct investment as of 2017.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 85 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 119 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 80 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2017 $14,907 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $13,030 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Macri government actively seeks foreign direct investment. To improve the investment climate, the Macri administration has enacted reforms to simplify bureaucratic procedures in an effort to provide more transparency, reduce costs, diminish economic distortions by adopting good regulatory practices, and increase capital market efficiencies. Since 2016, Argentina has expanded economic and commercial cooperation with key partners including Chile, Brazil, Japan, South Korea, Spain, Canada, and the United States, and deepened its engagement in international fora such as the G-20, WTO, and OECD.

Over the past year, Argentina issued new regulations in the gas and energy, communications, technology, and aviation industries to improve competition and provide incentives aimed to attract investment in those sectors. Argentina seeks tenders for investment in wireless infrastructure, oil and gas, lithium mines, renewable energy, and other areas. However, many of the public-private partnership projects for public infrastructure planned for 2018 had to be delayed or canceled due to Argentina’s broader macroeconomic difficulties and ongoing corruption investigations into public works projects.

Foreign and domestic investors generally compete under the same conditions in Argentina. The amount of foreign investment is restricted in specific sectors such as aviation and media. Foreign ownership of rural productive lands, bodies of water, and areas along borders is also restricted.

Argentina has a national Investment and Trade Promotion Agency that provides information and consultation services to investors and traders on economic and financial conditions, investment opportunities, Argentine laws and regulations, and services to help Argentine companies establish a presence abroad. The agency also provides matchmaking services and organizes roadshows and trade delegations. The agency’s web portal provides detailed information on available services (http://www.produccion.gob.ar/agencia). Many of the 24 provinces also have their own provincial investment and trade promotion offices.

The Macri administration welcomes dialogue with investors. Argentine officials regularly host roundtable discussions with visiting business delegations and meet with local and foreign business chambers. During official visits over the past year to the United States, China, India, Vietnam, and Europe, among others, Argentine delegations often met with host country business leaders.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law 19,550), the Argentina Civil and Commercial Code, and rules issued by the regulatory agencies. Foreign private entities can establish and own business enterprises and engage in all forms of remunerative activity in nearly all sectors.

Full foreign equity ownership of Argentine businesses is not restricted, for the most part, with exception in the air transportation and media industries. The share of foreign capital in companies that provide commercial passenger transportation within the Argentine territory is limited to 49 percent per the Aeronautic Code Law 17,285. The company must be incorporated according to Argentine law and domiciled in Buenos Aires. In the media sector, Law 25,750 establishes a limit on foreign ownership in television, radio, newspapers, journals, magazines, and publishing companies to 30 percent.

Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes that a foreigner cannot own land that allows for the extension of existing bodies of water or that are located near a Border Security Zone. In February 2012, the government issued Decree 274/2012 further restricting foreign ownership to a maximum of 30 percent of national land and 15 percent of productive land. Foreign individuals or foreign company ownership is limited to 1,000 hectares (2,470 acres) in the most productive farming areas. In June 2016, the Macri administration issued Decree 820 easing the requirements for foreign land ownership by changing the percentage that defines foreign ownership of a person or company, raising it from 25 percent to 51 percent of the social capital of a legal entity. Waivers are not available.

Argentina does not maintain an investment screening mechanism for inbound foreign investment. U.S. investors are not at a disadvantage to other foreign investors or singled out for discriminatory treatment.

Other Investment Policy Reviews

Argentina was last subject to an investment policy review by the OECD in 1997 and a trade policy review by the WTO in 2013. The United Nations Conference on Trade and Development (UNCTAD) has not done an investment policy review of Argentina.

Business Facilitation

Since entering into office in December 2015, the Macri administration has enacted reforms to normalize financial and commercial transactions and facilitate business creation and cross-border trade. These reforms include eliminating capital controls, reducing some export taxes and import restrictions, reducing business administrative processes, decreasing tax burdens, increasing businesses’ access to financing, and streamlining customs controls.

In October 2016, the Ministry of Production issued Decree 1079/2016, easing bureaucratic hurdles for foreign trade and creating a Single Window for Foreign Trade (“VUCE” for its Spanish acronym). The VUCE centralizes the administration of all required paperwork for the import, export, and transit of goods (e.g., certificates, permits, licenses, and other authorizations and documents). Argentina subjects imports to automatic or non-automatic licenses that are managed through the Comprehensive Import Monitoring System (SIMI, or Sistema Integral de Monitoreo de Importaciones), established in December 2015 by the National Tax Agency (AFIP by its Spanish acronym) through Resolutions 5/2015 and 3823/2015. The SIMI system requires importers to submit detailed information electronically about goods to be imported into Argentina. Once the information is submitted, the relevant Argentine government agencies can review the application through the VUCE and make any observations or request additional information. The number of products subjected to non-automatic licenses has been modified several times, resulting in a net decrease since the beginning of the SIMI system.

The Argentine Congress approved an Entrepreneurs’ Law in March 2017, which allows for the creation of a simplified joint-stock company (SAS, or Sociedad por Acciones Simplifacada) online within 24 hours of registration. Detailed information on how to register a SAS is available at: https://www.argentina.gob.ar/crear-una-sociedad-por-acciones-simplificada-sas . As of April 2019, the online business registration process is only available for companies located in Buenos Aires. The government is working on expanding the SAS to other provinces. Further information can be found at http://www.produccion.gob.ar/todo-sobre-la-ley-de-emprendedores/.

Foreign investors seeking to set up business operations in Argentina follow the same procedures as domestic entities without prior approval and under the same conditions as local investors. To open a local branch of a foreign company in Argentina, the parent company must be legally registered in Argentina. Argentine law requires at least two equity holders, with the minority equity holder maintaining at least a five percent interest. In addition to the procedures required of a domestic company, a foreign company establishing itself in Argentina must legalize the parent company’s documents, register the incoming foreign capital with the Argentine Central Bank, and obtain a trading license.

A company must register its name with the Office of Corporations (IGJ, or Inspeccion General de Justicia). The IGJ website describes the registration process and some portions can be completed online (http://www.jus.gob.ar/igj/tramites/guia-de-tramites/inscripcion-en-el-registro-publico-de-comercio.aspx ). Once the IGJ registers the company, the company must request that the College of Public Notaries submit the company’s accounting books to be certified with the IGJ. The company’s legal representative must obtain a tax identification number from AFIP, register for social security, and obtain blank receipts from another agency. Companies can register with AFIP online at www.afip.gob.ar or by submitting the sworn affidavit form No. 885 to AFIP.

Details on how to register a company can be found at the Ministry of Production and Labor’s website: https://www.argentina.gob.ar/produccion/crear-una-empresa . Instructions on how to obtain a tax identification code can be found at: https://www.argentina.gob.ar/obtener-el-cuit .

The enterprise must also provide workers’ compensation insurance for its employees through the Workers’ Compensation Agency (ART, or Aseguradora de Riesgos del Trabajo). The company must register and certify its accounting of wages and salaries with the Directorate of Labor, within the Ministry of Production and Labor.

In April 2016, the Small Business Administration of the United States and the Ministry of Production of Argentina signed a Memorandum of Understanding (MOU) to set up small and medium sized business development centers (SBDCs) in Argentina. The goal of the MOU is to provide small businesses with tools to improve their productivity and increase their growth. Under the MOU, in June 2017, Argentina set up the first SBDC pilot in the province of Neuquen.

The Ministry of Production and Labor offers a wide range of attendance-based courses and online training for businesses. The full training menu can be viewed at: https://www.argentina.gob.ar/produccion/capacitacion 

Outward Investment

Argentina does not have a governmental agency to promote Argentine investors to invest abroad nor does it have any restrictions for a domestic investor investing overseas.

2. Bilateral Investment Agreements and Taxation Treaties

Argentina has a Bilateral Investment Treaty (BIT) with the United States, which entered into force on October 20, 1994. The text of the Argentina-United States BIT is available at: http://2001-2009.state.gov/documents/organization/43475.pdf .

As of April 2019, Argentina has 50 BITs in force. Argentina has signed treaties that are not yet in force with six other countries: Greece (October 1999), New Zealand (August 1999), the Dominican Republic (March 2001), Qatar (November 2016), United Arab Emirates (April 2018), and Japan (December 2018).

During 2018 and the first quarter of 2019, Argentina continued discussions to strengthen bilateral commercial, economic, and investment cooperation with a number of countries, including China, Denmark, India, Mexico, Japan, the Netherlands, Spain, South Korea, Russia, Vietnam, and the United States. Argentina and the United States established a bilateral Commercial Dialogue and a Trade and Investment Framework Agreement (TIFA) in 2016. Bilateral talks are ongoing through both mechanisms. Argentina does not have a Free Trade Agreement with the United States.

Argentina is a founding member of the Southern Common Market (MERCOSUR), which includes Brazil, Paraguay, Uruguay, and Venezuela (currently suspended). Through MERCOSUR, Argentina has Free Trade Agreements with Egypt, Israel, Bolivia, Chile, and Peru. MERCOSUR has Trade Framework Agreements with Morocco and Mexico, and Preferential Trade Agreements (PTA) with the Southern African Customs Union (SACU), India, Colombia, Chile, Mexico, and Ecuador. MERCOSUR is currently pursuing a Free Trade Agreement with the European Union and the European Free Trade Association (EFTA) and has initiated free trade discussions with Canada, South Korea, and Japan. The bloc is also in talks to expand on its agreements with SACU and India.

Argentina has Economic Complementarity Agreements with Bolivia, Colombia, Ecuador, Mexico, Peru, and Chile that were established before MERCOSUR and thus, grandfathered into Mercosur. Argentina is engaged in ongoing negotiations to expand the PTA agreement with Mexico. Argentina also has an economic association agreement with Colombia signed in June 2017. In January 2019, the expanded Economic Complementation Agreement (ECA) between Chile and Argentina entered into effect. The new ECA was signed in November 2017, approved by the Argentine Congress in December 2018, and ratified by the Chilean Congress in January 2019. The new deal includes trade facilitation regulation and development programs directed to supporting SMEs, and adds chapters on e-commerce, trade in services, and government procurement.

Argentina does not have a bilateral taxation treaty with the United States. In December 2016, Argentina signed a Tax Information Exchange Agreement with the United States, which increases the transparency of commercial transactions between the two countries to aid with combating tax and customs fraud. The Agreement entered into force on November 13, 2017. The United States and Argentina have initiated discussions to sign a Foreign Account Tax Compliance Act (FATCA) inter-governmental agreement.

In 2014, Argentina committed to implementing the OECD single global standard on automatic exchange of financial information. According to media sources, Argentina had been set to make its first financial information exchange in September 2018, but it was postponed to 2019.

In June 2018, AFIP and the OECD signed an MOU to establish the first Latin American Financial and Fiscal Crime Investigation Academy.

Argentina has signed 18 double taxation treaties, including with Germany, Canada, Russia, and the United Kingdom. In November 2016, Argentina and Switzerland signed a bilateral double taxation treaty. In November 2016, Argentina signed an agreement with the United Arab Emirates, which has not yet entered into force. In July 2017, Argentina updated a prior agreement with Brazil, which also has not yet been implemented. Argentina also has customs agreements with numerous countries. A full listing is available at: http://www.afip.gov.ar/institucional/acuerdos.asp .

In general, national taxation rules do not discriminate against foreigners or foreign firms (e.g., asset taxes are applied to equity possessed by both domestic and foreign entities).

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) 2018 $451,443 2017 $637,430 www.worldbank.org/en/country  
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 N/A 2017 $14,907 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  

www.bcra.gov.ar

Host country’s FDI in the United States ($M USD, stock positions) 2017 N/A 2017 $1,020 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP 2017 N/A 2017 12.2% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  

* https://www.indec.gob.ar/uploads/informesdeprensa/pib_03_19.pdf ;  www.bcra.gov.ar 


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 $80,373 100% Total Outward N/A 100%
United States $17,713 22% N/A N/A
Spain $13,874 17% N/A N/A
Netherlands $9,300 12% N/A N/A
Brazil $4,983 6% N/A N/A
Chile $4,650 6% N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.

No information from the IMF’s Coordinated Portfolio Investment Survey (CPIS) for Outward Direct Investment is available for Argentina.


Table 4: Sources of Portfolio Investment

Data not available.

Mexico

Executive Summary

Mexico is one of the United States’ top trade and investment partners.  Bilateral trade grew 650 percent 1993-2018 and Mexico is the United States’ second largest export market and third largest trading partner.  The United States is Mexico’s top source of foreign direct investment (FDI) with USD 12.3 billion (2018 flows) or 39 percent of all inflows to Mexico.

The Mexican economy has averaged 2.6 percent economic growth (GDP) 1994-2017.  Mexico has benefited since the 1994 Tequila Crisis from credible economic management that has allowed the country to weather a period of low oil prices and significant global volatility.  The fiscally prudent 2019 budget targets a one percent primary surplus, and the new government has upheld the Central Bank’s (Bank of Mexico) independence. Inflation at end-2018 was 4.8 percent, an improvement from 6.6 percent at the end of 2017, but still above the Bank of Mexico’s target of 3 percent due to peso depreciation against the U.S. Dollar and higher retail fuel prices caused by government efforts to stimulate competition in that sector.

The United States-Mexico-Canada (USMCA) trade agreement ratification prospects for 2019 and a historic change in the Mexican government December 1, 2018 remain key sources of investment uncertainty.  The new administration has signaled its commitment to prudent fiscal and monetary policies since taking office. Still, conflicting policies, programs, and communication from the new administration have contributed to ongoing uncertainties, especially related to energy sector reforms and the financial health of state-owned oil company Pemex.  Most financial institutions, including the Bank of Mexico, have revised downward Mexico’s GDP growth expectations for 2019 to 1.6 percent (Banxico consensus). Major credit rating agencies have downgraded or put on a negative outlook Mexico’s sovereign and some institutional ratings.

The administration followed through on its campaign promises to cancel the new airport project, cut government employees’ salaries, suspend all energy auctions, and weaken autonomous institutions.  Uncertainty about contract enforcement, insecurity, and corruption also continue to hinder Mexican economic growth. These factors raise the cost of doing business in Mexico significantly.

Table 1:  Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 138 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 54 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 56 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2017 $109,700 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $8,610 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

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

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

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

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

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

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

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

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

Other Investment Policy Reviews

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

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

Business Facilitation

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

Outward Investment

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

2. Bilateral Investment Agreements and Taxation Treaties

Bilateral Investment Treaties

On November 30, 2018, leaders of the United States, Mexico, and Canada signed a trade agreement to replace and modernize NAFTA – the United States-Mexico-Canada Agreement.  The agreement is now pending ratification by all three countries’ legislatures. The agreement contains an investment chapter.

Mexico has signed 13 FTAs covering 50 countries and 32 Reciprocal Investment Promotion and Protection Agreements covering 33 countries.  Mexico is a member of Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force December 30, 2018.  Mexico currently has 29 Bilateral Investment Treaties in force. Mexico and the European Union signed an agreement in principle to revise its FTA.

Bilateral Taxation Treaties

The United States-Mexico Income Tax Convention, which came into effect January 1, 1994, governs bilateral taxation between the two nations.  Mexico has negotiated double taxation agreements with 55 countries. Recent reductions in U.S. corporate tax rates may drive a future change to the Mexican fiscal code, but there is no formal legislation under consideration.

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) 2018 $1,220,000 2017 $1,150,000 www.worldbank.org/en/country  

https://inegi.org.mx/  

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) 2018 N/A* 2017 $109,600 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Host country’s FDI in the United States ($M USD, stock positions) 2018 N/A* 2017 $18,000 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP 2018 N/A* 2017 49.5% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  

*Mexico does not report total FDI stock, only flows of FDI.  https://datos.gob.mx/busca/organization/se  


Table 3:  Sources and Destination of FDI

The data included in the IMF’s Coordinated Direct Investment Survey is consistent with Mexican government data.

Direct Investment from/in Counterpart Economy Data, 2017
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $490,574 100% Total Outward $172,919 100%
United States $215,899 44% United States $73,199 42%
Netherlands $83,214 17% Netherlands $36,498 21%
Spain $53,483 11% United Kingdom $10,362 6%
United Kingdom $23,845 4.9% Brazil $9,532 5.5%
Canada $18,034 3.7% Spain $9,475 5.47%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4:  Sources of Portfolio Investment

The data included in the IMF’s Coordinated Portfolio Investment Survey (CPIS) is consistent with Mexican government data.

Portfolio Investment Assets, June 2018
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $62,148 100% All Countries $39,738 100% All Countries $22,410 100%
United States $28,487 45.8% Not specified $21,340 54% United States $17,441 78%
Not specified $24,204 39% United States $11,046 28% Not specified $2,864 13%
Ireland $2,631 4.2% Ireland $2,631 6.7% Brazil $1,617 7%
Luxembourg $2,376 3.8% Luxembourg $2,376 6% Colombia $70 .3%
Brazil $1,655 2.7% United Kingdom $601 1.5% Netherlands $52 .2%

Nigeria

Executive Summary

Nigeria’s economy – Africa’s largest – exited recession in 2017, assisted by the Central Bank’s more rationalized foreign exchange regime.  Growth is expected to remain weak in the near term however – the IMF forecasts growth of 2.1 percent in 2019 and 2.53 percent in 2020, still under Nigeria’s population growth rate of around 2.6 percent.  With the largest population in Africa (estimated at over 195 million), Nigeria continues to represent a large consumer market for investors and traders. A very young country with nearly two-thirds of its population under the age of 25, Nigeria offers abundant natural resources and a low-cost labor pool, and enjoys mostly duty-free trade with other member countries of the Economic Community of West African States (ECOWAS).  Nigeria’s full market potential remains unrealized because of significant impediments such as pervasive corruption, inadequate power and transportation infrastructure, high energy costs, an inconsistent regulatory and legal environment, insecurity, a slow and ineffective bureaucracy and judicial system, and inadequate intellectual property rights protections and enforcement. The Nigerian government has undertaken reforms to help improve the business environment, including making starting a business faster by allowing electronic stamping of registration documents, and making it easier to obtain construction permits, register property, get credit, and pay taxes.  In 2017, these reforms helped boost Nigeria’s ranking on the World Bank’s annual Doing Business rankings from 169th to 145th place out of 190 economies. In 2018, it dropped one spot to 146th place.

Nigeria’s underdeveloped power sector remains a particular bottleneck to broad-based economic development.  Power on the national grid currently averages 4,000 megawatts, forcing most businesses to generate much of their own electricity.  The World Bank currently ranks Nigeria 171 out of 190 countries for ease of obtaining electricity for business. Reform of Nigeria’s power sector is ongoing, but investor confidence continues to be shaken by tariff and regulatory uncertainty.  The privatization of distribution and generation companies in 2013 was based on projected levels of transmission and progress toward a fully cost reflective tariff to sustain operations and investment. However, tariff increases were reversed in 2015, and revenues have been severely impacted due to decreased transmission levels and currency devaluation, as well as high aggregate technical, commercial, and collections losses, resulting in a severe liquidity crisis throughout the power sector value chain.  The Nigerian government, in partnership with the World Bank, published a Power Sector Recovery Plan (PSRP) (approved by the Federal Executive Council) in March 2017. However, two years after its launch, differing perspective on various PSRP interventions have complicated implementation. The Ministry of Finance appears to be driving the implementation effort and has convened three Federal Government of Nigeria (FGN) committees charged with moving the process forward in the areas of regulation, policy, and finances.  Discussions between FGN and World Bank appear to going forward, but sector players report skepticism that the World Bank’s USD 1 billion loan will be enacted, though FGN may proceed without itThe plan is ambitious and will require political will from the administration, external investment to address the accumulated deficit, and discipline in implementing plans to mitigate future shortfalls.  It is, nevertheless, a step in the right direction, and recognizes explicitly that the Nigerian economy is losing on average approximately USD 29 billion annually due to lack of adequate power.

Nigeria’s trade regime remains protectionist in key areas.  High tariffs, restricted forex availability for 43 categories of imports, and prohibitions on many other import items have the aim of spurring domestic agricultural and manufacturing sector growth.  Nigeria’s imports rose in 2018, largely as a result of the country’s continued recovery from the 2016 economic recession. U.S. goods exports to Nigeria in 2017 were USD 2.16 billion, up nearly 60 percent from the previous year, while U.S. imports from Nigeria were USD 7.05 billion, an increase of 68.7 percent.  U.S. exports to Nigeria are primarily refined petroleum products, used vehicles, cereals, and machinery. Crude oil and petroleum products continued to account for over 95 percent of Nigerian exports to the United States in 2016. The stock of U.S. foreign direct investment (FDI) in Nigeria was USD 5.8 billion in 2017 (latest data available), a substantial increase from USD 3.8 billion in 2016, but only a modest increase from 2015’s USD 5.5 billion in FDI.  U.S. FDI in Nigeria continues to be led by the oil and gas sector. There is also investment from the United States and other countries in Nigeria’s power, telecommunications, real estate (commercial and residential), and agricultural sectors.

Given the corruption risk associated with the Nigerian business environment, potential investors often develop anti-bribery compliance programs.  The United States and other parties to the Organisation for Economic Co-operation and Development (OECD) Anti-Bribery Convention aggressively enforce anti-bribery laws, including the U.S. Foreign Corrupt Practices Act (FCPA).  A high-profile FCPA case in Nigeria’s oil and gas sector resulted in 2010 U.S. Securities Exchange Commission (SEC) and U.S. Department of Justice rulings that included record fines for a U.S. multinational and its subsidiaries that had paid bribes to Nigerian officials.  Since then, the SEC has charged an additional four international companies with bribing Nigerian government officials to obtain contracts, permits, and resolve customs disputes. See SEC enforcement actions at https://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml.

Security remains a concern to investors in Nigeria due to high rates of violent crime, kidnappings for ransom, and terrorism.  The ongoing Boko Haram and Islamic State in West Africa (ISIS-WA) insurgencies have included attacks against civilian and military targets in the northeast of the country, causing general insecurity and a major humanitarian crisis there.  Multiple bombings (the majority linked to the insurgent groups) of high-profile targets with multiple deaths have occurred outside of Nigeria’s northeast region as well since 2010, but the pace of such attacks has dipped significantly in recent years.  In the Niger Delta region, militant attacks on oil and gas infrastructure restricted oil production and export in 2016, but a restored amnesty program and more federal government engagement in the Delta region have brought a reprieve in violence and allowed restoration of shut-in oil and gas production.  The longer-term impact of the government’s Delta peace efforts, however, remains unclear and criminal activity in the Delta – in particular, rampant oil theft– remains a serious concern. Maritime criminality in Nigerian waters, including incidents of piracy and crew kidnap for ransom, has increased in recent years and law enforcement efforts have been limited or ineffectual.  Onshore, international inspectors have voiced concerns over the adequacy of security measures at some Nigerian port facilities. Businesses report that bribery of customs and port officials remains common to avoid delays, and smuggled goods routinely enter Nigeria’s seaports and cross its land borders.

Freedom of expression and of the press remains broadly observed, with the media often engaging in open, lively discussions of challenges facing Nigeria.  However, security services detain and harass journalists in some cases, including for reporting on sensitive topics such as corruption and security. Some journalists practice self-censorship on sensitive issues.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 144 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report “Ease of Doing Business” 2019 146 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 118 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in Nigeria ($M USD, stock positions) 2017 $5,800 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $2,100 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

In 1995 the Nigerian Investment Promotion Commission Act dismantled years of controls and limits on foreign direct investment (FDI), opening nearly all sectors to foreign investment, allowing for 100 percent foreign ownership in all sectors (with the exception of the petroleum sector, where FDI is limited to joint ventures or production sharing contracts), and creating the Nigerian Investment Promotion Commission (NIPC) with a mandate to encourage and assist investment in Nigeria.  The NIPC features a One-Stop Investment Center (OSIC) that nominally includes participation of 27 governmental and parastatal agencies (not all of which are physically present at the OSIC, however) in order to consolidate and streamline administrative procedures for new businesses and investments. Foreign investors receive largely the same treatment as domestic investors in Nigeria, including tax incentives. However, without strong political and policy support, and because of the unresolved challenges to investment and business in Nigeria, the ability of the NIPC to attract new investment has been limited.

The Nigerian government has continued to promote import substitution policies such as trade restrictions and local content requirements in a bid to attract investment that would develop domestic capacity to produce products and services that would otherwise be imported.  The import bans and high tariffs used to advance Nigeria’s import substitution goals have been undermined by smuggling of targeted products (most notably rice and poultry) through the country’s porous borders, and by corruption in the import quota systems developed by the government to incentivize domestic investment.  Despite the government’s stated goal to attract investment, investors generally find Nigeria a difficult place to do business.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are currently no limits on foreign control of investments in Nigeria.  However, in some instances regulatory bodies may insist on Nigerian equity as a prerequisite to doing business.  The NIPC Act of 1995 liberalized the ownership structure of business in Nigeria, so that foreign investors can now own and control 100 percent of the shares in any company (as opposed to the earlier arrangement of 60 percent – 40 percent in favor of Nigerians).

The lack of restrictions applies to all industries, except in the oil and gas sector where investment is limited to joint ventures or production-sharing agreements.  Additional laws restrict industries to domestic investors if they are considered crucial to national security, such as firearms, ammunition, and military and paramilitary apparel.  Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Decree of 1990. The Act prohibits the nationalization or expropriation of foreign enterprises except in cases of national interest.

Other Investment Policy Reviews

The OECD completed an investment policy review of Nigeria in May 2015. (http://www.oecd.org/countries/nigeria/oecd-investment-policy-reviews-nigeria-2015-9789264208407-en.htm   ).  The WTO published a trade policy review of Nigeria in 2017 which also includes a brief overview and assessment of Nigeria’s investment climate.  That review is available at: https://www.wto.org/english/tratop_e/tpr_e/tp456_e.htm   .

The United Nations Council on Trade and Development (UNCTAD) published an investment policy review of Nigeria and a Blue Book on Best Practice in Investment Promotion and Facilitation in 2009 (available at unctad.org).  The recommendations from its reports continue to be valid: Nigeria needs to diversify FDI away from the oil and gas sector by improving the regulatory framework, investing in physical and human capital, taking advantage of regional integration and reviewing external tariffs, fostering linkages and local industrial capacity, and strengthening institutions dealing with investment and related issues.  NIPC and the Federal Inland Revenue Service (FIRS) developed a compendium of investment incentives which is available online at: https://nipc.gov.ng/compendium 

Business Facilitation

Although the NIPC offers the One-Stop Investment Centre, Nigeria does not have an online single window business registration website, as noted by Global Enterprise Registration (www.GER.co).  The Nigerian Corporate Affairs Commission (CAC) maintains an information portal, and in 2018 the Trade Ministry launched an online portal for investors called ‘iGuide Nigeria’ (https://theiguides.org/public-docs/guides/nigeria).  While many steps for business registration can be completed online, the final step requires submitting original documents to a CAC office in exchange for final registration.  On average, it takes eight procedures and 10 days to establish a foreign-owned limited liability company (LLC) in Nigeria (Lagos), significantly faster than the regional average for Sub-Saharan Africa at 23 days.  Time required is likely to vary in different parts of the country. Only a local legal practitioner accredited by the Corporate Affairs Commission can incorporate companies in Nigeria. According to the Nigerian Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, foreign capital invested in an LLC must be imported through an authorized dealer, which will issue a Certificate of Capital Importation.  This certificate entitles the foreign investor to open a bank account in foreign currency. Finally, a company engaging in international trade must get an import-export license from the Nigerian Customs Service.

Although not online, the One-Stop Investment Center co-locates relevant government agencies in one place in order to provide more efficient and transparent services to investors.  Investors may pick up documents and approvals that are statutorily required to establish an investment project in Nigeria. The Center assists with visas for investors, company incorporation, business permits and registration, tax registration, immigration, and customs issues.  The Nigerian government has not established uniform definitions for micro, small, and medium enterprises (MSMEs) with different agencies using different definitions, so the process may vary from one company to another.

Outward Investment

The Nigerian Export Promotion Council administered an Export Expansion Grant (EEG) scheme to improve non-oil export performance, but the government suspended the program in 2014 due to concerns about corruption on the part of companies who collected the grants but did not actually export.  After a period of re-evaluation and revision, the program was relaunched in 2018. The federal government set aside 5.12 billion naira (roughly USD 14.2 million) in the 2019 budget for the EEG scheme. The Nigerian Export-Import (NEXIM) Bank provides commercial bank guarantees and direct lending to facilitate export sector growth, although these services are underused.  NEXIM’s Foreign Input Facility provides normal commercial terms of three to five years (or longer) for the importation of machinery and raw materials used for generating exports.

Agencies created to promote industrial exports remain burdened by uneven management, vaguely-defined policy guidelines, and corruption.  Nigeria’s inadequate power supply and lack of infrastructure coupled with the associated high production costs leave Nigerian exporters at a significant disadvantage.  Many Nigerian businesses fail to export because they find meeting international packaging and safety standards is too difficult or expensive. Similarly, firms often are unable to meet consumer demand for a consistent supply of high-quality goods in quantities sufficient to support exports as well as the domestic market.  Therefore, the vast majority of Nigeria’s manufacturers remain unable or uninterested in competing in the international market, especially given the size of Nigeria’s domestic market.

2. Bilateral Investment Agreements and Taxation Treaties

The Nigerian government signed a Trade and Investment Framework Agreement (TIFA) with the United States in 2000.  U.S. and Nigerian officials held their latest round of TIFA talks in April 2016. In 2017, Nigeria and the United States signed a Memorandum of Understanding to formally establish the U.S. – Nigeria Commercial and Investment Dialogue (CID), a new bilateral policy instrument focused on improving trade and investment between the two nations.  The aim of the CID is to promote increased, diverse, and sustained trade and investment with an initial focus on infrastructure, agriculture, digital economy, investment, and regulatory reform.

Nigeria has bilateral investment agreements with Algeria, Austria, Bulgaria, Canada, China, Egypt, Ethiopia, France, Finland, Germany, Italy, Jamaica, the Republic of Korea, Kuwait, Morocco, the Netherlands, Romania, Russia, Serbia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Turkey, Uganda, and the United Kingdom.  Fifteen of these treaties (those with China, France, Finland, Germany, Italy, the Republic of Korea, The Netherlands, Romania, Serbia, South Africa, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom) have been ratified by both parties. Nigerian government officials blame treaty partners for the lack of ratification, but the ratification process within Nigeria has not proven proactive or well-organized.

Nigeria is a party to double taxation agreements with the following 23 countries: Belgium, Canada, China, Czech Republic, France, Ghana, Italy, Kenya, the Republic of Korea, Mauritius, the Netherlands, Pakistan, the Philippines, Poland, Qatar, Romania, Singapore, Slovakia, South Africa, Spain, Sweden, United Arab Emirates, and the United Kingdom.  The most recent agreement was signed with Ghana in July 2018; however, it and a number of the other agreements remain to be ratified. Nigeria does not have such an agreement with the United States.

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) 2018 $355,000 2017 $375,750 www.worldbank.org/en/country   
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in Partner Country ($M USD, stock positions) 2018 N/A 2016 $2,480 BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm   
Host Country’s FDI in the United States ($M USD, stock positions) 2018 N/A 2016 $53 BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm   
Total Inbound Stock of FDI as % host GDP 2018 N/A 2017 26.0% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  

* https://www.nigerianstat.gov.ng/   


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 $78,322 100% No Data Available
Bermuda $13,639 17.4%
Netherlands $13,278 16.9%
France $8,847 11.3%
United Kingdom $7,995 10.2%
United States $7,471 9.5%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Data not available.

South Africa

Executive Summary

South Africa boasts the most advanced, broad-based economy on the African continent.  The investment climate is fortified by stable institutions, an independent judiciary and vibrant legal sector committed to upholding the rule of law, a free press and investigative reporting, a mature financial and services sector, good infrastructure, and a broad selection of experienced local partners.  South Africa encourages investment that develops manufacturing of goods for export.

South Africa is still fighting its way back from a “lost decade” in which economic growth stagnated, largely as a consequence of corruption and economic mismanagement during the term of its former president.  Since assuming office in February 2018, South Africa’s new president, Cyril Ramaphosa, has committed to improving the investment climate. The early steps he has taken are encouraging, but the challenges are enormous.  At a minimum, South Africa will need to strengthen economic growth and stabilize public finances in order to reverse the credit downgrades by two of the three global ratings agencies. Other challenges include: creating policy certainty; reinforcing regulatory oversight; making state-owned enterprises (SOEs) profitable rather than recipients of government bail-outs; weeding out widespread corruption; reducing violent crime; tackling labor unrest; improving basic infrastructure and government service delivery; creating more jobs while reducing the size of the state (unemployment is over 27 percent); and increasing the supply of appropriately-skilled labor.

In dealing with the legacy of apartheid, South African laws, policies, and reforms seek to produce economic transformation to increase the participation of and opportunities for historically disadvantaged South Africans.  The government views its role as the primary driver of development and aims to promote greater industrialization. Government initiatives to accelerate transformation have included tightening labor laws to achieve proportional racial, gender, and disability representation in workplaces, and ascriptive requirements for government procurement such as equity stakes for historically disadvantaged South Africans and localization requirements.  Following the adoption of a resolution calling for land expropriation without compensation at the December 2017 conference of the African National Congress, investors are watching closely how the government will implement land reform initiatives and what Parliament will decide as a result of its review of the constitution on this issue.

Despite these uncertainties and some important structural economic challenges, South Africa is a destination conducive to U.S. investment; the dynamic business community is highly market-oriented and the driver of economic growth.  President Ramaphosa aims to attract USD 100 billion in investment over the next five years. South Africa offers ample opportunities and continues to attract investors seeking a comparatively low-risk location in Africa from which to access the continent with the fastest growing consumer market in the world.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 73 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 82 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 58 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $7,334 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $5,430 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The government of South Africa is generally open to foreign investment as a means to drive economic growth, improve international competitiveness, and access foreign markets.  Merger and acquisition activity is more sensitive and requires advance work to answer potential stakeholder concerns. The 2018 Competition Amendment Bill, which was signed into law on February 13, 2019, introduced a mechanism for South Africa to review foreign direct investments and mergers and acquisitions by a foreign acquiring firm on the basis of protecting national security interests (see section on Laws and Regulations on Foreign Direct Investment below).  Virtually all business sectors are open to foreign investment. Certain sectors require government approval for foreign participation, including energy, mining, banking, insurance, and defense.

The Department of Trade and Industry’s (the dti) Trade and Investment South Africa (TISA) division provides assistance to foreign investors.  In the past year, they opened provincial One-Stop Shops that provide investment support for foreign direct investment (FDI), with offices in Johannesburg, Cape Town, and Durban, and a national One Stop Shop located at the dti in Pretoria and online at http://www.gov.za/Invest percent20SA percent3AOnestopshop  .  An additional one-stop shop has opened at Dube Trade Port, which is a special economic zone aerotropolis linked to the King Shaka International Airport in Durban.  The dti actively courts manufacturing industries in which research indicates the foreign country has a comparative advantage. It also favors manufacturing that it hopes will be labor intensive and where suppliers can be developed from local industries.  The dti has traditionally focused on manufacturing industries over services industries, despite a strong service-oriented economy in South Africa. TISA offers information on sectors and industries, consultation on the regulatory environment, facilitation for investment missions, links to joint venture partners, information on incentive packages, assistance with work permits, and logistical support for relocation.  The dti publishes the “Investor’s Handbook” on its website: www.dti.gov.za  

While the government of South Africa supports investment in principle and takes active steps to attract FDI, investors and market analysts are concerned that its commitment to assist foreign investors is insufficient in practice.  Some felt that the national-level government lacked a sense of urgency to support investment deals. Several investors reported trouble accessing senior decision makers. South Africa scrutinizes merger- and acquisition-related foreign direct investment for its impact on jobs, local industry, and retaining South African ownership of key sectors.  Private sector representatives and other interested parties were concerned about the politicization of South Africa’s posture towards this type of investment. Despite South Africa’s general openness to investment, actions by some South African Government ministries, populist statements by some politicians, and rhetoric in certain political circles show a lack of appreciation for the importance of FDI to South Africa’s growth and prosperity and a lack of concern about the negative impact domestic policies may have on the investment climate.  Ministries often do not consult adequately with stakeholders before implementing laws and regulations or fail to incorporate stakeholder concerns if consultations occur. On the positive side, the President, assisted by his appointment of four investment envoys, and his new cabinet are working to restore a positive investment climate and appear to be making progress as they engage in senior level overseas roadshows to attract investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

Currently there is no limitation on foreign private ownership. South Africa’s transformation efforts – the re-integration of historically disadvantaged South Africans into the economy – has led to policies that could disadvantage foreign and some locally owned companies.  In 2017, the Broad-Based Black Socio-Economic Empowerment Charter proposed for the South African mining and minerals industry required an increase to 30 percent ownership by black South Africans, but was mired in the courts as industry challenged it. The Charter was retracted for revision and a new version was proposed in 2018. The Broad-Based Black Economic Empowerment Act of 2013 (B-BBEE), and associated codes of good practice, requires levels of company ownership and participation by Black South Africans to get bidding preferences on government tenders and contracts. The dti created an alternative equity equivalence (EE) program for multinational or foreign owned companies to allow them to score on the ownership requirements under the law, but many view the terms as onerous and restrictive.  Currently eight multinationals, most in the technology sector, participate in this program, most in the technology sector.

Other Investment Policy Reviews

The World Trade Organization carried out in 2015 a Trade Policy Review for the Southern African Customs Union, in which South Africa accounts for over 90 percent of overall GDP.  Neither the OECD nor the UN Conference on Trade and Development (UNCTAD) has conducted investment policy reviews for South Africa.

Business Facilitation

According to the World Bank’s Doing Business report, South Africa’s rank in ease of doing business in 2019 was unchanged from 2018 at 82nd of 190.  It ranks 134th for starting a business, taking an average of forty days to complete the process. South Africa ranks 143rd of 190 countries on trading across borders.

In 2017, the dti launched a national InvestSA One Stop Shop (OSS) to simplify administrative procedures and guidelines for foreign companies wishing to invest in South Africa.  The dti, in conjunction with provincial governments, opened physical OSS locations in Cape Town, Durban, and Johannesburg. These physical locations bring together key government entities dealing with issues including policy and regulation, permits and licensing, infrastructure, finance, and incentives, with a view to reducing lengthy bureaucratic procedures, reducing bottlenecks, and providing post-investment services.  The virtual OSS web site is: http://www.gov.za/Invest percent20SA percent3AOnestopshop  .

The Companies and Intellectual Property Commission (CIPC), a body of the dti, is responsible for business registrations and publishes a step-by-step process for registering a company.  This process can be done on its website (http://www.cipc.co.za/index.php/register-your-business/companies/  ), through a self-service terminal, or through a collaborating private bank.  New business registrants also need to register through the South African Revenue Service (SARS) to get an income tax reference number for turnover tax (small companies), corporate tax, employer contributions for PAYE (income tax), and skills development levy (applicable to most companies).  The smallest informal companies may not be required to register with CIPC, but must register with the tax authorities. Companies also need to register with the Department of Labour (DoL) – www.labour.gov.za   – to contribute to the Unemployment Insurance Fund (UIF) and a compensation fund for occupational injuries.  The DoL registration takes the longest (up to 30 days), but can be done concurrently with other registrations.

Outward Investment

South Africa does not incentivize outward investments.  South Africa’s stock foreign direct investments in the United States in 2017 totaled USD 4.1 billion (latest figures available), an almost 40 percent increase from 2016.  The largest outward direct investment of a South African company is a gas liquefaction plant in the State of Louisiana by Johannesburg Stock Exchange (JSE) and NASDAQ dual-listed petrochemical company SASOL.  There are some restrictions on outward investment, such as a R1 billion (USD 83 million) limit per year on outward flows per company. Larger investments must be approved by the South African Reserve Bank and at least 10 percent of the foreign target entities voting rights must be obtained through the investment. https://www.resbank.co.za/RegulationAndSupervision/
FinancialSurveillanceAndExchangeControl/FAQs/Pages/Corporates.aspx
 

2. Bilateral Investment Agreements and Taxation Treaties

Of South Africa’s 49 signed bilateral investment treaties (BITs), 35 never entered into force or were terminated.  According to UNCTAD, fourteen agreements are still in force including with Russia, China, Cuba, and Iran. The 2015 “Protection of Investment Act” replaces lapsed BITs and stipulates that “Existing investments that were made under such treaties will continue to be protected for the period and terms stipulated in the treaties.  Any investments made after the termination of a treaty, but before promulgation of this Act, will be governed by the general South African law.” It also provides that “the government may consent to international arbitration in respect of investments covered by the Act, subject to the exhaustion of domestic remedies.” Such “arbitration will be conducted between the Republic and the home state of the applicable investor.”  South Africa is not engaged in new BIT negotiations.

South Africa is a member of the Southern Africa Customs Union (SACU) which has a common external tariff and tariff-free trade between its five members (South Africa, Botswana, Lesotho, Namibia, and Eswatini, formerly known as Swaziland).  South Africa is generally restricted from negotiating trade agreements by itself because SACU is the competent authority. Nevertheless, South Africa has free trade agreements with the Southern African Development Community (SADC) including its 12 members; the Trade, Development and Cooperation Agreement (TDCA) between South Africa and the European Union (EU); EFTA-SACU Free Trade Agreement between SACU and the European Free Trade Association (EFTA) – Iceland, Liechtenstein, Norway, and Switzerland; and the Economic Partnership Agreement (EPA) between the SADC EPA States (South Africa, Botswana, Namibia, Eswatini, Lesotho, and Mozambique) and the EU and its Member States.  These agreements mainly cover trade in goods and provide preferential market access, though article 52 of the 1999 EU-TDCA covers investment promotion and protection.  South Africa, through SACU, is currently negotiating a “rollover” EPA with the United Kingdom (UK) similar to its EPA with the EU in an effort to curb any trade disruptions when the UK exits the EU.  Progress in reaching an agreement is mired in negotiations over rules of origin, cumulation, and sanitary and phytosanitary matters. 

South Africa is a signatory to the SADC-EAC-COMESA Tripartite FTA which includes 26 countries with a combined GDP of USD 860 billion and a combined population of approximately 590 million people.  This agreement primarily covers trade in goods. South Africa ratified the African Continental Free Trade Agreement in 2018. It joins 21 other African countries, reaching the threshold needed to bring the agreement into force, once these countries submit their ratification instruments to the African Union.  Implementation of the agreement still requires signatories to present offers on tariff lines and services, and agree to rules of origin among other outstanding issues.

The United States and South Africa signed a Trade and Investment Framework Agreement (TIFA) in 1999.  The last TIFA discussions were held in 2015. The United States and SACU negotiated a Trade, Investment and Development Cooperation Agreement (TIDCA) in 2008.

The first U.S.-South Africa bilateral tax treaty eliminated double taxation and entered into force in 1998.  In 2014, a new bilateral tax treaty was signed to implement the U.S. Foreign Asset Tax Compliance Act (FATCA).

As part of a broad set of tax increases, in 2018 the government raised, for the first time since 1993, the value added tax (VAT) by one percentage point to 15 percent.  Other fiscal measures intended to raise government revenues, such as no upward adjustments to personal income tax brackets to account for inflation, higher alcohol and tobacco excise duties, and an extra 29 cents per liter for gasoline and 30 cents per liter for diesel in fuel levies – are meant to generate an additional R15-billion (USD 1.1 billion) for the national coffers.  The tax increases come alongside government expenditure cuts primarily in government payroll compensation. Taken together, these interventions aim to stabilize public finances by 2023. According to Finance Minister Tito Mboweni, “It will not be easy. There are no quick fixes. But our nation is ready for renewal. We are ready to plant the seeds of our future.”

The South African Revenue Service (SARS) began collecting the health promotion levy – previously known as the sugar-sweetened beverages tax – in April 2018, almost one year after it was initially due to come into effect.  In February 2019, the Minister of Finance announced a five percent increase to this tax from 2.1 rand cents to 2.21 rand cents (USUSD 0.0015 to USD 0.0016) per gram of sugar content that exceeds 4 grams per 100 ml.  The tax, which applies to both domestic and international products, is meant to encourage the reduction in the consumption of sugar-sweetened beverages to deal with obesity and the epidemic of non-communicable diseases such as diabetes, which is cited as the second leading cause of death, after tuberculosis, among South Africans.  The Treasury argued that taxes on foods high in sugar can be an important element in a strategy to address diet-related diseases.

The South African Revenue Service will impose a carbon emissions tax from June 2019, based on an initial levy of R120 per ton of carbon dioxide equivalent (CO2e) of greenhouse gas emissions above certain tax-free allowances.

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) 2018 $368,500 2017 $348,872 www.worldbank.org/en/country   
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2016 $9,578 2017 $7,334 BEA 
Host country’s FDI in the United States ($M USD, stock positions) 2016 $6,683 2017 $4,117 BEA 
Total inbound stock of FDI as % host GDP 2016 43.1% 2017 47.2% UNCTAD

* Statistics South Africa (STATS SA) www.statssa.gov.za


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 $156,103 100% Total Outward $276,450 100%
United Kingdom $64,505 41.3% China $165,477 59.9%
Netherlands $28,075 18% United Kingdom $24,334 8.8%
United States $10,459 6.7% Mauritius $11,422 4.1%
Germany $7,623 4.9% Australia $8,840 3.2%
China $7,290 4.7% United States $7,872 2.8%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $167,005  100% All Countries $157,749 100% All Countries $9,255 100%
United Kingdom $61,226 36.7% United Kingdom $59,434 37.7% United States $2,169 23.4%
Ireland $26,485 15.8% Ireland $24,926 15.8% United Kingdom $1,792 19.4%
United States $20,676 12.4% United States $18,507 11.7% Ireland $1,559 16.8%
Luxembourg $15,761 9.4% Luxembourg $15,153 9.6% Italy $691 7.5%
Bermuda $9,491 5.7% Bermuda $9,491 6.0% Luxembourg $609 6.6%

Vietnam

Executive Summary

Vietnam continues to welcome foreign direct investment (FDI). In 2018, Vietnam attracted USD 19.1 billion of FDI, a 9.1 percent increase from 2017, while global foreign direct investment fell by nearly a fifth, according to the U.N. Conference on Trade and Development’s (UNCTAD) 2018 report. Vietnam’s 2018 GDP grew 7.08 percent, the highest rate since prior to the 2008 global financial crisis, thanks to strong FDI inflows and growth in the services and manufacturing sectors, productivity, private consumption, and exports.  

Continued strong FDI inflows are due in part to ongoing economic reforms, a young, and increasingly urbanized, population, political stability, and inexpensive labor. Despite the strong FDI inflows, significant challenges remain in the business climate, including corruption, a weak legal infrastructure and judicial system, poor intellectual property rights (IPR) enforcement, a shortage of skilled labor, restrictive labor practices, and impediments to infrastructure investment.

Examples of large investment projects approved in 2018 include a Hanoi-area “smart” residential township with USD 4.1 billion in Japanese investment; a USD 1.2 billion polypropylene factory, a liquefied natural gas (LNG) storage facility, and two electronics factories worth USD 500 million, all by Korean investors; and an additional USD 1.2 billion investment in an existing Singaporean resort.

Vietnam must continue to reform in order to maintain or boost competitiveness in the face of internal factors such as a sustained budget deficit, high debt levels, a weak domestic sector that has low linkages to the global supply chain, low productivity of state-owned enterprises (SOEs), and a financial sector burdened by non-performing loans.

The recently entered-into-force Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EV FTA), if approved, present significant potential benefits for Vietnam.  They are expected to fuel robust economic gains, in the form of more FDI, increased competitiveness of Vietnamese exports, and millions more jobs. These trends may accelerate if foreign companies relocate manufacturing facilities from China to Vietnam due to trade tensions, rising cost of Chinese labor, and China’s shift towards more high-tech industries.  Private-sector analysts predict that the electronics, textiles, shoes, and auto-parts sectors in Vietnam would benefit most.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 117 of 180 https://www.transparency.org/cpi2018
World Bank’s Doing Business Report “Ease of Doing Business” 2019 69 of 190 http://www.doingbusiness.org/en/data/exploreeconomies/vietnam
Global Innovation Index 2018 45 of 126 https://www.globalinnovationindex.org/

analysis-indicator  

U.S. FDI in partner country ($M USD, stock positions) 2017 $2,010 https://apps.bea.gov/international/factsheet/factsheet.cfm
World Bank GNI per capita 2017 $2,160 http://data.worldbank.org/

indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Vietnam continues to welcome FDI and foreign companies play an important role in the economy. According to the Government Statistics Office (GSO), FDI exports of USD 175 billion accounted for 72 percent of total exports in 2018 (compared to 47 percent in 2000).

Despite improvements in the business environment, including economic reforms intended to enhance competitiveness and productivity, Vietnam has benefited from global investors’ efforts to diversify their supply chains. Vietnam’s rankings fell in the most recent World Economic Forum Competitiveness Index (from 74/135 in 2017 to 77/140 in 2018) and World Bank Doing Business Index (from 68 in 2018 to 69 in 2019), but its raw scores improved compared to prior years. According to the 2018 Organization for Economic Cooperation and Development (OECD) Investment Policy Review, Vietnam has an “average” level of openness compared to other OECD countries, though it is second to only Singapore within ASEAN. The OECD ranked Vietnam’s openness to FDI as higher than that of South Korea, Australia, and Mexico.

Vietnam seeks to move up the global value chain by attracting FDI in sectors that will facilitate technology transfer, increase skill sets in the labor market, and improve labor productivity, specifically targeting high-tech, high value-added industries with good environmental safeguards. Assisted by the World Bank, the government is drafting a new FDI Attraction Strategy for 2030. This new strategy is intended to facilitate technology transfer and environmental protection, and will supposedly move away from tax reductions to other incentives, such as using accelerated depreciation and more flexible loss carry-forward provisions and focusing on value-added qualities instead of on sectoral categories.

Since the Prime Minister included the Provincial Competitiveness Index (PCI) as a target for improving national business competitiveness in Resolution 19 in 2014, PCI has become a major measurement for provincial economic governance policy reform. In January 2019, a new Resolution 02 also included PCI targets as a means to improve the business and investment environment in Vietnam.

Although there are foreign ownership limits (FOL), the government does not have investment laws discriminating against foreign investors; however, the government continues to favor domestic companies through various incentives. According to the OECD 2018 Investment Policy Review, SOEs account for one third of Vietnam’s gross domestic product and receive preferential treatment, including favorable access to credit and land. Regulations are often written to avoid overt conflicts and violations of bilateral or international agreements, but in reality, U.S. investors feel there is not always a level playing field in all sectors. In the 2018 Perceptions of the Business Environment Report, the American Chamber of Commerce (AmCham) stated: “Foreign investors need a level playing field, not only to attract more investment in the future, but also to maintain the investment that is already here. Frequent and retroactive changes of laws and regulations – including tax rates and policies – are significant risks for foreign investors in Vietnam.”

The Ministry of Planning and Investment (MPI) oversees an Investment Promotion Department to facilitate all foreign investments, and most of provinces and cities have investment promotion agencies. The agencies provide information, explain regulations, and offer support to investors when requested.

The semiannual Vietnam Business Forum allows for a direct dialogue between the foreign business community and government officials. The U.S.-ASEAN Business Council (USABC) also hosts multiple missions for its U.S. company members enabling direct engagement with senior government officials through frequent dialogues to try to resolve issues. In addition, the 2018 PCI noted 68.5 percent of surveyed companies stated that dialogues and business meetings with provincial authorities helped address obstacles and that they were satisfied with the way provincial regulators dealt with their concerns.  

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own businesses in Vietnam, except in six prohibited areas (illicit drugs, wildlife trading, prostitution, human trafficking, human cloning, and chemical trading). If a domestic or foreign company wants to operate in 243 provisional sectors, it must satisfy conditions in accordance with the 2014 Investment Law. Future amendments to the law are likely to narrow this list further, allowing firms to engage in more business areas. Foreign investors must negotiate on a case-by-case basis for market access in sectors that are not explicitly open under existing signed trade agreements. The government occasionally issues investment licenses on a pilot basis with time limits, or to specifically targeted investors.

Vietnam allows foreign investors to acquire full ownership of local companies, except when mentioned otherwise in international and bilateral commitments, including equity caps, mandatory domestic joint-venture partner, and investment prohibitions. For example, as specified in the Vietnam’s World Trade Organization (WTO) commitments, highly specialized and sensitive sectors (such as banking, telecommunication, and transportation) still maintain FOL, but the Prime Minister can waive these restrictions on a case-by-case basis. Vietnam also limits foreign ownership of SOEs and prohibits importation of old equipment and technologies more than 10 years old. No mechanisms disadvantage or single out U.S. investors.

Merger and acquisition (M&A) activities can be complicated if the target domestic company is operating in a restricted or prohibited sector. For example, when a foreign investor buys into a local company through an M&A transaction, it is difficult to determine which business lines the acquiring foreign company is allowed to maintain and, in many cases, the targeted company may be forced to reduce its business lines.

The 2017 Law on Technology Transfer came into effect in July 2018, along with its implementing documents Decree 76/2018/ND-CP and Circular 02/2018/TT-BKHCN. These require mandatory registration of technology transfers from a foreign country to Vietnam. This registration is separate from registration of intellectual property rights and licenses.  

Vietnam allows for five years of regulatory data protection (RDP) as part of its U.S.-Vietnam bilateral trade agreement obligations.  However, Vietnamese law requires companies to apply separately for RDP within the 12 months following receipt of market authorization for any country in the world. Specifically, decree No. 169/2018/ND-CP, effective from February 2018, tightened the regulatory process for the registration of medical devices and no longer accepted foreign classification results in Vietnam, lengthening procedural time and increasing expenses for foreign manufacturers.

Vietnamese authorities screen investment-license applications using a number of criteria, including: 1) the investor’s legal status and financial capabilities; 2) the project’s compatibility with the government’s “Master Plan” for economic and social development and projected revenue; 3) technology and expertise; 4) environmental protection; 5) plans for land-use and land-clearance compensation; 6) project incentives including tax rates, and 7) land, water, and sea surface rental fees. The decentralization of licensing authority to provincial authorities has, in some cases, streamlined the licensing process and reduced processing times. However, it has also caused considerable regional differences in procedures and interpretations of investment laws and regulations. Insufficient guidelines and unclear regulations can prompt local authorities to consult national authorities, resulting in additional delays. Furthermore, the approval process is often much longer than the timeframe mandated by laws. Many U.S. firms have successfully navigated the investment process, though a lack of transparency in the procedure for obtaining a business license can make investing riskier.

Provincial People’s Committees approve all investment projects, except the following:

  • The National Assembly must approve investment projects that:
    • have a significant environmental impact;
    • change land usage in national parks;
    • are located in protected forests larger than 50 hectares; or
    • require relocating 20,000 people or more in remote areas such as mountainous regions.
  • The Prime Minister must approve the following types of investment project proposals:
    • building airports, seaports, or casinos;
    • exploring, producing and processing oil and gas;  
    • producing tobacco;
    • possessing investment capital of more than VND 5,000 billion (USD 233 million);
    • including foreign investors in sea transportation, telecommunication or network infrastructure, forest plantation, publishing, or press; and
    • involving fully foreign-owned scientific and technology companies or organizations.

Other Investment Policy Reviews

Vietnam went through an OECD Investment Policy Review in 2018. The WTO reviewed Vietnam’s trade policy and the report is online. (https://www.wto.org/english/tratop_e/tpr_e/tp387_e.htm  ).

U.N. Conference on Trade and Development’s (UNCTAD) conducted an investment policy review in 2009. (https://unctad.org/en/pages/PublicationArchive.aspx?publicationid=521  )

Business Facilitation

Vietnam’s business environment continues to improve due to new laws that have streamlined the business registration processes.

The 2018 PCI report found that 75 percent of companies rated paperwork and procedures as simple, compared to 51 percent in 2015. Vietnam decreased duplicate and overlapping inspections with only 10 percent of companies reporting such cases in 2018, compared to 25 percent in 2015. However, many firms still felt the entry costs remain too high and 16 percent reported waiting over one month to complete all required paperwork (aside from getting a business license) to become fully legal. In addition, a 2018 AmCham position paper cited very frequent and largely unnecessary post-import audits as creating burdens for companies. Multiple U.S. companies report facing recurring and unpredictable tax audits based on assumptions or calculations not in alignment with international standards.

Vietnam’s nationwide business registration site is http://dangkykinhdoanh.gov.vn  . In addition, as a member of the UNCTAD international network of transparent investment procedures, information on Vietnam’s investment regulations can be found online (http://vietnam.eregulations.org/  ). The website provides information for foreign and national investors on administrative procedures applicable to investment and income generating operations, including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal and regulatory citations for seven major provinces. The 2019 World Bank’s Doing Business Report stated it took on average 17 days to start a business compared to 22 days in 2018. Vietnam is one of the few countries to receive a 10-star rating from UNCTAD in business registration procedures.

Outward Investment

The government does not have a clear mechanism to promote or incentivize outward investments. The majority of companies engaged in overseas investments are large SOEs, which have strong government-backed financial resources. The government does not implicitly restrict domestic investors from investing abroad. Vietnamese companies have increased investments in the oil, gas, and telecommunication sectors in various developing countries and countries with which Vietnam has close political relationships. According to a government’s most recent report, between 2011-2016, SOE PetroVietnam made USD 7 billion in outbound investments out of a total of USD 12.6 billion from all SOEs.

2. Bilateral Investment Agreements and Taxation Treaties

Vietnam maintains trade relations with more than 200 countries, and has 66 bilateral investment treaties (BITs) and 26 treaties with investment provisions. It is a party to five free trade agreements (FTAs) with ASEAN, Chile, the Eurasian Customs Union, Japan, and South Korea. As a member of ASEAN, Vietnam also is party to ASEAN FTAs with Australia, New Zealand, China, India, Japan, South Korea, and Hong Kong.   

In addition, CPTPP entered into force January 14, 2019, in Vietnam. Once fully implemented, CPTPP will form a trading bloc representing 495 million consumers and 13.5 percent of global GDP – worth a total of USD 10.6 trillion.  

In July 2018, the EU and Vietnam agreed on the final text of the EV FTA and the EU-Vietnam Investment Protection Agreement (EV IPA), which are due to be voted upon by the European Parliament in 2019.

Vietnam is a participant in the Regional Comprehensive Economic Partnership (RCEP) negotiations, which include the 10 ASEAN countries and Australia, China, India, Japan, South Korea, and New Zealand, and it is negotiating FTAs with other countries, including Israel. A full list of signed agreements to which Vietnam is a party is on the UNCTAD website:  http://investmentpolicyhub.unctad.org/IIA/CountryBits/229#iiaInnerMenu  .

Vietnam has signed double taxation avoidance agreements with 80 countries, listed at http://taxsummaries.pwc.com/ID/Vietnam-Individual-Foreign-tax-relief-and-tax-treaties  . The United States and Vietnam concluded and signed a Double Taxation Avoidance Agreement (DTA) in 2016, but it is still awaiting ratification by the U.S. Congress.

There are no systematic tax disputes between the government and foreign investors. However, an increasing number of U.S. companies disputed tax audits, which resulted in retroactive tax assessments. U.S. businesses generally attribute these cases to unclear, conflicting, and amended language in investment and tax laws and the government’s desire for revenue to reduce chronic budget deficits. These retroactive tax cases against U.S. companies can obscure the true risks of operating in Vietnam and give some U.S. investors pause when deciding whether to expand operations.

Decree 20/2017/ND-CP, effective since May 2017, introduced many new transfer-pricing reporting and documentation requirements, as well as new guidance on the tax deductibility of service and interest expenses. The Ministry of Finance (MOF) is drafting revisions to its Law on Tax Administration and expects to submit the draft law to the National Assembly for review and approval in 2019.

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) (USD $M) 2018 $236,500 2017 $223,780 https://data.worldbank.org/country/vietnam  
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 (USD $M, stock positions) 2018 $9,334 2017 $2,010 BEA data available at

https://apps.bea.gov/international/factsheet/factsheet.cfm  

Host country’s FDI in the United States (USD $M, stock positions) 2018 N/A 2017 $73 BEA data available at

https://apps.bea.gov/international/factsheet/factsheet.cfm  

Total inbound stock of FDI as percent host GDP 2018 15% NA NA N/A


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 Amount 100% Total Outward Amount 100%
Japan $8,598 24% N/A
South Korea $7,212 20%  
Singapore $5,071 14%  
Hong Kong $3,231 9%  
China $2,564 7%  
“0” reflects amounts rounded to +/- USD 500,000.

*No IMF Data Available; Vietnam’s Foreign Investment Agency under the Ministry of Planning and Investment (fia.mpi.gov.vn)

**No local data available


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total* Equity Securities** Total Debt Securities**
All Countries Amount 100% All Countries Amount 100% All Countries Amount 100%
Singapore $1,801 18% N/A N/A
British Virgin Islands $1,331 13%    
Hong Kong $1,294 13%    
South Korea $1,283 13%    
China $802 8%    

*No IMF Data Available; Vietnam’s Foreign Investment Agency under the Ministry of Planning and Investment (fia.mpi.gov.vn)
**No local data available

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