Policies Towards Foreign Direct Investment

While the government of the FSM publicly expressed its intent to increase foreign investment, there were many structural impediments to doing so.  FSM had no department dedicated to promoting investment or an ongoing dialogue with investors. These challenges, both regulatory and political, affected foreign investment and economic progress in general, and addressing them would require a constitutional and political will to change that is unlikely in the foreseeable future.  Some political leaders at the state and national levels were owners of the largest businesses on the islands and strongly opposed the required structural changes that would result in increased competition. The FSM scored in the lowest quintile in almost all measures and international indices of economic activity and climate for doing business.

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

Limits on Foreign Control and Right to Private Ownership and Establishment

All four of the FSM states had limits on foreign ownership of small- and medium-size businesses.  Large projects were assessed by the respective state government on a case-by-case basis. Each state required a separate application for foreign investment permits.  Foreign investment was strictly limited by local ownership requirements (51-60 percent) and residency requirements of more than five years. Financing through bank loans was not possible due to a weak financial sector.  Local small- and medium-size businesses were protected from foreign competition through law. Larger projects in a business sector already owned by public figures faced strong political opposition. Large and unrealistic development proposals were received enthusiastically by politicians, but did not move forward primarily due to land issues and traditional land owner disputes.  The FSM does not maintain an investment screening mechanism for inbound foreign investment

Other Investment Policy Reviews

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

Business Facilitation

Micronesia lacked a single window for online business registration or information portals providing comprehensive business registration information.  The FSM Department of Resources and Development (R&D) maintained information on trade and investment on their website. It was reported that obtaining licenses and permits in a timely manner may depend more on the relationship of the investor (or local legal counsel) with the official in charge, rather than any clear procedure or timeline. The World Bank’s 2018 Ease of Doing Business report ranked the FSM as 160th of 190 countries globally in terms of procedures to register a business.

Outward Investment

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

The FSM government did not restrict domestic investors from investing abroad.

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

Transparency of the Regulatory System

The FSM was not a signatory to any convention on transparency in international investment. Transparency of government actions was typically based more on personalities than on the law. Regulatory bodies sometimes involve themselves in issues beyond their jurisdiction. Conversely, other regulations were not uniformly enforced.  It was often difficult to obtain public records, although some states and government organizations do require open meetings. Text or summaries of proposed regulations were published before enactment but they were not printed in an official journal or publication, and there was no appeal or administrative review process. In addition, government audits and statistical reports were not prepared promptly and current data is often unavailable.

One of the two websites that provided relatively recent (if not comprehensive) data and economic reporting were taken offline after government reorganization.  The website for the National Public Auditor (http://www.fsmopa.fm) remained active and updated.

International Regulatory Considerations

The FSM was a signatory to the Pacific Island Countries Trade Agreement (PICTA) but FSM did not ratify the agreement. PICTA was a free trade agreement on trade in goods among 14 members of the Pacific Islands Forum. (Australia and New Zealand are excluded.) It was signed in 2001. Eleven countries — Cook Islands, Fiji, Kiribati, Nauru, Niue, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu — have so far ratified PICTA. The FSM was not a member of any regional economic block, nor was it a member of the WTO.

Legal System and Judicial Independence

The FSM followed the U.S. common law system, and used U.S. cases as precedent.  There were no specialized courts with the exception of a Land Courts in Pohnpei and Kosrae.  All States have Supreme Courts and State Courts. The judicial system remained independent of the executive branch, but was reported to be slow, weak, and lacked the ability to properly enforce judgments.  Regulations or enforcement actions were appealable. It was not necessary to have appeals adjudicated at the National court; appeals could be made at either the State or National courts.

Laws and Regulations on Foreign Direct Investment

In September 2018, Pohnpei State Legislature overrode the Governor’s veto of a bill on Foreign Investment regulations.  The bill became State Law over the objection of several local business leaders. The new law placed all decision making power into the hands of one person, the Registrar of Corporations.

 A constitutional amendment allowing dual citizenship was voted on in March 2017 and again failed to pass. (Note:  Dual U.S./FSM citizenship is not allowed under the FSM Constitution.) The individual states directly regulated all foreign investment, except in the areas of deep ocean fishing, banking, insurance, air travel, and international shipping, which were regulated at the federal level.  FSM national and state governments used a “traffic light” system to regulate businesses, with red for prohibited, amber for restricted, and green for unrestricted. Industry classifications in this system vary from state-to-state. Thus, a prospective investor who planned to operate in more than one state must obtain separate permits in each state, and often follow different regulations as well.

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

FSM National

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

Kosrae State

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

Pohnpei State

• Red: None presently defined, determined by board from amber candidates.
• Amber: Everything not classified as green.
• Green: Businesses with greater than 60 percent FSM ownership, initial capitalization of USD250,000 or more, professional services with capitalization of USD50,000 or more, and Special Investment Sector businesses with 51 percent FSM ownership in retail, trade, exploration, development, and extraction of land or marine based mineral resources or timber.

Chuuk State

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

Yap State

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

Since 1993, the FSM was a member of the Convention on Settlement of Investment Disputes between States and Nationals of Other States (ICSID), but was not a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.  To date, there were no ICSID cases.

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

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

Investment Incentives

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

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

Politicians called for expansion of the tourism sector, but have created no tax, licensing, or leasing incentives to encourage investment.  Although there was considerable potential for growth in the tourism sector, the remoteness of the FSM, land ownership prohibitions, business ownership restrictions, and the current lack of hotel facilities and tourism services, growth in the tourism sector was likely to limit the ability of the sector to meet local expectations.  Recent data shows that growth had fallen in the areas of scuba diving, boating, and fishing. Disagreements over land issues caused the 2013 closure of the most successful hotel in Pohnpei. The United Nations Educational, Scientific and Cultural Organization (UNESCO) adopted the significant archaeological site of Nan Madol as a World Heritage Site in 2016, and was working towards other designations in Yap, Kosrae, and Chuuk.  Other efforts, including by the US Embassy and National Geographic, were underway to highlight the considerable cultural heritage extant in the FSM.

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

The FSM government mandated local employment when qualified individuals are available. U.S. citizens may reside in and work in the FSM indefinitely.  Citizens of other countries must apply for the appropriate permits. There were no defined performance requirements for investments.

Real Property

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

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

Intellectual Property Rights

Intellectual property rights (IPR) in the FSM are nominally protected, and the country is a member state of the World Intellectual Property Organization (WIPO).  The country was not listed in the USTR Special 301 Report, nor was it listed in the notorious market report. The Embassy did not receive complaints from U.S. firms regarding IPR issues, and the only U.S. corporations currently operating in FSM were United Airlines and Matson Shipping.  The only three U.S. chains present (Ace Hardware, True Value Hardware, and NAPA auto parts) are 100 percent locally-owned franchises.

For additional information about national laws and points of contact at local IP offices, please see the country profiles on the WIPO website.

Capital Markets and Portfolio Investment

There were no stock or commodities exchanges in the FSM.

Money and Banking System

The two commercial banks operating in the country, the Bank of Guam and the Bank of the FSM, could only make small, short-term unsecured loans because of the prohibition of using land or business as collateral, difficulties inherent in collecting debts, and identifying collateral that could be attached and sold in the event of default. There were no Credit Bureaus.  The Bank of FSM was prohibited by its charter from investing in any securities not insured by the U.S. government, so the bulk of its holdings were U.S. Treasury bonds. The Bank of Guam operated as a deposit collector in the FSM, with most of its loans made in Guam.

The Bank of FSM was protected from takeover by a trigger from FDIC that will cancel their insurance status if foreign ownership exceeded 30 percent.  Foreigners were not allowed to open accounts with the bank unless they could provide proof of local residence and work permits and fulfill U.S. Treasury “know thy customer” requirements.

Money Exchange companies such as Western Union operated within FSM and handled the majority of remittances.

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

Foreign Exchange and Remittances

Foreign Exchange

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

Remittance Policies

There were no specific restrictions on repatriating profits from a business, except in the state of Chuuk, where an amount greater than USD50,000 requires state approval.

Statistics on family-level and personal remittances were difficult to obtain, with various studies reporting figures ranging from USD3 to USD14 million per year entering the FSM.  However, remittances travel into and out of the country. Micronesians working abroad and in the U.S. sent money to their families in the FSM, while Filipino professionals and laborers working in FSM sent money to their families in the Philippines.

Sovereign Wealth Funds

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

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

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

Privatization Program

There is currently no privatization program in the FSM.

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

The FSM has laws prohibiting corruption and there were penalties for corrupt acts.  The National Office of the Public Auditor, with support from the Department of Justice, was the entity most active in anti-corruption activities. A number of senior ex-FSM Government officials were convicted of corruption under the FSM Financial Management Act, usually involving procurement fraud. A FSM government transportation official pled guilty April 3 in U.S. District Court to conspiring to launder bribe money he accepted from a U.S. citizen president of a Honolulu Civil Engineering Company.  The official was FSM President Christian’s son-in-law who faced a maximum 20 year prison term at sentencing in July. Corruption was not a predicate offense under the money laundering statute. Bribery was punishable by imprisonment for not more than ten years in addition to disqualification from holding any government position. Yet, traditional custom permits a lawbreaker to ask and receive forgiveness by paying a fine to those victimized. Given that many FSM National, State, and Municipal Government officials also own businesses, there existed significant potential for conflicts of interest.

The degree to which government officials accepted direct bribes is unknown but believed to be commonplace, especially deriving from state actors.  Pohnpei State and Yap State were currently prosecuting corruption cases. The Yap State governor and lieutenant governor reported receiving cash envelopes in inauguration presents which they promptly handed to Yap State Acting Attorney General who conducted an investigation.  The FSM did not sign or ratify the UN Convention on Corruption, or the OECD Convention on Combating Bribery.

Resources to Report Corruption

The FSM had no government agency specifically assigned with responsibility for combatting corruption.  State prosecutors were the usual avenue for prosecuting corruption, with a number of cases brought to trial in the last few years, especially in Pohnpei State.  The Public Auditor highlighted irregularities, but relies on government prosecutors for enforcement capability. The Department of Justice in prior years prosecuted cases, but activity in this area recently has been variable; Pohnpei State and Yap State have been more active.

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

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

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

The country’s last presidential election was held in March 2019, in which president Peter Christian lost his bid for a second term.  The Senate planned to select a president and vice president in May 2019. The population’s main concerns during the campaign season related to the high unemployment rate, depletion of marine resources from overfishing, corruption, and a reliance on foreign aid.

Wages in FSM were low, with minimum wage laws for government employees in all states and the federal government.  Only Pohnpei had a minimum wage for the private sector at USD1.75 per hour. Employment in the public sector was preferred because the wages are significantly higher.  The minimum hourly wage for employment with the national government was USD2.34. The minimum hourly wage for government workers in the individual states was: Pohnpei USD2.00, Chuuk USD1.25, Kosrae USD1.42 and Yap USD1.60.

There was no law regulating hours of work (although a 40-hour work week is standard practice, 32 hours was standard in Kosrae State), nor are there enforceable standards of occupational safety and health.  While there was one federal regulation that required that employers provide a safe workplace, neither the Department of Health nor the Environmental Protection Agency had enforcement capability, resulting in varying working conditions.  There was no law for either the public or private sector that permits workers to remove themselves from dangerous work situations without jeopardizing their continued employment.

Skilled labor in FSM is limited, with few FSM citizens trained to perform tasks of any technical nature.  Foreign workers, primarily Filipinos, were hired to fill roles requiring technical skills. In September 2018, after having banned all Filipino workers from working in the FSM in mid-2018, the Philippine Department of Foreign Affairs revised its deployment ban on Philippine labor coming to the FSM to include only new recruits.  Philippine overseas foreign workers were FSM’s main source for educated and skilled labor but with the ban in place this pool could no longer be replenished.

A labor dispute at a privately run hospital in Pohnpei led to the dismissal of several doctors and surgeons, all from the Philippines.  As a result, service hours were cut and capacities were in doubt. The hospital is one of the embassy’s preferred medical providers, as the island’s only other hospital did not meet hygienic standards, although the medical care itself was generally adequate for non-specialized treatment.

The majority of doctors, nurses, accountants, lawyers, engineers, construction foremen, and heavy equipment operators were overseas workers from the Philippines.

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

In 1988, FSM signed a bilateral agreement with the Overseas Private Investment Cooperation (OPIC).  OPIC expressed 2018 interest in engaging with the FSM government.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

There is no data available from the IMF’s Coordinated Portfolio Investment Survey regarding sources and destination of FDI in Micronesia

Table 4: Sources of Portfolio Investment

There is no data available from the IMF’s Coordinated Portfolio Investment Survey regarding sources of Portfolio Investment in Micronesia

NAME Anthony Alexander
TITLE Economic/Consular Officer
ADDRESS OF MISSION/ U.S Embassy Kolonia P.O Box 1286 Kolonia, Pohnpei FM 96941
TELEPHONE NUMBER +691 320-2187
EMAIL ADDRESS AlexanderAW@state.gov

Policies Towards Foreign Direct Investment

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

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

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

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

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

The following businesses are reserved for Samoan Citizens only:

1. Bus transport services for the general public;
2. Taxi transport services for the general public;
3. Rental vehicles;
4. Retailing;
5. Saw milling; and
6. Traditional elei garment designing and printing.

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

Other Investment Policy Reviews

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

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

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

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

Business Facilitation

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

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

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

Business Registration

• Step 1: Register your company and get a Foreign Investment Certificate at MCIL. https://www.businessregistries.gov.ws/  
  https://www.mcil.gov.ws/services/business-registration/foreign-investment-registration/   

• Step 2: Obtain a business license and register for VAGST and PAYE from the Ministry of Revenue. http://www.revenue.gov.ws/business-information-guides  
• Step 3: Register with the National Provident Fund. http://npf.ws/empregistration  

• Step 4: Register with the Accident Compensation Board. http://www.acc.gov.ws/Home/tabid/2793/language/en-US/Default.aspx  

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

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

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

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

Outward Investment

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

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

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

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

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

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

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

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

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

Transparency of the Regulatory System

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

Draft bills are made available through the parliamentary website, http://www.palemene.ws/new/parliament-business/bills/ , but are not made available for formal public comment.  Those who wish to make a comment on the bill are given the opportunity to do so before a Parliamentary Committee.  Public notices are televised and printed in local newspapers for the awareness of the public that there is an avenue to voice their opinions on drafted government policies.

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

Finances and expenditures of the government are published twice on an annual basis, and available through the parliament website.  Debt obligations are published on a quarterly basis by the Samoa Bureau of Statistics through its quarterly reports.

International Regulatory Considerations

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

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

Legal System and Judicial Independence

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

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

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

Laws and Regulations on Foreign Direct Investment

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

Dispute Settlement

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

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

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

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

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

Investment Incentives

The government does not have a history of guaranteeing or financing projects.  In certain circumstances, the government may provide land for certain business projects, or be instrumental in securing land of interest.

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

Research and Development

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

Foreign Trade Zones/Free Ports/Trade Facilitation

Samoa does not have a foreign trade zone.

Performance and Data Localization Requirements

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

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

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

Leasing of Land:

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

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

1. Customary Land: These lands are not for sale but can be leased out to foreigners as well as locals.  All leased lands in this category are registered with the Ministry of Natural Resource and Environment.  In case of dispute, ownership is decided by the Ministry of Justice and Courts Administration.

2. Public Land: The Ministry of Environment and Natural Resources administers the database of government land available for lease.  Applications for leasing of land should be submitted to the Chairman of the Samoa Land Board.

3. Freehold Land: Freehold land cannot be sold or leased to someone who is not a citizen of Samoa, unless except with the proper consent of the Head of State of Samoa.

Intellectual Property Rights

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

To protect and safeguard intellectual property in Samoa, the government has passed the Copyrights Act 1998, which applies to works such as books, pamphlets, articles,

computer programs, speeches, lectures, musical works, audiovisual, and works of architecture.  The Intellectual Property Act 2011 provides protection for intellectual property rights such as trademarks, patents, innovation patents, plat breeder’s rights, design rights, registered designs, geographical indications, and lay-out designs for integrated circuits.

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

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

Capital Markets and Portfolio Investment

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

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

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

Money and Banking System

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

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

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

Foreign Exchange and Remittances

Foreign Exchange

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

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

Remittance Policies

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

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

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

Sovereign Wealth Funds

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

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

SOEs are active in the energy, water, health, tourism, banking, agriculture supplies, and ports/airports sectors.  Laws do not provide for a leading role for SOEs or limit private enterprise activity in sectors in which SOEs operate.  SOEs have government-appointed boards, and operate with varying degrees of autonomy with respect to their governing ministry.

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

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

Privatization Program

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

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

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

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

There are no extractive industries in Samoa.

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

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

Resources to Report Corruption

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

Maiava Iulai Toma
Ombudsman
Samoa Office of the Ombudsman
Central Bank Building, Level 5,  P. O. BOX 303 Apia, Samoa
Telephone: (685) 25394
Email: info@ombudsman.gov.ws

Contact at “watchdog” organization

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

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

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

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

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

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

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

More information can be found through Samoa’s Child Labor Report http://www.dol.gov/ilab/reports/child-labor/samoa.htm , and Human Rights Report https://www.state.gov/reports/2018-country-reports-on-human-rights-practices/samoa/.

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

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

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* From the Samoa Bureau of Statistics GDP December 2018 Quarterly bulletin using an exchange rate of 1USD=2.5WST.

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available.

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